Bamco 18 v. Reeves CV-94-326-B 08/23/95 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
Bamco 18
v. Civil No. 94-326-B
R. Bruce Reeves
O P I N I O N
This is an appeal from the United States Bankruptcy Court's
decision finding R. Bruce Reeves's debt to Bamco 18
nondischargeable pursuant to 11 U.S.C.A. § 523(a)(2)(A) (West
1993 & Supp. 1995). For the following reasons I affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. Reeves and Bamco's Business Relationship
The present controversy arose from a business relationship
between Bamco and Reeves. Reeves was the president and sole
shareholder of MPI Corporation. In addition, he was the sole
limited partner in Hospitality Associates of Tappan Zee
("Hospitality"), a partnership which ran a hotel and conference
center in Nyack, New York. MPI was the general partner in
Hospitality. The parties arranged for Bamco to purchase a limited
partnership interest in the hotel and conference center owned and
operated by Hospitality. In the course of negotiations Reeves
represented to Bamco that the hotel needed renovations, that
Hospitality would supervise those renovations, and that the
return on the investment would be "dynamite." He further
represented that he had invested $500,000 of his own cash in the
venture.
Based on these preliminary discussions. Reeves, MPI, and
Bamco executed a Letter of Intent ("LOI") for Bamco's acguisition
of a 60% limited partnership interest in Hospitality. The LOI
stated that Reeves had already contributed $500,000 toward the
project and ultimately the project would be funded by an
additional $750,000, $150,000 from Reeves and the remainder from
Bamco.
Shortly thereafter, the parties executed the Limited
Partnership Agreement ("LPA"). MPI was granted a 1% interest in
the partnership as the general partner of Hospitality, Bamco was
granted a 59.4% interest, and Reeves was granted a 39.6%
interest. Pursuant to the LPA, Bamco and Reeves were reguired to
2 make initial capital contributions in cash of $575,000 and
$175,000 respectively. Further, the LPA provided that Bamco
would loan MPI $240,000 for working capital and renovation costs
and that MPI would be responsible for managing the business and
assets of the partnership. The LPA also included several
provisions governing the conduct of MPI and Reeves, including:
(1) reguiring MPI to seek approval for the disposition and
acguisition of partnership property; (2) prohibiting MPI or
Reeves from using any partnership funds or property for uses
other than for partnership related uses; (3) reguiring MPI to
keep true and complete accounts; and (4) reguiring MPI to collect
claims of the partnership. Finally, the LPA contained several
warranties and representations by MPI.
Bamco complied with the reguirements of the LPA and
contributed the reguired cash on March 7, 1985, as well as
executing the $240,000 loan to MPI for renovations and working
capital. Reeves, however, did not make his initial capital
contribution in cash as reguired by the LPA. Instead, Reeves
caused MPI to create an accounts receivable of $150,000 on the
partnership books and to credit his capital contribution account
for that amount to satisfy his obligation as limited partner of
3 Hospitality. Further, he caused MPI to transfer $350,000 from
Hospitality's account to his own personal account as an alleged
reimbursement of prior capital contributions which he in fact had
never made. In addition, neither the $240,000 loan nor Bamco's
initial cash capital contribution were ever made available to
Hospitality for partnership purposes.
About a month later. Reeves recommended that the partnership
raise additional funds to finance additional capital improvements
and relieve some of the financial stresses placed on the
partnership by the existing renovation program. To satisfy this
need for additional funding, the partnership borrowed $550,000
from ITT Industrial Credit and as part of the loan agreement
Bamco provided ITT with a standby letter of credit.
Outside auditors for Hospitality eventually became aware of
Hospitality's working capital problems and issued a report to
Reeves which stated in pertinent part that unless the situation
improved the partnership would be forced to dissolve. This
language was deleted from their report when it was finally
delivered to Bamco in September 1986. Several additional capital
calls were made to the limited partners in 1985 and 1986, and
Bamco's contributions to Hospitality eventually totalled
$2,144,298.
