Mary Sarah Vernon

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UNITED STATES BANKRUPTCY COURT

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For The Northern District Of California

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GPO

Entered on Docket
April 13, 2006

GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA

FILED,

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; OLERK.
‘'nited States Bankruptcy Court
San Jose, California

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

In re Case No. 04-57874 JRG
MARY SARAH VERNON, Chapter 13

Debtor.

MEMORANDUM DECISION IN SUPPORT OF ORDER
SETTING FORTH PROCEDURES FOR RESOLUTION OF DISPUTED ISSUES

I. INTRODUCTION

The court originally issued this Memorandum in tentative form on
March 10, 2006. Following a hearing on March 30, 2006, the court
issues this Memorandum Decision and files concurrently the order
providing for abstention and modification of the automatic stay
referred to herein.

Mary Vernon filed a Chapter 7 petition on December 28, 2004. The
Chapter 7 case was converted to a case under Chapter 13 on May 3,
2005.

During this bankruptcy case, James McBurney has initiated several
proceedings against Vernon, and others, which remain pending in this

court. In addition, there is litigation pending between Vernon and

MEMORANDUM DECISION IN SUPPORT OF ORDER SETTING
FORTH PROCEDURES FOR RESOLUTION OF DISPUTED ISSUES |

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UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

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McBurney in the state court that preceded the filing of the bankruptcy
petition. The various pending matters stem from a relationship that
existed between Vernon and McBurney for approximately twenty years.

The pending proceedings present a number of issues that need to
be resolved before the bankruptcy case can successfully proceed.

II. THE LITIGATION BETWEEN VERNON AND McBURNEY*
A. Litigation Commenced Prior to Bankruptcy.
1. The Temporary Restraining Order.

In or about July 2004, Vernon reported to the Police Department
in Sunnyvale California that she had been raped by McBurney on more
than one occasion. Shortly thereafter, on or about July 15, 2004,
Vernon obtained a Temporary Restraining Order against McBurney in
Santa Cruz County Family Law Case Number FL 019889.

Following the issuance of the Temporary Restraining Order an
evidentiary hearing was scheduled for September 9, 2004, before the
Honorable Jeffrey Almquist. The result of this hearing is not totally
clear to this court. McBurney states that the Temporary Restraining
Order was terminated following the hearing.

2. The Mutual Restraining Order and Subsequent Appeal.

On or about February 14, 2005, Judge Almquist issued a Mutual
Restraining Order in Superior Court Case Number FL 019889. McBurney
states that this was done on an ex parte basis.

McBurney subsequently appealed the Mutual Restraining Order.

I : : : : . ‘
The facts set forth herein are not intended to constitute findings of fact with

respect to specific pieces of litigation between the parties. With respect to matters
occurring or pending in the state court, this court does not have copies of the pleadings
and has relied on the representations of the parties as to the nature and status of such
matters. As a result, the facts are only relevant to the court’s analysis of the
interrelationship between the various proceedings and the court's determination of the manner
in which they can be most expeditiously be resolved.

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That appeal is pending before the California Sixth District Court of
Appeal.
3. The Slander Suit and Vernon’s Cross-Complaint.

On or about September 16, 2004, McBurney filed an action for
slander, and other causes of action in the Santa Cruz County Superior
Court, Superior Court Case Number CV 149889. On November 1, 2004,
Vernon filed a cross-complaint in this action based on allegations of
sexual assault and defamation. McBurney states the action is
presently set for a Case Management Conference on May 1, 2006.

B. Proceedings Commenced Following Bankruptcy.

1. Vernon’s Chapter 7 Case.

On December 28, 2004, Vernon filed her Chapter 7 petition. On
February 7, 2005, McBurney filed Adversary Proceeding No. 05-05026.
This proceeding seeks to deny Vernon’s discharge in total under § 727
of the Bankruptcy Code or, alternatively, to deny the debt owed to
McBurney under § 523 of the Code. In general, the complaint parallels
McBurney’s slander action in the state court.

2. Vernon’s Chapter 13 Case.

As previously stated the Chapter 7 case was converted to a case
under Chapter 13 on May 3, 2005.

a. McBurney’s Objection to Confirmation.

On June 20, 2005, McBurney filed his objection the confirmation
of Vernon’s Chapter 13 Plan. McBurney’s objection centers around the
debtor’s bad faith in filing her bankruptcy and Chapter 13 plan.
Central to the objection are the allegations that Vernon has misstated
her income in that she has not disclosed that she was receiving money
for sex, has failed to disclose various other assets and that she has

tried to manipulate the bankruptcy law in such a way as to forum shop

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UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

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for a resolution of the sex-related disputes originally initiated in
the state court.
b. McBurney’s Proof of Claim.
On June 17, 2005, McBurney filed a Proof of Claim in the amount
of $100,000. The claim parallels his slander action pending in the
state court.

