Opinion
Case No. 19-CV-05368-LHK
2020-08-17
Simon CHAN, Appellants, v. Michael Scott FRAZER, et al., Appellees.
Andrew G. Watters, San Mateo, CA, Charles Marriott Kagay, California Appellate Law Group LLP, San Francisco, CA, for Appellants. Simon Chan, Dallas, TX, pro se. Hussein Mohammad Saffouri, Ramsey Law Group, Lafayette, CA, for Appellees.
Andrew G. Watters, San Mateo, CA, Charles Marriott Kagay, California Appellate Law Group LLP, San Francisco, CA, for Appellants.
Simon Chan, Dallas, TX, pro se.
Hussein Mohammad Saffouri, Ramsey Law Group, Lafayette, CA, for Appellees.
ORDER AFFIRMING BANKRUPTCY COURT'S ORDER GRANTING APPELLEES' MOTION FOR SUMMARY JUDGMENT AS TO COMPENSATORY DAMAGES
Re: Dkt. No. 8
LUCY H. KOH, United States District Judge
Appellant Simon Chan ("Appellant") appeals the Bankruptcy Court's order granting Michael Scott Frazer, Alan Miller, William Chan, Michelle Chan, Jeff Chang, Tomas Velken, and Julie Lam's (collectively, "Appellees") motion for summary judgment as to compensatory damages. Having considered the parties' submissions, the relevant law, and the record in this case, the Court AFFIRMS the Bankruptcy Court's order granting Appellees' motion for summary judgment as to compensatory damages.
I. BACKGROUND
A. Factual Background
On March 28, 2014, Appellees sued Appellant in California Superior Court for the County of Contra Costa and alleged that Appellant defrauded Appellees in connection with a real estate investment venture in Beijing, China. ER 81. According to Appellees, Appellant received funds from Appellees but never provided an accounting or any records regarding these funds, and instead, Appellant deposited the funds into his personal bank accounts and placed title to the condominium units in his name. ER 16–17. Appellees claimed that Appellant concealed this information and made misrepresentations about the status of the investments. Id. As a result, Appellants alleged causes of action for intentional fraud and deceit, negligent misrepresentation, breach of fiduciary duty, unfair business practice, and unjust enrichment. ER 88.
Following a bench trial in July 2017 regarding liability and compensatory damages, the California Superior Court issued a Tentative Decision on December 19, 2017. ECF No. 13, Ex. 1. Appellant filed objections and supplemental objections to the Tentative Decision, and Respondents filed a response to Appellant's objections. Id. , Exs. 2–4.
Appellees request that the Court take judicial notice of court filings in the California Superior Court action. ECF No. 13. The Court GRANTS Appellee's request for judicial notice. Courts may "properly take judicial notice of court filings to determine whether claims before it are precluded," and this is true even in bankruptcy appeals. See In re Houng , 499 B.R. 751, 763 n.41 (C.D. Cal. 2013) ; In re Icenhower , 755 F.3d 1130, 1142 (9th Cir. 2014) (bankruptcy appeal opinion taking judicial notice of court filings); In re Old Canal Fin. Corp. , 550 B.R. 519, 525 (C.D. Cal. 2016) (same).
On January 24, 2018, after considering the objections and the response, the California Superior Court issued detailed factual findings and conclusions of law in a 17-page Statement of Decision. ER 59–75. The Statement of Decision rejected all of Appellant's cross claims, ER 72–74, and found in favor of Appellees on all their causes of action except their negligent misrepresentation claim. ER 66. Accordingly, the California Superior Court awarded compensatory damages as follows: $373,109 for Julie Lam; $263,371 for Michael Scott Frazer; $131,686 for Jeff Chang; $131,686 for William and Michelle Chan; $131,686 for Tomas Velken; and $131,686 for Alan Miller. The Statement of Decision also noted that the parties stipulated to bifurcate the issue of punitive damages and set a conference for February 6, 2018 to schedule the punitive damages phase of the trial. ER 59, 75.
