Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-91-01349/USCOURTS-ca10-91-01349-0/pdf.json

Parties Involved:
Norman Gerard Hansen
Appellant
Harry Nier
Appellee

Document Text:

-- UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

-- ,: -'--L -· 

IN RE: NORMAN GERARD HANSEN, 

Debtor. 

HARRY NIER, 

Appellee, 

v. 

NORMAN GERARD HANSEN, 

Appellant. 

) 

) 

) 

) 

SEP 3 S· 1992 

~O\...,, ,•": '':'l '~l. L u oEr.rrr::~p _ _. J~ - ... .1 . • 1·1 ~-;..__.J--- Cle:!: 

) No. 91-1349 

) (D.C. No. 89-K-1707) 

) (D. Colo.) 

) 

) 

) 

) 

) 

) 

ORDER AND JUDGMENT* 

Before McKAY, Chief Judge, and BARRETT, Circuit Judge, and 

BRIMMER,** District Judge. 

**Honorable Clarence A. 

District Court for the 

designation. 

Brimmer, District Judge, United States 

District of Wyoming, sitting by 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. 

submitted without oral argument. 

* 

The case is therefore ordered 

This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

Appellate Case: 91-1349 Document: 010110392317 Date Filed: 09/30/1992 Page: 1
This is an appeal from a final judgment of the district 

court, reversing a ruling of the bankruptcy court. This court has 

jurisdiction to consider the appeal under 28 u.s.c. §§ 158(d) and 

1291. 

Mr. Nier obtained a state court judgment for $80,600 against 

Mr. Hansen by Stipulation and Confession for Entry of Judgment on 

one contract and two fraud claims. The Stipulation and Confession 

included no factual findings. After the judgment was entered, 

Mr. Hansen filed for bankruptcy under Chapter 11. 

In this adversary proceeding, Mr. Nier seeks a determination 

that his state court judgment, because it is based on allegations 

of fraud and willful and malicious injury, is not dischargeable 

under 11 U.S.C. §§ 523(a)(2) and (a)(6). Mr. Hansen attempted to 

raise a defense to Mr. Nier's complaint on the ground that his 

confession of liability on the fraud claims is not an admission of 

the elements of the claims. The bankruptcy court determined that 

Mr. Hansen was not collaterally estopped from raising a defense; 

the district court reversed. Mr. Hansen appeals from the judgment 

of the district court concluding that he is collaterally estopped 

from raising a defense to the claim of nondischargeability of the 

state court judgment. 

The district court carefully considered Mr. Hansen's 

arguments. In its Memorandum Opinion and Order entered August 29, 

1991, the district court determined that 1) the issue to be 

precluded was the same as that involved in the prior state action, 

2) the issue was actually litigated by the parties in the prior 

action, and 3) the state court's determination of the issue was 

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Appellate Case: 91-1349 Document: 010110392317 Date Filed: 09/30/1992 Page: 2
necessary to the resulting final and valid judgment. See Klemens 

v. Wallace (In re Wallace), 840 F.2d 762, 765 (10th Cir. 1988). 

The court therefore concluded that Mr. Hansen was collaterally 

estopped from raising a defense, reversing the decision of the 

bankruptcy court. The district court's discussion of the issues 

was thorough and well-reasoned. 

Mr. Hansen makes the same arguments on appeal as in the 

district court. We have considered them carefully and affirm the 

order of the district court reversing the ruling of the bankruptcy 

court for substantially the same reasons set forth in the district 

court's Memorandum Opinion and Order, entered August 29, 1991, a 

copy of which is attached. 

The judgment of the United States District Court for the 

District of Colorado is AFFIRMED. 

Entered for the Court 

Monroe G. McKay 

Circuit Judge 

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Appellate Case: 91-1349 Document: 010110392317 Date Filed: 09/30/1992 Page: 3
-·- ,. C (_ 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF COLORADO 

Civil Action No. 89-K-1707 

Bank...~ptcy No. 88-B-13073-J 

Adversary No. 89-J-110 

In Re NORMAN GERARD HANSEN, 

Debtor. 

