PNC Multifamily Capital Institutional Fund XXVI Ltd. v. Deckard (In re Deckard)

IN RE: RICHARD EUGENE DECKARD, JR. MARILYN SUE DECKARD Debtors

PNC MULTIFAMILY CAPITAL INSTITUTIONAL FUND XXVI LIMITED PARTNERSHIP,COLUMBIA HOUSING SLP CORPORATION, and SHELBY'S LANDING - II, L.P, Plaintiffs v. RICHARD EUGENE DECKARD, JR. and MARILYN SUE DECKARD Defendants

CASE NO. 17-6053-RLM-7A

Adversary Proceeding No. 17-50470

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION

February 22, 2019

ORDER ON PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT AND DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT

This matter came before the court for hearing on the Plaintiffs' Motion for Partial Summary Judgment on December 13, 2018 and Defendants' cross motion for Summary Judgment. After excellent oral argument by the parties' attorneys, the court took the matter under advisement.

UNCONTESTED FACTS

Shelby's Landing - II, L.P. ("Shelby's L.P.", "Limited Partnership" or "Partnership") was a limited partnership that was formed in April 2005 between Columbia Housing SLP Corporation ("Columbia"), PNC Multifamily Capital Institutional Fund XXVI Partnership ("PNC") (collectively, the "Plaintiffs"), and Shelby's Landing - II Inc. ("Shelby's Inc." or "General Partner"). The purpose of the newly formed Shelby's L.P. was to acquire and construct affordable housing and manage or operate same. The defendant, Richard Decker Jr. ("Richard"), controlled and was President of Shelby's Inc. and Shelby's Inc. was the general partner of Shelby's L.P. Richard also owned and controlled Deckard Realty Development Company ("Deckard Realty") which was the project manager for Shelby's L.P. Marilyn Decker ("Marilyn") is Richard's wife and was a guarantor of the obligations owed to Shelby's L.P., mentioned below.

As the General Partner in Shelby's L.P., Shelby's Inc. had the responsibility to manage the business of Shelby's L.P., advance funds necessary to meet operating expenses, maintain the records, lease units, properly maintain tenants' security deposits, among other duties. The General Partner was prohibited expressly from receiving any compensation except for a non-cumulative partnership management fee, a development fee, and an incentive management fee. Without express consent from the limited partners, Shelby's Inc. was also prohibited from transferring any asset of the Partnership, borrowing from the Partnership, causing the Partnership to borrow funds, making any loans from the Partnership, or co-mingling any Partnership funds with the funds of any other entity or person. Marilyn, Richard, andDeckard Realty all signed a guaranty in favor of Shelby's LP, PNC and Columbia. The guaranty provided that the Debtors and Deckard Realty unconditionally guaranteed the full and prompt payment, performance, compliance and satisfaction of all obligations, covenants, representations and warranties on the part of Shelby's Inc. and with respect to the 2005 partnership agreement.

Unfortunately, Shelby's L.P. began experiencing problems during the construction phase of the project that continued into the leasing operation post-construction. In August 2011, the Plaintiffs in this action filed a complaint in state court against the Debtors alleging breach of contract and breach of fiduciary duties under the 2005 Partnership Agreement. A trial was held on January 26, 2015 and the state court entered judgment against the Debtors finding them jointly and severally liable to the Plaintiffs in the amount of $1,596,290.46 for funds improperly paid to and misappropriated by the Debtors and their affiliates (the "State Court Judgment"). Richard and Marilyn (the "Debtors') filed their chapter 7 case on August 11, 2017.

The state court issued detailed findings of fact and conclusions of law. The Plaintiffs base their Motion for Partial Summary Judgment (doc #20) on their contention that the findings of fact and conclusions of law issued by the state court are dispositive of issues presented in this case and that the Debtors are precluded from re-litigating the nondischargeability of the State Court Judgment under §523(a)(2)(A) and that Richard is precluded from relitigating nondischargeability under §523(a)(4) and (6). The Debtors likewise have filed a Motion for Partial Judgment Independent of Motion Pursuant to FRCP 56(f) (doc #33). Debtors contend that the findings of the state court establish that Marilyn's debt to the Plaintiffs is fully dischargeable under §523(a)(2)(A) and that the Plaintiffs are precluded from presenting any evidence to the contrary. Debtors do concede that the findings are not so clear as to Richard and that this matter should proceed to trial as to the dischargeability of Richard's debt to the Plaintiffs.

