Summary:
Hunter Mill West signed a one-year note in favor of BDC (Catjen's predecessor-in-interest), which included a default interest rate of 24% in the event judgment was ever entered against HMW for default. When HMW did, of course, default it also, of course, filed bankruptcy. BDC filed a Proof of Claim asserting roughly $1.8 million was owed, but HMW successfully objected, showing through expert testimony that the balance due from the note’s inception until the date of the bankruptcy petition, including compounded interest, was $1,504,998.55.
Catjen later brought suit federal district court seeking to recover the outstanding balance arguing that issue preclusion prevented revisiting this question. The Court of Appeals, affirming the district court, held that the preclusive effect the claims order was established by showing:
(1) the parties to the two proceedings, or their privies, be the same;
(2) the factual issue sought to be litigated must have been actually litigated in the prior action and must have been essential to the prior judgment; and
(3) the prior action must have resulted in a valid, final judgment against the party sought to be precluded in the present action.
As the bankruptcy court relied on HMW's own calculations, declining, however, to adopt all of HMW's assumptions for those calculations, including the appropriate interest rate.
Commentary:
This opinion is excellent in giving strong preclusive effect to claims orders in bankruptcy cases, but as the recent NewRez v. Beckhart decision illustrates, having such orders (or other orders such as for confirmation or discharge) be as specific as possible both in the conclusion and the bases for those, is vital.
For a copy of the opinion, please see:
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