1 UNITED STATES BANKRUPTCY COURT
2 EASTERN DISTRICT OF CALIFORNIA
3 FRESNO DIVISION
5 In re ) Case No. 25-10429-F-B-7 ) 6 LOUIE J. ESPARZA JR. and ) COLLEEN K. DOUGHERTY, ) 7 ) Debtors. ) 8 ) ) 9 ) SHEILA MARCUM; AARON MARCUM; ) Adv. Proc. No. 25-01015-B 10 and KIM MARCUM, ) ) Docket Control #ELR-002 11 Plaintiffs, ) ) 12 v. ) Honorable René Lastreto II ) 13 LOUIE J. ESPARZA JR. and ) COLLEEN K. DOUGHERTY, ) 14 ) Defendants. ) 15 )
16 17 MEMORANDUM OPINION 18 Sheila Marcum, Aaron Marcum, and Kim Marcum (“Sheila,” 19 “Aaron,” and “Kim,” collectively “the Plaintiffs”) move for 20 default judgment as to Defendants Louie J. Esparza Jr. 21 (“Esparza”) and Colleen K. Dougherty (“Dougherty,” and 22 collectively “Defendants” or “Debtors”). Doc. #60 et seq. The 23 Defendants are the debtors in the underlying Chapter 7 bankruptcy 24 proceeding, Case No. 25-10429.The Defendants are not represented 25 by counsel in this adversary proceeding. 26 The Plaintiffs have previously sought default judgment 27 against Dougherty, but that motion was denied without prejudice 28 1 in while the undersigned was indisposed. Docs. #32, #50. At that 2 time, the Plaintiffs did not seek default judgment against 3 Esparza because he had responded to the Complaint by way of a pro 4 se filing that was later stricken by a separate order entered by 5 Judge Niemann in response to Esparza’s failure to respond to an 6 Order to Show Cause. Docs. #13, #47. The Plaintiffs now seek a 7 second bite at the apple by moving for default judgment against 8 both Defendants, neither of whom have responded meaningfully to 9 this adversary proceeding other than Esparza’s stricken filing. 10 The filings accompanying the motion are voluminous, totaling 11 18 separate entries for affidavits, exhibits, and requests for 12 judicial notice. See Docket entries for DCN ELR-2. 13 This motion was set for hearing on 28 days’ notice as 14 required by Local Rule of Practice (“LBR”) 9014-1(f)(1). Thus, 15 pursuant to LBR 9014-1(f)(1)(B), the failure of any party in 16 interest (including but not limited to creditors, the debtor, the 17 U.S. Trustee, or any other properly-served party in interest) to 18 file written opposition at least 14 days prior to the hearing may 19 be deemed a waiver of any such opposition to the granting of the 20 motion. Cf. Ghazali v. Moran, 46 F.3d 52, 53 (9th Cir. 1995). 21 When there is no opposition to a motion, the defaults of all 22 parties in interest who failed to timely respond will be entered, 23 and, in the absence of any opposition, the movant’s factual 24 allegations will be taken as true (except those relating to 25 amounts of damages). Televideo Sys., Inc. v. Heidenthal, 826 F.2d 26 915, 917 (9th Cir. 1987). 27 Neither Defendant has responded to this motion, and neither 28 is represented by counsel in this adversary proceeding and they 1 are in default. They are represented in their underlying Chapter 2 7 proceeding. 3 The court’s docket reflects the following filings and dates 4 relevant to this matter:
5 Doc. #1 The complaint is filed. (4/11/25) 6 Doc. #8 The certificate of service of summons and (4/15/25) complaint is filed. Dougherty and Esparza are both 7 served at their place of residence. Doc. #11 The request for entry of default and certificate 8 (5/13/25) of service a refiled as to Dougherty. Docs. #13, #14 Esparza’s “Opposition” is filed along with a 9 (4/14/25) document styled as a “Notice.” Doc. #19 Entry of default and Order re: Default judgment 10 (5/16/25) procedures as to Doughtery. Doc. #29 Order to show cause(“OSC”)entered as to Esparza. 11 (6/12/25) Docs. ##32-37 Motion/application for entry of default judgment 12 (6/16/25) as to Dougherty. Doc. #47 Esparza does not respond to the OSC. An order is 13 (7/16/25) entered striking Esparza’s “Opposition” and “Notice.” Esparza’s default is entered. No other 14 responses by either Defendant have been or will be filed. 15 Docs. #48, #50 The motion for entry of default as to Dougherty is (7/30-31/25) denied for the reasons stated on the record and in 16 the court’s July 30, 2025,prehearing disposition. An order to that effect is issued the next day. 17 Docs. ##60-80 The instant motion for entry of default as to both (1/6/26) Defendants and accompanying documents are filed. 18 No party has responded to the motion.
