The Honorable S. Thomas Anderson, United States District Judge for the Western District *

of Tennessee, sitting by designation. 

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION

File Name: 10a0222n.06

No. 08-1539 

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

In re: BRIAN JAMES LIVINGSTON and

JOAN ELIZABETH LIVINGSTON,

Debtors.

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BRIAN JAMES LIVINGSTON and JOAN

ELIZABETH LIVINGSTON,

Defendants-Appellants,

v.

TRANSNATION TITLE INSURANCE

CO.,

Plaintiff-Appellee.

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ON APPEAL FROM THE UNITED

STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF MICHIGAN

OPINION

Before: GILMAN and GIBBONS, Circuit Judges; and ANDERSON, District Judge.*

JULIA SMITH GIBBONS, Circuit Judge. Brian and Joan Livingston have appealed the

district court’s order affirming a decision by the United States Bankruptcy Court for the Eastern

District of Michigan granting Transnation Title Insurance Co. (“Transnation”) summary judgment

in this adversary proceeding under 28 U.S.C. § 157(b)(2)(I). For the following reasons, we

AFFIRM the decision of the bankruptcy court.
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Livingston v. Transnation Title Ins. Co.

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I.

The bankruptcy court recounted the underlying facts:

The Debtors owned two properties, one located in Northville, Michigan and one

located in Dearborn Heights, Michigan. Each of them was encumbered by a first

mortgage. On March 2, 1999, the Debtors granted a second mortgage on both

properties to Standard Federal Bank to secure a loan in the amount of $166,000. On

November 23, 1999, the Debtors sold the Northville property and conveyed title by

warranty deed. The first mortgage was paid but the Standard Federal Bank mortgage

was not paid. On April 6, 2000, the Debtors sold the Dearborn Heights property and

conveyed title by warranty deed. Again, the first mortgage was paid, but the

Standard Federal Bank mortgage was not. On January 24, 2001, Standard Federal

Bank foreclosed its second mortgage on the two properties. Transnation issued

owner’s title insurance policies to the purchasers of both of these two properties.

Ultimately, Transnation paid the Standard Federal Bank mortgages and became

subrogated to the rights of the purchasers with respect to the two properties.

Transnation Title Ins. Co. v. Livingston (In re Livingston), 368 B.R. 610, 612-13 (Bankr. E.D. Mich.

2007). For at least one of the properties, Joan Livingston held only a dower interest while her

husband, Brian Livingston, was the owner. In general, it appears that Joan left financial matters to

Brian. At the signing of the second mortgage, she merely signed documents as directed by Standard

Federal Bank’s agents. Similarly, at closing, Joan Livingston signed the required documents without

reading them, believing that the closing agent would include the second mortgages in the title

information. She also gave her husband broad power-of-attorney to sign documents releasing her

dower interest and to conclude another closing.

The record establishes the Livingstons’ alleged misrepresentations. As part of the refinancing

transactions, they provided an owner’s affidavit and affidavit of no-encumbrance, both of which

were required by Transnation before it would insure the title to the purchasers. The owner’s

affidavits clearly stated: “The undersigned have no knowledge of any restrictions other than shown
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Livingston v. Transnation Title Ins. Co.

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of record, or easements or claims of easements against said property nor does the undersigned have

any notice of claims or disputes as to boundary lines on said property.” Even though the second

mortgages from Standard Federal Bank were never fully satisfied, the affidavits of no-encumbrance

declared that the Livingstons’ mortgages had been discharged. Relying on these statements,

Transnation then issued title insurance policies to the purchasers. 

In June 2001, Transnation filed suit in Wayne CountyCircuit Court against the Livingstons,

alleging breach of contract, innocent misrepresentation, fraud, and unjust enrichment. In May 2002,

Transnation filed a motion for summary disposition under Mich. Ct. R. 2116(C)(10), which the trial

court granted. The extent of the trial court’s decision was that it “granted Summary Disposition on

Plaintiff’s Complaint in its entirety.” It also dismissed the Livingstons’ counterclaims and set forth

the amount of the judgment. The Livingstons timely appealed, and the Michigan Court of Appeals

affirmed. Transnation Title Ins. Co. v. Livingston, No. 243509, 2004 WL 203075 (Mich. Ct. App.

