In re: Saman Hasnain

Opinion

FILED NOV 09 2012 1 SUSAN M SPRAUL, CLERK 2 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. NC-11-1631-DJuKi ) 6 SAMAN HASNAIN, ) Bk. No. 10-58064-SLJ ) 7 Debtor. ) Adv. No. 10-05380-SLJ ______________________________) 8 ) SAMAN HASNAIN, ) 9 ) Appellant, ) 10 ) v. ) M E M O R A N D U M1 11 ) MICHAEL CHADD, ) 12 ) Appellee. ) 13 ______________________________) 14 Submitted Without Oral Argument on October 19, 2012 15 Filed - November 9, 2012 16 Appeal from the United States Bankruptcy Court 17 for the Northern District of California 18 Honorable Stephen L. Johnson, Bankruptcy Judge, Presiding 19 Appearances: Appellant Saman Hasnain and appellee Michael Chadd 20 pro se on briefs. 21 22 Before: DUNN, JURY and KIRSCHER, Bankruptcy Judges. 23 24 25 26 1 This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8013-1. 1 Appellee Michael Chadd moved for summary judgment on his 2 complaint against the debtor, Saman Hasnain,2 to except a debt 3 from discharge under § 523(a)(4) and (a)(19)(“exception to 4 discharge complaint”).3 The debt arose from a confirmed 5 arbitration award against the debtor for violations of California 6 securities laws, fraud and conversion. The bankruptcy court 7 granted summary judgment in Chadd’s favor (“summary judgment 8 order”), giving issue preclusive effect to the arbitration 9 judgment. The debtor appeals the bankruptcy court’s summary 10 judgment order. We AFFIRM. 11 12 FACTS 13 A. Chadd’s state court action 14 Approximately four years before the debtor filed for 15 bankruptcy protection, Chadd entered into an operating agreement 16 with the debtor’s husband, Jawad Hasnain, and others to form 17 Westland Homes, LLC (“Westland Homes”), a real estate development 18 company. Westland Homes was formed to develop several town homes 19 on a tract of land in Fremont, California (“Fremont property”). 20 Under the operating agreement, the signatories were required 21 2 22 Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 23 to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. 24 The Federal Rules of Civil Procedure are referred to as “Civil Rules.” 25 3 Chadd sought to except the debt from discharge under 26 § 523(a)(2)(A), (a)(4), (a)(6) and (a)(19). The bankruptcy court 27 granted summary judgment based on the judgment confirming the final arbitration award which it determined to have set forth 28 findings sufficient under § 523(a)(4) and 523(a)(19).

2 1 to purchase securities in the form of member interests in 2 Westland Homes. The proceeds from the sale of the securities 3 (“investment proceeds”) were to be invested in the development of 4 the Fremont property. The operating agreement also required the 5 signatories to participate in arbitration in the event of a 6 dispute concerning Westland Homes (“arbitration clause”). 7 Chadd was a member of Westland Homes, having signed the 8 operating agreement and purchased securities. The debtor’s 9 husband was a member, as well as the manager, of Westland Homes. 10 The debtor was neither a signatory to the operating agreement nor 11 a member of Westland Homes. 12 On September 11, 2008, Chadd filed a complaint in state 13 court4 against the debtor, her husband and Westland Homes5 for 14 violations of California securities laws, fraud, conversion and 15 joint venture (“state court action” or “state court complaint”).6 16 17 4 Neither Chadd nor the debtor provided a copy of the state court complaint in the record before us. Chadd attached a copy 18 of the state court complaint as an exhibit to his exception to 19 discharge complaint. We reviewed the state court complaint from the bankruptcy court’s electronic adversary proceeding docket. 20 See O’Rourke v. Seaboard Surety Co. (In re E.R. Fegert, Inc.), 21 887 F.2d 955, 958 (9th Cir. 1989)(court may take judicial notice of underlying bankruptcy records). 22 5 Chadd also named Westland Homes’ two other members, 23 Vidyasager Vaman Despande and Paul Duggan, as defendants in the 24 state court action. 6 25 Chadd asserted the following causes of action against the debtor and her husband in his state court complaint: 26 (1) securities violations under Cal. Corp. Code §§ 25401 and 27 25300l; (2) fraud; (3) conversion; (4) “money had and received” (i.e., investment funds intended for use by Westland Homes but 28 (continued...)

