Peltier v. Van Loo Fiduciary Servs., LLC (In re Peltier)

• Decision Date: 16 August 2022
• Docket Number: BAP No. OR-22-1000-FBG,Bk. No. 3:21-bk-30450-DWH,Adv. No. 3:21-ap-03018-DWH
• Citation: 643 B.R. 349
• Parties: IN RE: Bryce PELTIER and Kristine Diane Peltier, Debtors. Bryce Peltier; Kristine Diane Peltier, Appellants, v. Van Loo Fiduciary Services, LLC, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

643 B.R. 349

IN RE: Bryce PELTIER and Kristine Diane Peltier, Debtors.Bryce Peltier; Kristine Diane Peltier, Appellants,

v.Van Loo Fiduciary Services, LLC, Appellee.

BAP No. OR-22-1000-FBG

Bk. No. 3:21-bk-30450-DWH

Adv. No. 3:21-ap-03018-DWH

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Filed – August 16, 2022

Ordered Published – September 12, 2022

Michael Fuller of OlsenDaines, Portland, argued for appellants;

Darlene Pasieczny of Samuels Yoelin Kantor LLP, Portland, argued for appellee.

Before: FARIS, BRAND, and GAN, Bankruptcy Judges.

FARIS, Bankruptcy Judge:

INTRODUCTION

The Oregon state court entered a judgment against Kristine Diane Peltier and Bryce Peltier for financial elder abuse of a family member. The Peltiers filed for chapter 7¹ bankruptcy protection, and appellee Van Loo Fiduciary Services LLC ("Van Loo") sought to have the judgment debt declared nondischargeable under §§ 523(a)(2), (4), and (6). The bankruptcy court entered judgment against Kristine² on the § 523(a)(4) claim, based on the issue preclusive effect of the state court judgment.

Kristine appeals, arguing that issue preclusion was inappropriate because the issues that the state court necessarily determined were not the same as those before the bankruptcy court.

We disagree with the bankruptcy court's reasoning but agree with its conclusion. We AFFIRM.

FACTS

A. The state court judgment

Van Loo is the court-appointed conservator for Kristine's mother, Leah D. Hudson, and the personal representative for the estate of Jon W. Hudson, who was Mrs. Hudson's husband and Kristine's father.

In June 2020, Van Loo filed a complaint in the Oregon circuit court for financial elder abuse, unjust enrichment, and breach of fiduciary duty against Kristine, Bryce, Kristine's sister, and her sister's husband.

Van Loo alleged that, while the Hudsons suffered from declining mental and physical health, the defendants misused the Hudsons’ funds, credit, and assets to benefit themselves. It alleged that Kristine had accomplished this by abusing powers of attorney that the Hudsons had granted her.

The complaint stated three claims for relief: (1) elder abuse under Oregon Revised Statutes ("ORS") 124.110 against all defendants; (2) unjust enrichment against all defendants; and (3) breach of fiduciary duty against Kristine.

The Peltiers did not respond to the complaint, and the circuit court entered an order of default against the Peltiers.³ After a prima facie hearing at which Van Loo's principal testified, the court stated that "it's very clear that ... the plaintiffs have made a prima facie showing of elder abuse, unjust enrichment, and a breach of fiduciary duties by the remaining defendants, so I do find in favor of the plaintiffs on their claims." It did not offer any detailed findings or conclusions.

The circuit court granted Van Loo a limited judgment⁴ against the Peltiers on all claims for relief. Pursuant to ORS 124.100, it awarded Van Loo treble damages totaling $1,069,606.86 against Kristine and Bryce and an additional judgment against Kristine for treble damages of $887,276.16 – exactly what Van Loo requested. It also issued a second limited judgment awarding Van Loo attorneys’ fees and costs and conservator fees.

B. The chapter 7 bankruptcy case and adversary proceeding

The Peltiers sought chapter 7 bankruptcy protection. Van Loo filed a timely complaint to determine the nondischargeability of the state court judgment debts pursuant to §§ 523(a)(2)(A), (4), and (6).

As to § 523(a)(4), Van Loo alleged that the Peltiers had committed fraud or defalcation by a fiduciary, larceny, and embezzlement.

The Peltiers filed an answer generally denying the allegations in the adversary complaint.

C. Van Loo's motion for summary judgment

Van Loo filed a motion for summary judgment on all claims. It argued that the state court's findings were entitled to issue preclusive effect, so the judgments were nondischargeable under §§ 523(a)(2), (4), and (6).

The Peltiers opposed the motion for summary judgment. They argued that Van Loo could not establish each element of issue preclusion under Oregon law. The Peltiers contended that the issues were not identical and the issues were not "necessarily decided." They emphasized that the state court had not made any findings on the record. With regard to § 523(a)(4), they argued that the default judgment did not establish gross recklessness or felonious intent necessary to a nondischargeability ruling.

