Opinion
No. 99 C 6020
February 17, 2000
MEMORANDUM OPINION AND ORDER
Dennis Carlson ("Carlson") filed for bankruptcy and sought to discharge a debt owed to the law firm of French, Kezelis Kominiarek, P.C. ("FKK"). FKK moved for a determination the debt was nondischargable under 11 U.S.C. § 523(a)(6) ("§ 523(a)(6)"). The bankruptcy court found the debt to be nondischargable, granted summary judgment in favor of FKK, and denied Carlson's motion for reconsideration. Carlson appeals both decisions to this court.
BACKGROUND
The bankruptcy court's ruling that Carlson's debt to FKK is nondischargable involved analysis of the circumstances leading to creation of the debt. The debt arose from the imposition of sanctions against Carlson in Illinois state court. Therefore, the court begins by recounting the events leading up to that award of sanctions.
Carlson represented Kristiana Kruse Lorentzen ("Lorentzen"), the plaintiff in a 1988 suit in federal district court in Chicago. Lorentzen alleged the defendants in that case injured her by exposing her to pesticides. FKK represented one of the defendants. While the suit was pending, the defendants' lawyers (including FKK) requested a medical examination of Lorentzen. The magistrate judge granted the request and ordered Lorentzen to undergo a medical examination; Lorentzen did so. The suit was eventually dismissed.
Following dismissal of the federal suit, Carlson filed a suit in Illinois circuit court on Lorentzen's behalf. That suit named FKK (along with others) as a defendant and alleged the defendants conspired to expose Lorentzen to a pesticide during the court-ordered examination in the federal suit. The circuit court dismissed the claim and imposed sanctions on Carlson pursuant to Illinois Supreme Court Rule 137 ("Rule 137"). Rule 137 provides in part that
The signature of an attorney or party constitutes a certificate by him that he has read the pleading, motion or other paper; that to the best of his knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good-faith argument for the extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost off litigation. . . . If a pleading, motion, or other paper is signed in violation of this rule, the court, upon motion or upon its own initiative, may impose upon the person who signed it, a represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of reasonable expenses incurred because of the filing of the pleading, motion or other paper, including a reasonable attorney fee (emphasis added)
From the bench, the circuit court found that in the federal suit alleging pesticide poisoning by FKK's client, FKK's decision to seek an examination of Lorentzen was in the interest of FKK's client. The court explained, "[t]o bring suit against attorneys for their role in protecting their clients [sic] rights, I think is an unwarranted and improper use of this lawsuit." Tr. 10/7/93 at 31-32. The court concluded the complaint against FKK was frivolous because it was not well founded in fact nor warranted by existing law. The court also found that Carlson brought the suit "for an improper purpose, that is, to harass or in some way get even with the attorneys or some of the attorneys which had been part of the earlier federal suit." Id. at 32. The circuit court expressed its general dislike of imposing sanctions against attorneys, but nonetheless found that "in this case, I believe that the extraordinary facts do show a violation of Rule 137."Id. at 31. A written order entered by the circuit court that same day did not state in as much detail the reasons for its finding that Carlson's suit against FKK was based on an improper purpose. The written order stated only, "[t]he court specifically finds that this action was not brought after reasonable inquiry that it be well grounded in fact, nor that it was warranted by existing law, nor a good faith argument for the extension, modification, or reversal of existing law. The court further finds that this action was brought for an improper purpose." Lorentzen v. Dow Chemical Co. et al., No. 91 L 20277 (Cir.Ct. Cook Co. Oct. 7, 1993). The court then assessed fees and costs against Carlson in the amount of $20,689.41, to be paid to FKK.
