518 B.R. 99
Bankr. S.D. Ga.2014Background
- Pioneer Construction filed an adversary proceeding to determine dischargeability of a debt against Jeffery A. May from a Georgia state-court consent judgment.
- Consent Judgment (Feb. 7, 2012) found May Specialty and May jointly and severally liable for $222,480.24 plus fees, arising from willful conversion claims tied to a public works project.
- Reefer Racks Project: Pioneer supplied materials; May Specialty subcontracted with The Haskell Company for materials; Haskell later filed a bond claim for unpaid sums.
- May Specialty failed to pay Haskell, leading to a bond claim against Pioneer (Surety: The Ohio Casualty Insurance Co.) and, after litigation, a judgment against Pioneer for $222,004 plus fees, later partially satisfied with $200,000.
- Pioneer’s resulting state-court suit against May Specialty and Debtor alleged willful conversion and bad faith, seeking non-dischargeability under 11 U.S.C. § 523(a)(6).
- Debtor filed for Chapter 7; Pioneer contends the Consent Judgment’s terms and related conduct establish non-dischargeability; Debtor contends dischargeability remains in question.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the state-court consent judgment bar § 523(a)(6) arguments? | Consent Judgment conclusively decides the willful/malicious issue. | Consent Judgment only fixes the debt amount; does not preclude dischargeability defenses. | Consent Judgment does not preclude § 523(a)(6) defenses; collateral estoppel limited and not controlling on dischargeability. |
| Was there willful and malicious injury under § 523(a)(6)? | Debtor converted Plaintiff’s funds by not passing through payments to Haskell; constitutes willful/malicious injury. | Plaintiff lacks a property interest in the final payment and cannot prove willful/malicious conversion. | Plaintiff failed to prove willful and malicious injury; debt discharged. |
| Did the Consent Judgment create a constructive trust or a private right of action under OCGA §§ 16-8-15 and 51-10-6? | Consent Judgment reflects a constructive trust and civil remedies for misused funds. | Georgia law does not create a property right or private cause of action from § 16-8-15; funds were not earmarked. | No constructive trust or private right established; § 16-8-15 and § 51-10-6 do not create the asserted remedy here. |
| Does the Consent Judgment’s attorneys’ fees award prove malice under § 523(a)(6)? | Fees may support malice under § 523(a)(6) and § 13-6-11. | Fees could be recoverable on other contract/Act grounds or lack exclusive basis for malice. | Attorneys’ fees alone do not establish malice; other independent grounds are required to prove non-dischargeability. |
| Did Plaintiff’s failure to post a Notice of Commencement defeat bond protections and affect dischargeability? | Noncompliance harmed Plaintiff and supports non-dischargeability. | Debtor cannot be blamed for Plaintiff’s noncompliance; failure did not create a non-dischargeable injury. | Plaintiff’s noncompliance does not convert the debt into a non-dischargeable injury; failure is not Debtor’s fault in this context. |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (U.S. 1991) (burden and standards for proving § 523(a)(6) nondischargeability)
- In re St. Laurent, 991 F.2d 672 (11th Cir. 1993) (collateral estoppel in discharge-ability proceedings; state-court judgments)
- St. Laurent v. Ambrose (In re St. Laurent), 991 F.2d 672 (11th Cir. 1993) (collateral estoppel applies to dischargeability determinations)
- Kunkle v. Ga. Lottery Corp. (In re Kunkle), 462 B.R. 914 (Bankr.N.D.Ga.2011) (state consent judgments and dischargeability analysis)
- Barbee v. Barbee (In re Barbee), 479 B.R. 208 (Bankr.S.D. Ga. 2012) (non-dischargeability when funds converted from collateral; contract grounds)
- Doyle Dickerson Co. v. Durden, 218 Ga.App. 426 (1995) (16-8-15 does not automatically create civil action or trust absent statutory language)
- Halpern v. First Ga. Bank (In re Halpern), 810 F.2d 1061 (11th Cir. 1987) (consent judgments and issue preclusion considerations)
- Rufo v. Inmates of Suffolk County Jail, 502 U.S. 367 (U.S. 1992) (consent judgments and their enforceability and preclusive effect)
- Brown v. Centerville, Brown v. Centerville (2006) (consent judgments' contractual nature and preclusive interpretation)
- In re Am. Bldg. Consultants, Inc., 138 B.R. 1015 (Bankr.N.D.Ga.1992) (limitations of § 16-8-15 to create constructive trust)