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Margaret Kinney v. HSBC Bank USA

Summarizing by Lars Fuller

In re Kevin Harris

Case Type:
Case Status:
19-11286 (11th Circuit, Jul 14,2021) Published
A default judgment against a debtor, on a complaint that alleges alternative causes for liability, does not satisfy the requirements of § 523(a)(2)(A) under Florida law regarding collateral estoppel. Florida preclusion principles apply to a default judgment from a Florida court. The alternative claims to fraud, and the supporting factual allegations, in the state court complaint preclude the default judgment from having preclusive effect when the judgment does not state the basis for the judgment.
Procedural context:
The bankruptcy court held that judgment debt resulting from a default entered by a Florida state court as sanctions was preclusive with respect to whether the plaintiff's claim was non-dischargeable under 11 U.S.C. § 523(a)(2)(A). The debtor appealed. The district court affirmed the bankruptcy court. The debtor appealed to the Eleventh Circuit.
James F. Jayo, the plaintiff, invested more than $600,000 in two companies owned by the debtor, Kevin Harris. Jayo also let Harris run up more than $300,000 in credit card obligations so that Harris could purchase inventory. Seven years after beginning his investing relationship with Harris, Jayo had recouped less than $60,000 of his investment. Jayo then sued Harris in Florida state court for fraudulent misrepresentation, negligent misrepresentation, breach of fiduciary duty, conversion, unjust enrichment, investment fraud, unfair and deceptive trade practices, and conspiracy to defraud. Harris answered, but lied to the Florida state court to obtain a delay of the Florida litigation. As sanctions, the Florida state court struck Harris's answer and entered a $1.8 million default judgment against him. The default order and judgment did not state which of Jayo's claims supported the monetary award. Harris filed a Chapter 7 petition, and Jayo commenced an adversary proceeding to have the judgment debt declared non-dischargeable under 11 U.S.C. § 523(a)(2)(A). The bankruptcy court applied collateral estoppel to rule that the state court judgment established that Harris had committed fraud, and ruled that the judgment debt was non-dischargeable.
JORDAN, MARCUS, and GINSBURG (United States Circuit Judge for the District of Columbia, sitting by designation)

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