Gerard v. Gerard et al

Filing 6

ORDER Affirming Bankruptcy Court and Dismissing Appeal signed by Judge Charles N Clevert, Jr on 2/5/14. (cc: all counsel)((cef), C. N. Clevert, Jr.)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN

MICHAEL J. GERARD,
Appellant,
v.

Case No. 13-C-0114

KEVIN P. GERARD,
MARGARET M. GERARD,
Appellees.

ORDER AFFIRMING BANKRUPTCY COURT
AND DISMISSING APPEAL
This appeal arises from an adversary proceeding in which Kevin and Margaret
Gerard sought to determine the dischargeability of a debt under 11 U.S.C. § 523(a)(6) that
Michael Gerard, the debtor, owed Kevin and Margaret Gerard pursuant to a state court
judgment.1 The underlying dispute dates back to 2007 when Michael submitted an offer
to purchase a lot on Lake Michigan in the Town of Grafton. He turned to his brother and
sister-law, Kevin and Margaret, for assistance with the financing. Afterward, Kevin and
Margaret purchased the property. Circumstances changed and Kevin began to search for
another buyer. In 2009, Kevin learned that Michael had filed a Memorandum of Interest
with the Ozaukee County Register of Deeds in September of 2008 claiming “an equitable
and beneficial interest” in the property. Unable to sell the property, Kevin and Margaret
filed suit in Ozaukee Count Circuit Court against Michael alleging breach of contract,
slander of title and seeking a declaration of interest/quiet title and partition. A jury awarded

1

For the sake of clarity, the court will om it the last nam es of the parties throughout the brief.
Hereinafter, the parties shall be referred to as Kevin, Margaret and Michael.

Kevin and Margaret damages of $281,000, which included a $1,000 statutory award of
punitive damages. After Michael filed a voluntary petition under Chapter 11 of the United
States Bankruptcy Code, Kevin and Margaret filed an adversary proceeding to determine
nondischargeability of the debt pursuant to 11 U.S.C. § 523(a)(6). Case No. 12-21108-svk;
Case No. 12-02291-svk. Judge Kelley granted Kevin and Margaret’s summary judgment
motion finding that $281,000 judgment was the result of “willful and malicious injury” by
Michael and, therefore, nondischargeable under 11 U.S.C. § 523(a)(6).
This court has jurisdiction over Michael’s appeal pursuant to 28 U.S.C. § 158(a)(1)
and reviews the bankruptcy court's grant of summary judgment de novo. Dick v. Conseco,
Inc., 458 F.3d 573, 577 (7th Cir. 2006). Federal Rule of Bankruptcy Procedure 7056
provides that “Rule 56 F. R. Civ. P. applies in adversary proceedings....” Fed. R. Bankr. P.
7056(a). And under Federal Rule of Civil Procedure 56, summary judgment is appropriate
“if the movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “If a party moving
for summary judgment has properly supported his motion, the burden shifts to the
nonmoving party to come forward with specific facts showing that there is a genuine issue
for trial.” Cincinnati Life Ins. Co. v. Beyrer, 722 F.3d 939, 951 (7th Cir. 2013) (internal
quotation omitted). On the other hand, the court’s ruling regarding discovery is reviewed
for abuse of discretion. In re Salem, 465 F.3d 767, 777-778 (7th Cir. 2006).
In addition to the citations to the record from the adversary proceeding, the following
findings of fact were submitted by the parties on summary judgment and are undisputed.
Notably, with the exception of paragraphs 14 and 24 of Kevin and Margaret’s proposed

