In re Booth
| Decision Date | 01 December 1994 |
| Docket Number | Bankruptcy No. 93-72594. Adv. No. 94-70313. |
| Citation | 174 BR 619 |
| Parties | In re Verner M. BOOTH, Debtor. Kendall MEGGS and Angela Meggs, Plaintiffs, v. Verner M. BOOTH, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Alabama |
Claude M. Burns, Jr., Tuscaloosa, AL, for debtor.
Harry M. Renfroe, Jr., Tuscaloosa, AL, for plaintiffs.
Robert A. Morgan, Chapter 7 Trustee, Tuscaloosa, AL.
This case is before the court on an adversary proceeding complaint filed by Kendall and Angela Meggs objecting on fraud charges to the debtor, Verner M. Booth's, discharge of his obligation to them. After reviewing the evidence heard at trial and the briefs of the parties in the context of applicable law, the court finds that the Meggs' $13,176.95 claim, based on a state court judgment against Booth, is NONDISCHARGEABLE in bankruptcy on under 11 U.S.C. § 523(a)(2)(A).
The following summation of the facts is based on the totality of testamentary and documentary evidence.
In 1987, plaintiff Kendall Meggs' employer, ARC, Inc., sought to change medical insurance policies because of an increase in premiums. It asked Verner M. Booth, an insurance agent, to obtain rate quotes on other policies. Booth did so and ARC, Inc., ultimately selected a plan underwritten by Pan-American, Inc., and administered by National Insurance Services, Inc. (NIS).
The coverage under the new policy became effective on January 1, 1988. By its terms, it provided coverage for maternity expenses only if conception occurred after the new policy became effective. Booth, however, told Kendall Meggs that the new policy was a "take-over" policy, which, in effect, waived exclusions for pre-existing conditions and provided the same benefits for those conditions as the former policy.
That was not true. The policy actually issued by Pan-American was not a "take-over" policy. Mrs. Meggs discovered she was pregnant in December of 1987 and her physician confirmed pregnancy on January 11, 1988.
NIS and Pan-American denied the Meggs' claim for maternity benefits on the basis that the pregnancy was a pre-existing condition not covered by the new policy. The Meggs first filed suit in the Jefferson County Circuit Court against Verner M. Booth; Pan-American Life Insurance Company, and National Insurance Services, Inc. (CV90-0816, filed January 23, 1990, attachment to AP Doc. 1.)
Pan-American and National Insurance Services, Inc. removed the state court fraud suit to the United States District Court for the Northern District of Alabama at Birmingham. There, District Judge Sam C. Pointer, Jr. granted Pan-American's and National Insurance Service's motions for summary judgment and remanded the fraud suit against Booth back to state court once again.
Booth was considered an independent broker and not an agent of Pan-American or NIS. So the United States District Court determined it did not have subject matter jurisdiction over the claims against Booth as an individual.
The original state court suit (Attachment to AP Doc. 1) is a one-count complaint based upon fraud in which the Meggs alleged Booth committed fraud by misrepresentation of the insurance under Ala.Code § 27-12-6 (1986).1 That code section is included in Alabama law governing fair trade practices in the insurance industry.
The Meggs contended Booth misrepresented the facts of the new policy by telling them it would not cause them a loss of coverage or benefits. By doing so, the suit alleged, the Meggs were induced to convert their prior health plan to the policy that became effective January 1, 1988.
That original complaint alleged that Booth's representations were:
(A) were false and were made with knowledge of their falsity, or (B) were false and were recklessly misrepresented without knowledge of the true facts, or (C) were false and made by mistake but with the intention that plaintiffs should rely on them, or (D) were made to induce or attempt to tend to induce plaintiffs to exchange, change, cancel, or convert from their prior health benefit plan to the plan which became effective on January 1, 1988, in violation of Ala.Code § 27-12-6 (1986).
The state court suit came to trial and Tuscaloosa County Circuit Judge Robert B. Harwood, Jr., signed a consent judgment entered between the Meggs and Booth on October 25, 1993. A $12,701.08 consent judgment was entered in favor of the Meggs against "Booth, individually, and d/b/a Vern Booth Agency and Vern Booth Agency."
