FILED
                                                                              JUN 4 2020
                          NOT FOR PUBLICATION
                                                                         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. SC-19-1323-BLG

DARREN RALPH MANN and PHYLICIA                       Bk. No. 18-02163-LT
MERRIE MANN,
                                                     Adv. No. 18-90078-CL
                    Debtors.

DARREN RALPH MANN,

                    Appellant,

v.                                                          MEMORANDUM*

INTERGULF-JMR (PARC ONE) LLC,

                    Appellee.

                     Argued and Submitted on May 21, 2020

                                 Filed – June 4, 2020

                Appeal from the United States Bankruptcy Court
                    for the Southern District of California




         *
         This disposition is not appropriate for publication. Although it may be cited
 for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no
 precedential value, see 9th Cir. BAP Rule 8024-1.
       Honorable Christopher B. Latham, Bankruptcy Judge, Presiding



Appearances:        Andrew J. Miller of Engel & Miller argued for appellant
                    Darren Ralph Mann; Joseph Louis Oliva of Joseph Oliva &
                    Associates PC argued for appellee Intergulf-JMR (Parc One)
                    LLC.



Before:      BRAND, LAFFERTY, and GAN, Bankruptcy Judges.

                                  INTRODUCTION

      Appellant Darren Mann appeals an order granting the motion for

summary judgment filed by appellee, Intergulf-JMR (Parc One) LLC

("Intergulf"). Prior to Mann's bankruptcy filing, Intergulf obtained a default

judgment against him in the California state court for common law fraud.

Intergulf sought to except the debt from Mann's discharge on several theories

under § 523(a),1 and later moved for partial summary judgment on its

§ 523(a)(2)(A) claim based on issue preclusion. Finding that the elements of

issue preclusion were met, the bankruptcy court granted the motion.

Thereafter, the court entered a final judgment determining that the debt was

excepted from Mann's discharge and dismissing Intergulf's remaining claims.

We AFFIRM.


       1
        Unless specified otherwise, all chapter and section references are to the
 Bankruptcy Code, 11 U.S.C. §§ 101-1532, all "Rule" references are to the Federal Rules of
 Bankruptcy Procedure, and all "Civil Rule" references are to the Federal Rules of Civil
 Procedure.

                                             2
      I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

A.    Prepetition events

      1.    Background of the parties

      Mann owned and operated West America Corporation ("West"), a

general contractor. In late 2013, Intergulf entered into a contract with West to

construct a 172-unit apartment complex. West hired various subcontractors

for the project. Intergulf agreed to pay to West, and West agreed to forward

to the subcontractors, progress payments based on applications received from

West. The intent of these earmarked progress payments was to compensate

the subcontractors for work completed in the payment period. During

construction, West sent Intergulf applications for progress payments, which

Intergulf timely paid to West.

      In October 2014, Intergulf discovered that some subcontractors had not

been paid by West for work performed on the project, despite Intergulf

having made the progress payments to West. West refused to provide

Intergulf with an accounting or explanation as to how the progress payments

were applied. To the contrary, West and Mann told Intergulf that the

subcontractors had in fact been paid. The evidence showed that Intergulf's

checks had been cashed by West and Mann, but nothing reflected that any

payments had been forwarded to the subcontractors. Mann later told

Intergulf's project manager, Brian Buchanan, that he was using Intergulf's

funds to pay overhead unrelated to the project.


                                        3
      Soon thereafter, Intergulf terminated the contract with West. Intergulf

discovered that West and Mann had misappropriated $1,068,793.24. Intergulf

also learned that West and Mann had conspired with certain subcontractors

to overcharge Intergulf. For example, to repay some of his outstanding loans

to one subcontractor, Mann fabricated work orders to include fictitious

charges that were not related to any additional work or materials for the

Intergulf project.

