Opinion
Case No. 96-16472-SSM, Adversary Proceeding No. 97-1156
May 22, 1998
Roy B. Zimmerman, Esquire, Alexandria, VA, of Counsel for the plaintiff
Paul McGlone, Esquire, McGlone Porter, of Counsel for the debtor
MEMORANDUM OPINION AND ORDER
This matter is before the court on the plaintiff's motion for summary judgment. A hearing was held on May 19, 1998, at which the parties presented argument, and the court then took the matter under advisement. For the reasons stated in this opinion, summary judgment will be granted as to Count I and denied as to Count II.
The court continued the pretrial conference to June 2, 1998, in the event the ruling on the motion for summary judgment did not fully dispose of the controversy.
Background
Judith Forehand (the "debtor") filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code in this court on November 19, 1996, and received a discharge on February 28, 1997. Although the discharge was revoked by order entered on December 11, 1997, the debtor's motion for a new trial was subsequently granted, and, after a second trial, this court entered judgment in favor of the debtor on March 30, 1998, denying the complaint to revoke her discharge. Thus, the debtor has been discharged of her dischargeable debts.
Stephen Forehand (the "plaintiff), the debtor's former spouse, timely filed this adversary proceeding on May 16, 1997 to determine that the debt owed to him was nondischargeable under § 523(a)(6), Bankruptcy Code. His claims against the debtor arise from the parties' divorce, and more specifically, from two awards of attorney fees made by the state court. The first is reflected in an order entered on May 5, 1995, by the Circuit Court of Fairfax County awarding the plaintiff $20,000 in attorney's fees against the debtor. The second is reflected in an award of attorney's fees in the amount of $9,500 against the debtor by the same court on March 3, 1997.
The plaintiff is listed as a creditor on Schedule F ("Creditors Holding Unsecured Claims") in the amount of $10,000, presumably representing only the amount related to Count I of the complaint.
The relevant facts may be briefly summarized. On August 20, 1993, the plaintiff had been ordered to pay the debtor $2,030 per month in child support and $1,870 per month in spousal support. Because the plaintiff was delinquent in the payments, the debtor obtained a rule to show cause against him in September 1993. However, in December of 1993, the debtor informed the plaintiff, through counsel, that he was not the natural father of her son Michael. Subsequently, the plaintiff sought an award of attorney's fees from the debtor based upon her pursuit of child support against him when she knew that he was not her son's natural father.
The facts are largely taken from the Circuit Court's letter opinion dated April 6, 1995, which sets forth the basis for the $20,000 award.
The state court awarded the plaintiff $20,000 in attorney's fees as a result of the debtor's actions. In a letter opinion dated April 6, 1995, the circuit court judge explained:
The court finds that Mr. Forehand is entitled to an award of attorney's fees for two reasons. First, Mrs. Forehand filed original and supplemental Bills of Complaint alleging that Michael was a child of the parties's earlier marriage. She sought and obtained pendente lite child support. She sought and obtained a Rule to Show Cause why Mr. Forehand should not be held in contempt of court for his failure to pay child support. She did so fully knowing that Mr. Forehand was not the natural father of Michael. Mrs. Forehand testified that from birth she knew who the natural father was, that she allowed the natural father to see Michael occasionally, that she received some child support from the natural father, and that Mr. Forehand knew none of this. She testified that she did not reveal the true parentage of Michael before December 1993 because she was "concerned about custody." She claimed her concern was that she alone would get custody and that Mr. Forehand would no longer be any part of Michael's life. She testified that she sought child support from Mr. Forehand because she needed it, and because she believed it would look strange or suspicious if she did not do so.
In short, Mrs. Forehand improperly used this Court as a vehicle to obtain child support from someone she knew was not the natural father and had no legal child support obligation, and put Mr. Forehand to not inconsiderable expense with regard to that claim. The Court further finds that Mrs. Forehand was not truthful with regard to Michael's parentage not because she feared that Mr. Forehand would no longer play any role in Michael's life, but rather because she feared that the truth would jeopardize her custody and support rights. The lack of concern for Mr. Forehand's future role in Michael's life is further shown by Mrs. Forehand's refusal as late as March 1994 to consent to Mr. Forehand's adoption of Michael, and her occasional requests (some made in anger, others seriously) that her then-current boyfriend (also not the natural father) be allowed to adopt Michael.
The second reason for awarding attorney's fees to Mr. Forehand lies in Mrs. Forehand's alienation of Michael from Mr. Forehand. . . .
