Sebetich v. Woods

Filing 13

ORDER AFFIRMING IN PART AND REVERSING AND REMANDING IN PART THE BANKRUPTCY COURT'S FINDINGS OF FACT AND CONCLUSIONS OF LAW AND THE JUDGMENT. Signed by JUDGE LESLIE E. KOBAYASHI on 01/29/2016. -- The Adversary Co urt's Findings of Fact and Conclusions of Law, issued on May 15, 2015, and the Judgment, issued on June 4, 2015, in Adversary Proceeding No. 14-90019, are HEREBY AFFIRMED IN PART AND REVERSED IN PART, and the instant case is HEREBY REMANDED to t he Adversary Court for the entry of the necessary orders consistent with this Order. (eps )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on February 1, 2016

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
)
)
)
)
In re:
)
)
Alvin Woods,
)
)
Debtor,
_____________________________ )
)
ADV.NO 14-90019
)
)
VICTORIA SEBETICH,
)
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Plaintiff/
)
Appellant,
)
)
vs.
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ALVIN K. WOODS,
)
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Defendant/
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Appellee.
_____________________________ )
Bk. No. 14-00039
(Chapter 13)

CIVIL 15-00233 LEK-BMK

ORDER AFFIRMING IN PART AND REVERSING AND REMANDING IN PART
THE BANKRUPTCY COURT’S FINDINGS OF FACT
AND CONCLUSIONS OF LAW AND THE JUDGMENT
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, 2015.1

[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 Hawai`i (“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.
BACKGROUND
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, Hawai`i (“the Property”) for

1

Woods filed his brief in response to Sebetich’s
“Designation of Record on Appeal” (“Designation”), filed on
September 29, 2015. [Dkt. no. 8.] On November 3, 2015, this
Court issued an entering order (“11/3/15 EO”) concluding that it
could not construe the Designation as Sebetich’s Fed. R. Bankr.
P. 8014(a) brief. [Dkt. no. 11.] The 11/3/15 EO gave Sebetich
until November 18, 2015 to file a brief that complied with
Rule 8014(a). The 11/3/15 EO also allowed Woods to either file
an amended brief in response to Sebetich’s new filing or to stand
on Woods’s Brief. Woods did not file an amended brief after the
filing of Sebetich’s Brief.
2

$500,000.

They did not set a date by which Alvin and

Clifford Woods would make payment.

[FOF/COL at 2, ¶¶ 1-2.2]

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.”).3]

Sebetich attached the

5/18/06 Letter as an exhibit to her brief and wrote “Fraud” on
it.

[Id. at 17.]

2

The FOF/COL is one of the documents attached to Sebetich’s
Notice of Appeal and Statement of Election (“Notice of Appeal”),
which the Adversary Court transmitted to this district court on
June 18, 2015. [Dkt. no. 1 at 4-15.]
3

Sebetich’s Brief has multiple attachments, but it is not
consecutively paginated. The page numbers in this Court’s
citations to Sebetich’s Brief refer to the page numbers in the
district court’s electronic filing system.
3

In July 2006, Alvin and Clifford Woods obtained a
$300,000 mortgage loan secured by the Property,4 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.
that loan was $472,500.

The principal amount of

[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”).

4

Sebetich recorded the

Alvin and Clifford Woods obtained the $300,000 mortgage
loan from Countrywide Home Loans (“Countrywide”). [Bankr. Adv.
No. 14-90019, Decl. of Alvin K. Woods Direct Trial Testimony
(“Alvin Woods Direct Decl.”), filed 3/23/15 (dkt. no. 51), at
¶¶ 5-10.]
4

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, 2014.5

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.6
at 5, ¶ 16.]

[Id.

In addition, Alvin Woods stated in his bankruptcy

5

Alvin Woods’s Chapter 13 Proceeding is Bankruptcy Petition
No. 14-00039.
6

The proposed plan payments were $900 per month for sixty
months. [FOF/COL at 5, ¶ 20.]
5

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.”
4.]

[Designation at

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.
3.]

6

[Id. at 2-

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.
Proceeding.7

No appeal was taken in the Chapter 13

[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.
90019, dkt. nos. 2, 5.]

[Bankr. Adv. No. 14-

The defendants in the First Amended

Complaint were Alvin K. Woods, Clifford K. Woods, Irmgard
Ka`aoaolahilahi Woods, and Clement Kalawaiamoku Woods.

On

September 28, 2014, the Adversary Court issued an order granting
Clifford K. Woods, Irmgard Ka`aoaolahilahi 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.
nos. 42, 44.]

[Id., dkt.

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

7

The Chapter 13 Court issued the Order Confirming Chapter
13 Plan and the Order Granting Motion to Avoid Lien on May 15,
2014. [Bankr. Case No. 14-00039, dkt. nos. 18, 19.]
7

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).]
rebuttal declaration.

Sebetich also submitted a

[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

8

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, ¶ 5.8]
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

8

Conclusion of Law paragraph 5 states that Sebetich “cannot
prevail under section 523(a)(6).” In light of the preceding
conclusions of law and the stipulation to dismiss Count III, this
appears to be a typographic error that should refer to
§ 523(a)(2).
9

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,
2015,9 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. App’x

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

9

The Judgement is one of the documents attached to the
Notice of Appeal. [Dkt. no. 1 at 16-17.]
10

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.
STANDARD
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.
Hawai`i Nov. 17, 2015).

The United States Supreme Court has

stated:

11

[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. App’x 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. App’x
651 (9th Cir. 2013).

