In re: Gregory Couch
16-8009
6th Cir.Feb 2, 2017Background
- Gregory Couch worked for Panther Petroleum/Coolants, started a rival company and was sued in Tennessee for fraud, conversion, breach of contract, TCPA violations, and related claims.
- Couch initially defended (filed an answer and counterclaim) but his counsel later withdrew; Couch failed to respond to discovery and a default/penalty judgment was entered against him after an evidentiary damages hearing.
- The Tennessee court found Couch committed actual fraud and engaged in intentional, willful, and malicious conduct and awarded treble damages under the TCPA (totaling roughly $529,616.68).
- Couch later filed Chapter 7 bankruptcy and did not list the state suit in his schedules; Panther/Coolants then filed an adversary proceeding seeking nondischargeability of the state-court debt under 11 U.S.C. § 523(a)(2)(A), (a)(4), and (a)(6).
- The bankruptcy court granted summary judgment for Panther/Coolants as to §§ 523(a)(2)(A) and (a)(6) based on collateral estoppel from the state-court judgment, but dismissed § 523(a)(4) as not addressed by the state court.
- Couch appealed, arguing collateral estoppel was inapplicable because the judgment was a default/penalty default and because he lacked a full and fair opportunity to litigate; he also argued the bankruptcy court misapplied the summary-judgment standard.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether collateral estoppel bars relitigation of fraud for § 523(a)(2)(A) when based on a default/penalty default Tennessee judgment | State judgment established fraud elements identical to § 523(a)(2)(A); therefore Couch is precluded | Default/penalty default is not "actually litigated" and thus cannot have preclusive effect | Affirmed: default judgment here was effectively "actually litigated" (Couch participated earlier, issues were raised and decided) |
| Whether the state-court finding of intentional/willful/malicious conduct precludes relitigation under § 523(a)(6) | State court expressly found intentional, willful, malicious conduct supporting treble damages; issue identical to § 523(a)(6) willfulness/maliciousness | Couch contends he lacked a full and fair opportunity so issue should be relitigated | Affirmed: state-court finding precludes relitigation as Couch had notice and participated; collateral estoppel applies for § 523(a)(6) |
| Whether collateral estoppel applies to § 523(a)(4) (fraud/defalcation by fiduciary, embezzlement, larceny) | Plaintiffs contended state-court rulings covered conversion/related theories supporting § 523(a)(4) | Couch argued state court did not decide fiduciary status or embezzlement/larceny elements | Held for Couch on this count: state court did not make necessary findings for § 523(a)(4), so collateral estoppel inapplicable |
Key Cases Cited
- Taylor v. Sturgell, 553 U.S. 880 (2008) (defines collateral estoppel / issue preclusion principles)
- Grogan v. Garner, 498 U.S. 279 (1991) (collateral estoppel applies in § 523 discharge-exception proceedings)
- Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75 (1984) (full faith and credit requires federal courts to give state judgments the state law preclusive effect)
- Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373 (1985) (state-law preclusion rules govern federal-court treatment of state judgments)
- Bay Area Factors v. Calvert (In re Calvert), 105 F.3d 315 (6th Cir.) (applies preclusion to state-court default judgments in subsequent federal proceedings)
- Rally Hill Prods. v. Bursack (In re Bursack), 65 F.3d 51 (6th Cir.) (default judgment may have preclusive effect where defendant actively participated before default)
- Mullins v. State, 294 S.W.3d 529 (Tenn. 2009) (enumerates Tennessee collateral estoppel elements including actually litigated and full and fair opportunity)
- Anderson v. Fisher (In re Anderson), 520 B.R. 89 (6th Cir. B.A.P. 2014) (applies Tennessee preclusion principles to a penalty-default context and finds preclusive effect)