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1 This disposition is not appropriate for publication. 

Although it may be cited for whatever persuasive value it may

have (see Fed. R. App. P. 32.1), it has no precedential value. 

See 9th Cir. BAP Rule 8013-1.

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. CC-11-1065-HPaMk

)

MANMOHAN SINGH BIRING, ) Bk. No. 07-21006

)

Debtor. ) Adv. No. 08-01172

______________________________)

)

MANMOHAN SINGH BIRING, )

)

Appellant, )

)

v. ) M E M O R A N D U M1

)

YOGESH DHAWAN, )

)

Appellee. )

______________________________)

Argued and Submitted on November 16, 2011, 

at Pasadena, California

Filed - January 12, 2012

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Peter H. Carroll, Bankruptcy Judge, Presiding 

Appearances: Gregory M. Salvato, Esq. of Salvato Law Offices

argued for the Appellant. Bren Conner, Esq. of

Conner & Associates argued for the Appellee. 

Before: HOLLOWELL, PAPPAS and MARKELL, Bankruptcy Judges.

FILED

JAN 12 2012

SUSAN M SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT
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2 Unless otherwise specified, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and

all “Rule” references are to the Federal Rules of Bankruptcy

Procedure, Rules 1001-9037.

-2-

Creditor Yogesh Dhawan (Dhawan) obtained a default judgment

in California state court and subsequently sued the debtor to

determine the nondischargeability of the debt pursuant to 

§ 523(a).2 The bankruptcy court granted Dhawan’s motion for

summary judgment, determining that there was no genuine issue of

material fact because of the preclusive effect of the state court

judgment. We AFFIRM.

I. FACTS

The Debtor is a pulmonary and critical care physician,

licensed to practice medicine in California. He has expertise in

skin care and other cosmetic treatments. In 2002, the Debtor

created Healthwest, Inc. (Healthwest) to offer and sell licenses

for “med spa” clinics (Clinics) that provided laser hair removal,

Botox, light treatment and microdermabrasion. The Debtor,

through Healthwest, sold the licenses with options to operate the

Clinics in certain exclusive territories. As part of the

purchase, the Debtor would provide necessary support services for

the operation of the Clinics.

On August 13, 2003, Healthwest filed an application with the

California Department of Corporations (CDOC) to register its sale

of licenses and options as franchises. In October or November

2003, the Debtor provided Dhawan with its franchise offering. 

Based on the information and representations provided by the

Debtor in connection with the Clinic opportunity, Dhawan
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purchased a license to operate a Clinic and entered into a

Licensing Servicing Agreement, a Management Support Services

Agreement, and an Asset Purchase Agreement with the Debtor and

Healthwest.

On July 7, 2004, the CDOC finalized its review of Healthwest

and denied its franchise registration application, finding that

Healthwest had advertised and sold the Clinics by means of

fraudulent misrepresentation. It found that “the offer or sale

of [the] franchises in California would constitute

misrepresentation, deceit and fraud on the purchasers,” for

reasons including that the Debtor and Healthwest sold multiple

licenses for the same territories.

On September 24, 2004, Dhawan filed a complaint against the

Debtor and Healthwest in California state court alleging thirteen

causes of action including fraud, fraudulent inducement to

contract, negligent misrepresentation, breach of contract, unfair

competition and unfair business practices in connection with his

purchase of the Clinic (the State Court Complaint). Dhawan

alleged that the Debtor, individually and as the sole shareholder

and officer of Healthwest, fraudulently induced him to invest in

the Clinic and enter into the associated agreements, and then

systematically breached those agreements by not delivering what

was promised. The State Court Complaint incorporated the

findings of the CDOC. Dhawan sought general, special, and

punitive damages in an unspecified amount.

Although the Debtor and Healthwest were properly served with

the State Court Complaint, neither answered. Default judgments

were entered against the Debtor and Healthwest on February 8,
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2005. Dhawan submitted evidence and testimony concerning the

claims made in the State Court Complaint to support the amount of

his resulting damages at a “prove up” hearing held on

September 12, 2005. Although the Debtor admits he received both

the State Court Complaint and the statement of damages, he did

not appear at the prove up hearing.

