Excellent Home Properties, Inc. v. Candice M. Kinard

Case Type:
Case Status:
20-2745 (8th Circuit, May 21,2021) Published
The U.S. Court of Appeals for the Eighth Circuit (Circuit) affirmed the dismissal of an adversary complaint by the U.S. Bankruptcy Court for the Western District of Missouri (BC), that had sought to establish the nondischargeability of a claim under § 523(a)(2)(A) and three analogous state law theories due to the filing creditor’s lack of justifiable reliance on a related non-debtor’s false representations as to the condition of the relevant property.
Procedural context:
The BC dismissed the adversary complaint filed by Excellent Home Properties, Inc. (EHPI) against Candice Kinard (Candice), whose mother’s company, at which Candice worked as an ostensible “business partner,” had borrowed $47,000 from EHPI prepetition for the purchase, renovation, and resell of certain property but failed to ever undertake the required renovations or consummate its resale, under § 523(a)(2)(A) and Missouri’s fraudulent misrepresentation, negligent misrepresentation, and derivative civil conspiracy laws. Because EHPI had failed to conduct any actual investigation of the house’s conditions, the BC had reasoned, EHPI could not have justifiably relied on representations as to this property’s state given by Candice’s mother on behalf of her company, Manor Place LLC (MPL). True, EHPI had always dealt with MPL electronically. But EHPI was “a non-novice, sufficiently sophisticated investor ….” Based on the record, t had consulted a local lawyer about the trustee sale, and it had directed the lawyer about what, when, or if it should bid at the foreclosure sale. Though this same lawyer was surely available to take a cursory glance at the house, EHPI simply never asked him to do so. Having done so little and ignored several red flags, EHPI’s reliance on MPL’s representations as to its work and the property's state could not be regarded as remotely justifiable, dooming its complaint under § 523(a)(2)(A). As EHPI’s state law theories included a similar justifiable reliance requirement, their dismissal followed. With the adversary dismissed, EHPI’s claim faded into obsolescence. The U.S. District Court for the Western District of Missouri affirmed. EPHI timely appealed to the Circuit.
Candice, one of the two debtors—the other being her husband, Quinton D. Kinard (Quinton, and together with Candice, Debtors or Kinards) in the underlying bankruptcy case, worked at MPL. Kinard’s mother, not a party here, purportedly treated her as a “business partner” in Manor Place. Long before the Debtors’ joint Chapter 13 filing, EHPI loaned $47,000 to MPL to purchase, renovate, and resell a house in Independence, Missouri. While MPL purchased the house, it never renovated it. Instead, Kinard’s mother strung EHPI along with six fictitious closing dates for the resale of the house (none of which occurred) and continuously misrepresented the house’s conditions. These feints lasted only so long: after a few interest payments and a complete cutoff of communications, MPL defaulted. In 2017, EHPI foreclosed on the house. At the trustee sale, EHPI made the winning, and only, “full-credit bid” on the house for $50,000, having thereby purchased the house, “sight-unseen.” Although EHPI had always dealt with MPL electronically, neither before submitting its bid nor throughout the foreclosure process did EHPI actually take a minute to examine the property. When it finally did look at the house, EHPI discovered no renovations had taken place. A contractor hired by EHPI estimated the house needed $68,000 in repairs, whereas MPL’s last estimate had been only $17,000. Deciding against repairs, EHPI sold the house for $19,000. In the midst of these events, MPL, the Debtors, and Candice’s mother all separately filed for bankruptcy. Whether out of caution, innocence, or something more nefarious, Candice did not schedule EHPI as a creditor in her Chapter 13 case. Eventually, however, EHPI filed an unsecured proof of claim for $50,000, alleging that its debt was nondischargeable on the basis of fraud pursuant to § 523(a)(2)(A), and then an adversary complaint that added three state law fraud theories.
Raymond W. Gruender; William D. Benton; and Bobby E. Shepherd

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