Arbitration Award Finds Collateral Estoppel in Court

               An arbitration panel found Steven Clem personally liable to LaDainian Tomlinson and LaTorsha Tomlinson in the amount of $744,711 for breach of contract and violations of the Texas Deceptive Trade Practice Act.  Significantly the panel addressed and denied the Tomlinson’s’ clams for misrepresentation and fraud. A state court entered judgment on the award.

               Clem then filed bankruptcy and the Tomlinsons responded with an adversary proceeding claiming non-dischargeability of the entire  judgment.  Among other things, the Tomlinson’s attempted to re litigate issues of fraud.  After a two day trial, the bankruptcy court made findings of fact including fraud and found $664,590.92 was nondischargeable

               The district court affirmed the bankruptcy court.

               Citing prior authority, the Fifth Circuit held arbitral decisions may have preclusive effect and noted specifically collateral estoppel principles apply in bankruptcy dischargeability proceedings.

               The Court stated, “For collateral estoppel to apply in this context, the first court must have “made specific, subordinate, factual findings on the identical dischargeability issue in question – that is, an issue which encompasses the same prima facie elements as the bankruptcy issue.”

               The Fifth Circuit found there was “no question” that several theories of fraudulent misrepresentations or omission were placed squarely before the three-member arbitration panel, and that the panel addressed the facts and legal conclusions as to each.

               The court observed, “When an issue “that forms the basis for the creditor’s theory of nondischargeability has been actually litigated in a prior proceeding, neither the creditor nor the debtor may relitigate those grounds”.

               The finding that the Tomlinson’s claims for misrepresentation and fraud were addressed and denied by the arbitration panel left their claims being solely for breach of contract which were dischargeable in bankruptcy.

               In the Matter of Steven Andrew Clem Debtor.  No 22-11072 (Fifth Circuit December 23, 2024); Steven Andrew Clem v LaDainian Tolinson; La Torsha Tomlinson, U.S.Dist.Ct. Northern Dist. Of Texas, No. 3:18-CV-1200.