Opinion
Case No. 8:20-bk-00051-RCT Adv. Pro. No. 8:20-ap-00179-RCT
12-07-2020
In re David L. Vasquez, Debtor. Lugo Landscaping, LLC, Plaintiff, v. David L. Vasquez, Defendant.
Chapter 7 ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
Before the Court is Plaintiff Lugo Landscaping, LLC's ("Lugo") Amended Motion for Summary Judgment on its complaint against Debtor-Defendant David L. Vasquez (the "Debtor"). Lugo obtained a final default judgment against the Debtor for "conversion" of collateral in Florida state court (the "Judgment"). Invoking the preclusive effect of the Judgment, Lugo seeks to have the amount awarded by the state court declared non-dischargeable under § 523(a)(2), § 523(a)(4) or § 523(a)6) of the Bankruptcy Code. Applying collateral estoppel, the Court finds Lugo is entitled to summary judgment on its claim for non-dischargeability under § 523(a)(6).
Doc. 24.
Doc. 1 Ex. C, Case No. 2018-CA-1675CAAXES filed in the Circuit Court of the Sixth Judicial Circuit in and for Pasco County.
11 U.S.C. §§ 101-1532 ("Code" or "Bankruptcy Code").
Because summary judgment is granted under § 523(a)(6) it is not necessary to address the claims made under § 523(a)(2) or § 523(a)(4).
Background
In June 2017, Allied Landscaping LLC ("Allied") entered into an asset purchase agreement with Lugo to acquire all of Lugo's assets for $85,000. Debtor was the managing member and sole owner of Allied. The purchased assets included:
Doc. 24 Ex. A.
Doc. 1 ¶ 9; Doc. 24 Ex. H at 1.
1 Ford F-250 ..., 1 Toyota Tundra ..., 1 ENCLOSED Trailer, 1 Dump Trailer, 3 X Mark Mowers, 1 John Deer Mower, and various lawn equipment (including leaf blowers, grass edgers and weed eaters).In connection with the sale, Allied executed a promissory note in Lugo's favor in the amount of $45,000 (the "Note"). The Note was signed by Debtor as "Manager" of Allied. Debtor personally guaranteed payment of the Note.
Doc. 24 Ex. H.
Doc. 24 Ex. E.
Id.
Id.
To secure payment of the Note, Allied also executed a security agreement ("Security Agreement") granting Lugo a security interest in the purchased assets (the "Collateral"). Like the Note, the Security Agreement was signed by Debtor as "Manager" of Allied. Lugo's security interest in the Collateral was perfected with the timely filing of a UCC-1 statement.
Doc. 24 Ex. H at 4-6.
Id. at 6.
Doc. 24 Ex. H at 12.
When Allied failed to make any payments on the Note, Lugo's counsel sent a letter to Debtor personally advising him of the default and informing him the full balance of the Note was due (the "Demand Letter"). Lugo's counsel also informed Debtor that if the Collateral was returned no further action would be taken. This Demand Letter was sent in October 2017.
Doc. 24 Ex. H at 9.
Id.
Doc. 24 Ex. H at 2. The Demand Letter was sent via U.S. certified mail and U.S. regular mail. The Demand Letter sent via certified mail was returned unsigned for.
Debtor did not return the Collateral and neither Debtor nor Allied made any payments on the Note. In May 2018, Lugo filed a state court complaint for collateral conversion against the Debtor. The complaint included a copy of the June 2017 Security Agreement and the October 2017 Demand Letter and alleged in relevant part:
Id.
Doc. 24 Ex. H at 1.
[Lugo] is and/or was a secured creditor of the [Collateral] pursuant to a written and recorded security agreement and note covering all the property sold in an asset purchase agreement. (See attached composite Exhibit A).Debtor did not respond to the complaint. In August 2018, the state court entered the Judgment in Lugo's favor. The Judgment awarded Lugo damages for the value of the Collateral, $45,000, plus court costs of $460.
The description of the property is: [description of the Collateral above]
... the value of the property was $45,000.
In January and/or February 2018, the [Debtor] converted the [Collateral] contained in the security interest ... and converted all the proceeds into his own use and benefits.
...
The [Debtor] sold the [Collateral] (or transferred same to his own benefit) without the plaintiff's knowledge, consent, or permission.
Doc. 24 Ex. H at 1-2.
Doc. 1 Ex. C.
Id.
In January 2020, Debtor filed for bankruptcy seeking to discharge the Judgment. Lugo then filed a timely complaint to declare the Judgment debt non-dischargeable.
Doc. 24 Ex. F at 1.
Doc. 1.
Summary Judgment Standard
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." The moving party bears the initial burden of showing the absence of a triable issue of fact and its entitlement to judgment as a matter of law. Thereafter, the burden shifts and the non-moving party must set forth specific facts to show that there is a genuine issue for trial. All inferences to be drawn from the facts must be viewed in the light most favorable to the non-movant.
