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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
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No. 13-13620
Non-Argument Calendar
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D.C. Docket No. 9:13-cv-80243-KMM,
Bkcy No. 11-02334-EPK
In Re: DENISE ROBERTS-DUDE,
Debtor.
_________________________________________________
STEWART TITLE GUARANTY COMPANY,
Plaintiff - Appellee,
versus
DENISE ROBERTS-DUDE,
Defendant - Appellant.
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Appeal from the United States District Court
for the Southern District of Florida
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(February 11, 2015)
Before MARCUS, WILLIAM PRYOR and MARTIN, Circuit Judges.
PER CURIAM:
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Debtor-Defendant-Appellant Denise Roberts-Dude (“Roberts”) appeals from
the district court’s order reversing and remanding the bankruptcy court’s judgment
in an adversary bankruptcy proceeding initiated by Plaintiff-Appellee Stewart Title
Guaranty Company, a title insurance company. The appeal stems from a real estate
scheme involving Roberts, her husband Harald Dude, and their real estate agent
David Lester, who worked together to sell certain property in Aspen, Colorado
without disclosing that Washington Mutual Bank (“WAMU”) held a $1,900,000
deed of trust on the property. In connection with the sale, Stewart Title performed
a title search on the property prior to closing, but failed to discover the undisclosed
encumbrance and issued title insurance policies on the property. Several months
later, WAMU informed the new owner of the Aspen property about the WAMU
deed of trust, and Stewart Title was obligated to pay WAMU $1,950,000. Stewart
Title filed a civil suit against Roberts and her conspirators for falsely stating in
affidavits -- upon which Stewart Title relied prior to issuing title insurance on the
property -- that there were no loans, unpaid judgments, or liens on the property,
even though Roberts, Dude and others had been personally aware of the WAMU
deed of trust. Just prior to trial, Roberts declared bankruptcy.
Stewart Title subsequently filed an adversary proceeding against Roberts in
bankruptcy court, with a five-count complaint seeking allowance of claims based
on fraud, concealment, breach of contract, and unjust enrichment, and for an
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exception from discharge of bankruptcy. Following proceedings in bankruptcy
court and district court, Roberts was held liable to Stewart Title for both fraud and
concealment, among other things. On appeal, Roberts argues that the district court
erred in concluding that Stewart Title had justifiably relied on Roberts’s
misrepresentations about the Aspen property. After thorough review, we affirm. 1
As the “second court of review of a bankruptcy court’s judgment,” we
examine independently the determinations of the bankruptcy court and employ the
same standards of review as the district court. In re Issac Leaseco, Inc., 389 F.3d
1205, 1209 (11th Cir. 2004) (quotation omitted). Thus, we review the factual
findings of the bankruptcy court for clear error, In re Calvert, 907 F.2d 1069, 1071
(11th Cir. 1990), and review de novo legal questions concerning the issue of
justifiable reliance, In re Masvidal, 10 F.3d 761, 762 (11th Cir. 1993).
Section 523 of the Bankruptcy Code outlines the exceptions to discharge in
bankruptcy. See generally 11 U.S.C. § 523. Because “the opportunity for a
completely unencumbered new beginning” is limited to the honest debtor, Grogan
v. Garner, 498 U.S. 279, 286–87 (1991)), section 523(a)(2)(A) excludes from
discharge debts obtained through “false pretenses, a false representation, or actual
fraud,” 11 U.S.C. § 523(a)(2)(A). Indeed, “the fraud exceptions to discharge exist
to punish the debtor for committing fraud.” In re St. Laurent, 991 F.2d 672, 680
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We also DENY AS MOOT Stewart Title’s motion for limited remand.
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(11th Cir. 1993). Courts interpreting § 523(a)(2)(A) require a plaintiff to prove the
traditional elements of common law fraud. In re Bilzerian, 153 F.3d 1278, 1281
(11th Cir. 1998) (per curiam). Therefore, the elements of a claim under §
523(a)(2)(A) are: (1) the debtor made a false representation with the intention of
deceiving the creditor; (2) the creditor relied on the false representation; (3) the
reliance was justified; and (4) the creditor sustained a loss as a result of the false
representation. Id.
