In re Stephens, BAP No. CC-84-1003 VAbM
| Decision Date | 15 August 1985 |
| Docket Number | Adv. No. LA-83-9442 CA,LA-83-8534 CA.,BAP No. CC-84-1003 VAbM,Bankruptcy No. LA 83-05588 CA |
| Citation | 51 BR 591 |
| Parties | In re David STEPHENS and Sherrie Raye Stephens, Debtors. AMERICAN FEDERATION OF STATE, COUNTY AND MUNICIPAL EMPLOYEES, LOCAL 2051, Appellant, v. David STEPHENS and Sherrie Raye Stephens, Appellees. Thomas DELANY, Beverly Delany and Delany Insurance Agency, Inc., a California corporation, Plaintiffs and Appellees, v. David STEPHENS and Sherrie Raye Stephens, individually and dba Excess Risk Management, Ltd., et al., Defendants. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Catherine Adams Bennett, Lenrigo, Walters, Snyder, Nibler, Moss & Berryman, Fresno, Cal., for appellant.
David J. Landecker, Fischer, Hill & Sandford, Santa Barbara, Cal., for appellees.
Before VOLINN, ABRAHAMS and MEYERS, Bankruptcy Judges.
This dischargeability proceeding was brought by American Federation of State, County and Municipal Employees, Local 2051 (Union) against the debtors, David Stephens and Sherrie Raye Stephens (Stephens). The particular grounds alleged involve fraud under 11 U.S.C. § 523(a)(2)(A), breach of fiduciary duty under § 523(a)(4), and intentional conversion under § 523(a)(6).
The complaint alleges that Stephens wrongfully and intentionally withdrew $87,127.68 from funds entrusted to him by the Union for the purpose of obtaining "stop-loss insurance" to provide excess coverage for its self-funded employee benefit health plan; that thereafter he intentionally converted and retained $48,204.92 of this sum for his own personal use; and that such wrongful act created a nondischargeable debt under the Bankruptcy Code. Stephens' answer denied these claims.
Stephens moved for summary judgment, contending that he had obtained a valid stop-loss insurance policy for the Union from the Carlisle Insurance Company (Carlisle), which is not a party to this action, and that, in any event, the Union has suffered no damage because no excess claims ever arose against the risk which would have been insured by such a policy. Stephens was joined in his motion for summary judgment by Thomas Delany, Beverly Delany, and Delany Insurance Agency, Inc., (Delany), Thomas Delany once having been the Union's health benefit plan administrator and a business partner of Stephens.
The Bankruptcy Court, pursuant to local practice in the Central District of California, entered findings of fact and conclusions of law and granted summary judgment in favor of Stephens. The Union appeals.
The Union is a voluntary, unincorporated association representing approximately 1,000 public employees employed by various municipalities in Fresno and Madera counties in California. In 1980, in order to provide health insurance benefits for its members in these two counties, Local 2051 established a self-funded employee benefit plan known as the American Federation of State, County and Municipal Employees Local 2051 Health Benefit Plan (Plan). Members of the Executive Board of Local 2051 serve as trustees of the Plan.
The Plan was administered by Delany under a written "Agreement for Risk Management Services" dated August 7, 1980 between Delany Insurance Agency, Inc., a Risk Management Services Organization (RMSO),1 and the Union. Pursuant to Paragraph I.7 of that agreement, RMSO was to act as "Broker of Record" in representing the Union in obtaining "all required stoploss and life insurance coverages."
The Union, in a separate written agreement with David Stephens, dated August 4, 1980, referred to him as "Consultant" and described him as "an individual engaged in the business of consulting and documenting self-funded plans of the type required by the CLIENT Union at this time." Paragraph 7 of that agreement provides: "CONSULTANT Stephens will assist CLIENT Union and the contracted Risk Management Services Organization in coordinating the obtaining of appropriate stoploss and life coverage as a part of the self-funded plan."
The purpose of stop-loss insurance coverage, according to the Union's complaint, was to protect the Plan from extraordinary individual or aggregate claims which might otherwise exhaust the Plan's assets. Stephens' affidavit explains that "aggregate" stop-loss insurance is group deductible insurance. If the group claims exceed the specified deductible, then the aggregate stop-loss insurance policy takes over. "Specific" stop-loss insurance, on the other hand, refers to personal deductibles. If one person covered by the plan has total claims exceeding a specified deductible, then the specific stop-loss insurance policy takes over. According to Stephens' affidavit, stop-loss insurance coverage for self-funded insurance programs was his particular area of expertise.
