Young et al v. Jex

OCR transcription for search; preserved printed pages are authoritative

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO

PACER Cover Sheet
for Electronically Filed Documents

Any data shown here are current as of 06/10/06 . Any element of information on this form,
except the received date, is subject to change as changes may be made to the Court's official docket.

Case Title. Chnistopher B. Young, etal. v. James P. J ex

Case Number: 04-01212

Description: Memorandum Opinion re: [20-1] Motion To Compel Discovery by James P. Jex.
Received on: 2006-01-26 10:17:26.000
Date Filed: 2006-01-25 00:00:00.000

Date Entered On 2006-01-26 00:00:00.000
Docket:

| Filer Information

Submitted By: Conversion of Data from ACE legacy system

If this form is attached to the document identified above, it serves as an endorsed copy of the
document as it exc existed on the above date. ‘To confirm that nothing has changed since then,
review

AUTHENTICA

ee 04-01212-s Doc40 Filed 01/25/06 Entered 01/26/06 09:15:00 Page 1 of 8

FILED

at _o'clock M
UNITED STATES BANKRUPTCY COURT J _
FOR THE DISTRICT OF NEW MEXICO JAN @ 3 2908
In re: United States Bankruptcy Court
JAMES P. JEX, Albuquerque, New Mexico
Debtor. No. 7-04-14606 SR
CHRISTOPHER R. YOUNG et al.,
Plaintiffs,
Vv. Adv. No. 04-1212 S

JAMES P. JE,
Defendant.

MEMORANDUM OPINION ON DEFENDANT’S
MOTION TO COMPEL DISCOVERY and ORDER

This matter is before the Court on Defendant’s Motion to
Compel Discovery (doc. 20). Defendant appears through his
attorney Donald D. Becker. Plaintiffs appear through their
attorney Zachary E. McCabe. The Court has considered the
briefs submitted (docs. 25, 27, 29, and 31), the file, and the

appropriate legal authorities and now issues this memorandum

os

opinion. This is a core proceeding. 28 U.S.C. § 157(b) (2) (T)
and (J).
BACKGROUND

In 2003 Plaintiffs filed an action in the United States
District Court for the District of Colorado against Defendant
seeking damages for negligence/ medical malpractice (count 1),
lack of informed consent (count 2) and loss of consortium
(count 3). Federal jurisdiction arose from diversity of

citizenship. Defendant was personally served but did not

, Case 04-01212-s Doc40 Filed 01/25/06 Entered 01/26/06 09:15:00 Page 2 of 8

respond. The District Court entered an Order to Show Cause
and Defendant did not respond. Plaintiffs moved for and
received a default judgment. On January 30, 2004, the Court
heard argument and conducted a hearing on damages. The Court
entered Findings of Fact and Conclusions of Law, finding
Plaintiffs’ losses and damages to be $4,344,464.26. Default
Judgment was entered in favor of Plaintiffs against Defendant
in the amount of $2,000,000.00.

Defendant filed a chapter 7 proceeding in the District of
New Mexico on June 21, 2004. This adversary proceeding was
timely filed, seeking a determination of the dischargeability
of Plaintiffs’ claim under sections 523(a) (2), (4) and (6) and
seeking a denial of discharge under section 727. Discovery
commenced. Defendant sought discovery on the issues of
causation and damages. Plaintiff responded that these matters
were not discoverable, and that the only issue is whether the
judgment entered in Colorado is dischargeable. Defendant
seeks to compel.
DISCUSSION

The real issue in this case is whether the default
judement has collateral estoppel effect in this adversary
proceeding. If the default judgement were entered in state

court, the Bankruptcy Court would look te the law of the state

Page -2-

Case 04-01212-s Doc40 Filed 01/25/06 Entered 01/26/06 09:15:00 Page 3 of 8

rendering the judgment to determine the preclusive effect,
pursuant to 28 U.S.C. § 1728 (Full Faith and Credit Statute).

Sea, e.q., State Farm Fire and Casualty Co. v. Fdie {Jn re

Edie), 314 B.R. 6, 12 (Bankr. D. Utah 2004) (Utah Bankruptcy
Court looks to California law to determine preclusive effect
of California default judgment.)

The United States Supreme Court in 2001 ruled that the
oreclusive effect of a federal diversity judgment is
determined by the state law that would be applicd by the state
court in the state in which the federal diversity court sits.

Semtek Int'l Inc. v. Lockheed Martin Corp., 532 U.S. 497, 508

(2001). See also Matosantos Commercial Corp. v. Applebee's

Int’), Ine., 245 F.3d 1203, 1208 (26° Cir. 20061) (discussing

Semtek). Therefore, in this case, the preclusive effect of
the federal default judgment is determined by reference to
Colorado law.

The doctrine of collateral estoppel precludes
relitigation of an issue that was already litigated
and decided in a previous proceeding. Bebo Constr.
Co. v. Mattox & O'Brien, P.Cc., 990 P.2da 78 (Colo.
1999). The following Iactors must be satisfied to
apply the doctrine: (1) the issue precluded is
identical to an issue actually determined in the
prior proceeding; (2) the party against whom
estoppel is asserted was a party in the prior
proceeding; (3) there is a final judgment on the
merits in the prior proceeding; and (4) the party
against whom estoppel is asserted had a full and
fair opportunity to litigate the issue in the prior

Page -j3-

Case 04-01212-s Doc40 Filed 01/25/06 Entered 01/26/06 09:15:00 Page 4 of 8

proceeding. Union Ins. Co. v. Hottenstein, 83 P.3d
1196, 1202 (Colo. App.2003).

