In re: Stuart Scott Snyder, 939 F.3d 92

Stuart and Doreen Snyder (debtors) are relatives of Joseph and Nancy Murphy; the families entered two oral investment agreements: $100,000 for a New Jersey project (wired to an attorney trust account) and $275,000 for a Connecticut project (wired to BBSea account controlled by Stuart Snyder).
Murphys sued in the Eastern District of New York asserting breach of contract and related claims; defendants repeatedly failed to comply with discovery, leading the court to enter a default judgment as a sanction and to allocate damages separately for the New Jersey and Connecticut projects.
The Snyders later filed bankruptcy; the Murphys brought an adversary proceeding seeking nondischargeability under 11 U.S.C. §§ 523(a)(2)(A), (4), and (6), relying in part on collateral estoppel from the Eastern District Judgment.
Bankruptcy and district courts treated the Eastern District Judgment as having preclusive effect and found the debt nondischargeable as defalcation and willful/malicious injury for at least part of the judgment.
On appeal, the Second Circuit held a default judgment entered as a sanction can have preclusive effect, affirmed nondischargeability for the Connecticut-project debt, but vacated and remanded as to the New Jersey-project debt because the courts had not analyzed the two debts separately.

Issue	Plaintiff's Argument (Murphy)	Defendant's Argument (Snyder)	Held
Whether a federal default judgment entered as a sanction can have collateral estoppel effect in bankruptcy	Eastern District default judgment should preclude relitigation because it was entered as a sanction after repeated discovery misconduct	Default judgments generally lack preclusive effect because the merits were not actually litigated	A default judgment entered as a sanction may be given preclusive effect where the sanctioned party had opportunity to participate and misconduct caused the default; Snyders bound by key facts (breach, liability).
Whether the Eastern District Judgment is nondischargeable under §§523(a)(4) (defalcation) and (a)(6) (willful and malicious injury) as a whole or must be parsed by the two projects	Entire judgment arises from fiduciary misconduct/intent and thus is nondischargeable	Judgment must be parsed; the New Jersey portion lacks evidence of conscious misbehavior or recklessness necessary for defalcation/willful injury	Court must analyze each portion separately: affirmed nondischargeability as to Connecticut-project debt (defalcation established); vacated nondischargeability as to New Jersey-project debt and remanded (triable issue exists).

Grogan v. Garner, 498 U.S. 279 (1991) (standard that exceptions to discharge may be established in bankruptcy litigation)
Bullock v. BankChampaign, N.A., 569 U.S. 267 (2013) (defalcation requires knowledge or gross recklessness; conscious disregard of a substantial risk)
Kawaauhau v. Geiger, 523 U.S. 57 (1998) (§523(a)(6) requires a deliberate or intentional injury, not merely intentional act)
Cohen v. de la Cruz, 523 U.S. 213 (1998) (once money is obtained by fraud, all liability arising from that fraud may be excepted from discharge)
Ball v. A.O. Smith Corp., 451 F.3d 66 (2d Cir. 2006) (appellate review standard for bankruptcy findings)
In re Hyman, 502 F.3d 61 (2d Cir. 2007) (nondischargeability exceptions narrowly construed; defalcation standard requires culpable mental state)
In re Hayes, 183 F.3d 162 (2d Cir. 1999) (defalcation exception not limited to express trusts; state law relevant to fiduciary status)
In re Docteroff, 133 F.3d 210 (3d Cir. 1997) (default judgment entered as sanction may have preclusive effect)