United States District Court, M.D. Tennessee, Nashville Division
WILLIAM L. CAMPBELL, JR. UNITED STATES DISTRICT JUDGE
appeal the final Bankruptcy Court's December 15, 2016
“Order Resolving Objections to Claim Numbers 3 and 4
and Determining Amount of Allowed Claim of Phillip and Sarah
Rainey” (the “Order”). In the Order, the
Bankruptcy Court determined Appellants held an allowable
claim against Appellees in the amount of $9, 075.00, based on
the Appellants' claim for negligent misrepresentation.
The claims of intentional misrepresentation, fraudulent
concealment, and breach of contract were disallowed.
argue the Bankruptcy Court committed clear error when it
found only negligent misrepresentation. Appellants allege the
evidence established intentional misrepresentation,
fraudulent concealment, and breach of contract. For the
reasons set forth below, the judgment of the Bankruptcy Court
FACTS AND PROCEDURAL HISTORY
2007, Appellees sold real property located in Cheatham
County, Tennessee to Appellants. (Tr. Vol. II, pp. 151).
Appellees built the residence and lived there from 1991 until
mid-2006. (Doc. 9, pp. 4). In 1992, a one-time flooding
occurred in the basement of the property that left standing
water that soaked the carpet in the basement. (Tr. Vol. II,
pp. 154, 164). Before purchasing the Property, Appellees
completed and presented to Appellants a copy of a disclosure
statement, for the purpose of disclosing all material defects
and answering questions about the condition of the property
in good faith. (Tr. Vol. II, pp. 154). Appellees were under a
statutory duty to disclose the water damage and drainage
problems to Appellants. Section C, item 10 of the Disclosure
Statement asked the seller if there was any flooding or
drainage problems; Appellees selected “no”. (Tr.
Vol. II, pp. 154). Appellee Timothy Binkley acknowledged that
while there was an instance of drainage problems, this
occurred in the driveway and not inside the home. (Tr. Vol.
II, pp. 155-56). Item 13 of the Disclosure Statement asked
the seller to indicate if there was any water intrusion or
standing water in the foundation or basement; Appellees left
this box blank. (Tr. Vol. II, pp. 154-55).
to provide disclosures required under Tennessee
creates certain rights for a purchaser, such as recovering
actual damages. (Tr. Vol. II, pp. 152-53). Six months after
Appellees sold the home to Appellants, water intrusion caused
Appellants to move from the home. (Tr. Vol. II, pp. 151).
Appellants later sold the property at a foreclosure sale to
the mortgage lender for $223, 850.00 (Tr. Vol. II, pp. 170).
August 20, 2008, Appellants filed a complaint in state court
against Appellees and others. The complaint alleged negligent
misrepresentation, intentional misrepresentation, fraudulent
concealment, and breach of contract related to the water
intrusion issues and other undisclosed issues with the
property. Appellants settled claims against other defendants
and their insurance company for a total of $60, 000. (Tr.
Vol. I, pp. 255, Tr. Vol. II, pp. 173). On October 12, 2015,
Appellants filed claims in Appellees' Chapter 11
Bankruptcy proceeding. (Doc. 9 pp. 2).
Bankruptcy Court conducted a two-day trial and found
Appellees made negligent misrepresentations because they did
not exercise reasonable care in obtaining or communicating
information. (Tr. Vol. II, pp. 160). The Bankruptcy Court
also found Appellants did not prove the elements of their
claims for intentional misrepresentation, fraudulent
concealment, or breach of contract. (Tr. Vol. II, pp.
158-61). After accounting for the $60, 000 in settlements
received by Appellants, the Bankruptcy Court found damages to
be $9, 075.00. (Tr. Vol. II, pp. 173).
STANDARD OF REVIEW
Court reviews the Bankruptcy Court's findings of fact for
clear error, and its conclusions of law de novo. Rembert
v. AT&T Univ. Card Serv. (In re Rembert), 141 F.3d
277, 280 (6th Cir. 1998). A factual finding is clearly
erroneous when the reviewing court is left with the definite
and firm conviction on the entire evidence that a mistake has
been made. Id. If a mixed question of law and fact
exists the court “must break it down into its
constituent parts and apply the appropriate standard of
review for each part.”Wesbanco Bank Barnesville v.
Rafoth (In re Baker & Getty Fin. Servs.,
Inc.), 106 F.3d 1255, 1259 (6th Cir.1997).
ISSUE ON APPEAL
the Bankruptcy Court's findings of fact as to
Appellants' claims for intentional misrepresentation,
fraudulent concealment, and breach of contract were clearly
erroneous under Tennessee's preponderance of the evidence
do not dispute the Bankruptcy Court found a basis for
negligent misrepresentation under Tennessee law. Accordingly,
the Court will not review that holding.