Old Republic Nat'l Title Ins. Co. v. Fakhuri (In re Fakhuri)

583 B.R. 915

IN RE: Fares F. FAKHURI, Debtor.

Old Republic National Title Insurance Company, Plaintiff,

v.Fares F. Fakhuri, Defendant.

Bankruptcy Case No. 16 B 28526

Adversary Case No. 16 A 00624

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed May 8, 2018

Karen Mitch, Andrew Szocka, Andrew Szocka, P.C., Crystal Lake, IL, for Plaintiff.

Nicholas C. Kefalos, Vernor Moran LLC, Chicago, IL, for Defendant.

MEMORANDUM OPINION

Janet S. Baer, United States Bankruptcy Judge

Plaintiff Old Republic National Title Insurance Company ("Old Republic") filed a two-count adversary complaint against debtor-defendant Fares F. Fakhuri ("Fakhuri"), seeking a determination that a judgment debt owed to it by Fakhuri is nondischargeable pursuant to 11 U.S.C. §§ 523(a)(2)(A) and (a)(2)(B).¹ The matter is now before the Court on Old Republic's motion for summary judgment on both counts of the complaint. For the reasons set forth below, the Court finds that there are no genuine issues of material fact and that Old Republic is entitled to judgment as a matter of law on Count I, the § 523(a)(2)(A) claim. As such, Old Republic's motion as to Count I will be granted, and judgment will be entered on that count in Old Republic's favor. Old Republic's motion as to Count II, the § 523(a)(2)(B) claim, will be dismissed.

BACKGROUND

The material facts in this case are gleaned from the docket, the pleadings, and the summary judgment statement and response, as well as the exhibits attached thereto. Among these documents is Old Republic's statement of material facts in support of its motion for summary judgment ("SOF"). (See Adv. No. 16–00624, Dkt. No. 16.² ) Many of the facts that follow come from this document and are deemed admitted because Fakhuri failed to either refute Old Republic's facts or file his own statement of undisputed facts. See L.R. 7056–2(B) (explaining that "[a]ll material facts set forth in the statement required of the moving party will be deemed to be admitted unless controverted by the statement of the opposing party").

Fakhuri is the president of Midwest Auto Brokers, Inc. ("Midwest"). (SOF ¶ 10). On September 20, 2004, he conveyed the property at 15050 South Independence Boulevard in Lockport, Illinois (the "Property"), to Midwest via quit claim deed, which was recorded in Will County on October 13, 2004. (Id. ¶ 9; Pl.'s Ex. A.) Several years later, on October 1, 2008, Midwest conveyed the Property via quit claim deed to Auto Gallery, Inc. ("Auto Gallery"), an entity of which Fakhuri was also the president and registered agent at the time of the conveyance. (SOF ¶¶ 10 & 13; Pl.'s Ex. B.) Subsequently, Auto Gallery executed a mortgage on the Property in favor of International Bank of Chicago ("International Bank") in the amount of $270,000; the mortgage was recorded on February 11, 2009. (SOF ¶ 11; Pl.'s Ex. C.)

About four years later, on January 28, 2013, a lawsuit was filed by Randal Swanberg ("Swanberg") against Auto Gallery in the Will County Circuit Court; Fakhuri appeared on behalf of Auto Gallery in the proceedings. (SOF ¶¶ 12 & 13; Pl.'s Ex. D.) Although the subject of the suit is unclear from the record, Swanberg became a creditor by virtue of a judgment entered by the Will County court on August 27, 2015 in the amount of $34,237.62. (SOF ¶ 14; Pl.'s Ex. D.) Thereafter, Swanberg began post-judgment collection proceedings against Fakhuri by serving him with a citation to discover assets, and the Will County court issued a rule to show cause against him on October 26, 2015. (SOF ¶ 16; Pl.'s Ex. D.) The following day, Swanberg recorded the judgment against the Property with the Will County Recorder. (SOF ¶ 17; Pl.'s Ex. F.)

Despite the judgment recorded on the Property and the continuing collection action, Fakhuri arranged for the sale of the Property to Lewis University, the closing of which occurred on October 30, 2015. (SOF ¶ 18.) At the time of the sale, Fakhuri did not disclose either the judgment or the collection proceedings affecting the Property. (Id. ¶ 32.) The Property was conveyed to Lewis University via a Special Warranty Deed, which guaranteed that Fakhuri had not done anything to encumber the Property. (Id. ¶¶ 18 & 19; Pl.'s Ex. G.) Fakhuri also executed other documents at the time of closing, namely the Personal Undertaking (GAP) and the Affidavit of Title, both of which represented that there were no issues with the title to the Property. (SOF ¶¶ 23–30; Pl.'s Exs. H & I.)