SUMMARY JUDGMENT STANDARD

A party is entitled to summary judgment where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. The moving party bears the burden of proving the absence of a genuine issue of material fact and the non-moving party must affirmatively demonstrate the existence of a genuine issue of material fact requiring trial. Fed.R.Civ.P. (56(a); Celotax Corp. v. Catrett, 477 U.S. 317, 323 (1986); In Re Clark, 550 B.R. 429, 431 (Bankr. N.D. Ind. 2016). A genuine issue of material fact exists if "the evidence is such that a reasonable jury could return a verdict for the non- moving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In evaluating summary judgment motions, courts must view the facts and draw reasonable inferences in the light most favorable to the non-moving party. Scott v. Harris, 550 U.S. 372, 378 (2007). The court is not permitted to weigh conflicting evidence or to make credibility determinations and must consider only evidence that is presented in a form that would be admissible at trial. Omnicare, Inc. v. UnitedHealth Grp., 629 F.3d 697, 704 (7^th Cir. 2011), Fed.R.Civ.P 56(c)(2).

ISSUE PRECLUSION

Both the Plaintiffs' Motion for Partial Summary Judgment and the Defendants' Cross-Motion for Summary Judgment (contained in the Debtors' Brief in Opposition to Plaintiffs' Motion for Summary Judgment and in Support of Partial Judgment Independent of Motion Pursuant to FRCP 56(f)) rise or fall on the effect of the state court's findings of fact and conclusions of law in this case.

Issue preclusion, also known as collateral estoppel, prevents a party from relitigating issues that were resolved in a prior legal action. Adams v. City of Indianapolis, 742 F.3d 720, 736 (7th Cir. 2014). Once an issue is actually and necessarily litigated by a court of competent jurisdiction, the determination is conclusive in subsequent suits between the same parties to the prior litigation. Sec. & Exch. Comm'n v. Durham, No. 111-CV-00370JMS-TAB, 2017 WL 3581640 (S.D Ind. August 18, 2017). The Full Faith and Credit Clause of the United StatesConstitution provides that federal courts must accord to state court judgments the same weight as would be accorded by the courts of the state in which the judgment was rendered. Art. IV Section 1, U.S. Constitution. In re Catt, 368 F.3d 789, 790-91 (7^th Cir. 2004); (the effect of a judgment in subsequent litigation is determined by the law of the jurisdiction that rendered the judgment); Brokaw v. Weaver, 305 F.3d 660, 669 (7^th Cir. 2002)("[t]he preclusive effect of a state court judgment in a federal case is a matter of state rather than federal law.") The State Court Judgment was issued by an Indiana state court and this court must give it the same preclusive effect as would be given that judgment under Indiana law. In Indiana, a party may be collaterally estopped from litigating an issue if (1) the party against whom estoppel is invoked was fully represented in the prior action; (2) the issue was actually litigated; (3) the determination of the issue was essential to the final judgment, and (4) the issue sought to be precluded was the same as that in the prior litigation. In re Luedtke, 429 B.R. 241, 250 (Bankr. N. D. Ind. 2010); In re White, 444 B.R. 887, 892 (Bankr. S.D .Ind. 2010) (where both courts considered the preclusive effect of an Indiana state court judgment). Luedtke noted that the elements to be considered under Indiana law are the same under federal law. Luedtke, 429 B.R. at 250. The party seeking to invoke issue preclusion must show the actual findings in the prior proceeding that the party claims entitles the preclusion and it must "map those findings onto the standard" for the nondischargeability claim under §523. Calvert v. National Labor Relations Board, 913 F.3d 697, 701 (7^th Cir. 2019). (in §523(a)(6) nondischargeability action, court had to "map" the prior court's findings onto the standard for "malice" in considering preclusive effect of NLRB administrative ruling).

Debtors contend that the findings of fact in the state court established that Richard manipulated the finances of Shelby's Inc. and Deckard Realty and Development Company in contravention of the requirements of the numerous documents establishing the relationship between the parties. However, Debtors believe that the fourth element - the issue sought to be precluded was the same as that in the state court litigation or "identity of issues"-- is not met here. They contend that the State Court Judgment merely established repeated breaches ofcontract and that Richard's manipulation of the finances were all undertaken to keep the project afloat. They argue that Richard did not hide any of his actions from his creditors and his maneuverings were meticulously documented and reported to the creditors. The Debtors contend that the State Court Judgment does not have the particularized findings necessary to find nondischargeability under any of the §523 counts. Marilyn argues that the State Court Judgment determined that she did not control or direct the Deckard entities and did not exercise decision-making relative to the project. She was not an officer or director or shareholder of Deckard Realty or Shelby's Inc. She...