1 18-1657 In re: Lawrence R. Mulligan, et al. 

### UNITED STATES COURT OF APPEALS FOR THE SECO ND CIRCUIT SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROC EDURE 32.1 AND THIS COURT = S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMEN T FILED WITH THIS CO URT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATA BASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPR ESENTED BY COUNSEL. At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Co urthouse, 40 Foley Square, in the City of New York, on the 5 th day of March, two thousand nineteen.
Present: J OHN M. W ALKER , J R ., D EBRA A NN L IVINGSTON , Circuit Judges , K ATHERINE P OLK F AILLA , District Judge

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_____________________________________ I N RE : L AWRENCE R. M ULLIGAN , R ENEE T. M ULLIGAN , Debtors

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_____________________________________ L AWRENCE R. M ULLIGAN , Debtor-Appellant , v. 18-1657
B RUCE K. J ALBERT , P AMELA J ALBERT , Appellees

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* Judge Katherine Polk Failla, of the United States Di strict Court for the Southern District of New York, sitting by designation.2 For Debtor-Appellant: L AWRENCE R. M ULLIGAN , pro se , Palm Beach Gardens, FL. For Appellees: B ENJAMIN M. W ATTENMAKER (John M. Wolfson, on the brief ), Feiner Wolfson, LLC, Hartford, CT. Appeal from a May 3, 2018 order of the United St ates District Court for the District of Connecticut (Meyer, J .). UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the order of the district court is AFFIRMED

