Sequatchie Mountain Creditors v. Lile

Filing 9

Memorandum Opinion: For all of the foregoing reasons, the orders and decisions of the bankruptcy court challenged on appeal are affirmed. (Related Doc. No. 1 ). Judge Sara Lioi on 3/23/2018. (P,J)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

SEQUATCHIE MOUNTAIN
CREDITORS,
PLAINTIFFS/APPELLANTS,
vs.
JENNIFER LILE, Representative of the
Estate of Deceased Joseph J. Detweiler,
DEFENDANT/APPELLEE.

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CASE NO. 5:17-cv-1042
JUDGE SARA LIOI

MEMORANDUM OPINION

This matter is before the Court on the appeal pursuant to 28 U.S.C. § 158(a)(1) by
plaintiffs/appellants1 Sequatchie Mountain Creditors (“plaintiffs”) from the following two orders
in favor of defendant/appellee Jennifer Lile (“defendant”) entered by the United States
Bankruptcy Court, Northern District of Ohio, in plaintiffs’ adversary case (No. 09-6118): (1) the
order and related memorandum opinion, In re Detweiler, No. 09-6118, 2017 WL 650062 (Bankr.
N.D. Ohio Feb. 16, 2017), and (2) the order and related memorandum opinion, In re Detweiler,
No. 09-6118, 2017 WL 1483489 (Bankr. N.D. Ohio Apr. 25, 2017). (See Doc. No. 6-1 (Second
Amended Notice of Appeal) at 1229-32.)

1

All plaintiffs remaining after the bankruptcy court granted partial summary judgment to defendant/appellee bring
the instant appeal, except for plaintiffs George and Susan Stone, Marvin and Carol Ferkinhoff, and Charles and
Ellen McAvoy, who prevailed at trial on the merits. (Doc. No. 6-1 at 1212 n.1 (All page number references are to
the page identification numbers generated by the Court’s electronic filing system.).)

Both plaintiffs and defendant filed their respective briefs2 and appendices3 thereto, and
the appeal is ripe for decision. For the reasons that follow, the bankruptcy court’s orders are
affirmed.
I. BACKGROUND
This case has an extensive factual and procedural history, which is briefly summarized
here for context. The Court will provide greater detail later in this opinion as necessary for the
Court’s analysis.
The adversary case underlying this appeal arose in the chapter 11 bankruptcy proceeding
of Joseph Detweiler (“Detweiler”),4 who filed his bankruptcy petition on August 17, 2009.5
Detweiler was the sole owner and director of J.J. Detweiler Enterprises, Inc. (“JJDEI”) and
Sequatchie Mountain LLC (“Sequatchie LLC”). Sequatchie LLC was established by Detweiler to
facilitate the Sequatchie Pointe project (“Sequatchie Pointe”), a planned development of over
6,756 acres of land straddling Marion County Tennessee and Dade County Georgia. Lots were
sold between October 2006 and October 2008 by the Sequatchie Pointe sales force. Plaintiffs
purchased undeveloped lots at Sequatchie Pointe. In re Detweiler, 2017 WL 650062, at *1-2.
They allege that Detweiler’s misrepresentations and fraudulent conduct related to their land
purchases resulted in $13,500,000.00 of nondischargeable damages under 11 U.S.C. §
523(a)(2)(A), (a)(4) and (a)(6). Id.

2

Doc. No. 6 [“Pls. Br.”], and Doc. No. 7 [“Def. Br.”].

3

Doc. No. 6-1 [“Pls. App.”], and Doc. No. 7-1 [“Def. App.”].

4

References to “debtor” refer to Joseph Detweiler in the underlying bankruptcy proceeding.

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See Case No. 09-63377 (Bankr. N.D. Ohio).
2

The bankruptcy court granted summary judgment in favor of Detweiler on all plaintiffs’
adversary claims under § 523(a)(4) and (a)(6), and the § 523(a)(2)(A) claims of plaintiffs Wesley
Jinks, Mary Czajka, Ana Rodriguez, William King, Manuel Real, Gene Renz, Joyce Renz, and
the Estate of John Hallman. That decision is not on appeal here. The bankruptcy court then
conducted a four-day trial on the remaining plaintiffs’ § 523(a)(2)(A) claims, and rendered its
decision on February 16, 2017.6
The bankruptcy court ruled against defendant and in favor of the § 523(a)(2)(A) claims of
plaintiffs George Stone, Susan Stone, Charles McAvoy, Ellen McAvoy, Marvin Ferkinhoff, and
Carol Ferkinhoff.7 In so ruling, the bankruptcy court found that Detweiler was responsible for
false representations made with an intent to deceive these plaintiffs regarding the existence of
bonds covering the roads for lots purchased on the Georgia side of Sequatchie Pointe. See id. at
*14, 19, 22. The bankruptcy court rendered judgment in favor of defendant on all other claims,
including plaintiffs’ claims that Detweiler was responsible for false representations concerning
project completion deadlines, which are now at issue here on appeal. Id. at * 22.
The losing plaintiffs filed a motion in the adversary case to alter or amend judgment,
which was denied. In re Detweiler, 2017 WL 1483489, at *1. Plaintiffs appealed the bankruptcy
court’s rulings from the trial and upon reconsideration. No cross-appeal was filed. Upon election
by defendant/appellee, the appeal was transferred by the Bankruptcy Appellate Panel of the Sixth
Circuit to the Northern District of Ohio. (Doc. No. 1-5.)

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After the trial was completed, but before the bankruptcy court issued its decision, Detweiler passed away and
Jennifer Lile, the executor and representative of Detweiler’s estate, was substituted as the defendant in this matter.
In re Detweiler, 2017 WL 650062, at *1.
This ruling is not on appeal here, and the Court will not further address the bankruptcy court’s ruling in favor of
plaintiffs on the issue of Georgia bonds unless relevant to the Court’s analysis of the instant appeal.
7

3

II. ISSUES ON APPEAL
Plaintiffs identify three items in the statement of issues:
1. Did the trial court err by finding against the Plaintiffs because Detweiler’s
agents made fraudulent representations rather than Detweiler making the
fraudulent representations?
2. Did the trial court err by finding Detweiler was not liable for the actions and or
inactions of his agents, employees, and independent contractors?
3. Did the trial court err by not applying Tennessee law when the Plaintiffs were
defrauded in Tennessee land purchases and Tennessee had the most significant
contracts to the allegations?
(Pls. Br. at 1151.)
As plaintiffs describe it,
[t]he crux of this appeal turns on the issue of whether Detweiler can be held liable
for the fraudulent actions and inactions of his agents. This case presents a slightly
more nuanced question about who possessed the requisite knowledge to
knowingly make a material misrepresentation to the purchasers. Detweiler
certainly knew that the development was financially inviable and admitted as
much during his deposition. However, while instructions to invent construction
deadlines were given to the salespeople, none of them had knowledge of the
financial invaibility [sic] of the development. As that salesforce was working for
Detweiler, and by not informing the staff that these sales representations were
false, Detweiler must be held liable for those fraudulent misrepresentation [sic] –
and the analysis needs to focus on what Detweiler knew, and when, rather than
what the salespeople knew. . . . The trial court erred by examining whether the
sales people were aware of the inviability of the project.
(Id. at 1172-74.)
The issues on appeal focus on questions of agency law, and the choice of law applicable
thereto. But the underlying premise asserted in the statement of issues regarding Detweiler’s
liability is that the Sequatchie Pointe sales force made fraudulent representations about project
completion deadlines. The bankruptcy court ruled, however, that neither Detweiler nor the

