Dennis D. Koonce v. Joseph Gambino

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 13-2756
JOSEPH M. GAMBINO, as Independent Administrator of the
Estate of Joseph J. Gambino Deceased,
Plaintiff -Appellee,
v.
DENNIS D. KOONCE,
Defendant -Appellant.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 11-CV-07379 — Joan Humphrey Lefkow, Judge.
____________________
ARGUED MARCH 31, 2014 — DECIDED JULY 2, 2014
____________________
Before WOOD, Chief Judge, and WILLIAMS and HAMILTON,
Circuit Judges.
WILLIAMS, Circuit Judge. The decedent, Joseph J. Gam-
bino, 1 alleged in a state lawsuit to clear his title to three
1 After Joseph J. Gambino died, Joseph M. Gambino continued the suit.
Joseph J. Gambino and Joseph M. Gambino will be referred to inter-
changeably as “Gambino.”
2 No. 13-2756
properties that various defendants, including Dennis
Koonce, used forged deeds and other fraudulent documents
to improperly gain title to the properties he owned. The Illi-
nois state trial court found that Koonce acted with fraud and
malice and ordered him to pay compensatory and punitive
damages. After the state appellate court affirmed the state
trial court’s rulings, but before Koonce satisfied the Illinois
state court’s judgment, Koonce filed for bankruptcy. As part
of the bankruptcy proceedings, Gambino filed an adversary
action against Koonce, seeking to have the state judgment
declared nondischargeable pursuant to 11 U.S.C. §§
523(a)(2)(A) and (a)(6). The bankruptcy court agreed with
Gambino, finding that he conclusively established that
Koonce’s debt was nondischargeable and that Koonce was
collaterally estopped from relitigating the issue of his intent.
The district court affirmed the bankruptcy court’s determi-
nation and ruled that Gambino’s motion for judgment on the
pleadings should be granted.
Koonce now appeals, arguing that the issue of his fraud-
ulent intent was not actually litigated in state court. We dis-
agree. Whether he acted with fraud was raised, litigated, and
ruled on in state court. Second, he claims that the finding of
fraudulent intent is not necessary to the slander of title ac-
tion or in assessing punitive damages, but we disagree be-
cause the state court could not have decided if Koonce slan-
dered Gambino’s title or assessed punitive damages without
first deciding whether he did so with fraudulent intent. Fi-
nally, we reject his argument that a hearing in the bankrupt-
cy court was necessary to determine whether the punitive
damage award reflected the amount actually obtained by the
fraud or constituted a penalty imposed by the court caused
No. 13-2756 3
by the fraud because it was not raised below. Therefore, we
affirm the district court’s judgment.
I. BACKGROUND
Joseph J. Gambino filed suit in Illinois state court seeking
to quiet title to three parcels of real estate and to recover
damages for slander of title against a number of individuals
and entities, including Dennis Koonce and two companies
Koonce owned. Gambino alleged that Koonce, along with
others, used forged deeds and other fraudulent documents
to obtain title to three of Gambino’s properties and, with
malice, slandered Gambino’s titles.
The case went to trial in the fall of 2007. The court found
that the deeds conveying title to the three parcels of land
were forged by the defendants, that Koonce and his compat-
riots slandered Gambino’s title to the properties, and that
title rested with Gambino. The court ordered Koonce to pay
Gambino $595,574 in compensatory damages and $500,000
in punitive damages. Koonce appealed the state court’s deci-
sion, and the appellate court affirmed the trial court’s ruling.
On the quiet title counts, the appellate court rejected
Koonce’s argument that the trial court did not make the re-
quired finding of intent to defraud. The appellate court stat-
ed that “there was ample evidence of Koonce’s intent to de-
fraud by the use of forged documents.” The appellate court
also found that the trial court’s finding of Koonce’s malice to
support the slander of title counts was not against the mani-
fest weight of the evidence. Koonce argued that punitive
damages should not have been awarded because there was
“no evidence to support a finding of malice beyond that nec-
essary for a finding of liability on the tort of slander of title
4 No. 13-2756
itself.” The appellate court rejected this argument and stated
that the harm Koonce inflicted “was the result of intentional
malice, trickery, and deceit.”
In October 2009, Koonce filed for bankruptcy. Gambino
opposed the petition and sought a determination as to
whether, under 11 U.S.C. §§ 523(a)(2)(A) and (a)(6), Koonce’s
debt arising from the state court judgment could be dis-
charged. Under § 523(a)(2)(A), a debtor’s debt may not be
discharged if the debt was for money and property obtained
by false pretenses, false representations, or actual fraud.
