Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-canb-3_13-ap-03258/USCOURTS-canb-3_13-ap-03258-0/pdf.json

Parties Involved:
The Law Offices of David Sturgeon-Garcia
Plaintiff
Joseph Michael Cagno
Defendant

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UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

In re ) Bankruptcy Case

 ) No. 13-32070DM

JOSEPH MICHAEL CAGNO, )

) Chapter 7

)

Debtor. ) 

___________________________________) 

DAVID STURGEON-GARCIA, ) Adversary Proceeding

) No. 13-03258DM

 Plaintiff, )

)

v. )

)

JOSEPH MICHAEL CAGNO, )

)

 Defendant. )

___________________________________)

MEMORANDUM FOLLOWING ORAL RULING

On January 12, 2016, the court issued an oral ruling

following presentation of Plaintiff’s case-in-chief. That ruling

was in response to an oral motion by Defendant, Joseph Michael

Cagno (“Cagno”), for a judgment on partial findings pursuant to

Fed. R. Civ. P. 52(c), incorporated by Fed. R. Bankr. P. 7052. 

That rule provides that if a party has been fully heard on an

issue during a non-jury trial, and the court finds against the

party on that issue, it may enter judgment. A judgment so entered

must be supported by findings of fact and conclusions of law, as

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Signed and Filed: January 14, 2016

________________________________________

DENNIS MONTALI

U.S. Bankruptcy Judge

Entered on Docket 

January 15, 2016

EDWARD J. EMMONS, CLERK 

U.S. BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA

Case: 13-03258 Doc# 132 Filed: 01/14/16 Entered: 01/15/16 11:36:45 Page 1 of 6
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provided in Fed. R. Civ. P. 52(a), which in turn permits findings

and conclusions to be stated orally on the record after the close

of evidence. 

In making its ruling in favor of Cagno, the court did not

specifically state that its narrative constituted its findings and

conclusions. This Memorandum is to make clear to the parties that

the oral ruling constituted the court’s findings and conclusions

and to elaborate on the court’s reasoning. 

Throughout the long history of this adversary proceeding

Plaintiff’s theory, in part, has been based upon a Superior Court 

stipulated judgment in favor of Stanley Carnekie (“Carnekie”),

Plaintiff’s assignor, against Cagno. That judgment established

conclusively that Cagno admitted to the facts as alleged in the

complaint. But the Superior Court, before entering the judgment,

noted that the damages reflected in the stipulated judgment “do

not relate to any claim of fraud.” When the court asked, “Have I

got that correct?”, Carnekie’s counsel, David Sturgeon-Garcia, now

Carnekie’s assignee, answered, “Yes, your Honor.” Cagno’s counsel

then noted “... that there’s no secret that this matter is going

to find its way into the bankruptcy court. That’s why it’s

important we have a clear record and a complete record.” 

(Defendant’s Ex. E). 

This court believes that when the Superior Court entered the

stipulated judgment, the colloquy among the court and counsel was

sufficient to establish that the fraud elements of Carnekie’s

claims against Cagno were excluded by the Superior Court and thus

left property subject to adjudication by this court in Cagno’s

subsequent bankruptcy. 

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Case: 13-03258 Doc# 132 Filed: 01/14/16 Entered: 01/15/16 11:36:45 Page 2 of 6
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The elements thus established in the Superior Court did not

include elements (3) and (4) of the following elements which a

creditor must prove in order to preclude discharge of a particular

debt under 11 U.S.C. § 523(a)(2):

(1) that debtor made the representations;

(2) that at the time he knew they were false;

(3) that he made them with the intention and purpose of

deceiving the creditor; 

(4) that the creditor relied on such representation; 

(5) that the creditor sustained the alleged loss and damage

as a proximate result of the representation. 

Eugene Parks Law Corp., etc. v. Kirsh (In re Kirsh), 973 F.2d 1454

(1992), quoting In re Britton, 950 F.2d 602 (9th Cir. 1991), in

turn quoting In re Houtman, 588 F.2d 651 (9th Cir. 1978). 

In its oral ruling this court found as fact that Cagno had

not intended to deceive Carnekie. Even if he had so intended,

Carnekie, as a matter of fact, did not justifiably rely on any

false representations by Cagno. 

Plaintiff, representing himself, argued that the reliance

test for nondischargeability under 11 U.S.C. § 523(a)(2) is a

“reasonable” standard. The court disagrees and concludes that

under controlling law, including Kirsh, supra, that the reliance

must be “justifiable.” In Kirsh the court discussed at length the

elements of justifiable reliance under federal law and parallel

provisions of California law. In stating its ultimate holding,

the court said:

Thus, we conclude that a creditor must prove justifiable

reliance upon the representations of the debtor. In

determining that issue, the court must look to all of the

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Case: 13-03258 Doc# 132 Filed: 01/14/16 Entered: 01/15/16 11:36:45 Page 3 of 6
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circumstances surrounding the particular transaction, and

must particularly consider the subjective effect of those

circumstances upon the creditor. 

Kirsh, 973 F.2d at 1460. 

This court, in finding that there was no justifiable reliance

by Carnekie, took into account both his and Cagno’s professional

experience, particularly in real estate matters, and Carnekie’s

education. It also observed his demeanor and weighed the

credibility of all of his testimony.

The Kirsh court noted that the applicable standard is not

that of the “average reasonable person” but a more subjective

standard which takes into account the knowledge and relationships

of the parties. It then commented that in certain situations,

more protection might be necessary:

“At the same time, the standard does protect the

ignorant, the gullible, and the dim-witted, for ‘no

rogue should enjoy his ill-gotten plunder for the simple

reason that his victim is by chance a fool’”. 

Kirsh 973 F.2d at 1458, quoting W. Page Keeton et al, Prosser and

Keeton on the Law of Torts, § 108 at 749-50 (5th ed. 1984). 

In closing argument Plaintiff made brief and vague reference

to Carnekie’s abilities but nothing in the record suggests that he

needed to be protected in some unusual or inconventional way. 

Considering all of those factors and the totality of the

circumstances surrounding the transactions between Carnekie and

Cagno in April, 2000, that give rise to Plaintiff’s claim of nondischargeability and the subjective effect of those circumstances,

found that he did not justifiably rely on any untruths stated to

him or facts withheld from him by Cagno. 

For the reasons stated herein and in the January 12, 2016,

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Case: 13-03258 Doc# 132 Filed: 01/14/16 Entered: 01/15/16 11:36:45 Page 4 of 6
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oral ruling, Cagno’s debt on the Superior Court stipulated

judgment is discharged, and he is entitled to a judgment so

holding.

**END OF MEMORANDUM DECISION**

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Case: 13-03258 Doc# 132 Filed: 01/14/16 Entered: 01/15/16 11:36:45 Page 5 of 6
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COURT SERVICE LIST

David Sturgeon-Garcia

The Law Offices of David Sturgeon-Garcia

1042 Country Club Dr., Suite A

Moraga, CA 94556 

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Case: 13-03258 Doc# 132 Filed: 01/14/16 Entered: 01/15/16 11:36:45 Page 6 of 6