Case 4:16-cv-00185-ALM Document 21 Filed 02/01/17 Page 1 of 8 PageID #: 848
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`United States District Court
`EASTERN DISTRICT OF TEXAS
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`Civil Action No. 4:16-cv-185
`Judge Mazzant
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`RANDALL LEE HALER
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`v.
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`BOYINGTON CAPITAL GROUP, LLC
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`MEMORANDUM OPINION AND ORDER
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`Pending before the Court is Randall Lee Haler’s appeal from an order issued by the United
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`States Bankruptcy Court for the Eastern District of Texas granting partial summary judgment in
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`favor of Boyington Capital Group, LLC. Having considered the relevant pleadings, the Court
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`finds that the bankruptcy court’s decision should be affirmed.
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`BACKGROUND
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`Randall Lee Haler (“Haler”) was the Executive Vice President and a limited partner of
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`McKinney Aerospace, L.P. (“McKinney Aerospace”), a business engaged in repairing airplanes.
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`In March 2006, McKinney Aerospace entered into four contracts with Boyington Capital Group,
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`LLC (“Boyington”) to repair a Boyington business jet. In April 2006, Boyington tendered to
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`McKinney Aerospace a payment of $337,275 for the repairs. On June 6, 2006, Boyington tendered
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`an additional $60,000 for an agreed-upon change order. Later that same day, however, Boyington
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`sent a letter to McKinney Aerospace instructing it to forgo any further work on the jet and
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`requested a refund of all monies paid but not yet spent. McKinney Aerospace did not refund the
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`money, and on July 6, 2006, Boyington filed suit in the 429th Judicial District Court of Collin
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`County, Texas (the “State Court Litigation”).
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`In the State Court Litigation, a jury found Haler liable for fraud by inducement, fraud by
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`non-disclosure, violation of the Texas Deceptive Trade Practices Act, violation of the Texas Theft
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`Liability Act, and conversion. The jury found that the injury Boyington suffered as a result of
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`Haler’s actions was in the amount of $258,021.73. On June 24, 2010, after the entry of the jury
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`verdict but before the entry of a final judgment, Haler filed a voluntary petition for relief under
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`Chapter 7 of the Bankruptcy Code. The state district court signed a final judgment on December
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`6, 2011, which Haler appealed. On August 15, 2013, the Texas Court of Appeals for the Fifth
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`District of Texas partially affirmed the district court’s final judgment and reversed and remanded
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`only on the issue of attorneys’ fees. On June 9, 2015, the state district court signed an amended
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`final judgment. After the state district court judgment became final and nonappealable, the
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`bankruptcy court dissolved its abatement on August 20, 2015.
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`On December 1, 2015, Boyington filed a motion for partial summary judgment seeking a
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`judgment as a matter of law that the debt owed by Haler should be excepted from discharge under
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`11 U.S.C. § 523(a)(2)(A) (“Section 523(a)(2)(A)”) as a debt obtained by a false representation.1
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`On March 2, 2016, the bankruptcy court granted the motion, holding that the specific jury findings
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`rendered against Haler under the state law theories of fraudulent inducement and fraud by non-
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`disclosure rendered the debt nondischargeable as a matter of law under Section 523(a)(2)(A). The
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`bankruptcy court cited to the summary judgment record and jury findings that Haler “perpetuated
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`an actual fraud upon Plaintiff for his personal benefit, that he engaged in a theft and/or conversion
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`. . . and that he knowingly failed to disclose information which induced the Plaintiff to tender the
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`money” and held that each of the elements required for nondischargeability under Section
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`523(a)(2)(A) were fulfilled.
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`1 11 U.S.C. § 523(a)(2)(A) provides: “a discharge under section 727 of this title does not discharge an individual
`debtor from any debt . . . for money, property, services, or an extension, renewal, or refinancing of credit, to the
`extent obtained by false pretenses, a false representation, or actual fraud, other than a statement respecting the
`debtor’s or an insider’s financial condition.”
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`The bankruptcy court further held that Haler’s false misrepresentations were not statements
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`pertaining to McKinney Aerospace’s “financial condition” that would be dischargeable under
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`Section 523(a)(2)(A). The bankruptcy court noted that Haler’s statements regarding McKinney
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`Aerospace’s general financial stability and amount of accessible cash did not “present a picture of
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`the company’s overall financial health” and were “not excluded from the scope of Section
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`523(a)(2)(A) as references to the company’s financial condition and . . . immune from a
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`determination of nondischargeability.” The bankruptcy court thus held that Haler was precluded
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`under the principles of collateral estoppel from relitigating whether his debt was obtained by false
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`pretenses, false representation, or fraud. The bankruptcy court concluded that Haler’s debt in the
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`original amount of $258,021.73, plus pre-judgment and post-judgment
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`interest, was
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`nondischargeable as a matter of law.
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`On March 17, 2016, Haler filed a notice of appeal (Dkt. #1). On June 28, 2016, Haler filed
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`his Appellant’s brief designating the following issues for appeal:
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`1. Whether the bankruptcy court erred in holding the alleged statements of financial
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`condition did not qualify as statements of financial condition pursuant to 11 U.S.C.A.
