Opinion ID: 1236577
Heading Depth: 2
Heading Rank: 2

Heading: New York's Law of Collateral Estoppel

Text: To determine whether collateral estoppel applies to the Surrogate's Court's judgment, we look to New York law. See Marrese v. Am. Acad. of Orthopaedic Surgeons, 470 U.S. 373, 380, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985); Colon v. Coughlin, 58 F.3d 865, 869 n. 2 (2d Cir.1995). Under New York law, collateral estoppel bars relitigation of an issue when (1) the identical issue necessarily was decided in the prior action and is decisive of the present action, and (2) the party to be precluded from relitigating the issue had a full and fair opportunity to litigate the issue in the prior action. Kaufman v. Eli Lilly & Co., 65 N.Y.2d 449, 455-56, 492 N.Y.S.2d 584, 482 N.E.2d 63 (1985); see Jeffreys v. Griffin, 1 N.Y.3d 34, 39, 769 N.Y.S.2d 184, 801 N.E.2d 404 (2003); Buechel v. Bain, 97 N.Y.2d 295, 303-04, 740 N.Y.S.2d 252, 766 N.E.2d 914 (2001); see also Khandhar v. Elfenbein, 943 F.2d 244, 247 (2d Cir.1991). Under New York law, collateral estoppel is a flexible doctrine and whether to apply it a particular case depends on general notions of fairness involving a practical inquiry into the realities of the litigation. Jeffreys, 1 N.Y.3d at 41, 769 N.Y.S.2d 184, 801 N.E.2d 404. On this appeal, these principles must be analyzed jointly with others that have special significance in the bankruptcy context. The basic policy animating the Bankruptcy Code is to afford the honest but unfortunate debtor a fresh start. Marrama v. Citizens Bank of Mass., ___ U.S. ___, 127 S.Ct. 1105, 1107, 166 L.Ed.2d 956 (2007); Grogan v. Garner, 498 U.S. 279, 286-87, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); DeTrano, 326 F.3d at 322. The consequences to a debtor whose obligations are not discharged are considerable; in many instances, failure to achieve discharge can amount to a financial death sentence. In view of these harsh consequences, exceptions to discharge are to be narrowly construed and genuine doubts should be resolved in favor of the debtor. In re Renshaw, 222 F.3d 82, 86 (2d Cir.2000); In re Hayes, 183 F.3d 162, 167 (2d Cir.1999). The first critical question is whether a defalcation while acting in a fiduciary capacity under § 523(a)(4) of the Bankruptcy Code is identical to the factual and legal determinations necessarily decided in the prior Surrogate's Court action. Denton argues that the issue of whether a defalcation occurred was necessarily decided by the Surrogate's Court's findings that Hyman breached his fiduciary duty and misappropriated assets. Hyman contends that in view of the pervasive confusion in the federal courts over what constitutes defalcation under § 523(a)(4), and also in view of the harsh consequences that attach and the requirement that doubts in a close case such as this should be resolved in his favor, he should not be denied the opportunity to prove at a trial in Bankruptcy Court that he did not violate § 523(a)(4).