In re Gallagher

• Citation: 388 B.R. 694
• Decision Date: 03 June 2008
• Docket Number: Civil No. 3:07cv362.
• Court: U.S. District Court — Western District of North Carolina
• Parties: In re Martha Medlock GALLAGHER, Debtor. Susan F. Keever, Appellee, v. Martha Medlock Gallagher, Appellant.

388 B.R. 694

In re Martha Medlock GALLAGHER, Debtor Susan F. Keever, Appellee, v. Martha Medlock Gallagher, Appellant.

Civil No. 3:07cv362.

United States District Court, W.D. North Carolina, Charlotte Division.

June 3, 2008.

COPYRIGHT MATERIAL OMITTED

Geoffrey A. Planer, Gastonia, NC, for Appellee.

Thomas Brian Kakassy, Gastonia, NC, for Appellant.

MEMORANDUM OF DECISION

MARTIN REIDINGER, District Judge.

THIS MATTER is before the Court on the Notice of Appeal [Doc. 1], filed by the Appellant Martha Medlock Gallagher ("Gallagher")¹, from the Order of United States Bankruptcy Court Judge J. Craig Whitley entered August 24, 2007.[Doc. 42, Keever v. Gallagher, 3:02-ap-3243 ("Bky.Doc.")]. For the reasons stated herein, the Order of the Bankruptcy Court is AFFIRMED IN PART and REVERSED IN PART, and this matter is REMANDED for further proceedings.

PROCEDURAL HISTORY

Gallagher filed a voluntary Chapter 7 petition in the Bankruptcy Court on September 26, 2002. [Voluntary Petition, Doc. 1, In re: Gallagher, 3:02-bk-33036]. At the time of' her filing, Gallagher was a defendant in a case ("State Court Action") brought in Gaston County Superior Court by Keever alleging alienation of affections and criminal conversation by Gallagher with Keever's husband. [Schedule F to Voluntary Petition, Doc. 2, In re: Gallagher, 3:02-bk-33036]. On December 26, 2002, Keever filed an adversary proceeding in the Bankruptcy Court, asserting the same tort claims as those raised in the State Court Action., [Complaint Objecting to Dischargeability of Indebtedness, Bky. Doc. 1]. Keever also requested that the resulting liability be declared nondischargeable as a "willful and malicious injury" under 11 U.S.C. § 523(a)(6). [Id.].

On June 29, 2004, the parties entered into a Consent Order [Bky. Doc. 14], in which the parties agreed that the two actions presented similar issues and that the state tort claims should be tried before a jury in Gaston County Superior Court. The parties further agreed that upon entry of any monetary judgment for Keever in the State Court Action, the parties would return to the Bankruptcy Court for a determination of whether such monetary obligation was dischargeable. [Id.].

Following trial in the State Court Action, the jury returned a verdict finding Gallagher liable for both alienation of affections and criminal conversation. [Judgment of Gaston County Superior Court, Bky. Doc. 16]. The Judgment states that the jury awarded Keever "$50,000 for alienation of affections or criminal conversation or both" and $75,000 in punitive damages. [Id.]. Thereafter, Keever moved for summary judgment in the adversary proceeding, arguing that the jury's verdict in the State Court Action established that Gallagher had injured Keever in a "willful and malicious" manner so as to render the debt nondischargeable under 11 U.S.C. § 523(a)(6). [Motion for Summary Judgment, Bky. Doc. 19]. Following a hearing, the Bankruptcy Court concluded that the doctrine of collateral estoppel barred relitigation of whether Gallagher's actions constituted a "willful and malicious injury" and thus granted Keever's motion for summary judgment. [Order, Bky. Doc. 21 at 10, 11]. Gallagher appealed to this Court, arguing that the doctrine of collateral estoppel did not apply because the jury in the State Court Action never found that Gallagher willfully and maliciously intended injury to Keever or to Keever's protected marital relationship. [Notice of Appeal, Doc. 1, Civil Action No. 3:06-cv-108]. Relying upon Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998) and In re Duncan, 448 F.3d 725 (4th Cir. 2006), this Court reversed, finding that the judgment in the State Court Action did not support application of the doctrine of collateral estoppel in this case because "neither the alienation of affections claim nor the punitive damages award in the State Court Action specifically involved and clearly decided the issue of whether Gallagher maliciously intended to injure the Keever's [sic] marital relationship." [Order, Doc. 8, Civil Action No. 3:06-cv-108, at 7, 8]. Accordingly, this Court remanded this matter to the Bankruptcy Court for a determination of "whether Gallagher `willfully and maliciously' injured the marital relationship" so as to render the debt nondischargeable under 11 U.S.C. § 523(a)(6). [Id. at 7].

