2 FILED & ENTERED
3 JUN 29 2020 4 5 C CL enE tR raK l U D. iS st. r B icA t N ofK CR aU liP foT rC nY ia COURT BY c a r g i l l DEPUTY CLERK 6
7 8
10 UNITED STATES BANKRUPTCY COURT 11 CENTRAL DISTRICT OF CALIFORNIA 12 RIVERSIDE DIVISION 13
14 In re: Case No.: 6:13-bk-29922-MH
15 NANCY ANN HOWELL Chapter: 7 16 Debtor Adv. No.: 6:14-ap-01070-MH 17 LAW OFFICE OF ANDREW S. BISOM & MEMORANDUM DECISION AND 18 EISENBERG LAW FIRM, APC ORDER GRANTING PLAINTIFFS’ Plaintiffs MOTION FOR SUMMARY JUDGMENT 19 v. 20 NANCY ANN HOWELL 21 Defendant 22 23 24
25 26 27 1 I. Background & Undisputed Facts 2 3 In September 2006, Nancy Howell (“Defendant”) retained both the Law Office of Andrew S. 4 Bisom and Day/Eisenberg1 (collectively “Plaintiffs”; individually “Bisom” and “Eisenberg”) to 5 represent her in an action she had commenced against the Oso Valley Greenbelt Association 6 (“HOA”) and two of its officers and/or directors. In the course of engaging Plaintiffs, and as a 7 basis for her lawsuit, Defendant informed Plaintiffs that, while attending a meeting of the HOA, 8 she had been the victim of a citizen's arrest. 9 10 During the prosecution of Defendant’s claims, however, Plaintiffs discovered that Defendant had 11 previously been involved in litigation with the HOA and one or more of its board members, 12 which resulted in a significant monetary judgment against Defendant. Plaintiffs also discovered 13 that, during the time they were representing Defendant, she settled her claims against the HOA in 14 exchange for a cash payment and the satisfaction of the monetary judgment previously entered 15 against her. Defendant subsequently failed to pay Plaintiffs for the services they rendered or for 16 the costs they incurred while representing Defendant. 17 18 Subsequently, Plaintiffs initiated a state court action against Defendant for breach of contract, 19 breach of implied covenant of good faith and fair dealing, quantum meruit, and fraud. A 20 judgment (the “Judgment”) was ultimately entered by the California state court on November 3, 21 2008, in Plaintiffs’ favor in the amount of $48,080.94. The Judgment expressly incorporated the 22 jury’s written special verdict, and included the following findings: 23 24 25
26 1 Day/Eisenberg was subsequently dissolved. The subject state court judgment was subsequently assigned from Day/Eisenberg to Eisenberg Law Firm, APC in or about April 2011. The Court uses “Eisenberg” to refer to either 27 Day/Eisenberg or Eisenberg Law Firm APC, as applicable. Question No. 6: Did defendant, Nancy Howell, intentionally fail to disclose 1 important fact(s) that plaintiffs, Law Office of Andrew S. Bisom and Day/Eisenberg, did not know and could not reasonably have discovered? 2 Answer: Yes. 3 Question No. 7: Did defendant, Nancy Howell, intend to deceive plaintiffs, Law 4 Office of Andrew S. Bisom and Day/Eisenberg, by concealing the fact(s)? Answer: Yes. 5
Question No. 8: Did plaintiffs, Law Offices of Andrew S. Bisom and 6 Day/Eisenerg, rely on defendant, Nancy Howell’s deception and was such 7 reliance reasonable under the circumstances? Answer: Yes. 8 Question No. 9: Was defendant, Nancy Howell’s, concealment a substantial factor 9 in causing harm to plaintiffs, LAW OFFICES OF ANDREW S. BISOM and DAY I EISENBERG? 10 Answer: Yes. 11 Question No. 10: What are plaintiffs, Law Offices of Andrew S. Bisom and 12 Day/Eisenberg’s, damages resulting from the fraud Mrs. Howell committed upon them? 13 Answer: 14 Law Office of Andrew S. Bisom:
15 $24.040.47
16 Day/Eisenberg:
17 $24,040.47 18
19 TOTAL $48,080.94 20 21 [Dkt. No. 66, Ex. B] (stylistic and grammatical changes made). 22 23 In April 2011, the right to collect on the Judgment was assigned from Day/Eisenberg to the 24 Eisenberg Law Firm, APC. 25 26 27 1 II. Procedural History2 2 3 On October 28, 2008, prior to commencing the instant bankruptcy case, Defendant filed a 4 chapter 7 case [Case No. 8:08-bk-16911-TA] (the “Prior Case”). Of significance, the Judgment 5 was entered by the state court on November 3, 2008, six days after the Defendant filed the Prior 6 Case. The Prior Case was subsequently dismissed on January 30, 2009, due to Debtor’s failure to 7 attend the 11 U.S.C. § 341(a) meeting of creditors. 8 9 On December 12, 2013, Defendant filed another Chapter 7 voluntary petition, commencing this 10 above-captioned bankruptcy case. On March 14, 2014, the Plaintiffs filed a non-dischargeability 11 complaint (the “Complaint”) against Defendant pursuant to 11 U.S.C. §§ 523(a)(2)(A) and 12 (a)(6), commencing this adversary proceeding (the “Adversary Proceeding”). 