Katzen v. Mathola

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
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06/10/06
Timothy Katzen v. Amy L. Mathola
05-01180
Memorandum Opinion re: [16-1] Motion For Summary Judgment and Supporting
Memorandum by Timothy Katzen .
Received on: 2006-04-06 11:40:45.000
2006-04-06 00:00:00.000
2006-04-07 00:00:00.000
Patti Hennessy
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UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: AMY METHOLA, Case No. 7-05-14453 MR
Debtor.
TIMOTHY KATZEN, M.D.,
Plaintiff,
v. Adversary No. 05-01180
AMY METHOLA,
Defendant.
MEMORANDUM OPINION ON MOTION FOR SUMMARY JUDGMENT
THIS MATTER is before the Court on the Motion for Summary Judgment filed
by Plaintiff, Timothy Katzen, M.D., by and through his attorney of record, Jennie D.
Behles. Having reviewed Plaintiff’s Motion for Summary Judgment, the Court finds that
the judgment obtained by the Plaintiff in California state court precludes re-litigation of
the issues before this Court and satisfies the requirements for finding the debt at issue
non-dischargeable under 11 U.S.C. § 523(a)(6). The Court will, therefore, grant
Plaintiff’s Motion for Summary Judgment.
BACKGROUND
Plaintiff filed a Complaint Objecting to Dischargeability of Debt (“Complaint”)
under 11 U.S.C. § 523(a). The basis of Plaintiff’s complaint is a default judgment
obtained against Defendant Amy Methola in the Superior Court of California, County of
Los Angeles entered in Case No. 03C00748 on December 10, 2003 (“State Court
Judgment”). The State Court Judgment awarded Plaintiff a total of $26,939.16.
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Plaintiff asserts that the State Court Judgment determines that the debt
represented thereby was the result of Defendant’s willful and malicious injury, rendering
the debt non-dischargeable pursuant to 11 U.S.C. § 523(a)(6).
STANDARD
Summary judgment is governed by Federal Rule of Civil Procedure 56, made
applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7056.
Summary judgment is appropriate when “the pleadings, depositions, answers to
interrogatories and admissions on file, together with the affidavits, if any, show that there
is no genuine issue as to any material fact and that the moving party is entitled to
judgment as a matter of law.” Rule 56(c), Fed.R.Civ.P. Principles of collateral estoppel
apply to actions for non- dischargeability of debt filed in connection with bankruptcy
proceedings, provided the standard of proof and the elements of the cause of action are
identical to those required for non-dischargeability under the Bankruptcy Code. Grogan
v. Garner, 498 U.S. 279, 284-85, 111 S.Ct. 654, 658, 112 L.Ed.2d 755 (1991). The
standard of proof required for nondischargeability actions is the preponderance of
evidence. Id. at 291; In re Edie, 314 B.R. 6, 14 (Bankr.D.Utah 2004) (standard of proof
for a non-dischargeability action brought under 11 U.S.C. 523(a)(6) is the preponderance
of evidence) (citing Grogan, 498 U.S. at 291). Here, Plaintiff asserts that the State Court
Judgment is sufficient to grant summary judgment, implicating the application of
collateral estoppel. Collateral estoppel has been applied to grant summary judgment in
nondischargeability actions premised upon a state court judgment for defamation. See,
e.g., In re Warren, 204 B.R. 66 (Bankr.N.D.Okla. 1996) and In re Cline, 227 B.R. 828
(Bankr.S.D.Ind. 1998). In applying collateral estoppel principles to state cour t judgments,
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a federal court must apply the state law governing collateral estoppel for the state where
the judgment was rendered. In re Shore, 317 B.R. 536, 541 (10th Cir. BAP 2004) (citing
Marrese v. Am. Acad. of Orthopaedic Surgeons, 470 U.S. 373, 380, 105 S.Ct. 1327, 84
L.Ed.2d 174 (1985) (holding that unless an exception to the Full Faith and Credit Statute
applies, state law will determine the preclusive effect of a prior state court judgment in
cases exclusively within federal jurisdiction)).
CALIFORNIA LAW
Under California law, the application of collateral estoppel requires that: (1) the
issue sought to be precluded from relitigation must be identical to that decided in a
former proceeding; (2) the issue must have been actually litigated in the former
proceeding; (3) it must have been necessarily decided in the former proceeding; (4) the
decision in the former proceeding must be final and on the merits; and (5) the party
against whom preclusion is sought must be the same as, or in privity with, the party to the
former proceeding. In re Kelly, 182 B.R. 255, 258 (9th Cir. BAP 1995), aff'd, 100 F.3d
110 (9th Cir.1996). “In California, it is well settled that a default judgment is:
‘conclusive to the issues tendered by the complaint as if it had been rendered after answer
filed and trial had on the allegations denied by the answer. . . Such a judgment is res
judicata as to all issues aptly pleaded in the complaint and defendant is estopped from
denying in a subsequent action any allegations contained in the former complaint.’” In re
Younie, 211 B.R. 367, 375 (9th Cir. BAP 1997), aff’d, 163 F.3d 609 (9th Cir. 1998)
(quoting In re Moore, 186 B.R. 962, 971 (Bankr.N.D.Cal.1995) (quoting Fitzgerald v.
