Discharge and Dischargeability — General Principles — Collateral Estoppel, Res Judicata, Damages, Burden of Proof, Weighing Evid

1. Attorney’s Fees and §523(d)
2. Cal. Civ. Code §3287(a)
3. Cal. Civ. Code §92848
4. Collateral Estoppel
5. Default Judgment
6. Extension of time to file Complaint
7. Fraud
8. Fed. R. Bankr. P. 9006 under 4007(1)
9. FRCP 17(a)
10. Novation
11. Punitive Damages
12. Res Judicata
13. Rule 9(b) Fed.R. Civ.P. 15
14. §362
15. §509
16. §523
17. §523(a)(2)
18. §523(a)(4)
19. §523 (b)
20. §1141(d)(3)
21. Waiver
22. Misc

1. Attorney’s Fees and §523(d)

In re Bertola, 317 B.R. 95 (9th Cir. B.A.P. 2004)
    After Cohen v. de la Cruz, 523 U.S. 213 (1998), the determinative issue in awarding attorney fees to a dischargeability plaintiff under § § 523(a)(2) and (6) is whether the successful plaintiff could recover attorney fees in a non-bankruptcy court.

In re Davison, 289 B.R. 716 (9th Cir. B.A.P. 2003)
    Debtor not entitled to collect attorney fees from creditor who lost dischargeability action, since the bankruptcy court was not enforcing or interpreting the contract that provided for fees when it found no fraud.

In re Hunt, 238 F.3d 1098 (9th Cir. 2000)
    Award of attorney fees under § 523(d) justified where credit card plaintiff failed to present any evidence of intent not to repay.  “Substantially justified” means that complaint has a reasonable basis in law and fact.  “Special circumstances” has reference to “traditional equitable principles.” Exception didn't apply here. No waiver of right under the statute, where claim raised in the pretrial order.

Renfrow v. Draper, 232 F.3d 688 (9th Cir. 2000)
    “...[I]f a divorce decree provides for the payment of attorney's fees, and state law issues are litigated in the bankruptcy proceedings, attorney's fees are available, but only to the extent that they were incurred litigating the state law issues....Ms. Renfrow is entitled to recover the attorney's fees she has incurred in litigating the validity and the amount of Mr. Draper's debts in the bankruptcy proceeding.”  She's also entitled to the attorney's fees she incurred in the state court proceedings before the bankruptcy was filed, and to reasonable costs in both the bankruptcy and state court action.   

In re Stine, 254 B.R. 244 (9th Cir. B.A.P. 2000), aff’d, 19 Fed.Appx. 626 (9th Cir. 2001)
    Bankruptcy debtor's pro bono representation was not a special circumstance that precluded an award of attorney's fees after she prevailed in dischargeability proceeding.  Secured debt on real property was a consumer debt under § 523(d).
In re Baroff, 105 F.3d 439 (9th Cir. 1997)
    Prevailing party entitled to attorney’s fees in dischargeability action when bankruptcy court applies state law to enforce settlement agreement that authorizes them.

In re Hashemi, 104 F.3d 1122 (9th Cir.  1996), cert. denied, 520 U.S. 1230, 117 S.Ct. 1824  (1997)
    No right to jury trial in dischargeability proceedings, but could recover attorney fees

In re Harvey (amended opinion), 172 B.R. 314 (9th Cir. B.A.P. 1994)
    Award of attorney’s fees against creditor who loses on nondischargeability complaint does not require finding of bad faith.

In re Gee, 173 B.R. 189 (9th Cir. B.A.P. 1994)
    No right to attorney fees for dischargeability action.

In re Vasseli, 5 F.3d 351 (9th Cir. 1993)
    § 523(d) does not give a bankruptcy court power to award attorney fees incurred on appeal.

