Opinion
NOT FOR PUBLICATION
Argued and Submitted at San Francisco, California: July 30, 2009
Appeal from the United States Bankruptcy Court for the Northern District of California at San Jose. Bk. No. 07-50303, Adv. No. 07-05070. Hon. Roger L. Efremsky, Bankruptcy Judge, Presiding.
Before: JURY, MARKELL, and DUNN, Bankruptcy Judges.
MEMORANDUM
Pro se appellant-debtors Steven Thompson and Aster Kifle-Thompson (collectively " Debtors") appeal the bankruptcy court's judgment in favor of appellee, Monterey Mushrooms, Inc. (" Monterey") in a nondischargeability proceeding.
We construe liberally the pleadings of pro se appellants. Kashani v. Fulton (In re Kashani), 190 B.R. 875, 883 (9th Cir. BAP 1995).
The bankruptcy court applied the doctrine of issue preclusion, finding that Monterey's state court judgment for insurance fraud conclusively established the elements for fraud and willful/malicious conduct under § 523(a)(2)(A) and (a)(6) and, therefore, Debtors were precluded from relitigating those elements in the bankruptcy court. Accordingly, the court held that Monterey's $1,709,155 debt was nondischargeable.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
For the reasons set forth below, we AFFIRM.
I. FACTS
Monterey was a grower, distributor, and wholesaler of mushrooms, and was self-insured for its workers' compensation insurance obligations. Debtors were licensed chiropractors whose medical corporations provided treatment to Monterey employees for job-related injuries.
We take most of the facts regarding the state court lawsuit from the state court complaint, the California Superior Court's Unpublished Statement of Decision filed on March 18, 2003 and the California Court of Appeal's published decision, People ex rel. Monterey Mushrooms, Inc. v. Thompson, 136 Cal.App.4th 24, 38 Cal.Rptr.3d 677 (Cal.Ct.App. 2006).
On December 28, 1999 Monterey filed a civil suit against Debtors and others on behalf of the People of the State of California under Cal. Ins. Code § 1871.7, part of California's Insurance Frauds Prevention Act. Monterey, as the real party in interest, alleged that the individual defendants -- Steven Thompson; his wife, Aster Kifle-Thompson; Charles Salzberg, M.D.; Joseph Greenspan, M.D.; and Julius Mueller, M.D. -- had participated in a scheme in which they submitted false claims for workers' compensation payments to Monterey. According to the complaint, Thompson had organized two corporations, Peninsula Medical Group, P.C. (" PMG"), and Integrated Family Medical Group, P.C. (" IFMG"), using Salzberg and Greenspan, respectively, as medical directors.
Monterey's claims were limited to Cal. Ins. Code § 1871.7(b), which states in relevant part:
Monterey initiated the suit in its capacity as a relator. " A 'relator' has been described thus: 'The real party in interest in whose name a state or an attorney general brings a lawsuit . . . . A person who furnishes information on which a civil or criminal case is based; an informer.'" Monterey Mushrooms, Inc., 136 Cal.App.4th at 27.
The court held a bench trial on liability between September 11 and 24, 2002. The court granted nonsuit in favor of Mueller, and both Greenspan and Salzberg settled with Monterey. The court found Debtors and their wholly-owned corporate defendants liable for having " set up sham corporations, with medical doctors as ostensible owners, that presented to the public as full-service medical clinics."
The court concluded that the medical doctors were essentially a series of absentee figureheads who gave no consideration for their ownership interests and, for the most part, had no meaningful role in the direction of patient care or general clinic operation. According to the court, Debtors' purpose for forming the corporations was to acquire patients and refer them for chiropractic treatment and to present fraudulent claims for services to third-party payors. The result was that patients were " inevitably being directed to chiropractic 'treatment, ' where they were grossly over[-]treated."
Bills were generated for these patient visits, and in some cases more than one claim was made for a single session. The court concluded that these facts demonstrated a " sophisticated, formalized and well-concealed strategy" that enabled Debtors to " maximize the number of patients and the amount [that] could be billed for visits, without due regard for patient care and needs."
Meanwhile, Debtors maintained control of PMG and IFMG through their management corporation, Nevada Practice Management Systems, Inc., in order to " siphon off the profits" earned by PMG and IFMG.
