This cause came before the court for trial on May 20, 1991. It is an action to disallow a proof of claim based upon fraud. In the course of preparing an opinion, the court reviewed the main case file. Surprisingly, the main case has been fully administered. There is no bankruptcy estate. Allowance or disallowance of the claim is meaningless. Therefore, the plaintiffs' complaint must be dismissed on grounds of mootness.

Procedural Background

        Fay Forshey (Forshey) obtained a state court judgment against John and Bonnie Ricks on November 18, 1986 for $499,046.00. The judgment arose out of a 1983 fall where Forshey broke both of her legs at a 4-plex in Delta Junction. John Ricks was         1 ABR 522  constructing the building and owned the property with his wife. Following the judgment, the Ricks moved for a new trial on the basis of newly discovered evidence. Shortly after judgment was entered, Richard Kipp told the Ricks that Forshey had been at the site the morning of her fall. He stated that he advised her of a dangerous hole in the floor. Kipp had not testified at the trial. The Ricks' motion for a new trial was denied. The Ricks appealed to the Alaska Supreme Court and the judgment was upheld.

        The Ricks filed for chapter 11 on February 29, 1988. On October 14, 1988 Forshey moved for termination of the automatic stay to enforce her judgment lien against certain of the debtors' real property. The stay was lifted effective December 19, 1988 by Judge Ross's order of December 12, 1988. The court clarified its order lifting stay on January 11, 1989. It found that Forshey could proceed with the sale of real property subject to her judgment lien as there was no personal property available for execution. Judge Ross converted the case to a chapter 7 on January 30, 1989. There were no assets available for distribution to creditors. The trustee filed a report of no distribution on August 28, 1989. Any remaining estate property was abandoned on September 18, 1989. The debtors were discharged on February 8, 1990. A final decree was entered on May 16, 1990 discharging the trustee and closing the case.

        1 ABR 523 
        On July 6, 1988 the Ricks sued Forshey in bankruptcy court. They alleged Forshey's state court judgment was obtained by fraud and demanded damages in the amount of Forshey's judgment. They alleged jurisdiction based in part on 11 U.S.C. § 502 dealing with allowance of claims.

        On November 9, 1988 the Ricks filed an amended complaint. This complaint again alleged fraud on Forshey's part in obtaining the judgment and included allegations of a "larger scheme or conspiracy" on the part of Fay Forshey, her husband and "possibly others". It again sought damages in the amount of Forshey's judgment.

        On December 12, 1988 Judge Ross entered summary judgment for the defendant and dismissed plaintiffs' amended complaint with prejudice. The primary basis of Judge Ross's decision was that the state court decisions were res judicata on all issues. The Ricks appealed. On December 15, 1989 Chief District Judge H. Russel Holland affirmed Judge Ross in part and reversed in part stating:

        Res judica is applicable when a valid and final personal judgment has been rendered. Bianell v. Wise Mechanical Contractors, 720 P.2d 490, 494 (Alaska 1986). It precludes any further action between those same parties on the original claim or any part of the claim. Id. The state court judgment is a final personal judgment against the Ricks. In that respect, res judicata would prevent the relitigation of the negligence action brought by Forshey. The Ricks concede that fact.

        1 ABR 524 
        However, the Ricks' adversary complaint is brought as an action for violation of their constitutional right to due process. Res judicata would not apply to preclude a determination on that claim which is separate and distinct from the original negligence claim. From the transcript of the hearing on the motion for summary judgment, it appears that the bankruptcy court made a determination on the constitutional claim by ruling that the Ricks had had their "day in court". The Ricks had due process because they had an opportunity to present the newly discovered evidence to the state court. The fact that the court ruled unfavorably to the Ricks and determined not to reopen the case to consider the evidence does not render the procedure a violation of their right to due process. In that respect, the bankruptcy court was correct in granting summary judgment against the Ricks on the constitutional claim since no issues of material fact had been raised. The judgment, insofar as it dismissed the Ricks' constitutional claim and their request for money damages, should be affirmed.

        Unfortunately, the bankruptcy court's dismissal of the entire complaint with prejudice also dismissed the Ricks' objection to Forshey's claim that was made under 11 U.S.C. § 502. Section 502(a) provides that a claim is allowed unless a party in interest objects.