13 14 On October 29, 2014, Plaintiffs filed a motion for summary judgment (the “First MSJ”), seeking 15 judgment on the basis of collateral estoppel. On December 1, 2014, Defendant filed an untimely 16 opposition to the First MSJ. In her opposition, Defendant noted that the Judgment had been 17 entered shortly after the petition date in the Prior Case. As a result, as discussed in detail at the 18 hearing on the First MSJ, the Judgment appeared to have been entered in violation of the 19 automatic stay, and was therefore void. Because the First MSJ was based on application of 20 collateral estoppel to the Judgment, and because such application was no longer available 21 because the Judgment was void, the Court entered an order denying the First MSJ without 22 prejudice on December 18, 2014. 23 24 In order to revive the effectiveness of the Judgment notwithstanding that it had been entered in 25 violation of the automatic stay during the Prior Case, on February 23, 2015, Plaintiffs filed in the 26 27 2 The Court notes the docket is unusually convoluted, and includes herein only the directly relevant pleadings. 1 Prior Case:3 (1) a motion to reopen the Prior Case; and (2) a motion seeking annulment of the 2 automatic stay. Defendant filed an untimely opposition to Plaintiffs’ motion to reopen the Prior 3 Case on March 18, 2015. On April 13, 2015, the Court entered orders in the Prior Case: (1) 4 reopening the Prior Case; and (2) annulling the automatic stay to validate the Judgment. 5 6 On April 27, 2015, Defendant filed a motion to reconsider the orders reopening the Prior Case 7 and annulling the automatic stay. On May 12, 2015, Plaintiffs filed their opposition. The Court 8 orally denied the motion to reconsider on May 26, 2015. After Plaintiffs lodged a proposed 9 order, Defendant objected to the proposed order, requesting a hearing six weeks later. At a 10 hearing on July 21, 2015, the Court orally overruled Defendant’s objections. After Plaintiffs 11 lodged a revised order denying Defendant’s motion to reconsider, Defendant once again 12 objected, this time requesting a hearing nine weeks later. On September 29, 2015, the Court 13 orally overruled this second objection. On October 16, 2015, the Court in the Prior Case entered 14 an order denying Defendant’s motion to reconsider. 15 16 Now armed with an order in the Prior Case annulling the automatic stay and reviving the 17 effectiveness of the Judgment, Plaintiffs filed a second motion for summary judgment in the 18 Adversary Proceeding in this case on October 21, 2015 (the “Second MSJ”); the motion was 19 amended the following day. Defendant then took a multi-pronged litigation approach. Among 20 other actions, on October 27, 2015, Defendant appealed the orders: (1) reopening the Prior Case; 21 (2) annulling the automatic stay; and (3) denying reconsideration, and, on November 12, 2015, 22 Defendant filed her opposition to the Second MSJ. At a hearing on December 2, 2015, the Court 23 continued the hearing on the Second MSJ for a second round of briefing. Specifically, at that 24 hearing the Court noted four legal issues to be addressed in the supplemental briefs: (1) the effect 25 of Defendant’s pending appeal on the finality of the Judgment; (2) whether Defendant’s time to 26 27 3 All hearings in the Prior Case were before the Honorable Theodor C. Albert. 1 appeal the Judgment had lapsed; (3) whether the jury in state court found that Defendant had a 2 duty to disclose the alleged omissions to Plaintiffs; and (4) whether the state court jury 3 necessarily found Defendant liable on the fraud cause of action. On December 14, 2015, shortly 4 after the initial hearing on the Second MSJ, Defendant appealed the Judgment in state court. On 5 December 15, 2015, Plaintiffs filed their supplemental brief regarding the Second MSJ. On 6 January 19, 2016, Defendant filed her supplemental opposition. 7 8 Because of the pending bankruptcy and state court appeals, the Court continued the hearing on 9 the Second MSJ several times. During this time, the parties continued to file unauthorized 10 supplemental pleadings, and corresponding objections to those pleadings. 