Cohen v. Bucci

• Citation: 905 F.2d 1111
• Decision Date: 30 July 1990
• Docket Number: No. 89-2766,89-2766
• Parties: Bankr. L. Rep. P 73,504 Joseph COHEN, Plaintiff-Appellee, v. Joseph BUCCI, Debtor-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 1111

905 F.2d 1111

Bankr. L. Rep. P 73,504

Joseph COHEN, Plaintiff-Appellee, v. Joseph BUCCI, Debtor-Appellant.

No. 89-2766.

United States Court of Appeals, Seventh Circuit.

Argued June 8, 1990.

Decided June 28, 1990.

Rehearing Denied July 30, 1990.

Gary E. Dienstag, Springer, Casey, Dienstag & Devitt, Chicago, Ill., for plaintiff-appellee.

Joel A. Brodsky, Brodsky & Hoxha, Chicago, Ill., for debtor-appellant.

Before CUDAHY and EASTERBROOK, Circuit Judges, and FAIRCHILD, Senior Circuit Judge.

EASTERBROOK, Circuit Judge.

In October 1985 Joseph Bucci filed a bankruptcy petition stating that he had substantial debts and no non-exempt assets. The trustee promptly commenced an adversary proceeding against Bucci, his former wife Bruna, and his son Bruno, contending that Bucci fraudulently transferred assets to Bruna and Bruno in a property settlement approved by the state court presiding over divorce proceedings. Bucci transferred to them his entire interest in the family's principal residence, a 24-unit apartment building, and a motel, plus two cars. In 1986 the bankruptcy judge concluded that the transfer was avoidable, see 11 U.S.C. Sec. 548(a)(1), because Bucci acted with intent to hinder or frustrate his creditors and did not receive equivalent value for the property. Bucci did not tell the state court about his debts, leading the state judge to believe that Bucci had large equity interests in the home, apartment building, and motel, which could be transferred to his wife and child in lieu of support. In fact Bucci had no net interest; his debts exceeded the value of the property. Bucci did not appeal to the district court from the order avoiding the transfer; Bruna's appeal was not prosecuted.

Later the trustee asked the bankruptcy judge to deny Bucci a discharge, a step 11 U.S.C. Sec. 727(a)(2)(A) authorizes in the event of fraudulent pre-bankruptcy transfers. The trustee argued that the disposition of the earlier proceeding is conclusive; Bucci demanded an opportunity to relitigate. Finding that the result in the action to avoid the transfer met all the requirements for issue preclusion, the bankruptcy judge denied Bucci a discharge. 97 B.R. 954 (Bankr.N.D.Ill.1989), affirmed, 103 B.R. 927 (N.D.Ill.1989). Bucci asks us to hold that he is entitled to a second trial because, he says, he lacked the incentive to litigate vigorously in the proceeding seeking to avoid the transfer. The property would go either to his ex-wife and son or to his creditors, Bucci insists, making it rational to loiter on the sidelines of that litigation. Now that the result hurts him personally, he wants a fresh opportunity.

It is not clear to us that the case presents questions about issue preclusion (collateral estoppel) rather than law of the case. Adversary proceedings in bankruptcy are not distinct pieces of litigation; they are components of a single bankruptcy case, and it is debatable whether Bucci could have appealed to us in 1986 a conclusion that his creditors rather than his wife would obtain his former interest in the motel. See In re Kilgus, 811 F.2d 1112 (7th Cir.1987). If law of the case is the right way to characterize the bankruptcy court's decision in 1986, then the bankruptcy judge was right to follow the decision in 1989, but this would not block the district judge (or this court) from examining the merits. Law of the case does not block a superior court from examining the correctness of the earlier decision. Bucci does not ask us to employ principles of law of the case rather than preclusion, however. In civil litigation we accept the issues framed by the parties. So we shall examine the bankruptcy court's 1986 decision through the lens of issue preclusion, without deciding that this is the proper approach.

Issue preclusion applies to a question that has been "actually litigated and determined by a valid and final judgment, [if] the determination is essential to the judgment." Restatement (Second) of Judgments Sec. 27 (1982). See Teamsters Local 282 Pension Trust v. Angelos, 815 F.2d 452 (7th Cir.1987); Garza v. Henderson, 779 F.2d 390, 392 (7th Cir.1985); Crowder v. Lash, 687 F.2d 996, 1009 (7th Cir.1982). Whether Bucci's transfer was a fraud on his creditors was actually, and necessarily, determined by the bankruptcy judge in 1986, in a proceeding to which Bucci was a party.

Bucci insists that this is insufficient because he had no reason to contest the trustee's motion to avoid the transfer: no matter the disposition, he would not get the assets. Inadequate incentive to litigate is an exception to non-mutual estoppel, see Parklane Hosiery Co. v. Shore, 439 U.S. 322, 330, 99 S.Ct. 645, 651, 58 L.Ed.2d 552 (1979). Someone sued for a nominal amount will not put up the full defense justified in big-stakes cases, and it may be hard to anticipate that an issue in a pip-squeak of a case will have grave consequences later. Issues resolved after half-hearted efforts may be relitigated, when circumstances...