Allen v. Freund
Filing
23
ORDER signed by Judge J.P. Stadtmueller on 6/23/2017: AFFIRMING the Judgment of the Bankruptcy Court and DISMISSING this matter with prejudice. (cc: all counsel, via mail to Edward O. Allen)(jm)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
EDWARD O. ALLEN,
Appellant,
v.
Case No. 16-CV-1222-JPS
Bankruptcy Case No. 14-02027-GMH
CHRISTOPHER C. FREUND,
Appellee.
ORDER
Appellant Edward O. Allen (“Allen”) appeals an adverse judgment
of the bankruptcy court. (Docket #1). The bankruptcy court held an
adversary trial on Allen’s claim that Appellee and debtor Christopher C.
Freund (“Freund”) committed fraud, ultimately finding in favor of
Freund. This appeal, originally filed on September 12, 2016, was
reassigned to this branch of the Court on March 15, 2017. The appeal has
been fully briefed, and for the reasons stated below, the judgment of the
bankruptcy court is affirmed.
1.
BACKGROUND
In adversary proceeding 14-2027, United States Bankruptcy Judge
G. Michael Halfenger heard a claim by Allen that Freund, who was in
Chapter 13 bankruptcy proceedings, committed fraud against him in
connection with the failed sale of a real estate parcel. Allen sought to
prove fraud in order to establish that the debt he asserts Freund owes him
would be considered non-dischargeable.
1.1
Fraud Claims and Section 523(a)(2)(A)
Under 11 U.S.C. § 523(a)(2)(A), a debt is nondischargeable in
bankruptcy to the extent it was obtained by “false pretenses, a false
Page 1 of 26
representation, or actual fraud, other than a statement respecting the
debtor’s or an insider’s financial condition.” The party objecting to
discharge bears the burden to establish an exception to discharge by a
preponderance of the evidence. Goldberg Secs. Inc. v. Scarlata (In re
Scarlata), 979 F.2d 521, 524 (7th Cir. 1992); Grogan v. Garner, 498 U.S. 279,
291 (1991).
The three types of fraud contemplated by Section 523(a)(2)(A)—
false pretenses, false representation, and actual fraud—are often analyzed
separately. See, e.g., In re Jacobs, 448 B.R. 453, 471 (Bankr. N.D. Ill. 2014).
But generally, to prove that a debt is nondischargeable pursuant to Section
523(a)(2)(A), a plaintiff must show: “(1) that [the debtor] made a false
representation or omission, which he either knew was false or made with
reckless disregard for the truth; (2) that [the debtor] possessed an intent to
deceive or defraud; and (3) that [the plaintiff] justifiably relied on the false
representation [or omission].” In re Davis, 638 F.3d 549, 553 (7th Cir. 2011);
Ojeda v. Goldberg, 599 F.3d 712, 716–17 (7th Cir. 2010).
Under the broad umbrella of Section 523(a)(2)(A), courts entertain
claims arising from overt misrepresentations, implied misrepresentations,
courses of conduct intended to foster false impressions, and silence or
concealment surrounding material facts. See In re Reichartz, 529 B.R. 696,
700–01 (Bankr. E.D. Wis. 2015); see also McClellan v. Cantrell, 217 F.3d 890,
893 (7th Cir. 2000) (“[F]raud is a generic term, which embraces all the
multifarious means which human ingenuity can devise and which are
resorted to by one individual to gain an advantage over another by false
suggestions or suppression of truth.”).
All types of Section 523(a)(2)(A) claims, however, require a
showing of deceptive intent. In re Kimzey, 761 F.2d 421, 423 (7th Cir. 1985).
Page 2 of 26
Fraud under Section 523(a)(2)(A) cannot normally be established if the
misrepresentation or omission at issue relates to future promises. James
Cape & Sons Co. v. Bowles (In re Bowles), 318 B.R. 129 (Bankr. E.D. Wis.
2004); Palmacci v. Umpierrez, 121 F.3d 781, 786 (1st Cir. 1997). However,
there exists a narrow exception where, at the time the promise was made,
the debtor had no intention to perform the promised act. In re Bowles, 318
B.R. at 144.
1.2
The Facts Adduced at Trial
At a bench trial on the liability portion of Allen’s claim held on
February 11, 2016,1 Judge Halfenger heard statements by Allen, acting pro
se, and Freund’s counsel. He also heard testimony from Allen, Freund,
and John Hauer (“Hauer”), an employee of M&I Bank (“M&I”). The
following facts are drawn from the findings of fact made by the
bankruptcy court in an oral ruling handed down on September 1, 2016. See
(Docket #17-1 at 11–39).
In 2004, Allen purchased a commercial office building located at
4117 North Green Bay Avenue in Milwaukee, Wisconsin (the “Property”).
M&I held a first mortgage on the Property to secure a note. In 2005, Allen
moved from Milwaukee to San Diego, California.
He remained current on his obligation to M&I until late 2009, when
his financial situation became “precarious.” Id. at 14. His ability to remain
current on the mortgage “hinged on maintaining a steady stream of rental
income from his tenant at the [Property],” and in 2009 his tenant moved
Allen had made a request for a jury trial, but Judge Halfenger denied it
as untimely and found that Allen had waived his jury trial right by filing a proof
of claim in the underlying bankruptcy proceedings involving Freund. Allen does
not challenge these findings.
