Petition — Gregg v. Rahm

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B1-49 bs eT CR

) JUL 6 196!

CASE NO. ALEXANDER L. STEVAS,

CLERK

*-:

IN THE SUPREME COURT OF

THE UNITED STATES

OCTOBER TERM, 1980

RONALD E. GREGG,

PETITIONER

CHARLES B. RAHM,

RESPONDENT

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT

OF APPEALS FOR THE NINTH CIRCUIT

DENNIS DEVERMONT, ESQ.

DEVERMONT & DEVERMONT

A Professional Corporation

Attorneys for Petitioner

406 Wilshire Boulevard

Santa Monica, California

Telephone: (213) 393-0308

QUESTIONS PRESENTED

L. Does a prior state court default

judgment exercise a collateral estoppel

force on a bankruptcy court with regard to

the issues already adjudicated in the

state court action?

2. Does a default judgment for invasion

of privacy under California Penal Code

Sections 632 and 637.2 imply malicious con-

duct within the meaning of Section 17(a)

(8) of the Bankruptcy Act (11 U.S.C. 35

(a) (8))?

TABLE OF CONTENTS

Questions Presented .

Table of Authorities

Opinions Below

Jurisdiction ,

Constitutional and Statutory

Provisions Involved ;

Statement of the Case . ;

se ee for Granting the Writ .

The Writ Must Be Granted to

Clarify the Collateral Es-

toppel Effect .of a Prior

State Court Default Judgment

upon the Bankruptcy Courts and

to Resolve Conflicting De-

cisions in the Courts of

Appeal. .

The Writ Must be Granted to

Support California's Aggres-

sive Enforcement of the Right

of Privacy and to Prevent

Malicious Wrongdoers Who

Violate the Fundamental Right

of Privacy from Avoiding the

Civil Penalty ees: for

Their Wrong

Conclusion .

aaurcaty

Opinion Sought to Be Reviewed,

rn re RAHM, 641 F.2d 755 (9th

Findings of Fact and Conclu-

sions of Law. Signed August

BG OTT ee aie te eof eee

Jud ement. Filed August 26,

Order of Remand Upon Appeal -

Findings of Fact and Conclu-

sions of Law (On Remand. )

Filed December 21, 1978 .

Order Affirming Judgment of

Bankruptcy Court Entered

Ser on y 5 iba er 4-

wDWwWw Nes

Complaint to Determine Dis-

chargeability and for Money

Judgment (Complaint No. 1).

Filed January 29, 1978 .

Objections of Findings of Fact

and Conclusions of Law.

Reporter's Transcript of

Proceedin

26, 1979. .

gs, Monday, February

Declaration of Ronald E. Gregg .

Under CCP 585(4) in Lieu of

Personal Testimony and Memoran-.

dum of Points and Authorities

in Support of Entry of Default

Judgment Against Defendant,

Charles B. Rahm. E

24, 1975 .

iii

xecuted July

TABLE OF AUTHORITIES

Cases

A. A. Dietmann v. Time, Inc., 284

. Supp. .C. Cal. 8),

affirmed 449 F. 2d 245 (9th

Cae MOTE e kee Nate 6 26

Bedam v. Turne 99 Cal. 649, “%

Pac. 442 +1893) Bneag hig stew aee ' 21

Bennett v. W. T. Grant Co., 481

‘ t Tec ROTO). +s 19

Brown v. Felsen, 439 U.S 935 (1979) 15,16

Brown v. Kenron Aluminum and Glass

Orp., ° t

CLF LS POR es ea ee ie eho dhyhs as

Cobian ne Jefe 103 Cal. mt 3d

upp. 3 Cal. Rptr ra

(1976) aay Pe Wea eh well 31

Den Hae ck v. Thompson, 228 F. 2d

72 Toth Cir. 1388) St beat a ii 22

Egan v. Mutual of Omaha Insurance

Co., 24 cal 3d 809, L957 CaL

Rptr. 482 (1979)

Fa v. College: Housin Inc., 48

al. App. , al.

Rptr. 658 (1975)

Fults v. Superior Court, 88 Cal.

ar er 899, 152 Cal. Rptr.

2 CESARE R a a ie OMB AB IS ef.

Gill v. Manuel, 488 F. 2d 799 (9th

CaS ROR ST aia rhe eleie’ vs

Griswold v. Connecticut, 381 U.S.

SEO CLOG SE FROG ES elie Axa

al.

» 30,31,52

Harrison v. Donnelly, 153 F.2d 588

(Sth Cir. CLT) 7 dina ef aaa abe Ses i TAN |

Henderson v. Security National Bank,

73 Cal. App. 3d 7604, 140 Cal.

Roer, 368 CLIT Oe es 30

In re Burgas, 58 F. sees et 717 yO C.

079 Taam 2 | 22,33

In re Capri ee 1B. R. 560 (B.C. :

. . . . . . . . . 7 . 6

In re Goodman, 35 F. Supp. 623 (D.C.

N.Y. 1940) . . + . . . . 7 7 22

In re Green, 87 F. 2d 951 (7th Cir. “6

AL 6 TOG REYNE at PNR aera A

In re Houtman, 568 F. in yt sity

Cir. 1978) 3 10,15

In re SS eae 46 F. Rerwdste A asia oe Cc. “5

In re Moore, 18. R. 52 (B.C. Cal.

pS > SCR ree SC air Hae

In re Nance, 556 F. 2d 602 (lst Cir. ig

1977) . . 7 . . . 7. . . . . .

In re Rahm, 641 F. 2d 755 (9th Cir.

RO eae AUG Bg Paw atlales gale brite 9,18,23

In re Willis, 2 B.R. 566 (B.C. Ga. ve

1980) ‘« . . . . . . . . . . .

Johns-Manville v. Workers C ensation

eals Boar a PP :

oo. 158 Cal. "Rptr. 463 (1979) 32

Kapp v. Naturelle, Inc., 611 F. 2d —

70S) COCR COLE. (LITO) 6 68 ee ERS, 17

Kendall Yacht Co v. United Cali-

ornia Ban pp

945, 123 Cal. aes, "84 (1975) 30

Kinsley v. Macur, 107 Cal. App. 3d

565, 165 Cal. Rptr. 608 (1980) 25

Laurence T. Lasa Inc. v. Foster,

° t 9

cert. denied, 446 U.S. 919 (1980) 9,10

Marb v. Cain, 180 Tenn. 500, 176

13, cert. denied, met

U. Si. 800 (1944). : 21

Matter of Kasler, 611 F. 2d 308 (9th

EG RPG! ce eC eee: 9,13

Miller v. Elite Insurance Co., 100

Bis BP. i al. Rptr.

SSS CLEBO) Oo eb ie, col eats 20

' People v. Newton, 42 Cal. App. 3d

294, 116 Cal. Rptr. 690 (1974),

' cert. denied, Newton v. Cali-

fornia, 420 U.S. 937 (Lola)... 27

People v. pyri ck 77 Cal. App. 3d

° al. Rptr. 38 (1978) . 26

Porten v. University of San Francisco

64 Cal. App. er $25, 134 cal.

Rotr. 839 (1976) (206. oe 25

Riehle v. Margolies, 279 U.S. 218

CL DCOR MOE a Chile ce whe tee 0le bag ke

Robinson v. Early, 248 Cal. App. 2d

15, 56 Cal. Rptr. 183 (1967) . 23

Tinker v. colwelt, ty U.S. 473

(1904) iieeg

- 18,19,21,22,27

U.S. v. Stinett, 11 Fed. Pupp aye

(D.C. Mic h 19 i. ee ° 20

Zhadan v. rere L.A. Motors, 66

a Ba. ROCe.

