Court Opinion

ID: 9734573
Source: CourtListenerOpinion
Date Created: 2023-08-26 17:38:11.123966+00
Date Added: 2024-06-11T09:19:18.156257
License: Public Domain

STEVEN RHODES, Bankruptcy Appellate Panel Judge,
concurring.
I join in the Panel’s affirmance of the bankruptcy court’s judgment. The bankruptcy court’s findings in support of its judgment for the plaintiff were certainly not clearly erroneous.
I write separately, however, because I disagree with the majority opinion’s conclusion regarding collateral estoppel. In my view, the bankruptcy court erred in granting Mrs. Phillips’ motion for summary judgment on the issue of whether the state court judgment was preclusive as to the factual findings required for a determination of nondisehargeability. Under Michigan law, it clearly was. Accordingly, the trial, as well as this Panel’s review of the bankruptcy court’s findings that resulted from that trial, were both unnecessary and inappropriate. I further conclude that the Panel should affirm the judgment on that basis alone.
I.
In ruling on Mrs. Phillips’ motion for summary judgment, the bankruptcy court held that the state court judgment precluded Mrs. Phillips from relitigating her liability and the amount of the judgment. Accordingly, it denied that part of Mrs. Phillips’ motion. It also held, however, that the judgment did not preclude Mrs. Phil*488lips from relitigating whether the debt was for a willful and malicious injury. Accordingly, it granted that part of the motion. Following a trial on that issue, the bankruptcy court found that Mrs. Phillips’ debt to Weissert was for a willful and malicious injury and therefore entered a judgment of nondischargeability.
In this appeal, Mrs. Phillips contends that the judgment should be reversed on the grounds that the bankruptcy court’s findings were clearly erroneous. In response, Weissert argues that the bankruptcy court erred in holding that the state court judgment did not preclude Mrs. Phillips from relitigating the issue of dis-chargeability. Weissert is fully entitled to make that argument without filing a cross-appeal. In Morley Const. Co. v. Maryland Cas. Co., 300 U.S. 185, 191, 57 S.Ct. 325, 327-28, 81 L.Ed. 593 (1937), the Supreme Court explained:
Without a cross-appeal, an appellee may ‘urge in support of a decree any matter appearing in the record, although his argument may involve an attack upon the reasoning of the lower court or an insistence upon matter overlooked or ignored by it.’ United States v. American Railway Express Co., 265 U.S. 425, 435, 44 S.Ct. 560, 564, 68 L.Ed. 1087. What he may not do in the absence of a cross-appeal is to ‘attack the decree with a view either to enlarging his own rights thereunder or of lessening the rights of his adversary, whether what he seeks is to correct an error or to supplement the decree with respect to a matter not dealt with below.’ Ibid. The rule is inveterate and certain.
Id. (citations omitted). See also Nw. Airlines, Inc. v. County of Kent, Mich., 510 U.S. 355, 364, 114 S.Ct. 855, 862, 127 L.Ed.2d 183 (1994) (“A prevailing party need not cross-petition to defend a judgment on any ground properly raised below, so long as that party seeks to preserve, and not to change, the judgment. See, e.g., Thigpen v. Roberts, 468 U.S. 27, 29-30, 104 S.Ct. 2916, 2918, 82 L.Ed.2d 23 (1984). A cross-petition is required, however, when the respondent seeks to alter the judgment below.”); Pace Int’l Union, AFL-CIO, CLC v. Vacumet Paper Metalizing Corp., 91 Fed.Appx. 380, 382, 2004 WL 68519, *1 (6th Cir.2004) (“Because [ap-pellee’s] statute-of-limitations argument provides an alternative ground to sustain the district court’s judgment, however, [ap-pellee] may make the argument on appeal without filing a cross-appeal. See United States v. Neal, 93 F.3d 219, 224 (6th Cir.1996).”).
