Matter of Scarfone

• Decision Date: 26 September 1991
• Docket Number: Bankruptcy No. 88-3800-8B7,Adv. No. 88-256.
• Parties: In the Matter of Lee SCARFONE, d/b/a Architect Lee Scarfone Associates and Patricia C. Scarfone, Debtors. Lee Letterio SCARFONE, d/b/a Architect Lee Scarfone Associates, Plaintiff, v. ARABIAN AMERICAN OIL COMPANY, Defendant.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Middle District of Florida

132 B.R. 470 (1991)

In the Matter of Lee SCARFONE, d/b/a Architect Lee Scarfone Associates and Patricia C. Scarfone, Debtors.

Lee Letterio SCARFONE, d/b/a Architect Lee Scarfone Associates, Plaintiff, v. ARABIAN AMERICAN OIL COMPANY, Defendant.

Bankruptcy No. 88-3800-8B7, Adv. No. 88-256.

United States Bankruptcy Court, M.D. Florida, Tampa Division.

September 26, 1991.

Frederick Lowe, Tampa, Fla., for plaintiff.

Keith Fendrick, Douglas McClurg, Tampa, Fla., for defendant.

ORDER GRANTING ARAMCO'S MOTION FOR SUMMARY JUDGMENT AND DENYING SCARFONE'S MOTION FOR SUMMARY JUDGMENT

THOMAS E. BAYNES, Jr., Bankruptcy Judge.

THE MATTERS under consideration are Motions for Summary Judgment filed by Defendant, Arabian American Oil Company (Aramco), and Debtor/Plaintiff, Lee Letterio Scarfone (Scarfone). Both parties have alleged no genuine issues of material fact exist and the only issues remaining for the Court to decide are matters of law.

Aramco sued Scarfone in the U.S. District Court for the Middle District of Florida alleging Scarfone was liable to Aramco under (1) the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. §§ 1961-1968), (2) the Florida Anti-Fencing Act (Fla.Stat. §§ 812.005-.16), (3) the Florida RICO (Racketeer Influenced and Corrupt Organization) Act (Fla.Stat. §§ 895.01-.09), and (4) the laws of the Kingdom of Saudi Arabia. Just prior to the commencement of the trial, Scarfone filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code (11 U.S.C.). Shortly after the filing of the petition, Scarfone's attorney in the District Court action was granted permission to withdraw as counsel for Scarfone. Aramco immediately sought relief from the automatic stay to allow the trial to continue as scheduled. This Court granted relief from the stay and allowed the trial to proceed to the point of entry of a final judgment. Scarfone requested a continuance of the trial because he was no longer represented by an attorney, but his request was denied, and he proceeded to trial pro se.¹

The trial proceeded in District Court as scheduled and lasted for six and one-half days. At the conclusion of the trial, both parties submitted jury instructions at the court's request. The jury returned a unanimous verdict in favor of Aramco on all counts and awarded Aramco a judgment in the amount of $11,033,655.00.²

The standard of proof under which the jury was required to consider the evidence was preponderance of the evidence. The jury's verdict, rendered in a special interrogatory form, addressed each element of each count of the lawsuit in detail.

On July 21, 1988, Scarfone filed a complaint in this Court seeking to determine the $11,033,655.00 judgment is a dischargeable debt in his bankruptcy case. Aramco filed an answer and counterclaim alleging the debt owed by Scarfone is nondischargeable under Section 523(a)(2), (4), and (6) of the Bankruptcy Code.

Aramco now moves for summary judgment on the basis that there is no genuine dispute as to any material fact and Aramco is entitled to judgment as a matter of law. Specifically, Aramco alleges:

1. The issues involved in determining whether the $11,033,655.00 judgment is a dischargeable debt are identical to those issues litigated in the District Court between the parties.

2. The elements proven in the District Court action are identical to the elements necessary to be proven to determine a debt is nondischargeable under Section 523(a)(2), (4), or (6) of the Bankruptcy Code.

3. Scarfone should be estopped from relitigating in this Court the same factual and legal issues which were previously litigated in the District Court.

Scarfone also moves for summary judgment alleging that there is no genuine issue of material fact and he is entitled to judgment as a matter of law. Scarfone asserts the only issues for the Court to resolve are:

1. Whether Aramco has standing as a creditor in the bankruptcy case.

2. Whether Aramco waived its defense of collateral estoppel.

SCARFONE'S MOTION FOR SUMMARY JUDGMENT

With respect to the issue of whether Aramco is a creditor in the bankruptcy case, the Court finds Aramco is a creditor by virtue of its judgment obtained in the District Court action. Scarfone's position that Aramco is not a creditor is based on the premise Aramco was not the entity actually harmed or damaged by Scarfone's fraudulent actions. Rather, the Saudi Arabian government was the entity actually harmed because it reimbursed Aramco for every penny Aramco paid Scarfone during the course of their business relationship. Therefore, the Saudi Arabian government, not Aramco, is the proper party to the Section 523(a) action. Since Scarfone is the one who instituted this adversary proceeding naming Aramco as Defendant, his argument is disingenuous at best. At all events, the issue of Aramco's or the Kingdom of Saudi Arabia's status has been resolved in favor of Aramco. Arabian American Oil Co. v. Scarfone, 939 F.2d 1472 (11th Cir.1991).

