Cabardo v. Patacsil (In re Patacsil)
| Decision Date | 25 April 2023 |
| Docket Number | 20-23457-A-7,Adv. 20-02167-A FEC-4 |
| Parties | In re: ERNESTO PATACSIL and MARILYN EMBRY PATACSIL, Debtors. v. ERNESTO PATACSIL et al., Defendants. JOSEPH CABARDO et al., Plaintiffs, |
| Court | U.S. Bankruptcy Court — Eastern District of California |
NOT FOR PUBLICATION
Argued and submitted on April 18, 2023 at Sacramento, California
Stan S. Mallison, Hector R. Martinez, Heather Hamilton, Mallison & Martinez and John R. Grele for plaintiffs
Joseph Cabardo, Donnabel Suyat, Marissa Bibat, Mactabe Bibat, Renato Manipon, Alicia Bolling, Carlina Cabacongan, John Dave Cabacongan, Mallison & Martinez, and the Law Offices of John R. Grele; Charles L. Hastings, Natali A. Ron, Law Offices of Hastings & Ron for defendants Ernesto Patacsil and Marilyn Embry Patacsil
Fredrick E. Clement United States Bankruptcy Judge Article III standing is jurisdictional; it requires an injury in fact, traceable to the defendant's conduct that will likely be redressed by a favorable decision. Acting as private attorneys general, eight employees of the defendants sued them in District Court for violations of California labor laws; the employees obtained a substantial judgment e.g., almost $2 million, against the defendants for back wages, civil penalties arising from those violations, and attorneys' fees. As to the unpaid wages portion of the judgment, the employees are the real parties in interest; as to the civil penalties, the State of California is the real party in interest. After the employers filed bankruptcy, the employees sought to except the State of California's portion of the judgment from discharge as a penalty "payable to and for the benefit" of the government. 11 U.S.C. § 523(a)(7). Do the employees have Article IIII standing to assert the State of California's interests in the judgment?
Ernesto Patacsil and Marilyn Embry Patacsil ("Patacsils") did business as Patacsils Care Homes. Patacsil Care Homes operated seven residential care facilities for mildly impaired developmentally disabled persons. To assist them, the Patacsils employed the plaintiffs and others to act as caregivers for their residents. Patacsils did not pay their employees in an amount or manner consistent with California's wage and hours laws.
Aggrieved by the Patacsils' treatment and after giving notice to the California Labor and Workforce Development Agency, eight employees and/or former employees ("the Cabardo plaintiffs") sued the Patacsils in District Court acting under the Private Attorney General Act, Cal. Labor Code § 2698 et seq. (), to collect damages for wages and hours violations. They also sought Labor Code penalties for the Patascils' violations of the labor laws. The employees were represented by the law firm of Mallison & Martinez and by John R. Grele ("Grele"). After trial, the District Court awarded the Cabardo plaintiffs damages of $893,815, penalties of $79,524 and attorneys' fees of $1,077,218. Compl. ¶ 8, ECF No. 1.
Sometime later, the Patacsils ceased doing business. Id. at ¶ 33.
Predictably, the Patacsils filed a Chapter 7 bankruptcy.
In response, the eight employees, Mallison & Martinez, and Grele filed an adversary proceeding to protect their judgment from discharge. They advanced two theories for excepting their debt. First, the Cabardo plaintiffs seek to perfect their rights in a debt (here a judgment) that they contend was incurred willfully and maliciously. 11 U.S.C. § 523(a)(6), (c)(1). Second, the Cabardo plaintiffs and their counsel seek to determine the dischargeability of the civil penalties, i.e., $79,524, as a debt "payable and for the benefit of a governmental unit." 11 U.S.C. § 523(a)(7); Fed.R.Bankr.P. 4007(a). Leveraging their second theory, they suggest that the $1,077,218 in attorneys' fees awarded for recovering those civil penalties is also nondischargeable.[1] Patacsils filed an answer to the complaint and the matter is ready for trial.
Recent case law from the Ninth Circuit, Magadia v. Wal-Mart Associates, 999 F.3d 668, 674-678 (9th Cir. 20201), has brought guidance to Article III standing in actions prosecuted under the Private Attorney General Act. Believing that the plaintiffs may lack Article III standing to assert the fine, penalty and forfeiture exception, 11 U.S.C. § 523(a)(7), this court issued an order to show cause regarding dismissal. Order to Show Cause, ECF No. 202. Each side filed responsive briefs and the court entertained oral argument.
