In re Bairrington
| Decision Date | 20 June 1995 |
| Docket Number | Bankruptcy No. 94-60945-LK. Adv. No. 94-6104. |
| Citation | 183 BR 754 |
| Parties | In re Darrell Ray BAIRRINGTON, Sr., Jo Ann Bairrington d/b/a Bairrington Land & Cattle, Debtors. Kuppusamy RAGUPATHI and Rohini Ragupathi, Plaintiffs, v. Darrell Ray BAIRRINGTON, Sr. and Jo Ann Bairrington, Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Texas |
John A. Montez, Waco, TX, for debtors.
W. Stephen Rodgers, Bryan, TX, Blake Rasner, Haley & Davis, P.C., Waco, TX, for movants.
On May 18, 1994, after a jury trial in the 272nd District Court of Brazos County Texas, Kuppusamy Ragupathi and Rohini Ragupathi ("Plaintiffs") obtained a judgment against Darrell Ray Bairrington, Sr. and Jo Ann Bairrington ("Defendants" or "Debtors"). That court concluded that Defendants had violated the Texas Deceptive Trade Practices Act ("DTPA")1 and awarded actual damages and prejudgment interest in the amount of $557,076.68. It also awarded an additional $2,000 as authorized by the DTPA and because the jury found that certain actions were committed "knowingly", it awarded further additional damages in the amount of $75,000.00 plus an award of $40,000.00 for attorney's fees, for an aggregate judgment in the amount of $674,076.68 together with taxable court costs and post-judgment interest.
The Debtors filed this voluntary Chapter 7 on October 6, 1994, and the Plaintiffs timely commenced this Adversary Proceeding titled "Complaint Objecting to the Dischargeability of Debt." The Complaint recites jurisdiction of this court under 28 U.S.C. § 1334 and 11 U.S.C. §§ 523 and 727. It states that Plaintiffs believe the judgment debt 2
To this end Plaintiffs filed their Motion For Summary Judgment in which they seek to establish the elements of their claim through the principles of collateral estoppel. This Motion was set for argument at which time it was presented with the parties' arguments along with copies of the State Court's charge to the jury, the jury findings and the State Court judgment. The Court also considered an affidavit of the State Court counsel for the Defendants. Although the Adversary Complaint recites § 727 as a jurisdictional statement, there are no allegations of any prepetition activity that thwart these Debtors' entitlement to a discharge generally and the Summary Judgment does not address that issue. The Summary Judgment also does not attempt to address the § 523(a)(4) exception to dischargeability. To the extent that the Motion For Summary Judgment seeks relief under either of these two grounds, it is denied.
The key issue before this court in this matter is whether the judgment predicated on the Texas DTPA Statute is sufficient by itself to establish the elements necessary to enable a Plaintiff to prove that its debt is non-dischargeable within the meaning of 11 U.S.C. § 523(a)(2)(A) or (6).3
For reasons more fully stated herein, this court finds that the legal standard for establishing non-dischargeability under §§ 523(a)(2) and (6) are not co-extensive with the legal standard for establishing a violation of the Texas Deceptive Trade Practices Act tried in the state court. For this reason, collateral estoppel is inapplicable to the facts of this case.
Application of collateral estoppel in bankruptcy dischargeability litigation, where the prior judgment arises out of State Court proceedings, has been addressed by the federal courts numerous times and the basic principles are outlined in In re Stowell, 113 B.R. 322 (Bankr.W.D.Tex.1990). Generally stated, the rules appear to be as follows:
1. Collateral estoppel principles do apply to dischargeability proceedings in bankruptcy court. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); RecoverEdge L.P. v. Pentecost, et al., 44 F.3d 1284, 1294 (5th Cir.1995); and Daniels v. The Equitable Life Assurance Society of the United States, 35 F.3d 210, 212 (5th Cir.1994).
2. 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. Marrese v. American Academy of Orthopaedic Surgery, 470 U.S. 373, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985); and Migra v. Warren City School District Board of Education, 465 U.S. 75, 104 S.Ct. 892, 79 L.Ed.2d 56 (1984).
