Schoenmann v. Schoenmann

Opinion

EDWARD J. EMMONS, CLERK 13 □□ \o. U.S. BANKRUPTCY COURT □□ NORTHERN DISTRICT OF CALIFORNIA aw Salle □□ 1 . . Signed and Filed: November 28, 2022 □□□□ OL 2 Mini J 4 Vine U.S. Bankruptcy Judge 6 9 In re ) Bankruptcy Case No. 22-30028-DM 10 ) LYNN SCHOENMANN, ) Chapter 11 11 ) ) 12 Debtor. ) 13 ) ) Adversary Case No. 22-3019 14 ||STUART GORDON SCHOENMANN ) THE ESTATE OF DONN R. ) 16 SCHOENMANN; CELESTE LYTLE; BETH } SCHOENMANN; COLETTE SIMS, ) 17 ) Plaintiffs, ) 18 ) ) 1 V. 9 ) 21 Defendant. QQ □□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□ 23 MEMORANDUM DECISION DENYING MOTION FOR SUMMARY JUDGMENT 24 I. Introduction 25 On November 3, 2022, the court held a hearing on Plaintiffs 26 Stuart Gordon Schoenmann (individually and as executor of the 27 estate of Donn R. Schoenmann), Celeste Lytle, Beth Schoenmann, 28 -l1-

1 and Colette Sims’ (“Plaintiffs”) Motion for Partial Summary 2 Judgment (“MSJ”) (Dkt. 25). Though the MSJ is styled as a 3 motion for partial summary judgment, it seeks summary judgment 4 as to all claims of nondischargeability asserted against 5 Defendant E. Lynn Schoenmann (Defendant) under 11 U.S.C. 6 §§ 523(a)(2)(A), (a)(4), and (a)(6). The MSJ is based mainly on 7 the application of issue preclusion to the findings within the 8 Marin County Superior Court’s Tentative Decision (“Tentative 9 Decision”) which nullified a post marital agreement (“PMA”) 10 between Defendant and her late husband, Donn. The court denied 11 summary judgment as to 11 U.S.C. § 523(a)(6), because no part 12 of the MSJ established that Defendant’s actions were either 13 willful or malicious, and took remainder of the MSJ under 14 submission. 15 For the reasons stated below, the court will DENY summary 16 judgment as to the rest of the MSJ. 17 II. Standard for Summary Judgment 18 On a motion for summary judgment, the court must determine 19 whether, viewing the evidence in the light most favorable to the 20 nonmoving party, there are any genuine issues of material fact 21 as to any claim, part of claim, defense, or part of defense. 22 Simo v. Union of Needletrades, Indus. & Textile Employees, 322 23 F.3d 602, 609-10 (9th Cir. 2003); Fed. R. Civ. P. 56. Summary 24 judgment against a party is appropriate when the pleadings, 25 depositions, answers to interrogatories, and admissions on file, 26 together with the affidavits, if any, show that there is no 27 genuine issue as to any material fact and that the moving party 28 is entitled to judgment as a matter of law. Fed. R. Civ. P. 56. 1 III. Standard for Issue Preclusion 2 Summary judgment is appropriate if all elements of a claim 3 were previously adjudicated under the doctrine of issue 4 preclusion. “Principles of collateral estoppel apply to 5 proceedings seeking exceptions from discharge brought under 11 6 U.S.C. § 523(a).” In re Harmon, 250 F.3d 1240, 1245 (9th Cir. 7 2001). Bankruptcy courts determine the preclusive effect of a 8 state court judgment by the preclusion law of the state court. 9 Id. In California, the doctrine may be applied, and summary 10 judgment granted if (1) the issue is identical to what was 11 decided in the prior proceeding; (2) the issue was actually 12 litigated in the prior proceeding; (3) the issue was necessarily 13 decided in the prior proceeding; (4) the decision in the prior 14 proceeding is final and on the merits; and (5) the party against 15 whom preclusion is sought is identical to or in privity with the 16 party to the prior proceeding. See Lucido v. Superior Court, 51 17 Cal.3d 335, 341 (Cal. 1990). Even if these elements are met, 18 courts also determine whether the “application of preclusion 19 furthers the public policies underlying the doctrine.” In re 20 Harmon, 250 F.3d at 1245. 21 “The ‘identical issue’ requirement addresses whether 22 ‘identical factual allegations’ are at stake in the two 23 proceedings, not whether the ultimate issues or dispositions are 24 the same.” Lucido v. Superior Court, 51 Cal.3d at 341. For a 25 matter to be considered “necessarily decided,” “courts have 26 previously required only that the issue not have been ‘entirely 27 unnecessary’ to the judgment in the initial proceeding.” Id. 28 (citations omitted). 1 In this matter, there is no argument that the parties 2 involved in the Superior Court matter and this case are 3 identical, that the issues there were actually litigated, and 4 that the Tentative Decision is final for purposes of this MSJ. 5 The first and third elements of Lucido, whether the issues are 6 identical and were necessarily decided, must be considered here. 7 There is no public policy component that calls into question the 8 application of preclusion principles. 9 IV. The Superior Court’s Tentative Decision 10 Due to an agreed-upon bifurcation of claims, the Tentative 11 Decision determined only that the PMA was invalid. In 12 California, “[i]f it is determined that [the PMA] unfairly 13 benefits one spouse over the other, the agreement will be 14 presumed to be the result of undue influence and the agreement 15 will be set aside unless the advantaged spouse is able to prove 16 by a preponderance of the evidence that the agreement was not 17 obtained through undue influence.” Tentative Decision at p. 12 18 (citations omitted). 