        United States Bankruptcy Appellate Panel
                           For the Eighth Circuit
                       ___________________________

                               No. 13-6019
                       ___________________________

  In re: David Lee Phillips, also known as David L. Phillips, Jr., also known as
 David Lee Phillips, Sr., As surety for Hi-Tech Floors, Inc., As surety for South
 Properties and Leasing, LLC, As surety for Montana Hi-Tech Floors, LLC, As
      surety for 3-Daves, LLC, As surety for California Hi-Tech Floors, Inc.

                              lllllllllllllllllllllDebtor

                            ------------------------------

 Diane L. Phillips, Individually and as Personal Representative of the Estate of
              David L. Phillips Sr., and Sheridan Properties, LLC

                      lllllllllllllllllllll Plaintiffs - Appellees

                                          v.

 David Lee Phillips, also known as David L. Phillips, Jr., As surety for 3-Daves,
  LLC, also known as David Lee Phillips, Sr., As surety for Montana Hi-Tech
Floors, LLC, As surety for Hi-Tech Floors, Inc., As surety for California Hi-Tech
          Floors, Inc., As surety for South Properties and Leasing, LLC

                     lllllllllllllllllllll Defendant - Appellant
                                     ____________

                  Appeal from United States Bankruptcy Court
                    for the District of Minnesota - St. Paul
                                ____________

                           Submitted: October 1, 2013
                            Filed: October 30, 2013
                                ____________
Before FEDERMAN, Chief Judge, SCHERMER and SALADINO, Bankruptcy
Judges.
                          ____________

SALADINO, Bankruptcy Judge.

       Debtor-Defendant, David L. Phillips, Jr. (“Defendant”), appeals from orders
of the bankruptcy court1 awarding judgments against him for intentional conversion
of property, for costs of suit, and determining that the judgments were not discharged
pursuant to 11 U.S.C. § 523(a)(6).2 We have jurisdiction over this appeal from the
final order of the bankruptcy court. See 28 U.S.C. § 158(b). For the reasons set forth
below, we affirm.

                                 Factual Background

       Diane L. Phillips was married to David L. Phillips, Sr. until his death in May
2010, and is the personal representative of his estate. Defendant is the son of David
L. Phillips, Sr. and the stepson of Diane Phillips. Diane Phillips is the sole member
and officer of Sheridan Properties, LLC, a Minnesota limited liability company
(“Sheridan Properties”). Sheridan Properties and Diane Phillips, in her individual
capacity and as the personal representative of the estate of David L. Phillips, Sr., are
the Plaintiffs in the underlying adversary proceeding.



      1
       The Honorable Dennis D. O’Brien, United States Bankruptcy Judge for the
District of Minnesota.
      2
       Specifically, Defendant appeals from the bankruptcy court’s pretrial ruling
regarding collateral estoppel, a judgment and order for judgment dated January 22,
2013, an order denying a motion for amended findings, to vacate judgment, or for
new trial dated April 10, 2013, and a judgment dated April 18, 2013, granting a
judgment for costs.

                                          -2-
       Some time after the death of David L. Phillips, Sr. in 2010, Plaintiffs sued
Defendant, along with his wife, sister, and various entities controlled by them, in the
District Court of Scott County, Minnesota. While the state court case was pending,
Defendant filed his Chapter 7 bankruptcy case on September 9, 2011. Plaintiffs then
timely filed the underlying adversary proceeding against Defendant for a
determination of dischargeability of certain debts. As a result of Defendant’s
bankruptcy filing, the automatic stay prevented the state court case from proceeding
against him. However, the case proceeded against the other defendants in state court,
and trial of the case took place over several days between May 23 and June 1, 2012.
An attorney appeared at trial on behalf of Defendant’s wife and on behalf of one of
her entities, HTP Floors, Inc. That same attorney had previously filed an answer in
state court on behalf of all defendants, but apparently withdrew from representing
some of them prior to trial. Therefore, Defendant, Hi-Tech Floors, Inc. (“Hi-Tech
Floors”) and South Properties and Leasing, LLC (“South Properties”) did not
formally appear, though Defendant participated in the trial as a witness.

       The state court judge issued his Findings of Fact, Conclusions of Law, Order
for Judgment and Judgment on September 27, 1012. Among other things, the court
found that Hi-Tech Floors and South Properties are Minnesota entities owned and
controlled by Defendant, either directly or through ownership interests held by his
wife. It further found that those entities, acting through Defendant, converted assets
belonging to Plaintiffs. In addition to awarding judgment with respect to various
promissory notes and loans, the state court granted judgment for Diane Phillips, as
personal representative of David L. Phillips, Sr., against Hi-Tech Floors for
conversion of assets in the amount of $173,852.00. The state court also entered
judgment in favor of Sheridan Properties for conversion of rents and deposits against
South Properties in the amount of $30,003.54, and jointly against South Properties
and Hi-Tech Floors in the amount of $52,800.00.