4 In contrast. Reeves, while representing that he had been
making his capital contributions in cash, did not in fact make
any of them; rather, he manipulated the accounts of Hospitality
to have it appear that he had satisfied these obligations. After
several reguests by Bamco for the unaudited monthly financial
statements for the partnership. Reeves disclosed the statements
in the spring of 1985. Those statements while showing the
capital contributions of the limited partners as reguired under
the LPA, failed to disclose that Reeves's contributions were
satisfied by unfunded accounts receivables rather than cash.
B. The New York Litigation
In July 1987, Bamco filed suit against Reeves alleging
violations of federal securities laws, RICO violations, breach of
contract, breach of warranty, and common law fraud claims. With
respect to the fraud claims, in its complaint filed in the United
States District Court for the Southern District of New York,
Bamco stated: "Reeves fraudulently induced BAMCO to invest in the
hotel venture and to continue pouring money into such enterprise
on the basis of false and misleading statements." At the time
Bamco filed this action it was unaware that Reeves had failed to
fund his capital contributions in cash as reguired by the LPA.
5 On December 10, 1987, the New York court dismissed Bamco's
fraud claims for failure to meet the requirements of Fed. R. Civ.
P. 9(b) .1 The court found that Bamco had adequately identified
the alleqed misrepresentations, i.e. that the property needed
restoration that would be completed for $950,000; that projected
earninqs for Bamco from investment in that project would be
siqnificant; and statements that there were hotel reservations
already booked until sometime into the future. The court stated,
however, that Bamco failed to alleqe the time and place of the
misrepresentations nor did it provide a factual basis to support
its alleqation reqardinq Reeves's state of mind. Bamco 18 v.
Reeves, No. 87-cv-5496, slip op. at 14 (S.D.N.Y. Dec. 10, 1987).
The court specifically declined to address Reeves's motion to
dismiss the fraud claim pursuant to Fed. R. Civ. P. 12(b) (6) and
qranted Bamco leave to amend its complaint to meet the
requirements of Rule 9.2 Id. at 14-15.
1Fed. R. Civ. P. 9(b) provides in pertinent part: "(b) Fraud, Mistake, Condition of the Mind. In all averments of fraud or mistake, the circumstances constitutinq fraud or mistake shall be stated with particularity. Malice, intent, knowledqe, and other condition of mind of a person may be averred qenerally."
2The court also qranted Reeves's motion to dismiss Bamco's RICO and 1 0 (b) claims for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6). Id. at 15. Reeves's motion did not
6 Upon discovery of Reeves's diversion of funds prior to trial
in the New York action, Bamco, relying exclusively on this new
evidence, moved for summary judgment without filing an amended
complaint. Specifically, Bamco argued that summary judgment was
warranted because there were no genuine issues of material fact
with respect to Reeves's diversion of funds and that it was
therefore entitled to judgment as a matter of law for breach of
contract, warranty, and fiduciary duty. The New York court
granted Bamco's motion for summary judgment on its claims for
breach of fiduciary duty and warranty.3 Bamco 18 v. Reeves, 717
F. Supp. 143, 148 (S.D.N.Y. 1989).
address Bamco's other claims.
3The judgment of the New York court on July 5, 1989, was against MPI only and granted Bamco's motion for an accounting. Subseguently, the New York court found that the false and misleading statements by Reeves caused Bamco to make its capital contributions. Bamco 18 v. Reeves, No. 87-cv-5495, slip op. at 3 (Nov. 3, 1989). Based on these findings, the court entered judgment for Bamco against MPI for $2,280,914 on November 17, 1989. After the bankruptcy court lifted the automatic stay, the New York court found that Reeves was personally liable on the same bases that MPI had been found liable in its earlier opinion. Bamco 18 v. Reeves, No. 87-cv-5496, slip op. at 1 (March 4, 1990). Subseguently, the court entered judgment against Reeves in the amount of $2,324,645. Bamco 18 v. Reeves, No. 87-cv-5496, slip op. at 1 (March 15, 1990).
