Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County. No. EC 039462, Ricardo A. Torres, Judge. (Retired Judge of the L.A. S.Ct. assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.).
The Yarnall Firm, Delores A. Yarnall; Ammirato & Palumbo, Bruce Palumbo, Moray & Vallette and Diane Vallette for Plaintiff and Appellant.
Hollins Schechter, Bruce Lee Schechter, Steven C. Robinson and Lilia C. Sandoval for Defendant and Respondent.
Mendes & Mount, Dean B. Herman, Catherine L. Rivard and Stuart L. Brody for Intervener and Respondent.
FLIER, J.
In this appeal, we hold that a creditor may pursue a personal injury lawsuit after a bankruptcy court issued a judgment and postjudgment order permitting the creditor to pursue the personal injury lawsuit “in the non-bankruptcy forum to final judgment (including any appeals) in accordance with applicable non-bankruptcy law.” The trial court found that the personal injury lawsuit was barred by the federal bankruptcy proceedings. We conclude that neither the doctrine of res judicata nor the doctrine of judicial estoppel precluded appellant Ed Aguilar’s superior court lawsuit against respondent Larry Gostischef, notwithstanding Gostischef’s bankruptcy.
The doctrine of res judicata estopps a litigant from raising a claim arising from the same injury as a claim already litigated. However, here the bankruptcy court did not litigate Aguilar’s personal injury claim; it decided only whether such claim was dischargeable in the bankruptcy proceeding. It expressly concluded the personal injury claim was nondischargeable and Aguilar could pursue it in superior court. Judicial estoppel is inapplicable because the threshold elements cannot be established and equity is not served by applying the discretionary doctrine. We reverse the entry of judgment in favor of Gostischef and order the superior court to reinstate the judgment in favor of Aguilar in accordance with the jury verdict.
FACTUAL AND PROCEDURAL BACKGROUND
1. Superior Court Complaint for Personal Injury
On August 27, 2004, in Los Angeles Superior Court case No. EC039462, Aguilar sued Gostischef, alleging a single cause of action for personal injury (Lawsuit). Aguilar alleged that Gostischef negligently operated and maintained his vehicle, causing a collision, following which Aguilar suffered severe injuries. Attorneys retained by Farmers Insurance Exchange (Farmers), Gostischef’s insurer, answered Aguilar’s complaint on October 28, 2004.
2. Bankruptcy Proceedings
The state court litigation stagnated when Gostischef filed a voluntary petition for chapter 7 bankruptcy, case No. 2:05-bk-34306-ER on September 28, 2005. A chapter 7 bankruptcy allows the sale of a debtor’s property with the proceeds distributed to creditors. (Gottlieb v. Kest (2006) 141 Cal.App.4th 110, 129, fn. 2.) According to Gostischef’s bankruptcy schedules, his unsecured debts totaled $20,234,923, with Aguilar holding the largest claim valued in the estate at $20,211,669.
Within the bankruptcy action, Aguilar sought to preclude the discharge of Gostischef’s debt arising out of the Lawsuit. Aguilar filed a complaint alleging the following: (1) Aguilar was a creditor of Gostischef “by virtue of an action filed August 27, 2004 with the Superior Court of the State of California... seeking, among other things, damages from [Gostischef] for injury caused to [Aguilar] and his property”; and (2) Gostischef’s conduct was willful and malicious. Aguilar’s complaint referenced title 11 United States Code section 523(a)(6) (section 523(a)(6)), which provides: “A discharge under [various statutes in the bankruptcy code] does not discharge an individual debtor from any debt— [¶]... [¶] (6) for willful and maliciousinjury by the debtor to another entity or to the property of another entity.” (Italics added.)
A “discharge order releases a debtor from personal liability with respect to any discharged debt.” (Tennessee Student Assistance Corporation v. Hood (2004) 541 U.S. 440, 447.)
