Nicewander v. NicewanderNicewander v. Nicewander
MEMORANDUM OPINION AND ORDER
Pending are Plaintiff‘s Motion for Summary Judgment [dckt. 30] and Memorandum of Law in Support [dckt. 31], Defendant‘s Response [dckt. 38], and Plaintiff‘s Reply [dckt. 39]. Plaintiff Traci Nicewander seeks a determination that a debt owed to her by her former brother-in-law, Defendant Russell Lee Nicewander, is nondischargeable pursuant to
This is a core proceeding pursuant to
I.
The factual background of this matter is largely undisputed as reflected in the submissions before the Court as well as the record from Plaintiff‘s prior suit against Defendant in the Circuit Court of Mercer County (the “Circuit Court Action“).
Traci Nicewander (“Plaintiff“) was married to Phillip Todd Nicewander on May 25, 1991. Mem. [dckt. 31] at Ex. A (Final Order Following Bench Trial), p. 1. Phillip Todd Nicewander was known as “Todd” Nicewander and was the brother of Russell Lee Nicewander (“Defendant“). Id. Todd Nicewander and Russell Nicewander were very close. Id.
Plaintiff‘s father, Jack Sells, died on or about June 25, 2003, leaving most of his estate to Plaintiff. Id. at 2. At the time of his death, Mr. Sells was in default on a note secured by certain real estate located in Mercer County (the “Real Estate“). Consequently, the Real Estate was sold on the courthouse steps on October 26, 2004. Todd Nicewander cast the highest bid for the Real Estate, and Plaintiff subsequently paid 100% of the $21,981.00 purchase price using funds inherited from her father‘s life insurance policy. See id.
Although Plaintiff paid full consideration for the Real Estate, she and Todd Nicewander caused the Real Estate to be placed in Defendant‘s name because, at the time, Plaintiff was defending litigation brought by her mother, Barbara Sells, to contest her inheritance from Jack Sells. Id. at 2.1 Within three or four days after the sale, Todd Nicewander notified Defendant that the Real Estate would be titled in Defendant‘s name, and Defendant agreed. Id. at 3. On November 17, 2004, Todd Nicewander signed a handwritten note prepared by Plaintiff directing the Trustee
for the Deed of Trust to the Real Estate to place Defendant‘s name on the deed to the Real Estate. Id. Defendant was named on the deed, and that deed was recorded January 22, 2007, in Deed Book 906, Page 479 in the Office of the Clerk of the County Commission in Mercer County. Id.
Plaintiff and Todd Nicewander subsequently treated the Real Estate as their own property, including paying for real estate taxes and maintenance and holding family gatherings on the Real Estate. Id. Defendant admits that he agreed to hold title to the Real Estate for his brother and Plaintiff, but that Plaintiff was the owner of the Real Estate. Id.
Sometime in 2014, approximately ten years after purchasing the Real Estate, Plaintiff, Todd Nicewander, and Defendant agreed to sell the Real Estate. Id. at 4. Plaintiff communicated with the realtor
The parties’ disagreement during the Circuit Court Action centered on what was done with the cash. There appears to be no dispute that Defendant kept $3,000.00 of the sale proceeds to cover the capital gain taxes he would be required to pay as a result of the sale. See id. at 5. There appears to be agreement from the record that Defendant was authorized to retain this $3,000.00.
Defendant claimed in the Circuit Court Action that he tendered the remaining $47,500.00 in cash to Plaintiff at his residence. Id. at 5. Defendant claimed that no witnesses were present during the exchange and that he did not obtain a receipt. Id. Plaintiff, on the other hand, denied receiving any cash from Defendant. In support of this claim, Plaintiff explained that her financial affairs prove she had no cash from 2015-2016. Id. Plaintiff and Todd Nicewander filed for divorce in March of 2015, and Plaintiff‘s mortgage remained in default from August of 2015 through September 27, 2016, when the final divorce decree was entered. Id. at 1, 5. Plaintiff borrowed money from relatives to make her home payments in May of 2016 when Todd Nicewander fell behind on making the payments. Id. Todd Nicewander was terminally ill with pancreatic cancer at the time, and Paragraph 7(a) of the final divorce decree specifically provided that the proceeds of his life insurance policy would be first paid to satisfy the outstanding mortgage on the marital residence, in which Plaintiff would retain a life estate. Id. at 5-6. Todd Nicewander was also ordered to keep the monthly payments current from September 2016 until the time of his death. Id. at 6.
