Thermal Surgical, LLC v. Brown

24-127

Thermal Surgical, LLC v. Brown

In the

United States Court of Appeals

For the Second Circuit

August Term, 2024

(Argued: January 7, 2025 Decided: August 8, 2025)

Docket No. 24-127

THERMAL SURGICAL, LLC,

Plaintiff-Counter-Defendant-Appellee,

–v.–

JEFF BROWN,

Defendant-Third-Party-Plaintiff-Appellant,

JASON LESAGE, GREGORY SWEET, NUVASIVE, INC.,

Defendants. *

Before: WALKER, ROBINSON, AND MERRIAM, Circuit Judges.

* The Clerk’s office is respectfully directed to amend the caption as reflected above.

Defendant Jeff Brown appeals from a judgment of the United States

District Court for the District of Vermont (Sessions, J.) in favor of Plaintiff

Thermal Surgical, LLC (“Thermal Surgical”). When Brown filed for

bankruptcy, Thermal Surgical had pending claims against him in district

court for allegedly breaching his obligations under their non-compete

agreement. In the bankruptcy court, Thermal Surgical filed a proof of claim.

Brown never objected to Thermal Surgical’s proof of claim and eventually

waived his right to discharge. The bankruptcy court allowed Thermal

Surgical’s proof of claim, and Thermal Surgical received a distribution from

Brown’s bankruptcy estate satisfying a fraction of its allowed claim.

The central issue in this appeal is whether, in the ongoing district

court action, Thermal Surgical can invoke claim preclusion offensively to

secure a judgment against Brown for the balance of the allowed claim. On

reconsideration of its initial decision, the district court concluded that it

could, and on summary judgment granted Thermal Surgical a money

judgment for the balance of the allowed claim.

In assessing this question of first impression, we conclude otherwise.

We have serious doubts as to whether claim preclusion can ever be used

offensively to compel a judgment rather than resist a claim; but we need not

resolve the question because we conclude that application of claim

preclusion here would be unfair because Brown had less incentive to contest

the unlitigated claim in the bankruptcy proceeding.

Thus, we VACATE the district court’s judgment and REMAND for

further proceedings.

MARY TAYLOR GALLAGHER, Gullett, Sanford,

Robinson & Martin, PLLC, Nashville, TN

(Christopher, W. Cardwell, Gullett, Sanford,

Robinson, & Martin, PLCC, Nashville, TN; Gary F.

Karnedy, Ryan Long, Primmer Piper Eggleston &

Cramer PC, Burlington, VT, on the brief) for Plaintiff-

Appellee.

2

FRANK P. URSO, Law Office of Frank P. Urso,

Rutland, VT, for Defendant-Appellant.

ROBINSON, Circuit Judge:

Defendant Jeff Brown is a former medical sales representative for Plaintiff

Thermal Surgical, LLC (“Thermal Surgical”). In 2015, Thermal Surgical sued

Brown in the United States District Court for the District of Vermont for allegedly

breaching a non-compete agreement and his common law duty of loyalty and

misappropriating trade secrets. The district court litigation was stayed in 2016

when Brown filed for Chapter 7 bankruptcy in the New Hampshire bankruptcy

court.

In that bankruptcy proceeding, Thermal Surgical filed a proof of claim

seeking $315,000 due to Brown’s alleged breaches. Neither Brown nor the

bankruptcy trustee ultimately objected to Thermal Surgical’s proof of claim. After

Brown waived his right to discharge, the bankruptcy court entered an order

allowing Thermal Surgical’s proof of claim in full. The bankruptcy trustee’s final

report reflected the bankruptcy court’s allowance order, and when nobody

objected, the bankruptcy trustee distributed $12,620.47 to Thermal Surgical.

The district court subsequently lifted the stay and, invoking claim

preclusion, Thermal Surgical sought summary judgment for the balance of the

3

claim allowed by the bankruptcy court. Brown, representing himself, opposed,

arguing that the bankruptcy proceeding didn’t afford him sufficient due process,

so claim preclusion should not apply.

