Lund-Ross Constructors, Inc. v. Buchanan (In re Buchanan), 20-6020

• Decision Date: 02 April 2021
• Docket Number: No. 20-6020,20-6020
• Parties: IN RE: Jay Douglas BUCHANAN, also known as Jay Buchanan, also known as Jay D. Buchanan; Lori Ann Buchanan, also known as Lori A. Buchanan, also known as Lori Buchanan Debtors. Lund-Ross Constructors, Inc. Plaintiff - Appellant v. Jay Douglas Buchanan; Lori Ann Buchanan Defendants - Appellees
• Court: Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Eighth Circuit

626 B.R. 520

IN RE: Jay Douglas BUCHANAN, also known as Jay Buchanan, also known as Jay D. Buchanan; Lori Ann Buchanan, also known as Lori A. Buchanan, also known as Lori Buchanan Debtors.Lund-Ross Constructors, Inc. Plaintiff - Appellant

v.Jay Douglas Buchanan; Lori Ann Buchanan Defendants - Appellees

No. 20-6020

United States Bankruptcy Appellate Panel of the Eighth Circuit.

Submitted: February 18, 2021

Filed: April 2, 2021

Counsel who presented argument on behalf of the appellant was Justin D. Eichmann, of Omaha, NE.

Counsel who presented argument on behalf of the appellees was Scott Eugene Daniel, of Omaha, NE.

Before NAIL, Chief Judge, SCHERMER and SHODEEN, Bankruptcy Judges.

NAIL, Chief Judge.

Lund-Ross Constructors, Inc. appeals the bankruptcy court's summary judgment in favor of Debtors Jay Douglas Buchanan and Lori Ann Buchanan regarding Lund-Ross's complaint to determine the dischargeability of a debt it alleges Debtors owe.¹ We have jurisdiction over this appeal pursuant to 28 U.S.C. § 158(b). We affirm.

BACKGROUND

Debtors filed a chapter 7 petition. Debtors included "Lund Ross Constructors" on their schedule of creditors holding unsecured claims and described the claim as contingent, unliquidated, disputed, and a "Corporate Debt; Notice Purpose Only. Lawsuit - CI 19-9270 (Douglas County District Court, NE)[.]" Debtors also referenced Lund-Ross on their schedule of codebtors, indicating Signature Electric, LLC ("Signature Electric") was a codebtor on the claim held by "Lund Ross Constructors[.]" In their statement of financial affairs, Debtors disclosed Lund-Ross had a pending state court lawsuit against Debtors and Signature Electric regarding "Contract Disputes[.]"

Lund-Ross timely commenced a nondischargeability action against Debtors under 11 U.S.C. § 523(a)(2)(A). Lund-Ross stated Debtors were the sole owners of Signature Electric, it had hired Signature Electric to do work on various projects for which Lund-Ross was the general contractor, and Signature Electric had employed or subcontracted some of the work or supplies to other entities. Lund-Ross alleged Signature Electric and Debtors had, when requesting payment from Lund-Ross, untruthfully stated, via lien waivers, that all subcontractors engaged by Signature Electric had been "fully satisfied" for materials and labor they had provided, which resulted in substantial liens being placed on Lund-Ross's various projects. It wanted the value of those liens, which Lund-Ross had to clear, plus related costs, declared nondischargeable. Lund-Ross did not reference in its complaint any applicable nonbankruptcy statute or case law that would make Debtors, under the facts presented, personally liable to Lund-Ross. Debtors timely answered the complaint.

After commencing the nondischargeability adversary proceeding against Debtors, Lund-Ross filed an unsecured proof of claim for $600,043.64 in Debtors' bankruptcy case. On the claim form, Lund-Ross stated the basis for its claim was: "Claims/liens asserted for amounts unpaid to electrical suppliers[.]" Lund-Ross attached to its proof of claim an accounting of the claim that was headed "D & J Electric," a business name used by Signature Electric. Lund-Ross also attached to its proof of claim several lien statements. All listed either Signature Electric or D & J Electric as the contracting party; none listed Debtors.² All the invoices attached to the lien statements listed either Signature Electric or D & J Electric as the billed party; none listed Debtors.

The chapter 7 trustee objected to Lund-Ross's and several other similarly situated creditors' claims. He alleged:

[E]ach of the said Claims is listed in Debtors' Schedules against a corporate or non-consumer debt against Signature Electric, LLC d/b/a D & J Electric and each of the said Claims is property [sic] a claim against Signature Electric, LLC d/b/a D & J Electric. None of the listed claims includes any evidence of a personal guarantee by Debtors.

The bankruptcy court held a hearing after one of the affected creditors responded to the trustee's objection.³ The bankruptcy court sustained the trustee's objection to the responding creditor's claim and entered an oral decision. The bankruptcy court also sustained the trustee's objection to the other claims, including Lund-Ross's, but did not discuss each individually. No appeal was taken.