1
Page 3 of 26
out. Id. Beginning in 2010, he began making half-payments for several
months. Thereafter, he was totally unable to make any further payments.
While endeavoring to stay current with M&I, Allen was likewise
unable to keep abreast of his other obligations, including a debt he owed
to Chase Bank and property taxes he owed to the City of Milwaukee.
Chase Bank eventually obtained a money judgment against Allen and
recorded a lien against the Property. The City of Milwaukee did the same
in connection with the delinquent tax payments.
In early 2009, Allen listed the Property for sale due to the difficulty
of managing it while living in California, “and also presumably due to his
financial difficulties in regard to the [Property].” Id. at 15. He says he
received only low-ball offers, not serious interest. Then, in September
2010, Freund sent Allen a letter stating that he was interested in
purchasing the Property. The letter explained that Freund was not a
developer, but was interested in “finding a larger place for himself.” Id. It
also stated that Freund was “aware of the past due taxes and pending
building inspection orders.” Id. In his letter, Freund suggested that “there
may be a way around any other legal issues if there are any.” Id. at 15–16.
In response, Allen reached out to Freund, and the two had a
telephone conversation. During the call, Allen told Freund that he wanted
to sell the Property for enough money to satisfy his three debts—the M&I
mortgage note, the Chase Bank judgment lien, and the City of Milwaukee
tax lien. Allen did not state a specific dollar amount for these debts. At the
end of the conversation, Freund said he was interested in touring the
Property.
Allen did some research on his prospective buyer. He learned from
a local newspaper article that Freund had undertaken development
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opportunities in the Milwaukee in the past. He satisfied himself that
Freund was a bona fide prospective purchaser and therefore decided to
travel to Milwaukee to show Freund the Property. They toured the
Property together on October 9, 2010. At the time of their visit, the
building was vacant, boarded-up, vandalized, and overgrown with
vegetation.
After the tour, Freund told Allen that the Property met his needs
and thus could be a suitable site for him. However, Freund, interested in
getting a better deal, asked Allen if he thought that M&I could be
convinced to take less than was owed on the mortgage note. Allen said he
did not know.
The bankruptcy court noted that here, the parties’ versions of
events diverged. Freund testified that he asked Allen about the bank
holding the mortgage note and that Allen mentioned the name of the M&I
loan officer. Allen, however, said that Freund asked for the bank’s contact
information specifically. Allen further testified that Freund did not
express interest in contacting Chase Bank. The bankruptcy court noted
that “[u]ltimately, these differences don’t matter and I accept Allen’s
description of the discussion.” Id. at 17.
Soon thereafter, Freund approached Hauer, vice president of M&I,
about the possibility of obtaining a better deal for the Property than what
Allen owed. Judge Halfenger observed that Freund’s “recall was
imperfect” regarding his meeting with Hauer, but that it was clear that
Freund asked Hauer whether M&I would consider a short sale of the
Property. Id. Hauer rejected this suggestion. Hauer instead offered to sell
Freund the note.
Page 5 of 26
Freund remained in frequent contact with Allen throughout these
negotiations with M&I, as evidenced in voicemail messages Freund left
for Allen on November 11 and 13, 2010. In the messages, Freund told
Allen that he had talked to M&I Bank and that events were in motion to
purchase the note. He did not say that it was he who was the prospective
buyer of the note.
On November 22, 2010, Freund, through his company, J. Crawford
Investment, LLC (“J. Crawford”), acquired M&I’s interest in the note and
the mortgage for $10,500. That same day, Freund called Allen, telling him
that he had bought the note from M&I and that this could help eliminate
the obligation Allen owed to Chase Bank. The following day, Freund or
his agent recorded the assignment of the mortgage in the Milwaukee
County Register of Deeds office.
Allen “was not pleased with Freund’s report and believed he had
been tricked.” Id. at 18. On November 29, 2010, Allen wrote a letter to
Freund’s attorney expressing his frustration with Freund’s conduct and
threatening to oppose foreclosure by seeking an injunction. However,
Allen never actually pursued this course.
By December 3, 2010, the parties’ relationship had “cooled.” Id.
Freund left another voicemail for Allen, indicating that a short sale was no
longer an option and that Allen owed Freund—or more specifically,
Freund’s company, J. Crawford—over $100,000 on the note formerly held
by M&I. J. Crawford initiated foreclosure proceedings in January 2011 and
obtained a foreclosure judgment. Allen did not contest the foreclosure. J.
Crawford subsequently quitclaimed its interest in the note to Freund and
Freund then dissolved J. Crawford.
Page 6 of 26
Allen then sued Freund in Milwaukee County Circuit Court in May
2012. Freund filed a bankruptcy petition under Chapter 13 in March 2013.
Allen commenced an adversary proceeding against Freund in the
bankruptcy court, alleging fraud. In August 2013, the bankruptcy court
dismissed Freund’s Chapter 13 bankruptcy case and the adversary
proceeding because Freund failed to file his tax returns as required by a
prior court order. Freund filed another Chapter 13 bankruptcy petition in
October 2013, and Allen filed the instant adversary proceeding in January
2014.
