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In re Watkins

United States Bankruptcy Appellate Panel of the Ninth Circuit
Feb 28, 2008
BAP SC-07-1017-DBaMo (B.A.P. 9th Cir. Feb. 28, 2008)

Opinion


In re: BURNETT W. WATKINS and JUDITH A. WATKINS, Debtor. BURNETT W. WATKINS, Appellant, v. MARKET EXPRESS TRANSPORTATION, INC., Appellee BAP No. SC-07-1017-DBaMo United States Bankruptcy Appellate Panel of the Ninth CircuitFebruary 28, 2008

NOT FOR PUBLICATION

Argued by Telephone Conference; January 31, 2008, Submitted November 28, 2007

Appeal from the United States Bankruptcy Court for the Southern District of California. Bk. No. 02-08035, Adv. No. 04-90006. Honorable Peter W. Bowie, Chief Bankruptcy Judge, Presiding.

Before: DUNN, BAUM[ and MONTALI, Bankruptcy Judges.

Hon. Redfield T. Baum, Sr., Chief Judge of the U.S. Bankruptcy Court for the District of Arizona, sitting by designation.

MEMORANDUM

Debtor, defendant in an adversary proceeding asserting claims pursuant to 11 U.S.C. § § 523(a)(2)(A) and (a)(4), appealed several evidentiary and procedural rulings made by the bankruptcy court in the course of a two-day trial, as well as the ultimate determination of the bankruptcy court (1) that the debt was nondischargeable pursuant to § 523(a)(2)(A), and (2) that debtor was a fiduciary such that his debt to plaintiff was nondischargeable under § 523(a)(4). We AFFIRM.

Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, § § 101-1330, as enacted and promulgated prior to October 17, 2005, the effective date of most of the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119 Stat. 23.

I. FACTS

A. The Relationship Between the Parties

In April 1989, debtor, Burnett W. Watkins (" Watkins"), incorporated Equity Insurance Services, Inc. (" Equity") in Arizona for the purpose of " performing insurance servicing and the sale of insurance." Watkins served as Equity's operations manager; at all relevant times, he also was either President or Vice President of Equity.

In the course of its operations, Equity entered into management agreements with Universal Security Insurance Company, Ltd. (" Universal"), and with Combined General Insurance Company (" Combined General") to " produce" insurance coverages for taxicabs, intrastate trucks, limousines and used car dealers in California. Both Universal and Combined General were off-shore companies; Watkins asserted that each was authorized by the California Department of Insurance to underwrite surplus lines insurance business in California.

Each of the management agreements contained the following provisions:

5.1 All premiums received by the manager either before or after termination of this Agreement, shall be held by the Manager as trustee for the Company until deposited in the Company's account . . . .

15.4 Ernie Garrison and Burnett Watkins each personally guarantee and each shall be personally liable for the performance of this agreement.

Neither management agreement was signed in an individual capacity. However, the Universal management agreement was executed by Watkins as Equity's president on January 1, 1989, approximately three months before Equity was incorporated. The Combined General management agreement was executed by Watkins as Equity's vice president of administration. We cannot determine the execution date from the record.

Appellee, Market Express Transportation, Inc. (" Market Express"), entered into an insurance contract on October 13, 1990, pursuant to which Combined General agreed to provide Market Express with liability insurance coverage. Market Express also entered into insurance contracts on June 30, 1990, and August 30, 1991, pursuant to which Universal agreed to provide Market Express with liability insurance coverage.

Beginning in or about August 1993, Combined General ceased paying claims on behalf of Market Express, and failed to provide a defense in connection with litigation commenced against Market Express. On October 4, 1993, Equity notified counsel it had retained, assertedly on behalf of Combined General, to defend Combined General's claims in litigation, that Equity " has been unable to communicate with Combined General, " and that Equity had " not received any funds from Combined General to pay settlement of claims, judgments and/or verdicts."

Similarly, beginning in or about October 1994, Universal ceased paying claims on behalf of Market Express and failed to provide a defense in connection with litigation commenced against Market Express.

B. The State Court Litigation

Market Express sued both Watkins and Equity in the California (San Bernardino County) Superior Court (" State Court"). In its amended complaint filed on May 31, 1995, in the State Court, Market Express sought damages from Watkins and Equity for breach of contract, breach of fiduciary duty, negligence, fraud and " suppression of facts." In effect, it is Market Express's position that neither Universal nor Combined General existed, that Equity was operating as an insurance company, and that Watkins was the alter ego of Equity. Watkins contends that Equity was at all times merely an administrator, i.e., a managing general agent under the California Insurance Code, for the insurance policies issued to Market Express by Universal and Combined General.

