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Parties Involved:
Larry Gene Barnhart
Appellant
Northwestern National Insurance Company
Appellee

Document Text:

FI LED 

UNITED STATES COURT OF APPEArliJiited Stares Court of Appeals 

Tenth Cirruic 

FOR THE TENTH CIRCUIT 

IN REI LARRY GENE BARNHART and 

CATHY JEANETTE BARNHART, 

Debtors. 

NORTHWESTERN NATIONAL INSURANCE 

COMPANY, 

Plaintiff-Appellee, 

v. 

LARRY GENE BARNHART, 

Defendant-Appellant. 

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ORDER AND JUDGMENT* 

. FEB 15 1991 

ROBERT L. HOECKER 

Clerk 

No. 90-1135 

(D.C. No. 88-K-1376) 

(D. Colo.) 

Before McKAY, SEYMOUR, and EBEL, Circuit Judges. 

This is an appeal of a district court order affirming a 

bankruptcy court decision that portions of a debt owed by the 

debtor Larry Gene Barnhart, appellant herein, to Northwestern 

National Insurance Company (Northwestern) were based on fraud and 

thus should not be discharged in bankruptcy, pursuant to 

* 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: 90-1135 Document: 010110099983 Date Filed: 02/15/1991 Page: 1 
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11 u.s.c. § 523(a)(2)(A). 1 we affirm in part and reverse in part, 

remanding to the Bankruptcy Court for further proceedings to 

determine the amount of damages brought about as a result of 

Barnhart's fraud. 

Barnhart's judgment debt was the product of a Colorado state 

court civil action brought by Northwestern for breach of insurance 

contract, fraud, and conversion arising 

fraudulent insurance claim by Barnhart. 

from a partially 

The federal district 

court's Memorandum Opinion and Order, Northwestern Nat'l Ins. Co. 

v. Barnhart (In re Barnhart), No. 88-K-1376 (D. Colo. 

Mar. 22, 1990)(district court order), fully summarizes the history 

and facts of the case. Id. at 1-4. This court reviews a 

bankruptcy court's findings of fact under a clearly erroneous 

standard and its conclusions of law de novo. Hall v. Vance, 887 

F.2d 1041, 1043 (10th Cir. 1989). 

Barnhart raises three issues on appeal to this court: 

(1) whether the bankruptcy court's decision to utilize collateral 

estoppel was contrary to a previous ruling of the bankruptcy court 

in the same adversary proceeding, albeit by a different bankruptcy 

judge; (2) whether collateral estoppal applies to the substantive 

issue of common law fraud from the Colorado state court civil 

action; and (3) whether summary judgment was appropriate as to the 

issue of damages arising from Barnhart's fraudulent conduct. 

1 After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

734(a); 10th Cir. R. 34.1.9. The case is therefore ordered 

submitted without oral argument. 

2 

Appellate Case: 90-1135 Document: 010110099983 Date Filed: 02/15/1991 Page: 2 
As to the first issue, application of "law of the case," we 

agree with the disposition of the federal district court for 

substantially the reasons stated in the district court order. See 

district court order at 4-5. 

As to Barnhart's second issue, collateral estoppal on the 

issue of common law fraud, the district court held: 

In Klemens v. Wallace (In re Wallace), 840 F.2d 762 

(10th Cir. 1988), the Tenth Circuit recently outlined 

the standards for applying the doctrine of collateral 

estoppal in bankruptcy proceedings to determine the 

dischargeability of a debt. 

[C]ollateral estoppal is binding on the bankruptcy 

court and precludes relitigation of factual issues 

if (1) the issue to be precluded is the same as 

that- involved in the prior state action, (2) the 

issue was actually litigated by the parties in the 

prior action, and (3) the state court's 

determination of the issue was necessary to the 

resulting final and valid judgment. 

Id. at 765; see also [Lukas] v. Bottagaro (In re 

Bottagaro), 95 Bankr. 766, 767 (D. Colo. 1987); Pacific 

Energy & Minerals, Ltd. v. Austin (In re Austin), 

93 Bankr. 723, 726-27 (Bankr. D. Colo. 1988). In this 

case there is little question these three requirements 

are met with respect to the issue of Mr. Barnhart('s) 

fraudulent conduct toward Northwestern. The state court 

directed a verdict for Northwestern on all three claims, 

including the common law fraud claim. Since the 

elements for a finding of common law fraud under 

Colorado law are the same as those under federal law, 

see Simmons v. Wade (In re Wade), 43 Bankr. 976, 980 

(Bankr. D. Colo. 1984~, the issue was actually and 

necessarily litigated. 

2 The Barnhart(s) also make the facially weak 

argument that the state court judgment was not 

final as to the fraud and contract claims because 

the Colorado Court of Appeals affirmed the trial 

court on the breach of contract claim and did not 

reach any other issues on appeal. As the 

bankruptcy court correctly noted, the Barnharts did 

not further appeal to the state supreme court; 

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Appellate Case: 90-1135 Document: 010110099983 Date Filed: 02/15/1991 Page: 3 
thus, the judgment is final with respect to all 

issues decided. 

District court order at 5-6. 

Supplementing this portion of the district court order, we 

note that a finding of fraud was necessary for the judgment of 

breach of contract based on the fraud clause of the insurance 

policy, a judgment which was affirmed by the Colorado Court of 

Appeals and was not further appealed. Thus, the requirement that 

the issue be necessary to the final disposition of the case in the 

previous action was met. In addition, because a finding of fraud 

was a necessary component of the breach of contract claim, appeal 

of the breach of .contract claim effectively appealed the issue of 

fraud as well. 2 For all of these reasons, we conclude that 

collateral estoppel applies as to the existence of fraud but not 

as to the extent of that fraud. 

