Collision Shop of America, Inc. v. Maurer (In re Maurer)

489 B.R. 64, 2013 WL 1316718, 2013 Bankr. LEXIS 1375, 57 Bankr. Ct. Dec. (CRR) 218

• Court: United States Bankruptcy Court, E.D. Michigan
• Decided: March 18, 2013
• Docket: Bankruptcy No. 12-63733; Adversary No. 13-4097
• Status: Published

Opinion

OPINION AND ORDER DENYING DEFENDANT’S MOTION TO DISMISS

THOMAS J. TUCKER, Bankruptcy Judge.

In this adversary proceeding, Plaintiffs complaint alleges that Defendant’s debt to it is nondischargeable, based on fraud, under 11 U.S.C. § 523(a)(2)(B). Before Defendant filed his Chapter 7 bankruptcy case, Plaintiff obtained a $185,000.00 judgment against Defendant in the Oakland County Circuit Court, after some two years of litigation. The judgment was for damages based on breach of contract. The parties agree that the state court judgment was not based on any claim of fraud.

Defendant has filed a motion to dismiss this adversary proceeding, based on res judicata. Defendant argues that under Michigan law and the doctrine of res judi-cata, Plaintiff was required to plead and litigate its fraud claim in the state court action. Because Plaintiff failed to due so before the state court judgment was entered, Defendant says, res judicata bars the Plaintiffs nondischargeability action based on fraud.

Plaintiff filed a response to the motion to dismiss, arguing that the doctrine of res judicata does not bar Plaintiffs nondis-chargeability action.

The Court concludes that a hearing on Defendant’s motion to dismiss is not necessary, and that Defendant’s motion must be denied.

Based primarily on the United States Supreme Court’s decision in Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979), courts have ruled that the doctrine of res judicata does not bar a nondischargeability action in this context. See Vogel v. Kalita (In re Kalita), 202 B.R. 889, 893-94 (Bankr.W.D.Mich.1996); Day v. Manuel (In re Manuel), 76 B.R. 105, 107-108 (Bankr.E.D.Mich.1987); Shaw v. Shaw (In re Shaw), 210 B.R. 992, 998 n. 3 (Bankr.W.D.Mich.1997). This Court agrees with these cases, and has so ruled in the past. See, e.g., Fifth Third Bank v. Davis (In re Davis), Adv. Pro. No. 08-5138 (Bankr.E.D.Mich. February 4, 2009)(transcript of bench opinion, Docket # 24) at 3-5. Of the cases cited above, the Court finds particularly persuasive the reasoning in Day v. Manuel.

The Court notes that while the published cases cited above are somewhat dated, they remain good law today. See, e.g., Hasalia v. Walker (In re Walker), 416 B.R. 449, 462-64 (Bankr.W.D.N.C.2009). In a more recent case, for example, the Supreme Court discussed Brown v. Felsen at length, and relied on it. Archer v. Warner, 538 U.S. 314, 319-21, 123 S.Ct. 1462, 155 L.Ed.2d 454 (2003). In Archer, in discussing res judicata in this context, the Supreme Court noted the following:

Congress ... intended to allow the relevant determination (whether a debt arises out of fraud) to take place in bankruptcy court, not to force it to occur earlier in state court at a time when nondischargeability concerns “are not directly in issue and neither party has a full incentive to litigate them.” Brown, 442 U.S. at 134, 99 S.Ct. 2205.

538 U.S. at 321,123 S.Ct. 1462.

For the reasons stated above,

IT IS ORDERED that the Defendant’s Motion to Dismiss (Docket # 10) is denied.