Court Opinion

ID: 2653919
Source: CourtListenerOpinion
Date Created: 2014-02-21 01:01:41.19491+00
Date Added: 2024-06-11T09:14:55.283238
License: Public Domain

FILED
                                                             2/20/2014
 1
                                                       SUSAN M. SPRAUL, CLERK
 2                                                       U.S. BKCY. APP. PANEL
                                                         OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )      BAP No. AZ-13-1106-DPaKu
                                   )
 6   CURTIS CRIPE and              )      Bk. No. 11-09830-SSC
     LAURIE JAYE CRIPE,            )
 7                                 )
                    Debtors.       )
 8   ______________________________)
                                   )
 9   MARTHA GROUT, MD;             )
     and STEVEN SWERDFEGER, Ph.D., )
10                                 )
                    Appellants,    )
11                                 )
     v.                            )      M E M O R A N D U M1
12                                 )
     CURTIS CRIPE;                 )
13   LAURIE JAYE CRIPE,            )
                                   )
14                  Appellees.     )
     ______________________________)
15
                    Argued and Submitted on January 23, 2014
16                              at Tempe, Arizona
17                         Filed - February 20, 2014
18             Appeal from the United States Bankruptcy Court
                         for the District of Arizona
19
        Honorable Sarah Sharer Curley, Bankruptcy Judge, Presiding
20
21   Appearances:     Brian M. Mueller, Esq. of Sherman & Howard, LLC
                      for appellants Martha Grout, MD and Steven
22                    Swerdfeger, Ph.D.; Andre E. Carman, Esq. of
                      Warnock MacKinlay & Carman, PLCC, for appellees
23                    Curtis Cripe and Laurie Jaye Cripe.
24
     Before:   DUNN, PAPPAS and KURTZ, Bankruptcy Judges.
25
26        1
             This disposition is not appropriate for publication.
27   Although it may be cited for whatever persuasive value it may
     have (see Fed. R. App. P. 32.1), it has no precedential value.
28   See 9th Cir. BAP Rule 8013-1.
 1        In deciding a § 523(a)(2)2 exception to discharge claim
 2   asserted against the debtors, the bankruptcy court found the
 3   appellants had not met their burden to prove that debtors’
 4   misrepresentations of academic credentials proximately caused any
 5   loss appellants may have incurred in connection with their
 6   purchase jointly with the debtors of an office building that
 7   ultimately was foreclosed.   We AFFIRM.
 8                                I.   FACTS
 9        Curtis Cripe and his wife, Laurie Jaye Cripe, operated a
10   business known as CrossRoads Institute, Inc. (“CrossRoads”).
11   CrossRoads in turn operated centers in several states at which
12   Mr. Cripe provided services related to brain development,
13   function and ability remediation.
14        Martha Grout is a medical doctor.    Dr. Grout and her
15   husband, Steven Swerdfeger, became acquainted with the Cripes in
16   2001 when they took their minor child to the CrossRoads center in
17   Arizona.   The Cripes represented to Dr. Grout and Mr. Swerdfeger
18   that Mr. Cripe held a Masters Degree in Clinical Psychology from
19   the University of California at Los Angeles and a Ph.D. in
20   Psychology from Saybrook Institute.
21        There is no suggestion in the record that Dr. Grout was
22   dissatisfied with the services provided to her child by either
23   Mr. Cripe or CrossRoads.   To the contrary, in 2002, shortly after
24
25
          2
             Unless otherwise indicated, all chapter and section
26   references are to the federal Bankruptcy Code, 11 U.S.C. §§ 101-
27   1532, all “Rule” references are to the Federal Rules of
     Bankruptcy Procedure, Rules 1001-9037, and all “Civil Rule”
28   references are to the Federal Rules of Civil Procedure.

