Opinion
Case No. 16-23787-B-7 Adversary No. 16-2132
05-10-2017
In re: THOMAS OLIVER BROWN, Debtor(s). RICHARD A. BIAMA, Plaintiff(s), v. THOMAS OLIVER BROWN, Defendant(s).
SUPPLEMENTAL ORDER DENYING MOTION FOR RECONSIDERATION WITHOUT PREJUDICE
On March 30, 2017, plaintiff Richard A. Biama moved for reconsideration of an order denying his earlier motion in limine entered on March 22, 2017. The motion in limine sought to impose collateral estoppel for purposes of a non-dischargeability claim under 11 U.S.C. § 523(a)(2)(A) and preclude defendant Thomas O. Brown from introducing evidence to contradict a pre-petition arbitration award that states plaintiff proved fraud under state law. The court denied plaintiff's motion in limine because plaintiff failed to establish that the arbitrator applied a justifiable reliance standard to the state law fraud claim which is also required for the § 523(a)(2)(A) claim. Absent that showing, the court could not conclude that all elements of the § 523(a)(2)(A) claim were actually litigated and necessarily decided for purposes of giving the arbitration award collateral estoppel effect in this adversary proceeding.
A hearing on the motion for reconsideration was held on May 2, 2017. Appearances were noted on the record. The court stated findings of fact and conclusions of law on the record pursuant to Federal Rule of Civil Procedure ("Civil Rule") 52(a) applicable by Federal Rule of Bankruptcy Procedure ("Bankruptcy Rule") 7052. This order supplements the court's oral findings of fact and conclusions of law.
Because it was filed within fourteen days of the entry of the order denying the motion in limine, the motion for reconsideration is decided under Civil Rule 59(e) applicable by Bankruptcy Rule 9023 and not Local District Court Rule 230 as cited by plaintiff. See LBR 1001-1(c); Dicker v. Dye (In re Edelman), 237 B.R. 146, 151 (9th Cir. BAP 1999). Relief under Civil Rule 59(e) may be granted if, as stated by the plaintiff, necessary to correct manifest errors of law or fact or to prevent manifest injustice. Allstate Ins. Co. v. Herron, 634 F.3d 1101, 1111 (9th Cir. 2011). Here, relief is not warranted on either (or any other) ground.
Plaintiff maintains that justifiable reliance is an element of a state law fraud claim and so when the arbitrator stated in the award that plaintiff proved fraud the arbitrator necessarily found that plaintiff proved justifiable reliance. There are several problems with that argument: (1) California courts (and federal courts applying California law) also apply a reasonable reliance standard to state law fraud claims; (2) the state court complaint before the arbitrator did not allege either justifiable or reasonable reliance; and (3) the state court complaint before the arbitrator alleged detrimental reliance. Thus, while it may be that the arbitrator applied some standard of reliance to conclude that plaintiff proved state law fraud, there apparently were three standards to choose from. The standard actually applied is not at all clear.
Plaintiff suggested that reasonable reliance is a higher standard than justifiable reliance so even if the arbitrator applied the former he necessarily found the latter. Plaintiff's argument ignores the possibility that the arbitrator could have used neither and instead applied some form of detrimental reliance.
Plaintiff alternatively maintains that under Husky Int'l Electronics, Inc. v. Ritz, 136 S. Ct. 1581 (2016), he need not establish justifiable reliance as an element of his § 523(a)(2)(A) claim. Husky does not alter the requirement that a plaintiff prove justifiable reliance as an element of a § 523(a)(2)(A) claim when the § 523(a)(2)(A) claim is based on a misrepresentation theory. In re Jahedi, 2017 WL 1034681, *4 n.4 (Bankr. C.D. Cal. 2017); In re Katchtourian, 2016 WL 4267937, *4 n.3 (Bankr. C.D. Cal. 2016); see also In re Matthews, 2016 WL 5746251, *16 (Bankr. C.D. Cal. 2016). Here, the § 523(a)(2)(A) claim alleged in the adversary complaint that relies on the arbitration award for collateral estoppel purposes is based on a misrepresentation theory. Therefore, justifiable reliance remains an element of the § 523(a)(2)(A) claim.
The complaint appears to allege an independent § 523(a)(2)(A) actual fraud claim that does not rely on the collateral estoppel effect of the arbitration award inasmuch as it alleges defendant transferred his only real property of value by deed in lieu of foreclosure after the arbitration proceeding. --------
In short, without any showing of the standard of reliance associated with the statement in the arbitration award that plaintiff proved fraud, the court cannot conclude that all of the § 523(a)(2)(A) elements were actually litigated and necessarily decided in pre-petition arbitration. Therefore, finding no clear error in its earlier decision denying plaintiff's motion in limine and finding that relief from that order is not necessary to prevent manifest injustice:
IT IS ORDERED that plaintiff's motion for reconsideration of the order denying plaintiff's motion in limine is DENIED WITHOUT PREJUDICE. Dated: May 10, 2017
/s/ _________
Christopher D. Jaime, Judge
United States Bankruptcy Court
INSTRUCTIONS TO CLERK OF COURT
SERVICE LIST
The Clerk of Court is instructed to send the attached document, via the BNC, to the following parties: Joseph M. ElGuindy
2990 Lava Ridge Court, Suite 205
Roseville CA 95661 Karen Pine
PO Box 4155
El Dorado Hills CA 95762