In re Lang

• Decision Date: 28 May 2003
• Docket Number: Bankruptcy No. 93-25329.,BAP No. UT-01-097.,Adversary No. 94-02025.
• Citation: 293 B.R. 501
• Parties: In re Marsha McQuarrie LANG, also known as Marsha Lang, also known as Marsha M. Lang, Debtor. Robert F. Lang, M.D., Plaintiff-Appellee, v. Marsha McQuarrie Lang, Defendant-Appellant.
• Court: U.S. Bankruptcy Appellate Panel, Tenth Circuit

293 B.R. 501

In re Marsha McQuarrie LANG, also known as Marsha Lang, also known as Marsha M. Lang, Debtor.

Robert F. Lang, M.D., Plaintiff-Appellee, v. Marsha McQuarrie Lang, Defendant-Appellant.

BAP No. UT-01-097.

Bankruptcy No. 93-25329.

Adversary No. 94-02025.

United States Bankruptcy Appellate Panel of the Tenth Circuit.

May 28, 2003.

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Marsha M. Lang, Salt Lake City, UT, pro se.

Steven W. Dougherty, Anderson & Karrenberg, Salt Lake City, UT, for Plaintiff-Appellee.

Before McFEELEY, Chief Judge, BOHANON, and CORNISH, Bankruptcy Judges.

OPINION

McFEELEY, Chief Judge.

The Debtor-Defendant, Marcia McQuarrie Lang ("Debtor"), appeals the order and judgment of the bankruptcy court for the district of Utah in favor of her ex-husband, Robert F. Lang ("Plaintiff"), which found that the Debtor committed fraud under Utah law and that the resulting debt was nondischargeable under 11 U.S.C. § 523(a)(2)(A). First, the Debtor argues that a successor judge erred by not complying with Federal Rule of Civil Procedure 63. Second, the Debtor argues that the bankruptcy court erred when it found that the Debtor had violated Utah state fraud law, the debt was nondischargeable in bankruptcy, and the Plaintiff was entitled to compensatory and punitive damages.

We find no error in the successor judge's application to the proceedings below of Federal Rule of Civil Procedure 63. We affirm on the issue of whether the Debtor incurred a debt under Utah law that was nondischargeable under 11 U.S.C. § 523(a)(2)(A). We reverse and remand on the issue of the amount of compensatory damages, and we reverse on the issue of punitive damages.

I. Background

The Debtor and the Plaintiff married in 1969. Two children were born during the marriage: a daughter on May 1, 1972, and a son on June 5, 1978. Although the Debtor and the Plaintiff had separated for a period of years in the early 1970s, the Plaintiff assumed that he had fathered both children.

In 1980, the Debtor and the Plaintiff divorced. Because the Plaintiff was presumed to have fathered the children and no issues concerning paternity were raised by either party during the divorce proceedings, the Utah state court ordered the Plaintiff to pay child support.

In 1991, eleven years after their divorce, the Debtor told the Plaintiff that he had not fathered either child and that the children's biological father was probably James E. Pickens ("Pickens"), with whom, it was later revealed, she had a sexual relationship during her marriage for approximately six to seven years.

Soon after, on October 9, 1992, the Plaintiff brought an eight-count complaint against Debtor and Pickens in the Utah state district court, alleging, among other things, fraud, breach of fiduciary duty, interference with filial relations, and intentional infliction of emotional distress ("state court Complaint"). The state court Complaint asked for general and compensatory damages, punitive and exemplary damages, future child support, and costs.

On October 7, 1993, the Debtor filed under Chapter 7 of the United States Bankruptcy Code. On October 26, 1993, the Plaintiff sought and obtained relief from the automatic stay for the sole purpose of permitting the state court to determine paternity. After ordering a paternity test, the state court determined that Pickens was 99% likely to be the father of both children.

On January 7, 1994, the Plaintiff timely filed an adversary proceeding in the bankruptcy court for the district of Utah, making the same claims he had made in the Utah state court and further alleging that any resulting debt was nondischargeable under 11 U.S.C. §§ 523(a)(2)(A), (a)(4), (a)(6).¹ The adversary proceeding went to trial on February 15 and 16, 1995.² In the adversary proceeding, the Debtor represented herself.

During the trial, the Plaintiff's divorce attorney, Brian Florence ("Florence"), testified about statements the Debtor made at a deposition taken on March 20, 1980, and at the state court divorce trial. The deposition at issue was not produced. Florence testified that when he deposed the Debtor he asked her "if she had had any extramarital affairs during her marriage" and the Debtor said "no." Adversary Trial Transcript at 26, in Appellant's App. at 1048. Florence further testified that at the state court divorce trial, the Debtor's attorney asked the Debtor if the two children were the issue and the result of the marriage, and the Debtor said yes. Id. at 29, in Appellant's App. at 1052. At the adversary proceeding trial, the Debtor raised no objections to Florence's testimony, and she had an opportunity to cross-examine him.

