Marcum et al v. Esparza, Jr. et al

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POSTED ON WEBSITE
NOT FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF CALIFORNIA
FRESNO DIVISION
In re
LOUIE J. ESPARZA JR. and
COLLEEN K. DOUGHERTY,
Debtors.
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Case No. 	25-10429-F-B-7
SHEILA MARCUM; AARON MARCUM;
and KIM MARCUM,
Plaintiffs,
v.
LOUIE J. ESPARZA JR. and
COLLEEN K. DOUGHERTY,
Defendants.
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Adv. Proc. No. 25-01015-B
Docket Control #ELR-002
Honorable René Lastreto II
MEMORANDUM OPINION
Sheila Marcum, Aaron Marcum, and Kim Marcum (“Sheila,”
“Aaron,” and “Kim,” collectively “the Plaintiffs”) move for
default judgment as to Defendants Louie J. Esparza Jr.
(“Esparza”) and Colleen K. Dougherty (“Dougherty,” and
collectively “Defendants” or “Debtors”). Doc. #60 et seq. 	The
Defendants are the debtors in the underlying Chapter 7 bankruptcy
proceeding, Case No. 25-10429.The Defendants are not represented
by counsel in this adversary proceeding.
The Plaintiffs have previously sought default judgment
against Dougherty, but that motion was denied without prejudice
by an order dated July 31, 2025, entered by Judge Neimann sitting
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in while the undersigned was indisposed. Docs. #32, #50. 	At that
time, the Plaintiffs did not seek default judgment against
Esparza because he had responded to the Complaint by way of a pro
se filing that was later stricken by a separate order entered by
Judge Niemann in response to Esparza’s failure to respond to an
Order to Show Cause. Docs. #13, #47. 	The Plaintiffs now seek a
second bite at the apple by moving for default judgment against
both Defendants, neither of whom have responded meaningfully to
this adversary proceeding other than Esparza’s stricken filing.
The filings accompanying the motion are voluminous, totaling
18 separate entries for affidavits, exhibits, and requests for
judicial notice. 	See Docket entries for DCN ELR-2.
This motion was set for hearing on 28 days’ notice as
required by Local Rule of Practice (“LBR”) 9014-1(f)(1). 	Thus,
pursuant to LBR 9014-1(f)(1)(B), the failure of any party in
interest (including but not limited to creditors, the debtor, the
U.S. Trustee, or any other properly-served party in interest) to
file written opposition at least 14 days prior to the hearing may
be deemed a waiver of any such opposition to the granting of the
motion. Cf. Ghazali v. Moran, 46 F.3d 52, 53 (9th Cir. 1995).
When there is no opposition to a motion, the defaults of all
parties in interest who failed to timely respond will be entered,
and, in the absence of any opposition, the movant’s factual
allegations will be taken as true (except those relating to
amounts of damages). Televideo Sys., Inc. v. Heidenthal, 826 F.2d
915, 917 (9th Cir. 1987).
Neither Defendant has responded to this motion, and neither
is represented by counsel in this adversary proceeding and they
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are in default. 	They are represented in their underlying Chapter
7 proceeding.
The court’s docket reflects the following filings and dates
relevant to this matter:
Doc. #1
(4/11/25) The complaint is filed.
Doc. #8
(4/15/25) The certificate of service of summons and
complaint is filed. Dougherty and Esparza are both
served at their place of residence.
Doc. #11
(5/13/25) The request for entry of default and certificate
of service a refiled as to Dougherty.
Docs. #13, #14
(4/14/25) Esparza’s “Opposition” is filed along with a
document styled as a “Notice.”
Doc. #19
(5/16/25) Entry of default and Order re: Default judgment
procedures as to Doughtery.
Doc. #29
(6/12/25) Order to show cause(“OSC”)entered as to Esparza.
Docs. ##32-37
(6/16/25) Motion/application for entry of default judgment
as to Dougherty.
Doc. #47
(7/16/25) Esparza does not respond to the OSC. An order is
entered striking Esparza’s “Opposition” and
“Notice.” Esparza’s default is entered. No other
responses by either Defendant have been or will be
filed.
Docs. #48, #50
(7/30-31/25) The motion for entry of default as to Dougherty is
denied for the reasons stated on the record and in
the court’s July 30, 2025,prehearing disposition.
An order to that effect is issued the next day.
Docs. ##60-80
(1/6/26) The instant motion for entry of default as to both
Defendants and accompanying documents are filed.
No party has responded to the motion.
JURISDICTION
The United States District Court for the Eastern District of
California has jurisdiction over this adversary proceeding under
28 U.S.C. § 1334(b) because this is a case arising under title 11.
This court has jurisdiction to hear and determine this matter by
reference from the District Court under 28 U.S.C. § 157(a). 	This
is a “core” proceeding under 28 U.S.C. § 157(b)(2)(I)
(dischargeability) and (J)(objections to discharge). 	Venue is
proper pursuant to 28 U.S.C. § 1409(a) because this adversary
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proceeding arises in a bankruptcy case pending in this judicial
district.
BACKGROUND
Except where noted otherwise, the facts as outlined below
are drawn from the Adversary Complaint (Doc. #1)and the moving
papers (Doc. #32 et seq.), specifically (1) the Motion for
Default Judgment, (2)Declarations from each of the three
Plaintiffs, and (e) a Memorandum of Authorities.
The basis for the claim at the heart of this adversary
proceeding is an earlier default judgment obtained on April 5,
2024, (“the State Court Judgment”) by Plaintiffs against Esparza
and others in the Tulare County Superior Court in Case No.
VCU296097 (“the State Court Action”). 	Plaintiffs originally
brought the State Court Action against Esparza, his company Excel
Restorations & Construction Management LLC (“ERMC”), and other
defendants who settled with Plaintiffs and are not involved in
this matter. 	Dougherty was not a party in the State Court
Action.
In the State Court Action, Plaintiffs alleged that Sheila
was the victim of elder abuse and fraud and Aaron and Kim also
were the victims of fraud, all perpetrated by Esparza and the
other State Court Action defendants. 	More specifically,
Plaintiffs raised causes of action for breach of contract,
declaratory relief, financial elder abuse-undue influence,
negligent misrepresentation, intentional misrepresentation -
fraud, deceit, conversion, conspiracy and alter ego. 	The court
notes that some of causes of action are of a sort that could be
nondischargeable in bankruptcy while others are not, a topic
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which will be addressed in more detail elsewhere in this opinion.
