Cha v. Rappaport (In re Cha)

BAP No. NC-11-1579-JoJuKi (B.A.P. 9th Cir. Dec. 5, 2012)
AFFIRMING the bankruptcy court, the Ninth Circuit Bankruptcy Appellate Panel held that a state court judgment against the debtors for failure to pay rent was nondischargeable. The panel was presented with two issues: (1) whether the landlord had standing to prosecute the non-dischargeability action against the debtors and (2) whether the form of the judgment against one of the joint debtors was proper. Because the real property was owned by an entity rather than the landlord himself, the debtors challenged the landlord's standing. The landlord claimed there was an assignment of the entity's right to rent the property to him. In an action involving an assignment, a court must ensure that the plaintiff-assignee is the real party in interest with regard to the particular claim involved. Rule 7017. Based on principles of preclusion, the issue of the landlord's standing was necessarily decided by the state court. Here, it was impossible for the state court to enter judgment in favor of the landlord without finding he had standing. Therefore, the issue of standing was necessarily decided in the prior proceeding, and the landlord could rely on the judgment in asserting standing in the adversary proceeding. The landlord's testimony at trial indicated that a written assignment existed. The landlord was not precluded from testifying that he was the assignee of the rental rights rather than producing the written assignment document. The debtors' hearsay objection was correctly overruled. Accordingly, the panel held that the bankruptcy court did not err in holding that the landlord had standing. The bankruptcy court's judgment correctly found that the judgment was non-dischargeable as to the joint-debtor wife only to the extent of her interest in the community property of the marriage, as she had nothing to do with the false financial statements on which the landlord relied. Because the debtors admitted in their brief that the judgment restates what the law already provides, the panel found no cause to reverse the bankruptcy court. Accordingly, the panel held that the form of the judgment was proper.
Procedural context:
The debtors' landlord recovered possession of real property and obtained a state court judgment for unpaid rent against the debtors. The debtors filed a chapter 7 case. The landlord was successful in obtaining a non-dischargeability judgment against the debtors based on the state court judgment. The debtors appealed.
The debtors executed a written lease with a landlord to lease certain real property. The actual owner of the property was an entity created by the landlord's father. The landlord, however, was assigned the rights to rent the property by way of a written assignment. As the debtors rarely paid rent, the landlord recovered possession and obtained a judgment in state court for unpaid rent of approximately $46,000. In furtherance of executing the lease, the debtor-husband had provided false financial information in a signed statement regarding his income and liquidity. When the debtors filed for bankruptcy, the landlord initiated a non-dischargeability action alleging claims under 11 U.S.C. § 523(a)(2)(A) & (B). Upon finding that the financial statements were materially false, the bankruptcy court entered judgment in favor of the landlord.
Hon. Wayne Johnson (by designation, Bankr. C.D. Cal.) Hon. Meredith Jury Hon. Ralph Kirscher

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