Market Express named numerous other defendants in the State Court litigation; the disposition of those claims is not relevant to this appeal.

Although initially represented by counsel in the State Court litigation, Watkins substituted as his own legal representative on May 29, 1997, and thereafter proceeded in pro per. On March 9, 1998, the State Court entered its order striking Watkins' answer and placing him in default based on his actions " undertaken . . . to obstruct and delay these proceedings. . . ." On May 28, 1998, the State Court denied Watkins' motion to set aside the default.

On Market Express's motion for entry of judgment against Watkins, the State Court held a " proving up hearing" for which Market Express submitted a substantial record (" State Court Factual Record"). The State Court entered a substantial default judgment (" Judgment") in favor of Market Express and against Watkins on November 30, 1998.

The State Court Factual Record was admitted into evidence at the trial in the adversary proceeding.

The Judgment awarded Market Express damages against Watkins as follows: jointly and severally with other defendants in the amount of $259,764.26 for net compensatory and consequential damages; individually in the amount of $551,477.66 for punitive damages. The Judgment was amended March 8, 1999, to include an award of attorneys fees in the amount of $116,601.00 and costs in the amount of $16,035.45, for which Watkins also was jointly and severally liable.

Watkins did not appeal the Judgment.

C. The Proceedings in the Bankruptcy Court

Watkins filed a no-asset voluntary Chapter 7 case on August 12, 2002. His discharge was entered on November 21, 2002, and the case was closed on December 3, 2002. Watkins thereafter moved to reopen the case, asserting that Market Express's judgment debt " inadvertently" was not included on his bankruptcy schedules. The case was reopened December 8, 2003, and Watkins filed an amended schedule F on January 9, 2004, adding Market Express as judgment creditor with an unsecured claim in the amount of $943,878.37. Market Express promptly filed an adversary proceeding seeking a determination that its debt was nondischargeable.

The initial complaint in the adversary proceeding asserted a single cause of action, i.e., that the Judgment was nondischargeable based on fraud that was willful and malicious, and relied on § 523(a)(6). More than a year later, Market Express sought leave to amend the complaint " to include additional statutory provisions." Specifically, Market Express wanted to add causes of action under § § 523(a)(2)(A) and (a)(4). Over Watkins' objection, the bankruptcy court granted leave to amend as requested.

Although Watkins' Notice of Appeal states that he was appealing the final judgment of the bankruptcy court " and all orders relative to this case, " nothing in the briefs or the record raises any issue with respect to the bankruptcy court's order allowing amendments to the complaint.

Because the State Court did not make findings at the time the Judgment was entered, the bankruptcy court disagreed with Market Express's assertion that the Judgment was entitled to preclusive effect, except with respect to the amount of damages.

[W]hat this case is about is there's a judgment from the state court under California law and federal law; it's normally entitled to issue preclusion effect if I can determine that the findings of the superior court were findings that would allow me to conclude that the elements of a nondischargeability cause of action, whether under 523(a)(2)(A), [(a)(4)] or (a)(6) have been established.

Based upon the findings, or the lack of findings, by the superior court, I told you that I couldn't make that determination. I told you that the amount of damages had been determined by the superior court, and that was there. The issue for me is whether or not [it's] dischargeable.

Partial Trial Transcript (Nov. 17, 2006 Court Ruling), p. 3:4-17.

1. The motion in limine

At the opening of the two-day trial (" Trial"), which commenced on November 16, 2006, Watkins brought to the bankruptcy court's attention a motion in limine he had filed, and through which he sought (1) to restrict the admission of a declaration and expert opinion report prepared by Market Express's insurance expert, Harris Rutsky (" Rutsky Expert Opinion Report"), and (2) to preclude the testimony of Mr. Rutsky at trial. The bankruptcy court declined to rule on the motion until Market Express had a witness on the stand and made an attempt to introduce the report into evidence. Partial Trial Transcript (Nov. 16, 2006 Motion in Limine), p. 3:21-25. In its colloquy with Watkins, the bankruptcy court suggested the possibility that the proper focus might not be on admissibility of Mr. Rutsky's declaration, the Rutsky Expert Opinion Report and testimony, but rather on the weight that the bankruptcy court, as the trier of fact, should give that evidence. Id . at p. 4:11-18.

Because neither party provided us with a complete copy of the transcript of the Trial, it is unclear whether the bankruptcy court ruled on the motion in limine. In its oral ruling at the conclusion of the case, however, the bankruptcy court made clear that in reaching its decision it had placed no reliance on anything contained in the Rutsky Expert Opinion Report.