                                       -2-
 1   she had entered private practice, Dr. Grout began a professional
 2   and business relationship with Mr. Cripe and/or CrossRoads.
 3   Although they maintained separate practices, Dr. Grout and
 4   Mr. Cripe shared referrals and operating expenses under the name
 5   “CrossRoads Clinic.”
 6        When they began working together, Dr. Grout and Mr. Cripe
 7   shared workspace first at Mr. Cripe’s home office, then at space
 8   they leased in the Tatum Building in December 2002.   Ultimately,
 9   in February 2006, Dr. Grout and Mr. Cripe purchased an office
10   building (“Raintree Building”) together.
11        The Raintree Building was purchased by CrossRoads Raintree,
12   LLC (“the LLC”), an entity formed in 2006 to acquire and own the
13   Raintree Building.   Dr. Grout and Mr. Cripe each was a 50% member
14   of the LLC.   Dr. Grout, Mr. Swerdfeger, Mr. Cripe and Mrs. Cripe
15   each signed a personal guaranty in connection with the purchase
16   of the Raintree Building.
17        Dr. Grout thereafter operated her medical practice in
18   one-half of the Raintree Building, and the Cripes operated
19   CrossRoads in the other half of the Raintree Building.    Again,
20   although the practices were separate, Dr. Grout and the Cripes
21   did share operating expenses and engaged in a symbiotic
22   relationship of patient referrals.
23        Sometime after the purchase of the Raintree Building,
24   Dr. Grout learned that Mr. Cripe’s academic credentials had been
25   misrepresented to her.3   Although Mr. Cripe ultimately did obtain
26
          3
27           The record we have is sparse. The only “testimony” in
     our record is that found on pages 40, 41, 45, 53 and 216 from a
28                                                      (continued...)

                                     -3-
 1   a Ph.D. in November 2003, that degree was from Barrington
 2   University, a non-accredited school.   Mr. Cripe’s faculty advisor
 3   for his dissertation in psychology held degrees in Interior
 4   Design, not psychology.   Mr. Cripe’s “attendance” was completely
 5   on-line.
 6        After learning of Mr. Cripe’s actual academic credentials,
 7   Dr. Grout informed all of her professional colleagues and severed
 8   her professional relationship with Mr. Cripe and CrossRoads.   At
 9   some point in time not clear in the record, Mr. Cripe removed his
10   practice from the Raintree Building.
11        As the relationship between the parties deteriorated,
12   litigation ensued.   On July 15, 2008, the Cripes sued Dr. Grout
13   and Mr. Swerdfeger in the Maricopa County Superior Court,
14   asserting that Dr. Grout had interfered with Mr. Cripe’s
15   contractual relations and business expectancies, had improperly
16   retained his client files, and had defamed him.   In the thirteen
17   count state court complaint, the Cripes sought injunctive relief,
18   together with damages and punitive damages in unstated amounts.
19
          3
20         (...continued)
     deposition of Mr. Cripe taken on May 1, 2009, and that found on
21   pages 36-38, 63-64, 68-69, 79-83, 86, 94-100, 116, 120, 122 and
22   124 from the transcript of the trial in the bankruptcy court
     conducted on December 12, 2012.
23          The additional record that was available to the bankruptcy
     court does not appear to have been much more illuminating on many
24
     factual issues. For example, the bankruptcy court determined
25   that Dr. Grout learned in 2008 that Mr. Cripe had misrepresented
     his academic credentials: “And it appears that at some point in
26   time, Dr. Grout found out about these misrepresentations. And
27   the best that the Court can determine is, this . . . would have
     been perhaps, around 2008.” Tr. of Feb. 21, 2013 Hearing
28   14:16-20. (Emphasis added.)

                                     -4-
 1   Dr. Grout and Mr. Swerdfeger filed counterclaims, seeking
 2   unspecified damages based on fraud and fraud in the inducement,
 3   seeking recovery of monetary damages relating to the purchase of
 4   the Raintree Building and the guaranty of the debt for that
 5   purchase, which they asserted proximately resulted from the
 6   misrepresentation of Mr. Cripe’s educational credentials.      The
 7   state court dismissed the Cripes’ complaint with prejudice on
 8   November 17, 2010, and scheduled further proceedings on the
 9   counterclaims.
10           On April 8, 2011, the Cripes filed for bankruptcy protection
11   in a chapter 11 case.    Dr. Grout and Mr. Swerdfeger timely filed
12   an adversary proceeding seeking a determination that damages they
13   suffered as a result of Mr. Cripe’s misrepresentation of his
14   academic credentials were excepted from the Cripes’ discharge.
15   The damages at issue were related to the purchase of the Raintree
16   Building and Dr. Grout and Mr. Swerdfeger’s guarantee of its
17   debt.
18           Trial of the adversary proceeding took place on December 12,
19   2012.    Dr. Grout and Mr. Swerdfeger rested following the
20   presentation of their case, and the Cripes moved for a “directed
21   verdict,” which the bankruptcy court considered as a motion for
22   judgment on partial findings pursuant to Civil Rule 52(c),
23   applicable in the adversary proceeding pursuant to Rule 7052.
24           On February 21, 2013, the bankruptcy court made oral
25   findings of fact and conclusions of law on the record.    The
26   bankruptcy court found that Mr. and Mrs. Cripe did misrepresent
27   Mr. Cripe’s academic credentials to Dr. Grout and Mr. Swerdfeger.
28   However, the bankruptcy court ultimately decided that any loss