        While the validity of a claim is determined by state law, the allowance or disallowance of a claim is strictly a matter of federal law. Dollar Saver Stores. Inc. v. Brown (In re Fantastik, Inc.), 49 Bankr. 510, 513 (Bankr. D. Nev. 1985). To effectuate the purposes of the Bankruptcy Code in successfully rehabilitating distressed debtors, while at the same time treating creditors in a fair and equitable manner, bankruptcy courts must broaden their vision to include the circumstances surrounding the claims made against the bankruptcy estate. In         1 ABR 525  re Spanish Trails Lanes, 16 Bankr. 304, 307 (Bankr. D. Ariz. 1981). The bankruptcy court, as a court of equity, has the "power to sift the circumstances surrounding any claim to see that injustice or unfairness is not done in administration of the bankruptcy estate." Pepper v. Litton, 308 U.S. 295, 308 (1939). As part of the claims allowance process, the bankruptcy court may review claims reduced to judgments in order to determine whether they should be disallowed because they were procured by fraud or collusion. In re Novak, 37 Bankr. 31, 33 (Bankr. D. Conn. 1983).

        In this case, the bankruptcy court was not collaterally estopped from considering the issue of whether the judgment was procured by fraud.

To warrant collateral estoppel, an issue must have been actually litigated and determined in the first action by a valid and final judgment, and the determination must have been essential to the judgment. Restatement (Second) of Judgments § 27 (1982). When an issue is properly raised by the pleadings or otherwise, is submitted for determination, and is determined, the issue is actually litigated within the meaning of this section.

Bignell, 720 P.2d at 494 (citation omitted, emphasis added). The issue of whether Forshey's testimony was fraudulent was never determined by the state court. All the state court determined was that the circumstances surrounding the offer of newly discovered evidence (i.e,, due diligence) did not justify reopening the litigation.

        Therefore, the judgment dismissing the Ricks' adversary complaint must be reversed as to the objection to the allowance of Forshey's claim. This case is remanded for an evidentiary hearing on the issue of whether         1 ABR 526  the judgment was obtained by fraud and for a determination of whether the claim should, therefore, be disallowed.

ORDER (Decision on Appeal) entered December 15, 1989, pages 5 through 8, United States District Court No. F89-004 Civil.

Mootness

        The purpose of filing a proof of claim in accordance with 11 U.S.C. § 502 is to obtain payment of the claim from the cash received through liquidation of property of the bankruptcy estate. In chapter 7, this cash is distributed to duly allowed claims in accordance with 11 U.S.C. § 726(a).

        Here there is no property of the estate and no cash to distribute. The allowance or disallowance of claims is meaningless. There is no point in allowing or disallowing Forshey's claim.

        The starting point for analysis is the familiar proposition that "federal courts are without power to decide questions that cannot affect the rights of litigants in the case before them." North Carolina v. Rice, 404 U.S. 244, 246, 92 S.Ct. 402, 404, 30 L.Ed.2d 413 (1971). The inability of the federal judiciary "to review moot cases derives from the requirement of Art. III of the Constitution under which the exercise of judicial power depends upon the existence of a case or controversy." Liner v. Jafco, Inc., 375 U.S. U.S. 301, 306 n. 3, 84 S.Ct. 391, 394, 11 L.Ed.2d 347 (1964); see also Powell v. McCormack, 395 U.S. 486, 496 n. 7, 89 S.Ct. 1944, 1950, 23 L.Ed.2d 491 (1969); Sibron v. New York, 392 U.S. 40, 50 n. 8, 88 S.Ct. 1889, 1896, 20 L.Ed.2d 917 (1968).

DeFunis v. Odegaard, 416 U.S. 312, 316 (1974).

        1 ABR 527 
        A decision in this case will not affect the rights of the litigants. If the claim is allowed, Forshey will receive no distribution from the bankruptcy estate. If the claim is disallowed, Forshey will receive no distribution from the bankruptcy estate. There is no real case or controversy because there is no distribution to contest. Judge Ross granted Forshey relief from the stay long ago on the debtor's real property. Any other assets have been abandoned.

        Therefore, on the court's own motion,

        1.    The complaint in this cause is dismissed with prejudice; and

        2.    Each party shall bear their own costs and attorney's fees.

        Let judgment be entered and docketed accordingly.

       DATED:    May 22, 1991.

DONALD MacDonald IV
United States Bankruptcy Judge

Serve:	G. Stinson, Esq. (co-counsel for plaintiffs), 109 Ina Street, Fairbanks, AK 99701
	T. Thorgaard, Esq. (for plaintiffs)
	K. Ringstad, Esq. (for defendant)
	J. Paskvan, Esq.