Opinion
Case No. 14-00077 Adv. No. 14-90018
06-26-2015
In re CYNTHIA LEE KAUANUI, dba Jet Set Management Group, Debtor. LINDSAY STEWART, Plaintiff, v. CYNTHIA LEE KAUANUI, Defendant.
KESSNER UMEBAYASHI BAIN & MATSUNAGA Attorneys at Law, A Law Corporation STEVEN GUTTMAN 1289-0 DAWN EGUSA 9359-0 220 South King Street, Suite 1900 Honolulu, Hawaii 96813 Telephone: (808) 536-1900 Facsimile: (808) 529-7177 Email: kdubm bk@kdubm.com Attorneys for Debtor/Defendant CYNTHIA LEE KAUANUI
KESSNER UMEBAYASHI
BAIN & MATSUNAGA
Attorneys at Law, A Law Corporation
STEVEN GUTTMAN 1289-0
DAWN EGUSA 9359-0
220 South King Street, Suite 1900
Honolulu, Hawaii 96813
Telephone: (808) 536-1900
Facsimile: (808) 529-7177
Email: kdubm bk@kdubm.com
Attorneys for Debtor/Defendant
CYNTHIA LEE KAUANUI
(Chapter 7)
DEFENDANT CYNTHIA LEE KAUANUI'S PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW
TRIAL :
Date: June 1, 2015
Time: 9:30 A.M.
Judge: Hon. Robert J. Faris
FINDINGS OF FACT
After considering all of the evidence submitted with respect to relevance, weight and probative value, and having objectively assessed the credibility of all witnesses who testified, the Court makes the following findings of facts. To the extent that any finding of fact may also be deemed a conclusion of law, it shall also be considered a conclusion of law. JUDGMENT AT ISSUE
1. Plaintiff Lindsay Stewart ("Ms. Stewart") obtained a judgment against Debtor/Defendant Cynthia Lee Kauanui ("Ms. Kauanui") in the Superior Court of the State of California for the County of San Diego in the amount of $2,560,000 ("California Judgment"). (Exhibit 38.)
2. The California Judgment does not specify the grounds upon which it is based. (Exhibit 38.) FACTUAL BACKGROUND
3. In May 1995, Ms. Kauanui opened a full service talent agency and obtained her State Talent License and Screen Actors Guild Franchise to conduct business in the State of California. (Kauanui Decl. ¶ 5.)
4. In 2000, Ms. Kauanui incorporated her company under the name Jet Set Management Group, Inc. ("Jet Set"). (Kauanui Decl. ¶ 6.) Jet Set had four divisions: (1) Teens/Adults, (2) Tweens/Kids, (3) Babies/Toddlers, and (4) Commercials/Theatrical. (Kauanui Decl. ¶ 6.)
5. Shortly after Jet Set was incorporated, Ms. Stewart approached Ms. Kauanui to work in Jet Set's Tween/Kids division. (Kauanui Decl. ¶ 7.) Ms. Kauanui hired Ms. Stewart and had her sign an employment agreement and employee confidentiality agreement and liability release. (Kauanui Decl. ¶ 7; Exhibit A.) Ms. Stewart became the director of the Tween/Kids Division. (Kauanui Decl. ¶ 7.)
6. In early 2007, Ms. Stewart approached Ms. Kauanui about temporarily working from home because she had been experiencing some financial difficulties. (Kauanui Decl. ¶ 9.) Ms. Kauanui agreed, and on February 14, 2007, Ms. Stewart and Ms. Kauanui entered into an agreement to allow Ms. Stewart to work out of a location in Los Angeles for a period of six months. (Kauanui Decl. ¶ 9.)
7. When Ms. Stewart began working out of Los Angeles, she was given a laptop and a workstation computer, along with a computer program that would allow her to look at her computer in the Jet Set office, and a modeling program. (Trial Tr. 06/01/15 at 48:22-18.)
8. Ms. Stewart was not given a fax machine or a fax number. (Trial Tr. 06/01/15 at 50:14-16.) Ms. Stewart was also not given a phone number because she had a Jet Set Cisco phone that could be plugged in at her new location, while retaining the same phone number. (Trial Tr. 06/01/15 at 50:17-51:7.)
9. Ms. Stewart was required to obtain corporate approval for any purchases made through Jet Set's Office Depot account. (Trial Tr. 06/01/15 at 49:19-50:13.)
