Tripodi v. Welch, 545 B.R. 761

Background

Nathan Welch solicited investor funding for the Talisman real-estate project; he issued three promissory notes (18% interest, up to 24% on default), personally guaranteed and secured by deeds of trust; Robert Tripodi invested $1,000,000 after Capital Concepts assigned the notes to him.
Welch answered Tripodi’s 2009 complaint alleging state and federal securities-law violations but, after his counsel withdrew, failed to participate for months and default was entered against him in April 2010.
The district court reserved damages; after proof, it entered a monetary judgment for $729,161.65 (plus post-judgment interest) in July 2013. Welch filed Chapter 7 bankruptcy in August 2011 and later opposed finalization of damages and sought to set aside the default.
The district court denied Welch’s motions to set aside default/default judgment and denied his Rule 12(c) motion for judgment on the pleadings; it granted Tripodi’s motion that the judgment is nondischargeable under 11 U.S.C. § 523(a)(19).
On appeal, the Tenth Circuit affirmed: it held (1) the complaint’s pleaded facts (deemed admitted by default) sufficiently alleged the notes were securities under Reves, and (2) the default judgment satisfies § 523(a)(19)’s requirement that the debt arise from securities-law violations and be memorialized in a judgment.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Validity of default judgment and sufficiency of pleadings (could notes be securities?)	Tripodi: Complaint pleads facts showing the notes resemble securities under Reves (buyer/seller motivations, distribution, public expectations, limited collateral).	Welch: Notes were short-term bridge financing, protected by risk-reducing factors; complaint legally insufficient (invokes Resolution Trust Corp. and Howey).	Court: Default admits well-pleaded facts; those facts suffice under Reves to treat the notes as securities; district court did not abuse discretion in entering default judgment.
Whether Welch can challenge facts after default	Tripodi: Default forecloses factual disputes; plaintiff relieved of proving facts.	Welch: Seeks to rely on later affidavits and legal arguments to contest characterization.	Court: Default prevents factual disputes; later affidavits do not overcome admitted allegations.
Whether the judgment is nondischargeable under 11 U.S.C. § 523(a)(19)	Tripodi: Judgment arises from securities-law violations and is memorialized in a final default judgment, so nondischargeable.	Welch: Court should not give preclusive effect to default judgments in bankruptcy; asks extension of precedent refusing preclusive effect under § 523(a)(2).	Court: § 523(a)(19) expressly requires a judgment/settlement; unlike § 523(a)(2), Congress intended to bar discharge where a judgment exists—so the default judgment is nondischargeable.
Standard of review for district court rulings	Tripodi: Default judgment reviewed for abuse of discretion; § 523 issues reviewed de novo.	Welch: Seeks de novo review of sufficiency via Rule 12(c) appeal but default posture alters review.	Court: Affirmed abuse-of-discretion standard for default judgment and de novo review for dischargeability; affirmed district court decision.

Key Cases Cited

Reves v. Ernst & Young, 494 U.S. 56 (U.S. 1990) (four-factor test to determine whether a note is a security)
Olcott v. Delaware Flood Co., 327 F.3d 1115 (10th Cir. 2003) (default admits well-pleaded facts; defendant forfeits ability to contest those facts)
Niemi v. Lasshofer, 770 F.3d 1331 (10th Cir. 2014) (standard: review entry of default judgment for abuse of discretion)
Bixler v. Foster, 596 F.3d 751 (10th Cir. 2010) (even after default, judgment must have sufficient basis in the pleadings)
Cessna Fin. Corp. v. Bielenberg Masonry Contracting, Inc., 715 F.2d 1442 (10th Cir. 1983) (courts may enforce default judgments in the interest of fairness)
Meyer v. Rigdon, 36 F.3d 1375 (7th Cir. 1994) (final judgments, including defaults, may have preclusive effect when a statute requires a final judgment)