Memorandum of Decision Re: Res Judicata

FOR THE NORTHERN DISTRICT OF CALIFORNIA In re SHARON LOWERY,                                         No. 1-88-01411      Debtor. ___________________________/ In re DONALD LOWERY,                                         No. 1-88-01410      Debtor. ____________________________/ NORMA HARVEY SPENCER, Executrix of the Estate of A. J. Kryla,      Plaintiff,    v.                                                                        A.P. No. 1-89-0009 BUTCH LOWERY and SHARON LOWERY,      Defendants. ______________________________/
Amended Memorandum of Decision
     In February, 1988, Norma Spencer, as personal representative of the estate of Joseph Kryla, deceased, obtained a judgment in a state court jury trial against defendants Donald and Sharon Lowery in the amount of $164,804.85, which included $81,614.00 in punitive damages. This action seeks to have that debt declared nondischargeable pursuant to section 523(a)(6) of the Bankruptcy Code.      In the state court trial, the jury returned detailed special findings. The jury found that the defendants used undue influence to obtain property from the deceased, and that they converted his property to their own use. The jury was given a special instruction that "[t]o establish the plaintiff's right to punitive damages, the ordinary preponderance of the evidence test is not sufficient. The plaintiff must prove the elements allowing an award of punitive damages by clear and convincing evidence." The instruction went on to define "clear and convincing."      Based upon the jury findings, plaintiff has brought the instant motion for summary judgment. Defendants have filed no declarations or other papers in opposition to the motion, aside from a two-page brief arguing that the jury verdict is not a valid basis for summary judgment because there was no specific finding of "wanton, malicious or fraudulent conduct" on the part of the defendants and no apportionment of liability between them.      The jury was instructed that it could award punitive damages only if it found by clear and convincing evidence that the defendants were guilty of oppression, fraud or malice. In the instruction, each of those terms was defined. Those definitions were at least as demanding, if not more so, than the standard for nondischargeable conduct established in In re Cecchini (9th Cir.1985) 772 F.2d 1493, 1496. Moreover, the fact that the jury returned the judgment against both defendants indicates that they viewed both defendants as equally guilty. The Court therefore sees no merit in defendants' arguments.      Defendants are correct in their argument that the state court judgment is not res judicata in this action. Brown v. Felson (1979) 442 U.S. 127. However, the findings of a trier of fact create a rebuttable presumption as to any issues actually litigated and necessary to the state court judgment under the doctrine of collateral estoppel. In re Houtman (9th Cir.1978) 568 F.2d 651, 653. Where a state court jury has been instructed that it may only award punitive damages on such terms as would justify a finding of nondischargeable liability under section 523(a)(6) of the Bankruptcy Code, summary judgment is properly granted in the subsequent dischargeability proceeding. In re Mueller (Bkrtcy. D.Colo.1983) 34 B.R. 869, 873.      Since the presumptions raised by the doctrine of collateral estoppel are rebuttable in this circuit, a trial would be necessary if defendants had raised any triable issue in response to the motion. However, the absence of even a single declaration leaves the prima facie case established by the jury verdict entirely unrebutted, and summary judgment in favor of the plaintiff is therefore proper. Russell, Bankruptcy Evidence Manual (West supp. 1989), section 7, p. 12. Plaintiff's motion will accordingly be granted.      Counsel for plaintiff shall submit a form of order granting the motion for summary judgment and a form of judgment.
Dated: June 22, 1989                                                                                  _______________________                                                                                                                            Alan Jaroslovsky                                                                                                                            U.S. Bankruptcy