Stephens v. Morrison (In Re Morrison)
450 B.R. 734
Bankr. W.D. Tenn.2011Background
- Debtors Alabama Morrison and Crystal Morrison filed Chapter 7 in 2009; Stephens sued Morrison in bankruptcy court to except a debt from discharge.
- State court breach-of-contract action against Morrison arose from a 2006 remodeling contract with Stephens/ABC Remodeling, where Morrison failed to complete work and caused delays.
- Stephens paid Morrison $128,871; Morrison admitted partial work but did not complete the project; banking records show substantial non-project expenditures.
- State court default judgment entered in 2009 for $64,300 plus 10% pre-judgment interest; this judgment was relevant but not binding on dischargeability until connected to §523 claims.
- Bankruptcy trial examined whether Morrison’s records were adequate under §727(a)(3) and whether Stephens had proven willful/malicious injury under §523(a)(6); court found partial support for §523(a)(6) and denied the others.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Morrison’s records satisfy §727(a)(3). | Stephens argues Morrison failed to keep adequate records for Stephens’s project. | Morrison contends some records exist; computer issues and cash handling justify gaps. | No §727(a)(3) denial; records adequate enough to avoid discharge denial. |
| Whether Stephens proved willful and malicious injury under §523(a)(6). | Morrison intentionally diverted funds from Stephens’s project to personal use. | Morrison denies intent to injury; disputes timing and causation. | Yes; Morrison’s conduct satisfied willful and malicious injury, yielding a non-dischargeable debt. |
| Whether the state court default judgment can be given non-dischargeable treatment under §523(a)(6). | Default damages reflect misappropriation of funds for Stephens’s job. | damages should be limited by state court findings if not clearly tied to willful/malicious conduct. | Preclusive effect applied; $64,300 non-dischargeable under §523(a)(6). |
| Whether Stephens is entitled to §523(a)(2) or §727(a)(3) relief. | Alternative theories of fraud/undue discharge activities exist. | Record does not support §523(a)(2) or §727(a)(3) findings. | Denied for §523(a)(2) and §727(a)(3) claims; only §523(a)(6) relief granted. |
Key Cases Cited
- Marrese v. American-Arthopaedic Surgeons, 470 U.S. 373 (1985) (full faith and credit governs state judgments in federal proceedings)
- Bay Area Factors v. Calvert, 105 F.3d 315 (6th Cir. 1997) (preclusion applies to state default judgments in §523(a) proceedings)
- Ward, Manufacturer's Hanover Trust Co. v. Ward, 857 F.2d 1082 (6th Cir. 1988) (discharge exemptions construed against creditor and in favor of debtor)
- Markowitz v. Campbell (In re Markowitz), 190 F.3d 455 (6th Cir. 1999) (willful injury may be shown by circumstantial evidence; substantial certainty standard)
- Kawaauhau v. Geiger, 523 U.S. 57 (1998) (willful requirement requires actual intent to cause injury or substantial certainty of injury)