TERRY L. MYERS, Bankruptcy Judge.
Plaintiff Allen Wisdom ("Wisdom"), filed a petition for relief under chapter 7 on April 19, 2011.
Wisdom subsequently filed the complaint commencing this adversary proceeding on December 3, 2013. His "First Amended Complaint," Adv. Doc. No. 78 ("FAC"), was filed in October 2014.
Now before the Court is a motion for summary judgment filed by Gugino and Liberty Mutual on August 27, 2015. Adv. Doc. No. 117 ("Summary Judgment Motion"). It primarily contends that the issue of Gugino's qualification is resolved by the de facto trustee doctrine, that his status as trustee provides immunity, and that claim preclusion bars the present litigation. It, and Gugino's motion to strike certain of Wisdom's submissions, Adv. Doc. No. 142 ("Motion to Strike"), were properly noticed and heard on January 13, 2016 and taken under advisement.
The Court has jurisdiction over this matter under 28 U.S.C. § 1334(b). Wisdom's claims against Gugino all arise from Gugino's performance of duties as a chapter 7 trustee and, thus, "arise in" the case and are therefore core proceedings under 28 U.S.C. § 157(b). Schultze v. Chandler, 765 F.3d 945, 948-49 (9th Cir. 2014); Walsh v. Northwestern Nat'l Ins. Co. of Milwaukee, Wisconsin (In re Ferrante), 51 F.3d 1473, 1476 (9th Cir. 1995); Maitland v. Mitchell (In re Harris Pine Mills), 44 F.3d 1431, 1438 (9th Cir. 1995).
The Court makes reasonable allowances for pro se litigants and liberally construes their pleadings and papers. However, pro se litigants are still subject to, and required to meet and follow the requirements of, the Code, Rules and Local Bankruptcy Rules, and they bear the burdens generally imposed on litigants for establishing a proper basis for relief or defenses raised. See, e.g., Heaton v. Boudreau (In re Miller), 2014 WL 3408028, *1 n.5 (Bankr. D. Idaho July 10, 2014).
This Court has articulated the summary judgment standard as follows:
Thorian v. Baro Enters., LLC (In re Thorian), 387 B.R. 50, 61 (Bankr. D. Idaho 2008).
The facts upon which this Decision is based are established, for the most part, by the record in the chapter 7 case. The parties have asked the Court to take judicial notice of the record in Wisdom's bankruptcy case and this adversary proceeding, and of the events that transpired throughout both. See, e.g., Adv. Doc. No. 137 at 10-11 (Wisdom's opposition to the Summary Judgment Motion); Adv. Doc. No. 117-2 (Gugino statement of undisputed facts, referencing docket events). The Court grants such requests under Fed. R. Evid. 201. See also Wisdom III, 2015 WL 2128830, at *1 (addressing use of judicial notice in this proceeding).
The parties filed declarations in support and opposition to the Summary Judgment Motion. Gugino moved to strike certain portions of Wisdom's declaration in opposition to the Summary Judgment Motion, Adv. Doc. No. 137-1, and its attached exhibits, Adv. Doc. Nos. 137-2 to 137-7. Gugino's Motion to Strike also challenges portions of Wisdom's declaration regarding a separate motion for summary judgment brought by Wisdom's former counsel, Stern and Pantera, Adv. Doc. No. 138-1, and an attached exhibit, Adv. Doc. No. 138-4.
Gugino set the Motion to Strike for hearing on December 16, 2015. Adv. Doc. No. 145. Wisdom objected to that motion. Adv. Doc. No. 148. When Wisdom contacted the Court on December 16 and advised that he would be unable to appear, the Court continued all matters to January 13, 2016. Adv. Doc. No. 149.
Wisdom's objection to the Motion to Strike raises procedural contentions under the Rules and Local Rules. They are not well taken. Even allowing for Wisdom's invocation of Rule 9006(a)(1)(C) and 9006(f) (adding three days for mail service), the December 3 Motion to Strike could properly be heard on December 16. See Rule 9006(d) (requiring 7 days' notice of hearing on motions). Wisdom's reliance on LBR 2002.2(c) is misplaced, it does not require a longer notice period. This Local Rule applies only when a movant elects to set a hearing more than 28 days from the date of the motion's filing, which then triggers a deadline of 14 days before hearing for any objection, and allows for a reply to objection 7 days prior to hearing. Gugino's scheduled hearing was set for 13 days after the Motion to Strike was filed. Thus LBR 2002.2(c) is inapplicable.
