In re Luedtke, Case No. 08-21611 jpk (Bankr.N.D.Ind. 4/2/2010), Case No. 08-21611 jpk.

CourtUnited States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Indiana
Decision Date02 April 2010
Docket NumberCase No. 08-21611 jpk.,Adversary No. 08-2099

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In re: JAMES EDWARD LUEDTKE, Chapter 7, Debtor.
Case No. 08-21611 jpk.
Adversary No. 08-2099
United States Bankruptcy Court, N.D. Indiana, Hammond Division.
April 2, 2010.


This matter comes before the Court on the Plaintiff's, Falk Engineering & Surveying, Inc.'s ("Falk"), complaint to determine the dischargeability of debt filed against the debtor, James Edward Luedtke ("Luedtke"). In its complaint, Falk asserts that Luedtke's debt to it should be excepted from discharge pursuant to 11 U.S.C. § 523(a), particularly § 523(a)(2)(A) and § 523(a)(4). Falk contends that the exception from discharge allegations pled in the foregoing complaint are subject to the doctrine of collateral estoppel, due to the fact that a civil judgement was entered in the Porter County Superior Court on May 2, 2007, in the case of Falk surveying & Engineering, Inc v. Theresa Luedtke, et al., under Cause No. 64D02-0306-CT-4819, which found James Luedtke liable for criminal receipt of stolen property pursuant to Indiana Code § 35-43-4-2(b).

Therefore, the issue in this case is whether the elements of Luedtke's liability, as established by the state court, satisfy the "actual fraud" elements of § 523(a)(2)(A) and/or the "larceny" prong of 11 U.S.C. § 523(a)(4).1 This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b), 28 U.S.C. § 157(a), and N.D.Ind.L.R. 200.1(a)(2).

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This matter constitutes a "core" proceeding as defined by 28 U.S.C. § 157(b)(2)(I).2

I. Statement of the Record

This adversary proceeding was initiated by a complaint filed on September 15, 2008. Luedtke filed an answer to the complaint on September 23, 2008, denying the substantive allegations thereof. A preliminary pre-trial conference was held on October 22, 2008, and the court entered an order on November 4, 2008, regarding Falk's contention that collateral estoppel applied, and ordered Falk to file of record exemplified copies of the following documents filed in the state court proceeding:

• all pleadings;

• the final pre-trial order;

• the instructions given to the jury;

• the jury's verdict;

• any judgment entered by the trial court following the conclusion of trial; and

• any interlocutory orders resolving any case issues prior to trial.

On December 10, 2008, Falk filed exemplified copies of the foregoing documents with the court.3 On February 11, 2008, a pre-trial conference was held at which the parties agreed that the collateral estoppel issues could be determined on the basis of the record of those proceedings filed with the court on December 10, 2008.4 These documents constitute the entire record upon which this court will base its ruling as to the collateral estoppel issues and is

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comprised of the following:

Certification from the Porter County Superior Court

Complaint and Jury Demand filed by Falk

First Amended Complaint and Jury Demand filed by Falk

Answer filed by Luedtke5

Answer to Counter-Claim filed by Falk

Order on Plaintiff's Motion for Partial Dismissal6

Order of Default Judgment7

Order filed on January 28, 2004 (stipulation to dismiss)8

Pre-Trial Order filed on February 20, 20079

Pre-Trial Conference Order10

Order (of dismissal) entered on March 19, 200711

Jury Trial Minutes

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Court's Preliminary Instruction 1.05, et al. (filed on March 19, 2007)12

Order on Motions in Limine and other Pre-Trial Matters13

Jury Trial Minutes filed on March 20, 2007

Court's Final Jury Instruction Number 3.13, et al.14

Jury Trial Minutes filed on March 21, 2007

Verdict Form B

Verdict Form C

Order on Treble Damages entered on May 2, 2007

Order entered on June 18, 200715

Order on Treble Damages entered on May 2, 2007.16

Amended Order on Treble Damages entered on May 2, 2007.17

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Judgement Docket

The parties filed legal memoranda as directed by the court. This case is now before the Court to enter a decision, based upon the state court record, as to whether collateral estoppel effect should be given to the judgment rendered in the Porter County Superior Court, and whether as a result the debt owed to Falk by Luedtke is excepted from discharge under 11 U.S.C. § 523(a)(2)(A) and/or § 523(a)(4).