The Illinois appellate court affirmed the award of sanctions. It noted, "Rule 137 is designed to prevent abuse of the judicial process by penalizing claimants who bring harassing suits based upon unsupported allegations of law or fact" and found "[t]he trial court's written order states the court's specific findings that Mr. Carlson filed a baseless lawsuit, for an improper purpose. The trial court specifically found that Mr. Carlson filed a baseless, harassing lawsuit." Lorentzen v. Dow Chemical Co. et al., Nos. 1-93-1844 94-0234, at 4-5 (Ill.App.Ct. 1st Dist. March 29, 1996)
A few years later, Carlson filed for bankruptcy protection under the federal bankruptcy laws. Carlson sought to discharge the debt owed to FKK resulting from the circuit court award of sanctions. FKK moved for summary judgment in the bankruptcy court, claiming the award of sanctions is nondischargable because, under 11 U.S.C. § 523(a)(6), it is a debt resulting from a willful and malicious action — namely, Carlson's baseless and harassing suit in Illinois state court. FKK also argued Carlson is collaterally estopped from arguing his behavior was not willful and malicious because that issue was decided by the Illinois state courts in awarding and affirming sanctions. The bankruptcy court granted summary judgment against Carlson, In re Carlson, 224 B.R. 659 (Bankr. N.D. Ill. 1998), and denied Carlson's motion for reconsideration and to alter or reverse the judgment. Carlson now appeals both decisions of the bankruptcy court.
The bankruptcy court granted summary judgment in favor of FKK in October 1998, and Carlson appealed at that time. However., in January 1999, this court dismissed Carlson's appeal for want of prosecution. FKK contends the dismissal of that appeal precludes the court from now hearing Carlson's appeal from the grant of summary judgment, and this court can consider only Carlson's appeal from the bankruptcy court's order denying reconsideration of its summary judgment ruling. That is not correct. In December 1998, before this court acted upon Carlson's first appeal and without informing the court, Carlson sought reconsideration of the bankruptcy court's grant of summary judgment. The motion for reconsideration had the effect of rendering Carlson's appeal from the grant of summary judgment premature. "[T]imely requests for rehearing automatically suspend the finality of the order (and therefore make an immediate appeal impossible) even if no rule provides for this." In the Matter of X-Cel, Inc., 823 F.2d 192, 193 (7th Cir. 1987); In re Wiley, 237 B.R. 677, 682 n. 1 (N.D. Ill. 1999). Therefore, this court lacked jurisdiction to dismiss Carlson's appeal in January 1999.
DISCUSSION
A movant is entitled to summary judgment under Fed.R.Civ.P. 56 when the moving papers and affidavits show there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Unterreiner v. Volkswagen of America, Inc., 8 F.3d 1206, 1209 (7th Cir. 1993). Once a moving party has met its burden, the non-moving party must go beyond the pleadings and set forth specific facts showing there is a genuine issue for trial. Fed.R.Civ.P. 56(e); Becker v. Tenenbaum-Hill Assoc., Inc., 914 F.2d 107, 110 (7th Cir. 1990). The court considers the record as a whole and draws all reasonable inferences in the light most favorable to the party opposing the motion. Fisher v. Transco Services-Milwaukee, Inc., 979 F.2d 1239, 1242 (7th Cir. 1992)The factual findings of the bankruptcy court are reviewed for clear error; its legal conclusions are reviewed de novo. In re A-1 Paving and Contracting, Inc., 116 F.3d 242, 243 (7th Cir. 1997). "A finding is `clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Anderson v. Bessemer City, 470 U.S. 564, 573 (1985). Whether the factual findings of the Illinois circuit court satisfy the requirements of dischargability under § 523(a)(6) is a mixed question of law and fact. Golant v. Care Comm, Inc., 216 B.R. 248, 252 (N.D. Ill. 1997). Mixed questions of law and fact or questions pertaining to the application of facts to the law are reviewed de novo. In re Ebbler Furniture and Appliances, Inc., 804 F.2d 87, 88 (7th Cir. 1986).
