All posts in Cases

Is Fraud under California Law the Same as Fraud under 523(a)(2)? Yes says Judge Maureen Tighe.

In Moussighi v. Talasazan (In re Talasazan), 1:16-ap-01119-MT (Bkrcy June 2018, C.A. Cal Tighe J.), Judge Tighe said,

Fraud under California law and § 523(a)(2)(A) are identical for purposes of collateral estoppel. In re Younie, 211 B.R. 367, 373 (B.A.P. 9th Cir. 1997), aff’d, 163 F.3d 609 (9th Cir. 1998); In re Jung Sup Lee, 335 B.R. 130, 136 (B.A.P. 9th Cir. 2005).

This came up in an argument I had with someone recently re res judicata.  I stated that a state court judgment that says ONLY “Plaintiff wins $1 million based on the fraud of defendant,” is res judicata in bankruptcy court whether entered by default or not.   I was told I was mistaken in no uncertain terms because fraud under California law is not the same as fraud under 523(a)(2).  Wrong!

By the way, the judgment example above IS res judicata as to the amount owed in any event – at least for claims purposes.  The typical state court judgment says “Plaintiff wins $1 million” (nothing else).  Collateral estoppel in that case as to fraud still MIGHT apply depending on whether it was actually litigated etc.  Underlying documents, rulings etc are needed.  But the judgment ITSELF is res judicata as to how much defendant/debtor owes the creditor.  That statement does NOT mean that if there was fraud, the damages for fraud are $1 million.  But it does mean debtor owes creditor $1 million (which is discharged unless 523(a) applies).

The Talasazan matter has an interesting twist.  The debtor moved for summary judgment on the grounds that fraud was litigated in state court and the ruling was in the debtor’s favor and therefore could not be relitigated.  The problem is that the state court judge did not say that.   Judge Tighe wrote:

“[W]hile fraud was pled, argued, and briefed after trial, the Third Amended Judgment does not include fraud in the list of causes of action on which Plaintiffs prevailed.

It appears that the Superior Court ruled in Plaintiffs’ favor on the negligent misrepresentation cause of action rather than fraud.

For purposes of collateral estoppel, as detailed below, the Superior Court’s silence with respect to the fraud action, in the context of undisputed evidence from both sides that the issue was fully litigated, was a ruling in favor of the Debtor and not the Plaintiffs.”

Can a Trucker Use “Homestead” To Exempt His 18-Wheeler with a Sleeping Compartment?

Yes — in Wisconsin anyhow.  In a Wisconsin case, debtor had a semi truck with a cab and he wanted to exempt it under that state’s homestead exemption.   He sleeps in the cabin, has a bunk bend, refrigerator, radio, heater and a/c but no bathroom or kitchen.   Read more…

Debtor’s Inherited IRA Not protected

Your client tells you “yes, I also have an IRA retirement account.”   Don’t stop there — ask them “is this your IRA that you created or you inherited from another person (i.e. spouse or parent)?”   If the latter — then be careful!  Inherited IRA’s can be taken by the trustee.  Why?  Because Justice Sotomayor, on behalf of the entire bench, said so in Clark v. Rameker (2014). Read more…

Judge Mark Wallace Dismisses Adversaries Based on Unclean Hands, Great Opinion

Law students love unclean hands.  The guy they like is the good guy which obviously gives the other guy unclean hands.  The same with unjust enrichment.  Judge Wallace explains very nicely In re John Olaf Halvorson that unclean hands can be a bar to the access to courts, at least when the court is sitting as a court of equity.  He quotes the Supreme Court in Keystone Driller Co v. General Excavator Co., 290 U.S. 240, 244-45, 54 S. Ct. 146, 78 L.Ed. 293 (1933):

“It is one of the fundamental principles upon which equity jurisprudence is founded, that before a complainant can have a standing in court he must first show not only that he has a good and meritorious cause of action, but he must come into court with clean hands . . . The governing principle is ‘that Read more…

Beware of Putting an Unenforceable Penalty into Your Settlement Agreement

I was pretty surprised to find this case.  As a mediator, this comes up all the time.  Plaintiff will take a smaller amount in payments but wants a big penalty if the agreed upon amount is not paid.  I wonder if it is different if approved by the bankruptcy court.   A tip of the hat to attorney D. Brian Reider for sending me this case.