. Debtor-Appellant Lawrence Mulligan (“Mulligan”), proceeding pro se , appeals a judgment of the United States District Court fo r the District of Connecticut (Meyer, J .) affirming the bankruptcy court’s earlier judgment that a debt owed by Mulligan to Appellees Bruce and Pamela Jalbert (“the Jalberts”) was not dischargeable in bankruptcy pursuant to 11 U.S.C. § 523(a)(4). The bankruptcy court held, and the district court agreed, that Mulligan’s debt was not dischargeable because it was incu rred by conduct constituting defalc ation while Mulligan acted in a fiduciary capacity, basing their decisions on a st ate court decision finding Mulligan liable to the Jalberts for, inter alia , conversion and statutory theft. We assume the parties’ familiarity with the underlying facts, the procedural histor y of the case, and th e issues on appeal. Background In 2008, the Jalberts filed a complaint against Mulligan in Connecticut state court in connection with Mulligan’s representation of th em in a property matter. In 2010, while that action was pending, Mulligan and his wife filed for relief under the United States Bankruptcy Code. The Jalberts initiated an adversary proceeding in bankruptcy court and argued that Mulligan’s debt to them was not dischargeable in bankruptcy pursuant to 11 U.S.C. § 523(a)(4). At a June 2010 bankruptcy court hearing, the parties agreed to lift the auto matic stay and litigate3 the Jalberts’ state court lawsuit. Accordingly, in November 2010, the Jalberts filed an amended complaint in the state court acti on alleging conversion, statutory thef t, violation of the Connecticut Unfair Trade Practices Act, fra ud, and false pretenses. In June 2013, the state court found in favor of the Jalberts on all counts except fraud. The state court made the following factual findings. Mulligan acted as the Jalberts’ attorney between 1995 and 2008. In 2005, the Jalb erts asked Mulligan to represent them concerning an easement on their land, and the partie s agreed that, in the event the Jalberts’ title insurance company would not pay for the needed repres entation, the Jalberts would compensate Mulligan with construction services rather than cash. Bruce Jalbert provided Mulligan with construction work valued at $84,750 between 2005 and 2007. In 2006, a company sued the Jalberts to obtain use of the easement. Mullig an contacted the Jalberts’ title insurance company and told the Jalberts that it would not provide them with representation. However, in March 2007, Mulligan received a letter fr om the title insurance company in forming him that it had in fact already hired representation for the Jalberts and woul d not compensate any other counsel. Mulligan did not show that letter to the Jalberts, instead telling them that he would continue to represent them and that the title company, wh ich had now agreed to pay for the Jalberts’ representation, had merely hired an attorney to assist him. In May 2007, Mulligan asked the Jalberts for $85,000 in order to show the title company that the Jalberts had paid for his work, explai ning that he could not make a claim for payment based on the construction services that he had received. The Jalb erts transferred the money with the understanding that it would be returned fo llowing settlement of the easement litigation. The attorney hired by the title company then negotiate d a settlement in which the Jalberts received $100,000; the Jalberts gave Mullig an $50,000 from that sum in compensation for the legal work4 that they believed he had done for them. On th e basis of these facts, the state court found that Mulligan had “intentionally and wrongfully” obtained $135,000 from the Jalberts, having “intentionally misled them concer ning the $85,000 payment” and “intentionally misled [them] into believing that his services were needed . . . , and that he was entitled to be paid therefor, causing them also to agree that he woul d receive $50,000 from the settlement.” Jalbert v. Mulligan , No. UWYCV086001044S, 2013 WL 3388862, at *9 (Conn. Super. Ct. June 11, 2013), aff’d , 101 A.3d 279 (Conn. App. Ct. 2014). The Jalberts moved for summary judgment in the bankruptcy court a dversary proceeding. At a January 2015 hearing, the partie s agreed that they would not di spute the state c ourt’s findings of fact, but only whether those findings satisfied th e requirements of 11 U.S. C. § 523(a)(4). In October 2017, the bankruptcy court granted partial summary judgment in favor of the Jalberts. Applying the doctrine of collatera l estoppel, the bankruptcy cour t found that the state court’s finding that Mulligan had committed statutory thef t compelled the conclusion that he had also committed defalcation pursuant to 11 U.S.C. § 523( a)(4). Accordingly, it determined that Mulligan’s debt to the Jalberts pursuant to the state court judgment was not dischargeable in bankruptcy. The district court affirmed the bankruptcy court’s deci sion. Mulligan timely appealed. Discussion
