Opinion
6:21-bk-04033-TPG Adv. Pro. 6:21-ap-00157-TPG
01-25-2023
In re Juan Carlos Gonzalez, Debtor. v. Juan Carlos Gonzalez, Defendant. Q & H Partners, LLC, Plaintiff,
ORDER DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
THIS CASE came on for hearing on December 7, 2022 (Doc. No. 36) on Plaintiff Q&H Partners, LLC's Motion for Summary Judgment (the "Motion"), filed on October 14, 2022 (Doc. No. 24). On November 4, 2022, Defendant Juan Carlos Gonzalez filed his Opposition to the Motion (Doc. No. 26), and Plaintiff filed its Reply on November 14, 2022 (Doc. No. 28). The hearing was attended by Erik Johanson and J.R. Boyd as counsel for Plaintiff and by Jeffrey S. Badgley as counsel for Defendant. (Doc. No. 36.) Because Plaintiff fails to demonstrate that there are no genuine issues of material fact, the Motion is denied.
I. FACTS AND PROCEDURAL HISTORY
Plaintiff asks the Court to determine that a debt Defendant owes is not dischargeable under 11 U.S.C. § 523(a)(2)(A) because it was obtained by false pretenses, a false representation, or actual fraud. (Doc. No. 24.) Plaintiff relies on the doctrine of collateral estoppel, pointing to a stipulation and judgment entered in a state court proceeding stating that the state court found that the debt was obtained by false pretenses, a false representation, or actual fraud. (Doc. No. 24.)
A. The Debt
On December 15, 2015, Defendant, individually, and as an owner and member of Strategic Reo Investments LLC, and Chenenne W. Gonzalez, executed a Mortgage Note for $40,000 in favor of Plaintiff (the "Note"). (Doc. No. 24-1 at 13-15.) Four years later, Plaintiff filed a complaint in the Circuit Court of the Ninth Judicial Circuit in and for Orange County, Florida, against Defendant and others who executed the Note (the "Co-Borrowers") for their failure to make monthly payments beginning January 15, 2016, and to pay the entire balance when due on June 30, 2017 (the "State Court Action"). (Id. at 6-8.) Plaintiff alleged three claims in the State Court Action against Defendant and the Co-Borrowers: Count I for breach of contract, Count II for fraud in the inducement, and Count III to reestablish a lost note. (Id. at 7-12.) The alleged false statements supporting the fraud in the inducement claim were that Defendant and the Co-Borrowers falsely stated that they would make monthly payments beginning January 15, 2016, and that they would pay the entire balance due on June 30, 2017. (Id. at 9.) Plaintiff alleged in the complaint in the State Court Action that it reasonably and justifiably relied on these statements. (Id. at 10.)
Plaintiff, Defendant and the Co-Borrowers entered a "Pre-Judgment Stipulation for Settlement," on January 2, 2020 (the "Stipulation"). (Id. at 24-31.) The Stipulation states that Defendant and the Co-Borrowers "acknowledge that they breached the Note, are in default of the Note, and that they are[] liable jointly and severally to [Plaintiff] for all sums of money owed under the Note." (Id. at 24.) The total amount owed is listed as $67,011.69. (Id.) The Stipulation establishes a monthly payment plan with interest accruing at 18% per annum and further provides that if Defendant and the Co-Borrowers default, then Plaintiff "shall be entitled to obtain a Final Judgment against the Defendants jointly and severally, ex parte (without notice) . . . ." (Id. at 25.) Importantly, Defendants declined to admit to Plaintiff's fraud allegations in the complaint but agreed Plaintiff could "proceed with obtaining … a Final Judgment … and a finding that the Note was obtained by false pretenses, a false representation, or actual fraud." (Id. at 26.)
Defendant and the Co-Borrowers apparently made no payments under the Stipulation. (Doc. No. 24 at ¶ 8.) Thus, on June 11, 2020, Plaintiff obtained a Final Judgment against Defendant and the Co-Borrowers for $69,261.69 (the "Final Judgment"). (Doc. No. 24-1 at 37-39.) The "Findings of Fact" section in the Final Judgment states that the Stipulation was approved by the state court which retained jurisdiction to enforce it (id. at 37), and a finding that in the event of default, Plaintiff would be entitled to "a finding that the Note was 'obtained by false pretenses, a false representation, or actual fraud.'" (Id. at 38.) The Findings of Fact end with the statement, "The Court specifically finds that the Note was 'obtained by false pretenses, a false representation, or actual fraud.'" (Id. at 38.) The Final Judgment is copied to Defendant and the Co-Borrowers at a P.O. Box and to Plaintiff's attorney; no attorney is listed for Defendant and the Co-Borrowers. (Id. at 39.)
B. The Bankruptcy Case
On September 2, 2021, Defendant filed a Chapter 13 case. (Case No. 6:21-bk-04033-TPG, Doc. No. 1.) On Schedule D, Defendant listed Plaintiff as having a claim of $63,384.83. (Case No. 6:21-bk-04033-TPG, Doc. No. 15 at 10.) Plaintiff filed a proof of claim of $73,584.89 on November 12, 2021 (the "Debt"). (Case No. 6:21-bk-04033-TPG, Claim No. 13.) Defendant did not file an objection to Plaintiff's claim. The case was converted to Chapter 7, and Defendant received a discharge on June 2, 2022. (Case No. 6:21-bk-04033-TPG, Doc. Nos. 46, 59.)