Equally important, the Panel may rely on any grounds presented in the bankruptcy court and argued by the parties to affirm the judgment. Montedonico v. Beckham (In re Beckham), 421 B.R. 602, 2009 WL 1726526, *7 (6th Cir. BAP 2009) (Table) (“[T]he bankruptcy court’s decision ... may be affirmed on any grounds supported by the record.”); Besing v. Hawthorne (In re Besing), 981 F.2d 1488, 1494 (5th Cir.1993).
The Sixth Circuit has held in several cases that it has the jurisdiction to review a ruling on a motion for summary judgment, when, as here, the motion presents a purely legal issue. McPherson v. Kelsey, 125 F.3d 989, 995 (6th Cir.1997); United States ex rel. A+ Homecare, Inc. v. Medshares Mgmt. Group, Inc., 400 F.3d 428, 441 (6th Cir.2005); Paschal v. Flag star Bank, 295 F.3d 565, 572 (6th Cir.2002); Barber v. Louisville & Jefferson County Metro. Sewer Dist., 295 Fed.Appx. 786, 789 (6th Cir.2008); Shohadaee v. Metro. Gov’t of Nashville & Davidson County, 150 Fed.Appx. 402, 403 (6th Cir.2005).
Accordingly, I conclude that the Panel has the authority and discretion to consider whether to affirm the bankruptcy *489court’s judgment on the grounds of collateral estoppel. The parties fully argued this issue in the bankruptcy court. The bankruptcy court ruled on it. Weissert argued the issue in his brief in this appeal.1 Both parties addressed the issue during oral argument.
I further conclude that the Panel should have exercised its discretion to resolve this appeal based on the collateral estoppel issue rather than based on a review of the trial. The issue of whether a default judgment is entitled to collateral estoppel effect has seriously divided the bankruptcy courts in Michigan. In Montgomery v. Kurtz (In re Kurtz), 170 B.R. 596 (Bankr.E.D.Mich.1994), the court observed, “[tjhere has been great controversy concerning whether collateral estoppel bars the relitigation of issues, previously determined pursuant to a state court default judgment, necessary to support nondis-chargeability actions under § 523.” Id. at 597 (emphasis in original). Our guidance on the issue would undoubtedly be helpful.
II.
The doctrine of collateral estoppel applies in dischargeability proceedings. Grogan v. Garner, 498 U.S. 279, 285 n. 11, 111 S.Ct. 654, 658 n. 11, 112 L.Ed.2d 755 (1991); Bay Area Factors v. Calvert (In re Calvert), 105 F.3d 315 (6th Cir.1997). The bankruptcy court must make its own determination regarding the dischargeability of the debt, but that determination must be governed by factual findings which were actually and necessarily made by the state court. Vogel v. Kalita (In re Kalita), 202 B.R. 889, 894 (Bankr.W.D.Mich.1996).
In reviewing a collateral estoppel issue, the bankruptcy court must give a state court judgment the same preclusive effect that judgment would have in state court, unless the Full Faith and Credit Statute, 28 U.S.C. § 1738, provides an exception. In re Calvert, 105 F.3d at 317. “The Sixth Circuit has held that no such exception exists under the circumstances of a default judgment.” Micco Constr. Co. v. Brunett (In re Brunett), 394 B.R. 425, 428 (Bankr.E.D.Mich.2008) (citing In re Calvert, 105 F.3d at 322) (citation omitted).
Accordingly, the question is whether the Michigan courts would give preclusive effect to the findings made in support of a default judgment under circumstances similar to the default judgment in this case. Perhaps a useful way to frame the issue is this: If, after the state court judgment against her, Mrs. Phillips had filed a declaratory judgment action against Weis-sert asserting that she was not liable on his claims, would the Michigan courts apply collateral estoppel to preclude her from relitigating the merits of his claims? For the reasons set forth below, I conclude that the Michigan courts would certainly preclude that attempt and that therefore so must we.
