Glencove Holdings, LLC v. Bloom (In re Bloom)
| Decision Date | 12 July 2022 |
| Docket Number | 22-1005 |
| Parties | In re: STEVEN W. BLOOM, Debtor. v. STEVEN W. BLOOM, Defendant-Appellant. GLENCOVE HOLDINGS, LLC, Plaintiff - Appellee, |
| Court | U.S. Court of Appeals — Tenth Circuit |
In re: STEVEN W. BLOOM, Debtor.
GLENCOVE HOLDINGS, LLC, Plaintiff - Appellee,
v.
STEVEN W. BLOOM, Defendant-Appellant.
No. 22-1005
United States Court of Appeals, Tenth Circuit
July 12, 2022
(BAP No. 20-043-CO) (Bankruptcy Appellate Panel)
Before HARTZ, BALDOCK, and McHUGH, Circuit Judges.
ORDER AND JUDGMENT [*]
CAROLYN B. MCHUGH CIRCUIT JUDGE
Steven W. Bloom, an aircraft sales consultant and the debtor in this matter, appeals from a United States Bankruptcy Appellate Panel of the Tenth Circuit ("BAP") opinion affirming the bankruptcy court's decision allowing Glencove
Holdings, LLC's ("Glencove") claim as a valid debt against Mr. Bloom and holding the debt was not dischargeable. Mr. Bloom contends the bankruptcy court erred by holding Colorado's economic loss rule did not bar Glencove's tort claims and improperly concluding the debt was excepted from discharge under 11 U.S.C. § 523(a)(2)(A) and (a)(6). Exercising jurisdiction under 28 U.S.C. § 158(d), we affirm the bankruptcy court's decision.[1]
I. BACKGROUND
Mr. Bloom is the sole member and manager of Bloom Business Jets, LLC ("BBJ"). BBJ, through Mr. Bloom, entered an Agent Agreement to represent Jennifer and Huw Pierce (the "Pierces") in their effort to purchase a pre-owned private jet through Glencove, a limited liability company owned and managed by the Pierces.[2]As part of the Agent Agreement, BBJ agreed to locate a private jet and act as Glencove's agent in the purchase of the jet, and Glencove agreed to pay BBJ a fee for its services. Colorado law governs the Agent Agreement. At all relevant times, Mr. Bloom acted on behalf of BBJ to represent Glencove in the purchase of the private jet.
The parties identified a private jet Glencove was interested in purchasing, Mr. Bloom recommended a target price of $3,600,000 for the jet, and Glencove
agreed. With Glencove's authorization, Mr. Bloom began negotiating with the seller, beginning with an offer of about $3,300,000. After receiving Glencove's initial offer, the seller counteroffered with a price of $3,400,000, which was significantly lower than Mr. Bloom expected. At this point, Mr. Bloom began lying to Glencove. He told Glencove the seller counteroffered to sell the jet for $3,775,000. In response, Glencove authorized a counteroffer of $3,550,000. Mr. Bloom then represented to Glencove that he was negotiating with the seller to sell the jet for $3,550,000. This, of course, was not true because the seller had already counteroffered to sell the jet for less than that amount. In the end, Glencove agreed to pay $3,550,000 for the jet. Meanwhile, Mr. Bloom negotiated with the seller, and they agreed to a sale price of $3,300,000. Mr. Bloom did not tell Glencove about these negotiations or the lower sale price.
Before finalizing the purchase, Haggan Aviation ("Haggan") conducted an inspection of the jet and found more than $67,000 worth of airworthy items that needed to be repaired. Glencove signed a conditional acceptance, agreeing to accept the jet subject to the seller fixing the airworthy items. The seller initially refused to perform any of the repairs and would only sell the jet in as-is condition. Mr. Bloom then convinced Haggan to reduce the number of airworthy items that needed to be repaired, which significantly reduced the total estimate. Mr. Bloom did not apprise Glencove of any of these developments. Instead, he represented that the seller would pay for all the repairs in the original estimate even though only a portion of those repairs were completed prior to the sale.
Mr. Bloom then created Big Horn Exploration, LLC ("Big Horn"), which purchased the jet from the seller for $3,300,000. Immediately thereafter, Big Horn sold the jet to Glencove for $3,550,000. As a result of Mr. Bloom's lies, Glencove paid an additional $250,000 for the jet, and that amount was distributed between Mr. Bloom's attorney, an aircraft finance company, and BBJ. The bankruptcy court did not find Mr. Bloom personally received any of the money.
Glencove then hired BBJ to manage the jet's operations. BBJ eventually filed a state court lawsuit against Glencove for a dispute arising out of the management agreement. Discovery in that matter revealed the fraud committed during the sale, and Glencove brought counterclaims against Mr. Bloom and others who were involved. Mr. Bloom filed for bankruptcy, and Glencove brought an adversary proceeding asserting its tort claims as a debt against Mr. Bloom. We refer to the debt Glencove asserted as the Glencove Claim. In the adversary proceeding, Glencove brought claims for the nondischargeability of the Glencove Claim.
