ORDERED PUBLISHED

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re:

LANCE B. HAYNIE,

Debtor.

BAP No. ID-20-1182-FLB

Bk. No. 2:17-bk-20587

Adv. No. 2:17-ap-07010

OPINION

LANCE B. HAYNIE,

Appellant,

v.

JACK KRYSTAL,

Appellee.

Appeal from the United States Bankruptcy Court

for the District of Idaho

Terry L. Myers, Bankruptcy Judge, Presiding

APPEARANCES:

Safa Michael Riadh of Valiant Law argued for appellant; 

Michael G. Schmidt of Lukins & Annis, P.S. argued for appellee.

Before: FARIS, LAFFERTY, and BRAND, Bankruptcy Judges.

FARIS, Bankruptcy Judge:

INTRODUCTION

The question presented is whether the bankruptcy court correctly 

FILED

FEB 12 2021

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT
2

gave issue preclusive effect to a state court judgment, even though the 

same state court had previously entered an inconsistent judgment between 

the same parties in the same lawsuit. There is no Washington authority on 

this question. We predict that the Washington Supreme Court would 

follow the general rule that the judgment last in time should be afforded 

issue preclusive effect notwithstanding the prior inconsistent judgment. 

We also hold that the bankruptcy court did not err in applying issue 

preclusion and holding that the judgment debt was nondischargeable

under §§ 523(a)(2) and (a)(6).

1 Accordingly, we AFFIRM.

We publish to address this unanswered question of Washington law. 

FACTS2

A. Prepetition events

Appellant Lance B. Haynie worked for an internet company, 

Tsunami Communications, Inc., that owned Sanswire of Spokane, Inc. 

(“Sanswire”). Sanswire was struggling financially. In or around May 2003, 

Mr. Haynie and appellee Jack Krystal discussed the possibility of forming a 

new company to purchase Sanswire. They memorialized their plans and 

ideas for the new company in a handwritten memorandum that they 

1 Unless specified otherwise, all chapter and section references are to the 

Bankruptcy Code, 11 U.S.C. §§ 101-1532.

2 We exercise our discretion to review the bankruptcy court’s docket, as 

appropriate. See Woods & Erickson, LLP v. Leonard (In re AVI, Inc.), 389 B.R. 721, 725 n.2 

(9th Cir. BAP 2008). Because this appeal presents a question of law and the basic facts 

and procedural history are not in dispute, we rely largely on the bankruptcy court’s 

recitation of the facts in its memorandum decision.
3

referred to as the “Deal Points.” Among other things, the Deal Points 

provided that Mr. Krystal would lend the new company up to $100,000 and 

would hold a thirty-percent interest in the new company. Mr. Haynie’s

existing company, LBH Communications, would form the new company, 

and he would have a seventy-percent interest, forty percent of which could 

be sold to future investors. Mr. Krystal was to be the CEO and Mr. Haynie 

would be the president. The Deal Points also specified a formula for 

monthly disbursements to Mr. Haynie and Mr. Krystal. The parties initially 

did not sign the Deal Points.

A month later, Mr. Haynie, apparently without Mr. Krystal’s 

knowledge, formed Stat Network Solutions, LLC (“Stat”). Stat’s corporate 

documents identified Mr. Haynie as the sole member and omitted 

Mr. Krystal. Around the same time, Mr. Haynie and LBH Communications 

executed a promissory note for a $20,000 loan from Mr. Krystal’s company, 

Diversified Realty Services (“Diversified”).

In August 2003, Stat purchased Sanswire from Tsunami 

Communications for $100,000. The owners of Tsunami Communications 

each received a five-percent membership interest in Stat. Mr. Haynie and 

LBH Communications executed another promissory note for a $100,000 

loan from Diversified.

In October 2003, Mr. Haynie and Mr. Krystal discussed another loan

of $25,000 to purchase equipment for Stat. By this time, Mr. Krystal had 

apparently learned of Stat’s existence. Mr. Krystal requested, as an 
4

“owner” of Stat, information regarding Stat’s finances and operations, 

including revenues and expenses, accounts receivable and payable, and 

future work plans. Mr. Haynie agreed to discuss the matter with his 

attorney and to send the financial information. Mr. Haynie and LBH 

Communications executed the promissory note for the third loan, but

Mr. Haynie never sent the requested financial information to Mr. Krystal.