However, the next day, January 25, 2018, Appellant filed for bankruptcy in this district. ER 78. This automatically stayed the California Superior Court action before the California Superior Court could conduct the punitive damages trial and enter judgment. 11 U.S.C. § 362 (stating that the initiation of bankruptcy proceedings triggers an automatic stay of the continuation of any "judicial, administrative, or other action or proceeding" against the debtor). On March 22, 2018, Appellees and the bankruptcy trustee "stipulated to relief from stay for the limited purpose of allowing the Plaintiffs to procure a monetary judgment" from the Superior Court for the compensatory damages set forth in the Superior Court's Statement of Decision. ER 77. Appellees and the bankruptcy trustee also stipulated "to waive trial of the issue of punitive damages, and stipulate[d] to an amount of punitive damages." Id.
On April 18, 2018, the state court entered judgment in favor of Appellees and against Appellant. ER 128–129. The judgment explicitly "adopt[ed] and incorporate[d] herein [the California Superior Court's] final statement of decision entered on January 24, 2018, and attached as Exhibit A, hereto." Id. at 129. The judgment therefore awarded compensatory damages as set forth in the Statement of Decision. Id. The judgment also awarded punitive damages pursuant to the stipulation between Appellees and the bankruptcy trustee. Id.
Appellant appealed the California Superior Court judgment, and on December 10, 2018, the California Court of Appeal dismissed the appeal. ER 152–159. On February 20, 2019, the California Supreme Court denied Appellant's petition for review. ER 160. On March 4, 2019, the California Court of Appeal issued a remittitur certifying that the California Superior Court judgment was final. ER 162.
B. Procedural History
Appellees filed the instant adversary action against Appellant in March 2018. On May 4, 2018, Appellees filed an amended complaint with the California Superior Court judgment attached. ER 1–8. Appellees asserted that Appellant's debt was based on false representations and fraud and was therefore nondischargeable under 11 U.S.C. § 523(a)(2)(A). Id.
On May 6, 2019, the Bankruptcy Court held a hearing on the parties' motions for summary judgment. ER 192. The Bankruptcy Court discussed and incorporated in its order substantial portions of the California Superior Court's Statement of Decision. ER 203–206. The Bankruptcy Court granted Appellee's motion for summary judgment as to compensatory damages because the California Superior Court decision granting Appellees compensatory damages had preclusive effect, and thus, Appellant was collaterally estopped from relitigating that issue before the Bankruptcy Court. ER 200–208. Specifically, the Bankruptcy Court concluded that Appellee's claim under 11 U.S.C. § 523(a)(2)(A) was "identical to the claim that they asserted in Contra Costa County Superior Court," that Appellees were entitled to compensatory damages in the amounts specified in the California Superior Court judgment, and that these damages were nondischargeable. ER 205, 208.
As to punitive damages, the Bankruptcy Court noted that unlike compensatory damages, Appellees and the bankruptcy trustee stipulated to the amount of punitive damages and that it was therefore unclear whether collateral estoppel applied to punitive damages. ER 208. As a result, the Bankruptcy Court invited the parties to file supplemental briefing on the issue of punitive damages and set a hearing for June 10, 2019. ER 208–211.
On June 10, 2019, the Bankruptcy Court held that the California Superior Court judgment did not have collateral estoppel effect as to punitive damages because the bankruptcy trustee was not in privity with Appellant when the bankruptcy trustee stipulated to punitive damages. ER 219–220. The Bankruptcy Court then asked Appellees whether they desired a trial on punitive damages or were willing to waive punitive damages and have judgment entered solely on compensatory damages. ER 222–226.
