Ne WY

allegations made in the complaint underlying the default judgment). After a careful
analysis, the Bankruptcy Court answered this question affirmatively, and we affirm.

Finally, with respect to the essentiality element of the collateral estoppel
doctrine, the Bankruptcy Court found that entry of the treble damages award in the
New York default judgment established Dr. Bruetman’s liability under the RICO
claim in the New York action. Because the RICO count was the only count that
requested treble damages, logic dictates that the elements of that claim were essential
to the judgment. This inference, drawn by the Bankruptcy Court from the record
before it, is unassailable. Dr. Bruetman wrongly characterizes this determination as
a “fallacy.” It is hardly that. Rather, it is the product of the Bankruptcy Court’s
thorough review of the record which we shall not disturb upon review.

Accordingly, the Bankruptcy Court properly concluded that all of the elements
were present to justify application of the collateral estoppel doctrine, thereby
precluding Dr. Bruetman from relitigating those issues in the BankruptcyCourt.

3. Effect of the Argentina Proceedings

Dr. Bruetman believes he is entitled to judgment as a matter of law on his cross-

motion for summary judgment. The cross-motion argued that the issues asserted in

Counts I and II of Herbstein’s Amended Adversary Complaint were fully litigated in

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eventuallynamed as a defendant. See id. at 366-67. After unsuccessfully pressing its
discovery requests to Daily for nearly two years, the FDIC sought relief under Rule
37. See id. at 367. The District Court entered a default judgment in favor of the
FDIC, ordered all allegations of the complaint deemed admitted by Daily, and trebled
the damages alleged. See id, When the FDIC moved for summary judgment on its
dischargeability complaint, the bankruptcy court held the debt nondischargeable,
concluding that the Kansas court’s order and judgment in the RICO action established
the allegations of fraud in the RICO complaint and that the facts thus established were
sufficient to preclude the discharge of Daily’s debt to the FDIC under 11 U.S.C.
§ 523(a)(2)(A) as a debt for money obtained by fraud. See id.

The Ninth Circuit agreed. The judgnent entered in the RICO actionwas “not
an ordinary default judgment.” Id. at 368. Daily had not merely decided that “the
burden of litigation outweighed the advantages of opposing the FDIC’s claim” and
failed to appear. Id. Instead, he “actively participated” in the litigation for two years
before judgment was entered against him Id. The Ninth Circuit concluded that

[a] party who deliberately precludes resolution of factual issues

through normal adjudicative procedures may be bound, in

subsequent, related proceedings involving the same parties and

issues, by a prior judicial determination reached withoutcompletion

of the usual process of adjudication. In such a case the “actual

litigation” 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.

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participated in the preparation of a Pretrial Order filed by the parties, and filed and
briefed a motion for summary judgment. During discovery, the parties deposed at
least twelve witnesses. Herbstein’s deposition lasted seven days, generating a
transcript exceeding 1200 pages; Bruetman’s deposition ran even longer, on ten
separate days, generating a transcript exceeding 1800 pages. The parties exchanged
thousands of pages of documents. Bruetman and other defendants retained an expert
witness.

In October 1991 as the parties continued to engage in discovery, the New York
court granted Herbstein’s application for an order requiring Bruetman to disclose his
financial assets and liabilities. That information was relevant to the punitive damages
Herbstein planned to pursue at trial. Bruetman did not comply with the court’s order.
A subsequent order was issued on July 14, 1992, this time specifying that if Bruetman
failed to comply by July 23, he would suffer the penalty of a default judgment for the
relief demanded in Herbstein’s complaint. On July 23, Bruetman’s counsel apprised
the court viaa letter that Bruetman and his companies could not comply with the order
“because of their inability to assemble and prepare the financial information requested
without professional accounting assistance.” The letter acknowledged that this non-

compliance subjected Bruetman to default judgment and advised that no appeal would


YL WY

Argentina adversely to Herbstein, thus precluding Herbstein from raising them in the
instant proceedings. The BankruptcyCourt denied the motion. We affirm.

