In re: Koko Sarkis Babian, 9th Cir. BAP (2013)

7/25/2019 In re: Koko Sarkis Babian, 9th Cir. BAP (2013)

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*Thi s di sposi t i on i s not appr opr i at e f or publ i cat i on.Al t hough i t may be ci t ed f or whatever per suasi ve val ue i t mayhave ( see Fed. R. App. P. 32. 1) , i t has no pr ecedent i al val ue.See 9t h Ci r . BAP Rul e 8013- 1.

**Hon. Br uce T. Beesl ey, Bankrupt cy J udge f or t he Di st r i ctof Nevada, si t t i ng by desi gnat i on.

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UNI TED STATES BANKRUPTCY APPELLATE PANEL

FOR THE NI NTH CI RCUI TI n r e: ) BAP No. CC- 12- 1226- BePaMk

)KOKO SARKI S BABI AN, ) Bk. No. LA 10- 48241- PC

)Debt or . ) Adver sar y No. LA 10- 03244- PC

))

KOKO SARKI S BABI AN, ))

Appel l ant , ))

v. ) MEMORANDUM*

)VAHE TAMAMI AN; KRI KOR )TAMAMI AN, )

)Appel l ees. )

)

Ar gued and Submi t t ed On November 15, 2012,at Pasadena, Cal i f or ni a

Fi l ed J anuar y 4, 2013

Appeal f r om t he Uni t ed St ates Bankr upt cy Cour tf or t he Cent r al Di st r i ct of Cal i f or ni a

Honor abl e Pet er H. Car r ol l , Chi ef Bankrupt cy J udge, Pr esi di ng

Appear ances: Par o Ast ur i an, Esq. of Ast our i an and Associ at esI nc. ar gued on behal f of appel l ant Koko Sar ki sBabi an; Theodor e Kenr i ck Rober t s, Esq. of Rober t s &Rober t s argued on behal f of appel l ees Vahe Tamami anand Kr i kor Tamami an.

Bef ore: BEESLEY,**

PAPPAS, and MARKELL Bankr upt cy J udges.

FILED

JAN 04 2013

SUSAN M SPRAUL, CLERKU.S. BKCY. APP. PANELOF THE NINTH CIRCUIT


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** *Unl ess speci f i ed ot her wi se, al l chapt er and sect i onr ef er ences ar e to t he Bankr upt cy Code, 11 U. S. C. 101- 1532, andal l Rul e ref er ences are t o the Feder al Rul es of Bankrupt cyPr ocedur e, Rul es 1001- 9037. Al l Ci vi l Rul e r ef er ences ar e t o t heFeder al Rul es of Ci vi l Pr ocedur e.

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INTRODUCTION** *

Thi s case i nvol ves t wo i ndi vi dual s, t wo separat e bankr upt cy

cases, and t wo separ at e adver sary pr oceedi ngs. The i ndi vi dual s

wer e al l egedl y par t ner s i n a busi ness vent ur e t o devel opcondomi ni ums. Fi ndi ng t hat t hey were par t ners, t he same

bankr upt cy cour t t hat r ender ed a j udgment except i ng a debt f r om

di schar ge under Sect i on 523( a) ( 2) ( A) as t o one debt or i mput ed t hat

debt or s f r audul ent conduct t o t he debt or named i n t he adver sar y

pr oceedi ng f r om whi ch t hi s appeal ar i ses. Because we concl ude

t hat was err or , we VACATE t he j udgment ent ered i n t hi s case, and

REMAND t hi s mat t er t o t he bankr upt cy cour t f or f ur t her

pr oceedi ngs.

STATEMENT OF FACTS

A. The Pre-bankruptcy Proceedings

1. The Property.

I n Sept ember 2004, debt or / Appel l ant ( Debt or) Koko Sarki s

Babi an, a. k. a. Kr i kor Babaoghl i , t oget her wi t h Gar abed Babi an,Ashout Markar i an ( "Markar i an" ) , and Nazar et Moukht ar i an

( col l ect i vel y t he coowner s) pur chased uni mpr oved r eal pr oper t y

known as 1906- 1910 New Yor k Dr i ve, Al t adena, CA ( t he "Propert y")

f or $235, 000. They pur chased t he Pr oper t y wi t h t he i nt ent i on of

bui l di ng condomi ni ums on t he Pr oper t y. The f our i ndi vi dual s took

t i t l e t o t he Pr oper t y as t enant s- i n- common.

Pr i or t o pur chasi ng t he Pr oper t y, t he coowner s had an


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unl i censed ar chi t ect ( t he Ar chi t ect ) i nvest i gat e whet her t hey

coul d devel op f our condomi ni um uni t s on t he Pr oper t y. The

Ar chi t ect i nf or med t he coowner s pr i or t o pur chase t hat t he

Pr oper t y was sui t abl e f or onl y t hr ee condos, due t o a pr obl emr equi r i ng st r eet dedi cat i on and wi deni ng.

Consi der abl e work was needed on the Pr oper t y bef ore i t coul d

be devel oped. Power pol es woul d potent i al l y need t o be r el ocat ed

and t he power l i nes pl aced under gr ound. Debr i s and asphal t on t he

Proper t y had t o be r emoved bef ore devel opment coul d begi n. The

st r eet l i ght s mi ght need t o be r el ocat ed, or new st r eet l i ght s had

t o be bui l t . Al so, a bus st op and oak t r ee mi ght have t o be

r emoved.

I n August 2005, t he co- owners sought t o t ake advant age of a

f avor abl e r eal est at e mar ket and sel l t he Pr oper t y f or $660, 000. 00

The Pr opert y di d not sel l .

On March 19, 2006, Markar i an met wi t h a l ong- t i me f r i end, Dr .

Odabashi an, i n Las Vegas and tol d hi m t hat he and what he ref er r edt o as hi s par t ner s had t he Pr oper t y f or sal e f or $500, 000.

Markar i an st ated t he Pr oper t y was r eady f or devel opment of t hr ee

condos and t hat t he pl an and permi t s were r eady. As soon as t he

permi t s were acqui r ed, whi ch woul d cost appr oxi mat el y $25, 000 t o

$35, 000, const r uct i on coul d begi n.

Markar i an knew t hat t he devel opment - r el ated i ssues cr eated an

i mpedi ment t o economi cal l y pr udent devel opment of t he Propert y.

