United States Court of Appeals
For the First Circuit
No. 24-1766
IN RE: MARY E. BUSCONE,
Debtor.
MARY E. BUSCONE,
Appellant,
v.
ANN TRACY BOTELHO,
Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Julia E. Kobick, U.S. District Judge]
Before
Aframe, Lynch, and Howard,
Circuit Judges.
David G. Baker on brief for appellant.
Michael B. Feinman and Feinman Law Office on brief for
appellee.
April 2, 2025
PER CURIAM. Chapter 13 debtor-appellant Mary E. Buscone
appeals from an order rejecting her objection to a proof of claim
for a Massachusetts state-court judgment that Buscone owes to
appellee Ann Tracy Botelho. Through an adversary proceeding in
Buscone's previous Chapter 7 bankruptcy, Botelho sought a
determination that her judgment against Buscone was excepted from
discharge under 11 U.S.C. § 523(a)(2)(A) and (a)(4). Because of
discovery abuse by Buscone and her counsel in that proceeding, the
bankruptcy court entered default judgment for Botelho. Now in her
second bankruptcy, this time under Chapter 13, Buscone objects to
Botelho's proof of claim for that debt on the same grounds raised
previously and, alternatively, asserts that the interest rate and
accrual date prescribed by Massachusetts state law should not apply
to the Massachusetts state-court judgment. We affirm.
I.
The facts of Buscone's and Botelho's business
relationship as well as their ensuing bankruptcies and litigation
are detailed in a prior opinion by this court on appeal of the
Chapter 7 judgment, see Botelho v. Buscone (In re Buscone), 61
F.4th 10, 16-20 (1st Cir. 2023), and by the district court in the
instant case, see Buscone v. Botelho (In re Buscone), No.
23-cv-13254,
2024 WL 3744547, at *1-3 (D. Mass. Aug. 9, 2024). We
briefly recount the facts essential to this appeal.
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Buscone and Botelho were partners in a now-defunct
frozen yogurt business from May 2012 until January 2014. Botelho,
61 F.4th at 16-17. Botelho later sued Buscone in Massachusetts
state court, alleging various causes of action pertaining to their
business relationship.
Id. at 17 & n.6. When Buscone failed to
respond to the suit, Botelho obtained a default judgment against
her in the amount of $91,673.45 "plus all interest and costs due
thereunder."
Id. at 17, 32.
Shortly thereafter, Buscone filed for Chapter 7
bankruptcy relief. Id. at 17. Botelho initiated an adversary
proceeding against her, seeking a determination that the state-
court judgment was nondischargeable pursuant to
11 U.S.C.
§ 523(a)(2)(A) and (a)(4).
Id. Ultimately, because of significant
discovery misconduct by Buscone and her counsel, David G. Baker,
the bankruptcy court awarded default judgment to Botelho.
Id. at
18-19. We affirmed on appeal.
Id. at 36.
After Buscone subsequently initiated the instant Chapter
13 bankruptcy proceeding, Botelho filed a proof of claim for the
state-court judgment debt excepted from the Chapter 7 proceeding,
which she tabulated at $145,140.42 -- the principal value of the
original judgment plus $53,466.97 in accumulated post-judgment
interest. Buscone objected, raising a previous judicial-estoppel
argument from the Chapter 7 proceeding and, alternatively,
asserting that Botelho's interest calculation was wrong. As to
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the latter, Buscone contended that interest should accrue on the
judgment debt at the federal rate for civil money judgments, see
28 U.S.C. § 1961, and only as of the issuance of the bankruptcy
court's default judgment in the Chapter 7 proceeding, which would
amount to $257.44 by Buscone's calculations. The bankruptcy court
overruled Buscone's objection on both bases, and the district court
affirmed. Buscone,
2024 WL 3744547, at *5-6. This appeal
followed.
II.
"We review the bankruptcy court's findings of fact for
clear error and its conclusions of law de novo." Zizza v.
Harrington (In re Zizza), 875 F.3d 728, 731 (1st Cir. 2017).
"Notwithstanding the fact that we are the second-in-time
reviewers, we cede no special deference to the district court's
determinations." Premier Cap., LLC v. Crawford (In re Crawford),
841 F.3d 1, 6 (1st Cir. 2016) (quoting Gannett v. Carp (In re
Carp),
340 F.3d 15, 21 (1st Cir. 2003)).
We review the application of issue preclusion de novo.