                                       -5-
 1   Dr. Grout and Mr. Swerdfeger incurred with respect to the
 2   Raintree Building was not proximately caused by the
 3   misrepresentations.   Accordingly, the bankruptcy court determined
 4   that the Cripes were entitled to discharge any debt they might
 5   owe to Dr. Grout and Mr. Swerdfeger, granted judgment on partial
 6   findings in favor of the Cripes pursuant to Civil Rule 52(c),4
 7   and dismissed the adversary proceeding.      This timely appeal
 8   followed.
 9                            II.   JURISDICTION
10        The bankruptcy court had jurisdiction under 28 U.S.C.
11   §§ 1334 and 157(b)(2)(I).   We have jurisdiction under 28 U.S.C.
12   § 158.
13                               III.    ISSUE5
14        Whether the bankruptcy court erred when it determined that
15   the misrepresentation of Mr. Cripe’s academic credentials was not
16
17
          4
              Civil Rule 52(c) provides -
18
19        Judgment on Partial Findings. If a party has been fully
          heard on an issue during a nonjury trial, and the court
20        finds against the party on that issue, the court may enter
          judgment against the party on a claim or defense that, under
21
          the controlling law, can be maintained or defeated only with
22        a favorable finding on that issue. . . .
23        5
             In their brief on appeal, the Cripes request an award of
     attorneys fees and costs on the basis that both the “action” and
24
     the appeal were taken in bad faith and for purposes of
25   harassment. Attorneys fees were not a matter ruled upon by the
     bankruptcy court. Thus, our review is limited to a request for
26   fees in the appeal. Rule 8020 governs such a request. That rule
27   was not addressed by the Cripes. Accordingly, the request was
     not properly raised, and we do not consider it as an issue in
28   this appeal.

                                        -6-
 1   the proximate cause of any loss Dr. Grout and Mr. Swerdfeger
 2   incurred in connection with the Raintree Building.
 3                          IV.    STANDARDS OF REVIEW
 4            We review questions of fact for clear error.    Rule 8013;
 5   Wall St. Plaza, LLC v. JSJF Corp. (In re JSJF Corp.), 344 B.R.
 6   94, 99 (9th Cir. BAP 2006).      This includes the bankruptcy court’s
 7   finding as to whether a requisite element of a fraud discharge
 8   exception has been proven.      See Anastas v. Am. Sav. Bank
 9   (In re Anastas), 94 F.3d 1280, 1283 (9th Cir. 1996).6      See also
10   Rubin v. West (In re Rubin), 875 F.2d 755, 758 (9th Cir.
11   1989)(the determination of proximate causation is a question of
12   fact reviewed for clear error).       Here, we review for clear error
13   the bankruptcy court’s findings upon which it entered judgment
14   under Civil Rule 52(c).      Ritchie v. United States, 451 F.3d 1019
15   (9th Cir. 2006).
16        We must affirm the bankruptcy court's fact findings unless
17   we conclude that they are “(1) ‘illogical,’ (2) ‘implausible,’ or
18   (3) without ‘support in inferences that may be drawn from the
19   facts in the record.’”       United States v. Hinkson, 585 F.3d 1247,
20   1262 & n.20 (9th Cir. 2009)(en banc).      “Under the ‘clear error’
21   standard, we accept findings of fact unless the findings leave
22   ‘the definite and firm conviction that a mistake has been
23
          6
             The appellants do not assert that the bankruptcy court
24
     selected an improper legal rule and/or applied that rule
25   incorrectly. Thus, the Panel’s review does not fall within the
     standard for mixed questions of law and fact set forth in Murray
26   v. Bammer (In re Bammer), 131 F.3d 788, 791–92 (9th Cir. 1997)
27   (en banc). See generally Cutter v. Seror (In re Cutter),
     466 Fed. Appx. 616 (9th Cir. 2012), for a recent unpublished
28   Ninth Circuit discussion of the distinction.

