Scarborough, In re

• Decision Date: 31 March 1999
• Docket Number: 97-3789,No. 97-3788,97-3788
• Citation: 171 F.3d 638
• Parties: , Bankr. L. Rep. P 77,932 In re: Elisabeth SCARBOROUGH, Debtor. Mark E. Fischer, Appellee/Cross-Appellant, v. Elisabeth Scarborough, Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 638

171 F.3d 638

34 Bankr.Ct.Dec. 176, Bankr. L. Rep. P 77,932

In re: Elisabeth SCARBOROUGH, Debtor Mark E. Fischer, Appellee/Cross-Appellant, v. Elisabeth Scarborough, Appellant/Cross-Appellee.

No. 97-3788, 97-3789.

United States Court of Appeals Eighth Circuit.

Submitted Nov. 19, 1998.

Decided March 31, 1999.

Rehearing and Rehearing

En Banc Denied in No.

97-3788 May 18, 1999.

M. Corinne Corley, Kansas City, MO, argued, for appellant.

Ronald K. Barker, Kansas City, MO, argued, for appellee.

Before MCMILLIAN, WOLLMAN, and HANSEN, Circuit Judges.

HANSEN, Circuit Judge.

Mark E. Fischer filed an adversary complaint in Elisabeth Scarborough's Chapter 7 bankruptcy proceeding, seeking to bar the discharge of a judgment debt he had obtained against Ms. Scarborough. Applying the collateral estoppel doctrine, the bankruptcy court ruled that the actual damages portion of the judgment was not dischargeable under 11 U.S.C. § 523(a)(6) (1994), but that the punitive damages portion was dischargeable. Ms. Scarborough appealed the nondischargeability of the actual damages and Mr. Fischer cross-appealed the dischargeability of the punitive damages to the district court, which affirmed the bankruptcy court. Ms. Scarborough and Mr. Fischer now bring the same appeal and cross-appeal from the district court's ruling. We affirm in part and reverse in part.

I.

Fischer and Scarborough were married in 1984 and divorced in 1986. Pursuant to the divorce decree, Ms. Scarborough had custody of their only son, Benjamin, and Mr. Fischer was allowed visitation. In 1989, Ms. Scarborough took Benjamin to the Grain Valley, Missouri, police station where Benjamin told police that his father, Fischer, had sodomized him when he was three. A police investigation followed and a grand jury indicted Fischer on felony child abuse charges. The criminal charges were eventually dismissed two years later. Ms. Scarborough also filed a petition for an ex parte order of protection in 1989 that was dismissed when she failed to appear at the hearing.

In 1991 Mr. Fischer filed a civil lawsuit against Ms. Scarborough in Missouri state court, alleging malicious prosecution and abuse of process. The jury returned a verdict in favor of Fischer, awarding him $50,000 in actual damages and $100,000 in punitive damages on the malicious prosecution claim and $50,000 in actual damages on the abuse of process claim. Ms. Scarborough did not appeal the state verdict.

Ms. Scarborough failed to pay the judgment and filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code in 1996, seeking to discharge the judgment owed to Fischer. Mr. Fischer sought to bar the discharge under § 523(a)(6), which excepts from discharge any debt "for willful and malicious injury by the debtor to another entity or the property of another entity." The bankruptcy court determined that the jury in the state case necessarily found that Ms. Scarborough acted willfully and maliciously to injure Fischer based on the jury instructions for the underlying malicious prosecution and abuse of process claims. However, the bankruptcy court determined that Ms. Scarborough had not willfully and maliciously injured Fischer as to the punitive damages, and thus, that portion of the judgment debt was dischargeable. The bankruptcy court relied on its earlier case, In re Ratcliff, 199 B.R. 185 (Bankr.W.D.Mo.1996), and the jury instructions that allowed the jury to award punitive damages based on reckless indifference. The district court affirmed the bankruptcy court's decision primarily for the reasons stated by the bankruptcy court.

II.

In this appeal, we sit as a second court of review and apply the same standards as applied by the district court. See United States v. Roso (In re Roso), 76 F.3d 179, 181 (8th Cir.1996). We review de novo the district court's conclusions of law, which include the application of collateral estoppel. See Tudor Oaks Ltd. Partnership v. Cochrane (In re Cochrane), 124 F.3d 978, 982 (8th Cir.1997), cert. denied, --- U.S. ----, 118 S.Ct. 1044, 140 L.Ed.2d 109 (1998).