12

DISCUSSION
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.10

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. 1300091 JMS/BMK, 2013 WL 2897792, at *3 (D. Hawai`i 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. 0910

Sebetich was represented by counsel in the Adversary
Proceeding. This Court therefore does not liberally construe her
filings in the Adversary Proceeding.
13

00360 JMS/KSC, 2009 WL 3209078, at *3 n.5 (D. Hawai`i 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].”
¶ 5.]

[FOF/COL at 2,

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

14

between her and Alvin and Clifford Woods (“Sale Agreement”) were
fraudulent.11

[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

11

In the Sale Agreement, the line following “THE SELLERS
AGREE TO SELL AND BUYERS AGREE TO PURCHASE ABOVE-MENTIONED
PROPERTY FOR A SALES PRICE OF $” is blank. Following “CLOSING
COSTS ARE TO BE PAID BY:” there is a handwritten notation “gift
equity.” [Sebetich’s Brief at 16 (emphases in original).]
15

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.
32.]

[Id. at

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 gifting the equity meant.

[Id. at 32-33.]

According to Alvin Woods’s testimony, Countrywide wrote the
5/18/06 Letter and emailed it to him to obtain Sebetich’s
signature.

He printed it out, took it to her, and she signed it.

[Id. at 61-63.]
Based on the evidence presented at trial that Sebetich
signed the letter and the lack of evidence to support her
argument on appeal that the signature was forged, this Court
rejects Sebetich’s argument that the Adversary Court’s finding
that Sebetich signed the letter was clearly erroneous.
Sebetich’s appeal is DENIED as to this issue.
II.

Arguments Regarding Alvin Woods’s Statements and Testimony
Sebetich next makes several arguments challenging the

Adversary Court’s findings regarding Alvin Woods’s statements in
his Petition and his testimony in the Adversary Proceedings.

16

This Court first turns to her arguments regarding Alvin Woods’s
testimony at his deposition and at trial.
A.

Alvin Woods’s Deposition
Sebetich argues that Alvin Woods gave false testimony

during his deposition.

She argues that “every word that Alvin K.

Woods said in his deposition is not the truth.”
4 (emphases omitted).]

[Designation at

Based on her brief and the attachments

thereto, it appears that Sebetich’s primary objection is to his
testimony regarding: 1) his mother’s employment; and 2) his
employment.

[Sebetich’s Brief at 4-7.]

At his deposition,

Alvin Woods testified that his mother works for Roberts Bus
Company.

[Id. at 6.12]

Sebetich argues that this testimony was

false because Irmgard Woods worked for Yamaguchi Bus Company for
over twenty years.

[Id. at 4.]

Even assuming, for the sake of argument, that Sebetich
is correct about Irmgard Woods’s employment, it would not affect
the disposition of this case because the Adversary Court made no
finding of fact or conclusion of law regarding Irmgard Woods’s

12

Pages 6-7 of Sebetich’s Brief are excerpts of the
transcript of Alvin Woods’s February 13, 2015 deposition (“Alvin
Woods Depo.”) with certain pages that she apparently highlighted.
The complete deposition transcript was filed in the Adversary
Proceeding as Sebetich’s Exhibit 3. [Bankr. Adv. No. 14-90019,
Decl. of Direct Testimony of Victoria Sebetich (“Sebetich Direct
Decl.”), filed 3/9/15 (dkt. no. 48), Exh. 3 at 31-48.] The
Sebetich Direct Declaration, which has multiple exhibits, is
docketed as a single document. This Court’s citations to the
Sebetich Direct Declaration refer to the page numbers in the
bankruptcy court’s electronic filing system.
17

employment.

The Adversary Court found that Alvin Woods’s

estimation of his family support was “substantially correct.”
[FOF/COL at 5, ¶ 16.]

The Adversary Court also concluded that

Alvin Woods’s family must be making his plan payments for him.
[Id. at 11, ¶ 17.]

However, there is nothing in the FOF/COL

which indicates that either that finding or that conclusion was
based upon Alvin Woods’s deposition testimony about
Irmgard Woods’s employment.
As to Sebetich’s argument that Alvin Woods gave false
testimony during his deposition about his employment with
“Yamaguchi Bus Service” (“Yamaguchi”), this Court notes that
Sebetich’s counsel questioned Alvin Woods on cross-examination
about his work with Yamaguchi, including whether his
representations in his Petition were accurate.

[4/7/15 Trans. at

80-85; Bankr. Adv. No. 14-90019, Tr. Trans. - Day 2 (4/8/15)
(“4/8/15 Trans.”), filed 8/11/15 (dkt. no. 106), at 5-9.]
Sebetich’s counsel could have confronted Alvin Woods with his
deposition testimony regarding his employment, as evidenced by
the fact that counsel questioned him about his deposition
testimony concerning the estimated $620.00 in family support.
[4/7/15 Trans. at 13-18.]

Further, Sebetich and her counsel

clearly placed the issues regarding Alvin Woods’s employment
before the Adversary Court.

See, e.g., Sebetich Direct Decl. at

¶ 10.g (arguing that Alvin Woods deceived the Chapter 13 Court

18

“concerning his ability as debtor to pay the plan submitted”
(citing Alvin Woods Depo. Trans. at 20:15 to 23:25)); Sebetich’s
Closing at 8 (arguing that there are six reasons why Alvin Woods
committed fraud upon the Chapter 13 Court, including making
statements about his employment that were untrue or were in
reckless disregard for the truth).
Under the circumstances of this case, this Court
concludes that, even if Alvin Woods made false statements during
his deposition, they were not relevant to the outcome of the
Adversary Proceedings.