The court held a trial on the remedies portion of the litigation on November 6, 2002. On December 3, 2002, the court ruled that Debtors and their corporate entities were jointly and severally liable for civil penalties in the amount of $479,115.29. The court also granted Monterey's request for injunctive relief and subsequently awarded Monterey attorneys fees in the amount of $1,230,040.
At Debtors' request, the trial court issued its Statement of Decision on March 18, 2003.
Debtors appealed to the California Court of Appeal, Sixth District, which affirmed the trial court's judgment. Monterey Mushrooms, Inc., 136 Cal.App.4th 24, 38 Cal.Rptr.3d 677 (Cal.Ct.App. 2006). Further review was denied by the California and United States Supreme Courts, and the judgment is final. No portion of the judgment has been paid.
B. The Bankruptcy Court Proceeding
Debtors filed their chapter 7 petition on February 5, 2007.
On March 4, 2007 Monterey filed an adversary complaint to determine whether the debt arising from the state court judgment was nondischargeable under § 523(a)(2)(A), (a)(4), and (a)(6). On July 14, 2008 Monterey filed a Motion For Summary Judgment, asking the bankruptcy court to determine its state court judgment was nondischargeable under the doctrine of issue preclusion.
Monterey's brief uses the old style term " collateral estoppel" as the basis for its summary judgment argument. We use the more modern term " issue preclusion", as did the bankruptcy court.
On November 6, 2008 the bankruptcy court ruled orally that the requirements for application of issue preclusion were met, precluding Debtors from relitigating the issue of fraud under § 523(a)(2)(A). The court stated:
First, Debtors knowingly made false representation by submission of fraudulent Articles of Incorporation and fictitious business name permit applications. Second, Debtors held themselves out as medical clinics through invoices, liens and related documents; i.e., made false representations. Third, Debtors engaged in fraudulent billing practices.
The court also concluded that
Debtors acted with the intent to defraud by presenting and pursuing fraudulent claims for payment within the meaning of Penal Code Section 550. Furthermore, Debtors' invoices were calculated to deceive.
Finally, the court determined that Monterey was the target of fraudulent billing practices and suffered damage as a result.
In addition, the court concluded that the doctrine of issue preclusion applied to Monterey's claim for relief under § 523(a)(6). The court ruled that " the State Court found Debtors necessarily intentionally caused injury without just cause because the State Court found Debtors had committed fraud. This is sufficient for Section 523(a)(6)."
Finally, the court decided that the elements under § 523(a)(4) had not been met.
The court granted Monterey's Motion for Summary Judgment under § 523(a)(2)(A) and (a)(6) and denied the motion under § 523(a)(4) by order entered on December 16, 2008. The judgment in favor of Monterey was entered on January 23, 2009.
Debtors timely appealed the bankruptcy court's judgment.
II. JURISDICTION
The bankruptcy court had jurisdiction over this proceeding under 28 U.S.C. § § 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.
III. ISSUES
A. Whether the bankruptcy court erred in holding that the state court judgment for insurance fraud was a nondischargeable debt under § 523(a)(2)(A).
B. Whether the bankruptcy court erred in holding that the state court judgment for insurance fraud was a nondischargeable debt under § 523(a)(6).
IV. STANDARDS OF REVIEW
Since this case arises on summary judgment, the standard of review is de novo. Marshack v. Orange Comm'l Credit (In re Nat'l Lumber & Supply, Inc.), 184 B.R. 74, 77 (9th Cir. BAP 1995).
" [S]ummary judgment is proper 'if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.'" Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In making this determination, conflicts are resolved by viewing all facts and reasonable inferences in the light most favorable to the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962).
On appeal we may affirm the bankruptcy court on any ground supported by the record, even if it differs from the bankruptcy court's stated rationale. Pollard v. White, 119 F.3d 1430, 1433 (9th Cir. 1997).
