Aram Hodess v. Wayne Wong ( 2020 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS MAR 31 2020
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: WAYNE WING CHEUNG WONG, No. 19-15097
Debtor, D.C. No. 4:17-cv-03553-HSG
______________________________
ARAM HODESS; TRICO PIPES, a labor- MEMORANDUM*
management cooperation committee,
Appellants,
v.
WAYNE WING CHEUNG WONG,
Appellee.
Appeal from the United States District Court
for the Northern District of California
Haywood S. Gilliam, Jr., District Judge, Presiding
Argued and Submitted March 2, 2020
San Francisco, California
Before: SILER,** WARDLAW, and M. SMITH, Circuit Judges.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Eugene E. Siler, United States Circuit Judge for the
U.S. Court of Appeals for the Sixth Circuit, sitting by designation.
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Plaintiffs TRICO Pipes, a labor-management cooperation committee, and
Aram Hodess, a trustee of TRICO, appeal the district court’s affirmance of the
bankruptcy court’s judgment in favor of Defendant Wayne Wong in an adversary
proceeding. We have jurisdiction over this appeal from the district court’s final
order pursuant to 28 U.S.C. §§ 158(d) and 1291. See Stanley v. Crossland,
Crossland, Chambers, MacArthur & Lastreto (In re Lakeshore Village Resort,
Ltd.), 81 F.3d 103, 105 (9th Cir. 1996).
In their appeal, Plaintiffs argue, relying on principles of collateral estoppel,
that 11 U.S.C. § 523 (a)(2)(A) (Section 523(a)(2)(A)) and 11 U.S.C. § 523(a)(6)
(Section 523(a)(6)) render their state court judgment against Wong for prevailing
wage violations and fraudulent transfers a nondischargeable debt.
Whether a claim is nondischargeable presents mixed issues of law and fact
reviewed de novo. See Miller v. United States, 363 F.3d 999, 1004 (9th Cir. 2004);
In re Hamada, 291 F.3d 645, 649 (9th Cir. 2002). We affirm the district court.
Below, we discuss each of Plaintiffs’ two theories of nondischargeability in turn.
1. Nondischargeability under Section 523(a)(6)
Section 523(a)(6) exempts from discharge any debt “for willful and
malicious injury by the debtor to another entity or to the property of another
entity.” Here, the state court’s amended judgment states that Wong’s “failure to
pay prevailing wages and the active concealment of this conduct was intentional
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and malicious.”
Federal courts give prior state court judgments the same preclusive effect
that they have under state law. Cal-Micro, Inc. v. Cantrell (In re Cantrell), 329
F.3d 1119, 1123 (9th Cir. 2003) (citing 28 U.S.C. § 1738). Among other factors,
California law requires that an issue be “necessarily decided” as part of a court’s
decision for that decision to later have preclusive effect as to that issue. Lucido v.
Superior Court, 51 Cal. 3d 335, 341 (1990).
Plaintiffs argue that the state court’s finding that Wong’s conduct was
intentional and malicious was “necessarily decided” as part of its ruling, under a
theory of alter ego liability, that Wong was personally liable for various corporate
entities’ wage violations. But in order to pierce the corporate veil under California
law, it is not necessary that an alter ego acted with a fraudulent or wrongful
intent—a creditor need only show that the alter ego’s acts produced an
inequitable result. The debtors’ intent “is beside the point.” See Relentless Air
Racing, LLC v. Airborne Turbine Ltd. P’ship, 166 Cal. Rptr. 3d 421, 425 (Cal. Ct.
App. 2013); see also Toho-Towa Co. v. Morgan Creek Prods., Inc., 159 Cal. Rptr.
3d 469, 481 n. 5 (Cal. Ct. App. 2013) (“Application of the alter ego doctrine does
not depend upon pleading or proof of fraud.” (citation omitted)).
