Chan v. Frazer, Case No. 19-CV-05368-LHK

620 B.R. 106

Simon CHAN, Appellants,

v.Michael Scott FRAZER, et al., Appellees.

Case No. 19-CV-05368-LHK

United States District Court, N.D. California, San Jose Division.

Signed August 17, 2020

Andrew G. Watters, San Mateo, CA, Charles Marriott Kagay, California Appellate Law Group LLP, San Francisco, CA, for Appellants.

Simon Chan, Dallas, TX, pro se.

Hussein Mohammad Saffouri, Ramsey Law Group, Lafayette, CA, for Appellees.

ORDER AFFIRMING BANKRUPTCY COURT'S ORDER GRANTING APPELLEES' MOTION FOR SUMMARY JUDGMENT AS TO COMPENSATORY DAMAGES

Re: Dkt. No. 8

LUCY H. KOH, United States District Judge

Appellant Simon Chan ("Appellant") appeals the Bankruptcy Court's order granting Michael Scott Frazer, Alan Miller, William Chan, Michelle Chan, Jeff Chang, Tomas Velken, and Julie Lam's (collectively, "Appellees") motion for summary judgment as to compensatory damages. Having considered the parties' submissions, the relevant law, and the record in this case, the Court AFFIRMS the Bankruptcy Court's order granting Appellees' motion for summary judgment as to compensatory damages.

I. BACKGROUND

A. Factual Background

On March 28, 2014, Appellees sued Appellant in California Superior Court for the County of Contra Costa and alleged that Appellant defrauded Appellees in connection with a real estate investment venture in Beijing, China. ER 81. According to Appellees, Appellant received funds from Appellees but never provided an accounting or any records regarding these funds, and instead, Appellant deposited the funds into his personal bank accounts and placed title to the condominium units in his name. ER 16–17. Appellees claimed that Appellant concealed this information and made misrepresentations about the status of the investments. Id. As a result, Appellants alleged causes of action for intentional fraud and deceit, negligent misrepresentation, breach of fiduciary duty, unfair business practice, and unjust enrichment. ER 88.

Following a bench trial in July 2017 regarding liability and compensatory damages, the California Superior Court issued a Tentative Decision on December 19, 2017.¹ ECF No. 13, Ex. 1. Appellant filed objections and supplemental objections to the Tentative Decision, and Respondents filed a response to Appellant's objections. Id. , Exs. 2–4.

On January 24, 2018, after considering the objections and the response, the California Superior Court issued detailed factual findings and conclusions of law in a 17-page Statement of Decision. ER 59–75. The Statement of Decision rejected all of Appellant's cross claims, ER 72–74, and found in favor of Appellees on all their causes of action except their negligent misrepresentation claim. ER 66. Accordingly, the California Superior Court awarded compensatory damages as follows: $373,109 for Julie Lam; $263,371 for Michael Scott Frazer; $131,686 for Jeff Chang; $131,686 for William and Michelle Chan; $131,686 for Tomas Velken; and $131,686 for Alan Miller. The Statement of Decision also noted that the parties stipulated to bifurcate the issue of punitive damages and set a conference for February 6, 2018 to schedule the punitive damages phase of the trial. ER 59, 75.

However, the next day, January 25, 2018, Appellant filed for bankruptcy in this district. ER 78. This automatically stayed the California Superior Court action before the California Superior Court could conduct the punitive damages trial and enter judgment. 11 U.S.C. § 362 (stating that the initiation of bankruptcy proceedings triggers an automatic stay of the continuation of any "judicial, administrative, or other action or proceeding" against the debtor).

On March 22, 2018, Appellees and the bankruptcy trustee "stipulated to relief from stay for the limited purpose of allowing the Plaintiffs to procure a monetary judgment" from the Superior Court for the compensatory damages set forth in the Superior Court's Statement of Decision. ER 77. Appellees and the bankruptcy trustee also stipulated "to waive trial of the issue of punitive damages, and stipulate[d] to an amount of punitive damages." Id.

On April 18, 2018, the state court entered judgment in favor of Appellees and against Appellant. ER 128–129. The judgment explicitly "adopt[ed] and incorporate[d] herein [the California Superior Court's] final statement of decision entered on January 24, 2018, and attached as Exhibit A, hereto." Id. at 129. The judgment therefore awarded compensatory damages as set forth in the Statement of Decision. Id. The judgment also awarded punitive damages pursuant to the stipulation between Appellees and the bankruptcy trustee. Id.

Appellant appealed the California Superior Court judgment, and on December 10, 2018, the California Court of Appeal dismissed the appeal. ER 152–159. On February 20, 2019, the California Supreme Court denied Appellant's petition for review. ER 160. On March 4, 2019, the California Court of Appeal issued a remittitur certifying that the California Superior Court judgment was final. ER 162.

