Judge Nugent

08-05296 Tracy's Automotive Corp. v. Sakari (Doc. # 23) - Document Text

SIGNED this 25 day of September, 2009.




) Case No. 08-12498
) Chapter 7

Debtor. )
Plaintiff, )

) Adversary No. 08-5296

a/k/a DEE SAKARI, )
Defendant. )


Plaintiff moves for summary judgment on its adversary complaint seeking to have


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defendant’s debt of $1,975.91 declared non-dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A).
Defendant, proceeding pro se, filed no memorandum in opposition to plaintiff’s motion.1 The Court
took plaintiff’s motion under advisement and is now prepared to rule on the motion.

Nature of Case

The underlying adversary complaint alleged that defendant drafted a check make payable
to plaintiff on a closed account and that defendant knew that there were no funds to pay the check.
Plaintiff had performed repairs on defendant’s car and the check was issued to plaintiff in order for
defendant to obtain possession of her car. After defendant gave the worthless check, plaintiff sued
defendant in Sedgwick County District Court and obtained a default judgment against defendant
with a specific finding that defendant obtained goods and services from plaintiff through actual
fraud. Defendant subsequently filed bankruptcy and this nondischargeability complaint followed.


The Court has jurisdiction over this case.2 This is a core proceeding.3 Fed. R. Bankr. P.
7056 makes applicable to adversary proceedings the rules for summary judgment as found in Fed.

R. Civ. P. 56.
Findings of Fact4
1 Defendant’s attorney was permitted to withdraw on June 4, 2009. Adv. Dkt. 18.

2 28 U.S.C. § 157(a) and § 1334.

3 28 U.S.C. § 157(b)(2)(I).

4 The court makes its findings of fact and accepts as true the properly supported
statements of fact set forth by the plaintiff in its summary judgment motion and uncontested by
the defendant. The defendant has waived her right to controvert the statements of fact by her
failure to respond. See Fed. R. Civ. P. 56(e)(2) (made applicable in adversary proceedings by
Fed. R. Bankr. P. 7056); D. Kan. LBR 7056.1(a) (All material facts set forth in the statement of
the movant shall be deemed admitted . . . unless specifically controverted by . . . the opposing


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The Court’s findings of uncontroverted fact set forth below derive from the default judgment
entered against defendant in the state court case5 and from the plaintiff’s requests for admission
served on defendant in this adversary proceeding and to which defendant failed to respond.6

On September 21, 2006, defendant signed and delivered to plaintiff check # 1135 in the
amount of $440.05 drawn upon her closed account at Medical Community Credit Union.7
Defendant issued the check to obtain possession of her motor vehicle after the plaintiff had
performed repairs to the vehicle at its retail establishment.8 At the time defendant delivered the
check to plaintiff, she knew there were no funds in the account to pay the check and knew that the
account had been previously closed.9 Plaintiff reasonably relied on the validity of the check by

party.”); Reed v. Bennett, 312 F.3d 1190, 1195 (10th Cir. 2002).

5 Under principles of collateral estoppel the defendant is bound by the findings contained
in the state court judgment and cannot re-litigate those factual determinations. See Grogan v.
Garner, 498 U.S. 279, 284 n. 11, 111 S.Ct. 654, 112 L.Ed. 2d 755 (1991) (prior fraud judgment
would be given preclusive effect in § 523(a)(2) proceeding); In re Wallace, 840 F. 2d 762, 76465
(10th Cir. 1988) (Although the bankruptcy court in a dischargeability action under section
523(a) ultimately determines whether or not a debt is dischargeable, the doctrine of collateral
estoppel may be invoked to bar re-litigation of the factual issues underlying the determination of

6 The court adopts as true the plaintiff’s statements of fact established by its requests for
admission served upon defendant. Because defendant has failed to respond to the requests for
admission, the matters are deemed admitted pursuant to Fed. R. Civ. P. 36(a), made applicable in
adversary proceedings by Fed. R. Bankr. P. 7036.

7 See Request Nos. 1-2, Requests for Admission attached to Adv. Dkt. 20 as Attachment

1. The amount of the debt at issue in this proceeding ($1,975.91) is attributable to, in addition to
the face amount of the check, court costs, service charge, statutory interest, attorney fees and
damages all as provided by Kansas’ worthless check statute, KAN. STAT. ANN. § 60-2610(a).
8 See Request Nos. 5, 18.
9 Request Nos. 3-4, 19.

