Allen v. Morrow (In re Morrow)

• Decision Date: 24 February 2014
• Docket Number: Adversary No. 12–5662.,Bankruptcy No. 12–74087.
• Citation: 508 B.R. 514
• Parties: In re Denise Almond MORROW, Debtor. H. Wiley Allen, Plaintiff, v. Denise Almond Morrow, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

508 B.R. 514

In re Denise Almond MORROW, Debtor.H. Wiley Allen, Plaintiff,

v.Denise Almond Morrow, Defendant.

Bankruptcy No. 12–74087.

Adversary No. 12–5662.

United States Bankruptcy Court,

N.D. Georgia,

Atlanta Division.

Signed Feb. 24, 2014.

John A. Moore, the Moore Law Group, LLC, Atlanta, GA, for Debtor/Defendant.

William D. Carter, Jr., Mason Bahr LLP, Atlanta, GA, Mark C. Walker, Hecht, Mack, Harris & Walker, Stockbridge, GA, for Plaintiff.

ORDER DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT'S CROSS–MOTION FOR PARTIAL SUMMARY JUDGMENT

JAMES E. MASSEY, Bankruptcy Judge.

Plaintiff H. Wiley Allen seeks a judgment against Defendant and Debtor Denise Almond Morrow that a debt owed by Morrow to Allen embodied in a judgment of the Superior Court of Fulton County, Georgia is not dischargeable pursuant to 11 U.S.C. § 523(a)(2) and (a)(6). Plaintiff moves for summary judgment, asserting that the doctrine of collateral estoppel bars Morrow from relitigating the issues of liability and damages allegedly found by the Superior Court and that those findings satisfy the elements of his claim based on alleged fraud under section 523(a)(2) of the Bankruptcy Code. Defendant filed a cross-motion for summary judgment, asserting that collateral estoppel does not apply and that the facts alleged in the adversary complaint fail to state a claim for relief under section 523(a)(2)(B) of the Bankruptcy Code, which makes a debt for money obtained by the use of a false statement in a writing concerning the debtor's financial condition on the which the plaintiff reasonably relied nondischargeable.

I. Facts

In 2005, Denise Almond Morrow as Trustee of the Almond Family Trust (the “Trustee”) borrowed $35,000 from H. Wiley Allen. The loan is evidenced by a note dated June 15, 2005 in the amount of $35,000 and signed by the Defendant in her capacity as Trustee. The interest rate was 20% per annum with a default rate of 32% per annum. The note was payable monthly in the amount of $585 beginning on July 15, 2005 with the balance of the debt due and payable on December 31, 2005. The note recites that it is secured by “the Deed To Secure Debt and Security Agreement, date of even date herewith,” but apparently no such document then existed. It is undisputed, however, that the note is secured by real property known as 3683 Ashwood Drive, Smyrna, GA 30080 pursuant to a deed to secure debt dated October 4, 2005 and recorded on October 27, 2005 in the office of the Clerk of the Superior Court of Cobb County, Georgia. The Trustee defaulted on the note by failing to pay the balance due on December 31, 2005.

In October 2007, Allen sued Morrow in her capacity as Trustee and individually in the Superior Court of Fulton County, Georgia. Complaint, Doc. No. 1, Ex. C, pp. 19–40. The complaint alleged claims for relief against “Defendants” for damages for breach of contract (though Morrow in her individual capacity is not alleged to have had a contract with Allen), for an accounting, for damages for “fraud in the inducement,” for damages against Morrow individually, for punitive damages, and for attorney's fees, costs and expenses of litigation.

Morrow answered the complaint in the state court action. Thereafter, Allen served Morrow with requests for admission, to which she never responded. The request for admissions demanded that Morrow admit the following statements:

17. Prior to the execution and delivery of the Note, and in furtherance thereof, Morrow represented to Plaintiff that full payment would be forthcoming pursuant to the express provisions of the Note.

18. Morrow's representation that full and timely payment would be made was a material inducement for Plaintiff to accept the Note and the subsequent Deed to Secure Debt, and loan Trustee the subject monies.

19. In making such representations, Morrow intended for Plaintiff to rely on such representations, thereby inducing Plaintiff to accept the Note and subsequent Deed to Secure Debt, and loan Trustee the subject monies.

20. Plaintiff has suffered damages as a proximate result of Morrow's misrepresentations and is entitled to monetary damages from Morrow.

21. Defendant Trustee's actions and omissions were at the specific direction and behest of Defendant Denise Almond–Morrow, individually.

22. Defendant Trustee and Defendant Morrow acted with disregard for and recognition of the trust entity, and with malice and evil intent to cause harm to Plaintiff.

23. Based on her conduct, Defendant Morrow, individually, is jointly and severally liable with Defendant Trustee for the obligations under the Note and Deed to Secure Debt.

