977 F.

2d 595
NOTICE: Although citation of unpublished opinions remains unfavored,
unpublished opinions may now be cited if the opinion has persuasive value on a
material issue, and a copy is attached to the citing document or, if cited in oral
argument, copies are furnished to the Court and all parties. See General Order of
November 29, 1993, suspending 10th Cir. Rule 36.3 until December 31, 1995, or
further order.

In re Norman Gerard HANSEN, Debtor.

Harry NIER, Appellee,
v.
Norman Gerard HANSEN, Appellant.
No. 91-1349.

United States Court of Appeals, Tenth Circuit.

Sept. 30, 1992.

Before McKAY, Chief Judge, and BARRETT, Circuit Judge, and

BRIMMER, * District Judge.
ORDER AND JUDGMENT**
McKAY, Circuit Judge.

After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination
of this appeal. See Fed.R.App.P. 34(a); 10th Cir.R. 34.1.9. The case is therefore
ordered submitted without oral argument.

This is an appeal from a final judgment of the district court, reversing a ruling
of the bankruptcy court. This court has jurisdiction to consider the appeal under
28 U.S.C. 158(d) and 1291.

Mr. Nier obtained a state court judgment for $80,600 against Mr. Hansen by
Stipulation and Confession for Entry of Judgment on one contract and two
fraud claims. The Stipulation and Confession included no factual findings.
After the judgment was entered, Mr. Hansen filed for bankruptcy under

Chapter 11.
4

In this adversary proceeding, Mr. Nier seeks a determination that his state court
judgment, because it is based on allegations of fraud and willful and malicious
injury, is not dischargeable under 11 U.S.C. 523(a)(2) and (a)(6). Mr.
Hansen attempted to raise a defense to Mr. Nier's complaint on the ground that
his confession of liability on the fraud claims is not an admission of the
elements of the claims. The bankruptcy court determined that Mr. Hansen was
not collaterally estopped from raising a defense; the district court reversed. Mr.
Hansen appeals from the judgment of the district court concluding that he is
collaterally estopped from raising a defense to the claim of nondischargeability
of the state court judgment.

The district court carefully considered Mr. Hansen's arguments. In its

Memorandum Opinion and Order entered August 29, 1991, the district court
determined that 1) the issue to be precluded was the same as that involved in
the prior state action, 2) the issue was actually litigated by the parties in the
prior action, and 3) the state court's determination of the issue was necessary to
the resulting final and valid judgment. See Klemens v. Wallace (In re Wallace),
840 F.2d 762, 765 (10th Cir.1988). The court therefore concluded that Mr.
Hansen was collaterally estopped from raising a defense, reversing the decision
of the bankruptcy court. The district court's discussion of the issues was
thorough and well-reasoned.

Mr. Hansen makes the same arguments on appeal as in the district court. We
have considered them carefully and affirm the order of the district court
reversing the ruling of the bankruptcy court for substantially the same reasons
set forth in the district court's Memorandum Opinion and Order, entered August
29, 1991, a copy of which is attached.

The judgment of the United States District Court for the District of Colorado is
AFFIRMED.

ATTACHMENT
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 89-K-1707
Bankruptcy No. 88-B-13073-J

Adversary No. 89-J-110

8In Re Norman Gerard Hansen, Debtor.
9Harry Nier, Plaintiff-Appellant,
v.
10
Norman Gerard Hansen, Defendant-Appellee.
11
Aug. 29, 1991
MEMORANDUM OPINION AND ORDER
12

Before me is an appeal of the bankruptcy court's decision rejecting appellant's

argument that the debtor is collaterally estopped from relitigating issues settled
in state court. Appellant is a judgment creditor of the debtor. The judgment
arose from a state court action the appellant filed against the debtor. That suit
ended with the debtor signing a "Stipulation and Confession for Entry of
Judgment." Now in the bankruptcy court, the debtor seeks to relitigate whether
he committed fraud and a willful/malicious injury. I conclude the confession of
judgment collaterally estopped the debtor from relitigating the fraud and
willful/malicious injury issues. Hence, the bankruptcy court is reversed.

13

In October, 1984, the debtor purchased real property from the appellant and
executed a promissory note in partial payment for the purchase. The other form
of payment was a stock exchange agreement. Under this agreement,
restructured shares of stock in a company known as Diamond Hill Industries
would be offered as payment. Later, in an all too familiar scenario, the due date
on the promissory note passed without activity. The stock proved worthless.
Appellant sued.

14

In a complaint filed in District Court, City and County of Denver, appellant set
out three claims for relief. First, appellant claims debtor breached the terms of
the promissory note for $80,600. Second, debtor made fraudulent
misrepresentations which damaged the appellant in the amount of $20,000.
Third, debtor fraudulently induced appellant to enter into the real estate
contract by touting what he knew was worthless stock.

