In re Limbaugh
| Decision Date | 05 May 1993 |
| Docket Number | Bankruptcy No. 392-37298 RCM-7,Adv. No. 392-3754. |
| Citation | 155 BR 952 |
| Parties | In re Dale Richard LIMBAUGH, dba Limbaugh Construction, and Forwins Construction, and Linda Joyce Limbaugh, aka Linda Keller Limbaugh, Linda Keller Crain, and Linda Joyce Crain, Debtors. Raymond CRAIN, Plaintiff, v. Linda LIMBAUGH, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Texas |
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Jack A. Moffitt, Jr., Dallas, TX, for plaintiff.
Frank H. Hagle, Jr., Grand Prairie, TX, for defendant.
Pursuant to Bankruptcy Rule 7052, the following are the Court's Findings of Fact and Conclusions of Law in connection with the hearing held in the above-referenced adversary proceeding on March 26, 1993. This case addresses whether a state court default judgment entered as a sanction for discovery abuse is entitled to issue preclusive effect in a bankruptcy dischargeability context. Initially, the Court granted the summary judgment; however, it later vacated its order to pursue further independent research on the collateral estoppel issue. After a thorough review of the summary judgment evidence and the law, the Court grants Plaintiff's motion for summary judgment, and declares that the debt evidenced by Plaintiff's state court judgment in the amount of $142,174 is nondischargeable pursuant to § 523(a)(6) of the Code.
Under 28 U.S.C. §§ 1334, and 157(a), and the Standing Order of Reference, this Court has jurisdiction over Debtors' bankruptcy case. This matter is a core proceeding requiring a determination of dischargeability. 28 U.S.C. § 157(b)(2)(J).
Before the Debtors' bankruptcy proceeding was filed, Raymond Crain ("Crain" or "Plaintiff"), former spouse of Debtor, Linda Joyce Limbaugh ("Limbaugh" or "Defendant"), filed suit in the County Court at Law No. 3 in Harris County, Texas (the "State Court") seeking damages arising from alleged violations of § 123.002 of the Texas Civil Practice and Remedies Code (the "State Court Action"). Specifically, Plaintiff alleged that Defendant had engaged in unauthorized wiretap activities to obtain an advantage in a separate family court proceeding initiated for the purpose of increasing court-ordered child support, and restricting parental visitation rights. Throughout both the State Court Action and the family court matter, Defendant was represented by counsel. Defendant answered the State Court Action, admitting her conduct, but alleged several grounds of justification and asserted a counterclaim. As part of the State Court Action, Defendant's deposition was scheduled and taken by Plaintiff, but recessed after it was apparent Defendant had not fully complied with the subpoena duces tecum. After motion and hearing, Defendant was ordered by the State Court to reappear for deposition and produce documents previously withheld. The State Court warned that disobedience of the discovery order could result in sanctions, including the striking of Defendant's pleadings, pursuant to Rule 215(2)(b) Tex., R.Civ.Proc. (West 1993).
At a sanctions hearing held September 4, 1990, the State Court found Defendant had disobeyed the earlier order, struck Defendant's pleadings, and ordered a judgment in favor of Plaintiff on the issue of liability. Subsequently, on October 3, 1990, the State Court heard evidence on damages. Defendant participated in that hearing through counsel, and availed herself of the opportunity to cross-examine witnesses.
On October 24, 1990, the State Court signed an interlocutory judgment against Defendant (the "State Court Interlocutory Judgment"). (Plaintiff's Motion for Summary Judgment, Ex. I). As part of the State Court Interlocutory Judgment, the State Court found that Defendant engaged in unauthorized activity involving the unlawful interception and disclosure of oral communications under § 123 of the Texas Civil Practice and Remedies Code, and that Plaintiff was damaged as a result of such "intentional and deliberate acts" in the amount of $142,174, plus post-judgment interest. In additional findings entered November 27, 1990 (Ex. K), the State Court found that Defendant continued using information obtained from taped telephone conversations between Plaintiff and the couple's children in the family court proceeding, in violation of Chapter 123 of the Texas Civil Practice and Remedies Code, after having been admonished by the Family Court against doing so.
On October 31, 1990, the state court severed Defendant's counterclaim, and entered an order making the State Court Interlocutory Judgment a final judgment.