In sum, the Court does not award attorney's fees against Mrs. Forehand because she has a child outside of her marriage. It does so because she continuously made grave misrepresentations about that issue to this Court to the financial detriment of Mr. Forehand. The Court further finds her actions sanctionable under § 8.01-481.1 [sic] of the Code of Virginia.
(emphasis added). The $20,000 award of attorney's fees was payable in four annual installments of $5,000 on July 1 of the years 1995 through 1998. Apparently, two of the four installments were paid, leaving the $10,000 that is at issue in the first count to the complaint.
There is no section 8.01-481.1 of the Code of Virginia. Instead, the state court appears to have been referring to Va. Code Ann. § 8.01-271.1, which requires a Virginia court to sanction an attorney or pro se party for, among other things, advocating a position not well-grounded in fact.
The second count of the complaint alleges that an award of attorney's fees in the amount of $4,894 of an original $9,500 arising from the debtor being held in contempt of court is also nondischargeable under § 523(a)(6), Bankruptcy Code. Specifically, the debtor was found in contempt of court by the Circuit Court of Fairfax County on November 13, 1996, for "willfully violating previous court orders." The plaintiff's memorandum in support of the motion before the court asserts that the court deferred ruling on the amount of the sanctions until a later date. As noted above the order awarding $9,500 in attorney's fees to the plaintiff as a sanction was entered on March 3, 1997.
For reasons not entirely clear from the record, the complaint only seeks to hold $4,864 nondischargeable, asserting that the "Plaintiff (presumably meaning the debtor) is entitled to a credit in the amount of $4,606 against said contempt award."
Discussion I.
This court has jurisdiction of this controversy under 28 U.S.C. § 1334 and 157(a) and the general order of reference entered by the United States District Court for the Eastern District of Virginia on August 15, 1984. Under 28 U.S.C. § 157(b)(2)(I), this is a core proceeding in which final orders and judgments may be entered by a bankruptcy judge.
II.
Under Fed.R.Civ.P. 56, made applicable to adversary proceedings by F.R.Bankr.P. 7056, a party may move, with or without supporting affidavits, for summary judgment at any time after the parties are at issue. Rule 56(c) provides:
The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. A summary judgment, interlocutory in character, may be rendered on the issue of liability alone although there is a genuine issue as to the amount of damages.
The burden of establishing the nonexistence of a genuine issue of material fact rests on the moving party. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 88 L.Ed.2d 285 (1985). In considering a motion for summary judgment, the court should draw all inferences from the underlying facts in a light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 530 (1986).
III. A.
Under § 523(a)(6), Bankruptcy Code, a discharge in a chapter 7 case does not discharge an individual debtor from debts arising as a result of a "willful and malicious injury by the debtor to another entity or to the property of another entity." The Supreme Court has recently noted that "willful" in the context of § 523(a)(6) carries its ordinary meaning of "deliberate or intentional." Kawaauhau v. Geiger, 118 S.Ct. 974, 977 n. 3 (1998) (citing legislative history); see also St. Paul Fire Marine Ins. Co. v. Vaughn, 779 F.2d 1003, 1009 (4th Cir. 1985). In Geiger, the Supreme Court expressly held that debts arising from recklessly or negligently inflicted injuries do not fall within the scope of § 523(a)(6) and that only a "willful injury" is sufficient. Geiger, 118 S.Ct. at 978.
With respect to the requirement that the injury be "malicious," however, the Fourth Circuit has explained:
"Malice" . . . does not mean the same thing in Section 523(a) that it often does in other contexts. A debtor may act with malice even though he bears no subjective ill will toward, and does not specifically intend to injure, his creditor. Hence, a debtor's injurious act done "deliberately and intentionally in knowing disregard of the rights of another" i.e., a creditor, is sufficiently willful and malicious and prevents discharge of the debtor.
Because the St. Paul test requires a deliberate act in "knowing" disregard of a creditor's rights, it is the debtor's subjective state of mind that is relevant; it does not matter that a "reasonable debtor" should have known that his act would adversely affect another's rights. However, a particular debtor's knowledge may be proved by circumstantial evidence: "Implied malice . . . may be shown by the acts and conduct of the debtor in the context of [the] surrounding circumstances."
First Nat'l Bank of Md. v. Stanley (In re Stanley), 66 F.3d 664, 667-668 (1995) (internal citations omitted) (emphasis added); see also Raymond v. Raymond (In re Raymond), 210 B.R. 710, 713 (Bankr. E.D. Va. 1997) (Tice, J.) ("In considering the issue of malice, the court must look at the debtor's actual knowledge or the reasonable foreseeability that his conduct will result in injury to the creditor . . .[A debtor's] malicious intent must be demonstrated by evidence that the debtor had knowledge of the creditor's rights and that, with that knowledge, proceeded to take action in violation of those rights[.]") (original source omitted) (alteration in original).