Esparza did not defend against the complaint, and the state court
entered a Judgment by Default, awarding $643,316.05, which sum
includes treble damages and punitive damages. Dougherty was not a
party to the State Court Action, and she was not included in the
State Court Judgment.
Debtors filed the Main Case on February 14, 2025, in Case
No. 25-10429-B-7 (Bankr. E.D. Cal.). Main Doc. #1. 	Plaintiffs
are listed in Schedule E/F as unsecured creditors. Id.
On April 11, 2025, Plaintiffs initiated this non-
dischargeability action against both Debtors. Doc. #1. 	Esparza
did not file an Answer to the Complaint per se but rather filed a
somewhat rambling document styled as “Opposition,” which was
later stricken by the court for reasons not germane to the
instant motion. Docs. ##13-15 (Esparza’s “Opposition” and
accompanying documents), Doc. #29 (Order to Show Cause/Appear),
and Doc. #47 (Order Striking “Opposition”).
Dougherty neither answered the Adversary Complaint nor made
an appearance of any other kind since this adversary proceeding
began. 	Debtors were represented by Mark Zimmerman in the Main
Case, but the Attorney Disclosure Statement submitted in the Main
Case states that the employment agreement between Mr. Zimmerman
and Debtors does not include “representation with respect to
contested proceedings over such issues as to complaints to
dischargeability of particular debts.” Doc. #1 (Disclosure of
Compensation). 	Mr. Zimmerman has made no appearance in the
adversary proceeding except to file a Motion to Be Relieved as
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Attorney of Record for Debtors, which confirms that he is not
representing Debtors in this adversary proceeding. 	To the extent
Debtors are engaging with this adversary proceeding at all, they
are doing so pro se.
On June 16, 2025, Plaintiffs filed a motion seeking entry of
default judgment as to Dougherty alone. Doc. #32. 	On July 30,
2025, the court denied that motion without prejudice on the
grounds that evidence submitted by Plaintiffs in support of that
motion was “not sufficient to grant a default judgment against a
debtor based solely on a separate default judgment obtained
against that debtor’s spouse in a case in which the first debtor
did not even participate.” Doc. #48.
On January 6, 2026, Plaintiffs filed a renewed motion
seeking entry of default judgment, this time against both
Defendants. Doc. #60. 	Neither Defendant responded to the instant
motion. 	The motion was accompanied by extensive proffered
evidence in the form of affidavits, requests for judicial notice,
and other exhibits. Docs. #62-79.
Among the exhibits are three documents of special interest.
The first is the original state court complaint which lists the
causes of action for which Plaintiffs were eventually awarded a
default judgment against Esparza. Doc. #67 (Exhibit A). 	Those
causes of action were:
1. 	Breach of Contract;
2. 	Declaratory Relief;
3. 	Financial Elder Abuse – Undue Influence;
4. 	Negligent Misrepresentation;
5. 	Intentional Misrepresentation – Fraud;
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6. 	Deceit;
7. 	Conversion;
8. 	Conspiracy; and
9. 	Alter-Ego.
Id.
The second document is the Supplemental Declaration of
Plaintiffs in Support of Application for Default Judgment
Pursuant to CCP § 585(d) (“Plaintiffs’ Supplemental Declaration”)
which was submitted to the state court prior to the prove-up
hearing conducted on April 4, 2024. Doc. #69 (Exhibit C). In that
document, the Plaintiffs offered the following figures for
damages:
1. Damages for Conversion: $42,616.05.
2. Treble Damages for Elder Abuse: $127,848.15.
3. Total pre-judgment interest: $7,560.77 as of April 2024;
4. Punitive Damages: $100,000.00;
5. General Damages: $100,000.00;
6. Special Damages: $197,690.99
a. $261.56 for dump costs;
b. $10,372.01 for materials spent on fixing the residence;
c. $5,737.76 for storage fees for items that had to be
removed from the residence;
d. $3,282.25 for County Fees;
e. $60,034.78 for Quote to repair the Garage;
f. $116,00.93 [sic] for Quote to fix the House;
g. $2,000.00 for Draftsman Plans;
h. $41,025.00 for attorneys’ fees ($39,237.50 per Request
to Fix Attorney’s Fees dated March 1, 2024, plus
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$1,787.50 from March 30, 2024, through April 1, 2024,
for prove-up hearing preparation.
Id.
The third document is the Judgment by Default by Court
entered by the Tulare Superior Court (“the Judgment by Default”)
on April 5, 2024. Doc. #79 (Exhibit F, pg. 11). 	The State Court
Judgment is a terse document, but it is the only documentation
from the state court which purports to identify in any way the
claims for which default judgment was entered, and it appears
that the state court granted damages, for the most part, on
exactly the basis requested by Plaintiffs save for the addition
of $4,813.24 in costs:
Id.
The court notes what appears to be error in these figures.
The Plaintiffs requested treble damages in the amount of
$127,848.15, which is equal to three times the conversion damages
of $42,616.05. Doc. #69 (Exhibit C). 	The Plaintiffs’
Supplemental Declaration states that the total amount of
converted funds was $49,870.00. 	But Plaintiffs also concede that
Esparza repaid $7,253.95, reducing the conversion damages to
$42,616.05. Id. 	However, in the Judgment by Default by Court, it
appears that the state court multiplied the pre-reduction
Principal: 	$42,616.05
Special Damages: 	$197,690.99
General Damages: 	$100,000.00
Interest: 	$7,560.77
Costs: 	$4,813.24
Attorney Fees: 	$41,025.00
SUBTOTAL: 	$393,706.05
Treble**: 	$149,610.00**
Punitive: 	$100,000.00
TOTAL: 	$643,316.05
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conversion damages ($49,870.00) times three to reach the treble
damages award ($149,610.00) instead of the post-reduction
conversion damages ($42,616.05) which would have yielded treble
damages of $127,848.15, the sum requested by Plaintiffs. Doc. #69
(Exhibit C); Doc. 79 (Exhibit F).