He al so knew t hat i f a pr ospect i ve buyer became aware of t hese

i mpedi ment s, t he pr i ce woul d have t o be subst ant i al l y reduced, i f

t he Pr oper t y coul d be sol d f or commer ci al devel opment at al l .

Markar i an di d not ment i on t he devel opment i ssues or potent i al


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1The sal e pr i ce was $55, 000 bel ow t he co- owners appr ai sedmarket val ue on t he Pr opert y.

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del ays and cost s i nvol ved i n devel opi ng t he Pr oper t y, al l of whi ch

wer e known t o hi m f or many mont hs. I nst ead, Mar kar i an, i ndi r ect l y

t hr ough Dr . Odabashi an, t ol d a pot ent i al buyer , Vahe Tamami an,

t hat devel opment of t he Pr oper t y needed not hi ng mor e than paymentof t he per mi t s.

Mar kar i an want ed t o cl ose t he sal e of t he Pr oper t y qui ckl y.

He t ol d Dr . Odabashi an t o f aci l i t at e such a cl osi ng and of f er ed t o

ent er i nt o an agr eement pr ovi di ng f or t he f ol l owi ng condi t i ons:

1. ) That t he l and wi l l be cl ear ed of al l excess mat er i aland t he mat er i al haul ed f r om t he pr oper t y by t he sel l i ngpar t y,

2. ) t hat t he l and be cl ear ed as soon as possi bl e af t erJ ul y 4t h so as t o make i t possi bl e f or t he pur chaser t ost ar t wi t h t he bui l di ng of t he pr oj ect ,

3. ) t o hol d $4, 000 of t he pur chase amount f r omMr . Ashout Markar i an as a guarant ee t hat such work wi l lbe done, and i n a t i mel y manner , and

4. ) t hat t her e ar e no ot her di scl osur es t he sel l er s ar eaware of whi ch woul d make t he bui l di ng of t he pr oj ectpr ohi bi t i ve.

5. ) Last l y, i t i s agr eed t hat i f t he above condi t i onsare not met , any expendi t ur es ar i si ng out of such non-compl i ance, i ncl udi ng, but not l i mi t ed t o at t or ney f ees,i nt er est and del ay of i ni t i at i on of t he pr oj ect wi l l[ be] t he r esponsi bi l i t y of t he sel l er s.

Dr . Odabashi an dr af t ed t he agreement , dat ed J une 29, 2006, whi ch

was si gned by Markar i an and Vahe Tamami an shor t l y t hereaf t er .

On J ul y 30, 2006, Vahe Tamami an and Kr i kor Tamami an, ( t he

Appel l ees) pur chased t he Proper t y f or $500, 000. 1 Af t er cl osi ng,

t he Appel l ees spent si x mont hs and over $90, 000. 00 t o cl ean and

r emove the asphal t , concr et e, and ot her mat er i al s f r om t he


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2Dur i ng or al ar gument , Debt or s counsel expl ai ned t hatMarkar i an was t he onl y coowner t o si gn a mandatory ar bi t r at i onpr ovi si on i n t he cl osi ng document s dur i ng t he sal e of t hePr oper t y t o Appel l ees.

3The ar bi t r at i on awar d i ncl uded i n t he r ecor d i n t hi s appealdoes not cont ai n any of t he exhi bi t s r ef er enced i n t hearbi t r at i on award. Damages awarded were: $4, 000. 00 f or Propert ycl ear ance; $21, 933. 00 f or r el ocat i ng t he power pol es; $65, 963. 00f or st r eet i mpr ovement s; $44, 977 f or car r yi ng cost on l oans, l oani nt er est , r eal est at e taxes dur i ng del ay; and $25, 000 puni t i vedamages, t ot al i ng $161, 873. 00. At t or ney s f ees of $86, 673. 37wer e al l owed. The t ot al awar d of consequent i al and puni t i vedamages t ogether wi t h at t orney s f ees was $284, 546. 27.

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Proper t y, r el ocat e t he power pol es, and make necessary st r eet

i mpr ovement s.

2. The State Court Proceedings.

On Febr uar y 4, 2008, t he Appel l ees f i l ed a l awsui t agai nstal l f our coowner s f or f r aud and br each of warr ant y, among other

cl ai ms, i n t he Los Angel es Super i or Cour t , Tamami an, et . al v.

Garabed Babi an, et . al , Case #GC040297. Al l of t he co- owners were

r epr esent ed by counsel .

The case was hear d as a bi ndi ng ar bi t r at i on. Mar kar i an was

t he onl y coowner t o ar bi t r at e. 2 The non- ar bi t r at i ng coowner s

di d not par t i ci pat e or ot her wi se appear t hr ough t hei r counsel .

a. The Arbitration.

The ar bi t r at i on hear i ng commenced on J anuar y 27, 2010, and

cont i nued f or sever al sessi ons unt i l f i nal submi ssi on i n l at e

May 2010. On J une 17, 2010, t he ar bi t r at or i ssued a t hi r t een- page

Ar bi t r at i on Awar d i n f avor of t he Appel l ees. 3

b. Confirming The Arbitration Award.

On December 7, 2010, t he Appel l ees pet i t i on t o conf i r m t he


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ar bi t r at i on awar d agai nst Mar kar i an was grant ed by t he st at e

cour t , and a j udgment i ssued i n conf or mi t y wi t h t he ar bi t r at i on

awar d. The cour t adopt ed t he f i ndi ngs of f act i n t he ar bi t r at i on

award and suppl ement al award, and i ncorporated t hem i nt o i t sj udgment . No appeal was t aken, and t he st at e cour t j udgment

agai nst Markar i an became f i nal on March 21, 2011.

3. Markarian Bankruptcy Case.

On Febr uary 16, 2011, Markar i an f i l ed a Chapt er 7 bankr upt cy

pet i t i on. Appel l ees f i l ed an adver sar y compl ai nt agai nst

Markar i an seeki ng a j udgment of nondi schar geabi l i t y under

Sect i on 523( a) ( 2) ( A) . On J anuar y 4, 2012, t he bankrupt cy cour t

ent er ed a j udgment of nondi schar geabi l i t y agai nst Markar i an under

Sect i on 523( a) ( 2) ( A) , based upon t he pr ecl usi ve ef f ect of t he

f i ndi ngs agai nst Mar kar i an i n t he st at e cour t . The cour t hel d

t hat t he $248, 548. 37 award was nondi schargeabl e agai nst Markar i an,

r epr esent i ng t he t ot al of t he at t or ney' s f ees, act ual damages, and

puni t i ve damages awarded by t he st at e cour t . That j udgmentagai nst Markar i an became f i nal and non- appeal abl e on J anuary 18,

2012.