In re Kullgren, 109 B.R. 949, 953 (Bankr. C.D. Cal. 1990)
    In order to prevail on a motion for attorney’s fees under § 523(d), a debtor must prove that:
    (1) the creditor requested a determination of the dischargeability of the debt,
    (2) the debt is a consumer debt, and
    (3) the debt was discharged.

In re Itule, 114 B.R. 206 (9th Cir. B.A.P. 1990)
    No right to attorney fees in dischargeability actions.

2. Cal. Civ. Code §3287(a)

In re Niles, 106 F.3d 1456 (9th Cir. 1997)
    Cal. Civ. Code § 3287(a) allows prejudgment interest for damages certain, and is applicable because state law governs existence of a debt

3. Cal. Civ. Code §92848

In re Martin, 161 B.R. 672 (9th Cir. B.A.P. 1993)
    Bonding company is subrogated to the rights of the creditor under Cal. Civ. Code 92848 in a dischargeability proceeding.

4. Issue Preclusion/Collateral Estoppel

In re Sabban, 384 B.R. 1 (9th Cir. BAP 2008)
    Where state court did not find that damages were sustained by plaintiff because of unlicensed contractor’s misrepresentations or fraud under California Business and Professions Code § § 7031(b) and 7160,   § 523(a)(2) did not apply.

In re Hansen, 368 B.R. 868, 879-80 (9th Cir. BAP 2007)
    Claim preclusion did not apply to creditor’s lawsuit objecting to discharge, where the trustee, who settled a separate lawsuit objecting to discharge, was not in privity with the creditor.
In re Lopez, 367 B.R. 99 (9th Cir. BAP 2007)
    1. The Rooker-Feldman doctrine does not override or supplant the issue and claim preclusion doctrines;  2.  Issue preclusion applied in this § 523(a)(6) action, where the state court found that the debtor willfully and maliciously misappropriated customer lists.

In re Khaligh, 338 B.R. 817 (9th Cir. BAP 2006)
    Issues that were actually litigated and necessarily decided in the course of obtaining an arbitration award that was confirmed as a judgment by a California court are eligible for issue preclusive effect under California law. The defamation judgment was found to have preclusive effect under § 523(a)(6).

In re Jung Sup Lee, 335 B.R. 130 (9th Cir. BAP 2005)
    Issue preclusion applied to state court judgment for compensatory damages. Court need not have found that the debtor obtained services directly through fraudulent conduct under § 523(a)(2).

Muegler v. Bening, 413 F.3d 864 (9th Cir. 2005)
    “It is only the fact of an adverse fraud judgment, and nothing more, that is required for a debt to be nondischargeable.”  The debtor does not need to have received a benefit from the fraud.

In re Huang, 275 F.3d 1173 (9th Cir. 2002)
    Waiver of discharge in settlement agreement was ineffective.  The settlement agreement had no collateral estoppel effect under § 523(a)(2), where the settlement agreement omitted any mention of fraud or facts supporting fraud.

In re Roussos, 251 B.R. 86 (9th Cir. B.A.P. 2000), aff’d, 33 Fed.Appx. 365 (9th Cir. 2002)
    Even though state court calculated fraud damages based on benefit of the bargain losses under California law, rather than  out-of-pocket losses under federal law, collateral estoppel applied to the state court judgment.

In re Palmer, 207 F.3d 566 (9th Cir. 2000)
    Default judgment in tax court did not have collateral estoppel effect, where debtor did nothing in proceeding beyond filing petition for redetermination of tax liability.  "Actually litigated" requirement not met.

In re Branam, 226 B.R. 45 (9th Cir. B.A.P. 1998), aff’d, 205 F.3d 1350 (9th Cir. 1999)
    State court judgment for assault and battery collaterally estopped debtor from relitigating whether judgment arose from willful and malicious conduct.