There is nothing in the record indicating why the state
court based the treble damages award for elder abuse on the total
amount converted and ignored the reduction resulting from
Esparza’s repayment of $7,253.95. 	The court is inclined to think
this was a scrivener’s error on the part of the state court and
that the treble damages award should have been $127,88.15 and the
total award should have been $636,092.10.
The three Plaintiffs each submitted affidavits in connection
with this motion, but while they ostensibly lay out claims for
fraud, all three affidavits seek a determination of non-
dischargeability as to the State Court Judgment which, as far as
the court can tell, is premised on a finding of fraud by the
state court judge.
The Defendants filed for Chapter 7 relief on February 14,
2025. Case No. 25-10429, Doc. #1. 	Plaintiffs filed this
adversary proceeding for determination of non-dischargeability on
April 11, 2025. Doc. #1.
On January 6, 2026, Plaintiffs moved for Entry of Default
Judgment. Doc. #60 et seq. 	Neither Defendant has responded to
this motion. 	On February 25, 2026, the court entered an order
exercising its authority to resolve the motion without need for
oral argument and took this matter under submission. Doc. #86.
The court is prepared to rule.
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DISCUSSION
1. Issue and claim preclusion.
As a threshold matter, the court must clarify what aspects
of this non-dischareability action are presently before the
court. 	At this time, the court will not definitively rule on
whether Esparza’s acts against the Plaintiffs in the abstract
give rise to claims which are not dischargeable. 	A review of
Plaintiffs’ voluminous filings leaves the court with the firm
impression that Plaintiffs’ arguments for a default judgment, as
raised in this motion rely on the findings (such as they are) of
the state court.
Plaintiffs do not address issues of res judicata and/or
collateral estoppel (claim and/or issue preclusion) in their
filings, and the court will not perform an exhaustive review of
those legal doctrines, but the court will summarize them briefly
to give context to this opinion.
Before the court can give preclusive effect to the State
Court Judgment on account of res judicata (claim preclusion), or
issue preclusion, the court must consider the following factors:
1. whether rights or interests established in the prior
judgment would be destroyed or impaired by prosecution of
the second action;
2. whether substantially the same evidence is presented in the
two actions;
3. whether the two suits involve infringement of the same
right; and
4. whether the two suits arise out of the same transactional
nucleus of facts.
Price v. Reddin (In re Reddin), 626 B.R. 845, 855 (Bankr. E.D.
Cal. 2021)(quoting Robertson v. Isomedix, Inc. (In re
International Nutronics), 28 F.3d 965 (9th Cir. 1994))(emphasis
added).
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Before the court can give preclusive effect to the State
Court Judgment on account of res judicata (claim preclusion), or
issue preclusion, the court must consider a slightly different
set of five factors:
1. whether the issue sought to be precluded from re-litigation
is identical to that decided in a former proceeding;
2. whether issue was actually litigated in the former
proceeding
3. whether the issue was necessarily decided in the former
proceeding;
4. whether decision in the former proceeding must be final and
on the merits; and
5. whether the party against whom preclusion is sought is the
same as, or in privity with, the party to the former
proceeding.
Price, 626 B.R. at 855 (citing Cal-Micro, Inc. v. Cantrell, 329
F.3d 1119, 1123 (9th Cir. 2003))(emphasis added).
In resolving this matter under either doctrine, the court
first looks to one fundamental question: what issues were
actually decided in the State Court Judgment that are entitled to
preclusive effect? The court’s answer to that question renders
the other elements of collateral estoppel and claim preclusion
irrelevant.
2. 	Nondischargeability and Default Judgments.
Pursuant to 11 U.S.C. § 523, an individual debtor may not
receive a discharge on certain kind of debts identified as
nondischargeable by the Bankruptcy Code. Plaintiffs argue that
Esparza’s debts arising from the State Court Default are
nondischargeable on the following basis:
1. § 523(a)(2)(A): any debt for money, property, services, or
an extension, renewal, or refinancing of credit, to the
extent obtained by false pretenses, a false representation,
or actual fraud, other than a statement respecting the
debtor’s or an insider’s financial condition.
2. § 523(a)(2)(B): any debt arising from the use of a statement
in writing (i)that is materially false; (ii)respecting the
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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.
3. § 523(a)(4): any debt for fraud or defalcation while acting
in a fiduciary capacity, embezzlement, or larceny.
4. § 523(a)(6): any debt arising from a willful and malicious
injury.
See Doc. #66 (Memorandum of Authorities). The burden of
proof in a non-dischargeability action lies with the creditor
(here, Plaintiffs) who must prove by preponderance of the
evidence that the elements of the relevant § 523(a) provision are
met. Grogan v. Garner, 498 U.S. 279, 290, 111 S. Ct. 654, 661
(1991)(superseded on other grounds by Congressional statute as
recognized by Osborne v. Kakas, No. 4:17-CV-00254-JRG, 2018 U.S.
Dist. LEXIS 42729, at *4 (E.D. Tex. Feb. 15, 2018). The limits on
the dischargeability of debts contained in § 523 should be
construed strictly against creditors and in favor of debtor.
Ghomeshi v. Sabban (In re Sabban), 384 B.R. 1, 5 (B.A.P. 9th Cir.
2008).
Plaintiffs’ burden is complicated in the instant case by the
fact that they must demonstrate a preponderance of the evidence
in the context of what might be termed a “double-default”: Not
only have the Debtor-Defendants failed to respond to this
adversary proceeding (beyond Esparza’s stricken filings),
Plaintiffs also rely on a judgment originally obtained against
Esparza (and not Dougherty) because of Esparza’s default in the
State Court Action rather than through any true litigation.
The entry of default judgment is a two-step process and
the court has an affirmative obligation to review the
underlying factual allegations and supporting evidence
to make sure the plaintiff can prove his prima facie
case. Default judgments are governed by Federal Rule of
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Civil Procedure 55, which is made applicable to
bankruptcy proceedings by Federal Rule of Bankruptcy
Procedure 7055. In order to obtain a default judgment
establishing the non-dischargeability of a debt, a two-
step process is required: (1) entry of the party's
default, and (2) entry of a default judgment.
