Farmer et al v. Moser

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
JOHN MOSER, 	No. 09-11945
Debtor(s).
______________________________________/
BRAD FARMER, et al.,
Plaintiff(s),
v. 	A.P. No. 09-1126
JOHN MOSER,
Defendant(s).
_______________________________________/
Tentative Decision re Issue Preclusion
_________________
In 2004, Debtor and Defendant John Moser borrowed $200,000.00 from plaintiffs Brad Farmer
and Gar Bailey. The note Moser signed was supposed to be secured by two properties, including a
second position lien on 219 Brannan Street, Unit 12A, San Francisco, California. However, the title
officer who prepared the deed of trust neglected to attach the legal description of the Brannan Street
property.
In 2005, Moser refinanced the property by borrowing $653,000.00 from Long Beach Mortgage
Entered on Docket
September 10, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 09-01126 Doc# 24 Filed: 09/10/10 Entered: 09/10/10 16:04:07 Page 1 of 3

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Company. Plaintiffs’ lien did not appear on the title report, so Long Beach Mortgage received what it
believed to be a first deed of trust. Subsequently, Moser gave another lender a junior deed of trust on
the Brannan Street property along with junior deeds of trust on other properties Moser owned.
In early 2007, Moser sold the Brannan Street property for $780,000.00. Long Beach Mortgage
was paid in full, and the holder of the second agreed to take the balance in return for reconveyance of
its deed of trust. Moser got nothing from the sale.
In 2009, a bench trial was held in the Superior Court of California, County of San Francisco.
The state court issued a proposed statement of decision holding that plaintiffs’ deed of trust was
defective and did not impart constructive notice of their lien to the two subsequent lenders. It also
went on to find that “Moser actively concealed the [2007] sale of the Brannan Street Property from
Farmer/Bailey and/or prevented Farmer/Bailey from discovering the sale . . . and that Moser’s
concealment of the sale was a substantial factor in causing Farmer/Bailey harm.” This latter finding
has caused considerable grief in this adversary proceeding, as it appears patently wrong. Plaintiffs
have spent a considerable time trying to force this square peg into a round hole to justify a claim that
their claim is nondischargeable pursuant to § 523(a)(2) of the Bankruptcy Code.
The state court correctly concluded that plaintiffs’ deed of trust was defective and did not
impart notice to Long Beach Mortgage and the other deed of trust holder. If this was the case, then
concealment of the 2007 sale from plaintiffs could not have caused harm to plaintiffs because even had
they known about the sale there was nothing they could have done. Long Beach Mortgage had already
given value in reliance on the fact that it would have a senior lien. The new junior deed of trust holder
as well. Because the decision of the state court is internally inconsistent, the court declines to give it
preclusive effect as to the issue of Moser’s fraud, even if it is otherwise proper to give it such effect.
This does not mean that Moser’s debt to plaintiffs is necessarily dischargeable. However, it
means that focus must shift to what Moser knew when he allowed the Long Beach Mortgage escrow to
close. If he knew then that a mistake had been made and intentionally took advantage of it rather than
Case: 09-01126 Doc# 24 Filed: 09/10/10 Entered: 09/10/10 16:04:07 Page 2 of 3

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mention plaintiffs’ deed of trust, then their claims against him may be nondischargeable due to fraud
or larceny or intentional conversion of their collateral. These are the proper issues in this case, not
whether the 2007 sale was concealed.
The court does not decide these issues at this time. It issues this memorandum to direct the
attention of the parties to the earlier transactions and not the 2007 sale and to explain why the court
will not give preclusive effect to the state court findings of fraud. These findings, and the resulting
confused argument of plaintiffs, have already turned a half-day trial into a 3-day marathon of irrelevant
facts and tortured logic.
Dated; September 10, 2010
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 09-01126 Doc# 24 Filed: 09/10/10 Entered: 09/10/10 16:04:07 Page 3 of 3