Section 523(a)(6) provides that certain debts are not dischargeable in bankruptcy, namely those that are "for willful and malicious injury by the debtor to another entity." Willful and malicious are two distinct requirements that Fischer, as the party seeking to avoid the discharge of the debt, must prove by the preponderance of the evidence before the § 523(a)(6) exception to discharge applies. See Grogan v. Garner, 498 U.S. 279, 286-87, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991) (holding that the preponderance of the evidence standard applies to § 523 claims); Johnson v. Miera (In re Miera), 926 F.2d 741, 743 (8th Cir.1991) (noting that willful and malicious are distinct elements of the § 523(a)(6) exception). Willfulness is defined as " 'headstrong and knowing' conduct and 'malicious' as conduct 'targeted at the creditor ... at least in the sense that the conduct is certain or almost certain to cause ... harm.' " In re Miera, 926 F.2d at 743-44 (quoting Barclays Am./Bus. Credit, Inc. v. Long (In re Long), 774 F.2d 875, 881 (8th Cir.1985)). To give effect to the distinction between "malicious" and "willful," we have held that malice requires more than just reckless behavior by the debtor. Id. at 743. Scarborough must have acted with the intent to harm Fischer rather than merely acting intentionally in a way that resulted in harm. See Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 977, 140 L.Ed.2d 90 (1998).

Collateral estoppel is a legal doctrine that "bar[s] the relitigation of factual or legal issues that were determined in a prior ... court action," and applies to bar relitigation in federal court of issues previously determined in state court. In re Miera, 926 F.2d at 743. We look to the substantive law of the forum state in applying the collateral estoppel doctrine, giving a state court judgment preclusive effect if a court in that state would do so. See Baker Elec. Coop., Inc. v. Chaske, 28 F.3d 1466, 1475 (8th Cir.1994). Missouri courts consider four factors in applying collateral estoppel: (1) the issues in the present case and the prior adjudication must be identical; (2) the judgment in the prior adjudication must be on the merits; (3) "the party against whom collateral estoppel [is] asserted [must have been] the same party or in privity with a party in the prior adjudication;" and (4) "the party against whom collateral estoppel is asserted [must] have [had] a full and fair opportunity to litigate the issue in the prior suit." State v. Nunley, 923 S.W.2d 911, 922 (Mo.1996) (en banc) (internal quotations and citations omitted), cert. denied, 519 U.S. 1094, 117 S.Ct. 772, 136 L.Ed.2d 717 (1997); see also Nichols v. City of St. Louis, 837 F.2d 833, 835 (8th Cir.1988) (applying Missouri law). Additionally, "[t]he doctrine applies only to those issues that were necessarily and unambiguously decided." Nunley, 923 S.W.2d at 922.

A. Actual Damages

There is no dispute that the state court judgment is a valid and final judgment or that the determinations required by the jury instructions were essential to that judgment. It is also undisputed that the state court judgments were reached on a preponderance of the evidence standard, which is the same standard that applies to § 523(a)(6) dischargeability disputes under Grogan. See 498 U.S. at 286-87, 111 S.Ct. 654. The controversy concerns whether the issues were the same and whether Scarborough had a full and fair opportunity to litigate them.

Though Scarborough argues that legal mistakes were made in the state court trial, she did not appeal the state court judgment. "Whether a prior judgment is legally correct is not at issue in applying the doctrine of collateral estoppel." Buckley v. Buckley, 889 S.W.2d 175, 179 (Mo.Ct.App.1994). See also Montana v. United States, 440 U.S. 147, 162, 99 S.Ct. 970, 59 L.Ed.2d 210 (1979) ("[A] fact, question or right distinctly adjudged in the original action cannot be disputed in a subsequent action, even though the determination was reached ... by an erroneous application of the law.") (internal quotations and citations omitted) (emphasis in original); Richey v. United States Internal Revenue Serv., 9 F.3d 1407, 1412 (9th Cir.1993) (relying on Montana and holding that even if the erroneous jury instruction in the previous case effectively directed a verdict against the defendant, it was still only a misapplication of the law and irrelevant to the issue of the prior judgment's preclusive effect for purposes of collateral estoppel). Scarborough "is attempting to achieve through the back door what [she] cannot do directly: that is, bring a subsequent action challenging a legal ruling in a prior action." Sil-Flo, Inc. v. SFHC, Inc., 917 F.2d 1507, 1521 (10th Cir.1990). The purposes of collateral estoppel are to relieve parties of "the expense and vexation attending multiple lawsuits, conserve [ ] judicial resources, and foster[ ] reliance on judicial action by minimizing the possibility of inconsistent decisions." Montana, 440 U.S. at 153-54, 99 S.Ct. 970 (footnote omitted). To allow Scarborough to attack the state court judgment would eviscerate the doctrine of collateral estoppel. She had her chance to challenge the state court jury's decision by appealing to the state appellate court and declined to do so.

We must now decide whether the issues sought to be precluded from relitigation--whether Scarborough willfully and maliciously injured Fischer--are identical to the issues decided in the state trial. The bankruptcy court looked at the state trial proceedings, particularly the jury instructions, to determine whether the issues of "willfulness" and "maliciousness" were litigated in that case. Jury Instruction No. 9 for malicious prosecution read: "Your verdict must be for [Fischer] if you believe: First, [Scarborough] instigated a judicial proceeding against [Fischer] which terminated in favor of [Fisch...