Bellingham Insurance Agency, I v. Peter Arkison

FILED
NOT FOR PUBLICATION DEC 15 2009
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: BELLINGHAM INSURANCE No. 09-60022
AGENCY, INC.,
BAP No. WW-08-1149-MkMoJu
Debtor,
MEMORANDUM *
A.R.I.S.; NICHOLAS ARTHUR
PALEVEDA,
Appellants,
v.
PETER H. ARKISON, Chapter 7 Trustee;
BELLINGHAM INSURANCE AGENCY,
INC.; CHARLES P. FARRINGTON,
Appellees.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Montali, Chief Bankruptcy Judge, and Markell and Jury, Bankruptcy Judges,
Presiding
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Argued and Submitted December 11, 2009
San Francisco, California
Before: BEEZER, GOULD and TALLMAN, Circuit Judges.
Petitioner-Appellant Nicholas Paleveda (“Paleveda”) appeals from the
judgment of the Bankruptcy Appellate Panel of the Ninth Circuit (“BAP”)
affirming a federal bankruptcy court’s order directing the disbursement of funds
accruing under an Independent Management Organization Agreement (“IMO
Agreement”) with Lafayette Life Insurance Company (“Lafayette”) to Charles
Farrington (“Farrington”). We have jurisdiction under 28 U.S.C. § 158(d), and we
affirm.
We review decisions of the BAP de novo and apply the same standard of
review that the BAP applied to the bankruptcy court’s ruling. In re Boyajian, 564
F.3d 1088, 1090 (9th Cir. 2009). We review the bankruptcy court’s conclusions of
law de novo and its findings of fact for clear error. In re Salazar, 430 F.3d 992,
994 (9th Cir. 2005).
The bankruptcy court determined that Paleveda’s claim was precluded by the
prior judgment of the Superior Court of Washington for Whatcom County. Where
the issue preclusion effects of a Washington state court judgment are raised, we
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apply the state of Washington’s issue preclusion law. See Diruzza v. County of
Tehama, 323 F.3d 1147, 1152 (9th Cir. 2003). An issue is precluded by a
Washington state court judgment where (1) the issue is identical to an issue
resolved in the state court judgment, (2) the state court judgment was a final
judgment on the merits, (3) the party against whom preclusion is asserted was a
party to, or in privity with, a party to the prior proceeding, and (4) preclusion will
not “work an injustice” on the party against whom it is applied. Hadley v.
Maxwell, 27 P.3d 600, 602 (Wash. 2001). The issue must also have been actually
litigated and necessarily decided in the prior proceeding. In re Disciplinary
Proceeding Against Botimer, 214 P.3d 133, 139 (Wash. 2009).
We conclude that issue preclusion bars Paleveda’s claim to any funds
generated under the IMO Agreement with Lafayette. We review each of the
factors relevant under Washington law in turn:
First, the Washington state court’s judgment is a final judgment on the
merits for purposes of issue preclusion. See Riblet v. Ideal Cement Co., 358 P.2d
975, 977 (Wash. 1961).
Second, the issue that was presented before the bankruptcy court is identical
to the issue decided in the arbitration award, which was incorporated by reference
into the state court’s judgment confirming the award. The arbitration award states
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that Farrington never assigned to PFP Plan Administrators, Inc. (“PFP”) his claim
to any funds accumulating under the IMO Agreement with Lafayette. Because the
terms of the IMO Agreement designate only one “Independent Management
Organization” (“IMO”) to receive commissions, the arbitrator’s decision
necessarily determined that Farrington is the IMO under the IMO Agreement and
that Farrington is therefore entitled to receive all commissions generated under that
agreement.
Third, this issue was actually litigated and necessarily decided in the
arbitration proceeding. The dispute over funds accumulating under the IMO
Agreement with Lafayette was presented to the arbitrator in Farrington’s pre-
arbitration memorandum and again by Farrington’s counsel in the arbitration
proceeding. Both Farrington and PFP introduced evidence on the issue.
Fourth, the party against whom issue preclusion is asserted was a party to
the prior proceeding: Debtor Bellingham Insurance Agency, Inc. (“Bellingham”) is
the successor-in-interest to PFP, and PFP participated in the arbitration and in the
Washington state court proceedings.
Finally, it is not an injustice to award the funds to Farrington. PFP,
Bellingham, and Paleveda had a fair opportunity to challenge the arbitration
proceeding in the Washington state court system. Moreover, Bellingham’s
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bankruptcy trustee conducted an independent investigation and determined that
Farrington is entitled to the funds.
Because the issue of entitlement to the Lafayette funds was conclusively
decided in the state court arbitration proceeding, issue preclusion also bars
Paleveda’s challenge to the arbitration award on the basis of Farrington’s alleged
breach of fiduciary duty and the arbitrator’s alleged conflict of interest.
Finally, even if we were to hold that the arbitration award did not decide the
Lafayette funds issue now before us, the bankruptcy court’s determination that
Farrington is entitled to the funds was not clearly erroneous. The bankruptcy court
considered all evidence submitted by both parties, independently analyzed the IMO
Agreement, and made the same determination as the arbitrator that it was executed
in Farrington’s individual capacity. The bankruptcy court also found that the 1099
forms filed by Lafayette were persuasive that Lafayette considered Farrington the
IMO under the IMO Agreement, and it was not error for the bankruptcy court to
give this evidence significant weight. The bankruptcy court was also entitled to
rely on the arbitrator’s award, which indicates that the arbitrator found persuasive
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Farrington’s claim to at least some of the Lafayette funds, and to rely on the
bankruptcy trustee’s independent determination that Farrington was entitled to the
Lafayette funds.
AFFIRMED.
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