3 1 Chadd alleged that the debtor and her husband engaged in a 2 joint venture as to Westland Homes’ operations. Chadd claimed 3 that the debtor, her husband and/or Westland Homes (1) made 4 numerous misrepresentations about the rate of return on his 5 investment, the amounts invested by the debtor’s husband in 6 Westland Homes and his experience in real estate development, 7 among other things; (2) represented that the debtor was the real 8 estate agent responsible for selling the town homes on the 9 Fremont property; (3) failed to disclose that the debtor’s 10 husband previously had filed for bankruptcy and had lawsuits 11 pending against him; (4) converted the investment proceeds for 12 the debtor and her husband’s personal use; and (5) failed to 13 return the investment proceeds to Chadd. He also alleged that 14 the debtor knew about her husband’s wrongful actions and/or 15 “ratified and approved” his conduct and “accepted the benefits of 16 his wrongful actions.” 17 B. The state court arbitration 18 The debtor, her husband and Westland Homes moved to compel 19 arbitration (“arbitration motion”) in the state court action. 20 They argued that, under the terms of the operating agreement, any 21 dispute relating to Westland Homes must be addressed through 22 mediation first. If no resolution was reached through mediation, 23 24 6 (...continued) 25 instead used by the debtor and her husband for their personal use and not returned by either the debtor or her husband); (5) 26 “aiding and abetting” in wrongfully obtaining and/or misusing 27 Chadd’s investment funds; (6) violation of Cal. Bus. & Prof. Code § 17200; and (7) joint venture. Chadd also asserted causes of 28 action against the debtor’s husband only.

4 1 the dispute was to be addressed through arbitration. According 2 to the debtor, her husband and Westland Homes, the parties tried 3 to resolve the matter through mediation, but were unsuccessful. 4 They also pointed out that the debtor did not sign the operating 5 agreement and had no involvement with Westland Homes. The state 6 court granted the arbitration motion. 7 The arbitration took place over two hearings (“arbitration 8 hearings”). The debtor, her husband, Westland Homes and Chadd 9 were represented by counsel in the arbitration. A retired judge 10 acted as arbitrator. After considering the briefs and evidence 11 submitted by the parties, the arbitrator issued an interim 12 arbitration award in Chadd’s favor (“interim arbitration award”). 13 The arbitrator found that the liability of the debtor and 14 her husband was “direct and personal.” Although the debtor had 15 not signed the operating agreement with the arbitration clause, 16 the arbitrator determined that she nonetheless became a party to 17 the arbitration by participating in it. The arbitrator concluded 18 that the debtor, her husband and Westland Homes were jointly and 19 severally liable for violating California securities laws by 20 (1) selling unqualified and nonexempt member interests in 21 Westland Homes to Chadd and (2) making misleading statements and 22 omitting material facts in selling member interests in Westland 23 Homes to Chadd. He also concluded that the debtor, her husband 24 and Westland Homes were jointly and severally liable to Chadd for 25 breach of fiduciary duty. 26 Shortly after the arbitrator issued the interim arbitration 27 award, the debtor submitted a brief contesting it (“arbitration 28 participation brief”). Despite her having joined in the

5 1 arbitration motion, she contended that she was not bound by the 2 interim arbitration award because she was not a proper party to 3 the arbitration. The debtor argued that only signatories to the 4 operating agreement had to submit to arbitration under the 5 arbitration clause. Because she had not signed the operating 6 agreement, the debtor was not subject to the arbitration. She 7 further contended that she was not subject to the arbitration 8 because she did not receive any benefits from the operating 9 agreement. The debtor also claimed that she had no involvement 10 with Westland Homes. 11 The debtor further maintained that she was not bound by the 12 interim arbitration award because she did not actively 13 participate in the arbitration. She argued that simply raising 14 minimal defenses in response to the state court action and 15 providing direct testimony at the arbitration hearings did not 16 make her a party to the arbitration. The debtor claimed that she 17 only appeared at the arbitration hearings because she believed 18 that she was required to do so under a notice to appear issued by 19 Chadd (“arbitration appearance notice”) and an order issued by 20 the arbitrator (“arbitration appearance order”). 21 She also contended that the interim arbitration award set 22 forth findings as to her liability beyond those alleged by Chadd 23 in the state court complaint. The debtor was found to be liable 24 on the same grounds as those asserted against her husband, even 25 though they had not been asserted against her in the state court 26 complaint. Moreover, she argued, Chadd did not offer any 27 evidence demonstrating that she was liable for violations of 28 California securities laws.

6 1 Two months after the debtor filed her arbitration 2 participation brief, on July 6, 2010, the arbitrator issued the 3 final arbitration award which “incorporated the contents of the 4 [interim arbitration award], except as amended.” He found that, 5 although the debtor did not sign the operating agreement, she 6 still was subject to arbitration because she had “voluntarily 7 participated in the arbitration and by so doing, became a party 8 to it.” The arbitrator further determined that, although the 9 debtor did not sign the operating agreement, she nonetheless 10 participated in the “fraudulent misappropriation committed 11 against [Chadd]” by using the investment proceeds for her 12 personal needs. 13 The arbitrator found that the debtor’s husband had offered 14 and sold unqualified securities in Westland Homes in violation of 15 Cal. Corp. Code § 25110. He also found that the debtor, her 16 husband and Westland Homes violated Cal. Corp. Code § 25401 by 17 (1) misrepresenting her husband’s experience and success as a 18 real estate developer and (2) failing to advise Chadd of her 19 husband’s bankruptcy filing and of the lawsuits filed against 20 him, among other things. 21 The arbitrator also determined that the debtor and her 22 husband drew on the investment proceeds for their own personal 23 needs, “contrary to [the] oral and written representations made 24 by [the debtor’s husband] to the investors.” 25 Based on these findings, the arbitrator determined that the 26 debtor, her husband and Westland Homes were jointly and severally 27 liable to Chadd. He awarded Chadd a total of $606,402, which 28

