Gavola v. Asbra (In re Asbra)

• Decision Date: 09 June 2022
• Docket Number: Case No. 20-30397,Adv. No.20-3022
• Citation: 641 B.R. 589
• Parties: IN RE: Jeremy John ASBRA, Debtor. Linda A. Gavola, and The Robert S. and Linda A. Gavola Family Trust, Plaintiffs, v. Jeremy John Asbra, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

641 B.R. 589

IN RE: Jeremy John ASBRA, Debtor.Linda A. Gavola, and The Robert S. and Linda A. Gavola Family Trust, Plaintiffs,

v.Jeremy John Asbra, Defendant.

Case No. 20-30397

Adv. No.20-3022

United States Bankruptcy Court, S.D. Ohio, Western Division.

Signed June 9, 2022

Susan Barilich, Glendale, CA, for Plaintiffs.

Robert D. Ross, Dayton, OH, for Defendant.

DECISION DENYING PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT ON COUNTS ONE AND TWO OF THE SECOND AMENDED COMPLAINT (DOC. 22) AND GRANTING THE PLAINTIFFS’ SUPPLEMENTAL SUMMARY JUDGMENT MOTION ON COUNT FIVE (DOC. 61)

Guy R. Humphrey, United States Bankruptcy Judge

This decision concerns a judgment creditor's summary judgment motion seeking a determination that the judgment is non-dischargeable under 11 U.S.C. § 523(a)(2), (4), and (19). The court determines, as a matter of law, that the amount of the judgment attributable to securities fraud is non-dischargeable pursuant to § 523(a)(19). The remaining counts in the complaint cannot be determined without a trial.

I. Procedural Background

Jeremy John Asbra ("Asbra") filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code on February 17, 2020. Estate Doc. 1. On June 15, 2020 Linda A. Gavola and the Robert S. and Linda A. Gavola Family Trust (collectively, "Gavola") commenced an adversary proceeding alleging that a $605,692 California state court judgment, arising out of an arbitration, is non-dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) and (a)(4).¹ Additionally, the complaint seeks to deny Asbra his discharge pursuant to 11 U.S.C. § 727(a)(2) and (a)(4)(A).²

Gavola moved for summary judgment on the two dischargeability counts. Doc. 22. After filing a summary judgment motion to address § 523(a)(2) and (a)(4), and following Asbra's response (doc. 27), Gavola moved to amend their complaint to include a count pursuant to 11 U.S.C. § 523(a)(19), which concerns the non-dischargeability of debts based upon state or federal securities fraud. Doc. 32. Without objection, the court granted the motion to amend the complaint. Doc. 34. Following the filing of the second amended complaint (doc. 36) and additional discovery, Gavola filed a supplemental summary judgment motion addressing the § 523(a)(19) count. Doc. 61.

II. Jurisdiction

This court has jurisdiction pursuant to 28 U.S.C. § 1334 and the Standing Order of Reference (Amended General Order 05-02) of the District Court for the Southern District of Ohio. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I), and this court has constitutional authority to enter final judgment.

III. Summary Judgment Standard

A court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) (made applicable in this adversary proceeding by Federal Rule of Bankruptcy Procedure 7056 ). A factual disagreement is genuine if "a rational trier of fact could find in favor of either party on the issue." SPC Plastics Corp. v. Griffith (In re Structurlite Plastics Corp. ), 224 B.R. 27, 30 (B.A.P. 6th Cir. 1998) (citing Schaffer v. A.O. Smith Harvestore Prods., Inc. , 74 F.3d 722, 727 (6th Cir. 1996) ). A fact is material if it might affect the outcome of the suit under substantive law. Niecko v. Emro Mktg. Co. , 973 F.2d 1296, 1304 (6th Cir. 1992) (quoting Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). When reviewing a motion for summary judgment, a court views all evidence and draws all inferences in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

IV. Factual Background

A. Pre-Arbitration Litigation

As this decision will detail, Gavola received financial advice from Asbra. Gavola trusted Asbra, accepted his advice on investment opportunities, and ultimately lost significant funds in failed real estate investments.

In response to their losses, Gavola sued Asbra and other co-defendants in the District Court for the Southern District of California (the "California District Court") on multiple counts related to their participation in the failed real estate investments, including one count under California securities law.³ No. 5:11-cv-01417. The litigation was transferred to the District Court for the Northern District of Texas (the "Texas District Court") at the request of the other defendants. No 3:11-cv-03528-O ("N.D. Tex."); Doc. 1 (N.D. Tex.); Doc. 31 (N.D. Tex.) at 1-2.⁴ Prior to the transfer, on November 7, 2011, several defendants moved to dismiss the adversary proceeding for failure to state a claim for which relief could be granted (the "Motion to Dismiss"), but Asbra was not included as a party to that motion. Doc. 17 (N.D. Tex.).⁵ One week later, Asbra filed a notice to join the Motion to Dismiss. Doc. 26 (N.D. Tex.). Gavola objected. Doc. 31 (N.D. Tex.).⁶ On December 20, 2011, in a minute order, the California District Court struck Asbra's notice because he did not correct deficiencies in its electronic filing, explain how any of the arguments in the Motion to Dismiss applied to him, or address the allegations specific to Asbra. Doc. 31 at 2-3 n.3 (N.D. Tex.). The court transferred the litigation to the Texas District Court on December 22, 2011 without deciding the pending Motion to Dismiss. Id. at 1-2.