Paragraph 7(i) of the final divorce decree also specifically waived any and all claims Todd Nicewander held against Defendant related to sale of the Real Estate. Id. The paragraph states that:
The husband waives any possible claim of the wife to secure proceeds from the sale of real estate (owned by her father) that was put in his brother‘s name due to a pending lawsuit against the wife at the time of the purchase and sale of the same. The brother‘s name is Russell L. Nicewander and he conveyed the subject property to Judy A. Elkins on or about November 14, 2014, by deed recorded in Office of the County Commission of Mercer County, West Virginia, in Deed Book 1012 at Page 615.
Id.; Mem. [dckt. 31] at Ex. 16, ¶ i.
On November 9, 2016, Plaintiff filed the Circuit Court Action against Defendant in the Circuit Court of Mercer County (the “Circuit Court Action“) to recover the proceeds of the sale of the Real Estate. Mem. [dckt. 31] at Ex. A, p. 2.
Todd Nicewander attended a hearing regarding Defendant‘s motion to dismiss in the Circuit Court Action in June of 2017, but offered no testimony or affidavit. Id. at 6. Todd Nicewander died on or about July 22, 2017. Id.
On February 24, 2020, the Circuit Court of Mercer County entered a final judgment
- Defendant claimed he paid the sum of $47,500.00 in cash when most reasonable people would pay by check or at least obtain a written receipt;
- It is not credible that Defendant would give Plaintiff $47,500.00 in cash without his close brother, Todd, or any other witness present;
- Defendant did not agree that he owed the $16,020.24 used to satisfy his own tax liens until the Circuit Court Action commenced;
- Todd Nicewander would not have waived his right to Plaintiff‘s claim against his brother if no such claim existed;
- Plaintiff‘s finances after the sale of the Real Estate were not consistent with a person who received $47,500.00 in cash (with her home in prolonged default and having to take a personal loan from a family member to pay the mortgage); and
- Defendant falsely claimed that Plaintiff waited until Todd Nicewander died to bring her claim, but the Circuit Court Action was filed prior to Todd
Nicewander‘s death, and Todd Nicewander was present during a hearing on a motion to dismiss the Circuit Court Action.
Id. at 9-10. Defendant did not appeal the Circuit Court Order.
Defendant and his wife Stacy Renee Nicewander filed a Chapter 7 bankruptcy petition on June 19, 2020.
Plaintiff commenced this nondischargeability adversary proceeding on September 17, 2020. With leave of the Court, an Amended Complaint was filed on February 26, 2021 [dckt. 24], and an Answer was filed March 15, 2021 [dckt. 26].
On June 11, 2021, Plaintiff filed her Motion for Summary Judgment and Memorandum in Support, requesting that this Court grant summary judgment and determine that Defendant‘s debt to her of $63,479.31, plus interest, is nondischargeable under
On July 23, 2021, Defendant filed a Response arguing that summary judgment is not appropriate because the Order entered in the Circuit Court Action did not include any findings of fact regarding intentional or reckless conduct on the part of Defendant, which is required to obtain a nondischargeability ruling pursuant to
Plaintiff filed a Reply on August 2, 2021, arguing that (1) the Court should grant summary judgment and find that Defendant was a trustee and a fiduciary; (2) the Court should grant summary judgment against Defendant under
The matter is ready for adjudication.
II.
A. Governing Standard
B. Analysis
Plaintiff contends that the Circuit Court Order‘s findings are binding in this case because of the doctrines of res judicata and collateral estoppel; namely, that a trust was formed and that Defendant did not pay the sales proceeds of the Real Estate to Plaintiff. Mem. at 8-9. Further, Plaintiff argues that these findings are sufficient basis for this Court to grant summary judgment under
1. Res Judicata
The doctrine of res judicata, or claim preclusion, prohibits re-litigation of “further claims by parties or their privies based on the same cause of action” if a final decision has already been rendered. Brown v. Felsen, 442 U.S. 127, 131 (1979) (quoting Montana v. U.S., 440 U.S. 147 (1979)). The Supreme Court has held, however, that res judicata is inapplicable in the bankruptcy nondischargeability context. Felsen, 442 U.S. at 138-39 (“[A] bankruptcy court is not confined to a review of the judgment and record in the prior state-court proceedings when considering the dischargeability of respondent‘s debt.“); Bankruptcy Law Manual § 2:29 (5th ed.) (”Brown is generally recognized as a “narrow” exception to the general rule that claim preclusion applies in bankruptcy.“); see also Kelly C. Porcelli, Preclusive Effect of Pre-Petition State Court Judgments in Nondischargeability Proceedings, 6 ST. JOHN‘S BANKR. RESEARCH LIBR. No. 25, at 3 (2014). In a footnote, the Supreme Court in Felsen acknowledged that its decision applied to ”res judicata only, and not the
Res judicata principles have no bearing on the Circuit Court‘s Order. Plaintiff is consequently not entitled to summary judgment on res judicata grounds.
