FILED DEC 12 2018 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP Nos. CC-18-1052-STaL CC-18-1058-STaL CHRISTOPHER JAMES BOYCE, (Consolidated)
Debtor. Bk. No. 8:14-bk-11571-CB
CHRISTOPHER JAMES BOYCE, Adv. No. 8:14-ap-01134-CB
Appellant,
v. MEMORANDUM*
LISA HAMILTON,
Appellee.
Argued and Submitted on November 29, 2018 at Pasadena, California
Filed – December 12, 2018
Appeal from the United States Bankruptcy Court for the Central District of California
* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value. See 9th Cir. BAP Rule 8024-1. Honorable Catherine E. Bauer, Bankruptcy Judge, Presiding
Appearances: Fritz J. Firman argued for appellant; Jonathan David Alvanos of Tressler LLP argued for appellee.
Before: SPRAKER, TAYLOR, and LAFFERTY, Bankruptcy Judges.
INTRODUCTION
Chapter 71 debtor Christopher James Boyce appeals for the second
time from the bankruptcy court’s summary judgment in favor of judgment
creditor Lisa Hamilton on her § 523(a)(2)(A) claim for relief. In 2016, we
reversed the bankruptcy court’s prior summary judgment ruling, which
gave preclusive effect to a prepetition stipulated judgment in which Boyce
admitted to defrauding Hamilton.
In our 2016 decision, we upheld the bankruptcy court’s
determination that the stipulated judgment met the threshold elements for
issue preclusion. Even so, we held that the bankruptcy court abused its
discretion by not considering whether the stipulated judgment should be
given preclusive effect in light of Boyce’s allegations of fraud and coercion
1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the Federal Rules of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of Civil Procedure.
2 in entering into the stipulated judgment. Notwithstanding these
allegations, the bankruptcy court had concluded that preclusion was
appropriate based in large part upon the state court’s denial of Boyce’s
postpetition motion to rescind the stipulated judgement. We ruled that
both the rescission motion and the state court’s order denying it violated
the automatic stay and hence were void. Consequently, we remanded for
further consideration of whether issue preclusion was appropriate in light
of Boyce’s allegations of fraud and coercion.
On remand, the bankruptcy court retroactively validated the state
court’s denial of Boyce’s rescission motion by annulling the automatic stay.
Once again relying on the state court’s order denying the motion to rescind,
the bankruptcy court found that fairness and public policy supported the
application of issue preclusion and that Boyce should be barred from
relitigating the fraud underlying his debt to Hamilton. The bankruptcy
court again entered summary judgment on Hamilton’s § 523(a)(2)(A) claim.
Boyce again appealed.
The bankruptcy court duly considered on remand the fairness and
policy considerations surrounding the application of issue preclusion to the
stipulated judgment. The bankruptcy court’s analysis was logical, plausible
and supported by the record. Accordingly, we AFFIRM.
3 FACTS
A. Hamilton Invests In Kastel, Inc.
Hamilton and Boyce are former spouses. In November and December
2010, before the dissolution of their marriage but while separated, they
entered into joint venture agreements pursuant to which Hamilton
invested funds in Kastel, Inc., a company owned and controlled by Boyce.
She invested $2,000,000 in November 2010 and invested another $1,125,000
in December 2010. In accordance with the joint venture agreements, the
funds she invested were supposed to be used for currency trading. Without
Hamilton’s knowledge, in January 2011, Boyce took $727,539 of the
invested funds and lent them to BIN International Investment, another
company he owned.
Boyce eventually returned $1,397,461.31 of Hamilton’s investment. Of
the $1,727,538.69 in unreturned funds, Hamilton conceded that $1,000,000
was lost as a result of Kastel’s currency trading activities, leaving $727,539
in unexplained losses.
B. The State Court Lawsuit.
Hamilton sued Boyce, Kastel and BIN International in the Orange
County Superior Court to recover the $727,539 in April 2012. Hamilton
alleged causes of action for money had and received, conversion, and
fraud. Shortly after the filing of the state court complaint, Boyce contacted
Hamilton’s counsel seeking to resolve the dispute. Without the assistance
4 of counsel, Boyce negotiated with Hamilton’s counsel over the terms of a
stipulated judgment. During May 2012, they worked on two or more drafts
of the stipulated judgment. Boyce’s comments on the draft stipulation
indicated that he understood that a judgment for fraud could be excepted
from discharge if he subsequently filed a bankruptcy case. Boyce asked if
there were any acceptable alternatives to a judgment for fraud and
conversion because he was concerned that the stipulated judgment as
drafted could negatively affect his ability to obtain future business
financing. Hamilton’s counsel replied and nonetheless insisted that the
stipulated judgment explicitly grant relief for both fraud and conversion.
