Summary
The United States Bankruptcy Appellate Panel of the Ninth Circuit affirms a bankruptcy court judgment holding debts owed by Guy S. Griffithe to Joseph and Brenda Samec nondischargeable under 11 U.S.C. §§ 523(a)(2) and 523(a)(19). The Panel concludes that the appeal was timely, that a state-court dismissal did not preclude entry of the nondischargeability judgment, and that the bankruptcy court independently found fraud and securities-law violations rather than improperly relying on preclusion. The appeal also addressed the effect of Griffithe’s SEC settlement and judgment on the plaintiffs’ bankruptcy claims.
Topics
Practice areas
Questions Presented
- Whether the appeal was timely when filed within 14 days after entry of the formal nondischargeability judgment but more than 14 days after the bankruptcy court's memorandum of decision.
- Whether the state-court dismissal of Griffithe from the Samecs' state-court action precluded the bankruptcy court from entering the nondischargeability judgment.
- Whether the bankruptcy court improperly gave preclusive effect to Griffithe's SEC consent, the SEC order, or the SEC judgment.
- Whether the SEC investor-reimbursement fund preempted the Samecs from pursuing or enforcing a nondischargeability judgment.
Holdings
- The appeal was timely because the bankruptcy court's memorandum of decision expressly served as findings of fact and conclusions of law and contemplated entry of a separate judgment; the 14-day appeal period therefore ran from entry of the formal nondischargeability judgment.
- The state-court dismissal did not trigger claim preclusion against the bankruptcy court's determination of nondischargeability.
- The state-court dismissal did not preclude the bankruptcy court's nondischargeability judgment because the state court did not actually litigate or necessarily decide any issue concerning Griffithe.
- The bankruptcy court did not improperly give preclusive effect to the SEC consent, SEC order, or SEC judgment because it expressly declined to rely on preclusion and independently found fraud and securities-law violations.
- The SEC investor-reimbursement fund did not preempt the Samecs from pursuing or enforcing the nondischargeability judgment.
- Griffithe was judicially estopped from arguing that the state-court dismissal precluded the bankruptcy court's judgment because he took inconsistent positions in the state and bankruptcy courts and obtained the state-court dismissal based on his earlier position.
Key quotations
“The Memorandum of Decision explicitly contemplated that there would be a separate judgment forthcoming.” (17-18)
“Because nondischargeability of a debt is an entirely separate determination with its own elements under § 523 which require more than the establishment of liability, principles of res judicata do not apply” (20-21)
“The state court merely dismissed Debtor after both Plaintiffs and Debtor requested such dismissal based on the bankruptcy court’s disposal of similar issues.” (22-23)
“To use preclusion doctrines in this fashion would not only degrade judicial integrity but would promote chicanery.” (25-26)
“Finally, the function of the Nondischargeability Judgment is simply to except the debt owed to Plaintiffs from the discharge injunction.” (29-30)
Factual background
Griffithe formed Renewable Technology Solutions, Inc. and solicited investments in a purported cannabis venture called Green Acre Pharms. The Samecs invested $150,000 for an asserted ownership interest and received five payments totaling $30,000 before Griffithe stopped paying them. The bankruptcy court found that the venture was not profitable, investor payments were funded by later investors, and Griffithe used substantial investor funds for personal expenses. The SEC separately sued Griffithe for securities violations, and he entered a consent resolving that action while stipulating that the alleged conduct qualified for purposes of § 523(a)(19).
Procedural history
Griffithe filed a chapter 7 petition in 2019. The Samecs obtained relief from the automatic stay to pursue state-law claims and separately filed an adversary proceeding seeking a determination of nondischargeability. After a three-day trial, the bankruptcy court issued a memorandum of decision finding fraud and federal and Washington securities-law violations, then later entered a formal nondischargeability judgment. Before entry of that judgment, the state court dismissed Griffithe from the state-court action at the parties' request. Griffithe appealed the bankruptcy judgment, and the Bankruptcy Appellate Panel affirmed.