Iudice v. Murphy (In re Murphy), Bk. No. 17-10500-BAH

• Decision Date: 26 March 2018
• Docket Number: Adv. No. 17-1055-BAH,Bk. No. 17-10500-BAH
• Parties: In re: Kevin C. Murphy and Sharon M. Murphy, Debtors Cheryl Iudice, Plaintiff v. Kevin C. Murphy, Defendant
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of New Hampshire

2018 BNH 004

In re: Kevin C. Murphy and Sharon M. Murphy, DebtorsCheryl Iudice, Plaintiff v. Kevin C. Murphy, Defendant

Bk. No. 17-10500-BAH

Adv. No. 17-1055-BAH

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW HAMPSHIRE

March 26, 2018

Note: This is an unreported opinion. Refer to LBR 1050-1 regarding citation.

Chapter 7

Christopher M. Candon, Esq.

Sheehan, Phinney, Bass + Green, PA

Manchester, New Hampshire

Attorney for Plaintiff

Arthur O. Gormley, III

Gormley & Gormley, PC

Nashua, New Hampshire

Attorney for Debtor/Defendant

MEMORANDUM OPINION

I. INTRODUCTION

Cheryl Iudice (the "Plaintiff") filed a two-count complaint (Doc. No. 1) (the "Complaint") seeking to except a state court judgment debt owed by Kevin Murphy (the "Defendant") from Murphy's discharge pursuant to 11 U.S.C. § 523(a)(2)(A) (Count I) and/or § 523(a)(6) (Count II). After being served with the Complaint, the Defendant filed an answer (Doc. No. 6) (the "Answer"). Thereafter, the Plaintiff filed a motion under Rule 12(c) of the Federal Rules of Civil Procedure, made applicable by Rule 7012(b) of the Federal Rules of Bankruptcy Procedure, seeking judgment on the pleadings with respect to both counts of the Complaint (Doc. No. 14). The Defendant filed a cross-motion seeking judgment only as to Count I (Doc. No. 18). The Court heard argument on the motions and took them under advisement.

This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and Local Rule 77.4(a) of the United States District Court for the District of New Hampshire. This is a core proceeding in accordance with 28 U.S.C. § 157(b).

II. JUDGMENT ON THE PLEADINGS STANDARD

A motion for judgment on the pleadings is governed by Rule 12(c), which provides: "After the pleadings are closed—but early enough not to delay trial—a party may move for judgment on the pleadings." Fed. R. Civ. P. 12(c); see Best v. Nationstar Mortg. LLC (In re Best), 540 B.R. 1, 7 (B.A.P. 1st Cir. 2015). Thus, a party may move under Rule 12(c) once the defendant has filed his answer. Rezende v. Ocwen Loan Servicing, LLC, 869 F.3d 40, 42 n.3 (1st Cir. 2017).

A motion for judgment on the pleadings under Rule 12(c) is treated much like a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Best, 540 B.R. at 7 (citing Curran v. Cousins, 509 F.3d 36, 43 (1st Cir. 2007)). A motion for judgment on the pleadings examines "the undisputed factual record expanded by the defendant's answer to determine the merits of the claim as revealed in the formal pleadings." Pimental v. Wells Fargo Bank, N.A., C.A. No. 14-494S, 2015 WL 5243325, *4 (D.R.I. Sept. 4, 2015) (quoted in Best, 540 B.R. at 7). Courts must accept all of the non-moving party's well-pleaded facts as true and draw all reasonable inferences in favor of the non-moving party. Rezende, 869 F.3d at 42. "[A] court may enter judgment on the pleadings only if the properly considered facts conclusively establishthe movant's point." R.G. Fin. Corp. v. Vergara-Nunez, 446 F.3d. 178, 182 (1st Cir. 2006) (quoted in Best, 540 B.R. at 8).

In ruling on a motion for judgment on the pleadings, courts are entitled to look at the pleadings, any exhibits attached to the pleadings, and any documents sufficiently referenced in the pleadings. Best, 540 B.R. at 8. In addition, courts may take judicial notice of any entries on the dockets of the main bankruptcy case and any adversary proceeding as well as the claims register. Id.

III. BACKGROUND

The Court draws the following factual background from the Complaint, the Answer, and a decision issued by a Massachusetts state court (the "State Court") on December 22, 2016, in the underlying litigation between the parties (the "State Court Decision").¹ The Plaintiff and the Defendant were family friends. The Plaintiff inherited a home from her father in Saugus, Massachusetts. She contacted the Defendant, who had a construction and remodeling business in New Hampshire, about the possibility of doing some work on the property. In connection with these discussions, the Plaintiff paid a $10,000.00 deposit to the Defendant on September 5, 2012. The Defendant assured the Plaintiff that the deposit was refundable; however, the only writing memorializing this deposit was a receipt signed by the Defendant which simply acknowledged payment of $10,000.00 for "Deposit on future one or two family contract for scheduling purposes." The Plaintiff decided not to go through with the project and, on October 9, 2012, requested that the Defendant return the deposit. The Defendant refused to return the deposit. On March 5, 2013, the Plaintiff's attorney sent the Defendant a letter demanding the return of thedeposit. The Defendant once again refused to refund the deposit. On January 29, 2014, the Plaintiff's attorney sent the Defendant a demand letter pursuant to Massachusetts General Laws Chapter 93A ("Chapter 93A"). The Defendant once again refused to return the deposit and made no offer of settlement.

