613 B.R. 707
9th Cir. BAP2020Background
- Plaintiffs obtained a California state-court judgment after an uncontested in‑person trial (Zuckerman absent) finding Zuckerman liable for intentional misrepresentation, concealment, promises without intent to perform, conspiracy to defraud, and elder abuse, and awarding roughly $15.1 million including fees and punitive damages.
- The state court had earlier issued an Admissions Order deeming several requests for admission admitted based on Zuckerman’s failures to respond to discovery and sanctions orders.
- Zuckerman filed chapter 7 bankruptcy; Plaintiffs sued in the bankruptcy court to except the state‑court debt from discharge under 11 U.S.C. § 523(a)(2)(A).
- Plaintiffs moved for summary judgment, arguing the state judgment has issue‑preclusive effect on the § 523(a)(2)(A) fraud elements; the bankruptcy court granted summary judgment on that basis.
- Zuckerman appealed, arguing (inter alia) the state judgment was effectively a default (relying on deemed admissions), was procured after his counsel abandoned him at trial, and thus lacks preclusive effect; the BAP affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the state judgment has issue‑preclusive effect on § 523(a)(2)(A) fraud | The state judgment expressly found actual fraud; California preclusion law applies to bar relitigation of fraud elements | Judgment was not a proper basis for preclusion because it rested on admissions/conspiracy findings, not specific misrepresentations by Zuckerman | Preclusion applies; the judgment’s findings satisfy the identity/necessity elements for § 523(a)(2)(A) fraud |
| Whether the state judgment was “actually litigated” despite Zuckerman’s absence at trial | Plaintiffs presented evidence at an uncontested trial under CCP § 594; Zuckerman had answered and actively litigated earlier stages | Trial was effectively a default—reliance on deemed admissions and counsel abandonment mean the issue was not actually litigated | The trial was an uncontested trial (not default); issues were actually litigated because evidence was introduced and Zuckerman had participated pretrial |
| Whether deemed admissions/pretrial discovery sanctions foreclose preclusion | Deemed admissions are authorized by California law and can support a judgment and preclusion if the prior record shows the issues were decided | Deemed admissions (and conclusions of law) procured by sanctions from an inactive litigant cannot establish that issues were actually litigated | Deemed admissions do not automatically defeat preclusion; here the judgment and trial record show the fraud issues were resolved on the merits |
| Whether applying preclusion violates public policy or due process because counsel allegedly abandoned Zuckerman at trial | Full faith and credit and judicial economy favor preclusion; Zuckerman had notice and chance to be heard | Counsel abandonment deprived Zuckerman of an opportunity to litigate, so preclusion would violate due process | No due process violation; Zuckerman had notice/opportunity and forfeited challenges by not timely seeking relief—preclusion is consistent with public policy |
| Whether summary judgment could be entered for certain appellees who allegedly dismissed or assigned claims pre‑judgment | Judgment’s face shows liability to those appellees; appellants offered no admissible evidence to create a factual dispute | Some appellees were dismissed or assigned claims before judgment, so summary judgment as to them is improper | Court properly relied on the face of the Judgment; evidence offered by Zuckerman was insufficient to create a genuine dispute |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (1991) (state‑court findings may preclude dischargeability relitigation)
- Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75 (1984) (federal courts must give state judgments the same preclusive effect as the rendering State)
- Lucido v. Superior Court, 51 Cal. 3d 335 (1990) (California elements and public‑policy limits for issue preclusion)
- Anderson v. Liberty Lobby, 477 U.S. 242 (1986) (summary judgment/genuine‑issue standard)
- Engalla v. Permanente Med. Group, Inc., 15 Cal. 4th 951 (1997) (elements of actual fraud under California law)
- Wilcox v. Birtwhistle, 21 Cal. 4th 973 (1999) (judgments based on admissions can be outcome‑determinative)
- Internal Revenue Serv. v. Palmer (In re Palmer), 207 F.3d 566 (9th Cir. 2000) (deemed admissions at an incipient, abandoned stage may not constitute "actually litigated")
- Baldwin v. Kilpatrick (In re Baldwin), 249 F.3d 912 (9th Cir. 2001) ("express findings" rule and preclusion in default contexts)