Trost v. Trost (In re Trost)
| Decision Date | 28 June 2017 |
| Docket Number | No. 16-8024,16-8024 |
| Parties | IN RE: ZACHARY N. TROST; KIMBERLY A. TROST, Debtors. SHERRY TROST, Plaintiff-Appellee, v. ZACHARY N. TROST; KIMBERLY A. TROST, Defendants-Appellants. |
| Court | U.S. Bankruptcy Appellate Panel, Sixth Circuit |
By order of the Bankruptcy Appellate Panel, the precedential effect of this decision is limited to the case and parties pursuant to 6th Cir. BAP LBR 8024-1(b). See also 6th Cir. BAP LBR 8014-1(c).
File Name: 17b0005n.06
Appeal from the United States Bankruptcy Court for the Western District of Michigan at Grand Rapids.
No. 13-05887—James D. Gregg, Judge.
Before: DELK, PRESTON, and WISE, Bankruptcy Appellate Judges.
ON BRIEF: Michael R. Behan, Okemos, Michigan, for Appellants. Troy R. Hendrickson, Chandler, Arizona, for Appellee.
PAULETTE J. DELK, Bankruptcy Appellate Panel Judge. Debtors-Appellants Zachary Trost and Kimberly Trost appeal the Bankruptcy Court's order granting summary judgment to Plaintiff-Appellee Sherry Trost holding the debt owed to her non-dischargeable pursuant to 11 U.S.C. § 523(a)(6). The debt arose from a judgment against Zachary and Kimberly for common law conversion. The Bankruptcy Court found that the judgment established the elements of willful and malicious conversion of Sherry's property by Zachary and Kimberly. Accordingly, the Bankruptcy Court granted summary judgment to Sherry on the basis of collateral estoppel. For the reasons stated, we affirm.
The issue on appeal is whether the Bankruptcy Court erred in applying the doctrine of collateral estoppel to grant summary judgment to Sherry.
Under 28 U.S.C. § 158(a)(1), this Panel has jurisdiction to hear appeals "from final judgments, orders, and decrees" issued by the Bankruptcy Court. For purposes of appeal, an order is final if it "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989) (citation and quotation marks omitted). A partial summary judgment order "that does not dispose of all parties and all claims is generally not immediately appealable[.]" Bonner v. Perry, 564 F.3d 424, 427 (6th Cir. 2009). "Once the remaining parts of a case are dismissed or otherwise resolved, a grant of partial summary judgment becomes a final judgment." Anderson v. Fisher (In re Anderson), 520 B.R. 89, 90-91 (B.A.P. 6th Cir. 2014) (citing J.D. Pharm. Distribs., Inc. v. Save-On Drugs & Cosmetics Corp., 893 F.3d 1201, 1208 (11th Cir. 1990)).
In the present case, the Bankruptcy Court granted summary judgment on the § 523(a)(6) count of the complaint in May 2014. However, because other counts of the complaint were still pending, the Panel dismissed an earlier appeal of the judgment as interlocutory. Once all other counts of the complaint were dismissed, the litigation of the adversary case ended on the merits. Thus, the judgment entered in May 2014 is now appealable.
A grant of summary judgment is a conclusion of law, reviewed de novo. Medical Mutual of Ohio v. K. Amalia Enters., Inc., 548 F.3d 383, 389 (6th Cir. 2008). "Summary judgment is proper if the evidence, taken in the light most favorable to the nonmoving party, shows that there are no genuine issues of material fact and that the moving party is entitled to a judgment as a matter of law." Id. (citing Mazur v. Young, 507 F.3d 1013, 1016 (6th Cir. 2007)). "Under a de novo standard of review, the reviewing court decides the issue independently of, and without deference to, the trial court's determination." Menninger v. Accredited Home Lenders (In re Morgeson), 371 B.R. 798, 800 (6th Cir. BAP 2007) ). "The determination of the applicability of collateral estoppel is also reviewed de novo." Spring Works, Inc. v. Sarff (In re Sarff), 242 B.R. 620, 623 (6th Cir. BAP 2000) (citing Markowitz v. Campbell (In re Markowitz), 190 F.3d 455, 461 (6th Cir. 1999)).
This case involves the family of Fred Trost, the former star and owner of a television show called Michigan Outdoors. Michigan Outdoors ran for over 20 years locally in the western part of Michigan. During its time, the show accumulated significant debts, including, but not limited to, a multi-million dollar civil judgment known as the "Buck Stop Judgment." Initially, Fred or his businesses were responsible for the debts. However, at some point, Sherry, Fred's second wife, and nonparty JoAnn Cribley took ownership of the show and its assets, and agreed to assume liability for the show's debts so that Fred could continue to operate the show. Sherry incurred substantial tax liability as a result.
