Jeffrey Catanzarite Family Limited Partnership et v. Lane

UNITED STATES BANKRUPTCY COURT [1] EASTERN DISTRICT OF CALIFORNIA 2 FRESNO DIVISION [3] 4 In re ) Case No. 11-63503-B-7 ) 5 FRANK LANE, ) ) 6 ) Debtor. ) 7 ) ) 8 JEFFREY CATANZARITE FAMILY ) ) Adv. Proceeding No. 12-1053 9 LIMITED PARTNERSHIP, a Nevada ) DC No. CHC-1 limited partnership; ERON ) 10 MARTIN; WOLFGANG GREINKE, as ) ) Date: August 19, 2020 TRUSTEE OF THE GREINKE FAMILY 11 ) Time: 11:00 a.m. TRUST; WESLEY LARSEN; BRIAN ) Department B, Judge Lastreto 12 HICKS, as TRUSTEE OF THE HICKS ) Fifth Floor, Courtroom 13 FAMILY TRUST UDT 10/01/2001; ) 13 STEVEN NAZAROFF, individually ) 2500 Tulare Street, Fresno, CA ) 14 and as TRUSTEE OF THE STEVEN ) NAZAROFF RETIREMENT TRUST; THE ) 15 NAZAROFF FAMILY PARTNERSHIP, a ) California General Partnership; ) 16 TRICIA PRENTICE; ROBERT ) ) 17 STROHBACH, as TRUSTEE OF THE ) STROHBACH LIVING TRUST; CATHY ) 18 GALIE-LEWIS; LEASON V. “CHET” ) LEEDS, as TRUSTEE OF THE LEASON ) [19] V. LEEDS TRUST; LYNAE ARNOLD; ) 20 LIZ MALONE, as TRUSTEE OF THE ) ) 21 MALONE FAMILY TRUST, ) ) 22 Plaintiffs, ) ) 23 v. ) ) 24 ) FRANK LANE, ) 25 ) Defendant. ) 26 ) ) [28] 1 RULING ON MOTION FOR SUMMARY JUDGMENT [2] 3 INTRODUCTION 4 One October morning in eastern Cuba about 150 years ago, 5 plantation owner and lawyer Carlos Manuel de Cespedes rang a bell-a 6 normal occurrence-to summon his slaves. But this day was different. 7 Followers numbering 147 gathered and Cespedes gave an impassioned 8 address declaring this the first day of Cuba’s independence from 9 Spain. So inspired were his followers that rebels armed themselves 10 and combatted Spanish forces. The ensuing war is called “The Ten 11 Years’ War.” Many but no decisive battles were fought. After ten 12 years, rebel division and Spanish exhaustion led to the “Antebellum 13 Pact of Zanjon” which temporarily ended the hostilities. Cuba was not 14 independent and any concessions she received quickly waned. More wars 15 were yet to be fought before Cuba gained its independence from Spanish 16 rule 20 years after the end of “The Ten Years’ War.”1 17 Though the tactics are different, we have a “Ten Years’ War” 18 here. This litigation has lasted the length of the first Cuba/Spain 19 conflict. It has also resulted in no decisive battles given the 20 challenges and appeal described below. Another commonality: the 21 indefatigable enmity both sides demonstrate. But conflicts eventually 22 end. This one should now. 23 Plaintiffs ask the court for summary judgment pursuant to Federal 24 Rule of Civil Procedure 56 (made applicable to adversary proceedings 25 by Federal Rule of Bankruptcy Procedure 7056) against Defendant 26 determining that Plaintiffs’ fraud claim is non-dischargeable under 11 27 1 Lennon, Troy, “Cubans rose up against Spain in first war for 28 i hn id se tp oe rn yd /e Cn uc be a, n” s- O rc ot so eb -e ur p -1 a0 g, a i2 n0 s1 t8 -, s pd aa ii nl -y it ne -l fe ig rr sa tp -h w. ac ro -m f. oa ru -/ in ne dw es p/ ed na dy e- nci en /- newsstory/5ff6afb075ba8aa402d93129c2828ccl 1 U.S.C. § 523 (a)(2)(A) and for authorization to enforce the state court 2 fraud judgment.2 Doc. #115. After careful consideration of the 3 record, the motion will be granted. [4] 5 BACKGROUND 6 Pre-Bankruptcy Litigation 7 About fourteen years ago, twenty individuals, trusts and 8 partnerships spent $2.4 million to purchase different member interests 9 in ArmorLite LLC.3 ArmorLite’s president and CEO was Frank Lane 10 Italiane, Jr. (“Frank Lane,” “Lane,” or “Defendant”). The plaintiffs’ 11 claim that Lane represented that though ArmorLite was a fledgling 12 company, it had developed a patented high-tech roofing system based on 13 a PVC/ABS resin that achieved a “Class A” fire rating. Lane also 14 allegedly represented that the system was commercially marketable. 15 After investing the $2.4 million, the plaintiffs claim they were 16 bilked since the system was not as represented. 17 The prototypes of the system did have a “Class A” rating and were 18 successfully installed on certain buildings but, the plaintiffs claim, 19 the proper formula for the resin could not be mass produced. So, 20 ArmorLite surreptitiously changed the formula and the modification [21] 22 2 Future references to the Federal Rules of Civil Procedure will be noted by “Civil Rule.” Future references to the Federal Rules of Bankruptcy 23 Procedure will be noted by “Rule.” 3 These entities became plaintiffs in California Superior Court 24 litigation and this adversary proceeding. They are: Jeffrey Catanzarite individually and for Jeffrey Catanzarite Family Limited Partnership, Brian 25 Hicks individually and as Trustee of the Hicks Family Trust UDT October 1, 2001, Steven Nazaroff individually and as Trustee of the Steven Nazaroff 26 Retirement Trust and for Nazaroff Family Partnership, Tricia Prentice, Eron Martin, Cathy Galie-Lewis, Robert Strobach individually and as Trustee of the 27 Strobach Living Trust, Wolfgang Greinke individually and as Trustee of the 28 G or fe i tn hk ee LF ea am si ol ny VT .r u Ls et e, d sW e Ts rl ue sy t L fa or rs e Ln y, n aL ee a As ro nn o lL de ,e d Ls i zi n Md ai lv oi nd eu a al nl dy ta hn ed Ma as l oT nr eu stee Family Trust (collectively “Plaintiffs”). 1 never received the “Class A” rating. The system thus had no 2 commercial market value. Further, there was no patent for the system. 3 Plaintiffs claim they were never told these facts. 4 In the fall of 2008, Lane suffered a severe stroke. He partially 5 recovered but endured a very lengthy cognitive convalescence. He 6 stepped down as CEO and president of ArmorLite. Some of the 7 plaintiffs became directors of ArmorLite and elected to put ArmorLite 8 in bankruptcy in May 2009. 