Lead Opinion
OPINION
The Appellee, Randy Weissert (“Weis-sert”), obtained separate state court judgments on damages as per a default against each of the debtors, Appellants, Nicole M. Phillips and Thomas M. Phillips, Sr. (“Mr. and Mrs. Phillips”), in the amount of $71,962.75 for abuse of process, intentional infliction of emotional distress, civil conspiracy, and concert of action. The state court judgments were awarded after Weis-sert was acquitted of a criminal charge that he had raped Mrs. Phillips. In this bankruptcy case, Weissert filed an adversary proceeding seeking a determination that the debts reflected in the state court judgments were nondischargeable under 11 U.S.C. § 523(a)(6). The bankruptcy court granted in part and denied in part the motion for partial summary judgment filed by the debtors seeking a declaration that the state court judgments had no preclusive effect. The bankruptcy court held that the state court judgments were preclusive only as to the amount of the debt and the liability of each of the debtors, but not preclusive on whether the debtors’ conduct was willful and malicious under 11 U.S.C. § 523(a)(6). Following a trial on that issue, the bankruptcy court found Mrs. Phillips’ debt to be nondis-chargeable and Mr. Phillips’ debt to be discharged through his bankruptcy. Mrs. Phillips appeals three orders: (1) the order partially denying her motion for partial summary judgment; (2) the judgment finding her debt to be nondischargeable; and (3) an order denying a motion to amend the findings of fact and conclusions of law. Mr. Phillips also filed a notice of appeal and attempted to be heard on the issues raised by Mrs. Phillips. The Panel finds that Appellant Mr. Phillips lacks standing to appeal the bankruptcy court’s orders and therefore dismisses his appeal. As to Appellant Mrs. Phillips’ appeal, the Panel AFFIRMS the bankruptcy court’s orders for the reasons stated below.
I. STATEMENT OF ISSUES
The first issue on appeal is whether the bankruptcy court erred in ruling that the debt reflected in the state court judgment entered against Appellant Mrs. Phillips, is nondischargeable under 11 U.S.C. § 523(a)(6). The secondary issue before the Panel is whether the bankruptcy court erred in its conclusion regarding the collateral estoppel effect of that state court judgment.
II. JURISDICTION AND STANDARD OF REVIEW
Before addressing the substance of the issues on appeal, it is important to
In order to have standing to appeal a bankruptcy court order, an appellant must have been “directly and adversely affected pecuniarily by the order.” Derived from the now-repealed Bankruptcy Act of 1898, “[t]his principle, also known as the ‘person aggrieved’ doctrine, limits standing to persons with a financial stake in the bankruptcy court’s order.” Thus, a party may only appeal a bankruptcy court order when it diminishes their property, increases their burdens or impairs their rights. Travelers Cas. & Sur. v. Corbin (In re First Cincinnati, Inc.),286 B.R. 49 , 51 (6th Cir. BAP 2002) (citations omitted).
Ohio Truck & Trailer, Inc. v. Level Propane Gases, Inc. (In re Level Propane Gases, Inc.),
In the present case, Mr. Phillips was successful before the bankruptcy court. The bankruptcy court’s order finding that his debt to Weissert is dischargea-ble did not diminish his property, increase his burden or impair his rights. The order did not adversely affect him. Accordingly, the Panel finds that he does not have standing to appeal. Likewise, Appellant Mrs. Phillips does not have standing to appeal the issue of whether Mr. Phillips’ debt is dischargeable. Weissert attempted to file a cross appeal of this issue. However, his notice of appeal was not timely and thus the Panel lacks jurisdiction as to his appeal. Accordingly, the dischargeability of Mr. Phillips’ debt is not properly before the Panel and his appeal is dismissed.