The District of Vermont (Sessions, J.) initially denied Thermal Surgical’s

motion, concluding that allowing Thermal Surgical’s proposed offensive use of

claim preclusion in this case would be unfair. Thermal Surgical, LLC v. Brown, Nos.

2:15-cv-220, 2:19-cv-75, 2020 WL 3546823, at *5 (D. Vt. June 30, 2020) (“Thermal

Surgical I”). At Thermal Surgical’s request, the district court reconsidered its

decision and concluded that claim preclusion did apply in this context. Thermal

Surgical, LLC v. Brown, Nos. 2:15-cv-220, 2:19-cv-75, 2021 WL 5178503, at *2–3 (D.

Vt. Feb. 8, 2021) (“Thermal Surgical II”). The district court entered judgment for

Thermal Surgical for the balance of the allowed claim.

On appeal, Brown argues that the district court abused its discretion by

deciding to reconsider its denial of Thermal Surgical’s summary judgment motion

absent any of the ordinary grounds for reconsideration. And he contends that the

bankruptcy court’s allowance of Thermal Surgical’s uncontested claim does not

constitute a final judgment that has a preclusive effect with respect to Thermal

Surgical’s claims against Brown in this case.

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Because we agree with Brown on the second point, we need not address the

first. Although we have recognized that a bankruptcy court’s allowance of a claim

serves as a final judgment that may preclude claims challenging that judgment,

we have serious doubts as to whether preclusion can ever be used offensively to

compel a judgment rather than resist a claim. We need not resolve the question

because we conclude that even if a district court can potentially apply claim

preclusion offensively as a general matter, it cannot do so if it would be unfair.

And application of claim preclusion here would be unfair to Brown. Accordingly,

we VACATE the district court’s summary judgment for Thermal Surgical and

REMAND to the district court for further proceedings.

BACKGROUND

Thermal Surgical is the exclusive distributor for NuVasive, Inc.

(“NuVasive”), which designs, manufactures, and markets certain medical devices

used in spinal surgery. Thermal Surgical alleges that beginning in October 2014,

its former employee Brown began working for a competitor and undercut sales

and commissions for both Thermal Surgical and NuVasive. As a result, Thermal

Surgical sued for damages in October 2015 alleging that Brown breached his

contractual non-compete and non-solicitation obligations, breached the common

law duty of loyalty, and misappropriated trade secrets. Brown answered the

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complaint, asserted several counterclaims against Thermal Surgical, and brought

a third-party claim against NuVasive. 1

The district court litigation was stayed in September 2016 when Brown filed

for Chapter 7 bankruptcy relief in the Bankruptcy Court for the District of New

Hampshire. October 2017, Thermal Surgical filed an adversary action in the

bankruptcy court alleging that Brown was being untruthful about his assets and

objecting to discharge of Brown’s debt.

In June of 2018, Thermal Surgical and NuVasive each filed a proof of claim

in the bankruptcy case. Thermal Surgical sought $315,000 for lost commissions

due to Brown’s alleged breach of the non-compete agreement and his duty of

loyalty, and attached to its proof of claim the complaint it filed in the District of

Vermont. NuVasive sought $1.5 million based on lost sales because of Brown’s

alleged violation of the non-compete agreement and his duty of loyalty.

In September 2018, the bankruptcy trustee sought the court’s approval of an

agreement with NuVasive and Thermal Surgical in lieu of filing formal objections

to their claims. Pursuant to that agreement, NuVasive would reduce its claim from

1 Brown also brought third-party claims against two individual principals of Thermal Surgical,

Gregory Sweet and Jason LeSage. After the bankruptcy proceedings described below, the district

court granted these third-party defendants summary judgment in a ruling Brown does not

challenge on appeal. Thermal Surgical I, 2020 WL 3546823, at *3. Because these claims do not bear

on our analysis, we do not reference them in our discussion.

