HILL, Senior Circuit Judge:
In this appeal we are asked to decide whether the appellee's judgment against the appellant is dischargeable in bankruptcy. The bankruptcy court held that the judgment was nondischargeable and the district court affirmed. For the reasons set forth below, we affirm the order of the district court.
In November of 1989, Balfour Beatty Bahamas, Ltd. ("Balfour Beatty") filed a five count Complaint in the United States District Court for the Southern District of Florida styled Balfour Beatty Bahamas, Ltd. v. Boca Raton Millwork, Inc. and Fred M. Bush ("prior action").
The parties commenced discovery, exchanging requests for documents and trial exhibits. This continued for several months, but problems arose. Bush's counsel had such difficulty contacting Bush that the district court allowed him to withdraw from the case, granting Bush's motion to proceed pro se. The district court ordered all future pleadings be mailed directly to Bush at his home address.
Subsequently, Bush failed to produce trial exhibits despite repeated requests by Balfour Beatty. He also failed to appear for a properly noticed deposition, after Balfour Beatty had sent him three reminder letters enclosing a copy of Federal Rule of Civil Procedure 37(d) outlining the possible consequences of failure to appear. Bush never produced the requested documents, nor appeared for his deposition.
In August of 1990, Balfour Beatty filed a motion for sanctions pursuant to Rule 37(d), Fed.R.Civ.P. Bush responded, claiming he had been out of state during the relevant time periods. Affidavits presented to the district court established that Bush received actual notice of his deposition more than ten days prior to the scheduled date, and that he was not in town on that date.
In November of 1990, the district court conducted a pre-trial conference. Bush failed to appear. During the conference, the court heard oral argument on Balfour Beatty's motion for sanctions. Finding that Bush's conduct warranted the imposition of sanctions, the district court entered a Pre-Trial Order granting Balfour Beatty a judgment by default on the grounds stated in its
On November 7, 1991, Bush filed a voluntary Chapter 7 bankruptcy petition. In the dischargeability proceeding, Balfour Beatty timely filed an adversary complaint to determine dischargeability of its judgment debt against Bush. Balfour Beatty filed a motion for summary judgment, asserting that the default judgment in the prior action conclusively established the elements necessary for the bankruptcy court to hold the debt non-dischargeable under Bankruptcy Code § 523(a)(2)(A) as a debt for money obtained by fraud.
Bush argued that no preclusive effect should be accorded the prior judgment because the issue of fraud had not been actually litigated in the prior action. Bush asserted that he was entitled to deny the fraud, and that Balfour Beatty must put on its proof. The bankruptcy court disagreed, and granted Balfour Beatty's motion for summary judgment holding that Bush was estopped by the default judgment to deny the fraud alleged in Balfour Beatty's complaint. The bankruptcy court then entered a final judgment holding the debt nondischargeable. On review, the district court affirmed the judgment.
The only issue on appeal is whether, in a bankruptcy discharge exception proceeding, a default judgment based upon allegations of fraud may be used to establish conclusively the elements of fraud and prevent discharge of the judgment debt.
We review the decision of the bankruptcy court independently. In re St. Laurent, 991 F.2d 672, 675 (11th Cir.1993). The bankruptcy court's findings of fact are subject to a clearly erroneous standard of review. Fed.R.Bank.P. § 8013. See also In re Garfinkle, 672 F.2d 1340, 1344 (11th Cir. 1982). Its conclusions of law are reviewed de novo. In re James Cable Partners, L.P., 27 F.3d 534, 536 (11th Cir.1994).
Collateral estoppel prohibits the relitigation of issues that have been adjudicated in a prior action. The principles of collateral estoppel apply in discharge exception proceedings in bankruptcy court. Grogan v. Garner, 498 U.S. 279, 285 n. 11, 111 S.Ct. 654, 658 n. 11, 112 L.Ed.2d 755 (1991); In re Latch, 820 F.2d 1163 (11th Cir.1987).
In order for a party to be estopped from relitigating an issue regarding the dischargeability of a debt, a bankruptcy court must find the following four elements present:
In re Yanks, 931 F.2d 42, 43 n. 1 (11th Cir.1991) (citing Restatement (Second) of Judgments § 28(4) (1982)).