Wisdom's objection also complains that the time available before December 16 was inadequate and the hearing should be postponed to a later date. As it happens, that is precisely what occurred when the Court, due to Wisdom's assertion of an inability to make it to the courthouse on December 16, continued the matters to January 13.
Wisdom's objection further asserted an "intent" and "right" to present evidence through witnesses at the hearing on the Motion to Strike. However, the Motion to Strike, and the sufficiency of summary judgment declarations and submissions, is something resolved on the face of those documents, and does not warrant testimony. In a similar vein, Wisdom "requested" in the objection that the Court require Gugino, Stern and Pantera to personally appear at the hearing on the Summary Judgment Motion and the Motion to Strike. Not only is live testimony unnecessary and inappropriate at a hearing on those types of motions, Wisdom's insertion of these matters in the objection was procedurally improper and did not require a ruling from the Court.
Prior to the January hearing, Wisdom filed a "supplement/augmentation of the record" in opposition to the Summary Judgment Motion. Adv. Doc. No. 147. Under LBR 7056.1(b), all submissions by opponents to a summary judgment motion are required to be filed 14 days prior to hearing, and the only filing allowed 7 days before hearing is the motion's proponent's reply brief. The December 9 submission is procedurally improper, and therefore disregarded. In addition, this "augmentation" consists of a copy of Wisdom's brief in the Ninth Circuit appeal of the TFR decision, which is fundamentally argument and, as discussed further below, not considered as evidentiary material in connection with the Summary Judgment Motion.
Wisdom then filed a second "augmentation," Adv. Doc. No. 151, on January 8, 2016, containing another declaration, certain discovery responses, and redacted third party letters, emails and the like complaining about Gugino (much of which appears redundant of material earlier submitted and subject to the Motion to Strike). This submission was also untimely and improper under LBR 7056.1, and will be disregarded on that basis.
Gugino's Motion to Strike relies on Civil Rule 56(c)(4), incorporated by Rule 7056. That rule provides:
This Court has therefore held that attorney affidavits not based on personal knowledge are to be disregarded. Esposito v. Noyes (In re Lake Country Invs.), 255 B.R. 588, 594 (Bankr. D. Idaho 2000) (citing Grzybowski v. Aquaslide N' Dive Corp. (In re Aquaslide N' Dive Corp.), 85 B.R. 545, 548 (9th Cir. BAP 1987)). Facts based on personal knowledge do not include or encompass opinions or legal conclusions. Idaho Conservation League v. Atlanta Gold Corp., 844 F.Supp.2d 1116, 1124-25 (D. Idaho 2012) (holding that a court must disregard statements that are not made on personal knowledge, and statements that are not factual statements but, rather, opinions); McReynolds v. Lowe's Companies, Inc., 2008 WL 5234047, *6 (D. Idaho Dec. 12, 2008) (noting that affidavits should not contain ultimate or conclusory facts and conclusions of law, and a court is not bound to accept as true a legal conclusion couched as a factual allegation) (citing DBSI Signature Place, LLC v. BL Greensboro, L.P., 392 F.Supp.2d 1206, 1210 (D. Idaho 2005)).
Gugino moves to strike paragraphs 16-21 and 23-31 of Wisdom's declaration, Adv. Doc. No. 137-1, primarily because those paragraphs present opinion, legal argument or legal conclusions, and also because of Wisdom's lack of personal knowledge. The Court concludes the motion is well taken as to paragraphs 17-21, 24, and 26-31, and it will be granted as to those paragraphs. The Court will disregard the legal conclusions and opinions and personal characterizations of docket events and filings. The Court determines, however, that portions of paragraphs 16, 23 and 25 contain some statements by Wisdom that are based on personal knowledge (e.g., on a certain date, documents were received by him). Thus these three paragraphs will not be stricken, however, the Court will disregard the conclusions, opinions and characterizations within those paragraphs.
