Johnson v. Creason

Bank;

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SO ORDERED. \y Sar ARS □□

SIGNED this 16th day of October, 2023. Lon ; Zi a □

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| Mitchell L. Herren

United States Bankruptcy Judge

DESIGNATED FOR ONLINE PUBLICATION ONLY

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS

IN RE: )

)

LARRY A. CREASON )

SARA L. CREASON, ) Case No. 22-10116

) Chapter 7

Debtors )

i)

)

LISA JOHNSON )

Plaintiff, )

vs. ) Adv. No. 22-5017

)

LARRY A. CREASON and )

SARA L. CREASON, )

Defendants. )

oY

ORDER DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT

Defendants Larry and Sara Creason seek to discharge a 2013 default

judgment for fraud entered against them in a Kansas state court lawsuit where

Plaintiff Lisa Johnson alleged fraud and breach of contract arising out of a series of

short-term loans Defendants received from Plaintiff but failed to repay. In this

adversary proceeding, Plaintiff contends the judgment debt from the 2013 default

should be excepted from discharge under 11 U.S.C. § 523(a).1

Plaintiff seeks summary judgment, arguing the entirety of the debt

($72,520.86 plus interest, court costs, and attorney fees) is nondischargeable under

§§ 523(a)(2)(A) (the “fraud” exception) and (a)(6) (the willful and malicious injury

exception). Plaintiff contends Defendants are barred under the doctrines of

collateral estoppel, judicial estoppel, and quasi estoppel from relitigating the factual

issues surrounding fraud because the state court findings in a 2013 journal entry of

judgment (“Default Judgment”), and later, a 2015 default order enforcing a

settlement (“Order”), satisfy the elements of the fraud and willful and malicious

injury discharge exceptions.

Defendants do not dispute that the state court entered the Default Judgment

and Order against them. They do, however, deny that the state court’s findings are

sufficient to prevent this Court from hearing their vehement and detailed

arguments that their inability to pay Plaintiff was based on circumstances outside

their control that were unknown at the time they borrowed the money, and that

their conduct was therefore not fraudulent or willful and malicious.

For the reasons set forth below, the motion is denied.2

1 All future statutory references in text, unless otherwise noted, are to Title 11 of the

United States Code (the “Bankruptcy Code”).

2 Michael A. Priddle appeared on behalf of Plaintiff. Mark Lazzo appeared on behalf of

Defendants.

I. SUMMARY JUDGMENT STANDARDS

Summary judgment is appropriate where the movant shows there is no

genuine dispute as to any material fact and the movant is entitled to judgment as a

matter of law. 3 In ruling on a motion for summary judgment, a court must draw all

reasonable inferences from the record in favor of the non-moving party. 4 If the

movant can establish a prima facie case, the burden shifts to the non-moving party

to identify specific evidence that demonstrates there is a genuine issue of material

fact for trial, or the undisputed facts do not establish a sufficient legal basis to grant

movant judgment as a matter of law. 5 A genuine dispute of material fact exists if,

based on the evidence, a reasonable jury could return a verdict for the non-moving

party. 6 If a party that bears the burden of persuasion at trial does not come forward

with sufficient evidence on an essential element of its prima facie case, all issues

concerning all other elements of the claim and any defenses become immaterial.7

The rules and procedure for summary judgment motions, as relevant here,

are set forth in Fed. R. Civ. P. 56(c) and D. Kan. LBR 7056.1. They require that

each separately numbered statement of fact be supported by citation to materials in

the record and be

3 FED. R. CIV. P. 56(a) is made applicable to this adversary proceeding by FED. R. BANKR. P.

7056.

4 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

5 FED. R. CIV. P. 56(a). See Langley v. Adams Cty., 987 F.2d 1473, 1476 (10th Cir. 1993);

Friesen v. Seacoast Cap. Partners II, L.P. (In re QuVis, Inc.), 446 B.R. 490, 493-94 (Bankr.

D. Kan. 2011) (finding that even if there are no disputed material facts, movant has burden

to show that those facts entitle movant to judgment as a matter of law); Adler v. Wal-Mart

Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998).

6 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).

7 Adler, 144 F.3d at 670 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)).

presented by affidavit, declaration under penalty of perjury, and/or

through the use of relevant portions of pleadings, depositions, answers

to interrogatories and responses to requests for admissions. . . . Where

facts referred to in an affidavit or declaration are contained in another

document . . . a copy of the relevant excerpt from the document must be

attached.8

Plaintiff’s paragraphs 8-11 and 13-16 of her uncontroverted facts contain no

citation to the record. Plaintiff’s record support for her other statements of facts

consist of three exhibits, mostly court records or pleadings in the state court action:

Exhibit A – the state court petition for breach of contract and fraud filed July 10,

2013 (which includes the Default Judgment entered August 8, 2013 attached

thereto as part of Exhibit A to the petition);9 Exhibit B – the Plaintiff’s post-

judgment motion to enforce settlement filed September 16, 2015 (which includes

correspondence and various e-mail threads between Plaintiff’s counsel and

Defendants numbered as Exhibits 1-5);10 and Exhibit C – the order granting

Plaintiff’s motion to enforce settlement entered October 2, 2015.11

The proper way to present these materials would have been with an affidavit

identifying and authenticating the court records and the extraneous correspondence

and e-mails and attaching those materials to the affidavit. It is also incumbent upon

a litigant to “refer with particularity to those portions of the record on which the

movant relies.”12 It is not the Court’s job to sift through multiple page exhibits to

find the supporting record cite.

8 LBR 7056.1(d). See also Rule 56(c)(1).

9 Doc. 23, pp. 15-29. The Default Judgment appears to be included twice. Id. at pp. 26-29.

10 Doc. 23, pp. 30-50.

11 Doc. 23, pp. 51-54.

12 LBR 7056.1(a).

Defendants’ statement of additional uncontroverted facts contained in their

summary judgment response is properly supported by affidavit and complies with

LBR 7056.1(b)(2). To the extent Plaintiff simply says she “denies” or controverts

those additional facts, she has failed to adequately controvert the fact as required

by LBR 7056.1(c) and (b)(1).

In the end, Plaintiff’s noncompliance with the summary judgment rules and

procedure is not dispositive. Much of the information the parties presented about

interactions they had after the Default Judgment was entered against Defendants

is neither material, nor relevant to the Court’s determination of dischargeability.

There is only one debt in question, and it is evidenced by the state court Default

Judgment; it is based upon Defendants’ alleged misrepresentations prior to Plaintiff

lending the money.13

II. UNCONTROVERTED MATERIAL FACTS

In 2012, Defendants ran a painting business, Kansas Painting Solutions, that

entered into an out-of-state painting contract with a Tennessee contractor for a

large painting job on a building in Tennessee. The contract was a significant

undertaking that required Defendants to obtain third party funding for labor and

13 See 11 U.S.C. § 101(12) defining a "debt" as "liability on a claim." To be nondischargeable

under § 523(a)(2)(A), the debt must be one arising from money debtors obtained by fraud.