This court has jurisdiction. 28 U.S.C. §§ 1334(a)-(b), 157(b); see also General Order No. 182 of the Eastern District of California. Jurisdiction is core. 28 U.S.C. § 157(b)(2)(I); Carpenters Pension Trust Fund for Northern Calif. V. Moxley, 734 F.3d 864, 868 (9th 2013); In re Kennedy, 108 F.3d 1015, 1017 (9th Cir. 1997). Plaintiffs do not consent to the entry of final orders and judgments by this court; defendants do so consent. 28 U.S.C. § 157(b)(3); Wellness Int'l Network, Ltd. V. Sharif, 135 S.Ct. 1932, 1945-46 (2015). Scheduling Order § 2.0, ECF No. 13.
Article III standing is jurisdictional. CGM, LLC v. BellSouth Telecomms., Inc., 664 F.3d 46, 52 (4th Cir. 2011); Fed.R.Civ.P. 12(b)(1), incorporated by Fed. R. Bankr. P. 7012. Plaintiffs seeking redress in the federal courts must show Article III standing. Lujan v. Defs. Of Wildlife, 504 U.S. 555, 560 (1992). Standing implicates the case And controversy provisions of the United states Constitution. "In essence the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues." Warth v. Seldin, 422 U.S. 490, 498 (1975).
In its constitutional dimension, standing imports justiciability: whether the plaintiff has made out a between himself and the defendant within the meaning of Art. III. This is the threshold question in every federal case, determining the power of the court to entertain the suit. As an aspect of justiciability, the standing question is whether the plaintiff has 'alleged such a personal stake in the outcome of the controversy' as to warrant his invocation of federal-court jurisdiction and to justify exercise of the court's remedial powers on his behalf. The Art. III judicial power exists only to redress or otherwise to protect against injury to the complaining party, even though the court's judgment may benefit others collaterally. A federal court's jurisdiction therefore can be invoked only when the plaintiff himself has suffered 'some threatened or actual injury resulting from the putatively illegal action . . ..'
Id. (internal citations omitted) (emphasis added).
Federal courts must address the issue of standing whenever and wherever it arises. United States v. Hays, 515 U.S. 737, 742 (1995); Carrico v. City & County of San Francisco, 656 F.3d 1002, 1005 (9th Cir. 2011). It must even do so sua sponte. Fed.R.Civ.P. 12(h)(3), incorporated by Fed. R. Bankr. P. 7012. Where the issue arises in a motion to dismiss, the court "must accept as true all material allegations of the complaint, and must construe the complaint in favor of the complaining party." Id. At 501, citing Jenkins v. McKeithen, 395 U.S. 411, 421-422 (1969); W.R. Huff Asset Management, LLC v. Deloitte & Touche LLP, 549 F.3d 100, 106 (2008). The party asserting federal jurisdiction bears the burden of proof. Id. At 561; Cooksey v. Futtrell, 721 F.3d 226, 234 (4th Cir. 2013).
Standing does not exist in gross and advances claim by claim and as to each form of relief sought. Davis v. Federal Election Comm'n, 554 U.S. 724, 734 (2008); Friends of the Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc., 528 U.S. 167, 185 (2000). Moreover, that the Cabardo plaintiffs enjoyed Article III standing in District Court does not assure them standing in this court. As the Supreme Court phrased it:
The complaining party must also show that he is within the class of persons who will be concretely affected. Nor does a plaintiff who has been subject to injurious conduct of one kind possess by virtue of that injury the necessary stake in litigating conduct of another kind, although similar, to which he has not been subject.
Blum v. Yaretsky, 457 U.S. 991, 999 (1982) (emphasis added), citing Moose Lodge No. 107 v. Irvis, 407 U.S. 163, 166-167 (1972).
The "irreducible constitutional minimum of standing" has three component parts. Lujan v. Defs. Of Wildlife, 504 U.S. 555, 560 (1992). "[T]raditional Article III standing" requires that the plaintiff has "(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision." Spokeo, Inc. v. Robins, 578 U.S 330, 338 (2016), as revised (May 24, 2016); Lujan at 560; Magadia v. Wal-Mart Associates, Inc., 999 F.3d 668 (9th Cir. 2021) (). Each element is further particularized. "[I]njury in fact" means "an invasion of a legally protected interest" that is "concrete and particularized" and "actual or imminent, not conjectural or hypothetical." Spokeo, 578 U.S. at 339 (2016). "[F]airly traceable" requires a causal connection between the injury that occurred and the defendant's conduct. Lujan, 504 U.S. at 559-560. "[L]ikely, to be redressed" means that there is a "substantial likelihood" the relief sought will redress injury. Duke Power Co. v. Carolina Env't Study Grp., Inc., 438 U.S. 59, 75 (1978). The relief granted must redress the plaintiff's, not the undifferentiated general public's injury in fact. Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 106 (1998) (...
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