On February 2, 2006, Aguilar and Gostischef stipulated that (1) Aguilar’s claim against Gostischef “be deemed nondischargeable in Bankruptcy Case No 2:05-BK-34306-ER... and in any future Chapter 7, 11, or 13 proceeding”; (2) Aguilar could prosecute the Lawsuit against Gostischef; and (3) if Aguilar prevailed in the Lawsuit, he would not collect the judgment against Gostischef personally. The parties further stipulated that Gostischef denied any liability for willful and malicious injury.
On February 6, 2006, the bankruptcy court issued a judgment (the Judgment) in favor of Aguilar. The bankruptcy court found that Aguilar’s “claims against Defendant [Gostischef] by virtue of Plaintiff’s [Aguilar’s] lawsuit filed against Defendant and others with the Superior Court of the State of California, County of Los Angeles, Case No. EC039462, entitled ED AGUILAR, Plaintiff vs. LARRY GOSTISCHEF, et al., (‘Lawsuit’) be deemed nondischargeable in Bankruptcy Case No. 2:05-BK-34306-ER now pending in the United States Bankruptcy Court in and for the Central District of California, and in any future Chapter 7, Chapter 11, or Chapter 13 proceeding filed by or against Defendant. [¶] IT IS FURTHER HEREBY ORDERED, ADJUDGED AND DECREED that in the event that Plaintiff prosecutes his Lawsuit and obtains a judgment against Defendant, Plaintiff shall not cause to levy a writ of execution upon such judgment against any asset or property of Defendant or his successors in interest, or in any way attempt to collect said judgment against Defendant personally.” The Judgment neither references section 523(a)(6) nor contains the phrase “willful and malicious.”
In May 2006, Aguilar moved for relief from the automatic bankruptcy stay. The motion attached Aguilar’s personal injury complaint in superior court case No. EC039462. On June 15, 2006, the bankruptcy court issued an order granting Aguilar relief from the automatic stay. The order provided that “[m]ovant [Aguilar] may proceed in the non-bankruptcy forum to final judgment (including any appeals) in accordance with applicable non-bankruptcy law.” The order referenced case No. EC039462 and noted that the case was pending in Los Angeles County Superior Court.
3. Superior Court Pretrial Proceedings
The Lawsuit continued after the bankruptcy court lifted its automatic stay. Before trial, the superior court overruled Gostischef’s demurrer finding the court had “jurisdiction to hear this case because it concerns only the rights and duties of the parties under the insurance policies.” The court denied Gostischef’s motion for judgment on the pleadings brought on the ground that the federal bankruptcy court determined Aguilar’s “single claim against the defense cannot be adjudicated” because it was not based on willful or malicious injury.
The superior court found “[t]here are no facts showing that the Bankruptcy Court made any findings or that it had any evidence when it entered the judgment.... [T]he facts show that the parties did not expressly state in their stipulation that the Plaintiff’s negligence cause of action was excluded from being deemed nondischargeable under their stipulation. In addition, there is no statement in the stipulation or judgment that limits their effect to a hypothetical, future claim by the Plaintiff that the Defendant’s conduct was willful and malicious.” The court concluded that “a review of the judgment entered by the Bankruptcy Court shows that the Plaintiff’s claim in EC039462 is deemed nondischargeable. [Because] the only claim brought by the Plaintiff in EC039462 is a negligence cause of action, the stipulated judgment shows that the Plaintiff’s negligence cause of action is deemed nondischargeable.”
4. Superior Court Trial
After Gostischef’s motion for judgment on the pleadings was rejected, the case was transferred to another judge for a jury trial.
During trial, the following facts were undisputed: Aguilar was driving a motorcycle through an intersection at the same time Gostischef was attempting to turn left. The parties were involved in a motor vehicle accident, in which Aguilar suffered severe injuries requiring medical treatment, including the amputation of his leg. Costs amounting to $507,718 were reasonable and necessary for past medical expenses.
The parties vigorously disputed whether Gostischef was negligent, whether Aguilar was speeding, and whether Aguilar was intoxicated. The parties also disputed whether Aguilar drove through a red light.
