Basile v. Spagnola

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK 	FOR PUBLICATION
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In re: 	Chapter 7
Walter Spagnola 	No. 11-36227
Debtor.
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Julia Basile, 	Adv. Pro. No. 11-09055
Plaintiff,
v.
Walter Spagnola,
Defendant.
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APPEARANCES:
Lewis D. Wrobel
201 South Avenue, Suite 506
Poughkeepsie, NY 12601
Attorney for Plaintiff, Julia Basile
Andrea Malin
Genova & Malin
The Hampton Center
1136 Route 9
Wappingers Falls, NY 12590-4332
Attorney for Defendant, Walter Spagnola
MEMORANDUM DECISION GRANTING PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT
The Plaintiff brings this adversary proceeding against the Debtor in order to have her
sexual harassment judgment in the amount of $200,000 excepted from discharge as a willful and
malicious injury, pursuant to 11 U.S.C. § 523(a)(6). This Court holds that the debt should be
excepted from discharge under section 523(a)(6), as it was incurred as a result of the Debtor
willfully and maliciously causing injury to the Plaintiff.
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Background
On April 29, 2012, Debtor filed a Voluntary Petition for Relief under Chapter 13 of the
Bankruptcy Code. Prior to the bankruptcy filing, Plaintiff commenced a sexual harassment
lawsuit against Debtor in the United States District Court for the Southern District of New York.
See Pl.’s Mot. Summ. J. Ex. B (Complaint in District Court action). The basis of her claim was
that Debtor created a “sexually hostile or abusive work environment,” a form of gender
discrimination under federal law. Pl.’s Mot. Summ. J. Ex. C, at 499, 518 (District Court Trial
Transcript).
On June 21, 2007, a Southern District of New York jury awarded the Plaintiff $150,000
in compensatory damages and $50,000 in punitive damages. Id. at 518-23. The jury found that
the Plaintiff’s right to Equal Protection under the 14th Amendment was violated when the Debtor
engaged in conduct that created a hostile work environment during Plaintiff’s employment with
the New York State Thruway Authority. Id. at 518.
In order to find liability for the Debtor, the Plaintiff had to prove three elements:
First, Mr. Spagnola intentionally discriminated against Ms.
Basile in the terms and conditions of her employment based on Ms.
Basile’s sex through the creation and maintenance of a sexually
hostile or abusive work environment.
Second, 	Mr. 	Spagnola 	committed 	such 	act 	or 	acts 	of
discrimination under the color of state law or authority.
And, 	third, 	that 	Mr. 	Spagnola’s 	act 	or 	acts 	were 	the
proximate cause of the damages sustained by Ms. Basile.
Id. at 499. In proving the first element, Plaintiff also had to show Debtor “intentionally, as
opposed to recklessly or negligently, created a hostile work environment on the basis of her
gender.” Id. at 501. In determining whether the work environment was hostile or abusive, the
jury was required to determine if Debtor’s intentional “acts or statements resulted in a work
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environment that was so permeated with discriminatory intimidation, ridicule or insult of
sufficient severity or pervasiveness that it materially altered the conditions of [the Plaintiff’s]
employment.” Id. at 500. The jury found that all three elements had been met, and awarded
Plaintiff compensatory and punitive damages. Id. at 502, 518-20. The court instructed the jury
that it was permitted to award punitive damages if it determined the Debtor needed to be
punished for “extraordinary misconduct,” and to set an example or warning for others not to
engage in similar conduct. Id. at 506.
The Debtor appealed the jury verdict and the Second Circuit affirmed it on September 22,
2009. Pl.’s Mot. Summ. J. Ex. D (Second Circuit’s Summary Order dated September 22, 2009).
In its Order affirming the jury verdict, the Second Circuit noted that the witnesses at trial
“detailed inappropriate behavior by Spagnola, including touching [Plaintiff’s] thighs and breasts,
offering her job security in return for sex, and showing up uninvited at [her] residence.” Id. at 3.
The Second Circuit concluded that “[b]ased on the offensive behavior described, the jury’s
conclusion was reasonable. The evidence was sufficient to find that there was a hostile work
environment because such conduct was hostile, severe, and abusive.” Id.
On August 1, 2011, the Plaintiff, a listed creditor of Debtor on the bankruptcy petition,
brought this adversary proceeding seeking to except from discharge the judgment she obtained
against Debtor in the District Court. See Pl.’s Compl. ¶ 14. The Plaintiff now seeks summary
judgment on the grounds that the Debtor should be collaterally estopped from challenging the
facts found by the jury and that those facts are sufficient to prove nondischargeability under
section 523(a)(6). See Pl.’s Mem. Law.
