Hoffman et al v. Anstead

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UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF OHIO

In Re: )
) JUDGE RICHARD L. SPEER
Kevin Wayne Anstead )
) Case No. 10-3094
Debtor(s) )
) (Related Case: 09-38587)
Lyle Hoffman and Mark Hoffman, )
as Co-Administrators of the Estate )
of Robert Hoffman )
)
Plaintiff(s) )
)
Vv. )
)
Kevin Wayne Anstead )
)
Defendant(s) )
DECISION AND ORDER

This cause comes before the Court on the Motion for Summary Judgment filed by the
Plaintiffs, Lyle Hoffman and Mark Hoffman, as Co-Administrators of the Estate of Robert Hoffman.
(Doc. No. 9). The Plaintiffs’ Motion is brought in support of their Complaint to Determine the
Dischargeability of a particular debt owed to them by the Defendant/Debtor, Kevin Wayne Anstead.
(Doc. No. 1). The Defendant/Debtor filed a response to the Plaintiffs’ Motion for Summary
Judgment, objecting to the relief sought by the Plaintiffs. (Doc. No. 10). Regarding their respective
positions on the matter, both of the Parties filed supporting written arguments and documentation.
The Court has now had the opportunity to review the evidence and arguments submitted by the

Parties, as well as the entire record in this case. Based upon this review, the Court finds, for the

us Ap
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reasons set forth in this Decision, that the Plaintiffs’ Motion for Summary Judgment should be

Denied.
DISCUSSION

In this adversary proceeding, the Plaintiffs seeks to have their claim against the
Debtor/Defendant held to be a nondischargeable debt. A proceeding brought to determine the
dischargeability of a particular debt is deemed to be core proceedings pursuant to 28 U.S.C.
§ 157(b)(2)(1). Accordingly, this Court has the jurisdictional authority to enter final orders and
judgments in this matter. 28 U.S.C. § 157(b)(1); § 1334.

The Plaintiffs’ claim against the Debtor is liquidated and is for the sum of $11,845.50. The
claim consists of two prepetition judgments entered in the Plaintiffs’ favor against the Debtor in a
probate court proceeding. The first judgment is for the sum of $7,499.00 and represents the value of
property converted by the Debtor from the Hoffman Estate. The second judgment is for the sum of
$4,346.50 and represents the probate court’s award of sanctions against the Debtor for frivolous

conduct.

As the statutory basis for their complaint to determine dischargeability, the Plaintiffs rely on
three provisions of the Bankruptcy Code: (1) § 523(a)(2), excepting from discharge a debt arising
from a false pretense, a false representation, or actual fraud; (2) § 523(a)(4), excepting from
discharge a debt arising from fraud, embezzlement, larceny or defalcation while acting in a fiduciary
capacity; and (3) § 523(a)(6), providing that a debt shown to have arisen from a willful and malicious
injury is not subject to discharge. Together, these provisions codify a long-standing bankruptcy
policy that any debt which is shown to have arisen from a dishonest or otherwise wrongful act
committed by a debtor is not entitled to the benefits of a bankruptcy discharge. Cohen v. de la Cruz,
523 U.S. 213, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998).

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With the exception of defalcation under § 523(a)(4), each of the statutory exceptions to
dischargeability cited by the Plaintiffs have a commonality: scienter — that is, a specific intent to
actually do the harm, whether it is an intent to defraud/deceive under § 523(a)(2), an intent to
misappropriate another’s property under § 523(a)(4); or the intentional injury to another’s property
under § 523(a)(6). Automated Handling v. Knapik (In re Knapik), 322 B.R. 311, 316 (Bankr.
N.D.Ohio 2004). It is this common element, whether the Plaintiffs’ claim against the Debtor arose
as the result of the Debtor’s specific intent to cause harm, which gives to the gravamen of the dispute

between the Parties. The Plaintiffs seek to have this issue adjudicated on their Motion for Summary

Judgment.

The standard for summary judgment is set forth in Federal Rule of Civil Procedure 56(c),
which is made applicable to this proceeding by Bankruptcy Rule 7056. It provides for in part: A party
will prevail on a motion for summary judgment when “[t]he pleadings, depositions, answers to

interrogatories, and admission on file, together with affidavits, if any, show that there is no genuine

issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.”
Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). With
respect to this standard, the moving party must demonstrate all the elements of the cause of action.
R.E. Cruise Inc. v. Bruggeman, 508 F.2d 415, 416 (6" Cir.1975). In making this determination, the
Court is directed to view all the facts in a light most favorable to the party opposing the motion.