See e.g., Daniel v. Boyd (In re Boyd), 347 B.R. 349, 356-57 (Bankr. W.D. Ark. 2006) (debtor-

contractor who misrepresented that he was a licensed contractor could not except debt from

discharge where the debt was the result of poor workmanship, not one arising from debtor’s

fraud); Macaulay v. Shields (In re Shields), 147 B.R. 627, 629-30 (Bankr. D. Mass. 1992)

(state court judgment against developer for deceptive and unfair act was dischargeable

where developer made misrepresentations after judgment creditors had already parted

with money to purchase time share and thus, developer had not “obtained money” by means

of false representations).

materials. In February and March of 2012, Defendants approached Plaintiff

requesting a series of three short-term loans totaling a principal amount of $53,000

with a repayment date of May 31, 2012. The sum due on May 31 was $69,040,

which included $3,040 in interest, $10,000 for penalties and taxes Plaintiff incurred

in withdrawing $33,000 of the loaned funds from her annuity, and repayment of a

$3,000 check “given” to Defendants in October of the previous year (apparently not

part of the three loans at issue in the lawsuit).

Defendants submitted their first payment application of $73,815 to the

Tennessee contractor in mid-March. The contractor refused to pay, arguing that

Defendants’ work was deficient. Defendants, through counsel, filed an arbitration

action in Tennessee as required by the contract but the dispute was not resolved

until January of 2013, after significant legal fees and for a greatly reduced amount.

Defendants failed to repay Plaintiff’s loan at the end of May, 2012.

On July 10, 2013, Plaintiff sued the Defendants and their now defunct

painting company in Sedgwick County District Court for “fraud” and “breach of

contract.”14 The Plaintiff alleged that the Defendants had no intention to repay the

loan and made false representations as to their company’s financial situation to

induce her to loan them the money. Specifically, Plaintiff alleged that Defendants

represented:

• the loans were necessary to complete a painting job;

• they had sufficient work and ability to pay;

14 Doc. 23, Ex. A, pp. 15-25.

• they had incoming receivables to quickly repay any money borrowed; and

• it was their intention to quickly repay the Plaintiff.15

These representations, the Plaintiff alleged, were fraudulent, stating that the

Defendants’:

[M]aterial representations and promises regarding ability to pay,

pending work, incoming receivables, intention to pay, and need for

money were false when made, or made with reckless disregard for the

truth, and were made solely to induce Plaintiff into the agreement to

lend them money.16

Defendants failed to answer the petition or contest the action, believing that

the state court action was for recovery of money they admittedly owed, not fully

understanding the gravity of the fraud allegations.17 On August 8, 2013, counsel for

Plaintiff submitted to the state court the proposed Default Judgment (i.e., Journal

Entry of Judgment) and it was signed and entered by the state court.18 It provided:

3. The allegations in Plaintiff’s Petition are uncontroverted.

Defendants have admitted the allegations in Plaintiff’s Petition

pursuant to K.S.A. § 60-208(d). [sic]. The allegations in Plaintiff’s

Petition, which are herein found to be true and incorporated by reference

as if fully set out, are the findings of fact by the Court to support this

judgment.19

15 Doc. 23, Ex. A, p. 16, ¶¶ 8-10.

16 Doc. 23, Ex. A, p. 17, ¶ 17. Under the fraud count, Plaintiff similarly alleged: “Defendants

made false representations and promises to Plaintiff of material fact, or made them with

reckless disregard for their truth, solely to induce the Plaintiff to give them money.” Id. at

25.

17 Doc. 24, p. 6, ¶ 18.

18 Doc. 23, Ex. A, pp. 26-27. The Default Judgment does not reflect that a hearing was held

on August 8; it was entered upon the Plaintiff’s motion or application for default judgment

as permitted under Kansas law.

19 Doc. 23, Ex. A, p. 26, ¶ 3 (emphasis added.). The correct statutory cite in paragraph 3 is

2022 Supp. K.S.A. 60-208(a)(6) Effect of failing to deny.

This was the extent of the factual findings made by the state court. The allegations

of the Plaintiff’s petition were not detailed in the Default Judgment. Based on these

findings, the state court concluded Plaintiff was entitled to judgment against

Defendants “for fraud in the amount of relief sought in Plaintiff’s Petition.”20

The analysis of the legal issues surrounding dischargeability, which are

dependent in large part on the actual findings of the state court, is made more

difficult by the fact that in the Plaintiff’s statement of uncontroverted facts in her

summary judgment motion, two separate paragraphs supposedly reciting the state

court’s detailed, incorporated factual findings actually omitted key language from

the findings. For example, in Uncontroverted Fact 2(K), Plaintiff incompletely

summarized the state court’s key finding as follows:

[Defendants’] material representations and promises regarding ability

to pay, pending work, incoming receivables, intention to pay, and need

for the money were false when made and were made solely to induce

[Plaintiff] into the agreement to lend them money.21

Conspicuously absent from this “finding” set forth as an uncontroverted fact is the

portion of that paragraph where Plaintiff alleged that the representations were false

when made, “or made with reckless disregard for the truth.”22 That is the complete

allegation the state court incorporated as its finding.

A similar edit was made in Uncontroverted Fact 2(O): “Debtors made false

representations and promises to [Plaintiff] of material fact solely to induce

20 Doc. 23, Ex. A, p. 26, ¶ 4.

21 Doc. 23, p. 3.

22 Doc. 23, p. 17, Ex. A, ¶ 17.

[Plaintiff] to give them money.”23 The complete allegation that was adopted as a

finding in the state court’s Default Judgment from paragraph 25 of the petition

states: “Defendants made false representations and promises to Plaintiff of material

fact, or made them with reckless disregard for their truth, solely to induce [Plaintiff]

to give them money.”24

In 2015, as Plaintiff was pursuing collection efforts the Defendants came

before the state court on citations for contempt. During a recess at the contempt

hearing, the parties discussed a settlement agreement, the contents of which are in

dispute. It was agreed that the Plaintiff would draft and send a payment agreement

(the “Settlement”) to the Defendants to sign as agreed. Shortly after the contempt

hearing, Plaintiff sent Defendants the payment plan, but Defendants refused to

sign.25

Then, on September 16, 2015, the Plaintiff filed a motion to enforce the

parties’ purported Settlement, and the hearing was set for October 2, 2015.26 On the

day of the hearing, the Defendants did not appear, and the state court granted the

Plaintiff’s motion. The Order entered October 2, 2015, provides in part:

4. On July 24, 2015, the parties agreed to a payment plan . . .whereby

the Defendants agreed: (a) that the judgment debt was

nondischargeable; … (d) that Plaintiff’s counsel would memorialize the

reached agreement in writing and send it to Defendants to execute and

return and (e) that Plaintiff would suspend collection efforts once the

23 Doc. 23, p. 4.

24 Doc. 23, Ex. A, p. 17, ¶ 25 (emphasis added).

25 Doc 24, ¶ 25. The Plaintiff, in her reply brief, “denies” this fact; however, denials without

any support do not meet the standard of controverting a purported uncontroverted fact in a

summary judgment motion; thus, the facts that Plaintiff “denied” will be treated as

uncontroverted for purposes of summary judgment. Supra note 8-12.

