N. Hills Collections, Inc. v. McArthur (In re McArthur)
| Docket Number | 22-50092,Adv. 23-05002 |
| Decision Date | 29 August 2023 |
| Parties | In re: RICHARD CLAUDE McARTHUR SSN/ITIN xxx-xx-1441 Debtor. v. RICHARD CLAUDE McARTHUR Defendant. NORTHERN HILLS COLLECTIONS, INC. Plaintiff |
| Court | United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of South Dakota |
The matter before the Court is Plaintiff Northern Hills Collections, Inc.'s Motion for Summary Judgment (Doc. 21)[1] and Debtor-Defendant Richard Claude McArthur's Response (Doc. 22). This is a core proceeding pursuant to 28 U.S.C. §157(b)(2). The Court enters these findings and conclusions pursuant to Fed.R.Bankr.P. 7052. For the reasons discussed below, the Court will deny Plaintiff's motion. The Court will schedule a second pre-trial conference with counsel to set a trial date regarding Plaintiff's claim against Debtor-Defendant.
In or about July 2014, and the months that followed, Bret D. Green ("Green") and Debtor-Defendant Richard Claude McArthur ("McArthur") entered into discussions regarding a business transaction which entailed purchasing a hi-rail grapple truck and a railroad tamper to lease them to the railroads and to McArthur Construction (Doc. 21-10)(State Ct. Trial Tr., pp. 12-13). The business transaction required Green to fund $185,000.00 to purchase the assets (State Ct. Trial Tr., p. 23, l. 23 through p. 24, l. 11, p. 58, ll. 10-17, and p. 59, ll. 5-14). McArthur was in charge of purchasing the assets, and he bought a 2003 Sterling Hi-Rail Grapple Truck (VIN 2FZHAZAS73AK35608)("truck") and a 1978 Jackson 6500 Railroad Tamper (ATS41JM)("tamper") (State Ct. Trial Tr., p. 23, l. 23 through p. 25, l. 8). The truck was purchased for $82,000.00 and the tamper for $95,500.00 (Doc. 21-12)(Exh. 10, pp. 10-13). The truck and tamper were both purchased by McArthur or McArthur Construction with Green's funds (Doc. 21-12)(Exh. 10, pp. 10-13) (see also State Ct. Trial Tr., p. 58, ll. 10-17 and p. 59, ll. 5-14).
The business relationship broke down and Green sued McArthur in state court based on fraud, conversion, breach of contract, unjust enrichment, and replevin. (State Ct. File No. 40CIV15-413)(the ")(see also Doc. 21-6, Exh. 2). McArthur answered Green's complaint and the parties completed depositions during the State Court Litigation (Docs. 21-7 and 21-8). There was no jury trial, and McArthur did not appear at the scheduled hearing in the State Court Litigation (State Ct. Trial Tr.). There were no findings of fact or conclusions of law found or entered by the state court[2] (Doc. 21-6, ¶1)(State Ct. J., File No. 40CIV15-413)(the "State Court Judgment"). The state court entered an uncontested judgment against McArthur and in favor of Green on or about October 25, 2016, in the amount of "$144,249.12, which sum is comprised of $89,249.12 in compensatory damages for fraud, $30,000 in damages for breach of contract (loan), and $25,000.00 in punitive damages," plus "prejudgment interest on such compensatory damages in the sum of $17,269.73." Id.
Green later sold, assigned, and transferred his claim against McArthur under the State Court Judgment to Plaintiff Northern Hills Collections, Inc. ("Northern Hills")(Doc. 1, Exh. C). McArthur filed a chapter 7 bankruptcy on or about December 12, 2022 (Bankr. No. 22-50092). Northern Hills was listed as a creditor on McArthur's bankruptcy schedules. Id. at Doc. 1, p. 20. Northern Hills filed this adversary proceeding objecting to the dischargeability of the debt owed to it by McArthur on or about March 1, 2023, and filed this summary judgment motion on or about June 2, 2023 (Docs. 1 and 21). McArthur timely filed a response to Northern Hills' summary judgment motion (Doc. 22).
Summary judgment is appropriate when there is no genuine issue as to any material fact and the movant is entitled to a judgment as a matter of law. Fed.R.Bankr.P. 7056 and Fed.R.Civ.P. 56(a); McManemy v. Tierney, 970 F.3d 1034, 1037 (8th Cir. 2020). An issue of material fact is genuine if the evidence would allow the trier of fact to return a verdict for either party. Rademacher v. HBE Corp., 645 F.3d 1005, 1010 (8th Cir. 2011). A fact is material if it might affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The Court considers the pleadings, discovery, and any affidavits when reviewing for summary judgment. Wood v. SatCom Marketing, LLC, 705 F.3d 823, 828 (8th Cir. 2013). The Court's function is not "to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Tolan v. Cotton, 572 U.S. 650, 656 (2014)(quoting Anderson, 477 U.S. at 249).
