Matter of Supple
| Decision Date | 21 October 1981 |
| Docket Number | Bankruptcy No. 2-80-01314,Adv. No. 2-81-0089. |
| Court | U.S. Bankruptcy Court — District of Connecticut |
| Parties | In The Matter Of Robert E. SUPPLE, Jr., Debtor. MA&M INCORPORATED, Plaintiff, v. Robert E. SUPPLE, Jr., Defendant. |
William P. Borchert, Hartford, Conn., for plaintiff.
Elizabeth B. Leete, Hartford, Conn., for defendant.
MEMORANDUM AND DECISION
The matters before the court are cross motions for summary judgment.
Robert E. Supple (debtor) filed a voluntary Chapter 7 petition on December 31, 1980. He listed MA&M Incorporated (plaintiff) as a creditor in the amount of $80,066.60 and indicated its claim was represented by a "Promissory Note, Judgment." Within the time limited, the plaintiff filed a complaint to determine the dischargeability of the scheduled debt. The plaintiff referred to itself both as a judgment creditor pursuant to a "Judgment on Stipulation" entered by the Connecticut Superior Court on January 11, 1979, and as the holder of a promissory note dated September 7, 1978 executed by the debtor. The judgment on stipulation, attached as an exhibit to the complaint, recites that a written stipulation had been filed with the court, by Theresa D. Supple and Robert E. Supple, Jr., and then proceeds as follows:
The court further finds that:
This judgment, in addition to the signature of the Court, Naruk, J., also contains the signatures of an attorney for the plaintiff and an attorney for the debtor.
A promissory note, dated September 7, 1978 in the amount of $122,000.00, jointly signed by Theresa D. Supple (Theresa) and the debtor was also affixed to the complaint as an exhibit. The note calls for monthly payments of $508.33, without interest, has a 30-day default clause, and includes the following paragraph:
The makers of this Note by the execution hereof certify and affirm that this Note is a liability for willful and malicious conversion of the property of another and/or was created by fraud, embezzlement, misappropriation or defalcation while acting in a fiduciary capacity as set forth in a Judgment in Accordance with Stipulation rendered in a tort civil action in Superior Court at Hartford, Connecticut, which action bears No. 212505, and as such this Note is not dischargeable in bankruptcy.
The plaintiff's dischargeability complaint alleges in the first count that the debt which the debtor seeks to discharge is one based on embezzlement and fraud; in the second count, that the debt arises out of a willful and malicious conversion of property of the plaintiff; and, in the third count, that the debtor falsely represented to the plaintiff that he would not and could not obtain a discharge of the debt in bankruptcy and that the plaintiff reasonably relied upon such representations in forgoing the option of pursuing further criminal and civil remedies.
The debtor's answer admits that Theresa, the debtor's wife, committed a fraud upon the plaintiff, and willfully converted the plaintiff's property, but denies that the debtor was a participant, and denies the allegations contained in the third count. The debtor pled as a special defense that he "was under duress when he agreed to the Judgment on Stipulation" and when he "signed the note." The plaintiff filed a motion for summary judgment in its favor on the second and third counts of the complaint asserting that no genuine issue of a material fact exists and that the debtor is barred by the doctrines of collateral and equitable estoppel from obtaining a discharge of the debt of the plaintiff. The debtor denies that the plaintiff is entitled to summary judgment on these two counts and, in turn, seeks summary judgment in his favor on all three counts of the complaint.
The material and undisputed facts, taken from the pleadings and the various affidavits filed with the motions, disclose that Theresa, while working for the plaintiff as a bookkeeper, embezzled the sum of $122,000.00 over a period of ten years starting in 1968. In September, 1977, the plaintiff started a civil action against Theresa, the debtor, and certain relatives of both, seeking to recover the embezzled funds. The plaintiff alleged that the debtor had received monies or other property from Theresa when he either knew or should have known that these monies were obtained fraudulently by her. In March, 1978, Theresa was arrested on charges of larceny and retained F. Mac Buckley as her attorney. The debtor was represented by Attorney Joseph E. Fazzano. The debtor, in the civil action on May 22, 1978, was deposed by the plaintiff, but he refused to answer any questions which he asserted might tend to incriminate or degrade him. The unanswered questions dealt with any knowledge he had of his wife's embezzlement of funds from the plaintiff. Theresa pleaded nolo contendere to the criminal charges, and she and the debtor were advised by Attorney Buckley that if acceptable restitution were made to the plaintiff, Theresa would undoubtedly receive a shorter sentence than otherwise. On September 7, 1978, Theresa was in court for sentencing. Both she and the debtor were advised by Attorney Buckley that she would receive a sentence of two and one-half to five years in jail without restitution and perhaps as little as six months with restitution. It was at this time that Theresa and the debtor agreed to sign the promissory note and other documents prepared by the plaintiff's attorney. A written stipulation which stated that the debtor and Theresa "did maliciously and willfully convert property of the plaintiff in the amount of $122,000.00" was presented to the debtor but not signed since Attorney Fazzano was not present, and Attorney Buckley advised the debtor that Attorney Fazzano would have to execute it on the debtor's behalf. Judge Naruk was then advised as to the terms of restitution, and Theresa was sentenced to one year in jail, six months suspended and an additional period of probation. Three months later, on December 5, 1978, the debtor appeared with Attorney Donald Massey from Attorney Fazzano's office before Judge Naruk in connection with the civil suit. Judge Naruk questioned the debtor as to whether he understood that the judgment to be entered in the civil suit was one based on a "willful tort" and therefore nondischargeable in bankruptcy. The court then orally entered the judgment which thereafter was reduced to the written judgment as set forth above, with the endorsements by the plaintiff and the debtor, and signed by the court on January 11, 1979.
The debtor's affidavit accompanying his motion for summary judgment states that during the years Theresa was embezzling funds from the plaintiff, he believed she earned everything she brought home. He avers that he signed the promissory note on September 7, 1978, because he wanted his wife to receive as short a sentence as possible, and that he was "tremendously upset" at the time of the signing. Theresa's affidavit says that she never told her husband she was embezzling money from the plaintiff.
The plaintiff argues that, as to the second count of its complaint, the judgment entered against the debtor by the Connecticut Superior Court established the essential elements of a nondischargeable debt under 11 U.S.C. § 523(a)(6).1 The plaintiff says that the debtor is collaterally estopped2 from litigating the issue of willful and malicious injury to property in the bankruptcy court and that his attempted repudiation of the Connecticut Superior Court judgment should not be countenanced. The debtor denies that collateral estoppel can be given the state court judgment because there was no actual litigation in the state court, the judgment is deficient in that there are no findings to establish the dischargeability of the plaintiff's debt, and the state court improperly sought to usurp the function of the bankruptcy court to determine dischargeability issues.
In determining the effect of the state court judgment on the parties, the plaintiff and the debtor engage in an analysis of the recent United States Supreme Court decision in Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979). As that decision indicated, prior to 1970 claims of res judicata were rarely heard in bankruptcy courts since issues as to whether or not a debt was dischargeable were decided typically in state courts. 442 U.S. at 129-30, 99 S.Ct. at 2208, 60 L.Ed.2d at 770. But since the 1970 amendments to § 17 of the Bankruptcy Act of 1898, and continuing under § 523 of the Bankruptcy Reform Act of 1978, Congress has required that creditors apply to the bankruptcy court to adjudicate certain dischargeability issues.3 In Brown, the Supreme Court resolved a conflict among the federal...
To continue reading
Request your trial