However, as to Barnhart's third issue, computation of the 

portion of the state court judgment that is nondischargeable 

because of Barnhart's fraudulent conduct, we are not convinced 

that the state trial court made findings of fact sufficient to 

support the bankruptcy court's determination of this amount. The 

following constitutes the entirety of the state trial court's two 

2 Barnhart admitted fraud with regard to a portion of his 

insurance claim. Thus, his argument that collateral estoppel 

should not apply because the standard of proof for exception to 

discharge under section 523(a)(2)(A) is by clear and convincing 

evidence while common law fraud in Colorado may be proven by a 

preponderance of the evidence is irrelevant. In any event, the 

Supreme Court, in Grogan v. Garner, 59 U.S.L.W. 4072 (Jan. 15, 

1991), adopted the preponderance of the evidence standard for 

exception to discharge under section 523(a)(2)(A). 

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Appellate Case: 90-1135 Document: 010110099983 Date Filed: 02/15/1991 Page: 4 
comments from the record on appeal as to the damages incurred by 

Northwestern as a result of Barnhart's fraud. First, 

At this time, I do not see where the jury would be 

called upon to decide .any question of fact since it is 

admitted, both by the testimony of the Defendant 

Mr. Barnhart, as well as in the tape of the conversation 

between he and the officers who investigated the matter 

in Salida, he admitted that he had misrepresented, had 

deliberately padded it. And in his words, and one time 

in the tape, he said his monetary loss was, as I recall, 

$15,000.00, and he had padded it $33,000.00. 

R. Vol. I, tab 22, Brief in Support of Motion for Summary Judgment 

(bankruptcy court adversary proceeding), attachment, portions of 

the state court trial transcript at 212. And second, "And at 

least there was a misrepresentation that four tool boxes were 

stolen, which were not, in fact, stolen." R. Vol. V at 20, 

transcript of the July 26, 1988, bankruptcy court hearing (quoting 

from the state court trial transcript at 213). 

Under Colorado law, as held by the state trial court and 

affirmed by the Colorado Court of Appeals in Northwestern National 

Insurance Co. v. Barnhart, 713 P.2d 1360, 1361-62 (Colo. App. 

1985), breach of contract damages for insurance fraud under 

Barnhart's policy consist of the total amount of proceeds paid 

over by Northwestern to Barnhart, regardless of the amount of 

damages actually suffered by Northwestern as a result of 

Barnhart's fraud. However, section 523(a)(2)(A) of the Bankruptcy 

Code states that discharge by the bankruptcy court "does not 

discharge an individual debtor from any debt -- for money ... to 

the extent obtained by -- ... fraud." (emphasis added). The 

state trial court did not have occasion to make, and indeed did 

not make, any formal factual finding of damages for common law 

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fraud in its Order of Directed Verdict and Judgment, Northwestern 

Nat'l Ins. Co. v. Barnhart, No. 82-CV-2334 (Colo. Dist. Ct., El 

Paso County, Aug. 4, 1984), or in those portions of the trial 

transcript included in the record on appeal. 

During the state court trial, Northwestern introduced a 

police tape recording on which Barnhart stated that he suffered an 

out-of-pocket loss of $15,000. Northwestern argued before the 

bankruptcy court and reasserts here that such admission against 

interest is conclusive proof of the amount of Barnhart's actual 

loss and leads to conclusive calculation of the actual damages 

suffered by the· insurance company. However, Barnhart argues that 

his actual loss differed from his "out-of-pocket" loss, as he used 

that term on the police tape recording. He argues that there is a 

discrepancy between replacement cost for the stolen tools and 

their actual value because the stolen tools carried a lifetime 

guarantee against breakage or damage. He also argues that when he 

made the statement to the police, he did not include loss of cash 

receipts, property damage, or lost inventory in his comment about 

his "out-of-pocket" loss. If supported by evidence, this factual 

dispute would preclude the bankruptcy court from ordering summary 

judgment as to the issue of nondischargeable damages. 

Although Barnhart did not otherwise submit documents to 

support his response to Northwestern's Motion for Summary Judgment 

with the bankruptcy court, he did attempt to submit the certified 

copy of the trial transcript, which he claims contains evidence of 

this material dispute as to the amount of his actual loss. In 

response to references by Northwestern's counsel, the bankruptcy 

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Appellate Case: 90-1135 Document: 010110099983 Date Filed: 02/15/1991 Page: 6 
court reviewed parts of the transcript on the bench and relied on 

those portions of the transcript' in rendering disposition of the 

case. See R. Vol.Vat 14-15, 20. However, the trial transcript 

was not part of the bankruptcy court record, the district court · 

record, or the record on appeal to this court. Thus, we have been 

unable to carefully read the transcript to ascertain whether 

Barnhart raised a material factual _dispute in response to 

Northwestern's motion for summary judgment, and we must remand for 

further consideration of whether Barnhart has raised a material 

question of fact. If the trial transcript, reviewed in its 

entirety, reveals a factual issue, Barnhart is entitled to trial 

by the bankruptcy court on the issue of the amount of common law 

fraud damages. 

The judgment of the United States District Court for the 

District of Colorado is AFFIRMED in part, REVERSED in part, and 

REMANDED to the Bankruptcy Court for the District of Colorado for 

further proceedings consistent with this order and judgment. 

ENTERED FOR THE COURT 

STEPHANIE K. SEYMOUR, 

Circuit Judge 

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