3. Under Texas law, the doctrine of issue preclusion, or collateral estoppel, "bars relitigation of any `ultimate issue' of fact actually litigated and essential to the judgment in a prior suit, regardless of whether the second suit is based upon the same cause of action." Daniels at 213; Bonniwell v. Beech Aircraft Corp., 663 S.W.2d 816, 818 (Tex.1984).
4. The Texas Supreme Court defines "ultimate issue" as:
Ultimate issues are those factual determinations submitted to a jury that are necessary to form the basis of a judgment. (Citations omitted) The term `ultimate issue\' does not refer to a cause of action or a claim. (Citations omitted).
Tarter v. Metropolitan Saving and Loan Association, 744 S.W.2d 926, 928 (Tex.1988).
Bonniwell at 818, citing Benson v. Wanda Petroleum Corp., 468 S.W.2d 361 (Tex.1971), and Restatement (Second) Judgments § 27.
6. This doctrine has been described by a subsequent Texas Court decision:
Collateral estoppel, or issue preclusion, is more narrow that res judicata in that it only precludes the relitigation of identical issues of facts or law that were actually litigated and essential to the judgment in a prior suit. Once an actually litigated and essential issue is determined, that issue is conclusive in a subsequent action between the same parties.
Van Dyke v. Boswell, O'Toole, Davis & Pickering, 697 S.W.2d 381, 384 (Tex.1985); and Wilhite v. Adams, 640 S.W.2d 875 (Tex.1982).
7. The element of "actually and necessarily decided" has been amplified.
Under state law, collateral estoppel only precludes the relitigation of identical issues of fact or law which were actually litigated and essential to the prior judgment. (Emphasis added).
Tarter at 927. Van Dyke at 384.
The Restatement (Second) Judgments § 27 comment (I) (1982) provides in part `If a judgment of a court of first instance is based on determinations of two issues, either of which standing independently would be sufficient to support the result, the judgment is not conclusive with respect to either issue standing alone.\' The rationale for this rule is that a determination in the alternative may not have been as rigorously contested as it would have been if necessary to the result and the losing party may be dissuaded from appealing one determination because of the likelihood that the other will be upheld.
Eagle Properties Limited v. Scharbauer, 807 S.W.2d 714, 721 (Tex.1990). (The subject matter of the two suits may be different as long as the requirements for collateral estoppel are met.) United States v. Shanbaum, 10 F.3d 305, 311 (5th Cir.1994).
8. Also, courts have readily perceived that for purposes of preclusion, issues are not identical if the second action involves application of a different legal standard, even though the factual setting of both suits be the same. RecoverEdge L.P. v. Pentecost et al., 44 F.3d 1284, (5th Cir.1995), citing 18 Wright, Miller & Cooper, Fed.Prac. & Pro. § 4417, at 165; and Brister v. A.W.I., Inc., 946 F.2d 350, 354-55 (5th Cir.1991).
In Brister, the 5th Circuit noted the plaintiff had sued on two theories, a Jones Act violation and unseaworthiness under general maritime law. It recognized that although broad-based and liberal, the Jones Act implicated a causation requirement while ". . . unlike a Jones Act claim, Unseaworthiness under general maritime law is predicated without regard to fault or the use of due care . . . shipowner has absolute, non-delegable duty to provide a seaworthy vessel." Thus, the two legal standards were held to be different and collateral estoppel found not to apply.
9. In defining the issues that were actually litigated in the first proceeding, the second court looks to the first court's charge to the jury, its findings on the special issues, and the first court's judgment. RecoverEdge at 1291.
To determine if the requisite elements are present for the application of collateral estoppel, it is helpful to first restate the legal standards required to be established before a debt is ruled to be nondischargeable. There is no dispute that the Plaintiff bears the burden of proof by a preponderance of the evidence to establish that an exception to discharge applies. Grogan v. Garner, 498 U.S. 279, 289-91, 111 S.Ct. 654, 661, 112 L.Ed.2d 755 (1991).
1. Section 523(a)(2)(A): A cause of action for fraud will exist under § 523(a)(2)(A) when a debtor makes promises of current or future action which, at the time they were made, he had no intention of fulfilling. In order to succeed on his legal theory, the objecting party must prove that: (1) the debtor made representations; (2) at the time they were made the debtor knew they were false; (3) the debtor made the representations with the intention and purpose to deceive the creditor; (4) the creditor...
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