Corcoran v. McCabe (In re McCabe), BANKRUPTCY NO. 13-19715

• Decision Date: 11 May 2018
• Docket Number: BANKRUPTCY NO. 13-19715,CIVIL ACTION NO. 16-5792,ADVERSARY NO. 14-609
• Citation: 588 B.R. 428
• Parties: IN RE: Brian Richard MCCABE, Debtor. Conor Corcoran, Appellant, v. Brian Richard McCabe, Appellee.
• Court: U.S. District Court — Eastern District of Pennsylvania

588 B.R. 428

IN RE: Brian Richard MCCABE, Debtor.Conor Corcoran, Appellant,

v.Brian Richard McCabe, Appellee.

BANKRUPTCY NO. 13-19715

CIVIL ACTION NO. 16-5792

ADVERSARY NO. 14-609

United States District Court, E.D. Pennsylvania.

Filed May 11, 2018

Joshua Z. Goldblum, Feasterville, PA, for Debtor and Appellee.

J. Conor Corcoran, Law Office of J. Conor Corcoran, Philadelphia, PA, pro se.

MEMORANDUM

Tucker, District Judge

Before the Court are a Certificate of Appeal from an Order entered by the Honorable Ashley M. Chan, United States Bankruptcy Court Judge for the Eastern District of Pennsylvania (Doc. 1), Appellant's Brief (Doc. 6), Appellant's Supplemental Brief (Doc. 8), and Appellee's Brief (Doc. 9). Upon consideration of the Parties' submissions and exhibits, and the designated record on appeal, the Court AFFIRMS the Bankruptcy Court's decision.

I. FACTUAL AND PROCEDURAL BACKGROUND

As the Court writes primarily for the Parties, it sets forth only those facts relevant to its analysis.

On March 12, 2008, Corcoran sued McCabe in the Philadelphia Court of Common Pleas ("CCP") for defamation and false invasion of privacy. In re McCabe , 559 B.R. 415, 421 (Bankr. E.D. Pa. 2016). On September 2, 2008, the CCP entered a default judgment against McCabe. Id. On February 17, 2009, the CCP held a hearing to assess damages ("Damages Hearing"). Id. The CCP entered a judgment in favor of Corcoran, assessing $50,000.00 in compensatory damages and $75,000.00 in punitive damages against McCabe. Id. On June 3, 2009, the CCP issued an opinion in support of its judgment. Id. The CCP did not explain its reasoning for assessing punitive damages. In re McCabe , 559 B.R. at 421. On March 19, 2009, McCabe appealed the decision of the CCP to the Pennsylvania Superior Court. Appellee's Br. 4–5, Doc. 9; Appellant's Br. 9, Doc. 6. On September 17, 2009, the Pennsylvania Superior Court entered an order quashing McCabe's appeal. In re McCabe , 559 B.R. at 421.

On November 5, 2013, McCabe filed a Chapter 13 bankruptcy petition. Id. On October 31, 2014, Corcoran filed an adversary proceeding in Bankruptcy Court, objecting to the discharge of the judgment entered by the CCP. In re McCabe , 559 B.R. at 421 ; Appellant's Br. 8. On May 19, 2016, the Bankruptcy Court held a trial to determine the dischargeability of McCabe's debt arising from the CCP judgment. In re McCabe , 559 B.R. at 421. The Bankruptcy Court found, inter alia , that: (1) the judgment against McCabe did not fall within the discharge exception for willful and malicious injury of 28 U.S.C. § 523(a)(6), (2) collateral estoppel based on the CCP's judgment did not apply in its proceeding, and (3) the CCP's Damages Hearing transcript was inadmissible. In re McCabe , 559 B.R. at 427–30.

Subsequently, Corcoran filed an appeal to this Court. Corcoran purportedly raises seven (7) issues on appeal. However, Corcoran combines some issues and is not clear on others. The Court interprets Corcoran's appeal to only raise five (5) issues: (1) the Bankruptcy Court erred by determining that the 28 U.S.C. § 523(a)(6)'s exemption requirements were not met; (2) the Bankruptcy Court's determination contradicts the Restatement (Second) of Judgments; (3) the Bankruptcy Court erred by not admitting the CCP Damages Hearing transcript; (4) the Bankruptcy Court's decision violates the Full Faith and Credit Clause under 28 U.S.C. § 1738 ; and (5) the Bankruptcy Court violated the Rooker-Feldman doctrine.

II. STANDARD OF REVIEW

This Court has jurisdiction over this appeal under 28 U.S.C. § 158(a). When reviewing bankruptcy court proceedings, a district court sits as an appellate court. In re Michael , 699 F.3d 305, 308 n.2 (3d Cir. 2012) ; In re Goody's Family Clothing Inc. , 610 F.3d 812, 815 (3d Cir. 2010). A district court must "review the bankruptcy court's legal determinations de novo, its factual findings for clear error and its exercise of discretion for abuse thereof." In re United Healthcare Sys., Inc. , 396 F.3d 247, 249 (3d Cir. 2005).

III. DISCUSSION

Corcoran argues that the Bankruptcy Court's decision should be reversed for several reasons. For the reasons set forth below, the Court finds Corcoran's arguments unpersuasive and without merit. Therefore, the Court affirms the Bankruptcy Court's decision. The Court will address Corcoran's arguments as follows: (1) the Bankruptcy Court erred by determining that the 28 U.S.C. § 523(a)(6) exemption requirements were not met; (2) the Bankruptcy Court's decision violates the Full Faith and Credit Clause under 28 U.S.C. § 1738 ; (3) the Bankruptcy Court erred by not admitting the CCP Damages Hearing transcript; (4) the Bankruptcy Court's determination contradicts the Restatement (Second) of Judgments; and (5) the Bankruptcy Court violated the Rooker-Feldman doctrine.