2

findings of fact, Michael did not dispute the proposed findings of fact. As to those
paragraphs, the court extracted its findings from the underlying source document.2
Kevin and Margaret are married, and Michael is Kevin’s brother. (R. 1-1 at 111-117,
PFOF ¶¶ 5, 6.) Michael received a law degree from Northern Illinois University and is a
licensed medical doctor. (Id. at PFOF ¶ 7.)
In 2007, Michael was looking to purchase lakefront property to build a home.
Michael had financing issues, and Kevin and Margaret agreed to help him with the
financing. Ultimately, Kevin and Margaret purchased a lakefront lot in the Town of Grafton,
Ozaukee County, with an agreement that Michael would make payments and ultimately
buy the lot from Kevin and Margaret. (Id. at PFOF ¶ 8.) Disputes arose thereafter, and in
2008 Kevin and Margaret decided to sell the lot, informed Michael of their plan, and put up
a “For Sale by Owner” sign. (Id. at PFOF ¶ 9.) On at least two occasions, Michael went
to the property and destroyed the “For Sale” sign. (Id. at PFOF ¶ 10.)
On September 26, 2008, Michael had his attorney, Robert A. Carroll, record a
Memorandum of Interest in Real Estate with the Ozaukee County Register of Deeds
against the lot. (Id. at PFOF ¶ 11.) The Memorandum of Interest stated as follows:
Please take notice that by reason of a certain written contract dated October
12, 2007, between the undersigned MICHAEL JAMES GERARD, party of the
first part, and KEVIN P. GERARD and MARGARET M. GERARD, husband
and wife, parties of the second part (the “Contract”), on the 16th day of
November, 2007, the undersigned party of the first part acquired an equitable

2

Com plicating this court’s review was the fact that the record from the bankruptcy court was scanned
upside down and out of sequence. The court reviewed each page in the record and asked the bankruptcy
court to correct the upside down filings. Ordinarily the court would cite to the pagination of the original
docum ent as required by The Bluebook. However, the record in this case m akes finding a docum ent by that
page num ber extrem ely difficult. For consistency in issuing this decision, the court has used the page num ber
at the bottom of the page that was generated when the record was created. Hence, page 1 of the jury trial
transcript is actually R. 1-2 at 105.

3

and beneficial interest in the following property (the “Property”), in Ozaukee
County, Wisconsin:
[Description of Property]
A copy of the pertinent portion of the contract is attached hereto as Exhibit
A. Copies of the underlying Residential Offer to Purchase, Counter-Offers
1&2, and Amendment(s) referred to in the Contract that were originally
signed by party of the first part, but which were assigned to parties of the
second part pursuant to the Contract are not attached hereto. By virtue of
the Contract and pursuant to all terms, conditions and provisions of it, when
title to the Property was conveyed to parties of the second part by a certain
Warranty Deed, dated November 16, 2007 and recorded in the office of the
Register of Deeds of Ozaukee County, Wisconsin on November 27, 2007 as
Document No. 0873933, parties of the second part have acquired title for
convenience only and hold title for the benefit of party of the first part.
(R. 1-1 at 42.) Michael signed the Memorandum of Interest.
On October 23, 2009, Kevin and Margaret commenced an action against Michael
in the Ozaukee County Circuit Court, Case No. 95-C-865. An amended complaint was
filed July 23, 2010. (Id. at PFOF ¶ 12.) Kevin and Margaret alleged declaration of
interest/quiet title, slander of title, partition, and breach of contract. (Id. at PFOF ¶ 13; R.
1-1 at 20.) Specifically, paragraph 39 of the amended complaint alleged that Michael
“knew or should have known that the contents of the Notice of Equity Interest are false, a
sham or frivolous.” (R. 1-1 at 19.) In addition, the partition claim alleged that Kevin and
Margaret had a 94.73% interest in the lot whereas Michael had a 5.27% interest in the lot.
(R. 1-1 at 20.) The “Wherefore” Clause sought punitive damages in the amount of $1,000
and actual damages regarding the second cause of action for slander of title. (R. 1-1 at
21.)
Michael answered the Ozaukee County amended complaint, asserting eight
affirmative defenses and five counterclaims. (R. 1-1 at 111-117, PFOF ¶ 15.) He initially
4

appeared by counsel, but, on August 20, 2010, counsel withdrew and Michael proceeded
pro se. (Id. at PFOF ¶ 16.) Michael participated in all aspects of the pretrial proceedings,
including discovery, court conferences and hearings, and presented and opposed motions.
(Id. at 17.)
During the course of the Ozaukee County action, Kevin and Margaret filed a motion
for summary judgment to dismiss Michael’s counterclaims. The court granted the motion
before sua sponte reversing and setting the matter for a jury trial. (Id. at 18.) On October
3-4, 2011, the case was tried to a twelve-person jury with Judge Sandy Williams presiding.
Michael fully participated in the trial, made an opening statement and closing argument,
presented evidence and cross-examined witnesses. He submitted his own proposed
verdict form and jury instructions, and was involved in the jury instruction conference at
which time the special verdict form and the jury instructions were determined by the court.
(Id. at 19.)
During the trial, Michael testified that it was his theory that Kevin secretly wanted to
live on the property someday and that Kevin brought the lawsuit to clear the title. On
cross-examination, Michael explained that Kevin perceived this as a “game.”
Q

In your view this is all purely a game?

