In re Looney v. Looney

Decision Date29 June 2011
Docket NumberNo. 10-8083,10-8083
CourtU.S. Court of Appeals — Sixth Circuit

ELECTRONIC CITATION: 2011 FED App. 0008P (6th Cir.)

File Name: 11b0008p.06


Appeal from the United States Bankruptcy Court

for the Middle District of Tennessee

Case No. 08-11453; Adv. No. 09-88

Before: HARRIS, RHODES, and SHEA-STONUM, Bankruptcy Appellate Panel Judges.


ON BRIEF: E. Covington Johnston, Jr., JOHNSTON & STREET, PLLC, Franklin, Tennessee, for Appellant. Eric W. Smith, BRADLEY ARANT BOULT CUMMINGS LLP, Nashville, Tennessee, for Appellee.


ARTHUR I. HARRIS, Bankruptcy Appellate Panel Judge. In this appeal, Russell Looney ("debtor") appeals the bankruptcy court's determination that the debt he owed to Old Republic Title Company of Tennessee ("Old Republic"), in the amount of $286,940, is nondischargeable. For the reasons that follow, we AFFIRM.


The issue on appeal is whether the bankruptcy court erred when it found the debt debtor owed to Old Republic, which had been reduced to judgment by a state court settlement agreement, nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A).


The Bankruptcy Appellate Panel of the Sixth Circuit ("BAP") has jurisdiction to decide this appeal. The United States District Court for the Middle District of Tennessee has authorized appeals to the BAP. A final order of a bankruptcy court may be appealed by right under 28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if it "'ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.'" Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989) (citations omitted).

Conclusions of law are reviewed de novo. Mitan v. Duval (In re Mitan), 573 F.3d 237 (6th Cir. 2009). "Under a de novo standard of review, the reviewing court decides an issue independently of, and without deference to, the trial court's determination." Palmer v. Washington Mut. Bank (In re Ritchie), 416 B.R. 638, 641 (B.A.P. 6th Cir. 2009) (emphasis in original) (citing Gen. Elec. Credit Equities, Inc. v. Brice Rd. Devs., LLC (In re Brice Rd. Devs., LLC), 392 B.R. 274, 278 (B.A.P. 6th Cir. 2008)).

Factual findings underlying the bankruptcy court's ruling are reviewed for clear error. In re Mitan, 573 F.3d 237. "A finding of fact is clearly erroneous 'when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.'" Riverview Trenton R.R. Co. v. DSC, Ltd. (In re DSC, Ltd.), 486 F.3d 940, 944 (6th Cir. 2007) (quoting Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573, 105 S. Ct. 1504, 1507 (1985)). Additionally, the trial court's "[f]indings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses." Fed. R. Bank. P. 8013; see also Peveler v. United States, 269 F.3d 693, 702 (6th Cir. 2001) (refusal to set aside credibility determination of magistrate judge "who has had opportunity to view the witness on the stand and assess his demeanor.") (quoting Ramsey v. United Mine Workers of America, 481 F.2d 742, 747 (6th Cir. 1973) ("Thus, however we might individually view the evidence if we were the triers of fact, it is clear that we are required to give great weight to the findings of the trial court which had the opportunity to see the witnesses, to hear their evidence as it was presented, to view the demeanor of the persons who testified in court, and to determine all issues of credibility.").


The debtor was a member of Green Investors, LLC, ("Green Investors") a two-member LLC with the debtor and Michael Dolan as its sole members. In October of 2005, Green Investors purchased the property located at 4529 Wayland Drive, Nashville, Tennessee. Green Investors then contracted with Carpenter Construction to serve as general contractor for the construction of a house on the property. Paul Robert Carpenter ("Mr. Carpenter") is the sole shareholder and President of Carpenter Construction. Pursuant to agreement, Carpenter Construction would receive $50,000 in overhead in monthly installments during the project and Green Investors would pay all associated construction expenses. In addition to overhead, Carpenter Construction was to receive $100,000 for its contracting services. However, that agreement was never put in writing.

