Default judgment is given effect under Michigan law of Collateral Estoppel

Under Michigan law, the following requirements must be met in order for collateral estoppel to apply: (1) there is identity of parties across the proceedings; (2) there was a valid, final judgment in the first proceeding; (3) the same issue was actually litigated and necessarily determined in the first proceeding, and (4) the party against whom the doctrine is asserted had a full and fair opportunity to litigate the issue in the earlier proceeding.

Default judgment is given effect under Michigan law of collateral estoppel:

Agreeing with In re Kory, 2013 WL 1340215 (Bankr. E.D. Mich., March 28, 2013), and disagreeing with In re Dantone, 477 B.R. 28 (6th Cir. BAP 2012), the court said that a true default judgment (based on the defendant’s failure to appear or otherwise defend) is given effect under Michigan law of collateral estoppel.

Collateral estoppel is applied on an issue-by-issue basis. Case law applies collateral estoppel to preclude litigation of one or more of the elements of a dischargeability claim, even where collateral estoppel does not bar litigation of other elements of the claim. Thus, here, the existence and amount of the debtor’s debt to the creditor were both “actually litigated” and “necessarily determined” by a Michigan state court default judgment against the debtor for statutory conversion, so that those determinations were binding on the debtor under Michigan law of collateral estoppel. The state court judgment also necessarily established that the conversion was “without just cause or excuse,” which established that the injury to the creditor was “malicious” within the meaning of Code § 523(a)(6). However, the judgment did not “necessarily determine” that the creditor’s injury had been “willful,” as, under Michigan law, conversion can be accomplished unwittingly.

Accordingly, this element of nondischargeability under Code § 523(a)(6) was not established under collateral estoppel.

In re Pixley, 504 B.R. 852 (Bankr. E.D. Mich., Jan. 24, 2014)

(case no. 2:10-bk-62556; adv. proc. no. 2:10-ap-6665) (Bankruptcy Judge Thomas J. Tucker)