In re Trost

By order of the Bankruptcy Appellate Panel, the precedential effect
of this decision is limited to the case and parties pursuant to
6th Cir. BAP LBR 8024-1(b). See also 6th Cir. BAP LBR 8014-1(c).
File Name: 17b0005n.06

BANKRUPTCY APPELLATE PANEL
OF THE SIXTH CIRCUIT

IN RE: ZACHARY N. TROST; KIMBERLY A. TROST, ┐
Debtors. │
___________________________________________ │
│
SHERRY TROST, > No. 16-8024
Plaintiff-Appellee, │
│
│
v. │
│
ZACHARY N. TROST; KIMBERLY A. TROST, │
│
Defendants-Appellants.
│
┘

Appeal from the United States Bankruptcy Court
for the Western District of Michigan at Grand Rapids.
No. 13-05887—James D. Gregg, Judge.

Decided and Filed: June 28, 2017

Before: DELK, PRESTON, and WISE, Bankruptcy Appellate Judges.

_________________

COUNSEL

ON BRIEF: Michael R. Behan, Okemos, Michigan, for Appellants. Troy R. Hendrickson,
Chandler, Arizona, for Appellee.

_________________

OPINION
_________________

PAULETTE J. DELK, Bankruptcy Appellate Panel Judge. Debtors-Appellants Zachary
Trost and Kimberly Trost appeal the Bankruptcy Court’s order granting summary judgment to
Plaintiff-Appellee Sherry Trost holding the debt owed to her non-dischargeable pursuant to
 No. 16-8024 In re Trost Page 2

11 U.S.C. § 523(a)(6). The debt arose from a judgment against Zachary and Kimberly for
common law conversion. The Bankruptcy Court found that the judgment established the
elements of willful and malicious conversion of Sherry’s property by Zachary and Kimberly.
Accordingly, the Bankruptcy Court granted summary judgment to Sherry on the basis of
collateral estoppel. For the reasons stated, we affirm.

ISSUE ON APPEAL

The issue on appeal is whether the Bankruptcy Court erred in applying the doctrine of
collateral estoppel to grant summary judgment to Sherry.

JURISDICTION AND STANDARD OF REVIEW

Under 28 U.S.C. § 158(a)(1), this Panel has jurisdiction to hear appeals “from final
judgments, orders, and decrees” issued by the Bankruptcy Court. For purposes of appeal, an
order is final if it “ends the litigation on the merits and leaves nothing for the court to do but
execute the judgment.” Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S. Ct.
1494, 1497 (1989) (citation and quotation marks omitted). A partial summary judgment order
“that does not dispose of all parties and all claims is generally not immediately appealable[.]”
Bonner v. Perry, 564 F.3d 424, 427 (6th Cir. 2009). “Once the remaining parts of a case are
dismissed or otherwise resolved, a grant of partial summary judgment becomes a final
judgment.” Anderson v. Fisher (In re Anderson), 520 B.R. 89, 90–91 (B.A.P. 6th Cir. 2014)
(citing J.D. Pharm. Distribs., Inc. v. Save-On Drugs & Cosmetics Corp., 893 F.3d 1201, 1208
(11th Cir. 1990)).

In the present case, the Bankruptcy Court granted summary judgment on the § 523(a)(6)
count of the complaint in May 2014. However, because other counts of the complaint were still
pending, the Panel dismissed an earlier appeal of the judgment as interlocutory. Once all other
counts of the complaint were dismissed, the litigation of the adversary case ended on the merits.
Thus, the judgment entered in May 2014 is now appealable.

