In re Cole

• Decision Date: 13 November 2009
• Docket Number: No. 08-3371,08-3371
• Citation: 428 B.R. 747
• Parties: In re Dennis E. COLE, Debtors. Brad Allen Double, Plaintiff v. Dennis E. Cole, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Ohio

428 B.R. 747

In re Dennis E. COLE, Debtors.Brad Allen Double, Plaintiff

v.Dennis E. Cole, Defendant.

No. 08-3371.

United States Bankruptcy Court, N.D. Ohio.

Nov. 13, 2009.

Thomas D. Pigott, Toledo, OH, for Plaintiff.

Gordon R. Barry, Toledo, OH, for Defendant.

DECISION AND ORDER

RICHARD L. SPEER, Bankruptcy Judge.

This cause comes before the Court on the Motion for Summary Judgment filed by the Plaintiff, Brad Allen Double. The Plaintiff's Motion is brought in support of his Complaint to Determine the Dischargeability of a particular debt owed to him by the Defendant/Debtor, Dennis E. Cole. Regarding their respective positions on the matter, both of the Parties filed supporting written arguments and documentation. The Court has now had the opportunity to review the evidence and arguments submitted by the Parties, as well as the entire record in this case. Based upon this review, the Court finds, for the reasons set forth in this Decision, that the Plaintiff's Motion for Summary Judgment should be Denied.

FACTS

The Plaintiff, Brad Allen Double (hereinafter the Plaintiff), is a doctor of chiropractic medicine. In this professional capacity, the Plaintiff operated a medical office. For a period of time, the Plaintiff employed in his medical practice, as an office manager, a one Jacquelyn Cole (hereinafter Ms. Cole).

Ms. Cole is the former wife of the Defendant/Debtor, Dennis Cole. While employed with the Plaintiff, Ms. Cole is alleged to have stolen from the Plaintiff's medical practice a sum in excess of $212,000.00. The facts presented to the Court in this regard show that on account of the purported theft, criminal charges were brought against Ms. Cole, eventually resulting in a plea agreement whereby Ms. Cole was sentenced to a period of incarceration of approximately five years and ordered to pay restitution to the Plaintiff. (Doc. No. 20, at pg. 2).

In addition to the criminal action, the Plaintiff personally brought an action against Ms. Cole and the Debtor. The civil action was commenced in 2003, and set forth multiple causes of action including that for embezzlement, fraud and intentional infliction of emotional distress. In this action, the Plaintiff sought damages of $212,903.60, plus punitive damages, court costs and attorney fees.

During this litigation, the Debtor, following some initial procedural matters, including the entry but later vacation of a default judgment, filed an answer, denying the allegations made by the Plaintiff, (Doc. No. 48, Ex. B.). Before the case proceeded to trial, however, the Parties executed a document entitled "Settlement Agreement and Release." (hereinafter the "Agreement") (Doc. No. 1, Ex. A). The substance of this Agreement provided that (1) the Plaintiff would dismiss his civil action, (2) the Plaintiff would not make a statementat the criminal sentencing of Ms. Cole and (3) the Plaintiff would reduce his claim against Ms. Cole and the Debtor to the amount of $70,000.00. In return, Ms. Cole and the Debtor agreed to immediately pay the Plaintiff the sum of $10,000.00, to be counted toward the $70,000.00 owed, and to thereafter pay the Plaintiff the remaining $60,000.00 under a repayment plan.

Besides repayment, Ms. Cole and the Debtor also agreed to these additional terms. First, in paragraph 10(f) of the Agreement it was set forth:

CONFESSED NONDISCHARGEABILITY. The Parties agree that this Agreement, its underlying debt and the Coles' obligations hereunder, are nondischargeable for the following reasons:

i. Pursuant to Bankruptcy Code § 523(a)(2);

ii. Pursuant to Bankruptcy Code § 523(a)(4); and

iii. Pursuant to Bankruptcy Code § 523(a)(6).

The Agreement also provided conditions of default, which included the commencement of a bankruptcy case and the failure to pay according to the terms of the repayment plan. In the event of default, both Ms. Cole and the Debtor agreed that the full amount of the original claim would become due and owing. A cognovit promissory note was also signed by Ms. Cole and the Debtor in favor of the Plaintiff for the sum of $60,000.00, enforceable if any of the conditions of default arose.

Subsequent to the execution of the Parties' Agreement, the Plaintiff, as promised, dismissed his civil action against Ms. Cole and the Debtor. At some point, however, Ms. Cole and the Debtor defaulted on their obligations to make payments to the Plaintiff, with a judgment thereafter being entered on the cognovit note for $60,000.00, plus interest. (Doc. No. 1, Ex. B.) Also, during this period of time, Ms. Cole and the Debtor terminated their marriage.