1.3
The Bankruptcy Court’s Ruling
On September 1, 2016, Judge Halfenger issued an oral ruling
granting judgment in favor of Freund. Id. at 11–39. In the ruling, the
bankruptcy court outlined the contours of Allen’s claims, noting that
throughout the proceedings, Allen accused Freund of committing two
separate frauds. The first was that, based on the parties’ September 10,
2010 telephone call and their conversation after the October 9, 2010 tour of
the Property, Freund had orally agreed to buy the Property, accepting the
condition that the sale price had to cover Allen’s three debts. More
specifically, Allen believed that Freund agreed to the buy the Property at a
price sufficient to pay of Allen’s debts if, as Freund said, it “met his
needs.” Id. at 23. Allen contends that this condition was satisfied once
Freund indicated on October 9 that the Property met his needs. According
to Allen, Freund should have paid him enough to extinguish all three of
Allen’s debts but only satisfied one-third of that bargain by buying the
M&I note.
The bankruptcy court found that the facts underlying this theory
did not amount to fraud. First, the court found that no agreement existed
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between the men. The court noted that Freund never actually agreed to
Allen’s debt-satisfaction condition of sale and that Allen was “read[ing] a
bit too much into Freund’s decision to tour the property. The parties agree
that they never discussed a price nor any other purchase terms that could
lend support to Allen’s claim of an agreement.” Id. at 25. Furthermore,
Freund testified that he had never agreed to purchase the Property, and
Allen himself conceded as much in his own testimony at trial. The court
found it “tellin[g]” that “Allen kept the property on the market” even after
the September call and October tour. Id. Thus, in the court’s view, an
objective observer at the time of these events would not have drawn the
conclusion, as Allen did in hindsight, that Freund had agreed to buy the
Property.
Consequently,
Judge
Halfenger
concluded
that
no
misrepresentation, omission, or other fraud contemplated by Section
523(a)(2)(A) had occurred.
Additionally, the bankruptcy court found that even if Freund’s
October 9 statement that the Property met his needs was a satisfaction of a
condition precedent to the agreement to buy the Property, Wisconsin law
does not recognize oral contracts to purchase real property. Allen, who
had attended law school, testified that he understood this, and so he knew
the deal was unenforceable as it stood on October 9. Thus, Allen suffered
no misapprehension about the lack of enforceability of the alleged
agreement. Moreover, even if the oral agreement was enforceable,
reasoned the court, Freund’s ultimate decision not to buy the Property
was not fraud. It was, at worst, a breach of contract, which creates only a
dischargeable debt.
The second of Allen’s fraud theories focused on Freund’s contact
with M&I Bank. Here, Allen posited that during the post-tour
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conversation on October 9, 2010, Freund indicated that he wanted to
speak with M&I to negotiate a lower payoff amount for the mortgage
note. Allen, in reliance on the representation that Freund would make a
deal on his behalf, obtain a short sale,2 and pay off Allen’s other debts,
gave Freund the contact information for the appropriate bank official.3 At
trial, Allen contended that Freund’s decision to buy the M&I note without
satisfying the Chase Bank or City of Milwaukee debts meant that Freund
had only performed one-third of his promise. In Allen’s view, Freund’s
actual purpose in questioning Allen about the bank was to learn the
identity of the loan officer and buy the note without paying Allen enough
to pay off his other debts. Failing to disclose this ulterior motive was,
according to Allen, fraudulent.
However, the bankruptcy court found credible Freund’s assertion
that his purpose in going to M&I was to simply see if the bank would take
less to retire the mortgage debt. This was consistent with what Freund
actually told Allen he was going to do and was consistent with Hauer’s
testimony about his conversation with Freund. In the end, it was M&I’s
Allen admitted at trial that the parties never used the phrase “short sale”
during this conversation. He merely understood Freund’s inquiry to be directed
at seeking a short sale.
2
The parties disputed whether Freund asked for the contact information
or Allen volunteered it. Judge Halfenger found the dispute immaterial. First, it
was not disputed that Freund inquired about whether Allen thought the bank
would take less. Second, Allen did not press at trial the argument that the fraud
arose specifically from Freund requesting the loan officer’s contact information.
Indeed, the contact information for the mortgage holder was a public record, so it
was not as though Allen divulged a secret in reliance on Freund’s alleged fraud.
Additionally, the public nature of the information meant that Allen suffered no
identifiable injury by giving Freund the contact information, even if he was truly
duped into doing so.
3
Page 9 of 26
lack of interest in a short sale or otherwise discounting the debt that
derailed Freund’s efforts, not Freund’s dissembling. Moreover, Judge
Halfenger credited Hauer’s representation that it was he, not Freund, who
first suggested that Freund should buy the note outright. Thus, the court
concluded that Freund did not approach M&I with a plan to buy the note,
and therefore he did not fraudulently omit such information in his
statements to Allen.
Nor was Freund liable for failing to mention to Allen that M&I was
interested in selling the note to him. Judge Halfenger observed that in the
context of an arm’s-length business transaction regarding sale of the
Property, Freund was under no obligation, whether by fiduciary duty or
otherwise, to disclose this information or correct misimpressions Allen
may have harbored. To the contrary, despite Allen’s hope that Freund
would speak with M&I only to negotiate a lower payoff amount for the
note, Freund “neither said that nor said anything that would have left an
objective. . .observer to draw [that] conclusion[.]” Id. at 30. Moreover,
Freund informed Allen as soon as he purchased the note, which clarified
any of Allen’s misunderstandings. Thus, the court found that neither this
theory nor the first established that any false pretense, misrepresentation,
or actual fraud occurred as required by Section 523(a)(2)(A).
