Honeywell v. Holdsworth-Uddoh

1 The Court has subject matter and personal jurisdiction
pursuant to 28 U.S.C. §§1334 and 157(b); this is a core
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
JOAN HOLDSWORTH-UDDOH,
Debtor. 	Case No. 7-11-10122 SA
MITCHELL HONEYWELL,
Plaintiff,
v. 	Adversary No. 11-1028 S
JOAN HOLDSWORTH-UDDOH,
Defendant.
MEMORANDUM OPINION REGARDING
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT and
DEFENDANT’S CROSS MOTION FOR SUMMARY JUDGMENT
On February 07, 2011, Plaintiff Mitchell Honeywell
(“Honeywell”) initiated this adversary proceeding by filing a
Complaint to Determine Dischargeability of Debt (doc 1).
Defendant Joan Holdsworth-Uddoh (“Holdsworth”) filed her Answer
on March 08, 2011 (doc 4). 	On May 7, 2011, Honeywell filed a
Motion for Summary Judgment (doc 6) to which Holdsworth then
replied on June 03, 2011 (doc 8). 	Holdsworth’s Response not only
responds to Plaintiff’s motion but also prays for summary
judgment in her favor (doc 8, p. 2). 	On June 10, 2011, Plaintiff
submitted a Reply to Holdsworth’s Response (doc 10). 	The Court
will grant in part and deny in part Plaintiff’s motion and deny
Defendant’s cross-motion. 1
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proceeding pursuant to 28 U.S.C. §157(b)(2)(I); and these
are findings of fact and conclusions of law as may be required by
Rule 7052 F.R.B.P.
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Summary Judgment Standard
Summary judgment is appropriate when “the pleadings, the
discovery and disclosure materials on file, and any affidavits
show that there is no genuine issue as to any material fact and
that the movant is entitled to judgment as a matter of law.
Bankruptcy Rule 7056(c)(2). 	Defendant does not dispute or
controvert any of Plaintiff’s material facts in her Response (doc
2). 	Indeed, she agrees that “Summary Judgment should be entered
in the instant case,” and therefore that Plaintiff’s material
facts are correct (doc 8, p. 2). 	For the purpose of Summary
Judgment, “[a]ll material facts set forth in movant's statement
that are properly supported shall be deemed admitted unless
specifically controverted.” 	New Mexico LBR 7056-1(c). 	Given
that Defendant did not “specifically controvert” any of
Plaintiff’s material facts, all of those facts will be deemed
admitted if they are properly supported. 	In this instance the
lack of genuine issues as to material facts makes this case ripe
for summary judgment.
Undisputed Facts
This Court takes as true the facts that Plaintiff entrusted
Defendant with 676 gold coins in 2008, and that Defendant
converted 190 of those coins, worth $248,000 in total.
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Furthermore, this Court takes as true the fact that the parties
litigated this issue in the Thirteenth Judicial District Court
for the County of Valencia, New Mexico (“State Court”), in
Honeywell v. Holdsworth-Uddoh, Case No. D-0725 CV 2009-00001
(“State Court Case”).
Res Judicata & Collateral Estoppel
Defendant argues that the State Court Case exerts a res
judicata effect on this adversary case, preventing Plaintiff from
“retry[ing] his New Mexico State Court case” before this Court
(doc 8, pp. 6-7). 	However, the Supreme Court has made clear that
res judicata does not apply here and “the bankruptcy court is not
confined to a review of the judgment and record in the prior
state-court proceedings when considering the dischargeability of
respondent’s debt.” 	Brown v. Felsen, 442 U.S. 127, 140 (1979).
That is precisely what is at issue here. 	As was the case in
Brown, the inapplicability of res judicata “permit[s] the
bankruptcy court to make an accurate determination whether
respondent in fact committed the deceit, fraud and malicious
conversion which petitioner alleges.” 	Id. at 136.
However, the Bankruptcy Court may not retry the case in its
entirety. 	The Supreme Court was careful to make clear that Brown
only applies to res judicata and not to the narrower doctrine of
collateral estoppel. 	Id. at 140, n. 10; See also Klemens v.
Wallace (In re Wallace), 840 F.2d 762, 764 (10 th Cir. 1988).
