McNallen, In re

• Citation: 62 F.3d 619
• Decision Date: 10 August 1995
• Docket Number: No. 94-2320,94-2320
• Parties: Bankr. L. Rep. P 76,586 In re James B. McNALLEN, Debtor. Patricia McNallen HAGAN, Plaintiff-Appellee, v. James B. McNALLEN, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 619

62 F.3d 619

Bankr. L. Rep. P 76,586

In re James B. McNALLEN, Debtor Patricia McNallen HAGAN, Plaintiff-Appellee, v. James B. McNALLEN, Defendant-Appellant.

No. 94-2320.

United States Court of Appeals Fourth Circuit.

Argued May 4, 1995.

Decided Aug. 10, 1995.

ARGUED: H. Bradley Evans, Jr., Hazel & Thomas, P.C., Alexandria, VA, for appellant. Robert R. Vieth, McGuire, Woods, Battle & Boothe, L.L.P., McLean, VA, for appellee. ON BRIEF: Nathan B. Smith, McGuire, Woods, Battle & Boothe, L.L.P., McLean, VA, for appellee.

Before RUSSELL, HAMILTON, and LUTTIG, Circuit Judges.

Affirmed by published opinion. Judge HAMILTON wrote the opinion, in which Judge RUSSELL and Judge LUTTIG joined.

OPINION

HAMILTON, Circuit Judge:

Debtor-Appellant James McNallen (McNallen) appeals the judgment of the district court affirming the bankruptcy court's decision that a tort judgment rendered against McNallen in a Texas court was not dischargeable under 11 U.S.C.A. Sec. 523(a)(6) (West 1993), which provision denies discharge from debt for willful and malicious injury to person or property by the debtor. In an adversary proceeding, the bankruptcy court denied discharge and entered summary judgment in favor of Appellee Patricia Hagan (Hagan), McNallen's sister, because it concluded that the issues of McNallen's willful and malicious conduct were determined by the Texas court, and therefore, collateral estoppel barred McNallen from attempting to litigate these issues in the bankruptcy proceeding. Ruling from the bench, the district court summarily affirmed. McNallen appeals, and we affirm.

I.

Hagan is the attorney-in-fact for her mother, Sallie Lou McNallen (Sallie Lou), who unfortunately suffers from Alzheimer's disease. Because of Sallie Lou's failing physical and mental health, she was placed in a retirement home that provided her with long-term care. Despite the diagnosis of Sallie Lou's doctors that she suffered from Alzheimer's disease, McNallen concluded that his mother was not physically and mentally incapacitated and attempted to remove her from the care of the retirement home. Fearful that her brother's attempts would injure Sallie Lou, Hagan instituted proceedings against McNallen in Texas state court, alleging claims of intentional infliction of emotional distress and intentional invasion of privacy. In addition to money damages for the intentional tort claims, Hagan successfully petitioned the Texas state court to enjoin McNallen from improperly attempting to remove Sallie Lou from the retirement home, improperly communicating with her, or attempting to harm her. In issuing the injunction, the Texas judge specifically found that "McNallen intends to, and will, unless prevented by order of this court ... cause severe distress and physical harm to Sallie Lou...." (J.A. at 294).

On June 29, 1993, subsequent to a seven-day trial, a Texas jury returned a verdict in favor of Hagan on the intentional tort claims, assessing compensatory damages of $5,583 and punitive damages of $100,000. In special verdict number two, the jury specifically answered "yes" to the following question:

QUESTION NO. 2

Did James B. McNallen intentionally or recklessly act outrageously toward Sallie Lou McNallen, causing her severe emotional distress?

James B. McNallen's conduct was "outrageous" if it went beyond the bounds of decency, and a civilized community would find it to be atrocious and utterly intolerable. However, even if James B. McNallen's conduct would not otherwise have been outrageous, it qualifies as "outrageous" if James B. McNallen engaged in the conduct knowing that Sallie Lou McNallen was peculiarly susceptible to emotional distress by reason of a physical or mental condition, weakness, or peculiarity.

The outrageous character of James B. McNallen's conduct may arise from his abuse of his relationship with Sallie Lou McNallen if that relationship gave him actual or apparent authority over her, or the power or apparent power to affect her interests.

In determining whether James B. McNallen acted intentionally, you may disregard his protestations that he did not intend to harm Sallie Lou McNallen and, instead, may infer his intent from the other evidence.

"Severe emotional distress" includes all highly unpleasant mental reactions such as anxiety, fear, horror, grief, shame, humiliation, embarrassment, anger, chagrin, disappointment, worry or nausea. This emotional distress must be extreme. The distress is extreme if it is so severe that no reasonable person could be expected to endure it without undergoing unreasonable suffering.

Id. at 240. Similarly, the jury answered "yes" to special verdict number four:

QUESTION NO. 4

Did James B. McNallen act with wanton disregard for Sallie Lou McNallen by invading her privacy or by intentionally causing her emotional distress?