Though this was enough to dispose of the case, Judge Halfenger
made additional findings as to the other elements of Allen’s claims. First,
he found that Freund lacked the necessary intent to deceive or defraud
Allen during the course of their dealings. As to the promise to buy the
Property in an amount sufficient to satisfy all of Allen’s debts (the first
theory of fraud), Freund’s failure to follow through would only be
actionable if he did not intend to perform at the time he made the
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promise. The court concluded that Allen had not produced sufficient
evidence to support this view, finding credible Freund’s testimony about
his intentions.
As to the promise to negotiate a lower payoff amount with M&I
(the second fraud theory), the court likewise concluded that Freund was
credible when he testified that he believed that Chase Bank could have
written off Allen’s debt to it based on its status as junior lienholder.
Further, Freund credibly testified that he believed the delinquent taxes
would be his responsibility once he bought the Property. Allen also
operated under the belief that the property taxes would follow the
Property, not him. Thus, the court believed Freund when he asserted that
in acquiring the note, he thought he was acting in Allen’s interests and
moving toward eliminating Allen’s two other debts. That Freund was
mistaken about the status of the Chase Bank and City of Milwaukee debts
was inconsequential to his intent at the time. Nor were Freund’s later
actions—telling Allen about his discussions with M&I, the purpose of
buying the note, and how it might help Allen—consistent with someone
trying to deceive.
Finally, the bankruptcy court assessed whether Allen established
the third element of his fraud claim: justifiable reliance. First, Allen
suggested that he relied on Freund’s statements before providing the M&I
loan officer’s contact information. But the court concluded that despite the
sincerity of Allen’s belief that he and Freund had “the workings of an
agreement” as of October 9, his reliance on that belief was not justifiable.
Id. at 34. Allen’s legal education and testimony regarding the statute of
frauds amply demonstrated that he could not have justifiably relied on the
existence of an oral contract for the sale of the Property. Indeed, Allen
Page 11 of 26
testified that he thought the negotiations as of October 9, 2010 were at the
point where they could be reduced to written form; this showed Judge
Halfenger that even Allen thought that the sale contract was not yet
completed. Furthermore, as discussed above, the court credited Freund’s
efforts to keep Allen abreast of the negotiations over the note with M&I
and the eventual purchase of the note.
Moreover, the court determined that Allen, by threatening in
December 2010 to sue Freund if he failed to buy the Property, knew or
should have known that Freund was thereafter not going to purchase the
Chase Bank or City of Milwaukee debts, or pay an equivalent amount.
Considering that thereafter Allen continued to market the property to
prospective buyers, the court found that Allen could not claim justifiable
reliance on any of Freund’s representations or omissions. Similarly, the
court found justifiable reliance lacking as to Allen’s claim that he would
not have flown to Milwaukee to show the Property absent Freund’s
statements, since Allen showed other interested buyers the Property
during the same October 2010 tour. He also continued to market the
Property and represented that he had other parties interested in the
Property after this time.
Summing up the case, Judge Halfenger observed that “Allen’s
hopefulness that he could resolve his financial problems surrounding the
[Property] through a deal with Freund is subjectively understandable, but
any reliance on Freund’s statement or conduct to achieve an outcome that
paid off all of Allen’s debts on the [Property] was not objectively
justifiable under the circumstances.” Id. at 36. Having concluded that
Allen failed to establish any element of his fraud claim against Freund, he
directed judgment to be entered in Freund’s favor.
Page 12 of 26
Judgment was entered on September 9, 2016. Allen filed a notice of
appeal on September 12, 2016. Freund does not challenge this Court’s
jurisdiction under 28 U.S.C. § 158, which provides the district court with
jurisdiction over appeals from “final judgments, orders, and decrees” of
the bankruptcy court. 28 U.S.C. § 158(a).
2.
STANDARD OF REVIEW
When adjudicating bankruptcy appeals, district courts apply a dual
standard of review: the bankruptcy court’s findings of fact are reviewed
for clear error, while its conclusions of law are reviewed de novo. Stamat v.
Neary, 635 F.3d 974, 979 (7th Cir. 2011); Fed. R. Bankr. P. 8013. Mixed
questions of law and fact are subject to de novo review. Mungo v. Taylor,
355 F.3d 969, 974 (7th Cir. 2004).
The clear error standard is “highly deferential,” Cont’l Cas. Co. v.
Symons, 817 F.3d 979, 985 (7th Cir. 2016), and it “does not entitle a
reviewing court to reverse the finding of the trier of fact simply because it
is convinced that it would have decided the case differently,” Anderson v.
Bessemer City, 470 U.S. 564, 573 (1985). “If the bankruptcy court’s account
of the evidence is plausible in light of the record viewed in its entirety,
[the court] will not reverse its factual findings even if [it] would have
weighed the evidence differently.” Freeland v. Enodis Corp., 540 F.3d 721,
729 (7th Cir. 2008) (citation and quotation omitted); Anderson, 470 U.S. at
574 (“Where there are two permissible views of the evidence, the
factfinder’s choice between them cannot be clearly erroneous.”). Clear
error exists only where, for example, “trial judge’s interpretation of the
facts is implausible, illogical, internally inconsistent or contradicted by
documentary or other extrinsic evidence.” EEOC v. Sears Roebuck & Co.,
839 F.2d 302, 309 (7th Cir. 1988).
Page 13 of 26
3.
