Document: 442 U.S. 127 99 S.Ct. 2205 60 L.Ed.2d 767 G. Garvin BROWN, III, Petitioner,v.Mark Paul FELSEN. No. 78-58. Argued Feb. 21, 1979. Decided June 4, Syllabus In the settlement of a state-court collection suit, respondent stipulated that petitioner should have judgment against respondent. Shortly thereafter, filed for bankruptcy, and sought to establish respondent's debt him was not dischargeable because it product fraud, deceit, malicious conversion thus came within §§ 17a(2) (4) Bankruptcy Act, which provide such debts are affected by discharge. The bankruptcy court granted summary held record in proceeding did had committed res judicata barred from offering additional evidence prove underlying nature debt. District Court Appeals affirmed. Held : is confined review prior when determining dischargeability When debtor asserts new defense does bar creditor meet defense. A contrary rule would force premature federal issues on state courts frustrate command Act only honest be discharged. Pp. 131-139. Reversed. Craig A. Christensen, Denver, Colo., petitioner. Alex Stephen Keller, Mr. Justice BLACKMUN delivered opinion Court. 1 issue here whether may consider extrinsic suit previously reduced under § 17 11 U.S.C.A. 35. 2 * Petitioner Brown III guarantor Mark Felsen Felsen's car dealership, Le Mans Motors, Inc. Petitioner's guarantee secured bank loan financed dealership's trading Lotus, Ferrari, Lamborghini automobiles. 1975, lender brought petitioner, respondent, Colorado court. an answer bank's complaint, cross-claim Mans. cross-claim, incorporating answer, alleged induced sign "by misrepresentations non-disclosures material facts." App. settled stipulation. It provided recover jointly severally all three defendants, Neither stipulation nor resulting indicated cause action liability based. Because case settled, sworn deposition never made part record. 3 short time later, petition voluntary his Through discharge, provides "a opportunity life clear field future effort, unhampered pressure discouragement preexisting debt," Local Loan Co. v. Hunt, 292 234, 244, 54 695, 699, 78 L.Ed. 1230 (1934). By seeking however, placed rectitude dealings squarely issue, for, as has noted, limits "honest but unfortunate debtor." Ibid. Section 14 U.S.C. 32, specifies obtain discharge if he certain crimes or offenses. 17a, focus this case, types These include, 17a(2), "liabilities obtaining money property false pretenses representations . willful another" and, 17a(4), "were created embezzlement, misappropriation, defalcation while acting officer any fiduciary capacity."1 4 court, dischargeable. so 17a(4). contended prepared title certificates, sold automobiles out trust, applied proceeds private purposes. Respondent answered moved judgment. said result finding relitigation even though application been proceeding. 5 Before 1970, claims were seldom heard Traditionally, determined merited 14, left particular sued, after enforce Typically, Congress altered require creditors apply adjudication questions, including those arising 17a(4).2 re Nicholas, 510 F.2d 160, cert. denied, 421 1012, 95 2417, 44 680 (1975), United states Tenth Circuit, confronting first question presented here, resolved holding that, claim judgment, properly limited its found decision accorded with majority among considering question. 6 bound somewhat reluctantly3 consideration pleadings, exhibits, declined hear other evidence, refused concluded neither showed petitioner's allegation misrepresentation basis shown 44-48. 7 Both States Colorado, id., at 49, Circuit unpublished opinion, followed judicata, consent decree conclusive liability. noted mentioned met requirement fraud pleaded specificity. See Colo.Rule Civ.Proc. 9(b). agreed 50-56. 8 Since Nicholas decided, every considered rejected admitted order determine accurately court.4 We certiorari resolve conflict. 439 925, 307, 58 317 (1978). II 9 Res ensures finality decisions. Under final merits bars further parties their privies based same action." Montana States, 440 147, 153, 970, 973, 59 210 (1979). prevents litigation grounds defenses to, recovery available parties, regardless they asserted Chicot County Drainage Dist. Baxter State Bank, 308 371, 378, 317, 320, 84 329 (1940); 1B J. Moore, Federal Practice ¶ 0.405[1] (2d ed. 1974). encourages reliance judicial decisions, vexatious litigation, frees disputes. 