FILED MAY 12 2014 1 NO FO PUBL A IO T R IC T N 2 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. CC-13-1267-PaTaKu ) 6 ALLEN WILLIAMS BROWN, ) Bankr. No. 12-49655-BR ) 7 Debtor. ) Adversary 13-01002-BR ______________________________) 8 ) ALLEN WILLIAMS BROWN, ) 9 ) Appellant, ) 10 ) v. ) M E M O R A N D U M1 11 ) HELEN ACOSTA; OSCAR ALEMAN, ) 12 ) Appellees. ) 13 ______________________________) 14 Submitted Without Oral Argument2 on February 20, 2014 15 Filed - May 12, 2014 16 Appeal from the United States Bankruptcy Court 17 for the Central District of California 18 Honorable Barry Russell, Bankruptcy Judge, Presiding 19 20 Appearances: Appellant Allen Williams Brown, pro se on brief; Appellees Helen Acosta and Oscar Aleman, pro se on 21 brief. 22 Before: PAPPAS, TAYLOR and KURTZ, Bankruptcy Judges. 23 24 1 This disposition is not appropriate for publication. 25 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 26 See 9th Cir. BAP Rule 8013-1. 27 2 By order entered December 11, 2013, the Panel, after 28 examining the briefs and the record, unanimously determined that this appeal is suitable for submission without oral argument pursuant to Fed. R. Bankr. P. 8012. 1 Chapter 73 debtor Allen Williams Brown (“Brown”) appeals the 2 judgment of the bankruptcy court that a debt based upon a state 3 court judgment in favor of appellees Helen Acosta (“Acosta”) and 4 Oscar Aleman (“Aleman” and, together, “Appellees”) was excepted 5 from discharge under § 523(a)(2)(A), and the order denying 6 reconsideration of that judgment. We AFFIRM. 7 FACTS 8 A. 9 The State Court Proceedings and Judgment 10 Brown filed a petition under chapter 7 on November 30, 2012. 11 On his Schedule F, he listed a debt to Appellees for $200,000 12 stemming from a 2011 state court fraud judgment entered against 13 him (the “State Court Judgment”). On May 2, 2007, Appellees had 14 filed a complaint in Los Angeles Superior Court against Diana 15 Beard-Williams (“Williams”), Rod Flowers (“Flowers”),4 the F.A.B. 16 Partnership (“F.A.B.”), and Does 1-20. The complaint was 17 thereafter amended, and Does 1 and 2 were subsequently identified 18 as Brown, the estranged husband of Williams, and Patricia 19 Ashburne (“Ashburne”), Williams’ sister. 20 Williams filed an answer to the complaint on April 10, 2008. 21 Though they had been served, neither Brown, Ashburne, nor F.A.B. 22 filed answers. Notice of entry of defaults against Brown, 23 24 3 Unless otherwise indicated, all chapter and section 25 references are to the Bankruptcy Code, 11 U.S.C. §§ 101 – 1532. 26 4 Although Flowers was a named defendant in the complaint, 27 the record is silent regarding his participation in the state court proceedings. There was no award against him personally in 28 the State Court Judgment.
