Tickner v. Allen (In Re Allen)Tickner v. Allen (In Re Allen)
MEMORANDUM AND DECISION
Thеre are two matters involving the same plaintiff and defendant which came on to be heard together. The first is an objection to discharge under Section 17(a)(2) of the Bankruptcy Act and the second is an objection to the trustee’s report and debtor’s claim of exemptions. Both matters have been heard and briefеd by the parties and submitted to the Court for decision.
With regard to the first action, the objection to discharge under 17(a)(2), the facts are as follows. The plaintiff, Tickner, sued the debtor, Allen, for breach of contract in the New York Supreme Court, prior to Allen’s filing his petition in bankruptcy with this Court. Tickner’s action was presented on a breach of contract theory but the breach was proved based on fraudulent scheme for selling tickets. Plaintiff obtained a jury verdict of $2,189.25, which the trial judge set aside, because he believed the verdict to be a compromise verdict. The plaintiff, Tickner, appealed and the Appellate Division of the State Supreme Court unanimously reversed the trial judge and reinstated the verdict. As a result of that verdict, plaintiff entered a judgment in the amount of $4,143.49 in the office of the Monroe County clerk on or about July 18, 1979. The trial transcript of the State Supreme Court action has been entered as the only exhibit in this action.
The question raised is thе effect to be given the prior State Court judgment by this Court in its determination of the plaintiff’s nondischargeability complaint. Plaintiff and defendant have argued the doctrines of res judicata and collateral estop-pel.
The doctrine of res judicata “is that an existing final judgment rendered upon the merits, without fraud or collusion, by a court of competent jurisdiction, is conclusive of causes of action and of facts or issues thereby litigated, as to the parties and their privies, in all other actions in the same or any other judicial tribunal of con
The rule precluding the relitigation of facts or questions formerly in issue applies whether the issue decided in the earlier action was presented as a ground of recovery or as a defensе, or whether the issue was decided in the earlier action in favor of the plaintiff or the defendant, and even though the subsequent action is a different form of proceeding, is upon a different cause of action, and involves a different subject matter, claim or demand, than the earlier action in such cases, it is likewisе immaterial that the two actions have a different scope, or are based on different grounds, or are tried on different theories, or are instituted for different purposes, and seek different relief.
46 Am.Jur.2d Judgments § 415 (1969). In the application of the doctrine of collateral estoppel, “it is immaterial that the prior action sounded in tort and later one in contract, or vice versa.” Id. § 428.
Where a second lawsuit between two parties is based on a different cause of action and the collateral estoppel effect of the first lawsuit is at issue, the rule is that the judgment in the first suit
operates as an estoppel only as to those issues or questions “actually litigated and determined." Id.
§ 418
*
. A judgment in the first action does not operate as an estoppel as to matters not litigated in the former action nor those which might have been litigated.
Id.
§ 420. As stated in
Brown v. Felsen,
The doctrines of res judicata and collateral estoppel have been applied in the bankruptcy context in numerous cases and in several of these the specific requirements necessary for the application of the doctrines is set forth. The recent case of
In re Meade Land & Development Co. Inc.,
In the two bankruptcy cases above, which deal with the res judicata doctrine, there was a prior state court judgment and subsequent nondischargeability litigation similar to the situation at bar. Under these circumstances, the courts have identified both a res judicata and a collateral estoppel issue.
Under the doctrine of collateral estoppel, any issue actually and necessarily decided in the state court action is precluded from being relitigated in bankruptcy court during resolution of a dischargeability complaint. In fact, the Supreme Court just recently reitеrated this conclusion:
If, in the course of adjudicating a state-law question, a state court should determine factual issues using standards identical to those of § 17, then collateral estoppel, in the absence of countervailing statutory policy, would bar relitigation of those issues in the bankruptcy court.
Brown v. Felsen,
Citing
Brown v. Felsen,
Judge Britton in
In re Evans,
[I]f the trial judge had specifically found that as a matter of fact and as a matter of law that the acts complained of were ‘willful and malicious injuries’ to person or property and had entered judgment accordingly, this court would bе without power to reconsider the same. On the other hand, if such court had not made such a conclusion . . this court may examine such parts of the record of the court entering the judgment as may be necessary to determine whether or not the acts complained of, for which judgment was entered, constitute willful and malicious injuries within the meaning of the statute.