10. Ms. Stewart's role within Jet Set did not change when she began working out of her Los Angeles home. (Trial Tr. 06/01/15 at 52:5-14.)
11. Ms. Stewart's role never included creating invoices or preparing vouchers. (Trial Tr. 06/01/15 at 52:5-53:7; 89:4-7.) IMPROPRIETIES AT JET SET
12. In May 2007, Ms. Kauanui's son was badly beaten and subsequently died. (Kauanui Decl. ¶ 10.) Because the District Attorney had advised Ms. Kauanui that she was not safe in La Jolla, California, while the beating was being investigated, Ms. Kauanui moved to Oahu. (Kauanui Decl. ¶ 13.)
13. Ms. Kauanui trusted her employees to assist in operating Jet Set while she was physically away from the office. (Kauanui Decl. ¶ 14.)
14. Melissa Bennett was an independent contractor who worked as Jet Set's bookkeeper. (Trial Tr. 06/01/15 at 61:15-22.)
15. Ms. Kauanui trusted Melissa Bennett to keep track of transactions and take care of the invoicing. (Trial Tr. 06/01/15 at 61:6-19.)
16. While Ms. Kauanui was in Hawaii, parents of models in the Tween/Kids Division were not getting paid. (Stewart Depo. Tr. at 177:2-6.) Melissa Bennett explained to Ms. Kauanui that the problem was being caused by clients who were taking longer to pay because of the recession. (Trial Tr. 06/01/15 at 62:5-15.)
17. Ms. Kauanui returned to work at Jet Set's office in July 2008 (Kauanui Decl. ¶ 15), at which time she became suspicious of Melissa Bennett because Melissa Bennett's belongings were in Ms. Kauanui's office. (Kauanui Decl. ¶ 15.) Ms. Kauanui also became aware of the extent of the problem of delayed payments to models in the Tween/Kids Division. (Trial Tr. 06/01/15 at 61:23-62:15; Kauanui Decl. ¶ 16.) The Tween/Kids Division was the only division that was experiencing an issue with delayed payments. (Almazan Depo. Tr. 49:21-24; Trial Tr. 06/01/15 at91:12-92:9; Trial Tr. 06/02/15 at 26:4-23.)
18. On July 25, 2008, Ms. Kauanui met with Ms. Stewart, Melissa Bennett, and another Jet Set employee named Paloma Jackson. (Stewart Depo. Tr. at 182:17-23.) At the meeting, Ms. Kauanui told Ms. Stewart that she was like the daughter she never had. (Stewart Depo. Tr. at 182:24-183:1.) Around that same time, Ms. Kauanui said that there was a huge discrepancy in the books and she did not know where the money went, but that she was going to find out. (Stewart Depo. Tr. at 182:8-16, 183:2-5.)
19. Ms. Kauanui hired professionals to assist her in conducting an investigation. (Trial Tr. 06/01/15 at 107:17-23.)
20. Ms. Kauanui hired a private investigator. (Trial Tr. 06/02/15 at 107:1-3.) Plaintiff admitted that an investigator named Craig came into the office on July 25, 2008. (Stewart Depo. Tr. at 191:11-192:20.)
21. Ms. Kauanui hired Jennifer Aronce, a certified accountant and certified human resources specialist, to reach out to the employees and assist with the investigation. (Trial Tr. 06/01/15 at 107:11-107:21, 109:4-8; Trial Tr. 06/02/15 at 106:13-107:1.)
22. Ms. Kauanui hired forensic accountants, including Lydia Benson, Phillips Business Management, and Teri Sicilliani. (Trial Tr. 06/02/15 at 107:9-108:4, 110:6-8.) Ms. Kauanui spent $33,000 on accountants in reference to the investigation. (Trial Tr. 06/02/15 at 108:4-5.)
23. Mrs. Kauanui hired a computer company called Managed Solutions, who discovered a remote server that had been hidden in the Jet Set accounting office. (Trial Tr. 06/02/15 at 108:5-109:7.) Ms. Kauanui spent $10,000 on Managed Solutions services. (Trial Tr. 06/02/15 at 109:14.)
24. From the investigation, Ms. Kauanui discovered that Ms. Bennett had stolen the Jet Set incorporation papers, stolen money from condolence cards, written unauthorized Jet Set checks to herself and others, tried to obtain a line of credit as "COO" of Jet Set, and changed Jet Set's security alarm documents. (Kauanui Decl. ¶ 18; Exhibits C, D, E, F.)
