Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-90-01167/USCOURTS-ca10-90-01167-0/pdf.json

Parties Involved:
L. Bruce Nelson
Appellee
Constantine John Tsamasfyros
Appellant

Document Text:

PUBLISH F I L E D 

Uaited States Court of Appeals UNITED STATES COURT OF APPEALS Tenth Circuit 

TENTH CIRCUIT 

IN RE: 

CONSTANTINE JOHN TSAMASFYROS, ) 

a/k/a C. J. TSAMASFYROS, ) 

f/d/a ARAPAHOE MEDICAL ASSOCIATES, ) 

a Colorado general partnership, ) 

and f /d/a PLAZA ARAPAHOE ) 

ASSOCIATES, a Colorado general ) 

partnership, ) 

) 

Debtors, ) 

) 

L. BRUCE NELSON, ) 

) 

Plaintiff-Appellee, ) 

) 

v. ) 

) 

CONSTANTINE J. TSAMASFYROS; ) 

) 

Defendant-Appellant. ) 

AUG 51991 

ROBERT L. HOECKER 

Clerk 

No. 90-1167 

Appeal from the United States District Court 

for the District of Colorado 

(D.C. No. 89-K-1158) 

Michael J. Vos- (Milnor H. Senior, I II and Robert I • Cohen of 

Senior & Cohen, with him on the brief), Denver, Colorado, for 

Debtor-Appellant. 

Andrew J. Petrie (Erich L. Bethke of Kirkland & Ellis, with him on 

the brief), Denver, Colorado, for Plaintiff-Appellee. 

Before ANDERSON and McWILLIAMS, Circuit Judges, and ALLEY, 

District Judge.* 

McWILLIAMS, Circuit Judge. 

* Honorable Wayne E. Alley, U.S. District Judge for the Western 

District of Oklahoma, sitting by designation. 

Appellate Case: 90-1167 Document: 01019647901 Date Filed: 08/05/1991 Page: 1 
This is an appeal from the judgment of the district court 

which affirmed a bankruptcy court's order that a state court 

judgment was non-dischargeable under 11 u.s.c. § 523. We affirm. 

On April 11, 1988, a state district court in Arapahoe County, 

Colorado, after a four-day trial to the court, entered judgment in 

favor of L. Bruce Nelson against Constantine J. Tsamasfyros in the 

sum of $162,500.92. Nelson had asserted several claims for relief 

against Tsamasfyros, one of which was for a breach of fiduciary 

duty. The state district court, in a 22-page single-spaced 

typewritten order, held, inter alia, that "beyond a reasonable 

doubt . Dr. Tsamasfyros' actions in breaching his fiduciary 

duties were attended by circumstances of fraud and by a wanton or 

reckless disregard of Nelson's rights and feelings." 

On May 9, 1988, Tsamasfyros filed a voluntary petition in 

bankruptcy under Chapter 7 of the United States Bankruptcy Code. 

On September 9, 1988, Nelson filed in the bankruptcy court a 

Complaint to Determine the Dischargeability of the judgment debt 

which he had obtained in state court against Tsamasfyros. Attached to the complaint was the 22-page opinion of the state 

district court setting forth its findings, conclusions and judgment in considerable detail. The gist of Nelson's complaint was 

that his judgment debt against Tsamasfyros was non-dischargeable 

in bankruptcy under the provisions of 11 u.s.c. § 523. 

By answer, Tsamasfyros contended that Nelson's judgment debt 

against him was dischargeable in bankruptcy. Thereafter, Nelson 

filed a motion for summary judgment, to which Tsamasfyros filed a 

response in opposition. The basis for Nelson's motion for summary 

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Appellate Case: 90-1167 Document: 01019647901 Date Filed: 08/05/1991 Page: 2 
judgment was that because the state district court's judgment was 

based, in part, on its determination that Tsamasfyros fraudulently 

breached his fiduciary duty to Nelson, the judgment debt was nondischargeable under 11 u.s.c. § 523, and that Tsamasfyros was 

collaterally estopped from contending otherwise. 