7 1 included attorney’s fees and costs.7 2 C. The debtor’s chapter 7 bankruptcy 3 Before Chadd could obtain confirmation of the final 4 arbitration award,8 on August 4, 2010, the debtor filed her 5 chapter 7 bankruptcy petition. She scheduled Chadd as an 6 unsecured creditor with a $600,000 claim arising from “an 7 arbitration judgment.” The deadline to file complaints objecting 8 to discharge was November 8, 2010. 9 Chadd initiated an adversary proceeding against the debtor, 10 filing the exception to discharge complaint on November 5, 2010. 11 He repeated in the exception to discharge complaint most of the 12 allegations he made in the state court complaint. He also 13 asserted that the debtor had transferred into her own bank 14 account the investment proceeds from Westland Homes’ bank account 15 and used them for her personal needs. Chadd pointed out that he 16 obtained the final arbitration award against the debtor 17 prepetition. 18 He argued that the final arbitration award was excepted from 19 discharge under § 523(a)(4). Chadd asserted that the debtor was 20 a fiduciary because, under the operating agreement, she was to 21 22 7 The arbitrator awarded Chadd a total of $431,402 in 23 damages and $175,000 in attorney’s fees. 24 8 Under California law, a party to an arbitration, in which 25 an award has been issued, may petition the state court to confirm, correct or vacate the arbitration award. Cal. Civ. 26 Proc. Code §§ 1285-1287.6. A conforming judgment is entered if 27 the arbitration award is confirmed. The judgment then has the same force and effect as any other civil judgment. Id. at 28 § 1287.4.

8 1 ensure that the investment proceeds that had been “placed in 2 trust” were to be used in the development of the Fremont 3 property. He moreover claimed that the debtor was a fiduciary 4 because she was the real estate agent for Westland Homes. The 5 debtor fraudulently and wrongfully obtained the securities 6 proceeds, however, by making various misrepresentations to and 7 omitting material facts from Chadd. She then converted the 8 investment proceeds for her own personal benefit. 9 He also contended that the final arbitration award was 10 excepted from discharge under § 523(a)(19). He alleged that the 11 debtor violated Cal. Corp. Code § 25110 in obtaining the 12 investment proceeds from him.9 Alternatively, the debtor engaged 13 in fraud, deceit and/or manipulation in obtaining from Chadd the 14 investment proceeds by making false and/or misleading statements 15 16 9 Cal. Corp. Code § 25110 provides: 17 It is unlawful for any person to offer or sell in this 18 state any security in an issuer transaction (other than 19 in a transaction subject to Section 25120), whether or not by or through underwriters, unless such sale has 20 been qualified under Section 25111, 25112 or 25113 (and no order under Section 25140 or subdivision (a) of 21 Section 25143 is in effect with respect to such 22 qualification) or unless such security or transaction is exempted or not subject to qualification under 23 Chapter 1 (commencing with Section 25100) of this part. The offer or sale of such a security in a manner that 24 varies or differs from, exceeds the scope of, or fails 25 to conform with either a material term or material condition of qualification of the offering as set forth 26 in the permit or qualification order, or a material 27 representation as to the manner of offering which is set forth in the application for qualification, shall 28 be an unqualified offer or sale.

9 1 and concealing material facts in violation of Cal. Corp. Code 2 § 25401.10 3 The debtor answered the exception to discharge complaint. 4 While the adversary proceeding was pending, she received her 5 chapter 7 discharge on January 27, 2011. Two months later, Chadd 6 filed a motion for relief from stay (“chapter 7 relief from stay 7 motion”) seeking termination of the automatic stay so that he 8 could obtain confirmation of the final arbitration award and have 9 it entered as a judgment. The debtor opposed the chapter 7 10 relief from stay motion. 11 At the March 29, 2011 hearing on the chapter 7 relief from 12 stay motion, the bankruptcy court determined that there was no 13 automatic stay in effect because the debtor had received her 14 discharge. The bankruptcy court concluded that the final 15 arbitration award was not discharged, however, because Chadd’s 16 exception to discharge complaint was pending before the discharge 17 was entered.11 18 10 19 Cal. Corp. Code § 25401 provides:

20 It is unlawful for any person to offer or sell a security in this state or buy or offer to buy a 21 security in this state by means of any written or oral 22 communication which includes an untrue statement of a material fact or omits to state a material fact 23 necessary in order to make the statements made, in the 24 light of the circumstances under which they were made, not misleading. 25 11 The bankruptcy court further reasoned that Chadd should 26 be allowed to obtain confirmation of the final arbitration award 27 as a matter of judicial economy. It acknowledged that the matter “[had] already been litigated somewhere else.” The question 28 (continued...)

