15 B 29567
A bank obtained a judgment in state court on a loan to two businesses that the Debtor had guaranteed.  One of the Debtor’s co-obligors arranged to have an entity he controlled buy the judgment rather than pay to have the judgment released, thereby allowing the entity to seek full payment from the Debtor.  Had the judgment been released, the Debtor would have also been released; the individual would have a right to seek contribution.

The underlying judgment was entered by confession, without litigation.  This court found that for that reason collateral estoppel, issue preclusion, did not apply and found that the individual who controlled the purchaser was its alter ego, allowing application of the merger doctrine which extinguishes a debt when the person or entity which holds a debt as owner is also an obligor on it.

The entity controlled by the individual filed a proof of claim which has been disallowed on several grounds: alter ego- merger and as a remedy for a continuing discovery violation.