Feb. 3, 2004). The Michigan Court of Appeals noted inconsistencies in the trial court’s order,

specifically its grant of judgment on both fraud and innocent misrepresentation, but held the error

harmless in light of the evidence supporting the fraud count. Id. at *2-4. The Livingstons did not

seek leave to appeal to the Michigan Supreme Court.

On October 13, 2005, the Livingstons filed a Chapter 7 bankruptcy petition. Soon thereafter,

Transnation filed an adversaryproceeding seeking a determination that the judgment in its favor was

non-dischargeable under 11 U.S.C. § 523(a)(2)(A). At the close of discovery, Transnation filed for

summary judgment, arguing that the state court judgment was preclusive on the issue of fraud. The

bankruptcy court agreed and held that because the elements of a state common law fraud claim are
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Livingston v. Transnation Title Ins. Co.

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virtually identical to those necessary to determine non-dischargeability, the Livingstons were

collaterally estopped from re-litigating the issue of fraud. The Livingstons then timely appealed to

the district court, which affirmed the bankruptcy court opinion in full. 

II.

In a bankruptcy appeal, we review directly the decision of the bankruptcy court. Barlow v.

M.J. Waterman & Assocs., Inc. (In re M.J. Waterman & Assocs., Inc.), 227 F.3d 604, 607 (6th Cir.

2000). We review the bankruptcy court’s legal conclusions de novo and its findings of fact for clear

error. Behlke v. Eisen (In re Behlke), 358 F.3d 429, 433 (6th Cir. 2004). 

The Livingstons argue that the bankruptcy court erred on two fronts. First, they contend that

their debt should have been found dischargeable because Transnation’s allegation of fraud arose out

of the Livingstons’ statements regarding their financial condition. 11 U.S.C. § 523(a)(2)(A).

Second, they assert that the bankruptcy court should not have given collateral estoppel effect to the

state court judgment against them. We disagree.

A. Statements Regarding Financial Condition

Under the bankruptcy laws, an individual is not discharged from any debt in a Chapter 7

proceeding “for money, property, . . . or an extension, renewal, or refinancing of credit to the extent

obtained by–(A) false pretenses, a false representation, or actual fraud, other than a statement

respecting the debtor’s . . . financial condition.” 11 U.S.C. § 523(a)(2)(A). The “financial

condition” exception exempts certain debts from the non-dischargeability provisions of 11 U.S.C.

§ 523(a)(2)(A). 

The Livingstons contend that they are entitled to the protection of the “financial condition”
No. 08-1539

Livingston v. Transnation Title Ins. Co.

See, e.g., Rembert v. AT&T Universal Card Servs., Inc. (In re Rembert), 141 F.3d 277, 280- 1

83 (6th Cir. 1998) (addressing whether a debtor misrepresented her abilityto pay an obligation while

intending to defraud the creditor); Bank One, Lexington, N.A. v. Woolum (In re Woolum), 979 F.2d

71, 73 (6th Cir. 1992) (debtor failed to list all of his debts or liabilities in financial statements);

BancBoston Mortgage Corp. v. Ledford (In re Ledford), 970 F.2d 1556, 1558 (6th Cir. 1992) (debtor

obtained a loan modification without disclosing encumbrances on the collateral). 

-5-

exception because the “closing documents signed by [the Livingstons constituted] statements

respecting their financial condition.” In support of this position, they cite the Michigan Court of

Appeals’ reference to “defendants’ unpersuasive argument that they were uninformed or mistaken

regarding their own financial obligations.”