10 1 The bankruptcy court granted relief from stay under § 362, 2 to the extent that it applied, and § 524(a)(2), to allow Chadd to 3 obtain confirmation of the final arbitration award and have it 4 entered as a judgment. However, it prohibited Chadd from taking 5 any actions to enforce any such judgment he obtained. On 6 April 5, 2011, the bankruptcy court entered an order consistent 7 with its ruling (“chapter 7 relief from stay order”).12 8 D. The debtor’s chapter 11 bankruptcy13 9 The state court scheduled a hearing for May 10, 2011, to 10 confirm the arbitration award (“arbitration confirmation 11 hearing”). One day before the arbitration confirmation hearing, 12 the debtor filed her chapter 11 bankruptcy petition (case 13 no. 11-54431).14 She also sent a letter to Chadd, advising him 14 that her chapter 11 bankruptcy case automatically stayed the 15 11 16 (...continued) remained, however, as to whether the matter had been “litigated 17 in a way that [could] be used as collateral estoppel . . . .” 18 The bankruptcy court wanted “an answer to that question, rather than setting up a trial for something [that had] already been 19 tried.” It believed that once Chadd obtained confirmation of the final arbitration award and had judgment entered on it, he could 20 return to the bankruptcy court and move for summary judgment on 21 his exception to discharge complaint. 12 22 The debtor appealed the chapter 7 relief from stay order to this Panel (BAP no. NC-11-1174). The Panel dismissed the 23 debtor’s appeal as moot because Chadd later obtained confirmation 24 of the arbitration award and had judgment entered on it. 13 25 The debtor’s chapter 11 case was dismissed on September 13, 2011, on motion filed by the United States Trustee. 26 14 27 Judge Stephen L. Johnson presided over the debtor’s chapter 7 bankruptcy case while Judge Arthur S. Weissbrodt 28 presided over her chapter 11 bankruptcy case.

11 1 arbitration confirmation hearing. 2 Chadd filed a motion for relief from stay in the debtor’s 3 chapter 11 bankruptcy case (“chapter 11 relief from stay 4 motion”). He notified the bankruptcy court of the debtor’s 5 chapter 7 bankruptcy case, the exception to discharge complaint 6 and the chapter 7 relief from stay order. He asked that the 7 bankruptcy court lift the automatic stay imposed by the debtor’s 8 chapter 11 bankruptcy case so that he could proceed with the 9 arbitration confirmation hearing “to facilitate” the summary 10 judgment motion he intended to file against the debtor in the 11 adversary proceeding. The bankruptcy court granted the 12 chapter 11 relief from stay motion, entering an order on July 19, 13 2011 (“chapter 11 relief from stay order”). The debtor did not 14 appeal the chapter 11 relief from stay order. 15 E. The cross-motions for summary judgment 16 The arbitration confirmation hearing took place on 17 August 23, 2011. At the arbitration confirmation hearing, the 18 state court noted that the matter had been arbitrated and 19 adjudicated and an arbitration award had been entered. Based on 20 these circumstances, the state court confirmed the final 21 arbitration award. It issued an order confirming the final 22 arbitration award on August 25, 2011 (“arbitration confirmation 23 order”). It also issued a judgment against the debtor in the 24 total amount of $751,250.11 (“arbitration judgment”).15 The 25 26 15 The state court judge signed the arbitration confirmation 27 order on August 23, 2011. The arbitration confirmation order was endorsed on August 25, 2011, and filed on August 29, 2011. The 28 (continued...)

12 1 debtor did not appeal the arbitration judgment.16 2 Prior to the arbitration confirmation hearing, on July 21, 3 2011, the debtor filed a motion for summary judgment (“debtor’s 4 summary judgment motion”) in the adversary proceeding. Chadd 5 filed his own motion for summary judgment on September 13, 2011 6 (“Chadd’s summary judgment motion”). 7 The debtor argued in her summary judgment motion that the 8 bankruptcy court should not give issue preclusive effect to the 9 arbitration award because it did not establish the elements under 10 § 523(a)(4) and (a)(19).17 She contended that the bankruptcy 11 12 15 (...continued) 13 state court judge signed the judgment on August 25, 2011. The judgment was endorsed on the same day. 14 16 The debtor included in her summary judgment motion her 15 responses to Chadd’s interrogatory requests. In response to the 16 statement that she had “not objected to the arbitration award with any court,” the debtor explained that she did not do so 17 because she “could not afford to go through [a] lengthy appeal process in State Court, therefore [she] immediately filed [her] 18 bankruptcy petition after [the] arbitration award was given.” 19 17 Section 523 provides, in relevant part: 20 (a) A discharge under section 727 . . . of this title 21 does not discharge an individual debtor from any debt – 22 (4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny; 23 . . . [or] (19) that – 24 (A) is for – 25 (i) the violation of any of the Federal securities laws (as that term is defined 26 in section 3(a)(47) of the Securities 27 Exchange Act of 1934), any of the State securities laws, or any regulation or 28 (continued...)