Gugino also seeks to strike Exs. A-5-a through A-5-d attached to that declaration. The Court will grant the motion as to Exs. A-5-b through A-5-d. These are letters and emails related to unidentified third parties' complaints about Gugino in other unidentified bankruptcy cases for which no foundation has been laid. In addition, they are irrelevant to the issues in this case.
As noted, Gugino's motion also challenges paragraphs 7, 9 and 10 and Exhibit A-3 of Wisdom's declaration regarding the Stern/Pantera motion for summary judgment, Adv. Doc. No. 138-1. Paragraphs 9 and 10 are extended narratives by Wisdom regarding both his former counsel and Gugino. They include personal opinion, legal conclusions, argument, speculation or surmise about others' intent, and similar improper material under the summary judgment rule and authorities. In addition, certain of the assertions are hearsay or lack foundation. The motion is well taken as to paragraphs 9 and 10 and will be granted, and such matters will be disregarded.
Paragraph 7 asserts Wisdom's appointed pro bono counsel in the Ninth Circuit appeal filed a motion to supplement the record on November 6, 2015, and attaches the documents that were appended to such motion ("Supplemental Evidence") as Ex. A-3. Gugino objects on the grounds that this motion was opposed. To resolve this matter, the Court has taken judicial notice of the docket of the Ninth Circuit Court of Appeals in Case No. 13-35409. The November 6 motion to supplement the record on appeal was Doc. No. 40. On January 15, 2016, the Ninth Circuit denied that motion, as well as an additional December motion to supplement the record, Doc. No. 47. See id., Doc. No. 57 (order). The Motion to Strike paragraph 7 and Ex. A-3 to the declaration will be granted.
When Wisdom filed his chapter 7 petition on April 19, 2011, Gugino was appointed as interim trustee by the United States Trustee ("UST") from the panel of private chapter 7 trustees. See § 701(a)(1) (the UST shall "[p]romptly after the order for relief . . . appoint one disinterested person that is a member of the panel of private trustees . . . to serve as the interim trustee in the case."); see also 28 U.S.C. § 586(a)(1) (requiring the UST to establish, maintain and supervise a panel of private trustees that are eligible and available to serve in chapter 7 cases). The notice of the filing of the case, of the scheduling of a § 341(a) meeting, and of the appointment of Gugino as trustee, was immediately issued by the Court upon Wisdom's filing of the petition.
When Wisdom commenced this adversary proceeding, he sued on Gugino's bond by naming "Doe Surety Company." Adv. Doc. No. 1. An initial answer was filed by Gugino and Doe Surety Company. Adv. Doc. No. 11. In Wisdom's April 30, 2014 declaration concerning a different matter, he outlined the information relative to his identification of Liberty Mutual as the surety on Gugino's bond. Adv. Doc. No. 39-1.
The UST provided Wisdom copies of the chapter 7 blanket bond in January 2014 which Wisdom characterized as "non-conformed." Following a status hearing, Wisdom made an additional request to the UST, id. at 5-6 (Ex. A), to which the UST responded by a letter dated February 19, id. at 7-16 (Ex. B). The UST's documents identify Liberty Mutual as the surety and include the following: a "rider" effective as of April 4, 2002 changing the bond's number; a blanket bond for chapter 7 trustees in Region 18 (which includes the District of Idaho) effective December 5, 2002 through April 4, 2004; a renewal certificate dated April 28, 2011 but effective April 4, 2011 which includes Gugino among the listed chapter 7 trustees; and a renewal certificate effective April 4, 2013. These attachments each bear a Court stamp dated February 18, 2014.
The penultimate attachment establishes Gugino was one of the chapter 7 trustees in Region 18 covered by the blanket bond as of April 4, 2011, 15 days prior to Wisdom's April 19 petition. Each of the documents identifies Liberty Mutual as the surety on the bond.
The documents, including the April 2011 renewal certificate, reflect the UST filed the documents with the Court in February 2014. This forms the basis of Wisdom's contentions that Gugino was not properly qualified to serve as trustee under § 322(a) which will be discussed infra.