                                         -7-
 1   committed by the trial judge.’”     Wolkowitz v. Beverly
 2   (In re Beverly), 374 B.R. 221, 230, aff’d in part & dismissed in
 3   part, 551 F.3d 1092 (9th Cir. 2008), citing Latman v. Burdette,
 4   366 F.3d 774, 781 (9th Cir. 2004).
 5                            V.    DISCUSSION
 6        No issue is raised in this appeal that the bankruptcy court
 7   did not identify and apply the correct legal rules in determining
 8   whether § 523(a)(2)(A) should preclude the Cripes’ discharge from
 9   encompassing any claim of Dr. Grout and Mr. Swerdfeger based upon
10   the misrepresentation of Mr. Cripe’s academic credentials.
11   Rather, this appeal concerns only the bankruptcy court’s fact
12   findings, specifically, those findings that informed the
13   bankruptcy court’s determination that the damages asserted by
14   Dr. Grout and Mr. Swerdfeger did not proximately result from the
15   Cripes’ misrepresentation of Mr. Cripe’s academic credentials.
16        The elements of a claim for relief under § 523(a)(2)(A) are
17   well established in the Ninth Circuit.      To prove actual fraud in
18   order to except their claim from the Cripes’ discharge, Dr. Grout
19   and Mr. Swerdfeger were required to establish each of the
20   following elements by a preponderance of the evidence, Grogan v.
21   Garner, 498 U.S. 279 (1991):   (1) The Cripes made the subject
22   representations; (2) at the time they made the subject
23   representations, the Cripes knew the representations were false;
24   (3) the Cripes made the subject representations with the
25   intention of deceiving Dr. Grout and Mr. Swerdfeger;
26   (4) Dr. Grout and Mr. Swerdfeger justifiably relied upon the
27   Cripes’ representations; and (5) Dr. Grout and Mr. Swerdfeger
28   suffered the alleged damages as the proximate result of the

                                       -8-
 1   subject representations having been made.   Ghomeshi v. Sabban
 2   (In re Sabban), 600 F.3d 1219, 1222 (9th Cir. 2010).
 3         Dr. Grout asserts that she never would have entered into the
 4   business arrangement to purchase the Raintree Building with the
 5   Cripes had she known Mr. Cripe had misrepresented his
 6   credentials.    She contends that the mere entry into the financial
 7   relationship resulted in her loss of all funds she ever
 8   contributed toward the Raintree Building and any related
 9   indebtedness.
10         As a general rule, for damages to be the proximate result of
11   a misrepresentation, the subject misrepresentation must have been
12   a “substantial factor” in determining the “course of conduct”
13   that resulted in loss.   Beneficial Cal., Inc. v. Brown
14   (In re Brown), 217 B.R. 857, 862 (Bankr. S.D. Cal. 1998).
15   Further, to establish proximate cause, the loss must reasonably
16   be expected to result from reliance on the misrepresentation.
17   Id.
18         Based on the record before it, the bankruptcy court
19   determined that the financial loss Dr. Grout suffered through her
20   investment in the LLC and/or the Raintree Building could not
21   reasonably be expected to result from Mr. Cripe’s
22   misrepresentation of his academic credentials, and that the
23   misrepresentation was not a substantial factor in determining the
24   course of conduct that resulted in the financial loss.
25         First, and primarily, the LLC Operating Agreement did not
26   require that any party to it hold any particular degree.    In
27   fact, the Operating Agreement authorized the addition of members
28   without making academic degrees a condition of membership.

                                      -9-
 1   Dr. Grout conceded that the services Mr. Cripe performed in his
 2   practice did not require a license or any degree.     Thus, neither
 3   the lack of a degree nor the misrepresentation, alone or
 4   together, could reasonably be expected to result in a loss in a
 5   purely financial relationship, such as the purchase of a building
 6   through a jointly owned limited liability company.7
 7        Second, the evidence Dr. Grout presented at the trial was
 8   not particularly clear regarding the “falling out” between
 9   Dr. Grout and the Cripes, including what caused it and when it
10   occurred.   Specifically, the bankruptcy court could not ascertain
11   from the evidence whether it took place solely because of
12   Dr. Grout’s discovery of the misrepresentation, or whether it was
13   predicated at least in part on serious injuries Mr. Cripe
14   sustained in an automobile accident in 2009.
15        Third, while the evidence establishes that the Cripes at
16   some point vacated the Raintree Building, the bankruptcy court
17   could not determine when that happened other than it likely was
18   in 2009.    Also at some uncertain point in time, Dr. Grout
19   remodeled at least a portion of the Raintree Building.    Dr. Grout
20   and Mr. Swerdfeger presented no evidence to establish (1) whether
21   that remodel occurred while the Cripes still occupied the
22   Raintree Building or (2) the cost of the remodel (other than a
23   rough estimate).
24        Fourth, the record before the bankruptcy court contained
25   evidence of “offers” made by the Cripes to assist Dr. Grout in
26
          7
27           No issue as to the implications of the misrepresentation
     on Dr. Grout’s professional relationship with Mr. Cripe was
28   before the bankruptcy court.