25. Ms. Kauanui had Ms. Bennett removed from Jet Set. (Kauanui Decl. ¶ 23.)
26. Ms. Kauanui also contacted the FBI and filed police reports with respect to Melissa Bennett's conduct. (Trial Tr. 06/01/15 at 117:16-118:14.) SUSPICIONS AS TO LINDSAY STEWART
27. Ms. Stewart was in charge of the Tween/Kids Division. (Trial Tr. 06/01/15 at 88:22-23.)
28. Because money was only missing from the Tween/Kids Division, Ms. Kauanui became suspicious. (Almazan Depo. Tr. 49:21-24; Trial Tr. 06/01/15 at 91:12-92:9; Trial Tr. 06/02/15 at 26:4-23.)
29. Ms. Kauanui testified that she had Jennifer Aronce set up a meeting with Ms. Stewart because she wanted to find out what Ms. Stewart knew. (Kauanui Decl. ¶ 35.)
30. Ms. Stewart admitted that she received a fax from Jennifer Aronce on August 18, 2008, requesting a meeting on August 25, 2008. (Stewart Depo. Tr. at 538:3-5; Exhibit N.)
31. Ms. Stewart admitted that she never made it to the meeting because she assumed she was being fired. (Stewart Depo. Tr. at 74:11-75:10, 111:20-112:2.)
32. Ms. Kauanui became suspicious of Ms. Stewart's involvement in the wrongdoing when Ms. Stewart did not want to meet with her because she did not understand why Ms. Stewart would not want to help her out in the investigation. (Trial Tr. 06/01/15 at 94:3-12.)
33. On August 26, 2008, Ms. Stewart quit her job at Jet Set without prior notice. (Stewart Depo. Tr. at 79:5-16; Trial Tr. 06/01/15 at 105:23-24; Exhibit O.) Ms. Kauanui testified that she found out about Ms. Stewart's resignation from a parent named Thorn Hiatt before she found out from Ms. Stewart. (Kauanui Decl. ¶ 36.)
34. Ms. Kauanui's investigation into Ms. Stewart involved trying to get answers to what was going on in the Kids Division. (Trial Tr. 06/01/15 at 117:6-15.)
35. Ms. Kauanui's investigation revealed that Ms. Stewart had an unauthorized Pitney Bowes machine in her home. (Trial Tr. 06/01/15 at 97:4-100:1, 102:9-13, 103:3-104:2, 106:23-107:15; Exhibit P; Exhibit 43.) Ms. Kauanui considered this to be a misappropriation of funds. (Trial Tr. 06/02/15 at 74:17-20, 75:21-23.)
36. Ms. Kauanui also discovered unauthorized checks signed by "Cynthia Kauanui" that were made payable to Lindsay Stewart. (Exhibit C.) Ms. Kauanui testified that the signatures on the checks were not her signature. (Trial Tr. 06/01/15 at 58:10-16; Exhibit C.) Ms. Kauanui testified that the date written on one of the checks made payable to Lindsay Stewart fell in a time period during which the Jet Set office was closed and that the check was not a commission payment because the quarter was not yet done. (Trial Tr. 06/01/15 at 58:17-59:15.) Ms. Kauanui testified that none of the Jet Set employees were supposed to have received physical checks at any point in time because Jet Set utilized PayNet, an automatic direct deposit service. (Trial Tr. 06/01/15 at 57:2-10, 61:2-5.)
37. Ms. Kauanui also discovered that Ms. Stewart had been creating her own invoices and changed the phone and fax numbers on the Jet Set contact sheets to non-Jet Set numbers. (Trial Tr. 06/01/15 at 105:10-11, 117:8-15; Trial Tr. 06/02/15 at 112:9-113:7; Kauanui Decl. ¶ 40c.) ZURI MODEL AND TALENT
38. After Ms. Stewart left Jet Set, Ms. Kauanui learned that Ms. Stewart had opened her own agency, Zuri Model and Talent ("Zuri"). (Trial Tr. 06/02/15 at 11:13-15; Stewart Depo. Tr. at 79:20-25.)