B. The Babian Bankruptcy Case.

On Sept ember 8, 2010, Debt or f i l ed a Chapt er 7 bankr upt cy

case.

1. The Babian Adversary Proceeding.

On December 8, 2010, Appel l ees f i l ed an adver sar y pr oceedi ng

agai nst t he Debt or seeki ng a j udgment of nondi schar geabi l i t y under

Sect i on 523( a) ( 2) ( A) . Debt or f i l ed an answer r ai si ng ei ght

af f i r mat i ve def enses.


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4An ear l i er mot i on f or summar y j udgment was hear d and deni edby t he bankrupt cy cour t . The cour t speci f i cal l y gr ant ed l eave t of i l e a renewed mot i on f or summary j udgment shoul d addi t i onali nf or mat i on ar i se dur i ng di scover y i n t he case.

5The t r anscr i pt of t he Febr uary 14, 2012 hear i ng st at es t hat

i t i s a cont i nuat i on f r om a pr i or hear i ng i n whi ch t he cour t hadgr ant ed summar y j udgment . The t r anscr i pt of t he ear l i er hear i ngi s not i ncl uded i n our r ecor d.

6Al t hough Ci vi l Rul e 56( a) , appl i cabl e her e t hr oughRul e 7056, st at es t hat a cour t shoul d st at e on t he r ecor d t her easons f or gr ant i ng or denyi ng t he [ summary j udgment ] mot i on, t hat t ypi cal l y does not t ake t he f or m of maki ng f i ndi ngs of f act ,

( cont i nued. . . )

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a. The Summary Judgment Motion.

On Sept ember 30, 2011, t he Appel l ees f i l ed a mot i on f or

summar y j udgment ( Summar y J udgment Mot i on) . 4 The Summar y

J udgment Mot i on asser t s t hat , pur suant t o t he doct r i ne ofcol l at er al est oppel , t he st at e cour t s f r aud j udgment agai nst

Markar i an was pr ecl usi ve f or pur poses of t he bankr upt cy case, and

t hat Markar i an s f r aud coul d be i mput ed t o Debt or , si nce t hey wer e

par t ner s.

Debt or f i l ed an opposi t i on t o t he Summary J udgment Mot i on

whi ch was support ed by Debt or s decl arat i on and exhi bi t s. Debt or

ar gued t hat : 1) t her e was no par t ner shi p wi t h Mar kar i an, 2) he

coul d not be hel d l i abl e f or act s not i n t he or di nar y cour se of

busi ness of t he al l eged par t ner shi p, 3) he coul d not be hel d

l i abl e si nce he made no r epr esent at i ons t o Appel l ees, and 4) t he

cour t cannot gi ve col l at er al est oppel ef f ect t o a st at e cour t

ar bi t r at i on awar d.

On Febr uary 14, 2012, t he bankr upt cy cour t hel d a hear i ng

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f or t he pur pose of announci ng i t s f i ndi ngs of f act 6 and


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6( . . . cont i nued)

as summary j udgment i s appr opr i at e onl y when t here ar e no f act st o be f ound; t hat i s, when t her e i s no genui ne di sput e as t o anymat er i al f act . . . . Ci vi l Rul e 56( a) .

7Al t hough adopt ed i nt o t he cour t s f i ndi ngs of f act andconcl usi ons of l aw i n t hi s case, t he cour t s f i ndi ngs of f act andconcl usi ons of l aw r el at ed t o t he Sect i on 523( a) ( 2) ( A) j udgmenti n the Mar kar i an adver sar y pr oceedi ng have not been made a par tof t hi s r ecor d.

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concl usi ons of l aw. The cour t s f i ndi ngs of f act or i gi nat ed f r om

mul t i pl e sour ces. The cour t st at ed at t he begi nni ng of t he

hear i ng t hat :

[ t ] he f ol l owi ng f act s ar e der i ved f r om t he Debt or st est i mony, and t he ar bi t r at or s f i ndi ng and awar d i n apr i or st at e cour t act i on agai nst t hat was pendi ngagai nst al l of t he def endant s, but t he st at e cour t awar dwas di r ect ed t o Mr . Ashout Mar kar i an. [ Tr . Hr g.( Febr uar y 14, 2012) at p. 2] .

At t he concl usi on of t he hear i ng, t he cour t st at ed:

Fi nal l y, we have al l of t he f i ndi ngs agai nstMr . Mar kar i an, bot h i n t he st at e cour t , f or whi ch t hi sCour t f ound pr ecl usi ve ef f ect i n t he 523( a) act i on

agai nst Mr . Mar kar i an i n t hi s cour t , and upon whi ch t heCour t based i t s j udgment , f i ndi ng t hat t he debt of$248, 548. 37 was nondi schargeabl e agai nst Markar i an onJ anuar y 4t h, 2012.

[ T] he Cour t adopt s i t s f i ndi ngs of f act and concl usi onsof l aw i n t he Markar i an case t hat support ed i t s j udgmentent ered on J anuary 4, 2012, 7 and hol ds t hat t he debt ofMr . Babi an t o t he Pl ai nt i f f s i n t hi s adver sar ypr oceedi ng i n t he amount of $248, 548. 37, whi chr epr esent s actual damages of $161, 873, pl us at t orney' sf ees of $86, 675. 37, i s nondi schar geabl e under Sect i on523( a) ( 2) ( A) . [ Tr . Hr g. ( Febr uar y 14, 2012) at pp. 13-

14] .On Apr i l 17, 2012 t he bankrupt cy cour t ent ered summary

j udgment i n f avor of t he Appel l ees. The cour t adopt ed each of t he

f i ndi ngs of f act and concl usi ons of l aw f r om t he Febr uar y 14, 2012

hear i ng as wel l as t he cour t s f i ndi ngs of f act and concl usi ons of


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8 I t i s not ent i r el y cl ear whi ch of t wo di f f er ent f r audj udgments agai nst Mar kar i an ( t he st at e cour t j udgment , or t heMarkar i an Sect i on 523( a) ( 2) ( A) j udgment ) t he cour t may havedeemed pr ecl usi ve t o t he Debt or i n t hi s case. The bankr upt cycour t r ef er ences bot h j udgment s i n i t s st at ement of i ssues t o beaddr essed. I t appear s mor e l i kel y t hat t he cour t r el i ed upon t heMarkar i an Sect i on 523( a) ( 2) ( A) j udgment . As di scussed i n moredet ai l bel ow, r el yi ng upon t he Mar kar i an Sect i on 523( a) ( 2) ( A)j udgment woul d have been er r or . See, i nf r a Di scussi onSect i on B.

