Taleb v. Kramer (In re Kramer)

• Decision Date: 23 December 2015
• Docket Number: Case No. 15-46671,Adv. No. 15-4745
• Citation: 543 B.R. 551
• Parties: In re: Keith Bradley Kramer, Debtor. Said Taleb, Plaintiff, v. Keith Bradley Kramer, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Michigan

543 B.R. 551

In re: Keith Bradley Kramer, Debtor.

Said Taleb, Plaintiff,

v.Keith Bradley Kramer, Defendant.

Case No. 15-46671

Adv. No. 15-4745

United States Bankruptcy Court, E.D. Michigan, Southern Division.

Signed December 23, 2015

Joel C. Bryant, Steven A. Roach, Marc N. Swanson, Miller Canfield Paddock and Stone, P.L.C., Detroit, Michigan, Attorneys for Plaintiff.

Scott M. Kwiatkowski, Goldstein, Bershad & Fried, P.C., Southfield, Michigan, Attorney for Defendant.

OPINION REGARDING FINALITY OF JUDGMENT ON APPEAL FOR COLLATERAL ESTOPPEL PURPOSES

Thomas J. Tucker, United States Bankruptcy Judge

I. Introduction

In this adversary proceeding, Plaintiff Said Taleb seeks a determination that the Defendant/Debtor Keith Kramer's debt under a state court judgment, which is based on an arbitration award, is nondischargeable under 11 U.S.C. § 523(a)(6), as a debt for "willful and malicious injury by the debtor." Plaintiff has filed a motion for summary judgment (Docket # 16, the "Motion"), that is based entirely on collateral estoppel. The parties briefed the Motion, and the Court held a hearing on December 9, 2015. The Court then scheduled a bench opinion on the Motion, to be given on January 7, 2016.¹

The parties have argued a number of issues related to collateral estoppel, and most of these will be addressed in the Court's upcoming bench opinion. In the meantime, however, the Court is issuing this written opinion to address one of the summary judgment issues. That issue is whether, under Michigan law, a lower court final judgment is to be given preclusive effect under the doctrine of collateral estoppel when an appeal of the judgment is pending, or the time for appeals has not yet expired.

Michigan law applies to the collateral estoppel issues here, because:

In determining whether a state court judgment precludes relitigation of issues under the doctrine of collateral estoppel, the Full Faith and Credit Statute, 28 U.S.C. § 1738,² requires bankruptcy courts to " ‘consider first the law of the State in which the judgment was rendered to determine its preclusive effect.’ " Bay Area Factors v. Calvert (In re Calvert ), 105 F.3d 315, 317 (6th Cir.1997) (quoting Marrese v. Am. Acad. of Orthopaedic Surgeons, 470 U.S. 373, 375, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985) ). If the state courts would not deem the judgment binding under collateral estoppel principles, then the bankruptcy court cannot do so either. But if the state courts would give preclusive effect to the judgment, then the bankruptcy court [generally] must also give the judgment preclusive effect[.]

McCallum v. Pixley (In re Pixley), 456 B.R. 770, 775–76 (Bankr.E.D.Mich.2011). Under Michigan law, the existence of a "valid, final judgment in the first proceeding" is one of the requirements for the application of collateral estoppel. See id. at 776 (citation omitted). The question is whether, under Michigan law, a judgment is considered "final" when an appeal from that judgment is pending or still possible.

The question arises in this case because Defendant has appealed the state court judgment on which Plaintiff relies. The appeal is pending in the Michigan Court of Appeals, although it is currently administratively closed, due to Defendant's bankruptcy. But the appeal likely will be reopened soon, because this Court recently lifted the automatic stay to permit the parties to litigate the appeal.³ See Order Terminating the Automatic Stay to Permit the Debtor and Said Taleb to Proceed with the State Court Appeal, filed Dec. 16, 2015 (Case No. 15–46671, Docket # 108).

Plaintiff contends that the state court judgment is entitled to preclusive effect under the doctrine of collateral estoppel, even while the judgment is on appeal. Defendant contends that the judgment is not entitled to preclusive effect until the appeal process is complete. Both parties cite Michigan cases in support of their respective positions.

For the reasons stated in this opinion, the Court concludes that under Michigan law, collateral estoppel applies to judgments even when they are pending on appeal or the time for appeals has not yet expired. This is the Court's ruling on this single issue; the remaining issues will be addressed in the Court's upcoming bench opinion.

II. Jurisdiction

This Court has subject matter jurisdiction over this adversary proceeding under 28 U.S.C. § 1334(b), 157(a), and 157(b)(1), and Local Rule 83.50(a) (E.D.Mich.). This is a core proceeding under 28 U.S.C. § 157(b)(2)(I) because it seeks a "determination[ ] as to the dischargeability of particular debts." This adversary proceeding also is a core proceeding because it falls within the definition of a proceeding "arising under title 11," and of a proceeding "arising in" a case under title 11, within the meaning of 28 U.S.C. § 1334(b). Matters falling within either of these categories are deemed to be core proceedings. See Allard v. Coenen (In re Trans–Indus., Inc. ), 419 B.R. 21, 27 (Bankr.E.D.Mich.2009) (citing Mich. Emp. Sec. Comm'n v. Wolverine Radio Co., Inc., 930 F.2d 1132, 1144 (6th Cir.1991) ).