On August 27, 2008, the Debtor filed a petition in this Court for relief under Chapter 7 of the United States Bankruptcy Code. The Plaintiff, thereafter, filed this adversary proceeding, seeking in his complaint a determination of nondischargeability against the Debtor. As a part of this determination, the Plaintiff also seeks the entry of a monetary judgment in his favor. As the statutory basis for this requested relief, the Plaintiff cited to Bankruptcy Code §§ 523(a)(2)/(4)/(6).

DISCUSSION

In this proceeding, the Plaintiff seeks a determination that the claim he holds against the Debtor is a nondischargeable debt pursuant to 11 U.S.C. § 523(a)(2)/(4)/(6). This type of proceeding, brought to determine the dischargeability of a particular, is deemed to be a "core proceeding" under 28 U.S.C. § 157(b)(2)(I). Accordingly, as a "core proceeding," this Court has the jurisdictional authority to enter final orders and judgments in this matter. 28 U.S.C. § 157(b)(1).

Procedurally, the matter of dischargeability is brought before the Court on the Plaintiff's Motion for Summary Judgment. The standard for summary judgment is set forth in Federal Rule of Civil Procedure 56(c), which is made applicable to this proceeding by Bankruptcy Rule 7056. It provides for in part: A party will prevail on a motion for summary judgment when "[t]he pleadings, depositions, answers to interrogatories, and admission on file, together with 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, 2552, 91 L.Ed.2d 265 (1986).With respect to this standard, the moving party must demonstrate all the elements of the cause of action. R.E. Cruise Inc. v. Bruggeman, 508 F.2d 415, 416 (6th Cir.1975). In making this determination, the Court is directed to view all the facts in a light most favorable to the party opposing the motion. Matsushita v. Zenith Radio Corp., 475 U.S. 574, 586-588, 106 S.Ct. 1348, 1348, 1356, 89 L.Ed.2d 538 (1986).

A debtor's honesty has long been a prerequisite to the discharge of what are otherwise legally enforceable obligations. Local Loan Co. v. Hunt, 292 U.S. 234, 54 S.Ct. 695, 78 L.Ed. 1230 (1934). To this end, bankruptcy law has long excepted from discharge those debts which are shown to have arisen from dishonest or otherwise wrongful acts committed by a debtor. Cohen v. de la Cruz, 523 U.S. 213, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998). This policy is partially codified in those three provisions of the Bankruptcy Code upon which the Plaintiff's complaint relies: (1) § 523(a)(2), excepting from discharge a debt arising from a false pretense, a false representation, or actual fraud; (2) § 523(a)(4), excepting from discharge a debt arising from fraud, embezzlement, larceny or defalcation while acting in a fiduciary capacity; and (3) § 523(a)(6), providing that a debt shown to have arisen from a willful and malicious injury is not subject to discharge.

With the exception of defalcation under § 523(a)(4), each of the statutory exceptions to dischargeability cited by the Plaintiff have a commonality: scienter—that is, a specific intent to actually do the harm, whether it is an intent to defraud/deceive under § 523(a)(2), an intent to misappropriate another's property under § 523(a)(4); or the intentional injury to another's property under § 523(a)(6). Automated Handling v. Knapik (In re Knapik), 322 B.R. 311, 316 (Bankr.N.D.Ohio 2004). Determinations concerning a debtor's culpable state of mind, however, are usually not appropriate on motions for summary judgment as it deprives the trier-of-fact of the opportunity to assess the debtor's credibility. Notwithstanding, as would appear to be the case here, summary judgment may be appropriate where purely legal issues are involved. Highland Mining Co. v. United Mine Workers of America, Dist. 12, 105 Fed.Appx. 728, 730 (6th Cir.2004).

In this matter, the Plaintiff raises what can be construed as two legal arguments. First, the Plaintiff contends that his prepetition Agreement with the Debtor, wherein the Debtor acknowledged in paragraph 10(f) that his debt to the Plaintiff was nondischargeable, is enforceable in this Court. In the words of the Plaintiff: "A contract between a debtor and creditor may contain a confession of non-dischargeability." (Doc. No. 20, at pg. 4). Second, the Plaintiff asserts that the Debtor is collaterally estopped from contesting the nondischargeability of his claim. Id.

On the first point raised by the Plaintiff, it is not unusual for parties to insert language into contracts whereby one party agrees to waive their right to discharge through bankruptcy any claim arising from a breach of the contract. This is particularly true, as is the case with the Parties' Agreement, for contracts arising from the settlement of issues related to pending or impending litigation. Yet, whatever one party's reliance on the efficacy of such an agreement, they are not, as a matter of public policy, enforceable.

In Lichtenstein v. Barbanel (In re Lichtenstein), the Sixth Circuit Court of Appeals stated, "a pre-petition stipulation in a state-court action waiving a debtor's right to obtain a discharge of a specific debt in a future bankruptcy case is void because itoffends the public policy of promoting a fresh start for...