Neither does the state court judgment indicate that its finding of intent and
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maliciousness is an alternative holding establishing alter ego liability.1 And the
finding itself is not sufficient to support alter ego liability. See Gopal v. Kaiser
Found. Health Plan, Inc., 203 Cal. Rptr. 3d 549, 554 (Cal. Ct. App. 2016) (in order
for alter ego liability to apply, there must be “such a unity of interest and
ownership that the separate corporate personalities are merged” and an
“inequitable result” that will follow if corporate separateness is preserved).
Because willfulness and maliciousness are not required for a ruling of alter
ego liability under California law, see Relentless Air Racing, 166 Cal. Rptr. 3d at
425, the state court’s amended judgment does not preclusively establish that
Wong’s debt resulted from a “willful and malicious injury” and is thus
nondischargeable under Section 523(a)(6).
2. Nondischargeability under Section 523(a)(2)(A)
In pertinent part, Section 523(a)(2)(A) exempts from discharge “any debt . . .
to the extent obtained by . . . false pretenses, a false representation, or actual
fraud.” 11 U.S.C. § 523(a)(2)(A). “Actual fraud” in Section 523(a)(2)(A) includes
“forms of fraud, like fraudulent conveyance schemes, that can be effected without
a false representation.” Husky Int’l Elecs. Inc. v. Ritz, 136 S. Ct. 1581, 1586
1
We note that it is at least possible that the Restatement Second of
Judgment, which denies preclusive effect to alternative holdings, applies in
California. See Zevnik v. Superior Court, 70 Cal. Rptr. 3d 817, 822 (Cal. Ct. App.
2008). Nevertheless, we assume arguendo that alternative holdings can have
preclusive effect under California law.
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(2016). Under California law, the extent of a defendant’s liability for a fraudulent
transfer is determined by the value of the assets transferred. Cal. Civ. Code §
3439.08(b)(1).
While the bankruptcy court correctly held that the state court judgment was
issue preclusive as to the nondischargeability of the debt associated with Wong’s
fraudulent transfers, it also correctly ruled that Plaintiffs failed to meet their
obligation to show which part of the judgment award was traceable to those
fraudulent transfers, as opposed to prevailing wage violations. See Grogan v.
Garner, 498 U.S. 279, 291 (1991) (“[T]he standard of proof for the
dischargeability exceptions in 11 U.S.C. § 523(a) is the ordinary preponderance-of-
the-evidence standard.”).
Plaintiffs argue that they do not need to define the portion of the state court
judgment attributable to the fraudulent transfers. Instead, they argue that all the
damages in the state court judgment should be nondischargeable because of the
state court’s issue-preclusive finding regarding Wong’s fraudulent transfers. But
the cases that Plaintiffs cite do not support their argument. See Husky Int’l, 136
S. Ct. at 1589 (“[A]ny debts ‘traceable to’ the fraudulent conveyance will be
nondischargable under § 523(a)(2)(A).” (citation omitted)); Cohen v. de la Cruz,
523 U.S. 213, 218–19 (1998) (amounts “traceable” to the fraud were
nondischargeable); In re Sabban, 600 F.3d 1219, 1224 (9th Cir. 2010) (portion of
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state court judgment arising from statutory violation that did not involve fraud was
dischargeable).
Plaintiffs also cite Muegler v. Bening, 413 F.3d 980, 984 (9th Cir. 2005),
where we held that a debtor need not receive a benefit from a fraud in order for
debts arising from the fraud to be nondischargeable. But here there is no dispute as
to whether Wong benefitted from the fraudulent transfers described in the state
court’s findings. The only question at issue is their size, which under California
law, determines the extent of Wong’s liability. See Cal. Civ. Code §
3439.08(b)(1). Because Plaintiffs failed to show, and the state court judgment
itself does not specify, which portion of the state court judgment was traceable to
Wong’s fraudulent transfers, the judgment amount is dischargeable debt.
AFFIRMED.
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