Opinion
Case No. 03-00618-8W7, Adv. Pro. No. 03-188
September 30, 2003
Robert E. Vaughn, Jr., Esq., Butler, Pappas, Weihmuller et al., Tampa, FL, for Plaintiffs.
ORDER DENYING MOTION FOR SUMMARY JUDGMENT AND SCHEDULING A FURTHER PRE-TRIAL CONFERENCE
The Debtor's former attorney, Michael N. Brown, and his law firm, Allen, Dell, Frank Trinkle, P.A., the plaintiffs in this action ("Attorneys"), have brought this adversary proceeding seeking a determination that a debt owed to the Attorneys is nondischargeable under sections 523(a)(2)(A) and 523(a)(6) of the Bankruptcy Code. This proceeding is before the Court on the Attorneys' motion for summary judgment.
In brief summary, the Debtor and his former wife retained the Attorneys to assist in the adoption of a child. In order to insure that the adoption would be successfully concluded, the Debtor executed a verified adoption petition stating that he was related by blood to the birth mother. In fact, he was not a blood relation.
Two years after the adoption, the birth mother obtained a judgment setting aside the adoption as having been obtained through fraud. The Debtor's former wife has now sued the Attorneys for malpractice in their representation of the former wife in the adoption. The Attorneys have filed a third party complaint in the malpractice action asserting that the Debtor is liable to them under theories of contribution and fraud for any damages assessed against the Attorneys; the attorneys contend that their actions in the adoption proceeding were based on the Debtor's misrepresentation.
Specifically, the Attorneys assert that section 523(a)(2)(A) supports a finding of nondischargeability based on the Debtor's fraudulent misrepresentation that he is related by blood to the birth mother in the adoption proceeding. As applied to this case, in order for the Attorneys to sustain a claim under section 523(a)(2)(A), they must establish that the Debtor owes them a debt for services that were obtained by fraud. But in this case, there is nothing in the record to support a finding that a false statement was made to induce the attorneys to provide services. Accordingly, I conclude that the record does not support summary judgment on this ground.
Section 523(a)(2)(A) is not limited to services obtained by fraud. It also includes money, property, or credit obtained by fraud. There is no evidence in this record that the Debtor received anything from the Attorneys other than services.
In the complaint, the Attorneys also assert a claim for relief under section 523(a)(6) of the Bankruptcy Code. Section 523(a)(6) provides that a discharge under chapter 7 does not discharge an individual debtor from any debt for willful and malicious injury by the debtor to another person. As discussed below, courts interpreting this provision have held that for a claim arising from the debtor's act to be nondischargeable under this section, it must have been done with actual subjective intent to injure or been done by the debtor with subjective knowledge that the acts were substantially certain to cause the injury forming the basis of the nondischargeability case.
I conclude that the record on summary judgment does not establish that the misrepresentation made by the Debtor was made with actual intent to cause the Attorneys injury in the form of damages that may arise from the malpractice action or that the Debtor had subjective knowledge that the misrepresentation was substantially certain to cause the damages that may arise from the malpractice action. Accordingly, the Attorneys' motion for summary judgment on this ground is also denied.
Factual Background
On or about February 26, 1998, the Debtor and his former wife, Angelika Ables, sought to adopt the child of the stepdaughter of the Debtor's aunt. The Attorneys were retained as counsel for the adoption, and the adoption was finalized. The Debtor and his former spouse raised the child for two years until the birth mother, Amber Striker, instituted an action to vacate the adoption. The state court ultimately annulled the adoption as a fraud on the court. The state court found that the birth mother had been coerced by her stepmother, Joan Striker, into giving up her child for adoption, and found that Ms. Striker misrepresented the birth mother's relationship with the Debtor in the adoption process.
See Exhibit A to Motion.
See Exhibit B to Motion — Final Order, inter alia, Vacating Judgment of Adoption, by Circuit Court of 13th Judicial Circuit for Hillsborough County, Florida, Family Law Division, dated November 20, 2000 (hereinafter "State Court Order").