Following the transfer, Gavola requested an entry of default against Asbra. Doc. 52 (N.D. Tex.). The clerk entered a default against Asbra on March 9, 2012. Doc. 53 (N.D. Tex.). Asbra moved to vacate the default entry on March 15, 2012, but the court did not vacate the order until September 7, 2012. Doc. 60 (N.D. Tex.); Asbra Exhibit A; Doc. 89 (N.D. Tex.).

When the Texas District Court ruled on the Motion to Dismiss on June 12, 2012, Asbra was not a party to that motion. Doc. 80 (N.D. Tex.). In that ruling, the court found that the financial transaction involving the Gavolas did not constitute a "security" and therefore dismissed the federal securities violation count with prejudice. Doc. 80 at 35 (N.D. Tex.). However, the court dismissed the count alleging violations of the California securities statute, California Corporations Code § 25401, without prejudice.⁷ Id. at 46.

On November 5, 2012 Gavola moved to voluntarily dismiss Asbra as a party to the litigation without prejudice. Doc. 101 (N.D. Tex.). The Texas District Court granted the dismissal motion on November 14, 2012, finding Asbra was not prejudiced. Doc. 106 (N.D. Tex.). Subsequently, on November 29, 2012, Gavola commenced litigation against Asbra in the California Superior Court, Riverside District. No. RIC 1217466; Gavola Exhibit 2. By agreement, Gavola and Asbra submitted the state court litigation to binding arbitration. Gavola Exhibit 2 at 25-46. Both Asbra and Gavola were represented by counsel during the proceedings. The arbitration hearing began on November 5, 2014 and concluded in mid-December 2014. Declaration of Linda A. Gavola at ¶ 4, Gavola Exhibit 1. The arbitrator entered the Findings and Award After Arbitration (the "Arbitration Decision") on May 21, 2015. Gavola Exhibit 2 at 20. Shortly thereafter, the trial court reduced the Arbitration Decision to judgment. Asbra appealed. The California State Court of Appeals affirmed the judgment on September 7, 2018, and the Supreme Court of California declined to accept a petition for review. Gavola Exhibits 4, 5.

Meanwhile, on June 4, 2013, after reaching a settlement, the remaining parties in the Texas litigation jointly moved to dismiss the litigation. Doc. 194 (N.D. Tex.).

The Texas District Court granted the motion to dismiss, with prejudice on June 25, 2013. Doc. 196 (N.D. Tex.). On April 26, 2016, after the adverse ruling in the Arbitration Decision was reduced to judgment, Asbra moved to enforce the Texas litigation settlement reached by the remaining parties, despite his status as a dismissed party at the time of the settlement. Doc. 197 (N.D. Tex.). On June 8, 2016 the court struck the motion for procedural deficiencies. Doc. 202 (N.D. Tex.). The motion was not re-filed.

B. The Arbitrator's Factual Findings

In "mid-year 2008" Robert and Linda Gavola (the "Gavolas") were referred to Asbra by a friend. Arbitration Decision at 1, 2. Linda Gavola was the beneficiary of a $32,000 matured bond. Id. at 2. The Gavolas knew Asbra as an insurance agent, and he also "held himself out as a ‘qualified financial counselor.’ " Id. Asbra met with the Gavolas on several occasions and advised the Gavolas "to invest the $32,000 in a financial device know[n] as a ‘Short Term Business Loan Agreement.’ " Id. The Gavolas were unfamiliar with this investment, but Asbra told the Gavolas that the income would be superior to holding the bond. Id. Although the Gavolas questioned purchasing the Short Term Business Loan Agreement instead of paying off the mortgage loan on their home, they ultimately went ahead with the investment, impressed by Asbra's "self-described credentials and stated experience." Id. The Gavolas’ attraction to Asbra derived in part from their positive view of his " religious background," education from a "religion-centered university," "church-centered activities with young people," and "personal dedication to family." Id. at 2 n.1.

In March 2009 the Gavolas, on Asbra's invitation, attended a presentation in Riverside, California given by an individual named Carl Hampton. Id. Forty to fifty people attended. Id. Asbra introduced Hampton "as a published author, a syndicated columnist, and as one who had investment opportunities in properties in St. Louis, Missouri, regarding which he and his crews were doing rehabilitation." Id. Hampton stated that these were "secure" and "safe" investments, and his investors never lost money on these projects. Id. at 2-3.

In June 2009 the Gavolas met with Asbra to discuss their finances and obtain advice. Id. at 3. Upon Asbra's...