Papadakis v. Zelis (In re Zelis)

66 F.3d 205, 95 Cal. Daily Op. Serv. 7281, 1995 U.S. App. LEXIS 26045
CourtCourt of Appeals for the Ninth Circuit
DecidedSeptember 15, 1995
DocketNo. 94-15073
StatusPublished
Cited by26 cases

This text of 66 F.3d 205 (Papadakis v. Zelis (In re Zelis)) is published on Counsel Stack Legal Research, covering Court of Appeals for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Papadakis v. Zelis (In re Zelis), 66 F.3d 205, 95 Cal. Daily Op. Serv. 7281, 1995 U.S. App. LEXIS 26045 (9th Cir. 1995).

Opinion

HUG, Circuit Judge:

Appellant, Bruce Zelis, appeals the decision of the Bankruptcy Appellate Panel (“BAP”) affirming the bankruptcy court’s determination that two sanctions orders against Zelis were nondischargeable debts under 11 U.S.C. § 523(a)(6). For the reasons explained below, we affirm in part and reverse in part.

STANDARD OF REVIEW

We review de novo the bankruptcy court’s grant of summary judgment. In re Bullion Reserve of North America, 922 F.2d 544, 546 (9th Cir.1991).

FACTS

In 1974, the Papadakises invested in a partnership with appellant, Zelis, and another partner, Day. In 1979, the Papadakises sued Zelis for wrongful conduct while acting as general partner. In 1986, Zelis and the Papadakises entered into a settlement agreement whereby Zelis stipulated to entry of judgment against him if he breached the agreement. Zelis apparently breached the agreement and the Papadakises sued and obtained a judgment in the stipulated amount. Zelis appealed.

The Papadakises filed a motion to dismiss on December 20,1990. Zelis responded with a 20-page opposition brief. The California Court of Appeal issued an Order to Show Cause why, given his stipulation to the terms of the judgment against him, it should not sanction Zelis for bringing a frivolous appeal. The court set a February 19 hearing date.

On February 1, 1991, Zelis filed bankruptcy and notified the court that it could not proceed with the sanctions order because of the automatic stay provisions of the Bankruptcy Code. That same day, the Papadakis-es furnished the court and Zelis with legal authority clearly showing that the automatic stay did not apply in this case. See O’Brien v. Fischel, 74 B.R. 546 (D.Haw.1987). On February 19, the court held the hearing. Zelis did not attend. On February 25, Zelis requested an opportunity to file a response to the Order to Show Cause. On February 26, the court granted Zelis’ request, stating that “Zelis is hereby granted another ten days from the date of this letter to respond to the O’Brien case or any other relevant legal issue prior to the submission of this matter for decision.”

Zelis did not respond, and on March 8, 1991, he wrote to the court and conceded its jurisdiction to order sanctions and requested another hearing. The court denied his request and, on May 21, 1991, sanctioned Zelis for bringing a frivolous appeal, stating “[tjhis frivolous appeal was clearly brought for the improper purpose of delaying the day when Zelis would have to finally pay over the $120,000 he promised to pay in 1986.... We cannot countenance such a shameless effort to unjustifiably prolong litigation.”

In related litigation, the bankruptcy court lifted the automatic stay and allowed the Papadakises’ other claims to proceed to trial. The court entered a judgment notwithstanding the verdict in favor of the Papadakises. Zelis appealed, arguing that his motion to disqualify the trial judge had been improperly denied and challenging the court’s interloc[208]*208utory order dissolving the partnership. The PapadaMses moved to dismiss because neither of these grounds was based on a final appealable order. On July 24,1992, the California Court of Appeal dismissed Zelis’ appeal as frivolous and again imposed sanctions “to deter appellants and others from the frauds they continue to visit upon the court system and their adversaries.” The court imposed $20,000 in sanctions against Zelis and Day jointly and severally. Half of tMs amount was to be paid to the PapadaMses and the other half to the court. In the fall of 1992, the PapadaMses settled with Day, releasing all claims against him in return for his release of all counterclaims against them and other considerations.

On August 24, 1992, the PapadaMses filed a complaint in the bankruptcy court to determine the nondisehargeability of the sanctions debts against Zelis under 11 U.S.C. § 523(a)(6). On January 25, 1993, the Papa-daMses filed a motion for summary judgment on this issue. On March 17, 1993, the bankruptcy court granted the PapadaMses’ motion, finding that both debts were nondis-chargeable as a matter of law under section 523(a)(6) because they were debts for willful and malicious injury by Zelis to the Papadak-ises. The bankruptcy court stated:

The California Court of Appeal found that Zelis intentionally and wrongfully filed two frivolous Notices of Appeal in bad faith and for abusive litigation tactics; that the PapadaMses suffered harm from defendant’s actions, including incurring attorneys’ fees and costs and suffering delay; and that Zelis’s actions were without just cause or excuse.

The bankruptcy court therefore gave collateral estoppel effect to the California Court of Appeal’s orders. The bankruptcy court also found that the PapadaMses’ settlement with Day did not affect Zelis’s obligation to pay the second sanction.

On November 29, 1993, the BAP affirmed the bankruptcy court’s orders. Zelis now appeals to this court. We have jurisdiction under 28 U.S.C. § 158(d).

DISCUSSION

I. Nondisehargeability

Section 523(a) of the Bankruptcy Code provides that a bankruptcy shall not discharge an individual debtor from certain Mnds of obligations. 11 U.S.C § 523(a). Subsection (a)(6), in particular, states that a debtor is not entitled to discharge of pre-petition debts for “willful and malicious injury by the debtor to another entity or to the property of another entity.” Id. We have held that an act is “willful and malicious” when done intentionally and the act necessarily produces harm and is without just cause or excuse. In re Cecchini, 780 F.2d 1440, 1443 (9th Cir.1986). The act may be “willful and malicious” even absent proof of specific intent to injure. Id.

In the present case, the BAP and the bankruptcy court gave collateral estoppel effect to the California Court of Appeal’s findings and orders regarding sanctions and the characterization of Zelis’ conduct. In Grogan v. Garner, 498 U.S. 279, 284-85 n. 11, 111 S.Ct. 654, 658 n. 11, 112 L.Ed.2d 755 (1991), the Supreme Court recognized that a creditor who successfully obtained a fraud judgment in state court could invoke collateral estoppel in an action under section 523(a). The same reasoning applies to the present ease where the requirements for collateral estoppel have been met, i.e., actual litigation of the issue and a determination in a prior action of those elements of the claim that are the same as the elements required for non-dischargeability. See id.

Zelis argues that to give collateral estoppel effect, there must have been litigation over the merits of whether his conduct was willful and malicious. In tMs case, the record is clear that the issues were litigated, and that Zelis had the opportunity to fully litigate them.

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Bluebook (online)
66 F.3d 205, 95 Cal. Daily Op. Serv. 7281, 1995 U.S. App. LEXIS 26045, Counsel Stack Legal Research, https://law.counselstack.com/opinion/papadakis-v-zelis-in-re-zelis-ca9-1995.