In re Willman (Ch. 7 Case No. 20-50365, Adv. Case No. 20-05013)

The plaintiff asserted that collateral estoppel precluded the debtors from denying that a probate court judgment was nondischargeable under 11. U.S.C. §523(a)(4) and (6). The plaintiff and wife-debtor are sisters. Debtors moved the daughters’ father and his extensive gun collection from Ohio to debtor’s home in Georgia. The plaintiff later moved the father back to Ohio where he soon died. The Ohio Probate Court appointed the plaintiff executrix of the father’s estate, prohibited the debtors from disposing of the guns and ordered them to return the guns to Ohio. Thereafter, the probate court held the debtors in contempt for failing to return and disposing of most of the guns and awarded the father’s estate damages of $125,940. The judgment was assigned to plaintiff, individually, as a distribution in accordance with the father’s will. Later, the debtors filed Chapter 7 bankruptcy.

The bankruptcy court held that the judgment was not a nondischargeable larceny under §523(a)(4) because there was no “felonious taking” of the guns which came into debtors’ possession lawfully when the father brought them to the debtors’ home. The plaintiff had not asserted a claim for embezzlement (fraudulent taking of property by person into whose hands it had lawfully come).

As to §523(a)(6), the probate court had found, in essence, that the debtors had converted the guns to their own use and that their conduct was “malicious.” Issue preclusion barred any argument to the contrary. The probate court judgment established facts from which a finder of fact could find that the debtors acted with intent in concealing the guns. Since the debtors offered no other evidence as to why they concealed the guns, the bankruptcy court held that their debt was nondischargeable under §523(a)(6).

Monday, October 5, 2020