Opinion
Case No. 97-17560, Chapter 7, Adversary Case No. 98-1182.
March 24, 2000.
MEMORANDUM OF DECISION
The Plaintiff, Paul Harr, executor of estate of Annie Harr, commenced this adversary proceeding on June 8, 1998, with the filing of a Complaint To Determine Dischargeability of Debt ("Complaint") (Doc. 1). By his Complaint, the Plaintiff seeks a determination, pursuant to 11 U.S.C. § 523(a)(2), (4) and/or (6), that a debt evidenced by a state court judgment against the Defendant, John Henry Harr, is excepted from discharge in the Defendant's chapter 7 case. Presently before the Court are the following motions: (1) a motion to dismiss ("Dismissal Motion") (Doc. 36) filed by the Defendant on November 29, 1999; and (2) Plaintiff's Motion for Summary Judgment ("Summary Judgment Motion") (Doc. 37) filed by the Plaintiff on November 30, 1999. The Court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334 and the Standing Order of reference entered in this district on July 30, 1984. This is a core proceeding. 28 U.S.C. § 157(b)(2)(I). The following constitutes the Court's findings of fact and conclusions of law in accordance with Fed.R.Civ.P. 52, made applicable to this adversary proceeding by Fed.R.Bankr.P. 7052.
I
As a threshold issue, the Court will first address the merits of the Dismissal Motion. To do so, it is necessary to consider the procedural history of this proceeding. It is a history that is far from "textbook." To begin with, the Defendant failed to file a timely answer to the Complaint. Upon the filing of a motion for default judgment, the Defendant argued that he did not believe he had to answer the Complaint because he had filed a motion to dismiss his chapter 7 case that was pending before the Court. The motion to dismiss the chapter 7 case was denied as well as the motion for default judgment. The Defendant was given additional time to file an answer to the Complaint. A trial date of July 27, 1999, was scheduled. The Plaintiff requested and obtained a continuance to August 26, 1999. Thereafter, the Defendant requested and obtained a continuance to September 9, 1999. Upon the Defendant's filing of another motion for continuance, the Court scheduled a September 1, 1999 status conference. During the status conference, the parties agreed that summary judgment may be the best way to resolve the issues at hand. Accordingly, the Court entered a September 7, 1999 Scheduling Order requiring the Plaintiff to file a summary judgment motion by October 25, 1999. When the Plaintiff failed to comply with the Scheduling Order, the Court ordered the Plaintiff to appear on November 30, 1999, and show cause why the proceeding should not be dismissed. When the Plaintiff filed his Summary Judgment Motion on November 30, 1999, the hearing was vacated.
By his Dismissal Motion, the Defendant seeks to have the proceeding dismissed on the basis that the Plaintiff failed to file a summary judgment motion in accordance with the terms of the September 7, 1999 Scheduling Order. Specifically, the Defendant argues that "[t]he plaintiff has made no effort to move the case forward." (Dismissal Motion at 2.) In light of the policy that favors disposition of an action on the merits, the Sixth Circuit has concluded that dismissal for failure to prosecute "is a harsh sanction which the court should order only in extreme situations where there is a showing of a clear record of delay or contumacious conduct by the plaintiff." Little v. Yeutter, 984 F.2d 160, 162 (6th Cir. 1993). The Court does not view the instant proceeding as one of the extreme situations referred to by the Sixth Circuit. Accordingly, the Dismissal Motion will be DENIED.
Although the Plaintiff has contributed to the delay in this adversary proceeding, the Defendant does not exactly have clean hands.
II
The Court will now turn to the Plaintiff's Summary Judgment Motion. As part of the record on summary judgment, the Plaintiff has submitted a memorandum and judgment entered in a state court action between the parties-case number 94-CI-00030 in the Greenup Circuit Court, Commonwealth of Kentucky. In the foregoing action, the Greenup Circuit Court found that the Defendant converted the life savings of his parents. The Plaintiff contends that the state court findings are binding upon the parties under the doctrine of collateral estoppel.