7 In its opinion, the New York court found that Reeves had
violated New York Partnership law through his "offsetting payable
approach" to capital contribution reguirements of the
partnership. Id. The court also found that the practice
violated several portions of the LPA. Id. The United States
Court of Appeals for the Second Circuit affirmed the New York
court's decisions. Bamco 18 v. Reeves, No. 90-7346, slip op. at
2 (2d Cir. Oct. 5, 1990) .
C. The Bankruptcy Proceedings
On May 31, 1989, after oral argument on the summary judgment
motion in the New York action. Reeves filed for Chapter 11
protection and subseguently caused MPI to place Hospitality in
bankruptcy.4 Bamco then moved to have MPI removed as the general
partner of Hospitality for breach of fiduciary duty relating to
the bankruptcy filing. Bamco also filed a complaint in the
bankruptcy proceeding alleging that the judgment of the New York
court was nondischargeable pursuant to 11 U.S.C.A. § 523(a)(2)(A)
(West 1993 & Supp. 1995), because the underlying debt was
4Reeves's bankruptcy proceeding was later converted into a Chapter 7 proceeding. obtained by false representations and actual fraud.5 Reeves
filed a motion for summary judgment, arguing that Bamco was
barred by collateral estoppel from asserting this claim in the
bankruptcy proceeding and that Bamco's reliance on written
statements to support its claim was not permissible under §
523 (a) (2) (A) .
Based in part on the specific factual findings made by the
New York court as well as evidence adduced at a two day hearing,
the bankruptcy court held that Reeves's debt to Bamco was not
dischargeable because he obtained the money by fraud within the
meaning of § 523(a)(2)(A). Specifically, the bankruptcy court
held that the factual findings determined in the New York action
that were relevant to the fraud claim were binding on Reeves.
Coupled with additional evidence regarding Reeves's state of mind
and the reasonableness of Bamco's reliance on his
misrepresentations, the court held that the debt was not
5Bamco also claimed that Reeves's debt was nondischargeable pursuant to 11 U.S.C.A. § 523(a) (4) and § 523(a) (6) because he breached his fiduciary duties and because the debt arose by willful and malicious injury. The bankruptcy court disposed of those claims and neither party challenges their disposition below. This appeal, therefore, concerns only the § 523(a) (2) (A) claim and I limit my discussion of the procedural background to the court's disposition of that claim. dischargeable.
II. DISCUSSION
Reeves now appeals the bankruptcy court's judgment in favor
of Bamco on its § 523(a)(2)(A) claim on three grounds: (1) the
bankruptcy court erroneously applied the doctrine of collateral
estoppel; (2) the bankruptcy court erroneously relied on written
statements of Reeves's financial condition to support its finding
of fraud under § 523(a)(2)(A); and (3) there is insufficient
evidence to support the bankruptcy court's nondischargeability
order under § 523(a) (2) (A) .
On intermediate appeal to a district court, a final order of
the bankruptcy court is subject to the same standards of review
employed in direct appeals to the court of appeals in civil cases
generally. In re LaRoche, 969 F.2d 1299, 1301 (1st Cir. 1992).
"The district court accepts all bankruptcy court findings of fact
unless 'clearly erroneous,' Fed. R. Bankr. P. 8013, but reviews
rulings of law de novo." Id. Because all but one of the issues
raised on appeal challenge rulings of law, and the final issue on
appeal centers on the sufficiency of the evidence, my review here
is plenary. See Rolon-Alvarado v. Municipality of San Juan, 1
F.3d 74, 77 (1st Cir. 1993). I address Reeves's challenges in
10 the order listed above.
A. The Collateral Estoppel Issues
1. Whether the bankruptcy court erred in not precluding Bamco from litigating its fraud claim on grounds that it was barred by the doctrine of collateral estoppel.
Reeves argues that the bankruptcy court should have applied
the doctrine of collateral estoppel to bar Bamco from raising
fraud as a ground for nondischarge in bankruptcy because the New
York court dismissed Bamco's common law fraud claim in a prior
action and Bamco elected not to amend its complaint.
