In Re: Jerry Michael Hollander, Jr & Sheila Story Hollander

Filing 10

ORDER & REASONS REMANDING CASE TO BANKRUPTCY COURT. Signed by Judge Susie Morgan on 9/27/2013. (Attachments: # 1 Transmittal Letter)(gbw, )(cc: Bankruptcy Court, Bankruptcy Judge Magner, U.S. Trustee)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
IN RE:

CIVIL ACTION

JERRY MICHAEL HOLLANDER, JR. ET AL

No. 12-318
SECTION “E”

ORDER AND REASONS
Before the Court is an appeal of a Memorandum Opinion and Judgment issued by
the United States Bankruptcy Court for the Eastern District of Louisiana ("Bankruptcy
Court") filed by Robert Sigillito and Rhonda Sigillito ("the Sigillitos").1 For the following
reasons, the judgment is VACATED and the case is REMANDED for further proceedings.
BACKGROUND
The Sigillitos filed an adversary proceeding against the Hollanders on September 8,
2004, seeking rescission and damages, alleging that the Hollanders concealed redhibitory
defects when they sold the Sigillitos a house in Mandeville, Louisiana.2 The Sigillitos also
sought to have their claim for damages made nondischargeable under 11 U.S.C. §
523(a)(2)(A), claiming that they bought the house from the Hollanders under false
pretenses, false representations, and/or as the result of actual fraud.3 The Bankruptcy Court
denied the request for rescission but awarded the Sigillitos a $26,561.43 nondischargeable
judgment on their redhibition claim, which was amended to $28,424.43. The Bankruptcy
Court did not award attorneys' fees. The Sigillitos moved for reconsideration on the

1

04-bk-1193, R. Doc. 150.

2

04-bk-1193, R. Doc. 1.

3

04-bk-1193, R. Doc. 1.

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grounds that the Bankruptcy Court omitted certain repair expenses and failed to award
attorneys' fees, as provided for in the Civil Code when a finding of fraud or redhibition is
made. The Bankruptcy Court amended the judgment to include certain repair costs but
again denied the request for attorneys' fees because the Sigillitos failed to plead a cause of
action for fraud, and the Sigillitos were not entitled to recover attorneys' fees for redhibition
because the Hollanders did not know of the defects at the time of the sale.4 The Sigillitos
appealed, arguing that the Bankruptcy Court's failure to award attorneys' fees was contrary
to the Civil Code. This Court found the Sigillitos had alleged sufficient facts to make out a
claim for fraud and remanded the case to the Bankruptcy Court for a determination of
whether the plaintiffs had proven fraud and whether the Hollanders were liable for
attorneys' fees.5 On remand, the Bankruptcy Court found the Sigillitos had failed to
establish by clear and convincing evidence the Hollanders committed fraud and denied the
request for attorneys' fees.6 The District Court affirmed.7 On appeal, the Fifth Circuit
reversed, holding the Civil Code plainly provides "fraud need only be proved by a
preponderance of the evidence." La. C.C. art. 1957. The case was remanded to the
Bankruptcy Court for application of the proper burden of proof to the Sigillitos fraud claim.8
The Bankruptcy Court and this court, erroneously relying on Josephs v. Austin, 420 So.2d
1181 (La. App. 5 Cir. 1982), had found the Sigillitos were required to prove their claim for

4

04-bk-1193, R. Doc. 113.

5

04-bk-1193, R. Doc. 129.

6

04-bk-1193, R. Doc. 132.

7

04-bk-1193, R. Doc. 145.

8

10-cv-392. R. Doc. 23.

