John Deere Co. v. Epstein

• Decision Date: 18 May 1988
• Citation: 91 Or.App. 195,755 P.2d 711
• Parties: JOHN DEERE COMPANY, a Delaware corporation, Respondent-Cross-Appellant, v. Michael P. EPSTEIN, Respondent-Cross-Respondent, Stephen J. Haddix, Appellant-Cross-Respondent. 35203; CA A36833.
• Court: Oregon Court of Appeals

Page 711

755 P.2d 711

91 Or.App. 195

JOHN DEERE COMPANY, a Delaware corporation, Respondent-Cross-Appellant, v. Michael P. EPSTEIN, Respondent-Cross-Respondent Stephen J. Haddix, Appellant-Cross-Respondent.

35203; CA A36833.

Court of Appeals of Oregon.

Argued and Submitted Oct. 26, 1987.

Decided May 18, 1988.

Brian J. MacRitchie, Bend, argued the cause for appellant-cross-respondent. With him on the brief was MacRitchie & Lewis, Bend.

Dennis J. Heil, Portland, argued the cause for respondent-cross-appellant. With him on the brief was Janice M. Stewart and McEwen, Gisvold, Rankin & Stewart, Portland.

Terrance O'Sullivan, Bend, waived appearance for respondent-cross-respondent.

Before WARDEN, P.J., JOSEPH, C.J., ^* and RICHARDSON, J.

WARDEN, Presiding Judge.

Defendant Haddix appeals from a judgment entered against him on a claim for fraud. He contends that the trial court erred in ruling that his discharge in bankruptcy was not available as a defense and in holding that there was clear and convincing evidence of fraud. On cross-appeal, plaintiff contends that the trial court erred in awarding defendant Epstein attorney fees pursuant to ORS 20.096. We affirm on the appeal and reverse on the cross-appeal.

In July, 1981, Epstein purchased a tractor manufactured by plaintiff from Bend Turf and Tractor, Inc., where Haddix worked as a salesman. Epstein dealt with Haddix during the transaction. He made a down payment and financed the balance of the purchase price through plaintiff. Plaintiff received a retail installment contract which showed Epstein as the purchaser and debtor with both his name and Haddix's signed at the bottom. Epstein made all required payments on the equipment until May, 1982, when he defaulted. Plaintiff's repossession and sale of the tractor in January, 1983, resulted in a deficiency of $6,649.50 under the installment contract.

On December 9, 1982, Haddix filed a chapter 7 bankruptcy. The schedule of unsecured creditors listed plaintiff but showed the amount and date of the debt as "unknown" and left blank the space for description of the consideration or the basis of plaintiff's claim. Plaintiff did not file for an exception from the discharge. On February 7, 1983, Haddix received a discharge.

In September, 1983, plaintiff brought this action against Epstein to collect the deficiency owing on the contract. When his deposition was taken, Epstein denied having signed the contract. In October, 1984, after plaintiff learned of the possible forgery of Epstein's signature on the installment contract, it amended its complaint to add Haddix as a defendant on the claim for fraud in allegedly forging Epstein's signature on the contract before it was assigned to plaintiff. Haddix's answer raised his discharge in bankruptcy as an affirmative defense. The trial court ruled: "The third affirmative defense of bankruptcy does not avail Haddix in the face of this fraud claim." After trial, the court held that plaintiff could not recover against Epstein but found that the fraud claim against Haddix had been established by clear and convincing evidence.

On appeal, Haddix contends that the trial court had no jurisdiction to determine whether plaintiff's claim against him was discharged in bankruptcy. He relies on 11 U.S.C. § 523(a)(2)(A) and (C), which give the bankruptcy court exclusive jurisdiction to except debts from discharge on the basis of the debtor's fraud. It is not clear from the record, however, what the basis was for the court's holding that Haddix's discharge was not available as an affirmative defense. That does not matter, because there is a valid basis for the court's concluding that it had jurisdiction, and it was correct in its determination that Haddix's bankruptcy discharge did not provide an affirmative defense.

In its trial memorandum, plaintiff argued:

"Defendant Haddix has alleged his discharge in bankruptcy as an affirmative defense to plaintiff's claim against him. This defense fails for two reasons. First, plaintiff had no claim against defendant Haddix at the time he filed his petition in bankruptcy, and, thus, the claim cannot be discharged. Second, even if plaintiff had a claim against defendant Haddix at the time of his bankruptcy, such claim was not listed by defendant Haddix in his bankruptcy schedules and plaintiff was not aware of such claim. Therefore, it is excepted from discharge."

We need only address the first argument. Without some express provision conferring exclusive jurisdiction on the bankruptcy court, concurrent jurisdiction exists between it and other courts on dischargeability issues. Goss v. Goss, 722 F.2d 599 (10th Cir.1983); Pares v. Pares, 428 F.Supp. 1005 (E.D.Wis.1977). Unlike the exception from discharge for a debt based on fraud, a determination that a debt is discharged on the ground that it did not exist when the bankruptcy petition was filed is not one over which the bankruptcy court has exclusive jurisdiction. See 11 U.S.C. § 523. Therefore, the trial court had jurisdiction to decide the issue.