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l aw f r om Mar kar i an s adver sar y pr oceedi ng. Al t hough i t i s

uncl ear , t he cour t may have i mput ed Markar i an s f r aud as f ound i n

t he di schar ge except i on act i on i n hi s bankrupt cy case t o Debt or i n

t hi s case and gr ant ed summary j udgment on t hat basi s.

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Debt orappeal ed.

JURISDICTION

The bankr upt cy cour t had j ur i sdi ct i on pur suant t o 28 U. S. C.

1334 and 157( b) ( 2) ( I ) . We have j ur i sdi ct i on under 28 U. S. C.

158( a) ( 1) .

ISSUES

1. Di d t he bankr upt cy cour t er r when i t appl i ed t he doct r i ne of

i ssue pr ecl usi on f r om t he st at e cour t j udgement t o Debt or ?

2. Di d t he bankr upt cy cour t er r when i t i mput ed Mar kar i an s

f r aud t o Debt or ?

3. Di d t he bankrupt cy cour t er r when i t f ound t hat Debt or and

Markar i an wer e part ner s?

STANDARDS OF REVIEW

We r evi ew de novo t he bankr upt cy cour t s deci si on t o gr ant

summary j udgment . Boyaj i an v. New Fal l s Corp. ( I n r e Boyaj i an) ,

564 F. 3d 1088, 1090 ( 9t h Ci r . 2009) ; Lopez v. Emergency Serv.

Rest or at i on, I nc. ( I n r e Lopez) , 367 B. R. 99, 103 ( 9t h Ci r . BAP


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2007) . Vi ewi ng t he evi dence i n t he l i ght most f avor abl e t o t he

non- movi ng par t y ( i . e. , Debt or) , we det er mi ne whet her t he

bankrupt cy cour t cor r ect l y f ound t hat t her e ar e no genui ne i ssues

of mat er i al f act and t hat t he movi ng par t y i s ent i t l ed t o j udgmentas a mat t er of l aw. J esi nger v. Nev. Fed. Cr edi t Uni on, 24 F. 3d

1127, 1130 ( 9t h Ci r . 1994) ; Ger t sch v. J ohnson & J ohnson ( I n r e

Ger t sch) , 237 B. R. 160, 165 ( 9t h Ci r . BAP 1999) .

The avai l abi l i t y of i ssue precl usi on i s a quest i on of l aw t he

BAP r evi ews de novo. Wol f e v. J acobson ( I n r e J acobson) , 676 F. 3d

1193, 1198 ( 9t h Ci r . 2012) ( ci t i ng Di as v. El i que, 436 F. 3d 1125,

1128 ( 9t h Ci r . 2006) ) . I f i ssue pr ecl usi on i s avai l abl e, t he

deci si on t o appl y i t i s r evi ewed f or abuse of di scr et i on. Di as v.

El i que, 436 F. 3d 1125, 1128 ( 9t h Ci r . 2006) . When st ate

pr ecl usi on l aw cont r ol s, such di scret i on i s exer ci sed i n

accor dance wi t h appl i cabl e st ate l aw. Gayden v. Nour bakhsh ( I n r e

Nour bakhsh) , 67 F. 3d 798, 800- 01 ( 9t h Ci r . 1995) . A bankr upt cy

cour t abuses i t s di scret i on when i t appl i es t he i ncor r ect l egalr ul e or i t s appl i cat i on of t he cor r ect l egal r ul e i s (1)

i l l ogi cal , ( 2) i mpl ausi bl e, or ( 3) wi t hout suppor t i n i nf er ences

t hat may be dr awn f r om t he f act s i n t he r ecor d. Uni t ed St at es v.

Loew, 593 F. 3d 1136, 1139 ( 9t h Ci r . 2010) ( quot i ng Uni t ed St ates

v. Hi nkson, 585 F. 3d 1247, 126162 ( 9t h Ci r . 2009) ( en banc) )

( i nt er nal quot at i on mar ks omi t t ed) .

DISCUSSION

Debt or r ai ses sever al ar gument s suppor t i ng hi s bel i ef t hat

t he bankr upt cy cour t er r ed i n gr ant i ng t he Appel l ees Mot i on f or

Summary J udgment . For t he r easons set f or t h bel ow, we vacat e t he


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9Our ef f or t s t o subst ant i vel y revi ew t hi s case have beensi gni f i cant l y hamper ed by t he f ai l ur e of bot h par t i es t o f ul l ycompl y wi t h t he Feder al Rul es of Appel l ate Procedur e and t heBankrupt cy Appel l at e Panel Rul es. See Fed. R. App. P. 10( b) ( 2) ;BAP Rul e 8006- 1. Whi l e we may af f i r m t he bankr upt cy cour t ' sdeci si on on any basi s suppor t ed i n t he r ecor d, Bar nes v. Bel i ce( I n r e Bel i ce) , 461 B. R. 564, 579 ( 9t h Ci r . BAP 2011) , nei t herpart y has pr ovi ded us wi t h a compl et e ver si on of t he r ecord onwhi ch t he bankrupt cy cour t r el i ed i n r ender i ng i t s deci si on. I nt hi s i nst ance, t he absence of a compl et e r ecord has workedagai nst t he Appel l ees i nt er est s because i t has i mpai r ed our

abi l i t y t o i dent i f y whet her t her e ar e any al t er nat e gr ounds f oraf f i r mance.