The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide the remaining issues on appeal. The United States District Court for the Western District of Michigan has authorized appeals to the Panel, and neither party has timely elected to have this appeal heard by the district court. 28 U.S.C. § 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). An order granting summary judgment is a final order. Buckeye Ret. Co., LLC, Ltd. v. Swegan (In re Swegan),
The denial of a motion to amend a judgment is reviewed for abuse of discretion. Hamerly v. Fifth Third Mortgage Co. (In re J & M Salupo Develop. Co.),
III. FACTS
On June 7, 2001, Nicole Phillips accused Randy Weissert of rape. On June 19, 2002, Weissert was arrested. Following a two-day trial on January 22-23, 2003, Weissert was acquitted.
On April 20, 2007, Weissert filed a civil complaint against Mrs. Phillips and her husband for abuse of process, intentional infliction of emotional distress, civil conspiracy, and concert of action. Mr. and Mrs. Phillips were properly served but failed to respond to the state court complaint. On July 6, 2007, the state court entered a default against them.
On August 6, 2007, the state court held a hearing on damages. Mr. and Mrs. Phillips participated in this hearing. On August 22, 2007, the state court entered a judgment on damages as per a default against both Mr. and Mrs. Phillips. Neither Mr. nor Mrs. Phillips moved to set aside the state court judgments or filed an appeal.
On October 8, 2007, Mr. and Mrs. Phillips filed a joint chapter 7 bankruptcy petition. On December 27, 2007, Weissert filed an adversary proceeding seeking a determination that the debts reflected in the state court judgments arose from a willful and malicious injury and were non-dischargeable under 11 U.S.C. § 523(a)(6).
On August 18, 2008, debtors filed a motion for partial summary judgment seeking a determination that the state court judgments had no preclusive effect. On October 26, 2008, noting the participation of both Mr. and Mrs. Phillips in the damages hearing in the state court proceedings, the bankruptcy court entered an order finding that the state court judgments were pre-clusive as to the existence and amount of Weissert’s claim in the bankruptcy case.
The bankruptcy court conducted the trial on February 23-25, 2009. Following the trial, the bankruptcy court held that Mrs. Phillips’ debt to Weissert was nondis-chargeable. The court concluded that Mrs. Phillips’ allegations of rape were false and amounted to willful and malicious conduct under 11 U.S.C. § 523(a)(6). The bankruptcy court also held that Mr. Phillips’ debt to Weissert was dischargeable. The bankruptcy court entered a judgment on March 26, 2009. Debtors filed a motion to amend the bankruptcy court’s findings of fact and conclusions of law. The bankruptcy court denied debtors’ motion on May 20, 2009.
Mr. and Mrs. Phillips filed a timely notice of appeal on May 29, 2009. On June 12, 2009, Weissert filed an untimely cross appeal, which was ultimately dismissed. In addition, this Panel has found that Mr. Phillips has no standing to appeal the bankruptcy court’s orders.
IV. DISCUSSION
A. Nondischargeability under 11 U.S.C. § 523(a)(6)
Pursuant to 11 U.S.C. § 523(a)(6) of the Bankruptcy Code, any debt determined to be “for willful and malicious injury by the debtor to another entity or to the property of another entity” is excepted from discharge. To except a debt from discharge under § 523(a)(6), the alleged injury must be both willful and malicious. Markowitz v. Campbell (In re Markowitz),
An act is “malicious” if it is undertaken “in conscious disregard of one’s duties or without just cause or excuse.” Wheeler v. Laudani,
In reviewing the bankruptcy court’s determination that the conduct of Appellant Mrs. Phillips was willful and malicious for purposes of 11 U.S.C. § 523(a)(6), the appellate court applies the clearly erroneous standard. Under the clearly erroneous standard, the Panel must give deference to the bankruptcy court as the finder of fact. Sicherman v. Diamoncut, Inc. (In re Sol Bergman Estate Jewelers, Inc.),
*484 If the district court’s account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently. Where there are two permissible views of the evidence, the factfinder’s choice between them cannot be clearly erroneous.
Thurman v. Yellow Freight Sys., Inc.,
The record in the bankruptcy court supports that court’s conclusion that the conduct of Appellant Mrs. Phillips in pursuing a rape charge against Weissert, constitutes willful and malicious conduct under § 523(a)(6). In this case, the bankruptcy court held a trial over a two and a half day period of time. At trial, Mr. and Mrs. Phillips and Weissert testified. The court also heard testimony from four non-party witnesses.
