In re Edie

Decision Date07 September 2004
Docket NumberBankruptcy No. 03-32544.,Adversary No. 03-2449.
Citation314 B.R. 6
PartiesIn re Deborah K. EDIE, Debtor. State Farm Fire and Casualty Company, Plaintiff, v. Deborah K. Edie, Defendant.
CourtU.S. Bankruptcy Court — District of Utah

Graden P. Jackson, Matthew B. Brinton, Strong & Hanni, Salt Lake City, UT, for Plaintiff.

Edward D. Flint, Thomas D. Neeleman, Jennifer L. Neeleman, Salt Lake City, UT, for Defendant/Debtor.

Joel Marker, Salt Lake City, UT, Chapter 7 Trustee.


JUDITH A. BOULDEN, Bankruptcy Judge.

State Farm Fire and Casualty Company ("State Farm" or the "Plaintiff") seeks to except its California state court default judgment from the debtor's discharge under 11 U.S.C. § 523(a)(6).1 The Debtor, Deborah K. Edie ("Edie," the "Debtor," or the "Defendant"), admits she intentionally started a fire in the home of the Plaintiff's insured but claims she only intended to burn the shirts she ignited and did not intend to destroy the house. Edie further defends her actions by claiming she was not able to foresee the potential and likely consequences of her conduct due to a mental defect or illness from which she suffered at the time she started the fire. The Plaintiff brought the instant summary judgment motion claiming Edie's admission of intent leaves no material issue for a trier of fact to decide because collateral estoppel applies, preventing the Defendant from raising new defenses not previously raised in the California state court subrogation action in which it obtained a default judgment. After reviewing the pleadings, listening to oral argument, and making an independent review of applicable case law, the Court enters the following Memorandum Decision granting summary judgment.


The following facts are undisputed.

1. Defendant is the debtor in the above-captioned chapter 7 bankruptcy case, having filed her petition for relief on or about July 21, 2003.

2. Prior to the Debtor filing bankruptcy, State Farm filed a subrogation action (the "Subrogation Action") against Edie in a California state court and obtained a default judgment (the "Default Judgment").

3. State Farm insured the residence (the "Residence") of Marc Aucoin (Aucoin) in Downey, California against loss or damage by fire.

4. State Farm's Subrogation Action arose from Edie's actions while she was living with Aucoin in the Residence.

5. On September 26, 1996, in an effort to "get back" at Aucoin, Edie used a lighter to ignite two shirts belonging to Aucoin which were hanging in the bedroom closet of the Residence.

6. Edie admits in her answers to Plaintiff's First Requests for Admissions that she intentionally set fire to the shirts in the bedroom closet.

7. She further admits that the shirts burned quickly and immediately and the fire spread to other contents of the closet, the bedroom walls and ceiling, and eventually engulfed and destroyed the Residence.

8. Counsel for the Debtor admitted during oral arguments that Edie ignited the shirts to "get back" at Aucoin because he had recently told her she would have to move out of the Residence. Edie intentionally started the fire to injure Aucoin's property.

9. The fire caused approximately $150,000 in damages to the Residence and State Farm, pursuant to its obligations under the terms of the insurance policy, paid to repair and renovate the fire-damaged Residence.

10. Suspecting Edie's culpability, State Farm filed the Subrogation Action on July 9, 1997 in which it obtained the Default Judgment. The complaint alleged that Edie deliberately and intentionally set fire to the Residence.

11. Edie was properly served with the subrogation complaint, however she failed to appear and defend herself and the Default Judgment was properly entered against her on November 4, 1998 in the principal amount of $150,000, plus costs of $214 and interest at the legal rate from August 27, 1997.

12. State Farm timely filed a complaint in the instant adversary proceeding objecting to the dischargeability of the Default Judgment on October 17, 2003 under § 523(a)(6).

13. Both parties refer to and acknowledge some evidence in the form of a letter, not before the Court, which indicates Edie has been repeatedly hospitalized and has undergone intensive and continuing treatment for mental illness from approximately 1999 to the present time.2

14. At oral argument, it was undisputed that there is no evidence indicating Edie suffered from mental illness when she started the fire.