The bankruptcy court held a trial on the tort claims and allowed the Glencove Claim in the amount of $458,470 for fraud by false representation and fraudulent concealment. The bankruptcy court also concluded the Glencove Claim was not dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) and (a)(6). Mr. Bloom appealed to the BAP, arguing in part that (1) the bankruptcy court should not have allowed the Glencove Claim because Colorado's economic loss rule bars the fraud and fraudulent concealment claims and (2) the Glencove Claim is dischargeable. The BAP affirmed the bankruptcy court's ruling. Mr. Bloom now appeals to this court.
II. DISCUSSION
When a party appeals a decision by the BAP, "we treat the BAP as a subordinate appellate tribunal whose rulings are not entitled to any deference," so "we review only the [b]ankruptcy [c]ourt's decision." In re Tung Thanh Nguyen, 783 F.3d 769, 772 (10th Cir. 2015) (quotation marks omitted). "We review matters of law de novo, and we review factual findings made by the bankruptcy court for clear error." Id. (quotation marks omitted).
On appeal, Mr. Bloom contends the bankruptcy court erred when it determined the Glencove Claim was valid. He says Colorado's economic loss rule bars Glencove from recovering on its fraud and fraudulent concealment claims against him. He also argues the bankruptcy court erred by concluding the debt is not dischargeable. We address each argument in turn.
A. Economic Loss Rule
Mr. Bloom argues primarily that the bankruptcy court erred by allowing the Glencove Claim because Colorado's economic loss rule prevents Glencove from recovering on its state fraud and fraudulent concealment claims against him. See Grogan v. Garner, 498 U.S. 279, 183 (1991) ("The validity of a creditor's claim is determined by rules of state law."). Whether the economic loss rule bars a tort claim "is an issue of law we review de novo." Haynes Trane Serv. Agency, Inc. v. Am. Standard, Inc., 573 F.3d 947, 962 (10th Cir. 2009) (quotation marks omitted).
Colorado's economic loss rule provides that "a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort
claim for such a breach absent an independent duty of care under tort law." Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1264 (Colo. 2000). To determine whether the economic loss rule bars a tort claim in Colorado, courts consider "the source of the duty that forms the basis of the action." Id. at 1262. If the contract is the source of the duty, then the economic loss rule bars tort claims for purely economic loss. Id. Otherwise, the economic loss rule does not bar the claim. Id. The Colorado Supreme Court also explained, "certain common law claims that sound in tort and are expressly designed to remedy economic loss," such as common law fraud or negligent misrepresentation, "may exist independent of a breach of contract claim." Id. at 1263. Such claims are outside the scope of the economic loss rule. Id.
After Alma, some divisions of the Colorado Court of Appeals held the economic loss rule barred post-contractual fraud claims related to the performance of the contract. See Top Rail Ranch Estates, LLC v. Walker, 327 P.3d 321, 328-29 (Colo.App. 2014); Former TCHR, LLC v. First Hand Mgmt. LLC, 317 P.3d 1226, 1232-33 (Colo.App. 2012); Hamon Contractors, Inc. v. Carter &Burgess, Inc., 229 P.3d 282, 291-95 (Colo.App. 2009). These divisions reasoned that all contracts contain the implied covenant of good faith and fair dealing, and the implied covenant of good faith and fair dealing includes the duty not to commit fraud. See Top Rail Ranch Estates, 327 P.3d at 329; Former TCHR, 317 P.3d at 1233; Hamon Contractors, 229 P.3d at 292-93. Accordingly, the courts concluded the duty to not commit post-contractual fraud did not arise independent of the contract. See Top Rail
Ranch Estates, 327 P.3d at 329; Former TCHR, 317 P.3d at 1233; Hamon Contractors, 229 P.3d at 293-95.
Recently, however, the Colorado Supreme Court suggested this is not the proper understanding of the economic loss rule. In Bermel v. BlueRadios, Inc., the Colorado Supreme Court explained it had previously applied the economic loss rule only "to bar common law tort claims of negligence or negligent misrepresentation." 440 P.3d 1150, 1155 (Colo. 2019). The Bermel court also clarified in a footnote that "the economic loss rule generally should not be available to shield intentional tortfeasors from liability for misconduct that happens also to breach a contractual obligation." Id. at 1154 n.6
Mr. Bloom asks us to apply the analysis in Top Rail Ranch Estates, Former TCHR, and Hamon Contractors, and to ignore the contrary language in Bermel. Accordingly, Mr. Bloom contends the economic loss rule bars Glencove's fraud by false representations and fraudulent concealment claims against him because (1) he is a member of BBJ who acted on behalf of BBJ, an entity that had a contractual relationship with Glencove when the fraud occurred; (2) the Agent Agreement included the implied covenant of good faith and fair dealing, which required BBJ not to act fraudulently; and (3) Glencove experienced only economic damages. Thus, according to Mr. Bloom, these claims arise from a breach...
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