When filing a summary judgment motion, the movant has the burden to show the parts of the record that demonstrate the absence of genuine issues of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); see also Gibson v. American Greetings Corp., 670 F.3d 844, 853 (8th Cir. 2012). The party opposing the discharge of a particular debt has the burden of proving the debt is non-dischargeable by a preponderance of the evidence. Stefani v. Hiltz (In re Stefani), 2007 WL 1960591, at *2 (Bankr. D.S.D. July 2, 2007); First Western Bank, Deadwood v. Brink (In re Brink), Adv. 02-5014, slip op. (Bankr. D.S.D. Feb. 7, 2003) (citing Grogan v. Garner, 498 U.S. 279, 286-88 (1991) and Valley National Bank v. Bush (In re Bush), 696 F.2d 640, 644 n.4 (8th Cir. 1983). The movant meets his burden if he shows the record does not contain a genuine issue of material fact and he points out the part of the record that bears out his assertion. Handeen v. LeMaire, 112 F.3d 1339, 1346 (8th Cir. 1997).
Once the movant has met his burden, then the burden shifts to the non-movant. The non-moving party must advance specific facts to create a genuine issue of material fact to avoid summary judgment. F.D.I.C. v. Bell, 106 F.3d 258, 263 (8th Cir. 1997). The non-moving party must do more than show there is some metaphysical doubt; he must show he will be able to put on admissible evidence at trial proving his allegations. Id.
However, the matters must be viewed in the light most favorable to the party opposing the motion. Bell at 263; Amerinet, Inc. v. Xerox Corp., 972 F.2d 1483, 1490 (8th Cir. 1992) (). The non-moving party is entitled to all reasonable inferences that can be drawn from the evidence without resorting to speculation. P.H. v. School District of Kansas City, Missouri, 265 F.3d 653, 658 (8th Cir. 2001).
Furthermore, the statutory exceptions to discharge are construed narrowly in the debtor's favor. Werner v. Hofmann, 5 F.3d 1170, 1172 (8th Cir. 1993). Any evidence presented must be viewed consistent with the congressional intent that exceptions to discharge be narrowly construed against the creditor and liberally construed for the debtor, thus effectuating the fresh start policy of the Bankruptcy Code. Caspers v. Van Horne (In re Van Horne), 823 F.2d 1285, 1287 (8th Cir. 1987).
The Court can grant summary judgment if it determines collateral estoppel principles preclude it from conducting further proceedings on issues that have been litigated and ruled upon previously. Fischer v. Scarborough (In re Scarborough), 171 F.3d 638, 641 (8th Cir. 1999).
Northern Hills initially argues res judicata in its Brief in Support of Motion for Summary Judgment (Doc. 21-2, pp. 6-8). However, res judicata, or claim preclusion, does not apply in nondischargeability proceedings in bankruptcy court. Brown v. Felsen, 442 U.S. 127,138-39 (1979); Henson v. Garner (In re Garner), 881 F.2d 579, 581 (8th Cir. 1989) (), rev'd on other grounds, 498 U.S. 279 (1991).
Next, Northern Hills argues collateral estoppel applies in this case. Collateral estoppel, or issue preclusion, does apply in nondischargeability proceedings brought under section 523. Grogan, 498 U.S. at 284, n.11 (); Hidy v. Bullard (In re Bullard), 449 B.R. 379, 384 (B.A.P. 8th Cir. 2011) ("Collateral estoppel may apply in a dischargeability action brought under §523 of the Bankruptcy Code") (citing Grogan, 498 U.S. at 284, n.11). Bankruptcy courts can properly give collateral estoppel effect to those elements of the claim that are identical to the elements required for discharge and which were actually litigated and determined in the prior action for fraud. Grogan, 498 U.S. at 284.
Notwithstanding the above, the court "employs a flexible and pragmatic approach when assessing the preclusive effect of [another] court's order." First State Bank of Roscoe v. Stabler, 914 F.3d 1129, 1136 (8th Cir. 2019) (cited in Eletech, Inc. v. Jones (In re Jones), 648 B.R. 371, 380 (Bankr. D.Neb. 2022)). The court does "not make preclusion determinations in the abstract or in a vacuum." Id. Instead, it must "look to see what the underlying court actually said and what the parties communicated to one another and to the court about what they understood to be at issue in the underlying proceeding." Id at 380-81.
Issue preclusion, or collateral estoppel, bars "successive litigation of an issue of fact or law actually litigated and resolved in a valid court determination...
To continue reading
Request your trial