The doctrine of collateral estoppel precludes relitigation of issues of fact or law that were actually litigated in a prior action between the same parties and necessary to the judgment. Markowitz v. Campbell (In re Markowitz), 190 F.3d 455, 461 (6th Cir. 1999). The doctrine applies where: (1) the law of collateral estopel in the state in which the issue was litigated would preclude relitigation of such issue; and (2) the issue was fully and fairly litigated. Id. Under Kentucky law, the elements of collateral estoppel are: (1) identity of issues; (2) a final decision or judgment on the merits; (3) a necessary issue with the estopped party given a full and fair opportunity to litigate; and (4) a prior losing litigant. Moore v. Commonwealth, 954 S.W.2d 317, 319 (Ky. 1997). Based upon the record of the Greenup Circuit Court case tendered by the Plaintiff, the Court is satisfied that Kentucky law would preclude relitigation of the facts established in the parties' prior litigation. Accordingly, these facts are binding upon the parties in this proceeding.
III
In addition to the state court findings, the Plaintiff has proffered additional evidence in support of his Summary Judgment Motion. Summary judgment is governed by Fed.R.Civ.P. 56, made applicable to this adversary proceeding pursuant to Fed.R.Bankr.P. 7056. The rule provides that "[t]he judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the 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." Fed.R.Civ.P. 56(c). Material facts are those "that might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue exists with respect to a material fact "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. The moving party bears the initial burden of "identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If this is accomplished, the non-moving party must establish the existence of facts, beyond mere allegations or denials in the pleadings, that demonstrate a genuine issue for trial. Id. at 324; Anderson, 477 U.S. at 248. In this regard, the evidence of the non-movant is to be taken as true and all justifiable inferences are to be drawn in favor of the non-movant. Anderson, 477 U.S. at 254. Notwithstanding, the mere existence of a scintilla of evidence in support of the non-movant's position is insufficient. Id. at 252. There must exist sufficient evidence requiring resolution by a trier of fact of the parties' differing versions of the truth. Id. at 249.
Because the Defendant did not file a response to the Summary Judgment Motion or otherwise demonstrate the existence of a genuine issue for trial, the Court finds the facts to be undisputed.
Documents that are not incorporated by the pleadings, a deposition, an answer to an interrogatory or an admission, can only enter the summary judgment record by attachment to an affidavit under the procedure outlined by Fed.R.Civ.P. 56(e). Investors Credit Corp. v. Batie (In re Batie), 995 F.2d 85, 89 (6th Cir. 1993). Although this procedure has not been followed with respect to the exhibits filed in this proceeding, all objections have been waived due to the failure to raise the same. Johnson v. United States Postal Service, 64 F.3d 233, 237 (6th Cir. 1995).
IV
Annie Harr is the mother of both the Plaintiff and the Defendant. She died on March 18, 1998. The Plaintiff was appointed as co-executor of her estate. The Plaintiff also served as guardian for his mother since August 6, 1993. In this capacity, the Plaintiff commenced a state court action against the Defendant. Prior to their mother's death, the state court entered a judgment in favor of the Plaintiff. The findings of fact made by the Greenup Circuit Court tell the remainder of the story.
Albert and Annie Harr of Greenup County, Kentucky, were married and had nine (9) children, six (6) of whom are still living. They lived a frugal life style. Albert Harr farmed, sold timber, fire clay and mineral rights to earn a living. They accepted hand-me-down furniture to furnish their house. In later years they received Social Security benefits of approximately $300 per month. They would not spend all of their money, and over the years accumulated huge sums of cash. Albert Harr did not believe in depositing money in banks and instead kept his money in a box in the couple's bedroom in $100 bills.
On January 17, 1978, Albert and Annie Harr purchased a house in South Shore, Kentucky, for consideration of $18,250. On February 27, 1978, they executed a mortgage in favor of the First Peoples Bank in the amount of $2,100. They paid off the mortgage and it was released February 23, 1980.
Albert Harr believed in helping his family with their monetary needs. In 1982, he loaned his son, Paul Harr and his grandson, Tim Harr, $1,000. In 1985, he also loaned Paul and Tim Harr $2,850 to purchase some cows. Paul Harr watched his dad, Albert Harr, obtain the money from the box in the chest in the bedroom. Paul and Tim Harr paid back to Albert Harr both of these sums plus interest. On at least one occasion Albert Harr showed his grandson, Tim Harr, the cash in the box in the bedroom. Tim Harr testified it contained 2-3 stacks of $100 bills, 1-2 inches tall. Tim Harr also testified that his grandfather slept with a pistol under his pillow.
After Albert Harr died and when his mother was no longer able to take care of herself, Paul Harr, as guardian of Annie Harr, moved his mother to the South Shore Rest Home. The guardian was unable to locate the huge sum of cash in the box in the Harr's bedroom after Mrs. Harr moved to the rest home.