Under Michigan law, collateral estoppel applies when:
1) there is identity of parties across the proceedings,
2) there was a valid, final judgment in the first proceeding,
3) the same issue was actually litigated and necessarily determined in the first proceeding, and
*4904) the party against whom the doctrine is asserted had a full and fair opportunity to litigate the issue in the earlier proceeding.
Darrah v. City of Oak Park, 255 F.3d 301, 311 (6th Cir.2001) (citing People v. Gates, 434 Mich. 146, 452 N.W.2d 627, 630-31 (1990)).
In the present case, there is no question regarding the first, second and fourth elements required for collateral estoppel. First, there is identity of parties across the proceedings. Mrs. Phillips and Weissert were both parties to the state court action as well as the bankruptcy adversary proceeding to determine dischargeability.
Second, there was a valid, final judgment in the first proceeding. The state court entered a judgment finding Mrs. Phillips liable for $71,962.75 for her abuse of process, intentional infliction of emotional distress, civil conspiracy and concert of action.
Finally, Mrs. Phillips had a full and fair opportunity to litigate the issue. She does not dispute that she was served with the state court complaint, which gave her the opportunity to litigate the issue of her liability. In fact, she did fully litigate the amount of damages by participating in the evidentiary hearing on that issue before the state court.
The only element that is disputed is whether the default judgment finding liability was “actually litigated.” In her motion for partial summary judgment, Mrs. Phillips asserted that because she did not file an answer to the state court complaint and a default judgment was entered against her, the matter was not “actually litigated.”
In Micco Const. Co. v. Brunett (In re Brunett), 394 B.R. 425 (Bankr.E.D.Mich.2008), I held that “Michigan would give collateral estoppel effect to true default judgments.” Id. at 429. I noted, “[a]n issue is ‘actually litigated’ if it is ‘put into issue by the pleadings, submitted to the trier of fact for determination, and is thereafter determined.’ ” Id. at 428 (quoting Latimer v. William Mueller & Son, Inc., 149 Mich.App. 620, 386 N.W.2d 618, 627 (1986)). Moreover, “[a]n issue may be actually litigated without a trial.” Id. I further observed “that Michigan gives full res judicata effect to true default judgments.” Id. at 429 (emphasis added) (citing Perry & Derrick Co. v. King, 24 Mich. App. 616, 180 N.W.2d 483, 485 (1970) (Res judicata applies to default judgments entered for failure to appear, plead or otherwise defend lawsuit.)). As a result, I concluded, “[tjhere is simply no reason to conclude that Michigan would treat collateral estoppel of a true default judgment any differently.” Id.
On the other hand, Vogel v. Kalita (In re Kalita), 202 B.R. 889, 913 (Bankr.W.D.Mich.1996), concluded that the Michigan courts would not give collateral estop-pel effect to a “true” default judgment. See also Sanford v. Stout (In re Sanford), No. 2:09-cv-12218 (E.D.Mich. Dec. 23, 2009). The bankruptcy court in Kalita considered two Sixth Circuit cases, Spilman v. Harley, 656 F.2d 224 (6th Cir.1981) and Ralley Hill Prods., Inc. v. Bursack (In re Bursack), 65 F.3d 51 (6th Cir.1995). The bankruptcy court noted that in dicta, Spilman stated that a default judgment would not have collateral effect on a subsequent action in bankruptcy court; and that “Bursack left open the question of whether a true default judgment would have pre-clusive effect in a subsequent bankruptcy proceeding.” Id. at 901 (emphasis in original).
The bankruptcy court then analyzed Jacobson v. Miller, 41 Mich. 90, 1 N.W. 1013 (1879), and concluded that in that case, “the Michigan Supreme Court refused to *491apply the doctrine of collateral estoppel in a case that is somewhat analogous to a default judgment.” Id. at 902. In Jacobson, the court held:
[T]he execution of the lease was not denied in the former suit. No issue was made upon it, and the defendant, by not denying it, suffered a default in respect to it which left it wholly outside the issue made and actually passed upon. Consequently it was not and could not have been considered by the court as a point in which that suit was open to controversy.
