FILED
MAR 04 2013
1 SUSAN M SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
2
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. 12-1330-JuKiD
)
6 JOHN D. GESSIN, ) Bk. No. NV-11-51818
)
7 Debtor. ) Adv. No. NV-11-05078
______________________________)
8 )
JOHN D. GESSIN, )
9 )
Appellant, )
10 )
v. ) M E M O R A N D U M1
11 )
ALLISON TAITANO (MOORE), )
12 )
Appellee. )
13 ______________________________)
14 Argued and Submitted on January 25, 2013
at Las Vegas, Nevada
15
Filed - March 4, 2013
16
Appeal from the United States Bankruptcy Court
17 for the District of Nevada
18 Honorable Bruce T. Beesley, Bankruptcy Judge, Presiding
_____________________________________
19
Appearances: Shelly Traleen O’Neill, Esq. of Demetras &
20 O’Neill, appeared for appellant John D. Gessin;
Glade L. Hall, Esq. appeared for appellee Allison
21 Taitano Moore
____________________________________
22
Before: JURY, KIRSCHER and DUNN, Bankruptcy Judges.
23
24
25
26 1
This disposition is not appropriate for publication.
Although it may be cited for whatever persuasive value it may
27
have (see Fed. R. App. P. 32.1), it has no precedential value.
28 See 9th Cir. BAP Rule 8013-1.
-1-
1 Appellee, Allison Taitano,2 obtained a state court
2 arbitration award and judgment against appellant, debtor, John
3 Gessin, based on debtor’s fraudulent misrepresentations,
4 constructive fraud and conversion of her money. Afterwards,
5 debtor filed a chapter 133 bankruptcy petition. Taitano
6 commenced an adversary proceeding to have the state court
7 judgment in the amount of $56,802.15 declared a nondischargeable
8 debt because it was based on fraud. Taitano filed a motion for
9 summary judgment (MSJ), which the bankruptcy court granted,
10 finding the debt nondischargeable under § 523(a)(2) on the basis
11 of issue preclusion. Debtor appeals from that order. We
12 AFFIRM.
13 I. FACTS4
14 Taitano met debtor on Match.com, an online dating service.
15 Debtor’s profile represented that he (1) was a successful
16 businessman; (2) had a graduate degree; (3) owned and operated
17 two businesses; (4) made $150,000 per year; (5) did extremely
18 well in business; (6) did extremely well in finances; and
19 (7) did extremely well in career stability. After Taitano and
20
21 2
Taitano subsequently married and changed her name to
22 Moore.
3
23 Unless otherwise indicated, all chapter and section
references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
24 “Rule” references are to the Federal Rules of Bankruptcy
Procedure and “Civil Rule” references are to the Federal Rules of
25 Civil Procedure.
26 4
The underlying facts are taken mostly from the
27 arbitrator’s findings of fact set forth in the arbitrator’s award
and the state court’s findings of fact set forth in its Findings
28 of Fact, Conclusions of Law, and Judgment.
-2-
1 debtor began a dating relationship, debtor represented in person
2 to her (1) that he was a successful stock market investor;
3 (2) that he had a stock account with about $90,000 in
4 securities; (3) that the stock account was in his father’s name
5 so that he could hide this asset from the mother of his son; and
6 (4) that he could invest Taitano’s money, which was currently in
7 a Certificate of Deposit (CD), for a higher rate of return.
8 Taitano, who was a high school teacher, cashed out her CD
9 in the amount of $29,949.72, added additional cash, and on
10 January 14, 2009, gave $30,000 to debtor. Debtor later told
11 Taitano that he had invested the cash in the stock market which
12 was contrary to her express intentions, and that most of the
13 funds had been lost. Taitano demanded an explanation for the
14 loss of her money and requested the buy-sell tickets and
15 brokerage statements. None were provided. Debtor then changed
16 his story and asserted that he had not lost the money in the
17 stock market, but rather had invested in a mobile home which had
18 generated a promissory note in his favor.
19 In late February 2009, debtor delivered to Taitano for
20 security for her $30,000 a mobile home title which was signed
21 off by the owner, Kim E. Kaltenbrun, on April 2, 2007, and by
22 Green Tree Servicing LLC fka Green Tree Acceptance on March 9,
23 2007. Debtor had sold the mobile home to Gene R. Aquino and
24 Mary Ann D. Kang by a written agreement entered into on
25 August 9, 2008. The sale was for $49,620.71 with a down payment
26 of $10,000. Debtor was identified as the seller of the mobile
27 home and was receiving monthly payments from the buyers.