-2- 1 Ashburne, and F.A.B. were entered by the state court on July 9, 2 2010; none of the defaulted defendants moved for relief from the 3 default within the time provided by statute. 4 Williams filed a chapter 7 bankruptcy petition on May 5, 5 2010. The bankruptcy court granted Appellees relief from 6 automatic stay in Williams’ bankruptcy case on October 1, 2010, 7 to allow the state court proceedings to continue. 8 Trial was scheduled to begin in state court April 15, 2011. 9 Neither Williams, Brown, nor Ashburne appeared. Although 10 Williams had filed an answer to the complaint, her failure to 11 appear caused the state court to strike her answer. Trial 12 proceeded by default against all defendants. The state court 13 entered judgment on May 31, 2011 (the “State Court Judgment”), in 14 favor of Appellees and against Brown, Ashburne, Williams, and 15 F.A.B. 16 In the State Court Judgment, the court found that, in the 17 summer of 2006, Williams, a licensed real estate broker, 18 approached Acosta, inviting her to join a partnership with 19 Williams and a third party, Flowers, to invest in income 20 producing properties in Memphis, Tennessee, and to reinvest 21 income from those properties in continued acquisitions. On 22 July 31, 2006, Williams, Flowers, and Acosta signed a written 23 partnership agreement creating F.A.B. A few days earlier, Acosta 24 had given Williams a check for $10,000 representing her 25 contribution to the partnership. 26 Williams represented to Acosta that her sister, Ashburne, as 27 buyer, had four properties in escrow that would be quitclaimed to 28 the partnership upon close of escrow. The four properties were:
-3- 1 220 North Willet Street, 8508 Tournament Drive, 3422 Tournament 2 Drive and 1242 Peabody Avenue, all in Memphis. Of the four 3 properties, the 3422 Tournament Avenue property was particularly 4 attractive for investment purposes because there was an agreement 5 in place to lease the property to FedEx as an executive home and 6 there would be a $100,000 cash-back bonus for the buyer of the 7 property. Williams represented to Acosta that the bonus money 8 would be available to repay Acosta’s investment and to use for 9 additional acquisitions. 10 In August 2006, Aleman was added to the F.A.B. partnership, 11 and the name of the partnership was changed to F.A.A.B. (Flowers, 12 Acosta, Aleman and [Beard-]Williams). Aleman invested $10,000, 13 and would later increase that to $13,000. 14 Then, in an email to the partners dated October 18, 2006, 15 Williams indicated that she had decided to leave the partnership, 16 but that the investments made by Acosta and Aleman were secure. 17 Williams represented that Aleman and Acosta would be given trust 18 deeds on three properties to secure their investments. 19 In November 2006, the Appellees informed Williams that they 20 were not happy with the operation of the partnership, in that 21 they were not given information on the properties and were not 22 being included in decision-making. The Appellees indicated their 23 intention to dissolve the partnership and recover their 24 investment. In December 2006, Williams told Acosta that she was 25 consulting with an attorney to prepare a promissory note through 26 which Acosta and Aleman would be repaid their investments. 27 The state court found that Williams never provided a 28 promissory note or trust deeds to the Appellees. However, on
-4- 1 January 31, 2007, Williams told Acosta: “There is no agreement 2 between you and [Ashburne,] or [Ashburne] and any particular 3 group . . . . The [F.A.A.B. partnership] has one property and 4 only one property. There are no bank accounts with [F.A.A.B.] 5 funds.” State Court Judgment at 8. The state court found that: 6 These statements were a direct contradiction of statements [Williams] had made both to Acosta and 7 Aleman in order to induce them to provide her with $23,000 in funds for the F.A.B. and F.A.A.B. Group and 8 in order to assist her and her family to purchase the specific properties that she had told Acosta and Aleman 9 were going to be purchased for the partnership by her sister and then placed into the name of the 10 partnership. Further, the statement that there were no profits to distribute and that there were no bank 11 accounts with [F.A.A.B.] funds were false, in that — as reflected in the bank statement from Wells Fargo Bank 12 for November 22, 2006, one day after escrow closed on the 3422 Tournament Drive property, Williams received a 13 $122,000 wire transfer from Preferred Title & Escrow LLC representing the bonus monies that Williams had 14 told Acosta and Aleman would be paid to the buyer upon purchase of the 3422 Tournament Drive property. 