A Claim Based on an Expired Judgment

Bankruptcy Debt

The following is a summary of a Minnesota bankruptcy case or a case relevant to Minnesota bankruptcy law.

Minnesota Bankruptcy Case:

Swart v. Dahl (In re Dahl), 2009 WL 3164756 (D. Minn. 9/25/09) (Frank, J.).

Case Summary:

A Claim Based on an Expired Judgment is a Claim for Bankruptcy Purposes if a “Renewal” Action has been Timely Commenced

In September of 1998, Swart sued the Dahls on a claim for fraud, deceit and embezzlement and obtained a judgment for $67,251.65. In August of 2008, as the ten year term of the judgment was about to expire without the judgment having been fully satisfied, Swart brought an action in state court to “renew” the judgment. On October 8, 2008, the Dahls filed bankruptcy. Swart initiated an adversary proceeding, seeking a determination that the debt was nondischargeable under 11 U.S.C. § 523. On crossmotions for summary judgment, the bankruptcy court held that the claim was nondischargeable because it was valid, it was asserted within the applicable limitations period, and it was based on fraud or embezzlement. The Dahls appealed to the district court. The Dahls argued that the bankruptcy court erred because 1) the original judgment expired in September 2008; and 2) the factual findings supporting the original judgment merged with the judgment and expired with it in September 2008, so that they could not form the basis for a “new” judgment.

The district court affirmed the bankruptcy court. “Renewal-of-judgment actions” are permitted under Minnesota law. Shamrock Dev., Inc. v. Smith, 737 N.W.2d 372, 376 (Minn. App. 2007), rev’d on other grounds, 754 N.W.2d 377 (Minn. 2008). In order to renew a judgment, a party must 1) commence the action within ten years after entry of the original judgment, and 2) comply with all the requirements for commencing a civil action. Because Swart commenced the renewal action within ten years after entry of the original judgment, it was timely. It did not matter that the start court had not yet issued the new judgment. The district court held that the debtors were incorrect in their argument that the findings of the state court that issued the judgment merged into the judgment so that after the judgment has expired a court cannot act on the earlier findings. Rather, claim preclusion did not apply because a renewal of judgment action is not a new action based on the same facts; it is simply a action “to extend the temporal life of the original judgment so that they may continue to enforce it until it is fully satisfied—to obtain full satisfaction on the one claim that has been reduced to judgment but not yet entirely paid by the judgment debtors.” Finally, the court held that the action to renew the judgment fell within the meaning of the term “debt” for the purposes of dischargeability proceedings because the code defines “debt” as “liability on a claim,” which includes a “right to payment, whether or not such right is reduced to judgment.” 11 U.S.C. § 101(12).

Credit: The preceding was a summary of a case relevant to Minnesota bankruptcy law. The case summary was prepared by the U.S. Bankruptcy Court through Judge Robert J. Kressel & attorney Faye Knowles.

Leave a Public Comment