                                                         FILED
                                                          APR 16 2018
 1                         NOT FOR PUBLICATION
                                                      SUSAN M. SPRAUL, CLERK
                                                        U.S. BKCY. APP. PANEL
 2                                                      OF THE NINTH CIRCUIT

 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
                              OF THE NINTH CIRCUIT
 4
 5   In re:                        )      BAP No. SC-17-1194-LBF
                                   )
 6   PAUL Y. JOHNSON and           )      Bk. No. 3:16-bk-05753-LT
     CELESTE C. JOHNSON,           )
 7                                 )      Adv. No. 3:16-ap-90186-LT
                    Debtors.       )
 8   ______________________________)
                                   )
 9   PAUL Y. JOHNSON;              )
     CELESTE C. JOHNSON,           )
10                                 )
                    Appellants,    )
11                                 )
     v.                            )      M E M O R A N D U M*
12                                 )
     W3 INVESTMENT PARTNERS, LP,   )
13                                 )
                    Appellee.      )
14   ______________________________)
15             Submitted Without Argument on March 22, 2018
                          at Pasadena, California
16
                             Filed - April 16, 2018
17
              Appeal from the United States Bankruptcy Court
18                for the Southern District of California
19     Honorable Laura S. Taylor, Chief Bankruptcy Judge, Presiding
                         _________________________
20
     Appearances:     Kennan E. Kaeder on brief for Appellants; Paul J.
21                    Delmore and Daniel W. Towson of Simpson Delmore
                      Greene LLP on brief for Appellee.
22                         _________________________
23   Before: LAFFERTY, BRAND, and FARIS, Bankruptcy Judges.
24
25
26        *
           This disposition is not appropriate for publication.
27   Although it may be cited for whatever persuasive value it may
     have (see Fed. R. App. P. 32.1), it has no precedential value.
28   See 9th Cir. BAP Rule 8024-1.
 1        The bankruptcy court granted summary judgment to Appellee on
 2   its nondischargeability claim under § 523(a)(2)(A).1   In so
 3   doing, the court gave issue preclusive effect to a prepetition
 4   stipulated judgment entered in state court as part of a
 5   litigation settlement.   That judgment deemed admitted the facts
 6   alleged in the state court complaint, which included allegations
 7   supporting a finding of fraud.
 8        Appellants’ primary argument is that the bankruptcy court
 9   erred in applying issue preclusion to the stipulated judgment
10   because it amounted to an unenforceable prepetition waiver of the
11   discharge.    We disagree, and for the reasons set forth below, we
12   AFFIRM.
13                                    FACTS
14   A.   The State Court Litigation
15        Appellants Paul and Celeste Johnson were the principals of
16   Cel J, Inc.   Cel J was the general partner of Sushi on the Rock
17   Carlsbad, L.P., which operated a restaurant in Carlsbad,
18   California.   Appellee W3 Investment Partners, LP, was a limited
19   partner in Sushi on the Rock, having provided a capital
20   contribution of $575,000.   Paragraph VI of the Agreement of
21   Limited Partnership executed by the partners in September 2004
22   provided that Cel J would be paid a management fee of $7,000 per
23   month and that, once the partnership’s operating reserves reached
24   $100,000, the limited partners would receive any excess as
25
          1
26         Unless specified otherwise, all chapter and section
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, all
27   “Rule” references are to the Federal Rules of Bankruptcy
     Procedure, and all “Civil Rule” references are to the Federal
28   Rules of Civil Procedure.

                                       -2-
 1   capital reimbursement and cash distributions in proportion to
 2   their investments in the partnership.
 3        In 2006, W3 sued Cel J and the Johnsons (collectively,
 4   “Defendants”) in San Diego County Superior Court, pleading
 5   thirteen causes of action including breach of contract, breach of
 6   fiduciary duty, conversion, and three fraud causes of action:
 7   intentional misrepresentation, concealment, and false promise.
 8   In its first amended state court complaint (“FAC”), W3 alleged
 9   that from 2004 to 2006 Defendants (i) intentionally diverted
10   Sushi on the Rock’s revenues and spent the partnership funds for
11   their personal benefit; (ii) intentionally produced inaccurate
12   and misleading financial statements; and (iii) purposefully
13   failed to make required distributions to the limited partners.
14   With respect to the Eighth Cause of Action for Fraud -
15   Intentional Misrepresentation, W3 alleged:
16             74. Pursuant to the Agreement between W3 and
          CEL J, CEL J represented to W3 that CEL J is required
17        to make certain deposits to the Operating Reserve
          Account and cause distributions to be made to W3, as
18        described in paragraphs 15(a) - (d). It was further
          represented to W3 that CEL J would have responsibility
19        for the safekeeping and use of all Sushi on the Rock
          assets and funds and that it would not use these assets
20        and funds in any manner except for the exclusive
          benefit of the Sushi on the Rock.
21
               75. The representations made to W3 that the
22        required deposits would be made to the Operating
          Reserve Account, distributions would be made to W3 and
23        that Sushi on the Rock assets and funds would be used
          exclusively for the benefit of the partnership were all
24        entirely false. Instead, Sushi on the Rock assets and
          funds were and are being fraudulently used by CEL J,
25        CELESE and P. JOHNSON for their own personal benefit
          and enjoyment, as evidenced by the fraudulent
26        withdrawals, expenses and transfers described above in
          paragraphs 16 through 29.
27
               76. At the time that the representations were
28        made, CEL J, C. JOHNSON and P. JOHNSON knew they were