Haddix's discharge under chapter 7 was effective to discharge him "from all debts that arose before the date of the order for relief * * *." 11 U.S.C. § 727(b). "Debt" is defined by the Bankruptcy Code as "liability on a claim." 11 U.S.C. § 101(11). "Claim" is defined generally as a "right to payment." 11 U.S.C. § 101(4). However, "right to payment" is not defined, and the question of whether a party has a right to payment against the debtor is to be determined by reference to state law. Vanston Committee v. Green, 329 U.S. 156, 161, 67 S.Ct. 237, 239, 91 L.Ed. 162 (1946); Matter of M. Frenville Co., Inc., 744 F2d 332 (3rd Cir.1984), cert. den. 469 U.S. 1160, 105 S.Ct. 911, 83 L.Ed. 925 (1985).

Although the alleged forgery occurred before Haddix's bankruptcy filing, the fraud claim did not exist until all of the elements of fraud had occurred, including damage to plaintiff. See Meader v. Francis Ford, Inc., 286 Or. 451, 595 P.2d 480 (1979). There was no damage to plaintiff until, at the earliest, the tractor was repossessed and sold and a deficiency determined under the retail installment contract, which occurred in January, 1983. Because plaintiff's fraud claim had not yet come into existence as a debt at the time of Haddix's bankruptcy filing, it could not be discharged in the bankruptcy proceeding. The trial court did not err in holding that Haddix's discharge in bankruptcy was not available as an affirmative defense.

Next, Haddix argues that the trial court erred in finding that there was clear and convincing evidence that he had committed fraud. Haddix testified:

"Q Do you recall a transaction in July 1981 which Mr. Epstein came to you and you negotiated with him for the purchase of a Model 2240 tractor, a 145 loader and 1650 backhoe?

"A I do.

"Q Weren't you the salesman handling the transaction on behalf of Bend Turf & Tractor?

"A That is a good question. I can't tell you to be specific there was--there were two or three of us at the time.

" * * *

"Q Do you recall calling [plaintiff] at the office in Portland to obtain prior approval to the proposed financing arrangement?

"A No, I do not remember calling them.

"Q I hand you Plaintiff's Exhibit 1, which is designated a retail installment contract. Do you recognize your signature at the bottom of that contract form?

"A I recognize mine.

"Q Does this refresh your recollection as to the transaction with Mr. Epstein?

"A At this point I refuse to answer any more questions on the grounds of the Fifth Amendment."

Haddix's attorney explained to the court:

"It is clear that Mr. Haddix is being put in a position here whereby if he acknowledges he forged somebody else's signature on a document on which purports to be evidence of a debt that constitutes Forgery in the First Degree.

"If he is forced to deny it that also sets him up for prosecution for a perjury * * *."

Epstein testified that he dealt with Haddix on the transaction and that he had not authorized anyone to sign his name on the document.

Haddix contends that the only way the trial court could have found clear and convincing evidence of fraud was by drawing an adverse inference from his assertion of his Fifth Amendment right. He concedes that there is no federal constitutional prohibition against drawing an adverse inference from an assertion of the Fifth Amendment in civil cases. See Baxter v. Palmigiano, 425 U.S. 308, 96 S.Ct. 1551, 47 L.Ed.2d 810 (1976); Brink's, Inc. v. City of New York, 717 F.2d 700 (2d Cir.1983); Farace v. Independent Fire Ins. Co., 699 F.2d 204, 210 (5th Cir.1983); Cabral-Avila v. Immigration and Naturalization Serv., 589 F.2d 957 (9th Cir.1968), cert. den. 440 U.S. 920, 99 S.Ct. 1245, 59 L.Ed.2d 472 (1979). He relies solely on OEC 513:

"(1) The claim of privilege, whether in the present proceeding or upon a prior occasion, is not a proper subject of comment by judge or counsel. No inference may be drawn from a claim of privilege.

" * * *

"(3) Upon request, any party against whom the jury might draw an adverse inference from a claim of privilege is entitled to an instruction that no inference may be drawn therefrom."

Haddix argues that the rule prohibits making adverse inferences from a claim of any constitutional privilege. According to the official commentary, however, the statute does not apply to constitutionally based privileges:

"Oregon Rule of Evidence 513 prohibits any comment upon a claim of privilege, and mandates procedures to avoid any inference to a jury based on such a claim. The rule is identical to proposed Rule 513 of the Federal Rules of Evidence.

"The Legislative Assembly approves the following note of the federal advisory committee:

" '[Subsection (1).] In Griffin v. California, 380 U.S. 609, 614, 85 S.Ct. 1229 [1233], 14 L.Ed.2d 106 (1965), the Court pointed out that allowing comment upon the claim of a privilege "cuts down on the privilege by making its...