Phillip v. Reecher (In re Reecher)

• Decision Date: 24 July 2014
• Docket Number: Bankruptcy No. 11–30365–DER.,Adversary No. 12–00061–DER.
• Citation: 514 B.R. 136
• Parties: In re David A. REECHER, Debtor. Daisy Couloote Phillip, Plaintiff, v. David A. Reecher, Defendant.
• Court: U.S. Bankruptcy Court — District of Maryland

514 B.R. 136

In re David A. REECHER, Debtor.
Daisy Couloote Phillip, Plaintiff,
v.
David A. Reecher, Defendant.

Bankruptcy No. 11–30365–DER.
Adversary No. 12–00061–DER.

United States Bankruptcy Court,
D. Maryland.

Signed July 24, 2014.

[514 B.R. 140]

Joseph H. Ostad, Baltimore, MD, for Plaintiff.

Steven A. Allen, Towson, MD, for Defendant.

MEMORANDUM OPINION
DAVID E. RICE, Bankruptcy Judge.

Daisy Couloote Phillip is the holder of a judgment entered by the Circuit Court for Prince George's County, Maryland (the “Circuit Court”) in her favor and against David A. Reecher in the amount of $2,650,000. The complaint filed by Daisy Phillip in the Circuit Court asserted claims in ten counts, five of which sought both compensatory and punitive damages against David Reecher under Maryland law for civil conspiracy, intentional misrepresentation, constructive fraud, concealment and non-disclosure, and conversion. The Circuit Court entered a judgment against David Reecher for $150,000 in compensatory damages, plus $500,000 in punitive damages on each of those five counts.

After David Reecher filed a voluntary Chapter 7 bankruptcy petition in this court, Daisy Phillip commenced this adversary proceeding in which she asks for a determination under 11 U.S.C. § 523(a)(2) that the entire amount of her judgment is a claim that is excepted from discharge (that is, nondischargeable) by reason of “fraud, false pretenses, and misrepresentations with actual malice and intent to deceive.” David Reecher contends that he did not commit fraud or make any intentional misrepresentations, is not bound by the Circuit Court judgment because it was a default judgment, and is entitled to a fresh opportunity in this court to litigate whether he is liable to Daisy Phillip at all and the nature of any such liability. For the reasons that are explained in this opinion neither party is correct. Collateral estoppel applies and the judgment is nondischargeable in part, but the remainder of the judgment is dischargeable.

A trial on the merits was conducted over the course of seven days starting on October 15, 2013 and concluding on October 24, 2013. At the trial, both Daisy Phillip and David Reecher called witnesses to testify (including themselves) and offered numerous exhibits that were introduced into evidence. Following the trial, I held this matter under advisement and requested post-trial memoranda from the parties, the last of which was filed on December 2, 2013 [Docket Nos. 115, 116, 117, and 118].

INTRODUCTION

The application of collateral estoppel is not discretionary. This case must be decided in light of the Fourth Circuit's instruction that “Federal courts must give the same preclusive effect to a state court judgment as the forum that rendered the judgment would have given it.” Sartin v. Macik, 535 F.3d 284, 287 (4th Cir.2008). It is well settled in the Fourth Circuit that “[t]o preclude a debtor from litigating an issue dispositive of discharge, the record in the case giving rise to the judgment debt must show that the

[514 B.R. 141]

issue was actually litigated and determined by a final valid judgment ... and that it was necessary to the decision.” In re Raynor, 922 F.2d 1146, 1149 (4th Cir.1991) (citing Combs v. Richardson, 838 F.2d 112, 113 (4th Cir.1988)). In considering this matter, I am mindful that “the determination that an issue was actually litigated and necessary to the judgment must be made with particular care.” Combs v. Richardson, 838 F.2d at 113. This court must determine to what extent the Circuit Court's findings of fact are consistent with the findings of fact necessary for a determination of nondischargeability and whether this court needs to make additional findings of fact in order to determine the nondischargeability of the claims of Daisy Phillip.

David Reecher relies on Gulati v. McClendon (In re McClendon), 415 B.R. 170 (Bankr.D.Md.2009), to support his contention that he is entitled to a second opportunity to litigate in this court. In McClendon, the court found that collateral estoppel did not apply to the state court judgment in question because the record of the lower court proceeding was “silent as to whether the issues determined there are identical to those tried here.” Id. at 182. It is indeed the case that, as stated in McClendon, “[c]ollateral estoppel is not appropriate when a finding of nondischargeability requires proof of an element not litigated in the earlier proceeding.” Id. In the instant matter, however, this court has the transcript and a record of the findings of fact made by the Circuit Court at the damages hearing that provide the factual basis for the determination of whether Daisy Phillip's claims are nondischargeable. The Circuit Court awarded punitive damages on the five counts of civil conspiracy, intentional misrepresentation, constructive fraud, concealment and non-disclosure, and conversion; necessarily finding that all elements of each of those causes of action had been shown by Daisy Phillip.