To the extent that Sebetich urges this

Court to reverse the Adversary Court’s decision because
Alvin Woods allegedly gave false testimony during his deposition,
her appeal is DENIED.
B.

Attempted Sale of the Property
According to Sebetich, she spoke with Alvin and

Clifford Woods “in early 2008” about selling the Property to
repay the amount reflected in the Note.
at ¶ 4.]

[Sebetich Direct Decl.

She states that they agreed to sell the Property, but,

after she obtained an appraisal in September 2008 and secured a
buyer, they refused to cooperate to complete the sale.

[Id.]

The Property was eventually listed for sale on June 8, 2009, but
the listing was withdrawn on September 22, 2009.

[Bankr. Adv.

No. 14-90019, Decl. of Rebuttal Testimony of Victoria Sebetich

19

(“Sebetich Rebuttal Decl.”), filed 3/31/15 (dkt. no. 62), at
¶ 5.]
In his declaration, Alvin Woods denied telling Sebetich
in 2008 that he would sell the Property.

He stated that he “knew

nothing about any effort to sell the house until [Clifford Woods]
told [him] recently, in preparing for trial in this lawsuit, that
he had listed the house for sale in 2008.”
Decl. at ¶ 15.]

[Alvin Woods Direct

During his cross-examination at trial,

Alvin Woods stated that Clifford Woods put the Property on the
market, and he did not know about it “until after.”
Trans. at 73.]

[4/7/15

Alvin Woods testified that: he lived at the

Property continuously between June and September of 2009; he once
saw a for sale sign in front of the house; there was an open
house held by Rosita Valdez, the real estate agent; and he saw a
flyer about the listing for the Property in the kitchen between
June and September 2009.

However, he did not remember when

Clifford Woods told him that the Property was on the market, and
he denied meeting Ms. Valdez.

[Id. at 74-77.]

Alvin Woods

ultimately admitted that, between June and September 2009, he
knew that the Property was for sale.

He stated that he “was

confused” during the earlier testimony about when he first
learned the Property was for sale.

[Id. at 78.]

Clifford Woods testified that, in 2009, he and Sebetich
discussed selling the Property.

[4/8/15 Trans. at 89.]

20

He never

told Alvin Woods about listing the Property for sale.
73.]

[Id. at

In fact, Alvin Woods was not living at the Property during

the period when the Property was listed.13

[Id. at 75.]

Ms. Valdez testified that, Clifford Woods signed the
listing agreement in front of her, but Alvin Woods was not home
at the time.

She left the paperwork with Clifford Woods to have

his brother sign, and she went back later to pick it up.
82-83.]

[Id. at

According to Ms. Valdez, Clifford Woods called her the

morning of her trial testimony, and they discussed the listing.
He told her that he signed the listing agreement.

Ms. Valdez

understood this to mean that Alvin Woods did not sign the listing
agreement, and Clifford Woods signed Alvin Woods’s name.

[Id. at

85.]
Sebetich argues that the testimony shows that
Clifford Woods “committed fraud, and lied to the” Adversary
Court.

[Designation at 4.]

After Ms. Valdez testified,

Alvin Woods’s counsel resumed her re-direct examination of
Clifford Woods.
examination.

Sebetich’s counsel declined further cross-

[Id. at 86-89.]

Thus, although Sebetich’s counsel

had the opportunity to question Clifford Woods about Ms. Valdez’s
testimony that he signed Alvin Woods’s name on the listing
agreement, he did not do so, and Clifford Woods did not have to

13

Clement Woods also testified that, when he and his wife
moved into the Property with Clifford Woods, Alvin Woods was not
living there. [4/8/15 Trans. at 96.]
21

respond to Ms. Valdez’s allegation.

The Adversary Court made no

findings of fact regarding any of the circumstances surrounding
the attempted sale of the Property in 2009.

Even assuming,

arguendo, that Clifford Woods did sign Alvin Woods’s name on the
listing agreement, that would not render any of the Adversary
Court’s findings of fact clearly erroneous.

To the extent that

Sebetich argues the Adversary Court’s decision should be reversed
because of Clifford Woods’s allegedly false testimony and his
alleged signing of Alvin Woods’s name on the listing agreement,
her appeal is DENIED.
Sebetich also argues that Clifford Woods’s and
Ms. Valdez’s testimony establishes that Alvin Woods had no
intention of selling the Property to pay the Note, and therefore
he deliberately and intentionally misled Sebetich when he agreed
to do so.

First, there is conflicting testimony about whether

Alvin Woods agreed to sell the Property to pay Sebetich.
Sebetich stated that she met with Alvin and Clifford Woods in
2008 and both agreed to sell the Property.
Decl. at ¶ 4.]

[Sebetich Direct

Alvin Woods’s declaration states that he did not

know about any effort to sell the Property until his brother told
him about it during trial preparation.
at ¶ 15]

[Alvin Woods Direct Decl.

At trial, however, Alvin Woods admitted that he did

speak with Sebetich about selling the Property.

22

[4/8/15 Trans.

at 46.]

Clifford Woods testified that it was he who talked to

Sebetich about selling the Property in 2009.

[Id. at 89.]

As previously noted, the Adversary Court did not make
any finding of fact regarding the attempted sale of the Property
in 2009.

Thus, this Court cannot determine whose testimony the

Adversary Court found to be more credible.

