In re: Bryce Peltier and Kristine Diane Peltier ( 2022 )

FILED
AUG 16 2022
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
ORDERED PUBLISHED
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. OR-22-1000-FBG
BRYCE PELTIER and KRISTINE DIANE
PELTIER, Bk. No. 3:21-bk-30450-DWH
Debtors.
Adv. No. 3:21-ap-03018-DWH
BRYCE PELTIER; KRISTINE DIANE
PELTIER,
Appellants,
v. OPINION
VAN LOO FIDUCIARY SERVICES, LLC,
Appellee.
Appeal from the United States Bankruptcy Court
for the District of Oregon
David W. Hercher, Bankruptcy Judge, Presiding
Filed – August 16, 2022
Ordered Published – September 12, 2022
APPEARANCES:
Michael Fuller of OlsenDaines argued for appellants;
Darlene Pasieczny of Samuels Yoelin Kantor LLP argued for appellee.
Before: FARIS, BRAND, and GAN, Bankruptcy Judges.
FARIS, Bankruptcy Judge:
INTRODUCTION
The Oregon state court entered a judgment against Kristine Diane
Peltier and Bryce Peltier for financial elder abuse of a family member. The
Peltiers filed for chapter 71 bankruptcy protection, and appellee Van Loo
Fiduciary Services LLC (“Van Loo”) sought to have the judgment debt
declared nondischargeable under §§ 523(a)(2), (4), and (6). The bankruptcy
court entered judgment against Kristine 2 on the § 523(a)(4) claim, based on
the issue preclusive effect of the state court judgment.
Kristine appeals, arguing that issue preclusion was inappropriate
because the issues that the state court necessarily determined were not the
same as those before the bankruptcy court.
We disagree with the bankruptcy court’s reasoning but agree with its
conclusion. We AFFIRM.
FACTS
A. The state court judgment
Van Loo is the court-appointed conservator for Kristine’s mother,
Leah D. Hudson, and the personal representative for the estate of Jon W.
Hudson, who was Mrs. Hudson’s husband and Kristine’s father.
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 sometimes refer to Kristine and Bryce by their first names for convenience
and clarity. We intend no disrespect.
2
In June 2020, Van Loo filed a complaint in the Oregon circuit court
for financial elder abuse, unjust enrichment, and breach of fiduciary duty
against Kristine, Bryce, Kristine’s sister, and her sister’s husband.
Van Loo alleged that, while the Hudsons suffered from declining
mental and physical health, the defendants misused the Hudsons’ funds,
credit, and assets to benefit themselves. It alleged that Kristine had
accomplished this by abusing powers of attorney that the Hudsons had
granted her.
The complaint stated three claims for relief: (1) elder abuse under
Oregon Revised Statutes (“ORS”) 124.110 against all defendants; (2) unjust
enrichment against all defendants; and (3) breach of fiduciary duty against
Kristine.
The Peltiers did not respond to the complaint, and the circuit court
entered an order of default against the Peltiers.3 After a prima facie hearing
at which Van Loo’s principal testified, the court stated that “it’s very clear
that . . . the plaintiffs have made a prima facie showing of elder abuse,
unjust enrichment, and a breach of fiduciary duties by the remaining
defendants, so I do find in favor of the plaintiffs on their claims.” It did not
offer any detailed findings or conclusions.
The circuit court granted Van Loo a limited judgment4 against the
3
The other defendants apparently settled with Van Loo and were dismissed
from the case.
4
A “limited judgment” under ORS 18.005(13) and Oregon Rule of Civil
3
Peltiers on all claims for relief. Pursuant to ORS 124.100, it awarded Van
Loo treble damages totaling $1,069,606.86 against Kristine and Bryce and
an additional judgment against Kristine for treble damages of $887,276.16 –
exactly what Van Loo requested. It also issued a second limited judgment
awarding Van Loo attorneys’ fees and costs and conservator fees.
B. The chapter 7 bankruptcy case and adversary proceeding
The Peltiers sought chapter 7 bankruptcy protection. Van Loo filed a
timely complaint to determine the nondischargeability of the state court
judgment debts pursuant to §§ 523(a)(2)(A), (4), and (6).