On September 12, 2005, the state court entered a

$1,924,008.64 judgment jointly and severally against the Debtor

and Healthwest (the Judgment). The state court awarded damages

based on the “oral testimony and other evidence presented by

[Dhawan], including [his] written declaration, and supporting

exhibits.” It found that “consistent with this action and the

evidence presented,” Dhawan “sustained damages as alleged in the

complaint.” The Judgment specified the damages: 

1) $85,000 for Mr. Dhawan’s initial payment for the

[Clinic] and options pursuant to the License Agreement,

which has been rendered useless by the Defendants’

misrepresentations and breaches of contract to aid in

the operation of the [Clinic];

2) $225,000 for the lost value of the options on the

. . . territories . . . pursuant to both the parties’

Option Agreement and Asset Purchase Agreement for which

Mr. Dhawan was denied his opportunity to exercise the

options due to the breaches and fraudulent conduct as

evidenced and identified by the Department of

Corporations;

3) $129,000 in the amount that Mr. Dhawan became

obligated, and now remains obligated on the promissory

note executed in connection with the Asset Purchase

Agreement, but which Defendants breached by failing to

provide the assets promised;

4) $198,990 to purchase the equipment and other assets
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that should have been provided by Defendants . . .

pursuant to the Asset Purchase Agreement;

5) $245,343.64 in losses and additional expenditures

. . . due to Defendants’ failure to provide the

support, training and marketing efforts that had been

promised in both the Licensing Agreement and Marketing

Agreement;

6) $510,000 in lost profits . . . ;

7) $510,000 which represents the net income for [the

Clinics] that had been optioned as was set forth in the

profit and loss statements which were used by the

Defendants to induce Mr. Dhawan’s reliance;

8) costs in the amount of $675; and, 

9) $20,000 in relocation and related expenses for

Plaintiff’s family.

On November 28, 2007, the Debtor filed a voluntary petition

under chapter 7. Dhawan filed an adversary proceeding on

February 26, 2008, to have the Judgment declared nondischargeable

under § 523(a)(2), (a)(4) and (a)(6) (the Nondischargeability

Complaint). Like the State Court Complaint, the

Nondischargeability Complaint alleged that the Debtor

fraudulently induced him to invest in the Clinic. Dhawan

contended that the Debtor knew that the information in the

franchise offering was false and never intended to perform on the

agreements in connection with the Clinic as promised. He

asserted that the offering and sale of the Clinic was part of a

scheme to defraud him.

Dhawan filed a motion for summary judgment on the basis that

the Judgment had preclusive effect on the issue of whether the

Debtor committed fraud under § 523(a)(2)(A). The Debtor filed an
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opposition. After a hearing on December 21, 2010, the bankruptcy

court issued a memorandum decision determining that the Debtor

had a full and fair opportunity to litigate the State Court

Complaint and that because the issue of his fraudulent conduct

was necessarily decided in the state court, he was precluded from

relitigating Dhawan’s fraud claim in bankruptcy. The bankruptcy

court entered a judgment on January 19, 2011, declaring the

Judgment nondischargeable pursuant to § 523(a)(2). The Debtor

timely appealed.

II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C.

§ 157(b)(2)(A), (I), (O) and § 1334. We have jurisdiction under

28 U.S.C. § 158. 

III. ISSUE

Did the bankruptcy court err in granting summary judgment

excepting from discharge the $1,924,008 in damages awarded by the

state court?

IV. STANDARDS OF REVIEW

We review de novo the bankruptcy court’s grant of summary

judgment. Ghomeshi v. Sabban (In re Sabban), 600 F.3d 1219,

1221-22 (9th Cir. 2010); Cutter v. Seror (In re Cutter), 398 B.R.

6, 16 (9th Cir. BAP 2008). 

