In Re: Dorand ( 1997 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
No. 96-30445
Summary Calendar
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In the Matter of:
CHARLOTTE A. DORLAND,
Debtor.
CHARLOTTE A DORLAND,
Appellant,
VERSUS
RIGHT UP YOUR ALLEY, INC., and ARLENE L. CREELY,
Appellees.
_________________________
Appeal from the United States District Court
for the Eastern District of Louisiana
(95-CV-2200-L)
_________________________
December 26, 1996
Before SMITH, DUHÉ, and BARKSDALE, Circuit Judges.
JERRY E. SMITH, Circuit Judge:*
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion
should not be published and is not precedent except under the limited circumstances
set forth in 5TH CIR. R. 47.5.4.
In this bankruptcy action, the debtor, Charlotte Dorland,
appeals the district court’s determination that a Louisiana state
court default judgment has preclusive effect on appellees’ dis-
chargeability action under 11 U.S.C. § 523(a)(2)(A). Finding no
error, we affirm.
I.
Arlene Creely retained Dorland in 1990 to perform various
accounting and tax services on her behalf and on behalf of her
business, Right Up Your Alley, Inc.1 After terminating the
employment relationship in January 1992, Creely sued Dorland in
Louisiana state court, alleging breach of contract, negligence,
conversion, payment of a thing not due, unfair and deceptive trade
practices, fraud, and open account. When Dorland failed to answer
the complaint, the state court held an evidentiary hearing and
rendered a default judgment in favor of Creely, awarding actual
damages, general damages, and attorneys’ fees.2
Subsequent to this adverse judgment, Dorland filed in March
1993 a voluntary chapter 7 bankruptcy petition. Pursuant to
11 U.S.C. § 523, Creely filed a complaint to determine discharge-
1
Creely and Right Up Your Alley, Inc., collectively, are referred to
hereinafter as “Creely”).
2
The default judgment noted in pertinent part that “IT IS ORDERED,
ADJUDGED AND DECREED that judgment be rendered in favor of the plaintiffs and
against the defendant, Charley A. Dorand, on the allegations of breach of
contract, negligence, conversion, payment of a thing not due, unfair and
deceptive trade practices, fraud, and open account.”
2
ability of debt in the bankruptcy court, arguing that the state
court judgment with respect to fraud was entitled to collateral
estoppel effect in the dischargeability determination. The
bankruptcy court denied Creely’s summary judgment motion on
collateral estoppel, finding that the state court had not made
subordinate, factual findings in support of its default judgment.
The district court affirmed the bankruptcy court originally and
then, upon motion for rehearing, reversed the bankruptcy court,
finding that the court was required on the basis of collateral
estoppel to give preclusive effect to the Louisiana state court
judgment.
II.
Dorland argues that the district court erred in giving
preclusive effect to a Louisiana state court default judgment in
its determination that the debts to Creely are nondischargeable
under 11 U.S.C. § 523(a)(2)(A).3 We review the district court’s
conclusions of law de novo and its factual findings for clear
error. See Allison v. Roberts (In re Allison), 960 F.2d 481, 483
(5th Cir. 1992).
3
Section 523(a)(2)(A) excepts from discharge any debts “'to the extent
obtained by . . . false pretenses, a false representation, or actual fraud, other
than a statement respecting the debtor’s or an insider’s financial condition.'”
See RecoverEdge L.P. v. Pentecost, 44 F.3d 1284, 1292 (5th Cir. 1995) (quoting
11 U.S.C. § 523(a)(2)(A)). Because Dorland does not appeal the district court’s
finding that fraud under Louisiana law is tantamount to “actual fraud” under
§ U.S.C. § 523(a)(2)(A), we assume as much for the purposes of this appeal.
3
We are required, under the Full Faith and Credit Act,
28 U.S.C. § 1738, to accord state court judgments the same
preclusive effect that is provided by the law of the state in which
the judgment was rendered. See A.L.T. Corp. v. Small Business
Admin., 801 F.2d 1451, 1455 (5th Cir. 1986). Under Louisiana law,
collateral estoppel bars relitigation of “'any issue actually
litigated and determined if its determination was essential to that
judgment.'” State Dep't of Social Serv. v. Matthews, 615 So. 2d
1112, 1113 (La. App. 1st Cir. 1993) (citing LA. REV. STAT. ANN.