Although we have not defined exhaustively the boundaries of this exception, it is clear that

the Livingstons’ statements did not concern their financial condition. In the closing documents, the 1

Livingstons represented that theywere unaware of anyother encumbrances on the record title. These

declarations did not list the Livingstons’ financial obligations or document their ability to pay their

creditors. They were not statements respecting their “financial condition.” 

Moreover, the Livingstons’ reliance upon the Michigan Court of Appeals’ comment

regarding their “financial obligations” is misplaced. That court did not purport to apply the nondischargeability provisions of federal bankruptcy law. The court’s reference to “financial

obligations” applies to the second mortgages held by Standard Federal Bank that were not disclosed

to Transnation. In other words, the court was not persuaded that the Livingstons were unaware of

the encumbrances they placed upon the properties they sold. 

B. Collateral Estoppel

Principles of collateral estoppel apply in non-dischargeability actions. See Bay Area Factors
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Livingston v. Transnation Title Ins. Co.

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v. Calvert (In re Calvert), 105 F.3d 315, 318-19 (6th Cir. 1997); Spilman v. Harley, 656 F.2d 224,

227 (6th Cir. 1981) (“That Congress intended the bankruptcy court to determine the final

result–dischargeability or not–does not require the bankruptcy court to redetermine all the underlying

facts.”). “In determining whether to accord preclusive effect to a state-court judgment, we begin

with the fundamental principle that ‘judicial proceedings [of any court of any state] shall have the

same full faith and credit in every court within the United States . . . as they have by law or usage

in the courts of such State . . . from which they are taken.’” Rally Hill Productions, Inc. v. Bursack

(In re Bursack), 65 F.3d 51, 53 (6th Cir. 1995) (alterations in original) (quoting 28 U.S.C. § 1738).

Thus, “a federal court must give to a state-court judgment the same preclusive effect as would be

given that judgment under the law of the State in which the judgment was rendered.” Id. (quoting

Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 81 (1984)); see also Ed Schory & Sons,

Inc. v. Francis (In re Francis), 226 B.R. 385, 388 (B.A.P. 6th Cir. 1998). Accordingly, we look to

Michigan law to determine whether Michigan courts would give the state court judgments in this

case preclusive effect.

The Michigan SupremeCourt has held that “[c]ollateral estoppel precludes relitigation of an

issue in a subsequent, different cause of action between the same parties where the prior proceeding

culminated in a valid, final judgment and the issue was (1) actually litigated, and (2) necessarily

determined.” People v. Gates, 452 N.W.2d 627, 630 (Mich. 1990). Michigan courts have instructed

that an issue “must be identical to that determined in the prior action” to have been actually litigated.

Amalgamated Transit Union, Local 1564, AFL-CIO v. S.E. Mich. Transp. Auth., 473 N.W.2d 249,

254–55 (Mich. 1991). We look beyond the pleadings to consider both the “factual focus” of the
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prior proceedings and “whether the party against whom collateral estoppel is asserted has had a full

and fair opportunity to litigate the issue.” Gates, 452 N.W.2d at 631 (citing Blonder-Tongue Labs.,

Inc. v. Univ. of Ill. Found., 402 U.S. 313, 329 (1971)). For an issue to have been “necessarily

determined,” it must have been “essential to the judgment.” Id. (citing Restatement (Second) of

Judgments § 27 (1982)). “Collateral estoppel applies only where the basis of the prior judgment can

be ascertained clearly, definitely, and unequivocally.” Id. The inability of a court to determine the

basis for the prior judgment “is, by itself, enough to preclude the defense of collateral estoppel.” Id.

Thus, the key questions are whether the issue of fraud was decided by the state courts consistently

with federal bankruptcy law and whether the issue was necessary to their judgment. 

Because fraud in this case is defined by federal bankruptcy law and by state common law in

state court, the “actually litigated” prong of the collateral estoppel analysis requires us first to

determine whether the state law counts adjudicated by the state trial court and the Michigan Court

of Appeals require identical elements to an action under 11 U.S.C. § 523(a)(2)(A). See Jelm v.

