In re Busick
| Decision Date | 17 April 2001 |
| Docket Number | Bankruptcy No. 99-11551. Adversary No. 00-1021. |
| Citation | 264 BR 518 |
| Parties | In re Leo Dane BUSICK, Debtor. Thomas E. Schroeder, Anita Schroeder, Plaintiffs, v. Leo Dane Busick, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Indiana |
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Wesley N. Steury, Fort Wayne, IN, for plaintiff.
Steven J. Ouellette, Fort Wayne, IN, for defendant.
DECISION
Prior to the debtor's petition for relief under Chapter 7 of the United States Bankruptcy Code, the plaintiffs sued him in the Steuben Superior Court. Defendant appeared and, following a trial on the merits, the court entered judgment against him. The court found the defendant liable to the plaintiffs under three theories of recovery: 1) breach of contract; 2) negligence; and 3) fraud and home improvement fraud. Judgment was entered against the defendant in the total sum of $96,999.93, of which $3,000.00 represented costs recoverable under I.C. XX-XX-X-X as a result of home improvement fraud. See, I.C. XX-XX-X-XX. The defendant subsequently filed a petition for relief under Chapter 7 of the United States Bankruptcy Code, whereupon plaintiffs initiated this adversary proceeding in order to determine the dischargeability of the judgment debt. Plaintiffs contend that the obligation is excepted from the scope of debtor's discharge pursuant to § 523(a)(2)(A) of the United States Bankruptcy Code, as a debt obtained by "false pretenses, a false representation, or actual fraud. . . ."
The matter is presently before the court on plaintiffs' motion for summary judgment. Plaintiffs contend that the factual findings contained in the Steuben Superior Court's judgment of August 13, 1998 preclude the debtor from challenging the fraudulent origin of his obligation to them. In response, the defendant advances three arguments. He contends that the state court's findings are not sufficient to establish all of the elements a plaintiff is required to prove under § 523(a)(2)(A) and that the findings with regard to fraud and home improvement fraud were not necessary to the court's decision. In the alternative, he contends that, if the prior judgment operates as an estoppel, only the incremental damages associated with the home improvement fraud — $3,000.00 — and not the damages recoverable under the alternative theories of recovery, would be excepted from discharge. In addition to these legal arguments, defendant has filed an affidavit controverting the state court's findings.
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file . . . 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." Fed.R.Bankr.P.Rule 7056(c); Fed. R.Civ.P.Rule 56(c). Thus, summary judgment is essentially an inquiry as to "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986).
Initially, Rule 56 requires the moving party to inform the court of the basis of the motion and to identify "those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). The non-moving party may oppose the motion with any of the evidentiary materials listed in Rule 56(c), but reliance on the pleadings alone is not sufficient to withstand summary judgment. Posey v. Skyline Corp., 702 F.2d 102, 105 (7th Cir.1983). In ruling on a summary judgment motion, the court accepts as true the non-moving party's evidence, draws all inferences in favor of the non-moving party, and does not weigh the evidence and credibility of the witnesses. Anderson, 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
If the defendant may permissibly controvert the facts found by the Steuben Superior Court, he has created a genuine issue of material fact which would preclude the entry of summary judgment against him. Nonetheless, the whole purpose of the doctrine of collateral estoppel is to prevent the re-litigation of a factual issue once it has been properly determined by a court of competent jurisdiction. See, Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326, 99 S.Ct. 654, 659, 58 L.Ed.2d 552 (1979). Consequently, despite the defendant's attempt to controvert the factual findings of the Steuben Superior Court, the true issue upon which plaintiffs' motion turns is whether that decision operates as an estoppel and, if so, is it sufficient to prove plaintiffs' case under § 523(a)(2)(A).
"Collateral estoppel operates to bar a subsequent relitigation of the same fact or issue where that fact or issue was necessarily adjudicated in a former suit and the same fact or issue is presented in a subsequent lawsuit." In re Staggs, 178 B.R. 767, 774 (Bankr.N.D.Ind.1994), aff'd, 177 B.R. 92 (N.D.Ind.1995). Generally, whether or not a particular judgment will have this preclusive effect is determined by state law. In re Scarborough, 171 F.3d 638, 641 (8th Cir.1999), cert. denied, 528 U.S. 931, 120 S.Ct. 330, 145 L.Ed.2d 258 (1999); Bicknell v. Stanley (In re Bicknell), 118 B.R. 652, 659-60 (S.D.Ind.1990); Staggs, 178 B.R. at 773. In Indiana, this requires plaintiff to demonstrate:
As the party asserting preclusion, the plaintiff is expected to identify the specific facts that were determined in the previous litigation and then to demonstrate how those facts compel a particular result in the subsequent action. See, Reid v. State, 719 N.E.2d 451, 456 (Ind.App.1999); Bicknell, 118 B.R. at 664.
There is no dispute that the issues between plaintiffs and defendant were actually litigated in the state court or that the litigation has been resolved by a final judgment. Furthermore, there is no real dispute that there is an identity of issues — in other words that some of the issues determined by the state court are identical to the questions this court must answer in determining dischargeability under § 523(a)(2)(A).1 Instead, the dispute in this case turns on the third element of collateral estoppel, which is whether the state court's findings concerning fraud were necessary to its resulting judgment.
Not every finding of fact that a court makes in connection with ruling on a particular dispute is necessary to its ultimate conclusion and it is only the facts which are necessary to that conclusion that cannot be controverted. See, Connecticut Indem. Co., v. Bowman, 652 N.E.2d 880, 883 (Ind.App.1995); State Farm Mut. Auto. Ins. Co. v. Glasgow, 478 N.E.2d 918, 925 (Ind.App.1985). Extraneous factual findings may be re-litigated. To determine whether a particular finding was necessary to the prior court's decision, one must ask whether that decision would have been any different without that finding. An excellent example of an extraneous finding, and one which this court often sees, occurs in a suit where the plaintiff's claim is based upon a promissory note. In addition to finding liability on the note, the court also makes an additional finding that the defendant induced the plaintiff to make the loan because of a false financial statement, and then enters judgment for the amount due under the note. The finding concerning a false financial statement is totally gratuitous and has absolutely nothing to do with defendant's liability under the note. The resulting judgment would be the same with or without that finding.
That this type of gratuitously unnecessary finding will not operate as an estoppel is usually quite obvious, as are the motivations of the attorneys who submit such surplus findings to state courts in connection with pre-petition litigation. Less obvious, however, are the factual findings which are made in connection with litigation that proceeds on separate theories of recovery, any one of which would have produced the resulting liability. In this situation, it is only the factual findings which are common to all the theories of recovery which will operate as an estoppel. See, Connecticut Indemnity Co. v. Bowman, 652 N.E.2d 880, 883 (Ind.App.1995) (); Angstrohm Precision, Inc. v. Vishay Intertechnology, Inc., 567 F.Supp. 537, 541 (E.D.N.Y.1982); Restatement (Second) of Judgments § 27, cmt. i (1982). In these situations, none of the facts which are unique to the separate theories of recovery are necessary to the court's judgment for, in their absence, the judgment holder would still have prevailed on one of its other theories. Therefore, collateral estoppel will not apply to those facts. See, Jennings v. State, 714 N.E.2d 730, 733 (Ind.App.1999) ().
The defendant argues that the state court's findings were not necessary to its ultimate judgment because plaintiff successfully proceeded on three separate theories of recovery: first, the breach of a home improvement contract between plaintiffs and defendant; second, defendant's negligence for the failure to exercise reasonable care, not following building codes or obtaining necessary permits; and finally for defendant's...
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