She took the position that both grounds for relief were necessary “to
explain what causes of action are being stipulated to.”
In one of the drafts, Hamilton’s counsel revised a representation
concerning legal advice. The draft was changed to read: “Each party to this
Stipulated Judgment is aware of his or her right to consult with
independent legal counsel. Defendant, Chris Boyce, warrants that he has
knowingly and voluntarily waived his right to seek independent legal
counsel.” Hamilton’s counsel asked Boyce if the change was acceptable.
The final version of the stipulated judgment, executed by both parties,
included the revised representation that Boyce “knowingly and voluntarily
waived his right to seek independent counsel.”
As part of the stipulated judgment, Boyce admitted:
5 that on or about January 26, 2011, secured by a certain Non- Negotiable Promissory Note Secured by Security Agreement dated May 09, 2011 for the amount $727,539.00 (the “BIN International Investment”), he intentionally and without Hamilton’s knowledge or consent converted $727,538.69 of Hamilton’s Unreturned Funds designated for currency trading and invested said amount in Defendant BIN International (“BIN”) without Hamilton’s authorization. Defendant, Chris Boyce, admits and acknowledges that his intentional misrepresentations to Hamilton and conversion of Plaintiff’s funds resulted in a loss to Plaintiff in the amount of $727,538.69, which Defendants admit they are obligated to repay to Hamilton.
Stipulated Judgment (Aug. 27, 2012) at 3:9-18. The stipulated judgment
further stated that all three defendants were liable for the lost investment
funds, plus $2,500 in fees and costs, “as and for Hamilton’s fraud and
conversion causes of action.”
On or about August 27, 2012, the state court approved the stipulated
judgment without a hearing and entered judgment against Boyce, Kastel,
and BIN International in the amount of $730,038.69.
C. Boyce Files For Bankruptcy.
On March 13, 2014, Boyce commenced his bankruptcy case by filing a
voluntary chapter 7 petition. In May 2014, Hamilton filed a complaint
objecting to Boyce’s discharge under § 727(a)(4)(A) and seeking to except
the judgment debt from discharge under § 523(a)(2)(A), (a)(4), and (a)(6).
In February 2015, Boyce sought relief from the automatic stay for the
6 purpose of filing a motion in the state court to rescind the stipulated
judgment. In support of the relief from stay motion, Boyce claimed
rescission was proper because he did not freely enter into the stipulated
judgment.2 According to Boyce, his acceptance of the stipulated judgment
was procured by fraud, mistake, menace, duress and undue influence.
Boyce also claimed that he had valid defenses to Hamilton’s causes of
action. More specifically, he claimed that Hamilton later ratified his loan of
the investment funds to BIN International and that she even attempted to
solicit additional investments for BIN from her friends. He also asserted
that his unilateral decision to invest the $727,539 in BIN International,
without Hamilton’s knowledge and consent, was consistent with the terms
of the parties’ joint venture agreements. Boyce’s legal theories in support of
his rescission motion all treated the stipulated judgment entered by the
state court as if it were nothing more than a contract.
The bankruptcy court denied Boyce’s relief from stay motion as
unnecessary. According to the bankruptcy court, the automatic stay did not
enjoin the debtor from filing the motion to rescind in the state court.
Thereafter, Boyce filed his motion to rescind in the state court. On
2 Neither party has included the relief from stay motion and related documents in their excerpts of record. We have exercised our discretion to take judicial notice of these and other bankruptcy court documents not included in the parties’ excerpts. See Rivera v. Curry (In re Rivera), 517 B.R. 140, 143 n.2 (9th Cir. BAP 2014), aff’d in part, appeal dismissed in part, 675 F. App’x 781 (9th Cir. 2017).
7 May 15, 2015, the state court denied the motion based on the papers
submitted. The state court found that Boyce failed to meet his burden of
proof in multiple respects. First, it noted that Boyce had delayed seeking
rescission of the stipulated judgment for well over two years. The state
court found that Boyce’s attempt to rescind the stipulated judgment was
due to the very real prospect of a nondischargeability judgment rather than
any sort of delayed discovery that he had been misled or coerced by
Hamilton or her counsel.