Herzer, 78 Cal.App.2d 127, 177 P.2d 364, 366 (1947).1 Likewise, under California law,
1 See also; In re Green, 198 B.R. 564 (9th Cir. BAP 1996)(California default judgment was entitled to
collateral estoppel effect in Chapter 7 dischargeability proceeding; under California law, default judgments
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“a default judgment satisfies the ‘actually litigated’ requirement for the application of
collateral estoppel.” Id.(internal citations omitted).
UNDISPUTED FACTS
The following facts are undisputed:
1. On December 11, 2003, the Superior Court of the State of California
awarded Plaintiff a default judgment against defendant for conversion and
breach of contract in the amount of $26, 939.16 including interest, costs
and exemplary damages.
2. The third cause of action in that Complaint (attached as an exhibit to
Plaintiff’s motion for summary judgment) specifically provided, after
having incorporated all of the other allegations:
“Plaintiff is informed and believes and,
based on said information and belief, alleges
that in or about December, 2002, Defendant
Amy Methola received a check from her
health insurance carrier in the amount of
$18,437.20. Said check was intended to pay
Plaintiff for his medical services to the
Defendant. Plaintiff has made demand on
Defendant to send the monies to Plaintiff.
Defendant has failed and refused and
continues to fail and refuse to send said
monies to the Plaintiff and instead has
converted said monies to her own use.”
have collateral estoppel effect.); Four Star Electric, Inc. v. F & H Construction, 7 Cal.App.4th 1375, 1380,
10 Cal.Rptr.2d 1 (1992); Mitchell v. Jones, 172 Cal.App.2d 580, 342 P.2d 503, 507 (1959) (California law
also provides that default judgments are entitled to collateral estoppel effect.)
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3. In an Exemplary Damages attachment to the Complaint, Plaintiff alleges
that the Defendant was guilty of malice. The facts plead in the Complaint
supporting Plaintiff’s claim are as follows:
“Defendant has acted with malice in
intentionally keeping the insurance money
intended for Plaintiff and converting it to her
own use.”
4. On July 22, 2004, the District Court for Eddy County, New Mexico gave
credit to the California judgment including costs and interest for a total
amount of $29,039.70.
5. Defendant’s wages were garnished pursuant to the judgment entered in
District Court for Eddy County, New Mexico
ANALYSIS
Pursuant to 11 U.S.C. § 523(a)(6), a debt “for willful and malicious injury by the
debtor to another entity or to the property of another entity” cannot be discharged through
bankruptcy. 11 U.S.C. § 523(a)(6). In order for a debt to be declared non-dischargeable
under 11 U.S.C. § 523(a)(6), the debtor must have acted both willfully and maliciously.
Panalis v. Moore, (In re Moore), 357 F.3d 1125, 1129 (10th Cir. 2004)
(nondishargeability under § 523(a)(6) requires proof of both a “willful act” and
“malicious injury.”); In re Gagle, 230 B.R. 174, 179 (Bankr.D.Utah 1999) (“Because
they are distinct elements, . . . [Plaintiff] must establish that the Debtors’ conduct was
both willful and malicious.”)(citation omitted). Willfulness 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, 118 S.Ct. 974, 977, 140 L.Ed.2d 90 (1998)
(emphasis in original). Malice, which is a separate and distinct requireme nt under 11
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U.S.C. § 523(a)(6), requires a showing that the debtor acted “without justification or
excuse.” Gagle, 230 B.R. at 181. See also In re Tinkler, 311 B.R. 869, 880
(Bankr.D.Colo. 2004) (malice requires a showing of a wrongful, intentional act taken
without just cause or excuse) (relying on Tinker v. Colwell, 193 U.S. 473, 24 S.Ct. 505,
48 L.Ed. 754 (1904)); In re Cline, 227 B.R. at 830 (“an act is ‘malicious’ if it is done ‘in
conscious disregard of one’s duties or without just cause.’”) (quoting Matter of
Thirtyacre, 36 F.3d 697, 700 (7th Cir. 1994) (quoting Wheeler v. Laudani, 783 F.2d 610,
615 (6th Cir. 1986)).