39. Around the same time, many children began leaving Jet Set and going to Zuri for modeling work. (Trial Tr. 06/02/15 at 11:16-20.) COMMUNICATIONS WITH PARENTS AND SAG
40. On September 9, 2008, Andrea Stowasser, a parent of one of the Jet Set models, sent an email to the Jet Set accounting department, notifying them that her daughter had not received two checks. (Trial Tr. 06/02/15 at 24:8-11; Exhibit 10.)
41. On September 13, 2008, Ms. Kauanui responded to Andrea Stowasser's email by first apologizing for the lack of communication and then explaining that, since she came back, she caught the accounting department stealing monies from her. (Exhibit 10.) Ms. Kauanui also assured Andrea Stowasser that "They are under investigation along with our past kids booker," and informed her that she had hired all new people, closed the old print account, and opened a new one. (Exhibit 10.) Ms. Kauanui also told Andrea Stowasser that she wanted to take care of her right away, that she had sent another check, and that she would reconcile all of her child's jobs and send payment with a report. (Exhibit 10.)
42. Ms. Kauanui testified that she disclosed some of the improprieties she discovered within Jet Set because she wanted to defend her own reputation and the reputation of Jet Set and wanted to assure parents that the payment situation would be improving under her watch. (Kauanui Decl. ¶ 41.)
43. On September 12, 2008. Amy Bryant, a parent of a former Jet Set model, copied the Jet Set accounting department on an email in which she explained that she had not received past due payments owed to her daughter and that she would not be taking her daughter to any future castings/auditions. (Trial Tr. 06/02/15 at 29:15-17; Exhibit 11.)
44. In response, on September 13, 2008, Ms. Kauanui emailed Amy Bryant from the accounting department's email account, explaining that she understood Amy Bryant's frustration as they worked to "clean up everything." (Trial Tr. 06/02/15 at 33:11-17; Exhibit 11.) She also assured Amy Bryant that their "past accounting dept along with the past kids booker [we]re under investigation." (Trial Tr. 06/02/15 at 33:11-17; Exhibit 11.) Ms. Kauanui informed Amy Bryant that Wells Fargo advised her to close their old print account and open a new one and assured her that they were working as fast as they could to get all the talent paid. (Exhibit 11.)
45. Ms. Kauanui testified that she told Amy Bryant that Ms. Stewart was under investigation because she wanted to protect her reputation and let Amy Bryant know that she was trying to figure out what happened and fix the situation, but that she was not the one responsible for not paying Amy Bryant's children. (Trial Tr. 06/02/15 a( 35:3-23.)
46. After Amy Bryant left Jet Set, Ms. Kauanui met with her. (Trial Tr. 06/02/15 at 94:15-17.) Amy Bryant testified at her deposition that they had an hour long conversation wherein Ms. Kauanui explained why it took so long for Amy Bryant to get all the payments that were owed to her daughter Tallulah. (Trial Tr. 06/2/15 at 96:12-15; Exhibit Z.) Ms. Kauanui told Amy Bryant everything she had been going through, how she was trying to get her business back on track, and that the accounting department, specifically Melissa, was under investigation by the FBI. (Trial Tr. 06/02/15 at 96:16-21; Exhibit Z.) Amy Bryant further testified that Ms. Kauanui did not mention Ms. Stewart that much and that Ms. Kauanui did not want to speak ill of her. (Trial Tr. 06/02/15 at 96:21-25; Exhibit Z.) Amy Bryant testified that Ms. Kauanui was upset and crying. (Trial Tr. 06/02/15 at 97:1-3; Exhibit Z.)
47. Ms. Kauanui testified that Barbara Froelich, a parent of one of the former Jet Set models, had been upset that she was not getting paid. (Trial Tr. 06/02/15 at 42:21-24.)
48. To address Barbara Froelich's concerns, Ms. Kauanui emailed her on September 13, 2008. (Trial Tr. 06/02/15 at 40:11-20; Exhibit 12.) Ms. Kauanui informed her that they had mailed her checks and a report and apologized for the delay in payment. (Trial Tr. 06/02/15 at 40:11-20; Exhibit 12.) Ms. Kauanui also assured her that she had "personally let go of the entire past accounting dept" and informed her that "[t]hey [we]re also under investigation along with the past kids booker." (Trial Tr. 06/02/15 at 40:11-20; Exhibit 12.) Ms. Kauanui told Barbara Froelich that Jet Set had a new accounting department, a new network, and new bookers, and that this was a new beginning for Jet Set. (Exhibit 12.)
