United States District Court, D. Hawaii
ORDER AFFIRMING IN PART AND REVERSING AND REMANDING IN PART THE BANKRUPTCY COURT'S FINDINGS OF FACT AND CONCLUSIONS OF LAW AND THE JUDGMENT
LESLIE E. KOBAYASHI, District Judge.
Before the Court is pro se Plaintiff/Appellant Victoria Sebetich's ("Sebetich") appeal from the bankruptcy court's Findings of Fact and Conclusions of Law ("FOF/COL"), issued on May 15, 2015, and the Judgment, issued on June 4, 2015, in Adversary Proceeding No. 14-90019 ("Adversary Proceeding"). On November 11, 2015, Sebetich filed a document that this Court construes as her brief ("Sebetich's Brief"). [Dkt. no. 12.] Defendant/Appellee Alvin K. Woods ("Alvin Woods") filed his brief ("Woods's Brief") on October 29, 2015. [Dkt. no. 9.] The Court finds this matter suitable for disposition without a hearing pursuant to Rule LR7.2(d) of the Local Rules of Practice of the United States District Court for the District of Hawaii ("Local Rules"). After careful consideration of the briefs and the relevant legal authority, the bankruptcy court's FOF/COL and its Judgment are HEREBY AFFIRMED IN PART AND REVERSED IN PART, and the case is HEREBY REMANDED to the bankruptcy court for the entry of orders consistent with this Order.
Except where specified below, Sebetich does not dispute the findings of fact made by the bankruptcy court in the Adversary Proceeding ("Adversary Court").
Sebetich and Clement K. Woods ("Clement Woods") are brother and sister. Clement Woods is Alvin Woods and Clifford Woods's father, and Sebetich is their aunt. In the beginning of 2006, Alvin and Clifford Woods agreed to buy Sebetich's house in Mililani, Hawaii ("the Property") for $500, 000. They did not set a date by which Alvin and Clifford Woods would make payment. [FOF/COL at 2, ¶¶ 1-2. On May 16, 2006, Sebetich executed a deed conveying the Property to Alvin and Clifford Woods. [Id. at ¶ 4.]
The Adversary Court found that, on May 18, 2006, Sebetich signed a letter - addressed "to whom it may concern" - stating that she was giving the Property to Alvin and Clifford Woods ("5/18/06 Letter"). The purpose of the 5/18/06 Letter was to enable Alvin and Clifford Woods to take out a loan secured by the Property. Sebetich and Alvin and Clifford Woods knew that the letter was false because Alvin and Clifford Woods had agreed to pay Sebetich $500, 000 for the Property. [Id. at ¶ 5.] Sebetich argues that the 5/18/06 Letter is fraudulent and that her signature on it is forged. [Sebetich's Brief at 3 ("If there is a letter with my signature on gifting the Mililani Property. It is a signature that is fraudulent."). Sebetich attached the 5/18/06 Letter as an exhibit to her brief and wrote "Fraud" on it. [Id. at 17.]
In July 2006, Alvin and Clifford Woods obtained a $300, 000 mortgage loan secured by the Property,  and they paid Sebetich $150, 000 from the loan proceeds. On September 20, 2006, Sebetich and Alvin and Clifford Woods signed a document stating that Alvin and Clifford Woods agreed to pay $350, 000 for the Property ("Note"). In the Note, Alvin and Clifford Woods also agreed that, if they were unable to pay the $350, 000 to Sebetich or in the event of their death, they would give the Property to Sebetich. The Note did not include a deadline by which they were to pay the $350, 000 to Sebetich. [FOF/COL at 3, ¶¶ 6-7.] Alvin and Clifford Woods did not make any payments on the $350, 000 that they promised to pay Sebetich, even though they refinanced the mortgage on the Property in March 2007. The principal amount of that loan was $472, 500. [Id. at 3-4, ¶¶ 9-10.]
In 2010, Sebetich sued Alvin and Clifford Woods in state court, alleging claims for breach of contract, unjust enrichment, breach of the implied covenant of good faith and fair dealing, and fraud ("State Court Action"). Alvin and Clifford Woods did not answer the complaint, and Sebetich obtained a default judgment against them for the $350, 000, plus attorneys' fees and costs ("Default Judgment"). Sebetich recorded the judgment, creating a lien on the Property, but she did not file suit to foreclose on the lien until December 17, 2013. [Id. at 4, ¶¶ 11, 13.]
On February 25, 2013, Alvin and Clifford Woods signed a quitclaim deed conveying a fifty percent interest in the Property to their parents, Clement and Irmgard Woods. All four signed another quitclaim deed on May 15, 2013, apparently to correct an error in the February 23, 2013 deed. [Id. at ¶ 12.]