Under California law, conversion is the wrongful exercise of dominion over the
property of another. The elements of a conversion are the plaintiff's ownership or right to
possession of the property at the time of the conversion; the defendant's conversion by a
wrongful act or disposition of property rights; and damages. It is not necessary that there
be a manual taking of the property; it is only necessary to show an assumption of control
or ownership over the property, or that the alleged converter has applied the property to
his own use. Messerall v. Fulwider (1988) 199 Cal.App.3d 1324, 1329, 245 Cal.Rptr.
548; Enterprise Leasing Corp. v. Shugart Corp. (1991) 231 Cal.App.3d 737, 747, 282
Cal.Rptr. 620.
A conversion, under California law, establishes the debtor's "wrongful exercise of
dominion over the personal property of another," but it "does not necessarily decide the
type of wrongful intent on the part of the debtor that is necessary for the damages to be a
nondischargeable debt under § 523(a)(6)." Peklar v. Ikerd (In re Peklar), 260 F.3d 1035,
1037-39 (9th Cir.2001) (citing Taylor v. Forte Hotels Int'l, 235 Cal.App.3d 1119, 1124, 1
Cal.Rptr.2d 189 (1991)). The court must also find that the conversion was intentional, as
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defined in Geiger and its progeny. Kawaauhau v. Geiger, 523 U.S. 57, 61-64, 118 S.Ct.
974, 140 L.Ed.2d 90 (1998). "The willful injury requirement of § 523(a)(6) is met when it
is shown either that the debtor had a subjective motive to inflict the injury or that the
debtor believed that injury was substantially certain to occur as a result of his conduct."
Petralia v. Jercich (In re Jercich), 238 F.3d 1202, 1208 (9th Cir.2001), cert. denied, 533
U.S. 930, 121 S.Ct. 2552, 150 L.Ed.2d 718 (2001). Thus, negligent or reckless acts which
inflict consequential injury do not fall within the ambit of § 523(a)(6). Geiger, 523 U.S.
at 64, 118 S.Ct. 974.
Because under California law a default judgment is conclusive to the issues
tendered by the complaint as if it had been rendered after answer filed and trial had on the
allegations denied by the answer, this Court need only look to the Complaint upon which
default judgment was granted to determine intent.2
In the instant case, the exemplary damages attachment to the Complaint aptly
plead that the Defendant acted “with malice in intentionally keeping the insurance money
. . .” Pursuant to California law, that matter is deemed conclusive and the Defendant is
estopped from denying that allegation in the present proceeding. Moreover, this Court
must also find the default judgment conclusive to the issues tendered by the complaint,
including the allegation that the Defendant acted with malice in intentionally keeping the
insurance money. Thus, because the Complaint upon which the State Court Judgment
2 In her response, the Defendant cites In re Hubbard, 167 B.R. 969 (Bankr. D. N. M. 1994) for the
proposition that “a default judgment merely disposes of the cause of action before the court and is not a
reliable adjudication of any issue except for that case, and should not have a collateral estoppel effect in a
bankruptcy dischargeability proceeding.” However, the Defendant’s reliance on Hubbard is misplaced. In
applying collateral estoppel principles to state court judgments, a federal court must apply the state law
governing collateral estoppel for the state where the judgment was rendered. In re Shore, 317 B.R. 536, 541
(10th Cir. BAP 2004). This Court’s decision in Hubbard was based on Oregon law. In the present case,
California law is authoritative.
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was issued includes an allegation of both malice and intent with regard to conversion, and
because the former Complaint is conclusive, this Court concludes that Plaintiff has
satisfied the second prong of the willfulness requirement necessary for a determination of
non-dischargeability under 11 U.S.C. § 523(a)(6).
CONCLUSION
Based on the foregoing, the Court finds that summary judgment on Plaintiff’s
claim for nondischargeability of debt under 11 U.S.C. § 523(a)(6) is appropriate.
WHEREFORE, IT IS HEREBY ORDERED, that the Plaintiff’s Motion for
Summary Judgment is GRANTED. The Court will enter a Judgment in conformity with
this Memorandum Opinion.
_____________________________
MARK B. McFEELEY
United States Bankruptcy Judge
I certify that on the date shown on the attached document verification, a true and correct
copy of the foregoing was either electronically transmitted, faxed, delivered or mailed to
the listed counsel and/or parties.
Jennie Deden Behles. Clarke C. Coll
Counsel for Plaintiff Counsel for Defendant
P.O. Box 7070 P.O. Box 550
Albuquerque, NM 87194-7070 Roswell, NM 88202-0550
_______________________________
Patti G. Hennessy
Law Clerk
(505) 348-2545
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