V. DISCUSSION
The doctrine of issue preclusion applies to bankruptcy dischargeability proceedings. Grogan v. Garner, 498 U.S. 279, 284, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). Monterey had the burden of proving that the elements for issue preclusion were met. See Kelly v. Okoye (In re Kelly), 182 B.R. 255, 258 (9th Cir. BAP 1995), aff'd, 100 F.3d 110 (9th Cir. 1996). To sustain this burden, Monterey must have introduced " a record sufficient to reveal the controlling facts and pinpoint the exact issues litigated in the prior action." Kelly, 182 B.R. at 258. " Any reasonable doubt as to what was decided by a prior judgment should be resolved against allowing the [issue preclusion] effect." Id .
Whether the state court judgment has a preclusive effect is determined under California law. See Gayden v. Nourbakhsh (In re Nourbakhsh), 67 F.3d 798, 800 (9th Cir. 1995). In California, issue preclusion may be applied when (1) the issue decided in the prior suit is identical to the issue presented in the second action; (2) the issue was actually litigated in the prior suit; (3) the issue was necessarily decided in the prior suit; (4) there was a final judgment on the merits in the prior suit; and (5) the party against whom preclusion is sought was a party, or in privity with a party, to the prior suit. Lucido v. Superior Court, 51 Cal.3d 335, 337, 272 Cal.Rptr. 767, 795 P.2d 1223 (1990). And, even if all these requirements are met, issue preclusion should only be applied when the public policies underlying the doctrine would be furthered. Id . at 354.
There is no dispute that Debtors were parties in the underlying state court action or that the disposition is final since Debtors have exhausted all direct attacks on the judgment. Therefore, the remaining questions before us are whether the issues litigated in the state court are identical to those in a nondischargeability proceeding under § 523(a)(2)(A) and (a)(6) and whether those issues were actually litigated and necessarily decided in the state court.
To determine whether there is an identity of issues, we compare the elements under § 523(a)(2)(A) and (a)(6) with the elements under the California Penal Code sections encompassed by Cal. Ins. Code § 1871.7 and examine the state court's findings of fact and legal rulings.
The burden of proof in the state court action was the same as that for nondischargeability -- preponderance of the evidence. Monterey Mushrooms, Inc., 136 Cal.App. at 37-38; Grogan, 498 U.S. at 291.
Under § 523(a)(2)(A), a debt for services obtained by " false pretenses, a false representation, or actual fraud" is nondischargeable.
To establish a debt as nondischargeable on any of these grounds, a creditor must show: (1) a misrepresentation, fraudulent omission, or deceptive conduct by the debtor; (2) knowledge of the falsity or deceptiveness of his statement or conduct; (3) an intent to deceive; (4) justifiable reliance by the creditor on the debtor's statement or conduct; and (5) damage to the creditor proximately caused by his reliance on the debtor's statement or conduct. Turtle Rock Meadows Home Owners Ass'n v. Slyman (In re Slyman), 234 F.3d 1081, 1085 (9th Cir. 2000).
Cal. Penal Code § 550 makes it illegal to knowingly prepare, present and pursue false or fraudulent insurance claims, or to make oral or written statements to support them or to conceal information which affects entitlement to the insurance benefit claimed, with intent to defraud. Cal. Penal Code § 550(a)(1), (5), (6), (7), (b)(1)-(3). Cal. Penal Code § 549 makes it a crime to refer or accept business knowing or with reckless disregard for whether the person the business is referred to or accepted from intends to violate Cal. Penal Code § 550.
Cal. Penal Code § 550 states in relevant part:
Cal. Penal Code § 549 states in relevant part:
The state court found that Debtors defrauded Monterey with a scheme broader than any single misrepresentation. The court concluded that Debtors submitted 703 separate claims under the auspices of PMG in violation of Cal. Penal Code § 550. The court itemized the multiple violations of Cal. Penal Code § 550 which occurred with the submission of each false claim: presentation of a claim as PMG (violates § 550(a)(1) and (6), (b)(1)); preparation of a temporary disability authorization as PMB or IFMG (violates § 550(a)(6), (b)(1), (2)); upcoding the treating physician visit to a consulting physician visit which was not provided to the patient (violates § 550 (a)(7), (b)(1)); and submission of a lien for the charges on the claim by PMG (violates § 550(b)(1)-(3)). The court also decided that the referral of business was sufficient to violate Penal Code § 549.
We conclude that the state court's itemized violations of Cal. Penal Code § § 549 and 550 cumulatively demonstrate the basic elements of wrongdoing inherent in fraud under § 523(a)(2)(A).