The Bankruptcy Court concluded that none of the Argentine proceedings
culminated in final judgments. Despite the submission of numerous affidavits from
experts in the Argentine legal system, Bruetman failed to establish a genuine issue of
material fact as to the finality of any so-called judgments issued from the Argentine
courts. The New York court reached the same result years earlier. Although
Bruetman criticizes the Bankruptcy Court for borrowing from the New York
conclusion, the New York ruling is relevant because, as we have ruled supra, the
issues in the New York complaint and the Adversary Complaint are the same.
Accordingly, we affirm the Bankruptcy Court’s determination that the Argentine
proceedings did not preclude Herbstein from raising the issues asserted in Counts I
and II of the Amended Adversary Complaint.

CONCLUSION

For the foregoing reasons, we affirmthe decision of the BankruptcyCourt.

CR Dee fF Ceree

Charles P. Kocoras
United States District Judge

Dated: September 6, 2001

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litigation. Throughout he was represented by counsel. Through counsel,
Dr. Bruetman filed an answer, engaged in discovery, participated in the preparation
of a pretrial order, and filed a motion for summary judgment. The parties deposed at
least 12 witnesses and exchanged thousands of pages of documents. Dr. Bruetman
retained an expert witness. The pretrial order listed 252 exhibits for Herbstein and
more than 700 for Dr. Bruetman.

Notwithstanding this extensive participation, Dr. Bruetman failed to comply
with the court’s order to disclose his assets and financial conditions. That information
was relevant to Herbstein’s punitive damages claim. The first such order was issued
in October 1991. By July 1992 Dr. Bruetman had not complied, prompting the New
York court to enter on July 14 an order instructing Dr. Bruetman to disclose the
financial information by July 23 or suffer the penalty of a default judgment for the
relief demanded in Herbstein’s complaint. Dr. Bruetman did not disclose the
information. A default judgrrent issued in the amount of $2,737,924.40.

In this atypical setting for default judgment, where Dr. Bruetman participated
extensively then failed to comply with an express court order issued multiple times
ata risk of incurring default, we agree with the Bankruptcy Court and the Third, Ninth
and Eleventh Circuits that Dr. Bruetman should not now be able to sidestep the

collateral estoppel doctrine and litigate an issue in this forum that was forestalled in

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WH LY

constitute clearly erroneous findings of fact. What Dr. Bruetman deems
mischaracterizations we find to be the fair inferences that the Bankruptcy Court was
entitled to draw, and no reasonable juror could construe those inferences in favor of
Dr. Bruetman. Furthermore, and critically, the Bankruptcy Court did notrely on those
challenged factual findings in rendering its judgnent.

Ironically, while Dr. Bruetman criticizesthe Bankruptcy Court for its overbroad
and loose characterizationsof the facts, Dr. Bruetman makes similarly loose assertions
as to what constitutes factual rather than legal conclusions. At several points in his
brief he confuses the two, and part of his challenge of the findings of facts actually
encompasses the application of law to the facts. By contrast, at other points in his
briefhe evinces a tendency to interpret language too narrowly. For instance, he urges
us to reject the Bankruptcy Court’s finding of fact that he “would not” comply with
the New York court’s order, arguing instead that he “could not” comply with it.
Whether he would not or could not comply is not the issue, however. The stark fact

is that he did not comply, and on this the Bankruptcy Court based its decision.

In addition, Dr. Bruetman believes that the Bankruptcy Court erroneously
discountednearly all of his asserted facts pertaining to the New York defaultjudgment
because they go behind the record of the proceedings. Dr. Bruetman notes that despite

this admonition, the Court went behind the record to find facts leading to its

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VY Ww

Herbstein initiated an Adversary Complaint to recover from Bruetman the debt owed
pursuant to the New York default judgment. Herbstein filed a motion for summary
judgment to determine the dischargeability of the debt owed pursuant to the New York
default judgment. Specifically, the motion asked for summary judgment on Counts
I and II of the complaint. Count I was based on §523(a)(2)(A), which excepts from
discharge any debt incurred by false pretenses, a false relationship or actual fraud, and
Count II was based on § 523(a)(4), which excepts from discharge any debt for fraud
or defalcation while acting in a fiduciary capacity, embezzlement or larceny.
Herbstein argued that the New York default judgment had determined issues of
fraudulent misrepresentation and fraud or defalcation while acting in a fiduciary
capacity. As a consequence, according to Herbstein, Bruetman was collaterally
estopped from contesting the dischargeability of the debt under Counts I and II. The
Bankruptcy Court agreed and granted Herbstein’ motion.