19 The Tentative Decision determined that the PMA unfairly 20 advantaged Defendant over Donn and further concluded that Donn’s 21 assent to the PMA was a result of undue influence. Analyzing 22 the elements of undue influence, the Tentative Decision found 23 that Donn’s decision to sign the PMA was not freely and 24 voluntarily made, Donn did not have knowledge of all the facts 25 surrounding the PMA, but that Donn did have a complete 26 understanding of the effect of the PMA. To support its 27 determination regarding Donn’s lack of knowledge, the Tentative 28 Decision found that when the PMA was signed, Donn could not have 1 known the true value of all assets, though he did understand 2 that those assets would ultimately go to the Defendant as a 3 result of the PMA. 4 Plaintiffs rely on the above determinations and the 5 underlying findings regarding the concealment or 6 misrepresentation of the value of real property and retirement 7 account to support an argument for summary judgment on both 8 claims of nondischargeability discussed below. 9 V. 11 U.S.C. § 523(a)(2)(A) 10 A successful claim pursuant to 11 U.S.C. § 523(a)(2)(A) 11 (“subsection (a)(2)(A)”) requires a showing of five elements: 12 “(1) misrepresentation, fraudulent omission, or deceptive 13 conduct by the debtor; (2) knowledge of the falsity or 14 deceptiveness of [the debtor’s] statement or conduct; (3) an 15 intent to deceive; (4) justifiable reliance by the creditor on 16 the debtor’s statement or conduct; and (5) damage to the 17 creditor proximately caused by his reliance on the debtor’s 18 statement or conduct.” Turtle Rock Meadows Homeowners Ass’n v. 19 Slyman (In re Slyman), 234 F.3d 1081, 1085 (9th Cir. 2000) 20 (citations omitted). Plaintiffs argue that Defendant, knowingly 21 and with an intent to deceive, misrepresented the amount of 22 money in her retirement account and the value of the Mill Valley 23 property, that Donn relied on those misrepresentations to sign 24 the PMA, and the PMA’s unfair advantage to Defendant harmed 25 Donn. 26 As to the first and third elements of nondischargeability 27 under subsection (a)(2)(A), Plaintiffs argue these are satisfied 28 by the Tentative Decision’s finding that Defendant 1 “affirmatively and intentionally misrepresented the values of 2 both the Mill Valley property as well as her retirement 3 account.” This court is not convinced that the Superior Court’s 4 conclusions regarding the retirement account are entirely 5 consistent with the court’s own recitation of facts. However, 6 consistent with Lucido, it accepts this finding was necessarily 7 decided by the Superior Court, and that the finding was not 8 entirely unnecessary to the Superior Court’s conclusion that the 9 PMA was invalid. Accordingly, this court agrees that it is 10 bound by the Superior Court’s findings as to the first and third 11 elements of subsection (a)(2)(A). 12 Next, Plaintiffs argue that the Superior Court also 13 necessarily determined the second element, Defendant’s knowledge 14 of the falsity of her statements, because the PMA was a document 15 relating to marital assets and Donn was essentially excused from 16 investigating the valuations provided by Defendant, and as noted 17 above, the court further found the Defendant affirmatively 18 misrepresented the value of her retirement account and the Mill 19 Valley property. The court questions whether an excuse from 20 investigation on Donn’s part is necessarily a decision regarding 21 Defendant’s knowledge. Nonetheless, as it appears that the 22 Superior Court decided that Defendant was unable to prove Donn 23 had full knowledge of all facts when signing the PMA was in part 24 because she affirmatively made misrepresentations, it must 25 accept that she knew those misrepresentations were untrue as an 26 actually litigated and necessarily determined fact. 27 As to the fourth element, no part of the Tentative Decision 28 relates to Donn’s justifiable reliance. Instead, the Plaintiffs 1 assert that Donn’s signing of the PMA shows that he relied on 2 Defendant’s misrepresentations. This assertion is contradicted 3 by the Tentative Decision which found that Donn did have a 4 complete understanding of the effect of the PMA, and that he 5 signed the PMA because he wished to live out his days in the 6 family home and he saw the PMA as the only means to fulfill that 7 wish. There are no facts within the Tentative Decision that can 8 lead this court to find that the element of justifiable reliance 9 has been established for the purpose of issue preclusion, and, 10 of course, for a determination of nondischargeability. 11 Regarding the element of damages, the Superior Court 12 quantified Lynn’s understatement of the value of the marital 13 assets in the PMA “by more than $1.0 million” (See Tentative 14 Decision, at 25:1-2). In doing so, it referred specifically to 15 the misrepresentations of the valuation of the retirement 16 account and the value of the Mill Valley property in the PMA in 17 November, 2016. This court must and does accept that in doing 18 so, that court had a basis to impose liability in at least that 19 amount pursuant to the findings used to invalidate the PMA. 20 Nevertheless, given the lack of facts in the Tentative 21 Decision that could establish the element of justifiable 22 reliance, and the absence of proof of any nondischargeable 23 damages (discussed, infra), the court must deny summary judgment 24 as to subsection (a)(2)(A). 