15 16 State Court Judgment at 8-9. 17 The state court also found that, after receiving the 18 $112,000, Williams deposited $45,000 in her personal savings 19 account and $15,000 to her personal checking account, took $7,000 20 in cash, paid $8,000 on a family member’s Advanta Card [Stanley 21 Beard not otherwise identified by the state court], and wrote two 22 personal checks for $10,000 and $25,000. According to the state 23 court, “Williams exhausted funds which should have belonged to 24 the partnership (based on the representations that she had made 25 to the partners) by paying more than half of those funds to 26 herself and her relatives or for their benefit.” State Court 27 Judgment at 11. 28 Importantly for purposes of this appeal, the state court
-5- 1 made the following specific findings relating to Brown: 2 Escrow closed on the property located at 8508 Tournament, Memphis on September 23, 2006. The 3 purchaser of that property was “Diana Williams.” Williams quitclaimed that property to her husband 4 [Brown] on July 30, 2007. This is another of the properties that Williams had repeatedly represented to 5 Acosta and Aleman was going to be partnership property that would be quitclaimed to the partnership after 6 purchase. 7 State Court Judgment at 10. 8 Escrow closed on the property located at 1242 Peabody Avenue, Memphis, on November 17, 2006. The listed 9 purchaser of that property was [Brown]. Again, this property was one of the properties which Williams 10 represented was to be a partnership property and which would be quitclaimed to the partnership after close of 11 escrow. 12 Id. 13 Defendants Ashburne and Brown benefitted from Williams’ false and fraudulent representations in that the 14 properties which were supposed to be titled in the name of the partnership and the monies which Williams 15 received as a result of her use of the capital investment funds provided by [Appellees] were – in fact 16 — titled in [Ashburne and Brown’s] names, and the funds were used by Williams to pay their debts. By way of 17 example, bank records . . . reflect payment of mortgages on behalf of Brown and Ashburne during the 18 months November 2006 through February 2007. The court finds that Williams’ husband, Brown, and Williams’ 19 sister, Ashburne, were thus co-conspirators and joint venturers with Williams in the fraud and breach of 20 fiduciary duty whereby they also took advantage of [the Appellees], and thus they should be held jointly 21 responsible with Williams for losses suffered by [the Appellees]. 22 23 State Court Judgment at 11. And finally, 24 The court therefore finds, based on the foregoing facts, that the plaintiffs have met their burden of 25 proof . . . and have also presented evidence sufficient for the court to find that defendants Williams, 26 Ashburne and Brown collaborated in a civil conspiracy and joint venture from which the defendants, and each 27 of them, benefitted at plaintiff’s expense. 28 State Court Judgment at 12 (emphasis added).
-6- 1 The State Court Judgment awarded Acosta damages of $38,000 2 and $21,266.20 in attorneys fees, and awarded Alaman $41,000 in 3 damages, all jointly and severally against Williams, Brown, 4 Ashburne, and F.A.B. Brown and Ashburne appealed the State Court 5 Judgment to the California Court of Appeals. Acosta v. Ashburne, 6 case no. B233748. On April 25, 2012, the state appellate court 7 affirmed the decision of the trial court, noting in its decision 8 only that “Beard-Williams converted partnership funds to purchase 9 properties in her own name, and in the names of Ashburne and 10 Brown.” Slip op. at 2. 11 B. 12 The Bankruptcy Adversary Proceeding 13 When Brown filed for chapter 7 relief, the Appellees 14 commenced an adversary proceeding against him on January 2, 2013. 15 In the complaint, they alleged two claims, one for an exception 16 to discharge of Brown’s debts to them for fraud under 17 § 523(a)(2)(A), and the other for denial of discharge under 18 § 727(a) because Brown had allegedly made false and misleading 19 statements in his bankruptcy schedules. Brown filed an answer 20 pro se to the complaint, generally denying the allegations, and 21 arguing that he should not be held liable based on the State 22 Court Judgment because it was a default judgment. 23 The bankruptcy court conducted a status conference in the 24 adversary proceeding. Although the Appellees had not formally 25 asked it to do so, the bankruptcy court began the status 26 conference by informing the parties that it was prepared to rule 27 that Brown’s obligations to the Appellees based on the State 28 Court Judgment were excepted from discharge in Brown’s bankruptcy