This is a proceeding "arising under Title 11," because it is created or determined by statutory provisions of title 11, including 11 U.S.C. § 523(a)(6). This is a proceeding "arising in" a case under title 11, because it is a proceeding that "by [its] very nature, could arise only in bankruptcy cases." See Allard v. Coenen, 419 B.R. at 27 (internal quotation marks and citation omitted).

III. Discussion of the "finality" issue

Plaintiff primarily relies on one Michigan Supreme Court case and two published Michigan Court of Appeals cases in support of his position, Hackley v. Hackley, 426 Mich. 582, 395 N.W.2d 906 (1986) ; Temple v. Kelel Distributing Co., 183 Mich.App. 326, 454 N.W.2d 610 (1990) ; and City of Troy Building Inspector v. Hershberger, 27 Mich.App. 123, 183 N.W.2d 430 (1970). Defendant's chief response to Plaintiff's cases is that they all refer to "res judicata," not "collateral estoppel." The two preclusion doctrines are conceptually distinct, Defendant argues, and under Michigan case law, res judicata applies to judgments pending on appeal, but collateral estoppel does not. In other words, Defendant argues that the finality rule is different depending on whether a party relies on res judicata or collateral estoppel.

Defendant is correct that courts usually distinguish between the two doctrines:

The primary difference between res judicata and collateral estoppel ... is that res judicata bars a second action on the same claim or cause of action including all matters that were raised or could have been raised in the first action, while collateral estoppel precludes relitigation of only such issues as were actually raised, litigated and determined in the first action and the decision of which were necessary to the judgment rendered.

Vogel v. Kalita (In re Kalita ), 202 B.R. 889, 893 (Bankr.W.D.Mich.1996) (citation omitted) (italics deleted); see also Simon v. JPMorgan Chase Bank (In re Lebbos ), 455 B.R. 607, 612 (Bankr.E.D.Mich.2011) (citation omitted) (referring to res judicata as "claim preclusion" and collateral estoppel as "issue preclusion").

Although they are distinct, the two doctrines serve largely the same purposes under Michigan law. Michigan courts have held that "[t]he doctrine of collateral estoppel must be applied so as to strike a balance between the need to eliminate repetition and needless litigation and the interest in affording litigants a full and fair adjudication of the issues involved in their claims." Storey v. Meijer, Inc., 431 Mich. 368, 372–73, 429 N.W.2d 169 (1988) ; see also Monat v. State Farm Ins. Co., 469 Mich. 679, 696, 677 N.W.2d 843 (2004) ("As a preclusion doctrine, collateral estoppel serves an important function in resolving disputes by imposing a state of finality to litigation where the same parties have previously had a full and fair opportunity to adjudicate their claims.") (internal quotation marks and citation omitted); Tweedie v. Hermoyian (In re Hermoyian ), 466 B.R. 348, 361 (Bankr.E.D.Mich.2012).

Similarly, "[t]he doctrine of res judicata is intended to relieve parties of the cost and vexation of multiple lawsuits, conserve judicial resources, and encourage reliance on adjudication, that is, to foster the finality of litigation." Bryan v. JPMorgan Chase Bank, 304 Mich.App. 708, 715, 848 N.W.2d 482 (2014) (internal quotation marks and citation omitted) (case distinguishes between res judicata and collateral estoppel). Moreover, the Michigan Supreme Court has referred to collateral estoppel as a "prong" of res judicata. See Hackley v. Hackley, 426 Mich. 582, 590–91, 395 N.W.2d 906 (1986) (citations omitted).

A. Plaintiff's cases

Plaintiff's first case, Hackley, involved the question of whether a putative father could challenge a child's paternity in an action to cancel child support when the paternity issue had already been decided in a prior divorce action with the child's mother. Id. at 583–84, 395 N.W.2d 906. The father never conceded paternity in the divorce action, but he also did not appeal the court's finding that he was the child's father. Changes in the law made it easier to establish non-paternity by the time of the second action, but the Michigan Supreme Court nevertheless held that the father was precluded from denying the child's paternity in the second suit. Id. at 584, 395 N.W.2d 906.

As stated above, the Hackley court described collateral estoppel as a "prong" of res judicata. However, the court went on to describe collateral estoppel more specifically as "issue preclusion," and to expressly apply collateral estoppel/issue preclusion. The court stated:

The latter prong of the doctrine of res judicata has been referred to in this Court also as "collateral estoppel." In this case, it is denominated as the general rule of issue preclusion.

The present proceeding to cancel child support and determine paternity involves the same parties and the same issue as in the prior

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