Cc. McBurney v. Vernon, Gromeeko and Worldwide
Professional Yacht Services.

On October 28, 2005, McBurney filed Adversary Proceeding No. 05-
05554. The main thrust of the proceeding is the determination of the
slander allegations set forth in the action pending in the state court
as well as included in the Proof of Claim.

d. McBurney v. Newport Yacht Management, Tom Rowe,
Patty Martin and Owner Of The Yacht Massimo.

On November, 11, 2005, McBurney filed Adversary Proceeding No.
05-05585. This action involves the nature of Vernon’s employment as
a first mate on a yacht berthed in Miami, Florida.

III. THE INTERRELATIONSHIP OF THE PROCEEDINGS

The court has examined the overall situation from the perspective
of the debtor’s attempt to confirm a Chapter 13 plan. McBurney’s
objection to the Chapter 13 plan is the first issue that must be
resolved if the Chapter 13 case is to move forward. Vernon believes
a hearing on the objection should take two days. On the other hand,
McBurney believes twenty days is required for the hearing. Even if
the time for the hearing on McBurney’s objections can be reduced
substantially, conducting that hearing will not resolve the overall
Situation.

Under the present circumstances, Vernon’s cross complaint in the

state court action must also be valued. It appears to be an asset of

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the estate and, if it has value, will impact the dividend to
creditors. The debtor’s present plan offers a six cent on the dollar
dividend to creditors. If the cross complaint has substantial value
then the dividend would likely increase. Vernon must believe that the
cross complaint has substantial value - if it did not then McBurney’s
allegations may well be true and his proof of claim substantiated.
There is a further problem that stems from McBurney’s $100,000
Proof of Claim. The claim is based on the slander complaint pending
in the state court. So far, the debtor has filed no objection to the
claim. That may be because the present plan provides only a six cent

dividend. However, were the dividend to increase an objection might

become necessary. It seems unlikely this issue can be resolved at
present. To litigate the claim would simply duplicate what would
ordinarily be tried in the state court. Tf Vernon were to simply

stipulate to allow the claim, it would undermine her position and
leave her with a determination of debt that would likely survive the
dismissal of the bankruptcy.

It is clear that trying the objection to confirmation in some
limited fashion does not resolve the possible problems facing the
debtor in the Chapter 13 case. It would also run the risk of multiple
trials of the same or similar issues and the possibility of res
judicata or collateral estoppel principles affecting future litigation
should such become necessary. It is also clear that a limited hearing
on the objection to confirmation fails to resolve the serious issues
existing between Vernon and McBurney regarding their twenty year
relationship.

IV. THE COURT’S RESOLUTION

In examining all the pending issues it becomes clear that the

MEMORANDUM DECISION IN SUPPORT OF ORDER SETTING
FORTH PROCEDURES FOR RESOLUTION OF DISPUTED ISSUES 5

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resolution of the pre-bankruptcy issues stemming from the twenty year
relationship between Vernon and McBurney is central to the bankruptcy
case moving forward to conclusion. The court has given great thought
to the best means by which this can be accomplished in the most
orderly and expeditious fashion.

A. The Court’s Determination.

The court will modify the automatic stay to permit the parties
to return to state court and resolve McBurney’s slander suit and
Vernon’s cross-complaint as well as the issues surrounding the mutual
restraining order, including the appeal, and any issues involving the
temporary restraining order, if any remain.

While the state court is resolving to judgment the above actions,
this court will stay the contested matters and adversary proceedings
pending in the bankruptcy court. After the state court proceedings
are determined, the parties can return to the bankruptcy court and at
that point the bankruptcy court will determine what, if any, issues
remain to be resolved.

The court reached this conclusion based on the following
considerations. First, if McBurney’s objection to confirmation is
litigated prior to resolving the state court litigation, determining
the objection to confirmation will create a risk of multiple trials
and possible res judicata and collateral estoppel issues, since the
objection to confirmation contains aspects of the overall actions in
state court, but does not need to address all issues in that
litigation. Thus, large portions if not the entire matter would
likely need to be retried in the state court. On the other hand,
resolution of the state court litigation will likely make a final

determination of the nature of the relationship between Vernon and

MEMORANDUM DECISION IN SUPPORT OF ORDER SETTING
FORTH PROCEDURES FOR RESOLUTION OF DISPUTED ISSUES 6

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McBurney as well as any rights and liabilities between the parties.
Those determinations will likely have preclusive effect in this court
and will streamline the litigation in this court. Second, McBurney’s
proof of claim and his non-dischargeability action against Vernon all
involve the same facts and circumstances as the state court
litigation. Thus, a final resolution of that litigation by the state
court will substantially reduce the litigation needed in this court.
Finally, the adversary proceeding regarding the debtor’s employment
as a first mate in Florida ties in with the objection to confirmation,
and can be stayed until the state court litigation is resolved and
then a determination can be made as to what, if any, action will need
to be taken with respect to that litigation.

