State Farm Mut. Auto. Ins. Co. v. Rodriguez (In re Rodriguez)

568 B.R. 328

IN RE: James Manuel RODRIGUEZ, Debtor,

State Farm Mutual Automobile Ins. Co., Plaintiff,

v.James Manuel Rodriguez, Defendant.

Bankruptcy Case No. 15–02444–CL7

Adversary Proceeding No. 15–90095–CL

United States Bankruptcy Court, S.D. California.

Signed June 05, 2017

Joseph M. Pleasant, Reese Law Group, San Diego, CA, for Plaintiffs.

Nathan Shilberg, Debt Freedom Legal Clinic, El Cajon, CA, for Defendant.

MEMORANDUM DECISION AND ORDER OF NONDISCHARGEABILITY

CHRISTOPHER B. LATHAM, JUDGE, United States Bankruptcy Court

This dispute involves a stolen 1995 Ferrari 348 Spider (the "Ferrari"). Debtor-defendant James Manuel Rodriguez ("Defendant") owned the Ferrari for many years before transferring title to his former live-in girlfriend, Shirley Sun. Ms. Sun insured the Ferrari with plaintiff-creditor State Farm Mutual Automobile Insurance Company ("Plaintiff"). The parties' relationship deteriorated, and Ms. Sun eventually began seeing William Curtis—though the three continued living, working, and traveling together. Ms. Sun and Mr. Curtis left Defendant's dental practice to form a spa business. Shortly thereafter, they traveled to China to visit Ms. Sun's terminally ill father. Defendant did not accompany them. Instead, he drove them to the airport and then took his belongings—and the Ferrari—from their common residence. He did so without legal advice, and in full knowledge that Ms. Sun owned the car and had possession of it and that he needed permission to drive it. He never returned the Ferrari despite numerous demands from Ms. Sun, Mr. Curtis, and the police. Instead, he sued Ms. Sun and Mr. Curtis in state court to remove Ms. Sun's name from the title and to enjoin them from selling, transferring, or modifying the car.

Ms. Sun filed a stolen vehicle report with the police department and a stolen vehicle claim with Plaintiff. On investigating the claim, Plaintiff determined that the policy and California law covered it, and paid Ms. Sun $56,335.51 for her loss. Plaintiff eventually recovered the Ferrari and sold it at auction. Plaintiff's complaint is pled as a subrogation claim. It asks the court to liquidate and hold nondischargeable $42,003.51 (the sum it paid Ms. Sun for her claim less the amount recovered at auction). It also seeks costs and interest.

The court now finds that Plaintiff's subrogation claim against Defendant is nondischargeable under § 523(a)(6).

I. JURISDICTION AND VENUE

The court has jurisdiction over this adversary proceeding under 28 U.S.C. §§ 1334(b) and 157(b)(2)(1). Venue is proper under 28 U.S.C. § 1409(a).

II. OVERVIEW AND HISTORY

A. Defendant's Bankruptcy Case

In April 2015, Defendant filed a "bares bones" Chapter 7 petition (Bankr. ECF No. 1). He originally scheduled $632,576 in assets and $171,744 in liabilities (Bankr. ECF No. 10 at p. 5). Schedule A discloses a $568,675 interest in his principal residence at 4049 Caminito Meliado in San Diego (the "Caminito Meliado Property"). Schedule B lists $63,901 in personal property—$58,000 of which is equipment for his dental practice, Pacific Wave Dental. Id. at pp. 8–10. Defendant claims various exemptions on Schedule C totaling $10,151. Id. at p. 11. Schedule D reveals no secured creditors. Id. at p. 12. Schedule F describes Plaintiff's claim as a $57,000 insurance claim lawsuit. Id. at p. 16. Schedule I lists Defendant's employer as "James Manu[e]l Rodriguez DDS Dental Corp."

Defendant's statement of financial affairs ("SOFA") discloses $31,460 in 2015 year-to-date business income and $0 for 2014. Id. at p. 24. Paragraph 4 lists one lawsuit, Rodriguez v. Shirley Sun & William Curtis , described as a "lawsuit—complaint for money" in San Diego County Superior Court. Id. at p. 25. Paragraph 5 discloses three pending or completed foreclosures on the following properties: (1) 5559 Porter Creek Road, San Diego, CA 92130 (the "Porter Creek Property") (by PennyMac Loan Services in July 2014); (2) a condo at Regents Road, La Jolla, CA 92037 (the "Regents Road Property") (by Chase Mortgage in August 2014); and (3) the Caminito Meliado Property (by NationStar Mortgage and scheduled for June 2, 2015). Id. at p. 26. Paragraph 15 shows the Porter Creek Property as Defendant's previous residence from 2005 to 2013. Id. at p. 28. Paragraph 16 discloses Suet Ha as Defendant's estranged wife. Id. And Paragraph 18 lists the following businesses: (1) James Rodriguez DDS Inc. dba Sun Smiles (dentistry practice, 2006–April 2014) (the "Dental Practice"); and (2) James Manuel Rodriguez DDS Dental Corp. dba Pacific Wave Dental (dentistry practice, July 2014–present). Id. at p. 29.

