In re Garretson

• Decision Date: 23 October 2007
• Docket Number: Bankruptcy No. 4:05-bk-25235 E.,Adversary No. 4:06-ap-1049.
• Citation: 377 B.R. 214
• Parties: In re Jerry L. GARRETSON. EBCO Construction Group, LLC, Plaintiff v. Jerry L. Garretson, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Arkansas

377 B.R. 214

In re Jerry L. GARRETSON.

EBCO Construction Group, LLC, Plaintiff v. Jerry L. Garretson, Defendant.

Bankruptcy No. 4:05-bk-25235 E.

Adversary No. 4:06-ap-1049.

United States Bankruptcy Court, E.D. Arkansas, Little Rock Division.

October 23, 2007.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

William P. Allison, Allison Law Firm, P.A., Frank Stewart Headlee, Hopkins Law Firm, Little Rock, AR, for Plaintiff.

Jerry L. Garretson, pro se.

ORDER DENYING PLAINTIFF'S SECOND MOTION FOR SUMMARY JUDGMENT

AUDREY R. EVANS, Bankruptcy Judge.

Plaintiff, EBCO Construction Group, LLC (hereafter referred to as "EBCO"), filed a Complaint to Determine Dischargeability of Debt and Objection to Discharge on January 16, 2006. Pro se Defendant Jerry Garretson (hereafter referred to as "DPS" or "Drywall Painting Specialists, Inc." or "Garretson") filed an Answer on February 14, 2006. Now before the Court is the Second Motion for Summary Judgment and brief in support, filed by EBCO on August 2, 2007.¹ Garretson filed a Reply to the Second Motion for Summary Judgment and brief in support on October 1, 2007. EBCO filed a Reply to Defendant's Reply to Second Motion for Summary Judgment and brief in support on October 12, 2007. Garretson filed a Response to Plaintiff's Reply to Defendant's Reply to Second Motion for Summary Judgment and brief in support on October 19, 2007. The parties did not request a hearing. The court has reviewed all relevant motions, briefs, responses and applicable law, and for the reasons stated herein, denies EBCO's, Second Motion for Summary Judgment.

FACTS

EBCO filed suit against Garretson on November 5, 2003, for breach of contract, in the Circuit Court of Miller County, Missouri (the "Missouri State Court") (CV503-524CC). Garretson failed to file a timely answer. On June 15, 2004, EBCO submitted a Request for Admissions and Garretson again failed to file a timely answer. Thereafter, on October 14, 2004, the Court granted an Interlocutory Default Judgment as to liability, and pursuant to Mo.R.Civ.P. 59.01, the submitted requests for admissions were deemed admitted. On February 17, 2005, EBCO moved for summary judgment (the "State Court Summary Judgment Motion") against Garretson based on the following deemed admissions (as recited in EBCO's State Court Summary Judgment Motion):

a. Prior to its dissolution, Garretson was a director and/or officer of DPS;

b. From and after the time that DPS was dissolved, Garretson continued to conduct business in the name of DPS;

c. The copy of the contract ("Exhibit A" hereto) is a true and accurate copy of the contract between DPS and EBCO on the Miller County Courthouse project.

d. After the original subcontract between EBCO and DPS was entered into, the three change orders included in Exhibit A hereto were executed and adjusted the amount of the subcontract to $348,098.86.

e. EBCO performed all conditions, covenants and promises required of it in accordance with the terms and `conditions of such subcontract;

f. Certain work furnished and installed by DPS was defective and was repaired and/or replaced by EBCO;

g. DPS did not pay its suppliers and sub-subcontractors in full for work and/or materials provided to the Project.

h. DPS did not complete all of the work expected of it pursuant to its contract with EBCO.

i. EBCO informed DPS on several occasions that the manpower supplied by DPS for the Project was insufficient.

j. EBCO formally terminated DPS from the Project by the letter [sic] October 31, 2002 which was attached to the Request for Admissions as "Exhibit C."

k. EBCO incurred the costs and expenses set forth in EBCO's Petition in this matter as a result of DPS' failure to complete and/or correct its deficient work on the Project.

EBCO claimed that based on these admissions, DPS breached the subcontract with EBCO in the following respects (as set forth in EBCO's. State Court Summary Judgment Motion):

a. DPS furnished and installed defective work which had to be repaired and/or replaced;

b. DPS failed to properly pay its suppliers and sub-subcontractors which required EBCO to pay such suppliers and sub-subcontractors in accordance with the payment bond EBCO was required to provide for the Project;

c. DPS failed to timely complete the work required of DPS in accordance with the subcontract; and

d. DPS failed to complete the work required of DPS under the subcontract which required EBCO to engage other subcontractors to complete the work of DPS.