DISCUSSION
Allen’s appeal challenges almost exclusively Judge Halfenger’s
factual findings. Though it is possible to establish that a bankruptcy court
clearly erred in finding certain facts, Allen has not met that high threshold
here. Nor do Allen’s legal positions have any merit. As a result, the order
and judgment of the bankruptcy court must be affirmed. The Court will
first address the claims directed at alleged fact-finding errors, then the
purported legal errors.
3.1
The Bankruptcy Court’s Findings of Fact Are Not Clearly
Erroneous
As noted above, the bulk of Allen’s appeal is directed at
complaining that Judge Halfenger did not believe his version of the story
underlying this case. That much is obvious from Judge Halfenger’s factual
findings, but Allen’s disagreement is not in itself a reason for reversal.
Initially, the Court notes that much of Allen’s briefing consists of
reproducing lines of the transcript of the September 1, 2016 hearing in
which Judge Halfenger rendered his decision on Allen’s claim. See (Docket
#17 at 16–21). Allen then interposes his own stream-of-consciousness gloss
on the judge’s findings between these quotations. Id. Allen’s commentary
usually cites no evidence; it is simply his unsworn diatribe on what he
believes the correct factual finding should have been. In light of the
deferential standard of review, Allen’s presentation is undoubtedly
insufficient. Freeland, 540 F.3d at 729. Moreover, even if evidence exists to
support Allen’s contentions, this Court is not obligated to scour the
voluminous record to find it. Estate of Moreland v. Dieter, 395 F.3d 747, 759
(7th Cir. 2005) (“We will not scour a record to locate evidence supporting
a party’s legal argument.”). Thus, to the extent Allen cites no evidence to
Page 14 of 26
support his view of the facts he hoped Judge Halfenger would find, the
Court has simply disregarded it.
Having set those matters to the side, there remains precious little
by way of actual evidence to contradict the bankruptcy court’s findings,
and that evidence fails to convince this Court that those findings were
clearly erroneous. Allen’s complaint is that the bankruptcy court credited
the wrong testimony and drew the wrong inferences from the facts. But
none of the evidence Allen proffers shows that those findings were
“implausible,
illogical,
internally
inconsistent
or
contradicted
by
documentary or other extrinsic evidence.” Sears, 839 F.2d at 309. Rather,
Allen simply wishes to supplant the judge’s view of the facts with his
own. Granting Allen the assumption that his view and the judge’s are
equally permissible, this Court cannot gainsay the bankruptcy court on
appellate review. Anderson, 470 U.S. at 573. It was Judge Halfenger’s
province to review the evidence as it was presented at trial, listen to the
testimony, and assign credibility to the witnesses.
Allen does no more than point to a piece of evidence and say only
his view of it makes sense. For instance, he claims that a voicemail
message he received from Freund about getting rid of the Chase Bank
debt represented some sort of promise that Freund would work only to
that end. See (Docket #17 at 18). As Judge Halfenger saw it, Freund merely
offered to help. Once Allen lost his temper over Freund’s purchase of the
M&I note, Freund decided not to help anymore. This is not an
unreasonable view of the facts, much less one that is clearly erroneous.
Anderson, 470 U.S. at 574.
Likewise, at times Allen asks this Court to disbelieve the testimony
of witnesses, including Hauer, because the testimony was unfavorable to
Page 15 of 26
him. (Docket #17 at 31–32). Allen alleges, without evidentiary support,
that Hauer must have been lying in collusion with Freund. Id. The
bankruptcy court, which listened to Hauer’s testimony and observed his
demeanor at trial, was not remiss in disregarding Allen’s view that Hauer
was “definitely leaning toward favoring Defendant Freund.” Id. at 31; see
also (Docket #22 at 3).
Allen’s threadbare presentation obviates the need to review each of
his factual disputes in granular fashion. On its review of the record, the
Court detects no reversible error in the bankruptcy court’s factual
findings.
3.2
The Bankruptcy Court Made No Reversible Legal or
Evidentiary Error
As his factual disputes are light on evidence, so are Allen’s claims
of legal error light on law. As before, Allen applies what seems to be his
own notions of the law based on his prior legal training, coupled with a
misguided belief that his version of the facts controls. After reviewing the
bankruptcy court’s legal conclusions, the Court finds no reversible error.
3.2.1
First Theory: Fraud, Not Breach of Contract
First, Allen claims that the bankruptcy court erred in its assessment
of his first theory of fraud—i.e., Freund’s refusal to abide by his oral
agreement to buy the Property in an amount sufficient to pay the M&I,
Chase Bank, and City of Milwaukee debts. Allen stresses that his theory is
one of fraud, not breach of contract, and that Judge Halfenger erred in
focusing on contract formation issues. See, e.g., (Docket #17 at 15). Yet
Allen then proceeds to opine on the contract issue, arguing that the statute
of frauds did not apply to the agreement to purchase the Property. Id. at
21–22. Of course, as a sale of an interest in land, it does apply. Wis. Stat. §
Page 16 of 26
706.02; Trimble v. Wis. Builders, Inc., 241 N.W.2d 409, 413 (Wis. 1976). Allen,
however, believes that several exceptions make the statute inapplicable,
including promissory estoppel, admission, and various equitable
doctrines. (Docket #17 at 21–26).
