Rob's Auto., LLC v. Lazarz (In re Lazarz)
| Decision Date | 13 January 2021 |
| Docket Number | Case Number: 19-13756-13,Adversary Number: 20-49 |
| Parties | In re: JACOB LAZARZ, Debtor. ROB'S AUTOMOTIVE, LLC, Plaintiff and Counter-Defendant, v. JACOB LAZARZ, Defendant and Counter-Claimant. |
| Court | U.S. Bankruptcy Court — Western District of Wisconsin |
DECISION
Jacob Lazarz ("Defendant") filed a voluntary chapter 7. The case was then converted to a chapter 13.1 Defendant's plan was confirmed.2
Rob's Automotive, LLC ("Plaintiff") filed an adversary proceeding seeking a determination that debts owed to Plaintiff are not dischargeable under 11 U.S.C. § 523(a)(2), (4), or (6).3 Defendant disputes the allegations.4
Plaintiff moves for summary judgment ("Motion").5 Defendant opposes the Motion. Both parties filed extensive exhibits and briefs.6 The trial is scheduled for January 20, 2021.
FACTS
This is a tale of a business relationship gone bad. Plaintiff is a Wisconsin Limited Liability Company. It does auto repairs, body and paint work, detailing of cars, and the buying and selling of used cars.7 Defendant and Plaintiff entered into a business relationship. It is disputed whether Defendant co-owned or worked for Plaintiff. Plaintiff alleges Defendant was simply an employee while Defendant has asserted an ownership interest. That said, for the purposes of this adversary proceeding the Defendant states he will not pursue a claim of ownership.
The business relationship ended. The termination was followed by litigation in state court in 2017.8 Since that time, the parties have engaged in various tactics, some of which led to state court sanctions for the party, the party's attorney, or both.
Plaintiff now seeks a judgment of nondischargeability for various claims. It asserts those claims by alleging that the state law causes of action satisfy theelements under 11 U.S.C. § 523. No court decision or judgment has been entered on Plaintiff's state law claims.
The acts creating Plaintiff's claims and assertions can be broken into four groups:
(1) payroll reimbursement;
(2) sale of hoists;
(3) conversion of a trade secret in the form of a database; and
(4) over-reimbursement checks.
Plaintiff asserts the actions in the four groups are nondischargeable as a breach of contract or under 11 U.S.C. § 523(a)(2), (4), or (6). Additional facts are discussed below.
JURISDICTION
The federal district courts have "original and exclusive jurisdiction" of all cases under title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. ("Bankruptcy Code"). 28 U.S.C. § 1334(a). The federal district courts also have "original but not exclusive jurisdiction" of all civil proceedings arising under the Bankruptcy Code or arising in or related to cases under the Bankruptcy Code. 28 U.S.C. § 1334(b). District courts may refer these cases to the bankruptcy judges for their districts. 28 U.S.C. § 157(a). In accordance with section 157(a), the District Court for the Western District of Wisconsin has referred all of its bankruptcy cases to the Bankruptcy Court for the Western District of Wisconsin.
A bankruptcy judge to whom a case has been referred has statutory authority to enter final judgment on any proceeding arising under the Bankruptcy Code or arising in a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(1). Bankruptcy judges must therefore determine, on motion or sua sponte, whether a proceeding is a core proceeding or is otherwise related to a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(3). As to the former, the bankruptcy court may hear and determine such matters. 28 U.S.C. § 157(b)(1). As to the latter, the bankruptcy court may hear the matters, but may not decide them without the consent of the parties. 28 U.S.C. § 157(b)(1), (c).
The parties agree this is a core proceeding. No party has objected to the court entering final orders. The Complaint is based on section 523(a)(2), (4), or (6) of the Bankruptcy Code. This section is a bankruptcy cause of action. While some claims may turn on state law, determining the scope of a debtor's discharge is a fundamental part of the bankruptcy process. See Deitz v. Ford (In re Deitz), 469 B.R. 11, 20 (B.A.P. 9th Cir. 2012). See also Farooqi v. Carroll (In re Carroll), 464 B.R. 293, 312 (Bankr. N.D. Tex. 2011); Dragisic v. Boricich (In re Boricich), 464 B.R. 335, 337 (Bankr. N.D. Ill. 2011).
