M & M Transmissions, Inc. v. Raynor (In re Raynor)

NIEMEYER, Circuit Judge,

dissenting:

I believe the record of the North Carolina state court proceedings adequately demonstrates that, as the product of actual litigation, Raynor was adjudged to have obtained money by fraud when incurring the debt that he now seeks to discharge in bankruptcy. Therefore, I would affirm the judgment of the district court which concluded that the debt is not dischargeable.

The record in this case demonstrates that the defendant, Raynor, was served with process issuing from the North Carolina district court, in connection with a complaint filed by M & M Transmissions, Inc., charging him with breach of warranty, fraud and deceptive trade practices. J.A. 42. On receipt of suit papers he retained Donald E. Britt, Jr. as his counsel and paid him a retainer. Because settlement discussions were ongoing, Britt never entered his appearance formally, but there is no dispute that Britt acted as Raynor’s attorney. Britt attended several meetings with Ray-nor and negotiated a settlement agreement on his behalf, which Raynor signed. J.A. 44. Because of difficulties in communication between Britt and Raynor and Ray-nor’s refusal to abide by what he had undertaken to do, settlement failed and Britt withdrew his appearance before trial. J.A. 46-47.

When the case was called for trial on October 2, 1986, neither Raynor nor Britt appeared. The plaintiff, M & M Transmissions, did appear and presented testimony and documentation in support of its claim. J.A. 20. Approximately 45 days later the district court judge, Judge Charles E. Rice, entered findings of facts and conclusions of law based on the evidence presented. Whether or not the form of those findings was prepared by counsel, it is apparent that Judge Rice reviewed and adopted them. He signed them on November 17, 1986, J.A. 36, and reviewed them again at a post-judgment hearing at which Raynor and the attorneys involved testified. J.A. 37-41.

In the findings of fact Judge Rice confirmed that he heard testimony and received other evidence which detailed facts justifying fraud. Over some fifteen single-spaced pages, Judge Rice described how Raynor sold used equipment as new and how Raynor misrepresented to M & M Transmissions that he had purchased the equipment when in fact he had leased it without ever making payments on the lease. J.A. 18-34. Judge Rice found that Raynor made numerous misrepresentations about the source of the equipment, its financing, its value, its warranties and its capabilities. He concluded from the facts:

That the representations and statements of the defendant, Charles G. Ray-nor, individually and as agent for the Defendant AAA, were known by the Defendant, Raynor, to be false at the time the same were made to the Plaintiff, through its President, Milton M. Dobbins.

That said actions, representations and statements on the part of the Defendant, Charles G. Raynor, individually and as agent for the Defendant, AAA, were done with the intent to induce the Plaintiff to purchase and accept delivery of the machinery.

*1151 That the Plaintiff relied on these representations made by the Defendants, and said reliance was reasonable on the part of the Plaintiff.

That relying on such representations, the Plaintiff was induced to accept the machinery delivered to it by the Defendants.

That as a result of the fraud perpetrated on the Plaintiff by the Defendant, Raynor, individually and as agent for the Defendant, AAA, the Plaintiff has suffered damages in the sum of $50,000.00.

J.A. 35.

After the entry of judgment, Raynor appeared through another attorney and moved to set aside judgment on the ground that Raynor did not appear because he was unaware of the trial date. Judge Rice conducted another hearing in July 1987 at which Raynor personally testified on the issue of whether the judgment should be set aside and on any defense that he might have to the findings of fraud. Judge Rice concluded, on the completion of that hearing:

That nothing about this file, nor any of the evidence presented by the Defendants in support of the Motions filed herein, supports] any finding of mistake, inadvertence, surprise or excusable neglect, or any other reason that would justify relief for the Defendants from the operation of the Judgment of October 2, 1986, filed on November 17, 1986.

That there does not appear, in pleadings filed herein, that the Defendants have a meritorious defense to this action, and the Court simply cannot find from the facts adduced at this hearing, that there is any meritorious defense, as the Defendants merely deny that they owe the Plaintiff any sum of money.

J.A. 47-48. In reaching his conclusions the trial judge observed that Raynor was no stranger to lawsuits, citing to eleven pages of judgments that had been entered against Raynor and his companies. J.A. 42. The court had earlier found that after suit was served on Raynor, he contacted the president of M & M Transmissions and told him to “take his best shot.” Raynor further informed the president that any judgment against Raynor “would be meaningless.” J.A. 31. It is noteworthy, moreover, that Judge Rice explicitly found that at the hearing in July 1987 Raynor was not truthful. J.A. 46.

The judgment of the district court of North Carolina was appealed to the Court of Appeals of North Carolina. In a written opinion affirming the district judge, the North Carolina Court of Appeals concluded that the district judge did not err in refusing to vacate the judgment. It stated:

The trial court’s findings and conclusions contained in the order are amply supported by evidence in the record.... No meritorious defense can be found in the pleadings or facts adduced at the hearing to support their motion for relief from final judgment.

J.A. 52-53. The court observed that the trial court had found that the plaintiff “successfully proved its claim of fraud and also its claim of unfair and deceptive trade practices.” J.A. 53. The court concluded, however, that based on North Carolina law, the plaintiff could not have a remedy for both actions and required the plaintiff to elect whether to proceed on the count for fraud or on the count for deceptive trade practices. J.A. 54-55. M & M Transmissions elected to proceed on fraud.

There can be no doubt that the judgment entered by the North Carolina state courts is based on the fraud of Raynor in misrepresenting the equipment that he sold to M & M Transmissions. The facts reveal that the fraud was pervasive and was repeatedly covered up by Raynor. Moreover, it was also the judgment of the North Carolina courts that Raynor’s failure to appear for trial was no defense.

On this record the North Carolina judgment is a proper judgment for which due recognition may be given by a bankruptcy court. Although Raynor did not appear to present his own evidence and to cross examine, the judgment entered was based on duly admitted evidence at a scheduled trial. That Raynor did not appear may have been a matter of defense, but he raised that point and was permitted to present all the evidence he had available at a later hearing to justify his position, including evidence of any defense to the fraud claim. The court *1152 again ruled against him and an appellate court affirmed.

Collateral estoppel will bar relitigation of an issue previously decided if the party against whom the decision is asserted had “a full and fair opportunity” to litigate that issue in the earlier case. Allen v. McCurry, 449 U.S. 90, 94-95 , 101 S.Ct. 411, 414-415 , 66 L.Ed.2d 308 (1980). When applied to bankruptcy proceedings, the Supreme Court has admonished that res judicata effect will not be afforded dischargeability issues which could have been, but were not, litigated in an earlier proceeding. Brown v. Felsen, 442 U.S. 127, 138-39 , 99 S.Ct. 2205, 2212-13 , 60 L.Ed.2d 767 (1979). See also Combs v. Richardson, 838 F.2d 112, 115 (4th Cir.1988) (collateral estoppel bars relitigation of those issues actually and necessarily litigated).

Applying those principles here, I believe that the issues were actually and necessarily litigated and that, under the holding of Combs , Raynor should not now be given another opportunity to litigate them.

Accordingly, I respectfully dissent and vote to affirm.