Brown v. Hudson

• Court: United States Bankruptcy Court, E.D. California
• Decided: July 9, 2021
• Docket: 19-01128
• Status: Unknown

Opinion

UNITED STATES BANKRUPTCY COURT 1 EASTERN DISTRICT OF CALIFORNIA 2 FRESNO DIVISION 3 4 In re ) Case No. 19-13374-B-7 ) 5 KENNETH RAY HUDSON, ) ) 6 ) Debtor. ) 7 ) ) 8 MICHELLE BROWN ) ) Adv. Proceeding No. 19-1128-B 9 ) DCN: GEG-2 Plaintiff, ) 10 ) ) v. 11 ) ) 12 KENNETH RAY HUDSON, ) ) 13 Defendant. ) ) 14 ) 15 16 RULING ON MOTION FOR SUMMARY JUDGMENT 17 Before: René Lastreto II, Bankruptcy Judge 18 __________________ 19 Glen E. Gates, GATES LAW GROUP, Fresno, CA, for Michelle Brown, 20 Plaintiff. 21 Ahren A. Tiller, BLC Law Center, APC, San Diego, CA, for Kenneth Hudson, Defendant. 22 _____________________ 23 24 RENÉ LASTRETO II, Bankruptcy Judge: 25 26 INTRODUCTION 27 Michelle Brown (“Plaintiff”) moves for summary judgment 28 that the debts owed to her by Debtor Kenneth Ray Hudson 1 (“Defendant”) are non-dischargeable under 11 U.S.C. § 523(a)(2).1 2 Under the issue preclusion doctrine, Plaintiff seeks judgment 3 (1) determining that Defendant owes Plaintiff the judgment sum 4 of $47,041.18; (2) determining that the debt owed by Defendant 5 is non-dischargeable in his chapter 7 bankruptcy case; 6 (3) awarding costs and fees, including attorney fees; and 7 (4) for such other and further relief as deemed just and proper. 8 Doc. #108. 9 Defendant timely opposed on the basis that the record fails 10 to establish or allocate damages for fraud versus Plaintiff’s 11 other dischargeable causes of action, and therefore the motion 12 should be denied. Doc. #124. Alternatively, if the court must 13 enter a judgment against Defendant due to issue preclusion, 14 Defendant argues that Plaintiff is not entitled to additional 15 attorney fees under Cal. Civ. Code (“C.C.C.”) § 1717 because 16 these proceedings are not “on a contract.” Id. 17 Plaintiff replied asserting that Defendant provided no 18 evidence and ignores the state trial court’s thorough judgment 19 as to the third cause of action for fraud, and thus under issue 20 preclusion, the motion should be granted. 21 This Motion for Summary Judgment was filed on 42 days’ 22 notice as required by LBR 7056-1 and in conformance with Rule 23 7056 and Civil Rule 56. This matter was originally scheduled to 24 be heard on May 26, 2021. Doc. #130. The court required 25 additional briefing on the issue of recoverability of attorney 26 1 Unless otherwise indicated, references to “LBR” will be to the Local 27 Rules of Practice for the United States Bankruptcy Court, Eastern District of 28 C “a Cl ivi if lo r Rn ui la e; ” “ wR iu ll le ” b ew i tl ol tb he e t Fo e dt eh re a lF e Rd ue lr ea sl oR fu l Ce is v io lf PB ra on ck er du up rt ec ;y aP nr do c ae ld lu r ce h; a pter and section references will be to the Bankruptcy Code, 11 U.S.C. §§ 101-1532. 1 fees and ordered the parties to simultaneously submit, file, and 2 serve briefs not later than June 16, 2021. Id. 3 Both parties timely filed supplemental briefs on June 16, 4 2021. Docs. #135; #137. 5 This motion will be GRANTED as to Plaintiff’s 6 § 523(a)(2)(A) cause of action, including attorney fees as 7 awarded in the underlying judgment. Further, the motion will be 8 GRANTED as to additional attorney fees incurred while 9 prosecuting this action. 10 11 BACKGROUND 12 Kern Bluff Resources, LLC (“KBR”) was formed by Defendant 13 in 2011 to invest in and own real estate, including mineral, 14 oil, and gas resources. Doc. #102. Plaintiff was then counsel 15 for Defendant and KBR. While representing Defendant and KBR, 16 Plaintiff acquired 2 million shares of KBR units and a 4.1667% 17 interest in mineral rights. Doc. #125, ¶¶ 1-5. 18 In 2014, a dispute arose. Plaintiff resigned as counsel for 19 KBR. Defendant sued Plaintiff in Kern County on April 11, 2014, 20 Case No. S-1500-CV-281744. Four months later, after mediation, 21 the parties stipulated to resolve the Kern County litigation. 22 Id., ¶¶ 15-16. All parties signed a final, binding settlement 23 agreement on October 14, 2014 (“Settlement Agreement”). Id., 24 ¶ 21. The Settlement Agreement provided that Defendant, 25 individually and as trustee of the Hudson Family Trust, the 26 Hudson Family Trust, and KBR would pay Plaintiff $10,000 on or 27 before December 31, 2014. In return, Plaintiff would release all 28 1 claims and transfer Plaintiff’s mineral rights and 1.1 million 2 KBR units to Defendant. Id., ¶¶ 24-24. 3 Plaintiff performed the Settlement Agreement and delivered 4 a signed and notarized transfer and reconveyance of membership 5 interest and mineral rights in favor of Defendant. After the 6 transfer of 1.1 million KBR units to Defendant, Plaintiff was 7 left with 900,000 remaining KBR units. Id., ¶ 24. On November 8 11, 2014, Plaintiff quitclaimed her 4.1667% interest in mineral 9 rights to Defendant. Id., ¶ 26. Defendant dismissed the Kern 10 County action with prejudice on December 1, 2014, causing the 11 state court to lose jurisdiction to enforce the settlement 12 pursuant to Cal. Civ. Proc. (“C.C.P.”) Code § 664.6. Ibid. 13 On December 18, 2014, Plaintiff sought assurances that the 14 $10,000 payment would be made on or before December 31, 2014. 15 Id., ¶ 27. On January 5, 2015, Defendant’s attorney in the state 16 court action responded, “My client is working on it. By the end 17 of the month (sooner if a capital event happens first). She is 18 first on the list.”2 Id., ¶ 28; Doc. #115, Ex. 45. 19 On or about July 31, 2015, Citadel Corporation, Inc., a 20 third party and publicly traded oil and gas company, closed 21 escrow and purchased KBR’s assets for a purchase price of $2 22 23 24

25 2 The parties dispute whether Defendant had intention to pay the $10,000 at this time. Doc. #125, ¶ 29. Plaintiff claims that Defendant did not intend 26 to pay the $10,000, evidenced by his recording of the reconveyance to the mineral rights on November 11, 2014, allegedly in violation of the Settlement 27 Agreement, Id., ¶ 31. Defendant claims these statements are false, that KBR 28 o mw oe nd e yt h ae v ad ie lb at b la e.nd Dh ee f ei nn dt ae nn td e cd o nK tB eR n dt so hp ea y d iP dl a ni on tt i pf ef r, s ob nu at l lt yh e or we e w Pa ls a in no tt i fa fn y anything. Id., ¶¶ 30-31; Doc. #126, ¶ 14. 1 million as well as 6 million shares in Citadel, and KBR retained 2 an overriding royalty.3 Doc. #125, ¶ 33. 3 In September 2015, after learning escrow closed on the 4 Citadel sale, Plaintiff demanded payment of the $10,000 and 5 delivery of the promised documents in the Settlement Agreement.4 6 Id., ¶ 34. 7 July 29, 2016, Plaintiff learned that Defendant, his wife, 8 and his son had been removed from KBR’s management by Order of 9 the Court in a consolidated action in San Diego County Superior 10 Court, Case No. 37-2015-00014099 (“Consolidated Investor 11 Action”), which was brought by investors and KBR’s new 12 management against Defendant, his wife, and son. Id., ¶ 35; see 13 also Doc. #115, Ex. 48. The court found, “There is a sufficient 14 showing of a likelihood of prevailing on the claim of breach of 15 fiduciary duty.” Id., at 2. Defendant testified under oath at 16 his deposition taken in the Consolidated Investor Action that 17 the value of the mineral rights was never determined. Doc. #125, 18 ¶ 40. 19 Not having received the consideration under the Settlement 20 Agreement, Plaintiff filed an action for breach of contract, 21 common counts, and fraud in the San Diego Superior Court Case 22 No. 37-2017-00037943-CL-CO-CTL (“San Diego Action”) against 23

