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Klingman v. Levinson

decided: June 28, 1989.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division, No. 88 C 2239 -- Marvin E. Aspen, Judge.

Wood and Manion, Circuit Judges, and Fairchild, Senior Circuit Judge.

Author: Fairchild

FAIRCHILD, Senior Circuit Judge

The question posed in this appeal is whether the bankruptcy judge had authority to enter an order correcting (or amending, depending on one's viewpoint) a judgment it had earlier entered in the same case, a judgment more than a year and a half old which had been affirmed by the district court and court of appeals.

The roots of this case go back almost twenty years. In 1970, Francine Klingman sued Melvin Levinson, a lawyer, in the Circuit Court of Cook County claiming that Mr. Levinson had misappropriated the assets of a trust of which Ms. Klingman was the beneficiary. Ms. Klingman and Mr. Levinson eventually reached a settlement, and the court entered an Agreed Judgment Order on April 11, 1975. In the Agreed Order, Mr. Levinson admitted to having violated his fiduciary duties as trustee in various ways, and judgment was entered in favor of Ms. Klingman and against Mr. Levinson for the following amounts:

(a) $37,550.00, representing the amount of the trust fund;

(b) $14,550.00, representing 5% interest on the $37,550.00 from July 17, 1967 to the date of the agreed order, April 11, 1975; and

(c) $10,000.00 attorneys' fees pursuant to the parties' stipulation.

The Agreed Order also stated that Mr. Klingman

has stipulated that it is his intention that the obligation to Plaintiff [Ms. Klingman] created by this Agreed Judgment Order not be dischargeable in any bankruptcy or similar proceeding, and that in any subsequent proceeding all of the allegations of the Complaint and findings of this Court may be taken as true and correct without further proof.

Mr. Levinson filed for bankruptcy under Chapter 7 of the Bankruptcy Code on April 22, 1982. Apparently his debt to Ms. Klingman remained unpaid, for she asked the bankruptcy court to declare that the debt created by the Agreed Order was nondischargeable under 11 U.S.C. § 523(a)(4) as one resulting from "fraud or defalcation while acting in a fiduciary capacity." Mr. Levinson contested Ms. Klingman's motion, claiming that public policy prohibits the waiving of nondischargeability in advance of a debtor's bankruptcy proceeding, and that res judicata and collateral estoppel did not preclude relitigating the question whether he had in fact defrauded Ms. Klingman.

The bankruptcy court held that public policy did prevent Mr. Levinson's waiver from being effective, but held that because of the factual findings contained in the Agreed Order, Mr. Levinson was "barred by the principle of collateral estoppel from relitigating the issue of whether his debt is nondischargeable based on fiduciary fraud or defalcation," and granted the plaintiff's motion for summary judgment. In re Levinson, 58 Bankr. 831, 837 (Bankr. N.D. Ill. 1986).

The conclusion of the opinion stated that "the plaintiff's claim against the debtor for $37,550 is nondischargeable under § 523(a)(4). The plaintiff is entitled to interest on that amount from the date the debtor filed his bankruptcy petition and may recover attorneys' fees awarded in paragraph 7 of the state court order." Id. The judgment that was entered tracked this language. The issue before us arises from implications allegedly resulting from the opinion's specific references to interest accruing after the filing of the bankruptcy petition, and to attorneys' fees, and from its silence as to the interest included in the state judgment and the interest which accrued on the state judgment until the filing of the petition. Mr. Levinson now argues that the failure to mention pre-petition interest in the 1986 bankruptcy judgment allowed his liability for those amounts to be discharged.

The district court affirmed the bankruptcy court judgment, without mentioning the question of the dischargeability of the pre-petition interest. Klingman v. Levinson, 66 Bankr. 548 (N.D. Ill. 1986). This court affirmed the judgment of the district court, addressing the subjects of collateral estoppel, the dischargeability of attorneys' fees, and the effect of Mr. Klingman's stipulation as to the nondischargeability of the debt. Klingman ...

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