24. Morrow's fraudulent conduct as set forth in Plaintiff's Complaint demonstrates a specific intent to cause harm, willful misconduct, malice, fraud, wantonness and oppression, and the entire want of care that constitutes conscious indifference to the consequences.

25. Morrow should be held liable to Plaintiff for punitive damages in accordance with O.C.G.A. § 51–12–5.1.

26. Morrow has acted in bad faith and in a stubbornly litigious manner, entitling Plaintiff to an award of his attorney's fees.

Complaint, Doc. No. 1., Ex. D, pp. 41–56.

Allen moved for summary judgment in the Superior Court, relying solely on admissions made by Morrow based on her failure to respond to the requests for admission. Plaintiff's Motion for Summary Judgment, Doc. No. 7, Part 8. The Superior Court granted Allen's motion in an Order and Final Judgment (“OFJ”) filed on August 5, 2008. Complaint, Doc. No. 1., Ex. E, pp. 57–59.

The OFJ did not state the facts on which the judgment was based. Rather, the OFJ concluded that there was no genuine issue of as to any material fact, granted summary judgment “in favor of Plaintiff against Defendants as to all claims asserted by Plaintiff,” and more specifically:

ORDERED that a Judgment be entered jointly and severally against Defendants Denise Almond–Morrow, in her representative capacity as Trustee of the Almond–Morrow Family Trust, and Denise Almond–Morrow, individually, and in favor of Plaintiff as follows:

a. Judgment for Plaintiff and an award of damages against Defendants, jointly and severally, for Defendants' breach of contract/breach of promissory note in the principal amount of thirty-five thousand and 00/100 dollars ($35,000.00);

b. Judgment for Plaintiff and an award of damages against Defendants, jointly and severally, for contractual interest in the amount of thirty thousand six hundred six and 72/100 dollars ($30,616.72), accrued as of June 30, 2008;

c. Judgment for Plaintiff and an award of damages against Defendants, jointly and severally, for contractual prejudgment interest at the per diem rate of thirty-three and 56/100 dollars ($33.56) accruing from July 1, 2008, to the date of judgment;

d. Judgment for Plaintiff and an award of damages against Defendants, jointly and severally, for Plaintiff's costs of collection, including reasonable attorney's fees, costs, and expenses associated with this action, in the amount of three thousand four hundred twenty-one and 51/100 dollars ($3,421.51); and

e. Judgment for Plaintiff and an award of punitive damages against Defendants, jointly and severally, in the amount of six hundred ninety thousand two hundred eight-two dollars and 30/100 ($690,282.30), which represents an award of ten times (10x) Plaintiff's compensatory damages.

Id.

On September 28, 2012, Defendant Morrow filed a petition under Chapter 7 of the Bankruptcy Code commencing Case Number 12–74087. On December 20, 2013, Allen filed a complaint commencing this adversary proceeding. The complaint contains one count, even though it asserts two distinct claims for relief under 11 U.S.C. §§ 523(a)(2) and 523(a)(6). The complaint includes, in addition to many conclusions of law, the allegation, not included in the state court complaint, that “Morrow never intended to honor her obligations to Allen. Rather, at the time of the initial transaction and thereafter, Morrow had no intention of fully paying on the Note....” Complaint, Doc. No. 1, pp. 5–6.

II. Discussion

The parties' motions present the following issues: (A) whether the doctrine of collateral estoppel is applicable in this adversary proceeding with respect to Plaintiff's claim based on alleged fraud, (B) whether Plaintiff's motion includes his claim under section 523(a)(6) of the Bankruptcy Code, and (C) whether Defendant is entitled to partial summary judgment based on the contention that the complaint fails to state a claim under section 523(a)(2)(B) of the Bankruptcy Code upon which relief can be granted.

A. Summary Judgment Standards. Pursuant to Fed.R.Civ.P. 56(c), made applicable by Fed. R. Bankr.P. 7056, a party moving for summary judgment is entitled to prevail if “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A fact is material for the purposes of summary judgment only if it “might affect the outcome of the suit under the governing law.....” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202, 211 (1986).

The moving party bears the initial burden to establish that no genuine factual issue exists or alternatively, that the non-moving party cannot prove its case at trial. Celotex, 477 U.S. at 323–326, 106 S.Ct. 2548;Exigent Tech., Inc. v. Atrana Solutions, Inc., 442 F.3d 1301, 1307–1309 (Fed.Cir.2006). The movant must point to the pleadings, discovery responses or supporting affidavits that tend to show the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323, 106 S.Ct. 2548. The court must construe this evidence in the light most favorable to the non-moving party. Anderson, 477 U.S. at 249, 106 S.Ct....