Fed.R.Civ.P. 55(a) and (b); Brooks v. United States, 29
F.Supp.2d 613, 618 (N.D. Cal. 1998), aff'd mem., 162
F.3d 1167 (9th Cir.1998). The bankruptcy court is given
broad discretion to enter a default judgment in an
adversary proceeding, however, the plaintiff is not
entitled to such judgment as a matter of right. Cashco
Financial Services, Inc. v. McGee (In re McGee), 359
B.R. 764, 771 (9th Cir. BAP 2006), citing Kubick v.
FDIC (In re Kubick), 171 B.R. 658, 659-60 (9th Cir. BAP
1994).
The court is merely permitted but is not required to
draw inferences in a default judgment context. "In
order to do justice, a trial court has broad discretion
to require that a plaintiff prove up even a purported
prima facie case by requiring the plaintiff to
establish the facts necessary to determine whether a
valid claim exists that would support relief against
the defaulting party." In re McGee, 359 B.R. at 773
(emphasis original), citing Wells Fargo Bank v. Beltran
(In re Beltran), 182 B.R. 820, 823 (entry of default
does not automatically entitle a plaintiff to a default
judgment, regardless of the general effect of the entry
of a default to deem well-founded allegations as
admitted); Quarré v. Saylor (In re Saylor), 178 B.R.
209, 212 (9th Cir. BAP 1995) (trial court directed the
plaintiff to submit evidence of a prima facie case in
support of a default judgment).
Mendes v. Jacuinde (In re Jacuinde), Nos. 08-15509-B-7, 08-
1238, 2009 Bankr. LEXIS 5629, at *8 (Bankr. E.D. Cal. Apr. 16,
2009).
The debt which Plaintiffs seek to have declared non-
dischargeable arose from the default State Court Judgment. But
before the court can determine non-dischargeability, it must
first determine the contours of what the State Court Judgment
actually established as the basis for Esparza’s (and, by virtue
of community property law, Dougherty’s) liability.
///
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The Plaintiffs would have the court find non-
dischargeability under multiple provisions of § 523(a): undue
influence, breach of contract, intentional misrepresentation –
fraud, and conversion. Doc. #66 passim. In support of those
arguments, Plaintiffs rely on affidavits submitted in conjunction
with this motion Id. But the court finds the affidavits attesting
as to what sins Esparza might have committed to be less probative
than what the state court actually determined within the four
corners of its order.
As noted supra, while the State Court Complaint contained
several counts, the actual Judgment in Default was more refined
and seems to have tracked exactly the Plaintiffs’ Supplemental
Declaration. As such, the damages that the state court awarded
were as follows (plus costs):
1. Damages for Conversion: $42,616.05.
2. Treble Damages for Elder Abuse: $127,848.15 (erroneously
entered as $149,610.00, see supra).
3. Total pre-judgment interest: $7,650.77 as of April 2024;
4. Punitive Damages: $100,000.00;
5. General Damages: $100,000.00; and
6. Special Damages: $197,690.99.
The court accepts these damage awards as admitted
allegations, but that does not mean that all these awards are
nondischargeable just because Plaintiffs insist on viewing them
through the lens of § 523. The court must address each aspect of
the damages award in turn to determine whether or not they may be
properly classified as nondischargeable under the Code in light
of the requirement for strict construction of § 523 in favor of
debtors. Sabban, 384 B.R. at 5.
The court must also make a determination of whether any
damages determined to be non-dischargeable include damages owed
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by Dougherty in her individual capacity (as opposed to damages
owed on a community claim) and whether damages are properly
awarded to all three Plaintiffs or just to Sheila.
3. 	Dougherty’s individual and community property
liability.
When the court denied Plaintiffs’ prior effort to obtain a
default judgment, the court found that Plaintiffs had failed to
show that Dougherty, who was not a party to the State Court
Action, has any individual liability. That is unchanged.
Plaintiffs present no evidence of Dougherty’s involvement based
on the facts underlying this case. The court must turn next to
the question of whether Plaintiffs have a community claim against
both Defendants.
[A] "community claim" is a debt owed by the debtor or
the debtor's spouse, which under state law could have
been satisfied from community property that would have
passed to the debtor's bankruptcy estate, whether or
not such property existed at the commencement of the
case. Thus, three criteria must be met before an
obligation has the status of a community claim: (1) it
must be a debt owed by one of the spouses; (2) it must
be satisfiable from community property under applicable
state law; and (3) the community property from which
the debt could be satisfied under state law must be
included within the assets which would pass to the
debtor's bankruptcy estate, whether or not such assets
exist at the commencement of the case.
In re Soderling, 998 F.2d 730, 733 (9th Cir. 1993).
California is a community property state, and “[e]xcept as
otherwise provided by statute, all property, real or personal,
wherever situated, acquired by a married person during the
marriage while domiciled in this state is community property.”
Cal. Fam. Code § 760. The same principle applies to debts
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incurred during the marriage, including civil liability against
only one spouse:
(a) Except as otherwise expressly provided by statute,
the community estate is liable for a debt incurred by
either spouse before or during marriage, regardless of
which spouse has the management and control of the
property and regardless of whether one or both spouses
are parties to the debt or to a judgment for the debt.
(b) “During marriage” for purposes of this section does
not include the period after the date of separation, as
defined in Section 70, and before a judgment of
dissolution of marriage or legal separation of the
parties.
Cal. Fam. Code § 910 (a).
The Defendants filed the underlying Chapter 7 case on
February 14, 2025. Main Case Doc. #1. The Plaintiffs are
listed on Schedule F, line 4.1 as nonpriority unsecured
creditors, and the Schedules also state that the debt was
incurred by “Debtor 1 and Debtor 2 only” and that it is for
a community debt. Id. (at Schedule F). The court notes that
on Schedule F, Debtors estimated the Plaintiffs’ claims to
be worth $0.00. Id. Furthermore, the Debtors did not list
the State Court Action under Question 9 of their Statement
of Financial Affairs, which asked whether Debtors were party
to any lawsuit, court action, or administrative proceeding
within 1 year prepetition. Doc. #1 (Statement of Financial
Affairs). The State Court Judgment was entered less than 1
year prior to the petition date.
Based on their bankruptcy filings, Defendants appear to
concede that any debt that may be owed to Plaintiffs is a
community claim incurred either before or during the marriage. To
the extent that any of Dougherty’s assets are her own individual
assets and separate property, they are not part of the community
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estate. But otherwise, a prepetition judgment against Esparza
attaches to the assets held as community property by Defendants.
