1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. AZ-15-1375-FLJu

)

PATRICK LAZZARI, ) Bk. No. 2:10-bk-18314-BKM

)

Debtor. ) Adv. Pro. 2:14-ap-00725-BKM

_____________________________ )

)

PATRICK LAZZARI, )

)

Appellant, )

)

v. ) MEMORANDUM*

)

DANIEL LAZZARI, as Conservator)

for Michael Lazzari; SALLY )

MARTINEZ, as Conservator for )

Michael Lazzari, )

)

Appellees. )

______________________________)

Argued and Submitted on September 23, 2016

at Phoenix, Arizona

Filed – October 13, 2016

Appeal from the United States Bankruptcy Court

for the District of Arizona

Honorable Brenda K. Martin, Bankruptcy Judge, Presiding

 

Appearances: Dean W. O’Connor argued for Appellant Patrick

Lazzari; Jenna Rose Swiren of Fennemore Craig,

P.C. argued for Appellees Daniel Lazzari and Sally

Martinez.

 

Before: FARIS, LAFFERTY, and JURY, Bankruptcy Judges.

FILED

OCT 13 2016

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

* 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 8024-1.
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

INTRODUCTION

Debtor Patrick Lazzari appeals the bankruptcy court’s order

granting summary judgment in favor of appellees Daniel Lazzari

and Sally Martinez on their § 523(a)(4)1 claim. The court

applied issue preclusion to a state court ruling determining that

the debtor had violated his fiduciary duty to his brother,

Michael Lazzari. We discern no error. Accordingly, we AFFIRM.

FACTUAL BACKGROUND2

A. The Lazzari family

Patrick, Daniel, Sally, and Michael are siblings.3 Another

brother, Steven, is not involved in this litigation. 

In or around October 2000, Michael suffered a serious workrelated injury. He was prescribed numerous medications for pain

management and psychiatric disorders. Between 2001 and 2005,

Michael overdosed on drugs at least ten times. Some of those

incidents involved suicide attempts and resulted in involuntary

psychiatric commitment.

Michael generally lived at home with his parents and brother

Steven in San Francisco. In late 2004 or early 2005, Michael

1 Unless specified otherwise, all chapter and section

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

“Rule” references are to the Federal Rules of Bankruptcy

Procedure, Rules 1001-9037, and all “Civil Rule” references are

to the Federal Rules of Civil Procedure, Rules 1-86.

2 We have exercised our discretion to review the bankruptcy

court’s docket, as appropriate. See Woods & Erickson, LLP v.

Leonard (In re AVI, Inc.), 389 B.R. 721, 725 n.2 (9th Cir. BAP

2008).

3 For ease of reference, we identify the members of the

Lazzari family by their first names. No disrespect is intended.

2
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

went to Arizona to live with Patrick. 

After Michael’s workplace injury, Patrick handled Michael’s

personal finances. Shortly after moving to Arizona, on March 4,

2005, Michael signed a durable power of attorney appointing

Patrick as his attorney-in-fact.

B. The Bassillio Trust

Michael and Patrick were beneficiaries of their aunt’s

trust, the Gloria Bassillio Revocable Trust, dated March 9, 2003,

as amended and restated on December 26, 2003 (the “Bassillio

Trust”). They were each to receive fifty percent of real

property located on Naples Street in San Francisco (the “San

Francisco Property”).4

The Bassillio Trust provided that, upon Ms. Bassillio’s

death, Maurice Lazzari (Ms. Bassillio’s brother and the siblings’

father) would serve as successor trustee. Michael was named

second successor trustee, and Patrick was named the third

successor trustee.

Ms. Bassillio passed away in December 2005. In February

2006, both Maurice5 and Michael signed a notice stating that they

were unwilling to serve as successor trustee. As such, Patrick

became the trustee of the Bassillio Trust.

4 The Bassillio Trust documents state that Michael and

Patrick were to each receive a half interest in the San Francisco

Property, while their father was to receive the other trust

assets. However, the parties have stated throughout this

litigation that Michael and Patrick were the only beneficiaries

and were to receive a half interest in all trust property.

