State Court Default Judgment Estopped Debtors From Re-Litigating Dischargability

In Evans v. Ottimo, 469 F.3d 278 (2d Cir. Nov. 20, 2006), the debtors attempted to litigate whether their debts were nondischargeable under § 523(a) of the Bankruptcy Code. The debt involved a default judgment for Evans for $400,000 entered by a New York state court in which the court found that the debtors had committed fraud. The debtors never appealed that judgment, and commenced bankruptcy proceedings five years later.

Evans argued that the debtors were collaterally estopped from contesting that a judgment for damages due to fraud was nondischargeable, but the bankruptcy court disagreed because the judgment in issue was entered in default.

The district court reversed and the Second Circuit agreed, finding that collateral estoppel principles are applicable even in default judgment situations. The two key conditions for estoppel were satisfied here -- the issue was identical between proceedings, and the estopped party had a full and fair opportunity to litigate the issue in the prior action.

Mandamus Not Warranted To Prevent Trial From Improperly Being Tried To Jury

The Seventh Circuit has denied mandamus in a case involving a late jury demand.

In In re Linee Aeree Italiane (Alitalia), 469 F.3d 638 (7th Cir. Nov. 27, 2006), the plaintiff demanded a jury trial after the defendants’ status changed from a state-controlled entity (for which a non-jury trial is provided by statute) to a privatized company. Alitalia claimed that the district court should not have allowed plaintiff to make a jury demand based on facts that developed after the initial filing of the case, and sought mandamus. However, the Seventh Circuit concluded that even if Alitalia’s argument about the timing of a jury demand were correct, having to wait to appeal that issue after the entry of final judgment on a jury verdict would not cause Alitalia the sort of irreparable harm required to support mandamus relief. Instead, the appellate court could vacate the judgment and order a bench trial.

Seventh Circuit Reaffirms Allowing Excusing Indigents From Taxation Of Costs

Federal Rule of Civil Procedure 54(d) provides that costs other than attorneys’ fees “shall be allowed as of course to the prevailing party unless the court otherwise directs.” Most courts have held that the final part of that clause gives district courts the discretion to excuse indigent persons from having to pay costs.

In Rivera v. City of Chicago, 469 F.3d 631 (7th Cir. Nov. 21, 2006), the City of Chicago asked the appellate court to abolish its precedent creating the indigence exception. The court refused to do so.

Instead, the Seventh Circuit provided guidance to district courts regarding the exercise of their discretion. First, they must make a threshold factual finding that the losing party is incapable of paying the court-imposed costs at this time or in the future. Second, the court should consider the amount of costs, good faith of the losing party, and the closeness and difficulty of the issues raised by a case. Finally, the court must have and state an explanation for its decision to make an exception and deny costs.

Trial Attorney’s Role In Settlement Insufficient To Warrant Reversal Of Jury Verdict

Sometimes the settlement of litigation itself becomes the subject of its own litigation. When that happens, the parties face a risk that if they choose to be represented in the second case by the same counsel who negotiated the settlement of the first case, the other side may claim that such counsel is a fact witness and should be disqualified.

However, in Fonten Corp. v. Ocean Spray Cranberries, Inc., 469 F.3d 18 (1st Cir. Nov. 17, 2006), the district court denied a motion to disqualify and the attorney was permitted to participate in the trial, and the appellate court affirmed.

The First Circuit concluded that the mere fact that the attorney participated was not sufficiently prejudicial to justify ordering a new trial. Rather, the actual conduct had to be evaluated, and here it did not involve implying that any witness’ version of events was inaccurate based on the attorney’s inside knowledge.

Award Of Costs That Exceeded Authorized Categories Reversed

Under U.S. Supreme Court precedent, absent specific statutory authorization for recovery of additional expenses, district courts are limited in taking costs against the losing party in federal litigation by Fed.R.Civ.P. 54(d) and 28 U.S.C. § 1920. Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 445 (1987).

The Eleventh Circuit recently applied that principle in Corwin v. Walt Disney Co., 468 F.3d 1329 (11th Cir. Nov. 2, 2006), to disallow $120,000 of a total award of $171,000, despite the losing party’s failure to timely object to the cost award. The court specifically found that there was no authority to award costs for (a) expert witness fees beyond the statu­tory $40 per diem; (b) travel expenses for attorney travel; (c) mediation expenses; (d) various discovery expenses; and (e) paralegal services.

[Note: This opinion was vacated and superseded at 475 F.3d 1239.]