Heavrin v. Boeing Capital Corp.

• Decision Date: 18 February 2003
• Docket Number: Civil Action No. 3:01CV-537-S.
• Citation: 246 F.Supp.2d 728
• Parties: Donald HEAVRIN, Plaintiff, v. BOEING CAPITAL CORPORATION f/k/a McDonnell Douglas Financial Services Corporation and f/k/a McDonnell Douglas Finance Corporation, McDonnell Douglas Financial Services Corporation, McDonnell Douglas Finance Corporation, BCC Equipment Leasing Corporation, f/k/a MDFC Equipment Leasing Corporation, MDFC Equipment Leasing Corporation, David Nelson and Daniel Anderson, Defendants.
• Court: U.S. District Court — Western District of Kentucky

246 F.Supp.2d 728

Donald HEAVRIN, Plaintiff, v. BOEING CAPITAL CORPORATION f/k/a McDonnell Douglas Financial Services Corporation and f/k/a McDonnell Douglas Finance Corporation, McDonnell Douglas Financial Services Corporation, McDonnell Douglas Finance Corporation, BCC Equipment Leasing Corporation, f/k/a MDFC Equipment Leasing Corporation, MDFC Equipment Leasing Corporation, David Nelson and Daniel Anderson, Defendants.

Civil Action No. 3:01CV-537-S.

United States District Court, W.D. Kentucky, At Louisville.

February 18, 2003.

Harley N. Blankenship, Louisville, KY, for Plaintiff.

Edward H. Stopher, David William Hemminger, Boehl, Stopher & Graves, Louisville, KY, Robert J. Brown, Wyatt, Tarrant & Combs, Lexington, KY, Mark A. Brand, Monica M. Tynan, Alexander Terras, Quarles & Brady, LLC, Chicago, IL, for Defendants.

MEMORANDUM OPINION

SIMPSON, District Judge.

This matter is before the court on motion of the defendants, Boeing Capital Corporation, et al ("Boeing"), to dismiss plaintiff Donald Heavrin's ("Heavrin"), second amended and supplemental complaint pursuant to FED.R.CIV.P. 12(b)(6). Defendants allege that Heavrin's claims against them for fraud, perjury, and outrageous conduct fail as a matter of law.

Background

The history of this matter, and the dealings between the parties, represent a fascinating, detailed, and complicated story. However, for purposes of this opinion, we focus only on the facts, taken as alleged by Heavrin in his complaint, that are relevant to a determination of the issues in this case. For a complete recitation of the facts, see United States v. Heavrin, 144 F.Supp.2d 769 (W.D.Ky.2001).

Defendant, Boeing Capital Corporation, formerly known as McDonnell Douglas Finance Corporation ("MDFC"), agreed to loan Triple S Restaurants, Inc. ("TSR") approximately $3.5 million to obtain franchise rights to several Sizzler restaurants. The loan was secured by a $2 million dollar "key man" life insurance policy on each of TSR's principals, Robert E. Harrod ("Harrod") and Michael R. Macatee ("Macatee"). At all times relevant to this matter, Heavrin, Harrod's step son, served as the attorney for TSR.

We are concerned here with the policy on Harrod's life (the "Harrod Policy"). TSR was the owner and beneficiary of the Harrod policy, but executed a collateral assignment to MDFC on November 21, 1991. TSR retained the rights to any policy proceeds remaining after satisfaction of the MDFC debt, and the right to change the beneficiary.

In 1992, facing financial problems, TSR restructured its debts and reduced its monthly payments to its creditors, including MDFC. In 1993, TSR stopped making premium payments on both the Harrod and Macatee policies, and MDFC took over the payments to prevent their lapse. During that time period, disputes developed between TSR and MDFC. Heavrin initiated discussions regarding certain default and lender liability claims that Harrod and TSR may have had against MDFC.

In March of 1994, Harrod was diagnosed with lung cancer and began treatment. Shortly thereafter, TSR transferred ownership of the Harrod policy to the Harrod Trust, an irrevokable trust under which Heavrin and his step sister, Bobbie Bridgers, were co-beneficiaries and co-trustees. On September 2, 1994, Robert Harrod died.

After Harrod's death, Heavrin negotiated a final settlement with MDFC. Under the terms of the final agreement, MDFC agreed to pay the Harrod trust approximately $250,000 of the proceeds of the Harrod policy in release of certain lender liability claims Heavrin contended Harrod and TSR had against MDFC. Jackson National, who wrote the Harrod policy, forwarded a $250,000 check to Heavrin, as trustee of the Harrrod trust, and $1,750,000 to MDFC.

On September 30, 1994, TSR filed a Chapter 11 petition in the U.S. Bankruptcy Court for the Western District of Kentucky. The petition did not disclose the June 1994 transfer of the Harrod policy from TSR to the Harrod trust.

