McCallum v. Pixley (In Re McCallum), 456 B.R. 770

McCallum obtained a state-court default judgment against Pixley for $157,028.03 plus costs and interest, after Pixley failed to answer or participate.
The default judgment included counts for fraud and conversion; Pixley did not appeal or seek relief from the default.
McCallum seeks a nondischargeability ruling under 11 U.S.C. § 523(a)(2) (fraud) and § 523(a)(6) (willful/malicious injury) based on collateral estoppel from the state judgment.
The bankruptcy court applied Michigan collateral estoppel law, including the four-part test requiring identity of parties, final judgment, actually litigated/necessarily determined issues, and full and fair opportunity to litigate.
The court recognizes a split in Michigan law on whether “true default” judgments can have collateral estoppel effect and ultimately decides that such judgments may have preclusive effect.
The court ultimately denies McCallum’s summary judgment motion on both § 523(a)(2) and § 523(a)(6) claims, citing reasons related to what was actually litigated and whether reliance and willfulness were pled and established.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Collateral estoppel applicability to true default judgments	Pixley should be bound by the default judgment under Michigan collateral estoppel law.	Default judgments may not have collateral estoppel effect if issues were not actually litigated.	Yes; true default judgments may have collateral estoppel effect under Michigan law.
Whether 'actually litigated' elements were pled and determined for §523(a)(2)	All elements of fraud under Michigan law (including reasonable reliance) were actually litigated.	Reasonable reliance was not pled; thus not actually litigated; some elements not established by the default.	Not all §523(a)(2) elements were actually litigated; reasonable reliance was not pled, so not established by the default.
Whether 'willful' and 'malicious' injury under §523(a)(6) were actually litigated	Conversion counts showed willful/malicious intent as required for §523(a)(6).	Willful/malicious elements were not necessarily determined by the default.	Willful and malicious injury were not necessarily determined by the default judgment; collateral estoppel does not apply to §523(a)(6) here.

Grogan v. Garner, 498 U.S. 279 (1991) (collateral estoppel principles in nondischargeability actions)
In re Calvert, 105 F.3d 315 (6th Cir. 1997) (no express/implicit §1738 exception; true defaults can have preclusive effect)
Sahn v. Estate of Brisson, 204 N.W.2d 692 (Mich. Ct. App. 1973) (default judgment admissions as to pleaded matters)
Braxton v. Litchalk, 223 N.W.2d 316 (Mich. Ct. App. 1974) (collateral estoppel after default judgment; issues sufficiently litigated)
Hi-Way Motor Co. v. International Harvester Co., 247 N.W.2d 813 (Mich. 1976) (reliance element in fraud discussions)
Cooper v. Auto Club Ins. Ass'n, 751 N.W.2d 443 (Mich. 2008) (reliance must be reasonable for fraud; Michigan standard later adopted)
Markowitz v. Campbell (In re Markowitz), 190 F.3d 455 (6th Cir. 1999) (willful/malicious standard under §523(a)(6)—intent or substantial certainty)
Vulcan Coals, Inc. v. Howard, 946 F.2d 1226 (6th Cir. 1991) (earlier view on willful/malicious injury under §523(a)(6))
Kawaauhau v. Geiger, 523 U.S. 57 (1998) (willful injury requires deliberate or intentional injury)