Grynberg v. Arkansas Oklahoma Gas Corp., 116 P.3d 1260, 1263

(Colo. App.), cert. denied, 2005 WL 1864128 (2005).* See also

Sunny Acres Villa, Inc. v. Cooper, 25 P.3d 44, 47 {Colo.

2001) {En banc.)

Colorado default judgments routinely have preclusive
effect because it is only necessary that the defaulting party
have had a full and fair opportunity to litigate.* See Ortega

v._ Board of County Com'rs of Costilla County, 6823 P.2d 819,

‘Compare Shovelin v. Central New Mexico Blec. Co-op...

Inc., 115 N.M. 293, 297, 850 P.2d 996, 10600 (1993):
Before collateral estoppel is applied to preclude
litigation of an issue, however, the moving party
must demonstrate that (1) the party to be estopped
was a party to the prior proceeding, (2) the cause
of action in the case presently before the court is
different from the cause of action in the prior
adjudication, (3) the issue was actually litigated
in the prior adjudication, and (4) the issue was
necessarily determined in the prior litigation.
Silva v. State, 106 N.M. 472, 474-76, 745 P.2d 380,
382-84 (1987). If the movant introduces sufficient
evidence to meet all elements of this test, the
trial court must then determine whether the party
against whom estoppel is asserted had a full and
fair opportunity to litigate the issue in the prior
litigation. Id. at 474, 745 P.2d at 382.

New Mexico requires “actual litigation”; Colorado requires a

full and fair opportunity to litigate.

“Compare Blea v. Sandoval, 107 N.M. 554, 558, 761 P.2d
432, 436 (Ct. App.), cert. denied, 107 N.M. 413, 759 P.2d 200
{1988} (“In New Mexico, we recognize that default judgments do
not have collateral estoppel effect in future litigation,
although they may have res judicata effect."}

Page -4-

Case 04-01212-s Doc40 Filed 01/25/06 Entered 01/26/06 09:15:00 Page 5 of 8

821 (Colo. App., 1984); Evans _v. Dunston (in re Dunston), 146

B.F. 269, 277 (D. Colo. 1992); Hoyt v. Mathias (In re

Mathias), 2001 WL 936345, *2 (Bankr. D. Colo. 2001}; Pacific

Ltd. v. Austin (In re Austin), 93 B.R.

Energy and Minerals

723, 725 n.2 (Bankr. D. Colo. 1988}.

APPLICATION

In this adversary proceeding, Plaintiffs seek a
determination of dischargeability on the bases of “false
pretenses, a false representation or actual fraud”, “fraud or
defalcation while acting in a fiduciary capacity,
embecrclement, or larceny” and “willful and malicious injury.”
They seek denial of discharge on the basis of “transferred or
concealed property and/or failure to explain deficiency of
assets to meet debtor’s liabilities.” None of these issues
were present in the Colorado Federal District Court case and
therefore cannot be precluded. Defendant must be allowed
discovery on these issues.

The damages issue, however, wag litigated and resulted in
a final judgment that Colorado law would deem preclusive. It
might be argued that a finding and judgment that the debt is
nondischargeable under Section 523(a) could lead to additional
or greater damages than already awarded in the Colorado

action, and thus discovery on damages should be allowed.

Page -5-

Case 04-01212-s Doc40 Filed 01/25/06 Entered 01/26/06 09:15:00 Page 6 of 8

However, such an argument would misapprehend the function of a
section 523 action. Plaintiff has already filed a complaint
and obtained the determination of liability and damages to
which he is entitled. He is precluded from now arguing that
he is entitled to damaces in addition to those awarded in the
Colorado action. The causes of action asserted pursuant to
subsections (2), (4) and (6} of section 523 do not constitute
additional bases for liability and therefore for damages;
rather, they merely constitute characterizations or
classifications by which the liability and resulting damages
already determined by the Colorado court are excepted from
discharge.’ Therefore, Defendant may not seek disccvery on
the damages issues.

ORDER

2

Tt is true that in cases where no judgment has been
entered prior to the filing of the adversary complaint, some
plaintiffs seek determinations of liability and damages from
bankruptcy courts in the context of § 523[(a) actions rather
than going back to the non-bankruptcy court forum for those

determinations. Even assuming this practice is correct,
compare Lang v. Lan In re Lang), 293 B.R. 501, 516-17 (10°

Cir. B.A.P. 2003) {holding that bankruptcy courts have
jurisdiction to render judgments on liability and damages)
wath id. at 520-23 (Bchanon, J., dissenting from that holding)
and Porter Capital Corporation v. Hamiiton (In re Hamilton},
282 B.R. 22 (Bankr. W.D. Okla. 2002) (same), the determination
of nondischargeability by itself is still not a cause of
action that results in damages.

Page -6-

Case 04-01212-s Doc40 Filed 01/25/06 Entered 01/26/06 09:15:00 Page 7 of 8

IT IS ORDERED that Defendant may seek discovery on the
issues related to dischargeability of the debt or to
discharge, but may not seek further discovery on the issue of
damages.

Where
f ) (dain —_—

Honorable James S. Starzynski
United States Bankruptcy Judge

I hereby certify that on January 25, 2006, a true and correct
copy of the foregoing was electronically transmitted, faxed,
delivered, or mailed to the listed counsel and/or parties.

Zachary E McCabe
1120 Lincoln St Ste 1100
Denver, CO 80203-2139

Donald D Becker
3723 Eubank Blvd NE
Albuquerque, NM 87111-3536

M. Robin Repass

1120 Lincoln St Ste 1100
Denver, CO 80203-2139
Robert Johnson

Johnson & Nelson, PC

PO Box 25547
Albuquerque, NM 87125

Soante® Mathes

Page -7-

Case 04-01212-s Doc40 Filed 01/25/06 Entered 01/26/06 09:15:00 Page 8 of 8