Opinion ID: 1037090
Heading Depth: 2
Heading Rank: 1

Heading: Tri-State’s Motion for Summary Judgment

Text: Tri-State claims the Pennsylvania judgment relieved it of all obligations under the loan contracts, including those to Wamego and the other participants. Generally speaking, a judgment has preclusive effect in a subsequent lawsuit in the same forum and, by virtue of the US Constitution and the full faith and credit statute, in a different forum. -8- Marrese v. Am. Acad. of Orthopaedic Surgeons, 470 U.S. 373, 380 (1985). The statute provides that state judicial proceedings “shall have the same full faith and credit in every court within the United States . . . as they have by law or usage in the courts of such State . . . from which they are taken.” 28 U.S.C. § 1738. “[W]hether there is an exception to § 1738 arises only if state law indicates that litigation of a particular claim or issue should be barred in the subsequent federal proceeding.” Marrese, 470 U.S. at 383. Thus, we must start our analysis of full faith and credit by determining the extent to which the Pennsylvania judgment (Tri-State v. Aleritas) would preclude Wamego’s claims had they been raised in a court of competent jurisdiction in Pennsylvania. The doctrine of collateral estoppel provides the answer.5 Collateral estoppel, or issue preclusion, is “designed to prevent relitigation of questions of law or issues of fact, which have already been litigated in a court of competent jurisdiction.” Three Rivers Aluminum Co. v. Zoning Hearing Bd., 618 A.2d 1165, 1168 (1992). It is based upon the policy that “a losing litigant deserves no rematch after a defeat fairly suffered, in 5 This principle is distinguished from “[s]trict res judicata, also known as claim preclusion, [which] provides that where there is a final judgment on the merits, future litigation between the parties on the same cause of action is prohibited.” McGill v. Southwark Realty Co., 828 A.2d 430, 435 (Pa. Cmwlth. 2003). For claim preclusion to apply, there must be: (1) “identity in the thing being sued upon or for”; (2) “identity of the cause of action”; (3) “identity of the persons and parties to the action”; and (4) “identity of the quality or capacity of the parties being sued.” Id. Unlike collateral estoppel, if the requirements are met, “[a] default judgment is res judicata with regard to transactions occurring prior to entry of judgment.” Id. -9- adversarial proceedings, on an issue identical in substance to the one he subsequently seeks to raise.” Astoria Fed. Sav. & Loan Ass'n v. Solimino, 501 U.S. 104, 107 (1991). To succeed in precluding an issue from later consideration, the party seeking preclusion must show: (1) “the fact or facts at issue in both instances were identical”; (2) “these facts were essential to the first judgment and were actually litigated in the first cause”; and (3) “the party against whom a plea of collateral estoppel is asserted must have had a full and fair opportunity to litigate the issue in question in a prior action.” McGill v. Southwark Realty Co., 828 A.2d 430, 434 (Pa. Cmwlth. 2003). Under Pennsylvania law, a “default judgment is not entitled to the preclusive effect of [issue preclusion]” because it “lacks the requisite element that it be ‘actually litigated.’” Id. at 435. Under Pennsylvania law, the Tri-State v. Aleritas judgment would not preclude Wamego’s claim. The district judge so recognized, saying, “[Wamego] was given no notice of the Pennsylvania action, was not a party to the Pennsylvania action, and is not alleged to have been in privity with any party to that action.” (Vol. 5 at 1353.) Therefore, under usual circumstances, Tri-State would be unable to “enforce the Pennsylvania judgment against [Wamego].” (Id.) But the judge did not stop there. Because the Pennsylvania judgment did not “purport to bind [Wamego] or any other participating bank as a judgment debtor,” he concluded it was final and valid as between Tri-State and Aleritas. (Id.) So far, so good. But as a result, he also decided the Full Faith and Credit clause precluded Wamego’s collateral attack on the rescission itself. (Id.) Too far, not so good. His decision creates an anomalous result: Wamego would not be precluded (by collateral estoppel) from - 10 - bringing this suit in Pennsylvania, but it is precluded (by collateral estoppel) from bringing it in a federal court in Kansas. Full faith and credit does not sweep that broadly. State judgments “shall have the same full faith and credit in every court within the United States . . . as they have by law or usage in the courts of [the forum] State .” 28 U.S.C. § 1738. Nowhere does the statute purport to give greater credit to state judgments in other forums. As the Supreme Court has said, it is error to give a “state court judgment greater preclusive effect than the state courts themselves would give to it.” Marrese, 470 U.S. at 384. The Pennsylvania judgment’s validity as between Aleritas and Tri-State does not affect Wamego’s ability to protect its interests in subsequent litigation. If more need be said, the discussion in Pogonovich v. Bertolotti (In re Bertolotti), 470 B.R. 356 (Bankr. W.D. Pa. 2012) is instructive. There, Bertolotti sold Pogonovich property in Pennsylvania under a land contract. Id. at 357. When a dispute arose, Bertolotti filed a lawsuit in state court and Pogonovich filed an amended counterclaim alleging fraud in the inducement and fraudulent misrepresentation. Id. at 358. When Bertolotti failed to answer, Pogonovich ultimately received a judgment against Bertolotti. Id. at 358-59. When Bertolotti filed for bankruptcy, Pogonovich filed an adversary complaint seeking a declaration that the debt under the Pennsylvania judgment was nondischargeable.6 Id. The court found, under Pennsylvania law, “the counts . . . 6 11 U.S.C. § 523(a)(2)(A), excepts from discharge any debt “for money property, services, or an extension, renewal, or refinancing of credit to the extent obtained, by false (continued . . .) - 11 - alleging fraud in the inducement and fraudulent misrepresentation were not actually litigated,” and therefore, “the elements of collateral estoppel have not been met and summary judgment [was] not appropriate.” Id. at 364. The same principles apply here. Even if Aleritas might7 be precluded from attempting to relitigate the propriety of the rescission, issue preclusion does not prevent Wamego from litigating the issues in a different proceeding even if it is in a different forum. According full faith and credit to the Pennsylvania court’s judgment in Tri-State v. Aleritas does not strip Wamego (or any of the other participating interests in the loans) of its right to protect its own interests under the contract. The state court judgment did not eliminate Wamego’s ability to claim rescission is inappropriate or to otherwise enforce Tri-State’s contractual obligations to it.