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Rainey v. Binkley

United States District Court, M.D. Tennessee, Nashville Division

April 6, 2018

PHILIP RAINEY and SARAH RAINEY Appellants,
v.
TIMOTHY D. BINKLEY and PENNY LEWIS BINKLEY Appellees.

          MEMORANDUM

          WILLIAM L. CAMPBELL, JR. UNITED STATES DISTRICT JUDGE

         Appellants 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.

         Appellants 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 is AFFIRMED.

         I. FACTS AND PROCEDURAL HISTORY

         In 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.[1] 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).

         Failure to provide disclosures required under Tennessee law[2] 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).

         On 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).

         The 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).

         II. STANDARD OF REVIEW

         The 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).

         III. ISSUE ON APPEAL

         Whether 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 standard.

         IV. ANALYSIS

         A. Negligent Misrepresentation

         Appellants do not dispute the Bankruptcy Court found a basis for negligent misrepresentation under Tennessee law. Accordingly, the Court will not review that holding.

         B. Intentional ...


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