5 A court investigator later found evidence that Patrick

unduly influenced Maurice, who was in his eighties and suffered

from alcohol-related dementia.

3
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

On March 9, 2006, Michael signed a Beneficiary Disclaimer

and Renunciation (“Disclaimer”) in which he disclaimed his entire

interest in the Bassillio Trust to Patrick. The Disclaimer

provided that Michael intended for the San Francisco Property to

be distributed solely to Patrick.

That same day, Patrick executed a grant deed distributing

the San Francisco Property from the Bassillio Trust to himself. 

He later took out a $419,000 loan secured by the otherwise

unencumbered San Francisco Property.

A day after Michael executed the Disclaimer, he apparently

overdosed on prescription medication and suffered a severe anoxic

brain injury while hospitalized. He spent months in the hospital

and skilled nursing facility before returning to San Francisco to

live with his parents and brother Steven. As a result of his

brain injury, Michael now requires life-long medical and

attendant care.

C. The conservatorship proceedings

In May 2008, appellees Daniel and Sally filed a petition for

temporary conservatorship of Michael. The California superior

court held a hearing on the petition and appointed Daniel and

Sally as temporary conservators over Patrick’s objections.

The parties engaged in legal wrangling over Michael’s

conservatorship for a number of years. Daniel and Sally alleged

that Patrick acted unscrupulously to deprive Michael of his

property. Among other things, in January 2009, they filed a

petition to compel Patrick to account for his handling of

Michael’s finances. The superior court granted the petition and

also ordered Patrick to pay attorneys’ fees and costs totaling

4
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

$17,768 and a surcharge of $64,077.41 for violation of fiduciary

duties as attorney-in-fact. Daniel and Sally also obtained a

restraining order against Patrick.

Daniel and Sally took the position that Michael was entitled

to possession of fifty percent of the personal and real property

held by the Bassillio Trust at the time of Ms. Bassillio’s death. 

Patrick opposed Daniel’s and Sally’s position and participated in

the conservatorship proceedings between 2008 and 2010. 

Thereafter, Patrick received notice of the proceedings but did

not participate as vigorously. Daniel and Sally stated that

Patrick engaged in the litigation on at least two occasions but

chose not to file responses or objections to their filings.6

On May 17, 2010, Daniel and Sally filed an amended petition

(the “Amended Petition”) to, among other things, have the court

declare the Disclaimer void; find that Patrick violated his

duties to Michael; and transfer the San Francisco Property to

Michael’s conservatorship. Patrick did not respond to the

Amended Petition.

D. Patrick’s bankruptcy proceedings

On June 10, 2010, shortly after Daniel and Sally filed the

Amended Petition, Patrick filed his chapter 13 petition in the

United States Bankruptcy Court for the District of Arizona. As a

part of Patrick’s amended chapter 13 plan, he proposed to “sell

[the San Francisco Property] and proceeds will be used to pay

6 Patrick initially refused to provide the parties or the

court with a copy of documents or other information related to

the Bassillio Trust. However, by order dated January 21, 2011,

the superior court required Patrick to produce that information

for an accounting.

5
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

creditors.” The bankruptcy court granted relief from the

automatic stay so that the superior court proceedings could

continue.

E. The California Order

By order dated March 10, 2011, the superior court held that

the transfer of the San Francisco Property pursuant to the

Disclaimer was void ab initio. The court found that: (1) the

transfer of Michael’s interest in the San Francisco Property to

Patrick via the Disclaimer was void ab initio; (2) Patrick never

rightfully held ownership of Michael’s interest in the trust

property; and (3) Patrick has been holding Michael’s property as

constructive trustee.

