Cooley-Linder v. Behrends (In re Behrends)

Case Type:
Case Status:
660 Fed Appx 696 (10th Cir. Nov. 14, 2016) (10th Circuit, Nov 14,2016) Published
An arbitration award for securities law violations is excepted from discharge under section 523(a)(19) even where there was no litigation before the arbitration panel and the award was issued following defendant's default.
Procedural context:
Defendant, chapter 7 debtor, appeals to the 10th Circuit from district court's order affirming bankruptcy court's grant of summary judgment to plaintiff in on non- dischargeability complaint premised upon an arbitration award entered against the Debtor prepetition based on his violations of securities laws.
Plaintiffs obtained an arbitration award prepetition based on Debtor's violations of Colorado securities laws. Debtor had filed a pro se answer contesting Plaintiffs' claims but chose to not appear at the arbitration hearing. The FINRA arbitration panel issued a written award determining that Debtor violated Colorado state and federal securities laws and was liable to Plaintiffs for compensatory damages and post-judgment interest. Plaintiffs filed an adversary complaint in Debtor's chapter 7 case for a judgment determining that the debt reflected in the arbitration award is non-dischargeable under section 523(a)(19). Debtor contended that the 523(a)(19) exception to discharge is inapplicable because there was no actual litigation before the arbitration panel and, therefore, the arbitration award should have no preclusive effect in the bankruptcy case. The 10th Circuit held that nothing in the text of section 523(a)(19)(A) requires that there have been a prior litigation or otherwise that the elements of collateral estoppel elements must be satisfied for the discharge exception to apply. Further, because section 523(a)(19)(B)(i) permits a determination of non-dischargeability based upon "any judgment", even a default judgment may qualify for a discharge exception based on securities law violations.
Tymkovich, Bacharach, Moritz

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