Trost v. Trost (In re Trost)

545 B.R. 193

In re: Zachary N. Trost and Kimberly A. Trost, Debtors.

Sherry Trost, Plaintiff,

v.Zachary N. Trost and Kimberly A. Trost, Defendants.

Case No. GL 13–05887–jtg

Adv. Proc. No. 13–80266–jtg

United States Bankruptcy Court, W.D. Michigan.

Signed February 3, 2016

Troy R. Hendrickson, Esq., TROY RICHMOND HENDRICKSON, PLLC, Tempe, Arizona, for Sherry Trost.

Michael R. Behan, Esq., SCHRAM, BEHAN & BEHAN, Okemos, Michigan, for Zachary N. Trost and Kimberly A. Trost.

MEMORANDUM DECISION REGARDING CROSS MOTIONS FOR SUMMARY JUDGMENT

John T. Gregg, United States Bankruptcy Judge

This matter comes before the court in connection with cross motions for summary judgment filed by Sherry Trost, the plaintiff in this adversary proceeding (the "Plaintiff"), and Zachary N. Trost and Kimberly A. Trost, the defendants in this adversary proceeding (collectively, the "Defendants"). In their motions, the parties assert that the doctrine of collateral estoppel precludes the relitigation of certain facts and issues which were determined in a prior proceeding. For the following reasons, the court shall deny both motions.

INTRODUCTION

To some extent, this adversary proceeding relates to events that occurred more than twenty years ago, when Fred Trost, the deceased father and husband of Zachary Trost and the Plaintiff, respectively, claimed that products sold by Buckstop Lure Company, Inc. ("Buckstop") contained cow urine, and not deer urine as advertised.¹ Buckstop Lure Co. v. Trost (In re Trost), 164 B.R. 740, 741 (Bankr.W.D.Mich.1994). The products apparently contained deer urine after all, as Buckstop obtained a judgment for defamation against Fred Trost and Fred Trost Enterprises, Inc. in the amount of $4 million in the Circuit Court for Montcalm County, Michigan. See alsoTrost v. Buckstop Lure Co., Inc. , 644 N.W.2d 54, 58, 249 Mich.App. 580 (2002) (affirming denial of relief from judgment for alleged lack of jurisdiction).

Confronted with the collection efforts of his creditors, including Buckstop, Fred Trost sought relief under Chapter 7 of the Bankruptcy Code in 1992. The bankruptcy of Fred Trost was hardly a success though, as this court ultimately revoked his discharge. In re Trost, 164 B.R. at 749. The judgment obtained by Buckstop and the revocation of Fred Trost's discharge set in motion a series of transfers, transactions and broken promises, all of which culminated in the entry of a judgment for common law conversion in favor of the Plaintiff and against the Defendants in the United States District Court for the Western District of Michigan (the "District Court"). Trost v. Trost, Case No. 1:09–cv–580 (W.D.Mich. March 8, 2012), aff'd, 525 Fed.Appx. 335 (6th Cir.2013).

After the Defendants filed their own bankruptcy, the Plaintiff commenced this adversary proceeding. Relying on factual determinations made in the District Court action, this court previously granted summary judgment to the Plaintiff with respect to a cause of action for willful and malicious injury under section 523(a)(6). Trost v. Trost (In re Trost), 510 B.R. 140, 153–54 (Bankr.W.D.Mich.2014).² The motions for summary judgment currently before this court concern the Plaintiff's cause of action under section 523(a)(2)(A) and raise the following issues:

(i) whether the jury verdict finding that the Plaintiff failed to prove claims sounding in fraud by clear and convincing evidence is entitled to collateral estoppel in this adversary proceeding; and

(ii) whether the jury verdict which allegedly includes a finding of "deceit and/or false representations" in connection with the Plaintiff's claim for common law conversion is entitled to collateral estoppel in this adversary proceeding.

JURISDICTION

The court has jurisdiction pursuant to 28 U.S.C. § 1334(b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(I).

BACKGROUND

As the parties note in their motions, the facts are undisputed and have previously been established on several occasions.³

This court sees no need to recite them any differently in this Memorandum Decision.

A. The Agreement Between Sherry Trost and Zachary Trost

Plaintiff, Sherry Trost, is the widower [sic] of Fred Trost. Fred Trost started a television show in Michigan in 1982, titled Michigan Outdoors. Michigan Outdoors was a dba of Fred Trost Enterprises, Inc. Fred Trost Enterprises, Inc. accumulated significant debts, including, but not limited to, a significant multi-million dollar civil judgment known as the "Buck Stop Judgment." Plaintiff married Fred Trost on July 29, 1988 ... The "Michigan Outdoors" tape library owned by Fred Trost Enterprises, Inc. was bought by ZNT Marketing, Inc., a company owned by Zachary Trost and JoAnn Cribley at [t]he auction held when all assets related to the television show were seized due to the Buck Stop Judgment. Fred Trost continued to operate his show[;] however [,] the debts from Fred Trost Enterprises, Inc. followed Fred Trost and made it impossible for him to own or operate the show in his own name or to own any assets of the show. In fact, Fred Trost was going to have to shut down the show and the business because of the debt. Fred Trost was to receive a significant inheritance from his parents upon their passing[;] however[,] these funds would not be available in time to save the show. Plaintiff and nonparty JoAnn Cribley agreed to take ownership of the show and its assets and agreed to take on the show's debts in their names so that Fred Trost could continue to operate the show. Plaintiff and JoAnn Cribley became officers and owners of Practical Sportsman, Inc.

