In re Goodman

• Decision Date: 23 December 1982
• Docket Number: Adv. No. 81 A 1786.,Bankruptcy No. 81 B 04303
• Citation: 25 BR 932
• Parties: In re John T. GOODMAN, Debtor. Diana L. BERKFIELD, Plaintiff, v. John T. GOODMAN, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

25 B.R. 932 (1982)

In re John T. GOODMAN, Debtor Diana L. BERKFIELD, Plaintiff, v. John T. GOODMAN, Defendant.

Bankruptcy No. 81 B 04303, Adv. No. 81 A 1786.

United States Bankruptcy Court, N.D. Illinois, E.D.

December 23, 1982.

COPYRIGHT MATERIAL OMITTED

Teri Lieberman, Lieberman & Kurasch, Chicago, Ill., for plaintiff.

Stephen N. Sira, Chicago, Ill., for defendant.

MEMORANDUM OPINION AND ORDER

FREDERICK J. HERTZ, Bankruptcy Judge.

This cause of action comes on to be heard on a complaint by Diana L. Berkfield (hereinafter referred to as plaintiff) seeking to determine the dischargeability of the debt owed by John T. Goodman (hereinafter referred to as debtor).

The plaintiff alleges that on November 8, 1978, she received a default judgment based, inter alia, on fraud and deceit against the debtor in Riverside County, California (hereinafter referred to as California judgment) in the amount of $16,153.04 money damages and $50,000.00 punitive damages. The California judgment was registered in Illinois, pursuant to which the debtor's wages were garnished in the amount of $5,275.62. The plaintiff contends that as of April 30, 1981, the balance due on the judgment, including interest, is $74,799.13. The plaintiff reasons that since Section 523(a)(2)(A) provides that a debt based on fraud is nondischargeable, the debt based on the California judgment should be nondischargeable.

In his answer to the plaintiff's complaint, the debtor pleaded an affirmative defense based on the grounds that (1) the plaintiff's complaint was filed only to harass the debtor, (2) since the California judgment was by default, it is contrary to the due process clause of the United States Constitution, and (3) the debtor performed his obligations to the plaintiff satisfactorily and without being paid. In addition, the debtor has filed a counter complaint seeking $6,000.00 for damages incurred due to the registration of the California judgment in Illinois and the subsequent wage garnishment. The counter complaint also contends, in extremely vague terms, that the California judgment is void due to defects in some way relating to residency, venue, due process, and the nature of a default judgment.

The plaintiff has submitted for this court's review a copy of the complaint, transcript,¹ and judgment from the California proceeding. The parties have had several status hearings, but no issues have come to trial. Neither party has filed a motion for Judgment on the Pleadings, Summary Judgment, or Declaratory Judgment with respect to the controversy herein. In fact, the parties have attempted to stipulate that no witnesses or additional evidence would be presented at trial.

Consequently, the parties await this court's decision to the stipulated issues of (1) whether the California judgment is entitled to full faith and credit, so that the basis for the judgment may not be re-examined in this proceeding, and (2) if the basis can be re-examined, whether the evidence presented should be limited to the facts contained in the transcript of the California proceeding. This court will address these issues in order to prevent additional delay and to foster judicial economy in resolving this controversy.

Both of the issues herein center on the ability to collaterally attack the California judgment. Stated another way, the issues bring into question the binding effect of the California judgment on this proceeding. See generally, J. Martin, Conflicts of Laws, at 608-09 (1978) (hereinafter referred to as Martin). Essentially, three interrelated principles determine the binding effect of a judgment on subsequent litigation: full faith and credit,²res judicata,³ and collateral estoppel.⁴ Thus, although the plaintiff has urged for the application of only full faith and credit, the interrelation between the principles requires that this court address each principle separately.

The requirement of full faith and credit is derived from Article IV, Section 1 of the United States Constitution, which provides:

Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State. And the Congress may by general Laws prescribe the Manner in which such Acts, Records, and Proceedings shall be proved, and the Effect thereof.

By its own terms, this constitutional provision applies only to states. Consequently, full faith and credit for judicial proceedings is constitutionally required only where both the first suit and the second suit are in state court. See Vestal, supra note 3, at 35. By federal statute, however, federal courts are obligated to give full faith and credit to state court judgments.⁵ Thus, full faith and credit also applies where the first suit was in state court and the second suit was in federal court. See Vestal, supra, note 3 at 35.