49. Ms. Kauanui testified that she told Barbara Froelich that Ms. Stewart was under investigation because she wanted to let her know that she was not responsible for what had happened, that she had nothing to do with what was going on, and that she was simply trying to fix the situation. (Trial Tr. 06/02/15 at 42:21-43:2.)
50. On September 18, 2008, Ms. Kauanui emailed Holly Blanks, inquiring as to whether she placed her kids with Lindsay Stewart's new agency. (Trial Tr. 06/02/15 at 44:25-45:9; Exhibit 15.) Ms. Kauanui explained, "1 would appreciate to know your plans seeing as we did such a good job for your kids and you seemed to be very happy until Lindsay quit." (Exhibit 15.)
51. Ms. Kauanui testified that she emailed Holly Blanks because Holly Blanks' child was a SAG member and, therefore, she would have to report back to SAG because any residual checks for a SAG-represented child would have to be paid to the originating agency, regardless of whether the child leaves the agency. (Trial Tr. 06/02/15 at 45:10-46:7.) Ms. Kauanui testified that she also wanted Holly Blanks to return to Jet Set. (Trial Tr. 06/02/15 at 47:7-14, 48:19-49:6.)
52. Around September 18, 2008, Ms. Kauanui had her accounting department send a letter to the parents of the kids division to update them about the latest happenings at Jet Set. (Trial Tr. 06/02/15 at 18:16-19:11; Exhibit 13; Exhibit 14.) Ms. Kauanui informed the parents about the passing of her son and how it caused her to spend over a year away. (Exhibit 13, Exhibit 14.) She also explained that she "had to do some rebuilding due to the moral and financial improprieties she found when she returned [to the office]." (Trial Tr. 06/02/15 at 18:16-19:11; Exhibit 13; Exhibit 14.) Ms. Kauanui also introduced them to the new head of the Kids Division and explained how having additional bookers in the Kids Division has had incredible results. (Exhibit 13; Exhibit 14.) She gave some background to Jet Set's reputation and experience in the industry and ended the letter by thanking those who chose to stay with Jet Set and asking those who left to return and promising them that they would be impressed with Jet Set's reorganization. (Exhibit 13; Exhibit 14.)
53. The letter did not contain any mention of Ms. Stewart's name or position. (Exhibit 13; Exhibit 14.)
54. Ms. Kauanui testified that she intended the letter to encompass everything that had been going on at Jet Set and did not intend it to be specifically focused on Ms. Stewart. (Trial Tr. 06/02/15 at 23:1-25.)
55. Ms. Kauanui testified that the purpose of the letter was to let the parents know what happened to her and to reassure them that she was going to do everything in her power to fix the problems that had been occurring at the agency. (Trial Tr. 06/02/15 at 19:12-25.) Ms. Kauanui also testified that she wanted to maintain her reputation. (Trial Tr. 06/02/15 at 20:1-8.)
56. On October 6, 2009, Stephanie Harvey, a parent of one of the former Jet Set Models, emailed Ms. Kauanui regarding some confusion over a job that Jet Set had booked for her child. (Trial Tr. 06/02/15 at 49:13-50:16; Exhibit 16.) Stephanie Harvey explained that she had received emails from both Jet Set and Zuri, but that she had decided to move over to Zuri the night before the job. (Exhibit 16.)
57. In response, on October 9, 2008, Ms. Kauanui emailed Stephanie Harvey to tell her that she disagreed with they way she handled things for her daughter and that her daughter should have done the last job booked by Jet Set before moving on to Zuri. (Trial Tr. 06/02/15 at 50:17-20.) Ms. Kauanui told Stephanie Harvey that she felt that Stephanie Harvey had taken a job away from Jet Set and given it to Zuri. (Trial Tr. 06/02/15 at 50:21 -25; Exhibit 16.) Ms. Kauanui also informed Stephanie Harvey that Zuri was not licensed to do business in the State of California. (Trial Tr. 06/02/15 at 49:13-50:25; Exhibit 16).
58. Ms. Stewart admitted at her deposition that, at that point in time, Ms. Kauanui's statement about Zuri's licensure status was true. (Stewart Depo. Tr. Vol. 1 at 100:9-19.)
