Case No.: 5:17-cv-00858-EJD

ORDER AFFIRMING JUDGMENT OF BANKRUPTCY COURT

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

IN RE: 

SAN JOSE AIRPORT HOTEL, LLC, dba 

HOLIDAY INN SAN JOSE, et al.,

 Debtors.

MOHAMED POONJA, Chapter 7 Trustee,

Plaintiff-Appellee,

v.

CHANDRAKANT SHAH,

Defendant-Appellant.

Case No. 5:17-cv-00858-EJD 

(Appeal from Poonja v. Sevak & Sons, L.P. 

et al. (In re San Jose Airport Hotel, LLC), 

Bankr. N.D. Cal. (San Jose) Case No. 09-

51045, Adv. No. 11-5236)

ORDER AFFIRMING JUDGMENT OF 

BANKRUPTCY COURT

On remand, the United States Bankruptcy Court for the Northern District of California 

found that Appellant Chandrakant Shah’s (“Shah” or “Appellant”) breach of contract proximately 

caused damage to Appellee Mohamed Poonja (“Poonja” or “Appellee”), the Chapter 7 trustee for 

Debtor San Jose Airport Hotel, LLC (“Debtor”), and awarded damages in the amount of 

$11,648,758. Shah now appeals the judgment to this Court, which has jurisdiction under 28 

U.S.C. § 158. For the reasons discussed below, the Court AFFIRMS the judgment of the 

bankruptcy court.

I. BACKGROUND

The factual and procedural background of this case are set forth in detail in the bankruptcy 
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court’s order following trial, Dkt. No. 14-3 (“Trial Order”), this Court’s order on appeal, Dkt. No. 

14-12 (“Appeal Order”), and the bankruptcy court’s order on remand, Dkt. No. 14-13 (“Remand 

Order”). The Court briefly reviews facts relevant to the issues here below:

Debtor purchased the San Jose Airport Hotel (“Hotel”) in 1998 for $13 million, financed 

by a loan from the General Electric Capital Corporation (“GECC”). However, the Hotel suffered 

financial problems and Debtor ultimately filed for bankruptcy on February 18, 2009.

Debtor arranged to sell the Hotel to Shah, and, on September 4, 2009, the parties executed 

a Purchase and Sale Agreement (“PSA”). The PSA provided that Sevak & Sons, L.P. (“Sevak”), 

an entity owned by Shah and his wife, would purchase the Hotel for $46.2 million, consisting of 

$750,000 in cash and a secured promissory note for $45.45 million. In addition, Sevak promised 

in the PSA that:

Buyer [Sevak] shall actively and fully assist Seller [Debtor] in 

obtaining Bankruptcy Court approval, as required by Seller, 

including without limitation by providing complete financial, 

experiential and strategic information and testimony that will 

support adequate assurance of future performance under the Holiday 

Inn Agreement, the qualifications of Buyer [Sevak] and [Shah] as 

operator and owner of the Holiday Inn Property and as a franchisee 

from IHG (by assignment), and the adequacy of protection of the 

interests of GECC. 

Dkt. No. 14-4, at 61-74 (“PSA”), at § 6.2.4. The sale was conditioned on the approval of the 

bankruptcy court and contained an integration clause. Id. §§ 4.2.5, 9, 10.

The parties twice amended the PSA, ultimately adjusting the purchase price to $2 million 

in cash and a secured promissory note for $44.2 million. As part of the amendments, Shah 

executed a declaration representing that he had a personal net worth of approximately $24 million.

Debtor moved to approve the sale on October 14, 2009. GECC objected. At the initial 

hearing on November 16, 2009, the bankruptcy court indicated that it would need evidence of 

Shah’s claimed financial ability. Debtor asked Shah to obtain appraisals of his own property 

holdings, but Shah refused. Shah also disavowed his previous declaration. At trial, Shah 

explained that providing updated appraisals would be pointless, as the value of his properties had 

declined significantly and he was no longer worth $24 million.
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Ultimately, Debtor withdrew his motion to approve the sale and GECC foreclosed on the 

hotel. The Debtor’s estate received nothing from the proceeds.

