Martin v. Hauck (In re Hauck)

• Decision Date: 13 January 2012
• Docket Number: Bankruptcy No. 10–30894–SBB.,Adversary No. 10–01888–SBB.
• Citation: 466 B.R. 151
• Parties: In re Gary David HAUCK and Brenda Kay Hauck, Debtors.Stephanie M. Martin, Plaintiff, v. Gary David Hauck and Brenda Kay Hauck, Defendants.
• Court: U.S. Bankruptcy Court — District of Colorado

466 B.R. 151

In re Gary David HAUCK and Brenda Kay Hauck, Debtors.Stephanie M. Martin, Plaintiff,

v.Gary David Hauck and Brenda Kay Hauck, Defendants.

Bankruptcy No. 10–30894–SBB.

Adversary No. 10–01888–SBB.

United States Bankruptcy Court, D. Colorado.

Jan. 13, 2012.

Robert Vockrodt, Aurora, CO, for Debtors.

ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANTS' CROSS–MOTION FOR SUMMARY JUDGMENT

SIDNEY B. BROOKS, Bankruptcy Judge.

THIS MATTER is before the Court for consideration of:

(1) Stephanie M. Martin's (the “Plaintiff”) Motion for Summary Judgment (the “Plaintiff's Motion for Summary Judgment”); ¹

(2) the Defendants' Response thereto; ²

(3) the Plaintiff's Reply thereto; ³ and

(4) Gary David Hauck's and Brenda Kay Hauck's (the “Defendants”) Cross–Motion for Summary Judgment (the “Defendants' Cross–Motion for Summary Judgment”), ⁴ including the Defendants' Affidavit.⁵

I. Summary

This adversary proceeding concerns the dischargeability of a debt arising out of a stipulation (the “Stipulation”) to the entry of a judgment (the “Stipulated Judgment”) against the Defendants in the amount of $200,000.00 for “Deceit Based on Fraud ... and Civil Theft under [Colo.Rev.Stat.] § 18–4–401 ... as contained in Plaintiff's First Amended Complaint and Jury Demand ...” ⁶

Plaintiff asserts that the Stipulation and Stipulated Judgment whereby the parties agreed that the Stipulated Judgment would enter on the claims for “Deceit Based on Fraud” and “Civil Theft” establishes that the obligation is nondischargeable under 11 U.S.C. § 523(a)(2)(A) and 11 U.S.C. § 523(a)(4).

The Defendants acknowledge that the Stipulation and Stipulated Judgment did enter against them on the claims for “Deceit Based on Fraud” and “Civil Theft under Colo.Rev.Stat. § 18–4–401.” However, the Defendants' deny that the Stipulated Judgment should be binding and deemed nondischargeable under section 523 of the Bankruptcy Code. Further, the Defendants assert that they have little or no memory of any part of the mediation including any discussion about the Stipulation and Stipulated Judgment entering specifically on these two claims.

A fundamental question before the Court is whether the choice to agree to stipulate to judgment on two specific claims for relief—as contained in the state court complaint, wherein five claims for relief were sought—constitutes the parties' intent to be bound by the terms of the agreement in any subsequent actions.

If the Court construes the Stipulation as one in which the parties knew and understood, or intended, it to be binding and enforceable in the future, then the doctrine of issue preclusion (collateral estoppel) will bar the Court from re-litigating the issue. If, however, the Court cannot construe the Stipulation as such then the doctrine of issue preclusion does not bar this Court from addressing the issue on its merits. Based upon the facts of this case and for the reasons stated herein, this Court concludes that the parties did intend to be bound by the terms of the agreement in subsequent actions and that issue preclusion prevents this Court relitigating these matters.

II. Factual BackgroundA. Events Leading Up to State Court Litigation

The Plaintiff was the owner of record of two parcels of real property, including a single-family home, known by street and number as 5821 West 7th Avenue, Lakewood, Colorado (the “Property”). In 2006, the Plaintiff, who was then sixty years old, and had an annual income of $27,000, was experiencing difficulties in making payments on her adjustable rate mortgage on the Property, which had risen to approximately $2,400 per month.

The Plaintiff consulted the Defendants regarding her financial situation. The Defendants, both real estate agents, told the Plaintiff she could not qualify for a traditional mortgage loan and offered to purchase the Property from her in exchange for rent payments from the Plaintiff. The Defendants also offered the Plaintiff the option to repurchase the Property at a later date.

In September 2006, the Plaintiff and the Defendant, Gary D. Hauck, entered into a contract whereby:

(1) the Defendant, Gary D. Hauck, purchased the Property for $430,000,

(2) the Plaintiff paid the closing costs up to $12,000.00 and a $20,000 fee to the Defendant, Gary D. Hauck, and

(3) the Plaintiff gave the Defendant, Gary D. Hauck, her boat, and

(4) the contract provided that the Plaintiff would loan $138,000 to the Defendant, Gary D. Hauck, at a rate of 4%, with the remaining portion of the sale price financed by the Defendant, Gary D. Hauck.⁷ The contract stated that the loan would be secured by a second deed of trust on the property. The promissory note was to have a term of 40 years.