“A district court’s order in a bankruptcy case is subject to plenary review, meaning that this Court undertakes an indepe ndent examination of the factual findings and legal conclusions of the bankruptcy court.” D.A.N. Joint Venture v. Cacioli (In re Cacioli) , 463 F.3d 229, 234 (2d. Cir. 2006) (internal quotation marks omitted). The bankruptcy court’s conclusions of law are reviewed de novo and its findings of fact for clear error. Babitt v. Vebeliunas (In re Vebeliunas) ,5 332 F.3d 85, 90 (2d Cir. 2003). 1. Collateral Estoppel Collateral estoppel “‘prohibits the relitigation of an issue when that issue was actually litigated and necessarily determined in a prio r action between the same parties upon a different claim.’” Trikona Advisers Ltd. v. Chugh , 846 F.3d 22, 32 (2d Cir. 2017) (quoting Lighthouse Landings, Inc. v. Conn. Light & Power Co. , 15 A.3d 601, 613 (Conn. 2011)); see also Marrese v. Am. Acad. of Orthopaedic Surgeons , 470 U.S. 373, 380 (1985) (federal courts apply the preclusion law of the state in which judgmen t was rendered). “An issue deci ded against a party in a prior proceeding may not be relitigated if : (1) it was fully and fairly liti gated in the first action; (2) it was actually decided; and (3) the decision was necessa ry to the judgment.” Trikona Advisers , 846 F.3d at 32 (internal quotation marks omitted). “A n issue is actually litigated if it is properly raised in the pleadings or otherwise, submitted for determination, and in fact determined.” Lighthouse Landings , 15 A.3d at 613 (internal quotation marks omitted). The bankruptcy court accorded collateral esto ppel effect to the state court’s factual findings. Mulligan argues that prior to doing so, th e court was required to inquire into the record underlying the state court’s judgment to determine whet her the issues were fully and fairly litigated and the judgment valid. He further contends th at the state court judgmen t is invalid because it was not supported by the eviden ce and was based on facts outside the pleadings. As an initial matter, Mulligan waived these arguments when he agreed before the ba nkruptcy court that the state court’s factual findings were not in dispute, and that the only issue to be decided was whether those findings satisfied the requiremen ts of 11 U.S.C. § 523(a)(4). See In re Johns-Manville Corp. , 759 F.3d 206, 219 (2d Cir. 2014) (failure to raise an argument in bankruptcy court constitutes waiver, even if the argument was su bsequently raised in th e district court).6 Moreover, even absent waiver, Mulligan’s ar guments lack merit. First, Mulligan misrepresents the state court record. For inst ance, Mulligan contends that two allegations underlying the state court’s judgment—that he failed to inform the Jalberts that their title company had assumed their defense and that he had agreed to in-kind payment for legal services—were not pleaded in the Jalberts’ complaint and therefore not fu lly and fairly litigated before the state court. But these allegations are present in the complaint. See App. at 86 (Fourth Am. Compl.) (alleging that Mulligan failed to notify the Jalberts that their title insurance comp any had agreed to defend them and that he agreed to accept carpentry services as in-kind payment). Second, Mulligan asserts that Connecticut law requires an inquiry into the record underlying a state court judgment to confirm whether that judgment is “valid.” Mulligan Reply Br. at 2, 3. That assertion misconceives the doctrine of collat eral estoppel. Indeed, the revi ew in which Mull igan urges the federal courts to engage—looking to the state court reco rd to determine whet her the state court’s factual findings were correct—is not a prerequisite to collateral estoppel, but rather precisely the review that this doctrine precludes. See Trikona Advisers , 846 F.3d at 32. 2. Defalcation under 11 U.S.C. § 523(a)(4) “Section 523(a)(4) of the Fe deral Bankruptcy Code provide s that an individual cannot obtain a bankruptcy discharge from a debt ‘for fraud or defalcat ion while acting in a fiduciary capacity, embezzlement, or larceny.’” Bullock v. BankChampaign, N.A. , 569 U.S. 267, 269 (2013) (quoting 11 U.S.C. § 523(a)(4)). In this c ontext, “defalcation” in cludes “a culpable state of mind requirement”: specifical ly, “knowledge of, or gross r ecklessness in respect to, the improper nature of the releva nt fiduciary behavior.” Id. “Where actual knowledge of wrongdoing is lacking,” this require ment is met “if the fiduciary consciously disregards (or is willfully blind to) a substantial and unjustifiable risk that his conduct will turn out to violate a7 fiduciary duty.” Id. at 274 (internal quotation marks omitted). Mulligan argues that, even if collateral estopp el applies, the facts found by the state court do not establish the requisite mental state for defalcation under 11 U.S.C. § 523(a)(4). This argument is meritless. In finding that Mulligan was liable for statutory theft, the state court necessarily found that “with the intent to deprive a nother of property or to appropriate the same to himself or a third person, [Mulligan] wrongfully [took], obtain[ed] or [withheld] such property from [the] owner.” Mulligan , 2013 WL 3388862, at *9 (quoting Hi-Ho Tower, Inc. v. ComTronics, Inc. , 761 A.2d 1268, 1281 (Conn. 2000)). Specifi cally, the state court found that Mulligan, an attorney, “intentionally misled” the Jalberts, his clients, with the “intent to deprive [them] of property.” Id . This conduct is an obvious breach of fiduciary duty. See Beverly Hills Concepts, Inc. v. Schatz & Schatz, Ribicoff & Kotkin, 717 A.2d 724, 730 (Conn. 1998) (attorney owes fiduciary duties of loyalty and honesty to clients) . Thus, the bankruptcy court did not err in deciding that the state court’s findin gs also established that Mulligan possessed the required mental state for defalcation—that is, that he knew, or was grossl y reckless with respect to, “the improper nature of [his] fiduciary behavior.” See Bullock , 569 U.S. at 269.
* * * We have considered all of Mulligan’s remain ing arguments and find them to be without merit. Accordingly, we AFFIRM the judgment of the district court.
FOR THE COURT: Catherine O’Hagan Wolfe, Clerk