Court Opinion

ID: 4018516
Source: CourtListenerOpinion
Date Created: 2016-07-25 15:00:55.709076+00
Date Added: 2024-06-11T14:19:41.237640
License: Public Domain

United States Court of Appeals
                            For the Eighth Circuit
                        ___________________________

                                No. 15-3048
                        ___________________________

                                   Blake Roussel

                             lllllllllllllllllllllAppellant

                                          v.

                    Clear Sky Properties, LLC; LuAnn Deere

                             lllllllllllllllllllllAppellees
                                    ____________

                     Appeal from United States District Court
                 for the Eastern District of Arkansas - Little Rock
                                  ____________

                             Submitted: June 16, 2016
                               Filed: July 25, 2016
                                 ____________

Before SMITH, GRUENDER, and BENTON, Circuit Judges.
                          ____________

BENTON, Circuit Judge.

       Blake Roussel and LuAnne Deere formed Clear Sky, LLC d/b/a Exit First
Choice Realty—an Exit Realty brokerage franchise—in Conway, Arkansas. Clear
Sky purchased the right to operate its franchise in one half of Conway. The
Operating Agreement provided that existing members had the right to veto a proposed
sale of another member’s interest; it also included a provision allowing attorneys’
fees.
       About a year after forming Clear Sky, Roussel wanted to sell his 50% interest,
but Deere refused. Roussel then proposed to sell two-thirds of his 50% interest.
Deere agreed. Three months later, Roussel and two Clear Sky real estate agents filed
articles of organization for Select Group Investments d/b/a Exit Realty Select—an
Exit Realty brokerage franchise—in Conway, Arkansas. Select Group Investments
purchased the right to operate its franchise in the other half of Conway. Twelve Clear
Sky agents soon joined Select Group Investments.

       Deere and Clear Sky sued Roussel in state court for breach of fiduciary duty,
fraud, breach of contract, and violations of the Arkansas Franchise Practices Act. A
jury found that Roussel breached his fiduciary duty to Clear Sky and Deere. To Clear
Sky, the jury awarded $184,683.60 for lost revenue, $1,480.00 for damage to
property, and $113,836.40 in punitive damages. To Deere, the jury awarded $58,800
for breach of fiduciary duty and $40,000 for breach of contract. The court ordered
Roussel to pay attorneys’ fees.

       Roussel filed Chapter 7 bankruptcy. Clear Sky and Deere filed an adversary
proceeding against Roussel, requesting that the bankruptcy court declare the entire
state court judgment nondischargeable under 11 U.S.C. § 523(a)(4) and § 523(a)(6).
They argued, under the doctrine of collateral estoppel, the state court judgment bound
the bankruptcy court to find the debt nondischargeable. Roussel countered that the
§ 523(a)(4) and (a)(6) issues were not actually litigated in state court. Agreeing with
Roussel, the bankruptcy court found the entire Judgment Debt dischargeable, except
the $1,480 award for property damage. In re Roussel, 483 B.R. 915 (Bankr. E.D.
Ark. 2012). Clear Sky and Deere appealed to the district court.1 The district court
reversed, finding the entire Judgment Debt nondischargeable. In re Roussel, 504
B.R. 510 (E.D. Ark. 2013). It remanded the attorneys’ fees issue to the bankruptcy
court. On further appeal, this court held it lacked jurisdiction to review the case until

      1
       The Honorable Judge Susan Webber Wright, United States District Court for
the Eastern District of Arkansas.

                                          -2-
the pending attorneys’ fees issue was resolved. In re Roussel, 769 F.3d 574 (8th Cir.
2014).

       The bankruptcy court found the attorneys’ fees award nondischargeable. In re
Roussel, 536 B.R. 254 (Bankr. E.D. Ark. 2015). The district court affirmed, and
Roussel appeals. This court reviews findings of fact for clear error and legal
conclusions de novo. Pearson Educ., Inc. v. Almgren, 685 F.3d 691, 694 (8th Cir.
2012). Having jurisdiction under 28 U.S.C. § 1291, this court affirms the district
court.

                                           I.

       Roussel argues the district court erred in finding the Judgment Debt
nondischargeable under 11 U.S.C. § 523(a)(6), which prevents discharge of debts “for
willful and malicious injury by the debtor to another entity or to the property of
another entity.” Willful and malicious “are two different characteristics. They should
not be lumped together to create an amorphous standard to prevent discharge for any
conduct that may be judicially considered to be deplorable.” In re Long, 774 F.2d
875, 880-81 (8th Cir. 1985). A simple interference with legal rights “is not enough
in itself to prevent discharge of a debt.” Id. at 879, discussing Davis v. Aetna
Acceptance Co., 293 U.S. 328 (1934).

       Roussel first contends the district court erred in applying collateral estoppel to
find he acted maliciously under 11 U.S.C. § 523(a)(6). Collateral estoppel applies
in bankruptcy court. Grogan v. Garner, 498 U.S. 279, 284 n.11 (1991). If the same
issue was actually litigated and determined by a final judgment, and was essential to
that final judgment, it cannot be relitigated in bankruptcy court. In re Harper, 378
B.R. 836, 849 (Bankr. E.D. Ark. 2007). “An issue may be ‘actually’ decided even if
it is not explicitly decided, for it may have constituted, logically or practically, a
necessary component of the decision reached in the prior litigation.” Id., quoting In
re Smith, 270 B.R. 544, 548 (D. Mass. 2001).