9 Eight months later, the plaintiffs filed a complaint in the 10 Superior Court of California for Los Angeles County (“Superior Court” 11 or “state court”) against Lane and others. The plaintiffs sought 12 damages of $2.4 million alleging securities fraud, fraud, fraudulent 13 nondisclosure, negligent misrepresentation, and conspiracy to commit 14 fraud. The complaint was amended several months later. For reasons 15 that will soon be clear, the fourth cause of action in the amended 16 complaint for fraudulent concealment is the focus of this motion. In 17 addition to incorporating background allegations, the cause of action 18 alleged: [19] • Lane had a duty to disclose material facts to the plaintiffs. [21] • Lane secretly changed the formula of the product such that it would not receive a “Class A” rating and therefore be of little 22 value on the commercial market. 23 • No part of the changed formula was patented. [24] • Lane knew or had reason to know this information was unknown by 25 the plaintiffs and was material to their decision to purchase the interests in ArmorLite. [27] • Lane withheld this information without any reasonable justification to induce plaintiffs to purchase the interests and 28 otherwise act to the detriment plaintiff’s interests. • When the plaintiff’s acquired their interests and took other [1] actions to their detriment they were ignorant of the facts 2 withheld and could not, in the exercise of reasonable diligence, have discovered the nondisclosures. [3] • In reliance on the undisclosed facts, the plaintiffs invested 4 $2.4 million in acquiring the interests in ArmorLite. They would not have invested had they known the true facts. The plaintiffs [5] justifiably relied on Lane since, he represented, he was expert 6 in the roofing industry and had superior knowledge of the existence of the true facts. [7] • The fraud was not discovered until May 2009 in connection with [8] the decision to file bankruptcy for ArmorLite. Then, Lane and 9 the other defendants disclosed that the roofing material they were going to market did not have the “Class A” fire rating nor 10 passed the necessary tests. 11 • As a proximate result, plaintiffs were damaged in the amount of $2.4 million.4 [12] 13 Litigation ensued in earnest. Discovery was pursued including 14 numerous depositions. That is until December 2011 when Lane filed 15 this Chapter 7 bankruptcy case. [16] 17 Initial Bankruptcy Litigation 18 Four months after the bankruptcy petition, a complaint starting 19 this adversary proceeding was filed. The complaint was amended seven 20 months later. About one month after that, the bankruptcy court, sua 21 sponte, abstained from hearing the adversary proceeding because of the 22 pending state court litigation. The court also ordered the adversary 23 proceeding administratively closed and modified the automatic stay 24 permitting the state court litigation to proceed to a final judgment. 25 The court’s order also stated the court may apply collateral estoppel 26 if the adversary proceeding resumed. 27 4 Lane filed a cross-complaint alleging many claims including that the 28 p Al ra mi on rt Li if tf es i“ nl o bo at ne kd r” u pA tr cm yo .r L i Tt he e i cn r oc so sn n ce oc mt pi lo an i nw ti t wh a st h de i sd me ic si ss ei do n w it to h p pl ra ec je u dice during the state court trial. 1 Nine months later, the plaintiffs asked the state court to 2 summarily adjudicate their fraud claims against the defendants. The 3 motion was denied because there was a material issue of fact whether 4 any of defendant’s representations were material. Two years later, 5 trial began in the Superior Court. [6] 7 State Court Trial and Post Judgment Proceedings 8 Trial began in the Superior Court on September 21, 2015, without 9 a jury. The next 25 trial days were mired in difficulty. Lane claims 10 he suffered severe stress — complicating his stroke convalescence — 11 requiring at least one recess for a few days. Lane’s counsel also 12 suffered stress leading to a recess. Despite these problems, numerous 13 witnesses testified including experts for both sides. 14 During the trial, Lane and the plaintiffs had settlement 15 discussions. This culminated on October 16, 2015 in a hand-written 16 settlement agreement signed by Lane and those plaintiffs present. The 17 agreement was put on the record before the state trial court. In sum, 18 the agreement provided: [19] • Lane agreed to a stipulated judgment against him in favor of [20] plaintiffs for “fraudulent concealment” in the amount of $1.5 21 million. This amount was to be allocated among the plaintiffs depending on the amount of their investments. [22] • Lane stipulated to an order for the bankruptcy court that the 23 judgment is not dischargeable in his pending bankruptcy proceeding. [25] • The stipulated judgment would not be filed for one year. 26 • All parties agreed to bear their own attorney’s fees and costs. 27 • Plaintiffs agreed not to collect or attempt to collect funds Lane 28 was and would be entitled to as author of “Be In Heaven 1 Now.” If that book is split into other titles, this restriction includes those books. [3] • The parties intend the hand-written short form to be binding though the parties contemplate a long form agreement after the 4 settlement was put on the record. 5 • The state court retained jurisdiction to enforce the agreement under Cal. Code Civ. Proc. § 664.6. [7] • The agreement would be confidential unless and until the stipulated judgment is entered. [8] 9 The state trial judge was very careful at the hearing announcing 10 the settlement to underscore the binding effect of the agreement. She 11 began by requiring plaintiff’s counsel’s assurance that he could speak 12 for those plaintiffs not present. She then asked Lane if he 13 understood he cannot “back out . . . unlike the last time.” Lane said 14 he understood. The court also asked if Lane was under duress and 15 explained what is meant by “duress.” Lane asked if the terms of 16 settlement could include a condition that the action would be 17 dismissed if he could rectify “the problem.” When the court asked 18 counsel, they said it was not part of the agreement. 19 After a colloquy with Lane and his counsel, the trial judge 20 recessed proceedings so Lane and his counsel could discuss this issue. 