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fraud by clear and convincing evidence. On remand, the Bankruptcy Court applied the
preponderance of the evidence standard but still found the Sigillitos had not met their
burden of showing fraud and were not entitled to attorneys' fees.9 The Sigillitos' appeal of
that decision is now before this Court. The notice of appeal lists the issues to be reviewed
as: (1) whether the Bankruptcy Court erred in applying an incorrect standard for fraud
under Louisiana law by requiring unequal positions between parties to find fraud; (2)
whether the Bankruptcy Court erred in finding that the Hollanders' actions were "designed
to deceive," but did not give rise to fraud under Louisiana law; and (3) whether the
Bankruptcy Court erred in failing to award the Sigillitos attorneys' fees under Civil Code
article 1958.10
FACTS
The full facts of this case are established in the Bankruptcy Court's Memorandum
and Opinion dated January 14, 2009,11 this Court's Order and Reasons dated August 24,
200912, and the Fifth Circuit's Opinion dated August 16, 2011.13 The court incorporates
those opinions by reference. Briefly, the Sigillitos allegations of fraud arise out of a question
answered by the Hollanders on the Real Estate Condition Disclosure Statement

9

04-bk-1193, R. Doc. 150

10

12-cv-318, R. Doc. 1. Bankruptcy Rule 8006 requires that an appeal include a "statement of
issues to be presented." If a party does not include a particular issue in such a statement, that issue is
waived. See Zimmermann v. Jenkins (In re GGM, P.C.), 165 F.3d 1026, 1032 (5th Cir. 1999). The Sigillitos
listed in their notice of appeal "all of those [issues] contained in Docket Entry Numbers 103, 104, 114, 130,
132, 133, 145, 146, 148, 150 and 151." However, the Sigillitos did not address these issues with any degree
of detail in their brief.
11

04-bk-1193, R. Doc. 103.

12

04-bk-1193, R. Doc. 129.

13

10-cv-392. R. Doc. 23.

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("Disclosure Statement") provided to the Sigillitos prior to their purchase of the Hollanders'
home. Question 8 required the Hollanders to list all "alterations" to the house. The
Hollanders listed their installation of new floors in the home, but failed to disclose that the
entire flooring structure was reconstructed because of the home's ventilation problems.
After the Sigillitos moved into the home, they began experiencing problems with both the
floors and home's ventilation system.
JURISDICTION AND STANDARD OF REVIEW
This Court has jurisdiction to hear the Sigillitos' appeal pursuant to 28 U.S.C. §
158(a)(1), which authorizes appellate review of final orders, judgments and decrees of a
U.S. Bankruptcy Court entered under 28 U.S.C. § 157. The Bankruptcy Court's legal
conclusions are reviewed de novo. In re National Gypsum Co., 208 F.3d 498 (5th Cir.
2000). If a lower court's judgment is based upon an incorrect legal standard, a reviewing
court may substitute its own judgment regarding the conclusion of law made by the lower
court. See Najarro v. Sasi Int'l, Ltd., 904 F.2d 1002, 1009 (5th Cir. 1999). However,
"[f]indings of fact, whether based on oral or documentary evidence, shall not be set aside
unless clearly erroneous, and due regard shall be given to the opportunity of the Bankruptcy
Court to judge the credibility of the witnesses."In re Renaissance Hosp. Grand Prairie, Inc.,
713 F.3d 285, 292 (5th Cir. 2013); FED. R. BANKR. P. 8013. Factual findings are "clearly
erroneous" when "although there is evidence to support it, the reviewing court on the entire
evidence is left with the definite and firm conviction that a mistake has been committed."
Anderson v. Bessemer City, N.C., 470 U.S. 564, 573 (1985).
LAW AND ANALYSIS
Under the Bankruptcy Code, debts are nondischargeable under 11 U.S.C. §
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523(a)(2)(A) if they are incurred as a result of false pretenses, false representations, or
actual fraud. The Bankruptcy Court found that the Sigillitos debt was incurred under false
pretenses because: (1) the Hollanders omitted a material fact on the Disclosure Statement;
(2) the Hollanders knew the omission concealed a prior problem; (3) the Sigillitos
justifiably relied on the omission; and (4) the Sigillitos' loss was proximate to their reliance
on the omission. A finding of intent to harm is not required to support nondischargeability.
See In re Acosta, 406 F.3d 367 (5th Cir. 2005).
Under Civil Code article 1953, "fraud is a misrepresentation or a suppression of the
truth made with the intention either to obtain an unjust advantage or to cause a loss or
inconvenience to the other. Fraud may also result from silence or inaction." La. C.C. art.
1953. "Fraud does not vitiate consent when the party against whom the fraud was directed
could have ascertained the truth without difficulty, inconvenience, or special skill." La. C.C.
art. 1954. "Error induced by fraud need not concern the cause of the obligation to vitiate
consent, but it must concern a circumstance that has substantially influenced that consent."
La. C.C. art. 1955. The Fifth Circuit, in Petrohawk v. Chesapeake, 689 F.3d 380 (5th Cir.
2012), has outlined the elements required to prove fraud:
Under Louisiana law, an action for fraud against a party to a contract
requires: (1) "a misrepresentation, suppression, or omission of true
information"; (2) "the intent to obtain an unjust advantage or to cause
damage or inconvenience to another"; and (3) that the error induced by the
fraudulent act relates to a circumstance that substantially influenced the
victim's consent to the contract. Shelton v. Standard/700 Assocs., 798 So. 2d
60, 64 (La. 2001). "Fraud need only be proved by a preponderance of the
evidence." La. C.C. art. 1957.
689 F.3d at 388.
In determining whether the Hollanders committed fraud, the Bankruptcy Court held
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that "an unjust advantage" under Louisiana law requires a showing that "one party takes
advantage of another due to unequal positions arising from some infirmity, such as young
or old age, mental incapacity, lack of education, or inexperience in business."14 Nothing in
Civil Code article 1953, or the jurisprudence interpreting that article, requires such a
showing.15
It is true that error induced by a fraudulent act must relate to a circumstance that
substantially influenced the victim's consent to the contract. La. C.C. art. 1955. Fraud does
not vitiate consent if the "party against whom the fraud was directed could have ascertained
the truth without difficulty, inconvenience, or special skill."La. C.C. art. 1954. As a result,
when parties are in disparate positions intellectually, fraud leading to a lack of consent is
more likely because the disadvantaged party cannot easily ascertain the truth. See Skannal
v. Bamburg, 33 So.3d 237 (La. App. 2 Cir. 20120); Mack v. Evans, 804 So.2d 662 (La. App.
2 Cir. 2001); Vanguard v. Smith, 265 So.2d 662 (La. App. 4 Cir. 1972); Placid Oil v. Taylor,
345 So.2d 258 (La. App. 3 Cir. 1977). Perhaps the Bankruptcy Court had this rule of law in
mind when it reached its conclusion, but article 1954 is relevant to whether consent to the
contract has been vitiated, not to whether there was an "intent to gain an unjust advantage"
under article 1953, which is the issue now before the court. The Bankruptcy Court's finding
that proof of unequal positions is required to find an "unjust advantage" is incorrect as a

