Opinion
Case No. 12-29545-svk Adv. Proc. No. 12-2659
01-02-2013
In re Dan Craig Kozlik and Mecho Lynn Kozlik, Debtors. Robert A. Rathsack and Constance L. Rathsack, Plaintiffs, v. Dan Craig Kozlik and, Mecho Lynn Kozlik, Defendants.
Chapter 7
MEMORANDUM DECISION ON CROSS
MOTIONS FOR SUMMARY JUDGMENT
Robert and Constance Rathsack (the "Creditors") filed this adversary proceeding contending that an award of attorneys' fees issued in a state court action against Dan Craig Kozlik (the "Debtor" and collectively with Mecho Lynn Kozlik, the "Debtors"), is not dischargeable in bankruptcy. The parties filed cross motions for summary judgment. After considering the briefing and argument, the Court issues this Memorandum Decision.
Facts
The Creditors hold an easement over land owned by the Debtors. Although the easement is clear and unambiguous, the Debtor apparently took exception to the Creditors' use of the easement, and over the course of time began to harass and intimidate the Creditors as they attempted to use the easement. The Creditors filed suit in Oconto County, Wisconsin seeking an injunction against the Debtors, compensatory damages, punitive damages, costs and attorneys' fees. Judge J. N. Conley of the Circuit Court for Oconto County held a three-day trial and issued a written decision on June 20, 2011. In the decision, Judge Conley (1) enjoined the Debtors from intentionally interfering with the Creditors' use and enjoyment of the easement; (2) enjoined the Debtors from engaging in harassment of the Creditors as defined in Wis. Stat. § 813.125(1)(b); (3) denied the Creditors' request for compensatory damages; and (3) awarded the Creditors $10,000 in attorneys' fees payable by Debtor Dan Kozlik.
Two days later, the Debtors filed a voluntary Chapter 7 petition. On September 14, 2012, the Creditors filed this adversary proceeding, and sought a determination that the $10,000 attorneys' fees award is nondischargeable under § 523(a)(6) of the Bankruptcy Code. That section provides that a discharge does not include a debt for "willful and malicious injury by the debtor to another entity or to the property of another entity." Both sides filed a motion for summary judgment, contending that the findings in the Oconto County action should be given preclusive effect. The Debtors contend that since Judge Conley did not award compensatory or punitive damages, there is no debt to be determined nondischargeable. The Creditors argue that the $10,000 attorneys' fees award is a nondischargeable debt.
Analysis
Only a bankruptcy court can grant a discharge, and the bankruptcy court therefore has exclusive jurisdiction to determine the dischargeability of a debt based on fraud, willful and malicious conduct and the like. 11 U.S.C. § 523(c); Stoll v. Conway, 148 B.R. 881, 883 (Bankr. E.D. Wis. 1992). Although state court judgments on questions of fraud, willfulness, malice, and other issues may not bind a bankruptcy court in a dischargeability action, under certain conditions debtors will be collaterally estopped from re-litigating factual determinations made in connection with such judgments in the bankruptcy court. See, e.g., Reeves v. Davis (In re Davis), 638 F.3d 549 (7th Cir. 2011) (factual finding that contract included a term was binding on bankruptcy court, but state court litigation did not include finding of debtor's intent). The Supreme Court has explained that: "Issue preclusion generally refers to the effect of a prior judgment in foreclosing successive litigation of an issue of fact or law actually litigated and resolved in a valid court determination essential to the prior judgment, whether or not the issue arises on the same or a different claim." New Hampshire v. Maine, 532 U.S. 742, 748-49 (2001). In determining whether to give a Wisconsin state court judgment preclusive effect, this Court must apply Wisconsin law. Worldwide Prosthetic Supply, Inc. v. Mikulsky (In re Mikulsky), 301 B.R. 726, 728 (Bankr. E.D. Wis. 2003). Mikulsky listed Wisconsin's four elements of issue preclusion: "(1) The prior judgment must be valid and final on its merits. (2) There must be an identity of issues. (3) There must be an identity or privity of parties. (4) The issues in the prior action must have been actually litigated and necessarily determined." Id. at 728-29. "The party asserting the doctrine has the burden of proving that all of the threshold requirements have been met. . . . To meet this burden, the moving party must have pinpointed the exact issues litigated in the prior action and introduced a record revealing the controlling facts." Honkanen v. Hopper (In re Honkanen), 446 B.R. 373, 382 (B.A.P. 9th Cir. 2011) (explaining further that "[r]easonable doubts about what was decided in the prior action should be resolved against the party seeking to assert preclusion").
