Gen. Ret. Sys. of Detroit v. Dixon (In re Dixon)

Decision Date10 February 2015
Docket NumberCASE NO. 11–75482–WLH,ADV. NO. 12–5222
PartiesIn re: Roy Dixon, Jr., Debtor. General Retirement System of the City of Detroit, Police and Fire Retirement System of the City of Detroit and The Board of Trustees of the City of Pontiac General Employees Retirement System, Plaintiffs, v. Roy Dixon, Jr., Defendant.
CourtUnited States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia

525 B.R. 827

In re: Roy Dixon, Jr., Debtor.
General Retirement System of the City of Detroit, Police and Fire Retirement System of the City of Detroit and The Board of Trustees of the City of Pontiac General Employees Retirement System, Plaintiffs,
Roy Dixon, Jr., Defendant.

CASE NO. 11–75482–WLH
ADV. NO. 12–5222

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

Signed February 10, 2015

Motion granted in part and denied in part.

[525 B.R. 833]

Jordan S. Bolton, Peter Jackson, Clark Hill PLC, Peter A. Jackson, Detroit, MI, Darryl S. Laddin, Arnall Golden Gregory LLP, Atlanta, GA, Cynthia J. Billings, Wallace M. Handler, Sullivan, Ward, Asher & Patton, P.C., Southfield, MI, for Plaintiff.

Roy Dixon, Jr., Atlanta, GA, pro se.


Wendy L. Hagenau, U.S. Bankruptcy Court Judge

This non-dischargeability action arises out of Roy Dixon's (“Debtor”) relationship with three pension funds: General Retirement System of the City of Detroit (“Detroit GRS”), Police and Fire Retirement System of the City of Detroit (“Detroit PFRS”), and the Board of Trustees of the City of Pontiac General Employees Retirement System (“PGERS”). These three funds (collectively the “Plaintiffs”) invested over $22 million in a limited partnership operated by the Debtor, the vast majority of which was lost. Plaintiffs seek partial summary judgment under 11 U.S.C. § 523(a)(2)(A) and (a)(4). This Court has jurisdiction over this dischargeability cause of action under 28 U.S.C. § 1334 and the matter is core under 28 U.S.C. § 157(b)(2)(I).

[525 B.R. 834]

All three Plaintiffs move for partial summary judgment (“Motion”) under Count I (breach of duties of loyalty and care constituting fraud or defalcation while acting in a fiduciary capacity) and/or Count III (false pretenses, false representations or actual fraud) of the Plaintiffs' First Amended Complaint. Alternatively, PGERS moves for summary judgment in its favor alone under Count III. Plaintiffs reserved their claims under the remaining counts of the Amended Complaint as well as for sums in excess of $16,010,958 under Counts I and III.


Summary judgment is appropriate when “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). “The substantive law [applicable to the case] will identify which facts are material”. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A factual dispute is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. at 248, 251–52, 106 S.Ct. 2505. The party moving for summary judgment has “the initial responsibility of informing the ... court of the basis for its motion, and identifying those portions of ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits if any’ which it believes demonstrate the absence of a genuine issue of material fact.” United States v. Four Parcels of Real Prop., 941 F.2d 1428, 1437 (11th Cir.1991) (citing Celotex Corp., 477 U.S. at 323, 106 S.Ct. 2548).

Once this burden is met, the nonmoving party cannot merely rely on allegations or denials in its own pleadings. Fed. R. Civ. P. 56(e). Rather, the nonmoving party must present specific facts that demonstrate there is a genuine dispute over material facts. Hairston v. Gainesville Sun Pub. Co., 9 F.3d 913, 918 (11th Cir.1993). Lastly, when reviewing a motion for summary judgment, a court must examine the evidence in the light most favorable to the nonmoving party and all reasonable doubts and inferences should be resolved in favor of the nonmoving party. Id.


The undisputed facts in this case are provided by three sources. First, the Debtor admitted certain facts in his Answer to the Plaintiffs' Amended Complaint, and in his response to the Plaintiffs' Statement of Material Facts. Second, the Court entered an order on August 6, 2013 [Docket No. 62] holding that the Debtor was deemed to have admitted all the matters raised in PGERS's Second Request for Admissions (“PGERS' Admissions”), Detroit GRS's First Request for Admissions (“DGRS' Admissions”), and Detroit PFRS's First Request for Admissions (“DPFRS' Admissions”). The Requests for Admission are attached as Exhibits 3, 4 and 5 to the Plaintiffs' Brief in support of its Motion (“Brief”). The Court's Order of August 6, 2013 was entered pursuant to Fed. R. Bankr. P. 7036(a)(3) which provides that, “A matter is admitted unless, within 30 days after being served, the party to whom the request is directed serves on the requesting party a written answer or objection addressed to the matter and signed by the party or its attorney.” The Rule further provides, “A matter admitted under this Rule is conclusively established unless the court, on motion, permits the admission to be withdrawn or amended.” Fed. R. Bankr. P. 7036(b). Such an admission

[525 B.R. 835]

is only for purposes of this adversary proceeding and “cannot be used against the party in any other proceeding.” Id.