                                         -3-
       On November 15, 2012, the bankruptcy court held a pretrial hearing regarding
the collateral estoppel effect of the state court’s findings. On December 3, 2012, prior
to commencement of the trial, the bankruptcy court ruled that:

             With respect to the motion in limine and with respect to the
             collateral estoppel issues, the Court will receive into
             evidence a copy of the judgment, decree, order for
             judgment and the judgment and decree of the state district
             court in these matters. Collateral estoppel issues under
             Minnesota law will apply and they will be binding as to all
             non-debtor defendants, that is to say the corporation,
             corporations and any other defendants. They will be
             binding with respect to ownership of the assets that are also
             involved in this proceeding and the Plaintiff will be
             entitled to introduce evidence as to privity and should
             privity be established through the evidence here, collateral
             estoppel will be extended to be binding on the Defendant
             in this proceeding as well.

       The bankruptcy court then heard testimony and argument over a number of
days between December 3 and December 17, 2012. On February 22, 2013, the
bankruptcy court entered an Order for Judgment finding that Defendant is personally
liable for the conversions found by the state court against Hi-Tech Floors and South
Properties, and that the resulting liability is nondischargeable pursuant to 11 U.S.C.
§ 523(a)(6). Specifically, the bankruptcy court found in part as follows:

                    The state court found that the defendant removed
             and disposed of the converted property without claim of
             right and knowing that he had no claim of right. The only
             reason that judgment was not entered against him
             personally is that the action was stayed against him by the
             bankruptcy filing. He gave extensive testimony at the state
             court trial, essentially repeating the same in the trial here.



                                          -4-
             His testimony in this nondischargeability trial was entirely
             without credibility.

                    The evidence at the trial here, both testimony and
             documentary, overwhelmingly shows that the defendant
             personally controlled the decisions to take the property,
             personally controlled the disposition of it, and, that he did
             so distributing the proceeds to himself and to his
             corporations knowing that they had no right in the property
             or proceeds whatever. His actions were blatant personal
             acts of willful and malicious conversion of property which
             he knew belonged to the plaintiffs. The resulting liability
             is nondischargeable under 11 U.S.C. § 523(a)(6).

      The bankruptcy court then entered judgment against Defendant in favor of
Diane Phillips, as personal representative of the estate of David L. Phillips, Sr., in the
amount of $173,852.00 and in favor of Sheridan Properties in the amount of
$82,803.54, each for intentional conversion of property. Each judgment was held to
be nondischargeable. Subsequently, the bankruptcy court denied Defendant’s motion
to reopen, for amended findings, to vacate judgment, or for a new trial and ordered
judgment in favor of Plaintiffs and against Defendant for costs in the amount of
$5,738.30.

       Defendant timely filed his notice of appeal. He asserts that the trial court erred
in giving collateral estoppel effect to a state court order that was litigated and issued
post-bankruptcy filing and during which Defendant was a witness, but not a party.
Defendant also appeals the judgment for costs.

                                  Standard of Review

      We review the bankruptcy court’s factual findings for clear error and its legal
conclusions de novo. Capital One Auto Fin. v. Osborn, 515 F.3d 817, 821 (8th Cir.
2008). The application of collateral estoppel is an issue of law which we review de

                                           -5-
novo. Tudor Oaks Ltd. P’ship v. Cochrane (In re Cochrane), 124 F.3d 978, 983 (8th
Cir. 1997) (citing United States v. Brekke, 97 F.3d 1043, 1046-47 (8th Cir. 1996),
cert. denied, 520 U.S. 1132, 117 S. Ct. 1281, 137 L. Ed. 2d 356 (1997))

                                       Discussion

        11 U.S.C. § 523(a)(6) provides that a discharge under 11 U.S.C. § 727 “does
not discharge an individual debtor from any debt – . . . (6) for willful and malicious
injury by the debtor to another entity or to the property of another entity[.]” After a
trial, the bankruptcy court found that Defendant’s actions were “blatant personal acts
of willful and malicious conversion of property which he knew belonged to the
plaintiffs.” The bankruptcy court further found that the resulting liability was
nondischargeable under 11 U.S.C. § 523(a)(6).

       Defendant identifies the issue on appeal as follows: “Did the trial court err
when they [sic] gave collateral estoppel effect to a state court’s Findings of Fact,
Conclusions of Law, and Order that was litigated and issued post-filing when
Appellant was a witness but not a party nor represented by counsel in the state court
proceeding?”3 To evaluate this assignment of error, we must first determine precisely
what evidentiary effect the bankruptcy court gave to the state court order. Prior to
commencement of the trial, the bankruptcy court ruled (1) that it will receive the state
court order into evidence; (2) collateral estoppel will be determined under Minnesota
law and the state court ruling will be binding as to the non-debtor defendants; (3) the
state court findings will be binding regarding ownership of the assets by the estate of
David L. Phillips, Sr.; and (4) that Plaintiffs were allowed to present evidence of


      3
        Defendant also asserts that the bankruptcy court erred in granting a judgment
for costs, but this assignment of error is based solely on the assertion that costs should
only be awarded to a prevailing party, and based on the first assignment of error,
Defendant believed Plaintiffs should not have prevailed.

