Morrison v. Mergen (In re Mergen), Bankruptcy Case No. 11-16545-7
| Citation | 473 BR 743 |
| Decision Date | 01 May 2012 |
| Docket Number | Adv. Case No. 12-16-7,Bankruptcy Case No. 11-16545-7 |
| Parties | Troy Morrison and Christa Morrison, Plaintiffs v. Shelley L. Mergen, Defendant (In re: Shelley L. Mergen, Debtor) |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Western District of Wisconsin |
Troy Morrison and Christa Morrison, Plaintiffs
v.
Shelley L. Mergen, Defendant
(In re: Shelley L. Mergen, Debtor)
Bankruptcy Case No. 11-16545-7
Adv. Case No. 12-16-7
United States Bankruptcy Court Western District of Wisconsin
May 1, 2012
Christopher William Dyer, Dyer Law Firm, LLC, Onalaska, WI for Plaintiffs
Lynn M. Rider, Madison, WI for Defendant
Robert D. Martin, United States Bankruptcy Judge
Troy and Christa Morrison filed a complaint seeking to except the debt owed them from discharge under § 523(a)(2)(A). The debtor failed to answer timely, and the Morrisons moved for default judgment on March 12, 2012.
On March 20, 2012, the same day the pretrial conference was scheduled, the debtor filed an untimely Answer. At the pretrial conference, the plaintiffs stated their reliance on a judgment against the debtor obtained in a state court jury trial. The debtor, in turn, argued that the plaintiffs' allegations failed to meet the standard under § 523(a)(2)(A). She also argued the underlying state court judgment was not entitled to preclusive effect. Because the debtor filed her Answer late, she was found to be in default. A defendant's failure to respond "does not automatically entitle a plaintiff to entry of a default judgment." Capital One Bank v. Bungert (In re Bungert), 315 B.R. 735, 736 (Bankr. E.D. Wis. 2004). A court's entry of a judgment by default itself is discretionary. In re Redmond, 399 B.R. 628, 633 (Bankr. N.D. Ind. 2008) (citing Sun v. Board of Trustees of U. IL., 473 F.3d 799, 809 (7th Cir. 2007). It may be denied when the facts are insufficient to support the claim in the complaint. Id. Accordingly, a prove-up was ordered on the elements of the complaint. If the state court judgment is entitled to preclusive effect, then there is no need for a trial. This proceeding is being treated as if on cross motions for summary judgment.
Troy and Christa Morrison are husband and wife. They allege that in 2005, they purchased a home for which the debtor was the seller's real estate agent. In 2007, the Morrisons initiated civil claims against the debtor in Crawford County Circuit Court.
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They alleged that the debtor misrepresented and falsely advertised the home to the Morrisons by failing to disclose a material defect about which the debtor was fully aware. The material defect was "catastrophic flooding" in the home's lower level. They specifically allege that the debtor was personally aware that the lower level of the home had been flooded with mud and water, and she knew no steps had been taken to correct the defect. The debtor allegedly knew the seller had not disclosed the prior flooding to the Morrisons, and wrongly advised the seller that he did not have to disclose the condition to them.
The claims brought against the debtor in state court included claims of Strict Liability Misrepresentation and Untrue, Deceptive, or Misleading Representations (Fraudulent Advertisement). The jury instruction for Strict Liability Misrepresentation apparently required findings by a jury, "by a preponderance of the evidence, that the defendant made representations of fact to the plaintiffs based on personal knowledge, or under circumstances where she knew, or necessarily should have known, the truth or untruth of the statements; that the statements were untrue; and that the statements were made during a transaction in which the defendant stood to make financial gain." (Adv. Compl. ¶ 7). The claim for Untrue, Deceptive, or Misleading Representations required findings by the jury "by a preponderance of the evidence that the defendant made, published ... an advertisement, statement, or representation concerning the sale of the residence; which was untrue, deceptive, or misleading; and that the plaintiffs' [sic] sustained a monetary loss as a result of the representations." (Adv. Compl. ¶ 8). After a trial in November 2010, the jurors found in favor of the Morrisons on these claims. The jurors awarded damages in the amount of $42,500.00, a total of $45,872.31 when allowable costs were added. The Morrisons alleged that the verdict and judgment in Crawford County remains of record, and should be deemed decisive under principles of issue preclusion and/or collateral estoppel, relative to the determination of dischargeability under § 523(a)(2)(A). They have since reversed their position on preclusion, at least as it is now sought by the debtor.
In their submissions for prove-up, the Morrisons provided the Crawford County Special Verdict. The Special Verdict includes a series of questions that the jury answered in the affirmative or negative. It appears that the questions form the elements of three causes of action. The Special Verdict's findings1 are summarized as follows: 1) Shelley Mergen made a representation of fact to Troy and Christa Morrison by failing to inform them that...
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