Yaikian v. Yaikian (In re Yaikian)

• Decision Date: 31 March 2014
• Docket Number: Adversary No. 12–90431–MM.,Bankruptcy No. 12–12625–MM7.
• Citation: 508 B.R. 175
• Court: U.S. Bankruptcy Court — Southern District of California
• Parties: In re Michael YAIKIAN, Debtor. Karapet Yaikian, Plaintiff, v. Michael Yaikian, Defendant.

508 B.R. 175

In re Michael YAIKIAN, Debtor.Karapet Yaikian, Plaintiff,

v.Michael Yaikian, Defendant.

Bankruptcy No. 12–12625–MM7.

Adversary No. 12–90431–MM.

United States Bankruptcy Court, S.D. California.

Signed March 31, 2014.

Bradley L. Jacobs, Atty. at Law, San Diego, CA, for Plaintiff.

Julian McMillan, McMillan Law Group, San Diego, CA, for Defendant.

MEMORANDUM DECISION

MARGARET M. MANN, Bankruptcy Judge.

This case involves a father, Karapet Yaikian (“Karapet”),¹ who sued his son, Michael Yaikian (“Michael”), for fraud; first in state court resulting in a stipulated judgment, and then in this Court when Michael filed bankruptcy. Karapet's conduct observed and recounted at trial did not reflect high personal standards, and included arson, bribery of prison officials, evading collection of a restitution judgment, intentionally misleading immigration authorities, and submitting a false declaration in this case. Karapet also contradicted himself on the witness stand, suffered from significant memory lapses, was evasive as a witness, and even appeared to sleep during some of the proceedings. The clearly biased testimony of Karapet's state court counsel did not assuage these credibility problems. Certain of Michael's actions, such as maintaining inadequate records and not reading the documents he signed, may not have been according to Hoyle, but on balance, Michael's testimony was largely credible.

While the Court thus can easily conclude Karapet failed to carry his burden of provinghis nondischargeability claims, Grogan v. Garner, 498 U.S. 279, 283, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991) (burden of proof on the plaintiff), it must still address issue preclusion. Karapet and Michael had stipulated to judgment in state court on both breach of contract and fraud grounds, and also that the stipulated judgment would be nondischargeable in bankruptcy. Karapet based his claims on Michael's admission of fraud in state court, and later asserted that the fraud stipulation should be afforded preclusive effect. Given Karapet's credibility challenges, issue preclusion is the only ground on which he could prevail, and may be outcome determinative. See also Gayden v. Nourbakhsh (In re Nourbakhsh), 67 F.3d 798, 801 (9th Cir.1995) (per curiam) (“The full faith and credit requirement of [28 U.S.C.] § 1738 compels a bankruptcy court in a § 523(a)(2)(A) nondischargeability proceeding to give collateral estoppel effect to a prior state court judgment.”).

Karapet also has the burden of proof on the preclusion issue, but fails to sustain it. Generally, stipulated judgments in California are afforded claim preclusive effect, but not issue preclusive effect. The reason is that these judgments are the product, not of litigation but of negotiation. The role of the state court in entering the judgment on a stipulation is more circumscribed so that unless the state court record reflects that it considered evidence of the wrongdoing at issue, the substantive issues are neither actually nor necessary decided by the state court. While stipulated judgments can preclude relitigation of specified issues if the parties make that intent sufficiently clear, the evident goal of Karapet's stipulated judgment was only to except Michael's debt from discharge in bankruptcy. This intention cannot be enforced by this Court as a matter of public policy. Because issue preclusion does not apply here, this case will be decided on the evidence at trial that Michael did not defraud his father.

I. JURISDICTION

This Court has jurisdiction under 28 U.S.C. §§ 157 and 1334(b), and constitutional authority to enter a final judgment in this action. Deitz v. Ford (In re Deitz), 469 B.R. 11, 24 (9th Cir. BAP 2012) (citing Sasson v. Sokoloff (In re Sasson), 424 F.3d 864, 867 (9th Cir.2005)). This dischargeability matter was identified as statutorily core, and the parties also implicitly consented to the Court's final adjudication of it. Exec. Benefits Ins. Agency v. Arkison (In re Bellingham Ins. Agency), 702 F.3d 553 (9th Cir.2012), cert. granted by––– U.S. ––––, 133 S.Ct. 2880, 186 L.Ed.2d 908 (2013).