Bruetman also moved for summary judgment on the Amended Adversary
Complaint. He claimed that the issues asserted in Counts I and II were fully litigated
in Argentina and determined adversely to Herbstein. The Bankruptcy Court rejected

those contentions and denied the notion.


WY WY

be taken from any default order entered as a result of failure to comply with the
court’s order.

On August 10, 1992, the New York court entered a default judgment against
Bruetman. The order declared that Bruetman had willfully failed to comply with the
court’s order to produce affidavits and documents concerning their current assets and
liabilities. Bruetman did not appeal the judgrrent.

Approximately one year after entry of the defaultjudgment, the Argentina court
rendered a ruling in Herbstein’s civil case. Although Herbstein had labeled his case
an “individual action for responsibility,” the court ruled that damages could be
awarded only for acts found to injure the corporation directly, not for acts that harmed
individual stockholders such as Herbstein. Accordingly, the court concluded that the
wrongful conductalleged by Herbstein did not support an individualaction. The court
reclassified the action and analyzed its viability as a shareholder derivative suit on
behalf of the corporation. That decision was “revoked” on appeal, however. On
December 19, 1995, the reviewing court found that the action couldnot be reclassified
as a derivative suit on behalf of the corporation.

On March 22, 1999 Bruetman filed a petition in bankruptcy in the Northern
District of Illinois pursuant to 11 U.S.C. § 101 etseq. The Bankruptcy Court entered

an order discharging Bruetman’s debts on July 8, 1999. Following the discharge


YY VY

New York due solely to Dr. Bruetman’s decisions. Dr. Bruetman is not entitled to a
second bite at the apple. The issues underlying the New York default judgment were
“actually litigated” for purposes of the collateral estoppel doctrine. To hold
otherwise would “give [Bruetman] who abuse[d] the processes and dignity of the
court an undeserved second bite at the apple.” Docteroff, 133 F.3d at 215.

Dr. Bruetman also challenges application of the collateral estoppel doctrine on
two additional grounds, claiming that the issues in the two proceedings were not the
same and that the determination of the issue was not essential to the final judgment.
In support of this first contention, Dr. Bruetman identifies a “lacuna” in the Court’s
analysis: the Court’s comparison of the allegations of Herbstein’s RICO complaint to
the elements of the two claims brought in Herbstein’s adversary proceeding.
Dr. Bruetman believes that the BankruptcyCourt erred in relying on the elements of
the adversary claims rather than the allegations in the adversary complaint.
Dr. Bruetman offers no legal support for this proposition, and indeed there is none.
It was sufficient for the Bankruptcy Court to determine whether the allegations of the
RICO complaint could state a claim under the two dischargeabilityprovisions invoked
in the adversary complaint. See id. at 215 (stating that the test of sameness is whether

all of the elements of the relevant dischargeability provisions are encompassed by the

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These grounds comprise three general categories of appeal: errors in identifying

genuine issues of material fact and applying the procedural standard for motions for

summary judgment (Ground 1); errors in applying the collateral estoppel doctrine

(Grounds 2, 3 and 4); errors in determining the effect ifany of the Argentina litigation

(Ground 5); and errors in applying the standard for motions to reconsider (Ground 6).
LEGAL STANDARD .