26 Doc. 23, Ex. B, pp. 30-34.

payment plan was signed and as long as Defendants were in compliance

therewith. . . .27

11. 7 – [Defendants] understand, stipulate and agree that: (a) the

allegations, claims and debt set out in the underlying judgment of

Sedgwick County Case 2013 CV 2059 have been and herein are again

admitted and such may be used as admissions against [Defendants] in

any subsequent proceeding; (b) the findings of the state court case

regarding the admitted conduct of [Defendants] shall be barred from

collateral attack in any bankruptcy proceeding . . . (c) the debt owed to

[Plaintiff] . . . is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A)

and (a)(4) . . .28

After the entry of the Order, the Defendants made seventy-nine (79)

“voluntary and involuntary payments” on the debt29 and continued to do so until

they filed for bankruptcy on February 28, 2022. The Defendants did not reaffirm

their judgment debt in the bankruptcy. Plaintiff then filed this adversary

proceeding requesting the Court to determine that the state court Default

Judgment is nondischargeable under § 523 and grant her subsequently filed motion

for summary judgment.

III. ANALYSIS

A. Jurisdiction, Venue, and Burden of Proof

The Court has jurisdiction over this nondischargeability adversary

proceeding as a core proceeding arising under title 11,30 and venue is proper.31

27 Doc. 23, Ex. C, pp. 51-52, ¶ 4.

28 Doc. 23, Ex. C, pp. 53-54, ¶ 11.

29 Doc 23, p. 6, ¶ 9. Neither party stated the amounts of these payments, or whether they

did or did not comport with the changing payment amounts that would have been required

by the terms of the written settlement agreement letter presented to Defendants.

30 28 U.S.C. §§ 1334(b), 157(b)(1), (2)(I) (a determination “as to the dischargeability of

particular debts” is a core proceeding).

31 28 U.S.C. § 1409.

Exceptions to discharge are to be narrowly construed, with doubt being resolved in

the debtor's favor.32 The creditor seeking to except a debt from discharge bears the

burden of proving each element of its claim by a preponderance of the evidence.33

B. Nondischargeability in General

Plaintiff argues the state court findings in the Default Judgment and the

stipulations and admissions in the Settlement and Order meet the elements of

fraud and willful and malicious injury under § 523(a)(2)(A) and (a)(6), and under the

doctrines of estoppel, Defendants cannot contest those findings before this Court.34

The Court will first discuss the elements of these discharge exceptions, then discuss

the merits of the Plaintiff’s argument under the doctrines of estoppel.

1. The Fraud Discharge Exception: False Pretenses, False

Representation, or Actual Fraud under § 523(a)(2)(A)

Section 523(a)(2)(A) provides:

A discharge under section 727 ... of this title does not discharge an

individual debtor from any debt — ... (2) for money … to the extent

obtained by — (A) false pretenses, a false representation, or actual

fraud, other than a statement respecting the debtor’s . . . financial

condition; (emphasis added).

32 Bellco First Fed. Credit Union v. Kaspar (In re Kaspar), 125 F.3d 1358, 1361 (10th Cir.

1997). Bankruptcy’s central purpose is to provide the honest debtor with a fresh start.

Marrama v. Citizens Bank of Mass., 549 U.S. 365, 366 (2007) (quoting Grogan v. Garner,

498 U.S. 279, 287 (1991)). Because of this principle, the exceptions to discharge should be

narrowly construed. DSC Nat'l Props., LLC v. Johnson (In re Johnson), 477 B.R. 156, 168

(10th Cir. BAP 2012).

33 Grogan, 498 U.S. at 287-88.

34 Though Plaintiff asserted nondischargeability under § 523(a)(4) (fiduciary fraud) in the

adversary complaint and (a)(4) was also listed in the purported settlement agreement as a

basis of nondischargeability, the complaint was devoid of any allegation that defendants

committed fraud while acting in a requisite fiduciary capacity. See Hawks Holdings, LLC v.

Kalinowski (In re Kalinowski), 482 B.R. 334, 338 (10th Cir. BAP 2012) (qualifying fiduciary

relationship under § 523(a)(4) exists when debtor has been entrusted with money pursuant

to an express or technical trust). Plaintiff does not pursue an (a)(4) claim in this summary

judgment motion.

A plaintiff creditor can sustain a claim under this subsection by proving any one of

these three categories. While the specific requirements of each may differ, a shared

requirement of all three is the debtor's intent to defraud a creditor.35

Under subsection (a)(2)(A), false representations are commonly litigated

fraudulent acts. To sustain a claim for false representation, the claimant must

prove by a preponderance of the evidence:36 1) that the debtor made a false

representation; 2) with the intent to deceive the creditor; 3) the creditor relied on

the false representation; 4) the creditor's reliance was [justifiable]; and 5) the

creditor was damaged as a result.37

In contrast, false pretenses are implied misrepresentations intended to create

and foster a false impression, and this may include conduct and material omissions,

as opposed to express misrepresentations.38 Some courts have defined false

pretenses as “any series of events, when considered collectively, that create a

contrived and misleading understanding of a transaction, in which a creditor is

wrongfully induced to extend money or property to the debtor.”39

35 Houston v. Munoz (In re Munoz), 536 B.R. 879, 884 (Bankr. D. Colo. 2015); MidFirst Bank

v. Rodriguez (In re Rodriguez), Adv. No. 20-01047, 2021 WL 3083649, at *9 (Bankr. W.D.

Okla. July 21, 2021).

36 Grogan, 498 U.S. at 287-88.

37 Bank of Cordell v. Sturgeon (In re Sturgeon), 496 B.R. 215, 222–23 (10th Cir. BAP 2013)

(citing Fowler Bros v. Young (In re Young), 91 F.3d 1367, 1373 (10th Cir.1996); Field v.

Mans, 516 U.S. 59, 60 (1995) (changing the standard of reliance under 11 U.S.C. §

523(a)(2)(A) from “reasonable” to “justifiable.”); Johnson v. Riebesell (In re Riebesell), 586

F.3d 782, 791–92 (10th Cir. 2009) (same)).

38 Sturgeon, 496 B.R. at 223 (citing Young, 91 F.3d at 1374-75 (citations omitted)).

39 Id. (citing Stevens v. Antonious (In re Antonious), 358 B.R. 172, 182 (Bankr. E.D. Pa.

2006)).

The final category under subsection (a)(2)(A) is actual fraud.40 As the Tenth

Circuit BAP in Sturgeon recognized, actual fraud occurs “when a debtor

intentionally engages in a scheme to deprive or cheat another of property or a legal

right.”41 It is different from “implied” fraud, or fraud “in law,” which describe acts of

deception that “may exist without the imputation of bad faith or immorality.”

Anything that counts as “fraud” and is done with fraudulent intent is “actual

fraud.”42 It does not require a false representation.

