FILED ORDERED PUBLISHED OCT 4 2021 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: BAP No. EC-20-1247-SGF FRANK LANE ITALIANE, JR. and ALICIA ITALIANE, Bk. No. 1:11-bk-63503 Debtors. Adv. No. 1:12-ap-01053 FRANK LANE ITALIANE, JR., Appellant, v. OPINION JEFFREY CATANZARITE FAMILY LIMITED PARTNERSHIP; ERON MARTIN; WOLFGANG GREINKE, Trustee of the Greinke Family Trust; WESLEY LARSEN; BRIAN HICKS, Trustee of the Hicks Family Trust U/D/T 10/01/2001; STEVEN NAZAROFF, Trustee of the Steven Nazaroff Retirement Trust; THE NAZAROFF FAMILY PARTNERSHIP; TRICIA PRENTICE; ROBERT STROHBACH, Trustee of the Strohbach Living Trust; CATHY GALIE- LEWIS; LEASON V. “CHET” LEEDS, Trustee of the Leason V. Leeds Trust; LYNAE ARNOLD; LIZ MALONE, Trustee of the Malone Family Trust, Appellees.

Appeal from the United States Bankruptcy Court for the Eastern District of California Rene Lastreto, II, Bankruptcy Judge, Presiding

APPERANCES: Appellant Frank Lane Italiane, Jr. argued pro se; Joseph Scott Klapach of Klapach & Klapach, P.C. argued for appellees.

Before: SPRAKER, GAN, and FARIS, Bankruptcy Judges.

Opinion by Judge Spraker Concurrence by Judge Faris

SPRAKER, Bankruptcy Judge.

INTRODUCTION

Chapter 7 1 debtor Frank Lane Italiane, Jr. (“Lane”) appeals from a

judgment excepting a $1.5 million judgment from discharge under

§ 523(a)(2)(A). During trial in the state court action, Lane consented to

entry of the judgment on the claim of fraudulent concealment in favor of

investors he induced to invest in his roofing products company. The

bankruptcy court determined that the stipulated judgment for fraudulent

concealment should be given issue preclusive effect entitling the plaintiff

investors to summary judgment on their § 523(a)(2)(A) claim for relief.

The circumstances surrounding the state court’s entry of the

stipulated judgment support the application of issue preclusion in this

case. Accordingly, we AFFIRM.

Unless specified otherwise, all chapter and section references are to the 1

Bankruptcy Code, 11 U.S.C. §§ 101–1532.

2 FACTS2

A. Lane’s involvement with ArmorLite Roofing, LLC.

Lane formed ArmorLite Roofing, LLC (“ArmorLite”) in 2004 to

develop, produce, and sell a patented high-tech roofing system that was

both very durable and highly fire resistant. He also served as an officer,

director, and manager. In those capacities, he “materially assisted” in the

preparation of “Offering Materials” for ArmorLite. Lane and ArmorLite

developed the Offering Materials for the purpose of persuading others to

invest in the company. Lane knew the Offering Materials would be used

for that purpose; he reviewed, revised, and approved the Offering

Materials. He also made oral representations to prospective and existing

investors at public meetings.

In 2008, Lane suffered a severe stroke. He partially recovered from

the mental disabilities he experienced after a very long convalescence. As a

result of his illness, he stepped down as president and chief executive

officer of ArmorLite.

In 2009, ArmorLite’s board of directors elected to file bankruptcy for

the company. According to plaintiffs, ArmorLite went bankrupt because it

failed to convert its successful prototypes into a product that could be mass

produced and sold at a competitive price. In contrast, Lane insisted that

ArmorLite’s patented, high-tech, fire-resistant roofing product was

2 We exercise our discretion to take judicial notice of documents electronically filed in the bankruptcy case and in plaintiffs’ nondischargeability action. See Atwood v. 3 “market ready” and that ArmorLite’s failure was a product of the Great

Recession and his illness. Lane also attributed the company’s problems to

the mismanagement and hostile takeover machinations of ArmorLite’s

reconstituted board of directors, which included some of the plaintiffs.

B. ArmorLite’s investors sue Lane.

In February 2010, plaintiffs filed a complaint in the Los Angeles

County Superior Court against Lane and others for, among other things,

securities fraud under California law, fraudulent misrepresentation,

fraudulent nondisclosure, and conspiracy to commit fraud. Plaintiffs

claimed that Lane fraudulently induced them to acquire roughly $2.4

million in membership interests in ArmorLite based on his affirmative

misrepresentations and nondisclosure of material facts regarding

ArmorLite’s roofing product. The alleged misrepresentations included:

(1) that ArmorLite had fully developed a patented, high-technology

roofing system that had obtained a Class “A” fire rating — the highest fire

resistance rating available; and (2) that ArmorLite was ready to market its

Class “A” rated product to contractors and the general public. Plaintiffs

additionally alleged that Lane fraudulently failed to disclose that

ArmorLite had changed the formula for ArmorLite’s roofing product and

that the product as modified had not been tested before being mass

produced and marketed. Plaintiffs maintained that the modified roofing

product ultimately failed to pass the Class “A” rating test when a testing

Chase Manhattan Mortg. Co. (In re Atwood),

, 233 n.9 (9th Cir. BAP 2003). 4 agency later audited the product. Years of litigation followed, including

discovery and motion practice.

