St. Laurent, In re

• Citation: 991 F.2d 672
• Decision Date: 20 May 1993
• Docket Number: No. 91-5407,91-5407
• Parties: , 28 Collier Bankr.Cas.2d 1406, 24 Bankr.Ct.Dec. 440, Bankr. L. Rep. P 75,387 In re Louis S. ST. LAURENT, II, et al., Debtors. Louis S. ST. LAURENT, II, Plaintiff-Appellant, v. William J. AMBROSE and Patty A. Ambrose, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

Page 672

991 F.2d 672

61 USLW 2734, 28 Collier Bankr.Cas.2d 1406,

24 Bankr.Ct.Dec. 440, Bankr. L. Rep. P 75,387

In re Louis S. ST. LAURENT, II, et al., Debtors Louis S. ST. LAURENT, II, Plaintiff-Appellant, v. William J. AMBROSE and Patty A. Ambrose, Defendants-Appellees.

No. 91-5407.

United States Court of Appeals Eleventh Circuit.

May 20, 1993.

Caption on Rehearing Corrected June 22, 1993.

Louis S. St. Laurent, II, Miami, FL, for plaintiff-appellant.

James W. Moore, Miami, FL, for defendants-appellees.

Appeal from the United States District Court for the Southern District of Florida.

Before FAY, DUBINA and CARNES, Circuit Judges.

DUBINA, Circuit Judge:

The issue in this case is whether a punitive damage award arising from a state court finding of fraud is dischargeable in bankruptcy. The debtor, Louis S. St. Laurent ("St. Laurent"), appeals the district court's judgment affirming the bankruptcy court's determination that the punitive and compensatory portions of a state court judgment for fraud were nondischargeable debts under 11 U.S.C. § 523(a)(2)(A) and § 523(a)(4). ¹ In re St. Laurent, 108 B.R. 805 (Bankr.S.D.Fla.1989). Because we affirm the bankruptcy court's determination of nondischargeability under § 523(a)(2)(A), and because that determination fully supports the judgment below, we find it unnecessary to review the bankruptcy court's conclusions under § 523(a)(4).

I. FACTS

St. Laurent was the developer of Topsider Resort ("Topsider"), a condominium complex located in the Florida Keys. First Federal Savings and Loan Association of the Florida Keys ("First Federal") held the mortgage to Topsider. In 1982, St. Laurent sold time-share intervals to the individual appellees (the "Owners"). The purchase agreements evidenced St. Laurent's promise to convey title free and clear of any encumbrance by the time of closing. At closing, the deeds of conveyance reflected that First Federal's mortgage no longer encumbered the time-share intervals. No release, however, had been obtained. Instead of paying off the mortgage, St. Laurent diverted the Owners' purchase money consideration to his personal use.

Topsider defaulted, and First Federal filed a foreclosure action in state circuit court in Monroe County, Florida, naming St. Laurent and the Owners as defendants. The Owners filed a cross-claim against St. Laurent for fraud, claiming that St. Laurent pocketed the purchase money paid him rather than applying it to satisfy First Federal's mortgage as promised. The state court found St. Laurent liable for fraud. ² First Fed. Sav. & Loan Ass'n of the Fla. Keys v. Can-Am Investments, Inc., No. 84-20156-CA-09 (Monroe County Ct. Jan. 18, 1989) (hereinafter "State Court Judgment"). Specifically, the court found by the greater weight of the evidence that St. Laurent

individually and as Trustee represented to the Defendant/Owners that they would obtain title to their individual unit weeks free and clear of [First Federal's] Mortgage when in fact Defendant, LOUIS S. ST. LAURENT II, individually and as Trustee, misdirected the consideration paid by each of the Defendant/Owners by converting these monies to his own use and did not use said funds to obtain releases from the subject mortgage.

Id. at 6. The court awarded $48,705.22 in compensatory damages and $50,000 in punitive damages. ³

Thereafter, St. Laurent filed for Chapter 7 bankruptcy protection, listing as a dischargeable debt the $98,705.22 judgment against him. The Owners sought a determination in bankruptcy court of whether the judgment was exempt from discharge under §§ 523(a)(2)(A) and 523(a)(4). The bankruptcy court found that the state court judgment established that St. Laurent

made fraudulent representations to the [Owners] by representing that [they] would obtain title to their time-share unit weeks free and clear of the first mortgage, when, in fact, [St. Laurent] misdirected the consideration paid by the [Owners] by converting those monies to his own use and not to obtain releases from the subject mortgage.

St. Laurent, 108 B.R. at 806. It then applied collateral estoppel to conclude that the entire debt was the product of fraud and therefore nondischargeable under §§ 523(a)(2)(A) and (a)(4). Id. The district court affirmed. In re St. Laurent, No. 90-0223 (S.D.Fla. Mar. 20, 1991).