As found and stated in Wisdom III:
Id., 2015 WL 2128830, at *1-4.
The property of the estate included numerous lawsuits filed by Wisdom prior to bankruptcy. See Case Doc. No. 1 at 31-32 (listing 14 lawsuits, of which 6 were shown as pending as of the bankruptcy filing and the balance as "closed" or "affirmed"). Three of the pending cases were on appeal: Allen L. Wisdom v. Daniel E. Katz, et al., Central District of California Case No. EDCV 07-170-DSF(SSx), and Ninth Circuit Court of Appeals Case No. 11-55258 ("Katz Case"); Allen L. Wisdom v. State of Nevada, et al., District of Nevada Case No: 3:06-cv-00094-PMP-RAM, and Ninth Circuit Court of Appeals Case No. 11-16164 ("Nevada Case"); and Allen L. Wisdom v. Terry Michaelson, et al., District of Idaho Case No: 10-cv-00002-CWD, and Ninth Circuit Court of Appeals Case No. 11-35306 ("Michaelson Case").
In August 2011, Gugino filed motions under Rule 9019 seeking approval of his compromise of the Katz Case (and a related state court case involving Gilbert and Harshey) for $3,000 and of his compromise of the Michaelson Case for $3,000. Case Doc. Nos. 40, 41. In September 2011, Wisdom, through Stern and Pantera, filed a motion under § 554 seeking to abandon the Katz Case, the Nevada Case, and the Michaelson Case as well as a fourth lawsuit. Case Doc. No. 47. Gugino objected to that motion.
Gugino's first compromise requests were denied without prejudice in October 2011, and then renewed through amended motions in November 2011. Case Doc. Nos. 63-65.
Wisdom appealed the orders regarding the compromise approvals. In March 2012, Gugino and Wisdom jointly moved for approval of a compromise. Case Doc. No. 117. Under that settlement, all of Wisdom's pending appeals would be dismissed; Wisdom would waive further appeals on certain matters; and Wisdom would waive the ability to object to filed claims. Gugino would withdraw a turnover request on a vehicle; not renew an opposed request for home inspection; abandon suits other than those previously compromised; and pay Wisdom the amount he had paid for his appeal filing fee and transcript costs. That motion was granted. Case Doc. Nos. 136, 138.
Subsequently, and as outlined above, Gugino's TFR was filed and notice was provided. Wisdom objected, but the objections were overruled and the TFR was approved. The Idaho District Court affirmed in all regards, and Wisdom appealed to the Ninth Circuit Court of Appeals, which appeal remains pending.
Many of the arguments Wisdom advances in the FAC, and through objections to the Summary Judgment Motion, relate to his contentions that Gugino was never qualified to act as trustee in his case. See, e.g., FAC at 2-3; see also Adv. Doc. No. 137 at 2 (arguing Gugino "never officially or legally accepted the appointment as trustee in the case;" that "Gugino lacked any authority to conduct any official duties;" and "that Gugino seized Debtor's . . . assets without any authority which action constituted fraud"). Gugino argues that, whatever issues may be raised regarding qualification and acceptance of appointment, they are answered by the de facto trustee doctrine. See Adv. Doc. No. 117-1 at 6-8.
Since the advent of the United States Trustee system in 1986, the UST is required to maintain a panel of private trustees for appointment in chapter 7 cases. 28 U.S.C. § 586(a)(1), (d)(1). The UST appoints an interim trustee in all chapter 7 cases. See § 701(a)(1). In Idaho, as in many districts, the process of selecting the trustee is automated through the case-assignment system providing for random assignment of an eligible trustee from the panel.
The UST must ensure that the selected trustee qualifies, including being bonded. The UST must also determine the amount of the bond required and the sufficiency of the surety on that bond. See § 322(a), (b)(2). Under Rule 2010(a), the UST may authorize a blanket bond that covers a person who qualifies as a trustee in a number of cases and covers a number of trustees.