The first element under § 523(a)(2)(A) requires a misrepresentation, fraudulent omission, or deceptive conduct by the debtor. Debtors argue that they did not make false representations to Monterey. They contend that the same claims at issue in the state court lawsuit were brought in front of the Workers' Compensation Appeals Board (" WCAB"). Debtors point out that the administrative law judges examined every issue and confirmed that the bills and treatments Debtors rendered were reasonable and necessary. Debtors argued in their opening brief filed in this appeal and at oral argument that the WCAB found no fraud and ordered Monterey to pay the bills.
However, our review of the record shows the state court ruled that the issues raised before the WCAB were not the same as those raised in the state court lawsuit for insurance fraud. Monterey Mushrooms, Inc. v. Thompson, 136 Cal.App.4th at 31-32. To the extent Debtors seek to have us exercise appellate review over the state court's ruling in this regard, we are unable to do so. Our review is limited to whether the bankruptcy court properly held the debt nondischargeable. Henrichs v. Valley View Dev., 474 F.3d 609, 613 (9th Cir. 2007).
It is without question that California courts may apply principles of claim and issue preclusion to WCAB proceedings to foreclose relitigation of the same causes of action or the same issues between the same parties. Azadigian v. Workers' Comp. Appeals Bd., 7 Cal.App.4th 372, 376-77, 8 Cal.Rptr.2d 643 (Cal.Ct.App. 1992).
The state court's factual findings support the conclusion that Debtors engaged in conduct that included multiple misrepresentations and repeated deceptive conduct. The state court found that Debtors were co-conspirators with each other and the corporations they created. The state court observed that the fraudulent activity involved not just workers' compensation claims of questionable validity, but also the creation of " multifarious corporations . . . to accomplish the deception." Finally, the state court rejected Debtors' " claim of innocent intent and belief in compliance with the law" regarding their formation of their corporations, finding they were not credible. Thus, the first requirement under § 523(a)(2)(A) is met.
The second element under § 523(a)(2)(A) requires that the debtor have knowledge of the falsity or deceptiveness of his statement or conduct, and the third element requires that the debtor intend to deceive. Cal. Penal Code § 550 defines the fraudulent offenses in the statute by requiring that they must be accompanied by a " knowing" state of mind. However, California courts have held that an essential element of the statutory offenses described in Cal. Penal Code § 550 is an intent to defraud. See People v. Blick, 153 Cal.App.4th 759, 772-73, 63 Cal.Rptr.3d 260 (Cal.Ct.App. 2007) (noting that an essential element of the fraud offenses described in Penal Code § 550(b)(3) is an intention to defraud and that fraud is integral to the offense); People v. Scofield, 17 Cal.App.3d 1018, 1025-26, 95 Cal.Rptr. 405 (Cal.Ct.App. 1971). In other words, one can be convicted or held liable for damages in a civil suit under Cal. Penal Code § 550 only when the person intended to commit a fraud. People v. Blick, 153 Cal.App.4th at 773-74 (noting that specific intent to defraud is imputed " where the statute . . . omits any other element of intent.").
The state court's findings demonstrate that Debtors had the requisite knowledge of their deceptive conduct and intent to deceive. The court concluded that " [e]ach invoice falsely and fraudulently represented that it was submitted on behalf of a medical corporation . . . [and was] prepared in a way that was calculated to deceive the recipient, by concealing and hindering detection of false and misleading information stated in the bills, in order to increase the payments obtained in the workers' compensation system."
Moreover, the court found Debtors jointly and severally liable with their corporations for referral of business under Cal. Penal Code § 549 because the purpose of Debtors' corporations was to allow them to accomplish the deception; i.e. to acquire patients and refer them for chiropractic treatment and to present fraudulent claims for services to third-party payors.
In short, the statutes upon which the judgment was based, coupled with the state court's findings of fact, demonstrate that the scienter element in the state court action is identical to the second and third requirements for nondischargeability under § 523(a)(2)(A).
Under the fourth requirement of § 523(a)(2)(A), the creditor must have justifiably relied on the debtor's statement or conduct, and under the fifth requirement the damage to the creditor must have been proximately caused by the creditor's reliance on the debtor's statement or conduct. We consider the fourth and fifth requirements together in this context.