Because this was a "no asset" case, no proofs of claim were submitted. See FED. R. BANKR. P. 2002(e). Plaintiff timely filed its adversary proceeding (ECF No. 1) (the "Complaint"). Defendant received his discharge in July 2015 (Bankr. ECF No. 31). The Trustee issued a report of no distribution in November 2015 (Bankr. ECF No. 42), and the case was closed the same day (Bankr. ECF No. 43).

B. The Present Case

The Complaint alleges that Plaintiff insured Ms. Sun for loss, damage, or theft of the Ferrari. It asserts that Defendant wrongfully, intentionally, willfully, and maliciously took the car without Ms. Sun's permission. She filed an insurance claim on the loss. Plaintiff in turn investigated the claim, determined that the policy and California law covered it, and paid for Ms. Sun's loss. The Complaint is styled as a subrogation claim based upon Defendant's alleged theft and conversion of the Ferrari. It requests—in a single § 523(a)(6) cause of action¹ —that the court liquidate and hold nondischargeable the net amount Plaintiff paid on Ms. Sun's claim, plus costs and interest. Defendant answered the Complaint and interposed eight affirmative defenses. He also requested costs of suit (ECF No. 7).

The parties' efforts at mediation were unsuccessful (ECF No. 34). On March 11, 2016, Defendant's previous attorney withdrew as counsel (ECF No. 27). Defendant attempted briefly to represent himself after that. In March, he answered and propounded discovery (ECF Nos. 25, 28, 31, 32, and 33). And on March 14, 2016, he filed a pleading styled a "cross-complaint"² against Plaintiff and Ms. Sun alleging that Plaintiff failed to fully investigate Ms. Sun's fraudulent insurance claim. It addition, it did not contact Defendant and grossly mismanaged the underlying state court action against him. As a result, Plaintiff's loss was due to its own negligence. The cross-complaint asserted a single cause of action for equitable indemnification, viz., that if Defendant is found liable in this adversary proceeding, then Plaintiff and Ms. Sun should indemnify him.

Defendant's discovery and pleading were untimely, however. The court therefore treated the cross-complaint as a nullity and excused Plaintiff from responding to the discovery (ECF No. 34). But it also allowed Defendant to bring a motion to modify the scheduling order under Rule 16. Id. He did so with his new attorney's assistance (ECF Nos. 36 and 40). The court granted the motion, extended the pre-trial deadlines, and invited Defendant to seek leave to file a counterclaim and third-party complaint under Rule 15 (ECF No. 44). He never did, however.

Discovery disputes then arose. On November 18, 2016, the court granted Plaintiff's motions to compel responses to interrogatories and production of documents. It also awarded Plaintiff $2,100 against Defendant and his counsel for reasonable expenses incurred in bringing those motions (ECF Nos. 67 and 68) (the "Discovery Orders").

Because Defendant did not comply with the Discovery Orders, Plaintiff moved to strike his answer and for monetary sanctions on November 21, 2016 (ECF No. 74). Defendant did not file a written opposition. At the hearing, the parties stipulated on the record that the motion could be granted. They further agreed that $2,100 in attorney's fees and costs would be imposed against counsel only. But Defendant was given a final opportunity to provide the outstanding verified discovery responses (ECF No. 77). And because he complied—though Plaintiff argued the responses were insufficient—the court denied the motion but awarded sanctions as the parties and counsel had agreed (ECF No. 81).

C. The Pre–Trial Order and Trial

The parties submitted a joint stipulation of facts. See Plaintiff's Trial Ex. 12; ECF No. 87. The final pre-trial order incorporates many of them (ECF No. 93) (the "Pre–Trial Order"). The parties also agreed that the sole issue for trial was whether Defendant committed willful and malicious injury under § 523(a)(6) by taking and refusing to return the Ferrari. See the Pre–Trial Order at p. 8

III. FACTUAL BACKGROUND AND FINDINGS

A great volume of immaterial evidence came in without objection. Despite repeated admonitions to focus the evidence on § 523(a)(6)'s elements, proof of many extrinsic facts was admitted. So far as they do not relate to the § 523(a)(6) claim's adjudication, the court need not—indeed, should not—make findings as to them. The court tried the matter over three days. What follows are the factual findings that bear on the § 523(a)(6) analysis, augmented with situational context.³

A. The Parties' Pre–Litigation History

Defendant graduated from dental school in 1981 and was licensed to practice dentistry in California the following year. See Plaintiff's Trial Ex. 10. He opened his first professional practice, Sun Smiles Dentistry, in January 2006 and has worked in Southern California ever since. Id. Ms. Sun is also a dentist, though licensed only in her native China. Defendant first acquired the Ferrari in late 2001 for $75,000. See the Pre–Trial Order at ¶ 12; Plaintiff's Trial Ex. 6.

Defendant and Ms. Sun became a couple in 2004. They jointly acquired a variety of property during their romantic relationship. And between October 2005 and May 2013, they lived together at the Porter Creek Property. See the Pre–Trial Order at ¶ 13. In 2005, Ms. Sun helped Defendant form...