As to § 523(a)(4), Van Loo alleged that the Peltiers had committed
fraud or defalcation by a fiduciary, larceny, and embezzlement.
The Peltiers filed an answer generally denying the allegations in the
adversary complaint.
C. Van Loo’s motion for summary judgment
Van Loo filed a motion for summary judgment on all claims. It
argued that the state court’s findings were entitled to issue preclusive
effect, so the judgments were nondischargeable under §§ 523(a)(2), (4), and
(6).
The Peltiers opposed the motion for summary judgment. They
argued that Van Loo could not establish each element of issue preclusion
under Oregon law. The Peltiers contended that the issues were not
Procedure 67 B is essentially the same as a judgment on fewer than all claims or parties
under Civil Rule 54(b).
4
identical and the issues were not “necessarily decided.” They emphasized
that the state court had not made any findings on the record. With regard
to § 523(a)(4), they argued that the default judgment did not establish gross
recklessness or felonious intent necessary to a nondischargeability ruling.
After a hearing, the bankruptcy court announced that it would grant
summary judgment against Kristine, but not Bryce, and only under
§ 523(a)(4).
The bankruptcy court recited the five elements of issue preclusion
under Oregon law. It noted that the Peltiers conceded that Oregon affords
issue preclusive effect to default judgments. It also held that the Peltiers
had a full and fair opportunity to litigate the state court proceedings and
that issue preclusion was appropriate for this type of proceeding.
It acknowledged that, because the state court “made no specific
findings of fact, except for its quantification of damages, it’s difficult to
know exactly what was determined.” Therefore, to determine the issue
preclusive effect of the default judgment, the court analyzed “which of the
many allegations of the complaint are the minimum that the [state] Court
had to find to enter its judgment.”
The bankruptcy court held that issue preclusion did not bar
relitigation of any issue under the §§ 523(a)(2)(A) and (6) claims. However,
it held that the state court’s elder abuse findings satisfied § 523(a)(4) as to
Kristine. It explained that § 523(a)(4) requires that the debt arose from
either fraud or defalcation while acting in a fiduciary capacity or
5
embezzlement or larceny. It quickly rejected embezzlement or larceny,
because the complaint did not allege that the Peltiers feloniously took
property from the Hudsons.
However, the bankruptcy court said that the allegations against
Kristine aligned with defalcation while acting in a fiduciary capacity. It
stated that Kristine was a fiduciary based on her power of attorney and
concluded that the state court must have found defalcation.
Later, Van Loo agreed to dismiss its claims against Bryce. The
bankruptcy court entered judgment against Kristine and declared
nondischargeable the first limited judgment debt for $1,069,606.86 plus
post-judgment interest.
The Peltiers timely appealed.5 Van Loo did not cross-appeal.
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.
ISSUE
Whether the bankruptcy court erred in granting Van Loo summary
judgment on its § 523(a)(4) nondischargeability claim against Kristine.
5
Counsel for the Peltiers acknowledged at oral argument that, although both
Bryce and Kristine filed the notice of appeal, Bryce was not a party to the appeal. Van
Loo argues that the judgment should be affirmed as to Bryce, with costs awarded to
Van Loo. We DENY this request, because Bryce was a prevailing party, not an
aggrieved party, and was therefore not entitled to appeal, and Van Loo did not cross-
appeal that portion of the judgment.
6
STANDARDS OF REVIEW
We review de novo the bankruptcy court’s decisions to grant
summary judgment and to except a debt from discharge. Plyam v. Precision
Dev., LLC (In re Plyam), 530 B.R. 456, 461 (9th Cir. BAP 2015). “De novo
review requires that we consider a matter anew, as if no decision had been
made previously.” Francis v. Wallace (In re Francis), 505 B.R. 914, 917 (9th
Cir. BAP 2014).
“We also review de novo the bankruptcy court’s determination that
issue preclusion was available. If issue preclusion was available, we then
review the bankruptcy court’s application of issue preclusion for an abuse
of discretion.” In re Plyam, 530 B.R. at 461 (quoting Black v. Bonnie Springs
Fam. Ltd. P’ship (In re Black), 487 B.R. 202, 210 (9th Cir. BAP 2013)).