Allen’s argument misses the real point of the statute-of-frauds
analysis. It is true that this case is about alleged fraud, not breach of
contract. Id. at 22. But the two go hand-in-hand here since, as Judge
Halfenger noted, Freund made no representations to Allen about buying
the Property on which Allen could justifiably have relied. This is because
Allen, who is trained as a lawyer, admitted that he knew that sale of the
Property required written memorialization. See In re Yotis, 548 B.R. 485,
496 (Bankr. N.D. Ill. 2016) (“Whether a party justifiably relies on a
misrepresentation is determined by looking at the circumstances of a
particular case and the characteristics of the creditor and debtor.”); Field v.
Mans, 516 U.S. 59, 71 (1995). Whatever Freund’s later conduct may have
been, the dispositive issue for Allen’s first theory is whether the elements
of a Section 523 fraud claim were satisfied at the time of Freund’s
statements on October 9, 2010. Allen has not come forward with evidence
supporting that conclusion. Thus, Allen’s attempt to resuscitate the sale
contract based on exceptions to the statute of frauds is irrelevant and
requires no further discussion.
This dovetails into Allen’s second, broader assertion of error: that
there was an enforceable agreement for sale of the Property, including as a
term that Freund would pay a sufficient amount to extinguish Allen’s
three debts on the Property, which Freund did not make good on. Id. at
26–28. Yet the parties’ discussions about sale terms were not sufficiently
definite to give rise to a contract for sale. For instance, law is well-settled
Page 17 of 26
in Wisconsin that a price term can be left indefinite only where the parties
agree upon a “reasonable” price or agree to some practicable method of
determining the final price. Herder Hallmark Consultants, Inc. v. Regnier
Consulting Grp., Inc., 685 N.W.2d 564, 567 (Wis. Ct. App. 2004).
Neither circumstance exists here, as the evidence revealed that
Freund never actually promised to buy the Property or to pay an
“equivalent” price, the term Allen uses to denote his desired price. See
(Docket #17 at 28). In short, Allen puts more weight on Freund’s conduct
and statements than they can bear. Because Freund never agreed to the
essential terms of sale, he cannot have committed fraud by failing to abide
by any such terms. See Mgmt. Computer Servs., Inc. v. Hawkins, Ash, Baptie
& Co., 557 N.W.2d 67, 75 (Wis. 1996) (“Vagueness or indefiniteness as to
an essential term of the agreement prevents the creation of an enforceable
contract, because a contract must be definite as to the parties’ basic
commitments and obligations.”).
In any event, had Freund breached a promise to buy the Property,
this was, at most, a breach of contract, not fraud, since the evidence
showed that Freund intended to keep his promise when he first made it.
See United States ex rel. Main v. Oakland City Univ., 426 F.3d 914, 917 (7th
Cir. 2005) (“[F]ailure to honor one’s promise is (just) breach of contract,
but making a promise that one intends not to keep is fraud[.]”); Davis, 638
F.3d at 554. Consequently, the bankruptcy court did not err in concluding
that Allen did not prove his first fraud theory.
3.2.2
Second Theory: Failure to Disclose
Allen next challenges Judge Halfenger’s rejection of his second
theory of fraud—that Freund violated a duty to him by failing to disclose
that he negotiated with M&I to purchase the bank’s note. See (Docket #17
Page 18 of 26
at 29–38). Initially, Allen contends that Freund did not go to M&I to seek a
short sale and that Hauer lied when he so testified. Id. at 29, 31. His belief
is not supported by the evidence. See supra Part 3.1.
Alternatively, Allen claims even if Freund went to M&I with a
purpose to ask about a short sale, he also went there with a second,
ulterior purpose: to purchase the note. This was impermissible, according
to Allen, because Freund was acting as his fiduciary or agent and buying
the note for less than Allen wanted would be detrimental to Allen’s
interests.
To support this theory, Allen strenuously urges that an affirmative
misrepresentation is not required to make out a claim of actual fraud
under Section 523. See (Docket #17 at 30). The case he cites, Husky
International Electronics, Inc. v. Ritz, 136 S. Ct. 1581, 1587 (2016), so holds.
But Judge Halfenger did not overlook the fact that an omission can
support a Section 523(a)(2)(A) claim. (Docket #17-1 at 23) (citing Husky,
136 S. Ct. at 1590). Rather, the bankruptcy court rightly concluded that
under the circumstances presented, no duty to disclose arose between
Freund and Allen.
Allen’s theory is fundamentally flawed because it rests upon the
untenable claim that Freund was Allen’s agent. See (Docket #17 at 31–35).
Essentially, Allen believes that because the parties had reached a sale
agreement (which they had not), and because Freund offered to go to the
bank to inquire about a short sale (which he in fact did), Freund was
under a duty not to act against Allen’s interests. Id. at 35. Allen cites no
pertinent authority to support this novel view of agency.
