Merkle v. Hay

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
RONA P. HAY,
Debtor.
____________________________
PATRICK G. MERKLE,
Plaintiff,
v.
RONA P. HAY,
Defendant.
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Case No. 04-00798
(Chapter 7)
Adversary Proceeding No.
04-10072
INTERIM OPINION REGARDING PLAINTIFF'S
RECOVERABLE DAMAGES ON MOTION FOR DEFAULT JUDGMENT
The complaint in this adversary proceeding seeks a
determination that the debt owed the plaintiff Patrick G. Merkle
by the defendant, Rona P. Hay, the debtor in the bankruptcy case
in which this adversary proceeding is being pursued, is
nondischargeable under § 523(a)(6), and a judgment for the amount
owed pursuant to that debt. Merkle has moved for entry of a
default judgment against Hay, and at the November 2, 2005 hearing
The opinion below is hereby dated as though signed
on January 3, 2006--as the opinion refers to a
hearing of "today" which was on January 3,
2006--even though the opinion is being signed anew
(due to an error in the signing attempted on January
3, 2006, requiring the court to re-sign the opinion
on January 9, 2006). Dated: January 3, 2006
(January 9, 2006, made nunc pro tunc to January 3,
2006).
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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on the motion for default judgment, Hay failed to appear to show
cause why default judgment ought not be entered against her. The
court set a damages hearing. Merkle appeared today at that
hearing, and, in light of colloquy with the court, requested and
obtained a continuance before finally presenting evidence of
damages. The requested continuance was to permit Merkle to
evaluate the standards under District of Columbia law, discussed
below, for recovery of damages as to the types of claims he is
asserting.
I
The complaint alleges that Hay brought a Superior Court
civil action against Merkle:
“knowing that the claim which she filed was false
and which, by its very nature, would be embarrassing
and damaging to the reputation of Merkle even though it
had no basis in fact” (Compl., ¶ 7),
“to extort from Merkle . . .” (Compl., ¶ 8),
with the allegations of Hay's complaint being “an
utter fabrication intended to force Merkle to pay Hay
large sums of money or risk damage to his reputation
and practice of law” (Compl., ¶ 9),
with Hay “know[ing] that the allegations made in
her Superior Court complaint are false and were made
willfully and maliciously with the intent to damage
Merkle's reputation and personal financial situation”
and “undertaking and maintaining litigation against
Merkle solely to extort money from him under threat of
irreparable damage to his reputation and practice of
law and not on account of any viable claim for injury
or damages on Hay's part” (Compl., ¶ 10); and
“[a]s a direct and proximate result of the willful
and malicious filing of a false claim, Merkle has
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already sustained significant damage to his reputation
and incurred expenses for defense of the spurious
action in the Superior Court” (Compl., ¶ 12).
The complaint sufficiently alleges that Hay willfully and
maliciously filed and pursued the complaint to inflict injury on
Merkle's person and his property such that any damages
recoverable by reason of nonbankruptcy law constitute a debt that
is nondischargeable under 11 U.S.C. § 523(a)(6).
For Merkle to recover a judgment, however, he must establish
a basis under nonbankruptcy law (here, the law of the District of
Columbia).
II
To the extent that the complaint is argued to constitute
libel, it does not because allegations in civil proceedings are
protected from being pursued as libel.
III
The complaint can be read as attempting to set forth a debt
owed Merkle for the tort of malicious prosecution (although it
does not refer to the tort by name) committed by the defendant
Hay pursuant to the filing of a baseless civil action complaint
in the Superior Court of the District of Columbia making
malicious allegations against Merkle.
A.