Under § 524 (a)(3) the “community property discharge” is
limited to debts other than those determined non-dischargeable.
So, if there is a non-dischargeable debt owed by Esparza the
community property Esparza and Dougherty may acquire post-
petition is not protected by the “community property discharge.”
4. 	The award for conversion.
Conversion was the Plaintiffs’ seventh cause of action in
the State Court Complaint. Doc. #67. The Plaintiffs alleged that
Sheila took out a loan for $50,000.00 which was intended to pay
for renovations to her home to be performed by Esparza and
others. Id. Esparza and others “substantially interfered with
Plaintiffs’ property by knowingly or intentionally taking
possession” of that money, preventing Plaintiffs from accessing
it, and refusing to return it after the contract was breached and
after demands by Plaintiffs. Id. The Complaint alleges that the
Plaintiffs “did not consent and as a result were harmed.” Id.
Under California law, “[a] claim of conversion requires only
three elements: ‘(1) the plaintiff's ownership or right to
possession of the property; (2) the defendant's conversion by a
wrongful act or disposition of property rights; and (3)
damages.’” Kim v. Kim (In re Kim), 2025 Bankr. LEXIS 3265, at
*11-12 (B.A.P. 9th Cir. Dec. 17, 2025)(quoting L.A. Fed. Credit
Union v. Madatyan, 209 Cal.App.4th 1383, 1387, 147 Cal. Rptr. 3d
768 (2012)).
A judgment for conversion under California substantive
law decides only that the defendant has engaged in the
"wrongful exercise of dominion" over the personal
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property of the plaintiff. It does not necessarily
decide that the defendant has caused "willful and
malicious injury" within the meaning of § 523(a)(6). A
judgment for conversion under California law therefore
does not, without more, establish that a debt arising
out of that judgment is non-dischargeable under
§ 523(a)(6).
Peklar v. Ikerd (In re Peklar), 260 F.3d 1035, 1039 (9th
Cir. 2001).
At the Prove-Up Hearing, Sheila testified that Esparza
induced her to sign an agreement whereby he would perform
renovations on her home in anticipation of selling it. Doc. #68
(Exhibit B, Prove-Up Hearing Transcript at pg. 10-13). To pay for
these renovations, Esparza induced Sheila to take out a loan in
the amount of $49,870.00 with New Vision Credit Union (“NVCU”),
and Sheila caused the disbursement checks issued by NVCU to be
provided to Esparza. Id.
Later during the prove-up hearing, the following exchange
took place between Plaintiff’s counsel, Erika Rascon (“Rascon”)
and the state court judge:
THE COURT: So are you asking for trouble [sic] and
punitive.
MS. RASCON: Yes, Your Honor. We're asking for trouble
damages [sic], which is the amount of the converted
amount of the 42,000 -- Your Honor, it is right here in
front of me. I apologize. We are asking for trouble
[sic] of damages in the amount of $127,848.15 and
additional punitive of 100,000. So, if you add it all
up, it comes out to a total judgment request of
$621,554.20.
THE COURT: And the trouble amount is calculated off of
what underlying amount?
MS. RASCON: The trouble [sic] amount is based on the
amount converted. So that would be the $42,616.05.
THE COURT: Which was the loan amount?
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MS. RASCON: The loan amount was $49,870. But because
Mr. Esparza did return $7,253,95, we reduced it for
those credits.
Id.
This is consistent with the award sought and granted for
“elder abuse” in the Plaintiff’s Supplemental Declaration and the
Judgment by Default by Court, both of which clearly spoke of an
award of treble damages ($127,848.15) that was three times the
award for conversion damages ($42,616.05). Doc. #69 (Exhibit C).
The Judgment by Default by Court does not explicitly say
what the underlying basis for the judgment was. Doc. #79 (Exhibit
F). There is no indication that the state court found fraud on
the part of Esparza. Id. Indeed, even the conversion claim is
only a part of the judgment through inference, because the
“Principal” amount awarded was $42,616.05, which was the same
amount described by Rascon during the Prove-Up Hearing and in the
Plaintiffs’ Supplemental Declaration as being damages for
conversion. Docs. #68 (Exhibit B at pg. 25) and #68 (Exhibit C,
pg. 2, ¶ 5(a)-(b)).
Furthermore, based on the Prove-Up Hearing Transcript, the
court has doubts that enough evidence was placed before the state
court to support a finding of conversion anyway. Recall that
California law requires the Plaintiffs to show that Sheila had
ownership or right to possession of the property (here, the loan
proceeds) and that Esparza converted that property by a wrongful
act or disposition of property rights. Kim, supra.
However, Sheila’s own testimony indicates that she herself
directed that the loan disbursements were to be paid to Esparza
as part of their contractual relationship in order to pay for the
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work he was to perform for Sheila. The fact that Esparza took the
money and did not perform the work cannot be viewed as conversion
because it was Sheila’s intent that the money go to him, and if
Esparza had done the work as contracted, there would have been no
case. What was presented to the state court at the Prove-Up
Hearing appears to be a breach of contract rather than
conversion, and if the Plaintiffs’ theory of conversion were
valid, every breach of contract case in which a party took money
but did not perform would automatically become an intentional
tort.
That is a position rejected by this circuit. In Lockerby v.
Sierra, the Court of Appeals addressed a situation where a
bankruptcy court found an intentional breach of contract to be
“nondischargeable as arising from ‘willful and malicious injury’
under § 523(a)(6) because Sierra possessed the ‘subjective intent
of harming Lockerby.’” 535 F.3d 1038, 1040 (9th Cir. 2008). The
Court of Appeals reversed the bankruptcy court, relying on the
Supreme Court’s holding In re Geiger. Lockerby, 535 F.3d at 1041
(citing Geiger v. Kawaauhau (In re Geiger),113 F.3d 848, 852 (8th
Cir. 1997) (en banc)).
