Clark v. Zwanziger (In re Zwanziger)
- Summarized by Sarah Smegal , Hackett Feinberg PC
- 12 years 4 weeks ago
- Citation:
- Clark v. Zwanziger (In re Zwanziger), BAP WO-11-080, 2012 WL 1098266, --- B.R. --- (10th Cir. B.A.P. Apr. 3, 2012)
- Tag(s):
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- Ruling:
- The U.S. Bankruptcy Appellate Panel for the Tenth Circuit (the “B.A.P.”) ruled that: (a) an award of damages by the U.S. District Court for the Western District of Oklahoma (the “District Court”) in prepetition litigation did not have preclusive effect in the nondischargeability proceeding before the U.S. Bankruptcy Court for the Western District of Oklahoma’s (the “Bankruptcy Court”) because the damages award was reversed and, therefore, lost its conclusive effect on the damages issue; and (b) a determination by the Tenth Circuit Court of Appeals (the “Appeals Court”) in prepetition litigation that emotional distress damages were waived did have preclusive effect in the Bankruptcy Court proceeding as the elements of issue preclusion were satisfied and the waiver issue was “actually litigated.” The B.A.P. noted that “[r]egardless of which preclusion doctrine is chosen, it is applied in nondischargeability proceedings to bar the relitigation of the amount and extent of damages, if that issue was fully and finally litigated in a prior proceeding.” Accordingly, the B.A.P. reversed the Bankruptcy Court’s order “awarding [the] Plaintiffs damages for emotional distress” and remanded the case “for entry of judgment without inclusion of emotional distress damages.”
Specifically, the B.A.P. ruled that the District Court’s judgment awarding fraud and emotional distress damages to Plaintiffs William M. Clark, Jr., Ch. 7 Trustee of the Bankruptcy Estate of James R. Hamilton, and Richard A. Kus (collectively, the “Plaintiffs) “ha[d] no preclusive effect on the amount of damages owed to [the] Plaintiffs and did not preclude the bankruptcy court from making a damage calculation” because it had lost is conclusive effect upon reversal by the Appeals Court. However, the Appeals Court decision declaring that the Plaintiffs had waived emotional distress damages did have preclusive effect on the Bankruptcy Court. The B.A.P. found the elements of issue preclusion were satisfied: (1) the waiver issue was previously decided by the Appeals Court and was the same issue presented in the instant action; (2) the prior action was sufficiently final as it “left no room for reconsideration by the [D]istrict [C]ourt on whether [the] Plaintiffs had waived emotional distress damages”; (3) “the party against whom the doctrine [was] invoked [(the Plaintiffs)] was a party … to the prior adjudication”; and (4) “the party against whom the doctrine [was] raised [(the Plaintiffs)] had a full and fair opportunity to litigate the [waiver] issue in the prior action.” The B.A.P. further found that, although a “close call,” the waiver issue was “actually litigated” where “waiver occurred because of a procedural error by [the] Plaintiffs,” “the purposes of issue preclusion are better served by concluding that the issue of waiver was actually litigated,” “[t]o hold otherwise would allow [the] Plaintiffs to side-step the consequences of their procedural mistake and, as a consequence, use additional judicial resources to relitigate the emotional distress damage issue,” and, finally, “the [Appeals Court] made an ‘actual decision’ on the issue of waiver.”
- Procedural context:
- The Plaintiffs filed an adversary proceeding in the Debtor Wolfgang Friedrich Zwanziger’s (the “Debtor”) bankruptcy case alleging a judgment obtained in the District Court was nondischargeable. The Plaintiffs moved for summary judgment on collateral estoppel grounds, which the Bankruptcy Court granted in part and denied in part. The Bankruptcy Court found that “the jury verdict on a finding of fraud in the [District Court] necessarily result[ed] in a finding of fraud under s. 523(a)(2)(A)” in the adversary proceeding. The Bankruptcy Court found that it was not precluded from making its own determination on the issue of damages and, after a trial on the issue, awarded the Plaintiffs unpaid wages and damages for emotional distress. The Debtor appealed the award of damages for emotional distress. The issue before the B.A.P. was whether an appellate decision and accompanying remand instruction issued by the Appeals Court in prepetition litigation between the Plaintiffs and the Debtor had preclusive effect in the nondischargeability proceeding in the Bankruptcy Court. The Bankruptcy Court determined that a finding of fraud by the District Court in prepetition litigation had a preclusive effect in the nondischargeability proceeding, but determined it was not precluded from awarding damages for fraud and emotional distress to the Plaintiffs despite an Appeals Court decision reversing the District Court’s award of emotional distress damages and remanding the case for a new trial on the issue of damages. The Debtor appealed the Bankruptcy Court’s award of damages for emotional distress. The B.A.P. ruled that: (a) the District Court’s award of damages in the prepetition litigation did not have preclusive effect because it was reversed and, therefore, lost its conclusive effect on the damages issue; and (b) the Appeals Court’s determination that emotional distress damages were waived did have preclusive effect as the elements of issue preclusion were satisfied and the waiver issue was “actually litigated.” The B.A.P. reversed the decision of the Bankruptcy Court awarding damages for fraud and emotional distress and remanded the case for entry of judgment without inclusion of emotional distress damages.
- Facts:
- The Debtor was the president of a company that employed the Plaintiffs. The Plaintiffs sued the Debtor and others in the District Court alleging claims under the Oklahoma Protection of Labor Act (“Wage Act”) and for fraudulent misrepresentation. At trial, the District Court allowed the Plaintiffs to present evidence of their emotional distress, over the Debtor’s objection. The jury issued a verdict against the Debtor on both the Wage Act and fraud claims. The District Court entered a judgment against the Debtor, awarding damages to the Plaintiffs. The Debtor appealed the judgment to the Appeals Court on several grounds, including that the District Court erred in allowing the Plaintiffs to introduce evidence of their emotional distress. The Appeals Court affirmed the finding that the Debtor had committed fraud, but held that the Plaintiffs had waived any claim for emotional distress damages because they failed to include that claim or theory of damages in the final pretrial order. Accordingly, the Appeals Court reversed the awards of actual and punitive damages on the fraud claim and remanded the case to the District Court for a new trial on the amount of damages resulting from the fraud, independent of emotional distress. After remand, the District Court scheduled a new trial on the damages issue, but the Debtor filed for bankruptcy protection before the trial was held. In the bankruptcy case, the Plaintiffs filed an adversary proceeding alleging that the judgment was nondischargeable under Section 523(a)(2)(A).
- Judge(s):
- Brown, Karlin, Somers
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