McClellan v. Cantrell, 217 F.3d 890, 892 (7th Cir. 2000). Under
§ 523(a)(6), a debtor’s debt may not be discharged if he will-
fully and maliciously injured the plaintiff or the plaintiff’s
property. Jendusa-Nicolai v. Larsen, 677 F.3d 320, 321 (7th Cir.
2012).
Gambino alleged that Koonce engaged in a fraud to di-
vest him of ownership of certain real estate through forgery,
misrepresentation, and other fraudulent conduct. Gambino
incorporated the state trial court’s judgment orders and find-
ings of fact as well as the appellate court’s opinion affirming
these orders in his adversary complaint. Gambino sought
summary judgment on the adversary complaint, arguing
that the state court’s findings of fact conclusively established
that the debt was nondischargeable under §§ 523(a)(2)(A)
and (a)(6) and that Koonce was collaterally estopped from
relitigating those issues.
The bankruptcy court denied Gambino’s motion for
summary judgment and set a date for trial. Gambino filed a
motion in limine, which the bankruptcy court granted on Ju-
ly 13, 2011, to bar Koonce from introducing evidence or tes-
timony disputing the issues and findings of fact from the
No. 13-2756 5
state court proceeding. The bankruptcy court concluded that
the requirements for collateral estoppel were met because
the state trial court’s decision on punitive damages neces-
sarily included a finding that Koonce acted intentionally and
maliciously. After Gambino filed a motion for judgment on
the pleadings, the bankruptcy court found that the state
court judgment of $594,574 in compensatory damages and
$500,000 in punitive damages was a nondischargeable debt.
Koonce appealed the bankruptcy court’s decision prohib-
iting him from introducing evidence about fraudulent intent
and its judgment on the pleadings to the district court. The
district court affirmed the bankruptcy court’s orders, hold-
ing that Koonce was collaterally estopped from raising the
issue of his fraudulent intent in bankruptcy court. Koonce
now appeals.
II. ANALYSIS
Koonce seeks reversal of the district court’s affirmance of
the bankruptcy court’s order granting Gambino judgment
on the pleadings. This court reviews a district court’s adjudi-
cation of a motion for judgment on the pleadings under Fed-
eral Rule of Civil Procedure 12(c) de novo and draws all rea-
sonable inferences in favor of the nonmoving party. Gus-
tafson v. Jones, 117 F.3d 1015, 1017 (7th Cir. 1997). “Whether
the issue of intent was litigated and resolved in the state
court action, as required for application of collateral estop-
pel, is a question of law” reviewed de novo. In re Davis, 638
F.3d 549, 553 (7th Cir. 2011). Collateral estoppel bars relitiga-
tion of issues determined in prior court actions and applies
to discharge exception proceedings under § 523(a). Grogan v.
Garner, 498 U.S. 279, 284 n.11 (1991). “Federal courts must
give state court judgments the same preclusive effect as a
6 No. 13-2756
court in the rendering state, applying that state’s law.” Jensen
v. Foley, 295 F.3d 745, 748 (7th Cir. 2002) (internal quotation
marks omitted). Therefore, the law of Illinois determines the
extent to which the state court decision should be given pre-
clusive effect. 28 U.S.C. § 1738; PaineWebber, Inc. v. Farnam,
870 F.2d 1286, 1290 (7th Cir. 1989).
Under Illinois law, collateral estoppel requires that “(1)
the issues decided in the prior adjudication are identical to
issues presented for adjudication in the current proceeding;
(2) there be a final judgment on the merits; and (3) the party
against whom estoppel is asserted was a party or in privity
with a party in the prior action.” Am. Family Mut. Ins. Co. v.
Savickas, 739 N.E.2d 445, 451 (Ill. 2000). In addition, “the par-
ty sought to be bound must actually have litigated the issue
in the first suit and a decision on the issue must have been
necessary to the judgment in the first litigation.” Id.A. Fraudulent Intent Litigated in Slander of Title
Action
Koonce argues that the issue of whether he acted with
fraudulent intent was not actually litigated in the state court
proceedings. “[A]ctually litigated does not mean thoroughly
litigated, but only that the parties disputed the issue and the
trier of fact resolved it.” Harmon v. Gordon, 712 F.3d 1044,
1055 n.4 (7th Cir. 2013) (quoting Taylor v. Peoples Gas Light &
Coke Co., 656 N.E.2d 134, 141 (Ill. App. Ct. 1995)). It can be
satisfied even if “only a slight amount of evidence was pre-
sented on the disputed matter decided in the first suit.” Id;
see also In re Catt, 368 F.3d 789, 792 (7th Cir. 2004).