19 20 JURISDICTION 21 The United States District Court for the Eastern District of 22 California has jurisdiction over this adversary proceeding under 23 28 U.S.C. §1334(b) because this is a case arising under title 11. 24 This court has jurisdiction to hear and determine this matter by 25 reference from the District Court under 28 U.S.C. §157(a). This 26 is a “core” proceeding under 28 U.S.C. § 157(b)(2)( I) 27 (dischargeability) and (J)(objections to discharge). Venue is 28 proper pursuant to 28 U.S.C. § 1409(a) because this adversary 1 proceeding arises in a bankruptcy case pending in this judicial 2 district. 3 BACKGROUND 4 Except where noted otherwise, the facts as outlined below 5 are drawn from the Adversary Complaint (Doc. #1)and the moving 6 papers (Doc. #32 et seq.), specifically (1) the Motion for 7 Default Judgment, (2)Declarations from each of the three 8 Plaintiffs, and (e) a Memorandum of Authorities. 9 The basis for the claim at the heart of this adversary 10 proceeding is an earlier default judgment obtained on April 5, 11 2024, (“the State Court Judgment”) by Plaintiffs against Esparza 12 and others in the Tulare County Superior Court in Case No. 13 VCU296097 (“the State Court Action”). Plaintiffs originally 14 brought the State Court Action against Esparza, his company Excel 15 Restorations & Construction Management LLC (“ERMC”), and other 16 defendants who settled with Plaintiffs and are not involved in 17 this matter. Dougherty was not a party in the State Court 18 Action. 19 In the State Court Action, Plaintiffs alleged that Sheila 20 was the victim of elder abuse and fraud and Aaron and Kim also 21 were the victims of fraud, all perpetrated by Esparza and the 22 other State Court Action defendants. More specifically, 23 Plaintiffs raised causes of action for breach of contract, 24 declaratory relief, financial elder abuse-undue influence, 25 negligent misrepresentation, intentional misrepresentation - 26 fraud, deceit, conversion, conspiracy and alter ego. The court 27 notes that some of causes of action are of a sort that could be 28 nondischargeable in bankruptcy while others are not, a topic 1 which will be addressed in more detail elsewhere in this opinion. 2 Esparza did not defend against the complaint, and the state court 3 entered a Judgment by Default, awarding $643,316.05, which sum 4 includes treble damages and punitive damages. Dougherty was not a 5 party to the State Court Action, and she was not included in the 6 State Court Judgment. 7 Debtors filed the Main Case on February 14, 2025, in Case 8 No. 25-10429-B-7 (Bankr. E.D. Cal.). Main Doc. #1. Plaintiffs 9 are listed in Schedule E/F as unsecured creditors. Id. 10 On April 11, 2025, Plaintiffs initiated this non- 11 dischargeability action against both Debtors. Doc. #1. Esparza 12 did not file an Answer to the Complaint per se but rather filed a 13 somewhat rambling document styled as “Opposition,” which was 14 later stricken by the court for reasons not germane to the 15 instant motion. Docs. ##13-15 (Esparza’s “Opposition” and 16 accompanying documents), Doc. #29 (Order to Show Cause/Appear), 17 and Doc. #47 (Order Striking “Opposition”). 18 Dougherty neither answered the Adversary Complaint nor made 19 an appearance of any other kind since this adversary proceeding 20 began. Debtors were represented by Mark Zimmerman in the Main 21 Case, but the Attorney Disclosure Statement submitted in the Main 22 Case states that the employment agreement between Mr. Zimmerman 23 and Debtors does not include “representation with respect to 24 contested proceedings over such issues as to complaints to 25 dischargeability of particular debts.” Doc. #1 (Disclosure of 26 Compensation). Mr. Zimmerman has made no appearance in the 27 adversary proceeding except to file a Motion to Be Relieved as 28 1 Attorney of Record for Debtors, which confirms that he is not 2 representing Debtors in this adversary proceeding. To the extent 3 Debtors are engaging with this adversary proceeding at all, they 4 are doing so pro se. 5 On June 16, 2025, Plaintiffs filed a motion seeking entry of 6 default judgment as to Dougherty alone. Doc. #32. On July 30, 7 2025, the court denied that motion without prejudice on the 8 grounds that evidence submitted by Plaintiffs in support of that 9 motion was “not sufficient to grant a default judgment against a 10 debtor based solely on a separate default judgment obtained 11 against that debtor’s spouse in a case in which the first debtor 12 did not even participate.” Doc. #48. 13 On January 6, 2026, Plaintiffs filed a renewed motion 14 seeking entry of default judgment, this time against both 15 Defendants. Doc. #60. Neither Defendant responded to the instant 16 motion. The motion was accompanied by extensive proffered 17 evidence in the form of affidavits, requests for judicial notice, 18 and other exhibits. Docs. #62-79. 19 Among the exhibits are three documents of special interest. 20 The first is the original state court complaint which lists the 21 causes of action for which Plaintiffs were eventually awarded a 22 default judgment against Esparza. Doc. #67 (Exhibit A). Those 23 causes of action were: 24 1. Breach of Contract; 25 2. Declaratory Relief; 26 3. Financial Elder Abuse – Undue Influence; 27 4. Negligent Misrepresentation; 28 5. Intentional Misrepresentation – Fraud; 1 6. Deceit; 2 7. Conversion; 3 8. Conspiracy; and 4 9. Alter-Ego. 5 Id. 6 The second document is the Supplemental Declaration of 7 Plaintiffs in Support of Application for Default Judgment 8 Pursuant to CCP § 585(d) (“Plaintiffs’ Supplemental Declaration”) 9 which was submitted to the state court prior to the prove-up 10 hearing conducted on April 4, 2024. Doc. #69 (Exhibit C). In that 11 document, the Plaintiffs offered the following figures for 12 damages: 13 1. Damages for Conversion: $42,616.05. 14 2. Treble Damages for Elder Abuse: $127,848.15. 15 3. Total pre-judgment interest: $7,560.77 as of April 2024; 16 4. Punitive Damages: $100,000.00; 17 5. General Damages: $100,000.00; 18 6. Special Damages: $197,690.99 19 a. $261.56 for dump costs; 20 b. $10,372.01 for materials spent on fixing the residence; 21 c. $5,737.76 for storage fees for items that had to be 22 removed from the residence; 23 d. $3,282.25 for County Fees; 24 e. $60,034.78 for Quote to repair the Garage; 25 f. $116,00.93 [sic] for Quote to fix the House; 26 g. $2,000.00 for Draftsman Plans; 27 h. $41,025.00 for attorneys’ fees ($39,237.50 per Request 28 to Fix Attorney’s Fees dated March 1, 2024, plus 1 $1,787.50 from March 30, 2024, through April 1, 2024, 2 for prove-up hearing preparation. 3 Id. 4 The third document is the Judgment by Default by Court 5 entered by the Tulare Superior Court (“the Judgment by Default”) 6 on April 5, 2024. Doc. #79 (Exhibit F, pg. 11). The State Court 7 Judgment is a terse document, but it is the only documentation 8 from the state court which purports to identify in any way the 9 claims for which default judgment was entered, and it appears 10 that the state court granted damages, for the most part, on 11 exactly the basis requested by Plaintiffs save for the addition 12 of $4,813.24 in costs:
13 Principal: $42,616.05 Special Damages: $197,690.99 14 General Damages: $100,000.00 Interest: $7,560.77 15 Costs: $4,813.24 Attorney Fees: $41,025.00 16 SUBTOTAL: $393,706.05 Treble**: $149,610.00** 17 Punitive: $100,000.00 TOTAL: $643,316.05 18 19 Id. 20 The court notes what appears to be error in these figures. 21 The Plaintiffs requested treble damages in the amount of 22 $127,848.15, which is equal to three times the conversion damages 23 of $42,616.05. Doc. #69 (Exhibit C). The Plaintiffs’ 24 Supplemental Declaration states that the total amount of 25 converted funds was $49,870.00. But Plaintiffs also concede that 26 Esparza repaid $7,253.95, reducing the conversion damages to 27 $42,616.05. Id. However, in the Judgment by Default by Court, it 28 appears that the state court multiplied the pre-reduction 1 conversion damages ($49,870.00) times three to reach the treble 2 damages award ($149,610.00) instead of the post-reduction 3 conversion damages ($42,616.05) which would have yielded treble 4 damages of $127,848.15, the sum requested by Plaintiffs. Doc. #69 5 (Exhibit C); Doc. 79 (Exhibit F). 6 There is nothing in the record indicating why the state 7 court based the treble damages award for elder abuse on the total 8 amount converted and ignored the reduction resulting from 9 Esparza’s repayment of $7,253.95. The court is inclined to think 10 this was a scrivener’s error on the part of the state court and 11 that the treble damages award should have been $127,88.15 and the 12 total award should have been $636,092.10. 13 The three Plaintiffs each submitted affidavits in connection 14 with this motion, but while they ostensibly lay out claims for 15 fraud, all three affidavits seek a determination of non- 16 dischargeability as to the State Court Judgment which, as far as 17 the court can tell, is premised on a finding of fraud by the 18 state court judge. 19 The Defendants filed for Chapter 7 relief on February 14, 20 2025. Case No. 25-10429, Doc. #1. Plaintiffs filed this 21 adversary proceeding for determination of non-dischargeability on 22 April 11, 2025. Doc. #1. 23 On January 6, 2026, Plaintiffs moved for Entry of Default 24 Judgment. Doc. #60 et seq. Neither Defendant has responded to 25 this motion. On February 25, 2026, the court entered an order 26 exercising its authority to resolve the motion without need for 27 oral argument and took this matter under submission. Doc. #86. 28 The court is prepared to rule. 1 DISCUSSION 2 1. Issue and claim preclusion. 3 As a threshold matter, the court must clarify what aspects 4 of this non-dischareability action are presently before the 5 court. At this time, the court will not definitively rule on 6 whether Esparza’s acts against the Plaintiffs in the abstract 7 give rise to claims which are not dischargeable. A review of 8 Plaintiffs’ voluminous filings leaves the court with the firm 9 impression that Plaintiffs’ arguments for a default judgment, as 10 raised in this motion rely on the findings (such as they are) of 11 the state court. 12 Plaintiffs do not address issues of res judicata and/or 13 collateral estoppel (claim and/or issue preclusion) in their 14 filings, and the court will not perform an exhaustive review of 15 those legal doctrines, but the court will summarize them briefly 16 to give context to this opinion. 17 Before the court can give preclusive effect to the State 18 Court Judgment on account of res judicata (claim preclusion), or 19 issue preclusion, the court must consider the following factors:
20 1. whether rights or interests established in the prior judgment would be destroyed or impaired by prosecution of 21 the second action; 2. whether substantially the same evidence is presented in the 22 two actions; 3. whether the two suits involve infringement of the same 23 right; and 4. whether the two suits arise out of the same transactional 24 nucleus of facts. 25 Price v. Reddin (In re Reddin), 626 B.R. 845, 855 (Bankr. E.D. 26 Cal. 2021)(quoting Robertson v. Isomedix, Inc. (In re 27 International Nutronics), 28 F.3d 965 (9th Cir. 1994))(emphasis 28 1 Before the court can give preclusive effect to the State 2 Court Judgment on account of res judicata (claim preclusion), or 3 issue preclusion, the court must consider a slightly different 4 set of five factors:
5 1. whether the issue sought to be precluded from re-litigation is identical to that decided in a former proceeding; 6 2. whether issue was actually litigated in the former proceeding 7 3. whether the issue was necessarily decided in the former proceeding; 8 4. whether decision in the former proceeding must be final and on the merits; and 9 5. whether the party against whom preclusion is sought is the same as, or in privity with, the party to the former 10 proceeding. 11 Price, 626 B.R. at 855 (citing Cal-Micro, Inc. v. Cantrell, 329 12 F.3d 1119, 1123 (9th Cir. 2003))(emphasis added). 13 In resolving this matter under either doctrine, the court 14 first looks to one fundamental question: what issues were 15 actually decided in the State Court Judgment that are entitled to 16 preclusive effect? The court’s answer to that question renders 17 the other elements of collateral estoppel and claim preclusion 18 irrelevant. 19 2. Nondischargeability and Default Judgments. 20 Pursuant to 11 U.S.C. § 523, an individual debtor may not 21 receive a discharge on certain kind of debts identified as 22 nondischargeable by the Bankruptcy Code. Plaintiffs argue that 23 Esparza’s debts arising from the State Court Default are 24 nondischargeable on the following basis:
25 1. § 523(a)(2)(A): any debt for money, property, services, or an extension, renewal, or refinancing of credit, to the 26 extent obtained by false pretenses, a false representation, or actual fraud, other than a statement respecting the 27 debtor’s or an insider’s financial condition. 2. § 523(a)(2)(B): any debt arising from the use of a statement 28 1 debtor’s or an insider’s financial condition; (iii)on which the creditor to whom the debtor is liable for such money, 2 property, services, or credit reasonably relied; and (iv)that the debtor caused to be made or published with 3 intent to deceive. 3. § 523(a)(4): any debt for fraud or defalcation while acting 4 in a fiduciary capacity, embezzlement, or larceny. 4. § 523(a)(6): any debt arising from a willful and malicious 5 injury. 6 See Doc. #66 (Memorandum of Authorities). The burden of 7 proof in a non-dischargeability action lies with the creditor 8 (here, Plaintiffs) who must prove by preponderance of the 9 evidence that the elements of the relevant § 523(a) provision are 10 met. Grogan v. Garner, 498 U.S. 279, 290, 111 S. Ct. 654, 661 11 (1991)(superseded on other grounds by Congressional statute as 12 recognized by Osborne v. Kakas, No. 4:17-CV-00254-JRG, 2018 U.S. 13 Dist. LEXIS 42729, at *4 (E.D. Tex. Feb. 15, 2018). The limits on 14 the dischargeability of debts contained in § 523 should be 15 construed strictly against creditors and in favor of debtor. 16 Ghomeshi v. Sabban (In re Sabban), 384 B.R. 1, 5 (B.A.P. 9th Cir. 17 2008). 18 Plaintiffs’ burden is complicated in the instant case by the 19 fact that they must demonstrate a preponderance of the evidence 20 in the context of what might be termed a “double-default”: Not 21 only have the Debtor-Defendants failed to respond to this 22 adversary proceeding (beyond Esparza’s stricken filings), 23 Plaintiffs also rely on a judgment originally obtained against 24 Esparza (and not Dougherty) because of Esparza’s default in the 25 State Court Action rather than through any true litigation.