II. Statement of the State Court Proceedings

On June 5, 2003, Falk filed a Complaint and Jury Demand in the Porter County Superior Court under Cause No. 64D02-0306-CT-4819 against the following individuals: Theresa Luedtke, James Luedtke, Sabrina Luedtke, James Marlor, Patti Patane, Erin Essex, Frances McCormick and Jonathon Luedtke. On June 26, 2003, Falk filed an amended complaint naming the same defendants and adding Frank Marlor as an additional defendant. In its amended complaint Falk pled the following as to the several defendants:

Count I Actual Fraud (Theresa Luedtke, James Luedtke and Sabrina Luedtke)

Count II Constructive Fraud (Theresa Luedtke)

Count III Negligence (Theresa Luedtke)

Count IV Breach of Fiduciary Duty (Theresa Luedtke)

Count V Theft18 (Theresa Luedtke and Sabrina Luedtke)

Count VI Criminal Conversion19 (All Defendants)

Count VII Civil Conversion (All Defendants)

Count VIII Theft/Receiving Stolen Property20 (All Defendants, except

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Theresa Luedtke)

Count IX Money Laundering (All Defendants)

Count X Unjust Enrichment (All Defendants)

Count XI Constructive Trust (All Defendants)

Count XII Treble Damages21 (All Defendants)

Count XIII Punitive Damages (All Defendants)

Count XIV Accounting (All Defendants)

The amended complaint alleges that on June 24,1998, Falk, an Indiana corporation, hired Theresa Luedtke as a bookkeeper and office manager. During the course of her employment, many additional administrative tasks were turned over to her including responsibility for managing the accounts payable, accounts receivable, and the payroll. Falk alleged that during her employment, Theresa Luedtke criminally converted the funds in Falk's corporate checking account by authorizing a wire transfer in the amount of $2,507.31 to another bank and by purchasing various items for herself and the other named defendants.22 These items were alleged to include a Saturn sedan, a Jeep Cherokee, a Ford Bronco, a Chevrolet Cavalier, a condominium in the state of Hawaii, furniture and new computers. It was also alleged that she paid a vendor to perform certain computer tasks at her private residence, paid vendors and contractors to complete home improvement tasks both at her private residence and on a rental residence she was purchasing, and made mortgage payments on the home of another Falk employee. It was also alleged that Theresa Luedtke misused Falk's Federal Express account, its Staples account and its American Express credit card to purchase gifts, including plane tickets, for various friends and family members. Theresa Luedtke also allegedly

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loaned money to various individuals through the company's corporate account and personally accepted repayment of the loans, all the while not paying the corporation's payroll taxes. Finally, it was alleged that she established a "ghost payroll" for her 21-year old step-daughter and caused Falk to remit health insurance premiums on her daughter's behalf. It was asserted that Theresa Luedtke was also making false entries Falk's financial records and books while this theft was going on.23

On July 28, 2008, Theresa Luedtke, James Luedtke, Sabrina Luedtke, Katrina Luedtke and Jonathon Luedtke filed an answer to the amended complaint. James Luedtke denied the substantive allegations levied against him contained in Counts I, and VI through XIV of the amended complaint. Following other procedural matters not relevant here, a final pre-trial order was entered by the state court in which Falk made the following contentions as to James and Theresa Luedtke:

Luedtke abused her responsibility and her access to information, and committed theft, conversion, fraud, breached her fiduciary duties, and committed other intentional criminal and civil violations and acts. James Luedtke also participated in, conspired in, and benefitted from the theft, conversion and criminal and civil violations and acts committed by Theresa and James Luedtke (hereinafter "The Luedtkes"). Plaintiff also contends that the other named defendants received stolen and misappropriated property, monies, equipment, and other benefits which receipt and, in some cases, continued possession, is wrongful and in violation of the law, and that a constructive trust should be applied to all property held by these defendants.

* * *

In the Jury Trial Minutes entered by the court on March 19, 2007, the court indicated that it gave the following instructions to the jury: Indiana Pattern Nos. 1.01, 1.03, 1.05, 1.09, 1.10, 1.11, 1.12, 1.13 and 1.15. However, these instructions were more or less preliminary in nature and did not address the elements of the causes of action being alleged against the

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Debtor. Subsequently, at the close of Falk's case on March 21, 2007, the court entered another set of Jury Trial Minutes which indicated that the defendants presented no witnesses and rested. It also provided in pertinent part:

The Court finds that on the Plaintiff's Complaint, Counts I, II, III and IV were dismissed by the Plaintiff. The Court entered a directed verdict on Count V. Count VI was dismissed by the Court over the Plaintiff's objection, Count VII was dismissed by the Plaintiff, Count VIII remains for jury verdict, Count IX was dismissed by the Plaintiff, Counts X, XI, and XII are to be ruled by the Court and Counts XIII & XIV were dismissed by the Plaintiff.

Closing arguments are presented to the jury by the parties.

The court reads the final instructions to the jury, to-wit: Indiana Pattern Instruction Nos. 3.13, 1.17, 1.03, 7.05, 9.01, 4.02, 1.09, 114.10, 114.06, 114.08, 114.07, 114.09, 114.04,...

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