B.
The plaintiffs motion for summary judgment is premised solely on the collateral estoppel effect of the proceedings before the state court. Collateral estoppel, commonly referred to as issue preclusion, bars relitigation of issues actually litigated and necessarily decided between the same parties in a different cause of action. Brown v. Felsen, 442 U.S. 127, 139 n. 10, 99 S.Ct. 2205, 2213, n. 10, 60 L.Ed.2d 767 (1979). It differs in that respect from res judicata, or claim preclusion, which bars litigation of all grounds for, or defenses to, recovery that were previously available to the parties, regardless of whether they were asserted or determined in the prior action. Id. at 131, 99 S.Ct. at 2209. Although the Supreme Court held in Brown that res judicata does not apply is the specific context of dischargeability litigations, it has squarely held in a subsequent opinion that collateral estoppel does apply. Grogan v. Garner, 498 U.S. 279, 284 n. 11, 111 S.Ct. 654, 658 n. 11, 112 L.Ed.2d 755 (1991); see also Combs v. Richardson, 838 F.2d 112 (4th Cir. 1988) (jury verdict in assault action against debtor precluded debtor from relitigating willful and malicious nature of actions in subsequent bankruptcy dischargeability proceeding).
To evaluate the preclusive effect of a state court judgment, a federal court must apply the preclusion law of the state in which the judgment was rendered. See 28 U.S.C. § 1738; Hildebrand v. Kugler (In re Kugler), 170 B.R. 291 (Bankr. E.D. Va. 1994) (Bostetter, C.J.). Under Virginia law, "collateral estoppel precludes further litigation of an issue in a subsequent proceeding when that issue was actually litigated and its resolution was essential to a valid, final and personal judgment rendered in a prior proceeding." Id. at 297; see also Horton v. Morrison, 248 Va. 304, 448 S.E.2d 629 (1994). The Supreme Court of Virginia has held that in order for collateral estoppel to apply:
"The records and judicial proceedings of any court of any . . . State, Territory or Possession . . . shall be proved or admitted in other courts within the United States and its Territories and Possessions by the attestation of the clerk and seal of the court annexed, if a seal exists, together with a certificate of a judge of the court that the said attestation is in proper form. Such . . . judicial proceedings . . ., so authenticated, shall have the same full faith and credit in every court within the United States and its Territories and Possession as they have by law or usage in the courts of such State, Territory or Possession from which they are taken." (emphasis added).
[1.] the parties to the two proceedings, or their privies, must be the same;
[2.] the factual issue sought to be litigated actually must have been litigated in the prior action and must have been essential to the prior judgment; and
[3.] and the prior action must have resulted in a valid, final judgment against the party sought to be precluded in the present action.
[4] Additionally, collateral estoppel in Virginia requires mutuality, that is, a party is generally prevented from invoking the preclusive force of a judgment unless that party would have been bound had the prior litigation of the issue reached the opposite result.
Transdulles Center, Inc. v. Sharma, 252 Va. 20, 22-23, 472 S.E.2d 274, 275 (1996); see also In re Professional Coatings (N.A.), Inc., 210 B.R. 66, 79-88 (Bankr. E.D. Va. 1997) (St. John, J.) (providing an extensive analysis of the requirements for collateral estoppel to apply under Virginia law).
Turning to the present case, three of the four elements required by Virginia law for collateral estoppel to apply are clearly met and need little discussion. First, the parties to both proceedings are the same. Second, the state court orders are now final. And third, the requirement of mutuality is met, in that the plaintiff would have been equally bound had the state court entered judgment for the debtor. The issue, then, resolves to whether willfulness and malice were "actually litigated" before the state court and were necessary to its conclusions.
With regard to Count I of the complaint, the debtor has conceded that her actions in the state court were "willful" and accordingly, no further discussion is required. As to malice, the court finds that the issue was fully and fairly litigated before the Circuit Court. Although the debtor has vigorously contended that the issue of "malice" was not "actually litigated" before the Circuit Court, and that the debtor "will testify that she acted at all times in good faith and on the advice of counsel," the court finds this argument untenable. The matter before the Circuit Court, although not a jury trial, was a proceeding in which the court had heard evidence, was familiar with the record, and made factual findings. The Circuit Court found that the debtor knowingly made misrepresentations to the court about the paternity of Michael and did so to the detriment of the plaintiff. This necessarily means that the debtor was found to have intentionally disregarded the rights of another person and, under Stanley, this is all that is necessary to establish "malice." Accordingly, the court concludes that the debtor is precluded from relitigating the issue of willfulness and malice with respect to Count I of the complaint because those issues were actually litigated and were essential to the Circuit Court's award of attorney's fees to the plaintiff.
