IN RE: Carlos Alberto PENA (2020)

MEMORANDUM OPINION DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

THIS CAUSE came before the Court on August 20, 2020 at 2:00 p.m. upon Plaintiff's Motion for Summary Judgment [ECF 29] (“Motion”). The Plaintiff filed a complaint under 11 U.S.C. § 523(a)(2)(A) seeking to deem non-dischargeable a state court default final judgment debt owed by the Defendant/Debtor.

The Plaintiff argues that because the state court complaint included a fraud count which meets the elements of § 523(a)(2)(A), the default final judgment entered against the Defendant/Debtor in the state court case establishes the necessary elements of fraud required under § 523(a)(2)(A). The Plaintiff argues that the elements of fraud have already been established, and the default final judgment should be entitled to preclusive effect pursuant to the theory of collateral estoppel and the Defendant/Debtor should be barred from re-litigating the elements of fraud in this adversary proceeding.

At the hearing on the Motion, the Defendant/Debtor argued that because the state court default final judgment included other counts, in addition to the fraud count, and because the judgment did not include specific findings of fact with regard to the fraud claim, the default final judgment does not collaterally estop the Defendant/Debtor from litigating the § 523(a)(2)(A) fraud claim in this adversary proceeding.

FACTUAL AND PROCEDURAL BACKGROUND

On or around May 31, 2017, Defendant/Debtor executed and delivered a promissory note to Plaintiff in the principal amount of $40,000.00. Defendant/Debtor failed to make payment to the Plaintiff as promised. On or around May 24, 2019, Plaintiff sued Defendant/Debtor in the Seventeenth Judicial Circuit Court in and for Broward County, Florida in the action styled Maria Gutierrez v. Carlos Alberto Pena et. al, Case No. CACE-19-011389 (“State Court Case”).

The complaint in the State Court Case (“State Court Complaint”) consisted of six-separate counts. Count I alleged failure of payment under the promissory note against CPR Equities, LLC; Count II alleged fraud against the Defendant/Debtor individually and against the Defendant/Debtor's entity CPR Equities, LLC for the May 31, 2017 transaction; Count III alleged failure to pay money lent against CPR Equities, LLC for the May 31, 2017 transaction; Count IV alleged violations of the Florida Deceptive and Unfair Trade Practices Act against the Defendant/Debtor individually and against the Defendant/Debtor's entity CPR Equities, LLC for the May 31, 2017 transaction; Count V alleged failure of repayment of money lent against CPR Equities, LLC for the April 27, 2017 transaction; and Count VI alleged violations of the Florida Deceptive and Unfair Trade Practices Act against the Defendant/Debtor individually and against the Defendant/Debtor's entity CPR Equities, LLC for the April 27, 2017 transaction.

The relevant fraud allegations in the State Court Complaint are found under Count II:

(i) “Prior to the Plaintiff providing the loan amount of $40,000.00, Defendant CPR, by and through its manager, Defendant, Pena, represented to Plaintiff that the monies loaned to CPR by Plaintiff would be repaid to Plaintiff with interest on or before November 30, 2017, which is the maturity date of the Note.” (State Court Complaint, ¶ 19);

(ii) “The representation was made for the sole purpose of inducing Plaintiff to provide the loan in the amount of $40,000.00 to Defendant, CPR.” (State Court Complaint, ¶ 20);

(iii) “The representation induced the Plaintiff to loan the monies to Defendant CPR.” (State Court Complaint, ¶ 21);

(iv) “Defendant, CPR intentionally failed to pay the Note when due on its maturity date on November 30, 2017.” (State Court Complaint, ¶ 22);

(v) “The representation was false and known by Defendants to be false at the time it was made because Defendants never had any intention to repay the loan to Plaintiff, as evidenced by Defendants' failure to make any payment whatsoever under the Note.” (State Court Complaint, ¶ 23);

(vi) “As a result of the misrepresentations made by the Defendants and failure of Defendant, CPR to pay the loan when due, Plaintiff has suffered damages in the amount of $40,000.00 plus unpaid and accrued interest.” (State Court Complaint, ¶ 26).

