In re- TODD E. MACALUSO
- Summarized by Michael Myers , Ballard Spahr LLP
- 1 year 6 months ago
- Case Type:
- Consumer
- Case Status:
- Affirmed
- Citation:
- BAP No. SC-19-1065-SFL (9th Circuit, Nov 09,2021) Not Published
- Tag(s):
-
- Ruling:
- The Ninth Circuit Bankruptcy Appellate Panel affirmed the bankruptcy court's summary judgment ruling in favor of plaintiff on plaintiff's non-dischargeability claims under sections 523(a)(2)(A) and 523(a)(13).
- Procedural context:
- Plaintiff obtained a $2,3850,000.70 default judgment against defendant in federal district court based on several claims, including fraud. Restitution in the amount of $150,000 was also entered in plaintiff's favor as part of a criminal judgment against defendant. Subsequently, the defendant filed bankruptcy and plaintiff filed a non-dischargeability action against defendant under sections 523(a)(2)(A) and 523(a)(13). The court granted plaintiff's motion for summary judgment on both causes of action, holding that the default judgment was entitled to preclusive effect under California's issue preclusion doctrine.
- Facts:
- Plaintiff provided litigation financing to defendant attorney and his clients. Defendant defaulted on the agreements and it was later discovered that he had forged the signatures of his clients and the notary stamps and that defendant did not use the litigation financing for its intended purpose. After a criminal judgment was entered against defendant (which provided for $150,000 in restitution to plaintiff), plaintiff brought a lawsuit in federal district court against defendant and others for breach of contract, fraud, and other causes of action. Defendant was duly served with the complaint and summons but he chose to not file an answer based on his attorney's advice and his own legal research. Ultimately, the district court entered partial default judgment against Defendant for $2,385,000.70. The default judgment was specifically granted on both Plaintiff's breach of contract and fraud causes of action — as well as on certain other causes of action.
Defendant subsequently filed a chapter 7 bankruptcy case and plaintiff filed a non-dischargeability proceeding under sections 523(a)(2)(A) for the default judgment in the district court and section 523(a)(13) related to the criminal restitution award. Defendant appeared through counsel and filed an answer in which he admitted: "“[a]s a direct and proximate result of the foregoing [fraudulent conduct], Plaintiff has suffered damages in an amount not presently ascertained but believed to be in excess of $2,380,000 which should be exempted from discharge in the Debtor Macaluso’s bankruptcy." The bankruptcy court granted plaintiff's motion for summary judgment. The bankruptcy court held that the district court judgment was entitled to preclusive effect under California's issue preclusion doctrine.
The Bankruptcy Appellate Panel (BAP) affirmed the bankruptcy court's ruling because California issue preclusion can be applied even to default judgments where default judgment could not have been properly rendered without implicitly making such findings. Because default judgment was entered on a fraud claim (and the elements of a fraud claim under California law are substantially similar to those under section 523(a)(2)(A)), the issue had been "actually litigated and necessarily decided" for purposes of California's issue preclusion doctrine. The BAP rejected defendant's arguments that no actionable fraud occurred as a collateral attack on the default judgment, as well as his arguments that he did not have a full and fair opportunity to defend himself and that his due process rights were violated.
- Judge(s):
- SPRAKER, FARIS, and LAFFERTY
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