A. The Bankruptcy Court Did Not Err In Its Determination That McCabe's Debt Arising From The States Court's Damage Award Was Dischargeable

Corcoran argues that the default judgment, entered against McCabe in the CCP, established McCabe's willful and malicious conduct, and, therefore, the judgment is non-dischargeable under 28 U.S.C. § 523(a)(6). Appellant's Br. 14. McCabe argues that although the CCP entered default judgment, the CCP did not find that McCabe's conduct was willful and malicious. Appellee's Br. 8. The Bankruptcy Court held a trial on the issue of dischargeability. The Bankruptcy Court did not admit the Damages Hearing transcript, ruling that the transcript was inadmissible for lack of proper authentication. In re McCabe , 559 B.R. at 430. The Bankruptcy Court determined that McCabe's debt arising from the states court's damage award did not fall within 28 U.S.C. § 523(a)(6)'s discharge exception because Corcoran failed to prove that McCabe willfully and maliciously injured him. Id. As this is a legal conclusion, the Court will review the Bankruptcy's Court decision de novo. In re United Healthcare Sys., Inc. , 396 F.3d at 249.

1. The CCP's Default Judgment Does Not Meet 11 U.S.C. § 523(a)(6) Exemption Requirements

A "discharge [in bankruptcy] does not discharge an individual debtor from any debt that arises as a result of a debtor's "willful and malicious injury ... to another...." 11 U.S.C. § 523(a)(6). A debt is non-dischargeable under § 523(a)(6) if the debt arises from an act done with "actual intent to cause injury," meaning there must have been a "deliberate or intentional injury ..." Kawaauhau v. Geiger , 523 U.S. 57, 57, 61, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998). "[D]ebts arising from recklessly or negligently inflicted injuries do not fall within the compass of § 523(a)(6)." Id. at 64, 118 S.Ct. 974.

When a Pennsylvania court enters a default judgment, the party against whom the judgment has been entered does not have "the opportunity to have his ‘day in court’ " or to have his "cause of action decided upon the merits." Kraynick v. Hertz , 443 Pa. 105, 277 A.2d 144, 147 (1971). Because injuries resulting from defamation may be intentionally or negligently inflicted, a default judgment, or resulting damages, in a defamation case is not determinative of whether an injury was willful or malicious.

To establish a defamation claim, a plaintiff must prove:

(1) The defamatory character of the communication;

(2) Its publication by the defendant;

(3) Its application to the plaintiff;

(4) The understanding by the recipient of its defamatory meaning;

(5) The understanding by the recipient of it as intended to be applied to the plaintiff;

(6) Special harm resulting to the plaintiff from its publication; and(7) Abuse of a conditionally privileged occasion.

Joseph v. Scranton Times L.P. , 634 Pa. 35, 129 A.3d 404, 424 (2015) (quoting 42 Pa. Cons. Stat. Ann. § 8343(a) (West 2018) ). In addition, a private plaintiff seeking "compensation for harm inflicted as a result of the publication of defamatory matter" must prove that "the defamatory matter was published with want of reasonable care and diligence to ascertain the truth" or, alternatively, "with negligence." Am. Future Sys., Inc. v. Better Bus. Bureau of E. Pennsylvania , 592 Pa. 66, 923 A.2d 389, 400 (2007). Thus, an injury resulting from defamation may be either intentionally or negligently inflicted. Reed v. Brown , 166 A.3d 570, 575 (Pa. Commw. Ct. 2017) (quoting Gaetano v. Sharon Herald Co. , 426 Pa. 179, 231 A.2d 753, 755 (1967) ) (stating a cause of action for defamation arises upon "a publication of the defamatory matter, which is its communication intentionally or by negligent act to one other than the person defamed").

The imposition of punitive damages is appropriate if a trier-of-fact establishes "actual malice," meaning "the defamatory publication was made either with knowledge that it was false or with reckless disregard of whether it was false." Bargerstock v. Washington Greene Cmty. Action Corp. , 397 Pa.Super. 403, 580 A.2d 361, 366 (1990) (citing Hepps v. Philadelphia Newspapers, Inc. , 506 Pa. 304, 485 A.2d 374 (1984), rev'd on other grounds , 475 U.S. 767, 106 S.Ct. 1558, 89 L.Ed.2d 783 (1986) ).

The underlying defamation claim here, which resulted in a default judgment, was not litigated on the merits. Because a defamatory act may be either intentionally inflicted or negligently inflicted, the Court cannot conclude that the default judgment included a finding that McCabe inflicted a "willful and malicious injury." Also, because punitive damages may be imposed for reckless conduct, which does not fall under § 523(a)(6), these damages also do not imply a finding of "willful and malicious injury." Kawaauhau , 523 U.S. at 64, 118 S.Ct. 974. As noted by the Bankruptcy Court, the CCP did not provide an explanation of the standard by which it imposed punitive damages. In re McCabe , 559 B.R. at 430.

In conclusion, neither the default judgment, nor the punitive damages award, included a finding that McCabe inflicted a "willful and malicious injury" within the meaning of § 523(a)(6). Therefore, the Court finds that the Bankruptcy Court...