On May 1, 1989, the bankruptcy judge filed an 8-page 

Memorandum and Order in which he held that Nelson's judgment debt 

against Tsamasfyros was non-dischargeable in the latter's 

bankruptcy proceeding under the provisions of 11 u.s.c. § 

523(a)(2)(A). Pursuant to 28 u.s.c. § 158(a), Tsamasfyros appealed the judgment of the bankruptcy court to the district court. 

On review, the district court affirmed the result reached by 

the bankruptcy court, although it concluded that Nelson's judgment 

debt was "more logically" ·non-dischargeable under 11 u.s.c. § 

523(a)(4) rather than under 11 u.s.c. § 523(a)(2)(A). The 

district court's Memorandum Opinion and Order now appears as In re 

Tsamasfyros, 114 B.R. 721 (D. Colo. 1990). Background facts 

detailed there will not be repeated here. Pursuant to 28 u.s.c. § 

158(d), Tsamasfyros seeks our review of the district court's judgment and- order . 

As indicated, the issue is whether the state district court 

judgment should be given preclusive effect in the bankruptcy 

proceeding. In other words, was Nelson's judgment debt properly 

determined on summary judgment to be non-dischargeable under 11 

u.s.c. § 523 on the grounds of collateral estoppal? 

In Brown v. Falsen, 442 U.S. 127 (1979), the Supreme Court 

held that, insofar as res judicata is concerned, a bankruptcy 

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court is not confined to a review of the judgment and record in a 

prior state court proceeding when determining the dischargeability 

of a debt and that when a debtor asserts a new defense of 

bankruptcy, res judicata does not bar the creditor from offering 

additional evidence to meet that defense. However, in Brown the 

Supreme Court went on to recognize the distinction between res 

judicata and collateral estoppel with the following comment: 

This case concerns res judicata only, and not the narrower principle of collateral estoppel. Whereas res 

judicata forecloses all that which might have been 

litigated previously, collateral estoppel treats as 

final only those questions actually and necessarily 

decided in a prior suit [citation omitted]. If, in the 

course of adjudicating a state-law question, a state 

court should determine factual issues using standards 

identical to those of§ 17, [of the former Bankruptcy 

Act, similar to section 523 of the present Bankruptcy 

Code] then collateral estoppel, in the absence of 

countervailing statutory policy, would bar relitigation 

of these issues in the bankruptcy court. 

Id. at 139 n. 10. 

In In re Wallace, 840 F.2d 762 (10th Cir. 1988) we recognized 

the distinction made by the Supreme Court in Brown between res 

judicata and collateral estoppel in bankruptcy proceedings and in 

so doing we stated that although the bankruptcy court ultimately 

determines whether a debt is discharqeable under I! u.s.c. § 523, 

the doctrine of collateral estoppel may be invoked to preclude 

relitigation of the factual issues underlying the determination of 

dischargeability. Id. at 764-65. In such circumstances, 

collateral estoppel is binding on the bankruptcy court and 

precludes relitigation of factual issues if (1) the issue to be 

precluded is the same as the one litigated in the earlier state 

proceeding; (2) the issue was actually litigated in the prior 

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proceeding; and (3) the state court's determination of that issue 

was necessary to the resulting final and valid judgment. Id. 

In the bankruptcy court, the district court, and in this 

court, Tsamasfyros argued that the state court judgment based on 

breach of fiduciary duty was dischargeable because the state court 

used a different standard of proof than the one required in 

determining dischargeability under 11 u.s.c. § 523. Counsel 

claimed that the state district court used a "preponderance of the 

evidence" standard, whereas the standard for dischargeability 

under 11 U.S.C. § 523 is "clear and convincing evidence." Both 

the bankruptcy court and the district court rejected this argument 

because each was of the view that the state court actually used a 

"beyond a reasonable doubt" standard, which was an even higher 

standard than the "clear and convincing evidence" standard. Be 

that as it may, subsequent to the judgment of the district court, 

the Supreme Court has since resolved this matter in Grogan v. 

Garner, U.S.~' 111 S. Ct. 654 (1991). 

