IN RE CHACON

nked-ref41 P.3d 345 (2002) (In New Mexico, partners have both statutory and common law fiduciary duties to each other.) with Holaday v. Seay (In re Seay), 215 B.R. 780, 787 (10 ^th Cir. BAP 1997) ("Even though the Oklahoma state courts may approve of a general policy that creates a fiduciary duty between joint venturers, this policy is not sufficient to fulfill the Tenth Circuit's requirements of a common law trust for purposes of § 523(a)(4).") It thus should be clear that what New Mexico courts are referring to when they find "fiduciary duty" can often just be a heightened duty of good faith.

Punitive damages may be awarded only when the wrongdoer's conduct may be said to be "maliciously intentional, fraudulent, oppressive, or committed recklessly or with a wanton disregard of the plaintiffs' rights." Hood v. Fulkerson, 102 N.M. 677, 699 P.2d 608 (1985) (quoting Loucks v. Albuquerque Nat'l Bank, 76 N.M. 735, 747, 418 P.2d 191, 199 (1966)). These words are to be taken as used in the disjunctive. See Bank of New Mexico v. Rice, 78 N.M. 170, 180, 429 P.2d 368, 378 (1967), appeal after remand, 79 N.M. 115, 440 P.2d 790 (1968); see also Curtiss v. Aetna Life Ins. Co., 90 N.M. 105, 108, 560 P.2d 169, 172 (Ct. App.), cert. denied, 90 N.M. 7, 558 P.2d 619 (1976). Punitive damages are to be awarded when actual or nominal damages are inadequate to satisfy the wrong committed. Montoya v. Moore, 77 N.M. 326, 330-31, 422 P.2d 363, 366 (1967). Punitive damages do not have to be in reasonable proportion to the actual damages, but they must not be so unrelated to the injury as to plainly manifest passion and prejudice rather than reason and justice. Faubion v. Tucker, 58 N.M. 303, 307, 270 P.2d 713, 716 (1954). Factors to be weighed in assessing punitive damages are the enormity and nature of the wrong and any-aggravating circumstances. See Sweitzer v. Sanchez, 80 N.M. 408, 412, 456 P.2d 882, 886 (Ct. App. 1969). Finally,

Where a party prays for an award of punitive damages and the evidence is sufficient to permit the issue of punitive damages to be considered by the jury, the amount of such damages is left to the sound discretion of the jury based on the nature of the wrong, the circumstances of each case, and any aggravating or mitigating circumstances as may be shown.

Chavez-Rey v. Miller, 99 N.M. 377, 379, 658 P.2d 452, 454 (Ct. App. 1982), cert. denied, 99 N.M. 358, 658 P.2d 433 (1983).

Id. at 174, 769 P.2d at 87 (Emphasis added.)

In 2001, the New Mexico Court of Appeals revisited the issue of punitive damages in Walta v. Gallegos Law Firm, P.C., 2002-NMCA-015, 131 N.M. 554, 40 P.3d 449 (Ct. App. 2001), cert. denied, 131 N.M. 619, 41 P.3d 345 (2002). That court stated that "a finding of a culpable mental state is necessary in order to impose punitive damages." Id. at {55}, 131 N.M. at 556, 40 P.3d at 461. Furthermore, "[t]here must be evidence of culpable conduct beyond that necessary to establish the underlying cause of action." Id. at {56} (Citations omitted.) The court found that culpability of a defendant can and should be measured on a continuum of reasonableness imposed in light of the defendant's obligations. Id. at {57}. "The more stringent the standard of conduct the more likely that breach of the standard will demonstrate a culpable mental state." Id. (Citation omitted.)

New Mexico law is in accord with that in other jurisdictions.See, Owens v. Watson, 806 S.W.2d 871, 875 (Ct. App. Tex. 1991) ("Factors to be considered making this [punitive damage] determination are: 1) the nature of the wrong; 2) the character of the conduct involved; 3) the degree of culpability of the wrongdoer; 4) the situation and sensitivities of the parties involved; and 5) the extent to which the conduct offends a public sense of justice and propriety.") (Citation omitted.); Paris v. Michael Kreitz, Jr. P.A., 75 N.C.App. 365, 373-74, 331 S.E.2d 234, 241 (Ct. App. 1985):

