Norma Alicia Jauregui and Jorge Sanchez

1
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
NOT FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
LOS ANGELES DIVISION
In re: ) Case No. 2:09-bk-26342-PC
)
NORMA ALICIA JAUREGUI, ) Chapter 7
)
) MEMORANDUM DECISION
)
) Date: March 12, 2013
) Time: 9:30 a.m.
) Place: United States Bankruptcy Court
Debtor. ) Courtroom # 1468
) 255 East Temple Street
____________________________________) Los Angeles, CA 90012
This matter comes before the court on an objection by Norma Alicia Jauregui (“Debtor”)
to Claim # 13 filed by the Silverstein Law Firm, APC (“Silverstein”) and a motion by the Debtor
to dismiss her voluntary chapter 7 petition contingent upon a disallowance of Silverstein’s claim.
Alberta P. Stahl, Chapter 7 Trustee (“Stahl”) supports disallowance of Silverstein’s Claim # 13
and expresses limited opposition to dismissal of the case. Silverstein opposes both dismissal and
a disallowance of its claim. The court, having considered the pleadings, evidentiary record, and
arguments of counsel, makes the following findings of fact and conclusions of law pursuant to
FILED & ENTERED
MAR 27 2013
CLERK U.S. BANKRUPTCY COURT
Central District of California
BY DEPUTY CLERK	egarcia
Case 2:09-bk-26342-PC Doc 156 Filed 03/27/13 Entered 03/27/13 14:58:19 Desc
Main Document Page 1 of 16

2
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
F.R.Civ.P. 52(a)(1),1 as incorporated into FRBP 7052 and applied to contested matters in
bankruptcy cases.
I. STATEMENT OF FACTS
On June 26, 2009, Debtor filed her voluntary petition under chapter 11 of the Code in the
above referenced case. In her Schedule F filed on July 10, 2009, Debtor listed Silverstein as the
holder of a disputed unsecured non-priority claim for attorneys’ fees in the amount of $175,000.
On September 9, 2009, the case was converted to a case under chapter 7 and Stahl was appointed
as trustee. The claims deadline was January 4, 2010. Notice of the deadline was sent to all
creditors on September 14, 2009.
On January 4, 2010, Silverstein filed a 259-page proof of claim (“Claim # 13”) asserting
an unsecured non-priority claim against the Debtor’s estate in the amount of $179,968.22 for
legal services performed and costs advanced by Silverstein to the Debtor. Silverstein’s Claim #
13 is predicated upon a written agreement dated April 12, 2008, between Silverstein and the
Debtor, Debtor’s estranged husband, Salvador Jauregui, S&M Auto Sales, Rodolfo Jauregui,
Martha Jauregui and RB Romar Insurance for legal representation in conjunction with land use
and eminent domain matters involving the City of South Gate, the Firestone Blvd./Atlantic Ave.
Intersection Improvement Project, and the adjacent proposed Gateway Project (the “Fee
Agreement”).2 Paragraph 9 of the Fee Agreement states, in pertinent part:
1 Unless otherwise indicated, all “Code,” “chapter” and “section” references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1330 after its amendment by the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119 Stat. 23 (2005). “Rule”
references are to the Federal Rules of Bankruptcy Procedure (“FRBP”), which make applicable
certain Federal Rules of Civil Procedure (“F.R.Civ.P.”). “LBR” references are to the Local
Bankruptcy Rules of the United States Bankruptcy Court for the Central District of California
(“LBR”).
2 Silverstein also represented Luz Adriana Verduzco Meono and El Camino Real Estate
and Mortgage on the same legal and factual issues. According to Silverstein’s response:
“Separate retainer agreements were executed including: (i) a November 3, 2006
retainer agreement between Norma Jauregui [and her brother-in-law, Rodolfo
Jauregui] and Silverstein; (ii) a retainer agreement dated December 15, 2007
between Luz Adriana Verduzco Meono and Silverstein; and (iii) an April 12,
Case 2:09-bk-26342-PC Doc 156 Filed 03/27/13 Entered 03/27/13 14:58:19 Desc
Main Document Page 2 of 16

