Tice v. Moreland (In re Moreland), Case No. 10-09914-JKC-7

• Decision Date: 28 October 2011
• Docket Number: Adv. Pro. No. 10-50602,Case No. 10-09914-JKC-7
• Parties: In re: RICHARD LEE MORELAND, Debtor. TYRONE TICE and PATRICIA TICE, Plaintiffs, v. RICHARD LEE MORELAND, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Indiana

IN RE: RICHARD LEE MORELAND, Debtor.

TYRONE TICE and PATRICIA TICE, Plaintiffs,

v.RICHARD LEE MORELAND, Defendant.

Case No. 10-09914-JKC-7

Adv. Pro. No. 10-50602

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION

Dated: October 28, 2011.

James K. Coachys

United States Bankruptcy Judge

ORDER DENYING PLANTIFFS' MOTION FOR SUMMARY JUDGMENT

This matter comes before the Court on Plaintiffs Tyrone and Patricia Tice's Motion for Summary Judgment on their Complaint to Determine Dischargeability of Indebtedness against Debtor/Defendant Richard Lee Moreland. Having reviewed the parties' respective briefs and submissions, the Court hereby enters the following Order.

Facts

The parties' submissions establish the following undisputed facts:

1. Richard Lee Moreland ("Moreland" or "Debtor") owns and operates Eagle Construction Services as a sole proprietor.

2. In the Fall of 2008, Tyrone Tice ("Tice") and Patricia Tice (together, "Plaintiffs" or the "Tices") entered into a home improvement contract with Debtor, wherein Debtor agreed to perform various home improvement projects at Plaintiffs' residence.

3. Debtor failed to complete the projects and the Tices were of the opinion that some of the work he did perform was substandard. Plaintiffs ultimately sued Debtor in Hamilton Superior Court under Cause No 29D01-0907-PL-909 (the "State Court Litigation").

4. Pursuant to Debtor's demand and the parties' contract, the State Court Litigation went to arbitration. Debtor, however, did not otherwise participate in the arbitration.

5. On March 5, 2010, the arbitrator entered its award (the "Award") in favor of Plaintiffs and against Debtor. The state court then issued an Order Entering Arbitrator's Award as Judgment on April 16, 2010 (the "Judgment").

6. In relevant part, the Award states the following Findings of Fact:¹

5. During [the parties' contract] negotiations, Tice sought from Moreland proof that Moreland was insured. In response to the Tice request, Moreland produced a Certificate of Insurance as proof that he was insured for the proposed projects.

6. During negotiations Moreland represented that he would need a down payment of fifty percent (50%) of the contract price to purchase necessary patio block, supplies andconstruction materials.

7. Relying upon Moreland's representations that he was insured and competent to perform the negotiated scope of work, Tice executed a Contract for Construction - Remodeling ("Contract") on November 3, 2008. . . .

8. After execution of the Contract, Tice paid Moreland $45,000.00 representing fifty percent (50%) of the Contract price to purchase patio block, materials and construction supplies. . . .

9. Moreland began construction work on the Tice garage in December 2008. However, Moreland failed to complete this project, specifically; Moreland failed to complete trim work, insulation, painting and the concrete pad was improperly installed.

10. After Moreland failed to return to the Tice property, Mr. Tyrone Tice made numerous efforts to reach hm, but Moreland failed to respond or return to the Tice property to complete the scope of work in the Contract.

11. Tice, and subsequently his counsel, contacted the insurance company identified on the Certificate of Insurance produced by Moreland and discovered Moreland had failed to pay the insurance premiums and was therefore never insured for the project

12. Because of Moreland's failure to complete the scope of the work outlined in the parties' Contract, he has breached the terms of the Contract.

13. Moreland willfully, intentionally, knowingly schemed Tice by representing that he was insured for the project but never paid the premiums for the insurance.

14. Tice relied on Moreland's fraudulent representations to [his] detriment by executing the Contract believing that Moreland had insurance.

15. Moreland willfully, intentionally and knowingly defrauded Tice by requesting a payment of fifty percent (50%) of the Contract to purchase . . . materials and construction supplies, items he never purchased.

16. Tice detrimentally relied on Moreland's fraudulent representations and presented a check to Moreland in the amount of $45,000.00

Award at 1-2.