Applying these principles and after careful consideration of the evidence (particularly the record in the litigation in the Circuit Court), I find for the reasons explained below that (i) David Reecher is bound by the judgment entered by the Circuit Court and is not entitled to a second opportunity to litigate his liability to Daisy Phillip in this court, (ii) the compensatory damages of $150,000 and the punitive damages of $500,000 each awarded by the Circuit Court under the intentional misrepresentation, civil conspiracy, and concealment and non-disclosure counts in Daisy Phillip's complaint are claims that are excepted from discharge under § 523(a)(2) (that is, they are nondischargeable claims), and (iii) the punitive damages awarded by the Circuit Court on the other two counts are not excepted from discharge under § 523(a)(2) (that is, they are dischargeable claims).¹

JURISDICTION

The court has subject matter jurisdiction over this proceeding under 28 U.S.C. § 1334, 28 U.S.C. § 157(a), and Rule 402 of the Local Rules of the United States District Court for the District of Maryland. This is a “core proceeding” under 28 U.S.C. § 157(b)(2)(I). This memorandum opinion constitutes the court's findings of fact and conclusions of law in accordance with Rule 52 of the Federal Rules of Civil Procedure (made applicable here by

[514 B.R. 142]

Rule 7052 of the Federal Rules of Bankruptcy Procedure).

FINDINGS OF FACT

Daisy Phillip filed a verified complaint against David Reecher and others in the Circuit Court on February 17, 2009 that was docketed as Daisy Couloote Phillip v. Chesapeake Home Buyers, et al., Case No. CAL09–04792. The course of the litigation in the Circuit Court is revealed in the Civil Case Summary. ² On July 8, 2009, Aaron G. Seltzer entered an appearance in the Circuit Court litigation and filed a motion to dismiss the verified complaint on behalf of David Reecher as well as defendants Chesapeake Home Buyers (“Chesapeake”), Eric Golden, Landco Investments, Inc. (“Landco”), and 5444 Taylor Street, LLC.³ Plaintiff's Ex. 39, p. 5 of 26. Daisy Phillip thereafter filed a first and a second amended verified complaint. On December 18, 2009, the Circuit Court held a hearing at which the motion to dismiss was granted with leave for Daisy Phillip to file a further amended complaint within 30 days. Plaintiff's Ex. 39, pp. 8–9 of 26.

The Third Amended Complaint

Daisy Phillip ⁴ filed her Third Amended Verified Complaint for Money Damages (the “Third Amended Complaint”) [Plaintiff's Ex. 1] on January 14, 2010. The Third Amended Complaint contains nine counts against David Reecher and other defendants for breach of fiduciary duty (Count 1), unjust enrichment (Count 2), civil conspiracy (Count 3), intentional misrepresentation (Count 4), negligent misrepresentation (Count 5), constructive fraud (Count 7), concealment and non-disclosure (Count 8), conversion (Count 9), and unfair and deceptive trade practices (Count 10). ⁵ In each of those counts, Daisy Phillip requested entry of judgment against David Reecher for compensatory damages in the amount of $289,000. In addition, Daisy Phillip sought punitive damages in the amount of $500,000 against David Reecher for five of those counts—

[514 B.R. 143]

namely, the counts for civil conspiracy (Count 3), intentional misrepresentation (Count 4), constructive fraud (Count 7), concealment and non-disclosure (Count 8), and conversion (Count 9). The Third Amended Complaint alleges the following facts.

Daisy Phillip was the owner of real property located at 5444 Taylor Street, Bladensburg, Maryland 20710 (the “Property”). David Reecher, Eric Golden, Chesapeake, Landco, and 5444 Taylor Street, LLC acting in concert intentionally and with malice deceived Daisy Phillip into executing documents that divested her of ownership of the Property and intentionally and fraudulently obtained the equity value of the Property. The course of events began in or about April of 2007 when Daisy Phillip contacted Chesapeake through use of the yellow pages. Shortly thereafter, Eric Golden met with Daisy Phillip and identified himself to her to be the representative and an officer of Chesapeake and Landco. Eric Golden advised Daisy Phillip that he was able to list and sell the Property, and he agreed to sell the Property through Chesapeake and to reimburse the equity in the Property to her. Plaintiff's Ex. 1, ¶¶ 11–15.

Eric Golden had with him pre-prepared blank documents which Daisy Phillip signed on the day he met with her. Eric Golden fraudulently induced Daisy Phillip to sign those documents describing them as a contract for sale of her Property by Chesapeake. Eric Golden promised that the documents would be filled out and forwarded to Daisy Phillip once they were completed by the principals of Chesapeake or Landco. The documents that Eric Golden induced Daisy Phillip to sign included organization documents for 5444 Taylor Street, LLC. Plaintiff's Ex. 1, ¶¶ 16–18.

5444 Taylor...