Matter of Wintrow

Decision Date12 February 1986
Docket NumberAdv. No. 3-84-0161.,Bankruptcy No. 3-84-00497
Citation57 BR 695
PartiesIn the Matter of William R. WINTROW, Jr. aka Rick Wintrow, Debtor. Carlton E. and Arline Z. SHAFER, Plaintiffs, v. William R. WINTROW, Jr., Defendant.
CourtU.S. Bankruptcy Court — Southern District of Ohio

Larry R. Gearhardt, Townsend Foster, Jr., Troy, Ohio, for defendant.

Gary J. Leppla, Dayton, Ohio, for plaintiffs.


THOMAS F. WALDRON, Bankruptcy Judge.

This is a case arising under 28 U.S.C. § 1334(a) and having been referred to this court is determined to be a core proceeding under 28 U.S.C. § 157(b)(2)(I), in which the plaintiffs, Carlton E. and Arline Z. Shafer, seek to have a debt owed to them by the defendant-debtor, William R. Wintrow, Jr. declared an exception to discharge pursuant to 11 U.S.C. §§ 523(a)(2)(A) and (a)(6).

On June 19, 1981, the Shafers filed a complaint against Wintrow in the Common Pleas Court of Miami County, Ohio alleging that he breached a contract he entered into with plaintiffs to build them a house to be used as their residence by constructing a house that grossly differed from his representations concerning a house and that he did so willfully, deliberately and maliciously. The complaint sought compensatory damages of $23,000 and punitive damages of $100,000, plus attorney's fees and costs. The matter was resolved without trial and the debtor, pursuant to an Ohio statute, confessed judgment in the amount of $23,000.00, plus interest from the date of judgment, and costs.1 There was no recital of the basis for the amount set forth in the confession of judgment entry itself. Shafer v. Wintrow, No. 81-284 (Ct.C.P. Miami Cty. July 20, 1982).2

On March 12, 1984, the debtor filed a voluntary bankruptcy petition under Chapter 7, Title 11, U.S.C. The plaintiffs in the state court action then initiated an adversary proceeding in this court arguing that the debt of defendant-debtor should be declared nondischargeable. Counsel for the plaintiffs urged that the state court judgment should be given preclusive effect by this court and therefore no further evidence would be required to determine the debt an exception to discharge; and further, if the state court judgment were not given preclusive effect, the evidence presented at the trial in this court sustains the plaintiff's position that the debt is an exception to discharge under provisions of 11 U.S.C. §§ 523(a)(2)(A) and (a)(6). These grounds were argued at the trial held in this matter and were briefed by both counsel in post-trial memoranda.

For the reasons set forth herein, the court holds that the state court judgment does not preclude the debtor from presenting evidence in this proceeding and the debt is discharged.


The threshold question to be addressed by the court is whether the entry confessing judgment in the state court proceeding precludes the defendant-debtor from presenting any evidence in the subsequent bankruptcy court proceeding to determine the dischargeability of the debt. The resolution of this question involves an analysis of the interrelationship of current concepts of preclusion, developing judicial interpretation of the full faith and credit statute, 28 U.S.C. § 1738,3 and the exclusive nature of bankruptcy court determinations of the dischargeability of debts under 11 U.S.C. § 523(c). The accommodation of these competing principles is not only necessary to the comity involved in a federal-state judicial system, but is also required as a framework for the resolution of issues repeatedly presented in dischargeability proceedings.

A. Concepts of Preclusion

The competing principles of the receipt of relevant evidence and judicial economy receive a resolution in current concepts of preclusion. The words res judicata have been encumbered with a variety of meanings which have been used in a variety of contexts, with the result that rather than adding clarity to discussions, the words have increased confusion. Accordingly, an attempt has been made in recent court decisions to retain the concepts but retire the usage of the words res judicata and instead use the words claim preclusion and issue preclusion.4

In an attempt to clarify the varying terminology that has developed in this area and to continue a consistent use of terminology regarding the doctrine of preclusion, this court shall use the term claim preclusion to refer to the effect of a prior judgment in precluding presentation of all matters that could have been litigated in an earlier suit, whether such matters were litigated or not, and issue preclusion to refer to the effect of a prior judgment in precluding presentation of matters that were actually litigated and decided in an earlier suit. See also 18 C. Wright A. Miller, & E. Cooper, Federal Practice and Procedure § 4402 (1981).