LEGAL STANDARDS
Summary judgment is governed by Rule 56(c) of the Federal Rules of Civil Procedure, made applicable to bankruptcy proceedings by Rule 7056 of the Federal Rules of Bankruptcy Procedure. "Under Rule 56(c), summary judgment is proper 'if the pleadings, depositions, answers to interrogatories,and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.'" Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (citing Fed. R. Civ. P. 56). The moving party has the burden of establishing the nonexistence of a "genuine issue." 10A C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure § 2727, p. 121 (4th ed.). Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). All justifiable inferences are to be drawn in favor of the non-moving party. Adickes v. S. H. Kress & Co., 398 U.S. 144, 158 (1970). "However, the non-movant must set forth 'specific facts showing that there is a genuine issue for trial' which requires more than 'just speculation or conclusory statements.'" Elbing v. Blair (In re Blair), 359 B.R. 233, 237 (Bankr. E.D. Wis. 2007) (quoting Heft v. Moore, 351 F.3d 278, 283 (7th Cir. 2003)).
Courts must grant summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Bank. P. 7056, adopting Fed. R. Civ. P. 56. At the summary judgment stage, the court's role is to determine whether there is a genuine issue for trial. The court need not weigh the evidence to determine the truth. See Anderson, 477 U.S. at 249.
The moving party "always bears the initial responsibility" to establish the lack of a genuine issue of material fact. Celotex, 477 U.S. at 323. "When the moving party has carried its burden . . . its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Instead, the non-movant must establish specific facts that show a genuine issue for trial. See id. at 587. The inferences drawn from the facts must be viewed in the light most favorable to the non-movant party. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).
The Court cannot consider facts that are not in the record. Summit Credit Union v. Goldbeck (In re Goldbeck), 590 B.R. 881, 887 (Bankr. W.D. Wis. 2018). But federal courts "'may take notice of proceedings in other courts, both within and without the federal judicial system, if those proceedings have a direct relation to matters at issue.'" United States ex rel. Robinson Rancheria Citizens Council v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir. 1992) (quoting St. Louis Baptist Temple, Inc. v. Fed. Deposit Ins. Corp., 605 F.2d 1169, 1172 (10th Cir. 1979)). A court may also take judicial notice of its "own records of prior litigation closely related to the case before it." St. Louis Baptist Temple, 605 F.2d at 1172.
For summary judgment determinations, the materiality of facts must be determined based on the governing substantive law. In its adversary complaint, Plaintiff seeks an order that Defendant's debt is nondischargeable under 11U.S.C. § 523(a)(2)(A), (4), and (6). The Court must determine whether any genuine issues of material fact exist to except this debt from discharge.
Under section 523, a plaintiff must first establish that the debtor owes him or her a debt. See Zirkel v. Tomlinson (In re Tomlinson), Adv. No. 96 A 1539, 1999 WL 294879, at *7 . Second, a plaintiff must show that the debt falls within one of the specified grounds under a provision of section 523.
The party seeking to establish an exception to the dischargeability of a debt bears the burden of proof. Goldberg Secs., Inc. v. Scarlata (In re Scarlata), 979 F.2d 521, 524 (7th Cir. 1992); Harris N.A. v. Gunsteen (In re Gunsteen), 487 B.R. 887, 899 (Bankr. N.D. Ill. 2013). A creditor must meet this burden by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291 (1991); see also In re McFarland, 84 F.3d 943, 946 (7th Cir. 1996). To further the policy of providing a debtor a fresh start, exceptions to the dischargeability of a debt are to be construed strictly against a creditor and liberally in favor of a debtor. See In re Crosswhite, 148 F.3d 879, 881 (7th Cir. 1998); Meyer v. Rigdon, 36 F.3d 1375, 1385 (7th Cir. 1994).
Plaintiff, with no significant analysis, suggests that three alternative subsections of section 523 provide a basis for a determination of nondischargeability in this case. The subsections are (a)(2)(A), (a)(4), and (a)(6):
To prevail on a section 523(a)(2)(A) claim, the party seeking a determination of nondischargeability must prove by a preponderance of the evidence:
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