On July 19, 2019, Appellees filed a letter to explain that "all of the plaintiffs in this matter have elected to forego the punitive damages awarded to them by the Contra Costa County Superior Court in its judgment entered on April 18, 2018." ER 227. As a result, on August 9, 2019, the Bankruptcy Court entered an order denying Appellant's motion for summary judgment and granting Appellees' motion for summary judgment as to compensatory damages. ER 228–229. The Bankruptcy Court also denied Appellees' motion for summary judgment as to punitive damages. Id. That same day, the Bankruptcy Court entered a judgment formally awarding Appellees compensatory damages. ER 230–231.
On August 23, 2019, Appellant filed a timely notice of appeal. ER 232–236. On November 22, 2019, Appellant filed an opening brief. ECF No. 8 ("Appellant's Br."). On January 10, 2020, Appellees filed a response brief. ECF No. 12 ("Appellees' Br."). On February 6, 2020, Appellant filed a reply brief. ECF No. 16 ("Appellant's Reply").
II. LEGAL STANDARD
A federal district court has jurisdiction to entertain an appeal from a bankruptcy court under 28 U.S.C. § 158(a), which provides that "[t]he district courts of the United States shall have jurisdiction to hear appeals ... from final judgments, orders, and decrees[ ] of bankruptcy judges[.]" On appeal, a district court reviews a bankruptcy court's conclusions of law de novo, and the bankruptcy court's factual findings for clear error. In re Greene , 583 F.3d 614, 618 (9th Cir. 2009) (citing In re Raintree Healthcare Corp. , 431 F.3d 685, 687 (9th Cir. 2005) ); In re Salazar , 430 F.3d 992, 994 (9th Cir. 2005) ("We review the bankruptcy court's conclusions of law de novo and its factual findings for clear error.").
III. DISCUSSION
Appellant argues that the Bankruptcy Court erred by finding that the California Superior Court judgment had collateral estoppel effect and that, as a result, compensatory damages were nondischargeable. Appellant's sole argument that the compensatory damages are dischargeable is Appellant's collateral estoppel argument. Appellant's Br. at 2, 8–19. "Under the Full Faith and Credit Act, 28 U.S.C. § 1738, the preclusive effect of a state court judgment in a subsequent bankruptcy proceeding is determined by the preclusion law of the state in which the judgment issued." Gayden v. Nourbakhsh , 67 F.3d 798, 800 (9th Cir. 1995). The parties agree that California law applies to the instant case. Appellant's Br. at 9–10; Appellees' Br. at 8.
Under California law, "[c]ollateral estoppel precludes relitigation of issues argued and decided in prior proceedings." Lucido v. Superior Court , 51 Cal. 3d 335, 341, 272 Cal.Rptr. 767, 795 P.2d 1223 (1990). California courts apply collateral estoppel if several threshold requirements are fulfilled.
First, the issue sought to be precluded from relitigation must be identical to that decided in a former proceeding. Second, this issue must have been actually litigated in the former proceeding. Third, it must have been necessarily decided in the former proceeding. Fourth, the decision in the former proceeding must be final and on the merits. Finally, the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding.
Id.
Furthermore, "[e]ven assuming all the threshold requirements are satisfied, ... [courts must] look[ ] to the public policies underlying the doctrine before concluding that collateral estoppel should be applied in a particular setting." Id. at 342–43, 272 Cal.Rptr. 767, 795 P.2d 1223. "Accordingly, the public policies underlying collateral estoppel—preservation of the integrity of the judicial system, promotion of judicial economy, and protection of litigants from harassment by vexatious litigation—strongly influence whether its application in a particular circumstance would be fair to the parties and constitutes sound judicial policy." Id. at 343, 272 Cal.Rptr. 767, 795 P.2d 1223.
Finally, "[w]hether collateral estoppel applies in a particular case is a question of law which [courts] review de novo." Duarte v. State Teachers' Ret. Sys. , 232 Cal. App. 4th 370, 389 n.11, 181 Cal.Rptr.3d 169 (2014) (citation omitted); Fireman's Funds Ins. Co. v. Stites , 258 F.3d 1016, 1020 (9th Cir. 2001) ("The availability of collateral estoppel is an issue of law that we review de novo.").
