Court Opinion

ID: 818083
Source: CourtListenerOpinion
Date Created: 2013-02-01 22:56:02.471926+00
Date Added: 2024-06-11T10:37:07.107327
License: Public Domain

FILED
                                                            DEC 05 2012
 1
                                                        SUSAN M SPRAUL, CLERK
                                                          U.S. BKCY. APP. PANEL
 2                                                        OF THE NINTH CIRCUIT

 3               UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                         OF THE NINTH CIRCUIT
 5   In re:                        )    BAP No.     NC-11-1579-JoJuKi
                                   )
 6   SUNG HO CHA and               )    Bk. No.     10-14098
     YOUHNG LIM PARK,              )
 7                                 )
                     Debtors.      )
 8   _____________________________ )
                                   )
 9   SUNG HO CHA; YOUNG LIM PARK, )
                                   )
10                   Appellants,   )
                                   )
11   v.                            )    O P I N I O N
                                   )
12   JEFF RAPPAPORT,               )
                                   )
13                                 )
                     Appellee.     )
14   ______________________________)
15
16                 Argued and Submitted on May 17, 2012
                       at San Francisco, California
17
                         Filed - December 5, 2012
18
              Appeal from the United States Bankruptcy Court
19                for the Northern District of California
20       Honorable Alan Jaroslovsky, Bankruptcy Judge, Presiding
21
22   Appearances: Dennis D. Davis, Esq., Goldberg, Stinnett, Davis
     & Linchey PC, argued for Appellants Sung Ho Cha and Young Lim
23   Park; Neil Ison, Esq. argued for Appellee Jeff Rappaport.
24
25
26   Before: JOHNSON1, JURY and KIRSCHER, Bankruptcy Judges.
27
28
          1
             Hon. Wayne Johnson, Bankruptcy Judge for the Central
     District of California, sitting by designation.
 1 JOHNSON, Bankruptcy Judge:
 2
 3       This appeal arises from the decision of the bankruptcy
 4 court finding that a state court judgment against the debtors
 5 Sung Ho Cha (“Cha”) and Young Lim Park (“Park”) (collectively,
 6 the “Debtors”) for failing to pay rent is nondischargeable as to
 7 Cha and nondischargeable as to Park only to the extent of the
 8 Debtors’ community property.         For the reasons set forth below,
 9 we AFFIRM the decision of the bankruptcy court.
10                                 I.    FACTS
11        In 2008, the Debtors executed a written agreement
12   (“Lease”) with Jeff Rappaport (“Rappaport”) to lease the real
13   property located at 5 Rolling Hills Road, Tiburon, California
14   (“Property”).     The Debtors moved into the Property but rarely
15   paid any rent.2     After many months, Rappaport recovered
16   possession of the Property and obtained a state court judgment
17   for unpaid rent in the amount of $46,151.11 (“State Court
18   Judgment”).
19        At the time the parties executed the Lease, Cha provided
20   Rappaport with a signed financial statement which indicated
21   that in 2008 his income was $7,000 every two weeks.       The
22   statement also indicated Cha possessed cash and bank deposits
23
24        2
             The trial court stated in its “Memorandum After Trial” that
25   the Debtors “never paid any rent” but Rappaport testified at trial
     that the Debtors did pay rent for the first month and “small amounts
26   and then tiny amounts” thereafter. This difference, however, is not
     material to this appeal and the Debtors have not raised it on appeal.
27   The Debtors do not dispute that overall they failed to pay in excess
     of $46,000 in rent. Likewise, they do not dispute that the financial
28   statement provided by Cha was materially false.

