Opinion
CASE 21-40194 21-4007
01-30-2023
IN RE: JOY MARTIN MILLER Debtor v. JOY MARTIN MILLER Defendant JOHN HAMILTON EMME HAMILTON Plaintiffs
NOT INTENDED FOR PUBLICATION
DECISION
Robert E. Grant Judge, United States Bankruptcy Court
On January 30, 2023
On August 3, 2016, a trial was held in the Tippecanoe Superior Court. The trial had two components: replevin (Count I) and loss from property offenses, I.C. 34-24-3-1 (Count IV). The results of that trial are memorialized by a Hearing Order dated September 23, 2016. Plaintiffs' Ex. 15. As to count I, the court found that the debtor, then known as Joy Ley, "ha[d] wrongfully taken and unlawfully detained from the Plaintiffs personal property with a total value of $96,904.93." As to count IV, the court found that the debtor had "knowingly and intentionally exerted unauthorized control over the Plaintiffs' property; and that she did so with the intent to deprive the Plaintiffs of the value or use of that property." Pursuant to I.C. 34-23-3-1, the court ordered and entered judgment in favor of the Plaintiffs and against the debtor in the amount of $12,183, on account of the fees paid to two different attorneys. See, Plaintiffs' Ex. 15. In this court, the issue is whether the debtor's obligation to the plaintiffs under that order is non- dischargeable pursuant to 11 U.S.C. § 523(a)(4) of the United States Bankruptcy Code, as a debt for embezzlement or larceny. The matter is before the court following trial and the submission of post-trial briefs.
At trial, the plaintiffs waived any argument that the debt would be non-dischargeable under § 523(a)(6) as the result of a willful or malicious injury.
Plaintiffs argue that, through doctrine of collateral estoppel, the findings of the Tippecanoe Superior Court establish the nondischargeability of the judgment and preclude the debtor from contesting the issue. Collateral estoppel, also known as issue preclusion, "refers to the effect of a judgment in foreclosing litigation in a subsequent action of an issue of law or fact that has been actually litigated and decided in the initial action." LaSalle Nat'l Bank of Chicago v. County of DuPage, 856 F.2d 925, 930 n.2 (7th Cir.1988).
The party invoking preclusion must show that: (1) the issue sought to be precluded [was] the same as that involved in the prior litigation, (2) the issue [was] actually litigated, (3) the determination of the issue [was] essential to the final judgment, and (4) the party against whom estoppel is invoked [was] fully represented in the prior action. In re Calvert, 913 F.3d 697, 701 (7th Cir. 2019) quoting Matrix IV, Inc. v. Am. Nat'l Bank & Trust Co. of Chi., 649 F.3d 539, 547 (7th Cir. 2011).
The process requires the proponent to identify the actual findings made in the prior proceeding and then map those findings onto the standard required for a determination of non-dischargeability. Id. See also, In re Busick, 264 B.R. 518, 519 (Bankr. N.D. Ind. 2001). So, the issue before the court involves the findings made by the state court and whether those findings correspond with the facts the plaintiff needs to prove under § 523(a)(4).
We have a final judgment. Rule 58(B) of the Indiana Rules of Trial Procedure specifies the requirements of a judgment, and the hearing order of September 23, 2016 (Exhibit 15) satisfies them all. There is a statement that the matter was submitted to the court (B1); the appearances of both parties are noted (B2); the court made a statement concerning the issues considered (B3); there is an order to pay a precise amount (B4); it is dated and signed by the judge (B5). See also, Henderson v. Sneath Oil Co. Inc., 638 N.E.2d 798, 803 (Ind. App. 1994); Paulson v. Centier Bank, 704 N.E.2d 482, 488 (Ind. App. 1998). Based on the testimony at trial, the plaintiffs have conducted proceedings supplemental to enforce it. See, Washburn v. Tippecanoe Office of Family and Children, 726 N.E.2d 361, 363 (Ind. App. 2000) (proceedings supplemental require a judgment). Moreover, even decisions that are not final for the purposes of an appeal may be given preclusive effect if they are sufficiently firm. See, Miller Brewing Co. v. Jos. Schlitz Brewing Co., 605 F.2d 990, 996 (Cir. 1979); Chase Manhattan Mortgage Corp. v. Moore, 446 F.2d 725, 727-28 (7th Cir. 2006).