A grant of summary judgment is a conclusion of law, reviewed de novo. Medical
Mutual of Ohio v. K. Amalia Enters., Inc., 548 F.3d 383, 389 (6th Cir. 2008).
“Summary judgment is proper if the evidence, taken in the light most favorable to
 No. 16-8024 In re Trost Page 3

the nonmoving party, shows that there are no genuine issues of material fact and
that the moving party is entitled to a judgment as a matter of law.” Id. (citing
Mazur v. Young, 507 F.3d 1013, 1016 (6th Cir. 2007)). “Under a de novo
standard of review, the reviewing court decides the issue independently of, and
without deference to, the trial court’s determination.” Menninger v. Accredited
Home Lenders (In re Morgeson), 371 B.R. 798, 800 (6th Cir. BAP 2007) (citing
Treinish v. Norwest Bank Minn., N.A. (In re Periandri), 266 B.R. 651, 653 (6th
Cir. BAP 2001)). “The determination of the applicability of collateral estoppel is
also reviewed de novo.” Spring Works, Inc. v. Sarff (In re Sarff), 242 B.R. 620,
623 (6th Cir. BAP 2000) (citing Markowitz v. Campbell (In re Markowitz),
190 F.3d 455, 461 (6th Cir. 1999)).

In re Anderson, 520 B.R. at 91.

FACTS

This case involves the family of Fred Trost, the former star and owner of a television
show called Michigan Outdoors. Michigan Outdoors ran for over 20 years locally in the western
part of Michigan. During its time, the show accumulated significant debts, including, but not
limited to, a multi-million dollar civil judgment known as the “Buck Stop Judgment.” Initially,
Fred or his businesses were responsible for the debts. However, at some point, Sherry, Fred’s
second wife, and nonparty JoAnn Cribley took ownership of the show and its assets, and agreed
to assume liability for the show’s debts so that Fred could continue to operate the show. Sherry
incurred substantial tax liability as a result.

Debtor-Appellant Zachary is the son of Fred Trost and stepson of Sherry. Debtor-
Appellant Kimberly is Zachary’s wife. Zachary worked on the show with his father over the
years. He also tried to manage the show’s debts and keep it operational.

Following Fred’s sudden death in July 2007, Sherry and Zachary came to an agreement.
Zachary agreed to pay off the debts Sherry had incurred running the show, including tax debts
and outstanding loans, in exchange for the assets that Sherry owned related to the show,
including videotapes and memorabilia. Zachary took the assets from Sherry and tried to
monetize them but was mostly unsuccessful. For two years Sherry's repeated requests that
Zachary pay off the debts were largely ignored. When she ultimately demanded that he return the
assets, Zachary refused.
 No. 16-8024 In re Trost Page 4

In June 2009, Sherry sued Zachary and Kimberly for breach of contract and common law
conversion in the United States District Court for the Western District of Michigan (“District
Court”). During a three-day jury trial, in February 2012, Sherry testified, submitted exhibits, and
called others to testify. “The trial evidence detailed the property at issue, how Sherry came to
own it, the circumstances surrounding the formation of Sherry’s contract with Zachary, Sherry’s
partial performance of it, and Zachary’s breach.” Trost v. Trost, 525 F. App’x 335, 339 (6th Cir.
2013) (unpublished). On the other hand, Zachary and Kimberly chose not to put on evidence and
moved for judgment as a matter of law under Federal Rule of Civil Procedure 50(a). The District
Court took the motion under advisement and submitted the case to the jury. The jury awarded
Sherry $194,725.30 on the breach of contract claim. Additionally, the jury found both Zachary
and Kimberly liable on the conversion claim, awarding Sherry $108,797.06 for tortious conduct.

After the jury’s verdict, the District Court granted Zachary and Kimberly's motion for
judgment as a matter of law regarding the breach of contract claim based on the statute of frauds,
but denied the motion as to the conversion claim. Zachary and Kimberly appealed the denial of
their motion regarding the conversion claim to the United States Court of Appeals for the Sixth
Circuit (“Court of Appeals”). Sherry cross-appealed regarding her dismissed breach of contract
claim. The Court of Appeals affirmed the District Court’s decision on the conversion claim, but
reversed the District Court’s decision on the breach of contract claim and reinstated the jury’s
judgment on that claim.1

On July 23, 2013, Zachary and Kimberly filed a voluntary chapter 7 bankruptcy petition
in the Western District of Michigan. Sherry filed an adversary proceeding on October 8, 2013,
asserting that the debt should be excepted from discharge under § 523(a)(2) due to Zachary and
Kimberly’s fraud and/or § 523(a)(6) because it was the result of a willful and malicious injury.
She also sought denial of Zachary and Kimberly’s discharge under § 727(a) or dismissal of their
bankruptcy case for lack of good faith.