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delivering to the defendant her vehicle in exchange for the check.10 Defendant intended that plaintiff
would rely on the representation of sufficient funds which her check would create.11

On November 28, 2006, plaintiff gave statutory notice and written demand upon defendant
under Kansas law for payment of the check.12 Despite demand, defendant failed to pay the worthless
check.13 On January 10, 2007 plaintiff commenced a civil action against defendant styled Tracy’s
Automotive Corp. v. Dalora Ann Louise Sakari, Case No. 07 LM 483, under KAN. STAT. ANN. § 602610
in the District Court of Sedgwick County.14 In addition to a monetary judgment, plaintiff
prayed for a finding “that the defendant obtained goods and services from the plaintiff through actual
fraud.” Defendant failed to appear and on February 7, 2007, plaintiff was granted judgment against
defendant in the amount of $1,410.10, with interest at the rate of 12% per annum, and attorney fees
in the amount of $250.15 The district court made a specific finding that “defendant obtained goods
and services from the plaintiff through actual fraud.”

Debtor filed her voluntary chapter 7 petition on September 30, 2008. Plaintiff timely
commenced this dischargeability proceeding on December 2, 2008. On May 1, 2009, plaintiff

10 Request No. 6.
11 Request No. 7.
12 KAN. STAT. ANN. § 60-2610(b) (2005) (civil liability for worthless check). See

Request Nos. 8-9.
13 Request No. 10.
14 Request Nos. 11-13.
15 Request Nos. 14-16.

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served 23 numbered requests for admission on defendant through her then counsel.16 Defendant
failed to serve written responses to the requests. On June 11, 2009, after expiration of the thirty (30)
day period for responding to the requests for admission, plaintiff moved for summary judgment on
its complaint. It attached as supporting exhibits, the unanswered requests for admission, the petition
and journal entry of judgment in the state court worthless check case, and an affidavit of counsel
regarding the requests for admission. The defendant has filed no response to plaintiff’s summary
judgment motion.


Notwithstanding the defendant’s failure to respond to plaintiff’s summary judgment motion
and controvert the plaintiff’s statements of fact, this Court must independently determine whether
those uncontroverted statements of fact entitle plaintiff to judgment as a matter of law on its
adversary complaint.17 As applied to this case, then, the question is whether the statement of
material facts, which this Court accepts as true, establish as a matter of law the fraud discharge
exception as provided in § 523(a)(2)(A). At trial, the plaintiff would have the burden of proving by
a preponderance of evidence that the debt falls within the fraud discharge exception.18

Section 523(a)(2)(A) provides, in relevant part:
A discharge under section 727 . . . does not discharge an individual
debtor from any debt – (2) for money, property, services . . . to the
extent obtained by – (A) false pretenses, a false representation, or

16 Adv. Dkt. 17. Defendant’s attorney filed a motion to withdraw as her attorney on the
same day, representing that defendant had failed to maintain contact with him. Adv. Dkt. 15.

17 Reed v. Bennett, 312 F.3d 1190, 1194-95 (10th Cir. 2002); Fed. R. Civ. P. 56(e)(2) (“If
the opposing party does not so respond, summary judgment should, if appropriate, be entered
against that party.”).

18 Grogan v. Garner, 498 U.S. 279, 284 n. 11, 111 S.Ct. 654, 112 L.Ed. 2d 755 (1991).


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actual fraud, other than a statement respecting the debtor’s or an
insider’s financial condition.
The elements of the fraud discharge exception were recited in In re Abraham19 as (1) the
debtor made a representation to the creditor; (2) the debtor knew it was false at the time it was made;

(3) debtor intended to deceive creditor; (4) the creditor justifiably relied on the representation; and
(5) the creditor was damaged by the false representation.20 As discussed below, the plaintiff has
established all of these elements of actual fraud by the requests for admission and the application
of collateral estoppel to the state court judgment.
The United States Supreme Court held in Grogan v. Garner21 that collateral estoppel
principles apply in § 523(a) nondischargeability proceedings under the Bankruptcy Code. The Tenth
Circuit Court of Appeals has likewise applied collateral estoppel to bar relitigation of the facts
underlying the determination of dischargeability of a debt.22 Where the prior judgment is a state
court judgment, the law of collateral estoppel of the state in which the judgment was rendered
applies to determine its preclusive effect.23 For collateral estoppel to apply under Kansas law, the
following elements must be present: (1) a prior judgment on the merits which determined the rights
and liabilities of the parties on the issue based upon ultimate facts as disclosed by the pleadings and
judgment; (2) the parties must be the same or in privity; and (3) the issue litigated must have been

19 247 B.R. 479, 483 n.12 (Bankr. D. Kan. 2000).
20 See also, Fowler Bros. v. Young, 91 F.3d 1367 (10th Cir. 1996).
21 498 U.S. 279, 284 n. 11, 111 S.Ct. 654, 112 L.Ed. 2d 755 (1991) (prior fraud judgment

would be given preclusive effect in § 523(a)(2) proceeding; nondischargeability governed by
preponderance of the evidence standard).
22 In re Wallace, 840 F. 2d 762, 764-65 (10th Cir. 1988).
23 In re Lewis, 271 B.R. 877, 883 (10th Cir. BAP 2002).

