430 Mass. 237 | Mass. | 1999
The United States Bankruptcy Appellate Panel for the First Circuit (bankruptcy appellate panel) has certified a question to this court. See S.J.C. Rule 1:03, as appearing in 382 Mass. 700 (1981). The question concerns the preclusive effect of a default judgment obtained in the Superior Court in a subsequent bankruptcy proceeding:
“When a defendant appears in a civil action, files a motion seeking interlocutory relief, obtains that relief, but does not thereafter answer or defend; and when, after a damage hearing (in which the defendant does not participate), default judgment enters; does Massachusetts law preclude the defendant’s litigation of the substantive elements underlying the default judgment in a subsequent action initiated by the same plaintiffs?”
We answer the question in the negative.
We summarize the relevant facts. See S.J.C. Rule 1:03, § 3 (2). In January, 1990, Filomeno and Virginia Treglia filed a complaint in the Middlesex Superior Court against James G. MacDonald. The Treglias alleged breach of contract and fraud in connection with an extension of credit relating to the sale by the Treglias of their two-family home in Waltham to MacDonald. As part of the consideration for the sale, MacDonald gave the Treglias a promissory note in the amount of $75,000, secured by a second mortgage on real property MacDonald owned at a different location in Waltham. When MacDonald failed to make principal and interest payments on the promissory note, the Treglias brought suit. In the second count of their complaint the Treglias alleged that MacDonald had made false representations to them concerning the value of the second property, and that they were fraudulently induced into accepting the promissory note from him.
The Treglias simultaneously filed an ex parte motion for attachment of real estate that was allowed the same day by a judge in the Superior Court in the amount of $85,000. Approximately four months later, the Treglias served the complaint and writ of attachment on MacDonald. In response, MacDonald promptly filed a motion to modify and discharge the attachment order that was allowed without opposition. A second such motion filed by MacDonald was also allowed several months later.
In October, 1991, MacDonald filed a voluntary petition for bankruptcy protection in the bankruptcy court pursuant to
II
The bankruptcy appellate panel is not listed among the courts from which we accept certified questions. See S.J.C. Rule 1:03, § 1. We nevertheless conclude that we may answer the certified question. Bankruptcy appellate panels were created on July 10, 1984, pursuant to 98 Stat. 341 (1984), codified at 28 U.S.C. § 158(b) and (c) (1994), after the adoption of S.J.C. Rule 1:03, § l.
The Treglias invoke the principle of collateral estoppel as developed under Massachusetts law to support their contention that the bankruptcy court should not have permitted MacDonald to relitigate the issue of fraud in that court.
It is generally held that a default judgment does not have preclusive effect on an issue in a subsequent action because the issues have not been actually litigated. See Restatement (Second) of Judgments § 27 comment e, at 257 (1982) (“In the case of a judgment entered by confession, consent, or default, none of the issues is actually litigated”). See also 18 C.A. Wright, A.R. Miller, & E.H. Cooper, Federal Practice and Procedure § 4442, at 373 (1981) (“[¡judgment by default in the technical sense that the issues have not been litigated does not warrant issue preclusion for the very reason that the issues have not been litigated or decided”). Commenting on whether an issue has been “actually litigated,” the drafters of the Restatement noted that not every judgment is conclusive in a subsequent action even as to issues “which might have been but were not litigated and determined in the prior action.” Restatement (Second) of Judgments, supra at § 27 comment e, at 256. The drafters also noted that it is sometimes difficult to determine whether an issue has been “actually litigated,” and that in some circumstances “even if it was not litigated, the party’s reasons for not litigating in the prior action may be such that preclusion would be appropriate.” Id. It was this aspect of the proceedings in the Superior Court that appeared to give rise to the uncertainty under Massachusetts law expressed by the bankruptcy appellate panel. The panel noted that “[wjere this a simple no-appearance, no answer default” it would affirm the ruling of the judge in the bankruptcy court. However, because MacDonald “did indeed appear and participate in the State court proceedings before he was defaulted,” the panel was less certain of the application of Massachusetts law to this case.
We reaffirm that preclusive effect should not be given to issues or claims that were not actually litigated in a prior action.
We caution that, even in the case of a judgment entered by default, there may be some circumstances in which an issue may be given preclusive effect in subsequent litigation between the same parties. We can, for example, envision circumstances in which a litigant may so utilize our court system in pretrial procedures, but nonetheless be defaulted for some reason, that the principle and rationale behind collateral estoppel would apply. See, e.g., Matter of Gober, 100 F.3d 1195 (5th Cir. 1996) (holding that default judgment based on failure to answer does not support issue preclusion but where default issued as discovery sanction against defendant debtor after two years of litigation in which defendant had answered and denied all allegations of complaint, collateral estoppel applied); In re Bush, 62 F.3d 1319, 1324 (11th Cir. 1995) (applying collateral estop-pel effect to prior default judgment against debtor based on fraud, where debtor “actively participated” in adversary process
For the reasons stated, we answer the question certified in the negative.
The record does not contain the terms of these orders. At oral argument before this court, counsel for MacDonald represented that the first motion sought a partial dissolution of the attachment on one or more properties and that the second motion sought a similar modification.
Title 11 U.S.C. § 523(a)(2)(A) (1994 & Supp. HI 1997) provides:
“(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt. . .
“(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by —
“(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition
Supreme Judicial Court Rule 3:21, § 1, as appearing in 359 Mass. 790 (1971), adopted on October 29, 1971, effective November 1, 1971. On June 26, 1980, the Justices ordered the Rules of the Supreme Judicial Court reorganized and amended. Rule 3:21, § 1, is now Rule 1:03, § 1. See 382 Mass. 698 (1981).
Collateral estoppel principles apply in proceedings to determine the dischargeability of a debt under 11 U.S.C. § 523(a). See Grogan v. Garner, 498 U.S. 279, 284-285 n.11 (1991). Most courts agree that under the full faith and credit statute, 28 U.S.C. § 1738 (1994), the preclusive effect of a State court judgment in a subsequent nondischargeability proceeding under Federal bankruptcy law is governed by the collateral estoppel law of the State from which the judgment is rendered, as the bankruptcy appellate panel concluded here. See, e.g., In re Nourbakhsh, 67 F.3d 798, 800-801 (9th Cir. 1995) (holding that Florida collateral estoppel law, not Federal collateral estoppel law, controls); In re Bursack, 65 F.3d 51, 53 (6th Cir. 1995), quoting Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 81 (1984) (noting that “a federal court must give to a state-court judgment the same preclusive effect as would be given that judgment under the law of the State in which the judgment was rendered”). But see In re Wald, 208 B.R. 516, 520 (Bankr. N.D. Ala. 1997) (applying Federal rather than State law of collateral estoppel to determine if State court default judgment should be given preclusive effect in dischargeability case).
The record does not establish why MacDonald chose not to contest the Treglias’ assertion of fraud in the Superior Court. In light of his subsequent invocation of the protection of the bankruptcy court, MacDonald may have sought to conserve both his own resources and judicial resources by a single proceeding in the bankruptcy court.