Ackley State Bank v. Haupt, 89-437

• Decision Date: 21 February 1990
• Docket Number: No. 89-437,89-437
• Citation: 451 N.W.2d 495
• Parties: ACKLEY STATE BANK, Appellant, v. Clarence D. HAUPT, Appellee.
• Court: Iowa Supreme Court

Page 495

451 N.W.2d 495

ACKLEY STATE BANK, Appellant, v. Clarence D. HAUPT, Appellee.

No. 89-437.

Supreme Court of Iowa.

Feb. 21, 1990.

Rehearing Denied March 21, 1990.

Michael M. Pedersen of Martin, Nutting, Miller, Keith, Pedersen & Scully, Waterloo, for appellant.

Patrick W. Brooks of Brooks, Ward & Trout, Marshalltown, for appellee.

Considered by McGIVERIN, C.J., and HARRIS, SCHULTZ, NEUMAN, and ANDREASEN, JJ.

HARRIS, Justice.

A bank is attempting to collect on a loan it made to a dairy farmer. The farmer claims the obligation was discharged in bankruptcy. The bank in turn suggests compelling reasons why the discharge in bankruptcy did not bar recovery. The question is whether, as the trial court held, the bank is contending against the bankruptcy discharge in the wrong forum. We affirm.

Defendant, Clarence D. Haupt, signed a note for $95,104 to the Ackley State Bank on January 15, 1986. The note was due on July 15, 1986. It was secured by a security interest in Haupt's inventory, farm products, livestock, farm machinery, and other items. The security interest was properly perfected in January of 1986. On December 22, 1986, the note was extended to February 1, 1987. Haupt made payments for approximately one year. On February 9, 1987, the balance was $52,416.

In March of 1986 Haupt entered a contract to participate in the federal dairy termination program (DTP). As a result Haupt sold his dairy herd in December of 1986. In January 1987 Haupt received a government check for $41,767.44. Haupt paid several creditors and purchased a life insurance policy from the proceeds of the government check. He did not pay any proceeds to the Ackley State Bank.

In March of 1987 Haupt filed for bankruptcy. In June 1987 the bank filed a complaint in bankruptcy court, requesting that the promissory note not be accepted for discharge. The bank claimed Haupt's failure to provide them the government check constituted a willful and malicious injury to the bank's property under 11 U.S.C. section 523(a)(6) (1987).

In September 1988 the bankruptcy court rejected the bank's claim and discharged the debt. There is considerable dispute about the exact findings of the bankruptcy court. The bank did not appeal from the bankruptcy decision. Instead, the bank brought this action in state court.

This action seeks a judgment declaring that the bank had a security interest in Haupt's DTP payments. Haupt moved for summary judgment, contending the bank held no security interest in the DTP proceeds, and that the bankruptcy court holding to that effect was res judicata. The trial court sustained the motion and the bank appeals.

I. The purpose of issue preclusion is to limit successive litigation where there is identity of the parties and claims or issues. Brosamle v. Mapco Gas Prod. Inc., 427 N.W.2d 473 (Iowa 1988). The four elements of issue preclusion are: (1) the issue concluded must be identical in the two actions; (2) the issue must be raised and litigated in the prior action; (3) the issue must be material and relevant to the disposition of the prior action; and (4) the determination made of the issue in the prior action must be necessary and essential to the judgment. Hunter v. City of Des Moines, 300 N.W.2d 121, 123 (Iowa 1981).

The bankruptcy court noted that the standard of proof for establishing dischargeability in these proceedings was by "clear and convincing evidence." See In re Van Horne, 823 F.2d 1285, 1287 (8th Cir.1987). The standard burden for civil matters in our courts is by a preponderance of the evidence. Iowa R.App.P. 14(f)(6). The bank is quick to point out the difference in the two standards. See Restatement (Second) of Judgments § 28, comment f (1982). "Clear and convincing evidence is a standard which is less than beyond a reasonable doubt, but which is more than a preponderance of the evidence." King v. King, 291 N.W.2d 22, 24 (Iowa 1980). The bank thus contends that...