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After Brown, the Supreme Court clarified that collateral estoppel
applies in nondischargability proceedings under the bankruptcy
code. 	Grogan v. Garner, 498 U.S. 279, 284 (1991); see also In re
Wallace, 840 F.2d at 764. 	Collateral estoppel precludes factual
issues from being relitigated if:
(1) the issue to be precluded is the same as that
involved in the prior state action, (2) the issue was
actually litigated by the parties in the prior action,
and (3) the state court’s determination of the issue
was necessary to the resulting final and valid
judgment.
In re Wallace, 840 F.2d at 762 (citations omitted). 	Plaintiff
requests that the entire “state court findings of fact and
conclusions of law” be given collateral estoppel effect in this
Court (doc 6, p. 1; doc 6, ex. 1). 	The first and second elements
are fulfilled since these findings were issued pursuant to a
trial on the merits in state court. 	It does not appear, nor does
Defendant allege, that any of the State Court’s findings of fact
were not necessary to its final judgment. 	Therefore, the
findings of fact and conclusions of law issued in the State Court
Case are entitled to collateral estoppel effect.
Analysis under §523(a)(2)(A)
To prevail in an action under §523(a)(2)(A), Plaintiff must prove
the following elements:
1) The debtor made a false representation;
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2) the debtor made that representation with the intent to
deceive the creditor;
3) the creditor relied on the representation;
4) the creditor's reliance was justified; and
5) the creditor was damaged as a result of that reliance.
See Lazaron v. Lucas (In re Lucas), 386 B.R. 332, 337-338 (Bankr.
D.N.M. 2008). 	Plaintiff cites two statements that his property
was safe as false representations (doc 6, p. 5; doc 6, ex. 1, ¶
14, 38). 	These statements are entitled to collateral estoppel
and therefore satisfy the first element of §523(a)(2)(A).
Plaintiff further requests that this Court infer the additional
four elements from the State Court’s findings about Defendant’s
conduct in concealing the conversion, and her apparent use of the
converted coins. 	With respect to the second element, such an
inference might be possible from the State Court findings.
However, the State Court made no findings about Plaintiff’s
reliance on Defendant’s assurances, and Plaintiff did not assert
anything related to his reliance in his statement of undisputed
facts (doc 6, pp. 1-2) or the complaint (doc 1). 	Thus,
Plaintiff’s pleadings are insufficient with respect to
§523(a)(2)(A).
Analysis under §523(a)(4)
Bankruptcy Code Section 523(a)(4) excepts from discharge any
debt “for fraud or defalcation while acting in a fiduciary
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2As In re Wallace notes, this is also the definition of
embezzlement in New Mexico. 	In re Wallace, 840 F.2d at 765
(citations omitted). 	However, Federal law controls the meaning
of embezzlement and larceny with respect to §523(a). 	See Soisson
v. Hildebrandt (In re Hildebrandt), 2011 WL 2447738 (Bankr. S.D.
Miss. 2011) (citing Smith v. Hayden (In re Hayden), 248 B.R. 519,
525 (Bankr. N.D. Tex. 2000)); In re Henderson, 423 B.R. 598, 624
(Bankr. N.D. N.Y. 2010.)
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capacity, embezzlement or larceny.” 	11 U.S.C. §523(a)(4).
Plaintiff alleges in his Motion for Summary Judgment that
“Defendant committed larceny when she wrongfully obtained the
combination to the safe,” (doc 6, p. 6) and that “Defendant
committed embezzlement when she converted the coins in the safe
and spent them,” (doc 6, p. 6).
In the first place, the State Court did not make a finding
as to how Defendant obtained the combination to the safe, and
Plaintiff failed to allege in his statement of undisputed facts,
or even in his Complaint that she obtained the combination
through larceny (doc 6, pp. 1-2; doc 1). 	Thus, Plaintiff has not
alleged sufficient facts to show that Defendant did obtain the
combination to the safe through larceny. 	The question remains
however: Does Defendant’s conversion of the funds qualify as
embezzlement? 	In re Wallace sets out the standard:
For purposes of establishing nondischargeability under
section 523(a)(4), embezzlement is defined under
federal common law 2 as “the fraudulent appropriation of
property by a person to whom such property has been
entrusted or into whose hands it has lawfully come.”