The amount of damages recoverable for malicious prosecution
presents questions of law (what kind of damages does District of
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Columbia law permit to be recovered for the malicious prosecution
of a civil action) and of fact (what damages of that kind did
Merkle suffer and what was the amount of those damages suffered
by Merkle). Merkle has not yet presented any evidence
establishing a legal right to recover damages in connection with
his claim for malicious prosecution. In the adversary complaint,
Merkle alleges that “[a]s a direct and proximate result of the
willful and malicious filing of a false claim, Merkle has already
sustained significant damage to his reputation and incurred
expenses for defense of the spurious action in the Superior Court
filed by Ms. Hay.” (Compl. ¶ 12.) As previously observed by this
court, however, “the District of Columbia has adopted a minority
rule requiring the plaintiff in [a malicious prosecution suit] to
plead special injury occasioned by plaintiff as the result of the
original action.” Whitaker v. R&W Enterprises, Inc. (In re
Whitaker), 1995 WL 908051, at *2 (Bankr. D.D.C., Oct. 27, 1995)
(internal quotations and citations omitted). As in Whitaker,
the injuries complained of by Merkle in his malicious prosecution
claim appear to be “those which might normally be incident to the
service of process on anyone involved in a legal suit. . .” and
do not appear to be the type of special injuries contemplated by
the D.C. rule, which include “seizure of property, arrest of
person, repeated malicious prosecution of unsuccessful suits
asserting differing groundless claims, or unsuccessful
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prosecution of a suit after promising it would be dismissed and
after a default judgment was set aside.” Id. (internal
quotations and citations omitted); see Martin v. Trevino, 578
S.W.2d 763, 767 (Tex. Civ. App. 1978) (costs incident to
litigation and professional defamatory-type damages do not
constitute special injury actionable in a malicious prosecution
claim), cited favorably in Morowitz v. Marvel, 423 A.2d 196, 198
(D.C. 1980). So far, the plaintiff has failed to articulate any
facts demonstrating that he sustained a “special injury” for
which damages may be awarded under District of Columbia law.
B.
Likewise, even if special injury is adequately demonstrated,
Merkle must also show that the underlying suit was terminated in
his favor, otherwise “the claim is premature or contingent.” Id.
(citing Whelan v. Abell, 953 F.2d 663, 670 (D.C. Cir. 1992)). In
the District of Columbia, “favorable termination does not require
a final disposition on the merits; rather, any termination that
reflects on the innocence of the defendant in the underlying suit
may suffice.” Whelan, 953 F.2d at 669 (internal quotations
omitted). Hay’s Superior Court claim has been dismissed, and
Merkle's counterclaim is pending. The judgment dismissing Hay's
claim, however, may not have been made a final judgment and may
remain a non-final judgment because not all claims were disposed
of. However, the court assumes that the dismissal constitutes a
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ruling constituting a disposition for purposes of the tort of
malicious prosecution: all that is left is Merkle's counterclaim
for the damages arising from Hay's malicious complaint.
IV
The District of Columbia also recognizes a tort of abuse of
process, but takes a restrictive view of that tort. In Morowitz,
423 A.2d at 198, the court held that merely filing a claim in a
lawsuit was not actionable, “no matter what ulterior motive may
have prompted it.” Rather, the tort requires a showing that the
legal system “has been used to accomplish some end which is
without the regular purview of the process, or which compels the
party against whom it is used to do some collateral thing which
he could not legally and regularly be required to do.” Id. A
plaintiff must show that there was a “perversion of the judicial
process and achievement of some end not contemplated in the
regular prosecution of the charge.” Id. Merkle's complaint
identifies three forms of damage, but does not establish they are
recoverable based on the tort of abuse of process.
First, Merkle's expenses of litigation in the Superior Court
action are a normal incident of litigation and thus are not
recoverable based on an abuse of process.
Second, although Merkle alleges that the lawsuit's purpose
was to extort money from Merkle, he does not allege that this
purpose was achieved, and no tort of abuse of process exists if
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the improper end sought was not achieved. See Morowitz, 423 A.2d
at 198-99 (“[w]ithout more, applellants' proffer that appellee
filed the counterclaim with the ulterior motive of coercing
settlement is deficient”).