Malzeke (In re Malzeke), 56 F.3d 64, 1995 WL 316787, at *1 (6th Cir. 1995) (Table) (holding that

the “fraud issue at stake in the bankruptcy proceeding was identical to that decided in the [Ohio]

state court proceeding” for purposes of 11 U.S.C. § 523(a)(2)(A)). Under 11 U.S.C. § 523(a)(2)(A),

a creditor must meet the following requirements to demonstrate an exception to discharge based on

fraud:

In order to except a debt from discharge under § 523(a)(2)(A), a creditor must prove

the following elements: (1) the debtor obtained money through a material

misrepresentation that, at the time, the debtor knew was false or made with gross

recklessness as to its truth; (2) the debtor intended to deceive the creditor; (3) the

creditor justifiably relied on the false misrepresentation; and (4) its reliance was the
No. 08-1539

Livingston v. Transnation Title Ins. Co.

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proximate cause of the loss.

In re Rembert, 141 F.3d at 280-81 (citing Longo v. McLaren (In re McLaren), 3 F.3d 958, 961 (6th

Cir. 1993)). The third element articulates a subjective reliance standard. Id. at 281 n.2 (citing Field

v. Mans, 516 U.S. 59 (1995)). To prove intent, the creditor must show “actual or positive fraud, not

merely fraud implied by law,” meaning that the debtor must have acted “maliciously and in bad

faith.” Id. at 281 (citations and quotation marks omitted); see also Sanderson Farms, Inc. v.

Gasbarro, 299 F. App’x 499, 505-06 (6th Cir. 2008) (holding that collateral estoppel did not apply

where the state court’s rulings regarding fraud were “internally inconsistent”). To prevail, “a creditor

must prove each of these elements by a preponderance of the evidence.” In re Rembert, 141 F.3d at

281.

Under Michigan law, actionable fraud requires: 

(1) That defendant made a material representation; (2) that it was false; (3) that when

[the defendant] made it he knew that it was false, or made it recklessly, without any

knowledge of its truth and as a positive assertion; (4) that [the defendant] made it

with the intention that it should be acted upon by plaintiff; (5) that plaintiff acted in

reliance upon it; and (6) that [plaintiff] thereby suffered injury. 

Hi-Way Motor Co. v. Int’l Harvester Co., 247 N.W.2d 813, 816 (Mich. 1976). “Fraud will not be

presumed but must be proven by clear, satisfactory and convincing evidence.” Id. We note that

bankruptcy courts in Michigan have held uniformly that the elements of a fraud claim under

Michigan law are identical to those necessary to determine non-dischargeability under 11 U.S.C. §

523(a)(2)(A). Building Commc’ns, Inc. v. Rahaim (In re Rahaim), 324 B.R. 29, 36 (Bankr. E.D.

Mich. 2005);Robinson v. Callender (In re Callender), 212 B.R. 276, 281 (Bankr. W.D. Mich. 1997);

Cresap v. Waldorf (In re Waldorf), 206 B.R. 858, 863 (Bankr. E.D. Mich. 1997). 
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We need not determine, however, as a matter of law, whether the elements of fraud under

Michigan law are identical to the higher federal “gross recklessness” standard for nondischargeability under 11 U.S.C. § 523(a)(2)(A) because, in affirming the state trial court on the

fraud count, the Michigan Court of Appeals repeatedly invoked the Livingstons’ knowledge of their

misrepresentations. The state courts relied on four undisputed facts in the record that conclusively

establish fraud under the bankruptcy-law standard. First, it noted that “the retention and expenditure

of monies by defendants that should have been used to discharge the second mortgage, coupled with

defendants’ unpersuasive arguments that they were uninformed or mistaken regarding their financial

obligations, are sufficient to establish fraud.” Second, the court emphasized Joan Livingston’s