In re Younie, 211 B.R. 367 (9th Cir.  B.A.P. 1997), aff’d, 163 F.3d 609 (9th Cir. 1998)
    State court judgment of fraud entitled to collateral estoppel effect precluding discharge

In re Lake, 202 B.R. 751 (9th Cir.  B.A.P. 1996)
    State court judgment not entitled to collateral estoppel effect in bankruptcy court if obtained through extrinsic fraud

In re Bowen, 198 B.R. 551 (9th Cir. B.A.P. 1996)
    Federal diversity judgment is subject to federal rule regarding collateral estoppel.  Stipulated judgment met “actually litigated” requirement.

In re Green, 198 B.R. 564 (9th Cir. B.A.P. 1996)
    Collateral estoppel applied to state fraud judgment.

In re Silva, 190 B.R. 889 (9th Cir. B.A.P. 1995)
    Issues raised in unopposed summary judgment motion not “actually litigated” for purpose of collateral estoppel effect in later dischargeability action.  Opinion does not mention Ninth Circuit Nourbaksh decision!

In re Kelly, 182 B.R. 255 (9th Cir. B.A.P. 1995), aff’d, 100 F.3d 110 (9th Cir. 1996)
    Collateral Estoppel
    In order for a prior judgment to be entitled to collateral estoppel effect, five elements mst be met:
    1) The issue sought to be precluded from relitigation must be identical to that decided in a former proceeding;
    2) the issue must have been actually litigated in the former proceeding;
    3) it must have been necessarily decided in the former proceeding;
    4) the decision in the former proceeding must be final and on the merits; and
    5) the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding.

Clark v. Bear Stearns & Co., Inc.,
966 F.2d 1318, 1320 (9th Cir. 1992); Berr, 172 B.R. at 306; Gikas v. Zolin, 25 Cal.Rptr.2d 500, 505 (1993) (quoting Lucido v. Superior Court, 272 Cal.Rptr. 767, 769 (1990), cert denied, 500 U.S. 920 (1991); Gutierrez v. Superior Court, 29 Cal.Rptr.2d 376, 378 (Cal.Ct.App. 1994), cert denied, 514 U.S. 1049 (1995) (quoting Lucido, 272 Cal.Rptr. at 769).  See generally, 1B James W. Moore et al., Moore’s Federal Practice 0.441-43 (2d ed. 1994).
    The party seeking to assert collateral estoppel has the burden of proving all the requisites for its application.  To sustain this burden, a party must introduce a record sufficient to reveal the controlling facts and pinpoint the exact issues litigated in the prior action.  Any reasonable doubt as to what was decided by a prior judgment should be resolved against allowing the collateral estoppel effect.  Spilman v. Harley, 656 F.2d 224, 227-28 (6th Cir. 1981); Matter of Merrill, 594 F.2d 1064, 1067 (5th Cir. 1979).

In re Bugna, 33 F.3d 1054 (9th Cir. 1994)
    When debtor’s fraud and breach of fiduciary duty have been fully and fairly litigated in state court prior to bankruptcy, the bankruptcy court may not invoke equitable powers to reject the dischargeability plaintiff’s invocation of collateral estoppel.

Berr v. Federal Deposit Ins. Co. (In re Berr), 172 B.R. 299 (9th Cir. B.A.P. 1994)
    Can a stipulated judgment for breach of contract damages, entered pursuant to a settlement agreement, have preclusive effect so as to collaterally estop the creditor from litigating nondischargeability for fraud under § 523(a)(2)(B) in the judgment debtor’s subsequent bankruptcy case?
    A 3-judge B.A.P. panel holds “perhaps” (and “perhaps not”), with three different opinions.

In re Nourbakhsh, 162 B.R. 841 (9th Cir. B.A.P. 1994), aff’d,  67 F.3d 798 (9th Cir. 1995)
    Default judgment on issue of fraud has collateral estoppel effect.

In re Yarbrow, 150 B.R. 233 (9th Cir. B.A.P. 1993)
    Collateral estoppel as to fraud.