2. Willful and Malicious Injury under § 523(a)(6)

Section 523(a)(6) excepts debts for “willful and malicious injury by the

debtor…” This type of injury is akin to intentional torts,43 and negligent or reckless

conduct is insufficient.44 Proof of both a willful act and a malicious injury are

required to establish the claim.45 “For an injury to be ‘willful,’ there must be a

deliberate or intentional injury, not merely ‘a deliberate or intentional act that

40 Husky Intern. Electronics, Inc. v. Ritz, 578 U.S. 355, 359 (2016) (finding that actual fraud

is a distinct category under § 523(a)(2)(A) and can be effected without a false

representation, such as a fraudulent conveyance).

41 Sturgeon, 496 B.R. at 223 (citing Diamond v. Vickery (In re Vickery), 488 B.R. 680, 691

(10th Cir. BAP 2013) (holding that actual fraud is an independent basis for

nondischargeability and is not limited to representations and misleading omissions)).

42 Husky Intern. Electronics, Inc., 578 U.S. at 360 (citations omitted); see also McClellan v.

Cantrell, 217 F.3d 890, 894 (7th Cir. 2000) (“The fraud exception to the dischargeability of

debts in bankruptcy does not reach constructive frauds, only actual ones. . . .”)

43 Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998) (“[T]he (a)(6) formulation triggers in the

lawyer’s mind the category ‘intentional torts,’ as distinguished from negligent or reckless

torts.”).

44 Id. at 64 (“Negligent or reckless acts, the Court held, do not suffice to establish that a

resulting injury is ‘willful and malicious.’”).

45 Panalis v. Moore (In re Moore), 357 F.3d 1125, 1129 (10th Cir. 2004) (“The district court

overlooked the criticality of the terms ‘willful’ act and ‘malicious injury’ in § 523(a)(6).

Without proof of both, an objection to discharge under that section must fail.”).

leads to injury.’”46 “For an injury to be ‘malicious,’ ‘evidence of the debtor’s motives,

including any claimed justification or excuse, must be examined to determine

whether the requisite ‘malice’ in addition to ‘willfulness’ is present.’”47 Malicious

behavior is both intentional and wrongful.48

C. Collateral Estoppel and § 523(a) Dischargeability of Default Judgment

1. Full Faith and Credit Considerations

Plaintiff argues that the doctrine of collateral estoppel, also known as issue

preclusion, should require this Court to rely on the Default Judgment conclusory

finding of “fraud” as a sufficient basis for excepting the debt from discharge under

§ 523(a). Collateral estoppel may be invoked in dischargeability proceedings in

bankruptcy to bar relitigation of factual issues previously decided in other courts.49

The purpose of the collateral estoppel doctrine is to protect the parties from

multiple lawsuits, prevent the possibility of inconsistent decisions, and conserve

judicial resources.50

46 First Am. Title Ins. Co. v. Smith (In re Smith), 618 B.R. 901, 912 (10th Cir. BAP 2020)

(quoting Kawaauhau, 523 U.S. at 61).

47 In re Smith, 618 B.R. at 919 (quoting Dorr, Bentley & Pecha v. Pasek (In re Pasek), 983

F.2d 1524, 1527 (10th Cir. 1993)).

48 Nelson v. Bolles (In re Bolles), 593 B.R. 832, 843 (Bankr. D.N.M. 2018) (“For a debtor’s

actions to be malicious, it must be intentional, wrongful, and done without justification or

excuse.”).

49 Grogan, 498 U.S. at 284 n.11; see also Sil–Flo, Inc. v. SFHC, Inc., 917 F.2d 1507, 1520

(10th Cir.1990) (“Under collateral estoppel, ‘once a court has decided an issue of fact or law

necessary to its judgment, that decision may preclude relitigation of the issue in a suit on a

different cause of action involving a party to the first case.’”) (quoting Allen v. McCurry, 449

U.S. 90, 94 (1980)).

50 Cobb v. Lewis (In re Lewis), 271 B.R. 877, 883 (10th Cir. BAP 2002) (citing Montana v.

United States, 440 U.S. 147, 153 (1979)).

Since the relevant judgment in this case was the Default Judgment from a

Kansas state court, the Full Faith and Credit statute requires this Court to apply

Kansas collateral estoppel law. The Full Faith and Credit Statute51 directs a federal

court to look to the preclusion law of the state in which the judgment was rendered,

unless an exception applies.52 The Tenth Circuit has not found any “countervailing

statutory policy which would prevent application of the doctrine.”53 Therefore, even

though this Court ultimately decides whether a debt is dischargeable under § 523,54

it must apply Kansas preclusion law to determine whether the findings in the

Default Judgment are entitled to preclusive effect.

2. Kansas Collateral Estoppel Law

Under Kansas law, collateral estoppel may be invoked to bar litigation when:

(1) the prior judgment was a 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 are the same or in privity; and (3) the

issue litigated was actually determined and was necessary to support the

judgment.55 Only the first and third elements are at issue in this case.

51 28 U.S.C. § 1738 provides in pertinent part: “records and judicial proceedings [of any

court of any such State] . . . shall have the same full faith and credit in every court within

the United States and its Territories and Possessions as they have by law or usage in the

courts of such State, Territory or Possession from which they are taken.”

52 Marrese v. Am. Academy of Orthopaedic Surgeons, 470 U.S. 373, 380 (1985).

53 Klemens v. Wallace (In re Wallace), 840 F.2d 762, 764-65 (10th Cir. 1988).

54 Id. at 764.

55 In re Application of Fleet for Relief from a Tax Grievance in Shawnee Cnty., 293 Kan. 768,

778, 272 P.3d 583 (2012); Phelps v. Hamilton, 122 F.3d 1309, 1318 (10th Cir. 1997) (citing

Jackson Trak Group, Inc. v. Mid States Port Auth., 242 Kan. 683, 690 (1988)); McCain

Foods USA v. Shore (In re Shore), 317 B.R. 536, 541 (10th Cir. BAP 2004).

Kansas law gives default judgments preclusive effect as a judgment on the

merits, satisfying the first prong in this analysis. The Kansas Supreme Court has

held that a default judgment is as conclusive against a defendant as if the

defendant had appeared and contested the claim.56 The Kansas Court of Appeals

reiterated this standard, finding that, “[o]ur Supreme Court has repeatedly held

that a party may not collaterally attack a default judgment.”57 For example, in City

of Eudora v. French, the court stated:

Where, as here, a court has jurisdiction of the parties to the action and

of the subject matter, and renders a judgment within its competency,

even if erroneous, that judgment is final and conclusive unless corrected

or modified on appeal or by such other method as may be prescribed by

statute and it may not be collaterally attacked otherwise.58

Therefore, the Default Judgment is considered a judgment on the merits, and the

fact it was a default will not bar the application of collateral estoppel.

