filed: August 30, 1994; As Corrected October 5, 1994. Second Correction November 17, 1994.
On Appeal From the United States District Court for the District of New Jersey. (D.C. Civil No. 93-00215).
Before: Becker, Hutchinson and Cowen, Circuit Judges.
Debtor Dominick Conte, a New Jersey lawyer and the defendant in this case, appeals from a district court order affirming a bankruptcy court order that Conte's debt to plaintiffs Urmila and Narinder Gautam arising from a jury verdict against him in a legal malpractice action was not dischargeable. The bankruptcy court held that the debt was not dischargeable because the jury verdict in the previous case established that his conduct was "willful and malicious" within the meaning of 11 U.S.C. § 523(a)(6). Under § 523(a)(6), willful and malicious injuries are not dischargeable in bankruptcy. At issue on the appeal is whether the jury's verdict has issue preclusive effect on the question whether Conte's actions were willful and malicious.
One of the core requirements of issue preclusion under New Jersey law is that the issue sought to be precluded is the same as was litigated in the previous action. See In re Braen, 900 F.2d 621, 628 n.5 (3d Cir. 1990). We conclude that the jury's finding on which the preclusion ruling was based, i.e., that Conte acted: (1) with knowledge that the Gautams faced a high probability of harm, and (2) with reckless indifference to the consequences, does not constitute a finding of "willful and malicious injury" within the meaning of § 523(a)(6). An injury is willful and malicious under the Code only if the actor purposefully inflicted the injury or acted with substantial certainty that injury would result. Thus, we will vacate the order of the district court and direct it to remand the case to the bankruptcy court to conduct an adversary proceeding on whether the injury was willful and malicious within this frame of reference.
The Gautams hired Conte to represent them in a medical malpractice action. Conte failed to comply with discovery requests, and the New Jersey Superior Court eventually dismissed the case for that reason. Conte, however, did not inform the Gautams of this dismissal, and, by the time they became aware of it, the time had passed to have the case reinstated. The Gautams sued Conte for legal malpractice and a New Jersey Superior Court jury found for the Gautams. It awarded them $520,000 in compensatory damages and $1 million in punitive damages. The jury's award of punitive damages was grounded on its affirmative answer to the following interrogatory:
It has been admitted by Mr. Conte that as of June 1980 he was aware that his client's case against Dr. Gerry Brown had been dismissed by the court.
Do you find that he deliberately omitted informing his clients of the fact that their case was dismissed with knowledge of a high degree of probability of harm to Mr. and Mrs. Gautam and reckless indifference to the consequences of his omission?
Four months after the jury's verdict, Conte filed a Chapter 7 bankruptcy petition. The Gautams then filed an adversary complaint asserting that the debt was nondischargeable under § 523(a)(6) of the Bankruptcy Code, which excepts from discharge any debt "for willful and malicious injury by the debtor to another entity or to the property of another entity." 11 U.S.C. 523 § (a)(6). The bankruptcy court granted summary judgment for the plaintiffs on the dischargeability issue holding that the jury's finding that Conte failed to notify the Gautam's of dismissal of their action (i) with knowledge that the Gautams faced a high probability of harm and (ii) with reckless indifference to the consequences of his action, collaterally estopped Conte from claiming that his debt did not fall into the exception for willful and malicious injury.
Conte appealed. He asserted that the jury's answer to the interrogatory was not preclusive because: 1) the bankruptcy court failed to accord him an adequate hearing; 2) the issue decided in the jury trial was not the same issue as the one in bankruptcy court; and 3) he did not have a full and fair opportunity to litigate the issue at the jury trial because he had represented himself, and his illness at the time had prevented him from aggressively defending the action. The district court rejected these contentions and affirmed the order of the bankruptcy court. Conte advances these same contentions on this appeal. We address only his second contention: whether the issue on which the jury verdict was based is the same as that addressed in the bankruptcy court.
In common law tort cases, willfulness has generally been equated with recklessness, which requires taking an action in disregard of a significant risk. According to Prosser and Keeton, "the usual meaning assigned to 'willful,' 'wanton' or 'reckless' . . . is that the actor has intentionally done an act of an unreasonable character in disregard of a known or obvious risk that was so great as to make it highly probable that harm would follow . . . " W. Page Keeton et al. Prosser and Keeton on the Law of Torts § 34, at 213 (5th ed. 1984). ...