In Re: Valladoid

• Court: District Court, S.D. California
• Decided: August 17, 2022
• Docket: 3:22-cv-00071
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 |] INRE Case No.: 22cv71-JO-BGS 12 VALLADOID, ORDER AFFIRMING THE 13 BANKRUPTCY COURT’S 14 Debtor. GRANT OF SUMMARY JUDGMENT 15 16 GUILLERMO G. VALLADOID, 17 18 Appellant, V. 19 || GEORGE DRAGAN AND KIRILL 20 || DRAGAN, 21 Appellees. 22 23 Pro se Appellant Guillermo G. Valladolid (“Valladolid’’)! filed an appeal from an 24 |! order of the Bankruptcy Court for the Southern District of California entering summary 25 26 27 28 ' Valladolid misspelled his last name as “Valladoid.” when he filed this appeal. The docket and the case caption, therefore, reflect his misspelled name.

1 judgment for Appellees George and Kirill Dragan on their dischargeability claim. Dkt. 4— 2 ||5.2 For the reasons stated below, the Court affirms. 3 I. BACKGROUND 4 ||A. The Underlying Fraud Action 5 The trail of litigation leading to the current action stems from business dealings 6 between Valladolid and the Dragans in 2016 and 2017. The Dragans first met Valladolid 7 ||through a mutual friend who suggested Valladolid as an investment advisor. George 8 || Dragan et al. v. William Valladolid et al., 2:18cv448-MWF-FFM (C.D. Cal.) (the “Fraud 9 || Action”) Dkt. 101 at 2. In December 2016, Valladolid outlined an investment plan to the 10 || Dragans that required them to invest $1.2 million with Valladolid. Jd. Valladolid promised 11 ||that the $1.2 million would be used according to the proposed investment plan, and the 12 ||Dragans wired the funds the following day.? Id. In March 2017, the Dragans invested an 13 || additional $950,000 with Valladolid, which the latter claimed would be used to purchase 14 || stock ina company called MegaData Web. Jd. at3. After the Dragans wired the $950,000, 15 || Valladolid sent documents reflecting the investment. Jd. at 3-4. 16 The parties’ business dealings began to unravel around August of 2017. At that time, 17 || Valladolid asked the Dragans for an additional $1.2 million but the Dragans requested 18 || proof of return on their prior investments. Jd. at 4. In response, Valladolid wired $775,200 19 || back to the Dragans, which he claimed was a partial repayment and distribution of profits 20 their prior investments. Jd. Valladolid also provided the Dragans with a supposed 21 ||escrow agreement showing that the Dragans’ family-owned business had made a deposit 22 ||and that the deposit would be forfeited unless the Dragans wired additional funds by 23 ||October 31, 2017. Id. 4-5. After receiving this information, the Dragans did not wire the 24 25 26 2 Unless otherwise noted, citations to “Dkt.” refer to the docket of this case: In re Valladoid, 27 || 22cv71-JO-BGS. 28 3 The Dragans also invested an additional $60,000 later in December, which Valladolid claimed was necessary to cover related transaction costs. Fraud Action Dkt. 101 at 2.

