Phillips v. Weissert (In Re Phillips)

OPINION

MARCI B. McIVOR, Bankruptcy Judge.

The Appellee, Randy Weissert (“Weis-sert”), obtained separate state court judgments on damages as per a default against each of the debtors, Appellants, Nicole M. Phillips and Thomas M. Phillips, Sr. (“Mr. and Mrs. Phillips”), in the amount of $71,962.75 for abuse of process, intentional infliction of emotional distress, civil conspiracy, and concert of action. The state court judgments were awarded after Weis-sert was acquitted of a criminal charge that he had raped Mrs. Phillips. In this bankruptcy case, Weissert filed an adversary proceeding seeking a determination that the debts reflected in the state court judgments were nondischargeable under 11 U.S.C. § 523(a)(6). The bankruptcy court granted in part and denied in part the motion for partial summary judgment filed by the debtors seeking a declaration that the state court judgments had no preclusive effect. The bankruptcy court held that the state court judgments were preclusive only as to the amount of the debt and the liability of each of the debtors, but not preclusive on whether the debtors’ conduct was willful and malicious under 11 U.S.C. § 523(a)(6). Following a trial on that issue, the bankruptcy court found Mrs. Phillips’ debt to be nondis-chargeable and Mr. Phillips’ debt to be discharged through his bankruptcy. Mrs. Phillips appeals three orders: (1) the order partially denying her motion for partial summary judgment; (2) the judgment finding her debt to be nondischargeable; and (3) an order denying a motion to amend the findings of fact and conclusions of law. Mr. Phillips also filed a notice of appeal and attempted to be heard on the issues raised by Mrs. Phillips. The Panel finds that Appellant Mr. Phillips lacks standing to appeal the bankruptcy court’s orders and therefore dismisses his appeal. As to Appellant Mrs. Phillips’ appeal, the Panel AFFIRMS the bankruptcy court’s orders for the reasons stated below.

I. STATEMENT OF ISSUES

The first issue on appeal is whether the bankruptcy court erred in ruling that the debt reflected in the state court judgment entered against Appellant Mrs. Phillips, is nondischargeable under 11 U.S.C. § 523(a)(6). The secondary issue before the Panel is whether the bankruptcy court erred in its conclusion regarding the collateral estoppel effect of that state court judgment.

II. JURISDICTION AND STANDARD OF REVIEW

Before addressing the substance of the issues on appeal, it is important to *481discuss the issue of standing. Although the issue of standing was not raised by either party as an issue in this appeal, it is appropriate for this Panel to consider questions of standing sua sponte. S.E.C. v. Basic Energy & Affiliated Res., Inc., 273 F.3d 657, 665 (6th Cir.2001). As an appellate court, the issue of standing may be considered sua sponte because “[standing is a jurisdictional requirement and we are under a continuing obligation to verify our jurisdiction over a particular case.” Harker v. Troutman (In re Troutman Enters., Inc.), 286 F.3d 359, 364 (6th Cir.2002) (citation omitted). The appellate standing requirement in bankruptcy cases “ ‘is more limited than Article III standing or the prudential requirements associated’ ” with federal standing generally. Moran v. LTV Steel Co., Inc. (In re LTV Steel Co., Inc.), 560 F.3d 449, 453 (6th Cir.2009) (citations omitted). As the Panel recently explained:

In order to have standing to appeal a bankruptcy court order, an appellant must have been “directly and adversely affected pecuniarily by the order.” Derived from the now-repealed Bankruptcy Act of 1898, “[t]his principle, also known as the ‘person aggrieved’ doctrine, limits standing to persons with a financial stake in the bankruptcy court’s order.” Thus, a party may only appeal a bankruptcy court order when it diminishes their property, increases their burdens or impairs their rights. Travelers Cas. & Sur. v. Corbin (In re First Cincinnati, Inc.), 286 B.R. 49, 51 (6th Cir. BAP 2002) (citations omitted).

Ohio Truck & Trailer, Inc. v. Level Propane Gases, Inc. (In re Level Propane Gases, Inc.), 431 B.R. 307, 2010 WL 1427503, at *4 (6th Cir. BAP 2010) (Table).