21 When the parties returned, the court asked Lane if he was under 22 duress; he said he was not. The court also isolated the condition 23 Lane discussed before the recess; Lane confirmed he no longer required 24 the condition in the settlement. Lane asked to read the written 25 agreement; the court allowed Lane that time. The court again asked if 26 Lane understood the agreement; he said he did. The court reiterated 27 the agreement is binding, even if Lane refused to sign the “long [28] 1 form.”5 Lane agreed. Doc. #140. All plaintiffs present also agreed to 2 the terms on the record. 3 The litigation was not over. Seven months later, Lane, without 4 counsel, filed a motion to vacate the settlement agreement. He 5 claimed he had mental defects at the time of the settlement which were 6 exacerbated by the stress of the trial and unrelated family issues. 7 He claimed he thought he was going to have another stroke unless he 8 settled the case.6 He offered the testimony of a physician who opined 9 that Lane had a neurocognitive disorder related to his earlier stroke. 10 These issues prevented his legal consent, Lane argued. He also blamed 11 his trial counsel. 12 The trial judge was unconvinced. Lane’s motion to vacate was 13 denied. The trial judge noted that she observed during the settlement 14 hearing that Lane understood and appreciated the consequences of the 15 settlement. She also cited her personal perceptions and observations 16 of Lane during the trial including his assistance of his trial 17 counsel. She also discounted the medical testimony as dated and 18 related to memory loss; not cognition issues preventing legal consent. 19 She found no admissible evidence of a mental deficiency. She 20 reiterated Lane “clearly understood” what was happening when she 21 questioned him at the hearing. 22 A month later, Lane appealed the ruling on the motion to vacate 23 to the California Court of Appeal.7 Two years later, the trial court’s 24 decision was affirmed, and a remittitur issued. 25 5 The court has not been provided a “long form” agreement, and plaintiff’s counsel stated on the record at the hearing held on July 15, 2020 26 that no “long form” agreement was ever prepared. 6 There is evidence that Lane had threatened further litigation against 27 the plaintiffs contemporaneously with his motion to vacate. 28 was hel7 dW h ii nl e t ht eh e a da vp ep re sa al r yw a ps r op ce en ed di in ng g, ba e fp or re ev i to hu is sl y c os uc rh te .d u l Te hd e s st ta at tu us s conference conference was dropped from calendar because of the pending appeal. 1 Interim Return to Bankruptcy Court 2 In late July 2019, about one year after Lane lost his appeal, 3 Lane filed a motion asking the bankruptcy court to dismiss this 4 adversary proceeding for lack of prosecution. The motion was denied. 5 The state court was leery of entering the stipulated judgment 6 without further stay modification. So, about a week after the 7 dismissal motion was denied, the bankruptcy court entered an order on 8 plaintiff’s motion allowing the state court to enter judgment. [9] 10 State Court Judgment 11 In November 2019, the plaintiffs filed a motion in the state 12 court to enter the judgment under the stipulation reached four years 13 before. Lane opposed, raising the same arguments offered in support 14 of his unsuccessful motion to vacate. 15 Once again, the trial judge was unconvinced. The motion to enter 16 judgment was granted. The judgment was entered on January 7, 2020. 17 The judgment is on a Judicial Council of California Form “JUD-100.” 18 It is against the debtor “On Stipulation.” The Judgment states: 19 “Plaintiff and defendant agreed (stipulated) that a judgment be entered in this case. The court approved the [20] stipulated judgment and the stipulation was stated in open 21 court. The stipulation was stated on the record.” 22 Doc. #140. The judgment entered is against defendant in the amount of 23 $1,500,000. The judgment also contains these terms: 24 Judgment is for Fraudulent Concealment (Fourth Cause of Action). It is intended that this Judgment is not [25] dischargeable in Defendant’s Chapter 7 case (USBC No 1126 63503-B-7). The Parties stipulated to an order for the Bankruptcy Court that this Judgment is not dischargeable. 27 This Court shall retain jurisdiction under [California] Code of Civil Procedure Section 664.6. [28] 1 This Motion for Summary Judgment 2 The parties return to this court after the plaintiffs filed this 3 motion for summary judgment on June 1, 2020. Plaintiffs claim that 4 the stipulated judgment should be given preclusive effect, and thus 5 there can be no genuine issue as to any material fact. Doc. #117. 6 Plaintiffs urge that all elements under California’s law of issue 7 preclusion have been met. Under the circumstances of entry of the 8 judgment under the stipulation, plaintiffs contend, the judgment is 9 final and on the merits. Thus, the $1.5 million judgment should be 10 non-dischargeable under § 523(a)(2)(A). 11 Defendant admits he entered into the settlement agreement and 12 only disputes three “elements” of issue preclusion: fraudulent 13 concealment was neither actually litigated, nor necessarily decided in 14 the state court with entry of the stipulated judgment; lack of proof 15 of proximate causation for plaintiff’s damages evidences that the 16 issues were not litigated in state court. Defendant also contends his 17 cognitive memory and executive decision impairments would preclude his 18 consent that the debt is non-dischargeable. So, the public policy 19 effects of issue preclusion do not support summary judgment. 20 Defendant finally claims his trial counsel was ineffective. 21 Lack of bankruptcy counsel and the state court’s claimed failure 22 to highlight the non-dischargeable element of the settlement 23 agreement, defendant contends, preclude summary judgment. 24 Plaintiffs’ reply stresses the complete record that was 25 before the state trial court before the settlement was reached. 