ERIC L. FRANK, CHIEF U.S. BANKRUPTCY JUDGE.
On July 13, 2013, prior to the commencement of this chapter 7 bankruptcy case, Plaintiff J & V Developers Inc. ("J & V") obtained a pre-petition state court judgment in the Court of Common Pleas, Delaware County ("the C.P. Court") against Debtor Deborah R. Malloy ("the Debtor"), for attorney's fees and costs, in the amount of $63,486.05 ("the Fee Award"). The C.P. Court entered the Fee Award pursuant to 42 Pa.C.S.A. § 2503(7) as a sanction against the Debtor and her counsel, jointly and severally, for their conduct during the pendency of the state court litigation between the parties. The C.P. Court supported the Fee Award in a lengthy opinion ("the C.P. Opinion") that set forth the court's factual findings and legal conclusions.
The Debtor filed a voluntary petition under chapter 7 of the Bankruptcy Code in this court on September 25, 2014. On December 19, 2014, J & V filed a complaint, initiating this adversary proceeding, seeking a determination that the Fee
Before me are the parties' cross motions for summary judgment.
Pursuant to the doctrine of collateral estoppel (also known as "issue preclusion"),
Accordingly, J & V's motion for summary judgment will be granted, the Debtor's motion for summary judgment will be denied and an order will be entered determining that the Fee Award debt is nondischargeable under 11 U.S.C. § 523(a)(6).
J & V is the developer of a planned community known as Spring Valley Estates located in Aston, Pennsylvania. (See J & V Developers v. Hargy, 87 A.3d 890 (Pa.Super.Ct. Oct. 24, 2013) (Table) ("Pa.Super.Ct.I")).
The settlement date was extended by one (1) month to August 1, 2007 because the construction of the home was not complete on June 30, 2007. (See C.P. Opinion at 354). During this time, "Extras" and carpeting were installed. (Id.). Notice of settlement was sent to the Debtor several
The Debtor did not appear at the August 1, 2007 closing.
On May 8, 2008, J & V filed a complaint against the Debtor in the Court of Common Pleas of Delaware County in Pennsylvania. ("the C.P. Litigation").
A six (6) day trial took place over the course of an eight (8) month period from July 19, 2010 through March 8, 2011.
The Debtor filed an appeal to the Superior Court of Pennsylvania on April 14, 2011. (Id.). The Superior Court dismissed the appeal on May 23, 2011 on J & V's motion to dismiss for the Debtor's failure to comply with Pa. R. C.P. 227(c)(2). (Id.).
After the Debtor failed to file post-trial motions in the C.P. Court, J & V filed a "Petition for Assessment of Attorney Fees" ("the Fee Petition") pursuant to 42 Pa.C.S.A. § 2503(7) for the dilatory, obdurate, vexatious and bad faith conduct on the part of both the Debtor and Mr. Malloy during the pendency of the C.P. Litigation. (See C.P. Opinion at 350). The C.P. Court held a hearing on the Fee Petition on March 26, 2012.
On July 13, 2013, the C.P. Court
A moving party is entitled to summary judgment by demonstrating that "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a) (incorporated in this adversary proceeding by Fed. R. Bankr.P. 7056); see, e.g., Liberty Lincoln-Mercury, Inc. v. Ford Motor Co., 676 F.3d 318, 323 (3d Cir.2012).
Under Rule 56, the moving party is entitled to judgment as a matter of law if the court finds that the motion alleges (and supports with evidence) facts which, if proven at trial, would require a directed verdict in the movant's favor. Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115 (11th Cir.1993). "[I]t is inappropriate to grant summary judgment in favor of a moving party who bears the burden of proof at trial unless a reasonable juror would be compelled to find its way on the facts needed to rule in its favor on the law." United States v. Donovan, 661 F.3d 174, 185 (3d Cir.2011) (quoting El v. Se. Pa. Transp. Auth., 479 F.3d 232, 238 (3d Cir. 2007)). If the moving party meets its initial burden, the responding party may not rest on the pleadings, but must designate specific factual averments through the use of affidavits or other permissible evidentiary material which demonstrate a genuine issue of material fact to be resolved at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
The court's role is not to weigh the evidence, but to determine whether there is a disputed, material fact for resolution at trial. Anderson, 477 U.S. at 249, 106 S.Ct. 2505. A genuine issue of material fact is one in which the evidence is such that a reasonable fact finder could return a
A party's burden of proof plays an essential role in determining the merits of a summary judgment motion.
