Excellent Home Props., Inc. v. Kinard (In re Kinard), Case No. 18-40052

• Decision Date: 22 July 2020
• Docket Number: Civil Case No. 4:19-CV-00411-BCW,Case No. 18-40052,Adversary No. 18-4183
• Citation: 621 B.R. 231
• Parties: IN RE: Quinton D. KINARD and Candice M. Kinard, Debtors. Excellent Home Properties, Inc. Appellant, v. Candice Kinard, Debtor.
• Court: U.S. District Court — Western District of Missouri

621 B.R. 231

IN RE: Quinton D. KINARD and Candice M. Kinard, Debtors.Excellent Home Properties, Inc. Appellant,

v.Candice Kinard, Debtor.

Case No. 18-40052

Adversary No. 18-4183

Civil Case No. 4:19-CV-00411-BCW

United States District Court, W.D. Missouri, Western Division.

Signed July 22, 2020

Michael M. Tamburini, Richard Davis, Levy Craig Law Firm, PC, Kansas City, MO, for Appellant.

Erlene W. Krigel, Krigel & Krigel, PC, Kansas City, MO, for Debtor.

ORDER AND JUDGMENT

BRIAN C. WIMES, JUDGE

Before the Court is a bankruptcy appeal filed by Excellent Home Properties, Inc. pursuant to 28 U.S.C. § 158(a) and Fed. R. Bankr. P. 8001. Excellent Home appeals the Bankruptcy Court's judgment in favor of Candice Kinard entered on April 25, 2019, in the matter captioned Excellent Home Properties, Inc. v. Candice M. Kinard, Adversary No. 18-4183.¹ The District Court has jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(a) and (c)(1). The Court, being duly advised of the premises, affirms the Bankruptcy Court's ruling.

BACKGROUND²

Appellant Excellent Home Properties, Inc. is a real estate development company located in California that is operated by Victor Kuo. ("Excellent Home"). Appellee Candice M. Kinard is a Missouri resident, and is the daughter of Cheryl Thompson.³ In May 2001, Thompson started Manor Place, LLC, which purchased rundown residential properties in Missouri, repaired and rehabilitated ("flipped") them, and then sold the rehabilitated properties for profit.

While Kinard was not an owner or member of Manor Place, she did perform services for the company. Kinard mainly performed secretarial and bookkeeping work for Manor Place, and, along with Thompson, had access to and used the email account for pinkdevelopmentkc@yahoo.com. Though Manor Place did not pay Kinard a salary, Manor Place did pay for fees associated with Kinard's real estate license and associated continuing education classes for that license.

At some point before and leading into 2016, Manor Place experienced some financial difficulties, and was the subject of numerous collection lawsuits. During this time, Manor Place transferred almost $150,000.00 to Kinard's personal bank accounts, from which Manor Place's bills could be paid while also hiding Manor Place's assets from its creditors.

In March 2016, Kuo and Thompson met online through an entity called FortuneBuilder. Thompson emailed Kuo to solicit his investment in some property she was purchasing. Thompson's email offered "12 percent on a nine-month loan," and referenced a "private investor package," a "team" working on eight properties, and her 23-year history rehabbing homes.

Although Kuo did not invest based on Thompson's initial contact, the two exchanged emails over the subsequent few months. In the postscript of an email Thompson sent to Kuo on March 10, 2016, she referred to Kinard as her "business partner."

On June 7, 2016, Thompson emailed Kuo the following:

Hi Victor. Sorry it's been so long since I've been in touch. We've had a move and a death in the family since we talked, so life has been a bit of a zoon. We do have a property that fits your criteria. Total investment $47,000 at 12 percent for 9 months. (Anticipated will be six at most.) 1103 Main, Independence, Missouri. Purchase price $30,000. Rehab costs $17,000. After repair value $99,000 to $105,000. Three bedroom bungalow, 1 ½ baths, 1,700 square feet. Please let me know if you're interested. We have a short window of time. We're supposed to close on June 9th. You would have first position and we can prepare the promissory note, deed of trust, and make sure you are listed on our policy as the additional insured. We have a long track record of successful rehabs. Looking forward to talking with you. Let me know what additional information you would need and if you would like to move forward. Thanks. Cheryl Thompson.

(Doc. #7 at 13).

In response to this email, Kuo asked Thompson to confirm the address of the property and requested documentation to support the estimated after-repair value. Thompson responded she had "an updated set of comparable comps coming now and that they were tight on closing." The parties then exchanged emails on logistics, like wiring instructions. One of Thompson's emails again references Kinard as Thompson's business partner, with whom Kuo would communicate about wiring funds. Kinard then emailed Kuo from pinkdevelopmentkc@yahoo.com with wiring instructions, and to discuss interest payments.⁴

On June 13, 2016, Excellent Home wired $47,000.00 to Manor Place ("the Loan") so that Manor Place could purchase the property located at 1103 Main, Independence, Missouri ("the Property"). Manor Place would purchase the Property for $30,000.00 and use the remaining $17,000.00 to make repairs. Thereafter, Manor Place would sell the Property for a profit, and repay the Loan to Excellent Home, principal plus interest, out of the sale proceeds.