10Al t hough t he cour t i dent i f i ed t he i ssues t hat i t was goi ngt o addr ess i n i t s f i ndi ngs and concl usi ons, t he cour t di d notconduct t he si x st ep i ssue pr ecl usi on anal ysi s r egar di ng ei t hert he st at e cour t j udgment or t he Mar kar i an Sect i on 523( a) ( 2) ( A)adver sar y pr oceedi ng j udgment . See, Khal i gh v. Hadaegh( I n r e Khal i gh) , 338 B. R. 817, 824- 25 ( 9t h Ci r . BAP 2006) ,af f d, 506 F. 3d 956 ( 9t h Ci r . 2007) .

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bankr upt cy cour t s j udgment and remand t hi s mat t er . 9

A. Bankruptcy Courts Application of Issue Preclusion.

Debt or ar gues t hat t he bankrupt cy cour t i mpr oper l y appl i ed

i ssue pr ecl usi on concept s when i t adopt ed t he ar bi t r at i on awar df i ndi ngs r el at ed t o t he al l eged par t ner shi p bet ween Mar kar i an and

Debt or .

A r evi ew of t he bankrupt cy cour t ' s deci si on r eveal s t hat t he

cour t conduct ed no i ssue pr ecl usi on anal ysi s. Nonet hel ess, t he

r ecor d bef or e us suggest s t hat t he bankrupt cy cour t based i t s

deci si on ent i r el y upon i t s det er mi nat i ons concer ni ng t he exi st ence

of a part ner shi p bet ween Markar i an and t he Debt or , t hat t he sal e

of t he Pr oper t y t ook pl ace wi t hi n t he or di nar y cour se of t hei r

par t ner shi p, and t he bankrupt cy cour t s i mput at i on of Mar kar i an s

f r aud as f ound i n t he Sect i on 523( a) ( 2) ( A) act i on i n hi s

bankr upt cy case to Debt or . 10 Under t hese ci r cumst ances, any


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11I ssue pr ecl usi on i s not appl i cabl e i n t hi s case. Thei ssues bef or e t he bankrupt cy cour t wer e di f f er ent f r om t he i ssuesl i t i gat ed i n t he st at e cour t or i n Mar kar i an s adver sar ypr oceedi ng. Nei t her t he ar bi t r at or , st at e cour t , nor bankrupt cycour t addr essed t he quest i on of i nt er - par t ner i mput at i on.Addi t i onal l y, an ar bi t r at i on awar d cannot have nonmut ual i ssuepr ecl usi on ef f ect unl ess t he par t y t hat di d not par t i ci pat e i nt he ar bi t r at i on agr ees t o such t r eat ment . Vandenber g v. Super .Ct . , 21 Cal . 4t h 815, 836- 37, 88 Cal . Rpt r . 366, 381, 982 P. 2d 229,242- 43 ( 1999) ; Ber gl und v. Ar t hr oscopi c & Laser Sur ger y Ct r . ofSan Di ego, L. P. , 44 Cal . 4t h 528, 537, 187 P. 3d 86, 91, 79Cal . Rpt r . 3d 370, 376 ( 2008) ; I n r e Khal i gh, 338 B. R. at 825 n. 4.Ther e i s not hi ng i n our r ecor d r ef l ect i ng t hat Debt or agreed t obe bound by Markar i an s arbi t r at i on award.

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r el i ance upon t he ar bi t r at i on awar d f i ndi ngs, or t he st at e cour t s

adopt i on of t hose f i ndi ngs, woul d have been er r or . 11

B. Bankruptcy Courts Determination of Nondischargeability UnderSection 523(a)(2)(A).

The bankr upt cy cour t had bef or e i t deposi t i on evi dence

r el at ed t o the quest i on of Debt or s al l eged par t ner shi p wi t h

Markar i an and whet her t he sal e of t he Proper t y was i n t he ordi nary

cour se of t he par t ner shi p. The cour t had no evi dence t o di r ect l y

suppor t a f i ndi ng of f r aud, ot her t han t he f i ndi ngs of f act and

concl usi ons of l aw set f or t h i n t he ar bi t r at i on awar d and st at e

cour t j udgment . Si nce t he bankrupt cy cour t di d not consi der t he

si x i ssue pr ecl usi on f actor s i dent i f i ed i n Khal i gh, supr a, i t

coul d not have pr oper l y rel i ed on t he ar bi t r at i on awar d or t he

st at e cour t f i ndi ngs. Consequent l y, t he cour t had no val i d basi s

f or determi ni ng t hat t he Debt or had commi t t ed f r aud i ndependent of

i mput i ng Mar kar i an' s f r aud, whi ch i s di scussed bel ow.

1. Imputation of a Partners Fraud Under Section523(a)(2)(A).

[ A] debt may be except ed f r om di schar ge ei t her when ( 1) t he


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debt or per sonal l y commi t s act ual , posi t i ve f r aud, or ( 2) t he

act ual f r aud of anot her i s i mput ed t o t he debt or under

par t ner shi p/ agency pr i nci pl es. Tsur ukawa v. Ni kon Pr eci si on,

I nc. ( I n re Tsur ukawa) , 287 B. R. 515, 525 ( 9t h Ci r . BAP 2002)( I n r e Tsur ukawa I I ) . Act ual f r aud may be i mput ed t o a debt or

f or nondi schar geabi l i t y pur poses even wher e t he debt or has no

knowl edge of t hat f r aud. I n r e Tsur ukawa I I , 287 B. R. 525- 26. See

al so, Wheel s Unl i mi t ed, I nc. v. Shar p ( I n r e Shar p) , 2009 W. L.

511640 *4 ( Bankr . D. I daho 2009) .

The Uni t ed St at es Supreme Cour t has l ong hel d t hat par t ners

can bi nd each ot her i n l i abi l i t y i f t hey commi t wr ongf ul act s

wi t hi n t he scope of t hei r par t ner shi p busi ness. I n St r ang v.