C. Lane files for bankruptcy and the state court action proceeds to trial.

In December 2011, in the midst of this litigation, Lane filed his

chapter 7 bankruptcy case. Plaintiffs timely filed their nondischargeability

adversary proceeding under § 523(a)(2)(A) based largely on the same

allegations stated in their state court action. The bankruptcy court sua

sponte entered an order abstaining from adjudicating Lane’s liability for

fraud based on its conclusion that “it appears that the State Court Action

arises out of the same set of facts and includes essentially the same claims

for relief as pled in the adversary proceeding.” The bankruptcy court

granted relief from stay to permit plaintiffs to litigate their fraud claims to

final judgment in the state court. The court specifically noted in its

abstention order that the nondischargeability action would resume if

necessary to determine the dischargeability of any fraud judgment

plaintiffs might obtain from the state court. The bankruptcy court further

noted that, if the nondischargeability action resumed, it might then

consider applying issue preclusion to the state court’s findings of fact and

conclusions of law if appropriate.

The parties resumed their state court litigation. In September 2013,

the state court denied plaintiffs’ motion for summary judgment against

Lane. As part of the motion, the state court considered extensive evidence

5 presented by both sides. It initially observed that plaintiffs had established

a prima facie case of securities fraud under California law. The court

explained that the burden then shifted to Lane to establish the existence of

a triable issue of material fact. After considering Lane’s evidence, the court

ultimately concluded that there was a triable issue as to whether he made

any material misrepresentations or omissions. The court adopted the exact

same reasoning in denying summary adjudication of plaintiffs’

misrepresentation, concealment, and conspiracy causes of action.

In September 2015, the parties commenced trial, without a jury. Lane

was represented by counsel throughout the trial, which occurred over a 25-

day period in late September and early October of 2015. Prior to the

conclusion of the trial, the parties reached a settlement. Because the

bankruptcy court’s later nondischargeability judgment hinges on the

settlement and the resulting stipulated judgment, we recount the

circumstances surrounding the settlement, and its aftermath, in detail.

D. The parties’ settlement of the state court action.

On October 16, 2015, Lane and some of the plaintiffs submitted to the

court a handwritten “shortform” settlement agreement. All of the plaintiffs

who were present, as well as Lane, signed that written agreement.

Plaintiffs’ counsel represented that his remaining clients had authorized

him to enter into the settlement for them.

Plaintiffs’ counsel then explained some of the basic terms. He said

that “[t]he stipulated judgment will be for fraudulent concealment” and

6 “[i]t will be nondischargeable in bankruptcy court.” He also stated that

judgment would not be filed for a period of one year and that the

settlement and stipulated judgment would be confidential until the

stipulated judgment was filed.

The court then asked Lane a series of questions regarding whether he

understood that he could not back out of the settlement once it was entered

into on the record. The court also inquired whether he was entering into

the settlement agreement freely and voluntarily, and not as a result of

duress. Lane answered affirmatively but added that the stipulated

judgment was subject to a caveat or condition. According to Lane, if he

could obtain “ICC approval” for the current version of ArmorLite’s roofing

product and thereby resurrect the viability of the roofing product, the

stipulated judgment would not be effective, and the fraud litigation would

be dismissed. The court and Lane’s counsel explained to him that his

condition was not part of the settlement. Rather, the settlement provided

an immediate end to the fraud litigation in exchange for a $1.5 million

stipulated judgment against Lane. They further explained that further

negotiations during the year prior to entry of the judgment could lead to an

agreement along the lines Lane sought but that was not part of the existing

agreement. Moreover, they explained that there were no guaranties that

there ever would be any other agreement.

Lane then asked the court whether his condition could be added to

the settlement. The court responded that it was not a participant in the

7 settlement negotiations, which were between the parties and their counsel.

The court then took a short recess during which the parties discussed the

matter. When the hearing resumed, Lane’s counsel stated that her client

was prepared to agree with the terms of the stipulated judgment and was

not going to attempt to “add any terms.”

The court then resumed his colloquy with Lane, asking him again

whether his agreement was of his own free will, was not the result of

duress, and whether he understood that the agreement did not include any

condition regarding resurrection of ArmorLite’s roofing product. Lane

answered each question affirmatively and without hesitation. He further

expressed his desire to move forward with the settlement. The court also

asked each plaintiff present to confirm their understanding of and consent

to the agreement. They did. And the court asked plaintiffs’ counsel to

confirm the same on behalf of the plaintiffs not present, which he did.

Finally, the full, short-form settlement agreement was read into the

record. The key terms were as follows:

• Lane agreed to a $1.5 million stipulated judgment against him and in favor of plaintiffs for “fraudulent concealment.” • The judgment amount was to be allocated among plaintiffs in accordance with the amount of their respective investments. • Lane agreed to stipulate to a bankruptcy court order that the judgment would be excepted from discharge in his pending bankruptcy case. [This stipulation never occurred.]

8 • Plaintiffs agreed that they would not file the stipulated judgment until October 16, 2016 — one year after the parties entered into the settlement on the record in open court. • All parties agreed to bear their own attorney’s fees and costs — including the fees and costs plaintiffs incurred defending against Lane’s cross-complaint, which by the time of settlement had been dismissed. • Plaintiffs agreed they would not attempt to enforce their judgment against any revenue Lane might realize as the author of “Be In Heaven Now.” And, if that book was split into multiple titles, the judgment enforcement prohibition applied to those multiple books as well. • The parties intended the hand written short form agreement to be immediately binding and effective, though they specifically contemplated negotiating, drafting, and executing a long form agreement after the settlement was put on the record. • The parties would keep the agreement confidential unless and until the stipulated judgment was entered. • The state court would retain jurisdiction under Cal. Civ. Proc. Code (“CCP”) § 664.6 to enforce the agreement.

After the agreement was read into the record, the court gave Lane the

opportunity to personally read through it again. The court then explained

to him that the agreement was immediately binding and effective on him

regardless of whether the parties ever entered into another, longer-form

settlement agreement. The court then asked Lane, again, to confirm his

understanding and acceptance of the agreement, which he did.

