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Charron v. Morris

United States District Court, W.D. Michigan, Southern Division

December 29, 2017

David W. Charron, Appellant,
v.
Glenn S. Morris, Appellee.

          OPINION AND ORDER AFFIRMING BANKRUPTCY COURT

          Paul L. Maloney, United States District Judge.

         David Charron filed for bankruptcy. Among the debts he sought to discharge, Charron identified the approximately $350, 000 he owed Glenn Morris. The money represented the costs and fees awarded to Morris in a contempt hearing against Charron. Morris contested whether the debt was dischargeable and an adversary proceeding was initiated. See Glenn S. Morris and the Glenn S. Morris Trust v. David W. Charron (In re David W. Charron), Adversary Proceeding No. 15-80086 (Bankr. W.D. Mich. 2015) ("AP"). The parties filed cross motions for summary judgment. The bankruptcy court applied collateral estoppel, finding that all of the facts Morris needed to prove to establish that the debt was not dischargeable had been litigated and resolved in the state court proceedings. The bankruptcy court granted Morris's motion and denied Charron's motion. Charron filed this appeal.

         For this appeal, the Court must resolve two questions. First, can a civil contempt award be non-dischargeable in a Chapter 7 bankruptcy as a willful and malicious injury? Second, were the facts establishing that the civil contempt award constituted a willful and malicious injury, as defined the bankruptcy code, actually litigated and necessarily determined by the state court? Because this Court answers both questions affirmatively, the bankruptcy court's decision will be affirmed.

         I.

         This Court reviews the decision issued by the bankruptcy court using the de novo standard. The decision to grant summary judgment is a question of law, and questions of law are reviewed without deference to the deciding court. In re Morris, 260 F.3d 654, 663 (6th Cir. 2001); In re Markowitz, 190 F.3d 455, 463 (6th Cir. 1999).

         Summary judgment is appropriate only if the pleadings, depositions, answers to interrogatories and admissions, together with the affidavits, show there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(a) and (c); Payne v. Novartis Pharms. Corp., 767 F.3d 526, 530 (6th Cir. 2014). The facts, and the inferences drawn from them, must be viewed in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986) (quoting Matsushita Elec. Indust. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). When resolving a motion for summary judgment, the court does not weigh the evidence and determine the truth of the matter; the court determines only if there exists a genuine issue for trial. Tolan v. Cotton, 134 S.Ct. 1861, 1866 (2014) (quoting Anderson, 477 U.S. at 249).

         For this appeal, the parties cannot relitigate the factual findings made the contempt hearing and later affirmed on appeal. Either the state court made relevant findings of fact for the purpose of collateral estoppel, or it did not. In either case, there will be no genuine issues of material fact. Neither can the parties relitigate the legal conclusions reached by the state courts. In this appeal of the bankruptcy court's decision, the Court considers only what the state courts decided what the law was, and not whether the state courts correctly interpreted Michigan law.

         II.

         The following discussion is provided for context. Glenn Morris and Robert Schnoor were two owners of an insurance agency, Morris, Schnoor and Gemel, Inc. (MSG). The two had a falling out and, in 2007, Morris filed a lawsuit against Schnoor and MSG, seeking to dissolve the agency. The lawsuit (2007 Lawsuit) was filed in the Kent County Circuit Court.[1]MSG was represented by the law firm of Charron & Hanisch (C&H). Enforcing a shareholder agreement, the court entered an order requiring Morris to sell his shares of MSG stock to Schnoor. Schnoor made an initial down payment, and Morris was given a secured interest in the MSG stock. Schnoor made several monthly payments, but soon missed payments because he had lost customers and did not have the income. Morris initiated a contempt proceeding against Schnoor in the lawsuit. During that contempt proceeding on August 20, 2008, counsel for Morris asked the court for an order that precluded Schnoor from “engaging in any out of the ordinary business activity, and no transfers of business interests, or activity, or assets in the meantime.” (AP ECF No. 13-20 Hrg. Trans. at 106.) When asked by the court, Schnoor's attorney, David Charron, had no objection to maintaining the status quo “for a week or two.” (Id.)

         On August 22, 2008, the court issued an order directing Schnoor and MSG to produce certain financial documents. The order also memorialized the discussion at the hearing. As part of the order, the court prohibited Schnoor from transferring "assets of Morris, Schnoor & Gremel, Inc., outside of the ordinary course of business without authorization from the Court." (ECF No. 2-7 August 2008 Order PageID.527.) While the order was in place, Charron and C&H took actions that facilitated the transfer of assets from MSG to New York Private Insurance Agency (NYPIA).

         In February 2009, Morris sued Charron, C&H, MSG and NYPIA.[2] The lawsuit (2009 Lawsuit) was filed in the Kent County Circuit Court. On October 22, 2009, the court granted Charron's motion for summary disposition and dismissed the claims brought against him personally. (ECF No. 2-3 PageID.236-47.)