15

On the eve of trial, the parties settled. In paragraph one of the "Stipulation and
Confession for Entry of Judgment," debtor "confesses to liability on Plaintiff's
First, Second, and Third Claims for relief as pleaded herein and to

compensatory damages relating thereto in the amount of $80,600 plus

interest...." After the judgment was entered, debtor filed a voluntary Chapter 7
bankruptcy petition.
16

Now a judgment creditor, appellant filed his objection to the discharge debt in
the bankruptcy court. Appellant argued his claim was non-dischargeable under
the terms of 11 U.S.C. 523(a)(2) and (a)(6) (1979 and Supp.1991). These
provisions of the bankruptcy code protect certain forms of debt from discharge.

17 A discharge under section 727, 1141, 1228(b) or 1328(b) of this title does not
(a)
discharge an individual debtor from any debt-- ...
18 for money, property, services, or an extension, renewal, or refinancing of credit,
(2)
to the extent obtained by-19

(A) false pretenses, a false representation or actual fraud, other than a statement
respecting the debtor's or an insider's financial condition; ...

20 for willful and malicious injury by the debtor to another entity or to the property
(6)
of another entity.
21

Debtor confessed judgment to all three of plaintiff's claims. Within those

claims, appellant alleged the same facts required to prove an exception to
discharge under 523. Hence, appellant argued the debtor is collaterally
estopped from denying fraud and willful/malicious injury. Thus, the judgment
debt is non-dischargeable.

22

The bankruptcy court disagreed. He ruled the confession for entry of judgment
admitted debtor's liability and nothing else. In a written order dated September
22, 1989, further, the judge refused to estop the debtor collaterally from
asserting defenses to appellants non-dischargeability claim.

23

The issue is whether a state court judgment should be given preclusive effect in
a bankruptcy proceeding. Since October 27, 1989, the bankruptcy court
proceedings have been stayed. On May 17, 1990, I granted leave to appeal the
interlocutory order on this issue. Because I am reviewing the bankruptcy court's
conclusion of law, I review the decision de novo.

24

The collateral estoppel issue was addressed in the recent decision, Nelson v.
Tsamasfyros (In re Tsamasfyros), No. 90-1167 (10th Cir., August 5, 1991). In
that case, the state trial court specifically found the debtor's breach of his

fiduciary duties were attended by circumstances of fraud and wanton disregard

or reckless disregard of the plaintiff's rights and feelings. The Tenth Circuit
concluded these findings demonstrated the factual showing of fraud necessary
to invoke non-discharge of debt under 11 U.S.C. 523(a)(4). In bankruptcy, the
debtor was collaterally estopped from relitigating the presence of fraud.
25

The present case adds an additional wrinkle. In Tsamasfyros, the court had the
benefit of detailed findings by the trial court. Here, I apply only the terms of a
confession of judgment to the fraud provisions of 523. A review of the case
law applying the principle of collateral estoppel to bankruptcy proceedings
convinces me the result is the same.

26

In Brown v. Felsen, 442 U.S. 127 (1979), the Supreme Court discussed res
judicata and collateral estoppel effect of state court pronouncements on the
bankruptcy court. The Court held res judicata cannot prohibit the debtor from
presenting additional evidence. Bankruptcy, the Court held, is a new defense
and the entire claim cannot be precluded from being heard. Collateral estoppel,
however, is about issue preclusion. If the state trial court resolved a factual
issue, it is duplicative to re-litigate the same factual issue in a fresh forum.

27
[C]ollateral
estoppel treats as final only those questions actually and necessarily
decided in a prior suit. If, in the course of adjudicating a state-law question, a state
court should determine factual issues using standards identical to those of 17 [of
the former Bankruptcy Act; similar to section 523 of the present Bankruptcy Code],
then collateral estoppel, in the absence of countervailing statutory policy, would bar
relitigation of these issues in the bankruptcy court.
28

Brown, 442 U.S. at 139 nt. 10 (footnotes omitted).1

29

The Tenth Circuit in Klemens v. Wallace (In re Wallace), 840 F.2d 762 (10th
Cir.1988) determined that while the bankruptcy court ultimately decides if a
debt is dischargeable under 523, collateral estoppel may be invoked to
prevent a party from relitigating settled facts. The court then announced three
conditions which, if satisfied, result in a party being bound by previous
litigation: "1) the issue to be precluded is the same as that involved in the prior
state action, 2) the issue was actually litigated by the parties in the prior action,
and 3) the state court's determination of the issue was necessary to the resulting
final and valid judgment." Wallace, 840 F.2d at 765.

