Bilzerian v. Bilzerian

• Decision Date: 03 December 1996
• Docket Number: No. 95-2988, Non-Argument Calendar.,95-2988, Non-Argument Calendar.
• Citation: 100 F.3d 886,37 Collier Bankr. Cas. 2d (MB) 234
• Parties: In re Paul A. BILZERIAN, Debtor. HSSM # 7 LIMITED PARTNERSHIP, Plaintiff-Appellee, v. Paul A. BILZERIAN, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

100 F.3d 886

Bankr. L. Rep. (CCH) P77, 182

37 Collier Bankr. Cas. 2d (MB) 234

In re Paul A. BILZERIAN, Debtor. HSSM # 7 LIMITED PARTNERSHIP, Plaintiff-Appellee,

v.Paul A. BILZERIAN, Defendant-Appellant.

No. 95-2988, Non-Argument Calendar.

UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

Decided: December 3, 1996

ATTORNEY(S) FOR APPELLANT(S): Paul A. Bilzerian, pro se Tampa, FL.

ATTORNEY(S) FOR APPELLEE(S): Mary R. Houston, Orlando, FL.

Before KRAVITCH, COX and DUBINA, Circuit Judges.

PER CURIAM

In this case, the district court reversed the bankruptcy court's holding that a fraud judgment debt owed by appellantPaul A. Bilzerian("Bilzerian") to appellee HSSM # 7 Limited Partnership("HSSM") was dischargeable.Bilzerian, a Chapter 7 debtor, appeals pro sethe district court's reversal of the bankruptcy court's holding.Because we conclude that Bilzerian received a benefit from his fraud, and that collateral estoppel prevents relitigation of the necessary elements of fraud under 11 U.S.C. § 523(a)(2)(A), we affirm the district court's judgment.

I.BACKGROUND

HSSM brought suit against Bilzerian and Bicoastal Financial Corporation("BFC") in the United States District Court for the Northern District of Texas.In its fifth amended complaint, HSSM alleged that Bilzerian made a series of misrepresentations to HSSM to induce HSSM to invest $20.4 million in Suncoast Partners Limited Partnership("Suncoast").Such representations involved Bilzerian's skill and expertise in securities transactions and his agreement to repurchase HSSM's interest in Suncoast.The latter agreement, known as "the put, " entailed Bilzerian's contracted agreement to purchase HSSM's interest in Suncoast at HSSM's election.The district court in Texas found that this arrangement:

was a specifically negotiated contract provision resulting from the clear understanding of the parties that plaintiff HSSM needed the opportunity to have liquidity from its investment in Suncoast on an annual basis or it would not make the investment.Without Section 5.6 in the partnership agreement HSSM would not have become a partner in Suncoast.

Findings of Fact and Conclusions of Law, BR42, Ex. Fat 1-2.

The case was tried to a jury, which answered special interrogatories and returned a verdict in favor of HSSM and against Bilzerian and BFC, jointly and severally.The Texas district court entered judgment on the jury's verdict, and concluded that Bilzerian and BFC were guilty of actual fraud.Moreover, the district court rescinded the partnership agreement and ordered Bilzerian and BFC, jointly and severally, to pay HSSM $19.839 million in compensatory damages, $1.224 million in punitive damages, and post-judgment interest to accrue at the rate of 6.46 percent per annum.The court subsequently amended its judgment to correct a clerical error.The amended judgment awarded $26,861, 312.78 in compensatory damages and prejudgment interest, and the punitive damage award and rate of post-judgment interest remained the same.On February 24, 1992, the district court filed its Findings of Fact and Conclusions of Law.The Fifth Circuit Court of Appeals affirmed the district court's judgment.

On August 5, 1991, both Bilzerian and BFC filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code(the "Code").After the United States Supreme Court denied certiorari in another case involving Bilzerian's conviction for securities fraud, Bilzerian's bankruptcy case was converted to one under Chapter 7.HSSM filed a Complaint To Determine Dischargeability Of Debt and Objecting to Discharge in bankruptcy court against Bilzerian.HSSM objected to the discharge of the judgment debt Bilzerian owed to HSSM, as well as to Bilzerian's general discharge.Count one of the adversary complaint--the only count relevant to this appeal--alleged that Bilzerian's judgment debt to HSSM was a debt for money obtained by actual fraud and was thereby excepted from discharge under 11 U.S.C. § 523(a)(2)(A).¹