In November 2003, the members of Stat considered admitting

Mr. Krystal as a member with thirty-percent ownership, backdated to 

sometime after the Sanswire purchase. Mr. Krystal balked at the effective 

date: he insisted that the company documents be amended to reflect that he 

was involved with Stat from the beginning and had reached agreements 

with Mr. Haynie as reflected in the Deal Points.

In December 2003, Mr. Krystal and Mr. Haynie signed the original

Deal Points, as well as a typed version with certain material changes. The 

typed Deal Points identified Mr. Krystal as “Chairman” and Mr. Haynie as 

“CEO/President.”

In July 2004, Mr. Haynie sold fifty percent of Stat to Tom Davis for 

$650,000. Mr. Haynie used part of that sum to repay part of the Diversified 

loans but did not share any of the sale proceeds with Mr. Krystal.

In 2007, Mr. Krystal sued Mr. Haynie, Mr. Davis, and Stat in 

Washington state court. Among other things, he asserted breach of contract

and conversion and sought a declaratory judgment that he was a thirtypercent member of Stat. Mr. Haynie answered the complaint and filed a 
5

counterclaim.

The record on appeal includes only a few documents from the state 

court record, so what transpired there is somewhat murky. The parties 

agreed that the state court should hold a separate bench trial to decide the 

existence and percentage of Mr. Krystal’s ownership interest in Stat.

Mr. Haynie testified as a witness at trial but, according to the state court,

“affirmatively waived his right to participate [as] a party.” The state court 

issued a judgment (“First State Judgment”) determining that the Deal 

Points agreement was not an enforceable contract. It held that Mr. Krystal 

“is not now, nor has he ever been the owner of any membership interest in 

Stat.” The court of appeals affirmed the First State Judgment.

In June 2012, the remaining issues were set for trial in the state 

superior court, by a different judge. Although Mr. Haynie had answered 

the complaint, filed a counterclaim, and participated in the litigation, he 

did not appear on the date set for trial, so the court held that he was in 

default as to the remaining claims and dismissed his counterclaim with 

prejudice. The court mailed the notice of default to Mr. Haynie’s addresses 

in Spokane, Washington and Coeur d’ Alene, Idaho.

Thereafter, the court held a second trial, and Mr. Haynie again did 

not appear. Instead, Mr. Krystal introduced Mr. Haynie’s testimony from 

the first trial. The state court issued findings of fact and conclusions of law

(“Second State Judgment”). For reasons that the record does not explain, 

the Second State Judgment is markedly different from the First State 
6

Judgment. In the Second State Judgment, the court held that the two 

versions of the Deal Points were binding agreements. The court went on to 

determine that Mr. Haynie breached the Deal Points by forming Stat

without Mr. Krystal and refusing to pay Mr. Krystal his share of the Stat 

proceeds and profits. The court awarded Mr. Krystal $798,141.94 in 

damages, plus interest and costs.

B. The chapter 7 case and adversary proceeding

Five years later, Mr. Haynie filed a chapter 7 petition. Mr. Krystal

filed an adversary complaint to declare the Second State Judgment 

nondischargeable under §§ 523(a)(2), (a)(4), and (a)(6). He alleged that the 

Deal Points constituted a valid and binding agreement effective May 23, 

2003. He stated that Mr. Haynie breached the Deal Points when he formed 

Stat without him and refused to share profits or sale proceeds with him. He 

asserted that Mr. Haynie intentionally converted the business opportunity 

and the business itself.

C. Trial and decision

The bankruptcy court held a five-day trial on the adversary 

complaint in May 2020.3 It issued its memorandum decision and held that 

the debt was nondischargeable under §§ 523(a)(2) and (a)(6).

3 Mr. Haynie opted not to provide us with a copy of the trial transcript, probably 

because he does not challenge any of the bankruptcy court’s factual findings. Although 

this is not fatal to his entire appeal, we may presume that nothing in the transcript 

would help his position. See Gionis v. Wayne (In re Gionis), 170 B.R. 675, 680-81 (9th Cir. 

BAP 1994) (“We are entitled to presume that [an appellant who does not provide a 
7

The bankruptcy court first considered whether either of the 

conflicting Washington state court judgments had preclusive effect.