132, os aa after remand, 16

Cal. ih 3d 821, LoL - i. ssuomh

225: CLPFOM oN kane obs atkeoe

Constitutions and Statutes

United States ay SRA

Amendment IV... , pe a ie 25

CN Sg EGS Ro 25

GEE ie a eres ‘aite ole 6 26

California Constitution, art I, § l 25

GO hi CAW a Oe SO ROA ics 0 (ee ete 0. Oagae

Cal. Penal: Coda ® G50) iies bg iese '«: Zapas

Gal.: Penal Coge; 8632 (30 tc. 23,25,26,33

Cal. Penal Code § 637.2 ... 23,25,28,29

National Bankruptcy Act § 17(a) (8),

kL: U..8.Ci S 30a) (8) 6% ;

Books

Black's Law siceapeeigad ia ed.

BERR leh -e0 aS ep ee Sy 4

vii

OPINIONS BELOW

The April 6, 1981, opinion of the

Court of Appeals for the Ninth Circuit,

whose judgment is herein sought to be re-

viewed, is reported at 641 F. 2d 755 (9th

Cir. 1981) and is reprinted in Appendix A

to this Petition. The prior opinions of

the United Staten District Court for the

Southern District of California, Civil Case

Number 78-0057-N, are unpublished and are

reprinted in Appendices D and F to this

Petition. The prior opinions of the United

States’ District Gourt for the Southern °

District of California, Bankruptcy Number

76-235 M, are unpublished and are reprinted

in Appendices B, C, E, and G to this

Petition.

JURISDICTION

The judgment of the Court of Appeals

for the Ninth Circuit was made and entered

on April 6, 1981, and copies thereof are

appended to this Petition in Appendix A.

The jurisdiction of this court is invoked

under 28 U.S.C. 1254(1).

CONSTITUTIONAL AND STATUTORY PROVISIONS

INVOLVED

This case involves the constitutional

and statutory provisions cited below.

National Bankruptcy Act, Station 17 (a) (8)

A discharge in bankruptcy shall release

a bankrupt from all of his provable debts,

“whether allowable in full or in part, ex-

-cept such as (8) are liabilities for willful

and malicious injuries to the person or

property of another.’

California Constitution, Article I

| Section L

All people are by nature free and inde-

pendent, and have certain inalienable rights,

among which are those of enjoying and de-

fending life and liberty; acquiring, pos-

sessing, and protecting, property; and

pursuing and obtaining safety, happiness

and privacy.

California Penal Code Section 630

630 (Declaration of policy)

The Legislature hereby declares that ad-

vances in science and technology have led

*Because all relevant acts of the parties

occurred prior to October 1, 1979, the date the new

bankruptcy act became effective, §402 of Pub.L. 95

598, Title IV, Nov. 6, 1978, 92 Stat. 2682, dis-

position of the case is controlled by section 35(a)

of the prior act. Section 35(a)(8) has been re-

enacted without "significant alterations as 11

U.S.C. §523(a) (6).

to the development of new devices and tech-

niques for the purpose of eavesdropping upon

private communications and that the invasion

of privacy resulting from the continual and

increasing use of such devices and techniques

has created a serious threat to the free exer-

cise of personal liberties and cannot be

tolerated in a free and civilized society.

The Legislature by this chapter intends

to protect the right of privacy of the people

in this state. The Legislature recognizes that

law enforcement agencies have a legitimate need

to employ modern listening devices and tech-

niques in the investigation of criminal con-

duct and the apprehnsion of lawbreakers.

Therefore, it is not the intent of the

Legislature to place greater restraints on

the use of listening devices and techniques

by law enforcement agencies than existed

prior to the effective date of this chapter.

California Penal Code, Section 632

(a) Every person who, intentionally and

without the consent of all parties to a con-

fidential communication, by means of any

electronic amplifying or recording device,

eavesdrops upon or records such confidential

communication, whether such communication

is carried on among such parties in the

presence of one another or by means of a

telegraph, telephone or other device, except

a radio, shall be punishable by fine not

exceeding two thousand five hundred dollars

($2,500.00), or by imprisonment in the county

jail not exceeding one year, or by imprison-

ment in the state prison, or by both such

fine and imprisonment in the county jail or

in the state prison.

California Penal Code Section 637.2

637.2 (Damages: Injurctive Relief)

(a) Any person who has been injured by a

violation of this chapter may bring an

action against the person who committed

the violation for the greater oi the fol-

lowing amounts:

(1) Three thousand dollars ($3,000).

(2) Three times the amount of actual

damages, if any, sustained by the

plaintiff.

(b) Any person may, in accordance with

the provisions of Chpater 3 (commencing with

Section 525) of Title 7 of Part 2 of the

Code of Civil Procedure, bring an action

to enjoin and restrain any violation of

this chapter, and may, in the same action

seek damages as provided by the subdivision

(a).

to an action pursuant to this section that

the plaintiff has suffered, or be threatened

with, actual damages.

STATEMENT OF THE CASE

On August 7, 1975, Petitioner, RONALD

E. GREGG, obtained a state court default

judgment for $3,022.60 against Respondent,

CHARLES BARRY RAHM, for civil penalties

imposed by California Penal Code § 637.2

for violation of California Penal Code 632.

Section 637.2 provides civil penalties when

an individual invades the right of privacy

of another by intentionally recording the

other's confidential communication without

his permission, in violation of section 632.

Respondent, RAHM, filed a voluntary

petition in bankruptcy under former 11

U.S.C. § 21(a)(6) on January 29, 1976.

_ GREGG brough an action in the Bankruptcy

Court against RAHM to determine the dis-

chargeability of the judgment debt. GREGG

argued that the debt should not be dis-

charged because it falls within the excep-

tion to dischargeability for debts resul¢-

ing from willful and malicious injuries to

another person within the meaning of 11

U.S.C. 38(a)(8). Judgment was entered in

favor of the Bankrupt, RAHM, on a finding

that the recording was made with GREGG's

Consent.

GREGG appealed to the District Court

which ruled in its Order of Remand Upon

Appeal that by reason of the default judg-

ment the issue of consent was not triable

in Bankruptcy Court. The Bankruptcy Judge

was directed to render specific Findings

and Conclusions with respect to the issue

of whether or not Defendant's conduct was

willful and malicious within the meaning

of Section 17(a)(8) of the Bankruptcy Code.

On December 21, 1978, the Bankruptcy Court

found, from a review of the trial evidence,

that the intent of RAHM at the time of

recording was not such as to render his

conduct willful and malicious.

On Remand, both parties submitted

briefs to the District Court. Appellant

contended on appeal that as a matter of law

a violation of California Penal Code Sec-

tions 632 and 637.2, conclusively estab-

lished by judgment, constitutes willful

and malicious conduct within the meaning

of 17(a)(8). The parties argued the mat-

ter on February 26, 1979. The Bankruptcy

Court's judgment, after its rendering spe-

cific findings, was ordered affirmed by

the District Court on April 13, 1979.

GREGG then appealed to the Court of

Appeals for the Ninth Circuit. The case

was argued on February 2, 1981, and decided

April 6, 1981. The Court of Appeals found

that the default judgment had no collateral

estoppel force on the bankruptcy court un-

less both parties agreed to rest their

case on it. Further, the court found that

the recording was willful but not malicious

under 11 U.S.C. 35(a)(8). .

Raion, (0!

vol OE Sa a Ca

REASONS FOR GRANTING THE WRIT

1. THE WRIT MUST BE GRANTED TO CLARIFY

THE COLLATERAL ESTOPPEL EFFECT OF A PRIOR

STATE COURT DEFAULT JUDGMENT UPON THE BANK-

RUPTCY COURTS AND TO RESOLVE CONFLICTING

DECISIONS IN THE COURTS OF APPEAL.