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (quoting Fed. R. Civ. P. 56(c) (1963) (later amended and relocated, in part, to Fed. R. Civ. P. 56(a))); see Fed. R. Civ. P. 56(a) (incorporated by Fed. R. Bankr. P. 7056).
Kernel Records Oy v. Mosley, 694 F.3d 1294, 1300-01 (11th Cir. 2012).
Discussion
Section 523(a)(6) excepts from discharge any debt "for willful and malicious injury by the debtor to another entity or the property of another entity." A debtor is "responsible for a 'willful' injury when he or she commits an intentional act the purpose of which is to cause injury or which is substantially certain to cause injury." A "malicious" injury is one which is "wrongful and without just cause or excessive even in the absence of personal hatred, spite or ill-will." The "mere failure to abide by contractual obligations is not sufficient to sustain an exception to discharge" under § 523(a)(6). When a financial harm is alleged, it must be shown that the debtor "actually knew, at the time of the intentional act, that injury was substantially certain to result."
Courts frequently mesh the separate requirements of willfulness and maliciousness into a single inquiry. This is incorrect. As one court of appeals observed: "Congress tells us in § 523(a)(6) that malice and willfulness are two different characteristics. They should not be lumped together to create an amorphous standard to prevent discharge for any conduct that may be judicially considered to be deplorable." In re Long, 774 F.2d 875, 881 (8th Cir.1985).
Creal Dallas v. Viciedo (In re Viciedo), 612 B.R. 233, 240 (Bankr. M.D. Fla. 2020) ("Viciedo") (citing In re Thomas, 2008 WL 1765264, at * 2 (11th Cir. Apr. 18, 2008)).
Lee v. Ikner (In re Ikner), 883 F.2d 986, 991 (11th Cir.1989) (quoting Sunco Sales, Inc. v. Latch (In re Latch), 820 F.2d 1163, 1166 n. 4 (11th Cir.1987)).
In re Gelinas, No. 05-36668-BKC-PGH, 2008 WL 5640701, at *6 (Bankr. S.D. Fla. Nov. 12, 2008) (quoting Calumet v. Whiters (In re Whiters), 337 B.R. 326, 339 (Bankr. N.D. Ind. 2006)); see also Lockerby v. Sierra, 535 F.3d 1038 (9th Cir. Aug. 7, 2008) ("[I]n breach of contract cases, 'something more' is necessary to exempt a debt from discharge—tortious conduct")).
Petroleum Realty I, LLC v. McCravy (In re McCravy), 2015 WL 3916811, at *9 (Bankr. S.D. Fla. 2015); Kane v. Stewart Tilghman Fox & Bianchi Pa (In re Kane), 755 F.3d 1285, 1293 (11th Cir. 2014).
Lugo argues first that Debtor is collaterally estopped from disputing the facts necessarily determined by the state court in entering the Judgment, and, second, that those facts are sufficient to support its claim for non-dischargeability under § 523(a)(6). Debtor disagrees, contending the state court complaint and Judgment "are devoid of any of the elements" of § 523(a)(6). Specifically, Debtor argues that there are no allegations in the state court complaint that he intended to cause injury to Lugo or its property.
See Doc. 24 at 4-6.
Doc. 26 at 7.
Collateral estoppel applies in actions to declare a debt not dischargeable and prevents re-litigation of issues decided in a prior judicial proceeding. Because Lugo obtained a Florida judgment, Florida's collateral estoppel law determines the Judgment's preclusive effect.
Bush v. Balfour Beatty Bahamas, Ltd., 62 F.3d 1319 (11th Cir. 1995).
St. Laurent v. Ambrose (In re St. Laurent), 991 F.2d 672, 676 (11th Cir. 1993).
The party invoking collateral estoppel based on a Florida judgment must establish: (1) identity of issues; (2) the prior issue was actually litigated; (3) the prior determination of the issue was a critical and necessary part of the judgment; and (4) an equivalent or more stringent standard of proof was applied in the prior proceeding.
Id.
Here, the "actually litigated" and "standard of proof" requirements, the second and fourth elements, are easily satisfied. A default judgment certainly satisfies the "actually litigated" requirement for collateral estoppel under Florida law. Indeed, under Florida law "a default establishes the truth of all allegations in the complaint." The standard of proof for a conversion claim under Florida law- a preponderance of the evidence- is the same standard applicable to a non-dischargeability proceeding.
Howard Alternatives, Inc. v. Bentov (In re Bentov), 514 B.R. 907, 913 (Bankr. S.D. Fla. 2014) ("Bentov"); Lasky v. Itzler (In re Itzler), 247 B.R. 546, 554 (Bankr. S.D. Fla. 2000).