11 12 On September 14, 2016, Plaintiffs requested that the Court further continue the Second MSJ 13 based on the pending appeals. The next day, the Court granted the continuance. As an example 14 of what the Court considers unnecessary and frivolous litigation in the Adversary Proceeding, on 15 September 28, 2016, Defendant filed a motion to reconsider the order continuing the hearing on 16 the Second MSJ. Plaintiff filed its opposition on October 7, 2016. The Court ultimately denied 17 Defendant’s motion to reconsider on November 14, 2016. Shortly after the entry of that order, 18 Defendant filed an objection to Plaintiffs’ notice of lodgment. On December 22, 2016, the 19 district court affirmed the Court’s annulment of the automatic stay in the Prior Case in favor of 20 Plaintiffs. On October 5, 2017, the Ninth Circuit Court of Appeals affirmed the district court 21 ruling. 22 23 On November 28, 2016, Defendant filed in the Adversary Proceeding: (1) a motion to reconsider 24 the order denying her motion to reconsider the order entered on September 15, 2016 continuing 25 the hearing on the Second MSJ; and (2) a motion to set a trial date. Both of these motions were 26 denied pursuant to orders entered on January 14, 2017. 27 1 The Court continued the hearing on the Second MSJ repeatedly while Defendant prosecuted her 2 appeal of the annulment of the automatic stay in the Prior Case, as well as her appeal of the 3 Judgment in state court. On August 5, 2019, the state court entered its appellate ruling affirming 4 the Judgment in favor of Plaintiffs. Prior to the scheduled hearing on the Second MSJ, which was 5 set for November 6, 2019, Defendant filed a motion for leave to amend her opposition. On 6 December 9, 2019, the Court entered an order authorizing both Plaintiffs and Defendant to file 7 an additional pleading (Defendant had already filed her amended opposition on November 1, 8 2019). On December 18, 2019, Plaintiffs filed their amended reply. 9 10 III. Legal Discussion 11 12 1. Eisenberg Law Firm, APC’s Standing 13 14 Defendant asserts that Eisenberg has no standing to prosecute this adversary proceeding because 15 the Judgment was entered in favor of Day/Eisenberg (along with Bisom). Defendant argues that 16 because Eisenberg is not the same entity as Day/Eisenberg, Eisenberg lacks standing to be a 17 plaintiff in this adversary proceeding. Defendant further argues that to the extent the Judgment 18 was assigned, the assignment was invalid because it occurred after Day/Eisenberg was dissolved. 19 The Court disagrees. 20 21 The mere fact that a partnership is dissolved does not prevent that partnership from disposing of 22 partnership assets. CAL. CORP. CODE §§ 16801-16807 governs the winding up of partnership 23 business. CAL. CORP. CODE § 16804(1) provides that a partnership is bound of a partner’s act 24 after dissolution when the act is “[a]ppropriate for winding up the partnership business.” 25 Therefore, the mere fact that the Day/Eisenberg partnership was dissolved does not prevent that 26 partnership from disposing of the Judgement, which was a partnership asset. 27 1 Based on the foregoing, the Court finds that the assignment of the Judgment from Day/Eisenberg 2 to Eisenberg in April 2011 was valid. Pursuant to binding Ninth Circuit precedent, an assignee 3 can step into the shoes of an assignor and assert a nondischargeability claim. See In re Boyajian, 4 564 F.3d 1088, 1091 (9th Cir. 2009) (“That is, assuming New Falls was indeed the recipient of a 5 general assignment of the original judgment, it can stand in the shoes of its assignor and pursue a 6 non-dischargeability action under § 523(a)(2)(B).”). 7 8 2. Summary Judgment 9 10 Plaintiffs here seek summary judgment on their 11 U.S.C. § 523(a)(2)(A) claim based on 11 application of collateral estoppel/issue preclusion to the Judgment. When seeking summary 12 judgment, the moving party has the burden of establishing (1) the absence of a genuine issue of 13 material fact and (2) that they are entitled to judgment as a matter of law. See, e.g., Celotex 14 Corp. v. Catrett, 477 U.S. 317, 323 (1986). Here, Plaintiffs allege that these two requirements 15 are satisfied through the application of issue preclusion. 16 17 Issue preclusion applies in nondischargeability proceedings to bar the relitigation of factual 18 issues that were determined in a prior state court action. See, e.g., Grogan v. Garner, 498 U.S. 19 279, 284–86 (1991). To determine the issue-preclusive effect of a California state court's 20 judgment, California preclusion law must be applied. See Marrese v. Am. Acad. of Orthopaedic 21 Surgeons, 470 U.S. 373, 380 (1985) (full faith and credit statute “directs a federal court to refer 22 to the preclusion law of the State in which judgment was rendered.”). Under California law, the 23 party asserting issue preclusion has the burden of establishing the following threshold 24 requirements: 25 (1) the issue sought to be precluded must be identical to that decided in a former 26 proceeding; (2) the issue must have been actually litigated in the former proceeding; 27 (3) it must have been necessarily decided in the former proceeding; 1 (4) the decision in the former proceeding must be final and on the merits; and, (5) the party against whom preclusion is sought must be the same as, or in privity 2 with, the party to the former proceeding. 3