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$1.5 million to $1.2 million in recognition of its recovery of $250,000 in a separate

action against Brown’s new employer, and in exchange for the trustee’s agreement

that the bankruptcy court could order dismissal of all of Brown’s counterclaims

and third-party claims in the District of Vermont action. As to Thermal Surgical’s

claim, the agreement provided that upon the court’s approval of a separate

settlement agreement in the adversary action authorizing the entry of a judgment

for Thermal Surgical in the amount of $300,000, Thermal Surgical’s proof of claim

would be disallowed. Both NuVasive and Thermal Surgical would waive

administrative claims. The parties simultaneously filed a joint motion for entry of

a stipulated order providing that Thermal Surgical would dismiss its adversary

action, and the bankruptcy court would enter a non-dischargeable judgment of

$300,000 against Brown and in favor of Thermal Surgical.

Before the bankruptcy court ruled on these motions, Brown waived his right

to discharge under 11 U.S.C. § 727(a)(10). The bankruptcy court issued an order

approving the waiver in November 2018. Thereafter, the bankruptcy court

dismissed the adversary proceeding pursuant to the parties’ agreement, and the

trustee orally moved to allow Thermal Surgical’s claim.

In December 2018, the bankruptcy court entered an order allowing the

NuVasive and Thermal Surgical proofs of claim (the “Allowance Order”). The

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Allowance Order reduced NuVasive’s claim from $1.5 million to $1.2 million;

authorized Thermal Surgical, NuVasive, and its employees to file motions to

dismiss the counterclaims and third-party claims Brown filed in the district court

and deemed those claims resolved; and allowed Thermal Surgical’s proof of claim

in the amount of $315,000.

The bankruptcy trustee’s final report, consistent with the Allowance Order,

showed allowed amounts of $1.2 million for the NuVasive claim and $315,000 for

the Thermal Surgical claim. It provided for distributions from the bankruptcy

estate of $48,077.97 to NuVasive and $12,620.47 to Thermal Surgical. Nobody

objected, and by July 2019, the bankruptcy trustee distributed the funds as

planned. The uncompensated balance on NuVasive’s claim was $1,151,922.03, and

Thermal Surgical’s was $302,379.53. Brown’s bankruptcy proceeding was closed

in December 2019.

Meanwhile, in May 2019, NuVasive filed a lawsuit in the District of Vermont

(the “NuVasive lawsuit”) echoing Thermal Surgical’s claims and asserting that it

was a third-party beneficiary of Brown’s employment agreement with Thermal

Surgical. The NuVasive lawsuit was then consolidated with the Thermal Surgical

lawsuit. The district court lifted the stay, and NuVasive and Thermal Surgical

sought summary judgment for the remaining balances on their allowed claims in

8

the bankruptcy court. They argued that the bankruptcy proceeding resolved all

pending claims and they were entitled to judgments on the basis of claim

preclusion. Brown opposed the motion arguing in part that he was not properly

represented in the bankruptcy case, and he was denied due process.

In June 2020, the district court granted summary judgment to NuVasive and

Thermal Surgical on Brown’s counterclaims and third-party claims against them

and denied them summary judgment with respect to their claims against Brown.

Thermal Surgical I, 2020 WL 3546823, at *3–5. The district court emphasized that

Thermal Surgical and NuVasive were attempting to use claim preclusion

offensively as opposed to defensively and concluded that allowing that in this case

would be unfair. Id. at *4–5.

At Thermal Surgical and NuVasive’s request, the district court reconsidered

its denial of summary judgment. Thermal Surgical II, 2021 WL 5178503, at *1. As

to NuVasive’s claims, the district court affirmed its denial of summary judgment

because it wasn’t clear that their claims in the district court were the same as their

allowed claims in the bankruptcy court. Id. at *1–2. But the district court changed

course on Thermal Surgical’s claims. Id. at *2. Citing this Court’s prior holding

that an accepted proof of claim can serve as final judgment on the merits entitled

to preclusive effect, and recognizing that Brown didn’t contest Thermal Surgical’s

9

proof of claim despite multiple opportunities to do so, the district court concluded

that Thermal Surgical was entitled to summary judgment and thus reversed its

previous decision. Id. After resolution of one additional counterclaim that Brown

was permitted to file, and pursuant to the parties’ stipulation, the district court

subsequently dismissed NuVasive’s claims and entered judgment for Thermal

Surgical in the amount of $302,379.53, the remaining balance on the allowed claim

in the bankruptcy court. 2 Brown timely appealed.