25 VI. 11 U.S.C. § 523(a)(4) 26 No debts that are obtained by “fraud or defalcation while 27 acting in a fiduciary capacity, embezzlement, or larceny” may 28 1 discharged. 11 U.S.C. § 523(a)(4) (“subsection (a)(4)”). There 2 are no allegations of embezzlement or larceny. 3 Fraud by a fiduciary is still fraud. If Plaintiffs believe 4 Defendant’s debts to them are nondischargeable because of 5 subsection (a)(4) fraud, they have not satisfied the relevant 6 element of reliance (as discussed in subsection (a)(2)(A), 7 supra). 8 Defalcation by a fiduciary requires a showing that (1) the 9 debtor occupied a fiduciary relationship in relation to the 10 creditor; and (2) the debtor misappropriated funds or otherwise 11 breached a fiduciary duty in an act of bad faith, moral 12 turpitude, or an act by the debtor that was either intentionally 13 wrongful or the “reckless conduct of the kind that the criminal 14 law often treats as the equivalent.” Bullock v. BankChampaign, 15 N.A. 569 U.S. 267, 274 (2013). 16 As to the first element, there is no dispute that 17 Defendant, as Donn’s spouse, had a fiduciary relationship with 18 Donn. 19 As to the second element, Plaintiffs assert that through 20 the invalidated PMA Defendant has wrongfully taken an 21 unspecified amount of Donn’s separate and community property. 22 Plaintiffs assert a litany of acts allegedly undertaken by 23 Defendant to obtain the PMA as well as post-petition acts that 24 allegedly illustrate Defendant’s misappropriation of Donn’s 25 assets. 26 Whatever Defendant may or may not have done after filing 27 bankruptcy is wholly unrelated to this proceeding for 28 nondischargeability of pre-bankruptcy debts. 1 Any acts not conclusively established by the Tentative 2 Decision, material or not, are heavily and hotly contested and 3 not appropriate for evaluation at the summary judgment stage. 4 In any event, the conduct of Defendant that led the Superior 5 Court to find abuse and other acts to invalidate the PMA are not 6 identical to the type of conduct the Supreme Court now requires, 7 as noted above, to impose nondischargeable consequences on a 8 fiduciary for defalcation under subsection (a)(4). The court 9 did not analyze Defendant’s apparent defalcation or fraud by a 10 fiduciary under the lens now required by Bullock. 11 Far beyond the Tentative Decision’s findings regarding 12 Defendant’s retirement funds or the value of the Mill Valley 13 property, Plaintiffs’ contention is that Defendant received 14 community assets and has either not returned them to the probate 15 estate or disposed of them in the manner of a fiduciary. This 16 extends far beyond the scope of the Tentative Decision’s 17 findings that are binding on this court. Any assertion that 18 community property not having been turned over is a result of 19 defalcation is to ignore the procedural posture of this dispute; 20 the community property held by Defendant as a result of the 21 invalidated PMA is also property of Defendant’s bankruptcy 22 estate, and need not be turned over until this court so 23 determines. 24 Additionally, while the Tentative Decision finds that 25 Defendant’s misrepresentations regarding the value of her 26 retirement account were intentional, the Tentative Decision does 27 not discuss Defendant’s state of mind when she actually 28 transferred that money in May, 2016. The understatement of 1 value of Mill Valley was a statement regarding the house’s value 2 in its current state in August 2016. Because the Superior Court 3 did not analyze when these events occurred but instead focused 4 on when they were misrepresented, this court cannot conclude 5 that it necessarily decided the same issue it must in order to 6 impose nondischargeability for her actions by way of issue 7 preclusion. For that reason alone, the MSJ must be denied. 8 In either case, Plaintiffs have not shown that the 9 Tentative Decision imposed any damages at all for either the 10 transfer of the $480,000 from Defendant’s retirement account in 11 May, 2016 (as distinguished from the nondisclosure of that 12 transfer at the time of the PMA) or the misrepresentation of the 13 value of the Mill Vally property (as distinguished from the 14 subsequent misrepresentation of that value at the time of the 15 PMA) to show nondischargeable damages. Nothing in the Tentative 16 Decision establishes nondischargeable damages for this conduct, 17 and that is an additional reason to deny the MSJ. 18 VII. Conclusion 19 For the reasons stated at the hearing and in this 20 Memorandum Decision, the MSJ is denied. The court is issuing 21 an Order concurrently with this Memorandum Decision that is 22 consistent with its conclusions. 23 **END OF MEMORANDUM DECISION** 24 25 26 27 28 ECF Recipients 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28