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Sequatchie Pointe sales force made false representations with an intent to deceive plaintiffs
regarding project completion deadlines. See In re Detweiler, 2017 WL 650062, at *15-16.
Although not specifically identified in the statement of issues, plaintiffs challenge the
bankruptcy court’s rulings on issues of both fact and law concerning the premise underlying their
statement of issues—allegedly false representations made to plaintiffs with an intent to deceive
about construction timelines. (See e.g. Pls. Br. at 1174 (“Several other errors are present in the
trial court’s holding, which are elucidated throughout this brief.”).) “[A] district court reviewing
a bankruptcy court ruling is subject to the same limitations imposed on any appellate tribunal.”
In re H & S Transp. Co., Inc., 110 B.R. 827, 830 (M.D. Tenn. 1990), aff’d, 939 F.2d 355 (6th
Cir. 1991) (citing In re Caldwell, 851 F.2d 852 (6th Cir. 1988)). Therefore, the Court will
consider alleged errors by the bankruptcy court argued in plaintiffs’ and defendant’s briefs even
though those errors are not specifically identified in the statement of issues. See Union Oil Co. of
Cal. v. Prof’l Realty Invs., Inc., 72 F.3d 130 (Table), 1995 WL 717021, at *11 n.4 (6th Cir.
1995) (appellate court may exercise its discretion to consider an issue on appeal that is
thoroughly argued in the briefs even if not identified in the statement of issues); cf. In re Teal,
No. 4:14-CV-15, 2015 WL 1206802, at *2 (E.D. Tenn. Mar. 17, 2015) (“Federal Rule of
Bankruptcy Procedure 8006 requires that the appealing party state before the bankruptcy court
the issues upon which it bases its appeal. When ‘there are no exceptional circumstances, failure
to comply with Rule 8006 waives the omitted issue on appeal.’”) (quoting In re Am. Cartage,
Inc., 656 F.3d 82, 91 (1st Cir. 2011)).

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III. APPLICABLE LAW
A. Standard of Review
A federal district court has jurisdiction to hear appeals from “final judgments, orders, and
decrees” of the bankruptcy court. 28 U.S.C. § 158(a). Plaintiffs’ adversary claims are brought
pursuant to 11 U.S.C. § 523, which governs exceptions to the dischargeability of a debt in
bankruptcy. “‘A bankruptcy court’s judgment determining dischargeability is a final and
appealable order.’” In re Cottingham, 473 B.R. 703, 705 (B.A.P. 6th Cir. 2012) (quoting Cash
Am. Fin. Servs., Inc. v. Fox (In re Fox), 370 B.R. 104, 109 (B.A.P. 6th Cir. 2007) (further
citation omitted)).
“Determinations of dischargeability under 11 U.S.C. § 523 are conclusions of law
reviewed de novo. De novo review requires the appellate court [to determine] the law
independently of the trial court’s determination.” In re Cottingham, 473 B.R. at 705 (alteration in
original) (internal citations and quotation marks omitted) (further citation omitted).
“However, [t]he factual findings underlying the bankruptcy court’s dischargeability
ruling are upheld on appeal unless they are clearly erroneous. A bankruptcy court’s findings of
fact should not be disturbed simply because another trier of fact might construe the facts
differently or reach a different conclusion.” Id. at 705-06 (internal citations and quotation marks
omitted) (further citation omitted). “If two views of the evidence are possible, the trial judge’s
choice between them cannot be clearly erroneous.” Gen. Motors Acceptance Corp. v. Cline, No.
4:07 CV 2576, 2008 WL 2740777, at *3 (N.D. Ohio July 3, 2008) (citing Anderson v. City of
Bessemer City, N.C., 470 U.S. 564, 573-75, 105 S. Ct. 1504, 84 L. Ed. 2d 518 (1985)).
Moreover, “due regard shall be given to the opportunity of the bankruptcy court to judge the

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credibility of the witnesses.” In re Aubiel, 534 B.R. 300, 302 (B.A.P. 6th Cir. 2015) (quoting
Lester v. Storey (In re Lester), 141 B.R. 157, 160 (S.D. Ohio 1991) (citing Fed. R. Bankr. P.
8013)).8 Thus, “[a] factual determination should be upheld unless[,] 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.” In re Cottingham, 473 B.R. at 706 (internal citations and
quotation marks omitted) (further citation omitted); see also In re LWD, Inc., 340 B.R. 363, 366
(W.D. Ky. 2006) (“This circuit has clearly enunciated that findings of facts of a bankruptcy court
should not be disturbed . . . unless there is most cogent evidence of mistake or miscarriage of
justice.”) (internal quotation marks omitted) (quoting In re Edward M. Johnson and Assocs., 845
F.2d 1395, 1401 (6th Cir. 1988)).
B. 11 U.S.C. § 523(a)(2)(A)
Plaintiffs’ adversary claims are brought pursuant to 11 U.S.C. § 523(a)(2)(A), which
provides that an individual debtor is not discharged from a debt “for money, property, services,
or an extension, renewal, or refinancing of credit to the extent [the debt] is obtained by false

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In re Aubiel, 534 B.R. at 302 n.2:
Prior to December 2014, Federal Rule of Bankruptcy Procedure 8013 reiterated the language of
Federal Rule of Civil Procedure 52(a)(6) governing appeals. In December 2014, Part VIII of the
Federal Rules of Bankruptcy Procedure (addressing appeals in bankruptcy cases) was extensively
amended and renumbered. The language of Bankruptcy Rule 8013 was omitted. However, the
Panel holds that the standard of review, which is well established by case law, has not changed.
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pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s ...
financial condition[.]”9 11 U.S.C. § 523(a)(2)(A).
The Sixth Circuit has summarized the elements of a § 523(a)(2)(A) [false
representation] claim as follows:
(1) the debtor obtained money through a material misrepresentation that, at
the time, the debtor knew was false or made with gross recklessness as to its
truth;
(2) the debtor intended to deceive the creditor;
(3) the creditor justifiably relied on the false representation; and
(4) its reliance was the proximate cause of loss.
In re Donley, No. 13-60758, 2014 WL 1577236, at *4 (Bankr. N.D. Ohio Apr. 17, 2014)
(quoting Rembert v. AT & T Universal Card Servs., Inc. (In re Rembert), 141 F.3d 277, 281 (6th
Cir. 1998)). The first element is comprised of two parts, and some courts break those two parts
into separate elements. See id. at *4 n.2.
In order to “ensure that the Congressional policy in favor of providing a debtor with a
fresh-start is furthered, exceptions to dischargeability, including that brought under 523(a)(2)(A),
are narrowly construed.” In re Finnegan, 428 B.R. 449, 453 (Bankr. N.D. Ohio 2010) (citing