About the same time, MDFC filed a claim against TSR in the bankruptcy court, listing its secured claims without reducing its debt by the funds received from the Harrod policy. In December 1994, the bankruptcy was converted from a Chapter 11 to a Chapter 7. MDFC filed an amended proof of claim, but still failed to mention the funds received from the Harrod policy.

After the U.S. Trustee was unsuccessful in suing MDFC to collect on the Harrod policy, an adversary proceeding was commenced against the Harrod trust, Heavrin, and Bobbie Bridgers to recover the $250,000 received in the settlement of the lender liability claims of Harrod. Throughout the process, the defendants denied that a claim for lender liability ever existed. A criminal complaint was also filed against Heavrin for defrauding the bankruptcy estate of the life insurance proceeds. U.S. v. Heavrin, 144 F.Supp.2d 769 (W.D.Ky.2001). During the trial, defendant Nelson denied under oath that a lender liability claim had ever been settled. Heavrin was acquitted of the charges by a written judgment of acquittal.

In this action, Heavrin seeks to recover from the defendants on several grounds. In Count I, he asserts that defendants "failed and refused to give proper credit for debt reduction and amend the false and fraudulent Proofs of Claim in the TSR bankruptcy," and that such action amounts to fraud. In Count II, Heavrin asserts that Defendant David Nelson, individually and on behalf of the corporate defendants, gave testimony in the criminal proceedings that the $250,000 received by the Harrod trust was not in settlement of the lender liability claims. Heavrin claims that such testimony amounts to perjury. In Count III, Heavrin claims that defendants actions were outrageous, and in Count VI, he asks for punitive damages. We consider each allegation in turn.

Count I: Fraud

Defendants argue that Heavrin cannot recover against them for filing false and misleading proofs of claim. First, they assert that false bankruptcy claims are governed by 18 U.S.C. § 152(4), which does not create a private cause of action for filing a false proof of claim.

The issue of whether 18 U.S.C. § 152(4) could give rise to a private action was examined in detail by the bankruptcy court in Clayton v. Raleigh Fed, Sav. Bank, 194 B.R. 793, 795 (M.D.N.C.1996) using the four-part test of Cort v. Ash 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975), for determining whether a private right of action may arise from a statute. The court wrote:

Under Cort v. Ash, the four factors for consideration include: (1) whether the plaintiff belongs to the class for whose special benefit the statute was enacted, (2) whether explicit or implicit legislative intent to create such a remedy can be found, (3) whether a private right of action is consistent with the underlying purposes of the legislative scheme, and (4) whether a cause of action is not one traditionally relegated to state law. Applying the Cort v. Ash test, the court finds, as did the court in In re Terio, that no private right of action arises from the criminal statute in question. There is no suggestion of a legislative intent to create a private right. The legislative history of 18 U.S.C. § 152 indicates that the provision prohibiting false proofs of claims was enacted to do away with the previous requirement that proofs of claim be filed under oath. See S.R. Doc. No. 1477, reprinted in 1960 U.S.Code Cong. & Admin. News, 2396-2400. The previous oath requirement was found to be burdensome and expensive to creditors. Hence, in order to eliminate the burden and expense of the oath requirement, yet maintain the presumption of validity the proof of claim has always been afforded, Congress made it a crime to file a false proof of claim. Id.

Additionally, implication of a private right of action would not be consistent with the overall legislative scheme with respect to bankruptcy proceedings. As the district court in In re Terio, 158 B.R. 907 (S.D.N.Y.1993), observed, the Bankruptcy Code is a highly intricate and reticulated statutory scheme that does not easily lend itself to the creation of new rights and remedies on the part of private parties. The Code creates extensive rights readily available to litigants, and there is no reason to believe that additional rights should be created where none are expressed or clearly implied. Thus, the teachings of Cort v. Ash do not support creation of a private right of action under 18 U.S.C. § 152(4).

We agree with the reasoning of the Clayton court and find that there is no private cause of action under 18 U.S.C. § 152(4) for filing a false proof of claim in a bankruptcy proceeding.

Second, defendants argue that Heavrin fails to state a claim for common law fraud, as he has not satisfied FED.R.CIV.P. 9(b), which requires that fraud be pled with particularity. "While state law governs the burden of proving fraud at trial in a diversity action in federal court, the procedure for pleading fraud in all diversity suits in federal court is governed by the special pleading requirements of FED R.Civ.P. 9(b)." Minger v. Green, 239 F.3d 793, 800 (6th Cir.2001).

The Sixth Circuit has held that the requirements of FED.R.CIV.P. 9(b) must be read in concert with the general requirements for pleading a case set forth in FED.R.CIV.P. 8, which requires a "short and plain statement of the claim," and calls for "simple, concise, and direct" allegations. Michaels Bldg. Co. v. Ameritrust Co., N.A., 848 F.2d 674, 679 (6th Cir.1988). The court observed that "the purpose undergirding the particularity requirement of Rule 9(b) is to provide a defendant fair notice of the substance of a plaintiffs claim in order that the defendant may prepare a responsive pleading." Id....