Ninth Circuit BAP Overturns Summary Judgment Due to Misapplication of Issue Preclusion Under Ohio Law

Westhuizen v. Sky (In re Westhuizen), No. 22-1133 (9th Cir. BAP June 2, 2023)

On June 2, 2023, the U.S. Bankruptcy Appellate Panel for the Ninth Circuit overturned a bankruptcy court entry of summary judgment for nondischargeability under Bankruptcy Code § 523(a)(6).  The panel ruled that the bankruptcy court erroneously applied issue preclusion under Ohio law.

This case originated from a dispute between two friends, who both were involved in the breeding and showing of Birman cats. Their relationship eventually deteriorated because of competition and a purported violation of a breeding contract.

The plaintiff contended that the debtor started to discredit and defame her through derogatory emails and online reviews about her cat breeding business and medical practice. This prompted the plaintiff to file an action in Ohio based on claims for defamation, tortious interference, intentional infliction of emotional distress, and a violation of the Ohio Deceptive Trade Practices Act. The court ultimately awarded the plaintiff approximately $300,000 by default judgment.

Thereafter, the debtor moved to California and filed for chapter 7 bankruptcy. In response, the plaintiff initiated a nondischargeability adversary proceeding under Bankruptcy Code §§ 523(a)(2)(A) and 523(a)(6) and moved for summary judgment on the section 523(a)(6) claim for willful and malicious injury.  The bankruptcy court determined that issue preclusion applies and bars relitigation of the state-court claims.  Accordingly, the court granted summary judgment.

On appeal, the issue under consideration was whether the bankruptcy court had erred in awarding summary judgment to the plaintiff based on issue preclusion. The bankruptcy appellate panel determined that the bankruptcy court failed to assess whether the issues were “actually and directly litigated,” a requirement under Ohio law. Accordingly, the panel reversed.

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