Br adner , 114 U. S. 555, 5 S. Ct . 1038, 29 L. Ed. 248 ( 1885) , t he

Cour t hel d t hat because t her e was a par t ner shi p r el at i onshi p and

because t he wr ongdoi ng i nvol ved a par t ner shi p t r ansact i on, t he

wr ongdoi ng of a par t ner was i mput ed t o t he i nnocent debt or

par t ner s. The cour t r easoned t hat :[ e] ach part ner was t he agent and r epr esent at i ve of t hef i r m wi t h r ef er ence t o al l busi ness wi t hi n t he scope oft he par t ner shi p. And i f , i n t he conduct of par t ner shi pbusi ness, and wi t h r ef erence t her et o, one part ner makesf al se or f r audul ent mi sr epr esent at i ons of f act t o t hei nj ur y of i nnocent per sons who deal wi t h hi m asr epr esent i ng t he f i r m, and wi t hout not i ce of anyl i mi t at i ons upon hi s gener al aut hor i t y, hi s par t ner scannot escape pecuni ar y r esponsi bi l i t y t her ef or upon theground t hat such mi sr epr esent at i ons were made wi t houtt hei r knowl edge.

St r ang, 114 U. S. at 561, 5 S. Ct . 1038. Sever al cour t s have r el i ed

upon St r ang t o i mput e t he wr ongf ul conduct of one par t y t o a

debt or f or pur poses of nondi schar geabi l i t y. See, e. g. Tsur ukawa

v. Ni kon Pr eci si on, I nc. ( I n r e Tsur ukawa) , 258 B. R. 192, 197- 98

( 9t h Ci r . BAP 2001) ( I n r e Tsur ukawa I ) ; Deodat i v. M. M. Wi nkl er


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12I n Cal i f or ni a, each par t ner i s an agent of t he par t ner shi pand bi nds t he par t ner shi p f or al l act s i n t he or di nar y cour se oft he par t ner shi p s busi ness. Cal . Cor p. Code 16301( 1) ( West2006) . Al l par t ner s ar e j oi nt l y and sever al l y l i abl e f or al lobl i gat i ons of t he par t ner shi p. Cal . Cor p. Code 16306( West2006) . A par t ner act i ng out si de t he or di nar y cour se of busi nesscan st i l l bi nd t he par t ner shi p i f t he act was aut hor i zed by t heot her par t ner s. Cal . Cor p. Code 16301( 2) ( West 2006) .Consi st ent wi t h t hi s concept [ a] par t ner shi p i s l i abl e f or l oss. . . caused t o a per son . . . as a r esul t of a wr ongf ul act oromi ssi on . . . of a par t ner act i ng i n t he or di nar y cour se ofbusi ness of t he par t ner shi p or wi t h aut hor i t y of t hepart ner shi p. Cal . Corp. Code 16305( a) ( West 2006) .

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& Assoc. ( I n r e M. M. Wi nkl er & Assoc. ) , 239 F. 3d 746, 748- 49 ( 5t h

Ci r . 2001) ; BancBost on Mor t g. Cor p. v. Ledf or d ( I n r e Ledf or d) ,

970 F. 2d 1556, 1561 ( 6t h Ci r . 1992) .

I n I n r e Cecchi ni , a 523( a) ( 6) case, a par t ner ' s wr ongdoi ngt hat occur r ed i n t he or di nar y cour se of t he par t ner shi p busi ness

was i mput ed t o an i nnocent part ner f or nondi schar geabi l i t y

pur poses. I mpul sor a Del Ter r i t or i o Sur , S. A. v. Cecchi ni ( I n r e

Cecchi ni ) , 780 F. 2d 1440, 1444 ( 9t h Ci r . 1986) , abr ogated on other

gr ounds, Kawaauhau v. Gei ger , 523 U. S. 57, 60, 118 S. Ct . 974,

140 L. Ed. 2d 90 ( 1998) . Mor e r ecent l y, i n I n r e Tsur ukawa I I , t hi s

panel hel d t hat a spouse s f r aud coul d be i mput ed t o the other

spouse under agency pr i nci pl es when t hey are al so busi ness

par t ner s. I n r e Tsur ukawa I I , 287 B. R. at 527. Thus, Mar kar i an s

f r audul ent conduct can pot ent i al l y be i mput ed t o Debt or , hi s

al l eged par t ner , by appl yi ng basi c par t ner shi p pr i nci pl es. 12

2. The Bankruptcy Courts Determination of PartnershipBetween Markarian and Debtor.

Debt or at t acks t he bankr upt cy cour t s det er mi nat i on t hat

Markar i an and Debt or were par t ners, argui ng t hat Debt or was a

passi ve i nvest or and engaged i n no act i vi t y on behal f of t he


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13Cal . Ci vi l Code 685 pr ovi des [ a] n i nt er est i n common i sone owned by sever al per sons, not i n j oi nt owner shi p orpart ner shi p. Cal . Ci vi l Code 685 ( West 2007) ( emphasi s added) .

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al l eged par t ner shi p. Debt or asser t s ever ythi ng t he Debt or di d was

consi st ent wi t h coowner shi p, not par t ner shi p, and not es t hat

t aki ng t i t l e t o t he Pr oper t y as t enant s i n common13 was

i nconsi st ent wi t h a f i ndi ng of par t ner shi p. Debt or i s cor r ect .Genui ne i ssues of mat er i al f act exi st r egar di ng whet her t he Debt or

and Markar i an were par t ners.

Debt or r el i es upon sever al Cal i f or ni a st at ut or y pr ovi si ons t o

show t hat he and Markar i an were mere coowner s of t he Proper t y,

not par t ner s. For exampl e, j oi nt owner shi p of pr oper t y does not ,

by i t sel f , est abl i sh a par t ner shi p. Cal . Cor p. Code,

16202( c) ( 1) ( West 2006) . Nor does shar i ng gr oss r et ur ns, by

i t sel f , est abl i sh a par t ner shi p. Cal . Cor p. Code 16202( c) ( 2)

( West 2006) . Al t hough a per son r ecei vi ng a shar e of pr of i t s f r om

a busi ness i s pr esumed t o be a part ner , t he pr esumpt i on di sappears

i f t he pr of i t ar i ses sol el y f r om an i ncrease i n t he val ue of t he

col l at er al , as i t di d i n t hi s case. Cal . Cor p. Code

16202( c) ( 3) ( E) ( West 2006) . Thus, nei t her j oi nt owner shi p norshar i ng pr of i t s ar e di sposi t i ve i n det er mi ni ng i f t her e was a

par t ner shi p.