In reviewing an appeal of a decision of the Bankruptcy Court, we uphold the

Court’s findings of fact unless clearly erroneous. See In re Marrs-Winn Co., Inc., 103

F.3d 584, 589 (7" Cir. 1996) (citing Fed. R. Bank. P. 8013). We review de novo the
Court’s legal conclusions as well as its ultimate decision to grant summary judgment.
See In re Lefkas Gen’l Partners, 112 F.3d 896, 899-900 (7" Cir. 1997).
DISCUSSION

1. Absence of Genuine Issues of Material Fact

Dr. Bruetman devotes a substantial portion of his brief to what he perceives as
the Bankruptcy Court’s “inaccurate,” “misleading” and “loose” apprehension and
presentation of the facts underlying the dispute. He contends mostly that this
looseness “created [a] misleading impression. . . .” We are not in the business of
determining what impressionsemerge from the Bankruptcy Court’s opinion, however.

Rather, our task is to determine whether alleged inaccuraciesand mischaracterizations

-8-


Minute Order Form (06/97)

YL
soe United States District Court, Northern District of Illinois

f Assigned Jud; Sitting Judge if Oth
or Magistrate Judge Charles P. Kocoras han Asigned Judge
CASE NUMBER 01 C 2829 DATE 9/6/2001
CASE Herbstein vs. Bruetman
TITLE

[in the following box (a) indicate the party filing the motion, e.g, plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
of the motion being presented.]

MOTION:

DOCKET ENTRY:

(1) oO Filed motion of [ use listing in “Motion” box above.]

(2) Oo Brief in support of motion due

(3) im Answer brief to motion due___. Reply to answer brief due__

(4) oO Ruling/Hearingon__setfor__at

(5) oO Status hearing{held/continued to] [set for/re-set for]on__setfor___at

(6) i) Pretrial conference[held/continued to] [set for/re-set for]on__setfor__at___.
(7) Oo Trial[set for/re-set for] on_at

(8) im} [Bench/Jury trial] [Hearing] held/continued to__at

9) o This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

OOFRCP4(m) (General Rule21 CFRCP41(a)(1) 0 FRCP41(a)(2).

(10) WE [Otherdocketentry} Ruling held. ENTER MEMORANDUM OPINION: We affirm the decision
of the Bankruptcy Court.

di) ff [For further detail see order attached to the original minute order.]

No notices required, advised in open court,

No notices required.

number of notices
Notices mailed by judge's staff, SEP 97 2001
Notified counsel by telephone. date dockted

VY | Docketing to mail notices. Le
7_| Mail AO 450 form ® te ocala deputy iitiats $
Copy to ingraiie ’
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courtroom Gi Shr 7b rie date mailed not
SCT deputy’s
initials
Date/time received in ;
central Clerk's Office malng deputy nals



YY —

default judgment. In sum, the Bankruptcy Court drew the only reasonable inferences
from the record before it. We find nothing erroneous in those inferences.

Dr. Bruetman also challenges the computation of the judgment award in the
default judgment as not being based on competent evidence. (Id. at 25 para. K.) This
argument must fail, as the BankruptcyCourt expressly relied upon the calculation of
damages in the parties’ joint pretrial statement filed in the New York court, the New
York judgment order itself, and an affidavit from the attorney who drafted the
judgment order. The evidence supporting the computation is sound and we shall not
disturb the computation.

2. Collateral Estoppel

Dr. Bruetman contends that the Bankruptcy Court erred in determining that Dr.
Bruetman was collaterally estopped from contesting the dischargeability of his debt
to Herbstein under Counts I and II of the Amended Adversary Complaint. We affirm
the Bankruptcy Court’s determination.

Collateral estoppel prohibits the relitigation of issues that have been adjudicated
ina prior lawsuit. The principles apply in discharge proceedings in bankruptcy court.
See Grogan v. Garner, 498 U.S. 279, 284-85 n.11 (1991). Because a federal court
rendered the prior judgment in the case at bar, federal principles of collateral estoppel