28 On March 10, 2009, Taitano filed a civil complaint against
-3-
1 debtor in the Second Judicial District Court of the State of
2 Nevada, Case No. CV09-00710, alleging fraud, breach of fiduciary
3 duty, misuse of her funds and failure to account, conversion,
4 and obtaining her funds through a false statement in writing in
5 violation of Nev. Rev. Stat. § 205.375.5
6 On April 29, 2009, the state district court issued a
7 prejudgment writ of attachment and garnishment after concluding
8 that Taitano had a meritorious claim for relief and was likely
9 to prevail on the merits of her claim.6 The properties to be
10 attached were the title to the mobile home and payments due from
11 Aquino and Kang to any person, other than for taxes and
12 insurance, under the contract of sale for the mobile home and
13 lot lease agreement between Aquino and Kang on the one hand and
14 debtor on the other. The value of the payments prior to the
15 judgment were estimated to be $8,800.
16 The matter was sent to mandatory arbitration and originally
17 scheduled for hearing on December 7, 2009. Debtor obtained a
18 continuance, over Taitano’s objection, to January 22, 2010,
19 based on his claim that witnesses critical to his defense were
20 unavailable.
21
22 5
This statute states that by making a false statement in
23 writing for the purpose of procuring property or credit one is
guilty of a misdemeanor.
24
6
The state district court later found that when the
25 garnishment was served on the garnishees, Aquino and Kang, they
26 falsely swore that they were not making any payments to debtor
and did not owe any debt to him. The court also found debtor was
27 in violation of the attachment because by filing false
affidavits, a new title to the mobile home was issued in the
28 names of Bernard Gessin and Kaltenbrun.
-4-
1 On January 5, 2010, debtor signed a substitution of
2 counsel, substituting Mr. McKenna for Mr. Egghart. McKenna
3 waited until January 15, 2010, to advise Taitano’s counsel and
4 the arbitrator that he was substituted in as debtor’s attorney.
5 McKenna then demanded that the arbitrator recuse himself because
6 the arbitrator and McKenna were representing opposing parties in
7 other litigation. Taitano opposed, but the arbitrator recused
8 himself. During this time, McKenna made no effort to receive
9 and hold the garnished mobile home payments. The record
10 reflects that the payments were being made to debtor despite the
11 garnishment and orders of the arbitrator7 that debtor’s
12 attorneys hold those funds in their trust accounts.
13 A replacement arbitrator was appointed and the hearing
14 scheduled for June 3, 2010, with briefing deadlines set. No
15 briefs were filed on debtor’s behalf. Debtor also failed to
16 respond to Taitano’s motion for an expedited hearing. The
17 arbitrator ordered the filing of a pre-hearing statement.
18 Debtor filed his statement consisting of twenty-three lines with
19 virtually no discussion of the real issues in the case and no
20 citations to any legal authority.8
21 The arbitration hearing took place on June 3, 2010. In
22 support of her case, Taitano testified. Debtor testified as an
23 adverse witness. Stacy Rissone testified after debtor.
24
7
The Findings of Fact, Conclusions of Law and Judgment by
25 the state district court reflects that the first arbitrator,
26 Mr. Santos, had ordered Gessin’s attorneys to hold the funds in
their trust accounts.
27
8
The pre-hearing statement is not part of the record on
28 appeal.
-5-
1 Rissone, also an alleged victim of debtor’s fraud, had delivered
2 $25,000 to him based upon his representations that he could
3 generate a profit for her from the purchase and sale of
4 automobiles.
5 Debtor presented no testimony or exhibits in his defense
6 and rested his case after the close of Taitano’s case. Debtor
7 also provided no explanation as to why the “key witnesses”,
8 whose alleged unavailability had caused the matter to be
9 continued for six months, were not produced as promised.
10 On June 11, 2010, the arbitrator issued a written decision,
11 finding for Taitano on her claims of fraud and conversion. The
12 arbitrator also noted that debtor filed a verified counterclaim
13 in the case on April 14, 2009, alleging causes of action for
14 abuse of process, negligence, conversion, and attorneys’ fees,
15 but debtor presented no case, gave no evidence, and in fact, did
16 not mention his counterclaim at all in the arbitration. The
17 arbitrator found that the counterclaim was asserted for the
18 improper purpose of harassing Taitano, causing needless delay,
19 and increasing the cost of litigation to Taitano in violation of
20 Nev. Rule Civ. Proc. 11(b) and debtor should be subject to
21 sanctions under subsection (c) of the rule. The arbitrator also
22 found that debtor lied under oath when he stated that he did not
23 receive any cash from Ms. Taitano.
