Babbs v. Anderson (In re Anderson)
| Decision Date | 17 October 2011 |
| Docket Number | Case No. 10-93398,Adv. Pro. No. 11-59004 |
| Parties | In re: RICHARD HALE ANDERSON, Debtor. MARC E. BABBS and DEANNA M. BABBS, Plaintiffs, v. RICHARD HALE ANDERSON, Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of Indiana |
This matter came before the Court on Plaintiffs Marc E. Babbs and Deanna M. Babbs ("Plaintiffs") Motion for Summary Judgment against Debtor/Defendant Richard Hale Anderson ("Debtor"). Having reviewed the parties' respective filings, the Court hereby issues the followingAmended Findings of Fact and Conclusions of Law.1
1. On August 22, 2000, the State of Indiana entered charges against Debtor for Theft, a Class D Felony, in the Harrison Circuit Court under Cause No. 31D01-0008-CF-661. The charging information states that Debtor "did knowingly or intentionally and exert unauthorized control over property of Deanna and Marc Babbs . . . with the intent to deprive Deanna and Marc Babbs of the value and use thereof."
2. The charges against Debtor arose from a contract between Debtor and Plaintiffs to construct improvements on Plaintiffs' property.
3. On August 10, 2001, a Judgment of Conviction for Theft, a Class D Felony, was entered against Debtor (the "Conviction"). The Judgment of Conviction was entered pursuant to a Plea Agreement executed by Debtor on that same date.
4. On June 2, 2002, Plaintiffs filed a civil suit under Cause No. 31C01-0206-PL-28 in the Harrison Circuit Court against Debtor pursuant to Indiana Code § 34-24-31-1.
5. On August 20, 2002, the state court entered a default judgment against Debtor in the amount of $37,611.00, plus statutory interest (the "Default Judgment").
6. Debtor did not appeal or otherwise challenge the Default Judgment.
7. On October 19, 2010, Debtor filed a Chapter 7 bankruptcy petition. Plaintiffs then filed a timely nondischaregability action against Debtor pursuant to 11 U.S.C. § 523(a)(4) and (a)(6).
1. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I).
2. In their motion for summary judgment, Plaintiffs argue that Debtor's Conviction precludes him from relitigating whether his indebtedness to them arose from a "willful and malicious injury" for purposes of 11 U.S.C. § 523(a)(6). They further argue that the Default Judgment precludes Debtor from relitigating the amount of such indebtedness. For the reasons stated below, the Court agrees with the first of these arguments, but disagrees with the second.
3. Under Federal Rule of Civil Procedure 56, made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7056, summary judgment is proper if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). With a motion for summary judgment, the burden rests on the moving party to demonstrate "that there is an absence of evidence to support the nonmoving party's case." Id. at 325. After the moving party demonstrates the absence of a genuine issue for trial, the responsibility shifts to the non-movant to "go beyond the pleadings" to cite evidence of a genuine factual dispute precluding summary judgment. Id. at 322-23. If the non-movant does not come forward with evidence that would reasonably permit the finder of fact to find in its favor on a material question, then the court must enter summary judgment against it. Waldridge v. American Hoechst Corp., 24 F.3d 918, 920 (7th Cir.1994) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-87 (1986)).
4. A state court judgment is entitled to full faith and credit in bankruptcy proceedings.28 U.S.C. § 1738; Matter of Bulic, 997 F.2d 299, 304 (7th Cir.1993). Thus, in applying the principles of res judicata, this Court looks to the substantive law of the state that issued the judgment, giving the state court judgment the same preclusive effect it would receive in the forum state. See Scarborough v. Fischer (In re Scarborough), 171 F.3d 638, 641 (8th Cir. 1999); Bicknell v. Stanley, 118 B.R. 652 (S.D.Ind.1990). There are two categories of res judicata: claim preclusion and issue preclusion. Claim preclusion applies where a final judgment on the merits has been rendered which acts as a complete bar to a subsequent action on the same issue or claim between those parties and their privies. Northern Indiana Pub. Serv. Co. v. Sharp, 732 N.E.2d 848, 854 (Ind. Ct. App. 2000). Issue preclusion, also known as collateral estoppel, bars the subsequent relitigation of the same fact or issue where that fact or issue was necessarily adjudicated in a former suit and the same fact or issue is presented in a subsequent action. Id. Where issue preclusion applies, the previous judgment is conclusive only regarding those issues actually litigated and determined therein. Id.
