Court Opinion

ID: 9733847
Source: CourtListenerOpinion
Date Created: 2023-08-26 17:18:51.372467+00
Date Added: 2024-06-11T15:28:35.612676
License: Public Domain

SOMERS, Bankruptcy Judge,
dissenting.
I respectfully dissent. I agree with the majority that “[rjegardless of which preclusion doctrine is chosen, it is applied in nondischargeability proceedings to bar the *489relitigation of the amount and extent of damages, if that issue was fully and finally litigated in a prior proceeding.”1 I, however, dissent from the majority’s conclusion that this standard is satisfied.2 I agree with the majority that Plaintiffs’ waiver of emotional distress damages in the District Court Litigation pretrial order was fully and finally litigated. I disagree that this procedural waiver results in a bar to recovery of such damages in the bankruptcy nondischargeability litigation.
In the district court, the issue of emotional distress damages was raised by the parties, and the district court allowed Plaintiffs to present that evidence at trial over the Debtor’s objection. The jury awarded Plaintiffs actual and punitive damages. On appeal to the Tenth Circuit, Debtor contended that the district court committed error by allowing Plaintiffs’ testimony about the mental distress they suffered as a result of Debtor’s misrepresentation. The Tenth Circuit concluded that “[bjecause there is no mention of damages for mental suffering in the pretrial order, the district court abused its discretion by allowing evidence of such damages.”3 It ordered a new trial on the sole issue of the amount of damages, independent of emotional distress, resulting from the fraud, unless the district court on the record before it was able to conclude that the injury element of the ¡fraud claim was found by the jury based on evidence independent of emotional distress.4 The district court determined that a new trial would be required, but before that occurred, Debtor filed for relief under Title 11. In the dischargeability proceeding, the bankruptcy judge admitted evidence of emotional distress, and awarded each Plaintiff $25,000.
Although agreeing that the waiver of the claim for emotional distress damages in the pretrial order was fully and finally litigated, I depart from the majority’s conclusion that this waiver controls the bankruptcy case. I disagree with the holding that the “bankruptcy court should have precluded Plaintiffs from presenting evidence of their emotional distress damages, and the bankruptcy court erred in awarding emotional distress damages to the Plaintiffs.” 5
My disagreement is threefold. First, I do not agree that the doctrine of issue preclusion applies to the waiver of emotional distress damages in the District Court Litigation pretrial order. The Restatement (Second) of Judgments § 27 defines issue preclusion as follows: “When an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.” By definition, the doctrine applies when the same issue of law or fact is involved in two separate actions. The is*490sue of law determined by the Tenth Circuit was the construction of the pretrial order; that issue of law is not involved in the bankruptcy dischargeability litigation. By definition under Civil Rule 16(b), a pretrial order “controls the course of the action,” unless modified by the court. The “action” controlled is the case in which the pretrial order is filed; the “action” does not include a subsequent proceeding filed in another court.6 Since the pretrial order filed in the District Court Litigation does not control the bankruptcy litigation, the Tenth Circuit’s determination of the construction of that order is not relevant in the subsequent action. Therefore, for purposes of issue preclusion, the issue of law determined by the Tenth Circuit is not a legal matter at issue in the subsequent bankruptcy ease. The doctrine of issue preclusion does not apply under these circumstances.
The effect of the majority’s application of issue preclusion to a waiver in a pretrial order is to preclude the award of emotional distress damages as if that issue had been fully and finally litigated. But the majority acknowledges that “[d]ue to Plaintiffs’ waiver, the Tenth Circuit did not consider the actual merits of the emotional distress damage claim or Plaintiffs’ evidence of those damages.”7 The substantive right to recover emotional distress damages was not actually litigated; there is no judgment allowing or disallowing emotional distress damages. Rather, the Tenth Circuit held that Plaintiffs following remand were barred from litigating their right to such damages because of a procedural error. It reversed the jury’s damage award for fraud damages, and Debtor filed for bankruptcy relief before retrial of the damage amount. The matters that were fully litigated were the admission of evidence of emotional distress and the preclusive effect of the pretrial order, not the right to recover emotional distress damages which the majority deems precluded.
Second, even assuming issue preclusion is the correct doctrine to apply in this appeal, the majority’s analysis is at odds with the observation that generally, issue preclusion does not arise from pleading maneuvers in prior litigation.8 Comment e to section 27 of the Restatement (Second) of Judgments, on which the majority relies, includes an enumeration of situations where an issue is deemed to have been not actually litigated:
An issue is not actually litigated if the defendant might have interposed it as an affirmative defense but failed to do so; nor is it actually litigated if it is raised by a material allegation of a party’s pleading but is admitted (explicitly or by virtue of a failure to deny) in a responsive pleading; nor is it actually litigated if it is raised in an allegation by one party and is admitted by the other before evidence on the issue is adduced at trial; nor is it actually litigated if it is the subject of a stipulation between the parties. A stipulation may, however, be binding in a subsequent action between the parties if the parties have manifested an intention to that effect. Furthermore under the rules of evidence applicable in the jurisdiction, an admission by a party may be treated as conclusive or be admissible in evidence against that party in a subsequent action.9
Wright and Miller state:
*491In older practice, admissions of the facts set out in an opposing pleading by demurrer or failure to deny could give rise to issue preclusion. Today it seems to be agreed on all sides that issue preclusion does not apply. Views of pleading have changed, and it is now recognized that issue preclusion is inappropriate both because there has been no actual litigation or decision and because pleading maneuvers in one suit should not carry such consequences in other suits. So too, the effect of admissions in response to formal requests for admission under Civil Rule 36 is expressly limited to the first suit, and a finding based on the admission that results from failure to respond to a request for admissions likewise does not support issue preclusion.10
Similarly, a waiver arising from an omission in a pretrial order should not give rise to issue preclusion.11 As stated above, under Civil Rule 16(b), a pretrial order “controls the course of the action,” unless modified by the court. The pretrial order entered in the District Court Litigation does not control the subsequent discharge litigation in the bankruptcy court. Further, if the omission from the pretrial order were viewed as similar to a stipulation or admission, it would not have issue preclusion effect. “A stipulation or admission may be binding in later stages of a continuing proceeding. But issue preclusion ordinarily does not attach unless it is clearly shown that the parties intended that the issue be foreclosed in other litigation.” 12
Third, I question the majority’s policy comments. Allowing litigation of Plaintiffs’ emotional distress damages in bankruptcy court creates no inconsistency with the Tenth Circuit or the district court. The district court pretrial order and the resulting preclusion of the admission of evidence are not binding in the bankruptcy court. If a judgment had been entered after remand, the doctrine of claim preclusion would be applicable to maintain consistency as to the amount of recovery, but no such judgment has been entered. I find it unfair to apply issue preclusion to the Plaintiffs under the circumstances of this case. Plaintiffs suffered the consequences of their procedural error when the *492Tenth Circuit reversed the judgment. Plaintiffs are not engaged in obstructive behavior or in forum shopping to evade the consequences of their mistake; it was the Debtor who filed the bankruptcy case before final judgment in the district court, thereby placing the question of the amount of the damages before a second forum.
For the foregoing reasons, I would affirm the bankruptcy court’s award of damages for emotional distress.