In their opposition to the Motion for Summary Judgment, Debtors contended that Monterey did not justifiably rely on anything because it did not pay the workers' compensation claims until ordered to do so by the administrative law judges. Debtors' contention is nothing more than a continuation of their theory that the WCAB's decision addressed all the issues considered in the state court lawsuit and therefore the WCAB's decisions should be given full faith and credit in their bankruptcy. As previously mentioned, the state court ruled that the issues in the civil lawsuit were not the same as those in the WCAB actions. Accordingly, the WCAB's decisions would not have precluded the state court from considering Debtors' alleged violations under the Insurance Frauds Prevention Act. We may not review the state court's decision, but only the decision of the bankruptcy court.
We observe that there is no express statutory requirement for proof of reliance under Cal. Penal Code § § 549 or 550. We conclude, however, that the necessary finding of reliance is implicit in the state court's award of damages for violation of the criminal statutes. Molina v. Seror (In re Molina), 228 B.R. 248, 252 (9th Cir. BAP 1998) (Notwithstanding the absence of a specific finding of fraud in an arbitration award, the state court judgment which confirmed the arbitration award and awarded punitive damages for fraud was entitled to issue preclusion effect in dischargeability proceeding because necessary fraud findings were implicit in the state court's award of punitive damages for fraud).
The state court found that Monterey was the target of fraudulent billing practices and awarded damages to Monterey as a result. The state court's damage award was based on proof that Monterey was damaged in the amount it paid on the inflated invoices Debtors' submitted, the amounts it incurred in legal and related expenses due to Debtors' fraudulent claims, and those amounts incurred in disability expenses attributable to those claims.
Monterey's workers' compensation oversight manager testified at the remedies phase of the trial as to the total billing and costs Monterey incurred as a result of the fraudulent claims.
Implicit in the court's ruling on damages is a determination on the issue of causation; i.e., that Debtors' fraudulent acts proximately caused the damages. There is generally no causation without reliance. See Hall v. Time Inc., 158 Cal.App.4th 847, 855 n.2, 70 Cal.Rptr.3d 466 (Cal.Ct.App. 2008) (In a fraud case, justifiable reliance is the same as causation). Accordingly, we conclude the state court's award of damages demonstrates Monterey's justifiable reliance.
Justifiable reliance is not a difficult standard for a creditor to meet -- a creditor only fails to meet the standard if his reliance was manifestly unreasonable. Medley v. Ellis (In re Medley), 214 B.R. 607, 613 (9th Cir. BAP 1997).
The fact the state court trebled the amount billed as authorized by Cal. Ins. Code § 1871.7(b) and awarded a remedial assessment under subsection (c) does not change the character of the full $1,709,155 figure as damages. For purposes of dischargeability, where the liability which is nondischargeable is subject to trebling or other increase under non-bankruptcy law for punitive or deterrence purposes, the entire amount of the judgment as trebled or otherwise increased is nondischargeable. Cohen v. de la Cruz, 523 U.S. 213, 223, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998); see also Suarez v. Barrett (In re Suarez), 400 B.R. 732, 740 (9th Cir. BAP 2009) (legal costs are nondischargeable when they stem from the same underlying conduct which makes the remedial damages nondischargeable).
We conclude from the nature of the claims asserted and a close reading of the statutes upon which the judgment was based that the identical issue requirement for application of issue preclusion under California law has been met. The previously-decided facts in the state court lawsuit are the same facts that Monterey would otherwise need to establish in the bankruptcy court to prove a discharge exception under § 523(a)(2)(A). The issues were actually litigated and necessarily decided because they were essential to the final judgment. Therefore, we hold that the bankruptcy court correctly applied the doctrine of issue preclusion and found Monterey's state court judgment nondischargeable under § 523(a)(2)(A).
In order to establish that a debt is nondischargeable under § 523(a)(6), a creditor must establish that the debt stems from the debtor's willful and malicious infliction of injury. Fraud is an intentional tort, and § 523(a)(6) makes many intentional torts nondischargeable. Petralia v. Jercich (In re Jercich), 238 F.3d 1202, 1204-06 (9th Cir. 2001); Diamond v. Kolcum (In re Diamond), 285 F.3d 822, 828 (9th Cir. 2002). But not all intentional torts are willful and malicious as a matter of law. Kawaauhau v. Geiger (In re Geiger), 523 U.S. 57, 64, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998)(" not every tort judgment for conversion is exempt from discharge").