The jury found that Gostischef was negligent, and his negligence was a substantial factor in causing harm to Aguilar. The jury calculated Aguilar’s total damages at $4,679,314. However, the court reduced the damages by 50 percent to reflect Aguilar’s own negligence as found by the jury. On January 6, 2008, the court ordered Aguilar to recover judgment in the amount of $2,339,657.
5. Request for Judgment Notwithstanding the Verdict
On March 23, 2009, the court granted Farmers’ motion to intervene in the Lawsuit. Farmers moved for judgment notwithstanding the verdict on grounds that the Judgment permitted only a lawsuit for willful and malicious misconduct. Farmers argued that the federal bankruptcy court “adjudicated” that Gostischef’s liability was nondischargable because Gostischef “‘willfully and maliciously’ caused Aguilar’s injuries.” Based on that premise, Farmers argued that any negligence claim was precluded based on principles of res judicata and judicial estoppel.
Relying on Roos v. Red (2005) 130 Cal.App.4th 870 (Roos), the superior court granted Farmers’ motion. The court found that the bankruptcy judgment “was for a debt that was nondischargeable because it was willful and malicious.” It concluded that the “issue necessarily decided in the prior adjudication is identical to the one sought to be litigated here.”
On May 28, 2009, the superior court entered a judgment in favor of Gostischef and ordered that Aguilar “take nothing by way of the complaint.” The judgment required Aguilar to pay costs to Gostischef and Farmers. Aguilar appealed.
Aguilar appealed from “[a]n order after judgment, ” the May 28, 2009 judgment, and all interlocutory orders granting intervention. An appeal from an order granting judgment notwithstanding the verdict is not appealable. (Walton v. Magno (1994) 25 Cal.App.4th 1237, 1240.) The judgment, however, is appealable as a final judgment. (Code Civ. Proc., § 904.1, subd. (a)(1).)
DISCUSSION
As we explain, neither the doctrine of res judicata nor the doctrine of judicial estoppel barred Aguilar from pursuing his Lawsuit.
1. Res Judicata
Farmers argues the bankruptcy court adjudicated that Gostischef’s debt was for malicious and willful injury, and that adjudication is res judicata as to the character of the debt including its in rem nature. (Tennessee Student Assistance Corporation v. Hood, supra, 541 U.S. at p. 447 [bankruptcy court’s discharge of a debt is an in rem proceeding].) We disagree with Farmers’ premise – that the bankruptcy court adjudicated that Gostischef’s debt was for malicious and willful injury. Absent that premise, Farmers cannot establish the threshold requirement for res judicata.
A. Legal Principles
Nondischargeability judgments are within the exclusive jurisdiction of the federal court. (In re Perry (Bankr. C.D.Cal. 1990) 111 B.R. 861, 862.) California gives full faith and credit to a final order or judgment of a federal court. (Levy v. Cohen (1977) 19 Cal.3d 165, 172.) “[T]he preclusive effect of a prior judgment of a federal court is determined by federal law, at least where the prior judgment was on the basis of federal question jurisdiction.” (Butcher v. Truck Ins. Exchange (2000) 77 Cal.App.4th 1442, 1452, citing Levy v. Cohen; see also Limbach v. Hooven & Allison Co. (1984) 466 U.S. 353, 361-362 [state court must apply federal law to analyze preclusive effect of prior federal judgment deciding federal question].) Under federal law, “[t]he doctrine of res judicata precludes parties or their privies from relitigating an issue that has been finally determined by a court of competent jurisdiction. [Citation.] ‘Any issue necessarily decided in such litigation is conclusively determined as to the parties or their privies if it is involved in a subsequent lawsuit on a different cause of action.’ [Citation.]” (Levy v. Cohen, supra, at p. 171.) Application of res judicata requires proof of three elements: “(1) Was the issue decided in the prior adjudication identical with the one presented in the action in question? (2) Was there a final judgment on the merits? (3) Was the party against whom the plea is asserted a party to or in privity with a party to the prior adjudication?” (Ibid.)