9 E. Lane unsuccessfully attempts to vacate the settlement.

In April 2016, Lane filed in the state court, in pro per, a motion to

vacate the settlement. He stated that as a result of his 2008 stroke, his

participation at trial was a huge struggle and highly stressful, exacerbated

by family and personal issues. Lane further complained about his counsel’s

effectiveness and stated that she pressured him to enter into the settlement

out of her own self-interest. All of this combined to cause him to fear that

he would suffer another stroke and die. According to him, this is why he

agreed to the $1.5 million stipulated judgment though he continued to

believe that he had not done anything wrong.

Lane additionally claimed that he suffered from an ongoing cognitive

deficit as a result of his 2008 stroke and lacked the capacity to enter into the

settlement agreement and stipulated judgment. Lane supported this

contention with a declaration of a clinical psychologist specializing in

geriatric psychology, as well as several unauthenticated documents and

statements of friends and relatives. Each indicated that Lane’s ability to

understand and appreciate the consequences of signing the stipulated

agreement was significantly impaired. Plaintiffs opposed the motion to

vacate.

The state court denied Lane’s motion to vacate. According to the

court, Lane failed to submit any admissible evidence suggesting that he

lacked the mental capacity to settle on the day he entered into the

10 settlement or suggesting that any cognitive impairment he might have

suffered from at the time materially affected his understanding of the

settlement or the decision to settle. The court further drew on its

experiences with Lane, noted that Lane was represented by counsel, and

indicated that he had the mental capacity to enter into settlement because

he clearly answered the court’s questions without any sign of confusion.

Lane appealed the denial of his motion to vacate. The California

Court of Appeal affirmed in an unpublished memorandum decision issued

in May 2018. Among other things, the Court of Appeal held: “[w]e have no

reason to doubt the trial court’s own observations of Lane’s demeanor and

mental acuteness during the trial and the October [settlement] hearing in

determining Lane had the mental capacity required to make a reasoned

decision.”

On January 7, 2020, the state court entered the stipulated judgment in

favor of plaintiffs and against Lane for $1.5 million. Pursuant to the parties’

settlement agreement, the judgment included the following provision:

“Judgment is for Fraudulent Concealment (Fourth Cause of Action). It is

intended that this Judgment is not dischargeable in Defendant’s Chapter 7

case . . . . The Parties stipulated to an order for the Bankruptcy Court that

this Judgment is not dischargeable. This Court shall retain jurisdiction

under [CCP] 664.6.”

11 F. The bankruptcy court’s decision.

Plaintiffs then filed their motion for summary judgment in the

bankruptcy court based on the preclusive effect of the stipulated judgment.

As plaintiffs put it, the state court judgment established the elements

necessary for fraudulent concealment under California law. Plaintiffs

further pointed out that the stipulated judgment was entered into after

years of litigation, including summary judgment and lengthy trial

proceedings during which much evidence was presented regarding

misrepresentations and nondisclosures concerning ArmorLite’s roofing

product. As plaintiffs explained, “the parties actively and vigorously

litigated the fraud issues before the Settlement was reached and State

Judgment was entered, and a substantial record was created.”

Represented by new counsel, Lane opposed the summary judgment

motion. According to Lane, the state court judgment could not be given

issue preclusive effect because it was not supported by any factual

findings. Lane additionally posited that in the context of a stipulated

judgment, fraud findings could not be inferred, citing Yaikian v. Yaikian (In

re Yaikian),

(Bankr. S.D. Cal. 2014). Finally, Lane reiterated his

arguments that he lacked capacity to settle.

After hearing the summary judgment motion, the bankruptcy court

took the motion under submission. On September 10, 2020, the bankruptcy

court entered a memorandum decision granting the summary judgment

motion and subsequently entered summary judgment excepting the $1.5

12 million judgment debt from discharge. The court granted Lane’s motion for

an extension of time to appeal based on excusable neglect, which was

timely filed. Lane then timely appealed.

JURISDICTION

The bankruptcy court had jurisdiction under

and

157(b)(2)(I). We have jurisdiction under

.

ISSUE

Did the bankruptcy court err in granting summary judgment against

Lane under § 523(a)(2)(A) based on the preclusive effect of the state court’s

stipulated judgment for fraudulent concealment?

STANDARD OF REVIEW

We review de novo the bankruptcy court’s grant of summary

judgment. Plyam v. Precision Dev., LLC (In re Plyam),

(9th

Cir. BAP 2015). We also review de novo the bankruptcy court’s

determination that issue preclusion is available. Lopez v. Emerg. Serv.

Restoration, Inc. (In re Lopez),

(9th Cir. BAP 2007). When we

review a matter de novo, “we consider [the] matter anew, as if no decision

had been rendered previously.” Kashikar v. Turnstile Cap. Mgmt., LLC (In re

Kashikar),

(9th Cir. BAP 2017).

If we determine that issue preclusion is available, we then review the

bankruptcy court’s decision to apply it for an abuse of discretion. In re

Lopez,

. A bankruptcy court abuses its discretion if it applies

the wrong legal standard, or its findings of fact are illogical, implausible or

13 without support in the record. TrafficSchool.com, Inc. v. Edriver Inc.,

(9th Cir. 2011).

DISCUSSION

The issue preclusive effect of a prior state court judgment may serve

as the basis for granting summary judgment. See Khaligh v. Hadaegh (In re

Khaligh),

(9th Cir. BAP 2006), aff'd,

(9th Cir.

2007); see also Grogan v. Garner,

(1991). Based on the

analysis set forth below, we hold that the bankruptcy court did not err

when it applied issue preclusion to the parties’ stipulated judgment

entered in the state court litigation.