Where the movant is the plaintiff who has the burden of proof at trial, the movant must show that no reasonable jury could find for the non-moving party. Fitzpatrick, 2 F.3d at 1115. The movant "must produce enough evidence to justify a directed verdict in its favor in order to meet its initial burden." Nat'l State Bank v. Fed. Reserve Bank of New York, 979 F.2d 1579, 1582 n. 2 (3d Cir.1992); see also In re Newman, 304 B.R. 188, 193 (Bankr. E.D.Pa.2002).
Thus, in order to prevail on its motion, J & V must demonstrate that each element of its claim under § 523(a) has been proven and that the Debtor has not come forward with rebuttal evidence to create a triable factual dispute as to at least one (1) element of the plaintiff's claim. Conversely, as the moving party without the burden of proof at trial, the Debtor may establish she is entitled to judgment either by demonstrating that the undisputed facts negate an element of the plaintiff's claim or that the plaintiff lacks evidence to support an essential element of its claim. In re Polichuk, 506 B.R. 405, 422 (Bankr.E.D.Pa. 2014) (citing Orson, Inc. v. Miramax Film Corp., 79 F.3d 1358, 1366 (3d Cir.1996) and Quaker State Minit-Lube, Inc. v. Fireman's Fund Ins. Co., 868 F.Supp. 1278, 1287 n. 5 (D.Utah 1994)).
One of the Bankruptcy Code's central purposes is to permit honest debtors to reorder their financial affairs and obtain a "fresh start," unburdened by the weight of preexisting debt. See In re Cohn, 54 F.3d 1108, 1113 (3d Cir.1995); In re Marques, 358 B.R. 188, 193 (Bankr.E.D.Pa. 2006). Accordingly, exceptions to discharge are construed strictly against creditors and liberally in favor of debtors. Cohn, 54 F.3d at 1113; In re Bell, 498 B.R. 463, 476-77 (Bankr.E.D.Pa.2013); In re Glunk, 455 B.R. 399, 415 (Bankr.E.D.Pa. 2011).
A creditor objecting to the dischargeability of a debt bears the burden of proof. Cohn, 54 F.3d at 1113; In re Stamou, 2009 WL 1025161, *3 (Bankr.D.N.J. Mar. 19, 2009); In re Marcet, 352 B.R. 462, 468 (Bankr.N.D.Ill.2006). The creditor must establish the elements under § 523(a) by a preponderance of the evidence. See Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); In re August, 448 B.R. 331, 357 (Bankr.E.D.Pa.2011) (citations omitted).
Section 523(a)(6) of the Bankruptcy Code excepts from discharge any debt for "willful and malicious injury by the debtor to another entity or to the property of another entity." Aside from an injury to an entity or its property, section 523(a)(6) has two (2) primary requirements, i.e., the debtor's conduct must be both "willful" and "malicious."