                                    -3-
 1        false and/or made the representations recklessly and
          without regard for their truth.
 2
               77. CEL J, C. JOHNSON and P. JOHNSON intended
 3        that W3 rely on these representations in making their
          Capital Contribution to Sushi on the Rock and intended
 4        that W3 rely on these representations after Sushi on
          the Rock was operational.
 5
               78. W3 did, in fact, reasonably rely on the above
 6        representations in that it would not have executed the
          Agreement if it had known that deposits would not be
 7        made into the Operating Reserve Account, distributions
          would not be made to W3 and that Sushi on the Rock
 8        assets and funds would not be used exclusively for the
          benefit of the Sushi on the Rock, but rather for the
 9        personal benefit of CEL J, C. JOHNSON and P. JOHNSON.
10             79. As a direct and proximate result of the
          aforementioned acts of CEL J, C. JOHNSON and P.
11        JOHNSON, it is herein alleged that W3 has been damaged
          in an amount to be proven at trial and has incurred and
12        continues to incur costs and expenses including, but
          not limited to, consequential damages, litigation costs
13        and reasonable attorneys’ fees as provided under the
          Agreement.
14
15        Similar allegations supported the Ninth Cause of Action for
16   Fraud - Concealment:
17             82. CEL J, C. JOHNSON and P. JOHNSON
          intentionally failed to disclose to W3 that they would
18        not make the required deposits into the Operating
          Reserve Account, would not cause required distributions
19        to be made to W3, as described in paragraphs 15(a) -
          (d) and that they intended to use Sushi on the Rock
20        assets and funds for their own personal benefit and not
          for the exclusive benefit of Sushi on the Rock, as
21        described above in paragraphs 16 through 29.
22             83. W3 was unaware of the fact that CEL J, C.
          JOHNSON and P. JOHNSON intended not make [sic] the
23        required deposits into the Operating Reserve Account,
          would not cause required distributions to be made to
24        W3, as described in paragraphs 15(a) - (d) and that
          they intended to use Sushi on the Rock assets and funds
25        for their own personal benefit and not for the
          exclusive benefit of Sushi on the Rock, as described
26        above in paragraphs 16 through 29. This deception was
          reasonably relied on by W3.
27
               84. CEL J, C. JOHNSON and P. JOHNSON intended to
28        deceive W3 by concealing the above facts in order to

                                    -4-
 1        cause W3 to make a Capital Contribution to Sushi on the
          Rock and to continue its participation in Sushi on the
 2        Rock after it became profitable.
 3        W3 also alleged a Tenth Cause of Action for Fraud - False
 4   Promise, relying on allegations almost identical to those
 5   supporting the Ninth Cause of Action for Fraud - Concealment.
 6        After litigating the matter for nearly two and a half years,
 7   the parties, represented by counsel, reached a settlement whereby
 8   Defendants agreed to pay W3 $625,000.    The settlement agreement
 9   (“Settlement Agreement”) required Defendants to pay at least
10   $2,000 per month for five years; the remaining amount was to be
11   paid in eighteen equal monthly installments of approximately
12   $28,000 each.   In Paragraph I.B. of the Settlement Agreement, the
13   Johnsons denied any liability to W3.    At the same time,
14   Paragraph III.2., which required the Johnsons to each personally
15   guarantee the obligations of Defendants under the agreement,
16   provided that the Johnsons “have further expressly agreed to and
17   understand that all such obligations under the Agreement and the
18   Stipulated Judgment shall be fully and entirely nondischargeable
19   and shall survive any liquidation proceeding, receivership
20   proceeding, conservatorship proceeding, bankruptcy proceeding
21   and/or any other similar proceeding.”
22        Defendants (and their counsel) also executed a stipulated
23   judgment (“Stipulated Judgment”) that was to be entered if they
24   breached the Settlement Agreement, and the Johnsons each executed
25   personal guarantees of the amounts due under the settlement.    The
26   Stipulated Judgment provided, in relevant part:
27             3. Cel J. Inc., Celeste Johnson and Paul Johnson
          expressly agree, acknowledge and stipulate that the
28        filing and/or entry of this stipulated judgment deems