On February 1, 2014, Sherry filed a motion for summary judgment only on the
§ 523(a)(6) count of her complaint. Sherry argued that the judgment for common law conversion

1
The contract claim is not relevant to the current issue before the Panel.
 No. 16-8024 In re Trost Page 5

established all of the elements required to hold the debt nondischargeable pursuant to § 523(a)(6)
and that Zachary and Kimberly were precluded from arguing otherwise. Zachary and Kimberly
filed a cross motion for summary judgment on all counts of the complaint. The Bankruptcy
Court held a hearing on March 21, 2014, and issued an opinion granting Sherry’s motion for
summary judgment on the § 523(a)(6) count and denying Zachary and Kimberly’s cross motion
for summary judgment on May 12, 2014.2 Zachary and Kimberly timely appealed.

DISCUSSION

In the present case, Sherry asserted that the amount owed to her by Zachary and
Kimberly pursuant to the judgment for conversion is nondischargeable pursuant to § 523(a)(6) of
the Bankruptcy Code. The Bankruptcy Court agreed and granted summary judgment. The Panel
has examined the record and determines that the previously litigated facts establish the elements
required to find the debt nondischargeable.

A. Collateral Estoppel

Collateral estoppel, sometimes called issue preclusion, “precludes relitigation of issues of
fact or law actually litigated and decided in a prior action between the same parties and necessary
to the judgment, even if decided as part of a different claim or cause of action.” Markowitz v.
Campbell (In re Markowitz), 190 F.3d 455, 461 (6th Cir. 1999) (citations omitted). “The party
asserting issue preclusion bears the burden of proof as to all elements and must introduce a
sufficient record to reveal the controlling facts and the exact issues litigated.” Chudzinski v.
Hanif (In re Hanif), 530 B.R. 655, 664 (Bankr. E.D. Mich. 2015) (citation omitted). Issue
preclusion applies in nondischargeability litigation. Grogan v. Garner, 498 U.S. 279, 284–285,
111 S. Ct. 654, 112 L.Ed.2d 755 (1991).

2
Zachary and Kimberly attempted to immediately appeal the Bankruptcy Court’s judgment. However,
because some counts of the complaint were still pending, the BAP dismissed the appeal for lack of jurisdiction. On
June 2, 2016, the remaining count of the complaint was voluntarily dismissed. Accordingly, the § 523(a)(6)
judgment is incorporated into the final order dismissing the last count, which then ended the case. Thus, the Panel
now has jurisdiction to review this matter.
 No. 16-8024 In re Trost Page 6

Under federal law, the following elements must be present for the application of
collateral estoppel based on a federal judgment:

(1) the issue in the subsequent litigation is identical to that resolved in the earlier
litigation, (2) the issue was actually litigated and decided in the prior action,
(3) the resolution of the issue was necessary and essential to a judgment on the
merits in the prior litigation, (4) the party to be estopped was a party to the prior
litigation (or in privity with such a party), and (5) the party to be estopped had a
full and fair opportunity to litigate the issue.

Wolfe v. Perry, 412 F.3d 707, 716 (6th Cir. 2005). See also John Richards Home Bldg. Co., LLC
v. Adell (In re John Richards Home Bldg. Co., LLC), 404 B.R. 220, 237 (E.D. Mich. 2009)
(citations omitted) (federal courts apply federal law when determining preclusive effect of prior
federal judgment).

All of the elements required for collateral estoppel are met. Zachary and Kimberly do not
credibly dispute that elements four and five above are satisfied here. Therefore, on appeal, this
Panel considers whether the other three elements are satisfied, and concludes that they are.
Intentional torts may cause a "willful and malicious injury" under § 523(a)(6). The jury in the
prior District Court action weighed and decided the facts in issuing the conversion judgment.
And those facts were necessary to the judgment for common law conversion. Accordingly, the
Bankruptcy Court did not err in applying collateral estoppel.