Matsushita v. Zenith Radio Corp., 475 U.S. 574, 586-588, 106 S.Ct. 1348, 1348, 1356, 89 L.Ed.2d
538 (1986).

The purpose of a summary judgment motion is to avoid the need for a trial, and its attendant
costs, where there exists no genuine issues of material fact in dispute. Smith Wholesale Co., Inc., et
al. v. RJ. Reynolds Tobacco Co., 477 F.3d 854 (6" Cir. 2007). Summary judgment is, therefore,
never to be used merely to cut short a trial where factual issues should be explored. Drexel Heritage

Furnishings, Inc. v. U.S., 4 C1.Ct. 162, 168 (CL.Ct.1983). This usually makes summary judgment an

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inappropriate procedural device to adjudicate claims, such as those brought under § 523(a)(2),
§ 523(a)(4) and § 523(a)(6), where a litigant’s state of mind has been placed in controversy. The
reason: Determinations concerning a debtor’s state of mind require a subjective assessment of the
debtor’s intentions which often can only be made by the trier-of-fact after it has had the opportunity
to assess the credibility and the demeanor of witnesses who testify at trial during both direct and

cross examination.

Notwithstanding, summary judgment may be appropriate where purely legal issues are
involved. Highland Mining Co. v. United Mine Workers of America, Dist. 12, 105 Fed.Appx. 728,
730 (6" Cir.2004). This is the position of the Plaintiffs who maintain that a determination of the
Debtor’s specific intent to cause harm was anecessary component for both of the judgments rendered
by the probate court, thereby estopping the Debtor from relitigating in this forum any issue regarding
his state of mind. For this position, the Plaintiffs rely on the legal doctrine known as collateral

estoppel.

The doctrine of collateral estoppel, also known as “issue preclusion,” is a common-law
doctrine. It serves to promote judicial economy by preventing the same parties or their privies from
re-litigating facts and issues in a subsequent suit that were fully litigated in a prior suit. Parklane
Hosiery Co. v. Shore, 439 U.S. 322, 326, 99 S.Ct. 645, 649 (1979). Collateral estoppel principles
apply to bankruptcy proceedings and can be used in nondischargeability actions to prevent the
re-litigation of issues already decided in another forum such as a state court. Grogan v. Garner, 498

U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).

When applying collateral estoppel principles from a state court judgment to a
nondischargeability proceeding, however, the Supreme Court of the United States has held that the
federal common law does not apply. Marrese v. American Academy of Orthopaedic Surgeons, 470

U.S. 373, 374, 105 S.Ct. 1327, 1328, 84 L.Ed.2d 274 (1985); see also Bay Area Factors, Inc. v.

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Calvert (Inre Calvert), 105 F.3d 315, 317 (6" Cir.1997). Instead, bankruptcy courts, pursuant to the
full faith and credit principles of 28 U.S.C. § 1738, must give the same issue preclusion effect to a
state court judgment as it would be given under that state’s law. /d. In this matter, the judgments the
Plaintiffs rely upon for the application of the collateral estoppel doctrine were entered by a probate

court in the state of Ohio; consequently, the law in Ohio regarding collateral estoppel will be applied.

Under Ohio law, the party moving for the application of the doctrine of collateral estoppel
needs to establish, among other matters, that the issue in the present suit is identical to the issue
involved in the prior suit and that such an issue was actually and directly litigated in the prior suit.
Murray v. Wilcox (In re Wilcox), 229 B.R. 411, 415-16 (Bankr. N.D.Ohio 1998), citing Cashelmara
Villas Ltd. Partnership v. DiBenedetto, 87 Ohio App.3d 809, 813-14, 623 N.E.2d 213 (1993). Ina
dischargeability action, these requirements can only be met by showing that the factual issues in the
prior proceeding were determined “using standards identical to those in the dischargeability
proceedings ....” Spilman v. Harley, 656 F.2d 224, 226 (6™ Cir. 1981). According to the Plaintiffs,
this requirement is met because, for each of the two judgments entered against the Debtor, the
findings made by the probate court are sufficient to establish the scienter requirement of § 523(a)(2),
§ 523(a)(4) and § 523(a)(6).