After a hearing, the bankruptcy court announced that it would grant summary judgment against Kristine, but not Bryce, and only under § 523(a)(4).

The bankruptcy court recited the five elements of issue preclusion under Oregon law. It noted that the Peltiers conceded that Oregon affords issue preclusive effect to default judgments. It also held that the Peltiers had a full and fair opportunity to litigate the state court proceedings and that issue preclusion was appropriate for this type of proceeding.

It acknowledged that, because the state court "made no specific findings of fact, except for its quantification of damages, it's difficult to know exactly what was determined." Therefore, to determine the issue preclusive effect of the default judgment, the court analyzed "which of the many allegations of the complaint are the minimum that the [state] Court had to find to enter its judgment."

The bankruptcy court held that issue preclusion did not bar relitigation of any issue under the §§ 523(a)(2)(A) and (6) claims. However, it held that the state court's elder abuse findings satisfied § 523(a)(4) as to Kristine. It explained that § 523(a)(4) requires that the debt arose from either fraud or defalcation while acting in a fiduciary capacity or embezzlement or larceny. It quickly rejected embezzlement or larceny, because the complaint did not allege that the Peltiers feloniously took property from the Hudsons.

However, the bankruptcy court said that the allegations against Kristine aligned with defalcation while acting in a fiduciary capacity. It stated that Kristine was a fiduciary based on her power of attorney and concluded that the state court must have found defalcation.

Later, Van Loo agreed to dismiss its claims against Bryce. The bankruptcy court entered judgment against Kristine and declared nondischargeable the first limited judgment debt for $1,069,606.86 plus post-judgment interest.

The Peltiers timely appealed.⁵ Van Loo did not cross-appeal.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.

ISSUE

Whether the bankruptcy court erred in granting Van Loo summary judgment on its § 523(a)(4) nondischargeability claim against Kristine.

STANDARDS OF REVIEW

We review de novo the bankruptcy court's decisions to grant summary judgment and to except a debt from discharge. Plyam v. Precision Dev., LLC (In re Plyam) , 530 B.R. 456, 461 (9th Cir. BAP 2015). "De novo review requires that we consider a matter anew, as if no decision had been made previously." Francis v. Wallace (In re Francis) , 505 B.R. 914, 917 (9th Cir. BAP 2014).

"We also review de novo the bankruptcy court's determination that issue preclusion was available. If issue preclusion was available, we then review the bankruptcy court's application of issue preclusion for an abuse of discretion." In re Plyam , 530 B.R. at 461 (quoting Black v. Bonnie Springs Fam. Ltd. P'ship (In re Black) , 487 B.R. 202, 210 (9th Cir. BAP 2013) ).

To determine whether the bankruptcy court has abused its discretion, we conduct a two-step inquiry: (1) we review de novo whether the bankruptcy court "identified the correct legal rule to apply to the relief requested" and (2) if it did, we consider whether the bankruptcy court's application of the legal standard was illogical, implausible, or without support in inferences that may be drawn from the facts in the record. United States v. Hinkson , 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc).

"We may affirm on any ground fairly supported by the record." Jimenez v. ARCPE 1, LLP (In re Jimenez) , 613 B.R. 537, 543 (9th Cir. BAP 2020).

DISCUSSION

Kristine argues that the bankruptcy court erred in granting Van Loo summary judgment under § 523(a)(4) because it was inappropriate to afford the state court judgment issue preclusive effect.

Under Civil Rule 56(a), made applicable by Rule 7056, summary judgment is appropriate when "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." The movant bears the initial burden of demonstrating an absence of a genuine issue of material fact. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 585, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). We must view the evidence in the light most favorable to the non-moving party and draw all justifiable inferences in her favor. Fresno Motors, LLC v. Mercedes Benz USA, LLC , 771 F.3d 1119, 1125 (9th Cir. 2014).

We hold that the record before the bankruptcy court was sufficient to support summary judgment on Van Loo's § 523(a)(4) claim.

A. Issue preclusion in nondischargeability proceedings

Issue preclusion applies in nondischargeability actions under § 523(a). Grogan v. Garner , 498 U.S. 279, 284 n.11, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).

Federal courts must give full faith and credit to state court judgments. 28 U.S.C. § 1738. This means that the bankruptcy court was required to give the Oregon state court's judgment the same preclusive effect it would be given by other Oregon courts. See Far Out Prods., Inc. v. Oskar , 247 F.3d 986, 993 (9th Cir. 2001). We thus apply Oregon issue preclusion law.

Under Oregon law, "[i]ssue preclusion applies to preclude relitigation of an issue or fact when that issue or fact has been determined by a valid and final determination in a prior proceeding." McCall v. Dynic USA Corp. , 138 Or.App. 1, 906 P.2d 295, 297 (1995) (cleaned up). Issue preclusion is appropriate if five required elements are met:

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