DISCUSSION

Brown challenges both the district court’s decision to reconsider its initial

ruling and the merits of its summary judgment ruling on reconsideration. Because

we conclude that the district court got it right on the merits in its first decision, we

need not decide whether, wholly apart from the merits, the district court lacked

proper grounds to reconsider its initial ruling.

We review the grant of summary judgment without deference to the district

court’s analysis. See Loomis v. ACE American Insurance Company, 91 F.4th 565, 572

2 The district court originally dismissed NuVasive’s claims without prejudice, but the parties’

stipulation provided that the dismissal would be with prejudice if NuVasive did not refile its

claims within six months. Because NuVasive did not do so, we are satisfied that the district

court’s judgment is now final and we have jurisdiction pursuant to 28 U.S.C. § 1291. See Jewish

People for the Betterment of Westhampton Beach v. Village of Westhampton Beach, 778 F.3d 390, 394 (2d

Cir. 2015) (holding that plaintiffs disclaiming “any intent to revive their dismissed claim”

removed any “potential obstacle to appellate jurisdiction” under § 1291).

10

(2d Cir. 2024). Summary judgment is appropriate only if “there is no genuine

dispute as to any material fact and the movant is entitled to judgment as a matter

of law.” Fed. R. Civ. P. 56(a). 3 We review the district court’s application of claim

preclusion without deference. EDP Medical Computer Systems, Inc. v. United States,

480 F.3d 621, 624 (2d Cir. 2007).

Claim preclusion “prevents parties from raising issues that could have been

raised and decided in a prior action—even if they were not actually litigated.”

Lucky Brand Dungarees, Inc. v. Marcel Fashions Group, Inc., 590 U.S. 405, 412 (2020);

see also Allen v. McCurry, 449 U.S. 90, 94 (1980) (stating that claim preclusion

“precludes the parties or their privies from relitigating issues that were or could

have been raised in that action” after the court issues “a final judgment on the

merits”). It applies “with full force” to matters that a bankruptcy court decides.

EDP Medical, 480 F.3d at 624. Claim preclusion applies in a later litigation “if an

earlier decision was (1) a final judgment on the merits, (2) by a court of competent

jurisdiction, (3) in a case involving the same parties or their privies, and (4)

involving the same cause of action.” Hecht v. United Collection Bureau, Inc., 691 F.3d

218, 221–22 (2d Cir. 2012).

3In quotations from caselaw and the parties’ briefing, this opinion omits all internal quotation

marks, footnotes, and citations, and accepts all alterations, unless otherwise noted.

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In challenging the district court’s application of claim preclusion, Brown

repeats the district court’s pre-reconsideration assessment that Thermal Surgical

cannot invoke claim preclusion offensively to compel a judgment on its claims. In

response, Thermal Surgical argues that our decision in EDP Medical establishes

that the bankruptcy court’s allowance of its claims constitutes a final judgment

with preclusive effect in future litigation.

We conclude that EDP Medical doesn’t answer the decisive question here—

whether Thermal Surgical can invoke the bankruptcy court’s Allowance Order

offensively to preclude Brown from defending against its claims. 4 We have serious

doubts about whether claim preclusion can ever apply offensively, but need not

resolve that broader question here. At a minimum, claim preclusion cannot apply

offensively where its application would be unfair, and for several reasons, it would

be unfair here.

A. EDP Medical is Inapposite

In EDP Medical, the plaintiff, EDP Medical, filed for bankruptcy. 480 F.3d at

623. The Internal Revenue Service (“IRS”) filed a proof of claim reflecting EDP

Medical’s pre-petition tax liability. Id. The bankruptcy trustee objected, and a

4 The district court dismissed Brown’s counterclaims against Thermal Surgical based on claim

preclusion arising from the bankruptcy court’s order. Thermal Surgical I, 2020 WL 3546823, at *3.