Finally, Merkle alleges that the lawsuit damaged his
reputation. Hay's spite in disparaging Merkle is not by itself
enough, and embarrassing allegations are, without more, an
ordinary incident of litigation. However, as this court noted in
Whitaker, 1995 WL 908051, *3:
For an abuse of process to arise from a lawsuit, it
might suffice if there is a showing that the original
plaintiffs, even if failing to achieve their ulterior
goal, “succeeded in deliberately causing collateral
damage (apart from the litigation itself) to the [other
party] as part of their scheme.'” Whelan v. Abell, 953
F.2d [663,] 670-71 [(D.C. Cir.), cert. denied, 506 U.S.
906 (1992)]. But see Harrison [v. Howard University],
846 F. Supp. [1,] 3 n.3 [(D.D.C. 1993), aff'd, 48 F.3d
562 (D.C. Cir.), cert. denied, 516 U.S. 821 (1995)].
For example, “an allegation that the original plaintiff
seriously damaged the complaining party's business
opportunities for an unfulfilled purpose, such as
coercing financial concessions, is adequate to satisfy
the 'achievement' element of the tort.” Whelan, 953
F.2d at 671.
The litigation must accomplish some outrageous end. Yellow Bus
Lines, Inc. v. Drivers, Chauffeurs & Helpers Local Union 639, 883
F.2d 132, 138 (D.C. Cir. 1989), rev'd in part on other grounds,
913 F.2d 948 (D.C. Cir. 1990) (en banc), cert. denied, 501 U.S.
1222 (1991). In Whelan, the court distinguished Yellow Bus as
upholding a judgment because no significant injury was proven,
whereas in Whelan the defendant had intentionally caused severe
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financial injury through prosecution of the legal proceedings.
Whelan, 953 F.2d at 671. Thus, for the tort of abuse of process
to exist, Whelan appears to require serious damage inflicted as a
result of the lawsuit and not contemplated in the regular
prosecution of the lawsuit. In any event, without a showing of
actual damage, it is unclear that any recovery would be possible:
nominal damages are recoverable in contract actions, but Merkle
has not addressed whether nominal damages may be recovered in
tort actions. See Belmar v. Garza, 319 B.R. 748, 760 (Bankr.
D.D.C. 2004).
Finally, in Morowitz, the Court of Appeals held that damage
to professional reputation was not a special damage for purposes
of malicious prosecution, 423 A.2d at 198, and separately
affirmed a dismissal of the abuse of process claim without
mentioning the alleged damage to professional reputation. This
suggests that mere harm to reputation does not constitute the
“achievement of some end not contemplated in the regular
prosecution of the charge” required by Morowitz, id., for an
abuse of prosecution claim to lie.
V
Although Merkle’s complaint does not purport to invoke Rule
11, the court is mindful that the allegations set forth in the
complaint would support a Rule 11 motion for sanctions in the
Superior Court. Super. Ct. Civ. R. 11(c). Rule 11, however, “is
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not a simple fee-shifting provision, designed to reduce the net
cost of litigation to the prevailing party.” Alpern v. Lieb, 11
F.3d 689, 690 (7th Cir. 1993). Instead, its purpose is to
“discourage frivolous or dilatory litigation, to punish abusive
litigants, and to compensate opposing parties whose expenses have
been driven up or who have been otherwise prejudiced.”
Montgomery v. Jimmy’s Tire & Auto Center, Inc., 566 A.2d 1025,
1030 (D.C. 1989). The imposition of Rule 11 sanctions in the
District of Columbia is discretionary and is “limited to what is
sufficient to deter repetition of such conduct or comparable
conduct by others similarly situated.” Super. Ct. Civ. R.
11(c)(2).
