Four Seasons Trucking, Inc. v. Crawford (In re Crawford)

IN RE: MARILYN BUICE CRAWFORD, Debtor.

FOUR SEASONS TRUCKING, INC., Plaintiff, v. MARILYN BUICE CRAWFORD, Defendant.

CASE NUMBER: 16-56156-PWB

ADVERSARY PROCEEDING NO. 16-5155

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION

July 10, 2018

IT IS ORDERED as set forth below:

CHAPTER 7

ORDER ON MOTIONS FOR SUMMARY JUDGMENT

Four Seasons Trucking, Inc. ("Four Seasons") obtained a judgment for attorney's fees under O.C.G.A.§ 13-6-11 against the Chapter 7 debtor, Marilyn B. Crawford, in civil litigation in the State Court of DeKalb County against Ms. Crawford and her corporation, R/A/C/T Enterprises, Inc. ("R/A/C/T"). In this action, Four Seasons seeks a determination that its judgment is excepted from discharge under 11 U.S.C.A. § 523(a)(6), which excepts debts for willful and malicious injury to property.

Four Seasons's claims arise out of hauling services it performed for R/A/C/T on a construction project on which R/A/C/T was a subcontractor for the general contractor, J.M. Wilkerson Construction Company, Inc. ("Wilkerson"). R/A/C/T failed to pay Four Seasons $ 38,059 for services it rendered. Four Seasons asserts that Wilkerson paid R/A/C/T for the services it provided but that R/A/C/T and Ms. Crawford converted the payments meant for Four Seasons to her own use. (Amended Complaint [44] at ¶¶ 14-16).

Four Seasons filed a lawsuit against R/A/C/T and Ms. Crawford in the State Court of DeKalb County, asserting a claim for breach of contract against R/A/C/T only and claims for conversion, punitive damages, and attorney's fees against both R/A/C/T and Ms. Crawford. The State Court granted summary judgment in favor of Four Seasons on the issue of Ms. Crawford's liability for conversion.¹ After a non-jury trial, the State Court ruled that Four Seasons had produced no evidence of damages with regard to the conversion claim and that the evidence didnot show that she was liable for punitive damages, but it entered judgment against Ms. Crawford in the amount of $ 18,749 for attorney's fees.²

Both parties have moved for summary judgment. Ms. Crawford contends that the State Court judgment establishes as a matter of law that she did not convert any property because the State Court ruled that Four Seasons had failed to establish any damages for conversion. She thus invokes the doctrine of claim preclusion, often called res judicata³: the State Court judgment in her favor on the conversion claim prevents Four Seasons from asserting that the attorney's fee award is a debt for conversion that could be excepted from discharge under § 523(a)(6).

Four Seasons asserts that the judgment for attorney's fees is necessarily based on the debtor's liability for conversion because the State Court could not have awarded attorney's fees in the absence of that liability. Four Seasons thus relies on the doctrine of issue preclusion, which Georgia courts call collateral estoppel: the State Court necessarily determined that Ms. Crawford was liable for conversion, and Ms. Crawford cannot litigate that issue again. Assuming that a debt for conversion is a willful and malicious injury to property for purposes of § 523(a)(6), Four Seasons concludes that the liability for attorney's fees is nondischargeable as a matter of law.⁴Similarly, it opposes summary judgment in favor of Ms. Crawford based solely on its view of the issue of the preclusive effect of the State Court judgment.⁵

Based on the Court's analysis of the State Court lawsuit and judgment, the Court concludes for reasons explained below that neither party is entitled to summary judgment. Even if Ms. Crawford's liability for attorney's fees arises from her liability for conversion, the State Court's determination of her conversion liability is not preclusive on the issues of whether the conversion was a "willful and malicious" injury to property for purposes of § 523(a)(6) and whether the conversion caused her liability for attorney's fees. Because the State Court did not, and could not, determine the claim of Four Seasons that Ms. Crawford's debt is for willful and malicious injury within the meaning of §523(a)(6), the State Court judgment does not preclude that claim in this proceeding.

Based on the allegations of Four Seasons in its complaints in the State Court and in this proceeding, the Court is concerned that Four Seasons may not have a claim under §523(a)(6) as a matter of law. The Court will, therefore, direct Four Seasons to supplement its response to Ms. Crawford's motion for summary judgment to establish triable issues of fact that, if established, would entitle it to a determination that the judgment is excepted from discharge under §523(a)(6).

I. The State Court Proceedings and Judgment

The Court begins with a review of the litigation in the State Court and the rulings of the State Court.