Bamco responds with two arguments: (1) the dischargeability
hearing in bankruptcy court raised different fraud issues than
were raised in the New York proceeding and, therefore, collateral
estoppel does not bar it from raising fraud as a defense to
dischargeability of Reeves's debt; and (2) even though the type
of dismissal granted by the New York court is one with prejudice,
no facts were adjudicated in the prior proceeding, and therefore
there are no determinations to which the doctrine of collateral
estoppel may be applied. Because I agree with Bamco's second
argument, I need not address the other arguments raised by the
parties.
Collateral estoppel principles apply to discharge exception
proceedings brought pursuant to § 523(a). Grogan v. Garner, 498
11 U.S. 279, 284-85 n.ll (1991). The doctrine of collateral
estoppel bars a party from relitigating an issue where that issue
was actually litigated in a prior proceeding and its determi
nation was necessary to the prior judgment. Lawlor v. National
Screen Svc. Corp., 349 U.S. 322, 326 (1955); Lovell v. Mixon, 719
F.2d 1373, 1376 (8th Cir. 1983); see also In re Dein Host, Inc.,
86 B.R. 318, 322 (D.N.H. 1988). In order for collateral estoppel
to apply, five reguirements must be met: "1. the determination
... must be over an issue which was actually litigated in the
first forum; 2. that determination must result in a valid and
final judgment; 3. the determination must be essential to the
judgment which is rendered by, and in, the first forum; 4. the
issue before the second forum must be the same as the one in the
first forum; and 5. the parties in the second action must be the
same as those in the first." NLRB v. Donna-Lee Sportswear Co.,
836 F.2d 31, 34 (1st Cir. 1987); accord In re Dein Host, 86 B.R.
at 322. Both parties agree that the dismissal entered by the New
York court is a valid and final judgment and that the parties in
both actions are identical. The controversy, therefore, centers
on the remaining three elements. Because I conclude that the
fraud issue presented in the New York action was not actually
litigated, I conclude that the bankruptcy court did not err in
12 refusing to grant Reeves's motion for summary judgment on
collateral estoppel grounds, whether or not the issues are
identical.
The bankruptcy court's conclusion that collateral estoppel
did not bar Bamco from raising fraud as a defense to
dischargeability was not error because the fraud issue in the New
York proceeding was not actually litigated. Unlike the doctrine
of claim preclusion, collateral estoppel bars only those issues
that were actually litigated, not those that could have been, but
were not litigated. In re Belmont Realty Corp., 11 F.3d 1092,
1097 (1st Cir. 1993) (guoting Rest. (2d) Judgments § 27 (1982)).
Specifically, the party against whom collateral estoppel is being
employed must have had a full and fair opportunity to litigate
the issue in the prior proceeding. Lawlor, 349 U.S. at 327
(affirming lower court's decision not to estop party from
litigating issue where prior proceeding ended with dismissal
without a hearing and therefore did not afford the party a full
and fair opportunity to litigate). Thus, in collateral estoppel
cases "the earlier judgment forecloses only a matter actually
litigated and essential to the decision. The first judgment does
not prevent re-examination of issues that might have been, but
were not, litigated in the earlier action." In re Gaebler, 88
13 B.R. 62, 65 (E.D. Pa. 1988) (internal quotations and citations
omitted). An issue has been finally determined when "a
particular issue has reached such a stage that a court sees no
really good reason for permitting it to be litigated again."
O'Reilly v. Malon, 747 F.2d 820, 823 (1st Cir. 1984) (per
curiam).
Although a dismissal for failure to state a claim may act to
bar a party from relitigating that cause of action, because the
parties have not contested the issues underlying the claim and
the court has not passed on the truth of the allegations in the
complaint, collateral estoppel cannot be invoked as a bar in
subsequent litigation with respect to the issues underlying that
dismissed claim. C f . Levinson v. United States, 969 F.2d 260,
264 (7th Cir. 1992) (where parties settled prior case before
trial it had no collateral estoppel effect because underlying
issues never contested or decided by a court) , cert. denied, 113
S. C t . 505 (1992); In re Berr, 172 B.R. 299, 306 (Bankr. 9th Cir.
1994) (party asserting collateral estoppel has burden of
introducing record sufficient to reveal controlling facts and
pinpoint exact issues litigated); Rooding v. Peters, 864 F. Supp.
