MEMORANDUM OF DECISION REGARDING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT1

BILL PARKER, Bankruptcy Judge.

ON THIS DATE the Court considered the Motion for Summary Judgment (the "Motion") filed by the Plaintiff, MoneyGram Payment Systems, Inc. ("MoneyGram"), and the response filed thereto by the Defendant, Khairun J. Bhai ("Bhai" or the "Defendant"). The original complaint filed in this adversary proceeding claims that the debt allegedly owed to the Plaintiff by the Debtor-Defendant should be declared nondischargeable either pursuant to 11 U.S.C. § 523(a)(4) as a debt arising from a defalcation while serving in a fiduciary capacity or from embezzlement, or pursuant to § 523(a)(6), which excepts from discharge a debt "for willful and malicious injury by the debtor to another entity or to the property of another entity." Upon due consideration of the pleadings, the proper summary judgment evidence submitted by the parties, and the relevant legal authorities, the Court concludes that the Plaintiff's Motion for Summary Judgment should be granted in part and denied in part. This memorandum of decision disposes of all issues before the Court.2

Factual and Procedural Background3

MoneyGram contracts with persons and entities to sell money transfer services and money orders to the general public. Funds collected from the sale of MoneyGram's services are held in trust by the contracted persons or entities for the benefit of MoneyGram. The Defendant, Bhai, has been the sole director, officer and shareholder of a closely-held corporation known as 786 KNJ 2009, Inc. ("KNJ, Inc."), which operated a beverage store known as KNJ Beverage ("Beverage") in Lewisville.4

On August 19, 2010, MoneyGram and KNJ, Inc. entered into a Master Trust Agreement involving money transfer services and sales of money orders to the general public that would be rendered by KNJ, Inc. d/b/a Beverage on MoneyGram's behalf.5 Bhai executed that trust agreement in a representative capacity on behalf of KNJ, Inc.6 Under the agreement, MoneyGram authorized the sale of its services by KNJ, Inc. KNJ, Inc. would hold the funds collected from the customer in trust for MoneyGram and earn a set fee or percentage fee of the monetary value of the services.7 Bhai additionally, in an individual capacity, executed and delivered a Personal Indemnity and Guaranty to MoneyGram.8 According to the Personal Indemnity and Guaranty, Bhai "absolutely, unconditionally and irrevocably guarantees the punctual performance of all objections of every kind, nature or description of Trustee, whether now existing or hereafter arising, under the Agreement" in order "[t]o induce Company [MoneyGram] to enter into or continue the Master Trust Agreement."9

On September 1, 2010, a few days after the Trust Agreement was signed, Bhai executed the Acknowledgment of Receipt of Stipulated Order, Acknowledgment of Receipt of Fraud Compliance Training, and Anti-Money Laundering Overview Adoption of Anti-Money Laundering Compliance Program (the "Fraud Compliance Agreement") as owner and director of KNJ, Inc. d/b/a Beverage.10 The Fraud Compliance Agreement instructed KNJ, Inc. as MoneyGram's agent to "NEVER send a `test' or `training' transaction" as "MoneyGram will never ask you to send a test transaction."11 Additionally, the Fraud Compliance Agreement specifically provided KNJ, Inc. with the following example of agent fraud: "A suspect calls your store representing himself as a MoneyGram employee and asks your employee to process a test transaction."12

Notwithstanding that specific directive, there was a failure of compliance with the Fraud Compliance Agreement. On several occasions in 2014, it is uncontroverted that KNJ, Inc. complied with the telephonic directives of a caller, who represented himself to be a MoneyGram employee, and requested the completion of certain test transfers. These transfers collectively resulted in unauthorized aggregate transfers of $20,078.84 by KNJ, Inc. to the unknown caller.13

MoneyGram subsequently issued a demand to KNJ, Inc. for restitution of the transferred funds and upon Bhai in the capacity as Guarantor.14 When the demand remained unsatisfied, MoneyGram filed suit against KNJ, Inc. and Bhai in the 211th Judicial District Court of Denton County, Texas on February 13, 2015 (the "State Court Litigation").15 Six months later, at 1:24 p.m. on August 28, 2015, the state court entered summary judgment in favor of MoneyGram and against KNJ, Inc. d/b/a Beverage and against Bhai in the amount of $20,078.84, plus pre-judgment and post-judgment interest, costs of court, and attorneys' fees.16 At 1:26 p.m., two minutes after the summary judgment was entered in Denton, Bhai filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code in Plano.17

On December 3, 2015, MoneyGram filed its original Complaint in this adversary proceeding18 During the scheduled discovery period,19 Bhai was served with MoneyGram's Request for Admissions.20 Bhai did not respond or object to the various requests.21 In fact, Bhai failed to respond to any of MoneyGram's discovery requests.

