Chapman v. Bond (In re Bond)

548 B.R. 570

In re Van R. Bond, Debtor.

Cathy Chapman, Plaintiff,

v.Van R. Bond, Defendant.

Bankruptcy Case No. 15–60939–tmr7

Adversary Proceeding No. 15–6038–tmr

United States Bankruptcy Court, D. Oregon.

Signed March 7, 2016

Melisa Button, Hornecker, Cowling, Hassen & Heysell, Medford, OR, for Plaintiff.

Edward H. Talmadge, Medford, OR, for Defendant.

MEMORANDUM OPINION

THOMAS M. RENN, Bankruptcy Judge

Plaintiff has filed an adversary proceeding to except several money awards memorialized in a state court judgment from discharge under 11 U.S.C. § 523.¹ The present matter comes before the Court on Plaintiff's motion for partial summary judgment. The motion has been fully briefed and is ripe for decision.

Facts:

From the submissions there is no dispute as to the following facts, some of which were established in prior litigation between the parties.

Plaintiff and her husband, Robert Chapman, were cattle ranchers in California for the duration of their 15-year marriage. Defendant was friends with Mr. Chapman. In September 2009, Mr. Chapman died. Upon his death, Plaintiff was left with substantial assets. Shortly after Mr. Chapman's death, Defendant approached Plaintiff and expressed a willingness to help around the ranch.

In early 2010, Defendant asked Plaintiff if he and his wife, Natalie Bond (Natalie ), could move their trailer onto the ranch, and, in exchange for free rent, continue to help with the ranch property. Plaintiff agreed, and Defendant and Natalie moved onto the ranch in March 2010.

Around October 2010, Defendant induced Plaintiff to enter into a loan transaction, whereby Plaintiff provided all of the funds to purchase real property located at 498 Pine Grove Road, Rogue River, Oregon. The purchase price was $450,000; however, Plaintiff loaned Defendant $473,065 in the transaction. The parties agreed that Defendant would repay Plaintiff $600,000, of which $300,000 was due in 18 months, with the remaining $300,000 to accrue interest at 10% per annum, to be paid over 5 years. Title was conveyed to Plaintiff and Defendant's friend, Colleen Raynes, as tenants in common.

In late 2010 and early 2011, Plaintiff and Defendant agreed to enter into a business partnership called "Side X Side." They agreed Plaintiff would contribute her cattle to the partnership and Defendant would contribute his equipment.

The parties, through the partnership, engaged in the business of raising and selling cattle from 2011 through September 2012. During this time, Plaintiff contributed $272,640.59 in cash to the partnership. The funds in the partnership consisted primarily of cash contributed by Plaintiff or income from the sales of the cattle that Plaintiff contributed or the offspring of such cattle. Throughout the parties' business relationship, Defendant used the partnership bank account, which essentially consisted of Plaintiff's personal funds or funds generated from the sale of cattle that were originally Plaintiff's, as a convenient source of money for personal use.

In May 2011, Defendant induced Plaintiff to provide $50,000 to Defendant for an investment in a business venture called "Rim Shot Locs." The parties agreed that one-half of that amount was a loan to Defendant so that he and Plaintiff would each own one-half of the investment. Instead, Defendant obtained the investment in his name only. Defendant did not repay any portion of the loan.

In September 2011, Defendant induced Plaintiff to loan him $100,000, the majority of which was used to purchase a green water truck, while $5,000 of which was used for the down payment on the purchase of a yellow water truck. Defendant later sold the green water truck. Plaintiff only received $41,000 in repayment of the loan.

From 2011 through 2012, Defendant induced Plaintiff to loan or deliver to him tens of thousands of dollars in various other transactions, including money for vehicles, equipment, and his step-daughter's tuition.

Defendant forged Plaintiff's name on a number of checks in order to transfer money to his own personal use.

In September 2012, the working relationship between the parties ceased to function.

On December 18, 2012, Defendant filed a complaint against Plaintiff in Jackson County Circuit Court (the state court action ). Plaintiff responded by filing numerous counter/cross claims against Defendant, Natalie, and Colleen Raynes.

On November 6, 2014, after six days of trial, the jury arrived at its verdict. The jury found:

1) Defendant committed fraud against Plaintiff in connection with the loan for the acquisition of the Rogue River property, and the fraud damaged Plaintiff in the amount of $246,593.63;

2) Defendant and Natalie breached "any fiduciary duty of care, loyalty or honesty they owed to" Plaintiff, and as a result Plaintiff suffered damages in the amount of $371,775.09;

3) Both Defendant and Plaintiff liable on competing conversion claims, which netted out to an award of $61,092.56 in Plaintiff's favor;²

4) Defendant converted $9,212.03 in personal property belonging to Side X Side; and

5) Defendant breached an agreement to repay Plaintiff on the loan secured by the Rogue River property, and that $465,187.26 was owed to Plaintiff for the loan.

