Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-canb-3_14-ap-03113/USCOURTS-canb-3_14-ap-03113-0/pdf.json

Parties Involved:
Diana Lau
Plaintiff
Edith Yee Tuk Wong
Defendant

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UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

In re ) Bankruptcy Case

 ) No. 14-30880 DM

EDITH YEE TUK WONG, )

) Chapter 7

)

Debtor. ) 

___________________________________) 

DIANA LAU, ) Adversary Proceeding

) No. 14-3113 DM

 Plaintiff, )

)

v. )

)

EDITH YEE TUK WONG, )

)

 Defendant. )

___________________________________)

MEMORANDUM DECISION ON MOTIONS FOR SUMMARY JUDGMENT

I. INTRODUCTION

In this adversary proceeding, plaintiff Diana Lau

(“Plaintiff”), an assignee of a state court judgment against

debtor and defendant Edith Wong (“Debtor”), seeks a determination

that the judgment debt is nondischargeable under 11 U.S.C. §

523(a)(2)(A). Previously, this court entered a partial summary

judgment (“Partial SJ”) in favor of Plaintiff, applying the

California doctrine of issue preclusion and holding that the state

court judgment precluded relitigation of four of the five elements

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Signed and Filed: April 1, 2016

________________________________________

DENNIS MONTALI

U.S. Bankruptcy Judge

Entered on Docket 

April 01, 2016

EDWARD J. EMMONS, CLERK 

U.S. BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA

Case: 14-03113 Doc# 44 Filed: 04/01/16 Entered: 04/01/16 16:46:36 Page 1 of 9
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of a section 523(a)(2)(A) claim. See Order Granting Motion for

Partial Summary Judgment entered on October 9, 2015 (Dkt. 19).

Debtor has now filed her own motion for summary judgment

(“MSJ”), with Plaintiff filing a cross-motion for summary judgment

(“XSJ”) contending (notwithstanding her contrary position in her

initial motion for summary judgment) that the state court judgment

is preclusive as to the fifth element (damages) of her

nondischargeability claim. For the reasons set forth below, the

court is denying both the MSJ and the XSJ. 

II. UNDISPUTED FACTS AND PROCEDURAL HISTORY

On November 9, 2009, Anita Lee (“Ms. Lee”) filed a complaint

against Debtor in the San Francisco Superior Court asserting,

among other things, causes of action for “Fraud and Deceit--

Intentional Misrepresentation” and “Fraud and Deceit--Negligent

Misrepresentation.” Although other claims had been alleged by Ms.

Lee and eventually resolved by settlement or by a determination by

the trial judge,1 the Fraud and Deceit -- Intentional

Misrepresentation (“Intentional Misrepresentation”) and Fraud and

Deceit -- Negligent Misrepresentation (“Negligent

Misrepresentation”) claims were the only two tried before a jury. 

The instructions to the jury set forth the elements of claims

for Intentional Misrepresentation and for Negligent

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Ms. Lee also filed claims for judicial foreclosure,

declaratory relief, breach of oral contract, and breach of written

contract, while Debtor filed a cross complaint against Ms. Lee for

breach of contract. Outside of the presence of the jury, the

parties stipulated to a judgment in the amount of $27,500.00

against Debtor as to the breach of contract claims and the state

court awarded judgment on Ms. Lee’s request for declaratory

relief. State Court Judgment dated May 31, 2011, contained in

Plaintiff’s Request for Judicial Notice (“RJN”) filed on August

15, 2015, at Dkt. 10, page 106, lines 5-14.

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Misrepresentation. To establish her claim for Intentional

Misrepresentation, Ms. Lee had to prove “all of the following:”

1. That Edith Wong represented to Anita Lee that an

important fact was true;

2. That Edith Wong’s representation was false;

3. That Edith Wong knew that the representation was

false when she made it, or that she made the

representation recklessly and without regard for

its truth;

4. That Edith Wong intended that Anita Lee rely on the

representation; 

5. That Anita Lee reasonably relied on Edith Wong’s

representation; 

6. That Anita Lee was harmed; and 

7. That Anita Lee’s reliance on Edith Wong’s

representation was a substantial factor in causing

her harm.

Plaintiff’s Request for Judicial Notice (“RJN2") filed on January

4, 2016 at Dkt. 37, page 68. To establish a claim for Negligent

Misrepresentation, Ms. Lee had to prove “all of the following:”

1. That Edith Wong represented to Anita Lee that an

important fact was true;

2. That Edith Wong’s representation was not true;

3. That Edith Wong had no reasonable grounds for

believing the representation was true when she made

it;

4. That Edith Wong intended that Anita Lee rely on

this representation; 

5. That Anita Lee reasonably relied on Edith Wong’s

representation; 

6. That Anita Lee was harmed; and

7. That Anita Lee’s reliance on Edith Wong’s

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representation was a substantial factor in causing

her harm.

RJN2, Dkt. 37, page 71. 

