NOT RECOMMENDED F OR F ULL-TEXT PUBLICATION F ile Nam e: 12a0107n.06 No. 10-2242 UNITED STAT ES COURT OF AP P EALS F OR THE S IXTH CIRCUIT

I n re ROB ERT M. GRENI ER and GERTRUDE A. GRENI ER, Debtors.

CRAI G R. NEHASI L and DON NA E. NEHASI L , as Ne x t Frie nd of Richar d J

. Neha sil, Timot hy

R. Nehasil and Christopher P. Nehasil, Plaintiffs-Appellee s,

v. ROBERT M. GRENI ER and GERTRUDE A. GRENI ER, Def endants-A

ppellants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ON APPEALFROM THE U NI TED STATES DI STRI CT COURT FOR THE EASTERN DI STRI CT OF MI CHI GAN

Be fore : BOG GS, ROGERS and SUTTON, Circuit J udg es.
SUTTON, Circuit J udg e. After Robert and Ger trude Gre nier sold the ir house to Cra ig and
Donna Neha sil, the Neha sils discove red defe cts in the house that the Gre niers had c oncea led from them (and f

rom a previous would-be buy er) . The Ne hasils sued for f raud in Michig an state c ourt, winning near ly $300,000. When the Gre niers soug ht to discharg e that judgme nt in their Chapter 7 b an k ru p t cy proce eding , the Neha sils sued to stop them. The bankruptc y and district courts s i d ed with the Neha sils and deemed the fra ud judgme nt nondischarg eable . We affir m.No. 10-2242

In re Gre nier I

. I n Dec ember 1997, the Neha sils expressed interest in buy ing the Gre niers’ house in Canton, Michig an. They asked the Gre niers if there wer e any noteworthy defe cts in the h o u s e, and the Gre niers reported none. The Nehasil s p u rchased the proper ty

. They soon discovere d a variety of problems with the house, including water damag e, rotting floors, insect infestation, faulty elec trical wiring , and fake water fi x t u res not hooked up to the household plumbing sy stem. When they investiga ted further , the Neha sils lear ned they wer e not the first ones to fac e this predic ament. The Gre niers had previously sold the house to Hilda Maxwell, who had sued them upon lear ning of the house’s poor condition and had ultimately g otten her money back. The Neha sils took the same tack,

an d i n Ap ril 2004 a Michig an jury found the Gre niers liable for fra ud, awa rding $294,563. 7 4 i n damag es and c osts. The Gre niers filed for bankruptc y . They first sough t to file under Chapter 13, but the bankruptc y court found them ineligible beca use t h eir debts exceede d the statutory limit

. See 11 U.S.C. § 109(e)

. They then tried Chapter 7, filing a petition with the bankruptc y court in Dec ember 2008. Two months later, the Neha sils filed a complaint in the bankruptc y co u rt, seeking a decla ration that the Gr e n ie r s could not discharg e the judgme nt ag ainst them beca use it stemmed from fra ud. See 11 U.S.C. § 523(a) (2)( A). The bankruptc y court ag ree d on collater al-e stoppel g rounds, finding that the state-c ourt fra ud judgme nt entitled the Neha sils to summary judgme nt. The district
court a ffirme d. In re Gre nier , 430 B.R. 446 (E.D . Mich. 2010).

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In re Gre nier I I

. At issue is a provision of the Ba nkruptcy C o d e t h at makes nondischarg eable any debt for
money or proper

ty “obtained by

. . . false prete nses, a false repr esenta tion, or actua l fra ud, other than

a statement respe cting the debtor’s or an insider’s financ ial condition.” 11 U.S.C. § 523(a) (2)( A). The Neha sils arg ue, and the courts below held, that this provision applies to the state-c ourt judgme nt
ag ainst the Gre niers. We ag ree . To exclude a debt from discharg e under this provision, a cre ditor must establish four things: (1) the debtor obtained money throug h a materia l misrepre sentation that, at the time, the debtor k n ew wa s false or made with g ross rec klessness as to its truth; (2) the debtor intended to dece ive the cre ditor; (3) the cre ditor justifiably relied on the false repr esenta tion; and (4) its relianc e wa s the proxim ate c ause of loss.
In re Rembe rt , 141 F.3d 277, 280–81 (6th Cir. 1998). The Gre niers claim that the first require ment is missing here , rea soning that Michig an law has a differ ent mental-state standard from the
Ba nkruptcy Code. Whil e t h e state tort of fra ud imposes liability on defe ndants who are rec kless about the truth of the statements they make, the fede ral standard require s at least g ross rec klessness. C o mp a r e id. at 280 with Hi-W ay Motor Co. v. Int’l Harve ster Co. , 247 N.W.2d 813, 816 (M i ch