In Grogan, the Supreme Court held that a "preponderance of 

the evidence" standard, rather than a "clear and convincing 

evidence" standard, applies to all exceptions to the 

dischargeability of debts set forth in 11 u.s.c. § 523, including 

the non-dischargeability for fraud provision. At oral argument, 

counsel recognized that Grogan had resolved his argument that collateral estoppal should not be invoked in the present case because 

the state district court used a lesser standard of proof. 1 

1 It should be noted that at least part of the rationale for 

adopting the "preponderance of the evidence" standard in Grogan 

was that "application of that standard will permit exception from 

discharge of all fraud claims creditors have reduced to judgment," 

thereby effectively broadening the application of collateral 

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We think the state court judgment in the instant case 

measures up to the test laid down in In re Wallace. The state 

court in its opinion and judgment held, inter alia, that 

Tsamasfyros had breached his fiduciary duty to Nelson and that his 

breach was attended by fraud and recklessness. 2 The issue was 

actually and necessarily litigated in the state court proceeding. 

Therefore, under Brown and In re Wallace, the principle of 

collateral estoppel precludes Tsamasfyros from relitigating the 

same matter. 3 

We reject any suggestion that because Tsamasfyros appeared 

pro se in the state court proceeding, collateral estoppel is inapposite. Tsamasfyros initially had counsel, but because of a possible conflict of interest counsel felt he should no longer 

represent Tsamasfyros. Tsamasfyros was given an opportunity to 

obtain new counsel, which he did not, or could not, do. And his 

counsel apparently was present at the trial to of fer assistance on 

estoppel in cases such as the present one. 

S. Ct. at 661. 

Grogan at ~~-' 111 

2 The state court concluded that Tsamasfyros owed Nelson a 

fiduciary duty of loyalty, good conduct and fair dealing, and that 

he had breached this fiduciary duty in numerous ways including: 

giving himself favorable leases with AMA; paying himself a 

developer's fee; using AMA loan proceeds to pay off a personal 

mortgage; filing involuntary bankruptcy against the wishes of 

other partners; paying himself a real estate commission for 

performing partnership business; loaning partnership money to 

himself; and submitting a personal guarantee with his and Nelson's 

signatures without Nelson's knowledge that it had not been signed 

and approved by all partners. 

3 We agree with the district court that the dischargeability of 

Nelson's judgment debt more properly comes under 11 u.s.c. § 

523(a)(4) (a claim based on fraud or defalcation while acting in a 

fiduciary capacity) rather than § 523(a)(2)(A) (a claim for 

property obtained by false representation). 

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a standby basis. In any event, the fact that a bankruptcy debtor 

appeared pro se in a prior state court proceeding does not lessen 

the collateral effect of the state court judgment. Klemens v. 

Wallace, 62 B.R. 91, 92 (D. N.M. 1986), affirmed under In re 

Wallace, 840 F.2d 762, 765 (10th Cir. 1980) (Wallace could not 

complain that he was denied a full and fair opportunity to present 

his case or litigate the relevant issues.). 

Tsamasfyros also argues that the state court used an erroneous standard in fixing Nelson's damages resulting from 

Tsamasfyros' fraudulent breach of his fiduciary duty at 

$162,500.92. We reject that argument as did the district court. 

Nelson's claim against Tsamasfyros is grounded on a judgment which 

he obtained in state court, after trial. Tsamasfyros did not appeal the state court's judgment, either on its merits or on the 

amount of damages. Under the principle of collateral estoppal, 

Tsamasfyros is precluded 

bankruptcy proceeding. 4 

Judgment affirmed. 

from relitigating either in his 

4 In In re Gerlack, 897 F.2d 1048, 1051 (10th Cir. 1990), we 

approved language to the effect that dischargeability is an "all 

or nothing" proposition citing Birmingham Trust Nat'l Bank v. 

Case, 755 F.2d 1474, 1477 (11th Cir. 1985). It logically follows 

that a state court's calculation of damages may not be 

collaterally attacked in the bankruptcy court. See ~' In re 

Hopper, 71 B.R. 67, 68 (Bankr. D. Colo. 1987). 

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