      2.    The state court litigation

      Intergulf filed suit against West, Mann and others in the California state

court asserting multiple causes of action including breach of contract,

negligence, and common law fraud ("State Court Action"). Intergulf later filed

a second amended complaint, the operative complaint in the case, to include

alter ego claims against Mann. In addition to damages caused by West's and

Mann's alleged misappropriation, Intergulf also sought damages for their

alleged negligence and breach of contract. Intergulf alleged that, during the

course of construction and in breach of the contract, West had left installed

drywall exposed to the elements for a prolonged period of time, which

caused damage to the drywall and to the building's interior. Neither West nor

Mann filed an answer to the operative complaint.

      Prior to filing the second amended complaint, Intergulf had served

West and Mann, through their counsel, with requests for admission ("RFAs").

When they failed to respond, Intergulf moved for and obtained an order


                                         4
deeming the RFAs admitted on the following:

•     West was the alter ego of Mann;

•     West used funds paid by Intergulf for work performed on the project
      for purposes unrelated to the project, without Intergulf's knowledge or
      consent;

•     Mann told Intergulf that West diverted Intergulf's funds for purposes
      unrelated to the project;

•     West did not pay subcontractors for work performed on the project
      after receiving payment from Intergulf for the work, and told Intergulf
      that the subcontractors were paid all of the money they were owed
      under West's approved payment applications;

•     West conspired with certain subcontractors to create secret profit
      shelters by using increased bid amounts; the purpose of the profit
      shelters was to overcharge Intergulf for costs of construction; and West
      promised to split any profits obtained by the profit shelters with the
      participating subcontractors;

•     West left portions of the project open and exposed to weather,
      including installed drywall.

      One year into the State Court Action, Mann informed Intergulf's

counsel that he had been unable to reach his attorney for at least six months,

and that he was in the process of retaining new counsel. Intergulf agreed to

postpone Mann's deposition so that he could find new counsel. Mann never

secured new counsel, refused to sit for deposition, and failed to participate in

his own defense.


                                        5
     Approximately 18 months into the State Court Action, Intergulf

requested and received an entry of default against West and Mann. Neither

West nor Mann sought to have the defaults set aside.

     Intergulf then sought a default judgment against West and Mann,

supported by 970 pages of documents including a sworn declaration from

Buchanan, Intergulf's project manager. With respect to Intergulf's alleged

negligence and breach of contract damages, Buchanan stated that, in addition

to the damages caused by West's failure to properly install the drywall and

protect it from weather, Intergulf was damaged by West's failure to clean up

the construction site. Also, due to West's failure to properly schedule and

coordinate certain work performed by subcontractors, Intergulf incurred

additional expenses having to dig up installed underground electrical lines

and re-waterproof decks due to damage caused by scaffolding. In total,

Buchanan stated that the damages related to West's negligence and breach of

contract were $732,567.03. Adding this amount to the claimed fraud damages

of $1,068,793.24, Intergulf's total damages were $1,801,360.27.

     The state court held a "prove-up" hearing and heard live testimony

from Buchanan, the only witness. He testified that West and Mann defrauded

Intergulf by misappropriating the earmarked progress payments. He also

testified about the damages related to the drywall, clean up, re-digging of the

electrical line trenches and re-waterproofing of the decks. Despite previously

stating that these damages were caused by West's and Mann's negligence and


                                       6
breach of contract, Buchanan now testified that these damages were caused

by West's and Mann's fraud. Buchanan testified that, in his opinion, West and

Mann were completing certain work too soon in the construction process

simply to get money from Intergulf.

     The state court entered its Rulings Following Default Prove-Up

Hearing, finding that West and Mann were liable to Intergulf for fraud:

     The court finds, based on the Buchanan testimony, that Mann and
     Kimball2 and their company engaged in a knowing, intentional
     fraud as to Intergulf. The essential elements of a fraud cause of
     action are: (1) misrepresentation (false representation, concealment,
     or nondisclosure); (2) knowledge of falsity; (3) intent to defraud,
     i.e., to induce reliance; (4) justifiable reliance; and (5) resulting
     damage. (Lazar v. Superior Court (1996) 

, 638.)
     Intergulf carried its burden on each of these elements.
     ...
     The court finds that the kickbacks identified by Mr. Buchanan,
     among other things, demonstrated fraud, oppression and malice by
     clear and convincing evidence. The court is of the view that the
     fraud judgment should be non-dischargeable in bankruptcy. The
     court finds that Intergulf established that Mann and Kimball are
     the alter egos of West America. Mann, Kimball and West America
     are jointly and severally liable.