4 Harmon v. Kobrin (In re Harmon), 250 F.3d 1240, 1245 (9th Cir. 2001). Finally, the public 5 policies underlying collateral estoppel—preservation of the integrity of the judicial system, 6 promotion of judicial economy, and protection of litigants from harassment by vexatious 7 litigation—should be considered to determine whether its application in a particular 8 circumstance would be fair to the parties and constitutes sound judicial policy. People v. Ochoa, 9 191 Cal.App.4th 664, 668 (2011). 10
11 A. The issues that Plaintiffs seek to preclude are identical to the issues raised in 12 state court. 13
14 The “identical issue” requirement addresses whether “identical factual allegations” are at stake in 15 the two proceedings. See, e.g., Lucido v. Superior Court, 51 Cal 3d 335, 342 (Cal. 1990) (“The 16 ‘identical issue’ requirement addresses whether ‘identical factual allegations’ are at stake in the 17 two proceedings, not whether the ultimate issues or dispositions are the same.”). 18
19 In this case, the Complaint alleges facts that are identical to those raised by Plaintiffs in state 20 court. As part of the first claim for relief in the Complaint, a claim under § 523(a)(2)(A), 21 Plaintiffs make the following allegations: 22
23 19. When Defendant retained Plaintiffs, she knowingly and purposefully failed to disclose her prior involvement in litigation with the Oso Homeowners 24 Association and its board members and further knowingly and purposefully failed to disclose that her participation in that proceeding had resulted in a 25 substantial monetary judgment against her. Defendant knew these omissions to be material. 26 20. Defendant represented to Plaintiffs that she desired their services to 27 aggressively prosecute her claim for monetary damages for false arrest and imprisonment. In reliance thereon, Plaintiffs immediately undertook 1 prosecution of Defendant's claim in the underlying action spending considerable time and money in furtherance thereof. 2 21. In reality, and unbeknownst to Plaintiffs, Defendant sought Plaintiffs’ 3 prosecutorial services in the underlying action as a bargaining chip to dissuade the Oso Valley Homeowners Association and its board members from 4 pursuing any further legal action against her, including collection efforts aimed at recovering some or all of the monetary judgment previously obtained 5 against her. 22. Defendant purposefully and intentionally failed to include and involve 6 Plaintiffs in her private negotiations with the Oso Valley Homeowners 7 Association and its board members and attorneys, continually reassuring Plaintiffs that it was her intention to prosecute the underlying action to 8 verdict. 23. Notwithstanding Defendant's continued representations which Plaintiffs 9 accepted and believed to be true and upon which they relied in continuing their efforts to prosecute the underlying action, Defendant actually worked 10 behind the scenes, without Plaintiffs' knowledge, to secure a release of her 11 financial obligations to the Oso Valley Homeowners Association and its board members while at the same time working to deprive Plaintiffs of the fees and 12 costs to which they were entitled in the underlying action. 24. As a direct and proximate result of Defendant's conduct, Plaintiffs have been 13 directly damaged through the loss of attorney's fees and out-of-pocket costs in 14 an amount according to proof, incurred both in the prosecution of the underlying action and the prosecution of this action. 15
16 Similarly, in the fourth cause of action (fraud) in state court, Plaintiffs asserted the following 17 allegations: 18