24 The arbitrator awarded Taitano $30,000 in general damages,
25 $20,000 in punitive damages, and attorneys’ fees in the amount
26 of $3,000, with interest on the $30,000, and costs. The award
27 further noted (1) that debtor should be found to be the owner of
28 the mobile home subject to the contract of sale to Aquino and
-6-
1 Kang entered into August 9, 2008; (2) that debtor should be
2 found to have delivered to Taitano the title to the mobile home
3 as security for the $30,000; and (3) that the prejudgment writ
4 of attachment and garnishment presently in effect should be
5 continued in effect pending judgment and execution and
6 resolution of how payments are to be made by Aquino and Kang.
7 On June 22, 2010, debtor filed a request for a trial de
8 novo. Taitano filed a “Motion for Order to Strike Defendant’s
9 Request for Trial De Novo Pursuant to Nev. Arbitration Rule 22”9
10 on the grounds that debtor failed to defend his case during the
11 arbitration proceeding in good faith and had engaged in conduct
12 designed to obstruct, delay or otherwise adversely affect the
13 arbitration proceeding. Debtor’s affidavit in response, which
14 he apparently filed pro se, essentially blamed McKenna, his
15 attorney, for debtor’s failure to produce witnesses, testify or
16 produce documents.
17 On October 12, 2010, the state district court held a
18 hearing on the matter and took the matter under submission. On
19 October 27, 2010, the state court entered detailed Findings of
20
21 9
This rule, entitled “Sanctions” provides:
22
(A) The failure of a party or an attorney to either
23 prosecute or defend a case in good faith during the
arbitration proceedings shall constitute a waiver of
24 the right to a trial de novo.
25 (B) If, during the proceedings in the trial de novo,
26 the district court determines that a party or attorney
engaged in conduct designed to obstruct, delay or
27 otherwise adversely affect the arbitration proceedings,
it may impose, in its discretion, any sanction
28 authorized by N.R.C.P. 11 or N.R.C.P. 37.
-7-
1 Fact, Conclusions of Law, and Judgment. The state court
2 incorporated the arbitrator’s findings into its own. In its
3 conclusions of law, the state court found, among other things,
4 that debtor failed to defend the case in good faith during the
5 arbitration proceedings and therefore his failure to do so
6 constituted a waiver of his right to a trial de novo.
7 Accordingly, the state court struck debtor’s request for a trial
8 de novo and entered judgment in favor of Taitano.
9 The Bankruptcy Proceedings
10 On June 2, 2011, debtor filed his chapter 13 petition,
11 which was later converted to one under chapter 7.10
12 On August 2, 2011, Taitano filed an adversary complaint
13 seeking to have the state court judgment declared a
14 nondischargeable debt based on fraud.
15 On February 21, 2012, Taitano filed her MSJ based on the
16 state court judgment, the arbitrator’s findings of fraud and the
17 doctrine of issue preclusion.
18
19 10
Debtor’s chapter 13 case became subject to dismissal due
20 to the fact that he did not appear at the continued § 341a
meetings. Debtor advised the chapter 13 trustee that he would
21 consent to dismissal of his case. The trustee filed a motion to
dismiss based on unreasonable and prejudicial delay. The trustee
22
later supplemented his dismissal motion, suggesting that debtor’s
23 case be converted rather than dismissed on the ground that
debtor’s case was simply a continuation of his efforts to delay
24 and/or completely avoid collection action related to the results
of the state court litigation with Taitano and Rissone. The
25 trustee pointed out that debtor’s schedules showed no regular
26 income other than contributions from family members that
coincidentally facilitated a budget just sufficient to repay
27 debtor’s administrative expenses and scheduled priority tax
debts. The bankruptcy court converted debtor’s case to chapter 7
28 on October 25, 2011.
-8-
1 On March 19, 2012, attorney Zach Coughlin, filed a late
2 opposition11 on debtor’s behalf. The opposition, of which we
3 have taken judicial notice, covered a number of grounds. First,
4 it addressed the role of Coughlin, who apparently was listed as
5 the attorney of record in the adversary, but who was actually
6 ghost writing debtor’s pleadings. Coughlin sought to withdraw.