Four Seasons's lawsuit in the State Court of DeKalb County against Ms. Crawford and R/A/C/T (Plaintiff's Exhibit ("PX") C [48 at 8-26])⁶ asserted four counts: (I) a claim for breach of contract against R/A/C/T only; (II) a claim for conversion against both R/A/C/T and Ms. Crawford; (III) a claim for punitive damages against both defendants; and (IV) a claim for attorney's fees and expenses under O.C.G.A. § 13-6-11.⁷

The State Court granted unopposed motions for summary judgment against R/A/C/T on the contract claim in Count I in the amount of $ 38,059 and against both R/A/C/T and Ms. Crawford as to liability only on the conversion claim in Count II. (State Court Oct. 2, 2009 Order at 2 & nn. 3 & 9 (PX-B [48 at 4-7])). With regard to Ms. Crawford's liability, the State Court concluded that "[Ms. Crawford] has admitted that she 'participated' in the conversion" based on requests for admission to which she had not responded. (Id. at 2 & n. 9 (PX-B [48 at 6])). The State Court denied summary judgment on the amount of damages on the conversion count and on the other counts of the complaint for lack of evidence. (Id. at 2 (PX-B [48 at 6])).

After a non-jury trial, the State Court concluded that there was no evidence with regard to damages as to either R/A/C/T or Ms. Crawford on the conversion claim in Count II and that therewas not a preponderance of the evidence in favor of the plaintiff on the punitive damages claim in Count III. (State Court Jan. 26, 2010 Order at 2 (PX-D [48 at 29])).

With regard to the claim for attorney's fees in Count IV, the State Court found a preponderance of the evidence in favor of Four Seasons against both R/A/C/T and Ms. Crawford and awarded attorney's fees in the amount of $ 18,749, together with post-judgment interest, against both. (Id.).

In summary, the result of the State Court litigation was that Four Seasons could not recover on its conversion and punitive damages claims against Ms. Crawford in Counts II and III but that she was liable for $ 18,749 on its attorney's fee claim in Count IV, plus interests and costs. She was not liable on the contract claim in Count I because it did not assert a claim against her personally.

II. The Preclusive Effect of the State Court Rulings in This Proceeding

The effect of the State Court's judgment as a matter of Georgia law is straightforward. Ms. Crawford owes Four Seasons $ 18,749, plus interest and costs. Absent Ms. Crawford's Chapter 7 case, Four Seasons has a lien on her property and the right to invoke postjudgment remedies to enforce the judgment and collect its debt.

Her Chapter 7 bankruptcy case changes things. Ms. Crawford may avoid the lien on her exempt property (even if the debt is excepted from discharge) under 11 U.S.C. § 522(f)(1)(A), and her Chapter 7 discharge prevents Four Seasons from attempting to collect it as her personal liability, 11 U.S.C. § 727(b), unless the debt is excepted from discharge under 11 U.S.C. § 523(a).

Under 523(a)(6), a debt is excepted from discharge if it is a debt "for willful and malicious injury by the debtor to another entity or to the property of another entity."

Under state law, the reason for the judgment against Ms. Crawford is immaterial. But the reason for the debt is critical to application of the discharge exception in § 523(a)(6). The debt must be for "willful and malicious injury" for the § 523(a)(6) exception to apply.

Both parties rely solely on the summary judgment order and the judgment of the State Court to support their respective positions that they are entitled to judgment as a matter of law. The difficulty in this proceeding is that the Court cannot determine from the record whether the State Court entered judgment against Ms. Crawford for attorney's fees for her conversion of property of Four Seasons.

Although the State Court in its summary judgment order concluded that Ms. Crawford was liable for conversion, its final conclusion after trial was that Four Seasons had not produced any evidence of damages it had sustained by virtue of any conversion that had occurred.

This is important because it is well-established under Georgia law that O.C.G.A. § 13-6-11 permits recovery of attorney's fees only if the party recovers damages or other relief on its claims to which the attorney's fees relate; the statute provides an ancillary remedy with regard to a successful claim but does not establish an independent basis of liability.⁸ Under these principles,the judgment for attorney's fees cannot be for conversion because no legal basis for their award exists.

This issue would not exist if the State Court had awarded nominal damages against Ms. Crawford on the conversion claim. Georgia law permits the recovery of attorney's fees under O.C.G.A. § 13-6-11 when a party recovers nominal damages.⁹ And a party may be entitled to nominal damages on a conversion claim¹⁰ if the party properly seeks them.¹¹ But the record heredoes not establish whether Four Seasons sought nominal damages.¹² In any event, the State Court did not award any nominal damages.

Moreover, even if the State Court had awarded nominal damages - or if its judgment is interpreted as...