In re: ANNETTE IRENE TOLLEY

United States Bankruptcy Appellate Panel for the Ninth Circuit·Decided December 21, 2021·No. OR-21-1129-SLB·Unpublished

Opinion

FILED

DEC 21 2021

SUSAN M. SPRAUL, CLERK

NOT FOR PUBLICATION U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: BAP No. OR-21-1129-SLB ANNETTE IRENE TOLLEY, Debtor. Bk. No. 3:20-bk-32467-DWH

ANNETTE IRENE TOLLEY, Adv. No. 3:20-ap-03112-DWH Appellant,

v. MEMORANDUM* JESS FITZHUGH, Appellee.

Appeal from the United States Bankruptcy Court for the District of Oregon David W. Hercher, Bankruptcy Judge, Presiding

Before: SPRAKER, LAFFERTY, and BRAND, Bankruptcy Judges.

*

This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1.

INTRODUCTION

Judgment creditor Jess Fitzhugh filed a nondischargeability complaint against chapter 71 debtor Annette Irene Tolley under § 523(a)(2)(A). Shortly thereafter, Fitzhugh obtained summary judgment on his nondischargeability claim based on the issue preclusive effect of the $21,000 fraud judgment Fitzhugh had obtained against Tolley in Oregon state court.

Tolley argues that the bankruptcy court erred when it applied issue preclusion because it was unfair given the surrounding circumstances. She insists that, at a minimum, the bankruptcy court needed to hold an evidentiary hearing on the fairness issue. We disagree, so we AFFIRM.

FACTS2

The litigation between the parties arose from a dispute regarding possession of four mules — Wyatt, Tater, Janet, and Adrian — as well as a horse named Big Sue. In March 2018, Fitzhugh unilaterally took possession of these five animals in partial payment of a loan he had made to John Wesley Gorbett. According to Fitzhugh, the debt was secured in part by three of the mules – Wyatt, Tater and Janet. In December 2018, Tolley, her

1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101–1532, all “Rule” references are to the Federal Rules of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of Civil Procedure.

2 We exercise our discretion to take judicial notice of documents electronically

filed in the underlying bankruptcy case and adversary proceeding. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).

family’s ranch known as Tolley Ranch and Cattle, LLC, and Gorbett sued Fitzhugh for conversion in the Wallowa County Circuit Court, alleging that he wrongfully seized and retained possession of the animals. According to the conversion plaintiffs, Wyatt, Tater, and Janet were owned by either Tolley or the ranch. Adrian and Big Sue allegedly were owned by a third party named Ralph Eyre. Apparently, the animals were being boarded at Gorbett’s premises when Fitzhugh seized them in partial payment of the loan.

Fitzhugh counterclaimed against the conversion plaintiffs. He claimed that in 2016 Tolley, the ranch, and Gorbett acted in concert to induce him to loan Gorbett $55,000 on false pretenses. 3 According to Fitzhugh, Tolley and the ranch committed fraud by concealing from him that either she or the ranch claimed an ownership interest in Wyatt, Tater, and Janet. He claimed that Tolley and the ranch led him to believe that Gorbett owned the livestock, that the livestock was free of encumbrances, and that Gorbett was pledging the livestock to secure the loan. Tolley later claimed that she owned the livestock and that she had used it as collateral for a loan that she and her mother used to finance their purchase of cattle.

After a two-day jury trial, the jury returned a verdict against the plaintiffs on their conversion claim and in favor of Fitzhugh on his fraud

3Fitzhugh asserted, and recovered judgment, on additional claims against Tolley.

But he limited his nondischargeability action to the $21,000.00 awarded on his fraud claim. Accordingly, we need not discuss or consider the additional amounts the jury awarded to Fitzhugh.

claims against Tolley and the ranch. The jury specifically found that both Tolley and the ranch committed fraud and that Fitzhugh suffered damages of $21,000 as a result. The Oregon court entered judgment in accordance with the jury’s verdict. Tolley did not appeal the judgment or otherwise seek relief from it.

Tolley commenced her chapter 7 case, and Fitzhugh timely filed his nondischargeability complaint under § 523(a)(2)(A) against her. The § 523(a)(2)(A) claim largely mirrored Fitzhugh’s state court fraud claim, but he also attached to the nondischargeability complaint the principal pleadings, jury verdict, and judgment rendered in the Oregon court.

In April 2021, Fitzhugh filed his motion for summary judgment. 4 He based his motion on the issue preclusive effect of the state court jury’s fraud findings and the resulting judgment. In addition to relying on the documents attached to the nondischargeability complaint, Fitzhugh submitted the jury instructions used in the Oregon action. In relevant part, the jury was instructed that based on Gorbett’s admission, they were to consider as conclusively established with respect to Gorbett only that: (1) Tolley gave him permission to pledge to Fitzhugh as collateral Wyatt and Tater; and (2) in May 2016, Tolley knew that some of the “horses” she alleges were owned by her were included in the “Collateral List.” By “Collateral List,” the jury instructions were referring to a listing of assets

In the bankruptcy court, Tolley moved under Civil Rule 56(d) for deferral of the 4

summary judgment proceedings so that she could conduct discovery. The bankruptcy

that was attached as Exhibit 1 to Fitzhugh’s state court counterclaims. The Collateral List included several horses and several mules. Wyatt and Tater were listed but Janet was not. It also included a pickup truck, a trailer, and various items of tools and equipment.

Tolley opposed the summary judgment motion and included a declaration in which she detailed the reasons why she believed she did not have a full and fair opportunity to litigate in the state court. She also explained why she believed it would be unfair to give the judgment issue preclusive effect in the nondischargeability action. She maintained that she submitted sufficient evidence to raise a triable issue of fact regarding the full and fair opportunity and ultimate fairness questions. She claimed that a trial or evidentiary hearing was needed on these two issues. Tolley conceded, however, that apart from the full and fair opportunity and ultimate fairness questions the remaining issue preclusion elements were satisfied.

The bankruptcy court rejected Tolley’s arguments and determined that Tolley had a full and fair opportunity to litigate, that applying issue preclusion to the Oregon judgment was not inequitable under the circumstances, and that no trial was necessary on these issues. On May 26, 2021, the bankruptcy court entered judgment against Tolley on Fitzhugh’s § 523(a)(2)(A) claim for relief. Tolley timely appealed.

court denied that motion. On appeal, Tolley has not challenged that denial.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.

ISSUES

1. Did the bankruptcy court commit reversible error when it gave issue preclusive effect to the Oregon state court fraud judgment? 2. Was a trial or an evidentiary hearing necessary to resolve the full and fair opportunity issue or the ultimate fairness issue?

STANDARD OF REVIEW

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