3
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Arbitration. We appreciate the opportunity to serve as Client’s attorneys
and anticipate a productive, harmonious relationship. However, if a dispute
should arise between us which cannot be resolved by negotiation, we believe such
dispute is more satisfactorily resolved through binding arbitration than by
litigation in court.
Therefore, Client and Attorney agree that, if any dispute arises out of or
relating to this Contract or the services performed hereunder, whether based on
negligence, breach of fiduciary duty, fraud, breach of contract or a statute, or any
other matter, such dispute shall be resolved by submission to binding arbitration
in Los Angeles County, California, before a retired judge or justice.3
Silverstein defended the Clients, including the Debtor, in three actions instituted by the City of
South Gate and pursued mandamus actions under the California Environmental Quality Act, Cal.
Pub. Resources Code § 21000, et seq., and the California Public Records Act, Cal. Gov’t. Code §
6250, et seq. After paying some legal fees, the Clients stopped making payments to Silverstein.
First Arbitration.
On July 20, 2009, Silverstein sent a Notice of Right to Arbitrate to the Clients, excluding
the Debtor, pursuant to paragraph 9 of the Fee Agreement. By then the Debtor had commenced
her bankruptcy case. Silverstein’s claim against the Clients for unpaid legal fees and costs under
the Fee Agreement was then referred to binding arbitration under the Los Angeles County Bar
Association Mandatory Fee Arbitration Act (“MFAA”) in Case No. M-252-09-SBM, In the
Matter of the Arbitration Between Luz A. Meono, et al. and Robert Silverstein Esq., et al.4 On
2008 agreement between Norma Jauregui, Salvador Jauregui and S&M Auto
Sales, Rodolfo Jauregui, Martha Jauregui and RB Romar Insurance, and
Silverstein. Because of common issues of law and/or fact pertaining to some of
the aspects of these representations, where appropriate, services rendered were
divided between and among the parties receiving the benefit of those services on
a pro rata basis.”
Response in Opposition to Objection to Claim # 13 (“Response”) 3:17-24. Debtor, Salvador
Jauregui, S&M Auto Sales, Rodolfo Jauregui, Martha Jauregui, RB Romar Insurance, Luz
Adriana Verduzco Meono and El Camino Real Estate and Mortgage are hereafter collectively
referred to as the “Clients.”
3 Claim # 13, at 5 (emphasis in original).
4 According to Silverstein:
Case 2:09-bk-26342-PC Doc 156 Filed 03/27/13 Entered 03/27/13 14:58:19 Desc
Main Document Page 3 of 16

4
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
November 11, 2010, a Statement and Decision of Award was entered by a three-member
arbitration panel in favor of Silverstein awarding (1) the sum of $146,712.08 to Silverstein from
Adriana Verduzco Meono; (2) the sum of $195,603.75 to Silverstein from Salvador Jauregui and
S&M Auto Sales, jointly and severally; and (3) the sum of $128,414.61 to Silverstein from
Rodolfo Jauregui.5 In response, the Clients who participated in the arbitration rejected the
arbitration award and filed suit against Silverstein.
Second Arbitration.
On December 9, 2010, Salvador Jauregui, Monika Jauregui and S&M Auto Sales filed a
Rejection of Award and Request for Trial After Attorney-Client Fee Arbitration in Case No.
BC450766, Jauregui, et al. v. Silverstein, et al., in the Superior Court of California, County of
There were three party groups to the underlying Los Angeles County Bar
Association MFAA arbitration and the subsequent JAMS arbitration before
retired Justice [Richard C.] Neal. The first group was frequently referred to as the
“Norma Group” for ease of reference. That is because Norma Jauregui, the
Debtor, was a client of Silverstein in her individual capacity at the
commencement of the attorney-client relationship. Later, approximately midway
through the representation, and as to an additional lawsuit, Debtor’s husband and
business became parties. These were collectively referred to as the “Norma
Group” . . . . The other two groups were the “Rudy Group,” which included the
brother-in-law Rodolfo Jauregui, his wife and their business. The third group was
the “Verduzco Group,” which included a neighbor, Luz Adriana Verduzco and
her business. All three of the “Norma Group”, “Rudy Group”, and “Verduzco
Group” were defendants in related complaints in eminent domain filed against
them by the City of South Gate.
Silverstein’s Response 4:24 to 5:9.
5 In its Statement of Award and Decision, the arbitration panel identifies the Debtor as a
party to the arbitration. However, the panel then states:
It was unclear whether or not the proceeding was being maintained as to Norma
Jauregui inasmuch as there was no dispute that she had previous to the hearing
filed for bankruptcy protection under Title 11 of the United States Code. The
arbitrators concluded that this decision as to her would be for informational
purposes only.
Silverstein’s Response, 28:27 to 29:2.
Case 2:09-bk-26342-PC Doc 156 Filed 03/27/13 Entered 03/27/13 14:58:19 Desc
Main Document Page 4 of 16