14

04-bk-1193, R. Doc. 150, p. 7. The Bankruptcy Court cited the following cases as examples:
Skannal v. Bamburg, 33 So.3d 227 (La. App. 2 Cir. 2010); St. Landry Loan Co. v. Avie, 147 So.2d 725 (La.
App. 3 Cir. 1962); Gaspard v. Liberty Mutual Insurance Co., 243 So. 2d 839 (La. App. 3 Cir. 1971);
Vanguard Finance, Inc. v. Smith, 256 So. 2d 662 (La. App. 4 Cir. 1972); Placid Oil Co. v. Taylor, 345
So.2d 254 (La. App. 3 Cir. 1977). Although these cases involved parties on unequal footing, none of the
courts explicitly held that unequal footing was required for a finding of fraud.
15

See Petrohawk v. Chesapeake, 689 F.3d 380; Trotter v. Fife, 36 So. 3d 426 (La. App. 3 Cir.
2010); Perot v. Perot, 71 So.3d 1123 (La. App. 2 Cir. 2011).

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matter of law.
CONCLUSION
For the reasons stated above, IT IS ORDERED that the order of the U.S.
Bankruptcy Court for the Eastern District of Louisiana is VACATED and the case is
REMANDED for the Bankruptcy Court to determine whether the Hollanders' actions
constituted fraud under Louisiana law and, if so, what damages are recoverable as a result.

27th
New Orleans, Louisiana, this ____ day of September, 2013.
_____________________________
SUSIE MORGAN
UNITED STATES DISTRICT JUDGE

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