1 |jrequested funds to Valladolid and instead contacted the escrow company to confirm 2 || Valladolid’s information. Jd. at 5. 3 The Dragans subsequently discovered that Valladolid did not use any of their 4 ||investments as promised. With respect to the first investment of $1.2 million, Valladolid 5 || did not invest the funds. /d. at 3. Instead, Valladolid used some of the funds to pay a third- 6 || party, and the document Valladolid gave the Dragans reflecting the purported investment 7 || was forged. Jd. With respect to the $950,000 investment, Valladolid never sent any money 8 MegaData, and again used some of the funds to pay a third-party. Id. at 4. The 9 ||documents Valladolid sent the Dragans purportedly showing the MegaData investment 10 || were also forged. Jd. at 4. Finally, the escrow agreement that Valladolid gave the Dragans 11 || with respect to the investment he requested from them in August 2017 was similarly forged. 12 at 5. 13 Based on the above events, the Dragans sued Valladolid for defrauding them. On 14 || December 20, 2017, the Dragans filed a complaint against Valladolid in state court bringing 15 || various fraud-related claims, and the case was removed to the United States District Court 16 || for the Central District of California on January 18, 2018. See Fraud Action Dkt. 1. On 17 || August 4, 2020, the Dragans moved for summary judgment against Valladolid on the 18 following claims: (1) fraud, (2) securities fraud under 15 U.S.C. § 78j(b), (3) breach of 19 || fiduciary duty, and (4) accounting. Fraud Action Dkt. 69. In February 2021, the district 20 ||court granted the Dragan’s motion for summary judgment, ruling that Valladolid had 21 |}committed the above fraudulent acts against the Dragans. Fraud Action Dkts. 101, 117. 22 ||On April 19, 2021, Valladolid appealed the district court’s summary judgment decision. 23 Fraud Action Dkt. 118. On March 14, 2022, the Ninth Circuit affirmed the district court’s 24 || grant of summary judgment. Fraud Action Dkt. 123. 25 ||B. The Underlying Bankruptcy Proceeding and Related Adversary Proceeding 26 On October 8, 2019, while the Fraud Action in the district court was pending, 27 || Valladolid filed for bankruptcy. Bankruptcy Petition, Jn re Valladolid, Case no. 19-06084- 28 |i LT7 (Bankr. S.D. Cal. Oct. 8, 2019). In the Bankruptcy Action, Valladolid sought to

1 || liquidate his assets to pay creditors under Chapter 7 of Title 11 of the United States Code. 2 ||Bankruptcy Action Dkt.1. Because certain debts in bankruptcy proceedings are 3 || dischargeable—that is, are no longer owed by the debtor—the Dragans sought to confirm 4 ||that Valladolid would still be required to pay them despite his bankruptcy. 5 Accordingly, on January 13, 2020, the Dragans initiated an adversary proceeding in 6 ||bankruptcy court* against Valladolid to obtain a ruling that the money Valladolid 7 |i fraudulently took from them was not dischargeable in bankruptcy. Dragan v. Valladolid 8 re Valladolid, Case no. 20-90010-LT (Bankr. S.D. Cal. Jan. 13, 2020) (“Adversary 9 || Proceeding”). Adversary Proceeding Dkt. 1. Under § 523(a)(2)(A) of the United States 10 || Bankruptcy Code, money obtained through fraud is non-dischargeable and must still be 11 |{repaid regardless of bankruptcy status. 11 U.S.C. § 523(a)(2)(A). On August 31, 2021, 12 |/after the district court granted summary judgment to the Dragans on their fraud claims, 13 |\they moved for summary judgment on their dischargeability claim based on issue 14 ||preclusion. Adversary Proceeding Dkts. 33-35. The Dragans argued that they were 15 |{entitled to issue preclusion because the elements of their dischargeability claim under 16 || § 523(a)(2)(A) (i.e., whether funds had been obtained through fraud) were the same as the 17 ||elements of their fraud claim on which they had just prevailed in district court.> See id. 18 On October 19, 2021, the bankruptcy court granted summary judgment in the 19 || Adversary Proceeding, ruling that the fraudulently obtained funds were not dischargeable 20 issue preclusion grounds. Adversary Proceeding Dkt. 48. In reaching this conclusion, 21 ||the bankruptcy court first noted that a dischargeability claim under § 523(a)(2)(A) requires 22 ||that a plaintiff prove five elements: (1) the debtor’s misrepresentation, (2) knowledge of 23 || falsity, (3) intent and purpose of deceiving the creditor, (4) justifiable reliance by the 24 □□□ 26 4 An adversary proceeding is a civil action in bankruptcy court for the purpose of ruling on an issue related to a bankruptcy case. 27 5 The Dragans also moved for summary judgment on additional grounds of dischargeability under og || $$ 523(@)(4) and 523(a)(6), but the bankruptcy court granted their motion solely with respect to § 523(a)(2)(A). See Adversary Proceeding Dkt. 48.

