Jalbert v. Mulligan (In re Mulligan), Case No.: 10–50037 (AMN)

577 B.R. 6

IN RE: Lawrence R. MULLIGAN and Renee T. Mulligan, Debtors

Bruce K. Jalbert and Pamela D. Jalbert, Plaintiffs,

v.Lawrence R. Mulligan, Defendant

Case No.: 10–50037 (AMN)

Adv. Pro. No. 10–05023 (AMN)

United States Bankruptcy Court, D. Connecticut, New Haven Division.

Signed October 27, 2017

Irve J. Goldman, Pullman & Comley, Bridgeport, CT, Eugene S. Melchionne, Waterbury, CT, for Defendant.

Benjamin M. Wattenmaker, Feiner Wolfson LLC, John M. Wolfson, Feiner Wolfson, LLC, Hartford, CT, for Plaintiffs.

Re: ECF No. 53, 57, 61, 62, 63, 67, 82, 95, 96; 101; 105

AMENDED MEMORANDUM OF DECISION AND ORDER ON MOTION FOR SUMMARY JUDGMENT, AFTER RECONSIDERATION

ANN M. Nevins, United States Bankruptcy Judge

I. INTRODUCTION

The issue before the court is whether a June 11, 2013, decision entered in a Connecticut Superior Court (the "State Court") case between the parties to this adversary proceeding should have preclusive effect over the claims pending here based on the doctrine of collateral estoppel. If it does, this court must find that some or all of plaintiffs' claims against the defendant in this adversary proceeding are non-dischargeable under the Bankruptcy Code.

The State Court found after trial that Lawrence R. Mulligan ("Mulligan"), one of the debtors in the main bankruptcy case, case number 10–50037 (the "Main Case"), and the defendant in this adversary proceeding, was liable to the plaintiffs, Bruce K. Jalbert and Pamela D. Jalbert, (the "Jalberts") for conversion, statutory theft, a violation of the Connecticut Unfair Trade Practices Act ("CUTPA"), and larceny by false pretenses. However, the State Court also found that Mulligan was not liable to the Jalberts for fraud.

Following briefing and oral argument, the parties agreed that the key issue before this court is whether the State Court determined that Mulligan had the requisite intent to commit defalcation under 11 U.S.C. § 523(a)(4).¹ If so, then Mulligan's debt to the plaintiffs resulting from the State Court litigation should be deemed non-dischargeable.

In addition, the Jalberts claimed that the debt should be non-dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A), although neither party discussed this claim extensively, and both parties briefed the question of the applicability of 11 U.S.C. § 523(a)(2)(6), even though the plaintiffs did not raise it as a claim in their complaint or motion for judgment.

The parties further agreed that the standards for a motion for summary judgment should guide the court's determination. AP–ECF No. 86,² Transcript of 1/13/15 hearing.

This Amended Memorandum of Decision is being issued after additional briefing and argument about the court's conclusion relating to Count V of the complaint, raised by the defendant by way of a timely filed motion to reconsider. AP–ECF Nos. 101, 105.

II. JURISDICTION, VENUE, AND STANDING

This court has jurisdiction over this action pursuant to 28 U.S.C. §§ 1334(b) and 157(b), and the District Court's Order of referral of bankruptcy matters, dated September 21, 1984. This adversary proceeding is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(J) (objections to discharge). This adversary proceeding arises under the Main Case, a chapter 7 proceeding pending in this District; therefore, venue is proper in this District pursuant to 28 U.S.C. § 1409. The plaintiffs have standing to seek the relief sought in the complaint because, as creditors in the Main Case, they may object to the granting of a discharge pursuant to 11 U.S.C. § 727(c)(1).

III. PROCEDURAL BACKGROUND

Mulligan and his spouse, Renee T. Mulligan, filed a petition under chapter 7 of the United States Bankruptcy Code on January 8, 2010 (the "Petition Date"). In their schedule of liabilities, they listed an unsecured, disputed debt to the plaintiffs in the amount of $150,000 incurred in 2008 with the consideration listed as "Judgment." On March 29, 2010, the plaintiffs filed the complaint in the present adversary proceeding. The complaint, styled as a "complaint objecting to dischargeability of debt," sought a judgment finding Mulligan liable for conversion (Count I), statutory theft (Count II), violation of CUTPA (Count III), fraud (Count IV), and false pretenses (Count V). AP–ECF No. 1. The plaintiffs alleged that by committing the actions alleged in each of the first four counts, Mulligan had "defrauded the [plaintiffs] by way of fraud or defalcation while acting in a fiduciary capacity contrary to 11 U.S.C. § 523(a)(4)." The plaintiffs further alleged that by obtaining money by false pretenses and/or actual fraud as alleged in Count V, Mulligan had acted "contrary to 11 U.S.C. § 523(a)(2)(A) and therefore the debts owed by [Mulligan] to the plaintiffs should be deemed non-dischargeable." The plaintiffs requested both that the court enter judgment for money damages, punitive damages, interest, treble damages, attorney's fees, and costs of the suit, and that it determine the judgment in the State Court Action to be non-dischargeable.

