Court Opinion

ID: 621805
Source: CourtListenerOpinion
Date Created: 2012-01-31 15:11:07+00
Date Added: 2024-06-11T09:14:31.740117
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                          File Name: 12a0107n.06

                                         No. 10-2242                                  FILED
                                                                                  Jan 31, 2012
                         UNITED STATES COURT OF APPEALS
                                                                            LEONARD GREEN, Clerk
                              FOR THE SIXTH CIRCUIT

In re ROBERT M. GRENIER and                 )
GERTRUDE A. GRENIER,                        )
                                            )
       Debtors.                             )
                                            )      ON APPEAL FROM THE UNITED
                                            )      STATES DISTRICT COURT FOR THE
CRAIG R. NEHASIL and DONNA E.               )      EASTERN DISTRICT OF MICHIGAN
NEHASIL, as Next Friend of Richard J.       )
Nehasil, Timothy R. Nehasil and Christopher )
P. Nehasil,                                 )
                                            )
       Plaintiffs-Appellees,                )
                                            )
v.                                          )
                                            )
ROBERT M. GRENIER and GERTRUDE A. )
GRENIER,                                    )
                                            )
       Defendants-Appellants.               )

       Before: BOGGS, ROGERS and SUTTON, Circuit Judges.

       SUTTON, Circuit Judge. After Robert and Gertrude Grenier sold their house to Craig and

Donna Nehasil, the Nehasils discovered defects in the house that the Greniers had concealed from

them (and from a previous would-be buyer). The Nehasils sued for fraud in Michigan state court,

winning nearly $300,000. When the Greniers sought to discharge that judgment in their Chapter 7

bankruptcy proceeding, the Nehasils sued to stop them. The bankruptcy and district courts sided

with the Nehasils and deemed the fraud judgment nondischargeable. We affirm.
No. 10-2242
In re Grenier

                                                  I.

       In December 1997, the Nehasils expressed interest in buying the Greniers’ house in Canton,

Michigan. They asked the Greniers if there were any noteworthy defects in the house, and the

Greniers reported none. The Nehasils purchased the property. They soon discovered a variety of

problems with the house, including water damage, rotting floors, insect infestation, faulty electrical

wiring, and fake water fixtures not hooked up to the household plumbing system. When they

investigated further, the Nehasils learned they were not the first ones to face this predicament. The

Greniers had previously sold the house to Hilda Maxwell, who had sued them upon learning of the

house’s poor condition and had ultimately gotten her money back. The Nehasils took the same tack,

and in April 2004 a Michigan jury found the Greniers liable for fraud, awarding $294,563.74 in

damages and costs.

       The Greniers filed for bankruptcy. They first sought to file under Chapter 13, but the

bankruptcy court found them ineligible because their debts exceeded the statutory limit. See 11

U.S.C. § 109(e). They then tried Chapter 7, filing a petition with the bankruptcy court in December

2008. Two months later, the Nehasils filed a complaint in the bankruptcy court, seeking a

declaration that the Greniers could not discharge the judgment against them because it stemmed from

fraud. See 11 U.S.C. § 523(a)(2)(A). The bankruptcy court agreed on collateral-estoppel grounds,

finding that the state-court fraud judgment entitled the Nehasils to summary judgment. The district

court affirmed. In re Grenier, 430 B.R. 446 (E.D. Mich. 2010).

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No. 10-2242
In re Grenier

                                                      II.

           At issue is a provision of the Bankruptcy Code that makes nondischargeable any debt for

money or property “obtained by . . . false pretenses, a false representation, or actual fraud, other than

a statement respecting the debtor’s or an insider’s financial condition.” 11 U.S.C. § 523(a)(2)(A).

The Nehasils argue, and the courts below held, that this provision applies to the state-court judgment

against the Greniers. We agree.

           To exclude a debt from discharge under this provision, a creditor must establish four things:

           (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
           representation; and (4) its reliance was the proximate cause of loss.