                                          2
 1   of $50,000.   When the Debtors filed a voluntary chapter 7
 2   petition,3 Rappaport commenced an adversary proceeding against
 3   the Debtors contending the statements in the financial
 4   statement were false and, therefore, the State Court Judgment
 5   was nondischargeable pursuant to sections 523(a)(2)(A) and
 6   523(a)(2)(B).   At trial, the bankruptcy court determined the
 7   financial statement was materially false and the Debtors do not
 8   contend otherwise on appeal.        The Debtors offered no evidence
 9   at trial in support of the representations in the financial
10   statement and they do not contend on appeal that the trial
11   judge erred in finding the financial statement was false.       The
12   trial court entered judgment in favor of Rappaport and the
13   Debtors appealed.
14                              II.   JURISDICTION
15        The bankruptcy court properly exercised jurisdiction
16   pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(I).       This Panel has
17   jurisdiction over appeals pursuant to 28 U.S.C. § 158.
18                                III.    ISSUES
19        The Debtors raise only two arguments on appeal.        First,
20   they contend that Rappaport lacked standing to prosecute the
21   adversary proceeding against the Debtors.       Second, they contend
22   that the form of the judgment against Park is improper.
23                        IV.    STANDARD OF REVIEW
24        Standing is a legal issue which this Court reviews de
25
26        3
             Unless otherwise indicated, all chapter and section
27   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
     “Rule” references are to the Federal Rules of Bankruptcy
28   Procedure.

                                          3
 1   novo.    Loyd v. Paine Webber, Inc., 208 F.3d 755, 758 (9th Cir.
 2   2000); In re Aheong v. Mellon (In re Aheong), 276 B.R. 233, 238
 3   (9th Cir. BAP 2002).     De novo means review is independent, with
 4   no deference given to the trial court’s conclusion.       Barclay v.
 5   Mackenzie (In re AFI Holding, Inc.), 525 F.3d 700, 702 (9th
 6   Cir. 2008).
 7           Whether the bankruptcy court erred in entering judgment
 8   against Park raises a question of law.        This Court reviews the
 9   bankruptcy court’s conclusion of law de novo.       Alsberg v.
10   Robertson (In re Alsberg), 68 F.3d 312, 314 (9th Cir. 1995).
11                                 V.   STANDING
12           A.    Introduction
13           The Debtors contend Rappaport lacked standing to prosecute
14   the adversary proceeding against them.        It is undisputed that
15   the owner of record of the Property was Western Liability
16   Insurance Company (“Western”), a company created by Rappaport’s
17   father.      Because the adversary proceeding was filed by
18   Rappaport (not Western), the Debtors challenged his standing.
19           Rappaport executed the Lease with his personal signature
20   “Jeff Rappaport” above the heading “Jeff Rappaport (for Western
21   Liability Insurance)”.       His signature and similar headings also
22   appear on the Lease/Rental Mold and Ventilation Addendum, the
23   Water Heater and Smoke Detector Statement of Compliance, the
24   Lead-Based Paint and Lead-Based Paint Hazard Disclosure, the
25   Acknowledgment and Addendum and the Pet Agreement Addendum.
26   When the Debtors challenged the standing of Rappaport, he
27   testified at trial that there was an assignment from Western to
28   Rappaport “for the rights to rent the property out.”       The

                                         4
 1   testimony by Rappaport and the objections of counsel indicated
 2   that a written assignment existed but counsel for Rappaport
 3   apparently failed to designate the document as a trial exhibit.
 4   There are references in the record suggesting that Rappaport
 5   submitted the written assignment to the court at a prior
 6   hearing but not at trial.    When Rappaport asked the court to
 7   take judicial notice of the document at trial, the court
 8   declined to do so.4
 9        The Debtors do not contend that no assignment exists.
10   They never contended that an assignment did not exist and they
11   offered no evidence at trial to rebut Rappaport’s testimony.
12   Rather, they contend Rappaport lacks standing because he failed
13   to present the written assignment at trial and, therefore,
14   failed to satisfy his burden of proving the existence of an
15   assignment.
16        As a result, this is not a situation in which the trial
17   court weighed competing evidence regarding standing because the
18   Debtors presented none.    Instead, the Debtors contend they need
19   not present any evidence at trial regarding Rappaport’s
20   standing because the plaintiff bears the burden of proving his
21   standing and the evidence he presented was insufficient for
22   that purpose.   We agree that the plaintiff bears the burden of
23   proof but find the plaintiff has done so in this case.
24
25
          4
26           We find no error in the decision of the trial court to
     decline to take judicial notice of the document. We agree with the
27   trial court that Rappaport failed to properly present the written
     assignment as an exhibit for trial. Therefore, the trial court
28   properly rejected Rappaport’s attempt to rectify this error by asking
     the court to take judicial notice of a document in the court’s file
     but not brought to trial or designated as a trial exhibit.