The established law in North Carolina regarding the recovery of punitive damages in tort actions is that "the tortious conduct must be accompanied by or partake of some element of aggravation before punitive damages will be allowed." Newton v. Insurance Co., 291 N.C. 105, 112, 229 S.E.2d 297, 301 (1976). . . . When the tort necessarily involves intentional wrongdoing, as in fraud, punitive damages are appropriate when the actionable conduct is accompanied by "some element of aggravation." Newton, supra 291 N.C. at 112, 229 S.E.2d at 301. Aggravated conduct has been variously defined but in the context of an intentional tort usually consists of insult, indignity, malice, oppression, or bad motive in addition to the tort. Oestreicher v. Stores, 290 N.C. 118, 225 S.E.2d 797 (1976); Swinton v. Realty Co., 236 N.C. 723, 73 S.E.2d 785 (1953); Baker v. Winslow, 184 N.C. 1, 113 S.E. 570 (1922).

and Fowler v. Mantooth, 683 S.W.2d 250, 252-53 (Ky. 1984):

It is a rule of long standing in this Commonwealth that exemplary or punitive damages may be recovered in an assault and battery case in addition to punitive damages where the assault is willful, malicious and without justification. Shields Adm'rs v. Rowland, 151 Ky. 136, 151 S.W. 408 (1912). . . .

The threshold for the award of punitive damages is misconduct involving something more than merely commission of the tort. The "something more" necessary in the present case was defined in the instructions as a finding "that the assault was willful, malicious, and without justification." Malice may be implied from outrageous conduct, and need not be express so long as the conduct is sufficient to evidence conscious wrongdoing. Hensley v. Paul Miller Ford, Inc., Ky., 508 S.W.2d 759 (1974). Hensley cites Prosser, Law of Torts § 2 (4th Ed. 1971), stating that punitive damages are "permitted" "[w]here the defendant's wrongdoing has been intentional and deliberate, and has the character of outrage." Id. at 762.

. . .

Section 908 of the Restatement sets out the elements to be "properly" considered by "the trier of fact" in assessing punitive damages as including" the character of the defendant's act, [as well as] the nature and the extent of the harm to the plaintiff that the defendant caused or intended to cause."

Thus we recognize two elements involved in assessing punitive damages: (1) the nature and extent of the harm to the plaintiff, and (2) the character of the defendant's act. . . . [T]he character of the act is a consideration of equal or greater importance [to the nature and extent of plaintiff's harm], depending on the case, in assessing punitive damages. The factors bearing on the character of the act include the degree of outrageousness, the extent of culpability, the motives of the wrongdoer, the relationship between the parties and the existence or absence of provocation. Restatement (Second) of Torts § 908 comment e (1977).

(Supreme Court holds that plaintiff's humiliation in being assaulted is a proper consideration in determining the character of the defendant's act.); Alyeska Pipeline Service Co. v. O'Kelley, 645 P.2d 767, 773-74 (Ak. 1982):

The mere fact that Alyeska may have committed an intentional tort did not, standing alone, obligate the trial court to give a punitive damages instruction. By their very nature, such damages turn on the wrongdoer's motive, state of mind, and degree of culpability, rather than the particular tort committed. K. Redden, Punitive Damages's 4.2 (1980). In Bridges v. Alaska Housing Authority, 375 P.2d 696 (Alaska 1962), we noted that punitive or "exemplary damages are those awarded in excess of actual loss where the wrongdoer's conduct can be characterized as outrageous, such as acts done with malice or bad motives or reckless indifference to the interests of another." Id. at 702. Malice need not be express, but may be inferred from acts evidencing a callous disregard for the rights of others. Sturm, Ruger Co., Inc. v. Day, 594 P.2d 38, 46 (Alaska 1979).

