Rajsic v. Valley Forge Ins. Co.

• Decision Date: 15 May 2017
• Docket Number: Bankruptcy Appeal Case No. 16–61937–Civ–Scola
• Citation: 574 B.R. 312
• Parties: Goran RAJSIC, Appellant, v. VALLEY FORGE INSURANCE CO., Appellee.
• Court: U.S. District Court — Southern District of Florida

574 B.R. 312

Goran RAJSIC, Appellant,
v.
VALLEY FORGE INSURANCE CO., Appellee.

Bankruptcy Appeal Case No. 16–61937–Civ–Scola

United States District Court, S.D. Florida.

Signed May 15, 2017
Entered May 16, 2017

574 B.R. 314

Thomas Louis Abrams, Gamberg & Abrams, Plantation, FL, for Appellant.

Annie Verdries, Lewis Brisbois Biscaard & Smith, Costa Mesa, CA, Perry Ross Goodman, Lewis Brisbois Bisgaard & Smith LLP, Fort Lauderdale, FL, Zacarias Chacon, Lewis Brisbois Bisgaard & Smith, Chicago, IL, for Appellee.

Order on appeal

Robert N. Scola, Jr., United States District Judge

This matter is before the Court on the Appellant Goran Rajsic's appeal of the bankruptcy court's order granting the Appellee Valley Forge Insurance Company's motion for summary judgment, as well as the bankruptcy court's entry of final judgment against Rajsic. (Notice of Appeal, ECF No. 1). After reviewing the parties' briefs, the record on appeal, the relevant legal authorities, and for the reasons explained below, the Court affirms the bankruptcy court's entry of summary judgment in favor of Valley Forge.

1. Procedural Background

Rajsic filed for Chapter 7 bankruptcy on August 19, 2014. (IB at 6, ECF No. 16.) Valley Forge filed an adversary complaint against Rajsic, in which Valley Forge objected to the dischargeability, pursuant to 11 U.S.C. § 523(a)(2)(A) and (a)(6), of a debt Rajsic owed to Valley Forge. (R. 7–10 at 27.) After Rajsic received his general discharge on October 27, 2015, Valley Forge moved for summary judgment on its claim of nondischargeability. (IB. at 7.) The bankruptcy court heard argument on May 11, 2016, granted summary judgment on July 15, 2016, and entered judgment on July 28, 2016. (Id. ; (Order Granting Mot. Summ. J., DE 117, ECF No. 7–10 at 119–127; J., DE 126, ECF No. 7–10 at 128–131.)) This appeal followed.

2. Factual Background

Rajsic, the principal of REC Entertainment, Inc. ("REC"), owned real property located at 4244 West Diversey Avenue, Chicago, Illinois. (AB at 11; R. 7–2 at 15–16; R. 7–4 at 4.)¹ On May 26, 2009, the property sustained severe water damage ("the incident"), for which Rajsic initiated an insurance claim with Valley Forge. (AB at 11.) Rajsic contended that the roof had been damaged by a faulty utility pole alongside the building. (AB at 13; R. 7–4 at 11–12.) PuroClean, a disaster recovery company, was hired to clean up and mitigate the property damage, for which PuroClean submitted an invoice of $19,823.45. (AB at 12; Valley Forge's State–Court Mot. Summ. J. Ex. 2, Aff. of Peter Quinn ¶ 4, DE 103, R. 7–11 at 43, 52.) During the claim process, Rajsic submitted a letter to Valley Forge noting that PuroClean had completed work on the property and that REC was renting temporary studios. (R. 7–3 at 8.) Rajsic stated in the letter that he had "already paid" the invoices for rental of the temporary studios and requested reimbursement of $136,324.85. (Id. ) Rajsic further requested that Valley Forge issue payment of the PuroClean invoice. (Id. )

Meanwhile, Valley Forge investigated the claim. (AB at 12–14.) Valley Forge's investigation involved retaining several independent contractors, including a private investigator, a forensic accounting firm, a damage assessment firm, a construction consultant, and a forensic engineering firm. (Am. Compl. Ex. 3, Aff. of Tognarelli ¶ 27, DE 48, R. 7–2 at 27.) The cost of hiring these independent contractors totaled

574 B.R. 315

$33,269.94. (Id. ; R. 7–9 at 14.) Based on information obtained during the investigation, Valley Forge determined that Rajsic's claim had a total value of $1,469,387.80.² (Am. Compl. Ex. 3, Aff. of Tognarelli ¶ 26, DE 48, R. 7–2 at 27.) The total value of the claim included costs for repairing the portions of the property affected by the water intrusion, which in turn included the PuroClean invoice. (Id. ¶¶ 6, 23, 26, R. 7–2 at 23, 26–27.)

Rajsic provided little to no cooperation with the investigation, failing to submit requested documents and repeatedly failing to appear for an examination under oath. (Valley Forge's State–Court Mot. Summ. J. at 8–11, DE 103 Ex. 5, R. 7–11 at 75–78.) In fact, on April 10, 2010, Rajsic withdrew his insurance claim. (Id. at R. 7–11 at 78; IB at 8.)