PURCELL v. SCHWEITZER, 224 Cal.App.4th 969 (2014)

Issue:  Where a settlement agreement provides that in the event of a default, an additional amount is owed, can the additional amount be found to be an unenforceable penalty?

Holding:  Yes.  “The amount set as liquidated damages `must represent the result of a reasonable endeavor by the parties to estimate a fair average compensation for any loss that may be sustained.” Read more…

Sham Guaranty? More Stuff I Didn’t Know

LSREF2 CLOVER PROPERTY 4, LLC v. FESTIVAL RETAIL FUND 1, LP, (2016) 3 Cal.App.5th 1067

Issue:  Is the guaranty of a loan by the parent entity here a “sham” guaranty?

Holding:  No, “[T]he overriding concern when deciding whether the sham guaranty defense applies is whether the guaranty is an attempt to circumvent the antideficiency laws.”

Festival Retail Fund 1, LP (the “Fund”) was formed to find real property to invest in.  From the outset, the Fund purchased properties only through newly formed “special purpose entities” (“SPE”).  Here the Fund entered into an agreement to buy a property.  The agreement provided that the property would be purchased by a SPE.  The SPE was also a limited partnership and was wholly owned by the Fund.  Bank then made a loan to the SPE to buy the property.  The Fund guaranteed $1.5 million of the $25 million loan.  The Bank later filed a non-judicial foreclosure complaint and included the Fund alleging breach of the guaranty.  The Fund argued that it was the alter ego of the SPE under the “single business enterprise” theory and therefore it was “protected by antideficiency laws because it was, in reality, the primary obligor on the loan and the loan guaranty was effectively a sham.”  The court agreed and entered judgment for the Fund. Read more…

Must a Chapter 13 Plan be 3 or 5 years (or full pay) even if no one objects?

One of the more interesting cases we will discuss on Saturday is In re Escarcega.  The BAP really blasts the chapter 13 trustee up in San Jose.   The BAP ruled that a chapter 13 plan must be 3 or 5 years (or full pay), even if no one objects.

In re Escarcega, 573 B.R. 219 (9th Cir. BAP September 2017) 

Issue:   Where the chapter 13 trustee does not object to a plan, must the plan still be for “the applicable commitment period”?

Holding:   Yes.  Plus the chapter 13 trustee should be objecting to such plans.

Judges Elaine Hammond and Stephen Johnson, Northern District of California (San Jose Division) Read more…

California Statute of Limitations – Tolled When the Defendant is Out of State? Maybe Not.

Someone commented at a program on the Supreme Court cases last year dealing with the Fair Debt Collection Practices Act (“FDCPA”) that the statute of limitations is tolled when the defendant is out of state.  “Hmm,” I thought, “another thing I didn’t know.”

Sure enough, Section 351 of the California Code of Civil Procedure states:

[i]f, when the cause of action accrues against a person, [the defendant] is out of the State, the action may be commenced with the term herein limited, after his return to the State, and if, after the cause of action accrues, he departs from the State, the time of his absence is no part of the time limited for the commencement of the action. Read more…

Supreme Court Rejects Petition in Sunnyslope

This morning buried in the 45 page listing of Supreme Court Orders is the Order denying cert in the 9th Circuit en banc Sunnyslope case.  The Order List is here.  I thought they might take it.  It is not terribly complicated and the case discusses trying to reconcile the Supreme Court decision in Associates Commercial Corp. v. Rash with the facts in Sunnyslope.  My posting on Sunnyslope is here.   Prof. Dan Schechter says the 9th Circuit was “shockingly wrong.”  

Consignment Rules in Bankruptcy

This can be filed under “more stuff I didn’t know.”  Is inventory the debtor accepted under a consignment agreement property of the estate?  I have had this come up a few times over the years.  A new BAP case has laid out the answer very nicely.   The answer by the way is probably YES!

IPC (USA), Inc. v. Ellis (In re Pettit Oil Company), — B.R. — (9th Cir. BAP October 2017)

Issue:   Are the trustee’s right to proceeds of the sale of consignment goods senior to the consignor?

Holding:   Yes.  Under U.C.C. § 9-319(a), the debtor “is deemed to hold rights and title to the [consigned] goods” as if it owned them outright.  The consignor must comply with “the rules for the creation and perfection of a security interest contained in Article 9.” Read more…