FIDELITY FINANCIAL SERVICES v. Cornell-Cooley
| Decision Date | 15 June 1993 |
| Docket Number | No. IP 90-2161 C.,IP 90-2161 C. |
| Citation | 158 BR 128 |
| Parties | FIDELITY FINANCIAL SERVICES, INC., Plaintiff-Appellant, v. Patricia Elaine CORNELL-COOLEY, Defendant-Appellee. In re Patricia Elaine CORNELL-COOLEY, Debtor. |
| Court | U.S. District Court — Southern District of Indiana |
William F. Thompson, Robert B. Turner, Indianapolis, IN, for plaintiff.
Joseph C. Lewis, Jr., Timmons Endsley Chavis & Lewis, Hollie B. Boyd, Jr., Indianapolis, IN, for defendant.
Kenneth C. Meeker, U.S. Trustee, Indianapolis, IN.
Susan B. Jones, Indianapolis, IN, Trustee.
ENTRY
Fidelity Financial Services appeals the bankruptcy court's denial of its motion for summary judgment and adverse dischargeability determination. The appeal has been fully briefed, and based on a review of the parties' filings, the record, and the relevant case law, it is ORDERED that the judgment of the bankruptcy court is AFFIRMED in part and VACATED and REMANDED in part.
On July 3, 1987, Patricia Elaine Cornell-Cooley, an experienced real estate agent, executed and delivered to Fidelity Financial Services a promissory note/mortgage for the amount of $47,503.26, payable in 24 monthly payments of $484.12 and one balloon payment of $35,884.38.
On June 9, 1989, Cornell-Cooley asked Fidelity how much it would cost to pay off the note early, and Fidelity told her that as of June 16, 1989, it would cost $36,925.21. Cornell-Cooley made no further payments on the note, yet, on June 23, 1989, when Cornell-Cooley again requested a pay off figure, Fidelity told her that as of June 30, 1989, it would cost $34,439.33 to pay off the note.
On June 27, 1989, Cornell-Cooley sold the mortgaged real estate to a third party and tendered a check to Fidelity for $34,439.33. Fidelity accepted that check, and, in turn, gave Cornell-Cooley a receipt stamped "paid in full." By July 10, 1989, Fidelity realized its mistake and notified Cornell-Cooley that the actual balance due on the debt as of June 30, 1989 was $37,439.33 and that the tendered check was $3,000 short.
One month later, having not received an additional $3,000 from Cornell-Cooley, Fidelity filed a complaint in state court seeking payment on the note. In its complaint, Fidelity omitted that it had misinformed Cornell-Cooley about the amount due on the note and accepted Cornell-Cooley's check as "payment in full"; rather, Fidelity simply pleaded that Cornell-Cooley had defaulted on a promissory note. As for its prayer for relief, Fidelity requested judgment in the amount of $37,351, plus interest of $16.60 per day. In addition, Fidelity requested "attorney's fees, the cost of this action, and all other expenses incurred in connection with this action," stating:
7. The plaintiff has incurred expenses in connection with the preparation of this action, which are reimbursable under the terms of the promissory note and real estate mortgage, including reasonable attorney\'s fees.1
Fidelity did not allege in the complaint that Cornell-Cooley had committed fraud, nor did it assert the substantive elements of a fraud claim.
Cornell-Cooley, proceeding pro se, filed an answer (denying that she was in default on the debt) and a counterclaim seeking Quiet Title to the real estate. The state court conducted a bench trial on Fidelity's complaint and issued written findings of fact and conclusions of law. As part of its factual findings, the court stated:
As part of its legal conclusions, the court held:
Cornell-Cooley did not appeal that decision; she did, however, file for bankruptcy in the United States Bankruptcy Court for the Southern District of Indiana.
