Lazzari v. Lazzari (In re Lazzari)
- Summarized by Laura Coordes , Arizona State University, Sandra Day O'Connor College of Law
- 8 years 10 months ago
- Case Type:
- Consumer
- Case Status:
- Affirmed
- Citation:
- BAP No. AZ-15-1375-FLJu (9th Circuit, Oct 13,2016) Not Published
- Tag(s):
-
- Ruling:
- Bankruptcy court correctly granted summary judgment on § 523(a)(4) breach of fiduciary duty claim. State court ruling determining that the debtor had violated his fiduciary duty to his brother was entitled to preclusive effect, despite "default" nature of ruling. Matter was actually litigated and debtor had had full and fair opportunity to contest state court judgment.
- Procedural context:
- Bankruptcy court granted relief from stay to complete state court conservatorship proceeding against the Debtor. Creditor filed a § 523(a) complaint. Bankruptcy court granted summary judgment on § 523(a)(4) breach of fiduciary duty claim. Debtor appealed. 9th Cir. BAP affirmed.
- Facts:
- Debtor, acting as trustee of a family trust holding property for himself and his ailing brother, got his brother to disclaim his interest in the trust. Later, other siblings sued the debtor on behalf of the brother to void the disclaimer and for damages for breach of fiduciary duty. The state court entered judgment voiding the disclaimer and finding damages for breach of fiduciary duty.
The BAP agreed with the bankruptcy court that the state court judgment was entitled to preclusive affect. The bankruptcy court concluded that issue preclusion applied under California law, because (1) although the California Order was obtained by default, it was decided on the merits (as opposed to a procedural ground); (2) although the California Order was a default judgment, the issues were actually litigated; (3) the elements of defalcation under § 523(a)(4) were identical to that decided by the California Order; and (4) Patrick had an incentive to participate in the conservatorship proceedings, since the Trust Property was crucial to his amended chapter 13 plan. The bankruptcy court held that the nondischargeable debt was the claim for the value of a lien taken out by the debtor on Trust Property, and attorney’s fees and costs in the amount of approximately $58,000 awarded by the state court.
- Judge(s):
- FARIS, LAFFERTY, and JURY, Bankruptcy Judges.
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