Here, after a three-day trial, Judge Conley issued a decision in which he said:
I am granting the injunctive relief based on the overwhelming evidence produced by plaintiffs at trial which demonstrated, unequivocally, that plaintiffs, their guests and invitees were subjected to repeated and continual harassment including persons running towards the easement while plaintiffs used it, persons shaking fists at them and calling them profane names: "F'ing idiots, f'ing bastards, assholes," from Robert Rathsack testimony, page 119, Day 1 Transcript. Robert later testified this happened on a weekly basis. Robert Rathsack is 69, and plaintiff Constance Rathsack is 67. Defendants Daniel Kozlik, Timothy Radatz(Memorandum Decision at 2).
and Charles Weis are much younger. The harassment further included placing objects in the easement, and damaging it at times. I found Robert Rathsack most credible, and his testimony was supported by other evidence.
Plaintiffs, fearing for safety, purchased security cameras to observe the easement. Some defendants then used the cameras to, mockingly, "perform" for plaintiffs, and according to plaintiffs, would often shine lights into the cameras which negated their effectiveness.
The Debtors argue that Judge Conley did not decide that they acted willfully and maliciously. They are correct that the Memorandum Decision does not include the terms "willful" or "malicious," but the labels are not a prerequisite to apply collateral estoppel. See Ball v. A.O. Smith Corp., 451 F.3d 66, 70 (2d Cir. 2006) ("Although Judge Melancon's opinion did not use the terms 'malicious' or 'malice,' his decision to award sanctions under § 1927 was affirmed by the Fifth Circuit, which has adopted standards for such an award requiring findings that are the equivalent of findings of malice."); Mikulsky, 301 B.R. at 729 (rejecting debtor's claim that jury verdict on misappropriation of trade secrets did not satisfy elements when jury answered "yes" to question of whether debtor's conduct was "outrageous"). If the facts found by Judge Conley in the Oconto County action establish that the Debtors' conduct was "willful and malicious" within the meaning of § 523(a)(6), then the Debtors will be precluded from challenging those findings in this adversary proceeding. See Ball, supra; see also Klingman v. Levinson, 831 F.2d 1292, 1296 (7th Cir. 1987) (because the consent agreement resolved the same issues that would be litigated in the bankruptcy case, collateral estoppel applied).
The Supreme Court defined "willful" as an act done with the actual intent to cause injury, as opposed to an act done intentionally that causes injury. 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. Intentional torts generally require that the actor intend 'the consequences of an act,' not simply the 'act itself.'" Id. The Seventh Circuit recently recognized that not all intentional torts meet the standard. Jendusa-Nicolai v. Larsen, 677 F.3d 320, 322 (7th Cir. 2012) (citing Williams v. International Brotherhood of Electrical Workers Local 520, 337 F.3d 504, 508 (5th Cir. 2003)) (knowing breach of contract); Miller v. J.D. Abrams Inc. (In re Miller), 156 F.3d 598, 603-04 (5th Cir. 1998) (misappropriation of proprietary information); Wheeler v. Laudani, 783 F.2d 610, 615 (6th Cir. 1986) (libel). The cases cited by the Larsen court are instructive: both Williams and Miller focus on the requirement that the debtor was not found to have been substantially certain that the debtor's conduct would injure the creditor. Wheeler examined the jury instructions and found that the libel verdict could have been based on the debtor's recklessness; the Sixth Circuit remanded the case for a determination of whether the jury verdict and judgment encompassed a finding that the debtor acted intentionally. After Geiger and Larsen, proof of willfulness requires: (1) an intentional or deliberate act; (2) that is either intended to cause injury or substantially certain to cause injury; (3) to a person or property. The Court concludes that Judge Conley's findings satisfied these required elements.
The facts found in the Oconto County Circuit Court Memorandum Decision demonstrate that the Debtors committed intentional acts of harassment toward the Creditors. These include name calling, running toward the easement while the Creditors were trying to use it, and shaking their fists at the Creditors. These are intentional, not reckless acts. Moreover, they "placed objects in the easement . . . damaging it at times." (Memorandum Decision at 2). This finding satisfies the requirement of an injury to the Creditors' property.
When the Creditors feared for their safety and purchased video cameras, the Debtors taunted them and shone lights at the cameras. Judge Conley found that the Debtor, Dan Kozlik, was the "most egregious offender," and concluded that his harassment "constituted an intentional interference by these defendants with the [Creditors'] use and enjoyment of their easement." (Memorandum Decision at 3, emphasis supplied.) The finding of Dan Kozlik's intentional interference with the Creditors' use and enjoyment of their easement provides the requisite intentional injury to a property right required for a willful injury under the Bankruptcy Code.