It is not necessary

for this Court to determine whether, in either 2008 or 2009,
Alvin Woods told Sebetich that he would sell the Property to pay
her and whether, if he did make such a statement, whether he
actually intended to do so when he made the statement because
those issues are not relevant to Sebetich’s claims.

Count I

alleges that the $350,000 debt reflected in the Note is not
dischargeable in bankruptcy pursuant to 11 U.S.C. § 523(a)(2).
Section 523(a) states, in pertinent part:
A discharge under section 727, 1141, 1228(a),
1228(b), or 1328(b) of this title does not
discharge an individual debtor from any debt-. . . .
(2) for money, property, services, or an
extension, renewal, or refinancing of credit,
to the extent obtained by-(A) false pretenses, a false
representation, or actual fraud, other
than a statement respecting the debtor’s
or an insider’s financial condition;
(B)

use of a statement in writing-(i)

that is materially false;

23

(ii) respecting the debtor’s or an
insider’s financial condition;
(iii) on which the creditor to whom
the debtor is liable for such
money, property, services, or
credit reasonably relied; and
(iv) that the debtor caused to be
made or published with intent to
deceive[.]
Although this Court understands that the attempted sale of the
Property in 2009 was a significant event to the parties, it is
not relevant to the merits of Count I.

Count I turns upon

whether Alvin Woods obtained the Property from Sebetich through
“false pretenses, a false representation, or actual fraud.”

At

the times relevant to the attempted sale of the Property,
Sebetich had already conveyed the Property to Alvin and Clifford
Woods, and she had already agreed to accept the Note as evidence
of the remaining $350,000 that they owed her for the Property.
Even assuming, arguendo, that Alvin Woods told Sebetich in either
2008 or 2009 that he would sell the Property to satisfy the Note,
and assuming further that such representation was false, he did
not obtain the Property – or anything else – from her as a result
of that representation.

To the extent that Sebetich urges this

Court to reverse the Adversary Court’s decision because
Alvin Woods deliberately and intentionally misled her when agreed
to sell the Property to satisfy the Note, her appeal is DENIED.

24

C.

Alvin Woods’s Statements Regarding His Employment
In Schedule I of his Petition, Alvin Woods wrote that

he had been employed with “Yamaguchi Business Services” for 2
weeks, and he listed his monthly gross wages as $946.00.14
[Sebetich’s Brief at 14.15]

However, Yamaguchi’s payroll records

reflect that the start date of Alvin Woods’s employment was
January 16, 2014, and Alvin Woods only worked forty-four hours,
earning gross wages of $448.00, for the entire quarter ending
March 31, 2014.
134.]

[Id. at 12; Sebetich Direct Decl., Exh. 13 at

At trial, Alvin Woods testified that, during his

employment with Yamaguchi, those forty-four hours were the only
hours that he actually worked.

[4/7/15 Trans. at 84.]

At his

deposition, Alvin Woods testified that he worked with Yamaguchi
from “January 2014 to May.”

[Sebetich’s Brief at 7 (Alvin Woods

Depo. at 21); Sebetich Direct Decl., Exh. 3 at 37 (same).]
Count IV of Sebetich’s Second Amended Complaint alleges
that Alvin Woods’s statements in his Petition about his
employment with Yamaguchi were “a sham” and were “in bad faith,”
but the Chapter 13 Court relied upon them in approving
Alvin Woods’s Plan.

[Bankr. Adv. No. 14-90019, Second Amended

14

Alvin Woods signed the Petition on January 14, 2014.
[Sebetich Direct Decl., Exh. 3 at 93.]
15

Pages 14-15 of Sebetich’s Brief are highlighted excerpts
of Alvin Woods’s Petition. A complete copy of the Petition was
filed in the Adversary Proceeding as Sebetich’s Exhibit 6.
[Sebetich Direct Decl. at 64-110.]
25

Complaint at ¶ 31.g.]

Count IV therefore seeks revocation of

Alvin Woods’s Plan.
In ruling in favor of Alvin Woods on Count IV, the
Adversary Court found that, when Alvin Woods signed the Petition,
“he had just been hired . . . and had not yet begun to work,” but
he “believed that he would earn” $946.00 per month.
4-5, ¶ 14.]

[FOF/COL at

The Adversary Court also found that Alvin Woods “did

not know that his statement about his anticipated future income
was incorrect and did not intend to deceive anyone when he made
that statement.”

[Id. at 5, ¶ 15.]

Sebetich’s Brief, liberally

construed, argues that the Adversary Court’s findings of fact
were clearly erroneous because Alvin Woods’s statements about his
employment were false and in bad faith.

[Sebetich’s Brief at 2-

3.]
Alvin Woods did testify during re-direct examination
that, at the end of December 2013, he spoke with Cheryl Paris
about a job with Yamaguchi.

[4/8/15 Trans. at 41.]

Previously

on cross-examination, Alvin Woods admitted that he had not been
working for Yamaguchi for two weeks prior to signing the
Petition.

[Id. at 5-6.]
At his deposition, Alvin Woods testified that his

employment with Yamaguchi was part-time bus aid or driver.

He

said that, “[i]f nobody [came] in then [he could] take the spot
to do it.”

[Sebetich’s Brief at 7 (Alvin Woods Depo. at 21);

26

Sebetich Direct Decl., Exh. 3 at 37 (same).]
confirmed that the position was on-call.

At trial, he

[4/7/15 Trans. at 80.]