John Harr, another son of Albert Harr, worked for B.F. Goodrich Company in Troy, Ohio. He reported the following income according to his W-2 statements:
1980 $13,449.40 1981 15,124.79 1982 21,957.66 1983 22,107.38 1984 24,110.01 1985 16,914.77
In 1984, John Harr filed bankruptcy and testified before the bankruptcy court that he had no assets. In fact, John Harr did have money that he testified he hid under the seat of his automobile. He testified that he earned approximately $1,500 a month doing odd jobs. Mr. John Harr admitted to the Greenup Circuit Court that he lied to the bankruptcy judge because he didn't want his ex-wife to find out he had money. He testified he never counted the money until 1990 and it totalled $29,000 in cash.
On January 30, 1990, John Harr testifed that he deposited this $29,000 in First Peoples Bank in a CD, #3006605S. He deposited the money in the name of John H. or Annie Harr. The C.D. bore John Harr's Social Security Number which is 293-30-2243. On the same day John Harr reported income of $29,000 to the Internal Revenue Service on Form 4789, Currency Transaction Report. Sue Blevins, a teller at First People's Bank, prepared the Currency Transaction Report and Gary Carpenter, also a bank employee, signed the report as the approving officer.
On or about April 30, 1991, and July 30, 1991, the bank notified John H. Harr or Annie Harr, 960 Morton Street, South Shore, Kentucky 41175 of the accumulated interest that totalled $30,596.33. Sometime between July 30, 1991, and July 31, 1992, the names on the C.D. were changed to John H. Harr, P.O.D. Annie Harr, 960 Morton Street, South Shore, Kentucky 41175, with a new balance of $31,500.70.
On August 25, 1988, John Harr was injured in an industrial accident. From the date of the injury John Harr lived with his parents suntil sometime in 1993. As a result of the injury John Harr filed a Workman's Compensation lawsuit. During 1989 and 1990 John Harr received total yearly income of $2,563.82 and $3,472.42 respectively. On October 30, 1990, John Harr filed an Affidavit of Income, Expenses and Financial Disclosure. On October 24, 1990, John Harr stated under oath he had zero (00.00) income and signed the form. In fact, John Harr was earning money when he signed the form but denied that he lied to the Ohio Common Pleas Court because he said he could not read, and thus did not know what he signed. On February 8, 1991, John Harr filed a Submission of Income in the Common Pleas Court of Darke County, Ohio, Case Number 48336. John Harr indicated by and through counsel, that he was unable to locate his tax return for 1988. He further stated that he received insufficient income to file a tax return for the years 1989 and 1990.
On April 21, 1992, John Harr received a check in the amount of $22,276.04 for injuries he sustained from August 25, 1988, to February 4, 1991 from his Workman's Compensation lawsuit. In addition, under the same claim he received $2,190.66 during April, 1994.
Sometime during 1991, John Harr went into the restaurant business with Sonny Wells and his wife. John Harr invested $6,000 in this endeavor. They remained in the restaurant business for two (2) years. On October 23, 1992, John Harr borrowed $16,056.49 from the First Peoples Bank for one (1) year. Sometime during the month of January, 1993, John Harr paid $9,694.65 and renewed a debt of $5,611.43.
Mr. John Harr then testified that he used part of the $29,000 C.D. to pay off the balance of the remaining debt. Then he testified that he put the balance of the C.D. in his wife's name.
CONCLUSIONS OF LAW
Mr. John Harr tells the Court an incredible story that the $29,000 C.D. was money that he saved from 1984 to 1990 which he hid in his car for almost six (6) years. In light of John Harr's failed restaurant business, his inability to manage money demonstrated by taking bankruptcy, and his story of hording $29,000 up over a six (6) year period in his automobile, and his propensity to lie to courts, the Court finds it more likely than not that the $29,000 C.D. deposited by John Harr represented the life savings of his parents.
John Harr did not even acquire his Workman's Compensation money until August, 1992, some 1 years after he deposited the $29,000 C.D. on January 30, 1990. All of these facts coupled with the opportunity to steal the money convinces the Court by a preponderance of the evidence that John Harr took the life savings of his parents and placed it in a C.D. with his name and his mother's name, Annie Harr. Eventually, he changed the account into his name P.O.D. his mother, Annie Harr. Later, the Court also reaches the inescapable conclusion that John Harr spent part of this money and then placed the balance in his wife's name.
(Ex. 2 at 2-6 (references to state court exhibits omitted).)
V
This Court finds that the foregoing facts support summary judgment in favor of the Plaintiff on the basis of 11 U.S.C. § 523(a)(6), which provides in material part:
A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt —
. . . .