The consent decree specified the judgment could be satisfied by "one or more of the defendants" paying the Meggs $200.00 a month until the full judgment, plus post-judgment interest, was satisfied.
On December 15, 1993, Verner M. Booth, aka Vern Booth, d/b/a Booth Agency, filed a Chapter bankruptcy 7 petition (BK 93-72594) in this court. The Meggs' state court judgment was not recorded until March 14, 1994. (Exhibit B to AP Doc. 1.)
Additionally, on March 14, 1994, the Meggs filed this adversary proceeding (AP 94-70313) objecting to the debtor's discharge under Section 523(a)(2)(A), Section 523(a)(4) and Section 523(a)(6). The case came on to be heard on June 21, 1994 and after briefs submitted by the parties, the issue of dischargeability was taken under submission.
The Meggs filed Proof of Claim 9 in Booth's bankruptcy September 12, 1994. They claimed a total $13,176.95, including the $12,701.08 principal balance of the judgment, plus post judgment interest and court costs.
The Meggs' adversary proceeding stated that the state court case against Booth involved claims that the debtor, as their insurance agent, "committed fraud, misrepresentation, deceit, and suppression, which resulted in their loss of money, health insurance coverage and mental anguish." They contended these allegations made the consent decree liquidating the damages nondischargeable in bankruptcy under 11 U.S.C. §§ 523(a)(2)(A), (a)(4) and (a)(6).2
The Meggs claim that:
(1) the state court consent judgment on a one-count fraud complaint is collateral estoppel on the issue of dischargeability under the three bankruptcy sections; and
(2) on the merits alone, based on evidence presented before the bankruptcy court, this court should hold the debt to be nondischargeable.
Since the fraud issue was not actually litigated nor stipulated to in state court, the consent decree is not determinative of the dischargeability question.
A. State law determines whether a bankruptcy court must give a state court judgment issue preclusion effect under the doctrine of collateral estoppel.
The Eleventh Circuit Court of Appeals, in St. Laurent, II v. Ambrose (In re St. Laurent), 991 F.2d 672 (11th Cir.1993), discusses the effect of collateral estoppel in dischargeability actions ( Florida law):
Collateral estoppel, or issue preclusion, bars relitigation of an issue previously decided in judicial or administrative proceedings if the party against whom the prior decision is asserted had a "full and fair opportunity" to litigate that issue in an earlier case. Allen v. McCurry, 449 U.S. 90, 95, 101 S.Ct. 411, 415, 66 L.Ed.2d 308 (1980). Collateral estoppel principles apply to dischargeability proceedings. Grogan v. Garner, 498 U.S. 279, 285 n. 11, 111 S.Ct. 654, 658 n. 11, 112 L.Ed.2d 755 (1991). 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. In re Touchstone, 149 B.R. 721, 725 (Bankr.S.D.Fla.1993).
See also Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985). In Meggs v. Booth, the prior judgment was rendered in state court, so Alabama law defines collateral estoppel.
Alabama's case law shows the elements necessary for collateral estoppel are the following:
See Benetton S.p.A. v. Benedot, Inc., 642 So.2d 394 (Ala.1994) ; Dairyland Insurance Co. v. Jackson, 566 So.2d 723 (Ala.1990) (); Dixie National Life Insurance Co. v. McWhorter (Matter of McWhorter), 887 F.2d 1564 (11th Cir.1989) ; North Alabama Anesthesiology Group, P.C. v. Zickler (In re North Alabama Anesthesiology Group, P.C.), 154 B.R. 752 (N.D.Ala.1993) (); Pierce v. Rummell, 535 So.2d 594 (Ala.1988) (); and Lott v. Toomey, 477 So.2d 316 (Ala.1985) ().
B. The state court consent decree cannot have a collateral estoppel effect on the fraud issue in this case because it was not actually litigated nor did the parties enter stipulations making it clear the judgment was a final adjudication of the fraud issue.
Element two that is in question on this state court judgment's collateral estoppel effect on the Meggs dischargeability action. That element is that "the issue must have been actually litigated in the earlier action."
The question is whether a consent decree can satisfy that element.
The law in Alabama, supported by the Eleventh...
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