                                           -6-
privity between Defendant and his corporations to expand collateral estoppel to
Defendant.

       Thus, it is clear that the bankruptcy court did not, contrary to Defendant’s
implication, give complete collateral estoppel effect to the state court findings as to
Defendant. At most, the bankruptcy court determined that the state court findings
would only be binding against Defendant as to the ownership of the assets by the
estate of David L. Phillips, Sr.4 Defendant does not dispute that the state court order
was admissible into evidence, nor does he dispute that the concept of privity was a
subject for which evidence could be presented. Thus, this appeal is based solely on
the bankruptcy court’s pretrial ruling that the state court’s findings as to ownership
of the assets was binding on the bankruptcy court.

        Defendant first argues that collateral estoppel, or issue preclusion, should only
apply in dischargeability proceedings in bankruptcy to bar a party from relitigating
discrete issues of fact that were settled via adjudication in “pre-bankruptcy” litigation
to which the debtor was a party. For that proposition, he cites Sells v. Porter (In re
Porter), 539 F.3d 889, 894 (8th Cir. 2008); Hobson Mould Works, Inc. v. Madsen (In
re Madsen), 195 F.3d 988, 989 (8th Cir. 1999); Tudor Oaks Ltd. P’ship v. Cochrane
(In re Cochrane), 124 F.3d 978, 983 (8th Cir. 1997). He argues that the litigation in
the state court did not take place “pre-bankruptcy,” nor was Defendant a party to that
litigation due to his bankruptcy filing.




      4
        This conclusion is not at all clear from the transcript of the bankruptcy court’s
ruling, but Defendant believes this to be the proper interpretation of the oral ruling.
We note, however, that Defendant only provided partial trial transcripts and has not
presented us with any accurate citation to the record showing where the bankruptcy
court prevented him from introducing evidence of asset ownership. The one citation
he did provide in his brief is not accurate.

                                          -7-
        Defendant’s arguments are simply not compelling and his citations are
inaccurate and misleading. He cites to several cases discussing when collateral
estoppel effect should be given to prior judgments. Defendant then interprets those
selective citations to mean that collateral estoppel can only apply to pre-bankruptcy
judgments. That is simply not the holding of the cases cited by Defendant. In fact,
even though the judgments were entered pre-bankruptcy in the cited cases, the courts
in those cases focused only on the fact that the judgments were “prior” to the pending
litigation and without regard to the date of bankruptcy filing. See In re Porter, 539
F.3d at 894 (referring to “prior action”); In re Madsen, 105 F.3d at 989 (also referring
to “prior action”); In re Cochrane, 124 F.3d at 983 (referencing “prior state court
action” and “prior action”). Significantly, Defendant fails to reference a single case
holding that collateral estoppel does not apply if the state court litigation took place
after the date of bankruptcy filing. Defendant’s argument that collateral estoppel
should not apply because the state court judgment was not pre-bankruptcy filing is
without merit.

       Defendant’s argument that collateral estoppel should not apply because he was
not a “party” to the state court case is apparently based on an element of Minnesota
preclusion law. Whether a prior Minnesota state court judgment bars Defendant’s
claims of asset ownership is controlled by the full faith and credit statute, 28 U.S.C.
§ 1738. “[A] federal court must give to a state-court judgment the same preclusive
effect as would be given that judgment under the law of the State in which the
judgment was rendered.” Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75,
81, 104 S. Ct. 892 (1984). Thus, the preclusive effect of the state court judgment
depends upon Minnesota’s preclusion law.

       Under Minnesota law, collateral estoppel is available where (1) the issues are
identical to those in a prior adjudication; (2) there is a final judgment on the merits;
(3) the estopped party was a party or in privity with a party in the previous action; and
(4) the estopped party was given a full and fair opportunity to be heard on the

                                          -8-
adjudicated issues. Ellis v. Minneapolis Comm’n on Civil Rights, 319 N.W.2d. 702,
704 (Minn. 1982). Defendant appears to challenge the third and fourth elements by
arguing that he was not a party to the state court action.5

