McCann v. Baker

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
In Re
DAVID ALLEN BAKER, JR.
DESIRAE LYNN BAKER
Debtors
JOHN M. MCCANN
Plaintiff
vs.
DAVID ALLEN BAKER, JR.
Defendant
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Case No. 04-14239
Chapter 7
Judge Hopkins
Adversary Case No. 04-1262
This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: October 04, 2005
____________________________________________________________
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MEMORANDUM OF DECISION ON
JUDGMENT ENTRY GRANTING SUMMARY JUDGMENT
The Plaintiff, John M. McCann (“McCann”), commenced this adversary
proceeding with the filing of a complaint to determine dischargeability pursuant to
11 U.S.C. § 523(a)(4). Presently before the Court is a summary judgment motion
(“Motion”) (Doc. 16) filed by McCann.
McCann seeks a nondischargeable judgment under § 523(a)(4) for
embezzlement. The Sixth Circuit has articulated the applicable legal standard as
follows:
Federal law defines “embezzlement” under section 523(a)(4) as “the
fraudulent appropriation of property by a person to whom such property
has been entrusted or into whose hands it has lawfully come.” A
creditor proves embezzlement by showing that he entrusted his property
to the debtor, the debtor appropriated the property for a use other than
that for which it was entrusted, and the circumstances indicate fraud.
Brady v. McAllister (In re Brady), 101 F.3d 1165, 1173 (6th Cir. 1996) (citations
omitted). McCann contends that the Defendant, David Allen Baker, Jr. (“Baker”),
embezzled McCann’s wages under the pretense of paying the wages into a retirement
plan.
By his Motion, McCann argues that he is entitled to judgment under the
doctrine of collateral estoppel. On September 22, 2003, the Court of Common
Pleas, Butler County, Ohio, entered a default judgment against Baker in favor of
McCann. See Doc. 16 at Ex. 3.
The controlling authority on the preclusive effect of a state court default
judgment is Sill v. Sweeney (In re Sweeney), 276 B.R. 186 (B.A.P. 6th Cir. 2002).
In Sweeney, the BAP adopted the following two-part test to determine whether a
default judgment from an Ohio state court is to be afforded preclusive effect in
federal court:
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"First, the plaintiff must actually submit to the state court admissible
evidence apart from his pleadings. . . . Second, the state court, from
the evidence submitted, must actually make findings of fact and
conclusions of law which are sufficiently detailed to support the
application of the collateral estoppel doctrine in the subsequent
proceeding."
Id. at 193 (quoting Hinze v. Robinson (In re Robinson) 242 B.R. 380, 387 (Bankr.
N.D. Ohio 1999)). Based upon this standard, the BAP concluded that the federal
court "must have some reliable way of knowing that the [state court] decision was
made on the merits." Id. at 194.
Although Baker did not file an answer or otherwise appear in the state court
action, the court held an evidentiary hearing prior to the entry of its judgment. The
record of the hearing, embodied in a forty-nine page transcript, reflects the following
oral findings by the court:
“The Court will find that . . . [Baker] participated in the fraud of Mr.
McCann.”
. . .
“We’ll find that [McCann] has proven . . . that there [were] amounts due for
. . . some type of federally qualified retirement plan.”
See Doc. 16, Ex. 2 at 46; Doc. 16, Ex. 2 at 40. The judgment itself provides:
“THE COURT FINDS that [McCann] is entitled to judgment against [Baker] for
fraud . . . in the amount of $31,943.58.” See Doc. 16, Ex. 3.
Based upon the extensive evidentiary record and the specific findings made by
the state court, this Court concludes that the state court judgment is entitled to
preclusive effect in this proceeding. Given the state court finding of fraud related to
amounts that should have been applied to McCann’s retirement plan, this Court
further holds that McCann has sustained his burden of proving embezzlement under
the Brady standard.
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For the foregoing reasons, the Motion will be GRANTED. McCann is
entitled to judgment in the amount of $31,943.58, plus post-judgment interest from
September 22, 2003, to the entry of this Court’s judgment. A judgment to this effect
will be entered.
Copies to:
Lisa M. Ellis
lmellis@rslegal.com
William Theodore Knoebber
tedknoebber@fuse.net
U.S. Trustee
ustpregion09.ci.ecf@usdoj.gov
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