Second, the state court rejected Boyce’s arguments based on
rescission of contracts. The court distinguished contracts from duly entered
stipulated judgments. It explained that a final judgment is not a contract for
rescission purposes, citing Stevens v. Stevens, 268 Cal. App. 2d 426 (1968).
And third, the state court pointed out that Boyce’s motion had not
invoked the court’s inherent or equitable power to grant relief from a
judgment improvidently entered based on extrinsic fraud. The state court
stated that, even if it were to consider the motion as a request for the court
to exercise its inherent or equitable powers, the motion still would be
denied. According to the state court, Boyce had not demonstrated his
diligence in seeking such relief. The court additionally found that Boyce
had not shown that he had a meritorious defense to Hamilton’s fraud and
conversion claims. The state court pointed to a number of holes in Boyce’s
story regarding his intended use of the $727,539, his actual use of those
8 funds, and his failure to inform Hamilton regarding their actual use. The
state court also found that Boyce was not credible and had failed to prove
fraud, menace, undue influence, economic distress or mistake. Contrary to
Boyce’s account of his negotiations with Hamilton and her counsel, the
state court found that Boyce was a sophisticated businessman, that he was
“fully aware of what he was doing,” and that he “voluntarily, and on his
own accord, entered into the stipulation, for his own interests.” Boyce did
not appeal the state court’s denial of his motion to rescind.
Meanwhile, Hamilton moved for summary judgment in the
adversary proceeding. Hamilton contended that the issue preclusive effect
of the stipulated judgment conclusively established the nondischargeability
of the judgment debt under § 523(a)(2)(A), (a)(4) and (a)(6).
Boyce opposed the summary judgment motion. Boyce’s opposition
relied on the same allegations of fraud and coercion set forth in his state
court rescission motion. According to Boyce, the stipulated judgment was
not actually litigated because there had been no trial of the matters at issue
and Hamilton procured his assent to the stipulated judgment by coercion
and fraud.
The bankruptcy court held three hearings on the summary judgment
motion. At the first two, the bankruptcy court did little more than defer
ruling on the summary judgment motion until the state court had
considered and ruled on the rescission motion. The third hearing on the
9 summary judgment motion took place on June 9, 2015. The bankruptcy
court noted that the state court had considered and rejected Boyce’s
allegations of coercion and fraud. It further posited that there was no way
around the state court’s ruling on the rescission motion. On that basis, the
bankruptcy court granted Hamilton’s summary judgment motion.3
D. The First Appeal And Proceedings On Remand.
On appeal, Boyce challenged the bankruptcy court’s application of
issue preclusion to the stipulated judgment. We reversed and remanded.
Boyce v. Hamilton (In re Boyce), BAP No. CC–15–1220–TaKuKi, 2016 WL
6247612 (9th Cir. BAP Oct. 25, 2016) (“Boyce I”). Boyce I addressed all of the
threshold elements for issue preclusion under California law. We held that
the stipulated judgment, which specifically admitted to a debt arising from
fraud, satisfied all of these threshold elements for purposes of establishing
a claim under § 523(a)(2)(A). But we also recognized that the bankruptcy
court needed to consider whether fairness and the public policy
considerations underlying the preclusion doctrine supported the preclusive
effect of the stipulated judgment. We explained that the bankruptcy court
did not properly consider the fairness and policy concerns in light of
Boyce’s allegations of coercion and fraud. We further explained that the
3 On January 8, 2016, the bankruptcy court entered an order clarifying that summary judgment was granted only as to Hamilton’s § 523(a)(2)(A) claim. The bankruptcy court also entered an order granting Hamilton’s motion pursuant to Civil Rule 54(b) and entered final judgment on her § 523(a)(2)(A) claim.
10 bankruptcy court’s reliance on the state court’s denial of the motion to
rescind, and on the state court’s rejection of Boyce’s coercion and fraud
allegations, was misplaced because the state court’s ruling violated the
automatic stay. Hence, it was void. We ultimately concluded:
Because the bankruptcy court improperly relied on a stay violative order in applying issue preclusion to the stipulated judgment, we reverse the bankruptcy court's grant of summary judgment in Hamilton's favor and remand for further proceedings consistent with this decision. Perhaps these particular circumstances warrant a retroactive annulment of the stay; we cannot and do not say. Instead, we leave it to the bankruptcy court to make appropriate determinations in light of our analysis.
