United States Bankruptcy Appellate Panel of the Ninth Circuit
In re: TERRANCE ALEXANDER TOMKOW, Debtor.
KENNETH BARTON, Appellee. TERRANCE ALEXANDER TOMKOW, Appellant, In re: ZAFAR DAVID KHAN, Debtor. ZAFAR DAVID KHAN, Appellant,
KENNETH BARTON, Appellee. Bk. No. 2:13-bk-19712-WB, 2:13-bk-19713-WB Adv. No. 2:13-ap-01751-WB, 2:13-ap-01752-WB
and Submitted on October 21, 2016 at Pasadena, California
from the United States Bankruptcy Court for the Central
District of California Honorable Julia Wagner Brand,
Bankruptcy Judge, Presiding
R. Landau on behalf of appellants Terrance Alexander Tomkow
and Zafar David Khan;
Patrick C. McGarrigle of McFarrigle, Kenney & Zampiello,
APD on behalf of appellee Kenneth Barton.
Before: TAYLOR, FARIS, and MCKITTRICK, [*] Bankruptcy
TAYLOR, Bankruptcy Judge
Appellants Terrance Tomkow and Zafar
Khan appeal from two orders: (1) an order granting summary
judgment in favor of Kenneth Barton determining that a
California state court judgment against them was
nondischargeable under § 523(a)(2)(A)and (a)(6); and
(2) an order denying their subsequent motion for direct
appeal certification to the Ninth Circuit.
Ninth Circuit authority controls our decision here; we AFFIRM
the bankruptcy court's orders.
the late 1990s, Appellants and Barton co-founded start-up
companies including RIL, which owned or controlled various
patents relating to authentication and verification of emails
and electronic payments. Barton later suffered a stroke and
was sidelined from active involvement in the businesses.
Afterward, his relationship with Appellants deteriorated to
the point that he commenced state court litigation seeking
unpaid compensation and reimbursement of expenses.
that litigation, Barton discovered that Appellants had taken
control of his 6, 016, 500 common stock shares in RIL and
returned them to the company treasury, thereby divesting him
of an equity interest in the company. In response, he
commenced a second action against Appellants and RIL, among
others, in California state court alleging causes of action
including conversion and fraud.
state court ruled in Barton's favor on both the
conversion and fraud causes of action and against Appellants
and RIL. It determined that Appellants had acted with malice,
oppression, and fraud and, thus, that Barton was entitled to
punitive damages. The state court then conducted a second
phase of trial to quantify punitive damages.
the parties' submission of the punitive damages issue to
the state court, Appellants each filed a chapter 13 petition.
revised statement of decision and ruling on punitive damages,
the state court awarded Barton the value of his converted
stock in RIL. It ultimately entered an amended judgment
awarding Barton compensatory damages in the amount of $2,
840, 060, damages for emotional distress, and $880, 021.91 in
prejudgment interest. For punitive damages, the state court
awarded $250, 000 against Khan and $150, 000 against Tomkow.
In so doing, it found that Khan and Tomkow acted with malice,
oppression, and fraud. Appellants appealed from the state
court judgment to the California Court of Appeal.
meantime, Barton filed an adversary complaint against
Appellants in the bankruptcy court, seeking a
nondischargeability determination under § 523(a)(2)(A),
(a)(4), and (a)(6) based on the state court judgment.
California Court of Appeal subsequently affirmed the state
court's determination of Appellants' liability based
on conversion. But, because the determination of conversion
was supported by substantial evidence, it did "not
consider whether [Appellants] were additionally liable under
theories of fraud, breach of fiduciary duty and unfair
competition." It affirmed the punitive damages award
based on a finding of malice and deceit. The California
Supreme Court denied Appellants' petition for review of
the appellate court's decision. Thus, that decision is
now final. In response, Barton moved for summary judgment on
his nondischargeability complaint in the bankruptcy court.
opposed the motion. They asserted primarily that pursuant to
Zevnik v. Superior Court, 159 Cal.App.4th 76 (2008),
where a trial court decided a case based on alternate grounds
and the court of appeal affirmed on only one of those
grounds, issue preclusion was available only on the ground
affirmed by the appellate court. Appellants pointed out that
the California Court of Appeal had affirmed the state court
judgment only on Barton's conversion claim under
California law; thus, they argued, the state court judgment
was not entitled to issue preclusion based on the state
court's ruling of fraud or breach of fiduciary duty in
relation to the § 523(a)(2)(A) or (a)(4) claims. At
best, Appellants contended, the state court judgment for
conversion potentially supported a claim under §
523(a)(6). But, even then, they asserted, Barton barely
addressed the conversion claim in his motion for summary
judgment. And, they noted, conversion under California law
did not establish a § 523(a)(6) claim conclusively.