The Supreme Court noted that "[i]ntentional torts
generally require that the actor intend 'the
consequences of an act,' not simply 'the act itself,'"
Id. at 61-62 (quoting Restatement (Second) of Torts
§ 8A, cmt. a, at 15 (1964) (emphasis in Geiger)) and
then rejected the expansion of § 523(a)(6) to "a wide
range of situations in which an act is intentional, but
injury is unintended." Id. at 62.The Court then
specifically rejected the notion that a "knowing breach
of contract" could trigger exception from discharge
under § 523(a)(6).Id.
Lockerby, 535 F.3d at 1041. This outcome is implicit in the
Bankruptcy Code itself, as 11 U.S.C. § 365(a) specifically
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contemplates the discharge of intentional breaches of contract
through the option to reject executory contracts and unexpired
leases not beneficial to the debtor’s estate. Id. at 1042-43.
“Since the Code expressly permits intentional breaches of
contract (making no qualifications with respect to the motive of
the breaching party), it would be inconsistent to interpret
§ 523(a)(6) to render nondischargeable debts stemming from
intentional breaches substantially certain to cause injury.” Id.
at 1043.
As an aside, the court notes that Sheila’s testimony, if one
squints, might have provided a basis for a fraud claim because
she testified that Esparza falsely claimed to be a licensed
California contractor, though she did not claim to have relied on
that statement in agreeing to contract with him. Doc. #68
(Exhibit B at pg. 8). 	There is no indication in the Prove-Up
Hearing transcript that the state court based the award on
anything other than conversion and nothing in the Judgment by
Default by Court that the award was even based on conversion as
opposed to breach of contract. See Doc. #79 (Exhibit F at pg. 2
(identifying Aaron and Kim as third-party beneficiaries entitled
to performance from the defendants, language that evokes contract
damages rather than damages for an intentional tort). See also
Kim, 2025 Bankr. LEXIS 3265, at *17 (where state court did not
specify basis on which it awarded punitive damages, bankruptcy
court cannot assume that a punitive damages award is indicative
that claim is nondischargeable under § 523(a)(6)).
Finally, even if the court assumes the existence of a
judgment for the intentional tort of conversion, as the Peklar
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Court stated, that alone is insufficient for the judgment to be
nondischargeable under § 523(a)(6). 260 F.3d at 1039.
Section 523(a)(6) excepts from discharge debts arising
from a debtor's "willful and malicious" injury to
another person or to the property of another. "The
'willful' and 'malicious' requirements are conjunctive
and subject to separate analysis."
A "malicious" injury requires: "(1) a wrongful act, (2)
done intentionally, (3) which necessarily causes
injury, and (4) is done without just cause or excuse."
A showing of "willful" intent is "[a]n exacting
requirement" and "it is satisfied when a debtor harbors
'either a subjective intent to harm, or a subjective
belief that harm is substantially certain.'" The injury
must be deliberate or intentional, "not merely a
deliberate or intentional act that leads to injury."
Therefore, like § 523(a)(4), § 523(a)(6) also requires
a showing of intent. Moreover, the intent requirements
of § 523(a)(6) are extremely specific.
Kim, 2025 Bankr. LEXIS 3265, at *16 (citations omitted). Nor
is the fact that the state court granted punitive damages
dispositive. See generally Plyam v. Precision Dev., LLC (In re
Plyam), 530 B.R. 456, 469 (B.A.P. 9th Cir. 2015)(noting that
under California law, punitive damages are available to punish
nonintentional but reckless conduct that does not fall within
§ 523(a)(6)); Taylor v. Forte Hotels Int'l, 235 Cal. App. 3d
1119, 1124, 1 Cal. Rptr. 2d 189 (1991)(“The act must be knowingly
or intentionally done, but a wrongful intent is not necessary.”)
In this case, establishing non-dischargeability under
§ 523(a)(6) requires findings of both “willfulness” and
“maliciousness.” The willfulness analysis is a subjective
standard that “focuses on the debtor's state of mind and
precludes application of § 523(a)(6)'s non-dischargeability
provision short of the debtor's actual knowledge that harm to the
creditor was substantially certain." Thiara v. Spycher Bros. (In
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re Thiara), 285 B.R. 420, 432 (B.A.P. 9th Cir. 2002)(quoting
Carillo v. Su (in Re Su), 290 F.3d 1140, 1146 (9th Cir. 2002)).
“A 'malicious' injury [for § 523(a)(6) purposes] involves
'(1) a wrongful act, (2) done intentionally, (3) which
necessarily causes injury, and (4) is done without just cause or
excuse.'” Thiara, 285 B.R. at 433 (citations omitted). 	Both the
willfulness and maliciousness tests require an inquiry into the
debtor’s state of mind. Id. 	And while a willful and malicious
state of mind may sometimes be inferred from circumstantial
evidence, the court must make findings of fact as to willfulness
and maliciousness before § 523(a)(6) is applicable. Id.
Here, there was no evidence, even circumstantial, presented
before the trial court that spoke to Esparza’s state of mind
regarding the events in question, nor were there any findings of
fact in the state court judgment indicating that the purported
conversion was willful and malicious as opposed to reckless,
which the BAP defines as "a 'deliberate disregard' of the 'high
degree of probability' that an injury will occur." Plyam, 530
B.R. at 468. 	In the absence of such findings, this court cannot
say that the State Court Judgment meets the § 523(a)(6) threshold
for non dischargeability.
Having found that Plaintiffs have failed to show that the
State Court Judgment for conversion does not satisfy the
requirements § 532(a)(6), it follows that the other damages
awards listed in the Judgment by Default by Court, all of which
flow from the conversion award, are also dischargeable. 	However,
because the court realizes that the Plaintiffs, unable to rely on
the preclusive effect of the State Court Judgment, may seek to
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prove non dischargeability directly, will address the rest of the
damages as itemized by the state court.
5. Treble Damages for Elder Abuse.
Following the “Principal” award for conversion, the next
award is for “treble damages for elder abuse.” 	In their
Memorandum of Authorities, Plaintiffs assert that these damages
are premised on violation of California Welfare and Institutions
Code (“CWIC”) §§ 16510.30 et seq. Doc. #66 at pp. 4-6. CWIC
§ 16510.30 describes “financial abuse” of an elder or dependent
adult as follows:
(a) “Financial abuse” of an elder or dependent adult
occurs when a person or entity does any of the
following:
(1) Takes, secretes, appropriates, obtains,
or retains real or personal property of an
elder or dependent adult for a wrongful use
or with intent to defraud, or both.
