PAUL W. BONAPFEL, Bankruptcy Judge.
Four Seasons Trucking, Inc. ("Four Seasons") obtained a judgment for attorney's fees under O.C.G.A.§ 13-6-11 against the Chapter 7 debtor, Marilyn B. Crawford, in civil litigation in the State Court of DeKalb County against Ms. Crawford and her corporation, R/A/C/T Enterprises, Inc. ("R/A/C/T"). In this action, Four Seasons seeks a determination that its judgment is excepted from discharge under 11 U.S.C.A. § 523(a)(6), which excepts debts for willful and malicious injury to property.
Four Seasons's claims arise out of hauling services it performed for R/A/C/T on a construction project on which R/A/C/T was a subcontractor for the general contractor, J.M. Wilkerson Construction Company, Inc. ("Wilkerson"). R/A/C/T failed to pay Four Seasons $38,059 for services it rendered. Four Seasons asserts that Wilkerson paid R/A/C/T for the services it provided but that R/A/C/T and Ms. Crawford converted the payments meant for Four Seasons to her own use. (Amended Complaint [44] at ¶¶ 14-16).
Four Seasons filed a lawsuit against R/A/C/T and Ms. Crawford in the State Court of DeKalb County, asserting a claim for breach of contract against R/A/C/T only and claims for conversion, punitive damages, and attorney's fees against both R/A/C/T and Ms. Crawford. The State Court granted summary judgment in favor of Four Seasons on the issue of Ms. Crawford's liability for conversion.
Both parties have moved for summary judgment. Ms. Crawford contends that the State Court judgment establishes as a matter of law that she did not convert any property because the State Court ruled that Four Seasons had failed to establish any damages for conversion. She thus invokes the doctrine of claim preclusion, often called res judicata
Four Seasons asserts that the judgment for attorney's fees is necessarily based on the debtor's liability for conversion because the State Court could not have awarded attorney's fees in the absence of that liability. Four Seasons thus relies on the doctrine of issue preclusion, which Georgia courts call collateral estoppel: the State Court necessarily determined that Ms. Crawford was liable for conversion, and Ms. Crawford cannot litigate that issue again. Assuming that a debt for conversion is a willful and malicious injury to property for purposes of § 523(a)(6), Four Seasons concludes that the liability for attorney's fees is nondischargeable as a matter of law.
Based on the Court's analysis of the State Court lawsuit and judgment, the Court concludes for reasons explained below that neither party is entitled to summary judgment. Even if Ms. Crawford's liability for attorney's fees arises from her liability for conversion, the State Court's determination of her conversion liability is not preclusive on the issues of whether the conversion was a "willful and malicious" injury to property for purposes of § 523(a)(6) and whether the conversion caused her liability for attorney's fees. Because the State Court did not, and could not, determine the claim of Four Seasons that Ms. Crawford's debt is for willful and malicious injury within the meaning of §523(a)(6), the State Court judgment does not preclude that claim in this proceeding.
Based on the allegations of Four Seasons in its complaints in the State Court and in this proceeding, the Court is concerned that Four Seasons may not have a claim under §523(a)(6) as a matter of law. The Court will, therefore, direct Four Seasons to supplement its response to Ms. Crawford's motion for summary judgment to establish triable issues of fact that, if established, would entitle it to a determination that the judgment is excepted from discharge under §523(a)(6).
The Court begins with a review of the litigation in the State Court and the rulings of the State Court.
Four Seasons's lawsuit in the State Court of DeKalb County against Ms. Crawford and R/A/C/T (Plaintiff's Exhibit ("PX") C [48 at 8-26])
The State Court granted unopposed motions for summary judgment against R/A/C/T on the contract claim in Count I in the amount of $38,059 and against both R/A/C/T and Ms. Crawford as to liability only on the conversion claim in Count II. (State Court Oct. 2, 2009 Order at 2 & nn. 3 & 9 (PX-B [48 at 4-7])). With regard to Ms. Crawford's liability, the State Court concluded that "[Ms. Crawford] has admitted that she `participated' in the conversion" based on requests for admission to which she had not responded. (Id. at 2 & n. 9 (PX-B [48 at 6])). The State Court denied summary judgment on the amount of damages on the conversion count and on the other counts of the complaint for lack of evidence. (Id. at 2 (PX-B [48 at 6])).