To determine whether the bankruptcy court has abused its discretion,
we conduct a two-step inquiry: (1) we review de novo whether the
bankruptcy court “identified the correct legal rule to apply to the relief
requested” and (2) if it did, we consider whether the bankruptcy court’s
application of the legal standard was illogical, implausible, or without
support in inferences that may be drawn from the facts in the record.
United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc).
“We may affirm on any ground fairly supported by the record.”
Jimenez v. ARCPE 1, LLP (In re Jimenez), 613 B.R. 537, 543 (9th Cir. BAP
2020).
DISCUSSION
7
Kristine argues that the bankruptcy court erred in granting Van Loo
summary judgment under § 523(a)(4) because it was inappropriate to
afford the state court judgment issue preclusive effect.
Under Civil Rule 56(a), made applicable by Rule 7056, summary
judgment is appropriate when “there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.”
The movant bears the initial burden of demonstrating an absence of a
genuine issue of material fact. See Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 585 (1986). We must view the evidence in the light most
favorable to the non-moving party and draw all justifiable inferences in her
favor. Fresno Motors, LLC v. Mercedes Benz USA, LLC, 771 F.3d 1119, 1125
(9th Cir. 2014).
We hold that the record before the bankruptcy court was sufficient to
support summary judgment on Van Loo’s § 523(a)(4) claim.
A. Issue preclusion in nondischargeability proceedings
Issue preclusion applies in nondischargeability actions under
§ 523(a). Grogan v. Garner, 498 U.S. 279, 284 n.11 (1991).
Federal courts must give full faith and credit to state court
judgments. 28 U.S.C. § 1738. This means that the bankruptcy court was
required to give the Oregon state court’s judgment the same preclusive
effect it would be given by other Oregon courts. See Far Out Prods., Inc. v.
Oskar, 247 F.3d 986, 993 (9th Cir. 2001). We thus apply Oregon issue
preclusion law.
8
Under Oregon law, “[i]ssue preclusion applies to preclude
relitigation of an issue or fact when that issue or fact has been determined
by a valid and final determination in a prior proceeding.” McCall v. Dynic
USA Corp., 906 P.2d 295, 297 (Or. Ct. App. 1995) (cleaned up). Issue
preclusion is appropriate if five required elements are met:
1. The issue in the two proceedings is identical.
2. The issue was actually litigated and was essential to a final
decision on the merits in the prior proceeding.
3. The party sought to be precluded has had a full and fair
opportunity to be heard on that issue.
4. The party sought to be precluded was a party or was in
privity with a party to the prior proceeding [and]
5. The prior proceeding was the type of proceeding to which
this court will give preclusive effect.
Nelson v. Emerald People’s Util. Dist., 862 P.2d 1293, 1296-97 (Or. 1993)
(citations omitted). “[T]he party asserting issue preclusion bears the burden
of proof on the first, second, and fourth factors, after which the party
against whom preclusion is asserted has the burden on the third and fifth
factors.” Barackman v. Anderson, 167 P.3d 994, 999 (Or. Ct. App. 2007).
The fourth and fifth elements require no discussion. There is no
doubt that Kristine was a party to both the state court case and the
adversary proceeding and the state court case was the type of proceeding
which may be afforded issue preclusive effect.
9
The third element requires only brief consideration. Kristine argued
in the bankruptcy court that she was not afforded a full and fair
opportunity to litigate the state court proceeding because she could not
afford to obtain counsel. But under Oregon law, a party’s choice not to
respond to a complaint, or the party’s inability to afford counsel, is not a
denial of a full and fair opportunity to be heard for purposes of issue
preclusion. See id. at 1000 n.3 (“The question under the third factor is
whether plaintiff was denied the opportunity to adduce the evidence or
make the arguments that she needed to prevail on her claim.”); Skeen v.
Dep't of Hum. Res., 17 P.3d 526, 528-29 (Or. Ct. App. 2000) (Litigants are
denied “full and fair opportunity” to be heard under Nelson if they
establish either that “the procedures provided for . . . are insufficient to
justify the application of issue preclusion or that they were not permitted to
use those procedures.”). Therefore, the third element was satisfied.