In the present case, Mr. Phillips was successful before the bankruptcy court. The bankruptcy court’s order finding that his debt to Weissert is dischargea-ble did not diminish his property, increase his burden or impair his rights. The order did not adversely affect him. Accordingly, the Panel finds that he does not have standing to appeal. Likewise, Appellant Mrs. Phillips does not have standing to appeal the issue of whether Mr. Phillips’ debt is dischargeable. Weissert attempted to file a cross appeal of this issue. However, his notice of appeal was not timely and thus the Panel lacks jurisdiction as to his appeal. Accordingly, the dischargeability of Mr. Phillips’ debt is not properly before the Panel and his appeal is dismissed.

The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide the remaining issues on appeal. The United States District Court for the Western District of Michigan has authorized appeals to the Panel, and neither party has timely elected to have this appeal heard by the district court. 28 U.S.C. § 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). An order granting summary judgment is a final order. Buckeye Ret. Co., LLC, Ltd. v. Swegan (In re Swegan), 383 B.R. 646, 649 (6th Cir. BAP 2008). Ordinarily, an order denying summary judgment is not a final, appealable order. Rabin v. Shanker (In re Shanker), 347 B.R. 115 (6th Cir. BAP 2006) (Table). An appeal from a final judgment, however, draws in question all earlier non-final orders and all rulings which produced the final judgment. Tetro v. Elliott Popham Pontiac, Oldsmobile, Buick, & GMC Trucks, Inc., 173 F.3d 988, 993 (6th Cir.1999). “ ‘A bankruptcy court’s judgment determining dischargeability is a final and appealable order.’ ” Cash Am. Fin. Servs., Inc. v. Fox (In re Fox), 370 B.R. 104, 109 (6th Cir. BAP 2007) (quoting Hertzel v. Educ. Credit Mgmt. Corp. (In re Hertzel), 329 B.R. 221, 224-25 (6th Cir. BAP 2005)).

*482“The bankruptcy court’s order regarding nondischargeability is a mixed question of law and fact.” Van Aken v. Van Aken (In re Van Aken), 320 B.R. 620, 622 (6th Cir. BAP 2005) (citation omitted). The appellate court reviews conclusions of law de novo but must review the underlying factual determinations under a clearly erroneous standard. Id. Under a de novo standard of review, the appellate court must ‘“review questions of law independent of the bankruptcy court’s determination.’ ” Bailey v. Bailey (In re Bailey), 254 B.R. 901, 903 (6th Cir. BAP 2000) (quoting First Union Mortgage Corp. v. Eubanks (In re Eubanks), 219 B.R. 468, 469 (6th Cir. BAP 1998)). “A finding of fact is clearly erroneous ‘when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.’ ” Riverview Trenton R.R. Co. v. DSC, Ltd. (In re DSC, Ltd.), 486 F.3d 940, 944 (6th Cir.2007) (citations omitted).

The denial of a motion to amend a judgment is reviewed for abuse of discretion. Hamerly v. Fifth Third Mortgage Co. (In re J & M Salupo Develop. Co.), 388 B.R. 795, 800 (6th Cir. BAP 2008). “ ‘Under this standard [of review], the district court’s decision and decision-making process need only be reasonable.’ ” Id. (quoting Pequeno v. Schmidt (In re Pequeno), 240 Fed.Appx. 634, 636 (5th Cir.2007)). “An abuse of discretion occurs only when the [trial] court relies upon clearly erroneous findings of fact or when it improperly applies the law or uses an erroneous legal standard.” Volvo Commercial Fin. LLC the Americas v. Gasel Transp. Lines, Inc. (In re Gasel Transp. Lines, Inc.), 326 B.R. 683, 685 (6th Cir. BAP 2005) (citing Schmidt v. Boggs (In re Boggs), 246 B.R. 265, 267) (6th Cir. BAP 2000).

III. FACTS

On June 7, 2001, Nicole Phillips accused Randy Weissert of rape. On June 19, 2002, Weissert was arrested. Following a two-day trial on January 22-23, 2003, Weissert was acquitted.

