Brown v. Felsen, 442 U.S. 127 (1979)

Brown v. Felsen

No. 78-58

Argued February 21, 1979
Decided June 4, 1979
442 U.S. 127

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

Syllabus

In the settlement of a state court collection suit, respondent stipulated that petitioner should have judgment against respondent. Shortly thereafter, respondent filed for bankruptcy, and petitioner sought to establish that respondent’s debt to him was not dischargeable because it was the product of respondent’s fraud, deceit, and malicious conversion, and thus came within §§ 17a(2) and (4) of the Bankruptcy Act, which provide that such debts are not affected by a discharge. The bankruptcy court granted summary judgment for respondent. The court held that the record in the state court proceeding did not establish that respondent had committed fraud, and res judicata barred petitioner from offering additional evidence to prove the underlying nature of the debt. The District Court, and Court of Appeals affirmed.

Held: The bankruptcy court is not confined to a review of the judgment and record in the prior state court proceeding when determining the dischargeability of respondent’s debt. When a debtor asserts the new defense of bankruptcy, res judicata does not bar the creditor from offering additional evidence to meet that defense. A contrary rule would force premature federal issues on the state courts and would frustrate the command of the Bankruptcy Act that only honest debts are to be discharged. Pp. 131-139.

Reversed.

BLACKMUN, J., delivered the opinion for a unanimous Court.