Stein v. O'Neal et al

This opinion is not intended for commercial publication, either print or electronic.1
Docket 20, 21, 22.2
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
In re: ) Case No. 08-11020
)
KENNETH S. O’NEAL SR. and ) Chapter 7
SHARON A. O’NEAL, )
)
Debtors. ) Judge Pat E. Morgenstern-Clarren
___________________________________ )
)
SHELDON STEIN, TRUSTEE, ) Adversary Proceeding No. 10-1295
)
Plaintiff, )
)
v. )
) MEMORANDUM OF OPINION1
KENNETH S. O’NEAL, SR., et al., ) AND ORDER
)
Defendants. )
The plaintiff chapter 7 trustee Sheldon Stein filed this complaint seeking to revoke the
debtors’ discharges on the ground that they refused to comply with a court order to turn over
property or funds to the trustee. The trustee also requests a monetary judgment against the
debtors in the amount of $15,600.00. The trustee moves for summary judgment, and the debtors
oppose that motion. For the reasons stated below, the trustee’s motion is denied.2
JURISDICTION
Jurisdiction exists under 28 U.S.C. § 1334 and General Order No. 84 entered in this
district by the United States District Court for the Northern District of Ohio. This is a core
proceeding under 28 U.S.C. § 157(b)(2)(J).
10-01295-pmc Doc 23 FILED 03/09/11 ENTERED 03/09/11 14:00:35 Page 1 of 8

2
DISCUSSION
I. Summary Judgment
Summary judgment should be rendered if the pleadings, the discovery and disclosure
materials on file, and any affidavits show “that there is no genuine dispute as to any material fact
and [that] the movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a) (made
applicable by FED. R. BANKR. P. 7056); see also Celotex Corp. v. Catrett, 477 U.S. 317 (1986);
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986); Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574 (1986). The moving party generally bears the initial burden of
showing that no genuine issue of material fact exists. Gen. Motors Corp. v. Lanard Toys, Inc.
468 F.3d 405, 412 (6th Cir. 2006). “[T]hat burden ‘may be discharged by 'showing–that is,
pointing out to the . . . court–that there is an absence of evidence to support the nonmoving
party's case.’” Id. (quoting Bennett v. City of Eastpointe, 410 F.3d 810, 817 (6th Cir. 2005)).
“Once the moving party has satisfied its burden, the nonmoving party may not rest upon its mere
allegations or denials of the opposing party’s pleadings, but rather it must set forth specific facts
showing that there is a genuine issue for trial.” Havensure, L.L.C. v. Prudential Ins. Co. of Am.,
595 F.3d 312, 315 (6th Cir. 2010). “In determining whether a genuine issue of material fact
exists, [the] court draws all inferences in the light most favorable to the nonmoving party.” Id.
The issue at this stage is whether there is evidence on which a trier of fact could reasonably find
for the nonmoving party. Street v. J.C. Bradford & Co., 886 F.2d 1472, 1477 (6th Cir. 1989).
II. The Facts
These facts are undisputed based on the evidence offered in connection with the motion
for summary judgment:
10-01295-pmc Doc 23 FILED 03/09/11 ENTERED 03/09/11 14:00:35 Page 2 of 8

Statement of Affairs, answer to question 14.3
3
Kenneth and Sharon O’Neal filed a chapter 13 case on February 18, 2008. Sharon
O’Neal stated in that filing that her property included a 2006 Nissan Altima (the vehicle) valued
at $17,000.00, with exemptions totaling $1,400.00 claimed as to the vehicle. The debtors stated
that they did not hold or control any property owned by another person. They voluntarily3
converted their case to chapter 7 on May 13, 2009 and received chapter 7 discharges on
September 2, 2009.
On October 1, 2009, the trustee filed a motion in which he asked that the debtors be
directed to turn over property of the estate: either the vehicle or $15,600.00 (the vehicle’s value
less claimed exemptions). The trustee noticed his motion for hearing on October 29, 2009, with
a response date of October 22, 2009. The debtors objected to the motion, stating both a factual
and legal basis for their opposition. The court heard the matter on October 29, 2009 and
adjourned it to December 17, 2009. Debtors’ counsel did not appear on December 17, 2009, as a
result of which the court issued a bench ruling granting the trustee’s motion and overruling the
debtors’ objection for failure to prosecute. On December 18, 2009, the court entered an order
granting the trustee’s motion and requiring the debtors to turn over the vehicle or $15,600.00 to
the trustee within 30 days (the turnover order).
The debtors filed a motion to reconsider the turnover order; a request opposed by the
trustee. After a first hearing on the matter on January 21, 2010, the hearing was adjourned to
February 25, 2010, and then to March 18, 2010. Debtors’ counsel did not appear on that date, at
which time the court orally denied the motion to reconsider for lack of prosecution. The court
entered an order reflecting that ruling on June 25, 2010. When the debtors failed to comply with
10-01295-pmc Doc 23 FILED 03/09/11 ENTERED 03/09/11 14:00:35 Page 3 of 8