5
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Los Angeles. In their amended complaint filed on or about June 6, 2011, Salvador Jauregui,
Monika Jauregui and S&M Auto Sales sought a judgment against Silverstein for consequential
and punitive damages for alleged legal malpractice, breach of contract and breach of fiduciary
duty, and a rescission of the Fee Agreement or, alternatively, a reformation of the Fee Agreement
to excise the arbitration clause. Similar lawsuits were filed by the Verduzco Group and the
Rodolfo Group denominated Case Nos. BC450775 and BC450777, respectively. Silverstein
sought to recover by counterclaim in each of the three cases the attorneys fees and costs
remaining unpaid under the Fee Agreement. The three cases were consolidated under Case No.
BC450775 and, upon the motion of Silverstein, referred to arbitration.
The arbitration was conducted by retired Justice Richard C. Neal of Judicial Arbitration
and Mediation Services (“JAMS”) under JAMS Arbitration Number 1220043833. Debtor
actively participated in the Second Arbitration, testified as a witness for the plaintiffs and was
cross-examined as a witness, but was not a party to the consolidated lawsuit that was the subject
of the arbitration.6 Debtor testified that she controlled the litigation for Salvador Jauregui
because he was in Mexico at the time of arbitration.7
On October 2, 2012, Justice Neal issued a final award in the Second Arbitration
concluding that “[b]oth claims and counterclaims are rejected, and the parties are entitled to a
judgment dismissing both claims and counterclaims with prejudice.”8 In so holding, Justice Neal
concluded that Silverstein had charged the Clients an unconscionable fee in violation of Rule 4-
6 Debtor Norma Alicia Jauregui’s Objection to the Claim of Robert P. Silverstein, et al.
(“Debtor’s Objection”), 21:5-8. Salvador Jauregui, Monika Jauregui and S&M Auto Sales admit
in their first amended complaint that Debtor was not a party to Case No. BC450776 due to her
pending bankruptcy case. See Silverstein Response, 66:26 n.1.
7 Debtor’s Objection, 21:8-10.
8 Debtor’s Objection, Exhibit 2 at 27.
Case 2:09-bk-26342-PC Doc 156 Filed 03/27/13 Entered 03/27/13 14:58:19 Desc
Main Document Page 5 of 16

6
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
200 of the California Rules of Professional Conduct9 and therefore, was not entitled to collect the
remaining fees and costs sought under the Fee Agreement. Justice Neal determined that the
Clients were unsophisticated and that Silverstein failed to obtain the Clients’ “informed consent
to incurring fees of the escalating magnitude of [Silverstein’s] billings.”10 There was no
9 Rule 4-200. Fees for Legal Services, states:
(A) A member shall not enter into an agreement for, charge, or collect an illegal or
unconscionable fee.
(B) Unconscionability of a fee shall be determined on the basis of all the facts and
circumstances existing at the time the agreement is entered into except where the
parties contemplate that the fee will be affected by later events. Among the factors to
be considered, where appropriate, in determining the conscionability of a fee are the
following:
(1) The amount of the fee in proportion to the value of the services performed.
(2) The relative sophistication of the member and the client.
(3) The novelty and difficulty of the questions involved and the skill requisite to
perform the legal services properly.
(4) The likelihood, if apparent to the client, that the acceptance of the particular
employment will preclude other employment by the member.
(5) The amount involved and the results obtained.
(6) The time limitations imposed by the client or by the circumstances.
(7) The nature and length of the professional relationship with the client.
(8) The experience, reputation, and ability of the member or members performing
the services.
(9) Whether the fee is fixed or contingent.
(10) The time and labor required.
(11) The informed consent of the client to the fee.
Cal. Prof. Code, Rule 4-200.
10 Debtor’s Objection, Exhibit 2 at 25.
Case 2:09-bk-26342-PC Doc 156 Filed 03/27/13 Entered 03/27/13 14:58:19 Desc
Main Document Page 6 of 16