I do want to make one thing very clear, and that is that in making that determination, I do not rely at all on Mr. Rutsky's declaration.

I have to say . . . that I found some of the leaps that he makes in the instances where he even purports to have something that he bases something on - some of the leaps that he makes were just - strained my credulity - well, didn't strain it, broke it. In fact, I rely on Mr. Rutsky not at all in making my determination.

Partial Trial Transcript (Nov. 17, 2006 Court Ruling), p. 6:13-22.

2. The bankruptcy court's rulings on the admission of exhibits

The bankruptcy court refused to admit certain exhibits Watkins offered as evidence at trial and to which Market Express had filed objections. Watkins has appealed the bankruptcy court's failure to admit into evidence his exhibits B, O, P, Q, S, and T. In addition, Watkins has appealed the bankruptcy court's admission into evidence of numerous impeachment exhibits offered by Market Express. We address the specifics of the evidentiary rulings on these exhibits later in this Memorandum.

3. The bankruptcy court's rulings on the substantive issues

The bankruptcy court ruled with respect to the cause of action asserted by Market Express pursuant to § 523(a)(2)(A), that Market Express had met it burden of establishing a prima facie case of fraud against Watkins, and that Watkins had failed to present evidence to rebut that prima facie case. Further, the bankruptcy court found, based on the management agreements between Equity and Universal and Combined General, and on Watkins' trial testimony, that Equity and/or Watkins was a fiduciary, for purposes of § 523(a)(4), for Market Express with respect to the insurance premiums paid, for which no accounting has ever been provided. Accordingly, the bankruptcy court held that the Judgment was not dischargeable in Watkins' bankruptcy case.

Watkins filed a timely notice of appeal.

D. The Proceedings In This Appeal

At oral argument we informed the parties of our concerns over the absence of significant portions of the trial transcript in the record on appeal. At the close of argument we took the appeal under submission. Two weeks later, Market Express sought leave " in the interest of justice" to lodge the " complete transcript from November 16, 2006" (" Late Transcript"). Watkins objected. However, because the absence of the Late Transcript was more problematic for Watkins, and in light of the reality that Watkins was prosecuting this appeal without the assistance of counsel, we granted Market Express's request to lodge the Late Transcript, but we gave Watkins the opportunity to prepare a supplemental brief to direct our attention to portions of the Late Transcript that support the arguments he was making on appeal. Watkins filed a timely supplemental brief, followed by a " Notice of Errata to January 9, 2008 Submission, " which both have been considered in the preparation of this Memorandum. Market Express did not avail itself of its opportunity to respond.

The emphasis is in the original document filed by Market Express. Watkins points out in his response that Market Express did not include the complete transcript because the Late Transcript did not include all testimony presented on Friday, November 17, 2006. We note that Market Express was explicit that the Late Transcript only pertained to November 16, 2006. Watkins made no attempt to include a complete transcript of the November 17, 2006 testimony.

II. JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C. § § 1334 and 157(b)(1) and (b)(2)(I). We have jurisdiction pursuant to 28 U.S.C. § 158.

III. ISSUES

Whether the bankruptcy court abused its discretion in denying Watkins' motion in limine.

Whether the bankruptcy court abused its discretion when it did not admit Watkins' exhibits.

Whether the bankruptcy court abused its discretion in admitting Market Express's impeachment exhibits.

Whether the bankruptcy court erred in excepting Watkins' debt to Market Express from Watkins' discharge pursuant to § 523(a)(2)(A).

Whether the bankruptcy court erred in excepting Watkins' debt to Market Express from Watkins' discharge pursuant to § 523(a)(4).

IV. STANDARDS FOR REVIEW

The bankruptcy court's evidentiary rulings are reviewed for abuse of discretion. In re Renovizor's, Inc., 282 F.3d 1233, 1237 n.1 (9th Cir. 2002). See also U.S. v. Geston, 299 F.3d 1130, 1138 (9th Cir. 2002) (trial court's ruling on motion in limine reviewed for abuse of discretion). To reverse on the basis that an evidentiary ruling was erroneous, we must conclude not only that the bankruptcy court abused its discretion, but also that the error was prejudicial. See McEuin v. Crown Equip. Corp., 328 F.3d 1028, 1032 (9th Cir. 2003). An evidentiary ruling is prejudicial if it is more probable than not that the erroneous ruling tainted the judgment. Id .

A determination that a claim is nondischargeable presents mixed issues of law and fact which we review de novo. See Hamada v. Far East Nat'l Bank (In re Hamada), 291 F.3d 645, 649 (9th Cir. 2002).