(2) Assists in taking, secreting,
appropriating, obtaining, or retaining real
or personal property of an elder or dependent
adult for a wrongful use or with intent to
defraud, or both.
(3) Takes, secretes, appropriates, obtains,
or retains, or assists in taking, secreting,
appropriating, obtaining, or retaining, real
or personal property of an elder or dependent
adult by undue influence, as defined in
Section 15610.70.
(b) A person or entity shall be deemed to have taken,
secreted, appropriated, obtained, or retained property
for a wrongful use if, among other things, the person
or entity takes, secretes, appropriates, obtains, or
retains the property and the person or entity knew or
should have known that this conduct is likely to be
harmful to the elder or dependent adult.
(c) For purposes of this section, a person or entity
takes, secretes, appropriates, obtains, or retains real
or personal property when an elder or dependent adult
is deprived of any property right, including by means
of an agreement, donative transfer, or testamentary
bequest, regardless of whether the property is held
directly or by a representative of an elder or
dependent adult.
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(d) For purposes of this section, “representative”
means a person or entity that is either of the
following:
(1) A conservator, trustee, or other
representative of the estate of an elder or
dependent adult.
(2) An attorney-in-fact of an elder or
dependent adult who acts within the authority
of the power of attorney.
Cal. Welf. & Inst. Code § 15610.30. Curiously, in their
Memorandum of Authorities, Plaintiffs argue that the state court
awarded treble damages for actions by Esparza that (a) constitute
false pretenses, (b) were based on false pretenses, or (c) were
based on actual fraud under § 523(a)(2)(A). Doc. #66 at pg. 5
(quoting elements for § 523(a)(2)(A) non-dischargeability as
stated in Van Zandt v. Mbunda (In re Mbunda), 484 B.R. 344, 350
(B.A.P. 9th Cir. 2012), aff’d by Van Zandt v. Mbunda (In re
Mbunda), 604 Fed. Appx. 552 (9th Cir. 2015).
However, this argument is at odds with the arguments
presented by Plaintiffs at the prove-up hearing before the state
court as quoted supra. See Doc. #68 (Exhibit B, Transcript of
Prove-Up hearing at pp. 25-26). 	At the prove-up hearing,
Attorney Rascon sought treble damages under the elder abuse
statute equal to three times “the converted amount” of
$42,616.05. Id.
Id. This is consistent with the award sought and granted for
“elder abuse” in the Plaintiff’s Supplemental Declaration and the
Judgment by Default by Court, both of which clearly spoke of an
award of treble damages for elder abuse ($127,848.15) that was
three times the award for conversion damages ($42,616.05). Doc.
#69 (Exhibit C).
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Thus, the question before the court is whether treble
damages sought under the California Elder Abuse Statutes and
premised on damages for conversion are nondischargeable. In the
court’s view they are not nondischargeable under § 523(a)(2)(A)
as Plaintiffs argue. 	At the prove-up hearing, Plaintiffs based
their estimation of treble damages on the underlying damage award
for conversion, and so, to be deemed non-dischargeable, the
Plaintiffs must rely on § 523(a)(6).
The Plaintiffs argue that, notwithstanding their statements
at the prove-up hearing wherein they requested treble damages in
the amount of $127,848.15, they now argue that they are entitled
to the full $149,610.00 in treble damages awarded in the State
Court Judgment because it is three times the original loan amount
of $49,870.00. Doc. #66 (Memorandum at pg. 20). 	Plaintiffs rely
on Cal. Civ. Code § 3345(b), which states:
(b) Whenever a trier of fact is authorized by a statute
to impose either a fine, or a civil penalty or other
penalty, or any other remedy the purpose or effect of
which is to punish or deter, and the amount of the
fine, penalty, or other remedy is subject to the trier
of fact’s discretion, the trier of fact shall consider
the factors set forth in paragraphs (1) to (3),
inclusive, in addition to other appropriate factors, in
determining the amount of fine, civil penalty or other
penalty, or other remedy to impose. Whenever the trier
of fact makes an affirmative finding in regard to one
or more of the factors set forth in paragraphs (1) to
(3), inclusive, it may impose a fine, civil penalty or
other penalty, or other remedy in an amount up to three
times greater than authorized by the statute, or, where
the statute does not authorize a specific amount, up to
three times greater than the amount the trier of fact
would impose in the absence of that affirmative
finding.
(1) Whether the defendant knew or should have
known that their conduct was directed to one
or more senior citizens, disabled persons, or
veterans.
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(2) Whether the defendant’s conduct caused
one or more senior citizens, disabled
persons, or veterans to suffer: loss or
encumbrance of a primary residence, principal
employment, or source of income; substantial
loss of property set aside for retirement, or
for personal or family care and maintenance;
or substantial loss of payments received
under a pension or retirement plan or a
government benefits program, or assets
essential to the health or welfare of the
senior citizen, disabled person, or veteran.
(3) Whether one or more senior citizens,
disabled persons, or veterans are
substantially more vulnerable than other
members of the public to the defendant’s
conduct because of age, poor health or
infirmity, impaired understanding, restricted
mobility, or disability, and actually
suffered substantial physical, emotional, or
economic damage resulting from the
defendant’s conduct.
Cal. Civ. Code § 3345(b)(emphasis added).
The emphasized language presents a problem for Plaintiffs
because the court has searched in vain for any such affirmative
findings regarding the three factors alluded to above. At the
prove-up hearing, the state court inquired as to whether
Plaintiffs were seeking treble damages and if so in what amount.
Doc. #68 (Exhibit B; see quoted language supra). And the Judgment
of Default by Court is a scant, two-page document which makes no
findings of fact at all. Doc. #79 (Exhibit F). Indeed, that
Judgment merely has a line entry for “Treble: 	$149,610.00,”
which, as the court has noted, appears to erroneously award
Plaintiffs more than the actual damages sought for conversion.
Id.
The Plaintiffs bear the burden of proof in a
dischargeability action, with § 523 construed against them and in
favor of Defendants. In the absence of affirmative findings by
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the trier of fact (here, the state court judge) that support
application of Cal. Civ. Code § 3345(b), this court cannot say
that the state court’s award of treble damages for elder abuse
would be nondischargeable even if the award for conversion was so
found.
