Michael Turchin v. Steven Berkowitz ( 2020 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS MAY 6 2020
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: MICHAEL A. TURCHIN, No. 19-60002
Debtor, BAP No. 17-1252
------------------------------
MEMORANDUM*
MICHAEL A. TURCHIN,
Appellant,
v.
STEVEN BERKOWITZ,
Appellee.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Lafferty, Spraker, and Taylor, Bankruptcy Judges, Presiding
Submitted February 12, 2020**
Pasadena, California
Before: BYBEE, COLLINS, and BRESS, Circuit Judges.
Debtor Michael Turchin appeals the decision of the Bankruptcy Appellate
Panel (“BAP”) affirming the bankruptcy court’s grant of summary judgment in
*
This disposition is not appropriate for publication and is not precedent except as
provided by Ninth Circuit Rule 36-3.
**
The panel unanimously concludes that this case is suitable for decision without
oral argument. See FED. R. APP. P. 34(a)(2).
favor of creditor Steven Berkowitz. The bankruptcy court found a $624,822.53
debt owed by Turchin to Berkowitz to be nondischargeable under both 11 U.S.C.
§ 523(a)(2)(A) and § 523(a)(6), which respectively render nondischargeable any
debt for money obtained by “false pretenses, a false representation, or actual fraud”
and any debt for “willful and malicious injury by the debtor.” Summary judgment
was granted based on the preclusive effect of a Colorado state court judgment
finding Turchin liable to Berkowitz for common law fraud. The BAP affirmed the
grant of summary judgment on the basis of § 523(a)(2)(A) and declined to address
§ 523(a)(6). Reviewing de novo, see Boyajian v. New Falls Corp. (In re
Boyajian), 564 F.3d 1088, 1090 (9th Cir. 2009), we affirm.
1. Issue preclusion applies in nondischargeability proceedings brought
under 11 U.S.C. § 523(a). Grogan v. Garner, 498 U.S. 279, 284 n.11 (1991).
“Under the Full Faith and Credit Act, 28 U.S.C. § 1738, the preclusive effect of a
state court judgment in a subsequent bankruptcy proceeding is determined by the
preclusion law of the state in which the judgment was issued.” Harmon v. Kobrin
(In re Harmon), 250 F.3d 1240, 1245 (9th Cir. 2001). Here, the relevant judgment
was rendered under Colorado law by a Colorado court, so Colorado preclusion law
governs.
Under Colorado law, the doctrine of issue preclusion bars relitigation of an
issue if:
2
(1) the issue is identical to an issue actually litigated and necessarily
adjudicated in the prior proceeding; (2) the party against whom estoppel was
sought was a party to or was in privity with a party to the prior proceeding;
(3) there was a final judgment on the merits in the prior proceeding; and
(4) the party against whom the doctrine is asserted had a full and fair
opportunity to litigate the issues in the prior proceeding.
Stanton v. Schultz, 222 P.3d 303, 307 (Colo. 2010). Turchin does not contest that
elements (2)-(4) are met with respect to the proceedings that produced the
Colorado judgment. The only question is whether the issues determined in that
judgment include the same issues that are needed to establish nondischargeability
under § 523(a)(2)(A) or § 523(a)(6).
2. A creditor asserting nondischargeability under § 523(a)(2)(A) based
on “actual fraud” must establish, by a preponderance of the evidence, five
elements: “(1) misrepresentation, fraudulent omission or deceptive conduct by the
debtor; (2) knowledge of the falsity or deceptiveness of his statement or conduct;
(3) an intent to deceive; (4) justifiable reliance by the creditor on the debtor’s
statement or conduct; and (5) damage to the creditor proximately caused by its
reliance on the debtor’s statement or conduct.” Turtle Rock Meadows
Homeowners Ass’n v. Slyman (In re Slyman), 234 F.3d 1081, 1085 (9th Cir. 2000).
These elements substantially overlap with the elements of common law fraud
under Colorado law, which are as follows: “that the defendant made a false
representation of a material fact; that the party making the representation knew it
was false; that the party to whom the representation was made did not know of the
3
falsity; that the representation was made with the intent that it be acted upon; and
that the representation resulted in damages.” Brody v. Bock, 897 P.2d 769, 775–76
(Colo. 1995). The Colorado judgment made specific findings with respect to each
of these elements of common law fraud, and these findings establish all five
elements needed to show that the debt is nondischargeable under § 523(a)(2)(A).
The Colorado judgment found that at the time that Turchin promised (along
with two others) to indemnify Berkowitz for losses he might suffer in providing
additional collateral for a real estate project, Turchin had no intention of paying
Berkowitz any such indemnification. In finding that Turchin “knew he did not
intend to pay the indemnification he promised,” the Colorado judgment necessarily
found that Turchin made a misrepresentation that he knew to be false (elements (1)
and (2) of the § 523(a)(2)(A) claim, as noted above). It is irrelevant whether
Turchin would later be unable to provide indemnification; what matters is that, at
the time he made the promise, he did not intend to fulfill that obligation should it
later be triggered. See Hayhoe v. Cole (In re Cole), 226 B.R. 647, 654 (B.A.P. 9th
Cir. 1998); see also Slyman, 234 F.3d at 1085. In finding that “Turchin intended
that Berkowitz rely on his promise,” which Turchin knew to be false, the Colorado
judgment likewise necessarily found that Turchin acted with an intent to deceive
Berkowitz (element (3) of the § 523(a)(2)(A) claim). And the Colorado
judgment’s finding that “Berkowitz reasonably” relied on the false promise “to his
4
detriment” establishes the elements of justifiable reliance and causation of
damages (elements (4) and (5) of the § 523(a)(2)(A) claim). Turchin raises various
arguments as to why the Colorado judgment’s findings were unwarranted, but
these contentions are beside the point. See Lobato v. Taylor, 70 P.3d 1152, 1166
(Colo. 2003) (preclusive effect of final judgment is not “‘altered by the fact that the
judgment may have been wrong’”) (quoting Federated Dep’t Stores, Inc. v. Moitie,
452 U.S. 394, 398–99 (1981)).
3. Because we affirm the BAP’s conclusion that summary judgment was
properly granted based on § 523(a)(2)(A), we need not address Berkowitz’s
alternative theory that the Colorado judgment is also nondischargeable under
§ 523(a)(6).
AFFIRMED.
5