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In re Wallace, 840 F.2d at 765 (citations omitted). 	Even though
Defendant “did not have the mental capacity to agree to a
bailment” (doc 6, ex.1, p. 12) embezzlement under §523(a)(4) does
not require the existence of a fiduciary relationship. 	Id. 	The
issues relevant to establishing a §523(a)(4) claim of larceny are
“fraudulent appropriation, property of another, and entrustment
or lawful acquisition.” 	Id. at 765. 	Defendant’s state court
liability for conversion of Plaintiff’s property demonstrates the
first two elements (doc 6, ex. 1, p. 12). 	Plaintiff’s statement
of material undisputed facts alleges that “Plaintiff entrusted
676 gold coins to Defendant during 2008,” (doc 6, p. 1).
Defendant has failed to controvert this in her response (doc 8,
pp. 1-2), and it is therefore deemed admitted. 	New Mexico LBR
7056-1. 	Thus Defendant’s debt to Plaintiff is nondischargeable
under §523(a)(4) on account of her embezzlement of Defendant’s
gold coins.
Analysis under §523(a)(6)
Bankruptcy Code Section 523(a)(6) excepts from discharge any
debt “for willful and malicious injury by the debtor to another
entity or to the property of another entity.” 	11 U.S.C.
§523(a)(6). 	Plaintiff’s Motion for Summary Judgment does not
assert in its statement of material undisputed facts that any act
by the debtor was willful and malicious (doc 6, pp. 1-2), nor did
the State Court reach any such conclusion (doc 6, ex. 1, p. 12).
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The “willful and malicious” element of §523(a)(6) is a question
of intent, and therefore a factual matter. 	See Robinson v.
Tenantry (In re Robinson), 987 F.2d 665, 669 (10 th Cir. 1993).
Therefore, this Court must determine if the findings in the State
Court Case, binding on this Court through collateral estoppel,
prove willful and malicious intent. 	As a threshold issue,
Defendant was found liable for state law conversion, which does
not require a showing of intent (doc 6, ex. 1, p. 12). 	See
Santillo v. N.M. Dept. Of Pub. Safety, 143 N.M. 84, 92, 173 P.3d
6, 14, 2007-NMCA-159, ¶30 (Ct.App.), cert. denied, 143 N.M. 156,
173 P.3d 763, 2007-NMCERT-11 (2007). 	Thus, this Court is not
estopped from reaching the issue of intent. 	However, the State
Court did find significant anomalies with respect to the
Defendant’s mental state, including that she is mentally ill,
believes herself to be a telepath, is unable to discern reality
from fantasy, her judgment, thinking and mood are impaired, she
may be afflicted with paranoid schizophrenia, and that she
otherwise lacks mental competence (doc 6, ex. 1, p. 9, 12).
Given these troublesome findings, Plaintiff cannot be said to
have proven Defendant’s intent by a preponderance of the
evidence. 	See Grogan v. Garner, 498 U.S. 279, 287
(1991)(establishing preponderance of the evidence as the
evidentiary standard for all nondischargeability actions). 	Thus,
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this Court must deny Plaintiff’s Motion for Summary Judgment with
respect to §523(a)(6).
Conclusion
With respect to Plaintiff’s complaint under §523(a)(2) and
§523(a)(6), issues of fact remain and summary judgment must
therefore be denied. 	On the other hand, Plaintiff has shown that
Defendant embezzled gold coins entrusted to her by Plaintiff,
which is a ground for nondischargeability under §523(a)(4), so
the Court will grant judgment to Plaintiff under §523(a)(4).
Defendant prays in her Response that “Summary Judgment
should be entered in her favor” (doc 8, p. 2). 	Having granted
summary judgment on at least one cause of action to Plaintiff,
the Court cannot grant summary judgment to Defendant on the same
cause of action. 	In addition, contrary to Defendant’s arguments,
the State Court Case does not exert a res judicata effect upon
bankruptcy court nondischargeability proceedings.
An order in conformity with this memorandum will issue.
Honorable James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: 	October 5, 2011
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Copies to:
Michael K Daniels
Attorney for Plaintiff
PO Box 1640
Albuquerque, NM 87103-1640
Steven J Clark
Attorney for Defendant
PO Box 1108
Peralta, NM 87042-1108
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