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`§523(a)(2)(A)?
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`2. Whether the bankruptcy court erred in applying collateral estoppel to the state court
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`judgment when the jury findings could have been based upon the Appellant’s alleged
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`misrepresentation of financial condition?
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`3. Whether the bankruptcy court erred by applying collateral estoppel to Appellee’s
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`fraudulent inducement and fraud by nondisclosure claims when Appellee failed to produce
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`evidence the findings were not based on Appellant’s alleged statement of financial condition?
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`4. Whether the bankruptcy court erred in applying collateral estoppel to Appellee’s theft
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`claim by circumventing the exception to nondischargeability found in §523(a)(2)(A) through
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`application of nondischargeability found in §523(a)(4), and Appellee failed to present evidence
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`the finding was not based on the Appellant’s alleged oral statements of financial condition?
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`(Dkt. #11 at pp. 2–3).
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`On August 11, 2016, Boyington filled its Appellee’s brief (Dkt. #14). Haler filed a reply
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`on August 29, 2016 (Dkt. #18).
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`LEGAL STANDARD
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`A district court has jurisdiction to hear appeals from “final judgments, orders, and decrees”
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`of a bankruptcy court. 28 U.S.C. § 158(a)(1)(2012). A bankruptcy court’s “findings of fact are
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`reviewed for clear error and conclusions of law are reviewed de novo.” Drive Fin. Servs., L.P. v.
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`Jordan, 521 F.3d 343, 346 (5th Cir. 2008). See also In re Soileau, 488 F.3d 302, 305 (5th Cir.
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`2007); Ferrell v. Countryman, 398 B.R. 857, 862 (E.D. Tex. 2009).
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`ANALYSIS
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`1. Whether the bankruptcy court erred in holding the alleged statements of financial
`condition did not qualify as statements of financial condition pursuant to 11
`U.S.C.A. §523(a)(2)(A)?
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`The threshold issue in Haler’s appeal is whether the bankruptcy court erred in holding that
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`his oral representations regarding McKinney Aerospace were not statements of “financial
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`condition” under Section 523(a)(2)(A). Haler argues that the bankruptcy court improperly applied
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`collateral estoppel because the jury’s findings of fraud may have been based on statements of
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`financial condition, rendering the debt dischargeable. The Court reviews the bankruptcy court’s
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`conclusion of law de novo.
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`“In a Chapter 7 bankruptcy proceeding, many of a debtor’s debts are discharged.” In re
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`Bandi, 683 F.3d 671, 673 (5th Cir. 2012). Certain debts obtained by false pretenses, a false
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`representation, or actual fraud are nondischargeable under Section 523(a)(2)(A). Id. at 674.
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`However, “that subsection carves out certain debt . . . obtained by a statement regarding the
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`debtor’s ‘financial condition’ and makes that debt dischargeable.” Id. The term “financial
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`condition” “means the general overall financial condition of an entity or individual, that is, the
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`overall value of property and income as compared to debt and liabilities.” Id. at 676. The term
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`“financial condition” is not “a broadly descriptive phrase intended to capture any and all
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`misrepresentations that pertain in some way to specific assets or liabilities of the debtor.” Id. The
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`term connotes “the overall net worth of an entity.” Id. Statements concerning a debtor’s financial
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`condition include balance sheets, statements of change in overall financial position, or income and
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`debt statements. Id. at 675. See also Cohen v. Third Coast Bank, SSB, No. 1:13-CV-610, 2014
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`WL 2729608, at *9 (E.D. Tex. June 16, 2014), aff'd sub nom. In re Cohen, 599 F. App’x 192 (5th
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`Cir. 2015).
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`Haler made two oral representations regarding McKinney Aerospace’s financial stability
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`that he argues were statements of “financial condition.” Haler stated that McKinney Aerospace
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`was in “very fine legally financial shape” and that it had “plenty of cash to operate [the] business.”
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`These statements do not describe “the overall value of property and income as compared to debt
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`and liabilities.” In re Bandi, 683 F.3d at 676. The phrase “very fine legally financial shape” is not
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`akin to a balance sheet or income statement describing the company’s debt, liabilities and overall
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`net worth. Id. Likewise, references to McKinney Aerospace’s amount of cash pertain to specific
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`assets of the debtor and do not connote overall net worth. Id. These statements are thus not
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`statements of “financial condition” that would render Haler’s debt dischargeable under Section
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`523(a)(2)(A).
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`Therefore, the bankruptcy court properly held that Haler’s statements did not qualify as
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`statements of financial condition under Section 523(a)(2)(A) and that as a matter of law, Haler’s
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`debt was nondischargeable under Section 523(a)(2)(A).
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`2. Whether the bankruptcy court erred in applying collateral estoppel to the state
`court judgment when the jury findings could have been based upon the
`Appellant’s alleged misrepresentation of financial condition?
