Opinion
Case No. 11-16309 Adversary No. 12-1005
07-26-2013
In re: Henry Eugene Bailey Debtor United States of America Plaintiff, v. Henry Eugene Bailey Defendant.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
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Burton Perlman
United States Bankruptcy Judge
Chapter 13
Judge Burton Perlman
DECISION RE SUMMARY JUDGMENT
I. Introductory.
This adversary proceeding arose in a chapter 13 case filed by the Debtor, chronologically the following events occurred. On January 31, 2011, the U.S. Department of Justice (DOJ) filed a Complaint in the U.S. District Court for the Southern District of Ohio against the Debtor for relief under the Fair Housing Act lodging sexual misconduct by Debtor on behalf of fourteen "aggrieved persons" as defined in the Fair Housing Act. No amount of damages was stated in the Complaint. On October 18, 2011, Debtor filed his chapter 13 case. He listed the DOJ as a creditor stating in his schedules that the claim was contingent and disputed. (On January 12, 2012, the DOJ filed a Complaint in this Court asserting that the unquantified claim that it held against Debtor was non-dischargeable). On February 14, 2012, the DOJ filed a proof of claim, stating that the claim was unliquidated and depended upon relief which might be granted under the Fair Housing Act. The suit by DOJ against Debtor in the U.S. District Court was concluded on July 31, 2012, by the entry of a Consent Judgment. The Consent Judgment granted the DOJ judgment in the amount of $855,000.00. Of that, $800,000.00 was for monetary damages owed to "aggrieved persons." Fifty-Five Thousand was a civil penalty.
Now before the Court are Cross-Motions for Summary Judgment by the parties.
II. Jurisdiction.
This court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this district. This is a core proceeding arising under 28 U.S.C. §157.
III. Summary Judgment.
In support of its Motion for Summary Judgment, Plaintiff has attached to its Motion, as an exhibit, a proposed Consent Order dated May 27, 2011; excerpts from the deposition of Debtor/Defendant taken July 19, 2011 in the District Court case; and an electronic mail message dated June 18, 2012 sent to counsel for Debtor in the District Court case. In its Motion, Plaintiff relies also on the Consent Judgment entered in the District Court case. This is a public record and is before the Court.
Defendant in his Motion for Summary Judgment presents no evidentiary material, but relies upon arguments of law.
The requirements for a successful Motion for Summary Judgment are well understood. Motions for summary judgment are governed by F.R.Civ.P. 56 which is incorporated into bankruptcy practice by F.R.B.P. 7056. That rule provides in part that a motion for summary judgment is to be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." F.R.Civ.P 56(a). The moving party bears the initial burden of showing that there is no issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323-324 (1986). The nonmoving party, however, bears the ultimate burden of showing that a genuine issue of material fact exists. In doing so, the nonmoving party cannot rest on its pleadings, but must, in response, offer some evidence which demonstrates a genuine issue of material fact for trial.
IV. The Motions:
PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
A. Damages
After careful consideration of the record before it, the Court has concluded that Plaintiff is entitled to summary judgment with respect to its damage claim. Defendant is entitled to summary judgment with respect to the civil penalty in the amount of $55,000.00.
In its Complaint, Plaintiff relies upon 11 U.S.C. § 1328(a)(4) for its position that the debt owed it is exempt from discharge. The statute there says that a discharge will not be granted as to a debt:
§ 1328 Discharge. (a) Subject to subsection (d), as soon as practicable after completion by the debtor of all payments under the plan, and in the case of a debtor who is required by a judicial or administrative order, or by statute, to pay a domestic support obligation, after such debtor certifies that all amounts payable under such order or such statute that are due on or before the date of the certification (including amounts due before the petition was filed, but only to the extent provided for by the plan) have been paid, unless the court approves a written waiver of discharge executed by the debtor after the order for relief under this chapter, the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title, except any debt—For evidentiary support for its Motion for Summary Judgment, Plaintiff looks to the provisions of the Consent Judgment entered in the District Court. Because that judgment was entered in another court, such reliance requires a consideration by the Court of the doctrine of collateral estoppel.
