Federal Bankruptcy Court Writing Sample

FEDERAL BANKRUPTCY COURT WRITING SAMPLE

Plaintiff/Debtor Richard Kendall Lisenby (hereafter “Lisenby”) files this brief in opposition to defendant Vicki Criswell’s motion for summary judgment on the issue of dischargeability vel non of a default judgment entered against Lisenby on January 9, 2007. According to defendant, this judgment is not dischargeable and litigation of this issue is precluded under the doctrine of collateral estoppel. As will be seen, defendant’s position is fatally flawed. In fact, under controlling legal authority, collateral estoppel is not available to bar litigation of this matter. And, moreover, a review of the record demonstrates overwhelmingly that defendant’s defamation action was patently frivolous, and the judgment that flowed from it deserves no deference.

1. MATERIAL FACTS

A. Defendant’s Statement of Facts

Defendant’s “Statement of Material Facts” merely reiterates passages from her judicial complaint (Civil Action No. 1:05-cv-00718-HTW) that ostensibly formed the basis of the default judgment. To the extent that these “facts” require a response from Lisenby, he simply states that the pleading speaks for itself.

B. Lisenby’s Statements of Facts

Lisenby strongly believes that a proper determination of this motion requires a fuller recitation of the facts that precipitated defendant’s lawsuit than defendant has disclosed. Therefore he offers the following.

Criswell and Lisenby were both formerly employed by Allied/IntelliRisk, Inc. (hereinafter “Allied”), a business engaged in collections activities. Criswell served as Vice President of the Government Services Division, then based in Atlanta. She supervised Timothy Jones, then-Operations Manager of Government Services, who, in turn, supervised Lisenby. Allied’s customers included, inter alia, the United States of America, which assigned to Allied delinquent accounts from various federal agencies for collection. Exhs. 1, 2.

The United States’ contract with Allied – to which Criswell was a signatory -- contained strict requirements governing Allied’s collection activities on its behalf, as well as Allied’s remuneration for its efforts. Id.; Exh. 3. Among these was a requirement that all checks or other orders for payment be made out to the United States and mailed to a Treasury Department “Lockbox”, maintained at Bank for America, for deposit; that any payments misdirected to Allied be forwarded immediately to the Lockbox for deposit, with a copy of said payment faxed to Treasury that same day; and that no deductions be taken from any monies collected prior to deposit in the Lockbox. Exhs. 1, 2, 3. Under the terms of the contract, any amount collected within 10 days of an account being assigned to Allied was payable to the United States without deduction. As for amounts collected beyond that 10 day period, Allied was entitled to a commission of 28%. The purpose of the “Lockbox” arrangement was to permit the United States to determine the date payments were obtained in order to assess what, if any, commission Allied was entitled to. Id.

During his tenure Lisenby’s co-workers, Camille Miller and Berda Gray, became aware that certain managers and employees in the Government Division routinely violated the foregoing contractual provisions. Specifically these employees learned, inter alia, that Jones and others had instructed some account debtors to forward payments directly to Allied; and that some checks and payment orders, as well as corresponding records, were falsified to reflect that payments were received beyond the 10-day period when in fact they were not. On or about December 22, 2002, Gray and Miller notified Allied upper management that Jones and Criswell were engaging in the above-described illegal conduct. Subsequently, on December 30, 2002, Allied terminated Gray and Miller. Exhs. 1, 2.

On May 16, 2003, Gray and Miller filed a qui tam action on behalf of the United States under the False Claims Act, 31 U.S.C. § 3729, et seq. Exh. 4. The complaint named Criswell and Jones as co-defendants. Having received word of the above-described improprieties, in March, 2004, the Department of Treasury conducted a “surprise” audit of Allied’s Atlanta Office collection activities as they related to the United States’ accounts. The results – described as “disastrous” by Allied principles Charles Lundquist and Jeff Swedberg -- confirmed the worst allegations lodged by Gray and Miller. Exhs. 5, 6. Specifically the audit unearthed numerous contract violations, including that Allied’s agents presented fraudulent claims to the government for payment, as described in the preceding qui tam lawsuit. See Exh. 3, p. 5 (Finding #3: “Pre-authorized Debit Processing Delayed So that Allied Received Fees to Which It Was Found Not Entitled”). The audit report was mailed to Criswell. Upper management only learned of the audit after the fact by accident during routine telephone check-ins with Treasury officials: Criswell had kept mum about it. Exhs. 5, 6.