-7- 1 case under § 523(a)(2)(A). Speaking primarily to Brown, the 2 bankruptcy court stated: 3 The reason that I wanted you here is very important because there was a superior court judgment 4 filed. . . . I’m bound by that, I’m stuck with that judgment. . . . It was basically your wife or ex-wife 5 whatever [who] entered into this conspiracy and at the end of the day that the judge found that you were part 6 of that. You may disagree, but I’m bound by what the superior court judge says. So you’re responsible for 7 all of her fraud which the Court found. . . . I am bound by that. I can’t change that. . . In this 8 particular case . . . I have to find that that is nondischargeable because of fraud, because of what the 9 superior court did, not because of anything I’m doing. . . . I’m finding, looking at the superior court 10 judgment that you in fact engaged in this fraud and therefore this debt under section 523 is 11 nondischargeable. 12 Hr’g Tr. 2:16–3:3, March 20, 2013. 13 Given the bankruptcy court’s conclusion, and with the 14 agreement of the Appellees, the court dismissed the claim against 15 Brown for denial of discharge under § 727(a). Hr’g Tr. 7:5-6. 16 The bankruptcy court entered findings and conclusions on 17 May 2, 2013. They included the following: 18 [Finding] 2. The Court explained to the parties at the March 20, 2013 status conference that the state court 19 judgment contained a specific finding of fact that the debtor/defendant conspired with Diana Beard-Williams, 20 among others, to defraud the plaintiffs. 21 [Finding] 3. The Court further explained to the parties that as a result of the state court’s specific finding 22 of fraud, the elements of the plaintiffs’ claim for relief were met under the principles of collateral 23 estoppel and the debt was therefore non-dischargeable. 24 [Conclusion] 1. Under the principles of collateral estoppel, the finding in the state court’s judgment 25 that the debtor defrauded the plaintiffs renders the debt to plaintiffs nondischargeable under 26 § 523(a)(2)(A). 27 Findings of Fact at 2. The same day, the bankruptcy court 28 entered a judgment determining that Brown’s debt to the Appellees
-8- 1 under the State Court Judgment was excepted from discharge under 2 § 523(a)(2)(A) and dismissing the Appellees’ claim for denial of 3 discharge under § 727(a)(2)(4). 4 Brown filed a motion for reconsideration of the bankruptcy 5 court’s judgment on May 16, 2013. The bankruptcy court denied 6 the reconsideration motion without a hearing or any explanation 7 in an order entered May 29, 2013. 8 Brown filed a timely appeal on June 6, 2013. 9 JURISDICTION 10 The bankruptcy court had jurisdiction under 28 U.S.C. 11 §§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C. 12 § 158. 13 ISSUE 14 Whether the bankruptcy court erred in ruling that Brown’s 15 debt to Appellees was excepted from discharge under 16 § 523(a)(2)(A) by application of issue preclusion based upon the 17 State Court Judgment. 18 Whether the bankruptcy court abused its discretion in 19 denying Brown’s motion for reconsideration. 20 STANDARD OF REVIEW 21 Whether a claim is excepted from discharge under 22 § 523(a)(2)(A) presents mixed issues of law and fact which we 23 review de novo. Diamond v. Kolcum (In re Diamond), 285 F.3d 822, 24 826 (9th Cir. 2001). We review the bankruptcy court's findings 25 of fact for clear error. Honkanen v. Hopper (In re Honkanen), 26 446 B.R. 373, 378 (9th Cir. BAP 2011). Clear error is found when 27 the reviewing court has a definite and firm conviction that a 28 mistake has been committed. Lewis v. Ayers, 681 F.3d 992, 998
-9- 1 (9th Cir. 2012). De novo review requires the Panel to 2 independently review an issue, without giving deference to the 3 bankruptcy court's conclusions. First Ave. W. Bldg., LLC v. 4 James (In re Onecast Media, Inc.), 439 F.3d 558, 561 (9th Cir. 5 2006). 6 The availability of issue preclusion is reviewed de novo, 7 and the bankruptcy court’s decision to apply it is reviewed for 8 abuse of discretion. Af-Cap Inc. v. Chevron Overseas (Congo) 9 Ltd., 475 F.3d 1080, 1086 (9th Cir. 2007). 10 Denial of a motion for reconsideration under Rule 9023 is 11 reviewed for abuse of discretion. Determan v. Sandoval 12 (In re Sandoval), 186 B.R. 490, 493 (9th Cir. BAP 1995). 13 A bankruptcy court abuses its discretion if it applies an 14 incorrect legal standard, or misapplies the correct legal 15 standard, or if its factual findings are illogical, implausible 16 or without support from evidence in the record. United States v. 17 Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009)(en banc)). 18 DISCUSSION 19 I. The bankruptcy court did not err in determining that issue preclusion was available based on the State Court Judgment. 20 A. 21 22 The bankruptcy court ruled that, because the state court 23 found in the State Court Judgment that Brown conspired to defraud 24 the Appellees, under the doctrine of issue preclusion, Brown’s 25 debt to the Appellees was excepted from discharge under 26 § 523(a)(2)(A). We conclude that the bankruptcy court correctly 27 determined that issue preclusion was available. 28 To determine the preclusive effect of a California state