II. FINDINGS OF FACT

In the fall of 2002, Michael's parents, Maria and Karapet began divorce proceedings in which restraining orders were issued against Karapet. The restraining orders and Karapet's severe alcoholism made it difficult for him to retain any role in the family business, San Diego Country Caterers, Inc. (“SDCC”) in which Michael had also worked since the age of 15 and was owned by Michael and his parents. SDCC serviced catering trucks and also owned a gas station in Chula Vista, California. To facilitate the divorce and extricate Karapet from the business, Michael as the president of SDCC and his parents began negotiating a Stock Repurchase Agreement (“SRA”). Karapet was assisted by separate counsel. Under the SRA, Karapet was promised lifetime financial support from SDCC in exchange for his sale of his interests in SDCC back to the corporation.

The final version of the SRA was not signed until March 13, 2003, about a half year after the negotiations began, because Karapet repeatedly evaded signing it. Despite this later execution date, the SRA was expressly made effective as of December 31, 2002. The support SDCC agreed to provide to Karapet constituted weekly payments of $750 plus health insurance for life, and advance notice to Karapet if the assets of SDCC were later sold. Although they were individual parties to the SRA, Michael and Maria had no direct payment obligations under the SRA. They did, however, personally guarantee SDCC's obligations under the SRA. After the SRA was signed, SDCC made 12 of the required payments to Karapet and also provided health insurance.

Despite the adversarial nature of his parent's divorce, Michael remained on friendly terms with Karapet. When Karapet was required to move out of the family home in the fall of 2002, he moved in with Michael before moving to Los Angeles to live with Karapet's sister.

In January 2003, after the effective date of the SRA but before it was signed, Karapet for “secret” reasons set fire to Maria's house with gasoline. Karapet explained that he was angry about losing the house in the divorce. Twelve people, including Michael, Maria and other family members, were present inside when the fire was set. Everyone inside managed to escape and no one was harmed, but Karapet was arrested and charged with arson.

Karapet underwent detoxification for his alcoholism in a substance abuse treatment program called the Etheridge Center in April 2003. While there, Karapet severely burned his foot, and he was hospitalized in June for that problem and also for pneumonia and delirium tremors from detox. He suffered a heart attack while hospitalized and remained there for a month. Karapet later sued the Etheridge Center, and the case was settled for an undisclosed amount. Michael remained supportive of his father and paid the legal fees and assisted the prosecution of that civil suit.

After pleading guilty in August 2003 to the arson charges, Karapet was sentenced to three years in prison. A $350,000 restitution judgment was entered against him as part of the criminal proceedings. Michael assisted his father's criminal defense by testifying at his sentencing hearing. Karapet served three years in prison and then about a year in detention by immigration authorities while awaiting deportation to Armenia. Karapet proudly testified that he manipulated the immigration authorities to falsely believe he was too sick to travel due to risk of death, and thereby secured his release from detention in 2007 instead of being deported to Armenia.

Michael remained an attentive son while Karapet remained in custody, visiting Karapet and providing him with care packages, cash, and a Rolex watch. Michael also complied with Karapet's request to pay cash to “Chris,” who was somehow involved in the prison system, so that Karapet would secure a more favorable prison assignment. Karapet requested these favors in lieu of the weekly payments required under the SRA because Karapet was concerned that regular payments might be seized to satisfy the restitution judgment. Karapet also did not want Michael to deposit the payments into the joint bank account Karapet shared with his sister out of fear that his sister's son, a methamphetamine addict, would somehow get the money. Neither party kept records of the cash payments, nor was any exact accounting provided. This testimony, largely by Michael, was either corroborated by Karapet or undisputed, so the Court accepts it as true. The record was also clear that the parties were accustomed to dealing in cash in their business.

When he was released from custody, Karapet filed a complaint in state court on February 6, 2008, against Michael, Maria and SDCC for recovery of the amounts due under the SRA. Karapet alleged breach of contract and numerous other theories including fraud. The state court suit settled in August 2008 with a $210,000 initial payment that brought Karapet current under the SRA, and SDCC then resumed the $3,000 monthly payments to Karapet. Michael settled since he had always intended to pay his father under the SRA contract and also sought to save the family business from further disruption from the attachment motions Karapet filed in the state court suit. After the initial payment was made by SDCC under the settlement agreement in September 2008, Karapet dismissed the suit with no judgment being entered. The parties agreed as part of the settlement that upon default a stipulation for entry of judgment signed could be filed to enter a nondischargeable judgment against Michael, Maria and SDCC. The stipulation “stipulated” and “admitted” to both breach of contract and fraud in the inducement regarding the SRA.

After SDCC made an additional $72,000 in payments to Karapet under the settlement, SDCC and Michael encountered financial problems and defaulted in the fall...