5. Default Judgment

In re Munton, 351 B.R. 707 (9th Cir. BAP 2006)
    Affirmative defenses not raised in prior state court action in which default was taken against the debtor may not be raised in subsequent nondischargeability proceeding.  Texas statute contractor’s statute exhibited the characteristics of an express or technical trust for purposes of § 523(a)(4).

In re Jung Sup Lee, 335 B.R. 130 (9th Cir. BAP 2005)
    Claim preclusion applied to state court’s finding of punitive damages, even though the judgment was by default.

In re Garcia, 313 B.R. 307 (9th Cir. B.A.P. 2004)
    Default judgment had preclusive effect, even if it didn’t expressly state that the debt was nondischargeable.

In re Baldwin, 249 F.3d 912 (9th Cir. 2001)
    State court default judgment in favor of plaintiff alleging intentional tort had preclusive effect as to issue of willful and malicious injury in bankruptcy court nondischargeability action.

In re Harmon, 250 F.3d 1240 (9th Cir. 2001)
    State court default judgment made no express finding with respect to fraud claim and therefore had no preclusive effect on fraud issue in nondischargeability action.

6. Extension of time to file Complaint

In re Albert, 113 B.R. 617 (9th Cir. B.A.P. 1990)
    Multiple extensions of dischargeability complaint filing dates permitted under Fed.R.Bankr.P.

In re Brown, 102 B.R. 187 (9th Cir. B.A.P. 1989)
    Cannot extend time for filing dischargeability complaint once time has run (citing In re Price, 79 B.R. 888, 890 (9th Cir. B.A.P. 1988), aff’d, 871 F.2d 97 (9th Cir. 1989).

7. Fraud

In re Tobin, 258 B.R. 199 (9th Cir. B.A.P. 2001)
    Fraudulent representation imputed to debtor as corporate alter ego not proper basis for nondischargeability determination absent evidence of debtor's personal, knowing involvement in fraudulent scheme.

In re Fischer, 116 F.3d 388 (9th Cir.  B.A.P. 1997)
    Express novation extinguishes bankruptcy creditor’s fraud claim against debtor based on original contract

In re Saylor, 178 B.R. 209 (9th Cir. B.A.P. 1995), aff’d, 108 F.3d 219 (9th Cir. 1997)
    Fraudulent transfer action created no debt against debtor, thus no dischargeability action.

In re Aubrey, 111 B.R. 268 (9th Cir. B.A.P. 1990)
    State court judgment for fraud and willfulness nondischargeable in bankrupt’s estate.

8. Fed. R. Bankr. P. 9006 under 4007(1)

In re Burns, 102 B.R. 750 (9th Cir. B.A.P. 1989)
    Fed.R.Bankr.P. 9006 applies in calculating time under 4007(1).

9. FRCP 17(a)

In re Capobianco, 248 B.R. 833 (9th Cir. B.A.P. 2000)
    Court properly allowed plaintiff to substitute as the real party in interest under FRCP 17(a) a sole proprietorship for a corporate entity as plaintiff in a dischargeability action, where debt was owed to sole proprietor, which was subsequently incorporated.

10. Novation

Archer v. Warner, 123 S.Ct. 1462 (2003)
    “We conclude that the Archers’ settlement agreement and releases may have worked a kind of novation, but that fact does not bar the Archers from showing that the settlement debt arose out of [fraud], and consequently is nondischargeable...”

11. Punitive Damages

In re Jung Sup Lee, 335 B.R. 130 (9th Cir. BAP 2005)
    Claim preclusion applied to state court’s finding of punitive damages, even though the judgment was by default.

In re Cantrell,329 F.3d 1119 (9th Cir. 2003)
    State court necessarily decided issue of fraud by awarding punitive damages. Thus the debtor was precluded from relitigating this issue.

In re Molina, 228 B.R. 248 (9th Cir. B.A.P. 1998)
    California court’s bare finding of attorney “fraud” sufficient to establish that punitive damages award was not dischargeable in bankruptcy.