                                       5
 1        B.   Legal Standard
 2        Rule 7017 of the Federal Rules of Bankruptcy Procedure
 3   incorporates and applies Rule 17(a) of the Federal Rules of
 4   Bankruptcy Procedure to adversary proceedings.    Rule 17(a)
 5   states that every action must be prosecuted in the name of the
 6   real party in interest.    “This rule requires that the party who
 7   brings an action actually possess, under the substantive law,
 8   the right sought to be enforced.     Such a requirement is in
 9   place ‘to protect the defendant against a subsequent action by
10   the party actually entitled to recover, and to insure generally
11   that the judgment will have its proper effect as res
12   judicata.’”   United HealthCare Corp. V. Am. Trade Ins. Co.,
13   Ltd., 88 F.3d 563, 568-69 (8th Cir. 1996) (quoting Fed. R. Civ.
14   P. 17(a), Advisory Comm. Note); Pac. Coast Agric. Exp. Ass’n v.
15   Sunkist Growers, Inc., 526 F.2d 1196, 1208 (9th Cir. 1975).
16        “In an action involving an assignment, a court must ensure
17   that the plaintiff-assignee is the real party in interest with
18   regard to the particular claim involved by determining:
19   (1) what has been assigned; and (2) whether a valid assignment
20   has been made.”   Carter v. Brooms (In re Brooms), 447 B.R. 258,
21   265 (9th Cir. BAP 2011) (quoting 6A Charles Alan Wright, Arthur
22   R. Miller, Mary Kay Kane & Richard L. Marcus, Federal Practice
23   and Procedure § 1545 (3d ed. 2010)).
24        C.   The Evidence in the Record
25        After reviewing the record, it is clear that Rappaport
26   could have made it easier for the trial court by simply
27   designating the written assignment as a trial exhibit and
28   arranging for a witness to authenticate the document.    But the

                                      6
 1   failure to do so is not fatal in this instance.    The record on
 2   appeal provides several different kinds of evidence upon which
 3   this court can affirm the decision of the trial court.
 4               1.   The State Court Judgment
 5        First, the record on appeal includes the State Court
 6   Judgment.   This is the most important evidence.   The State
 7   Court Judgment is a default judgment against Cha and in favor
 8   of Rappaport in the amount of $46,151.11.    The judgment clearly
 9   finds that Cha is liable to Rappaport for $46,151.11.
10   Therefore, principles of preclusion apply.
11        The state court found that Cha owes Rappaport $46,151.11.
12   The state court determined the amount of the debt and the
13   identity of the obligee.   Both are necessary to its holding.
14   The Debtors want the bankruptcy court to disregard the State
15   Court Judgment but Ninth Circuit law provides otherwise.
16        In Daghighfekr v. Mekhail (In re Daghighfekr), 161 B.R.
17   685 (9th Cir. BAP 1993), Mohammad Daghighfekr physically
18   assaulted Laurence Mekhail (beating him until he was
19   unconscious) prior to the commencement of a bankruptcy case.
20   Mr. Mekhail sued in state court and obtained a judgment by
21   default for $614,793 including $500,000 in punitive damages.
22   When Mr. Daghighfekr later filed a bankruptcy case, Mr. Mekhail
23   filed an action under section 523(a)(6) to have the state court
24   judgment declared nondischargeable.
25        Like Cha, Mr. Daghighfekr did not dispute that his conduct
26   violated section 523.   Mr. Daghighfekr acknowledged that he
27   committed the assault (just like Mr. Cha does not dispute his
28   fraud).   Instead, Mr. Daghighfekr contended that a state court