19 37. When Defendant retained Plaintiffs, she knowingly and purposefully failed to disclose her prior involvement in litigation with the Oso Homeowners 20 Association and its board members and further knowingly and purposefully failed to disclose that her participation in that proceeding had resulted in a 21 substantial monetary judgment against her. Defendant knew these omissions 22 to be material. 38. Defendant represented to Plaintiffs that she desired their services to 23 aggressively prosecute her claim for monetary damages for false arrest and imprisonment. In reliance thereon, Plaintiffs immediately undertook 24 prosecution of Defendant's claim in the underlying action spending considerable time and money in furtherance thereof. 25 39. In reality, and unbeknownst to Plaintiffs, Defendant sought Plaintiffs’ 26 prosecutorial services in the underlying action as a bargaining chip to dissuade the Oso Valley Homeowners Association and its board members from 27 pursuing any further legal action against her, including collection efforts aimed at recovering some or all of the monetary judgment previously obtained 1 against her. 40. Defendant purposefully and intentionally failed to include and involve 2 Plaintiffs in her private negotiations with the Oso Valley Homeowners 3 Association and its board members and attorneys, continually reassuring Plaintiffs that it was her intention to prosecute the underlying action to 4 verdict. 41. Notwithstanding Defendant's continued representations which Plaintiffs 5 accepted and believed to be true and upon which they relied in continuing their efforts to prosecute the underlying action, Defendant actually worked 6 behind the scenes, without Plaintiffs' knowledge, to secure a release of her 7 financial obligations to the Oso Valley Homeowners Association and its board members while at the same time working to deprive Plaintiffs of the fees and 8 costs to which they were entitled in the underlying action. 42. As a direct and proximate result of Defendant's conduct, Plaintiffs have been 9 directly damaged through the loss of attorney's fees and out-of-pocket costs in an amount according to proof, incurred both in the prosecution of the 10 underlying action and the prosecution of this action. 11
12 As shown above, Plaintiffs’ state court complaint and this Complaint allege identical facts. As 13 such, Plaintiffs have satisfied the first requirement for application of issue preclusion. 14
15 B. The issues that Plaintiffs seek to preclude from re-litigation were actually 16 litigated in state court 17
18 Under California law, an issue is “actually litigated” when it is properly raised by a party's 19 pleadings or otherwise, when it is submitted to the court for determination, and when the court 20 actually determines the issue. See, e.g., In re Harmon, 250 F.3d, 1240, 1247 (9th Cir. 2001). 21 California courts have also held that if an issue is determined to have been necessarily decided in 22 a prior proceeding, it was actually litigated. See id. at 1248. 23
24 Here, because the Court finds that the elements for establishing relief under § 523(a)(2)(A) were 25 necessarily decided in state court (see section III.2.C, infra), the Court finds that the elements for 26 establishing relief under § 523(a)(2)(A) were actually litigated in the state court action. 27 1 2 C. The issues that Plaintiffs seek to preclude from re-litigation were necessarily 3 decided in state court 4 5 Under California law, an issue is necessarily decided when: (1) there are explicit findings of an 6 issue made in a judgment or decision; or (2) or when the issue is a conclusion that must have 7 been necessarily decided by the court. See In re Dason, 588 B.R. 537, 544 (Bankr. C.D. Cal. 8 2018). “Whether an issue was ‘necessarily decided’ has been interpreted to mean that the issue 9 was not ‘entirely unnecessary’ to the judgment in the prior proceeding.” Lucido v. Superior 10 Court, 51 Cal.3d 335, 342 (Cal. 1990). 11 12 Here the fourth cause of action in the state court complaint was fraud. Subsequently, the state 13 court found Defendant liable to Plaintiffs for $48,080.94 in “damages resulting from, the Fraud 14 Mrs. Howell committed on them.” Accordingly, the Court finds that the Judgment included an 15 express finding of fraud against Defendant. 16 17 To establish fraud under California law, a plaintiff must establish the following elements: “(a) a 18 misrepresentation of material fact (false representation, concealment, or nondisclosure); (b) 19 knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable 20 reliance; and (e) resulting damage.” Engalla v. Permanente Med. Grp., Inc., 15 Cal.4th 951, 974 21 (1997). Here, because the Judgment included an express finding of fraud against Defendant, the 22 state court necessarily found that each of the elements required to establish fraud under 23 California law were satisfied. 