“purposeful ignorance” of the terms of the documents she was signing as evidence of fraud. Third,

again emphasizing that “she elected to remain ignorant,” the court found that Joan Livingston’s

“failure to affirmatively take steps to make certain she was properly informed regarding the

documents she was signing do not excuse her from liability . . . particularly when she received a

monetary benefit.” Finally, the court dismissed Joan Livingston’s assertion that the power-ofattorney she granted to her husband negated an inference of fraud on her part. It found that the

power-of-attorney was “a broad grant of authority and power and was unambiguous in granting

authority to do all acts necessary to convey her interest in the subject property. Joan Livingston

retained the monetary benefit from her attorney-in-fact’s exercise of authority and never disclaimed

his actions.” That the Livingstonssigned owner’s affidavits and affidavits of no-encumbrance only

bolsters these conclusions. 

Thus, on the strength of the state court rulings and factual findings, we conclude that the
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Livingstons’ conduct evinced the “bad faith” and “actual or positive fraud” required by 11 U.S.C.

§ 523(a)(2)(A) for a finding of “gross recklessness.” See In re Rembert, 141 F.3d at 281-82. Thus,

the parties actually litigated the issue of fraud before the state courts, and the Michigan Court of

Appeals adjudicated it consistently with the standard of “gross recklessness” required for a finding

of non-dischargeability on grounds of fraud under 11 U.S.C. § 523(a)(2)(A).

We now turn to whether the issue of fraud was necessary to the state courts’ judgments. The

Livingstons argue that the finding of fraud was not “clearly, definitely, and unequivocally” necessary

to the state court judgment because the trial court made no findings of fact and the Michigan Court

of Appeals affirmed the trial court on alternative and independent grounds. See Gates, 452 N.W.2d

at 631.

The Michigan Supreme Court has held:

A judgment affirmed on appeal has conclusive effect, but if the appellate court

affirms on grounds that differ from those relied upon by the lower court, the

conclusiveness of the judgment as res judicata and as collateral estoppel are

governed by the appellate decision. Thus if the trial court rests its judgment on two

grounds, each of which is independently adequate to support it, the judgment is

conclusive as to both; but i[f] the appellate court affirms on one ground without

passing on the other, the second ground is no longer conclusively established under

the collateral estoppel doctrine.

Amalgamated Transit Union, 473 N.W.2d at 255 (emphasis added, alteration in original) (citing 1B

James Wm. Moore et al., Moore’s Federal Practice ¶ 0.416(2)); see also Barber v. Regents of the

Univ. of Mich., No. 250596, 2005 WL 1335132, at *10 (Mich. Ct. App. June 7, 2005) (applying

Amalgamated Transit Union). The bankruptcy court properly relied upon the decision of the
No. 08-1539

Livingston v. Transnation Title Ins. Co.

The bankruptcy court improperly relied upon Jean Alexander Cosmetics, Inc. v. L’Oreal 2

USA, Inc., 458 F.3d 244 (3d Cir. 2006), in conducting its analysis. That case dealt with the collateral

estoppel effect of an administrative finding by a federal agency. Id. at 256-57. Because federal

courts must apply state law in determining the collateral estoppel effect of state court judgments, the

bankruptcy court should have looked to Amalgamated Transit Union for guidance. In re Bursack,

65 F.3d at 53. However, we reach the same conclusions as the bankruptcy court. 

-11-

Michigan Court of Appeals in applying collateral estoppel. The Michigan Court of Appeals clearly

2

and unequivocally affirmed the judgments of fraud and breach of contract “without passing” on the

other grounds and held the inconsistencies in the trial court’s decision to be harmless error. See

Amalgamated Transit Union, 473 N.W.2d at 255. Thus, under Amalgamated Transit Union and

Gates, the bankruptcy court properly gave preclusive effect on an issue decided by the state courts

that was necessary to their judgment. 

III.

For the foregoing reasons, we AFFIRM.