Memorandum of Decision Re: Collateral Estoppel

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In re WILLIAM A. TIMMEL,                                                          No. 98-13709      Debtor(s). ______________________________________/ DENT WIZARD INTL. CORP.,      Plaintiff(s),    v.                                                                                              A.P. No. 99-1118 WILLIAM A. TIMMEL,      Defendant(s). _______________________________________/
Memorandum of Decision
     Prior to bankruptcy, the claims of plaintiff Dent Wizard International Corporation against debtor and defendant William Timmel were arbitrated before the American Arbitration Association. In a detailed written decision after a full hearing, the arbitrator awarded Dent Wizard contract damages of $133,000.00. However, the arbitrator rejected Dent Wizard's punitive damage claims, finding:        [Claimants] also seek punitive or exemplary damages from Timmel        and assert that his conduct, after he left the employ of [Dent Wizard],        in avoiding his restrictive covenant obligations was willful, intentional,        malicious and with an evil motive. The evidence does not, however,        support this contention.      After conclusion of the arbitration hearing, Timmel filed a Chapter 7 petition. Dent Wizard has filed a dischargeability action based on the same allegations rejected by the arbitrator. Timmel now seeks summary dismissal on grounds that Dent Wizard is precluded from relitigating the issues.      Relying on the older case of Brown v. Felson, 442 U.S. 127 (1979), Dent Wizard argues that it is not precluded from relitigating the issue. However, the Supreme Court in that case specifically left open the applicability of collateral estoppel to dischargeability litigation. 442 U.S. at 139n10. Dent Wizard has completely ignored more recent cases answering the question left open in Brown v. Felson and holding that in most cases earlier litigation does have a preclusive effect on later dischargeability actions. Grogan v. Garner, 498 U.S. 279, 284-85 (1991); In re Bugna, 33 F.3d 1054 (9th Cir. 1994).      Under California law, decisions of arbitrators are given collateral estoppel effect in subsequent litigation between the same parties and may not be relitigated in any court. 6 Cal.Jur.3d, Arbitration and Award, § 62. State law governs collateral estoppel issues in subsequent bankruptcy litigation. In re Bugna, supra, at 1057.      Where a creditor has unsuccessfully argued to a finder of fact that the debtor has committed fraud or other intentional misconduct, the creditor may not, in a subsequent nondischargeability action, seek a judgment based on the same alleged misconduct. RecoverEdge L.P. v. Pentecost, 44 F.3d 1284 (5th Cir. 1995); In re Bottagaro, 95 B.R. 766 (D.Colo.1987); In re Browning, 182 B.R. 913 (Bkrtcy.M.D.Fla.1995).      In this case, Dent Wizard aggressively sought a finding from the arbitrator that Timmel had engaged in willful and malicious conduct and was liable for punitive damages. The arbitrator having expressly rejected these assertions, Dent Wizard is not free to raise them again in this adversary proceeding. Accordingly, Timmel's motion will be granted. Counsel for Timmel shall submit an appropriate form of order.
Dated: September 14, 1999                                            ____________________________                                                                                        Alan Jaroslovsky                                                                                        United States Bankruptcy