The first and second elements require more attention: (1) whether the
issues in the two proceedings were identical; and (2) whether the issues
were essential to the state court’s judgment.
Kristine points out that the state court made no express findings. But
this does not deprive its judgment of issue preclusive effect. Under Oregon
law, a judgment has issue preclusive effect as to all issues that the court
expressly decided or were necessary to the court’s judgment. Chase v.
Gordon, Aylworth & Tami, P.C., Case No. 3:18-cv-568-AC, 2019 WL 5085417,
at *7 (D. Or. Oct. 10, 2019) (“In Oregon, the doctrine of res judicata,
10
including collateral estoppel, as to matters essential to the judgment,
applies to judgments by default. To satisfy the ‘actually litigated and
essential to a final decision’ requirement, a prior court’s resolution of an
issue must either be apparent from the face of a judgment or order or, if not
apparent from the face of a judgment or order, must have been necessary to
the resolution of the prior adjudication.” (cleaned up)); Sturgis v. Asset
Acceptance, LLC, No. 3:15-CV-00122-AC, 2016 WL 223708, at *3 (D. Or. Jan.
19, 2016) (“[C]ourts in Oregon apply issue preclusion to cases where the
first case ended in a default judgment and the defendant did not appear in
court or otherwise take advantage of the opportunity to ‘actually litigate’
the issues at stake. Because an issue may be deemed ‘actually litigated’ in
an action where a default judgment is entered after one party fails to
appear or otherwise actually litigate the pertinent issue, analysis of this
element should focus on whether the issue was ‘essential to the [first]
judgment.’” (citation omitted)).
Therefore, we will describe the required elements of § 523(a)(4) and
compare those elements with what the state court must have necessarily
decided to support its judgment on the statutory elder abuse claim.
B. Elements of § 523(a)(4)
Section 523(a)(4) precludes the discharge of debts “for fraud or
defalcation while acting in a fiduciary capacity, embezzlement, or larceny.”
In other words, because “while acting in a fiduciary capacity” does not
modify “embezzlement” or “larceny,” and the statute is written in the
11
disjunctive, a debt is nondischargeable if it was incurred due to (1) fraud or
defalcation while acting in a fiduciary capacity, (2) embezzlement, or
(3) larceny. See Bullock v. BankChampaign, N.A., 569 U.S. 267, 275 (2013)
(“The statutory provision makes clear that [embezzlement and larceny]
apply outside of the fiduciary context[.]”); Transamerica Com. Fin. Corp. v.
Littleton (In re Littleton), 942 F.2d 551, 555 (9th Cir. 1991) (“Clearly, a debt
can be nondischargeable for embezzlement under 523(a)(4) without the
existence of a fiduciary relationship.”).
1. Fraud or defalcation
Fraud or defalcation while acting in a fiduciary capacity under
§ 523(a)(4) requires that “1) an express trust existed, 2) the debt was caused
by fraud or defalcation, and 3) the debtor acted as a fiduciary to the
creditor at the time the debt was created.” Mele v. Mele (In re Mele), 501 B.R.
357, 363 (9th Cir. BAP 2013) (quoting Otto v. Niles (In re Niles), 106 F.3d
1456, 1459 (9th Cir. 1997)).
“Defalcation” “includes a culpable state of mind requirement akin to
that which accompanies application of the other terms in the same
statutory phrase. We describe that state of mind as one involving
knowledge of, or gross recklessness in respect to, the improper nature of
the relevant fiduciary behavior.” Bullock, 569 U.S. at 269.
“To prevail on a nondischargeability claim under § 523(a)(4) the
plaintiff must prove not only the debtor’s fraud or defalcation, but also that
the debtor was acting in a fiduciary capacity when the debtor committed
12
the fraud or defalcation.” Honkanen v. Hopper (In re Honkanen), 446 B.R. 373,
378 (9th Cir. BAP 2011). “The fiduciary relationship must be one arising
from an express or technical trust that was imposed before and without
reference to the wrongdoing that caused the debt. We consult state law to
determine whether the requisite trust relationship exists.” In re Mele, 501
B.R. at 363 (cleaned up).