A willful injury is an injury that is done deliberately or intentionally. In re Coley, 433 B.R. 476, 497 (Bankr.E.D.Pa. 2010) (citing Kawaauhau v. Geiger, 523 U.S. 57, 61, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998)). Case law in the Third Circuit
"Malice does not mean the same thing for nondischargeability purposes under § 523(a)(6) as it does in contexts out-side of bankruptcy." In re Wooten, 423 B.R. 108, 130 (Bankr.E.D.Va.2010) (citation omitted); accord Conte, 33 F.3d at 308. "In bankruptcy, a debtor may act with malice without bearing any subjective ill will toward plaintiff creditor or any specific intent to injure same." Wooten, 423 B.R. at 130 (citation omitted); see also In re Vidal, 2012 WL 3907847, at *28 (Bankr.E.D.Pa. Sept. 7, 2012). Rather, malice encompasses an injury that is "wrongful and without just cause or excuse, even in the absence of personal hatred, spite or ill-will." In re Jacobs, 381 B.R. 128, 136, 138-39 (Bankr.E.D.Pa.2008) (quoting 4 Collier on Bankruptcy ¶ 523.12[2] (15th rev. ed. 2007)). Malice may be established by the debtor's actions as well as the surrounding circumstances. Jacobs, 381 B.R. at 137; accord St. Paul Fire & Marine Ins. Co. v. Vaughn, 779 F.2d 1003, 1010 (4th Cir.1985) ("Implied malice, which may be shown by the acts and conduct of the debtor in the context of their surrounding circumstances, is sufficient under 11 U.S.C. § 523(a)(6)").
"Issue preclusion is based upon the policy that `a losing litigant deserves no rematch after a defeat fairly suffered, in adversarial proceedings, on an issue identical in substance to the one he subsequently seeks to raise.'" Dici v. Commw. of Pa., 91 F.3d 542, 547 (3d Cir.1996) (quoting Astoria Fed. Sav. & Loan Ass'n v. Solimino, 501 U.S. 104, 107, 111 S.Ct. 2166, 115 L.Ed.2d 96 (1991)). Generally, the doctrine is applicable in bankruptcy proceedings involving the determination of the dischargeability of a debt. Grogan, 498 U.S. at 285, 111 S.Ct. 654.
The application of issue preclusion based on a prior state court judgment is grounded in the federal full faith and credit statute, 28 U.S.C. § 1738, which provides that state judicial proceedings "shall have the same full faith and credit in every court within the United States . . . as they have by law or usage in the courts of such State . . . from which they are taken." Accord Marrese v. Amer. Academy of Orthopaedic Surgeons, 470 U.S. 373, 380, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985). Thus, in this proceeding, the state court's findings are entitled to the same preclusive effect in this court as they would receive in the courts of Pennsylvania.
Under Pennsylvania law, collateral estoppel applies when:
E.g., Cohen v. Workers' Comp. Appeal Bd. (City of Philadelphia), 589 Pa. 498, 909 A.2d 1261,
In In re Kates, 485 B.R. 86, 102-03 (Bankr.E.D.Pa.2012), I described two (2) methodologies a bankruptcy court may employ when evaluating the applicability of issue preclusion in a nondischargeability proceeding, labeling them as a "deductive" approach and an "inductive" approach:
(emphasis added) (footnotes omitted).
With these principles in mind, I consider the motions for summary judgment, and in particular, J & V's summary judgment argument—that the Debtor is precluded from relitigating the findings in the C.P. Opinion, that those findings establish that there are no disputed issues of fact and that J & V is entitled to a determination of nondischargeability under 11 U.S.C. § 523(a)(6) as a matter of law.
In order to establish that the Fee Award is nondischargeable under 11 U.S.C. § 523(a)(6), J & V must prove that the Debtor's conduct was willful and malicious. J & V seeks to do so by invoking collateral estoppel and relying upon the C.P. Court findings and conclusions.
For issue preclusion to apply, the issue decided in the prior action must be identical to the issue that is before the subsequent court (and not that the causes of action are the same, see In re Weidner, 476 B.R. 873, 885 (Bankr.E.D.Pa.2012)). The Debtor's opposition focuses on the first requirement of issue preclusion: she opposes the application of issue preclusion on the ground that the issues under 42 Pa.C.S. § 2503 and 11 U.S.C. § 523(a)(6) are not identical.
The C.P. Court granted the Fee Award pursuant to 42 Pa.C.S.A. § 2503. Section 2503 provides for reasonable counsel fees to be taxed as costs as provided in the statute if the matter falls within any one (1) of ten (10) statutory subsections.
