Gould v. Red Hill Enterprises (In re Gould)

Summarized by Lars Fuller , BakerHostetler
11 years 6 months ago

Citation:

Gould v. Red Hill Enterprises (In re Gould), BAP No. CC-13-1437-KiLaPa (BAP 9th Cir. Aug. 25, 2014)

Tag(s):

Ruling:

The 9th Circuit BAP affirmed US Bankruptcy Court for the Central District of California's entry of summary judgment in favor of plaintiff in dischargeability suit on separate grounds, affirming bankruptcy court's application of issue preclusion/collateral estoppel.

Procedural context:

Chapter 7 debtor/defendant appealed entry of summary judgment against him by bankruptcy court to 9th Circuit BAP. Ninth Circuit BAP affirmed on other grounds.

Facts:

After debtor filed Chapter 7, creditor sought to except debt under 523(a)(2) and (a)(6). Creditor asserted that issue preclusion/collateral estoppel barred relitigation of elements of 523(a)(2) and (a)(6) and compelled entry of summary judgment. Bankruptcy court agreed, and entered summary judgment against debtor/defendant. Debtor/defendant appealed. The underlying debt arose prior to 1997. Debtor was founder of vocational educational services company ("LT"), that was separately managed by separate entity formed and managed by Debtor ("LTU"). Creditor obtained judgment in 1998 against debtor and LT. LT defaulted on collection forbearance agreement in 2002. Debtor orchestrated transfer of LT and LTU's assets to third party in 2002, and expressly excepted payment of creditor's judgment from the proceeds of the asset sales. In 2005, creditor obtained judgment against debtor, LT, and LTU for actual fraudulent transfer, and other state law claims, including a finding that debtor was an alter ego of LT and LTU. Debtor appealed. The appeal was dismissed in 2010, affirming the trial court judgments. Debtor filed bankruptcy under Chapter 7 in 2012. Creditor filed suit to except debt from discharge pursuant to 11 USC 523(a)(2) and 523(a)(6). Creditor asserted that issue preclusion barred relitigation of elements of 523(a)(2) and (a)(6) based on the state court entry of judgment on the claim for actual fraud. Bankruptcy court agreed that state court jury verdict on actual fraud claim satisfied elements of 523(a)(2) and 523(a)(6), and entered summary judgment. On appeal, debtor asserted that state court "actual fraud" claim did not adjudicate elements of 523(a)(2), i.e., an intentional fraudulent misrepresentation. BAP concluded that state court judgment on "actual fraud," i.e., intent to hinder, delay, and defraud creditor satisfied elements of 523(a)(6) on separate grounds not used by trial court. Because BAP could affirm on separate grounds not used by trial court, BAP did not reach applicability of issue preclusion to 523(a)(2).

Judge(s):

Kirscher, Latham, and Pappas (J. Latham sitting by designation).

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