Welch v. Giron (In re Giron)

• Decision Date: 13 December 2019
• Docket Number: Case No. 18-13213 t7,Adv. No. 19-1008
• Citation: 610 B.R. 670
• Parties: IN RE: David Tracy GIRON, Debtor. Gretchen Welch, Plaintiff, v. David Tracy Giron, Defendant.
• Court: U.S. Bankruptcy Court — District of New Mexico

610 B.R. 670

IN RE: David Tracy GIRON, Debtor.Gretchen Welch, Plaintiff,

v.David Tracy Giron, Defendant.

Case No. 18-13213 t7

Adv. No. 19-1008

United States Bankruptcy Court, D. New Mexico.

Signed December 13, 2019

Michael K. Daniels, Albuquerque, NM, for Plaintiff.

David Tracy Giron, Corrales, NM, pro se.

OPINION

Hon. David T. Thuma, United States Bankruptcy Judge

In this proceeding Plaintiff asks for a declaration that her $20+ million state court judgment against Debtor is nondischargeable. Before the Court is Plaintiff's motion for summary judgment, based entirely on the asserted preclusive effect of the state court judgment. Debtor responded to the motion but did not submit opposing evidence. Having reviewed the motion and Debtor's response, the Court finds that the amount of the state court judgment is entitled to full faith, but that the judgment did not determine the dischargeability of the debt and should not be given issue preclusive effect. The motion therefore must be denied.

I. FACTS

For the purpose of ruling on the motion, the Court finds that there is no genuine dispute about the following facts:

1. Plaintiff and Debtor live in New Mexico. Debtor is Plaintiff's nephew.

2. Debtor entered into an arrangement with Plaintiff whereby Debtor, in exchange for a fee, helped Plaintiff invest in junior deeds of trust encumbering California houses.

3. Debtor agreed to search out promising investment opportunities, conduct due diligence, obtain title insurance policies, and perform all work needed to acquire and manage the purchased deeds of trust.

4. Debtor also agreed to foreclose the second deeds of trust through non-judicial foreclosure proceedings, if needed.

5. From July through December 2014, Plaintiff bought four second priority deeds of trust, encumbering four California houses. The properties are described below:

  Address                    Second Lien Balance     General location
                  3435 Linda Vista      $85,000                          Los Angeles
                  1229 Bluegrass        $120,000                         Anaheim
                  11848 Cedarvale      $85,000                          Norwalk
                  20152 Orchid           $329,700                        Newport Beach
                  Total                         $619,700
                                                   ========
                

6. Plaintiff signed the necessary paperwork, which had been prepared by Debtor. The documents were recorded as needed.

7. During 2015, either Debtor or the senior lienholder prepared notices of default and conducted trustee's sales of all four properties. Plaintiff was the successful bidder each time. Debtor's company, County Records Service, Inc. ("CRS"), signed deeds to the four properties to "the Gretchen Welch Family Trust dated 12/5/2007."¹

8. The Los Angeles property was resold at a loss to Plaintiff.

9. CRS attempted to rescind the conveyance of the Norwalk, Newport Beach, and Anaheim properties in December 2015, asserting that the notices given of the trustee's sales were invalid.

10. According to Debtor, he filed the rescissions because "After she sold [sic] 1st property she said she wouldn't pay me what she promised. I indicated if she would not pay me I would reverse the Trustee's Deed Upon Sale's removing her as the owner and making the original owners back on title."

11. On December 28, 2015, Debtor notified Plaintiff that she no longer owned any of the four properties.

12. Plaintiff sued Debtor in the Superior Court of the State of California, Orange County, commencing case No. 30-2016-00845182, on April 7, 2016. The complaint is not part of the record in this proceeding.

13. On or about March 8, 2018, Plaintiff sought entry of a default judgment against Debtor in the state court action, through a "Plaintiffs' Application to Enter Judgment – CCP § 585(d)."² The application included a lengthy affidavit signed by Plaintiff.

14. The Application refers to possible causes of action for breach of contract, fraud and concealment, breach of fiduciary duty, negligence, intentional and negligent infliction of emotional distress, and obtaining title to real property and money by false pretenses.

15. On June 15, 2018, the state court entered a judgment against Debtor for $20,066,676.55. The judgment does not refer to any specific cause of action, does not contain any conclusions of law, and does not incorporate any of the facts alleged in the Application or supporting affidavit. The judgment contains a single finding of fact: "Defendants ... conducts [sic] were with malice, oppression, or fraud, justifying the award of punitive damages."