5. Collateral estoppel can be used either offensively or defensively. Offensive collateral estoppel involves a situation where the plaintiff seeks to foreclose the defendant from litigating an issue the defendant had previously litigated unsuccessfully in an action with another party. Bartle v. Health Quest Realty VII, 768 N.E.2d 912, 917 (Ind.Ct.App.2002), trans. denied. Defensive collateral estoppel involves a situation where a defendant seeks to prevent a plaintiff from asserting a claim which the plaintiff had previously litigated and lost. Id. The present case involves the use of offensive collateral estoppel, as Plaintiffs seeks to prevent Debtor from relitigating whether the subject debt arose from a "willful and malicious injury" for purposes of § 523(a)(6).
6. The Indiana Supreme Court has adopted a two-prong test for the offensive use of collateral estoppel: (1) whether the party in the prior action had a full and fair opportunity to litigatethe issue; and (2) whether it would otherwise be unfair under the circumstances to permit the use of collateral estoppel. Tofany v. N.B.S. Imaging Sys. Inc., 616 N.E.2d 1034, 1038 (Ind.1993). The offensive use of collateral estoppel has traditionally been viewed as somewhat more problematic than the defensive use of collateral estoppel. In Tofany, the Indiana Supreme Court discussed the factors to be considered in a court's determination of whether offensive collateral estoppel should be utilized:
The trial court may consider privity, the defendant's incentive to litigate the prior action, the defendant's ability to defend the prior action, and the ability of the plaintiff to have joined the prior action. When considering the defendant's incentive to litigate, the trial court may consider the interest at stake for the defendant as well as how the defendant perceived this interest. For example, did the defendant have its most experienced litigator in the prior action or, instead, did the defendant rely on a less experienced litigator? Similarly, the trial court may consider whether the forum in which the action was defended allowed the defendant to participate in the full range of discovery. For example, was the forum inconvenient thus preventing the defendant from presenting witnesses or from taking depositions.
Id. at 1038-39. The Court added that these factors are not exhaustive; rather, they merely provide the framework for a court to utilize in its determinations. Id. at 1038.
7. Section 523(a)(6) excepts from discharge any debt "for willful and malicious injury by the debtor to another entity or to the property of another entity." To find that a debt is non-dischargeable under this section, the plaintiff must establish that: (1) it sustained an injury caused by the defendant; (2) the injury caused was willful; and (3) the injury caused was malicious. First Weber Group, Inc. v. Horsfall, 2011 WL 1628472, at 3 (Bankr.W.D.Wis.2011), citing Birriel v. Odeh, 431 B.R. 807, 817 (Bankr.N.D.Ill.2010); see also In re Whiters, 337 B.R. 326, 339 (Bankr.N.D.Ind.2006).
8. The United States Supreme Court has stated that the word "willful" in § 523(a)(6)"modifies that word 'injury,' indicating that nondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury." Kawaauhau v. Geiger, 523 U.S. 57, 61, 118 S.Ct. 974, 977,140 L.Ed.2d (1998) (emphasis in original). Therefore, to establish that an injury was "willful," there must be proof that the defendants intended to cause the injury and not simply "the act itself." Id. at 61–62, 118 S.Ct. at 977. The Geiger Court noted that to give the "willful and malicious" standard a broader interpretation would be to except from discharge injuries derived from "[e]very traffic accident stemming from an initial intentional act" and every "knowing breach of contract." Id. at 62, 118 S.Ct. at 977. The Court stated that such a broad interpretation would be in conflict with the policy that "exceptions to discharge 'should be confined to those plainly expressed.'" Id. (quoting Gleason v. Thaw, 236 U.S. 558, 562, 35 S.Ct. 287, 289, 49 L.Ed. 717 (1915)).
9. Maliciousness as used in § 523(a)(6) has been defined by the Seventh Circuit as a "conscious disregard of one's duties without just cause or excuse; it does not require ill-will or specific intent to do harm." In re Thirtyacre, 36 F.3d 697, 700 (7th Cir.1994). As explained by the Bankruptcy Court for the Northern District of Illinois in an October 2010 opinion:
The application of Thirtyacre's definition of maliciousness in every scenario is not readily apparent. It has sometimes been difficult to gauge what types of nonaggressive conduct, i.e., conduct that is not motivated by ill will, qualifies as being taken in "conscious disregard without just cause...
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