Atwater v. Charles (In re Charles), Case No. 6:11-bk-14989-KSJ
| Decision Date | 27 June 2014 |
| Docket Number | Case No. 6:11-bk-14989-KSJ,Adversary No. 6:12-ap-00011-KSJ |
| Parties | In re JAMES NEWELL CHARLES, Debtor. JEFFREY ATWATER, in his official capacity as Florida Chief Financial officer, and the STATE RISK MANAGEMENT TRUST FUND, Plaintiffs, v. JAMES NEWELL CHARLES, Defendant. |
| Court | U.S. Bankruptcy Court — Middle District of Florida |
James Newell Charles, a lawyer, is a Chapter 7 Debtor and Defendant in this adversary proceeding. Charles owes a debt for attorney fees and costs to the Plaintiffs, Jeffrey Atwater as Chief Financial Officer of the State of Florida and the State Risk Management Trust Fund (the "Fund"), in the amount of $407,363.95. Plaintiffs now seek a determination that the debt is nondischargeable under §§ 523(a)(4), 523(a)(6), and 523(a)(7) of the Bankruptcy Code.1 The saga of litigation that created this debt began in 1998 and demonstrates why I now hold the debt nondischargeable.
Charles, in 1998, represented Michael Dupont, a plaintiff in a federal civil rights lawsuit against a Florida government agency and its employees in federal district court.2 After three of the original four defendants were dismissed from the suit, the remaining defendant died, and Charles, on Dupont's behalf, reached a Coblentz agreement3 (the "Agreement") with that defendant's estate.4 Under the Agreement, Dupont was only permitted to collect from the estate's purported insurer—the Fund—which was established by the Florida legislature to provide insurance for federal civil rights actions against state employees.5 The Agreement, adopted as a consent judgment by a federal district court, required the Fund to pay Charles and his client a total of $525,670.70.6
After the Fund refused his demand for payment of the judgment, Charles initiated a lawsuit in the Florida Seventh Circuit Court ("Circuit Court") to enforce the Agreement.7 The Fund argued that the Agreement was unenforceable because it was unreasonable, not made ingood faith, and arose from fraud and collusion.8 After prolonged litigation, the Circuit Court ultimately ruled that the Agreement was unenforceable, concluding that Dupont's claim lacked "adequate support in law or in fact."9 The court went on to hold that, despite these shortcomings, Charles "tr[ied] to create a claim by a series of acts designed to advance a claim for his client that is unsupported by the facts and the law."10 The Circuit Court's Final Judgment11 ("Final Judgment") paints a scathing picture of the deceptive and fraudulent tactics used by Charles to obtain and enforce the Agreement.12
The Circuit Court in the Final Judgment made four critical factual and legal determinations relevant to the issues before this Court. First, Charles "relied on a contrived artifice that he dressed up as a Coblentz Agreement" so as to "coerce[] the attorney for the Estate into submission on a shadowy claim of malpractice against both the attorney and personal representative."13 Second, Charles knew of his lack of "competent, substantial evidence for his client's damage claim, fee or costs."14 Specifically, Charles blatantly lied by representing in the original agreement that the amount of damages and attorney fees had been reviewed by an independent expert, Mr. Roper.15 In fact, Mr. Roper testified he never reviewed the amounts.16 Moreover, despite knowing of its falsity, Charles made this same "misrepresentation" to twoother judges in the ensuing months.17 Third, Charles was consistently "not straightforward and honest" in his communications with the Attorney General, obscuring his knowledge of numerous facts so as "[to] construct the scenario that would allow him to present . . . [his client's] inflated claim."18 Fourth, after using "deception and chicanery to wrongfully exaggerate both the damages and the fees claimed in the hopes that he would be able to cause the State to cower when confronted with payment of such a large amount," Charles attempted to preserve the Agreement "through all kinds of contrived arguments."19
After its decision was affirmed on appeal,20 the Circuit Court reiterated its sentiment in the Costs and Attorney's Fee Judgment ("Fee Judgment"), maintaining that Charles had advanced a claim "not free from fraud and collusion" and had engaged in "overt actions . . . to perpetrate a fraud upon . . . [the] court and . . . the State of Florida."21 Relying on the egregious nature of Charles's misconduct, described in the Final Judgment, the court imposed sanctions against Charles and Dupont, jointly and severally, for $407,363.95.22
Charles filed for Chapter 7 bankruptcy relief a few months after the Circuit Court issued the Fee Judgment, effectively moving the dispute to this Court.23 Plaintiffs now argue in this adversary proceeding that the Fee Judgment debt is nondischargeable under §§ 523(a)(4), 523(a)(6), and 523(a)(7) of the Bankruptcy Code.24