On April 20, 2007, Weissert filed a civil complaint against Mrs. Phillips and her husband for abuse of process, intentional infliction of emotional distress, civil conspiracy, and concert of action. Mr. and Mrs. Phillips were properly served but failed to respond to the state court complaint. On July 6, 2007, the state court entered a default against them.

On August 6, 2007, the state court held a hearing on damages. Mr. and Mrs. Phillips participated in this hearing. On August 22, 2007, the state court entered a judgment on damages as per a default against both Mr. and Mrs. Phillips. Neither Mr. nor Mrs. Phillips moved to set aside the state court judgments or filed an appeal.

On October 8, 2007, Mr. and Mrs. Phillips filed a joint chapter 7 bankruptcy petition. On December 27, 2007, Weissert filed an adversary proceeding seeking a determination that the debts reflected in the state court judgments arose from a willful and malicious injury and were non-dischargeable under 11 U.S.C. § 523(a)(6).

On August 18, 2008, debtors filed a motion for partial summary judgment seeking a determination that the state court judgments had no preclusive effect. On October 26, 2008, noting the participation of both Mr. and Mrs. Phillips in the damages hearing in the state court proceedings, the bankruptcy court entered an order finding that the state court judgments were pre-clusive as to the existence and amount of Weissert’s claim in the bankruptcy case.

*483However, the bankruptcy court concluded that the issue of whether the conduct of each debtor that gave rise to the state court judgments was willful and malicious and, therefore, nondischargeable under 11 U.S.C. § 523(a)(6), had not been “actually litigated.” The bankruptcy court scheduled a trial on whether debtors’ conduct was willful and malicious within the meaning of 11 U.S.C. § 523(a)(6).

The bankruptcy court conducted the trial on February 23-25, 2009. Following the trial, the bankruptcy court held that Mrs. Phillips’ debt to Weissert was nondis-chargeable. The court concluded that Mrs. Phillips’ allegations of rape were false and amounted to willful and malicious conduct under 11 U.S.C. § 523(a)(6). The bankruptcy court also held that Mr. Phillips’ debt to Weissert was dischargeable. The bankruptcy court entered a judgment on March 26, 2009. Debtors filed a motion to amend the bankruptcy court’s findings of fact and conclusions of law. The bankruptcy court denied debtors’ motion on May 20, 2009.

Mr. and Mrs. Phillips filed a timely notice of appeal on May 29, 2009. On June 12, 2009, Weissert filed an untimely cross appeal, which was ultimately dismissed. In addition, this Panel has found that Mr. Phillips has no standing to appeal the bankruptcy court’s orders.

IV. DISCUSSION

A. Nondischargeability under 11 U.S.C. § 523(a)(6)

Pursuant to 11 U.S.C. § 523(a)(6) of the Bankruptcy Code, any debt determined to be “for willful and malicious injury by the debtor to another entity or to the property of another entity” is excepted from discharge. To except a debt from discharge under § 523(a)(6), the alleged injury must be both willful and malicious. Markowitz v. Campbell (In re Markowitz), 190 F.3d 455, 463 (6th Cir.1999). For a debt to be held willful and malicious as contemplated by § 523(a)(6), the act at issue must be done with the actual intent to cause injury. Id. at 464. The requisite intent is present when the debtor “‘desires to cause [the] consequences of his act, or ... believes that the consequences are substantially certain to result from it.’ ” Id. (citation omitted). Section 523(a)(6) requires a debtor to commit an act akin to an intentional, rather than negligent or reckless tort. Kawaauhau v. Geiger, 523 U.S. 57, 61, 118 S.Ct. 974, 977, 140 L.Ed.2d 90 (1998).

An act is “malicious” if it is undertaken “in conscious disregard of one’s duties or without just cause or excuse.” Wheeler v. Laudani, 783 F.2d 610, 615 (6th Cir.1986). “Malicious” acts do “not require ill-will or specific intent to do harm.” Id. The party seeking to deny debtor a discharge bears the burden of proving both requirements by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 661, 112 L.Ed.2d 755 (1991).

