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 Contributing Editor: Karl Johnson, Briggs and Morgan, P.A.
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            In Abel and Metro Acoustics, LLC v Queen and Queen (In re Queen), No. 18-6023, 2019 WL 3242035 (BAP 8th Cir. July 19, 2019), the BAP affirmed entry of summary judgment in favor of the debtor-defendants and held that it lacked jurisdiction to consider an issue that was raised only in a withdrawn motion.  

            The debtors’ former business partner sued the debtors in state court alleging fraudulent misrepresentation and breach of fiduciary duty, among other claims. After striking the debtors’ pleadings, the state court entered default judgment on liability and scheduled a hearing to determine damages. The debtors filed their voluntary petition before the hearing date and the plaintiffs timely filed a complaint seeking exception to discharge under §§ 523(a)(2), (4), and (6).

            The plaintiffs filed a motion for partial summary judgment and argued that the state court default judgment precluded the debtor-defendants from re-litigating liability or the issue of dischargeability. After the hearing on this motion, the bankruptcy court stamped a copy of the motion “DENIED” and “WITHDRAWN” and entered it as an order. The parties then agreed that the sole issue to be decided was dischargeability under § 523(a)(4) “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny[.]” The parties also agreed to submit the issue on stipulated exhibits, stipulated facts, and briefs without a trial. The plaintiffs’ brief did not argue claim preclusion or even mention the state court judgment.

            In the order granting summary judgment in favor of the debtor-defendants, the bankruptcy court included a section titled “PRELIMINARY MATTERS” that said the state court judgment “was only a default judgment” that did not establish any facts for the purposes of summary judgment.

            On appeal, the plaintiffs argued that the bankruptcy court erred by not applying issue preclusion. The BAP held that regardless of the bankruptcy court’s passing reference to the state court default judgment, issue preclusion was no longer before the bankruptcy court because the record showed that the issue had been withdrawn and was not reasserted when the parties submitted the case on stipulated facts and briefing. Because issue preclusion was abandoned, the BAP held it “afford[ed] no basis for the instant appeal.” Therefore, the BAP affirmed summary judgment in favor of the debtors.