Poonja initiated the instant action against Sevak, Shah, and his wife on August 11, 2011. 

In his amended complaint, Poonja alleged five causes of action: (1) breach of contract against 

Sevak; (2) breach of limited guaranty against Shah; (3) intentional interference with contractual 

relationship against Shah; (4) fraud against Shah; and (5) negligent misrepresentation against 

Shah. Dkt. No. 14-4, at 45-60 (“FAC”), at ¶¶ 41-77.

The bankruptcy court held trial on May 6 and 7, 2013. On August 2, 2013, it issued its

Trial Order finding that Shah had breached, among other things, the PSA’s guarantee in § 6.2.4 

that he would “actively and fully assist” Debtor and awarded $11,648,758 in damages. Trial 

Order 15.

Shah appealed to this Court. On appeal, the Court affirmed the bankruptcy court’s 

decision as to liability for breach of contract, but reversed its award of damages because “Appellee 

[Poonja] did not establish with reasonable certainty that Appellant’s [Shah’s] breach caused the 

claimed damages.” Appeal Order 10. The Court then remanded to the bankruptcy court to make 

factual determinations regarding “the causal nexus between the breach and the harm, and, 

relatedly, the amount of damages.” Id. at 10.

On remand, the bankruptcy court determined that the existing record was sufficient to 

make these factual findings and determined that “GECC’s foreclosure of Plaintiff’s Hotel would 

be the natural and foreseeable result of Defendant’s refusal to ‘actively and fully assist Plaintiff in 

obtaining Bankruptcy Court Approval.’” Remand Order 6. It also found that “Defendant’s failure 

to fulfill his contractual obligation to ‘actively and fully assist Plaintiff in obtaining Bankruptcy 

Court Approval’ was undoubtedly a substantial factor in causing the failure to obtain approval of 

the sale motion and the subsequent foreclosure of the Hotel by GECC.” Id. at 7-8. It then 

concluded that Poonja’s claimed damages of $11,648,758 were reasonably certain and supported 

by evidence. Id. at 8.
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II. LEGAL STANDARDS

A. Standard of Review

A district court may “affirm, modify, or reverse a bankruptcy judge’s judgment, order or 

degree or remand with instructions for further proceedings.” Fed. R. Bankr. P. 8013. “Findings of 

fact, whether based on oral or documentary evidence, shall not be set aside unless clearly 

erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the 

credibility of witnesses.” Id. This Court therefore reviews the bankruptcy court’s findings of fact 

for clear error, and it reviews the bankruptcy court’s conclusions of law de novo. See In re Mortg. 

Store, Inc., 773 F.3d 990, 994 (9th Cir. 2014) (citing In re Lazar, 83 F.3d 306, 308 (9th Cir. 

1996)). “The question of what standard of review applies to contract matters is not always so 

clearcut because ‘[t]he interpretation of a contract and the determination as to its breach are a 

mixed question of fact and law.’” L.K. Comstock & Co., Inc. v. United Eng’rs & Constructors 

Inc., 880 F.2d 219, 221 (9th Cir. 1989) (quoting Libby, McNeill, & Libby v. City Nat’l Bank, 592 

F.2d 504, 512 (9th Cir. 1978)). “Thus, if the contract interpretation includes a review of factual 

extrinsic evidence, the findings of fact themselves are reviewed under the ‘clearly erroneous’

standard, but the principles of contract law applied to those facts are reviewed de novo.” Id. 

(citations omitted).

In reviewing an order or judgment of the bankruptcy court, the Court has the “power to 

consider any issue presented by the record even if the issue was not presented to the bankruptcy 

court.” In re Pizza of Haw., Inc., 761 F.2d 1374, 1379 (9th Cir. 1985). However, “[i]f the 

bankruptcy court’s factual findings are silent or ambiguous as to a material factual question, the 

district court must remand the case to the bankruptcy court for the necessary factual determination; 

the district court may not make its own independent factual findings.” In re Hall, Bayoutree 

Assocs., Ltd., 939 F.2d 802, 804 (9th Cir. 1991) (citing Wegner v. Grunewaldt, 821 F.2d 1317, 

1320 (8th Cir. 1987)).

