Daily, In re
| Decision Date | 03 February 1995 |
| Docket Number | No. 93-15495,93-15495 |
| Citation | 47 F.3d 365 |
| Parties | 32 Collier Bankr.Cas.2d 2023, 26 Bankr.Ct.Dec. 846, Bankr. L. Rep. P 76,364 In re Sammy G. DAILY, Debtor. FEDERAL DEPOSIT INSURANCE CORP., Receiver for Indian Springs State Bank, Plaintiff-Appellee, v. Sammy G. DAILY, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Sammy G. Daily, in pro. per.
Kathryn R. Norcross, F.D.I.C., Washington, DC, for plaintiff-appellee.
Jerold K. Guben, Reinward, O'Connor, Marrack, Hoskins & Playdon, Honolulu, HI, for plaintiff-appellee.
Appeal from the United States District Court for the District of Hawaii.
Before: BROWNING, TROTT, and KLEINFELD, Circuit Judges.
This is an appeal from an order of the district court holding that a debt owed by Sammy G. Daily to the Federal Deposit Insurance Corporation ("FDIC"), as receiver for Indian Springs State Bank, was for money obtained by fraud and, therefore, not dischargeable in bankruptcy. We affirm.
Daily filed a petition for relief in the United States Bankruptcy Court for the District of Hawaii. The FDIC filed an adversary complaint to determine the dischargeability of a debt allegedly owed the FDIC by Daily ("dischargeability complaint"). The FDIC alleged it had filed a civil action 1 in the United States District Court for the District of Kansas ("the RICO suit") under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), asserting that defendants had obtained money from Indian Springs State Bank by various fraudulent acts. The FDIC noted that Daily had not been named as a defendant in the RICO suit because of the automatic stay in effect in Daily's bankruptcy proceeding. The FDIC asked the Hawaii bankruptcy court to modify the automatic stay to permit the FDIC to join Daily as a defendant in the RICO suit. The FDIC asserted that any money judgment that might be entered against Daily in the RICO suit would be nondischargeable in bankruptcy, and it asked the bankruptcy court to stay further proceedings on the dischargeability complaint until the RICO suit was concluded.
The FDIC and Daily then entered into a stipulation, which the bankruptcy court approved, agreeing to a modification of the automatic stay to permit the FDIC to proceed against Daily in the RICO action. The stipulation provided that any money judgment obtained against Daily in the RICO action would be proven and allowable against the bankruptcy estate, that the FDIC retained its right to enforce any nondischargeable judgment entered against Daily in the RICO action, and that proceedings on the FDIC's dischargeability complaint would be stayed "until conclusion of the [d]istrict [c]ourt proceedings [in the RICO action], which adjudication [would] be binding on the parties [to the stipulation]." 2
After the bankruptcy court approved the stipulation, the FDIC amended its complaint in the RICO suit to name Daily and his real estate brokerage firm as defendants. The FDIC then sought discovery. Nothing was forthcoming. After pressing its requests for discovery unsuccessfully for nearly two years, the FDIC sought relief under Rule 37. After full briefing and a hearing, the district court found that Daily's failure to provide discovery "was the result of a deliberate, dilatory course of conduct," that Daily had "chose[n] to delay responses until delay was no longer an option," and that Daily's "strategy of delay and evasiveness ... [had] significantly prejudiced the plaintiffs ... [and had] significantly interfered with the judicial process." Federal Deposit Ins. Corp. v. Renda, 126 F.R.D. 70, 72-73 (D.Kan.1989). The court ordered all allegations of the complaint deemed admitted by Daily and entered a default judgment in favor of the FDIC for the damages alleged, trebled pursuant to 18 U.S.C. Sec. 1964(c). 3 The Tenth Circuit affirmed, upholding the district court's determination that Daily's failure to provide discovery had been strategic rather than inadvertent and concluding that entry of judgment against Daily on the merits did not violate due process. FDIC v. Daily, 973 F.2d 1525, 1530-32 (10th Cir.1992).
Relying on the stipulation and on the orders entered by the Kansas district court and the Tenth Circuit in the RICO action, the FDIC moved for summary judgment on its dischargeability complaint. After briefing and hearing, the bankruptcy court held the debt nondischargeable. The court concluded that the Kansas court's order and judgment in the RICO action established the allegations of fraud in the RICO complaint and that the facts thus established were sufficient to preclude the discharge of Daily's debt to the FDIC under 11 U.S.C. Sec. 523(a)(2)(A) and (B), as a debt for money obtained by fraud. The Hawaii district court affirmed. This appeal followed.