26 The entry of default judgment is a two-step process and the court has an affirmative obligation to review the 27 underlying factual allegations and supporting evidence to make sure the plaintiff can prove his prima facie 28 1 Civil Procedure 55, which is made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy 2 Procedure 7055. In order to obtain a default judgment establishing the non-dischargeability of a debt, a two- 3 step process is required: (1) entry of the party's default, and (2) entry of a default judgment. 4 Fed.R.Civ.P. 55(a) and (b); Brooks v. United States, 29 F.Supp.2d 613, 618 (N.D. Cal. 1998), aff'd mem., 162 5 F.3d 1167 (9th Cir.1998). The bankruptcy court is given broad discretion to enter a default judgment in an 6 adversary proceeding, however, the plaintiff is not entitled to such judgment as a matter of right. Cashco 7 Financial Services, Inc. v. McGee (In re McGee), 359 B.R. 764, 771 (9th Cir. BAP 2006), citing Kubick v. 8 FDIC (In re Kubick), 171 B.R. 658, 659-60 (9th Cir. BAP 1994). 9 The court is merely permitted but is not required to 10 draw inferences in a default judgment context. "In order to do justice, a trial court has broad discretion 11 to require that a plaintiff prove up even a purported prima facie case by requiring the plaintiff to 12 establish the facts necessary to determine whether a valid claim exists that would support relief against 13 the defaulting party." In re McGee, 359 B.R. at 773 (emphasis original), citing Wells Fargo Bank v. Beltran 14 (In re Beltran), 182 B.R. 820, 823 (entry of default does not automatically entitle a plaintiff to a default 15 judgment, regardless of the general effect of the entry of a default to deem well-founded allegations as 16 admitted); Quarré v. Saylor (In re Saylor), 178 B.R. 209, 212 (9th Cir. BAP 1995) (trial court directed the 17 plaintiff to submit evidence of a prima facie case in support of a default judgment). 18 19 Mendes v. Jacuinde (In re Jacuinde), Nos. 08-15509-B-7, 08- 20 1238, 2009 Bankr. LEXIS 5629, at *8 (Bankr. E.D. Cal. Apr. 16, 21 2009). 22 The debt which Plaintiffs seek to have declared non- 23 dischargeable arose from the default State Court Judgment. But 24 before the court can determine non-dischargeability, it must 25 first determine the contours of what the State Court Judgment 26 actually established as the basis for Esparza’s (and, by virtue 27 of community property law, Dougherty’s) liability. 28 /// 1 The Plaintiffs would have the court find non- 2 dischargeability under multiple provisions of § 523(a): undue 3 influence, breach of contract, intentional misrepresentation – 4 fraud, and conversion. Doc. #66 passim. In support of those 5 arguments, Plaintiffs rely on affidavits submitted in conjunction 6 with this motion Id. But the court finds the affidavits attesting 7 as to what sins Esparza might have committed to be less probative 8 than what the state court actually determined within the four 9 corners of its order. 10 As noted supra, while the State Court Complaint contained 11 several counts, the actual Judgment in Default was more refined 12 and seems to have tracked exactly the Plaintiffs’ Supplemental 13 Declaration. As such, the damages that the state court awarded 14 were as follows (plus costs):
15 1. Damages for Conversion: $42,616.05. 2. Treble Damages for Elder Abuse: $127,848.15 (erroneously 16 entered as $149,610.00, see supra). 3. Total pre-judgment interest: $7,650.77 as of April 2024; 17 4. Punitive Damages: $100,000.00; 5. General Damages: $100,000.00; and 18 6. Special Damages: $197,690.99. 19 The court accepts these damage awards as admitted 20 allegations, but that does not mean that all these awards are 21 nondischargeable just because Plaintiffs insist on viewing them 22 through the lens of § 523. The court must address each aspect of 23 the damages award in turn to determine whether or not they may be 24 properly classified as nondischargeable under the Code in light 25 of the requirement for strict construction of § 523 in favor of 26 debtors. Sabban, 384 B.R. at 5. 27 The court must also make a determination of whether any 28 1 by Dougherty in her individual capacity (as opposed to damages 2 owed on a community claim) and whether damages are properly 3 awarded to all three Plaintiffs or just to Sheila. 4 3. Dougherty’s individual and community property 5 liability. 6 When the court denied Plaintiffs’ prior effort to obtain a 7 default judgment, the court found that Plaintiffs had failed to 8 show that Dougherty, who was not a party to the State Court 9 Action, has any individual liability. That is unchanged. 10 Plaintiffs present no evidence of Dougherty’s involvement based 11 on the facts underlying this case. The court must turn next to 12 the question of whether Plaintiffs have a community claim against 13 both Defendants.
14 [A] "community claim" is a debt owed by the debtor or the debtor's spouse, which under state law could have 15 been satisfied from community property that would have passed to the debtor's bankruptcy estate, whether or 16 not such property existed at the commencement of the case. Thus, three criteria must be met before an 17 obligation has the status of a community claim: (1) it must be a debt owed by one of the spouses; (2) it must 18 be satisfiable from community property under applicable state law; and (3) the community property from which 19 the debt could be satisfied under state law must be included within the assets which would pass to the 20 debtor's bankruptcy estate, whether or not such assets exist at the commencement of the case. 21 22 In re Soderling, 998 F.2d 730, 733 (9th Cir. 1993). 23 California is a community property state, and “[e]xcept as 24 otherwise provided by statute, all property, real or personal, 25 wherever situated, acquired by a married person during the 26 marriage while domiciled in this state is community property.” 27 Cal. Fam. Code § 760. The same principle applies to debts 28 1 incurred during the marriage, including civil liability against 2 only one spouse:
3 (a) Except as otherwise expressly provided by statute, the community estate is liable for a debt incurred by 4 either spouse before or during marriage, regardless of which spouse has the management and control of the 5 property and regardless of whether one or both spouses are parties to the debt or to a judgment for the debt. 6 (b) “During marriage” for purposes of this section does not include the period after the date of separation, as 7 defined in Section 70, and before a judgment of dissolution of marriage or legal separation of the 8 parties. 9 Cal. Fam. Code § 910 (a). 10 The Defendants filed the underlying Chapter 7 case on 11 February 14, 2025. Main Case Doc. #1. The Plaintiffs are 12 listed on Schedule F, line 4.1 as nonpriority unsecured 13 creditors, and the Schedules also state that the debt was 14 incurred by “Debtor 1 and Debtor 2 only” and that it is for 15 a community debt. Id. (at Schedule F). The court notes that 16 on Schedule F, Debtors estimated the Plaintiffs’ claims to 17 be worth $0.00. Id. Furthermore, the Debtors did not list 18 the State Court Action under Question 9 of their Statement 19 of Financial Affairs, which asked whether Debtors were party 20 to any lawsuit, court action, or administrative proceeding 21 within 1 year prepetition. Doc. #1 (Statement of Financial 22 Affairs). The State Court Judgment was entered less than 1 23 year prior to the petition date. 24 Based on their bankruptcy filings, Defendants appear to 25 concede that any debt that may be owed to Plaintiffs is a 26 community claim incurred either before or during the marriage. To 27 the extent that any of Dougherty’s assets are her own individual 28 1 estate. But otherwise, a prepetition judgment against Esparza 2 attaches to the assets held as community property by Defendants. 3 Under § 524 (a)(3) the “community property discharge” is 4 limited to debts other than those determined non-dischargeable. 5 So, if there is a non-dischargeable debt owed by Esparza the 6 community property Esparza and Dougherty may acquire post- 7 petition is not protected by the “community property discharge.” 8 4. The award for conversion. 9 Conversion was the Plaintiffs’ seventh cause of action in 10 the State Court Complaint. Doc. #67. The Plaintiffs alleged that 11 Sheila took out a loan for $50,000.00 which was intended to pay 12 for renovations to her home to be performed by Esparza and 13 others. Id. Esparza and others “substantially interfered with 14 Plaintiffs’ property by knowingly or intentionally taking 15 possession” of that money, preventing Plaintiffs from accessing 16 it, and refusing to return it after the contract was breached and 17 after demands by Plaintiffs. Id. The Complaint alleges that the 18 Plaintiffs “did not consent and as a result were harmed.” Id. 19 Under California law, “[a] claim of conversion requires only 20 three elements: ‘(1) the plaintiff's ownership or right to 21 possession of the property; (2) the defendant's conversion by a 22 wrongful act or disposition of property rights; and (3) 23 damages.’” Kim v. Kim (In re Kim), 2025 Bankr. LEXIS 3265, at 24 *11-12 (B.A.P. 9th Cir. Dec. 17, 2025)(quoting L.A. Fed. Credit 25 Union v. Madatyan, 209 Cal.App.4th 1383, 1387, 147 Cal. Rptr. 3d 26 768 (2012)).