B. Contract Law

In California, the measure of damages for a breach of contract “is the amount which will 
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compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the 

ordinary course of things, would be likely to result therefrom.” Cal. Civ. Code § 3300. As the 

Supreme Court of California has explained, this provision contemplates both general damages 

(“detriment . . . which, in the ordinary course of things, would be likely to result”) and special 

damages (“detriment proximately caused thereby”). Lewis Jorge Const. Mgmt., Inc. v. Pomona 

Unified Sch. Dist., 34 Cal. 4th 960, 968, 102 P.3d 257, 261 (2004). “[G]eneral damages are a 

natural and necessary consequence of a contract breach.” Id. On the other hand, “[s]pecial 

damages are secondary or derivative losses arising from circumstances that are particular to the 

contract or to the parties.” Id. “Special damages . . . are limited to losses that were either actually 

foreseen . . . or were ‘reasonably foreseeable’ when the contract was formed.” Id. One California 

court has explained the theory behind this as follows:

The theory behind allowing for damages in contract law is that the 

injured party should receive as nearly as possible the equivalent of 

the benefits of the contract as he or she would have received, had the 

performance been rendered as promised. (Brandon & Tibbs v. 

George Kevorkian Accountancy Corp. (1990) 226 Cal. App. 3d 442, 

455, 277 Cal. Rptr. 40.) This means that recoverable damages are 

those that could fairly and reasonably be seen as arising naturally 

from a breach. (Id., at p. 456, 277 Cal. Rptr. 40.) This includes 

those that should have been reasonably contemplated or foreseen in 

light of all of the known facts or facts that the breaching party 

should have known, at the time of contracting. (Ibid.; Ely v. Bottini

(1960) 179 Cal. App. 2d 287, 294, 3 Cal. Rptr. 756.) Thus, if the 

occurrence of these damages is sufficiently predictable to the parties 

when contracting, it can be assumed that the parties contemplated 

them. (Lewis Jorge Construction Management, Inc. v. Pomona 

Unified School Dist. (2004) 34 Cal. 4th 960, 968, 22 Cal. Rptr. 3d 

340, 102 P.3d 257.)

Archdale v. Am. Int’l Specialty Lines Ins. Co., 154 Cal. App. 4th 449, 469, 64 Cal. Rptr. 3d 632, 

649 (2007).

In addition, “Civil Code section 3300 generally requires proof of causation.” Troyk v. 

Farmers Grp., Inc., 171 Cal. App. 4th 1305, 1352, 90 Cal. Rptr. 3d 589, 628 (2009); see Cal. Civ. 

Code § 3300 (“detriment proximately caused thereby, or . . . would be likely to result therefrom”) 

(emphasis added). “The test for causation in a breach of contract . . . action is whether the breach 

was a substantial factor in causing the damages.” US Ecology, Inc. v. State, 129 Cal. App. 4th 
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887, 909, 28 Cal. Rptr. 3d 894, 910 (2005); 1 Witkin, Summary 11th Contracts § 895 (2017). In 

other words, “[i]n order to establish liability the plaintiff must show that the defendant’s breach 

was ‘a substantial factor’ in causing the injury.” Bruckman v. Parliament Escrow Corp., 190 Cal. 

App. 3d 1051, 1063, 235 Cal. Rptr. 813, 820 (Ct. App. 1987) (quoting 999 of 5 Corbin on 

Contracts (1964)). “The term ‘substantial factor’ has no precise definition, but ‘it seems to be 

something which is more than a slight, trivial, negligible, or theoretical factor in producing a 

particular result.’” Id. (quoting Espinosa v. Little Co. of Mary Hospital, 31 Cal. App. 4th 1304, 

1314, 37 Cal. Rptr. 2d 541 (1995)).