A. Stipulated judgments can support issue preclusion under California law.

We apply California law to determine the preclusive effect of

plaintiffs’ state court judgment. See Exxon Mobil Corp. v. Saudi Basic Indus.

Corp.,

(2005) (stating that federal courts must give full

faith and credit to state court judgments under

). The party

asserting issue preclusion has the burden of proof to establish each of the

threshold requirements. See Harmon v. Kobrin (In re Harmon),

(9th Cir. 2001). To satisfy this burden, the moving party “must

introduce a record sufficient to reveal the controlling facts” and must

“pinpoint the exact issues litigated in the prior action.” Kelly v. Okoye (In re

Kelly),

(9th Cir. BAP 1995), aff'd,

(9th Cir.

14 1996). Any reasonable doubt regarding what the prior court decided is

resolved against the moving party.

Under California issue preclusion law, the proponent must establish

the following threshold elements:

(1) the issue sought to be precluded from relitigation is identical to that decided in a former proceeding; (2) the issue was actually litigated in the former proceeding; (3) the issue was necessarily decided in the former proceeding; (4) the decision in the former proceeding is final and on the merits; and (5) the party against whom preclusion is sought was the same as, or in privity with, the party to the former proceeding.

In re Plyam,

(citing Lucido v. Super. Ct.,

(1990)). But before applying issue preclusion, the bankruptcy court

additionally needed to assess “whether imposition of issue preclusion in

the particular setting would be fair and consistent with sound public

policy.” In re Khaligh,

-25 (citing Lucido,

).

In California State Automobile Ass’n Inter-Insurance Bureau v. Superior

Court,

, 664–65 (1990) (“CSAAIB”), the California Supreme

Court held that an admission of the insured’s liability set forth in a

stipulated judgment entered pursuant to CCP § 664.6 was entitled to issue

preclusive effect “when the parties manifest an intent to be collaterally

bound by its terms.” Id. at 664. In reaching its decision, the court

distinguished mere “compromise settlements” entered pursuant to CCP

15 § 9983 from stipulated judgments entered pursuant to CCP § 664.6. 4 Id. at

664-65 & n.3. The CSAAIB court explained that the trial court has no

discretion to refuse to enter a CCP § 998 compromise settlement, whereas a

CCP § 664.6 stipulated judgment has more of the attributes of a traditional

(adversarial) judgment. Specifically, “entry thereof is a judicial act that a

court has discretion to perform” and such discretion only should be

exercised where the stipulated judgment is just. Id.

CSAAIB further acknowledged that courts of other states generally

have refused to give issue preclusive effect to stipulated judgments. But it

reasoned:

3 CCP § 998(b) provides in relevant part:

Not less than 10 days prior to commencement of trial or arbitration . . . , any party may serve an offer in writing upon any other party to the action to allow judgment to be taken or an award to be entered in accordance with the terms and conditions stated at that time. . . .

(1) If the offer is accepted, the offer with proof of acceptance shall be filed and the clerk or the judge shall enter judgment accordingly. . . . (2) If the offer is not accepted prior to trial or arbitration or within 30 days after it is made, whichever occurs first, it shall be deemed withdrawn, and cannot be given in evidence upon the trial or arbitration.

4 CCP § 664.6 provides in relevant part:

If parties to pending litigation stipulate, in a writing signed by the parties outside of the presence of the court or orally before the court, for settlement of the case, or part thereof, the court, upon motion, may enter judgment pursuant to the terms of the settlement. If requested by the parties, the court may retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement. 16 For purposes of the present case, we need not resolve this debate. It seems fair to say that by specifically stipulating to the issue of liability, the parties intended the ensuing judgment to collaterally estop further litigation on that issue. Were their intent otherwise, the parties easily could have expressly restricted the scope of the agreement.

Id. at 664 n.2.

Our prior decisions generally have recognized California’s practice of

giving preclusive effect to stipulated judgments. See Boyce v. Hamilton (In re

Boyce), BAP No. CC-15-1220-TaKuKi,

, at *3-4 (9th Cir.

BAP Oct. 25, 2016) (“Boyce I”); see also Johnson v. W3 Inv. Partners, LP (In re

Johnson), BAP No. SC-17-1194-LBF,

, at *5 (9th Cir. BAP

April 16. 2018), aff'd,

(9th Cir. 2019); Boyce v. Hamilton (In

re Boyce), BAP Nos. CC-18-1052-STaL, CC-18-1058-STaL,

,

at *7-9 (9th Cir. BAP Dec. 12, 2018) (“Boyce II”).

B. Admission of individual facts was not a prerequisite to giving the stipulated judgment for fraudulent concealment preclusive effect.

Lane argues that the stipulated judgment cannot be given preclusive

effect because it does not include any stipulated facts. Rather, the

stipulated judgment simply states that Lane is liable for fraudulent

concealment and that the liability is intended to be nondischargeable.

Specifically admitted facts in a stipulated judgment often support the

determination that the parties manifested an intent to be bound by those

facts in subsequent proceedings such that those issues are deemed actually

17 litigated and necessarily decided for purposes of applying issue preclusion.

In re Johnson,

, at *3; Boyce I,

, at *3-4;

Hayhoe v. Cole (In re Cole),

(9th Cir. BAP 1998) (“[I]f the

parties stipulated to the underlying facts that support a finding of

nondischargeability, the Stipulated Judgment would then be entitled to

collateral estoppel application.”).