7 Next, the opposition contained “points and authorities” under
8 which numerous cases addressing breach of fiduciary duty under
9 § 523(a)(4) were cited with little analysis or discussion.
10 Third, debtor requested the bankruptcy court vacate the state
11 court judgment based on his counsel’s failure to “zealously
12 advocate” debtor’s position during the arbitration hearing,
13 contending this was excusable neglect under Civil Rule 60(b)
14 (incorporated by Rule 9024). Fourth, debtor asserted that the
15 arbitrator had exceeded his jurisdiction because he ruled on
16 real property matters. Fifth and last, debtor requested the
17 judgment be vacated because of newly discovered evidence.12
18
11
19 The actual title of the document was “Motion for
Extension of Time to File Opposition to Motion for Summary
20 Judgment for Dischargeability; or, Plead in the Alternative,
Opposition to Motion for Summary Judgment and Motion to Withdraw
21 as Counsel.” We take judicial notice of debtor’s opposition to
22 Taitano’s summary judgment and his supplement with attached
exhibits which were docketed and imaged by the Bankruptcy Court
23 in this case. Atwood v. Chase Manhattan Mortg. Co.
(In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
24
12
This evidence consisted of numerous affidavits of
25 individuals who worked with Christina Ho, debtor’s ex-girlfriend
26 and the mother of his son. Ho’s co-workers declared that Ho had
entered into a conspiracy with Taitano and Rissone to defraud
27 debtor and ruin him financially. It does not appear that these
affidavits were filed in the arbitration proceeding nor is there
28 (continued...)
-9-
1 On May 4, 2012, the bankruptcy court heard the MSJ, but the
2 transcript reflects that no substantive arguments were made with
3 respect to the motion. The bankruptcy court stated on the
4 record that it would grant the MSJ based on the preclusive
5 effect of the state court judgment. The court requested
6 Taitano’s counsel to file certified copies of the state court
7 judgment and record and took the matter under submission.
8 On June 8, 2012, the bankruptcy court entered an order
9 granting Taitano’s MSJ on the grounds that the state court
10 arbitrator’s award established every element under § 523(a)(2)
11 and thus the doctrine of issue preclusion prevented debtor from
12 relitigating those elements in the bankruptcy court. Debtor
13 timely appealed.
14 II. JURISDICTION
15 The bankruptcy court had jurisdiction over this proceeding
16 under 28 U.S.C. §§ 1334 and 157(b)(2)(I). We have jurisdiction
17 under 28 U.S.C. § 158.
18 III. ISSUE
19 Whether the bankruptcy court erred in deciding that the
20 state court judgment was nondischargeable under § 523(a)(2)
21 based on the doctrine of issue preclusion.
22 IV. STANDARD OF REVIEW
23 Since this case arises on summary judgment, the standard of
24 review is de novo. Halverson v. Skagit Cty., 42 F.3d 1257, 1259
25 (9th Cir. 1994); Kelly v. Okoye (In re Kelly), 182 B.R. 255, 257
26
12
27 (...continued)
any indication that debtor moved to vacate the judgment in the
28 state court with this newly discovered evidence.
-10-
1 (9th Cir. BAP 1995), aff’d, 100 F.3d 110 (9th Cir. 1996).
2 We also conduct a de novo review of the bankruptcy court’s
3 determination that issue preclusion is available. Lopez v.
4 Emerg. Serv. Restoration, Inc. (In re Lopez), 367 B.R. 99, 103
5 (9th Cir. BAP 2007). Once we determine that issue preclusion is
6 available, we review whether applying it was an abuse of
7 discretion. Id. A bankruptcy court abuses its discretion when
8 it applies the incorrect legal rule or its application of the
9 correct legal rule is “(1) illogical, (2) implausible, or
10 (3) without support in inferences that may be drawn from the
11 facts in the record.” United States v. Loew, 593 F.3d 1136,
12 1139 (9th Cir. 2010) (quoting United States v. Hinkson, 585 F.3d
13 1247, 1261–62 (9th Cir. 2009)(en banc))(internal quotation marks
14 omitted).
15 The question whether a claim is dischargeable presents
16 mixed issues of law and fact, which we also review de novo.
17 Peklar v. Ikerd (In re Peklar), 260 F.3d 1035, 1037 (9th Cir.
18 2001).
19 V. DISCUSSION
20 “[S]ummary judgment is proper ‘if the pleadings,
21 depositions, answers to interrogatories and admissions on file,
22 together with the affidavits, if any, show that there is no
23 genuine issue as to any material fact and that the moving party
24 is entitled to a judgment as a matter of law.’” Celotex Corp.
