Schrader v. Sangha (In re Sangha), Case No.: 6:13-bk-16964-MH
| Docket Number | Case No.: 6:13-bk-16964-MH,Adv. No.: 6:13-ap-01171-MH |
| Decision Date | 30 September 2022 |
| Citation | 644 B.R. 843 |
| Parties | IN RE: Narinder SANGHA, Debtor Charles Schrader, Plaintiff v. Narinder Sangha, Defendant |
| Court | U.S. Bankruptcy Court — Central District of California |
Donald W. Reid, Law Office of Donald W. Reid, Fallbrook, CA, for Defendant.
In the matter before the Court, Charles Schrader ("Plaintiff") asks the Court to apply collateral estoppel to a California state court defamation judgment, and ultimately find for Plaintiff on his § 523(a)(6) cause of action. Fundamentally, this case is in material part about whether the bankruptcy court should apply collateral estoppel to a state court judgment that Narinder Sangha ("Defendant") argues was wrongly decided. Under applicable California state law, even considering exceptions for public policy, extrinsic fraud, and other equitable reasons, the Court finds that the circumstances of this case, bankruptcy law, and California state law, dictate that this Court respect the state court judgment and apply collateral estoppel. As set forth below, after having previously found on summary judgment that collateral estoppel applies to the malicious element of § 523(a)(6), now, after trial, the Court determines that Plaintiff has also established the willful element of § 523(a)(6), and thus finds in favor of Plaintiff.
On or about March 12, 2008, Plaintiff applied for a position with the City of San Jose as a firefighter. Subsequently in 2008, Plaintiff began a romantic relationship with Defendant, a relationship that lasted into early 2009, before deteriorating and ending amidst mutual allegations of wrongdoing.
In May 2009, Plaintiff advanced in the application process with the City of San Jose Fire Department ("Fire Department"), and the Fire Department commenced a background investigation into Plaintiff's suitability to be a firefighter. In July 2009, Defendant filed for a restraining order against Plaintiff. After Defendant filed for a restraining order, but before the initial hearing, Plaintiff received a conditional offer of employment from the Fire Department. On August 12, 2009, a restraining order of six months was issued against Plaintiff. On August 21, 2009, Defendant was interviewed as part of Plaintiff's pending background investigation. On September 4, 2009, the Fire Department withdrew its conditional offer of employment, stating that Plaintiff "did not successfully pass the psychological screening portion of the recruitment process." On September 15, 2009, Plaintiff appealed the withdrawal of the conditional offer of employment. On October 1, 2009, the Civil Service Commission heard and denied Plaintiff's appeal.
On October 13, 2009, Plaintiff filed a complaint against Defendant for defamation (slander per se)1 in San Francisco Superior Court ("State Court"), alleging that Defendant had made false statements about Plaintiff in the course of the employment background investigation. On November 17, 2009, Defendant filed an answer and general denial. The State Court granted Plaintiff leave to file a second amended complaint on February 14, 2011. In the second amended complaint, all fourteen causes of action alleged that Defendant made defamatory statements with malice and the prayer sought an award of exemplary/punitive damages.
On March 4, 2011, Plaintiff filed a motion for terminating sanctions against Defendant for engaging in discovery abuses. The State Court granted Plaintiff's motion for terminating sanctions and struck Defendant's answer to the second amended complaint, commenting: "The Court finds that Defendant's failure to respond to the Court's orders compelling a response to interrogatory is willful." Defendant then dismissed his attorney Christopher Leuterio and filed a substitution of attorney showing Christopher N. Mandarano was to be his counsel. On April 8, 2011, Defendant terminated Mr. Mandarano, and substituted Robert D. Finkle as his attorney.
On April 18, 2011, the State Court entered default against Defendant. It conducted a prove-up hearing on Plaintiff's motion for entry of default judgment on June 2, 2011, and entered a judgment the same day awarding Plaintiff $1,369,633.40, comprised of $1,000,000 for general damages2 , $368,535.40 for "Special/Punitive Damages,"3 and $1,098.00 for costs (the "Judgment").
On November 14, 2011, the State Court denied Defendant's motion to vacate the Judgment. Defendant did not appeal the Judgment.