The phrase "dilatory, obdurate or vexatious" in § 2503(7) is in the disjunctive and a court need only find the conduct satisfies one (1) of those standards in order to grant relief. See Thunberg v. Strause, 545 Pa. 607, 682 A.2d 295, 301 n. 7 (1996) (construing similar phrase under § 2503(9)).
The C.P. Court did not ground its ruling on any one specific term in the phrase. However, on nine (9) occasions in its opinion, the C.P. Court referred to the Debtor's actions (as well her counsel's conduct)
In light of the C.P. Court's multiple findings under § 2503(7), under the deductive approach to issue preclusion, the question is whether at least one of the terms in § 2503(7)—"dilatory," "obdurate" or "vexatious"—requires proof of the same as the elements as "willful and malicious" injury under § 523(a)(6). Rephrased in collateral estoppel terms, the question is: do any one (1) of the (3) grounds for relief under § 2503(7) involve the "same issue" as a determination of "willfulness and "maliciousness" under 11 U.S.C. § 523(a)(6)? If so, the Debtor is precluded from relitigating whether the Fee Award is for willful and malicious injury within the meaning of 11 U.S.C. § 523(a)(6).
Pennsylvania courts consider conduct "dilatory" under 42 Pa.C.S. § 2503(7) "where the record demonstrates that counsel displayed a lack of diligence that delayed proceedings unnecessarily and caused additional legal work." In re Estate of Burger, 852 A.2d 385, 391 (Pa.Super.Ct.2004). The term also includes conduct that "is intended to cause delay or to gain time or to put off a decision." Elfman v. Berman, 2001 WL 1807940, at *12 (Pa.Com.Pl. Aug. 30, 2001).
The Pennsylvania Supreme Court has described vexatious behavior as conduct with the "sole purpose of causing annoyance." Thunberg, 682 A.2d at 299; accord Berg v. Georgetown Builders, Inc., 822 A.2d 810, 816 (Pa.Super.Ct.2003); Chervenak, Keane & Co. (C.K.C. Associates) v. Hotel Rittenhouse Associates, Inc., 328 Pa.Super. 365, 477 A.2d 487, 490 (1984). Vexatious conduct also has been found when parties have pursued claims in the face of settled law or in contravention of clear court rulings that their claim had no merit. Berg, 822 A.2d at 816.
Under 11 U.S.C. § 523(a)(6), "actions taken for the specific purpose of causing an injury as well as actions that have a substantial certainty of producing injury are `willful' within the meaning of § 523(a)(6)." Coley, 433 B.R. at 497 (citing Conte, 33 F.3d at 307-09). The debtor's scienter is critical in making the determination of willfulness. In this Circuit, the consensus among the bankruptcy courts is that a debtor must be subjectively aware that his or her actions are substantially certain to cause a injury to satisfy this standard. See In re Gotwald, 488 B.R. 854, 865-66 (Bankr.E.D.Pa.2013) (collecting cases). From a plaintiff's perspective, the subjective standard (i.e., was the debtor aware or at least wilfully blind to the substantial certainty of the harm resulting from his or her wrongful conduct) likely is more "rigorous" than the objective standard (i.e., whether a reasonable person
In light of judicial definitions of the § 2503(7) terms "dilatory" and "obdurate," see Part V.B.2., supra, it is questionable whether, as a matter of law, a sanction imposed for dilatory or obdurate behavior is a debt for willful and malicious injury under 11 U.S.C. § 523(a)(6). Perhaps so, but I need not decide the issue because a sanction for vexatious behavior, i.e., behavior whose purpose was to cause annoyance is entirely consonant with the scienter standard of § 523(a)(6). See In re Conner, 302 B.R. 509 (Bankr.W.D.Pa.2003) (ruling on summary judgment that finding of "vexatious" conduct under section 2503(6) met standard under § 523(a)(6)); see also In re Schermer, 388 B.R. 123 (Bankr. E.D.Pa.2008) (ruling that complaint states claim under § 523(a)(6) based on underlying state court award pursuant to §§ 2503(7) & (9)).