Here, Appellant primarily raises two arguments as to why collateral estoppel does not apply. First, Appellant argues that collateral estoppel does not apply because Appellant did not litigate the prior action to final judgment, because, according to Appellant, Appellees and the bankruptcy trustee stipulated to judgment regarding compensatory damages. Second, Appellant asserts that collateral estoppel does not apply because its application would be contrary to public policy.
Appellees first respond that the California Superior Court judgment explicitly incorporated the California Superior Court's Statement of Decision, and therefore, there was a final judgment on the merits in the California Superior Court action. Appellees also dispute Appellant's assertion that application of collateral estoppel would be contrary to public policy.
For the reasons set forth below, the Court concludes that Appellant litigated the issues of liability and compensatory damages in the California Superior Court action to final judgment and that application of collateral estoppel would not be contrary to California public policy. Therefore, collateral estoppel applies, and as a result, the Court AFFIRMS the Bankruptcy Court's order granting Appellees' motion for summary judgment as to compensatory damages.
A. Collateral Estoppel Applies Because Appellant Litigated The Issues Of Liability And Compensatory Damages To Final Judgment
As noted previously, in order for collateral estoppel to apply, "the decision in the former proceeding must be final and on the merits." Lucido , 51 Cal. 3d at 341, 272 Cal.Rptr. 767, 795 P.2d 1223. Appellant acknowledges, as he must, that he litigated the California Superior Court action through trial "up to a statement of decision." Appellant's Br. at 15. Appellant argues, however, that the California Superior Court "judgment resulted from the stipulation between the trustee and plaintiffs." Id. Accordingly, Appellant contends that there was no "final judgment" on the merits, and as a result, collateral estoppel cannot apply.
As an initial matter, Appellant's opposed Appellees' motion for summary judgment almost entirely on the basis that Appellant wanted the Bankruptcy Court to retry the California Superior Court trial and permit Appellant to introduce additional evidence. ER at 167 (arguing collateral estoppel should not apply because Appellant was unable to present evidence that "would have made all the difference to the [California Superior Court]"); ER at 170 (arguing that the Bankruptcy Court should permit the parties to relitigate the case and consider alleged "new evidence").
Appellant did not raise the argument that there was no "final judgment" on the merits before the Bankruptcy Court. See ER 163–73 (Appellant's Opp. to Appellees' MSJ) (failing to raise argument that the California Superior Court action did not result in a final judgment on the merits). "A litigant may waive an issue by failing to raise it in a bankruptcy court." In re Mortg. Store, Inc. , 773 F.3d 990, 998 (9th Cir. 2014). A court has discretion to consider an argument raised for the first time on appeal if there are "exceptional circumstances." Id. Here, however, Appellant has entirely failed to explain why he did not raise the argument before the Bankruptcy Court despite the opportunity to do so. "A party's unexplained failure to raise an argument that was indisputably available below is perhaps the least ‘exceptional’ circumstances warranting our exercise of ... discretion." In re Ahn , 804 Fed. App'x 541, 543 (9th Cir. 2020) (quoting G & G Prods. LLC v. Rusic , 902 F.3d 940, 950 (9th Cir. 2018) ); see also In re O'Connor , 787 Fed. App'x 429, 430 (9th Cir. 2019) ("Moreover, the Appellant failed to address any of the exceptions to the general rule that an argument raised for the first time on appeal is waived. Accordingly, the Appellant waived this argument." (citation omitted)). As a result, the Court concludes that Appellant waived the argument that the California Superior Court action did not result in a final judgment on the merits.
Alternatively, and in any event, Appellant's argument fails on the merits. Here, the California Superior Court presided over a bench trial in July 2017 regarding liability and compensatory damages, and the California Superior Court issued a Tentative Decision on December 19, 2017. ECF No. 13, Ex. 1. Appellant filed objections and supplemental objections to the Tentative Decision, and Respondents filed a response to Appellant's objections. Id. , Exs. 2–4.