A

Yeah. Because there's a lien on it so he knows no matter how much he
drops the price, no one's going to put in an offer as long as there's a lien on
it. So he can lower the price and make it look like he's trying to sell the
property, but he knows no one's going to put an offer as long as the title is
clouded so you can't really give it much weight.

Q

And that's because you slapped this on the title, right?

A

Yeah. That's right.

5

(Id. at PFOF ¶ 20; Doc. 1-2 at 559.)
The court instructed the jury on the slander of title claim as follows:
Question Nos. 1 through 8 fo the Special Verdict Form ask you to decide
whether Defendant violated § 706.13(1) of the Wisconsin Statutes. Section
706.13(1) sets forth standards for a slander of title action and states:
Any person who submits for ... recording, any lien, claim of lien, ... or any
other instrument relating to a security interest in or the title to real or personal
property, and who knows or should have known that the contents or any part
of the contents of the instrument are false, a sham or frivolous, is liable in tort
to any person interested in the property whose title is thereby impaired, for
punitive damages of $1,000 plus any actual damages caused by the filing,
entering or record.
....
If Michael Gerard knew, or should have known, that any part of the
Memorandum of Interest in Real Estate, including any party of its Exhibit A,
was false, a sham, or frivolous, he is liable to Plaintiffs. If a preponderance
of the evidence establishes any part of the Memorandum is false, a sham,
or frivolous and Micahel Gerard was aware or should have been aware, of
it at the time he caused the recording of the Memorandum, you should
answer “Yes” to Question No. 2 of the Special Verdict Form. If you are not
so satisfied, you should answer “No” to Question No. 2.
Under certain circumstances, a person may have a conditional privilege to
publish statements concerning a title to real estate. However, the privilege
does not protect a person if it is abused. For the conditional privilege
defense to a slander of title claim to apply, Michael Gerard must have had
a reasonable ground for believing the truth of the contents of the
memorandum, and the contents of the memorandum must have been
reasonably calculated to accomplish a privilege purpose. In this case
Michael Gerard claims the contents of the memorandum are conditionally
privileged because he claims an interest in Lot 3 to protect. An abuse of
Michael Gerard’s privilege occurred if he at the time of the filing the
memorandum or any time thereafter knew that any of the contents were false
or filed the memorandum in reckless disregard as to the truth or falsity of the
contents of the memorandum.
(R. 1-2 at 27-28.)
The jury returned the following special verdict in favor of Kevin and Margaret:
A.

Slander of Title
6

1.

Did Michael Gerard cause the recording of the Memorandum of Interest in
Real Estate against Lot 3 with the Ozaukee County Register of Deeds Office
(hereinafter “Memorandum”)?
ANSWER (Yes or No):
Yes

2.

Answer this question only if you answered “Yes” to Question No. 1: Did
Michael Gerard know, or should he have known, the contents, or a part of
the contents, of the Memorandum were false, a sham, or frivolous?
ANSWER (Yes or No):
Yes

3.

Answer this question only if you answered “yes” to Question No. 2: Did
Michael Gerard have a reasonable ground for believing the truth of all of the
contents of the memorandum?
ANSWER (Yes or No):
No

4.

Answer this question only if you answered “Yes” to Question No. 3: Were all
of the contents of the memorandum reasonably calculated by Michael
Gerard to accomplish a privileged purpose?
ANSWER (Yes or No): __________

5.

Answer this question only if you answered “yes” to Question No. 4: At any
time, did Michael Gerard abuse the privilege when he filed and maintained
the filing of the memorandum?
ANSWER (Yes or No): __________

6.

Answer this question only if you answered “Yes” to Question No. 2: Is it a
practical possibility for Kevin Gerard and Margaret Gerard to show specific
losses from individual potential purchasers?
ANSWER (Yes or No):
No

7.

Answer this question only if you answered “No” to Question No. 6: Were
Kevin Gerard and Margaret Gerard deprived of a market which would have
been available to them if the Memorandum had not been recorded?
ANSWER (Yes or No):
Yes

8.

