Yu v. Nautilus, Inc. (In re Yu)

BAP No. CC-16-1045-KuFD (BAP 9th Cir. Aug. 11, 2016) (unpublished)
The BAP for the 9th Cir. affirmed the ruling of the bankruptcy court (C.D. Cal.), which entered summary judgment against debtor on 523(a)(6) claim based on issue preclusion arising out of default judgment in pre-bankruptcy suit entered following debtor's active participation in case. BAP found that debtor had failed to raise appeal issues at trial, and appeal failed on that basis alone. Notwithstanding, BAP found that debtor's arguments lacked merit. Debtor's alleged lack of notice of default judgment proceedings came while she was incarcerated for trafficking in counterfeit exercise equipment, after she actively participated in case. Bankruptcy court properly applied issue preclusion to pre-bankruptcy civil suit judgment, because debtor had full and fair opportunity to litigate in prior proceedings, and willful and malicious injury elements of 523(a)(6) claim were actually litigated in prior proceedings, based on debtor's active participation in case prior to entry of default judgment.
Procedural context:
Following debtor's commencement of chapter 7 case, creditor sued to except debt from discharge under 523(a)(6) (willful and malicious injury). Bankruptcy court granted creditor's motion for summary judgment. Debtor appealed to BAP for 9th Circuit.
Debtor was convicted in federal court of trafficking in counterfeit exercise equipment. Conviction included findings of willfulness and intent. Prior to indictment, Nautilus commenced civil lawsuit for claims including trademark infringement. After a year of litigation in which debtor actively participated, debtor failed to appear at status conference. Court issued show cause order. Debtor failed to respond, and failed to respond to Nautilus's motion for entry of default judgment. Trial court granted default judgment motion, assessing damages of $4 million based on debtor's "willful" trademark violations, which the court found based on debtor's admission that she knew she was selling counterfeit equipment. Several years later, debtor filed for chapter 7. Nautilus filed suit to except debt from discharge under 523(a)(6). Bankruptcy court granted summary judgment in favor of Nautilus.
Kurtz, Faris, Dunn

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