24 25 “The elements of fraud under § 523(a)(2)(A) match the elements of common law fraud and of 26 actual fraud under California law.” In re Jung Sup Lee, 335 B.R. 130, 136 (B.A.P. 9th Cir. 27 2005). Accordingly, because the elements required to establish the nondischargeability of a claim 1 under § 523(a)(2)(A) are the same as those required to establish fraud under California law, the 2 Judgment’s express finding of fraud against Defendant necessarily decided all the requirements 3 to establish relief under § 523(a)(2)(A). See, e.g. Muegler v. Bening, 413 F.3d 980, 983 (9th Cir. 4 2005). 5 6 The Court notes that Defendant asserts that the state court never found her liable for fraud. 7 Specifically, Defendant argues that the state court only found her liable to Plaintiffs for breach of 8 contract. Apparently, Defendant believes that when the state court made an interlineation on the 9 Judgment, reducing the amount of damages awarded to Plaintiffs, the state court intended to 10 award Plaintiffs damages solely on the breach of contract claim. Additionally, Defendant alleges 11 that under applicable state law, a party may not separately recover under both contractual and 12 tortious causes of action, because such a recovery would be duplicative. As such, Defendant 13 asserts that because the state court awarded damages to Plaintiffs based on the breach of contract 14 claim, it could not have simultaneously found Defendant liable for fraud. The Court disagrees. 15 16 Under the double recovery theory, it is true that a plaintiff may not recover compensatory 17 damages under both tort and contract causes of action arising out of a single “item of damage.” 18 Lazar v. Superior Court, 12.Cal.4th 631, 638 (Cal. 1996); Tavaglione v. Billings, 4 Cal.4th 1150, 19 1159 (Cal. 1993). It is important to note, however, that this theory addresses the computation of a 20 money judgment after the plaintiff successfully establishes that defendant was liable under 21 multiple theories of recovery. See id. Accordingly, the double recovery theory does not prevent 22 the determination of liability on several different causes of action. See id. Here, although the 23 state court reduced the amount of damages awarded to Plaintiffs, the reduction in damages is 24 unrelated to whether the state court found Defendant liable to Plaintiffs for fraud. 25 26 Based on the foregoing, the Court finds that this element for issue preclusion has been satisfied. 27 1 D. The Judgment is a final judgment on the merits 2 3 Bankruptcy courts must look to state law to determine the finality of state court judgments. In re 4 Russell, 76 F.3d 242, 244 (9th Cir.1996); In re Nourbakhsh, 67 F.3d 798, 800 (9th Cir.1995); see 5 also 28 U.S.C. § 1738 (federal courts must give “full faith and credit” to state court judgments). 6 7 California law is settled that, pending appeal, a trial court judgment is not a final judgment on the 8 merits. In re Turner, 204 B.R. 988, 993 (9th Cir. BAP 1997); Sandoval, 140 Cal.App.3d at 936– 9 37, 190 Cal.Rptr. at 32. See also Kuykendall v. State Bd. of Equalization, 22 Cal.App.4th 1194, 10 1207, 27 Cal.Rptr.2d 783, 789 (1994); Cal.Civ.Proc.Code § 10499. Accordingly, under 11 California law, a state judgment is not final, and therefore collateral estoppel may not be applied, 12 unless (1) an appeal of the state judgment has been exhausted; or (2) the time to appeal the state 13 judgment has expired. Kay v. City of Rancho Palos Verdes, 504 F.3d 803, 808 (9th Cir. 2007); 14 Franklin & Franklin v. 7-Eleven Owners for Fair Franchising, 85 Cal.App.4th 1168, 1174 15 (2000); Cal.Civ.Proc.Code § 10499. Here, Defendant’s appeals of the state court judgment and 16 the bankruptcy court’s orders related to annulment of the automatic stay were both unsuccessful. 17 Therefore, Defendant having exhausted her appeals, the Judgment is a final judgment on the 18 merits. Accordingly, the Court finds that the final element of collateral estoppel has been 19 satisfied. 20 21 E. The party against whom preclusion is sought is the same as the party to the 22 former proceeding. 23 24 Here, there is no dispute that the Defendant is the same defendant that was named in the state 25 court Judgment. Accordingly, the Court finds that this element is satisfied. 