10 often breeds contends policy repose underlies here. argues chose press entitled extraordinary remedies exemplary damages body execution.5 says concerning proceeding, now litigating matters could Armour & Co., 402 673, 681-682, 91 1752, 1757, 29 256 (1971). Applying argued, raising afterthought insubstantial overlooked. view, stops harassment promotes orderly processes justice encouraging consolidation entire dispute between into one govern litigated, blockades unexplored paths lead truth. For sake repose, shields cheat well person. therefore invoked careful inquiry. contends, we agree, inquiry reveals interests served process courts, policies foreclosing submitting case. 12 Respondent's unlike customarily entertained courts. example, readily distinguishable supra. There, bondholders participated statutory readjustment indebtedness entered. After another succeeded having statute declared unconstitutional, collect sums due before readjustment. second less decree" failed raise constitutional U.S., 375, S.Ct., 319. 13 Here, contrast, concedes binding. That cornerstone claim. He assert ground recovery, attack validity Rather, what attempting interposed sum him. substantial minority particularly following Fidelity Casualty Golombosky, 133 Conn. 322-324, 50 A.2d 817, 819-820 (1946) (Maltbie, C. J.), recognized distinction judgment.6 upset justify treating final, hardly promote confidence judgments prevent meeting initiative. B questions raised similar law, "new." appropriate forum resolving debtor-creditor disputes, dischargeability. While some circumstances proceedings desirable, undercut favor decide these stage directly party full incentive litigate them. Pigge, 539 369, 371-372 (CA4 1976). 15 1. Considerations irrelevant ordinary sues instrument Even arise, state-law concept likely differ adopted statute. 1A Mulder, R. Oglebay, Collier 17.16[6], p. 1650.1 (14th 1978). Davis Aetna Acceptance 293 328, 55 151, 79 393 (1934), mere technical bankrupt dealer "willful malicious" meaning virtue being actionable misappropriation funds, pursuant "trust receipt," breach express trust sufficient constitute act done "as capacity." 16 identical little debtor's still hypothetical. proposed otherwise unwilling try hilt protect himself possibility might take future. many cases, prove, end, entirely unnecessary, surprising least expressly embroil itself advisory kind. Pioneer Finance Thrift Powell, 21 Utah 2d 201, 204, 443 P.2d 389, 391 (1968). And absent trial merits, there no reason extraneous facts thrown purposes over adduced 2. If then giving rulings Congress' intention commit jurisdiction 1970 amendments eliminated postbankruptcy suits means questions. suits, taken advantage debtors who unable retain counsel stripped them assets. primary purpose stop abuse. secondary purpose, away dealt laws give develop expertise handling them.7 terms Constitution, law U. S. Const., Art. I, 8, cl. Senate Report accompanying amendment described court's "exclusive," S.Rep.No. 91-1173, (1970). confront problem prebankruptcy adjudications, inconsistent philosophy adopt takes forces back McMillan, 579 289, (CA3 1978); Houtman, 568 651, 654 (CA9 F.2d, 371; D. Cowans, Law 253, 298 Compare n. 1978) (1970 Act), 17.16[4], 1643 (prior law). 18 avoided preserved contentions bargaining makes sense, according waived right engage hypothetical inappropriate forum. 19 3. also adequate entailed proof required 17. Petitioner, whatever lure execution provided. rejection conclusively show thought innocent fraud. advantageous him.8 certainly pursuit desirability preventing recovering debt, remedy elected beginning. C 20 Refusing permit make accurate determination fact alleges. now, time, issue. They type intended resolve. can weigh account failure allegations earlier betrays weakness merits. Some indication fullest possible arises history 1898 "judgments" sounding excepted bankrupt's 30 Stat. 550. 1903, substituted "liabilities" "judgments." 