On appeal, Appellant Mrs. Phillips argues that the evidence she presented during the trial corroborates her allegation that she was raped by Weissert. The bankruptcy court, after hearing all of the testimony and carefully considering the evidence, determined otherwise. Such alternative interpretations or differing views of the evidence, do not constitute clear error. Thurman v. Yellow Freight Sys., Inc.,
B. The Doctrine of Collateral Estop-pel
The Panel now turns to the bankruptcy court’s determination that the state court judgment precluded relitigation of Appellant Mrs. Phillips’ damages and liability to Appellee Weissert and of the amount of Weissert’s claim; but did not preclude the litigation of the issue of non-dischargeability under § 523(a)(6). The doctrine of collateral estoppel applies in bankruptcy proceedings. Grogan v. Garner,
The doctrine of collateral es-toppel prevents an issue from being reliti-gated where the issue of fact or law was actually litigated and necessarily decided in a prior action between the same parties. In re Markowitz,
Under Michigan law, collateral es-toppel applies when:
1) there is identity of parties across the proceedings,
2) there was a valid, final judgment in the first proceeding,
3) the same issue was actually litigated and necessarily determined in the first proceeding, and
4) the party against whom the doctrine is asserted had a full and fair opportunity to litigate the issue in the earlier proceeding.
Hinchman v. Moore,
In the present appeal, the state court judgment entered against Appellant Mrs. Phillips, on the issue of damages and liability satisfies all four elements required to give a state court judgment preclusive effect. It is undisputed that there is identity of parties across the proceedings; that there was a valid, final judgment on damages as per a default finding Appellant Mrs. Phillips liable in the amount of $71,962.75; the issue of damages was actually litigated in the state court at a hearing solely on the issue of damages; and Mrs. Phillips appeared at the hearing on damages and had a full and fair opportunity to litigate that issue. The bankruptcy court determined that the state court proceedings satisfied the four requirements of collateral estoppel with respect to the issues of damages and liability. The Panel concludes that the bankruptcy court did not
The Panel further concludes that the bankruptcy court did not err in its holding that it could not give preclusive effect to the state court judgment on the issue of nondischargeability, because the issue of whether the conduct of Appellant Mrs. Phillips was willful and malicious was not “actually litigated” in the state court.
Under Michigan law, an issue is “actually litigated” if it is “put into issue by the pleadings, submitted to the trier of fact for determination, and is thereafter determined.” Latimer v. William Mueller & Son, Inc.,
Applying these principles to the pending appeal, the Panel concludes that there is nothing in the record to show that any determination or findings were made in the state court action on any of the elements that are essential to a finding of nondischargeability under § 523(a)(6). As summarized by the bankruptcy court and undisputed by the parties, Appellants, Mr. and Mrs. Phillips were served with the state court complaint. As a result of their failure to answer, the state court entered a default against Mr. and Mrs. Phillips. The state court subsequently held a hearing solely on the issue of damages. After the hearing, a state court judgment was entered against both Mr. and Mrs. Phillips in the amount of $71,962.75, and the judgment specifically states that it is a judgment on damages per a default. Upon a review of this record, the bankruptcy court found that
the tort issues were never joined and [Weissert’s] allegations were never in dispute. Consequently, in rendering its judgment, the state court did not resolve the issues, and the issues involving defendants’ alleged tortious conduct was*487 not actually litigated. The state court just assumed the truth of these allegations for the purpose of rendering the judgment.
Therefore, the bankruptcy court held that the state court judgment was not entitled to preclusive effect on the issue of nondis-chargeability.