But it is not essential that the stipulated judgment include stipulated

facts to support issue preclusion. Here, Lane agreed to entry of judgment

on plaintiffs’ cause of action for fraudulent concealment. Entry of that

judgment necessarily included a finding that all the elements to establish

that cause of action existed. See Younie v. Gonya (In re Younie),

(9th Cir. BAP 1997), aff'd,

(9th Cir. 1998) (“Such a

judgment necessarily included a determination of all of the facts required

for actual fraud under California law.”); see also Zuckerman v. Crigler (In re

Zuckerman),

, 718 (9th Cir. BAP 2020) (holding that a judgment

entered specifically based on fraud actually litigated and necessarily

decided all elements necessary to sustain a judgment for fraud); Landeros v.

Pankey,

, 1172–73 (1995) (California has a “line of

authority [stating] that a party consenting to judgment against him admits

those elements of the litigation which were ‘necessarily included therein or

necessary thereto’ (Code Civ. Proc., § 1911) and may suffer collateral

estoppel effect unless the parties expressly reserved or withdrew that issue

from the prior judgment.” (Emphasis in original)). Thus, the stipulated

18 judgment established the individual elements of fraudulent concealment

under California law. Here, all the elements necessary to support a claim of

fraudulent concealment under California law have been actually litigated

and necessarily decided. Significantly, those elements mirror what is

needed to prove the investors’ § 523(a)(2)(A) claim. See In re Zuckerman, 613

B.R. at 714.

Ultimately, the critical question under California law remains

whether the parties manifested an intent to be bound by the judgment.

CSAAIB,

; see also FDIC v. Daily (In re Daily),

,

369 & n.8 (9th Cir. 1995) (holding that by stipulating to suspend

nondischargeability action pending completion of a district court RICO

action, parties manifested their intent to be bound by the result in the RICO

action in the nondischargeability action).

The determination of the parties’ intent to be bound by the stipulated

judgment must be treated like any other question regarding contractual

intent:

The absence of manifest intention on the face of the instrument would not necessarily prevent defendants from proving on remand, however, as a matter of fact, that the parties intended the unlawful detainer judgment to settle their entire relationship. A prior stipulated or consent judgment is subject to construction as to the parties’ intent, and if sufficiently ambiguous may be interpreted in light of extrinsic evidence.

19 Landeros,

; see also In re Johnson,

, at

*5 (“[W]here the record or judgment evidences an intent by the parties for

a stipulated judgment to be preclusive . . . a court may give [preclusive]

effect to that judgment.” (Emphasis added)).

Lane contends that treating plaintiffs’ fraudulent concealment

allegations as admitted is at odds with our prior decision in In re Cole,

, and with the bankruptcy court’s decision in Yaikian v. Yaikian

(In re Yaikian),

(Bankr. S.D. Cal. 2014). But Cole and Yaikian

involved prepetition waivers of dischargeability in any future bankruptcy

filed by the judgment debtor. Thus, both cases stand for the well-settled

proposition that prepetition waivers of discharge are unenforceable as a

matter of public policy. Such prepetition agreements impermissibly

interfere with a debtor’s “fresh start.” Cont'l Ins. Co. v. Thorpe Insulation Co.

(In re Thorpe Insulation Co.),

(9th Cir. 2012); Bank of China

v. Huang (In re Huang),

(9th Cir. 2002).

Put bluntly, public policy simply does not permit the application of

issue preclusion where the sole purpose of the stipulated judgment was to

waive the dischargeability of the underlying debt in a future bankruptcy. In

re Cole, 226 B.R.at 655; In re Yaikian,

; see also Wank v. Gordon

(In re Wank),

(9th Cir. BAP 2014). Here, the settlement and

stipulated judgment were entered into by the parties postpetition and only

after the creditors had filed their nondischargeability action based on the

20 same conduct at issue in the state court action. This distinguishes Lane’s

case from Cole, Yaikian, and Wank.

At bottom, neither Cole nor Yaikian support the proposition that

California law requires stipulated judgments to include stipulated facts to

support issue preclusion in a subsequent action. Accordingly, the material

question remains: did the parties manifest an intent to be bound by the

stipulated judgment?

C. There is no genuine dispute that Lane’s actions objectively manifested an intent to be bound by the stipulated judgment.

The bankruptcy court granted summary judgment based on the

preclusive effect of the stipulated judgment because “[b]oth the ‘four

corners’ of the judgment and the record show the parties’ intention to make

the fraudulent concealment judgment preclude re-examination of the

elements in this adversary proceeding.” Courts grant summary judgment

when the record demonstrates “that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment as a

matter of law.” Celotex Corp. v. Catrett,

(1986). It bears

repeating that only a genuine dispute of material fact will preclude

summary judgment. “An issue is ‘genuine’ only if there is sufficient

evidence for a reasonable fact finder to find for the non-moving party.” Far

Out Prods., Inc. v. Oskar,

, 992 (9th Cir. 2001) (citing Anderson v.

Liberty Lobby, Inc.,

(1986)). A fact is “material” if it may

21 affect the outcome of the case under the pertinent substantive law.

Anderson,

.

On summary judgment, all facts genuinely in dispute must be

viewed, and all reasonable inferences must be made, “in the light most

favorable to the nonmoving party.” Scott v. Harris,

(2007).

But where the nonmovant’s evidence opposing summary judgment is

conclusively refuted by other evidence in the record, the nomovant has not

demonstrated a genuine issue of material fact that requires denial of

summary judgment.

.