6. Punitive damages.
The State Court Judgment awarded $100,000.00 for “punitive
damages.” As noted supra, California law allows for a finding of
conversion that is nevertheless not intentional within the
meaning of § 523(a)(6) and would therefore be dischargeable. In
the absence of a finding of the requisite level of willfulness,
the court cannot find that the $100,000.00 award for punitive
damages would be nondischargeable for the same reasons that the
conversion award itself falls outside the scope of § 532(a)(6).
7. 	Damages awarded to Aaron and Kim.
Finally, the Judgment by Default by Court contains the
following language relevant to Aaron and Kim: “Judgment is hereby
entered that Plaintiffs AARON MARCUM and KIM MARCUM are third-
party beneficiaries and are entitled to Defendants, [ESPARZA] and
EXCEL RESTORATIONS & CONSTRUCTION MANAGEMENT LLC, performance.”
Doc. #79 (Exhibit F). This is in reference to that part of the
state court complaint which sought a declaratory judgment that
Aaron and Kim were third-party beneficiaries to the contract
between Sheila and Esparza. But to the extent that the damages
awarded to Aaron and Kim were for breach of contract, those
damages do not fall within § 523(a). And neither Aaron nor Kim
alleges, either before the state court nor in their filings here,
///
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that Esparza committed any acts towards them which represent
intentional torts subject to § 532(a) non-dischargeability.
This distinction is grounded in California law. In Schauer
v. Mandarin Gems of Cal., Inc., the court stated:
Further, the absence of an assignment of rights from
Erstad precludes plaintiff from maintaining a cause of
action for actual fraud. It is axiomatic that plaintiff
must allege she “actually relied upon the
misrepresentation; i.e., that the representation was
‘an immediate cause of [her] conduct which alter[ed]
[her] legal relations,’ and that without such
representation, ‘[she] would not, in all reasonable
probability, have entered into the contract or other
transaction.’ ” Here, Erstad [the Plaintiff’s ex-spouse
who purchased the diamond ring underlying the civil
action] allegedly relied on the representation and
entered into the contract of sale. As we have
explained, he [Erstad] retained the right, if any, to
sue for actual fraud.
As for constructive fraud, the complaint fails to plead
facts establishing the requisite fiduciary or special
confidential relationship between plaintiff and
defendant.
And even assuming plaintiff could overcome the standing
hurdle, fraud causes of action must be pleaded with
specificity, meaning “(1) general pleading of the legal
conclusion of fraud is insufficient; and (2) every
element of the cause of action for fraud must be
alleged in full, factually and specifically, and the
policy of liberal construction of pleading will not
usually be invoked to sustain a pleading that is
defective in any material respect.” Plaintiff's
complaint utterly fails the specificity test, not
because she is an inartful pleader, but because those
facts that are well pleaded necessarily negate the
existence of the facts supporting the requisite
elements of fraud.
Schauer v. Mandarin Gems of Cal., Inc., 125 Cal. App. 4th 949,
960-61, 23 Cal. Rptr. 3d 233, 241 (2005)(holding that ex-wife of
Erstad, who bought ex-wife a diamond ring later determined to be
worth $23,000.00 less than Erstad paid for it, lacked standing to
sue jewelry store for actual or constructive fraud where there
was no clearing showing of assignment of Erstad’s rights and no
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evidence of fiduciary or special confidential relationship
between the ex-wife and the jewelry store).
Here, there is no indication that Aaron and/or Kim is party
to the contract with Esparza and no evidence that Sheila assigned
any of her rights to maintain an action against Esparza to Aaron
and/or Kim. 	In the absence of any evidence of actions directed
towards Aaron and/or Kim that are nondischargeable, any damages
owed to them are dischargeable. 	This may include any award for
special damages, as the State Court Judgment included a “special
damages” award of $197,690.99, apparently for out-of-pocket
expenses incurred to remediate the damage purportedly done to
Sheila’s home due to Esparza’s non-performance. 	The record is
silent as to whether those expenses were incurred by Sheila or by
Aaron and/or Kim on Sheila’s behalf. 	Any future effort to
recover for special damages must be accompanied by admissible
evidence that such damages flowed out of nondischargeable actions
by Esparza toward the person who actually incurred those
expenses. 	The record so far is unclear on who incurred the
expenses.
CONCLUSION
This matter comes before the court on a motion for entry of
default judgment, one that seeks to hold the State Court Judgment
in the amount of $643,316.05 to be nondischargeable in its
entirety. However, the court’s analysis of the judgment and
whether § 523 applies is necessarily confined to the actual text
of the State Court Judgment and the inferences that can
reasonably be drawn from it where the state court judge did not
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explain the basis for the judgment with any specificity. For the
reasons outlined above, the court is not persuaded that the
“Principal” award of $42,616.05 for conversion damages is
nondischargeable. And if the “Principal” award is dischargeable,
it follows that all the other damages awarded by the state court
would be dischargeable as well.
The court notes that this does not resolve this adversary
proceeding to determine non-dischargeability yet but merely holds
that the Plaintiffs have not satisfied the high burden of proving
non-dischargeability premised solely on the default judgment
awarded by the state court and the submissions to this court
supporting the motion for entry of default judgment. Accordingly,
this motion is DENIED.
It is further ordered that a Status Conference for this case
be set for July 29, 2026, at 11:00 a.m. at which time the
Plaintiffs may advise the court as to how they plan to proceed
with this adversary proceeding. Plaintiffs to submit a Status
Report no later than seven (7) days before the Status Conference.
The court will issue a conforming order.
Dated: 	By the Court
René Lastreto II, Judge
United States Bankruptcy Court
Jul 14, 2026
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Instructions to Clerk of Court
Service List - Not Part of Order/Judgment
The Clerk of Court is instructed to send the Order/Judgment or
other court generated document transmitted herewith to the
parties below. 	The Clerk of Court will send the Order via the
BNC or, if checked 	, via the U.S. mail.
Erika L. Rascon
791 North Cherry Street
P. O. Box 29
Tulare, CA 93275
Louie J. Esparza Jr.
5401 W. Vassar Ave.
Visalia, CA 93277
Colleen K. Dougherty
5401 W. Vassar Ave.
Visalia, CA 93277
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