Santiago-Martínez v. Fundación Damas, Inc., 93 F.4th 47, 51 (1st
Cir. 2024). Determinations of the rate and accrual date of post-
judgment interest are likewise reviewed without deference. See
Fratus v. Republic W. Ins. Co.,
147 F.3d 25, 30 & n.5 (1st Cir.
1998).
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III.
Buscone reiterates the same two arguments to us that she
unsuccessfully advanced before the district court: (1) that her
judicial-estoppel argument is not precluded by the bankruptcy
court's default judgment against her in the Chapter 7 proceeding;
and (2) that any post-judgment interest on the state-court judgment
debt should accrue at the federal (as opposed to state) rate from
the date on which the bankruptcy court's default judgment issued
(as opposed to the date on which the state court's default judgment
did). See Buscone, 2024 WL 3744547, at *4-6. We reject each
argument.
A.
Buscone first challenges the bankruptcy court's
conclusion that she is precluded from raising the same affirmative
defense to Botelho's proof of claim that she asserted in her motion
to dismiss Botelho's adversary proceeding in the Chapter 7
bankruptcy. She notes that, in her first bankruptcy proceeding,
the court never reached the merits of her defense, and therefore,
she argues, it "has never been litigated."
Four elements must generally be satisfied to
collaterally estop a party from relitigating a factual or legal
issue in federal court: "(1) the issue sought to be precluded must
be the same as that involved in the prior action; (2) the issue
must have been actually litigated; (3) the issue must have been
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determined by a valid and binding final judgment; and (4) the
determination of the issue must have been essential to the
judgment." Grella v. Salem Five Cent Sav. Bank, 42 F.3d 26, 30
(1st Cir. 1994). The second, "actual-litigation" element is
usually unattainable when the prior action resulted in a default
judgment, as a default does not require actual litigation of any
of the issues raised. See Restatement (Second) of Judgments § 27
cmt. e (1982) ("In the case of a judgment entered by . . . default,
none of the issues is actually litigated. Therefore, [issue
preclusion] does not apply with respect to any issue in a
subsequent action.").
We join numerous other circuits in applying an exception
to this rule: where the default judgment was entered as a sanction
for the estopped litigant's misconduct, and that litigant had the
opportunity to participate in the case before the default
judgment's entry, the default judgment has preclusive effect. See
Murphy v. Snyder, (In re Snyder), 939 F.3d 92, 100-01 (2d Cir.
2019); Wolstein v. Docteroff (In re Docteroff),
133 F.3d 210, 215
(3d Cir. 1997); Cornwell v. Loesch (In re Cornwell),
109 F. App'x
682, 684 (5th Cir. 2004) (per curiam) (unpublished); Herbstein v.
Bruetman,
266 B.R. 676, 683-86 (N.D. Ill. 2001), aff'd,
32 F. App'x
158 (7th Cir. 2002) (unpublished); FDIC v. Daily (In re Daily),
47
F.3d 365, 368-69 (9th Cir. 1995) (per curiam); Melnor, Inc. v.
Corey, (In re Corey),
583 F.3d 1249, 1252-53 (10th Cir. 2009);
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Bush v. Balfour Beatty Bah., Ltd. (In re Bush), 62 F.3d 1319,
1324-25 (11th Cir. 1995); see also 18A Charles Alan Wright & Arthur
A. Miller, Federal Practice and Procedure § 4442 (3d ed. 1998) ("A
'default' entered as a procedural sanction also may support issue
preclusion in closely related litigation in order to further the
purposes of the sanction. . . . To deny preclusion would be to
encourage . . . obstructive tactics."). Indeed, this exception is
already widely applied by our bankruptcy courts under federal and
Massachusetts issue-preclusion law. See, e.g., Gray v. Tacason
(In re Tacason), 537 B.R. 41, 51-54 (B.A.P. 1st Cir. 2015); Acevedo
v. Wells Fargo Bank, N.A. (In re Acevedo), No. 10-43723,
2015 WL
1876857, at *3-4 (Bankr. D. Mass. Apr. 21, 2015); D'Amour v.
Birchall (In re Birchall),
501 B.R. 142, 149 (Bankr. D. Mass.
2013); Backlund v. Stanley-Snow,
405 B.R. 11, 19-21 (B.A.P. 1st
Cir. 2009); Int'l Strategies Grp., Ltd. v. Pomeroy (In re Pomeroy),
353 B.R. 371, 377 (Bankr. D. Mass. 2006); see also McHeffey v.
Pereira (In re Pereira),
428 B.R. 276, 281-82 & n.30 (Bankr. D.
Mass. 2010) (citing standard approvingly without applying).