The Loan was secured by a deed of trust for the Property. Kinard was not a signatory on either the promissory note evidencing the Loan, or the deed of trust securing it.

Manor Place purchased the Property but made no repairs nor renovations. As the maturity date of the Loan approached, and for several months thereafter, Thompson led Kuo to believe the Property had been renovated and was under contract for sale in an amount sufficient to repay to Excellent Home the Loan balance. Kinard was the listing agent for the Property. Thompson fabricated at least five false closing dates in succession, and provided excuses to Kuo about why the supposedly scheduled closings could not occur, e.g. title issues, etc.

By the Loan's maturity date, Manor Place had only made a few interest payments to Excellent Home, and the Property had not been sold. Excellent Home, through Kuo, (hereinafter, "Excellent Home") thus elected to foreclose on the deed of trust.

In the fall of 2017, Excellent Home retained an attorney in Missouri and foreclosed on the deed of trust for the Property. At no point leading up to and after the foreclosure sale did Excellent Home observe the condition of the Property. Instead, Excellent Home directed its representative to make a full credit bid⁵ for the Property in an amount of $50,000.00.

Excellent Home's full credit bid in an amount of $50,000.00 was the winning, and only, bid for the Property at the foreclosure sale. Excellent Home thus directed its representative to bid on the Property through a full credit bid in the amount of the outstanding balance of the Loan, based on the assumption that Manor Place had rehabbed the Property as had been represented to Excellent Home. Excellent Home did not discover Manor Place had not flipped the Property until after it took possession of it.

In sum, $50,000.000 did not reflect the Property's actual value at the foreclosure sale. After discovering that Manor Place had not undertaken to have the Property rehabbed as Manor Place had represented, Excellent Home hired a contractor to bid on the necessary repairs for the Property. The contractor estimated the Property's repairs would cost an estimated $68,000.00 to complete, in contrast with Manor Place's estimated cost of repair of $17,000.00.

Excellent Home elected not to make the repairs to the Property and sold it for $19,000.00. Excellent Home asserts a loss of $31,000.00, which equates to Excellent Home's $50,000.00 bid, less the $19,000.00 Excellent Home was able to recoup through sale.

Manor Place collapsed during the real estate downturn. Thompson and Kinard, along with their respective spouses, filed separate bankruptcy proceedings.

Kinard, in her bankruptcy proceeding filed under Chapter 13, did not schedule Excellent Home as a creditor. However, Excellent Home filed an unsecured proof of claim for $50,000.00 in Kinard's bankruptcy case. The proof of claim stated it was for "fraud as set forth in Jackson County, Missouri Case No. 1716-CV-30066," but included no supporting documents.

Subsequently, Excellent Home filed a timely adversary complaint against Kinard alleging, as set forth in the amended complaint, four claims: (I) fraudulent misrepresentation; (II) negligent misrepresentation; (III) civil conspiracy; and (IV) "objection to discharge." Counts I, II, and III each seek damages in an amount of $50,000.00. Count IV seeks a determination under 11 U.S.C. § 523(a)(2)(A) that the debt owed to Excellent Home is nondischargeable. Adv. No. 18-4183-can (Doc. #40).

The Bankruptcy Court held a trial in the adversary proceeding filed by Excellent Home against Kinard. Subsequently, the Bankruptcy Court stated its findings of fact and conclusions of law on the record, and entered judgment in favor of Kinard as follows (Doc. #1-1).

On Counts I, II, and III, the Bankruptcy Court found in favor of Kinard and against Excellent Home "for failure to state a claim for nondischargeability" under the Bankruptcy Code. (Doc. #1-1 at 1). On Count IV, the Bankruptcy Court found in favor of Kinard and against Excellent Home "for nondischargeability based on fraud under 11 U.S.C. § 523(a)(2)(A), because any purported debt owed by the [Kinard] to [Excellent Home] was extinguished by [Excellent Home's] full credit bid at foreclosure sale." (Doc. #1-1 at 2).

Excellent Home appealed this judgment to the District Court, thus giving rise to the above-captioned action. Excellent Home argues the Bankruptcy Court's judgment is incorrect in at least two ways and seeks remand to the Bankruptcy Court "for proper consideration in light of the evidence presented at trial." 4:19-CV-00411-BCW (Doc. #7 at 23).

First, with respect to the nondischargeability claim (IV), Excellent Home argues the Bankruptcy Court misapplied the "justifiable reliance" standard. Second, with respect to the claims for fraudulent misrepresentation (I), negligent misrepresentation (II), and civil conspiracy (III), Excellent Home argues the Bankruptcy Court erred in granting judgment for Kinard because even if the Bankruptcy Court determined...