We review de novo a bankruptcy court’s determination that

issue preclusion is available. Lopez v. Emerg. Serv.

Restoration, Inc. (In re Lopez), 367 B.R. 99, 103 (9th Cir. BAP

2007); Khaligh v. Hadaegh (In re Khaligh), 338 B.R. 817, 823

(9th Cir. BAP 2006). Once we determine that issue preclusion is

available, we review whether applying it was an abuse of
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discretion. In re Lopez, 367 B.R. at 103; In re Khaligh,

338 B.R. at 823; Miller v. County of Santa Cruz, 39 F.3d 1030,

1032 (9th Cir. 1994). A bankruptcy court abuses its discretion

when it applies the incorrect legal rule or its application of

the correct legal rule is “(1) illogical, (2) implausible, or

(3) without support in inferences that may be drawn from the

facts in the record.” United States v. Loew, 593 F.3d 1136, 1139

(9th Cir. 2010) (quoting United States v. Hinkson, 585 F.3d 1247,

1261-62 (9th Cir. 2009)(en banc))(internal quotation marks

omitted).

V. DISCUSSION

A. Summary Judgment

In reviewing the bankruptcy court’s decision on a motion for

summary judgment, we apply the same standards as the bankruptcy

court. Summary judgment may be granted “if the pleadings, the

discovery and disclosure materials on file, and any affidavits

show that there is no genuine issue as to any material fact and

that the movant is entitled to judgment as a matter of law.” 

Fed. R. Civ. P. 56(a) (incorporated by Rule 7056); Barboza v. New

Form, Inc. (In re Barboza), 545 F.3d 702, 707 (9th Cir. 2008).

The party seeking summary judgment bears the initial burden

of establishing the absence of a genuine issue of material fact. 

Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). A dispute

is genuine if there is sufficient evidence for a reasonable factfinder to hold in favor of the non-moving party, and a fact is

“material” if it might affect the outcome of the case. Far Out

Prods., Inc. v. Oskar, 247 F.3d 986, 992 (9th Cir. 2001) (citing

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986)). 
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Once the moving party has met its initial burden, the non-moving

party must show specific facts establishing the existence of

genuine issues of fact for trial. Id., at 256.

B. Issue Preclusion

Issue preclusion applies in nondischargeability proceedings

to bar the relitigation of factual issues that were determined in

a prior state court action. Grogan v. Garner, 498 U.S. 279, 284-

85 n.11 (1991). To determine the issue-preclusive effect of a

California state court’s judgment, we apply California preclusion

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

Surgeons, 470 U.S. 373, 380 (1985); Gayden v. Nourbakhsh (In re

Nourbakhsh), 67 F.3d 798, 800 (9th Cir. 1995). Under California

law, the party asserting issue preclusion has the burden of

establishing the following “threshold” requirements:

(1) the issue sought to be precluded must be identical to

that decided in a former proceeding;

(2) the issue must have been actually litigated in the

former proceeding;

(3) it must have been necessarily decided in the former

proceeding;

(4) the decision in the former proceeding must be final and

on the merits; and,

(5) 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); In re Lopez, 367 B.R. at 104.

Additionally, the application of issue preclusion requires a

“mandatory ‘additional’ inquiry into whether imposition of issue

preclusion would be fair and consistent with sound public
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policy.” In re Khaligh, 338 B.R. at 824-25. As stated by the

California Supreme Court:

We have repeatedly looked to the public policies

underlying the doctrine before concluding that

collateral estoppel should be applied in a particular

setting. . . . Accordingly, the public policies

underlying collateral estoppel - preservation of the

integrity of the judicial system, promotion of judicial

economy, and protection of litigants from harassment by

vexatious litigation - strongly influence whether its

application in a particular circumstance would be fair

to the parties and constitutes sound judicial policy.

Lucido v. Super. Ct., 51 Cal.3d 335, 342-43 (1990)(internal

citations omitted); see also In re Lopez, 367 B.R. at 108.