“[A]ctual fraud as used in § 523(a)(2)(A) is not limited to misrepresentations. ‘When a debtor intentionally
engages in a scheme to deprive or cheat another of property or a legal right, that debtor has engaged in actual fraud
and is not entitled to the fresh start provided by the Bankruptcy Code.’” In re Detweiler, 2017 WL 650062, at *12
(quoting Mellon Bank, N.A. v. Vitanovich (In re Vitanovich), 259 B.R. 873, 877 (B.A.P. 6th Cir. 2001)); see also In
re Wilson, No. 16-30782, 2017 WL 1628878, at *5 (Bankr. N.D. Ohio May 1, 2017) (actual fraud is a separate
standard for nondischargeability and does not require a misrepresentation) (citing Husky Int’l Elecs., Inc. v. Ritz, –––
U.S. ––––, 136 S. Ct. 1581, 1587 (2016)). Plaintiffs argued below that Detweiler engaged in a scheme to commit
actual fraud, but the bankruptcy court disagreed because “the basis [sic] for the alleged scheme are
misrepresentations and omissions” and, thus, plaintiffs were required to prove each element of a § 523(a)(1)(A)
misrepresentation claim by a preponderance of the evidence. In re Detweiler, 2017 WL 650062, at *12. Plaintiffs do
not argue on appeal that the bankruptcy court erred in this regard, and indeed, their appellate brief focuses on
misrepresentations and intent. That said, plaintiffs make a passing reference in a footnote that Detweiler engaged in
a scheme to defraud them by instructing the Sequatchie Pointe sales force to act fraudulently. (Pls. Br. at 1192-93
n.8.) But plaintiffs did not identify actual fraud in their statement of issues or fully argue that issue in their brief, nor
was the issue briefed by defendant. The issue of actual fraud has not been properly brought before this Court on
appeal, and will not be further considered. See Union Oil Co. of Cal., 1995 WL 717021, at *11 n.4 (citing United
Transp. Union v. Dole, 797 F.2d 823, 827-28 (10th Cir. 1986) (holding that, when considering the issue of waiver,
adequate briefing on the issue is an important factor)).
9

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Ewing v. Bissonnette (In re Bissonnette), 398 B.R. 189, 193 (Bankr. N.D. Ohio 2008)). It is
plaintiffs’ burden to establish by a preponderance of the evidence that the debt at issue is
excepted from discharge. In re Ireland, 441 B.R. 572, 582 (Bankr. W.D. Ky. 2011) (citing In re
Molino, 225 B.R. 904, 907 (B.A.P. 6th Cir. 1998)); In re Finnegan, 428 B.R. at 453 (same)
(citing Grogan v. Garner, 498 U.S. 279, 111 S. Ct. 654, 112 L. Ed. 2d 755 (1991)). Exceptions
to the discharge of a debt are construed strictly against the creditor and liberally in favor of the
debtor. In re Ireland, 441 B.R. at 582 (citing Gleason v. Thaw, 236 U.S. 558, 561-62, 35 S. Ct.
287, 59 L. Ed. 717 (1915)).
IV. DISCUSSION
Plaintiffs’ legal and factual challenges to the bankruptcy court’s rulings that neither
Detweiler nor the Sequatchie Pointe sales force made false representations about construction
completion timelines with an intent to deceive revolve around the first and second elements of
plaintiffs’ § 523(a)(2)(A) claims.
A. § 523(a)(2)(A) Elements at Issue
1.

Material Misrepresentation

For the first element of a § 523(a)(2)(A) claim, plaintiffs must show that: “1) debtor
obtained money, 2) there was a material misrepresentation, [and] 3) the debtor knew the
representation was false or was at the very least grossly reckless regarding its truth.” In re
Detweiler, 2017 WL 650062, at *12 (citing Old Republic Title Co. of Tenn. v. Looney (In re
Looney), 453 B.R. 252, 259 (B.A.P. 6th Cir. 2011)). The issue before the bankruptcy court
regarding this element was whether Detweiler and the Sequatchie Pointe sales force either knew

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the timelines for completion of amenities and utilities were false, or were grossly reckless
regarding the truth of the timelines. Id. at *13.
The bankruptcy court concluded that, although the timelines turned out to be inaccurate,
the sales force did not know their statements were false because they were simply passing along
information provided by their supervisor. Id. With respect to Detweiler, the bankruptcy court
found that even though Detweiler directly made representations regarding project timelines to
some plaintiffs, or confirmed representations made by the sales force, there was no evidence that
Detweiler knew at the time that those representations were false. Thus, the bankruptcy court
concluded that plaintiffs failed to establish that Detweiler either knowingly made a material
misrepresentation, or acted with a conscious indifference to the truth, regarding project
completion timelines provided to plaintiffs. Id.
2.

Fraudulent Intent

Even though the bankruptcy court concluded that plaintiffs failed to establish the first
element of their § 523(a)(2)(A) claim with respect to project timelines, the bankruptcy court
went on to analyze the second element—fraudulent intent. “An intent to defraud under §
523(a)(2)(A) is determined under a subjective standard, requiring the plaintiff to show that the
debtor did not actually intend to perform those obligations promised.” In re Finnegan, 428 B.R.
at 453 (citing In re Rembert, 141 F.3d at 281). Whether or not a debtor intends to perform as
promised is a “factually intensive inquiry” that may be established by circumstantial evidence.
Id. (citing Weeber v. Boyd (In re Boyd), 322 B.R. 318, 324 (Bankr. N.D. Ohio 2004)).
“[A] Debtor’s intention [to defraud] - or lack thereof - must be ascertained by the totality
of the circumstances.” In re Rembert, 141 F.3d at 282 (citing Universal Card Servs. Corp. v.

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Feld (In re Feld), 203 B.R. 360, 367 (Bankr. E.D. Pa. 1996)); In re Giacalone, No. 05-35632WSF, 2008 WL 302367, at *2 (E.D. Mich. Feb. 4, 2008) (“Fraudulent intent is judged under a
subjective standard, and is ascertained by the totality of the circumstances, including an
examination of whether the creditor’s conduct was consistent with an intent to defraud.”) (citing
In re Rembert, 141 F.3d at 282). In evaluating the totality of the circumstances, “what ‘courts
need to do is determine whether all the evidence leads to the conclusion that it is more probable
than not that the debtor had the requisite fraudulent intent.’” In re Finnegan, 428 B.R. at 454
(quoting In re Rembert, 141 F.3d at 282).
After considering circumstantial evidence and the totality of the circumstances, the
bankruptcy court found that Detweiler intended to complete Sequatchie Pointe up until January
15, 2009 (when he missed an installment loan payment and ArborOne declared the loans in
default and threatened foreclosure), and realized then that the project could not be finished.10 In
re Detweiler, 2017 WL 650062, at *5. From this factual determination, the bankruptcy court
concluded that when Detweiler and the sales force represented timelines for project completion
to plaintiffs purchasing lots between 2006 and 2008, they did not intend to deceive plaintiffs
because, at the time the lots were sold, Detweiler intended to complete Sequatchie Pointe and did
not know that, ultimately, he would be unable to do so. Id. at *15.
B. Plaintiffs’ Challenges on Appeal
Plaintiffs contend that the primary question on appeal is what Detweiler knew about the
viability of the Sequatchie Pointe project and when he knew it, and that issue is central to
10