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(4) for restitution, or damages, awarded in a civil action against the debtor as a result of willful or malicious injury by the debtor that caused personal injury to an individual or the death of an individual.
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Collateral estoppel applies in bankruptcy discharge exception proceedings. Grogan v. Gardner, 498 U.S. 279, 285 n.11, 111 S.Ct. 654, 658, 112 L. Ed. 2d 755 (1991). "The Sixth Circuit has stated a preference for the use of the term 'issue preclusion' instead of the term 'collateral estoppel.'" In re Moffitt, 252 B.R. 916, 921 n.2 (B.A.P. 6th Cir. 2000) (citations omitted)
When the prior decision to which collateral estoppel effect is sought to be given occurred in a federal court, as was the case here, the standard to be applied is that to be found in the Restatement (Second) of Judgments § 27. In re Wright, 187 B.R. 826, 832 (Bankr. D. Conn. 1985). In Moffitt, 252 B.R. at 921, the Sixth Circuit BAP has described the federal elements of collateral estoppel as follows: "(1) the precise issue must have been raised in the prior proceeding, (2) the issue must have been actually litigated, and (3) the determination of the issue must have been necessary to the outcome." (citing Spilman v. Harley, 656 F.2d 224, 228 (6th Cir. 1981) (overruled on other grounds)).
1. Same Issue
In dealing with this element of collateral estoppel it is necessary first to ask, what are the issues presented in § 1328(a)(4), and were they decided in the judgment in the District Court. There can be no question that the debt arising in the District Court was a civil action in which damages were granted to the plaintiff DOJ, and against the Debtor. The remaining issues in the section of the statute are (1) were the acts by Debtor resolving in the award of damages willful or malicious, and (2) did the acts by Debtor cause personal injury to an individual. Debtor in the Consent Judgment admitted to the allegations by the DOJ, recited in ¶ 3 of the Consent Judgment, that he:
subjected actual and prospective female tenants to severe, pervasive, and unwelcome harassment. Such conduct is alleged to have included, but is not limited to, unwanted verbal sexual advances; unwanted sexual touching; entering the apartments of female tenants without permission and notice;
granting and denying tangible housing benefits based on sex; and taking adverse actions against female tenants when they refused his sexual advances.
These admissions establish the recitals as facts, and these facts alone are sufficient to satisfy the "willful or malicious" element in § 1328(a)(4) of the statute. In re Spagnola, 473 B.R. 518, 524 (Bankr. S.D. N.Y. 2012) (While the Spagnola case involved § 523(a)(6) of the Code, it is applicable here because the "willful or malicious" standard of § 1328(a)(4) is less stringent than the "willful and malicious" requirement of § 523(a)(6).) The Court in Spagnola said:
The Court is persuaded by the many bankruptcy courts that have found that sexual harassment discrimination is inherently an intentional tort and allowed it to be excepted from discharge as a willful and malicious injury. See, e.g., Voss v. Tompkins (In re Tompkins), 290 B.R. 194, 199 (Bankr. W.D. N.Y. 2003); McDonough v. Smith (In re Smith), 270 B.R. 544 (Bank. D.Mass. 2001); Thompson v. Kelly (In re Kelly), 238 B.R. 156 (Bankr. E.D.Mo. 1999) ("Malice, or intent to harm, in a sexual intention tort is self-evident, either because the tortfeasor knows his conduct is certain or almost certain to cause harm, or because he should know and therefore the intent is inferred as a matter of law.").
In addition, in ¶ 16 of the Consent Judgment Debtor admitted that the damage judgment against him was a debt for "willful and malicious injury by Defendant." The issue of "willful or malicious" injury by the Debtor was thus resolved against Debtor in the judgment in the District Court, and thus issue preclusion applies to the "willful or malicious" element of the statute.
