In re: Gary E. Moll

NOT FOR PUBLICATION FILED
FEB 2 2021
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. CC-20-1002-TGK
GARY E. MOLL,
Debtor. Bk. No. 2:15-bk-28128-RK
GARY SALZMAN, Adv. No. 2:16-ap-01057-RK
Appellant,
v. MEMORANDUM ∗
LISA WATSON, as Executor of the Estate
of Gary E. Moll, Deceased,
Appellee.
Appeal from the United States Bankruptcy Court
for the Central District of California
Robert N. Kwan, Bankruptcy Judge, Presiding
Before: TAYLOR, GAN, and KLEIN, ** Bankruptcy Judges.
I. INTRODUCTION
Gary Salzman unsuccessfully sued Gary Moll in a California state
court. Despite determinations that his claims were time-barred, that he
∗
This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
** The Honorable Christopher M. Klein, U.S. Bankruptcy Judge for the Eastern
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failed to provide evidence of compensable damages, and that he was
barred from any recovery against Mr. Moll by the doctrine of unclean
hands, he continued to pursue an adversary proceeding seeking recovery
on a claim identical to one in his state court complaint and seeking a
nondischargeable judgment against Mr. Moll. Even Mr. Moll’s death failed
to deter him.
The bankruptcy court held a default prove-up hearing, concluded
that claim and issue preclusion barred all of Mr. Salzman’s claims, and
entered judgment against him.
We AFFIRM.
II. FACTS 1
Prepetition, Mr. Moll represented Mr. Salzman in state court
litigation against Dawn Phillips, Mr. Salzman’s former girlfriend. The
complaint sought approximately $50,000 in actual damages and punitive
damages under various tort theories arising from her alleged theft of funds
from his credit union account. But after the state court set aside a default
judgment, Mr. Salzman terminated Mr. Moll’s legal representation and
continued to litigate the tort action pro se. Eventually he obtained a
$75,332.18 judgment, which included the amount allegedly stolen, plus
District of California, sitting by designation.
1 The Panel issued an order dispensing with the appendix and permitting the
appeal to proceed on the original record. We exercise our discretion to review the
bankruptcy court’s dockets, as appropriate. See Woods & Erickson, LLP v. Leonard (In re
AVI, Inc.), 389 B.R. 721, 725 n.2 (9th Cir. BAP 2008).
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interest, costs, and attorney’s fees, and a $19,246.63 reimbursement from
his credit union. He also benefitted from a $38,307.38 restitution award in
criminal proceedings.
Notwithstanding ultimate victory, Mr. Salzman filed a state court
legal malpractice and breach of fiduciary duty action against Mr. Moll
(“Case 1”). Mr. Moll then filed his chapter 7 2 case, and Mr. Salzman timely
initiated nondischargeability litigation that eventually included
§§ 523(a)(2), (a)(4), and (a)(6) and breach of fiduciary duty causes of action. 3
In a nutshell, Mr. Salzman alleged that Mr. Moll concealed problems with
his claims against Ms. Phillips to induce him to file litigation against her
and hire Mr. Moll as his counsel.
Although the state court dismissed Case 1 for lack of prosecution,
Mr. Salzman sought stay relief to proceed with Case 1. Despite his
awkward wording, no one disputes the bankruptcy court’s conclusion that
Mr. Salzman obtained stay relief to broadly litigate his claims against
Mr. Moll in State Court.
After entry of the stay relief order, Mr. Salzman filed another state
2 Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101–1532.
3 By the time Mr. Salzman filed his first amended complaint, Mr. Moll’s chapter 7
trustee had filed a report of no distribution. Thus, Mr. Salzman’s breach of fiduciary
claim is not recoverable from Mr. Moll’s bankruptcy estate; obtaining a reversal of the
bankruptcy court’s dismissal of this claim would be a hollow victory. Further, the claim
can be fully liquidated as part of the nondischargeability claims. Notwithstanding, we
will separately address it because Mr. Salzman and the bankruptcy court treated it as a
stand-alone claim.
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court action against Mr. Moll seeking recovery on theories of fraud,
intentional infliction of emotional distress, violations of California Business
& Professions Code § 17200 et seq., and breach of fiduciary duty (“Case 2”).
The bankruptcy court allowed the adversary proceeding to lie dormant
pending the resolution of that state court action.
Mr. Moll was inactive in Case 2, but, after a default prove-up hearing,
the state court entered judgment in Mr. Moll’s favor (“State Court
Judgment”). The state court reasoned that the entire action was actually a
malpractice claim and that the applicable statute of limitations barred it. It
also found that Mr. Salzman failed to prove damages and that the doctrine
of unclean hands further barred any recovery. The court of appeal affirmed
the State Court Judgment; the California Supreme Court denied review.
With the State Court Judgment in hand, Mr. Moll pressed the
bankruptcy court to dismiss. But the bankruptcy court, instead, considered
the matter through another “default prove-up” hearing. It required Mr.