Id. at 242. Likewise, in special verdict number five, the jury specifically determined that punitive damages of $100,000 were appropriate given McNallen's conduct. Id. The parties represented at oral argument that there was no appeal from the Texas proceeding.

On September 28, 1993, McNallen filed a Chapter 7 petition in the United States Bankruptcy Court for the Eastern District of Virginia, seeking to discharge the Texas judgment in his bankruptcy proceeding. ¹ Subsequently, on December 22, 1993, Hagan filed an adversary complaint in the bankruptcy proceeding, petitioning the bankruptcy court to except from discharge the Texas judgment pursuant to 11 U.S.C.A. Sec. 523(a)(6). Hagan contended that collateral estoppel precluded McNallen from attempting to litigate the issues of his willfulness and maliciousness in the bankruptcy proceeding because the Texas jury determined that McNallen's conduct was willful and malicious. The bankruptcy court granted summary judgment in favor of Hagan, see Fed.R.Bankr.P. 7056(c), applying collateral estoppel to hold that the Texas judgment was not dischargeable under Sec. 523(a)(6), and the district court summarily affirmed.

McNallen appeals, raising two contentions. First, he contends that the issues of willfulness and maliciousness were never litigated against him in the Texas proceeding. McNallen maintains, therefore, that the Texas judgment has no preclusive effect in these proceedings, and thus the lower courts erred in applying collateral estoppel and concluding that the litigation of these two issues had been resolved against him. Second, he asserts that the punitive damages should be discharged regardless of whether collateral estoppel applies.

Conversely, Hagan asserts that the lower courts properly applied collateral estoppel in ruling the Texas judgment was not exempt from discharge. First, she maintains that the issues of McNallen's willfulness was conceded in the bankruptcy court and the issue of maliciousness was determined in the Texas proceeding, and hence the lower courts properly applied collateral estoppel to preclude litigation of maliciousness in the bankruptcy proceeding. Second, she posits that punitive damages are not dischargeable under Sec. 523(a)(6).

II.

A.

Here, the bankruptcy court granted summary judgment in favor of Hagan. See Fed.R.Bankr.P. 7056(c). To prevail on a motion for summary judgment, Hagan must demonstrate that there is no genuine issue as to any material fact and that she is entitled to judgment as a matter of law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). In determining whether McNallen has created a genuine issue of material fact, we must construe all facts and reasonable inferences to be drawn from them in his favor. See id. at 257-58, 106 S.Ct. at 2514-15. McNallen may not rest on his pleadings, but rather must show that specific, material facts exist that give rise to a genuine triable issue. See Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). McNallen may not, of course, "create a genuine issue of material fact through mere speculation or the building of one inference upon another," Beale v. Hardy, 769 F.2d 213, 214 (4th Cir.1985). The grant of summary judgment in bankruptcy proceedings entails the resolution of a legal conclusion, and hence our review is plenary. See Hope v. Walker (In re Walker ), 48 F.3d 1161, 1163 (11th Cir.1995); Century 21 Balfour Real Estate v. Menna (In re Menna ), 16 F.3d 7, 9 (1st Cir.1994).

B.

Collateral estoppel precludes relitigation of an issue decided previously in judicial or administrative proceedings provided the party against whom the prior decision was asserted enjoyed a full and fair opportunity to litigate that issue in an earlier proceeding. See Allen v. McCurry, 449 U.S. 90, 96, 101 S.Ct. 411, 415, 66 L.Ed.2d 308 (1980). In Grogan v. Garner, 498 U.S. 279, 284 & n. 11, 111 S.Ct. 654, 657 & n. 11, 112 L.Ed.2d 755 (1991), the Supreme Court concluded explicitly that principles of collateral estoppel apply in dischargeability proceedings in bankruptcy. In determining the preclusive effect of a state-court judgment, the federal courts must, as a matter of full faith and credit, apply the forum state's law of collateral estoppel. See Kremer v. Chemical Constr. Corp., 456 U.S. 461, 481-82, 102 S.Ct. 1883, 1897-98, 72 L.Ed.2d 262 (1982); 28 U.S.C.A. Sec. 1738 (West 1994). As the Allen Court explained, "Congress has specifically required all federal courts to give preclusive effect to state-court judgments whenever the courts of the State from which the judgments emerged would do so," Allen, 449 U.S. at 96, 101 S.Ct. at 415. It is well recognized, therefore, that the forum state's law of collateral estoppel applies in determining the dischargeability of debt. See Bugna v. McArthur (In re Bugna ), 33 F.3d 1054, 1057 (9th Cir.1994) (applying California law of collateral estoppel to determine the dischargeability of debt under 11 U.S.C.A. Sec. 523(a)(4)); In re Bulic, 997 F.2d 299, 304 n. 6 (7th Cir.1993) (applying Indiana law...