On February 17, 1995, the bankruptcy judge ("trial judge") made oral findings on the record and found that the Debtor had deceived the Plaintiff, but in the absence of any intent to hurt the Plaintiff, she had not committed fraud. The trial judge made the additional finding that because of Utah Code Ann. § 30-1-17.2 (2001), which provides that children born during a marriage are legally the issue of the marriage, that the Debtor did not lie in the divorce complaint. Ruling Transcript at 6, in Appellant's App. at 1184. The trial judge concluded that there was no cause of action under §§ 523(a)(2)(A), (a)(4), or (a)(6).

The Plaintiff appealed the bankruptcy court's ruling to the United States District Court for the District of Utah. On appeal, the Plaintiff argued that the trial judge had erred because Florence's testimony was conclusive evidence that the Debtor had made a false representation during the divorce. After considering the Plaintiff's argument, the district court concluded that Florence's testimony during the bankruptcy proceeding was inadmissable as hearsay and under the best evidence rule, Federal Rule of Evidence 1002, and affirmed the bankruptcy court.

On further appeal to the United States Court of Appeals for the Tenth Circuit, the Plaintiff prevailed in part. Lang v. Lang (In re Lang), No. 95-4198, 1997 WL 26585 (10th Cir. Jan. 24, 1997). The Tenth Circuit held that the district court had erred when it found that Florence's testimony was not admissible because the testimony was admissible as an admission of a party-opponent under Federal Rule of Evidence 801(d)(2). Id. at *3. When considering the Plaintiff's fraud claims, the Tenth Circuit found that the trial judge had erred in its delineation of the elements of fraud under Utah state law. Id. at *2. Referring to a Utah state case, Masters v. Worsley, 777 P.2d 499 (Utah Ct.App.1989), which held that intent to harm is not an element of fraud, the Tenth Circuit remanded to the district court "with instructions that it remand to the bankruptcy court for consideration of the applicability of Masters" and "for further consideration in light of our reversal of the district court's holding as to the admissibility of the divorce counsel's testimony." Id. Finally, the Tenth Circuit affirmed the bankruptcy court's finding that the Debtor had no intent to harm the Plaintiff and so had no cause of action under § 523(a)(6).³ Id. at *1.

After remand, no action was taken in the case for more than two years. The bankruptcy court entered an Order to Show Cause in May 1999, as to why the case should not be dismissed for failure to prosecute. In response, the Plaintiff filed proposed findings of facts and conclusions. The Debtor objected.

Because the first trial judge was no longer available, the case was reassigned to another bankruptcy judge ("successor judge"). The successor judge held a hearing on the Debtor's objection to the proposed findings and conclusions in October 2001, allowed the parties to file briefs, and held a final hearing on November 7, 2001. The successor judge stated his conclusions orally at the final hearing, finding that the Debtor had committed fraud under Utah state law and the judgment was nondischargeable under § 523(a)(2)(A). The successor judge awarded the Plaintiff $156,231.00 in compensatory and $10,000 in punitive damages plus prejudgment and post-trial interest.

On December 10, 2001, the successor judge entered an Order and Judgment. This appeal timely followed.

II. Appellate Jurisdiction

The Bankruptcy Appellate Panel has jurisdiction over this appeal. The bankruptcy court's judgment disposed of the adversary proceeding on the merits and is a final order subject to appeal under 28 U.S.C. § 158(a)(1). See Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 712, 116 S.Ct. 1712, 135 L.Ed.2d 1 (1996). The Debtor timely filed her notice of appeal pursuant to Federal Rule of Bankruptcy Procedure 8002. The parties have consented to this Court's jurisdiction by failing to elect to have the appeal heard by the United States District Court for the District of Utah. 28 U.S.C. § 158(c)(1); Fed. R. Bankr.P. 8001.

III. Standard of Review

"For purposes of standard of review, decisions by judges are traditionally divided into three categories, denominated questions of law (reviewable de novo), questions of fact (reviewable for clear error), and matters of discretion (reviewable for `abuse of discretion')." Pierce v. Underwood, 487 U.S. 552, 558, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988); see Fed. R. Bankr.P. 8013.

A successor judge's actions under Federal Rule of Civil Procedure 63 are reviewed for abuse of discretion. See Semaan v. Allied Supermarkets, Inc. (In re Allied Supermarkets, Inc.), 951 F.2d 718, 727 (6th Cir.1991). "Under the abuse of discretion standard: `a trial court's decision will not be disturbed unless the appellate court has a definite and firm conviction that the lower court made a clear error of judgment or exceeded the bounds of permissible choice in the circumstances.'" Moothart v. Bell, 21 F.3d 1499, 1504 (10th Cir.1994) (quoting McEwen v. City of Norman, 926 F.2d 1539, 1553-54 (10th Cir.1991) (further quotation omitted)).

A bankruptcy court's factual findings are reviewed for clear error and its legal...