On August 8, 2011, the superior court issued an order

(“California Order”) on the Amended Petition that found that

Patrick violated his duties, determined that the entire trust res

should be vested in Michael’s name, and required that Patrick be

liable for any encumbrances on the San Francisco Property. The

court held that Patrick violated his fiduciary duties as trustee

by “acting in bad faith, wrongfully taking, concealing and

disposing of property belonging to beneficiary Michael Lazzari,

exerting undue influence over Michael Lazzari, and dealing with

trust property for his own profit and in an interest [sic]

directly adverse to beneficiary Michael Lazzari . . . .” It

referenced the March 10, 2011 order and stated that “the transfer

of Michael Lazzari’s one-half interest in the [San Francisco

Property] to Patrick Lazzari via Beneficiary Disclaimer and

Renunciation was found void ab initio . . . .” The superior

court held that “full ownership in the [San Francisco Property]

6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

should be vested in Michael Lazzari, . . . that Patrick Lazzari

is liable to Michael Lazzari for the amount of any encumbrances

currently on the real property, and that the real property in its

entirety is rightfully held by the conservatorship estate of

Michael Lazzari.” Patrick did not appear for the hearing on this

matter, and he claimed that the California Order was entered by

default.

 In March 2012, the superior court awarded Daniel and Sally

$58,501 in attorneys’ fees and costs in connection with the

conservatorship litigation.

F. The adversary proceeding

In May 2014 (after the adverse superior court rulings), the

bankruptcy court granted Patrick’s request to convert his case to

one under chapter 7. He received his discharge in January 2015.

On August 29, 2014, Daniel and Sally initiated an adversary

proceeding against Patrick, seeking to except from discharge the

debt for the encumbrance on the San Francisco Property, the

surcharge, and the award of attorneys’ fees and costs under

§ 523(a)(2), (a)(4), and (a)(6).

Daniel and Sally filed a motion for summary judgment

(“Motion for Summary Judgment”) seeking a determination of

nondischargeability under § 523(a)(2), (a)(4), and (a)(6). Among

other things, they requested that the bankruptcy court give the

California Order issue preclusive effect.

After a hearing and supplemental briefing, the bankruptcy

court issued its Memorandum Decision on Summary Judgment

(“Memorandum Decision”). It stated that issue preclusion

prevented relitigation of the findings in the California Order

7
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

and that those findings are binding on the bankruptcy court. It

determined that Daniel and Sally met their burden with respect to

defalcation under § 523(a)(4), but not as to the § 523(a)(2) and

(a)(6) claims or the fraud element of § 523(a)(4).

The bankruptcy court concluded that issue preclusion applied

under California law, because (1) although the California Order

was obtained by default, it was decided on the merits (as opposed

to a procedural ground); (2) although the California Order was a

default judgment, the issues were actually litigated; (3) the

elements of defalcation under § 523(a)(4) were identical to that

decided by the California Order; and (4) Patrick had an incentive

to participate in the conservatorship proceedings, since the

San Francisco Property was crucial to his amended chapter 13

plan. The bankruptcy court held that the nondischargeable debt

was the claim “for the value of the mortgage lien on the trust

property ($419,000 at 3.5%; $467,800.54 as of October 6, 2011),

and the March 15, 2012 Order awarding attorney’s fees and costs

in the amount of approximately $58,000 relating to the Amended

Petition.”

On October 14, 2015, the court issued its Judgment Excepting

Debt from Discharge. Patrick timely filed his notice of appeal.7

JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

7 The BAP Clerk’s Office notified the parties that the

§ 523(a)(2) and (a)(6) claims remained outstanding and neither

the Memorandum Decision nor the judgment contained an express

determination that there is no just reason for delay or a

direction to enter final judgment on fewer than all claims. 

Patrick moved the court for Civil Rule 54(b) certification. The

court issued an order for final judgment on February 22, 2016.

8
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

§§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C.

§ 158.

ISSUE

Whether the bankruptcy court erred in granting summary

judgment in favor of Daniel and Sally under § 523(a)(4) by

applying issue preclusion to the California Order.8

STANDARDS OF REVIEW

We review “the bankruptcy court’s interpretation of the

Bankruptcy Code de novo and its factual findings for clear

error[.]” Hedlund v. Educ. Res. Inst. Inc., 718 F.3d 848, 854

(9th Cir. 2013) (quoting Miller v. Cardinale (In re DeVille),

361 F.3d 539, 547 (9th Cir. 2004)). 

“We review rulings regarding rules of res judicata,

including claim and issue preclusion, de novo as mixed questions

of law and fact in which legal questions predominate.” Khaligh

v. Hadaegh (In re Khaligh), 338 B.R. 817, 823 (9th Cir. BAP

2006), aff’d, 506 F.3d 956 (9th Cir. 2007) (citations omitted). 