                                      -10-
 1   dealing with the financial implications of their disintegrated
 2   business relationship.   It appears that the Cripes made more than
 3   one offer to purchase Dr. Grout’s interest in the LLC, the
 4   Raintree Building, or both.   Dr. Grout testified she never took
 5   the offers seriously.
 6        After pointing out that the Cripes’ offers to mitigate
 7   damages were rejected out of hand by Dr. Grout, the bankruptcy
 8   court noted that there was no evidence that Dr. Grout made any
 9   effort in three years or more to solve the financial problem
10   created by the end of her business relationship with the Cripes
11   and related to the Raintree Building.   Without explanation in the
12   record as to why, Dr. Grout and Mr. Swerdfeger remained in
13   possession of the Raintree Building until August of 2012, when
14   the Raintree Building was foreclosed upon.   The bankruptcy court
15   commented on the state of the real estate market generally during
16   that period but refused to “speculate” that an unfavorable market
17   condition was what had precluded Dr. Grout from making an attempt
18   to sell the Raintree Building.
19        In their reply brief, appellants challenge the “finding”
20   that the Cripes offered to purchase the Raintree Building.
21   “Nowhere in the record, and in fact, nowhere in real life, did
22   the Cripes ever make any type of offer to the Plaintiffs, fair
23   market value or otherwise, to purchase the Building.   To base a
24   finding of no causation based on an unrealized hypothetical is
25   clearly erroneous.”   Appellants’ Reply Brief at 7:6-9.   We have
26   been provided no record setting forth the content of the offers.
27   Because we do not have the entire record that was before the
28   bankruptcy court, we cannot determine whether there is any merit

                                      -11-
 1   to this assertion.   However, we are entitled to presume that
 2   anything Dr. Grout and Mr. Swerdfeger omitted from the record
 3   they submitted on appeal would not be helpful to their position.
 4   Gionis v. Wayne (In re Gionis), 170 B.R. 675, 680–81 (9th Cir.
 5   BAP 1994).
 6        Also in their reply brief, appellants assert that they had
 7   been trying since the time they filed their counterclaims in the
 8   state court to rescind the purchase of the Raintree Building and
 9   that their loss is to be considered rescission damages.    See
10   generally Appellants’ Reply Brief at 7:14-8:14.     They contend
11   that the Cripes’ bad faith in bringing the state court action and
12   their subsequent filing of the bankruptcy case delayed their
13   ability to “mitigate” the loss.     It is not clear from the record
14   that any issue of “bad faith” in the underlying state court
15   litigation was raised in the bankruptcy court.    Either it wasn’t,
16   in which case it is waived, or it was, but on this record, we
17   cannot review whether the bankruptcy court erred by not giving it
18   due consideration.   As it stands, the bankruptcy court did find
19   that Dr. Grout undertook a remodel of the Raintree Building after
20   Mr. Cripe had vacated his half.     Because appellants provided us
21   no record otherwise, we might assume that the remodel took place
22   at that time so as to refute appellants’ assertions that they
23   were attempting to rescind the purchase.
24        The burden was on Dr. Grout and Mr. Swerdfeger to present
25   sufficient evidence to support a finding of proximate cause.       The
26   foregoing findings of the bankruptcy court sufficiently
27   articulate that intervening factors between the time of the
28   misrepresentation and the ultimate loss raise questions regarding

                                       -12-
 1   whether the misrepresentation alone was a “substantial factor” in
 2   determining the “course of conduct” that resulted in loss, and
 3   whether the loss reasonably could be expected to follow from the
 4   misrepresentation.   Nothing in the record leads us to conclude
 5   that the bankruptcy court’s findings are “(1) ‘illogical,’
 6   (2) ‘implausible,’ or (3) without ‘support in inferences that may
 7   be drawn from the facts in the record.’”     Hinkson, 585 F.3d at
 8   1262 & n.20.   Accordingly, we must AFFIRM.
 9                             VI.   CONCLUSION
10        The bankruptcy court did not clearly err when it found the
11   misrepresentation of Mr. Cripe’s academic credentials (1) was not
12   a substantial factor in determining the course of conduct that
13   resulted in any financial loss to Dr. Grout and Mr. Swerdfeger in
14   connection with their investment in the Raintree Building and
15   (2) could not reasonably be expected to result in that loss.    We
16   AFFIRM.
17
18
19
20
21
22
23
24
25
26
27
28

                                      -13-