Under the third element of Kansas collateral estoppel law, the judgment will

be given preclusive effect if the issues needed to establish the current claim were

actually determined by the state court in the previous case. “The Kansas Supreme

Court has held the doctrine of collateral estoppel may be invoked ‘only as to

56 Miller v. Miller, 107 Kan. 505, 192 Pac. 747 (1920) (“[A] judgment by default, where there

is actual notice to the defendant, is as conclusive against him upon every matter admitted

by the default as if he had personally appeared and contested the plaintiff's right to

recovery.”); see also State v. Showalter, 189 Kan. 562, 568-69, 370 P.2d 408 (1962);

McLaughlin v. McGrew, 118 Kan. 337, 337, 234 P. 1002 (1925).

57 Banister v. Carnes, 9 Kan. App. 2d 133, 138, 675 P.2d 906 (1983).

58 City of Eudora v. French, 204 Kan. 258, 265, 461 P.2d 762 (1969); see also Banister, 9

Kan. App. 2d at 138; see generally Harris v. Byard (In re Byard), 47 B.R. 700, 706 (Bankr.

M.D. Tenn. 1985) (applying Kansas law); In re Estate of Johnson, 180 Kan. 740, 746-47, 308

P.2d 100 (1957).

questions and issues shown to have been actually decided in the prior action.’”59

Stated differently, “where a second action between the same parties is upon a

different claim or demand, the judgment in the prior action operates as an estoppel

only as to those matters in issue upon the determination of which the finding was

made or the judgment rendered. . . .”60 Yet, a finding of common law fraud by the

state court is not always dispositive of the dischargeability question.61 Therefore,

the Court must compare the elements of fraud under Kansas law to the elements

under § 523(a)(2)(A) to determine if the “issue” of fraud as defined by federal

bankruptcy law was actually determined in the Default Judgment.

3. Kansas Fraud

In Kansas, the elements of common law fraud are commonly described to

include: (1) an untrue statement of fact; (2) known to be untrue by the party making

it; (3) made with the intent to deceive or with reckless disregard for the truth; (4)

upon which another party justifiably relies; and (5) acts to his or her detriment.62

59 Phelps, 122 F.3d at 1320 (emphasis in original) (quoting Frey v. Inter–State Sav. & Loan

Ass’n of Kansas City, 226 Kan. 419, 422, 601 P.2d 671 (1979)).

60 Stroup v. Pepper, 69 Kan. 241, 241, 76 P. 825 (1904).

61 In re Vickery, 488 B.R. at 691 (“[t]he term ‘fraud’ as used in § 523(a)(2)(A) means actual

or positive fraud rather than fraud implied by law”) (alteration in original) (quoting Watson

v. Parker (In re Parker), 264 B.R. 685, 699 (10th Cir. BAP 2001), aff’d, 313 F.3d 1267 (10th

Cir. 2002); see also KC Coring & Cutting Constr., Inc. v. McArthur (In re McArthur), 391

B.R. 453, 458 (Bankr. D. Kan. 2008) (holding that the creditor must prove actual fraud not

just fraud created by state statute).

62 Bomhoff v. Nelnet Loan Services, Inc., 279 Kan. 415, 422, 109 P.3d 1241 (2005) (quoting

Alires v. McGehee, 277 Kan. 398, Syl. ¶ 3, 85 P.3d 1191 (2004)); Kucharski-Berger v. Hill's

Pet Nutrition, Inc., 60 Kan. App. 2d 510, 523, 494 P.3d 283 (Kan. App. 2021); Spear v.

Mayes, No. 123,714, 2022 WL 4003790, at *10 (Kan. App. Sept. 2, 2022); Ballou v. United

Parcel Serv., Inc., No. 20-2640, 2023 WL 130542, at *6 (D. Kan. Jan. 9, 2023); Kelly v.

Vinzant, No. 94,648, 2007 WL 1239300, at *4 (Kan. App. Apr. 27, 2007) (stating the

elements as above. On appeal, the Kansas Supreme Court recited these elements slightly

Comparing the elements of Kansas common law fraud to the requirements of

§ 523(a)(2)(A), the Court finds that the third prong of collateral estoppel is not met

because an essential requirement of nondischargeability, intent, was not

determined in the state court proceedings. As previously discussed, the three types

of § 523(a)(2)(A) “fraud” include false representations, false pretenses, and actual

fraud,63 and all three require proof of an intent to deceive, or intent to defraud the

other party.64 However, Kansas fraud can be proven without such proof. Indeed,

nowhere in her state court petition did the Plaintiff allege that the Defendants knew

that their representations were false at the time they were made or that defendants

had an intent to deceive or defraud. Instead, the fraud allegations in paragraphs 17

and 25 provide for two alternatives:

[17] “Defendants [sic] material representations and promises … were

false when made, or made with reckless disregard for the truth, and

were made solely to induce Plaintiff into the agreement to lend them

money.”

[25] “Defendants made false representations and promises to Plaintiff

of material fact, or made them with reckless disregard for their

truth, solely to induce the Plaintiff to give them money.” 65

differently, but indicated the court of appeals had correctly enumerated the elements, and

also cited Bomhoff. See Kelly v. VinZant, 287 Kan. 509, 515, 197 P.3d 803 (2008)).

63 See supra, n.37-42.

64 Id., and n. 35.

65 Doc. 23, Exhibit A, p. 17 (emphasis added). The Court is troubled by the fact that the

phrase “reckless disregard for the truth” appears to have been purposefully omitted from

Plaintiff’s uncontroverted facts. See Doc. 23, ¶ 2(K), (O)7-8. These “uncontroverted” fact

findings were not the state court’s findings. Instead, the Default Judgment incorporated the

allegations of the state court petition, which, as quoted above, included allegations of

reckless disregard for the truth, as an alternative to a knowing and intentional deception.

The summary judgment record lacks any allegation or supporting admissible

evidentiary documentation that the state court held any type of hearing or made

any supplemental findings of fact to rule out the possibility that defendants’

representations were made with only reckless disregard, as opposed to being

knowingly false, with an intent to deceive or defraud. Since the state court’s Default

Judgment does not unequivocally find that Defendants intended to deceive or

defraud Plaintiff, an essential element of a § 523(a)(2)(A) claim is lacking, making it

deficient under the third prong of Kansas collateral estoppel law. Plaintiff’s claim

that the Default Judgment constitutes a finding that collaterally estops Defendants

from disputing § 523(a)(2)(A) dischargeability therefore fails.

Additionally, Plaintiff’s reliance on the substance of Defendants’ alleged false

representations to support a § 523(a)(2)(A) claim is misplaced for another reason.

Plaintiff alleged the Defendants falsely represented that they had the ability to pay

the loan and that they had pending work and incoming receivables from which to

repay the loan. Those representations are what Plaintiff alleged “induced” her to

loan the money to Defendants. However, such representations are statements

respecting Defendants’ financial condition and are expressly excluded under §

523(a)(2)(A).66 These representations are actionable only under § 523(a)(2)(B) and

66 The last phrase of § 523(a)(2)(A) states: “. . . other than a statement respecting the

debtor’s . . . financial condition,” making clear that such statements, whether oral or

written, are excluded from the reach of a general fraud-based claim under § 523(a)(2)(A).