                                     -5-
 1        all allegations, statements and facts contained in the
          first-amended complaint to be true and accurate.
 2
               4. Cel J., Inc, Celeste Johnson and Paul Johnson
 3        expressly agree, acknowledge and stipulate that this
          stipulated judgment is directly related to and arises
 4        solely out of their fraudulent conduct, including their
          breaches of fiduciary duty, as specifically alleged in
 5        the first-amended complaint.
 6        At a hearing before the settlement judge on April 23, 2008,
 7   the settlement terms were put on the record.   Those terms
 8   included that the amounts due under the personal guarantees would
 9   not be dischargeable in bankruptcy and that in the event of a
10   default a stipulated judgment could be entered.    Debtors
11   indicated at that hearing that they understood the terms of the
12   settlement and were willing to be bound by its terms.
13        Defendants made payments under the Settlement Agreement for
14   five years but thereafter defaulted.   As a result, W3 sought
15   entry of the Stipulated Judgment in state court.    For reasons
16   that were never fully explained, the state court did not enter
17   the Stipulated Judgment but rather a form judgment in the
18   principal amount of $516,000 (the “Form Judgment”).    The Form
19   Judgment included the following language:   “Defendants have
20   stipulated/ agreed that his [sic] judgment: (i) deems the first-
21   amended complaint true and accurate; and (ii) it arises solely
22   out of their fraudulent conduct, including breaches of fiduciary
23   duties.”
24   B.   The Nondischargeability Proceeding
25        The Johnsons filed a chapter 7 petition on September 20,
26   2016, listing the judgment in favor of W3 on Schedule F in the
27   amount of $558,147.   W3 filed a timely adversary proceeding
28   seeking to except its claim from discharge under §§ 523(a)(2)(a),

                                     -6-
 1   (a)(4), and (a)(6).   In May 2017, W3 filed a motion seeking
 2   summary judgment on its claims under §§ 523(a)(2)(A) and (a)(4)
 3   only, based on the issue preclusive effect of the state court
 4   judgment.
 5        Debtors opposed the motion.    They pointed out that the state
 6   court entered the Form Judgment, not the Stipulated Judgment.
 7   They also argued that the stipulation of nondischargeability of
 8   the amounts due under the settlement was void as against public
 9   policy and that the fraud issues were not actually litigated,
10   pointing out that the Settlement Agreement itself contained
11   neither any admission of liability nor any facts supporting a
12   fraud finding.   In support of their opposition, Debtors submitted
13   declarations from Mr. and Ms. Johnson.     Ms. Johnson testified
14   that neither she nor her husband had done anything alleged in the
15   complaint.   She stated that W3 misunderstood that the Johnsons
16   had taken the $7,000 monthly management fee from the partnership
17   in increments as it was able to pay and that she had a ledger of
18   what had been taken for that fee.      She further stated that “[t]he
19   idea that myself or Paul entered into the limited partnership
20   with an intent to defraud [W3] is simply absurd.     Shawn Nevitt of
21   W3 was a customer in our La Jolla location.     He heard about the
22   project and asked Paul if he could invest.”     Ms. Johnson also
23   pointed out that a receiver appointed during the state court
24   litigation had monitored the partnership and, after three months,
25   had found nothing wrong.    She further stated that she felt
26   bullied by the settlement judge into settling the lawsuit because
27   he told her she had no chance of winning, and the Johnsons had no
28   money to keep litigating.    Mr. Johnson’s declaration essentially