The bankruptcy court refers to a letter dated January 15, 2009 from ArborOne regarding the default due to failure
to make an installment payment, but January 15, 2009 was the date of the default. The letter from ArborOne
notifying Detweiler of the January 15, 2009 default is dated February 4, 2009. (See Def. App. at 2327-28, referring
to exhibit 40 to the deposition of Robert Spivey.)
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analysis of plaintiffs’ § 523 nondischargeability claims. Underlying this primary issue are
plaintiffs’ factual and legal challenges to the bankruptcy court’s conclusion that neither the
Sequatchie Pointe sales force, nor Detweiler, made false representations to, or intended to
deceive, plaintiffs who purchased lots between 2006 and 2008 regarding project completion
deadlines.11
But, before those challenges can be addressed, the Court must first rule on two
independent legal issues raised by plaintiffs on appeal. The first is whether the bankruptcy court
properly excluded the HUD12 report as evidence of alleged false representations, and the second
is whether the bankruptcy court applied the proper legal standard for determining fraudulent
intent.13
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In large part, plaintiffs have not divided their arguments into the separate elements of a § 523(a)(2)(A) claim,
identified the alleged errors of the bankruptcy court as legal or factual, or analyzed each alleged error under the
applicable standard of review. And, in some instances, plaintiffs assert facts and arguments but fail to provide the
Court with citations to the record that support those assertions. For example, plaintiffs assert that, at trial, plaintiffs
“put on days of proof” (Pls. Br. at 1196) and presented a “mountain of circumstantial evidence” in support of
Detweiler’s intent to deceive (id. at 1176), but these facts were not considered and the bankruptcy court’s “neglect
of the facts” (id. at 1198) constitutes reversible error. As an initial matter, the bankruptcy court noted at the outset of
its opinion that, “[r]egardless of whether specifically mentioned in this Memorandum of Decision, the court has
examined the submitted materials, weighed the credibility of witnesses, considered all of the evidence, and reviewed
the entire record of the case.” In re Detweiler, 2017 WL 650062, at *1. Although plaintiffs claim that the bankruptcy
court erred by ignoring evidence, plaintiffs do not point the Court to any specific evidence allegedly ignored by the
bankruptcy court that would establish on appeal that one or more findings of fact by the bankruptcy court was
clearly erroneous. It is not the Court’s duty to search the record and discern, on plaintiffs’ behalf, which facts and
arguments are relevant to their arguments on appeal. See In re Kennedy, 249 F.3d 576, 579 n.3 (6th Cir. 2001)
(citing Morales v. Am. Honda Motor, Co., Inc., 151 F.3d 500, 505 n.1 (6th Cir. 1998)).
12

HUD is an acronym for the U.S. Department of Housing and Urban Development.

13

Another issue may be that of adverse inference. At trial, plaintiffs argued that they were entitled to an adverse
inference with respect to Detweiler and his daughter, Cheryl McDonald (“McDonald”), because they did not testify
at trial. The bankruptcy court declined to apply a negative inference because plaintiffs subpoenaed both witnesses
and both were available to testify. Detweiler was present at trial. Although plaintiffs could have called Detweiler and
McDonald to testify, they did not do so, electing instead to introduce Detweiler’s deposition testimony. In re
Detweiler, 2017 WL 650062, at *9. Plaintiffs mention the issue of adverse inference in a footnote (Pls. Br. n.4), but
do not challenge the bankruptcy court’s finding regarding the availability of Detweiler and McDonald to testify at
trial, or that plaintiffs made a tactical decision to neither call those witnesses at trial nor introduce their deposition
testimony into evidence. Nor do plaintiffs argue that the bankruptcy court incorrectly applied the law with respect to
adverse inferences. To the extent that plaintiffs’ footnote constitutes an appeal of the bankruptcy court’s adverse
inference ruling, the Court has reviewed both the underlying facts and law, and finds no error.
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1. The bankruptcy court did not err in excluding the HUD report as evidence of
misrepresentation
In their post-trial brief submitted to the bankruptcy court, plaintiffs argued that the HUD
report prepared by Detweiler for Sequatchie Pointe, and provided to plaintiffs, contained false
representations regarding the project and should be considered by that court as evidence for
plaintiffs’ § 532(a)(2)(A) claims. The bankruptcy court ruled, however, that the alleged
deficiencies in the HUD report could not be used as a factual basis for plaintiffs’ false
representation claims because that issue was raised by plaintiffs for the first time in post-trial
briefing in violation of Fed. R. Civ. P. 9(b), and was not tried by implied consent. But, because
Detweiler cross-examined plaintiffs at trial as to whether they received the HUD reports in
refuting plaintiffs’ justifiable reliance, the bankruptcy court considered the reports for the limited
purpose of weighing that defense. In re Detweiler, 2017 WL 650062, at *10-11. Although not
identified in the statement of issues, plaintiffs contend on appeal that the bankruptcy court erred
by refusing to consider the HUD reports as additional evidence of fraudulent representation
under § 534(a)(2)(A). (Pls. Br. at 1200-03.)
The relief plaintiffs seek on appeal is a reversal of the bankruptcy court’s ruling and
remand for a determination of damages. (See id. at 1204.) But even if the Court were to reverse
the bankruptcy court’s exclusion of the HUD report, the only relief that this Court could provide
is to remand the case to the bankruptcy court for a determination as to whether the HUD report
constituted a false representation under § 532(a)(2)(A) and, if it did, whether that finding
affected the outcome of the bankruptcy court’s analysis of fraudulent intent. Thus, the Court
considers the HUD issue first.

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Plaintiffs do not contend that the bankruptcy court erred in finding that: (1) plaintiffs
raised the issue of the HUD report’s deficiencies in support of their fraudulent
misrepresentations claim for the first time in their post-trial brief, (2) there was no discussion or
testimony at trial regarding the HUD report’s alleged deficiencies, and (3) defendant was not on
notice of the issue of the HUD report’s deficiencies prior to plaintiffs’ post trial brief. See In re
Detweiler, 2017 WL 650062, at *10-11. But plaintiffs argue on appeal that the HUD report was
prepared by Detweiler and stipulated into evidence at trial, and that Detweiler used the report at
trial in an attempt to show that plaintiffs did not justifiably rely on any alleged
misrepresentations regarding their properties that were made by Detweiler or the Sequatchie
Pointe sales force. Plaintiffs reason, therefore, that in their post-trial brief they were merely
pointing out the deficiencies in the report, and those deficiencies should be admissible as
evidence of false representations. (Pls. Br. at 1200-03.)
Plaintiffs cite no legal authority in support of their argument that the bankruptcy court
erred as a matter of law by excluding the HUD reports as evidence of misrepresentation by
Detweiler. After conducting a de novo review, the Court concludes that the bankruptcy court did
not err.
The pleading requirements of Fed. R. Civ. P. 9(b) are applicable to fraudulent
misrepresentation claims under § 523(a)(2)(A).
Federal Rule of Civil Procedure 9(b), applicable to bankruptcy adversary
proceedings by Fed. R. Bankr. P. 7009, requires that allegations of fraud must be
pled with particularity. See Fed. R. Civ. P. 9(b). This requirement includes
allegations of fraud made pursuant to 11 U.S.C. § 523(a)(2)(A). See MBNA
America Bank, N.A. v. Henning (In re Henning), 309 B.R. 508, 515 (Bankr. W.D.
Mich. 2004). Courts in this Circuit have explained that “‘[t]o satisfy Fed. R. Civ.
P. 9(b), a plaintiff must at a minimum allege the time, place and contents of the
misrepresentation(s) upon which he relied.’” Matter of Dunlevy, 75 B.R. 914
14