25 v. Catrett, 477 U.S. 317, 322 (1986). In making this
26 determination, conflicts are resolved by viewing all facts and
27 reasonable inferences in the light most favorable to the
28 non-moving party. United States v. Diebold, Inc., 369 U.S. 654,
-11-
1 655 (1962). “Issue preclusion is a proper basis for granting
2 summary judgment.” Bower v. Harrah’s Laughlin, Inc., 215 P.3d
3 709, 720 (Nev. 2009).
4 The doctrine of issue preclusion applies to bankruptcy
5 dischargeability proceedings. Grogan v. Garner, 498 U.S. 279,
6 284 (1991). Taitano had the burden of proving that the elements
7 for issue preclusion were met. In re Kelly, 182 B.R. at 258.
8 To sustain this burden, Taitano must have introduced “a record
9 sufficient to reveal the controlling facts and pinpoint the
10 exact issues litigated in the prior action. Any reasonable
11 doubt as to what was decided by a prior judgment should be
12 resolved against allowing the [issue preclusion] effect.” Id.
13 Whether the state court arbitration award, which was
14 incorporated into the state court judgment, has preclusive
15 effect is determined under Nevada law. See Gayden v. Nourbakhsh
16 (In re Nourbakhsh), 67 F.3d 798, 800 (9th Cir. 1995). The
17 Nevada Supreme Court has held that the doctrine of issue
18 preclusion applies to arbitration awards. Int’l Assn. of
19 Firefighters, Local 1285 v. City of Las Vegas, 823 P.2d 877, 880
20 (Nev. 1991); see also Khaligh v. Hadaegh (In re Khaligh),
21 338 B.R. 817, 823 (9th Cir. BAP 2006) (“Since the confirmation
22 of a private arbitration award by a state court has the status
23 of a judgment, federal courts must, as a matter of full faith
24 and credit, afford the confirmation the same preclusive
25 consequences as would occur in state court.”), aff’d, 506 F.3d
26 956 (9th Cir. 2007).
27 In Nevada, the elements necessary for application of issue
28 preclusion are: (1) the issues must be identical; (2) the
-12-
1 initial ruling must be final and on the merits; (3) the party
2 against whom the judgment is asserted must be a party or be in
3 privity with a party in the prior case; and (4) the issue must
4 have been actually and necessarily litigated. Howard v.
5 Sandoval (In re Sandoval), 232 P.3d 422, 423 (Nev. 2010) (citing
6 Five Star Capital v. Ruby, 194 P.3d 709, 713 (Nev. 2008)).
7 At the outset, we observe that the record shows the second
8 and third elements of issue preclusion have been met: the state
9 court judgment is final and was on the merits, and the parties
10 are the same. Debtor does not challenge these requirements on
11 appeal.13
12 A. Issue Preclusion: The Actually Litigated Requirement
13 Debtor contends first that the outcome of this case depends
14 upon whether his alleged fraudulent conduct was “actually and
15 necessarily litigated” in the prior state court action. Debtor
16 argues that the issues regarding his fraud do not meet the
17 actually litigated requirement because he had incompetent
18 counsel and thus relevant evidence was not considered; i.e., he
19 presented no testimony,14 documents or other evidence, in spite
20 of his willingness and preparations to do so. Due to the
21 incompetence of his attorney, debtor argues, he did not present
22 a defense in the state court arbitration. He thus maintains
23 that the judgment obtained by Taitano was akin to a default
24 judgment and, generally, default judgments are not entitled to
25
13
26 These arguments have been waived. Smith v. Marsh,
194 F.3d 1045, 1052 (9th Cir. 1999).
27
14
This assertion is not accurate. The record reflects that
28 he was called as an adverse witness and testified.
-13-
1 preclusive effect. Debtor further asserts that application of
2 issue preclusion under these circumstances would be unfair.
3 Debtor’s arguments that the state court proceeding was akin
4 to a default proceeding are neither supported by the record nor
5 does the state court judgment resemble the type of default
6 judgment which is not entitled to issue preclusion under Nevada
7 law. In Nevada, default judgments are generally not given
8 preclusion effect. In re Sandoval, 232 P.3d 422. There, a
9 default judgment was entered against Sandoval based on his
10 failure to answer. The Nevada Supreme Court found that there
11 was no evidence that Sandoval had knowledge of the case before
12 the default judgment against him was entered, he entered no
13 appearance and did not participate in any manner in the prior
14 case, and the judgment did not make any specific findings of
15 fact that were established through evidence. Under these
16 circumstances, the court held that the issues were not actually
17 and necessarily litigated and thus issue preclusion did not
18 apply. Id. at 425.