                                      -7-
 1   agreed with everything stated by Ms. Johnson.
 2        At the hearing on summary judgment, W3’s counsel stated that
 3   he did not know why the state court judge had entered the Form
 4   Judgment rather than the Stipulated Judgment because the
 5   associate who had handled the matter was no longer with his firm.
 6   The bankruptcy court asked W3's counsel to look into the matter
 7   and submit a declaration explaining what was submitted to the
 8   state court in support of the request to enter the Stipulated
 9   Judgment: “whatever documents were put before Judge Prager that
10   formed the basis for his determination that – and I’m using his
11   words – that the judgment arises solely out of their, plural,
12   fraudulent conduct.”   Thereafter, W3’s counsel, Paul Delmore,
13   filed a declaration2 stating in relevant part:
14        [O]n October 18, 2013, we provided Judge Prager with
          the fully executed Confidential Settlement Agreement,
15        which included as exhibits the First Amended Complaint,
          the Stipulated Judgment executed by Defendants, and the
16        Guaranty of Obligations and Payments signed by
          Defendants.
17
               6. We also included a Judicial Counsel [sic]
18        Judgment form JUD-100 together with a copy of the
          Stipulated Judgment that Defendants executed as part of
19        the settlement. . . . [T]he Judicial Counsel [sic]
          Judgment form mistakenly did not reference or
20        incorporate the Stipulated Judgment signed by
          Defendants. Hence, when the Superior Court Clerk filed
21        the Judgment form signed by Judge Prager on October 29,
          2013, the Clerk did not include the Stipulated Judgment
22        signed by Defendants as part of the entered judgment.
23        The bankruptcy court denied the motion as to the § 523(a)(4)
24   claim but granted it as to the § 523(a)(2)(A) claim, finding that
25   issue preclusion applied to the facts stipulated to by the
26
27
          2
           Debtors erroneously stated in their opening brief that W3
28   did not provide the requested declaration.

                                     -8-
 1   Johnsons, and those facts supported a finding of
 2   nondischargeability under § 523(a)(2)(A).3
 3        The Johnsons timely appealed.
 4                               JURISDICTION
 5        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
 6   §§ 1334 and 157(b)(2)(I).   We have jurisdiction under 28 U.S.C.
 7   § 158.
 8                                   ISSUE
 9        Whether the bankruptcy court erred in granting summary
10   judgment to W3 by giving issue preclusive effect to the state
11   court judgment as to the § 523(a)(2)(A) nondischargeability
12   claim.
13                            STANDARDS OF REVIEW
14        We review de novo the bankruptcy court’s decision to grant
15   summary judgment.   Plyam v. Precision Dev., LLC (In re Plyam),
16   530 B.R. 456, 461 (9th Cir. BAP 2015).     We also review de novo
17   the bankruptcy court’s determination that issue preclusion was
18   available. Id.   If issue preclusion was available, we review the
19   bankruptcy court’s application of issue preclusion for an abuse
20   of discretion.   Id.   A bankruptcy court abuses its discretion if
21   it applies the wrong legal standard, misapplies the correct legal
22   standard, or if its factual findings are illogical, implausible,
23   or without support in inferences that may be drawn from the facts
24   in the record.   TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d
25
26        3
           On June 28, 2017, W3 filed a first amended complaint to
27   eliminate the § 523(a)(4) and (a)(6) claims; accordingly, the
     bankruptcy court’s order granting summary judgment on the
28   § 523(a)(2)(A) claim is final.

                                      -9-
 1   820, 832 (9th Cir. 2011) (citing United States v. Hinkson,
 2   585 F.3d 1247, 1262 (9th Cir. 2009) (en banc)).
 3                                DISCUSSION
 4   A.   Summary Judgment Standard
 5        Summary judgment may be granted “if the movant shows that
 6   there is no genuine issue as to any material fact and the movant
 7   is entitled to judgment as a matter of law.”    Civil Rule 56(a),
 8   incorporated via Rule 7056; Barboza v. New Form, Inc. (In re
 9   Barboza), 545 F.3d 702, 707 (9th Cir. 2008).    The trial court may
10   not weigh evidence in resolving such motions, but rather
11   determines only whether a material factual dispute remains for
12   trial.   Covey v. Hollydale Mobilehome Estates, 116 F.3d 830, 834
13   (9th Cir. 1997), opinion amended on denial of rehr’g, 125 F.3d
14   1281 (Mem.).   A dispute is genuine if there is sufficient
15   evidence for a reasonable fact finder to hold in favor of the
16   non-moving party, and a fact is “material” if it might affect the
17   outcome of the case.    Far Out Prods., Inc. v. Oskar, 247 F.3d
18   986, 992 (9th Cir. 2001) (citing Anderson v. Liberty Lobby, Inc.,
19   477 U.S. 242, 248–49 (1986)).    The initial burden of showing
20   there is no genuine issue of material fact rests on the moving
21   party.   Margolis v. Ryan, 140 F.3d 850, 852 (9th Cir. 1998).
22   B.   Issue Preclusion
23        In applying issue preclusion to a state court judgment, the
24   bankruptcy court must apply the forum state’s law of issue
25   preclusion.    Harmon v. Kobrin (In re Harmon), 250 F.3d 1240, 1245
26   (9th Cir. 2001); In re Plyam, 530 B.R at 462.    In California,
27   application of issue preclusion requires that: (1) the issue
28   sought to be precluded from relitigation is identical to that