“Once it is determined that preclusion doctrines are available to

be applied, the actual decision to apply them is left to the

trial court’s discretion.” Id. (citations omitted).

8 Daniel and Sally argue that nondischargeability is proper

under § 523(a)(2) and (a)(6). However, the bankruptcy court held

that the California Order did not satisfy the elements necessary

for issue preclusion under those sections, and neither party

appealed that portion of the Memorandum Decision. Accordingly,

we do not address § 523(a)(2) or (a)(6). 

9
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

DISCUSSION

A. The superior court judgment cannot be discharged under

§ 523(a)(4) if Patrick breached his fiduciary duty to

Michael by committing fraud or defalcation.

Section 523(a)(4) provides: 

(a) A discharge under section 727 . . . of this title

does not discharge an individual debtor from any debt -

. . .

(4) for fraud or defalcation while acting in a

fiduciary capacity, embezzlement, or larceny[.]

§ 523(a)(4). 

Under Ninth Circuit law, “[t]o prevail on a

nondischargeability claim under § 523(a)(4) the plaintiff must

prove not only the debtor’s fraud or defalcation, but also that

the debtor was acting in a fiduciary capacity when the debtor

committed the fraud or defalcation.” Honkanen v. Hopper

(In re Honkanen), 446 B.R. 373, 378 (9th Cir. BAP 2011); see

Nahman v. Jacks (In re Jacks), 266 B.R. 728, 735 (9th Cir. BAP

2001) (“The creditor must establish three elements for

nondischargeability under this provision: (1) an express trust;

(2) that the debt was caused by fraud or defalcation; and

(3) that the debtor was a fiduciary to the creditor at the time

the debt was created.”). The United States Supreme Court has

held that defalcation has a specific meaning that requires “bad

faith, moral turpitude, or other immoral conduct,” or “an

intentional wrong.” Bullock v. BankChampaign, N.A., 133 S. Ct.

1754, 1759-60 (2013).

B. The bankruptcy court did not err in applying issue

preclusion to the California Order.

The question before the Panel is whether the California

10
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Order can be given issue preclusive effect such that it precludes

relitigation before the bankruptcy court of the issues pertinent

to the § 523(a)(4) claim.

A bankruptcy court may rely on the issue preclusive effect

of an existing state court judgment as the basis for granting

summary judgment. See In re Khaligh, 338 B.R. at 831-32. The

usual rules of issue preclusion apply in dischargeability

litigation. Grogan v. Garner, 498 U.S. 279, 284-85 (1991).

Under the full faith and credit statute, federal courts must

give state court judgments the same preclusive effect that a

state court would. See 28 U.S.C. § 1738; Gayden v. Nourbakhsh

(In re Nourbakhsh), 67 F.3d 798, 800 (9th Cir. 1995). To

determine the preclusive effect of a state court judgment,

federal courts apply the preclusion law of the state in which the

judgment was entered. See Marrese v. Am. Acad. of Orthopaedic

Surgeons, 470 U.S. 373, 380 (1985); DiRuzza v. Cty. of Tehama,

323 F.3d 1147, 1152 (9th Cir. 2003). 

Here, although the bankruptcy proceedings were held in

Arizona, the conservatorship proceedings took place in

California, and the California Order was issued by the California

superior court. Therefore, California law on issue preclusion

applies.

1. California law on issue preclusion

In California, issue preclusion prevents parties from

relitigating issues already decided in prior proceedings. Lucido

v. Super. Ct., 51 Cal. 3d 335, 341 (1990). The party asserting

issue preclusion must prove five elements. First, the issues to

be precluded must be identical to the ones decided in the prior

11
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

proceeding. Second, the issues must have been actually litigated

in the prior proceeding. Third, the issues must have been

necessarily decided. Fourth, the decision must have been final

and on the merits. Finally, the party to be precluded must be

identical to or in privity with a party to the prior proceeding. 

Id. 