7
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
evidence that Silverstein ever provided the Clients with a written budget for the litigation.11
Justice Neal also determined that “the results obtained did not support an award of additional
fees.”12 He observed that the [C]lients were not easy to deal with,” but stated there was “no
evidence that the [C]lients were sitting on piles of cash sufficient to pay [Silverstein’s] bills and
simply stiffing him.” Rather, the evidence supported a finding that the Clients were “people of
modest means whose claims of inability to pay are plausible and credible.”13
On January 16, 2013, a judgment was entered in the consolidated cases granting the
Clients’ petition to confirm the arbitration award (the “Arbitration Judgment”). The Arbitration
Judgment provided, in pertinent part:
All claims by LUZ ADRIANA VERDUZCO MEONO, and Individual;
VERDUSCO AND ASSOCIATES CORPORATION, a California corporation,
dba EL CAMINO REAL ESTATE INVESTMENTS and dba EL CAMINO
MORTGAGE a/k/a EL CAMINO REAL ESTATE AND MORTGAGE [in
BC450775]; SALVADOR JAUREGUI, an Individual; S&M AUTO SALES, a
Sole Proprietorship; and MONIKA JAUREGUI, Individually and dba S&M
AUTO SALES [in BC450776]; RODOLFO JAUREGUI, and Individual;
MARTHA JAUREGUI, an Individual; and ROMAR BUSINESS, INC., a
California corporation, dba RB ROMAR INSURANCE [in BC450777] (hereafter
collectively referred to as “Plaintiffs”) and all counterclaims by ROBERT P.
SILVERSTEIN, an Individual Attorney; THE SILVERSTEIN LAW FIRM, APC,
a Professional Law Corporation [in BC450775, BC450776, and BC450777]
(hereafter collectively referred to as “Defendants”) are rejected and dismissed
with prejudice.14
In her objection, Debtor asserts that the Arbitration Judgment, which disallowed
Silverstein’s claim under the Fee Agreement for attorneys fees and costs against all the Clients,
except the Debtor, should be given preclusive effect; and that Silverstein’s Claim # 13 against
the Debtor based on the same Fee Agreement declared unenforceable under the judgment should
therefore be disallowed. Silverstein disagrees, arguing several points in response – the most
11 Id. at 24.
12 Id. at 25.
13 Id. at 26.
14 Debtor’s Objection, Exhibit 1 at 2:9-20.
Case 2:09-bk-26342-PC Doc 156 Filed 03/27/13 Entered 03/27/13 14:58:19 Desc
Main Document Page 7 of 16

8
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
persuasive of which is that issue preclusion is unavailable to the Debtor as a matter of law
because under California law a private arbitration award cannot have non-mutual collateral
estoppel effect absent an agreement by the arbitral parties, citing Vandenburg v. Super. Ct., 21
Cal.4th 815, 982 P.2d 229 (1999).
At a hearing on March 12, 2013, the court heard argument from Debtor, Silverstein and
Stahl and took the matters under submission.
II. DISCUSSION
This court has jurisdiction over these contested matters pursuant to 28 U.S.C. §§ 157(b)
and 1334(b). Debtor’s objection to Silverstein’s Claim # 13 is a core proceeding under 28
U.S.C. § 157(b)(2)(A), (B) and (O). Debtor’s motion to dismiss this bankruptcy case is a core
proceeding under 28 U.S.C. § 157(b)(2)(A) and (O). Venue is appropriate in this court. 28
U.S.C. § 1409(a).
A. Debtor’s Objection to Silverstein’s Claim # 13
1. Burden of Proof on Objection to Claim
A proof of claim is deemed allowed unless a party in interest objects. 11 U.S.C. § 502(a).
Absent an objection, a proof of claim constitutes prima facie evidence of the validity and amount
of the claim under FRBP 3001(f). Lundell v. Anchor Constr. Specialists, Inc., 223 F.3d 1035,
1039 (9th Cir. 2000). When a creditor has filed a proof of claim that complies with the rules,
thereby giving rise to the presumption of validity, the burden shifts to the objecting party who
must “present evidence to overcome the prima facie case.” U.S. v. Offord Fin., Inc. (In re
Medina), 205 B.R. 216, 222 (9th Cir. BAP 1996). To defeat the claim, the objector must come
forward with sufficient evidence and “show facts tending to defeat the claim by probative force
equal to that of the allegations of the proofs of claim themselves.” Lundell, 223 F.3d at 1039,
quoting In re Holm, 931 F.2d 620, 623 (9th Cir. 1991). “The objector must produce evidence
which, if believed, would refute at least one of the allegations that is essential to the claim's legal
sufficiency.” Lundell, 223 F.3d at 1040, quoting In re Allegheny Int'l, Inc., 954 F.2d 167, 173-
74 (3d Cir. 1992). If the objector produces sufficient evidence to negate one or more of the
sworn facts in the proof of claim, the burden reverts to the claimant to prove the validity of the
Case 2:09-bk-26342-PC Doc 156 Filed 03/27/13 Entered 03/27/13 14:58:19 Desc
Main Document Page 8 of 16

