Dawn Adams v. James Adam
Filing
Filed opinion of the court by Judge Hamilton. The judgment of the district court is REVERSED and the case is REMANDED for further proceedings consistent with this opinion. Richard A. Posner, Circuit Judge; Ilana Diamond Rovner, Circuit Judge and David F. Hamilton, Circuit Judge. [6541154-1] [6541154] [13-1636]
Case: 13-1636
Document: 31
Filed: 12/27/2013
Pages: 11
In the
United States Court of Appeals
For the Seventh Circuit
No. 13‐1636
DAWN MARIE ADAMS,
Creditor‐Appellant,
v.
JAMES GREGORY ADAMS,
Debtor‐Appellee.
Appeal from the United States District Court for the
Southern District of Indiana, Terre Haute Division.
No. 2:12‐cv‐130‐WTL‐WGH— William T. Lawrence, Judge.
ARGUED SEPTEMBER 9, 2013 — DECIDED DECEMBER 27, 2013
Before POSNER, ROVNER, and HAMILTON, Circuit Judges.
HAMILTON, Circuit Judge. In this bankruptcy appeal, creditor
Dawn Marie Adams appeals from the bankruptcy court’s
denial of her claim against the estate of debtor James Gregory
Adams, her former husband and business partner. (Since the
parties have the same last name, we refer to them here as
Dawn and Greg.) The state courts of Georgia decided three
times in three final judgments that Greg still owed money to
Dawn after they divorced and unwound their “monster truck”
Case: 13-1636
Document: 31
Filed: 12/27/2013
2
Pages: 11
No. 13‐1636
business. The bankruptcy court heard evidence on the merits
of Dawn’s claim, though, and denied it as inequitable. The
district court affirmed, and Dawn appeals.
Because the decisions of the bankruptcy court and the
district court were final orders as to Dawn’s claim, we have
jurisdiction over her appeal pursuant to 28 U.S.C. §158(d). We
find that the issues concerning the validity of Dawn’s claim
were previously adjudicated in the state courts and that the
doctrine of issue preclusion prevented the bankruptcy court
from rehearing those issues. Accordingly, we reverse and
remand for further proceedings.
Procedural History
Debtor Greg Adams and creditor Dawn Adams had been
married for about three years when they were divorced in 2004
by an order of the Superior Court of Jasper County, Georgia.
The divorce decree and a 2006 modification required Greg to
pay Dawn $61,295, secured by a note and a security agreement
in certain trucks and equipment (including a “‘Monster Truck’
with a Summit Motor installed and currently identified as the
‘Annihilator’”).
Greg failed to pay the judgment, however, and in 2007
Dawn sued him for breach of the note and security agreement
in the Superior Court of Upson County, Georgia, where Greg
had relocated. Greg asserted in his answer that the note had
been paid in full, but he failed to appear for trial. The Upson
County court entered judgment against him on June 27, 2008
and reduced all of Dawn’s claims to a single judgment of
$97,091. Greg did not appeal from the 2008 Upson County
judgment.
Case: 13-1636
No. 13‐1636
Document: 31
Filed: 12/27/2013
Pages: 11
3
While the Upson County proceeding was pending, Dawn
also filed a motion for contempt against Greg in Jasper County,
where the divorce had been finalized, for his failure to pay the
monthly alimony payments that were due under the divorce
decree and secured by the note.1 Greg again filed an answer
asserting that Dawn had been paid in full. After a hearing, the
Jasper County court found that as of February 17, 2009 (the
date of the order), Greg owed $41,096.39 in alimony, as well as
past‐due life insurance premiums, costs, interest, and attorney
fees. The court found Greg in contempt and ordered him to
pay the amount due or face incarceration. Greg paid over
$50,000 toward that judgment, but a balance on the Upson
County judgment remained unpaid.
By the spring of 2010, Greg had moved to Putnam County,
Indiana. Dawn then sought to enforce the June 2008 Upson
County judgment by registering it in the Putnam Circuit Court.
That court also ruled in Dawn’s favor, finding that Greg’s
“general denials/defense[s] are hereby overruled” and that the
Upson County judgment was properly registered and entitled
to full faith and credit for purposes of collection. Greg did not
appeal.