At issue in this appeal is the validity of an aggregate "Stoploss Agreement" dated July 1, 1982, which was executed by Stephens purportedly on behalf of Carlisle and by Vernon Neuman on behalf of the Union. Stephens was an appointed agent and underwriting manager for Carlisle from January 1 through September 10, 1982, but the parties dispute his authority to issue this alleged policy on behalf of Carlisle. This question will be explored in further detail below.
It is undisputed, however, that Carlisle never received any of the money that the Union paid to Stephens as premiums for the alleged policy. The parties dispute whether Stephens was legally entitled to retain any of this money, another question that will also be explored in further detail below.
Both parties agree that Stephens used some of the money he received from the Union — $38,922.76 — to obtain a specific stop-loss insurance policy, effective September 1, 1982, from Republic National Life Group Insurance Company (Republic), which is not a party to this action. The Union's complaint takes this sum into account, but alleges that it was without any stop-loss coverage between June and August 1982 as a result of its reliance upon Stephens' misrepresentations and that Stephens' indebtedness to it for the remaining $48,204.92 is nondischargeable.
Rule 56 of the Federal Rules of Civil Procedure, pertaining to summary judgment, applies to adversary proceedings in bankruptcy. BR 7056. A reviewing court will affirm a grant of summary judgment only if it appears from the record, after viewing all evidence and factual inferences in the light most favorable to the nonmoving party, that there are no genuine issues of material fact and that the moving party is entitled to prevail as a matter of law. Heiniger v. City of Phoenix, 625 F.2d 842, 843 (9th Cir.1980).
Summary judgment is not to be granted lightly and is not a substitute for the trial of disputed issues of fact. In re Combs, 40 B.R. 148, 151 (Bankr.W.D.Va.1984). Fraud claims, in particular, normally are so attended by factual issues (including those related to intent) that summary judgment is seldom possible. Garter-Bare Co. v. Munsingwear, Inc., 650 F.2d 975, 981 (9th Cir.), cert. denied, ___ U.S. ___, 105 S.Ct. 381, 83 L.Ed.2d 316 (1980). In nondischargeability actions, particularly, the Bankruptcy Court is reluctant to draw factual inferences relating to state of mind when ruling on motions for summary judgment. In re Toscano, 23 B.R. 736, 740 (Bankr.D.Mass.1982).
The summary judgment before us is accompanied by Findings of Fact and Conclusions of Law, which may be dispensed with pursuant to Fed.R.Civ.P. 52(a), made applicable in adversary proceedings through B.R. 7052. Because of the nature of summary judgment, such "findings" are not findings of fact in the conventional sense that the trial court has weighed the evidence and resolved disputed factual issues. The "clearly erroneous" standard of B.R. 8013 is therefore inapplicable.2See Heiniger, supra, at 844; Tygrett v. Washington, 543 F.2d 840, 844 n. 17 (D.C.Cir. 1974); 9 Wright & Miller, Federal Practice and Procedure § 2575 at 693 (1971). Rather, this court stands in the same position as the court below in applying the standards set forth in Rule 56(c). See 10 Wright, Miller & Kane, Federal Practice and Procedure § 2716 at 643 (2d ed. 1983).
We also must reject Stephens' contention that because this is a bankruptcy case, the normal summary judgment rules — particularly the requirement that we view the evidence and draw any factual inferences in the light most favorable to the nonmoving party — do not apply. It is true that the burden of proving nondischargeability is upon the one alleging it. It is also true that the statutory exceptions in Section 523 are to be strictly construed against the objecting creditor and liberally in favor of the debtor. See In re Klapp, 24 B.R. 598, 599 (Bankr. 9th Cir.1982). These rules, however, are more appropriately applied in the context of a trial or hearing on disputed issues of fact, and cannot operate to suspend the normal rules pertaining to review of the granting of summary judgment.
It is apparent that the primary issue before us is whether any genuine issues of material fact exist that would preclude entry of summary judgment. This panel has before it for review the record considered by the court below. This record consists primarily of the complaint, the answer, the motion for summary judgment, the parties' legal memoranda, the supporting affidavit of David Stephens, and three opposing affidavits submitted by the Union: that of Sara Hedgpeth-Harris, an employee of counsel for the Union; that of Arthur C. Lopez, a Union member and a member of its executive board since September 1980; and that of Frank V. McCullough, the president of Carlisle.
All three of the claims asserted in the Union's complaint involve the element of intent, whether it is the intent to deceive under § 523(a)(2)(A) (see, e.g., In re Norton, 34 B.R. 666 (Bankr.D.Ariz.1983)); or the...
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