II. ANALYSIS

St. Laurent argues on appeal that the district court erred in affirming the bankruptcy court's application of collateral estoppel to the state court judgment. Alternatively, he claims that punitive damage judgments awarded for fraud are dischargeable as a matter of law under §§ 523(a)(2)(A) and 523(a)(4) of the Bankruptcy Code. Although this case has been reviewed on appeal by the district court, we review the bankruptcy court's findings as if this were an appeal from a trial in the district court. In re Bennett, 989 F.2d 788 (No. 91-1059, 5th Cir. April 19, 1993). We review the bankruptcy court's fact findings for clear error, In re Patterson, 967 F.2d 505, 508 (11th Cir.1992), and its conclusions of law de novo. Id.

A. Collateral Estoppel

Collateral estoppel, or issue preclusion, bars relitigation of an issue previously decided in judicial or administrative proceedings if the party against whom the prior decision is asserted had a "full and fair opportunity" to litigate that issue in an earlier case. Allen v. McCurry, 449 U.S. 90, 95, 101 S.Ct. 411, 415, 66 L.Ed.2d 308 (1980). Collateral estoppel principles apply to dischargeability proceedings. Grogan v. Garner, 498 U.S. 279, 285 n. 11, 111 S.Ct. 654, 658 n. 11, 112 L.Ed.2d 755 (1991). If the prior judgment was rendered by a state court, then the collateral estoppel law of that state must be applied to determine the judgment's preclusive effect. In re Touchstone, 149 B.R. 721, 725 (Bankr.S.D.Fla.1993). Under Florida law, the following elements must be established before collateral estoppel may be invoked: (1) the issue at stake must be identical to the one decided in the prior litigation; (2) the issue must have been actually litigated in the prior proceeding; (3) the prior determination of the issue must have been a critical and necessary part of the judgment in that earlier decision; and (4) the standard of proof in the prior action must have been at least as stringent as the standard of proof in the later case. In re Yanks, 931 F.2d 42, 43 n. 1 (11th Cir.1991); In re Halpern, 810 F.2d 1061, 1064 (11th Cir.1987); In re Scarfone, 132 B.R. 470, 472 (Bankr.M.D.Fla.1991); see also Mobil Oil Corp. v. Shevin, 354 So.2d 372, 374 (Fla.1977). While collateral estoppel may bar a bankruptcy court from relitigating factual issues previously decided in state court, however, the ultimate issue of dischargeability is a legal question to be addressed by the bankruptcy court in the exercise of its exclusive jurisdiction to determine dischargeability. Halpern, 810 F.2d at 1064.

The bankruptcy court properly applied collateral estoppel to those facts underlying the state court's finding of fraud in determining dischargeability under § 523(a)(2)(A). The fraud issue at stake in the bankruptcy proceeding was identical to that decided in the state court proceeding. For purposes of § 523(a)(2)(A), a creditor must prove that (1) the debtor made a false representation with intent to deceive the creditor, (2) the creditor relied on the representation, (3) that his reliance was reasonably founded, and (4) that the creditor sustained loss as a result of the representation. In re Racila, 138 B.R. 303, 305 (Bankr.M.D.Fla.1992). To prove fraud under Florida law, a plaintiff must establish that the defendant made a "deliberate and knowing misrepresentation designed to cause, and actually causing detrimental reliance by the plaintiff." First Interstate Dev. Corp. v. Ablanedo, 511 So.2d 536, 539 (Fla.1987). The elements of common law fraud in Florida " 'closely mirror' the requirements of section 523(a)(2)(A) and, hence, are 'sufficiently identical ... to meet the first prong of the test for collateral estoppel.' " In re Jolly, 124 B.R. 365, 367 (Bankr.M.D.Fla.1991) (quoting In re Powell, 95 B.R. 236, 239 (Bankr.S.D.Fla.1989). The issue of fraud in the bankruptcy proceeding was therefore identical to the one involved in the prior litigation, thus meeting the first prong of issue preclusion.

The second prong of Florida's issue preclusion test requires the issue at stake to have been actually litigated in the prior proceeding. The state court tried each element necessary for a determination of fraud, each being fully and actually litigated. The second prong of the test was therefore fulfilled.

The third prong requires that the determination of the issue in the prior litigation to have been a critical and necessary part of the judgment. If the judgment fails to distinguish as to which of two or more independently adequate grounds is the one relied upon, it is impossible to determine with certainty what issues were in fact adjudicated, and the judgment has no preclusive effect. 1B James W. Moore et al., Moore's Federal Practice p 0.443[5.-1], at 782 (1992). As noted, the state court found St. Laurent liable for breach of the Owners' purchase agreements and warranties against encumbrances and for common law fraud. Ordinarily, punitive damages may not be recovered in breach of contract actions. Griffith v. Shamrock Village, Inc., 94 So.2d 854, 858 (Fla.1957). Punitive damages, however, may be recovered when the acts constituting the breach also amount to an independent cause of action in tort. Lewis v. Guthartz, 428 So.2d 222, 223 (Fla.1982); Griffith, 94 So.2d at 858. Thus, to recover punitive damages in a breach of contract context, an independent tort must be alleged and proved. Here, the Owners alleged that St. Laurent committed fraud and sought punitive damages under this cause of action only. (Def.'s Second Am. Answer at 10.) The state court based its punitive damages award explicitly upon its finding of fraud. ⁴ Thus,...