A trustee who is selected to serve in a chapter 7 case is immediately notified. As reflected by the issuance of the notice in Wisdom's case, Case Doc. No. 2 discussed earlier, that occurs immediately upon the petition's filing. An appointed trustee who is covered by a blanket bond must notify the Court and the UST only if he or she rejects the appointment and, if rejecting, do so within seven days. If the appointed trustee does not reject the appointment in the time allowed, the trustee is deemed to have accepted. Any selected trustee who is not covered by a blanket bond must obtain the required bond and accept the appointment within the same seven days. Rule 2008.
Gugino was so selected, and he did not reject the appointment.
Wisdom does not dispute that Gugino was covered by a blanket bond. Indeed, the case caption was amended based on Wisdom's motion, deleting the reference to a "John Doe Surety" and inserting Liberty Mutual Insurance Company as surety for Gugino. Instead, his arguments regarding Gugino's qualifications and authority revolve around the absence of a bond "filed" with the Court.
Wisdom's primary contention is that the blanket bond was not filed by the UST with the Court until, on this record, February 18, 2014. From this failure springs Wisdom's several claims of lack of authority to act, negligence, constructive fraud, and the like. This type of contention has been previously addressed by the Ninth Circuit and First Circuit Bankruptcy Appellate Panels.
In Hunt v. Goodrich (In re Hunt), 2014 WL 1229647 (9th Cir. BAP March 26, 2014), the plaintiff, Peli Hunt, as an agent for Robert W. Hunt, M.D., a debtor medical corporation ("MD") that had been converted from chapter 11 to chapter 7, responded to the objections of the chapter 7 trustee (Goodrich) to MD's exemptions. Among the plaintiff's arguments was the contention that Goodrich could not object to MD's exemptions because he did not timely or properly accept his appointment as trustee and had not filed his required bond. The Panel rejected this contention.
Id. at *4 (noting that Rule 2008 only requires notice in writing of a rejection of appointment by a trustee under a blanket bond, and the absence of timely rejection is deemed an acceptance of the appointment).
The Panel elaborated on the nature of the plaintiff's contentions, noting that a notice of the commencement of the chapter 7 case had been issued and served and that it identified the trustee. It stated:
Id. at *5.
In Hunt, Goodrich "was covered by a blanket bond on file with the court." Id. at *4. In the present case, the record shows the blanket bond—even though in effect before the commencement of Wisdom's case—was not filed with the Court until February 2014. This, however, does not vitiate the strength of the Panel's ruling in Hunt.
In Granderson, which was embraced by Hunt, a chapter 11 trustee's bond was filed 11 days after her appointment
Granderson, 252 B.R. at 5. In addition to rejecting the jurisdictional attack, the Panel elaborated that the de facto trustee doctrine applies when "such person has, since being appointed trustee, `acted as trustee, . . . held [him/herself] out to be trustee, and . . . [has] been treated as trustee by the Court, creditors and employees of the estate and all other interested parties.'" Id. at 5 (citing In re Holiday Isles, Ltd., 29 B.R. 827, 830 (Bankr. S.D. Fla. 1983) and In re Upright, 1 B.R. 694 (Bankr. N.D.N.Y. 1979) (applying de facto trustee doctrine where trustee filed bond 12 days after appointment)). Gunderson also rejected arguments that the court must find "justifiable reliance" of innocent third parties in order to apply the doctrine. Id. at 6.
Gugino has acted as the trustee, held himself out to be trustee, and has been treated as trustee by the Court, creditors, and all interested parties—including Wisdom—throughout this case. To be sure, Wisdom alleged defects and errors in Gugino's performance of his trustee duties. Indeed, the unsuccessful objection to the TFR addressed in Wisdom I and Wisdom II is expressly based on those contentions. The technical defect (i.e., the UST's belated filing of the blanket bond that was in effect as of the commencement of Wisdom's case) is not jurisdictional, and it does not support removal of Gugino, invalidation of his earlier actions, or the counts of the FAC expressly relying on a theory or argument of lack of qualification. The de facto trustee doctrine applies.
Therefore, the Summary Judgment Motion is appropriately brought on this basis and will be granted. All claims that rest solely or are necessarily predicated on Wisdom's argument of lack of trustee qualification will be dismissed. While this appears to include nearly every claim against Gugino, the Court will also address several of Gugino's remaining defenses and arguments in order to make a complete ruling.