The Court of Appeals held in the pres-

ent case that, “in this circuit a prior

state court judgment has no collateral es-

toppel forced on a bankruptcy court unless

both parties agree to rest their case on

that judgment." In re Rahm, 641, F.2d 755,

757 (9th Cir. 1981). This finding was

based on Matter of Kasler, 611 F.2d 308,

309 (9th Cir. 1979) and Laurence T.

Lasagna, Inc. v. Foster, 609 F.2d 392, 396

(9th Cir. 1979), cert. denied, 446 U.S.

919, 100 S. Ct. 1853, 64 L. Ed. 2d 273

(1980).

The key to these decisions appears to

be the 1970 amendments to the Bankruptcy

Act which grant exclusive jurisdiction to

the Bankruptcy Courts for determination of

the dischargeability of debts. In Lasagna,

supra, p. 396, the Ninth Circuit states

that, "after the 1970 Amendments, the doc-

trine of collateral estoppel may not be

applied in determining dischargeability of

debt evidenced by state court judgments

under §17 of the Act." This holding was

based upon In re Houtman, 568 F.2d 651, 653

(9th Cir. 1978), which states, "As we read

those Amendments, there is no room for the

application of the technical doctrine of

collateral estoppel in determining the non-

dischargeability of debts... ."

Turning to Black's Law Dictionary, 5th

ed. (1979), one reads on page 237:

Collateral estopped doctrine - Prior

judgment between the same parties on a

different cause of action is an estoppel

as to those matters in issue or points

controverted, on determination of which

finding or verdict was rendered. ([Cita-

tion.] When an issue of ultimate fact

has been determined by a valid judgment,

that issue cannot be again litigated be-

tween the same parties in future

litigation.

Applying the definition to the cases cited

above, one sees that they hold simply that

Bankruptcy Courts are not required to rec-

ognize a state court judgment on the issue

of dischargeability and are not prevented

from relitigating that specific issue.

They do not hold that the Bankcruptcy

Courts cannot or may not recognize a state

court judgment that conclusively finds

liability and the facts necessary to sup-

port liability. On the contrary, the only

state court judgment that can be excluded

from the Bankruptcy Courts is one on the

specific issue of dischargeability.

This interpretation makes indis-

putable sense when one recognizes that

Bankruptcy Courts have exclusive juris-

diction on the specific issue of dis-

chargeability. A state court decision on

dischargeability cannot be recognized due

to lack of subject matter jurisdiction.

Conversely, a state court decision on the

normally state issue of liability should

be conclusive and serve as a bar to future

litigation on the same issue.

It has long been established that

state court judgments, including default

judgments, have a res judicata effect in

federal courts. Riehle v. Margolies, 279

U.S. 218, 225, 49 S. Ct. 310, 73 L. Ed.

669 (1929), states, "A judgment by default

is as conclusive an adjudication of the

issues for purposes of res judicata as a

judgment rendered after a trial on the

merits."

Returning to Black's Law Dictionary,

one sees that it distinguishes "res judi-

cata" from "collateral estoppel" by noting

that res judicata constitutes an absolute

bar to a subsequent action involving the

same claim, demand or cause of action. Res

judicata needs identity of the thing sued

for as well as identity of action, of per-

sons and parties to the action, and of

quality in persons for or against whom

claim is made. Black's, p. 1174.

Many decisions which purport to give

res judicata or "claim preclusion" effect

actually give collateral estopped or "issue

preclusion" effect to the state court |

judgment. The Eighth Circuit has a history

of broad application of the doctrine or res

judicata to the point that it becomes col-

lateral estopped. Before the 1970 amend-

ments to the Bankruptcy Act, the Eighth

Circuit held in Harrison v. Donnelly, 153

F.2d 588 (8th Cir. 1946), that liability

resulting from a state default judgment

for punitive damages stemming from in-

juries caused while driving intoxicated

were not dischargeable. The court found

that the default judgment was conclusive

evidence of willful and malicious injuries

‘to the person. Harrison, supra, p. 590.

In Harrison, supra, a state court default

judgment on the issues of willfulness and

malice, not dischargeability, was given

effective collateral estoppel force under

the guise of res judicata.

In Brown v. Kenron Aluminum and Glass

Grp. 477 F. 2d 526 (8th Cir. 1973), a

state court default judgment for fraudulent

misrepresentation, breach of contract and

unconscionability of contract was recog-

nized. The court found that the allega-

tions of the original complaint become the

findings of fact for the purposes of dis-

chargeability. Brown, supra, p. 531. The

decision was based upon Riehle v. Margolies,

supra and was called "res judicata," but

again recognized a default judgment as con-

clusive on the issues of willfulness and

malice.

In Kapp v. Naturelle, Inc., 611 F. 2d

703 (8th Cir. 1979), long after the adop-

tion of the 1970 amendments, the court

recognized a state default judgment as

conclusive on the issue of the bankrupt's

personal liability for corporate debts.

The bankrupt had contested the original

judgment because he could recover surplus

funds if the debts were not held as per-

sonal. The Bankruptcy and District Courts

retried the issue of liability and held

that the debts were corporate but the Court

of Appeals ‘overruled and reinstated the

state court judgment, stating:

If entered by a court having jurisdiction

of the parties and the subject: matter, and

absent fraud or collusion, even a default

judgment operates as res judicata and is

conclusive of whatever is essential to sup-

port the judgment. 611 F. 2d 707.

Facts and intent are "essential to

support" liability for a debt or damages.

Under Kapp, supra, the court will not only

recognize the effect of a state court

judgment but also the issues essential to

the judgment. This ruling resembles "'col-

lateral estoppel" more closely than res

judicata.

Bankruptcy Courts throughout the

‘nation are giving collateral estoppel ef-

fect to state court default judgments under

the guise of res judicata. Kasler, supra,

which the Ninth Circuit relied upon in the

present case, was based upon Houtman,

supra and Brown v. Felsen, 439 U.S. 925,

99 S. Ct. 307, 58 L. Ed. 2d 317 (1979). A

Bankruptcy Court in the Fifth Circuit in-

terpreted Brown v. Felsen, supra, as

follows: ‘Brown does not say that where

grounds for, or defenses to, were in fact

issues in the state court case that the

Bankruptcy Court is required to re-try

those same issues already adjudicated in a

state court case which is followed by a

bankruptcy case."' In re Willis, 2 B.R.

566 (B.C. Ga. 1980). The Bankruptcy Court

then found the debt nondischargeability

because the award for punitive damages

already tried the issue of malice.

The Bankruptcy Court in In re

Gabrielson, 1 B.R. 560 (B.C. N.Y. 1979),

gave conclusive effect on the issue of

malice to a default judgment for mali-

cious prosecution.

One sees that the rules are set in

terms of collateral estoppel and res

judicata but that the implementation of the

rules extends between the two guides. Many

courts prohibit relitigation of the issues

already conclusively decided in a state

court default judgment under the term res

judicata. Kapp, supra, and Kenron, supra,

etc. A state court judgment that requires

malice on its face should be conclusive on

the issue of malice in the Bankruptcy

Courts. The Supreme Court should hear this

case in order to clarify the rules with re-

gard to the res judicata and collateral

estoppel effect of a prior state court de-

fault judgment in Bankruptcy Court on

| issues other than dischargeability and to

resolve the conflict between the Courts of

Appeal.

2. THE WRIT MUST BE GRANTED TO SUPPORT

CALIFORNIA'S AGGRESSIVE ENFORCEMENT OF THE

RIGHT OF PRIVACY AND TO PREVENT MALICIOUS

WRONGDOERS WHO VIOLATE THE FUNDAMENTAL

RIGHT OF PRIVACY FROM AVOIDING THE CIVIL

PENALTY IMPOSED FOR THEIR WRONG.