Bentov, 514 B.R. at 916.
In re Duhaime, No. 11-26030-EPK, 2012 WL 4466323, at *4 (Bankr. S.D. Fla. Sept. 25, 2012) (citing Small Bus. Admin. v. Echevarria, 864 F.Supp. 1254, 1265 (S.D. Fla. 1994).
In re Miller, 39 F.3d 301, 304 (11th Cir. 1994) (quoting Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991)).
As to "identity of issues," conversion of collateral can be a willful and malicious injury within the meaning of § 523(a)(6) under the right set of circumstances. As the Eleventh Circuit recognized in In re Monson:
See Viciedo, 612 B.R. at 241.
Bankruptcy courts within this Circuit have held that ... where the debtor has knowledge of the lienholder's claim and subsequently sells or disposes of the property at issue without notice to the lienholder, that act constitutes a willful and malicious injury under § 523(a)(6).Moreover, an individual debtor, who, as an officer of a corporation, actively participates in the conversion of collateral is personally liable to the injured party and the debt is non-dischargeable pursuant to § 523(a)(6).
In re Monson, 661 F. App'x 675, 684 (11th Cir. 2016); see also Chrysler Credit Corp. v. Rebhan, 842 F.2d 1257 (11th Cir. 1988) (corporate officer who personally guaranteed corporate borrower's debt and then converted collateral committed willful and malicious injury); Ford Motor Credit Co. v. Owens, 807 F.2d 1556 (11th Cir. 1987) ("Ford") (same).
Ford, 807 F.2d at 1559.
Here, Lugo made the following specific allegations in its state court complaint, which are assumed true: (i) Lugo had a written and recorded security agreement in the specifically identified Collateral; (ii) Debtor had actual knowledge of the Lugo's security interest (he signed the Security Agreement himself in June 2017 and he was reminded of the security interest in the Demand Letter in October 2017); (iii) the value of the Collateral was $45,000; and (iv) Debtor converted the Collateral to his own use and benefit (without Lugo's knowledge, consent, or permission) in early 2018. These facts are sufficient to establish a non-dischargeable debt for collateral conversion under § 523(a)(6). In other words, there is an "identity of issues."
Lastly, the Court finds the above allegations were "critical and necessary" to the Judgment ultimately entered. The critical and necessary element is usually at issue where multiple counts are alleged in the prior proceeding such as "where the prior final judgment made only a single monetary award with respect to a multi-count complaint, and it cannot be determined which of the allegations were essential to the judgment." That is not the case here. The full damage amount was awarded on Lugo's single complaint for conversion of collateral and the facts alleged were directed at establishing that cause of action.
Dimmitt & Owens Financial, Inc. v. Green (In re Green), 262 B.R. 557, 567 (Bankr. M.D. Fla. 2001); see also Bentov, 514 B.R. at 913-14; Lang v. Vickers (In re Vickers), 247 B.R. 530, 536 (Bankr. M.D. Fla. 2000); Tobin v. Labidou (In re Labidou), 2009 WL 2913483 at *5-6 (Bankr. S.D. Fla., Sept. 8, 2009).
See Bentov, 514 B.R. at 915. --------
Accordingly, Debtor is collaterally estopped from relitigating the facts alleged in the state court complaint in his defense of Lugo's § 523(a)(6) action. And these facts warrant a finding of non-dischargeabilty of the Judgment under § 523(a)(6).
For these reasons, it is
ORDERED:
1. Lugo's Amended Motion for Summary Judgment (Doc. 24) is GRANTED.
2. The Court will enter a separate judgment declaring that the Judgment debt in the amount of $45,460 is non-dischargeable under § 523(a)(6) of the Bankruptcy Code.
ORDERED. Dated: December 07, 2020
/s/_________
Roberta A. Colton
United States Bankruptcy Judge Service of this Order other than by CM/ECF is not required. Local Rule 9013-3(b). FINAL JUDGMENT IN FAVOR OF PLAINTIFF
This proceeding was commenced on Plaintiff Lugo Landscaping, LLC's complaint to determine dischargeability of debt (Doc. 1). On December 7, 2020, the court entered its Order Granting Plaintiff's Motion for Summary Judgment (Doc. 28). As indicated in the order, and for the reasons stated therein, the court finds it is appropriate to enter Final Judgment.
It is therefore ORDERED, ADJUDGED AND DECREED:
1. Final Judgment is entered in favor of the Plaintiff, Lugo Landscaping, LLC, and against the Defendant, David L. Vasquez.
2. The Judgment debt owed by the Defendant to the Plaintiff, in the amount of $45,460, is non-dischargeable under 11 U.S.C. § 523(a)(6).
ORDERED. Dated: December 08, 2020
/s/_________
Roberta A. Colton
United States Bankruptcy Judge Clerk's Office to serve.