Opinion
Case No. 97-20655, Adversary No. 97-6372
February 4, 1999.
Monica M. Flood, Coeur d'Alene, Idaho, for the Plaintiff.
David A. Manko, Coeur d'Alene, Idaho for the Debtor/Defendant.
MEMORANDUM OF DECISION AND ORDER DENYING MOTION FOR SUMMARY JUDGMENT
Plaintiff moves for entry of summary judgment in this adversary proceeding under Fed.R.Bankr.P. 7056 and Fed.R.Civ.P. 56(a). Plaintiff asserts that debts owed him by Defendant in the amount of $115,000.00 are nondischargeable, that there are no genuine issues of material fact because of what occurred in prior state court criminal litigation, and that principles of collateral estoppel preclude further litigation of these dischargeability issues.
After hearing on January 12, 1999, the Court took the matter under advisement. The Court has reviewed the parties' submissions on the motion, and relevant authorities, and denies summary judgment.
BACKGROUND
Plaintiff, Willem Huender ("Huender"), filed a complaint alleging that certain "NSF" checks give rise to debts that are not dischargeable in the chapter 7 bankruptcy of the Debtor/ Defendant, Gail Romanski ("Romanski").
Huender alleges that Romanski was involved in a joint venture with him (and a third individual, Jim Laughnan) called Heaven's Treasures. Huender's suit focuses on two events related to this enterprise.
First, he alleges that two checks totaling $80,000.00 ($35,000.00 and $45,000.00 both dated June 6, 1997) were drawn by Romanski on a Heaven's Treasures checking account at Northern State Bank and were made payable to Huender in distribution of his interests upon dissolution of Heaven's Treasures. These checks were dishonored by the Bank due to insufficient funds in the account.
Second, he alleges that Romanski, on June 20, 1997, deposited a $35,000.00 check drawn on her personal checking account at U.S. Bank into a Heaven's Treasures account at Washington Trust Bank; that she caused a check, no. 5010, to be issued on June 20, 1997, on the Heaven's Treasures account at Washington Trust in the same amount payable to Greg Rainey; that Romanski's personal checking account at U.S. Bank had insufficient funds to cover her check; that consequently the cashier's check issued June 23, 1997, by Washington Trust to Rainey, in apparent replacement of check no. 5010, was unfunded. Even though Huender was not a direct party to these checks, he contends he has a right to a nondischargeable $35,000.00 judgment because he was a signatory on the Washington Trust Bank account and is thus liable to Washington Trust Bank which had to honor its cashier's check to Rainey.
The record is not clear as to why or how the cashier's check came to be substituted for check no. 5010.
The motion seeks summary judgment for $115,000.00, the amount of the two direct checks totaling $80,000.00 and the $35,000.00 Rainey check. The Complaint asserts a liability of $155,000.00 but that greater amount is unexplained.
Huender alleges that, in each of the above instances, Romanski knew there were insufficient funds in the relevant bank accounts to cover the checks she issued and caused to be delivered. He clearly asserts that, under § 523(a)(2)(A), he was defrauded as to the checks delivered to him. He seems to assert that, though the Rainey/cashier's check went to another party, his derivative liability as a signatory on the Washington Trust Bank account means that he was a victim of fraud in that transaction, as well.
Huender moves for summary judgment based upon his affidavit and certain documents from the state court criminal process. Romanski denies that the debts are nondischargeable and has filed her affidavit in opposition to the motion.
Huender also requested in his motion that the Court "take judicial notice of the Memorandum in Support of Summary Judgment and accompanying Affidavits" filed in another consolidated adversary proceeding involving Romanski (Washington Trust Bank v. Romanski, Adv. No. 97-6339). The Court concludes Fed.R.Evid. 201 is not implicated. See generally, Russell, Bankruptcy Evidence Manual, at § 201.2, 201.5 (1999 ed.). Additionally, Huender failed to identify any specific adjudicative facts allegedly established in that other litigation, and has not provided a record as to what that litigation adds to this suit or the pending motion. ("A court shall take judicial notice if requested by a party and supplied with the necessary information." Fed.R.Evid. 201(d) (emphasis added).) The Court declines an invitation to scour the record for relevant facts.
The Complaint alleges a right to relief under § 523(a)(2)(A), (a)(4) and (a)(6). Huender's Memorandum in Support of Motion for Summary Judgment ("Huender's Brief"), however, is premised upon § 523(a)(2)(A) and § 523(a)(7), though it also alludes to § 523(a)(4) as a basis for relief.
Apparently, the allegation in the complaint that the debts are nondischargeable under § 523(a)(6) is abandoned for purposes of this motion.
