                                                                      FILED
                                                           United States Court of Appeals
                                                                   Tenth Circuit

                                                                   May 4, 2011
                    UNITED STATES COURT OF APPEALS
                                                 Elisabeth A. Shumaker
                                                                   Clerk of Court
                             FOR THE TENTH CIRCUIT


    In re: LANNY ALLEN LAMPHERE,

              Debtor.
    _________________________
                                                       No. 10-6213
    JACK SHULMAN; AMERICAN                     (D.C. No. 5:10-CV-00021-HE)
    COMPUTER COMPANY,                                  (W.D. Okla.)

               Appellants,

    v.

    LANNY ALLEN LAMPHERE,

               Appellee.


                             ORDER AND JUDGMENT *


Before TYMKOVICH and BALDOCK, Circuit Judges, and BRORBY, Senior
Circuit Judge.


         Jack Shulman and American Computer Company (collectively, “Shulman”)

appeal the bankruptcy court’s judgment in favor of debtor Lanny Allen Lamphere



*
       After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument. This order and judgment is
not binding precedent, except under the doctrines of law of the case, res judicata,
and collateral estoppel. It may be cited, however, for its persuasive value
consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
in an adversary proceeding contesting the dischargeability of a New Jersey

judgment. Exercising jurisdiction under 28 U.S.C. § 158(d), we affirm.

                                    Background

      Shulman sued Lamphere in New Jersey for libel and defamation. Lamphere

initially appeared and defended himself, but his answer was suppressed and his

counterclaim was stricken because he did not participate in discovery. After he

failed to appear for trial, the New Jersey court entered a default judgment, finding

that he acted with malice as defined under New Jersey law and that Shulman was

entitled to $431,000 in compensatory and punitive damages.

      Lamphere later filed a bankruptcy petition in the Western District of

Oklahoma. Relying on 11 U.S.C. § 523(a)(6), which excepts from discharge a

debt “for willful and malicious injury by the debtor to another entity or to the

property of another entity,” Shulman initiated an adversary proceeding to have the

New Jersey judgment declared nondischargeable. He asked the bankruptcy court

to give preclusive effect to the New Jersey court’s finding that Lamphere acted

with malice. The bankruptcy court held that, under New Jersey law, a default

judgment was not subject to collateral estoppel (issue preclusion). At trial, the

bankruptcy court further found that Shulman had not established the requirements

of § 523(a)(6). Accordingly, it entered judgment for Lamphere. On appeal, the

district court agreed with both decisions. Shulman now appeals to this court.




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                                      Analysis

      Shulman raises only one issue before this court: whether the bankruptcy

court erred in declining to apply collateral estoppel to the New Jersey default

judgment. 1 “Our review of the bankruptcy court’s decision is governed by the

same standards of review that govern the district court’s review of the bankruptcy

court.” Sovereign Bank v. Hepner (In re Roser), 613 F.3d 1240, 1243 (10th Cir.

2010) (quotation omitted). “Because this case presents no disputed factual issues

but only matters of law, our review is de novo.” Id.

      “The preclusive effect of a state court judgment in a subsequent federal

lawsuit generally is determined by the full faith and credit statute, [28 U.S.C.

§ 1738].” Marrese v. Am. Acad. of Orthopaedic Surgeons, 470 U.S. 373, 380

(1985). “This statute directs a federal court to refer to the preclusion law of the

State in which judgment was rendered.” Id. Of New Jersey’s five requirements

for collateral estoppel, the only element relevant to this case is the second: that

“the issue was actually litigated in the prior proceeding.” First Union Nat’l Bank

v. Penn Salem Marina, Inc., 921 A.2d 417, 423-24 (N.J. 2007).

      Under New Jersey law, the entry of a default judgment generally means that

the underlying issues were not actually litigated and determined, and thus the


1
       Shulman’s opening brief does not appear to contest the bankruptcy court’s
conclusion, at trial, that the evidence did not satisfy § 523(a)(6). To the extent
Shulman intended to assert any such arguments, they are waived by inadequate
briefing. See Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 679 (10th Cir. 1998).