2. Collateral Estoppel
Collateral estoppel prohibits re-litigation of specific issues already adjudicated by a valid and final order of another court. Sartin v. Macik, 535 F.3d 284, 287-89 (4th Cir. 2008). As noted, the Supreme Court‘s decision in Grogan permits use of this preclusion doctrine in the nondischargeability context. Grogan, 498 U.S. at 284, n.11. In assessing the applicability of collateral estoppel, the bankruptcy court applies the law of the tribunal entering the prior judgment. Sartin, 535 F.3d at 287; Pahlavi v. Ansari (In re Ansari), 113 F.3d 17, 19 (4th Cir. 1997) (“In determining the preclusive effect of a state-court judgment, the federal courts must, as a matter of full faith and credit, apply the forum state‘s law of collateral estoppel....“) (citations omitted).
The final order in this case was entered by the Circuit Court of Mercer County. Thus, West Virginia law controls the collateral estoppel determination. Under West Virginia law, collateral estoppel applies when the following factors are met:
- The issue previously decided is identical to the one presented in the action in question; (2) there is a final adjudication on the merits of the prior action; (3) the party against whom the doctrine is invoked was a party or in privity with a party to a prior action; and (4) the party against whom the doctrine is raised had a full and fair opportunity to litigate the issue in the prior action.
Syl. Pt. 1, State v. Miller, 459 S.E.2d 114, 117 (W. Va. 1995); Donham v. Walters (In re Walters), Adv. Proc. No. 10-93, 2011 Bankr. LEXIS 2147, at *10, 2011 WL 2224616, at * 3 (Bankr. N.D. W. Va. June 7, 2011); Jackson v. Harris (In re Harris), Adv. Proc. No. 08-13, 2008 Bankr. LEXIS 2329, *10, 2008 WL 4279505, at * 4 (Bankr. N.D. W. Va. Sept. 15, 2008).
Here, the Circuit Court Order constitutes a final adjudication as to the merits of the Circuit Court Action. The Plaintiff and Defendant were parties to that action, and both parties had a full and fair opportunity to litigate the merits. The only remaining factor is whether any of the issues previously decided in the Circuit Court Order are identical to the issues presented in this nondischargeability action.
Plaintiff relies upon
A. Defalcation While Acting in a Fiduciary Capacity
To establish an exception to discharge for debts arising from defalcation while acting in a fiduciary capacity, Plaintiff must show, by a preponderance of the evidence, the existence of both (1) a fiduciary relationship and (2) defalcation while acting in that fiduciary capacity. See Grogan, 498 U.S at 283, 291 (applying a preponderance of the evidence standard to
“The definition of ‘fiduciary’ for purposes of
[The term “fiduciary capacity” as used in
§ 523(a)(4) ] has been fixed by judicial construction for nearly a century. . . . [T]he statute “speaks of technical trusts, and not those which the law implies from contract.” The scope of the exception was to be limited accordingly. Through the intervening years that precept has been applied by this court in varied situations with unbroken continuity. It is not enough that by the very act of wrongdoing out of which the contested debt arose, the bankrupt has become chargeable as trustee ex maleficio. He must have been a trustee before the wrong and without reference thereto. . . . “The language would seem to apply only to a debt
created by a person who was already a fiduciary when the debt was created.”