Wisdom complains that Gugino's handling of the settlement and/or sale of the litigation that comprised property of the bankruptcy estate under § 541 was wrongful. Part of this is based on the lack of filed bond issue discussed above. He also argues, though couched in terms of other claims such as breach of contract, breach of fiduciary duty, negligence, and intentional and negligent infliction of emotional distress, that the manner in which Gugino approached and handled these matters was improper. Whether that failure is cast as negligent or intentional in nature varies throughout the FAC.
Wisdom further alleges Gugino "did intentionally, falsely, with malice, make and publish a statement of fact that Plaintiff committed bankruptcy fraud, a criminal act. The false published statement of a criminal act, made for no reason other than to intentionally cause harm and anguish to Plaintiff, caused Plaintiff substantial injury and damages." FAC at 20. Wisdom bases this argument on Gugino's Motion for Turnover/Inspection of Estate Property filed on January 5, 2012. Case Doc. No. 78.
In the turnover/inspection motion, Gugino requested an order allowing him to inspect three vehicles to verify their condition and value and allowing him to access Wisdom's house and verify Wisdom's list of assets in schedules B and C, having "received a tip from a reliable source . . . that Debtor may have failed to disclose potentially valuable assets." Id.
Gugino generally defends all such arguments on a theory of immunity.
Trustees are charged with gathering and administering property of the estate. See § 704(a)(1). They are also required to investigate the financial affairs of the debtor. See § 704(4).
When acting within "the scope of their authority and pursuant to court order," a bankruptcy trustee is entitled to "broad immunity from suit." Bennett v. Williams, 892 F.2d 822, 823 (9th Cir. 1989) (citing Mullis v. United States Bankruptcy Court, 828 F.2d 1385, 1390-91 (9th Cir. 1987)). Although the trustee must still avoid "intentional or negligent violations of duties imposed upon him by law," id., a court will hold a trustee immune for acts of mismanagement when the trustee acted on court authorization. Id. at 824.
The convergence of these two ideas creates a standard that a trustee must meet before immunity attaches. Id. First, the trustee "should obtain court approval and give notice to the debtor of a proposed action; [second,] [t]he trustee's disclosure to the court must be candid; [and third,] [t]he act must be within the trustee's official duties." Id. If all three requirements are met, then a trustee is immune from suit on those facts.
Wisdom claims Gugino acted wrongfully by settling the lawsuits owned by the estate. The settlement of lawsuits owned by the estate were well within Gugino's duties.
Gugino's administration of these lawsuits as assets of the estate meets the requirements of Bennett and immunity applies. The Summary Judgment Motion will be granted dismissing these claims.
A chapter 7 trustee has a general statutory obligation to marshal and account for all property of the estate. See 11 U.S.C. § 704. It is well within a trustee's prerogative to inspect assets that have been disclosed and valued by a debtor in order to gauge whether they may bring more upon administration than debtor has estimated. It is also unremarkable for a trustee to seek to inspect a debtor's real or personal property. Gugino requested to do so here by motion and on notice to Wisdom. Immunity applies.
Wisdom's contentions that the motion is slanderous per se grossly overreacts to the request actually made in this motion. The motion does not accuse Wisdom of a crime or of fraud. It simply states Gugino's request to view the premises was based on information received from a third party, alleges Wisdom "may have failed" to disclose property, and states Gugino wanted to "verify" the assets listed in the schedules. This speaks to an inquiry well within a trustee's duties under § 704.
Wisdom views the motion as also suggesting a conclusion had been reached, and an accusation made, that he committed bankruptcy fraud.
