In re Trost
16-8024
| 6th Cir. | Jun 28, 2017Background
- Sherry Trost (plaintiff) owned videotapes and memorabilia from the TV show Michigan Outdoors; she let Zachary Trost (debtor) take those assets in exchange for his promise to pay show-related debts.
- Zachary and his wife Kimberly kept the assets, failed to pay the debts, refused Sherry’s repeated demands for return, and the assets remained in their home.
- Sherry sued in federal court for breach of contract and common law conversion; after a jury trial the court entered judgment for conversion against Zachary and Kimberly (amount $108,797.06) and later the Sixth Circuit affirmed the conversion judgment.
- Zachary and Kimberly filed Chapter 7 bankruptcy; Sherry sued in the bankruptcy adversary proceeding seeking a § 523(a)(6) nondischargeability ruling for the conversion judgment.
- The Bankruptcy Court granted summary judgment for Sherry on the § 523(a)(6) claim on collateral estoppel grounds; the BAP affirmed, holding the prior conversion judgment established willful and malicious injury under § 523(a)(6).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether collateral estoppel bars re-litigation of intent for § 523(a)(6) | Prior federal conversion judgment conclusively establishes intent and precludes relitigation | Preclusion inappropriate; defendants should be able to contest intent in bankruptcy | Collateral estoppel applies; prior judgment precludes relitigation of intent |
| Whether conversion was intentional (willful and malicious) | Evidence at trial showed defendants knew Sherry owned the property and intentionally withheld it | Conversion was unknowing or negligent, not intentional | Jury findings and appellate affirmance show intentional conversion; defendants estopped from contradicting that |
| Whether conversion judgment satisfies § 523(a)(6) nondischargeability standard | Conversion is an intentional tort that caused willful and malicious injury, so debt is nondischargeable | No specific argument that conversion cannot meet § 523(a)(6); defendants raised mental-health/intent issues | The conversion judgment met § 523(a)(6) elements (willful and malicious); debt nondischargeable |
| Whether jury’s verdict on fraud or amount undermines nondischargeability | N/A (Sherry relied on conversion judgment) | Claimed jury’s finding of no fraud and that damages reflected taxes (not conversion) negate § 523(a)(6) relief | Fraud finding irrelevant to § 523(a)(6); damages and valuation were for the jury and are preclusive |
Key Cases Cited
- Kawaauhau v. Geiger, 523 U.S. 57 (Sup. Ct.) (intentional tort standard for § 523(a)(6))
- Grogan v. Garner, 498 U.S. 279 (Sup. Ct.) (issue preclusion applies in nondischargeability litigation)
- Markowitz v. Campbell (In re Markowitz), 190 F.3d 455 (6th Cir.) (collateral estoppel elements in bankruptcy context)
- Wolfe v. Perry, 412 F.3d 707 (6th Cir.) (federal collateral estoppel framework)
- Spilman v. Harley, 656 F.2d 224 (6th Cir.) (look to entire prior record when assessing preclusive effect)
- Foremost Ins. Co. v. Allstate Ins. Co., 486 N.W.2d 600 (Mich. 1992) (definition of common law conversion)
- Kasishke v. Frank (In re Frank), 425 B.R. 435 (Bankr. W.D. Mich.) (conversion can support § 523(a)(6) nondischargeability)