In re Overton, Case No. 08-00084-TLM (Bankr.Idaho 1/26/2009)
| Decision Date | 26 January 2009 |
| Docket Number | Case No. 08-00084-TLM.,Adv. No. 08-06033-TLM. |
| Parties | IN RE JEFFREY S. OVERTON, Chapter 7, Debtor. BRADLEY GAMBLE, Plaintiff, v. JEFFREY S. OVERTON, Defendant. |
| Court | U.S. Bankruptcy Court — District of Idaho |
Plaintiff Bradley Gamble filed this adversary proceeding to obtain a determination as to the dischargeability of a debt owed by Debtor/Defendant Jeffrey Overton. Gamble's complaint alleges that the obligation at issue falls within § 523(a)(2)(A), § 523(a)(2)(B), § 523(a)(4), and § 523(a)(6).1 Overton's answer raised, inter alia, an affirmative defense that:
The relief requested by Plaintiff should be denied and the Amended Complaint dismissed in its entirety as all of the issues alleged in the Amended Complaint have been litigated and therefore are barred by the doctrine of res judicata.
Overton thereafter filed a motion for summary judgment raising this issue. Adv. Doc. No. 12 ("Motion"). The Motion was heard and taken under advisement.
Following careful review, and for the reasons set forth below, the Court determines that the Motion will be granted in part and denied in part. An order upon this Decision will be entered by the Court.
The Ninth Circuit recently summarized:
In adversary proceedings before the bankruptcy court, the familiar summary judgment standard established in Federal Rule of Civil Procedure 56 applies. See Fed. R. Bankr. P. 7056; North Slope Borough v. Rogstad (In re Rogstad), 126 F.3d 1224, 1227 (9th Cir. 1997). Summary judgment is proper when "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). An issue is "genuine" only if there is a sufficient evidentiary basis on which a reasonable fact finder could find for the nonmoving party, and a dispute is "material" only if it could affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The party moving for summary judgment has the burden of showing the absence of a genuine issue of material fact. Id. at 256-57, 106 S.Ct. 2505. The court must view all the evidence in the light most favorable to the nonmoving party. County of Tuolumne v. Sonora Cmty. Hosp., 236 F.3d 1148, 1154 (9th Cir. 2001).
In response to a properly submitted summary judgment motion, the burden shifts to the opposing party to set forth specific facts showing that there is a genuine issue for trial. Henderson v. City of Simi Valley, 305 F.3d 1052, 1055-56 (9th Cir. 2002). The nonmoving party "may not rely on denials in the pleadings but must produce specific evidence, through affidavits or admissible discovery material, to show that the dispute exists." Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir. 1991).
A court "generally cannot grant summary judgment based on its assessment of the credibility of the evidence presented." Agosto v. INS, 436 U.S. 748, 756, 98 S.Ct. 2081, 56 L.Ed.2d 677 (1978). "[A]t the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson, 477 U.S. at 249, 106 S.Ct. 2505.
Barboza v. New Form, Inc. (In re Barboza), 545 F.3d 702, 707 (9th Cir. 2008).
For the purposes of the Motion, the following facts are undisputed.
In July, 2005, Gamble brought suit against Overton in the U.S. District Court for the District of Wyoming. In this Wyoming federal litigation, Gamble asserted twenty-one separate causes of action against Overton in connection with a contract under which Overton's corporation, Natural Progression Builders, Inc. ("NPB"), was to remodel Gamble's home and construct an adjacent garage/guest house. Disputes arose, and the project was never completed.
Gamble's complaint asserted multiple counts, which were numbered2 and titled by him as follows: (1) piercing of the corporate veil; (2) trust fund doctrine; (3) fraudulent conveyance; (4) fraud in the inducement; (5) fraud in the execution; (6) fraudulent concealment; (7) breach of fiduciary duties; (8) negligent misrepresentation; (9) negligent hiring, management and supervision; (10) joint venture/enterprise; (11) claim for civil conspiracy; (12) claim for accounting; (13) slander of title; (14) breach of contract; (15) intentional infliction of emotional distress; (16) negligent infliction of emotional distress; (17) Racketeer Influenced and Corrupt Organization (RICO) — wire fraud; (18) RICO — mail fraud; (19) RICO — attempt and conspiracy; (20) abuse of process; and (21) punitive damages.
