Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Bankr. S.D. Fla.: Debtor entitled to discharge of debt, (Jan 13, 2014)

By Jody Coultas, J.D.

Walter Schurtenberger, a debtor, was entitled to discharge of a debt resulting from a pre-petition arbitration award based on the application of the collateral estoppel doctrine, the bankruptcy court in Miami has held (In re: Walter Schurtenberger, January 9, 2014, Cristol, A.).

Cat Charter was awarded a pre-petition arbitration award pursuant to the six separate claims it had filed against Schurtenberger and his boat-building company Multihull Technologies, Inc. for deceptive and unfair practices that violated the Florida Deceptive and Unfair Trade Practices Act (DUTPA). The arbitration proceeded under the Commercial Arbitration Rules of the AAA before a three-member panel, which held that Cat Charter proved its DUTPA claim. The Panel entered an award against Schurtenberger and Multihull, jointly and severally, in the sum of $1,934,544.00 for the principal paid towards construction and purchase of a catamaran, plus $67,380.00 for additional damages, with interest accruing on the damages award at the statutory rate from July 31, 2008.

The Eleventh Circuit held that the arbitrators sufficiently explained the basis for their decision and did not exceed their authority by failing to provide a reasoned award. Although the statements in the award were greater than what was required in a standard award, the Eleventh Circuit also recognized that the Panel could have provided more. Prior to their request for a reasoned award, the parties contemplated requesting a more detailed opinion from the Panel.

Cat Charter sought a determination that the debt was obtained by Schurtenberger through false pretenses, false representations, or actual fraud and therefore was non-dischargeable. Schurtenberger argued that because Cat Charter had the opportunity, and in fact sought judgment for fraud but failed to prove it, collateral estoppel precluded Cat Charter from trying the fraud claim again in this court.

Collateral estoppel prohibits litigants from resurrecting factual and legal issues that were litigated and resolved. For collateral estoppel to apply: (1) the issue at stake must be identical to the one alleged in the prior litigation; (2) the issue must have been actually litigated in the prior litigation; and (3) the determination of the issue in the prior litigation must have been a critical and necessary part of the judgment of that earlier action. It is well settled that an arbitration award can have collateral estoppel effect.

The Panel’s decision not to find fraud collaterally estopped the court from finding fraud to support a judgment of non-dischargeability, according to the court. The elements required to prove a claim under DUTPA do not meet the requirements for non-dischargeability. Although the Panel viewed the evidence presented at arbitration as demonstrating that Schurtenberger made false representations, there was no finding that he intended to deceive Cat Charter or that Cat Charter justifiably relied upon those representations. If the requisite intent and reliance had been proven, the Panel would have found for Cat Charter on their claim for fraud, not solely for violations of DUTPA. Cat Charter relied on the same evidence to show fraud. Therefore, the issue of fraud at stake here were identical to the issue of fraud already covered by the Panel.

The issue of fraud was litigated in the prior litigation, according to the court. Courts have held that “actually litigated” in the context of collateral estoppel “only contemplates that the defendant has been given a full opportunity to defend himself.” The arbitration panel conducted a full evidentiary hearing in which Cat Charter and Schurtenberger were each represented by counsel, both sides put on evidence in support of their positions, and filed post-trial briefs with the Panel.

The determination of the fraud issue in the prior litigation was a critical and necessary part of the judgment of that earlier action, according to the court. The Eleventh Circuit found it clear from the arbitration panel’s award that it believed that Schurtenberger’s misrepresentations caused Cat Charter’s debt. This finding did not prove Cat Charter’s case for non-dischargeability because the Panel rejected Cat Charter’s fraud claim. Cat Charter proved that misrepresentations occurred, but failed to prove intent or justifiable reliance.

Although the court was sympathetic to Cat Charter’s position, Schurtenberger was able to establish all three elements necessary for collateral estoppel. Thus, the debt was dischargeable.

The case is No. 12-17246-BKC-AJC.

Attorneys: Jeffrey P. Bast (Bast Amron LLP) for CAT Charter, LLC. Kevin C Gleason (Kevin Gleason, PA) for Walter Schurtenberger.

Companies: CAT Charter, LLC

Cases: StateUnfairTradePractices FloridaNews