I. NONDISCHARGABILITY UNDER 11 U.S.C. § 523(a)(6)
Section 523(a)(6) excepts from discharge any debt incurred as the result of "willful and malicious injury by the debtor to another entity or to the property of another entity." Therefore, to show nondischargability under § 523(a)(6), FKK must prove by a preponderance of the evidence that (1) Carlson caused an injury; (2) Carlson's actions were willful; and (3) Carlson's actions were malicious. Golant, 216 B.R. at 255 (N.D. Ill. 1997); In re Arlington, 192 B.R. 494, 499 (N.D. Ill. 1996). In finding the elements of § 523(a)(6) satisfied, the bankruptcy court relied upon the factual findings made by the Illinois circuit court in awarding sanctions against Carlson under Rule 137. The bankruptcy court concluded the circuit court's findings established that Carlson injured FKK by bringing a frivolous suit, and that he had done so willfully and maliciously.
Reviewing de novo the bankruptcy court's application of the circuit court's factual findings to the three elements of § 523(a)(6), this court concludes the bankruptcy court properly determined the sanctions imposed against Carlson are not dischargable under § 523(a)(6). First, the Illinois circuit court's findings demonstrate Carlson's suit injured FKK. The circuit court found the suit to be frivolous. A frivolous suit necessarily causes injury — it forces the party sued to incur expenses in defending the suit. In re Lutz, 169 B.R. 473, 478 (Bankr. S.D. Ga. 1994). Therefore, Carlson's suit injured FKK.
Second, the circuit court's findings reveal that Carlson acted willfully within the meaning of § 523(a)(6). Under § 523(a)(6), willful means "deliberate or intentional." In re Thirtyacre, 36 F.3d 697, 700 (7th Cir. 1994); In re Arlington, 192 B.R. at 500. In addition, the term "willful" in § 523(a) (6) modifies the word "injury;" therefore, nondischargability under § 523(a)(6) requires proof of a deliberate or intentional injury, not simply a deliberate or intentional act that leads to an injury. Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 977 (1998). The Illinois circuit court found the injury caused by Carlson was deliberate and intentional. The court specifically stated Carlson's suit against FKK was brought "for an improper purpose, that is, to harass or in some way get even with the attorneys or some of the attorneys which had been part of the earlier federal suit." Tr. 10/7/93 at 32. The finding that Carlson brought the suit to "harass" and "get even" demonstrates a deliberate and intentional course of conduct designed to cause FKK to incur expenses in defending the suit.
Third, the Illinois circuit court's findings demonstrate Carlson's suit was malicious. Under § 523(a)(6), malicious "means in conscious disregard of one's duties or without just cause or excuse; it does not require ill-will or specific intent to do harm." In re Thirtyacre, 36 F.3d at 700; In re Arlington, 192 B.R. at 500. The circuit court's findings that Carlson acted to harass or get even with FKK indicate that Carlson's suit was without just cause or excuse.
II. COLLATERAL ESTOPPEL
The forgoing discussion assumes Carlson is bound by the factual determinations of the Illinois circuit court in assessing the propriety of his suit under Rule 137. For those factual findings to govern the inquiry into whether Carlson's suit against FKK was willful and malicious under § 523(a)(6), Carlson must be precluded from relitigating those issues of fact. This raises a question of collateral estoppel. The bankruptcy court found that Carlson is collaterally estopped from relitigating the factual issues surrounding his motivation for suing FKK. This court affirms that conclusion.
The doctrine of collateral estoppel is commonly applied to nondischargability proceedings in bankruptcy. See Meyer v. Rigdon, 36 F.3d 1375, 1378-79 (7th Cir. 1994); Klingman v. Levinson, 831 F.2d 1292, 1294-95 (7th Cir. 1987). In the nondischargability context, where a court rules against the debtor upon specific issue of fact that independently comprise elements of a dischargability claim, collateral estoppel precludes the debtor from relitigating those underlying facts in bankruptcy court. See Klingman, 831 F.2d at 1294-95. But before analyzing whether the requirements of collateral estoppel are met and whether Carlson is precluded from relitigating the factual findings of the circuit court, the court must address a threshold issue concerning what constitutes the "findings" of the circuit court. Carlson contends the only factual findings that may be applied in collateral estoppel are those findings stated in the circuit court's written order of sanctions. Carlson argues the bankruptcy court erred in consulting the circuit court's oral statements from the bench when examining the circuit court's factual findings. Carlson asserts the only finding stated in the written order is that Carlson failed to conduct a "reasonable inquiry" into the merits of the suit against FKK, and that the written order does not include a finding of willful and malicious injury.