Plaintiffs seek relief on summary judgment pursuant to Federal Rule of Civil Procedure 56.25 Rule 56(a) provides that "[t]he court shall grant summary judgment if the movant showsthat there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."26 The moving party has the burden of establishing the right to summary judgment.27 A "material" fact is one that "might affect the outcome of the suit under the governing law."28 A "genuine" dispute means that "the evidence is such that a reasonable jury could return a verdict for the nonmoving party."29 Once the moving party has met its burden, the nonmovant must set forth specific facts showing there is a genuine issue for trial.30 In determining entitlement to summary judgment, "facts must be viewed in the light most favorable to the nonmoving party only if there is a 'genuine' dispute as to those facts."31
To support their summary judgment motion, the Plaintiffs rely on the the findings made by the Circuit Court, contending they should be given collateral estoppel effect. If the Circuit Court's findings meet the requirements of collateral estoppel, they can be treated as undisputable facts by this Court in determining the Plaintiffs' entitlement to summary judgment.32 But the ultimate issue of dischargeability is a separate legal question to be addressed by this Court in the exercise of its jurisdiction.33
To determine whether a state court judgment should be afforded collateral estoppel effect, "the collateral estoppel law of that state must be applied to determine the judgment's preclusive effect."34 Here, Florida's collateral estoppel requirements control. Under Florida law, the party seeking to establish the prior judgment's findings as preclusive must prove: (1) the issue previously decided is identical to the one now before this Court, (2) the issue was "actuallylitigated" in the prior proceeding, (3) the Circuit Court's previous determination was "a critical and necessary part of the judgment," and (4) the standard of proof was "at least as stringent as the standard of proof" in the later action.35 Here, the Plaintiffs have established all four prongs of the collateral estoppel test.
As to the "identical issue" prong, "identical issue" does not necessarily mean identical cause of action. Collateral estoppel applies where two causes of action are different, "in which case the judgment in the first suit only estops the parties from litigating in the second suit issues—that is to say points and questions—common to both causes of action and which were actually decided in the prior litigation."36 Findings relating to Charles's own actions, i.e. that he deliberately misrepresented his client's claim for the sake of obtaining a greater recovery than the evidence supported and earning substantial attorney fees for himself, satisfy the "identical issue" requirement because this Court otherwise would need to make those findings in order to determine whether the exceptions to discharge apply to the debt.37 Thus, the issues and findings decided by the Circuit Court affirmed on appeal satisfy the "identical issue" requirement.
Unquestionably, the issues were actually, if not extensively, litigated in the state court. The enforceability of the Agreement, and consequently the issues of good faith, fraud, and collusion, were actually litigated in the Circuit Court. Actual litigation requires that the issue was effectively raised in the prior action and that the losing party had "a fair opportunity procedurally, substantively and evidentially" to contest the issue.38 Charles was involved in the lawsuit, had a full opportunity to present his case, and was afforded appellate review. TheCircuit Court issued a reasoned final judgment which was affirmed on appeal.39 All issues of fact and law pertinent to this Court's nondischargeability determination were actually litigated.
The findings relevant to this Court's determination—those relating to Charles's misconduct, the impetus for the Fee Judgment—were critical and necessary to the Circuit Court's judgment. One element Dupont was required to prove to enforce the Agreement under Florida law was that the Agreement was "reasonable and made in good faith."40 Moreover, the presence of fraud or collusion surely will invalidate a Coblentz agreement.41 The Circuit Court invalidated the Agreement on all of these bases, finding that the Agreement was patently unreasonable, not made in good faith, and was the product of fraud.42 Thus, findings as to Charles's conduct in relation to these determinations were critical and necessary to the judgment.
Lastly, the preponderance of the evidence standard of proof was identical in each case.43 All four elements of Florida's collateral estoppel requirements are met. Findings presented in the Final Judgment relating to Charles's fraud, misrepresentations, bad faith, and the conduct which gave rise to the Fee Judgment are given...
To continue reading
Request your trial