1995 #38, Blake 10-26-95

In re: HARDY V. BLAKE (IN RE WARREN A. AND PATRICIA K. BLAKE), Bankr. No. 95-50058, Adversary No. 95-5009; Chapter 7;

The matter before the Court is whether res judicata is applicable in the above-named dischargeability action based on the state court judgment entered February 23, 1995 and the state court's related findings and conclusions. Plaintiff argues that res judicata does not apply because the automatic stay was imposed

before the time for appealing the state court judgment expired.

This is a core matter under 28 U.S.C. § 157(b) (2) This

letter memorandum of decision and accompanying order shall

constitute the Court's interlocutory findings and conclusions under

F.R.Bank.P. 7052. As discussed below, the Court finds that res judicata does not apply at this time.

Plaintiff is correct that a judgment must be final before res

judicata applies. See Abbott Bank v. Armstrong, 44 F.3d 665, 666(8th Cir. 1995). Here, the automatic stay imposed when Debtors filed their petition intervened during that appeal period. But for the stay, the parties to the state court action could appeal the state court decision. Therefore, the state court judgment is not final and this Court cannot yet rely on it when determining whether the claim held by Plaintiff is dischargeable.

The Court's conclusion that res judicata does not yet apply, however, does not mean that the Court will re-litigate the matter. To do so would waste judicial resources and ignore the near finality of the state court action. Instead, this Court must consider whether it should abstain from further proceedings in this adversary until the state court judgment is final, as provided by 11 U.S.C. § 305(a).

Based on the record to date, the Court concludes that abstention under § 305(a) and relief from stay under § 362(d) would be in the best interest of both parties. The parties could then complete their litigation in state court. This Court could then address the dischargeability complaint.

An appropriate order will be entered. The Court also will schedule a telephonic hearing on abstention under 11 U.S.C. § 305(a) and set a deadline for each party to file comments on the abstention issue.

The original of this letter will be docketed. Counsel for each party shall receive a copy.