732, 736 (N.D. 111. 1994) (collateral estoppel applies only if
14 issue was argued and decided on the merits in prior litigation).
Accord IB Moore's Federal Practice 5 0.443[4] (2d ed. 1995);
Restatement (Second) Judgments § 27 cmt. e (1982). The fact that
Bamco may have been able to amend its complaint to adeguately
state its common law fraud claim does not change this result.
Bamco voluntarily chose not to pursue the common law fraud claim,
and therefore, any issues necessary to the determination of that
claim were not litigated, irrespective of whether they could have
been litigated. C f . Lawlor, 349 U.S. at 326-27. Therefore, I
conclude that the bankruptcy court did not err in denying
Reeves's motion for summary judgment on this basis.
2. Whether the bankruptcy court erred in giving preclusive effect to the New York court's factual findings.
Reeves argues that if Bamco is permitted to proceed on its
fraud claim in the bankruptcy proceeding, then it should be
precluded from using the factual findings of the New York
litigation in support of that claim. Specifically, he argues
that because the factual determinations were made on different
claims, those findings have no relevance to Bamco's present §
523(a)(2)(A) fraud claim. In response, Bamco contends that
Reeves's argument misconceives the doctrine of collateral
15 estoppel. For the following reasons, I agree with Bamco.6
The bankruptcy court concluded that the factual
determinations made by the New York court regarding what the
parties did or did not do in the course of their dealings were
essential to the New York court's judgment and that Reeves had
every incentive to fully defend in that prior proceeding. Thus,
the court gave preclusive effect to the New York court's factual
findings regarding those issues. Reeves contends that this was
error because these facts were determined with respect to causes
of action unrelated to the present cause of action. Reeves,
however, misconceives the doctrine of collateral estoppel.
"Under the doctrine of collateral estoppel, . . . , [a
final] judgment precludes relitigation of issues actually
litigated and determined in the prior suit, regardless of whether
it was based on the same cause of action as the second suit."
6Reeves also argues that because § 523(a) (2) (A) restricts the scope of bankruptcy court's evidence in a way that the New York litigation was not restricted, resort to the doctrine of collateral was inappropriate. Specifically, he notes the restriction placed on actions brought pursuant to § 523(a) (2) (A) versus § 523(a)(2)(B), i.e. the former excepting fraud based on written misrepresentations of the debtor's financial condition. Because I find that the bankruptcy court did not err when it relied on written representations to support its § 523(a)(2)(A) order, I also reject this portion of Reeves's collateral estoppel argument.
16 Lawlor, 349 U.S. at 326 (emphasis added). Specifically in the
context of bankruptcy proceedings, ". . . a bankruptcy court
could properly give collateral estoppel effect to those elements
of the claim that are identical to the elements reguired for
discharge and that were actually litigated and determined in the
prior action." Grogan, 498 U.S. at 284 (citing Restatement
(Second) Judgments § 27 (1982)).
While the causes of action may be different in the two
actions at issue here, the underlying factual issues of the
nature of the transactions, whether Reeves made certain
statements and when, are identical to the factual issues
concerning the events that transpired over the course of the
relationship between Reeves and that Bamco raised in its claim of
fraud in the bankruptcy proceeding. Therefore, with respect to
those issues already decided and necessary to the prior judgment,
the bankruptcy court did not err by giving them preclusive
effect.
B. Whether Reeves's Written Misrepresentations Were Imper missibly Relied Upon by the Bankruptcy Court in Deciding Dischargeability Under § 523(a)(2)(A).
