516 B.R. 897
Bankr. W.D. Tex.2014Background
- Debtor Jerry Scarbrough, an attorney, represented Melissa Deaton in a Bell County, Texas lawsuit; he filed Chapter 7 on the day of trial and stayed involved as a third‑party defendant. After the state jury found against him, the Purser Family obtained a >$10.6M judgment (defamation, fraud, exemplary damages, sanctions).
- Central facts: secret audio recordings showing Deaton/Steele encouraging Gary Purser to divert assets; Debtor received copies but repeatedly failed to produce them in discovery and denied their existence.
- Debtor made public/multiplied extrajudicial allegations (murder, elder abuse) to authorities, funeral home, relatives, and posted YouTube videos; state court sanctioned and held him liable for fraud, defamation, discovery abuses, and contempt.
- Plaintiffs (Helen Purser and family members) seek nondischargeability of the state judgment in bankruptcy under 11 U.S.C. § 523(a)(6) (willful and malicious injury) and § 523(a)(2)(A) (false representation/actual fraud).
- The bankruptcy court applied collateral estoppel to preclude relitigation of issues decided in state court and assessed both subjective intent and objective substantial‑certainty tests for willful and malicious conduct.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether defamation judgments are nondischargeable under § 523(a)(6) | Scarbrough intentionally published false murder/elder‑abuse accusations and other defamatory materials, showing subjective intent and causing foreseeable harm | Claims of privilege/First Amendment and challenges to intent; argued statements were to attorneys or authorities, not direct to plaintiffs | Held nondischargeable: jury findings, collateral estoppel, and evidence show subjective malice and objective substantial certainty of harm; § 523(a)(6) satisfied |
| Whether fraud (willful/malicious) related to litigation conduct is nondischargeable under § 523(a)(6) | Debtor employed contumacious litigation tactics, frivolous counterclaims, discovery abuses, and extrajudicial schemes to coerce payment — causing plaintiffs to expend time/money | Argued zealous advocacy and absence of intent to cause the financial injuries; some acts were advocacy not malicious conduct | Held nondischargeable: court follows Keaty/Shcolnik reasoning — using litigation process to coerce/harass can be willful and malicious; state findings support nondischargeability |
| Whether state‑court fraud judgment is nondischargeable under § 523(a)(2)(A) | Debtor knowingly misrepresented/failed to disclose existence of Secret Recordings; plaintiffs justifiably relied on counsel and expended substantial resources as a result | Argued no direct transfer to Debtor (he didn’t obtain money/services), representations were to attorneys not plaintiff, and reliance was not justifiable | Held nondischargeable: court finds knowing falsehoods/omissions about recordings, justifiable reliance via counsel, and that co‑conspirators obtained benefits — § 523(a)(2)(A) satisfied |
| Whether privileges/First Amendment or other defenses preclude nondischargeability | Debtor asserted qualified privilege, First Amendment, statutory reporting immunities, and other defenses | Argued protection for reporting alleged crimes and free speech | Held: defenses precluded or rejected by collateral estoppel; state court already adjudicated and rejected these defenses |
Key Cases Cited
- Kawaauhau v. Geiger, 523 U.S. 57 (Sup. Ct. 1998) (§ 523(a)(6) requires deliberate or intentional injury, not merely intentional act)
- Grogan v. Garner, 498 U.S. 279 (Sup. Ct. 1991) (creditor bears preponderance burden to prove nondischargeability)
- Miller v. J.D. Abrams, Inc. (In re Miller), 156 F.3d 598 (5th Cir. 1998) (willful and malicious test: objective substantial certainty or subjective motive)
- RecoverEdge L.P. v. Pentecost, 44 F.3d 1284 (5th Cir. 1995) (elements for § 523(a)(2)(A); fraudulent misrepresentations requirement)
- Field v. Mans, 516 U.S. 59 (Sup. Ct. 1995) (justifiable reliance standard for § 523(a)(2)(A))
- Quinlivan & Carroll v. Quinlivan (In re Quinlivan), 434 F.3d 314 (5th Cir. 2005) (imputing agent fraud to debtor when agent acts to accomplish fraud)
- Raspanti v. Keaty (In re Keaty), 397 F.3d 264 (5th Cir. 2005) (state court findings on malicious litigation conduct can satisfy § 523(a)(6))
- Shcolnik v. Rapid Settlements Ltd. (In re Shcolnik), 670 F.3d 624 (5th Cir. 2012) (coercive litigation or threats that force litigation costs can be willful and malicious under § 523(a)(6))
- Cohen v. de la Cruz, 523 U.S. 213 (Sup. Ct. 1998) (fraudulent obtainment of money/property renders related debts nondischargeable, including exemplary damages)