On February 12, 2015, the trial judge issued a letter opinion resolving the equitable claims and issues, including the dissolution, windup, and accounting of the Side X Side partnership, as well as claims for a constructive trust, rescission, and/or foreclosure as to the Rogue River property. The letter opinion included many of the above factual recitations, as well as specific findings relating to a constructive trust and a partnership accounting.

Defendant filed his Chapter 7 petition on March 23, 2015. After motion, Plaintiff was granted limited relief from stay to complete the state court action.

On September 11, 2015, the jury's verdict and judge's findings were reduced to a General Judgment (the Judgment ). The Judgment incorporated the judge's letter opinion and amendment thereto, as well as the jury's verdict. It provided amongst other things for three (3) money awards in Plaintiff's favor as follows:

1) for breach of fiduciary duty in the amount of $371,775.09 against Defendant and Natalie;

2) for conversion in the amount of $4,606.61 against Defendant. (This amount represented one half of the amount of Side X Side's personal property the jury found Defendant had converted);

3) for fraud in connection with the Rogue River property lending transaction in the amount of $246,593.63 against Defendant.

The Judgment also indicated Plaintiff had elected the remedy of constructive trust with regard to the Rogue River property, and awarded her all ownership and possessory rights therein. Alternatively, the court found in Plaintiff's favor on her rescission (on fraud grounds) and foreclosure claims regarding the loan secured by the property. The Judgment also preserved the "Limited Judgment" entered earlier in the case which was the net award of $61,092.56 in Plaintiff's favor on the competing conversion claims.

Summary Judgment Standards:

On a motion for summary judgment, the moving party has the burden to show "that there is no genuine dispute as to any material fact and ... [he] is entitled to judgment as a matter of law." FRCP 56(a) (made applicable by FRBP 7056 ). The substantive law governing a claim or defense determines whether a fact is material. T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir.1987). Material facts are such facts as might affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). "A dispute about a material fact is genuine only ‘if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.’ " FreecycleSunnyvale v. Freecycle Network, 626 F.3d 509, 514 (9th Cir.2010) (quoting Anderson, 477 U.S. at 248, 106 S.Ct. 2505 ).

With regard to its own claims or defenses (i.e., those elements for which the moving party bears the burden of proof at trial), the movant must support its motion with evidence that would entitle it to a directed verdict if not controverted at trial. C.A.R. Transp. Brokerage Co., Inc. v. Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir.2000). If the movant makes the requisite affirmative showing, the non-movant may not simply rely on allegations and denials in its own pleadings. FRCP 56(c). Instead, the non-moving party must produce significant probative evidence (or point to such evidence already before the court) showing specific facts which demonstrate the existence of a genuine issue for trial. Intel Corp. v. Hartford Accident & Indem. Co., 952 F.2d 1551, 1558 (9th Cir.1991) (internal citation omitted).

Discussion:

The motion seeks summary judgment excepting from discharge the three (3) money awards in the Judgment.³ The Court will discuss each award separately.

Conversion Money Award:

Defendant concedes the conversion money award of $4,606.01 is not dischargeable. Defendant's Response Memorandum (Doc. #18) at p.6.

Fraud Money Award:

The fraud money award for $246,593.63 is based on the jury verdict awarding damages suffered in connection with the Rogue River property lending transaction. Plaintiff relies on the issue-preclusive effect of the jury's finding and the Judgment to render the award excepted from discharge under § 523(a)(2)(A).⁴ This argument necessitates a brief review of the law of issue preclusion in dischargeability litigation.

Issue Preclusion:

Issue preclusion—sometimes referred to as collateral estoppel—is a viable tool in § 523 litigation. Grogan v. Garner, 498 U.S. 279, 284 n. 11, 111 S.Ct. 654, 658, 112 L.Ed.2d 755 (1991). In determining the preclusive effect of a state court judgment in a subsequent federal suit (including dischargeability proceedings), the court looks to the issue-preclusion law of the state that rendered the judgment. Gayden v. Nourbakhsh (In re Nourbakhsh), 67 F.3d 798, 800 (9th Cir.1995). In Oregon, "[i]ssue preclusion ......