Boyce I, 2016 WL 6247612 at *5.4
On remand, the bankruptcy court granted Hamilton’s motion to
annul the stay.5 The bankruptcy court then held a hearing on the remanded
summary judgment proceedings. At this hearing, held on January 23, 2018,
Boyce requested mediation, an opportunity to conduct discovery, and an
opportunity for further briefing on his coercion and fraud theories. While
counsel for Boyce repeatedly asked for discovery and supplemental
4 In Boyce I, we noted that Boyce’s fraud and coercion allegations in theory also could potentially affect the actually litigated element. But we held that these allegations most directly affected the fairness and public policy considerations. Ultimately, our reversal of the bankruptcy court’s original summary judgment ruling hinged on the fairness and public policy considerations and not on the actually litigated element. 5 Boyce did not appeal the order granting stay annulment.
11 briefing, he never explained why either was needed. The bankruptcy court
rejected these requests.
According to the bankruptcy court, the Panel was concerned with the
void state court order denying the rescission motion and the bankruptcy
court’s reliance on that order. As the bankruptcy court explained, now that
it had resolved that concern by annulling the stay, there was no need to
relitigate Hamilton’s nondischargeability theories or Boyce’s claims of
coercion and fraud. The bankruptcy court acknowledged that the Panel
also was concerned that the court previously did not consider whether
fairness and public policy supported application of issue preclusion given
Boyce’s allegations. But the bankruptcy court concluded that it could
conduct that analysis without further litigation or briefing. The court set
the summary judgment motion for a continued hearing on March 6, 2018.
The court said that it would review all of the relevant papers again but
noted that it might issue a decision in advance of the continued hearing.
On February 7, 2018, the bankruptcy court entered its amended order
granting summary judgment post remand. In the order, the bankruptcy
court once again granted summary judgment on Hamilton’s § 523(a)(2)(A)
claim. The bankruptcy court quoted at length from the state court’s denial
of the motion to rescind. As to Boyce’s claims that he believed Hamilton’s
counsel was also representing him in the negotiation of the stipulated
judgment, the bankruptcy court found that the express language of the
12 stipulated judgment precluded that argument.
The bankruptcy court then considered fairness and the policies
underlying the issue preclusion doctrine. The bankruptcy court held that
the integrity of the judicial system, protection against vexatious litigation,
and judicial economy all favored the application of issue preclusion. The
court further determined that there was no compelling reason to relitigate
any of the issues from the state court proceedings. The bankruptcy court
pointed out that, in the state court, Boyce had filed, litigated, and lost his
rescission motion. The court again entered summary judgment on
Hamilton’s §523(a)(2)(A) claim, concluding:
The Judgment and the order denying the Motion to Rescind are entitled to full faith and credit by this Court. Issue preclusion is warranted and sound public policy is served by its application to this matter.
Amended Order Granting Summary Judgment Post Remand (Feb. 7, 2018)
at 6:17-19.
Boyce timely appealed the bankruptcy court’s amended summary
judgment on remand.6
6 In this appeal after remand, we issued an order raising the issue of finality. In response, Boyce sought and obtained a new order granting relief under Civil Rule 54(b) and entering final judgment on Hamilton’s § 523(a)(2)(A) claim, thereby resolving the finality issue for purposes of this appeal.
13 JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Did the bankruptcy court commit reversible error when it granted
summary judgment against Boyce based on the preclusive effect of the
state court judgment?
STANDARD OF REVIEW
We review de novo the bankruptcy court’s grant of summary
judgment. Plyam v. Precision Dev., LLC (In re Plyam), 530 B.R. 456, 461 (9th
Cir. BAP 2015). We also review de novo the bankruptcy court’s
determination that issue preclusion is available. Lopez v. Emerg. Serv.
Restoration, Inc. (In re Lopez), 367 B.R. 99, 103 (9th Cir. BAP 2007). When we
review an issue de novo, “we consider [the] matter anew, as if no decision
had been rendered previously.” Kashikar v. Turnstile Capital Mgmt., LLC (In
re Kashikar), 567 B.R. 160, 164 (9th Cir. BAP 2017).