Koonce’s argument fails because the issue of his fraudu-
lent intent was actually litigated. Gambino sued Koonce to
No. 13-2756 7
quiet title to three parcels of real estate and to recover dam-
ages for slander of title. In order to determine whether
Koonce slandered Gambino’s title, the state court had to in-
quire into his intent. To prove that Koonce slandered Gam-
bino’s title, Gambino had to prove that: (1) Koonce made a
false and malicious publication; (2) the publication dispar-
aged Gambino’s title to his property; (3) Gambino suffered
damages due to the publication; and (4) Koonce acted with
malice. See Chi. Title & Trust Co. v. Levine, 789 N.E.2d 769, 772
(Ill. App. Ct. 2002). Gambino could prove that Koonce acted
with malice if he showed that Koonce knew that the dispar-
aging statements were false or had serious doubts as to the
truth of the slandering documents. Id.Not only was the issue of Koonce’s intent raised before
the state court, it is clear from the short state trial transcript
excerpt that Koonce submitted that both parties discussed
the issue. Gambino alleged Koonce acted with malice when
he used forged and fraudulent documents to slander Gam-
bino’s property titles and Koonce tried to refute the allega-
tion in court. Koonce’s attorney asked Koonce about a resi-
dential loan application that he submitted on which Koonce
stated that he owned two of the properties at issue. Koonce
admitted that he did not own the two properties when he
submitted the loan application, and tried to explain why he
represented to a financial institution that he owned the
properties when in fact he did not. Based, in part, on this tes-
timony, the court made a finding of fact that Koonce submit-
ted fabricated documents, including fabricated trust agree-
ments and leases, to a financial institution. The court con-
cluded not only did Koonce act with malice when he slan-
dered Gambino’s title, but that fraud was the only reasona-
ble explanation for why he submitted numerous forged and
8 No. 13-2756
fabricated documents. The state trial transcript demonstrates
that he was allowed to testify as to why he took certain ac-
tions, which goes to Koonce’s intent and state of mind. Be-
cause Koonce and Gambino disputed whether Koonce acted
with fraudulent intent and the state trial court found that he
did, the district court did not err when it found that this is-
sue was previously litigated in state court.
B. Finding of Fraud Necessary to Slander of Title
Action and Punitive Damages
Next, Koonce argues that the issue of whether he had
fraudulent intent was not necessary to the state court’s de-
termination that he slandered Gambino’s title or the imposi-
tion of punitive damages. For collateral estoppel to apply, a
decision on the issue must have been necessary for the
judgment in the first litigation, and the person to be bound
must have actually litigated the issue in the first suit. Savick-
as, 739 N.E.2d at 451.
Koonce argues that the intent element of “malice” for a
slander of title claim is not identical to the intent element of
actual fraud in § 523(a)(2)(A) and that a finding of fraud is
not necessary to award punitive damages because the award
can be granted on lesser grounds. He reasons that the intent
element of fraud is not a necessary element of a slander of
title claim or the punitive damages award. Koonce incorrect-
ly conceptualizes what makes an element necessary. An is-
sue is necessary if it is required to reach a judgment in the
first case. Savickas, 739 N.E.2d at 451 (stating that a determi-
nation of defendant’s mental state was necessary to his con-
viction); see also Taylor, 656 N.E.2d at 139 (“[Issue preclusion]
operates to preclude relitigation of an issue that has been
No. 13-2756 9
fairly, completely, and necessarily resolved in a prior pro-
ceeding.”).
Here, the issue of Koonce’s fraudulent intent formed the
basis of the state court’s decision. Although slander of title
requires a showing of malice, which could include reckless-
ness, see Levine, 789 N.E.2d at 772, and punitive damages re-
quires showing the defendant was grossly negligent, see
Slovinski v. Elliot, 927 N.E.2d 1221, 1225 (Ill. 2010), the state
trial court did not rely only on a finding of recklessness or
gross negligence in reaching its decision. In determining
whether Koonce slandered Gambino’s title and whether he
should pay punitive damages, the court found that Koonce
acted fraudulently and with malice. These findings formed
the basis of the court’s imposition of punitive damages and
support for the slander of title counts. Moreover, as we ex-
plained, the issue of Koonce’s intent was litigated in state
court. Therefore, the district court did not err when it found
that Koonce’s fraudulent intent was necessary for the judg-
ment.
Finally, Koonce argues that the bankruptcy court erred in
denying him a hearing to determine whether the punitive
damage award reflected the amount actually obtained by the
fraud or constituted a penalty imposed by the court because
of the fraud. However, this issue was not raised before the
district court. Therefore it is waived. Wellness Int’l Network,
Ltd. v. Sharif, 727 F.3d 751, 781 (7th Cir. 2013).
III. CONCLUSION
The judgment of the district court is AFFIRMED.