9
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
claim by a preponderance of the evidence. Ashford v. Consol. Pioneer Mort. (In re Consol.
Pioneer Mort.), 178 B.R. 222, 226 (9th Cir. BAP 1995), aff'd, 91 F.3d 151 (9th Cir. 1996),
quoting Allegheny Int'l, 954 F.2d at 173-74. The ultimate burden of persuasion remains at all
times on the claimant. Lundell, 223 F.3d at 1039; Holm, 931 F.2d at 623.
Silverstein’s Claim # 13 was timely filed, complies with the requirements of FRBP 3001,
and “constitute[s] prima facie evidence of the validity and amount of [its] claim.” See FRBP
3001(f). Debtor seeks to defeat Silverstein’s claim through a defensive use of collateral
estoppel.15
2. Issue Preclusion
“Collateral estoppel, or issue preclusion, prevents parties from from relitigating an issue
of fact or law if the same issue was determined in prior litigation.” Resolution Trust Corp. v.
Keating, 186 F.3d 1110, 1114 (9th Cir. 1999). Issue preclusion serves to protect litigants from
multiple lawsuits, conserve judicial resources, and encourage reliance on adjudication by
reducing the likelihood of inconsistent decisions. Allen v. McCurry, 449 U.S. 90, 94 (1980);
Mont. v. U.S., 440 U.S. 147, 153-54 (1979). See generally, C. Klein, et. al., Principles of
Preclusion and Estoppel in Bankruptcy Cases, 79 Am. Bankr. L.J. 839, 852-58 (2005). The
15 “Collateral estoppel is used “offensively” to establish a claim for relief rather than an
affirmative defense. C. Klein, et al., Principles of Preclusion and Estoppel in Bankruptcy Cases,
79 Am. Bankr. L.J. 839, 857 n.62 (2005). It may be used “to foreclose the defendant from
litigating an issue the defendant has previously litigated unsuccessfully in an action with another
party.” Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n.4 (1979). “Defensive use of
collateral estoppel precludes a plaintiff from relitigating identical issues by merely ‘switching
adversaries.’” Id. at 329; see Bernhard v. Bank of Am. Nat’l Trust & Sav. Ass’n, 19 Cal.2d 807,
813 (1942) (“The cases justify this exception on the ground that it would be unjust to permit one
who has had his day in court to reopen identical issues by merely switching adversaries.”).
“[D]efensive collateral estoppel gives a plaintiff a strong incentive to join all potential
defendants in the first action if possible.” Parklane Hosiery, 439 U.S. at 329-30. “In both the
offensive and defensive use situations the party against whom estoppel [issue preclusion] is
asserted has litigated and lost in the earlier action.” Id. at 329. The Restatement (Second) of
Judgments “does not distinguish between offensive and defensive uses of issue preclusion,
except to require a stronger showing that the prior opportunity to litigate was adequate when the
preclusion is asserted offensively.” C. Klein, et al., Principles of Preclusion and Estoppel in
Bankruptcy Cases, 79 Am. Bankr. L.J. 839, 857 n.62 (2005).
Case 2:09-bk-26342-PC Doc 156 Filed 03/27/13 Entered 03/27/13 14:58:19 Desc
Main Document Page 9 of 16

10
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
preclusive effect of a prior California judgment is determined by California law. See Robi v.
Five Platters, Inc., 838 F.2d 318, 322 (9th Cir. 1988) (“[W]e apply California law of res judicata
to the California judgment, New York law to the New York judgment, and federal law to the
federal judgments”).
Under California law, issue preclusion may be applied only when five threshold
requirements are satisfied:
First, the issue sought to be precluded from litigation must be identical to that
decided in a former proceeding. Second, this issue must have been actually
litigated in the former proceeding. Third, it must have been necessarily decided
in the former proceeding. Fourth, the decision in the former proceeding must be
final on the merits. Finally, the party against whom preclusion is sought must be
the same as, or in privity with, the party to the former proceeding.
Lucido v. Super. Ct., 51 Cal.3d 335, 341, 795 P.2d 1223 (1990). The court must also determine
whether the use of issue preclusion under the facts and circumstances of the case comports with
sound public policy. Id. at 342-43. “[T]he public policies underlying collateral estoppel –
preservation of the integrity of the judicial system, promotion of judicial economy, and
protection of litigants from harassment by vexatious litigation – strongly influence whether its
application in a particular circumstance would be fair to the parties and constitutes sound judicial
policy.” Id. at 343; see Lopez v. Emergency Serv. Restoration, Inc. (In re Lopez), 367 B.R. 99,
108 (9th Cir. BAP 2007) (“In California, issue preclusion is not applied automatically or rigidly,
and courts are permitted to decline to give issue preclusive effect to prior judgments in deference
of countervailing considerations of fairness.”); Khaligh v. Hadaegh (In re Khaligh), 338 B.R.
817, 824-25 (9th Cir. BAP 2006), aff’d, 506 F.3d 956 (9th Cir. 2007) (“The sixth element is a
mandatory ‘additional’ inquiry into whether imposition of issue preclusion in the particular
setting would be fair and consistent with sound public policy.).
Under California law, an arbitration award confirmed by a judgment has the same force
and effect as a judgment entered by that court in a civil action. See Cal. Code Civ. P. § 1287.4.
Therefore, issues that are actually litigated and necessarily decided in the course of obtaining an
arbitration award that was confirmed by a California court are eligible for preclusive effect under
California law as between parties to the confirmed arbitration award. See Khaligh, 330 B.R. at
Case 2:09-bk-26342-PC Doc 156 Filed 03/27/13 Entered 03/27/13 14:58:19 Desc
Main Document Page 10 of 16