In the State Court Summary Judgment Motion, EBCO alleges in Paragraph 2:

EBCO and DPS entered into that certain subcontract under which DPS agreed, inter alia, to furnish certain framing and drywall work in accordance with applicable plans and specifications for the sum of $350,000. A copy of EBCO's contract and change orders with DPS are attached hereto as "Exhibit A" and incorporated herein by this reference.

The Exhibit A attached to the copy of EBCO's State Court Summary Judgment Motion is NOT a subcontract between DPS-and EBCO (hereinafter referred to as the "Subcontract"). The attached Subcontract is between Otis Elevator Co. and EBCO, signed by a Gary Zimmerman on behalf of Otis Elevator Co. EBCO has not explained this discrepancy, and it raises serious concerns regarding the validity of the State Court judgment. Further, Garretson maintains in his Reply to the Second Motion for Summary Judgment filed in this adversary proceeding that neither he nor DPS ever had a contract with EBCO.

After. Garretson did not appear at a hearing on EBCO's motion for summary judgment, the Missouri State Court granted summary judgment in favor of EBCO on April 14, 2005, in the amount of $294,743.21.

On October 10, 2005, Garretson filed a voluntary petition for Chapter 7 relief in this Court.

LEGAL STANDARD FOR SUMMARY JUDGMENT

Rule 56 of the Federal Rules of Civil Procedure, as applied to these proceedings through Federal Rule of Bankruptcy Procedure 7056, provides that summary judgment shall be granted where the pleadings, depositions, answers to interrogatories, admissions or affidavits show that there is no genuine issue of material fact and the moving party is entitled to 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); Burnette v. Dow Chemical Company, 849 F.2d 1269, 1273 (10th Cir.1988). "In determining whether a genuine question of material fact exists, this court is required to view the facts in [the] light most favorable to the nonmoving party...." In re Gilder, 225 B.R. 439, 448 (Bankr.E.D.Mo.1998) (citation omitted). Summary judgment is appropriate when a court can conclude that no reasonable juror could find for the nonmoving party on the basis of the evidence presented in the motion and response. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

ANALYSIS

EBCO, in its Second Motion for Summary Judgment, alleges that there are no issues of material fact in this case because pursuant to the doctrine of collateral estoppel all relevant facts were adjudicated by the Missouri State Court. Specifically, EBCO alleges that Garretson is not entitled to have the debt discharged as the undisputed facts establish that the debt owed to EBCO is subject to the exceptions to discharge set forth in 11 U.S.C. 523(a)(2) and (a)(4).² Garretson contends that summary judgment based on collateral estoppel is inappropriate because the issues presented in this case were not raised or decided in the previous litigation. Accordingly, the issue is whether a state court's finding that damages caused by the Defendant's breach of a written contract supports a determination, by principles of collateral estoppel, that a debt owed to the Plaintiff is nondischargeable because the debt was obtained either by false representations under 11 U.S.C. 523(a)(2), or by defalcation while acting in a fiduciary position under 11 U.S.C. § 523(a)(4).

In determining if the Missouri State Court judgment will preclude litigation of the same issues in bankruptcy court, the court must apply the laws of the forum state where the judgment was entered. Migra v. Warren City School Dist. Bd. of Educ., 465 U.S. 75, 81, 104 S.Ct. 892, 896, 79 L.Ed.2d 56 (1984). Therefore, in this case, the Court uses Missouri law to determine whether the State Court judgment controls the outcome of this adversary proceeding based on the principles of collateral estoppel.³

In Missouri, four factors must be satisfied before collateral estoppel applies: "(1) whether the issue decided in the prior adjudication was identical with the issue presented in the present action; (2) whether the prior adjudication resulted in a judgment on, the merits; (3) whether the party against whom collateral estoppel is asserted was a party or was in privity with a party to the prior adjudication; and (4) whether the party against whom collateral estoppel is asserted had a full and fair opportunity to litigate the issue in the prior suit." Oates v. Safeco Ins. Co. of America, 583 S.W.2d 713, 719 (Mo.1979). In this case, collateral estoppel does not apply because the first and second factors have not been met. (The Court does not analyze or make any decision with respect to the third and fourth factors). The Court addresses the second factor first because it is dispositive of this motion.

I. Judgment on the Merits

The second factor in applying collateral estoppel under Missouri law is whether the prior adjudication resulted in a judgment on the merits. In this case, the Missouri State Court found by interlocutory default judgment⁴ that Garretson breached the subcontract with EBCO and thus awarded EBCO damages including the principal amount, attorney's fees and interest. "In Missouri, a judgment entered as a result of a defendant's failure to defend the lawsuit ... does not constitute a judgment on the merits of the case for collateral estoppel purposes." In re...