The prior Bankruptcy Act provided that

bankruptcy would release a debtor from all

¢ 17

of his debts excluding liabilities for

willful and malicious injuries to the per-

son or property of another (11 U.S.C. 35

(a) (8)). The Court of Appeals refused to

exclude RAHM's debt to GREGG under section

35(a)(8) on the grounds that it was willful

but not malicious. In re Rahm, supra, p.

557. The term "willful and malicious"

under section 35(a)(8) was given meaning in

Tinker v. Colwell, 193 U.S. 473, 48 L. Ed.

754, 24 S. Ct. 505 (1904), which inter-

preted a nearly identical provision in the

1898 Bankruptcy Act. The Supreme Court

stated, "In a legal sense [willful and

malicious conduct] means a wrongful act,

. done intentionally, without just cause or

excuse.'' Tinker, supra, p. 486. It pans:

tinued, "we think a willful disregard of

what one knows to be his duty, an act which

is against good morals, and wrongful in and

of itself, and which necessarily causes in-

jury and is done intentionally, may be said

to be done wilfully and maliciously."

Tinker, supra, p. 487. This set of def-

initions has been passed down nearly un-

changed since 1904.

The few elucidations that have fol-

lowed have only reinforced the concept

that "willful and malicious injury, in the

Bankruptcy Act, does not necessarily in-

volve heered or ill will as a state of

mind... ." In re Green, 87 F.2d 951,

953 (7th Cir. 1937). Recently the courts

have noted that "(t]here need be no show-

ing of 'special malice' toward the injured

_ party, only that the act ‘is done delib-

erately and intentionally in knowing dis-

regard of the rights of another.'" In re

Nance, 556 F. 2d 602 (lst Cir. 1977) citing

Bennett v. W. T. Grant Co., 481 F. 2d

664 (4th Cir. 1973). In exempting from

discharge $561.00 in rental and statutory

overcharges in violation of the Housing and

Rent Act of 1947, the court found:

That it is the duty of all of us to ob-

serve the laws of our country is elementary,

and when one violates a law which has as its

purpose the protection of the public wel-

fare, he commits an act that is against

good morals since he engages in conduct that

does not conform to the generally accepted

rules which govern a society of people in-

terested in promoting the welfare of each

384, 387 (D.c. Mich. 1953).

Malice in the Bankruptcy Act is

clearly a lesser form of malice than regu-

lar or special malice. Petitioner has

found no difference, though, in the manner

of proving malice in bankruptcy versus

special malice. "To prove that a tort was

maliciously perpetrated it is not neces-

sary to establish a specific intent against

the person wronged. Oppression or malice

supplying such intent may be established

by the conduct of the perpetrator. Farmy

v. College Housing, Inc., 48 Cal. App. 3d

166, 174, 121 Cal. Rptr. 658 (1975).

(Italics in original.) "Malice is formed

before the occurrence takes place and is

wilful, intentional and done in reckless

disregard of its possible results." Miller

v. Elite Insurance Co., 100 Cal. App. 3d

739, 758, 161 Cal. Rptr. 332 (1980).

The courts have made it clear that

malice does not have to be an express ele-

ment of the statute violated or the tort

committed in order that the damages result-

ing not be dischargeable in bankruptcy. A

debt will not be dischargeable if it re-

sults from "that class of torts in which

malice or injury are always implied."

Marbry v. Cain, 180 Tenn. 500, 505, 176

S.W. 2d 813, certioari denied, 321 U.S.

800, 64 S. Ct. 938, 88 L. Ed. 1087 (1944).

Tinker, supra, held nondischargeable a

$50,000 tort obligation arising from an

act of adultery or "illegal conversation."

In Bedan v. Turney, 99 Cal. 649, 34 Pac.

442 (1893), cited in Tinker, supra, a

husband's right of action for illegal

conversation "is established upon proof

of the intercourse, and the means by which

this intercourse was effected are but in-

cidents to increase or mitigate his dam-

ages.” 99 Cal. 653. No malice is re-

quired whatsoever. Tinker, supra,

elaborates:

There may be cases where the act has

been performed without any particular

malice toward the husband, but we are of

the opinon that, within the meaning of

the exception, it is not necessary that

there be this particular, and so to speak,

personal malevolence toward the husband,

but that the act itself necessarily implies

that degree of malice which is sufficdent

to bring the case within the exception

stated in the statute. 193 U.S. 485.

(Italics mine.)

The courts have held debts nondis-

chargeable for a wide variety of torts

and statutory violations, many of which

were based upon default judgments.’

In re Goodman, 35:F. Supp. 623 (D.C. N.Y,

1940), Defendant accidentally shot a bystander

when firing warning shots to scare away suspected

thieves in violation of a law against discharging

firearms in a public place.

In re Minsky, 46 F. Supp. 104 (D.C. N.Y.

1942), based on a default judgment for willful and

malicious interference with contractual relations

or property.

In re Burgas, 58 F. Supp. 717 (D.C. Cal.

1944), based on a default judgment for forcible

entry when defendant's truck drove over property

and damaged tomato vines.

Harrison v. Donnelly, supra, based on a

default judgment for punitive damages for injuries

caused while driving intoxicated.

Den agate v. Thompson, 228 F. 2d 72

(10th Cir. 1 » based upon a guilty plea for

fourth degree manslaughter for killing a youth with

defendant's car. Exception to discharge was for

the "fault and negligence’ of the defendant"

The Court of Appeals in the present

case held that a judgment under Penal Code

§632 does not connote malice. 641 F. 2d

757. The court did not explore the nature

of implied malice and its presence in a

violation of section 632 because it did not

examine the purpose of the statute as de-

scribed in section 630 (which was presented

in Appellant's Opening Brief on pages 3-5)

and it did not recognize that the damages

awarded by §637.2 are punitive damages.

Chapter 1.5 of Title 15 of the Cali-

fornia Penal Code on the Invasion of Pri-

vacy opens with §630 which presents legis-

lative findings and intent with regard to

the laws protecting confidential communi-

(p. 74) even though claimed under "willful and

malicious injuries” clause.

Robinson v. Early, 248 Cal. Appl. 2d, 19,

56 Cal. Rptr. 163 T1567. for practicing medicine

without a license.

Brown v. Kenion, supra, based on a default

judgment for fraudulent misrepresentation, breach

of contract, and unconscionability of contract.

In re Moore, 1 B.R. 52 (B.C. Cal. 1979),

based on a default judgment for housing discrimi-

nation.

cations. In §630 the Legislature declares

"that the invasion of privacy resulting

from continual and increasing use of

{eavesdropping and recording] devices and

techniques has created a serious threat

to the free exercise of personal liberties

and cannot be tolerated in a free and

civilized society. The Legislature by this

chapter intends to protect the right of

privacy of the people in this state." C.P.C.

§630. (Italics mine.) The Legislature

could hardly he more emphatic in protecting

the fundamental right of privacy than by

stating that the illegal acts constitute

a “serious threat" to liberty and "cannot

be tolerated." But it was. It instituted

a civil penalty of the greater of $3,000

or triple actual damages for. violation of

the chapter. The plaintiff does not even

need to be threatened with actual damages

in order to receive the minimum $3,000

penalty. In addition, plaintiff may seek

injunctive relief to enjoin and restrain a

a violation (C.P.C. 637.2(b)) and there is

_ a maximum criminal penalty of $2,500 and

one year in prison. C.P.C. §632.

The California Constitution states,

"All people are by nature free and inde-

pendent, and have certain inalienable

rights, among which are. . . privacy."