As to the issue of "personal injury" to an individual, that issue was likewise dealt with in the Consent Judgment. Indeed, the acts admitted by Debtor quoted above (and further supported by Debtor's testimony in his deposition), resulted in personal injury to the recipients of Debtor's conduct. It matters not that the acts admitted by Debtor were sexual harassment acts, and not acts of bodily injury, for sexual harassment causes "personal injury" as much as does bodily harm. See In re Adams, 478 B.R. 476, 486 (Bankr. N.D. Ga. 2012); In re Langa, 222 B. R. 843, 845 (Bankr. C.D. Ill. 1998). Accordingly, the issue of "personal injury to an individual" was decided in the consent decree, and issue preclusion applies to it.
2. Actually Litigated
There was no actual trial in the District Court action. Instead, it terminated in a consent decree. The question is whether that outcome can be regarded as "actually litigated." The Seventh Circuit, in Meyer v. Rigdon, 36 F.3d 1375 (7th Cir. 1994), discussed the preclusive effect of consent judgments:
Collateral estoppel may only be applied to consent decrees if "'the parties could reasonably have foreseen the conclusive effect of their actions.'" Klingman, 831 F.2d at 1296 (quoting 1B J. Moore, J. Lucas & T. Currier, Moore's Federal Practice ¶ 0.444[1], at 794 (2d ed. 1984)). See also 18 C. Wright, A. Miller & E. Cooper, Federal Practice & Procedure § 4443, at 382 (1981) ("Issue preclusion does not attach unless it is clearly shown that the parties intended that the issue be foreclosed in other litigation.")Id. at 1379. See also In re Miller, 307 Fed.Appx. 785, 790 2008 WL 5381303 (5th Cir. 2008) (court upholding bankruptcy and district courts' finding that a stipulated judgment in federal court, which stated that debt was not dischargeable under the Bankruptcy Code, was nondischargeable); In re Hauck, 466 B.R. 151,167-168 (Bankr. D. Colo. 2012).
Applying the criteria provided by the authorities cited above, the Court holds that the element for issue preclusion of "actually litigated" is met in this case. The Court reaches this conclusion after due consideration of the record before it. While we have held in another decision in this case that Debtor's promise not to seek a discharge in any part of his damage debt in the Consent Decree, is not enforceable as against public policy, this undertaking by the Debtor is a clear indication by the Debtor of an intention that the issues decided in the Consent Decree be foreclosed from further litigation. In reaching the conclusion that we do, it is significant that Debtor was represented by counsel in the District Court, who signed the Consent Decree as did the Debtor. Courts have found this a significant factor in applying the doctrine of issue preclusion. Shadow Factory Films Ltd., Co. v. Swilley, 295 B.R. 839, 846 (Bankr. D. S.C. 2003), Miller, 307 Fed. Appx. at 790, Hauck, 466 B.R. at 168.
3. Necessary to Outcome.
The Court has found that the issues of "willful or malicious" nature of Debtor's acts, and that they resulted in personal injury to individuals, are precluded from further litigation the portions of the record to which reference has been made above. These were necessary elements in the Consent Decree.
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In response to Plaintiff's Motion for Summary Judgment, Defendant argues that Plaintiff is not entitled to judgment, and posits that in its motion Plaintiff is pursuing a waiver of discharge. As may be seen from the foregoing discussion that defense misses the point. There is no waiver of discharge to be found in the Consent Decree. Additionally, Defendant argues facts which are not of record in opposition to the Plaintiff's motion. These can play no part in the decision by the Court. Finally, Defendant contends that Plaintiff cannot succeed because there has been no "personal injury," an element of § 1328(a)(4). The Court disagrees with this position for reasons appearing above.
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The Court holds that Plaintiff is entitled to summary judgment of nondischargeability of the $800,000.00 damage claim. The Court has found that there is no genuine dispute as to any material fact and Plaintiff is entitled to judgment as a matter of law.
