In re Eisenberg
| Decision Date | 13 November 1995 |
| Docket Number | Bankruptcy Case No. 91-21185-MDM. Adv. No. 91-2161. |
| Citation | 189 BR 725 |
| Parties | In re Alan D. EISENBERG, Debtor. Kathaleen Bassler HARSCH, Paula C. Miller, Douglas M. Bihler, Lisa Tallar Kuehl and Thomas D. Kuehl, Plaintiffs, v. Alan D. EISENBERG, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Wisconsin |
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Pamela A. Johnson, Cook & Franke, S.C., Milwaukee, WI, for plaintiffs.
Russell C. Brannen, Jr., O'Neil, Cannon & Hollman, S.C., Milwaukee, WI, for defendant.
This is an old case, but it has not been idle. The plaintiff's motion for summary judgment based on 11 U.S.C. § 523(a)(6) was denied early in the case, and their motion for summary judgment based on 11 U.S.C. § 523(a)(4) was held in abeyance while the underlying action to determine liability bounced twice from the district court to the Seventh Circuit Court of Appeals. Final liability has now been established by the district court and affirmed by the court of appeals. This court finds that the elements of issue preclusion have also been established, and the plaintiffs are entitled to summary judgment in their favor under 11 U.S.C. § 523(a)(4). For the reasons stated below, their motion for summary judgment is granted.
This court has jurisdiction under 28 U.S.C. § 1334, and this is a core proceeding under 28 U.S.C. § 157(b)(2)(I). This memorandum decision constitutes this court's findings of fact and conclusions of law pursuant to Fed. R.Bankr.P. 7052.
The debtor is an attorney whose bankruptcy resulted from an extended period of suspension of his license to practice law. Originally filed as a chapter 11, it was subsequently converted to chapter 7.
Prior to his cessation of practice and this bankruptcy filing, the debtor's law firm dissolved under circumstances that can be inferred from the record as highly acrimonious. The plaintiffs are all former employees of the firm. Before the breakup, the plaintiffs participated in an ERISA qualified pension plan of which the debtor was the trustee and administrator.
Upon leaving the employ of the debtor's law firm at various times in 1986, the plaintiffs sought to obtain plan documents and an accounting of benefits to which they were entitled and to withdraw those amounts. Their inquiries were repeatedly rebuffed, often in a highly insulting manner.1
In 1987, the plaintiffs filed a complaint in the district court to enforce their rights under ERISA. Shortly thereafter, the debtor distributed their benefits. This did not satisfy the plaintiffs, however. The action continued to trial, and a jury awarded the plaintiffs compensatory damages sustained as a result of the debtor's delay in distributing their benefits. This award was reversed by the Seventh Circuit Court of Appeals as such damages were unavailable under ERISA statutes. The case was remanded to determine attorney fees associated with the enforcement of the plaintiffs' rights and to determine other applicable statutory penalties.2 29 U.S.C. §§ 1332(g)(1) and (c). The district court did so, and judgment was entered.3 This determination was affirmed by the court of appeals. Harsch, et al. v. Eisenberg, No. 94-1488, 1994 WL 675133 (7th Cir. Dec. 1, 1994).
The plaintiffs have now asked this court to find as a matter of law that the attorney fees and statutory penalties due the plaintiffs are excepted from the debtor's discharge under 11 U.S.C. § 523(a)(4).
The policy of the summary judgment procedure is to dispose of factually unsupported claims or defenses, to serve judicial economy, and to avoid unnecessary litigation. Cloutier v. United States, 19 Cl.Ct. 326 (1990); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
Motions for summary judgment in bankruptcy are governed under Fed.R.Bankr.P. 7056, incorporating Fed.R.Civ.P. 56. A motion for summary judgment:
shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
In ruling on a motion for summary judgment, the court shall view the facts in a light most favorable to the party opposing the motion, in this case, the debtor. Brock v. American Postal Workers Union, 815 F.2d 466, 469 (7th Cir.1987). The court's role is not to weigh the evidence on the merits but to determine whether there is a genuine triable issue in dispute. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).