CAL. CONST. ‘Art. r, Ze "The consti-

tutional provision is self-executing;

hence, it confers a judicial right of ac-

tion on all Californians. [Citation. ]

Privacy is protected not merely against

state action; it is considered an inalien-

able right which may not be violated by

anyone." Porten v. University of San

Francisco, 64 Cal. App. 3d 825, 829, 134

Cal. Rptr. 839 (1976). Accord Kinsley

v. Macur, 107 Cal. App. 3d 265, 165 Cal.

Rptr. 608 (1980).

The right to privacy has been firmly

recognized as a fundamental right under

Article I, Sec. I of the California Con-

stitution and under the Fourth, Ninth, and

Fourteenth amendments to the United States

Constitution. "As a fundamental liberty,

it is protected even from incidental en-

croachment absent the demonstration cf some

compelling interest that is both legitimate

and overriding. [Numerous state and fed-

eral citations, including Griswold v.

Connecticut, 381 U.S. 479, 85 S. Ct. 1678,

14 L. Ed. 2d 510 (1965).]" Fults v.

Superior Court, 88 Cal. App. 3d 899, 903,

152 Cal. Rptr. 210 (1979). The right of

privacy has equal priority with the para-

mount rights of free speech and press.

A. A. Dietmann v. Time, Inc., 284 F. Supp.

925, 929 (D.C. Cal. 1968), affirmed 449

F. 2d 245 (9th Cir. 1971).

Section 632 was held constitutional

in People v. Wyrick, 77 Cal. App. 3d 903,

144 Cal. Rptr. 38 (1978). A confidential

communication is violated under §632 when

"the person whose conversation was recorded

had a reasonable expectation of privacy at

the time of the recording." People v.

Newton, 42 Cal. App. 3d 294, 296, 116 Cal.

Rptr. 690 (1974), certiorari denied, Newton

v. California, 420 U.S. 937, 95 S. Ct.

1147, 43 L. Ed. 2d 414 (1974).

Just as a legitimate, overriding and

compelling interest is necessary to uphold

a law that encroaches even incidentally

upon the right of privacy, so should this

standard apply to discharge a penalty im-

posed for a violation of the right. The

penalties imposed to protect the right of

privacy are a sham if they can be released

by a lesser standard than .they are imposed

with. "It was an honest debtor, and not a

malicious wrongdoer, that was to be dis-.

charged." Tinker, supra, p. 488. Petitioner

submits that RAHM should not be released -

from the penalty imposed to protect the

right of privacy absent a legitimate,

overriding and compelling reason. Peti-

tioner further submits that bankruptcy

fails to meet this standard.

The Court of Appeals afforded little

regard to the nature of the debt owed by

RAHM. The debt was a $3,000 civil damage

penalty for criminally invading GREGG's

right of privacy. Under section 637.2(c)

it is not a necessary prerequisite to an

action that the plaintiff has suffered, or

be threatened with, actual damages. In

Black's Law Dictionary, pp. 351-354, there

are thirty-seven definitions associated

with the word "damages." Of these, only

three require a showing of little or no

actual damages: exemplary (or punitive),

nominal and statutory damages. ‘Punitive

damages" are given to punish the defendant

or set an example. Black's, p. 352.

"Nominal damages" are a trifling sum

awarded when there is no substantial in

jury but the law grants damages to recog-

nize a technical invasion of a right.

Black's, p. 353. "Statutory damages" re-

sult from statutorily created causes of

action, as opposed to actions at common

law. Black's, p. 354.

Obviously, the civil penalty under

section 637.2 is a statutory damage award.

But Black's does not state the purpose

of statutory damages. One can assume that

legislatures probably create statutory

damages for two reasons: one is to set

limits for certain types of compensatory

damages, and the other is to’ punish the

defendant or set an example. Since sec-

tion 637.2(a)(2) provides three times the

amount of actual damages, it is clearly

punitive. One can reasonably assume then

that the companion measure §637.2(a)(1) is

punitive as well. Few people would con-

sider $3,000 nominal.

By reviewing the standards that the

courts and the legislature have developed

for the imposition of punitive damages,

one can understand the gravity of the

penalty involved.

Punitive damages "are not favored by

the law and they should be granted with the

greatest of caution. ([Citations.]; they :

will be allowed only in the clearest of

cases. ([Citation.]'" Henderson v. Security

National Bank, 72 Cal. App. 3d 764, 771,

140 Cal. Rptr. 388 (1977) "An award of

exemplary damages cannot be based on mere

speculation; it depends instead on a def-

inite showing of.a willingness to vex,

harass, or injure consistent with a wrong-

ful intent to injure." Kendall Yacht Corp.

v. United California Bank, 50 Cal. App.

3d 949, 958, 123 Cal. Rptr. 848 (1975).

Exemplary damages have been a part of

California law since the first comprehen-

sive code was enacted in 1872. Egan v.

Mutual of Omaha Insurance Co., 24 Cal. 3d

809, 819, 157 Cal. Rptr. 482 (1979). They

are authorized at Civil Code §3294 (West

Supp. 1981) which read at the time of the

violation:

In an action for the breach of an ob-

ligation not arising from contract, where

the defendant is guilty of oppression,

fraud, or malice, express or implied, the

plaintiff, in addition to actual damages,

may recover damages for the sake of example

and by way of punishing the defendant.

"(T)he principal purpose of section

-3294 is to deter acts deemed socially un-

acceptable and, consequently, to discourage

the perpetuation of objectionable [ac-

tions]."" Egan, supra, p. 820. "Even a

finding of no compensatory damages by the

jury would not necessarily deprive plain-

tiff of an award for punitive damages."

Cobian v. Ordonez, 103 Cal. App. 3d Supp.

22, 30, 163 Cal. Rptr. 126 (1980). Accord,

Gill v. Manuel, 488 F. 2d 799, 802 (9th

Cir. 1973).

Most of the cases quoted above awarded

punitive damages based on tort actions un-

der Civil Code § 3294. Exemplary damages

are also awarded for violations of stat-

utory provisions. For example, punitive

damages were awarded a plaintiff who was

the victim of unscrupulous auto repair

practices in violation of the Business and

Professions Code. Zhadan v. Downtown L.A.

Motors, 66 Cal. App. 3d 481, 136 Cal.

Rptr. 132, appeal after remand, 161 Cal.

App. 3d 821, 161 Cal. Rptr. 225 (1976).

"Th supplemental award [in a worker's

compensation action] .to an injured employee

for the serious and willful misconduct of

his employer is analogous to an award for

punitive damages in tort actions." Johns-

Manville v. Workers Compensation Appeals,

96 Cal. App. 3d 923, 931, 158 Cal. Rptr.

463 (1979). When an award is based on a

statutory violation "due consideration must

be given to the importance of the public

policy embodied in the statutory pro-

vision... ." Zhadan, supra, p. 497.

When punitive damages are awarded based on

a statutory Seiwiiiines. the California

Supreme Court "cannot usurp the Legis-

lature's determination that such damages

should be recoverable in cases in which

the statutory prerequisites are fulfilled."

Egan, supra, p. 820. This rule should

apply to the Bankruptcy Courts as well.

As a general rule, punitive damages,

even if based on a default judgment, are

conclusive evidence of willful and mali-

cious injuries to the person because the

stendaxt of malice required for punitive

damages is narrower than that required

for bankruptcy. Harrison, supra, p. 590.

A default award of treble damages for

forcible entry in a California case was

ruled equivalent to proof of willful and

malicious injury to property. Burgas,

supra, p. 719.

With reference to the above cases,

one can recognize that the $3,000 civil

penalty for violation of §632 is a punitive

damage award intended to punish the wrong-

doer and to deter future violations. The

Legislature enacts such stringent penal-

ties only if it determines that malice

must always be present. The statute is in-

tended to protect the fundamental right of

privacy and requires strict judicial re-

view. Nonetheless, the default judgment

for punitive damages serves as proof of

willful and malicious injuries. The Court

of Appeals decision should be overruled

to support California's aggressive enforce-

ment of the right of privacy and to recog-

nize the finding of malice implied in a

judgment for punitive damages.