If we determine that issue preclusion is available, we then review the
bankruptcy court's decision to apply it for an abuse of discretion. In re
Lopez, 367 B.R. at 103. A bankruptcy court abuses its discretion if it applies
the wrong legal standard or its findings of fact are illogical, implausible or
without support in the record. TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d
820, 832 (9th Cir. 2011).
14 DISCUSSION
A. Summary Judgment and Issue Preclusion Standards.
In our prior decision, we set forth the basic standards governing
summary judgment and issue preclusion; there is no need to restate them
at length here. Instead, we need only highlight those factors directly
implicated by Boyce’s attempt to rescind the stipulated judgment.
Under the Full Faith and Credit Act, 28 U.S.C. § 1738, we must give
state court judgments the same preclusive effect as the originating state
would give them. In re Lopez, 367 B.R. at 105 & n.3. Under California law,
findings are eligible for issue preclusion when:
(1) the issue sought to be precluded from relitigation is identical to that decided in a former proceeding; (2) the issue was actually litigated in the former proceeding; (3) the issue was necessarily decided in the former proceeding; (4) the decision in the former proceeding is final and on the merits; and (5) the party against whom preclusion is sought was the same as, or in privity with, the party to the former proceeding.
In re Plyam, 530 B.R. at 462 (citing Lucido v. Sup. Ct., 51 Cal. 3d 335, 341
(1990)). In addition to these five threshold factors, courts must also
consider a sixth element; whether under the circumstances of the particular
case application of issue preclusion is fair and consistent with the policies
underlying the doctrine. Baldwin v. Kilpatrick (In re Baldwin), 249 F.3d 912,
919–20 (9th Cir. 2001); In re Lopez, 367 B.R. at 107-08; see also Christopher
Klein et al., Principles of Preclusion & Estoppel in Bankruptcy Cases, 79
15 Am. Bankr. L. J. 839, 855 (2005).
The fairness and policy considerations are part of the bankruptcy
court’s exercise of its discretion in deciding whether it should apply issue
preclusion in the particular case. In re Lopez, 367 B.R. at 107-08. More
plainly stated, the bankruptcy court’s final decision regarding the
application of issue preclusion is always a matter of discretion. Id.
B. We Previously Decided that the Stipulated Judgment Met The Threshold Issue Preclusion Elements But Was Subject To The Fairness And Policy Considerations.
In this current appeal, Boyce again challenges the threshold element
of actual litigation. However, in Boyce I, we examined whether Hamilton’s
fraud claims were actually litigated by the stipulated judgment. Noting
that the stipulated judgment expressly provided that it was enforceable
under CCP § 664.6, we concluded that “the stipulated judgment was an
appropriate basis for a potential application of issue preclusion; it satisfied
the ‘actually litigated’ requirement.” Boyce I, 2016 WL 6247612, at *4.7
Our initial ruling in Boyce I is law of the case. The law of the case
7 Citing Cal. State Auto. Ass’n Inter–Ins. Bureau v. Super. Ct., 50 Cal. 3d 658, 664 & n.2 (1990), we held in Boyce I that a stipulated judgment can satisfy the actually litigated element for issue preclusion when the parties manifest their intent to be bound by the judgment in future actions. Boyce I, 2016 WL 6247612, at *3. And we also said that a party manifests its intent to bind itself to a liability finding typically by admitting to that liability in the stipulated judgment. Id. Based on the criteria set forth in Cal. State Auto. Ass’n Inter–Ins. Bureau, we noted that the stipulated judgment satisfied the “actually litigated” requirement. Boyce I, 2016 WL 6247612 at *4, 5 & n.7.
16 doctrine generally requires that prior decisions by the same or a higher
court “be followed in all subsequent proceedings in the same case.”
American Express Travel Related Serv. Co., Inc. v. Fraschilla (In re Fraschilla),
235 B.R. 449, 454 (9th Cir. BAP 1999), aff'd, 242 F.3d 381 (9th Cir. 2000). This
doctrine is not mandatory, but earlier decisions should be followed
“unless: (1) the decision is clearly erroneous and its enforcement would
work a manifest injustice, (2) intervening controlling authority makes
reconsideration appropriate, or (3) substantially different evidence was
adduced at a subsequent trial.” Id. at 454 (quoting United States v. Garcia, 77
F.3d 274, 276 (9th Cir. 1996)). None of these exceptions apply here. Rather,
Boyce simply seeks to reargue the issue. The law of the case doctrine
governs. Therefore, we will follow our prior holding from Boyce I that the
stipulated judgment entered in the state court action was actually litigated.