19 The facts in this case are not even close to those in
20 Sandoval. Here, debtor substantially participated in the state
21 court lawsuit and arbitration proceeding by filing a
22 counterclaim, requesting continuances of the arbitration hearing
23 and filing a pre-hearing statement. Debtor was deposed. He
24 also appeared at the arbitration hearing with his counsel, who
25 cross-examined Taitano and her witnesses and objected to
26 evidence. After the arbitrator’s award was issued, debtor moved
27 for a trial de novo, filed an affidavit regarding his attorney’s
28 alleged incompetence, and his attorney appeared at the hearing
-14-
1 when the state court denied his motion. The state court’s
2 ruling on the trial de novo indicated that it denied debtor’s
3 motion because debtor failed to defend his case in good faith
4 during the arbitration proceedings. On these facts, the state
5 court judgment is not akin to a default judgment. Therefore,
6 unless debtor gains some traction from his attorney malpractice
7 assertions, the actually and necessarily litigated prong is met.
8 The Nevada Supreme Court has not directly addressed the
9 issue of whether the inadequate presentation of evidence or
10 attorney malpractice during the first case prevents the judgment
11 from being given preclusive effect in the second case. Absent a
12 controlling state court decision, we predict how the highest
13 state court would decide the issue. Sec. Pac. Nat’l Bank v.
14 Kirkland (In re Kirkland), 915 F.2d 1236, 1239 (9th Cir. 1990).
15 Addressing an argument similar to the one debtor makes here, the
16 Third Circuit held that a plaintiff was precluded from raising
17 an issue in a second action where the plaintiff alleged that his
18 attorney’s failure to discover and present readily available
19 evidence had caused his defeat on that issue in the first
20 action. Laganella v. Braen (In re Braen), 900 F.2d 621 (3rd
21 Cir. 1990), cert. denied, 498 U.S. 1066 (1991), abrogated on
22 other grounds by Graham v. I.R.S. (In re Graham), 973 F.2d 1089,
23 1099–1101 (3rd Cir. 1992).
24 In Braen, the plaintiff argued that his attorney acted
25 negligently by failing to examine important documents and to
26 make potentially helpful arguments at trial, thus causing him to
27 lose on the issue of whether he had acted with malice in
28 prosecuting a criminal complaint. 900 F.2d at 628. Noting “the
-15-
1 general rule . . . that ‘ignorance or carelessness of an
2 attorney’ does not provide a basis for relief from the effects
3 of an adverse civil judgment []”, the court held that the fact
4 that the attorney did not “put forward all there was to tender”
5 did not defeat issue preclusion. Id. at 629.
6 The court further observed: “The only cases we have found
7 in which a lawyer’s defalcation has been held to warrant relief
8 from the consequences of a judgment are cases in which the
9 client was deprived of his day in court because his lawyer
10 failed altogether to respond to a motion for default judgment or
11 a motion for summary judgment . . . . Braen clearly had a full
12 and fair opportunity to litigate his case. The trial lasted for
13 two weeks, and his attorney mounted a substantial defense.” Id.
14 Using similar reasoning, numerous other courts are in
15 accord. See Ballard Condo. Owners Ass’n v. Gen. Sec. Indem. Co.
16 of AZ, 2010 WL 4683721 (W.D. Wash. 2010) (finding that “[t]he
17 concept of injustice does not apply simply because plaintiff
18 would like to reargue the issue in a case where counsel’s
19 procedural error resulted in an adverse ruling. . . . Plaintiff
20 had a full and fair opportunity to litigate the issue . . . and
21 counsel’s procedural errors do not work to create an
22 injustice.”); In re Williams, 282 B.R. 267, 277 (Bankr. N.D. Ga.
23 2002) (attorney’s malpractice is not a per se denial of a full
24 and fair opportunity to litigate; inquiry is whether party had
25 adequate notice of the issue and was afforded the opportunity to
26 participate in its determination); In the Matter of Victor
27 Distrib. Co., 11 B.R. 242, 246 n.3 (Bankr. E.D. Va. 1981) (“It
28 is sufficient that the status of the suit is such that the
-16-
1 parties might have had their suit disposed of on the merits if
2 they had presented all their evidence, and the court had
3 properly understood the facts, and correctly applied the law to
4 the facts.”).