Following trial, the jury returned a verdict against Debtor

on both of the misrepresentation claims and awarded Ms. Lee

$114,500 in damages.2 RJN, Dkt. 10, pages 99-100. In order to

conclude that Debtor had engaged in “Fraud & Deceit/Intentional

Misrepresentation,” the jury necessarily determined that Debtor

represented an important fact to be true, that the representation

was false, that Debtor knew the representation was false or that

she made the representation recklessly and without regard to its

truth, that Debtor intended Ms. Lee to rely on the representation,

that Ms. Lee was harmed, and that Ms. Lee’s reliance on the

Debtor’s representation was a substantial factor in causing her

harm. RJN2, Dkt. 37, page 68. The jury additionally found that

Debtor had “engage[d] in the conduct with malice, oppression, or

fraud” with respect the actions giving rise to the intentional

2

The General Verdict stated in relevant part:

On plaintiff Anita Lee’s claim for fraud and deceit --

intentional misrepresentation [,] we find in favor of

plaintiff Anita Lee and against defendant Edith Wong.

On plaintiff Anita Lee’s claim for fraud and deceit --

negligent misrepresentation [,] we find in favor of

plaintiff Anita Lee and against defendant Edith Wong.

The verdict form directed the jury to complete the following “only

if you find in favor of Anita Lee on at least one of her claims”: 

“We award Anita Lee the following compensatory damages: $ .” 

The jury entered the sum of $114,500.

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misrepresentations, but did not impose punitive damages.3 Id.

The jury awarded Ms. Lee compensatory damages in the amount of 

$114,500, but did not apportion the damages between the two

misrepresentation claims. Id. In addition to the jury award, the

state court also awarded costs in the amount of $23,373.81 and

attorneys fees in the amount of $180,212.00, for total “costs” of

$192,585.81. Id. at page 107. 

Ms. Lee thereafter assigned the judgment to Plaintiff. After

Debtor filed her chapter 7 case, Plaintiff commenced this

adversary proceeding to have the judgment debt declared

nondischargeable as a debt “for money, property, services . . . to

the extent obtained by - (A) false pretenses, a false

representation, or actual fraud.” 11 U.S.C. § 523(a)(2)(A). 

In September 2015, Plaintiff moved this court for partial summary

judgment that the state court judgment established “all elements

of nondischargeability under 11 U.S.C. § 523(a)(2)(A), except as

to the amount, which would be reserved for trial.” Memorandum of

Points and Authorities in Support of Motion for Partial Summary

Judgment (“MPA”), Docket 11 at 2:8-10. Plaintiff also

acknowledged that “[t]he lumping of the "Sixth Cause of Action",

which was for Fraud and Deceit -- Negligent Misrepresentation,

with the Fifth Cause of Action for [Intentional] Fraud in the Lee

Judgment is what precludes Movant from moving for full summary

judgment[.]” MPA at 3:13-17 (emphasis in original). 

3

 The jury form stated that “[i]f you find fraud and deceit -

intentional misrepresentation then answer the [following]

questions: “Did defendant Edith Wong engage in the conduct with

malice, oppression or fraud?” The jury responded affirmatively. 

The jury was then asked “What amount of punitive damages, if any,

do you award plaintiff Anita Lee?” The jury answered: $0.

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In the current round of competing motions, Plaintiff now

contends that the damages award cannot be revisited even though it

applied to the Negligent Misrepresentation claim as well as the

Intentional Misrepresentation claim. In turn, Debtor asserts that

the damages awarded by the jury should be adjusted downward

because of credits or because they were somehow calculated

incorrectly, and because the attorneys fee award related to other,

dischargeable claims. See, e.g., Debtor’s Consolidated MPA in

Support of Her MSJ and In Opposition to XSJ at pages 4, 6-10 at

Dkt. 40. Neither party has set forth a basis for summary

judgment.

III. DISCUSSION

As these motions address the issue-preclusive effect of a

California state court’s judgment, California preclusion law

applies.4 28 U.S.C. § 1738; Marrese v. Am. Acad. of Orthopaedic

Surgeons, 470 U.S. 373, 380 (1985). See also Grogan v. Garner,

498 U.S. 279, 284 (1991)(“[A] bankruptcy court could properly give

collateral estoppel effect to those elements of the claim that are

identical to the elements required for discharge and which were

actually litigated and determined in the prior action.”). 

Under California law, the party asserting issue preclusion

has the burden of establishing the following requirements:

First, the issue sought to be precluded from

relitigation must be identical to that decided in a

former proceeding. Second, this issue must have been

actually litigated in the former proceeding. Third, it

must have been necessarily decided in the former

4

Pursuant to 28 U.S.C. § 1738, “[f]ederal courts must give

the same preclusive effect to state court judgments that those

judgments would be given in that state’s own courts.” Duarte v.

Bardales, 526 F.3d 563, 577 n. 4 (9th Cir. 2008).

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proceeding. Fourth, the decision in the former

proceeding must be final and on the merits. Finally,

the party against whom preclusion is sought must be the

same as, or in privity with, the party to the former

proceeding. 