Despite a lack of evidence, the Debtor has asserted a defense which she claims creates an issue of material of fact which precludes summary judgment. Edie claims she suffered from a mental defect or illness at the time of the fire that would have rendered her incapable of forming a culpable mental state to comprehend right from wrong or foresee the potential and likely consequences of her wrongful conduct. Edie has failed to file any evidence in any form, be it affidavit or expert report, to support her claim of mental illness at the time of the fire.3

The Plaintiff claims California's doctrine of collateral estoppel prevents the Defendant from raising this, or any other defense, not previously raised in the Subrogation Action. State Farm asserts that the Default Judgment compels summary judgment against Edie. The Defendant contends summary judgment is not warranted because the Default Judgment is not binding on the bankruptcy court through collateral estoppel and her intent and mental state must be considered under § 523(a)(6) leaving material issues of fact necessitating a trial.

A. Jurisdiction and Standing

This Court has jurisdiction over this adversary proceeding by virtue of 28 U.S.C. §§ 1334 as a matter arising under the Bankruptcy Code. This is a core proceeding under 28 U.S.C. § 157(b)(2)(I) and the Court may enter a final order.

State Farm is a subrogee of the insured owner of the Residence to which the Debtor set fire. The Residence was, at all relevant times, insured against loss or damage by fire by State Farm. As insurer of the Residence, State Farm paid approximately $150,000 to the insured and sought recovery of the amount from Edie through the Subrogation Action. State Farm's position as a subrogee in this adversary proceeding does not affect its right to bring this action; it was injured as a result of Edie's intentional act against its insured. 4

B. Summary Judgment

Under Federal Rule of Bankruptcy Procedure 7056, which adopts Federal Rule of Civil Procedure 56, a movant is entitled to summary judgment when, after consideration of the record, the Court determines that "there is no issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." 5 In applying this standard, the Court examines the factual record in the light most favorable to the non-moving party.6 The party opposing summary judgment may not rely on mere allegations or denials in its pleadings or briefs, but must identify specific and material facts for trial and significant probative evidence supporting the alleged facts. 7 There is no genuine issue of fact "[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party." 8 The moving party has the burden of establishing entitlement to summary judgment.

C. Collateral Estoppel

Before the Court can reach the dischargeability issue, it must consider the relevance and possible preclusive effect of State Farm's Default Judgment. State Farm claims the doctrine of collateral estoppel is important to this matter because the same issues before this Court have been litigated in California. "Under collateral estoppel, `once a court has decided an issue of fact or law necessary to its judgment, that decision may preclude relitigation of the issue in a suit on a different cause of action involving a party to the first case.'" 9 The Debtor counters that collateral estoppel is not applicable in bankruptcy non-dischargeability actions. 10 However, the Supreme Court has determined collateral estoppel applies in bankruptcy court actions to determine the dischargeability of a debt under § 523(a), although not necessarily as it relates to default judgments. 11

A federal court reviewing the preclusive effect of a state court judgment under the collateral estoppel doctrine is guided by the mandates of 28 U.S.C. § 1738, the Full Faith and Credit Statute. "The Full Faith and Credit Statute directs a federal court to look to the preclusion law of the state in which the judgment was rendered." 12 Because the Default Judgment against Edie was issued by a California state court judge, the Full Faith and Credit Statute requires this Court to first look at California law as it relates to the preclusive effect of the Default Judgment on this action, and whether the elements of collateral estoppel have been met. Then the Court will examine the application of collateral estoppel in a bankruptcy nondischargeability context.

1. Collateral estoppel under Californiastate law.

The Debtor appears to have missed this initial step of looking to the law of the state which issued the judgment and encourages this Court to consider Seventh Circuit analysis of federal common law for the elements of collateral estoppel.13 This is misguided. While the federal common law doctrine of collateral estoppel is similar to the California doctrine, California differs in that it allows collateral estoppel to apply following a default judgment. Collateral estoppel may be invoked against a party to a prior action if each of the following conditions are met:

1) the issue necessarily decided in the prior action is identical to the issue sought to be relitigated in the current action; 2) there was a final judgment on the merits in the previous action; and 3) the party against whom collateral estoppel is asserted was a party ... to the...

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