3. CONCLUSION

For the reasons set forth above, it

is respectfully submitted that this

petition for a writ of certiorari should

be granted.

Respectfully submitted,

DENNIS DEVERMONT, ESQ.

DEVERMONT & DEVERMONT

A Professional Corporation

Attorneys for Petitioner

406 Wilshire Boulevard

Santa Monica, California

Telephone: (213) 393-0308

APPENDIX A

OPINION SOUGHT TO BE REVIEWED

In re Charles Barry RAHM, Bankrupt

United States Court of Appeals,

Ninth Circuit

No. 79-3301

Argued and Submitted February 2, 1981

Decided and Entered April 6, 1981

641 F. 2d 755 (9th Cir. 1981)

Appeal from the United States District

Court for the Southern District of Cali-

fornia.

Before POOLE and FERGUSON, Circuit

Judges, and CROCKER,* District Judge.

FERGUSON, Circuit Judge:

This case stems from a state default

judgment obtained by plaintiff Gregg

against the defendant Rahm. When Rahm

petitioned for a declaration of bankruptcy,

Gregg asserted that the judgment came

within the Bankruptcy Act's exceptions to

*Honorable M. D. Crocker, United States Dis-

trict Judge, Eastern Division of California,

sitting by designation.

dischargeability. Because Gregg has failed

to provide any evidence that the acts upon —

which Rahm's liability was founded were

"malicious," as required for the exception

to dischargeability, we uphold the district

court's conclusion that the judgment debt

was dischargeable.

On August 7, 1975, Gregg obtained a

default judgment for $3,032.60 against

Rahm. The judgment was founded upon §§

632 and 637.2 of the California Penal Code,

which provide civil penalties when an in-

dividual intentionally records another's

confidential communication without his

permission.’ The judgment had its origin

1Section 632 provides in pertinent part:

Every person who, intentionally and without

the consent of all parties to a confidential

communication . . . records such confidential .

communication, . . . shall be punishable'by fine

not exceeding two thousand five hundred dollars

($2,500) or by imprisonment in the county jail

not exceeding one year, or by imprisonment in the

state prison, or by both such fine and imprison-

ment in the county jail or in the state prison.

Section 637.2 provides in pertinent part:

in a telephone call from Gregg to Rahm.

Gregg, an attorney, had telephone Rahm, his

client, to give advice concerning a pending

business transaction and to reconcile ap-

parently inconsistent statements made

‘earlier. Rahm recorded the conversation

without Gregg's consent, thus contravening

Cal. Pen. Code §632.

After the default judgment was en-

tered, Rahm filed a voluntary petition in

bankruptcy. Subsequently, Gregg brought

an action in bankruptcy court to determine

the dischargeability of the judgment-debt.

The bankruptcy court found that the acts

leading to the judgment were not "willful

(a) Any person who has been injured bya vioia-

tion of this chapter may bring an action against

the person who committed the violation for the

greater of the following amounts:

(1) Three thousand dollars ($3,000)

(2) Three times the amount of actual damages,

if any, sustained by the plaintiff.

action pursuant to this section that the plain-

tiff has suffered, or be threatened with, actual

damages.

and malicious," as required for exclusion

from dischargeability under former 11

U.S.C. § 35(a)(8).* Consequently, it found

the debt dischargeable. The district court

affirmed and this appeal followed.

[1,2] Umder 11 U.S.C. § 35(a)(8), a

liability stemming from the "willful and

malicious" conduct of the debtor is not

dischargeable in bankruptcy. The creditor

has the burden of proving both willfulness

and malice. Matter of Kasler, 611 F.2d

308, 309 (9th Cir. 1979). This burden is

weighty in light of the rule that excep-

*Section 35(a) provided in pertinent part:

A discharge in bankruptcy shall release a bank-

rupt from all of his provable debts, whether

allowable in full or in part, except such as (8)

are liabilities for willful and malicious injuries

to the person or property of another.

Because all relevant acts of the parties oc-

curred prior to October 1, 1979, the date the new

bankruptcy act became effective, 402 of Pub. L.

95 598, Title IV, Nov. 6, 1978, 92 Stat. 2682,

disposition of the case is controlled by section

35(a) of the prior act. Section 35(a)(8) has been

reenacted without significant alterations as ll

U.S.C. § 523(a) (6).

tions to dischargeability are to be strictly

construed so as to effectuate the Congres-

sional policy of permitting bankrupts a

fresh start. Id. at 310.

Gregg appears to argue that the default

judgment required the bankruptcy court to

find willfulness and malice. This argument

is without merit.

[3] First, in this circuit a prior

state court judgment has no collateral

estoppel force on a bankruptcy court con-

sidering dischargeability unless both par-

ties agree to rest their cases on that

judgment. Kasler, supra, at 309; Lawrence

T. Lasagna, Inc. v. Foster, 609 F.2d 392,

396 (9th Cir. 1979), cert. denied, 446 U.S.

919, 100 S. Ct. 1853, 64 L. Ed. 2d 273

(1980). At most, a prior judgment estab-

lishes a prima facie case of non-discharge-

ability which the bankrupt is entitled to

refute on the basis of all relevant evi-

dence. Id.

[4] Second, on the record under con-

sideration it is doubtful that even a

prima facie case was established.*® Gregg

has not cited any authority for the propo-

sition that a judgment under §§ 632 and

637.2 implies malice; further, the statute

on its face requires to mental element be-

yond the intention to record. See Cal. .

Pen. Code. § 632. See generally, Warden

v. Kahn, 99 Cal. App. 3d 805, 160 Cal.

Rptr. 471 (1979). This intent requirement

is consistent with the meaning of willful-

ness under § 35(a)(8), see Kasler, supra,

at 310, but has no bearing on the question

of malice.

In Tinker v. Colwell, 193 U.S. 473,

480, S. Ct. 505, 506, 48 L. Ed. 754 (1904),

the Supreme Court defined "malice" under

§ 17(2) of the Bankruptcy Act of 1898.

‘Because Gregg has failed to demonstrate that

a judgment under Cal. Pen. Code § 632 connotes

malice, we need not consider the potentially dif-

ferent effect of a litigated, as opposed to a

default, judgment. See generally, In re McMillan,

579 F. 2d 289, 292 (3d Cir. 1978).

That section contained language identical

to 11 U.S.C. § 35(a)(8). Tinker held that

an act is malicious when done with "a

willful disregard of what one knows to be

his duty" and when it is "an act which is

against good morals and wrongful in and of

itself, and which necessarily causes injury

and is done intentionally." 193 U.S. at

487, 24 S. Ct. at 509; Kasler, supra, at

310 n.6. Cf. Matter of Kearney Chemicals,

468 F. Supp. 1107, 1110 (D. Del. 1979)

‘(under § 35(a)(8), am act is malicious if

“wrongful and without just cause or

excuse .. .").

The default judgment provides no basis

for concluding that Rahm's conduct in re-

cording the phone call was "against good

morals and wrongful in and of itself."”

“ Indeed, the bankruptcy court concluded that

Rahm recorded Gregg's phone call "merely to be

certain that instructions would be clear." This

finding must be accepted unless clearly erroneous.

In re Houtman, 568 F.2d 651, 653, (9th Cir. 1978).

Since Gregg has offered no evidence beyond

that judgment, he has failed to meet his

burden of proof as to malice. This lack of

proof is fatal to his appeal.

The judgment entered by the district

court is

AFFIRMED.