Having already determined in Boyce I that the stipulated judgment
could preclude relitigation of the fraud claim in the discharge action, the
question we now must address is whether the bankruptcy court correctly
exercised its discretion in determining that the stipulated judgment should
preclude that relitigation. See Khaligh v. Hadaegh (In re Khaligh), 338 B.R. 817,
831-32 (9th Cir. BAP 2006) (having concluded that issue preclusion was
permissible, “the question becomes whether the court's actual choice to do
so nevertheless was an abuse of discretion.”)
17 C. Fairness And Policy Considerations In Applying Issue Preclusion To The Discharge Action.
In Boyce I, we held that “[t]o the extent a California consent judgment
was obtained by inappropriate coercion, a court applying issue preclusion
must determine whether reliance on such a judgment appropriately
furthers the public policy underlying the issue preclusion doctrine.”
Boyce I, 2016 WL 6247612, at * 5. We remanded because the bankruptcy
court did not correctly consider whether fairness and policy considerations
supported application of issue preclusion in this instance given its reliance
upon the state court’s void order denying Boyce’s rescission motion.
On remand, the bankruptcy court resolved the stay violation by
annulling the stay retroactively to validate entry of the state court’s
decision denying Boyce’s motion to rescind, which decision Boyce did not
appeal. As a result, the stipulated judgment continued to exist as a final
judgment, entitled to full faith and credit in the discharge action. The
specific effect of the state court’s denial of the motion to rescind on Boyce’s
fraud and coercion allegations is less clear, but we need not resolve that
issue here.8 As a result of the denial of the motion to rescind the stipulated
8 When relief from a judgment obtained through extrinsic fraud, mistake or accident is sought, and such equitable relief is sought and denied by motion, the denial of that motion ordinarily has no issue preclusive effect. See Estudillo v. Security Loan etc. Co., 149 Cal. 556, 564 (1906); Jeffords v. Young, 98 Cal. App. 400, 406–407 (1929); Groves v. Peterson, 100 Cal. App. 4th 659, 667 (2002). The wording of the bankruptcy court’s decision on remand makes it difficult to ascertain with certainty whether the (continued...)
18 judgment still exists as a valid, final state court judgment entitled to full
faith and credit. Boyce unsuccessfully attacked the stipulated judgment in
the state court and apparently has abandoned any attempt to challenge the
judgment in the court that entered it.9
On remand, the bankruptcy court duly considered the fairness and
policy concerns underlying the issue preclusion doctrine. The California
Supreme Court has instructed that, when considering application of issue
preclusion, “preservation of the integrity of the judicial system, promotion
of judicial economy, and protection of litigants from harassment by
vexatious litigation - strongly influence whether its application in a
particular circumstance would be fair to the parties and constitute sound
judicial policy.” Lucido, 51 Cal. 3d at 343; see also Murray v. Alaska Airlines,
8 (...continued) bankruptcy court simply considered the state court’s denial within its policy analysis or also applied issue preclusion to the state court’s order on Boyce’s motion to rescind. To the extent that it applied issue preclusion such application would, at worst, be harmless error because the bankruptcy court did not err in considering the state court’s decision. And we must ignore harmless error. Van Zandt v. Mbunda (In re Mbunda), 484 B.R. 344, 355 (9th Cir. BAP 2012), aff’d, 604 F. App’x 552 (9th Cir. 2015). 9 Boyce repeatedly argues that he has been denied the opportunity to prove his allegations of fraud and coercion. We disagree. Moreover, Boyce still has, in theory, a right under California law to commence an independent action seeking relief from the judgment on equitable grounds. See Estudillo, 149 Cal. at 564; Jeffords, 98 Cal. App. At 406–407; Groves, 100 Cal. App. 4th at 667-68. We express no opinion as to the merits of such an action. His ability to bring an independent action, however, did not preclude the bankruptcy court from considering the state court’s denial of the motion to rescind as part of its policy consideration.
