Daulton v. Daulton

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
In Re
Cherie F. Daulton
Debtor
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Walter L. Daulton
Plaintiff
vs.
Cherie F. Daulton
Defendant
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Case No. 05-16995
Adversary No. 05-1274
Chapter 7
Judge Burton Perlman
DECISION AND ORDER DENYING MOTION FOR SUMMARY JUDGMENT
This adversary proceeding arises in the underlying bankruptcy
case 	filed 	by 	defendant 	Cherie 	F. 	Daulton. 	Plaintiff, 	Walter 	L.
This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: December 19, 2006
____________________________________________________________
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Daulton, 	is 	a 	cousin 	of 	defendant. 	Plaintiff 	in 	this 	proceeding
seeks 	to 	have 	declared 	non-dischargeable, 	pursuant 	to 	11 	U.S.C.§
523(a)(6), a judgment awarded to him in a state court of Ohio. 	The
complaint herein contains Claim I and Claim II. 	Claim II has been
referred 	to 	the 	state 	court 	for 	further 	proceedings, 	though 	any
determination 	of 	non-dischargeability 	remains 	with 	this 	Court.
Claim I asserts a claim for non-dischargeability of a state court
judgment pursuant 	to 11 U.S.C. § 523 (a)(6). 	Now before the Court
is plaintiff’s Motion for Summary Judgment on Claim I.
In support of his motion, plaintiff presents the transcript of
a 	deposition 	given 	by 	defendant 	on 	June 	22, 	2006, 	as 	well 	as 	his
own affidavit. 	In response to the motion, defendant presents her
affidavit 	as 	well 	as 	documents 	showing 	an 	indictment 	and 	verdict
against 	plaintiff 	for 	tax 	fraud. 	(The 	state 	court 	injunction 	and
related 	documents 	are 	exhibits 	in 	the 	deposition 	of 	defendant 	as
well as exhibits attached to the complaint.)
In his Motion for Summary Judgment, plaintiff asserts that a
state 	court 	judgment 	awarding 	damages 	for 	the 	violation 	of 	a
permanent 	injunction 	is 	non-dischargeable. 	He 	says 	that 	case 	law
demonstrates that violation of a state court injunction in and of
itself rises to the willful and malicious standard of 11 U.S.C. §
523(a)(6). 	Additionally, 	he 	maintains 	that 	defendant 	is
collaterally estopped from asserting that her conduct does not meet
that standard. 	In her response, defendant asserts that there are
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genuine 	issues 	of 	material 	fact 	in 	regard 	to 	whether 	the 	willful
and malicious standard is met by the state court order itself. 	She
also 	refutes 	plaintiff’s 	argument 	that 	collateral 	estoppel
precludes her from litigating that her actions were not willful and
malicious. 	Finally, she argues that plaintiff’s testimony is not
credible, noting his conviction for preparing false tax returns.
Motions for Summary Judgment are governed by Fed.R.Civ.P. 56,
which 	is 	incorporated 	here 	by 	Fed. 	R. 	Bankr. 	P. 	7056. 	The 	rule
provides 	in 	part 	that 	a 	motion 	for 	summary 	judgment 	is 	to 	be
granted “if the pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits, if any, show
that there is no genuine issue of material fact and that the moving
party 	is 	entitled 	to 	judgment 	as 	a 	matter 	of 	law.” 	The 	moving
party 	bears 	the 	initial 	burden 	of 	showing 	that 	there 	exists 	no
issue 	of 	material 	fact. 	Celotex 	Corp. 	v. 	Catrett, 	477 	U.S. 	317,
323-324 (1986). 	The non-moving party, however, bears the ultimate
burden 	of 	showing 	that 	a 	genuine 	issue 	of 	material 	fact 	exists.
Id.
From the evidence in the record, we find the following facts.
Claim 	I 	of 	plaintiff’s 	original 	complaint 	relates 	to 	a 	permanent
injunction 	against 	the 	defendant 	issued 	in 	the 	Court 	of 	Common
Pleas 	in 	Butler 	County, 	Ohio, 	on 	January 	14, 	2002 	pursuant 	to 	a
settlement agreement entered into by the parties. The injunction,
among 	other 	things, 	orders 	that 	defendant 	not 	engage 	in 	tax
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preparation services for certain clients of plaintiff and that she
not 	disparage plaintiff’s reputation. 	On April 29, 2002 and again
on September 19, 2003, the Court of Common Pleas found defendant in
contempt of court for violating the injunction. On October 23, 2003
the Court set damages in accordance with the damages clause of the
injunction, including $10,000 per violation, fees and costs. 	The
court found five violations, including preparing four sets of tax
returns 	and 	making 	“disparaging 	remarks 	about 	plaintiff’s 	ethics
and 	professionalism 	in 	a 	letter” 	to 	a 	fifth 	individual. 	Total
damages awarded were $104,123.70, of which $98,540.72 is still due.
