Old Republic Title Co. of Tennessee v. Looney (In re Looney)
- Summarized by Dean Langdon , DelCotto Law Group PLLC
- 14 years 8 months ago
- Citation:
- 11-b0008p.06; BAP Case No. 10-8083
- Tag(s):
-
- Ruling:
- Mr. Looney's debt to the title insurer was nondischargeable under Section 523(a)(2)(A) since he personally benefitted from the materially false statement about the absence of potential mechanics' liens in the owner's affidavit; he acted knowingly or with gross recklessness and intended to deceive the title insurer; and the title insurer justifiable relied on the false representations, which were the proximate cause of their loss. The Bankruptcy Appellate Panel found no clear error in the bankruptcy court's factual findings regarding the elements of the Section 523(a)(2)(A) claim. The BAP also addressed Mr. Looney's argument that the settlement with the title insurer effected a novation, ruling that a settlement did not preclude a creditor from proving fraud associated with the underlying debt which gave rise to the settlement, consistent with the Supreme Court ruling in Archer v. Warner, 538 U.S. 314, 123 S. Ct. 1462 (2003).
- Procedural context:
- The Bankruptcy Appellate Panel for the Sixth Circuit Court of Appeals affirmed the bankruptcy court's determination that a debt of $286,940 owed to Old Republic Title Co. was nondischargeable.
- Facts:
- Russell Looney was one of two members of Green Investors, LLC, which hired Carpenter Construction to build a house in Nashville, Tennessee late in 2005. By April, 2007, Green Investors had borrowed $1,600,000 from BBT to build the house, and Mr. Looney had guaranteed the debt. Mr. Looney also wrote checks to himself in excess of $500,000 from the loan proceeds. Green Investors found a buyer for the house for the price of $1,905,000, but from June, 2007 until the closing on August 10, 2007 approximately $350,000 due to subcontractors and vendors was not paid by Green Investors. Green Investors executed an owner's affidavit at closing confirming there were no potential mechanics' or materialman's liens and received approximately $150,000 of the sale proceeds. Over $100,000 of that amount went to Mr. Looney.
Less than two months after closing, Carpenter Construction filed a lien against the property and proceeded to file suit. The buyer's title insurance company settled with Carpenter Construction and in October, 2008 the title insurer, Carpenter Construction, Green Investors and Mr. Looney entered into a settlement agreement where Mr. Looney entered into a consent judgment in favor of the title insurer for $241,500, promised to pay the insurer $230,000 if Green Investors did not, and secured his promises with a deed of trust on real property in Franklin, Tennessee.
Mr. Looney filed bankruptcy on December 4, 2008. The title insurer filed a claim for $241,500 and brought an adversary action under 11 U.S.C. Section 523(a)(2)(A). The bankruptcy court held an evidentiary hearing and in August 2010 ruled that Mr. Looney's debt to the title insurer was nondischargeable. Mr. Looney timely appealed.
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