Opinion ID: 772978
Heading Depth: 3
Heading Rank: 2

Heading: The Preclusive Effect of the Florida Judgment

Text: 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