Hebert v. Rakich (In re Hebert)

Summarized by David Hercher , U.S. Bankruptcy Court, District of Oregon
10 years 5 days ago

Citation:

In re Hebert, No. NV-14-1575-DJuKi (9th Cir. B.A.P. Feb. 23, 2016).

Tag(s):

Ruling:

Issue preclusion arising from a nondischargeability judgment in debtor 1’s case supports nondischargeability in debtor 2’s case. Not-for-publication memorandum.

Procedural context:

Debtor 1 filed chapter 7 in Michigan, and debtor 2 filed chapter 7 in Nevada. In debtor 1’s case, creditor obtained a judgment of nondischargeability under section 523(a)(2)(A) based in part on evidence that debtors 1 and 2 jointly cheated creditor. In creditor’s nondischargeability action in debtor 2’s Nevada case, creditor moved for summary judgment based on issue preclusion from the Michigan judgment. The Nevada bankruptcy court ruled for creditor. On appeal, the Ninth Circuit BAP affirmed.

Facts:

The Michigan judgment is entitled to preclusive effect in the Nevada action. In federal court, the preclusive effect of a prior federal judgment is determined by federal law. Issue preclusion applies in dischargeability actions. Issue preclusion may be raised offensively when (1) there was a full and fair opportunity to litigate the issue in the previous action; (2) the issue was actually litigated in that action; (3) the issue was lost as a result of a final judgment in that action; and (4) the person against whom preclusion is asserted in the present action was a party or in privity with a party in the previous action. The issue in the Michigan action was identical to that raised by creditor in the Nevada action. The issue of nondischargeability was actually litigated at trial in the Michigan action. Debtor 2 was in privity with debtor 1 in connection with the Michigan litigation; there was a substantial identity between debtors 1 and 2 because they engaged in a scheme and artifice to obtain funds from creditor. Debtor 2 not only knew of debtor 1’s fraud, but debtor 2 orchestrated it. Debtor 1’s fraud can be imputed to debtor 2. The findings made in the Michigan action satisfied every element to establish a section 523(a)(2)(A) claim.

Judge(s):

Randall L. Dunn, Meredith A. Jury, and Ralph B. Kirscher, Bankruptcy Appellate Panel Judges.

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