Consequently, I conclude that the C.P. Court's determination that the Debtor's conduct was vexatious under 42 Pa.C.S. § 2503(7) establishes that the debt is for a willful and malicious injury and therefore, nondischargeable under 11 U.S.C. § 523(a)(6).
Alternatively, I also conclude that, if I drill down to the next level of the summary judgment record, and examine the historical facts upon which the C.P. Court based its decision, those facts—which may not be relitigated
The C.P. Opinion contains fifty-seven (57) findings of fact and fourteen (14) conclusions of law. As stated earlier, it is peppered with comments making it clear that the court concluded that both the Debtor and her counsel engaged in reprehensible conduct during the pendency of
It is unnecessary to recapitulate the C.P. Court's entire, lengthy analysis. By highlighting the most relevant and fundamental findings employed by the court to anchor its conclusions, I can determine that there are no material issues of fact and that J & V is entitled to judgment as a matter of law.
Overall, the C.P. Court found that the Debtor's litigation strategy was "self-serving." She relied "on facts that had little connection with reality and upon self-created `law' that was unsupportive and irrelevant to the issues at hand. . . ." (Id. at 355 n. 6).
Six (6) aspects of the ligation are highly illustrative.
First, the Debtor asserted a specious counterclaim on behalf of Mr. Malloy for an "under the table commission" of approximately $7,200.00. (Id. at 353). She based this counterclaim on Mr. Malloy's e-mail to Mr. Bucci advising of the Debtor's interest in the property, i.e., for Mr. Malloy's efforts in putting the deal together. (Id. at 352). The C.P. Court considered it likely that such a commission was "illegal" insofar as Mr. Malloy was not a licensed real estate broker. (Id. at 360). Yet, the Debtor and Mr. Malloy persisted with the counterclaim, "based upon the irrational belief that a licensed attorney can act as a real estate broker without obtaining a real estate license, Mr. Malloy's having expired some time ago." (Id. at 361).
More egregious was the Debtor's relentless attack against J & V's counsel for "daring to submit legal arguments in opposition to [her] case authorities and position" regarding her counterclaim. (Id.) At one point, the Debtor threatened to bring J & Vs counsel before the Pennsylvania Attorney Disciplinary Board for raising entirely appropriate legal issues, such as the Debtor's standing to assert a counterclaim on behalf of her attorney. (Id. at 352-353).
Third, the Debtor pressed a "self-serving" interpretation of the AOS as to the underlying mortgage requirement that she allegedly breached. She (and Mr. Malloy) persisted that the AOS and the law did not require her to submit a completed mortgage application, but rather, merely show a "good faith effort to obtain a mortgage," despite any such language in the AOS.
The C.P. Court explained:
(Id. at 355) (internal citations omitted).
Fourth, the Debtor contended that there was no breach of the AOS by virtue of the
Fifth, the C.P. Court found that the Debtor and Mr. Malloy "shamelessly and blatantly" ignored admonitions from the court that their conduct could subject them to sanctions under 42 Pa.C.S. § 2503. (Id. at 363).
Finally, even after J & V prevailed after the lengthy trial, the Debtor threatened to file what can only be characterized as an obviously baseless Dragonetti action against the Plaintiff for the C.P. Litigation. (Id. at 361).
In describing the costs and fees warranted under § 2503(7), the C.P. Court drew a bright line with the date of July 28, 2009. (Id. at 370). The court demarcated that date as the point of no return; the date after which the Debtor's and Mr. Malloy's conduct turned the corner from the normal, expected posturing of civil litigation and entered the zone of sanctionable conduct under § 2503(7). The court concluded that, as of July 28, 2009, "it should have been clear beyond cavil to the [Debtor] and Mr. Malloy that there no longer existed a reasonable factual and legal basis for continuing with this litigation." (Id. at 379). This was the date of the Debtor's deposition, after which, the C.P. Court concluded it should have been obvious that the Debtor's claims and defenses lacked merit.
Starting with the events after July 28, 2009, the C.P. Court calculated the Fee Award based the time, effort and expense incurred by J & V's counsel in:
(Id. at 371).