In the pending adversary proceeding, Lund-Ross and Debtors filed a joint preliminary pre-trial statement. It summarily stated Debtors' "defenses or objections" included Debtors' assertions that: all actions and representations were between Lund-Ross and Signature Electric, not Debtors; the debt alleged by Lund-Ross was owed by Signature Electric, not Debtors; and there was insufficient evidence to support lifting the corporate veil. In their "summary of the uncontroverted facts," the parties stated Lund-Ross had obtained a judgment in state court against Signature Electric for $600,043.64. There is no dispute the state court judgment against Signature Electric was by default.

Debtors moved for summary judgment in the adversary proceeding. In their supporting brief, Debtors argued the undisputed record shows the debt to Lund-Ross was owed by Signature Electric only and Lund-Ross's representatives were aware of Signature Electric's "financial shortcomings and need for timely payments in order to pay past obligations to suppliers," so there was no intent to deceive Lund-Ross "as to the true state of supplier payments at any time." Debtors also argued there was no reliance by Lund-Ross on the lien waivers because progress payments were made by Lund-Ross prior to its receiving completed lien waivers. As to piercing the corporate veil, Debtors argued they did not divert for personal use the funds Signature Electric received for its work from Lund-Ross and there was no evidence Debtors used Signature Electric as an alter ego to conduct personal business or that the limited liability company was a "mere shell." Debtors referenced the bankruptcy court's earlier order disallowing Lund-Ross's claim, but in their summary judgment argument Debtors did not rely on any preclusive effect the order disallowing Lund-Ross's claim might impose or impart.

Lund-Ross resisted Debtors' summary judgment motion. In its supporting brief, Lund-Ross said it was aware Signature Electric had reached the limits of its bonding capacity, but it said it had no other communications with Signature Electric or Debtors concerning Signature Electric's financial condition prior to Signature Electric's ceasing business. Lund-Ross stated to receive progress payments, Signature Electric had to apply for payment using a particular form, supply supporting documentation, and provide a completed lien waiver for the previous month's progress payment. Lund-Ross admitted it did not hold personal guaranties from Debtors, but alluded to personal "warranties." It argued Signature Electric had, contrary to the lien waivers provided, failed to pay its creditors for six months before Debtors advised Lund-Ross Signature Electric was going out of business. With limited discussion, Lund-Ross argued it did not need to pierce the corporate veil to assert a claim against Debtors but was instead relying on Debtors' alleged false statements in Signature Electric's lien waivers to create Debtors' personal liability.

Lund-Ross cited GT Contracting Corp. v. Ogden (In re Ogden ), Bankr. No. 14-00286-5-DMW, Adv. No. 14-00005-5-DMW, 2015 WL 9412746 (Bankr. E.D.N.C. Dec. 21, 2015), and RWS Building Co. v. Freeman , No. 04CA40, 2005 WL 3446320 (Ohio Ct. App. Nov. 23, 2005), for the proposition that a corporation's principal may be personally liable for fraudulent acts. In the nondischargeability action under 11 U.S.C. § 523(a)(4) in Ogden , at issue was the preclusive effect of a state court judgment the creditor had obtained earlier against the debtor–a corporation's chief executive officer–regarding the debtor's violation of provisions of the Maryland Construction Trust Statute. In Freeman , the Ohio appellate court affirmed the trial court's summary judgment for the plaintiff-general contractor, holding the trial court had correctly held certain defenses of estoppel and waiver raised by the defendant-subcontractor were not applicable. The subcontractor's principal had been held personally liable, along with his company, under Ohio's R.C. § 1701.93. Lund-Ross, just as in its complaint, however, did not identify in its summary judgment brief any nonbankruptcy law applicable to Debtors that would, under the facts presented, render them personally liable to Lund-Ross.

After taking Debtors' summary judgment motion under advisement, the bankruptcy court entered docket text that stated Lund-Ross "has not shown that the debtors owe a debt to Lund-Ross, so the debtors' motion for summary judgment will be granted and the complaint seeking to except the alleged debt from discharge under § 523(a)(2)(A) will be dismissed." In an attendant written order, the bankruptcy court determined the first analysis it needed to perform was whether Debtors owed a valid debt to Lund-Ross. The bankruptcy court stated Lund-Ross had not pled the corporate veil should be pierced and had not otherwise established under applicable nonbankruptcy law how Debtors are personally liable to Lund-Ross.

Lund-Ross timely appealed the bankruptcy court's summary judgment in favor of Debtors and identified five issues,⁴ which may be condensed to one: In granting summary judgment for Debtors, did the bankruptcy court err in finding Lund-Ross failed to establish on the record Debtors were personally liable for the debt owed by Signature Electric.

In its opening brief, Lund-Ross states it was asking the bankruptcy court in the adversary proceeding to determine it held a claim against Debtors personally and that the claim was excepted from discharge pursuant to 11 U.S.C. § 523(a)(2)(A).⁵ It indicates it made this forum choice after Debtors'...