Fleming

Memorandum of Decision

This court has always considered In re Nourbakhsh, 67 F.3d 798 (9th Cir.1995), to have created a bad rule of law. In that case, the Ninth Circuit held that a default judgment is to be given collateral effect in subsequent bankruptcy discharge-ability litigation.

The exceptions to discharge crafted by Congress were intended as a compromise between the public interest in the discharge of debt and the private desire to preserve debt. Under the compromise, fraud and other types of malicious debt are to be excepted from discharge. By allowing default judgments to have preclusive effect, the courts have in effect excepted from discharge debts that may not be the result of any wrongdoing but rather result from neglect, substance abuse, emotional turmoil, or simple inability to afford a lawyer.

Worse, the rule results in complete lack of uniformity: dischargeability is determined based on an arcane rule of state law which differs from state to state. Thus, if a debtor lives in a state which does not give preclusive effect to default judgments, he or she gets a trial on the merits in bankruptcy court on the issue of nondischargeability. See, e.g., Stokes v.…