The state court entered a $2,274,756.03 Default Judgment against West and

Mann broken down as follows:

     $1,801,360.27 - Damages
     $ 25,422.91 - Costs


      2
          Mr. Kimball was Mann's business partner and the co-owner of West.

                                           7
      $ 267,972.85 - Prejudgment Interest
      $ 180,000.00 - Reimbursement for funds Intergulf paid to settle matter
                   with drywallers not paid by West

None of the defendants appealed the Default Judgment.

B.    Postpetition events

      1.     Mann's bankruptcy filing and Intergulf's adversary complaint

      Mann filed a chapter 7 bankruptcy case on April 11, 2018. Intergulf filed

a complaint against Mann, seeking to except the Default Judgment from

discharge under § 523(a)(2)(A), (a)(4), and (a)(6). 3 The only claim relevant

here is § 523(a)(2)(A). Mann filed an answer denying generally the

allegations. He raised the affirmative defense of abandonment by counsel as

the basis for why he did not perform his legal obligations in the State Court

Action.

      2.     Intergulf's motion for partial summary judgment

      Thereafter, Intergulf moved for partial summary judgment on its

§ 523(a)(2)(A) claim based on issue preclusion ("PSJ"). In support of its

argument to give preclusive effect to the Default Judgment, Intergulf argued

that the issue sought to be precluded in the adversary case — Mann's fraud

— was identical to the issue that was decided in the State Court Action.

Second, Mann's fraud was actually litigated and necessarily decided in the


       3
         Intergulf did not seek or receive recovery based on Mann's "kickback" scheme.
 Intergulf stated that it noted this additional fraudulent conduct in its adversary
 complaint simply to demonstrate Mann's specific intent to defraud Intergulf.

                                           8
State Court Action. The state court made an express finding of fraud, and the

finding was necessary to the Default Judgment. Third, argued Intergulf, the

Default Judgment, even though by default, was final and on the merits. Mann

did not file an appeal, and the time to do so had long since passed. Lastly, the

parties in the two actions were the same.

      Intergulf argued that Mann had a full and fair opportunity to litigate

the issues determined in the State Court Action, despite his unsupported

claim of abandonment by counsel. He knew for six months before contacting

counsel for Intergulf that his attorney had allegedly disappeared and, during

that time and for months thereafter, he made no attempt to hire new counsel,

even though he had done so in other, contemporaneous proceedings.

Intergulf maintained that it gave Mann ample time to retain new counsel or

defend himself pro se at trial, and he refused.

      Mann opposed the PSJ. He did not dispute that the elements of issue

preclusion were met. However, Mann argued that abandonment by counsel

supported a public policy reason for denying summary judgment on the basis

of issue preclusion. Mann also attacked the merits of the Default Judgment.

He explained how West became undercapitalized and what led to its

downfall. He argued that price adjustments were the result of Intergulf's

failure to provide finished plans for the job when subcontractor bids were

made; it was not part of a kickback scheme intended to deceive Intergulf. He

also argued that his decision to spend the earmarked progress payments to


                                       9
"keep the doors open" as opposed to paying the subcontractors was not

fraudulent. In short, Mann disputed the state court's finding that he

defrauded Intergulf.

      3.    The bankruptcy court's ruling on the PSJ

      After a hearing, the bankruptcy court entered an order granting the PSJ

on the basis of issue preclusion, finding that each of the five elements were

met and that application of the doctrine would further public policy. The

court then entered an order dismissing Intergulf's remaining claims and a

judgment determining that the Default Judgment was nondischargeable

under § 523(a)(2)(A). Mann timely appealed.