Notwithstanding Merkle’s right to pursue Rule 11 sanctions
in lieu of bringing a claim for malicious prosecution, this court
is not inclined to step into the shoes of the Superior Court for
purposes of determining what, if any, Rule 11 sanctions that
court might, in the exercise of its discretion, deem appropriate
to discipline Rona Hay in connection with her conduct in the
Superior Court. Indeed, the Superior Court is uniquely situated
to assess the conduct of the parties appearing before it, and is
better positioned to determine what sanctions would deter similar
conduct in the future. Schubert’s Marine Sales and Service, Inc.
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1 In declining to entertain a party’s Rule 11 sanctions
motion in which it was alleged that opposing counsel’s conduct in
a sister court violated Rule 11, the U.S. District Court for the
Northern District of Illinois made the following observation:
The only aspect of this case which causes the court to
pause is [the] motion for Rule 11 sanctions. As the
Seventh Circuit noted recently in Mars Steel Corp. v.
Continental Bank N.A., 880 F.2d 928, 933 (7th Cir.
1989) (en banc), “each Rule 11 case in the district
court is unique, just as every tort suit is unique.”
District courts are in a special position to assess the
conduct of the attorneys who practice before them. It
would offend comity for this court to sit in judgment
of the actions of attorneys before a coordinate
jurisdiction. The [U.S. District Court for the Eastern
District of Louisiana] also would be in a better
position to decide what sanctions are appropriate in
this case, as it has witnessed the actions of [counsel]
and knows better what sanctions will deter similar
conduct before that court.
Schubert’s Marine, 724 F. Supp. at 1231 n. 2. Similarly here,
and without prejudice to the filing of a Rule 11 motion in the
Superior Court, it would be inappropriate for this court -- which
did not bear witness to the conduct to be sanctioned and is not
the court in which the sanctions would aim to deter similar
conduct in the future -- to determine what Rule 11 sanctions the
Superior Court might impose on Rona Hay.
Furthermore, the filings in this case reflect that Hay was
represented by counsel in the Superior Court litigation, which
presents the question of whether just Rona Hay, her counsel, or
both would be the appropriate target of sanctions. This court
does not have jurisdiction over Rona Hay’s Superior Court
counsel, and it would have no basis upon which to allocate
responsibility between Hay and her counsel for purposes of
imposing Rule 11 sanctions. Montgomery, 566 A.2d at 1030 (“to
fulfill the purpose of the rule, the trial court must
specifically and precisely decide who should be sanctioned for a
given paper, i.e., the signer, the represented party, or both”).
10
v. M/V Reeter II, 724 F. Supp. 1229, 1231 n. 2 (N.D. Ill. 1989).1
Although this court has made a clear decision with respect
to the dischargeability of the debt owed Merkle by Hay, this
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court declines, in fixing damages, to make a determination
regarding the amount of Rule 11 sanctions the Superior Court
might, in the exercise of its discretion, impose upon Rona Hay if
confronted with a Rule 11 motion.
VI
As a matter of nonbankruptcy law, Merkle is entitled to
recover taxable costs in the Superior Court action. Those costs,
if any, will be nondischargeable. However, the costs ought to be
recovered in the Superior Court. The clerk of the Superior Court
is charged with taxing costs pursuant to the filing of a bill of
costs. This court ought not become involved in the ministerial
task of taxing costs reserved to the clerk of the Superior Court
(or in the Superior Court's review, on motion, of the taxation of
such costs).
VII
In light of the foregoing, it is
ORDERED that a judgment shall in due course be entered
against the defendant declaring that whatever debts are owed the
plaintiff Patrick G. Merkle by the defendant Rona Hay arising
from her filing and pursuit of a civil action complaint in the
Superior Court of the District of Columbia making malicious
allegations against Merkle are nondischargeable based on 11
U.S.C. § 523(a)(6). It is further
ORDERED that a hearing to fix the debt owed Merkle (other
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than under Rule 11 or taxable costs), or for him to announce that
he has elected to proceed on his counterclaim in the Superior
Court in lieu of fixing the debt here, shall be held on March 7,
2006, at 2:00 p.m.
[Signed above.]
Copies to: All counsel of record.
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