-10- 1 court's findings in a judgment or order in a later bankruptcy 2 case, the bankruptcy court must first determine if issue 3 preclusion is available under California law. See 28 U.S.C. 4 § 1738 (the Full Faith and Credit Statute); Marrese v. Am. Acad. 5 of Orthopaedic Surgeons, 470 U.S. 373, 380 (1985). When state 6 preclusion law controls, a bankruptcy court’s discretion to apply 7 the doctrine must be exercised in accordance with state and 8 federal law. Khaligh v. Hadegh (In re Khaligh), 338 B.R. 817, 9 823 (9th Cir. BAP 2006), aff'd, 506 F.3d 956 (9th Cir. 2007). 10 Under California law, the party asserting issue preclusion 11 has the burden of establishing the following "threshold" 12 requirements for its availability: First, the issue sought to be 13 precluded from relitigation must be identical to that decided in 14 a former proceeding. Second, this issue must have been 15 actually litigated in the former proceeding. Third, it 16 must have been necessarily decided in the former proceeding. 17 Fourth, the decision in the former proceeding must be final and 18 on the merits. Finally, the party against whom preclusion is 19 sought must be the same as, or in privity with, the party to the 20 former proceeding. Harmon v. Kobrin (In re Harmon), 250 F.3d 21 1240, 1245 (9th Cir. 2001) (the "Harmon" requirements). A sixth 22 element requires a mandatory "additional" inquiry into whether 23 imposition of issue preclusion in a particular setting would be 24 fair and consistent with sound public policy. Lucido v. Super. 25 Ct., 51 Cal. 3d 335, 341-43 (1990). 26 Section 523(a)(2)(A) provides that a debt for money, 27 property, services, or an extension, renewal, or refinancing of 28 credit is excepted from discharge to the extent obtained by
-11- 1 "false pretenses, a false representation, or actual fraud, other 2 than a statement respecting the debtor's or an insider's 3 financial condition." Thus, the issues that must have been 4 determined in the state court proceedings to permit exception to 5 discharge under § 523(a)(2)(A) are: 6 A creditor must show that (1) the debtor made the representations; (2) that at the time he knew they were 7 false; (3) that he made them with the intention and purpose of deceiving the creditor; (4) that the 8 creditor [justifiably] relied on such representations; (5) that the creditor sustained the alleged loss and 9 damage as the proximate result of the representations having been made. 10 11 Am. Express Travel Related Servs. Co. v. Hashemi (In re Hashemi), 12 104 F.3d 1122, 1125 (9th Cir. 1996). 13 The State Court Judgment principally addresses the fraud 14 perpetrated on the Appellees by Williams. The state court’s 15 findings would appear to satisfy the factors listed above, at 16 least as to Williams: 17 The Court finds that Williams made many fraudulent and false representations of material fact to Acosta and 18 Aleman upon which they relied to their detriment. 19 State Court Judgment at 10. 20 However, Williams is not the debtor in this case — Brown is. 21 And the State Court Judgment does not find that Brown made any 22 representations to Appellees. Indeed, there is nothing in the 23 record to suggest that Brown ever communicated, or was otherwise 24 in contact, with the Appellees. Thus, Brown can not be held 25 directly liable under § 523(a)(2)(A) for the fraudulent 26 representations made to the Appellees by Williams. 27 Even so, our case law has long held that fraud committed by 28 another can be imputed to the debtor, but only under limited