         On May 19, 2011, in the 2007 Lawsuit, the court issued an order to show cause why Schnoor, MSG, C&H, NYPIA and Charron should not be held in civil contempt for violating the August 2008 order. (ECF No. 2-2 Contempt Opinion at 1 PageID.115.) A trial on the contempt charge was held. On December 27, 2012, the court issued an opinion finding MSG, C&H and Charron in contempt and awarding damages to Morris. (ECF No. 2-2 Contempt Opinion PageID.115-35.) Against Charron, the court awarded Morris “the attorney fees and costs [Morris] incurred in the contempt trial that took place in 2011.” (Id. at 16 PageID.130.) The court subsequently denied a motion for reconsideration and a motion for a new trial. The court then held a five-day evidentiary hearing to determine the fee award, and issued an opinion on January 28, 2014, awarding Morris $349, 416 in fees and another $14, 09.77 in costs.[3] (ECF No. 2-2 Award Opinion PageID.137-47.) On May 29, 2014, the Michigan Court of Appeals upheld the decision finding Charron in contempt of the 2008 order. (ECF No. 2-4 CoA Opinion PageID.310-68.)

         Charron filed for Chapter 7 bankruptcy on December 31, 2014, and listed the award on his schedule of unsecured debts to be discharged.[4] In re Charron, No. 14-7970 (Bankr. W.D. Mich.) Morris filed his complaint objecting to discharge on April 10, 2015, which was used to open the Adversary Proceeding. Judge Boyd held a hearing on the cross motions for summary judgment and, on September 30, 2015, issued his opinion (ECF No. 2-2 MSJ Opinion PageID.59-84) and order (ECF No. 2-2 PageID.57-58) granting Morris's motion and denying Charron's motion. On November 28, 2016, Judge Boyd issued an opinion (ECF No. 2-2 PageID.39-49) denying Charron's Rule 52 Motion to Amend Findings, Rule 59 Motion to Amend Judgment, and Rule 60 Motion for Reconsideration. Judge Boyd issued one order denying the Rule 52 and Rule 59 motions (ECF No. 2-2 PageID.37) and a separate order denying the Rule 60 motion for reconsideration (ECF No. 2-2 PageID.38.) Charron appealed these five opinions and orders.

         III.

         Can a civil contempt award be non-dischargeable in a Chapter 7 bankruptcy as a willful and malicious injury? Resolving this question requires the Court to examine the § 523(a)(6) of the bankruptcy code.

         By filing for bankruptcy, Charron sought the protection of the bankruptcy court from his creditors. When a debtor files for bankruptcy under Chapter 7, a trustee liquidates the debtor's nonexempt assets and then distributes those proceeds to creditors. See Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365, 367 (2007). Under the bankruptcy code, 11 U.S.C. § 727(b), “discharge under Chapter 7 relieves a debtor of all debts incurred prior to the filing of a petition for bankruptcy, except those nineteen categories of debts specifically enumerated in 11 U.S.C. § 523(a).” Rittenhouse v. Eisen, 404 F.3d 395, 396 (6th Cir. 2005).

         In the bankruptcy proceeding, Morris had the burden to show that the debt owed to him by Charron was not dischargeable. To avoid discharge, creditors must file a complaint objecting to the discharge of a debt, which initiates an adversary proceeding in the bankruptcy court. See Fed. R. Bankr. P. 4004(c) and 7001(6); In re Storozhenko, 459 B.R. 693, 695-96 (E.D. Mich. 2011). The creditor who seeks to avoid the discharge of a debt under § 523(a)(6) bears the burden of proof. In re Brown, 489 F. App'x 890, 895 (6th Cir. 2012) (citing Grogan v. Garner, 489 U.S. 279, 286 (1991)); In re Chapman, 228 B.R. 899, 906 (N.D. Ohio 1998).

         Section 523(a)(6) provides that debts for “willful and malicious injury by the debtor to another entity or to the property of another entity” are not dischargeable. Kawaauhau v. Geiger, 523 U.S. 57, 59 (1998) (quoting 11 U.S.C. § 523(a)(6)); In re Markowitz, 190 F.3d at 458. The Sixth Circuit has interpreted Kawaauhau as requiring the creditor to show the debtor willed or desired harm or the debtor believed that injury was substantially certain to occur as the result of his or her behavior. In re Mussi li, 379 F. App'x 494, 498 (6th Cir. 2010) (quoting In re Markowitz, 190 F.3d at 465 n.10); Sanderson Farms, Inc. v. Gasbarro, 299 F. App'x 499, 504 (6th Cir. 2008) (quoting In reMarkowitz). The injury element means a legal injury, a violation of the creditor's legal right, and not merely harm to the person. In re Best, 109 F. App'x 1, ...


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