Further, when Sebetich’s counsel questioned him about how he
arrived at the amount of $946.00 in gross monthly wages that he
wrote on his Petition, he testified: “I got that from [Cheryl –
who he referred to as the boss], the pay that I was supposed to
get every hour, and I gave it to Blake [Goodman, Esq. – the
attorney who signed the Petition], and then that’s how Blake
determined the money.”

[4/8/15 Trans. at 7.]

Thus, the only

information that Yamaguchi provided to Alvin Woods was his pay
rate; he and his counsel apparently guessed the number of hours
that he would work.

Alvin Woods admitted that he did not have an

employment contract with Yamaguchi.

[4/7/15 Trans. at 80-81.]

Alvin Woods testified that, at the time he signed the Petition,
he “expect[ed] to be earning money from Yamaguchi Bus,” and he
had no “reason to expect that job wouldn’t last.”
at 39-40.]

[4/8/15 Trans.

However, there is no evidence in the record which

supports the Adversary Court’s finding that, at the time
Alvin Woods signed the Petition, he believed that he would work
enough hours at Yamaguchi to earn monthly wages of $946.00.
Alvin Woods also testified during his deposition that
he did not work any hours from February through May 2014 because
the company did not need him.

However, he did not tell either

the bankruptcy trustee or his attorneys that he was not working

27

during that period.

[Sebetich’s Brief at 7 (Alvin Woods Depo. at

23-24); Sebetich Direct Decl., Exh. 3 at 37 (same).]

At his

deposition, Alvin Woods testified that, when he applied for the
job at Yamaguchi, he did not intend to file for bankruptcy, and
he could not remember when he decided to file for bankruptcy.
[Sebetich’s Brief at 7 (Alvin Woods Depo. at 24); Sebetich Direct
Decl., Exh. 3 at 37 (same).]

However, at trial, Alvin Woods

admitted that the reason he sought a job with Yamaguchi was “I
wouldn’t be able to file bankruptcy unless I found a job.”
[4/8/15 Trans. at 22.]

He also acknowledged that the reason he

filed for bankruptcy was that he was served with Sebetich’s
Foreclosure Action.

[Id. at 23.16]

There is some evidence in the record which supports the
Adversary Court’s finding that, when Alvin Woods signed the
Petition, he believed he would earn $946.00 per month working for
Yamaguchi.

However, Alvin Woods himself never testified that he

believed he would earn any specific amount – let alone $946.00
per month – and he testified that his counsel arrived at that
amount based only on the hourly rate provided by Yamaguchi.

This

Court has considered the entire record as a whole, including, in
particular, Alvin Woods’s testimony that: the reason he applied
for the job with Yamaguchi was so that he could file for

16

See also 4/8/15 Trans. at 29 (“She try to foreclose on
the Mililani house and that’s why I filed for bankruptcy to save
my home. That’s how this all started.”).
28

bankruptcy; he filed for bankruptcy because of the Foreclosure
Action; and he did not inform anyone that he did not work any
hours with Yamaguchi from February 2014 to May 2014.

This Court

has also considered the inconsistencies in Alvin Woods’s
testimony, such as the inconsistencies regarding the attempted
sale of the Property and about when he decided to file
bankruptcy.
In the conclusions of law, the Adversary Court
reiterated that Alvin Woods “honestly expected to earn the amount
reflected in his schedules,” and concluded that although “[t]he
expected income did not materialize, . . . that does not amount
to fraud.”

[FOF/COL at 10, ¶ 15.]

The Adversary Court also

concluded that Alvin Woods’s “representation about his employment
status and income were not material, and the court did not rely
on them to confirm his plan, because family contributions, not
wage income, were the primary funding source.”
¶ 16.]

[Id. at 10-11,

This Court must not reverse where the Adversary Court’s

account of the evidence is plausible in light of the record
viewed in its entirety, even though this Court sitting as the
trier of fact may have ruled differently.

The issue of whether

Alvin Woods earned regular wages is material because, without
some amount of regular wages – even if less than the estimated
$946.00, the Adversary Court could have concluded that he was not

29

eligible for Chapter 13 bankruptcy.

The United States Supreme

Court has stated:
Chapter 13 of the Bankruptcy Code provides
bankruptcy protection to “individual[s] with
regular income” whose debts fall within statutory
limits. 11 U.S.C. §§ 101(30), 109(e). Unlike
debtors who file under Chapter 7 and must
liquidate their nonexempt assets in order to pay
creditors, see [11 U.S.C.] §§ 704(a)(1), 726,
Chapter 13 debtors are permitted to keep their
property, but they must agree to a court-approved
plan under which they pay creditors out of their
future income, see [11 U.S.C.] §§ 1306(b), 1321,
1322(a)(1), 1328(a). . . .
Hamilton v. Lanning, 560 U.S. 505, 508 (2010) (some alterations
in Hamilton).

“The term ‘individual with regular income’ means

[an] individual whose income is sufficiently stable and regular
to enable such individual to make payments under a plan under
chapter 13 of this title, other than a stockbroker or a commodity
broker.”

11 U.S.C. § 101(30).

Based upon this definition, the

source of the income is generally irrelevant, and the critical
inquiry is whether the income is “stable and regular.”

See,

e.g., In re Santiago-Monteverde, 512 B.R. 432, 438 (S.D.N.Y.
2014) (“a substantial majority of courts have concluded that the
type or source of an individual’s income is generally irrelevant
to the issue of eligibility so long as the income is, in the
words of the statute, ‘stable and regular’”).
Although it was arguably possible for Alvin Woods to
establish “regular income” from family contributions alone, it
would have been a closer question from the outset of the
30

Chapter 13 Proceedings.