In addition to supporting the "willfulness" prong of § 523(a)(6), Judge Conley's factual findings satisfy the "maliciousness" standard. In Estate of Sustache v. Mathews (In re Mathews), 433 B.R. 732, 735 (Bankr. E.D. Wis. 2010), this Court noted: "The Seventh Circuit Court of Appeals has stated that malice involves acting in 'conscious disregard of one's duties or without just cause or excuse.' In re Thirtyacre, 36 F.3d 697, 700 (7th Cir. 1994) (citing Wheeler v. Laudani, 783 F.2d 610, 615 (6th Cir. 1986))." Mathews involved the assertion of a self-defense claim in a § 523(a)(6) action and held that a valid self-defense claim negated the element of malice. Regarding this element, Judge Conley's Memorandum Decision stated:
I find there was clear and convincing evidence that Daniel Kozlik . . . engaged in harassment against the plaintiffs as defined in sec. 813.125(l)(b) Wis. Stats. They engaged in a course of conduct and repeatedly committed acts (weekly per Robert Rathsack) which harassed and intimidated the plaintiffs, and served no legitimate purpose whatsoever. [The Debtor] Daniel Kozlik, in particular by virtue of the video evidence, was the most egregious offender . . . I further find that this harassment constituted an intentional interference by these defendants with the plaintiffs use and enjoyment of their easement . . . .(Memorandum Decision at 3, emphasis supplied).
In this case, Judge Conley could have accepted the Debtors' version of events and found that they were "attempting to slow down persons continuously speeding down an easement through his property on which his two young daughters were nearly run over." (Debtors' Brief at 3). But instead he believed the Creditors' side in this case, finding "no legitimate purpose whatsoever" for the "egregious" acts of intimidation. By granting the Creditors' request for an injunction against the Debtors, Judge Conley necessarily found that that the Debtors had no just cause or excuse for their conduct. Therefore, the court in the Oconto County action considered and found the requisite elements of malice, and the Debtors should be precluded from claiming that they are not bound by the Judge Conley's findings in this adversary proceeding.
The Debtors' main argument is that since no compensatory or damages were awarded, there was no injury shown and no nondischargeable debt. First, the Debtors miscomprehend the difference between injury and damages. "Injury" is "[t]he violation of another's legal right, for which the law provides a remedy; a wrong or injustice." Black's Law Dictionary 789 (7th ed. 1999). "Damages," on the other hand, are the sum of money which a person injured is entitled to receive from the wrongdoer as compensation for the injury. Id.; see also Hennekens v. Hoerl, 160 Wis. 2d 144, 153-54, 465 N.W.2d 812 (1991). Although the Creditors did not receive an award of money damages from Judge Conley, it does not follow that the Creditors have not been injured. As the Wisconsin Supreme Court recognized:
Monetary loss is not the only form of actual damage. One form of actual damage is injury to a legal interest or loss of a legal right. Injury to a legal interest or loss of a legal right often occurs without a contemporaneous monetary loss. However, we have held that injury to a legal interest or loss of a legal right constitutes actual damage before such an injury or loss produces monetary loss.Hennekens, 160 Wis. 2d at 153-54.
Even though Judge Conley found that the Creditors did not meet their burden of proof as to damages, and he refused to speculate on what the Creditors' damages could or should be, the findings in the Memorandum Decision and the award of the injunction recognize that the Debtors injured the Creditors.
Moreover, bankruptcy courts have held that a money-damages component is not a prerequisite to finding that an attorneys' fees award is nondischargeable. For example, in Suarez v. Barrett (In re Suarez), 400 B.R. 732, 739 (B.A.P. 9th Cir. 2009), the Bankruptcy Appellate Panel explained that when a costs and fees award is a "proximate result" of a debtor's willful and malicious conduct, that award can be excepted from discharge, even when there is no compensatory damages award. The Suarez court cited Papadakis v. Zelis (In re Zelis), 66 F.3d 205 (9th Cir. 1995), in which there was no underlying monetary obligation other than a sanction for filing a frivolous appeal, and the court found the sanction award nondischargeable. See also Safeco Ins. Co. v. Orrick (In re Orrick), 51 B.R. 92 (Bankr. N.D. Okla. 1985) (judgment debt for attorneys' fees and costs held nondischargeable). In this case, the Oconto County Circuit Court did not enter a compensatory damages award, but it did rule that the Debtor, Dan Kozlik, committed weekly "egregious" acts of harassment against the Creditors. Since Dan Kozlik's conduct was "far more egregious than the others," Judge Conley awarded $10,000, the highest proportion of the attorneys' fees, against him. Given the Circuit Court's findings, the Debtor should not be able to escape his obligation to the Creditors by filing a Chapter 7 petition.
Conclusion
For the foregoing reasons, the Debtors' Motion for Summary Judgment is denied. The Creditors' Motion for Summary Judgment is granted. The award of $10,000 against the Debtor, Dan Kozlik, in favor of the Creditors, is nondischargeable under 11 U.S.C. § 523(a)(6). A separate Order will be entered.
By the Court:
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Susan V. Kelley
U.S. Bankruptcy Judge