HARRY NIER, 

Plaintiff-Appellant, 

v. 

NORMAN GERARD HANSEN, 

Defendant-Appellee. 

MEMORANDUM OPINION AND ORDER 

KANE, J. 

FILED 

UNITED STATES DISTRICT COURT 

DENVER, COLORADO 

AUG 2 9 1991 

JAMES R. MANSPEAKER 

CI.ERIC 

Before me is an appeal of the bankruptcy court's decision 

rejecting appellant's argument that the debtor is collaterally 

estopped from relitigating issues settled in state court. 

Appellant is a judgment creditor of the debtor. The judgment arose 

from a state court action the appellant filed against the debtor. 

That suit ended with the debtor signing a "Stipulation and 

Confession for Entry of Judgment." Now in the bankruptcy court, 

the debtor seeks to relitigate whether he committed fraud and a 

willful/malicious injury. I conclude the confession of judgment 

Appellate Case: 91-1349 Document: 010110392317 Date Filed: 09/30/1992 Page: 4
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collaterally estopped the debtor from relitigating the fraud and 

willful/malicious injury issues. Hence, the bank-~ptcy court is 

reversed. 

In October, 1984, the debtor purchased real property from the 

appellant and executed a promissory note in partial payment for the 

purchase. The other form of payment was a stock exchange 

agreement. Under this ag1:eement, restructured shares of stock in 

a company known as Diamond Hill Industries would be offered as 

payment. Later, in an all too familiar scenario, the due date on 

the promissory note passed without activity. The stock proved 

worthless. Appellant sued. 

In a complaint filed in District Court, City and county of 

Denver, appellant set out three claims for relief. First, 

appellant claims debtor breached the terms of the promissory note 

for $80,600. Second, debtor made fraudulent misrepresentations 

which damaged t..1'1e appellant in the amount of $20,000. Third, 

debtor fraudulently induced appellant to enter into the real estate 

contract by touting what he knew was worthless stock. • 

On the eve of trial, the parties settled. In paragraph one of 

the "Stipulation and Confession for Entry of Judgment," debtor 

"confesses to liability on Plaintiff's First, Second, and Third 

Claims for relief as pleaded herein and to compensatory damages 

relating thereto in the amount of $80,600 plus interest. . " 

After the judgment was entered, debtor filed a voluntary Chapter 7 

bankruptcy petition. 

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Now a judgment creditor, appellant filed his objection to the 

discharge debt in the bank..-uptcy court. Appellant argued his clailn 

was non-dischargeable under the terJns of 11 u.s.c. §§ 523(a) (2) and 

(a) (6) (1979 and Supp. 1991). These provisions of the bankruptcy 

code protect certain forJns of debt from discharge. 

(a) A discharge under section 727 , 1141, 1228 (b) or 

l328(b) of this title does not discharge an individual 

debtor from any debt-- . • . 

( 2) for money, property, services, or an 

extension, renewal, or refinancing of credit, 

to the extent obtained by--

(A) false pretenses, a false 

representation or actual fraud, 

other than a statement respecting 

the debtor's or an insider's 

financial condition; ••• 

(6) for willful and malicious inJury by the 

debtor to another entity or to the property of 

another entity. 

Debtor confessed judgment to all three of plaintiff' s clailns. 

Within those clailns, appellant alleged the same facts required to 

prove an exception to discharge under § 523. Hence, appellant 

argued the debtor is collaterally estopped from denying fraud and 

willful/malicious injury. 

dischargeable. 

Thus, the judgment debt is nonThe bankruptcy court disagreed. He ruled the confession for 

entry of judgment admitted debtor's liability and nothing else. In 

a written order dated September 22, 1989, further, the judge 

refused to estop the debtor collaterally from asserting defenses to 

appellants non-dischargeability clailil. 