Finding Washington law silent on this issue, it relied on a Ninth Circuit 

case, Robi v. Five Platters, Inc., 838 F.2d 318, 322 (9th Cir. 1988), which holds 

that when there are two conflicting judgments, preclusive effect is given to 

the judgment that is last in time. As such, the Second State Judgment was 

the operative judgment.

The court then considered whether the Second State Judgment 

satisfied the four-prong test for issue preclusion. It stated that only the first 

prong was at issue: whether Mr. Haynie had a full and fair opportunity to 

litigate the second state court trial and whether the issues were actually 

litigated. Mr. Haynie argued that he did not have notice of the second state 

court trial because he had moved from Washington to Idaho and did not 

receive the notice of default. But the bankruptcy court found that the state 

court sent the notice of default to his correct address in Idaho, so he had 

notice of the second state trial.

The court also held that the state court actually litigated the issues. It 

noted that, under Washington law, a “true” default (such as where the 

defendant does not appear at all) cannot satisfy the “actually litigated” 

requirement. However, it predicted that the Washington Supreme Court 

would apply issue preclusion where the party participated in litigation up 

transcript] does not think the trial transcript helpful in that regard.”).
8

until the default judgment. Because Mr. Haynie answered the complaint 

and participated in the first trial, the court concluded that the “actually 

litigated” requirement was satisfied. 

Accordingly, the bankruptcy court relied on the preclusive effect of 

the Second State Judgment as to four issues: (1) that the Deal Points 

agreement was an enforceable and binding contract; (2) that Mr. Haynie 

breached the contract; (3) that his breach was intentional and wrongful; 

and (4) that Mr. Krystal was entitled to damages totaling $798,141.94 plus 

post-judgment interest and costs.

The court then turned to the remaining issues, which determined 

whether Mr. Haynie’s debt was dischargeable. As to § 523(a)(2)(A), 

concerning a debt obtained by false representations, the bankruptcy court 

held, based on the evidence presented at trial, that Mr. Haynie knowingly 

and intentionally misrepresented his intentions to (1) form Stat with 

Mr. Krystal as a member and (2) rectify his failure to name Mr. Krystal as a 

member of Stat. It held that Mr. Krystal relied on Mr. Haynie’s promises 

and was damaged by not receiving his share of the proceeds from the sale 

to Mr. Davis.

As to § 523(a)(6), pertaining to a debt for willful and malicious injury, 

the bankruptcy court held that Mr. Haynie’s breach of contract was 

accompanied by willful and malicious tortious conduct. It held that the 

conduct was willful because it was intentional and Mr. Haynie knew that 

Mr. Krystal was substantially certain to suffer injury. It also determined 
9

that Mr. Haynie’s actions were malicious because they were wrongful, 

intentional, and injurious.4

The court issued its judgment in Mr. Krystal’s favor. Mr. Haynie 

timely appealed.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 

157(b)(1) and (2)(I). We have jurisdiction under 28 U.S.C. § 158.

ISSUE

Whether the bankruptcy court erred in affording the Second State 

Judgment issue preclusive effect and declaring the judgment debt

nondischargeable under §§ 523(a)(2) and (a)(6).

STANDARDS OF REVIEW

We review de novo the bankruptcy court’s determination that issue 

preclusion was available. Black v. Bonnie Springs Family Ltd. P’ship (In re 

Black), 487 B.R. 202, 210 (9th Cir. BAP 2013). We also review de novo the 

bankruptcy court’s legal conclusions, including its construction of § 523(a). 

Hamilton v. Elite of L.A., Inc. (In re Hamilton), 584 B.R. 310, 318 (9th Cir. BAP

2018), aff’d, 785 F. App’x 438 (9th Cir. 2019) (citing Carrillo v. Su (In re Su), 

290 F.3d 1140, 1142 (9th Cir. 2002)). 

“De novo review requires that we consider a matter anew, as if no 

decision had been made previously.” Francis v. Wallace (In re Francis), 505 

4 The bankruptcy court rejected the § 523(a)(4) claim, which concerns fraud or 

defalcation, because the Deal Points did not expressly establish the requisite kind of 
10

B.R. 914, 917 (9th Cir. BAP 2014).