24 3 Defendant claims that Plaintiff was listed on the accounts payable list included in the sale of KBR assets to Citadel Corporation. Doc. #126, 25 ¶ 16. Plaintiff claims that she was not notified of the sale. Doc. #110, ¶ 22. 26 4 Plaintiff claims that the new KBR board and accountant notified investors they were having difficulty reconciling the members’ respective 27 ownership interest in KBR and tracing missing funds from the sale of KBR 28 a ¶s s 36et .s Dt eo f eC ni dt aa nd te l i nsa is sa t sr tes hu al tt to hef D se alfe en dda on ct u’ ms e nm tsi s im da en na tg ie fm ye n wt h eo rf e K eB vR e. r yD o dc o. l l# a1 r2 5, went. Doc. #125, ¶ 17. 1 Defendant, individually and as trustee of the Hudson Family 2 Trust, the Hudson Family Trust, and KBR. Id., ¶ 41 on October 3 12, 2017. The complaint sought rescission of a portion of the 4 settlement agreement requiring transfer of 1.1 million KBR 5 membership units as well as the transfer of the 4.1667% of 6 mineral rights in the Kern Bluff oil field in exchange for the 7 promise to pay $10,000 and full disclosure of KBR’s books and 8 records. Id., ¶ 42; Doc. #117, RJN-1. Plaintiff requested the 9 sum of $8,813.21 as and for restitution and damages for 10 royalties that were received by Defendant because of his alleged 11 fraud against Plaintiff.5 Ibid.; Doc. #125, ¶ 43. 12 Plaintiff sought rescission of the portion of the 13 Settlement Agreement based on Defendant’s false promise to pay 14 Plaintiff $10,000 and produce books and records of KBR. Id., 15 ¶ 45. Provisions including mutual waiver and release were 16 retained. Ibid. Plaintiff also sought an award of punitive 17 damages, but this count was dismissed on April 27, 2018. 18 Doc. #126, Ex. C. 19 Defendant was personally served with Plaintiff’s summons 20 and complaint on January 23, 2018. Doc. #125, ¶ 46. Defendant 21 did not respond to the complaint and his default was entered on 22 April 27, 2018. Doc. #110. On May 30, 2018, Defendant appeared 23 ex parte in the San Diego Action and requested the court set 24 aside the default. Doc. #125, ¶ 47. The court denied the 25 26 5 Plaintiff contends that the $8,813.21 was attributable to royalty 27 payments due Plaintiff but received by Defendant between 2015 and 2018. 28 PD lo ac i. nt# i1 f2 f5 , w e¶ r e4 4 o. w eD de f re on yd aa ln tt y i on fs i .s 0t 4s % ,t hi ts h ei ns ln eo st s p to hs as ni b $l 5e 0, 0 a wn od u lt dh a bt e i of w ed plaintiff for that period of time. Doc. #125, ¶ 21. 1 request, instructed Defendant to file a noticed motion, with an 2 answer, and retain legal counsel. Ibid. 3 Defendant’s motion to set aside the default was heard on 4 July 11, 2018. Id., ¶ 48. Defendant appeared and was permitted 5 to present testimony and evidence in support of his motion to 6 set aside the entry of Default. Ibid. Defendant did not file an 7 answer and the motion was denied. Ibid. In denying the motion, 8 the court found that “[t]he neglect exhibited by [Defendant] in 9 this circumstance was of the inexcusable variety. He was fully 10 aware he had been sued and simply failed to do what the summons 11 clearly requires: to file a responsive pleading within 30 days.” Ibid. 12 13 Plaintiff’s application for Default Judgment (prove up) was 14 heard November 9, 2018. Id., ¶ 49. The court advised it had read 15 everything, including all 87 Exhibits, the Plaintiff’s 16 declaration, the declarations of Andrew Servais, Jeffrey 17 Coleman, and Sharonrose Cannistraci. Ibid. At the conclusion of 18 the hearing, the court ruled that Defendant’s promise to pay 19 $10,000 was a false promise made without any intention to 20 perform, that Plaintiff relied on Defendant’s false promise to 21 her detriment and that the false promise was a substantial 22 factor in causing Plaintiff’s harm including the loss of mineral 23 rights, the KBR units and royalties on the mineral rights, and 24 violation of her right to inspect KBR books and records. Ibid.; 25 Doc. #117, RJN-2. The court’s judgment was based on Plaintiff’s 26 testimony, other evidence, and written declaration. Ibid. 27 The court specifically found that Defendant’s false 28 promises were made to induce Plaintiff to sign the mediated 1 agreement and the final October 15, 2014 Settlement Agreement. 2 The agreements included Plaintiff’s executed promise to sell, 3 transfer and reconvey Plaintiff’s 1.1 million KBR membership 4 units, and to sign a mineral, gas, and oil quitclaim deed giving 5 up Plaintiff’s interests in the mineral rights. Ibid. The court 6 found that the transfer and reconveyance of the KBR units and 7 mineral rights from Plaintiff to Defendant was induced by 8 Defendant’s false promise and made without Defendant intending 9 to pay for the units, mineral rights, or produce the promised 10 KBR books and records. Ibid. 11 The court granted partial rescission of the October 15, 12 2014 Settlement Agreement and rescinded Paragraphs 1(a) through 13 1(c) regarding the sale and reconveyance of the transactions of 14 the membership units and mineral rights, and left the mutual 15 waiver and other terms and conditions intact and ordered 16 restitution of the consideration Plaintiff paid Defendant in 17 connection with the Settlement Agreement, specifically, 18 reconveyance of the mineral rights, revocation of the sale of 19 membership and restoration of Plaintiff’s 1.1 million KBR 20 membership units. Ibid. 21 Plaintiff separately settled her claims against KBR’s new 22 managing member on May 13, 2018. Doc. #126, Ex. A. 23 On February 8, 2019, Plaintiff’s noticed motion for 24 attorney’s fees and costs following entry of the Default 25 Judgment was heard. Doc. #125, ¶ 53. Among the evidence 26 considered by the court was the declaration of Sharonrose 27 Cannistraci, one of Plaintiff’s attorneys. Doc. #118, RJN-5. Ms. 28 Cannistraci assisted in drafting the Settlement Agreement, which 1 included the KBR Membership Operating Agreement (“Operating 2 Agreement”) as an exhibit by reference. Per the Operating 3 Agreement, Ms. Cannistraci testified that her fees were covered 4 under Paragraph 13.18, an attorney fee clause for recovery by 5 the prevailing party in an action on dispute among KBR members. 6 Doc. #114, Ex. 39, at 39, ¶ 13.18. The court found Plaintiff was 7 the prevailing party, and the attorney fees requested were fair 8 and reasonable taking into consideration the high burden of 9 proof required to establish fraud. Ibid. The court awarded 10 attorney fees in the amount of $34,000 and costs that were added 11 to the Original Judgment and filed as the Amended Judgment. 12 Doc. #117, RJN-2. 13 March 29, 2019, Defendant and his spouse, Elaine Greco 14 Hudson, appeared in court for an examination. Doc. #125, ¶ 54. 15 Defendant advised that he was not bound by the judgment because 16 he had transferred his mineral rights to a revocable trust he 17 held with his spouse. Defendant also admitted, and his spouse 18 concurred, that Defendant had the power to execute a quitclaim 19 transferring the mineral rights to Plaintiff. Ibid. Defendant 20 executed the quitclaim deeds at the examination.6 Id., ¶ 55. 21 A few days later on April 2, 2019, Ms. Greco left a voice 22 message for Plaintiff advising she would not quitclaim the 23 interest in the mineral rights unless Plaintiff released her 24 claims. Id., ¶ 56. The next day, Defendant emailed Jeffrey 25 6 Plaintiff contends that Defendant’s wife, Elaine Hudson, left the 26 court before Plaintiff could obtain her signature on the quitclaim deed and she did not return. Doc. #125, ¶ 55. Defendant declares that his wife did 27 return to court but was not required to sign anything because the mineral 28 r ei ng th it ts l eb de l to on g ree md o vs eo l te hl ey mt io n eh ri am l. rD io gc h. ts# 1 f2 r6 o, m ¶ t h2 e2 . f aD me if le yn d ta rn ut s ts t pa et re s t ht eh a tt r uh se t was agreement. Ibid. 1 Coleman, attorney for Citadel Exploration and instructed him, 2 “Until the issue of the quitclaim is resolved please continue to 3 pay our royalty check to Ken and Elaine Family Trust . . .” 4 Ibid. Citadel then refused to pay Plaintiff any royalty 5 payments. Ibid. 6 At the May 5, 2019 hearing on the motion to add Ms. Greco 7 as an alter-ego judgment debtor, the state court was notified of 8 Defendant’s bankruptcy filing. Id., ¶ 58. Defendant’s chapter 13 9 proceeding was dismissed by the bankruptcy court on July 23, 10 2019. Id., ¶ 59. Plaintiff reset the hearing on the motion to 11 add Ms. Greco as co-debtor for August 7, 2019, but at the 12 hearing the state court was notified of Defendant’s chapter 7 13 filing. Ibid. 14 15 DISCUSSION 16 I. 17 Civil Rule 56 applies in adversary proceedings. Rule 7056. 18 The moving party has the burden of demonstrating that there is 19 the “absence of a genuine issue of material fact.” Celotex Corp. 20 v. Catrett, 477 U.S. 317, 323 (1986); Civil Rule 56(c). A 21 “genuine issue” exists where “based on the evidence presented, a 22 fair-minded jury could return a verdict in favor of a non-moving 23 party on the issue in question.” In re Tills, 419 B.R. 444, 449 24 (Bankr. S.D. Cal. 2009). An issue is genuine if there is a 25 sufficient evidentiary basis on which a reasonable fact finder 26 could find for the nonmoving party and a dispute is “material” 27 only if it could affect the outcome of the case under the 28 1 governing law. Barboza v. New Form, Inc. (In re Barboza), 545 2 F.3d 702, 707 (9th Cir. 2008). 3 The court must view all the evidence in a summary judgment 4 motion in the light most favorable to the nonmoving party. Id., 5 citing Cty. of Tuolumne v. Sonora Cmty. Hosp., 236 F. 3d 1148, 6 1154 (9th Cir. 2001); Matsushita Elec. Indus. Co. v. Zenith 7 Radio Corp., 475 U.S. 574, 587 (1986). A court generally cannot 8 grant summary judgment based on its assessment of the 9 credibility of the evidence presented. Barboza, 545 F.3d at 707 10 quoting Agosto v. INS, 436 U.S. 748, 756 (1978). “At the summary 11 judgment stage, the judge’s function is not to weigh the 12 evidence and determine the truth of the matter but to determine 13 whether there is a genuine issue for trial.” Anderson v. Liberty 14 Lobby, Inc., 477 U.S. 242, 249 (1986). 15 To survive a motion for summary judgment, the non-moving 16 party must show specific facts that demonstrate a genuine issue 17 of material fact remains for trial. Celotex Corp., 477 U.S. at 18 324. The non-moving party cannot rest upon mere allegations or 19 denials in the pleadings. Anderson, 477 U.S. at 248. 20 21 A. 22 Plaintiff contends here that the San Diego state court 23 judgment conclusively requires the bankruptcy court to determine 24 that Defendant’s debt to Plaintiff is non-dischargeable under 25 the issue preclusion doctrine (collateral estoppel) and 11 26 U.S.C. § 523(a)(2)(A) (money obtained by false pretenses, false 27 representations, or actual fraud). Doc. #112. Plaintiff argues 28 that there is no genuine issue of material fact that collateral 1 estoppel and issue preclusion apply to the San Diego state court 2 judgment. On this basis, Plaintiff asks that the judgment be 3 given a preclusive effect on these proceedings. 4 Defendant does not dispute that the state court entered a 5 judgment for $47,041.18 and attached findings of fact that would 6 support a finding of fraud under California law, but insists 7 that nothing in the record establishes the $47,041.18 judgment 8 was entered as result of Plaintiff’s third cause of action for 9 fraud, rather than the two causes of action for breach of 10 contract or common counts. Doc. #124. 11 Defendant argues there are remaining factual claims in 12 Plaintiff’s motion that are clearly disputed factual issues, 13 which cannot be determined by a motion for summary judgment. 14 These factual issues include whether Defendant had intent to 15 deceive and whether Defendant had the power to pay Plaintiff, 16 since he was no longer the CEO of KBR when the alleged non- 17 payment occurred. 18 19 II. 20 Collateral estoppel is applicable to proceedings brought 21 under § 523(a) for exception of discharge. Grogan v. Garner, 498 22 U.S. 279, 284 n.11 (1991). Under 28 U.S.C. § 1738, the 23 preclusive effect of a state court judgment is determined by the 24 law of the state in which the judgment was issued. Gayden v. 25 Nourbakhsh (In re Nourbakhsh), 67 F.3d 798, 800 (9th Cir. 1995); 26 see also Marrese v. Am. Acad. Of Orthopaedic Surgeons, 470 U.S. 27 373, 380 (1985). “Collateral estoppel precludes re-litigation of 28 issues argued and decided in prior proceedings.” Lucido v. 1 Superior Court, 51 Cal. 3d 335, 341 (1990). Issue preclusion 2 applies if five “threshold requirements” are met:

3 (1) The judgment is final; 4 (2) The issues are identical; (3) The proceeding was actually litigated; 5 (4) The issues were necessarily decided in favor of the former proceeding; and 6 (5) The parties are the same or are in privity. 7 8 Id., at 1225; see also Harmon v. Kobrin (In re Harmon), 250 F.3d 9 1240, 1245 (9th Cir. 2001). State law collateral estoppel 10 principals apply. Ibid. The party asserting issue preclusion has 11 the burden of proving a record sufficient to reveal the 12 controlling facts and pinpoint the exact issues litigated in the 13 prior action. In re Lambert, 233 F. App’x 598, 599 (9th Cir. 14 2007). 15 In California, a default judgment is given issue preclusive 16 effect if the defendant had actual knowledge of the litigation 17 and had an opportunity to participate and the issues were 18 actually litigated. In re Kaut, 596 B.R. 698, 703 (Bankr. E.D. 19 Cal. 2019); Cal-Micro Inc. v. Cantrell, 329 F.3d 119 (9th Cir. 20 2003). 21 Even after the five threshold factors are met, application 22 of issue preclusion is discretionary. Lopez v. Emerg. Serv. 23 Restoration, Inc. (In re Lopez), 367 B.R. 99, 103, 107-08 24 (B.A.P. 9th Cir. 2007). In exercising that discretion, this 25 court needs to consider the circumstances of the particular case 26 and whether application of the doctrine is fair and consistent 27 with the policies underlying it. Baldwin v. Kilpatrick (In re 28 Baldwin), 249 F.3d 912, 919-20 (9th Cir. 2001). 1 A. 2 Plaintiff argues that collateral estoppel applies. Doc. 3 #124. The state court judgment is final and binding. Defendant’s 4 opportunity to appeal has lapsed. Plaintiff insists the issues 5 in the state court action are identical to the issues in 6 Plaintiff’s § 523(a)(2)(A) action. The issues were actually 7 litigated because they were raised in the pleadings and 8 submitted for determination prior to the entry of judgment on 9 November 9, 2018. The issues were decided in the proceeding and 10 the parties are the same as in the state court judgment. 11 Defendant disputes each prong except the fifth of the 12 collateral estoppel test but provides little evidence for those 13 contentions. Doc. #124. 14 The court finds that the principals of collateral estoppel 15 apply in this case as set forth below. 16 17 1. 18 The San Diego County Superior Court issued a judgment by 19 default on November 9, 2018. Doc. #117, RJN-2. This judgment was 20 amended on February 8, 2019. Ibid. The amended judgment is 21 final, binding, and on the merits. 22 23 2. 24 The issues decided in the state court proceeding are 25 identical to the elements of § 523(a)(2)(A). 26 11 U.S.C. § 523(a)(2)(A) excepts from discharge “any debt 27 . . . for money, property, services, or an extension, renewal, or 28 refinance of credit, to the extent obtained by . . . false 1 pretenses, a false representation, or actual fraud[.]” To 2 establish that a fraud judgment is non-dischargeable under 3 § 523(a)(2)(A) based on collateral estoppel, the following 4 statutory elements must be met:

5 (1) misrepresentation, fraudulent omission or deceptive conduct by the debtor; (2) knowledge of the 6 falsity or deceptiveness of his statement or conduct; 7 (3) an intent to deceive; (4) justifiable reliance by the creditor on the debtor’s statement or conduct; and 8 (5) damage to the creditor proximately caused by its 9 reliance on the debtor’s statement or conduct.

10 In re Harmon, 250 F.3d at 1246. The court may rely on a 11 preclusive effect of an existing state court judgment to grant 12 summary judgment. Plyam v. Precision Dev., LLC (In re Plyam), 13 530 B.R. 456, 462 (B.A.P. 9th Cir. 2015). “A promise made 14 without any intention of performing it constitutes fraud.” Union 15 Flower Mkt., Ltd. v. S. Cal. Flower Mkt., Inc., 10 Cal. 2d 671, 16 676 (1938).

17 “Promissory fraud” is a subspecies of the action for fraud and deceit. A promise to do something 18 necessarily implies the intention to perform; hence, 19 where a promise is made without such intention, there is an implied misrepresentation of fact that may be 20 actionable fraud.