The purpose of res judicata is “‘to preserve the integrity of the judicial system, promote judicial economy, and protect litigants from harassment by vexatious litigation.’ [Citations.]” (Brinton v. Bankers Pension Services, Inc. (1999) 76 Cal.App.4th 550, 556.) “‘“[R]es judicata bars all grounds for recovery that could have been asserted, whether they were or not, in a prior suit between the same parties on the same cause of action.”’ [Citation.] [Citation.] That applies to matters decided in bankruptcy.” (Siegel v. Federal Home Loan Mortg. Corp. (9th Cir. 1998) 143 F.3d 525, 528-529, italics omitted.) Farmers, as the party asserting the doctrine, had the burden to show it was applicable. (In re Dunkley (Bankr. N.D.Ill. 1998) 221 B.R. 207, 211.)
B. No Showing of Identical Issues
Farmers fails to show that the issue decided in the bankruptcy adjudication was identical to the issue in the superior court litigation. In the superior court action, Aguilar litigated a personal injury claim arising out of a motor vehicle accident. Aguilar did not litigate that claim in the bankruptcy court. The only claim Aguilar litigated in the bankruptcy court was one claiming his Lawsuit was nondischargeable. (See In re Perry, supra, 111 B.R. at p. 862 [“The principal thrust of litigation under [title 11 United States Code] section 523 is to obtain a judgment from the bankruptcy court determining that the claim of the creditor is not discharged....”].) The issue of dischargeability was not identical to the issue of personal injury as the bankruptcy court made no determination as to Gostischef’s liability for Aguilar’s injury.
As part of a motion in limine, Gostischef argued that “there is no relation between defendant’s bankruptcy to any facts sought to be proved in this case, and thus, could not be relevant to the subject matter of the pending action.”
Farmers’ claim that the issues are identical rests on a mischaracterization of the Judgment, which assumes the Judgment found the debt “nondischargeable pursuant to [section] 523(a)(6), ” requiring willful and malicious injury. Although Aguilar had raised section 523(a)(6) in his bankruptcy complaint, Gostischef denied such liability, and the bankruptcy court never resolved that issue. The Judgment does not rely on or incorporate Aguilar’s underlying bankruptcy complaint. It neither refers to section 523(a)(6) nor restricts Aguilar to pursuing only a claim for willful and malicious injury in superior court. Instead, the Judgment and subsequent order expressly permit Aguilar the option of pursuing the Lawsuit (based on negligence) referred to by its case number.
Because the Judgment did not rely on section 523(a)(6), Farmers’ reliance on Roos, supra, 130 Cal.App.4th at page 877 is misplaced. In that case, the bankruptcy court conducted a two-day trial and expressly held that a debtor acted willfully and maliciously when he operated his motor vehicle causing harm to the creditor. Prior to the trial, the parties conducted discovery, and the bankruptcy court was asked to determine whether the debtor “Red acted willfully and maliciously in causing the collision.” (Roos, at p. 876.) “The bankruptcy court specifically found respondents’ wrongful death claims were not discharged by Red’s petition for bankruptcy because the claims were the result of Red’s willful and malicious conduct.” (Id. at p. 874, italics added.) Because the bankruptcy court’s express finding that the debtor acted willfully and intentionally, the debtor was barred from relitigating that issue in state court and the only issue remaining was the amount of damages owed by the debtor/defendant (not a defense verdict as sought by Farmers). The Roos court noted that the debtor/defendant could have obtained a trial in state court instead of bankruptcy court if he had supported rather than opposed the creditor’s request for relief from the bankruptcy stay. (Id. at p. 888.)
In contrast to Roos, here the bankruptcy court made no express finding that Gostischef, the debtor/defendant, acted willfully and maliciously. Also in contrast to Roos, both Gostischef and Aguilar supported the request for relief from the bankruptcy stay. The principles of res judicata as applied in Roos did not preclude Aguilar’s Lawsuit.