B. Legal Authority.

The decision whether to abstain in a certain matter is in the
sound discretion of the bankruptcy judge and can be raised by the

court on its own motion. In re Costa, 172 B.R. 954, 962-63 (Bankr.

E.D. Cal. 1994).
“[Blankruptcy court rulings should impinge on state domestic

relations issues ‘in the most limited manner possible.’” In re

Siragusa, 27 F.3d 406, 408 (9th Cir. 1994) (quoting In re Harrell, 754
F.2d 902, 907 (llth Cir. 1985)). While the case before this court is
not a normal domestic relations matter, it has several similarities.

Where a threshold question of state law is required to be
determined before consideration of exclusively bankruptcy questions
and there is pending state court litigation on that question, it is

appropriate for the bankruptcy court to abstain. In re OQwen-Johnson,

115 B.R. 254, 257-58 (Bankr. S.D. Cal. 1990) (where the bankruptcy

court abstained from determining a motion to reject an executory

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contract when the threshold question of the existence of the contract
was the subject of a pre-petition state court complaint).

The court may exercise its discretion to abstain from
hearing a proceeding where “judicial economy and the
interest of this court in timely and economical
adjudication dictate that the cause of action only be heard
once”. In re World Financial Services Center, Inc., 81
B.R. 33, 39 (Bankr. S.D. Cal. 1987). Other factors to be
considered in the decision to abstain are whether the
resolution of the case involves interpretation of state
law, and whether interests of justice and comity prevail.
Id. at 39.

Owen-Johnson, 115 B.R. at 257.

Vv. CONCLUSION

Based on the foregoing the court will abstain with respect to the
matters involved in Santa Cruz County Superior Court Case Number CV
149889 and Santa Cruz County Superior Court Case Number FL 019889,
including the appeal and any issues involving the temporary
restraining order, if any remain. The court also will abstain from
any other issues, arising prior to the filing of the bankruptcy on
December 28, 2004, that need to be determined to resolve the
relationship between Mary Sarah Vernon and James McBurney, and any
liability either party has to the other as set forth in the
accompanying order. Issues arising from and after the filing of the

bankruptcy shall remain to be resolved by this court.

DATED: : a

UNITED STATE ANKRUPTCY JUDGE

MEMORANDUM DECISION IN SUPPORT OF ORDER SETTING
FORTH PROCEDURES FOR RESOLUTION OF DISPUTED ISSUES 8

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Case No. 04-57874 JRG

UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
CERTIFICATE OF MAILING

Jose, California hereby certify:

listed below.

foregoing is true and correct.

Executed on

BPR 1 2 2008

I, the undersigned, a regularly appointed and qualified Judicial Assistant in the office of the
Bankruptcy Judges of the United States Bankruptcy Court for the Northern District of California, San

That I, in the performance of my duties as such Judicial Assistant, served a copy of the Court's
MEMORANDUM DECISION IN SUPPORT OF ORDER SETTING FORTH PROCEDURES
FOR RESOLUTION OF DISPUTED ISSUES by depositing it in the United States Mail, First Class,
postage prepaid, at San Jose, California on the date shown below, in a sealed envelope addressed as

I declare under penalty of perjury under the laws of the United States of America that the

at San Jose, California.

Office of the U.S. Trustee
U.S. Courthouse/Federal Bldg.
280 S. First St., Rm. 268

San Jose, CA 95113

Devin Derham-Burk, Esq.
Chapter 13 Trustee

P.O. Box 50013

San Jose, CA 95150-0013

Brian M. Kandel, Esq.

LAW OFFICES OF BOOK & BOOK
1414 Soquel Avenue, Suite 203

Santa Cruz, CA 95062

CERTIFICATE OF SERVICE

Cal

S fon J etre

LISA OLSEN

James A. Whitten, Esq.
Office of The District Counsel

INTERNAL REVENUE SERVICE
55 South Market Street, Suite 505

San Jose, CA 95113

Mary Sarah Vernon
421 36" Avenue
Santa Cruz, CA 95062

James McBurney
890 South Wolf Road
Sunnyvale, CA 94086

Andrew Gromeeko

World Wide Professional Yacht Services

421 36" Avenue
Santa Cruz, CA 95062

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