(Footnote omitted.); Shugar v. Guill, 51 N.C.App. 466, 472-73, 277 S.E.2d 126, 131 (Ct.App.), aff'd as modified, 304 N.C. 332, 283 S.E.2d 507 (1981):

Punitive damages, on the other hand, are not awarded as compensation, but they are awarded above and beyond actual damages in proper instances as punishment when it appears that the wrongful act was done maliciously, willfully, wantonly, or in reckless disregard of the plaintiff's rights. Hardy v. Toler, 288 N.C. 303, 218 S.E.2d 342 (1975); Cavin's Inc. v. Insurance Co., 27 N.C.App. 698, 220 S.E.2d 403 (1975). Punitive damages arise out of the acts or intentions of the tort-feasor which contain any of the elements of aggravation. Punitive damages do not arise automatically from the commission of the tort, but rather they arise from one of the aggravating factors extraneous to the tort. If facts merely necessary to apprise the defendant of the wrongdoing with which the plaintiff's complaint charges him are all that are pleaded, this will not provide the defendant with the notice to which he is entitled to prepare a responsive pleading or prepare for trial on the issue of punitive damages. Defendant is entitled to some notice from plaintiff's complaint of the extraneous facts from which plaintiff's claim for punitive damages arise. Therefore, we think that under the present system of "notice pleading" plaintiff must do more than make the conclusory allegation that, "defendant, without just cause, did intentionally, willfully and maliciously assault and batter the plaintiff." Plaintiff must allege some facts in his complaint tending to establish one or more of the aggravating factors in order to recover punitive damages.

and DiGiovanni v. Pessel, 55 N.J. 188, 191, 260 A.2d 510, 511-12 (1970) ("An act to give rise to punitive damages must be actuated by (1) actual malice, which is nothing more or less than intentional wrongdoing — an evil-minded act, or (2) an act accompanied by wanton and wilful disregard of the rights of another.") (Citation and internal punctuation omitted.)

Finally, the Restatement (Second) of Torts § 908 (1979) discusses the issue of punitive damages:

(1) Punitive damages are damages, other than compensatory or nominal damages, awarded against a person to punish him for his outrageous conduct and to deter him and others like him from similar conduct in the future.

(2) Punitive damages may be awarded for conduct that is outrageous, because of the defendant's evil motive or his reckless indifference to the rights of others. In assessing punitive damages, the trier of fact can properly consider the character of the defendant's act, the nature and extent of the harm to the plaintiff that the defendant caused or intended to cause and the wealth of the defendant.

And see, id. cmt. b:

Character of defendant's conduct. Since the purpose of punitive damages is not compensation of the plaintiff but punishment of the defendant and deterrence, these damages can be awarded only for conduct for which this remedy is appropriate — which is to say, conduct involving some element of outrage similar to that usually found in crime. The conduct must be outrageous, either because the defendant's acts are done with an evil motive or because they are done with reckless indifference to the rights of others. . . . Reckless indifference to the rights of others and conscious action in deliberate disregard of them (see § 500) may provide the necessary state of mind to justify punitive damages.

The discussion above regarding punitive damages warrants a few observations. To succeed in a punitive damage claim, a plaintiff must prove more than just the tort; plaintiff must also prove "something more" that demonstrates that the defendant acted with an evil intent, malice, or a total disregard of the expected impact of their actions. In other words, plaintiff must prove aggravated circumstances. Under New Mexico law, one factor in determining aggravating circumstances is the defendant's duties toward the plaintiff. Walta, 2002-NMCA-015 at {57}, 131 N.M. at 556, 40 P.3d at 461.

Therefore, for a jury to be able to make an informed decision on punitive damage availability, it will need to know the facts and circumstances surrounding Plaintiff's relationship with Defendant. The Court does not know if the New Mexico courts would find a higher standard or even fiduciary duty running from a home-healthcare worker to his patient, but Plaintiff should at least be allowed to argue this issue in the State Case.

The "instructions" contained in this memorandum opinion are directed to the parties, and certainly not to the State Court judge who will preside over the trial. That judge of course is in charge of her or his own courtroom and the proceedings therein.