An appeal was taken from the final judgment; however, on June 27, 1991, by order of the 14th Judicial District Court of Appeals, the appeal was dismissed for want of prosecution.
Defendant filed a Chapter 7 bankruptcy petition on August 14, 1992. On November 9, 1992, Plaintiff filed an adversary proceeding seeking a determination that the judgment debt obtained in the State Court Action represents a "willful and malicious injury", and is non-dischargeable under § 523(a)(6) of the Code. Plaintiff has filed a motion for summary judgment asserting that the factual determinations made in the State Court Action bar relitigation of those issues relevant to a determination of dischargeability. In response, Defendant contends that issue preclusion is not warranted for the reason that the State Court default judgment, by its very nature, did not litigate or decide any issues.
Though, generally, default judgments are not entitled to issue preclusive effect, exceptions exist where the quality, extensiveness and fairness of the procedures followed in the prior litigation are comparable to full adversary contests. 18 C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure § 4442 (1981); Montana v. United States, 440 U.S. 147, 164 n. 11, 99 S.Ct. 970, 979 n. 11, 59 L.Ed.2d 210 (1979). The term, "default judgment", has been used loosely to describe a variety of litigation ranging from one-sided prove up hearings, after default for failure to answer, to full-scale contests on the issue of damages, following a post-answer default.1 Consideration of those procedural distinctions involved in prior litigation dictates that courts reject attempts to uniformly categorize default judgments where circumstances indicate some measure of preclusion is warranted.
In the instant case, the contested nature of the damages hearing held October 3, 1990, and the striking of Debtor's pleadings for discovery abuse established the default judgment as the product of a genuine adversary contest. This Court, therefore, finds that the $142,174 default judgment entered in the State Court Action meets the "actually litigated" prong of the issue preclusion test, and bars relitigation of the factual determinations made in the prior proceeding.
In In re Stowell, 113 B.R. 322 (Bankr.W.D.Tex.1990), Judge Kelly set out the analytical framework for deciding whether a prior judicial determination will bar discharge of the debt evidenced by the judgment. The test, which Stowell distilled from several Supreme Court decisions, including Marrese v. American Academy of Orthopedic Surgeons, 470 U.S. 373, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985), involves a two-step process. The federal court is first required to look to state law to determine the preclusive effect of a prior state court judgment. 28 U.S.C. § 1738.2 If preclusive effect would be given, then the federal court must determine if any exception to the full faith and credit statute applies under federal law.
As a threshold matter, the Court must consider Texas law on issue preclusion. Under Texas law, Plaintiff must show:
Bonniwell v. Beech Aircraft Corp., 663 S.W.2d 816, 818 (Tex.1984) (citing Benson v. Wanda Petroleum Corp., 468 S.W.2d 361 (Tex.1971) and Restatement (Second) Judgments, § 27 (1982)). To meet the fully and fairly litigated requirement, an issue must be actually litigated. Van Dyke v. Boswell, O'Toole, Davis & Pickering, 697 S.W.2d 381, 384 (Tex.1985) (citing Bonniwell, supra) ("Once actually litigated and essential issues are determined, that issue is conclusive in a subsequent suit between the same parties").
Few bankruptcy courts have addressed whether, under state law, a default judgment meets the "actually litigated" prong of the issue preclusion test. In re Stowell, supra; In re Turner, 144 B.R. 47 (Bankr.E.D.Tex.1992). In the absence of any Texas precedent directly on point, bankruptcy courts have looked to § 27, comment (e) of the Restatement (Second) of Judgments for guidance, noting that Texas courts have relied on both § 27 of the Restatement and its official comments, in their attempt to apply the law. Stowell, supra at 329 ().3
The Restatement recognizes that certain dangers exist in attaching preclusive effect to findings made as part of judgments entered by confession, consent, or default. First, the essential foundation of issue preclusion is oftentimes lacking for want of actual litigation or actual decision of any kind. Additionally, it is argued that a default judgment may be suffered for any number of valid reasons, other than the merits of plaintiff's claim. By contrast, however, once the defendant answers on the merits, a trial or summary judgment proceeding is required to determine all matters not admitted in the pleadings. Application of the doctrine of collateral estoppel is appropriate at that point, where the issues have been raised by the parties, submitted for determination, and resolved by the trier of fact. 18 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 4442, pp. 376-377 (1981). Restatement (Second) Judgments, § 27 comment (e) (198...
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