(Bankr. S.D. Ohio 1987) (quoting Bender v. Southland Corp., 749 F.2d 1205,
1216 (6th Cir. 1984)) (emphasis in original).
In re Mueller, No. 11-13016, 2012 WL 32570, at *4 (Bankr. E.D. Tenn. Jan. 6, 2012).
Plaintiffs’ allegations concerning misrepresentations in the HUD report were not raised in
their complaint and pled with particularity as required by Rule 9(b). See Frank v. Dana Corp.,
547 F.3d 564, 570 (6th Cir. 2008) (In order to satisfy the pleading requirements of Rule 9(b),
plaintiffs’ complaint must (1) specify the alleged fraudulent statements, (2) identify the speaker
(or source), (3) state where and when the statements were made, and (4) explain why the
statements were fraudulent.) (citation omitted). The bankruptcy court correctly determined that
plaintiffs’ complaint failed to comply with the requirements of Rule 9(b) in pleading their
alleged misrepresentations with respect to the HUD report.
Even if plaintiffs failed to comply with the pleading requirements of Rule 9(b) with
respect to alleged misrepresentations in the HUD report, the report could still be considered as
evidence with respect to such misrepresentations if those issues were tried by consent at trial.
Fed. R. Civ. P. 15(b)(2) provides that:
For Issues Tried by Consent. When an issue not raised by the pleadings is tried
by the parties’ express or implied consent, it must be treated in all respects as if
raised in the pleadings. A party may move--at any time, even after judgment--to
amend the pleadings to conform them to the evidence and to raise an unpleaded
issue. But failure to amend does not affect the result of the trial of that issue.
“Rule 15(b) ‘is designed to allow parties to a civil action to get to the heart of the matter
and not have relevant issues obscured by pleading niceties. It was not designed to allow parties
to change theories in mid-stream.’” Ways v. Miami Univ. of Ohio, 604 F. App’x 445, 447 n.3
(6th Cir. 2015) (quoting Donald v. Wilson, 847 F.2d 1191, 1198 (6th Cir. 1988) (overruled on
other grounds as recognized by Doe v. Sullivan, 956 F.2d 545, 551 n.1 (6th Cir. 1992))); Kehoe
15

Component Sales Inc. v. Best Lighting Prod., Inc., 796 F.3d 576, 596 (6th Cir. 2015) (quoting
Yellow Freight Sys., Inc. v. Martin, 954 F.2d 353, 358 (6th Cir. 1992)).
Plaintiffs maintain that, because the parties stipulated to the introduction of the HUD
report at trial, and Detweiler was aware of the content of the HUD report and relied on it when
cross-examining plaintiffs on the issue of justifiable reliance, the Court should conclude that the
issue was tried by implied consent. Plaintiffs are wrong.
“‘Implied consent is not established merely because one party introduced evidence
relevant to an unpleaded issue and the opposing party failed to object to its introduction. It must
appear that the parties understood the evidence to be aimed at the unpleaded issue.’” Kehoe
Component Sales Inc., 796 F.3d at 595 (quoting Yellow Freight Sys., Inc., 954 F.2d at 358);
McCann v. Midland Cty. Educ. Servs. Agency, No. 06-13150-BC, 2008 WL 2559281, at *12
(E.D. Mich. June 23, 2008) (same) (quoting Sasse v. United States Dep’t of Labor, 409 F.3d 773,
781 (6th Cir. 2005) (citation omitted)). Detweiler’s introduction of the HUD report in defense of
plaintiffs’ claims with respect to the element of justifiable reliance did not put him on notice that
plaintiffs were adding a new alleged misrepresentation—the HUD report—to their claims.
Indeed, even evidence introduced at a trial “‘that is relevant to a pleaded issue as well as an
unpleaded issue cannot serve to give the opposing party fair notice that the new, unpleaded issue
is entering the case.’” Sasse, 409 F.3d at 781 (quoting Yellow Freight Sys., 954 F.2d at 358).
Because Detweiler was not on notice at trial that plaintiffs were adding a new alleged
misrepresentation to their § 523 claims, he did not have an opportunity to present a defense to
that unpled allegation. Id. (“We must examine ‘whether the employer knew what conduct was in

16

issue and had an opportunity to present his defense.’”) (quoting Yellow Freight Sys., 954 F.2d at
358).
After conducting a de novo review, the Court concludes that the alleged
misrepresentations contained in the HUD report were not tried by implied consent, and the
bankruptcy court did not err in excluding the HUD report as evidence for that purpose.
2. The bankruptcy court did not err by refusing to apply gross recklessness as the
standard for determining fraudulent intent under § 523(a)(2)(A)
Plaintiffs argued before the bankruptcy court that, even if that court did not find that
Detweiler intentionally deceived plaintiffs regarding Sequatchie Pointe completion deadlines, it
is enough to satisfy the nondischargeability requirements of § 523(a)(2)(A) if Detweiler was at
least grossly reckless. In re Detweiler, 2017 WL 650062, at *14. The bankruptcy court
disagreed, finding that gross recklessness is part of the analysis for the first element of
misrepresentation, but not the second element of intent to defraud. Id. at *15. Plaintiffs contend
on appeal that the bankruptcy court erred in this regard because § 523(a)(2)(A) “clearly allows
for the [p]laintiffs to travel under a theory of either knowing misrepresentation or gross
recklessness, both of which [plaintiffs] proved.” (Pls. Br. at 1194-95 (emphasis in original).)
Plaintiffs cite no legal authority to support their argument that gross recklessness alone is
sufficient for a finding of nondischargeability under § 523(a)(2)(A), nor explain the error of the
bankruptcy court’s legal analysis. The Court has considered In re Crowe, No. 13-31450, 2014
WL 4723084 (Bankr. N.D. Ohio Sept. 22, 2014), which plaintiffs argued before the bankruptcy
court in support of their position. That case does not support plaintiffs’ argument.
In re Crowe contains a detailed discussion regarding the definition of gross recklessness
in the context of the first element of a § 523(a)(2)(A) claim, but does not hold that gross
17