2. Gross Negligence

The Defendant pled guilty to a crime that has intent as one of its elements. "Criminal sexual contact is the unlawful and intentional touching of or application of force, without consent, to the unclothed intimate parts of another who has reached his eighteenth birthday . . ." Section 30-9-12(A), NMSA 1978. A conviction or plea to a crime of intent is preclusive of intent in bankruptcy dischargeability proceedings. See T.K., a minor, by P.M., as next friend v. Love (In re Love), 347 B.R. 362, 367 (Bankr. W.D. Mo. 2006) ("[I]ntent to harm is established as a result of Debtor's conviction because, given the nature of the crime, the conviction either establishes that the Debtor knew that his conduct was certain or almost certain to cause harm or permits the Court to infer harm as a matter of law.") (Santa Claus's sexual misconduct with young girl.); Gray v. Gray (In re Gray), 322 B.R. 682, 694 (Bankr. N.D. Ala. 2005) ("Because a guilty plea is an admission of all the elements of the offense charged, and Defendant's crime [second degree assault] requires intent to cause serious physical injury, Defendant is estopped from denying that he had specific intent to cause injury to his daughter.") (Citation and internal punctuation omitted.);American National Bank and Trust Co. of Chicago v. Cooper (In re Cooper), 125 B.R. 777, 780 (Bankr. N.D. Ill. 1991) (Debtor's guilty plea to larceny resulted in nondischargeable debt.); Coleman v. Baker (In re Baker), 108 B.R. 663, 665 (Bankr. S.D. Ill. 1990) (Debtor's guilty plea to battery satisfied intent requirements of Section 523(a)(6).) See also, generally Restatement (Second) of Judgments § 85 cmt. b (1982) ("A defendant who pleads guilty may be held to be estopped in subsequent civil litigation from contesting facts representing the elements of the offense.")

Therefore, Defendant is precluded from arguing that his actions were other than intentional. Defendant was not grossly negligent. Therefore, it would not really be relevant if Plaintiff mentioned gross negligence in the State Case. (Her causes of action against co-defendant Interim are all based on negligence.) The parties should just ensure that any jury instructions in the State Case do not suggest the possibility of a punitive damage award based on negligence. See NMRA, Civ. UJI 13-1827, Committee Commentary ("Following the decision in Paiz [v. State Farm Fire Casualty Co., 118 N.M. 203, 213, 880 P.2d 300, 310 (1994)], the committee recommended that gross negligence be removed as a basis for punitive damages in both contract and tort cases. This recommendation was adopted by the New Mexico Supreme Court in 1998." Therefore, the Uniform New Mexico jury instruction for punitive damages does not refer to negligence.)

3. Stay Relief

Plaintiff requests that the automatic stay be modified to allow her to proceed in the State Case. This was the result anticipated at the initial pretrial conference in this case, and the Court will so order.

Two reasons dictate that decision. First, the State Court is prepared to complete the litigation, and to do so at least as quickly as it can be completed in this Court. Second, if a federal court is to determine liability and damages on these sexual assault claims (as opposed to the sole issue of dischargeability), the adjudication must be by the United States District Court rather than this Court.

The district court shall order that personal injury tort and wrongful death claims shall be tried in the district court in which the bankruptcy case is pending. . . .

28 U.S.C. § 157(b)(5). See, for example, Leatham v. Von Volkmar (In re Von Valkmar), 217 B.R. 561, 565 (Bankr. N.D. Ill. 1998) (in adversary proceeding concerning dischargeability of personal injury claim, bankruptcy court had no jurisdiction to adjudicate liability and liquidate damages); Schachter v. Fall (In re Fall), 192 B.R. 16, 18 (Bankr. D. N.H. 1995) (bankruptcy court took no evidence concerning damages and adjudicated only the discharge issue).

In fact, the request for stay relief in some ways is the core of the matter in this Court. It is most often the case that a dischargeability action is either brought to this Court after the civil litigation has taken place in order for the Court to adjudicate the dischargeability aspect of any judgment already entered in another forum, or is brought originally in this Court for a determination of nondischargeable liability and damages. In this instance a personal injury tort action had been initiated in State Court, was interrupted by the chapter 13 filing and is now followed by this nondischargeability adversary proceeding. A number of courts have addressed this circumstance and come up with the same solution: permit the liability and damages issues to be determined either in the state court or the U.S. district court, and then have the parties return to the bankruptcy court as needed for an adjudication of the dischargeability issue. E.g., Doe v. Martinez (In re Martinez), 2010 WL 3075282 (D.N.M.) at *3 (district court withdraws reference to bankruptcy court and then stays action to permit state court to adjudicate liability and damages on personal injury claims, with matter later to be referred back to the bankruptcy court for dischargeability adjudication); In re Nifong, 2008 WL 2203149 (Bankr. M.D.N.C.) at *4 (stay modified to permit adjudication of Duke University lacrosse player's personal injury claims against former prosecutor in U.S. district court; dischargeability adversary proceeding stayed); Tidwell v. Smith (In re Smith), 379 B.R. 315, 330-31 (Bankr. N.D. Ill. 2007) (plaintiffs to prosecute sexual assault claims in state court and return to bankruptcy court for adjudication of dischargeability issue); Rizzo v. Passialis (In re Passialis), 292 B.R. 346, 348 (Bankr. N.D. Ill. 2003) (in dischargeability action, plaintiff permitted to move to withdraw the reference so district court could adjudicate slander claim); Roberts v. Goidel (In re Goidel), 150 B.R. 885, 888 (Bankr. S.D.N.Y. 1993) (in dischargeability action, bankruptcy court abstained until state court adjudicated defamation action). Therefore this Court will modify the automatic stay so that the parties can complete the adjudication of the liability and damages issues.