C. The Adversary Proceeding
Plaintiff filed this adversary proceeding against Defendant on November 29, 2021, seeking a determination that the Debt is non-dischargeable. (Doc. No. 1.) In the Complaint, Plaintiff lists two counts: Count I-Non-Dischargeability of Debt Pursuant to 11 U.S.C. § 523(a)(2)(A) and Count II-Non-Dischargeability of Debt Pursuant to 11 U.S.C. § 523(a)(6). (Id. at 3-5.) Under Count I, Plaintiff alleges that the Debt "was obtained by false pretenses, a false representation, or actual fraud." (Id. ¶ 21.) The only facts supporting this allegation are that "as determined by the court presiding over the State Court Action, the debt evidenced by the Claim was 'obtained by false pretenses, a false representation, or actual fraud.'" (Id. ¶ 22.) In support of Count II's claim that the Debt results from a willful and malicious injury, Plaintiff alleges Defendant:
misrepresent[ed] that he would take the actions necessary to secure the underlying debt by recording a security interest on the Debtor's property; those representations were false and the Defendant intentionally failed to secure the debt by recording the necessary security interest; and those false misrepresentations were made willfully and maliciously with the intent of causing injury to the Plaintiff and/or were substantially certain to cause injury to the Plaintiff.(Id. ¶ 30.) Counts I and II are pleaded separately and their allegations are not incorporated into each other. (Id. ¶¶ 16-31.) Defendant filed his Answer and Affirmative Defenses on January 14, 2022. (Doc. No. 11.) As his first affirmative defense, Defendant states that the Final Judgment is not binding here "because no evidentiary findings were ever made regarding Defendant's intent." (Id. at 3.) Defendant's second affirmative defense is "that he never had any fraudulent or wrongful intent. Plaintiff's claim is merely for a debt that was not paid due to circumstances beyond Defendant's control." (Id.)
Plaintiff now moves for summary judgment as to the non-dischargeability of the Debt under section 523(a)(2)(A) as alleged in Count I, asking the Court to find that Defendant "is collaterally estopped from relitigating whether the debt at issue was obtained by fraud" based on the Stipulation and Final Judgment. (Doc. No. 24 at 2.) In response, Defendant argues that there was never a factual finding that the Debt was obtained by false pretenses, a false representation, or actual fraud. (Doc. No. 26 ¶ 1.) Defendant also contends that because the Stipulation states that he denies any allegations of fraud, a material issue of fact exists regarding the parties' intent with respect to the finality of any litigation concerning the issue of fraudulent conduct. (Id. ¶ 3.) Plaintiff counters that the Final Judgment demonstrates that the fraud finding was fully litigated as needed for collateral estoppel and that nothing in the Stipulation creates an issue of material fact. (Doc. No. 28 ¶¶ 2-5.) Finally, Plaintiff notes that the Final Judgment here is a consent judgment, and not a default judgment, arguing that a consent judgment should carry more weight (Id. ¶¶ 6-7), particularly since Plaintiff supplied consideration to the Defendant for entering into the Stipulation by decelerating the amounts due and agreeing to accept monthly payments over time. (Doc. No. 24 at ¶¶ 6-7.)
Plaintiff did not seek a summary judgment that the debt is not dischargeable under section 523(a)(6) as alleged in Count II. (Doc. No. 24.)
II. ANALYSIS
Federal Rule of Bankruptcy Procedure 7056 makes Federal Rule of Civil Procedure 56(a) applicable to bankruptcy proceedings. Rule 56(a) states, "The court shall 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." The party moving for summary judgment has the burden of establishing its right to summary judgment. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986); In re Patel, No. 6:18-BK-00036-KSJ, 2021 WL 4900792, at *2 (Bankr. M.D. Fla. Oct. 20, 2021). "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). A genuine issue exists if "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson v. Liberty Lobby, Inc., 477 U.S. at 249, 106 S.Ct. at 2511, 91 L.Ed.2d 202. If the movant meets its burden, then the burden shifts to the opposing party to demonstrate a genuine issue of material fact. Boyle v. City of Pell City, 866 F.3d 1280, 1288 (11th Cir. 2017). "At the summary judgment stage, facts must be viewed in the light most favorable to the nonmoving party only if there is a 'genuine' dispute as to those facts." Scott v. Harris, 550 U.S. 372, 380, 127 S.Ct. 1769, 1776, 167 L.Ed.2d 686 (2007) (citing Fed.R.Civ.P. 56(c)).
