In re White

• Decision Date: 02 March 2007
• Docket Number: Adversary No. 06-8002.,Bankruptcy No. 05-42598.
• Citation: 363 B.R. 157
• Parties: In re Rebecca Nuttall WHITE, Debtor. Darwin Jensen, Plaintiff, v. Rebecca Nuttall White, Defendant.
• Court: U.S. Bankruptcy Court — District of Idaho

363 B.R. 157

In re Rebecca Nuttall WHITE, Debtor Darwin Jensen, Plaintiff, v. Rebecca Nuttall White, Defendant.

Bankruptcy No. 05-42598.

Adversary No. 06-8002.

United States Bankruptcy Court, D. Idaho.

March 2, 2007.

COPYRIGHT MATERIAL OMITTED

A. Elizabeth Burr-Jones, Burr-Jones Law Office, Burley, ID, Attorney for Plaintiff.

Rebecca Nuttall White, Twin Falls, ID, Pro Se Defendant.

MEMORANDUM OF DECISION

JIM D. PAPPAS, Bankruptcy Judge.

Introduction

Darwin Jensen ("Plaintiff') filed a Complaint to Determine Dischargeability of Debt. Docket No. 1. In it, he alleged that chapter 7 debtor Rebecca Nuttall White ("Defendant") willfully and maliciously gelded a stallion owned by Plaintiff, and that the damages he suffered as a result, constitute a claim excepted from discharge in Defendant's bankruptcy case. The Court conducted a trial at which the parties appeared and presented evidence, testimony and argument. After due consideration of the parties' submissions, as well as the applicable law, this Memorandum disposes of the issues raised in this action. Rules 7052; 9014.¹

Findings of Fact

Plaintiff and Defendant were married in February 2000.

Prior to the marriage, Plaintiff engaged in the manufacturing of vitamin and mineral supplements for horses, as well as breeding and raising quarter horses. He also raised feed for the horses. He continues to breed and raise horses at the present time.

Prior to the marriage, Defendant worked as a law enforcement officer in Utah for several years. Before that experience, since approximately age 20, she had been involved with, and received a steady income from, training horses.

When the parties married, Defendant moved to Idaho and took part in Plaintiffs horse business. During the marriage, Defendant made no decisions concerning the gelding of stallions as part of her role in the business.

In about March 2000, a colt was born in the parties' horse operation which they named Five Star Winken ("FSW"). Plaintiff considered FSW to be special for two reasons: first, he was a "dun" (i.e., buckskin in color), with a black mane and tail, black dorsal stripe and black legs; and second, he had a distinctive pedigree, in that FSW was a cross between the Winken Wayne line and the Jody Fairfax line of horses. While FSW's parents had not generated any particular amounts of income, nor accumulated any prize points through any of the various racing or roping organizations, his grandparents had both been, in Plaintiffs words, "famous" horses. Plaintiff felt FSW exhibited the features which made his grandparents famous: the speed of Winken Wayne and the cowhorse sense and speed of Jody Fairfax. In his opinion, this combination of brains and speed would make FSW desirable to those in the horse industry. He also thought FSW's prized color and markings made the horse more valuable.

In February 2002, the parties separated, and in March 2002, Defendant filed for divorce. Defendant lived on the premises where the horse operation was conducted until June 15, 2002, when she moved off the property. At that time, she took a horse trailer and five of the parties' horses with her, including FSW.²

At some point during the divorce proceedings, the parties stipulated to the appointment of a master, who examined the marital assets and appraised their value. Ex. A. Although the record is unclear as to exactly how it came about, the horses were appraised by a man named Wade Zollinger on September 3, 2002. Ex. F. Mr. Zollinger valued FSW, not yet gelded, at $1,000. Id. It is undisputed that Plaintiff later sold FSW for $1,500.

In October 2002, Defendant had FSW gelded. It is undisputed that Defendant gelded FSW without Plaintiffs consent. Indeed, the record includes evidence that Defendant e-mailed Plaintiff prior to doing so, and, that Plaintiff unequivocally directed her not to geld the horse. Shortly thereafter, Plaintiff retook possession of the horse, although he was later required by the state court to return him to Defendant.

A divorce decree was entered in February 2005. In its written opinion, the state court noted that the only argument between the parties concerning the division of their property was "over 27 horses, which are community property." Ex. A. FSW was included by the court in this collection of community horses. The court ultimately held that a sufficient number of the horses should be sold to pay the master's fee, and that the balance of the horses be awarded to Plaintiff. As a result, FSW, now gelded, was awarded to Plaintiff.