V. DISCUSSION

A. Limited Transcripts in the Excerpts of Record

As a preliminary matter, we note the limited transcript record before us for consideration of this appeal. From the two day trial, we have the following partial transcripts for review:

Partial Trial Transcript (Nov. 17, 2006 Court Ruling)

Partial Trial Transcript (Nov. 16, 2006 Motion in Limine)

Partial Trial Transcript (Nov. 17, 2006 Closing Argument)

Partial Trial Transcript (Nov. 17, 2006 Request for Admission of Exhibits B, O, P, Q, S, and T)

Partial Trial Transcript (Nov. 16, 2006 Market Express's Direct Examination of Watkins)

The BAP Rules provide for the filing by a party of an Appendix to its brief, which is comprised of a party's excerpts of the record. 9th Cir. BAP Rule 8009(b)-1. We generally limit our review of the record to an examination of those excerpts which have been provided by the parties, and are not obligated to examine portions of the record not included in the excerpts. See In re Kritt, 190 B.R. 382, 386-87 (9th Cir. BAP 1995); In re Anderson, 69 B.R. 105, 109 (9th Cir. BAP 1986). " The excerpts of the record shall include the transcripts necessary for adequate review in light of the standard of review to be applied to the issues before the Panel. The Panel is required to consider only those portions of the transcript included in the excerpts of the record. . . ." BAP Rule 8006-1.

The incomplete transcript record provided for our review in the excerpts of record has, in some instances, limited our ability to determine whether the bankruptcy court's rulings were correct in light of the appropriate standards of review, despite the opportunities provided to supplement the record on appeal.

B. Evidentiary Rulings

Watkins appeals from several evidentiary rulings made by the bankruptcy court during the course of trial: denial of Watkins' motion in limine, failure to admit into evidence certain trial exhibits offered by Watkins, and admitting into evidence exhibits offered by Market Express for the purpose of impeaching Watkins' testimony.

1. The motion in limine

At the commencement of trial, Watkins submitted his motion in limine, the purpose of which was to exclude both the affidavit and the testimony of Market Express's expert witness, Harris Rutsky. The bankruptcy court deferred ruling on the motion until Market Express had a witness on the stand and made an attempt to introduce the Rutsky Expert Opinion Report into evidence. Watkins asserts the bankruptcy court erred in failing to rule on his motion in limine.

The burden was on Watkins to obtain a ruling on the motion in limine; if the bankruptcy court never ruled on the motion, there is no error to review. See U.S. v. Wagoner, 713 F.2d 1371, 1374 (8th Cir. 1983).

The excerpts of record provide only partial transcripts of the testimony taken during the two-day trial, and provide no transcript of any ruling by the bankruptcy court on Watkins' motion in limine. Accordingly, we are unable to determine whether the bankruptcy court ultimately ruled on the motion in limine.

To raise an evidentiary error on appeal, counsel must not only satisfy Rule 103 but the rules of appellate procedure; for example, it does little good to have a transcript containing a proper record of the objection if that transcript is not made part of the record on appeal.

21 Wright & Graham, Federal Practice and Procedure: Evidence 2D § 5038, p. 828. " Nor will making it part of the record avail the appellant if the brief does not properly designate the portion of the record where the objection can be found." Id .

On the record before us, we find no error.

Even if we had an adequate record of the bankruptcy court's ruling on the motion, Watkins cannot demonstrate that a denial of the motion in limine was prejudicial to him where the bankruptcy court explicitly and repeatedly stated that it had not relied on the Rutsky Expert Opinion Report that was the subject of the motion in limine in deciding the issues before it. See McEuin v. Crown Equip. Corp., 328 F.3d at 1032.

The judgment entered by the bankruptcy court states with respect to the § 523(a)(2)(A) cause of action: " The court further states that in rendering these findings it did not rely on the declaration of Harris Rutsky." Order and Judgment of Nondischargeable Debt, p. 2:12-14.

Further, it appears that Watkins offered the Rutsky Expert Opinion Report, or some version of it, as his Exhibit A, which was admitted into evidence at Trial. See List of Trial Exhibits, p. 8; Partial Trial Transcript (Nov. 17, 2006 Closing Argument), p. 13:2-13.

Further, any ruling to admit the Rutsky Expert Opinion Report offered by Market Express could not have prejudiced Watkins, where it appears Watkins himself offered the Rutsky Expert Opinion Report as his Exhibit A, which the bankruptcy court admitted into evidence. Thus, the motion in limine remains relevant only with respect to any testimony of Mr. Rutsky. Nothing in the record before us indicates that Mr. Rutsky testified.

