In re: Case No. A03-00067-DMD

JOHN CURTIN,

Debtor.

Chapter 7

WALTER H. HICKEL,

Plaintiff,

JOHN CURTIN,

Defendant.

Adv. No. 03-90050-DMD

Plaintiff Walter Hickel has filed this adversary proceeding seeking a determination that a state court judgment he obtained against the debtor, prepetition, is excepted from discharge pursuant to 11 U.S.C. § 523(a)(6). The state court judgment, entered on Hickel’s unopposed motion for summary judgment, includes damages in excess of $100,000.00 for tortious destruction of property. Hickel has now filed a motion for summary judgment in this adversary proceeding in which he contends the state court judgment is res judicata with regard to his claim for tortious destruction of property and he is entitled to a judgment excepting this debt from discharge.

Debtor John Curtin opposes Hickel’s motion. Curtin argues that collateral estoppel, rather than res judicata, is the applicable doctrine in this proceeding. He contends the state court judgment should not be given preclusive effect in this proceeding because it was, in effect, a default judgment.

The state court judgment arose out of an action for forcible entry and detainer filed by Hickel in July, 1999, involving the lease of commercial space by Tub N Sun, Inc. The lease had been entered in May of 1994. The original tenant on the lease was Brent Schaffer, dba Tub N Sun. Schaffer is Curtin’s father. Tub N Sun incorporated, and Hickel approved assignment of the lease to the corporation in September of 1994. Curtin’s mother, Wylema Bedient, executed the assignment of lease on behalf of Tub N Sun, Inc. Curtin signed neither the lease nor the assignment of lease. However, Tub N Sun, Inc., subsequently dissolved and Curtin held himself out as the owner of the business.

The state court action was filed against Tub N Sun, Inc., and Curtin, individually. Curtin attended the eviction hearing, held on July 19, 1999. At that hearing, the parties stipulated that Curtin would have until August 2, 1999, to vacate the leased premises. This deadline was extended by agreement of the parties to August 31, 1999. According to Curtin, he was incarcerated in August of 1999 for DWI charges. He couldn’t vacate the premises by the August 31 deadline because of his incarceration. He asked his girlfriend to have her brother remove the business assets from the leased premises. Also, once he was released from jail, Curtin says he asked Hickel for more time to clean the premises. He was given a brief extension, and worked on vacating the leased space until he was locked out by Hickel.

In December of 1999, Hickel filed an amended complaint in the state court action which added a claim for breach of contract and sought damages for waste. Curtin answered this amended complaint, specifically denying that he had assumed the

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lease. Hickel filed a second amended complaint on July 21, 2000, adding a claim for tortious destruction of property. Curtin didn’t answer this complaint.

Hickel filed a motion for summary judgment on October 6, 2000, based on the deemed admissions in the unanswered second amended complaint and an affidavit of Hickel’s property manager. Curtin didn’t oppose this motion. He says there were several reasons why he didn’t respond to the second amended complaint or the summary judgment motion. First, he says he is dyslexic and had trouble reading the paperwork. Also, he said his mother told him not to respond because he didn’t sign the lease. Curtin didn’t have an attorney and didn’t have the money to hire one. Finally, he didn’t think he had done anything wrong.

Hickel’s summary judgment motion was granted in November of 2000. A judgment was entered that found Curtin liable to Hickel for the following amounts: $15,120.00 for unpaid rent, $107,035.54 for the cost to repair and restore the leased premises on the alternative grounds of waste and tortious destruction of property, and $16,380.00 for lost rental income on the alternative grounds of waste and tortious destruction of property. Curtin filed a chapter 7 petition on January 23, 2003. Hickel commenced this adversary proceeding on February 10, 2003. He seeks to except the state court damages awarded on the alternative grounds of waste and tortious destruction of property from discharge under 11 U.S.C. § 523(a)(6).

In Hickel’s summary judgment motion, he contends that res judicata bars relitigation of his claim for tortious destruction of property, and that the damages

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awarded by the state court should be excepted from discharge as a willful and malicious injury to Hickel’s property. To determine the preclusive effect of the state court judgment, Alaska’s res judicata and collateral estoppel principles must be applied.

The Supreme Court has held that “collateral estoppel principles do indeed apply in discharge exception proceedings pursuant to § 523(a).” Grogan v. Garner, 498 U.S. 279, 284 n.11, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). In addition, 28 U.S.C. § 1738 requires us, as a matter of full faith and credit, to apply the pertinent state’s collateral estoppel principles. Gayden v. Nourbakhsh (In re Nourbakhsh), 67 F.3d 798, 800 (9th Cir. 1995).