Brown does not challenge this ruling on appeal.

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hearing was scheduled. Id. Prior to the hearing, the IRS amended its proof of

claim to add an additional amount. Id. Neither the trustee nor EDP Medical

objected to the amended proof of claim and the bankruptcy court issued an order

allowing it. Id. The trustee accordingly paid the United States Treasury in full

satisfaction of the claim plus interest. Id. at 624. About a year after the bankruptcy

case was closed, EDP Medical filed with the IRS a request for a refund of the full

amount paid; when that request was denied, EDP Medical filed a civil lawsuit

seeking the refund. Id. The district court granted the government summary

judgment based in part on its conclusion that the bankruptcy court’s allowance

order had preclusive effect. Id. We agreed and held that “a bankruptcy court order

allowing an uncontested proof of claim constitutes a final judgment and is thus a

predicate” for claim preclusion. Id. at 625. In so holding, we rejected the argument

that claim preclusion is not available because the amended proof of claim wasn’t

actually litigated on the merits. Id. at 626.

EDP Medical is instructive, but it doesn’t answer the pivotal question here:

whether Thermal Surgical can invoke claim preclusion offensively to compel a

money judgment against Brown based on the allowed claim. In EDP Medical, the

government invoked claim preclusion defensively to preclude EDP Medical from

advancing a claim that was inconsistent with the bankruptcy court’s judgment. Id.

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at 624-25. Here, Thermal Surgical invokes the bankruptcy court’s Allowance

Order in an effort to preclude Brown from defending against Thermal Surgical’s

claims as opposed to preventing Brown from advancing his own affirmative claims.

EDP Medical doesn’t address this circumstance.

B. Offensive Claim Preclusion Generally

Thermal Surgical’s position is at odds with our general understanding of

claim preclusion as a defensive tool. See Monahan v. New York City Dept. of

Corrections, 214 F.3d 275, 283 (2d Cir. 2000) (noting that claim preclusion is an

affirmative defense); Robbins v. MED-1 Solutions, LLC, 13 F.4th 652, 657 (7th Cir.

2021) (“[C]laim preclusion is a shield, not a sword.”); Amy Coney Barrett,

Procedural Common Law, 94 Va. L. Rev. 813, 830 (2008) (“Claim preclusion generally

applies only to those asserting claims, not to those defending against them. . . .”).

We have previously noted that “[f]or the past quarter of a century, we have

assumed that claim preclusion may bar a litigation defense but we have not had a

case in which we have found a defense to be so precluded.” Marcel Fashions Group,

Inc. v. Lucky Brand Dungarees, Inc., 898 F.3d 232, 237 (2d Cir. 2018), rev’d by Lucky

Brand Dungarees, 590 U.S. at 417. For example, in Clarke v. Frank, we explained that

“[c]laim preclusion prevents a party from litigating any issue or defense that could

have been raised or decided in a previous suit,” but then concluded that the

14

defendant wasn’t precluded from raising a defense given the facts of that case. 960

F.2d 1146, 1150–51 (2d Cir. 1992).

In Marcel Fashions Group, we concluded that the defendant was precluded

from raising an unlitigated defense that it could have raised in prior litigation. 898

F.3d at 237–41. The United States Supreme Court reversed that decision because

it concluded that the subsequent litigation did not involve the same cause of action

as the prior decided case. Lucky Brand, 590 U.S. at 413–15. In doing so, the

Supreme Court noted that “[t]here may be good reasons to question any

application of claim preclusion to defenses.” Id. at 413 n.2. Specifically, it noted

that “various considerations, other than actual merits, may govern whether to

bring a defense” including the amount in controversy. Id. However, it explicitly

declined to address “when (if ever) applying claim preclusion to defenses may be

appropriate.” Id.

