In In re Brown, a state court found that one Diana Williams committed fraud and that the debtor “collaborated in a civil conspiracy and joint venture from which [the debtor] benefited at Plaintiff’s expense.” Judge Barry Russell ruled that the state court judgment established non-dischargeable fraud against the debtor and the BAP, in an unpublished opinion, agreed.
The BAP said,
“[G]iven the findings in the State Court Judgment, an exception to discharge is appropriate based upon the imputation of Williams’ fraud to [the debtor] under the test announced in In re Huh. In concluding that [the debtor] participated in a civil conspiracy under California law, the state court necessarily concluded that [the debtor] collaborated with Williams to defraud the Appellees and, thus, that [the debtor] ‘knew or should have known’ of Williams’ wrongdoings.”
An important side note is that Judge Russell told the debtor at the status conference that he was”bound” by the state court decision and essentially had no choice. The BAP notes that collateral estoppel is not mandatory but says that Judge Russell’s comments did not really suggest that he believed he actually had no choice.