59. Ms. Kauanui testified that the reason she told Stephanie Harvey about Zuri's licensure status was because she did not feel it was right for Zuri, an unlicensed company, to take a job away from Jet Set, a licensed company. (Trial Tr. 06/02/15 at 52:14-23.) Ms. Kauanui also wanted the money to go to Jet Set, rather than Zuri, because it was Jet Set's job. (Trial Tr. 06/02/15 at 52:20-53:4.)
60. Ms. Kauanui testified that in March, a person from SAG named April called her on a routine check to ask about Lindsay Stewart because she was Lindsay Stewart's last employer. (Trial Tr. 06/02/15 at 53:7-24.) Ms. Kauanui testified that she told SAG of her lawsuit against Ms. Stewart because they specifically asked about Ms. Stewart's character. (Kauanui Depo. Tr. 396:19-397:3; Trial Tr. 06/02/15 at 53:7-54:12.) Ms. Stewart admitted that Ms. Kauanui's representation that they were in a lawsuit was true. (Stewart Depo. Tr. at 163:23-134:1.) Ms. Kauanui sent a copy of the Complaint to SAG because they requested a copy for verification. (Kauanui Depo. Tr. 396:25-397:17; Trial Tr. 06/02/15 at 54:7-12.) COMMUNICATIONS WITH JET SET EMPLOYEES AND FRIENDS
61. While Ms. Kauanui testified that she may have told people that she was suspicious of Ms. Stewart, she was adamant that she did not tell anyone definitively that Ms. Stewart was stealing or embezzling money. (Trial Tr. 06/02/15 at 68:18-20, 69:16-18, 70:17-21, 71:10-13, 72:3-5, 72:24-73:1, 73:13-16, 74:17-20, 76:1-5, 76:16-17. 77:6-9.) Although Ms. Kauanui testified that she had proof that Ms. Stewart had an unauthorized Pitney Bowes machine, which she considered to be misappropriation of funds (Trial Tr. 06/02/15 at 69:10-12, 74:17-20, 75:17-23), she distinguished that from "stealing money," of which she said she had no proof. (06/02/15 at 77:4-10.)
62. Paloma Jackson initially testified that Ms. Kauanui said that she thought Ms. Stewart had stolen money. (Jackson Depo. Tr. at 148:14-17.) Paloma Jackson subsequently clarified, however, that "[Ms. Kauanui] thought that Lindsay had either been given more paychecks than she should have or paid for her condo or gotten some more equipment than she should have, but it was not to the extreme of what Melissa did." (Jackson Depo. Tr. at 149:11-15.)
63. Christiaan Almazan testified that Ms. Kauanui told him that "I think that Lindsay and Melissa were working together with embezzlement." (Almazan Depo. Tr. at 79:11-15.)
64. Although Zoe Wheeler initially testified at her deposition that Ms. Kauanui told her "that Melissa and Lindsay were stealing" (Wheeler Depo. Tr. at 68:20-23), she subsequently testified, at various times, that Ms. Kauanui used the words "believed," "thought," and "suspected." When asked to clarify whether Ms. Kauanui said she "believed" or "suspected" Ms. Stewart of stealing, Zoe Wheeler focused on the word "believed" and testified that Ms. Kauanui truly believed, in her mind at one time or another, that Ms. Stewart was stealing. (Wheeler Depo. Tr. at 71:1-9, 71:23-72:2.)
65. Don Diaz testified that Ms. Kauanui first told him that she was "suspicious that Lindsay was, perhaps, embezzling" around the time that Ms. Stewart left Jet Set. (Diaz Depo. Tr. at 18:24-19:20.) He also testified that he considers Ms. Kauanui to be a "close friend" (Diaz Depo. Tr. at 12:4-5) and that Ms. Kauanui confided in him. (Diaz Depo. Tr. at 18:7-12, 24:12-14.)
66. Don Diaz testified that he thought Ms. Stewart was very competent at her job and that his opinion had not changed in any manner. (Diaz Depo. Tr. at 13:7-22.) MS. KAUANUI'S MINDSET
67. Ms. Kauanui was diagnosed with PTSD from May 2007. (Trial Tr. 06/02/15 at 88:23-24.)
68. Mr. Diaz testified that Ms. Kauanui trusted Ms. Stewart up until the time she left Jet Set, but after discovering everything that happened with respect to Melissa Bennett, Ms. Kauanui felt like Lindsay was not the person she thought she was. (Diaz Depo. Tr. at 18:8-23. 37:3-9.)