The United States Supreme Court has stated that full faith and credit "generally requires every State to give a judgment at least the res judicata effect which the judgment would be accorded in the State which rendered it." Durfee v. Duke, 375 U.S. 106, 109, 84 S.Ct. 242, 243, 11 L.Ed.2d 186 (1963). While this statement is not patently incorrect, it is misleading to the extent that it suggests that the principles of full faith and credit and res judicata are one and the same — applying at the same time and to the same extent in all situations. In fact, full faith and credit and res judicata (and collateral estoppel as well) differ significantly as to origin,⁶ extent of application,⁷ and nature of preclusive effect.⁸ Accordingly, this court believes that a more precise definition of full faith and credit is that it requires that a judgment rendered in State A be given the same preclusive effect in State B that it would have been given in State A.⁹

The doctrine of full faith and credit extends only to valid judgments.¹⁰ And even for valid judgments, full faith and credit is subject to certain limitations. Therefore, it is generally considered that full faith and credit does not apply where (1) there is no jurisdiction over the parties, (2) there is an overriding policy of the forum state against the application of full faith and credit in a particular instance, and (3) there is a limitation intrinsically related to the judgment which would prevent the application of full faith and credit in a particular instance.¹¹

Moreover, it is significant to recognize that full faith and credit has two aspects: (1) as a basis for enforcement of a judgment outside of the state where rendered and (2) as a means to preclude litigation in a new or collateral proceeding of a claim or issue arising out of the same facts as the original suit. See The Congressional Research Service, The Constitution of the United States of America 794 (1972). An example of the first aspect is a suit brought to enforce a debt arising from a prior judgment. In this instance, the prior judgment is entitled to full faith and credit and, absent any applicable limitation, is conclusive as to liability in the subsequent suit. See In re Cochran, No. 3-80-03021, Slip op. at 4 (Bankr.S.D. Ohio, February 18, 1982) ("As a general rule, a default judgment is conclusive in an action brought upon the judgment, and this court is obligated to afford full faith and credit to valid state court judgments.").

The case at bar does not involve the enforceability of a judgment, but rather it centers on the second aspect of full faith and credit — the preclusive effect of a judgment. The limitations on full faith and credit, however, prevent the California judgment from precluding litigation on the dischargeability issue in the case at bar.

The first limitation on full faith and credit (no jurisdiction over the parties) provides that a judgment can be attacked on the basis of a lack of jurisdiction over the parties if that issue was not raised and decided in the prior court.¹² The question of jurisdiction was not litigated in the California proceeding, and the plaintiff has not established, or attempted to establish, in this proceeding the basis for the California court's jurisdiction, despite the debtor's vague attempt to raise the issue.

But even if the California court had jurisdiction over the parties, the California judgment would not preclude litigation of the dischargeability issue because dischargeability is within the exclusive jurisdiction of the Bankruptcy Court. 3 Collier on Bankruptcy ¶ 523.11, at 523-66 (15th ed. 1982) ("The effect of section 523(c) is to give the bankruptcy court exclusive jurisdiction over actions to determine the dischargeability of a debt excepted from discharge by section 523(a)(2), (4), or (6)."). In effect, pursuant to the second limitation on full faith and credit, the bankruptcy court as the forum court has an overriding policy to be the only court empowered to decide the issue of dischargeability.¹³ Moreover, the California judgment is not directly applicable to the proceeding herein because the California court decided only the issue of liability based on fraud, not the issue of the dischargeability of a debt.¹⁴ Thus, this court holds that under the doctrine of full faith and credit, the California judgment is not conclusive as to the issue of fraud in the dischargeability proceeding before this court.

Res judicata and collateral estoppel, however, can be applied independently of full faith and credit. This fact is the source of some confusion. As stated previously, full faith and credit requires that a judgment be given the total preclusive effect available in the rendering state. See notes 8 and 9 and accompanying text supra. In addition, one treatise states that "full faith and credit implements the doctrine of res judicata . . ." 1B J. Moore & T. Currier, Moore's Federal Practice ¶ 0.401, at 17 (2d Ed. 1982). But, despite their interrelationship, full faith and credit, res judicata, and collateral estoppel are distinct legal principles. For an analysis of the...