Willful and malicious are separate requirements that are analyzed independently. Suarez, 400 B.R. at 736. A finding of willfulness requires proof that the debtor deliberately injured the creditor and that in doing so, the debtor intended the consequences of his act, not just the act itself. Id . at 737. The debtor must act with a subjective motive to inflict injury or with a belief that injury is substantially certain to result from the conduct. Id .; see also Diamond, 285 F.3d at 828 (the willful requirement of § 523(a)(6) is fulfilled if the debtor intentionally injures the creditor).
The criminal statutes that were involved in the state court lawsuit do not use the word willful and the state court did not explicitly make a finding that Debtors' acts were willful. However, the state court found that Debtors' corporations were formed for the purpose of allowing Debtors to acquire patients and refer them for chiropractic treatment and to present fraudulent claims for services to third-party payors. Moreover, the criminal offenses outlined in Cal. Penal Code § 550 require a specific intent to defraud.
Under Cal. Penal Code § 549, either reckless disregard or knowledge of intent of another to commit insurance fraud is an element of the offense. Here, the record is unambiguous with respect to Debtors' liability under Cal. Penal Code § 549 because the court found that the formation of Debtors' corporations was part and parcel of their fraudulent scheme to acquire patients and refer them. Thus, their liability under Cal. Penal Code § 549 was based on intentional rather than merely reckless behavior.
The criminal offense described in Cal. Penal Code § 550(b)(3) requires a specific intent to defraud. People v. Blick, 153 Cal.App.4th at 762. Although the California Court of Appeal did not address the other subsections of Cal. Penal Code § 550 that were involved in the underlying state court lawsuit here, we conclude from its reasoning that the offenses listed in Cal. Penal Code § 550 require a specific intent to defraud. The court explained that its interpretation was faithful to the statute's purpose and the " evil which it seeks to remedy -- to criminalize and punish the making of false or fraudulent claims to obtain benefits." Id . at 774. A specific intent crime is defined as the intent to accomplish the precise criminal act that one is later charged with as opposed to a general intent crime, which is the intent to perform an act even though the actor does not desire the consequences that result. Black's Law Dictionary (8th ed. 2009).
We conclude the only plausible inferences from the state court's findings of fact and ruling is that Debtors either had the subjective motive to injure Monterey or that their intentional acts were certain or substantially certain to result in injury to Monterey. Accordingly, we hold that the state court's ruling conclusively established that Debtors' acts were willful.
A finding of maliciousness requires proof of (1) a wrongful act; (2) done intentionally; (3) which necessarily causes injury; and (4) was done without just cause or excuse. Suarez, 400 B.R. at 737. Debtors' intentional wrongdoing was well documented in the state court's decision. Moreover, where a person intentionally commits the offenses outlined in the criminal statutes, the fraudulent acts themselves demonstrate a knowledge of necessary harm. Although an element of mistake or excuse would have prevented a finding of liability, the state court rejected Debtors' contention that they believed their medical corporations were legal. Finally, Debtors' wrongful acts could hardly be described as being done with " just cause" . The state court found their numerous acts of fraud committed in violation of Cal. Penal Code § § 549 and 550 were illegal. An illegal act cannot be " just" .
We conclude that the issues sought to be precluded under § 523(a)(6) were the same as those involved in the state court lawsuit. Those issues were actually litigated and necessarily decided because their determination was essential to the final judgment.
Accordingly, the entire amount of the judgment is nondischargeable under § 523(a)(6). Cohen, 523 U.S. at 223; Suarez, 400 B.R. at 740.
The trial court stated that § 523(a)(6) nondischargeability was established because the state court found Debtors had committed fraud. We do not adopt this approach because a separate analysis is necessary for each of the willful and malicious elements. Suarez, 400 B.R. at 736.
C. Policy Considerations
The bankruptcy court determined that public policy considerations underlying the doctrine of issue preclusion would be furthered by its application here. Our own assessment leads us to the same conclusion. Public policies which support application of issue preclusion are preservation of the integrity of the judicial system, promotion of judicial economy and protection of litigants from repetitious and costly litigation. Lucido, 51 Cal.3d at 343.