On January 24, 2018, after considering the Appellant's objections and supplemental objections and Appellees' response, the California Superior Court issued detailed factual findings and conclusions of law in a 17-page Statement of Decision. ER 59–75. The Statement of Decision rejected all of Appellant's cross claims, ER 72–74, and found in favor of Appellees on all their causes of action except their negligent misrepresentation claim. ER 66. The California Superior Court entered a judgment that explicitly "adopt[ed] and incorporate[d] herein [the California Superior Court's] final statement of decision entered on January 24, 2018, and attached as Exhibit A, hereto." Id. at 129. The California Superior Court judgment therefore awarded compensatory damages as set forth in the Statement of Decision. Id.
Furthermore, on December 10, 2018, the California Court of Appeals dismissed Appellant's appeal. ER 152–159. On February 20, 2019, the California Supreme Court denied Appellant's petition for review. ER 160. Finally, on March 4, 2019, the California Court of Appeal issued a remittitur certifying that the California Superior Court judgment was final. ER 162. Therefore, the California Superior Court judgment was a final judgment for the purposes of collateral estoppel. Mueller v. J.C. Penney Co. , 173 Cal. App. 3d 713, 719, 219 Cal.Rptr. 272 (1985) ("For purposes of collateral estoppel, a judgment free from direct attack is a final judgment."); Mills v. City of Covina , 921 F.3d 1161, 1169–70 (9th Cir.), cert. denied sub nom. Mills v. City of Covina, California , ––– U.S. ––––, 140 S. Ct. 388, 205 L.Ed.2d 219 (2019) ("A final judgment is defined as one that is free from direct attack. Stated differently, to be final for purposes of collateral estoppel the decision need only be immune, as a practical matter, to reversal or amendment." (quotation marks, citations, and internal alterations omitted)).
Appellant nonetheless contends that the California Superior Court judgment was not a final judgment on the merits because Appellees and the bankruptcy trustee stipulated to the entry of judgment, and therefore—because the bankruptcy trustee was not in privity with Appellant—collateral estoppel cannot apply. Appellant's argument fails as it clearly mischaracterizes the facts.
In the California Superior Court action, Appellant vigorously litigated the issues of liability and compensatory damages. The California Superior Court held a trial on these issues, issued a Tentative Decision, received and assessed Appellant's objections and supplemental objections, and then issued a final Statement of Decision on January 24, 2018. ECF No. 13, Exs. 1–4; ER 59–75. The California Superior Court Statement of Decision was 17 pages and included detailed factual findings and conclusions of law. ER 59–75. The Statement of Decision rejected all of Appellant's cross claims, ER 72–74, and found in favor of Appellees on all their causes of action except their negligent misrepresentation claim. ER 66. Judgment was not entered, however, because the issue of punitive damages remained outstanding, and Appellant's bankruptcy filing the day after the Superior Court issued the Statement of Decision automatically stayed the Superior Court action.
After Appellees and the bankruptcy trustee stipulated to the issue and amount of punitive damages, the California Superior Court entered judgment. That judgment noted Appellees and the bankruptcy trustee stipulated to the issue of punitive damages, but as to compensatory damages, the judgment explained that "[t]he Court adopts and incorporates herein its final statement of decision entered on January 24, 2018, and attached as Exhibit A, hereto" and awarded compensatory damages consistent with the Statement of Decision. ER 129. Therefore, contrary to Appellant's misrepresentations, the California Superior Court judgment—as to the issues of liability and compensatory damages—was the result of the California Superior Court's Statement of Decision, not any stipulation between Appellees and the bankruptcy trustee.