After determining, from a substantive perspective, what damages are owed under § 3300, 

California Civil Code § 3301 requires that the amount of damages be proven to a reasonable 

certainty. Specifically, “[n]o damages can be recovered for a breach of contract which are not 

clearly ascertainable in both their nature and origin.” Cal. Civ. Code § 3301. Instead, “[i]t has 

long been settled in California that ‘the proof must establish with reasonable certainty and 

probability that damages will result in the future to the person wronged.’” Vestar Dev. II, LLC v. 

Gen. Dynamics Corp., 249 F.3d 958, 961 (9th Cir. 2001) (quoting Caminetti v. Manierre, 23 Cal. 

2d 94, 101 (1943)); see also 1 Witkin, Summary 11th Contracts § 904 (2017) (“Subject to this 

limitation [§ 3301], the injured party may recover for the profits or benefits that he or she would 

have obtained by performance if the injured party can establish them with reasonable certainty.”).

III. DISCUSSION

On appeal, Shah raises three challenges to the Remand Order: (1) it applied the wrong 

legal standard for causation; (2) its damages award is not supported by the record; and (3) its 

damages award runs counter to principles of fairness and equity. Dkt. No. 11 (“Appellant 

Opening Br.”). None of these are persuasive.

A. The Bankruptcy Court Did Not Apply the Wrong Legal Standard

Shah first argues that the bankruptcy court applied the wrong legal standard for causation. 

According to Shah, this Court’s Appeal Order established that the “law of the case” was that 

causation should be determined under a “reasonable certainty and probability” standard, which 
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required Poonja to demonstrate with “reasonable certainty and probability” that the sale would 

have occurred but for Shah’s breach. Appellant Opening Br. 21. Shah argues that the bankruptcy 

court failed to follow this and instead applied (1) a “foreseeability” standard, which asked whether 

GECC’s foreclosure was the “natural and foreseeable result” of Shah’s breach, and (2) a 

“substantial factor” test, which asked whether Shah’s breach was a “substantial factor” in GECC’s 

foreclosure. Id. at 23.

Shah misunderstands both the Appeal Order and applicable California law. As this Court 

stated in its Appeal Order, under Cal. Civ. Code § 3300, the measure of damages “is the amount 

which will compensate the party aggrieved for all the detriment proximately caused thereby, or 

which, in the ordinary course of things, would be likely to result therefrom.”

1

 As explained in 

Section II above, this limits damages to those that are the “natural and necessary consequence” of 

the breach and “reasonably foreseeable” derivative losses. Lewis Jorge Const. Mgmt, 34 Cal. 4th 

at 968; see also Archdale, 154 Cal. App. 4th at 469 (“recoverable damages are those that could 

fairly and reasonably be seen as arising naturally from a breach. . . . includ[ing] those that should 

have been reasonably contemplated or foreseen . . . .”). In addition, in order to satisfy the 

causation requirement of § 3300, the breach must be a “substantial factor” in causing the damages. 

US Ecology, 129 Cal. App. 4th at 909. These are precisely the standards the bankruptcy court 

applied.

In arguing for a “reasonable certainty and probability” standard, Shah confuses the 

substantive “measure of damages” under § 3300 with the sufficiency of proof of damages under 

§ 3301. While it is true that, under § 3301, Poonja was required to prove the amount of requested 

 

1 Because the Court identified § 3300 as the applicable standard, it cannot be said—as Shah 

argues, Appellant Opening Br. 23-24—that the Appeal Order established a “reasonable certainty 

and probability” standard as the “law of the case.” Moreover, in any event, a “law of the case”

theory is inapplicable here because the Appeal Order did not decide the issue of causation, but 

instead remanded it to the bankruptcy court to decide in the first instance. See United States v. 

Alexander, 106 F.3d 874, 876 (9th Cir. 1997) (“Under the ‘law of the case’ doctrine, ‘a court is 

generally precluded from reconsidering an issue that has already been decided by the same court, 

or a higher court in the identical case.’”) (quoting Thomas v. Bible, 983 F.2d 152, 154 (9th Cir. 