26 Also, plaintiffs distinguish most of defendant’s authorities as 27 not applicable to this matter: a pending non-dischargeability 28 case as the state court action was tried and settled. The state 1 trial court’s ruling denying defendant’s motion to vacate the 2 settlement affirmed on appeal, notes plaintiffs, shows the issue 3 of defendant’s cognitive abilities has already been considered 4 and found not to have affected his consent to the settlement.8 [5] 6 JURISDICTION 7 The United States District Court for the Eastern District of 8 California has jurisdiction of this matter under 28 U.S.C. § 1334 (b) 9 because this is a civil proceeding arising under title 11 of the 10 United States Code. The District Court has referred this matter to 11 this court under 28 U.S.C. § 157 (a). This is a “core” proceeding 12 under 28 U.S.C. § 157 (b)(2)(I). As such this court may enter orders 13 finally adjudicating this matter. [14] 15 ANALYSIS 16 1. Summary Judgment Standards 17 At the summary judgment stage, facts must be viewed in the light 18 most favorable to the nonmoving party only if there is a “genuine” 19 dispute as to those facts. Civil Rule 56(c). “[T]he mere existence 20 of some alleged factual dispute between the parties will not defeat an 21 otherwise properly supported motion for summary judgment; the [22] 8 At the continued hearing on this motion on August 19, 2020, counsel 23 for the plaintiffs, Ms. Callari, asked for time to submit the transcript of the state court trial for the morning of October 16, 2015. This was 24 apparently the session immediately before the settlement hearing. Over defendant’s objection, the court granted the request giving Ms. Callari 25 through September 4, 2020 to submit the transcript. If submitted, counsel for Lane could file a response, if any, on or before September 11, 2020. No 26 transcript was filed so the matter was deemed submitted September 4, 2020. (Doc. 197). Ms. Callari filed a declaration four days later stating the 27 transcription service “inexplicably has been unable to provide the transcript 28 o 2f 0 1t )h . e October 16, 2015 morning session” of the state court trial. (Doc. 1 requirement is that there be no genuine issue of material fact.” 2 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). “Where 3 the record taken as a whole could not lead a rational trier of fact to 4 find for the nonmoving party, there is no ‘genuine issue for 5 trial.’” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 6 574, 587 (1986). “As to materiality, the substantive law will 7 identify which facts are material. Only disputes over fact that might 8 affect the outcome of the suit under the governing law will properly 9 preclude the entry of summary judgment.” Anderson, 477 U.S. at 10 248. “[W]hile the materiality determination rests on the substantive 11 law, it is the substantive law’s identification of which facts are 12 critical and which facts are irrelevant that governs.” Id. 13 Once a summary judgment motion is properly submitted, the burden 14 shifts to the non-moving party to set forth specific facts showing 15 that there is a genuine material issue for trial. Barboza v. New 16 Form, Inc. (In re Barboza), 545 F.3d 702, 707 (9th Cir. 2008) (citing 17 Henderson v. City of Simi Valley, 305 F.3d 1052, 1055-56 (9th Cir. 18 2002)). The non-moving party “may not rely on denials in the 19 pleadings but must produce specific evidence, through affidavits or 20 admissible discovery material, to show that the dispute exists.” 21 Barboza, 545 F.3d at 707 (citation omitted). If the non-moving party 22 fails to make this showing, the moving party is entitled to judgment 23 as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317 , 323 24 (1986). 25 We apply these principles narrowly here. The issue is the 26 preclusive effect of the stipulated judgment entered in the state 27 court proceeding on this dischargeability case. [28] 1 2. Issue preclusion (collateral estoppel) issues 2 Principles of collateral estoppel apply to proceedings seeking 3 exceptions from discharge brought under 11 U.S.C. § 523 (a). Grogan v. 4 Garner, 498 U.S. 279 , 284 n. 11(1991). Under the Full Faith and 5 Credit Act, 28 U.S.C. § 1738 , the preclusive effect of a state court 6 judgment in a subsequent bankruptcy proceeding is determined by the 7 preclusion law of the state in which the judgment was issued. Gayden 8 v. Nourbakhsh (In re Nourbakhsh), 67 F.3d 798, 800 (9th Cir. 1995). 9 In California, “[c]ollateral estoppel precludes re-litigation of 10 issues argued and decided in prior proceedings.” Lucido v. Superior 11 Court, 51 Cal.3d 335 , 272 Cal.Rptr. 767 , 795 P.2d 1223, 1225 (1990) 12 (en banc). California courts will apply collateral estoppel only if 13 certain threshold requirements are met, and then only if application 14 of preclusion furthers the public policies underlying the 15 doctrine. See id. at 1225, 1226. There are five threshold 16 requirements: 17 (1) the issue sought to be precluded from re-litigation must be identical to that decided in a former [18] proceeding. [19] (2) the issue must have been actually litigated in the 20 former proceeding. 21 (3) the issue must have been necessarily decided in the former proceeding. [22] 23 (4) the decision in the former proceeding must be final and on the merits. [24] (5) the party against whom preclusion is sought must be 25 the same as, or in privity with, the party to the former proceeding. [26] 27 In re Harmon, 250 F.3d 1240, 1245 (9th Cir. 2001). [28] 1 The plaintiffs here have the burden of proving all the requisites 2 for application of issue preclusion. Zuckerman v. Crigler (In re 3 Zuckerman), 613 B.R. 707 , 713 (9th Cir. BAP 2020)9 (citing Kelly v. 4 Okoye (In re Kelly), 182 B.R. 255, 258 (9th Cir. BAP 1995)). That 5 burden requires the plaintiffs to introduce a record sufficient to 6 reveal the controlling facts and the exact issues litigated in the 7 previous action. In re Zuckerman, 613 B.R. at 713. Any reasonable 8 doubt as to what was decided in the prior action will weigh against 9 applying issue preclusion. Id. at 714. The record here reveals the 10 extent of the litigation, the care of the state court trial judge in 11 making a record that the debtor knew and understood the consequences 12 of the agreement, the legal basis for the judgment agreed upon by the 13 parties, and debtor’s capacity to enter into the stipulated judgment. 