In response, the Debtor argues that the Plaintiff is not entitled to summary judgment
because there exists a genuine issue of material fact—whether the Debtor’s conduct was
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intentional. See Def.’s Mem. Law 2-10. While not disputing the facts underlying the District
Court judgment, the Debtor argues that his subjective intent was not litigated. See id. at 9.
Alternatively, the Debtor argues that even if the Court finds no genuine issue of material fact
exists, then summary judgment should be granted in his favor because the District Court
judgment is insufficient to show that his conduct was willful and malicious under section
523(a)(6). See id. at 10-13.
Statement of Jurisdiction
This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. §
157(a) and the Amended Standing Order of Reference signed by Chief Judge Loretta A. Preska
dated January 31, 2012. This is a “core proceeding” under 28 U.S.C. § 157(b)(2)(I)
(determinations as to the dischargeability of particular debts).
Summary of the Law
Summary judgment should be granted, “where there are no genuine issues of material
fact and the movant is entitled to judgment as a matter of law.” Jacobowitz v. The Cadle Co.,
309 B.R. 429, 435 (S.D.N.Y. 2004); Fed. R. Civ. P. 56(a). The moving party has the initial
burden of establishing the absence of any genuine issue of material fact. Celotex Corp. v.
Catrett, 477 U.S. 317, 322-23 (1986). “[T]he court resolves all ambiguities and draws all
permissible factual inferences against the movant.” Jacobowitz, 309 B.R. at 435.
The nonmoving party should oppose the motion for summary judgment with evidence
that is admissible at trial. See Fed. R. Civ. P. 56(e)(1); Crawford v. Dep’t of Investigation, 324
Fed. Appx. 139, No. 07-4793, 2009 LEXIS 10256 (2d Cir. May 13, 2009) (affirming award of
summary judgment in favor of the defendant, where a plaintiff presented testimony from
uncorroborated source, as well as “speculation, hearsay and other inadmissible rumor, and
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conclusory allegations”); Raskin v. The Wyatt Co., 125 F.3d 55 (2d Cir. 1997) (affirming award
of summary judgment in favor of the defendant after finding an expert report inadmissible,
noting “only admissible evidence need be considered by the trial court in ruling on a motion for
summary judgment”).
Exception from Discharge Pursuant to Section 523(a)(6)
In Gelb v. Royal Globe Insurance, 798 F.2d 38, 45 (2d Cir. 1986), the Second Circuit
provided the following factors for determining whether or not collateral estoppel bars an action:
1. 	The issues in both proceedings must be identical;
2. 	The issue in the prior proceeding must have been actually litigated
and actually decided;
3. 	There must have been a full and fair opportunity for litigation in
the prior proceeding; and
4. 	The issue previously litigated must have been necessary to support
a valid and final judgment on the merits.
See also Ball v. A.O. Smith Corp., 451 F.3d 66, 69 (2d Cir. 2006) (“Federal principles of
collateral estoppel, which we apply to establish the preclusive effect of a prior federal judgment,
require that ‘(1) the identical issue was raised in a previous proceeding; (2) the issue was actually
litigated and decided in the previous proceeding; (3) the party had a full and fair opportunity to
litigate the issue; and (4) the resolution of the issue was necessary to support a valid and final
judgment on the merits.’”).
To establish nondischargeability under 11 U.S.C. § 523, a creditor may invoke collateral
estoppel to preclude relitigating the elements necessary to meet one of the exceptions provided
for in that section. Grogan v. Garner, 498 U.S. 279, 285 n.11 (1991) (“We now clarify that
collateral estoppel principles do indeed apply in discharge exception proceedings pursuant to §
523(a).”).
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Pursuant to section 523(a)(6), an individual debtor may not receive a discharge from any
debt “for willful and malicious injury by the debtor to another entity.” Willful means a
“deliberate or intentional injury,” and malicious means “wrongful and without just cause or
excuse, even in the absence of personal hatred, spite, or ill-will.” Ball v. A.O. Smith Corp., 451
F.3d 66, 69 (2d Cir. 2006) (citation omitted). “Malice may be implied by the acts and conduct of
the debtor in the context of the surrounding circumstances.” Id. (internal quotation omitted).
Whether the Act was Willful?
