Dennis D. Koonce v. Joseph Gambino
2014 U.S. App. LEXIS 12656
| 7th Cir. | 2014Background
- Joseph J. Gambino sued in Illinois state court to quiet title to three parcels and for slander of title, alleging Dennis Koonce (and related entities) used forged deeds and fraudulent documents to obtain title.
- The state trial court found the deeds were forged, concluded Koonce slandered Gambino’s title with malice and fraud, and awarded $595,574 compensatory and $500,000 punitive damages.
- The Illinois appellate court affirmed, stating there was ample evidence of Koonce’s intent to defraud and that the malice finding was supported by the record.
- Koonce filed for bankruptcy before satisfying the judgment; Gambino commenced an adversary proceeding seeking a determination that the state-court judgment was nondischargeable under 11 U.S.C. §§ 523(a)(2)(A) (fraud) and 523(a)(6) (willful and malicious injury).
- The bankruptcy court precluded Koonce from relitigating intent (collateral estoppel), granted judgment on the pleadings that the debt was nondischargeable; the district court affirmed.
- On appeal to the Seventh Circuit, Koonce argued intent was not actually litigated or necessary in state court and that he was entitled to a bankruptcy hearing concerning punitive damages; the Seventh Circuit affirmed the district court.
Issues
| Issue | Gambino's Argument | Koonce's Argument | Held |
|---|---|---|---|
| Whether Koonce’s fraudulent intent was "actually litigated" in state court | State-court proceedings directly raised and resolved Koonce’s intent; transcript and findings show parties disputed intent and trial court decided it | The issue of fraudulent intent was not actually litigated in the slander-of-title action | Held: Intent was actually litigated — collateral estoppel applies |
| Whether a finding of fraud was necessary to the state judgment (requirement for issue preclusion) | State court’s slander-of-title and punitive-damage determinations necessarily rested on a finding of fraud/malice | Malice element for slander and punitive damages can be satisfied by lesser mental states (recklessness/gross negligence), so finding of fraud was unnecessary | Held: Fraudulent intent was necessary to the judgment; preclusion appropriate |
| Whether bankruptcy court erred by denying a hearing to determine if punitive award represented actual fraud proceeds or a penalty | Gambino relied on state-court punitive award incorporated into the nondischargeability determination; did not preserve the fine-grained challenge below | Koonce sought a hearing to decide whether punitive award was compensatory (nondischargeable) or a penalty (potentially dischargeable) | Held: Issue was waived for appellate review because it was not raised below |
| Whether debt is nondischargeable under §§ 523(a)(2)(A) and 523(a)(6) | The state-court findings of actual fraud and willful/malicious injury preclude relitigation and establish nondischargeability | Koonce disputed the underlying findings and sought to relitigate intent in bankruptcy | Held: Debt deemed nondischargeable; collateral estoppel bars relitigation of intent |
Key Cases Cited
- McClellan v. Cantrell, 217 F.3d 890 (7th Cir.) (defines § 523(a)(2)(A) fraud nondischargeability)
- Jendusa-Nicolai v. Larsen, 677 F.3d 320 (7th Cir.) (defines § 523(a)(6) willful and malicious injury)
- Gustafson v. Jones, 117 F.3d 1015 (7th Cir. 1997) (standard of review for Rule 12(c) judgments)
- In re Davis, 638 F.3d 549 (7th Cir.) (whether an issue was litigated is reviewed de novo)
- Grogan v. Garner, 498 U.S. 279 (Sup. Ct.) (collateral estoppel applies to discharge-exception proceedings)
- Jensen v. Foley, 295 F.3d 745 (7th Cir.) (federal courts give state judgments the preclusive effect required by state law)
- PaineWebber, Inc. v. Farnam, 870 F.2d 1286 (7th Cir.) (same)
- Am. Family Mut. Ins. Co. v. Savickas, 739 N.E.2d 445 (Ill.) (Illinois collateral estoppel requirements)
- Harmon v. Gordon, 712 F.3d 1044 (7th Cir.) (what constitutes "actually litigated")
- In re Catt, 368 F.3d 789 (7th Cir.) (issue preclusion applies even with slight evidence at prior trial)
- Chicago Title & Trust Co. v. Levine, 789 N.E.2d 769 (Ill. App. Ct.) (elements of slander of title; malice defined)
- Slovinski v. Elliot, 927 N.E.2d 1221 (Ill.) (standard for punitive damages)
- Wellness Int’l Network, Ltd. v. Sharif, 727 F.3d 751 (7th Cir.) (issues not raised below are waived)