In re Queen

          Submitted: June 18, 2019

          Appeal from United States Bankruptcy Court for the Eastern District of Missouri - St. Louis

          Before SALADINO, Chief Judge, NAIL and SANBERG, Bankruptcy Judges.

          NAIL, BANKRUPTCY JUDGE.

         Gary Francis Abel and Metro Acoustics, LLC appeal the August 22, 2018 order of the bankruptcy court^[1] directing the entry of summary judgment in favor of Michael G. Queen and Denise D. Queen on Abel and Metro's complaint to determine the dischargeability of their claims against the Queens. We have jurisdiction over this appeal pursuant to 28 U.S.C. § 158(b). We affirm.

         BACKGROUND

         Abel and Denise Queen formed Metro, which installed and replaced acoustic ceiling tiles and wall panels. Michael Queen was an employee of the company.

         The business ultimately failed, and Abel and Metro filed suit against the Queens in Missouri state court, alleging fraudulent misrepresentation, breach of contract, breach of fiduciary duty, and conversion. The Queens answered, and the case bumped along for several years.

         When the Queens failed to comply with their discovery requests, Abel and Metro filed several motions for sanctions. The third such motion led to the entry of a self-described judgment in which the state court granted Abel and Metro's motion, struck the Queens' pleadings, entered a default judgment for Abel and Metro on all counts of their complaint, and scheduled a hearing to determine damages.

         Before that hearing could be held, however, the Queens filed a petition for relief under chapter 7 of the bankruptcy code, staying further proceedings in state court. Abel and Metro timely filed an adversary complaint to determine the dischargeability of their claims against the Queens under 11 U.S.C. § 523(a)(2), (4), and (6).

         In the course of the adversary proceeding, Abel and Metro filed a motion for partial summary judgment on the issue of liability, arguing the state court default judgment precluded the Queens from re-litigating the issue of liability or the issue of the dischargeability of Abel and Metro's claims against them. The Queens objected. Following a hearing, ^[2] the bankruptcy court stamped a copy of Abel and Metro's motion "DENIED" and "WITHDRAWN" and entered it as an order.

         A trial was scheduled, but shortly before the appointed date, the parties communicated to the bankruptcy court their belief that the dischargeability of Abel and Metro's claims against the Queens could be determined by summary judgment, with the issue of damages reserved for later determination, if necessary. The bankruptcy court concurred and entered an order to that effect.

         The parties agreed the lone issue to be decided by the bankruptcy court was whether Abel and Metro's claims against the Queens were dischargeable under § 523(a)(4).^[3] The matter was submitted on stipulated exhibits, stipulated facts, and the parties' respective briefs, and the bankruptcy court entered an order for summary judgment in favor of the Queens. In a section headed "PRELIMINARY MATTERS," the bankruptcy court stated:

The state court entered a prepetition default judgment against Defendants on claims based on facts similar to those asserted here. However, that judgment was only a default judgment and, to any degree, did not become final. The state court default judgment does not establish any fact for purposes of determining whether ...