Morever, Count IV of the Adversary

Proceeding did not only involve a determination of whether Alvin
Woods could have obtained plan approval without regular wages; it
also involved the issue of whether he made the representations
about his employment with Yamaguchi in an attempt to deceive the
Chapter 13 Court.

While Alvin Woods’s motivation for finding

employment and his reporting of wages may be suspect, this Court
does not disturb the Adversary Court’s conclusion that Alvin
Woods’s representations about his employment did “not amount to
fraud.”

This Court therefore CONCLUDES that the Adversary Court

did not err when it ruled in favor of Alvin Woods as to Count IV
of Sebetich’s Second Amended Complaint.
III. The Adversary Court’s Comments About the Case
Sebetich argues that, at the end of the trial, the
Adversary Court made inappropriate comments about the case.
According to Sebetich, the Adversary Court stated that “the
family had bad bloodline, and there will be only one winner and
one loser.”

[Designation at 4.]

First, it was Alvin Woods’s

counsel who referred to “the family bad blood” in the opening
statement.

[4/7/15 Trans. at 53.]

adopt that statement in any way.

The Adversary Court did not

The Adversary Court’s remarks

at the close of trial were as follows:
I’m going to decide the legal issues that you’ve
put in front of me. That’s my job. I will do
that. That will settle the legal issues, but I
can’t do anything about the family problem.
31

Okay. That’s a much more profound problem
that I can’t help you with, and it’s much, much,
much more important. Okay. I can tell that there
is a long history of problems within this family.
You don’t need to tell me about that. I am – it
pains me to see that. I would hope that you could
find a way to start healing those problems, and I
think one good start would be to find a solution
to this legal dispute that both sides can’t [sic]
agree on.
And I think that’s particularly important,
because when I decide this, there’s going to be a
winner and there’s going to be a loser. You know,
somebody’s going to win, somebody’s going to lose
and that’s going to make the family problems even
worse. You know, that’s going to make everybody
harder. You know, everybody’s position is going
to get harder.
So you’ve got an opportunity now to start
bringing your family back together again, which,
you know, may be the last opportunity you have to
do that and that’s really way more important than
the money. Okay. So I just hope you’ll do that.
You’ve got some time before I’ll decide, and I
hope you’ll use that time. . . .
[4/8/15 Trans. at 117-18.]
Sebetich is correct that the Adversary Court said that,
when he issued his decision, there would be one winner and one
loser.

The Adversary Court also noted that there were family

problems.

The Adversary Court made these statements while

encouraging the parties to try to resolve the dispute and reach a
mutually agreeable solution amongst themselves before it issued
the ruling on Sebetich’s claims.

Sebetich argues that the

statements made her feel “very uncomfortable.”
4.]

[Designation at

While this Court understands that the trial presented
32

emotional issues for Sebetich and that the experience was
difficult for her, the Adversary Court’s statements were
accurate, and this Court finds that there was nothing improper
about them.

To the extent that Sebetich argues the Adversary

Court’s comments at the conclusion of the trial were
inappropriate and warrant reversal of the Adversary Court’s
decision, her appeal is DENIED.
IV.

Effect of the Default Judgment
Sebetich’s final point on appeal is that Adversary

Court erred in its rulings regarding the effect of the Default
Judgment.

Sebetich argued that, under the res judicata doctrine,

the Default Judgment was conclusive proof that Alvin and Clifford
Woods committed fraud.

[Sebetich’s Closing Argument at 3.]

The

Adversary Court rejected this argument on the ground that res
judicata/claim preclusion does not apply in nondischargeability
proceedings.

The Adversary Court recognized that collateral

estoppel/issue preclusion applies, but concluded that the Default
Judgment did not have a preclusive effect in this case.
at 8-9, ¶¶ 7-11.]

[FOF/COL

Although fraud was one of the claims that

Sebetich alleged in the State Court Action, there were other
claims as well, and “the state court did not specify which of the
claims the court adopted.”

[Id. at 9, ¶ 10.]

Thus, the

Adversary Court concluded that the issue of fraud was not
necessarily decided in the State Court Action.

33

[Id. at ¶ 11.]

The Ninth Circuit has stated that:
[C]entral to the operation of the bankruptcy
courts is the idea that the debtor’s debts,
including debts liquidated to judgments, may be
modified and discharged. See, e.g., 11 U.S.C.
§§ 544, 547, 548, 549, 727, 1129, 1141, 1325,
1328.
In short, “[f]inal judgments in state courts
are not necessarily preclusive in United States
bankruptcy courts.” Gruntz [v. Cty. of Los
Angeles], 202 F.3d [1074,] 1079 [(9th Cir. 2000)
(en banc)]. . . .
This does not, of course, mean that the
preclusion doctrines do not have any bearing on
federal bankruptcy discharge proceedings. The
Supreme Court has stated that “collateral estoppel
principles do indeed apply in discharge exception
proceedings pursuant to § 523(a).” Grogan [v.
Garner], 498 U.S. [279,] 284 n.11, 111 S. Ct. 654
[(1991)]. Further, we have held that “[t]he full
faith and credit requirement of § 1738 compels a
bankruptcy court in a § 523(a)(2)(A)
nondischargeability proceeding to give collateral
estoppel effect to a prior state court judgment.”
Gayden v. Nourbakhsh (In re Nourbakhsh), 67 F.3d
798, 801 (9th Cir. 1995) (per curiam).
In the bankruptcy discharge context, this
means that “[i]f, in the course of adjudicating a
state-law question, a state court should determine
factual issues using standards identical to those
of [§ 523], then collateral estoppel, in the
absence of countervailing statutory policy, would
bar relitigation of those issues in the bankruptcy
court.” Brown [v. Felsen], 442 U.S. [127,] 139
n.10, 99 S. Ct. 2205 [(1979)]. The classic
example of the proper use of issue preclusion in
discharge proceeding is when the amount of the
debt has been determined by the state court and
reduced to judgment. In that event, if there are
no new issues, the bankruptcy court should
ordinarily decline to allow the parties to
relitigate the debt amount and should give the
state court judgment as to the amount of
preclusive effect. Comer v. Comer (In re Comer),
34

