IN RE GRENIER, Civil No. 09-14011.

• Decision Date: 17 June 2010
• Docket Number: Adversary No. 09-4351.,Civil No. 09-14011.,Bankruptcy No. 08-69651.
• Citation: 430 B.R. 446
• Parties: In re Robert M. GRENIER and Gertrude A. Grenier, Debtors, Craig R. Nehasil, Donna E. Nehasil, and Donna E. Nehasil, as Next Friend of Richard J. Nehasil and Timothy R. Nehasil and Christopher P. Nehasil, Plaintiffs/Appellees, v. Robert M. Grenier and Gertrude A. Grenier, Defendants/Appellants.
• Court: U.S. District Court — Eastern District of Michigan

430 B.R. 446

In re Robert M. GRENIER and Gertrude A. Grenier, Debtors,
Craig R. Nehasil, Donna E. Nehasil, and Donna E. Nehasil, as Next Friend of Richard J. Nehasil and Timothy R. Nehasil and Christopher P. Nehasil, Plaintiffs/Appellees,
v.
Robert M. Grenier and Gertrude A. Grenier, Defendants/Appellants.

Civil No. 09-14011. Bankruptcy No. 08-69651. Adversary No. 09-4351.

United States District Court, E.D. Michigan, Southern Division.

June 17, 2010.

430 B.R. 447

COPYRIGHT MATERIAL OMITTED

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Jonathan Klimczuk, Blake Kirchner, Detroit, MI, Linda G. Anderson, Livonia, MI, for Plaintiffs/Appellees.

Aaron J. Scheinfield, Goldstein Bershad & Fried PC, Martin L. Fried, Southfield, MI, Todd Holleman, Miller, Canfield, Paddock and Stone, PLL, Detroit, MI, for Defendants/Appellants.

OPINION AND ORDER AFFIRMING THE BANKRUPTCY COURT AND DENYING BOTH APPELLANTS' EMERGENCY MOTION FOR STAY PENDING APPEAL AND APPELLANTS' MOTION FOR AN EXPEDITED HEARING ON THE MOTION FOR STAY

MARIANNE O. BATTANI, District Judge.

I. INTRODUCTION

This matter is before the Court on Defendants' appeal of the Bankruptcy Court's "Order Denying Defendants' Motion to Dismiss for Failure to State a Claim" (Bankr.Doc. No. 33), and "Order Granting Plaintiffs' Motion for Summary Judgment" (Bankr.Doc. No. 34). For the reasons that follow, the Bankruptcy Court's Orders shall be, and hereby are, AFFIRMED. In addition, Defendants recently filed an "Emergency Motion for Stay Pending Appeal" and a "Motion for Expedited Hearing on Emergency Motion for Stay Pending Appeal." (Docs.10, 11). As the appeal is no longer pending, these motions are DENIED AS MOOT.

II. STATEMENT OF FACTS

On December 3, 2008, Defendants filed a Chapter 7 bankruptcy petition with the Eastern District of Michigan Bankruptcy Court. Subsequently, on February 27, 2009, Plaintiffs filed an adversary "Complaint to Determine Dischargeability of Indebtedness." The Complaint alleges that a judgment in Wayne County Circuit Court was entered in favor of Plaintiffs against Defendants for $294,563.74. This award was the result of a jury finding that Defendants had defrauded Plaintiffs. The Complaint concludes that this award is not dischargeable in bankruptcy, under 11 U.S.C. § 523(a).

On August 14, 2009, Defendants' filed a Motion to Dismiss Plaintiffs' Complaint. In the brief in support of their motion, Defendants argue that Plaintiffs' Complaint failed to allege fraud with particularity because it merely alleges that a judgment for fraud was entered against Defendants in Wayne County Circuit Court. Also, 11 U.S.C. § 523 required Plaintiffs to allege not only fraud, but also that Defendants obtained a benefit as a result of the fraud. Additionally, Defendants contend that a judgment for fraud in

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state court is not conclusive evidence that a debt is nondischargeable in bankruptcy court

Shortly thereafter, Plaintiffs filed a "Motion for Summary Judgment Determining Plaintiffs' State Court Judgment Non-Dischargeable under 11 USC 523." In their brief in support of the motion, Plaintiffs argue that Defendants are collaterally estopped from challenging the state court fraud determination in the bankruptcy proceeding.

Defendants responded to Plaintiffs' Motion for Summary Judgment and argued that the state court's jury findings do not satisfy the elements required to state a cause of action for fraud in bankruptcy court. In particular, the jury only concluded that the debtor either knew the representation was false or was made with recklessness to its truth; in bankruptcy court, however, the standard is gross recklessness instead of recklessness.

The Bankruptcy Court held a hearing on these motions during which it denied Defendants' Motion to Dismiss and granted Plaintiffs' Motion for Summary Judgment. In ruling on Defendants' Motion to Dismiss, the court noted that the Complaint clearly refers and relates to a state court fraud judgment against Defendants. Furthermore, the court found that it was clear from the Complaint that Plaintiffs were asserting that this judgment was nondischargeable pursuant to 11 U.S.C. § 523(a) based on a theory of collateral estoppel. The court found that where, as here, "plaintiff and defendants have fully litigated the fraud issue in state court and the jury rendered a verdict against the defendants, a reference to the state court action is sufficient notice to the defendants of the nature of plaintiff's fraud claim in this nondischargeability action."

The court then proceeded to grant Plaintiffs' Motion for Summary Judgment. The court noted that fraud under 11 U.S.C. § 523(a)(2)(A) was a generic term lacking a definite and invariable definition. As such, the court found unpersuasive Defendants' argument that collateral estoppel did not apply because the state court jury failed to find gross recklessness, as required under 11 U.S.C. § 523(a)(2)(A). In particular, the court concluded that a finding of recklessness, as opposed to gross recklessness, was sufficient under 11 U.S.C. § 523(a)(2)(A). Thus, the state court jury's finding of fraud was sufficient under the statute. This appeal followed.

III. STANDARD OF REVIEW

This Court will review the Bankruptcy Court's denial of a motion to dismiss de novo. See Mezibov v. Allen, 411 F.3d 712, 716 (6th Cir.2005). With regard to a motion for summary judgment, the Court will review the Bankruptcy Court's factual findings for clear error and its legal conclusions de novo. See Stevenson v. J.C. Bradford & Company, 277 F.3d 838, 849 (6th Cir.2002).

IV. ANALYSIS

A. Defendants' Motion to Dismiss.

Federal Rule of Civil Procedure 12(b)(6) allows a court to dismiss a Complaint that fails "to state a claim upon which relief may be granted." "This rule allows a defendant to test whether, as a matter of law, the plaintiff is entitled to legal relief even if every allegation in the complaint is true." Tidik v. Ritsema, 938 F.Supp. 416, 421 (E.D.Mich.1996). Thus, when faced with a Rule 12(b)(6) motion to dismiss, a court "must construe the complaint in the light most favorable to the plaintiff, and accept all factual allegations as true." Allard v. Weitzman, 991 F.2d 1236, 1240 (6th Cir.1993). To defeat a motion to dismiss, "a complaint must contain either direct

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or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory." Id. (quotation omitted).

Under Federal Rule of Civil Procedure 8(a), a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." This requires that the factual...