Looking to our sister circuits, we have found no decision blessing the use of

claim preclusion to bar defense of a claim rather than to preclude an affirmative

claim. See, e.g., Robbins, 13 F.4th at 657 (applying Indiana law and concluding that

“[o]ffensive claim preclusion is nonexistent.”); Sharp Kabushiki Kaisha v.

ThinkSharp, Inc., 448 F.3d 1368, 1372 (Fed. Cir. 2006) (rejecting offensive application

of claim preclusion to bar challenger’s opposition to trademark registration).

15

And for the reason identified by the Supreme Court, application of claim

preclusion to bar a party from defending against a claim rather than barring a party

from advancing a claim raises fairness concerns because claim preclusion applies

to claims that could have been litigated even if they weren’t, and a party defending

against a claim may have good reasons separate from the merits to forego asserting

a defense in a particular circumstance. Lucky Brand, 590 U.S at 413 n.2.

Of course, in the context of collateral attacks on final judgments and

proceedings to enforce final judgments, defendants cannot raise new defenses or

challenges to the underlying judgment. Id. at 416 (describing judgment

enforcement actions and a collateral attack on a prior judgment as scenarios where

“courts simply apply claim preclusion or issue preclusion to prohibit a claim or

defense that would attack a previously decided claim”). The Supreme Court

explained that claim preclusion “describes the rules formerly known as merger

and bar,” meaning:

If the plaintiff wins, the entire claim is merged in the

judgment; the plaintiff cannot bring a second

independent action for additional relief, and the

defendant cannot avoid the judgment by offering new

defenses. But if the second lawsuit involves a new claim

or cause of action, the parties may raise assertions or

defenses that were omitted from the first lawsuit even

though they were equally relevant to the first cause of

action.

16

Id. at 412 (quoting 18 Wright & Miller’s Federal Practice and Procedure § 4406 (3d

ed. 2016)); see also Restatement (Second) of Judgments § 18(2) (1982) (“In an action

upon the judgment, the defendant cannot avail himself of defenses he might have

interposed, or did interpose, in the first action.”).

But here, Thermal Surgical is not seeking to enforce a money judgment

already issued against Brown; it’s seeking to secure a money judgment based on

the bankruptcy court’s allowance of its claim. As the Eleventh Circuit explained

in a similar case, “The assertion of a claim in bankruptcy is, of course, not an

attempt to recover a judgment against the debtor but to obtain a distributive share

in the immediate assets of the proceeding.” Ziino v. Baker, 613 F.3d 1326, 1328 (11th

Cir. 2010). Therefore, “[a]n allowed claim in bankruptcy serves a different

objective from that of” a civil judgment. Id. It “permits the claimant to participate

in the distribution of the bankruptcy estate[,]” but it isn’t “a judgment on which

[the claimant] can execute against assets of the debtor.” Id. at 1328–29.

Based on the above authority, we reiterate the Supreme Court’s doubts

about whether claim preclusion can ever apply offensively in this way—to

preclude a party from defending against a claim based on a prior judgment, rather

than to preclude a party from advancing a claim. Lucky Brand, 590 U.S. at 413 n.2.

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C. Fairness Considerations

But we need not decide that broad question here. We conclude that even if

courts can apply offensive claim preclusion in some circumstances, they cannot do

so when it would be unfair, and applying claim preclusion to support a judgment

for Thermal Surgical here would be unfair. 5

Our legal premise flows from the Supreme Court’s application of the related

doctrine of issue preclusion. Issue preclusion bars a party from “relitigating an

issue actually decided in a prior case and necessary to the judgment.” Lucky Brand,

590 U.S. at 411; see also B & B Hardware, Inc. v. Hargis Industries, Inc., 575 U.S. 138,

148 (2015) (“[S]ubject to certain well-known exceptions, the general rule is that

when an issue of fact or law is actually litigated and determined by a valid and

final judgment, and the determination is essential to the judgment, the

determination is conclusive in a subsequent action between the parties, whether

on the same or a different claim.” (citing Restatement (Second) of Judgments § 27

5 We came to a similar conclusion in Marcel Fashions Group. There, we instructed courts to

consider the fairness factors outlined in Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979), before

deciding to apply claim preclusion to bar a party from raising a defense to an affirmative claim.

