Mountain Aire Mgmt. v. Cinney (In re Cinney)

In re: Thomas G. Cinney, Debtor.

Mountain Aire Management, LLC, Plaintiff(s), v. Thomas G. Cinney, Defendant(s).

No. 20-10139

Adv. No. 20-90008

United States Bankruptcy Court, N.D. New York

August 16, 2021

Chapter 7

Nolan Heller Kauffman LLP Brian Deinhart, Esq.

Attorneys for Plaintiff

Matte & Nenninger, PC Christopher S. Nenninger, Esq.

Attorneys for Debtor

MEMORANDUM-DECISION AND ORDER

Robert E. Littlefield, Jr., United States Bankruptcy Judge

Currently before the Court is the adversary complaint (the "Complaint") filed by Mountain Aire Management, LLC ("Mountain Aire" or the "Plaintiff") against Thomas G. Cinney ("Cinney" or the "Debtor") to have a certain judgment debt deemed non-dischargeable pursuant to Section 523(a)(4) and/or Section 523(a)(6). The Court has jurisdiction over this core matter pursuant to 28 U.S.C. §§ 157(a), (b)(1) (b)(2)(A) and 1334(b). For the reasons that follow, the Court finds that the Plaintiff did not sustain its burden of proof by a preponderance of the evidence. Accordingly, the Complaint is dismissed.

FACTS

1. In 2010, Cinney, a seasonal truck driver, approached Jeffrey Tennent ("Tennent")^[1] about selling the Debtor's home (the "Home") located at 10 Penny Candy Lane Bolton Landing, New York to Mountain Aire. (BKR Doc. 1, ^[2] Main Case No. 20-10139; ¶ 7, Apr. 23, 2019 State Court Decision and Judgment, Ex. A, ECF No. 1).

2. Tennent and Cinney were neighbors and longtime friends. (¶ 6, Apr. 23, 2019 State Court Decision and Judgment, Ex. A, ECF No. 1).

3. The Debtor informed Tennent that a third-party was willing to pay $250, 000.00 to purchase the Home. Id. at ¶ 8.

4. Cinney indicated to Tennent that he sought a source of income that would allow him to focus on his health issues without leaving his Home. Id. at ¶ 9.

5. Mountain Aire paid Cinney $20, 000.00 (the "Payments") prior to the parties entering into a written agreement. Id. at ¶ 10.

6. On February 5, 2011, the parties entered into a contract for the sale of the Home (the "Sale Contract"). Id. at ¶ 11.

7. Also on February 5, 2011, the parties entered into an "Exclusive Option Agreement for Purchase of Real Property" (the "Option Agreement"). Id. at ¶ 12.

8. Tennent prepared the Sale Contract and the Option Agreement. (Nov. 5, 2018 State Court Trial Transcript, Ex. F, Plaintiff's Pretrial Statement, ECF No. 33).

9. The Option Agreement called for a purchase price of $230, 000.00^[3] including a down payment of $3, 750.00 and option fee payments. (¶ 14, Apr. 23, 2019 State Court Decision and Judgment, Ex. A, ECF No. 1).

10. The option fee payments (the "Funds") total $30, 000.00. Id.

11.Paragraph (5)(e) of the Option Agreement states in relevant part:

Default by Seller; Remedies by Purchaser. In the event Seller fails to close the sale or produce clear title to the [subject premises] pursuant to the terms and provisions of this Agreement and/or under the Contract, Purchaser shall be entitled to, all Option Fee's [sic] or any monies paid to date being reimbursed by the Seller to the Purchaser plus a Twenty Thousand Dollar ($20, 000.00) penalty. The Purchaser shall have the right to sue for specific performance of the this [sic] agreement and or the real estate purchase and sale contract, or terminate such Contract and sue for money damages.

Id. at ¶ 16 (emphasis added).

12. The Plaintiff paid all the Funds (i.e., $30, 000.00) to the Debtor. Id. at ¶ 20.

13. The Option Agreement did not require that any money be held in an escrow or a separate account. (Tr. 20:24-25; 21:1-2, ECF No. 41).

14. The Sale Contract and the Option Agreement called for a closing date on or about May 1, 2013. (¶ 19, Apr. 23, 2019 State Court Decision and Judgment, Ex. A, ECF No. 1).

15. On August 1, 2013, John D. Wright, Esq. ("Attorney Wright"), real estate counsel for the Debtor, wrote a letter to Michael Stafford, Esq. ("Attorney Stafford"), the Plaintiff's attorney, stating that time was of the essence for the sale of the Home and that the proposed closing was to be held on August 6, 2013. Id. at ¶ 31.

16. On August 5, 2013, Attorney Stafford wrote to Attorney Wright in relevant part, "My client elects to terminate the contract . . . ." (Nov. 26, 2014 Amended State Court Decision and Order, Ex. A, ECF No. 16).

17. On October 2, 2013, the Plaintiff filed an action against the Debtor in the Supreme Court of Warren County (the "State Court") alleging a breach of contract and seeking $50, 000.00 for monetary damages. Id.