After carefully reviewing each of the respective judgments entered against the Debtor,
however, the Court cannot reach this same conclusion. For the first judgment entered against the
Debtor, the Plaintiffs’ position falters on what is missing from the judgment. Particularly, at no point

in its decision did the probate court make any specific finding regarding the Debtor’s state of mind.

Rather, the probate court only went so far as to find that the Debtor removed and then failed
to return items belonging to the Hoffman estate. (Doc. No. 1, Ex. D1). These findings, while relevant
and possibly tending to show that the Debtor acted with an intent to cause harm, could also be

indicative of simple forgetfulness or ignorance — clearly nonculpable states of mind. Accordingly,

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the findings of the probate court are not conclusive as to the specific intent requirement of §

523(a)(2), § 523(a)(4) and § 523(a)(6).

Furthermore, based upon the counts raised in their complaint, the state court was not required
to make a finding regarding the Debtor’s state of mind in order to enter judgment in the Plaintiffs’
favor. In their complaint against the Debtor in probate court, the Plaintiffs brought three actions: (1)
one for conversion; (2) another action for unjust enrichment; and (3) a complaint to recover probate
property pursuant to O.R.C. § 2109.50 et seq. There is nothing, however, inherent in the nature of
these actions which would necessitate an implicit finding by the probate court that the Debtor acted
with the requisite culpable intent to sustain a complaint to determine dischargeability brought under

either § 523(a)(2), § 523(a)(4) or § 523(a)(6).

First, the scienter requirement of § 523(a)(2), § 523(a)(4) and § 523(a)(6) necessitates a
showing that the debtor acted with the specific intent to cause harm. Kimco Leasing v. Wilson (In re
Wilson), 383 B.R. 678, 681 (Bankr. N.D.Ohio 2007). By comparison, the tort of conversion, as raised
in the first count of the Plaintiffs’ complaint, is a general intent offense, meaning that only the act,
but not necessarily the injury, needs to be intentional. See 18 OHIO J UR. 3d Conversion and
Replevin § 3. It is, thus, recognized that “not every tort judgment for conversion is exempt from

discharge.” Kawaauhau v. Geiger, 523 U.S. 57, 61, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998).

Similarly, a claim for “unjust enrichment” is not at all defined by reference to a person’s
intentions, but is rather defined in terms of the effect a person’s actions had on another. Specifically,
a claim for “unjust enrichment” is defined as “the retention of money or benefits by one person that,
in justice and equity, belong to another.” Lucio v. Safe Auto Ins. Co., 183 Ohio App. 3d 849, 858,
919 N.E.2d 260, 267 (7" Dist. 2009). Finally, concerning their last count, it has been held that,

although it may have attributes of an intentional tort, scienter is not a necessary element to sustain

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an action brought under O.R.C. § 2109.50 to recover property belonging to a probate estate. Jn re
Estate of Popp, 94 Ohio App.3d 640, 641 N.E.2d 739 (8" Dist.1994).

The same analysis substantially follows to the second judgment rendered against the Debtor
by the probate court. This judgment was for the sum of $4,346.50 and was entered pursuant to
O.R.C. § 2323.51 as a sanction against the Debtor for his frivolous conduct. (Doc. No. 1, Ex. E.). In
the judgment, the probate court found that the “Plaintiffs were adversely affected by the frivolous
acts of” the Debtor. Jd. As the basis for this finding, the probate court cited three frivolous acts: (1)
the Debtor’s pursuit of a claim against the Plaintiffs for intentional infliction of emotional distress;
(2) the Debtor’s failure to attend a scheduled deposition; and (3) the Debtor’s Motion for a new trial.
Td.

Sanctions awarded to a party in a prior proceeding based upon a debtor’s frivolous conduct
often serves as the basis to collaterally estop a debtor from litigating any issue regarding the
dischargeability of the award in bankruptcy. See, e.g., Raspanti v. Keaty (Inre Keaty), 397 F.3d 264
(5" Cir.2005) (award of sanctions for intentionally pursuing meritless litigation was
nondischargeable debt). Yet, similar to the tort of conversion, supra, this is not an absolute, so that
the doctrine of collateral estoppel will not necessarily apply to preclude a debtor from litigating
matters pertaining to the dischargeability of an award of sanctions entered against him in a prior
proceeding. In re Wrenn, 791 F.2d 1542, 1543-44 (11" Cir. 1986) (frivolous lawsuit is not
necessarily wrongful for purposes of 11 U.S.C. § 523(a)(6)). Instead, the salient issue, as always,
regarding the application of the doctrine of collateral estoppel is whether the issue sought to be

barred from litigation is identical to the issue actually litigated in the prior suit.

