Baloch v. Shah (In re Baloch)

Baloch v. Shah (In re Baloch) (B.A.P. AZ-12-1557 KuDPa Feb 26, 2014)
In an unpublished opinion, the Ninth Circuit Bankruptcy Appellate Panel ("BAP"), using the abuse of discretion standard, affirmed the bankruptcy court ruling that a California based default judgment for fraud met the parameters of state law to give the judgment preclusive effect in the bankruptcy court on a 11 U.S.C. 523 (a)(2)(A) claim of fraud. Even though the case was filed in Arizona, the Court looked at the California laws to determine whether the judgment would have preclusive effect. In this case, the default judgment was given preclusive effect because the court believed Baloch was actual notice and a full and fair opportunity to litigate. Even though the service was done by publication, Debtor was given actual notice when they learned of the judgment and had an opportunity to fight the judgment through the California Courts and did not take the opportunity.
Procedural context:
Syed Bashir Shah ("Shah") filed a 11 USC 523 (a)(2)(A) claim against Abdul and Tasneem Baloch ("Baloch"). Shah filed a Motion for Summary Judgment, on the basis of issue preclusion, against Baloch using a default judgment from California. The bankruptcy court granted Shah's Motion for Summary Judgment. Baloch appealed.
Syed Bashir Shah ("Shah") invested $300,000 with Abdul and Tasneem Baloch ("Baloch"). Baloch was supposed to take the money and invest it in a dealership or Shah could call the loan and have the money returned. Baloch did not provide any evidence of ownership in the dealership. Once evidence was not provided, Shah filed a claim, for among other things, fraud and constructive fraud. The Defendant was not able to be located and so the service was done by publication. There was a default hearing and evidence was presented to the California Court. After hearing the "prove up" hearing, the judge ruled that a default judgment was appropriate. The first time the Debtor Baloch learned of the judgment was when it was domesticated in Arizona nine months after the judgment was granted. The Debtor filed bankruptcy. Shah filed a Dischargeability lawsuit against Baloch and then filed a motion to Dismiss.
Kurtz, Dunn and Pappas, BANKRUPTCY JUDGES

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