- Case Type:
- Case Status:
- BAP No. CC-20-1186-TLG (9th Circuit, Jul 28,2021) Not Published
- A judgment entered by a California court against a debtor for fraud is entitled to preclusive effect, even if the debtor did not participate in the state-court trial, so long as there is an identity of issues and the state court judgment was final. The facts that the debtor did not participate in the trial, and that certain allegations were deemed admitted, do not alter the conclusion that the issues were actually litigated.
- Procedural context:
- An investor in a failed -- and fraudulent -- investment scheme headed by the debtor filed an adversary proceeding against the debtor to have a state court judgment for fraud deemed nondischargeable under 11 U.S.C. § 523(a)(2)(A) and (a)(2)(B). The bankruptcy court held that the state court judgment was entitled to preclusive effect, and that the state court judgment was nondischargeable under § 523(a)(2)(A), but not under § 523(a)(2)(B). The debtor timely appealed.
- Robert Zuckerman and others obtained loans for a development project. In obtaining the loans, Zuckerman provided "greatly inflated" land values and made other misrepresentations. The investors sued Zuckerman in California state court for fraud. Zuckerman answered and cross-claimed, but failed to timely respond to discovery requests. As a sanction, the state court ordered that certain allegations were deemed admitted. Among these admissions were that Zuckerman engaged in "fraud intentional misrepresentation," "fraud - concealment," "fraud - promise without intent to perform," and "a conspiracy to defraud." Zuckerman failed to appear at three trials. The first two trials, which ended in multimillion dollar judgments against Zuckerman, were vacated by the California courts. At the third trial, Zuckerman's attorney admitted that he was not prepared to conduct the trial and left the courtroom after receiving assurance he would not be held in contempt. The third trial ended with a $15 million judgment against Zuckerman. The state court judgment included findings of fact relating to fraud, including: " Zuckerman fraudulently obtained $6,435,000.00 in loans from plaintiffs;" "Zuckerman... was the central figure in charge of this fraudulent land development scheme...." Zuckerman appealed the state court judgment. The appeal was dismissed because Zuckerman failed to file required documents. About a year later, Zuckerman filed a chapter 11 petition. The case was converted to a chapter 7 proceeding. Investors, including the plaintiff in this adversary proceeding, sued Zuckerman to have their state court judgment deemed nondischargeable.
- TAYLOR, LAFFERTY, and GAN, Bankruptcy Judges
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