Greg then sought to set aside the judgment in Georgia back
in the Superior Court of Upson County. He argued that the
Upson County judgment had been fully satisfied by the
payment he had made towards the Jasper County contempt
1
We do not know why these cases were not consolidated, or whether the
Upson County and Jasper County courts were aware of the seemingly
parallel actions before them. Those questions do not affect the issues before
us, however.
Case: 13-1636
4
Document: 31
Filed: 12/27/2013
Pages: 11
No. 13‐1636
finding and that Dawn was attempting to perpetrate a fraud.
The Upson County court denied Greg’s motion, found it
“without merit,” and ruled in a final order dated February 19,
2010 that Greg owed Dawn a balance of $69,107.31. Again,
Greg did not appeal. When Greg again refused to pay, Dawn
filed a second contempt proceeding against him in Upson
County. Greg appeared and argued that the Upson County
judgment had been satisfied by the Jasper County payment
and that the Upson County contempt proceeding was barred
by res judicata (claim preclusion). The Upson County court
rejected Greg’s argument, found him in willful contempt, and
on April 1, 2011 ordered him to pay $74,612.25 plus attorney
fees.
Once again, Greg did not appeal or make payment. Instead,
he filed for relief under Chapter 13 of the Bankruptcy Code in
the Southern District of Indiana. Dawn filed a Proof of Claim
for $74,612.25. Greg objected, arguing that Dawn’s claim had
“been satisfied through a variety of transactions which have
occurred between the parties.” Dawn responded that Greg’s
defenses had been fully and finally litigated in the Georgia
state court actions and that his objection to her claim was
barred by preclusion principles. The bankruptcy court sided
with Greg and rejected Dawn’s claim. In spite of the three final
and unappealed rulings against Greg, the court said: “I can
always hear what the value of a claim is.” The bankruptcy
court heard Greg’s argument that the state courts had not
properly credited him with certain payments and that the
agreements underlying the judgments had been obtained
under duress. The bankruptcy court then rejected Dawn’s
claim, stating:
Case: 13-1636
Document: 31
Filed: 12/27/2013
Pages: 11
No. 13‐1636
5
I’m going to solve the problem by letting the Chap‐
ter 13 continue, and denying the claim, because I
don’t know whether the claim has really totally been
paid in full, but it’s no $69,000 claim. And I see on
the claim that the—that all of the notices go out to …
Sheridan, Wyoming and … Monticello, Georgia. I’ve
never seen this…Dawn Marie Adams, and her claim
is denied. I note that on Exhibit 21...is a money order
for $51,000, and after you take all those exhibits and
add them up, what’s submitted here was well over
$200,000. And I couldn’t quite determine whether
that included the $51,000 or not, but there have been
thousands—over—there’s been over $250,000 paid
in this case, no question about it, for a marriage that
was about 28 months.
Dawn appealed the bankruptcy court’s ruling to the district
court. The district court affirmed, finding that the bankruptcy
court had the power to inquire into the validity of Dawn’s
claim and that she had failed to prove her claim by a prepon‐
derance of the evidence. Adams v. Adams, 2013 WL 752928, at
*3–4 (S.D. Ind. Feb. 27, 2013). Dawn appeals.
Analysis
Dawn Adams argues that the bankruptcy court was
precluded from rehearing Greg’s defenses pursuant to the
doctrine of issue preclusion. We agree. Accordingly, we
reverse for further proceedings.2
2
Because we find that the bankruptcy court’s reconsideration of the state
(continued...)
Case: 13-1636
6
Document: 31
Filed: 12/27/2013
Pages: 11
No. 13‐1636
Whether Greg’s various defenses to Dawn’s claim against
his bankruptcy estate were litigated and resolved in the
Georgia state courts, as required for application of issue
preclusion, is a question of law that we review de novo.
Reeves v. Davis (In re Davis), 638 F.3d 549, 553 (7th Cir. 2011);
Tidwell v. Smith (In re Smith), 582 F.3d 767, 777 (7th Cir. 2009)
(appellate court applies the same standard of review that the
district court did, examining bankruptcy court’s determina‐
tions of law de novo and findings of fact for clear error).
