Lenchner v. Korn (In re Korn)
Decision Date | 14 April 2017 |
Docket Number | Case No. 14–41173,Adv. Pro. No. 14–4408 |
Citation | 567 B.R. 280 |
Parties | IN RE: Sheldon M. KORN, Debtor. Lawrence C. Lenchner, et. al., Plaintiffs, v. Sheldon M. Korn, Defendant. |
Court | U.S. Bankruptcy Court — Eastern District of Michigan |
Charles D. Bullock, Elliot G. Crowder, Stevenson & Bullock, P.L.C., Southfield, Michigan, Attorneys for Plaintiffs.
Debra Beth Pevos, Howard S. Sher, Jacob & Weingarten, P.C., Southfield, Michigan, Attorneys for Defendant.
This adversary proceeding is before the Court on Plaintiffs' motion for summary judgment (Docket # 27, the "Motion"),1 seeking summary judgment on Counts IV through VIII of Plaintiffs' complaint.2 These counts seek a determination that a debt of over $1.9 million to Plaintiffs, arising out of a state court judgment, is nondischargeable in Defendant's bankruptcy case under 11 U.S.C. §§ 523(a)(2)(A) ( ); 523(a)(4) (Count VII); and 523(a)(6) (Count VIII). Plaintiffs argue that they are entitled to judgment on these counts based on the doctrine of collateral estoppel.
The Court concludes that Plaintiffs are not entitled to summary judgment in any respect, on any count of their complaint. Plaintiffs' Motion will be denied in its entirety.
Plaintiff Lawrence Lenchner ("Lenchner") is the brother-in-law of Defendant Sheldon Korn ("Sheldon"). Prepetition, Lenchner was involved in the development and sale of real estate with some limited liability companies Lenchner had formed (the "Lenchner Entities"). Lenchner and the Lenchner Entities had a business relationship with Sheldon; Sheldon's wife, Gale Korn; and Sheldon's two daughters, Shauna Korn and Ashley Korn (collectively, the "Korns"); and the Korn Family Limited Partnership ("KFLP").3 The business relationship ended on a sour note in December 2002, when Lenchner ceased his association with the Korns.
The Korns and KFLP responded to the collapse of the business relationship by filing a complaint against Lenchner and the Lenchner Entities in the Circuit Court for the County of Charlevoix, Michigan, on January 15, 2003 (Case No. 03–1723–19–CB, the "State Court Lawsuit").4 The state court proceedings were extensive and lengthy, and the collateral estoppel issues discussed in this opinion require the Court to describe the state court proceedings in detail.
The complaint by the Kerns and KFLP in the State Court Lawsuit included the following counts:
Lenchner and the Lenchner Entities responded to the state court complaint against them, in part, by filing counterclaims against the Korns and KFLP, alleging:
The basic facts alleged by Lenchner and the Lenchner Entities in support of their counterclaims were that the Korns, individually and through KFLP, engaged in a common scheme to defraud Lenchner and the Lenchner Entities, under which the Korns and KFLP (1) misrepresented to Lenchner and the Lenchner Entities that they were spending money Sheldon withdrewfrom the bank accounts of the Lenchner Entities for business purposes only, when in fact they were draining such accounts for personal use; and (2) failed to disclose to Lenchner and the Lenchner Entities that they intended to loot, and were looting, the Lenchner Entities.7 Lenchner and the Lenchner Entities alleged further that they "reasonably relied upon the misrepresentations and fraudulent omissions made to them by Sheldon Korn" due to the family relationship between Lenchner and the Korns, and that Lenchner and the Lenchner Entities suffered damages as a result of the fraudulent scheme.8 Lenchner and the Lenchner Entities alleged that under their fraudulent scheme, the Korns and KFLP "drain[ed] over $700,000 from [the bank] accounts [of some of the Lenchner Entities] for personal use."9
The state court conducted a 13–day jury trial in the State Court Lawsuit. Before jury deliberation began, both the Korns and KFLP on the one hand, and Lenchner and the Lenchner Entities on the other hand, dismissed their civil conspiracy claims against each other.
After all of the evidence and arguments in the State Court Lawsuit were completed, the state court gave, in relevant part, the following instructions to the jury regarding the counterclaims of Lenchner and the Lenchner Entities.
I. Fraud and Misrepresentation
The state court's jury instruction regarding fraud was, in relevant part, the following:
ii. Silent fraud
The jury instruction regarding silent fraud was, in relevant part, as follows:
With respect to the reliance element of both fraud and silent fraud, the state court instructed:
Reliance. When I use the word relied, I mean the plaintiff or counter-plaintiff would not have entered into the agreement or continued the agreement if defendant or counter-defendant had not made the representation or promises, even if the representation or promises was not the only reason for the plaintiff or counter-plaintiff's action.12
iii. Unjust enrichment
The jury instruction for unjust enrichment was, in relevant part, as follows:
iv. Breach of fiduciary duty
The jury instruction regarding breach of fiduciary duty was as follows:
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