2. The bankruptcy court's failure to admit exhibits into evidence

Watkins has appealed the bankruptcy court's failure to admit certain exhibits into evidence. We address the evidentiary ruling with respect to each proposed exhibit separately.

a. Exhibit B

Watkins asserts that Exhibit B was a transcript of a hearing in the bankruptcy court held October 17, 2005 (" October 2005 Hearing Transcript"). As reflected in the Late Transcript, Exhibit B was not the October 2005 Hearing Transcript:

We note that Watkins, but not the bankruptcy court, refers to the October 2005 Hearing Transcript as Exhibit B in the discussion whether the October 2005 Hearing Transcript should be admitted. Partial Trial Transcript (Nov. 17, 2006 Request for Admission of Exhibits B, O, P, Q, S, and T), p. 9:10-10:2.

Q Going to Exhibit B.

A Okay.

Q You have responses to special interrogatories. Are you wanting to offer these to simply show what Market Express has said about a particular issue you questioned them about?

A Well, part of the -- we questioned Market Express on a number of issues, and they gave a certain response. Part of the defense, the response that they gave is critical to our position.

Q Let me just ask you briefly, is that why you're offering it, is simply to support your position?

A That's correct.

Partial Trial Transcript (Nov. 16, 2006 Market Express's Direct Examination of Watkins), p. 64:10-22.

The bankruptcy court in fact admitted Watkins' Exhibit B. Partial Trial Transcript (Nov. 16, 2006 Market Express's Direct Examination of Watkins), p. 90:10-13. We therefore reframe Watkins' issue on appeal to be whether the bankruptcy court erred in excluding the October 2005 Hearing Transcript.

Watkins has not provided us with a copy of the October 2005 Hearing Transcript as a part of his excerpts of record. Accordingly, we are not in a position to review whether the ruling of the bankruptcy court in excluding the October 2005 Hearing Transcript was an abuse of discretion. Regardless, if the bankruptcy court was correct in its analysis that the October 2005 Hearing Transcript merely contained a record of a procedural discussion which served as a " blueprint" for the upcoming trial, we agree that it was properly excluded.

To be admissible, evidence must be " relevant." Fed.R.Evid. 402.

" Relevant evidence" means evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence.

Fed. R. Evid. 401.

Nothing in a transcript which only sets forth a discussion of the procedural parameters for an upcoming trial can constitute evidence of any fact, here, to demonstrate that Watkins was or was not a fiduciary, or that Watkins did or did not commit fraud with respect to his actions concerning Market Express.

b. Exhibit O

Exhibit O purported to be a fax from the surplus lines association in California, specifying the language to be included on a " deck sheet" to insureds when an insurance policy was issued to the insured by a " non-admitted" carrier. The language advised insureds that because the insurance company was not admitted in California, the policy was not covered by California's insurance guarantee fund. Market Express objected that Exhibit O lacked relevance and foundation, and was inadmissible hearsay. The bankruptcy court ruled that Exhibit O would not be admitted, both because the document was not authenticated and because the document was an " updated version" which would not have been applicable at the time the insurance policies at issue were written. Partial Trial Transcript (Nov. 17, 2006 Request for Admission of Exhibits B, O, P, Q, S, and T), pp. 3:7 - 4:1. Again, because Watkins did not supply the proposed Exhibit O for our review, we have no basis for determining whether the bankruptcy court abused its discretion. We do note, generally, that, as set forth in Fed.R.Evid. 901(a), authentication is a condition precedent to admissibility. Further, because the specific document at issue, which the court characterized as an " updated version, " was not even effective at the time the events at issue in this dispute occurred, we find it difficult to imagine how it could have been relevant to the proceedings before the bankruptcy court.

c. Exhibit P

Watkins asserts that his proposed Exhibit P consisted of three letters: one from West Arrow to Equity; one from Universal's attorney, Jay Bartz, to Charles Ibold of the law firm Ibold & Anderson; and another to Equity from West Arrow. Watkins offered these letters to establish the " separateness" between Equity and the insurance companies for which Equity was providing contract services. The bankruptcy court correctly ruled that the letters, if offered for the stated purpose, constituted inadmissible hearsay where they were offered to prove the contents of the letters. Partial Trial Transcript (Nov. 17, 2006 Request for Admission of Exhibits B, O, P, Q, S, and T), pp. 4:2 - 6:3. See generally Fed.R.Evid. 801 and 802. Again, our ability to find an abuse of discretion in this evidentiary ruling is limited by Watkins' failure to provide a copy of the proposed Exhibit P for our review.