There is only one element disputed in this appeal -- whether Stewart Title’s
reliance on Roberts’s misrepresentation was justified. To constitute justifiable
reliance, “[t]he plaintiff’s conduct must not be so utterly unreasonable, in the light
of the information apparent to him, that the law may properly say that his loss is
his own responsibility.” In re Vann, 67 F.3d 277, 283 (11th Cir. 1995) (quotation
omitted). Thus, “[a]lthough the plaintiff’s reliance on the misrepresentation must
be justifiable, . . . this does not mean that his conduct must conform to the standard
of the reasonable man.” Id. (quotation omitted) (second alteration in original).
Justifiable reliance is gauged by “an individual standard of the plaintiff’s own
capacity and the knowledge which he has, or which may fairly be charged against
him from the facts within his observation in the light of his individual case.” Id.
(quotation omitted). As the Supreme Court has explained, when “a seller of land . .
. says it is free of encumbrances,” then “a buyer’s reliance on this factual
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representation is justifiable, even if he could have walk[ed] across the street to the
office of the register of deeds in the courthouse and easily have learned of an
unsatisfied mortgage.” Field v. Mans, 516 U.S. 59, 70 (1995) (quotation omitted)
(second alteration in original). The Supreme Court has elaborated that “only
where, under the circumstances, the facts should be apparent to one of [plaintiff’s]
knowledge and intelligence from a cursory glance, or he has discovered something
which should serve as a warning that he is being deceived” is the plaintiff
“required to make an investigation of his own.” Id. at 71 (quotation omitted;
emphasis added). To put it another way, reliance is not justified “only when the
recipient of the misrepresentation is capable of appreciating its falsity at the time
by the use of his senses. Thus a defect that any experienced horseman would at
once recognize at first glance may not be patent to a person who has had no
experience with horses.” Id. (quotation omitted; emphases added).
The following facts are undisputed here. Before issuing title insurance on
the Aspen property, Stewart Title, through its agent, performed three date down
searches in order to find any unknown liens or encumbrances. The three searches
were: (a) a search using the legal description of the property; (b) a grantor search
using the name of the record owner listed on the title commitment, Dee
Investments; and (c) a search using the name of the proposed security interest
grantee, Wells Fargo. Nevertheless, Stewart Title’s agent failed to find the
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WAMU deed of trust. It is also undisputed that the WAMU deed of trust was
improperly recorded without a legal description of the property, and that Dude --
not the owner named on the title commitment, Dee Investments -- was the grantor
of the WAMU deed of trust. Finally, it is undisputed that Roberts’s completed
affidavit upon which Stewart Title relied falsely responded “none” where she
should have listed the WAMU deed of trust as an encumbrance on the property.
In a related action, the Tenth Circuit recently addressed nearly identical
fraud claims and justifiable reliance issues as those before us, in Stewart Title
Guar. Co. v. Dude, 708 F.3d 1191 (10th Cir. 2013). In that case, which preceded
this one, Stewart Title sued Roberts, her husband Dude and his company Dee
Investments, and several others, for making misrepresentations about the Aspen
property. However, the trial there proceeded only against Dude and Dee
Investments, because Roberts and the remaining defendants had settled or sought
shelter in bankruptcy. See id. at 1193. That jury found Dude and his company
liable for, among other things, fraudulent misrepresentation under Colorado law.
Id. On appeal, Dude argued “that Stewart Title ‘constructively’ knew of [Dude’s]
fraud because the Washington Mutual loan was publicly recorded. All Stewart
Title had to do . . . [was] visit the county clerk’s office to find it. The company’s
failure to do so . . . render[ed] its reliance on [Dude] unjustifiable.” Id. at 1195.
The Tenth Circuit disagreed. It concluded that “Stewart Title did look for recorded
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loans and liens on the property and failed to find the [WAMU] loan only because
the deed was defectively recorded.” Id. The Tenth Circuit then affirmed the
district court’s decision finding that Stewart Title should win on its fraudulent
misrepresentation claim. Id. at 1196.
In the instant case, however, the bankruptcy court reached the opposite
conclusion -- that Stewart Title did not justifiably rely on misrepresentations by
Roberts. The court deemed Stewart Title’s conduct to be:
more than negligence. In light of the Plaintiff’s relevant skill, knowledge,
and experience, the level of title review that would have revealed the deed of
trust was the slightest inspection, a cursory glance. It is not that the Plaintiff
did not look. Here the Plaintiff looked but did not see. The Plaintiff cannot
now complain that its injury was brought about by the Defendant’s
misrepresentation.
In re Roberts-Dude, 484 B.R. 891, 899 (Bankr. S.D. Fla. 2012), rev’d sub nom.
