Cooley-Linder v. Behrends (In re Behrends)

Case Type:
Consumer
Case Status:
Affirmed
Citation:
15-1420 (10th Circuit, Nov 14,2016) Not Published
Tag(s):
Ruling:
The Court of Appeals for the Tenth Circuit affirmed the bankruptcy court's (D. Colo.) holding that the debtor’s obligation pursuant to a default judgment obtained by creditors in state court arbitration proceeding was non-dischargeable under 11 U.S.C. § 523(a)(19), as a debt arising from the debtor’s violations of securities laws. The court concluded that regardless of whether the judgment would have been afforded preclusive effect in state court, the judgment was for violations of securities laws and thus satisfied the requirements for nondischargeability.
Procedural context:
Creditors sought summary judgment against debtor in nondischargeability adversary proceeding. Bankruptcy court granted summary judgment and district court affirmed. Debtor appealed to the Tenth Circuit.
Facts:
The creditors filed a claim with the state financial industry regulatory authority seeking damages in excess of $620,000 from the debtor and two other parties, alleging claims for breach of fiduciary duty, fraud, state securities violations, and negligence related to the selling of highly speculative securities. The creditors requested that the claims be arbitrated. The debtor, acting pro se, contested the allegations and asserted affirmative defenses, but ultimately failed to appear at the arbitration hearing despite proper notice. The arbitration panel issued a written award finding multiple violations of state and federal securities laws and awarding significant damages. The award, however, contained a paragraph noting that the explanation of the decision provided in the award was for the information of the parties only and not intended to be precedential in nature. The debtor subsequently filed a chapter 7 bankruptcy case, in which the creditors filed an adversary proceeding seeking to except the arbitration award from discharge pursuant to 11 U.S.C. § 523(a)(19). The debtor argued that section 523(a)(19) had not been satisfied because the arbitration panel did not actually litigate the issue of whether he had violated securities laws. The Tenth Circuit concluded that section 523(a)(19)(B)(i)’s broad language excepting from discharge “any judgment” based upon a violation of federal or state securities laws trumped any state law preclusion requirements. Therefore, the Tenth Circuit affirmed the bankruptcy court’s decision granted the creditors’ summary judgment despite the lack of proof by the creditors that the securities issues had been actually litigated before the arbitration panel.
Judge(s):
Tymkovich (author), Bacharach, Moritz

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