In re Giangrasso, 145 B.R. 319 (9th Cir. B.A.P. 1992)
    State court jury’s punitive damages award basis sufficiently unclear to defeat exception from bankruptcy dischargeability.

12. Claim Preclusion/Res Judicata

In re Jung Sup Lee, 335 B.R. 130 (9th Cir. BAP 2005)
    Claim preclusion applied to state court’s finding of punitive damages, even though the judgment was by default.

In re Daghighfekr, 161 B.R. 685 (9th Cir. B.A.P. 1993)
    Default judgment as to damages rendered in state court is res judicata, citing In re Comer, 723 F.2d 737, 740 (9th Cir. 1984).

13. Rule 9(b) Fed.R. Civ.P. 15

In re Englander, 92 B.R. 425 (9th Cir. B.A.P. 1988)
    Specificity of complaint - Rule 9(b) Fed.R.Civ.P. 15 governs as to amended complaint adding new allegations.

14. §362

In re Gustafson, 934 F.2d 216 (9th Cir. 1991)
    State is immune from money damages for stay violations under the 11th Amendment.

15. §509

In re Hamada, 291 F.3d 645 (9th Cir. 2002)
    Issuer of letter of credit to secure a surety bond paid on a nondischargeable judgment was not subrogated to the rights of the judgment holder. Issuers of letters of credit are not “liable with” the debtor, and thus § 509 does not apply; nor did the issuer meet the requirements for equitable subrogation under California law.

16. §523

In re Arneson, 282 B.R. 883 (9th Cir. B.A.P. 2002)
    A § 523 judgment in a prior bankruptcy case has claim preclusion effect unless and until vacated.

17. §523(a)(2)

In re Anguiano, 99 B.R. 436 (9th Cir. B.A.P. 1989)
    Only out-of-pocket damages awarded in this 523(a)(2) case, although benefit-of-bargain damages may be appropriate in a particular case.

18. §523(a)(4)

In re Bugna, 33 F.3d 1054 (9th Cir. 1994)
    Punitive damages not dischargeable under § 523(a)(4).

19. §523(b)

In re Moncur, 328 B.R. 183 (9th Cir. BAP 2005)
    Debt that was declared nondischargeable in previous chapter 12 was nondischargeable in subsequent chapter 7, notwithstanding local form of discharge order that required the filing of a lawsuit in the chapter 7.

In re Paine, 283 B.R. 33 (9th Cir. B.A.P. 2002)
    Most final judgments of nondischargeability rendered by bankruptcy courts, even if erroneous, are preclusive in subsequent bankruptcy cases under § 523(b).

20. §1141(d)(3)

In re Dominguez, 51 F.3d 1502 (9th Cir. 1995)
    Complaint objecting to discharge deficient under 1141(d)(3) (liquidating Chapter 11)

21. Waiver

In re Boni, 240 B.R. 381 (9th Cir. B.A.P. 1999)
    Absent waiver, dischargeability of debt must be determined in adversary proceeding and not on motion.

In re Santos, 112 B.R. 1001 (9th Cir. B.A.P. 1990)
    Waiver may be a defense to dismiss late-filed dischargeability complaint, where defense is not raised in answer.

22. Misc

In re Sasson, 424 F.3d 864 (9th Cir. 2005), cert. denied,  Sasson v. Sokoloff, 547 U.S. 1206, 126 S.Ct. 2890 (2006)
    A bankruptcy court has subject matter jurisdiction to enter a money judgment in a dischargeability proceeding, even though the underlying debt has been reduced to judgment in  state court.  The judgment was obtained in 1991, but the dischargeability action wasn’t filed until debtor filed for bankruptcy in 2001. In finding that the debtor engaged in willful and malicious conduct in rendering the initial state court judgment uncollectible, the bankruptcy court renewed the 1991 judgment, and tacked on interest at the federal rate for the period from 1991.