apply. Heiser v. Woodruff, 327 U.S. 726, 732 (1945). Those federal principles

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conclusion that the default judgment was actually litigated and therefore rendered
inamune from collateral attack. In particular, Dr. Bruetman challenges the Bankruptcy
Court’s determinations that Dr. Bruetman was “at fault in preventing” the resolution
of the litigation, that he “frustrated efforts to bring the action to trial,” that the New
York court treated Dr. Bruetman’s conduct “as a major interference with Plaintiff's
effort to prepare for trial,” and that the court concluded thatDr. Bruetman “willfully
disobeyed repeated court orders and suffered entry of a default judgment (Amd.
Mem. Op. of 3/8/01 at 21, 22, 23, 21.) Each of these conclusions is unassailable.
Entry of the default judgment prevented the resolution of the litigation. The default
judgment was entered because Dr. Bruetman failed to comply with the court’s
repeated orders to disclose financial information. The fair inference, and indeed the
only reasonable one, was that the fault rested with Dr. Bruetman, not Herbstein.
Furthermore, because Dr. Bruetman’s conduct brought about the entry of a default
judgment, Dr. Bruetman frustrated efforts to bring the case to trial. The court treated
the noncompliance as a major interference with Plaintiff's effort to prepare for trial
because the noncompliance was precisely that -- a major interference that effectively
disabled Plaintiff from gathering facts on which to base its case. As for the

Bankruptcy Court’s willfulness finding, it lifted that language from the text of the

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Dr. Bruetman now appeals the Bankruptcy Court’s decision.' His brief names
six grounds for the appeal, namely that

@ The trial court erred as a matter of law in holding that there is no
genuine issue as to any material fact in connection with Herbstein’s
motion for summary judgment;

@ The trial court erred as a matter of law in holding that the issues
sought to be precluded in the adversary proceeding were the same as
those involved in the New York litigation;

@ The trial court erred as a matter of law in holding that the issues
sought to be precluded in the adversary proceedings were actually
litigated in the New York litigation;

@ The trial court erred as a matter of law in holding that the
determination of the issues sought to be precluded in the adversary
proceedings was essential to the final default judgment in the New
York litigation;

@ The trial court erred as a matter of law in holding that the cross-
motion for summary judgment based on principles of comity and the
preclusive effect of the Argentina litigation was factually inadequate
to support summary judgment as a matter of law; and

@ The trial court erred as a matter of law in holding that Dr. Bruetran
did not demonstrate errors in fact or law which warranted the altering
or amendment of the judgment.

' In reaching this decision, the Bankruptcy Court relied on the parties’ statements of
undisputed facts filed pursuant to Local Bankruptcy Rules 402M and 402N. (Mem.
Op. of March 8, 2001 at 3.) Specifically, the Bankruptcy Court noted that Dr.
Bruetman filed in response to Herbstein’s motion for summary judgment a Rule
402N statement that did not contest the facts and proceedings shown in the Southern
District of New York case. When Dr. Bruetman later filed his cross-motion for
summary judgment, he filed a Rule 402M statement to which Herbstein was given
no opportunity to respond. The Bankruptcy Court was careful to explain that its
Memorandum Opinion “assumes arguendo the accuracy and authenticity of every
document and fact asserted by Dr. Bruetman in connection with his motion (which
said documents and facts are not, however, treated as responsive to Herbstein’s
motion since they were not offered in response thereto).” (Id.)

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VY WA

Despite these changes, the problems continued. Herbstein brought some of
these problems before the Criminal Courts in Argentina by filing in March of 1989
a request for an investigation concerning allegations of fraud against Bruetman. On
October 10, 1990 the Court “temporarily dismissed” the action, ruling that no one was
to be prosecuted. Bruetman, too, sought recourse in the criminal court. In March
1989 he filed in the same court a request for an investigation. On October 10, 1990,
the court temporarily dismissed his request finding inadequate evidence to support a
finding of fraud. Herbstein also sought civil relief in the Commercial Division of the
Argentine court system in August 1989. He filed a suit requesting the removal of
Bruetman and others as directors and seeking a determination that those directors had
wrongfully carried out their duties at the newlyformed company.

