Opinion
Case No. 12-10389 AJ Adv. Proc. No. 12-3079 TC
02-06-2013
In re JAMES D. CROMBIE and LYNETTE T. NGUYEN, Debtors. PARON CAPITAL MANAGEMENT, LLC, PETER MCCONNON, and TIMOTHY LYONS Plaintiffs, v. JAMES D. CROMBIE and LYNETTE T. NGUYEN Defendants. JAMES D. CROMBIE Counter-Claimant, v. PARON CAPITAL MANAGEMENT, LLC, PETER MCCONNON, and TIMOTHY LYONS Counter-Defendants,
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U.S. Bankruptcy Judge
Chapter 7
MEMORANDUM DECISION RE MOTION FOR SUMMARY JUDGMENT
On October 19, 2012, the court held a hearing on the motion for summary judgment filed by Paron Capital Management, LLC, Peter McConnon, and Timothy Lyons (Plaintiffs). Mark P. Fickes appeared for Plaintiffs. Defendant James D. Crombie (Defendant) did not appear. Upon due consideration, and for the reasons stated on the record at the hearing, the court hereby resolves the motion for summary judgment as follows:
The Courtroom Deputy attempted to contact Mr. Crombie at the telephone number that he provided to the court, but Mr. Crombie was not available when contacted by the court.
(1) Plaintiffs' motion for summary judgment should be granted for the following reasons.
(A) Plaintiffs obtained a judgment against Defendant in the Delaware Court of Chancery in Paron Capital Mngt, LLC v. Crombie, Del. Ch. Ct. Case No. 6380-VCP (the "State-Court Judgment").
(B) This court must give the same preclusive effect to the State-Court Judgment that a Delaware court would give to that judgment. See Bugna v. McArthur (In re Bunga), 33 F.3d 1054, 1057 (9th Cir. 1994).
(C) Under Delaware law, issue preclusion applies "where a question of fact essential to the judgment is litigated and determined by a valid and final judgment, the determination is conclusive between the same parties in a subsequent case on a different cause of action." See Tyndall v. Tyndall, 238 A.2d 343, 346 (Del. 1968).
(D) Under Delaware law, a judgment is considered final even if that judgment is on appeal. See McNally v. Esmark, Inc. (In re Transocean Tender Offer Sec. Lit.), 427 F.Supp. 1211, 1216 (N.D. Ill. 1977) (Applying Delaware law, the District Court held that "Delaware courts have often followed the Restatement of the Law of Judgments," that the restatement "in effect follows the general rule that the pendency of an appeal does not suspend the operation of a final judgment for purposes of res judicata, and that "[t]he court believes that Delaware courts would likewise follow this rule.").
(E) The State-Court Judgment is a valid final judgment that necessarily determined all essential facts to except the debt from discharge under 11 U.S.C. §§ 523(a)(2), (a)(4), and (a)(6).
(F) All liability arising from Defendant's fraud, breach of fiduciary duty, and willful and malicious conduct should be excepted from discharge, including punitive damages, attorneys' fees, and costs. See Cohen v. De La Cruz, 523 U.S. 118 (1998).
(2) Defendant's counterclaims should be dismissed without prejudice and without leave to amend for the following reasons.
(A) Pre-Petition Claims. To the extent that any of Defendant's counterclaims arose pre-petition, Defendant is not the proper party to assert those claims because those claims became property of the bankruptcy estate pursuant to section 541(a), and must be brought by the chapter 7 trustee. Defendant did not even list the claims in his original schedules. Although he has now filed amended schedules that value the counterclaims at an "UNKNOWN" value, the counterclaims are still property of the bankruptcy estate and still must be asserted by the trustee. There is no indication that the trustee intends to assert these counterclaims.
If the trustee abandons the counterclaims to Defendant, this court will probably lose subject-matter jurisdiction. The counterclaims arise under state law. The only basis for jurisdiction in this court is that the counterclaims belongs to the estate, and that resolution of the counterclaims would therefore have an effect on the estate. Fietz v. Great W. Sav. and Loan Ass'n (In re Fietz), 852 F.2d 455 (9th Cir. 1988). Abandonment, which would permit Defendant to assert these counterclaims, would also remove the counterclaims from the estate and thereby eliminate the principal basis for subject-matter jurisdiction. This court could conceivably invoke its supplemental jurisdiction to try the abandoned counterclaims, but I decline to do so because the court is now ready to enter judgment on all claims raised in Plaintiffs' complaint, and because to date the counterclaims have not been asserted by any party with the power to do so.
For similar reasons, I decline to resolve Plaintiffs' contention that the counterclaims are barred under principles of claim preclusion. That contention should be asserted against the party that holds the counterclaims.
(B) Post-Petition Claims. To the extent that any of Defendant's counterclaims arose post-petition, those claims should be resolved as follows. The first counterclaim should be dismissed, because Defendant was individually liable for the State-Court Judgment, and because that judgment is excepted from discharge under 11 U.S.C. §§ 523(a)(2), (a)(4), and (a)(6). The second counterclaim should be dismissed, because it is barred by the litigation privilege. See Cal. Civ. Code § 47(b); Fin. Corp. of Am. v. Wilburn, 189 Cal.App.3d 764, 774 (1987) (allegations in a complaint which are related to the litigation commenced by the complaint are privileged regardless of the subjective intent of the attorney). The third counterclaim should be dismissed, because this court does not have subject-matter jurisdiction over the claim because it arises under state law and resolution of the claim would not have any effect on the estate. For the reasons stated above, I also decline to invoke supplemental jurisdiction over this claim. The fourth counterclaim should be dismissed, because the court previously dismissed all claims asserted against Lynette Nguyen, see Docket No. 37, and because Defendant lacks standing to assert claims on behalf of Lynette Nguyen.
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