26 27 1 F. The public policies underlying issue preclusion favor its application in this 2 case. 3 4 Finally, the Court notes that the public policies underlying collateral estoppel—preservation of 5 the integrity of the judicial system, promotion of judicial economy, and protection of litigants 6 from harassment by vexatious litigation—heavily weigh in favor of its application to this 7 proceeding. See generally People v. Ochoa, 191 Cal.App.4th 664, 668 (2011). Specifically, the 8 Court notes that the approach to litigation adopted by Defendant has significantly undermined 9 judicial economy, is fairly characterized as “vexatious,” and appears to be merely an attempt to 10 prevent or delay resolution of the proceeding. While the Court will not restate the procedural 11 background section, as but one example of Defendant’s history of attempting to delay the 12 proceedings and filing frivolous pleadings, in the Prior Case, Defendant filed multiple objections 13 to a notice of lodgment and requested that hearings be set several weeks out, ultimately delaying 14 the entry of an order on Defendant’s motion to reconsider for four and a half months. As another 15 example, in the instant case, on November 28, 2016, Defendant filed a motion to reconsider the 16 order denying her motion to reconsider an order which simply continued a hearing date from 17 September 15 to December 14. In such a situation, Defendant’s motion was a priori frivolous. 18 As a result, noting the factors listed by the California Court of Appeals in Ochoa, the Court 19 concludes that the application of the principles of collateral estoppel is indubitably appropriate in 20 this situation. 21 22 3. Defendant’s Opposition 23 24 In Defendant’s last opposition brief dated November 1, 2019, Defendant raises four arguments in 25 opposition to the Second MSJ. One of these arguments, that Eisenberg lacks standing in this 26 proceeding, has already been addressed above. To the extent the Court comprehends Defendant’s 27 remaining arguments, they are generally summarized as follows: (1) the alleged omission by 1 Defendant is a communication that had to be in writing pursuant to 11 U.S.C. § 523(a)(2)(B) 2 because it pertains to a liability of the Defendant (in other words, Defendant argues that because 3 the communication regards Defendant’s financial condition, it cannot be the basis for a § 4 523(a)(2)(A) claim); (2) that the state court did not determine that Defendant had a duty to 5 disclose; and (3) that the Judgment does not apportion damages between Plaintiffs’ claims for 6 breach of contract and for fraud. Additionally, while not raised in her briefing, Defendant orally 7 raised the argument that Plaintiffs’ motion was filed prematurely because the Judgment was not a 8 final judgment at the time the Second MSJ was filed. 9 10 Defendant’s first argument is based upon the plain language of 11 U.S.C. § 523(a)(2)(A) which 11 excludes “a statement respecting the debtor’s or an insider’s financial condition.” Defendant 12 focuses on the following caselaw analysis: 13 We also agree that a statement is “respecting” a debtor’s financial condition if it 14 has a direct relation to or impact on the debtor’s overall financial status. A single asset has a direct relation to an impact on aggregate financial condition, so a 15 statement about a single asset bears on a debtor’s overall financial condition and 16 can help indicate whether a debtor is solvent or insolvent, able to repay a given debt or not. Naturally, then, a statement about a single asset can be a “statement 17 respecting the debtor’s financial condition.” 18 19 Lamar, Archer & Cofrin, LLP v. Appling, 138 S.Ct. 1752, 1761 (2018). Defendant then reasons 20 that her failure to disclose her previous litigation with the Oso Valley HOA constitutes the 21 failure to disclose a liability, and, as such, is an omission regarding her financial condition. 22 23 The Court is not persuaded by Defendant’s argument. It is correct that statements regarding 24 financial condition must be brought under § 523(a)(2)(B), which was not done here, and are 25 required to be in writing. The Court does not consider Defendant’s omission here, however, to be 26 an actionable “statement” for purposes of § 523(a)(2)(B). The Supreme Court has defined a 27 1 “statement” in the context of § 523(a)(2)(B) as “the act or process of stating, reciting, or 2 presenting orally or on paper; something stated as a report or narrative; a single declaration or 3 remark.” Id. at 1759. So, while an omission of material information can be sufficient under 4 