DISCUSSION
1. Summary Judgment Standards
The Court may grant a motion for summary judgment if, applying the correct law and viewing the evidence in the light most favorable to the non-moving party, there are no genuine issues of material fact. Margolis v. Ryan, 140 F.3d 850, 852 (9th Cir. 1998). The Court does not weigh the evidence; rather it determines only whether a material factual dispute remains for trial. Covey v. Hollydale Mobilehome Estates, 116 F.3d 830, 834 (9th Cir. 1997). "The initial burden of showing that there is no genuine issue of fact rests on the moving party." Margolis, 140 F.3d a 852.
2. Collateral estoppel.
In this case, Huender asserts that the state court criminal case against Romanski proves the elements of his claims of nondischargeability. He does so on the theory that Romanski "admitted" the requisite factual elements of nondischargeability in the state court, and that the prosecutorial process should be given preclusive effect.
"Romanski admitted in her criminal case, Kootenai County case number CR97-6360, that she knew at the time she endorsed [sic] the checks that she knew there were insufficient funds in the account at Northern State Bank." Huender's Brief at 2. "Romanski was later charged criminally by the state for fraudulently issuing the above mentioned checks. Romanski pleaded guilty to the charges. . . ." Huender's Brief at 3. The Brief's documentary references in support of these assertions are to the "Information", "Sentence Disposition" and "Written Plea Agreement" in the state court case, discussed below.
Although a state court judgment may prove (or foreclose proof of) specific issues, it does not itself prove a claim of nondischargeability of a debt. Grogan v. Garner, 498 U.S. 279, 284 n. 11 (1991); Brown v. Felsen, 442 U.S. 127, 139 n. 10 (1979). Nondischargeability is a determination which must independently be reached under federal bankruptcy law.
To prove a debt nondischargeable, certain facts must be alleged and proved by a preponderance of the evidence presented or, alternatively, by asserting a prior judgment which proves the fact and collaterally estops further litigation. In this summary judgment context, the evidence adduced either through affidavit or from the state court record must, when viewed in Romanski's favor, establish the lack of a genuine issue of material fact and Huender's entitlement to § 523 relief.
Grogan, 498 U.S. at 287.
When a party asserts preclusive effect of an earlier state court judgment, the bankruptcy court must apply the same requisites for collateral estoppel that the state court would require. Gayden v. Nourbakhsh (In re Nourbakhsh), 67 F.3d 798, 800 (9th Cir. 1995). In this case, Idaho judgments are asserted, so Idaho's standard of collateral estoppel applies:
(1) Did the party "against whom the earlier decision is asserted . . . have a 'full and fair opportunity to litigate that issue in the earlier case?'" (2) Was the issue decided in the prior litigation "identical with the one presented in the action in question?" (3) Was the issue actually decided in the prior litigation? This may be dependent on whether deciding the issue was "necessary to [the prior] judgment." (4) "Was there a final judgment on the merits?" (5) Was the party against whom the plea is asserted a party or in privity with a party to the prior adjudication?"
Robertson Supply, Inc. v. Nicholls, 952 P.2d 914, 917-18 (Idaho Ct.App. 1998) (quoting Anderson v. City of Pocatello, 731 P.2d 171, 178 (Idaho 1986) (citations omitted)). There appears to be little problem with the first and fifth element. The Court, however, perceives issues with the other three elements on the present record.
Huender asserts that (1) the "Information", (2) the "Sentencing Disposition and Notice of Right to Appeal" and (3) the "Written Plea Agreement" from the records of the First Judicial District Court of the State of Idaho, Kootenai County, meet the test for estoppel under Idaho law.
An intriguing question is presented under the Idaho test: Can a "withheld" judgment, as here, be a "final judgment" on the merits? Nicholls, supra (fourth element).
However, the "Information" (Case CR-F97-9040) of February 27, 1998, which refers to counts of grand theft viz Huender for "$30,000.00" and "$45,000.000.00" was superseded by a "Consolidated Amended Information" (Case Nos. CR-F97-6360, F97-9040) of April 3, 1998, which omitted reference to those two circumstances. The "Written Plea Agreement" was entered in reference to the Consolidated Amended Information, not the original Information. The Plea Agreement therefore cannot constitute a judicial "admission" of Romanski regarding those two checks as Huender contends. The issues in the state court and the issues here are not identical, and the issues at bar were not actually decided. Nicholls, supra.
The Written Plea Agreement itself notes that three counts of the original Information charging grand theft would be dismissed; two were those involving Huender.
Huender also asserts that the "Second Amended Order for Restitution and Civil Judgment," entered on September 24, 1998 (the "Restitution Order") collaterally estops further litigation and proves the debt nondischargeable. Counsel for Huender explained that this Restitution Order resulted from the plea bargain between the State and Romanski, and imposes liability to pay, inter alia, restitution in the amount of $50,000.00 plus interest to Huender and $35,000.00 plus interest to Washington Trust Bank. The Restitution Order does not indicate the basis for the calculation of the award. Looking back to the documents supporting the Restitution Order, the Consolidated Amended Information (to which Romanski pleaded guilty) does not allege anything that would give rise to the order to pay Huender (much less explain the "$50,000.00" figure).