C. Farmers’ Argument Conflicts With the Judgment
The Judgment refers to the Lawsuit, containing only one cause of action for personal injury. It makes clear that the “Lawsuit” was nondischargeable. A further order by the bankruptcy court indicated that Aguilar may proceed with the Lawsuit in accordance with nonbankruptcy law. Thus, based on the Judgment and postjudgment order, Aguilar was entitled to pursue his Lawsuit even though it was based on negligence. “‘[L]ike any other holder of nondischargeable debt’” Aguilar was “‘free to pursue the debtor outside bankruptcy.’ [Citations.]” (Matter of Fein (5th Cir. 1994) 22 F.3d 631, 633.)
D. Even if the Judgment Incorrectly Applied the Law, Farmers Cannot Collaterally Attack it in State Court
At the heart of Farmers’ argument is its claim that under the applicable bankruptcy law, the bankruptcy court was required to discharge Gostischef’s debt to Aguilar because that debt was based solely on negligence. Farmers believes that the bankruptcy court must have characterized Gostischef’s debt as willful and malicious because it found the debt nondischargeable. Farmers correctly points out that in Kawaauhau v. Geiger (1998) 523 U.S. 57, 64, the United States Supreme Court held that reckless or negligent injury was insufficient to fulfill the “willful and intentional” requirement in section 523(a)(6).
Farmers’ argument, however, ignores authority holding that, in the bankruptcy context, parties may stipulate to the nondischargeability of a debt. For example, in In re Laing (10th Cir. 1994) 31 F.3d 1050, 1051, the court held that a debtor was barred by res judicata from relitigating the dischargeability of a debt when the debtor stipulated that the debt was nondischargeable. In that case, the debtor “did not actually argue and present evidence regarding the dischargeability of his debt” but instead “[t]he parties merely agreed that the debt was nondischargeable, and the court so ordered.” (Ibid.) The appellate court concluded that the bankruptcy court judgment expressly declaring the debt nondischargeable was final, and principles of res judicata barred relitigating the character of the debt. (Ibid.; see also In re Martinelli (Bankr. 9th Cir. BAP 1988) 96 B.R. 1011 [affirming stipulation that debt was nondischargeable]; In re Mapother (Bankr. W.D.Ky. 1985) 53 B.R. 433, 436 [finding parties may stipulate that particular debt was nondischargeable]; but see In re Minor (Bankr. D.Co. 1990) 115 B.R. 690 [stating that a debtor may stipulate only to the nondischargeability of all debts].)
Assuming the accuracy of Farmers’ legal argument that the bankruptcy court was required to discharge Gostischef’s debt to Aguilar, its effort to collaterally attack the Judgment is not cognizable in this proceeding. The Judgment and postjudgment order allowing Aguilar to pursue his Lawsuit are final. Even if the bankruptcy court erred in concluding that Aguilar could pursue the Lawsuit, Farmers cannot collaterally attack the final judgment. (Levy v. Cohen, supra, 19 Cal.3d at p. 172; Abdallah v. United SavingsBank (1996) 43 Cal.App.4th 1101, 1109 [res judicata barred relitigation of claims regarding impropriety associated with relief from stay that could have been raised in the bankruptcy court].) In sum, Farmers fails to show that the doctrine of res judicata precluded Aguilar’s Lawsuit even though it was based on negligence.
2. Judicial Estoppel
Farmers argues that Aguilar “played fast and loose” with the courts by seeking a nondischargeability judgment based on section 523(a)(6) and then pursuing a claim based on negligence. According to Farmers, as a result, Aguilar should have been judicially estopped from pursuing the Lawsuit. We disagree.
A. Legal Principles
“‘“Judicial estoppel precludes a party from gaining an advantage by taking one position, and then seeking a second advantage by taking an incompatible position. [Citations.] The doctrine’s dual goals are to maintain the integrity of the judicial system and to protect parties from opponents’ unfair strategies. [Citation.] Application of the doctrine is discretionary.”’ [Citation.]” (Aguilar v. Lerner (2004) 32 Cal.4th 974, 986.) Judicial estoppel is designed to protect the integrity of the judicial process. (Jackson v. County of Los Angeles (1997) 60 Cal.App.4th 171, 182.) The purpose of judicial estoppel is to prevent a fraud on the court. (Gottlieb v. Kest, supra, 141 Cal.App.4th at p. 131.) “‘“‘It seems patently wrong to allow a person to abuse the judicial process by first [advocating] one position, and later, if it becomes beneficial, to assert the opposite.’”’ [Citations.]” (Ibid.)