If issue preclusion was available, we then review the bankruptcy 

court’s application of issue preclusion for an abuse of discretion. In re Black, 

487 B.R. at 210. To determine whether the bankruptcy court has abused its 

discretion, we conduct a two-step inquiry: (1) we review de novo whether 

the bankruptcy court “identified the correct legal rule to apply to the relief 

requested” and (2) if it did, we consider whether the bankruptcy court’s 

application of the legal standard was illogical, implausible, or without 

support in inferences that may be drawn from the facts in the record. 

United States v. Hinkson, 585 F.3d 1247, 1262-63 & n.21 (9th Cir. 2009) (en 

banc).

DISCUSSION

Mr. Haynie argues on appeal that the bankruptcy court erred in 

giving issue preclusive effect to the Second State Judgment. He contends

that the bankruptcy court should have relied on the First State Judgment in 

his favor or should not have afforded issue preclusive effect to either 

judgment. We discern no error.

A. The bankruptcy court correctly predicted that Washington courts

would adopt the last-in-time rule for conflicting judgments.

When applying issue preclusion, the bankruptcy court is required to 

“give to a state-court judgment the same preclusive effect as would be 

given that judgment under the law of the State in which the judgment was 

fiduciary relationship between the parties.
11

rendered.” Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 81 (1984).

Mr. Haynie argues that the bankruptcy court erred in accepting the last-intime rule because Washington courts would not adopt such a rule. We 

conclude that the bankruptcy court did not err.

The parties agree that the Washington state courts have not weighed 

in on this issue, and we have not found any case on point. As such, we 

must best predict how the Washington Supreme Court would rule. See

Ticknor v. Choice Hotels Int’l, Inc., 265 F.3d 931, 939 (9th Cir. 2001). We may 

rely on “intermediate appellate court decisions, decisions from other 

jurisdictions, statutes, treatises, and restatements as guidance.” Assurance 

Co. of Am. v. Wall & Assocs. LLC of Olympia, 379 F.3d 557, 560 (9th Cir. 2004) 

(quoting Nelson v. City of Irvine, 143 F.3d 1196, 1206 (9th Cir. 1998)).

The bankruptcy court relied on the Ninth Circuit’s decision in Robi, 

838 F.2d 318. In that case, the Ninth Circuit was faced with multiple 

conflicting judgments in different courts. It stated the general law:

Courts are not required to apply res judicata sua sponte. 

Thus, if a second court to face a claim or issue is not presented 

with res judicata arguments, or rejects these arguments, an 

inconsistent judgment may arise. If two or more courts render 

inconsistent judgments on the same claim or issue, a 

subsequent court is normally bound to follow the most recent 

determination that satisfies the requirements of res judicata. . . . 

This is referred to as the “last in time” rule.

Id. at 322 (citing Americana Fabrics, Inc. v. L & L Textiles, Inc., 754 F.2d 1524, 

1529 (9th Cir. 1985)). The Ninth Circuit explained its reasoning: 
12

When two inconsistent judgments exist, it is tempting for 

a court to reexamine the merits of the litigants’ dispute and 

choose the result it likes best. There are important reasons to 

avoid this temptation. First, if one party could have raised res 

judicata, but did not, that litigant must bear the cost of its tactic 

or inadvertence. Second, the most recent court to decide the 

matter may have considered and rejected the operation of the 

prior judgment as res judicata, and its decision should be treated 

as res judicata on the preclusive effect of the prior judgment. 

Finally, the last in time rule is supported by the rationale that it

end[s] the chain of relitigation . . . by stopping it where it 

[stands] after entry of the [most recent] court’s judgment, and 

thereby discourages relitigation in [yet another] court. 

Therefore, even when we think that the most recent judgment 

might be wrong, we still give it res judicata effect so that finality 

is achieved and the parties are encouraged to appeal an 

inconsistent judgment directly rather than attack it collaterally 

before another court.

Id. at 322-23 (citations and internal quotation marks omitted) (alteration in 

original).

The Ninth Circuit’s decision in Robi is consistent with the generally 

accepted rule. The Restatement (Second) of Judgments § 15 (1982)

(“Restatement § 15”) provides: “When in two actions inconsistent final 

judgments are rendered, it is the later, not the earlier, judgment that is 

accorded conclusive effect in a third action under the rules of res judicata.” 