The closing on the sale of the Property was held on October 3, 2006. The settlement statement prepared prior to closing reflected that the buyers, who now included Defendant Brenda K. Hauck, had obtained a new loan in the amount of $292,000.00 from Mortgage Lenders Network USA, Inc., of Middletown, Connecticut (“First Lender”). The settlement statement also reflected that the second mortgage would be carried by Plaintiff in the amount of $138,000.00.

The $292,000.00 in financing obtained by Defendants was in the form of an adjustable rate mortgage with an initial rate of 8.6% with a monthly payment starting at $2,584.76, an amount greater than Plaintiff's previous mortgage payment.

Defendants took title to the Plaintiff's Property by way of a warranty deed dated October 2, 2006.

On October 3, 2006, the Defendants prepared a rental agreement pursuant to which the Plaintiff's mother, who was receiving $520.00 per month in housing assistance, authorized her housing assistance to be paid directly to the Defendants and to be applied to the mortgage payment. After deducting the $520.00 payment from the $2,584.76 monthly mortgage payment, the rental agreement called for the Plaintiff to pay the remaining $2,064.76 monthly rent. The Plaintiff did not sign the rental agreement but made payments pursuant to the agreement. The Defendants prepared an addendum to the rental agreement which purported to provide the Plaintiff with an option to repurchase the Property for $320,000 but was signed by only one of the Defendants.

At the time that the Defendants took title to the Property by way of a warranty deed dated October 2, 2006, the Defendants assured the Plaintiff she remained the true owner of the Property and should her financial condition fail to improve, the Defendants could sell the Property and pay the Plaintiff the net proceeds of the sale, less the $20,000 fee. This was not reduced to writing. After closing, the Defendants instructed the Plaintiff to sign the $138,000 note “paid in full” because “it had to be done,” which she did although she alleged the Defendants had not paid any portion on the note. ⁸ The Plaintiff alleges the Defendants forced her to sign the release. The Defendants failed to make mortgage payments on the Property despite the Plaintiff paying monthly rent. The Property was foreclosed by the First Lender.

B. The State Court Litigation, Bankruptcy Filing, and the Motions Presently before the Court

On July 20, 2007, Plaintiff sued Defendants by filing a Complaint (“State Court Action”) in the District Court for Jefferson County, Colorado (“State Court”).

On December 21, 2007, Plaintiff filed her First Amended Complaint in the State Court Action. Specifically, Plaintiff's First Amended Complaint and Jury Demand sought five claims for relief:

(1) The First Claim for Relief sought judgment for extreme and outrageous conduct by the Defendants against the Plaintiff.

(2) The Second Claim for Relief sought judgment for deceit based on fraud.

(3) The Third Claim for Relief sought judgment for civil conspiracy.

(4) The Fourth Claim for Relief sought judgment for civil theft under Colo.Rev.Stat. § 18–4–401.

(5) The Fifth Claim for Relief sought the imposition of a constructive trust on the Property.

Almost two-years into the State Court Action, on March 25, 2009, Plaintiff filed a Motion for Entry of Default Judgment. On April 30, 2009, the State Court entered judgment in favor of the Plaintiff and against Defendants, jointly and severally, in the amount of $516,520.00.

On July 14, 2009, the Defendants filed a Motion to Vacate Judgment and Set Aside Default in the State Court Action. On August 3, 2009, the Court in the State Action entered an Order Granting Defendants' Motion. On August 12, 2009 (two-years after the filing of the original Complaint), the Defendants filed their Answer in the State Court Action. The State Court Action was subsequently set for a five-day jury trial commencing on August 16, 2010.

On May 6, 2010, Plaintiff and Defendants and each of their respective legal counsel attended a settlement conference presided over by a retired Colorado District Court Judge, the Honorable Kim H. Goldberger. At the conclusion of the settlement conference, on May 6, 2010, the Plaintiff and the Defendants reached an agreement stipulating to the entry of a judgment in the amount of $200,000. Pursuant to the Stipulation, judgment was to enter for the Plaintiff against the Defendants jointly and severally, based only on— expressly—“deceit based on fraud (2nd Claim for Relief) and civil theft under C.R.S. § 18–4–401 (4th Claim for Relief).” The Judgment was not to be entered based on the other claims for relief, that is: the First Claim for Relief for extreme and outrageous conduct; the Third Claim for Relief for civil conspiracy; and the Fifth Claim for Relief seeking imposition of a constructive trust on the Property.

For context in this decision, the Plaintiff asserted in her Second Claim for Relief that:

28. Defendants, and each of them, made representations of a past or present fact(s).

29. The fact(s) was material.

30. At the time the representation(s) was made, Defendants, and each of them, knew the representation was false.

31. Defendants...