In Tri-State Ins. Co. v. JoAnn M. Stewart, et. al., an adversary proceeding brought in the underlying bankruptcy case filed by Ms. Stewart one of our local bankruptcy Judges, Dennis O’Brien, applied the rule of collateral estoppel to prevent the debtor from re-ligitigating issues that had already been argued and decided in a prior state court action when he was determining whether the debt in the instant bankruptcy case would be discharged in the bankruptcy case.
The facts in this case won’t have much application in most consumer or small business cases but it is important to note that if you have an issue that you are sued on in state court or charged with in criminal court when in either there is a “finding” by the court that certain facts have been established you don’t get a second shot at it in bankruptcy. In this case there was a judgment entered against the defendant in state court…she then proceeded to file bankruptcy in an attempt to discharge the debt. The creditor filed an action in the bankruptcy court to have a determination made to except the debt from the discharge….the debtor attempted to litigate the issue and the court, citing Eighth Circuit precedent stated that the concept of collateral estoppel applies in bankruptcy courts and did not allow litigants to argue issues either factual or legal that had been already determined in a prior state court action and that would also extend to proceedings in regard to dischargeability issues.