                                      7
 1   judgment obtained by default “has no preclusive effect on a
 2   bankruptcy court as to either the nature of the act causing the
 3   injury or the amount of damages awarded.”      Id. at 686.   The BAP
 4   disagreed and stated that “while a default judgment or an
 5   unopposed summary judgment has no preclusive effect as to the
 6   issue of the willful and malicious nature of the injury on
 7   which the judgment is based, once this issue has been
 8   determined by the bankruptcy court, the judgment itself is res
 9   judicata as to the amount of the judgment.”      Id.   Mr.
10   Daghighfekr challenged the amount of the damages he owed to Mr.
11   Mekhail but the BAP rejected the challenge.     The BAP held it
12   was bound by the state court judgment.   See also In re Comer v.
13   Comer (In re Comer), 723 F.2d 737, 740 (9th Cir. 1984) (holding
14   that “res judicata barred the bankruptcy court from looking
15   behind the default judgment to determine the actual amount of
16   the obligation.”).
17          This holding directly applies to Cha.    Like Mr.
18   Daghighfekr, Cha does not challenge whether or not section 523
19   applies to his conduct.   Cha admits he committed fraud just as
20   Mr. Daghighfekr admitted he assaulted Mr. Mekhail.      Damages
21   arising from both actions are nondischargeable under section
22   523.   Therefore, the amount of the damages in the State Court
23   Judgment is binding.
24          And while Cha challenges the standing of Rappaport in this
25   appeal, that issue was necessarily decided by the state court.
26   When a state court issues a judgment in favor of a party in a
27   specific amount, both the obligee and the amount of damages are
28   determined but issues related to section 523 are not

                                      8
 1   necessarily determined.    Therefore, the State Court Judgment is
 2   binding as to the former, but not the latter.
 3        A judgment by default is as conclusive as to the issues
 4   asserted in the complaint as if an answer had been filed and
 5   the issues had been litigated.   Fitzgerald v. Herzer, 117 P.2d
 6   364, 366 (Cal. Ct. App. 1947) (citing Maddux v. County Bank, 62
 7   P. 264, 266 (1900)).   “Such a judgment is res judicata as to
 8   all issues aptly pleaded in the complaint and defendant is
 9   estopped from denying in a subsequent action any allegations
10   contained in the former complaint.”   Fitzgerald,    117 P.2d at
11   366 (citing Horton v. Horton, 116 P.2d 605, 608 (1941)).
12        However, the California Supreme Court has placed two
13   limitations on this rule.   Williams v. Williams (In re
14   Williams’ Estate), 223 P.2d 248 (Cal. 1950).    The first, which
15   is not disputed in this case, is that the defendant must be
16   aware of the litigation.    The second limitation concerns which
17   issues are “actually litigated” in actions resulting in default
18   judgments.   “The Williams’ Estate Court limited the principle
19   that a defaulting defendant ‘is presumed to admit all the facts
20   which are well pleaded in the complaint’ by allowing an issue
21   to have preclusive effect ‘only where the record shows
22   an express finding upon the allegation’ for which preclusion is
23   sought.”   Harmon v. Kobrin (In re Harmon), 250 F.3d 1240, 1247
24   (9th Cir. 2001) (quoting In re Williams’ Estate, 223 P.3d at
25   252, 254).   “Thus, a court’s silence concerning a pleaded
26   allegation does not constitute adjudication of the issue.”    Id.
27   (quoting In re Williams’ Estate, 223 P.2d at 253).    “However,
28   the express finding requirement can be waived if the court in