(6) for willful and malicious injury by the debtor to another entity or to the property of another entity[.]
The § 523(a)(6) exception, as construed by the Supreme Court, is limited to "a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury." Kawaauhau v. Geiger, 118 S.Ct. 974, 977 (1998). Under this standard, the Supreme Court noted that some, but not all, acts of tortious conversion fall within the scope of § 523(a)(6). Id. at 978 (citing Davis v. Aetna Acceptance Co., 293 U.S. 328 (1934)). In Davis, the Court stated:
There is no doubt that an act of conversion, if willful and malicious, is an injury . . . within the scope of this exception. . . . But a willful and malicious injury does not follow as of course from every act of conversion, without reference to the circumstances. There may be a conversion which is innocent or technical, an unauthorized assumption of dominion without willfulness or malice. There may be an honest but mistaken belief, engendered by a course of dealing, that powers have been enlarged or incapacities removed. In these and like cases, what is done is a tort, but not a willful and malicious one.
Davis, 293 U.S. at 332 (construing analogous provision under Bankruptcy Act) (citations omitted). Accordingly, this Court must carefully examine the facts of this proceeding to determine whether the Defendant's act of conversion, as found by the Greenup Circuit Court, arises to the standard set forth in Geiger.
The Sixth Circuit recently considered Geiger and concluded as follows:
Although the Supreme Court identified a logical association between intentional torts and the requirements of § 523(a)(6), it neither expressly adopted nor quoted that portion of the Restatement discussing "substantially certain" consequences. Nonetheless, from the Court's language and analysis in Geiger, we now hold that unless "the actor desires to cause [the] consequences of his act, or believes that the consequences are substantially certain to result from it" he has not committed a "willful and malicious injury" as defined under § 523(a)(6).
Markowitz, 190 F.3d at 464 (quoting Restatement (Second) of Torts § 8A, at 15 (1964)). Given that a debtor is unlikely to admit that he or she was substantially certain that the injury in question would result from his or her acts, such understanding can be established through circumstantial evidence. First Nat'l Bank v. Stanley (In re Stanley), 66 F.3d 664, 668 (4th Cir. 1995); M-R Sullivan Mfg. Co., Inc. v. Sullivan (In re Sullivan), 238 B.R. 230, 238 n. 15 (Bankr.D.Mass. 1999).
VI
Based upon circumstantial evidence in the record before it, this Court is satisfied that the Defendant was substantially certain that his mother, and eventually her probate estate, would suffer injury as a result of his actions. Unlike Davis, the circumstantial evidence does not reflect "an honest but mistaken belief, engendered by a course of dealing, that powers have been enlarged or incapacities removed." See Davis, 293 U.S. at 332. Instead, the record reflects "an incredible story" told by one with a "propensity to lie to courts" and "the opportunity to steal the money." (Ex. 2 at 6.) Accordingly, the Summary Judgment Motion will be GRANTED.
VII
For the foregoing reasons, the Dismissal Motion (Doc. 36) filed by the Defendant on November 29, 1999, will be DENIED and the Plaintiff's Motion for Summary Judgment (Doc. 37) filed by the Plaintiff on November 30, 1999, will be GRANTED. A judgment entry to this effect will be entered.
JUDGMENT ENTRY
For the reasons set forth in the Memorandum of Decision filed on this date, the motion to dismiss (Doc. 36) filed by the Defendant on November 29, 1999, is DENIED and the Plaintiff's Motion for Summary Judgment (Doc. 37) filed by the Plaintiff on November 30, 1999, is GRANTED. The debt arising from the February 27, 1997 judgment of the Greenup Circuit Court, Commonwealth of Kentucky, in case number 94-CI-00030, is excepted from the Debtor's discharge under the authority of 11 U.S.C. § 523 (a)(6).
Each party shall bear its own fees in this proceeding as well as those arising from the state court action. See Wilson v. Int'l Bhd. of Teamsters, 83 F.3d 747, 754 (6th Cir. 1996), cert. denied, 519 U.S. 1041 (1996) (attorney fees not normally recoverable absent statutory or contractual authority). The Plaintiff is, however, awarded his costs. See Soberay Mach. Equip. Co. v. MRF Ltd., Inc., 181 F.3d 759, 770 (6th Cir. 1999) (noting that Fed.R.Civ.P. 54(d) creates presumption in favor of awarding fees to prevailing party).
IT IS SO ORDERED.