In Re: Keaty

The requirement that an issue be"actually litigatedfor collateral estoppel purposes simply requires that the issue is raised, contested by the parties, submitted for determination by the court, and determined.

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Click here for the full text of this decision FACTS:Connie Byrd hired Robert Burke Keaty Sr., Thomas S. Keaty and the law firm of Keaty & Keaty in 1985 to represent her son in a Louisiana state court lawsuit for injuries arising out of a school incident. Byrd and the Keatys had a fee dispute following the settlement of one defendant, and a compromise agreement was executed. The Keatys got more than $586,000 in fees and costs under the agreement and continued to represent Byrd against the other defendant through trial. The verdict went against Byrd in 1988. Byrd fired the Keatys and hired Roy Raspanti. Raspanti filed an appeal in the school litigation. While the appeal was pending, the Keatys filed an intervention seeking additional attorneys’ fees contingent upon a successful appeal. The appeals court did reverse the trial court verdict and remanded the case to trial court. The school district-defendant settled, and Raspanti was paid more than $588,000 in attorneys’ fees. The trial court also dismissed the Keatys’ request for more fees, saying that the compromise agreement between Byrd and the Keatys settled their fee dispute. The Keatys appealed that ruling, but the appeals court dismissed it as untimely. In November 1991, the Keatys sued Raspanti in state court, raising state tort law claims and seeking a portion of the attorneys’ fees Raspanti was awarded in the Byrd appeal. A second suit filed by the Keatys on quantum meruit grounds was consolidated. During discovery, the Keatys ultimately admitted that they did not have a contract with Raspanti. Raspanti used this to bolster his summary judgment argument that, because the Keatys already had been denied additional fees from Byrd in state court, they could not recover additional fees from Raspanti. A trial court granted Raspanti’s summary judgment motion in August 1996, and that judgment was affirmed on appeal. That court concluded that, since the Keatys’ claim was based on their contract with Byrd, the Keatys were precluded from seeking additional fees from Raspanti. In June 1997, Raspanti filed a motion for sanctions against the Keatys for bringing an allegedly frivolous lawsuit. The Keatys filed exceptions based on prescription and res judicata. The trial court granted the Keatys’ exceptions, and Raspanti appealed. The appellate court reversed this judgment and found the Keatys’ conduct sanctionable under Louisiana law. On remand, the trial court awarded Raspanti more than $34,000 in attorneys’ fees. The appeals court increased this amount to $107,605 when the award was appealed. Prior to the appellate court’s reversal on the res judicata question, Keaty Sr. and his wife filed for Chapter 7 bankruptcy protection. Keaty Sr. added Raspanti as a creditor. Raspanti filed a complaint to determine whether the Keatys’ debt could be discharged under Bankruptcy Code 523(a)(6). He argued that it could not because the debt was for a willful and malicious injury, that is, the allegedly frivolous lawsuit. Raspanti filed for summary judgment in this action, arguing that issue preclusion barred Keaty from relitigating the issue of the debt’s characterization. The bankruptcy court denied Raspanti’s motion, finding that the issue of willful and malicious injury was not “actually litigated” for purposes of the Bankruptcy Code. The bankruptcy court denied Raspanti’s second motion for summary judgment, which was accompanied by a copy of the entire state court record. The bankruptcy court held a trial on Raspanti’s complaint in November 2002. The bankruptcy court issued an order dismissing the complaint with prejudice. Among its findings, the bankruptcy court stated that Raspanti presented no evidence of Keaty Sr.’s intent or subjective motivation and that there was never a trial on sanctions. Raspanti appealed to district court, which adopted the bankruptcy court’s findings and dismissed Raspanti’s suit. On appeal, Raspanti disputes the lower courts’ finding that the sanctions issue was not “actually litigated.” HOLDING:Reversed and remanded. When giving preclusive effect to a state court judgment, this court must apply the issue-preclusion rules of that state. The requirements for issue preclusion under Louisiana state law are identical to those recognized by this court: 1. the parties must be identical; 2. the issue to be precluded must be identical to that involved in the prior action; 3. the issue must have been actually litigated; and 4. the determination of the issue in the prior action must have been necessary to the resulting judgment. For issue preclusion to apply in bankruptcy court, the first court had to rule on an issue that encompasses the same prima facie elements as the bankruptcy issue, and the facts supporting the court’s findings must be discernible from that court’s record. Therefore, the state court’s findings must highlight the “willful and malicious injury” requirement. In this case, the bankruptcy court specifically stated that the sanctions issue had not been “actually litigated,” because there had never been a trial or an evidentiary hearing on the issue. The court finds nothing in the case law defining the term “actually litigated” to require a trial or an evidentiary hearing. The requirement that an issue be “actually litigated” for collateral estoppel purposes simply requires that the issue is raised, contested by the parties, submitted for determination by the court, and then determined. The court finds that there is “no question” that the sanctions issue was actually litigated in the state court. Raspanti clearly raised the issue in his motion for sanctions, he twice argued the issue in appeals, the issue was submitted to both state trial and appellate courts both ruled on the issue, and one appellate court ruling was expressly on the sanctions issue. “Therefore, we conclude that the sanctions issue � the issue of whether Keaty filed the claim against Raspanti to harass or to cause unnecessary delay or needless increase in the cost of litigation � was actually litigated in the Louisiana [appeals court]. The state court record that Raspanti submitted to the bankruptcy court fully supports our conclusion that the bankruptcy court erred in finding that the sanctions issue was not actually litigated at the state court level.” The court adds that the Louisiana appellate court issued sanctions against Keaty for intentionally pursuing meritless litigation for the purpose of harassment and delay. Thus, the court concludes that Raspanti’s claim for sanctions under Louisiana law encompasses the elements of the willful and malicious injury requirement under Bankruptcy Code 523(a)(6). Furthermore, there are clear and specific findings as to Keaty Sr.’s state of mind and intentions. OPINION:Carolyn Dineen King, C.J.; King, C.J., Higginbotham and Davis, JJ.

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