Here, the default judgment that the bankruptcy court
entered against Buscone in the Chapter 7 proceeding is of precisely
the kind contemplated by this exception. As we noted, this default
judgment was the bankruptcy court's last resort, rendered
necessary by Buscone and Baker's "failure to provide any creditable
argument for not complying with the court's first [discovery]
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order, repeated failures to respond to discovery requests,
attempts to obfuscate issues before the court, and continued
noncompliance despite the fact that the court had already imposed
the lesser sanction of shifting fees." Botelho, 61 F.4th at 30-31.
Such blatant recalcitrance throughout discovery easily satisfies
the first element of this exception, the litigant's misconduct.1
See Snyder, 939 F.3d at 98, 101 (applying exception where
defendants first failed to respond to discovery requests, then
served "inadequate responses" following the plaintiffs' motion to
compel). As to the second element, the litigant's opportunity to
participate, there is no question that Buscone had such an
opportunity in the Chapter 7 proceeding, as demonstrated by her
and Baker's filing of the motion to dismiss, challenging the
1We note that courts have applied this exception where the
misconduct was less severe than the conduct at issue here. See
Herbstein, 266 B.R. at 679-81 (estopped party refused to comply
with a single discovery order "because of their inability to
assemble and prepare the [necessary] information without
professional accounting assistance" and the state court provided
a single warning before entering a default judgment); Daily,
47
F.3d at 368 ("[T]he 'actual litigation' requirement may be
satisfied by substantial participation in an adversary contest in
which the party is afforded a reasonable opportunity to defend
himself on the merits but chooses not to do so."); Cornwell, 109
F. App'x at 684 (preceding judgment need only be "a post-answer
default entered as a sanction for discovery violations"); Murphy,
939 F.3d at 100 ("[W]here the default judgment is entered as a
sanction for bad conduct, and the party being estopped had the
opportunity to participate in the underlying litigation, the
default judgment has preclusive effect . . . ."). Given the
egregiousness of the misconduct in this case, we need not discern
a minimum standard of misconduct that would support application of
the exception.
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bankruptcy court's first round of sanctions, and providing
"arguably sarcastic and evasive responses to interrogatories."
Botelho, 61 F.4th at 18-19, 29. We accordingly agree that
Buscone's conduct warrants application of this exception to the
actual-litigation requirement, and she is therefore estopped from
reasserting the affirmative defense she raised in the Chapter 7
proceeding again in the present case.
B.
In the alternative, Buscone argues that Botelho
miscalculated the post-judgment interest accrued on the
state-court judgment against her. Rather than apply the rate set
by Massachusetts law as of the state-court judgment's entry as
dictated by Mass. Gen. Laws ch. 231, §§ 6B, 6C, 6H and ch. 235,
§ 8, Buscone insists that the post-judgment interest on the debt
must be calculated according to the federal rate under 28 U.S.C.
§ 1961 and as of the bankruptcy court's entry of default judgment
in the Chapter 7 proceeding. This attempt to reduce the value of
Botelho's claim is unavailing.
As we acknowledged in her last appeal, see id. at 34-35,
we concur with the conclusion reached by other courts that interest
accrues on a valid pre-petition judgment obtained in state court
at the rate set by state law from the date of the judgment's entry.
See Hamilton v. Elite of L.A., Inc. (In re Hamilton),
584 B.R.
310, 322-25 (B.A.P. 9th Cir. 2018), aff'd,
785 F. App'x 438 (9th
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Cir. 2019) (unpublished); cf. Old Republic Nat'l Title Ins. Co. v.
Levasseur (In re Levasseur), 737 F.3d 814, 817 (1st Cir. 2013)
(finding "no error" in bankruptcy court's determination that pre-
petition judgment, subject to post-judgment interest accrual set
by Massachusetts state court, is excepted from discharge). In
this case, Botelho's claim plainly arises from the judgment that
she obtained against Buscone in Massachusetts state court. When
Botelho subsequently brought the adversary proceeding in the
Chapter 7 bankruptcy, the bankruptcy court "incorporated and gave
effect to the state court judgment and the language regarding [the]
interest rate," addressing only the preexisting judgment debt's
dischargeability. In so limiting its ruling, the Chapter 7
bankruptcy court did not displace the state-court judgment with
one under federal law or otherwise impose a new money judgment on
Buscone from which Botelho's claim could be construed to arise.
Thus, the post-judgment interest rate under Massachusetts state
law continues to apply to the judgment debt, accruing as of the
entry of the state-court judgment.
IV.
Affirmed.
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