After a non-jury trial, the State Court concluded that there was no evidence with regard to damages as to either R/A/C/T or Ms. Crawford on the conversion claim in Count II and that there was not a preponderance of the evidence in favor of the plaintiff on the punitive damages claim in Count III. (State Court Jan. 26, 2010 Order at 2 (PX-D [48 at 29])).
With regard to the claim for attorney's fees in Count IV, the State Court found a preponderance of the evidence in favor of Four Seasons against both R/A/C/T and Ms. Crawford and awarded attorney's fees in the amount of $18,749, together with post-judgment interest, against both. (Id.).
In summary, the result of the State Court litigation was that Four Seasons could not recover on its conversion and punitive damages claims against Ms. Crawford in Counts II and III but that she was liable for $18,749 on its attorney's fee claim in Count IV, plus interests and costs. She was not liable on the contract claim in Count I because it did not assert a claim against her personally.
The effect of the State Court's judgment as a matter of Georgia law is straightforward. Ms. Crawford owes Four Seasons $18,749, plus interest and costs. Absent Ms. Crawford's Chapter 7 case, Four Seasons has a lien on her property and the right to invoke postjudgment remedies to enforce the judgment and collect its debt.
Her Chapter 7 bankruptcy case changes things. Ms. Crawford may avoid the lien on her exempt property (even if the debt is excepted from discharge) under 11 U.S.C. § 522(f)(1)(A), and her Chapter 7 discharge prevents Four Seasons from attempting to collect it as her personal liability, 11 U.S.C. § 727(b), unless the debt is excepted from discharge under 11 U.S.C. § 523(a).
Under 523(a)(6), a debt is excepted from discharge if it is a debt "for willful and malicious injury by the debtor to another entity or to the property of another entity."
Under state law, the reason for the judgment against Ms. Crawford is immaterial. But the reason for the debt is critical to application of the discharge exception in § 523(a)(6). The debt must be for "willful and malicious injury" for the § 523(a)(6) exception to apply.
Both parties rely solely on the summary judgment order and the judgment of the State Court to support their respective positions that they are entitled to judgment as a matter of law. The difficulty in this proceeding is that the Court cannot determine from the record whether the State Court entered judgment against Ms. Crawford for attorney's fees for her conversion of property of Four Seasons.
Although the State Court in its summary judgment order concluded that Ms. Crawford was liable for conversion, its final conclusion after trial was that Four Seasons had not produced any evidence of damages it had sustained by virtue of any conversion that had occurred.
This is important because it is well-established under Georgia law that O.C.G.A. § 13-6-11 permits recovery of attorney's fees only if the party recovers damages or other relief on its claims to which the attorney's fees relate; the statute provides an ancillary remedy with regard to a successful claim but does not establish an independent basis of liability.
This issue would not exist if the State Court had awarded nominal damages against Ms. Crawford on the conversion claim. Georgia law permits the recovery of attorney's fees under O.C.G.A. § 13-6-11 when a party recovers nominal damages.
Moreover, even if the State Court had awarded nominal damages — or if its judgment is interpreted as including an implicit award of nominal damages to support the award of attorney's fees — the attorney's fees must be reasonable.
Indeed, in view of the fact that Ms. Crawford otherwise won on the merits of the only claim against her personally — Four Seasons recovered no damages for conversion against her — it does not make sense that, as the prevailing party, she must pay attorney's fees, a principle that Georgia law recognizes.
If Ms. Crawford had appealed, a Georgia appellate court could have reversed the judgment against her for attorney's fees because, under the principles just discussed, a necessary condition for the imposition of attorney's fees under O.C.G.A. § 13-6-11 is the recovery of actual or at least nominal damages, and Four Seasons recovered neither from Ms. Crawford.