Reviewing the issue of whether the state court judgment should be given preclusive effect on the issue of nondis-chargeability under a de novo standard of review, the Panel finds that the issue of whether Appellants’ conduct was willful and malicious was not actually litigated in the state court. Appellants never filed an answer or in any way participated in the case prior to the entry of the judgment against them. In bankruptcy, the presumption is in favor of discharge and the party objecting to discharge has the burden of proof on every element of a nondis-chargeable cause of action. See XL/Datacomp, Inc. v. Wilson (In re Omegas Group, Inc.),
V. CONCLUSION
The bankruptcy court’s holding after trial that the debt reflected in the state court judgment arose from the willful and malicious conduct of Appellant Mrs. Phillips, and is therefore nondischargeable under 11 U.S.C. § 523(a)(6), is AFFIRMED. The bankruptcy court’s ruling that the state court judgment is preclusive on the issues of damages and liability; but not preclusive on the issue of nondischarge-ability, is also AFFIRMED. Additionally, the Panel concludes that the bankruptcy court did not abuse its discretion in denying the motion to amend the findings of fact and conclusions of law.
Notes
. The witnesses included: (1) a friend of Weissert (Bonnie Jones); (2) Weissert’s mother (Gail Weissert); (3) a nurse from the Grand Rapids YWCA rape crisis center (Sue Shat-tuck); and (4) a County Sheriffs Deputy (Brian Grill).
Concurrence Opinion
concurring.
I join in the Panel’s affirmance of the bankruptcy court’s judgment. The bankruptcy court’s findings in support of its judgment for the plaintiff were certainly not clearly erroneous.
I write separately, however, because I disagree with the majority opinion’s conclusion regarding collateral estoppel. In my view, the bankruptcy court erred in granting Mrs. Phillips’ motion for summary judgment on the issue of whether the state court judgment was preclusive as to the factual findings required for a determination of nondisehargeability. Under Michigan law, it clearly was. Accordingly, the trial, as well as this Panel’s review of the bankruptcy court’s findings that resulted from that trial, were both unnecessary and inappropriate. I further conclude that the Panel should affirm the judgment on that basis alone.
I.
In ruling on Mrs. Phillips’ motion for summary judgment, the bankruptcy court held that the state court judgment precluded Mrs. Phillips from relitigating her liability and the amount of the judgment. Accordingly, it denied that part of Mrs. Phillips’ motion. It also held, however, that the judgment did not preclude Mrs. Phil
In this appeal, Mrs. Phillips contends that the judgment should be reversed on the grounds that the bankruptcy court’s findings were clearly erroneous. In response, Weissert argues that the bankruptcy court erred in holding that the state court judgment did not preclude Mrs. Phillips from relitigating the issue of dis-chargeability. Weissert is fully entitled to make that argument without filing a cross-appeal. In Morley Const. Co. v. Maryland Cas. Co.,
Without a cross-appeal, an appellee may ‘urge in support of a decree any matter appearing in the record, although his argument may involve an attack upon the reasoning of the lower court or an insistence upon matter overlooked or ignored by it.’ United States v. American Railway Express Co.,265 U.S. 425 , 435,44 S.Ct. 560 , 564,68 L.Ed. 1087 . What he may not do in the absence of a cross-appeal is to ‘attack the decree with a view either to enlarging his own rights thereunder or of lessening the rights of his adversary, whether what he seeks is to correct an error or to supplement the decree with respect to a matter not dealt with below.’ Ibid. The rule is inveterate and certain.
Id. (citations omitted). See also Nw. Airlines, Inc. v. County of Kent, Mich.,
Equally important, the Panel may rely on any grounds presented in the bankruptcy court and argued by the parties to affirm the judgment. Montedonico v. Beckham (In re Beckham),
The Sixth Circuit has held in several cases that it has the jurisdiction to review a ruling on a motion for summary judgment, when, as here, the motion presents a purely legal issue. McPherson v. Kelsey,
Accordingly, I conclude that the Panel has the authority and discretion to consider whether to affirm the bankruptcy
I further conclude that the Panel should have exercised its discretion to resolve this appeal based on the collateral estoppel issue rather than based on a review of the trial. The issue of whether a default judgment is entitled to collateral estoppel effect has seriously divided the bankruptcy courts in Michigan. In Montgomery v. Kurtz (In re Kurtz),
II.