It is clear that the party opposing a motion for summary judgment may not rest upon the mere allegations or denials of that party's pleading, but must set forth specific facts in the form of an affidavit or the like showing that there is a genuine issue for trial. See Fed.R.Civ.P. 56(e) (as incorporated into bankruptcy proceedings by F.R.Bankr.P. 7056). Here, the debtor has not offered any affidavit to establish that a genuine issue of fact exists. Accordingly, even absent the preclusive effect of the Circuit Court letter opinion, this court would be required to enter summary judgment for the plaintiff. Id.
As to Count II of the complaint, the debtor has admitted her actions giving rise to the $9,500 award were "willful" as that term is used in § 523(a)(6), and accordingly, no further discussion of that issue is needed. The problem, however, with granting summary judgment on this count is that the record before this court — save for the admission by the debtor that her actions were "willful" — is utterly devoid of any evidence whatsover on the issue of malice. This court has not been provided with copies of the Circuit Court's orders which were violated, or a transcript of the court hearing in which the debtor was found in contempt, or, for that matter, even a copy of the order finding the debtor in contempt. The record at this point is simply insufficient for this court even to understand exactly what conduct of the debtor underlay the finding of contempt, let alone to conclude that the issue of malice was actually litigated. Accordingly, the court declines to grant summary judgment on Count II.
One potential problem is that the state court's file has been sealed, and debtor's bankruptcy counsel represents that he has been refused access to it. Of course, plaintiff will not be permitted to offer, in support of summary judgment on Count II, selective portions of the state court file without debtor's bankruptcy counsel being permitted to review and offer other possibly relevant portions.
C.
Some brief additional comment is appropriate concerning an issue raised by the debtor with respect to the $9,500 award. It appears to be undisputed that the Circuit Court found the debtor in contempt at a hearing on November 13, 1996 — just six days before she filed her bankruptcy petition — but that the order awarding sanctions was not entered until March 3, 1997, some three and a half months after she filed for bankruptcy. In her pleadings, the debtor asserted that a portion of the award arose from actions occurring post-petition and that, as a post-petition liability, the $9,500 award is not affected by her bankruptcy. At oral argument, however, the debtor shifted gears and took the position that the state court order of March 3, 1997, was entered in violation of the automatic stay imposed under § 362, Bankruptcy Code, and was therefore void. The procedural record is complicated by the fact that the plaintiff had filed, on February 20, 1997, a motion for relief from the automatic stay to permit the contempt issue to be litigated. That motion was granted by a consent order endorsed by the debtor's attorney, but the order was not entered until March 20, 1998 — some 17 days after the state court had already acted. However, the court need not reach the issue of whether the March 20th relief from stay order retroactively validated March 3rd contempt award. As discussed above, the debtor received her discharge on February 28, 1998. Under § 362(c)(2)(C), Bankruptcy Code, the grant or denial of discharge terminates the automatic stay with respect to acts against the debtor. Thus, the automatic stay was no longer in effect when the contempt order was entered, and the subsequent relief from stay order was surplusage. Once the automatic stay terminated, the plaintiff was stayed, if at all, only by the discharge injunction of § 524(a)(2), Bankruptcy Code. If this court determines that the debt is dischargeable, then under § 524(a)(1), the contempt order is void. If, on the other hand, the debt is nondischargeable, then entry of the order did not violate the discharge injunction.
The automatic stay with respect to acts against property of the estate continues until such property is no longer property of the estate. § 362(c)(1), Bankruptcy Code.
ORDER
For the foregoing reasons, it is ORDERED:
1. The motion for summary judgment is GRANTED as to Count I, and the court determines and declares that the remaining liability of the defendant, Judith Forehand, to the plaintiff, Stephen Forehand, in the amount of $10,000.00 on account of the order entered on May 5, 1995, by the Circuit Court of Fairfax County, Virginia, in that certain action in which Judith Forehand was complainant and Stephen Forehand was defendant, Chancery No. 131030, is excepted from discharge under § 523(a)(6), Bankruptcy Code, and has not been discharged as a result of the discharge granted the defendant by this court on February 28, 1997.
2. The motion for summary judgment is DENIED as to Count II.
3. The clerk will mail a copy of this memorandum opinion and order to counsel for the parties.