Debtor-Appellant Zachary is the son of Fred Trost and stepson of Sherry. Debtor-Appellant Kimberly is Zachary's wife. Zachary worked on the show with his father over the years. He also tried to manage the show's debts and keep it operational.
Following Fred's sudden death in July 2007, Sherry and Zachary came to an agreement. Zachary agreed to pay off the debts Sherry had incurred running the show, including tax debts and outstanding loans, in exchange for the assets that Sherry owned related to the show, including videotapes and memorabilia. Zachary took the assets from Sherry and tried to monetize them but was mostly unsuccessful. For two years Sherry's repeated requests that Zachary pay off the debts were largely ignored. When she ultimately demanded that he return the assets, Zachary refused.
In June 2009, Sherry sued Zachary and Kimberly for breach of contract and common law conversion in the United States District Court for the Western District of Michigan ("District Court"). During a three-day jury trial, in February 2012, Sherry testified, submitted exhibits, and called others to testify. "The trial evidence detailed the property at issue, how Sherry came to own it, the circumstances surrounding the formation of Sherry's contract with Zachary, Sherry's partial performance of it, and Zachary's breach." Trost v. Trost, 525 F. App'x 335, 339 (6th Cir. 2013) (unpublished). On the other hand, Zachary and Kimberly chose not to put on evidence and moved for judgment as a matter of law under Federal Rule of Civil Procedure 50(a). The District Court took the motion under advisement and submitted the case to the jury. The jury awarded Sherry $194,725.30 on the breach of contract claim. Additionally, the jury found both Zachary and Kimberly liable on the conversion claim, awarding Sherry $108,797.06 for tortious conduct.
After the jury's verdict, the District Court granted Zachary and Kimberly's motion for judgment as a matter of law regarding the breach of contract claim based on the statute of frauds, but denied the motion as to the conversion claim. Zachary and Kimberly appealed the denial of their motion regarding the conversion claim to the United States Court of Appeals for the Sixth Circuit ("Court of Appeals"). Sherry cross-appealed regarding her dismissed breach of contract claim. The Court of Appeals affirmed the District Court's decision on the conversion claim, but reversed the District Court's decision on the breach of contract claim and reinstated the jury's judgment on that claim.1
On July 23, 2013, Zachary and Kimberly filed a voluntary chapter 7 bankruptcy petition in the Western District of Michigan. Sherry filed an adversary proceeding on October 8, 2013, asserting that the debt should be excepted from discharge under § 523(a)(2) due to Zachary and Kimberly's fraud and/or § 523(a)(6) because it was the result of a willful and malicious injury. She also sought denial of Zachary and Kimberly's discharge under § 727(a) or dismissal of their bankruptcy case for lack of good faith.
On February 1, 2014, Sherry filed a motion for summary judgment only on the § 523(a)(6) count of her complaint. Sherry argued that the judgment for common law conversionestablished all of the elements required to hold the debt nondischargeable pursuant to § 523(a)(6) and that Zachary and Kimberly were precluded from arguing otherwise. Zachary and Kimberly filed a cross motion for summary judgment on all counts of the complaint. The Bankruptcy Court held a hearing on March 21, 2014, and issued an opinion granting Sherry's motion for summary judgment on the § 523(a)(6) count and denying Zachary and Kimberly's cross motion for summary judgment on May 12, 2014.2 Zachary and Kimberly timely appealed.
In the present case, Sherry asserted that the amount owed to her by Zachary and Kimberly pursuant to the judgment for conversion is nondischargeable pursuant to § 523(a)(6) of the Bankruptcy Code. The Bankruptcy Court agreed and granted summary judgment. The Panel has examined the record and determines that the previously litigated facts establish the elements required to find the debt nondischargeable.
Collateral estoppel, sometimes called issue preclusion, "precludes relitigation of issues of fact or law actually litigated and decided in a prior action between the same parties and necessary to the judgment, even if decided as part of a different claim or cause of action." Markowitz v. Campbell (In re Markowitz), 190 F.3d 455, 461 (6th Cir. 1999) (citations omitted). "The party asserting issue preclusion bears the burden of proof as to all elements and must introduce a sufficient record to reveal the controlling facts and the exact issues litigated." Chudzinski v. Hanif (In re Hanif), 530 B.R. 655, 664 (Bankr. E.D. Mich. 2015) (citation omitted). Issue preclusion applies in nondischargeability litigation. Grogan v. Garner, 498 U.S. 279, 284-285, 111 S. Ct. 654, 112 L.Ed.2d 755 (1991).
Under federal law, the following elements must be present for the application of collateral estoppel based on a federal judgment:
(1) the issue in the subsequent litigation is identical to that resolved in the earlier...
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