Lane argues the bankruptcy court erred because he stated in his

declaration filed in opposition to the motion for summary judgment that he

never intended to admit to fraud or to have the stipulated judgment

preclude litigation in the adversary proceeding. He contends that this

created a genuine dispute whether the parties intended to be bound by the

stipulated judgment. Based upon controlling California precedent, we

disagree and find Lane’s undisclosed subjective intent to be immaterial.5

5 Lane argues Jun Ho Yang v. Fund Management International, LLC (In re Jun Ho Yang),

(9th Cir. 2017), requires reversal of the summary judgment. There, the Ninth Circuit reversed a grant of summary judgment that a prepetition stipulated judgment entered under CCP § 664.6 precluded relitigation of fraud issues in light of the debtor’s statement that “he did not intend the stipulated facts in the Settlement Agreement and Stipulation for Entry of Judgment in the prior state court action to have a preclusive effect in future proceedings.” Id. at 374. This panel’s decision being appealed, Yang v. Fund Management International, LLC (In re Jun Ho Yang),

(9th Cir. BAP Feb. 17, 2016), discloses that the settlement and judgment adopted the allegations of the relevant complaints as true, and agreed to enter judgment for $3,000,000, though it did not identify any specific claim.

. Neither decision 22 The California Supreme Court has instructed that it is the outward

manifestation of the parties’ intent that determines whether they should be

bound by the terms of their stipulated judgment. CSAAIB,

.

This is because stipulated judgments have a dual nature with

characteristics of both a contract entered by the parties and the judgment

resulting from it.

. Consequently, courts applying California

law typically apply standard contract construction principles to interpret

them. See, e.g., In re Marriage of Schu,

(2014)

(applying general contract construction principles to a stipulated

judgment); Gerwer v. Salzman (In re Gerwer),

(9th Cir. BAP

2000) (same); Landeros,

(same).

In contract matters, California distinguishes between the parties’

outward manifestation of their intent and whatever intent they secretly or

subjectively might be harboring. Pac. Gas & Elec. Co. v. Zuckerman,

(1987) (citing Brant v. Cal. Dairies, Inc.,

(1935)). The former is relevant to ascertaining what the contracting parties

agreed to and the latter is not. As the California courts have explained:

California recognizes the objective theory of contracts, under which it is the objective intent, as evidenced by the words of the contract, rather than the subjective intent of one of the parties,

provided any analysis as to the manifestation of intent on the record before them. Given our limited focus on the outward manifestation of intent, we do not find either of these unpublished decisions helpful in construing California law as to the preclusive effect of stipulated judgments.

23 that controls interpretation. The parties’ undisclosed intent or understanding is irrelevant to contract interpretation.

Founding Members of the Newport Beach Country Club v. Newport Beach

Country Club, Inc.,

(2003) (cleaned up).

California’s adherence to the objective theory of contracts renders

Lane’s undisclosed subjective intent immaterial when determining the

parties’ manifestation of intent. And apart from his statement that he never

intended to be bound by the stipulated judgment for fraudulent

concealment, Lane offers no specific evidence or argument regarding the

parties’ manifestation of their intent.

In opposition to the motion for summary judgment, Lane did raise

his mental capacity and argued that he mistakenly entered into the

settlement agreement. He argued that these issues raised genuine disputes

of material fact that precluded summary judgment on the issue of his intent

to be bound by the stipulated judgment. Generally speaking, mistake and

lack of capacity, under certain circumstances, can be grounds to unwind a

settlement or a judgment. See, e.g., Comunidad en Accion v. L.A. City Council,

(2013) (evaluating mistake as grounds for

relief from judgment); In re Ginsberg’s Est.,

, 211–12, 216-

17 (1936) (evaluating party’s mental capacity to form a valid contract).

The debtor in In re Wank,

, raised similar allegations of

duress and lack of capacity while acting under medications. Wank did not

involve issue preclusion but rather a grant of summary judgment based on

24 stipulated facts made in a declaration as part of a stipulated judgment. The

panel reversed the grant of summary judgment that the stipulated

judgment debt was nondischargeable not on the alleged duress but rather

on the court’s exclusive reliance on the declaration as violative of public

policy as a prepetition waiver of discharge.

. Allegations of

fraud and mistake also required remand in Boyce I to evaluate whether

application of issue preclusion was fair and equitable, but such allegations

did not bar the bankruptcy court from applying issue preclusion to the

stipulated judgment. See Boyce II,

at 7.

As in Wank and Boyce I, Lane’s allegations of mistake and lack of

capacity raise a different question than whether the parties manifested an

intent to be bound by their stipulated judgment in subsequent proceedings.

Lane’s mistake and lack of capacity arguments go to whether the existing

stipulated judgment should continue to be recognized. In short, Lane’s

statements regarding his lack of mental capacity and mistake did not raise

either a genuine or a material dispute concerning the parties’ manifestation

of intent to be bound by the stipulated judgment that he admittedly

entered.6 See Boyce II,

at 7. As demonstrated in Boyce I,

6 Additionally, Lane raised these same arguments in the state court in support of his motion to vacate the stipulated judgment. After extensive litigation, the state court denied his motion to vacate, and the California Court of Appeal affirmed that denial. To the extent Lane is asking us to second-guess the state court’s denial of his motion to vacate or the affirmance of that denial, we cannot do so. Such second-guessing would contravene the full faith and credit principles set forth in

and would constitute an impermissible collateral attack on the state court’s decisions. See In re 25 this is not to say that such allegations should not be considered when

deciding whether to apply issue preclusion. Rather, such considerations are

interwoven into the question of whether application of issue preclusion

would be fair and consistent with sound public policy.

Importantly, Lane does not dispute that there is sufficient evidence in

the record to establish that the parties manifested an intent to be bound by

the stipulated judgment for fraudulent concealment. Such evidence

includes plaintiffs’ cause of action and allegations for fraudulent

concealment, and the lengthy fraud litigation undertaken in the state court,

which encompassed discovery, motion practice, and trial proceedings, and

which culminated in the settlement. Even then, the state court judge

discussed with Lane at length the significance of the settlement to ensure

that he voluntarily and knowingly agreed to the settlement. The settlement

resulted in entry of judgment on a specific cause of action for fraudulent

concealment.

