In re Marchiando, Bankruptcy No. 91 B 30422
| Decision Date | 24 February 1992 |
| Docket Number | Bankruptcy No. 91 B 30422,Adv. No. 91 A 3069. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois |
| Parties | In re Nancy S. MARCHIANDO, Debtor. STATE OF ILLINOIS, DEPARTMENT OF LOTTERY, Plaintiff, v. Nancy S. MARCHIANDO, Defendant. |
Bradley J. Waller, Dekalb, Ill., for debtor.
James D. Newbold, Chicago, Ill., for Dept. of Lottery.
This matter comes before the Court on a Motion for Summary Judgment ("Motion"), filed by the Debtor-Defendant, Nancy S. Marchiando ("Debtor"). The Motion targets a Complaint to Determine Dischargeability of a Debt and for Judgment ("Complaint"), filed by the State of Illinois, Department of Lottery ("Department").
This Memorandum Opinion shall represent findings of fact and conclusions of law, pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.
On October 1, 1983, the Debtor opened and began to operate a grocery store in Sycamore, Illinois.1
In December of 1983, the State of Illinois licensed the Debtor to serve as an agent for the Department in conducting the Illinois lottery.
On February 26, 1991, the Debtor filed a Voluntary Petition under Chapter 7 of the Bankruptcy Code, 11 U.S.C. §§ 101-1330 (1988) hereinafter Code. An attached Schedule A-3 listed "The Illinois State Lottery" (the Department) as the holder of an unsecured claim without priority, in the amount of $16,000. An attached Schedule B-2 indicated that the Debtor possessed personal property valued at $8,380.00, including $2,580.00 in cash and $300.00 in a checking account.
On May 6, 1991, the Department filed a Proof of Claim in the total amount of $16,639.95, consisting of $15,977.77 in principal amount and $662.18 in additional charges arising from a "2% finance charge thru 12/31/90 in accordance with state statute."
On June 21, 1991, the Department filed its Complaint, charging the Debtor with failure to perform a statutory duty in failing to segregate lottery proceeds in a trust account for the Department's benefit and in failing to pay over such proceeds to the Department on demand. The Complaint further charged the Debtor with conversion where she used such proceeds for her own business and personal needs. The Complaint argued for a determination that the debt owed to the Department is nondischargeable under Section 523(a)(4) of the Code.
The Debtor filed an Answer on July 16, 1991, and an Amended Answer on August 6, 1991. The Debtor admits that she failed to segregate lottery proceeds and that she owed the Department approximately $16,639.95. The Debtor, however, denies that the debt is nondischargeable.
On August 14, 1991, the Debtor filed her Motion, pursuant to Rule 56 of the Federal Rules of Civil Procedure, made applicable in adversary proceedings through Rule 7056 of the Federal Rules of Bankruptcy Procedure. The Debtor confined her discussion to the "issue of defalcation while acting in a fiduciary capacity" because, as the Debtor notes, the Department failed to allege fraud, embezzlement, or larceny.2 The Debtor argues that defalcation can only arise with reference to an "express trust." The Debtor further argues that an express trust is not automatically created through the application of Section 10.3 of the Illinois Lottery Law, Ill.Rev.Stat. ch. 120, paras. 1151-78 (1989). The Debtor states, "The use of the term trust fund in Section 10.3 to describe the character of said funds, does not transform a mere agency relationship into a fiduciary relationship for bankruptcy purposes." The Debtor argues that her relationship with the Department was merely contractual in nature and was discharged in bankruptcy. The Debtor states, "Legislative enactments cannot create a higher duty when in reality none exists in the first instance."
On October 16, 1991, the Department filed an Answer of State of Illinois, Department of Lottery to Motion for Summary Judgment. The Department argues that the Motion is, in fact, a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, made applicable in adversary proceedings through Rule 7012(b) of the Federal Rules of Bankruptcy Procedure. Therefore, the Department assumed that the Debtor targets a "failure to state a cause of action for which relief can be granted." Accordingly, the Department treated all factual matters pled in the Complaint as "admitted for purposes of deciding the Motion." Alternatively, the Department argues that the Motion should be denied on its face for failing to comply with local rules.
