In re Ward, Bankruptcy No. 94-74034. Adv. No. 94-8253.

Decision Date03 May 1995
Docket NumberBankruptcy No. 94-74034. Adv. No. 94-8253.
Citation194 BR 53
CourtU.S. Bankruptcy Court — District of South Carolina
PartiesIn re James I. WARD, Jr., Debtor. ESTATE OF Madeleine SAMSON, By and Through its Personal Representative, the Reverend Joseph MURPHY, for the benefit of the Estate's residuary beneficiaries, The Extension Society; St. Jude's Hospital for Children; Little Sisters of the Poor; Xavier Association for the Blind; Graymore Friars; Sacred 54*54 Heart Missions; Association of the Blind at Charleston, South Carolina; American Cancer Society; Charles Webb Center; Guest House at Garrison, New York; and the Disabled American Veterans, Plaintiffs, v. James I. WARD, Jr., Defendant.

Stephen F. DeAntonio, Charleston, SC, for Plaintiffs.

Thomas R. Goldstein, Charleston, SC, for Defendant.


JOHN E. WAITES, Bankruptcy Judge.

THIS MATTER comes before the Court upon the Motion for Summary Judgment filed by the Plaintiffs pursuant to Rule 7056 of the Federal Rules of Bankruptcy Procedure arising out of an adversary proceeding seeking a determination that the debt to the Plaintiffs is non-dischargeable pursuant to 11 U.S.C. § 523(a)(4)1. Based upon the presentations of counsel for the Plaintiff and counsel for the Defendant/Debtor, the pleadings to date and the affidavit of the Defendant/Debtor, the Court makes the following Findings of Fact and Conclusions of Law.


1. The Plaintiffs filed a Complaint against the Defendant in the Court of Common Pleas for the State of South Carolina ("State Court") on September 9, 1992 alleging conversion, embezzlement, breach of fiduciary duty, misrepresentation/fraud and constructive trust arising out of fraud. Each cause of action sought a recovery of $252,500 as actual damages plus an award of punitive damages.

2. After one day of trial and after the presentation of several witnesses for the Plaintiff, the trial was suspended and the Defendant agreed for judgment to be rendered against him in the sum of $202,500.2

3. A judgment was subsequently issued by the Honorable William Howard by way of a form order Statement of Judgment by Court dated, filed and entered on March 15, 1994.

4. The parties stipulate that a separate agreement was reached in which it was agreed that if the Defendant paid 70% of the judgment amount within a certain time frame and under certain conditions, the judgment would be expunged or voided in toto.

5. It is further stipulated that the Defendant failed to pay under the agreed terms and that the aforesaid judgment became final.

6. There was no appeal of the judgment.

7. The Defendant filed a voluntary Chapter 7 bankruptcy petition on August 24, 1994.

8. On November 10, 1994, the within adversary proceeding was filed seeking a determination that the debt to the Plaintiff is non-dischargeable pursuant to § 523(a)(4) and Rule 4007 of the Federal Rules of Bankruptcy Procedure, based upon fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny.


Summary judgment is appropriate in those cases in which there is no genuine issue of material fact. Rule 7056(c) of the Federal Rules of Bankruptcy Procedure. Summary judgment should be granted if "there is no genuine issue as to any material fact and if the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). "At the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Id. at 249, 106 S.Ct. at 2510-11. On a motion for summary judgment, evidence and inferences must be viewed and drawn in a light most favorable to the non-moving party. D.L. Auld Co. v. Chroma Graphics Corp., 714 F.2d 1144 (Fed.Cir., 1983). Since it is the movant who bears the onus of establishing his entitlement to summary judgment, his opponent enjoys the benefit of all favorable inferences from evidence proffered, and the facts asserted by the nonmoving party, if adequately buttressed by evidentiary material, are to be taken as true. Abraham v. Graphic Arts Intern. Union, 660 F.2d 811, 212 U.S.App.D.C. 412 (1981).


After the filing of the Chapter 7 bankruptcy petition, the Plaintiffs responded with a Complaint to Determine the Dischargeability of Debt based upon § 523(a)(4) which renders non-dischargeable debts incurred by persons acting fraudulently while in a fiduciary capacity. In the Complaint, the Plaintiffs allege that the Defendant committed fraud or defalcation within the meaning of the § 523 and that this issue has been established in the prior state court action.