We conclude that under these circumstances application of issue preclusion preserves the integrity of the judicial system. State courts were fully capable of adjudicating the issues subsequently presented to the bankruptcy court. The public's confidence in the state judicial system would be undermined if the bankruptcy court relitigated the question of the nondischargeability of the debt under § 523(a)(2)(A) or (a)(6). Moreover, relitigation in bankruptcy court of the issues decided by the state court would conflict with the principle of federalism that underlies the Full Faith and Credit Act. See 28 U.S.C. § 1738.
Turning to the second policy, it is obvious that application of issue preclusion in the present context will promote judicial economy. If Debtors were not precluded from relitigating the fraud and willful/malicious elements, the bankruptcy court would have to conduct an evidentiary hearing to determine whether Debtors committed fraud and intentionally acted to injure Monterey. Relying on the state court's determination allows the bankruptcy court to conserve judicial resources.
Finally, we conclude that under these circumstances, application of issue preclusion will protect Monterey from repetitious and costly litigation. Debtors had a full and fair opportunity to litigate the issues in the state court proceedings and have exhausted all their appellate rights. It would be unfair to require Monterey to relitigate before the bankruptcy court what was properly decided by the state court.
We conclude, therefore, that the public policies underlying California's doctrine of issue preclusion would be furthered by the application of the doctrine in this case.
VI. CONCLUSION
We conclude upon de novo review, and construing the evidence in a light most favorable to Debtors, Monterey was entitled to summary judgment as a matter of law on its claims that the state court judgment debt is not dischargeable under § 523(a)(2)(A) and (a)(6) by operation of the doctrine of issue preclusion.
For the reasons stated above, we AFFIRM.
Every person who violates any provision of this section or Section 549, 550, or 551 of the Penal Code shall be subject, in addition to any other penalties that may be prescribed by law, to a civil penalty of not less than five thousand dollars ($5,000) nor more than ten thousand dollars ($10,000), plus an assessment of not more than three times the amount of each claim for compensation . . . . The court shall have the power to grant other equitable relief, including temporary injunctive relief, as is necessary to prevent the transfer, concealment, or dissipation of illegal proceeds, or to protect the public. The penalty prescribed in this paragraph shall be assessed for each fraudulent claim presented to an insurance company by a defendant and not for each violation.
(a) It is unlawful to do any of the following, or to aid, abet, solicit, or conspire with any person to do any of the following:
(1) Knowingly present or cause to be presented any false or fraudulent claim for the payment of a loss or injury, including payment of a loss or injury under a contract of insurance. . . . . (5) Knowingly prepare, make, or subscribe any writing, with the intent to present or use it, or to allow it to be presented, in support of any false or fraudulent claim. (6) Knowingly make or cause to be made any false or fraudulent claim for payment of a health care benefit. (7) Knowingly submit a claim for a health care benefit that was not used by, or on behalf of, the claimant. . . . .
(b) It is unlawful to do, or to knowingly assist or conspire with any person to do, any of the following:
(1) Present or cause to be presented any written or oral statement as part of, or in support of or opposition to, a claim for payment or other benefit pursuant to an insurance policy, knowing that the statement contains any false or misleading information concerning any material fact. (2) Prepare or make any written or oral statement that is intended to be presented to any insurer or any insurance claimant in connection with, or in support of or opposition to, any claim or payment or other benefit pursuant to an insurance policy, knowing that the statement contains any false or misleading information concerning any material fact. (3) Conceal, or knowingly fail to disclose the occurrence of, an event that affects any person's initial or continued right or entitlement to any insurance benefit or payment, or the amount of any benefit or payment to which the person is entitled.
Any firm, corporation, partnership, or association, or any person acting in his or her individual capacity, or in his or her capacity as a public or private employee, who solicits, accepts, or refers any business to or from any individual or entity with the knowledge that, or with reckless disregard for whether, the individual or entity for or from whom the solicitation or referral is made, or the individual or entity who is solicited or referred, intends to violate Section 550 of this code or Section 1871.4 of the Insurance Code is guilty of a crime . . . .