To meet its burden, the moving party must have pinpointed

the exact issues litigated in the prior action and introduced a

record revealing the controlling facts. Kelly v. Okoye (In re

Kelly), 182 B.R. 255, 258 (9th Cir. BAP 1995), aff’d, 100 F.3d

110 (9th Cir. 1996). Reasonable doubts about what was decided in

the prior action are resolved against the party seeking

preclusion. Id.

C. Section 523(a)(2)(A)

The Bankruptcy Code excepts from discharge any debt for

money, property, services, or credit obtained by false pretenses,

a false representation, or actual fraud. 11 U.S.C.

§ 523(a)(2)(A). To prevail on a claim under § 523(a)(2)(A), a

creditor must demonstrate five elements: (1) misrepresentation,

fraudulent omission or deceptive conduct by the debtor;

(2) knowledge of the falsity or deceptiveness of the debtor’s

statement or conduct; (3) an intent to deceive; (4) justifiable

reliance by the creditor on the debtor’s statement or conduct;

and (5) damage to the creditor proximately caused by its reliance
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on the debtor’s statement or conduct. Candland v. Ins. Co. of N.

Am. (In re Candland), 90 F.3d at 1466, 1469 (9th Cir. 1996);

Turtle Rock Meadows Homeowners Ass’n v. Slyman (In re Slyman),

234 F.3d 1081, 1085 (9th Cir. 2000). The elements of 

§ 523(a)(2)(A) mirror common law fraud. Field v. Mans, 516 U.S.

59, 61 (1995). The creditor bears the burden of proving each

element of § 523(a)(2)(A) by a preponderance of the evidence. 

Grogan v. Garner, 498 U.S. at 287.

D. Application of Issue Preclusion

The Debtor argues that issue preclusion should not apply in

this case because the issue of fraud, including the element of

intent to deceive, was not actually litigated or necessarily

decided in the state court since it was the result of a default.

However, while in the minority, California law accords

preclusive effect to default judgments, “at least where the

judgment contains an express finding on the allegations.” 

Gottlieb v. Kest, 141 Cal.App.4th 110, 149 (Cal. Ct. App. 2006);

Green v. Kennedy (In re Green), 198 B.R. 564, 566 (9th Cir. BAP

1996). The rationale behind finding that default judgments can

be preclusive is that defendants who are served with a summons

and complaint but fail to respond are presumed to admit all the

facts pled in the complaint. In re Harmon, 250 F.3d at 1247. 

Therefore, a default judgment:

conclusively establishes, between the parties so far as

subsequent proceedings on a different cause of action

are concerned, the truth of all material allegations

contained in the complaint in the first action, and

every fact necessary to uphold the default judgment 

. . . .
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Gottlieb v. Kest, 141 Cal.App.4th at 149 (internal citations

omitted). 

For a default judgment to be “actually litigated,” the

material factual issues must have been both raised in the

pleadings and necessary to uphold the default judgment. Id.

Therefore, the record in the prior proceeding must show an

express finding upon the allegation for which preclusion is

sought. However, “the express finding requirement can be waived

if the court in the prior proceeding necessarily decided the

issue.” Cantrell v. Cal-Micro, Inc. (In re Cantrell), 329 F.3d

1119, 1124 (9th Cir. 2003). “In such circumstances, an express

finding is not required because if an issue was necessarily

decided in a prior proceeding, it was actually litigated.” Id.

(internal citations omitted).

There is no dispute here that the Debtor received notice of

the State Court Complaint, as well as the default judgment and

Dhawan’s filed statement of damages and notice of the “prove up”

hearing. Nevertheless, the Debtor asserts that the issue of

fraud was not actually litigated because the Judgment did not

contain express findings of fraud. He contends that the issue of

fraud was not necessarily decided because the damages that were

awarded could have been based on Dhawan’s claims for negligent

misrepresentation or breach of contract rather than fraud.

The Debtor relies on In re Harmon to support his position.