       We note that technically, Defendant was a “party” to the state court case – the
action was simply stayed against him and proceeded to trial only against the other
defendants due to Defendant’s bankruptcy filing. Defendant identifies himself as
“simply a witness” in the state court case at the time it was tried. The reality,
however, is that Defendant was much more than simply a witness. As a party to the
state court proceeding which commenced three months prior to the bankruptcy filing,
Defendant was well aware that the issues involved ownership and conversion of
assets. He chose to file bankruptcy to avoid having a personal judgment entered. It
is undisputed that Defendant testified extensively at the state court trial and was
found to be in control of the entities and made the decisions on behalf of the entities,
including the decisions to take the property and dispose of it. “[T]he persons for
whose benefit and at whose direction a cause of action is litigated cannot be said to
be ‘strangers to the cause. . . .’” Montana v. United States, 440 U.S. 147, 154, 99 S.
Ct. 970, 974, 59 L. Ed. 2d 210 (1979) (citing Souffront v. Compagnie des Sucreries,
217 U.S. 475, 486-87, 30 S. Ct. 608, 612, 54 L. Ed. 846 (1910)).

      In his reply brief, Defendant also claims he was “hamstrung” by the bankruptcy
court’s ruling that he was bound by the state court findings as to asset ownership. He
seems to believe that he never had a chance to claim ownership of the assets.
However, Defendant participated in the state court trial extensively as a witness and,


      5
       In his brief, Defendant also argues that the issues regarding ownership of the
assets were not “actually litigated” in state court because Hi-Tech Floors and South
Properties were not represented by an attorney at the state court trial. However, a
review of the state court’s ruling makes it clear that ownership of the assets was a
primary issue that was actually litigated.


                                          -9-
according to the state court findings, did assert claims to ownership of the assets.
Specifically, at Finding of Fact No. 44, the state court found: “While Junior asserted
that the vehicles belonged to Montana Hi-Tech, and indirectly HTF, his own actions
show that he did not believe that to be true. He asserted various vehicles belonged
to him ‘either by title or by gift.’” Clearly, Defendant was an active participant in the
state court trial and had the opportunity to claim ownership of any of the assets.
Defendant’s arguments that he was not a party and did not have an opportunity to
litigate ownership of the assets are without merit.6

       Defendant also argues that the state court judgment could not be given
collateral estoppel effect against him because that would violate the automatic stay.
In support of this proposition, Defendant cites to LaBarge v. Vierkant (In re
Vierkant), 240 B.R. 317 (B.A.P. 8th Cir. 1999). In that case, the Eighth Circuit
Bankruptcy Appellate Panel held that a default judgment entered after the
commencement of a Chapter 7 case was taken in violation of the automatic stay and
is void ab initio. Id. at 325. Therefore, the Bankruptcy Appellate Panel reversed a
bankruptcy court finding regarding collateral estoppel effect of the judgment entered
in violation of the stay. Id. Contrary to Defendant’s characterization, the state court
did not enter judgment against him (the debtor in bankruptcy) and, therefore, its
judgment was not void as a violation of the automatic stay. Thus, the references to
the Vierkant decision are simply off the mark.

       Finally, we note that the bankruptcy court correctly gave preclusive effect to
the state court’s determination as to ownership of the assets because a contrary
decision by the bankruptcy court would “wholly undermine” the state court’s ruling.
See Dodson v. Univ. of Arkansas for Med. Scis., 601 F.3d 750, 755 (8th Cir. 2010)


      6
        We note that this argument by Defendant seems somewhat disingenuous since
Defendant did not claim ownership of any of the converted assets or their proceeds
in his bankruptcy schedules.

                                          -10-
(holding that the Rooker-Feldman doctrine forecloses federal jurisdiction when a
decision in favor of a federal litigant would “wholly undermine” the state court’s
ruling.).7

                                     Conclusion

        The bankruptcy court did not err in granting preclusive effect to the Minnesota
state court’s order regarding ownership of the assets at issue and Defendant did not
raise any other assignments of error. Therefore, the decision of the bankruptcy court
is affirmed.
                        ______________________________




      7
        In the two decisions for which the doctrine is named, Rooker v. Fidelity Trust
Co., 263 U.S. 413 (1923), and District of Columbia Court of Appeals v. Feldman, 460
U.S. 462 (1983), the United States Supreme Court established the proposition that
inferior federal courts lack subject-matter jurisdiction over “cases brought by state-
court losers complaining of injuries caused by state-court judgments rendered before
the federal district court proceedings commenced and inviting district court review
and rejection of those judgments.” Exxon Mobil Corp. v. Saudi Basic Indus. Corp.,
544 U.S. 280, 284 (2005). Recently, the Eighth Circuit Court of Appeals observed
that courts sometimes have applied the Rooker-Feldman doctrine too broadly and that
it is appropriate to bypass Rooker-Feldman to reach a preclusion question that
disposes of a case. Cawley v. Celeste (In re Athens/Alpha Gas Corp.), 715 F.3d 230,
235 (8th Cir. 2013).

                                         -11-