13 1 court instead should discharge the final arbitration award and 2 the arbitration judgment. 3 With respect to the § 523(a)(4) claim, the debtor asserted 4 that she was not a fiduciary because she was not the real estate 5 agent for Westland Homes or a signatory to the operating 6 agreement. She also did not take any investment proceeds from 7 Westland Homes’ bank account because she lacked authority to 8 access it; only her husband had authority to access Westland 9 Homes’ bank account. She contended that her husband was entitled 10 to make withdrawals from Westland Homes’ bank account to pay part 11 of his salary per the operating agreement. The debtor also 12 claimed that she had no knowledge of her husband’s withdrawals 13 from Westland Homes’ bank account or how he used them. 14 As for the § 523(a)(19) claim, the debtor argued that she 15 16 17 (...continued) 17 order issued under such Federal or State securities laws; or 18 (ii) common law fraud, deceit, or 19 manipulation in connection with the purchase or sale of any security; and 20 (B) results, before, on, or after the date on which the petition was filed, from – 21 (i) any judgment, order, consent order, 22 or decree entered in any Federal or State judicial or administrative 23 proceeding; (ii) any settlement agreement entered 24 into by the debtor; or 25 (iii) any court or administrative order for any damages, fine, penalty, 26 citation, restitutionary payment, 27 disgorgement payment, attorney fee, cost, or other payment owed by the 28 debtor.

14 1 could not have sold securities in Westland Homes to Chadd because 2 she was not involved in Westland Homes in any way; she was not a 3 member or the real estate agent for Westland Homes. The debtor 4 moreover did not sign the operating agreement. 5 Chadd contended in his summary judgment motion that the 6 arbitration award should be given issue preclusive effect under 7 California law. He claimed that the arbitrator set forth 8 findings sufficient to establish fraud, embezzlement and/or 9 larceny under § 523(a)(4) and securities law violations under 10 § 523(a)(19), thereby rendering relitigation of these claims 11 unnecessary. 12 The bankruptcy court initially set a hearing for October 4, 13 2011, on the cross-motions for summary judgment. It later 14 vacated the hearing, determining that oral argument was 15 unnecessary. It advised the parties that it would take the 16 cross-motions for summary judgment under advisement and issue a 17 written decision. 18 The bankruptcy court entered the summary judgment order, 19 denying the debtor’s summary judgment motion and granting Chadd’s 20 summary judgment motion, on October 27, 2011. It entered 21 judgment against the debtor, excepting the state court judgment 22 from the debtor’s discharge, on October 28, 2011. 23 The bankruptcy court set forth its factual findings and 24 legal conclusions in the summary judgment order. It concluded 25 that the final arbitration award and arbitration judgment were 26 entitled to preclusive effect under California law. In 27 particular, the bankruptcy court determined that: (1) both Chadd 28 and the debtor had been parties to the arbitration and the

15 1 arbitration confirmation hearing; (2) the issues of fraud and 2 embezzlement had been actually litigated, as the arbitrator 3 received and reviewed the parties’ evidence and briefs and heard 4 oral argument during the arbitration hearings; and (3) the 5 arbitrator necessarily decided that the debtor was liable for 6 violating California securities laws and fraudulently 7 misappropriating the investment proceeds for her own use, which 8 would be part of a bankruptcy court’s exception to discharge 9 determinations under § 523(a)(4) and (a)(19). 10 The debtor filed her notice of appeal of the summary 11 judgment order and judgment (“appeal notice”) on November 4, 12 2011. Three days later, she filed a motion for reconsideration 13 of the summary judgment order and judgment (“motion to 14 reconsider”). The bankruptcy court denied the debtor’s motion to 15 reconsider, entering an order on November 14, 2011 16 (“reconsideration order”). The debtor did not appeal the 17 reconsideration order.18 18 18 19 The Civil Rules do not recognize motions for reconsideration. Captain Blythers, Inc. v. Thompson (In re 20 Captain Blythers, Inc.), 311 B.R. 530, 539 (9th Cir. BAP 2004). The Civil Rules do provide, however, two avenues through which a 21 party may obtain post-judgment relief: (1) a motion to alter or 22 amend judgment under Civil Rule 59(e) and (2) a motion for relief from judgment under Civil Rule 60. Civil Rule 59(e) applies to 23 bankruptcy proceedings under Rule 9023, and Civil Rule 60 applies to bankruptcy proceedings under Rule 9024. “When taken together, 24 [Civil] Rule 59 and [Civil] Rule 60 encompass all possible 25 post-judgment relief: [Civil] Rule 59 incorporates common law principles of equity for granting new trials, and [Civil] Rule 60 26 preserves the relief afforded by ancient remedies for relief from 27 settlement judgments while abolishing the separate and independent use of those remedies.” In re Walker, 332 B.R. 820, 28 (continued...)