The Defendant/Debtor failed to respond to the duly served complaint in the State Court Case and, as such, a default final judgment (the “Default Judgment”) was entered against the Defendant/Debtor as to all counts of the State Court Complaint on October 30, 2019.

On December 4, 2019, the Defendant/Debtor filed a voluntary petition for relief under chapter 7 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Florida, Miami Division. The Defendant/Debtor acknowledges the debt owed to Plaintiff as she is listed as a creditor who is owed $40,000.00 on Schedule F of his bankruptcy petition.

On March 2, 2020, the Plaintiff filed this adversary complaint seeking to except from the Defendant/Debtor's discharge the Default Judgment pursuant to 11 U.S.C. §§ 523(a)(2)(A). On June 29, 2020, Plaintiff filed a Motion for Summary Judgment alleging that there are no genuine issues of material fact and that Plaintiff is entitled to judgment in her favor in this adversary case as a matter of law because the Default Judgment is entitled to preclusive effect.

DISCUSSION

Pursuant to Federal Rule of Civil Procedure 56(a) as made applicable in the instant matter by Federal Rule of Bankruptcy Procedure 7056, summary judgment is not proper where there is a genuine issue of a material fact. In undertaking this review, the Court “must view all the evidence and all factual inferences reasonably drawn from the evidence in the light most favorable to the non-moving party.” United of Omaha Life. Ins. Co. v. Sun Life Ins. Co. of America, 894 F.2d 1555 (11th Cir. 1990). “Summary judgment will not lie if the dispute about a material fact is “genuine,” that is, 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, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). As specifically addressed herein, this Court finds genuine material issues of disputed facts exist that preclude entry of a judgment under 11 U.S.C. § 523(a)(2)(A) based upon collateral estoppel. Accordingly, the Motion is denied.

Under Florida law, for the Default Judgment to have preclusive effect, the following elements must be established: (1) the issue at stake must be identical to the one decided in the prior litigation; (2) the issue must have been actually litigated in the prior proceeding; (3) the standard of proof in the prior action must have been at least as stringent as the standard of proof in the later case; and (4) the prior determination of the issue must have been a critical and necessary part of the judgment in the earlier decision. See In re St. Laurent, 991 F.2d 672, 676 (11th Cir. 1993).

With respect to the elements under 11 U.S.C. § 523(a)(2)(A), the Debtor/Defendant disputes the issues were actually litigated because he failed to appear in the State Court Case and defend against the State Court Complaint. The Court disagrees. The decision to not participate in the State Court Case, after being duly served with the State Court Complaint, does not provide Debtor/Defendant another bite of the apple. Under Florida law, a default judgment satisfies the actually litigated element under Florida collateral estoppel law. See e.g. Tobin v. Labidou (In re Labidou), 2009 WL 2913483 at *5 (Bankr. S.D. Fla., Sept. 8, 2009); In re Shiver, 396 B.R. 110 (Bankr. S.D.N.Y. 2008) (citing and following Lasky v. Itzler (In re Itzler), 247 B.R. 546 (Bankr. S.D. Fla. 2000) in applying Florida law); Hartnett v. Mustelier (In re Hartnett), 330 B.R. 823, 830 (Bankr. S.D. Fla. 2005). The choice to not defend the State Court Complaint is an insufficient basis to force the parties to re-litigate matters that were decided, by default or otherwise. However, it is not the issue of whether fraud was actually litigated that precludes entry of a summary judgment in this case.

In this case, the disputed issue that prevents the entry of a summary judgment is whether the fraud count included it the State Court Complaint was critical and necessary to the Default Judgment, as the Default Judgment does not specifically mention the fraud count and does not include specific findings of fraud. Perez v. Rodriguez, 349 So.2d 826, 827 (Fla. 3d DCA 1977) (default judgment is not conclusive as to any defense or issue which was not necessary to uphold the default judgment). Had the State Court Complaint contained only a fraud count, the issue would be simple - collateral estoppel would apply. However, that is not the case here.