See Lamar, Archer & Cofrin, LLP v. Appling, ___ U.S. ___, 138 S. Ct. 1752, 1761 (2018)

(materially false statements respecting debtor’s financial condition are governed exclusively

by § 523(a)(2)(B) which has heightened nondischargeability requirements; holding that a

statement about a single asset can be a statement respecting the debtor’s financial

must be in writing. No such writing is in the record or part of the Default Judgment

findings, and Plaintiff does not plead nor pursue a nondischargeability claim under

§ 523(a)(2)(B). Thus, those representations, deemed admitted by Defendants’

default, are legally insufficient to support a nondischargeability determination

under § 523(a)(2)(A), with or without collateral estoppel.

4. § 523(a)(6) Willful and Malicious Injury

Moving to Plaintiff’s willful and malicious claim, the Court also finds that the

third prong requirement of Kansas collateral estoppel law is not satisfied because

Plaintiff failed to allege necessary elements. Notably, neither the state court

petition, nor the Default Judgment contained allegations that would satisfy the

elements of both a willful act and a malicious injury.67 As with the § 523(a)(2)(A)

claim, the allegation and finding that Defendants may have been found liable only

for reckless disregard for the truth of their representations, not intentional harm, is

fatal to a claim of willful and malicious injury.68 For this reason, Plaintiff’s claim

that Defendants are collaterally estopped from disputing § 523(a)(6)

dischargeability also fails.

condition); Kansas Dept. of Labor v. Larson (In re Larson), Adv. No. 21-5014, 2022 WL

1073699, at *5-6 (Bankr. D. Kan. Apr. 8, 2022) (false representations regarding hours

worked and earnings were statements respecting debtor’s financial condition and were not

actionable under § 523(a)(2)(A)); Associated Mortgage Corp. v. Weaver (In re Weaver), 579

B.R. 865, 880 (Bankr. D. Colo. 2018) (a materially false statement in writing respect the

debtor’s financial condition is mutually exclusive of § 523(a)(2)(A)); Colorado v. Martinez (In

re Martinez), 609 B.R. 351, 369 (Bankr. D. Colo. 2019) (false statements respecting debtor’s

financial condition can be pursued only if in writing and brought under § 523(a)(2)(B)).

67 See supra, n.43-48 and associated discussion.

68 See e.g., Lavielle v. Acosta (In re Acosta), Adv. No. 22-5015, Doc. 47 Order Denying

Plaintiffs’ Motion for Judgment on the Pleadings (Bankr. D. Kan. Jan. 10, 2023).

5. Full and Fair Opportunity to Litigate

Even if there had been specific findings that mirrored the knowledge, intent,

and maliciousness requirements of § 523(a), the Court must also determine whether

the party against whom an earlier court decision is asserted had a full and fair

opportunity to litigate the claim or issue.69 To do so, a court must question “whether

there were significant procedural limitations in the prior proceeding, whether the

party had the incentive to litigate fully the issue, or whether effective litigation was

limited by the nature or relationship of the parties.”70 A court’s decision about

whether a party had a full and fair opportunity to litigate “will necessarily rest on

the trial court's sense of justice and equity.”71

In the underlying state lawsuit, Plaintiff alternatively pleaded fraud and

breach of contract. In the Plaintiff’s state court petition the damages requested were

the same for both fraud and breach of contract, with only one exception. The only

difference was that Plaintiff prayed for attorney fees of “not less than $1,000” under

the fraud claim.72 Setting aside the impropriety of attorney fees in a Kansas lawsuit

absent a contract or a statute that provides for attorney fees for a prevailing party,

it is worth noting that Kansas law does not allow their recovery based on fraud for

conduct that is identical to the grounds for a simple breach of contract; the basis

69 Phelps, 122 F.3d at 1322 (citing Allen v. McCurry, 449 U.S. 90, 101(1980)); In re Lewis,

271 B.R. at 884; In re Shore, 317 B.R. at 542-43.

70 In re Shore, 317 B.R. at 543 (quoting Sil–Flo, Inc., 917 F.2d at 1521); Stan Lee Media, Inc.

v. Walt Disney Co., 774 F.3d 1292, 1297 (10th Cir. 2014); In re Lewis, 271 B.R. at 884.

71 Sil–Flo, 917 F.2d at 1521 (quoting Blonder–Tongue Lab’ys, Inc. v. Univ. of Illinois Found.,

402 U.S. 313, 334 (1971)).

72 See Doc. 23, Ex. A, p. 17, ¶ 27.

must be different.73 Furthermore, the fraud must have resulted in damages greater

than those caused by the breach of contract alone.74 Other than Plaintiff’s claimed

attorney fees in the fraud count, the damages sought and awarded for fraud in the

Default Judgment were identical to the damages sought for breach of contract.

In this Court’s weighing of justice and equity, there has been no showing in

the summary judgment record that Defendants had the incentive to fully litigate

the fraud allegation, especially considering the conspicuously absent issue of their

intent to deceive or defraud Plaintiff. It is reasonable to infer from the record

presently before the Court that Defendants might well have concluded they had

few, if any, defenses to the breach of contract claim. Other than the claim for

attorney fees, the damages sought were identical under the fraud and contract

claims, and they may have reasonably believed they had no reason to defend the

state lawsuit.75 For this reason also, summary judgment for Plaintiff is not

appropriate on the § 523(a) claims.

73 Wade v. EMCASCO Ins. Co., 483 F.3d 657, 675 (10th Cir. 2007) (citing, inter alia, Brown

v. Chaffee, 612 F.2d 497, 503 (10th Cir.1979) (interpreting Kansas law and concluding

“Brown cannot turn an action for breach of contract into an action for fraud by merely

alleging reliance on representations that the contract would be performed and detriment

from its breach”). Cf. DeSpiegelaere v. Killion, 24 Kan. App. 2d 542, 947 P.2d 1039 (1997)

(where attorney fees are recoverable under Kansas Consumer Protection Act and the causes

of action are dependent on the same facts and intertwined to the point of being inseparable,

attorney fees may be recoverable and need not be segregated from the fraud and contract

theories); Schmidt v. Trademark, Inc., 60 Kan. App. 2d 206, 2019, 493 P.3d 958 (2021)

(Kansas follows the American Rule, prohibiting a court from awarding attorney fees to the

prevailing party absent statutory authorization or an agreement of the parties).

74 Wade at 675; see also Heller v. Martin, 14 Kan. App. 2d 48, 56, 782 P.2d 1241 (1989).

75 See Lewis, 271 B.R. at 884 (“Because the Debtor could have lost his license based on any

one of the complaints or on some combination thereof, he had no incentive to fully litigate

the issue of his intent with respect to representations made in only one of the eight

complaints.”)