B. Procedural History

Appellees filed the instant adversary action against Appellant in March 2018. On May 4, 2018, Appellees filed an amended complaint with the California Superior Court judgment attached. ER 1–8. Appellees asserted that Appellant's debt was based on false representations and fraud and was therefore nondischargeable under 11 U.S.C. § 523(a)(2)(A). Id.

On May 6, 2019, the Bankruptcy Court held a hearing on the parties' motions for summary judgment. ER 192. The Bankruptcy Court discussed and incorporated in its order substantial portions of the California Superior Court's Statement of Decision. ER 203–206. The Bankruptcy Court granted Appellee's motion for summary judgment as to compensatory damages because the California Superior Court decision granting Appellees compensatory damages had preclusive effect, and thus, Appellant was collaterally estopped from relitigating that issue before the Bankruptcy Court. ER 200–208. Specifically, the Bankruptcy Court concluded that Appellee's claim under 11 U.S.C. § 523(a)(2)(A) was "identical to the claim that they asserted in Contra Costa County Superior Court," that Appellees were entitled to compensatory damages in the amounts specified in the California Superior Court judgment, and that these damages were nondischargeable. ER 205, 208.

As to punitive damages, the Bankruptcy Court noted that unlike compensatory damages, Appellees and the bankruptcy trustee stipulated to the amount of punitive damages and that it was therefore unclear whether collateral estoppel applied to punitive damages. ER 208. As a result, the Bankruptcy Court invited the parties to file supplemental briefing on the issue of punitive damages and set a hearing for June 10, 2019. ER 208–211.

On June 10, 2019, the Bankruptcy Court held that the California Superior Court judgment did not have collateral estoppel effect as to punitive damages because the bankruptcy trustee was not in privity with Appellant when the bankruptcy trustee stipulated to punitive damages. ER 219–220. The Bankruptcy Court then asked Appellees whether they desired a trial on punitive damages or were willing to waive punitive damages and have judgment entered solely on compensatory damages. ER 222–226.

On July 19, 2019, Appellees filed a letter to explain that "all of the plaintiffs in this matter have elected to forego the punitive damages awarded to them by the Contra Costa County Superior Court in its judgment entered on April 18, 2018." ER 227. As a result, on August 9, 2019, the Bankruptcy Court entered an order denying Appellant's motion for summary judgment and granting Appellees' motion for summary judgment as to compensatory damages. ER 228–229. The Bankruptcy Court also denied Appellees' motion for summary judgment as to punitive damages. Id. That same day, the Bankruptcy Court entered a judgment formally awarding Appellees compensatory damages. ER 230–231.

On August 23, 2019, Appellant filed a timely notice of appeal. ER 232–236. On November 22, 2019, Appellant filed an opening brief. ECF No. 8 ("Appellant's Br."). On January 10, 2020, Appellees filed a response brief. ECF No. 12 ("Appellees' Br."). On February 6, 2020, Appellant filed a reply brief. ECF No. 16 ("Appellant's Reply").

II. LEGAL STANDARD

A federal district court has jurisdiction to entertain an appeal from a bankruptcy court under 28 U.S.C. § 158(a), which provides that "[t]he district courts of the United States shall have jurisdiction to hear appeals ... from final judgments, orders, and decrees[ ] of bankruptcy judges[.]" On appeal, a district court reviews a bankruptcy court's conclusions of law de novo, and the bankruptcy court's factual findings for clear error. In re Greene , 583 F.3d 614, 618 (9th Cir. 2009) (citing In re Raintree Healthcare Corp. , 431 F.3d 685, 687 (9th Cir. 2005) ); In re Salazar , 430 F.3d 992, 994 (9th Cir. 2005) ("We review the bankruptcy court's conclusions of law de novo and its factual findings for clear error.").

III. DISCUSSION

Appellant argues that the Bankruptcy Court erred by finding that the California Superior Court judgment had collateral estoppel effect and that, as a result, compensatory damages were nondischargeable. Appellant's sole argument that the compensatory damages are dischargeable is Appellant's collateral estoppel argument. Appellant's Br. at 2, 8–19. "Under the Full Faith and Credit Act, 28 U.S.C. § 1738, the preclusive effect of a state court judgment in a subsequent bankruptcy proceeding is determined by the preclusion law of the state in which the judgment issued." Gayden v. Nourbakhsh , 67 F.3d 798, 800 (9th Cir. 1995). The parties agree that California law applies to the instant case. Appellant's Br. at 9–10; Appellees' Br. at 8.

Under California law, "[c]ollateral estoppel precludes relitigation of issues argued and decided in prior proceedings." Lucido v. Superior Court , 51 Cal. 3d 335, 341, 272 Cal.Rptr. 767, 795 P.2d 1223 (1990). California courts apply collateral estoppel if several...