In re Tomsic

Decision Date19 March 1987
Docket NumberAdv. No. 85-6121.,Bankruptcy No. 85-61244
Citation104 BR 22
PartiesIn re Robert Dean TOMSIC, Debtor. Joseph GELLENBECK, Terry Gellenbeck, Plaintiff(s), v. Robert Dean TOMSIC, Defendant.
CourtU.S. Bankruptcy Court — Northern District of Indiana

COPYRIGHT MATERIAL OMITTED

David Chidester, Valparaiso, Ind., for defendant.

Michael Muenich, Highland, Ind., for plaintiffs.

MEMORANDUM OPINION AND ORDER

KENT LINDQUIST, Chief Judge.

I Statement of Proceedings

On November 29, 1985, Joseph Gellenbeck and Terry Gellenbeck (hereinafter: "Plaintiffs") filed their Adversarial Complaint and Objection to Discharge in Bankruptcy before this Court. The complaint prays that a certain state court judgment entered in favor of the Plaintiffs and against the Defendant in the Lake Superior Court, Civil Division, sitting in Gary, Indiana, under cause no. 577-1330, captioned "Joseph Gellenbeck and Terry Gellenbeck versus Tomsic Construction Company and Tomsic & Son Builders, Inc.; Tomsic Construction Company and Tomsic & Son Builders, Inc. versus Joseph Gellenbeck and Terry Gellenbeck", on the 2nd day of August, 1982 which awarded compensatory damages in the sum of $25,979.02 to the Plaintiffs along with punitive damages in the sum of $25,979.02 to the Plaintiffs be determined nondischargeable pursuant to 11 U.S.C. § 523(a)(2) and § 523(a)(6) and that the general discharge of the Defendant be denied pursuant to 11 U.S.C. § 727 based upon the judgment entered in the state court. The specific portion of § 727 upon which the Plaintiffs rely was not specified by the Plaintiffs. On January 2, 1986, the Defendant filed his answer asserting that the Defendant disputes the findings of facts and conclusions of law submitted to the state court, which at the time of the motion were not yet approved by the state court, and that even if approved by the state court the proposed findings and conclusions, which present the facts in a most favorable manner to the Plaintiffs as matter of law create a dischargeable debt pursuant to § 727. The Defendant's amended motion for summary judgment admits that the proposed findings of fact and conclusions of law were in fact signed by the state court judge and that the judgment was in fact entered after a trial on the merits rather than by default.

The Defendant further asserts in his supporting memorandum that pursuant to Indiana law an award of punitive damages in a breach of contract action is not permitted unless fraud is proven by clear and convincing evidence, citing Traveler's Indemnity Co. v. Armstrong, 442 N.E.2d 349 (Ind.S.Ct.1982) and Canada Dry Corp. v. Nehi Beverage Co., 723 F.2d 512 (7th Cir. 1983). The Defendant then filed a motion for summary judgment on January 21, 1986 which was amended on February 10, 1986. After one extension, and an amendment to the motion for summary judgment on March 10, 1986, the Plaintiffs filed a Memorandum In Opposition To The Motion For Summary Judgment. Attached to the Plaintiffs' memo was a copy of the August 2, 1982 state court judgment which recites that by order of the Supreme Court of Indiana, (said order being undesignated), the findings of facts and conclusions of law submitted by the Plaintiff were adopted and incorporated by reference into the judgment by the state court. Fifty Nine (59) findings of fact were made by the state court. Findings Numbered Fifty Seven (57) and Fifty Eight (58) states as follows:

57. That the defendant, Robert Tomsic, d/b/a Tomsic Construction Company and/or Tomsic and Sons Builders, Inc. materially misrepresented the value of allowances made and failed to set forth based upon their experience and expertise, the true cost of constructing the single family dwelling for the Gellenbecks.
58. That the defendant, Robert Tomsic, and/or Tomsic and Sons Construction Company, Inc. is liable to the plaintiffs, Gellenbecks, for the their actual damages and in addition thereto are entitled to damages for aggravation and punitive damages as a result of their willful and wanton refusal to transfer and complete the sale of real estate as provided in the contract of July 6, 1976.