This last case brings up the question, however, of what difference, if any, does it make if the state court action was not a fraud action but instead was characterized as a contract action by the plaintiff? This turns this discussion to the res judicata aspect of the problem. Typical in this tyрe of case you have a creditor with two or more causes of action for the same debt, at least one in tort and one in contract. Not anticipating bankruptcy, judgment is taken in contract only and when bankruptcy ensues there is the question of whether or not the creditor may now prove a tort.
In re Pigge,
Section 17(a)(2) of the Bankruptcy Act declares that the exclusive jurisdiction to determine whether a debt is dischargea-ble is vested in the Bankruptcy Court. And when that debt has been previously reduced to judgment in a state court, the Bankruptcy Court, in the exercise оf itsexclusive jurisdiction to determine dis-chargeability of the debt may, contrary to the position or the bankrupt, look behind the judgment itself at the nature or the debt for which the judgment was entered. In so doing, it is not confined to the record in the court in which the judgment was entered; it may, when necessary to ascertain the nature of the debt on which the judgment was entered, admit and consider extrinsic evidence.
The case of
In re Cushingberry,
The fact that a liability has been reduced to judgment prior to bankruptcy should not prevent the bankruptcy court from determining the nature of the liability involved. In instituting a suit prior to bankruptcy a creditor is concerned solely with the question of liability. The creditоr should not, therefore, in a discharge-ability action be bound by the form or content of the pre-bankruptcy judgment. The actual character, rather than the form and style of judgment should control. Prior to the filing of a petition in bankruptcy a creditor is merely concerned with the collection of debt. It is difficult to comprеhend why a creditor should be compelled to litigate a fraud issue on the contingency that the debtor might file a petition in bankruptcy. A creditor should be able to obtain the judgment he then requires without going into the fraud aspect on the remote possibility that a bankruptcy might be filed.
Although the above case representеd the majority opinion on this issue, there were cases holding otherwise. However, the Supreme Court resolved the issue in
Brown v. Felsen,
Based on the above discussion, there are two principles that must be applied to the case at hand. First, any issues which were actually and necessarily decided in the state court action are precluded from relitigation. Thus, any resolved issues in the contract cause of action which are also elements of Tickner’s § 17(a)(2) or (4) complaint must stand, since these kinds of findings of fact in the prior case which were necessarily determined and actually tried must be accepted on each relevant dischargeability element.
Secondly, as to those elements which were not decided previously, and thus not subject to issue preclusion, this court is free to look not only to the judgment itself in the prior action (as in the case of a state court fraud action and a subsequent § 17 complaint), but the court may also look to the record itself and other extrinsic evidence, if offered, in order to best determine if these things make out a case under § 17 of the Bankruptcy Act.
In the case at bar, the plaintiff showed that she had an oral contract with thе defendant, Allen, to sell tickets and to arrange for ticket takers for a performance
The second matter which was tried at the same time as the prior matter was an objection to the debtor’s claim of exemption and the trustee’s allowance thereof. The plaintiff predicated his objections on the new Bankruptcy Code. In fact, the objections should have been predicated upon thе Bankruptcy Act which was in effect at the time of the filing of the petition in bankruptcy.
In any event, the debtor’s schedules did not disclose a diamond wedding ring, three pistols, an alleged interest in a motor home and an alleged interest in a Community Savings Bank savings account.
The testimony disclosed that the motor home was bought by his wife. The bank accounts were owned in the wife’s name. The debtor did own a diamond ring of the value of $750 and three pistols. These later items were disclosed to the trustee at the first meeting and an exemption was claimed for the wedding ring under CPLR 5205 of the State of New York. The three guns were accounted for to the trustee. The nondisclosure of the wedding ring, and the pistols were inadvertent. They were disclosed to the trustee in plenty of time for him to liquidate those he had a right to. Therefore, the objection to the trustee’s report of exemptions and the claim of exemption by the debtor is denied.
This Memorandum and Decision shall constitute Findings of Fact and Conclusions of Law in accordance with Rule 752 of the Rules of Bankruptcy Procedure.
Notes
Emphasis Added.