11
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
832, aff’d, 506 F.3d 956 (9th Cir. 2007). But the California Supreme Court has forbidden courts
from giving preclusive effect to a judicially-confirmed arbitration award in favor of a non-party
to the arbitration unless the arbitral parties so agreed. Vandenburg, 21 Cal.4th at 834; see
Khaligh, 330 B.R. at 826, aff’d, 506 F.3d 956 (9th Cir. 2007) (“California decisional law permits
an arbitration award to provide the basis for issue preclusion in the mutual context (i.e., between
the same parties and those in privity with them), but not in the nonmutual (i.e., third party)
context unless the arbitral parties agree to such nonmutual use.”).
3. Issue Preclusion Cannot Be Applied to Defeat Silverstein’s Claim
There is no question that the essential elements of issue preclusion under California law
are present in this case. The issue sought to be precluded is the validity and enforceability of the
Fee Agreement as between Silverstein and the Clients. This issue was actually litigated and
necessarily decided in the prior consolidated state court action. The record and the decision of
Judge Neal demonstrate that Silverstein had a full and fair opportunity to litigate its claim under
the Fee Agreement. The Arbitration Judgment is a final judgment; and Silverstein, the party
against whom preclusion is sought, was a party to the prior case, sued to enforce the Fee
Agreement and lost. Because the arbitration before Judge Neal “was conducted in an inherently
adjudicatory fashion,” the Arbitration Judgment that confirmed the arbitration award “satisfies
the California law requirement that application of issue preclusion be fair as between the parties
and comport with public policy.” See Khaligh, 330 B.R. at 830, aff’d, 506 F.3d 956 (9th Cir.
2007). Therefore, Silverstein’s Claim # 13 could be disallowed based upon the preclusive effect
of the Arbitration Judgment but for Vandenberg.
The majority of courts give preclusive effect to a judicially confirmed private arbitration
award that satisfies the test for collateral estoppel even in favor of non-parties to the arbitration.
See, e.g., Witkowski v. Welch, 173 F.3d 192, 206 (3d Cir. 1999) (“”[T]he fraud and fraudulent
conveyance issues brought against Welch and Srein are so inextricably intertwined with one
another that the disposal of claims against the one is necessarily fatal to the alleged claim against
the other.”); Mandich v. Watters, 970 F.2d 462, 465-67 (8th Cir. 1992) (holding that an
arbitration award in favor of North Stars declaring Mandich’s contract claim unenforceable was
Case 2:09-bk-26342-PC Doc 156 Filed 03/27/13 Entered 03/27/13 14:58:19 Desc
Main Document Page 11 of 16

12
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
entitled to preclusive effect in a subsequent action by Mandich against his agent, Watters); W.
Indus. and Env’tl. Servs., Inc. v. Kaldveer Assocs., Inc., 126 Idaho 541, 545, 887 P.2d 1048
(1994) (“Since the arbitrator has already decided [in an action against Hagadone] that Western
suffered no damages because of any alleged negligence, it should not be able to relitigate that
issue against Kaldveer.”). Vandenberg is contrary to the predominant view. See Vandenberg, 21
Cal.4th at 834 (“We realize that some commentators, and most other courts addressing the issue,
have taken a contrary approach.”). This court must apply Vandenberg to the facts of this case,
notwithstanding its disagreement with the rule itself. In the court’s view, the Vandenberg
standard undermines judicial economy while exposing parties to multiple lawsuits and the
possibility of inconsistent decisions. Vandenberg “gives a party asserting claims against
nonarbitrating parties an undeserved second bite at the apple if they are not satisfied with the
arbitration award.” Id., at 844 (J. Brown, concurring and dissenting opinion).
Silverstein and the Clients, including the Debtor, had conflicting claims arising out of a
common nucleus of operative facts. Vandenberg was the law in California at the inception of the
dispute. When Silverstein and the Clients, excluding the Debtor, elected to resolve the dispute
through arbitration, Vandenberg required the arbitral parties to agree that any judgment
confirming an arbitration award would have binding and preclusive effect as to third parties.
There is no evidence that the arbitral parties made such an agreement. At the time of the
arbitration, Silverstein may have understood the impact of Vandenberg and the Debtor may not
have appreciated its consequences. Silverstein was prevented by the automatic stay from
pursuing its claim against the Debtor, but at no time did he seek relief from the stay to join the
Debtor to the arbitration for the purpose of resolving the disputed claims in one forum.
Silverstein had no reason to do so given the fact that Vandenberg permitted him under the
circumstances to litigate his claims separately against the Debtor. Debtor, on the other hand, was
no stranger to the arbitration, but apparently underestimated the reach of Vandenberg. Debtor
actively participated in the arbitration but was not a party to the proceeding. There is no
evidence that she sought to be made a party but was prevented from doing so. On the contrary, it
Case 2:09-bk-26342-PC Doc 156 Filed 03/27/13 Entered 03/27/13 14:58:19 Desc
Main Document Page 12 of 16