27 A judgment for conversion under California substantive law decides only that the defendant has engaged in the 28 1 property of the plaintiff. It does not necessarily decide that the defendant has caused "willful and 2 malicious injury" within the meaning of § 523(a)(6). A judgment for conversion under California law therefore 3 does not, without more, establish that a debt arising out of that judgment is non-dischargeable under 4 § 523(a)(6). 5 Peklar v. Ikerd (In re Peklar), 260 F.3d 1035, 1039 (9th 6 Cir. 2001). 7 At the Prove-Up Hearing, Sheila testified that Esparza 8 induced her to sign an agreement whereby he would perform 9 renovations on her home in anticipation of selling it. Doc. #68 10 (Exhibit B, Prove-Up Hearing Transcript at pg. 10-13). To pay for 11 these renovations, Esparza induced Sheila to take out a loan in 12 the amount of $49,870.00 with New Vision Credit Union (“NVCU”), 13 and Sheila caused the disbursement checks issued by NVCU to be 14 provided to Esparza. Id. 15 Later during the prove-up hearing, the following exchange 16 took place between Plaintiff’s counsel, Erika Rascon (“Rascon”) 17 and the state court judge:
18 THE COURT: So are you asking for trouble [sic] and punitive. 19 MS. RASCON: Yes, Your Honor. We're asking for trouble 20 damages [sic], which is the amount of the converted amount of the 42,000 -- Your Honor, it is right here in 21 front of me. I apologize. We are asking for trouble [sic] of damages in the amount of $127,848.15 and 22 additional punitive of 100,000. So, if you add it all up, it comes out to a total judgment request of 23 $621,554.20.
24 THE COURT: And the trouble amount is calculated off of what underlying amount? 25 MS. RASCON: The trouble [sic] amount is based on the 26 amount converted. So that would be the $42,616.05.
27 THE COURT: Which was the loan amount?
28 /// 1 MS. RASCON: The loan amount was $49,870. But because Mr. Esparza did return $7,253,95, we reduced it for 2 those credits. Id. 3 4 This is consistent with the award sought and granted for 5 “elder abuse” in the Plaintiff’s Supplemental Declaration and the 6 Judgment by Default by Court, both of which clearly spoke of an 7 award of treble damages ($127,848.15) that was three times the 8 award for conversion damages ($42,616.05). Doc. #69 (Exhibit C). 9 The Judgment by Default by Court does not explicitly say 10 what the underlying basis for the judgment was. Doc. #79 (Exhibit 11 F). There is no indication that the state court found fraud on 12 the part of Esparza. Id. Indeed, even the conversion claim is 13 only a part of the judgment through inference, because the 14 “Principal” amount awarded was $42,616.05, which was the same 15 amount described by Rascon during the Prove-Up Hearing and in the 16 Plaintiffs’ Supplemental Declaration as being damages for 17 conversion. Docs. #68 (Exhibit B at pg. 25) and #68 (Exhibit C, 18 pg. 2, ¶ 5(a)-(b)). 19 Furthermore, based on the Prove-Up Hearing Transcript, the 20 court has doubts that enough evidence was placed before the state 21 court to support a finding of conversion anyway. Recall that 22 California law requires the Plaintiffs to show that Sheila had 23 ownership or right to possession of the property (here, the loan 24 proceeds) and that Esparza converted that property by a wrongful 25 act or disposition of property rights. Kim, supra. 26 However, Sheila’s own testimony indicates that she herself 27 directed that the loan disbursements were to be paid to Esparza 28 as part of their contractual relationship in order to pay for the 1 work he was to perform for Sheila. The fact that Esparza took the 2 money and did not perform the work cannot be viewed as conversion 3 because it was Sheila’s intent that the money go to him, and if 4 Esparza had done the work as contracted, there would have been no 5 case. What was presented to the state court at the Prove-Up 6 Hearing appears to be a breach of contract rather than 7 conversion, and if the Plaintiffs’ theory of conversion were 8 valid, every breach of contract case in which a party took money 9 but did not perform would automatically become an intentional 10 tort. 11 That is a position rejected by this circuit. In Lockerby v. 12 Sierra, the Court of Appeals addressed a situation where a 13 bankruptcy court found an intentional breach of contract to be 14 “nondischargeable as arising from ‘willful and malicious injury’ 15 under § 523(a)(6) because Sierra possessed the ‘subjective intent 16 of harming Lockerby.’” 535 F.3d 1038, 1040 (9th Cir. 2008). The 17 Court of Appeals reversed the bankruptcy court, relying on the 18 Supreme Court’s holding In re Geiger. Lockerby, 535 F.3d at 1041 19 (citing Geiger v. Kawaauhau (In re Geiger),113 F.3d 848, 852 (8th 20 Cir. 1997) (en banc)).
