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Victor Kearney v. Unsecured Creditors Committee

Summarizing by Amir Shachmurove

Janura, et al. v. Saridakis, et al. (In re Saridakis)

Citation:
BAP Nos. CC-13-1028-PaTa-D, CC-13-1029-PaTaD (Consolidated), 2013 WL 6488276 (B.A.P. 9th Cir. Dec. 10, 2013)
Tag(s):
Ruling:
The 9th Cir. BAP AFFIRMED the bankruptcy court's judgment denying appellants' motion for new trial and granting judgment in debtors' favor. "[T]he bankruptcy court did not abuse its discretion when it declined to give preclusive effect to a default judgment discovered only post-trial." The BAP ruled that post-trial discovery of a default judgment, that apparently entered in a state court action contemporaneously with or immediately following a trial in the bankruptcy court on appellants' complaint objecting to discharge, was not newly discovered evidence "of such magnitude that production of it earlier would likely have changed the outcome of the case." The bankruptcy court was permitted to exercise its discretion and decline to give preclusive effect to the default judgment in favor of conducting a live trial, which the bankruptcy court preferred given its dislike for default judgments. The bankruptcy court's decision was consistent with longstanding Ninth Circuit policy favoring decisions in cases on the merits. There was no abuse of discretion.
Procedural context:
Appeals from bankruptcy court's judgment denying exceptions to discharge under Section 523(a)(2)(A), (a)(4), and (a)(6) of the Bankruptcy Code, and order denying appellants' motion for a new trial based on newly-discovered evidence.
Facts:
Appellants purchased a condominium that was built and sold by debtors. Appellants brought suit against debtors in state court regarding various claimed construction defects. Following debtors' bankruptcy filing, appellants obtained relief from stay to continue the state court litigation. Appellants also initiated an adversary proceeding against debtors seeking a determination that the state court judgment was excepted from discharge under Section 523(a)(2)(A), (a)(4), and (a)(6). Appellants obtained default judgments against debtors and their company in the state court action, although the default judgment against debtors individually was not entered on the docket (or some other mishap occurred) such that appellants did not discover the existence of the default judgment against debtors until after the trial in the adversary proceeding. The default judgment specifically found debtors engaged in fraud. Following the trial in the adversary proceeding, the bankruptcy court determined that appellants had not shown that debtors knew of the construction defects and fraudulently concealed them. When appellants discovered the default judgment of fraud against debtors in the state court action, they moved the bankruptcy court to reconsider its decision in light of the potential preclusive effect of the default judgment. The bankruptcy court declined, particularly where it had conducted a full-blown trial on the issues and found against appellants.
Judge(s):
Pappas, Taylor, Dunn

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