32 798. amendment, House Report, "in interest dealing conduct," "to exclude beyond peradventure liabilities growing offenses good morals."9 This broad language suggests conduct specified conscientious true Cf. Hargadine-McKittrick Dry Goods Hudson, 111 F. 361, 362-363 (E.D.Mo.1901), aff'd, 122 232, 235-236 (CA8 1903) (comparing 1903 22 sum, reject contention applies hold Adopting urges suited adjudicate them, onto concerned matters, long since abandoned.10 decline do. 23 reversed. 24 ordered. 1978, repealed effective October 1, Reform Pub.L. 95-598, 401(a), 92 2682. commenced continues governed it. 403(a), 2683. Discharge provisions substantially appear 523 law. U.S.C.App. (1976 ed., Supp. II). 91-467, 5-7, 992; H.R.Rep.No. 91-1502 (1970); 91-1173 (1970), U.S.Code Cong. Admin.News, 4156. observed experience, "created more difficulties problems solved." Tr. 76 56 (Colo., Dec. 1976), 13. Wright, 584 83, (CA5 293, 653-654 Two Circuits admissible pre-1970 Martin Rosenbaum, 820 1964); Johnson, 323 574 1963). But cf. Chernick 492 1349, 1351, (CA7 1974) (bound judgment). Court, dictum, 1867 Act. Strang Bradner, 114 555, 560-561, 1038, 1040, 248 (1885). which, circumstances, permits tortious imprisoned creditor's expense. Hershey People, Colo. 113, 345 (1932); Colo.Rev.Stat. 13-59-103 (1973). Credit Bureau Manning, 147 Cal.App.2d 558, 562, 305 973 Dist.1957); Welsh Old Dominion 229 455, 456 (D.C.App.1967); Levin Singer, 227 Md. 47, 57-60, 175 423, 428-430 (1961); Fireman's Fund Indemnity Caruso, 252 Minn. 435, 439-441, 90 N.W.2d 302, 305-306 (1958); Durrett Smith, 358 S.W.2d 261, 263 (Mo.App.1962). Golombosky applauded commentators. MacLachlan, (1956); Note, Fraudulent Financial Statements Act—The Creditor's Dilemma, 1967 L.Rev. 281, 288-290, 296; Developments Law—Res Judicata, 65 Harv.L.Rev. 818, 885 (1952); Comment, 638 (1947); 33 Va.L.Rev. 508 (1947). H. Remington, 186 (6th 1955) (contrary decisions sound "typical 'afterthought' case"). see Note Nat. Assn. Referees 94 Other continued admit evidence. Miller Rush, 155 178, 188, 565, 571 (1964); Security National Bank Boccio, Misc.2d 547, 548, 303 N.Y.S.2d 610, 611 (Nassau Cty. 1969); Universal I. T. Corp. Woodmansee, 213 Tenn. 429, 437, 374 386, 390 Beehive Buntine, 351, 352, 411 967, 968 (1966); Northey Vandermark, 66 Wash.2d 173, 176, 401 873, 875-876 (1965). predating close unanimity adhering judicata. Surety Sentilles, 160 So. 149, 151 (La.App.1935); Rice Guider, 275 Mich. 18, 265 N.W. 777, 778 (1936); Ehnes Generazzo, N.J.Misc. 393, 396, 513, 515 (Com.Pl.1941); Scott Corn, 412, 415 (Tex.Civ.App.1929), 281 736, 249, 74 1151 (1930); Annot., 170 A.L.R. 368 Gehlen Patterson, 83 N.H. 331, 141 914, 916 (1928). pp. 2-3 91-1502, statement Professor Lawrence King, Conference, included both Reports Congressional Record Representative Wiggins, said: "One strongest arguments support bill passed, single wit, will able pass upon cases. judges, however capable be, do enough cases acquire experience enable expertise. Moreover, present system, last analysis, Supreme ultimate word construction section statute, necessarily contained therein." 116 Cong.Rec. 34819 4163. (1970) (letter Royal E. Jackson, Chief, Division Bankruptcy, quoting Prof. Charles Seligson). So solvent, alike prefer simple contract complex tort litigation. Default common proceedings. creditor, prospect increased attorney's fees likelihood driving offset advantages remedies. deprives creditworthiness impairs ability repay. words Shakespearean fearing worst: "When feather sticks own wing, Lord Timon naked Gull, Which flashes Phoenix." Athens, 2, Scene VII Works Shakespeare 294 (Henley 1903). Nor aid needs jail earn repay 1698, 57th Cong., 1st Sess., 3, (1902). 36 1375 (1903). concerns only, narrower principle collateral estoppel. Whereas forecloses litigated previously, estoppel treats actually decided suit. (1979); Parklane Hosiery Shore, 322, 326 5, 645, 649 645 Cromwell Sac, (4 Otto) 352-353, 195 (1877). If, course adjudicating question, factual using standards 17, estoppel, absence countervailing policy, contend either need collateral-estoppel effect context, decision. Heiser Woodruff, 327 726, 853, 857, 970 (1946). interpreted commentators result. 1650.2 Countryman, New Dischargeability Law, 45 Am.Bankr.L.J. 49-50 253

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