Salzman to provide evidence of his entitlement to a default judgment and
to specifically address the impact of the State Court Judgment on his
claims.
After considering Mr. Salzman’s written and oral submissions, the
bankruptcy court determined that Mr. Salzman was not entitled to
judgment under any circumstances because he could not establish the
existence of an enforceable obligation under non-bankruptcy law based on
the issue- and claim-preclusive effect of the State Court Judgment.
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Specifically, the bankruptcy court determined that: (1) claim preclusion
barred Mr. Salzman’s breach of fiduciary duty claim; and (2) issue
preclusion barred Mr. Salzman’s § 523 claims.
Thus, the bankruptcy court entered judgment denying and
dismissing with prejudice the adversary proceeding.
Mr. Salzman timely appealed.
III. JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(1) and (b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.
IV. ISSUE
Did the bankruptcy court err in denying Mr. Salzman a default
judgment and dismissing the adversary proceeding with prejudice?
V. STANDARDS OF REVIEW
We review a bankruptcy court’s denial of a default judgment for an
abuse of discretion. Oregon v. Mcharo (In re Mcharo), 611 B.R. 657, 660 (9th
Cir. BAP 2020). A bankruptcy court abuses its discretion if it applies the
wrong legal standard, misapplies the correct legal standard, or makes
factual findings that are illogical, implausible, or without support in
inferences that may be drawn from the facts in the record. See United States
v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc).
We review de novo a bankruptcy court’s conclusions of law. Cacique,
Inc. v. Robert Reiser & Co, 169 F.3d 619, 622 (9th Cir. 1999). We also review
de novo a bankruptcy court’s determination that claim preclusion and
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issue preclusion are available. Frank v. United Airlines, Inc., 216 F.3d 845,
849-50 (9th Cir. 2000). If issue preclusion is available, we review its
application for an abuse of discretion. Black v. Bonnie Springs Fam. Ltd.
P'ship (In re Black), 487 B.R. 202, 210 (9th Cir. BAP 2013).
VI. DISCUSSION
On appeal, Mr. Salzman broadly claims that the bankruptcy court
applied the incorrect legal standard in employing the principles of claim
preclusion and issue preclusion. While we liberally construe his pro se
brief, Nordeen v. Bank of Am., N.A. (In re Nordeen), 495 B.R. 468, 483 (9th Cir.
BAP 2013), he fails to present any fact or legal argument supporting
reversal.
A. The applicable legal standards
A bankruptcy court gives a state court judgment the same preclusive
effect as would another court of that state. Marrese v. Am. Acad. of
Orthopaedic Surgeons, 470 U.S. 373, 380 (1985). Thus, California preclusion
law applies here.
In California, claim preclusion prevents a party from relitigating the
same claim against the same party when that claim proceeded to a final
judgment on the merits in a prior action. Adam Bros. Farming, Inc. v. Cnty. of
Santa Barbara, 604 F.3d 1142, 1148-1149 (9th Cir. 2010) (citing Mycogen
Corp. v. Monsanto Co., 28 Cal. 4th 888, 896 (2002)).4
4 Mr. Salzman asserts that the bankruptcy court could not give preclusive effect
to the State Court Judgment because the adversary proceeding was filed before the
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And in California, issue preclusion prevents relitigation of issues
argued and decided in a prior proceeding if six criteria are met: (1) the
issue to be precluded from relitigation is identical to that decided in a
former proceeding; (2) the issue to be precluded was actually litigated in
the former proceeding; (3) the issue to be precluded was necessarily
decided in the former proceeding; (4) the decision in the former proceeding
was final and on the merits; (5) the party against whom preclusion is
sought was the same as, or in privity with, the party to the former
proceeding; and (6) application of issue preclusion is consistent with the
public policies of preservation of the integrity of the judicial system,
promotion of judicial economy, and protection of litigants from harassment
by vexatious litigation. Lucido v. Superior Court, 51 Cal. 3d 335, 341 & 343
(1990).
B. The bankruptcy court did not err in applying claim preclusion.
The bankruptcy court correctly articulated the legal standards for
claim preclusion, addressed each of the required claim preclusion
elements, and then correctly determined that claim preclusion barred
Mr. Salzman’s breach of fiduciary duty claim. 5 As explained by the
judgment was entered. He misunderstands the law. Under California law, “where
parallel litigation is pending in different tribunals, the first case to reach final judgment
is accorded preclusive effect, regardless of the order in which the cases were filed.”
Sosa v. DIRECTTV, Inc., 437 F.3d 923, 928 (9th Cir. 2006) (citations omitted).
5 Mr. Salzman contends that the bankruptcy court erred by applying claim
preclusion to his nondischargeability claims. He is mistaken; the bankruptcy court only
applied issue preclusion to his nondischargeability claims.
