In re Khaligh
| Decision Date | 02 February 2006 |
| Docket Number | Bankruptcy No. LA 02-46357-BB.,BAP. No. CC-05-1148-KPaB.,Adversary No. LA 03-01368-BB. |
| Citation | 338 B.R. 817 |
| Parties | In re Shahzad KHALIGH, Debtor. Shahzad Khaligh, Appellant, v. Fred Hadaegh, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Simon J. Dunstan, Hughes & Dunstan, LLP, Woodland Hills, CA, for Shahzad Khaligh.
Paul A. Beck, Sherman Oaks, CA, for Fred Hadaegh.
Before KLEIN, PAPPAS, and BRANDT, Bankruptcy Judges.
The question is whether the issue preclusive effect of a confirmed private arbitration award warranted summary judgment holding a debt nondischargeable per U.S.C. § 523(a)(6) as based on "willful and malicious" injury. The arbitration satisfied the state law requirement that it have been conducted using basic elements of adjudicatory procedure, and the confirmed award otherwise qualifies for issue preclusion. Hence, we AFFIRM.
The employment of debtor-appellant, Shahzad Khaligh, by Jet Propulsion Laboratory ("JPL"), a division of California Institute of Technology ("Cal Tech"), under the supervision of appellee, Fred Hadaegh, ended in 1994.
As part of the termination, Khaligh and Cal Tech executed a mutual Settlement Agreement and General Release to resolve all possible issues regarding her employment and termination. The Settlement Agreement provided for arbitration of disputes.
In 1998, Khaligh nevertheless sued JPL and Hadaegh in a California court on account of matters alleged to have occurred during her employment, including infliction of emotional distress, harassment, discrimination, and constructive discharge.
The state court compelled arbitration under the arbitration provision of the Settlement Agreement, which order survived Khaligh's mandamus challenge in the state appeals court.
The arbitration proceeded with retired California Superior Court Judge Richard Byrne acting as arbitrator. Proceedings spanned sixteen months, from initial status conference in April 2000 through final award in August 2001, during which there was discovery and some seventeen days of hearings and testimony. The defense ultimately prevailed. The award was backed by findings detailed in sixty-two numbered paragraphs, accompanied by the legal analysis characteristic of a seasoned jurist.
The arbitrator also awarded Hadaegh $100,000 in damages on his "cross-complaint" (a counterclaim in federal civil procedure) for defamation resulting from what Khaligh told the press in 1999 regarding his conduct as her JPL supervisor. It is that aspect of the award that is the nub of the dispute in this appeal.
Khaligh did not accept the arbitrator's invitation to test arbitrability by way of summary judgment and permitted the defamation issue to be tried on the merits in the arbitration.
The arbitrator ultimately ruled that the defamation claim was arbitrable as deriving from facts surrounding the Settlement Agreement and being inextricably linked with arbitrable claims.1
On the merits, the arbitrator found that Khaligh made false and defamatory statements to the press, with intent to publish, which were republished in newspapers and internet news media, and awarded Hadaegh $100,000, including $25,000 in punitive damages.
Khaligh filed a chapter 7 bankruptcy case on December 16, 2002, in which Hadaegh commenced a timely adversary proceeding to except his defamation claim from discharge under § 523(a)(6).
Khaligh answered, asserting that the award lacked preclusive effect because it had not yet been judicially confirmed.
After Khaligh received a chapter 7 discharge, Hadaegh sought stay relief to permit the state court to confirm the award. The bankruptcy court ruled that the automatic stay had automatically expired pursuant to 11 U.S.C. § 362(c)(2)(C) when Khaligh received her discharge and, in view of the pending adversary proceeding, clarified that Hadaegh was free to attempt to have the arbitration award confirmed.
The state court granted the ensuing Petition to Confirm Arbitration Award and confirmed the award over Khaligh's opposition. It ruled that the arbitrator had authority to decide the defamation claim because there was an "inextricable nexus" between Khaligh's claims and Hadaegh's defamation claim.
The judgment confirming the arbitration award formally adopted the arbitrator's findings and conclusions. With attorneys' fees and costs, the judgment was for $107,200.10, plus interest. Khaligh did not appeal the state court's judgment.
The bankruptcy court granted summary judgment in the adversary proceeding based on the confirmed arbitration award. Applying California law of issue preclusion, the court concluded that all pertinent issues regarding defamation had been actually and necessarily litigated and were essential to the judgment. Applying Ninth Circuit precedent regarding defamation in the context of § 523(a)(6), Jett v. Sicroff (In re Sicroff), 401 F.3d 1101, 1106 (9th Cir.2005), the court held that all the elements of nondischargeability under § 523(a)(6) were satisfied.