Davis v. Aetna Acceptance Co., 293 U.S. 328, 333 (1934) (internal citations omitted); see also Bradley, et al., v. Kelley (In re Kelley), 948 F.2d 1281, 1991 WL 249524, at * 2 (4th Cir. 1991). Thus, under federal common law, a fiduciary is limited to instances involving express or technical trusts, and “[t]he trustee‘s obligations must have been imposed prior to, rather than by virtue of, any claimed misappropriation of funds[.]” See Harrell, 173 F.3d 850, 1999 WL 150278, at *3. Constructive trusts and resulting trusts generally fall short of the
“In some circumstances, a technical trust relationship may be created by state statute or common law doctrines that impose trust-like obligations on a party sufficient to render the debtor a fiduciary within the meaning of
In this case, Plaintiff argues that Defendant was a fiduciary under
If, where a person pays money for property which is at the time conveyed to another, the circumstances are such as to give rise to a resulting trust for the benefit of the payor, the trust arises immediately when the payment is made. Such trust cannot arise if the legal title itself depends on a contingency at variance with the trust theory, or the alleged beneficial interest is conditional.
Id. at Syl. Pt. 8.
In this case, the Circuit Court held that a resulting trust arose under West Virginia law at the time that Plaintiff paid for the Real Estate in 2004, which was ten years before the Real Property was sold. Thus, Defendant was already a fiduciary when the debt was created. While
Second, Plaintiff must establish that Defendant committed an act of defalcation while acting as a fiduciary in order to prevail on her Motion for Summary Judgment. While the precise meaning of “defalcation” for purposes of
While the record includes a finding that Defendant failed to pay proceeds of the sale of the Real Estate owed to Plaintiff, neither the Plaintiff‘s Motion nor the Circuit Court Order includes evidence that Defendant engaged in intentional or reckless conduct as required under Bullock v. BankChampaign, N.A..3 Accordingly, Plaintiff has failed to show that there is no genuine dispute of material fact as to the second element of her
B. Embezzlement
Under
at 439. Embezzlement further requires a showing of wrongful intent. BankChampaign, 569 U.S. at 274 (internal citations omitted).
As with defalcation, neither the Plaintiff‘s Motion nor the Circuit Court Order shows that Defendant engaged in intentional conduct, which is a material fact. Absent this factual support, the embezzlement requirements of
3. Partial Summary Judgment and Rule 56(g)
Plaintiff‘s Reply argues that, even if the Court rules that there are genuine issues of material fact such that summary judgment is not appropriate as this juncture, the Court should enter partial summary judgment and “order that those facts (all thirty-eight) in the Circuit Court‘s judgment order are not in dispute and are applicable to this case” pursuant to
While the Court may grant partial summary judgment on a portion of a claim (see, e.g., City of Huntington v. AmerisourceBergen Drug Corp., No. 3:17-01362, 2021 WL 972295, at *2, 2021 LEXIS 79514, at *12 (S.D. W. Va. Mar. 15, 2021) (citing Chavez v. Cty. of Kern, No. 1:12-CV-01004 JLT, 2014 WL 412562, at *2, 2014 LEXIS 13193, at *2 (E.D. Cal. Feb. 3, 2014))), the Court declines to do so. As explained above, genuine issues of material fact remain to be established before Plaintiff can be entitled to judgment as a matter of law on any of its claims.
- Defendant held the Real Estate in trust for Plaintiff because a resulting trust was created under West Virginia common law at the time that Plaintiff paid for the Real Estate; and
- Defendant failed to pay the $47,500 in proceeds he received from the sale of the Real Estate to Plaintiff.
III.
Plaintiff requests the Court to declare a debt of $63,479.31, plus interest, nondischargeable based on the res judicata and collateral estoppel effect of a prior state court judgment. Binding precedent teaches, however, that res judicata does not apply to state court judgments in the bankruptcy nondischargeability context. Thus, summary judgment is unavailable on the basis of res judicata. Neither does collateral estoppel establish nondischargeability as a matter of law. Because the state court order at issue did not make factual findings to support the requisite state-of-mind elements required to prove defalcation and embezzlement under
Plaintiff alternatively requests that the Court find that undisputed, material facts have been established in this case pursuant to
IT IS ORDERED that Plaintiff‘s motion for summary judgment be, and is hereby, DENIED.
IT IS FURTHER ORDERED that Plaintiff‘s alternative request for a ruling pursuant to
- Defendant held the Real Estate in trust for Plaintiff because a resulting trust was created under West Virginia common law at the time that Plaintiff paid for the Real Estate; and
- Defendant failed to pay the $47,500 in proceeds he received from the sale of the Real Estate to Plaintiff.
The Clerk‘s Office shall serve a copy of this written opinion and order on Plaintiff, Plaintiff‘s Counsel, Defendant, Defendant‘s Counsel, and the United States Trustee.