588 B.R. 428
E.D. Pa.2018Background
- Corcoran obtained a default judgment (compensatory and punitive damages) against McCabe in Pennsylvania Court of Common Pleas after McCabe failed to defend; the state court gave no explanation for punitive damages.
- McCabe's state-court appeal was quashed; years later McCabe filed Chapter 13 bankruptcy and Corcoran objected to discharge of the state-court judgment under 11 U.S.C. § 523(a)(6).
- The Bankruptcy Court held a trial, refused to admit the CCP damages-hearing transcript for lack of authentication, and found Corcoran failed to prove McCabe committed a "willful and malicious" injury under § 523(a)(6); the judgment was held dischargeable.
- Corcoran appealed to the district court raising (construed) issues: applicability of § 523(a)(6), Full Faith and Credit (28 U.S.C. § 1738), admissibility of the transcript, Restatement (Second) of Judgments/collateral estoppel, and Rooker–Feldman.
- The district court reviewed legal questions de novo and factual/evidentiary rulings for clear error/abuse of discretion and affirmed the Bankruptcy Court.
Issues
| Issue | Plaintiff's Argument (Corcoran) | Defendant's Argument (McCabe) | Held |
|---|---|---|---|
| Whether the default judgment establishes a non-dischargeable "willful and malicious" injury under § 523(a)(6) | Default judgment and punitive damages establish willfulness/malice, so debt is non-dischargeable | State court did not find willful and malicious conduct; default judgment not dispositive | Held for McCabe: default judgment/punitive damages did not prove § 523(a)(6) willful and malicious injury |
| Whether Full Faith and Credit required the Bankruptcy Court to give preclusive effect to the CCP default judgment (28 U.S.C. § 1738) | Bankruptcy court must give full faith and credit to state-court findings of willfulness | Default judgments lack preclusive effect in Pennsylvania; bankruptcy court may relitigate | Held for McCabe: § 1738 did not require preclusive effect because Pennsylvania law does not give default judgments issue-preclusive effect |
| Admissibility of the CCP damages-hearing transcript | Transcript (certified by stenographer) should have been admitted | Transcript not properly authenticated; custodian issues; CCP destroyed originals | Held for McCabe: Bankruptcy Court did not abuse discretion in excluding transcript for lack of proper authentication |
| Whether Restatement (Second) of Judgments §27(d) overrides Pennsylvania rule refusing preclusive effect to default judgments | Restatement §27(d) (comment) makes some default judgments "actually litigated" and preclusive | Pennsylvania courts (McGill) follow Restatement §27 and its comment e: default judgments are not actually litigated | Held for McCabe: Restatement comment relied on by Corcoran not adopted by Pennsylvania; McGill controls, so default judgment not preclusive |
| Whether Rooker–Feldman barred Bankruptcy Court from determining dischargeability (i.e., relitigating elements of the state claim) | Bankruptcy Court improperly relitigated the state defamation merits in violation of Rooker–Feldman | Bankruptcy courts have statutory power to discharge state judgments; claim was not actually litigated in state court nor inextricably intertwined | Held for McCabe: Rooker–Feldman inapplicable; bankruptcy court had jurisdiction to decide dischargeability |
Key Cases Cited
- Kawaauhau v. Geiger, 523 U.S. 57 (U.S. 1998) (§ 523(a)(6) requires actual intent to cause injury; negligence/recklessness insufficient)
- McGill v. Southwark Realty Co., 828 A.2d 430 (Pa. Commw. Ct. 2003) (default judgments are not "actually litigated" and thus generally lack issue-preclusive effect)
- In re Graves, 33 F.3d 242 (3d Cir. 1994) (federal courts must apply preclusion law of the state that rendered the judgment)
- Paramount Aviation Corp. v. Agusta, 178 F.3d 132 (3d Cir. 1999) (the law of the issuing court determines preclusive effect)
- Stern v. Marshall, 564 U.S. 462 (U.S. 2011) (certain bankruptcy adjudicative limits; § 157(b)(5) is not jurisdictional in the Stern context)
- Knapper v. Bankers Trust Co. (In re Knapper), 407 F.3d 573 (3d Cir. 2005) (bankruptcy courts may avoid, modify, or discharge state-court judgments; Rooker–Feldman does not bar core bankruptcy nondischargeability proceedings)