The parties agree that this is the applicable standard.4
4
the turnover order, the trustee filed this adversary proceeding asking that their discharges be
revoked and requesting a $15,600.00 judgment.
III. Revocation of Discharge
Bankruptcy Code § 727(d)(3) provides that:
(d) On request of the trustee . . . and after notice and a hearing, the
court shall revoke a discharge granted under subsection (a) of this
section if– . . . (3) the debtor committed an act specified in
subsection (a)(6) of this section[.]
11 U.S.C. § 727(d)(3). Subsection (a)(6) in turn states that a debtor’s discharge shall be denied
when the debtor “has refused . . . to obey any lawful order of the court, other than an order to
respond to a material question or to testify[.]” 11 U.S.C. § 727(a)(6)(A). Based on these
provisions, the court may revoke a debtor’s chapter 7 discharge if the debtor refuses to obey a
lawful order of the court.
There is a divergence of opinion regarding the level of intent that must be shown under
§ 727(a)(6)(A), with some courts requiring a showing of a willful or intentional act and others
treating the matter as an issue of civil contempt. Smith v. Jordan (In re Jordan), 521 F.3d 430,
434 (4th Cir. 2008). This court has held that a determination as to whether a debtor has refused
to obey a court order should be treated as an issue of civil contempt, requiring proof that the
debtor had knowledge of the order, that the debtor violated the order, and that the violated order
was specific and definite. Baumgart v. Degidio (In re Degidio), Adv. No. 08-1203 (Bankr. N.D.4
Ohio Nov. 10, 2008) (citing Hunter v. Watson (In re Watson), 247 B.R. 434, 436 (Bankr. N.D.
Ohio 2000)). This interpretation conforms with the plain meaning of the provision. Hunter v.
Magack (In re Magack), 247 B.R. 406, 410 (Bankr. N.D. Ohio 1999). As with contempt, a
10-01295-pmc Doc 23 FILED 03/09/11 ENTERED 03/09/11 14:00:35 Page 4 of 8

5
debtor may defend an action under § 727(a)(6)(A) by establishing impossibility or an inability to
comply with the court’s order. Id. (citing United States v. Bryan, 339 U.S. 323, 330-34 (1950)).
IV. The Motion for Summary Judgment
The trustee has provided evidence of the debtors’ refusal to comply with the turnover
order under the three-prong standard for civil contempt. Indeed, the debtors acknowledge that
they knew that the turnover over specifically required them to turn over the vehicle or
$15,600.00, and that they have failed to comply with its terms. The debtors, however, oppose
summary judgment on two grounds. One, they argue that the vehicle did not become property of
the chapter 7 estate and that the trustee was not entitled to the order requiring turnover. Two,
they argue that they were and are unable to comply with the turnover order.
A.
The debtors’ first argument is based on a challenge to the turnover order itself. The issue
is whether the debtors may mount such a challenge at this time or whether they are precluded
from doing so under one of two doctrines: claim preclusion, often referred to as res judicata, and
issue preclusion, often referred to as collateral estoppel.
Under the doctrine of claim preclusion, a final judgment forecloses
“successive litigation of the very same claim, whether or not
relitigation of the claim raises the same issues as the earlier suit.”
New Hampshire v. Maine, 532 U.S. 742, 748, 121 S.Ct. 1808, 149
L.Ed.2d 968 (2001). Issue preclusion, in contrast, bars “successive
litigation of an issue of fact or law actually litigated and resolved in
a valid court determination essential to the prior judgment,” even if
the issue recurs in the context of a different claim. Id., at 748-749,
121 S.Ct. 1808. By “preclud[ing] parties from contesting matters
that they have had a full and fair opportunity to litigate,” these two
doctrines protect against “the expense and vexation attending
multiple lawsuits, conserv[e] judicial resources, and foste[r]
reliance on judicial action by minimizing the possibility of
inconsistent decisions.” Montana v. United States, 440 U.S. 147,
153-154, 99 S.Ct. 970, 59 L.Ed.2d 210 (1979).
10-01295-pmc Doc 23 FILED 03/09/11 ENTERED 03/09/11 14:00:35 Page 5 of 8