Judicial estoppel may apply when “‘(1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud, or mistake.’ [Citation.]” (Aguilar v. Lerner, supra, 32 Cal.4th at pp. 986-987.) However, even if all elements are established, judicial estoppel is not invariably applied. (People v. Castillo (2010) 49 Cal.4th 145, 156.) “Because of its harsh consequences, the doctrine should be applied with caution and limited to egregious circumstances.” (Gottlieb v. Kest, supra, 141 Cal.App.4th at p. 132.) “‘It is an “‘extraordinary remed[y] to be invoked when a party’s inconsistent behavior will otherwise result in a miscarriage of justice.’”’ [Citation.]” (Id. at pp. 130-131.)
B. No Showing of Success in Asserting the First Position
In so far as it claims Aguilar argued that Gostischef’s conduct was “willful and malicious” in the bankruptcy court, Farmers’ argument is correct. Aguilar alleged that in his complaint and in the stipulation. However, Farmers fails to show Aguilar was successful in asserting his position in the bankruptcy court. Neither the Judgment nor postjudgment order indicates that the bankruptcy court found Gostischef’s conduct willful and malicious. The bankruptcy court made no determination on the issue. The court may have entered judgment based on Aguilar’s and Gostischef’s stipulation. (See In re Laing, supra, 31 F.3d at p. 1051; In re Martinelli, supra, 96 B.R. at p. 1014.) Thus, Farmers fails to show Aguilar “is now endeavoring to intentionally assert ‘“an inconsistent position that perverts the judicial machinery”’ [citation].” (Kolodge v. Boyd (2001) 88 Cal.App.4th 349, 376; see also The Swahn Group, Inc. v. Segal (2010) 183 Cal.App.4th 831, 845.)
Title 11 United States Code section 727(a)(10) provides: “The court shall grant the debtor a discharge, unless— [¶]... [¶] (10) the court approves a written waiver of discharge executed by the debtor after the order for relief under this chapter.” There is a split of authority regarding whether title 11 United States Code section 727(a)(10) allows a debtor to waive the dischargeability of a specific debt. (Compare In re Minor, supra, 115 B.R. at p. 694 with In re Mapother, supra, 53 B.R. at p. 436.) We need not resolve this split of authority. For purposes of this case, it is sufficient to note that the bankruptcy court may have relied solely on Aguilar’s and Gostischef’s stipulation in finding the debt nondischargeable.
Gottlieb v. Kest, supra, 141 Cal.App.4th 110 supports this conclusion. There, the court concluded that a chapter 11 debtor was required to disclose a legal claim in its chapter 11 bankruptcy case. (Gottlieb v. Kest, at p. 136.) It concluded that the debtor informed the bankruptcy court that it did not have any legal claims against anyone and then subsequently sought to recover on a nonexistent legal claim in state court. (Id. at p. 137.) But the appellate court declined to apply judicial estoppel because there was no evidence the bankruptcy court accepted the debtor’s position. (Id. at pp. 137-138.) “‘[I]f a party’s initial position was never accepted by a court or agency, then it is difficult to see how a later change manifests an “intent to play fast and loose with the court[s].” [Citation.]’” (Id. at p. 139.) Similarly here, judicial estoppel is inapplicable because Farmers fails to show the bankruptcy court accepted Aguilar’s position.
C. No Showing that the Equitable Doctrine Should Apply
“‘“‘Judicial estoppel precludes a party from gaining an advantage by taking one position, and then seeking a second advantage by taking an incompatible position.’”’ [Citations.]” (People v. Castillo, supra, 49 Cal.4th at p. 155.) “[J]udicial estoppel ‘is an equitable doctrine invoked by a court at its discretion.’ [Citation.]” (New Hampshire v. Maine (2001) 532 U.S. 742, 750.) Under the circumstances of this case, the application of judicial estoppel to bar Aguilar’s Lawsuit constitutes an abuse of discretion.