To the contrary, the bankruptcy court’s finding that there was no
such relationship is aligned with Smith v. Duffey, 576 F.3d 336, 338 (7th Cir.
Page 19 of 26
2009), cited by Allen, which found that a duty to disclose can arise where
“the defendant’s silence would mislead the plaintiff because of something
else that the defendant had said.” The facts adduced at trial show that
Freund went to M&I Bank to do just what he said: seek a short sale, which
would be favorable to Allen. His silence as to additional matters, such as
his negotiations to buy the note himself, was not misleading.
Allen’s argument implicitly concedes the weakness of his position.
He claims that even if no contract for sale of the Property had been
formed, “expectations [had] been set.” (Docket #17 at 37). Allen ignores
the real dynamic between the parties—that of an arm’s length business
transaction for the purchase of real property. In such circumstances,
Freund
had
no
agency
or
fiduciary
duty
to
correct
Allen’s
misapprehensions. Allen’s hopes and wishes are not the stuff of legal
duty. See Chemtool, Inc. v. Lubrication Techs., Inc., 148 F.3d 742, 745 (7th Cir.
1998) (“While an agency relationship can be created by contract or by
conduct, not all contracts create agency relationships and not all conduct
creates agency relationships.”). As a result, the Court concludes that the
bankruptcy court did not err in rejecting both of Allen’s theories of fraud.1
At the end of his opening brief, Allen appears to argue that there is
circumstantial evidence supporting both of his fraud theories, including Freund’s
statements to him, his course of conduct with respect to M&I, and his voicemail
messages to Allen. (Docket #17 at 45–53). This discussion is largely duplicative of
his prior arguments. Moreover, it consists almost entirely of bare factual and
legal assertions, unconnected by any discernable argument. The Court’s task is
not to construct the bridges between the facts and the law, even for a pro se party.
Anderson v. Hardman, 241 F.3d 544, 545 (7th Cir. 2001). Thus, the Court will not
expend additional space independently assessing this portion of Allen’s
argument.
1
Page 20 of 26
3.2.3
The Other Elements of Fraud Are Lacking
Because of this conclusion, this Court, like the bankruptcy court,
need not engage in a lengthy analysis of the other elements of Allen’s
fraud claim. Nevertheless, it is worth noting that Allen’s arguments on
those other elements—intent to deceive and justifiable reliance—are
perfunctory. See (Docket #17 at 37–41). This alone would be grounds for
affirmance. See Anderson v. Hardman, 241 F.3d 544, 545 (7th Cir. 2001).
Regardless, his arguments, such as they are, are without merit. His
claim that Freund acted with nefarious intent rests exclusively on his view
of the circumstantial evidence he presented to the bankruptcy court.
(Docket #17 at 38–39). Courts may infer the requisite intent to deceive
under Section 523(a)(2)(A) from the totality of the circumstances. In re
Logan, 327 B.R. 907, 911 (Bankr. N.D. Ill. 2005) (citing In re Cohn, 54 F.3d
1108, 1118–19 (3d Cir. 1995)). As Allen admits, the bankruptcy court, in
crediting Freund’s testimony about his lack of deceptive intent, was
“taking his word on it.” (Docket #17 at 38). This is something the
bankruptcy court, as the finder of fact, was entitled to do, and Allen offers
no clear basis on which to question that decision. See Carnes Co. v. Stone
Creek Mech., Inc., 412 F.3d 845, 848 (7th Cir. 2005) (noting that appellate
courts afford “deference to the trial court’s assessment of witness
credibility,” and recognizing that a trial court’s credibility determination
“can virtually never amount to clear error”). Because Allen has not shown
that Freund harbored deceptive intent, his nuanced theories of fraud take
him nowhere. Kimzey, 761 F.2d at 423.
Likewise, as to his claim of justifiable reliance, Allen’s argument
echoes those rejected above. See (Docket #17 at 39–41). To reiterate, Allen’s
legal training meant that he could not justifiably rely on an oral contract
Page 21 of 26
for sale of the Property. Ojeda, 559 F.3d at 717 (if cursory examination or
investigation would correct a misrepresentation, there can be no justifiable
reliance upon it); Yotis, 548 B.R. at 496. Moreover, Allen’s belief that
Freund was going to secure him a debt-free existence did not give rise to a
duty in Freund to make that so. Thus, the Court affirms the bankruptcy
court on Allen’s failure to establish these necessary elements of his claim.
3.2.4
Evidentiary Rulings
In closing, Allen sets forth a litany of alleged evidentiary errors that
occurred during trial, but the Court need not dwell long on them. A
bankruptcy court’s evidentiary rulings are reviewed for an abuse of
discretion. In re Salem, 465 F.3d 767, 778 (7th Cir. 2006). The proper inquiry
is not how the reviewing court would have ruled if it had been
considering the case in the first place, but rather whether any reasonable
person could agree with the lower court. Kapelanski v. Johnson, 390 F.3d
525, 530 (7th Cir. 2004).
First, Allen claims that he was not permitted to call Hauer as an
adverse witness even though, in his view, Hauer’s testimony ended up
being evasive, argumentative, and false. (Docket #17 at 41). Allen’s twosentence argument on this point cites no applicable authorities, and on the
Court’s on review of the relevant law, it finds no error in the bankruptcy
court’s decision. In particular, Allen has not demonstrated that Hauer was
identified with Freund, as required by Federal Rule of Evidence 611(c)(2).