. 1976). As a result, the Greniers urge , the M ichig an fraud judgment aga inst them does not suffice under § 523(a) (2)( A), beca use the Michig an jury might have found them l i ab l e b ased only on

rec klessly false statements, not statements made with g ross rec klessness o r knowledg e of their falsity

. That ar g ument might have s ome force if all we had to g o on wer e the fact of the Gre niers’ liability for fra

ud. But we have more. I n finding the Gre n i er s liable, the Michig an jury made

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In re Gre nier specific fac tual finding s. I t ans wered “y es” to the question whether the Gre niers had “ac tual knowledg e” of the materia l fac ts about the condition of their home that they failed to disclose. R.24 (B ankr. E.D . Mich. No. 09-04351) Ex . C at 29. Michig an collater al-e stoppel law, applicable here , see M igra v. W arren City Sch. Dist. Bd. of Educ. , 465 U.S. 75, 81 (1984), “bar s the relitig ation of issues previously decide d when such issues

are raised in a subsequent suit by the s ame parties.” Knoblauch v. K enyon , 415 N.W.2d 286, 288 (Mich. Ap p . 1 9 8 7). The party invoking collater al estoppel must show four things: (1) the same parties wer e involv ed i n b oth proce eding s; (2) the issue was litigated and resolved in the first
proce eding ; (3) the party ag ainst whom the issue was decide d in the first proce eding “had a full and fair opportunity to litigate the issue”; and (4) i t m u s t b e “cle ar[ ], definite[ ], and unequivoca l[ ]” fr o m t h e rec ord of the first proce eding how the issue was decide d. People v. Gates , 452 N.W.2d 627, 630–31 (Mich. 1990). The Neha sils have shown all four, and acc ording ly the jury ’s finding that the Gre niers knew of the defe cts in their hom e preve nts them from relitig ating the issue now. I ndeed, we have previously rec og nized that, if the state court rec ord “invoke[s] the [defendan t s ’] knowledg e of their misrepre sentatio n s , ” as is true here , collater al estoppel may apply even if the
Ba nkruptcy Code’s g ross-re cklessness standard is highe r than its counter part in Michig an common law fra ud. See In re Livingston , 372 F. App’x 613, 619 (6th Cir. 2010). As in Livingston , we need not decide w hether

the B ankruptc y

Code’s standar d is identical to Michiga n’s. The Gre niers make one other arg ument: that the fra ud exception does not apply beca use the Neha sils did not show that the Gre niers rec eived any money from the fra u d

. Br

. at 12–13; see Rembe rt , 141 F.3d a

t 280 (cre ditor must show that “the de btor obtained money throug h a mater ial - 4 -No. 10-2242

In re Gre nier misrepre sentation”). But this claim, too, is undone by the Michig an verdic t: the jury found that the Gre niers’ misrepre sentations and omissions wer e a proxi mate cause of the Neha sils’ decision to buy the house at the price they paid. R.24 (B ankr. E.D. Mich. No. 09-04351) Ex

. C at 28–29. There is

no question that the Gre niers obtai n ed m o n ey from the Neha sils as a result of their fra ud. As a result, we need not decide whether such a showing is require d in the first place

. Compare Rembe rt , 141 F.3d a t 280, with C ohen v. de la Cruz , 523 U.S. 213, 215, 217–18 (1998). Also unavailing is the Gre niers’ appea l from the denial of their motion to dismiss for failure
to state a claim. Thoug h the Neha sils’ complaint could have been more detailed, it made ref ere nce
to and incorpora

ted the state court judgme nt, providing sufficie nt notice to the Gre niers of the nature of the fra ud char g e ag ainst them. See Fe d. R. Civ. P. 9(b); Chesbrough v. VPA, P.C. , 655 F.3d 461, 466 (6th Cir. 2011).
I I I

. For these re asons, we a ffirm.

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