                                      -10-
 1   decided in a former proceeding; (2) the issue was actually
 2   litigated in the former proceeding; (3) the issue was necessarily
 3   decided in the former proceeding; (4) the decision in the former
 4   proceeding is final and on the merits; and (5) the party against
 5   whom preclusion is sought was the same as, or in privity with,
 6   the party to the former proceeding.    In re Plyam, 530 B.R. at 462
 7   (citing Lucido v. Super. Ct., 51 Cal. 3d 335, 341 (1990)).    In
 8   addition, California courts apply issue preclusion only if
 9   application of the doctrine furthers the public policies
10   underlying the doctrine.   In re Harmon, 250 F.3d at 1245.   Those
11   policies include “preservation of the integrity of the judicial
12   system, promotion of judicial economy, and protection of
13   litigants from harassment by vexatious litigation . . . .”
14   Lucido, 51 Cal. 3d at 770-71.
15        It is undisputed that the issues deemed decided in the state
16   court litigation were identical to those presented in the
17   nondischargeability proceeding, that the parties were identical,
18   and that the state court judgment was final and on the merits.
19   Additionally, the bankruptcy court concluded that Debtors’
20   coercion argument did not raise a public policy challenge to
21   issue preclusion.   Debtors do not challenge this conclusion on
22   appeal, except to the extent they argue that the settlement
23   documents constituted an unenforceable waiver of the discharge.
24        Thus, the only element in dispute in this appeal is the
25   “actually litigated” requirement (and, by implication, the
26
27
28

                                     -11-
 1   “necessarily decided” requirement).4   Ordinarily, stipulated
 2   judgments are not given preclusive effect because the issues were
 3   not actually litigated and thus this element could not be
 4   satisfied.   Berr v. FDIC (In re Berr), 172 B.R. 299, 306 (9th
 5   Cir. BAP 1994).   Where the record or judgment evidences an intent
 6   by the parties for a stipulated judgment to be preclusive,
 7   however, a court may give effect to that judgment.   Id.; see
 8   Hayhoe v. Cole (In re Cole), 226 B.R. 647, 655 (9th Cir. BAP
 9   1998) (“[I]f the parties stipulated to the underlying facts that
10   support a finding of nondischargeability, the Stipulated Judgment
11   would then be entitled to collateral estoppel application.”).
12   Where a party admits liability in a stipulated judgment, that
13   party may be precluded from relitigating that liability.    Cal.
14   State Auto. Ass’n Inter-Ins. Bureau v. Superior Ct., 50 Cal. 3d
15   658, 664-65 (1990).5
16        Here, Debtors contend that the bankruptcy court should not
17   have given issue preclusive effect to the Form Judgment because
18   it and the other settlement documents constituted an
19   unenforceable prepetition waiver of the discharge.   While Debtors
20   are correct that the settlement documents contain language that
21
22        4
           If an issue was necessarily decided in a prior proceeding,
23   it was actually litigated, but an issue may be actually litigated
     without being necessarily decided. In re Harmon, 250 F.3d at
24   1248 & n.9.
25        5
           Similarly, under California law, courts may apply issue
26   preclusion to a default judgment so long as the defendant was
     personally served or had actual knowledge of the litigation, the
27   issue was properly raised and submitted to the court, and the
     court actually determined the issue. In re Harmon, 250 F.3d at
28   1246-47.

                                    -12-
 1   could be so construed (Paragraph III.2. of the Settlement
 2   Agreement), they also contain language deeming admitted the fraud
 3   allegations contained in the FAC (e.g., the Stipulated Judgment
 4   and the Form Judgment entered by the state court).      The
 5   bankruptcy court correctly disregarded the general
 6   nondischargeability language but found that the Debtors’ deemed
 7   admission of the facts establishing fraud liability was entitled
 8   to preclusive effect.
 9        1.     The settlement documents deemed admitted the facts
                 supporting a finding of nondischargeability and thus
10               did not constitute an unenforceable prepetition waiver
                 of discharge.
11
12        A prepetition waiver of discharge is unenforceable as
13   against public policy.    Bank of China v. Huang (In re Huang),
14   275 F.3d 1173, 1177 (9th Cir. 2002); In re Cole, 226 B.R. at 654.
15   But a party may stipulate to facts that the bankruptcy court can
16   apply in a nondischargeability action.     In re Cole, 226 B.R. at
17   655 (citing Klingman v. Levinson, 831 F.2d 1292, 1296 n.3 (7th
18   Cir. 1987)).    In certain narrow circumstances, however, the
19   bankruptcy court should not give preclusive effect to stipulated
20   facts.    See Wank v. Gordon (In re Wank), 505 B.R. 878 (9th Cir.
21   BAP 2014).
22        In Wank, the parties settled prepetition state court
23   litigation and stipulated that if the agreed-upon sum was not
24   paid timely, a $1.1 million judgment would be entered against the
25   defendant.    Id. at 881-82.   The judgment provided that the
26   obligations arising from the settlement agreement would be
27   nondischargeable in bankruptcy.     Id. at 882.   The defendant
28   executed a declaration which stated that its purpose was to