In Kawaauhau v. Geiger, 523 U.S. 57 (1998), the Supreme Court defined the term
“willful” in the context of section 523(a)(6). The Court held that:
[N]ondischargeability takes a deliberate or intentional injury, not
merely a deliberate or intentional act that leads to injury. Had
Congress meant to exempt debts resulting from unintentionally
inflicted injuries, it might have described instead ‘willful acts that
cause injury.’ Or, Congress might have selected an additional word
or words, i.e., ‘reckless’ or ‘negligent,’ to modify ‘injury.’
Geiger, 523 U.S. at 61-62. The Debtor cites the Supreme Court’s decision in Geiger in support
of his argument that he did not have a full and fair opportunity to litigate his subjective intent. He
argues that Geiger stands for the premise that the defendant must have intended the
consequences of his act—not just the act itself.
In support of his argument, Debtor cites the case of Sanger v. Busch (In re Busch), 311
B.R. 657 (Bankr. N.D.N.Y. 2004). In Busch, the plaintiff won a default sexual harassment
judgment against the debtor and then sought to have it excepted as a nondischargeable debt
under 11 U.S.C. § 523(a)(6). Id. at 659-60. The court stated that it was following Geiger in
holding that for the debt to be nondischargeable under section 523(a)(6), a plaintiff must prove
that: “(1) the Debtor deliberately and intentionally caused the resulting injuries to the [p]laintiff;
and (2) the Debtor acted maliciously.” Id. at 666.
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In support of its holding that there is “no authority for treating sexual harassment as an
intentional tort sufficient to operate as a basis for nondischargeability under § 523(a)(6),” the
court in Busch stated that it “[could] not find that the Debtor intended to harm the [p]laintiff in
any manner” because he “‘acted with specific intent to advance his own prurient interests at the
expense of [the plaintiff’s] right to be free from sexual attack and harassment.’” 	Id. at 670. This
Court questions the reasoning of Busch. Stating that a debtor’s intent to “advance his own
prurient interest” was not the same as intent to “harm” a sexual harassment victim is parsing the
Supreme Court’s holding in Geiger too thin. In Geiger, the Supreme Court was concerned with
a medical malpractice judgment attributable to negligent or reckless conduct and not a sexual
harassment verdict where specific intent was an element of the claim proven at trial. Geiger, 523
U.S. at 59. This Court believes that exposure to unwelcome sexual conduct, like an advancing of
one’s prurient interests to the point of harassment, is the injury that a sexual harassment victim
suffers and that a judgment finding an individual intentionally caused that injury is enough to
meet the prong of willfulness under § 523(a)(6). This Court declines to follow Busch.
In coming to the opposite conclusion, the court in Busch relied, in part, on a law review
article entitled The Treatment of Employment Discrimination Claims in Bankruptcy: Priority
Status, Stay Relief, Dischargeability, and Exemptions. The Busch court used that article as
support for its assertion that “sexual harassment under Title VII . . . does not require that the
employer intend to injure the plaintiff.” Busch, 311 B.R. at 669 (emphasis added). However,
reliance on the law review article for that premise is improper. The portion of the law review
article cited by the court in Busch focuses on the specific intent of an employer who is found
vicariously liable for sexual harassment, not the intent of the individual harasser. See Joanne
Gelfand, Esq., The Treatment of Employment Discrimination Claims in Bankruptcy: Priority
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Status, Stay Relief, Dischargeability, and Exemptions, 56 U. Miami L. Rev. 601, 635-37 (2001).
In fact, that article goes on to state that
[c]ertainly, where the individual harasser is the debtor, a stronger
showing for excepting the debt from discharge can be made. Often,
the issues of malice and willfulness are determined in the state
court 	and 	are 	entitled 	to 	preclusive 	effect 	in 	a 	subsequent
bankruptcy case. Although the application of the doctrine of
collateral estoppel is not unique in bankruptcy, the doctrine has
significant import in actions to determine dischargeability since the
findings of the state court may preclude a subsequent inquiry into
willfulness or malice by the bankruptcy court.
Id. at 638.
The Plaintiff, in this case, has met her burden by demonstrating that the Debtor acted
willfully. The District Court expressly charged the jury with a definition of willfulness that is
almost identical to the one provided by the Supreme Court in Geiger. In order to find the Debtor
liable, the jury was required to find that he “intentionally, as opposed to recklessly or
negligently, created a hostile work environment on the basis of her gender. An action is
intentional if it is done knowingly, that is, if it is done voluntarily and deliberately and not
because of mistake, accident, negligence, or other innocent reason.” Pl.’s Mot. Summ. J. Ex. C,
at 501.