16 1 JURISDICTION 2 The bankruptcy court had jurisdiction under 28 U.S.C. 3 §§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C. 4 § 158. 5 6 ISSUES 7 (1) Did the bankruptcy court err in granting summary 8 judgment in Chadd’s favor by giving issue preclusive effect to 9 the final arbitration award? 10 (2) Did the final arbitration award, as confirmed by the 11 18 12 (...continued) 831-32 (Bankr. D. Nev. 2005)(internal citations omitted). 13 Where a party files a motion for reconsideration within 14 14 days following the date of the entry of judgment, the motion is treated as a motion to alter or amend judgment under Civil 15 Rule 59(e). Am. Ironworks & Erectors, Inc. v. N. Am. Constr. Corp., 248 F.3d 892, 898-99 (9th Cir. 2001)(citation omitted). 16 For these purposes, the debtor timely filed the motion to 17 reconsider. The bankruptcy court denied the motion to reconsider because it believed that it was divested of jurisdiction under 18 the pending appeal notice. 19 The bankruptcy court still had jurisdiction to decide the motion to reconsider, however. See Rule 8002(b)(2)(4)(“If any 20 party makes a timely motion of a type specified immediately below, the time for appeal for all parties runs from the entry of 21 the order disposing of the last such motion outstanding. This 22 provision applies to a timely motion . . . for (3) a new trial under Rule 9023; . . . .”). The debtor included the denial of 23 her motion to reconsider as an issue on appeal, but she did not argue it in her brief. Accordingly, this issue is waived. See 24 Rule 8010(1)(E)(brief must set forth contentions with respect to 25 issues presented and reasons therefor). See also In re Marquam Inv. Corp., 942 F.2d 1462, 1467 (9th Cir. 1991)(determining issue 26 on appeal was waived because appellant did not comply with 27 Rule 8010(a)(1)(C) as it failed to provide statement of issues presented and applicable standard of review and to provide in its 28 brief argument containing its contentions on issues presented).

17 1 arbitration confirmation order and the arbitration judgment, 2 satisfy the elements for an exception to discharge judgment? 3 4 STANDARD OF REVIEW 5 We review de novo a bankruptcy court’s ruling on 6 cross-motions for summary judgment. See CRM Collateral II, Inc. 7 v. TriCounty Metro. Transp., 669 F.3d 963, 968 (9th Cir. 2012) 8 (citation omitted). “When the bankruptcy court disposes of a 9 case on cross-motions for summary judgment, we may review both 10 the grant of the prevailing party’s motion and the corresponding 11 denial of the opponent’s motion.” Id. (citation omitted). 12 Viewing the evidence in the light most favorable to the 13 nonmoving party, we must determine whether any genuine issues of 14 material fact exist and whether the bankruptcy court correctly 15 applied the relevant substantive law. Id. (quoting Trunk v. City 16 of San Diego, 629 F.3d 1099, 1105 (9th Cir. 2011)). 17 We review de novo the bankruptcy court’s determination that 18 issue preclusion is available. See Miller v. County of Santa 19 Cruz, 39 F.3d 1030, 1032 (9th Cir. 1994). If we conclude that 20 issue preclusion is available, we review for abuse of discretion 21 the bankruptcy court’s decision giving issue preclusive effect to 22 the state court ruling. Id. 23 24 DISCUSSION 25 On appeal, the debtor contends that the bankruptcy court 26 erred in granting summary judgment in Chadd’s favor, setting 27 forth four main arguments: (1) the bankruptcy court failed to 28 provide her an opportunity to present her case by canceling the

18 1 hearing on the cross-motions for summary judgment; (2) she was 2 not a party to the prior suit, i.e., the arbitration; (3) the 3 issues of fraud and securities law violations were not actually 4 litigated in the arbitration; and (4) the issues of fraud and 5 securities law violations were not necessarily decided in the 6 arbitration. 7 Before we begin our analysis, we must outline the general 8 principles of issue preclusion within the context of § 523(a) 9 cases. Issue preclusion may be applied in exception to discharge 10 proceedings. Grogan v. Garner, 498 U.S. 279, 284 (1991). Issue 11 preclusion “bars successive litigation of an issue of fact or law 12 actually litigated and resolved in a valid court determination 13 essential to the prior judgment, even if the issue recurs in the 14 context of a different claim.” Taylor v. Sturgell, 553 U.S. 880, 15 892 (2008)(quoting New Hampshire v. Maine, 532 U.S. 742, 748 16 (2001)(internal quotation marks omitted)). 17 We refer to the preclusion law of the state in which the 18 judgment was rendered to determine the preclusive effect of a 19 state court judgment. Diruzza v. County of Tehama, 323 F.3d 20 1147, 1152 (9th Cir. 2003)(quoting Marrese v. Am. Acad. of 21 Orthopaedic Surgeons, 470 U.S. 373, 380 (1985)). Here, 22 California law applies. Under California law, issue preclusion 23 can be applied when: (1) the issue decided in the prior 24 proceeding is identical to the issue sought to be relitigated in 25 the subsequent proceeding; (2) the issue was actually litigated 26 in the prior proceeding; (3) the issue was necessarily decided in 27 the prior proceeding; (4) a final judgment on the merits was 28 issued in the prior proceeding; and (5) the party against whom