After reviewing the findings of the C.P. Court, I have no difficulty concluding, as a matter of law, that the Debtor's conduct giving rise to the Fee Award was willful and malicious within the meaning of 11 U.S.C. § 523(a)(6). The record establishes that the Debtor must have subjectively aware that her wrongful conduct would cause tortious injury to J & V. Summary judgment is appropriate because no reasonable factfinder could find otherwise.
For the reasons set forth above, J & V met its evidentiary burden of establishing that there are no material issues of fact and that, as a matter of law, the Fee Award is a debt for willful and malicious injury that is nondischargeable under 11 U.S.C. § 523(a)(6).
An appropriate order will be entered.
It is hereby
1. The Plaintiff's Motion is
2. The Debtor's Motion is
3.
4. The debt liquidated in the judgment entered in the Court of Common Pleas, Delaware County, in favor of J & V Developers, Inc. and against Debtor Deborah Malloy at No. 0851847 is
Pa.Super. Ct. IOP § 65.37. The Plaintiff attached the opinion to the Complaint as Ex. 2.
I reject this argument out of hand. The Debtor has ignored the fact that the Fee Award was entered as a sanction against her, as well as her trial counsel, jointly and severally. She was held liable for actions that she herself took during the course of the litigation.
(Id. at 374).
The mere fact that the C.P. Court based its decision on all three (3) standards in 42 Pa. C.S. § 2503(7) does mean that none of the three (3) determinations was not "essential to the decision." This is so for two (2) reasons:
In re Jacobs, 381 B.R. 147, 162 (Bankr. E.D.Pa.2008). Thus, if the prior court's findings "were woven into the fabric of the court's analysis," they do not have the characteristics of dicta and therefore, were essential to the judgment. Id. Based on my review of the C.P. Court Opinion, I find that to be the case here.
Second, the C.P. Court's findings and conclusions that the Debtor's conduct was "willful," "obdurate" and "vexatious" may be characterized fairly as alternative holdings. I have previously predicted that, when faced with the question, the Pennsylvania Supreme Court will hold that "a prior court's alternative holding is `essential' to its decision and entitled to collateral estoppel effect in a later proceeding." Weidner, 476 B.R. at 889.
There is a striking textual distinction between § 2503(7) and § 2503(9). Section 2503(7) supplements the term "vexatious" with the alternative terms "dilatory" and "obdurate," while § 2503(9) offers "arbitrary" and "bad faith" as alternative grounds for relief. These differences are puzzling. Was the omission of "bad faith" as a ground for relief in § 2503(7), and the use of the (perhaps milder) terms "dilatory" and "obdurate" intended to set a slightly lower threshold for granting attorney's fees in subsection (7) as compared to subsection (9)?
One might also ask: what is the difference between "vexatious" and "bad faith" conduct? The Pennsylvania Supreme Court has described "bad faith" in broad terms, stating that a suit is filed in "bad faith" if it was done for "purposes of fraud, dishonesty, or corruption." Thunberg, 682 A.2d at 299. Is bad faith a higher standard than vexatiousness? Or, is all vexatious conduct merely one kind of bad faith—a subset, if you will—making the term "vexatious" surplusage in § 2503(9))?
My research has not located any reported Pennsylvania decisions that attempt to answer these questions. Instead, in a number of cases, the courts have discussed subsections (7) and (9) without drawing any distinction between the subsections, other than observing that one (1) subsection governs the initiation of the lawsuit and the other involves conduct during the pendency of the lawsuit. See, e.g., Wood v. City of Philadelphia, 2014 WL 1004119, at *4 (Pa.Cmwlth.Ct. Mar. 13, 2014); In re Barnes Foundation, 74 A.3d 129, 135 (Pa.Super.2013);Elfman, 2001 WL 1807940, at *11-12; Liscio, 638 A.2d at 1021; Brenckle v. Arblaster, 320 Pa.Super. 87, 466 A.2d 1075, 1078 (1983).
To decide the matter before me, I need not delve further into these questions.