recklessness alone is the standard for finding fraudulent intent and nondischargeability. Having
conducted a de novo review, the Court finds that the bankruptcy court did not err by ruling that
gross recklessness is not the standard (or a substitute) for fraudulent intent under § 523(a)(2)(A).
See In re Copeland, 291 B.R. 740, 766 (Bankr. E.D. Tenn. 2003) (“Although the court believes
that the Debtor’s actions and/or inactions rise above mere negligence to a level of gross
recklessness, the court cannot conclude that the Debtor’s conduct rose to the level of actual fraud
or deceit as required by § 523(a)(2)(A). Accordingly, this element [of fraudulent intent] has not
been satisfied.”); see also In re Moses, 547 B.R. 21, 38 (Bankr. E.D.N.Y. 2016) (“‘a reckless
disregard for whether the representation was false’ . . . without more, did not demonstrate an
intent to deceive or defraud”) (quoting New York v. Suarez (In re Suarez), 367 B.R. 332, 350
(Bankr. E.D.N.Y. 2007)).
3. The bankruptcy court did not err in concluding plaintiffs failed to carry their
burden of proof as to Detweiler with respect to elements 1 and 2 of their § 523
claims
The Court now turns to the primary question presented by plaintiffs on appeal—what
Detweiler knew about the viability of the Sequatchie Pointe project and when he knew it. (See In
re Detweiler, 2017 WL 650062, at *14; Pls. Br. at 1173.) Fraudulent intent can be found based
upon circumstantial evidence and the totality of the circumstances. As the bankruptcy court
pointed out, fraudulent intent could be established from circumstantial evidence by showing, for
example, that Detweiler continued to sell lots after he knew the project was impossible to
complete. In re Detweiler, 2017 WL 650062, *15. The bankruptcy court found, however, that the
evidence showed Detweiler did not know Sequatchie Pointe could not be completed until
January 2009 and, because the last lot was sold in 2008, that court concluded that Detweiler did

18

not possess fraudulent intent at the time construction completion timelines were represented to
plaintiffs. This conclusion contains both factual and legal components.
Sequatchie Pointe was funded by a package of agreements with the lender, ArborOne.14
On the issue of Detweiler’s intent, the bankruptcy court considered Detweiler’s deposition
testimony that he always intended to complete the project and did not realize the project could
not be finished until ArborOne required 100% of lot sales. Id. The bankruptcy court also
considered the testimony of Robert Spivey (“Spivey”) and Russell Phillips (“Phillips”), both of
whom had knowledge of the ArborOne financing and defaults. They testified that: (1) ArborOne
did not require 100% of lot sales until January 2009, and (2) completion of Sequatchie Pointe did
not become unfeasible until January 2009 when ArborOne required 100% of lot sales. See id. at
*5-6. “The testimony of Mr. Phillips and Mr. Spivey confirm [sic] that ArborOne continued to
fund the project until January of 2009.” Id. at *16. After considering all the evidence, the
bankruptcy court found that ArborOne did not require 100% of lot sales (effectively ending
funding for the project) until January 2009 when an installment loan payment was missed.15 The
bankruptcy court also found that Detweiler personally signed for Sequatchie Pointe loans,
mortgaged other properties, and sold receivables in order to procure funds for Sequatchie

Plaintiffs do not challenge on appeal the bankruptcy court’s general description of Detweiler’s financing
arrangements for Sequatchie Pointe. See In re Detweiler, 2017 WL 650062, at *5. Briefly, JJDEI purchased the land
for Sequatchie Pointe for $10,898,600.00. The project was financed by ArborOne Enterprises, Inc. (“ArborOne”)
utilizing two loans and a revolving line of credit that involved Sequatchie LLC, JJDEI, Detweiler, and Wilder
Mountain LLC (one of JJDEI’s previous projects). Detweiler received default letters from ArborOne in December
2006, May 2007, and July 2007 related to the covenant requiring Detweiler to maintain 35% equity in the project. In
these letters, ArborOne set forth terms by which ArborOne would waive the default, and Detweiler met those terms.
In January 2009, however, the loans were declared in default because an installment payment was missed. Detweiler
appealed and attempted to refinance the loans, but ArborOne denied his appeal by letter dated April 2, 2009.
14

Spivey testified that Detweiler’s default in January 2009 was the first monetary default of his loan with ArborOne
for Sequatchie Pointe. (Def. App. at 2327-29.)
15

19

Pointe.16 See id. at *5-6. The bankruptcy court also made findings regarding development of
roads and utilities at Sequatchie Pointe before January 2009.17 Plaintiffs do not contend on
appeal that bankruptcy court’s findings regarding the testimony of Spivey and Phillips,
Detweiler’s personal efforts to infuse funds into Sequatchie Pointe, or description of the status of
roads and utilities before construction stopped in early 2009, are clearly erroneous.
As they did at trial and in their motion for reconsideration, plaintiffs argue here that the
bankruptcy court erred in finding that Detweiler did not know that he would be unable to
complete Sequatchie Pointe until January 2009. Plaintiffs contend that the bankruptcy court
“turned a blind eye” to Detweiler’s admission that he knew “it was over” when he received a
letter from the lender on May 16, 2007 and, thus, representations to plaintiffs purchasing lots
between 2006 and 2008 regarding project completion timelines were false and made with the
intent to deceive. (Pls. Br. at 1164-65, 1174-77.) The Court applies the clearly erroneous
standard to plaintiffs’ appeal of this factual issue.
The “admission” to which plaintiffs refer is Detweiler’s deposition testimony that,
“[w]hen [ArborOne] sent me a letter and said they wanted 100 percent of the [lot sales], I knew it
was over with.” (Pls. App. at 1332.) Plaintiffs maintain that this admission concerns a letter
Detweiler testified at his deposition that in order to procure funds to invest in Sequatchie Pointe he sold “paper” at
a discount, and mortgaged personal property (including his home) and rental properties. (See Def. App. at 2301-02.)
16

17

The bankruptcy court stated:
By the time construction ceased at Sequatchie Pointe in early 2009 there were paved roads
throughout Phase 1 in Tennessee. Electricity and water lines had been run through Phase 1 along
the main roads, but there is no water supply to connect to the lines. Nor is any supply nearby.
Gravel roads had been installed through eighty percent of Phase 2. However, the road into the
project over a river was never fully completed. Currently, the internal roads do not connect to the
state highway, the entrance was never completed, and a number of the roads have been damaged
by subsequent mountain slides.

In re Detweiler, 2017 WL 650062, at *7; see also Detweiler’s response to plaintiffs’ interrogatory no. 22 regarding
infrastructure investment (Def. App. at 2304).
20

Detweiler received from ArborOne dated May 16, 2007. (Pls. Br. at 1174.) But Detweiler
testified at his deposition that he did not know the date when ArborOne required 100% of lot
sales. (See Pls. App. at 1332.) Plaintiffs argue that the bankruptcy court “gives no explanation for
why the [bankruptcy] court believes the May 16, 2007 letter does not say exactly what it says.”
(Pls. Br. at 1177.) But on appeal, plaintiffs do not point this Court to any language in the May 16,
2007 letter regarding 100% of lot sales, nor did the Court’s examination of the letter 18 reveal
such language. Plaintiffs contend that multiple deponents testified about the May 2007 letter, but
do not point the Court to any testimony that ArborOne actually required 100% of lot sales in
May 2007.
The bankruptcy court considered the May 2007 letter from ArborOne at trial, and found
that it advised Detweiler of technical defaults related to owner equity in the project, but waived
the default under conditions (other than 100% of lot sales) that were met by Detweiler. In re
Detweiler, 2017 WL 650062, at *16. Plaintiffs’ argument on appeal attempts to reframe
Detweiler’s “admission” that he knew the project could not be completed when ArborOne
required 100% of lot sales, to an admission that he knew the project could not be completed
when the loans were in curable default of the owner equity provision. (See Pls. Br. at 1175
(“[A]nd all of the purchases occurred when Detweiler was in default of, at the very least, his
equity to debt ratio obligation. . . . This is all a critical component of understanding exactly when
Detweiler explicitly stated that he knew he would never complete the project[.]”).)
The bankruptcy court’s finding that Detweiler did not know that he could not complete
Sequatchie Pointe until January 2009 when ArborOne ceased funding the project is not clearly