State Court Order at 3, ¶ 5.
State Court Order at 2-4.
The state court also found that the Debtor had committed a fraud on the Court by signing the petition for adoption, which stated that he was related to the birth mother within the third degree of consanguinity. This fact is critical because if there is no such relationship, Florida Statutes section 63.125 requires a home study, which specifically includes an interview with the birth mother. The state court found that such a relationship could not have been possible because the Debtor was related to the birth mother by marriage, not by blood.
State Court Order at 5.
State Court Order at 2, ¶¶ 2-3.
State Court Order at 5.
The state court also specifically declined to rule on whether plaintiff Michael N. Brown, the attorney who performed the services in connection with the parties in the adoption ("Brown"), had been deceived by the Debtor's aunt, Joan Striker. Indeed, at the trial before the state court, the Debtor testified that he never talked to Brown until the day he signed the adoption petition at the hospital. The state court did not make any findings that the Debtor made any misrepresentations to the Plaintiffs. Further, the Debtor testified that the Strikers were the ones who had made the false representations to Brown regarding his relationship to the birth mother.
State Court Order at 3, ¶¶ 7-8:
As to the dispute between the testimony of Jean striker and Michael N. Brown concerning their conversations about the degree of consanguinity between Amber and Glen Ray Ables, Jr., the Court refrains from making a factual finding. . . . Under either scenario, the Court's decision to set aside Amber's consent and the final judgment of adoption is supported because either Michael N. Brown, an officer of the Court, encouraged people or conspired with them to deceive the Court, which would clearly set aside the final judgment, and the Court is not ruling that he did, or Joan Striker deceived him, or deceived him by omission and didn't tell him. And in perpetrating her deceit and fraud on Amber, she just continued it through Mr. Brown. And he may have been the innocent victim of this or not. But the Court is not ruling on that point, because under either factual scenario, this Court was deceived either by Joan Striker's deceit of Michael N. Brown or by Michael N. Brown's deceit of the Court. Either one supports the decision.
Document No. 5, Transcript of Hearing, at 27.
Document No. 5, Transcript of Hearing, at 17.
The Attorneys were subsequently sued by the Debtor's ex-spouse, Angelika Ables, in a legal malpractice action for services rendered by the Attorneys in connection with the adoption. The Attorneys seek to use the state court judgment, under the principles of collateral estoppel, to have this Court declare that the debt arising from any recovery on their third party claim against the Debtor in the malpractice action be determined nondischargeable under sections 523(a)(2)(A) and (a)(6).
Affidavit of Michael N. Brown (Doc. No. 4), at 2-3, ¶¶ 11-13. This lawsuit, Case No. 2002-CA-1797, is pending in the Thirteenth Judicial Circuit, Hillsborough County, and styled as Angelika Ables (Plaintiff) v. Michael N. Brown and Allen, Dell, Frank Trinkle (Defendants), and Michael N. Brown and Allen, Dell, Frank Trinkle (Third Party Plaintiffs) v. Joan Stiker and Glen R. Ables, Jr. (Third Party Defendants).
Conclusions of Law
A. Summary Judgment Standard.
Rule 56 of the Federal Rules of Civil Procedure, made applicable to this proceeding by Rule 7056 of the Federal Rules of Bankruptcy Procedure, requires the court to enter judgment for the moving party if the record indicates that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The court must draw all justifiable inferences in favor of the non-moving party. B. Collateral Estoppel Elements.
Celotex Corp. v. Catrett, 477 U.S. 317, 323-327 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-249 (1986); In re Diagnostic Instrument Group, Inc., 283 B.R. 87, 92-94 (Bankr. M.D. Fla. 2002).
Anderson, 477 at 255; Diagnostic, 283 B.R. at 94.