1993)) (emphasis added).
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damages with “reasonable certainty,” Poonja was also first required to prove that, from a 

substantive perspective, the Hotel’s foreclosure was “proximately caused. . . or . . . would be likely 

to result” from Shah’s breach under § 3300. Compare Cal. Civ. Code § 3301 and Caminetti, 23 

Cal. 2d at 101, with Cal. Civ. Code § 3300. This § 3300 inquiry in turn triggered an assessment of

whether the foreclosure was a “natural and necessary” or “reasonably foreseeable” consequence of 

the breach, as well as whether the breach was a “substantial factor” in bringing about the 

foreclosure. See Lewis Jorge Const. Mgmt, 34 Cal. 4th at 968 (§ 3300 covers “natural and 

necessary consequences” and “reasonably foreseeable” derivative losses); US Ecology, 129 Cal. 

App. 4th at 909 (“substantial factor” is the test of causation in a breach of contract action). 

Because this Court remanded the case to the bankruptcy court to determine the “causal nexus 

between the breach and the harm,” the bankruptcy court was correct to begin its analysis with § 

3300 and engage in “foreseeability” and “substantial factor” inquiries.

2

B. The Damages Award is Supported by the Record

Next, Shah argues that the bankruptcy court’s factual determination that his breach caused 

$11,648,758 in damages is not supported by the record. Appellant Opening Br. 24-33. According 

to Shah, in order to prove that his breach (i.e., not providing updated appraisals as part of his duty 

to “actively and fully assist” Debtor under § 6.2.4 of the PSA) caused the alleged damages, Poonja 

had to prove that, had Shah provided updated appraisals, Judge Efremsky would have approved 

the Hotel’s sale. Id. Shah argues that the “undisputed record” establishes that this would not have 

been the case because (1) GECC would not have agreed to the terms of the PSA; and (2) Judge 

Efremsky would not have approved the sale unless Shah’s collateral had a present value of $20 

million and it was clear this was not the case. Id.

Shah’s arguments are not persuasive. As an initial matter, they assume the wrong legal 

standard. As Shah would have it, Poonja would have to prove that Shah’s breach was the only 

 

2

It is also worth noting that the bankruptcy court, after addressing causation, applied § 3301 and 

assessed whether Poonja had proven damages by a reasonable certainty. Remand Order 11. Thus, 

Shah also cannot complain that it did not engage in this assessment as well.
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cause of damages. This directly contradicts the law on causation, which only requires that breach 

be a “substantial factor” of the claimed damages. US Ecology, 129 Cal. App. 4th at 909 (“The test 

for causation in a breach of contract . . . action is whether the breach was a substantial factor in 

causing the damages.”).

Under the correct standard, Poonja was required to prove that (1) foreclosure (and the 

resulting $11,648,758 in damage) should have been reasonably foreseen as the natural result of 

Shah’s breach; and (2) Shah’s breach was a substantial factor in the foreclosure. The bankruptcy 

court addressed both of these issues (which are purely factual questions) on remand and concluded 

in the affirmative for each. Thus, the only question on appeal is whether the bankruptcy court 

clearly erred in making these factual determinations. Assessing each in turn, the Court finds that it

did not.

Turning first to foreseeability, the bankruptcy court found:

The record shows that the parties knew that Defendant’s cooperation 

was essential to obtaining Court approval of the sale, and this fact is 

demonstrated by Defendant’s personal guarantee to assist Plaintiff 

by providing complete financial, experiential, and strategic 

information. See Limited Guarantee. Because the PSA is clear that 

the Hotel was fully encumbered by a deed of trust in favor of GECC 

that was fully due and owing, the parties understood that a failure of 

the sale would result in GECC’s foreclosure of the Hotel. See PSA 

at B. Given Plaintiff’s bankruptcy and GECC’s aggressive position, 

the parties knew or should have known that foreclosure would be the 

natural and foreseeable consequence of a Defendant’s failure to 

cooperate in obtaining Court approval.