7. Having made those findings, the arbitrator concluded that Debtor breached theparties' Contract. He also concluded that Debtor fraudulently induced Plaintiffs to enter into the Contract and to pay him 50% of the amount due under the Contract at the outset of the project. The arbitrator awarded actual damages of $45,000.00, plus interest of $875.00, attorney fees in the amount of $6,375.00, and court costs and sheriff service in the amount of $148.00. The arbitrator also ordered Debtor to reimburse Plaintiffs for the $1,375.00 they had previously pad for the costs of arbitration.

Conclusions of Law

Based on the above facts, the Court makes the following Conclusions:

1. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I).

2. In their motion for summary judgment, Plaintiffs argue that the Judgment and Award are entitled to preclusive effect as a matter of law and that Debtor is estopped from relitigating whether his indebtedness to Plaintiffs arose from a a fraudulent misrepresentation under 11 U.S.C. § 523(a)(2) or from a "willful and malicious injury" under 11 U.S.C. § 523(a)(6). For the reasons stated below, the Court disagrees.

3. Under Federal Rule of Civil Procedure 56, made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7056, 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 of material fact and that the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). With a motion for summary judgment, the burden rests on the moving party to demonstrate "that there is an absence of evidence to support the nonmoving party's case." Id. at 325. After the moving party demonstratesthe absence of a genuine issue for trial, the responsibility shifts to the non-movant to "go beyond the pleadings" to cite evidence of a genuine factual dispute precluding summary judgment. Id. at 322-23. If the non-movant does not come forward with evidence that would reasonably permit the finder of fact to find in its favor on a material question, then the court must enter summary judgment against it. Waldridge v. American Hoechst Corp., 24 F.3d 918, 920 (7th Cir.1994) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-87 (1986)).

4. A state court judgment is entitled to full faith and credit in bankruptcy proceedings. 28 U.S.C. § 1738; Matter of Bulic, 997 F.2d 299, 304 (7th Cir.1993). Thus, in applying the principles of res judicata, this Court looks to the substantive law of the state that issued the judgment, giving the state court judgment the same preclusive effect it would receive in the forum state. See Scarborough v. Fischer (In re Scarborough), 171 F.3d 638, 641 (8th Cir. 1999); Bicknell v. Stanley, 118 B.R. 652 (S.D.Ind.1990). There are two categories of res judicata: claim preclusion and issue preclusion. Claim preclusion applies where a final judgment on the merits has been rendered which acts as a complete bar to a subsequent action on the same issue or claim between those parties and their privies. Northern Indiana Pub. Serv. Co. v. Sharp, 732 N.E.2d 848, 854 (Ind. Ct. App. 2000). Issue preclusion, also known as collateral estoppel, bars the subsequent relitigation of the same fact or issue where that fact or issue was necessarily adjudicated in a former suit and the same fact or issue is presented in a subsequent action. Id. Where issue preclusion applies, the previous judgment is conclusive only regarding those issues actually litigated and determined therein. Id.

5. Collateral estoppel can be used either offensively or defensively. Offensive collateral estoppel involves a situation where the plaintiff seeks to foreclose the defendant from litigating an issue the defendant had previously litigated unsuccessfully in an action with another party. Bartle v. Health Quest Realty VII, 768 N.E.2d 912, 917 (Ind.Ct.App.2002), trans. denied. Defensive collateral estoppel involves a situation where a defendant seeks to prevent a plaintiff from asserting a claim which the plaintiff had previously litigated and lost. Id. The present case involves the use of offensive collateral estoppel, as Plaintiffs seek to prevent Debtor from relitigating whether the subject debt arose from a fraudulent misrepresentation pursuant to § 523(a)(2)(A). Plaintiffs also seek to prevent Debtor from relitigating whether the subject debt arose from a "willful and malicious injury" pursuant to § 523(a)(6).

6. The Indiana Supreme Court has adopted a two-prong test for the offensive use of collateral estoppel: (1) whether the party in the prior action had a full and fair opportunity to litigate the issue; and (2) whether it would otherwise be unfair under the circumstances to permit the use of collateral estoppel. Tofany v. N.B.S. Imaging Sys. Inc., 616 N.E.2d 1034, 1038 (Ind.1993). The offensive use of collateral estoppel has traditionally been viewed as somewhat more problematic than the defensive use of collateral estoppel. In Tofany, the Indiana Supreme Court discussed the factors to be considered in a court's determination of whether offensive collateral estoppel should be utilized:

The trial court may consider privity, the defendant's incentive to litigate the prior action, the defendant's ability to defend the prior action, and the ability of the plaintiff to have joined the prior action. When considering the defendant's incentive to litigate, the trial court may consider the interest at stake for the defendant as well as how the defendant perceived this interest. For example, did the defendant have its most

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