Fed. R. Evid. 611(c)(2) (allowing a party to ask leading questions “when
[he] calls a hostile witness, an adverse party, or a witness identified with
an adverse party”). Whether his testimony ultimately favored Freund’s
position is not the operative inquiry, and so the bankruptcy court’s ruling
was not an abuse of discretion.
Page 22 of 26
Second, Allen alleges that the bankruptcy court erred in excluding
evidence of unpaid property taxes to impeach Freund’s credibility.
(Docket #17 at 41). During trial, however, Allen mistakenly told the court
that he wanted to use the documents to show the witness’ bad character,
which is, of course, not permitted by the Rules of Evidence. See Fed. R.
Evid. 404. Allen now clarifies that he wanted to use the evidence for
impeachment, but Judge Halfenger cannot have erred in ruling on Allen’s
proffer as presented at trial. Further, the bankruptcy court rightly noted
that the exhibit Allen wanted to use was not disclosed on the trial exhibit
list. Finally, Allen withdrew the proffer, so it is doubtful he preserved the
issue for appellate review. See Divane v. Krull Elec. Co., Inc., 194 F.3d 845,
849 (7th Cir. 1999).
Third, Allen contends that the bankruptcy court denied him the
ability to put certain photographs of the Property into evidence. (Docket
#17 at 41–43). Allen’s reasoning here is difficult to follow, but it appears
that he wanted to show that Freund had lied about the condition of the
Property, claiming it was in disrepair, in order to get a good price for the
note from M&I. Id. at 42–43. The photographs were allegedly taken by
Freund himself after the October 2010 tour, showing the Freund had
trespassed on the Property to further his plan of deceit. Id. at 43. Allen
says that his purpose was not to show Freund’s prior bad acts, as
prohibited by Rule 404, but to impeach Freund’s credibility and “show
intent.” Id. at 42. Without addressing Allen’s workaround of the
prohibition in Rule 404, this Court affirms Judge Halfenger’s alternate
conclusion that the photographs were not sufficiently probative of the
issues before the court, including Freund’s credibility and intent, to
warrant admission. See (Docket #15 at 264–271) (finding that the court
Page 23 of 26
would not entertain examination on matters “that are otherwise irrelevant
on the off chance that he may say something that you view as
impeachable”); Fed. R. Evid. 403. Further, Allen withdrew this proffer. Id.
at 264. Even if he sensed the bankruptcy court’s displeasure with his
tactic, Allen was required to press it in order to preserve it for this Court’s
review. See Divane, 194 F.3d at 849.
Fourth, Allen claims that the bankruptcy court and the defense had
a “pretty disturbing” discussion on the record, which Allen viewed as a
“strategy meeting” wherein the court fed arguments to Freund’s counsel.
(Docket #17 at 43–44). The Court reads no such thing in the transcript.
During the cited portion of the hearing, defense counsel was making his
closing argument, and the bankruptcy court interrupted him with
questions about how the relevant legal principles applied to the facts.
Even if hearing the court’s comments left Allen feeling resigned to defeat,
as he claims, that does not mean that the court committed error or
harbored bias against him.
Fifth, Allen challenges Freund’s counsel’s argument that because
Allen was trained as a lawyer, he could not have been laboring under a
misapprehension about the status of the parties’ contract negotiations, as
discussed above. Id. Again, he cites no authority for his position. In any
event, whether Allen justifiably relied on Freund’s conduct and
statements is sensitive to his specific characteristics and circumstances;
thus, his legal training is indeed relevant. Yotis, 548 B.R. at 496; Field, 516
U.S. at 71.
Finally, the Court notes that Allen raised several points which do
not appear to be allegations of actual legal error. These include: (1) that he
was ambushed on the day of trial with the revelation that Hauer would be
Page 24 of 26
represented by counsel, (Docket #17 at 44); (2) that Freund’s counsel was
allowed to lead him during cross examination, id. at 44–45; and (3) that the
court stated that Allen was not “owed a debt,” id. at 45. He does not
coherently identify any legal error the bankruptcy court allegedly
committed in any of these instances, nor does he cite any legal principle
applicable to the court’s decisions. He simply seems angry, something this
Court cannot remedy.
In sum, Allen’s alleged evidentiary errors are wholly without merit
and represent no basis on which to reverse the bankruptcy court’s
judgment.
4.
CONCLUSION
Allen failed to convince the bankruptcy court to accept his version
of the events that transpired between him and Freund. On appeal, Allen
does not get a second bite at that apple; he was required to demonstrate
that the bankruptcy court’s fact-finding was clearly erroneous. This he did
not do, and the Court must, therefore, affirm the judgment of the
bankruptcy court.
Accordingly,
IT IS ORDERED that the judgment of the bankruptcy court in this
matter be and the same is hereby AFFIRMED; and
IT IS FURTHER ORDERED that this matter be and the same is
hereby DISMISSED with prejudice.
The Clerk of the Court is directed to enter judgment accordingly.
Page 25 of 26
Dated at Milwaukee, Wisconsin, this 23rd day of June, 2017.
BY THE COURT:
J.P. Stadtmueller
U.S. District Judge
Page 26 of 26
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