                                      9
 1   the prior proceeding necessarily decided the issue:   As a
 2   conceptual matter, if an issue was necessarily decided in a
 3   prior proceeding, it was actually litigated.”   Id. at 1248.
 4        Here, it was impossible for the state court to enter
 5   judgment in favor of Rappaport without finding he had standing.
 6   Therefore, the issue of standing was necessarily decided in the
 7   prior proceeding.   Because the issue of Rappaport’s standing
 8   was necessarily decided and therefore actually litigated,
 9   Rappaport can rely upon the State Court Judgment in asserting
10   his standing in the bankruptcy court.
11             2.   Rappaport’s Testimony
12        Second, Rappaport’s testimony at trial indicates that a
13   written assignment exists and that he is the assignee. The
14   Debtors objected to this testimony as hearsay but the trial
15   court overruled the objection and we find no error.   While the
16   better evidence at trial would have been for Rappaport to
17   introduce the written document into evidence, Rappaport is not
18   precluded from testifying that he is the assignee of rights and
19   that the assignment is reflected in a written document.
20        For example, debtors can testify that they own a home and
21   that their ownership interest is memorialized in a deed.     The
22   fact that the legal rights are transferred by the written
23   document (i.e. the deed) does not prevent the debtors from
24   claiming the ownership interest or testifying that a written
25   document exists.    To be sure, the hearsay objection would be
26   well grounded if the Debtors testified regarding the specific
27   contents of the deed and Rappaport’s testimony would run afoul
28   of the hearsay rule if he testified regarding the specific

                                     10
 1   provisions of the written document.       But simply testifying that
 2   he claims certain legal rights (in this case as an assignee)
 3   and that this status is memorialized in a written document is
 4   not hearsay.
 5        Of course, this is not the best evidence and it can often
 6   be quickly undermined at trial by cross-examination or the
 7   presentation of contrary evidence.       Indeed, in some instances,
 8   the written document itself might be the best source to impeach
 9   generalized statements such as Rappaport’s.        But the Debtors
10   made no such effort at trial.       The general statements of
11   Rappaport regarding the assignment went unchallenged.
12        D.      Conclusion
13        Accordingly, in light of the terms of the State Court
14   Judgment and the testimony of Rappaport, the court concludes
15   that the trial court did not err in holding that Rappaport had
16   standing.
17                             VI.   FORM OF JUDGMENT
18        The Debtors also allege that the bankruptcy court erred in
19   entering judgment against Park because the bankruptcy court
20   found that no evidence was presented against Park.       In its
21   Memorandum After Trial, the bankruptcy court stated that
22   “Rappaport produced no evidence that Cha’s wife, defendant
23   Young Lim Park, had anything to do with the false financial
24   statement.    Accordingly, only her interest in the community
25   property of the marriage and not her separate property is
26   liable for a nondischargeability judgment pursuant to
27   § 524(a)(3) of the Bankruptcy Code.”       In addition, the
28   bankruptcy court’s judgment found “[t]he judgment in Marin

                                        11
 1   County Superior Court case number CIV-094947 dated January 12,
 2   2010 is deemed non-dischargeable as to Defendant Young Lim Park
 3   only to the extent of her interest in the community property of
 4   the marriage and not her separate property.”
 5        The parties agree on appeal that the State Court Judgment
 6   was entered against Cha only and that the bankruptcy court
 7   found that Park had nothing to do with the false financial
 8   statement.   The bankruptcy court judgment found that the State
 9   Court Judgment is nondischargeable as to Park only against the
10   community property of the Debtors and the Debtors appear to
11   agree that a judgment which is nondischargeable
12   as to one spouse (but not the other) is enforceable against all
13   community property.   Thus, the parties agree on the substance
14   of the law but the Debtors disapprove of the specific language
15   used in the judgment.   In fact, the Debtors admit in their
16   opening brief that “the Court entered a Judgment against Park
17   that does nothing more than restate what the law already
18   provides.”   For this reason, we see no cause to reverse.   While
19   the Debtors may not have drafted the judgment with the same
20   wording used by the bankruptcy court, they agree with the
21   substance of the judgment.
22                           VII.   CONCLUSION
23        For the reasons set forth above, the bankruptcy court did
24   not err in finding that Rappaport had standing to bring the
25   adversary proceeding against the Debtors nor did the bankruptcy
26   court err in entering judgment against Park only to the extent
27   of the Debtors’ community property.   We AFFIRM.
28

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