Answer this question only if you answered “YES” to Question No. 2: Did
Kevin Gerard and Margaret Gerard show specific losses from individual
potential purchasers?
ANSWER (Yes or No):
Yes

B.

Breach of Contract

9.

Did Kevin Gerard and Margaret Gerard have an agreement with Michael
Gerard?
ANSWER (Yes or No):
Yes
7

10.

Answer this question only if you answered “Yes” to Question No. 9: Did
Michael Gerard breach his agreement with Kevin Gerard and Margaret
Gerard regarding his reimbursement of all of Plaintiffs’ out-of-pocket costs?
ANSWER (Yes or No):
Yes

11.

Answer this question only if you answered “Yes” to Question No. 9: Did
Michael Gerard breach his agreement with Kevin Gerard and Margaret
Gerard regarding purchasing Lot 3 from Plaintiff?
ANSWER (Yes or No):
Yes

12.

Answer this question only if you answered “Yes” to Question No. 9: Did
Michael Gerard breach his duty of good faith and fair dealing to Kevin Gerard
and Margaret Gerard?
ANSWER (Yes or No):
Yes

13.

Answer this question only if you answered “Yes” to Question No. 10,
Question No. 11, or Question No. 12: Did Michael Gerard’s breach of
contract cause damage to Kevin Gerard and Margaret Gerard?
ANSWER (Yes or No):
Yes

C.

Damages

14.

Answer this question regardless of how you answered the previous
questions: What is the amount of Kevin and Margaret Gerard’s out-of-pocket
expenses including without limitation, down payment, holding costs and costs
of refinancing?
ANSWER: $215,224.86

15.

Answer this question regardless of how you answered the previous
questions: What was the difference in the value of Lot 3 in September of
2008 versus the time of Trial?
ANSWER: $ No Change

16.

Answer this question regardless of how you answered the previous
questions: What is the amount of damages suffered by Kevin and Margaret
Gerard:
ANSWER: $280,000

(R. 1-1 at 39-42.)
Michael continued to participate in the Ozaukee County action by filing a motion to
set aside verdict and order new trial and motion for judgment notwithstanding the verdict.
(Doc. 1-2 at 34-65.)

Simultaneously, Kevin and Margaret argued the entire $280,000
8

awarded by the jury was not divisible between the two claims and was recoverable as
damages for the slander of title claim. The trial court granted Kevin and Margaret's motion
for entry of judgment and entered an order for judgment applicable to both claims. (Id. at
PFOF ¶ 24.) In addition, the court denied Michael’s motions to set aside verdict and order
a new trial, for judgment notwithstanding the verdict, for leave to amend pleadings, and for
stay of enforcement of judgment pending appeal. (R. 1-2 at 128-129.)
The order stated that Kevin and Margaret Gerard are awarded “$281,000, plus costs
and disbursements allowed by §§ 814.01 and 814.04, Wis. Stats., to be determined by the
clerk pursuant to § 814.10, Wis. Stats. An interlocutory Judgment may be entered
forthwith pursuant to § 806.01(2), Wis. Stats.” (R. 1-2 at 129.) The court indicated that it
would decide plaintiffs’ request for an award of attorney’s fees “incurred in clearing the
disparaged title” in a hearing on January 20, 2012, and that “this is not a final order for
purposes of appeal, in light of the further proceedings required under paragraph 6.” (R.
1-2 at 129.)
An interlocutory judgment was entered on December 9, 2011, consistent with the
order for judgment. (R. 1-2 at 130.) The hearing to determine whether Kevin and Margaret
were entitled to an additional award of attorney’s fees caused by the slander of title was
stayed once Michael filed a Chapter 11 proceeding. (Id. at PFOF ¶ 25.) Kevin and
Margaret filed the adversary proceeding on April 30, 2012, to determine whether Michael’s
debt is nondischargeable under § 523(a)(6) of the Bankruptcy Code.
In the adversary proceeding, Michael served a discovery request on Kevin and
Margaret and deposition subpoenas on representatives of TCF Bank. (Doc. 1-2 at 60-64,
85-87.) Michael’s stated purpose of the discovery was to “ascertain whether Kevin
9