In re Rembert, 141 F.3d 277, 280–81 (6th Cir. 1998). The Greniers claim that the first requirement

is missing here, reasoning that Michigan law has a different mental-state standard from the

Bankruptcy Code. While the state tort of fraud imposes liability on defendants who are reckless

about the truth of the statements they make, the federal standard requires at least gross recklessness.

Compare id. at 280 with Hi-Way Motor Co. v. Int’l Harvester Co., 247 N.W.2d 813, 816 (Mich.

1976). As a result, the Greniers urge, the Michigan fraud judgment against them does not suffice

under § 523(a)(2)(A), because the Michigan jury might have found them liable based only on

recklessly false statements, not statements made with gross recklessness or knowledge of their

falsity.

           That argument might have some force if all we had to go on were the fact of the Greniers’

liability for fraud. But we have more. In finding the Greniers liable, the Michigan jury made

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No. 10-2242
In re Grenier

specific factual findings. It answered “yes” to the question whether the Greniers had “actual

knowledge” of the material facts about the condition of their home that they failed to disclose. R.24

(Bankr. E.D. Mich. No. 09-04351) Ex. C at 29.

       Michigan collateral-estoppel law, applicable here, see Migra v. Warren City Sch. Dist. Bd.

of Educ., 465 U.S. 75, 81 (1984), “bars the relitigation of issues previously decided when such issues

are raised in a subsequent suit by the same parties.” Knoblauch v. Kenyon, 415 N.W.2d 286, 288

(Mich. App. 1987). The party invoking collateral estoppel must show four things: (1) the same

parties were involved in both proceedings; (2) the issue was litigated and resolved in the first

proceeding; (3) the party against whom the issue was decided in the first proceeding “had a full and

fair opportunity to litigate the issue”; and (4) it must be “clear[ ], definite[ ], and unequivocal[ ]”

from the record of the first proceeding how the issue was decided. People v. Gates, 452 N.W.2d
627, 630–31 (Mich. 1990). The Nehasils have shown all four, and accordingly the jury’s finding that

the Greniers knew of the defects in their home prevents them from relitigating the issue now.

Indeed, we have previously recognized that, if the state court record “invoke[s] the [defendants’]

knowledge of their misrepresentations,” as is true here, collateral estoppel may apply even if the

Bankruptcy Code’s gross-recklessness standard is higher than its counterpart in Michigan common

law fraud. See In re Livingston, 372 F. App’x 613, 619 (6th Cir. 2010). As in Livingston, we need

not decide whether the Bankruptcy Code’s standard is identical to Michigan’s.

       The Greniers make one other argument: that the fraud exception does not apply because the

Nehasils did not show that the Greniers received any money from the fraud. Br. at 12–13; see

Rembert, 141 F.3d at 280 (creditor must show that “the debtor obtained money through a material

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No. 10-2242
In re Grenier

misrepresentation”). But this claim, too, is undone by the Michigan verdict: the jury found that the

Greniers’ misrepresentations and omissions were a proximate cause of the Nehasils’ decision to buy

the house at the price they paid. R.24 (Bankr. E.D. Mich. No. 09-04351) Ex. C at 28–29. There is

no question that the Greniers obtained money from the Nehasils as a result of their fraud. As a

result, we need not decide whether such a showing is required in the first place. Compare Rembert,
141 F.3d at 280, with Cohen v. de la Cruz, 523 U.S. 213, 215, 217–18 (1998).

       Also unavailing is the Greniers’ appeal from the denial of their motion to dismiss for failure

to state a claim. Though the Nehasils’ complaint could have been more detailed, it made reference

to and incorporated the state court judgment, providing sufficient notice to the Greniers of the nature

of the fraud charge against them. See Fed. R. Civ. P. 9(b); Chesbrough v. VPA, P.C., 655 F.3d 461,

466 (6th Cir. 2011).

                                                 III.

       For these reasons, we affirm.

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