Trost v. Trost (In re Trost)

• Decision Date: 12 May 2014
• Docket Number: Bankruptcy No. GL 13–05887.,Adversary No. 13–80266.
• Citation: 510 B.R. 140
• Parties: In re Zachary N. & Kimberly A. TROST, Debtors. Sherry Trost, Plaintiff, v. Zachary N. & Kimberly A. Trost, Defendants.
• Court: U.S. Bankruptcy Court — Western District of Michigan

510 B.R. 140

In re Zachary N. & Kimberly A. TROST, Debtors.Sherry Trost, Plaintiff,

v.Zachary N. & Kimberly A. Trost, Defendants.

Bankruptcy No. GL 13–05887.

Adversary No. 13–80266.

United States Bankruptcy Court, W.D. Michigan.

Signed May 12, 2014.

Troy Richmond Hendrickson, Esq., Tempe, AZ, attorney for Sherry Trost, Plaintiff.

Michael Robert Behan, Esq., Okemos, MI, attorney for Zachary and Kimberly Trost, Defendants.

OPINION GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANTS' CROSS MOTION FOR SUMMARY JUDGMENT

JAMES D. GREGG, Bankruptcy Judge.

I. INTRODUCTION & ISSUE PRESENTED.

This adversary proceeding arises from a longstanding family dispute between Sherry Trost (the “Plaintiff”) and her stepson and his wife, Zachary and Kimberly Trost, (collectively, the “Defendants”). The disputeinvolves ownership of videotapes and other memorabilia from a television show, Michigan Outdoors, that was created and operated by Fred Trost (“Fred”), Sherry's husband and Zachary's father.¹ The Plaintiff alleges that she became the owner of these assets after Fred's death in 2007, and that the Defendants subsequently converted the property to their own use. Prior to the filing of the Defendants' bankruptcy case, the Plaintiff filed a lawsuit against the Defendants in the United States District Court for the Western District of Michigan (the “District Court action”). A three day jury trial was held in the District Court action, and the Plaintiff obtained a judgment against the Defendants for common law conversion under Michigan law. The conversion judgment was then affirmed by the Sixth Circuit Court of Appeals. After the Defendants filed their chapter 7 case, the Plaintiff initiated this adversary proceeding, seeking a determination that the debt arising from the conversion of her property is excepted from the Defendants' discharge under § 523(a)(6) of the Bankruptcy Code.²

The sole issue presented is whether the prior federal court judgment finding the Defendants liable for common law conversion is entitled to preclusive effect in this adversary proceeding. If so, do the factual findings that were actually litigated and necessary to the prior judgment establish that the Defendants' conversion of the Plaintiff's property was willful and malicious under § 523(a)(6)? Alternatively, does the prior judgment, as alleged by the Defendants, determine that the retention of property was not a willful and malicious injury?

II. JURISDICTION.

The court has jurisdiction over this bankruptcy case. 28 U.S.C. § 1334. The case and all related proceedings have been referred to this court for decision. 28 U.S.C. § 157(a); Local Rule 83.2(a) (W.D. Mich.). This adversary proceeding is a statutory core proceeding. 28 U.S.C. § 157(b)(2)(I) (determinations regarding dischargeability of a debt). Notwithstanding the holding in Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), this court is constitutionally authorized to enter a final order in this adversary proceeding. See Tibble v. Wells Fargo Bank, N.A. (In re Hudson), 455 B.R. 648, 656 (Bankr.W.D.Mich.2011) (the Stern decision is extremely narrow; “[e]xcept for the types of counterclaims addressed in Stern v. Marshall, a bankruptcy judge remains empowered to enter final orders in all core proceedings”); cf. Waldman v. Stone, 698 F.3d 910, 921 (6th Cir.2012) (bankruptcy court lacks constitutional authority to enter final judgment on debtor's state law fraud claims against creditor). Because this is a nondischargeable debt action, Stern and Waldman do not govern.

Very recently, the Sixth Circuit issued an opinion, albeit unpublished, that reached the same conclusion. Hart v. Southern Heritage Bank (In re Hart), ––– Fed.Appx. ––––, 2014 WL 1663029 (6th Cir. Apr. 28, 2014). Hart buttresses this court's conclusion determining it is empowered to enter a final judgment.

III. FACTS AND PROCEDURAL HISTORY.

The facts underlying this dispute were stipulated to in the District Court action,³ and are restated, in relevant part, as follows:

Plaintiff, Sherry Trost, is the widower [sic] of Fred Trost. Fred Trost started a television show in Michigan in 1982, titled Michigan Outdoors. Michigan Outdoors was a dba of Fred Trost Enterprises, Inc. Fred Trost Enterprises, Inc. accumulated significant debts, including, but not limited to, a significant multi-million dollar civil judgment known as the “Buck Stop Judgment.” Plaintiff married Fred Trost on July 29, 1988.... The “Michigan Outdoors” tape library owned by Fred Trost Enterprises, Inc. was bought by ZNT Marketing, Inc., a company owned by Zachary Trost and JoAnn Cribley at [t]he auction held when all assets related to the television show were seized due to the Buck Stop Judgment.