Dawn’s claim against Greg’s bankruptcy estate is sup‐
ported by several judgments of the Georgia state courts that
culminated in the Upson County court’s judgment of April 1,
2011 that Greg owed Dawn $74,612.25. In the Georgia state
courts, Greg raised several defenses to Dawn’s suits, including
that he had not been credited for payments he had made
toward what he owed and that the obligations underlying the
judgments were procured by duress and fraud. Those argu‐
ments, predicated on the argument that the Georgia state court
decisions in Dawn’s favor were wrong, were heard and
rejected by the Georgia courts.
Issue preclusion principles apply to prevent the relitigation
of issues in bankruptcy proceedings, just as they do in other
2
(...continued)
court judgments was barred under issue preclusion, we need not address
Dawn’s alternative argument based on claim preclusion (res judicata). We
reject her reliance on the Rooker‐Feldman doctrine, which challenges the
bankruptcy court’s subject matter jurisdiction. The bankruptcy court had
jurisdiction over Greg’s bankruptcy estate under 28 U.S.C. §1334, and Dawn
submitted her claim to that court’s jurisdiction.
Case: 13-1636
Document: 31
Filed: 12/27/2013
No. 13‐1636
Pages: 11
7
cases. See In re Bulic, 997 F.2d 299, 303–04 (7th Cir. 1993)
(applying issue preclusion to prevent debtors from relitigating
issues decided by Indiana state court); see also Grogan v.
Garner, 498 U.S. 279, 284 n. 11 (1991) (“Our prior cases have
suggested, but have not formally held, that the principles of
collateral estoppel [issue preclusion] apply in bankruptcy
proceedings under the current Bankruptcy Code …. We now
clarify that collateral estoppel [issue preclusion] principles do
indeed apply in discharge exception proceedings pursuant to
§ 523(a).”). Dawn argues that the bankruptcy court erred by
failing to apply issue preclusion here.
To determine whether issue preclusion applied, we look to
the preclusion law of the state where the judgment was
rendered. 28 U.S.C. §1738; Kremer v. Chemical Construction
Corp., 456 U.S. 461, 481–82 (1982). Georgia preclusion law
applies here.
Under Georgia law, the doctrine of issue preclusion, also
known as collateral estoppel,
precludes the re‐adjudication of an issue that has
previously been litigated and adjudicated on the
merits in another action between the same parties or
their privies. Like res judicata [claim preclusion],
collateral estoppel [issue preclusion] requires the
identity of the parties or their privies in both actions.
However, unlike res judicata [claim preclusion],
collateral estoppel [issue preclusion] does not
require identity of the claim—so long as the issue
was determined in the previous action and there is
Case: 13-1636
8
Document: 31
Filed: 12/27/2013
Pages: 11
No. 13‐1636
identity of the parties, that issue may not be
re‐litigated, even as part of a different claim.
Shields v. BellSouth Advertising & Publishing Corp., 545 S.E.2d
898, 900 (Ga. 2001), quoting Gwinnett County Bd. of Tax Asses‐
sors v. General Electric Capital Computer Svcs., 538 S.E.2d 746, 748
(Ga. 2000).
Here, the Upson County court entered judgment against
Greg not just once but three times, though once would have
been enough to support issue preclusion. With each judgment,
the Georgia state court heard and rejected Greg’s defenses,
finding that he was granted all credits he was due and that his
obligation to Dawn was not procured by fraud or duress. The
bases of Greg’s objection to Dawn’s claim against his bank‐
ruptcy estate thus are identical to the defenses that the state
court considered and rejected. The parties and the issues are
identical, and under Georgia law issue preclusion applies.
We find this case indistinguishable from In re Bulic,
997 F.2d 299, 303–05 (7th Cir. 1993), in which we found that
issue preclusion applied in a bankruptcy proceeding to
foreclose the bankruptcy court’s reconsideration of a state
court’s prior judgment that the bankruptcy debtors owed their
creditor civil damages. The debtors argued before the bank‐
ruptcy court that the creditor’s claim against their bankruptcy
estate was based on a state court judgment that had been
procured by fraud, deceit, and perjury. Id. at 303. They argued
that the bankruptcy court should have re‐examined the
validity and amount of the creditor’s claim under its general
equitable powers. We found that reliance on “general equitable
principles, independent of the [bankruptcy] code, is insuffi‐
Case: 13-1636
No. 13‐1636
Document: 31
Filed: 12/27/2013
Pages: 11
9
cient.” Id. at 304, citing Norwest Bank Worthington v. Ahlers,
485 U.S. 197, 206 (1988). The bankruptcy court’s equitable
powers were limited by 28 U.S.C. §1738, requiring that state
court judgments be given full faith and credit in the federal
courts as they would in the state that issued them. Because the
Indiana courts would have found the state court judgment in
the creditor’s favor precluded further litigation of the issues
decided in the state court leading to the underlying judgment,
the bankruptcy court was also required to preclude further
litigation of those issues.