Plaintiff 	asserts 	that 	he 	has 	two 	alternative 	theories
entitling 	him 	to 	relief. 	He 	contends 	that 	on 	either 	basis 	his
claim falls within the exception to discharge provided by 11 U.S.C.
§523(a)(6). The statute states in pertinent part:
§523, Exceptions to Discharge.
(a) A discharge under 727...of this title
does not discharge an individual debtor
debtor from any debt-
***
(6) for willful and malicious injury
by the debtor to another entity or
to the property of another entity
***
Plaintiff’s first theory is that the state court judgment in
and 	of 	itself 	is 	sufficient 	to 	meet 	the 	test 	of 	§523(a)(6).
Plaintiff’s 	alternative 	contention 	is 	that 	the 	doctrine 	of
collateral 	estoppel 	precludes 	the 	defendant 	from 	litigating 	the
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material elements of the §523(a)(6) claim; injury, willfulness, and
malice. 	As 	a 	threshold 	matter, 	the 	Court 	has 	decided 	that
plaintiff’s position that he has alternative bases for liability is
not well taken. 	We find that there is but one basis for relief for
plaintiff. 	His above stated first theory he claims is supported by
Spring 	Works, 	Inc. 	v. 	Sarff, 	(In 	re 	Sarff)242 	B.R. 	620 	(6th 	Cir
BAP, 2000). Yet the Sarff case itself depends upon the doctrine of
collateral estoppel, and we hold that the only basis that plaintiff
has 	to 	support 	his 	motion 	for 	summary 	judgment 	is 	that 	he 	is
entitled 	to 	summary 	judgment 	because 	this 	Court 	must 	accord
collateral estoppel to the holding of the state court.
As to applicable law, an overriding consideration is that to
make 	out 	a 	case 	under 	§523(a)(6), 	the 	requirements 	of 	case 	law
interpreting 523(a)(6) must be met. The U.S. Supreme Court has held
that 	only 	acts 	done 	with 	intent 	to 	cause 	injury, 	and 	not 	merely
acts 	done 	intentionally, 	meet 	the 	level 	of 	willful 	and 	malicious
injury 	for 	the 	purpose 	of 	§523(a)(6). 	Kawaauhau 	v. 	Geiger, 	523
U.S. 	57, 	57-58 	(1998). 	The 	Sixth 	Circuit 	has 	held 	that
willfulness 	includes 	the 	debtor’s 	subjective 	belief 	that 	the
injury 	is 	“substantially 	certain 	to 	result” 	from 	his 	actions.
Markowitz 	v. 	Campbell, 	(In 	re 	Markowitz) 	190 	F.3d 	455 	(6th 	Cir.
1999).
We 	turn 	next 	to 	the 	applicable 	law 	regarding 	collateral
estoppel. The United States Bankruptcy Appellate Panel of the Sixth
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Circuit 	discussed 	the 	application 	of 	collateral 	estoppel 	to
dischargeability 	proceedings 	in 	the 	Sarff 	case,supra. 	Concluding
that 	the 	doctrine 	is 	applicable 	in 	dischargeability 	proceedings,
the Court noted that the determination of a factual or legal issue
in a judgment is conclusive in later litigation if it was actually
litigated and determined and the determination was essential to the
judgment. 	Id. at p. 624 (citing Corzin v. Fordu, 209 B.R. 854, 862
(6th 	Cir. 	BAP 	1997) 	quoting 	Shelar 	v. 	Shelar, 	910 	F. 	Supp. 	1307,
1312 (N.D. Ohio 1995). 	In its decision, the Court also said that
whether 	collateral 	estoppel 	applies 	would 	depend 	upon 	whether 	or
not 	state 	courts 	would 	give 	collateral 	estoppel 	effect 	to 	the
judgment. 	Sarff at p. 624 (citing Bay Area Factors v. Calvert, 105
F. 3d 315 (6th Cir. 1997). 	Under Ohio law, a party must plead and
prove 	the 	following 	elements 	for 	collateral 	estoppel 	to 	take
effect: 	(1) 	the 	party 	against 	whom 	estoppel 	is 	sought 	must 	have
been 	a 	party 	or 	in 	privity 	with 	a 	party 	to 	the 	prior 	action; 	(2)
there must be a final judgment on the merits in the previous case
after 	a 	full 	and 	fair 	opportunity 	to 	litigate 	the 	issue; 	(3) 	the
issue 	must 	have 	been 	admitted 	or 	actually 	tried 	and 	decided 	and
must be necessary to the final judgment; and finally, (4) the issue
must have been identical to the issue involved in the prior suit.