Reeves argues that Bamco should have been precluded from
alleging and referring to written representations respecting
Reeves's capital contributions to the partnership in its claim
17 under § 523(a)(2)(A) because that provision expressly excludes
from its scope written misrepresentations respecting a debtor's
financial condition. In response, Bamco contends that the
written representations at issue were not written statements of
Reeves's financial condition within the meaning of § 523(a)(2)(B)
and therefore are a proper basis for an order of nondischarge
ability pursuant to § 523(a)(2)(A). I agree with Bamco.
Sections 523(a)(2)(A) and (B) govern misrepresentations of
financial condition, the former covering statements that are not
written, the latter dealing with written statements of the
debtor's financial condition. 11 U.S.C.A. § 523(a)(2)(A); id.
§ 523(a)(2)(B). Bamco's claim below was brought pursuant to §
523(a)(2)(A), which states in pertinent part that a debtor is not
entitled to discharge for money, property, or services obtained
by false pretenses, a representation or actual fraud, other than
a statement respecting the debtor's or an insider's financial
condition. In contrast, discharge claims based on fraudulent
written statements concerning a debtor's financial condition must
be brought pursuant to § 523(a)(2)(B), not § 523(a)(2)(A). The
two provisions are mutually exclusive. In re Attalla, 176 B.R.
650, 652 (Bankr. D.N.H. 1994) (citing In re Sansoucv, 136 B.R.
18 20, 23 (Bankr. D.N.H. 1992)); In re Seaborne, 106 B.R. 711, 713
(Bankr. M.D. Fla. 1989). Thus, if the statements at issue are
statements of Reeves's "financial condition" they cannot act as a
basis for ordering nondischarge pursuant to § 523(a)(2)(A).
A "'statement of a debtor's or insider's financial
condition' as used in § 523(a)(2)(B) means a balance sheet and/or
profit and loss statement or other accounting of an entity's
overall financial health and not a mere statement as to a single
asset or liability." In re Sansoucv, 136 B.R. at 23 ("financial
condition" should be given its normal commercial meaning)
(citations omitted); In re O'Brien, 110 B.R. 27, 30 (Bankr. D.
Colo. 1990) (financial statement commonly understood as statement
defining debtor's pecuniary standing); In re Seaborne, 106 B.R.
at 713-14 (statement of financial condition is statement of
debtor's net worth). For example, balance sheets, income
statements, and schedules of assets and liabilities fall within
the meaning of statements of financial condition. In re Price,
123 B.R. 42, 45 (N.D. 111. 1991) (criticized on other grounds in
In re Dorsey, 162 B.R. 150 (Bankr. N.D. 111. 1993)). These types
of statements permit creditors to assess a potential debtor's
overall financial responsibility. Id.
19 The written statements Reeves argues were impermissibly
considered by the bankruptcy court as a basis for Bamco's §
523(a)(2)(A) claim include statements concerning the amount and
nature of his capital contribution to the partnership. These are
not statements which demonstrate the net worth of Reeves or his
businesses, but rather are statements concerning single
liabilities. See In re Sansoucv, 136 B.R. at 23; In re Seaborne,
106 B.R. at 713-14. Thus, I conclude that the bankruptcy court
did not err in relying on these written statements in ruling that
Reeves debt was not dischargeable pursuant to § 523(a)(2)(A).
C. Whether the Bankruptcy Court's Finding That Reeves Committed Actual Fraud is Supported by the Evidence.
Reeves relies primarily on his contentions, which I have
already rejected, to support his argument that there is
insufficient evidence to support the bankruptcy court's
dischargeability determination. Because I find no error in the
court's decision to give preclusive effect to the factual
findings of the New York litigation and in its reliance on
written statements by Reeves to support its nondischargeability
order, and because Reeves raises no other arguments in support of
his sufficiency argument, I conclude that the bankruptcy court's
conclusions are sufficiently supported by the evidence.