                                          -3-
      Maliciousness is conduct “targeted at the creditor . . . at least in the sense that
the conduct is certain or almost certain to cause financial harm.” Long, 774 F.2d at
881. See also In re Porter, 539 F.3d 889, 893 (8th Cir. 2008). “While intentional
harm may be very difficult to establish, the likelihood of harm in an objective sense
may be considered in evaluating intent.” Long, 774 F.2d at 881.

     The state court’s jury instruction allowed punitive damages if the jury found
Roussell

             knew or ought to have known in light of the surrounding
             circumstances, his conduct would naturally and probably
             result in damages, and that he continued such conduct in
             reckless disregard of the consequences from which malice
             may be inferred; or second, that Blake Roussel
             intentionally pursued a course of conduct for the purpose
             of causing damage, or both.

(Emphasis added). Roussel insists this instruction is not a basis for applying
collateral estoppel to find he acted with malice. First, he questions whether the
“reckless disregard” or “intentionally” prongs were the reason for the punitive
damages. Second, he asserts that the “reckless disregard” prong does not rise to the
level of malice necessary for § 523(a)(6).

      Malice under § 523(a)(6) requires more than recklessness or reckless disregard.
See Long, 774 F.2d at 881. However, the jury instruction does not simply ask
whether Roussel acted in reckless disregard of the consequences. It asks whether he
“knew or ought to have known” that his conduct would “naturally and probably result
in damages” and then continued acting “in reckless disregard of the consequences
from which malice may be inferred.” See Ford Motor Co. v. Washington, 431
S.W.3d 210, 220 (Ark. 2013) (“[A]n award of punitive damages is justified only
where the evidence indicates that the defendant acted wantonly or with such a
conscious indifference to the consequences that malice may be inferred.” (emphasis

                                          -4-
added)). In finding malice, the instruction thus required the jury to consider the
“likelihood of harm in an objective sense,” and whether Roussel acted while
“intending or fully expecting” the consequences. See Long, 774 F.2d at 881-82. See
also Harper, 378 B.R. at 852 (applying collateral estoppel in a § 523(a)(6) case to
find the debtor acted with malice because the Arkansas jury instruction “required
punitive damages to be awarded only if the action was taken with either the intent to
cause harm or with the knowledge that harm was substantially certain to occur”).

      The district court did not err in applying collateral estoppel to the requirement
of malice under § 523(a)(6).

       Roussel next contests the district court’s finding that he acted willfully. A
willful injury is “a deliberate or intentional invasion of the legal rights of
another. . . .” Porter, 539 F.3d at 894. “[N]ondischargeability takes a deliberate or
intentional injury, not merely a deliberate or intentional act that leads to injury.”
Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998). Willfulness is subjective, “requiring
proof that the debtor desired to bring about the injury or was, in fact, substantially
certain that his conduct would result in the injury that occurred.” In re Patch, 526
F.3d 1176, 1180-81 (8th Cir. 2008). This court agrees with the district court that the
undisputed evidence shows Roussel acted willfully. It was clear error for the
bankruptcy court to find otherwise. See Almgren, 685 F.3d at 694.

       While a Clear Sky managing member, Roussel opened a brokerage firm under
the same franchise as Clear Sky, in the same town as Clear Sky, and with Clear Sky
agents. He testified that after Deere rejected his first offer to sell his 50% interest, he
met with two Clear Sky agents to discuss opening a competing franchise. He did not
tell Deere about this. He further testified he knew Clear Sky intended to expand its
operations in Conway to prevent the opening of a competing Exit Realty franchise,
and Roussel in fact purchased the area of Conway that Clear Sky intended to purchase
“as soon as [Clear Sky] could afford it.” These facts show Roussel acted willfully,

                                           -5-
that he knew “that the consequences [were] certain, or substantially certain, to result
from his conduct.” See Patch, 526 F.3d at 1181.

      The district court did not err in concluding that the Judgment Debt is
nondischargeable under § 523(a)(6).2

                                          II.

       Roussel challenges the finding that the state court’s award of attorneys’ fees
is nondischargeable. “Ancillary obligations such as attorneys’ fees and interest may
attach to the primary debt. . . .” In re Hunter, 771 F.2d 1126, 1131 (8th Cir. 1985).
Their status “depends on that of the primary debt.” Id. Roussel maintains that the
state court’s attorneys’ fees award must be apportioned between the dischargeable
and nondischargeable parts of the underlying debt. Because the $40,000 breach-of-
contract award (to Deere) is dischargeable, he argues, attorneys’ fees attached to this
debt are also dischargeable. However, apportionment is inappropriate here because
the Deere’s breach-of contract-claim is deeply intertwined with the breach-of-
fiduciary-duties claim by Deere and Clear Sky.

                                     *******

      The judgment is affirmed.

                       ______________________________

      2
       Because this court agrees Roussel acted willfully and maliciously in violation
of § 523(a)(6), it need not address the defalcation argument under § 523(a)(4).

                                          -6-