2. Embezzlement and larceny
Embezzlement is defined as “the fraudulent appropriation of
property by a person to whom such property has been entrusted or into
whose hands it has lawfully come.” In re Littleton, 942 F.2d at 555 (quoting
Moore v. United States, 160 U.S. 268, 269 (1885)). Thus, the proponent of the
nondischargeability determination must prove: “(1) property rightfully in
the possession of a nonowner; (2) nonowner’s appropriation of the
property to a use other than which [it] was entrusted; and
(3) circumstances indicating fraud.” Id. (quoting Nat’l Bank of Com. of Pine
Bluff v. Hoffman (In re Hoffman), 70 B.R. 155, 162 (Bankr. W.D. Ark. 1986)).
We have stated that “circumstances indicating fraud, as an element of
embezzlement, is not coterminous with an intent to defraud . . . .” Newman
v. Lee (In re Newman), BAP Nos. CC-21-1228-GTL, CC-21-1250-GTL, 2022
WL 2100905, at *7 (9th Cir. BAP June 10, 2022); see Phillips v. Estate of Ronald
M. Arnold (In re Phillips), BAP No. WW-15-1178-TaKuJu, 2016 WL 7383964,
at *5 (9th Cir. BAP Dec. 16, 2016) (“The finding required for a
determination of § 523(a)(4) embezzlement is that Debtor’s actions
13
indicated fraud. Such a determination is not synonymous with an intent to
defraud as required under § 523(a)(2)(A).”).
As for scienter, the U.S. Supreme Court has stated that
“embezzlement requires a showing of wrongful intent.” Bullock, 569 U.S. at
274. The Court noted that wrongful intent in this context has been
described as “moral turpitude or intentional wrong” or “felonious intent.”
Id. (quoting Neal v. Clark, 95 U.S. 704, 709 (1877); Moore, 160 U.S. at 269-70).
Further, in the criminal context, the Ninth Circuit has relied on the Seventh
Circuit’s statement that “cases indicate that the ‘felonious’ intent with
which embezzlement is committed consists of the intent to appropriate or
convert the property of the owner; the simultaneous intent to return the
property or to make restitution does not make the offense any less
embezzlement.” United States v. Anderson, 850 F.2d 563, 565 (9th Cir. 1988)
(quoting United States v. Waronek, 582 F.2d 1158, 1161 n.4 (7th Cir. 1978)).
Larceny is the “felonious taking of another’s personal property with
intent to convert it or deprive the owner of the same.” Ormsby v. First Am.
Title Co. of Nev. (In re Ormsby), 591 F.3d 1199, 1205 (9th Cir. 2010) (quoting 4
Collier on Bankruptcy ¶ 523.10[2] (15th ed. rev. 2008)). “Felonious is
defined as ‘proceeding from an evil heart or purpose; malicious; villainous
. . . Wrongful; (of an act) done without excuse of color of right.’” Id. at 1205
n.4 (quoting Elliott v. Kiesewetter (In re Kiesewetter), 391 B.R. 740, 748 (Bankr.
W.D. Pa. 2008)).
There is only one difference between embezzlement and larceny: for
14
embezzlement, the perpetrator initially had the right to possess property
and then stole it; while for larceny, the perpetrator stole property that the
perpetrator never had a right to possess. Hopper v. Lewis (In re Lewis), 551
B.R. 41, 50 (Bankr. E.D. Cal. 2016) (“Larceny is distinguished from
embezzlement in that the original taking of the property was unlawful.”
(citation omitted)). The offenses of embezzlement and larceny require
essentially the same mental state. As the Supreme Court held in Bullock, 569
U.S. at 269, the scienter required for the three offenses described in
§ 523(a)(4) – fiduciary fraud and defalcation, embezzlement, and larceny –
are “akin,” or closely related, to each other. See Urban v. BSC West, LLC (In
re Urban), BAP No. SC-13-1047-PaJuKu, 2014 WL 1492717, at *14 (9th Cir.