-12- 1 circumstances. In March 2014, the Panel published an en banc 2 Opinion concerning the imputation of liability for an exception 3 to discharge under § 523(a)(2)(A). Sachan v. Huh (In re Huh), 4 506 B.R. 257 (9th Cir. BAP 2014). As discussed in that Opinion, 5 earlier BAP case law measured a debtor’s responsibility for 6 another’s fraud under principles of agency, finding that 7 liability for the actions of a partner could be imputed to the 8 debtor under theories of partnership and agency. Id. at 269-72 9 (discussing Tsurukawa v. Nikon Precision, Inc. 10 (In re Tsurukawa), 287 B.R. 515, 525 (9th Cir. BAP 2002)). 11 However, after a comprehensive review of the case law, the Panel 12 adopted the standard for imputation of fraud liability 13 articulated by the Eighth Circuit in Walker v. Citizens State 14 Bank (In re Walker), 726 F.2d 452 (8th Cir. 1984). Id. at 266. 15 The Panel concluded that, to be true to the policies of the 16 Bankruptcy Code and later case law, instead of focusing primarily 17 on the debtor’s status as an agent of the fraudster, the emphasis 18 should instead be on the actions of the debtor. As the Panel 19 explained, to shown that another’s fraud should be imputed to the 20 debtor, the creditor seeking an exception to discharge must show 21 that the debtor acted with “culpable state of mind,” and that the 22 debtor “knew or should have known” of the perpetrator’s 23 fraudulent activities. Id. at 267. 24 B. 25 In this case, the bankruptcy court’s decision to except from 26 discharge Brown’s debt to Acosta and Adelman was based on its 27 conclusion that the State Court Judgment’s finding that Williams, 28 Brown, and Ashburne engaged in a “civil conspiracy” to defraud
-13- 1 the Appellees was entitled to preclusive effect. We agree that, 2 under California law, a finding of civil conspiracy may qualify 3 for issue preclusion. 4 Recall, the State Court Judgment provided, in relevant part, 5 that 6 Williams’ husband, Brown, and Williams’ sister, Ashburne, were thus co-conspirators and joint venturers 7 with Williams in the fraud and breach of fiduciary duty whereby they also took advantage of Acosta and Adelman. 8 9 and 10 That the plaintiffs . . . have also presented evidence sufficient for the court to find that defendants 11 Williams, Ashburne and Brown collaborated in a civil conspiracy and joint venture from which the defendants, 12 and each of them, benefitted at plaintiffs’ expense. 13 State Court Judgment at 11, 12. 14 In California, “a civil conspiracy is the formation of a 15 group of two or more persons who have agreed to a common plan or 16 design to commit a tortious act." Kidron v. Movie Acquisition 17 Corp., 40 Cal. App. 4th 1571, 1582 (1995) (citing 1 Levy et al., 18 Cal. Torts Civil Conspiracy, § 9.03[2], p. 9-12 (1995)); see also 19 Youst v. Longo, 43 Cal. 3d 64, 79 (1987) ("the conspirators must 20 agree to do some act which is classified as a 'civil wrong'"]. 21 Liability for civil conspiracy under California law requires that 22 three elements be satisfied: (1) formation of the conspiracy 23 (i.e., that there be an agreement to commit wrongful acts); 24 (2) operation of the conspiracy (i.e., the commission of the 25 wrongful acts); and (3) damage resulting from operation of the 26 conspiracy. People ex rel. Kennedy v. Beaumont Investment, Ltd., 27 111 Cal. App. 4th 102, 137-38 (2003). 28 The first element, that there be an agreement to commit
-14- 1 wrongful acts, requires knowledge by the conspirators that the 2 acts are wrongful. Put another way, the conspiring defendants 3 “must have actual knowledge that a tort is planned and concur in 4 the tortious scheme with knowledge of its unlawful purpose.” 5 Favila v. Katten Muchin Rosenman, LLP, 188 Cal. App. 4th 189, 206 6 (2010); 1-800 Contacts, Inc. v. Steinberg, 107 Cal. App. 4th 568, 7 589 (2003) (same); see also People v. Austin, 23 Cal. App. 4th 8 1596, 1607 (1979) ("without knowledge of the illegal purpose 9 there is no basis for inferring a [civil conspiracy] agreement”). 10 In addition, knowledge of the planned tort must be combined 11 with the intent by a conspirator to aid in its commission. 12 Kidron, 40 Cal. App. 4th at 1582 (“Knowledge and intent may be 13 inferred from the nature of the acts done, the relation of the 14 parties, the interest of the alleged conspirators, and other 15 circumstances.”). 16 In finding that Brown, Williams, and Ashburne were involved 17 in a civil conspiracy, the State Court Judgment highlighted 18 several facts concerning Brown’s participation in that 19 conspiracy. The state court found that two of the four houses 20 that were supposed to be titled in the names of the partnership 21 were instead titled in Brown’s name; and that bank records for 22 the accounts, which contained the $122,000 that was to be used 23 for the partnership or distributed to the partners, were instead 24 used to pay Brown’s mortgages from November 2006 through February 25 2007. State Court Judgment at 11. On this record, then, it is 26 clear that the state court found that Brown’s actions were 27 sufficient to meet the elements for a civil conspiracy to 28 defraud.