250 F.3d 1240. In that case, the plaintiff sued the debtor for

conversion, contract violations and damages for restitution and

dissolution of partnership in connection with a failed joint

venture in an Ostrich ranch. After the state court judgment
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became final, the plaintiff sought to have it declared

nondischargeable under § 523(a)(2)(A). The Ninth Circuit held

that the state court did not provide express findings of fraud

(or anything else) in the judgment and because fraud could not be

interpreted from the basis of the complaint, the issue of fraud

had not been actually litigated.

Here, however, the State Court Complaint, like the

Nondischargeability Complaint, alleged fraud in connection with

the offer and sale of the Clinics. While the Debtor asserts that

the State Court Complaint alleged many causes of action that were

non-fraud related, the causes of action were, in fact, all

related to the Debtor’s alleged fraud in the offer and sale of

the Clinic franchises. The State Court Complaint alleged facts

supporting Dhawan’s claims that the Debtor falsely represented to

Dhawan the profits available from the Clinic, the exclusiveness

of operations, and the support available from the Debtor. Dhawan

alleged that the Debtor fraudulently induced him to enter the

Licensing Servicing Agreement and the Asset Purchase Agreement. 

He alleged that he relied on the Debtor’s misrepresentations in

purchasing the Clinic and entering into the agreements as part of

the transaction. Finally, Dhawan alleged that the Debtor

breached those agreements by intentionally failing to perform as

promised. 

In entering the Judgment, the state court expressly found

that Dhawan presented evidence consistent with the allegations in

the State Court Complaint and awarded Dhawan the damages

sustained as a result. Additionally, the Judgment referenced the

CDOC findings that the Debtor had engaged in fraudulent conduct
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3

 The bankruptcy court relied on the state court’s oral

ruling that Dhawan was entitled to an award of punitive damages,

although punitive damages were ultimately not reduced to

judgment, as a basis for determining that the issue of fraud was

necessarily decided. In this case, regardless of the punitive

damage award, the evidence in the record is sufficient to

demonstrate that the issue of fraud was necessary to uphold the

Judgment.

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with respect to the offer and sale of the Clinics and in selling

exclusive operating territories under its agreements.

Thus, the Debtor’s fraud underlies all of the state court

claims. Simply because the Judgment did not expressly identify

that each component of the $1,924,008 award was based on the

fraudulent conduct of the Debtor, it does not mean that there was

a “reasonable doubt as to what was decided.” See In re Kelly,

182 B.R. at 258. The Judgment cannot be sustained, as the Debtor

argues, on solely the non-fraud breach of contract claims because

the agreements themselves were found to be the result of the

Debtor’s fraudulent conduct.3

Because the factual issues supporting fraud were raised in

the State Court Complaint and necessary to the Judgment, the

State Court Complaint was “actually litigated” and necessarily

decided. Id.; see Younie v. Gonya (In re Younie), 211 B.R. 367,

374-75 (9th Cir. BAP 1997). There is no question that the

parties to the bankruptcy action are the same as those that

participated in the state court. The State Court Complaint and

the Nondischargeability Complaint alleged the same set of facts

and circumstances, and the Judgment was a final decision on the

merits. Thus, the threshold requirements for the application of

issue preclusion are satisfied. The bankruptcy court did not err
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in concluding that the issue of whether the Debtor committed

fraud within the meaning of § 523(a)(2)(A) was precluded by the

Judgment and could not be relitigated in the bankruptcy court. 

We perceive no abuse of discretion in the bankruptcy court’s

decision to apply issue preclusion in this case. 

Because of the preclusive effect of the Judgment, Dhawan

satisfied his burden of demonstrating that there were no genuine

issues of material fact as to the elements of fraud. As a

result, the bankruptcy court did not err in granting Dhawan

summary judgment on his Nondischargeability Complaint.

VI. CONCLUSION

The bankruptcy court did not err in giving preclusive effect

to the Judgment. For that reason, we AFFIRM the bankruptcy

court’s grant of summary judgment to Dhawan.