The results of the audit obviously imperiled Allied’s relationship with its important government client, and corporate management determined that drastic changes were required to retain this lucrative contract. Exhs. 5, 6. Subsequently Allied officers decided to close its Atlanta Office and move government operations to another collection center in Minnesota. As a result of this closure, Criswell and the rest of the Atlanta staff lost their jobs. Id.

In addition to the rampant fraud and defalcation, Allied’s Atlanta office was rocked by internal, personnel problems as well. Numerous employees, including Lisenby, were targeted by Jones and Criswell for discrimination and retaliation. Jones regularly subjected Lisenby to racial epithets – including “white boy” and “white trailer trash” – often in the presence of Criswell, who said nothing. Exhs. 7, 8. In addition, Jones denied Lisenby opportunities for advancement based on his Caucasian status. Id. Although Lisenby complained to Criswell about the hostile environment Jones’ created, she failed to take or any corrective action against Jones. Id. Ultimately Lisenby was forced to direct his discrimination complaints to Criswell’s superiors. Exh. 9. When no one intervened on his behalf, Lisenby filed a discrimination lawsuit against Allied and Jones. Exh. 10. The complaint recounted Criswell’s failure to stop Jones’ abuse. Ultimately Allied settled the lawsuit.[1]

Berda Gray was aware of Jones’ mistreatment of Lisenby and came to his defense. She complained to Allied about Jones’ conduct and Criswell’s inaction. On December 12, 2003, she filed a judicial complaint alleging, inter alia, negligent retention and retaliation by Jones and Criswell for coming to Lisenby’s aid. Exh. 7.

In March-April 2004, Allied finally conducted an investigation into various complaints of discrimination and harassment against Jones and Criswell. Exh. 11. Employee Marcia Miller provided testimony as part of this internal investigation. Exh. 8. Subsequently Jones threatened her, and Jones and Criswell began removing accounts from her inventory, effectively depriving her of compensation. On July 20, 2004, Miller filed a lawsuit alleging, inter alia, that Criswell had retaliated against her for participating in the EEO inquiry. Id.

Thus as of July, 2004, Criswell was named in no fewer than four lawsuits, all of which described her serious short-comings as a manager as well as her affirmative participation in illegal activity. In July, 2004, Criswell filed for Chapter 7 bankruptcy. On information and belief, she did not list any claims against Lisenby on her asset schedules. CHECK. Nonetheless shortly after she received a bankruptcy discharge, she filed a complaint against Allied and Lisenby. Exh. 12. In her complaint she alleged, inter alia, that Allied terminated her in retaliation for complaining of her own age and sex discrimination. Almost as an afterthought, she included Lisenby as a defendant, accusing him of having libeled her in e-mails to her supervisors and officials within the government.

Allied moved for summary judgment on Criswell’s claims, which the District Court granted. Although the Appellate Court reversed parts of this decision, it sustained that portion of the lower court’s decision finding that Criswell was terminated for legitimate business reasons: e.g. as a result of the closure the Atlanta office. SeeCriswell v. Intellirisk Management Corp., Inc., 286 Fed.Appx. 660, 2008 WL 2736803 (11th Cir. 2008).

Listenby had been unaware of Criswell’s lawsuit against him. He was never served. Exh. 13 (Affidavit of Lisenby). After the period for Answering the complaint had elapsed, Criswell moved for default judgment against Lisenby, which the Court entered on January 9, 2007. On March 27, 2007, the Court held a F.R.C.P. 55 hearing on damages. Subsequently the Court awarded Criswell lost wages, damages for mental anguish, and punitive damages. All told the judgment topped ______million. Exh. 14.

Only after his then-employer informed him that his wages were being garnished as a result of the default judgment did Lisenby learn of the lawsuit. He asked the District Court to vacate the judgment. Exh. 13. The District Court ordered Lisenby to appear for a deposition on the issue of service of process. Id. Lisenby was unable to attend on the date Criswell noticed due to because his then-employer would not grant him leave of absence. Id. Lisenby contacted Criswell’s attorney to reschedule. Id. Rather than accommodate Lisenby’s work schedule, the attorney seized on his non-appearance to petition the Court to deny Lisenby’s motion to vacate. Unable to afford an attorney to assist with his motion, on _____ Lisenby filed for Chapter 7 protection. Despite the automatic stay, the District Court did not abjure further action on his case, but rather issued an order denying his motion to vacate on ______.

