Opinion ID: 723894
Heading Depth: 3
Heading Rank: 3

Heading: The Divisibility of Mr. Young's Debt

Text: 28 Mr. Young's third basis for arguing that the district court erred in affirming the bankruptcy court's holding that his debt was nondischargeable is his claim that it was error for the district court to find only a portion of his debt, specifically $16,892.82 plus interest, nondischargeable for two reasons. First, Mr. Young claims that the doctrine of merger prevents dividing the state court judgment against him for purposes of dischargeability. He reasons that once his settlement with Fowler Brothers was reduced to a judgment for $105,000, all of Fowler Brothers' claims against him for money he owed it merged into this judgment, leaving one indivisible debt in the amount of $105,000. We need not consider the merits of this argument because, as Mr. Young admitted at oral argument, he did not raise this argument before the bankruptcy court and therefore did not preserve it for appeal. 29 Mr. Young bases his second argument that the district court erred in finding only a portion of his debt nondischargeable on Daghighfekr v. Mekhail (In re Daghighfekr), 161 B.R. 685 (9th Cir. BAP 1993). He claims that the district court erred in affirming the bankruptcy court's use of § 523 to amend or alter a valid state court judgment, Aplt's Br. at 16, by dividing the debt and by imposing interest on the amount found nondischargeable, id. at 15, because under Daghighfekr, the bankruptcy court lacked the power to do so. In effect, Mr. Young claims that the consent judgment in this case precluded litigation in the subsequent adversary proceeding that would divide the consent judgment into different amounts. 30 Contrary to Mr. Young's assertion, Daghighfekr and its somewhat questionable rule do not apply here. In that case, the state court below entered a default judgment against the defendant in a civil suit for assault. After the state court awarded the plaintiff over $600,000, making him a judgment creditor, the defendant, a judgment debtor, filed a bankruptcy petition. The plaintiff-creditor commenced an adversary proceeding to have his state court default judgment determined nondischargeable under 11 U.S.C. § 523(a)(6), which creates an exception to discharge for willful and malicious injury by the debtor to another. The bankruptcy court, determining on its own that the assault was a willful and malicious injury, then found the entire amount of the judgment nondischargeable, which the Ninth Circuit Bankruptcy Appellate Panel affirmed. The appellate panel held that although a default judgment has no preclusive effect on a bankruptcy court as to the nature of the act causing injury, it does have a preclusive effect as to the amount of damages awarded once the bankruptcy court determines the nature of the act causing injury. In re Daghighfekr, 161 B.R. at 686. 31 Here, unlike the state court default judgment at issue in Daghighfekr, Fowler Brothers' state court judgment was a settlement or consent judgment. Although we look to the law of New Mexico to determine the preclusive effect in a bankruptcy proceeding of a consent judgment entered by a New Mexico state court, see Marrese, 470 U.S. at 381-83, 105 S.Ct. at 1332-33; Amoco Prod. Co., 904 F.2d at 1414; In re Bugna, 33 F.3d at 1057; In re St. Laurent, 991 F.2d at 675-76, New Mexico law has not yet addressed this issue. However, this circuit has recognized that consent decrees are of a contractual nature and, as such, their terms may alter the preclusive effects of a judgment. May v. Parker-Abbott Transfer & Storage, Inc., 899 F.2d 1007, 1010 (10th Cir.1990). Thus, a state court consent decree precludes the litigation of an issue in a bankruptcy proceeding if it is clear that the parties intended [preclusion] as a part of their agreement. Roeder v. Brown (In re Brown), 162 B.R. 17, 19 (Bankr.D.Kan.1993); see also Olson v. United States (In re Olson), 170 B.R. 161, 167 (Bankr.D.N.D.1994) (holding that a state court consent judgment can preclude the litigation of an issue in a bankruptcy proceeding only where the consent decree or the agreement itself ... contain[s] ' far-reaching preclusive language '   'clearly show[ing] that the parties intended that the issue be foreclosed in other litigation'  (quoting In re GHR Energy Corp., 62 B.R. 226, 232 (Bankr.S.D.Tex.1986) (quoting Southern Pacific Comm. Co. v. A.T. & T., 740 F.2d 1011, 1011 (D.C.Cir.1984)) and 18 Charles Alan Wright, Arthur R. Miller, Edward H. Cooper, Federal Practice & Procedure § 4443, at 382 (1981), respectively)); First Ga. Bank v. Halpern (In re Halpern), 50 B.R. 260, 262-63 (Bankr.N.D.Ga.1985) (allowing a consent judgment to preclude the litigation of an issue in a subsequent bankruptcy proceeding where the judgment contained detailed and carefully drawn findings of fact evidencing a clear and unambiguous expression of the parties' intent), aff'd, 810 F.2d 1061 (11th Cir.1987). 32 In the state court consent judgment between Fowler Brothers and Mr. Young, the parties did not express an intent that the judgment preclude the litigation of any issues in Mr. Young's bankruptcy proceeding. See Aplt's App. at 24. Nor does the record on appeal contain an accompanying consent agreement, in which the parties could have expressed such an intent. See Olson, 170 B.R. at 167 (allowing the parties' intent that a consent judgment preclude the litigation of an issue in a subsequent proceeding to be expressed either in the consent decree or the agreement itself). Therefore, the consent judgment here has no preclusive effect in Fowler Brothers' adversary proceeding as to the amount of Mr. Young's debt that is nondischargeable in bankruptcy or as to any other issues. Because the state court consent judgment did not preclude the litigation in Fowler Brothers' adversary proceeding of the dischargeability of Mr. Young's debt and because the bankruptcy judge clearly had the power to look behind the state court judgment to determine the dischargeability of Mr. Young's debt, e.g., Pepper v. Litton, 308 U.S. 295, 305-06, 60 S.Ct. 238, 244-45, 84 L.Ed. 281 (1939); Afsharnia v. Roland (In re Roland), 65 B.R. 1003, 1005-06 (Bankr.D.Conn.1986), the district court did not err in affirming the bankruptcy court's holding that only a portion of Mr. Young's debt was nondischargeable.