Done Right Builders et al v. Kaiser et al

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
WESTERN DIVISION
In Re:
Walter W. Kaiser and
Helen Kaiser,
Debtors.
Done Right Builders,
Plaintiff,
v.
Walter W. Kaiser, et al.,
Defendants.
) 	Case No.: 09-38696
)
) 	Chapter 7
)
) 	Adv. Pro. No. 10-3109
)
) 	Hon. Mary Ann Whipple
)
)
)
)
)
)
)
)
MEMORANDUM OF DECISION AND ORDER
DENYING MOTION FOR SUMMARY JUDGMENT
This adversary proceeding is before the court on Defendants’ Motion for Summary Judgment
(“Motion”) [Doc. ## 13 & 5],1 Plaintiff’s response [Doc. # 36], and Defendants’ reply [Doc. # 37].
Defendants are Debtors in the underlying Chapter 7 case. In its complaint, Plaintiff seeks a determination
1 This motion was originally filed as a motion to dismiss [Doc. # 5]. However, because the motion refers to matters
outside the pleadings, the court informed the parties at a pretrial conference that it would treat the motion to dismiss as a motion
for summary judgment. Thereafter, Defendants filed the same motion as a motion for summary judgment. [Doc. # 13]
The court incorporates by reference in this paragraph and adopts as the findings
and orders of this court the document set forth below. This document has been
entered electronically in the record of the United States Bankruptcy Court for the
Northern District of Ohio.
Dated: March 28 2011
10-03109-maw Doc 38 FILED 03/28/11 ENTERED 03/28/11 15:45:09 Page 1 of 4

that a debt owed to it by Defendants is nondischargeable under 11 U.S.C. § 523(a)(2)(A). 	Defendants’
Motion seeks summary judgment based on collateral estoppel principles. For the following reasons, the
Motion will be denied.
FACTUAL BACKGROUND
The undisputed facts relevant to this Motion are simple and straight forward. 	Defendants
commenced a state court action against Plaintiff on December 15, 2008. Plaintiff filed an Answer and
Counterclaim against Defendants, alleging a breach of contract action only. [See Def. Ex. A].2 As a result
of that litigation, a jury awarded Plaintiff $27,000, and it awarded Defendants $1,000. On December 18,
2009, Defendants filed a petition for relief under Chapter 7 of the Bankruptcy Code. Plaintiff timely filed
a complaint seeking a determination that the debt owed to it by Defendants is for property and services
obtained through a material misrepresentation and is, therefore, nondischargeable under § 523(a)(2)(A).
LAW AND ANALYSIS
I. Summary Judgment Standard
Under Rule 56 of the Federal Rules of Civil Procedure, made applicable to this proceeding by
Federal Rule of Bankruptcy Procedure 7056, summary judgment is proper only where there is no genuine
issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c).
In reviewing a motion for summary judgment, however, all inferences “must be viewed in the light most
favorable to the party opposing the motion.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.
574, 586-88 (1986). The party moving for summary judgment always bears the initial responsibility of
informing the court of the basis for its motion, “and identifying those portions of ‘the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits if any’ which it believes
demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986). Where the moving party has met its initial burden, the adverse party “may not rest upon the mere
allegations or denials of his pleading but . . . must set forth specific facts showing that there is a genuine
issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue for trial exists
2 Generally, to be considered by the court at the summary judgment stage, “‘documents must be authenticated by and
attached to an affidavit that meets the requirements of Rule 56(e).’” Carmona v. Toledo, 215 F.3d 124, 131 (1st Cir. 2000)
(quoting Oris v. Kirkwood, 999 F.2d 86, 92 (4th Cir. 1993); Hal Roach Studios, Inc. v. Richard Feiner and Co., 896 F.2d 1542,
1550 (9th Cir. 1990). Although Defendants’ Exhibit A, the state court complaint, has not been properly authenticated, see Fed.
R. Evid. 901-903, Plaintiff has not objected to the document, so the court will consider it. See Investors Credit Corp. v. Batie (In
re Batie), 995 F.2d 85, 89 (6th Cir. 1993).
2
10-03109-maw Doc 38 FILED 03/28/11 ENTERED 03/28/11 15:45:09 Page 2 of 4

if the evidence is such that a reasonable factfinder could find in favor of the nonmoving party. Id.
II. Plaintiff Is Not Collaterally Estopped From Asserting Its Claim
Defendants base their Motion on the alleged collateral estoppel, or issue preclusion, effect of the
state court judgment. Under 28 U.S.C. § 1738, the federal full faith and credit statute, a federal court must
accord a state court judgment the same preclusive effect the judgment would have in state court. Corzin
v. Fordu (In re Fordu), 201 F.3d 693, 703 (6th Cir. 1999). In determining whether the prior judgment should
be given preclusive effect in a federal action, the federal court must apply the law of the state in which the
prior judgment was rendered. Id. Thus, in this case, the court must apply Ohio issue preclusion principles.
Under Ohio law, there are four elements to the application of the doctrine of collateral estoppel: (1)
a final judgment on the merits after a full and fair opportunity to litigate the issue; (2) the issue was actually
and directly litigated in the prior action and must have been necessary to the final judgment; (3) the issue
in the present suit must have been identical to the issue in the prior suit; and (4) the party against whom
estoppel is sought was a party or in privity with the party to the prior action. Sill v. Sweeney (In re Sweeney),
276 B.R. 186, 189 (B.A.P. 6th Cir. 2002). “Issue preclusion precludes the relitigation of an issue that has
been actually and necessarily litigated and determined in a prior action.” MetroHealth Medical Ctr. v.
Hoffmann-LaRoche, Inc., 80 Ohio St. 3d 212, 217, 685 N.E.2d 529, 533 (1997) (emphasis added). The
party asserting collateral estoppel carries the burden of proving its requirements by a preponderance of the
evidence. A Packaging Service Co. v. Siml (In re Siml), 261 B.R. 419, 422 (Bankr. N.D. Ohio 2001).
In this case, Defendants argue that Plaintiff’s failure to pursue a fraud claim in the prior state court
action precludes its claim under § 523(a)(2)(A) based on fraudulent misrepresentation. However, although
res judicata forecloses all claims that could have been litigated in an earlier case, collateral estoppel treats
as final only those questions actually and necessarily decided in a prior suit. 	Brown v. Felsen, 442 U.S.
127, 139 n.10 (1979). Collateral estoppel principles do not apply in this case because, as Defendants agree,
fraudulent misrepresentation was not raised and, therefore, was not actually and necessarily decided in the
state court action.
Nor does res judicata bar Plaintiff’s nondichargeability claim. The dischargeability claim did not
even exist at the time of the state court proceeding because Defendants had not yet filed their bankruptcy
petition. Moreover, a judgment of a state court is not res judicata as to a dischargeability claim that is within
the exclusive jurisdiction of the federal courts. Tomlin v. Crownover (In re Crownover), 417 B.R. 45, 51
(Bankr. E.D. Tenn. 2009) (citing Brown v. Felsen, 442 U.S. 127 (1979)). Plaintiff’s dischargeability claim
3
10-03109-maw Doc 38 FILED 03/28/11 ENTERED 03/28/11 15:45:09 Page 3 of 4

brought under § 523(a)(2)(A) is within the exclusive jurisdiction of this court. See 11 U.S.C. § 523(c).
THEREFORE, for the foregoing reasons, good cause appearing,
IT IS ORDERED that Defendants’ Motion for Summary Judgment [Doc. # 13 & 5] be, and hereby
is, DENIED.
4
10-03109-maw Doc 38 FILED 03/28/11 ENTERED 03/28/11 15:45:09 Page 4 of 4