Kalita, 202 B.R. at 904 (quoting Jacobson v. Miller, 1 N.W. at 1016.). The Kalita court cited this language as evidence that the Michigan Supreme Court would not give preclusive effect to a default judgment. The bankruptcy court stated that “because the defendants [in Jacobson ] had not placed the validity of the lease in issue in the prior suit, there was no collateral estoppel effect in the later suit.” Id.
In the first suit, the plaintiff sued for rents from October 1875 through April 1877. In that suit, Jacobson, one of the defendants, did not challenge whether the lease was valid, but appears to have argued and lost on the issue of whether he occupied the premises. Under applicable court rules at the time, neither party provided any proofs regarding the validity of the lease. Later, the plaintiff sued again for additional rents accrued after the first suit. In the second suit, Jacobson sought to challenge the validity of the lease itself. The trial court prohibited the challenge, holding that the presumption that the lease was valid in the first suit prevented Jacobson from challenging the validity of the lease in the second suit. The Michigan Supreme Court reversed, holding that:
“Various considerations, other than the actual merits, may govern a party in bringing forward ground of recovery or defense in one action which may not exist in another action upon a different demand, such as the smallness of the amount, or the value of the property in controversy, the difficulty of obtaining the necessary evidence, the expense of the litigation, and his own situation at the time. A party acting upon considerations like these ought not to be prelud-ed from contesting in a subsequent action other demands arising out of the same transaction.”
Id. at 1017 (quoting Cromwell v. County of Sac, 94 U.S. 351, 356, 24 L.Ed. 195 (1876)).
The Jacobson case did not involve a default judgment. Rather, it was a case where the defendants chose not to challenge certain facts, as allowed by the court rules at that time. Because those facts were not challenged, they were not placed into issue before the court and thus were not necessary to the judgment. Accordingly, the Michigan Supreme Court found that in a later suit, the defendant was not precluded from litigating those facts for the first time. Accordingly, Jacobson is not authority for the conclusion reached in Kalita that a default judgment is not entitled to collateral estoppel effect.
I conclude that this controversy has been resolved by a subsequent decision of the Michigan Supreme Court. In Barnes v. Jeudevine, 475 Mich. 696, 718 N.W.2d 311 (2006), the court unequivocally stated, “[a] default judgment is just as conclusive an adjudication and as binding upon the parties of whatever is essential to support the judgment as one which has been rendered following answer and contest.” Id. at 315 (citing and quoting with approval, Perry & Derrick Co. v. King, 24 Mich.App. 616, 180 N.W.2d 483, 485 (1970)). This is the strongest possible indication that the Michigan Supreme Court does not distinguish among judgments, whether entered by default or otherwise, in applying the *492preclusive effect of the collateral estoppel doctrine.
In Barms, the plaintiff alleged that he was the biological father of a child that was conceived while the child’s mother was married to another man and that was born four months after the mother’s divorce. The mother’s default judgment of divorce stated that it appeared that “no children were born of this marriage and none are expected.” The question presented was whether that finding precluded the mother from asserting that her ex-husband was the father and whether the plaintiff was therefore precluded from asserting paternity under the Michigan Paternity Act, Mich. Comp. Laws § 722.711, and the ease law construing that Act. The question turned on whether the finding in the divorce judgment was a sufficient finding that the child was not the issue of the marriage. The court held that it was not a sufficient determination and that therefore the plaintiff lacked standing to assert paternity. In so holding, the court relied on its prior decision in Girard v. Wagenmaker, 437 Mich. 281, 470 N.W.2d 372 (1991), which held that “in order for a biological father to establish standing under the Paternity Act, there must be a ‘prior court determination that a child is born out of wedlock.’ ” Barnes, 718 N.W.2d at 314 (quoting Girard, 470 N.W.2d at 372). The court held that the language in the divorce judgment was simply not a prior determination that the child was born out of wedlock.
