      Case: 18-31011          Document: 00514839062    Page: 1    Date Filed: 02/18/2019




            IN THE UNITED STATES COURT OF APPEALS
                     FOR THE FIFTH CIRCUIT


                                          No. 18-31011              United States Court of Appeals

                                        Summary Calendar
                                                                             Fifth Circuit

                                                                           FILED
                                                                   February 18, 2019

In the Matter of: SAMUEL TAYLOR FREE,                                 Lyle W. Cayce
                                                                           Clerk
                 Debtor,
-------------------------------------

SAMUEL TAYLOR FREE,

                 Appellant

v.

LEASA G. WINBORNE,

                 Appellee



                      Appeal from the United States District Court
                         for the Western District of Louisiana
                                 USDC 3:17-CV-1606


Before KING, SOUTHWICK, and ENGELHARDT, Circuit Judges.
PER CURIAM:*
        After a state court entered judgment against Samuel Taylor Free and in
favor of Leasa G. Winborne, Free filed for bankruptcy. Winborne brought an
adversary proceeding in Free’s bankruptcy case seeking to prevent the


        *Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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                                No. 18-31011
discharge of the state-court judgment. The bankruptcy court, finding Free’s
actions to be willful and malicious, excluded the judgment from the discharge,
and the district court affirmed. Free appeals again. We AFFIRM.
                                      I.
      At the time of James C. Winborne’s death, he and defendant Samuel
Taylor Free were the only members of two limited liability companies: Turkey
Creek Holding Company, LLC (“Turkey Creek Holding”), under which they
bought and sold real estate, and Turkey Creek Appraisal Services, LLC
(“Turkey Creek Appraisal”) (collectively, “the LLCs”), under which they
performed real-estate appraisals. James Winborne and Free each held a 50%
interest in each of the LLCs. Leasa G. Winborne, James Winborne’s wife, was
his sole legatee. After James Winborne’s death, a state court issued a judgment
of possession providing Leasa with possession of James’s 50% interest in each
of the LLCs.
      In the meantime, Free continued to do business as Turkey Creek
Appraisal and received checks payable to Turkey Creek Appraisal in return for
his work. But rather than depositing these checks into the company’s account,
as required by Turkey Creek Appraisal’s operating agreement, Free cashed the
checks or deposited the funds into non-Turkey Creek Appraisal accounts. He
then used these funds for personal items. Leasa Winborne did not receive any
of these profits.
      Leasa Winborne brought suit in state court against Free seeking to
recover her share of these profits, arguing that Free converted company funds
for his own use. After a trial, the state court awarded Winborne $42,071, court
costs, $1,500 in expert fees, and interest. Shortly thereafter, Free filed a
petition for Chapter 13 bankruptcy. Winborne instituted an adversary
proceeding, seeking a determination that her state-court judgment was