Also in connection with the request to inspect property, Gugino asserts privilege as a defense. In Idaho "defamatory matter published in the due course of a judicial proceeding, having some reasonable relation to the cause, is absolutely privileged and will not support a civil action for defamation although made maliciously and with knowledge of its falsity" with few exceptions. Weitz v. Green, 230 P.3d 743, 754 (Idaho 2010) (citing Richeson v. Kessler, 255 P.2d 707, 709 (Idaho 1953)); see also Kurz v. Zahn, 2012 WL 4458128, *5 (D. Idaho Apr. 13, 2012) (concluding that statements made in the course of judicial proceedings cannot give rise to civil liability for defamation). Whether the matter was published in the due course of a judicial proceeding is a question of fact. Swisher v. Collins, 2008 WL 687305, *29 (D. Idaho March 10, 2008). "[T]he term `judicial proceeding' is not restricted to trials, but includes every proceeding of a judicial nature before a court or official clothed with judicial or quasi judicial power." Kurz, 2012 WL 4458128, at *5 (citing Richeson, 255 P.2d at 709).
The motion and Gugino's statements therein were made in a judicial proceeding. Idaho law does not allow a remedy to Wisdom for Gugino's allegedly defamatory statements, even if all of the elements for defamation could be proven. In sum, the slander per se contentions fail in light of both immunity and privilege, even assuming the statements conceivably amounted to slander in the first place, which the Court finds they do not. The Summary Judgment Motion is well taken and Wisdom's claims against Gugino for slander per se must be dismissed.
Gugino argues Wisdom is precluded from litigating claims related to the liquidation of the life insurance policies in the FAC.
The Ninth Circuit has framed the two basic preclusion concepts—claim preclusion and issue preclusion—as follows:
Cogliano v. Anderson (In re Cogliano), 355 B.R. 792, 802 (9th Cir. BAP 2006) (citing Robi v. Five Platters, Inc., 838 F.2d 318, 321-22 (9th Cir. 1988)). Issue preclusion, in contrast, "[P]revents relitigation of all `issues of fact or law that were actually litigated and necessarily decided' in a prior proceeding. . . . The issue must have been `actually decided' after a `full and fair opportunity' for litigation." Id. at 802 (citing Robi, 838 F.2d at 322).
In Tripati v. Henman, 857 F.2d 1366 (9th Cir. 1988), the court stated that "The established rule in the federal courts is that a final judgment retains all of its res judicata consequences pending decision of the appeal. . . . To deny preclusion [while the original suit is on appeal] would lead to an absurd result: Litigants would be able to refile identical cases while appeals are pending, enmeshing their opponents and the court system in tangles of duplicative litigation." Id. at 1367.
Cogliano holds that issue preclusion has six elements that must be satisfied for it to apply.
355 B.R. at 802-03 (citing Khaligh v. Hadaegh (In re Khaligh), 338 B.R. 817, 824-25 (9th Cir. BAP 2006)).
First, the issues decided by the bankruptcy court in response to Wisdom's objection to the TFR are factually based on the liquidation of the life insurance policies. The court determined [Wisdom]'s "contentions that Trustee engaged in fraud, misrepresentations, criminal conduct, and the like, are all founded upon [Wisdom]'s flawed premise concerning the propriety of Trustee's actions, they lack merit and need not be addressed." Doc. No. 156 at 7. The Court ultimately analyzed and ruled on three specific issues:
Doc. No 156 at 7. The Court rejected the argument that Gugino had acted improperly on any of these issues, thus rejecting Wisdom's claims.
Several of the issues litigated in that motion are identical to claims made by Wisdom in the FAC. Most specifically, the Court held Gugino did not act inappropriately when ordering the liquidation of the policies, and Wisdom's claims (fraud, misrepresentation, etc.), having been premised on the inappropriateness of Gugino's actions, would be dismissed. This Decision easily meets all of the issue preclusion elements.
Finally, it would be fair and consistent with public policy to preclude these arguments from being made again because Wisdom made them during his objection to the TFR, and he is currently pursuing an appeal on that Decision. Insofar as Wisdom's claims are identical to the three issues already litigated in the prior Decision, this Court should not relitigate them.
Although issue preclusion applies as to whether Gugino acted inappropriately when 1) deciding to honor an exemption claim expressly made by Wisdom under Idaho Code § 11-605(10), and 2) failing to honor an exemption in property when Wisdom had failed to properly claim it, claim preclusion applies to any arguments regarding the liquidation of the insurance policies that Wisdom could have made in his objection to the TFR but did not.