1 ||creditor, and (5) proximate harm. Jd. at 6; Ghomeshi v. Sabban, 600 F.3d 1219, 1222 (9th 2 Cir. 2010). The bankruptcy court then compared the above elements to and determined 3 ||that they were the same as the elements of fraud determined by the district court in the 4 ||Fraud Action: “(1) misrepresentation; (2) knowledge of falsity; (3) intent to defraud, 5 ||(4) justifiable reliance; and (5) resulting damage.” Adversary Proceeding Dkt. 48 at 6; see 6 |jalso Fraud Action Dkt. 101. In deciding that issue preclusion should apply in the 7 || Adversary Proceeding, the bankruptcy court found that (1) the parties had a full and fair 8 || opportunity to litigate the fraud issue in district court, (2) the issue was actually litigated in 9 |;the Fraud Action, (3) there was a final judgment, and (4) the parties in the Adversary 10 || Proceeding were also parties in the Fraud Action. Adversary Proceeding Dkt. 48 at 6-11. 11 || After finding that all of the elements of issue preclusion were met, the bankruptcy court in 12 Adversary Proceeding entered summary judgment in favor of the Dragans. /d.; 13 || Adversary Proceeding Dkt. 54 (adopting tentative ruling, Dkt. 48). Valladolid now appeals 14 that ruling. 15 Il. STANDARD OF REVIEW 16 The district court reviews de novo a bankruptcy court’s decision to exclude a debt 17 from discharge under § 523. Jn re Black, 487 B.R. 202, 210 (9th Cir. BAP 2013). This 18 || Court will review de novo the bankruptcy court’s determination that issue preclusion was 19 || properly available in the context of the dischargeabilty claim before it. See id. If so, this 20 Court will then review the bankruptcy court’s decision to give issue-preclusive effect to 21 decision in the Fraud Action for abuse of discretion. Id. 22 Throughout its analysis, this Court is mindful of its charge to “[view] the evidence 23 the light most favorable to the party opposing the summary judgment . . . [and] determine 24 under a de novo standard whether there is no genuine issue of material fact, and whether 25 ||the moving party was entitled to judgment as a matter of law.” Jn re New England Fish 26 || Co., 749 F.2d 1277, 1280 (9th Cir. 1984). 27 || /// 28 || ///

1 III. DISCUSSION 2 ||A. Valladolid’s Appeal and Record 3 Before addressing the merits of Valladolid’s appeal, the Court briefly addresses the 4 || deficiencies in the record on appeal. Valladolid, as debtor and Appellant, bears the burden 5 ||to provide an adequate record. Jn re Kritt, 190 B.R. 382, 387 (9th Cir. BAP 1995). 6 || Valladolid was required to designate the items to be included in the record and to serve the 7 \irecord within 14 days after the entry of final judgment. Fed. R. Bankr. P. 8009(a)(1). 8 || Certain items, such as the order being appealed and any other rulings relevant to the appeal, 9 must be included in the record. Fed. R. Bankr. P. 8009(a)(4). Here, Valladolid filed an 10 appeal from the bankruptcy court’s summary judgment decision but does not include that 11 order in the record. Dkt. 4 at 9. Nor does he include any orders or other documents from 12 ||the Fraud Action that formed the basis of the bankruptcy court’s issue preclusion ruling. 13 || Valladolid only designates a single document—a one-page minute order memorializing the 14 bankruptcy court’s entry of final judgment on the Dragans’ claim under § 523(a)(2)(A). 15 ||See Dkt. 6. Thus, Appellant has failed to provide an adequate record for this Court’s 16 || review. 17 Although these deficiencies in the record on appeal are sufficient to permit the Court 18 |/to summarily affirm the summary judgment order, the Court exercises its discretion to 19 || consider the substance of Valladolid’s appeal given his pro se status. In re O’Brien, 312 20 F.3d 1135, 1137 (9th Cir. 2002) (“the failure to present a sufficient record can itself serve 21 a basis for summary affirmance”); Jn re Brown, 606 B.R. 40, 44 n.2 (9th Cir. BAP 2019) 22 (considering, sua sponte, underlying records on bankruptcy appeal). In the absence of an 23 ||appellate record, the Court will, on its own motion, take judicial notice of (1) the court 24 filings in the Adversary Proceeding; (2) the orders and briefs in the Fraud Action that 25 formed the basis of the bankruptcy court’s summary judgment order on issue preclusion 26 || grounds; and (3) as necessary, the court filings in Valladolid’s Bankruptcy Action. Fed. 27 ||R. Evid. 201; Reyn’s Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir. 28 2006) (courts “may take judicial notice of court filings and other matters of public record”).