But no one appealed, and the judgment for attorney's fees stands
In this context, the Court must determine whether collateral estoppel applies to establish that the debt is excepted from discharge under § 523(a)(6) based on the State Court's rulings or whether the judgment precludes Four Seasons from seeking relief in this proceeding based on res judicata. The Court considers each issue in turn.
Under principles of issue preclusion ("collateral estoppel"), the determination of an issue in pre-bankruptcy litigation may prevent relitigation of the same issue in an adversary proceeding in a bankruptcy court regarding the dischargeability of the debt. E.g., Grogan v. Garner, 498 U.S. 279 (1991). For purposes of this analysis, the Court will assume, without deciding, that the State Court determined that Ms. Crawford was liable for conversion and that it awarded attorney's fees based on her liability for conversion.
Because the State Court rulings arise from actual litigation in a Georgia court, this Court must apply the Georgia law of collateral estoppel. 28 U.S.C. § 1738; St. Laurent v. Ambrose, 991 F.2d 672, 675-76 (11
The issue of whether a defendant is liable for conversion under Georgia law is not identical to the issue of whether the conduct of the defendant is "willful and malicious" within the meaning of § 523(a)(6).
Under Georgia law, "[C]onversion consists of an unauthorized assumption and exercise of the right of ownership over personal property belonging to another, in hostility to his rights; an act of dominion over the personal property of another inconsistent with his rights; or an unauthorized appropriation. Thus, any distinct act of dominion and control wrongfully asserted over another's personal property, in denial of his right or inconsistent with his right, is a conversion of such property." Parris Properties, LLC v. Nichols, 305 Ga.App. 734, 744-45, 700 S.E.2d 848, 858 (2010), quoting Williams v. Nat. Auto Sales, 287 Ga.App. 283, 285, 651 S.E.2d 194 (2007) (Citations, punctuation, and footnotes omitted).
Nondischargeability under § 523(a)(6), however, requires a "deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury." Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998) (emphasis in original). This is not a required element of a claim for conversion under Georgia law.
As Chief Judge Hagenau explained in Lewis v. Lowery (In re Lowery), 440 B.R. 914, 928 (Bankr. N.D. Ga. 2010):
The State Court made no finding whatsoever with regard to Ms. Crawford's state of mind or any of the circumstances surrounding the conversion for which it found her liable. In these circumstances, the State Court's ruling cannot have issue preclusive effect in this proceeding. See, e.g., Palloto v. Neri (In re Neri), 2018 WL 333819 at *7 (Bankr. N.D. Ga. 2018); Lewis v. Lowery (In re Lowery), 440 B.R. 914, 928 (Bankr. N.D. Ga. 2010).
Alternatively, if the State Court awarded attorney's fees for some reason other than Ms. Crawford's liability for conversion — a legally questionable result for reasons explained above — the issue of her liability for attorney's fees under O.C.G.A. § 13-6-11 is not identical to the issue of whether the attorney's fees are a debt for "willful and malicious injury" under § 523(a)(6). See Mills v. Ellerbee (In re Ellerbee), 177 B.R. 731, 746 (Bankr. N.D. Ga. 1995) ("Conduct that might be described as stubborn litigiousness or even bad faith might not be willful and malicious conduct."), aff'd, 78 F.3d 600 (11th Cir. 1996) (Table), cert. denied, 519 U.S. 947 (1996)
For these reasons, Four Seasons is not entitled to summary judgment on the ground that the State Court rulings establish that Ms. Crawford's liability for attorney's fees is excepted from discharge under § 523(a)(6) as a debt for willful and malicious injury to its property.
Ms. Crawford asserts that the Georgia law of res judicata prevents Four Seasons from contending that her liability for attorney's fees is a willful and malicious injury under § 523(a)(6) because the State Court effectively ruled in her favor on the conversion claim. The problem with this argument is that the claim of Four Seasons for attorney's fees in the State Court is not the same as its claim in this proceeding that her liability is excepted from discharge as a willful and malicious injury to its property.
As the Court explains above, this Court cannot, based on the record in this proceeding, determine the reason that the State Court awarded the attorney's fees. Four Seasons is entitled to prosecute its distinct claim that Ms. Crawford's liability for attorney's fees under the State Court judgment is a debt for willful and malicious injury to its property that is excepted from discharge under § 523(a)(6).