723 F.2d 737, 740 (9th Cir. 1984). For the same
reason, we have held that if the issue of fraud
had been litigated in state court, the state court
judgment would preclude relitigation of the same
issue by the bankruptcy court in discharge
proceedings. Nourbakhsh, 67 F.3d at 801. Thus,
the doctrines of preclusion play an important part
in dischargeability proceedings by preventing the
relitigation of factual and legal issues already
determined by other courts.
However, a preexisting judgment does not have
preclusive effect on the bankruptcy court’s
determination of dischargeability. The Supreme
Court firmly rejected such an idea in Brown,
specifically holding that “the bankruptcy court is
not confined to a review of the judgment and
record in the prior state-court proceedings when
considering the dischargeability of respondent’s
debt.” Brown, 442 U.S. at 138–39, 99 S. Ct. 2205.
We explained this analytical distinction in Comer:
Res judicata should not be applied to bar a
claim by a party in bankruptcy proceedings,
nor should a bankruptcy judge rely solely on
state court judgments when determining the
nature of a debt for purposes of
dischargeability, if doing so would prohibit
the bankruptcy court from exercising its
exclusive jurisdiction to determine
dischargeability.
In re Comer, 723 F.2d at 740.
As we explained in Comer, determination of
the amount of the debt by the state court did not
impact the dischargeability decision:
In the present case, applying res judicata to
bar the bankruptcy court from looking behind
the default judgment to determine the actual
amount of the obligation would not preclude
the exercise of the bankruptcy court’s
exclusive jurisdiction to determine the
nature of the subject debt for purposes of
dischargeability.
Id. . . .
35

In re Sasson, 424 F.3d 864, 872-73 (9th Cir. 2005) (some
alterations in Sasson) (footnote omitted).

Thus, the Adversary

Court was correct when it ruled that the res judicata/claim
preclusion doctrine did not apply, but that collateral
estoppel/issue preclusion principles apply.
The Ninth Circuit has stated that,
in order to determine the preclusive effect of a
state court judgment in a subsequent federal
lawsuit, courts must decide (1) whether, under the
applicable state law, the state court judgment
should be given collateral estoppel effect, and
(2) if so, whether an exception to the full faith
and credit statute should apply.
In re Litwak, No. 99-55678, 2000 WL 531764, at *1 (9th Cir.
May 2, 2000) (citing Nourbakhsh v. Gayden, 67 F.3d 798, 800 (9th
Cir. 1995)).

Thus, the Adversary Court was correct when it ruled

that it must apply Hawai`i law to determine whether the Default
Judgment has preclusive effect.
Under Hawai`i law, “a default judgment is a final
judgment to which collateral estoppel applies, Medeiros v. First
Ins. Co., 50 Haw. 401, 403, 441 P.2d 341, 344 (1968), unless the
default judgment is void.”

Fuller v. Pac. Med. Collections,

Inc., 78 Hawai`i 213, 219, 891 P.2d 300, 306 (Ct. App. 1995)
(citing Matsushima v. Rego, 67 Haw. 556, 560, 696 P.2d 843, 846
(1985) (res judicata does not apply to void default judgments)).
In the instant case, there is no indication in the record that
the Default Judgment is void.

Hawai`i courts apply the following

36

four-part test to determine whether the collateral estoppel/issue
preclusion doctrine applies:
the doctrine of collateral estoppel [or issue
preclusion] bars relitigation of an issue where:
(1) the issue decided in the prior adjudication is
identical to the one presented in the action in
question; (2) there is a final judgment on the
merits; (3) the issue decided in the prior
adjudication was essential to the final judgment;
and (4) the party against whom collateral estoppel
is asserted was a party or in privity with a party
to the prior adjudication[.]
Simmons v. Samulewicz, 129 Hawai`i 507, 512, 304 P.3d 648, 653
(Ct. App. 2013) (alteration in Simmons) (quoting Dorrance v. Lee,
90 Hawai`i 143, 149, 976 P.2d 904, 910 (1999)).
In the instant case, it is undisputed that the Default
Judgment is a final judgment on the merits, and that Alvin Woods
was a party in the prior case.

Count IV of the Complaint in the

State Court Action alleged that Alvin and Clifford Woods “falsely
represented that they were ready, willing and able to pay for the
real property inducing [Sebetich] to deliver title and
possession” of the Property.
59, ¶ 19.]

[Sebetich Direct Decl., Exh. 4 at

In the Adversary Proceeding, the issue was whether

Alvin Woods incurred a debt and obtained the Property by “false
pretenses, a false representation, or actual fraud.”
§ 523(a)(2)(A).

