Kristine Adams v. Newport Crest Homeowners Ass'n

• Court: Court of Appeals for the Ninth Circuit
• Decided: March 6, 2020
• Docket: 18-60051
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS MAR 6 2020 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

In re: KRISTINE L. ADAMS, Nos. 18-60051, 18-60055

Debtor, BAP No. 17-1224

------------------------------ MEMORANDUM* KRISTINE L. ADAMS,

Appellant / Cross-Appellee,

v.

NEWPORT CREST HOMEOWNERS ASSOCIATION, INC.,

Appellee / Cross-Appellant.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel Kurtz, Faris, and Spraker, Bankruptcy Judges, Presiding

Argued and Submitted February 14, 2020 Pasadena, California

Before: SCHROEDER, BERZON, and R. NELSON, Circuit Judges.

Kristine Adams and Newport Crest Homeowners Association, Inc.

(“Newport Crest”) have been engaged in state court litigation since 2005. Most of

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. this litigation has related to the enforcement of a settlement agreement with a

provision providing for attorney’s fees for the prevailing party. While that

litigation was ongoing, Ms. Adams declared bankruptcy and obtained a discharge.

After the bankruptcy was closed, Newport Crest prevailed in one part of the state

court litigation and sought attorney’s fees. Ms. Adams did not raise the bankruptcy

discharge in opposition to Newport Crest’s requests for attorney’s fees, and some

of Newport Crest’s requests for fees were ultimately granted. Newport Crest then

successfully reopened Ms. Adams’s bankruptcy seeking a determination of

whether the attorney’s fees awards were discharged as part of Ms. Adams’s

bankruptcy.

The bankruptcy court held that Newport Crest’s attorney’s fees awards were

not discharged in Ms. Adams’s bankruptcy because Ms. Adams had “returned to

the fray” by continuing litigation against Newport Crest and that Ms. Adams was

barred by claim preclusion from bringing a counterclaim for violation of the

bankruptcy discharge because she did not raise the discharge as a defense to the

attorney’s fees awards in the state court litigation. The Bankruptcy Appellate

Panel (“BAP”) affirmed the first ruling and declined to reach the second. We

review these holdings de novo. In re Su, 290 F.3d 1140, 1142 (9th Cir. 2002)

(dischargeability); Robi v. Five Platters, Inc., 838 F.2d 318, 321 (9th Cir. 1988)

(claim preclusion). We reverse.

2 1. Claims to attorney’s fees that have not yet been incurred can be

“claims,”—albeit, “contingent” ones—that are discharged in bankruptcy. In re

SNTL Corp., 571 F.3d 826, 843 (9th Cir. 2009). Such a contingent claim “arises

when a claimant can fairly or reasonably contemplate the claim’s existence even if

a cause of action has not yet accrued under nonbankruptcy law.” In re Castellino

Villas, A.K.F. LLC, 836 F.3d 1028, 1034 (9th Cir. 2016) (internal quotation marks

omitted). Here, that test is met. Newport Crest could “fairly and reasonably

contemplate” the existence of a contingent claim to attorney’s fees at the time of

Ms. Adams’s bankruptcy because the litigation in which the fees were awarded—

which concerned a settlement agreement with an attorney’s fees provision—was

commenced before Ms. Adams’s bankruptcy and was not resolved as part of it.

The attorney’s fees awards obtained by Newport Crest were therefore discharged

in Ms. Adams’s bankruptcy. Id.

2. Under California’s claim-splitting doctrine, a prior judgment is given

claim preclusive effect “on matters which were raised or could have been raised”

in the first suit. Wade v. Ports Am. Mgmt. Corp., 160 Cal. Rptr. 3d 482, 489 (Ct.

App. 2013) (emphasis added) (internal quotation marks omitted). The bankruptcy

court relied on this “could have been raised” species of claim preclusion—which is

based on principles of waiver, see McCaffrey v. Wiley, 230 P.2d 152, 155 (Cal. Ct.

App. 1951); Turtle Island Restoration Network v. U.S. Dep’t of State, 673 F.3d

3 914, 918 (9th Cir. 2012)—to dismiss Ms. Adams’s counterclaim for violation of

the discharge injunction. That reliance was error, because a discharge in

bankruptcy remains effective “whether or not discharge of such debt is waived.”

11 U.S.C. § 524(a)(1); In re Gurrola, 328 B.R. 158, 170 (B.A.P. 9th Cir. 2005)

(describing a bankruptcy discharge as an “absolute, nonwaivable defense”). Ms.

Adams was therefore not barred by claim preclusion from bringing a claim for

violation of the discharge injunction.

3. Because we hold that the attorney’s fees awards obtained by Newport

Crest were discharged in Ms. Adams’s bankruptcy, we need not address Newport

Crest’s cross appeal on its claims for setoff and recoupment. We therefore decline

to address the BAP’s holding that it lacked subject matter and supplemental

jurisdiction over those claims.

REVERSED and REMANDED.