§ 13:4331(3) (West 1991)).
Dorland contends that, because the state court entered a
default judgment, the fraud claim was neither “actually litigated”
nor “essential to that judgment.” According to Dorland, “the state
court simply awarded judgment, repeating in cursory and mechanical
fashion the language of the plaintiffs’ complaint. . . . There is
simply no way of knowing which grounds were seriously considered by
the state court nor which were considered essential to its
judgment.” Furthermore, Dorland argues that, notwithstanding the
award of actual damages, special damages, and attorneys’ fees, all
three of which are recoverable together only upon a finding of
fraud, we cannot infer from this award that the court actually
found fraud.
“It is well established that in obtaining a default judgment,
the plaintiff must present competent evidence to support each
4
element of his causes as fully as though each of the allegations in
the petition were [sic] denied by defendant.” Collins v. Estrade,
638 So. 2d 275, 277 (La. App. 5th Cir. 1994). Thus, under
Louisiana law, a default judgment requires that the plaintiff make
out a prima facie case for each of the claims alleged. See LA. CODE
CIV. PROC. ANN. art. 1702A (West 1991).
It is evident from the state court’s final order that the
court considered the fraud allegations and that, as a pre-condition
to awarding a default judgment with respect to the fraud claim, the
court determined that Creely had successfully proved the prima
facie case for fraud. An issue that is properly raised, by the
pleadings or otherwise, and that is submitted for determination and
is actually determined is “actually litigated” for purposes of
collateral estoppel. See Garner v. Lehrer (In re Garner), 56 F.3d
677, 680 (5th Cir. 1995) (applying the same default judgment
standard under Texas law as is applicable to Louisiana law).
Hence, we disagree with Dorland that the state court “simply
awarded judgment” without determining first that Creely had
“actually litigated” the elements of fraud.
We similarly reject Dorland's argument that the fraud finding
was not “essential to that judgment.”4 The district court found
4
This is an unusual posture in which to raise a challenge under the
“necessary to that judgment” prong of the collateral estoppel test. Typically,
such challenges arise where a litigant seeks to estop the re-litigation of one
element of an ultimate claim, whereas here the challenge is to the claim itself.
See, e.g., Ebey v. Harvill, 647 So. 2d 461, 464 (La. App. 2d Cir. 1994) (noting
that a claimant’s statement regarding paternity made in a previous divorce action
5
that because the court awarded Creely its full actual damages,
general damages, and attorneys’ fees, all three of which are
available under Louisiana law under a finding of fraud only, the
fraud finding was essential to the default judgment. Dorland notes
correctly, however, that under Louisiana law the state court could
have awarded general damages for other causes of action (i.e.,
negligence) pleaded by Creely besides fraud alone. See Kessler v.
Southmark Corp., 643 So. 2d 345, 351 (La. App. 2d Cir. 1994).
Dorland also notes correctly that under Louisiana law, attorneys’
fees are recoverable for other causes of action besides fraud
alone. See, e.g., McHale v. Lake Charles Am. Press, 390 So. 2d 556(La. App. 3d Cir. 1980), cert. denied, 452 U.S. 941 (1981)
(awarding attorneys’ fees in a libel case).
Only one of these additional causes of action for which
Dorland notes that attorneys’ fees are available, however, was
pleaded by CreelySSan action on open account. Creely concedes that
attorneys’ fees are available in an action on open account but
argues convincingly that the state court likely did not base its
award of attorneys’ fees of $4,505.15 on an open account claim of
$686.50, as such an award (600% of the damages claimed) would have
been excessive under the Louisiana reasonableness standards.
Hence, we do not find clear error in the district court’s finding
is not preclusive in a subsequent action because paternity was not essential to
the final judgment in the divorce proceedings).
6
that, of the various claims alleged by Creely, all three forms of
awardsSSactual damages, general damages, and attorneys’ feesSSwere
available and actually awarded for the fraud claim only. A finding
of fraud was therefore necessary to the default judgment, notwith-
standing the fact that each of the various claims arose out of the
same set of operative facts.
AFFIRMED.
7