An illustrious scholar, who later became a justice of the United States 

Supreme Court, agreed. “Under traditional res judicata doctrine, where 

there are conflicting judgments and each would be entitled to preclusive 
13

effect if it stood alone, the last in time controls in subsequent litigation.”

Ruth B. Ginsburg, Judgments in Search of Full Faith and Credit: The Last-inTime Rule for Conflicting Judgments, 82 Harv. L. Rev. 798, 798 (1969); see also

18 Charles Alan Wright, Arthur R. Miller & Edward Cooper, Federal 

Practice & Procedure § 4404 (3d ed. 2016) (“If a second action is pursued to 

entry of a final judgment inconsistent with a prior judgment, the second 

judgment ordinarily prevails whether the res judicata effects of the first 

judgment were ignored by the parties or expressly rejected by the court in 

the second action.”).

In fact, an illustration in Restatement § 15 appears to contemplate this 

very situation:

A sues B on a promissory note. B denies that he executed the 

note. There is a trial resulting in a verdict for B, and judgment is 

rendered in B’s favor. A brings a second action against B on the 

note, and B defaults, and judgment is given for A for the 

amount of the note and interest thereon. Thereafter A brings an 

action against B on the second judgment. The judgment for B in 

the first action is no defense.

Restatement (Second) of Judgments § 15 illus. 1.

We see no reason why Washington courts would depart from this 

general rule giving preclusive effect to the last-in-time judgment.

Mr. Haynie acknowledges that illustration 1 of Restatement § 15 

would appear to apply the last-in-time rule to the facts of the present case. 

However, he argues that Washington has not adopted Restatement § 15.

While Washington appellate courts have not adopted this particular 
14

section, the Washington Supreme Court has repeatedly relied on other 

sections of the Restatement (Second) of Judgments. See, e.g., Reninger v. 

State Dep’t of Corr., 951 P.2d 782, 790-91 (Wash. 1998) (Restatement (Second) 

of Judgments § 28); Southcenter Joint Venture v. Nat’l Democratic Policy 

Comm., 780 P.2d 1282, 1285 (Wash. 1989) (Restatement (Second) of 

Judgments § 43); Schoeman v. N.Y. Life Ins. Co., 726 P.2d 1, 3 (Wash. 1986)

(Restatement (Second) of Judgments §§ 13, 22). He gives no reason why the 

Washington Supreme Court would not also adopt this section, given its 

reliance on other sections of this Restatement. 

Additionally, he contends that the last-in-time rule is not applicable 

to two judgments within the same case. But he offers no authority for his 

argument and no reason why the rule would apply only to multiple final 

judgments entered in separate cases and not to multiple final judgments 

entered in a single case. 

Mr. Haynie cites Peterson v. Department of Ecology, 596 P.2d 285, 289 

(Wash. 1979), for the proposition that “[a]n ambiguous and inconsistent 

judgment should not be the basis for an estoppel by judgment.” But

Peterson was concerned with a single judgment that was ambiguous and 

internally inconsistent, making it difficult to determine what the court 

decided. In this case, the Second State Judgment is unambiguous and 

internally consistent. There is no reason to reject the last-in-time rule in this 

situation. See Cummins v. Mullins, 210 S.W. 170, 172 (Ky. 1919) (“Where 

there are two conflicting judgments rendered by the same court upon the 
15

same rights of the same parties, growing out of the same contract, that 

which is later in time will prevail. Hence this court will treat the first 

judgment to all intents and purposes as of no binding effect.”). 

Mr. Haynie argues that the Washington state court of appeals 

affirmed the First State Judgment, so the bankruptcy court should have

preferred that judgment. He states that the state court was bound to follow 

the appellate decision, not the erroneous Second State Judgment. But it is 

not our place to decide whether the Second State Judgment was “correct.” 

As the Ninth Circuit stated, “the most recent decision ‘is not binding 

because it is correct; it is binding because it is last.’ This concept of finality 

is central to the entire body of res judicata doctrine.” Robi, 838 F.2d at 328

(quoting Americana Fabrics, Inc., 754 F.2d at 1530). 