Her e, t he par t i es t ook t i t l e t o t he Pr oper t y as t enant s i n

common. I n Cal i f orni a, hol di ng r eal pr oper t y as t enant s i n common

i s mut ual l y excl usi ve wi t h hol di ng t i t l e as a par t ner shi p. An

i nt er est i n common i s one owned by sever al per sons, not i n j oi nt

owner shi p or par t ner shi p. Cal . Ci v. Code 685 ( West 2007) .

Ther e i s al so a r ebut t abl e pr esumpt i on t hat propert y i s not


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14I n Cal i f or ni a, [ a] par t ner i s not a coowner ofpar t ner shi p pr oper t y and has no i nt er est i n par t ner shi p pr oper t yt hat can be t r ansf er r ed, ei t her vol unt ar i l y or i nvol unt ar i l y. Cal . Cor p. Code 16501. Munkdal e v. Gi anni ni , 35 Cal . App. 4t h1104, 1111, 41 Cal . Rpt r . 2d 805, n. 6 ( Cal . App. 1 Di st . 1995) ( Thepar t ner shi p owns i t s pr oper t y and t he par t ner s do not ) .

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par t ner shi p pr oper t y, even i f used f or par t ner shi p pur poses, i f

t he pr opert y i s acqui r ed i n the name of one or more of t he

par t ner s, wi t hout an i ndi cat i on i n t he i nst r ument t r ansf er r i ng

t i t l e t o t he pr oper t y of t he per son' s capaci t y as a par t ner or oft he exi st ence of a par t ner shi p and wi t hout use of par t ner shi p

asset s. . . . Cal . Cor p. Code, 16204( d) ( West 2006) . Her e,

t he Pr oper t y was t i t l ed i n t he names of t he f our i ndi vi dual s as

t enant s i n common. As such, t here was a r ebut t abl e pr esumpt i on

t hat t he Pr oper t y was not par t ner shi p pr oper t y. 14

Not wi t hst andi ng t he st at ut or y pr ovi si ons r el i ed upon by the

Debt or , t he bankr upt cy cour t and Appel l ees r el y upon other

st at ut or y pr ovi si ons t o show t hat a par t ner shi p exi st ed bet ween

Markar i an and t he Debt or .

I n Cal i f or ni a, [ t ] he associ at i on of t wo or mor e per sons t o

car r y on as coowner s of a busi ness f or pr of i t f or ms a

par t ner shi p, whet her or not t he per sons i nt end t o f or m a

part ner shi p. Cal . Corp. Code 16202( a) (emphasi s added) . Thust wo or more i ndi vi dual s car r yi ng on as coowner s of a busi ness f or

pr of i t may f or m a par t ner shi p, even i f t hey di d not i nt end t o f or m

one. [ C] o- owner shi p of any sor t , as wel l as pr of i t - shar i ng, ar e

f act or s t endi ng t o est abl i sh par t ner shi p. I n r e Tsur ukawa I I ,

287 B. R. at 521.

Addi t i onal l y, bei ng passi ve i n busi ness deal i ngs does not


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pr event a f i ndi ng of par t ner shi p. [ A] par t ner shi p can exi st as

l ong as t he part i es have t he r i ght t o manage t he busi ness, even

t hough i n pr act i ce one par t ner r el i nqui shes t he day- t o- day

management of t he busi ness t o t he ot her par t ner . I n r e Tsur ukawaI I , 287 B. R. at 522 ( ci t at i ons omi t t ed) .

Ul t i mat el y, t he exi st ence of a par t ner shi p i s a quest i on of

f act , det er mi ned f r om t he par t i es' agr eement , t hei r conduct , and

t he sur r oundi ng ci r cumst ances. Hol mes v. Ler ner , 74 Cal . App. 4t h

442, 454, 88 Cal . Rpt r . 2d 130, 139 ( Cal . App. 1 Di st 1999) . Si nce

t her e was no wr i t t en agr eement , t he exi st ence of t he par t ner shi p

i n t hi s case must be gl eaned f r om t he par t i es conduct and t he

sur r oundi ng ci r cumst ances.

I t i s wel l set t l ed i n Cal i f or ni a t hat a par t ner shi p maybe f ormed by parol even t hough i t s sol e pur pose i s t odeal i n r eal est at e. I f a par t ner shi p i s f or med andr eal pr oper t y i s dedi cat ed t o par t ner shi p use and i sused by t he par t ner shi p f or i t s sol e benef i t , t he f actt hat t i t l e was acqui r ed by one or mor e of t he par t ner swi t h t hei r pr i vat e f unds or was owned by them as t enant si n common pr i or t o the f or mat i on of t he par t ner shi p wi l l

not necessar i l y def eat t he cl ai m of t he par t ner shi p t oowner shi p of t he pr oper t y i n t he absence of an expr essagr eement t hat i t shoul d r emai n pr oper t y of t hose i nwhose names t i t l e st ood. Under such ci r cumst ances t heowner s of t he l egal t i t l e hol d t he pr oper t y i n t r ust f ort he par t ner shi p.

Swart hout v. Gent r y, 62 Cal . App. 2d 68, 78, 144 P. 2d 38, 43

( Cal . App. 4 Di st . 1943) ( ci t i ng Bast j an v. Bast j an, 215 Cal . 662,

668, 12 P. 2d 6127 ( Cal . 1932) ) ( ci t at i ons omi t t ed) ( emphasi s

added) ; En Tai k Ha v. Kang, 187 Cal . App. 2d 84, 91, 9 Cal . Rpt r 425,

430 ( Cal . App. 2 Di st . 1960) ( Ranch pr oper t y came t o t he part i es as

t enant s i n common, but t hat charact er was dest r oyed when t he

par t i es oper at ed i t as par t ner shi p pr oper t y and i t became a

par t ner shi p asset . ) . See al so, St r and v. Cl ar k, 2010 W. L. 2496390


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15Ever y i nt er est creat ed i n f avor of sever al per sons i nt hei r own r i ght i s an i nt er est i n common, unl ess acqui r ed by t hemi n par t ner shi p, f or par t ner shi p pur poses, or unl ess decl ar ed i ni t s cr eat i on t o be a j oi nt i nt er est , as pr ovi ded i n Sect i on 683,or unl ess acqui r ed as communi t y pr oper t y. Cal . Ci v. Code 686( West 2007) ( emphasi s added) .