Harmon v. Kobrin (In re Harmon), 250 F.3d 1240, 1245 (9th Cir.

2001)(emphasis added). 

Here, the elements of the Intentional Misrepresentation claim

are identical to those necessary to establish that a debt is

nondischargeable under section 523(a)(2)(A). As the Ninth Circuit

stated in Ghomeshi v. Sabban (In re Sabban), 600 F.3d 1219 (9th

Cir. 2010): 

We have consistently held that making out a claim of

non-dischargeability under § 523(a)(2)(A) requires the

creditor to demonstrate five elements:

 (1) the debtor made ... 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 representations;

[and]

 (5) that the creditor sustained the alleged loss and

damage as the proximate result of the

misrepresentations having been made.

Id., quoting Am. Express Travel Related Servs. Co. v. Hashemi (In

re Hashemi), 104 F.3d 1122, 1125 (9th Cir. 1996) (quoting Britton

v. Price (In re Britton), 950 F.2d 602, 604 (9th Cir. 1991)). All

seven of the jury’s findings regarding the Intentional

Misrepresentation establish demonstrate that the requirements for

a determination of nondischargeability under section 523(a)(2)(A)

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exist here,5 except as to the extent of the loss resulting from

Debtor’s intentional misrepresentation (the fifth factor). 

Because the jury did not allocate the damages between the

Intentional Misrepresentation claim and the Negligent

Misrepresentation claim, the court is unable, based on the state

court judgment, to conclude as a matter of law and undisputed fact

that all of the damages awarded by the jury are attributable to

the Intentional Misrepresentation claim. As the state court

judgment amount is in the aggregate, this court lacks the

specificity needed to find that it precludes further litigation as

to the fifth prong of a section 523(a)(2) claim: the existence and

amount of loss suffered as a result of the Intentional

Misrepresentation. As recently held by another court: 

[A] jury’s failure to allocate damages between a cause

of action that is consistent with the federal standard

of nondischargeability and a cause of action that does

not rise to that standard cannot be the basis of a

5

The jury instruction regarding the requisite knowledge of

falsity for a finding of Intentional Misrepresentation required

the jury to find that Debtor “knew that the representation was

false when she made it, or that she made the representation

recklessly and without regard for its truth.” The Ninth Circuit

has recognized that “reckless disregard for the truth of a

representation satisfies the element that the debtor has made an

intentionally false representation in obtaining credit.” Advanta

Nat’l Bank v. Kong (In re Kong), 239 B.R. 815 (9th Cir. BAP 1999);

Anastas v. Am. Sav. Bank (In re Anastas), 94 F.3d 1280, 1286 (9th

Cir. 1996)(“[w]e have previously held that reckless disregard for

the truth of a representation satisfies the element that the

debtor has made an intentionally false representation”), citing

Houtman v. Mann (In re Houtman), 568 F.2d 651, 656 (9th Cir.

1978)(overruled on other grounds by Grogan v. Garner, 498 U.S.

279, 284 (1991))(“reckless indifference to the actual facts,

without examining the available source of knowledge which lay at

hand, and with no reasonable ground to believe that it was in fact

correct [is] sufficient to establish the knowledge element”);

Gertsch v. Johnson & Johnson Fin. Corp. (In re Gertsch), 237 B.R.

160, 167-68 (9th Cir. BAP 1999) (recognizing that “intent to

deceive can be inferred from the totality of circumstances,

including reckless disregard for the truth”) (citations omitted). 

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judgment that has a preclusive effect without further

findings regarding same on remand.

Spagnuolo v. Brooke–Petit, 506 B.R. 1, 7 (D. Mass. 2014), citing

In re Gallagher, 388 B.R. 694, 704 (W.D. N.C. 2008); In re

Raccuglia, 464 B.R. 477, 483 (Bankr. N.D. Ga. 2011); and In re

Lowery, 440 B.R. 914, 926 (Bankr. N.D. Ga. 2010)).

Finally, the court denies Debtor’s MSJ to the extent it seeks

a determination as to the correct calculation of damages. Such a

determination is outside the scope of this summary judgment

motion. If Debtor believes that she has partially satisfied the

judgment because of events that subsequently occurred, she should

seek relief from the state court. This court’s job going forward

is limited to a determination of what damages flowed from the

Intentional Misrepresentation.

IV. CONCLUSION

In conclusion, issue preclusion bars relitigation as to

whether the Debtor's conduct constituted an intentional and

fraudulent misrepresentation. However, because the jury did not

allocate the damages specifically to that claim, the determination

of damages has no preclusive effect here. In light of the

foregoing, the court denies both the MSJ and the XSJ. Counsel for

Plaintiff should prepare orders denying the motions “for the

reasons stated” in this memorandum decision, and comply with

B.L.R. 9021-1(c). The court will hold a status conference on

April 29, 2016, at 1:30 p.m. to set a trial date and other

relevant deadlines.

**END OF MEMORANDUM DECISION**

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