While the usage of the terms claim preclusion and issue preclusion may be helpful in present and future clarification of the doctrine of preclusion, prior cases such as Brown v. Felsen 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979) and Spilman v. Harley, 656 F.2d 224 (6th Cir.1981) did not use preclusion language, but rather used the terms res judicata and collateral estoppel and this variance in terminology must be kept in mind in analyzing such opinions. This is critical because Brown and Spilman provide the basis for a resolution of the threshold question.

While the clear holding in Brown is to deny claim preclusion effect to prior state court judgments in subsequent bankruptcy dischargeability litigation involving fraud claims, the decision did not determine the question of issue preclusion.5

The question of issue preclusion was addressed directly in Spilman, where the Sixth Circuit stated:

This court holds that where all the requirements of collateral estoppel are met, collateral estoppel should preclude relitigation of factual issues.
Collateral estoppel requires that the precise issue in the later proceedings have been raised in the prior proceeding, that the issue was actually litigated, and that the determination was necessary to the outcome.
. . . .
Thus, before applying the doctrine of collateral estoppel, the bankruptcy court must determine if the issue was actually litigated and was necessary to the decision in the state court. To do this, the bankruptcy court should look at the entire record of the state proceeding, not just the judgment, or hold a hearing if necessary (citations omitted).

Id. at 228.

Applying collateral estoppel is logically consistent with the Supreme Court\'s decision in Brown and the exclusive jurisdiction of the bankruptcy courts while at the same time encouraging judicial economy.

Id. at 227.

Thus, while it is clear that principles of claim preclusion cannot apply to the threshold question presented in this proceeding, the principles of issue preclusion may be applicable. In order to properly determine their applicability, an examination must be made of their relationship to the full faith and credit statute as it has been interpreted in federal judicial decisions.

B. Full Faith and Credit Statute

In addition to changes in terminology, the concepts of preclusion have not remained static but have been evolving, particularly in relation to federal judicial interpretation of the full faith and credit statute, which has received considerable attention in a series of Supreme Court cases: Kremer v. Chemical Construction Corp., 456 U.S. 461, 102 S.Ct. 1883, 72 L.Ed.2d 262 (1982); Migra v. Warren City School District Board of Education, 465 U.S. 75, 104 S.Ct. 892, 79 L.Ed.2d 56 (1984); Marrese v. American Academy of Orthopaedic Surgeons, ___ U.S. ___, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985); Parsons Steel, Inc. v. First Alabama Bank, ___ U.S. ___, 106 S.Ct. 768, 88 L.Ed.2d 877 (1986). While these cases have as their focus principles of claim preclusion rather than issue preclusion, they nevertheless represent a direction for federal courts to follow. As the Court stated in Kremer:

It has long been established that § 1738 does not allow federal courts to employ their own rules of res judicata in determining the effect of state judgments. Rather, it goes beyond the common law and commands a federal court to accept the rules chosen by the State from which the judgment is taken (citations omitted).

Id. 456 U.S. at 481-82, 102 S.Ct. at 1897-98.

Again, in Marrese the court stated:

The preclusive effect of a state court judgment in a subsequent federal lawsuit generally is determined by the full faith and credit statute, which 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. This statute directs a federal court to refer to the preclusion law of the State in which judgment was rendered.

Id. 105 S.Ct. at 1331-32.

While an initial reading of this language appears to provide federal courts with clear direction toward a recognizable goal, the determination of state claim preclusion principles, while an achieveable objective, is at a minimum, a complicated undertaking in an unclear area. As the Chief Justice observed in his concurring opinion in Marrese:

No guidance is given as to how the District Court should proceed if it finds state law silent or indeterminate on the claim preclusion question. The Court\'s refusal to acknowledge this potential problem appears to stem from a belief that the jurisdictional competency requirement of res judicata doctrine will dispose of most cases like this.
I cannot agree with the court\'s interpretation of the jurisdictional compentency requirement. (citation omitted).

Id. at 1336. (Burger, C.J., concurring)

The Chief Justice then provided several examples of the indeterminate state Illinois law involved in Marrese, incl...

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