RAF Enterprises, LLC et al v. Arko

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
FRED C. ARKO, JR., No. 03-13010
Debtor(s).
______________________________________/
RAF ENTERPRISES, LLC, et al.,
Plaintiff(s),
v. A.P. No. 04-1030
FRED C. ARKO, JR.,
Defendant(s).
_______________________________________/
Amended Memorandum on Motion for Relief from Judgment
_________________
The facts of this case are set out in detail in the California Court of Appeal decision which is in the
record. The short version is that Arko, who was a landlord of commercial premises, declined to approve the
assignment of a lease unless Arko received an interest in the business to be operated on the premises. A jury
trial was held in state court, and the jury made specific findings that Arko was liable to plaintiffs in this case for
intentional interference with contractual relations and that in so acting Arko was guilty of malice. The jury
awarded about $10 million in actual damages and $45,000.00 in punitive damages. By this adversary
Entered on Docket
May 12, 2008
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 04-01030 Doc# 42 Filed: 05/11/08 Entered: 05/12/08 09:46:29 Page 1 of 3

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proceeding, plaintiffs sought to have the judgment declared nondischargaeble.
Plaintiffs moved the court for summary judgment on February 23, 2007, arguing that the findings of
the state court jury precluded Arko from arguing that the judgment was based on willful and malicious injury
and the judgment was therefore nondischargeable pursuant to § 523(a)(6) of the Bankruptcy Code. Arko
did not oppose the motion. The motion was granted on April 6, 2007, and judgment was entered on April
20, 2007.
On March 25, 2008, Arko filed the instant motion to vacate the judgment. He argues that pursuant to
FRCP 60(b) and FRBP 9024 the judgment should be set aside due to excusable neglect. Arko cites his
physical and emotional problems as reasons for his failure to respond to the summary judgment motion.
The court understands Arko’s physical and psychological problems. The court could see his
emotional state deteriorate as the bankruptcy proceedings went on. The court also has some sympathy for
Arko notwithstanding the jury verdict. The court wishes to make clear that it finds that Arko has acted in
good faith in this case, that the delay in seeking relief is reasonable under the circumstances, and the prejudice
to plaintiffs would be minimal and easily compensated if the court were to grant the motion. However, the
court sees no point to setting aside the judgment because Arko has no defense to the action.
Ordinarily, the mere fact that a state jury awarded punitive damages is enough to preclude defending a
§ 523(a)(6) action in subsequent bankruptcy proceedings. In re Krishnamurthy, 209 B.R. 714, 722 (9th
Cir. BAP 1997). Arko argues that this is no longer good law in light of Kawaauhau v. Geiger, 523 U.S. 57
(1998), and that now a jury finding of malice alone is not enough; there must also be a finding of willfulness.
Assuming this interpretation of the law is correct, in this case the jury expressly found that Arko intentionally
interfered with plaintiff’s contractual relations and that in doing so he was guilty of malice. There are
accordingly findings of both willfulness and malice. Even after Geiger, intentional torts are generally
considered nondischargeable pursuant to § 523(a)(6). In re Su, 290 F.3d 1140, 1143 (9th Cir. 2002).
Summary judgment is still required where state court findings establish an intentional tort. In re Baldwin, 249
Case: 04-01030 Doc# 42 Filed: 05/11/08 Entered: 05/12/08 09:46:29 Page 2 of 3

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1It should be noted that Kawaauhau v. Geiger was a medical malpractice case, and the Court held
only that debts arising from recklessly or negligently inflicted injuries are dischargeable. 523 U.S. at 64.
There is no indication that the Court intended to change the law as to judgments for intentional torts
accompanied by express findings of malice. Nor, as is clear from Baldwin, has the Ninth Circuit so
interpreted the decision.
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F.3d 912 (9th Cir. 2001).1
At its heart, the decision to apply principles of issue preclusion is discretionary. In re Lopez,
367 B.R. 99, 107 (9th Cir. 2007). In this case, the court sees no justification for it to hold a trial on the merits
and reach a different conclusion from that reached by a jury after a full trial in state court. To do so would
improperly undermine the state judicial system. See Baldwin, 249 F.3d at 920. Since Arko is precluded
from seeking findings contrary to those made by the jury, he has no defense to this adversary proceeding and
his motion to set aside the judgment will accordingly be denied.
Counsel for plaintiffs shall submit an appropriate form of order.
Dated: May 11, 2008
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 04-01030 Doc# 42 Filed: 05/11/08 Entered: 05/12/08 09:46:29 Page 3 of 3