21 Lazar v. Superior Court, 12 Cal. 4th 631 (1996) citing Union 22 Flower Mkt., 10 Cal. 2d at 675. 23 The elements of § 523(a)(2)(A) “mirror the elements of 24 common law fraud” and match those for actual fraud under 25 California law. Tobin v. Sans Souci Ltd. Pshp. (In re Tobin), 26 258 B.R. 199 (B.A.P. 9th Cir. 2001) (internal citations omitted) 27 quoting Youngie v. Gonya (In re Younie), 211 B.R. 367, 373-74 28 (B.A.P. 9th Cir. 1997), aff’d, 163 F.3d 609 (9th Cir. 1998). 1 a. 2 Plaintiff contends that all of elements for fraud under 3 California law are present here. The state court found that:

4 (1) Defendant, individually and as trustee of the Hudson Family Trust, the Hudson Family Trust, and KBR, deceived 5 and defrauded Plaintiff to enter into and rely on the 6 Settlement Agreement. The false promise included the unconditional promise to pay $10,000 to Plaintiff by 7 December 31, 2015 in exchange for Plaintiff’s conveyance of mineral rights and KBR units, as well as the promise 8 to allow Plaintiff to inspect KBR books and records under 9 the control of Defendant.

10 (2) Defendant did not intend to perform the false promises at the time the promises were made and therefore had 11 knowledge of the falsity. The state court noted that 12 Defendant had never performed either promise to date.

13 (3) Defendant made the false promises with intent to induce Plaintiff to sign over her mineral rights and KBR units, 14 which she did. The court found that the promises were 15 meant to induce the transfer of the KBR units and mineral rights and such transfer would not have occurred but for 16 Defendant’s false promise.

17 (4) Plaintiff justifiably relied on Defendant’s false promises to her detriment. Plaintiff partially performed 18 by conveying her mineral interests and KBR units to 19 Defendant.

20 (5) The court found that the promises were a substantial factor in causing Plaintiff’s harm, including the loss of 21 mineral rights, KBR units, and royalties from her mineral 22 rights.

23 Doc. #117, RJN-2. The court based its decision to partially 24 rescind the Settlement Agreement and transfer and conveyance of 25 Plaintiff’s interests on Defendant’s false promise. The decision 26 to rescind resulted in the retransfer and reconveyance of the 27 mineral rights and the KBR units. 28 1 The state court found that Plaintiff would suffer serious 2 harm unless the court granted the rescission and cancellation of 3 the mineral, gas, and oil quitclaim deed and the reconveyance of 4 the units. 5 6 b. 7 Defendant argues that the state court’s findings do not 8 specify that the entire judgment was for the fraud count as 9 opposed to breach of contract or other counts. Defendant argues 10 that the state court’s judgment is without preclusive effect as 11 to § 523(a)(2)(A) because it does not include any express 12 findings of fact or conclusion that relates to the $47,041.18 13 amended judgment, as opposed to the other dischargeable counts 14 for breach of contract or common counts. Doc. #124. Nothing in 15 the state court’s findings of fact and conclusions of law 16 identify the basis on which it determined the amount owed, or 17 that facts alleged in the fraud claim were the cause of the 18 $47,041.18 damages awarded, says Defendant. The order does not 19 cite a specific finding that all of the elements of the fraud 20 claim asserted by Plaintiff in the complaint were the cause of 21 the damages awarded in the judgment. On this basis, Defendant 22 argues that the judgment does not set forth a clear record for 23 the judgment to have a preclusive effect that the fraud claim 24 was necessarily decided by the state court. 25 In response, Plaintiff contends the state court judgment 26 specifies express findings of fact that the judgment for fraud 27 was based solely on the third cause of action in the complaint. 28 Doc. #127. The judgment was found specifically against Defendant 1 individually, and other defendants. The rescission was specified 2 and set forth with particularity, based on fraud of the 3 Defendant, and that as a result of that fraud the requirements 4 of the underlying agreement were null and void and had no force 5 or effect. The state court does not mention the other two causes 6 of action because it did not award any damages or make any 7 findings on the breach of contract or common counts. The damages 8 awarded in the San Diego Action rest on the third cause of 9 action for rescission and restitution as result of Defendant’s 10 fraud. 11 12 c. 13 This court disagrees with Defendant’s assertion that the 14 state court judgment does not provide express findings of fact 15 that the judgment amount was based on the third case of action 16 for fraud in the complaint. If the state court made a breach of 17 contract finding, it would have been inconsistent with the 18 rescission and restitution remedies based on fraud. 19 The state court found that Defendant (1) made false 20 promises with no intention to perform; (2) had knowledge of the 21 falsity and deceptiveness of the statement and conduct at the 22 time the statements were made; (3) made the statements to induce 23 Plaintiff to enter into the Settlement Agreement and willfully 24 failed to perform; (4) Plaintiff was deceived by Defendant’s 25 promises and justifiably relied on his statements and conduct; 26 and (5) Plaintiff suffered damage as result of the fraud. This 27 is sufficient to show that the issues litigated in state court 28 1 for false promise without intent to perform are the same as 2 those for § 523(a)(2)(A). 3 4 3. 5 The issues were “actually” litigated in the state court 6 proceeding. Newsom v. Moore (In re Moore), 186 B.R. 962, 971 7 (1985) (“[A]n issue is actually litigated when it is properly 8 raised in the pleadings, or otherwise, and is submitted for 9 determination, and is determined, noting that a determination 10 may be based on a failure of proof.”). 11 There is no dispute the fraud claim was properly raised in 12 the pleadings in the San Diego Action. 13 Plaintiff argues that the San Diego Superior Court found 14 the issue to be making a promise without intent to perform and 15 was actually litigated. 16 Defendant does not dispute that he was personally served 17 with Plaintiff’s summons and complaint on January 23, 2018. 18 Doc. #125, ¶ 46. Defendant appeared ex parte in San Diego and 19 requested the court to set aside his default prior to the entry 20 of final judgment. Id., ¶ 47. The court denied that request and 21 instructed Defendant to retain counsel and file a noticed motion 22 with an answer. Ibid. 23 Defendant’s motion to set aside the default was heard on 24 July 11, 2018, where he appeared and was permitted to present 25 testimony and evidence in support of his motion to set aside the 26 entry of default. Id., ¶ 48. Defendant did not file an answer 27 and his motion was denied because “[t]he neglect exhibited by 28 [Defendant] in this circumstance was of the inexcusable variety. 1 He was fully aware he had been sued and simply failed to do what 2 the summons clearly required: to file a responsive pleading 3 within 30 days.” Ibid. 4 5 4. 6 This court finds that the issues in the state court 7 proceeding were necessarily decided. The state court proceeding 8 was finalized on the merits. Defendant appeared and was heard in 9 his attempt to set aside the entry of default judgment. Ibid. 10 The court issued a final judgment with findings of fact 11 specifically tailored to Plaintiff’s fraud complaint. Ibid. 12 13 5. 14 The parties before this court are the same parties from the 15 state court litigation. The party against whom issue preclusion 16 is sought to be enforced is the same as in the underlying state 17 court litigation. Defendant does not dispute this contention. 18 Doc. #124. 19 20 B. 21 Defendant argues that because he disputed the facts in 22 response to the statement of undisputed facts, there is a 23 dispute and thus there are triable material issues of fact. But 24 Defendant fails to provide any supporting evidence that the 25 denials to Plaintiff’s statement of undisputed facts warrant 26 denial of this motion. Doc. #125. Some facts are in dispute, but 27 Defendant concedes that (1) the state court litigation occurred; 28 (2) he was properly served, (3) he appeared and prosecuted a 1 motion to set aside the default, which was denied; (4) the state 2 court issued a final judgment against him. That Defendant now 3 disputes some facts is not relevant since the court has reviewed 4 the state court record. 5 Defendant points to other factual issues warranting denial 6 of this motion, such as whether Defendant had an intent to 7 deceive or whether he had the power to pay Plaintiff, as he was 8 no longer the CEO of KBR. Doc. #124. Despite his denial, the 9 state court explicitly found that he had an intent to deceive 10 Plaintiff to induce her into signing over her mineral rights and 11 KBR units. Defendant is no longer the CEO of KBR. He was removed 12 from management prior to the filing of the San Diego Action. 13 Throughout the entire San Diego Action, Defendant was not the 14 CEO and did not have the power to authorize payment from KBR to 15 Plaintiff. The state court disagreed with what Defendant now 16 claims are material factual disputes. 17 And even though the state court action was a default 18 judgment, Defendant still appeared seeking to set aside the 19 default. He was instructed to file an answer. He did not. 20 Defendant has failed to support his contention that 21 collateral estoppel should not apply here. The state court’s 22 judgment is clear and Defendant’s disputed facts, even when 23 viewed in the light most favorable to him, do not negate the 24 effect of the state court’s findings of fact. LBR 7056-1(b) 25 provides:

26 Any party opposing a motion for summary judgment or partial summary judgment shall reproduce the itemized 27 facts in the Statement of Undisputed Facts and admit 28 those facts which are undisputed and deny those facts 1 which are disputed, including with each such denial a 2 citation to the particular portions of any pleading, affidavit, deposition, interrogatory, answer, 3 admission, or other document relied upon in support of that denial. 4 5 Defendant’s denials are not supported by facts. Viewing the 6 evidence in the light most favorable to Defendant still does not 7 negate the San Diego Superior Court’s judgment and findings of 8 fact in favor of Plaintiff. 9 10 C. 11 “Even when the five threshold criteria for issue preclusion 12 are met, a bankruptcy court must conduct an ‘inquiry into 13 whether imposition of issue preclusion in the particular setting 14 would be fair and consistent with sound public policy’ before 15 applying issue preclusion.” Delannoy v. Woodlan Colonial, L.P. 16 (In re Delannoy), 615 B.R. 572, 582 (B.A.P. 9th Cir. 2020 17 (quoting Khaligh v. Hadaegh (In re Khaligh), 338 B.R. 817, 824- 18 25 (B.A.P. 9th Cir. 2006), aff’d 506 F.3d 956 (9th Cir. 2007)). 19 “Three fundamental policies should be considered: ‘preservation 20 of the integrity of the judicial system, promotion of judicial 21 economy, and protection of litigants from harassment by 22 vexatious litigation.’” Delannoy, 615 B.R. at 582 (quoting 23 Lucido v. Superior Court, 51 Cal.3d at 343); see also Lopez v. 24 Emergency Serv. Restoration, Inc. (In re Lopez), 367 B.R. 99, 25 103 (B.A.P. 9th Cir. 2007). 26 /// 27 /// 28 /// 1 1. 2 The first inquiry is into the integrity of the judicial 3 system and whether application of collateral estoppel would 4 create the possibility of inconsistent verdicts. Baldwin, 249 5 F.3d at 920 citing Lucido, 51 Cal.3d at 343-44. Here, as in 6 Baldwin, “the state court was fully capable of adjudicating the 7 issue subsequently presented to the bankruptcy court[.]” Ibid. 8 “[R]elitigation in bankruptcy court of the issue decided by the 9 state court would conflict with the principle of federalism that 10 underlies the Full Faith and Credit Act” and “the public’s 11 confidence in the state judicial system would be undermined[.]” 12 Ibid. citing Marrese, 470 U.S. at 380. 13 Moreover, Defendant was adequately served the summons and 14 complaint in the San Diego Action. Defendant appeared ex parte 15 before the San Diego court seeking to turn over the previous 16 default judgment. He was instructed to file a noticed motion, 17 file an answer, and retain counsel. Later, his motion was denied 18 because he had not filed an answer as instructed. The state 19 court described his neglect as of “the inexcusable variety” 20 because he knew he was being sued and did nothing. Defendant was 21 given multiple opportunities to defend the action before the 22 final judgment was entered. Defendant attempts to re-litigate 23 the merits of the state court action here, which, if allowed and 24 if successful, could compromise the integrity of the judicial 25 system vis-à-vis inconsistent verdicts. This factor weighs in 26 favor of application of collateral estoppel. 27 /// 28 /// 1 2. 2 Second, we consider whether application of collateral 3 estoppel would promote judicial economy. Lucido, 51 Cal.3d at 4 350. 5 The record on this motion is over 500 pages. The San Diego 6 Superior Court considered 87 exhibits prior to issuing its 7 judgment. Doc. #125, ¶ 49. The state court copiously expended 8 judicial resources in rendering its verdict, including 9 adjudication of Defendant’s motion to set aside the default 10 judgment. Re-litigating in bankruptcy court these issues that 11 have already been fully and finally determined in state court 12 favors application of issue preclusion here. See Baldwin, 249 13 F.3d at 920 (“Relying on the state court’s determination allows 14 the bankruptcy court to conserve judicial resources.”). 15 16 3. 17 Lastly, we consider whether application of collateral 18 estoppel will protect the parties from vexatious litigation. 19 Ibid. Defendant had a full and fair opportunity to litigate this 20 claim before the state court. Defendant was properly served the 21 summons and complaint and had notice of the lawsuit. Defendant 22 appeared before the court on at least two occasions seeking to 23 set aside the default judgment. He was unsuccessful. Defendant 24 forfeited his right to defend himself without adequate 25 justification. “The neglect exhibited by Defendant in this 26 circumstance was of the inexcusable variety.” Doc. #125, ¶ 48. 27 Plaintiff already successfully prosecuted her state court 28 lawsuit years ago. It would be unfair to now require her to re- 1 litigate those same claims years later. See Baldwin, 249 F.3d at 2 920 (“It would be unfair to [creditor] to require him to 3 relitigate before the bankruptcy court what was properly decided 4 by the state court.”). 5 6 D. 7 Plaintiff’s motion for summary judgment will be GRANTED as 8 to the preclusive effect of the state court judgment. 9 The San Diego County Superior Court’s amended judgment 10 awarding $8,813.21 in damages, $997.26 in pre-judgment interest, 11 $34,000.00 in attorney fees, and $3,230.71 in costs for a total 12 of $47,041.18 will be deemed non-dischargeable pursuant to 11 13 U.S.C. § 523(a)(2)(A). 14 15 III. 16 Next, we turn to the issue of whether Plaintiff is entitled 17 to recover additional fees in prosecuting this non- 18 dischargeability action. California law permits recovery fees 19 under certain circumstances. While there is no general right to 20 attorney fees, bankruptcy courts may award fees in § 523 actions 21 when authorized by state law. Travelers Cas. & Sur. Co. of Am. 22 v. PG&E, 549 U.S. 443, 451-52 (2007) (“[T]he ‘basic federal 23 rule’ in bankruptcy is that state law governs the substance of 24 claims.”); see also Cohen v. de la Cruz, 523 U.S. 213, 223 25 (1998) (“In short, the text of § 523(a)(2)(A) . . . encompasses 26 any liability arising from money, property, etc., that is 27 fraudulently obtained, including treble damages, attorney’s 28 1 fees, and other relief that may exceed the value obtained by the 2 debtor.”). 3 In non-dischargeability actions, the question for awarding 4 attorney fees is “whether creditor plaintiff would be entitled 5 to fees in state court for establishing those elements of the 6 claim which the bankruptcy court finds support a conclusion of 7 nondischargeability.” Kilborn v. Haun (In re Haun), 396 B.R. 8 522, 528 (Bankr. D. Idaho 2008). 9 California law offers two primary avenues for the recovery 10 of attorney fees by a prevailing party: 11 1. C.C.C. § 1717; and 12 2. C.C.P. §§ 685.040 and 1021. 13 14 A. 15 C.C.C. § 1717 allows a party to recover attorney fees 16 incurred in the litigation of a contract claim. Redwood 17 Theaters, Inc. v. Davison (In re Davison), 289 B.R. 716, 722 18 (B.A.P. 9th Cir. 2003) (C.C.C. § 1717 provides for attorney’s 19 fees in an “action on a contract”) citing Santisas v. Goodin, 17 20 Cal. 4th 599, 615 (1998). For C.C.C. § 1717 to apply, (1) the 21 action in which the fees are incurred must be an action “on a 22 contract”; (2) the contract must contain a provision stating 23 that attorney’s fees incurred to enforce the contract shall be 24 awarded either to one of the parties or to the prevailing party; 25 and (3) the party seeking fees must be the party who “prevailed 26 on the contract” meaning “the party who recovered a greater 27 relief in the action on the contract.” C.C.C. § 1717(b)(1); see 28 also Penrod v. AmeriCredit Fin. Servs. (In re Penrod), 802 F.3d 1 1084, 1087-88 (9th Cir. 2015) (“[A]n action is ‘on a contract’ 2 when a party seeks to enforce, or avoid enforcement of, the 3 provisions of the contract.”); cf. Bos. V. Bd. Of Trs., 818 F.3d 4 486, 489 (9th Cir. 2015) (“[W]e have previously held that a 5 nondischargeability action is ‘on a contract’ within section 6 1717 if ‘the bankruptcy court needed to determine the 7 enforceability of the . . . agreement to determine 8 dischargeability.”). 9 Plaintiff has the burden of showing that this action is 10 (1) an “action on a contract” and (2) this contract has a 11 prevailing party attorney’s fee provision which is the basis of 12 the fraud claim in order for her to recover her attorney fees 13 incurred prosecuting this adversary proceeding. In determining 14 whether the proceeding was an action on a contract, courts may 15 look beyond the parties’ pleadings. Sea Win, Inc. v. Tran (In re 16 Tran), 301 B.R. 576, 584 (Bankr. S.D. Cal. 2003). 17 Whether this is an action on a contract turns on whether 18 the Settlement Agreement played an integral role in the non- 19 dischargeability action. Heritage Ford v. Baroff (In re Baroff), 20 105 F.3d 439, 442 (9th Cir. 1997) (non-dischargeability action 21 “was an action on the contract because the document containing 22 the attorney’s fee clause . . . played an integral role in the 23 proceedings.”). 24 25 1. 26 Plaintiff contends that she is entitled to further attorney 27 fees for bringing this adversary proceeding. Doc. #135. In the 28 San Diego Action, Plaintiff argued that she had incurred fees of 1 $34,000.00 and that this amount sought was reasonable under the 2 circumstances under C.C.C. § 1717 and Paragraph 13.18 of the 3 Operating Agreement. The Superior Court awarded $34,000 to 4 Plaintiff for the enforcement of the contract as reasonable 5 attorney fees permitted under the contractual provisions of the 6 KBR Operating Agreement Section 13.18, which covered the amount 7 of time, effort, and energy in bringing the request to enter the 8 default and the prove up hearing. 9 Plaintiff cites to Cohen, wherein the Supreme Court 10 concluded under 11 U.S.C. § 523(a)(2)(A) that any liability 11 arising from money or property that is fraudulently obtained, 12 including treble damages, and any other relief that may exceed 13 the value of what was received by the debtor. Id., citing Cohen, 14 523 U.S. at 223. Here, Plaintiff argues that Cohen prevents 15 discharge of all liability out of Defendant’s conduct because 16 she is able to recover fees outside of the bankruptcy court 17 under state or federal law. 18 Plaintiff emphasizes the impact of the attorney fee 19 provision in a contract under C.C.C. § 1717, which provides for 20 attorney fees in contracts incurred to enforce the contract to 21 be awarded to the prevailing party. The attorney fee provision 22 at issue is broad enough to encompass a tort claim, Plaintiff 23 insists. Doc. #135, citing Santisas v. Goodin, 17 Cal. 4th at 24 615, 622-23. 25 26 2. 27 Meanwhile, Defendant argues that Plaintiff is not entitled 28 to any additional fees under C.C.C. § 1717. Although the 1 contract’s terms could arguably be construed as broad enough to 2 include tort claims as fraud, Defendant contends that these fees 3 can only be awarded to a prevailing party in an “action on the 4 contract.” C.C.C. § 1717(a); Seyed Shahram Hosseini v. Key Bank 5 N.A. (In re Seyed Shahram Hosseini), 504 B.R. 558, 567 n.13 6 (B.A.P. 9th Cir. 2014) (“[C.C.C.] § 1717 is to be narrowly 7 applied and is available to a party only if the dispute involves 8 litigation of a contract claim.”) citing Santisas, 17 Cal. 4th 9 at 599. Thus, Defendant insists that attorney fees are only 10 recoverable on a breach of contract claim, not a fraud claim. 11 Defendant cites Plaintiff’s admission on the record that 12 there is no legal or factual basis to award additional attorney 13 fees for prosecuting the non-dischargeability action. The basis 14 of Plaintiff’s claim is that Defendant fraudulently 15 misrepresented that he would pay $10,000 to Plaintiff in 16 exchange for her 900,000 KBR units pursuant to the Settlement 17 Agreement. Since the Settlement Agreement contains no provision 18 for attorney fees, Defendant insists that Plaintiff is not 19 entitled to any additional fees. 20 Although the San Diego Superior Court’s judgment is based 21 on the subject Settlement Agreement, there is no basis under 22 C.C.C. § 1717 to award attorney fees for prosecuting this action 23 because the Settlement Agreement was not an integral part in 24 this non-dischargeability proceeding. Defendant urges the court 25 to focus its analysis on the attorney fees provision in the 26 Settlement Agreement, which is governed by California law and 27 the only basis on which Plaintiff could be awarded fees. If the 28 scope of that provision is broad enough to encompass a state 1 court action that has the same elements as a § 523(a)(2)(A) 2 claim for common law fraud, then Plaintiff is entitled to fees. 3 Doc. #124 citing Turtle Rock Meadows Homeowners Ass’n v. Slyman 4 (In re Slyman), 234 F.3d 1081, 1083 (9th Cir. 2000). 5 However, since the Settlement Agreement is not an integral 6 part of this litigation, then the action is not on a contract 7 and Plaintiff is not entitled to fees under C.C.C. § 1717. 8 Plaintiff’s state court fraud judgment was based on a false 9 promise to perform the actions contained in the Settlement 10 Agreement. Defendant claims the handwritten agreement and the 11 Settlement Agreement calling for Plaintiff to transfer her KBR 12 units in exchange for dismissal of the litigation and $10,000 is 13 the sole and only basis in the record for the fraud judgment. 14 And since the Settlement Agreement contained no prevailing party 15 attorney’s fee provision, Plaintiff has failed to meet her 16 burden of establishing that this adversary proceeding is based 17 on a contract that has a prevailing party’s attorney fee 18 provision. Defendant therefore asserts that the request for 19 attorney fees to prosecute this adversary proceeding should be 20 denied. 21 22 3. 23 The court agrees with Defendant that C.C.C. § 1717 does not 24 provide an avenue for Plaintiff’s recovery of attorney fees. 25 Because the document containing the attorney fee clause did not 26 play an integral role in this adversary proceeding and this 27 court did not adjudicate the validity of the Settlement 28 Agreement, instead applying the principles of collateral 1 estoppel and issue preclusion, the fees for prosecuting the 2 action were not “on a contract” for the purposes of C.C.C. 3 § 1717. But Plaintiff is not without recourse. 4 5 B. 6 The second option for attorney fees lies in both C.C.P. 7 §§ 685.040 and 1021. Both provide for recovery of attorney fees 8 as allowable costs under C.C.P. §§ 1032 and 1033.5. C.C.P. 9 § 1021 provides:

10 Except as attorney’s fees are specifically provided for by statute, the measure and mode of compensation 11 of attorneys and counsels at law is left to the agreement, express or implied, of the parties; but to 12 parties to actions or proceedings are entitled to 13 their costs, as hereinafter provided.

14 C.C.P. § 1021 permits attorney fees by agreement between the 15 parties and does not limit recovery of fees to actions on the 16 contract. Davison, 289 B.R. at 724, citing 3250 Wilshire 17 Boulevard Bldg. v. W.R. Grace & Co., 990 F.2d 487, 489 (9th Cir. 18 1993). Attorney fees for fraud claims may be recovered if the 19 contract for which the fraud judgment is based so provides for 20 the prevailing party to be awarded their attorney fees. 21 “[S]ection 1021 allows ‘the parties to agree that the prevailing 22 party in litigation may recover attorney fees, whether the 23 litigation sounds in contract or in tort.’” Maynard v. BTI 24 Group, Inc., 216 Cal. App. 4th 984, 991 (2013) quoting Miske v. 25 Coxeter, 204 Cal. App. 4th 1249, 1259 (2012). 26 If there is an attorney fee provision in the underlying 27 agreement of the parties, the court must examine the language of 28 the agreement to determine whether an award of fees is 1 warranted. Davison, 289 B.R. at 724, citing 3250 Wilshire 2 Boulevard Bldg. v. W. R. Grace & Co., 990 F.2d 487, 489 (9th 3 Cir. 1993); In re KLAUSE, 181 B.R. 487, 500 (Bankr. C.D. Cal. 4 1995). 5 Meanwhile, C.C.P. § 685.040 provides:

6 The judgment creditor is entitled to the reasonable and necessary costs of enforcing a judgment. 7 Attorney’s fees incurred in enforcing a judgment are 8 not included in costs collectible under this title unless otherwise provided by law. Attorney’s fees 9 incurred in enforcing a judgment are included as costs 10 collectible under this title if the underlying judgment includes an award of attorney’s fees to the 11 judgment creditor pursuant to subparagraph (A) of paragraph (10) of subdivision (a) of Section 1033.5. 12 13 C.C.P. § 685.040. C.C.P. § 1033.5(a)(10) permits attorney fees 14 when authorized by contract, statute, or law.