Unlike other cases where the parties entered into a stipulated

judgment prepetition, Lane entered the settlement and stipulated judgment

after filing his bankruptcy and while his nondischargeability action based

on the same conduct was pending. This was not the situation in Cole and

Yaikian, where the creditors attempted to deprive the debtors of any future

Lopez,

; see also Darlington v. Basalt Rock Co.,

, 708- 09 (1961).

26 fresh start based on claims that did not support nondischargeability.7 Here,

in contrast, the bankruptcy court permitted the parties to proceed with the

state court fraud litigation as a proxy for the nondischargeability action —

after having advised them that the resolution of the fraud claims in state

court could have preclusive effect in the adversary proceeding.

In light of the pending bankruptcy case and adversary proceeding,

nondischargeability was always at issue. As we recognized in Cole, “[i]n

prebankruptcy litigation, the question of the dischargeability of the debt is

not in issue,” but “dischargeability is the ‘central issue in bankruptcy

dischargeability litigation,’ and bankruptcy courts have exclusive

jurisdiction to determine the dischargeability of a claim under § 523(a)(2).”

(citing Saler v. Saler (In re Saler),

(Bankr.

E.D. Pa. 1997), aff'd,

(E.D. Pa. 1998)). In essence, the parties

here agreed to resolve both the state court liability action and the

7 As part of the settlement, Lane promised to stipulate to the nondischargeability of the debt in the pending nondischargeability action in his bankruptcy case. Lane never executed this stipulation for the bankruptcy court, and the investors did not seek summary judgment on their § 523(a)(2)(A) claim on that basis. Therefore, the enforceability of that specific term of the settlement agreement is not before us. Still, we consider this provision as substantial evidence that the parties were well aware of the pending nondischargeability action and that the resolution of the state court action could have preclusive effect in the nondischargeability action. Given the pending bankruptcy case and the adversary proceeding based on the same fraud, the public policy concerns at issue in cases involving prepetition waivers of discharge are not implicated here. See generally In re Cole,

(“[A] state court stipulated judgment where the debtor waives his right to discharge is unenforceable as against public policy. However, a stipulation in a related bankruptcy case that a debt is nondischargeable is enforceable and res judicata.”). 27 nondischargeability adversary proceeding which depended on the same

claim for fraudulent concealment. No other reason is offered for why Lane

expressly committed to stipulate to the nondischargeability of the

judgment debt for fraudulent concealment in his pending bankruptcy.

Indeed, there was no reason or incentive to liquidate a dischargeable debt,

or for the creditors to settle the state court action after years of litigation,

and in the midst of trial, only to relitigate the exact same claim in the

nondischargeability action.

Lane admits that he hoped to convince the investors to release their

claim after he entered into the settlement but before the stipulated

judgment was entered a year later in accordance with the settlement. This

matter was the subject of considerable discussion during the state court

settlement conference. Indeed, the state court went to great lengths to

ensure that Lane understood that this was only his hope and was not part

of the settlement agreement. The state court made it clear that Lane was

agreeing to entry of judgment for fraudulent concealment. The provision

for nondischargeability was read into the record during the settlement

hearing and was included in the stipulated judgment that the state court

ultimately entered. The transcript shows that Lane acknowledged he

understood the terms of the settlement and agreed to them. Lane’s hope to

avoid entry of the stipulated judgment or the consequences of his

agreement do not negate his settlement or the context in which it arose.

28 The investors established a strong prima facie case for summary

judgment that the parties manifested an intent to be bound by the

stipulated judgment for fraudulent concealment in the pending

nondischargeability action. Lane was required to come forward with at

least some evidence to establish a genuine dispute that the parties did not

manifest an intent to be bound by the stipulated judgment. Scott,

(citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,

,

586–587 (1986)). In this instance, his statement of subjective intent was not

material to the manifestation of the parties’ intent. His declaration,

therefore, did not create a genuine issue of material fact to preclude entry

of summary judgment.

D. The bankruptcy court did not abuse its discretion when it determined that the application of issue preclusion here was just and consistent with the policies underlying the doctrine.

When the bankruptcy court determines that issue preclusion is

available, it must still decide whether such application would be fair and

consistent with sound public policy. Delannoy v. Woodlawn Colonial, L.P. (In

re Delannoy),

, 582 (9th Cir. BAP 2020) (citing In re Khaligh,

). The court’s consideration of fairness and public policy

typically focuses on: “preservation of the integrity of the judicial system,

promotion of judicial economy, and protection of litigants from harassment

by vexatious litigation[.]” Lucido,

; see also Murray v. Alaska

Airlines, Inc.,

(2010) (stating that policies underlying

29 issue preclusion “include conserving judicial resources and promoting

judicial economy by minimizing repetitive litigation, preventing

inconsistent judgments which undermine the integrity of the judicial

system, and avoiding the harassment of parties through repeated

litigation.”).

Even though the state court rejected Lane’s lack of capacity and

mistake arguments when it denied his motion to vacate the stipulated

judgment, the bankruptcy court still addressed those same arguments

when it considered whether application of issue preclusion in this case was

consistent with fairness and public policy. See Boyce II,

at

*9 (“As part of its fairness and policy analysis, the bankruptcy court duly

considered Boyce's fraud and coercion charges.”). Indeed, the bankruptcy

court’s decision here reflects that, as part of its fairness and public policy

analysis, it considered at length all the circumstances of this case, including

all of the arguments Lane advanced challenging the validity of the state

court stipulated judgment. The bankruptcy court identified the correct

policy considerations and found that each of them weighed in favor of

applying issue preclusion. It simply was not persuaded that it was unjust

or inconsistent with public policy for the court to give preclusive effect to

the stipulated judgment. It made a reasoned, detailed analysis explaining

why each consideration supported application of issue preclusion. The

record supports the bankruptcy court’s policy findings, and we perceive no

error.

