In re Nourbakhsh
| Decision Date | 10 January 1994 |
| Docket Number | BAP No. SC-92-1615-AsRO. Bankruptcy No. 90-05884. Adv. No. 90-90529. |
| Citation | 162 BR 841 |
| Parties | In re Emil NOURBAKHSH and Marlene Nourbakhsh, Debtors. Emil NOURBAKHSH, Appellant, v. John GAYDEN, Jr., and Miriam Gayden, Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Bernard Edwin Galitz, Poway, CA, for debtors/appellant.
Leslie T. Rubin and Jeffry A. Davis, Gray, Cary, Ware & Freidenrich, San Diego, CA, for appellees.
Before ASHLAND, RUSSELL, and OLLASON, Bankruptcy Judges.
A creditor who obtained a default judgment in a Florida State Court sued the debtor to determine the nondischargeability of this debt pursuant to 11 U.S.C. § 523(a)(2)(A). The bankruptcy court granted the creditor's motion for summary judgment finding that there were no genuine issues of material fact because of the collateral estoppel effect of the Florida State Court judgment. We affirm.
The debtor Emil Nourbakhsh and his affiliated corporation, The Gold Exchange, invested in precious metals for their clients. John and Miriam Gayden placed five orders with Nourbakhsh between 1986 and 1987. Although the Gaydens paid approximately $54,188.71 for the precious metals, they received none.
On May 23, 1988 the Gaydens filed a complaint alleging fraud, civil theft, breach of contract, usury, and violations of Florida RICO statutes against Nourbakhsh and The Gold Exchange in the circuit court of the 18th Judicial Circuit of Brevard County, Florida. On July 1, 1988 Nourbakhsh filed a motion to dismiss the complaint for lack of jurisdiction. On September 15, 1988 the Florida State Court denied the motion, finding that there were sufficient contacts to satisfy jurisdiction requirements.
On October 11, 1988 Nourbakhsh served answers to interrogatories. On October 28, 1988 the Gaydens successfully brought a motion for default in Florida State Court because Nourbakhsh had not served or filed an answer to the complaint within 20 days. The Gaydnes then moved for judgment after default and a hearing was held on November 9, 1988. The Florida State Court entered a judgment after default on December 15, 1988 in the amount of $255,506.13. On April 2, 1990 the Superior Court of the State of California, County of San Diego entered a sister state judgment in the amount of $255,506.13.
Nourbakhsh subsequently filed a Chapter 7 petition in the United States Bankruptcy Court for the Southern District of California on July 13, 1990. The Gaydens filed a complaint to determine whether the judgment was nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) on October 17, 1990. On March 5, 1992 the Gaydens filed a motion for summary judgment arguing that Nourbakhsh was collaterally estopped from litigating the issue of fraud. On March 19, 1992 the bankruptcy court granted the motion for summary judgment. Nourbakhsh appeals from that decision.
Whether the bankruptcy court erred in finding that Nourbakhsh is collaterally estopped from litigating the issue of fraud pursuant to 11 U.S.C. § 523(a)(2)(A) after the Florida State Court issued a default judgment against him for failing to answer a complaint alleging state law fraud.
A bankruptcy court's decision to grant summary judgment is reviewed de novo. Jones v. Union Pac. R.R. Co., 968 F.2d 937, 940 (9th Cir.1992); In re Baird, 114 B.R. 198, 201 (9th Cir. BAP 1990). An appellate court must determine whether the bankruptcy court correctly found that there was no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Baird, 114 B.R. at 201.
I. A Default Judgment Entered in a Florida State Court Does Not Preclude a Bankruptcy Court From Applying Collateral Estoppel to the Same Issues Alleged in a Discharge Proceeding Pursuant to 11 U.S.C. § 523
Nourbakhsh argues that the Florida State Court default judgment does not collaterally estop him from trying the issue of fraud in a bankruptcy court. The Supreme Court recently examined issue preclusion in the context of a dischargeability proceeding stating: "we now clarify that collateral estoppel principles do indeed apply in discharge exception proceedings pursuant to § 523(a)." Grogan v. Garner, 498 U.S. 279, 285 n. 11, 111 S.Ct. 654, 658 n. 11, 112 L.Ed.2d 755 (1991). In Grogan, the Court unanimously held that the burden of proof for dischargeability complaints is by a preponderance of the evidence. Grogan, 498 U.S. at 287-88, 111 S.Ct. at 660. Accordingly, bankruptcy courts are required to apply the full faith and credit doctrine to dischargeability issues such as fraud. See, 28 U.S.C. § 1738.