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determined and necessary to support the judgment.24 Here, collateral estoppel precludes this Court
from considering whether the defendant engaged in fraud when she issued the worthless check. In
state court, the plaintiff pled the statutory civil action of giving a worthless check under KAN. STAT.
ANN. § 60-2610(a) (2005). That statute provides that the giving of a worthless check includes
issuing or delivering a check for the payment of money with intent to defraud or which is dishonored
because the drawer had no deposits with the drawee.25 Here, plaintiff alleged in its state court
petition that defendant issued the subject check “deceitfully and with intent to defraud the plaintiff,”
and expressly prayed for a finding of fraud. In its journal entry of judgment, the state court
determined that the defendant obtained goods and services from plaintiff through fraud. Thus, the
state court determined the issue of fraud and the state court judgment is entitled to preclusive effect.
This Court will not disturb that factual determination.

A default judgment may be given preclusive effect under the doctrine of collateral estoppel.26
Here, defendant was afforded a full and fair opportunity to litigate the fraud issue in the state court
worthless check case.27 She was properly served with the summons and complaint and failed to
appear for trial. Under Kansas law, a default judgment qualifies as a judgment on the merits for

24 Jackson Trak Group, Inc. ex rel. Jackson Jordan, Inc. v. Mid States Port Authority,

242 Kan. 683, 690, 751 P.2d 122 (1988)

25 See § 60-2610(h).

26 See In re Edie, 314 B.R. 6 (Bankr. D. Utah 2004) (intent issue in state court default
judgment entitled to preclusive effect in dischargeability proceeding under § 523(a)(6) because a
defaulting defendant is presumed to admit all facts pled in the complaint); In re Calvert, 105
F.3d 315 (6th Cir. 1997) (state court fraud default judgment entitled to collateral estoppel effect
in bankruptcy dischargeability proceeding); In re Jordana, 232 B.R. 469 (10th Cir. BAP 1999)
(default judgment entered against debtor in securities fraud action precluded relitigation of fraud
issue in § 523(a)(2) discharge exception).

27 See In re Lewis, 271 B.R. 877, 883-84 (10th Cir. BAP 2002)


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preclusion purposes.28 Accordingly, this Court concludes that the state court default judgment
precludes relitigation of the fraud issue and is entitled to preclusive effect in this dischargeability

Even without application of the doctrine of collateral estoppel, plaintiff’s requests for
admission establish each of the elements for nondischargeability under § 523(a)(2)(A) and entitle
plaintiff to summary judgment on its adversary complaint. Each of plaintiff’s requests for admission
is deemed admitted by defendant’s failure to either admit or deny the matters stated.29 Request
numbers 1 through 5, 18-19 and 22 establish that defendant signed and delivered the worthless check
to plaintiff, that she obtained auto repair services and the return of her car from plaintiff by the
issuance of the worthless check, and that she knew at the time the check was presented to the
plaintiff that it would not be honored due to the fact that the account had been previously closed.30
Request for admission number 6 establishes plaintiff’s reliance upon the validity of the check
presented by defendant and return of her repaired car in exchange for the check. Request numbers
3, 4 and 7 establishes the defendant’s intent to deceive. Request for admission numbers 10 and 17

28 See Dennis v. Southeastern Kansas Gas Company, 227 Kan. 872, 878-80, 610 P.2d
627 (1980); Banister v. Carnes, 9 Kan. App. 2d 133, 135-38, 675 P.2d 906 (1983); Harris v.
Byard (In re Byard), 47 B.R. 700, 706 (Bankr. M.D. Tenn. 1985) (applying Kansas law); Miller

v. Miller, 107 Kan. 505, 192 P. 747 (1920) (A judgment by default upon personal service of
summons upon the defendant is as conclusive against him upon every matter admitted by the
default as if defendant personally appeared and contested the plaintiff’s right to recover).
29 See Fed. R. Civ. P. 36.

30 See In re Newell, 164 B.R. 992, 995 (Bankr. E.D. Mo. 1994) (Where circumstances
show that debtor knew insufficient funds existed in account on which she wrote checks, debtor
knew that representations were false when made for purposes of § 523(a)(2)(A)); In re Davis,
246 B.R. 646 (10th Cir. BAP 2000), affirming in part, vacating in part on other grounds 35 Fed.
Appx. 826 (10th Cir. May 24, 2002) (A false representation can be established if the debtor did
not intend to pay the creditor when the check was issued and knew that the check would


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establish that defendant has failed to pay the worthless check or the state court judgment and that
plaintiff has been damaged. Request number 23, deemed admitted by defendant, states that “[t]he
defendant did obtain possession of her motor vehicle from the plaintiff by means of false pretenses,
false representations and actual fraud,” by delivery of the worthless check to plaintiff. In sum,
plaintiff, through the requests for admission, has proven each of the elements for a fraud discharge


The Court therefore concludes that defendant’s debt in the amount of $1,975.91 should be
and is hereby excepted from discharge under § 523(a)(2)(A). The plaintiff’s motion for summary
judgment is GRANTED.

# # #


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