committed perjury in the Ozaukee Action when he testified that a representative of TCF
Bank orally informed him that the bank was no longer willing to finance the purchase of
the Grafton lot.” (Id. at 189-90.)
Kevin and Margaret moved to quash the depositions and for a protective order
suspending factual discovery pending the court’s ruling on the pending motion for summary
judgment. (Doc. 1-1 at 53.) The bankruptcy court conducted a hearing on July 20, 2012,
and revised the summary judgment briefing schedule. (Doc. 1-1 at 90.) In addition, the
bankruptcy court barred discovery pending the outcome of the September 25, 2012,
summary judgment hearing. The court added as follows:
This ruling does not preclude the Debtor from pursuing post-judgment
remedies available to him in the Ozaukee County Circuit Court. The Debtor
would not be required to file a Motion for Relief from Stay to pursue such
remedies, and Kevin Gerard would not be required to file a Motion for Relief
from Stay to respond to and defend any such actions taken by the Debtor.
(R. 1-1 at 91.)
In opposition to summary judgment, Michael argued that the jury was not asked to
determine the required elements of a claim under § 523(a)(6), and that there were issues
of fact with respect to (1) the apportionment of damages between the breach of contract
and slander of title claim and (2) whether the Ozaukee Action was procured by perjured
testimony from Kevin.
On November 15, 2013, the bankruptcy court issued a written decision granting
Kevin and Margaret’s summary judgment motion. On the issue of preclusion, the court
found no dispute that the Ozaukee County action was final and that the parties were
identical. Acknowledging that neither the amended complaint nor the special verdict used
the terms willful or malicious, the court reasoned that labels are not a prerequisite for the
10

application of collateral estoppel. Ultimately, the court found that the Ozaukee County jury
made findings that satisfied the required elements.
In reaching this decision, the court reviewed “the entire trial transcript, jury
instructions, Special Verdict, post-trial Motions, and orders and judgments entered by the
Ozaukee County Circuit Court.” The court found that the answer to special verdict
question 1 showed that Michael committed an intentional act by recording the
Memorandum. The jury’s Yes answer to questions 2 and 7 had to be considered in the
context of the jury instructions and Wisconsin’s slander of title statute. After considering
the conflicting testimony by Michael and Kevin, the court concluded that the jury
considered Michael’s knowledge and intent in recording the Memorandum of Interest in
Real Estate with the Ozaukee County Register of Deeds. The answer to question 2
confirmed that Michael intended to cause injury by knowingly filing a “false, sham or
frivolous” document in violation of Wisconsin law and the answer to question 7
demonstrated that the Michael’s “calculated act was a direct and material cause of Kevin
and Margaret’s injury.” In addition, by answering no to question 3, the jury rejected
Micahel’s claim of privilege -- that he filed the Memorandum of Interest to protect his
ownership interest or innocent third parties.
Citing the transcript and post-trial motions, the bankruptcy court also rejected
Michael’s argument that the jury could have found him liable for slander of title if an
immaterial portion of the Memorandum of Interest was found to be false, a sham or
frivolous. The court granted Kevin and Margaret’s motion for summary judgment finding
that the Ozaukee County Circuit Court’s determination that the jury’s damage award was
indivisible and that the state court’s judgment must be recognized. Finally, on the issue
11

of perjured testimony, the bankruptcy court ruled that “unless and until the Ozaukee County
Circuit court or a Wisconsin appellate court accepts Michael’s arguments about the alleged
perjured testimony, those arguments do not create a disputed issue of fact” in federal
court.
On appeal, Michael identified the following issues pursuant to B.R. 8006:
(1) whether the bankruptcy court erred in granting summary judgment to Kevin and
Margaret on the grounds of issue preclusion; (2) whether the bankruptcy court properly
applied Wisconsin issue preclusion law; (3) whether the bankruptcy court erred in ruling
that the materiality of the factual contention that the state court jury verdict was procured
by perjured testimony by Kevin Gerard depends on whether the contention is first accepted
by the Circuit Court of Ozaukee County or a Wisconsin appellate court; (4) whether the
bankruptcy court abused its discretion in prohibiting discovery on the factual issue of
whether the state court jury verdict was procured with perjured testimony by Kevin Gerard.
In his brief, Michael reframes issues (1) and (3) as whether the special verdict rendered
in Ozaukee County Circuit Court Case No. 2009CV00865 sets forth sufficient findings of
fact to establish a prima facie claim under 11 U.S.C. § 523(a)(6) and whether any issues
of material fact existed that rendered summary judgment improper.
Whether the bankruptcy court erred in granting summary judgment or misapplied
Wisconsin preclusion law is subject to de novo review. Michael Gerard first argues that
the jury’s findings in the Ozaukee County Circuit Court case were insufficient to establish
a prima face claim for relief under § 523(a)(6) inasmuch as the jury did not determine
whether he had no legal justification for his actions or that he acted with intent to cause
injury to Kevin and Margaret.
12

