Simon Chan v. Scott Frazer ( 2021 )


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  •                                                                             FILED
    NOT FOR PUBLICATION
    NOV 19 2021
    UNITED STATES COURT OF APPEALS                       MOLLY C. DWYER, CLERK
    U.S. COURT OF APPEALS
    FOR THE NINTH CIRCUIT
    SIMON CHAN,                                      No. 20-16762
    Appellant,                         D.C. No. 5:19-cv-05368-LHK
    v.
    MEMORANDUM*
    SCOTT FRAZER; et al.,
    Appellees.
    Appeal from the United States District Court
    for the Northern District of California
    Lucy H. Koh, District Judge, Presiding
    Submitted November 17, 2021**
    San Francisco, California
    Before: SCHROEDER, W. FLETCHER, and MILLER, Circuit Judges.
    Simon Chan appeals the district court’s order affirming the bankruptcy
    court’s grant of summary judgment to a group of real estate investors, Scott Frazer
    et al. The bankruptcy court held that Chan’s state court judgment debt was
    *
    This disposition is not appropriate for publication and is not precedent
    except as provided by Ninth Circuit Rule 36-3.
    **
    The panel unanimously concludes this case is suitable for decision
    without oral argument. See Fed. R. App. P. 34(a)(2).
    nondischargeable due to fraud under 
    11 U.S.C. § 523
    (a)(2)(A). We have
    jurisdiction under 
    28 U.S.C. § 158
    (d) and we affirm.
    We review a district court’s decision on appeal from a bankruptcy court de
    novo. In re JTS Corp., 
    617 F.3d 1102
    , 1109 (9th Cir. 2010). “In reviewing the
    bankruptcy court’s grant of summary judgment, we must determine, viewing the
    evidence in the light most favorable to the nonmoving party, whether there are any
    genuine issues of material fact and whether the bankruptcy court correctly applied
    the substantive law.” In re Baldwin, 
    249 F.3d 912
    , 916 (9th Cir. 2001). “[T]he
    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). In this appeal, the
    parties disagree only about whether the bankruptcy court correctly applied
    California preclusion law.
    Under California law, there are five threshold requirements for the
    application of issue preclusion, or collateral estoppel: (1) the issue sought to be
    precluded from re-litigation must be identical to that decided in a former
    proceeding; (2) the issue must have been actually litigated in the former
    proceeding; (3) the issue must have been necessarily decided in the former
    proceeding; (4) the decision in the former proceeding must be final and on the
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    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. Lucido v. Superior Court, 
    51 Cal. 3d 335
    , 341 (1990). In addition, courts must typically consider “the public
    policies underlying the doctrine before concluding that collateral estoppel should
    be applied in a particular setting.” 
    Id.
     at 342–43.
    On appeal to us, Chan argues that the bankruptcy court erred in applying
    issue preclusion because he litigated the fraud claim only to the point of issuance
    of a Statement of Decision by the California Superior Court, and because the final
    judgment was entered pursuant to a stipulation between the Chapter 7 trustee and
    Frazer et al. Under California law, a statement of decision is not a final judgment
    because the Superior Court retains the power to amend its “findings of fact or
    conclusions of law” until judgment is entered. Bay World Trading, Ltd. v.
    Nebraska Beef, Inc., 
    101 Cal. App. 4th 135
    , 141 (2002). Once entered, judgments
    are final only when they are “free from direct attack.” People v. Sims, 32 Cal. 3d.
    468, 486 (1982).
    Here, the bankruptcy court gave preclusive effect to the Statement of
    Decision only after it had been wholly incorporated in the stipulated judgment and
    all direct review had been exhausted. The judgment was entered by the Superior
    Court on April 18, 2018. Chan appealed the stipulated judgment. That appeal was
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    dismissed by the California Court of Appeal. When the Supreme Court of
    California denied Chan’s petition for review, the Superior Court’s decision became
    final on March 4, 2019. Therefore, the decision in the prior proceeding was “free
    from direct attack” several weeks before Frazer et al. filed their motion for
    summary judgment in the bankruptcy court on March 28, 2019.
    Chan further argues that the state court judgment should not be given
    preclusive effect because the entry of the judgment was stipulated to by Frazer et
    al. and the Chapter 7 trustee, and that neither he nor a party with which he was in
    privity litigated the claim to the point of finality. “[U]nder California law, in order
    for us to conclude that the issue had been actually litigated in the prior proceeding,
    we must either find that the court made an express finding on the issue or we must
    conclude that the issue was necessarily decided in the prior proceeding.” In re
    Baldwin, 
    249 F.3d at 919
    . A court must consider whether a party to be estopped
    had a “full and fair opportunity” to litigate the issue. See Gottlieb v. Kest, 
    141 Cal. App. 4th 110
    , 148 (2006). Whereas stipulated judgments that are the product of
    litigation generally have issue-preclusive effects in California, compromise
    judgments that are the product of negotiations do not. See In re Yaikian, 
    508 B.R. 175
    , 184 (Bankr. S.D. Cal. 2014).
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    Unlike the trustee’s stipulation as to Chan’s liability for punitive damages,
    Chan actually litigated his liability for compensatory damages. After a five-day
    bench trial in July 2017, the Superior Court found Chan liable on all theories
    except negligent misrepresentation. Prior to issuing the final statement of decision,
    the Superior Court issued a tentative decision, and Chan submitted objections and
    supplemental objections. The Superior Court’s January 24, 2018 Statement of
    Decision was a detailed, express determination of Chan’s liability for
    compensatory damages based on fraud. Frazer et al. and the Chapter 7 trustee’s
    subsequent stipulation for the entry of judgment wholly incorporated the court’s
    Statement of Decision and attached it as Exhibit A. Because the stipulated
    judgment adopted the Superior Court’s Statement of Decision that Chan had
    personally litigated up to the point of its issuance, the bankruptcy court did not err
    in affording preclusive effect to the judgment.
    Finally, Chan argues that giving issue-preclusive effect to the judgment was
    contrary to the public policies underlying the doctrine—the “preservation of
    integrity of the judicial system, promotion of judicial economy, and protection of
    litigants from harassment by vexatious litigation.” Lucido, 
    51 Cal. 3d at 343
    .
    Because Chan actually litigated the issue of liability for compensatory damages
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    based on fraud, we hold that the bankruptcy court’s application of issue preclusion
    was not contrary to public policy.
    AFFIRMED.
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