BAP Apr. 16, 2014) (noting that Bullock “observed that the ‘linquistic
neighbors’ of defalcation – larceny and embezzlement – have always
required felonious intent. . . . [U]nder the noscitur a sociis rule, the Supreme
Court decided that, for an exception to discharge, a defalcation, like
fiduciary fraud, larceny and embezzlement, required a culpable state of
mind.”). We see no reason why the offenses of larceny and embezzlement
should require different mental states.
C. Elements of elder abuse under ORS 124.100
The state court entered judgment on a claim for statutory elder
abuse.6 ORS 124.100(2) provides that “[a] vulnerable person who suffers
6
We agree with the bankruptcy court that the state court’s findings concerning
unjust enrichment and breach of fiduciary duty were not entitled to issue preclusive
15
injury, damage or death by reason of physical abuse or financial abuse may
bring an action against any person who has caused the physical or financial
abuse or who has permitted another person to engage in physical or
financial abuse.” Financial abuse occurs “[w]hen a person wrongfully takes
or appropriates money or property of a vulnerable person, without regard
to whether the person taking or appropriating the money or property has a
fiduciary relationship with the vulnerable person.” ORS 124.110(1)(a).7
Oregon courts have recognized that “there are four elements to a
claim for financial abuse of an elderly or incapacitated person: There must
be ‘(1) a taking or appropriation (2) of money or property (3) that belongs
to an elderly or incapacitated person, and (4) the taking must be
wrongful.’” Gibson v. Bankofier, 365 P.3d 568, 577-78 (Or. Ct. App. 2015)
(quoting Church v. Woods, 77 P.3d 1150, 1153 (Or. Ct. App. 2003)).
Oregon courts have relied on the “ordinary” dictionary definition of
effect. Unjust enrichment does not necessarily require a culpable mind. See Larisa’s Home
Care, LLC v. Nichols-Shields, 404 P.3d 912, 921 (Or. 2017) (declining to adopt a precise test
for unjust enrichment or impose a state-of-mind requirement). Similarly, intent is not an
element of a breach of fiduciary duty claim under Oregon law. See Chapman v. Bond (In
re Bond), 548 B.R. 570, 577 n.5 (Bankr. D. Or. 2016) (“There is no intent or bad faith
element needed to establish the [breach of fiduciary duty] claim . . . .” (citation
omitted)). Further, as we have noted, “fiduciary capacity” under § 523(a)(4) refers only
to an express trust, not to the wide range of relationships that can support a “fiduciary
duty” under state law. See Ragsdale v. Haller, 780 F.2d 794, 796 (9th Cir. 1986) (“The
broad, general definition of fiduciary – a relationship involving confidence, trust and
good faith – is inapplicable in the dischargeability context.”); In re Mele, 501 B.R. at 363.
7
ORS 124.110(1) also includes other types of financial elder abuse, but they are
inapplicable to the present case.
16
“take”: “to transfer into one’s own keeping [or to] enter into or arrange for
possession, ownership, or use of[.]” Church, 77 P.3d at 1153 (quoting
Webster’s Third New Int’l Dictionary 2330 (1993)).
Similarly, “appropriate” is not defined, but Oregon courts have relied
on the “ordinary” definition of the word. The District Court for the District
of Oregon considered the Oregon appellate courts’ use of the term and
relied on the dictionary definition (“to claim or use as if by an exclusive
preeminent right”) and the definition in the companion criminal statute (to
“[e]xercise control over property of another, . . . permanently or for so
extended a period or under such circumstances as to acquire the major
portion of the economic value or benefit of such property”). Russi v.
Wissenback, No. 6:18-CV-01028-AA, 2019 WL 1965830, at *3 (D. Or. Apr. 28,
2019) (quoting Webster’s Third New Int’l Dictionary 160 (2002); ORS
164.005(1)).
Additionally, the plaintiff must show that the defendant took or
appropriated money or property “wrongfully,” meaning “in pursuit of an
improper motive or by improper means. A defendant’s motives or means
may be wrongful by reason of a statute or other regulation, or a recognized
rule of common law, or perhaps an established standard of a trade or
profession.” Gibson, 365 P.3d at 578 (cleaned up); see Church, 77 P.3d at 1153(“Improper means, for example, include ‘violence, threats, intimidation,
deceit, misrepresentation, bribery, unfounded litigation, defamation and
disparaging falsehood.’ The use of undue influence also constitutes an
17
‘improper means,’ in that it involves the procurement of an unfair
advantage.” (citation omitted)).
