Clark v. Zwanziger (In re Zwanziger)
- No. 110-080-WO (10th Cir. January 28, 2014).
- Emphasizing the fact that issue preclusion generally applies to a decision on the merits of an issue that has been actually litigated, the Tenth Circuit held that issue preclusion does not apply to a final determination in district court that a party has waived an issue. Sharply dissenting, Judge Holloway emphasized the equitable nature of issue preclusion, and concluded there was no reason to relieve the plaintiff from the effect of his procedural error in the original district court litigation.
- Procedural context:
- Hamilton successfully sued Zwanziger for fraud and violations of Oklahoma’s wage laws. On appeal, the Tenth Circuit reversed the damages award in part, finding that damages for emotional distress, though alleged in the complaint, were not included in the final pretrial order. While that case was on remand, Zwanziger declared bankruptcy. Hamilton (acting through his own bankruptcy trustee, Clark) sought to have their damages award declared nondischargeable in Zwanziger’s bankruptcy case. The bankruptcy court concluded that, while Zwanziger’s liability had been finally determined in the original action, the amount of damages remained unresolved, and awarded Hamilton nondischargeable damages, including for emotional distress. On appeal, the Bankruptcy Appellate Panel (BAP) reversed, concluding that issue preclusion barred the bankruptcy court from including damages for emotional distress in its calculation nondischargeable claim. Hamilton appealed.
- The Tenth Circuit reversed the BAP, concluding that issue preclusion did not apply to the instant facts. Noting that “issue preclusion applies to a decision on the merits of an issue of fact or law that the parties actually litigated,” the Tenth Circuit observed that a mere finding that an issue of fact or law has been waived does not equate to a decision on the merits, and is not entitled to issue preclusion in another case. In the prior appeal, the parties had litigated only the question of whether Hamilton had waived emotional distress damages—not the actual question of their entitlement to such damages. Significantly, the panel concluded with the observation that the outcome “was no one’s fault but Zwanziger’s” and could have been avoided if Zwanziger had asked the bankruptcy court to modify the automatic stay to permit the district court to conclude the remanded proceedings or asked the district court to withdraw the reference as to the nondischargeability complaint filed in bankruptcy court.
- Tymkovich, Holloway (dissenting), and Gorsuch.
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