B. The Civil Penalty Claim
For reasons which follow, the Court holds that Plaintiff is not entitled to summary judgment on its civil penalty claim, for Plaintiff is not entitled to judgment on it as a matter of law.
DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
The sole basis presented by Defendant in support of its amended motion is that Plaintiff is not entitled to judgment because the Consent Decree was not entered into prior to the filing of the petition. The basis for this contention is the language "damages awarded in a civil action" to be found in § 1328(a)(4). Defendant asserts that the use of the past tense requires that, in order to satisfy § 1328(a)(4), there must be a pre-petition judgment which is not the case here. This Court disagrees with Defendant's reading of the law. This Court agrees with the cases which hold to the contrary. Current majority case authority holds that § 1328(a)(4) does not require a pre-petition judgment for a finding of nondischargeability. Lepore v. Kerner, 2010 WL 4236835, at *6 (D.N.J. Oct. 20, 2010); Waag v. Permann (In re Waag), 418 B.R. 373, 381 (B.A.P. 9th Cir. 2009); See In re Adams, 478 B.R. 476, 483-84 (Bankr. N.D. Ga. 2012); In re Capote, 2012 WL 1597375 (Bankr. S.D. Fla. May 7, 2012); In re Schaub, 2012 WL 1144424, at *1 (Bankr. D. N.J. Apr. 4, 2012); In re Edmonds, 2011 WL 5909420, at *3 (Bankr. E.D.N.C. Aug. 22, 2011); Woods v. Roberts (In re Roberts), 431 B.R. 914, 919 (Bankr. S.D. Ind. 2010); In re Morrison v. Harrsch (In re Harrsch), 432 B.R. 169, 174-75 (Bankr. E.D. Pa 2010); Buckley v. Taylor (In re Taylor), 388 B.R. 115, 120 (Bankr. M.D. Pa. 2008). A summary of the majority's reasoning is as follows:
The minority view's argument begins and ends with the interpretation of "awarded" as a past-tense verb. By contrast, the majority view interprets "awarded" as a past participle, modifying "restitution" and "damages," much like "included" in § 1328(a)(3) defines and limits the types of fines that are nondischargeable. Under this interpretation, § 1328(a)(3) and § 1328(a)(4) are "parallel and designed to distinguish between restitution imposed ('included') in a criminal case and restitution imposed ('awarded') in a civil case." Id. at 380. Reading "awarded" as a past-tense verb ignores the context of § 1328(a) and is not grammatically required. Reading "awarded" as a past participle, however, fits both grammatically and within the context of § 1328(a). The majority view's statutory construction argument is persuasive. (citations omitted.)Adams, 478 B.R. at 483-84.
While the Court disagrees with Defendant's premise that a pre-petition judgment is required by § 1328(a)(4), finding that there is no genuine dispute as to any material fact, and that Defendant is entitled to judgment as a matter of law, the Court holds that Defendant is entitled to summary judgment that the civil penalty award of $55,000.00 is dischargeable. We reach this conclusion from the language of the statute itself that a debt will be discharged "unless the court approves a written waiver of discharge executed by the debtor after the order for relief." The record before the Court shows no "written waiver of discharge," let alone that such a waiver has been approved by the Court.
Accordingly, the Court holds that the civil penalty is dischargeable. Copies to: L. Joshua Davidson
8035 Hosbrook Road
Suite 200
Cincinnati, OH 45236
Bethany Hamilton
Assistant United States Attorney
303 Marconi Blvd.
Suite 200
Columbus, OH 43215
Tanya Ilona Kirwan
U.S. Department of Justice
905 Pennsylvania Avenue NW
NWB 7th Floor
Washington, DC 20530
Margaret A. Burks
Chapter 13 Trustee
600 Vine Street, Ste 2200
Cincinnati, OH 45202