B. Common Law Conversion

Michigan law defines common law conversion “as any distinct act of domain wrongfully
exerted over another’s personal property in denial of or inconsistent with the rights therein.”
Foremost Ins. Co. v. Allstate Ins. Co., 486 N.W.2d 600, 606 (Mich. 1992) (citations omitted).
Common law conversion “can be committed unwittingly if [the converter is] unaware of the
plaintiff’s outstanding property interest.” Id. (citations omitted). However, if the converter’s
actions are willful, then the conversion is an intentional tort. Id. See also Crestmark Bank v.
Electrolux Home Prods., 155 F. Supp. 3d 723, 748 (E.D. Mich. 2016), citing In re Pixley,
456 B.R. 770, 787-88 (Bankr. E.D. Mich. 2011).
 No. 16-8024 In re Trost Page 7

Zachary and Kimberly argued to the Bankruptcy Court and this Panel that their
conversion of Sherry’s property was “unknowing” rather than intentional. They made the same
faulty argument to the District Court and the Court of Appeals. Following the jury’s verdict
against Zachary and Kimberly, the District Court entered an order denying their Rule 50(a)
motion as to the conversion claim. In affirming the District Court’s ruling, the Court of Appeals
succinctly summarized the District Court’s findings:

[T]he court readily rejected Zachary and Kim’s challenge to the conversion claim.
It noted ample evidence showing that Sherry controlled the video library and the
memorabilia, which she gave Zachary as part of the bargain to pay off debts she
incurred running Fred’s show. Zachary’s email asking Sherry “how and when”
she wanted to “take back” the property, as well as his overture to buy it from her,
supported the view that the property was Sherry’s. Zachary and Kim never
suggested that they owned the property, or that Sherry did not. The court found
the evidence fully supported the jury’s conclusion that Sherry owned the property
or, minimally, had an interest in it superior to theirs, and that the duo acted
tortiously in keeping it after Sherry demanded its return.
The court also rejected Kim’s argument that the evidence was insufficient to hold
her liable for conversion. Kim was involved in initially taking possession of the
property and was “fully aware” of the negotiations between Zachary and Sherry.
The jury, for example, was presented with an email Kim wrote to JoAnn on
August 12, 2008, lamenting that if “the stock market had not dropped like it did,
we would be able to pay off all the bills and everyone would be happy,” and
relating the difficulties of getting Tara to “come through to get the bills paid.” In
another email, responding to JoAnn’s observation that Zachary “has thrown in the
towel on the mess his dad left behind,” Kim acknowledged that Zachary “feels
like this is all his problem” because “his dad left him with this debt and he is
responsible for it.” And later, after Sherry demanded the return of her property,
Kim did nothing, even though some of it was in her home. As neither Zachary
nor Kim took the stand to contest any of this, the court concluded, the jury could
reasonably find both defendants liable for conversion.

Trost, 525 F. App’x at 340 – 41 (emphasis added).

In affirming the District Court’s ruling on the motion for judgment as a matter of law, the
Court of Appeals also reviewed the evidence regarding Zachary and Kimberly’s knowledge that
the property they held belonged to Sherry. Although this evidence was recited in the context of
an argument on appeal that Kimberly should not be held responsible, the language confirms that
the evidence supported the finding that this was an intentional conversion by both.
 No. 16-8024 In re Trost Page 8

The record shows that Kim participated in taking Sherry’s property, equally
possessed it in her home, knew that Sherry demanded its return, and aided in the
refusal to comply. Sherry testified that Kim helped her husband move the
property to their home. Kim knew that she and Zachary had property for which
Sherry expected payment, but explained to JoAnn that stock market losses made it
difficult to come up with the money. Kim also confirmed Zachary’s aim to honor
the agreement in emails to JoAnn. Later, when Sherry’s attorney sent a written
demand to their home seeking return of the property, neither Zachary nor Kim
responded. And in spite of being sued almost three years before the jury was
impaneled, the property remained in their joint home.

Trost, 525 F. App’x at 343.