                                      -13-
 1   provide a factual basis to further the intent of the parties to
 2   ensure that he could not discharge the debt in bankruptcy.     Id.
 3   Defendant testified in the declaration that (i) he had made false
 4   representations to the creditors to induce them to place funds in
 5   his trust account and to permit defendant to act as their primary
 6   investor; (ii) he told creditors the investment would be safe and
 7   that he was an attorney with expertise in such matters; and
 8   (iii) he knew at the time he executed the contracts and accepted
 9   the funds that there was a possibility funds could be lost but
10   did not inform creditors.   Id.    The settlement agreement provided
11   that the declaration would be kept in a sealed envelope by an
12   escrow agent, to be unsealed and submitted to the bankruptcy
13   court in the event defendant defaulted on the settlement and
14   filed bankruptcy.   Id. at 882-83.
15        After the defendant defaulted on the settlement agreement
16   and creditors caused the stipulated judgment to be entered in
17   state court, defendant filed a chapter 7 petition.    Id. at 883.
18   Creditors filed an adversary proceeding seeking to except from
19   discharge the amount due under the stipulated judgment.    In that
20   proceeding, the defendant filed a second declaration in which he
21   contended that he had signed the first declaration under duress
22   and while he was under the influence of anxiety medication and
23   that he had objected to the statements but had signed the first
24   declaration because the settlement represented a substantial
25   discount from the damages alleged in the lawsuit and permitted
26   him to pay over time.   He also stated that he believed his
27   statements could not be enforced against him.    Id. at 884.
28        The bankruptcy court granted creditors’ motion for summary

                                       -14-
 1   judgment on the § 523(a)(2)(A) claim, stating that although it
 2   had disregarded the general nondischargeability language in the
 3   settlement agreement and first declaration, debtor’s factual
 4   admissions in his first declaration sufficiently supported the
 5   § 523(a)(2)(A) claim to warrant summary judgment.          Id. at 885-86.
 6           On appeal, the Panel held that, under the unique
 7   circumstances of that case, the bankruptcy court erred in giving
 8   defendant’s statements preclusive effect.       This was because the
 9   “singular goal” of the first declaration, as set forth in the
10   document itself, was to provide a factual basis to further the
11   intention of the parties to ensure that defendant could not
12   discharge the stipulated judgment in bankruptcy.       Id. at 889-90.
13   The Panel thus concluded that:
14           the reliability of the factual statements [in the first
             declaration] are potentially tainted by the
15           [creditors’] motives. The document was solely intended
             to ensure that Wank could not obtain effective relief
16           in bankruptcy. While, perhaps, some of Wank’s factual
             statements could be trusted, to do so would require the
17           bankruptcy court to weigh the credibility of those
             statements against the circumstances under which the
18           First Declaration was executed.
19   Id. at 890.
20           The Panel also noted that the first declaration was not part
21   of the stipulated judgment, but rather was “a standalone document
22   that was . . . only to be used in the event of a bankruptcy
23   filing to provide grounds for an exception to discharge.”         Id. at
24   891.6       The Panel vacated the judgment and remanded.
25
             6
26         The Panel also found that the bankruptcy court had
     impermissibly weighed evidence and made credibility
27   determinations in the summary judgment context and noted that no
     evidence in the record supported the justifiable reliance element
28                                                       (continued...)

                                        -15-
 1        Debtors contend that this case is analogous to Wank and that
 2   their factual admissions were akin to an unenforceable
 3   prepetition waiver of bankruptcy protections.      The bankruptcy
 4   court rejected this contention, finding that Wank was
 5   distinguishable.    Specifically, the court found that Debtors’
 6   stipulation to the facts in the state court complaint was made at
 7   the time of settlement and was relied upon by the state court
 8   when it entered the judgment, while the declaration in Wank was
 9   only to be unsealed and presented if the debtor filed for
10   bankruptcy.
11        The bankruptcy court found that this case was more akin to
12   Son v. Park, No. C 10-00085 MHP, 2010 WL 4807089 (N.D. Cal.
13   Nov. 19, 2010).    In Son, the debtor defaulted on a prepetition
14   litigation settlement and filed a bankruptcy petition.      The
15   bankruptcy court lifted the stay to permit the creditor to seek
16   entry of a stipulated judgment per the terms of the settlement.
17   That judgment included fraud findings based on facts admitted by
18   the debtor at the settlement hearing and pursuant to the parties’
19   agreement that the judgment would include a fraud finding.        Id.
20   at *2.   In the creditor’s subsequent nondischargeability action,
21   the bankruptcy court gave issue preclusive effect to the
22   stipulated judgment, finding that it established four of the five
23   elements of a § 523(a)(2)(A) claim.      The court held a trial on
24   the fifth element and entered judgment finding the debt
25   nondischargeable.    Id. at *3.    On appeal, the District Court held
26
27
          6
           (...continued)
28   of the § 523(a)(2)(A) claim.      Id. at 891-95.