In reviewing the bankruptcy court’s determination that the conduct of Appellant Mrs. Phillips was willful and malicious for purposes of 11 U.S.C. § 523(a)(6), the appellate court applies the clearly erroneous standard. Under the clearly erroneous standard, the Panel must give deference to the bankruptcy court as the finder of fact. Sicherman v. Diamoncut, Inc. (In re Sol Bergman Estate Jewelers, Inc.), 225 B.R. 896, 904 (6th Cir. BAP 1998). The bankruptcy court is in the best position to assess the testimony and credibility of witnesses. Kaye v. Agripool, SRL (In re Murray, Inc.), 392 B.R. 288, 297 (6th Cir. BAP 2008). The Supreme Court has explained the clearly erroneous standard as follows:

*484If the district court’s account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently. Where there are two permissible views of the evidence, the factfinder’s choice between them cannot be clearly erroneous.

Thurman v. Yellow Freight Sys., Inc., 90 F.3d 1160, 1165-66 (6th Cir.1996) (quoting Anderson v. City of Bessemer City, 470 U.S. 564, 573-75, 105 S.Ct. 1504, 1511-12, 84 L.Ed.2d 518 (1985)). “Such deference to the trial court is necessary because the trial judge is in the best position to determine the credibility of witnesses.” Id. at 1166 (citation omitted).

The record in the bankruptcy court supports that court’s conclusion that the conduct of Appellant Mrs. Phillips in pursuing a rape charge against Weissert, constitutes willful and malicious conduct under § 523(a)(6). In this case, the bankruptcy court held a trial over a two and a half day period of time. At trial, Mr. and Mrs. Phillips and Weissert testified. The court also heard testimony from four non-party witnesses.1 “[Biased on the record presented, observing [the] demeanor [of the witnesses], attempting to reconcile inconsistencies, and drawing reasonable inferences,” the bankruptcy court held that it was more likely than not that a rape did not occur. As a result, the bankruptcy court held that Mrs. Phillips “willfully and maliciously injured [Weissert] by causing him to be wrongly prosecuted and incarcerated through her false allegations of rape.” However, the bankruptcy court concluded that there was “no evidence linking [Mr. Phillips] to the false accusation of rape, or that he colluded with Nicole to abuse the legal process.” After trial, the bankruptcy court held that the debt reflected in the state court judgments was nondischargeable as to Mrs. Phillips and dischargeable as to Mr. Phillips.

On appeal, Appellant Mrs. Phillips argues that the evidence she presented during the trial corroborates her allegation that she was raped by Weissert. The bankruptcy court, after hearing all of the testimony and carefully considering the evidence, determined otherwise. Such alternative interpretations or differing views of the evidence, do not constitute clear error. Thurman v. Yellow Freight Sys., Inc., 90 F.3d at 1166 (“Where there are two permissible views of the evidence, the factfinder’s choice between them cannot be clearly erroneous.”); Lyon v. Eiseman (In re Forbes), 372 B.R. 321, 334 (6th Cir. BAP 2007) (“When differing views of the evidence are possible, the bankruptcy court’s findings cannot be clearly erroneous.”). “The clearly erroneous standard does not permit this Panel to substitute its assessments of credibility in place of the explicit findings made by the bankruptcy court.” In re Forbes, 372 B.R. at 334. As long as the bankruptcy court’s findings are “reasonable and supported by the evidence,” the Panel may not overturn them. Id. (quoting DuVoisin v. Foster (In re S. Indus. Banking Corp.), 809 F.2d 329, 331 (6th Cir.1987)). In this case, the bankruptcy court’s findings of fact and conclusions of law provide a detailed and thorough analysis of each witnesses’ testimony and the evidence presented at trial. The evidence supports the findings made on the issue of nondischargeability. Therefore, the bankruptcy court’s findings as to the willful and malicious conduct of Appel*485lant Mrs. Phillips are not clearly erroneous, and are affirmed.