Upon remand, the Bankruptcy Court held a trial on the dischargeability issue. Gallagher and Keever were the only witnesses who testified at this proceeding. On August 24, 2007, the Bankruptcy Court entered an Order, finding that Gallagher had "committed a willful and malicious injury directed at Keever," that Gallagher had "intended to harm the marital relationship of Keever," and that "Gallagher's conduct constitutes a willful and malicious injury to Keever and her marital relationship as contemplated by 11 USC § 523(a)(6)." [Bky. Doc. 42 at 4]. Accordingly, the Bankruptcy Court concluded that the indebtedness resulting from the State Court Judgment is nondischargeable. [Id.]. This appeal followed.

STANDARD OF REVIEW

The decision of the Bankruptcy Court is reviewed by a two-step process. Reversal of the findings of fact of the Bankruptcy Court may occur only where such findings are clearly erroneous. See Educational Credit Mgmt. Corp. v. Frushour (In re Frushour), 433 F.3d 393, 398 (4th Cir.2005). The Bankruptcy Court's legal conclusions, however, are subject to a de novo standard of review. See Schlossberg v. Barney, 380 F.3d 174, 178 (4th Cir.2004). "Findings of fact are clearly erroneous `when, although there is evidence to support [them], the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.'" McGahren v. First Citizens Bank & Trust Co. (In re Weiss), 111 F.3d 1159, 1166 (4th Cir.) (quoting Green v. Staples (In re Green), 934 F.2d 568, 570 (4th Cir.1991)), cert, denied, 522 U.S. 950, 118 S.Ct. 369, 139 L.Ed.2d 287 (1997). As stated by the Supreme Court:

If the [lower court's] account of the evidence is plausible in light of the record viewed in its entirety, the [appellate court] may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently. Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous.

Anderson v. Bessemer City, 470 U.S. 564, 573-74, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985). Additionally, due regard must be given to the Bankruptcy Court's assessment of the credibility of the witnesses. Educational Credit Mgmt. Corp. v. Gouge, 320 B.R. 582, 583 (W.D.N.C.2005). Thus, "absent extraordinary circumstances, an appellate court should not disturb a factfinder's credibility determinations." In re Environmental Aspecs, Inc., 235 B.R. 378, 384 (E.D.N.C.1999).

FACTUAL BACKGROUND

Gallagher first met Keever's husband, Ricky Keever ("Ricky"), in 1997, when he and Gallagher became co-workers at Ansco. [Trial Transcript dated July 23, 2007 ("Transcript"), Bky. Doc. 48 at 5]. Gallagher was introduced to Susan Keever in 1997 at a company Christmas party. [Id. at 42-43]. Gallagher and Ricky had daily interactions in the course and scope of their employment. [Id. at 12]. In 2000, Ricky began leaving notes on Gallagher's desk, expressing his interest in her. [Id. at 17]. In September 2000, he invited Gallagher to lunch at a nearby park, where they had sexual relations. [Id. at 12, 19]. Gallagher knew that Ricky was married at the time, although he had told her that he had had an affair in the past and that his relationship with Keever was "on rocky grounds." [Id. at 16]. Gallagher was also married at the time. [Id. at 15].

Gallagher quit her job at Ansco in October 2000. [Id. at 23]. Before she quit, she gave Ricky a cell phone. [Id. at 38, 44]. She testified that between September 2000 and March 2001, Ricky repeatedly contacted her but that she "tried to stay away and not contact him back." [Id.]. On March 31, 2001, Ricky contacted Gallagher and told her that he and Keever were separating. [Id. at 26]. Ricky invited Gallagher over to a friend's house for a beer and she accepted. [Id. at 27]. They ended up spending the night together and having sexual relations. [Id. at 31].

The following morning, Keever called Gallagher and asked her to come to her house to discuss the matter. [Id. at 27-28]. Gallagher and Keever met for about an hour. During that meeting, Keever told Gallagher that she and Ricky had been together for eighteen years, that they had an eight-year-old son together, and that she intended to keep her family intact. [Id. at 56-57]. She also told Gallagher that she loved Ricky, that she believed that Ricky loved her, and that they were going to remain together. [Id. at 57, 59]. Keever warned Gallagher to leave her family alone. [Id. at 57]. Gallagher assured Keever that she would end her "friendship" with Ricky and never speak to him again. [Id. at 32, 57]. Notwithstanding her statements to Gallagher, Keever ordered Ricky to leave the house for a few days after the March 31, 2001 incident. [Id. at 57]. Within a week, however, they reconciled, and Ricky returned to live with Keever. [Id. at 58].

On May 6, 2001, Keever found the cell phone Gallagher had given Ricky hidden in one of Ricky's boots in his truck. [Id. at 60]. Keever testified as follows:

Q. And what did you do when you found that phone?

A. I looked at the numbers that had been called and when they had been called.

Q. And what did you find?

A. I found that he had called her that evening about 6:45.

Q. Was it just one time that you found her number?

A. Oh, no, sir. That phone was full of her number and his number and, as far as I can remember, and I can remember pretty good, I don't remember another number being on there except their two numbers. Her home phone and her cell phone was on this cell phone, that it had been called.

Q....