5 On the basis of the foregoing authority, we predict that
6 the Nevada Supreme Court would follow the reasoning in Braen and
7 find that debtor’s claim of attorney incompetence would not
8 defeat issue preclusion under the facts of this case.15
9 Moreover, debtor never sought any relief in the state court
10 based on his claim of attorney incompetence if the record there
11 would have established incompetence, as opposed to considered
12 strategy. See Pellegrini v. State, 34 P.3d 519, 534 (Nev. 2001)
13 (proper procedure when attempting to claim ineffective
14 assistance of counsel is by post-trial motions in the underlying
15 case). Therefore, we conclude that the actually and necessarily
16 litigated requirement was met.
17 B. Justifiable Reliance and § 523(a)(2)(A)
18 The arbitrator found that all the elements for fraud under
19
15
20 In any event, we have only debtor’s conclusory allegation
that his attorney was incompetent before us. There is nothing in
21 the record that shows debtor’s counsel’s representation fell
below an objective standard of reasonableness. Indeed, after
22
noting that debtor lied under oath when he stated he did not
23 receive any cash from Taitano, the arbitrator found:
24 [T]his finding is not intended to suggest that
Mr. Gessin’s present counsel had aided or abetted or
25 assisted Mr. Gessin’s lying under oath; Mr. Gessin’s
26 present counsel did a very competent and professional
job with a very skillful job of cross-examination of
27 witnesses, general conduct of the case he had to work
with, appropriate objections, and skilled argument
28 . . . .
-17-
1 Nevada law had been met, including that Taitano had “justifiably
2 relied upon Mr. Gessin’s false representation of material
3 facts.” Debtor argues that there is no basis for the
4 arbitrator’s factual finding regarding Taitano’s justifiable
5 reliance upon debtor’s representations and thus the finding is
6 clearly erroneous.
7 According to debtor, the underlying facts do not show
8 justifiable reliance. He contends that within one week of
9 meeting him, a total stranger on a dating website, Taitano
10 cashed out her CD in the amount of approximately $30,000 and
11 gave it to him in cash, in a shoe box. Debtor points out that
12 Taitano is an educated adult, not young, and a teacher with
13 access to information and technologies. Given these facts,
14 debtor argues, “[h]er reliance on statements made by a man on a
15 dating website without garnering additional information before
16 entrusting significant funds to a stranger, is absurd.” Debtor
17 also contends that since justifiable reliance is a factual
18 issue, it cannot be subject to summary judgment.
19 This latter argument is misplaced. The bankruptcy court’s
20 decision on summary judgment was based on the doctrine of issue
21 preclusion. Under element one of that doctrine, the question is
22 whether the identical issue was decided in the previous action,
23 not whether there was a factual dispute erroneously decided.
24 The erroneously decided issue is one for appeal in the state
25 court. Here, we conclude that the identical issue of
26 justifiable reliance was decided in the arbitration proceeding.
27 Justifiable reliance is an element of fraud under Nevada law and
28 for purposes of nondischargeability based on fraud under
-18-
1 § 523(a)(2)(A). See Lubbe v. Barba, 540 P.2d 115, 117 (Nev.
2 1975) (stating that plaintiff has burden of proving five
3 elements for fraud, including justifiable reliance upon the
4 misrepresentation); Apte v. Japra, M.D., F.A.C.C., Inc. (In re
5 Apte), 96 F.3d 1319, 1332 (9th Cir. 1996) (noting that although
6 the statute does not state what degree of reliance is necessary
7 for application of § 523(a)(2)(A), the creditor’s reliance need
8 be only justifiable, not reasonable).16
9 Under Nevada law, the justifiable reliance requirement does
10 not impose on a party any duty to investigate absent facts that
11 should alert him that his reliance is unreasonable. Collins v.
12 Burns, 741 P.2d 819, 821 (Nev. 1987). “The test is whether the
13 recipient has information which would serve as a danger signal
14 and a red light to any normal person of his intelligence and
15 experience.” Id. The Nevada Supreme Court further noted:
16 [A] person guilty of fraud should not be permitted to
use the law as his shield, ‘when the choice is between
17 the two - fraud and negligence - negligence is less
objectionable than fraud. Though one should not be
18 inattentive to one’s business affairs, the law should
not permit an inattentive person to suffer loss at the
19 hands of a misrepresenter. Id.