On September 2, 2016, MoneyGram filed the present motion for summary judgment, arguing that under the principles of collateral estoppel, all of the facts necessary to render Bhai's debt nondischargeable under 11 U.S.C. § 523(a)(4) and (a)(6) had been established either in the State Court Litigation or by Bhai's deemed admissions.22 Bhai filed a response to the summary judgment motion on October 1, 2016, contending that collateral estoppel cannot be properly applied since the bankruptcy filing occurred virtually simultaneously with the entry of the State Court Judgment.23

As a prelude to the opposition to the summary judgment, Bhai filed a motion to withdraw the deemed admissions on September 21, 201624 which was subsequently opposed by MoneyGram. A hearing on the motion to withdraw the deemed admissions was conducted on December 15, 2016 at which time the Court took that particular matter under advisement. On this date, the Court has entered an order wherein Bhai's motion to withdraw and set aside the deemed admissions has been granted in part and denied in part, allowing only six of the 21 admissions to be withdrawn due solely to the impropriety of the underlying requests and not upon any entitlement to relief based upon the Defendant's conduct.

Discussion

Summary Judgment Standards and Process

The Plaintiff brings its Motion for Summary Judgment in this adversary proceeding pursuant to Federal Rule of Bankruptcy Procedure 7056. That rule incorporates Federal Rule of Civil Procedure 56 which provides that summary judgment shall be rendered "if the movant shows that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law."25

The party seeking summary judgment always bears the initial responsibility of informing the court of the basis for its motion.26 As a movant, a party asserting that a fact cannot be genuinely disputed must support that assertion by:

The operation of the summary judgment standard depends upon which party will bear the burden of persuasion at trial. If, as in this case, the burden of persuasion at trial is on the moving party, "that party must support its motion with credible evidence-using any of the materials specified in Rule 56(c)-that would entitle it to a directed verdict if not controverted at trial."28

If a summary judgment motion is properly supported, a party opposing the motion may not merely rest upon the mere allegations or denials in its pleadings, but rather must demonstrate in specific responsive pleadings the existence of specific facts constituting a genuine issue of material fact for which a trial is necessary.29 The substantive law will identify which facts are material.30 In so demonstrating, the non-movant must show more than a "mere disagreement" between the parties,31 or that there is merely "some metaphysical doubt as to the material facts."32 Neither are unsubstantiated, conclusory assertions in the response sufficient to raise a genuine issue of material fact.33 However, "[t]he issue of material fact which must be present in order to entitle a party to proceed to trial is not required to be resolved conclusively in favor of the party asserting its existence; rather, all that is required is that sufficient evidence supporting the claimed factual dispute be shown to require a jury or judge to resolve the parties' differing versions of the truth at trial."34

The record presented is reviewed in the light most favorable to the non-moving party.35 "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no `genuine issue for trial.'"36 Further, "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment."37 Essentially, if a non-movant fails to set forth specific facts that present a triable issue on any relevant issues, his claims should not survive summary judgment.38

In this case, the Plaintiff bears the ultimate burden as to the nondischargeability of the debt. Thus, the Plaintiff is entitled to a summary judgment only if there exists no genuine issue of material fact as to each essential element under §§ 523(a)(4) and 523(a)(6). The motion for summary judgment under consideration herein seeks judgment as a matter of law through the application of the principles of collateral estoppel and the deemed admissions arising in this litigation. MoneyGram claims that such facts as established form the basis for a determination that the underlying judgment debt is nondischargeable in Bhai's Chapter 7 bankruptcy case. Resolving this question requires that the Court first determine the applicability of the doctrine itself. If collateral estoppel applies, any relevant factual findings (i.e., related to the required elements for nondischargeability) regarding the actions of the Defendant in this common set of operative facts upon which the state court judgment is based should not be disturbed here. The Court applies those findings to the required elements for nondischargeability to ascertain what factual issues, if any, remain. If collateral estoppel does not apply, and if the deemed admissions are insufficient to supply any missing facts, the Plaintiff's motion must be wholly denied.

Standards for Issue Preclusion (Collateral Estoppel)

"Collateral Estoppel or, in modern usage, issue preclusion, `means simply that when an issue of ultimate fact has once been determined by a valid and final judgment, that issue cannot again be litigated between the same parties in any future lawsuit.'"39 In other words, "once an issue is actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive in subsequent suits based on a different cause of action involving a party to the prior litigation."40 "To preclude parties from contesting matters that they have had a full and fair opportunity to litigate protects their adversaries from the expense and vexation attending multiple lawsuits, conserves judicial resources, and fosters reliance on judicial action by minimizing the possibility of inconsistent decisions."41

In the bankruptcy dischargeability context, "parties may invoke collateral estoppel in certain circumstances to bar relitigation of issues relevant to dischargeability" and satisfy the elements thereof.42 In other words, when an issue that forms the basis for the creditor's theory of nondischargeability has been actually litigated in a prior proceeding, neither the creditor nor the debtor may relitigate those grounds.43 While the doctrine of issue preclusion applies in bankruptcy dischargeability litigation, a bankruptcy court retains exclusive jurisdiction to determine whether a debt is dischargeable.44