Generally, a bankruptcy court may give collateral estoppel effect to those elements of a claim that are identical to the elements required for discharge and which were "`actually litigated and determined in the prior action'." Grogan v. Garner, 498 U.S. 279, 284 n. 11, 111 S.Ct. 654, 658 n. 11, 112 L.Ed.2d 755 (1991). The United States Supreme Court has held that:

The general rule of res judicata applies to repetitious suits involving the same cause of action. It rests upon consideration of economy of judicial time and public policy favoring the establishment of certainty in legal relations. The rule provides that when a Court of competent jurisdiction has entered a final judgment on the merits of a cause of action, the parties to the suit and their privies are thereafter bound "not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose." Cromwell v. County of Sac, 94 U.S. 351, 352, 24 L.Ed. 195. The judgment puts an end to the cause of action which cannot again be brought into litigation between the parties on any ground whatsoever, absent fraud or some other factor invalidating the judgment.

Commission of Internal Revenue v. Sunnen, 333 U.S. 591 at 597, 68 S.Ct. 715 at 719, 92 L.Ed. 898.

In the present case, the parties do not disagree about the underlying facts but disagree as to the inferences to be drawn from the underlying facts. In their Motion for Summary Judgment, the Plaintiffs argue that by allowing the judgment to be voluntarily taken, the Defendant acquiesced in a judicial determination that he committed fraud that is not dischargeable in bankruptcy. The Defendant, in opposition to the motion, filed an affidavit, which asserts that he allowed the judgment to be taken only because he could not withstand the continued litigation and that he thought the settlement was a reasonable resolution to the parties' disputes. The Defendant additionally alleges that because the matter was settled during the trial, there was no judicial determination as to the issue of fraud or defalcation.

The parties did not produce a copy of the transcript of the State Court proceeding. The only evidence of the settlement terms before this Court is the State Court's Order disposing of the case which is a form order and which is itself silent as to the exact terms of settlement or other basis for the judgment.

As a general rule, judgments are to be construed like other written instruments. The determinative factor is the intent of the parties or the court, as gathered, not from an isolated part of the contract or judgment but from all its parts. Hence, in construing a contract or a judgment, it should be examined and considered in its entirety; if the language employed is plain and unambiguous, there is no room for construction or interpretation and the effect thereof must be declared in the light of the literal meaning of the language used. internal citations omitted

Ex parte Petition of Judith Gray White, 299 S.C. 406, 385 S.E.2d 211 (App.1989).

The Plaintiffs within have put forth a strong argument that consensual and default type state court judgments should be given full faith and credit even though there are no specific findings in the judgments. "A judgment of a court having jurisdiction of the parties and of the subject matter operates as res judicata ... even if obtained upon default." In re Hall, 31 B.R. 148, at 149 (Bankr.Okl., 1983). This reasoning is based on the premise "that Congress intended the bankruptcy court to determine the final result — dischargeability or not — and does not require the bankruptcy court to redetermine all the underlying facts." Stone v. Stone 90 B.R. 71, at 74 (Bankr.S.D.N.Y., 1988). However, the Supreme Court noted one of the inherent problems with this line of reasoning:

Default and consent judgments are common in collection proceedings. For the creditor, the prospect of increased attorney\'s fees and the likelihood of driving the debtor into bankruptcy may offset the advantages of exemplary damages or other extraordinary remedies. Bankruptcy deprives the debtor of his creditworthiness and so impairs his ability to repay. In the words of a Shakespearean creditor, fearing the worst:
"When every feather sticks in his own wing,
Lord Timon will be left a naked Gull,
Which flashes now a Phoenix." Timon of Athens, Act 2, Scene 1, in VII, The Works of Shakespeare 294 (Henley ed. 1903). Nor does body execution aid in the collection of a debt if the creditor needs to be out of jail in order to earn the money to repay the debt.

Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979).

The 1979 Supreme Court decision in Brown held that when the issue of fraud is not actually litigated, as in the case of default or consensual type judgments, the bankruptcy court should not be bound by the previous judgment. In Brown, a stipulated judgment was entered against the debtor which did not disclose the basis of liability. After filing for bankruptcy protection and defending a nondischargeability complaint, the debtor moved for summary judgment on the issue...

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