Allied Supermarkets, Inc., In re
| Decision Date | 22 January 1992 |
| Docket Number | No. 90-1826,90-1826 |
| Citation | 951 F.2d 718 |
| Parties | In re ALLIED SUPERMARKETS, INC., a Michigan corporation, Debtor. Albert SEMAAN, Al Semaan, Inc., a Michigan corporation d/b/a Food Center Supermarket, Inc., a dissolved Michigan corporation; Food Shoppers, Inc., a dissolved Michigan corporation; and Food Center Supermarket-Six Mile Limited, a dissolved Michigan corporation, jointly and severally, Belair Supermarket, Inc.; Semaan's Market, Inc.; Belair Supermarket, Inc., # 2; Thomas Simaan, individually and d/b/a Chrystal Palace; Tony Semaan and Ruth Semaan, his wife; and Peter Semaan, jointly and severally, Plaintiffs-Appellees, v. ALLIED SUPERMARKETS, INC., Defendant-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Alan M. Greene, Daniel P. Stella (argued), Kathleen McCree Lewis (briefed), Dolores Nunez, Dykema, Gossett, Spencer, Goodnow & Trigg, Detroit, Mich., for plaintiffs-appellees.
Norman C. Ankers (briefed), James K. Robinson (argued), Honigman, Miller, Schwartz & Cohn, Detroit, Mich., for defendant-appellant.
Before RYAN and NORRIS, Circuit Judges, and ALLEN, Senior District Judge. *
Defendant Allied Supermarkets appeals the judgment of the district court affirming the order of the bankruptcy court finding Allied liable for fraud and dismissing Allied's counterclaims against Albert Semaan and Thomas Simaan for debts owed on personal guaranties. The issues raised on appeal are:
1) Whether the original bankruptcy trial court erred in finding Allied liable for fraud;
2) Whether the successor bankruptcy court abused its discretion in failing to grant Allied's motion for new trial;
3) Whether the successor bankruptcy court made additional liability findings in violation of this court's earlier mandate on remand;
4) Whether the bankruptcy court erred in concluding that the plaintiffs' judgments were not dischargeable under Allied's reorganization plan; and
5) Whether the bankruptcy court erred in dismissing Allied's counterclaims against Albert Semaan and Thomas Simaan for debts owed on personal guaranties.
For the reasons expressed below, we affirm the judgment of the district court in all respects.
The plaintiffs in this appeal include various members of a family of Iraqi immigrants. This opinion shall refer to them collectively as the Semaans. The Semaans emigrated to the United States from Iraq and settled in the Detroit area, where they began operating grocery stores. In 1966, they commenced a business relationship with the defendant, Allied Supermarkets, a large wholesale supplier of groceries and merchandise.
As part of its sales service, Allied offered to its customers, including the Semaans, a complete marketing program. Under this program, Allied determined the level of competition in a given customer's geographic region and, based on that determination, recommended specific retail prices for all the goods that it supplied to the customer. This information was provided to the customer on two separate computer printouts. The first printout accompanied the shipment of the goods and the second was received by the customer about a week after delivery. The information contained in these printouts is at the core of the dispute in this case.
The printout that accompanied the shipment described the items in the shipment, set forth the total cost to the grocer and the total retail sales price if the grocer followed the suggested retail pricing scheme, and, under the term "gross profit," provided a percentage figure. It did not explain the basis for this gross profit percentage. In fact, it represented the profit as a percentage of retail sales, taking into account only the cost of the groceries and not certain other incidental fees charged by Allied for such items as freight, service, and labeling. This printout did not indicate these fees, although they did appear on the printout that was received later.
The second printout arrived about a week after the delivery and was a more comprehensive billing. It provided a detailed breakdown of the product costs. First, it separated the products into a number of categories, such as "dairy," "meat," and "produce." Second, it broke down the costs for each of these categories of products into a number of columns. In addition to indicating the total "product cost" and retail sales return, if Allied's pricing scheme was followed, for each category of products, this printout itemized additional costs to the grocer, including service and freight charges and labeling fees. The last column in this section of the printout indicated the "total billing" which was the sum of the total product costs, the service and freight charges, and the labeling fees.
