Cabardo v. Patacsil (In re Patacsil)

• Docket Number: 20-23457-A-7,Adv. 20-02167-A
• Decision Date: 09 June 2023
• 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

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In re: ERNESTO PATACSIL and MARILYN EMBRY PATACSIL, Debtors.

JOSEPH CABARDO et al., Plaintiffs, v. ERNESTO PATACSIL et al., Defendants.

No. 20-23457-A-7

Adv. No. 20-02167-A

United States Bankruptcy Court, E.D. California

June 9, 2023

MEMORANDUM REGARDING PRECLUSIVE EFFECT, ECF NOS. 106 117 FEC-1

FREDRICK E. CLEMENT, UNITED STATES BANKRUPTCY JUDGE.

This case is about square pegs and round holes. Acting as private attorneys general, eight former employees sued their employer for wage and hours violations; they obtained judgment for unpaid wages, penalties, and attorneys' fees. After the defendants filed bankruptcy, the injured employees filed this adversary proceeding to except their judgment from discharge. 11 U.S.C. § 523(a)(6) (willful and malicious injuries) (a)(7) (penalties due the government). Have the plaintiffs pounded their judgment into § 523?

I. FACTS

Ernesto Patacsil and Marilyn Embry Patacsil ("Patacsils") did business as Patacsils' Care Homes. Patacsils' 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. The 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. (hereinafter also referred to as "PAGA"), 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 the judgment, which they contend arose from a willful and malicious injury. 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] The defendants Patacsil filed an answer to the complaint and the matter is ready for trial.

II. PROCEDURE

By motions in limine, the plaintiffs move to give preclusive effect to the District Court's findings and to bar defendants from presenting evidence to the contrary. Mot. in Limine 3:10-16, ECF No. 106; Mot. to Give Preclusive Effect, ECF No. 117. The motions in limine are unsupported by evidence but refer to the judgment, eight special verdict forms, and the findings of fact. Mot. in Limine 2:3-7, ECF No. 117; Mot. in Limine 3:2-10, ECF No. 106 ("The findings from the jury and the District Court should be given preclusive effect..."). Trial of this adversary proceeding has not yet commenced and evidence has been lodged, but not yet admitted into evidence. The court has taken limited judicial notice of the findings made in the District Court action, Mem., ECF No. 178. The court took judicial notice of the following facts:

1. the existence of a judgment in favor of plaintiffs and against defendants, as well as its contents, in Cabardo v. Patacsil, No. 2:212-cv-01705 (E.D. Cal. 2012), Ex. B;^[2]

2. the existence of an order awarding plaintiffs' attorneys' fees against Cabardo v. Patacsil, No. 2:212-cv-01705 (E.D. Cal. 2012), in the amount of $1,077,218.62, Ex. C;

3. the existence of eight verdict forms in in Cabardo v. Patacsil, No. 2:12-cv-01705 (E.D. Cal. 2012), Ex. K-R, as well as the ancillary facts that: (A) plaintiffs and defendants previously litigated to conclusion the question of defendants' violation of wage and overtime laws; and (B) plaintiffs prevailed in that action; and

4. the existence of Findings of Fact and Conclusions of Law in in Cabardo v. Patacsil, No. 2:212-cv-01705 (E.D. Cal. 2012).

Order, ECF No. 177.

All other requests for judicial notice were denied. Id.

The defendants Patacsil have filed opposition to these motions. Opp'n., ECF No. 139.

III. JURISDICTION

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.

IV. LAW

A. Motions in Limine

A motion in limine is a request for guidance on an evidentiary issue. Hays v. Clark County, 2008 WL 2372295 * 7 (Nev. 2008). Among the issues that may be raised is res judicata. Id.; Hamilton v. Wilmms, 2016 WL 1436407 (E.D. Cal. 2016).

As one court summarized the law applicable to motions in limine:

A motion in limine is a request for the court's guidance concerning an evidentiary question. Judges have broad discretion when ruling on motions in limine. However, a motion in limine should not be used to resolve factual disputes or weigh evidence. To exclude evidence on a motion in limine the evidence must be inadmissible on all potential grounds. Unless evidence meets this high standard, evidentiary rulings should be deferred until trial so that questions of foundation, relevancy and potential prejudice may be resolved in proper context.

Hays, 2008 WL 2372295 at 7. (internal citations and quotation marks omitted).

B. Issue Preclusion

Issue preclusion applies to actions to except a debt from discharge under 11 U.S.C. § 523. In re Comer, 723 F.2d 737, 740 (9th Cir. 1984). Whether issue preclusion is available is a question of law. United States v. Geophysical Corp. of Alaska, 732 F.2d 693, 697 (9th Cir. 1984). Because the underlying judgment was rendered in federal court, federal common law provides the contours of issue preclusion. Taylor v. Sturgell, 553 U.S. 880, 891 (2008). The party asserting its applicability has the burden of proving each of its elements. Id. at 907; Garity v. APWU Nat'l Labor Org., 828 F.3d 848, 855 (9th Cir. 2016).

"Reasonable doubts about what was decided in a prior judgment are resolved against applying issue preclusion." In re Frye, No. ADV.LA 07-01150-BB, 2008 WL 8444822, at *4 (B.A.P. 9th Cir. Aug. 19, 2008), citing Lopez v. Emergency Serv. Restoration, Inc. (In re Lopez), 367 B.R. 99, 107-08 (9th Cir. BAP 2007).

The elements of federal issue preclusion are well-known:

(1) the issue at stake was identical in both proceedings;

(2) the issue was actually litigated and decided in the prior proceedings; (3) there was a full and fair opportunity to litigate the issue; and (4) the issue was necessary to decide the merits.

Janjua v. Neufeld, 933 F.3d 1061, 1065 (9th Cir. 2019), citing Oyeniran v. Holder, 672 F.3d 800, 806 (9th Cir. 2012), as amended (May 3, 2012); see also Howard v. City of Coos Bay, 871 F.3d 1032, 1041 (9th Cir. 2017).

The first element, identity of issues, is also well-known:

Typically, we apply four factors (known as the Restatement factors) to evaluate the question:

(1) is there a substantial overlap between the evidence or argument to be advanced in the second proceeding and that advanced in the first?

(2) does the new evidence or argument involve the application of the same rule of law as that involved in the prior proceeding?

(3) could pretrial preparation and discovery related to the matter presented in the first action reasonably be expected to have embraced the matter sought to be presented in the second?

(4) how closely related are the claims involved in the two proceedings?

Resolution Tr. Corp. v. Keating, 186 F.3d 1110, 1116 (9th Cir. 1999) quoting Kamilche Co. v. United States, 53 F.3d 1059, 1062 (9th Cir. 1995)); see also Restatement (Second) of Judgments § 27 cmt. c (Am. Law Inst. 1982).

The second element, actually litigated, is also supported by ample case law. "[A]n issue is actually litigated when an issue is raised, contested, and submitted for determination." Janjua v. Neufeld, 933 F.3d 1061, 1066 (9th Cir. 2019), citing Restatement (Second) of Judgments § 27, cmt. (d) (1982) ("When an issue is properly raised, by the pleadings or otherwise, and is submitted for determination and is determined, the issue is actually litigated ....").

The third element, a full and fair opportunity, calls for pragmatics.

In determining whether a party had a "full and fair opportunity to litigate," courts in the Ninth Circuit are instructed to make a "practical judgment" based on at least two considerations. First, if the procedures used in the first and second actions vary enough to raise the potential for a different result, issue preclusion is inappropriate. Second, if the party's motivation differed in the two actions, whereby an issue in the first action did not need to be contested as

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