-15- 1 The record also supports that, given the findings in the 2 State Court Judgment, an exception to discharge is appropriate 3 based upon the imputation of Williams’ fraud to Brown under the 4 test announced in In re Huh. In concluding that Brown 5 participated in a civil conspiracy under California law, the 6 state court necessarily concluded that Brown collaborated with 7 Williams to defraud the Appellees and, thus, that Brown “knew or 8 should have known” of Williams’ wrongdoings. 9 In sum, the bankruptcy court did not err in determining that 10 the state court’s findings in the State Court Judgment were 11 preclusive. Because those findings satisfy the standard the 12 Panel announced in In re Huh, Williams’ liability for fraud is 13 properly imputed to Brown for purposes of an exception from 14 discharge under § 523(a)(2)(A). 15 C. 16 As discussed above, even though issue preclusion is 17 available as to a judgment under state law, the bankruptcy court 18 must nonetheless exercise discretion concerning whether to apply 19 the doctrine. In re Khaligh, 338 B.R. at 832. Because the 20 bankruptcy court must use judgment, based on the facts, in 21 deciding to apply issue preclusion, the bankruptcy judge's 22 several statements to the parties at the status conference 23 indicating that he was "bound" by the State Court Judgment, that 24 "there's nothing really I can do about it," and that "I'm stuck 25 with it" are, at best, imprecise. However, in examining the 26 context of those comments, we observe that the bankruptcy court 27 was attempting to explain issue preclusion to non-lawyers. In 28 response to the arguments of both parties challenging the factual
-16- 1 findings of the state court, we perceive the bankruptcy court was 2 attempting to explain, primarily to Brown, that, absent 3 unfairness, he should accept the findings of the state court: 4 "I'm stuck with that judgment. So that judgment controls a good 5 portion of this case. That is, the findings in that judgment." 6 Hr'g Tr. 2:8-10, March 20, 2010. We conclude that the bankruptcy 7 court's comments that it was "stuck with the judgment," and so on 8 were at most harmless error. The court correctly noted that it 9 could not revisit the individual findings of the state court. 10 In re Khaligh instructs that we should find an abuse of 11 discretion by the bankruptcy court only if, in applying issue 12 preclusion, "the court applied an incorrect standard of law, a 13 clearly erroneous view of the facts, or otherwise did something 14 that leaves us with the definite and firm conviction that there 15 was a clear error of judgment." Id. at 832. Brown has the 16 burden of proof to establish that the court should not have 17 applied issue preclusion. Id. at 831-32. Brown has not 18 addressed this question and thus has not met that burden. We 19 conclude that the bankruptcy court did not abuse its discretion 20 in deciding to apply issue preclusion. 21 II. The bankruptcy court did not abuse its discretion in denying reconsideration of the judgment. 22 23 Brown’s motion asking the bankruptcy court to reconsider the 24 judgment excepting his debt to the Appellees from discharge was 25 filed fourteen days after entry of the judgment. It is thus 26 treated as a motion to alter or amend judgment under Rule 9023, 27 which incorporates Civil Rule 59(e). Heritage Pac. Fin., LLC v. 28 Edgar (In re Montano), 501 B.R. 96, 112 (9th Cir. BAP 2013). A
-17- 1 motion for reconsideration under Civil Rule 59(e) should not be 2 granted, absent highly unusual circumstances, unless the court is 3 presented with newly discovered evidence, committed clear error, 4 or if there is an intervening change in the controlling law. 5 Marlyn Nutraceuticals, Inc. v. Mucos Pharma GmbH & Co., 571 F.3d 6 873, 880 (9th Cir. 2009); Jeffries v. Carlson (In re Jeffries), 7 468 B.R. 373, 380 (9th Cir. BAP 2012). 8 In the reconsideration motion, Brown did not present newly 9 discovered evidence, argue that there was a change in controlling 10 law, or contend that the bankruptcy court committed clear error. 11 Rather, as he has done in this appeal, Brown merely reargued his 12 position on the merits: that the findings in the State Court 13 Judgment were wrong. Brown has not demonstrated the existence of 14 the highly unusual circumstances needed to justify 15 reconsideration, and the bankruptcy court did not abuse its 16 discretion in denying the motion. 17 CONCLUSION 18 We AFFIRM the judgment of the bankruptcy court. 19 20 21 22 23 24 25 26 27 28
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