Valley Forge concluded that Rajsic had staged the incident and had submitted forged invoices for the temporary rental studios. (AB at 14.) Thus, Valley Forge denied the claim on June 7, 2010. (IB at 8.) Nonetheless, although the record is unclear as to the underlying facts, Valley Forge submitted partial payment to PuroClean in the amount of $10,000.00 as a full and final settlement of PuroClean's invoice for $19,823.45. (Valley Forge's State–Court Mot. Summ. J. Ex. 2, Aff. of Peter Quinn ¶ 7, DE 103, R. 7–11 at 43, 61.)

These events led to both criminal and civil proceedings in Illinois state court. Rajsic was indicted for crimes involving schemes to defraud Valley Forge and two other insurance companies. (Am. Compl. Ex. 4, Plea Agreement, DE 48, R. 7–10 at 2.) On January 18, 2012, Rajsic pleaded guilty to forgery by delivery, one of four felony counts in the indictment. (Id. at 3.) As part of his plea, Rajsic "admit[ted] that he knowingly executed a scheme to defraud [Valley Forge] ... and in furtherance of the scheme [he], with the intent to defraud, knowingly delivered a document apparently capable of defrauding another...." (Id. at 5.) Rajsic further admitted that the invoices for rental of the temporary studios that Rajsic submitted to Valley Forge on June 11, 2009, "were capable of defrauding [Valley Forge] because ... [Valley Forge] uses such a document to determine whether to pay a claim for loss and how much to pay on such a claim...." (Id. )

Valley Forge brought civil suit against Rajsic in Illinois state court. (AB at 14.) Valley Forge sought, in part, civil damages for insurance fraud in violation of Section 46–5 of the Illinois Criminal Code ( 720 ILCS 5/46–5, now 720 ILCS 5/17–10.5 ). (Valley Forge's State–Court Mot. Summ. J., DE 103, R. 7–11 at 80–81.) Those proceedings culminated in the Illinois state court granting partial summary judgment in favor of Valley Forge on May 24, 2012. (Partial Summ. J., R. 7–10 at 13–15.) The Illinois state court specifically found that no issue of fact existed and that REC and Rajsic had "attempted to obtain, by deception, control over Valley Forge's property by making, or causing to be made, a false and fraudulent claim...." (Id. ¶ 3.) The Illinois state court further found that REC had violated the terms of the insurance policy "by intentionally concealing and misrepresenting material facts concerning a claim under the Policy...." (Id. ¶ 2.)

574 B.R. 316

Thereafter, the Illinois state court entered final summary judgment in favor of Valley Forge. (Final Summ. J., R. 7–10 at 16–17.) The court found damages in the following amounts: (1) $2,938,775.60 for two times the value of the property that Rajsic had attempted to obtain from Valley Forge ($1,469,387.80); (2) $99,809.82 for three times the amount that Rajsic had in fact wrongfully obtained ($33,269.94); plus (3) attorney's fees and costs of $212,746.40. (Id. ) Thus, Valley Forge was entitled to a total judgment amount of $3,251,331.82. (Id. ) This judgment was part of the debt Rajsic sought to discharge in his bankruptcy proceedings.

3. Legal Standard

This Court has jurisdiction over appeals of a final judgment in a bankruptcy adversary proceeding. 28 U.S.C. § 158(a)(1) ; In re Donovan , 532 F.3d 1134, 1136 (11th Cir. 2008). A district court reviews a bankruptcy court's legal conclusions de novo and its factual findings for clear error. In re Globe Mfg. Corp. , 567 F.3d 1291, 1296 (11th Cir. 2009) ; In re Club Assocs. , 951 F.2d 1223, 1228–29 (11th Cir. 1992).

4. Legal Analysis

Rajsic raises four errors with the Bankruptcy Court's order and judgment: (1) collateral estoppel did not apply to the state-court judgments because the issues in state court were not identical to the issues raised in bankruptcy court; (2) an issue of material fact existed—namely, whether Rajsic received a benefit from Valley Forge—which precluded entry of summary judgment; (3) Valley Forge did not properly plead the elements of a § 523(a)(2)(A) or (a)(6) claim; (4) and the Bankruptcy Court erroneously relied on affidavits attached to Valley Forge's reply. (IB at 5–6.)

Valley Forge argues that the Supreme Court abolished the "receipt of benefits" requirement for nondischargeability under § 523(a)(2)(A), but even if this were not so, Rajsic did in fact receive a benefit. (AB at 23.) Valley Forge contends that Rajsic waived any argument regarding collateral estoppel by raising it for the first time on appeal. Further, Valley Forge denies any pleading or procedural errors.

A. The doctrine of collateral estoppel precludes Rajsic from relitigating the Illinois state judgments

Collateral estoppel, or issue preclusion, "prevents successive litigation of an issue of fact or law actually litigated and resolved in a valid court determination essential to the prior judgment." Novak v. State Parkway Condo. Ass'n ,...