certain circumstances to serve as the basis for a fraud claim under § 523(a)(2)(A) (as the Court 5 finds is the case here), a “statement” or other actionable communication under § 523(a)(2)(B) 6 would appear to require, at a minimum, some affirmative indication of denial in response to an 7 inquiry by a plaintiff. Here, for example, the omission did not arise in a situation where Plaintiffs 8 asked Defendant if she was separately negotiating with the HOA or had any judgments against 9 her, with Plaintiffs interpreting Defendant’s silence in the negative. Therefore, while an 10 affirmative statement by Defendant that there were no outstanding judgments against her may 11 arguably be considered a statement respecting her financial condition, the failure to disclose an 12 existing judgment, absent more, does not constitute a “statement.” As such, Defendant’s first 13 argument fails. 14 15 In addition, the Court also points out that the materiality of the previous litigation with the Oso 16 Valley HOA is not premised upon the financial impact that litigation had on Defendant, but upon 17 the purpose and objective of Plaintiffs’ representation of Defendant. Put another way, as stated in 18 ¶¶ 38 and 39 of the state court complaint: 19 38. Defendant represented to Plaintiffs that she desired their services to 20 aggressively prosecute her claim for monetary damages for false arrest and imprisonment. In reliance thereon, Plaintiffs immediately undertook prosecution 21 of Defendant’s claim in the underlying action spending considerably [sic] time 22 and money in furtherance thereof.
23 39. In reality, and unbeknownst to Plaintiffs, Defendant sought Plaintiffs’ prosecutorial services in the underlying action as a bargaining chip to dissuade the 24 Oso Valley Homeowners Association and its board members from pursuing any further legal action against her, including [] collection efforts aimed at recovering 25 some part or all of the monetary judgment previously obtained against Defendant. 26
27 1 [Dkt. No. 66, pg. 11]. As a result, the materiality of Defendant’s omission was not 2 because of that omission’s relevance to Defendant’s financial condition, but because of 3 the omission’s bearing on the purpose of the retaining Plaintiffs. 4 5 Defendant’s second argument is somewhat unclear. Defendant argues that “[a]s is clear, the 6 finding of the duty to disclose is one of the required elements of the common law of fraudulent 7 concealment pursuant to both California law and 11 U.S.C. § 523(a)(2)[A].” [Dkt. No. 198, pg. 8 2] (stylistic and grammatical changes made). Despite acknowledging that the element of a duty 9 to disclose is a necessary part of a finding of fraud arising from an omission, Defendant then 10 asserts that this element was not actually decided in state court. Defendant’s argument, however, 11 is self-defeating. As was noted in section III.2.C, supra, “[t]he elements of fraud under § 12 523(a)(2)(A) match the elements of common law fraud and of actual fraud under California 13 law.” In re Jung Sup Lee, 335 B.R. 130, 136 (B.A.P. 9th Cir. 2005). Accordingly, because the 14 elements required to establish the nondischargeability of a claim under § 523(a)(2)(A) are the 15 same as those required to establish fraud under California law, the Judgment’s express finding of 16 fraud against Defendant necessarily decided all the requirements to establish relief under 17 § 523(a)(2)(A). See, e.g. Muegler v. Bening, 413 F.3d 980, 983 (9th Cir. 2005). 18 19 Defendant’s third argument, that the Judgment does not apportion damages between the breach 20 of contract cause of action and the fraud cause of action, appears to rely upon a 21 misunderstanding of the jury verdict. In response to question 12 on the special jury verdict, the 22 state court jury originally awarded Plaintiffs $144,243.71 in punitive damages. On October 15, 23 2008, the state court struck the award of punitive damages. There is nothing in the record, 24 however, to indicate that the state court otherwise modified the special jury verdict. As a result, 25 the judgment ultimately entered by the state court clearly states, in response to question 10, that 26 Plaintiffs were awarded $48,080.94 in damages on the fraud cause of action. 27 1 2 || Therefore, the Court GRANTS Plaintiffs’ motion for summary judgment. Judgment will be 3 ||1ssued separately. 4 5 6 7 8 HHH 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 py | 25 Date: June 29, 2020 ak Houle United States Bankruptcy Judge 28 19