As noted by the Bankruptcy Court, the Sixth Circuit Court of Appeals has offered
guidance on how to assess the preclusive effect of a prior judgment, stating that “the bankruptcy
court should look at the entire record of the [prior] proceeding.” Spilman v. Harley, 656 F.2d
224, 228 (6th Cir. 1981). This the Bankruptcy Court did and, noting that Zachary and Kimberly
did not refute it, correctly concluded that the evidence presented in the District Court action
established that Zachary and Kimberly’s conversion of Sherry’s property was an intentional, not
unwitting, conversion. Specifically, the Bankruptcy Court held:

The evidence in the District Court action also conclusively established that
Zachary and Kim Trost were aware that Sherry Trost owned the assets. Several
witnesses testified at trial that Sherry and Zachary Trost entered into an agreement
whereby Zachary would pay off the debts from Fred Trost’s television show in
exchange for the tapes and other memorabilia. Trost, 525 F. App’x. at 339. . . .
As the District Court succinctly stated, “everyone involved”—including Zachary
and Kim—“believed Sherry owned the video library and memorabilia.” Order
Granting in Part and Denying in Part Defendants’ Motion for Judgment as a
Matter of Law, USDC Dkt. No. 88 at 18.

Trost v. Trost (In re Trost), 510 B.R. 140, 152 (Bankr. W.D. Mich. 2014). Accordingly, the
Bankruptcy Court’s determination that Zachary and Kimberly’s conversion of Sherry’s property
was intentional was fully supported by the evidence recited by the District Court in its ruling on
Zachary and Kimberly’s motion for judgment as a matter of law, and by the Court of Appeals in
its decision affirming the District Court. Zachary and Kimberly are precluded from now arguing
that they mistakenly believed that they owned the property and that this was a case of negligent
conversion.
 No. 16-8024 In re Trost Page 9

C. Nondischargeability pursuant to § 523(a)(6)

Pursuant to § 523(a)(6), any debt which arises from a “willful and malicious injury by the
debtor to another entity or to the property of another entity” is not discharged. This requires the
debtor to have committed an act similar to an intentional tort. Kawaauhau v. Geiger, 523 U.S.
57, 61, 118 S. Ct. 974, 977, 140 L.Ed.2d 90 (1998). The alleged injury must have been both
willful and malicious. In re Markowitz, 190 F.3d at 463. Willfulness is present when the debtor
“‘desires to cause [the] consequences of his act, or ... believes that the consequences are
substantially certain to result from it.’” Id. at 464 (citation omitted). “An act is ‘malicious’ if it
is undertaken ‘in conscious disregard of one’s duties or without just cause or excuse.’” Phillips
v. Weissert (In re Phillips), 434 B.R. 475, 483 (B.A.P. 6th Cir. 2010) (quoting Wheeler v.
Laudani, 783 F.2d 610, 615 (6th Cir. 1986)). “Malicious” acts do “‘not require ill-will or
specific intent to do harm.’” Id. “Conversion of property clearly falls within the misdeeds
contemplated in 11 U.S.C. § 523(a)(6)—willful and malicious injury to persons or property.”
Kasishke v. Frank (In re Frank), 425 B.R. 435, 443 (Bankr. W.D. Mich. 2010). See also Steier
v. Best (In re Best), 109 F. App’x. 1, 4 (6th Cir. June 30, 2004) (“Debts arising out of these types
of misconduct satisfy the willful and malicious injury standard: intentional infliction of
emotional distress, malicious prosecution, conversion, assault, false arrest, intentional libel, and
deliberately vandalizing the creditor’s premises.”).

In the present case, the District Court and the Court of Appeals cited the evidence in
support of the jury’s verdict that Zachary and Kimberly intended to deprive Sherry of her
property. The evidence reflects that Zachary and Kimberly both knew that the property belonged
to Sherry and they intentionally withheld it from her, refusing to return it in spite of her repeated
requests. Being deprived of her property was an injury to Sherry and it was intentional. It was
malicious in that Zachary and Kimberly had a clear duty to return the property to Sherry,
consciously disregarded the duty and had no just cause for doing so. Thus, the elements of a
willful and malicious injury are met.