20 In order to prove a claim of actual fraud under §
523(a)(2)(A) a creditor must show: "(1) a false representation by
the debtor; (2) known to be false at the time it was made; (3)
made with the intention and purpose of deceiving the creditor;
(4) which was reasonably relied on by the creditor; and (5) which
resulted in loss or damage to the creditor as the proximate
result of the false representation." In re Attalla, 176 B.R. at
664 (citations omitted); accord In re Menna, 16 F.3d 1 , 10 (1st Cir. 1994). The party opposing discharge has the burden to prove
these elements by a preponderance of the evidence. Grogan, 498
U.S. at 291; In re O'Brien, 110 B.R. at 31.
There is ample evidence in the record below that Reeves made
false representations concerning his capital contributions to
Hospitality, that he knew at the time they were false, that he
intended to deceive Bamco, and that Bamco reasonably relied on
those misrepresentations to its detriment. Reeves created
credits in his capital account which indicated that he satisfied
his contribution reguirements when in fact he never contributed
the capital. Further, he made representations to Bamco that the
renovations were exceeding expected cost and as a result the
partnership borrowed additional funds. In addition, he later
made several capital calls to the limited partners in 1985 and
21 1986 based on these false statements. Further, the course of
conduct of the parties clearly indicated that Bamco sought cash
contributions from Reeves, not cash equivalent. Reeves's
contentions to the contrary at trial were not credited by the
bankruptcy court and that assessment is not clearly erroneous.
These findings are further supported by the circumstances
surrounding the $240,000 loan to Hospitality from Bamco and its
use for nonpartnership business contrary to its intended purpose
as well as the tampering of the outside auditor report prior to
its belated distribution to Bamco.
Finally, the court's conclusion that Bamco's reliance on
these representations was reasonable and that it relied to its
detriment is also supported by sufficient evidence. Based on the
evidence that there were no reliable financial statements
available for the hotel, Bamco's prior dealings with Reeves, and
the time frame for decision making, there was sufficient evidence
to conclude that Bamco's reliance was reasonable. See In re
Ledford, 970 F.2d 1556, 1560 (6th Cir. 1992) (listing factors
assessed when determining whether creditor's reliance is
reasonable under all the circumstances) (cited with approval in
In re Menna, 16 F.3d at 11), cert. denied, 113 S. C t . 1272
22 (1993); see also In re Maver, 51 F.3d 670, 676 (7th Cir. 1995)
(reliance means conjunction of material misrepresentations and
cause in fact), pet, for cert, filed, July 24, 1995. Bamco made
initial and subsequent capital contributions after Reeves made
these material misrepresentations, demonstrating that its loss
was proximately caused by its reasonable reliance on Reeves's
statements. See In re Lane, 937 F.2d 694, 698 (1st Cir. 1991),
appeal after remand and aff'd without opinion, 50 F.3d 1 (1st
Cir. 1995). Therefore, I conclude that the bankruptcy court's
findings are sufficiently supported by the evidence.
D. Amount of Damages.
Finally, Reeves argues that the bankruptcy court erred in
determining that the amount of the nondischargeable debt was
$2,324,645 because Bamco failed to present any evidence in its
case-in-chief demonstrating that Reeves's fraud proximately
caused that amount of damage. In response, Bamco contends that
the New York court's findings as to the amount of damages and
causation were properly offered and accepted as evidence of those
issues. In its complaint, Bamco sought a determination of the
nondischargeability of a debt owed to it by Reeves pursuant to
the final judgment entered by the New York court. Second Amended
Compl. at I 22. That court's final judgment was admitted in
23 evidence by the bankruptcy court. Reeves does not challenge the
calculations by the New York court or the admissibility of that
portion of the judgment. The final judgment of the New York
court calculated the amount of money expended by Bamco for its
capital contributions as well as the loans made by Bamco to
Hospitality which were never made available for partnership
purposes. Therefore, I conclude that there was sufficient
evidence to support the bankruptcy court's determination of
damages.
III. CONCLUSION
For the foregoing reasons the bankruptcy court judgment is
affirmed.
SO ORDERED.
Paul Barbadoro United States District Judge
August 23, 1995
cc: Nathan T. Foose, Esg. Bruce A. Harwood, Esg. John F. Cullen, Esg. George Vannah, USBC