This Court previously explained:
Jensen-Edwards v. Nationstar Mortg., LLC, (In re Jensen-Edwards), 535 B.R. 336, 344 (Bankr. D. Idaho 2015) (citing In re Canyon Mgmt., LLC, 2015 WL 435049, *3 (Bankr. D. Idaho Feb. 2, 2015)). Wisdom's objection was decided by a federal bankruptcy court, so this Court applies Ninth Circuit precedent to determine whether claim preclusion applies.
A "claim" for purposes of claim preclusion is distinct from the Bankruptcy Code's definition of "claim." Alary Corp. v. Sims (In re Associated Vintage Grp., Inc.), 283 B.R. 549, 556 (9th Cir. 2002) (citing § 101(5)). A "claim" for the purposes of claim preclusion depends on:
Id. at 557-558. "Although the test cannot be applied mechanically and no criterion is dispositive, the `most important' criterion is the `transactional nucleus of facts.'" Id. at 558.
Wisdom's objection to the TFR rested almost exclusively on Gugino's actions associated with the liquidation of the life insurance policies. Several of the factual allegations are identical to the ones made here. In order to litigate Wisdom's claims regarding the handling of those life insurance policies, this Court would have to consider the same or similar evidence. The alleged rights infringed are identical, though the remedies Wisdom now seeks are different. And the "transactional nucleus of facts" are limited to Gugino's actions concerning the policies within an identical period of time. A decision on whether Gugino violated any sort of duty related to the liquidation of the policies would certainly undermine the TFR Decision. Therefore, the Court concludes claim preclusion applies to all the claims related to Gugino's conduct in liquidating the insurance policies.
The remaining claims in the FAC, to the extent they are not already dismissed based on Gugino's authority, immunity, privilege and preclusion, should also be dismissed on the merits.
Wisdom alleges Gugino's failure to disclose his EIN to NY Life when he requested the liquidation of the insurance policies constitutes "constructive fraud."
Here, Wisdom has failed to produce facts to establish a fiduciary relationship or that Gugino owed him a fiduciary duty. As the Idaho District Court found in Wisdom II, "[t]he fiduciary duty argument is easily resolved because the trustee does not owe a fiduciary duty to the debtor. Rather, a Chapter 7 trustee is `the `legal representative' and `fiduciary' of the estate.'" Wisdom II, 490 B.R. at 417 (citations omitted). In addition, the omission Wisdom focuses on, i.e., Gugino's failure to provide an EIN to NY Life, was made to NY Life, not to Wisdom. Wisdom's FAC and his declaration do not establish how an omission made to a third party may amount to constructive fraud as to Wisdom.
Therefore, the Summary Judgment Motion is well taken as to the constructive fraud claim and it will be dismissed.
Wisdom alleges Gugino had full knowledge of the existence of, and intentionally interfered with, Wisdom's contracts and contractual relationships with Stern and Pantera and NY Life, and this proximately caused Stern and Pantera and NY Life to breach their contracts. FAC at 12.
Tortious interference with contractual relationships requires a plaintiff to prove "(a) the existence of a contract; (b) knowledge of the contract on the part of the defendant; (c) intentional interference causing a breach of the contract; (d) injury to the plaintiff resulting from the breach." Idaho First Nat'l Bank v. Bliss Valley Foods, Inc., 121 Idaho 266, 283-284 (1991). There is no doubt Wisdom had some sort of contract with his attorneys and with NY Life, and Gugino knew of those contractual relationships given counsel's appearance in the case and filing of a Rule 2016(b) disclosure
Wisdom has not shown the existence of facts supporting all the elements for his claim for tortious interference with contract, upon which he would bear the burden of proof at trial. As such, it is appropriate to grant summary judgment to Gugino.
The Court finds all causes of action against Gugino in the FAC either fail on their merits under the undisputed facts or fail due to the existence of Gugino's authority, immunity, privilege and/or preclusion.
For the reasons stated, Gugino's Motion to Strike will be granted in part and denied in part. The Summary Judgment Motion shall be granted in all regards and the FAC, as against Gugino, will be dismissed. The Court shall enter orders accordingly.