The foregoing discussion illustrates that the first, second and third criteria for application
of collateral estoppel are present: the issues before the Bankruptcy Court were identical to those
resolved in the District Court proceeding, the issues were actually litigated before the District
 No. 16-8024 In re Trost Page 10

Court, and the resolution of those issues were necessary to the judgment on the merits by the jury
in the District Court. The Bankruptcy Court did not err in its determination that the debt owed to
Sherry by Zachary and Kimberly is non-dischargeable pursuant to § 523(a)(6).

D. Other Arguments on Appeal

In the civil case, the jury returned a verdict that Zachary and Kimberly did not defraud
Sherry. On appeal, Zachary and Kimberly argue that the finding of “no fraud” negates collateral
estoppel and “should have been conclusive as to the ‘intent to cause injury’ requirement of Non-
Dischargeability under § 523(a)(6).” (Appellants’ Br. at 5.) This argument ignores the
differences between § 523(a)(2) and § 523(a)(6). Fraud is not a required element of § 523(a)(6).
While an action that is fraudulent often produces a willful and malicious injury pursuant to
§ 523(a)(6), not all types of willful and malicious injury stem from fraud.

In addition, the elements and burden of proof for a fraud claim under Michigan law are
different than for a conversion claim.

It is well established under Michigan law … that fraud can be established only by
clear and convincing evidence that the defendant made a material representation
that was false; that he knew was false or made recklessly without knowledge of its
truth; that he made with the intent that it should be acted upon by the plaintiff;
that the plaintiff acted in reliance thereon; and thereby suffered injury.

Bitkowski v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 866 F.2d 821, 823 (6th Cir. 1987)
(citing Disner v. Westinghouse Elec. Corp., 726 F.2d 1106, 1111-12 n.11 (6th Cir. 1984); Hi-
Way Motor Co. v. Int’l Harvester Co., 247 N.W. 2d 813, 816 (Mich. 1976)). Conversely, to
establish the tort of conversion based upon the definition set forth in Foremost Ins. Co. v.
Allstate Ins. Co., supra, the plaintiff must carry the burden of proof by only a preponderance of
the evidence. In re Stewart, 499 B.R. 557, 566 (Bankr. E.D. Mich. 2013). While the jury in the
present case determined that Sherry did not establish that Zachary and Kimberly committed
fraud by clear and convincing evidence, it did determine that a preponderance of the evidence
established that Zachary and Kimberly committed conversion. The jury’s finding regarding
fraud, based on a different set of elements and a different burden of proof, in no way undermines
its conclusion regarding conversion.
 No. 16-8024 In re Trost Page 11

Zachary and Kimberly also argued that the Bankruptcy Court committed reversible error
by refusing to consider Zachary’s mental health as it related to intent. The doctrine of collateral
estoppel precludes re-litigation of this issue. A jury reached a verdict that Zachary and Kimberly
committed the intentional tort of conversion. The intent element required to hold the debt non-
dischargeable under § 523(a)(6) is the same one already litigated in the District Court action with
respect to the conversion claim and cannot now be challenged based on evidence previously
rejected or not provided in that action.
Finally, Zachary and Kimberly argue that the amount of damages awarded by the jury for
the conversion ($108,797.06) was the amount of tax obligations that Sherry owed the IRS and
did not actually arise from the conversion of the videotapes and memorabilia. Again, this
argument fails owing to the doctrine of collateral estoppel. The jury determined the amount of
damages arising from the conversion. The District Court found sufficient evidence to support
the jury verdict, and the Court of Appeals affirmed the District Court’s decision not to grant
Zachary and Kimberly’s post-trial motion for judgment as a matter of law on this count. The
Appellants are estopped from now arguing that the amount awarded is incorrect. Moreover, the
Court of Appeals already explained how “it was appropriate for the jury to set the value of the
property when it was converted by the amount of the debts that Zachary agreed to pay in
exchange for it.” Trost, 525 F. App’x at 343. The Bankruptcy Court was correct not to revisit
this issue.
CONCLUSION

For the reasons stated, the Bankruptcy Court’s order granting summary judgment to
Plaintiff Sherry Trost is AFFIRMED.