Martin Pemstein v. Harold Pemstein
693 F. App'x 548
| 9th Cir. | 2017Background
- Martin and Harold were partners in HMS Holding Company; a 2010 California state court judgment found Martin breached fiduciary duties relating to collection of rent and awarded Harold a money judgment.
- Martin later filed bankruptcy and sought to discharge the debt to Harold.
- The bankruptcy court ruled the 2010 state court judgment established that Martin’s debt arose from a breach of fiduciary duty and was nondischargeable under 11 U.S.C. § 523(a)(4) as defalcation.
- The Bankruptcy Appellate Panel affirmed that ruling, applying California issue-preclusion principles to give the state judgment preclusive effect.
- Martin moved for reconsideration under Fed. R. Civ. P. 59(e); the bankruptcy court denied the motion and the BAP (and this panel) found no abuse of discretion.
- The Ninth Circuit panel reviewed the BAP decision de novo and affirmed; Harold’s request for oral argument was denied.
Issues
| Issue | Plaintiff's Argument (Martin) | Defendant's Argument (Harold) | Held |
|---|---|---|---|
| Whether the debt is nondischargeable under § 523(a)(4) (defalcation by a fiduciary) | Debt is dischargeable; judgment should not bar discharge | Martin’s misconduct was intentional/grossly reckless and constitutes defalcation | Affirmed: preponderance shows intentional misconduct = defalcation; nondischargeable |
| Whether the 2010 state court judgment is preclusive on the fiduciary/defalcation issue | State judgment should not preclude relitigation in bankruptcy | State judgment has preclusive effect under California issue-preclusion rules | Affirmed: collateral estoppel applies; state law governs preclusive effect |
| Whether the bankruptcy court abused discretion denying Martin’s Rule 59(e) motion | Reconsideration warranted (errors/factors justify relief) | No basis for relief; Martin failed to show grounds for reconsideration | Affirmed: denial not an abuse of discretion |
| Whether oral argument was necessary | (implicitly) wished to contest affirmance on appeal | Oral argument unnecessary | Denied: case suitable for decision without oral argument |
Key Cases Cited
- Bullock v. BankChampaign, N.A., 133 S. Ct. 1754 (U.S. 2013) (defalcation requires culpable state of mind: knowledge or gross recklessness)
- Grogan v. Garner, 498 U.S. 279 (U.S. 1991) (standard of proof for exceptions to discharge is preponderance of the evidence)
- Ragsdale v. Haller, 780 F.2d 794 (9th Cir. 1986) (partners are fiduciaries under § 523(a)(4))
- Boyajian v. New Falls Corp. (In re Boyajian), 564 F.3d 1088 (9th Cir. 2009) (standard of review for BAP decisions)
- Harmon v. Kobrin (In re Harmon), 250 F.3d 1240 (9th Cir. 2001) (collateral estoppel applies in § 523(a) proceedings; state law determines preclusive effect)
- Robi v. Five Platters, Inc., 838 F.2d 318 (9th Cir. 1988) (last-in-time rule on inconsistent judgments)
- Zimmerman v. City of Oakland, 255 F.3d 734 (9th Cir. 2001) (standard for granting reconsideration under Rule 59(e))