The doctrine of collateral estoppel applies in dischargeability proceedings. Grogan v. Garner,
In reviewing a collateral estoppel issue, the bankruptcy court must give a state court judgment the same preclusive effect that judgment would have in state court, unless the Full Faith and Credit Statute, 28 U.S.C. § 1738, provides an exception. In re Calvert,
Accordingly, the question is whether the Michigan courts would give preclusive effect to the findings made in support of a default judgment under circumstances similar to the default judgment in this case. Perhaps a useful way to frame the issue is this: If, after the state court judgment against her, Mrs. Phillips had filed a declaratory judgment action against Weis-sert asserting that she was not liable on his claims, would the Michigan courts apply collateral estoppel to preclude her from relitigating the merits of his claims? For the reasons set forth below, I conclude that the Michigan courts would certainly preclude that attempt and that therefore so must we.
Under Michigan law, collateral estoppel applies when:
1) there is identity of parties across the proceedings,
2) there was a valid, final judgment in the first proceeding,
3) the same issue was actually litigated and necessarily determined in the first proceeding, and
*490 4) the party against whom the doctrine is asserted had a full and fair opportunity to litigate the issue in the earlier proceeding.
Darrah v. City of Oak Park,
In the present case, there is no question regarding the first, second and fourth elements required for collateral estoppel. First, there is identity of parties across the proceedings. Mrs. Phillips and Weissert were both parties to the state court action as well as the bankruptcy adversary proceeding to determine dischargeability.
Second, there was a valid, final judgment in the first proceeding. The state court entered a judgment finding Mrs. Phillips liable for $71,962.75 for her abuse of process, intentional infliction of emotional distress, civil conspiracy and concert of action.
Finally, Mrs. Phillips had a full and fair opportunity to litigate the issue. She does not dispute that she was served with the state court complaint, which gave her the opportunity to litigate the issue of her liability. In fact, she did fully litigate the amount of damages by participating in the evidentiary hearing on that issue before the state court.
The only element that is disputed is whether the default judgment finding liability was “actually litigated.” In her motion for partial summary judgment, Mrs. Phillips asserted that because she did not file an answer to the state court complaint and a default judgment was entered against her, the matter was not “actually litigated.”
In Micco Const. Co. v. Brunett (In re Brunett),
On the other hand, Vogel v. Kalita (In re Kalita),
The bankruptcy court then analyzed Jacobson v. Miller,
[T]he execution of the lease was not denied in the former suit. No issue was made upon it, and the defendant, by not denying it, suffered a default in respect to it which left it wholly outside the issue made and actually passed upon. Consequently it was not and could not have been considered by the court as a point in which that suit was open to controversy.
Kalita,
In the first suit, the plaintiff sued for rents from October 1875 through April 1877. In that suit, Jacobson, one of the defendants, did not challenge whether the lease was valid, but appears to have argued and lost on the issue of whether he occupied the premises. Under applicable court rules at the time, neither party provided any proofs regarding the validity of the lease. Later, the plaintiff sued again for additional rents accrued after the first suit. In the second suit, Jacobson sought to challenge the validity of the lease itself. The trial court prohibited the challenge, holding that the presumption that the lease was valid in the first suit prevented Jacobson from challenging the validity of the lease in the second suit. The Michigan Supreme Court reversed, holding that:
“Various considerations, other than the actual merits, may govern a party in bringing forward ground of recovery or defense in one action which may not exist in another action upon a different demand, such as the smallness of the amount, or the value of the property in controversy, the difficulty of obtaining the necessary evidence, the expense of the litigation, and his own situation at the time. A party acting upon considerations like these ought not to be prelud-ed from contesting in a subsequent action other demands arising out of the same transaction.”
Id. at 1017 (quoting Cromwell v. County of Sac,
The Jacobson case did not involve a default judgment. Rather, it was a case where the defendants chose not to challenge certain facts, as allowed by the court rules at that time. Because those facts were not challenged, they were not placed into issue before the court and thus were not necessary to the judgment. Accordingly, the Michigan Supreme Court found that in a later suit, the defendant was not precluded from litigating those facts for the first time. Accordingly, Jacobson is not authority for the conclusion reached in Kalita that a default judgment is not entitled to collateral estoppel effect.