Moreover, Herbstein turned to the American courts for relief. On October 16,
1989, before any ruling in the Argentine civil case, Herbstein filed a complaint in the
United States District Court for the Southern District of New York (the “New York
action”). The five-count complaint asserted claims of racketeering, breach of
fiduciary duties, fraudulent misrepresentation, fraudulent concealment, and
conversion. The proceedings lasted nearly three years, from October 16, 1989 to
August 10, 1992. Counsel represented Bruetman at all times while the case was

pending. Through counsel, Bruetman filed an answer, engaged in discovery,

-3-


Id. To hold otherwise, the Courtreasoned, would permit debtors to delay substantially
and perhaps ultimately avoid paying debts by deliberate abuse of the judicial process.
See id.

The Eleventh Circuit embraced this rationale in Inre Bush. 62 F.3d 1319 (11"
Cir. 1995.) Bush had been sued by Balfour Beatty Bahamas (“BBB”) alleging a claim
of fraud. See id, at 1321. Although Bush initially participated in discovery, he
gradually dropped out of the case. See id. His attorney had such trouble contacting
his client that he finally received leave to withdraw. See id. Bush subsequently failed
to produce trial exhibits or appear for a properly noticed deposition. See id. When
Bush failed to appear at the pretrial conference, the Court found that sanctions were
warranted and entered an order for default judgnent on the grounds statedin BBB’s
complaint. See id. at 1321-22. Bush filed no objections to the default nor to the final
judgment served on him See id. at 1322.

Later that year, in November 1991, Bush filed a voluntary petition for
bankruptcy pursuant to Chapter 7. See id. at 1322. BBB filed an adversary complaint
to determine dischargeability of its judgment debt against Bush. See id. In opposition
to BBB’s motion for summary judgment, Bush argued that the prior judgment should
have no preclusive effect because the fraud issue had not been actually litigated. See

id. Both the bankruptcy court and district court rejected this argument, and the

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issue of liability. See id. at 213-14. The court ordered a trial on damages. See id. at
214. On the day the trial was to begin, Docteroff filed a Chapter 11 bankruptcy
petition. See id, When plaintiffs then filed an adversary action against Docteroff, the
bankruptcy court found that the default judgment had collateral estoppel effect. See
id. The district court and Third Circuit affirned. See id.

The Third Circuit observed that the situation before it was “not a typical default
judgment where a defendant neglects or elects not to participate in any manner” due
to inconvenience, expense or some other reason. Id. at 215. To the contrary,
Docteroff had “participated extensively” in the litigation by filing an answer, noticing
his opponent’s deposition, engaging several lawyers, filing papers with the court, and
corresponding with opposing counsel. See id. Ultimately, Docteroff “simply elected
not to comply with court orders.” Id. In light of this choice, the Third Circuit “d[id]
not hesitate” to conclude that collateral estoppel precluded an attack on the issues
underlying the default judgment. Id, To hold otherwise would “give litigants who
abuse the processes and dignityof the court an undeserved second bite at the apple.”
Id.

The case before us falls squarely in line with Daily, Bush and Docteroff- Over

the course of nearly three years -- far longer even than the defendants in the three

aforementioned cases -- Dr. Bruetman participated extensively in the New York

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summary judgment on Counts] and II. Now Dr. Bruetman appeals. For the foregoing
reasons, we affirm the Bankruptcy Court.
BACKGROUND

Myriad events spanning more than a decade have led to the dispute at hand.
Not all of them are relevant to the task before us, so we limit our recitation
accordingly. In late 1986 or early 1987, Dr. Martin Bruetman solicited money from
Diego Herbstein to invest in a business venture aimed at establishing a sophisticated
medical diagnostic center in Buenos Aires, Argentina. Under Dr. Bruetman’s
proposal, he and Herbstein were to provide equal amounts of capital to fund the
venture. In April 1987, Herbstein began making payments to Dr. Bruetman. By July
1987, Herbstein’s contributions to the investors’ newly formed company, Alta
Technologia Medica S.A. (“Altec-1”), totaled approximately $447,000. Herbstein
says he intended those funds to comprise his capital contribution to the business in
exchange for receiving 50%of the company’s issued stock.

By late 1987, problems developedbetween Herbstein and Bruetman. Herbstein
suspected that Bruetman was using Altec-1’s time, money, personnel, overhead and
resources to develop another business unrelated to the venture. The two agreed to
make some changes including the formation of a new business venture and the

reconfiguration of titles and stock holdings.