The parties dispute whether the trial court relied on the doctrine of judicial estoppel when it granted Farmers’ motion for a judgment notwithstanding the verdict. When orally explaining the basis of its ruling, the trial court did not mention judicial estoppel, but in its written order, it stated that it had relied on the reasons in Farmers’ motion, which included a contention that the doctrine of judicial estoppel was applicable. We need not resolve this dispute, because assuming the court applied judicial estoppel, such application would have constituted an abuse of discretion for the reasons explained above.
Here with respect to Aguilar’s negligence lawsuit, Aguilar seeks neither a dual recovery on an inconsistent basis nor a recovery from Gostischef personally. He gains no advantage vis-á-vis Farmers by taking inconsistent positions. Farmers derives no unfair detriment as a result of Aguilar’s conduct in the bankruptcy court. Instead, Farmers endeavors to gain an unfair advantage through the application of judicial estoppel. Farmers seeks to avoid any liability for Gostischef’s negligence, a result unavailable to an insurer regardless of the outcome of the dischargeability proceeding. Stated otherwise, whether Gostischef’s debt was dischargeable had no affect on Farmers’ liability for Gostischef’s negligence. Even if the bankruptcy court had ruled that Gostischef’s debt to Aguilar were dischargeable, Aguilar could have sought recovery from Farmers. (Forsyth v. Jones (1997) 57 Cal.App.4th 776, 781; Matter of Edgeworth (5th Cir. 1993) 993 F.2d 51, 54 (Edgeworth); In re Beeney (Bankr. 9th Cir. BAP 1992) 142 B.R. 360, 362-363; In re Doughty (Bankr. D.Me. 1996) 195 B.R. 1, 4.)
Gostischef argues that Edgeworth is limited to a case when the insurance proceeds are not part of the bankruptcy estate and argues that he would be entitled to a portion of the proceeds in this case. We disagree with Gostischef’s claim that he would be entitled to a portion of the insurance proceeds in this case. We therefore need not consider his construction of Edgeworth.
“[T]he purpose of bankruptcy in general, and of the discharge and permanent injunction in particular, is to give the debtor the opportunity to make a fresh start financially. [Citation.] It is not to deprive a claimant unnecessarily of the means to recover damages for a potentially meritorious claim. ‘[I]t makes no sense to allow an insurer to escape coverage for injuries caused by its insured merely because the insured receives a bankruptcy discharge. “The ‘fresh-start’ policy is not intended to provide a method by which an insurer can escape its obligations based simply on the financial misfortunes of the insured.” [Citations.] “Such a result would be fundamentally wrong.” [Citation.]’ ([Edgeworth], supra, 993 F.2d at p. 54.) ‘“[T]he insurance company should not be entitled to gain a benefit that was not intended or in any way computed within the rate charged for its policy.” [Citations.]’ [Citation.]” (Forsyth v. Jones, supra, 57 Cal.App.4th at pp. 781-782.)
Farmers’ efforts to avoid liability and manipulate the equitable doctrine of judicial estoppel to achieve an injustice cannot be countenanced. (See In re An-Tze Cheng (Bankr. 9th Cir. BAP 2004) 308 B.R. 448, 459 [a “court of equity seeks to do justice and not injustice. It will not do ‘inequity in the name of equity.’ [Citation.]”].) Aguilar was required to obtain a judgment against Gostischef in order to seek recovery from Gostischef’s insurer. (Boyer v. Jensen (2005) 129 Cal.App.4th 62, 73.) Judicial estoppel does not preclude Aguilar from that option.