The party asserting issue preclusion has the burden of

establishing each element. “To sustain this burden, a party must

introduce a record sufficient to reveal the controlling facts and

the exact issues litigated in the prior action. Any reasonable

doubt as to what was decided in the prior action will weigh

against applying issue preclusion.” Brandstetter v. Derebery

(In re Derebery), 324 B.R. 349, 353 (Bankr. C.D. Cal. 2005)

(citing Kelly v. Okoye (In re Kelly), 182 B.R. 255, 258 (9th Cir.

BAP 1995)). 

The doctrine of issue preclusion is not mechanically

applied. Instead, the court must apply it when it advances three

policies: “(1) to promote judicial economy by minimizing

repetitive litigation; (2) to prevent inconsistent judgments

which undermine the integrity of the judicial system; and (3) to

provide repose by preventing a person from being harassed by

vexatious litigation.” Alpha Mech., Heating & Air Conditioning,

Inc. v. Travelers Cas. & Sur. Co. of Am., 133 Cal. App. 4th 1319,

1333 (2005).

2. Preclusive effect of the California Order

a. Are the issues identical?

The first prong of the issue preclusion test requires a

comparison of the issues presented in the current case with the

12
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

issues presented in the prior case that resulted in the judgment. 

The bankruptcy court held that the California Order established

the requisite elements of defalcation under § 523(a)(4). We find

no error. 

A debt is nondischargeable under § 523(a)(4) if the creditor

establishes: (1) an express trust; (2) that the debt was caused

by fraud or defalcation; and (3) that the debtor was a fiduciary

to the creditor at the time the debt was created. In re Jacks,

266 B.R. at 735. The relevant terms have specific meanings and

are narrowly construed. “[T]he fiduciary relationship must be

one arising from an express or technical trust that was imposed

before and without reference to the wrongdoing that caused the

debt.” Lewis v. Scott (In re Lewis), 97 F.3d 1182, 1185 (9th

Cir. 1996). Additionally, defalcation requires “bad faith, moral

turpitude, or other immoral conduct,” or “an intentional wrong.” 

Bullock, 133 S. Ct. at 1759-60.

The bankruptcy court engaged in a thorough comparison of the

California Order and the elements of § 523(a)(4). It concluded

that the California Order established the necessary elements for

defalcation under § 523(a)(4). It said:

all three of the elements of § 523(a)(4) have been

ruled upon by the State Court: there is an express

trust; the Debtor was trustee of the trust; the Debtor

committed defalcation when, acting in bad faith, he

took, concealed and disposed of trust property for his

own benefit and profit and to the detriment of Michael

as beneficiary.

We agree with the court’s analysis. Patrick does not challenge

this aspect of the bankruptcy court’s ruling.

Rather, Patrick argues that issue preclusion is inapplicable

because the superior court did not make a determination of

13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

nondischargeability. This argument is nonsensical. The superior

court had no reason to consider and rule on whether its ruling

would result in a nondischargeable debt in bankruptcy. Rather,

issue preclusion concerns whether the elements of the claims

decided by the state court are the same as the elements of the

claims to be decided by the bankruptcy court.

Accordingly, the issues are identical, and the first prong

is satisfied.

b. Were the issues actually litigated?

An issue is “actually litigated” when the issue was raised,

actually submitted for determination, and determined. Baker v.

Hull, 191 Cal. App. 3d 221, 226 (1987). Courts also consider

whether the party to be estopped had a “full and fair

opportunity” to litigate the issue. Gottlieb v. Kest, 141 Cal.

App. 4th 110, 148 (2006).

Patrick argued to the bankruptcy court that the California

Order was not actually litigated, because he largely did not

participate in the conservatorship proceedings after 2010 and did

not answer the Amended Petition or appear at the hearing on the

Amended Petition. The court held that, even though the

California Order was a default judgment, the issues were actually

litigated.9

9 Patrick makes only a passing argument that a default

judgment is not afforded issue preclusive effect. It is not

clear whether he is challenging the bankruptcy court’s ruling in

this respect. In any event, California law is clear that, unlike

the majority rule, it “accords collateral estoppel effect to

default judgments, at least where the judgment contains an

express finding on the allegations.” Gottlieb, 141 Cal. App. 4th

(continued...)