The Plaintiffs rely on the state court judgment voiding the adoption as grounds for the nondischargeability of their debt. The elements for collateral estoppel to apply are: (1) the issue at stake must be identical to the one decided in the prior proceeding; (2) the issue must have been actually litigated in the prior proceeding; and (3) the prior determination of the issue must have been a critical and necessary part of the judgment in the earlier proceeding. The Debtor has not contested the collateral estoppel effect of the judgment.
In re Auffant, 268 B.R. 689, 693 (Bankr. M.D. Fla. 2001).
C. Liability Under Section 523(a)(2)(A).
For a debt to be excepted from discharge under § 523(a)(2)(A), a creditor must prove that: (1) the debtor made a false statement with intent to deceive the creditor; (2) the creditor relied on the representation; (3) the reliance was reasonably founded, and that (4) the creditor sustained loss as a result of the representation. To meet their burden, the Plaintiffs cite to the findings in the state court judgment that the Debtor committed a fraud on the court. Yet there is no showing of the Debtor's intent to defraud the Attorneys.
In re St. Laurent, II, 991 F.2d 672, 676 (11th Cir. 1993).
In order for the Attorneys to sustain a claim under section 523(a)(2)(A), they must establish that the Debtor owes them a debt for services that were obtained by fraud. As recognized by the United States Supreme Court in the case of Cohen v. De La Cruz, while the phrase "to the extent obtained by" in section 523(a)(2)(A) does not impose any limitation on the extent to which "any debt" arising from fraud is excepted from discharge, the actual services must be obtained by fraud to give rise to a nondischargeable debt. "Once it is established that specific money or property has been obtained by fraud . . .`any debt' arising therefrom is excepted from discharge."
Section 523(a)(2)(A) is not limited to services obtained by fraud. It also includes money, property, or credit obtained by fraud. There is no evidence in this record that the Attorneys provided anything to the Debtor other than services.
523 U.S. 213, 218 (1998).
Id.
Id.
The record before the Court in the context of the summary judgment motion does not support a finding that services were obtained from the Attorney by fraud. A simple example illustrates this conclusion. If the Debtor had obtained the services of the attorney by misrepresenting that a retainer check "was in the mail" when in fact no such check existed, the attorney would have a claim for fraud in inducing him to provide services. Such a claim would be nondischargeable under section 523(a)(2)(A). That is not the situation here.
Rather, the state court found that the Debtor made a misrepresentation based upon his signing of the adoption papers, which included a statement regarding his relationship with the birth mother. However, drawing all inferences in light most favorable to the Debtor, the state court made no finding that the Debtor fraudulently induced the Attorneys to provide him legal services. Nor did the state court make any finding that the Debtor made any misrepresentations to the Attorneys at all.
In this regard, the Debtor testified that he only met Brown very briefly at the hospital, when he signed the adoption papers. Indeed, the state court believed that Brown's participation was cursory at best. While the state court specifically refused to decide whether the court was deceived either by Joan Striker's deceit of Brown or by Brown's deceit of the court, the state court decided that either one of the scenarios was sufficient to annul the adoption.
State Court Order at 4, ¶ 9.
Conspicuously absent from the state court decision was any reference of the Debtor's role via-a-vis any direct misrepresentation to Brown. In fact, the Debtor testified that the Strikers were the ones communicating with Brown. Thus, in light most favorable to the Debtor, the inference can be drawn that the Debtor not only did not fraudulently induce the Attorneys to provide him legal services but that he did not intend to deceive them. That is, there must be a direct link between this alleged fraud and the creation of the "debt" for purposes of section 523(a)(2)(A).
In re Spigel, 260 F.3d 27, 32-33 (5th Cir. 2001).
In Spigel, the debtor worked for the creditor as a used car sales agent. The debtor used the creditor's license to sell used automobiles as required under Rhode Island's law under the creditor's specific and limited grant of authority. However, the debtor exceeded this authority and misused the creditor's license in selling what eventually turned out to be stolen vehicles. The creditor was sued because the debtor had use of its license, and a judgment against the creditor was entered. The creditor sought to have the debt declared nondischargeable under section 523(a)(2)(A). The First Circuit ruled that the creditor failed to show that the fraud was directed at them, instead of the buyer of the stolen car. Accordingly, the court held that the debt was dischargeable because the creditor had failed to meet its burden.
