In re Slosberg, Bankruptcy No. 97-20908
| Decision Date | 25 September 1998 |
| Docket Number | Bankruptcy No. 97-20908,Adversary No. 97-2071. |
| Citation | 225 BR 9 |
| Parties | In re Richard B. SLOSBERG, Debtor. Dennis H. McALISTER, Plaintiff, v. Richard B. SLOSBERG, Defendant. |
| Court | U.S. Bankruptcy Court — District of Maine |
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Joseph L. Goodman, Portland, ME, for debtor.
Stephen B. Wade, Skelton, Taintor & Abbott, Auburn, ME, for plaintiff.
Plaintiff Dennis McAlister contends that his pre-bankruptcy state court judgment against Defendant Richard Slosberg, his former attorney, determined all issues pertinent to his averments that Slosberg's obligations to him are nondischargeable under § 523(a)(6). Slosberg, a Chapter 7 debtor, asserts that the state court judgment does not carry preclusive effect in this dischargeability action because it was entered by default.
For the reasons set forth below, I conclude that the state court judgment does not entitle McAlister to judgment as a matter of law and deny his summary judgment motion.1
In 1990, after unsuccessfully defending a state court paternity action, McAlister retained Slosberg to prosecute an appeal. The two kept in regular contact for approximately two years, meeting in person ten to twenty times.
While the paternity appeal was pending, McAlister was charged with operating a vehicle while under the influence of intoxicating liquor. He hired Slosberg to defend him. After Slosberg thrice failed to appear at motion hearings in that case, McAlister hired a new lawyer. The new attorney checked on the paternity appeal and reported to McAlister that it had been dismissed for failure to prosecute.
McAlister sued Slosberg for malpractice. Slosberg managed his own defense no better than he had represented McAlister. As a sanction for failing to comply with a discovery order, the state court defaulted Slosberg.
A jury trial on damages followed. The jury awarded McAlister compensatory damages for mental distress ($3,800.00) and punitive damages ($19,000.00) based on a determination that Slosberg acted with malice. In addition, it awarded him legal fees and costs ($3,510.00) and lost wages ($800.00), for a total award of $27,110.00. The court denied Slosberg's trio of post-trial motions.
Slosberg appealed to the Supreme Judicial Court of Maine, challenging the lost wages, mental distress, and punitive damages awards. See McAlister v. Slosberg, 658 A.2d 658 (Me.1995). The court affirmed Slosberg's liability because the lower court's default order established all the allegations in McAlister's complaint as true. See id. at 660. And, concluding that all damages issues were properly placed before the jury, it left the damages awards undisturbed. See id.
Slosberg next filed a voluntary Chapter 7 petition. McAlister initiated an adversary proceeding seeking a determination that Slosberg's obligations to him are excepted from discharge because they constitute damages for willful and malicious injury within the meaning of § 523(a)(6) or, alternatively, because they are damages arising from fiduciary fraud or defalcation within the meaning of § 523(a)(4).
McAlister's asserts that he is entitled to summary judgment because, taken together, the state court default order and damages verdict preclude evidentiary contest of any factual issues material to the elements of his § 523(a)(6) and (a)(4) claims. More specifically, he contends that the state court's finding of "malice" (as that term is defined in Maine law) was a finding essential to the jury's punitive damage award and that such a finding comprehends all elements of § 523(a)(6) willfulness and maliciousness.
In addition, McAlister argues that Slosberg's admitted acceptance of a retainer for services he failed to render, the jury verdict, and an administrative order directing repayment of the retainer2 compel summary judgment in his favor on the § 523(a)(4) fiduciary defalcation count.
Slosberg asserts that the state court default judgment has no issue preclusion potency under Maine law because there was no actual litigation of the facts upon which McAlister's recovery was based (i.e., because they were "deemed admitted" by default). Further, he asserts that use of a defaultdriven judgment to establish facts in subsequent bankruptcy dischargeability litigation does violence to the Bankruptcy Code's fresh start policies. As to the jury's findings, he argues that the trial judge never put the question of malice to the jury; rather, the jury was instructed that malice and negligence were deemed proven by default and that the judge gave malice instructions only "to place the jury in a better position to assess the damages." Thus, he contends, there was no "finding" of malice by the jury. Furthermore, Slosberg argues that, even if the jury did make a finding of malice en route to its punitive damages award, the definition of malice under Maine law does not subsume § 523(a)(6)'s substantive content. Thus, in Slosberg's view, a pre-bankruptcy finding of malice in support of a punitive damage award in a Maine civil suit does not foreclose subsequent litigation of § 523(a)(6) dischargeability issues.