Though there are a few narrow exceptions to the applica‐
tion of issue preclusion in bankruptcy cases, Greg does not
argue that any of these exceptions apply. He does not argue,
for instance, that the Upson County court lacked jurisdiction to
hear Dawn’s suit. See Bulic, 997 F.2d at 304–05, quoting
Heiser v. Woodruff, 327 U.S. 726, 736 (1946) (“Undoubtedly,
since the Bankruptcy Act authorizes a proof of claim based on
a judgment, such a proof may be assailed in the bankruptcy
court on the ground that the purported judgment is not a
judgment because of want of jurisdiction or because it was
procured by fraud of a party.”). He also does not argue that
Dawn procured the Upson County judgment by fraud on the
court. Bulic, 997 F.2d at 305 (distinguishing fraud on the court
in Heiser from previously‐litigated fraud on a party: “the only
allegations of fraud were not of fraud upon the court, but of
perjury at trial and coercion in obtaining the promissory notes.
Thus the only issues of fraud…were fully litigated and decided
by the state court judgment.”). Greg argues only that the
Upson County court’s order is silent concerning his defenses,
so “whether those issues were ‘actually litigated and adjudi‐
Case: 13-1636
10
Document: 31
Filed: 12/27/2013
Pages: 11
No. 13‐1636
cated’ is uncertain.” Georgia courts, however, apply issue
preclusion both when an issue was actually adjudicated and
“when an issue necessarily had to be decided in order for the
previous judgment to have been rendered.” Allen v. Santana,
695 S.E.2d 314, 317 (Ga. App. 2010), quoting Waldroup v. Greene
County Hosp. Auth., 463 S.E.2d 5, 7 (Ga. 1995). Greg’s de‐
fenses—regarding credits toward the balance he owed and
whether the underlying obligation was procured by du‐
ress—necessarily had to be decided for the Upson County
court to reach its judgment.
Greg also argues that state law preclusion principles are
secondary to the bankruptcy court’s interest in ensuring that a
bankruptcy claimant does not receive a windfall, relying on In
re Witte, 841 F.2d 804 (7th Cir. 1988). But Witte is inapposite,
and Greg’s attempt to expand it would amount to a broad
command to bankruptcy courts to allow relitigation of issues
and claims already resolved by other courts. The creditor in
Witte had repossessed the debtor’s farm. Yet, the creditor
attempted also to pursue a claim against the bankruptcy estate
based on the debtor’s missed payments toward an installment
contract on the farm. We rejected that attempt on the ground
that the creditor had made an election of remedies in the state
courts by repossessing the farm, so the creditor could not also
seek payments under the parties’ installment contract. See
841 F.2d at 808. Had the creditor been permitted to pursue his
claim, he would have received what would have amounted to
an inequitable double recovery.
Here it is undisputed that between the time of the final
Upson County judgment in 2011 and Greg’s bankruptcy
petition, Greg did not pay Dawn any amounts toward the
Case: 13-1636
No. 13‐1636
Document: 31
Filed: 12/27/2013
Pages: 11
11
Upson County judgment. Dawn seeks in the bankruptcy only
what the Upson County court determined she was owed, not
the sort of duplicate remedies that were sought in Witte.
In sum, though Greg Adams had the opportunity to appeal
the Georgia state court judgments, he did not avail himself of
that opportunity. Instead, he filed for bankruptcy, but that is
not a substitute for timely appeals of the state court judgments.
The doctrine of issue preclusion (collateral estoppel) bars him
from using the bankruptcy system to have his defenses reheard
despite the state courts’ rejection of those defenses.
The judgment of the district court is REVERSED and the
case is REMANDED for further proceedings consistent with
this opinion.
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?