Plaintiff argues that it is entitled to a summary judgment that the Debt is not dischargeable under 11 U.S.C. § 523(a)(2)(A) because Defendant is collaterally estopped from relitigating that the Debt was obtained by false pretenses, a false representation, or fraud. (Doc. No. 24.) Under section 523(a)(2)(A), a debt is not dischargeable "for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by-- (A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition . . . ." The elements of collateral estoppel Plaintiff must satisfy to obtain its summary judgment require identical parties and a final decision by a court of competent jurisdiction that has fully litigated and determined the precise issue. In re Harris, 3 F.4th 1339, 1345 (11th Cir. 2021) (quoting Dadeland Depot, Inc. v. St. Paul Fire & Marine Ins. Co., 945 So.2d 1216, 1235 (Fla. 2006)).
Plaintiff focuses on the argument that the claim is not dischargeable because the state court found that the Note was obtained by false pretenses, a false representation, or actual fraud. But per Harris, more than fraud must be shown for the claim to be non-dischargeable pursuant to section 523(a)(2)(A). Specifically, Plaintiff must prove all the following by a preponderance of the evidence: (1) Defendant used false pretenses, or made a false representation, or committed actual fraud; (2) Plaintiff relied on Defendant's conduct; (3) Plaintiff's reliance was justified; and (4) Defendant's conduct caused Plaintiff's loss. In re Harris, 3 F.4th at 1344. Thus, Plaintiff must prove more than that Defendant used false pretenses, made a false representation, or committed actual fraud. But the Final Judgment only addresses this first element and not the other three.
Although Plaintiff did allege in the State Court Action that it reasonably and justifiably relied on Defendant and the Co-Borrowers' false statements that they would make the monthly payments and would pay the entire remaining balance on June 30, 2017 (Doc. No. 24-1 at 9-10), the Stipulation expressly states that the Defendants did not agree to Plaintiff's allegations of fraud (Doc. No. 24 at 26 ¶ 8) and does not contain any agreement that knowingly false statements were made. "[T]he false pretense and false representation prongs of § 523(a)(2)(A) each require an 'intentional wrong'-the false pretense or the false representation 'must have been knowingly and fraudulently made.'" In re Harris, 3 F.4th at 1345 (quoting 4 Collier on Bankruptcy, ¶ 523.08[1][d] (16th ed. 2018)).) Further, the Final Judgment does not specify whether Plaintiff prevailed in the State Court Action on Count I for breach of contract, Count II for fraudulent inducement, or both counts, and contains no findings regarding whether Plaintiff justifiably relied on any allegedly false statements knowingly made by the Defendant. (Id. at 37-39.)
These facts distinguish this case from In re Halpern, 810 F.2d 1061 (11th Cir. 1987), relied upon by Plaintiff. (Doc. No. 24 at 8-9.) In Halpern, the debtor and the creditor agreed to a consent judgment in a Georgia state court proceeding wherein the judgment stated that the debtor made material misrepresentations of fact, knew the statements were false when they were made, and that the statements were made with the intent to induce the creditor's reliance. In re Halpern, 810 F.2d at 1062. In addition, the debtor agreed to the judgment stating that he recognizes that the findings in the judgment "conclusively establish" that his liability to the creditor will not be dischargeable in bankruptcy because the debtor obtained money or property by false pretenses, false representations, and actual fraud. Id. The Eleventh Circuit affirmed the bankruptcy court's use of collateral estoppel to preclude the debtor from relitigating the findings in the consent judgment. Id. at 1064. There was no doubt that the parties intended the consent judgment to "operate as a final adjudication of the factual issues contained therein." Id. Because (1) the debtor specifically agreed that these facts were conclusively established; (2) the consent judgment was signed by both the debtor and his attorney; and (3) there was no evidence of coercion or duress, collateral estoppel was properly applied to preclude the debtor from relitigating the facts regarding dischargeability of the debt. Id. at 1065-66.
Although Halpern arose out of Georgia, the Eleventh Circuit relied on its prior decision from a Florida court in setting forth the elements of collateral estoppel. In re Halpern, 810 F.2d at 1064 (citing In re Held, 734 F.2d 628, 629 (11th Cir.1984)). The Eleventh Circuit stated the elements of collateral estoppel slightly differently in Halpern than in the later-decided Harris: "(1) the issue at stake must be identical to the one involved in the prior litigation; (2) the issue must have been actually litigated in the prior litigation; and (3) the determination of the issue in the prior litigation must have been a critical and necessary part of the judgment in that earlier action." In re Halpern, 810 F.2d at 1064.
Here, the Final Judgment contains only the conclusive assertion that the Debt was obtained by false pretenses, a false representation, or actual fraud. (Doc. No. 24-1 at 37-39.) The Final Judgment contains no findings regarding the other elements required to establish non-dischargeability under section 523(a)(2)(A). And the intent of the parties as to whether the Final Judgment conclusively establishes Defendant's alleged fraud is muddied by the statement in the Stipulation that Defendant did not admit to Plaintiff's allegations of fraud. (Id. at 26.) Finally, unlike in Halpern, Defendant never admitted that his liability to Plaintiff would not be dischargeable in bankruptcy.
Because all elements necessary to find that the Debt is non-dischargeable under section 523(a)(2)(A) have not been shown by a preponderance of evidence and because material factual disputes exist, summary judgment must be denied.
III. CONCLUSION
Accordingly, it is ORDERED that the Motion (Doc. No. 24) is DENIED.
The Clerk is directed to serve a copy of this order on all interested parties.