                              II. JURISDICTION

      The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.

                                   III. ISSUE

      Did the bankruptcy court err in granting summary judgment under

§ 523(a)(2)(A) based on issue preclusion?

                       IV. STANDARDS OF REVIEW

      We review de novo a bankruptcy court's decision to grant summary

judgment and except a debt from discharge under § 523. Zuckerman v. Crigler

(In re Zuckerman), 

, 713 (9th Cir. BAP 2020).

      We also review de novo a bankruptcy court's determination that issue

preclusion was available.

preclusion is available, we then review


                                       10
the application for an abuse of discretion.

standard, we reverse

where the bankruptcy court applied the wrong legal standard, or misapplied

the correct legal standard, or its factual findings are illogical, implausible, or

without support in inferences that may be drawn from the facts in the record.

Inc. v. Edriver Inc., 

, 832 (9th Cir.

2011)).

                                 V. DISCUSSION

A.    Governing law

      1.     Summary judgment standards

      Summary judgment is appropriate when the pleadings and

supplemental materials show that there is no genuine issue as to any material

fact and the moving party is entitled to judgment as a matter of law. Civil

Rule 56(a) (incorporated by Rule 7056); Roussos v. Michaelides (In re Roussos),

, 91 (9th Cir. BAP 2000), aff'd, 

(9th Cir. 2002).

      The party seeking summary judgment bears the initial burden of

establishing the absence of a genuine issue of material fact. Celotex Corp. v.

Catrett, 

, 322-23 (1986). A dispute is "genuine" if there is sufficient

evidence for a reasonable fact-finder to hold in favor of the non-moving

party, and a fact is "material" if it might affect the outcome of the case. Far

Out Prods., Inc. v. Oskar, 

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

Liberty Lobby, Inc., 

, 248-49 (1986)). Once the moving party has met

its initial burden, the non-moving party must show specific facts establishing


                                          11
the existence of genuine issues of fact for trial. 

.

      2.    Issue preclusion standards

      Issue preclusion applies in dischargeability proceedings to preclude

relitigation of state court findings relevant to exceptions to discharge. Grogan

v. Garner, 

, 284 n.11 (1991); Harmon v. Kobrin (In re Harmon), 

, 1245 (9th Cir. 2001). And a bankruptcy court may apply the

doctrine to an existing state court judgment as the basis for granting

summary judgment. See Khaligh v. Hadaegh (In re Khaligh), 

, 832

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

(9th Cir. 2007). Federal courts "must

give to a state-court judgment the same preclusive effect as would be given

that judgment under the law of the State in which the judgment was

rendered." Migra v. Warren City Sch. Dist. Bd. of Educ., 

, 81 (1984). In

this case, we apply California law.

      In California, the party asserting issue preclusion has the burden of

establishing the following "threshold" requirements: (1) the issue 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 is the same as, or

in privity with, the party to the former proceeding. Lucido v. Super. Ct., 

335, 341 (1990). Even if all five threshold requirements are satisfied,

California law requires that application of the doctrine be consistent with the


                                        12
public policies of "preservation of the integrity of the judicial system,

promotion of judicial economy, and protection of litigants from harassment

by vexatious litigation[.]"

      To meet its burden, the moving party must have pinpointed the exact

issues litigated in the prior action and introduced a record revealing the

controlling facts. Kelly v. Okoye (In re Kelly), 

, 258 (9th Cir. BAP

1995), aff’d, 

(9th Cir. 1996). Reasonable doubts about what was

decided in the prior action will weigh against applying issue preclusion.

accords preclusive effect to default judgments, "at least

where the judgment contains an express finding on the allegations." Gottlieb v.

Kest, 

, 149 (2006); see also Green v. Kennedy (In re Green),

, 566 (9th Cir. BAP 1996). The rationale behind finding that

default judgments can be preclusive is that defendants who are served with a

summons and complaint but fail to respond are presumed to admit all well-

pleaded facts in the complaint. In re 

. Therefore, a

default judgment:

      conclusively establishes, between the parties so far as subsequent
      proceedings on a different cause of action are concerned, the truth
      of all material allegations contained in the complaint in the first
      action, and every fact necessary to uphold the default judgment[.]