30 CONCLUSION

For the reasons set forth above, we AFFIRM the bankruptcy court’s

summary judgment excepting from discharge Lane’s $1.5 million judgment

debt.

Concurrence begins on next page.

31 FARIS, Bankruptcy Judge, concurring:

I fully concur with the Panel’s meticulous decision. I write separately

to explain another justification for the same result.

If parties in litigation make a settlement on the record, and one party

fails to perform under the settlement agreement, courts frequently consider

requests to compel nonperforming parties to perform. In such a case, the

court faces only three straightforward questions of contract law: (1) Is the

settlement agreement enforceable? (2) If so, did the first party breach it?

(3) And if so, is specific performance the appropriate remedy? See Vasile v.

Flagship Fin. Grp., LLC, Case No. 2:12-CV-02912-KJM-CKD,

, at *3 (E.D. Cal. June 13, 2014) (stating that enforcement of

settlement agreement requires determination of “a valid, enforceable

contract[;]” “whether the contract was materially breached, and if so, . . . by

whom[;]” and “the appropriate remedy”).

The differences between my hypothetical case and this case are that

the parties put their agreement on the record in state court, the state court

entered a judgment based on the agreement, and enforcement came before

a federal bankruptcy judge.

The bankruptcy court focused on the state court’s judgment and

applied the rules of issue preclusion. As the Panel’s decision makes clear,

those rules are extensive and demanding, and the bankruptcy court

applied them correctly.

1 But the bankruptcy court did not have to follow that path. Instead, it

could have simply enforced the parties’ settlement agreement under basic

contract law principles. See generally Adams v. Johns-Manville Corp.,

(9th Cir. 1989) (“The motion to enforce the settlement

agreement essentially is an action to specifically enforce a contract. An

action for specific performance without a claim for damages is purely

equitable and historically has always been tried to the court. This is so even

if the party resisting specific enforcement disputes the formation of the

contract.” (citations and quotation marks omitted)); Doi v. Halekulani Corp.,

(9th Cir. 2002) (holding that the court may

summarily enforce a settlement agreement without an evidentiary hearing

when the parties agreed to the terms in open court).

If the bankruptcy court had approached the dispute from the

contractual perspective, it would have faced only the three questions stated

above, and the court could easily have answered yes to each of them. The

parties’ settlement agreement was enforceable; Mr. Lane breached it by

(among other things) failing to file a stipulation of nondischargeability in

the bankruptcy court; and specific enforcement of the nondischargeability

stipulation was appropriate.

This is not to say that the bankruptcy court should or must enforce a

stipulation to nondischargeability in all cases. For example, the bankruptcy

court may not enforce a prebankruptcy agreement that includes a waiver of

2 discharge. See Bank of China v. Huang (In re Huang),

(9th

Cir. 2002) (“It is against public policy for a debtor to waive the prepetition

protection of the Bankruptcy Code.”).

But this case involves a settlement agreement made after the debtor

filed a bankruptcy case and after the creditor initiated a

nondischargeability action in bankruptcy court. An agreement to settle a

nondischargeability dispute in bankruptcy court is enforceable. See, e.g.,

Kim v. Riihimaki (In re Kim), BAP Nos. HI-17-1066-LBTa, HI-17-1137-LBTa,

, at *5 (9th Cir. BAP Nov. 21, 2017) (holding that the

bankruptcy court did not err in applying state law to determine that

settlement agreement concerning nondischargeability claims was

enforceable), aff’d,

(9th Cir. 2019). The settlement

agreement announced in the state court was the functional equivalent of a

settlement agreement announced in the bankruptcy court. The bankruptcy

court could have treated the settlement agreement announced in the state

court the same as it would have treated a settlement agreement made in its

own courtroom. See, e.g., Seaport Cap. Partners, LLC v. Speer (In re Speer),

(Bankr. D. Conn. 2016) (holding that it was proper for the

bankruptcy court to consider enforcement of a state court settlement

agreement because there was no “absolute bar to other courts considering

whether a [state court] settlement agreement exists if they have cause to do

3 so.”), aff’d, No. 3:16-CV-1665 (RNC),

(D. Conn. Feb. 1,

2018).

In some cases, it might be simpler to employ the rules of preclusion

than the rules of contract. If a party disputes the existence or terms of a

settlement agreement, the court might have to hold an evidentiary hearing.

Adams,

(“Ordinarily, a district court is empowered to

enforce a settlement agreement through summary proceedings. However,

where the parties dispute the existence or terms of the agreement, an

evidentiary hearing is required.” (citations omitted)); City Equities Anaheim,

Ltd. v. Lincoln Plaza Dev. Co. (In re City Equities Anaheim, Ltd.),

(9th Cir. 1994) (“[A] court has no discretion to enforce a settlement

where material facts are in dispute; an evidentiary hearing must be held to

resolve such issues.”). But there was no need for an evidentiary hearing in

this case because Mr. Lane’s statements on the record in the state court

foreclose any legitimate argument that he did not agree to the settlement.

See Doi,

(“Any question as to [plaintiff’s] intent to be

bound was answered when she appeared in open court, listened to the

terms of the agreement placed on the record, and when pressed as to

whether she agreed with the terms, said ‘yeah.’”);

(“[T]here was

no need for an evidentiary hearing on whether an agreement existed, or

what its terms were: the parties dispelled any such questions in open

court.”).

4 Approaching the problem from a preclusion perspective was not

error. My only purpose is to point out that applying contractual principles

would have sent the bankruptcy court on a less arduous path.

5