Marcel Fashions Group, 898 F.3d at 240–41 (concluding that “defense preclusion bars a party from

raising a defense where . . . the district court, in its discretion, concludes that preclusion of the

defense is appropriate because efficiency concerns outweigh any unfairness to the party whose

defense would be precluded.”). Because the Supreme Court reversed on the ground that the later

action did not share the same claim for relief as the earlier suit, it didn’t consider whether the

application of the fairness factors from Parklane Hosiery was appropriate in the claim preclusion

context. Lucky Brand, 590 U.S. at 415–17.

18

(1980)). In contrast to claim preclusion, issue preclusion applies only if an issue

has been “actually litigated.” Lucky Brand, 590 U.S. at 412. Issue preclusion doesn’t

apply here because Brown didn’t object to Thermal Surgical’s proof of claim in the

bankruptcy court, and it is undisputed that the merits of Thermal Surgical’s claim

were not actually litigated and decided by the bankruptcy court. But we can draw

lessons from the Supreme Court’s treatment of this analogous doctrine.

The Supreme Court has recognized that offensive use of issue preclusion

implicates different considerations than defensive application. Parklane Hosiery Co.,

Inc. v. Shore, 439 U.S. 322, 329–31 (1979). 6 Rather than disallow offensive issue

preclusion altogether, the Court gave trial courts discretion to decide whether to

apply offensive issue preclusion and cautioned that they should not allow the use

of offensive issue preclusion where it “would be unfair to a defendant.” Id. at 331.7

Factors bearing on the fairness assessment in that case included whether the

defendant had “every incentive to litigate [the prior action] fully and vigorously,”

6 In Parklane Hosiery, the Court used the term “collateral estoppel” to describe what has come to

be known as “issue preclusion.” 439 U.S. at 329–31; see also, e.g., Bravo-Fernandez v. United States,

580 U.S. 5, 7 n.1 (2016) (“The parties use the expression ‘collateral estoppel [],’ but as this Court

has observed, ‘issue preclusion’ is the more descriptive term.”). We use the contemporary

terminology in describing the Court’s analysis.

7 The Court also suggested that trial courts should be wary of applying offensive collateral

estoppel in a way that “reward[s] a private plaintiff who could have joined in the previous

action.” Parklane Hosiery, 439 U.S. at 331–32. This consideration is inapposite here, where

Thermal Surgical did join in the prior action.

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whether the prior judgment was “inconsistent with any previous decision,” and

whether the subsequent action offered “procedural opportunities” to the

defendant that were not available in the first action “of a kind that might be likely

to cause a different result.” Id. at 332.

Because Parklane Hosiery involved issue preclusion rather than claim

preclusion, its analysis is not squarely applicable here. But the decision supports

our conclusion that even if claim preclusion could potentially be applied

offensively to bar defense of a claim, courts should not apply it if doing so would

be unfair to the defendant.

And on these facts, we conclude it would be unfair. Brown’s incentives to

litigate Thermal Surgical’s claims in the bankruptcy proceeding were quite

different from his incentives in the district court. For one thing, as noted above,

“An allowed claim in bankruptcy serves a different objective from that of a money

judgment—it permits the claimant to participate in the distribution of the

bankruptcy estate.” Ziino, 613 F.3d at 1328. An allowed claim in bankruptcy is

not an enforceable money judgment that can be attached to a debtor’s future assets.

See id. at 1328–29; Fed. R. Civ. P. 69(a)(1). Especially where, as here, the claims

against a debtor cumulatively exceed the debtor’s assets, a debtor may have little

incentive to contest individual claims. See Lucky Brand, 590 U.S. at 413 n.2 (noting

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that “[t]here may be good reasons to question any application of claim preclusion

to defenses” because “various considerations, other than actual merits, may

govern whether to bring a defense.”).