21 The Supreme Court noted that "[i]ntentional torts generally require that the actor intend 'the 22 consequences of an act,' not simply 'the act itself,'" Id. at 61-62 (quoting Restatement (Second) of Torts 23 § 8A, cmt. a, at 15 (1964) (emphasis in Geiger)) and then rejected the expansion of § 523(a)(6) to "a wide 24 range of situations in which an act is intentional, but injury is unintended." Id. at 62.The Court then 25 specifically rejected the notion that a "knowing breach of contract" could trigger exception from discharge 26 under § 523(a)(6).Id. 27 Lockerby, 535 F.3d at 1041. This outcome is implicit in the 28 Bankruptcy Code itself, as 11 U.S.C. § 365(a) specifically 1 contemplates the discharge of intentional breaches of contract 2 through the option to reject executory contracts and unexpired 3 leases not beneficial to the debtor’s estate. Id. at 1042-43. 4 “Since the Code expressly permits intentional breaches of 5 contract (making no qualifications with respect to the motive of 6 the breaching party), it would be inconsistent to interpret 7 § 523(a)(6) to render nondischargeable debts stemming from 8 intentional breaches substantially certain to cause injury.” Id. 9 at 1043. 10 As an aside, the court notes that Sheila’s testimony, if one 11 squints, might have provided a basis for a fraud claim because 12 she testified that Esparza falsely claimed to be a licensed 13 California contractor, though she did not claim to have relied on 14 that statement in agreeing to contract with him. Doc. #68 15 (Exhibit B at pg. 8). There is no indication in the Prove-Up 16 Hearing transcript that the state court based the award on 17 anything other than conversion and nothing in the Judgment by 18 Default by Court that the award was even based on conversion as 19 opposed to breach of contract. See Doc. #79 (Exhibit F at pg. 2 20 (identifying Aaron and Kim as third-party beneficiaries entitled 21 to performance from the defendants, language that evokes contract 22 damages rather than damages for an intentional tort). See also 23 Kim, 2025 Bankr. LEXIS 3265, at *17 (where state court did not 24 specify basis on which it awarded punitive damages, bankruptcy 25 court cannot assume that a punitive damages award is indicative 26 that claim is nondischargeable under § 523(a)(6)). 27 Finally, even if the court assumes the existence of a 28 judgment for the intentional tort of conversion, as the Peklar 1 Court stated, that alone is insufficient for the judgment to be 2 nondischargeable under § 523(a)(6). 260 F.3d at 1039.
3 Section 523(a)(6) excepts from discharge debts arising from a debtor's "willful and malicious" injury to 4 another person or to the property of another. "The 'willful' and 'malicious' requirements are conjunctive 5 and subject to separate analysis."
6 A "malicious" injury requires: "(1) a wrongful act, (2) done intentionally, (3) which necessarily causes 7 injury, and (4) is done without just cause or excuse." A showing of "willful" intent is "[a]n exacting 8 requirement" and "it is satisfied when a debtor harbors 'either a subjective intent to harm, or a subjective 9 belief that harm is substantially certain.'" The injury must be deliberate or intentional, "not merely a 10 deliberate or intentional act that leads to injury."
11 Therefore, like § 523(a)(4), § 523(a)(6) also requires a showing of intent. Moreover, the intent requirements 12 of § 523(a)(6) are extremely specific. 13 Kim, 2025 Bankr. LEXIS 3265, at *16 (citations omitted). Nor 14 is the fact that the state court granted punitive damages 15 dispositive. See generally Plyam v. Precision Dev., LLC (In re 16 Plyam), 530 B.R. 456, 469 (B.A.P. 9th Cir. 2015)(noting that 17 under California law, punitive damages are available to punish 18 nonintentional but reckless conduct that does not fall within 19 § 523(a)(6)); Taylor v. Forte Hotels Int'l, 235 Cal. App. 3d 20 1119, 1124, 1 Cal. Rptr. 2d 189 (1991)(“The act must be knowingly 21 or intentionally done, but a wrongful intent is not necessary.”) 22 In this case, establishing non-dischargeability under 23 § 523(a)(6) requires findings of both “willfulness” and 24 “maliciousness.” The willfulness analysis is a subjective 25 standard that “focuses on the debtor's state of mind and 26 precludes application of § 523(a)(6)'s non-dischargeability 27 provision short of the debtor's actual knowledge that harm to the 28 Thiara v. Spycher Bros. (In 1 re Thiara), 285 B.R. 420, 432 (B.A.P. 9th Cir. 2002)(quoting 2 Carillo v. Su (in Re Su), 290 F.3d 1140, 1146 (9th Cir. 2002)). 3 “A 'malicious' injury [for § 523(a)(6) purposes] involves 4 '(1) a wrongful act, (2) done intentionally, (3) which 5 necessarily causes injury, and (4) is done without just cause or 6 excuse.'” Thiara, 285 B.R. at 433 (citations omitted). Both the 7 willfulness and maliciousness tests require an inquiry into the 8 debtor’s state of mind. Id. And while a willful and malicious 9 state of mind may sometimes be inferred from circumstantial 10 evidence, the court must make findings of fact as to willfulness 11 and maliciousness before § 523(a)(6) is applicable. Id. 12 Here, there was no evidence, even circumstantial, presented 13 before the trial court that spoke to Esparza’s state of mind 14 regarding the events in question, nor were there any findings of 15 fact in the state court judgment indicating that the purported 16 conversion was willful and malicious as opposed to reckless, 17 which the BAP defines as "a 'deliberate disregard' of the 'high 18 degree of probability' that an injury will occur." Plyam, 530 19 B.R. at 468. In the absence of such findings, this court cannot 20 say that the State Court Judgment meets the § 523(a)(6) threshold 21 for non dischargeability. 22 Having found that Plaintiffs have failed to show that the 23 State Court Judgment for conversion does not satisfy the 24 requirements § 532(a)(6), it follows that the other damages 25 awards listed in the Judgment by Default by Court, all of which 26 flow from the conversion award, are also dischargeable. However, 27 because the court realizes that the Plaintiffs, unable to rely on 28 the preclusive effect of the State Court Judgment, may seek to 1 prove non dischargeability directly, will address the rest of the 2 damages as itemized by the state court. 3 5. Treble Damages for Elder Abuse. 4 Following the “Principal” award for conversion, the next 5 award is for “treble damages for elder abuse.” In their 6 Memorandum of Authorities, Plaintiffs assert that these damages 7 are premised on violation of California Welfare and Institutions 8 Code (“CWIC”) §§ 16510.30 et seq. Doc. #66 at pp. 4-6. CWIC 9 § 16510.30 describes “financial abuse” of an elder or dependent 10 adult as follows:
11 (a) “Financial abuse” of an elder or dependent adult occurs when a person or entity does any of the 12 following: (1) Takes, secretes, appropriates, obtains, 13 or retains real or personal property of an elder or dependent adult for a wrongful use 14 or with intent to defraud, or both. (2) Assists in taking, secreting, 15 appropriating, obtaining, or retaining real or personal property of an elder or dependent 16 adult for a wrongful use or with intent to defraud, or both. 17 (3) Takes, secretes, appropriates, obtains, or retains, or assists in taking, secreting, 18 appropriating, obtaining, or retaining, real or personal property of an elder or dependent 19 adult by undue influence, as defined in Section 15610.70. 20 (b) A person or entity shall be deemed to have taken, 21 secreted, appropriated, obtained, or retained property for a wrongful use if, among other things, the person 22 or entity takes, secretes, appropriates, obtains, or retains the property and the person or entity knew or 23 should have known that this conduct is likely to be harmful to the elder or dependent adult. 24 (c) For purposes of this section, a person or entity 25 takes, secretes, appropriates, obtains, or retains real or personal property when an elder or dependent adult 26 is deprived of any property right, including by means of an agreement, donative transfer, or testamentary 27 bequest, regardless of whether the property is held directly or by a representative of an elder or 28 1 (d) For purposes of this section, “representative” means a person or entity that is either of the 2 following: (1) A conservator, trustee, or other 3 representative of the estate of an elder or dependent adult. 4 (2) An attorney-in-fact of an elder or dependent adult who acts within the authority 5 of the power of attorney. 6 Cal. Welf. & Inst. Code § 15610.30. Curiously, in their 7 Memorandum of Authorities, Plaintiffs argue that the state court 8 awarded treble damages for actions by Esparza that (a) constitute 9 false pretenses, (b) were based on false pretenses, or (c) were 10 based on actual fraud under § 523(a)(2)(A). Doc. #66 at pg. 5 11 (quoting elements for § 523(a)(2)(A) non-dischargeability as 12 stated in Van Zandt v. Mbunda (In re Mbunda), 484 B.R. 344, 350 13 (B.A.P. 9th Cir. 2012), aff’d by Van Zandt v. Mbunda (In re 14 Mbunda), 604 Fed. Appx. 552 (9th Cir. 2015). 15 However, this argument is at odds with the arguments 16 presented by Plaintiffs at the prove-up hearing before the state 17 court as quoted supra. See Doc. #68 (Exhibit B, Transcript of 18 Prove-Up hearing at pp. 25-26). At the prove-up hearing, 19 Attorney Rascon sought treble damages under the elder abuse 20 statute equal to three times “the converted amount” of 21 $42,616.05. Id. 22 Id. This is consistent with the award sought and granted for 23 “elder abuse” in the Plaintiff’s Supplemental Declaration and the 24 Judgment by Default by Court, both of which clearly spoke of an 25 award of treble damages for elder abuse ($127,848.15) that was 26 three times the award for conversion damages ($42,616.05). Doc. 27 #69 (Exhibit C). 28 /// 1 Thus, the question before the court is whether treble 2 damages sought under the California Elder Abuse Statutes and 3 premised on damages for conversion are nondischargeable. In the 4 court’s view they are not nondischargeable under § 523(a)(2)(A) 5 as Plaintiffs argue. At the prove-up hearing, Plaintiffs based 6 their estimation of treble damages on the underlying damage award 7 for conversion, and so, to be deemed non-dischargeable, the 8 Plaintiffs must rely on § 523(a)(6). 9 The Plaintiffs argue that, notwithstanding their statements 10 at the prove-up hearing wherein they requested treble damages in 11 the amount of $127,848.15, they now argue that they are entitled 12 to the full $149,610.00 in treble damages awarded in the State 13 Court Judgment because it is three times the original loan amount 14 of $49,870.00. Doc. #66 (Memorandum at pg. 20). Plaintiffs rely 15 on Cal. Civ. Code § 3345(b), which states:
16 (b) Whenever a trier of fact is authorized by a statute to impose either a fine, or a civil penalty or other 17 penalty, or any other remedy the purpose or effect of which is to punish or deter, and the amount of the 18 fine, penalty, or other remedy is subject to the trier of fact’s discretion, the trier of fact shall consider 19 the factors set forth in paragraphs (1) to (3), inclusive, in addition to other appropriate factors, in 20 determining the amount of fine, civil penalty or other penalty, or other remedy to impose. Whenever the trier 21 of fact makes an affirmative finding in regard to one or more of the factors set forth in paragraphs (1) to 22 (3), inclusive, it may impose a fine, civil penalty or other penalty, or other remedy in an amount up to three 23 times greater than authorized by the statute, or, where the statute does not authorize a specific amount, up to 24 three times greater than the amount the trier of fact would impose in the absence of that affirmative 25 finding.