13
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
appears that Debtor could have fought to join the arbitration to avoid the consequences of
Vandenberg, but instead chose to shield herself with the automatic stay to keep her options open.
Vandenberg’s holding is not limited to “the offensive use by a non-party in future
unrelated litigation,” as asserted by the Debtor. There is nothing in Vandenberg limiting its
application to “offensive” as opposed to “defensive” use of collateral estoppel. Nor can the
Debtor skirt Vandenberg by claiming that her liability under the Fee Agreement is, at best,
derivative. See, e.g., Richard B. LeVine, Inc. v. Higashi, 131 Cal.App.4th 566, 579, 32
Cal.Rptr.3d 244 (2005) (“It would be anomalous to hold Higashi liable for conspiring to commit
a tort, or for aiding and abetting in its commission, where plaintiff has already asserted those
rights against the direct tortfeasor, the claim was adjudicated, and it was determined plaintiff’s
rights were not violated.”); Thibodeau v. Crum, 4 Cal.App.4th 749, 758, 6 Cal.Rptr.2d 27 (1992)
(Because “[t]he arbitration mandated by the Thibodeau/Eller construction agreement, was
intended to settle all existing claims between the Thibodeaus and their general contractor and
subcontractors regarding the Thibodeau project,” an arbitration award in favor of the Thibodeaus
against Eller, the general contractor, precluded the Thibodeaus’ claims under the contract in a
separate action against Crum, a subcontractor); Sartor v. Super. Ct., 136 Cal.App.3d 322, 328,
187 Cal.Rptr. 247 (1982) (holding that an arbitration award absolving Interactive, a corporation,
of liability to homeowners for alleged fraud precluded identical action by homeowners against
Sartor and other Interactive employees).
Debtor was a party to the Fee Agreement, but not a party to the arbitration that resulted in
a judicially-confirmed arbitration award dismissing Silverstein’s claims based on the Fee
Agreement. Debtor’s potential liability under the Fee Agreement is direct, not derivative.
Because the arbitral parties did not agree that the Arbitration Judgment would have collateral
estoppel effect in favor of third parties, Debtor’s objection to Silverstein’s Claim # 13 predicated
on the preclusive effect of the Arbitration Judgment will be overruled without prejudice.
B. Debtor’s Motion to Dismiss
Section 707(a) permits the dismissal of a chapter 7 case only for cause. 11 U.S.C.
§ 707(a). A debtor has no absolute right to dismiss a chapter 7 case. Bartee v. Ainsworth
Case 2:09-bk-26342-PC Doc 156 Filed 03/27/13 Entered 03/27/13 14:58:19 Desc
Main Document Page 13 of 16