True, Brown’s waiver of the bankruptcy discharge could have increased his

incentive to litigate Thermal Surgical’s bankruptcy claims here 8 — but only if he

had reason to believe the bankruptcy court’s allowance of Thermal Surgical’s

claim would be tantamount to an enforceable money judgment. He likely didn’t,

because that concept is unprecedented.

Moreover, the record suggests that after Thermal Surgical filed its proof of

claim, the parties negotiated an agreement in the adversary proceeding pursuant

to which they asked the bankruptcy court to enter a judgment for Thermal Surgical

in the amount of $300,000. Thereafter, and before the bankruptcy court ruled on

the proposed settlement, Brown waived the bankruptcy discharge and the

bankruptcy court dismissed the adversary action pursuant to the parties’

stipulation. It would be odd to conclude that even though the bankruptcy court

did not approve a money judgment for Thermal Surgical as apparently

8 The anomalous situation presented in this case would not arise following a typical bankruptcy

proceeding because creditors’ pre-bankruptcy claims are usually discharged at the conclusion of

a bankruptcy proceeding. See 11 U.S.C. § 727(a). Brown’s waiver of this statutory discharge

pursuant to 11 U.S.C. § 727(a)(10) is what opened the door to Thermal Surgical’s resumption of

its suit against Brown after the bankruptcy proceeding closed.

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contemplated in a proposed settlement of the adversary action, Brown should

have expected that the bankruptcy court’s allowance of Thermal Surgical’s claim

had the identical effect.

Finally, Brown may have had a reduced incentive to contest the proof of

claim because, of the $315,000 in liability allowed by the trustee in connection with

Thermal Surgical’s proof of claim, the trustee’s final report provided for a

distribution of only $12,620.47.

Importantly, Brown’s defense of Thermal Surgical’s claims against him

would not amount to a collateral attack on a prior judgment. A comparison to

EDP Medical illustrates this point. In EDP Medical, the plaintiff-debtor was seeking

“a refund” of the amount distributed to the IRS in the bankruptcy proceeding. 480

F.3d at 624. It was essentially seeking, in a subsequent action, to undue the

bankruptcy court’s allowance of the government’s proof of claim. In contrast,

here, Brown merely seeks to defend against additional liability beyond the sums

distributed to Thermal Surgical in the bankruptcy proceeding. By defending

against Thermal Surgical’s claims for further damages, he is not seeking a refund

of the sums already distributed to Thermal Surgical in that proceeding. A win for

Brown in this action would neither “nullify the initial judgment” nor “impair

rights established in the initial action.” Lucky Brand, 590 U.S. at 416.

22

As the Eleventh Circuit concluded in an analogous case, having obtained an

allowed claim in a bankruptcy proceeding that did not culminate in a discharge of

the debtor’s liability, the creditor’s “proper recourse [was] to file a direct action

against [the debtor] for [the debtor’s] breach of the promissory note obligations.”

Ziino, 613 F.3d at 1329. That is precisely what Thermal Surgical did here: having

obtained an allowed claim in a bankruptcy case that did not end with a discharge

order, it revived its direct action against Brown.

To prevail, Thermal Surgical must establish that it is entitled to relief against

Brown on the merits. It can’t rely on claim preclusion to make its case, and it can’t

wield it to deny Brown the opportunity to oppose its affirmative claim of liability.

See Sharp Kabushiki Kaisha, 448 F.3d at 1372 (concluding that a party is “entitled to

choose which opposition to defend, when the proceedings are not an attempt to

evade the effect of a previous adverse judgment on the merits”).

CONCLUSION

Some future case may require us to consider whether claim preclusion can

ever be used as a sword rather than as a shield, or at least whether that is true with

respect to the effect of a bankruptcy court’s allowance of a claim. We need not

decide that question categorically in order to resolve this case. For the above

reasons, we conclude that claim preclusion is not applicable here, and the district

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court thus erred in awarding summary judgment to Thermal Surgical. We

accordingly VACATE the district court’s entry of summary judgment in Thermal

Surgical’s favor and REMAND the case for further proceedings consistent with

this opinion.

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