The special verdict returned by the jury found the Debtor liable for “intentionally
discriminat[ing] against [Plaintiff] in the terms or conditions of her employment based on her
gender through the creation and maintenance of a sexually hostile or abusive work environment.”
Id. at 518. The jury awarded the Plaintiff $150,000 in compensatory damages for such
intentional discrimination, and an additional $50,000 in punitive damages in order to punish the
Debtor for “extraordinary misconduct.” Id. at 506.
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The Court is persuaded by the many bankruptcy courts that have found that sexual
harassment discrimination is inherently an intentional tort and allowed it to be excepted from
discharge as a willful and malicious injury. See, e.g., Voss v. Tompkins (In re Tompkins), 290
B.R. 194, 199 (Bankr. W.D.N.Y. 2003); McDonough v. Smith (In re Smith), 270 B.R. 544 (D.
Mass. 2001); Thompson v. Kelly (In re Kelly), 238 B.R. 156 (Bankr. E.D. Mo. 1999) (“Malice, or
intent to harm, in a sexual intentional tort is self-evident, either because the tortfeasor knows his
conduct is certain or almost certain to cause harm, or because he should know and therefore the
intent is inferred as a matter of law.”).
In McDonough, a plaintiff obtained a sexual harassment judgment against defendant in
Massachusetts state court, which was subsequently affirmed by the state appellate court. 270
B.R. at 546-47. When defendant filed for bankruptcy, the plaintiff sought to have the judgment
declared nondischargeable. Id. at 546. The bankruptcy court held the defendant’s actions to be
willful, according to the Supreme Court’s definition in Geiger. Id. at 549. After considering the
state court’s findings in the sexual harassment case, the court found the defendant intended his
actions and knew the consequences of such actions. Id. The court also found the jury’s award of
punitive damages to weigh heavily in favor of finding willfulness, since they are only “awarded
when a defendant’s conduct is egregious and outrageous.” Id. (citing McMillan v. Mass. Soc. For
the Prevention of Cruelty to Animals, 140 F.3d 288, 306-07 (1st Cir. 1998)).
In this case, the determination of intent was an element of a district court action that was
fully and fairly litigated in a jury trial. Its outcome was affirmed on appeal to the Second Circuit.
Accordingly, the findings in the sexual harassment action and the jury’s award of punitive
damages necessitates this Court to hold that the Debtor’s actions were willful pursuant to section
523(a)(6).
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Whether the Debtor’s Conduct was Malicious?
Plaintiff also successfully established that the injury was malicious. To establish that an
injury was malicious, Plaintiff must demonstrate that the injury was “wrongful and without just
cause or excuse.” A.O. Smith Corp., 451 F.3d at 69 (2d Cir. 2006) (quoting Navistar Fin. Corp.
v. Stelluti (In re Stelluti), 94 F.3d 84, 87 (2d Cir. 1996)). As a matter of law, malice is inherent in
finding a debtor liable for sexual harassment. See, e.g., Busch, 311 B.R. at 668; Voss, 290 B.R. at
199; McDonough, 270 B.R. at 549. Sexual harassment is not only illegal, but so morally
reprehensible and degrading to one’s personal dignity that the harasser’s conduct cannot possibly
be considered anything other than “wrongful and without just cause or excuse.” See Busch, 311
B.R. at 668; McDonough, 270 B.R. at 549.
Here, the jury concluded that the injury was wrongful by finding liability for the Debtor.
Pl.’s Mot. Summ. J. Ex. C, at 518-19. Moreover, on appeal, the Second Circuit affirmed the
District Court decision, determining that there was evidence of “detailed inappropriate behavior”
and “hostile, severe, and abusive” conduct by the Debtor. Pl.’s Mot. Summ. J. Ex. D, at 3. This
determination was made after a full jury trial where the Debtor had a full and fair opportunity to
litigate the issue.
Accordingly, the Plaintiff is entitled to a finding of maliciousness.
Conclusion
Summary judgment should be granted in favor of the Plaintiff. The debt should be
excepted from discharge pursuant to section 523(a)(6) of the Bankruptcy Code because the
Debtor caused the Plaintiff “willful and malicious” injury. Plaintiff should submit an order
consistent with this decision.
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Dated: Poughkeepsie, New York
June 18, 2012
/s/ Cecelia G. Morris
Chief United States Bankruptcy Judge
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