The Plaintiff urges this Court to follow the lead of Bankruptcy Judge Robert A Mark in In re Bentov, 514 B.R. 907 (Bankr. S.D.Fla. 2014), wherein Judge Mark found a default judgment collaterally estopped a debtor from litigating an objection to discharge on that same ground. In Bentov, plaintiff sought to except from discharge under 11 U.S.C. § 523(a)(2) a default final judgment from a multi-count complaint which included a fraud count. The default final judgment entered in Bentov did not specifically mention the fraud count or detail specific findings of fraud. However, importantly, Judge Mark determined that it was clear from the state court record that judgment was being entered on all three damage counts in the full amount requested by the state court plaintiffs. Judge Mark held:

A default judgment is not like a judgment based on a jury verdict where a complaint has multiple counts and the jury makes no specific finding on the fraud count. Florida law instructs that a default establishes the truth of all allegations in the complaint [emphasis added]. In this Court's view it is wrong and illogical to say that a court cannot determine which count forms the basis for a default judgment, because when a judgment stems from a default, each count is proven. Bentov, 514 B.R. at 914.

The Debtor/Defendant, on the other hand, relies upon Bankruptcy Judge Paul M. Glenn's decision in Dimmitt & Owens Fin., Inc. v. Green (In re Green), 262 B.R. 557, 566-67 (Bankr. M.D.Fla. 2001) to support his position. In Green, a default judgment was entered against the debtor in a multi-count complaint with a fraud count and a breach of contract count. That Florida state court final judgment did not refer to any particular count and simply entered a money judgment. Judge Glenn denied the judgment creditor's motion for summary judgment to except the judgment debt from discharge, finding that collateral estoppel did not apply because the plaintiff could not establish that the fraud count was “critical and necessary” to the state court final judgment. Judge Glenn explained:

Even if all of the allegations in a complaint are deemed established, however, this Court cannot conclude that allegations regarding fraud are a “critical and necessary” part of a simple default judgment in those cases in which both fraud counts and non-fraud counts were asserted in the state court complaint and there is no way to distinguish which count is the basis for the judgment. Green, 262 B.R. at 564.

While both parties' positions are supported by the case law, the Court believes this case is more in line with Bankruptcy Judge Eric P. Kimball's decision in Labidou, 2009 WL 2913483. In Labidou, the creditor sought to except a debt from discharge under § 523(a)(2) based upon a default judgment from a state court case. The state court complaint included a count for breach of oral agreement, a count for fraud, and a count for conversion. The state court entered a default final judgment, which, like the Default Judgment in this case, did not refer specifically to any of the counts. The plaintiff in Labidou asked for “at least” $40,000 in damages on the contract claim. The defendant abandoned his defense and the court, without the defendant's participation, conducted a jury trial on damages only. The jury awarded $93,821 and the state court entered final default judgment against the debtor in that amount. Labidou, 2009 WL 2913483 at *2. Judge Kimball found nothing in the record to indicate what portion of the judgment was attributable to each count, and noted that it was possible the jury looked only to the contract claim for the entire amount of its verdict.

Judge Kimball held that collateral estoppel could not be applied because the plaintiff could not meet the “critical and necessary” element. Id. at *5-6. Judge Kimball explained:

Where the complaint in a prior proceeding contains multiple causes of action, but the final judgment awards only a single monetary amount without designating the cause of action to which the award relates or specifying a basis for the award, it cannot be known whether any particular cause of action was ‘essential’ to the final judgment. Id.

Judge Kimball's decision not to apply collateral estoppel was sound, and the Court believes for similar reasons it too cannot apply collateral estoppel in this case. The Court cannot determine whether the fraud count in the State Court Complaint was critical and necessary to the entry of the Default Judgment, and cannot determine whether the fraud claim is the basis for the award of damages in the Default Judgment. Because these genuine issues of material facts exist, collateral estoppel will not be applied and summary judgment is denied. Accordingly, it is

ORDERED AND ADJUDGED that the Motion for Summary Judgment is DENIED.

A. Jay Cristol, Judge