The inquiry into the preclusive effect of a state court judgment is guided by the full faith and credit statute, which states that "judicial proceedings . . . shall have the same full faith and credit in every court within the United States . . . as they have by law or usage in the courts of such State . . . from which they are taken."45 Thus, federal courts look to the principles of issue preclusion utilized by the forum state in which the prior judgment was entered.46 Because the judgment against the Defendant was entered in a Texas state court, this Court applies the Texas law of issue preclusion.47

Collateral estoppel under Texas law prevents the relitigation of identical issues of law or fact that were actually litigated and were essential to the final judgment in a prior suit.48 "The doctrine applies when the party against whom collateral estoppel is asserted had a full and fair opportunity to litigate the issue in the prior suit."49 Specifically, a party is collaterally estopped from raising an issue under Texas law when: (1) the facts sought to be litigated in the second case were fully and fairly litigated in the first; (2) those facts were essential to the prior judgment; and (3) the parties were cast as adversaries in the first case.50 "Once an actually litigated and essential issue is determined, that issue is conclusive in a subsequent action between the same parties."51

In the context of issue preclusion, the terms "issue" and "fact" are interchangeable. The purpose of the reviewing court is to determine the specific facts brought that were already established through full and fair litigation. As stated in Fielder v. King (Matter of King), 103 F.3d 17 (5th Cir. 1997):

As the party asserting the preclusive effect of the findings arising from the State Court Litigation against Bhai, MoneyGram has the burden of proof on all elements of collateral estoppel. However, such a prospect becomes rather problematic when the underlying facts arise from a summary judgment context. While the summary judgment evidence presented by MoneyGram clearly establishes that the parties to the current dispute were also adversaries in the State Court Litigation and that a judgment in a specific amount was entered against Bhai, that evidence fails to identify the precise facts arising from the summary judgment process regarding Bhai's individual liability that would be subject to preclusion principles. It fails to reveal how MoneyGram established its causes of action or its entitlement to judgment against Bhai as a matter of law. There is no listing of established facts. There is no presentation of the state court pleadings or the summary judgment evidence tendered to the state court that identifies even an assertion as to what material facts were deemed to exist without dispute. All that has been presented is the Final Summary Judgment itself which contains only the most generic of descriptions regarding the state court's process which resulted in the entry of the summary judgment. It is incumbent upon MoneyGram to identify those undisputed material facts upon which the summary judgment was based. Without them, the only significant issue regarding Bhai's liability in an individual capacity which is precluded from relitigation under the principles of collateral estoppel is the existence of the debt owing by Bhai in an individual capacity to MoneyGram. That singular fact is insufficient to warrant the granting of summary judgment to MoneyGram under any of the § 523(a) exceptions to discharge which it has alleged: under 11 U.S.C. § 523(a)(4) as a debt arising from fraud or defalcation while acting in a fiduciary capacity,53 or arising from embezzlement,54 or pursuant to § 523(a)(6) as a debt "for willful and malicious injury."55 Similarly, those particular deemed admissions which have been allowed to stand against Bhai under Rule 36(b)56 are insufficient to establish any of the elements of the § 523(a) subsections pled by MoneyGram.

Issues Precluded from Re-litigation

For the foregoing reasons, Plaintiff's Motion for Summary Judgment, to the extent that it requests judgment as a matter of law on all counts contained in Plaintiff's Complaint, must be denied. Several genuine issues of material fact that are critical to the establishment of each element of each of the asserted subsections exist. These issues of fact are not precluded from litigation under the principles of issue preclusion nor are they established through the deemed admissions of the Debtor-Defendant in this case. However, certain facts have been established that are germane to the Plaintiff's complaint. The following facts have been established in this proceeding either through issue preclusion or through the deemed admissions and will not be relitigated at the trial of the adversary complaint:

Conclusion

Based upon the Court's consideration of the pleadings, the evidence submitted therewith, the relevant legal authorities, and for the reasons set forth herein, the Court finds that Plaintiff's Motion for Summary Judgment in the above-referenced adversary proceeding must be granted in part and denied in part. MoneyGram failed to demonstrate entitlement to judgment as a matter of law regarding the nondischargeability of the judgment debt (or any portion thereof) owed to it by the Debtor, Khairun Bhai, and significant genuine issues of material fact remain regarding the role of the Debtor in the controversy and the claims of nondischargeability under §§ 523(a)(4) and (a)(6) asserted by the Plaintiff that must be determined through a trial on the merits. Summary judgment as to the relief sought by the Complaint must therefore be denied.

Some material factual issues, however, either were fully and fairly litigated in the prior state court litigation or have been established through the summary judgment evidence tendered to the Court, including the particular deemed admissions which the Court has allowed to stand against the Debtor-Defendant. MoneyGram is therefore entitled to a partial summary judgment pursuant to Rule 56(g) on some factual issues. An order consistent with this opinion shall be entered.