Case No. 11-40309, Adv. Pro. No. 11-5787.United States Bankruptcy Court, E.D. Michigan, Southern Division.
September 2, 2011
OPINION AND ORDER DENYING PLAINTIFF’S MOTION FOR RECONSIDERATION
THOMAS TUCKER, Bankruptcy Judge
This adversary proceeding is before the Court on Plaintiff’s “Motion for Reconsideration of the Court’s August 1, 2011 Default Judgment Against Defendant Muriel Melissa Gray,” filed on August 15, 2011 (Docket # 10, the “Motion”), which this Court construes as a motion for partial reconsideration of, for partial relief from, and to alter or amend, the August 1, 2011 Order granting default judgment in favor of Plaintiff (Docket # 8).
The Court has reviewed and considered the Motion, and the Court finds that the Motion fails to demonstrate a palpable defect by which the Court and the parties have been misled, and that a different disposition of the case must result from a correction thereof. See Local Rule 9024-1(a)(3).
Further, the Court finds that the allegations in the Motion do not establish any valid
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ground for relief under Fed.R.Civ.P. 60(b), FedR.Bankr.P. 9024, or under Fed.R.Civ.P. 59(e), FedR.Bankr.P. 9023.
In addition, the Court notes the following. In the Motion, Plaintiff argues that its § 523(a)(2) nondischargeability claim is not moot, and that the Court erred in so holding when it dismissed that claim without prejudice. The claim is not moot, Plaintiff argues, because of the possibility that the Defendant-Debtor (the “Debtor”) might in the future file a Chapter 13 bankruptcy case. Plaintiff argues that in that event, the default judgment as it currently stands, which simply denies Debtor’s discharge in her Chapter 7 case under several provisions of 11 U.S.C. § 727(a), would not preclude a discharge of Debtor’s debt to Plaintiff in the Chapter 13 case.[1] Plaintiff argues that unless the Court adds to the default judgment a determination of nondischargeability under 11 U.S.C. § 523(a)(2), Plaintiff may have to litigate in such a future Chapter 13 case the issue of whether Debtor’s debt to Plaintiff is nondischargeable under 11 U.S.C. § 523(a)(2) (and, therefore, under 11 U.S.C. § 1328(a)(2).)
The Court must reject Plaintiff’s argument, for at least two reasons. First, the Debtor in fact has not filed a Chapter 13 bankruptcy, and it is entirely speculative whether she ever will do so.[2] As matters stand now, therefore, Plaintiff’s § 523(a)(2) nondischargeability claim is moot.
Second, and more fundamentally, Plaintiff’s argument is based on a faulty premise. The
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premise is that if this Court were to grant a default judgment now, in this adversary proceeding, determining that Debtor’s debt to Plaintiff is nondischargeable under § 523(a)(2), such a judgment would preclude Debtor from arguing otherwise in a future Chapter 13 bankruptcy case. This premise is faulty, however, because such a default judgment in this adversary proceeding would not be entitled to any preclusive effect on the § 523(a)(2) issue.
Under the federal common law of collateral estoppel, also known as issue preclusion, a default judgment entered against a defendant in a federal court case in which the defendant did not participate or defend (sometimes called a “true default” judgment,) is not given preclusive effect in later litigation between the parties. See, e.g., Bush v. Balfour Beatty Bahamas, Ltd. (In re Bush), 62 F.3d 1319, 1323 (11th Cir. 1995) (footnote and citations omitted) (“The general federal rule . . . is [that o]rdinarily a default judgment will not support the application of collateral estoppel because `[i]n the case of a judgment entered by confession, consent, or default, none of the issues is actually litigated.'”); Meyer v. Rigdon, 36 F.3d 1375, 1379 (7th Cir. 1994) (“In order to invoke collateral estoppel, an issue must have been `actually litigated’ in the prior action. Accordingly, default judgments are not given preclusive effect in subsequent court proceedings.”); United States v. Gottheiner (In re Gottheiner), 703 F.2d 1136, 1140 (9th Cir. 1983) (citations omitted) (“[T]he default judgment is not given collateral estoppel effect.”).
The result of this is that even if this Court amended the default judgment to include a determination of nondischargeability under § 523(a)(2), the Debtor still would be able to litigate the merits of that issue in a future Chapter 13 case. In effect, the default judgment would mean nothing in such a future case. Thus, the Court’s denial of Debtor’s discharge under § 727(a), in the August 1, 2011 default judgment, does make Plaintiff’s § 523(a) claims moot, including
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Plaintiff’s § 523(a)(2) claim. This Court did not err in so concluding, and there is no valid basis for granting Plaintiff the relief sought in its motion for reconsideration.
For these reasons,
IT IS ORDERED that the Motion (Docket # 10) is DENIED.