The Plea Agreement indicates that the Prosecutor agreed to dismiss certain charges against Romanski, i.e., three counts of grand theft in CR-F97-9040 including the two counts involving Huender. The Sentencing Disposition indicates that only the two remaining charges, not involving Huender, in CR-F97-6030 remained when Romanski entered her plea. Consequently, issues regarding debts owed to Huender were never litigated or adjudicated. The Restitution Order fails to satisfy the second and third prongs of the Nicholls test and is therefore not entitled to preclusive effect any more than the other state court pleadings.
The Court has carefully reviewed the criminal pleadings and documents and concludes that Huender has failed to establish that Romanski is collaterally estopped thereby from introducing evidence in this adversary proceeding in opposition to the claims of nondischargeability.
3. Whether summary judgment is otherwise supported.
The motion, as earlier noted, seeks summary judgment on §§ 523(a)(2)(A), 523(a)(4) and 523(a)(7) grounds. Can Huender meet his burden under Rule 56(a) without relying on the allegedly preclusive effect of the state court process?
To succeed in proving a debt nondischargeable under § 523(a)(2)(A), In re Apte, 96 F.3d 1319, 1322 (9th Cir. 1996), requires that the creditor prove that the debtor made a knowingly false representation, with the intention and purpose to deceive the creditor, upon which the creditor justifiably relied in sustaining proximately caused damages.
Romanski denies that the debt is nondischargeable. In her affidavit, Romanski asserts facts which, she argues, establish she did not have the requisite intent under § 523(a)(2)(A), to wit: she was assured by Jim Laughnan that funds would be deposited to cover the two checks to Huender and that Laughnan and a third party (Davis) represented to her that funds were or would be available to cover the Rainey check. Her affidavit further asserts that her plea agreement on the count involving the Rainey check did not establish an intent to defraud. She states that her lack of defense to criminal liability was "technical" and based on her knowledge that, at the moment the check was written, there wasn't yet money in the account to cover it. This, she contends, was not based on nor reflects an admission of an intent to defraud.
This assertion is belied by the language of the Consolidated Amended Information which, at Count II, p. 2, states Romanski "did willfully and with the intent to defraud Washington Trust Bank, make and/or deliver [her U.S. Bank check]." Note, however, that she there only admitted an intent to defraud Washington Trust, not Huender or any other party.
Interestingly, the third paragraph of Huender's May 28, 1997 "Contract Agreement" (Exhibit A to the Complaint) indicates that Huender was to receive a check on May 28, 1997, and that it "shall become bankable" by June 5, 1997. This raises a question as to whether the absence of funds at the times the check (or checks) to him were written is the relevant inquiry for purposes of the intent requirement.
The Court finds, given that it must view the evidence most favorably to the non-moving party, that genuine issues of material fact exist as to at least one of the Apte elements and summary judgment under § 523(a)(2)(A) is thus inappropriate.
Section 523(a)(4) excepts from discharge a debt for "fraud or defalcation while acting in a fiduciary capacity." Huender alleges that he and Romanski were involved in a joint venture, which would provide the fiduciary setting. But Romanski denies that she was a joint venturer. And Romanski did not execute the March 20, 1997 joint venture agreement. Huender has not at this stage established the existence of the prerequisite fiduciary relationship. And, of course, "fraud" within that relationship, or embezzlement or larceny, must also be proven under subsection (a)(4). That proof is, as yet, lacking. The Court concludes summary judgment under § 523(a)(4) is not appropriate.
Finally, Huender asserts a right to relief under § 523(a)(7), which requires that he prove that Romanski owes a debt reflecting "a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and [which is] not compensation for actual pecuniary loss." See generally In re Ellis, 224 B.R. 786, 98.4 I.B.C.R. 109 (Bankr.D.Idaho 1998).
The Restitution Order here appears to require Romanski to pay Huender, not a governmental unit. It also requires Romanski to give Huender a "civil judgment." Huender's counsel admitted at hearing that, even if paid in the first instance to the State, restitution goes ultimately to Huender; that this payment is to Huender's, and not the State's, benefit; and that the payment compensates (or flows from) his actual pecuniary loss. The factual record presented in this summary judgment context is not sufficiently clear to establish that Huender is entitled to judgment under § 523(a)(7), Ellis, and Kelly v. Robinson, 107 S.Ct. 353 (1986).
Additionally, this claim was not pleaded in the Complaint. If Huender intends to pursue this, he will need to amend the Complaint, and then sufficiently establish his right to relief at trial.
CONCLUSION AND ORDER
Huender has failed to establish that the state court process estops Romanski's defense of this litigation. Upon reviewing the record in favor of the non-moving party, genuine issues of material fact exist, and Huender has failed to carry the burden of proving an entitlement to summary judgment on any of the three grounds asserted.
For the foregoing reasons, Huender's Motion for Summary Judgment is DENIED.