In the instant case, the bankruptcy court found that elements one and three were clearly present.
Overseas Motors, Inc. v. Import Motors Ltd., 375 F.Supp. 499, 516 (E.D.Mich.1974), aff'd 519 F.2d 119 (6th Cir.), cert. denied, 423 U.S. 987, 96 S.Ct. 395, 46 L.Ed.2d 304 (1975) (citations omitted). Finding that Bush had ample opportunity to contest the fraud allegations in the prior action, the bankruptcy court gave preclusive effect to the default judgment.
Although Overseas Motors did not involve a bankruptcy discharge proceeding,
The general federal rule, however, is to the contrary.
There is authority to the contrary. A number of bankruptcy courts have given preclusive effect in a dischargeability proceeding to a prior default judgment. See e.g., In re Seifert, 130 B.R. 607, 609 (Bankr.M.D.Fla. 1991); In re Austin, 93 B.R. 723 (Bankr. D.Colo.1988); In re Wilson, 72 B.R. 956, 959 (Bankr.M.D.Fla.1987); In re Eadie, 51 B.R. 890 (Bankr.E.D.Mich.1985). These courts have reasoned that:
In re Wilson, 72 B.R. at 959 (emphasis added).
We also are reluctant to allow this debtor a second bite at the apple. Bush actively participated in the prior action over an extended period of time. Subsequently, he engaged in dilatory and deliberately obstructive conduct, and a default judgment, based upon fraud, was entered as a sanction against him. He now attempts, in this bankruptcy proceeding, to avoid Section 523 by denying the fraud. Such abuse of the judicial process must not be rewarded by a blind application of the general rule denying collateral estoppel effect to a default judgment.
On facts very similar to the instant case, the Court of Appeals for the Ninth Circuit recently affirmed use of a default judgment entered as a sanction to estop a debtor from denying the fraud in bankruptcy court. In re Daily, 47 F.3d 365, 368-69 (9th Cir.1995). Characterizing the prior default judgment as not "ordinary," the Ninth Circuit noted that:
Id. at 368 (emphasis added).
Like Daily, Bush did not simply give up at the outset. He actively participated in the adversary process for almost a year. He was represented by counsel. He answered the complaint. He filed a counterclaim. He filed discovery requests. After undertaking to represent himself, he began to refuse to cooperate in discovery. He refused to produce documents despite repeated requests. He refused to appear at his properly noticed deposition. He did respond to Balfour Beatty's Motion for Sanctions claiming he was out of state on the scheduled day. At the district court's properly noticed pre-trial conference, Bush failed to appear. As in Daily, the default judgment for fraud against Bush was
We find Daily persuasive. Where a party has substantially participated in an action in which he had a full and fair opportunity to defend on the merits, but subsequently chooses not to do so, and even attempts to frustrate the effort to bring the action to judgment, it is not an abuse of discretion
Id. at 368 (alteration in original) (citation omitted). Just as due process is not offended by the entry of a default judgment against a party for failure to cooperate with discovery, Societe Internationale Pour Participations Industrielles et Commerciales, S.A. v. Rogers, 357 U.S. 197, 209-10, 78 S.Ct. 1087, 1094, 2 L.Ed.2d 1255 (1958), neither is due process offended if a debtor is held to the consequences of that judgment in a subsequent bankruptcy discharge proceeding. See Blonder-Tongue Lab. Inc. v. University of Illinois Found., 402 U.S. 313, 328-29, 91 S.Ct. 1434, 1442-43, 28 L.Ed.2d 788 (1971). The order of the district court affirming the judgment of the bankruptcy court is
Another panel of this court has stated that the collateral estoppel law of the state rendering the judgment must be applied in a dischargeability proceeding. See In re St. Laurent, 991 F.2d 672, 675-76 (11th Cir.1993). Because we consider the preclusive effect of a prior federal court default judgment in the instant case, we do not reach the issue of whether Marrese requires that a Florida default judgment be accorded preclusive effect in a bankruptcy discharge proceeding.