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Phan v. Nguyen (In re Phan)

Phan v. Nguyen (In re Phan), BAP No. CC-12-1621-KiTaKu (B.A.P. 9th Cir. Feb. 24, 2014)
The Bankruptcy Appellate Panel of the Ninth Circuit vacated the order of the Bankruptcy Court for the Central District of California, determining that the Plaintiffs’ debt was not excepted from discharge under 11 U.S.C. § 523(a)(2)(A) based on issue preclusion and remanded for further proceedings. In particular, the B.A.P. held that the Bankruptcy Court erred in applying issue preclusion to a state court default judgment because the B.A.P. found that the issue of fraud was not “actually litigated” in the state court action and therefore, was not necessarily decided by the state court.
Procedural context:
Appeal from the Bankruptcy Court’s order granting the Plaintiffs’ motion for summary judgment determining that their debt was excepted from discharge under 11 U.S.C. § 523(a)(2)(A) based on issue preclusion. The B.A.P. reviewed the Bankruptcy Court’s decision de novo.
The Plaintiffs alleged that they and the Debtors purchased together a residence with each couple contributing fifty percent of the down payment and the costs associated with the purchase. Under their arrangement, each couple was to have a fifty percent ownership interest in the property and was to share equally in the benefits and obligations of ownership. Title to the property, however, was taken in the name of the Debtors only. After years of requesting that their names be added to the title, the Plaintiffs commenced an action in state court over the ownership of the property. The Debtors and Plaintiffs settled this state court action, with the Debtors agreeing that the Plaintiffs had a fifty percent ownership interest in the property and agreeing to pay the Plaintiffs fifty percent of the property’s net worth. The Plaintiffs filed a second state court action after they discovered that the Debtors had secretly obtained a line of credit on the property and the Debtors breached the settlement agreement from the first case. In the second case, the Plaintiffs asserted claims for intentional misrepresentation, negligent misrepresentation, conversion, declaratory judgment, equitable lien, constructive trust and quiet title. While the state court entered a default judgment against the Debtors and awarded Plaintiffs damages, the court did not make any specific findings regarding the Debtors’ alleged fraud.
Kirscher, Taylor and Kurtz, Bankruptcy Judges

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