Court Opinion

ID: 9883683
Source: CourtListenerOpinion
Date Created: 2023-10-06 02:10:10.172791+00
Date Added: 2024-06-11T07:48:28.747917
License: Public Domain

ORDER DENYING APPELLEE’S MOTION FOR REHEARING

Before the Court is Appellee’s Motion for Rehearing. The motion is opposed. After considering the motion, the Court is of the opinion that it should be denied.
Appellee Reliance Insurance Company filed a complaint for determination of nondis-chargeability in the bankruptcy proceeding of Appellant Kenneth L. Pancake. Reliance Insurance sought an order that a debt owed by Pancake to Reliance Insurance as evidenced by a judgment entered December 18,1992, in the 280th Judicial District Court of Harris County, Texas, was nondischargeable under the provision of the bankruptcy code rendering nondischargeable any debt arising from an act of fraud committed while the debtor was acting as a fiduciary for a financial institution. Reliance Insurance issued the blanket bond for Sunbelt Savings Association. The state court petition alleged that Pancake was a loan officer for Sunbelt. The petition also alleged that Pancake had engaged in fraud by accepting kickbacks and other benefits in return for making loans to nominee borrowers.
Reliance Insurance prevailed in the state court action by receiving a default judgment entered against Pancake for failure to comply with the state court’s discovery orders.
On May 17, 1996, this Court issued an order reversing an order of the bankruptcy court which granted summary judgment in favor of Reliance Insurance on the ground of collateral estoppel.
The party seeking to invoke collateral es-toppel must establish: (1) that the facts sought to be litigated in the second action were fully and fairly litigated in the first; (2) that those facts were essential to the judgment in the first; and (3) that the parties were adversaries in the first action. Sysco Food Svcs., Inc. v. Trapnell, 890 S.W.2d 796, 801 (Tex.1994). In reversing the bankruptcy court, the Court held that Reliance Insurance failed to establish that it was entitled to judgment as a matter of law on its collateral estoppel position. It failed to present sufficient evidence showing that the issue of whether the debt evidenced by the state court judgment arose out of Pancake’s alleged fraud against Sunbelt while he was one of its fiduciaries was actually litigated. Other courts using state court default judgments for purposes of collateral estoppel have discussed the evidence taken by the state court before rendering a final default judgment. In re Garner, 56 F.3d 677, 679-80 (5th Cir.1995); In re Camp, 59 F.3d 548, 554 (5th Cir.1995); In re Limbaugh, 155 B.R. 952, 955-58 (Bankr.N.D.Tex.1993).
In contrast, the Court noted that the only evidence presented by Reliance Insurance indicating that the state court considered evidence before entering default judgment as a discovery sanction was one line .from the state judgment that the court heard “the evidence and arguments of counsel.” The Court held that this single reference to evidence and arguments of counsel was insufficient for the “actually litigated” test.
Reliance Insurance characterizes the Court’s order as “actually saying there is a question of fact as to whether the 280th District Court actually heard evidence prior to rendition of its Judgment.” Reliance Insurance argues that the Court erred by *357weighing the sufficiency of the evidence in its review of the summary judgment order. It contends that Pancake had a duty to set forth specific facts showing that there was a genuine issue for trial and that he failed to fulfill this duty.
Again, the Court held that Reliance Insurance failed to show that it was entitled to judgment as a matter of law under collateral estoppel based on the evidence on the record. The key issue in this nondischarge-ability proceeding is whether Pancake’s debt evidenced by the state court judgment arose out of his alleged fraud against Sunbelt while he was one of its fiduciaries. It is Reliance Insurance who bears the- burden of proof on whether this issue was actually litigated in state court. Sysco Food Svcs., 890 S.W.2d at 801.
Before Pancake, as the opponent of the summary judgment motion, incurs any burden of demonstrating a genuine issue for trial, Reliance Insurance, as the party seeking summary judgment, “always bears the initial responsibility of informing the [bankruptcy court] for the basis of its motion,” including the evidentiary basis. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). Reliance Insurance failed in this responsibility. Reliance Insurance is not in the position of being able to point to the absence of evidence on an issue on which Pancake bears the burden of proof at trial — Reliance Insurance bears all the burdens. See id. at 325, 106 S.Ct. at 2553-54 (noting a moving party is entitled to summary judgment where it can show an absence of evidence on an issue for which its opponent bears the burden of proof).
While the general proposition that the Court cannot weigh the sufficiency of the evidence on a summary judgment motion is accurate, the propriety of summary judgment is analyzed like the propriety of a directed verdict. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). Thus, the Court must consider “whether a fair-minded jury could return a verdict” for the party bearing the burden of proof on an issue at trial. Id. at 252, 106 S.Ct. at 2512. The Court must consider the “caliber and quantity” of the evidence, id. at 254, 106 S.Ct. at 2513, and a “mere scintilla” of evidence is insufficient for summary judgment. Id. at 252, 106 S.Ct. at 2512. The single reference to “the evidence and arguments of counsel” contained in the state judgment is not of sufficient quantity and caliber to warrant summary judgment for Reliance Insurance. The reference is ambiguous and may simply indicate that the state court considered evidence on Pancake’s noneompliance with the court’s discovery orders before entering the default judgment as a sanction. Tex.R.Civ.P. 215 (empowering state court to sanction a party for discovery abuses). It is insufficient to show that the key issue in this ease, whether the debt at issue arose because Pancake defrauded Sunbelt as one of its fiduciaries, was fully and fairly litigated in the state court action. Thus, the Court did not err in reversing the summary judgment in favor of Reliance Insurance, and its motion for rehearing is denied.
Additionally, as the Court noted in the order reversing the summary judgment, Reliance Insurance may be able to meet its burden on the “actually litigated” issue by presenting some. additional evidence of the state court proceedings. If Reliance Insurance’s position is meritorious, it should be a straightforward matter to present evidence on what evidence the state court considered, such as additional records of the state court proceedings or an affidavit of a party or attorney present at the hearing.
It is therefore ORDERED that Appellee’s Motion for Rehearing, filed May 28, 1996, is denied.