14 Cf. Honkanen v. Hopper (In re Honkanen), 446 B.R. 373, 382-84 (9th 15 Cir. BAP 2011) (insufficient record given to bankruptcy court to 16 determine what issues jury decided in underlying state court 17 litigation). As will be seen there is no reasonable doubt about what 18 was decided by the parties and the court in the state litigation. [19] 20 3. Application of issue preclusion supports summary judgment 21 Generally, stipulated judgments in California are afforded claim 22 preclusive effect, but not issue preclusive effect. The reason is 23 that these judgments are the product, not of litigation but of 24 negotiation.” Yaikian v. Yaikian (In re Yaikian), 508 B.R. 175 , 179 25 (Bankr. S.D. Cal. 2014). “[U]nless the state court record reflects 26 that it considered evidence of the wrongdoing at issue, the 27 substantive issues are neither actually nor necessary decided by the [28] 9 Zuckerman is on appeal to the Ninth Circuit (No. 20-60031(9th Cir.)) 1 state court.” Id. But see Needelman v. DeWolf Realty Co., 239 Cal. 2 App. 4th 750, 759, 191 Cal. Rptr. 3d 673, 682 (2015), as modified on 3 denial of reh'g (Aug. 18, 2015) (“[u]nder California law, a ‘judgment 4 entered without contest, by consent or stipulation, is usually as 5 conclusive a merger or bar as a judgment rendered after trial.” 6 (citations omitted) (the court finding that the non-moving party 7 “cannot now relitigate claims within the scope of the stipulated 8 settlement; claims that could have been litigated in the unlawful 9 detainer action are now barred”). 10 For purposes of issue preclusion, the California Supreme Court 11 has observed that there is a difference between stipulated judgments 12 entered under California Code of Civil Procedure (“CCP”) § 664.6 — 13 which occurred here — and compromise settlements entered under CCP 14 § 998. In re Boyce, No. 8:14-AP-01134-CB, 2016 WL 6247612 , at *4 at 15 n.3 (9th Cir. BAP Oct. 25, 2016) (citing Cal. State Auto. Ass'n Inter– 16 Ins. Bureau, 50 Cal. 3d at 664 & n.3). Entry of a stipulated judgment 17 is subject to the discretion of the trial court, and, thus, such a 18 judgment is properly subject to issue preclusion. Id. at *4. This is 19 because, under appropriate circumstances, the stipulated judgment is 20 considered akin to a judgment entered after a trial on the merits of 21 the proceeding. Id. at *3. 22 In Boyce, the stipulated judgment expressly said it was 23 enforceable pursuant to CCP § 664.6. Id. at *4. As a result, the 24 stipulated judgment was an appropriate basis for a potential 25 application of issue preclusion - it satisfied the “actually 26 litigated” requirement. Id. at *4. 27 The stipulated judgment here should be given preclusive effect. 28 Only the second and third elements of California’s issue preclusion 1 law are disputed in this motion ([the issue] must have been actually 2 litigated in the former proceeding; and [the issue] must have been 3 necessarily decided in the former proceeding). Defendant’s argument 4 that because the plaintiffs did not prevail on their summary judgment 5 motion at the state level shows there is a genuine issue of material 6 fact is not persuasive here since the parties eventually went to trial 7 after extensive discovery, including depositions. Many witnesses 8 testified over the 25-day trial in Superior Court. The state court’s 9 order denying the summary adjudication motion simply meant the case 10 needed to be tried. Tried it was. The issue is whether the 11 stipulated judgment entered here satisfies the elements of issue 12 preclusion. It does. 13 The “actually litigated” element of issue preclusion is 14 satisfied. The judgment itself references the fourth cause of action: 15 fraudulent concealment. The elements of fraudulent concealment in 16 California mirror those necessary for a non-dischargeablility judgment 17 under § 523(a)(2). See, In re Zuckerman, 613 B.R. at 714. Compare 18 Lazar v. Superior Court, 12 Cal. 4th 631, 638 (1996) with American 19 Express Travel Related Services Co. Inc. v Hashemi (In re Hashemi), [20] 104 F. 3d 1122, 1125 (9th Cir. 1996). Those elements are: 21 • Misrepresentation; fraudulent omission or deceptive conduct by the debtor, [23] • Knowledge of the falsity or deceptiveness of his statement or conduct, [24] • An intent to deceive, [25] • Justifiable reliance by the creditor on the debtor’s statement or [26] conduct, and 27 • Damage to the creditor proximately caused by reliance on the 28 debtor’s statement or conduct. 1 Turtle Rock Meadows Homeowners Ass’n V. Slyman (In re Slyman), 234 2 F.3d 1081, 1085 (9th Cir. 2000); Oney v. Weinberg (In re Weinberg), [3] 410 B.R. 19, 35 (9th Cir. BAP 2009), aff’d 407 Fed. Appx. 176 (9th 4 Cir. 2010). 5 The court is not presented with a detailed element analysis here. 6 The motion for summary judgment asks the court to give preclusive 7 effect to a state court stipulated judgment reached during a trial of 8 a fraudulent inducement claim. This adversary proceeding was pending 9 when the stipulated judgment was agreed upon by the debtor. The 10 stipulation itself and the judgment later entered states the parties’ 11 intention to make the judgment binding in this bankruptcy case. The 12 judgment specifically states it is on the fourth cause of action: 13 fraudulent inducement. The allegations contained in the operative 14 state court complaint are sufficient for a fraudulent concealment 15 finding. See Martin v. Hauck (In re Hauck), 489 B.R. 208, 214 (D. 16 Colo. 2013 ) aff’d 541 F.Appx. 898 (10th Cir. 2013). 