Id. at 29-30.
Id.
Id. at 32.
Id. at 34-35.
Similarly, the Plaintiffs in this case have failed to show the direct connection between the debt incurred and the fraud committed by the Debtor. In this case, the fraudulent act was the Debtor's statement on the petition for adoption that he was related to the birth mother within the third degree of consanguinity. That fraud was directed at the Court and the birth mother, Amber Striker.
As a matter of law, the Court finds that the direct link between the debt and the fraud in this case is insufficient to meet the requirements of section 523(a)(2)(A). The direct link would exist if the birth mother had sued the Debtor for his deceit and sought to have the attorney fees incurred in such a hypothetical suit declared nondischargeable under section 523(a)(2)(A). Another direct link could conceivably occur if the state court had sanctioned the Debtor in favor of the birth mother; the resulting debt could be declared nondischargeable. These hypothetical situations (and not the one before this Court in this case) would be analogous to the situation presented to this Court in the case of In re Auffant, the case relied upon by the Plaintiffs as support (the debtor in Auffant sued the creditor to whom the false statements were directed, and the attorney fees arising from her suit against that creditor were held to be nondischargeable under section 523(a)(6)).
Importantly, the state court also did not rule that the Debtor had even made these misrepresentations to the Attorneys. The state court only held that the Debtor deceived the court by signing the petition with the false statement. Applying the principles of summary judgment, if any inference could be gleaned from the state court's findings, it was that Joan Striker, if anyone, was principally behind any alleged deceit to the Plaintiffs. The state court proceedings support the inference that the Debtor and Mr. Brown had very minimal contact with one another. Accordingly, the Plaintiffs have failed to meet their burden under section 523(a)(2)(A).
D. Liability Under Section 523(a)(6).
To except a debt from discharge under § 523(a)(6), the creditor must show that the debt was for willful and malicious injury to another. Debts arising from recklessly or negligently inflicted injuries do not fall within the willful and malicious injury exception to discharge. Willfulness must be shown by the debtor's: (1) actual subjective intent to cause the injury; or (2) subjective knowledge that his or her acts were substantially certain to cause the injury. Under either test, the Court finds that the Plaintiffs have failed to meet their burden on summary judgment.
Kawaauhau v. Geiger, 523 U.S. 57 (1998).
See, e.g., In re Tomlinson, 220 B.R. 134, 137-38 (Bankr. M.D. Fla. 1998).
See, e.g., In re Howard, 261 B.R. 513, 520-21 (Bankr. M.D. Fla. 2001).
Accordingly, viewing the facts in light most favorable to the Debtor, the Court cannot find that any debt owing by the Debtor to the Attorneys under their third party complaint in the legal malpractice action against the Attorneys by the Debtor's ex-wife, was substantially certain to arise from the Debtor's act of misrepresenting his blood relationship with the birth mother in the adoption proceeding. Thus, the Attorneys have failed to meet their burden under § 523(a)(6). Accordingly, it is
ORDERED:
1. The Motion is denied.
2. A further pre-trial conference is scheduled before the undersigned for October 21, 2003, at 9:30 a.m., in Courtroom 10B, Sam M. Gibbons United States Courthouse, 801 N. Florida Avenue, Tampa, Florida.
3. By separate order, the Court will deny the Attorneys' motion for relief from stay (Doc. No. 9 in Case No. 03-00618-8W7), in which the Attorneys sought to prosecute the Debtor in a third party complaint (pending in the Thirteenth Judicial Circuit for Hillsborough County, Case No. 2002-CA-1797) for causes of action arising from the same fact pattern.
DONE AND ORDERED.