Defendant filed a Chapter 7 bankruptcy petition on April 18, 2013. In his schedules, he listed a disputed debt owed to Plaintiff in the amount of $1,369,634.00 for the Judgment. Plaintiff subsequently filed a proof of claim for a secured claim in the amount of $1,627,049.43 ("Claim 1").
On April 25, 2013, Plaintiff filed an adversary complaint against Defendant seeking to have Claim 1 held to be non-dischargeable under 11 U.S.C. § 523(a)(6). Defendant filed an answer on May 22, 2013. After Plaintiff filed a motion to strike all affirmative defenses that was granted in part and denied in part with leave to amend, Defendant filed an amended answer on August 21, 2013, generally denying the complaint's allegations and stating three affirmative defenses: (1) that the purported false statements were privileged; (2) that Plaintiff had engaged in fraud by concealment of material facts from the State Court; and (3) that Plaintiff had unclean hands. On October 18, 2013, the parties conducted a mediation conference that did not result in settlement. Subsequent to this mediation conference, the discovery process between the parties began to break down, leading to a variety of discovery litigation. A second mediation conference on February 27, 2014, was also unsuccessful.
Plaintiff filed a motion for summary judgment on April 25, 2014, arguing that there were no disputed material facts and that the Judgment was preclusive as to all the elements required for a non-dischargeability judgment under 11 U.S.C. § 523(a)(6). Responding to the summary judgment motion on June 4, 2014, Defendant asserted that triable issues of fact remained and that Defendant was entitled to conduct additional discovery. Plaintiff filed a reply on June 12, 2014.
After argument by the parties at the hearing, the Court granted Plaintiff's motion for summary judgment, finding, among other things, that:
On August 7, 2014, the Court entered: (1) an order granting Plaintiff's motion for summary judgment [Dkt. No. 149]; and (2) a judgment holding the Judgment to be non-dischargeable under 11 U.S.C. § 523(a)(6) [Dkt. No. 150] (collectively, the "2014 Judgment").
Defendant filed an appeal of the 2014 Judgment on August 18, 2014. On June 11, 2015, the Bankruptcy Appellate Panel for the Ninth Circuit Court of Appeals (the "BAP") issued a decision vacating the 2014 Judgment and remanding the matter for further proceedings. The BAP decision was subsequently appealed to the Ninth Circuit Court of Appeals. On March 10, 2017, the Ninth Circuit issued a decision affirming the BAP and directing the Court to re-evaluate the availability of collateral estoppel in light of In re Plyam , 530 B.R. 456 (B.A.P. 9th Cir. 2015), which was decided by the BAP subsequent to the issuance of the 2014 Judgment. The Ninth Circuit further directed that:
[T]he bankruptcy court must consider whether the state court default judgment and the allegations in Schrader's second amended complaint preclude relitigation of § 523(a)(6)'s "willful" intent requirement. If the bankruptcy court determines that the allegations in the second amended complaint together with the punitive damage award preclude relitigation of § 523(a)(6)'s "willful and malicious" intent requirements, then the California state trial court default judgment in favor of Schrader is not dischargeable.
In re Sangha , 678 F. App'x 561, 562 (9th Cir. 2017).
The mandate of the Ninth Circuit Court of Appeals to this Court was docketed on March 23, 2017. On April 5, 2017, the Court held a status conference to discuss with the parties the need for briefing to address the Ninth Circuit's determination that application of collateral estoppel must be evaluated in light of Plyam . At the status conference, the Court directed the parties to file supplemental briefs; the parties ultimately filed a variety of supplemental pleadings.
The Court took the matter under submission on December 19, 2017. On June 12, 2018, after further supplemental pleadings were filed, the Court took the matter off submission, setting the matter for hearing. On October 10, 2018, the Court issued an oral ruling in Plaintiff's favor, and indicated it would enter a written opinion. On March 15, 2019, as docket number 277, the Court issued an opinion (the "Opinion"), revising its earlier position in the 2014 Judgment and granting Plaintiff's motion for summary judgment as to the maliciousness prong while denying the motion as to the willfulness prong. The Court also set a status conference for April 17, 2019.
At the status conference, Defendant indicated that he wanted to file a motion to reopen discovery. At a hearing on May 22, 2019, because the parties had never complied with the Court's instructions to lodge a scheduling order containing discovery deadlines, the Court issued a...
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