HSSM filed a motion for summary judgment on count one alleging that, under principles of collateral estoppel, the debt arising from the Texas judgment was nondischargeable because it was obtained by fraud.Bilzerian filed a cross motion for summaryjudgment arguing, among other issues, that collateral estoppel should not apply because the Texas court did not actually litigate several issues, such as whether Bilzerian had directly received any money or property as a result of the alleged fraud, and whether HSSM had failed to show that it sustained a loss as a result of Bilzerian's false representations.The bankruptcy court concluded that in order for a debt to be excepted from discharge under § 523(a)(2)(A), "the Debtor himself must obtain the money, property, services by misrepresentation, false pretenses or actual fraud."HSSM # 7 Limited Partnership v Bilzerian(In re Bilzerian), 162 Bankr. 583, 589(Bankr.M.D.Fla.1993).Accordingly, the bankruptcy court granted summary judgment in favor of Bilzerian because it found that the evidence in the Texas case did not show that Bilzerian individually obtained any money or property from HSSM.On appeal the district court rejected the bankruptcy court's interpretation of § 523(a)(2)(A) and concluded that the provision requires only that the debtor receive some benefit, even if indirectly.The district court found that Bilzerian received a benefit from HSSM's investment in his business venture and that the issue of fraud was actually and necessarily litigated in the Texas case such that collateral estoppel precluded litigating the fraud issue again in the bankruptcy dischargeability proceeding.Bilzerian then perfected this appeal.

II.ISSUES

We address the following issues on appeal:

(1) whether a debtor, who did not individually receive the fruits of his or her fraud, but nevertheless received some benefit, has obtained"money property, services, or an extension, renewal or refinancing of credit" for purposes of 11 U.S.C. § 523(a)(2)(A); and

(2) whether collateral estoppel prevents relitigation of elements necessary to render Bilzerian's debt excepted from discharge under 11 U.S.C. § 523(a)(2)(A).

III.STANDARD OF REVIEW

Because the district court functions as an appellate court in reviewing bankruptcy court decisions, this court is the second appellate court to review bankruptcy courtcases.Haas v. I.R.S.(In re Haas), 31 F.3d 1081, 1083(11th Cir.1994), cert. denied, U.S., 115, S. Ct. 2578, 132 L. Ed. 2d 828(1995).This court reviews determinations of law, whether from the bankruptcy court or the district court, de novo.Id.By contrast, this court reviews the bankruptcy court's factual findings under the clearly erroneous standard.Id.

IV.ANALYSIS

A. 11 U.S.C. § 523(a)(2)(A) Exception From Discharge

The issue of exception of debts from discharge is governed by 11 U.S.C. § 523.Section 523(a)(2)(A) provides that "[a] discharge [in bankruptcy] does not discharge an individual debtor from any debt for money property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by false pretenses, a false representation or actual fraud, other than a statement respecting the debtor's or an insider's financial condition[.]"(emphasis added).This appeal involves the meaning of the word "obtain" in § 523(a)(2)(A).

Bilzerian contends that in order for the exception to discharge found in § 523(a)(2)(A) to apply, a debtor must directly obtain the money or property in question.Thus, he concludes that since he was not the direct recipient of HSSM's investment, § 523 is inapplicable to him.The bankruptcy court accepted Bilzerian's argument.²The districtcourt, however, disagreed with this rather narrow reading of § 523(a)(2)(A).

This issue is one of first impression in the Eleventh Circuit.Three views have emerged regarding the issue of whether a debtor must personally receive money before the exception to discharge of § 523(a)(2)(A) can apply.The first view, which was adopted by the bankruptcy court and is the narrowest, requires that the debtor personally receive the fruits of the fraud.³The second view, which was adopted by the district court, is termed the "receipt of benefits" theory.This theory requires that the debtor gain a benefit from the money that was obtained by fraudulent means.⁴A third view, which is the broadest, requires simply that a debtor obtain money by fraudulent means such that a debtor does not necessarily have to receive money personally or receive any benefit at all.⁵

Century First Nat'l Bank v. Holwerda(In re Holwerda), 29 Bankr. 486, 489(Bankr M.D.Fla.1983)(citations omitted).Thus, Chief Judge Paskay's language in Bilzerian evidences a dramatic shift away from the "receipt of benefits" theory.As a result of this shift, the Eastern District of Pennsylvania cited Bilzerian for the proposition that property received by fraud must be obtained by the debtor personally for purposes of § 523(a)(2)(A).SeeSears, Roebuck and Co. v Naimo(In re Naimo), 175 Bankr. 878, 880(Bankr.E.D.Pa.1994).

The bankruptcy courts diverge on this question; however, the three circuit courts that have considered the issue have rendered decisions favoring the "receipt of benefits" theory.SeeBancBoston Mortgage Corp. v. Ledford(In re Ledford), 970 F.2d 1556(6th Cir.1992), cert. denied, 507 U.S. 916, 113 S. Ct. 1272, 122 L. Ed. 2d 667(1993);Luce v. First Equip. Leasing Corp.(In re Luce), 960 F.2d 1277(5th Cir.1992);Ashley v. Church(In re Ashley), 903 F.2d 599(9th Cir.1990).We agree with our sister circuits that the "receipt of benefits" theory is the more well-reasoned approach.

The Ninth Circuit's opinion in Ashley is the most analogous to the instant case.In Ashley, the debtor was involved in a plan to finance, establish, and develop machine shops.Like Bilzerian, the debtor in Ashley argued that he did not receive the money for himself.However, the debtor had contributed to...