The full faith and credit statute provides that state judicial proceedings "shall have the same full faith and credit in every court within the United States . . . as they have by law or usage in the courts of such State . . . from which they are taken." 28 U.S.C. § 1738; see also, Marrese v. American Academy of Orthopedic Surgeons, 470 U.S. 373, 380, 105 S.Ct. 1327, 1331, 84 L.Ed.2d 274 (1984), reh'g denied, 471 U.S. 1062, 105 S.Ct. 2127, 85 L.Ed.2d 491 (1985). The Supreme Court in Marrese stated that the full faith and credit statute "directs a federal court to refer to the preclusion law of the State in which judgment was rendered." Marrese, 470 U.S. at 380, 105 S.Ct. at 1331. In this case the default judgment was entered in a Florida State Court and we therefore look to Florida law to determine the elements of collateral estoppel.
The elements of collateral estoppel under Florida state law, require that: (1) the parties must be identical; (2) the issues must be identical; and (3) the matter has been fully litigated in a court of competent jurisdiction. Trucking Employees of N. Jersey Welfare Fund, Inc. v. Romano, 450 So.2d 843, 845 (Fla.1984); Mobil Oil Corp. v. Shevin, 354 So.2d 372, 374 (Fla.1977); Daniel Int'l Corp. v. Better Constr., Inc., 593 So.2d 524, 527 (Fla.Dist.Ct.App.1991), review denied, Better Constr., Inc. v. Daniel Int'l Corp., 602 So.2d 941 (Fla.1992); West Point Constr. Co. v. Fidelity and Deposit Co., 515 So.2d 1374, 1376 (Fla.Dist.Ct.App.1987).
The identity of the parties element is satisfied. The state court judgment in this case was in favor of the plaintiff Gaydens and against the defendant Nourbakhsh. In the bankruptcy court, the plaintiff Gaydens sued the defendant Nourbakhsh. Similarly, the issues addressed in the state court are identical to the issues before the bankruptcy court. The elements of common law fraud under Florida law "closely mirror the requirements of 523(a)(2)(A) and, hence are sufficiently identical . . . to meet . . . the test for collateral estoppel." In re Seifert, 130 B.R. 607, 609 (Bankr.M.D.Fla.1991) (quoting In re Powell, 95 B.R. 236 (Bankr.S.D.Fla.1989), aff'd, 108 B.R. 343 (S.D.Fla.1989), aff'd without opinion, 914 F.2d 268 (11th Cir.1990).
Finally, the issue of fraud was determined and fully litigated in a Florida State Court pursuant to Florida state law. We recognize the considerable divergence in the courts with respect to whether the entry of a default judgment is tantamount to having a matter "actually litigated." Compare, e.g., In re McMillan, 579 F.2d 289 (3d Cir.1978); and Spilman v. Harley, 656 F.2d 224 (6th Cir.1981); with In re Marsowicz, 120 B.R. 602 (Bankr.S.D.Fla.1990); In re Heuser, 127 B.R. 895 (Bankr.N.D.Fla.1991); In re Seifert, 130 B.R. 607 (Bankr.M.D.Fla.1991); and In re Arguez, 134 B.R. 55 (Bankr.S.D.Fla.1991). However, we do not need to analyze the standard in other jurisdictions for persuasive authority. The Supreme Court in Marrese specifically stated that the full faith and credit statute directs a federal court to refer to the preclusion law of the State in which the judgment was rendered. Marrese, 470 U.S. at 380, 105 S.Ct. at 1331. Accordingly, only an analysis of Florida's preclusion law is relevant to the outcome in this case.
In Florida, "a default judgment conclusively establishes between the parties . . . the truth of all material allegations contained in the complaint in the first action and every fact necessary to uphold the default judgment, but such judgment is not conclusive as to any defense or issue which was not raised and is not necessary to uphold the default judgment." Perez v. Rodriguez, 349 So.2d 826, 827 (Fla.Dist.Ct.App.1977); Baum v. Pines Realty, Inc., 164 So.2d 517, 522 (Fla. Dist.Ct.1964); see also, Masciarelli v. Maco Supply Corp., 224 So.2d 329, 330 (Fla.1969). Additionally, "for purposes of res judicata, a judgment entered upon default is just as conclusive as one which was hotly contested." Cabinet Craft, Inc. v. A.G. Spanos, 348 So.2d 920, 922 (Fla.Dist.Ct.App.1977); see also, Martino v. Florida Ins. Guaranty Assoc., 383 So.2d 942, 944 (Fla.Dist.Ct.App.1980). Based upon the preceding language, we find that a Florida State Court would hold that the entry of a default judgment is tantamount to a dispute that has been "actually litigated."
Our interpretation of Florida law is supported by four bankruptcy opinions emanating from three districts in Florida that directly address the standard for issue preclusion in a Florida State Court. First, the court in In re Marsowicz, 120 B.R. 602 (Bankr.S.D.Fla.1990), stated that "the fact that a default was entered against the debtors in the state court action will not preclude this Court from applying collateral estoppel to the state court judgment." Marsowicz, 120 B.R. at 604 ().
Second, the court in In re Heuser, 127 B.R. 895 (Bankr.N.D.Fla.1991), stated that:
The plaintiff in this case has received a default judgment finding that the debtor obtained the funds by use of false pretenses or false representations; he willfully and maliciously converted those funds; and, he obtained the funds with the...
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