30

The issue in state court to be compared with the language of 523 is: 1) did the
debtor obtain property by fraud, and 2) did the debtor willfully and maliciously

injure the appellant. The requirements to prove common law fraud in Colorado
are the same as the elements to establish non-dischargeability under 523 and
need not be repeated here. See Northwestern National Insurance Co. v.
Barnhart (In re Barnhart), 112 Bankr. 392, 394 (D.Colo.1990).
31

Appellant's complaint, in essence, states the debtor purchased real property

from the appellant. The debtor misrepresented the value of the consideration he
offered in exchange for the property. Furthermore, appellant alleges debtor
never intended to compensate him for the property appellant sold. Appellant
accuses the debtor of committing fraud and describes various acts of the debtor
which satisfy the elements of fraud.

32

The second and third claims in the appellant's complaint speak to the debtor's
intentional misrepresentation of his plans to mortgage the property and the
value of the stock offered for its purchase. Section 523(a)(6) deals with
"willful" and "malicious" injuries to the property of another. The Tenth Circuit
has held that "willful" means intentional and "malicious" means necessarily
resulting in injury, First National Bank of Albuquerque v. Franklin (In re
Franklin), 726 F.2d 606, 610 (10th Cir.1984). The actions appellant attributes
to the debtor satisfy the requirements of 523(a)(6). Hence, I find the issue in
state court was the same as in bankruptcy court.

33

The second requirement under Wallace is that the issue must have been actually
litigated. This does not mean the case must have wound its way through every
dark corridor of the courthouse. Consent judgments are fully capable of finally
resolving all the issues raised in a lawsuit even if there was no trial, Lukas v.
Bottagaro (In re Bottagaro), 95 Bankr. 766, 767 (D.Colo.1987).

34

The purpose of the "actually litigated" requirement is two-fold: the party to be

estopped must have had: 1) the incentive to pursue the issue, and 2) the
opportunity to present its case fully. In Wallace, the court concluded the party
precluded "had every incentive to litigate the issue in the state-court proceeding
... Wallace cannot complain that he was denied a full and fair opportunity to
present his case or litigate the relevant issues." Wallace 840 F.2d at 765.

35

The debtor in this case had the same. The debtor could have taken his case to
trial but decided not to expend the resources and face possible sanctions. He
admitted all of the appellant's claims as pleaded. I take him at his word. On
appeal, however, debtor appears invigorated by the new forum of the
bankruptcy court. He tries to avoid his decision to settle by claiming there were
no specific findings on the fraud issue in the state court. Without such findings,

debtor argues he cannot be collaterally estopped.

36

The cases debtor cites do not hold that specific findings are needed to determine
dischargeability. Those cases which discuss specific findings do so for specific
purposes. They do not impose a general requirement of factual findings. For
example, in Lombard v. Axtens (In re Lombard), 739 F.2d 499 (10th Cir.1984),
the court refused to estop the debtor from discharging his debt because the
nature of the debt was unclear from the state court proceedings. The debt was
for "architectural services." An issue in the bankruptcy court was whether
architectural services are "property" under 523. Since this issue was not
actually litigated and the state court never made a finding on the issue, the
debtor was not collaterally estopped. No such problem exists in this case.

37

Debtor's desire for specific findings from the trial court is misplaced. At best,
the trial court is a third party which resolves the issues before it. In this case,
the party himself made a statement about what actually happened. He
confessed judgment to a complaint charging him with fraud and willful
misrepresentation. Since the gravamen of these acts is intentional conduct,
there is no better evidence of intent than the admission of the perpetrator.
Specific findings could add nothing to what is already before the bankruptcy
court.

38

Finally, the debtor argues fraud and willful/malicious injury was not necessary
to the resulting judgment. Debtor argues the damages agreed to in the
stipulation are nothing more than the amount of the breach of contract claim. In
the confession of judgment, the issue of additional, punitive damages was
postponed. As the confession of judgment now stands, debtor argues no
intentional conduct can be inferred.

39

Although the amount of damages actually contained in the judgment could be

based solely on the appellant's first claim for relief, this account ignores the
second and third claims. Debtor admitted to willful misrepresentation and
fraudulent inducement. Willful injury, and actual fraud are necessary elements
to those acts. By admitting to the acts, debtor necessarily admitted to
committing fraud and willful/malicious injury.

40

Accordingly,

41

IT IS ORDERED the decision of the bankruptcy court denying application of

the doctrine of collateral estoppel with respect to appellant's judgment in the
state court against the debtor is REVERSED.

John L. Kane, Jr.

42
JOHN L. KANE, JR.
43
U.S. SENIOR DISTRICT JUDGE

Honorable Clarence A. Brimmer, District Judge, United States District Court

for the District of Wyoming, sitting by designation

**

This order and judgment has no precedential value and shall not be cited, or
used by any court within the Tenth Circuit, except for purposes of establishing
the doctrines of the law of the case, res judicata, or collateral estoppel. 10th
Cir.R. 36.3

The argument that the "standards" are different in state court than they are in
bankruptcy court was resolved in Grogan v. Garner, --- U.S. ----, 111 S.Ct. 654
(1991). There, the Court adopted a "preponderance of the evidence standard" of
proof which parallels the standard used in state court civil actions