17 The “necessarily decided” element is also met here. If “parties 18 stipulate to the underlying facts that support a finding of non19 dischargeability, the [s]tipulated [j]udgment [is] entitled to 20 collateral estoppel effect.” Hayhoe v. Cole (In re Cole), 226 B.R. 21 647, 655 (9th Cir. BAP 1998) (citing Klingman v. Levinson, 831 F.2d 22 1292, 1296 n.3 (7th Cir. 1987). The judgment here is not vague as to 23 its’ basis or ambiguous as to legal theory relied upon. The judgment 24 is supported by a complete record. When entered, the stipulated 25 judgment was on the fraudulent concealment cause of action. The 26 debtor agreed to that provision in the stipulated judgment. Cf. In re 27 Wlodarczyk, 604 B.R. 863 , 870-71 (S.D. Cal. 2019) (affirming 28 bankruptcy court’s finding that issue preclusion was inapplicable 1 because “stipulated judgment references no facts in relation to the 2 fraud claim”). In effect, the debtor here admitted the facts 3 supporting the judgment by agreeing to have a judgment entered on the 4 fourth cause of action. This adversary proceeding was pending when 5 the stipulated judgment was agreed upon.10 6 These facts distinguish this litigation from contrary authority. 7 See Bank of China v. Huang (In re Huang), 275 F.3d 1173, 1178 (9th 8 Cir. 2002) (pre-petition settlement agreement including stipulated 9 judgment and waiver of bankruptcy protection not given issue 10 preclusive effect because settlement resolved non-fraud claims, no 11 facts of fraud mentioned in agreement or judgment, defendant/debtor 12 made no fraud admission); In re Cole, 226 B.R. at 656 (pre-petition 13 stipulated judgment in state court action on promissory note. The 14 condition that the debt was non-dischargeable held to be an 15 unenforceable waiver of discharge); Yaikian v. Yaikian (In re Yakian), [16] 508 B.R. 175, 181-85 (Bankr. S.D. Cal. 2014) (CCP § 998 “stipulation 17 had no intended impact outside of a future bankruptcy since the state 18 court action was dismissed” debtor defaulted under stipulation]; Wank 19 v. Gordon (In re Wank), 505 B.R. 878 (9th Cir. BAP 2014) (reversing 20 summary judgment where declaration prepared contemporaneously with the 21 pre-petition settlement stating facts supporting non-dischargeability 22 raised factual issues as to debtor’s state of mind and creditor’s 23 motives). 24 Another reason issue preclusion applies here is the manifest 25 intent of the plaintiffs and the defendant evidenced by the judgment 26 10 In Johnson v. W3 Investment Partners (In re Johnson), SC-17-1194-LBF, 2018 WL 1803002 (B.A.P. 9th Cir. April 16. 2018), the Bankruptcy Appellate 27 Panel affirmed the bankruptcy court holding that a pre-petition stipulated 28 j (u td hg om ue gn ht nc oo tu l td h eb e r eg si uv le tn i ni gs s ju ue d gp mr ee nc tl )u s ci ov ne t ae if nf ee dc t a dw mh ie sn s it oh ne s s ae st t tl oe m fe rn at u da greement liability. 1 and the relevant record. Consent judgments “ordinarily occasion no 2 issue preclusion . . . unless it is clear . . . that the parties 3 intend[ed] their agreement to have such an effect.” Arizona v. 4 California, 530 U.S. 392, 414 (2000). A stipulated judgment “may be 5 given preclusive effect if that was the intent of the parties. The 6 intent of the parties can be inferred either from the judgment or the 7 record.” Berr v. FDIC (In re Berr), 172 B.R. 299, 306 (9th Cir. BAP 8 1994) (citations omitted). See also, Gilbert v. Ben-Asher, 900 F.2d 9 1407, 1410 (9th Cir.) cert. denied 498 U.S. 865 (1990) (judgment by 10 stipulation was held to be conclusive if the parties have entered an 11 agreement manifesting such intention), and Restatement (Second) of 12 Judgments §27 cmt. e (“judgment may be conclusive, however, with 13 respect to one or more issues, if the parties have entered an 14 agreement manifesting such an intention”). Both the “four corners” of 15 the judgment and the record show the parties’ intention to make the 16 fraudulent concealment judgment preclude re-examination of the 17 elements in this adversary proceeding. 18 The judgment for $1.5 million here is explicit. Doc. #140. It 19 says: 20 1. It is for Fraudulent Concealment (Fourth Cause of Action). 21 2. It is intended to be not dischargeable in this specific 22 chapter 7 case (the case number is referenced). 23 3. That the parties stipulated that the judgment would be nondischargeable. [24] 25 Additionally, the judgment incorporates as an exhibit the 26 transcript of the hearing when the settlement was approved. The 27 transcript reveals all parties’ concurrence with the terms. [28] 1 The extensive record also manifests defendant’s intent that the 2 judgment be given preclusive effect. This bankruptcy case was pending 3 when the trial occurred and when it was settled. Defendant was 4 represented by counsel at the trial and during settlement discussions. 5 Defendant and his counsel negotiated the settlement outside the 6 presence of the trial court. Defendant signed the settlement 7 agreement that was read into the record. The trial court extensively 8 questioned defendant on the record establishing he was not under 9 duress. The trial court asked if defendant understood he could not 10 “back out;” he agreed. The trial court recessed proceedings so 11 defendant could speak with his counsel about a potential condition to 12 the agreement. After the recess defendant said he wished to “go 13 forward” with the agreement and stipulated judgment. The fraudulent 14 concealment cause of action is the only basis for the judgment against 15 defendant mentioned in the proceedings. Defendant agreed the debt 16 would be non-dischargeable “in his bankruptcy action.” Defendant was 17 given another chance to read the agreement he had signed. He did. He 18 affirmed he re-read and accepted the agreement. 19 Defendant’s declaration in opposition to this motion does not 20 deny any of the above facts. Doc. #173. He concedes he entered into a 21 settlement agreement and consented to entry of a stipulated judgment 22 for “fraudulent concealment.” He does testify that he did not give 23 any thought to the bankruptcy proceeding or “consider what the 24 settlement meant for dischargeability” when he consented to the 25 terms.11 26 11 Lane does deny liability for fraud in his declaration. He also cites the 2008 recession negatively affecting Armor-Lite and the construction 27 industry generally. He also states the plaintiffs’ changed their theory of 28 t hh ee fc ea ls te hd eu r wi an sg ud ni ds ec ro v “e er ny o ri mn o ut sh e p rs et sa st ue r ec ”o u tr ot al gi rt ei eg a tt oi o tn h. e sH ee t tt le es mt ei nf ti e ts e rt mh sa t because of his medical condition and his fear he may suffer another stroke. 