Fred Trost continued to operate his show[;] however[,] the debts from Fred Trost Enterprises, Inc. followed Fred Trost and made it impossible for him to own or operate the show in his own name or to own any assets of the show. In fact, Fred Trost was going to have to shut down the show and the business because of the debt. Fred Trost was to receive a significant inheritance from his parents upon their passing[;] however[,] these funds would not be available in time to save the show. Plaintiff and nonparty JoAnn Cribley agreed to take ownership of the show and its assets and agreed to take on the show's debts in their names so that Fred Trost could continue to operate the show. Plaintiff and JoAnn Cribley became officers and owners of Practical Sportsman, Inc.

In 2002, a non-profit corporation, Practical Sportsman Foundation, was set up in order to continue the operation of the show. Again, JoAnn Cribley and Sherry Trost were officers of Practical Sportsman Foundation. Practical Sportsman Foundation took on debts of the previous business entities and incurred additional debt. Fred Trost remained in charge of the running of the business, including finances and bookkeeping.

Plaintiff took a second mortgage on her home so Practical Sportsman Foundation could obtain an operating loan in the amount of $36,000.00. Practical Sportsman Foundation incurred at least $56,797.06 payroll tax liability to the Internal Revenue Service. Plaintiff ultimately paid that tax liability out of her personal funds.... She used money from her retirement account and incurred additional tax liability for using her retirement funds.

Practical Sportsman Foundation incurred additional tax debt to the [S]tate of Michigan of approximately $16,000 ... [and] borrowed an additional operating loan of $9,000 to support the show and the business. Because the Plaintiff and JoAnn Cribley were the legal owners and financiers of Practical Sportsman Foundation, they were ultimately liable for the loan and tax debts.

Fred Trost became suddenly ill in May 2007. After several months in the hospital, Fred Trost passed away in July 2007 prior to receiving his inheritance or paying any of the debts from the show.

Defendant Zachary Trost is the son of Fred Trost and [the stepson] of Plaintiff Sherry Trost. Defendant Kim Trost is the wife of Zachary Trost. Zachary Trost worked on the show with his father over the years and he and/or his company owned a museum and published a magazine related to the show.

Fred Trost predeceased one of his parents and never received the inheritance. Zachary Trost and [his sister] Tara Trost received an inheritance from Fred Trost's parents.

(USDC Dkt. Nos. 69 & 81; Trost, 525 Fed.Appx. at 337–38.)

After Fred Trost died in 2007, Sherry Trost agreed to give Zachary Trost the assets she owned relating to Fred's show, including videotapes of show episodes, raw footage, and other show memorabilia. ( See Trost, 525 Fed.Appx. at 338.) In exchange, Zachary was to pay off the debts Sherry incurred running the show. ( Id.) Zachary took the assets from Sherry, and attempted to profit from them. ( Id.) However, over the next two years, he ignored Sherry's repeated requests to pay off the debts. ( Id.) When Sherry ultimately demanded that Zachary return the assets, he refused. ( Id.)

In June 2009, Sherry Trost filed the District Court action against Zachary and Kimberly Trost. The First Amended Complaint in the District Court action alleged seven counts against the Defendants, including causes of action for breach of contract, fraud, conversion, and statutory conversion. (USDC Dkt. No. 17.)

In February 2012, a three day jury trial was held in the District Court action.⁴ Sherry Trost testified during her case-in-chief, along with JoAnn Cribley and two other witnesses. ( Trost, 525 Fed.Appx. at 339.) Sherry Trost also offered nearly two dozen exhibits into evidence. ( Id.) The testimony and exhibits established that the property at issue included the video library of Fred's show, video editing equipment, show props, wildlife mounts, rifles, shotguns, hunting and fishing equipment, and a shotgun reloading machine. ( Id.) The evidence further established that these assets were owned by Sherry Trost. ( Id.) According to the testimony at trial, and consistent with the parties' stipulation, the assets were originally purchased by ZNT Marketing, Inc. (“ZNT”), an entity owned jointly by Zachary Trost and JoAnn Cribley, after entry of the Buck Stop Judgment. ( Id.) When ZNT encountered financial difficulties, Sherry Trost testified that the assets were transferred to her in exchange for payment of ZNT's debts. ( Id.) JoAnn Cribley offered consistent testimony, explaining that she cut the checks to ZNT which resulted in the assets being transferred to Sherry Trost. ( Id.)

Sherry Trost also presented evidence at trial about her agreement with Zachary and Kim Trost regarding the videotapes and memorabilia:

At or near the time of Fred's death, Sherry ... explained, Zachary offered to pay the debts she incurred over the years to keep the show running in exchange for the video library, the memorabilia and other property related to the show. Sherry said they discussed the...