Slosberg did not brief the § 523(a)(4) issues.
I will grant McAlister's summary judgment motion if, on the basis of the complete summary judgment record before me, "there is no genuine issue as to any material fact" and he is entitled to judgment "as a matter of law." Fed.R.Civ.P. 56(c). See also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Euromotion, Inc. v. BMW of North America, Inc., 136 F.3d 866, 869 (1st Cir.1998); Poor v. Chase Manhattan Bank USA, N.A. (In re Poor), 219 B.R. 332, 333 (Bankr.D.Me.1998). To successfully counter McAlister's motion, Slosberg must "set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). See, e.g., Barbour v. Dynamics Research Corp., 63 F.3d 32, 37 (1st Cir.1995); In re Poor, 219 B.R. at 334. I view the record in a light most favorable to Slosberg, the party opposing summary judgment, and indulge all reasonable inferences in his favor. See, e.g., Euromotion, Inc., 136 F.3d at 869; In re Poor, 219 B.R. at 334.
The principle of issue preclusion prevents parties from relitigating issues finally determined elsewhere. See Aetna Casualty & Surety Co. v. Markarian (In re Markarian), 208 B.R. 249, 251 (1st Cir. BAP 1997); see also Spickler v. York, 505 A.2d 87, 88 (Me. 1986) (Maine law).3 In dischargeability actions, bankruptcy courts must recognize issue preclusion based on pre-bankruptcy state court determinations. See 28 U.S.C. § 1738 (); see also Grogan v. Garner, 498 U.S. 279, 284 n. 11, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); Reynolds-Marshall v. Hallum, 162 B.R. 51, 55 (D.Me.1993); (In re Markarian), 208 B.R. at 251; Applebee v. Brawn (In re Brawn), 138 B.R. 327, 329-30 (Bankr.D.Me.1992). I can give the state court judgment no greater preclusive effect than it carries under Maine law. See Johnson v. De Grandy, 512 U.S. 997, 1005, 114 S.Ct. 2647, 129 L.Ed.2d 775 (1994); Lundborg v. Phoenix Leasing, Inc., 91 F.3d 265, 270 (1st Cir.1996).
McAlister's motion raises the question whether his state court judgment, a hybrid creature with characteristics of a default judgment and those of a jury verdict, is constituted of the stuff that can carry issue preclusive effects. This inquiry is problematic, but I will touch upon it briefly. It also raises the question whether such issue preclusive effects as it may carry coincide with determinative elements of McAlister's claims of § 523(a)(6) and § 523(a)(4) nondischargeability.
Recent developments in bankruptcy law demonstrate that the state court did not resolve issues determinative of McAlister's § 523(a)(6) dischargeability claim. Thus, even were I to assume that a state court judgment of this ilk could operate with issue preclusive force in subsequent litigation presenting overlapping, material factual issues, I conclude that it does not do so in the case before me. As neither McAlister's argument nor the record adequately supports his entitlement to preclusion on the § 523(a)(4) claim, he falls short there, as well.
Maine law determines the preclusive effects of McAlister's state court judgment. See Matsushita Elec. Indus. Co., Ltd. v. Epstein, 516 U.S. 367, 375, 116 S.Ct. 873, 134 L.Ed.2d 6 (1996); Marrese, 470 U.S. at 380, 105 S.Ct. 1327; Keystone Shipping Co. v. New England Power Co., 109 F.3d 46, 50 (1st Cir.1997); Reynolds-Marshall, 162 B.R. at 55. In order to carry preclusive force, the prior judgment must meet a four-pronged test: (1) The issues McAlister seeks to avoid relitigating here must be the same as those involved in the state court malpractice action; (2) Those issues must have been actually litigated in the malpractice suit; (3) The determination(s) McAlister relies upon must be part of a binding and final judgment(s); and (4) The determinations must have been essential to the state court judgment. See Sargent v. Buckley, 697 A.2d 1272, 1274 (Me. 1997); Morton v. Schneider, 612 A.2d 1285, 1286 (Me.1992) (); see also In re Brawn, 138 B.R. at 330 (); cf. In re Markarian, 208 B.R. at 251 (same elements); Eppard v. Sestito (In re Sestito), 136 B.R. 602, 604 (Bankr.D.Mass. 19...
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