California Court Discusses Issue Preclusion in Bankruptcy Cases

It is not uncommon for a creditor to assign a debt or the right to collect money owed from a debtor to another party. In such instances, the assignee enjoys the same rights and privileges as the creditor did prior to assigning the debt. Thus, if a creditor’s debt was deemed non-dischargeable, it will likely remain so after it is assigned under the doctrine of issue preclusion. A California court recently explained issue preclusion in a case in which it affirmed the bankruptcy court’s ruling that the debt in question was non-dischargeable. If you wish to pursue legal relief from your debts, you should meet with a knowledgeable California bankruptcy lawyer to discuss your options.

History of the Case

It is reported that the plaintiff filed a bankruptcy action. During the course of proceedings, the bankruptcy court deemed a debt owed to the defendant non-dischargeable on the basis of issue preclusion. The debt was assigned to the defendant by the plaintiff’s former employer and represented a judgment in state court for punitive and compensatory damages. The plaintiff appealed, arguing that the court incorrectly applied issue preclusion to the judgment. The bankruptcy appellate panel affirmed the lower court’s ruling, and the plaintiff appealed to the Court of Appeals.

Issue Preclusion in Bankruptcy Matters

The doctrine of issue preclusion applies to matters in which a party seeks exceptions from discharge pursuant to the bankruptcy code. Issue preclusion, which is also referred to as collateral estoppel, bars a party from re-litigating factual issues that have been determined in a prior action. Pursuant to the full faith and credit act, the preclusive effect of a state court ruling in a subsequent bankruptcy matter is determined by the laws regarding preclusion in the state in which the judgment was granted.

In California, a party alleging that issue preclusion applies must meet five requirements. First, the issues in the first and subsequent proceeding must be identical, second, the issue in question must have actually been litigated in the prior matter, and third, it must have been decided in the former proceeding. The fourth requirement is that the decision in the former matter must be final and based on the merits, and last, the party against whom issue preclusion is sought must be the same as, or in privity with, the party in the prior matter.

In the subject case, the plaintiff argued that the last three requirements were not met. The court disagreed, finding that the evidence demonstrated that issue preclusion was properly applied. As no public policy factors weighed against the application of the doctrine, the court affirmed the prior rulings.

Speak to a Seasoned California Bankruptcy Attorney

It is not uncommon for people to struggle to pay their debts, and many people with overwhelming financial obligations are eligible for relief via bankruptcy. If you are interested in filing a bankruptcy action, it is prudent to speak to an attorney as soon as possible. Matthew D. Roy is a skilled California bankruptcy lawyer with ample experience helping people regain financial control, and if you hire him, he will work diligently on your behalf. You can reach Mr. Roy via the form online or by calling (916) 361-6028 to set up a conference.