U.S. Supreme Court
Heiser v. Woodruff, 327 U.S. 726 (1946)
Heiser v. Woodruff
Argued March 5, 1946
Decided April 22, 1946
327 U.S. 726
1. Where, in a bankruptcy proceeding, allowance of a claim based upon a money judgment acquired against the bankrupt before the bankruptcy is objected to on the ground that the judgment was procured by fraud, but the issue of fraud has been litigated and decided between the claimant and the bankrupt before the bankruptcy, and has since been litigated and decided between the claimant and the trustee in bankruptcy, that issue is res judicata, and may not be litigated further in the bankruptcy proceeding even though, in the previous litigation, the allegations of fraud were not supported by tender of evidence or other proof. Pepper v. Litton, 308 U. S. 295, differentiated. Pp. 327 U. S. 731, 327 U. S. 736.
2. While a bankruptcy court is also a court of equity, and may exercise equity powers in bankruptcy proceedings to set aside fraudulent claims -- including a fraudulent judgment where the issue of fraud has not been adjudicated previously, and may subordinate the claim of one creditor to those of others in order to prevent the consummation of a fraudulent or otherwise inequitable course of conduct, no principle of law or equity sanctions the rejection by a federal court of the salutary principle of res judicata. P. 327 U. S. 732.
3. Since the Bankruptcy Act authorizes a proof of claim based on a judgment, such a proof may be assailed in the bankruptcy court on the ground that the purported judgment is not a judgment because of want of jurisdiction of the court which rendered it over the persons of the parties or the subject matter of the suit, or because it was procured by fraud of a party. P. 327 U. S. 736.
4. In passing upon a proof of claim based on a judgment, however, a bankruptcy court may not reexamine the issues determined by the judgment itself. P. 327 U. S. 736.
5. It is well settled that, where a trustee in bankruptcy unsuccessfully litigates an issue outside the bankruptcy court, the decision against him is binding in the bankruptcy court. P. 327 U. S. 733.
6. In general, a judgment is res judicata not only as to all matters litigated and decided by it, but also as to all relevant issues which could have been, but were not, raised and litigated in the suit. P. 327 U. S. 735. chanroblesvirtualawlibrary
7. Nothing decided in Erie R. Co. v. Tompkins, 304 U. S. 64, requires a bankruptcy court, in applying the statutes of the United States governing the liquidation of bankrupts' estates, to adopt local rules of law in determining what claim are provable, or to be allowed, or how the bankrupt's estate is to be distributed among claimants. P. 327 U. S. 732.
8. In passing upon a proof of claim based on a judgment, a bankruptcy court proceeds -- not without appropriate regard for rights acquired under state law -- under federal statutes which govern the proof and allowance of claims based on judgment. P. 327 U. S. 732.
9. In determining what judgments are provable and what objections may be made to their proof, and in determining the extent to which the inequitable conduct of a claimant in acquiring or asserting his claim in bankruptcy requires its rejection or its subordination to other claims which in other respects are of the same class, the bankruptcy court is defining and applying federal, not state, law. P. 327 U. S. 732.
150 F.2d 869 reversed.
Petitioner filed a claim in bankruptcy based upon a money judgment acquired against the bankrupt before bankruptcy. Respondents objected on the ground that the judgment was procured by fraud. The referee disallowed the claim. The District Court allowed the claim, sustaining petitioner's contention that the issue of fraud had been litigated previously and decided in petitioner's favor in proceedings in which petitioner and the bankrupt or his trustee, or both, had been parties, and was therefore res judicata. The Circuit Court of Appeals reversed. 150 F.2d 869. This Court granted certiorari. 326 U.S. 715. Reversed, p. 327 U. S. 740. chanroblesvirtualawlibrary