Accordingly, Ms. Crawford is not entitled to summary judgment based on res judicata.
The Court has considered whether, on the record before the Court, the Court should nevertheless grant summary judgment in favor of Ms. Crawford. To grant summary judgment in favor of a defendant, a Court must determine that evidence produced by the defendant sufficiently establishes as a matter of law, based on undisputed facts, that the plaintiff is not entitled to relief.
The Court can find no evidence in the record that Four Seasons had a property interest in any funds paid by Wilkerson to R/A/C/T. If it did not, no injury to the property of Four Seasons occurred, and §523(a)(6) does not apply.
To be sure, the State Court concluded in its summary judgment order (unopposed by Ms. Crawford) that she had "admitted that she `participated' in the conversion."
After a non-jury trial, the State Court concluded, simply, that there was no evidence as to damages on the conversion claim.
It could very well be that the State Court determined that no evidence of damages existed because it concluded that Four Seasons had failed to establish a property interest in the payments that Wilkerson made. This is the conclusion that this Court would reach based on the allegations in the complaint in the State Court and in the amended complaint in this proceeding.
In the State Court complaint, Four Seasons alleged that the payments R/A/C/T received from Wilkerson were "meant to be used to pay" Four Seasons. Complaint, Exhibit C, ¶¶ 15 [48 at 14]. The amended complaint in this proceeding states that Wilkerson paid monies to R/A/C/T "to be paid to" Four Seasons. Amended Complaint, ¶ 14 [44 at 4]. Without more, these allegations do not establish that Four Seasons had any property interest in money due to R/A/C/T from Wilkerson, such as an assignment of, or security interest in, the accounts receivable.
If Four Seasons did not have a property interest in the Wilkerson funds, this Court cannot understand how Ms. Crawford could possibly have caused a "willful and malicious" injury to Four Seasons's property.
The issue then becomes whether, without regard to the underlying transaction, Ms. Crawford's liability for attorney's fees (again, incurred by Four Seasons in a losing effort to collect on the merits from Ms. Crawford) was a willful and malicious injury. The record in this Court is completely silent as to how Ms. Crawford, proceeding pro se in the State Court, conducted her successful defense on the merits. It shows no triable issue of fact on this issue.
For these reasons, the Court finds it difficult to envision a set of facts that Four Seasons can prove to establish that Ms. Crawford has willfully and maliciously caused injury to Four Seasons.
Nevertheless, both parties have focused exclusively on the effect of the State Court's rulings in this proceeding. As the Court has explained, neither is entitled to judgment based on what happened in the State Court. Despite the Court's doubts about the merits of Four Seasons's claim, it is not appropriate to grant summary judgment in favor of Ms. Crawford without giving Four Seasons the opportunity to present evidence and legal argument about the underlying transactions between the parties and the conduct of the State Court proceeding that could provide a basis for the Court to determine that a legal claim for willful and malicious injury exists.
Accordingly, the Court will direct that, within 30 days from the date of entry of this Order, Four Seasons supplement its response to Ms. Crawford's motion for summary judgment with evidence and legal argument to address the Court's concerns set forth above.
Based on, and in accordance with, the foregoing, it is hereby
1. The motion of Four Seasons for summary judgment is
2. The motion of Ms. Crawford for summary judgment is
3. Ms. Crawford may be entitled to summary judgment on the ground that the undisputed facts in this case do not establish that she owes a debt to Four Seasons for "willful and malicious" injury to Four Seasons or its property within the meaning of 11 U.S.C. § 523(a)(6), for reasons explained above.
4.
Attached to the Response is an affidavit of Natalie Atkinson, the president of Four Seasons. [50 at 7-13]. The affidavit provides admissible evidence that Four Seasons provided services to R/A/C/T for which it was not paid and that R/A/C/T had received payment from Wilkerson, the general contractor, on account of the services that Four Seasons provided. These facts do not establish conversion because they do not show that Four Seasons had a property interest in the money that Wilkerson paid.