Sarff, supra at p. 2, 624; Wilcox v. Wilcox (In re Wilcox),229 B.R.
411, 415-16 (Bankr. N.D. Ohio 1998).
The 	first 	prong 	of 	the 	test 	for 	collateral 	estoppel 	is 	met
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because the parties here are the same as those in the state court
proceedings. 	The 	second 	element 	is 	whether 	there 	was 	a 	final
judgment 	on 	the 	merits 	after 	the 	parties 	had 	a 	full 	and 	fair
opportunity in the state court to litigate the material issues of
the 	dischargeability 	claim. 	The 	defendant 	does 	not 	dispute 	that
there was a final judgment. 	Plaintiff contends that there was also
a full and fair opportunity to litigate the issues, recalling that
defendant had representation through most of the proceedings (save
having an attorney present during the damages proceedings) and she
testified there. 	The second element is therefore met.
It is the third element of the collateral estoppel test which
is crucial here. 	We have seen what authoritative court cases have
held 	is 	required 	before 	a 	violation 	of 	§523(a)(6) 	can 	be 	found.
The third element is whether the acts of defendant were done with
the intent of injuring plaintiff or with a belief that injury was
substantially certain to result from her action. 	We hold that this
question was not before the state court.
In 	Ohio, 	a 	court 	or 	judge 	in 	chambers 	may 	find 	a 	person 	in
contempt 	when 	that 	person 	is 	disobedient 	of 	or 	resists 	a 	lawful
writ, 	process, 	order, 	rule, 	judgment 	or 	command 	of 	a 	court 	or
officer. 	R.C. §2705.02(A). 	To show contempt, it is “necessary to
establish 	a 	valid 	court 	order, 	knowledge 	of 	the 	order, 	and
violation of it.” 	Arthur Young v. Kelly, 68 Ohio App. 3d 287, 295,
588 N.E. 2d 233 (10th Dist. Franklin County 1990). 	Moreover, for
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civil contempt, “intent to violate the order need not be proved.”
Arthur 	Young 	v. 	Kelly, 	68 	Ohio 	App. 	3d 	287, 	295, 	citing 	Windham
Bank v. Tomaszcyk, 27 Ohio St. 2d 55, paragraph 3 of the syllabus,
271 	N.E. 	2d 	815 	(Ohio 	1971). 	Indeed 	state 	law 	regarding 	civil
contempt clearly indicates that “[p]roof of purposeful, willing, or
intentional violation of a court order is not a prerequisite to a
finding of contempt.” 	Pugh v. Pugh, 15 Ohio St. 3d 136, 140, 472
N.E.2d 	1085 	(1984) 	(emphasis 	in 	original); 	Carroll 	v. 	Detty, 	113
Ohio 	App. 	3d 	708, 	681 	N.E. 	2d 	1383 	(4th 	Dist. 	Ross 	County 	1996).
Intent to injure is not a required element of civil contempt, let
alone a material element under Ohio laws. 	In this case, the state
court 	entry 	finding 	defendant 	in 	contempt 	does 	not 	address 	the
question 	of 	intent 	to 	injure. 	It 	does 	not 	make 	any 	fact 	findings
regarding 	defendant’s 	subjective 	belief 	regarding 	the 	effects 	of
her actions.
The final prong of the collateral estoppel test requires that
the issues involved in the present case be identical to the issue
involved in the prior proceeding. 	In re Wilcox, 229 B.R. 411, 417.
Because 	the 	necessary 	elements 	required 	for 	contempt 	in 	an 	Ohio
court 	are 	different 	than 	the 	§523(a)(6) 	requirements, 	the 	fourth
element for collateral estoppel in an Ohio Court is not met.
Because 	the 	third 	and 	fourth 	prongs 	of 	collateral 	estoppel
requirements are not met and because plaintiff has not shown that
he 	is 	entitled 	to 	judgment 	as 	a 	matter 	of 	law, 	summary 	judgment
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must 	be 	denied. 	Moreover, 	it 	has 	been 	said: 	“Summary 	judgment 	is
generally not well suited for cases in which motive and intent are
at issue.” Perry v. McGinnis, 209 F.3d 597 (6th cir. 2000).
Because 	genuine 	issues 	of 	material 	fact 	exist, 	summary
judgment is denied.
IT IS SO ORDERED.
Copies to:
John A. Rebel
15 E. Eighth Street, Ste. 107
Cincinnati, OH 45202
Thomas Geygan
8050 Hosbrook Road
Cincinnati, Oh 45236
Harry Zornow
860 N.W. Washington Blvd, Ste J.
Hamilton, OH 45013
U.S. Trustee
36 E. 7 th Street, Ste 2050
Cincinnati, OH 45202
###
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