Italiane v. Jeffrey Catanzarite Family limited P’ship (In re Italiane), 632 B.R. 662 (9th Cir. BAP)
Dear constituency list members of the Insolvency Law Committee, the following is a case update written by William E. Winfield of Nelson Comis Kettle & Kinney LLP, analyzing a recent decision of interest, Italiane v. Jeffrey Catanzarite Family limited P’ship (In re Italiane), 632 B.R. 662 (9th Cir. BAP).
To read the full published decision, click here.
The Bankruptcy Appellate Panel of the 9th Circuit upheld the order of Eastern District Bankruptcy Judge Rene Lastreto, II, which granted a summary judgment of non- dischargeability based on a stipulated Judgment over the objection of the Debtor, who argued the stipulation did not contain sufficient stipulated facts to establish issue preclusion.
The debtor Frank Lane Italiane, Jr. was sued in Los Angeles Superior Court for fraud and concealment in conjunction with a private investment offering in debtor’s roofing technology, “ArmorLite.” The Debtor filed for relief under chapter 7. The plaintiffs filed an adversary proceeding seeking to have the debt excepted from discharge under 11 U.S.C. § 523. The Bankruptcy Court abstained and granted relief from the stay to allow the lawsuit in Superior Court to proceed since it covered the same claims and facts upon which the adversary proceeding was based.
After several weeks of trial, the parties reached a settlement which was read into the record. The settlement included a stipulated judgment for fraudulent concealment which would be “nondischargeable in bankruptcy court” but would not be filed for one year. The Superior Court Judge questioned the debtor at length about his understanding of and his voluntary agreement to the stipulation before approving the settlement.
Less than a year later, the Debtor unsuccessfully moved to set aside the settlement. The California Court of Appeal upheld denial of the motion to vacate the settlement. Plaintiffs then filed a Summary Judgment Motion in the Bankruptcy Court which Debtor opposed because the Stipulated Judgment was not supported by any factual findings that would satisfy the elements of section 523. Judge Lastreto took the matter under advisement before granting summary judgment that excepted the $1.5 million judgment from discharge.
The Debtor appealed.
The Bankruptcy Appellate Panel (“BAP”) upheld the Summary Judgment Order finding that 1) stipulated judgments can support issue preclusion; 2) admission of individual facts was not a prerequisite to giving issue preclusive effect to a stipulated judgment; 3) there was no genuine dispute that the Debtor intended to be bound by the stipulated judgment; and 4) the Bankruptcy Court correctly determined that granting issue preclusion in this case was fair and consistent with sound policies underlying the doctrine of issue preclusion.
Significantly, the BAP distinguished cases requiring stipulated facts to establish the elements from this case because the stipulation here case took place after the adversary proceeding was already pending so that it had the effect of creating an enforceable stipulation to resolve the pending adversary proceeding.
In order to prevail on a motion for summary judgment in most cases it will still be necessary to have findings of fact or stipulated facts establishing the elements of the cause of action. However, in this case the stipulation arose in the context of Section 523 litigation, allowing the Bankruptcy Court to find the state court had made necessary findings.
These materials were written by ILC member, William E. Winfield of Nelson Comis Kettle & Kinney LLP, in Ventura, California (firstname.lastname@example.org).