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                                   No. 18-31011
nondischargeable under 11 U.S.C. §§ 523(a)(2) and (a)(6). The bankruptcy
court granted Free’s motion to dismiss Winborne’s § 523(a)(2) claim.
      The bankruptcy court then tried Winborne’s § 523(a)(6) claim.
Subsection (a)(6) excludes from discharge any debt arising out of the debtor’s
willful and malicious injury to another. § 523(a)(6). At trial, Free testified that
he believed the LLCs had been dissolved because he thought he was the only
member of the LLCs after James Winborne’s death and he thought he had
unilaterally dissolved the companies. He also testified that he used the funds
to pay Turkey Creek Appraisal’s bills and employees. He did not provide any
documentary proof of those payments. Moreover, the bankruptcy court found
Free’s testimony contradictory, evasive, and not credible. Thus, the bankruptcy
court concluded, Free intentionally breached the operating agreements,
intended to cause harm to Leasa Winborne, and in fact caused her harm.
Accordingly, the bankruptcy court found the debt nondischargeable. Free
appealed to the District Court for the Western District of Louisiana, which
affirmed. Free appeals again.
                                        II.
      “We review the decision of a district court, sitting as an appellate court,
by applying the same standards of review to the bankruptcy court’s findings of
fact and conclusions of law as applied by the district court.” In re McClendon,
765 F.3d 501, 504 (5th Cir. 2014) (quoting In re TransTexas Gas Corp., 597
F.3d 298, 304 (5th Cir. 2010)). Thus, we review conclusions of law de novo and
findings of fact for clear error. Id.
                                        III.
      Free argues that Leasa Winborne’s adversary proceeding was barred by
collateral estoppel. To determine the preclusive effect of a state-court
judgment, a court must apply the rules of preclusion of the state where the
judgment was rendered. Plunk v. Yaquinto (In re Plunk), 481 F.3d 302, 307
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(5th Cir. 2007). Under Louisiana law, the three requirements for issue
preclusion are: “(1) a valid and final judgment; (2) identity of the parties; and
(3) an issue that has been actually litigated and determined if its
determination was essential to the prior judgment.” Liberty Mut. Fire Ins. Co.
v. Weaver, 219 So. 3d 442, 445-46 (La. Ct. App. 3d Cir. 2017) (quoting Horrell
v. Horrell, 808 So. 2d 363, 373 (La. App. 1st Cir. 2000)); see also La. Rev. Stat.
§ 13:4231(3). But the bankruptcy court has exclusive jurisdiction over the
dischargeability of debts, and it may only defer to the doctrine of collateral
estoppel “if, inter alia, the first court has made specific, subordinate, factual
findings on the identical dischargeability issue in question—that is, an issue
which encompasses the same prima facie elements as the bankruptcy issue—
and the facts supporting the court’s findings are discernible from that court’s
record.” Dennis v. Dennis (In re Dennis), 25 F.3d 274, 278 (5th Cir. 1994).
      Here, Free argues that Leasa Winborne already litigated whether his
actions were willful and malicious in the state court: she pleaded conversion in
her complaint, but the state court’s judgment did not address the conversion
claim. Therefore, Free reasons, the state court’s silence “constitutes an
absolute rejection of such demand,” and the bankruptcy court erred by
concluding that he intentionally deprived Winborne of Turkey Creek
Appraisal’s profits. But a finding of conversion under Louisiana law does not
require that the defendant have acted willfully or maliciously. See Dual
Drilling Co. v. Mills Equip. Invs., Inc., 721 So. 2d 853, 857 (La. 1998) (“A
conversion is committed when any of the following occurs: 1) possession is
acquired in an unauthorized manner; 2) the chattel is removed from one place
to another with the intent to exercise control over it; 3) possession of the chattel
is transferred without authority; 4) possession is withheld from the owner or
possessor; 5) the chattel is altered or destroyed; 6) the chattel is used
improperly; or 7) ownership is asserted over the chattel.”). Thus, even
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                                No. 18-31011
assuming the state court’s silence constituted a rejection of the conversion
claim, it cannot be said that the issue of Free’s willfulness and maliciousness
was adjudicated. And the state court’s judgment does not otherwise discuss
whether Free caused willful and malicious injury to Winborne. Therefore, the
state court’s judgment does not prevent the bankruptcy court from
adjudicating the issue of willfulness and maliciousness when determining
dischargeability.
      Collateral estoppel does, however, prevent this court from considering
Free’s other argument. Free argues that § 3.2 of the LLCs’ operating
agreements provided that only members—not assignees—could vote. Free
contends that after James Winborne’s death, he was the only member of the
LLCs and he voted to dissolve them. Therefore, he argues, he was within his
rights to retain any money he earned from appraisals. But the state-court
judgment had already determined that Leasa Winborne was entitled to the
profits, and to do so, it would have had to determine that the business was not
dissolved after James Winborne’s death. Therefore, because Leasa Winborne’s
entitlement to the funds under the terms of the operating agreements was
already litigated and essential to the state court’s determination, Free cannot
relitigate the issue now.
      Finally, Free argues that Leasa Winborne does not have an individual
cause of action for harm to the company and that she must bring her claims as
a derivative suit. Although Winborne brought both direct and derivative
claims, the state-court judgment does not explain whether it entered judgment
in her favor as an individual or as a representative of the LLCs. Free contends
that the judgment’s “silence” is a rejection of the derivative claim. But there
was no such silence here—rather, the state court’s judgment is simply unclear.
And, as the district court pointed out below, Winborne was the only party able
to be injured regardless of whether her claims were brought individually or on
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                                  No. 18-31011
behalf of the LLCs. Therefore, Free’s argument that the state court had already
rejected the derivative action is without merit.
      Thus, we are left to consider the bankruptcy court’s finding that Free
acted willfully and maliciously, which we review for clear error. The
bankruptcy court found that Free intentionally breached the operating
agreements by cashing Turkey Creek Appraisal’s checks or depositing them in
his own account, ignoring Leasa Winborne’s ownership interest as assignee.
Although Free testified that he did not believe that Leasa Winborne would
inherit James Winborne’s interest in the partnership, the bankruptcy court
also determined that Free was an unreliable witness and found his answers to
be contradictory and evasive. In contrast, the bankruptcy court found Leasa
Winborne’s testimony to be consistent and largely free from impeachment.
Moreover, Free signed the operating agreements, which provided that each
member’s shares would pass to his assignee in the event of his death. We agree
that Free knew that by not paying Leasa Winborne for her portion of the
proceeds, there was a substantial certainty of harm to her, and that he
intended to cause that harm. Thus, as the bankruptcy court held, Free’s
retention of Turkey Creek Appraisal’s profits after James Winborne’s death
was intentional, willful, and malicious. Miller v. J.B. Abrams, Inc. (In re
Miller), 156 F.3d 598, 606 (5th Cir. 1998) (“[A]n injury is ‘willful and malicious’
where there is either an objective substantial certainty of harm or a subjective
motive to cause harm.”).
                                       IV.
      For the foregoing reasons, we AFFIRM the judgment of the district court.




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