The bankruptcy court's reliance upon the circuit court's oral statements was proper. As noted by the bankruptcy court, three lines of Illinois precedent strongly support the validity of applying the oral findings of the circuit court on collateral estoppel. First, oral findings of an Illinois court are binding to the extent they do not conflict with the findings stated in a later written order. F.H. Prince Co., Inc. v. Towers Financial Corp., 640 N.E.2d 1313, 1321 n. 7 (Ill.App. 1994); In re Zander, 653 N.E.2d 440, 441-42 (Ill.App. 1995); Urso v. Reynolds Metals Co., 238 N.E.2d 271, 273 (Ill.App. 1968). Second, the collateral estoppel effect of a judgment or decree may be shown on the face of the record or by reference to extrinsic evidence.Agriserve, Inc. v. Belden, 643 N.E.2d 1193, 1194 (Ill.App. 1994); City of Geneseo v. Illinois Northern Utilities Co., 39 N.E.2d 26 (Ill. 1941). Finally, reference may be made to pleadings, testimony, jury instructions, findings, verdicts, and any other pertinent sources of information reasonably helpful when determining whether an issue had been raised and considered in a prior proceeding. Claiborne v. Hutchinson, 385 N.E.2d 29, 32 (Ill.App. 1978)
The circuit court's written order finding Carlson violated Rule 137 does not undermine or contradict that court's earlier oral findings concerning Carlson's conduct. According to the written order, the circuit court awarded sanctions against Carlson because "[t]he court specifically finds that this action was not brought after reasonable inquiry that it be well grounded in fact, nor that it was warranted by existing law, nor a good faith argument for the extension, modification, or reversal of existing law. The court further finds that this action was brought for an improper purpose." Because the written order did not identify the improper purpose, consideration of the court's oral findings on that question was proper. From the bench, the circuit court found the improper purpose was "to harass or in some way get even with the attorneys or some of the attorneys which had been part of the earlier federal suit," and explained "[t]o bring suit against attorneys for their role in protecting their clients [sic] rights, I think is an unwarranted and improper use of this lawsuit." These statements are not inconsistent with the circuit court's written order. To the contrary, they explain the basis for that court's conclusion Carlson's suit was improper. Accordingly, the oral statements constitute part of the findings of the circuit court properly referenced by the bankruptcy court.
The court now turns to whether it was proper to apply those findings in the § 523(a)(6) analysis through collateral estoppel. There are four requirements for collateral estoppel: (1) the issue sought to be precluded must be the same as that involved in the prior action; (2) the issue must have been actually litigated: (3) the determination of the issue must have been essential to the final judgment; and (4) the party against whom estoppel is invoked must be fully represented in the prior action. Klingman, 831 F.2d at 1295. The court finds the requirements are satisfied. First, the issue sought to be precluded in the bankruptcy proceeding is the same as that before the Illinois circuit court. The inquiry taken by the circuit court under Rule 137 mirrors the inquiry of the bankruptcy court under § 523(a)(6). Under Rule 137, the circuit court examined whether Carlson's suit was frivolous and intended to harass FKK. Section 523(a)(6) is directed to whether the debt arose from a willful and malicious injury — that is, an injury that was intentional and without just cause. See In re Thirtyacre, 36 F.3d at 700. Therefore, the factual inquiry under Rule 137 and a § 523(a)(6) analysis both examine Carlson's intent in suing FKK and whether that suit lacked just cause.