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The issue is whether a state court judgment shouJ.d be given 

preclusive effect in a bankruptcy proceeding. Since October 27, 

1989, the bankruptcy court proceedings have been stayed. On May 

17, 1990, I granted leave to appeal the interlocutory order on this 

issue. Because I am reviewing the bankruptcy court's conclusion of 

law, I review the decision de novo. 

The collateral estoppel issue was addressed in the recent 

decision, Nelson v. Tsamasfyros (In re Tsamasfn:os), No. 90-1167 

(10th Cir., August 5, 1991). In that case, the state trial court 

specifically found the debtor's breach of his fiduciary duties were 

attended by circumstances of fraud and wanton disregard or reckless 

disregard of the plaintiff's rights and feelings. The Tenth 

Circuit concluded these findings demonstrated the factual showing 

of fraud necessary to invoke non-discharge of debt under 11 u.s.c. 

§ 523(a) (4). In bankruptcy, the debtor was collaterally estopped 

from relitigating the presence of fraud. 

The present case adds an additional wrinkle. In Tsamasfvros, 

the court had the benefit of detailed findings by the trial court. 

Here, I apply only the tenns of a confession of judgment to the 

fraud provisions of§ 523. A review of the case law applying the 

principle of collateral estoppel to bankruptcy proceedings 

convinces me the result is the same. 

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

discussed ~ judicata and collateral estoppel effect of state 

court pronouncements on the bankruptcy court. The Court held res 

iudicata cannot prohibit the debtor from presenting additional 

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evidence. Bankruptcy, the Court held, is a new defense and the 

entire claim cannot be precluded from being heard. Collateral 

estoppel, however, is about issue preclusion. If the state trial 

court resolved a factual issue, it is duplicative to re-litigate 

the sa:me factual issue in a fresh forum. 

(C]ollateral estoppel treats as final only those 

questions actually and necessarily decided in a prior 

suit. 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 

Bank..-uptcy Act; similar to section 523 of the present 

Bankruptcy Code], then col.lateral estoppel, in the 

absence of countervailing statutory policy, would bar 

relitigation of these issues in the bankruptcy court. 

Brown, 442 U.S. at 139 nt. 10 (footnotes omitted) • 1 

The Tenth Circuit in Klemens v. Wallace {In re Wallace), 840 

F.2d 762 (10th Cir. l.988) determined that while the bank...-uptcy 

court ultimately decides if a debt is dischargeable under§ 523, 

collateral estoppel may be invoked to prevent a party from 

relitigating settled facts. The court then announced three 

conditions which, if satisfied, result in a party being bound by 

previous litigation: "l) the issue to be precluded is the sa:me as 

that involved in the prior state action, 2) the issue was actually 

litigated by the parties in the prior action, and 3) the state 

court's deterlilination of the issue was necessary to the resulting 

final and valid judgment." Wallace, 840 F.2d at 765 

1 The argument that the "standards" are different in state 

court than t..~ey are in bankruptcy court was resolved in Groaan v. 

Garner, U.S. , ll.l. S. Ct. 654 (1991). There, the Court 

adopted a"preponderance of the evidence standard" of proof which 

parallels the standard used in state court civil actions. 

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The issue in state court to be compared with the language of 

§ 523 is: 1) did the debtor obtain property by fraud, and 2) did 

the debtor willfully and maliciously injure the appellant. The 

requirements to prove common law fraud in Colorado are the same as 

the elements to establish non-dischargeability under§ 523 and need 

not be repeated here. See Northwestern National Insurance Co. v. 

Barnhart (In re Barnhart),.112 Bankr. 392, 394 (D. Colo. 1990). 

Appellant's complaint, in essence, states the debtor purchased 

real property from the appellant. The debtor misrepresented the 

value of the consideration he offered in exchange for the property. 

Furthermore, appellant alleges debtor never intended to compensate 

him for the property appellant sold. Appellant accuses the debtor 

of committing fraud and describes various acts of the debtor which 

satisfy the elements of fraud. 