                                         -3-
“actually litigated” element is not satisfied. See Slowinski v. Valley Nat’l Bank,

624 A.2d 85, 91 (N.J. Super.Ct.App.Div.1993); Maglificio Allesandra v. Gross,

453 A.2d 904, 910 (N.J. Super.Ct.App.Div.1982); see also In re McMillan,

579 F.2d 289, 292-93 (3d Cir. 1978); Mattson v. Hawkins (In re Hawkins),

231 B.R. 222, 231-32 (D. N.J. 1999). Shulman points to a recent New Jersey

Supreme Court decision as authority that under some circumstances, New Jersey

will consider the issue litigated even when the first case resulted in a default

judgment. See First Union Nat’l Bank, 921 A.2d at 425. But First Union

National Bank’s determination regarding the actual litigation factor rested, in

large part, on the fact that it was the defendants who sought to apply preclusion in

the second action. “When defendants do not claim prejudice as a result of a

default judgment, there is no justification to give weight to that factor.” Id.

Here, it is not Lamphere who seeks the advantage of preclusion, but Shulman.

      Shulman also argues that this case does not involve a default entered in the

complete absence of the defendant. Instead, Lamphere filed an answer and

counterclaims in the New Jersey proceeding and participated in the action until

the discovery phase. But the New Jersey appellate court has refused to apply

collateral estoppel to a default judgment obtained where a party initially

participated in the proceedings. See Maglificio Allesandra, 453 A.2d at 906-07,

910. And the Bankruptcy Court for the District of New Jersey recently rejected

collateral estoppel under circumstances analogous to this case. See Grumbine v.

                                          -4-
Azeglio (In re Azeglio), 422 B.R. 490 (Bankr. D. N.J. 2010). Stating that

“New Jersey courts . . . agree that collateral estoppel may not be applied in the

case of a default judgment,” that court continued, “[w]hat is not so clear is how

the New Jersey Supreme Court might rule on the applicability of collateral

estoppel” where a defendant actively participated in pretrial activity but failed to

appear at trial due to lack of notice. Id. at 494-95.

             A review of New Jersey Supreme Court and Superior Court,
      Appellate Division, issue preclusion cases suggests that the New
      Jersey Supreme Court is unlikely to afford preclusive effect to a state
      court judgment where the defendant participated in pretrial
      proceedings but did not have notice of and did not appear for the
      trial. These cases apply collateral estoppel only when the defendant
      in the initial action had the opportunity to fully and actively
      participate in the actual trial, and the manner in which the trial was
      conducted merited a bar to relitigation of the issues determined.

Id. at 495.

      We recognize that Lamphere had notice of the state trial and chose not to

appear. Given New Jersey’s general rule and the lack of New Jersey authority to

the contrary, however, we conclude that the New Jersey Supreme Court would be

unlikely to apply collateral estoppel simply because Lamphere initially

participated in the suit. This determination is reinforced by the Restatement

(Second) of Judgments, which New Jersey follows, see Maglificio Allesandra,

453 A.2d at 909. “In the case of a judgment entered by . . . default, none of the

issues is actually litigated. Therefore, the rule of this Section does not apply with

respect to any issue in a subsequent action.” Restatement (Second) of Judgments,

                                          -5-
§ 27 cmt. e (1982). The Restatement urges a uniform application of the

preclusion rules:

            It is true that it is sometimes difficult to determine whether an
      issue was actually litigated; even if it was not litigated, the party’s
      reasons for not litigating in the prior action may be such that
      preclusion would be appropriate. But the policy considerations . . .
      weigh strongly in favor of nonpreclusion, and it is in the interest of
      predictability and simplicity for such a result to obtain uniformly.

Id. Moreover, by all indications, Lamphere simply stopped participating in the

New Jersey action, which distinguishes this case from other circumstances which

may justify applying collateral estoppel to a default judgment. Cf. Melnor, Inc. v.

Corey (In re Corey), 583 F.3d 1249, 1251 (10th Cir. 2009) (applying collateral

estoppel to a federal default judgment where “[t]he default was not entered

because of [debtor’s] failure to contest the issue but rather because his efforts in

contesting it were abusive”), cert. denied, 130 S. Ct. 1739 (2010).

                                   Conclusion

      Because the bankruptcy court did not err in declining to apply collateral

estoppel, the judgment is AFFIRMED.

                                                     Entered for the Court



                                                     Bobby R. Baldock
                                                     Circuit Judge




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