WY WY

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
DIEGO HERBSTEIN, )
Plaintiff-Appellee, }
vs. 01 C 2829
MARTIN BRUETMAN, }
Defendant-Appellant. }

MEMORANDUM OPINION
CHARLES P. KOCORAS, District Judge:
INTRODUCTION

For nearly eleven years Diego Herbstein and Dr. Martin Bruetman have
engaged in multiple litigations against each other. Most recently Herbstein filed an
Amended Adversary Complaint in the Bankruptcy Court for the Northern District of
Illinois seeking to deny Dr. Bruetman’s discharge in bankruptcy and to determine the
dischargeability of a debt owed to him by Dr. Bruetman. The Bankruptcy Court of
the Northern District of Illinois granted Herbstein’s motion for summary judgment on
Counts I and II of the Amended Adversary Complaint, concluding that the debt was

nondischargeable. The Bankruptcy Court denied Dr. Bruetman’s cross-motion for

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dictate that for a party to be estopped from relitigating an issue, the following
elements must be present: (1) the issue sought to be precluded must be the same as the
one involvedin the prior action; (2) the issue must have been actually litigated; (3) the
determination of the issue must have been essential to the final judgment; and (4) the
party against whom estoppel is invoked must be fully represented in the prior action.

See Adair v. Sherman, 230 F.3d 890, 893 (7th Cir. 2000), Havoco of Am., Ltd. v.

Freeman, Atkins & Coleman, Ltd., 58 F.3d 303, 307 (7th Cir. 1995).

At least three circuits have addressed the intersection of default judgments and
the collateral estoppel doctrine in bankruptcy actions. In cases strikingly similar to
the ones at bar, the Third, Ninth and Eleventh Circuits have all concluded that where
a default judgment was entered against a debtor as a discovery violation, the debtor
is collaterally estopped from claiming that the debt underlying the judgment is
dischargeablein bankruptcy. See In re Docteroff, 133 F.3d 210 (3rd Cir. 1997); Inre
Bush, 62 F.3d 1319 (1ith Cir. 1995); Inre Daily, 47 F.3d 365 (9th Cir. 1995). In the
first of these cases, Daily, debtor Dailey filed a petition for relief in the United States
Bankruptcy Court for the District of Hawaii. See 47 F.3d at 366. The FDIC filed an
adversary complaint to determine the dischargeability of a debt allegedly owed them.
See id, Another FDIC action, this one alleging civil RICO violations, was pending

in the United States District Court for the District of Kansas in which Daily was

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Eleventh Circuit affirmed, holding that in a bankruptcy discharge exception
proceeding, a default judgment based upon allegations of fraud may be used to
establish conclusively the elements of fraud and prevent discharge of the judgment
debt. See id, at 1322, 1324. As the Court opined, ‘{i]t would be undeserved to give
debtor/defendanta second bite at the apple when he knowingly chose not to defend
himself in the first instance.” Id. at 1325 (quoting In re Wilson, 72 B.R. 956, 959
(Bankr, M.D. Fla. 1987). Once again, then, an atypical default judgment received
preclusive effect in a subsequentproceeding to determine dischargeabilityof the debt.

A third court echoed these results in In re Docteroff. 133 F.3d 210 (3" Cir.
1997). The Third Circuit held that a default judgment entered againsta defendant in
a fraud action as a sanction for the defendant’s repeated and bad-faith refusals to
comply with discovery requests collaterally estopped the defendant from claiming that
the debt underlying the judgment was dischargeablein bankruptcy. See id, at 212-13.
A corporation and an individual sued Docteroff alleging fraud. See id. at 213.
Although Docteroff answered the complaint and noticed one of the plaintiffs
depositions, he repeatedly refused to submit to properly noticed depositions or
respond to numerous legitimate requests for production of documents despite court
orders and warnings. See id. The court found Docteroff’s non-compliance to be

willful and in bad faith and, as a sanction, entered default judgment against him on the

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