Because the California Superior Court judgment as to liability and compensatory damages was based on the January 24, 2018 Statement of Decision, Appellant's cited case law is inapposite. Appellant's Br. at 16–17. Those cases stand for the proposition that "[a] statement of decision issued by the court cannot automatically constitute a final decision for purposes of entry of judgment" because a "trial court ha[s] the inherent power to amend its statement of decision" and "[e]ven after a court has issued a written decision, the court retains the power to change its findings of fact or conclusions of law until judgment is entered." Bay World Trading, Ltd. v. Nebraska Beef, Inc. , 101 Cal. App. 4th 135, 141, 123 Cal.Rptr.2d 632 (2002) (citing Phillips v. Phillips , 41 Cal. 2d 869, 874–75, 264 P.2d 926 (1953) ).
Here, however, the California Superior Court judgment has legal effect. The California Superior Court judgment as to liability and compensatory damages did not result from a stipulation, but instead, adopted and incorporated the California Superior Court's January 24, 2018 Statement of Decision, which consisted of 17 pages of detailed findings of fact and conclusions of law. ER 129. The California Superior Court's Statement of Decision resulted from a bench trial, a Tentative Decision, and consideration of Appellant's objections and supplemental objections to the Tentative Decision, and Appellee's response to Appellant's objections.
As a result, the Court rejects Appellant's argument that the California Superior Court action did not result in a final judgment on the merits.
B. California Public Policy Strongly Supports The Application of Collateral Estoppel In the Instant Case
Appellant's remaining argument is that the application of collateral estoppel would be contrary to public policy because the final judgment resulted from a stipulation between Appellees and the bankruptcy trustee. Appellant's Br. at 18.
Again, Appellant failed to raise this argument before the Bankruptcy Court and has not explained any "exceptional circumstances" excusing this failure. See In re Ahn , 804 Fed. App'x at 543 (" ‘A party's unexplained failure to raise an argument that was indisputably available below is perhaps the least ‘exceptional’ circumstances warranting our exercise of ... discretion.’ ") (quoting Rusic , 902 F.3d at 950 ); In re O'Connor , 787 Fed. App'x at 430 ("Moreover, the Appellant failed to address any of exceptions to the general rule that an argument raised for the first time on appeal is waived. Accordingly, the Appellant waived this argument." (citation omitted)). This argument is therefore waived.
Even if Appellant could demonstrate exceptional circumstances justifying his failure to raise this issue before the Bankruptcy Court, the Court rejects Appellant's argument for the reasons discussed above. Specifically, the California Superior Court judgment as to liability and compensatory damages was based on the California Superior Court's Statement of Decision, not any stipulation. Therefore, California public policy does not prohibit applying collateral estoppel in the instant case.
Indeed, if anything, California public policy strongly supports the application of collateral estoppel. "[T]he public policies underlying collateral estoppel" are "preservation of the integrity of the judicial system, promotion of judicial economy, and protection of litigants from harassment by vexatious litigation." Lucido , 51 Cal. 3d at 343, 272 Cal.Rptr. 767, 795 P.2d 1223. Here, Appellant vigorously and fully litigated the issues of liability and compensatory damages in the California Superior Court action and appealed the judgment to the California Court of Appeals and the California Supreme Court. ER 152–159; ER 160. The California Superior Court ruled against Appellant after a trial on the merits and after Appellant filed objections and supplemental objections to the California Superior Court's Tentative Decision. ECF No. 13, Exs. 1–4. Appellant plainly acknowledges that what Appellant truly seeks is an additional opportunity to retry the California Superior Court trial and obtain "a different result." Appellant's Reply at 23.
Applying collateral estoppel in the instant case would therefore maintain the integrity of California state courts and their reasoned decisions, promote judicial economy by preventing repetitive litigation of identical issues, and protect Appellees from having to relitigate issues based on what appears to be procedural gamesmanship on the part of Appellant.
Accordingly, California public policy strongly supports the application of collateral estoppel. Appellant's arguments to the contrary are meritless.
IV. CONCLUSION
For the foregoing reasons, the Court AFFIRMS the Bankruptcy Court's order granting Appellees' motion for summary judgment as to compensatory damages.