Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-89-01357/USCOURTS-ca10-89-01357-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

In re: CARL MICHAEL CARANNA, 

Debtor. 

CAROL RUTH HUSERIK, 

Plaintiff-Appellant, 

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MAY 111992 

ROBERT L. HOECKER 

Clerk -

v. ) No. 89-1357 

CARL MICHAEL CARANNA, 

Defendant-Appellee. 

) (D.C. No. 89-F-492) 

) (D. Colo.) 

) 

) 

ORDER AND JUDGMENT* 

Before HOLLOWAY, MOORE, and BRORBY, Circuit Judges. 

Plaintiff appeals the district court's affirmance of the 

bankruptcy court's determination discharging a state court 

judgment entered against debtor and in favor of plaintiff. In 

May 1985, plaintiff contracted to sell her home to debtor, a real 

estate broker. As partial consideration for her home, debtor 

* This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

Appellate Case: 89-1357 Document: 010110247666 Date Filed: 05/11/1992 Page: 1
assigned to plaintiff his rights under a promissory note executed 

in favor of debtor by debtor's business partner, Mr . Scarff. 

The promissory note obligated Mr. Scarff to make monthly 

payments of approximately $750 only in the event Mr. Scarff 

received a monthly dividend in excess of $2,000 from his shares of 

stock in a rental business owned by debtor, Mr. Scarff, and a 

third party. Mr. Scarff secured the promissory note with 2,000 

shares of stock in the rental business. Debtor personally 

guaranteed plaintiff the payments due under the note. 

At the closing of the real estate transaction, plaintiff 

asked debtor about the location of the stock certificates securing 

the note. Debtor assured plaintiff that, because debtor was 

guaranteeing the payments under the note, physical possession of 

the stock certificates did not matter. 

Neither debtor nor plaintiff notified Mr. Scarff of the 

assignment. Debtor never offered, nor did plaintiff request, Mr. 

Scarff's address. Debtor began making payments of approximately 

$750 to plaintiff each month. 

In November 1985, as part 

agreement in a state action 

of a court-approved settlement 

to dissolve their business 

association, debtor released Mr. Scarff from his obligations under 

the promissory note. Debtor did not notify plaintiff of the 

release. Debtor continued to make the monthly payments to 

plaintiff until July 1986. After debtor stopped making the 

monthly payments, plaintiff located Mr. Scarff and discovered 

debtor had released Mr. Scarff's obligations under the note. 

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Plaintiff commenced an action in state court against debtor 

for fraud. The parties stipulated that debtor was liable to 

plaintiff for compensatory damages in the amount of $45,000 as a 

result of debtor's obligations as guarantor of the promissory 

note. After an evidentiary hearing, the state court determined 

that because circumstances of fraud accompanied the parties' real 

estate transaction, debtor was liable to plaintiff for punitive 

damages in an amount equal to the amount of compensatory damages. 

The state court entered judgment against debtor and in favor of 

plaintiff in the total amount of $90,000. 

Debtor then commenced bankruptcy proceedings, seeking to 

discharge the state court judgment. Plaintiff filed an objection 

to prevent the discharge of the state court judgment under 

11 u.s.c. S 523(a)(2)(A) and (a)(4). Section 523(a)(2)(A) 

prevents the discharge of a debt resulting from "false pretenses, 

a false representation, or actual fraud," while S 523(a)(4) 

prevents the discharge of a debt resulting from larceny, 

embezzlement, or fraud by a fiduciary. The bankruptcy court 

denied plaintiff relief under§ 523(a) and discharged the state 

court judgment. Plaintiff appealed to the district court, which 

affirmed. 

Plaintiff appeals from the district court's affirmance, 

asserting five claims of error. This court reviews a bankruptcy 

court's legal determinations de novo, while reviewing factual 

findings under a clearly erroneous standard. See First Bank of 

Colo. Springs v. Mullet (In re Mullet), 817 F.2d 677, 678-79 (10th 

Cir. 1987). 

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Appellate Case: 89-1357 Document: 010110247666 Date Filed: 05/11/1992 Page: 3
Plaintiff's first argument on appeal is that the state court 

judgment precluded the bankruptcy court's redetermination of the 

issue of fraud. While principles of collateral estoppel preclude 

a bankruptcy court's relitigation of factual issues previously 

litigated in state court, the ultimate determination of the 

dischargeability of a debt under § 523(a) is left to the 

bankruptcy court. Klemens v . Wallace (In re Wallace), 840 F.2d 

762, 764 (10th Cir. 1988). The bankruptcy cour t, therefore, did 

not err in making its own determination concerning the issue of 

fraud in addressing the dischargeability of the state court 

judgment. 

Plaintiff next argues that the bankruptcy court erred in 

determining, after an evidentiary hearing, that the debt resulting 

from the state court judgment was not the result of fraud. 

Careful review of the record on appeal indicates the evidence 

before the bankruptcy court 

The bankruptcy court 

supported that determination . 

determined that, although the debt 

resulting from the state court judgment was not the result of 

fraud, the debt was the result of larceny. See 11 u.s.c. 

§ 523(a)(4). The bankruptcy court further determined, however, 

that plaintiff had failed to establish her damages resulting from 

the larceny. Plaintiff challenges this determination on appeal, 

arguing that the parties' stipulation in state court to the amount 

of compensatory damages and the state court's determination of the 

amount of punitive damages had conclusively e stablished the amount 

of damages . 

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Appellate Case: 89-1357 Document: 010110247666 Date Filed: 05/11/1992 Page: 4
The amount of damages to which the parties stipulated in the 

state court action was the amount for which debtor was liable to 

plaintiff as a result of debtor's obligations as guarantor of the 

promissory note. The bankruptcy court determined, however, that 

debtor's larceny deprived plaintiff of the opportunity to enforce 

the promissory note against Mr. Scarff. The proper measure of 

damages resulting from the larceny, therefore, was the amount for 

which plaintiff could have enforced the promissory note against 

Mr. Scarff at the time debtor wrongfully released Mr. Scarff from 

his obligations under the note. Review of the record indicates 

plaintiff did not present evidence establishing the amount Mr. 

Scarff owed on the promissory note at the time of his release. 

Similarly, plaintiff's argument that the bankruptcy court 

misled plaintiff into not addressing the issue of damages by 

ruling, in its order denying plaintiff's motion for summary 

judgment, that the state court's decision precluded relitigation 

of the state court's factual findings is unpersuasive. While the 

bankruptcy court did accept the state court's factual findings, 

including the amount of compensatory and punitive damages, those 

amounts were not the proper measure of damages resulting from the 

larceny. The bankruptcy court, therefore, did not err in 

discharging the state court judgment. 

Finally, plaintiff argues that the bankruptcy court erred in 

denying plaintiff's request, made immediately after the bankruptcy 

court announced its decision, to reopen the hearing or grant a new 

hearing in order to allow plaintiff to present further evidence 

concerning the issue of damages . The bankruptcy court did not 

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abuse its discretion in denying plaintiff's request . See Patty 

Precision Prods. Co. v. Brown & Sharpe Mfg. Co . , 846 F.2d 1247, 

1251 (10th Cir. 1988)(trial court's determination of a motion for 

new trial reviewed under abuse of discretion standard). 

The judgment of the United States District Court for the 

District of Colorado is AFFIRMED. 

ENTERED FOR THE COURT 

PER CURIAM 

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