Anderson v. Fisher (In re Anderson)

14 FED App. 0007P (6th Cir.)
Default judgment entered against Debtors/Defendants as a sanction for conduct in prepetition state court litigation was entitled to preclusive effect under the Full Faith and Credit Statute (28 U.S.C. § 1738) in subsequent non-dischargeability action in chapter 7 bankruptcy case. The Panel affirmed the Bankruptcy Court's granting of summary judgment in favor of Creditor on issue preclusion grounds.
Procedural context:
In dischargeability action under 11 U.S.C. § 523(a)(2)(A), the Debtors appealed from the bankruptcy court's granting of summary judgment on collateral estoppel grounds.
Debtors were defendants in a prepetition civil action in Tennessee Circuit Court involving, among other claims, fraud, misrepresentation, deceit, negligence, conversion and breach of contract. Debtors answered the complaint and failed to comply with discovery orders in the case. Plaintiff/Creditor filed a motion to compel, for sanctions, for entry of a default judgment and to dismiss for the discovery abuses. The State Court granted the motion for default judgment as to liability. Prior to the hearing to liquidate the damages in the State Court, the Debtors filed a voluntary joint chapter 7 case. The Creditor filed an Adversary Proceeding seeking a determination that its debt was non-dischargeable under 11 U.S.C. § 523(a)(2)(A) and a motion for summary judgment arguing that the prior State Court default judgment on its complaint which sounded in fraud had preclusive effect in the dischargeability action. The Debtors argued that the default judgment was not entitled to preclusive effect based upon the Sixth Circuit's holding in Spilman v. Harley (In re Spilman), 656 F.2d 224 (6th Cir. 1981) inasmuch as the default judgment failed to satisfy the "actually litigated" prong of the issue preclusion analysis. The Creditor asserted that the Sixth Circuit's subsequent holding in Bay Area Factors v. Calvert (In re Calvert), 105 F.3d 315 (6th Cir. 1997) which recognized that (i) under the Full Faith and Credit Statute, federal courts are required to give the same preclusive effect to a state court judgment that such judgment would be entitled to under that state's law and (ii) such a default judgment would have preclusive effect under Tennessee state law. The Bankruptcy Court found that there were no genuine issues of disputed fact and that the Creditor was entitled to a determination that its debt was nondischargeable under § 523(a)(2)(A). The Bankruptcy Appellate Panel affirmed the Bankruptcy Court's decision to grant summary judgment in faovr of the Creditor on the basis of collateral estoppel.
Emerson, Opperman and Preston

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