Combs v. Richardson

• Decision Date: 29 January 1988
• Docket Number: No. 86-2165,86-2165
• Citation: 18 C.B.C.2d 487,838 F.2d 112
• Parties: 18 Collier Bankr.Cas.2d 487, 17 Bankr.Ct.Dec. 151, Bankr. L. Rep. P 72,174 Fred COMBS, Plaintiff-Appellant, v. Alvin RICHARDSON, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 112

838 F.2d 112

18 Collier Bankr.Cas.2d 487, 17 Bankr.Ct.Dec. 151,

Bankr. L. Rep. P 72,174

Fred COMBS, Plaintiff-Appellant, v. Alvin RICHARDSON, Defendant-Appellee.

No. 86-2165.

United States Court of Appeals, Fourth Circuit.

Argued Nov. 2, 1987.

Decided Jan. 29, 1988.

Robert Tayloe Copeland (Copeland, Molinary & Bieger, Abingdon, Va., on brief), for plaintiff-appellant.

Sydney Strother Smith, III (Gail S. Ogle, Abingdon, Va., on brief), for defendant-appellee.

Before WIDENER, WILKINSON, and WILKINS, Circuit Judges.

WILKINSON, Circuit Judge:

This case addresses the preclusive effect of a civil jury verdict in subsequent bankruptcy proceedings. Alvin Richardson won a jury verdict in a diversity tort action against Fred Combs for assault. In a subsequent bankruptcy proceeding, the bankruptcy judge concluded that the jury verdict prevented Combs from relitigating the issue of whether the tort judgment arose from a willful and malicious injury and that the debt was therefore nondischargeable in bankruptcy under 11 U.S.C. Sec. 523(a)(6), 40 B.R. 148. The district court affirmed, and Combs appeals.

We hold that the judgment debtor here may be precluded from relitigating an issue that was actually litigated and decided in an earlier proceeding and that was necessary to the decision. See Long v. West, 794 F.2d 928 (4th Cir.1986). However, the determination that an issue was actually litigated and necessary to the judgment must be made with particular care. Here an examination of the jury instructions and verdict in the earlier tort action clearly demonstrates that the willful and malicious nature of defendant Combs' actions was actually and necessarily litigated. We therefore affirm the judgment of the district court precluding the debtor from relitigating this issue in the dischargeability proceeding.

I.

The Bankruptcy Act, in 11 U.S.C. Sec. 523, provides exceptions to the general rules discharging a bankrupt from liability for his debts. Section 523(a)(6) provides that (a) A discharge under Section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt--

(6) for willful and malicious injury by the debtor to another entity or to the property of another entity.

On December 13, 1979, Alvin Richardson went to Fred Combs' workplace to confront Combs about his involvement with Richardson's wife. In the course of this confrontation, Combs beat Richardson with an axe handle. Combs pled guilty to criminal charges arising from this incident, and on February 2, 1981, Richardson sued Combs in federal court for malicious beating and striking. Combs filed for bankruptcy on August 4, 1983, before the tort action went to trial.

On February 1, 1984 a jury found against Combs in the tort suit and awarded Richardson $3,700 in compensatory and $1,300 in punitive damages. Specifically, the jury's verdict stated:

We, the Jury, find for the plaintiff and affix his compensatory damages at Hospital and Doctor Bills

$3,700.00

We, the Jury, find that the defendant acted willfully and maliciously and affix punitive damages as follows:

$1,300.00

On February 13, 1984, Richardson filed a complaint in the bankruptcy proceeding seeking a determination that this judgment debt was nondischargeable. The bankruptcy court denied Richardson's motion for summary judgment on the dischargeability determination on June 18, 1984. Richardson moved for reconsideration on March 12, 1985. Reconsideration was initially denied.

After requesting and receiving a copy of the jury instructions in the tort action, the bankruptcy court ultimately reconsidered its earlier order. On the authority of York v. Shepherd, 56 B.R. 218 (W.D.Va.1985), the bankruptcy court concluded that the jury's "verdict clearly finds willful and malicious conduct on the part of the Defendant ... and the Plaintiff [Richardson] is entitled to summary judgment of nondischargeability ... pursuant to 11 U.S.C. Sec. 523(a)(6)." The district court affirmed, and Combs appeals.

We now affirm the judgment of the district court. The portion of the trial record before us amply demonstrates that the requirements for preclusion are met in this case. While in many instances an examination of the full record and transcript of the earlier proceeding may be necessary to determine whether the prerequisites of preclusion, and thereby the federal policies implicated in the Bankruptcy Code, are satisfied, see Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979), we do not require that bankruptcy courts invariably take extrinsic evidence before a prior civil judgment may be assigned preclusive effect. We do hold that a jury's finding that a defendant's actions were willful and malicious will collaterally estop the judgment debtor from relitigating that issue in a discharge proceeding only if an examination of the record of the earlier proceeding satisfies the bankruptcy court that the issue was raised and litigated and that the resolution of the issue was necessary to the verdict in the prior case.