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bankruptcy court, the breach of fiduciary duty claim is essentially a
verbatim re-allegation of Mr. Salzman’s Case 2 breach of fiduciary duty
claim. Thus, given that the State Court Judgment was final, adverse to
Mr. Salzman, and on the merits, he was not entitled to any relief on this
claim.
C. The bankruptcy court did not err in applying issue preclusion.
The bankruptcy court likewise did not err or abuse its discretion in
determining that issue preclusion was available and should be applied to
Mr. Salzman’s claims for nondischargeability of debt under §§ 523(a)(2)(A),
(a)(4), and (a)(6).
Mr. Salzman does not contest the bankruptcy court’s determination
that his nondischargeability claims are premised on allegations of fraud
and breach of fiduciary duty. But mere allegations are not enough; he was
required to prove damages caused by Mr. Moll’s alleged fraud or fiduciary
duty breach. See Ormsby v. First Am. Title Co. of Nev. (In re Ormsby), 591 F.3d
1199, 1206 (9th Cir. 2010) (regarding § 523(a)(6) elements); Banks v. Gill
Distrib. Ctrs., Inc. (In re Banks), 263 F.3d 862, 870 (9th Cir. 2001) (regarding
§ 523(a)(4) elements); Turtle Rock Meadows Homeowners Ass'n v. Slyman (In
re Slyman), 234 F.3d 1081, 1085 (9th Cir. 2000) (regarding § 523(a)(2)
elements).
In the State Court Judgment, the state court characterized
Mr. Salzman’s five state court claims as arising from alleged legal
malpractice. Mr. Salzman argues that the state court never ruled on his
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fraud and breach of fiduciary duty claims and that his re-labeled theories
of recovery remain unadjudicated. He is wrong.
All of Mr. Salzman’s claims, both in the state court and in the
adversary proceeding, arise from the same nucleus of common facts related
to Mr. Moll’s actions as his attorney in the Phillips litigation. And the state
court found that Mr. Salzman failed to prove that Mr. Moll’s actions
damaged him, and he had more than mitigated his alleged damages by
ultimately obtaining a default judgment. The court of appeal affirmed,
determining that “the judgment in favor of Moll is proper because Salzman
has not demonstrated he is entitled to recover any damages against Moll.”
Salzman v. Watson, No. B284969, 2018 WL 5862789, at *3 (Cal. Ct. App. Nov.
9, 2018), as modified on denial of reh’g (Nov. 30, 2018), review denied (Jan. 23,
2019). Moreover, the court of appeal arrived at this conclusion
notwithstanding Mr. Salzman’s argument that the state court erred in
“analyzing [Case 2] as one for legal malpractice only and failing to address
his causes of action for fraud, intentional infliction of emotional distress,
and unfair competition[.]” Id. Accordingly, we agree with the bankruptcy
court that the issue of a debt for Mr. Salzman’s fraud and breach of
fiduciary duty claims was “actually litigated” and “necessarily decided” by
the state court through its findings, which were upheld on appeal.
Nevertheless, Mr. Salzman contends that the bankruptcy court erred
by failing to recognize that it had discretion in giving preclusive effect to
the State Court Judgment. Not so; the bankruptcy court was mindful that it
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had discretion and applied issue preclusion only after concluding that its
application was consistent with the public policies of preservation of the
integrity of the judicial system, promotion of judicial economy, and
protection of litigants from harassment by vexatious litigation.
Here, the record indicates that Mr. Salzman was afforded a full and
fair opportunity to prove his case before the California courts 6 and to
challenge the preclusive effect of the State Court Judgment in the
bankruptcy court. He failed in both regards. 7
Mr. Salzman’s last ditch defense on appeal rests on arguments that
the State Court Judgment was “oppressive.” Among other things, he
contends that the state court improperly engaged in an independent
investigation regarding the criminal case against Ms. Phillips and
otherwise ignored certain evidence. But he waived these arguments by
failing to make them before the bankruptcy court. Smith v. Marsh, 194 F.3d
1045, 1052 (9th Cir. 1999). And we are unable to find any evidentiary
support for the arguments; the record evidences that they were raised
before, and dismissed as baseless by, one or both of the state court and
6 The court of appeal determined that “the trial court gave Salzman notice that it
found the evidence supporting his damages claims to be insufficient, and the court
provided Salzman an opportunity to submit additional evidence. Salzman did not
submit sufficient evidence entitling him to relief.” Id. at *4.
7 While Mr. Salzman complained that the judgment he obtained against
Ms. Phillips proved unrecoverable, an attorney is not a guarantor of collection.
Therefore, the only damages that appear to be appropriately alleged were for excessive
fees paid to Mr. Moll. Indeed, the state court so found. And as to attorney’s fees
allegedly paid, the state court found that Mr. Salzman failed to present any competent
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state court of appeal.
VII. CONCLUSION
Based on the foregoing, we AFFIRM.
supporting evidence.
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