The summary judgment movant has the initial burden of showing the absence of a genuine issue of material fact. Celotex, 477 U.S. 317, 106 S.Ct. 2548. The movant must identify "those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any,'" which establish the absence of a genuine issue of material fact. Id. at 323, 106 S.Ct. at 2553. If this burden is met, the party opposing the motion then has the burden of showing the existence of a material, factual dispute. Fed.R.Civ.P. 56(e). The Debtor may establish the existence of a "genuine issue as to a material fact" by setting forth evidence in response to the motion which, if proved, would negate a necessary element of plaintiff's complaint. Celotex, 477 U.S. at 324, 106 S.Ct. at 2553. "If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party." Fed.R.Civ.P. 56(e).
In the present case, plaintiffs have moved for summary judgment. They must, therefore, establish that there are no triable issues as to the elements of their § 523(a)(4) nondischargeability claim on which they bear the burden at trial by a preponderance of the evidence. See Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1990). All reasonable inferences to be drawn from the underlying facts must be viewed in a light most favorable to the party opposing the motion, i.e., the debtor. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970); Brock v. American Postal Workers Union, 815 F.2d at 469. When the moving party in a summary judgment proceeding also bears the burden of persuasion at trial (as in the present case), that party must satisfy both the initial burden of production on the summary judgment motion — by showing that no genuine dispute exists as to any material fact — and the ultimate burden of persuasion on the claim — by showing that it would be entitled to prevail as a matter of law. United States v. One 107.9 Acre Parcel of Land, 898 F.2d 396, 398 (3d Cir.1990). Here, based on the decision of the district court establishing statutory penalties and attorneys' fees, plaintiffs have met both of these burdens.
The movant of the present motion for summary judgment asserts that this court may, through the doctrine of issue preclusion, formerly known as collateral estoppel, make certain findings based on the record established in the recently completed litigation between the same parties. The use of issue preclusion in bankruptcy cases is based on dicta from the Supreme Court's holding in Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979), in which the court stated:
If, in the course of adjudicating a state-law question, a state court should determine factual issues using standards identical to those of current § 523, then collateral estoppel, in the absence of countervailing statutory policy, would bar relitigation of those issues in the bankruptcy court.
442 U.S. at 139, n. 10, 99 S.Ct. at 2213, n. 10.
The same rule applies to issues previously litigated by the same parties in the federal district court.
Bankruptcy courts in this circuit apply the doctrine of issue preclusion when all of the following elements are present:
1) the issue sought to be precluded must be the same as that involved in the prior action, 2) the issue must have been actually litigated, 3) the determination of the issue must have been essential to the final judgment, and 4) the party against whom estoppel is invoked must be fully represented in the prior action.
Klingman v. Levinson, 831 F.2d 1292, 1295 (7th Cir.1987) (citations omitted); see also In re Conway, 148 B.R. 881, 883 (Bankr. E.D.Wis.1992). The court in which liability was adjudicated must have applied "the same standards as the bankruptcy court would apply" in deciding the issue. Klingman, 831 F.2d at 1295. Because it is undisputed that the debtor was fully represented in all proceedings in the district court and court of appeals, this court will consider only the first three Klingman elements of issue preclusion. Furthermore, there is no indication in the record or the parties' briefs to indicate that the district court used a standard of proof other than preponderance of the evidence.
The party asserting the doctrine of issue preclusion has the burden of proving the necessary elements and submitting to the court a record "sufficient to reveal the controlling facts and pinpoint the exact issues litigated in the prior action." Hernandez v. City of Los Angeles, 624 F.2d 935, 937 (9th Cir.1980). This court must now examine the issues which were actually and necessarily litigated and decided in the district court proceedings and compare those issues with the determination this court must make under 11 U.S.C. § 523(a)(4) to rule on plaintiff's summary judgment motion.
A debt may be excepted from a debtor's chapter 7 discharge under 11 U.S.C. § 523(a)(4) if the court finds the existence of a fiduciary relationship between the parties and that the debt arose as a result of fraud or defalcation in the context of that fiduciary capacity. 11 U.S.C. § 523(a)(4). The...
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