14
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
(In re Bartee), 317 B.R. 362, 366 (9th Cir. BAP 2004); Leach v. U.S. (In re Leach), 130
B.R. 855, 857 n.5 (9th Cir. BAP 1991). In the Ninth Circuit, "a voluntary Chapter 7
debtor is entitled to dismissal of his case so long as such dismissal will cause no 'legal
prejudice' to interested parties." Leach, 130 B.R. at 857. The debtor bears the burden of
proving that dismissal would not prejudice creditors. Bartee, 317 B.R. at 366. Where
dismissal is prejudicial to creditors, it should not be granted. Gill v. Hall (In re Hall), 15
B.R. 913, 917 (9th Cir. BAP 1981), citing In re Int’l Airport Inn P’ship, 517 F.2d 510
(9th Cir. 1975).
Debtor’s motion is based on the erroneous supposition that Silverstein’s Claim # 13 will
be disallowed in its entirety and therefore, Stahl will have sufficient funds to pay all allowed
claims in full in conjunction with a dismissal of the case. Because the court must overrule the
objection to Silverstein’s proof of claim, Debtor has failed to establish cause for dismissal under
§ 707(a).
Debtor’s bankruptcy case has been pending nearly four years. Stahl is administering the
case as an asset case. Stahl has funds on hand of $311,824.34. The administrative expenses
consisting primarily of fees owing to the trustee and her professionals exceed $204,839. The
Internal Revenue Service and United States trustee assert priority claims of $100 and $325,
respectively. Five creditors, excluding Silverstein, hold allowed unsecured non-priority claims
totaling $12,066.09. Dismissal contingent upon payment of all claims and administrative
expenses is not possible absent disallowance of Silverstein’s claim.
Stahl has funds available to pay claims at least in part, and two adversary
proceedings remain pending in the case: (1) Adversary No. 2:11-ap-03061-PC -- Stahl’s
complaint against Salvador Jauregui, Jr. to sell certain real property owned by Debtor and
Salvador Jauregui, Jr. in Riverside County, California; and (2) Adversary No. 2:12-ap-
01743-PC – Stahl’s complaint against Salvador Jauregui, Guadalupe Jauregui and Maria
Jauregui to sell certain real property owned by the Debtor, Salvador Jauregui, Guadalupe
Jauregui and Maria Jauregui at 1125 Spence Street, Los Angeles, California. Dismissal
of the case would be prejudicial to creditors because there is no guarantee that Debtor
Case 2:09-bk-26342-PC Doc 156 Filed 03/27/13 Entered 03/27/13 14:58:19 Desc
Main Document Page 14 of 16

15
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
will pay the debts outside of bankruptcy. Bartee, 317 B.R. at 366; In re Stephenson, 262
B.R. 871, 874-75 (Bankr. W.D. Okla. 2001).
Creditors have a right to expect an orderly distribution of the Debtor’s non-exempt assets
through the efforts of a trustee who has a fiduciary duty to them. Because the Debtor has not
established the requisite cause for dismissal of the case, the motion will be denied.
III. CONCLUSION
For the reasons stated, Debtor’s objection to Silverstein’s Claim # 13 is overruled without
prejudice and Debtor’s motion to dismiss is denied without prejudice.
Separate orders will be entered consistent with this memorandum decision.
###
Date: March 27, 2013
Case 2:09-bk-26342-PC Doc 156 Filed 03/27/13 Entered 03/27/13 14:58:19 Desc
Main Document Page 15 of 16

16
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
NOTICE OF ENTERED ORDER AND SERVICE LIST
Notice is given by the court that a judgment or order entitled (specify): MEMORANDUM DECISION
was entered on the date indicated as AEntered@ on the first page of this judgment or order and will be
served in the manner stated below:
1. SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF) B Pursuant to controlling
General Orders and LBRs, the foregoing document was served on the following persons by the court via
NEF and hyperlink to the judgment or order. As of (date) 03-27-2013 , the following persons are currently
on the Electronic Mail Notice List for this bankruptcy case or adversary proceeding to receive NEF
transmission at the email addresses stated below.
• Eugene S Alkana eugenealkana@mindspring.com, kathy.wilber@yahoo.com
• Eugene S Alkana , kathy.wilber@yahoo.com
• Raymond G Alvarado ralvarado@alvaradosmith.com
• Stephen L Burton steveburtonlaw@aol.com
• Russell Clementson russell.clementson@usdoj.gov
• Ronald R Cohn rcohn@horganrosen.com
• Arnold L Graff ecfcacb@piteduncan.com
• Lewis R Landau LLandau@HorganRosen.com
• Dennette A Mulvaney dmulvaney@bisnosam.com
• Bruce P Needleman attybpn@aol.com
• Carmela Pagay cpagay@rdwlawcorp.com
• Carmela Pagay ctp@lnbrb.com
• Carmela Pagay ctp@lnbyb.com
• Lindsey L Smith lls@lnbyb.com
• Alberta P Stahl (TR) trusteestahl@earthlink.net,
astahl@ecf.epiqsystems.com;trusteestahl\;\;\;.net@cacbapp.cacb.circ9.dcn
• United States Trustee (LA) ustpregion16.la.ecf@usdoj.gov
• Timothy J Yoo tjy@lnbyb.com
Service information continued
on attached page
2. SERVED BY THE COURT VIA UNITED STATES MAIL: A copy of this notice and a true copy of this
judgment or order was sent by United States mail, first class, postage prepaid, to the following persons
and/or entities at the addresses indicated below:
Service information continued
on attached page
Case 2:09-bk-26342-PC Doc 156 Filed 03/27/13 Entered 03/27/13 14:58:19 Desc
Main Document Page 16 of 16