Alvin Woods filed a Chapter 13 bankruptcy petition ("Petition") on January 14, 2014. The Petition stated that he had only been employed for two weeks with Yamaguchi Business Services and that he had not begun work, but he believed he would earn gross wages of $946.00 per month. He also anticipated that he would receive $620.00 per month in family support. However, Alvin Woods's wages turned out to be less than he anticipated. [Id. at 4-5, ¶ 14.] At the time the Adversary Court issued the FOF/COL, Alvin Woods was unemployed. The Adversary Court noted that, because the Chapter 13 plan ("Plan") payments were current, Alvin Woods's family must be making the payments for him. [Id. at 5, ¶ 16.] In addition, Alvin Woods stated in his bankruptcy schedules that he owned a fifty percent interest in the Property. His interest was actually twenty-five percent. [Id. at ¶ 17.]
The Adversary Court found that Alvin Woods did not intend to deceive anyone in connection with his Plan. Although his statement about his wages turned out to be incorrect, when he made the statement, he believed he would earn that amount, and he did not intend to deceive anyone. The Adversary Court found that Alvin Woods's misstatement about his interest in the Property was not intentional; Alvin Woods merely misunderstood the effect of the deeds that the Woodses executed. [Id. at ¶¶ 15, 18-19.] The Adversary Court also found that Alvin Woods's report of his anticipated family support was "substantially correct." [Id. at ¶ 16.]
In addition to alleging that the 5/18/06 Letter is fraudulent, Sebetich apparently argues that Alvin and Clifford Woods later acknowledged that they could not pay, and they agreed that Sebetich could sell the house to satisfy the Note. [Sebetich's Brief at 2.] However, she argues that Alvin Woods "[h]ad no intention in selling the property." [Designation at 4.] Thus, she alleges that Alvin Woods "deliberately and intentionally" gave false testimony about the Property. [Sebetich's Brief at 2.] She also argues that Alvin Woods intentionally misstated his income in his Petition. [Id. at 2-3.]
The FOF/COL notes that the bankruptcy court in Alvin Woods's Chapter 13 Proceeding ("Chapter 13 Court") confirmed his Plan and granted his motion to avoid Sebetich's judgment lien. No appeal was taken in the Chapter 13 Proceeding. [FOF/COL at 5, ¶ 20.]
On April 24, 2014, Sebetich filed a Complaint against Alvin Woods, initiating the Adversary Proceeding, and she filed a First Amended Complaint on June 6, 2014. [Bankr. Adv. No. 14-90019, dkt. nos. 2, 5.] The defendants in the First Amended Complaint were Alvin K. Woods, Clifford K. Woods, Irmgard Kaaoaolahilahi Woods, and Clement Kalawaiamoku Woods. On September 28, 2014, the Adversary Court issued an order granting Clifford K. Woods, Irmgard Kaaoaolahilahi Woods, and Clement Kalawaiamoku Woods's Motion to Dismiss First Amended Complaint. [ Id., dkt. no. 32.] On November 7, 2014, the Adversary Court issued an order granting Sebetich leave to amend, and she filed her Second Amended Complaint on November 11, 2014. [ Id., dkt. nos. 42, 44.] Alvin Woods is the only defendant named in the Second Amended Complaint. The Second Amended Complaint alleges the following claims: nondischargeability of debt pursuant to 11 U.S.C. § 523(a)(2) ("Count I"); nondischargeability of debt pursuant to § 523(a)(4) ("Count II"); nondischargeability of debt pursuant to § 523(a)(6) ("Count III"); revocation of Chapter 13 plan pursuant to 11 U.S.C. § 1330 ("Count IV"); and a claim for attorneys' fees pursuant to Haw. Rev. Stat. § 607-14.5 and Travelers Casualty & Surety Co. of America v. Pacific Gas & Electric Co., 549 U.S. 443 (2007) ("Count V"). On April 5, 2015, Sebetich and Alvin Woods filed a stipulation to dismiss Counts II and III. [ Id., dkt. no. 71.]
The Adversary Court conducted a trial on April 7 and 8, 2015. [ Id., dkt. nos. 72, 74 (minutes of the proceedings).] The parties previously submitted the direct testimony of their witnesses by declaration. [ Id., dkt. no. 48 (Sebetich's declaration with exhibits), 51 (Alvin Woods's declaration with exhibits), 52 (Clifford Woods's declaration with exhibits), 53 (Clement Woods's declaration).] Sebetich also submitted a rebuttal declaration. [ Id., dkt. no. 62.] After the trial, the parties submitted written closing and rebuttal arguments, [id., dkt. nos. 76-78, ] and the Adversary Court issued the FOF/COL thereafter.