19 Inc., 50 Cal. 4th 860, 879 (2010) (policies underlying issue preclusion
“include conserving judicial resources and promoting judicial economy by
minimizing repetitive litigation, preventing inconsistent judgments which
undermine the integrity of the judicial system, and avoiding the
harassment of parties through repeated litigation.”). The bankruptcy court
specifically acknowledged these policy considerations and found that
“[t]hese factors weigh in favor of applying issue preclusion here.” The
court further explained:
There is no compelling reason to re-litigate the issues that were raised in state court (both as to the Judgment and as to the Motion to Rescind). It would result in unnecessary expense, expenditure of duplicative judicial resources, and create the real danger of inconsistent results.
As part of its fairness and policy analysis, the bankruptcy court duly
considered Boyce’s fraud and coercion charges. The bankruptcy court was
aware that Boyce chose to pursue those allegations in the state court, that
the state court denied Boyce’s motion to rescind, and that he never
appealed that adverse decision.
The bankruptcy court was entitled to consider this history when
weighing the fairness and policy concerns underlying the issue preclusion
doctrine. The bankruptcy court also independently examined and rejected
Boyce’s argument that Hamilton’s counsel misled him to believe that she
was personally representing him in drafting the stipulated judgment.
20 Finally, the bankruptcy court evaluated the fairness and policy concerns in
light of all of the surrounding circumstances of the case. The record
supports the bankruptcy court’s reasoning that application of issue
preclusion was fair and consistent with the policies underlying the
doctrine. Furthermore, there is nothing illogical or implausible regarding
the bankruptcy court’s decision to apply issue preclusion to the stipulated
judgment under these circumstances. In sum, the bankruptcy court did not
abuse its discretion when it applied issue preclusion to the stipulated
judgment to bar relitigation of Boyce’s fraud.
D. Stipulated Judgment as a Prepetition Waiver of Discharge.
In his only other argument on appeal, Boyce contends that the
stipulated judgment constituted an unenforceable prepetition waiver of his
discharge. Boyce cites two Ninth Circuit decisions in support of the
proposition that prepetition waivers of the debtor’s discharge are
unenforceable because they are inconsistent with public policy and the
Bankruptcy Code. See Cont’l Ins. Co. v. Thorpe Insulation Co. (In re Thorpe
Insulation Co.), 671 F.3d 1011, 1026 (9th Cir. 2012); Bank of China v. Huang (In
re Huang), 275 F.3d 1173, 1177 (9th Cir. 2002). We agree that such waivers
are unenforceable. See Hayhoe v. Cole (In re Cole), 226 B.R. 647, 651–52 & n. 7
(9th Cir. BAP 1998).
Here, however, Boyce did not waive his discharge but rather
stipulated to the underlying facts that support nondischargeability of his
21 debt under § 523(a)(2)(A). When a defendant stipulates to judgment, and in
the process admits to liability on grounds that would qualify as
nondischargeable in bankruptcy, such admissions typically are given
preclusive effect in a subsequent nondischargeability proceeding. Johnson v.
W3 Inv. Partners (In re Johnson), BAP No. SC–17–1194–LBF, 2018 WL
1803002, *6 (9th Cir. BAP Apr. 16, 2018) (citing In re Cole, 226 B.R. at 655). In
other words, such stipulated judgments ordinarily are not treated as if they
were mere prepetition waivers of the discharge. Id. at *6-8.
In Wank v. Gordon (In re Wank), 505 B.R. 878, 890-91 (9th Cir. BAP
2014), we recognized a narrow exception to this rule where the evidence
established that the sole purpose of the admissions was to render the debt
nondischargeable in any subsequent bankruptcy and where the admissions
were not included in the stipulated judgment itself. Id.; see also In re Johnson,
2018 WL 1803002, at *6-7 (citing Wank). But Boyce’s admission does not
meet the requirements of the narrow Wank exception. He agreed to include
language in the stipulated judgment stating that he made
misrepresentations to Hamilton which resulted in her loss. He also agreed
to language stating that he was liable on grounds of both fraud and
conversion for Hamilton’s loss. Hamilton’s complaint stated a garden-
variety cause of action for fraud alleging all the essential elements for a
fraud claim. Boyce has not argued otherwise. Furthermore, Boyce has
admitted that he understood at the time he entered into the stipulated
22 judgment that it later could be used to preclude him from discharging the
judgment debt. Under these circumstances, Boyce’s waiver of discharge
argument lacks merit.
CONCLUSION
For the reasons set forth above, we AFFIRM the bankruptcy court’s
summary judgment in favor of Hamilton.