69. Mr. Diaz testified that Ms. Kauanui grew more and more suspicious over time because of how Ms. Stewart left and started her agency right away, and the fact that Ms. Stewart was still friends with Melissa Bennett. (Diaz Depo. Tr. at 20:22-21:1.)
70. As of September 2011, Ms. Kauanui was still investigating and still suspected Ms. Stewart's involvement with Melissa Bennett. (Trial Tr. 06/02/15 at 61:11-62:12, 63:8-11; Exhibit T.)
71. Ms. Kauanui testified that she never had any intention of hurting Ms. Stewart. (Kauanui Decl. ¶ 43.)
CONCLUSIONS OF LAW
Upon consideration of the entire record and the law, and applying the law to the evidence, including burdens of proof, the Court makes the following conclusions of law. To the extent that any conclusion of law may be deemed a finding of fact, it shall also be considered a finding of fact.
1. This Court has jurisdiction over this adversary proceeding, which is a core proceeding in bankruptcy. 28 U.S.C. § 157(b)(2)(I). Venue is proper.
2. The California Court made no factual findings as to the basis for the California Judgment.
3. Based on the evidence before this court, for the reasons set forth below, this Court cannot determine the legal basis upon which the California Judgment was entered. DEFAMATION
4. In California, defamation involves the intentional publication of a statement of fact that is false, unprivileged, and has a natural tendency to injure or which causes special damage. Smith v. Maldonado, 72 Cal. App. 4th 637, 645 (Cal. Ct. App. 1999). Publication means communication to some third person who understands the defamatory meaning of the statement and its application to the person to whom reference is made. Id.
5. The truth of the offensive statements or communication is a complete defense against civil liability. Id. at 646.
6. Ms. Kauanui's statements that Ms. Stewart was "under investigation" were not defamatory because they were true.
7. Ms. Kauanui's statement that Zuri was unlicensed was not defamatory because it was true. See, e.g. Coastal Abstract Service, Inc. v. First American Title Ins. Co., 173 F.3d 725 (9th Cir. 1999).
8. Ms. Kauanui's statements that she had filed a lawsuit against Zuri and Ms. Stewart were not defamatory because they were true.
9. Under California law, there is a qualified privilege for publication of a communication made, without malice, to a person interested therein, by one who is also interested. Kelly v. General Telephone Co., 136 Cal. App. 3d 278, 285 (Cal. App. 1982). The qualified privilege for communications between interested persons may exist where the communicator and the recipient have a common interest and the communication is reasonably calculated to further that interest. Id. Communication among a company's employees that is designed to insure honest and accurate records involves such a common interest. Id.
10. Ms. Kauanui's statements to Jet Set employees regarding her suspicions of Ms. Stewart were subject to a qualified privilege because they were communicated, without malice, to further a common interest of resolving the issue of missing monies at Jet Set.
11. In determining whether a statement of opinion is actionable, the court must decide whether a reasonable fact finder could conclude the published statement declares or implies a provably false assertion of fact. Franklin v. Dynamic Details, Inc., 116 Cal. App. 4th 375, 385 (2004).
12. A totality of the circumstances test is used to determine whether the statement in question communicates or implies a provably false statement of fact. Id.
13. Under the totality of the circumstances test, first, the language of the statement is examined. Id. For words to be defamatory, they must be understood in a defamatory sense. Id. Next, the context in which the statement was made must be considered. Id.
14. Considering the totality of the circumstances, Ms. Kauanui's statements regarding her suspicions of Ms. Stewart were not defamatory because they were her reasonable opinions based on expressly stated true facts regarding the Pitney Bowes machine, unauthorized checks, and other discoveries. It was clear that Ms. Kauanui was not sure what had happened and the Jet Set employees and Don Diaz were free to accept or reject her opinion based upon their own independent evaluation of the facts.
15. The evidence before this Court does not establish that Ms. Kauanui defamed Ms. Stewart. INTENTIONAL INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE
16. In California, the elements of Intentional Interference with Prospective Economic Advantage ("IIPEA") are: (1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant. Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1153 (2003) (citations omitted).
17. IIPEA protects the expectation that the relationship eventually will yield the desired benefit, not necessarily the more speculative expectation that a potentially beneficial relationship will arise. Id. at 1164.