The third source for undisputed facts is the order in a proceeding styled United States Securities and Exchange Commission v. Onyx Capital Advisors LLC, Roy A. Dixon and Michael A. Farr, 2012 WL 4849890, at *1 (E.D.Mich. Oct. 11, 2012) (“District Court Order” or “District Court Action”). There, certain of the issues raised by the Plaintiffs in their Motion have already been decided adversely to the Debtor. As such, the doctrine of collateral estoppel applies. The District Court Order is attached to Plaintiffs' Brief as Exhibit 24. In it, the District Court, in addition to other matters, granted the Securities & Exchange Commission's (“SEC”) motion for summary judgment against Debtor and Onyx Capital Advisors, LLC (“OCA”) on the SEC's claims that Debtor and OCA violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b–5 of Section 10(b) (collectively referred to as the “Securities Anti–Fraud Provisions”) and Sections 206(1) and 206(2) of the Investment Advisers Act (“IAA”). The court held that, to establish violations of the Securities Anti–Fraud Provisions, “the SEC must show that the defendants engaged in: 1) misrepresentations or omissions of a material fact 2) made in connection with the offer, sale or purchase of securities 3) with scienter on the part of the defendants.” To establish a violation of the IAA requires the Court to find that the Debtor and OCA, as investment advisers, employed a device, scheme or artifice to defraud or participated in a transaction, course of business or practice which operates as a fraud or deceit. The court ruled in favor of the SEC on all claims and issued a permanent injunction against both Debtor and OCA prohibiting future violations of the securities laws and ordering disgorgement of $3,112,343. The District Court also reserved the right of the SEC to submit further documentation seeking civil penalties.

Upon review of the District Court Order, this Court asked the parties for additional briefing on the collateral estoppel effect of the District Court Order on Plaintiffs' Motion. All parties submitted additional briefing on the issue. Collateral estoppel is also known as issue preclusion. The Eleventh Circuit has articulated the standard for issue preclusion as follows:

To claim the benefit of collateral estoppel the party relying on the doctrine must show that: (1) the issue at stake is identical to the one involved in the prior proceeding; (2) the issue was actually litigated in the prior proceeding; (3) the determination of the issue in the prior litigation must have been “a critical and necessary part” of the judgment in the first action; and (4) the party against whom collateral estoppel is asserted must have had a full and fair opportunity to litigate the issue in the prior proceeding.

Christo v. Padgett, 223 F.3d 1324, 1339 (11th Cir.2000) (citation omitted). The U.S. Supreme Court in Parklane Hosiery Co. v. Shore, 439 U.S. 322, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979), explored the right of a party to use offensive collateral estoppel such as is sought here. In Parklane, shareholders brought suit against a corporation and its officers and directors, and asserted collateral estoppel as to issues decided in a prior SEC action against those same defendants. As the Supreme Court defined the issue,

The threshold question to be considered is whether ... the petitioners can be precluded from re-litigating facts resolved

[525 B.R. 836]

adversely to them in a prior equitable proceeding with another party under the general law of collateral estoppel. Specifically, we must determine whether a litigant who was not a party to a prior judgment may nevertheless use that judgment “offensively” to prevent a defendant from relitigating issues resolved in the earlier proceeding.

Id. at 326, 99 S.Ct. 645. In Parklane, the court rejected a requirement of mutuality, i.e., that only the same parties to the prior litigation could assert collateral estoppel. The Supreme Court “concluded that the preferable approach for dealing with these problems in the federal courts is not to preclude the use of offensive collateral estoppel, but to grant trial courts broad discretion to determine when it should be applied.” Id. at 331, 99 S.Ct. 645. Under the facts of Parklane, the court noted that the private plaintiff could probably not have joined with the SEC in its injunctive action. The court held further, “[I]n light of the serious allegations made in the SEC's complaint against the petitioners, as well as the foreseeability of subsequent private suits that typically follow a...

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    ...debt to be excepted from discharge, the creditor must show that the exception applies by a preponderance of the evidence. See In re Dixon, 525 B.R. 827, 840 (Bankr. N.D. Ga. 2015) (Hagenau, J.). Section 523(a)(4) contains three distinct grounds for excepting a debt from discharge: "fraud or......

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