On January 26, 2006, Green Investors refinanced the property by borrowing $332,000 from Branch Banking and Trust Company ("BB&T"). In May of 2006, Green Investors borrowed an additional $1,000,000 from BB&T to fund the construction project. At that time, the debtorexecuted a personal guaranty of the obligations of Green Investors to BB&T. In April of 2007, Green Investors borrowed additional funds from BB&T, bringing the total amount of indebtedness to $1,600,000. Of those funds, the debtor wrote $520,640 in checks to himself. The debtor's testimony was, at best, inconsistent regarding whether these funds were used wholly for expenses of the construction of the property at issue. (See Tr. at 87-88 (debtor admitted all funds not used for construction of property), 90-104 (cross examination re: purpose of personal checks).) In June of 2006, Carpenter Construction began building a home on the property. In doing so, Carpenter Construction contracted with various vendors and subcontractors. Upon receipt of invoices for services rendered or supplies provided, Mr. Carpenter faxed or hand-delivered those invoices to the debtor for payment on a weekly and monthly basis. The debtor would then write checks on behalf of Green Investors to pay the invoices. The debtor remained current on these invoices through May of 2007.

In February of2007, the Greenbergs (the buyers), Green Investors (the owner), and Carpenter Construction (the contractor) executed a contract in which Carpenter Construction agreed to finish the construction project and the Greenbergs agreed to purchase the improved property from Green Investors at the price of $1,905,000. Paragraph 10 of the contract provided:

Owner will convey, by valid general warranty deed to the Buyers, marketable fee simple title to the Property. Following the execution and delivery of this Contract by both Owner and Buyers, Buyers, at Buyers' expense shall apply to John T. Cook (Old Republic) in Nashville, Tennessee or a title company acceptable to Buyers' lender for a title insurance binder in the amount of the Purchase Price for the property, which shall disclose the state of the title to the Property and shall constitute the commitment of such company to insure the title following the Closing in the name of Buyers and /or Buyers' successors, assigns or designees, with a title insurance policy issued by said company in an Alta Form B owner's policy of title insurance. Such binder must reveal insurable and marketable title of the fee simple interest in the Property in Owner, subject only to such standard exceptions and other matters as may be approved by Buyers for the Property prior to Closing. The standard exceptions for laborer's and materialmen's liens, construction liens, parties in possession, and easements shown or not shown by the public records shall be removed by Owner, at Owner's expense, at orprior to Closing. Such policy shall affirmatively insure that no parties other than Buyers will have any interest in the Property. The providing of such affirmative coverage shall be a condition to the parties' performance of this Contract.

(Trial Ex. 2) (emphasis added).

It appears that in June of 2007, Green Investors began to have trouble satisfying its obligations to Carpenter Construction. In June of 2007, Green Investors exhausted the remaining balance of the BB&T credit line, and from June until the closing date of August 10, 2007, many subcontractors and vendors either went unpaid or were paid by Carpenter Construction. Although the debtor denies receipt of certain invoices reflecting nonpayment, Mr. Carpenter testified that he delivered all invoices dated prior to August 1, 2007, before closing. Specifically, Mr. Carpenter testified:

There was $ 160,000 of invoices that was dated prior to August 1st. I'm certain those were delivered to [the debtor] prior to closing. In addition to that, there's approximately another $ 100,000 of invoices that were paid directly during - - directly by Carpenter Construction prior to closing in order to make sure the home was complete. I'm 100% certain he knew of those. In addition to that, there's two other large invoices, one for 28,000 and one for 21,000; and I'm 100 percent certain he knew of those as well.

(Tr. at 38, lines 2-9.)

At closing, Green Investors executed a Mechanics' Lien and Extended Coverage Affidavit and Indemnity Agreement ("owner's affidavit") in which the debtor declared under oath that "title to the property is good and marketable" and that:

All mechanics and materialmen who have worked on the improvements or furnished materials . . . have been paid in full, and there are no persons or entities whatsoever who are in a position to obtain a mechanics' or materialmen's lien which would result in a judgment being rendered with priority of the interest being insured by the Policy.

(Trial Ex. 8.) The notarized owner's affidavit further provides, "THIS AFFIDAVIT IS MADE FOR THE PURPOSE OF INDUCING Old Republic National Title Ins. Co. to issue a policy or policies insuring the title to the property." (Id.) (emphasis in original). Green Investors then conveyed a warranty deed to the Greenbergs for a final purchase price of $1,934,551....

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