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`Collateral estoppel, or issue preclusion, prevents parties from relitigating the same issues
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`conclusively determined between them in a previous action and applies equally to findings of fact
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`and conclusions of law. Cardwell v. Gurley, No. 4-10-CV-706, 2011 WL 6338813, at *3 (E.D.
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`Tex. Dec. 19, 2011), aff'd sub nom. In re Cardwell, 487 F. App'x 183 (5th Cir. 2012) (citing
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`Arizona v. California, 530 U.S. 392, 414–415, (2000); Test Masters Educational Servs, Inc. v.
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`Singh, 428 F.3d 559, 572 (5th Cir.2005)). Collateral estoppel applies in bankruptcy
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`dischargeability proceedings. Raspanti v. Keaty (In re Keaty), 397 F.3d 264, 270 (5th Cir .2005).
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`Parties may invoke collateral estoppel in certain circumstances to bar relitigation of issues relevant
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`to dischargeability, although the bankruptcy court retains jurisdiction to ultimately determine the
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`dischargeability of the debt. Schwager v. Fallas (In re Schwager), 121 F.3d 177, 181 (5th Cir.
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`1997).
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`The preclusive effect given to state court judgments under collateral estoppel is a function
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`of the full faith and credit statute. Id. In deciding the preclusive effect of a state court judgment
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`in federal court, federal courts must look to the laws of the state that rendered judgment to
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`determine whether courts of that state would afford that judgment preclusive effect. Matter of
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`Gober, 100 F.3d 1195, 1201 (5th Cir.1996) (citing Marrese v. American Academy of Orthopaedic
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`Surgeons, 470 U.S. 373, 380 (1985)). Under Texas law, “collateral estoppel applies when an issue
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`decided in the first action is actually litigated, essential to the prior judgment, and identical to an
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`issue in a pending action. Texas Dep't of Pub. Safety v. Petta, 44 S.W.3d 575, 579 (Tex. 2001).
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`Appellant contends that collateral estoppel should not apply to the state court findings
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`because the state court “permitted consideration of alleged statements of financial condition.”
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`Appellant states that “the issue before this court is whether Appellant engaged in false pretenses,
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`false representations, actual fraud or violated the Texas Theft Liability Act absent any oral
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`statement concerning financial condition.” Appellant relies on In re Tobman, 107 B.R. 20
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`(S.D.N.Y. 1989) and In re Bogdanvich, 292 F.3d 104 (2nd Cir. 2002) to state that “collateral
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`estoppel cannot apply to findings that potentially incorporate oral misrepresentations concerning
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`financial conditions.”
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`As discussed above, however, the statements Haler made regarding McKinney Aerospace
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`were not statements of financial condition. The bankruptcy court did not err in applying collateral
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`estoppel to the state court judgment because the jury’s findings of false pretenses, false
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`representations, actual fraud, and violations of the Texas Theft Liability Act were not based on
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`statements of financial condition. Accordingly, it was proper for the bankruptcy court to preclude
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`relitigation of whether Appellant engaged in false pretenses, false representations, actual fraud or
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`violated the Texas Theft Liability Act.
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`3. Whether the bankruptcy court erred by applying collateral estoppel to Appellee’s
`fraudulent inducement and fraud by nondisclosure claims when Appellee failed
`to produce evidence the findings were not based on Appellant’s alleged statement
`of financial condition?
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`Appellant argues that “the bankruptcy court erred in applying collateral estoppel on the
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`common law fraud claim because the jury could have relied on Appellant’s alleged statement
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`concerning the financial condition of McKinney Aerospace.” Appellant argues that because the
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`jury used a broad form jury charge, “it cannot be determined whether the jury actually decided
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`Appellant committed fraud cognizable under Section 523(a)(2)(A) absent the statements of
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`financial condition.”
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`Again, Haler’s statements that McKinney Aerospace was in “very fine legally financial
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`shape” and that it had “plenty of cash to operate [the] business” do not describe “the overall value
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`of property and income as compared to debt and liabilities.” In re Bandi, 683 F.3d at 676. The
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`statements are not statements of financial condition on which the jury may have relied in finding
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`Appellant committed fraud. The bankruptcy court did not err in applying collateral estoppel
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`because the jury actually decided that Appellant committed fraud, and these findings were not
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`based on dischargeable oral misrepresentations under Section 523(a)(2)(A).
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`4. Whether the bankruptcy court erred in applying collateral estoppel to Appellee’s
`theft claim by circumventing the exception to nondischargeability found in
`§523(a)(2)(A) through application of nondischargeability found in §523(a)(4), and
`Appellee failed to present evidence the finding was not based on the Appellant’s
`alleged oral statements of financial condition?
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`Appellant argues that the bankruptcy court erred in applying collateral estoppel to the jury’s
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`finding of theft because Appellee did not present evidence that the jury’s finding was not based on
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`the alleged misrepresentations of financial condition. As discussed above, Haler’s statements were
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`not statements of financial condition under Section 523(a)(2)(A). The theft claim thus did not
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`incorporate false representations of financial condition.
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`CONCLUSION
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`For the foregoing reasons, the judgment of the bankruptcy court is AFFIRMED.
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