Judgment was entered excepting from discharge the $100,000 in damages (plus judgment interest) established in the state court judgment, but not the attorneys' fees and costs. This timely appeal ensued. There is no cross-appeal regarding the discharge status of attorneys' fees and costs.
The bankruptcy court had jurisdiction via 28 U.S.C. § 1334. We have jurisdiction under 28 U.S.C. § 158(a)(1).
We review summary judgment de novo to assess whether there is a genuine issue of material fact and whether the moving party is entitled to judgment as a matter of law. Gertsch v. Johnson & Johnson (In re Gertsch), 237 B.R. 160, 165 (9th Cir. BAP 1999).
We review rulings regarding rules of res judicata, including claim and issue preclusion, de novo as mixed questions of law and fact in which legal questions predominate. Robi v. Five Platters, Inc., 838 F.2d 318, 321 (9th Cir.1988); Alary Corp. v. Sims (In re Assoc. Vintage Group, Inc.), 283 B.R. 549, 554 (9th Cir. BAP 2002). Once it is determined that preclusion doctrines are available to be applied, the actual decision to apply them is left to the trial court's discretion. Robi, 838 F.2d at 321; George v. City of Morro Bay (In re George), 318 B.R. 729, 733 (9th Cir. BAP 2004), aff'd, 144 Fed.Appx. 636 (9th Cir.2005), cert. denied, ___ U.S. ___, 126 S.Ct. 1068, ___ L.Ed.2d ___ (2006). When state preclusion law controls, such discretion is exercised in accordance with state law. Gayden v. Nourbakhsh (In re Nourbakhsh), 67 F.3d 798, 800-01 (9th Cir. 1995).
Whether the confirmed private arbitration award was eligible for issue preclusive effect under California law so as to be applied in a bankruptcy nondischargeability action to establish willful and malicious injury.
The narrow question is whether issues that were actually litigated and necessarily decided in the course of obtaining an arbitration award that was confirmed as a judgment by a California court are eligible for issue preclusive effect under California law.
If so, then issue preclusion may be applied in subsequent bankruptcy nondischargeability litigation. Grogan v. Garner, 498 U.S. 279, 284-85 n. 11, 11 S.Ct. 654, 112 L.Ed.2d 755 (1991).
If a state court would give preclusive effect to a judgment rendered by courts of that state, then the Full Faith and Credit Statute (28 U.S.C. § 1738) imports the same consequence to an action in federal court based on the same award. McDonald v. City of W. Branch, 466 U.S. 284, 287, 104 S.Ct. 1799, 80 L.Ed.2d 302 (1984); Harmon v. Kobrin (In re Harmon), 250 F.3d 1240, 1245 (9th Cir.2001).
Since the confirmation of a private arbitration award by a state court has the status of a judgment, federal courts must, as a matter of full faith and credit, afford the confirmation the same preclusive consequences as would occur in state court. Caldeira v. County of Kauai, 866 F.2d 1175, 1178 (9th Cir.1989).2
Accordingly, the confirmed arbitration award at issue in this appeal requires that, as a matter of full faith and credit, we focus on California preclusion law in the arbitration setting.
The basic features of California issue preclusion law were restated by the California Supreme Court in Lucido v. Superior Ct., 51 Cal.3d 335, 341-43, 272 Cal.Rptr. 767, 795 P.2d 1223, 1225-27 (1990), and then qualified with respect to arbitration awards in Vandenberg v. Superior Ct., 21 Cal.4th 815, 824, 88 Cal.Rptr.2d 366, 982 P.2d 229, 234 (1999).
Six basic elements must be satisfied before issue preclusion will be applied. Five of the elements are described as "threshold" requirements: (1) identical issue; (2) actually litigated in the former proceeding; (3) necessarily decided in the former proceeding; (4) former decision final and on the merits; and (5) party against whom preclusion sought either the same, or in privity with, party in former proceeding.
The sixth element is a mandatory "additional" inquiry into whether imposition of issue preclusion in the particular setting would be fair and consistent with sound public policy. Lucido, 51 Cal.3d at 341-43, 272 Cal.Rptr. 767, 795 P.2d at 1225-27;3 1 ANN TAYLOR SCHWING, CAL. AFFIRMATIVE DEFENSES § 15:4 (2005 ed.) ("SCHWING").
Although there is an arbitration variation to the fifth element restricting non-mutual applications of issue preclusion that was introduced by Vandenberg, that variation does not apply to this appeal, which involves mutual application of issue preclusion. Vandenberg, 21 Cal.4th at 836-37, 88 Cal.Rptr.2d 366, 982 P.2d at 242-43.4
Finally, preclusion is an affirmative matter under which the party asserting preclusion bears the burden of establishing the requirements for its imposition. Lucido, 51 Cal.3d at 341, 272 Cal.Rptr. 767, 795 P.2d at 1225. Correlatively, the...
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