Watkins' ER Tab N pp. 18-20 may be copies of the subject letters, which were intended as Exhibit P. However, Watkins does not direct the Panel's attention to this exhibit in his briefs, and no index to his ER identifies the letters.

d. Exhibit Q

Watkins' proposed Exhibit Q assertedly was a letter from Universal's attorney, Jay Bartz, to John LePire, a surplus lines broker, regarding a name change between Criterion Casualty Limited and Universal Security Limited. The record reflects that the bankruptcy court ruled that proposed Exhibit Q constituted inadmissible hearsay, and that the hearsay was compounded because Equity was neither the sender nor the party to whom the letter was written. Partial Trial Transcript (Nov. 17, 2006 Request for Admission of Exhibits B, O, P, Q, S, and T), p. 6:4-17. As with the other disputed evidentiary rulings we have reviewed, our ability to find an abuse of discretion in the bankruptcy court's failure to admit proposed Exhibit Q is limited by Watkins' failure to provide a copy of the proposed Exhibit Q for our review.

Watkins' ER Tab N pp. 16-17 may be the letter which was intended as Exhibit Q. However, Watkins does not direct the Panel's attention to this exhibit in his briefs, and no index to his ER identifies the letter.

e. Exhibit S

Watkins contends that his proposed Exhibit S was one of Universal's financial statements, which Equity received from First Management International, the consulting firm that prepared the financial statement on behalf of Universal. The bankruptcy court refused to admit proposed Exhibit S into evidence because the document was not properly authenticated. Partial Trial Transcript (Nov. 17, 2006 Request for Admission of Exhibits B, O, P, Q, S, and T), pp. 6:18 - 8:17. Watkins did not properly present a copy of the proposed Exhibit S for our review. Nothing in the record suggests that the bankruptcy court abused its discretion in refusing to admit proposed Exhibit S over Market Express's objection.

Watkins' ER Tab N pp. 4-9 may be the financial statement which was intended as Exhibit S. However, Watkins does not direct the Panel's attention to this exhibit in his briefs, and no index to his ER identifies the document.

f. Exhibit T

Finally, Watkins asserts that the bankruptcy court abused its discretion in refusing to admit his proposed Exhibit T, which purported to be registration certificates for Universal and for Combined General, which had been sent to Watkins by the corporate registrar in Universal and Combined General's respective jurisdictions at Watkins' request. We agree, based on the description in the transcript of the ruling alone, that the bankruptcy court correctly excluded proposed Exhibit T because it had not been authenticated. Partial Trial Transcript (Nov. 17, 2006 Request for Admission of Exhibits B, O, P, Q, S, and T), pp. 8:18 - 9:9. The documents which comprise proposed Exhibit T were not included in Watkins' excerpts of the record for our review.

Watkins' ER Tab N pp. 1-3 and 21-24 may be parts of the documents which were intended as Exhibit T. However, Watkins does not direct the Panel's attention to these pages as the exhibit in his briefs, and no index to his ER identifies the documents.

3. The admission of exhibits for impeachment purposes

Watkins complains that the bankruptcy court abused its discretion when it allowed Market Express to present approximately 75 additional items of evidence that Market Express had not disclosed in its pretrial submissions to the court and to Watkins. He asserts the admission of these exhibits violates Fed.R.Civ.P. 37 and Fed.R.Evid. 608.

Fed. R. Civ. P. 37 is incorporated into this adversary proceeding by Fed.R.Bankr.P. 9037. Subsequent references to a Federal Rule of Civil Procedure means the corresponding Federal Rule of Bankruptcy Procedure.

As a threshold matter it appears from the Late Transcript that Watkins preserved for appeal his objection to the admission of these exhibits. Nevertheless, Watkins faces several obstacles in obtaining our review of the bankruptcy court's ruling.

First, Watkins asserts that Fed.R.Civ.P. 37 precludes the use of the additional exhibits at trial where Market Express failed to disclose the additional exhibits in advance of trial. As relevant to Watkins' position on the issue, Fed.R.Civ.P. 37(c) provides: " A party that without substantial justification fails to disclose information required by Rule 26(a) . . . is not, unless such failure is harmless, permitted to use as evidence at a trial . . . any . . . information not so disclosed." However, Watkins concedes on appeal that the additional exhibits were admitted solely for impeachment purposes. Accordingly, Market Express was not required to make pretrial disclosure of the additional exhibits. See Fed.R.Civ.P. 26(a)(3)(C)(" a party must provide to other parties and promptly file with the court the following information regarding the evidence that it may present at trial other than solely for impeachment: . . . identification of each document or other exhibit . . . (emphasis added)."). Clearly, under Fed.R.Civ.P. 26(a)(3)(C), Market Express was excused from making pretrial disclosure of its intended use of the additional exhibits.

