Jerry Scarbrough, Denise Steele, and Melissa Victoria Deaton v. Helen Purser, Sue E. Purser A/K/A Sue E. Van Zanten, Gary W. Purser, Jr., Joann M. Purser, and Elizabeth H. Tipton, 03-13-00025-CV

Background

Jerry W. Scarbrough (Debtor), an attorney, represented Melissa Deaton in a Bell County, Texas civil action; a jury found Scarbrough (with Deaton and Steele) liable for defamation, fraud, civil conspiracy and sanctions, entering ~ $10.62M total judgment.
Central evidence were “Secret Recordings” revealing Deaton/Steele’s dealings with decedent Gary Purser and alleged plans to divert his assets; Scarbrough possessed but repeatedly denied/failed to produce those recordings in state-court discovery.
Scarbrough made public and private accusations (including that the Purser family murdered Gary Purser), contacted authorities and the funeral home to delay burial, posted videos online, violated confidentiality orders, and was sanctioned and held in contempt in state court.
The Purser family sued Scarbrough in state court and obtained compensatory and exemplary damages for defamation and fraud; Scarbrough later filed Chapter 7 and the Purser family sought nondischargeability of the state-court judgment under 11 U.S.C. §§ 523(a)(6) and 523(a)(2)(A).
The bankruptcy court applied collateral estoppel to the state-court findings, concluded Scarbrough’s acts were willful and malicious (objective and subjective proofs), and held the defamation and fraud judgments nondischargeable under § 523(a)(6) and § 523(a)(2)(A).

Issues

Issue	Plaintiff's Argument (Purser)	Defendant's Argument (Scarbrough)	Held
Whether defamation judgment is nondischargeable under 11 U.S.C. § 523(a)(6) (willful & malicious injury)	Scarbrough knowingly and maliciously propagated false murder/abuse accusations and other defamatory materials, objectively and subjectively intending harm	Statements were protected speech or not intended as willful injury; at least not the kind of intentional tort that creates nondischargeable debt	Held nondischargeable: jury findings and Scarbrough’s conduct (e.g., delaying burial, public posts, contact with authorities) show both objective substantial certainty and subjective intent to injure; § 523(a)(6) satisfied
Whether fraud judgment (fraud by misrepresentation and failure to disclose) is nondischargeable under § 523(a)(6)	Scarbrough used litigation, withheld recordings, filed frivolous motions and counterclaims to harass/coerce settlement—causing willful and malicious injury	Many actions were litigation tactics or discovery disputes, not necessarily the kind of intentional act that makes debt nondischargeable	Held nondischargeable: court treated the overall fraudulent scheme (misrepresentations, concealment, misuse of process) as willful and malicious under § 523(a)(6)
Whether state-court fraud judgment is nondischargeable under 11 U.S.C. § 523(a)(2)(A) (false pretenses/representations/actual fraud)	Scarbrough knowingly lied about existence/possession of Secret Recordings and made fraudulent statements on which Purser reasonably relied (through counsel), causing monetary and nonmonetary harm	Scarbrough argued Purser could not have justifiably relied because she dealt through counsel, and he never personally obtained money/property	Held nondischargeable: the jury’s findings and collateral-estoppel effect established knowing misrepresentations and justifiable reliance via Purser’s attorneys; § 523(a)(2)(A) satisfied
Whether collateral estoppel bars relitigation of issues decided in state court for purposes of nondischargeability	Purser: state-court verdict included findings (willfulness, falsity, knowledge/doubt, conspiracy, damages) that were actually litigated and thus preclusive in bankruptcy adversary	Scarbrough: some issues (privilege/First Amendment, imputation) remain distinct and may not be precluded	Held: Texas preclusion rules apply; many essential issues were actually litigated and decided in state court, so collateral estoppel bars relitigation in the bankruptcy proceeding

Key Cases Cited

Kawaauhau v. Geiger, 523 U.S. 57 (1998) (willful and malicious requires deliberate or intentional injury, not merely intentional act leading to injury)
Grogan v. Garner, 498 U.S. 279 (1991) (plaintiff bears burden of proving nondischargeability by a preponderance)
Field v. Mans, 516 U.S. 59 (1995) (justifiable reliance standard in § 523(a)(2)(A))
RecoverEdge L.P. v. Pentecost, 44 F.3d 1284 (5th Cir. 1995) (elements for § 523(a)(2)(A): knowing fraudulent falsehood, description of past or current facts, justifiable reliance)
Quinlivan v. Tummel & Carroll (In re Quinlivan), 434 F.3d 314 (5th Cir. 2005) (imputing agent/partner fraud under § 523(a)(2)(A) analyzed under state law)
Shcolnik v. Rapid Settlements Ltd. (In re Shcolnik), 670 F.3d 624 (5th Cir. 2012) (discussion of when litigation-related conduct can support § 523(a)(6) and relationship between motive and resulting injury)
Keaty v. Raspanti (In re Keaty), 397 F.3d 264 (5th Cir. 2005) (sanctions and baseless litigation can satisfy willful and malicious injury when intended to harass and substantially certain to cause harm)
Bain v. Nickelson (In re Bain), 436 B.R. 918 (Bankr. S.D. Tex. 2010) (analyzed collateral estoppel and whether state-court sanctions findings were “actually litigated” for § 523(a)(6) purposes)