The Adversary Court found that, when Alvin and Clifford Woods orally agreed to pay Sebetich $500, 000 for the Property and when they executed the Note as evidence of their agreement to pay her the remaining $350, 000, they intended to fulfill those promises. Thus, the Adversary Court concluded that Sebetich could not prevail on her § 523(a)(2) claim that Alvin Woods's debt to her was nondischargeable because he obtained the Property from her by "false pretenses, a false representation, or actual fraud." [FOF/COL at 7, ¶ 5.
The Adversary Court also rejected Sebetich's argument that res judicata effect of the Default Judgment requires a finding that Alvin Woods defrauded her. First, res judicata - i.e. claim preclusion - does not apply in proceedings to determine whether a debt is nondischargeable. Second, although issue preclusion - i.e. collateral estoppel - applies in such proceedings, the Default Judgment does not have preclusive effect because the State Court Action did not necessarily decide the issue of whether Alvin Woods defrauded Sebetich. [Id. at 7-9, ¶¶ 6-11.]
The Adversary Court also ruled in favor of Alvin Woods as to Count IV. It concluded that the misstatements in the bankruptcy schedules regarding his wages reflected his honest expectations; and the fact that his expectations did not materialize did not render the statements fraudulent. Further, Alvin Woods's representations about his family support were true when he made them and, at the time the Adversary Court issued the FOF/COL, his representations had proven true because his family was contributing at least $620.00, if not more. As to the misstatement about his ownership interest in the Property, the Adversary Court concluded that the misstatement of his interest in the Property was not prejudicial to his creditors because overstating his ownership interest would have resulted in a larger payment plan than otherwise required by law. The Adversary Court therefore concluded that revocation of the confirmation order was not warranted because Alvin Woods did not intend to deceive the Chapter 13 Court, the bankruptcy trustee, or his creditors. [Id. at 9-11, ¶¶ 12-20.]
The Adversary Court issued the Judgment on June 4, 2015,  and Sebetich timely filed her Notice of Appeal.
It is not clear exactly what issues Sebetich raises in the instant appeal. The rule that pro se pleadings must be liberally construed also applies to the filings of a pro se party in a bankruptcy appeal. See, e.g., In re Koncicky, 341 F.Appx. 316, 318 (9th Cir. 2009) (citing Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988) ("pro se pleadings are liberally construed")). Thus, liberally construing both the Designation and Sebetich's Brief, it appears that Sebetich raises the following issues on appeal: 1) her signature on the 5/18/06 Letter was forged; 2) Alvin Woods gave false testimony during his deposition; 3) Alvin Woods intentionally misled the Chapter 13 Court when he estimated his wages in his Petition; 4) Clifford Woods gave false testimony about Alvin Woods's intent to sell the Property to satisfy the Note; 5) because Alvin Woods never intended to sell the Property to satisfy the Note, he deliberately and intentionally misled her when he agreed to do so; 6) the Adversary Court made inappropriate comments about the case at the conclusion of the trial; and 7) the Adversary Court erred in its ruling that the Default Judgment did not have a preclusive effect.
The following standards apply when a district court reviews an appeal from the bankruptcy court:
This court reviews a bankruptcy court's findings of fact for clear error and its conclusions of law de novo. See In re Kimura ( United States v. Battley), 969 F.2d 806, 810 (9th Cir. 1992) ("The court reviews the bankruptcy court's findings of fact under the clearly erroneous standard and its conclusions of law de novo."). The court "must accept the Bankruptcy Court's findings of fact, unless the court is left with the definite and firm conviction that a mistake has been committed. Mixed questions of law and fact are reviewed de novo." In re JTS Corp., 617 F.3d 1102, 1109 (9th Cir. 2010) (quotation marks and citations omitted).
In re Lee, CIVIL NO. 15-00278 SOM/RLP, 2015 WL 7274035, at *1 (D. Hawaii Nov. 17, 2015). The United States Supreme Court has stated:
[a] finding is clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. This standard plainly does not entitle a reviewing court to reverse the finding of the trier of fact simply because it is convinced that it would have decided the case differently. The reviewing court oversteps the bounds of its duty under Fed.R.Civ.P. 52(a) if it undertakes to duplicate the role of the lower court. In applying the clearly erroneous standard..., [reviewing] courts must constantly have in mind that their function is not to decide factual issues de novo. If the [lower] court's account of the evidence is plausible in light of the record viewed in its entirety, the [reviewing court] may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently. Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous.
Anderson v. City of Bessemer, 470 U.S. 564, 573-74 (1985) (some alterations in Anderson) (citations and some internal quotation marks omitted). The standards described in Anderson apply when a district court reviews the factual findings of a bankruptcy court. See, e.g., Ingram v. Burchard, 482 B.R. 313, 322 (N.D. Cal. 2012); In re Daewoo Motor Am., Inc., 471 B.R. 721, 732 (C.D. Cal. 2012), aff'd, 554 F.Appx. 638 (9th Cir. 2014); In re Folsom, Civil No. 10CV2440 L(NLS), 2011 WL 3489681, at *1 (S.D. Cal. Aug. 8, 2011), aff'd sub nom., Folsom v. Davis, 513 F.Appx. 651 (9th Cir. 2013).