The Wyoming federal court entered an order on November 8, 2007, on Overton's Fed. R. Civ. P. 12(b)(6) motion. See Overton Aff., Ex. B, Adv. Doc. No. 12, attach. 3 (the "November Order"). The November Order dismissed Counts (3), (4), (10), (11), (17), (18), (19), and (21) under Rule 12(b)(6) standards. It also granted summary judgment in favor of Overton on Counts (8), (13), (16), and (20).3 The court's order also noted that Plaintiff conceded dismissal of Count (15).
That left for trial only Counts (1), (2), (5), (6), (7), (9), (12), and (14). Trial occurred from November 27 through December 6, 2007. At the close of evidence, Overton moved for judgment as a matter of law, and the Wyoming federal court's order of December 13, 2007, granted that motion, dismissing Counts (5), (6), and (9). See Overton Aff., Ex. C, Adv. Doc. No. 12, attach. 3 (the "December Order"). The jury rendered a verdict against NPB/Overton on the basis of breach of the Gamble-NPB contract, awarding damages of $750,000.00. The Wyoming court ruled that piercing the corporate veil was appropriate because Overton should not benefit "from limited liability generated by a corporate form to which he did not adhere." December Order at 7. The verdict was thus effectively rendered on Counts (1) and (14). The court's December Order noted that the remaining Count (2) on the trust fund doctrine was effectively an alternative to piercing the corporate veil and any damages under that theory were necessarily incorporated in the contract damages awarded, thus any issue of liability under that theory need not be reached.4
Following the jury verdict and December Order, but before the Wyoming federal court ruled on other post-trial motions and entered a final judgment, Overton filed his petition for relief under chapter 7.
As noted, Overton's answer raised an affirmative defense of res judicata. This is the name previously used for a doctrine now called "claim preclusion." Overton's Motion clarified that the question he actually presents is that of "issue preclusion" or what was previously characterized as "collateral estoppel."
In effect, Overton argues Gamble should be barred by the doctrine of issue preclusion from raising and litigating before this Court the issues in the instant complaint because Gamble raised the same issues in Wyoming federal court and had the same either (i) summarily dismissed by that court under Rule 12(b)(6), or (ii) dismissed under summary judgment standards, or (iii) dismissed on post-trial motions. In short, Overton claims Gamble had his day in court, and lost on all the fraud and other theories, and was left with only a simple contract damage claim.
Issue preclusion applies in § 523(a) dischargeability proceedings. Grogan v. Garner, 498 U.S. 279 (1991); Cal-Micro, Inc. v. Cantrell (In re Cantrell), 329 F.3d 1119, 1123 (9th Cir. 2003); Khaligh v. Hadaegh (In re Khaligh), 338 B.R. 817, 824 (9th Cir. BAP 2006). The doctrine precludes a party from relitigating an issue he actually litigated and lost in a prior proceeding. R.T.C. v. Keating, 186 F.3d 1110, 1114 (9th Cir. 1999); Roussos v. Michaelides (In re Roussos), 251 B.R. 86, 92 (9th Cir. BAP 2000). "Issue preclusion serves to protect litigants from multiple lawsuits, conserve judicial resources, and encourage reliance on adjudication by reducing the likelihood of inconsistent judgments." Allen v. McCurry, 449 U.S. 90, 94 (1980).5
1. Which law applies on issue preclusion
The preclusive effect to be given a prior federal court judgment is a question of federal common law. Taylor v. Sturgell, ___ U.S. ___, 128 S. Ct. 2161, 2171 (2008); Semtek Int'l Inc. v. Lockheed Martin Corp., et al., 531 U.S. 497, 508 (2001); Giles v. Gen. Motors Acceptance Corp., 494 F.3d 865, 872-79 (9th Cir. 2007). In determining the meaning of "federal common law," the Supreme Court in Semtek held that the claim-preclusive effect of a federal diversity judgment is determined by applying "the law that would be applied by state courts in the State in which the federal diversity court sits." 531 U.S. at 508. Unlike this case, Semtek involved claim preclusion rather than issue preclusion, and it thus does not instruct whether Wyoming or federal issue preclusion law applies here.6 In regard to issue preclusion, however, both Wyoming courts and federal courts applying federal law follow the principles, elements and definitions articulated in the Restatement (Second) of Judgments (1982) (the "Restatement").7 Given the congruence of Wyoming and federal issue preclusion law, the Court concludes the orders by the Wyoming federal court are subject to the same standard. Thus, under the applicable portion of the Restatement:
When an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.
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