1 }|The Court will thus proceed to consider Valladolid’s appeal of the bankruptcy court’s 2 ||summary judgment order. 3 ||B. The Bankruptcy Court Correctly Determined That Issue Preclusion Was 4 || Applicable 5 First, the bankruptcy court presiding over the Adversary Proceeding correctly 6 decided that issue preclusion could apply to the dischargeability issue before it. Well- 7 ||established law provides that issue preclusion is available in dischargeability proceedings. 8 || Grogan v. Garner, 498 U.S. 279, 284 n.11 (1991) (“collateral estoppel principles do indeed 9 apply in discharge exception proceedings pursuant to § 523(a)’”); In re Harmon, 250 F.3d 10 1240, 1245 (9th Cir. 2001) (same). Upon de novo review, this Court concludes that the 11 ||}bankruptcy court correctly held that issue preclusion is available in dischargeability 12 ||proceedings and thus correctly considered the doctrine when the Dragans raised it on 13 |isummary judgment. See Adversary Proceeding Dkt. 48 at 1-9. 14 Second, the bankruptcy court in the Adversary Proceeding properly assigned the 15 |/burden of demonstrating issue preclusion to the Dragans. “The party asserting [issue 16 || preclusion] has the burden of proving that all of the threshold requirements have been met.” 17 || In re Honkanen, 446 B.R. 373, 382 (9th Cir. BAP 2011) (“moving party must [pinpoint] 18 ||the exact issues litigated in the prior action and introduce[] a record revealing controlling 19 || facts.”). Because the Dragans moved on issue preclusion, they bore the burden of proof. 20 ||See id. The bankruptcy court properly assigned the burden of proof to the Dragans, see 21 || Adversary Proceeding Dkt. 48 at 6, and considered whether they pinpointed portions of the 22 ||record that demonstrated issue preclusion. See id. at 6-9. Thus, the bankruptcy court did 23 ||not err with respect to the burden of proof. 24 Third, the bankruptcy court identified and applied the correct legal standards for 25 |/issue preclusion. “Issue preclusion bars the relitigation of issues actually adjudicated in 26 || previous litigation between the same parties.” Littlejohn v. United States, 321 F.3d 915, 27 ||923 (9th Cir. 2003). Issue preclusion bars relitigation of an issue where (1) the issue is 28 |{identical to an issue in an earlier action, (2) the issue was actually litigated in the earlier

1 action, (3) the issue was necessary to that judgment, (4) there was a final judgment on the 2 |/merits in the earlier action, and (5) the parties to both actions are the same or there is privity. 3 re Silva, 190 B.R. 889, 892 (9th Cir. BAP 1995); accord Clark v. Bear Stearns & Co., 4 || Inc., 966 F.2d 1318, 1320 (9th Cir. 1992) (issue must be identical, actually litigated, and 5 ||necessarily decided); In re Palmer, 207 F.3d 566, 568 (9th Cir. 2000) (there must also be 6 || privity and a full and fair opportunity to litigate the issue). Reasonable doubts about what 7 decided in the prior action should be resolved against the party seeking to assert 8 preclusion. In re Kelly, 182 B.R. 255, 258 (9th Cir. BAP 1995). Because the district court 9 ||in the Fraud Action exercised supplemental jurisdiction over the California state law fraud 10 ||claim, the bankruptcy court applied both California law and federal common law to 11 ||determine the preclusive effect of the Fraud Action and found that issue preclusion was 12 □□□ under both doctrines. See Adversary Proceeding Dkt. 48 at 5-9. The Court finds that 13 issue preclusion doctrines under state and federal common law are substantively the same 14 || and the bankruptcy court applied the correct legal standards in reaching its ruling. 15 Finally, the Court will examine whether the bankruptcy court correctly applied the 16 above standards to the facts before it in determining that the decision in the Fraud Action 17 ||should have preclusive effect. In his brief, Appellant does not raise any arguments about 18 ||the preclusive effect of the Fraud Action decision—he argues instead that the district 19 |}court’s decision in the Fraud Action was wrong. See Dkt. 4. 20 21 22 23 © Whether federal or state issue preclusion law applies to the judgement of a federal court 24 qe as ts □ exercising supplemental jurisdiction over a state law claim, is an unsettled area of law. Hayes v. Rojas, 95 2021 WL 5356471, at *2 n.4 (E.D. Cal. Nov. 17, 2021) (describing the unsettled issue of “how to approach the res judicata analysis when the prior state-law claims were before the federal court based upon 26 || supplemental” jurisdiction and collecting cases). The bankruptcy court, therefore, appropriately analyzed the question under both and reached the same conclusion. In re Coast Trading Co., Inc., 744 F.2d 686, 27 |! 689 (9th Cir. 1984) (declining to reach a choice of law issue where the result would be the same); Jn re Yellow Cab Co., 212 B.R. 154, 158 n.6 (Bankr. S.D. Cal. 1997) (noting that the elements of issue 28 ves preclusion under California and federal law are the same).