I. Whether the 5/18/06 Letter was Fraudulent
At the outset, this Court notes that it is not clear whether Sebetich argued before the Adversary Court that the 5/18/06 Letter was forged and/or that the letter was fraudulent. She did argue in her written closing argument that Alvin and Clifford Woods "dupe[d] her into deeding the [Property] over to them... and essentially st[ole] the home away from her via a claim of gift equity' generated by the nephews mortgagee." [Bankr. Adv. No. 14-90019, Sebetich's Closing Argument ("Sebetich's Closing"), filed 4/22/15 (dkt. no. 77), at 2.] If Sebetich did not raise the forgery issue regarding the 5/18/06 Letter before the Adversary Court, she waived the argument and cannot raise it for the first time on appeal before this Court. See, e.g., In re Maui Indus. Loan & Fin. Co., Inc., Civil No. 13-00091 JMS/BMK, 2013 WL 2897792, at *3 (D. Hawaii June 13, 2013) (noting that the appellant waived the issue on appeal because he "did not clearly raise the authentication objection before the bankruptcy court" (citing Pfingston v. Ronan Eng'g Co., 284 F.3d 999, 1003-04 (9th Cir. 2002) (explaining that a party must object in the district court to preserve an evidentiary challenge in summary judgment proceedings))); In re O'Kelley, Civil No. 09-00360 JMS/KSC, 2009 WL 3209078, at *3 n.5 (D. Hawaii Oct. 6, 2009) ("The court will not address arguments made for the first time on appeal and deems those arguments waived." (citing Beech Aircraft Corp. v. United States, 51 F.3d 834, 841 (9th Cir. 1995) (per curiam) ("Usually errors not raised in the trial court will not be considered on appeal."))).
Even if this Court found that Sebetich did not waive the forgery issue, her argument would fail on the merits. The Adversary Court did not make a specific finding addressing Sebetich's argument that her signature on the 5/18/06 Letter was forged and that the letter was fraudulent. The Adversary Court did find that: "On May 18, 2006, [Sebetich] signed a letter, addressed to whom it may concern, ' stating that she was gifting the property to Alvin and Clifford [Woods]." [FOF/COL at 2, ¶ 5.] However, the Adversary Court also found that they knew the letter was false because they had agreed that Alvin and Clifford Woods would pay $500, 000 for the Property. [Id.] Implicit in paragraph 5 is the finding that Sebetich herself signed the 5/18/06 Letter.
This Court cannot find that the Adversary Court's finding was clearly erroneous because there is ample evidence in the recording supporting the finding and no evidence supporting Sebetich's forgery argument. In her appeal, Sebetich argues that both the 5/18/06 Letter and the Agreement to Sell/Purchase between her and Alvin and Clifford Woods ("Sale Agreement") were fraudulent. [Sebetich's Brief at 16-17.] The Sale Agreement and the 5/18/06 Letter were Alvin Woods's Exhibits B and C, respectively, at trial before the Adversary Court. During Sebetich's cross-examination, Alvin Woods's counsel asked her to look at Exhibit B. Sebetich confirmed that: it was the purchase agreement for the Property; the sales price was blank; it says that the closing costs would be paid by gift equity; and her signature is on the bottom left of the document. [Bankr. Adv. No. 14-90019, Tr. Trans. - Day 1 (4/7/15) ("4/7/15 Trans."), filed 8/11/15 (dkt. no. 105), at 20-21.] On re-direct examination, Sebetich testified that, when she signed the Sale Agreement, she did not know what the "gift equity" notation meant, and she did not know why there was no purchase price specified. [Id. at 29-30.]
During cross-examination, Alvin Woods's counsel asked Sebetich to look at Exhibit C. Sebetich confirmed that it was her signature on the 5/18/06 Letter and that the last sentence of the letter stated that she was gifting equity in the Property to Alvin and Clifford Woods. [Id. at 21-22.] On re-direct examination, Sebetich testified that her attorney at the time prepared the letter, and Sebetich read it before signing it. She protested that the letter incorrectly refers to Alvin and Clifford Woods as her sons - not her nephews - but she signed the letter in spite of the error because she trusted Alvin Woods. [Id. at 31-32.] She explained that, at the time, her "husband was in a coma, and [she] was very vulnerable, and... most of the time [she] just trusted" Alvin and Clifford Woods. [Id. at 32.] She also testified that, when she signed the 5/18/06 Letter, she did not know what the equity in the Property was, and she did know what ...