The same year the divorce became final, Plaintiff commenced an action in state court against Defendant to recover his alleged, damages resulting from the gelding of FSW. Thereafter, on October 6, 2005, Defendant filed her voluntary chapter 7 petition, and the state court action was stayed. Plaintiff commenced this adversary proceeding on January 6, 2006.

Conclusions of Law

I. Preclusion

Issue preclusion "prevents the relitigation of issues actually adjudicated in previous litigation between the same parties.'" Dominguez v. Elias (In re Elias), 03.4 I.B.C.R. 243, 246, 302 B.R. 900 (Bankr.D.Idaho 2003) (quoting Littlejohn v. United States, 321 F.3d 915, 923 (9th Cir.2003)). "The doctrine of issue preclusion `protect[s] the finality of decisions and prevent[s] the proliferation of litigation.'" Id. (quoting Littlejohn, 321 F.3d at 919).

The Supreme Court has held that issue preclusion applies in discharge contests. Id. (citing Grogan v. Garner, 498 U.S. 279, 284-85 n. 11, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991)); Roussos v. Michaelides (In re Roussos), 251 B.R. 86, 92 (9th Cir.BAP2000). A bankruptcy court must apply federal law to determine the preclusive effect of federal judgments and must apply the same preclusive effect to a state court decision as other courts of that state would afford it. Id.

Ordinarily, a party seeking to assert issue preclusion as a defense has the burden of proof. Berr v. Fed. Deposit Ins. Corp. (In re Berr), 172 B.R. 299, 306 (9th Cir.BAP1994). In order to meet its burden, the party must "introduce a record sufficient to reveal the controlling facts and pinpoint the exact issues litigated in the prior action. Any reasonable doubt as to what was decided by a prior judgment " should be resolved against giving it collateral estoppel effect." Id.

To determine the preclusive effect of the Idaho state court judgment this Court must apply Idaho state law. Elias, 03.4 I.B.C.R. at 247, 302 B.R. 900. Idaho law requires five factors to be met in order for a judgment to have preclusive effect:

(1) the party against whom the earlier decision is asserted had a full and fair opportunity to litigate the issue decided in the earlier case; (2) the issue decided in the prior litigation was identical to the issue presented in the present action; (3) the issue sought to be precluded was actually decided in the prior litigation; (4) there was a final judgment on the merits in the prior litigation; and (5) the party against whom the issue is asserted was a party or in privity with a party to the litigation.

Id. (citing Rodriguez v. Dep't of Correction, 136 Idaho 90, 29 P.3d 401, 404 (2001)).

During oral argument at the conclusion of the trial, the parties discussed whether Plaintiff's claims against Defendant are precluded by virtue of `the' state court divorce decree.³

In this case, any alleged damage to Plaintiff occasioned by the gelding of Plaintiff's prized stallion occurred prior to the conclusion of the divorce proceedings, and before the state court's order for the division of the parties' property — in fact, several years before the court's property division was finalized. FSW was community property, and was valued and awarded to Plaintiff in the state court proceedings. Therefore, the first element of issue preclusion is met: the Plaintiff had a full and fair opportunity to raise his claim, that Defendant had caused him financial damage by gelding FSW, in the state court divorce action.

The fourth and fifth factors of the test are also met, as it seems clear that there was a final adjudication on the merits in state court, and the parties to the divorce proceeding were the same as those before this Court.

As to the remaining two requirements, the Court simply cannot be sure. The difficulty with the application of the doctrine here is the inadequacy of the record from the state court action submitted to this Court. There is no evidence concerning whether the issue of the value of FSW as an item of property and as a part of Plaintiffs business in state court was identical to the issue presented here. Furthermore, this Court cannot discern whether FSW's value as a horse and as a part of Plaintiff's business was actually decided in the prior litigation. The record simply does not disclose whether Plaintiff raised the issue of the gelding of FSW, or its potential impact on his horse breeding business, in the divorce court. This Court cannot determine whether the divorce court even knew of the gelding, or if it took that fact into account when dividing the community property.⁴

As an exercise of caution, under these circumstances the Court will not speculate about whether the issue of FSW's value was actually decided by the state court. The Court will therefore not deem Plaintiffs claims against Defendant precluded.

II. The Elements of § 523(a)(6)

Under § 523(a)(6), a chapter 7 discharge does not discharge an individual debtor from any debt "for willful and malicious injury by the debtor to another entity or to the property of another entity[.]" 11 U.S.C. § 523(a)(6). "There are two separate and distinct causes of action in a nondischargeability proceeding: one is on the debt, as determined by state law, and the other is on the dischargeability of that debt, as determined by federal law." Roussos, 251 B.R. at 93 (citing In re McKendry, 40 F.3d 331, 337 (10th Cir. 1994)). Plaintiff must show Defendant acted both willfully and...