D. Application of Collateral Estoppel to October 2, 2015, Order to Enforce

Settlement

In addition to the Default Judgment, Plaintiff also argues that the Order,

entered on October 2, 2015, is entitled to preclusive effect because Defendants, in

the underlying Settlement, stipulated to the findings of fact made by the state court

and agreed that the finding of fraud would be nondischargeable. Defendants

disagree, stating that they cannot be bound by the terms of the Settlement or the

subsequent Order enforcing it, because they did not sign it. So, like the Default

Judgment analysis, the Court must look to Kansas law to determine whether the

Settlement and Order should be given preclusive effect.76

1. Judgment on the Merits

Under the first element of collateral estoppel there must be a prior judgment

on the merits which determined the rights and liabilities of the parties on the issue

upon ultimate facts as disclosed by the pleadings and the judgment. A judgment

based on a settlement agreement adjudicated by a state court may qualify.77

However, there must be a showing that the decision of the court that adopted a

settlement agreement as the basis of its decision was a final judgment, as opposed

to simply an interim order in a matter that has not terminated.78 The information

76 Balmer Fund, Inc. v. City of Harper, 294 F. Supp. 3d 1136, 1144-45 (D. Kan. 2018).

77 Honeycutt v. Wichita, 251 Kan. 451, 458, 836 P.2d 1128 (1992) (“[a] voluntary dismissal of

a case with prejudice, based on a settlement agreement that is approved by the court and

journalized, is a final judgment on the merits.”); see also Thompson-Hayward Chem. Co. v.

Cyprus Mines Corp., 8 Kan. App. 2d 487, 489, 660 P.2d 973 (1983); Eberhardt v. Watchous,

No. 65,020, 1991 WL 12018784, at *2 (Kan. Ct. App. Mar. 1, 1991) (citing Neville v.

Hennigh, 214 Kan. 681, 687-88, 522 P.2d 443 (1974)).

78 See Balmer Fund, Inc., 294 F. Supp. 3d at 1145.

provided by the parties on this question is limited. Plaintiff provided no evidence

that the state court case had terminated before the filing of Defendants’

bankruptcy. On its face, it is self-described as “Order Granting Plaintiff’s Motion to

Enforce Settlement” and states in its final paragraph that “Plaintiff’s motion is

granted.” It does not claim to be a final judgment. The evidence on this point is

insufficient to support judgment as a matter of law that the first prong of Kansas

collateral estoppel law elements was met.

2. The Issue Litigated

As discussed above, the third prong of Kansas collateral estoppel law is that

the issue litigated must have been determined and necessary to the judgment. Even

if the Order was a final judgment, it did not make or reflect any findings that the

knowledge, intent, willfulness, and malice elements of §523(a)(2)(A) and (a)(6) were

considered and adjudicated. The motion granted was simply that there was an

enforceable settlement agreement, and its terms. For this reason, the evidence on

this point of Kansas collateral estoppel law is insufficient to support summary

judgment.

E. Judicial and Quasi Estoppel

In addition to collateral estoppel, the Plaintiff claims that the Defendants are

judicially and quasi estopped from now arguing that the Default Judgment is

dischargeable because they assumed a contrary position in the state court

proceedings.

1. Judicial Estoppel

The doctrine of judicial estoppel precludes a party who assumes a certain

position in a proceeding, and then succeeds relying on that position, from assuming

a contrary position because their interests have since changed, especially if this

change would prejudice the party who has relied on the earlier position.79 There are

three non-exclusive factors that may inform a court’s decision whether to apply the

doctrine: (1) a party’s subsequent position must be clearly inconsistent with its

former position; (2) the party succeeded in persuading a court to accept the former

position, so that judicial acceptance of an inconsistent position would create a

perception that either the first or second court was misled; and (3) the party seeking

to assert a contrary position would gain an unfair advantage in the current

litigation if not estopped.80 The Tenth Circuit only applies the doctrine when other

techniques to prevent inconsistent positions are “inadequate to protect the integrity

of the judicial system.”81 It is a harsh remedy, and is to be applied narrowly and

cautiously. The strict burden of proof to show inconsistency is on the party seeking

to invoke judicial estoppel.82

The first analysis is whether Defendants’ subsequent position that they did

not agree to settle under the terms included in the Order is inconsistent with their

prior position. At its core, a settlement agreement is a contract, and issues involving

79 New Hampshire v. Maine, 532 US 742, 749 (2001); see also Queen v. TA Operating, LLC,

734 F.3d 1081, 1087 (10th Cir. 2013).

80 Queen, 734 F.3d at 1087 (citing Eastman v. Union Pac. R.R., 493 F.3d 1151, 1156 (10th

Cir. 2007)).

81 Vehicle Mkt. Rsch., Inc. v. Mitchell Int’l, Inc., 767 F.3d 987, 993 (10th Cir. 2014).

82 Id. at 988, 993.

formation and construction must be resolved using contract law.83 Creating a

contract requires offer, acceptance, and consideration;84 and Plaintiff bears the

burden of proving that all three are present.85.

The primary question is whether Defendants, explicitly or implicitly,

accepted the material terms of the underlying Settlement that they now seek to

avoid. Valid acceptance requires the parties to agree to the essential and material

terms and outwardly communicate that acceptance in a way that is reasonably

understood to mean as such, commonly referred to as a “meeting of the minds.”86

According to Plaintiff, Defendants explicitly accepted the terms of the Settlement

during the contempt hearing and in an email conversation between the parties after

the hearing, and implicitly agreed by performing under the Settlement after the

Order was entered.

Chronologically, the first instance where the parties may have created a

binding contract was the contempt hearing; however, Plaintiff did not provide any

admissible evidence that would support this allegation. The unsworn statements

and arguments of counsel in the brief are not evidence. Moreover, even if an

agreement was reached, there is no evidence before this court about its specific

terms. Was it an agreement in principle to agree? Was it agreement to some or all of

the very lengthy and specific terms outlined in the July 24, 2015, settlement draft

83 Walters v. Wal-Mart Stores, 703 F.3d 1167, 1172 (10th Cir. 2013).

84 Duling v. Mid Am. Credit Union, 63 Kan. App. 2d 428, 436, 530 P.3d 737 (2022).

85 Unified Sch. Dist. No. 446 v. Sandoval, 295 Kan. 278, 282, 286 P.3d 542 (2012).

86 Duling, 63 Kan. App. 2d at 436; see also O'Neill v. Herrington, 49 Kan. App. 2d 896, 903,

317 P.3d 139 (2014).

sent by Plaintiff’s counsel to Defendants? One of those terms included that,

“[Defendants] have had the opportunity to discuss this matter and the effects of not

discharging this debt with legal counsel familiar with bankruptcy law” and

“[Defendants] had the opportunity to seek outside counsel before entering into this

agreement and has discussed this agreement with counsel.”87 Since the Defendants

were without counsel at the hearing, it seems unlikely they discussed the terms at

that time with counsel.