See

This Court therefore finds that the relevant

issue presented in Count IV of the State Court Action is
identical to the relevant issue in Count I of the Adversary
Proceeding.
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As to the third requirement – that the issue was
“essential to the final judgment” in the prior proceeding – the
Adversary Court concluded that the issue of fraud was not
necessarily decided in the State Court Action because “the state
court’s judgment could have been based solely on a breach of
contract theory.”

[FOF/COL at 9, ¶ 11.]

It is true that, where

the plaintiff only alleged one claim, the court’s ruling on that
claim is essential to the judgment.

See Flores v. Barretto, 99

Hawai`i 270, 280, 54 P.3d 441, 451 (2002) (“The sole issue in the
arbitration was whether the treatment prescribed under the
December 1993 Plan was compensable.

Therefore, that

determination was clearly essential to the arbitrator’s final
award.”).

However, there is no Hawai`i case law suggesting that

the disposition of a claim is only deemed to be essential to the
judgment if that was the only claim alleged in the case or if the
judgment expressly listed all of the claims that the party
seeking to invoke issue preclusion prevailed upon in the prior
proceeding.

The Adversary Court concluded that, because the

Default Judgment could have been based solely on Sebetich’s
breach of contract claim – Count II in the State Court Action,
the disposition of Count IV was not essential to the judgment.
By virtue of Alvin and Clifford Woods’s failure to respond to the
State Court Action, Sebetich obtained an entry of default, and
ultimately the Default Judgment, on all of her claims that were

38

within the prayer for relief in her complaint and which arose
from the facts stated in her complaint.

See Matsushima v. Rego,

67 Haw. 556, 559, 696 P.2d 843, 845 (1985) (“Generally, a default
judgment constitutes a binding adjudication of all the rights of
the parties embraced in the prayer for relief which arise from
the facts stated in the complaint.”); see also Brown v.
Progressive Direct Ins. Co., No. 29348, 2010 WL 1806031, at *6
(Hawai`i Ct. App. May 5, 2010) (stating that, in Matsushima, the
Hawai`i Supreme Court noted that “default judgments are valid
judgments for res judicata purposes for all claims within the
scope of relief for which a party prays”).

In the State Court

Action, Sebetich’s fraud claim was within the scope of the relief
she sought in the complaint, and the facts stated in the
complaint did support the fraud claim.

This Court therefore

CONCLUDES that the Adversary Court erred when it concluded that
the Default Judgment in the State Court action could have been
based solely on a breach of contract theory.
In addition, this Court notes that, under Hawai`i law,
default judgments – whether entered by the court clerk or the
court – are appealable and “immediately reviewable by the court
of appeals.”

Casuga v. Blanco, 99 Hawai`i 44, 51, 52 P.3d 298,

305 (Ct. App. 2002) (citation and internal quotation marks
omitted).

Because Alvin and Clifford Woods could have appealed

the disposition of Count IV, as well as the disposition of any of

39

the other counts in the State Court Action, this Court cannot
agree with the Adversary Court’s conclusion that the disposition
of the fraud claim was not essential to the judgment.

See

Dorrance v. Lee, 90 Hawai`i 143, 149, 976 P.2d 904, 910 (1999)
(“determinations that are not essential to the judgment ‘have the
characteristics of dicta[] and may not ordinarily be the subject
of an appeal by the party against whom they were made’”
(alteration in Dorrance) (some citations omitted) (quoting
Restatement (Second) of Judgments § 27 cmt. h (1980))).
This Court concludes that the disposition of Sebetich’s
fraud claim in the State Court Action was essential to the
judgment in that case.

Thus, this Court CONCLUDES that all of

the requirements for collateral estoppel/issue preclusion were
satisfied, and therefore the ruling in the State Court Action
that Alvin and Clifford Woods obtained the Property by fraud was
entitled to preclusive effect in the Adversary Proceeding.
Insofar as the Adversary Court concluded that collateral
estoppel/issue preclusion did not apply to the state court fraud
ruling, Sebetich’s appeal is GRANTED and the Adversary Court’s
decision in favor of Alvin Woods as to Count I of Sebetich’s
Second Amended Complaint is REVERSED.
V.

Summary
This Court has REVERSED the Adversary Court’s FOF/COL

as to its ruling in favor of Alvin Woods on Count I of Sebetich’s

40

Second Amended Complaint.

This Court has denied Sebetich’s

Appeal as to all of her arguments regarding Count IV of the
Second Amended Complaint.

This Court therefore AFFIRMS the

Adversary Court’s FOF/COL as to its ruling in favor of
Alvin Woods on Count IV.

This Court REMANDS this case to the

Adversary Court for the entry of the necessary orders consistent
with the rulings in this Order.
CONCLUSION
On the basis of the foregoing, the Adversary Court’s
Findings of Fact and Conclusions of Law, issued on May 15, 2015,
and the Judgment, issued on June 4, 2015, in Adversary Proceeding
No. 14-90019, are HEREBY AFFIRMED IN PART AND REVERSED IN PART,
and the instant case is HEREBY REMANDED to the Adversary Court
for the entry of the necessary orders consistent with this Order.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, January 29, 2016.

/s/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge

VICTORIA SEBETICH VS. ALVIN K. WOODS; CIVIL 15-00233 LEK-BMK;
ORDER AFFIRMING IN PART AND REVERSING AND REMANDING IN PART THE
BANKRUPTCY COURT’S FINDINGS OF FACT AND CONCLUSIONS OF LAW AND
THE JUDGMENT
41