19 1 issue preclusion is sought was a party to the prior proceeding. 2 Lucido v. Superior Court, 51 Cal. 3d 335, 337 (1990). Even if 3 all of these five elements are met, issue preclusion only may be 4 applied when the public policies underlying it would be advanced. 5 Id. at 354. 6 A state court’s confirmation of an arbitration award 7 constitutes a judicial proceeding entitled to the full faith and 8 credit it would receive under state law. Caldeira v. County of 9 Kauai, 866 F.2d 1175, 1178 (9th Cir. 1989). In California, a 10 judgment confirming an arbitration award has the same force and 11 effect as a judgment in a civil action. Cal. Civ. Proc. Code 12 § 1287.4. 13 A. Hearing on the debtor’s summary judgment motion 14 The debtor first claims that the bankruptcy court erred in 15 failing to afford her an opportunity to present her case by 16 deciding to issue a ruling without holding a hearing on the 17 cross-motions for summary judgment. 18 The bankruptcy court was not required to hold a hearing on 19 the debtor’s summary judgment motion, however, unless required to 20 do so under the local bankruptcy rules. See Fernhoff v. Tahoe 21 Regional Planning Agency, 803 F.2d 979, 983 (9th Cir. 1986)(“a 22 district court may not, by rule or otherwise, preclude a party 23 from requesting oral argument . . . [though] district courts are 24 authorized ‘to provide by rule that a party desiring oral 25 argument on a motion for summary judgment must apply therefor, in 26 the absence of which oral argument will be deemed to have been 27 waived.’”)(quoting Dredge Corp. v. Penny, 338 F.2d 456 (9th Cir. 28

20 1 1964)).19 There is nothing in the local bankruptcy rules for the 2 Northern District of California requiring the bankruptcy court to 3 hold hearings on motions for summary judgment. See Bankruptcy 4 Local Rules 7003-1(f), 9013-1, 9013-2 and 9013-3. Moreover, the 5 debtor did not request a hearing on her summary judgment motion. 6 The bankruptcy court therefore did not err in declining to hold a 7 hearing on the cross-motions for summary judgment. 8 B. Participation in arbitration 9 The debtor next argues that she was not a party to the 10 arbitration because she did not sign the operating agreement that 11 required arbitration of disputes concerning Westland Homes. She 12 further argued that she only appeared in the arbitration as a 13 witness, being compelled to do so by the arbitration appearance 14 notice and arbitration appearance order. Because she was not a 15 party to the arbitration, the debtor continues, the element 16 requiring identical parties for issue preclusion was not met. 17 The arbitrator expressly determined that the debtor was a 18 party to the arbitration. He found that though she did not sign 19 20 19 The Ninth Circuit in Fernhoff relied on Dredge Corp.; 21 both cases dealt with motions for summary judgment decided in 22 district court. Dredge Corp. looked to Civil Rules 56(c), 78 and 83 in formulating the proposition relied on by Fernhoff. The 23 Federal Rules of Bankruptcy Procedure did not adopt Civil Rule 78, which authorizes district courts to provide for 24 submissions and determinations on motions on the briefs without 25 oral argument. Civil Rule 78 therefore does not apply in bankruptcy cases. The Federal Rules of Bankruptcy Procedure also 26 did not adopt Civil Rule 83, which authorizes district courts to 27 make rules for their districts. Instead, Rule 9029 allows district courts to authorize bankruptcy courts within their 28 districts to adopt local rules.

21 1 the operating agreement containing the arbitration clause, the 2 debtor “voluntarily participated” in the arbitration. As noted 3 above, she joined in the arbitration motion. 4 The debtor contends that a greater level of participation 5 than she provided is required to become a party to arbitration. 6 She insists that appearing and testifying at the arbitration 7 hearings do not qualify as “active participation.” Rather, her 8 participation in the arbitration “was no more than that of any 9 witness who could have been subpoenaed by counsel.” Appellant’s 10 Opening Brief at 8. 11 Participation in arbitration does not require a particular 12 level of activity. “Participation” simply means “to take part” 13 or “to share in something.” The American Heritage Dictionary of 14 the English Language, 4th ed. p. 1281 (2000). To participate in 15 any activity, one simply joins in. By appearing and testifying 16 at the arbitration hearings and by being represented by counsel 17 in the arbitration, the debtor took part in the arbitration. The 18 arbitrator clearly so found when he made his determination. 19 Additionally, as the state court pointed out at the 20 arbitration confirmation hearing, the debtor and her husband have 21 been active parties in all the proceedings connected to the state 22 court action, having been named as defendants. The debtor and 23 her husband also specifically requested that the matter go to 24 arbitration. In making such a request, the debtor voluntarily – 25 nay, willingly – subjected herself to arbitration. She cannot 26 now say that she was not subject to the arbitration when the 27 arbitrator issued a decision against her. The bankruptcy court 28 therefore did not err in determining that this element of issue