Section 523(a)(6) excepts from discharge any debt for willful and malicious injury
by the debtor to another entity or to the property of another entity. 11 U.S.C. § 523(a)(6).
Kevin and Margaret had the burden of proving their claim under § 523(a)(6) by a
preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291 (1991). To this end,
Kevin and Margaret maintain that the court must recognize the preclusive effect of the
Ozaukee Circuit Court judgment pursuant to the Full Faith and Credit Act. See Dollie’s
Playhouse, Inc. v. Nable Excavating, Inc., 481 F.3d 998, 1000 (7th Cir. 2007). Under 28
U.S.C. § 1738, state court proceedings “shall have the same full faith and credit in every
court within the United States ... as they have by law or usage in the courts of such State
... from which they are taken.”
The state court judgment’s preclusive effect is decided in accordance with state law.
28 U.S.C. § 1738; Stephan v. Rocky Mountain Chocolate Factory, Inc., 136 F.3d 1134,
1136 (7th Cir. 1998). Collateral estoppel, or issue preclusion, prevents the relitigation of
an issue previously decided in a judicial proceeding as long as the party against whom the
prior decision was asserted enjoyed a full and fair opportunity to litigate that issue in the
earlier proceeding. Allen v. McCurry, 449 U.S. 90, 94–95, 101 S. Ct. 411, 414–415, 66 L.
Ed. 2d 308 (1980). In Wisconsin, a state court judgment’s preclusive effect is determined
by whether issue preclusion can, as a matter of law, be applied and whether the application
of issue preclusion would be fundamentally fair. Michelle T. by Sumpter v. Crozier, 173
Wis. 2d 681, 698, 495 N.W. 2d 327 (Wis.1993).
First, the court considers whether “the issue ... was actually litigated and determined
in the prior proceeding by a valid judgment in a previous action and whether the

13

determination was essential to the judgment.” Landess v. Schmidt, 115 Wis. 2d 186, 197,
340 N.W.2d 213, 219 (Ct. App.1983) (citing Restatement (Second) of Judgments § 27
(1982)). Next, the court considers whether issue preclusion comports with principles of
fundamental fairness. This is generally a discretionary decision, although some of the
factors a court is to consider in determining fairness present a question of law. Paige K.B.
ex rel. Peterson v. Steven G.B., 226 Wis. 2d 210, 225, 594 N.W.2d 370 (1999). The
factors that courts may consider when undertaking the second step of issue preclusion are:
“(1) could the party against whom preclusion is sought, as a matter of law, have obtained
review of the judgment; (2) is the question one of law that involves two distinct claims or
intervening contextual shifts in the law; (3) do significant differences in the quality or
extensiveness of proceedings between the two courts warrant relitigation of the issue;
(4) have the burdens of persuasion shifted such that the party seeking preclusion had a
lower burden of persuasion in the first trial than in the second; or (5) are matters of public
policy and individual circumstances involved that would render the application of collateral
estoppel to be fundamentally unfair, including inadequate opportunity or incentive to obtain
a full and fair adjudication in the initial action?” Michelle T. By Sumpter, 173 Wis. 2d at
689.
Step one requires that the issue – willful and malicious injury to the property of
another – was actually litigated and determined by the Ozaukee judgment and whether the
determination was essential to the judgment. See 11 U.S.C. § 523(a)(6). The United
States Supreme Court has clarified that “nondischargeability takes a deliberate or
intentional injury” and “not merely an intentional or deliberate act that leads to an injury.”

