Pidcock v. McCune (In re McCune)

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In re: CHUCK McCUNE and CHUTHAMARD McCUNE, Debtors.

ROBERT PIDCOCK, as Personal Representative of the Estate of Thomas Kuehn, Plaintiff, v. CHUCK McCUNE and CHUTHAMARD McCUNE, Defendants.

No. 20-12326-j7

Adversary No. 21-1013-j

United States Bankruptcy Court, D. New Mexico

April 10, 2023

MEMORANDUM OPINION REGARDING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT

ROBERT H. JACOBVITZ, UNITED STATES BANKRUPTCY JUDGE

THIS MATTER is before the Court on a motion for partial summary judgment (the "Summary Judgment Motion" - AP Doc 151),^[1] filed by plaintiff Robert Pidcock, as Personal Representative of the Estate of Thomas Kuehn (the "Personal Representative"). The Summary Judgment Motion seeks partial summary judgment against debtor-defendants Chuck McCune and Chuthamard McCune, with respect to the amount of the Personal Representative's claim and its non-dischargeability, primarily on the basis of a state court judgment which the Personal Representative argues is entitled to preclusive effect.

Defendant Chuck McCune filed a response in opposition to the Summary Judgment Motion (the "Response" - AP Doc. 152), as well as a supplemental response (the "Supplemental Response" - AP Doc. 164). Defendant Chuthamard McCune did not file a response. The Personal Representative filed a reply to the Response and Supplemental Response (AP Doc.175). After consideration of the Summary Judgment Motion, the Court grants in part and denies in part the Summary Judgment Motion as follows:

(1) The Court will grant summary judgment in favor of the Personal Representative as to the validity, existence, and amount of the debt fixed in the Amended State Court Judgment for the Stock Purchase Amount and Loan Amount (as defined below on p. 5). The Amended State Court Judgment has claim preclusive effect with respect to its ruling that the McCunes jointly and severally owe the Stock Purchase Amount and Loan Amount, including interest as set forth in the Amended State Court Judgment.

(2) The Court will deny summary judgment on the Personal Representative's request for non-dischargeability of the Loan Amount under § 523(a)(2).^[2] The Amended State Court Judgment does not have issue preclusive effect with respect to fraud because it was not "actually litigated." Further, the Amended State Court Judgment removed the clause stating that the Loan Amount was "procured by fraud as stated above," and therefore makes no findings or conclusion of fraud that would lead to non-dischargeability under § 523(a)(2).

(3) The Court will deny summary judgment on the Personal Representative's request for non-dischargeability of the Stock Purchase Amount and Loan Amount under § 523(a)(19). The Amended State Court Judgment made no findings or conclusion as to whether the McCunes were liable for securities violation(s), and the Personal Representative has failed to demonstrate in his Summary Judgment Motion papers that the debt is non-dischargeable under § 523(a)(19).

I. SUMMARY JUDGMENT STANDARDS

Summary judgment will be granted when the movant demonstrates that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(a), made applicable to adversary proceedings by Fed.R.Bankr.P. 7056. The "party seeking summary judgment always bears the initial responsibility of informing the . . . court of the basis for its motion, and . . . demonstrat[ing] the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); see also Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th Cir. 1991) ("The moving party has the initial burden to show that there is an absence of evidence to support the nonmoving party's case.") (internal quotation marks omitted).

Only if the properly supported material facts entitle the requesting party to judgment as a matter of law is it appropriate for the court to grant summary judgment. Celotex, 477 U.S. at 323. In moving for summary judgment, the party "must support the assertion" that "a fact cannot be . . . genuinely disputed" by: (1) "citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations . . ., admissions, interrogatory answers, or other materials" or (2) "showing that the materials cited [by the opposing party] do not establish the . . . presence of a genuine dispute, or that [the] adverse party cannot produce admissible evidence to support the fact." Fed.R.Civ.P. 56(c)(1).

The court's role is not to weigh the evidence, but to assess the threshold issue whether a genuine issue exists as to material facts requiring a trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). A dispute is "genuine" where "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. at 248. A fact is "material" if it "might affect the outcome of the suit under the governing law[.]" Id. In considering a motion for summary judgment, the court must resolve all reasonable inferences and doubts in favor of the non-moving party and construe all evidence in the light most favorable to the non-moving party. See Hunt v. Cromartie, 526 U.S. 541, 552 (1999); Genberg v. Porter, 882 F.3d 1249, 1253 (10th Cir. 2018). Where a rational trier of fact, considering the record as a whole, could not find for the non-moving party, there is no genuine issue for trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Thus, summary judgment is appropriate "if the evidence points only one way and no reasonable inferences could support the non-moving party's position." Genberg, 882 F.3d at 1523.

