Opinion ID: 772978
Heading Depth: 2
Heading Rank: 1

Heading: The Preclusive Effect of the Florida State Court Judgment

Text: 27 The appellants assert that the district court erred in declining to give preclusive effect to the Florida judgment. Because the Florida judgment determined that the Far Out entities obtained the trademark fraudulently, the appellants argue, the appellees have no right to the trademark. Moreover, the appellants claim that since the Florida judgment was an adverse decision against the appellees, the appellees' incontestability affidavit was false. Because deciding whether to apply issue preclusion (also referred to as collateral estoppel) is a question of law, we review de novo a district court's refusal to give a state court judgment preclusive effect. See Zamarripa v. City of Mesa, 125 F.3d 792, 793 (9th Cir. 1997). 28
29 Under the federal full faith and credit statute, federal courts must give state court judgments the preclusive effect that those judgments would enjoy under the law of the state in which the judgment was rendered. See 28 U.S.C. 1738. As a result, the district court should have applied Florida law in determining whether to give preclusive effect to the Florida judgment. See Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 380, 84 L. Ed. 2d 274, 105 S. Ct. 1327 (1985) (Section 1738 embodies concerns of comity and federalism that allow the States to determine, subject to the requirements of the statute and the Due Process Clause, the preclusive effect of judgments in their own courts.); In re Nourbakhsh, 67 F.3d 798, 800 (9th Cir. 1995) (applying Florida collateral estoppel doctrine to a default judgment rendered in Florida state court). 30 Collateral estoppel, or estoppel by judgment, is a judicial doctrine which in general terms prevents identical parties from relitigating issues that have previously been decided between them. Mobil Oil Corp. v. Shevin, 354 So. 2d 372, 374 (Fla. 1977). Under Florida law, courts apply collateral estoppel when: (1) the parties are identical; 1 (2) the issues are identical; and (3) the issue was fully litigated and determined in a contest which results in a final decision of a court of competent jurisdiction. Id.; see Porter v. Saddlebrook Resorts, Inc., 679 So. 2d 1212, 1214-15 (Fla. 1996) (describing the collateral estoppel test as comprising five substantially similar elements). 31
32 The appellants contend that the Florida judgment involved the same parties and the same issues and resulted in a final judgment on the merits. Even though the final judgment was only issued against Far Out Music, Far Out Management, and Gold, the appellants argue that Far Out Productions and Goldstein controlled the Florida litigation and had filed for bankruptcy merely to avoid being subject to the Florida suit. While the Florida judgment did resolve some of the same issues as the present suit, it did not involve the same parties. 33
34 The parties do not seriously dispute whether the Florida judgment decided at least some of the same issues present in this litigation. The Florida court's partial final judgment found that Gold and Goldstein had fraudulently induced the band members into assigning the trademark to the Far Out entities in the 1979 contracts. While the court did not assign the trademark to the band members or enjoin the Far Out entities from asserting the trademark in the future, it did actually and necessarily resolve whether the Far Out entities legitimately obtained ownership in the trademark through the 1979 contracts. If the Florida judgment were to otherwise satisfy the requirements for collateral estoppel, the appellees would be precluded from asserting that they own the trademark as a result of the 1979 contracts. 2 35
36 Whether the Florida judgment involved the same parties is a somewhat more difficult question. On its face, the Florida judgment did not apply to Goldstein and Far Out Productions. The trial court specifically noted in its default order, partial final judgment, and final judgment that its orders did not affect Far Out Productions or Goldstein in a manner inconsistent with the Bankruptcy Code and that the claims against Goldstein and Far Out Productions were severed by virtue of the appellees' pending bankruptcies. On the surface, then, the Florida judgment did not involve the same parties as the present suit and therefore should not collaterally estop the appellees from relitigating whether they legitimately own the trademark. 37 The appellants contend, however, that the appellees should be estopped from arguing that they did not participate in the Florida litigation since they were in privity with the other Far Out entities. The appellants assert that all three of the Far Out entities were essentially a single enterprise and that the appellees declared bankruptcy merely to avoid being bound by the Florida judgment. 38 The appellants' argument is unavailing. For a third party to be considered in privity with a party involved in litigation under Florida law, the third party must have an interest in the action such that she will be bound by the final judgment as if she were a party or must be virtually represented by one who is a party ... Stogniew v. McQueen, 656 So. 2d 917, 920 (Fla. 1995). There is nothing in the record to indicate that Far Out Productions and Goldstein were virtually represented by the other Far Out entities and Gold at the time of the Florida judgment. 