The District Court judgment in favor of Aramco comes to this Court, at a minimum, within the doctrine of full faith and credit. 28 U.S.C. § 1738. Since this Court is an integral part of the District Court, that court's judgment may even be deemed the law of the case on all matters other than dischargeability. Sunco Sales, Inc. v. Latch (In re Latch), 820 F.2d 1163 (11th Cir.1987). The Bankruptcy Court does not act as an appellate court to determine the validity of the District Court's judgment. Such a question is for the U.S. Court of Appeals for the Eleventh Circuit which has rendered an opinion on most of the issues raised by Scarfone herein. Arabian American Oil Co. v. Scarfone, 939 F.2d at 1472. By the issuance of the final judgment, Aramco is a creditor within the meaning of the Bankruptcy Code.

As to Scarfone's allegation Aramco waived its defense of collateral estoppel, the Court finds no such waiver. Scarfone has provided no support for the allegation the defense was waived nor for the proposition the doctrine of collateral estoppel can be waived. The Court will not make a finding based on mere allegation. Therefore, Scarfone's Motion for Summary Judgment is denied.

ARAMCO'S MOTION FOR SUMMARY JUDGMENT

Aramco argues Scarfone should be collaterally estopped from relitigating in this Court the same case he lost in the District Court. The Court of Appeals for the Eleventh Circuit has held the doctrine of collateral estoppel precludes a party from relitigating an issue if the following criteria are met:

1. the issue at stake must be identical to the one involved in the prior litigation;

2. the issue must have been actually litigated in the prior litigation;

3. the determination of the issue in the prior litigation must have been a critical and necessary part of the judgment in that earlier action; and

4. the standard of proof in the prior litigation must have been at least as stringent as the standard of proof in the later litigation.

See Hoskins v. Yanks (In re Yanks), 931 F.2d 42, 43 n. 1 (11th Cir.1991); Halpern v. First Georgia Bank (In re Halpern), 810 F.2d 1061, 1064 (11th Cir.1987); Miller v. Held (In re Held), 734 F.2d 628, 629 (11th Cir.1984); Deweese v. Town of Palm Beach, 688 F.2d 731, 733 (11th Cir.1982).

The special interrogatory jury verdict form conclusively establishes the elements of the charges in the District Court coincide with those delineated in Section 523(a)(2), (4) and (6). For example, to obtain a determination of nondischargeability pursuant to Section 523(a)(2)(A), Aramco must establish Scarfone obtained money by false pretenses, false representations, or actual fraud. The jury in the District Court answered "yes" when asked whether Scarfone was liable for ". . . knowingly obtaining or endeavoring to obtain the money or property of ARAMCO by means of false pretenses, fraud and deception . . . "³ Under Section 523(a)(4), a debt created by an act of larceny is nondischargeable. The jury in the District Court found Scarfone specifically liable for "knowingly obtaining or endeavoring to obtain the money or property of ARAMCO by means of false pretenses, fraud and deception in violation of the Florida civil theft statute."

Section 523(a)(6) precludes discharge of a debt which was created by the debtor's willful and malicious injury to another entity or the property of another entity. The terms willful and malicious have been held to mean intentional and in conscious disregard of another's rights. See Lee v. Ikner (In re Ikner), 883 F.2d 986 (11th Cir. 1989); Hardwick v. Petsch (In re Petsch), 82 B.R. 605, 607 (Bankr.M.D.Fla.1988); People's Savings Bank v. Cardillo (In re Cardillo), 39 B.R. 548 (Bankr.D.Mass. 1984). Again, the jury's finding that Scarfone knowingly obtained money or property from Aramco in violation of the Florida Civil Theft Statute coincides with the elements necessary to prove nondischargeability under Section 523(a)(6). The Court of Appeals for the Eleventh Circuit has held a District Court's finding of a violation of the Florida Civil Theft Statute conclusively establishes the elements required to be proven under Section 523(a)(6), i.e., willful and malicious injury by debtor to another's property. In re Latch, 820 F.2d at 1163. Therefore, this Court finds the issues and elements required to prove the nondischargeability of a debt under Sections 523(a)(2), (4) and (6) are identical to those issues and elements litigated in the District Court.

It is apparent from the record the second and third elements necessary to apply collateral estoppel have also been met. The issues were actually litigated before a jury in a trial that lasted six and one-half days and the issues previously litigated in the District Court action are an integral part of the dischargeability action.

Pivotal to the collateral estoppel question is the issue of what standard of proof is required by this Court to determine a debt nondischargeable under Section 523(a)(2), (4) and (6). As...