With respect to the burden of proof, "[e]xceptions to discharge are to be narrowly construed" and "the objector to discharge has the burden of proving by a preponderance of the evidence that a debt is not dischargeable." In re Miller, 55 F.3d 1487, 1489 (10th Cir. 1995) (internal quotation marks omitted); see also Grogan v. Garner, 498 U.S. 279, 291 (1991) ("[T]he standard of proof for the dischargeability exceptions in 11 U.S.C. § 523(a) is the ordinary preponderance-of-the-evidence standard."); Alamogordo v. Valdez (In re Valdez), No. 04-15876, 2007 WL 1160357, at *3 (Bankr. D.N.M. Apr. 17, 2007) ("Exceptions to discharge are construed narrowly, and the burden of proving that a debt falls within a statutory exception is on the party opposing discharge.").

A plaintiff bears the burden of proof on each element of a non-dischargeability claim, and moving for summary judgment, "must show that there is no genuine dispute of material fact as to each necessary element, so that they are entitled to judgment as a matter of law on each element of the [non-dischargeability] claim." Blake v. Fusco (In re Fusco), 641 B.R. 438, 457 (Bankr. E.D.N.Y. 2022) (applying the standard in the context of a § 523(a)(19) claim); see also Cago, Inc. v. Slade (In re Slade), 471 B.R. 626, 639 (Bankr. D.N.M. 2012) (providing that creditor bears the burden of proof as to each element of non-dischargeability claim under § 523(a)(2)(A)), abrogated on other grounds by Lamar, Archer & Cofrin, LLP v. Appling, 138 S.Ct. 1752, 1754 (2018).

II. PROCEDURAL BACKGROUND

Chuck and Chuthamard McCune filed their bankruptcy case on December 29, 2020. At the time, there was a pending lawsuit in the Second Judicial District Court in the State of New Mexico, Case No. D-202-CV-2019-03218 (the "State Court Action"). The state court entered a judgment in the State Court Action on September 15, 2020 (the "Original State Court Judgment"), awarding the Personal Representative damages against Chuck McCune, Chuthamard McCune, and McCune Works, Inc. ("McCune Works").

On April 1, 2021, the Personal Representative filed a non-dischargeability complaint initiating this adversary proceeding, Adv. Proc. No. 21-1013-j. On January 21, 2022, the Court entered an order modifying the automatic stay to permit the McCunes to return to state court and seek modification of the Original State Court Judgment.

On September 7, 2022, the Personal Representative filed his Summary Judgment Motion in order to seek partial summary judgment that:

(1) The Original State Court Judgment establishes:

(a) The loss to Mr. Kuehn from the stock purchase in McCune Works was $193,240.00, plus prejudgment and post-judgment interest (the "Stock Purchase Amount");

(b) The loss to Mr. Kuehn from the loan to McCune Works was $96,367.00, plus 6% interest beginning April 1, 2019 (the "Loan Amount");

(c) Chuck and Chuthamard McCune are jointly and severally liable for the Stock Purchase Amount and the Loan Amount; and

(d) the Loan Amount is not dischargeable, because it was procured by fraud; and

(2) The Stock Purchase Amount and Loan Amount are non-dischargeable because they arose from state and federal securities violations.

The state court entered an amended judgment on December 21, 2022 (the "Amended State Court Judgment"), removing language that the Loan Amount was procured by fraud.^[3] At a status conference on February 23, 2023 with respect to the Summary Judgment Motion,

the Court noted that in order for a debt to be non-dischargeable under 11 U.S.C. § 523(a)(19), there must be a judgment that makes a determination of federal or state securities law violation(s). The Court indicated that, at this time, it will not grant preclusive effect to the [Amended State Court Judgment] with respect to securities law violation(s), because the judgment is silent as to whether there is any liability for, or any damages were awarded based on, securities law violation(s). Mr. McCune indicated that he is willing to return to state court to request clarification on that point. The Court

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