Thereafter, the Plaintiff sued the Defendant in State Court. After a jury-waived trial, the State Court issued the State Court Decision addressing each of the Plaintiff's seven claims.² The State Court concluded that the Defendant had been unjustly enriched in the amount of $10,000.00, the amount of the deposit she paid to the Defendant, as the Defendant did not perform any services or other work for the Plaintiff, he did not purchase any materials, and he did not pay any subcontractors. He simply prepared an estimate for the Defendant. The State Court also concluded that the Defendant violated Chapter 93A by collecting a $10,000.00 deposit "without a clear writing detailing the circumstances under which the deposit might be withheld or forfeited" and by his "failure to return the deposit upon demand, where the defendant had performed no services nor provided any materials to the plaintiff prior to her demand for return of the deposit." The State Court further found that the Defendant's "failure to return the deposit, or to make any offer of settlement, after three written demands, including the Chapter 93A demand letter sent to him in January 2014" entitled the Plaintiff to recover multiple damages and attorney's fees. The State Court doubled the Plaintiff's damage award to $20,000.00. He also awarded $30,000.00 in attorney's fees plus statutory interest and costs. Atthe time the judgment entered on December 22, 2016, the Defendant owed the Plaintiff $57,915.05.

The Defendant filed chapter 7 bankruptcy on April 6, 2017. The Plaintiff filed a non-dischargeability complaint on July 10, 2017, seeking to except the judgment from discharge pursuant to § 523(a)(2)(A) and (a)(6). At the time the adversary proceeding was filed, the Debtor's obligation to the Plaintiff had increased to $61,853.36.

III. DISCUSSION

The Plaintiff contends that collateral estoppel entitles her to a ruling by this Court that the Defendant's debt should be excepted from discharge pursuant to § 523(a)(2)(A) and (a)(6) based on the findings and rulings in the State Court Decision. The Defendant denies that collateral estoppel entitles her to such a ruling and contends that, instead, he is entitled to judgment in his favor with respect to the Plaintiff's claim under § 523(a)(2)(A) based on the State Court Decision.³

A. Issue Preclusion

The Court notes preliminarily that the ordinary rules of issue preclusion and claim preclusion apply in most actions in bankruptcy, including adversary proceedings under § 523(a) to except debts from discharge. McCory v. Spigel (In re Spigel), 260 F.3d 27, 33 (1st Cir. 2001) (citing Grogan v. Garner, 498 U.S. 279, 284 n.11 (1991); FDIC v. Shearson-American Express, Inc., 996 F.2d 493, 497 (1st Cir. 1993)); see Backlund v. Stanley-Snow (In re Stanley-Snow), 405 B.R. 11, 18 (B.A.P. 1st Cir. 2009); Chapman v. Tracey (In re Tracey), 250 B.R. 468, 471(Bankr. D.N.H. 2000). Bankruptcy courts look to state law to determine the preclusive effect of a prior state court judgment. Spigel, 260 F.2d at 33 (citing New Hampshire Motor Transp. Ass'n v. Town of Plaistow, 67 F.3d 326, 328 (1st Cir. 1995)); Stanley-Snow, 405 B.R. at 18 (citing Marrese v. Am. Academy of Orthopaedic Surgeons, 470 U.S. 373 (1985) (stating the "full faith and credit" statute of 28 U.S.C. § 1738 "directs a federal court to refer to the preclusion law of the State in which the judgment was rendered.")). Because the State Court Decision was issued in Massachusetts, the Court must look to Massachusetts law to determine its preclusive effect.

The United States Bankruptcy Appellate Panel for the First Circuit (the "First Circuit BAP") has explained that issue preclusion applies under Massachusetts law when:

1. there was a final judgment on the merits in the prior adjudication;

2. the party against whom preclusion is asserted was a party (or in privity with a party) to the prior adjudication;

3. the issue in the prior adjudication was identical to the issue in the current adjudication; and

4. the issue decided in the prior adjudication was essential to the earlier judgment.

O'Rorke v. Porcaro (In re Porcaro), 545 B.R. 384, 395 (B.A.P. 1st Cir. 2016) (citations and quotations omitted). In addition, courts must find that appellate review of the state court decision was available. Id. The party asserting the doctrine has the burden of proving that all of the requirements have been met. Id.

The record in this case is clear that a final judgment on the merits issued in the State Court suit (which was a suit between the Plaintiff and the Defendant) and that appellate review of the State Court Decision was available. Thus, the only potential bars to the application of issue preclusion in this proceeding are whether the issues in the two proceedings are identical and whether the matters decided in the State Court were essential to the State Court Decision.

B. Non-Dischargeability under 11 U.S.C. § 523(a)(2)(A)

Section 523(a)(2)(A) specifically excepts from discharge ...