What is important here is that although the Michigan Supreme Court rejected the plaintiffs collateral estoppel argument, it did so only because the question of the child’s paternity had not been determined in the prior divorce judgment. It did not reject the collateral estoppel argument because the prior divorce judgment was a default judgment. Indeed, as noted above, the court explicitly stated that a default judgment is entitled to the same preclusive effect as a judgment that follows an answer and a contest. Because the Michigan Supreme Court so held, we are bound to that holding in applying collateral estoppel in a nondischargeability action. Accordingly, it was error for the bankruptcy court to hold that because the judgment was a default judgment, collateral estoppel did not preclude Mrs. Phillips from relit-igating whether her injury to Weissert was willful and malicious.
III.
Under Michigan law, “the entry of a default judgment is equivalent to an admission by the defaulting party as to all of the matters well pleaded.” Sahn v. Brisson’s Estate, 43 Mich.App. 666, 204 N.W.2d 692, 694 (1972); Lesisko v. Stafford, 293 Mich. 479, 292 N.W. 376, 377 (1940). The only matters that are not considered actually litigated are those not pled.
In this case, the bankruptcy court properly found that the judgment did have preclusive effect on the issues of liability and damages.2 However, it did not properly apply that same preclusive effect to the determination of whether the debt was for a willful and malicious injury. The bankruptcy court should have examined the factual elements that were pled in the state court complaint to determine whether those elements establish that Weissert’s injury was willful and malicious, and thus, non-dischargeable under § 523(a)(6).
*493The Sixth Circuit Court of Appeals has held, “[djebts arising out of these types of misconduct satisfy the willful and malicious injury standard: intentional infliction of emotional distress, malicious prosecution, conversion, assault, false arrest, intentional libel, and deliberately vandalizing the creditor’s premises.” Steier v. Best (In re Best), 109 Fed.Appx. 1, 4 (6th Cir.2004).
Weissert’s state court complaint includes counts for both intentional infliction of emotional distress and abuse of process (malicious prosecution). It alleges that the Phillips’ statements about Weissert “were false, untrue, willful, intentional, malicious, and/or made with reckless disregard for the truth, and caused the Montcalm County Prosecuting Attorney to charge [Weis-sert] with the felony offense of Criminal Sexual Conduct in the Third Degree.” (State Court Complaint, ¶ 24. Appellant’s App. Vol. I, Tab 6). Additionally, it alleges that the Phillips’ “conduct as outlined above was either intentional and/or a reckless disregard” and “was extreme, outrageous, and of such character as not to be tolerated by a civilized society.” (State Court Complaint, ¶ 29, 30. Appellant’s App. Vol. I, Tab 6).
Accordingly, the factual elements required to find the debt nondischargeable as a “willful and malicious injury” were submitted to the state court as trier of fact, actually litigated and necessary to the judgment. Therefore, Mrs. Phillips is now collaterally estopped from denying these elements in this adversary proceeding. The trial was unnecessary because Mrs. Phillips was precluded from relitigating those issues. The bankruptcy court should have found that the state court judgment was fully preclusive and should have denied Mrs. Phillips’ motion for summary judgment.
Nevertheless, because Weissert was entitled to the judgment that he obtained, I concur in the Panel’s affirmance.

. Mrs. Phillips chose not to address the merits of the collateral estoppel argument in her reply brief in this appeal. Instead, that brief asserted that the issue was dismissed from the appeal when the Panel dismissed Weissert’s cross-appeal for untimeliness. That assertion must be overruled because as discussed in the text, Weissert was not required to file a cross-appeal to preserve the issue for review. See Morley Const. Co. v. Maryland Cas. Co., 300 U.S. 185, 191, 57 S.Ct. 325, 327-28, 81 L.Ed. 593 (1937), and the other cases cited in the text above.

. Indeed, it is worth noting that the Michigan court that entered the default judgment itself gave preclusive effect to the default at issue. At the hearing on damages, the court did not permit Mrs. Phillips to relitigate the facts pled in the complaint to which she defaulted.