- Case Type:
- Case Status:
- 20-1002 (9th Circuit, Feb 02,2021) Not Published
- The U.S. Bankruptcy Appellate Panel of the Ninth Circuit (BAP) affirmed the judgment of the U.S. Bankruptcy Court for the Central District of California (BC) that claim and issue preclusion barred a creditor’s attempt to litigate his claim’s nondischargeability per § 523(a)(2) and (6) of the Bankruptcy Code (Code) against the chapter 7 debtor (DR) who had once been his attorney for one reason: their bases in causes of action (COAs) for fraud and breach of fiduciary duty whose key predicates had been decided by the Los Angeles Superior Court (LAC) in that creditor’s second suit against the DR.
- Procedural context:
- In the LAC, Gary Salzman (Salzman) sued the DR, Gary Moll (Moll), the lawyer who had briefly represented Salzman in his litigation against his former girlfriend, Dawn Phillips (Phillips), that had previously been pending before that same tribunal. Once Moll filed for bankruptcy relief in the BC, Salzman launched an adversary proceeding (AP) within Moll’s main case; he later won relief from the automatic stay to pursue Moll in the LAC. Once there, he launched a second case against Moll, his first one having been dismissed for lack of prosecution. The AP faded into dormancy. Thereafter, despite the LAC’s determinations that Salzman’s claims were time-barred, that he had failed to provide evidence of compensable damages, and that he was disqualified from any recovery against Moll by the doctrine of unclean hands in Salzman's second state court case, he still sought recovery on a claim identical to at least one in his second state court complaint and a nondischargeable judgment against Moll via the revived AP. After first providing Salzman with the chance to prove his entitlement to a default judgment and address the impact of the LAC’s decision and then considering his written and oral submissions, the BC concluded that claim and issue preclusion foreclosed all of Salzman’s COAs and therefore entered judgment against him. In his appeal of this decision to the BAP, Moll argued that the BC had erred in both denying his default judgment and dismissing his AP with prejudice.
- Prepetition, Salzman and Moll joined forces—and fell into deep discord. Originally, Moll represented Salzman in a suit against Phillips seeking approximately $50,000 in actual and punitive damages under various tort theories predicated on her purported theft of funds from Salzman’s credit union account. While Moll secured a default judgment, the LAC eventually set it aside, at which point Salzman fired Moll. Litigating pro se, Salzman ultimately won a judgment of $75,332.18 (plus fees and costs), a reimbursement of $19,246.63 from his credit union, and restitution of $38,307.38 as a result of Phillip’s criminal adjudication. Saltzman then turned around and sued Moll in the LAC for legal malpractice and breach of fiduciary duty. Moll soon afterwards filed for relief pursuant to the Code’s seventh chapter, and Salzman promptly responded with nondischargeability litigation essentially blaming Moll for concealing problems with his claims against Phillips. Meanwhile, the LAC dismissed Salzman’s case for lack of prosecution, and, Salzman obtained relief from the stay so as to litigate his claims against Moll outside of the BC’s purview. With the BC’s order in hand, however, Salzman did not revive his first case. Rather, he filed a second action seeking recovery under somewhat different theories. The BC left the adversary in hibernation while Salzman focused on this second effort. Ultimately, the LAC ruled against Salzman despite Moll’s inactivity, finding the action to be a malpractice one barred by the relevant statute of limitations and Salzman to have failed to prove damages or escape the grip of the doctrine of unclean hands. This judgment was affirmed on appeal, and further review was denied by the Golden State’s highest court. The action then returned to the BC. As Moll argued, the LAC's judgment mandated the dismissal of Salzman’s adversary complaint. The BC allowed Salzman to provide evidence of his right to a default judgment and address the potential preclusive impact of the LAC's seemingly unambiguous conclusions. After considering all of the evidence, the BC determined that claim preclusion barred Salzman’s breach of fiduciary duty claim and issue preclusion barred his § 523 claims. By then, Moll had already died.
- Laura S. Taylor; Scott H. Gan; and Christopher M. Klein
In re Jesslyn Anderson
Summarizing by Bradley Pearce
3220 in the system
1 Being Processed