II.

A brief review of the principles of collateral estoppel as they apply to bankruptcy proceedings is in order. Collateral estoppel bars relitigation of an issue previously decided if the party against whom the prior decision is asserted had "a 'full and fair opportunity' to litigate that issue in the earlier case." Allen v. McCurry, 449 U.S. 90, 94-95, 101 S.Ct. 411, 414-15, 66 L.Ed.2d 308 (1980). Collateral estoppel treats as final only those issues "actually and necessarily determined" in the prior suit. Montana v. United States, 440 U.S. 147, 153, 99 S.Ct. 970, 973, 59 L.Ed.2d 210 (1979).

The 1970 amendments to the Bankruptcy Act grant exclusive jurisdiction to the bankruptcy courts to determine certain questions of dischargeability now contained in 11 U.S.C. 523(c). Brown v. Felsen, 442 U.S. at 129-30, 99 S.Ct. at 2208-09. In Brown v. Felsen, the Supreme Court held that federal policies underlying the Bankruptcy Act, including the policy that dischargeability questions be resolved only after the "fullest possible inquiry," required that prior state court judgments not be given res judicata effect to preclude litigation of dischargeability issues which could have been, but were not, litigated in the earlier proceeding. Id. at 138-39, 99 S.Ct. at 2208-09; see also Spilman v. Harley, 656 F.2d 224, 226 (6th Cir.1981) reh'g denied. The Court reserved the question of the collateral estoppel or issue preclusive effect of "questions actually and necessarily decided in a prior suit." Brown v. Felsen, 442 U.S. at 139 n. 10, 99 S.Ct. at 2213 n. 10. It noted, however, that "in the absence of countervailing statutory policy," collateral estoppel would bar relitigation of those issues in bankruptcy court. Id.

The application of collateral estoppel to preclude relitigation of questions actually litigated and necessarily decided by a jury in an earlier diversity action is consistent with the policy of the bankruptcy statute and the Supreme Court's decision in Brown v. Felsen. As noted by the Sixth Circuit in Spilman v. Harley, 656 F.2d 224:

The determination whether or not a certain debt is dischargeable is a legal conclusion based upon the facts in the case. The bankruptcy court has the exclusive jurisdiction to make that legal conclusion. It must apply the statute to the facts and decide to discharge or not. Therefore, res judicata does not apply to prevent litigation of every issue which might have been covered in the ... [earlier] proceeding on the debt. However, that Congress intended the bankruptcy court to determine the final result--dischargeability or not--does not require the bankruptcy court to redetermine all the underlying facts.

Id. at 227.

The Third Circuit, in Matter of Ross, 602 F.2d 604 (3d Cir.1979), held that collateral estoppel would preclude relitigation of an issue previously litigated by the parties in federal court if the bankruptcy court found that: "(1) the issue sought to be precluded [was] the same as that involved in the prior action, (2) that issue [was] actually litigated, (3) it [was] determined by a valid and final judgment, and (4) the determination [was] essential to the prior judgment." Id. at 607-08. Other circuits have held that collateral estoppel may apply in bankruptcy discharge proceedings to bar relitigation of factual determinations actually and necessarily litigated by the parties in prior state court proceedings. See, e.g., Matter of Shuler, 722 F.2d 1253, 1256 (5th Cir.), cert. denied 469 U.S. 817, 105 S.Ct. 85, 83 L.Ed.2d 32 (1984); Spilman, supra, 656 F.2d at 227-28. But see In re Rahm, 641 F.2d 755, 757 (9th Cir.), cert. denied 454 U.S. 860, 102 S.Ct. 313, 70 L.Ed.2d 157 (1981) (while collateral estoppel has no effect in bankruptcy court, a prior judgment may establish a prima facie case of nondischargeability).

The application of a collateral estoppel bar obviously serves important interests. These interests do not disappear simply because the subsequent proceedings are in bankruptcy. Judicial resources are always conserved by avoiding duplicative relitigation of identical issues. The application of the bar ensures that parties will eschew the piecemeal presentation of their case. There is also no reason here to prefer the fact-finding of a bankruptcy judge to that of a jury so long as the same issue was presented in each proceeding. The earlier jury trial was necessarily closer in time to the disputed events. Further, the unique value of a jury is its ability to weigh the testimony of witnesses and to resolve disputed questions of fact. In arriving at such factual determinations, a jury's findings have particular credibility and are entitled to great deference. See Long v. West, 794 F.2d at 931. The presentation of the evidence and testimony in a full trial may well be more thorough than in an evidentiary hearing. For all these reasons, the bankruptcy court in this case quite properly declined to...