16. Based on Plaintiff's California affidavit, her investment losses could be as low as about $500,000 or as high as about $1,600,000.³ In addition to out-of-pocket losses, however, the judgment includes a statutory civil penalty of $8,400,000 (for theft and/or receiving stolen property); $4,600,107 of pre-judgment interest (calculated on $15,455,073.80 and accruing from January 2015); $839,300 of attorney fees; $34,000 in travel expenses; $30,000 in medical expenses; $350,000 in emotional distress damages; $650,000 in loss of money and lost profit; $2,956,800 in loss of retirement; $750,000 in the loss of use of money; and $8,500 in punitive damages. There is no supporting evidence in this proceeding's record for any of the damage categories or amounts.

17. The judgment was domesticated in New Mexico on November 16, 2018, on which date the Thirteenth Judicial District Court issued an Order on Foreign Judgment, ordering that the California judgment "be and hereby is recognized as the judgment of this Court and hereof let execution issue."

II. DISCUSSION

A. Summary Judgment Standards.

Summary judgment may be granted if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56.⁴ "[A] party seeking summary judgment always bears the initial responsibility of informing the ... court of the basis for its motion, and ... [must] demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In determining whether summary judgment should be granted, the Court will view the evidence in the light most favorable to the party opposing summary judgment. Harris v. Beneficial Oklahoma, Inc. (In re Harris) , 209 B.R. 990, 995 (10th Cir. BAP 1997). "Even if the non-moving party does not file a response, the Court must satisfy itself that the movant's properly supported facts entitle the movant to judgment as a matter of law before the Court will grant summary judgment." Henderson v. White (In re Henderson) , 560 B.R. 365, 368 (Bankr. D.N.M. 2016) ; see Reed v. Bennett , 312 F.3d 1190, 1194–95 (10th Cir. 2002).

B. The Nondischargeability Claims.

Plaintiff alleges that Debtor's conduct rendered her $20,872,849.63 judgment against him nondischargeable under § 523(a)(2)(A) (false pretenses, false representations, or actual fraud);⁵ § 523(a)(4) (fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny); and/or § 523(a)(6) (willful and malicious injury to person or property). To prevail in this proceeding, Plaintiff must prove that she has a valid claim against Debtor, and that the subject debt is nondischargeable. In re Crespin , 551 B.R. 886, 898 (Bankr. D.N.M. 2016).

C. Plaintiff Established a Valid Debt.

There is no genuine dispute that Debtor owes Plaintiff $20,872,849.63. 28 U.S.C. § 1738 provides in part:

The records and judicial proceedings of any court of any ... State ..., or copies thereof, shall be proved or admitted in other courts within the United States ... by the attestation of the clerk and seal of the court annexed, if a seal exists, together with a certificate of a judge of the court that the said attestation is in proper form. Such Acts, records and judicial proceedings or copies thereof, so authenticated, shall have the same full faith and credit in every court within the United States ... as they have by law or usage in the courts of such State ... from which they are taken.

This "full faith and credit" statute "requires federal courts to give the same preclusive effect to state court judgments that those judgments would be given in the state courts from which they emerged." Strickland v. City of Albuquerque , 130 F.3d 1408, 1411 (10th Cir. 1997).

By first obtaining and then domesticating the California judgment, Plaintiff has established that she has a valid claim against Debtor.

D. Plaintiff Has Not Established that the Debt is Nondischargeable.

Plaintiff relies on preclusive principles to show that the debt is nondischargeable.⁶

The full faith and credit statute is the basis for giving state court judgments preclusive effect in federal courts. See, e.g., Allen v. McCurry , 449 U.S. 90, 95, 101 S.Ct. 411, 66 L.Ed.2d 308 (1980) (citing 28 U.S.C. § 1738, the Supreme Court held that "federal courts generally have also consistently accorded preclusive effect to issues decided by state courts"); Crocog Co. v. Reeves , 992 F.2d 267, 269 (10th Cir. 1993) (federal courts are required by 28 U.S.C. § 1738 to give state court judgment the same preclusive effect as would be given that judgment under the law of the state where judgment was rendered); In re Crespin , 551 B.R. at 895 (a state court judgment can have a preclusive effect in a later bankruptcy case); In re Shari Siebel , 2018 WL 2283835, at *4 (Bankr. D.N.M. 2018) (same).

1. Other Courts Lack Jurisdiction to Rule on the Dischargeability of Debt. Plaintiff correctly concedes that under Brown v. Felsen , 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979), claim preclusion does not apply when "considering the dischargeability of debt." 442 U.S. at 138–39, 99 S.Ct. 2205. "The Supreme Court stressed that the bankruptcy court has exclusive jurisdiction to determine the nature of a debt for...