39 More importantly, the Florida judgment cannot be binding on the appellees as a matter of federal bankruptcy law. When a debtor files for bankruptcy, subject to certain exceptions not present here, section 362(a) of the Bankruptcy Code automatically stays any other judicial proceeding involving the debtor. See 11 U.S.C. 362(a)(1). The automatic stay provision of the Bankruptcy Code plays a vital role in bankruptcy. It is designed to protect debtors from all collection efforts while they attempt to regain their financial footing. In re Schwartz, 954 F.2d 569, 571 (9th Cir. 1992) (describing the automatic stay as one of the fundamental debtor protections provided by the bankruptcy laws). The provision provides stability and certainty to both the debtor and creditors who might otherwise be tempted to bring independent actions to obtain default judgments. See id. at 571-72. 40 In fact, the automatic stay provision is so central to the functioning of the bankruptcy system that this circuit regards judgments obtained in violation of the provision as void rather than merely voidable on the motion of the debtor. See id. at 571. Courts regularly void state court default judgments against debtors when the judgments are obtained in violation of the automatic stay provision, even where the debtor filed for bankruptcy in the midst of the state court proceedings. See, e.g., In re Fillion, 181 F.3d 859, 861 (7th Cir. 1999); In re Graves, 33 F.3d 242, 247 (3d Cir. 1994). 41 On occasion, courts have recognized a narrow equitable exception to the strict enforcement of the automatic stay provision, such as when the debtor has participated extensively in a suit leading to a default judgment before declaring bankruptcy. See, e.g., In re Docteroff, 133 F.3d 210, 215 (3d Cir. 1997); In re Bush, 62 F.3d 1319, 1324 (11th Cir. 1995); In re Daily, 47 F.3d 365, 368-69 (9th Cir. 1995); In re Calder, 907 F.2d 953, 956 (10th Cir. 1990). Although the Florida suit was initially filed in November 1982 and Goldstein and Far Out Productions did not file for bankruptcy until June 1984, the record here does not reflect that Goldstein or Far Out Productions participated in the Florida litigation in a meaningful way before declaring bankruptcy, that the appellees declared bankruptcy merely to avoid being subject to the Florida judgment, or that the appellees failed to notify the Florida plaintiffs of the bankruptcy applications. 42 In fact, the equities here may very well favor the appellees. The appellant Brown admitted in an affidavit that the Florida suit was fraudulent in several respects (including jurisdictionally), the appellants signed contracts explicitly releasing the appellees from the Florida judgment, and the appellants even moved to vacate the judgment in accordance with those agreements. Permitting the appellants to assert the Florida judgment as preclusive in spite of the bankruptcy stay provision under those circumstances would not be a very compelling exercise of equitable discretion. Given the facial inapplicability of the Florida judgment to the appellees, the importance of the automatic stay provision, and the equitable considerations, the Florida judgment did not involve the same parties, and the district court did not err in declining to give the Florida judgment preclusive effect. 43
44 Because the Florida judgment did not involve the same parties, this Court need not consider whether the judgment was final under Florida law. 45
46 The appellants also argue that the incontestability affidavit Goldstein submitted to the PTO in 1987 was false. In filing an incontestability affidavit, a trademark owner must swear that there has been no final decision adverse to the registrant's claim of ownership or right to register the mark. See 15 U.S.C. 1065. 47 For the same reasons that the Florida judgment does not have a preclusive effect in this litigation, Goldstein was not required to disclose the judgment. He was not a party to the Florida suit, and the 1987 agreements with the appellants vacated the Florida judgment. His incontestability affidavit was therefore not false. 48 Even if the Florida judgment were a final adverse decision, Goldstein can only be adjudicated to have filed a fraudulent oath if he acted with scienter. If Goldstein had a good faith belief that the Florida judgment was irrelevant, he cannot be found to have submitted a false affidavit. See J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition, 31.79, at 31-136.1. The appellants did not present any evidence, either on appeal or, apparently, in the district court, that Goldstein acted in bad faith or with knowledge that he should have disclosed the Florida judgment. Since the appellants did not present any evidence of Goldstein's state of mind, they did not even meet their initial burden in moving for summary judgment. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). 49 Moreover, even if Goldstein knowingly submitted a false declaration such that the appellees' federal registration should be canceled, the appellees could (and did) still bring suit alleging common law trademark infringement. See McCarthy on Trademarks, 31:60, at 31-109 (noting that it has been held several times that even if defendant succeeds in proving that the plaintiff's registration was fraudulently obtained, plaintiff's common law rights in the mark continue unabated even if the registration is canceled). The district court therefore did not err in denying the appellants' motion for summary judgment as to the appellees' incontestability affidavit. 50