22 1 preclusion was met. 2 C. Actually litigated 3 The debtor next contends that she did not have the 4 opportunity to present evidence to the arbitrator, as she only 5 appeared as a witness at the arbitration. Because she had no 6 chance to litigate her case before the arbitrator, she contends 7 that the issues of fraud and securities law violations as they 8 related to her were not actually litigated. 9 We disagree. As we mentioned earlier, the debtor and her 10 husband were named as defendants in the state court action. They 11 were represented by the same counsel. The debtor and her husband 12 answered Chadd’s state court complaint. They also sought and 13 obtained arbitration of the state court action. Over the course 14 of two hearings, the arbitrator received briefs, testimony and 15 oral arguments from the parties’ counsel. As a party to both the 16 state court action and the arbitration, the debtor had ample 17 opportunity to present evidence to make her case. Indeed, she 18 did present evidence by providing testimony at the arbitration 19 hearings. Her testimony constituted evidence that the arbitrator 20 was free to evaluate and consider. See, e.g., In re Checkmate 21 Stereo & Electronics, Ltd., 21 B.R. 402, 413 (E.D.N.Y. 1982). 22 Moreover, as the debtor and her husband were represented by the 23 same attorney in the state court action and the arbitration, any 24 evidence submitted by their attorney relating to her husband was 25 submitted on the debtor’s behalf as well. 26 Based on these circumstances, the debtor’s argument that the 27 issues of fraud and securities law violations were not actually 28 litigated at the arbitration hearings has no merit. The

23 1 bankruptcy court therefore did not err in determining that these 2 issues were actually litigated in the arbitration. 3 D. Necessarily decided 4 The debtor further contends that the issues of fraud under 5 § 523(a)(4) and securities law violations under § 523(a)(19) were 6 not necessarily decided in the arbitration. She claims that 7 Chadd failed to provide evidence showing that she had committed 8 fraud or misappropriated the investment proceeds while acting in 9 a fiduciary capacity. Specifically, she argues that he did not 10 provide evidence showing that she was a fiduciary to Chadd, as 11 she neither was a member of Westland Homes nor the real estate 12 agent for Westland Homes. She again stressed that she was not a 13 member of Westland Homes because she did not sign the operating 14 agreement. The debtor further contends that Chadd failed to 15 provide evidence showing that she misappropriated the investment 16 proceeds for her personal use, given that she was not a member of 17 Westland Homes and had no access to Westland Homes’ bank account. 18 Again, we disagree with the debtor. “Necessarily decided” 19 means that the issues at hand were not “entirely unnecessary” to 20 the judgement in the prior proceeding. Lucido, 51 Cal. 3d at 342 21 (citations omitted). Here, the arbitration award ultimately was 22 based on findings of the debtor and her husband’s securities law 23 violations and fraud, both carried out through numerous 24 misrepresentations and omissions made at the time Chadd purchased 25 the securities in Westland Homes. 26 Although the debtor does not contest the fourth element of 27 issue preclusion, we emphasize that the final arbitration award 28 is final. The state court confirmed the final arbitration award,

24 1 and judgment was entered on it, but the debtor failed to appeal. 2 Regardless of whether the appeal process would have been costly, 3 if the debtor disagreed with the final arbitration award and 4 arbitration judgment, she should have appealed them. The debtor 5 cannot dispute them now at this late stage. 6 E. The elements of § 523(a)(19) were met 7 As noted earlier, the bankruptcy court granted summary 8 judgment on Chadd’s § 523(a)(4) and (19) claims. Although the 9 debtor appeals the bankruptcy court’s determinations on both 10 claims, we address its determination concerning § 523(a)(19) 11 first. 12 Section 523(a)(19) provides that a debt arising from 13 violations of state securities laws or common law fraud, deceit 14 or manipulation in connection with the purchase or sale of any 15 security is excepted from discharge. As set forth in the interim 16 arbitration award, which was incorporated in the final 17 arbitration award, the debtor and her husband were found to be 18 “jointly and severally liable to [Chadd] for violating California 19 Securities Laws by selling unqualified and non-exempt memberships 20 in [Westland Homes] . . . [and by making] misleading statements 21 and omissions of material facts by [the debtor’s husband] in 22 selling a membership in [Westland Homes] to [Chadd]” and that 23 “[their] liability [was] direct and personal.” 24 These findings made by the arbitrator are all that are 25 required to except the final arbitration award and arbitration 26 judgment from discharge under § 523(a)(19). The final 27 arbitration award was confirmed and the arbitration judgment was 28 entered. Because the debtor did not appeal the confirmed

25 1 arbitration judgment, it is final. Chadd therefore is entitled 2 to have the final arbitration award accorded issue preclusive 3 effect, as determined in the bankruptcy court’s summary judgment 4 order and judgment. In light of that conclusion, we do not need 5 to consider the debtor’s arguments with respect to the 6 application of § 523(a)(4). 7 8 CONCLUSION 9 Based on our review, the bankruptcy court did not err in 10 granting summary judgment in Chadd’s favor by giving issue 11 preclusive effect to the final arbitration award and the 12 arbitration judgment. We AFFIRM. 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28