D. Comparison of issues in state court with issues in bankruptcy court
The bankruptcy court held that the elder abuse claim could not
satisfy the larceny or embezzlement element of § 523(a)(4) but that it
satisfied the element of “defalcation while acting in a fiduciary capacity.”
We disagree with the bankruptcy court’s reasoning but agree that it was
appropriate to afford the elder abuse ruling issue preclusive effect.
In order to enter judgment on the statutory elder abuse claim, the
state court had to find that Kristine (1) took or appropriated (2) money or
property (3) that belongs to Mr. or Mrs. Hudson, who was incapacitated,
and (4) the taking was wrongful. See Gibson, 365 P.3d at 577-78. But the
court did not need to find that Kristine was a fiduciary for the Hudsons:
ORS 124.110(1)(a) explicitly states that financial elder abuse is actionable
“without regard to whether the person taking or appropriating the money
or property has a fiduciary relationship with the vulnerable person.” In
contrast, the “fraud or defalcation” portion of § 523(a)(4) requires a finding
that Kristine committed fraud or defalcation while acting as the Hudsons’
fiduciary. Thus, a finding of a fiduciary relationship (or that Kristine
violated her fiduciary duties) was not essential to the state court judgment
based on statutory elder abuse.
The bankruptcy court focused on the allegations of the complaint,
especially the allegation that Kristine abused the powers of attorney that
18
her mother and father had granted. At oral argument before the Panel, Van
Loo’s counsel took this one step further by contending that, because
Kristine did not answer the complaint, its allegations were deemed
admitted. This approach misses the mark because the preclusive effect of a
judgment does not depend on what the plaintiff alleged and proved;
rather, it depends on what the court expressly found or, if there are no
express findings, what it had to find to support its judgment. See Chase,
2019 WL 5085417, at *7. Because ORS 124.110(1)(a) does not require the
existence of a fiduciary relationship, a finding of a fiduciary relationship
was not “essential” to the state court’s judgment. 8
But the state court judgment does satisfy the “larceny” and
“embezzlement” portions of § 523(a)(4).
The conduct proscribed by ORS 124.110(1)(a) is the same as either
“larceny” or “embezzlement” under § 523(a)(4). To support its judgment
for statutory elder abuse, the state court must have found that Kristine
either “took” or “appropriated” the Hudsons’ money or property. See
Gibson, 365 P.3d at 578. The conduct involved in the offense of larceny is a
“taking” of the property of another; embezzlement requires a
“[mis]appropriation” of property. The match is exact.
8
We also note that, even if Van Loo’s allegations were determinative, the state
court could have found elder abuse based on allegations in the complaint that were
apparently accomplished independent of the powers of attorney, such as the
appropriation of four automobiles, the mismanagement of the Hudsons’ business, and
the execution of a future receivables contract.
19
Similarly, there is no discernable difference between the mental states
required by the Oregon elder abuse statute and “larceny” and
“embezzlement” under § 523(a)(4). Under the Oregon statute, the conduct
must be “wrongful,” meaning that it was undertaken with “an improper
motive or by improper means,” such as by deceit, misrepresentation, or
undue influence. Gibson, 365 P.3d at 578; Church, 77 P.3d at 1153. Under
§ 523(a)(4), embezzlement and larceny require “wrongful” or “felonious”
intent, Bullock, 569 U.S. at 274, similar to “a culpable state of mind . . .
involving knowledge of, or gross recklessness in respect to, the improper
nature of the relevant . . . behavior[,]” id. at 269. Although the words of
these definitions are not identical, in substance we see no daylight between
them.
Thus, the financial elder abuse claim presented issues “identical” to
larceny and embezzlement under § 523(a)(4) that were “essential” to the
state court judgment.
CONCLUSION
The bankruptcy court did not err in granting Van Loo summary
judgment on its § 523(a)(4) claim against Kristine. We AFFIRM.
20