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In re Wlodarczyk

United States District Court, S.D. California

July 15, 2019




         On January 9, 2019, Appellants Stephen Cheikes and the Storytellers Group, Co. (collectively, “Appellant”) appealed the bankruptcy court's judgment in favor of Appellee/Debtor Richard Wlodarczyk. (Doc. No. 1.) Appellant filed his opening brief on April 9, 2019. (Doc. No. 10.) Appellee filed his response brief on May 5, 2019. (Doc. No. 12.) On May 20, 2019, Appellant filed his reply brief. (Doc. No. 14.) For the reasons below, the Court affirms the bankruptcy court.


         Cheikes is a non-practicing lawyer with a long history of involvement in cross-border motion picture finance, and the Storytellers Group is his closely-held Canadian corporation. (Doc. No. 12-3 at 13-14.) In October 2010, an individual named Shaman Bakshi introduced Cheikes to a financing opportunity involving the issuance of a Standby Letter of Credit (“SBLC”). (Doc. No. 10-1 at 168-69.) Bakshi introduced Cheikes to Wlodarczyk, who would serve as an intermediary to the transaction. (Id. at 171.) For the transaction, Cheikes would deposit €300, 000 into an escrow account to be released to Sebastian Anthonysamy, who would use the money for the issuance of a €50, 000, 000 SBLC by HSBC in Singapore. (Id. at 170, 187.) The parties entered into an agreement, and Cheikes deposited €300, 000 into the escrow account. (Id. at 313-14.) Once the SBLC was ready to be issued, Wlodarczyk told Cheikes to release the €300, 000 to Anthonysamy, as was the plan. (Id. at 178.) Cheikes refused to disburse the funds until Wlodarczyk would sign a personal and corporate guarantee promising that Cheikes would not lose any of his €300, 000 investment. (Id. at 172.) Wlodarczyk agreed to the condition and executed a guarantee stating:

This letter will serve as a Personal and Corporate Guarantee for the 300, 000 Euro issuance fee that you have deposited with Commercial Escrow Services, Inc. under Escrow# 39-6279-AH. Once these funds are released to the Provider, Mr. Sebastian Anthonysamy, we fully guarantee their performance or a refund, if performance is not completed. Their duty to perform, outlined by the fully executed SBLC Issuance Agreement, is to issue a $50, 000, 000 SBLC from HSBC UK, with the Lender, North American Conveyor Company, as the Beneficiary of the Instrument. If these duties are not performed, we Creative Financial Resources, LLC and myself Personally, Richard Charles Wlodarczyk III, due hereby guarantee the 300, 000 Euros issuance fee that you are releasing to the Provider Mr. Sabastian Anthonysamy.

(Id. at 330.) Cheikes then authorized released of the money on March 1, 2011. (Id. at 321.)

         Ultimately, Anthonysamy never obtained the SBLC from HSBC. (Doc. No. 7-9 at 13.) Per the parties' agreement, Cheikes requested that Anthonysamy refund the €300, 000. (Doc. No. 10-1 at 326.) Anthonysamy did not refund the money, and Cheikes asked Wlodarczyk to honor the guarantee and refund the money. (Id. at 183-84.) Wlodarczyk did not pay. (Id. at 163, 183-84.)

         Accordingly, on March 15, 2013, Cheikes filed, amongst other complaints in other courts against other parties to the transaction, a complaint in Orange County Superior Court against Wlodarczyk for breach of contract, conversion, fraud, and negligence, No. 30-2013-00637770-CU-BC-CJC. (Id. at 7-16.) In that case, the parties entered into a settlement agreement and a stipulated judgment (“the Stipulated Judgment”). (Id. at 22- 36.) Wlodarczyk defaulted on his settlement payments two months later, leading Cheikes to file an ex parte application asking the state court for a judgment pursuant to California Code of Civil Procedure § 664.6 (“CCP § 664.6”). (Id. at 44-47.) The state court, on December 3, 2014, entered judgment in favor of Cheikes and against all Wlodarczyk and his company, Creative Financial Resources, LLC, jointly and severally, in the amount of $200, 000. (Id. at 49-50.)

         Cheikes agreed to postpone enforcement of the Stipulated Judgment in exchange for Wlodarczyk paying $300, 000 rather than $200, 000. (Id. at 39-42.) Wlodarczyk paid Cheikes $17, 500 between February 2015 and May 2016. (Doc. No. 7-3 at 29-38.) Cheikes then brought involuntary Chapter 8 bankruptcy petitions against Wlodarczyk and Creative Financial Resources. (Bankr. S.D. Cal. Nos. 16-06326-CL7; 16-06328-CL7.) Wlodarczyk represented to the bankruptcy court that he was paying his debts in the normal course, so the bankruptcy court dismissed the petitions. (Doc. No. 7-9 at 7.)

         On March 22, 2017, Wlodarczyk filed for Chapter 7 bankruptcy in the Bankruptcy Court for the Southern of District of California, Bankruptcy No. 17-01567-LA7, disclosing a $210, 000 debt to Cheikes. (Id.) On June 16, 2017, Cheikes filed an adversary complaint for nondischargeability of Wlodarczyk's debt, Adversary Proceeding No. 17-90123-CL. (Doc. No. 10-1 at 55-67.) Cheikes filed a motion for partial summary judgment arguing that the Stipulated Judgment should be given issue preclusive effect and that Wlodarczyk's debt was not dischargeable as a matter of law pursuant to 11 U.S.C. § 523(a)(2)(A). (Id. at 108-37.) After consideration, the bankruptcy court denied the motion, concluding that issue preclusion did not apply and factual disputes remained as to Appellant's § 523(a)(2)(A) claim. (Id. at 139-49.) The case proceeded to a bench trial, after which the bankruptcy court ordered judgment in favor of Appellee on December 8, 2018, reaffirming that issue preclusion does not apply and concluding that Appellant failed to prove the elements of his § 523(a)(2)(A) nondischargeability claim. (Doc. No. 7-9 at 3- 26.)


         I. Legal Standard

         A district court reviews a bankruptcy judge's decision by applying the same standard of review used by circuit courts when reviewing district court decisions. See In re Greene, 583 F.3d 614, 618 (9th Cir. 2009); In re Baroff, 105 F.3d 439, 441 (9th Cir. 1997). “The bankruptcy court's findings of fact are reviewed for clear error, while its conclusions of law are reviewed de novo.” In re JTS Corp., 617 F.3d 1102, 1109 (9th Cir. 2010) (quotation marks omitted). The district court must accept the bankruptcy court's factual findings “unless these findings leave the definite and firm conviction that a mistake has been committed by the bankruptcy judge.” In re Straightline Investments, Inc., 525 F.3d 870, 876 (9th Cir. 2008). “Mixed questions of law and fact are reviewed de novo.” In re JTS, 617 F.3d at 1109. A mixed question of law and fact occurs when the facts are established, the rule of law is undisputed, and the issue is whether the facts satisfy the legal rule. See In re Bammer, 131 F.3d 788, 792 (9th Cir. 1997). When sitting as an appellate court in bankruptcy, the district court need not adopt the bankruptcy court's rationale and may affirm on any basis supported by the record. See In re Frontier Properties, Inc., 979 F.2d 1358, 1364 (9th Cir. 1992).

         II. ...

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