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( Cal . App. 2 Di st . 2010) . Accor d, Cal . Ci v. Code Sect i on 686 ( West

2006) . 15

The bankr upt cy cour t det er mi ned numer ous f act s t o be

undi sput ed based on the Debt or ' s deposi t i on test i mony, as wel l ast he ar bi t r at i on awar d and ot her evi dence adopt ed i nt o t he recor d

whi ch i s not avai l abl e f or our r evi ew. As di scussed above, any

r el i ance upon t he ar bi t r at i on f i ndi ngs was i mpr oper . As such, t he

f act s t he cour t r el i ed on wer e undi sput ed onl y i f t he Debt or ' s

deposi t i on t est i mony suppor t s t hat concl usi on. The cour t

det er mi ned t he f ol l owi ng f act s t o be undi sput ed based on t he

Debt or ' s deposi t i on t est i mony:

The Debtor , Mr . Babi an, concedes t hat t he Debtorco- owned t he pr oper t y wi t h Markar i an and ot her part i es.. . .

* * * * *

The Debtor concedes t hat i t shared t he prof i t s of t hesal e of t he pr oper t y. The Debt or ' s deposi t i on t est i monyadmi ssi ons - - deposi t i on t est i mony and admi ssi onsest abl i sh t hat a par t ner shi p exi st ed wi t h r espect t o t he

pr oper t y as a mat t er of l aw.The Debtor t est i f i ed t hat he saw t he chance t o pur chaset he pr opert y f or $235, 000 as a good i nvest mentoppor t uni t y. An oppor t uni t y t o, quot e:

"Make some money. " cl ose quot e

I n r esponse t o a quest i on r egar di ng hi s i nt ent i ons i npur chasi ng the pr oper t y wi t h the ot her coowner s, hest at es, quot e:

". . . I was t ol d t her e i s a good oppor t uni t y.

That I shoul d put some money i n, and we


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16Cal . Cor p. Code, 16202( c) ( 1) , ( 2) , and ( 3) .

17Cal . Cor p. Code, 16204( d) .

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pr obabl y can bui l d i t and sel l i t . And so,you know, I i nvest ed some money i n or der t omake some money out of i t . "

Deposi t i on, page 11 at l i nes 19 t o 23.

The evi dence shows t hat t he proper t y was bought f or$235, 000 by Markar i an, t he Debt or , and t wo otherpar t i es, as coowner s i n 2004, and t hey hel d t i t l e ast enant s i n common. Accordi ng t o t he Debt or ' s ( si c)t est i mony, each par t y had a 25- per cent i nt er est i n t hepr oper t y. The Debt or f ur t her admi t s that t he par t i esor i gi nal l y i nt ended t o bui l d and sel l condomi ni um uni t son t he pr oper t y.

The co- owners never bui l t t he condos. However , t heundevel oped pr oper t y was event ual l y sol d t o Pl ai nt i f ff or $500, 000. Each coowner r ecei ved pr oceeds of$125, 000, whi ch cor r esponds t o each coowner s

25- per cent i nt er est i n t he pr oper t y.Mor eover , t he Debt or desi gnat ed the busi ness associ at i onas a par t ner shi p i n t he pr oper t y owner shi p st at us, For m1099 f r om Col oni al Escr ow, whi ch i s t he f or m t hat t heDebt or hi msel f f i l l ed out .

Addi t i onal undi sput ed f act s i n t he r ecor d t hat pot ent i al l y suppor t

t he bankr upt cy cour t s det er mi nat i on t hat t he Debt or and Markar i an

had f ormed a part ner shi p i ncl ude that t he co- owners had hi r ed an

ar chi t ect t o bot h conduct a si t e eval uat i on ( bef ore t hey boughtt he Pr opert y) and do desi gn st r uct ur al work on condomi ni ums, and

t hat t he par t i es wer e pur sui ng necessar y bui l di ng per mi t s,

communi cat i ng wi t h Con Edi son, and resol vi ng the bus s t op pr obl em.

Many of t he f act s t he bankrupt cy cour t r el i ed upon ar e

equi vocal , i n t hat t hey r el at e di r ectl y t o a Cal i f or ni a st at ut e

t hat pr ovi des t hat such a f act i s ei t her not by i t sel f evi dence of

a par t ner shi p16, cr eat es a rebut t abl e pr esumpt i on t hat pr oper t y i s

not par t ner shi p pr oper t y17, or i s mut ual l y excl usi ve wi t h a


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28 18Cal . Ci vi l Code 685.

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par t ner shi p18. Onl y one f act st ands out as unambi guousl y

suppor t i ng a f i ndi ng of par t ner shi p - t he 1099 For m t hat was

f i l l ed out by t he Debt or i dent i f yi ng t he Pr oper t y as bei ng

par t ner shi p pr oper t y. However , t hat f act , al one, i s i nsuf f i ci entt o suppor t summar y j udgment .

Debt or argued that each of t he f act s not ed by t he bankr upt cy

cour t i s evi dence of bot h coowner shi p and of par t ner shi p. We

agr ee. Debt or al so cor r ect l y ar gues t hat t he bankrupt cy cour t was

compel l ed t o vi ew t he evi dence and t hese f act s i n Debt or s f avor .

When Debt or s deposi t i on t est i mony i s vi ewed i n t he Debt or s

f avor , we concl ude t hat genui ne i ssues of mat er i al f act r emai n

unr esol ved r egardi ng whether t here was a par t nershi p between

Markar i an and t he Debt or .

I t i s wor t h not i ng t hat t he bankrupt cy cour t had t he benef i t

of si gni f i cant l y mor e evi dence t o eval uat e and wi t h whi ch t o

r ender i t s deci si on. Unf or t unat el y, t hat evi dence i s not pr esent

i n our r ecor d. The pauci t y of evi dence i ncl uded i n t he r ecor d i nt hi s case has hi nder ed our r evi ew and compel s our concl usi on on

t hi s appeal .

Havi ng det er mi ned t hat genui ne i ssues of mat er i al f act r emai n

r egardi ng t he al l eged part ner shi p bet ween Markar i an and Debt or , we

need not r each t he remai ni ng i ssues r ai sed by Debt or .

CONCLUSION

For t hese r easons, t he summary j udgment ent ered by t he

bankrupt cy cour t i s VACATED, and t hi s mat t er i s REMANDED.

Documents

In re: Koko Sarkis Babian, 9th Cir. BAP (2013)