14

Kawaauhau v. Geiger, 523 U.S. 57, 61, 118 S. Ct. 974, 140 L. Ed. 2d 90 (1998). Injuries
caused by intentional torts generally fall within the definition of “willful” because those torts
usually require that the actor “intend the consequences” of his or her acts. Id. (Congress
sought to limit § 523(a)(6) to only “willful and malicious” injuries that were intentionally
caused). However, while most intentional torts fall within § 523(a)(6), some do not. See
Garoutte v. Damax, 400 B.R. 208, 213 (Bankr. S.D. Ind. 2009)(denying summary judgment
where the Indiana Court of Appeals suggested that the debtor had an excuse for the
criminal conversion indicating it may not have been intentional or malicious.) Further,
malice has been defined as the “conscious disregard of one’s duties or without just cause
or excuse.” In re Thirtyacre, 36 F.3d 697, 700 (7th Cir. 1994). It does not require proof of
ill-will or a specific intent to harm. Id.
As the Seventh Circuit acknowledged, “in the course of our research we have
discovered to our surprise that courts are all over the lot in defining this phrase in section
523(a)(6).” Jendusa–Nicolai v. Larsen, 677 F.3d 320, 323 (7th Cir. 2012). Nevertheless,
the court concluded that “... whatever the semantic confusion, we imagine that all courts
would agree that a willful and malicious injury, precluding discharge in bankruptcy of the
debt created by the injury, is one that the injurer inflicted knowing he had no legal
justification and either desiring to inflict the injury, or knowing it was highly likely to result
from his act.” Id., 677 F.3d at 324.
The Ozaukee County case went to the jury on an intentional tort – slander of title.
As the jury was instructed, Wisconsin's slander of title law provides:
any person who submits for filing, entering in the judgment and lien docket
or recording, any lien, claim of lien, lis pendens, writ of attachment, financing
15

statement or any other instrument relating to a security interest in or the title
to real or personal property, and who knows or should have known that the
contents or any part of the contents of the instrument are false, a sham or
frivolous, is liable in tort to any person interested in the property whose title
is thereby impaired, for punitive damages of $1,000 plus any actual damages
caused by the filing, entering or recording.
Wis. Stat. § 706.13(1). As such, the elements of statutory slander of title are “[a] knowingly
false, sham or frivolous claim of lien ... filed, documented or recorded which impairs title....”
Kensington Dev. Corp. v. Israel, 142 Wis. 2d 894, 902-903, 419 N.W.2d 241 (1988).
Michael is correct when he points out that the jury was not instructed on the words
“willful” and “malicious.” Moreover, the jury was not specifically asked whether Michael
intended to cause injury. Nevertheless, these labels are not a prerequisite to apply
collateral estoppel. See Ball v. A.O. Smith Corp., 451 F.3d 66, 70-71 (2d Cir. 2006).
Preclusion applies if the findings in the Ozaukee County action establish that Michael’s
actions were willful and malicious.
In support of summary judgment, Michael filed a declaration asserting his belief that
he had an equitable ownership interest in the Grafton lot. However, his declaration cannot
create a genuine issue of material fact if it conflicts with the jury’s findings. The purpose
of preclusion is to prevent revisiting the issues that the jury has considered and decided.
To this end, the jury was presented with two competing theories regarding the facts.
Kevin testified and presented evidence that the Agreement attached to the
Memorandum of Interest drafted by his father in response to a request from TCF Bank that
they provide a “business model.” (R. 1-2 at 277.) However, nothing was done with that
Agreement because Kevin received a call from TCF Bank that it was “not interested in
doing the financing.” (Id. at 280.) Kevin testified that he threw the Agreement away
16

because it no longer served a purpose as Michael was not getting the money to pay back
Kevin for a down payment. (Id. at 281.) When shown the Memorandum of Interest and
the Agreement at trial, Kevin testified that the Agreement was not a contract to be enforced
and related solely to the request by TCF. (Id. at 317.)
Kevin purchased the lot but it soon became apparent that Michael’s fiancé, who was
pregnant, did not want to live in Grafton. (Id. at 298.) Kevin made the decision to sell after
the mortgage was coming due and Michael was not proceeding with a construction loan.
(Id. at 299, 305.) Kevin testified that he told Michael about his decision to sell, and that
Michael removed the “For Sale” signs and never told Kevin that he filed the Memorandum
of Interest on the property. (Id. at 315-316.)
In contrast, Michael testified that the problem was Kevin and Margaret’s failure to
apply for construction financing or a line of credit, and that he filed the Memorandum of
Interest to protect his equity interest in the property. (Id. at 513-525.) He also testified that
no matter how much Kevin reduced the price, no one would make an offer because the title
was clouded. According to Michael, the whole purpose of the lien was to show that
someone else has an interest in the lot. Throughout the trial, his defense was that he was
simply protecting his interest and this defense was reflected in the jury instructions. (R. 1-3
at 89.1) (“In this case Michael Gerard claims the contents of the memorandum are
conditionally privileged because he claims an interest in Lot 3 to protect.”) Yet he
conceded that he physically took down the “For Sale” sign. (Id. at 525.)
In that context, the jury considered the conflicting testimony and rejected the theory
that Michael had a reasonable ground to believe the truth of the contents of the