 At oral argument, Mr. Haynie argued that, if there are two 

inconsistent judgments, neither of them should have issue preclusive effect. 

For the reasons given above, we think that the last-in-time rule is preferable 

and that the Washington courts would follow it. 

Mr. Haynie also argues that, even if Washington law would generally 

recognize the last-in-time rule, it should not be applied in this case.

He argues that he could not have asserted that the First State 

Judgment had issue preclusive effect at the second trial because the state 

court entered the Second State Judgment against him by default. This 

ignores the bankruptcy court’s factual finding that Mr. Haynie received 

notice of the trial yet did not participate. In other words, he could have 
16

raised this defense, but chose not to. Nothing required the state court to 

ascertain the preclusive effect of the First State Judgment on its own 

motion. “The considerations of policy which support the doctrine of res 

judicata are not so strong as to require that the court apply them of its own 

motion when the party himself has failed to claim such benefits as may 

flow from them.” Restatement (Second) of Judgments § 15 cmt. b. If 

Mr. Haynie disagreed with the Second State Judgment, he should have 

appealed immediately. See Robi, 838 F.2d at 328 (“If an aggrieved party 

believes that the second court . . . erred in not giving res judicata effect to the 

first court’s . . . judgment, then the proper avenue of redress is appeal of 

the second court’s judgment, not collateral attack in a third court.” (citation 

omitted)); Ginsburg, supra, at 798-99 (“Under the last-in-time rule, if a 

defense based on the first judgment is not raised in the second action, the 

defense cannot be resurrected in a subsequent proceeding. . . . The decision 

not to raise the prior adjudication, or to discontinue the contest concerning 

its effect by failing to utilize an opportunity for direct review, settles the 

matter.”).5

He also contends that the second trial was limited to damages, so the 

5 We also note that, under Washington law, a court always has discretion to 

refuse to apply issue preclusion if its application would result in an injustice. See

Reninger, 951 P.2d at 789 (Court must not apply issue preclusion “so rigidly as to defeat 

the ends of justice, or to work an injustice.” (quoting Henderson v. Bardahl Int'l Corp., 431 

P.2d 961, 967-68 (Wash. 1967))). Therefore, a court could decide not to give preclusive 

effect to the last-in-time judgment in order to avoid injustice in a particular case. The 

bankruptcy court did not exercise that discretion in this case, and we discern no abuse.
17

state court could not have properly considered whether any of the issues 

decided in the First State Judgment were afforded issue preclusive effect.

As we explained above, preclusion does not depend on whether the 

judgment was correct.

In sum, we agree with the bankruptcy court that the Washington 

Supreme Court would follow the last-in-time rule, which potentially 

affords preclusive effect to the Second State Judgment despite the 

inconsistent First State Judgment. 

B. The bankruptcy court did not err in applying issue preclusion to 

the Second State Judgment.

The last-in-time rule applies only if the last judgment is itself entitled 

to preclusive effect. Mr. Haynie argues that it was error to give the Second 

State Judgment issue preclusive effect under Washington law. We disagree.

There is no dispute as to the standard for issue preclusion under 

Washington law: 

Collateral estoppel, also known as issue preclusion, bars 

the relitigation of issues that were decided in a previous 

proceeding involving the same parties. The court considers four 

factors to determine whether collateral estoppel applies:

“(1) identical issues; (2) a final judgment on the merits; 

(3) the party against whom the plea is asserted must have 

been a party to or in privity with a party to the prior 

adjudication; and (4) application of the doctrine must not 

work an injustice on the party against whom the doctrine 

is to be applied.”
18

In addition, the issues to be precluded must have been actually 

litigated and necessarily decided in the first proceeding. The 

party against whom collateral estoppel is asserted must have 

had a full and fair opportunity to litigate the issues in the first 

proceeding.

Sprague v. Spokane Valley Fire Dep’t, 409 P.3d 160, 183 (Wash. 2018) (citations 

omitted).

First, Mr. Haynie argues that the Second State Judgment did not 

necessarily and finally determine issues of his conduct and Mr. Krystal’s 

reliance. As such, he contends that the bankruptcy court erred in finding 

that his breach of the Deal Points was intentional and wrongful and that 

Mr. Krystal relied on those misrepresentations.