Stewart Title Guar. Co. v. Roberts-Dude, 497 B.R. 143 (S.D. Fla. 2013). But, on
appeal, the district court reversed the bankruptcy court, determining that “more
than a cursory glance would be needed to determine whether Stewart Title was
being deceived” from the agent’s title record search, since “Stewart Title would
have needed to take several steps and make various logical deductions to realize
that Defendant may have lied in her Affidavit.” Stewart Title, 497 B.R. at 153.
The district court concluded that “Stewart Title should not be required to untangle
the web of deception to uncover fraud when it was apparent on the face of the
transaction that it was business as usual. Therefore, the undisputed facts on the
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record demonstrate that Stewart Title satisfied the justifiable reliance element” of a
§ 523(a)(2)(A) claim. Id. at 154–55.
The record before us plainly supports the conclusion that Stewart Title
satisfied the justifiable reliance element of a fraud claim under § 523(a)(2)(A). As
we have detailed, Stewart Title performed three date down searches on the
property, but did not find the WAMU deed of trust, which was improperly
recorded without a legal description of the property and which listed Dude, not the
owner named on the title commitment, Dee Investments, as the grantor. We
cannot say that Stewart Title’s conduct was “so utterly unreasonable, in the light of
the information apparent to [it], that the law may properly say that [its] loss [was
its] own responsibility.” In re Vann, 67 F.3d at 283 (quotation omitted). To the
extent the bankruptcy court relied heavily on Stewart Title’s “experience” in
performing title searches to render its conduct “utterly unreasonable,” that reliance
is misplaced under our law. As the Supreme Court has made clear, even a plaintiff
with experience need only have taken a “cursory glance” or a “first glance” by “use
of his senses.” Field, 516 U.S. at 71. There can be no debate that Stewart Title’s
agent did just that in this case. What’s more, even if Stewart Title should have
performed a more thorough title search, mere negligence is insufficient to protect
the fraudulent defendant. See Grogan, 498 U.S. at 287 (“We think it unlikely that
Congress . . . would have favored the interest in giving perpetrators of fraud a fresh
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start over the interest in protecting victims of fraud.”). Indeed, the Supreme Court
has expressly said that “contributory negligence is no bar to recovery because
fraudulent misrepresentation is an intentional tort.” Field, 516 U.S. at 70.
Finally, to the extent the bankruptcy court made a factual finding that
Stewart Title only needed a “cursory glance” to uncover Roberts’s deception, it
clearly erred in making this finding. Put simply, this is not a case in which the title
searcher ran a search for liens against the property’s legal description, then saw
and brazenly disregarded an undisclosed lien. Instead, the chain of title in the
county’s records showed only a transfer into and out of Dude’s name. To get from
those facts to the conclusion that there was a hidden lien, Stewart Title’s agent
would have had to: (1) note that transfers in and out of Dude’s name were close
together in time; (2) recognize that the transfers in and out of Dude’s name
occurred during the period between the issuance of the title commitment and the
closing, so would not have been part of Stewart Title’s earlier search; (3)
understand that because the transfers were close together in time, they may have
occurred for the purpose of putting a new lien against the property; (4) realize that
if a new lien was the purpose for the transfer, then the grantee for the new deed of
trust would have been the transferee (Dude) rather than the current record owner
(Dee Investments); (5) assume that, contrary to the recording statute’s
requirements, a lien recorded while the property was in Dude’s name might have
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been recorded without a legal description and therefore not have shown up in his
legal description search; (6) search under Dude’s name as grantor for liens; (7)
retrieve the lien filed in Dude’s name from the clerk and recorder’s records; (8)
review the lien to determine whether it contained a description of the property
other than a legal description, such as the street address; (9) investigate whether the
street address on the WAMU deed of trust matched the address on the property he
searched for, despite the lack of legal description; and, finally, (10) discount the
affidavits Roberts and others had just signed to the contrary. On this record, we do
not see how those steps could constitute a “cursory glance,” and therefore are left
with the “definite and firm conviction” that the bankruptcy court clearly erred in
finding to the contrary. See United States v. U.S. Gypsum Co., 333 U.S. 364, 395
(1948) (“A finding is ‘clearly erroneous’ when 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.”). Accordingly, we affirm the
district court’s conclusion that Stewart Title justifiably relied on Roberts’s
misrepresentations in issuing title insurance on the Aspen property.
AFFIRMED.
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