McKnight v. Morgan (In re Morgan)
Docket: Bankruptcy No. HE 86-42 S; AP No. 86-337
Court: United States Bankruptcy Court, E.D. Arkansas; April 20, 1989; Us Bankruptcy; United States Bankruptcy Court
The Court denied the Motion for Summary Judgment without prejudice in an adversary proceeding concerning the dischargeability of a debt under 11 U.S.C. 523(a)(4). The Court has jurisdiction under 28 U.S.C. 1334 and identifies the matter as a core proceeding per 28 U.S.C. 157(b)(1). The Plaintiff claims entitlement to summary judgment based on findings from the Chancery Court of St. Francis County, Arkansas, which ruled that the Defendant, acting as Trustee, committed fraudulent acts and defalcation resulting in a loss of at least $175,255.43 to the trust. The Plaintiff seeks to establish that the resulting judgment from the Chancery Court is non-dischargeable under Section 523(a)(4), asserting that res judicata applies to prevent relitigation of these issues since they were previously adjudicated. In opposition, the Defendant denies the allegations and claims that the Chancery Court's decree is void due to a violation of the automatic stay under 11 U.S.C. 362, arguing that res judicata and collateral estoppel do not apply. The Defendant contends that the Chancery Court did not employ the correct standard of proof, and that material facts remain disputed. Both parties submitted briefs supporting their positions, but the Court decided to only address the issue of the automatic stay, concluding that the Plaintiff’s argument—that the automatic stay does not invalidate state court actions—was insufficient to grant the Motion for Summary Judgment at this time. The denial is without prejudice, allowing for the possibility of the motion being renewed later. The Plaintiff cites two bankruptcy court decisions to argue that a formal written decision made post-petition is not subject to the automatic stay under 11 U.S.C. § 362(a). These courts held that extending the automatic stay to state court judicial officers was unwarranted, especially since the parties had concluded all activities and the court had made oral findings. However, this Court does not agree with the conclusions of the Minnesota and Florida bankruptcy courts regarding the state court's actions not violating the automatic stay. It does not grant the Motion for Summary Judgment, indicating that while the actions may be voidable, the determination is fact-specific. The Court retains the authority to annul the automatic stay under § 362(d) and expresses willingness to do so to validate the state court's actions or allow a post-petition final order. Consequently, the Motion for Summary Judgment is denied without prejudice.