Appellants also argued that the punitive damages award on the
conversion claim, to the extent affirmed on appeal, fell
short of establishing a § 523(a)(6) claim. Finally,
Tomkow argued that Barton neglected to address the fact that,
with respect to the punitive damages award, there was a
difference in liability between Khan and Tomkow; namely, the
amount of damages assessed against Appellants reflected a
difference in the level of culpability.
response, Barton argued that binding Ninth Circuit precedent
- DiRuzza v. County of Tehama, 323 F.3d 1147 (9th
Cir. 2003) - established that the California Court of
Appeal's affirmance of any ground contained in the state
court judgment implicitly ratified all of the trial
court's reasoning in the judgment.
hearing, the bankruptcy court determined that the state court
judgment was entitled to issue preclusive effect for the
§ 523(a)(2)(A) and (a)(6) claims and, thus, granted
summary judgment in Barton's favor on them. It, however,
denied the motion as to the § 523(a)(4) claim. In
response, Appellants' counsel orally requested direct
appeal certification to the Ninth Circuit. The bankruptcy
court agreed that additional briefing and a hearing on
Appellants' request were warranted.
bankruptcy court then entered judgments determining that,
with the exception of the damages award for emotional
distress, the state court judgment was excepted from
Appellants' discharges under § 523(a)(2)(A) and
(a)(6). Appellants timely appealed.
made good on their request and filed a motion for direct
appeal certification. They stated that the bankruptcy court
"understandably rejected application of the
Zevnik rule based on a Ninth Circuit decision
[DiRuzza] predating Zevnik and that applied
the 1865 California Supreme Court's Skidmore
case." As a result of DiRuzza, they urged the
bankruptcy court to certify the appeal directly to the Ninth
Circuit under 28 U.S.C. § 158(d)(2)(A); they opined that
the Ninth Circuit could and would then certify the question
to the California Supreme Court.
opposed the motion, and the bankruptcy court agreed with him.
It concluded at a subsequent hearing that Appellants had not
satisfied 28 U.S.C. § 152(d)'s requirements for
direct appeal certification. It believed that the law in the
Ninth Circuit was clear and that there was no dispute
requiring resolution among the California courts. The
bankruptcy court noted that the Ninth Circuit had considered
and rejected the Zevnik analysis in DiRuzza
and that the California Supreme Court also had, but declined,
the opportunity to revisit the issue.
bankruptcy court subsequently entered an order denying
Appellants' motion. Appellants amended their notice of
appeal to include this order.
bankruptcy court had jurisdiction pursuant to 28 U.S.C.
§§ 1334 and 157(b)(2)(I). We have jurisdiction
under 28 U.S.C. § 158.
Whether the bankruptcy court erred in granting summary
judgment in Barton's favor on his § 523(a)(2)(A)
claim based on the issue preclusive effect of the fraud claim
in the state court judgment, given that the California Court
of Appeal affirmed that judgment on another ground.
Whether the bankruptcy court erred in granting summary
judgment in Barton's favor on his § 523(a)(6) claim
based on the issue preclusive effect of the state court
Whether the bankruptcy court erred in denying Appellants'
motion for direct appeal certification to the Ninth Circuit.
review de novo the bankruptcy court's decisions to grant
summary judgment and to except a debt from discharge under
§ 523(a). See Ghomeshi v. Sabban (In re
Sabban), 600 F.3d 1219, 1221-22 (9th Cir. 2010);
Oney v. Weinberg (In re Weinberg), 410 B.R. 19, 28
(9th Cir. BAP 2009); see also Carrillo v. Su (In re
Su), 290 F.3d 1140, 1142 (9th ...