14
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

i. Defective service

On appeal, Patrick merely argues in passing that there is no

evidence that he was personally served with the Amended Petition. 

However, he did not identify where he made this argument before

the bankruptcy court. We will not consider issues raised for the

first time on appeal. See Ezra v. Seror (In re Ezra), 537 B.R.

924, 932 (9th Cir. BAP 2015) (“Ordinarily, federal appellate

courts will not consider issues not properly raised in the trial

courts.”). 

Moreover, he fails to provide any legal authority or

citation to the record substantiating his claim that he was not

properly served with the Amended Petition. See Christian Legal

Soc. Chapter of Univ. of Cal. v. Wu, 626 F.3d 483, 487 (9th Cir.

2010) (An appellate court “won’t consider matters on appeal that

are not specifically and distinctly argued in appellant’s opening

brief. Applying this standard, we’ve refused to address claims

that were only argue[d] in passing, or that were bare

assertion[s] . . . with no supporting argument.”).

Even if this issue was properly before us on appeal, we

would find no error. Patrick does not deny that the original

petition was properly served on him. Nor does he offer any

authority that service by mail is ineffective for an amended

petition. Cf. Cal. Civ. Proc. Code § 471.5(a) (“If the complaint

is amended, a copy of the amendments shall be filed, or the court

may, in its discretion, require the complaint as amended to be

9(...continued)

at 149.

15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

filed, and a copy of the amendments or amended complaint must be

served upon the defendants affected thereby.”); Student A. ex

rel. Mother of Student A. v. Metcho, 710 F. Supp. 267, 268-69

(N.D. Cal. 1989) (Under California Code of Civil Procedure

§ 1013(a), service is complete “upon deposit of the amended

complaint in the mail . . . .”). We discern no error concerning

the service of the Amended Petition.

ii. Fraud and fiduciary obligations

Patrick also baldly argues that “the issue of whether

Patrick Lazzari committed fraud or otherwise breached his

fiduciary obligation was never actually litigated or decided in

the California State Court actions.” He again fails to expand on

this argument or cite any evidence or authority. To the

contrary, the bankruptcy court engaged in a detailed analysis of

the elements of § 523(a)(4) and concluded that the defalcation

element was satisfied by the California Order, while the fraud

element was not.

iii. Validity of the Disclaimer

Patrick further contends that the superior court did not

determine Michael’s competency at the time that he signed the

Disclaimer or the validity of the Disclaimer itself. He argues

that if Michael were competent and the Disclaimer were valid,

then he did not owe Michael a fiduciary duty and could not have

breached that duty as required by § 523(a)(4).

Patrick is mistaken on a basic level. The superior court

did not need to make an explicit finding as to Michael’s

competence; even if Michael were competent, Patrick was not free

to injure him or act against his interests. Moreover, the

16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

superior court did determine that the Disclaimer was invalid in

its March 10, 2011 order. It held that the transfer of Michael’s

interest in the Bassillio Trust “via Beneficiary Disclaimer and

Renunciation was void ab initio, that Patrick Lazzari never

rightfully held ownership of Michael Lazzari’s interest and

personal property, and that Patrick Lazzari has been holding

Michael Lazzari’s one-half of the property as constructive

trustee.” The superior court recognized and reaffirmed its

March 10, 2011 order in the California Order, stating that the

transfer via the Disclaimer “was found void ab initio . . . .” 

Thus, the superior court made an express determination that the

Disclaimer and transfer of the San Francisco Property were

invalid. 

Accordingly, the second requirement is satisfied.

c. Were the issues necessarily decided?

An issue was “necessarily decided” if the issue was not

“entirely unnecessary” to the judgment in the prior proceeding. 

Lucido, 51 Cal. 3d at 342. The parties do not dispute that the

issues before the superior court were necessarily decided. 

Accordingly, the third prong is satisfied.

d. Is the judgment final and on the merits?

A judgment is the final determination of the rights of the

parties in an action. Cal. Code Civ. P. § 577. In California, a

judgment is “final” when it terminates the litigation between the

parties on the merits and leaves nothing else to do except

enforce the judgment. Sullivan v. Delta Air Lines, Inc., 15 Cal.