II. ARGUMENT

1. DEFAULT JUDGMENT NOT ENTITLED TO COLLATERAL ESTOPPEL

Criswell principally argues that Lisenby is foreclosed from disputing that 523(a)(6) exempts the default judgment from discharge based on the doctrine of collateral estoppel. Specifically she argues that the default judgment conclusively establishes willful and malicious injury under 523(a)(6).[2] This argument is legally unsupported. In fact controlling legal precedent specifically holds that the default judgment is not entitled to collateral estoppel effect in this adversary proceeding.

Whether or not a prior judgment is entitled to estoppel effect turns on the law of the forum in which the judgment was entered. Bush v. Balfour Beatty Bahamas, Ltd., 62 F.3d 1319, 1323, n. 6 (11th Cir. 1995). If that forum would give preclusive effect to the judgment, the Bankruptcy Court must follow suit. Id. In this case the default judgment was entered in a federal district court action, so federal law controls this determination. Id.

“The general federal rule is that default judgments do not have preclusive effect.” Id.; M&M Transmission, Inc. v. Raynor (In re Raynor), 922 F.2d 1146, 1149-50 (4th Cir. 1991); Spilman v. Harley, 656 F.2d 224, 228 (6th Cir. 1981); Matter of McMillan, 579 F.2d 289 (3d. Cir.1978). Under federal jurisprudence an issue must be “actually litigated” to be afforded preclusive effect, and default judgments do not meet that requirement. Bush, 62 F.3d at 1322; In re Roberti, 183 B.R. at 1000 (Bankr.Conn.1994) (“Because of the requirement that an issue have been actually litigated in the prior proceeding, it has been held that collateral estoppel rarely applies to default judgments awarded in a nonbankruptcy forum so as to make those default judgments nondischargeable.”) (internal quotations and citations omitted); Goff v. Internal Revenue Serv. (In re Goff), 180 B.R. 193 ((Bankr.W.D.Tenn.1995). See also Restatement (Second) of Judgments § 27 cmt. 2 (1982) (commenting that default judgments will not support application of collateral estoppel because “in the case of a judgment entered by confession, consent, or default, none of the issues in actually litigated.”); 1 B James Wm. Moore, MOORE’S FEDERAL PRACTICE, ¶ 0.444[2], AT PP. III.-603---III.-604 (2d.ed.1995) (same). “The fact that a plaintiff is required to present evidence to obtain a default judgment does not mean the defendant has actually litigated those issues, especially where the defendant does not appear at the hearing held.” In re. Cobley, 89 B.R. 446 (E.D.Pa.Bankr.1988);Franks v. Thomason, 4 B.R. 814, 822 (N.D.Ga.1980) (“the requirement that the issues sought to be estopped must have been ‘actually litigated’ in the prior proceeding contemplates something more than a one-sided presentation of the facts.”)

The only exception to the federal rule rejecting collateral estoppel for default judgments is where the party sought to be estopped actually participated in the earlier proceeding to a substantial degree. Bush at 1325.

It has been observed that not according collateral estoppel effect to default judgments harmonizes “with the policy underlying the federal Bankruptcy Code to the effect that dischargeability questions be resolved only after the fullest possible inquiry.” Schriver v. Valley Stream Financial Corp., 218 B.R 797 (E.D.Va.Bankr.1998) (citation omitted). See Combs v. Richardson, 838 F.2d 112, 114-15 (4th Cir. 1988) (federal policy underlying discharge and its statutory exceptions require that the conditions necessary for issue preclusion be addressed with special care). C.f.SeeBrown v. Felsen, 442 U.S. 127 (1979) (finding that preventing the application of res judicata would enable “the bankruptcy court to make an accurate determination whether [the debtor] in fact committed the deceit, fraud, and malicious conversion which [the creditor] alleges.”) In addition, saddling a bankrupt with the consequences of a judgment entered in his absence would frustrate the very purpose of the Bankruptcy Act, which is to give an honest debtor a fresh start.

Given that controlling legal precedent requires that federal court default judgments not be accorded collateral estoppel effect, defendant’s motion must be denied.

Even were it permissible for this Court to consider applying collateral estoppel to the default judgment in this instance – which it is clearly not – further considerations militate against its application. First it is beyond cavil that for the doctrine to apply, “the issue in the prior action and the issue in the bankruptcy court must be identical.” Bush at 1322. In addition, “the burden in the discharge proceeding must not be significantly heavier than the burden of persuasion in the initial action. Id. Neither of these prerequisites for collateral estoppel are met here.

