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Victor Kearney v. Unsecured Creditors Committee

Summarizing by Amir Shachmurove

In re Haynie

Case Type:
Case Status:
United States Bankruptcy Appellate Panel of the Ninth Circuit No. ID-20-1182-FLB (9th Circuit, Feb 12,2021) Published
The BAP affirmed the bankruptcy court in full when the bankruptcy court ruled that the last judgment in time should be granted preclusive effect, even if the same court issued a prior inconsistent judgment. The BAP also affirmed the bankruptcy court's decision in applying issue preclusion and the bankruptcy court's decision to hold the judgment debt nondischargeable under §§ 523(a)(2) and (a)(6) of the Bankruptcy Code.
Procedural context:
The bankruptcy court held a multi-day trial in the adversary, and then issued a decision holding the Second State Judgment nondischargeable under §§ 523(a)(2) and (a)(6). The bankruptcy court found that Washington state law did not state which--if any--judgment has preclusive effect when a state court issues conflicting judgments. Therefore, the bankruptcy court relied on Ninth Circuit precedent which determined the preclusive effect is given to the last judgment issued. The bankruptcy court then reviewed the Second State Judgment to see if it satisfied each portion of the four-prong test for issue preclusion. The Debtor only argued that he did not have a full and fair opportunity to litigate the second state court trial, but the bankruptcy court did not find this argument persuasive, because the state court sent notice to the Debtor's Idaho address. The bankruptcy court held the Second State Judgment was entitled to preclusive effect, predicting that the Washington State Supreme Court would follow the majority position that last in time would be given preclusive effect. The Debtor appealed, but he did not provide the BAP with a copy of the bankruptcy court trial transcript.
In the May 2003, the Debtor and Jack Krystal (Krystal) looked into forming a new company to purchase an internet company. The Debtor and Krystal handwrote Deal Points which memorialized the plans for sharing interests, future sales of interests, and a formula for for monthly disbursements. This memo was not signed. The Debtor then created his own company, absent Krystal, and executed a promissory note from a company from Krystal. Then the Debtor's company purchased the internet company, which the Deal Points previously discussed. When the Debtor sought another loan from Krystal, Krystal demanded information about the company which now owned the internet company. Krystal also demanded to be made an owner reflected from the formation of the company. The Debtor and Krystal then signed a typed version and the original version of the Deal Points in December 2003. In July 2004, the Debtor sold a 50% share to another party without sharing any of the proceeds with Krystal. In 2007, Krystal, sued the Debtor, the Debtor's company, and the third-party in Washington state court. Separate trials were ordered for the existence and percentage of Krystal's ownership interest in the Debtor's company. The state court issued the First State Judgment which found the Deal Points were not an enforceable contract. In 2012, the remaining issues were tried without the Debtor appearing for trial. The state court sent notice of the trial to the Debtor's address in Idaho, and no indication was received that the Debtor never received the trial notice. The state court found the Debtor to be in default and issued the Second State Judgment. The Second State Judgment found the Deal Points to be binding agreements, the Debtor breached those agreements, and the state court awarded Krystal almost $800,000 in damages, plus interests and costs. In 2017, the Debtor filed bankruptcy, and Krystal commenced an adversary proceeding under §§ 523(a)(2), (a)(4), and (a)(6) to have the Second State Judgment declared nondischargeable.
The Hons. Faris, Lafferty, and Brand

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