B. The Doctrine of Collateral Estop-pel

The Panel now turns to the bankruptcy court’s determination that the state court judgment precluded relitigation of Appellant Mrs. Phillips’ damages and liability to Appellee Weissert and of the amount of Weissert’s claim; but did not preclude the litigation of the issue of non-dischargeability under § 523(a)(6). The doctrine of collateral estoppel applies in bankruptcy proceedings. Grogan v. Garner, 498 U.S. 279, 285 n. 11, 111 S.Ct. 654, 658 n. 11, 112 L.Ed.2d 755 (1991). Even though Congress intended the bankruptcy court to determine the issue of whether a debt is dischargeable, Congress does not require the bankruptcy court to redetermine all the underlying facts. Spilman v. Harley, 656 F.2d 224, 227 (6th Cir.1981). “Where a state court determines factual questions using the same standards as the bankruptcy court would use, collateral es-toppel should be applied to promote judicial economy by encouraging the parties to present their strongest arguments.” Klingman v. Levinson, 831 F.2d 1292, 1295 (7th Cir.1987) (citing Spilman v. Harley, 656 F.2d at 228).

The doctrine of collateral es-toppel prevents an issue from being reliti-gated where the issue of fact or law was actually litigated and necessarily decided in a prior action between the same parties. In re Markowitz, 190 F.3d at 461 (citation omitted). The bankruptcy court must give a state court judgment the same preclusive effect that judgment would have in state court unless the Full Faith and Credit Statute, 28 U.S.C. § 1788, provides an exception. Bay Area Factors v. Calvert (In re Calvert), 105 F.3d 315, 317 (6th Cir.1997). In this case, the state court judgment was rendered by a Michigan state court. Therefore, this Panel must give the judgment the same preclusive effect that any Michigan state court would give that judgment.

Under Michigan law, collateral es-toppel applies when:

1) there is identity of parties across the proceedings,
2) there was a valid, final judgment in the first proceeding,
3) the same issue was actually litigated and necessarily determined in the first proceeding, and
4) the party against whom the doctrine is asserted had a full and fair opportunity to litigate the issue in the earlier proceeding.

Hinchman v. Moore, 312 F.3d 198, 202 (6th Cir.2002) (citing Darrah v. City of Oak Park, 255 F.3d 301, 311 (6th Cir.2001)) (citing People v. Gates, 434 Mich. 146, 452 N.W.2d 627, 630-31 (1990)).

In the present appeal, the state court judgment entered against Appellant Mrs. Phillips, on the issue of damages and liability satisfies all four elements required to give a state court judgment preclusive effect. It is undisputed that there is identity of parties across the proceedings; that there was a valid, final judgment on damages as per a default finding Appellant Mrs. Phillips liable in the amount of $71,962.75; the issue of damages was actually litigated in the state court at a hearing solely on the issue of damages; and Mrs. Phillips appeared at the hearing on damages and had a full and fair opportunity to litigate that issue. The bankruptcy court determined that the state court proceedings satisfied the four requirements of collateral estoppel with respect to the issues of damages and liability. The Panel concludes that the bankruptcy court did not *486err in giving the state court judgment preclusive effect on damages and liability.

The Panel further concludes that the bankruptcy court did not err in its holding that it could not give preclusive effect to the state court judgment on the issue of nondischargeability, because the issue of whether the conduct of Appellant Mrs. Phillips was willful and malicious was not “actually litigated” in the state court.