Recall that 523(a)(6) bars discharge of a debt “for willful and malicious injury.” 11 U.S.C. 523(a)(6). Under § 523(a)(6) “willful” means deliberate or intentional. S.Rept. No.95–989, 95th Cong. 2d Sess. (1978) reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5865; H.Rept. No. 95–595, 95th Cong. 1st Sess. (1977), reprinted in 1978 U.S.Code Cong. & Ad.News 5963, 6320. “Malicious” means in conscious disregard of one's duties or without just cause or excuse. Tinker, 193 U.S. at 486. In adversary proceedings such as this, the burden is on the creditor to come forward with preponderant evidence to establish both of these elements. SeeWright v. McIntyre, 57 B.R. 961 (N.D.Ga.Bankr.1986).

Under Georgia law, “to establish a prima facie case of libel or slander in reference to one’s trade, there is no requirement that plaintiff prove malice. In all defamation cases, malice is presumed.” Id at 965 (citations omitted); Lucas v. Cranshaw, 289 Ga.App. 510, 659 S.E.2d 612 (2008) (as to proof of malice, as an element of a libel claim, proof that the writing is false, and that it maligns the private character or mercantile standing of another, is itself evidence of legal malice). Further there is no requirement to prove willfulness. Thus both the elements and the quantum of proof required to establish nondischargeability under 11 U.S.C. 523(a)(6) are different and more onerous than that which is required under Georgia law to establish defamation. Wright at 965. C.f.In re Kasler, 611 F.2d 308, 310, 311 (9th Cir.1979) (the intentional tort of libel meets the requirements of § 523(a)(6) for non-dischargeability when debtor/author knows the published statements were false, mere reckless disregard for the truth, which can support a libel claim under state law, is not enough). Given these material discrepancies, the requirements for collateral estoppel are not met. Wright at 965.

III. COMMUNICATIONS WERE PRIVILEGED

A. Georgia Law

In Georgia, as in most jurisdictions, some otherwise defamatory communications are not actionable because the law deems them to be privileged. See Ga. Law of Torts § 28:5 (2011-2012 ed.). Privileged communications include, inter alia, “statements made in good faith in the performance of a legal or moral private duty” and “statements made with a good faith intent on the part of the speaker to protect his or her interest in a matter in which it is concerned.” See OCGA § 51-5-7. Where statements are privileged the, the presumption of malice drops from the case. Sparks v. Parks, 172 Ga.App. 823, 826-27, 324 S.E.2d 784 (1989). The burden falls to the plaintiff to come forward with evidence of actual malice in order to defeat the privilege. Fine v. Communication Trends, Inc., 305 Ga.App. 298, 302, 699 S.E.2d 623 (2010); OCGA § 51-5-9. “Malice to avoid qualified privilege must be actual and with evil intent.” Id. Proof is required that defendant was either aware of the falsity of his statement or acted with reckless disregard of the truth. Id. Unsupported inferences or conjecture regarding a defendant’s motivation do not suffice to show malice.” Id. Rather, the evidence must show in a clear and convincing manner that a defendant in fact entertained serious doubts as to the truth of his statements. Id.; Davis v. Shavers, 225 Ga.App. 497, 501, 484 S.E.2d 243 (1997).

In this case the challenged communications were e-mails pleading for help from upper management for racial harassment and discrimination. These e-mails are entitled to qualified privilege since they were communicated for the purpose of protecting a legitimate right and interest in one’s job, and in a discrimination free workplace. Furthermore, the communications to the Department of Treasury and Department of Justice were to alert a customer of the corporation to false claims being made against it. These communications are protected by virtue of 51-5-7(b), since they were undertaken to discharge a private moral duty. SeeWillis v. United Family Life Insurance, 226 Ga.App. 661, 664-665, 487 S.E.2d 376 (1997). Defendant has never supplied a scintilla of evidence that the communications were motivated by anything other than a good faith desire to protect these legitimate interests. Thus these communications were privileged and – given the abject absence of actual malice -- cannot form the basis for a defamation action.

B. Federal Law

In addition to being privileged communications under Georgia law, the complained of e-mails were protected under federal law as well. Complaints about discrimination made to a manager for purposes of obtaining relief from said discrimination constitute statutorily protected activity under Title VII of the Civil Right Act of 1964, 42 U.S.C. 2000e-3. Furthermore the communications to government officials alerting them of possible fraud against the United States are protected under the False Claims Act. 31 U.S.C. 3729, et seq.