Farmers’ concern for Gostischef’s creditors other than Aguilar does not persuade us that judicial estoppel barred Aguilar’s suit. Farmers’ challenge is tantamount to a collateral attack on a settlement approved by the bankruptcy court, which required the bankruptcy court to consider the rights of all creditors. (See In re Vazquez (Bankr. S.D.Fla. 2005) 325 B.R. 30, 35 [“It is a fundamental tenet of bankruptcy jurisprudence that the proponent of a settlement... bears the burden of demonstrating that the proposal is both reasonable and in the best interests of the bankruptcy estate”].) Additionally, Farmers fails to show that any of Gostischef’s creditors would have had an interest in the proceeds of Farmers’ insurance policy or that applying judicial estoppel in this context would benefit Gostischef’s creditors. The only evidence is that the application of judicial estoppel would benefit Farmers by improperly shielding it from liability.
Finally, Farmers acknowledges that had Gostischef’s debt been discharged, Aguilar could have litigated against Gostischef in order to seek damages from Farmers in the amount of Gostischef’s policy limits. But Farmers argues that Aguilar could not have sought damages for a bad faith claim. As no bad faith claim was raised in the present litigation, we need not address that argument. With respect to this case, involving Aguilar’s claim for personal injury, Farmers fails to show it was entitled to a judgment notwithstanding the verdict.
We deny Farmers’ request to take judicial notice of Aguilar’s opposition to Farmers’ motion for judgment on the pleadings in a different lawsuit brought by Farmers against Aguilar and Gostischef. The document is not relevant to any issue in this case. (Arce v. Kaiser Foundation Health Plan, Inc. (2010) 181 Cal.App.4th 471, 482.)
DISPOSITION
The judgment for Gostischef entered May 28, 2009, is reversed. The trial court shall reinstate the judgment in favor of Aguilar dated January 6, 2008, awarding Aguilar $2,339,657. Farmers shall pay Aguilar’s costs on appeal. Gostischef shall pay his own costs on appeal.
We concur: RUBIN, Acting P. J., GRIMES, J.
Because we conclude that the court erred in granting Farmers’ motion for a judgment notwithstanding the verdict, we need not consider Aguilar’s arguments that the court should have denied Farmers’ motion to intervene. Additionally, because the judgment must be reversed, we need not consider the parties’ arguments regarding the propriety of awarding costs to Farmers and Gostischef, all of which are based on an assumption that Gostischef was the prevailing party.
It appears that the parties are involved in other litigation. That litigation is not before us, and we express no opinion on it.
First, Gostischef did not identify insurance proceeds in the bankruptcy court schedules identifying his property. Second, the great bulk of bankruptcy law does not support Gostischef’s claim, and to the extent Matter of Vitek, Inc. (5th Cir. 1995) 51 F.3d 530 supports Gostischef’s argument, it is not persuasive.
“In the liability insurance context the debtor has no cognizable claim to the proceeds paid by an insurer on account of a covered claim. The proceeds are paid to the victim of the insured’s wrongful act. The insured debtor cannot ask the insurance company to pay him, or determine on its own how the proceeds of the policy should be distributed, nor can any creditor of the insured seize the proceeds in satisfaction of a claim not falling within the terms of the insurance contract.” (Landry v. Exxon Pipeline Co. (Bankr. M.D.La. 2001) 260 B.R. 769, 786, fn. omitted.) “When a covered claim arises, the injured debtor may have an interest, albeit a self-serving interest, in having a third party (the insurance company) pay for its wrongdoing, but this is not a legal or equitable interest in the property used to pay the claim. The interest the insured debtor has is the contractual right to have its own assets protected from exposure by means of the insurance coverage, according to the terms of the contract.” (Id. at p. 787, boldface omitted.) Although Matter of Vitek, Inc., supra, 51 F.3d 530 arguably holds otherwise, its analysis overlooks the fact that the debtor has no legal or equitable interest in the property. (Landry, supra, at p. 792; see also 11 U.S.C. § 541(a)(1) [bankruptcy estate consists of all legal and equitable interests owned by the debtor].)
Finally, the remaining authority cited by Gostischef is not persuasive because it involves chapter 11 bankruptcy petitions and Gostischef fails to show that the cases discussing chapter 11 reorganization are analogous in this context. (See In re Correct Mfg. Corp. (Bankr. S.D.Ohio 1988) 88 B.R. 158, 162.)