4th 288, 304 (1997). The parties here do not dispute that the

California Order was a final judgment. 

17
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

To the extent Patrick is arguing that the California Order

was a default judgment and therefore not decided on the merits,

we reject this argument for the reasons stated above. The

superior court engaged in a detailed analysis of the alleged

breach of fiduciary duty. As the bankruptcy court noted, the

decision was made on the merits, because “[n]othing in the record

suggests that the State Court decided the matter solely on

procedural grounds.” We agree. The fourth requirement is thus

satisfied.

e. Were the parties identical?

The parties to this appeal were parties to the

conservatorship proceeding before the superior court. As such,

the fifth requirement is satisfied.

3. Incentive to litigate

Finally, Patrick argues that issue preclusion is

inappropriate and the California Order cannot be used against

him, because he lacked an incentive to litigate in the superior

court. We reject this argument.

“At its heart, the decision to apply issue preclusion

entails a measure of discretion and flexibility.” Lopez v.

Emergency Serv. Restoration, Inc. (In re Lopez), 367 B.R. 99, 107

(9th Cir. BAP 2007). A court can refuse to apply issue

preclusion when there are “unfair circumstances” concerning the

full and fair opportunity to litigate, including when “the

defendant had no incentive to vigorously litigate the issue in

the prior action, particularly if the second action is not

foreseeable.” Roos v. Red, 130 Cal. App. 4th 870, 880 (2005)

(citation and internal quotation marks omitted); see Shawhan v.

18
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Shawhan (In re Shawhan), BAP No. NV-08-1049-JuKuK, 2008 WL

8462964, at *6 (9th Cir. BAP July 7, 2008) (“Equitable

circumstances may justify not applying the doctrine. Such

circumstances may occur . . . when there is an inadequate

opportunity or incentive to obtain a full and fair adjudication

in the initial action.”).

Here, Patrick claimed that he had no incentive to litigate

in the superior court because he assumed that he could discharge

his debt through bankruptcy. However, as the bankruptcy court

pointed out, his incentive to litigate was evident: his amended

chapter 13 plan called for the sale of the San Francisco Property

to pay his creditors. He should have known that, if he lost the

superior court litigation, he would have no assets with which to

fund his chapter 13 plan. He could not merely assume that he

would prevail in the superior court litigation (or that the

superior court decision would not affect his bankruptcy case),

especially given the years of contentious litigation. 

Similarly, Patrick should have known that Daniel and Sally

were asking the superior court to rule that Patrick had breached

his fiduciary duties and that, if Daniel and Sally prevailed in

the superior court, a § 523(a)(4) adversary proceeding would

ensue. Cf. In re Palombo, 456 B.R. 48, 59 (Bankr. C.D. Cal.

2011) (holding that the debtor had incentive to litigate the

earlier action, because “the importance of the facts to this

litigation was clearly foreseeable at the time of the earlier

action which was ongoing, not years earlier. . . . [A]pplication

of issue preclusion [to the § 523(a)(4) claim] was plainly

foreseeable”). Thus, it is disingenuous to claim that he did not

19
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

have any incentive to litigate the conservatorship proceedings.

Patrick cites only Harner v. Carlson (In re Carlson),

156 B.R. 582 (Bankr. S.D. Ind. 1992), for the proposition that,

when a debtor chooses not to actually litigate factual issues in

a prebankruptcy case, collateral estoppel should not bar

relitigation. But Carlson does not help Patrick’s case. The

Indiana bankruptcy court merely acknowledged the general rule

that, when a party lacked a similar incentive to defend in the

earlier case, it cannot be said that the party had a “full and

fair opportunity” to litigate the issue. See id. at 584.

Accordingly, Patrick had incentive to participate in the

superior court case and had a full and fair opportunity to

litigate. It is not inequitable to apply issue preclusion to the

California Order.

CONCLUSION

For the reasons set forth above, the bankruptcy court did

not err in affording issue preclusive effect to the California

Order and holding Patrick’s debt to Daniel and Sally (as

Michael’s conservators) nondischargeable under § 523(a)(4). 

Therefore, we AFFIRM.

20