18. Ms. Stewart has failed to meet the first element, as her prior economic relationships with Jet Set clients and talent were solely in her capacity as agent for Jet Set. When Ms. Stewart left Jet Set and started her own company, she only possessed a speculative expectation that a potentially beneficial relationship would arise between Zuri and those same clients and talent.
19. In order to meet the third element, a plaintiff must plead and prove that the defendant's acts are wrongful apart from the interference itself. Id. at 1154.
20. An act is independently wrongful if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard. Id. at 1159.
21. Ms. Stewart has failed to establish that Ms. Kauanui committed any independently wrongful acts, as none of Ms. Kauanui's statements were defamatory.
22. The evidence before this Court does not establish that Ms. Kauanui committed the tort of IIPEA. NON-DISCHARGEABILITY
23. Ms. Stewart claims that the California Judgment is not dischargeable in bankruptcy based on Section 523(a)(6) of the U.S. Bankruptcy Code.
24. Exceptions to discharge are to be construed strictly against the creditor and liberally in favor of the debtor. In re Hudson, 859 F.2d 1418 (9th Cir. 1988).
25. The creditor seeking to have the debt excepted from discharge has the burden of proving each element by a preponderance of the evidence. In re Eashai, 87 F.3d 1082 (9th Cir. 1996); In re Littleton, 942 F.2d 551 (9th Cir. 1991).
26. In order to prevail under section 523(a)(6), the creditor must prove that the debt is "for willful and malicious injury by the debtor to another entity or to the property of another entity." In order to establish "willful and malicious injury" under § 523(a)(6), Plaintiffs must meet their burden of proving both "willful" and "malicious" injury. Barboza v. New Form, Inc., (In re Barboza), 545 F.3d 702, 706 (9th Cir. 2008). Willful Injury
27. A willful injury is a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury. Id. (citing Kawaauhau v. Geiger, 523 U.S. 57, 61, 118 S. Ct. 974, 140 L. Ed. 2d 90 (1998)). Injury caused by recklessness or negligence does not constitute "willful injury." Kawaauhau, 523 U.S. at 60. The injury itself must be "deliberate or intentional." Id.
28. Plaintiff has not established that Ms. Kauanui committed a deliberate or intentional injury. Malicious Injury
29. A "malicious act" is (1) a wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without just cause or excuse. Barboza, 545 F.3d at 706.
30. Plaintiff has not established that Ms. Kauanui committed a wrongful act.
31. The Sixth Circuit has established that a defamatory statement is not "malicious" unless the debtor knew the statement was false when he made it. Jefferson v. Holland (In re Holland), 428 B.R. 465, 474 (Bankr. N.D. Ill. 2010); Merritt v. Rizzo (In re Rizzo), 337 B.R. 180, 189 (Bankr. N.D. Ill. 2006) (citing Wheeler v. Laudani, 783 F.2d 610, 615 (6th Cir. 1986); Qui v. Zhou (In re Zhou), 331 B.R. 274, 277 (Bankr. E.D. Mich. 2005); Mitan v. Davis (In re Davis), 334 B.R. 874, 888 (Bankr. W.D. Ky. 2005)). This is because a debtor does not act in conscious disregard of his duties in making a defamatory statement that he actually believes is true. Rizzo, 337 B.R. at 189. The Seventh Circuit and the First Circuit have also reached the same conclusion. Id. (citing In re Gorchev, 275 B.R. 154, 170 (Bankr. D. Mass. 2002); Langan v. Evers (In re Evers), 212 B.R. 945, 949 (Bankr. E.D. Wis. 1997); Materia v. Pereira (In re Pereira), 44 B.R. 248, 251 (Bankr. D. Mass. 1984)).
32. Ms. Stewart failed to prove that Ms. Kauanui knew that Ms. Kauanui's statements regarding her suspicions and investigation of Ms. Stewart were false.
33. Ms. Kauanui possessed just cause and excuse for making such statements because (1) they were either true or she believed they were true and (2) she needed to explain and apologize for what had happened at Jet Set in her absence and defend herself and her company.
34. Ms. Stewart has not established that Ms. Kauanui inflicted willful and malicious injury upon her in connection with the California Judgment.
35. Ms. Stewart has failed to establish a claim under 11 U.S.C. § 523(a)(6).
DATED: Honolulu, Hawaii, June 26, 2015.
/s/ STEVEN GUTTMAN
STEVEN GUTTMAN
DAWN EGUSA
Attorneys for Defendant
CYNTHIA LEE KAUANUI