1 A dispute is genuine if there is sufficient evidence for a 2 reasonable fact finder to hold in favor of the non-moving party, and a 3 fact is “material if it might affect the outcome of the case.” Far 4 Out Prods. v. Oskar, 247 F.3d 986 , 992 (9th Cir. 2001) (citing 5 Anderson, 477 U.S. at 248-49.) Defendant’s evidence raises neither a 6 genuine nor material issue of fact. Settlements are reached for many 7 reasons. The undeniable facts here are Lane, represented during the 8 trial and settlement, made a calculated decision for rational reasons 9 to agree to the settlement and stipulated judgment.12 The 10 dischargeability of the judgment was negotiated while this adversary 11 proceeding was pending. He knew of his bankruptcy case and this 12 adversary proceeding. He may not have thought about it when the 13 settlement occurred but there is no evidence he was misled. [14] 15 4. Issue preclusion policy analysis supports summary judgment. 16 “Even where the five threshold criteria for issue preclusion are 17 met, a bankruptcy court must conduct an ‘inquiry into whether 18 imposition of issue preclusion in the particular setting would be fair 19 and consistent with sound public policy’ before applying issue 20 preclusion.” Delannoy v. Woodlawn Colonial, L.P. (In re Delannoy), [21] 615 B.R. 572 , 582 (9th Cir. BAP 2020) (quoting Khaligh v. Hadaegh (In 22 re Khaligh), 338 B.R. 817, 824-25 (9th Cir. BAP 2006), aff’d 506 F.3d 23 956 (9th Cir. 2007)). “Three fundamental policies should be 24 considered: ‘preservation of the integrity of the judicial system, [25] 12 Lane received significant concessions from the plaintiffs under the 26 settlement: a one year period before the judgment would be entered; a significant reduction in liability from $2.4 million to $1.5 million; 27 plaintiffs’ agreement not to take collection action against royalties from 28 L ia nn ce u’ rs r eb do o ik n; dp el fa ei nn dt ii nf gf s a’ cw ra oi sv se -r c oo mf p la at it no tr n de iy s mf ie se ss e da n dd u rc io ns gt s t ha eg a ti rn is at l ;L a en ae c h party bore their own fees and costs. 1 promotion of judicial economy, and protection of litigants from 2 harassment by vexatious litigation.’” Delannoy, 615 B.R. at 582 3 (quoting Lucido v. Superior Court, 51 Cal.3d 335, 343 (1990)); see 4 also Lopez v. Emergency Serv. Restoration, Inc. (In re Lopez), 367 5 B.R. 99, 103 (9th Cir. BAP 2007). These policies are furthered here 6 by finding issue preclusion. 7 Integrity of the judicial system - One inquiry involved with this 8 policy is the prevention of inconsistent judgments. See Murray v. 9 Alaska Airlines, Inc., 50 Cal. 4th 860, 879 (2010). Ignoring or 10 diminishing the stipulated judgment here may lead to litigation that 11 would result in an inconsistent judgment. The settlement and judgment 12 here occurred after a lengthy trial and discovery process including a 13 dispositive motion. A court with jurisdiction accepted a settlement 14 resolution of a contentious dispute which included a judgment on a 15 specified cause of action. This was not a pre-petition resolution 16 with a vague agreement that a debt would not be dischargeable. 17 Rather, this stipulated judgment and settlement occurred while 18 parallel litigation in this court was pending. The parties recognized 19 that in their settlement document and stipulated judgment. An 20 inconsistent judgment entered by this court under these circumstances 21 undermines judicial integrity. 22 Separate from risk of inconsistent judgments, defendant’s 23 position to ignore the stipulated judgment supports exercise of 24 discretion to apply issue preclusion. Defendant had a full 25 opportunity to litigate any denials or defenses he had to the fraud 26 claim. The trial went on for 25 days before the stipulated judgment 27 was entered. Defendant stipulated to a judgment in favor of 28 plaintiffs for “fraudulent concealment” and for an order in the 1 bankruptcy court that the judgment is not dischargeable in his 2 previously filed bankruptcy action. Doc. #141. Defendant should not 3 stipulate to judgment mid-trial then essentially argue (after the 4 judgment has been found valid) the issue was never actually litigated 5 or necessarily decided, when his decision to stipulate to judgment 6 ended that choice. If permitted here, then a party could continue a 7 shell game indefinitely. A party could bamboozle the system by 8 agreeing to a stipulated judgment thereby precluding adverse findings. 9 At enforcement time, the crafty party would attempt to skirt the 10 judgment by arguing that the court never made the requisite findings. 11 This should not be countenanced. 12 The court is unpersuaded by Lane’s claim he signed the settlement 13 under duress. He testified he stipulated to the judgment (and 14 settlement) “under enormous pressure” caused by his fear of another 15 stroke or worse. Doc. #173. He also claims his counsel and “other 16 witnesses” were notified of this. His trial counsel advised him he 17 would likely have an adverse judgment against him. He now claims that 18 neither his trial counsel nor the court properly explained the meaning 19 of the stipulated judgment being non-dischargeable. 20 First, the state trial court went to great pains to ask Lane if 21 he was under duress at the settlement hearing at least twice and Lane 22 twice said he was not. 23 Second, Lane waited seven months to ask the state court to vacate 24 the settlement. The state court specifically found Lane competent to 25 enter into the agreement and stipulated judgment. That finding was 26 upheld on appeal. 