In re Hercules Enterprises, Inc., 387 F.3d 1024 (9th Cir. 2004)
    In order to find civil contempt, “the bankruptcy court had to find that he violated a specific and definite order and that he had sufficient notice of its terms and the fact that he would be sanctioned if he did not comply.”  Bankruptcy court had power to sanction for civil contempt, but not to make such sanction nondischargeable in future bankruptcies.

Rein v. Providian Financial Corp., 270 F.3d 895 (9th Cir. 2001)
    Where no court approval was obtained of either a settlement of an adversary proceeding nor a reaffirmation agreement, there was no final order and thus no claim preclusion.

Banks v. Gill Distribution Centers, Inc., 263 F.3d 862 (9th Cir. 2001)
    Claim established prepetition if the creditor brought a timely state court action to collect the debt, even if the debt has not been reduced to a state court judgment.

In re Myrvang, 232 F.3d 1116 (9th Cir. 2000)
     The bankruptcy court has the discretion to discharge a portion of the nondischargeable debt in question.  In re Taylor, 223 B.R. 747 (9th Cir. B.A.P. 1998) disapproved.  But the imposition of a penalty provision if the debtor missed a payment was beyond the authority of the bankruptcy court.

In re Gerwer, 253 B.R. 66  (9th Cir. B.A.P. 2000)
    Estate distribution was an involuntary payment, thus prohibiting the debtor from directing that distribution be applied first to the nondischargeable portion of a debt.  Creditor had the right to apply payment from estate to the dischargeable portion of the debt.

In re Marino, 181 F.3d 1142 (9th Cir. 1999)
    Dismissal of untimely complaint in defunct Ch. 11 proceeding did not bar filing another complaint for same cause in new Ch. 7 proceeding.

In re Cole, 226 B.R. 647 (9th Cir. B.A.P. 1998)
    Debtor could not prospectively contract away right to seek bankruptcy discharge.

In re Duplante, 215 B.R. 444 (9th Cir.  B.A.P. 1997)
    Recent court of appeals decision changed pertinent law, justifying creditor’s voluntary dismissal of adversary proceeding

In re Ota, 192 B.R. 545 (9th Cir. B.A.P. 1996)
    Assignee of claim has standing to object to discharge.

In re Gergely, 186 B.R. 951 (9th Cir. B.A.P. 1995), aff’d in part, rev’d in part 110 F.3d 1448 (9th Cir. 1997)
    Where state court complaint pled no nondischargeability cause of action, state statute of limitations barred subsequent nondischargeability complaint.

In re Daily, 47 F.3d 365 (9th Cir. 1995)
    Debtor agrees with creditor to allow RICO suit to go forward and have it be binding as to dischargeability suit in Bankruptcy Court.  Debtor then fails to comply with discovery and has default taken against him.  Held, where debtor actively participated in case for two years, the “actual litigation” requirement is satisfied.

In re Lawler, 141 B.R. 425 (9th Cir. B.A.P. 1992)
    Burden of proof in 727 cases is preponderance of evidence.

In re Fields, 926 F.2d 501 (5th Cir. 1991), cert. denied, 502 U.S. 938 (1991)
    Surety that paid taxes of debtor subrogated to the rights of the taxing authorities.

In re Combs, 101 B.R. 609 (9th Cir. B.A.P. 1989)
    Dischargeability to be determined on basis of facts as of date of petition, not date of dischargeability trial.

In re Ellwanger, 89 B.R. 95 (9th Cir. B.A.P. 1988)
    State court record makes prima facie case under In re Houtman, 568 F.2d 651 (9th Cir. 1978).  This opinion was withdrawn from bound volume by order of Court dated Oct. 12, 1988.  Subsequent opinion found at 105 B.R. 551 (9th Cir. B.A.P. 1989).

In re Lochrie, 78 B.R. 257 (9th Cir. B.A.P. 1987)
    Exception to discharge to be strictly construed in favor of debtor.

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