We note that in its brief filed in this appeal, Market Express asserts that the checks which comprised the impeachment exhibits were obtained through a subpoena duces tecum in the State Court litigation, and were produced in the ordinary course of discovery such that Watkins should have been aware of their existence, and of Market Express's awareness that the checks existed.

Second, Watkins objects to 75 additional exhibits being admitted for impeachment purposes. The court's list of admitted exhibits appears to identify 93 such exhibits. Watkins does not advise the panel which 75 of the 93 additional exhibits he contends were inappropriately admitted.

Finally, we are not provided with any of the additional exhibits for review in determining whether the bankruptcy court abused its discretion in ruling them admissible.

In sum, applying Fed.R.Civ.P. 26(a)(3)(C) and 37(c) to the sparse record before us, we cannot determine that the bankruptcy court abused its discretion in admitting exhibits not disclosed in pretrial submissions, whether 75 or 93 of them, for purposes of impeaching Watkins' testimony.

C. The Bankruptcy Court's Ruling on the § 523(a)(2)(A) Cause of Action

In ruling on Market Express's § 523(a)(2)(A) cause of action, the bankruptcy court stated:

As to the fraud issue . . . Market Express put on a prima facie case attempting to establish a number of things. And what a prima facie case does is it shifts the burden of coming forward with some evidence to rebut it, and the failure to do that allows -- does not require but allows the court to accept the plaintiff's version of events. The plaintiff, of course, always retains in that context the burden of persuasion and the burden of proof.

That said, it's this court's view that Market Express did set forth a prima facie case, and it is this court's view that Mr. Watkins, for the reasons he testified, but the fact is did not provide evidence that would rebut, I think, a lot of the questions . . .

Partial Trial Transcript (Nov. 17, 2006 Court Ruling), p. 5:9-25.

Here we are faced with a finding reduced to its essence: Market Express established a prima facie case under § 523(a)(2)(A). Normally, we require more extensive findings to allow us to understand the bankruptcy court's factual basis for its ruling. See 10 Collier on Bankruptcy ¶ 7052.01, at p. 7052-1 (15th rev. ed. 2007). " If the obligation of the trial court under Rule 52(a) is not complied with, such as a failure to make findings or the making of incomplete or conclusory findings on material issues, an appellate court will normally remand and vacate the judgment in order for appropriate findings to be made." 10 Collier on Bankruptcy ¶ 7052.02, at pp. 7052-5 - 7052-6. Nevertheless, we see no basis to remand for further findings in this instance, where Watkins did not raise the issue until after oral argument. Based on our review of the entire record in this appeal, including the Late Transcript, we conclude that the bankruptcy court did not err in finding that Market Express had presented sufficient evidence to establish a prima facie case to except Watkins' debt to Market Express from his discharge pursuant to § 523(a)(2)(A).

Generally, appellate courts do not consider matters on appeal unless they are " specifically and distinctly" raised in the opening brief. See TRW Inc. v. Andrews, 534 U.S. 19, 34, 122 S.Ct. 441, 151 L.Ed.2d 339 (2001); Independent Towers of Wash. v. State of Wash., 350 F.3d 925, 929 (9th Cir. 2003). We are to read an opening brief so as to avoid the possibility of waiver. Holley v. Crank, 400 F.3d 667, 670 (9th Cir. 2005).

In the appeal before us, Watkins did not assert in his opening brief on appeal that the bankruptcy court made inadequate findings under § 523(a)(2)(A). Instead, he asserts that the failure of the bankruptcy court to admit his exhibits precluded him from rebutting the prima facie case presented by Market Express. That Watkins did not intend to challenge the bankruptcy court's fraud findings is further suggested by the fact that he failed to provide any factual record, i.e., testimony, for our review. In addition, Watkins did not raise the issue at oral argument.

Once the Late Transcript was in the record on appeal, Watkins had the opportunity to refer to Market Express's examination of him in establishing its prima facie case. Without explanation or analysis, but noting that the Late Transcript contains " numerous references to fraudulent activity, " Watkins directed us to portions of the Late Transcript which he asserts " more closely relate to the question of fraud." Watkins also directed our attention to his excerpts of record which contain the management agreements, the text of § § 769.80-769.87 of the California Insurance Code, and certain publications of the Internal Revenue Service.

With respect to the issue of fraud, Watkins refers us to the following excerpts from the Late Transcript: 19:10-21:10; 23:11-24:25; 42:20-43:25; 45:19-46:25; and 52:10-53:22.

As best we can determine, Watkins refers to these portions of his testimony to support his arguments (1) that he is not personally liable to Market Express because under California law, Equity was a managing agent, not an insurance company, and (2) Equity was required under federal tax law to pay the IRS $18,000 on behalf of Universal.