15 [T]here are two requirements before a motion for an award of post-judgment attorney fees may be awarded as 16 costs: (1) the fees must have been incurred to 17 “enforce” a judgment; and (2) the underlying judgment had to include an award for attorney fees pursuant to 18 [C.C.P. § 1033.5(a)(10)(A)], which provides that 19 attorney fees may be awarded when authorized by contract. 20 21 Jaffe v. Pacelli, 165 Cal. App. 4th 927, 935 (2008) (quoting 22 Berti v. Santa Barbara Beach Props., 145 Cal. App. 4th 70, 77 23 (2006)). 24 “CCP § 685.040 addresses the ‘problem unique to a claim for 25 post-judgment fees in actions based on contract.’” Tinajero v. 26 Zavala (In re Tinajero), 2020 Bankr. LEXIS 2157, at *13 (B.A.P. 27 9th Cir. Aug. 4, 2020) (quoting Jaffe, 165 Cal. App. 4th at 934; 28 Berti, 145 Cal. App. 4th at 77). C.C.P. § 685.040 entitles a 1 judgment creditor to post-judgment attorney fees incurred in 2 enforcing a judgment “if the underlying judgment includes an 3 award of attorney’s fees to the judgment creditor pursuant to 4 subparagraph (A) of paragraph (10) of subdivision (a) of Section 5 1033.5.” C.C.P. § 685.040. C.C.P. § 1033.5(a)(10)(A) allows 6 attorney fees as “costs” for the purposes of C.C.P. § 1032. 7 Thus, post-judgment fees under § 685.040 is “not based on 8 survival of the contract but is instead based on the award of 9 attorney fees and costs in the trial judgment.” Jaffe, 165 Cal. 10 App. 4th at 935. Actions taken in bankruptcy proceedings may 11 qualify as enforcement proceedings subject to C.C.P. § 685.040. 12 Jaffe, 165 Cal. App. 4th at 938; Chinese Yellow Pages Co. v. 13 Chinese Overseas Mktg. Serv. Corp., 170 Cal. App. 4th 868, 888 14 (2008). 15 16 1. 17 Defendant acknowledges that the terms of the contract could 18 potentially be construed to include fraud, but states that the 19 contract explicitly references C.C.C. § 1717, which would still 20 require litigation of the contract. Doc. #124. Defendant does 21 not reference C.C.P. § 685.040, but does acknowledge C.C.P. 22 § 1021. Doc. #137. However, Defendant focuses his argument on 23 C.C.C. § 1717. 24 In his supplemental briefing, Defendant cites to Fobian v. 25 Western Farm Credit Bank (In re Fobian), 951 F.2d 1149, 1153 26 (9th Cir. 1991), whereby the Ninth Circuit refused to award 27 attorney fees despite an express contractual provision because 28 the substantive litigation raised federal bankruptcy law issues 1 rather than “basic contract enforcement questions.” Id. at 1153. 2 On this basis, the Ninth Circuit held that the creditor could 3 not recover attorney fees under the contract absent bad faith or 4 harassment. Id., citing Johnson v. Righetti (In re Johnson), 756 5 F.2d 738, 740-41 (9th Cir. 1985) (Ninth Circuit refused to award 6 attorney fees under California law and a contractual provision, 7 because the underlying stay litigation raised federal statutory 8 issues rather than issues relating to the contract). 9 However, reliance on Fobian is misplaced. The U.S. Supreme 10 Court effectively overruled Fobian, stating that “[t]he Fobian 11 rule finds no support in the Bankruptcy Code, either in § 502 or 12 elsewhere.” Travelers, 549 U.S. 443 (concluding that the Court 13 of Appeals erred applying the Fobian rule to disallow a claim 14 based on the fact that the fees were incurred litigating issues 15 of bankruptcy law); see also Penrod, 802 F.3d at 1089 (“The 16 Supreme Court squarely rejected that [Fobian] view in 17 Travelers.”). 18 Nonetheless, Defendant implies that Plaintiff cannot 19 recover fees incurred while prosecuting this non- 20 dischargeability action because federal statutory issues rather 21 than contractual issues predominate. Defendant reiterates his 22 argument that the Settlement Agreement contained no attorney fee 23 provision before reasserting Plaintiff’s counsel’s admission at 24 the hearing by stating, “. . . I don’t have anything, or cannot 25 see anything at this junction [sic] that would grant further 26 attorney’s fees on top of what the court ordered.” Doc. #131. 27 Defendant concludes that additional fees pursuant to C.C.C. 28 § 1717 are unavailable. 1 2. 2 Plaintiff claims that she is not limited to C.C.C. § 1717 3 and may recover fees under C.C.P. § 1032(a)(4), which allows as 4 allowable costs to include attorney fees when authorized by any 5 of the following: (a) contract; (b) statute; (c) law. Doc. #135. 6 While Plaintiff does not specifically mention C.C.P. § 1021, she 7 cites authority relying on C.C.P. §§ 1021, 1032 and 1033.5 8 together. Plaintiff further contends that C.C.P. § 685.040 is 9 applicable. 10 Plaintiff cites the Settlement Agreement, which included 11 the KBR Membership Operating Agreement as “Exhibit 1” for the 12 purposes of characterizing Plaintiff as an “Economic Interest 13 Holder.”7 See Docs. #6, Ex. 1, ¶ 1a; #114, Ex. 39. The Operating 14 Agreement provided in Paragraph 13.18:

15 Attorney Fees. In the event that any dispute between the Company and the Members of among the Members 16 should result in litigation or arbitration, the 17 prevailing party in such dispute shall be entitled to recover from the other party all reasonable fees, 18 costs, and expenses of enforcing any right of the prevailing party, including without limitation, 19 reasonable attorneys’ fees and expenses, all of which 20 shall be deemed to have accrued upon the commencement of such action and shall be paid whether or not such 21 action is prosecuted to judgment. Any judgment or order entered in such action shall contain a specific 22 provision providing for the recovery of attorney fees 23 and costs incurred in enforcing such judgment and an 24 7 Exhibit A to the Operating Agreement defines an “Economic Interest 25 Holder” as “a Person who holds only an Economic Interest in the Company. An Economic Interest Holder shall include an owner of Economic Interest Units to 26 the extent of the ownership of such Economic Interest. Wherever reference is made to a Member in the Membership Operating Agreement such reference shall 27 also be deemed to apply to Economic Interest Holders, except for rights and 28 o cb ol ni cg ea rt ni io nn gs , t hs eu c fh i na as n ct ih ae l r ci og nh dt i tt io o nv o ot fe ta hn ed Ct oh me p ar ni yg ,h t w ht io c hi n af ro er m ea xt ci lo un s ive to Members.” Membership Operating Agreement, Doc. #114, Ex. A to Ex. 39, at 33. 1 award of prejudgment interest from the date of the 2 breach at the maximum rate of interest allowed by law. For the purposes of this Section 13.18: (a) attorney 3 fees shall include, without limitation, fees incurred in the following: (1) post judgment motions; (2) 4 contempt proceedings; (3) garnishment, levy, and 5 debtor and third party examinations; (4) discovery; and (5) bankruptcy litigation; and (b) prevailing 6 party shall mean the party who is determined in the 7 proceeding to have prevailed or who prevails by dismissal, default or otherwise. 8 9 Doc. #114, Ex. 39, at 39, ¶ 13.18. 10 Defendant was a signatory to the October 15, 2014 11 Settlement Agreement and was KBR’s controlling owner and 12 operating member. Doc. #6, Ex. 1. The Settlement Agreement was 13 filed in the San Diego Action and the San Diego Superior Court 14 used it as a basis for its decision finding that the settlement 15 was procured by fraud and Plaintiff’s reliance in the agreement 16 resulted in damages. Doc. #117, RJN-2. 17 Since the San Diego Superior Court applied California law, 18 which allows the prevailing party to recover attorney fees in 19 litigation in connection with or arising from the agreement, 20 Plaintiff argues that she is entitled to reasonable attorney 21 fees. Doc. #135, citing Maynard v. BTI Group, Inc., 216 Cal. 22 App. 4th 984 (finding that the parties entered into an attorney 23 fee agreement under C.C.P. § 1021 that provided the prevailing 24 party a right to recover costs in any action or proceeding under 25 C.C.P. § 1032(a)(4), which included attorney fees under C.C.P. 26 § 1033.5(a)(10)). 27 The KBR Operating Agreement Section 13.18 provides for all 28 disputes arising between the parties and specifically included a 1 provision for bankruptcy litigation. The parties contracted for 2 the provision, which was in the Operating Agreement and 3 incorporated by reference into the Settlement Agreement. 4 Doc. #114, Ex. 39, at 1, ¶ 1. 5 The Settlement Agreement also contains provisions for 6 final integration and severability. The final integration 7 provision provides:

8 The full form Agreement and exhibits referred to 9 herein, constitute the entire final and binding understanding between the parties hereto with respect 10 to the matters set forth herein and supersedes the Stipulation for Settlement dated August 13, 2014. No 11 other statement or representation, written or oral, 12 express or implied, has been received or relied upon in entering into the settlement, and that all prior 13 discussions, statements and negotiations made or which have occurred prior to the date of this Agreement 14 shall be deemed merged into this Agreement and the 15 documents referred to herein, and shall not be used for any other purpose whatsoever. Each of the 16 recitals, titles and headings used in this Agreement 17 shall be interpreted and construed as part of the Agreement and not as a mere recital. 18 19 Id., at 4, ¶ 9a (emphasis added). Per the final integration 20 clause, the Operating Agreement attached as Exhibit 1 is 21 integrated and deemed merged into the final Settlement 22 Agreement. 23 To incorporate another document into a contract in 24 California: (1) the reference must be clear and unequivocal; 25 (2) the reference must be called to the attention of the other 26 party, and he must consent thereto; (3) the terms of the 27 incorporated document must be known or easily available to the 28 contracting parties. Shaw v. Regents of Univ. of Cal., 58 Cal. 1 App. 4th 44, 54 (1997). But the contract does not need to recite 2 that it incorporates another document, so long as it guides the 3 reader to the incorporated document. Id. The reference to the 4 previous agreement here was clearly stated in the Settlement 5 Agreement. The reference was called to both parties’ attention 6 in Paragraph 1 and elsewhere. Both parties signed the Settlement 7 Agreement which contained a final integration clause. The 8 previous agreement involved the parties and the parties signed 9 that as well. There was no mystery between the parties what the 10 settlement agreement referenced and incorporated. 11 Although Defendant has argued that the Settlement Agreement 12 contained no attorney fee provision, there have been no 13 contentions that the Operating Agreement was not incorporated 14 into the Settlement Agreement by reference. Sharonrose 15 Cannistraci consulted in the drafting of the Settlement 16 Agreement that incorporated the Operating Agreement by 17 reference. Doc. #118, RJN-5. Ms. Cannistraci declared that her 18 attorney fees were covered under Paragraph 13.18 for recovery by 19 the prevailing party in an action on dispute among KBR members. 20 Cf. Doc. #114, Ex. 39, at 39, ¶ 13.18. The San Diego Superior 21 Court subsequently awarded attorney fees. Though the court did 22 not specify the basis upon which it awarded fees, it considered 23 Plaintiff’s written declarations, testimony, and other evidence 24 in issuing its judgment, which included the declaration of Ms. 25 Cannistraci. Doc. #117, RJN-2. Therefore, Paragraph 13.18 of the 26 Operating Agreement was incorporated by reference into the 27 Settlement Agreement, which the court used to award Plaintiff’s 28 attorney fees. 1 The San Diego Superior Court rescinded Plaintiff’s 2 obligations under Paragraph 1(a) through (c) under the 3 Settlement Agreement, but this did not affect incorporation of 4 the Operating Agreement by reference in Paragraph 1. Doc. #117, 5 RJN-2. The Settlement Agreement also contained a severability 6 clause, which provides:

7 Severability. In the event that any provision of this Agreement should be held to be void, voidable or 8 unenforceable, the remaining portions hereof shall 9 remain in full force and effect.

10 Id., at 5, ¶ 13. Per the severability clause, the remaining 11 portions of the agreement shall remain in full force and effect. 12 This case arises out of a contract that incorporates as an 13 exhibit an attorney fees provisions that references contract and 14 other disputes. Defendant signed the agreement and falsely 15 promised to comply with the terms of the agreement when he had 16 no intention of doing so. The provision in 13.18 is intertwined 17 with the settlement agreement, so recovery of attorney fees is 18 available under C.C.P. § 1021. 19 Although Defendant argues that this is not a 20 dischargeability action based on a contract for which attorney 21 fees are to be awarded, Plaintiff asserts that she would be 22 entitled and was entitled in the state court action for the 23 attorney fees. Paragraph 13.18 broadly encompasses the nature of 24 the dispute here as between members of KBR. 25 Further, Plaintiff cites to Phillips v. Gilman (In re 26 Gilman), 603 B.R. 437 (B.A.P. 9th Cir. 2019). In Phillips, the 27 court reviewed whether a successfully prosecuted adversary 28 proceeding to deny a debtor’s discharge warranted an award of 1 attorney fees. Id., at 440. The court examined C.C.P. § 685.040, 2 as well as C.C.P. § 108(c), and noted that recovery of post- 3 judgment attorney fees is available based on the California 4 Enforcement of Judgments Act, C.C.P. §§ 685.040, 685.080. Id., 5 at 441, citing Carnes v. Zamani, 488 F.3d 1057, 1060 (9th Cir. 6 2007) (finding that post-judgment attorney fees under C.C.P. 7 § 685.040 must comply with the timeliness requirements of C.C.P. 8 § 685.080). 9 Plaintiff argues that C.C.P. § 685.040 allows her to be 10 reimbursed her costs of enforcing the judgment because the 11 underlying judgment includes an award of attorney’s fees under 12 C.C.P. § 1033.5(a)(10), which permits attorney fees to be 13 allowable costs under C.C.P. § 1032. Plaintiff again offers to 14 further move for reasonable fees under Rule 7054(b)(2)(A). 15 Plaintiff also maintains that she should receive attorney 16 fees on a policy basis because Defendant would receive a “free 17 ride” in the bankruptcy court trying to discharge that which is 18 non-dischargeable. The only way the attorney fees could be 19 deemed non-dischargeable are through the enforcement efforts by 20 Plaintiff. There would be no recourse for Plaintiff seeking to 21 disallow a non-dischargeable debt otherwise. Forgoing attorney 22 fees in this instance would give Defendant a “free ride” for his 23 wrongful conduct. The state court was not going to condone 24 Defendant’s conduct without payment to Plaintiff for asserting 25 her rights against Defendant, and the bankruptcy court should do 26 no less since the state court has made the requisite findings 27 and orders. 28 1 Thus, Plaintiff argues that she is entitled to recover fees 2 outside of the bankruptcy under state or federal law. The only 3 question is how much. Plaintiff requests a hearing as to the 4 amount of attorney fees she is entitled under Rule 5 7054(b)(2)(A). 6 7 3. 8 Based on this record, Plaintiff is entitled to attorney 9 fees under C.C.P. §§ 685.040, 1021, 1032, 1033.5. The state 10 court awarded attorney fees under the Settlement Agreement, 11 which incorporates the KBR Operating Agreement by reference in 12 the final integration clause. The Operating Agreement, 13 meanwhile, broadly awards “reasonable fees, costs, and expenses” 14 to “the prevailing party” in “any dispute between the Company 15 and the Members” that results in litigation or arbitration, 16 including “reasonable attorneys’ fees and expenses.” Doc. #114, 17 Ex. 39, at 39, ¶ 13.18. Attorney fees specifically includes fees 18 incurred in bankruptcy proceedings and the prevailing party is 19 defined as “the party who is determined in the proceeding to 20 have prevailed or who prevails by dismissal, default or 21 otherwise.” Ibid. 22 The San Diego Superior Court did not include a specific 23 provision in its ruling regarding attorney fees. However, the 24 Superior Court did state that the basis for their award of 25 attorney fees was the Settlement Agreement. From there, the 26 Operating Agreement is incorporated by reference, which includes 27 the requisite basis for an award of attorney fees. 28 1 The court finds that that Plaintiff is entitled to attorney 2 fees under C.C.P. § 1021. As with C.C.P. § 1021, C.C.P. § 3 685.040 allows attorney fees as costs for judgment creditors 4 under C.C.P. §§ 1032, 1033.5. The fraud judgment is based on the 5 Settlement Agreement. The Settlement Agreement incorporates the 6 Operating Agreement by reference. The Operating Agreement 7 provides for fees, costs, and expenses, with fees specifically 8 defined to include those incurred during bankruptcy litigation. 9 Accordingly, Plaintiff is entitled to fees under C.C.P. 10 § 685.040. The amounts of those fees will be determined later by 11 noticed motion. 12 13 CONCLUSION 14 Plaintiff’s motion for summary judgment will be GRANTED as 15 to the preclusive effect of the state court judgment. 16 The San Diego County Superior Court’s amended judgment 17 dated February 8, 2019, awarding $8,813.21 in damages, $997.26 18 in pre-judgment interest, $34,000.00 in attorney fees, and 19 $3,230.71 in costs for a total of $47,041.18, will be deemed 20 non-dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) under the 21 doctrine of issue preclusion. 22 Further, the motion will be GRANTED as to additional 23 attorney fees in prosecuting this adversary proceeding. 24 Plaintiff is entitled to attorney fees under C.C.P. §§ 685.040, 25 1021, 1032(a)(4), and 1033.5(a)(10)(A) under the KBR Operating 26 Agreement, which is incorporated into the Settlement Agreement 27 by reference and was the basis upon which the San Diego Superior 28 Court awarded attorney fees to Plaintiff. As noted above, the 1 |]}specific amounts of those fees and their reasonableness is yet 2 be determined; the court will determine the amount of 3 |Jattorney fees after a duly noticed hearing. Plaintiff is 4 |idirected to seasonably file a motion and set for hearing her 5 ||request for attorney fees with supporting evidence, including 6 |}copies of her counsel’s time records. 7 Plaintiff to prepare the order granting this motion and a 8 |]}separate judgment. The judgment may later be amended to include 9 allowed attorney’s fees following a further hearing on 10 |]/reasonableness of fees. 11 12 13 Dated: Jul 09, 2021 By the Court 14 ao 15 Lora tek LZ ené Lastreto II, Judge 16 United States Bankruptcy Court 17 18 19 20 21 22 23 24 25 26 27 28

1 Instructions to Clerk of Court 2 Service List - Not Part of Order/Judgment 3 The Clerk of Court is instructed to send the Order/Judgment 4 or other court generated document transmitted herewith to the parties below. The Clerk of Court will send the Order via the 5 BNC or, if checked , via the U.S. mail. 6

7 Kenneth Ray Hudson 2000 Ashe Road Unit 3 8 Bakersfield CA 93309 9 Glen E. Gates 10 2445 Capitol Street, Suite 160E Fresno CA 93721 11

12 Ahren A. Tiller 1230 Columbia St #1100 13 San Diego CA 92101 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28