APPENDIX B

IN THE U.S. DISTRICT COURT FOR THE

SOUTHERN DISTRICT OF CALIFORNIA

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Bankruptcy No. 76-235 M/S

Adversary Proceeding 1

This cause came on regularl~ for hear-

ing before the Honorable Russell 8. Seymour,

Bankruptcy Judge, on June 24, 1977 on the

complaint to determine dischargeability and

for money judgment, filed by plaintiff,

RONALD E. GREGG, and on the answer to com-

plaint to determine dtschaegeability and

for money judgment filed by the defendant,

CHARLES BARRY RAHM, the plaintiff appearing

personally and being represented by James

J. Biggins, Jr. and the defendant appearing

personally and being represented by Ralph

E. Garner and the court having considered

the record in the above entitled case, the

pleadings and arguments of the parties

hereto, now makes the following findings

of fact and conclusion of Law.

FINDINGS OF FACT

1. That this court has jurisdication

to hear and determine the issues raised by

plaintiff's complaint to determine dis-

chargeability of the debt owed by the de-

fendant, CHARLES BARRY RAHM, at the time

of the filing of his petition in bankruptcy.

herein. : ;

2. That on February 15, 1973 defend-

ant placed a telephone call to plaintiff

which was received by plaintiff at his

place of business located at 9777 Wilshire

Boulevard, Beverly Hills, California, in

the County of Los Angeles, State of

California.

3. That at all times mentioned herein

plaintiff was an Attorney at Law duly li-

censed to practice before all the Courts of

the State of California.

4. That said telephone call was made

by said defendant for the purpose of ob-

taining legal advice from the plaintiff for

the defendant's use and benefit.

5. That as the result of such tele-

phone call, plaintiff and said defendant

had «: tabblo bien conversation which was made

by plaintiff as an attorney-client

communication.

6. That on said date said telephone

detmmeuaeton was recorded with the aid of

an electronic recording device.

7. That said telephone conversation

was recorded with full knowledge, consent

and permission of all parties to the con-

versation.

8. That the recording of said tele-

phone conversation between the plaintiff

and defendant was not done maliciously.

9. That on January 12, 1974 in San

Diego Municipal Court case 202499 Ronald

E. Gregg, through his counsel did stipu-

late that the tape on which said telephone

conversation was recorded and the tape

recorder be admitted into evidence in said

case.

10. That the aforementioned stipu-

lation relative to the introduction into

evidence of said tape recorded conversa-

tion was tantamount to an admission by

Ronald E. Gregg, the plaintiff herein, that

said tape recorded conversation was ad-

missible as evidence in a court proceeding.

1l. That at all times mentioned here

in Section 632 and 637.2 of the California

Penal Code were in full force and effect.

12. That on or about August 7, 1975

plaintiff, Ronald E. Gregg, obtained a

judgment in the Municipal Court of the

State of California for the Beverly Hills

Judicial District in case number 92087 in

the amount of $3000.00 plus $22.60 cost.

13. That said judgment was obtained

by the plaintiff, Ronald E. Gregg, against —

the bankrupt and defendant herein by de-

fault and was based upon an action arising

from Statutory Liabilities imposed by

Section 632 and 637.2 of the California

Penal Code.

14. That said default judgment ob-

tained by Ronald E. Gregg is the debt which

was listed by the defendant Charles Barry

Rahm, in the within bankruptcy case and is

the subject of this litigation.

15. The debt which was owing by the

defendant to the plaintiff at the time of

the filing of the within bankruptcy case

was both a provable and an allowable debt

in the within case and proceeding.

16. The debt which was owing to the

plaintiff from the defendant at the time

of the filing of the bankruptcy petition

herein by the defendant was a judgment

based on alledged tortious conduct on the

part of the defendant.

CONCLUSIONS OF LAW

17. That the conduct of the defendant

was not willful and malicious within the

meaning of Section 17a(8) of the Bankruptcy

Act.

18. That there was no violation of

any of the provisions of the California

Penal Code with reference to the taping of

the telephone conversation between the

plaintiff and the defendant herein.

19. That the debt which was due and

owing to the plaintiff by the defendant at

the time of the filing of the bankruptcy

petition herein by the defendant is a

dischargeable debt in the within case and

proceeding. - |

20. That defendant:is entitled to

judgment in his favor.

DATED:August 26, 1977 /s/Russell B. Semour

ptcy ge

APPENDIX C

IN THE UNITED STATES DISTRICT COUT OF THE

SOUTHERN DISTRICT OF CALIFORNIA

JUDGEMENT

Bankruptcy No. 76-235 M/S

Adversary Proceeding 1

This cause came on regularly for hear-

ing before the HONORABLE RUSSEL B. SEYMOUR,

Bankruptcy Judge, on June 24, 1977 on the :

complaint to determine dischargeability and

for money judgment, and filed by Plaintiff, .

RONALD E. GREGG, and on the answer to com-

plaint to determine dischargeability and

for money judgment filed by the Defendant,

CHARLES BARRY RAHM, the plaintiff appearing

personally and being represented by James

J. Biggins, Jr. and the defendant appearing

personally and being represented by Ralph

E. Garner and the court having received

evidence both oral and documentary, the

court having considered the record in the

above entitled case, the pleadings and

arguments of the parties hereto, and having

made its Findings of Fact and Conclusions

of Law and good cause of appearing therefor.

IT IS HEREBY ORDERED that plaintiff's

compalint on file herein be and the same

hereby is denied, and

IT IS FURTHER ORDERED that the judg-

ment be, and it hereby is, rendered in

favor of the Defendant, CHARLES BARRY RAHM,

and is agains the Plaintiff, RONALD E.

GREGG.

DATED: August 26, 1977

/s/ Russell B. Se ur

Bankruptcy Yodge

Filed: August 26, 1977.

Bankruptcy Court

So. Dist. Calif.

By:

Clerk

APPENDIX D

IN THE UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

ORDER OF REMAND UPON APPEAL

Bankruptcy No. 76-0235-M

(Civil No. 78-0057-N)

Argument having been presented and

considered upon the above-captioned Appeal

by Plaintiff/Appellant vcm'the Judgment

entered on August 26, 1977 in Adversary

Proceedings No. 1 before the Bankruptcy

Court, on April 17, 1978 before the HONOR-

ABLE LELAND C. NIELSEN, U.S. District

Judge, there appearing Appellant by and

| through his counsel, JAMES J. BIGGINS,

JR., and Appellee by and through his coun-

sel, RALPH E. GARNER, and the Court having

found that the Bankruptcy Court was, by

reason of the State Court Judgment pre-

viously entered between the parties, fore-

closed from trying the issue on whether

Plaintiff consented to the tape recording

of the telephone conversation which was the

subject of the Complaint below, IT IS HERE-

BY ORDERED that this cause be remanded to

the Bankrtupcy Court and that Court is di-

rected to render specific findings and con-

clusions with respect to the issue of

whether or not the Defendant's conduct was

willful and malicious within the meaning

of §174(8) of the Bankruptcy Act.

Dated:

LELAND C. NIELSEN, U.S. District

Judge

This Order prepared and Submitted by:

ia James J. Bi ing. Jr.

, ttorney

Son Appellant

APPROVED AS TO FORM:

Dated:

/s/ Ralph E. Garner

RALP ttorney for

Appellee, CHARLES BERRY RAHM

APPENDIX E

IN THE UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

FINDINGS OF FACT AND CONCLUSIONS OF

LAW (ON REMAND) We

Bankruptcy No. 76-235 M/S

Complaint No. 1

TO THE HONORABLE LELAND C. NIELSEN, U.S.

DISTRICT COURT JUDGE:

Under date of May 30, 1978, an Order

of Remand on Appeal was made and entered,

directing the Bankruptcy Court to render

specific findings and conclusions with re-

spect to the issue of whether the Defend-

ant's conduct was willful and malicious

within the meaning of Section 17a(8) of the

Bankruptcy Act.