27 Third, even if neither of the above happened, Lane has not 28 established any material factual dispute. Lane does not state the 1 Plaintiffs committed any wrongful act or wrongful threat to pressure 2 him into the settlement. See Sheehan v. Atlanta Int’l Ins. Co., 812 3 F.2d 465, 469 (9th Cir. 1987) (applying California law held no duress 4 absent either a wrongful act by the other party or lack of reasonable 5 alternative to the agreement). Lane points to no wrongful act by the 6 Plaintiffs. Nor has Lane provided evidence Lane had no reasonable 7 alternative. He received many concessions under the agreement.13 8 Fourth, neither Lane’s trial counsel’s advice nor lack of 9 bankruptcy expertise establish duress without evidence Plaintiffs knew 10 of the duress. None has been provided. See Chan v. Lund, 188 Cal. 11 App. 4th 1159, 1175 (2010) (“in general, duress must emanate from the 12 opposing party to an agreement, not one’s own attorney, unless the 13 opposing party knows of the duress”). Lane has the burden of proof on 14 these issues. Fio Rito v. Fio Rito, 194 Cal. App. 2d 311, 322 (1961). 15 He has not met the burden here. Lane admitted his bankruptcy case was 16 not “on his mind” when he agreed to the settlement. His subjective 17 lack of concern then cannot be raised now. No evidence raises a 18 genuine factual issue whether Lane was misled about the impact of his 19 agreements. 20 Promotion of judicial economy - The record on this motion is over 21 1,000 pages. The underlying state court litigation began a decade 22 ago. This bankruptcy case has been pending for almost nine years. 23 The state court here used many resources over a lengthy period 24 resolving the dispute. In addition to 25 trial days, Lane moved to 25 vacate the settlement which the state court denied. That was affirmed 26 on appeal. Lane opposed entry of the stipulated judgment on the same 27 grounds and that motion was denied and not appealed. Retrying these [28] 13 See footnote 12 above. 1 issues when there is a well-developed record establishing Lane’s 2 agreement to settlement terms and the stipulated judgment is wasteful. 3 Further, Lane’s arguments that he did not commit fraud in the 4 first place and that his mental capacity when he agreed to the 5 settlement prevent issue preclusion here are unpersuasive. First, the 6 judgment concluded the litigation on the fraud issue. Second, Lane’s 7 mental capacity has been thoroughly vetted by the trial court — twice 8 — and the California Court of Appeal. Lane’s arguments ask this court 9 to question how the state courts reached their decisions, an 10 impermissible collateral attack on the judgment and the state courts’ 11 rulings. Lopez, 367 B.R. at 106. 12 Protection from harassment by vexatious litigation - Lane had a 13 full and fair opportunity to litigate the “fraudulent concealment” 14 claim before the Superior Court, a tribunal with jurisdiction to 15 render a final judgment. The litigation lasted 10 years in state 16 court and has been pending here almost as long. Extensive discovery 17 has been conducted. Lane had notice of the issues at hand — much of 18 the state court litigation was in the shadow of the bankruptcy 19 proceeding. Lane had every incentive to vigorously litigate the 20 issue. See Murphy v. Murphy, 164 Cal. App. 4th 376, 405 (2008). He 21 did fervently litigate until the settlement was reached. Requiring 22 the plaintiffs to relitigate these issues here does nothing except 23 needlessly multiply litigation. 24 Lane’s arguments about the adequacy of his counsel preventing 25 application of issue preclusion are unavailing. Even if there were 26 questions about the decisions made on his behalf — this court is not 27 asking — that does not mean he lacked a full and fair opportunity to 28 litigate all issues. Also, it is axiomatic that there is no absolute 1 |iright to counsel in civil proceedings. Hedges v. Resolution Tr. 2 ||Corp., 32 F.3d 1360, 1363 (9th Cir. 1994). Lane’s dissatisfaction 3 his counsel or the result of the settlement and stipulated 4 || judgment does not weigh against applying issue preclusion here. 5 ||Dissatisfaction does not equate to denial of due process or give way 6 |ito the strong policy reasons supporting issue preclusion under these 7 ||facts.*4 [8] 9 CONCLUSION 10 Lane’s unfortunate trek on the road to plaintiffs’ exasperation 11 reached a “T intersection.” Turning one way may lead to 12 ||/resolution of this very long dispute. Turning the other leads to 13 ||certain arbitrament of the sword. The court is hopeful Lane takes the 14 correct road. 15 The motion for summary judgment is GRANTED. Plaintiffs shall 16 |/submit an order granting the motion consistent with this ruling within 17 calendar days. Plaintiffs shall also submit a separate judgment 18 |}consistent with the ruling. [20] Dated: Sep 10, 2020 By the Court [22] 23 ené Lastreto II, Judge 5A United States Bankruptcy Court 25 SSS 14 There is some evidence supporting the motion for summary judgment 26 |lthat Lane threatened further litigation against the plaintiffs contemporaneously with his prosecution of the unsuccessful motion to vacate 27 the settlement. See footnote 6 above. Though not a finding here, that is some evidence of plaintiffs’ need for protection from repeated litigation. 28 Further, Lane’s arguments “denying” the commission of any fraud at this late stage bodes for continued wasteful litigation. [1] Instructions to Clerk of Court 2 Service List - Not Part of Order/Judgment [3] The Clerk of Court is instructed to send the Order/Judgment 4 or other court generated document transmitted herewith to the parties below. The Clerk of Court will send the Order via the [5] BNC or, if checked X , via the U.S. mail. [6] 7 Frank Lane 8 1133 Palo Alto Tulare CA 93274 [9] Brent M. Finch [10] 23945 Calabasas Rd #115 11 Calabasas CA 91302 12 Carollynn H.G. Callari One Rockefeller Plaza 10th Fl [13] New York NY 10020 [14] Douglas A. Crowder [15] 350 S Figueroa St #190 16 Los Angeles CA 90071 17 Gilad Berkowitz 350 S Figueroa St #190 [18] Los Angeles CA 90071 [19] Hamid R. Rafatjoo 20 1800 Avenue of the Stars, 12th Floor 21 Los Angeles CA 90067