To the extent these references are intended to challenge the limited finding of the bankruptcy court that Market Express had made its prima facie case as to fraud, these are too little, too late, in that they represent an attempt to raise an issue which has been waived by Watkins on appeal, and as a matter of substance, they are inadequate to warrant reversing the bankruptcy court's finding as error. While we may consider an issue not properly raised in the opening brief to prevent " manifest injustice, " this is not a case where it would be appropriate to do so, particularly where Watkins raised other issues for our review, and oral argument already has taken place on those issues. See Greenwood v. FAA, 28 F.3d 971, 977 (9th Cir. 1994)(" We will not manufacture arguments for an appellant, and a bare assertion does not preserve a claim, particularly when, as here, a host of other issues are presented for review.").

See Kohler v. Inter-Tel Technologies, 244 F.3d 1167, 1182 (9th Cir. 2001).

As noted above, the bankruptcy court's determination that the Judgment is nondischargeable pursuant to § 523(a)(2)(A) is not an issue properly reserved and argued to us by Watkins. The matters in dispute, as stated in Watkins' opening brief, relate only to the evidentiary issues and the § 523(a)(4) determination of fiduciary duty. Accordingly, the bankruptcy court's determination under § 523(a)(4), right or wrong, does not change the outcome of the adversary proceeding. Nevertheless, we address the issue raised by Watkins with respect to the § 523(a)(4) cause of action.

D. The Bankruptcy Court's Ruling on the § 523(a)(4) Cause of Action

In ruling on Market Express's § 523(a)(4) cause of action the bankruptcy court stated:

I was looking for some kind of evidence with respect to the existence of a fiduciary duty on behalf of Mr. Watkins and Equity to Market Express and/or somebody else where Market Express is a beneficiary.

I'm satisfied that yesterday's evidence provided exactly that for me, specifically from the program management agreements for both Combined General and Universal Security, which not only recite it, but more fundamentally and more clearly for me was Mr. Watkins' testimony about the funds that would come into Equity . . . .

Partial Trial Transcript (Nov. 17, 2006 Court Ruling), pp. 3:23 - 4:9 (emphasis added).

Watkins asserts the bankruptcy court erred in determining that he was a fiduciary under the management agreements based on California law. However, the bankruptcy court clearly relied more heavily on Watkins' testimony in determining whether Watkins was a fiduciary. As has been the prevailing theme of this appeal, we have a limited record to review where Watkins has elected to provide us no transcript of his complete November 17, 2006, testimony. Accordingly, although Watkins has provided references to testimony contained in the Late Transcript, these reference are not sufficient. As a consequence, he has offered us no basis for determining that the bankruptcy court erred in its ultimate § 523(a)(4) determination and judgment. But that being said, at oral argument, counsel for Market Express was unable to provide us with any authority under California or federal law that would characterize Watkins as a fiduciary of a technical or express trust of which Market Express (his or Equity's customer) is a beneficiary, as would be required to establish an exception to discharge under § 523(a)(4). It seems more likely to us that the record establishes a fiduciary relationship between Watkins and Equity as agents of Combined General and Universal, and thus trustees as to moneys received for their benefit. Whether that is so, however, is of no moment here, but it does give us substantial doubt that we could affirm the bankruptcy court's ultimate § 523(a)(4) determination if we had a complete transcript of the trial to review.

VI. CONCLUSION

The bankruptcy court did not abuse its discretion in any of the evidentiary matters raised by Watkins on appeal. Although the findings of the bankruptcy court on the fraud issue were conclusory, Watkins did not appeal the bankruptcy court's determination that Market Express presented a prima facie case for fraud under § 523(a)(2)(A). That determination stands unchallenged. Accordingly, we AFFIRM the bankruptcy court's decision to except the Judgment from discharge under § 523(a)(2); we do not need to determine whether the bankruptcy court erred when it excepted the Judgment from discharge under § 523(a)(4).


Summaries of

In re Watkins

United States Bankruptcy Appellate Panel of the Ninth Circuit
Feb 28, 2008
BAP SC-07-1017-DBaMo (B.A.P. 9th Cir. Feb. 28, 2008)
Case details for

In re Watkins

Case Details

Full title:In re: BURNETT W. WATKINS and JUDITH A. WATKINS, Debtor. v. MARKET EXPRESS…

Court:United States Bankruptcy Appellate Panel of the Ninth Circuit

Date published: Feb 28, 2008

Citations

BAP SC-07-1017-DBaMo (B.A.P. 9th Cir. Feb. 28, 2008)