1 1. The Issues are Identical 2 The bankruptcy court correctly concluded that the first requirement of issue 3 || preclusion, identity of issues, was met. Issues are considered identical for the purpose of 4 ||issue preclusion where the claims are closely related and arise out of the same 5 ||“transactional nucleus of facts.” See Howard v. City of Coos Bay, 871 F.3d 1032, 1041 6 (9th Cir. 2017); Cent. Delta Water Agency v. U.S., 306 F.3d 938, 952 (9th Cir. 2002). The 7 ||bankruptcy court held, and this Court agrees, that the elements required under 11 U.S.C. 8 || § 523(a)(2)(A) mirror the elements of fraud under California law. In re Zuckerman, 613 9 |/B.R. 707, 714 (9th Cir. BAP 2020) (finding that actual fraud under California law is 10 |Jidentical to the elements of a § 523(a)(2)(A) action); Jn re Jung Sup Lee, 335 B.R. 130, 11 || 136 (9th Cir. BAP 2005) (“[t]he elements of fraud under § 523(a)(2)(A) match the elements 12 ||of common law fraud and of actual fraud under California law’). Because the elements for 13 || both the fraud claim and the dischargeability claim are the same, and both claims arose out 14 the same set of facts surrounding the business transactions between Valladolid and the 15 ||Dragans, this Court agrees with the bankruptcy court’s analysis that the issues were 16 || identical. . 17 2. Actually Litigated □ 18 The bankruptcy court in the Adversary Proceeding properly found that the second 19 || requirement for issue preclusion was met because the issue of fraud was actually litigated. 20 ||““[A]n issue is actually litigated when an issue is raised, contested, and submitted for 21 determination.” Janjua v. Neufeld, 933 F.3d 1061, 1066 (9th Cir. 2019). Here, the Dragans 22 || brought a fraud claim against Valladolid. See Fraud Action Dkt. 1. After conducting 23 discovery, the Dragans moved for summary judgment on the fraud claim and Valladolid 24 ||opposed the motion. See Fraud Action Dkt. 101. The Fraud Action court considered the 25 || parties arguments in detail and ultimately issued a final ruling on the Dragans’ fraud claim, 26 |/concluding that there was no genuine dispute of material fact that Valladolid had 27 ||committed fraud. See id. The Court agrees with the bankruptcy court that these facts 28