18. The State Court found that the Plaintiff terminated the Option Agreement. Id.

19. The Plaintiff elected, pursuant to Paragraph 5(e) of the Option Agreement, ^[4] to sue for money damages. Id.

20. The Debtor eventually sold the Home to the third-party on December 29, 2014. (Apr. 23, 2019 State Court Decision and Judgment, Ex. A, ECF No. 1).

21. On April 23, 2019, the State Court entered its decision in favor of Mountain Aire based on the Debtor's breach of contract "as he was unable to convey clear title nor give [P]laintiff possession of the property." Id.

22. The State Court also found a constructive trust^[5] between Cinney and Tennent. Id. 23.On May 28, 2019, the State Court entered the total judgment of $76, 925.00 to the Plaintiff. (May 28, 2019 State Court Total Judgment, Ex. B, ECF No. 1).

24. The total included (i) a $20, 000.00 judgment to the Plaintiff based on a constructive trust and Cinney's unjust enrichment, (ii) $30, 000.00 for Debtor's breach of the Option Agreement, (iii) interest from August 1, 2013 to May 1, 2019, (iv) costs by N.Y. C.P.L.R. § 8201 and (v) disbursements. (Apr. 23, 2019 State Court Decision and Judgment, Ex. A and May 28, 2019 State Court Total Judgment, Ex. B, ECF No. 1).

25. Cinney filed his chapter 7 bankruptcy petition on January 30, 2020. (BKR Doc. 1, Main Case No. 20-10139).

26. Cinney listed Mountain Aire as a creditor in Schedule F of his petition. Id.

27. On April 15, 2020, Mountain Aire commenced this adversary proceeding against the Debtor. (ECF No. 1).

28. On August 4, 2020, the Plaintiff filed a motion for summary judgment. (ECF No. 12).

29. On August 19, 2020, the Debtor submitted a response, a statement and a memorandum of law in opposition to Mountain Aire's summary judgment motion. (ECF Nos. 16, 17 and 18).

30. A supporting memorandum of law was filed by the Debtor on August 24, 2020. (ECF No. 20).

31. On August 26, 2020, the Court held a hearing on Mountain Aire's motion for summary judgment and entered an order denying the motion on August 31, 2020. (ECF Nos. 22 and 23).

32. On January 8, 2021, the Court issued a scheduling order for trial. (ECF No. 29).

33. The Court held a trial on January 28, 2021. (ECF No. 38).

34. Three witnesses testified at trial: (i) Tennent, (ii) Cinney and (iii) Attorney Wright. (ECF No. 41).

35. On March 25, 2021, the Debtor submitted his post-trial brief. (ECF No. 43).

36. Mountain Aire filed its post-trial brief (the "Post-trial Brief") on March 26, 2021. (ECF No. 44).

37. On April 2, 2021, the Plaintiff submitted its reply to the Debtor's post-trial brief (the "Reply"). (ECF No. 45).

ARGUMENTS

The Plaintiff seeks a finding that the debt owed to Mountain Aire is non-dischargeable pursuant to Section 523(a)(4) and/or Section 523(a)(6).

Initially, the Plaintiff focuses its Section 523(a)(4) embezzlement cause of action on the allegation that Cinney appropriated the Payments and the Funds. The Complaint states in relevant part:

25. Plaintiff entrusted the [Payments] and [Funds] to Defendant as deposits for Plaintiff's purchase of Defendant's [Home].

26. Defendant willfully and knowingly appropriated Plaintiff's property for his personal use, without Plaintiff's consent, and with intent to defraud Plaintiff.

27. Defendant knowingly harmed Plaintiff by appropriating these funds while intentionally failing to close on the sale of the [Home].

28. Accordingly, Defendant embezzled Plaintiff's property within the meaning of 11 U.S.C. § 523(a)(4).

ECF No. 1.

In its Post-trial Brief and Reply, Mountain Aire appears to abandon its original argument and purports to offer a different theory that Cinney appropriated the option to purchase the Debtor's Home without its consent and with the intent to defraud the Plaintiff. The Post-trial Brief states in relevant part, "Here, Mountain Aire had a property interest in its option to purchase the [Home]. . . . Plaintiff's option was secured by $50, 000.00 in deposit funds." ECF No. 44. Mountain Aire's Reply provides in part:

[U]nder the terms of the Sale Agreement, Mountain Aire obtained an option to purchase the [Home]. It is well established law that an option to purchase property is an interest in that property . . . . Therefore, by preventing Mountain Aire from exercising its option, Cinney misappropriated that interest, which was then under Cinney's control.

ECF No. 45.

Alternatively, Mountain Aire contends that Cinney converted the Payments and the Funds. As a result of the conversion, the Plaintiff argues that the debt to Mountain Aire is exempt from discharge because it is a willful and malicious injury to the Plaintiff pursuant to Section 523(a)(6).

In response, Cinney counters that he did not take the Plaintiff's property. The Debtor maintains that the Option Agreement had no restriction on how he spent the Funds. According to the Debtor, Tennent knew that Cinney would spend the money on health and living costs. As such, the Debtor posits that the Plaintiff's allegations do not rise to the level required to exempt the debt from discharge pursuant to Section 523(a)(4). Also, the Debtor asserts that Section 523(a)(6) does not apply to a standard breach of contract allegation.

DISCUSSION

This case exemplifies the maxim "no...