18

See Pls. App. at 1460-61.
21

erroneous. Plaintiffs’ entire argument is based upon the premise that the bankruptcy court should
have viewed the facts differently. But that court’s factual determination as to when Detweiler
knew the project could not be completed is not clearly erroneous simply because a different
conclusion may have been possible. In re Cottingham, 473 B.R. at 705-06; Gen. Motors
Acceptance Corp., 2008 WL 2740777, at *3. The bankruptcy court’s fact finding that Detweiler
did not realize that he could not complete the project until January 2009 is supported by the
record and, considering all of the evidence, this Court is not left with a definite and firm
conviction that an error has been committed. In re Cottingham, 473 B.R. at 705-06.
Plaintiffs also argue on appeal, as they did at trial, that Detweiler’s intent to defraud is
demonstrated by his alleged instructions to utilize construction equipment on weekends to make
it appear that construction was being done, and to use CB19 radios to make it appear that lots
were being sold. (See Pls. Br. at 1162-73.)
With respect to the alleged use of radios by the Sequatchie Pointe sales force to broadcast
fake lot sales, plaintiffs cite the testimony of project manager Dan Graber (“Graber”) and
salesperson Brandon Olinger (“Olinger”). (See Pls. Br. at 1163.) But the bankruptcy court found
that the testimony of Graber was not credible for reasons detailed in that court’s rulings,20 and
Olinger’s testimony does not help plaintiffs’ cause. Olinger testified that (1) Graber had the idea
of using “walkie-talkies” and a “failed attempt” to use them, (2) but he never had one, and (3)
was not aware of radios ever being used to convey fake lot sales at Sequatchie Pointe.
(Adversary Case Doc. No. 213-1 at page 25-26 of 93.) Detweiler, who had used radios in the

19

“CB” is an acronym for citizens’ band.

The Court does not find the bankruptcy court’s assessment of Graber’s credibility to be clearly erroneous, or any
other reason not to give due regard to that court’s finding. See In re Aubiel, 534 B.R. at 302.
20

22

past for a different project, denied that CB’s were used at Sequatchie Pointe. (Pls. App. at 1329.)
As before, plaintiffs’ argument regarding the radios simply advocates a different view of the
evidence. This is insufficient to establish that the bankruptcy court was clearly erroneous in
finding that plaintiffs failed to show radios were actually used to broadcast fake lot sales as
described by Graber, or that any impetus for doing so arose from Detweiler.
With respect to the use of construction equipment on weekends, Detweiler testified that
he may have told Graber to operate construction equipment on weekends if there was an actual
construction purpose, but not simply to make it appear that construction was underway. (Id. at
1330.) Other than the testimony of Graber (whom the bankruptcy court determined was not
credible), there is no evidence that any use of construction equipment on the weekends was not
actually for a construction purpose, and the bankruptcy court’s finding in that regard is not
clearly erroneous.
Nor did the bankruptcy court err in its legal conclusion that, based on the totality of the
evidence, Detweiler did not possess an intent to defraud. “A fraudulent promise under §
523(a)(2)(A) requires proof that at the time the debtor made it, he or she did not intend to
perform as required.” Risk v. Hunter (In re Hunter), 535 B.R. 203, 218 (Bankr. N.D. Ohio 2015)
(internal quotation marks and citations omitted). This legal determination is subjective, based on
the totality of the circumstances, including circumstantial evidence of the debtor’s conduct. In re
Rembert, 141 F.3d at 281-82; In re Alwood, 531 B.R. 182, 188 (Bankr. N.D. Ohio 2015) (citing
Hamo v. Wilson (In re Hamo), 233 B.R. 718, 724 (B.A.P. 6th Cir. 1999)). In order to prove
fraudulent intent, plaintiffs must establish that Detweiler did not intend to complete Sequatchie

23

Pointe at the time representations were being made to plaintiffs between 2006 and 2008
regarding project completion deadlines.
Considering the totality of the evidence found by the bankruptcy court, including that: (1)
ArborOne funded Sequatchie Pointe until January 2009, (2) Detweiler personally guaranteed the
Sequatchie Pointe loans and invested his own funds in the project, (3) Detweiler obtained
required bonds and permits and made measurable progress in the installation of roads and
utilities at Sequatchie Pointe, and (4) Detweiler testified that he did not realize that Sequatchie
Pointe could not be completed until ArborOne ceased funding the project in January 2009, the
Court agrees with the bankruptcy court’s conclusions that these are not the actions of someone
who knew the project was hopeless from the start. See In re Detweiler, 2017 WL 650062, at *15;
In re Giacalone, 2008 WL 302367, at *2 (“Fraudulent intent is judged under a subjective
standard, and is ascertained by the totality of the circumstances, including an examination of
whether the creditor’s conduct was consistent with an intent to defraud.”); In re Mills, 345 B.R.
598, 605 (Bankr. N.D. Ohio 2006) (“[A] debtor acting with the intent to defraud will not
generally undertake measures to perform their obligation.”) (citing Anastas v. Am. Savings Bank
(In re Anastas), 94 F.3d 1280, 1285 (9th Cir. 1996)); In re Rahrig, 373 B.R. 829, 834 (Bankr.
N.D. Ohio 2007) (an indicia of debtor’s intent in nondischargeability proceedings based on
debtor’s false representations centers on whether debtor undertook any of the steps necessary to
perform as promised) (citing among authority Williamson v. Busconi, 87 F.3d 602, 603 (1st Cir.
1996)).
Exceptions to discharge are strictly construed against the creditor, who bears the burden
of proving the necessary elements of nondischargability by a preponderance of the evidence, and

24

liberally in favor of the debtor. In re Wilson, No. 16-30782, 2017 WL 1628878, at *4 (Bankr.
N.D. Ohio May 1, 2017) (citing In re Rembert, 141 F.3d at 281); In re Hicks, No. 11-32263,
2014 WL 2624932, at *3 (Bankr. E.D. Tenn. June 12, 2014) (citing Grogan, 498 U.S. at 291); In
re Rembert, 141 F.3d at 281). “‘[I]f there is room for an inference of honest intent, the question
of nondischargeability must be resolved in favor of the debtor.’” In re Alwood, 531 B.R. at 188
(quoting ITT Fin. Servs. v. Szczepanski (In re Szczepanski), 139 B.R. 842, 844 (Bankr. N.D.
Ohio 1991)).
After conducting a de novo review, the Court concludes that there is room in the totality
of circumstantial evidence for an inference that, between 2006 and 2008 when plaintiffs
purchased undeveloped land at Sequatchie Pointe, Detweiler intended to complete the project
and, therefore, did not possess fraudulent intent with respect to representations made to plaintiffs
regarding project completion. In re Alwood, 531 B.R. at 188. Accordingly, the issue of
nondischargeability is resolved in favor of the debtor. In re Ireland, 441 B.R. at 582.
4. The bankruptcy court did not err in concluding plaintiffs failed to carry their
burden of proof as to the Sequatchie Pointe sales force with respect to elements 1
and 2 of their § 523 claims
On appeal, plaintiffs contend that the bankruptcy court erred in examining whether the
Sequatchie Pointe sales force had an intent to deceive plaintiffs and should have, instead, focused
on whether Detweiler had an intent to deceive. Plaintiffs’ theory is that, even if the sales force
did not intend to deceive plaintiffs, Detweiler is liable because he knew that Sequatchie Pointe
was not viable from the inception of the project, and is therefore responsible for the
representations of his sales force that ultimately proved to be inaccurate. (See Pls. Br. at 1192.)
The Court has held, however, that the bankruptcy court did not err in concluding the plaintiffs