The second and third claims in the appellant's complaint speak 

to the debtor's intentional misrepresentation of his plans to 

mortgage the property and the value of the stock offered for its 

purchase. Section 523(a) (6) deals with "willful" and "malicious" 

injuries to the property of another. The Tenth Circuit has held 

that "willful II means intentional and "malicious" means necessarily 

resulting in injury, First National Bank of Albucrueraue v. 

Franklin (In re Franklin), 726 F.2d 606, 610 (10th Cir. 1984). The 

actions appellant attributes to the debtor satisfy the requirements 

of§ 523(a) (6). Hence, I find the issue in state court was the 

same as in bankruptcy court. 

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The second requirement under Wallace is that the issue must 

have been actually litigated. This does not mean the case must 

have wound its way through evecy dark corridor of the courthouse. 

Consent judgments are fully capable of finally resolving all the 

issues raised in a lawsuit even if there was no trial, Lukas v. 

Bottaaaro (In re Bottacraro), 95 Bankr .. 766, 767 (D. Colo. 1987). 

The purpose of the "actually litigated" requirement is twofold: the party to be estopped must have had: 1) t.rie incentive to 

pursue the issue, and 2) the opportunity to present its case fully. 

In Wallace, the court concluded the party precluded "had every 

incentive to litigate the issue in the state-court proceeding •• 

• Wallace cannot complain that he was denied a full and fair 

opportunity to present his case or litigate the relevant issues." 

Wallace 840 F.2d at 765. 

The debtor in this case had the same. The debtor could have 

taken his case to t=ial but decided not to expend the resources ar-d 

face possible sanctions. He admitted all of the appellant's claims 

as pleaded. I take him at his word. on appeal, however, debtor 

appears invigorated by the new forum of the bankruptcy court. He 

tries to avoid his decision to settle by claiming there were no 

specific findings on the fraud issue in the state court. Without 

such findings, debtor argues he cannot be collaterally estopped. 

The cases debtor cites do not hold that specific findings are 

needed to determine dischargeablity. Those cases which discuss 

specific findings do so for specific purposes. They do not impose 

a general requirement of factual findings. For example, in Lombard 

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v. Axtens (In re Lombard) f 739 F.2d 499 (10th Cir. 1984), the court 

refused to estop the debtor from discharging his debt because the 

nature of the debt was unclear from the state court proceedings. 

The debt was for "architectural services. 11 An issue in the 

bankruptcy court was whether architectural services are "property" 

under§ 523. Since this issue was not actually litigated and the 

state court never made a finding on the issue, the debtor was not 

collaterally estopped. No such problem exists in this case. 

Debtor's desire for specific findings from the trial court is 

misplaced. At best, the trial court is a t.."1.ird party which 

resolves the issues before it. In this case, the party himself 

made a stateJIJ.ent about what actually happened. He confessed 

judglllent to a complaint charging him with fraud and willful 

misrepresentation. Since the gravamen of these acts is intentional 

conduct, there is no better evidence of intent than the admission 

of the perpetrator. Specific findings could add nothing to what 

is already before the bankruptcy court. 

Finally, the debtor argues fraud and willful/malicious injury 

was not necessary to the resulting judgment. Debtor argues the 

damages agreed to in the stipulation are nothing more than the 

amount of the breach of contract claim. In the confession of 

judglllent, the issue of additional, punitive damages was postponed. 

As the confession of judgment now stands, debtor argues no 

intentional conduct can be inferred. 

Al though the amount of damages actually contained in the 

judgment could be based solely on the appellant's first claim for 

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relief, this account ignores the second and third claims. Debtor 

admitted to willful misrepresentation and fraudulent inducement. 

Willful injury, and actual fraud are necessary elements to those 

acts. By admitting to the acts, debtor necessarily admitted to 

committing fraud and willful/malicious injury. 

Accordingly, 

IT IS ORDERED the decision of the bankruptcy court denying 

application of the doctrine of collateral estoppel with respect to 

appellant's judgment in the state court against the debtor is 

REVERSED. 

Dated this J..7 ~ day of August, 1991 at Denver, Colorado. 

OHN L. KANE, f:[R. 

• S. SENIOR DIMTR.ICT JUDGE 

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