The collateral estoppel doctrine “dictates that once a court has decided an issue of fact5
or law necessary to its judgment, that decision may preclude relitigation of the issue in a suit on a
different cause of action involving a party to the first case.” Aircraft Braking Sys. Corp. v. Local
856, Int’l Union, 97 F.3d 155, 161 (6th Cir. 1996) (internal quotation marks and citation
omitted). A four-part test determines whether collateral estoppel applies: 1) the precise issue
raised in the present case must have been raised and actually litigated in the prior proceeding;
2) determination of the issue must have been necessary to the outcome of the prior proceeding;
3) the prior proceeding must have resulted in a final judgment on the merits; and 4) the party
against whom estoppel is sought must have had a full and fair opportunity to litigate the issue in
the prior proceeding. Id.
6
Taylor v. Sturgell, 553 U.S. 880, 892 (2008). While the parties have focused on collateral
estoppel and its requirement that an issue must have been actually litigated, the turnover order5
was this court’s final decision regarding the debtors’ obligation to turn over the vehicle, meaning
that claim preclusion is the doctrine which is more to the point. See LaBarge v. Ireland (In re
Ireland), 325 B.R. 836, 839 (Bankr E.D. Mo. 2005) (holding that res judicata prevented debtor
from relitigating issue of exemptions because the debtor could have raised the issue as defense to
the trustee’s motion for turnover); see also Winget v. JP Morgan Chase Bank, N.A., 537 F.3d
565, 578-79 (6th Cir. 2008) (holding that res judicata applies to a bankruptcy court order which
finally disposes of a discrete issue in the bankruptcy case).
As the Sixth Circuit has explained:
Res judicata, or claim preclusion as it is more helpfully termed, is
the doctrine, simply stated, by which a final judgment on the merits
in an action precludes a party from bringing a subsequent lawsuit
on the same claim or cause of action or raising a new defense to
defeat a prior judgment. . . . It precludes not only relitigating a
claim or cause of action previously adjudicated, it also precludes
litigating a claim or defense that should have been raised, but was
not, in a claim or cause of action previously adjudicated.
Gargallo v. Merrill Lynch, Pierce, Fenner & Smith, 918 F.2d 658, 660-61 (6th Cir. 1990)
(internal citation omitted). The doctrine is applied “to promote the finality of judgments, which
10-01295-pmc Doc 23 FILED 03/09/11 ENTERED 03/09/11 14:00:35 Page 6 of 8

7
in turn increases certainty, discourages multiple litigation and conserves judicial resources.”
Sanders Confectionery Prods., Inc. v. Heller Fin., Inc., 973 F.2d 474, 480 (6th Cir. 1992).
A four-part test is used to determine whether a claim or defense is barred by claim
preclusion: (1) a final decision on the merits by a court of competent jurisdiction; (2) a
subsequent action between the same parties or their privies; (3) an issue in the subsequent action
which was litigated or which should have been litigated in the prior action; and (4) an identity of
the causes of action. Rawe v. Liberty Mut. Fire Ins. Co., 462 F.3d 521, 528 (6th Cir. 2006). That
test is met here. The turnover order was a final decision on the merits by this court requiring the
debtors to turn over the vehicle or $15,600.00 as property of the estate. The turnover litigation
involved the same parties as this adversary proceeding, the issue which the debtors are seeking to
litigate here is the same action which was resolved in the turnover proceeding, and any defenses
which the debtors had should have been litigated in that action. Consequently, the debtors are
precluded from re-litigating or raising new defenses regarding the trustee’s request for turnover.
The court will not, therefore, consider the debtors’ argument that the vehicle was not property of
the estate.
B.
As discussed above, a debtor may defend against a § 727(a)(6)(A) action by establishing
that it is impossible to comply with the court’s order. The debtors in this case oppose the
trustee’s summary judgment request on that basis, to which the trustee responds that they are
collaterally estopped from raising this defense. To establish such estoppel, the trustee would
have to show that the turnover order raised and determined the issue of whether the debtors were
able to comply with the direction either to turn over the vehicle or pay its equivalent to the
10-01295-pmc Doc 23 FILED 03/09/11 ENTERED 03/09/11 14:00:35 Page 7 of 8

8
trustee. These issues were not raised and determined in that context, and so the debtors are not
collaterally estopped from raising them as a defense to this action.
The debtors have submitted affidavits in support of the defense. To support their claim
that it is impossible for them to turn over the vehicle, they state that the vehicle is currently titled
in the name of Sharon O’Neal’s mother, Eunice Tucker, and is located in New Jersey; that they
have attempted to convince Ms. Tucker to release the vehicle; and that it is impossible for them
to obtain the vehicle without resorting to illegal force or deception. To support their claim that
they are unable to pay the trustee $15,600.00, they state that they do not have the funds and that
their current finances preclude them from borrowing money to pay the trustee. Viewing these
statements in the light most favorable to the debtors, as the court must on a motion for summary
judgment, the court concludes that there is a genuine issue of fact regarding the debtors’ ability to
comply with the turnover order. The court cannot, therefore, grant summary judgment for the
trustee.
CONCLUSION
For the reasons stated, the plaintiff trustee’s motion for summary judgment is denied.
IT IS SO ORDERED.
_________________________________
Pat E. Morgenstern-Clarren
United States Bankruptcy Judge
10-01295-pmc Doc 23 FILED 03/09/11 ENTERED 03/09/11 14:00:35 Page 8 of 8