In anticipation of the conveyance of the Property, Old Republic ran a title search on October 26, 2015, the day before Swanberg recorded his judgment on the Property. (SOF ¶¶ 15 & 17.) Old Republic then forwarded the funds to pay off the mortgage on the Property held by International Bank in the amount of $237,106.06, and Fakhuri received the balance of the purchase price of $83,172.29. (Id. ¶¶ 33–35.) On November 23, 2015, the Special Warranty Deed was recorded in favor of Lewis University, and Old Republic issued the title policy for the sale of the Property. (Id. ¶¶ 36 & 37; Pl.'s Exs. G & K.) Upon discovery of the title defect that had been undisclosed by Fakhuri, Old Republic filed a lawsuit on May 18, 2016 in the DuPage County Circuit Court against Fakhuri for breach of warranty, breach of personal undertaking, breach of affidavit of title, and common law fraud. (SOF ¶ 39; Pl.'s Ex. L.) On July 18, 2016, a default judgment was entered against Fakhuri in the amount of $34,865.46 and was filed with the DuPage County Recorder on August 2, 2016. (SOF ¶ 42 & 43; Pl.'s Ex. O.)

About a month later, on September 6, 2016, Fakhuri filed his chapter 7 petition. Old Republic filed this adversary complaint on October 17, 2016, objecting to the dischargeability of its debt pursuant to §§ 523(a)(2)(A) and (a)(2)(B). Old Republic subsequently filed the instant motion for summary judgment on both counts of the complaint. Rather than filing a response to the motion, Fakhuri filed a motion for judgment on the pleadings,³ which the Court, upon Fakhuri's request, has considered as a response to Old Republic's motion for summary judgment. After Old Republic filed a reply to Fakhuri's response, the Court took the matter under advisement.⁴ Having reviewed all of the relevant documents, exhibits, arguments, and case law, the Court is now ready to rule.

SUMMARY JUDGMENT

Summary judgment is appropriate when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a) (made applicable to adversary proceedings by Fed. R. Bankr. P. 7056 ). The primary purpose of the summary judgment procedure is to avoid unnecessary trials where no material facts are in dispute. See Trautvetter v. Quick , 916 F.2d 1140, 1147 (7th Cir. 1990) ; Farries v. Stanadyne/Chi. Div. , 832 F.2d 374, 378 (7th Cir. 1987) (quoting Wainwright Bank & Trust Co. v. Railroadmens Fed. Sav. & Loan Ass'n of Indianapolis , 806 F.2d 146, 149 (7th Cir. 1986) ). Thus, on a motion for summary judgment, the court must decide, based on the evidence, whether there is a material disputed fact that requires a trial. Kodish v. Oakbrook Terrace Fire Prot. Dist., 604 F.3d 490, 507 (7th Cir. 2010) ; Payne v. Pauley , 337 F.3d 767, 770 (7th Cir. 2003). A genuine issue of material fact exists when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Where the material facts are not in dispute, the only issue is whether the moving party is entitled to judgment as a matter of law. ANR Advance Transp. Co. v. Int'l Bhd. of Teamsters, Local 710 , 153 F.3d 774, 777 (7th Cir. 1998).

A review of the documents filed by the parties in connection with Old Republic's motion for summary judgment reveals that there are no material facts in dispute, and neither Old Republic nor Fakhuri argues otherwise. Thus, the only question to be considered is whether Old Republic is entitled to judgment as a matter of law.

In its motion for summary judgment, Old Republic contends that it is entitled to judgment as a matter of law under both counts of its complaint. Setting forth the same facts to support both counts, Old Republic states that Fakhuri knew that there were active collections against him in connection with the Property and that he made representations which led Old Republic to believe that title to the Property was clear. Old Republic additionally alleges that the DuPage County court made a finding in the litigation giving rise to Old Republic's debt that Fakhuri committed fraud. These arguments are further discussed below.

Fakhuri provides little argument in the motion he filed in response to Old Republic's motion. In fact, the only contentions that Fakhuri sets forth are: (1) that summary judgment cannot be granted as to the § 523(a)(2)(A) claim because the written judgment of the DuPage County court is not an oral statement; and (2) that summary judgment cannot be granted as to the § 523(a)(2)(B) claim because the documents signed by Fakhuri do not constitute written statements respecting his financial condition. Both the first contention and the remainder of the content of Fakhuri's filing are not responsive to Old Republic's arguments.

JURISDICTION

The Court has jurisdiction to determine the interests of the parties in this matter. That jurisdiction is conferred by 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. The matter is a core proceeding under 28 U.S.C. § 157(b)(2)(I).

DISCUSSION

In its complaint, Old Republic seeks a determination that the debt owed to it by Fakhuri is nondischargeable pursuant to §§ 523(a)(2)(A) and (a)(2)(B). These subsections provide limited and specific exceptions to the dischargeability of debts. Exceptions to discharge must be construed strictly against a plaintiff and liberally in favor of the debtor. Stamat v....