. Majority Opinion at 482.

. I also question the reference to the "accompanying remand instruction” in the first sentence of the majority opinion. This implies that there is a separate remand instruction document, but there is no such document in the record. The last sentence of the Tenth Circuit opinion, which I would characterize as the remand instruction, states, "We reverse the awards of actual and punitive damages based on the fraud claims ... and remand to the district court for proceedings consistent with this opinion.” Hamilton v. Water Whole Int'l Corp., 302 Fed.Appx. 789, 800 (10th Cir.2008) (emphasis omitted).

. Id. at 797.

. Id. at 798.

. Majority Opinion at 488.

.Of course, a court could order that a pretrial order in prior litigation controls subsequent litigation, but that is not the circumstance here.

. Majority Opinion at 485-86.

. Id. The majority's criticism of my position based upon the statement in comment d to the Restatement (Second) of Judgments § 27 that "[a] determination [of issue preclusion] may be based on a failure of pleading” misconstrues the comment. Majority Opinion at 488. As stated in the Reporter’s notes to the comment, the “failure of pleading” referred to are motions for summary judgment and motions to dismiss, which generally result in the determination of substantive matters.

. 18A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure Civil § 4443 at 251-52 (2d ed. 2002) (footnotes omitted).

. See 18 Charles Alan Wright et al., Federal Practice and Procedure Civil § 4419 at 504 (2d ed. 2002) (“Finally, it is ruled occasionally that prior litigation forecloses any examination of an issue that was never raised, even though there is no claim preclusion. The explanation that is most likely to be given is that the issue has been waived. The results of this approach are often questionable.”).

.18A Wright & Miller, supra n.10, § 4443 at 252-53 (footnote omitted). See also 18 Wright et al., supra n.11, § 4419 at 504 ("The actual litigation question also may prove troubling when an issue is resolved as a sanction, not on the basis of trial and findings. Because there is no actual litigation or decision of the issue, it is better to deny issue preclusion. If the issue is to be foreclosed in a separate proceeding, foreclosure should rest on a determination that the sanction was intended to reach that far and that there was authority to reach that far.”).