The Alaska Supreme Court recently discussed this state’s res judicata and collateral estoppel doctrines as follows:

“Res judicata consists of both claim preclusion and issue preclusion.” Claim preclusion “prevents a party from suing on a claim which has been previously litigated to a final judgment by that party . . . and precludes the assertion by such parties of any legal theory, cause of action, or defense which could have been asserted in that action.” We have held that “a final judgment in a prior action bars a subsequent action if the prior judgment was (1) a final judgment on the merits, (2) from a court of competent jurisdiction, (3) in a dispute between the same parties (or their privies) about the same cause of action.”

Whereas claim preclusion bars the litigation of any cause of action arising out

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of a claim which has already been litigated, issue preclusion, or collateral estoppel, renders an issue of fact or law which has already been decided by a court of competent jurisdiction conclusive in a subsequent action between the same parties, whether on the same or a different claim. To determine whether issue preclusion applies, we ask whether:

(1)the party against whom the preclusion is employed was a party to or in privity with a party to the first action;

(2)the issue precluded from relitigation is identical to the issue decided in the first action;

(3)the issue was resolved in the first action by a final judgment on the merits; and

The Alaska Supreme Court’s distinction between res judicata and collateral estoppel make it clear that the latter doctrine, rather than res judicata, is applicable in this proceeding.

Looking at the four elements of collateral estoppel, it is clear that the first two apply here. This adversary proceeding involves the same two parties as the state court eviction action. The issue to be decided – whether the debtor willfully and mali-

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ciously injured Hickel’s property – is essentially identical to the tortious destruction of property issue encompassed in the prior state court judgment.

The third element required for application of collateral estoppel is more problematic, however. The third element is that the issue in the first action be resolved by a final judgment on the merits. In cases where both parties have actively litigated the issues, a summary judgment is considered by the Alaska courts to be a final judgment on the merits.

But “[c]ollateral estoppel precludes relitigating an issue in a second action only if the issue was actually and finally decided in the first action.”

Default judgments are not given any issue-preclusive effect in Alaska, “because they do not entail a full and actual litigation of the underlying factual issues.”

In this proceeding, Hickel’s summary judgment is essentially a default judgment, because Curtin neither answered the second amended complaint nor opposed the motion for summary judgment. The same damages were awarded Hickel, by default, on two alternative grounds – one in contract (waste) and the other in tort (destruction of property). Under these circumstances, the issue of tortious destruction of property was not actually litigated.

Hickel argues that his state court judgment is not a default judgment, relying on Gayden v. Nourbakhsh.

Nourbakhsh is distinguishable because in that case, Florida’s collateral estoppel principles were applied to determine whether a Florida default judgment should be given preclusive effect. Unlike Alaska, the Florida Supreme Court has determined that default judgments have issue-preclusive effect.

Alaska follows the weight of authority and the Restatement (Second) of Judgments in concluding otherwise.

I find that collateral estoppel does not apply in this proceeding. Hickel’s state court judgment should not be given preclusive effect on the issue of tortious destruction of property, because this issue was determined by default and not actually litigated in the state court proceeding. Hickel’s motion for summary judgment will, therefore, be denied.

1 Cal-Micro, Inc. v. Cantrell (In re Cantrell), 329 F.3d 1119, 1123 (9th Cir. 2003).

2 McElroy v. Kennedy, ___ P.3d ___, 2003 WL 21771747 at p. 3 (Alaska Aug. 1, 2003)[citations\ omitted, emphasis added].

3 See Midgett v. Cook Inlet Pre-Trial Facility, 53 P.3d 1105, 1110 (Alaska 2002) [plaintiff’s\ constitutional claims in state court action were barred by collateral estoppel, where the plaintiff had asserted\ Eighth and Fourteenth Amendment claims in federal court and that court had entered summary judgment \ against the plaintiff on those claims].

6 See Wall v. Stinson, 983 P.2d at 738, 740. [An Alaska state court order vacating an Oregon court’s\ child support order was not entitled to issue-preclusive effect because the CSED did not oppose the motion \ to vacate.]

8 Id. at 800-801, citing Masciarelli v. Maco Supply Corp., 224 So.2d 329 (Fla. 1969).