Here, this necessary showing has not been demonstrated, with neither the findings made by

the probate court, nor the statute upon which the probate court based its award of sanctions, lending

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themselves to a definitive conclusion that the issue sought to be litigated in this adversary,

concerning the Debtor’s intent, is identical to the issue decided by the probate court.

First, and as was the situation with the first judgment, the second judgment rendered by the
probate court for sanctions only went so far as to find that the Debtor’s actions were frivolous for
purposes of O.R.C. § 2323.51, and that the “Plaintiffs were adversely affected by the frivolous acts
of” the Debtor. (Doc. No. 1, Ex. E.). No specific finding, however, was made by the court concerning
the Debtor’s subjective intent. Also, like with the first judgment, the state court was not required to

make a finding regarding the Debtor’s state of mind in order to impose sanctions.

The provision of Ohio law, O.R.C. § 2323.51, upon which the probate court based its award

of sanctions, defines “frivolous conduct” to encompass any of the following situations:

(i) It obviously serves merely to harass or maliciously injure another party to
the civil action or appeal or is for another improper purpose, including, but
not limited to, causing unnecessary delay or a needless increase in the cost of
litigation.

(ii) Itis not warranted under existing law, cannot be supported by a good faith
argument for an extension, modification, or reversal of existing law, or cannot
be supported by a good faith argument for the establishment of new law.

(iii) The conduct consists of allegations or other factual contentions that have
no evidentiary support or, if specifically so identified, are not likely to have
evidentiary support after a reasonable opportunity for further investigation or
discovery.

(iv) The conduct consists of denials or factual contentions that are not
warranted by the evidence or, if specifically so identified, are not reasonably
based on a lack of information or belief.

O.R.C. § 2323.51(A)(2)(a). With the possible exception of the first ground, as contain in

subparagraph (i), the latter three grounds warranting the imposition of sanctions under this provision

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do not require a finding by a court that the litigant acted with the specific intent to cause harm — the
sine qua non of the Plaintiff s complaint to determine dischargeability. In the instant case, therefore,
since the probate court did not specify what particular conduct under O.R.C. § 2323.51(A)(2)(a) gave
rise to its award of sanctions, reasonable doubt exists that the probate court made an actual finding

regarding the Debtor’s specific intent to cause harm to the Plaintiffs.

For all these reasons, the Court finds that the issue of the Debtor’s specific intent to cause
harm to the Plaintiffs has not been actually litigated, thereby precluding the entry of summary
judgment in the Plaintiffs’ favor. Based on this decision, and based upon the Court having
contemporaneous with the entry of this decision granted the Motion of Debtor’s Counsel to
Withdraw as Attorney of Record, the Court finds that this matter should be set for a further pretrial.
In reaching the conclusions found herein, the Court has considered all of the evidence, exhibits and

arguments of counsel, regardless of whether or not they are specifically referred to in this Decision.

Accordingly, it is
ORDERED that the Plaintiffs’ Motion for Summary Judgment, be, and is hereby, DENIED.

IT IS FURTHER ORDERED that a continued PreTrial is hereby set for Wednesday, October
13, 2010, at 2:00 P.M., in Courtroom No. 1, Room 119, United States Courthouse, 1716 Spielbusch
Avenue, Toledo, Ohio.

Dated: September 3, 2010 Wie

Richard & Speer
United States
Bankruptcy Judge

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CERTIFICATE OF SERVICE

Copies were mailed this 3rd day of September 2010 to:

Kevin Wayne Anstead
740 County Road 212, Lot 144
Fremont, OH 43420-8410

Timothy B. Pettorini
P.O. Box 599
Wooster, OH 44691

Lyle Hoffman
27511 State Route 58
Wellington, OH 44090-9019

Mark Hoffman
27511 State Route 58
Wellington, OH 44090-9019

/s/Jennifer S Huff
Deputy Clerk, U.S. Bankruptcy Court

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