- Case Type:
- Case Status:
- Reversed and Remanded
- BAP No. CC-21-1228-GTL, BAP No. CC-21-1250-GTL (1st Circuit, Jun 10,2022) Not Published
- In cases where a judgment creditor seeks to use a prior state court judgment to establish that the judgment debt is nondischargeable, courts apply the applicable state's law of issue preclusion. In California, only findings that are necessary to support the judgment are entitled to preclusive effect. Thus, the California state court's determination that the debtor "intentionally" converted the judgment creditor's funds was not entitled to preclusive effect in § 523(a) nondischargeability litigation because the finding was not necessary to support the state court's judgment against the debtor.
- Procedural context:
- A judgment creditor, Chloe Lee, sought a determination that his judgment debt was nondischargeable under 11 U.S.C. § 523(a)(4) and (a)(6) for defalcation, embezzlement, and willful and malicious injury. The bankruptcy court applied the doctrine of issue preclusion and concluded that the state court judgment was determinative on the defalcation and willful and malicious injury claims. The bankruptcy court further concluded that the state court judgment was not preclusive as to Lee's embezzlement claim. Both Lee and the debtor appealed.
- The debtor, Michael Paul Newman, was a newly admitted attorney working as in-house counsel for Arms Trans (AT). Sang Hoon Lee drove as an independent contractor for AT. In December 2014, Mr. Lee was seriously injured while working for AT. AT offered to pay Mr. Lee a salary, other benefits, and the legal services of Mr. Newman. In 2015, Mr. Newman unsuccessfully tried to negotiate a settlement for Mr. Lee. In 2016, Mr. Newman had Mr. Lee (who was not fluent in English), sign a retainer agreement that did not disclose Mr. Newman's fee, leaving that detail to AT. Mr. Newman did not provide a translator for Mr. Lee. Newman later claimed that AT agreed that Newman would be paid 15% of any settlement. Newman coordinated with Mr. Lee to sign an amended retainer agreement containing the 15% fee. Newman never discussed this fee with Mr. Lee. In March 2016, Newman settled Mr. Lee's claims for $1,000,000. AT negotiated a separate deal with Mr. Lee, in which he waived claims against AT and agreed to pay AT $130,000 to reimburse AT for Newman's services. AT later claimed that it had agreed with Newman that Newman would receive a $20,000 flat fee from the contingency. Newman then told Mr. Lee that Lee owed Newman $150,000 under the retainer agreement, and that this amount was in addition to the $130,000 that Lee agreed to pay AT. Newman refused to meet with Lee and AT to discuss the confusion over the fee. Instead, Newman disbursed $150,000 to himself and issued a check for the remainder to Lee. Lee then paid the $130,000 to AT. Newman refused to answer Lee's questions or refund the $130,000, and referred Lee to fee arbitration with the state bar. In 2017, Lee sued Newman in state court for conversion, fraud and malpractice. The malpractice claim was dismissed because it was filed after the limitations period had expired. The state court also concluded that Lee failed to prove his fraud claim, but concluded that Newman, acting intentionally and wrongfully, converted $130,000 from Lee. The parties cross-appealed, and the California Court of Appeals affirmed the judgment. Newman then filed a Chapter 7 petition, and Lee commenced an adversary proceeding seeking to have the judgment debt declared nondischargeable.
- GAN, TAYLOR, and LAFFERTY, Bankruptcy Judges
In re: DAVID C. GOAD
Summarizing by Amir Shachmurove
3414 in the system
2 Being Processed