26 (1) Whether the defendant knew or should have known that their conduct was directed to one 27 or more senior citizens, disabled persons, or veterans. 28 1 (2) Whether the defendant’s conduct caused one or more senior citizens, disabled 2 persons, or veterans to suffer: loss or encumbrance of a primary residence, principal 3 employment, or source of income; substantial loss of property set aside for retirement, or 4 for personal or family care and maintenance; or substantial loss of payments received 5 under a pension or retirement plan or a government benefits program, or assets 6 essential to the health or welfare of the senior citizen, disabled person, or veteran. 7 (3) Whether one or more senior citizens, disabled persons, or veterans are 8 substantially more vulnerable than other members of the public to the defendant’s 9 conduct because of age, poor health or infirmity, impaired understanding, restricted 10 mobility, or disability, and actually suffered substantial physical, emotional, or 11 economic damage resulting from the defendant’s conduct. 12 13 Cal. Civ. Code § 3345(b)(emphasis added). 14 The emphasized language presents a problem for Plaintiffs 15 because the court has searched in vain for any such affirmative 16 findings regarding the three factors alluded to above. At the 17 prove-up hearing, the state court inquired as to whether 18 Plaintiffs were seeking treble damages and if so in what amount. 19 Doc. #68 (Exhibit B; see quoted language supra). And the Judgment 20 of Default by Court is a scant, two-page document which makes no 21 findings of fact at all. Doc. #79 (Exhibit F). Indeed, that 22 Judgment merely has a line entry for “Treble: $149,610.00,” 23 which, as the court has noted, appears to erroneously award 24 Plaintiffs more than the actual damages sought for conversion. 25 Id. 26 The Plaintiffs bear the burden of proof in a 27 dischargeability action, with § 523 construed against them and in 28 1 the trier of fact (here, the state court judge) that support 2 application of Cal. Civ. Code § 3345(b), this court cannot say 3 that the state court’s award of treble damages for elder abuse 4 would be nondischargeable even if the award for conversion was so 5 found. 6 6. Punitive damages. 7 The State Court Judgment awarded $100,000.00 for “punitive 8 damages.” As noted supra, California law allows for a finding of 9 conversion that is nevertheless not intentional within the 10 meaning of § 523(a)(6) and would therefore be dischargeable. In 11 the absence of a finding of the requisite level of willfulness, 12 the court cannot find that the $100,000.00 award for punitive 13 damages would be nondischargeable for the same reasons that the 14 conversion award itself falls outside the scope of § 532(a)(6). 15 7. Damages awarded to Aaron and Kim. 16 Finally, the Judgment by Default by Court contains the 17 following language relevant to Aaron and Kim: “Judgment is hereby 18 entered that Plaintiffs AARON MARCUM and KIM MARCUM are third- 19 party beneficiaries and are entitled to Defendants, [ESPARZA] and 20 EXCEL RESTORATIONS & CONSTRUCTION MANAGEMENT LLC, performance.” 21 Doc. #79 (Exhibit F). This is in reference to that part of the 22 state court complaint which sought a declaratory judgment that 23 Aaron and Kim were third-party beneficiaries to the contract 24 between Sheila and Esparza. But to the extent that the damages 25 awarded to Aaron and Kim were for breach of contract, those 26 damages do not fall within § 523(a). And neither Aaron nor Kim 27 alleges, either before the state court nor in their filings here, 28 /// 1 that Esparza committed any acts towards them which represent 2 intentional torts subject to § 532(a) non-dischargeability. 3 This distinction is grounded in California law. In Schauer 4 v. Mandarin Gems of Cal., Inc., the court stated:
5 Further, the absence of an assignment of rights from Erstad precludes plaintiff from maintaining a cause of 6 action for actual fraud. It is axiomatic that plaintiff must allege she “actually relied upon the 7 misrepresentation; i.e., that the representation was ‘an immediate cause of [her] conduct which alter[ed] 8 [her] legal relations,’ and that without such representation, ‘[she] would not, in all reasonable 9 probability, have entered into the contract or other transaction.’ ” Here, Erstad [the Plaintiff’s ex-spouse 10 who purchased the diamond ring underlying the civil action] allegedly relied on the representation and 11 entered into the contract of sale. As we have explained, he [Erstad] retained the right, if any, to 12 sue for actual fraud.
13 As for constructive fraud, the complaint fails to plead facts establishing the requisite fiduciary or special 14 confidential relationship between plaintiff and defendant. 15 And even assuming plaintiff could overcome the standing hurdle, fraud causes of action must be pleaded with 16 specificity, meaning “(1) general pleading of the legal conclusion of fraud is insufficient; and (2) every 17 element of the cause of action for fraud must be alleged in full, factually and specifically, and the 18 policy of liberal construction of pleading will not usually be invoked to sustain a pleading that is 19 defective in any material respect.” Plaintiff's complaint utterly fails the specificity test, not 20 because she is an inartful pleader, but because those facts that are well pleaded necessarily negate the 21 existence of the facts supporting the requisite elements of fraud. 22 23 Schauer v. Mandarin Gems of Cal., Inc., 125 Cal. App. 4th 949, 24 960-61, 23 Cal. Rptr. 3d 233, 241 (2005)(holding that ex-wife of 25 Erstad, who bought ex-wife a diamond ring later determined to be 26 worth $23,000.00 less than Erstad paid for it, lacked standing to 27 sue jewelry store for actual or constructive fraud where there 28 1 evidence of fiduciary or special confidential relationship 2 between the ex-wife and the jewelry store). 3 Here, there is no indication that Aaron and/or Kim is party 4 to the contract with Esparza and no evidence that Sheila assigned 5 any of her rights to maintain an action against Esparza to Aaron 6 and/or Kim. In the absence of any evidence of actions directed 7 towards Aaron and/or Kim that are nondischargeable, any damages 8 owed to them are dischargeable. This may include any award for 9 special damages, as the State Court Judgment included a “special 10 damages” award of $197,690.99, apparently for out-of-pocket 11 expenses incurred to remediate the damage purportedly done to 12 Sheila’s home due to Esparza’s non-performance. The record is 13 silent as to whether those expenses were incurred by Sheila or by 14 Aaron and/or Kim on Sheila’s behalf. Any future effort to 15 recover for special damages must be accompanied by admissible 16 evidence that such damages flowed out of nondischargeable actions 17 by Esparza toward the person who actually incurred those 18 expenses. The record so far is unclear on who incurred the 19 expenses. 20 21 CONCLUSION 22 This matter comes before the court on a motion for entry of 23 default judgment, one that seeks to hold the State Court Judgment 24 in the amount of $643,316.05 to be nondischargeable in its 25 entirety. However, the court’s analysis of the judgment and 26 whether § 523 applies is necessarily confined to the actual text 27 of the State Court Judgment and the inferences that can 28 reasonably be drawn from it where the state court judge did not 1 explain the basis for the judgment with any specificity. For the 2 reasons outlined above, the court is not persuaded that the 3 “Principal” award of $42,616.05 for conversion damages is 4 nondischargeable. And if the “Principal” award is dischargeable, 5 it follows that all the other damages awarded by the state court 6 would be dischargeable as well. 7 The court notes that this does not resolve this adversary 8 proceeding to determine non-dischargeability yet but merely holds 9 | that the Plaintiffs have not satisfied the high burden of proving 10 non-dischargeability premised solely on the default judgment 11 awarded by the state court and the submissions to this court 12 supporting the motion for entry of default judgment. Accordingly, 13 this motion is DENIED. 14 It is further ordered that a Status Conference for this case 15 be set for July 29, 2026, at 11:00 a.m. at which time the 16 Plaintiffs may advise the court as to how they plan to proceed 17 | with this adversary proceeding. Plaintiffs to submit a Status 18 Report no later than seven (7) days before the Status Conference. 19 The court will issue a conforming order. 20 21 | pated: Jul 14, 2026 By the Court 22 23 ond. ené Ldstreto II, Judge □□ United States Bankruptcy Court 25 26 27 28
1 Instructions to Clerk of Court Service List - Not Part of Order/Judgment 2 The Clerk of Court is instructed to send the Order/Judgment or 3 other court generated document transmitted herewith to the 4 parties below. The Clerk of Court will send the Order via the BNC or, if checked , via the U.S. mail. 5
6 Erika L. Rascon 791 North Cherry Street 7 P. O. Box 29 8 Tulare, CA 93275
9 Louie J. Esparza Jr. 5401 W. Vassar Ave. 10 Visalia, CA 93277
11 Colleen K. Dougherty 5401 W. Vassar Ave. 12 Visalia, CA 93277 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28