                                       -16-
 1   that the bankruptcy court had not erred in applying issue
 2   preclusion to the stipulated judgment, nor was the judgment an
 3   impermissible prepetition waiver of the discharge, because the
 4   debtor had agreed at the settlement hearing that the admission of
 5   fraud and findings of fact supporting fraud would be included in
 6   the stipulated judgment.   Id. at *7.
 7        Debtors argue that, unlike the debtor in Son, they did not
 8   stipulate to any liability or facts supporting fraud at the time
 9   of settlement.   They contend that the bankruptcy court erred when
10   it stated that Debtors’ stipulation to the facts in the state
11   court complaint were made at the time of the settlement because
12   they did not admit liability at that time.    In fact, Debtors
13   explicitly denied liability in the settlement agreement.    Debtors
14   also point out that no facts were stipulated to at the settlement
15   conference and that the operative settlement documents (the
16   Settlement Agreement, Stipulated Judgment, and Guarantees) “came
17   later.”
18        The facts of this case do not precisely mirror those
19   presented in Son (or in Wank), but the salient question is
20   whether the circumstances surrounding the settlement or the
21   judgment itself evidence the parties’ intent for the Stipulated
22   Judgment to have preclusive effect.     In re Berr, 172 B.R. at 306.
23   Those circumstances include stipulating to facts that support a
24   finding of nondischargeability.   In re Cole, 226 B.R. at 655.
25        In paragraph 9 of his declaration in support of W3's motion
26   for summary judgment, W3's counsel testified that the parties
27   intended that the settlement would be nondischargeable in
28   bankruptcy and that W3 had

                                    -17-
 1        specifically negotiated this language with Defendants
          with the intent that if Defendants breached the
 2        Settlement Agreement, the Stipulated Judgment entered
          against them would clearly set forth a finding of fraud
 3        and breach of fiduciary duty. We specifically required
          these admissions from Defendants so that in the event
 4        they proceeded to bankruptcy, the admission of
          fraudulent conduct would prove to render the judgment
 5        non-dischargeable.
 6   Debtors provided no evidence to refute this testimony.   Although
 7   they testified in their declarations that they felt pressured to
 8   settle, they did not testify that they did not understand the
 9   terms of the Settlement Agreement or the Stipulated Judgment,
10   which they and their attorney signed as part of the settlement.
11   Those documents evidence their intent for the state court
12   judgment to have preclusive effect.
13        For these reasons, the bankruptcy court did not err in
14   concluding that the Stipulated Judgment was not an unenforceable
15   prepetition waiver of the discharge but was instead evidence that
16   the Debtors intended the findings incorporated into that judgment
17   to have preclusive effect in any future bankruptcy case.
18   Accordingly, the actually litigated requirement was met.
19   Although the bankruptcy court did not explicitly address the
20   “necessarily decided” requirement, the record reflects that this
21   element was also met.   The Form Judgment explicitly states that
22   the judgment arose solely from Debtors’ fraudulent conduct as
23   described in the FAC.   Accordingly, the bankruptcy court did not
24   err in applying issue preclusion to the state court judgment.
25        2.   Debtors have not presented any other meritorious
               argument supporting the conclusion that the bankruptcy
26             court erred in applying issue preclusion to the state
               court judgment.
27
28        Debtors also argue that the Stipulated Judgment should not