25

failed to establish the first two elements of their § 523 claims as to Detweiler. Because the Court
has affirmed the bankruptcy court’s ruling that Detweiler did not possess fraudulent intent at the
time the sales force represented project completion timelines to plaintiffs, it is arguably
unnecessary for the Court to consider plaintiffs’ appellate arguments regarding the sales force.
The Court will nevertheless briefly address those arguments for the sake of completeness.
Plaintiffs concede that the Sequatchie Pointe sales force was unaware of the financial
viability of the project, but insist that the sales force was grossly negligent by representing
construction timelines to plaintiffs with no supporting knowledge, and intentionally deceived
plaintiffs with deceptive sales practices. (Id. at 1170 n.3.) These arguments are unavailing on
appellate review.
First, gross negligence is not the legal standard for analyzing either the first or second
element of a § 523(a)(2)(A) claim. See In re Looney, 453 B.R. at 259 (citing In re Rembert, 141
F.3d at 280-81). But even if gross negligence were sufficient for the first element, plaintiffs’
arguments would still fail.
With respect to plaintiffs’ contention that the Sequatchie Pointe sales force represented
construction timelines to plaintiffs with no supporting knowledge, plaintiffs do not maintain that
the bankruptcy court erred in finding that the timelines represented to plaintiffs by the Sequatchie
Pointe sales force were based upon bond documents for the roads and upon information received
from Graber, the Sequatchie Pointe project manager. In re Detweiler, 2017 WL 650062, at *6.
Ervin Moore (“Moore”) testified with respect to project timelines that members of the sales force
“were only using the information at hand[,]” that he did not “think that any of [the sales force]
literally went out there to mislead anyone.” (Pls. App. at 1478.) Moore’s testimony was

26

corroborated by the testimony of other members of the sales force. See In re Detweiler, 2017 WL
650062, at *7. The bankruptcy court’s factual finding that the Sequatchie Pointe sales force used
construction timelines provided to them by their supervisor is not clearly erroneous.
Plaintiffs also argue that some members of the sales force were told by Graber at a
meeting to lie about project completion dates and, thus, intended to deceive plaintiffs by doing
so. (Pls. Br. at 1157, citing the deposition of Moore.) Moore, who was present at that meeting,
testified that Detweiler was not present and there was no indication that Graber’s statements
originated with Detweiler in any way. As Moore put it, “I think it was all [Graber].” (See Pls.
App. at 1465-67.) Indeed, Moore testified that, in his view, Detweiler would have fired a sales
person for misrepresenting or lying to a prospective purchaser. (Def. App. at 2311.). Moreover,
plaintiffs have not shown that members of the sales force actually lied to plaintiffs about
deadlines. Finally, plaintiffs contend that the sales force intentionally deceived plaintiffs by
employing deceptive sales practices by using a radio to call out fake lot sales, which has already
been addressed by the Court.
Plaintiffs’ arguments on appeal regarding the first two elements of their § 523 claim as to
the Sequatchie Pointe sales force simply advocate their own view of how the bankruptcy court
should have construed the facts. That court’s findings of fact, however, are not clearly erroneous
simply because two different views of the evidence are possible. In re Cottingham, 473 B.R. at
705-06; Gen. Motors Acceptance Corp., 2008 WL 2740777, at *3. The bankruptcy court’s
factual findings are supported by the record, and this Court is not left with a definite and firm
conviction that a mistake has been committed. Thus, the Court concludes that the bankruptcy
court’s findings of fact underlying its legal conclusion that the Sequatchie Pointe sales force did

27

not make false representations with an intent to deceive plaintiffs regarding project completion
timelines are not clearly erroneous. And, after conducting a de novo review, the Court also
concludes that the bankruptcy court did not commit an error of law in holding that these facts
were insufficient for plaintiffs to establish the first and second elements of their § 523(a)(2)(A)
claims. In re Cottingham, 473 B.R. at 705-06.
5. Governing Law and Imputed Agency
Plaintiffs’ appeal, as embodied in their statement of issues, contends that the bankruptcy
court erred in applying federal, rather than Tennessee law. Nondischargeability of a debt under
11 U.S.C. § 523(a)(2)(A) is governed by federal, not state, law. See In re Sherrick, 573 B.R. 745,
755 n.2 (Bankr. M.D. Tenn. 2017) (citation omitted); In re Batson, 568 B.R. 281, 288 (Bankr.
M.D. Tenn. 2017); In re Brace, 131 B.R. 612, 614 (Bankr. W.D. Mich. 1991) (determining the
dischargeability of a debt under § 523(a)(2)(A) is purely a matter of federal law); In re Grant,
No. 12-33744, 2013 WL 4462706, at *5 (Bankr. N.D. Ohio Aug. 19, 2013) (citing Grogan, 498
U.S. at 289). The bankruptcy court appropriately applied federal law to determine whether
plaintiffs carried their burden of proof to establish the elements of nondischargeability under §
523(a)(2)(A).
Applying federal law, the bankruptcy court found that the misrepresentations of the
Sequatchie Pointe sales force regarding the existence of Georgia bonds should be imputed to
Detweiler because he knew that the sales force was misrepresenting that bonds covered property
in Georgia and did not correct this inaccuracy. Thus, the bankruptcy court found Detweiler was
liable through the theory of imputed fraud for the misrepresentations concerning bonds to the

28

McAvoys, Stones, and Ferkinhoffs, and those debts were not dischargeable. In re Detweiler,
2017 WL 650062, at *19. That ruling by the bankruptcy court is not on appeal here.
The issue of imputed agency concerning representations about project completion
deadlines was not decided by the bankruptcy court (under federal or state law) because the
bankruptcy court determined that, while Detweiler may not have recognized his limitations and
may have underestimated the experience required to complete a project like Sequatchie Pointe,
those shortcomings did not equate to a finding of intent to deceive under § 523(a)(2)(A) under
federal bankruptcy law. Id. at *19.
Because the Court has affirmed the bankruptcy court’s ruling that, as a matter of law,
neither Detweiler nor the sales force made false representations or intended to deceive plaintiffs
with respect to representations concerning project completion deadlines, there is no liability to
impute in either direction between Detweiler and the Sequatchie Pointe sales force. Thus,
plaintiffs’ arguments regarding agency and related choice of law issues are moot, and need not
be addressed by this Court on appeal.
V. CONCLUSION
For all of the foregoing reasons, the orders and decisions of the bankruptcy court
challenged on appeal are affirmed.
IT IS SO ORDERED.

Dated: March 23, 2018
HONORABLE SARA LIOI
UNITED STATES DISTRICT JUDGE

29