20 Likewise, for purposes of § 523(a)(2)(A):
21 [A] person is justified in relying on a representation
of fact ‘although he might have ascertained the
22 falsity of the representation had he made an
investigation.’ Although one cannot close his eyes
23 and blindly rely, mere negligence in failing to
discover an intentional misrepresentation is no
24 defense to fraud.
25 In re Apte, 96 F.3d at 1322.
26
27
16
Debtor does not challenge the other elements for fraud
28 which are the same under Nevada law and § 523(a)(2)(A).
-19-
1 During the course of the arbitration, the elements to
2 establish fraud, including that of justifiable reliance, were
3 squarely before the arbitrator. From the beginning, the
4 arbitrator cautioned the parties that his impression from the
5 file, including their pre-hearing statements, was that witness
6 credibility might be an important factor in the case. The
7 arbitrator, after hearing testimony, found Taitano’s testimony
8 to be credible and ultimately concluded that the justifiable
9 reliance requirement had been met. The arbitrator was fully
10 aware of how the parties met, Taitano’s education, her age and
11 her occupation. In contrast, the arbitrator found debtor lied
12 under oath and that he was a “remarkably skilled prevaricator”.
13 We conclude that issue preclusion is especially appropriate in
14 this case on the factual issue of justifiable reliance — the
15 dispute essentially boiled down to a battle of credibility.
16 Further, the arbitrator found Taitano proved the elements
17 of fraud, including justifiable reliance, by clear and
18 convincing evidence. See Albert H. Wohlers & Co. v. Bartgis,
19 969 P.2d 949, 957 (Nev. 1998). As explained in Grogan v.
20 Garner, the clear and convincing standard is a higher standard
21 of proof than the preponderance of the evidence standard, and
22 where the issues were subject to an equal or greater standard of
23 proof in the prior litigation, those issues are eligible for
24 issue preclusion in the subsequent litigation if the other
25 elements for issue preclusion are met. 498 U.S. 279, 284-85
26 (1991).
27 In sum, because the factual issue of justifiable reliance
28 was decided by the arbitrator, there were no issues of material
-20-
1 fact remaining to be tried in the adversary proceeding on this
2 issue. Therefore, Taitano was entitled to judgment as a matter
3 of law.
4 C. Discretion
5 Having concluded that issue preclusion was available
6 because all of the doctrine’s requirements were met, we
7 consider next whether the bankruptcy court properly exercised
8 its discretion to apply it. “The discretionary aspect of issue
9 preclusion is settled as a matter of federal law.” In re Lopez,
10 367 B.R. at 107-08. Nevada law is in accord, holding that once
11 it is determined that issue preclusion is available, the actual
12 decision to apply it is left to the discretion of the “tribunal
13 in which it is invoked.” Redrock Valley Ranch v. Washoe Cnty.,
14 254 P.3d 641, 646-47 (Nev. 2011). The doctrine of issue
15 preclusion is grounded in considerations of basic fairness to
16 the litigants. In re Sandoval, 232 P.3d at 424-25.
17 The bankruptcy court observed in its findings of fact that
18 the state court judgment found debtor guilty of “specific and
19 detailed procedural abuse and fraud on the court in delaying and
20 burdening the process and in avoiding the court’s prejudgment
21 attachment. It characterizes Mr. Gessin as a ‘remarkably
22 skilled prevaricator,’ and finds he committed perjury during his
23 testimony in the arbitration hearing.”
24 The bankruptcy court’s findings belie any suggestion that
25 debtor was a victim of the arbitration procedures themselves or
26 of his allegedly incompetent attorney. There are no militating
27 factors in the record that we could find which would cut in
28 favor of not applying the doctrine of issue preclusion under
-21-
1 these circumstances. In fact, the record suggests that denying
2 preclusive effect to the state court judgment would permit
3 debtor to further delay the proceedings and perhaps ultimately
4 avoid payment of the debt by deliberate abuse of the judicial
5 process. As a result, the policies behind the application of
6 issue preclusion — “conserving judicial resources, []
7 maintaining consistency, and [] avoiding oppression or
8 harassment of the adverse party” — remain compelling.
9 In re Sandoval, 232 P.3d at 425. Accordingly, we discern no
10 abuse of discretion in the bankruptcy court’s application of
11 issue preclusion to the state court judgment.
12 VI. CONCLUSION
13 For the reasons stated, we AFFIRM.
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-22-