The Court also made twenty (20) conclusions of law. Conclusions of law thirteen, (13), fifteen (15), sixteen (16) and eighteen (18) state as follows:

13. The circumstances giving color to a wrongful act may be considered as bearing on the measure of damages and where the elements of aggravation are present, greater damages may be awarded.
15. That the defendant, Robert Tomsic, d/b/a Tomsic Construction Company and/or Tomsic and Son Builders, Inc. aggravated the damages of the plaintiff, by refusing plaintiffs tender and by refusing to grant possession of the home upon payment of all monies claimed, subject only to the deposit of the disputed moneies (sic) in escrow or with the court.
16. That as a result of the plaintiffs attempt to mitigate and the defendants aggravation, the plaintiffs are entitled to special and punitive damages as prayed for in their complaint.
18. That Robert Tomsic, d/b/a Tomsic Construction Company and/or Tomsic and Sons Construction Company, Inc. maintains the expertise and experience in the construction of single family dwellings having constructed four hundred to six hundred single family dwellings and as a result thereof is charged with having the knowledge and familiarity of the industry and is or should be familiar with respective costs, practices, trades and expenses and as a result thereof, deliberately and/or carelessly and negligently underestimated or mistated (sic) variance allowances as set forth in the contract of July 6, 1976 and as a result thereof is not to charge overages therefore as extras.

The Plaintiffs noted that the Defendant in his Motion for Summary Judgment misstated the records that the Plaintiffs' findings of fact and conclusions of law were not adopted by the state court in that the state court's judgment of August 2, 1982, expressly adopted and incorporated the Plaintiffs' proposed findings of fact and conclusions of law. The Court judicially notes that this clearly appears to be the case based upon the copy of the judgment and proposed findings of fact and conclusions of law attached to both the Plaintiffs' complaint and the Plaintiffs' memorandum in opposition to Motion for Summary Judgment.

The Plaintiffs further noted in said memo that the case was fully tried on the merits by a bench trial on May 16th and 17th and August 29th, 30th and 31st, 1978, that the Defendant's Motion to correct errors filed by the Defendant on September 29, 1982, was denied by the state court on June 21, 1984, and that no appeal was taken by the Defendant therefrom. (Exhibits "C" and "D" to Plaintiffs' memorandum in opposition to motion for summary judgment).

The Plaintiffs assert that the Indiana Supreme Court first allowed punitive damages for fraud arising out of a consumer contract where the conduct of a party in breaching his contract also independently establishes the elements of common law tort in the case of F.D. Borkholder Co. Inc. v. Sandock, 274 Ind. 612, 413 N.E.2d 567 (Ind.App.1980). See also, Art Hill Ford v. Callander, 423 N.E.2d 601 (Ind. 1981). The Plaintiffs also pointed out that the Seventh Circuit Court of Appeals in J. Yanan Associates Inc. v. Integrity Ins. Co., 771 F.2d 1025 (7th Cir.1985) in discussing the issue of the allowance of punitive damages for breach of contract stated that Indiana is practically alone among the states in allowing punitive damages for breach of contract.

Simultaneously, the Plaintiffs moved for summary judgment based upon the state court judgment noted above. On March 31, 1986, the Defendant filed his Defendant's Reply Brief In Opposition To Plaintiff's Motion For Summary Judgment.

The Defendant asserts therein that the F.D. Borkholder Co., and Art Hill cases cited by the Plaintiff as to punitive damages both apply the standard of proof of a fair preponderance of the evidence and are prior to the Travelers case which enunciated the clear and convincing standard before punitive damages can be awarded. The Defendant also cites the case of Continental Casualty Company v. Howard, 775 F.2d 876 (7th Cir.1985) for the proposition that in applying the clear and convincing standard, punitive damages should not be awarded where the evidence is based only on allegations of fraud and malice.

This matter appears to arise from a contract between the Plaintiffs and Defendant for the construction of the home. Pursuant to that contract, the Defendant was to construct and sell a single family dwelling and lot to the Plaintiffs for a set sum. At some point, it is alleged that the contract was breached precipitating a state court action. The state court action apparently was very involved. It appears that a judgment was entered in a lower court, subsequently reversed on some grounds by the Supreme Court of the State of Indiana, reheard by a different trial court which subsequently entered the judgment noted above. The Defendant sought to have that judgment corrected through state court procedures. The court declined to correct its judgment. Subsequently, the Defendant then filed bankruptcy before this Court. The Plaintiffs have now brought this action to determine the dischargeability of the debt based upon the state court judgment.

II Conclusions of Law

No objections were made by the parties to the jurisdiction of this Court and the Court finds this is a core proceeding pursuant to 28 U.S.C. § 157.

A. Defendant's Motion For Summary Judgment.

We first address the Defendant's Motion for Summary Judgment. We note at the outset that no affidavits were submitted with the motion for summary judgment. It appears that the Defendant is maintaining that he should be accorded summary judgment as a matter of law and that there are no issues of fact pending, but merely questions of law. The Defendant appears to maintain that there are three basis for awarding of...

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