The issues concerning the debtor's allegedly improper use of the plaintiffs' property were actually litigated. That requirement "is satisfied whenever, after a party has appeared in the action and contested an issue, that issue is presented to the court for a decision based upon the facts or evidence put before it." In re Staggs, 178 B.R. 767, 778 (Bankr. N.D. Ind. 1994). Both parties appeared at trial, whether in person or by counsel, testified, and were given the opportunity to offer evidence; the court then took the matter under advisement and subsequently issued a decision. See, Bench Trial Order of August 3, 2016 (Ex. 17); Hearing Order (Ex 15). Although the debtor did not have counsel at trial, that "does not lessen the collateral estoppel effect of a state court judgment." In re Tsamasfyros, 940 F.2d 606, 607 (10th Cir. 1991).
The state court found that the debtor "knowingly and intentionally exerted unauthorized control over the Plaintiffs' property; and that she did so with the intent to deprive the Plaintiffs of the value or use of that property." Exhibit 15. That is Indiana's definition of theft, I.C. 35-35-4-2(a), and the finding was essential to the court's judgment. It was the predicant for the court's ability to award fees under I.C. 34-24-3-1. Without it there could have been no such award. See, Busick, 264 B.R. 523, 524 ("To determine whether a particular finding was necessary to the prior court's decision, one must ask whether that decision would have been any different without that finding.").
The finding of theft also satisfies the requirements of larceny under § 523(a)(4). For dischargeability purposes, embezzlement and larceny are closely related. They differ only in whether the debtor's original possession of the creditor's property was wrongful. If so, we are dealing with larceny. If not, it is embezzlement. In re Brown, 399 B.R. 44, 47 (Bankr. N.D. Ind. 2008). Nonetheless, they both require the plaintiff to prove a fraudulent intent on the part of the debtor. Dexter v. Miller¸2011 Bankr. LEXIS 1019 *4 (Bankr. N.D. Ind. 2011). "Larceny is proven for § 523(a)(4) purposes if debtor has wrongfully and with fraudulent intent taken property from its owner." Matter of Rose, 934 F.2d 901, 903 (7th Cir. 1991). The state court's findings of a knowing and intentional exertion of unauthorized control, with the intent to deprive, comfortably satisfy those requirements.
The debtor argues that, because she appeared at trial without an attorney, she was not fully represented in the prior action, and so the final requirement of Calvert - "the party against whom estoppel is invoked [was] fully represented in the prior action" - has not been satisfied. While it is true that the debtor was pro se at the trial, that is not what "fully represented" means in this context. "This element of collateral estoppel comes into play when a party seeks to enforce a prior judgment against a person who was not a party to the prior litigation." In re Spielman, 588 B.R. 198, 205 (Bankr. N.D.Ill. 2018). It does not apply when the party to be estopped appeared in the action and had the opportunity to litigate the issue. It does not require a party to have had an attorney, White v. Kayla Enterprises, Inc., 2006 WL 8460229 * 3 (D. N.D.Ill. 2006), or that any attorney rendered effective assistance. Spielmann, 588 B.R. at 205; Durham, 2017 WL 3581640 n.5. See also, Tsamasfyros, 940 F.2d at 607 (debtor's pro se status "does not lessen the collateral estoppel effect of a state court judgment."); Staggs, 178 B.R. at 778 (the focus is on the opportunity to litigate rather than the quality of the evidence or presentation).
See Securities and Exchange Commission v. Durham, 2017 WL 3581640 * 5 n.5 (S.D. Ind. 2017) for a discussion of the origin and history of this element of collateral estoppel in the Seventh Circuit.
The state court order of September 23, 2016 satisfies all of the elements necessary to give it preclusive effect. Pursuant to § 523(a)(4), the debtor's obligation to the plaintiffs under that order is not dischargeable. Judgment will be entered accordingly.