We review the decision of the bankruptcy court independently. Dewhirst v. Citibank (Arizona) (In re Contractors Equip. Supply Co.), 861 F.2d 241, 243 (9th Cir.1988). The bankruptcy court based its conclusion that the judgment in the RICO action precluded Daily from relitigating the issues relevant to discharge in the bankruptcy proceeding on (1) the doctrine of collateral estoppel and (2) the parties' stipulation. We consider these alternative grounds in turn.
Daily contends the judgment in the RICO action did not preclude relitigation in the bankruptcy proceeding of the issue of whether he had obtained money by fraud because the judgment was based on Daily's default and the issues were, therefore, not "actually litigated." 4
The judgment entered in the RICO action was not an ordinary default judgment. Daily did not simply decide the burden of litigation outweighed the advantages of opposing the FDIC's claim and fail to appear. He actively participated in the litigation, albeit obstructively, for two years before judgment was entered against him. A party who deliberately precludes resolution of factual issues through normal adjudicative procedures may be bound, in subsequent, related proceedings involving the same parties and issues, by a prior judicial determination reached without completion of the usual process of adjudication. In such a case the "actual litigation" requirement 5 may be satisfied by substantial participation in an adversary contest in which the party is afforded a reasonable opportunity to defend himself on the merits but chooses not to do so.
In United States v. Gottheiner (In re Gottheiner), 703 F.2d 1136 (9th Cir.1983), we approved use of collateral estoppel to establish the existence of a debt in bankruptcy although the prior judgment relied upon to establish the debt rested on an unopposed motion for summary judgment. We deemed the requirement of "actual litigation" satisfied notwithstanding the debtor's failure to oppose the motion, stating:
Gottheiner did not simply give up from the outset. For sixteen months he actively participated in litigation.... That after many months of discovery Gottheiner decided his case was no longer worth the effort does not alter the fact that he had his day in court. Under the circumstances we hold that ... collateral estoppel properly was available to the [creditor].
The same may be said here. Daily did not simply give up but actively participated in the adversary process for almost two years prior to the FDIC's motion for default judgment. As the bankruptcy court observed, "Daily had a full and fair opportunity to litigate the allegations contained in the [RICO complaint] but [instead] ... chose not to participate in the discovery process and pre-trial proceedings[, and to] frustrate[ ] and thwart[ ] the FDIC's trial preparation[ ] and def[y] the [o]rder of the United States District Court compelling discovery."
In these circumstances, collateral estoppel was available to the FDIC, and the district court did not abuse its discretion by applying the doctrine to preclude further litigation of issues determined in the RICO action. None of the factors that might counsel a court not to apply collateral estoppel in a particular case was present here. 6 Without denying Daily his day in court, application of the doctrine served its central purposes of "protect[ing] [the prevailing party] from the expense and vexation attending multiple lawsuits, conserv[ing] judicial resources, and foster[ing] reliance on judicial action by minimizing the possibility of inconsistent decisions." Montana v. United States, 440 U.S. 147, 153-54, 99 S.Ct. 970, 973-74, 59 L.Ed.2d 210 (1979). By contrast, denying preclusive effect to the RICO judgment on the ground that the issues relevant to discharge were not fully tried in that proceeding would permit Daily to delay substantially and perhaps ultimately avoid payment of the debt by deliberate abuse of the judicial process.
Due process is not violated by a court's entry of a default judgment or other sanction against a party for refusal to cooperate with discovery. See Societe Internationale Pour Participations Industrielles et Commerciales, S.A. v. Rogers, 357 U.S. 197, 209-10, 78 S.Ct. 1087, 1094-95, 2 L.Ed.2d 1255 (1958). The court's action presumes, in essence, that defendant's conduct is "but an admission of the want of merit in the asserted defense." Id. at 210, 78 S.Ct. at 1095 (internal quotations omitted). Nor is due process violated if the defendant is later held to the consequences of such a judgment in a bankruptcy discharge proceeding. It is implicit in the doctrine of collateral estoppel that, where a party has been accorded a full and fair opportunity to litigate an issue in a prior proceeding, due process is not violated by denying the party a further opportunity to litigate the same issue in a subsequent proceeding. See Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 328-29, 91 S.Ct. 1434, 1442-43, 28 L.Ed.2d 788 (1971).
The bankruptcy court concluded the stipulation 7 "bound both the FDIC and Daily to any final judgment...
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