See Grogan v. Garner, 498 U.S. 279, 284 n. 11 (1991) (doctrine of collateral estoppel or issue preclusion may be invoked to eliminate need for retrial of merits in bankruptcy court).

Because of the parties' disputes about aspects of the State Court case (detailed above), it is easily conceivable if not likely that following the conclusion of the State Court case, at least one of the parties will ask this Court to clarify further what is dischargeable in the judgment and what is not. In order to minimize that possibility, the Court suggests that the parties attempt to ensure that any verdict is clear with respect to the standards of nondischargeability. For example, they might consider (subject of course to the discretion of the State Court judge) special interrogatories to the jury, carefully crafted jury instructions on subjects such as "fiduciary", and the precise basis for the award of any punitive damages.

If a creditor's claim for compensatory and punitive damages both arise from a debtor's willful and malicious conduct, both are excepted from discharge.

The Plaintiffs State court judgment against the Defendant can be divided into three parts: compensatory damages, punitive damages, and attorneys' fees and costs. The fact that the Plaintiffs compensatory damages are nondischargeable is straightforward, since they arise directly from a willful and malicious injury caused the Debtor to another entity. See § 523(a)(6). Punitive damages, theoretically, go beyond the injury caused by the Debtor for his willful and malicious act. See Ramsey v. Bernstein (In re Bernstein), 197 B.R. 475 (Bankr. D. Md. 1996). However, "when punitive damages spring from the same conduct giving rise to nondischargeable compensatory damages, such punitive damages are also not dischargeable in bankruptcy." Id.; see also In re Miera, 926 F.2d 741, 745 (8th Cir. 1991); In re Adams, 761 F.2d 1422, 1427-28 (9th Cir. 1985). This is because "the punitive damages still arise from the `willful and malicious injury by the debtor to another entity.'" Ramsey v. Bernstein (In re Bernstein), 197 B.R. 475 (Bankr. D. Md. 1996) (citing 11 U.S.C. § 523(a)(6).)

Merriex v. Beale (In re Beale), 253 B.R. 644, 651 (Bankr. D. Md. 2000). See also Britton v. Price (In re Britton), 950 F.2d 602, 606 (9^th Cir. 1991) (Punitive damages related to willful and malicious injuries are nondischargeable under section 523(a)(6).)Compare Cohen v. De La Cruz, 523 U.S. 213, 220 and 221 (1998) (The term "debt for" is used throughout section 523 to mean "debt as a result of," "debt with respect to," "debt by reason of," and the like, which connotes broadly any liability arising from the specified object. Therefore, section 523(a)(2)(A) includes any liability arising from a debtor's fraudulent acquisition of money or property including an award of treble damages.)

CONCLUSION

The Court finds that any damages (plus any related punitive damages arising from the same actions complained of) awarded in Plaintiff's State Case, counts 1 through 4, represent nondischargeable debts under 11 U.S.C. § 1328(a)(4). Any damages exclusively for breach of fiduciary duty or negligence awarded in the State Case are dischargeable. The Court will not order Plaintiff to refrain from using the term fiduciary duty or negligence in the State Case, subject to the caution that an injudicious use of that term could result in significantly more litigation (and expense) in this Court. The Court also cautions that the burden of proof is and will remain with the Plaintiff to prove that any award is in fact nondischargeable if it is not clear from the verdict. The automatic stay will be modified in order to permit the State Case to go forward for a determination of liability and damages. The Court will also enter a separate order based on this memorandum.

Date Entered on Docket: October 1, 2010