On October 16th, the Department also filed a Memorandum of Law of State of Illinois, Department of the Lottery in Opposition to Motion for Summary Judgment. The Department defends against Debtor's Motion, arguing that where a statute creates the necessary elements of a trust, "the so called `statutory trust' creates a fiduciary status for purposes of bankruptcy discharge." The Department argues that a lottery agent agrees to be bound by "the controlling lottery laws" at the time of licensing. Section 10.3, the Department argues, creates a trust relationship. The Department further argues that Section 10.4 of the Illinois Lottery Law supports this reading where it imposes criminal liability with possible incarceration for violations of Section 10.3; otherwise, imprisonment for debt would violate Article I, Section 14 of the Illinois Constitution of 1970.
On November 4, 1991, the Debtor filed a Reply to Plaintiff's Memorandum of Law in Opposition to Defendant's Motion for Summary Judgment. Procedurally, the Debtor concedes that the facts are not in dispute but argues that a question of law can be treated through either a motion for summary judgment or a motion to dismiss. Substantively, the Debtor argues that a mere debtor-creditor relationship existed between the Debtor and the Department, rather than a fiduciary relationship.
On November 6, 1991, the Court heard the arguments of counsel and took the matter under advisement.
Rule 56(c) of the Federal Rules of Civil Procedure, in relevant part with emphasis added, states:
The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the 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.
Furthermore, Rules 56(a) and 56(b) enable a claimant or defendant to move for summary judgment "with or without supporting affidavits." As such, a party need not supply affidavits in order to move for summary judgment. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986).
Here, the Debtor's Motion does not fail because she did not supply affidavits.
As a procedural device, however, a Rule 56 motion for summary judgment appears to target disputes in which parties debate whether genuine issues of material fact exist. The careful reader, however, notes that a court shall render summary judgment where two situations are present: (1) where there is no genuine issue as to any material fact and (2) where the moving party is entitled to a judgment as a matter of law.
Here, the parties agree that no genuine issue as to any material fact exists. The parties disagree that the Department is entitled to a judgment as a matter of law. As in the normal course of a Rule 56 motion, where the court reviews the material facts in a case, the court must now review the law in this case and determine whether summary judgment is appropriate. A motion to dismiss may have been more artful. Nevertheless, a motion for summary judgment is an acceptable means of accomplishing the Debtor's end here.
Of course, proceeding with a motion for summary judgment breeds certain responsibilities under local rules. General Rule 12(m) of the General Rules of the United States District Court for the Northern District of Illinois3 requires the party moving for summary judgment to file a supporting memorandum of law and a statement of material facts as to which it contends there is no genuine issue.4 Failure to file a statement constitutes grounds for denying the motion for summary judgment Herhold v. City of Chicago, 723 F.Supp. 20, 22 n. 1 (N.D.Ill.1989). Under General Rule 12(n), the party opposing the motion must also file a supporting memorandum of law along with a "concise response."5
Here, the Court notes that the Debtor has failed to comply with General Rule 12(m) in failing to provide a statement as prescribed by that general rule.6 Such failure can and often does dampen a motion for summary judgment where the parties remain mired in a swamp of confusing facts.
Nevertheless, in this case, the Court will not rule against the Debtor because of her failure to comply with General Rule 12(m), especially where the material facts are not at issue. Instead, the Court will address the issues raised in the Motion and memoranda of law, and decide whether the Debtor is entitled to a judgment as a matter of law.
The Complaint seeks to hold the "debt" owed to the Department nondischargeable under Section 523(a)(4). Under Section 523(a)(4), "A discharge under Chapter 7 . . . does not discharge an . . . individual debtor from any debt . . . for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.7
To hold the debt of a "fiduciary" nondischargeable under Section 523(a)(4), the creditor must show:
Klingman v. Levinson, 831 F.2d 1292, 1295 (7th Cir.1987); In re Blumberg, 112 B.R. 236, 239 (Bankr.N.D.Ill.1990).
Generally, an express trust is created by an agreement between two parties to impose a trust relationship. In re Janikowski, 60 B.R. 784, 788 (Bankr.N.D.Ill. ...
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