I conclude that this controversy has been resolved by a subsequent decision of the Michigan Supreme Court. In Barnes v. Jeudevine,
In Barms, the plaintiff alleged that he was the biological father of a child that was conceived while the child’s mother was married to another man and that was born four months after the mother’s divorce. The mother’s default judgment of divorce stated that it appeared that “no children were born of this marriage and none are expected.” The question presented was whether that finding precluded the mother from asserting that her ex-husband was the father and whether the plaintiff was therefore precluded from asserting paternity under the Michigan Paternity Act, Mich. Comp. Laws § 722.711, and the ease law construing that Act. The question turned on whether the finding in the divorce judgment was a sufficient finding that the child was not the issue of the marriage. The court held that it was not a sufficient determination and that therefore the plaintiff lacked standing to assert paternity. In so holding, the court relied on its prior decision in Girard v. Wagenmaker,
What is important here is that although the Michigan Supreme Court rejected the plaintiffs collateral estoppel argument, it did so only because the question of the child’s paternity had not been determined in the prior divorce judgment. It did not reject the collateral estoppel argument because the prior divorce judgment was a default judgment. Indeed, as noted above, the court explicitly stated that a default judgment is entitled to the same preclusive effect as a judgment that follows an answer and a contest. Because the Michigan Supreme Court so held, we are bound to that holding in applying collateral estoppel in a nondischargeability action. Accordingly, it was error for the bankruptcy court to hold that because the judgment was a default judgment, collateral estoppel did not preclude Mrs. Phillips from relit-igating whether her injury to Weissert was willful and malicious.
III.
Under Michigan law, “the entry of a default judgment is equivalent to an admission by the defaulting party as to all of the matters well pleaded.” Sahn v. Brisson’s Estate, 43 Mich.App. 666,
In this case, the bankruptcy court properly found that the judgment did have preclusive effect on the issues of liability and damages.
Weissert’s state court complaint includes counts for both intentional infliction of emotional distress and abuse of process (malicious prosecution). It alleges that the Phillips’ statements about Weissert “were false, untrue, willful, intentional, malicious, and/or made with reckless disregard for the truth, and caused the Montcalm County Prosecuting Attorney to charge [Weis-sert] with the felony offense of Criminal Sexual Conduct in the Third Degree.” (State Court Complaint, ¶ 24. Appellant’s App. Vol. I, Tab 6). Additionally, it alleges that the Phillips’ “conduct as outlined above was either intentional and/or a reckless disregard” and “was extreme, outrageous, and of such character as not to be tolerated by a civilized society.” (State Court Complaint, ¶ 29, 30. Appellant’s App. Vol. I, Tab 6).
Accordingly, the factual elements required to find the debt nondischargeable as a “willful and malicious injury” were submitted to the state court as trier of fact, actually litigated and necessary to the judgment. Therefore, Mrs. Phillips is now collaterally estopped from denying these elements in this adversary proceeding. The trial was unnecessary because Mrs. Phillips was precluded from relitigating those issues. The bankruptcy court should have found that the state court judgment was fully preclusive and should have denied Mrs. Phillips’ motion for summary judgment.
Nevertheless, because Weissert was entitled to the judgment that he obtained, I concur in the Panel’s affirmance.
. Mrs. Phillips chose not to address the merits of the collateral estoppel argument in her reply brief in this appeal. Instead, that brief asserted that the issue was dismissed from the appeal when the Panel dismissed Weissert’s cross-appeal for untimeliness. That assertion must be overruled because as discussed in the text, Weissert was not required to file a cross-appeal to preserve the issue for review. See Morley Const. Co. v. Maryland Cas. Co.,
. Indeed, it is worth noting that the Michigan court that entered the default judgment itself gave preclusive effect to the default at issue. At the hearing on damages, the court did not permit Mrs. Phillips to relitigate the facts pled in the complaint to which she defaulted.