Remand Order 5-6. Shah identifies nothing clearly erroneous about these findings, and the Court 

discerns none. On the contrary, the record abounds with evidence that the parties foresaw, at the 

time the operative contracts were signed, that the failure of Shah to “actively and fully assist Seller 

in Obtaining Bankruptcy Court Approval” would result in the foreclosure of the Hotel. For 

example, Shah was told “many times” that he would have to show proof of his net worth to the 

bankruptcy court if GECC objected to the sale of the Hotel. Dkt. No. 14-7, at 59:2-10. Shah 

appeared to agree with this, as he promised in the PSA to “actively and fully assist Seller in 

obtaining Bankruptcy Court Approval . . . including . . . by providing complete financial . . . 
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testimony.” PSA § 6.2.4. Shah also initially supplied a declaration claiming “approximately $24 

million” in personal wealth to support Debtor’s motion to approve the sale of the hotel. Dkt. No. 

14-9, at 145-46. Given all this, it seems Shah was well aware that his “active[] and full[] 

assistance”—including providing updated appraisals—was critical to obtaining the bankruptcy 

court’s approval of the sale. Accordingly, the record supports the bankruptcy court’s conclusion 

that foreclosure was a foreseeable result of Shah’s breach and the bankruptcy court did not clearly 

err in making this finding.

Turning second to substantial factor, the bankruptcy court found:

It is unknown how the Court would have ruled on the withdrawn 

motion to approve the sale, and Defendant’s speculative assertion 

that the Court would have denied approval of the sale asks the Court 

to substitute Defendant’s judgment for its own. Defendant’s 

argument that the Court might not have approved the sale is 

irrelevant because, by refusing to honor his contractual obligations, 

Defendant ensured that the sale would not be approved and that 

GECC would foreclose on the Hotel. Therefore, the Court finds that 

Defendant’s failure to fulfill his contractual obligation to “actively 

and fully assist [Plaintiff] in obtaining Bankruptcy Court Approval”

was undoubtedly a substantial factor in causing the failure to obtain 

approval of the sale motion and the subsequent foreclosure of the 

Hotel by GECC.

Remand Order 7-8. Shah also identifies nothing clearly erroneous about these findings, and here 

again the Court detects none. Instead, here too the record amply supports them. For example, the 

bankruptcy court made it clear that it would need assurance of Shah’s financial wherewithal before 

approving the sale. See, e.g., Dkt. No. 14-10, at 36 (Judge Efremsky stating at the December 16, 

2009 hearing that “[t]he other potential problem is with regards to the buyer’s guaranty of $20 

million, there needs to be a showing that the buyer is good for that, and today.”); see also Dkt. No. 

14-9, at 122-28 (Limited Guarantee attached to the PSA in which Shah personally guaranteed “the 

payment and prompt performance of every covenant, warranty, representation, provision, 

obligation, term and condition made or to be kept or performed by [Sevak]”). After he refused to 

“actively and fully assist” in this process in breach of the PSA, Debtor felt “left with no 

alternative” but to terminate the sale. Dkt. No. 14-10, at 276. This refusal was “more than a 

slight, trivial, negligible, or theoretical factor” in prompting Debtor to terminate the sale, which in 
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turn enabled foreclosure of the Hotel. Espinosa, 31 Cal. App. 4th at 1314. Accordingly, the 

record supports the bankruptcy court’s conclusion that Shah’s breach was a substantial factor in 

causing the Hotel’s foreclosure and the bankruptcy court did not clearly err in making this finding.

In sum, as assessed under the correct legal standard, the damages award is supported by the 

record and the bankruptcy court’s factual findings are not clearly erroneous. As such, the 

bankruptcy court did not err in finding that Shah’s breach caused $11,648,758 in damages.

C. Fairness and Equity Do Not Weigh Against the Damages Award

Shah also argues that fairness and equity weigh against the damages award. Appellant 

Opening Br. 33. This, in and of itself, is not a sufficient basis for reversing the bankruptcy court 

in this case, particularly in light of the fact that the bankruptcy court applied the correct legal 

standard and its factual findings are not clearly erroneous. Thus, the Court finds this argument 

unpersuasive as well.

IV. ORDER

The order of the bankruptcy court is AFFIRMED. The Clerk shall close this file.

IT IS SO ORDERED.

Dated: March 22, 2018

______________________________________

EDWARD J. DAVILA

United States District Judge