UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
BRIAN KEITH GEORGE
DEBTORS CASE NO. 09-50847
ANETTE HOGAN PLAINTIFFS
VS. ADV. NO. 09-5065
BRIAN KEITH GEORGE
OLGA GEORGE DEFENDANTS
MEMORANDUM OPINION AND ORDER
This matter is before the court on the Plaintiffs’ Motion to Reconsider and for Clarification of Ruling on Plaintiffs’ Motion for Summary Judgment Pursuant to Bankruptcy Rule 9023 (“Motion to Reconsider”). The Defendants have filed a Response. The court entered a Partial Summary Judgment on November 11, 2009, ruling that the Defendants’ debt to the Plaintiffs for their award of damages for fraud is nondischargeable, and that each Defendant’s debt to the Plaintiffs for their award of punitive damages is nondischargeable. The Plaintiffs’ Motion for Summary Judgment on their claim for negligent misrepresentation under Bankruptcy Code section 523(a)(2)(A) and their claim for malicious injury to property under Code section 523(a)(6) was overruled.
The Plaintiffs filed a suit against the Defendants in the District Court of Jefferson County, Colorado (“the Colorado litigation”) in regard to their purchase of certain real property in Colorado from the Defendants. Subsequent to the filing of the Plaintiffs’ Complaint, the Defendants filed a Chapter 13 case in this court on July 30, 2008. This case was voluntarily dismissed by an order entered on September 12, 2008.
After the Chapter 13 proceeding was dismissed, the Plaintiffs resumed the Colorado litigation. The allegations in their complaint were tried to a jury, and a verdict and judgment rendered in their favor. The jury found that the Defendants had engaged in misrepresentation/fraud in the inducement, negligent misrepresentation, and breach of contract, and awarded the Plaintiffs a judgment, jointly and severally, against both Defendants in the amount of $171,000.00 on each finding, for a total of $513,000.00. The jury further found that the Defendants had each engaged in misrepresentation/fraud in the inducement and negligent misrepresentation, and awarded the Plaintiffs exemplary/punitive damages against each of them in the amount of $93,500.00, for a total award of $187,000.00.
On March 23, 2009, the Defendants filed a Chapter 11 case. The Plaintiffs commenced this proceeding by the filing of their Complaint Objecting to Dischargeability of Debt on April 28, 2009. They filed their Motion for Summary Judgment on August 26, 2009; it was heard on October 21, 2009 and taken under consideration for decision. On October 14, 2009, the Defendants filed a Motion to Convert Case to a Case Under Chapter 7. An Order Converting Case was entered on October 21, 2009. The court entered a Memorandum Opinion and Partial Summary Judgment on November 12, 2009, declaring that the Defendants’ debt to the Plaintiffs on their claim of fraud is nondischargeable, and that the individual Defendants’ debts to the Plaintiffs for their awards of punitive damages are nondischargeable.
The Plaintiffs contend that the jury inquiry and final judgment in the Colorado litigation was cumulative in nature, and for that reason this court should have determined that the entire $513,000.00 judgment was nondischargeable. The Plaintiffs argue that the Colorado court found that the cumulative actions of the Defendants caused damages in that amount, and that the Colorado court’s Final Judgment did not reflect individual verdicts. It is not, however, the nature of the Final Judgment (cumulative or otherwise) that determines whether the Defendants’ debt to the Plaintiffs is nondischargeable in whole or in part.
The Plaintiffs alleged both fraudulent and negligent misrepresentation in the Colorado litigation. Bankruptcy Code section 523(a)(2) does not include a cause of action for negligent misrepresentation. In order to demonstrate that a debt is nondischargeable under that section, it must have been incurred by means of “false pretenses, a false representation, or actual fraud[.]” 11 U.S.C. §523(a)(2)(A). The Colorado court’s Final Judgment in regard to the issue of the dischargeability of the Defendants’ debt to the Plaintiffs under section 523(a)(2)(A) for negligent misrepresentation does not have preclusive effect in this matter, and the court declines to change its ruling in that regard.
The Plaintiffs also contend that the Final Judgment established the elements of Code section 523(a)(6), and that they should have prevailed on their Motion for Summary Judgment on that issue. The Plaintiffs’ claim under section 523(a)(6) is based on breach of contract. As was set out in this court’s Memorandum Opinion, in order for a debt to be found to be nondischargeable under section 523(a)(6), both the willful and the malicious prongs of the statute must be satisfied. Specifically, under the reasoning of The Spring Works, Inc. v. Sarff (In re Sarff), 242 B.R. 620 (6th Cir. B.A.P. 2000), the Colorado jury had to find that the Defendants intended to cause harm by breaching their contract with the Plaintiffs. The jury was not required to make such a finding, as it was not asked to find that the injury to the Plaintiffs was both willful and malicious. Its verdict could have been based on the injury to the Plaintiffs being either one or the other. The Colorado court’s Final Judgment in regard to the issue of the dischargeability of the Defendants’ debt to the Plaintiffs under section 523(a)(6) for willful and malicious injury therefore does not have preclusive effect in this matter, and the court also declines to change its ruling in regard to this issue.
Finally, the Plaintiffs ask that the court rule that the costs and fees awarded by the Colorado court are excepted from discharge. The court has not foreclosed an award of costs and fees, but presumes that the Plaintiffs may still incur costs, especially if they choose to pursue those issues that are still outstanding. In any event, the Plaintiffs must itemize their costs before the court will consider an award.
In conclusion, the court finds that the Plaintiffs’ Motion to Reconsider and for Clarification of Ruling on Plaintiffs’ Motion for Summary Judgment Pursuant to Bankruptcy Rule 9023 should be, and it hereby is, OVERRULED.
Thomas L. Canary, Esq.
John E. Davis, Esq.