In a separate section, the printout provided gross profit information. In this section, the following information was set out in columns: the total product cost, the retail sales return, if Allied's pricing scheme was followed, the gross profit in dollars, and a gross profit percentage. The printout did not indicate the basis for the gross profit calculations. In fact, the gross profit numbers represented the difference between the retail sales and the total product cost. Significantly, the total product cost did not include Allied's charges for service, freight, and labeling. The gross profit percentage was determined by dividing the gross profit by the retail sales.
The Semaans continued to do business with Allied under this billing scheme until 1978. In 1978, Tony Semaan was in default on a bank loan for a supermarket in Highland Park, Michigan. He told the bank that he could not explain his cash flow problems and did not understand why he was not making more money. After carefully reviewing the Allied printouts, the bank informed Semaan that the gross profit figures prepared by Allied did not reflect the incidental fees charged by Allied for freight, service, and labeling, and that, as a result, he was making somewhere between three and five percent less than he thought he was.
After Tony Semaan shared this information with the other Semaans, they terminated their business relationship with Allied and brought an action in state court, alleging, among other things, fraud and misrepresentation by Allied in its statement of the gross profit figures. When the Semaans learned that Allied had instituted Chapter XI reorganization proceedings 1 in bankruptcy court, they filed proofs of claims. Allied subsequently asserted counterclaims against the corporate plaintiffs for money owed Allied on merchandise delivered to stores operated by the Semaans, and against certain of the Semaans (individually), including Albert Semaan and Thomas Simaan, on personal guaranties they allegedly made on the corporate debts.
The bankruptcy court conducted a trial on the liability issue of the Semaans' claims and on both the liability and damages issues of Allied's counterclaims. Ruling from the bench, Judge Harry Hackett found Allied liable, holding that Allied's computation of the gross profit figures, without including the incidental costs, "was a misrepresentation by the defendant ... it was material, upon which [plaintiffs] reasonably relied." The court also found that Allied's conduct was intentional, explaining that "[i]t is intentional to the extent that I am saying that this is gross profit and it is a representative figure of gross profit and you believe it."
Upon Allied's request, Judge Hackett reopened the proceedings to hear additional testimony. Following this testimony, Judge Hackett again ruled from the bench and adopted his previous findings, noting that "[t]he way the transaction was handled, the entire matter, based upon the facts, the entire facts and all of the circumstances in this case, it is inconceivable for anyone to find that there was not a misrepresentation here." The court further held that Albert Semaan and Thomas Simaan were not personally liable on the debts owed to Allied.
Before the matter proceeded further, Judge Hackett retired from the bench, and the case was assigned to Judge George Woods. Following this reassignment, Allied moved for a new trial, and Judge Woods granted it because "there was yet no final judgment and because 'substantial justice' required a rehearing." Judge Woods refused, however, to rehear the evidence and so the "new trial" consisted of a consideration of the record made at the 1980 trial. After reviewing the 1980 trial record, Judge Woods made extensive written findings of fact and conclusions of law, holding that plaintiffs had not carried their burden of proving intentional misrepresentation. He then dismissed the suit against Allied and found plaintiffs liable on Allied's counterclaims.
The Semaans appealed Judge Woods' decision to the United States District Court. The district court affirmed, finding that Judge Woods had not abused his discretion in ordering a new trial and holding that "Judge Woods' findings of fact are not clearly erroneous and, indeed, are more than substantially supported by the record."
The Semaans then appealed the district court's decision to this court, which reversed, holding that although it was within the successor bankruptcy judge's discretion to grant a new trial under Fed.R.Civ.P. 63, he should have accorded the parties "the right to present the witnesses' live testimony to the successor judge so that he may be in a position to judge their credibility in reaching a decision."
By the time the case returned to the bankruptcy court on remand, yet a third judge had been assigned to the case, Judge Ray Reynolds Graves. Judge Graves denied Allied's second motion for a new trial, holding that "[a]bsent special circumstances, a successor judge may not overrule a decision of the first." The court found no such special circumstances and upheld Judge Hackett's original determination that Allied was liable to the Semaans for...
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