In a June 15, 2010 hearing, United States Bankruptcy Judge Alan H. W. Shiff (now retired) determined that the liability questions would be better answered in state court. AP–ECF No. 67, Exh A. During the hearing, the parties discussed a state court action, Jalbert v. Mulligan, Superior Court, judicial district of Waterbury, Docket No. CV–08–6001044–S (the "State Court Action"), that had been pending on the Petition Date. AP–ECF No. 67, Exh A. The court asked whether the action had the same core as the adversary proceeding. AP–ECF No. 67, Exh A. Mulligan's attorney stated that the state court action was broader than the adversary proceeding. AP–ECF No. 67, Exh A. The judge instructed the parties to "find out if there's any liability" in state court where the matter had already been pending. AP–ECF No. 67, Exh. A p. 10. Judge Shiff further stated the parties should "fight it out or settle it, or do whatever you're going to do in the state court where it is already in progress.... [I]f there's a finding of common law fraud that—and there's an amount of a debt, I should think you'd all say then that debt should be not discharged. If there's fraud, the debt should not be discharged. Conversely, the opposite result."³ AP–ECF No. 67, Exhibit A p. 11. The plaintiffs' attorney then asked whether the court would be entering an order for relief from stay. Judge Shiff stated he had ruled on the bench and confirmed that the parties consented to relief from stay; the plaintiffs' attorney stated, "[w]e stipulate, Your Honor." AP–ECF No. 67, Exhibit A p. 12. The judge then ordered, "you go ahead and continue what you've started in the state court." AP–ECF No. 67, Exhibit A p. 12. The court entered a docket entry stating the parties stipulated to relief from the automatic stay on June 15, 2010, and the parties filed a stipulated notice of relief from stay in the State Court Action on August 9, 2010.⁴ See AP–ECF No. 62, Exhibit C.

After the State Court entered judgment for the Jalberts they moved for judgment in this adversary proceeding. AP–ECF No. 53. The fourth amended complaint in the State Court Action contained the same five counts arising out of the same facts as the complaint in the present action, for conversion, statutory theft, violation of CUTPA, fraud, and false pretenses.⁵ Compare AP–ECF NO. 57, Exhibit 1, with AP–ECF No. 1.

The State Court found Mulligan liable for conversion, statutory theft, CUTPA violation, and larceny by false pretenses, but not for fraud. AP–ECF No. 53, Exhibit 1, p. 29. The State Court found, in short, that Mulligan, then a friend of the Jalberts, had represented them as their attorney without informing them that their title insurance company had appointed another attorney to represent them. AP–ECF No. 53, Exhibit 1, pp. 2–4. Mulligan claimed the title insurance company initially refused to provide representation related to a November 2006 suit regarding a purported easement on the plaintiffs' property, but then subsequently appointed an attorney for the Jalberts. AP–ECF No. 53, Exhibit 1, pp. 2–4. Mulligan told the Jalberts this attorney had been appointed to assist him. AP–ECF No. 53, Exhibit 1, pp. 2–4.

According to the State Court opinion after trial, the parties had earlier agreed to in-kind payment, whereby Bruce Jalbert would perform construction work for Mulligan in exchange for legal services from Mulligan if the title insurance company did not pay Mulligan to serve as the plaintiffs' attorney. AP–ECF No. 53, Exhibit 1, pp. 2–4. The undisputed value of the renovations Bruce Jalbert performed between 2005 and 2007 was $84,750. AP–ECF No. 53, Exhibit 1, p. 3. In May 2007, Mulligan asked the plaintiffs for $85,000 in order to show the title insurance company that the plaintiffs had paid him. AP–ECF No. 53, Exhibit 1, p. 4. He agreed to hold the $85,000 in an escrow account, but did not return the funds. AP–ECF No. 53, Exhibit 1, p. 4.

The State Court also concluded Mulligan had filed no pleadings on behalf of the Jalberts, but rather the attorney appointed by the title insurance company filed pleadings and subsequently engaged in settlement discussions and settled the case. AP–ECF No. 53, Exhibit 1, p. 4. As part of the settlement, $100,000 was received by Mulligan, of which he retained $50,000 as payment for his legal services. AP–ECF No. 53, Exhibit 1, p. 4. The State Court credited the Jalberts' testimony that they would not have permitted Mulligan to retain this amount if they had known that the title insurance company had retained an attorney for them. AP–ECF No. 53, Exhibit 1, pp. 10–11. The State Court also made numerous findings regarding Mulligan's misleading conduct and misleading documents he created. AP–ECF No. 53, Exhibit 1, pp. 11–13.

The State Court awarded damages of $746,842.11 to the Jalberts. AP–ECF No. 53, Exhibit 1, p. 30. It later supplemented its initial award by adding offer of compromise interest based on General Statutes § 52–192a and Connecticut Practice...