1 satisfy the “actually litigated” requirement and therefore, the bankruptcy court did not err 2 concluding that this requirement was met. 3 3. Necessarily Decided 4 The issue of fraud was necessarily decided in the Fraud Action, satisfying the third 5 ||requirement for issue preclusion. An issue is necessarily decided when its resolution was 6 ||necessary to reach the judgment. See, e.g., In re Grenier, 2015 WL 3622712, at *10 (9th 7 ||Cir. BAP June 10, 2015). The crux of the Fraud Action court’s summary judgment 8 || decision was the determination that Valladolid was liable for fraud against the Dragans. 9 ||See Fraud Action Dkt. 101. The Fraud Action court first found that Valladolid was liable 10 ||for common law fraud and then found that, because Valladolid was liable for fraud, he 11 ||should also be found liable on the Dragans’ remaining claims. Jd. Based on the Fraud 12 ||Action court’s summary judgment decision, the bankruptcy court in the Adversary 13 Proceeding concluded that the issue of fraud was necessarily decided. See Adversary 14 || Proceeding Dkt. 48. This Court agrees because the central holding of the Fraud Action 15 |/court’s summary judgment opinion was that Valladolid committed fraud. Accordingly, the 16 bankruptcy court did not err in holding that the issue of fraud was necessarily decided. 17 4. Final Decision on the Merits 18 This Court also agrees with the bankruptcy court that the Fraud Action resulted in a 19 || final decision on the merits of the Dragans’ fraud claim, satisfying the fourth requirement 20 issue preclusion. See, e.g., Fund for Animals, Inc. v. Lujan, 962 F.2d 1391, 1398 (9th 21 ||Cir. 1992) (finding that summary judgment ruling “was a final judgment on the merits”); 22 Hells Canyon Pres. Council v. U.S. Forest Serv., 403 F.3d 683, 686 (9th Cir. 2005) (“It is 23 ||certainly true that there was a final judgment on the merits [in the prior action], as the 24 ||district court granted the government’s motion for summary judgment’) (emphasis 25 || omitted). Here, the Fraud Action court determined that Valladolid was liable for fraud and 26 |/entered summary judgment, which constitutes a final decision on the merits. See id. 27 || Accordingly, the bankruptcy court did not err in finding that there was a final decision. 28 |} ///

l 3. Same Parties 2 The fifth requirement that the parties to both actions be the same or in privity is met |. 3 ||because the parties in the Fraud Action are the same as the parties in the Adversary 4 |/Proceeding. The foregoing requirement is met where “the party against whom [issue 5 preclusion] is asserted was a party or in privity with a party at the first proceeding.” Paulo 6 Holder, 669 F.3d 911, 917 (9th Cir. 2011) (citation omitted). Both the Dragans and 7 || Valladolid were parties to the Fraud Action and to the Adversary Proceeding. Thus, the 8 || bankruptcy court did not err in finding that the fifth requirement for issue preclusion was 9 || satisfied. 10 Finally, the Court also concludes that the bankruptcy court did not abuse its 11 || discretion by finding that policy considerations favored the application of issue preclusion 12 this case. Adversary Proceeding Dkt. 48 at 9. Here, none of the concerns that might 13 || weigh against the application of issue preclusion are present. For instance, there are no 14 ||circumstances that would cast doubt on the fairness of the Fraud Action, such as an 15 |/incomplete opportunity to litigate the issue of fraud. See, e.g., In re Palmer, 207 F.3d at 16 ||568 (holding that party must have had a full and fair opportunity to litigate in the prior 17 |jaction); In re Yu, 545 B.R. 633, 639 (Bankr. C.D. Cal. 2016) (discussing the presence of 18 incentive to litigate vigorously in the prior action as a fairness concern). Rather, the 19 bankruptcy court’s application of issue preclusion in the Adversary Proceeding served the 20 j/central purposes of issue preclusion: to avoid relitigation of decided issues, promote 21 ||judicial economy, and avoid inconsistent judgments. Maciel v. Comm’r, 489 F.3d 1018, 22 1023 (9th Cir. 2007); In re Lopez, 367 B.R. 99, 104 (9th Cir. BAP 2007). Accordingly, 23 bankruptcy court did not abuse its discretion by holding that policy considerations 24 || weighed in favor of issue preclusion. 25 The Court concludes that the bankruptcy court properly entered summary judgment 26 favor of the Dragans on their § 523(a)(2)(A) claim on the grounds that all of the factors 27 || for issue preclusion were met. The bankruptcy court in the Adversary Proceeding neither 28 |/erred nor abused its discretion.

1 IV. CONCLUSION AND ORDER 2 For the reasons set out above, the Court AFFIRMS the judgment of the bankruptcy 3 || court. 4 5 IT IS SO ORDERED. 6 7 ||Dated: 8/16/2022 Sp 8 toni. Jinsook Ohta United States District Judge 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 12