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Memorandum of Interest. The jury’s answers to questions 1, 2 and 3 establish that Michael
acted intentionally in recording the Memorandum of Interest and “knew or should have
known that contents or part of the contents were false, a sham, or frivolous.” The jury also
found that Michael deprived Kevin and Margaret of a market that would have otherwise
been available to them if the Memorandum had not been recorded. According to the
instructions, the jury was to answer yes if the recording was a material cause of Kevin and
Margaret’s being deprived of the market. Moreover, the jury heard Michael, a doctor and
a lawyer, testify that it was “all purely a game” because no matter how much the price is
dropped no one would put an offer on the property as long as there is a lien on it. (R. 1-2
at 468.)
On this record, the issue of willfulness and malice has been established and cannot
be revisited by another court. In rejecting the conditional privilege, the jury found that
Michael – a doctor and a lawyer – had no legal justification to file the Memorandum with
attached Agreement and, at a minimum, knew that injury was highly likely to result from the
act. He testified that he knew that the property would not sell with the clouded title. Such
findings are consistent with the application of issue preclusion in § 523(a)(6) proceedings
arising out of slander of title and fraudulent instruments adjudications.

See In re

Goldsberry, 2011 WL 528958 (Bkrtcy. S.D. Ind. 2011) (unpublished); In re Hetrick, 379
B.R. 612, 621 (Bkrtcy. E.D. Va. 2007) (default judgment). They are also consistent with
a judgment that included a statutory award of punitive damages.
Nevertheless, Michael asserts that the bankruptcy court failed to conduct second
– prong of the preclusion analysis – the “equities-based, fundamental fairness analysis.”

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Because this court reviews the decision de novo, it may consider the record and arguments
raised therein.
There is no dispute Michael could have, as a matter of law, sought leave to appeal
the state court judgment or move for relief from judgment under Wis. Stat. § 806.07. He
never sought leave to pursue an interlocutory appeal of the interlocutory judgment.
Additionally, the burden of proof before the state court – preponderance of the evidence
– is the same as required in this adversary proceeding. Matter of Bero, 110 F.3d 462, 465
(7th Cir. 1997) ("[T]o prove that a debt is nondischargeable, the creditor bears the burden
of proof by a preponderance of the evidence."). Ultimately, there is no contextual shift in
law or matters of public policy that would render the application of estoppel to be
fundamentally unfair. Michael had a full and fair opportunity to litigate the issues that were
decided in state court, notwithstanding his decision to proceed pro se.
Next, Michael maintains that the bankruptcy court failed to view the evidence in the
light most favorable to the non-moving party. To this end, Michael contends that the facts
were viewed in the light most favorable to Kevin and Margaret and that the $281,000
damage award applied to the breach of contract and slander of title claims. However, the
state court granted Kevin and Margaret's post-verdict motion requesting a judgment for the
full amount of the damages based on the damages available under Wis. Stat. § 706.13.
Finally, Michael asserts that he should have been given the opportunity to develop
the factual record concerning his allegations of perjury by Kevin. He insists that he is not
seeking to collaterally attack the judgment but submits that the state courts are not the
proper venue to address the perjury claim because “there is no assurance the state courts

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would entertain a motion for relief from the judgment based on the perjury claim.” This too
fails because Michael raised (or attempted to raise) this issue during the Ozaukee trial and
in the post-verdict motions. Moreover, he cannot collaterally attack the interlocutory
judgment of the Ozaukee County Circuit Court in this court. The perjury issue is a matter
within the province of the state courts, and, as it stands, the interlocutory judgment is
presumptively valid. Now, therefore,
IT IS ORDERED that the decision of the bankruptcy court is affirmed.
IT IS FURTHER ORDERED that the appeal is dismissed with prejudice.
Dated at Milwaukee, Wisconsin, this 5th day of February, 2014.
BY THE COURT

/s/ C.N. Clevert, Jr.
C.N. CLEVERT, JR.
U.S. DISTRICT JUDGE

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