Under Michigan law, an issue is “actually litigated” if it is “put into issue by the pleadings, submitted to the trier of fact for determination, and is thereafter determined.” Latimer v. William Mueller & Son, Inc., 149 Mich.App. 620, 386 N.W.2d 618, 627 (1986). Although courts are divided on the issue of whether a state court default judgment should be given collateral estoppel effect, the Panel is persuaded by Michigan courts that have held that preclusive effect should be given only where there is sufficient participation by the parties to meet the actually litigated requirement. See, e.g., Bldg. Comm., Inc. v. Rahaim (In re Rahaim), 324 B.R. 29, 37-38 (Bankr.E.D.Mich.2005) (defendant answered complaint and participated in the state court action providing sufficient participation to give a state court default judgment, which was entered for failure to appear at a pretrial conference, preclusive effect); Wellinger v. Borton (In re Wellinger), 371 B.R. 249, 253 (E.D.Mich.2007) (holding that where former judgment entered by default, issue is “actually litigated” only if defaulting party also had “substantial participation” in the litigation); Robinson v. Callender (In re Callender), 212 B.R. 276, 280 (Bankr.W.D.Mich.1997) (defaulting party actually litigated previous action by filing an answer and substantially participating in the defense of underlying state court action right up until eve of trial); Vogel v. Kalita (In re Kalita), 202 B.R. 889, 913 (Bankr.W.D.Mich.1996) (default judgment entered after filing of answer contesting material facts is entitled to collateral estoppel effect); Wood v. Dealers Fin. Servs., Inc. (In re Dealers Fin. Servs., Inc.), 199 B.R. 25, 29 (E.D.Mich.1996) (court held plaintiff failed to satisfy the actually litigated requirement where there was absolutely no evidence of any actual litigation in support of the underlying nondischargeability issues); Montgomery v. Kurtz (In re Kurtz), 170 B.R. 596, 601 (Bankr.E.D.Mich.1994) (The term “ ‘actually litigated’ means something more than a mere opportunity to litigate. If any default judgment per se can satisfy the ‘actually litigated’ requirement, then it would appear that every case would meet the ‘actually litigated’ standard.”).

Applying these principles to the pending appeal, the Panel concludes that there is nothing in the record to show that any determination or findings were made in the state court action on any of the elements that are essential to a finding of nondischargeability under § 523(a)(6). As summarized by the bankruptcy court and undisputed by the parties, Appellants, Mr. and Mrs. Phillips were served with the state court complaint. As a result of their failure to answer, the state court entered a default against Mr. and Mrs. Phillips. The state court subsequently held a hearing solely on the issue of damages. After the hearing, a state court judgment was entered against both Mr. and Mrs. Phillips in the amount of $71,962.75, and the judgment specifically states that it is a judgment on damages per a default. Upon a review of this record, the bankruptcy court found that

the tort issues were never joined and [Weissert’s] allegations were never in dispute. Consequently, in rendering its judgment, the state court did not resolve the issues, and the issues involving defendants’ alleged tortious conduct was *487not actually litigated. The state court just assumed the truth of these allegations for the purpose of rendering the judgment.

Therefore, the bankruptcy court held that the state court judgment was not entitled to preclusive effect on the issue of nondis-chargeability.

Reviewing the issue of whether the state court judgment should be given preclusive effect on the issue of nondis-chargeability under a de novo standard of review, the Panel finds that the issue of whether Appellants’ conduct was willful and malicious was not actually litigated in the state court. Appellants never filed an answer or in any way participated in the case prior to the entry of the judgment against them. In bankruptcy, the presumption is in favor of discharge and the party objecting to discharge has the burden of proof on every element of a nondis-chargeable cause of action. See XL/Datacomp, Inc. v. Wilson (In re Omegas Group, Inc.), 16 F.3d 1443, 1452 (6th Cir.1994) (“[T]he bankruptcy court must construe all exceptions to discharge ‘strictly,’ with the benefit of any doubt going to the debtor.”). If the state court record consists solely of a complaint and default judgment, it is virtually impossible for a bankruptcy court to make the findings of fact necessary to support a judgment of nondisehargeability. Given the lack of evidence in the state court record as to the intentional tort issues which determine whether the debt is excepted from discharge, the bankruptcy court did not err in holding that the state court judgment was not entitled to preclusive effect on the issue of nondisehargeability.

V. CONCLUSION

The bankruptcy court’s holding after trial that the debt reflected in the state court judgment arose from the willful and malicious conduct of Appellant Mrs. Phillips, and is therefore nondischargeable under 11 U.S.C. § 523(a)(6), is AFFIRMED. The bankruptcy court’s ruling that the state court judgment is preclusive on the issues of damages and liability; but not preclusive on the issue of nondischarge-ability, is also AFFIRMED. Additionally, the Panel concludes that the bankruptcy court did not abuse its discretion in denying the motion to amend the findings of fact and conclusions of law.

. The witnesses included: (1) a friend of Weissert (Bonnie Jones); (2) Weissert’s mother (Gail Weissert); (3) a nurse from the Grand Rapids YWCA rape crisis center (Sue Shat-tuck); and (4) a County Sheriffs Deputy (Brian Grill).