Mr. Haynie is wrong because the bankruptcy court did not rely on 

issue preclusion to determine Mr. Haynie’s mental state or Mr. Krystal’s 

reliance. Rather, the bankruptcy court made its own findings as to these 

two issues based on the evidence presented at trial in the bankruptcy court. 

It stated in its written decision that:

Based on the evidence presented at trial, including the 

evaluation of weight and credibility of witness testimony, this 

Court finds and concludes that Haynie knowingly and 

intentionally misrepresented his intentions to form Stat with 

Krystal as a member and, later, his intentions to remedy the 

failure to include Krystal as a member of Stat. Krystal relied on 

Haynie’s promises and continued his relationship with Haynie 

and Stat. As a result, Krystal was damaged by not receiving his 

share of the profits of Stat or the Davis sale.

(Emphases added).
19

Second, Mr. Haynie argues that the issues determined in the Second 

State Judgment, including the validity and enforceability of the Deal 

Points, were not “actually litigated” because the Second State Judgment

was effectively a default judgment.

The Ninth Circuit and many other courts have held that the “actually 

litigated” requirement “may be satisfied by substantial participation in an 

adversary contest in which the party is afforded a reasonable opportunity 

to defend himself on the merits but chooses not to do so.” FDIC v. Daily (In 

re Daily), 47 F.3d 365, 368 (9th Cir. 1995); see Backlund v. Stanley-Snow (In re 

Stanley-Snow), 405 B.R. 11, 20 (1st Cir. BAP 2009) (Most federal courts “have 

reasoned that if a party was afforded a reasonable opportunity to defend in 

the prior action but chose not to do so, the party could have reasonably 

foreseen the consequences of not defending the action and it would be 

‘undeserved’ to give a ‘second bite at the apple when he knowingly chose 

not to defend himself in the first instance.’ Although a few courts have 

declined to adopt a ‘substantial participation’ exception, these courts are in 

the minority.” (citations and footnote omitted)). Mr. Haynie correctly 

points out that the Washington Supreme Court has not spoken on this 

issue, but we see no reason why the Washington Supreme Court would not 

follow the rule in Daily. The contrary rule would allow a party to 

participate in a case until things start going badly, and then simply quit 

participating in order to get a second bite at the apple.

The bankruptcy court heard testimony and received evidence 
20

concerning Mr. Haynie’s ability to participate in the second state court trial. 

It found that he had fair notice of the state court proceedings and could 

have participated in the trial if he had wanted to. It thus found that he had 

a full and fair opportunity to litigate the issues determined in the Second 

State Judgment. We discern no error with these findings of fact. 

Finally, Mr. Haynie argues that the bankruptcy court erred in 

applying “offensive” issue preclusion against him because he did not have 

an opportunity to defend himself against allegations of his “fraudulent and 

malicious conduct.” He points to the Robi court’s statement that “[a]llowing 

offensive collateral estoppel may also be unfair to a defendant if the 

judgment relied upon as a basis for the estoppel is itself inconsistent with 

one or more previous judgments in favor of the defendant.” 838 F.2d at 329

(quoting Parklane Hosiery Co. v. Shore, 439 U.S. 322, 330 (1979)).

The bankruptcy court did not allow “offensive” issue preclusion in 

this case. In Robi, one of the plaintiffs (Williams) sought to use a judgment 

rendered in favor of another plaintiff (Robi) against the common corporate 

defendant. The court used the term “offensive” issue preclusion to describe 

that situation, where one plaintiff attempts to get the benefit of preclusion 

based on a judgment entered in favor of a different plaintiff. The Robi court 

said that Williams could not use Robi’s judgment against the defendant 

because Williams had litigated his own case and had lost. In such a 

situation, the court held, it would be unfair to give preclusive effect to the 

judgment not involving Williams in order to overturn a judgment against 
21

Williams in a case in which he was a party. Id. at 330. In this case, 

Mr. Haynie was a party to the litigation throughout. Giving the Second 

State Judgment issue preclusive effect was not unfair. 

CONCLUSION

The bankruptcy court did not err in affording the Second State 

Judgment issue preclusive effect and concluding that the judgment debt 

was excepted from discharge under §§ 523(a)(2) and (a)(6). We AFFIRM.