The next situation in which the Defendants may have accepted the

Settlement was in a July 31, 2015, email between Defendant and Plaintiff’s counsel

after the contempt hearing. Plaintiff points out that Defendants, after receiving the

proposed Settlement, stated they “don’t have a problem with anything in the

agreement,” and argues this constitutes acceptance.88 However, that same July 31

email also included a counteroffer from Defendant about changing the payment

starting date from August 1 to August 15. Then, on August 25, Plaintiff’s counsel

sent an email to Defendant saying that “per our agreement today” he had revised

the written agreement to make the first payment due on September 15, and also

provided “that the parties stipulate to the debt being nondischargeable – meaning

that the debt will remain collectable even if a chapter 7 bankruptcy is filed to clean

away all other creditors.”89

87 Doc. 23, Ex. C, ¶ 11-7 and 11-9.

88 Doc. 23, Ex. B-2, p. 39.

89 Doc. 23, Ex. B-4, p. 49. This seems to indicate that the settlement terms letter sent from

Plaintiff’s counsel to Defendants on July 24, 2015 (the afternoon of the hearing in state

Even if the written agreement’s terms had not been changed during

negotiations after the hearing, when a signature is a “condition precedent to

contract formation,” there is no binding contract until the agreement is executed,

even if the terms have been agreed upon.90 These conditions are evidence of the

parties’ intent.91

Based on the Settlement’s language and the parties’ conduct, the Court could

reasonably infer that the parties only intended to be bound if Defendants made the

first payment and signed the Settlement. The relevant language in the Settlement

letter stated that: “Ms. Johnson will agree to suspend collection efforts against

Creason provided Creason does timely and completely pay per this agreement and

complete and return this agreement.”92 This condition describes the exact way to

accept the Settlement: make the first payment and sign the agreement. Because

court where the settlement terms were allegedly agreed – see, Doc. 23, Ex. B-1, B-2) was

different in some respects from the copy attached as Exhibit 1 to Plaintiff’s Motion to

Enforce Settlement. The copy provided to the state court (see Doc. 23, Ex. B-1) has the new,

September 15 due date for the first payment and language about the debt being

nondischargeable that was supposedly agreed upon on August 25, but the letter keeps the

same July 24 date.

90 17A AM. JUR. 2d Contracts § 172; see generally Lindsey Masonry Co. v. Murray & Sons

Constr. Co., 53 Kan. App. 2d 505, 511, 390 P.3d 56 (2017); O'Neill, 49 Kan. App. 2d at 906.

91Short v. Sunflower Plastic Pipe, Inc., 210 Kan. 68, 75, 500 P.2d 39 (1972). In Short v.

Sunflower Plastic, the Kansas Supreme Court held that the parties did not intend to be

bound absent a written contract that was executed by the parties. Id. An employee and an

employer had an oral employment agreement where the employee orally agreed to the

terms of the agreement, which included two relevant conditions: the agreement would be

reduced to writing, and “[t]he terms of this agreement shall commence on the date this

instrument is signed . . .” Id. The court upheld the trial court’s finding that, absent a

written and executed agreement, a binding contract did not exist because the conditions

established “an intent that no enforceable contract would exist until a written, formal

instrument was drawn and executed by the parties.” Id.

92 Doc. 23, Ex. B, p. 36 ¶ 3. This condition is also stated in the introductory paragraph of

Plaintiff counsel’s email: “[p]rovided the agreement and timely payments are received, I

will suspend collection efforts and legal action against you.” Id. at 35.

Defendants did not complete either requirement, they did not accept the Settlement

in this manner, at least not based on the record currently before the Court. A full

showing of evidence might prove differently.

A third potential instance for a meeting of the minds could have been after

the Order, but Plaintiff does not provide any evidence that the after the order was

issued the Defendants complied with the payment terms of the Settlement.

Although Defendants made voluntary and “involuntary payments” on the judgment,

the Court was not provided with any information that shows they complied with

any aspect of the detailed agreement in terms of payment amounts, payment

increases, or remitting their tax refunds.93

For these reasons, the Court finds that a factual dispute remains about the

nature and extent of Defendants’ alleged inconsistent positions regarding

settlement. It cannot be said that Defendants took an inconsistent position in the

state court action when the record lacks evidence of any specific argument they

made in the state court. They failed to appear for the Default Judgment, and the

evidence before this court (as opposed to arguments of counsel) fails to establish

exactly what Defendants did or did not say to the state court in connection with the

settlement Order.

In addition, the second factor of judicial estoppel, whether the Defendants

convinced a prior court to accept their position and now seek to persuade a different

court of a different position, is not satisfied for the same reasons. Likewise, the

93 Doc. 23, p. 36, ¶ 4(A)-(D).

third factor – that Defendants would be given an unfair advantage, is lacking. A

denial of summary judgment based on judicial estoppel still provides a plaintiff in

an adversary proceeding the full opportunity to prove, with admissible evidence, the

merits of its claim. Therefore, the “harsh remedy” of judicial estoppel would be

inappropriate here.

2. Quasi Estoppel

Under Kansas law, quasi estoppel applies where a party has previously taken

a position which is so inconsistent with its current one that it would be

unconscionable to allow it.94 This doctrine may apply when a party has full

knowledge or sufficient notice or means of knowledge of their rights and material

facts but remains inactive or silent in a manner that amounts to acquiescence that

interferes with another party’s situation.95 Unlike judicial estoppel, quasi estoppel

does not require a court to detrimentally rely on a party’s past inconsistent

position.96

Plaintiff has not provided evidence that would support the conclusion that

the Defendants’ past position is unconscionable. Absent the arguments and non-

evidentiary statements of counsel, the evidence currently shows a factual dispute

94 See In re Gateway Ethanol, L.L.C., 415 B.R. 486, 496-97 (Bankr. D. Kan. 2009); State v.

Waterman, No. 119,425, 2019 WL 3850631, at *5 (Kan. Ct. App. Aug. 16, 2019) (citing

Harrin v. Brown Realty Co., 226 Kan. 453, 458-59, 602 P.2d 79 (1979)). Like collateral

estoppel, federal courts apply state law when determining whether quasi estoppel

principles apply. See generally In re Gateway Ethanol, L.L.C., 415 B.R. at 496-97 (applying

Kansas law); Team Indus. Servs., Inc. v. Zurich Am. Ins. Co., No. 19-2710, 2021 WL 492882,

at *11-12 (D. Kan. Feb. 10, 2021) (applying Kansas law).

95 Schiffelbein v. Sisters of Charity, 190 Kan. 278, 282, 374 P.2d 42 (1962) (internal citations

omitted).

96 In re Gateway Ethanol, L.L.C., 415 B.R. at 496-97.

about what position Defendants previously took regarding the terms of any

settlement, especially as those alleged settlement terms related to issues of intent

and malice necessary for a §532(a) finding. For the same reasons as discussed

above, the record before this Court does not establish that Defendants’ current

position is inconsistent with their previous one, so quasi estoppel is not an

appropriate basis for summary judgment.

IV. CONCLUSION

The summary judgment record currently before this Court lacks evidence

sufficient to prove, as a matter of law, that collateral estoppel, judicial estoppel, and

quasi estoppel operate to bar Defendants from presenting potential defenses in this

nondischargeability action. Plaintiff’s Motion for Summary Judgment is DENIED.

IT IS SO ORDERED.

# # #