Upon discovering that Cornell-Cooley had petitioned for bankruptcy, Fidelity filed a complaint with the bankruptcy court seeking a judicial determination that the state court debt was non-dischargeable under 11 U.S.C. § 523(a)(2)(A). Fidelity also filed a motion for summary judgment on that complaint claiming that Cornell-Cooley is collaterally estopped from denying that the state court debt was incurred by fraud. Fidelity argued in that motion:
The present case meets all the requirements of collateral estoppel. The issue in the State Court was the fraud of Cornell. Evidence was presented on the issue by the defendant and the plaintiff at trial on February 22, 1990. The Court entered a valid and final judgment on April 18, 1990. Finally, the detmination sic of fraud was required in order to award Fidelity Financial Services, Inc. damages and attorney fees under the Indiana Code.
Cornell-Cooley opposed the motion, claiming that the state court found "fraud implied in law," not actual fraud, and that a finding of fraud, be it implied or actual, was not an essential or necessary finding.
The bankruptcy court summarily denied the motion for summary judgment and conducted an evidentiary hearing on the issue of whether the debt was dischargeable under § 523(a)(2)(A). At the conclusion of that hearing, on November 9, 1990, the bankruptcy court found, as a matter of fact, that Fidelity had failed to prove by clear and convincing evidence that Cornell-Cooley had obtained the $14,799 debt by false pretenses, false representations, or fraud. Accordingly, the bankruptcy court held that the debt was dischargeable. This appeal followed.
In its appeal brief, Fidelity asserts that the denial of summary judgment was improper, claiming that the state court's findings indicate that the issue of fraud was raised and litigated. Fidelity also argues that the fraud determination was essential to the state court judgment, stating:
It is true that the state court judgment debt sought to be discharged arose out of a foreclosure action. However, Cornell . . . defended the state court action by asserting tender and payment in full. Therefore it was the validity of the payoff statement and paid in full receipt that was the basis of the state court proceeding and its ultimate judgment. Essential to the determination of the validity of the statement and the receipt was the issue of whether Cornell had engaged in deceptive conduct with the intent to cheat Fidelity thus invalidating the pay off statement and paid in full receipt in the hands of Cornell . . . which would entitle Fidelity to a lien on the real estate and the right to foreclose. . . . However, as to Cornell, the state court concluded that Cornell not only owed Fidelity $3,000, but also pre-judgment interest on the entire mortgage balance and attorney fees incurred in the foreclosure action. Thus, the resulting judgment was "created" by Cornell\'s intentional misrepresentation to the title company with the intent to cheat Fidelity.
Fidelity additionally argues that the bankruptcy court's finding of fraud was clearly erroneous, as it presented clear and convincing evidence of Cornell-Cooley's fraud and deceit.
Cornell-Cooley, in a brief filed by counsel on April 18, 1991, asserts that collateral estoppel does not apply for four reasons: (1) The state court finding of fraud was based on a preponderance of the evidence, yet fraud in bankruptcy dischargeability proceedings must be determined by clear and convincing evidence; (2) the fraud issue was not essentially or necessarily decided in the state court proceeding, indeed, the state court judgment had nothing to with fraud; (3) the state court findings were not sufficiently detailed to trigger collateral estoppel; and (4) the state court found fraud not of the type involving moral turpitude or an intentional wrong, as required under § 523(a)(2)(A). Cornell-Cooley also asserts that the bankruptcy court's determination of no fraud is supported by the evidence, that Fidelity failed to put forth evidence of fraud involving moral turpitude or an intentional wrong, and that the evidence supports the bankruptcy court's finding that Fidelity suffered the $3,000 deficiency at the hands of its own negligence.
In a Reply brief filed on May 28, 1991, Fidelity agrees with Cornell-Cooley's assertion that the bankruptcy court had to find fraud by clear and convincing evidence, but argues that there was overwhelming evidence of fraud presented to the state and bankruptcy courts, and therefore the bankruptcy court's finding of no fraud was clearly erroneous. Fidelity reiterated that the state court's determination of fraud was an essential finding, claiming:
the fraudulent intent of Cornell was essential to and resulted in its final judgment against Cornell for not only the $3,000.00 but also for interest on the entire principal balance and for attorney fees. (The interest and attorney fees were a direct and proximate result of Cornell\'s affirmative defenses to the Fidelity state court action).
On June 18, 1991, Fidelity submitted a supplemental brief noting for the first time that nearly six months...
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