.

      In California, a default judgment satisfies the "actually litigated"

requirement for the application of issue preclusion. Younie v. Gonya (In re

                                         13
Younie), 

, 375 (9th Cir. BAP 1997), aff'd, 

(9th Cir.

1998). For a default judgment to be "actually litigated," the material factual

issues must have been both raised in the pleadings and necessary to uphold

the default judgment. 

. Therefore, the record

in the prior proceeding must show an express finding upon the allegation for

which preclusion is sought. However, "the express finding requirement can

be waived if the court in the prior proceeding necessarily decided the issue."

In re 

.

      3.    Exceptions to discharge under § 523(a)(2)(A)

      Section 523(a)(2)(A) provides that a debt may be excepted from

discharge to the extent it was obtained by "false pretenses, a false

representation, or actual fraud." To prevail on a claim under § 523(a)(2)(A), a

creditor must demonstrate, by a preponderance of the evidence:

(1) misrepresentation, fraudulent omission or deceptive conduct by the

debtor; (2) knowledge of the falsity or deceptiveness of the debtor's 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), 

, 1085 (9th

Cir. 2000). The elements of fraud under California law and the elements of

fraud under § 523(a)(2)(A) are identical. In re 

.




                                        14
B.    The bankruptcy court did not err in granting summary judgment
      under § 523(a)(2)(A) based on issue preclusion.

      Mann does not appear to challenge the bankruptcy court's ruling that

the second (actually litigated), fourth (decision is final and on the merits) and

fifth (same parties) issue preclusion criteria were met. Therefore, we address

only criteria one (identity of issues), three (necessarily decided), and

California's public policy requirement.

      1.    The issue in the two proceedings was identical.

      Mann contends that, in the State Court Action, Intergulf failed to

provide evidence supporting a finding of fraud, including intent and

damages, and that the state court made no findings that Mann made any

intentional misrepresentations or that Intergulf was damaged as a result of

those misrepresentations. The record belies his contentions.

      Intergulf's second amended complaint alleged all of the required

elements for actual fraud, at least with respect to the misappropriated

progress payments. Mann failed to file an answer and a default was entered,

resulting in an admission of the well-pleaded facts. The necessary facts

supporting fraud were also deemed admitted when Mann failed to respond

to the RFAs. Intergulf's evidence in support of the Default Judgment, namely

Buchanan's testimony, which the state court relied upon for its ruling, also

supported a finding that Mann defrauded Intergulf, thereby causing it

damages. Finally, and most importantly, the state court expressly found that


                                        15
Intergulf "carried its burden on each of [the fraud] elements," and that Mann

and West "engaged in knowing, intentional fraud as to Intergulf."

      Because a fraud claim under § 523(a)(2)(A) and California law mirror

one another, an actual fraud finding satisfies the "identical issue" criterion for

issue preclusion in a § 523(a)(2)(A) action. In re 

.

Undoubtedly, there is an "identity of the issues." The Default Judgment

explicitly provides that Mann is liable to Intergulf for fraud.

      2.    The issue of Mann's fraud was necessarily decided.

      To conclude that the issue was "necessarily decided," the issue must not

have been "entirely unnecessary" to the judgment in the prior proceeding.

Bartenwerfer v. Buckley (In re Bartenwerfer), BAP Nos. NC-16-1277-BJuF & NC-

16-1299-BJuF, 

, at *8 (9th Cir. BAP Dec. 22, 2017) (citing

Lucido, 

. at 342). The question here is, could Intergulf have been

awarded damages in the Default Judgment for something other than fraud?

