Submitted: September 24, 2018
from United States Bankruptcy Court for the Eastern District
of Missouri - St. Louis
SALADINO, Chief Judge, DOW and SANBERG, Bankruptcy Judges.
SALADINO, CHIEF JUDGE.
Appellants, Steve Conway and Lorcon LLC #1, appeal the order
of the Bankruptcy Court dismissing their adversary complaint,
as well as an order denying their motion to reconsider the
dismissal order. We have jurisdiction over this appeal. See
28 U.S.C. §158(b). For the reasons that follow, we
Conway, through his entity LorCon LLC #1
("LorCon"), invested in Heyl Partners Station Plaza
("Heyl Partners") and Johns Folly Ocean Villas, LLC
("Johns Folly"), two real estate development
ventures Debtor Richard Michael Heyl had promoted to Conway,
a principal of LorCon. In early 2007, when Heyl Partners ran
into severe financial difficulties, Heyl presented Conway
andLorCon with the option of transferring the interest from
Heyl Partners to either Johns Folly or Madaford Gardens, LLC.
Appellants opted to transfer the Heyl Partners investment
into an additional investment in Johns Folly. The value of
appellant's transfer of the investment from Heyl Partners
to Johns Folly was negotiated in large part based on
Debtor's representations concerning an asserted recent
investment in Johns Folly by an apparent insider, Mary Beth
Kinsella. After the 2007 transfer of its interest from Heyl
Partners to Johns Folly, Appellants also fulfilled two large
capital calls by Johns Folly, further increasing their
investment. Ultimately, the Johns Folly venture also failed.
August 31, 2009, Debtors Richard M. Heyl ("Heyl")
and Jennifer Ann Heyl filed a voluntary petition for relief
under Chapter 7, Title 11 of the United States Code in the
United States Bankruptcy Court for the Eastern District of
Missouri, Eastern Division. In Schedule F (general unsecured
claims) of their petition, they listed an unsecured,
undisputed, non-contingent, liquidated debt in the amount of
zero dollars owed to Steven Conway ("Conway") for
"[p]otential liability for investment in JFOV,
LLC." The bankruptcy was a "no asset" case, so
no proof of claim deadline was set. Notwithstanding, Conway
filed a proof of claim in the name of LorCon, asserting an
unsecured debt in the amount of $79, 500.00, representing an
investment loss related to JFOV, LLC (the "Debt").
August 27, 2010, Appellants commenced an adversary proceeding
in the Bankruptcy Court (the "2010 Adversary
Proceeding") against Heyl, alleging false pretenses,
false representation and actual fraud related to the JFOV,
LLC investment and seeking a determination that the Debt is
excepted from discharge under § 523(a)(2)(A). On
February 13, 2012, the Bankruptcy Court entered Judgment in
favor of Heyl. The Bankruptcy Court found that while Heyl had
made false statements to Conway that were relied upon by
Conway, the Debt was not the proximate result of the
representations. Therefore, Conway failed to meet his burden
of proof as to proximate causation.
did not appeal the judgment in the 2010 Adversary Proceeding.
However, on February 11, 2013, Conway and LorCon filed their
Motion for Relief from Judgment, alleging that "newly
discovered evidence" had been obtained, warranting
relief from the judgment in the 2010 Adversary Proceeding. On
April 8, 2013, the Bankruptcy Court denied that motion.
appealed the denial of their motion to the Bankruptcy
Appellate Panel. LorCon was subsequently dismissed from the
appeal after its lawyer withdrew from representation. On
December 12, 2013, the Bankruptcy Appellate Panel entered an
order dismissing the appeal, concluding that Conway lacked
standing to pursue the appeal because he did not have a
pecuniary interest in the outcome. On further appeal, the
Eighth Circuit Court of Appeals affirmed.
in October of 2012, Conway made a written complaint to the
Enforcement Section of the Missouri Securities Division of
the Office of Secretary of State (the "Enforcement
Section"), raising claims against Heyl and an affiliated
limited liability company known as Heyl Partners Station
Plaza, LLC ("HPSP") asserting the fraudulent sale
of investment interests in HPSP and JFOV. The Enforcement
Section investigtated and on April 23, 2015, a Consent Order
(the "Consent Order") was entered into by Heyl,
HPSP, and the Enforcement Section.
Consent Order, Heyl and HPSP expressly did not admit or deny
any of the allegations made, but rather consented to the
entry of the Consent Order solely for the purpose of
resolving that proceeding before the Enforcement Section. The
Consent Order required Heyl and HPSP to pay a fine and costs
to the state of Missouri only in the event that they violated
the Consent Order within a two-year period after its
execution. The Consent Order acknowledged that the Missouri
Resident who initiated the complaint had incurred a $79,
500.00 investment loss but did not include a monetary
judgment or any other form of relief in favor of Conway,
LorCon #1, and/or any other creditors.
October 14, 2015, Conway, LorCon #1, and LorCon, LLC
filed a new adversary complaint with the Bankruptcy Court,
which is the adversary proceeding from which this appeal
arose (the "2015 Adversary Proceeding"). This time,
Appellants sought to except the Debt from Heyl's
discharge under 11 U.S.C. § 523(a)(19).
March 8, 2017, Heyl filed his Amended Motion to Dismiss the
2015 Adversary Proceeding pursuant to Fed.R.Civ.P. 12(b)(6),
for failure to state a claim upon which relief can be
granted. Conway and the LorCon entities filed a Response to
the Amended Motion to Dismiss objecting to dismissal. On
December 11, 2017, the Bankruptcy Court entered its Order
granting the Motion to Dismiss ("Dismissal Order")
on seven (7) separate ...