In 2002, a non-profit corporation, Practical Sportsman Foundation, was set up in order to continue the operation of the show. Again, JoAnn Cribley and Sherry Trost were officers of Practical Sportsman Foundation. Practical Sportsman Foundation took on debts of the previous business entities and incurred additional debt. Fred Trost remained in charge of the running of the business, including finances and bookkeeping ...

Fred Trost became suddenly ill in May 2007. After several months in the hospital, Fred Trost passed away in July 2007 prior to receiving his inheritance or paying any of the debts from the show ...

Zachary Trost and [his sister] Tara Trost received an inheritance from Fred Trost's parents.

In re Trost, 510 B.R. at 143–44 (citing USDC Dkt. Nos. 69 and 81; Trost, 525 Fed.Appx. at 337–38 (citations omitted)).

Sometime after Fred Trost died, the Plaintiff agreed to give Zachary Trost the assets that she owned relating to the Michigan Outdoors show, including videotapes, raw footage and other memorabilia. Trost, 525 Fed.Appx. at 338. In exchange for these assets, Zachary Trost agreed to pay off the debts that the Plaintiff incurred from producing and administering the show. Id. Zachary Trost, however, did not pay off the debts as he had promised. Id. Instead, while attempting to profit from the assets, Zachary Trost ignored the Plaintiff's repeated requests to satisfy the Plaintiff's debts and to return the assets to her. Id.

B. The District Court Litigation and Related Appeal

In 2009, the Plaintiff commenced a civil action in the District Court against the Defendants for, among other things, breach of contract, fraud, common law conversion and statutory conversion. In re Trost, 510 B.R. at 144 (citing USDC Dkt. No. 17).⁴ Approximately three years later and in preparation for trial, the parties jointly filed proposed jury instructions which, in large part, mirrored the Michigan Model Civil Jury Instructions. Mich. M. Civ. JI 128.01, 128.03.⁵ With respect to the Plaintiff's claim for "Fraud Based on False Representation," the jury instruction was based on the model instruction and stated as follows:

M Civ JI 128.01 Fraud Based on False Representation

Plaintiff claims that Defendant Zachary Trost defrauded her. To establish fraud, [P]laintiff has the burden of proving each of the following elements by clear and convincing evidence:

a. Defendant made a representation of a material fact.

b. The representation was false when it was made.

c. Defendant knew the representation was false when he made it, or defendant made it recklessly, that is, without knowing whether it was true.

d. Defendant made the representation with the intent that the Plaintiff rely on it.

e. Plaintiff relied on the representation.

f. Plaintiff was damaged as a result of her reliance.

(USDC Dkt. No. 72 at p. 30.)

With respect to the Plaintiff's claim for "Fraud Based on Bad Faith Promise," the jury instruction was again based on the model instruction and stated as follows:

M Civ JI 128.03 Fraud Based on Bad Faith Promise

Plaintiff claims that Defendant Zachary Trost defrauded her by making a promise of future conduct. To establish this, Plaintiff has the burden of proving each of the following elements by clear and convincing evidence:

a. Defendant promised that he would pay off all the debts of the show if Plaintiff gave him all the property from the show.

b. At the time Defendant made the promise, he did not intend to keep it.

c. Defendant made the promise with the intent that Plaintiff rely on it.

d. Plaintiff relied on the promise.

e. Plaintiff was damaged as a result of her reliance.

(USDC Dkt. No. 72 at p. 31.)

The jury instructions also addressed the Plaintiff's claim for common law conversion. However, for some reason, the parties did not use a form jury instruction for the claim of common law conversion. See Mich. Non–Standard Civ. JI 28:1. Instead, the parties submitted the following jury instruction with respect to common law conversion:

Foremost Ins. Co. v. Allstate Ins. Co. , 439 Mich. 378, 391, 486 N.W.2d 600 (1992)

(1992) Common Law Conversion

The tort of common law conversion is any distinct act of domain wrongfully exerted over another's personal property in denial of or inconsistent with the rights therein.

Plaintiff claims the Defendants Zachary and Kim Trost converted her property by obtaining that property through deceit and/or false representations. To establish this Plaintiff

...