      Mann argues that the bankruptcy court should not have found that the

entire Default Judgment was excepted from discharge under § 523(a)(2)(A),

when at least some of Intergulf's claimed damages — the costs related to the

drywall repair, clean-up, re-digging of the electrical line trenches and re-

waterproofing of the decks — were based on West's and Mann's alleged

negligence and breach of contract. Mann did not raise this issue before the

bankruptcy court. Nonetheless, because the application of § 523(a)(2)(A) to

determine dischargeability of an underlying judgment is a matter of law, and


                                        16
Intergulf has briefed the issue, the Panel in its discretion will consider it. See

In re 

.

      We agree that Intergulf pled these alleged damages on theories of

negligence and breach of contract. Further, the only relevant admission in the

RFAs was that "West had left portions of the project open and exposed to

weather, including installed drywall," which does not establish fraud.

Likewise, Buchanan's declaratory testimony in support of the Default

Judgment stated that these damages, totaling $732,567.03 of the requested

$1,801,360.27, were a result of West's and Mann's negligence and breach of

contract. However, at the prove-up hearing, Buchanan testified that, in his

belief, West and Mann purposefully and prematurely installed the drywall

and electrical lines and waterproofed the decks solely to get money from

Intergulf. The inference was that West's and Mann's conduct was fraudulent.

      At the end of the prove-up hearing, the state court found that Intergulf

was "entitled to tort recovery and also recovery in contract." Yet, in its

Rulings Following Default Prove-Up Hearing, the state court made no

mention of negligence or breach of contract, and found that West and Mann

were liable to Intergulf based solely on fraud. The state court awarded

compensatory "Damages" in the full amount requested of $1,801.30.27. Thus,

Intergulf recovered damages solely on a theory of fraud. In reviewing the

state court's findings, the bankruptcy court took the correct position that

fraud was central to the Default Judgment and that all damages awarded


                                         17
were fraud damages.

      We, as well as the bankruptcy court, are unable to question the state

court's decision as it would amount to an impermissible collateral attack on

the Default Judgment. See Lopez v. Emerg. Serv. Restoration, Inc. (In re Lopez),

, 106 (9th Cir. BAP 2007) ("Under state law, a litigant may not

collaterally attack a final judgment for nonjurisdictional errors."). Mann could

have challenged any possible errors in the Default Judgment by filing an

appeal with the California Court of Appeal, but he chose not to do so. The

preclusive consequences of a final, unappealed judgment on the merits are

not altered by the fact that the judgment may have been wrong. Federated

Dep't Stores, Inc. v. Moitie, 

, 398 (1981).

      3.    Application of issue preclusion to the Default Judgment did not
            contravene public policy.

      Mann argues that public policy precluded the application of issue

preclusion to the Default Judgment, because there are doubts as to what was

determined at the prove-up hearing. Mann has apparently abandoned his

"abandonment by counsel" argument. Contrary to Mann's new argument,

there is no doubt as to what the state court determined. In any case, his

argument does not address the public policy considerations of judicial

economy, preservation of the integrity of the judicial system, and prevention

of vexatious litigation.

      The bankruptcy court found that applying issue preclusion in this case


                                          18
advanced all three of the public policies underlying the doctrine. Specifically,

the court found that permitting Mann to now litigate the issues that he

previously chose not to would not serve judicial economy or the integrity of

the judicial system. In addition, judicial economy favored application,

because it avoided a second suit, which appeared all the less necessary in

light of the full evidentiary hearing before the state court.

      4.    Summary judgment in favor of Intergulf was proper

      The bankruptcy court did not err in concluding that the issue of

whether Mann committed fraud within the meaning of § 523(a)(2)(A) was

precluded by the Default Judgment and could not be relitigated in the

bankruptcy court. We perceive no abuse of discretion in the bankruptcy

court's decision to apply issue preclusion in this case.

      Because of the preclusive effect of the Default Judgment, Intergulf

satisfied its burden of demonstrating that there were no genuine issues of

material fact as to the elements of fraud. As a result, the bankruptcy court did

not err in granting Intergulf summary judgment on its § 523(a)(2)(A) claim.

                              VI. CONCLUSION

      For the reasons state above, we AFFIRM.




                                        19