KEVIN P. GERARD and MARGARET M. GERARD, Plaintiffs-Appellees,
MICHAEL J. GERARD, Defendant-Appellant
Argued December 3, 2014
Appeal from the United States District Court for the Eastern District of Wisconsin. No. 13-cv-114-- Charles N. Clevert, Jr., Judge.
For In the Matter of: MICHAEL J. GERARD, Debtor - Appellant: Michael P. Dunn, Attorney, Kerkman & Dunn, Milwaukee, WI.
For Kevin P. Gerard, Margaret M. Gerard, Appellees: Matthew W. O'Neill, Attorney, Fox, O'Neill & Shannon, Milwaukee, WI.
Before MANION, ROVNER, and HAMILTON, Circuit Judges.
Manion, Circuit Judge.
Kevin and Margaret Gerard initiated this adversary proceeding seeking a judicial determination that the $281,000 interlocutory judgment they obtained against Michael Gerard for slander of title is precluded from discharge in bankruptcy under 11 U.S.C. § 523(a)(6). The bankruptcy court concluded that the interlocutory judgment was precluded from discharge and entered judgment for Kevin and Margaret. Michael appealed to the district court, and it affirmed the judgment of the bankruptcy court. We hold that these courts erred in concluding that the state court jury's slander of title findings preclusively established that Michael acted " willfully" within the meaning of 11 U.S.C. § 523(a)(6) because the jury's verdict could have been based on Michael's negligence. Accordingly, we reverse the judgment of the district court and remand to the bankruptcy court for a determination of whether Michael's conduct constitutes a " willful and malicious injury" to the Gerards.
In 2007, Michael Gerard sought to purchase a vacant parcel of real property located on Lake Michigan in Ozaukee County, Wisconsin (the " lot" ), but he needed help with the financing so he turned to his brother Kevin Gerard, and Kevin's wife, Margaret (the " Gerards" ). In November 2007, the Gerards purchased the lot, and by oral agreement the parties agreed that Michael would cover the expenses, make payments, and ultimately
purchase the lot outright. As time went by, a dispute arose between Michael and the Gerards. After some fruitless negotiation, they concluded that Michael would not be financially able to purchase the lot from them, so they put it up for sale. In September 2008, Kevin sent e-mails and a letter to Michael offering to reimburse him $54,049.10 for the funds Michael had expended in connection with the lot. They also directed Michael to stop tampering with the Gerards' " For Sale" signs posted on it. Michael did not accept Kevin's offer; instead, on September 26, 2008, he recorded a " Memorandum of Interest" (the " lien" ) in the land records of Ozaukee County. Although Michael only owned about a 5% interest in the lot, the lien he recorded stated that the Gerards " acquired title for convenience only."
In 2009, after some sale price reductions failed to attract a buyer, the Gerards sued Michael in Ozaukee County Circuit Court seeking a declaration of quiet title, slander of title, partition, and breach of contract. Michael's theory at trial was that he was legally privileged to protect his approximately 5% equitable and beneficial interest in the lot, and that by recording the lien, he did not prevent any potential purchasers from buying it. Michael testified that the lien caused no damage to the market for the lot because
it's always possible for someone to buy the lot. That's ... the whole purpose of this lien so that the public can see [that] someone else has an interest in this lot. And if they really, you know, want to do their homework, if they really like the lot, they can call and say, there's the attorney's name on there. They can say, what does your client want to remove this lien and give me a figure, offer a fair market value, that's the whole purpose of the process.
Thus, the Gerards' theory at trial was that Michael's conduct prior to and culminating in his recording of the lien was done for the purpose of slandering their title and to interfere with their ability to market and sell the lot. The Gerards' theory was ...