Appeal from the United States Bankruptcy Court for the District of Arizona Honorable Sarah Sharer Curley, Bankruptcy Judge, Presiding Bk. No. 08-03098 Adv. No. 08-00678
U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
Argued and Submitted on January 19, 2012
Before: JURY, KIRSCHER, and WILLIAMS,*fn2 Bankruptcy Judges.
Chapter 11*fn3 debtors, Mark and Lisa Ann Bosworth (collectively, the "Bosworths" or "Debtors"), appeal the bankruptcy court's decision granting summary judgment in favor of appellee, TEM Holdings, Inc. ("TEM"). Applying the issue preclusion doctrine, the bankruptcy court found that TEM's state court judgment debt against Debtors for their violation of Ariz. Rev. Stat. ("ARS") §33-420 was non-dischargeable under § 523(a)(6). TEM has not participated in this appeal. Having conducted an independent de novo review of the record, we AFFIRM.
In 1997, Debtors purchased a small residential property management firm in Phoenix, Arizona. Eventually, their firm began selling government foreclosure properties and managed those properties for investors. As their business grew, they formed, or obtained an interest in, numerous entities, including Property Masters of America, Property Masters Maintenance, and Property Masters Real Estate Trust, LLC (collectively, "Property Masters").
In 2001, Mark Bosworth ("Mark") solicited TEM to engage his services and those of Property Masters in purchasing and managing residential properties in Maricopa County, Arizona. Those services consisted of identifying residential properties available from the Veterans Administration ("VA") and submitting bids on behalf of TEM. In turn, TEM could expect to receive a fifteen percent annual return on its cash investment in the properties, as well as an annual average appreciation in the value of the properties of five percent. TEM agreed to utilize the services of Mark and Property Masters, eventually purchasing numerous properties.
In addition, TEM and Property Masters entered into a contract for Property Masters to act as TEM's agent in managing the properties by (1) soliciting renters; (2) managing, maintaining and repairing the residences; (3) collecting rents; and (4) making all necessary mortgage, tax and insurance payments. To allow Property Masters to perform its duties under the property management agreement, TEM executed a limited power of attorney, granting Property Masters the authority to obtain mortgage balances and make mortgage payments on the residences.
At some point, a dispute arose between the principals of TEM and Debtors regarding the various investment properties. In 2004, Debtors filed a complaint against TEM, its principals and others in the Superior Court of Arizona, Maricopa County, captioned Bosworth v. Magelson, Case No. CV2004-023197. This complaint is not part of the record on appeal.*fn4
On September 7, 2006, TEM filed a first amended counterclaim against Debtors and a third-party complaint against 1 Property Masters, Debtors, and others,*fn5 alleging eighteen claims 2 for relief.*fn6 In the sixteenth claim for relief, TEM alleged 3 that Property Masters and Debtors converted its property through 4 the wrongful collection of sales tax, incurred fraudulent 5 charges for services, and converted renter deposits and 6 prospective purchasers' down payments. In the eighteenth claim 7 for relief, TEM alleged that Property Masters and Debtors had 8 fraudulently altered the power of attorney from TEM by 9 purporting to grant Property Masters unlimited powers in the use 10 of various properties and then recorded the document ...