                                    -18-
 1   have been given preclusive effect because that judgment was never
 2   entered.   Instead, the state court entered the Form Judgment.
 3   The Form Judgment, however, contained essentially equivalent
 4   language deeming the FAC true and accurate and indicating that
 5   the judgment arose solely from Debtors’ fraudulent conduct.
 6   Moreover, as the bankruptcy court found, and as evidenced by
 7   Mr. Delmore’s declaration testimony, Debtors’ stipulation to the
 8   allegations in the FAC was before the state court when it entered
 9   the Form Judgment.
10        Debtors contend that this case is similar to Cole, in which
11   the BAP held that a stipulated judgment was not entitled to
12   preclusive effect because it was based on the occurrence of
13   future events.   226 B.R. at 655.   But Cole is factually
14   distinguishable: there, the underlying state court complaint did
15   not allege fraud in connection with the promissory note giving
16   rise to the debt at issue.    The stipulated judgment in that case
17   provided that (i) defendant would not list the debt in any
18   bankruptcy petition or request that the debt be discharged,
19   (ii) defendant had the funds to pay the debt and plaintiff relied
20   on that representation in releasing its writ of attachment,
21   (iii) the debt was nondischargeable under § 523(a)(2)(B),
22   (iv) plaintiff would not have released the writ of attachment but
23   for the defendant’s representations of nondischargeability; and
24   (v) any attempt by defendant to discharge the debt would be an
25   admission that he obtained the release of the writ of attachment
26   under false pretenses and thus the debt would be nondischargeable
27   under § 523(a)(2)(A).   Id.   The Panel held that the bankruptcy
28   court did not err in declining to give issue preclusive effect to

                                     -19-
 1   the stipulated judgment because the stipulated facts had nothing
 2   to do with the merits of the state court lawsuit and would have
 3   had no evidentiary effect in a § 523(a)(2) action.    Id. at 656.
 4        Here, in contrast, the factual admissions incorporated into
 5   the state court judgment directly relate to the merits of the
 6   fraud claim.   Accordingly, Debtors’ reliance on Cole is
 7   misplaced.
 8   C.   The bankruptcy court did not err in concluding that the
          deemed admissions supported a finding of nondischargeability
 9        under § 523(a)(2)(A).
10        Under § 523(a)(2)(A), a debt for money obtained by the
11   debtor under “false pretenses, a false representation, or actual
12   fraud” may be excepted from discharge.   Summary judgment is
13   proper in considering an exception to discharge under
14   § 523(a)(2)(A) if the movant is able to show that there is no
15   genuine issue of material fact as to each of the five elements of
16   exception to discharge under that provision:
17   (1) misrepresentation, fraudulent omission or deceptive conduct
18   by the debtor; (2) knowledge of the falsity or deceptiveness of
19   his statement or conduct; (3) an intent to deceive;
20   (4) justifiable reliance by the creditor on the debtor’s
21   statement or conduct; and (5) damage to the creditor proximately
22   caused by its reliance on the debtor’s statement or conduct.
23   Turtle Rock Homeowners Ass'n v. Slyman (In re Slyman), 234 F.3d
24   1081, 1085 (9th Cir. 2000).
25        Debtors’ admissions establish all of the elements of a
26   § 523(a)(2)(A) claim.   Those admissions are: (1) Cel J and the
27   Johnsons made representations to W3 that they would make the
28   required deposits into the operating reserve account and that

                                    -20-
 1   funds would be used for the exclusive benefit of the partnership,
 2   and failed to disclose that the Johnsons intended to use Sushi on
 3   the Rock assets and funds for their own personal benefit (false
 4   representation); (2) at the time the representations were made,
 5   defendants knew they were false and/or made the representations
 6   recklessly and without regard for their truth (knowledge of
 7   falsity); (3) Defendants intended to deceive W3 by concealing
 8   their intent to not make the required deposits and distributions
 9   and intended that W3 rely on their representations in making
10   their capital contribution to Sushi on the Rock (intent to
11   deceive); (4) W3 reasonably relied on the above representations
12   in that it would not have executed the partnership agreement if
13   it had known that the deposits and distributions would not be
14   made and that assets and funds would be used for the personal
15   benefit of Defendants (justifiable reliance);7 and (5) as a
16   direct and proximate result of the aforementioned acts, W3 has
17   been damaged in an amount to be proven at trial (damage
18   proximately caused by debtor’s statement or conduct).
19        Debtors do not dispute that, once the bankruptcy court
20   concluded that it was appropriate to give preclusive effect to
21   the state court judgment, the relevant allegations of the FAC    –
22   which were deemed admitted – established all the elements of a
23   § 523(a)(2)(A) claim.   And we find no error in the bankruptcy
24   court’s application of the law to the facts.
25
          7
26         Reasonable reliance is a more exacting standard than
     justifiable reliance; accordingly, a finding of reasonable
27   reliance meets the lower standard of justifiable reliance.
     Tallant v. Kaufman (In re Tallant), 218 B.R. 58, 69 n.15 (9th
28   Cir. BAP 1998).

                                    -21-
 1                              CONCLUSION
 2        For the reasons explained above, we AFFIRM the bankruptcy
 3   court’s grant of W3's motion for summary judgment on its
 4   § 523(a)(2)(A) claim.
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