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In re Kurtz

United States District Court, Ninth Circuit

July 10, 2013

3H CORPORATION, Appellee. ALLAN KENT KURTZ, Appellant, Bankruptcy No. 1:11-bk-17064-VK Adversary No. 1:11-ap-01575-VK.


DOLLY M. GEE, District Judge.

This matter is before the Court on an appeal from the Bankruptcy Court's grant of summary judgment for 3H. The Court deems this matter suitable for decision without oral argument. See Fed.R.Civ.P. 78(b); C.D. Cal. L.R. 8012-7. Having duly considered the respective positions of the parties, the Court now renders its decision. For the reasons set forth below, the judgment of the Bankruptcy Court is AFFIRMED.



On August 28, 2005, Appellee 3H Corporation ("3H") entered into an agreement (the "Agreement") with Integrated Technologies Consulting, Inc. ("ITC") to jointly solicit contracts to design, manufacture, and sell emergency telephone boxes. (R. at 37.)[1] Appellant Allan Kent Kurtz signed the Agreement in his capacity as President of ITC. ( Id. at 40.) As part of the Agreement, the parties established a separate bank account (the "Account"), to be utilized solely for the purposes of the Agreement. ( Id. at 38.) In October 2008, a dispute arose between 3H and ITC, regarding the performance of their respective obligations under the Agreement. ( Id. at 62.) As a result, ITC transferred its funds in the Account to another bank account, reasoning that 3H had materially breached the Agreement and notifying 3H as such. ( Id. )

On November 20, 2008, in response to ITC's transfer of funds, 3H filed an action in Los Angeles County Superior Court, against ITC and its corporate officers, including Kurtz, for breach of contract, breach of the covenant of good faith and fair dealing, fraud, embezzlement, injunctive relief, declaratory relief, accounting, and breach of fiduciary duty. ( Id. at 23-24.) On January 26, 2010, the parties to the state court action stipulated to resolve their dispute by private arbitration. ( Id. at 41-46.) The stipulation submitted the "entire controversy" to binding arbitration before ADR Services, Inc. ("ADR"). ( Id. at 43.) The arbitration was held over the course of seven days in October and November 2010 and February 2011. ( Id. at 24.) The arbitration was governed by ADR's "Arbitration Rules." ( Id. at 74, 83-92.) Retired Los Angeles Superior Court Judge Eli Chernow (the "Arbitrator") presided over the arbitration. ( Id. at 10.) On March 23, 2011, the Arbitrator issued a 20-page decision ("Award") against Kurtz personally, finding him liable for ITC's actions on an alter ego theory. [Doc. # 21.] The Award included findings of fact and conclusions of law and held Kurtz personally liable to 3H for compensatory and punitive damages. (Award at 19.) In October 2011, the Los Angeles County Superior Court confirmed the Award. (R. at 76.)

On June 7, 2011, Kurtz petitioned for Chapter 13 bankruptcy, converting the action to a Chapter 7 bankruptcy on July 5, 2011. ( Id at 23.) On October 7, 2011, 3H filed a Complaint to Determine the Dischargeability of Debt Pursuant to 11 U.S.C. § 523(a)(4), alleging that Kurtz could not discharge his liability for the damages granted in the Award. ( Id. at 8-12.) The Complaint alleged that Kurtz's liability to 3H could not be discharged in the bankruptcy because it arose from Kurtz's "defalcation while acting in a fiduciary capacity, " under 11 U.S.C. § 523(a)(4). ( Id. at 12.) The Complaint also claimed that the Arbitrator had already determined that Kurtz had engaged in defalcation while in a fiduciary capacity. ( Id. ) The Complaint alleged that the Award warranted summary judgment in the dischargeability action, on the basis of issue preclusion. ( Id. )

On June 8, 2012, the Bankruptcy Court granted 3H's Motion for Summary Judgment and entered judgment that Kurtz's liability under the Award was non-dischargeable, under 11 U.S.C. section 523(a)(4). (Am. Notice of Appeal, at 4) [Doc. # 2.] On August 21, 2012, Kurtz filed a notice of appeal with this Court arising from the Bankruptcy Court's grant of summary judgment for 3H.[2] ( Id. )



A district court reviews the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. Fed.R.Bankr.P. 8013; Gebhart v. Gaughan ( In re Gebhart ), 621 F.3d 1206, 1209 (9th Cir. 2010) (citing Abele v. Modern Fin. Plans Servs., Inc. ( In re Cohen ), 300 F.3d 1097, 1101 (9th Cir. 2002)). Summary judgment is appropriate "if the record shows that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.'" Arrow Elecs., Inc. v. Justus (In re Kaypro), 218 F.3d 1070, 1073 (9th Cir. 2000) (quoting Fed.R.Civ.P. 56(c)).

A mixed question of law and fact is reviewed de novo. See In re George, 318 B.R. 729, 732-33 (BAP 9th Cir. 2004) (citing Robi v. Five Platters, Inc., 838 F.2d 318, 321 (9th Cir. 1988)). The bankruptcy court's determination regarding the availability of issue preclusion is reviewed de novo, because it involves mixed questions of law and fact. If issue preclusion is available, the bankruptcy court's decision regarding whether or not to apply the doctrine is reviewed for abuse of discretion. See Dias v. Elique, 436 F.3d 1125, 1128 (9th Cir. 2006).



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