Second, the issue was actually litigated in the circuit court. Carlson's willfulness and maliciousness — whether he had a good faith basis and just cause for suing FKK — were clearly before the circuit court. These issues were the subject of the motion for sanctions filed by FKK, and were argued before the circuit court. Carlson argued vigorously before the circuit court that his intentions were proper and that he had cause for believing the suit to have at least some merit. The circuit court made express findings on these issues.
Carlson argues FKK is judicially estopped from arguing in bankruptcy that Carlson's conduct was willful and malicious because FKK did not raise this issue before the circuit court. Under the doctrine of judicial estoppel advanced by Carlson, a party is not allowed to assert inconsistent positions in successive lawsuits where doing so prejudices other parties. Carlson contends FKK raised only the issue of whether his suit was frivolous, but did not raise the issue of his motivation. He concludes it is inconsistent for FKK to now argue his motivation was willful and malicious. This argument lacks merit. FKK's position before the circuit court — that Carlson improperly filed a baseless suit against FKK for seeking a medical examination of Carlson's client — is not inconsistent with FKK's position before the bankruptcy court — that Carlson willfully and maliciously sued FKK. Moreover, regardless of what FKK may or may not have argued before the circuit court, that court expressly found Carlson intended to harass FKK by filing suit, and did so after allowing Carlson the opportunity to justify the suit. Therefore, even if FKK did not expressly raise Carlson's willfulness or maliciousness before the circuit court, Carlson cannot claim prejudice because he litigated his motivation.
Third, determination of the issue was essential to the final judgment in the circuit court. Carlson vigorously contests this point. He argues a finding of liability under Rule 137 requires a lesser standard of culpability than a finding of nondischargability under § 523(a)(6). He correctly notes Rule 137 does not refer to willful and malicious conduct. He further argues Rule 137 does not require a finding that an attorney's actions were willful and malicious, but only that an attorney's actions were objectively negligent. Carlson concludes that it is therefore inappropriate to use a Rule 137 violation as the basis of a finding of willful and malicious injury under § 523(a)(6).
This argument lacks merit. Rule 137 essentially requires: (1) that an attorney make a reasonable inquiry into the merit of a suit and not file a frivolous suit, and (2) that an attorney not file suit for an improper purpose, such as to harass or cause unnecessary delay. The cases relied upon by Carlson, Mandziara v. Canulli, 701 N.E.2d 127 (Ill.App. 1998); Hall v. InPhoto Surveillance Co., 649 N.E.2d 83 (Ill.App. 1995); Elledge v. Reichert, 620 N.E.2d 543 (Ill.App. 1993) concern only the first requirement of Rule 137. These decisions direct that when examining whether an attorney made a reasonable inquiry into the merits of a suit under Rule 137, a court must evaluate the attorney's conduct under an objective standard; an attorney's subjective good-faith belief that the suit had merit is not enough to save the attorney from sanction. Those cases do not address Rule 137's other requirement, namely that a suit be brought for a proper purpose and not to harass or cause unnecessary delay or needless litigation. This requirement was the focus of the circuit court's findings. The circuit court was not concerned solely with whether Carlson's suit was objectively frivolous, but also with Carlson's subjective motivation for bringing the suit. While every Rule 137 violation may not support a finding of nondischargability under § 523(a)(6), the Rule 137 violation found by the circuit court in this case was grounded upon Carlson's improper motivation for suing FKK.
Finally, Carlson was adequately represented in the Illinois litigation. Carlson, an attorney, represented himself. Accordingly, Carlson is collaterally estopped from contesting the findings of the Illinois circuit court. As a matter of law, Carlson's debt to FKK is nondischargable under § 523(a)(6). Therefore, the bankruptcy court's grant of summary judgment against Carlson was proper. The bankruptcy court denied the motion for reconsideration because Carlson did not demonstrate any error of law or fact in its earlier summary judgment analysis, nor did Carlson offer newly discovered evidence or any other reason justifying relief from the judgment.
CONCLUSION
The bankruptcy court's order granting summary judgment is affirmed.