Damisch & Damisch v. Rabiola: Horsing Around: Litigation Sanctions May Be Nonsdischargeable

In 2004, Reginice Rabiola bought a farm in Kane County where she built an indoor horse riding ring and a hay field. To get equipment onto the hay field, she used a grassy patch on her neighbor’s land. In 2007, Jon DeRaedt, the neighbor, sued her for trespass and sought an injunction to prevent her from entering his land. Rabiola filed a counterclaim, alleging she had an easement permitting her to use the land to access her hay fields. She also filed for an injunction of her own, to keep DeRaedt off her alleged easement. DeRaedt filed for partial summary judgment, and when that motion came up for hearing, Rabiola withdrew her counterclaim and informed the court that she no longer needed the easement because she obtained permission to build a culvert to access her hay fields nine months earlier. The trial court finally ruled in 2010 that Rabiola did not have a valid easement, quieted title in favor of DeRaedt, and awarded $237 of damages. The plaintiff moved for Supreme Court Rule 137 sanctions (which is the Illinois analogue to Rule 11 sanctions for filing frivolous pleadings), which the trial court denied. The appeals court reversed on sanctions, holding that Rabiola did not inquire into the facts and law before filing her claim, which caused plaintiffs to incur substantial litigation expense. On remand, the trial court ordered sanctions of $22,400 against Rabiola and $22,400 against her attorney. The Appellate Court entered its own judgment for $25,325.50 against Rabiola for violating Rule 375, the appellate analog of Rule 137. Rabiola failed to satisfy either judgment and both are recorded as liens against her real estate. Rabiola filed for bankruptcy in May 2014. DeRaedt filed an adversary complaint for nondischargeability for willful and malicious conduct under Section 523(a)(6). The bankruptcy court held in favor of Rabiola because she did not have knowledge of the appeal and, therefore, did not intend to cause injury to the plaintiffs. On appeal to the district court, Judge Milton Shadur held that Rule 137 sanctions were nondischargeable because Rabiola “willfully and maliciously injured DeRaedt and Fuchs.” 2015 U.S. Dist. LEXIS 148327, p. 6. Rabiola’s failure to promptly dismiss her countercomplaint did cause needless costs and was “substantially certain” to result in injury. Moreover, Rabiola’s failure to conduct the factual and legal inquiry into the validity of her easement was malicious because it disregarded one of a litigant’s core duties. Although Judge Shadur reversed on the Rule 137 sanctions, he affirmed on the Rule 375 sanctions because there were no factual findings that would support nondischargeability: No factual findings were made by the Illinois Court of Appeals, nor was any evidence of willfulness or malice introduced before the bankruptcy court. In a footnote, Judge Shadur mentioned that numerous cases have held that sanctions for litigation conduct such as filing frivolous pleadings can lead to a judgment of nondischargeability and none have held the other way. What the Rabiola case shows is that while sanctions can be held nondischargeable, they are not automatically nondischargeable through issue preclusion: laying a factual predicate matters. If the court issuing sanctions doesn’t make factual findings, those facts have to be elicited before the bankruptcy court with evidence.