On November 2, 1978, the undersigned

Bankruptcy Judge met in chambers with JAMES

J. BIGGINS, JR., Attoney for the Plaintiff,

and RALPH E. GARNDER, Attorney for the De-

fendant. As a result of which, by November

17, 1978, it was agreed in writing that

this Court should make its rulings based on

the evidence produced in the original pro-

ceedings, and that no further evidence

would be adduced by either party.

Accordingly, the Court is now consid-

ering only two transcripts dated January 20,

1977, and the one dated June 24, 1977, for

the purpose of complying-with the Order of

the District Court, in respect to Finding

of Fact No. g 61) and Conclusion of Law No.

17. ‘2)

The specific subsidiary findings sup-

porting No. 8 are:

8.1 That prior to the phone call in

question on February 15, 1973, PIZANTE and

’ GREGG, Attorneys at Law, had by letter

dated February 6, 1973, furnished the de-

fendant RAHM direction as to the formation.

of a finance company, which appeared to

(1)g, That the recording of said

telephone conversation between the plaintiff

and defendant was not done maliciously.

(2)47, That the conduct of the de-

fendant was not willful and malicious with-

in the meaning of Section 17a(8) of the

Bankruptcy Act.

RAHM and his associated, JOHN F. HUTZEL,

(who was to furnish most of the money to be

raised for the finance company), to be dif-

ferent from earlier oral directions fur-

nished by the attorneys.

8.2 The earlier amount required to be

raised was indicated to be about $100,000

(within the capability of HUTZEL). The

later amount was indicated to be about

$200,000 (beyond the capability of HUTZEL).

8.3 The telephone call on February 15,

1973, was to try to find any alternate plan

to meet the capability of HUTZEL and to

reconcile apparently inconsistent statements

earlier made by PIZANTE as to financial

requirements. |

8.4 There was no intention by RAHM at

the time of the rewriting to sue either of

the attorneys, merely to be certain that

instructions would be clear.

8.5 The information received during

the phone call doubtlessly precipitated the

demand by RAHM for return of the retainer

fee fo [sic] $1832.00 but does not prove that

the recording was maliciously done.

8.6 The use of the tape at the San

Diego case trial on January 12, 1974, even

though "by stipulation" does not neces-

sarily establish any malevolent intent as

of the date of the date of the recording,

nor does it establish any acquiescence by

the plaintiff (here) in the otherwise un-

authorized recording.

CONCLUSIONS OF LAW

17. The conduct of the defendant was

not willful and malicious within the mean-

ing of Section 17a(8).

Discussion

Even though conduct of a party be

criminal, it does not always follow that it |

is "willful and malicious" within the mean-

ing thereof in the Bankruptcy Act, and in

particular in Section 17a(8), the section

relied upon by the plaintiff.

The mere fact that an act is illegal

does not necessarily render it non-

dischargeable. See In re WRIGHT v. LUBINKO,

9th Cir. (1975) 515 F.2d 260 at 263, a case

which involved a violation of California

Corporate Securities Act. Actual fraud as

opposed to constructive fraud was required.

So in the instant case, a technical

violation of Section 732 of the Penal Code

of California (which permitted the judgment

for $3,000.00) is not sufficient to deny

dischargeability of the judgment absent

specific intent by the bankrupt to injure

the plaintiff GREGG.

Dated: DECEMBER 21, 1978

/s/ Russell B. Se ur

Bankruptcy Judge

File Date: December 21 1978

Bankruptcy Court 1

Southern District California

APPENDIX F

IN THE UNITED STATES DISTRICT COURT FOR TH

SOUTHERN DISTRICT OF CALIFORNIA

ORDER AFFIRMING JUDGMENT OF BANKRUPTCY

COURT ENTERED DECEMBER 21, 1978

eT ot No. 76-235-M/A

(Civil No. 78-0057-N)

Appeal No. 1

This matter came on for hearing on the

26th day of February 1979, before the Honor-

able Leland C. Nielsen, District Court

Judge, on the appeal filed by Ronald E.

Gregg from a judgment entered in the Bank-

ruptcy Court on the 2lst day of December,

1978, and the Appellant, Ronald E. Gregg,

being represented by James J. Biggins, Jr.,

Esquire, and the Appellee, Charles Barry

Rahm, being represented by Ralph E. Garner,

Esquire, briefs having been submitted by

both the appellant and by the appellee and

oral argument having been given by both .

parties and the Court having duly consid-

ered Appellant's appeal and good cause ap-

pearing therefor,

IT IS HEREBY ORDERED that ‘the order

entered by the Bankruptcy Court on the 2lst

day of December 1978, in favor of Appelle,

Charles Barry Rahm, be, and the same hereby

is, affirmed.

DATED: 4-13-79

. $ /s/ Leland C. Nielsen

JUDGE

Approved as to form:

RALPH E. GARNER, Attorney for

Charles Barry Rahm, Appellee

JAMES J. BIGGINS, JR., Attorney

for Ronald E. Gregg, Appellant

ie OV Oe

y!. a ee (is

APPENDIX G

IN THE UNITED STATES DISTRICT COURT

‘SOUTHERN DISTRICT OF CALIFORNIA

COMPLAINT TO DETERMINE DISCHARGEABILITY

AND FOR MONEY JUDGMENT

(COMPLAINT NO. 1)

Bankruptcy No. 76-235 M

Comes now the plaintiff, and complains

of the defendant, and for cause of action

alleges as follows:

1. That CHARLES BARRY RAHM is the

bankrupt in the above entitled proceeding.

2. That on or about August 7, 1975,

plaintiff obtained judgment in the Municipal

Court of the State of California for the

Beverly Hills Judicial District, in Case

No. 92087 in the amount of $3000.00, plus

$22.60 costs.

3. That said judgment was obtained by

the default of said bankrupt/defendant and

was based upon an action arising from stat-

utory liabilities imposed by Sections 632

_ and 637.2 of the California Penal Code.

4. That at all times mentioned herein

Section 632 of the California Penal Code

was in full force and effect, and provided

as follows:

"(a) Every person who, intentionally

or without the consent of all parties

to a confidential communication, by

means of any electronic amp 1ifying or

recording device, eavesdrops upon or

records such confidential communica-

tion, whether such communication is

carried on among such parties in the

presence of one another or by means

of a telegraph, telephone or other

device, except a radio, shall be pun-

ishable by fine not exceeding two

thousand five hundred dollars

($2,500.00), or by imprisonment. . ."

5. That at all times mentioned herein,

Section 637.2 of the California Penal Code

was in full force and effecd, and provided

as follows:

"(a) Any person who has been injured

by a violation of this Chapter may

bring an action against the person who

committed the violation for the

greater of the following amounts:

(1) Three thousand dollars

($3000.00).

(2) Three times the amount of ac-

cained byrthe plasneite

site to an action pursuant to this

section that the plaintiff has suf-

fered, or be threatened with, actual

damage . . ”

6. That on February 15, 1973, defend-

ant placed a telephone call to plaintiff

which was received by plaintiff at his place

of business located at 9777 Wilshire Boule-

vard, Beverly Hills, California, in the

county of Los Angeles, State of California.

7. That at all times mentioned herein,

plaintiff was an attorney at law duly li-

censed to practice before the courts of the

State of California.

8. That the telephone call alleged

herein was made by said defendant for the

purpose of obtaining legal advice from

; 62

plaintiff for his use and benefit.

9. That as a result of said telephone

call, plaintiff and said defendant had a

telephone conversation which plaintiff be-

lieved to be, and intended to be, confiden-

tial and which was made by plaintiff as an

attorney-client communication.

10. That on said date, the defendant

recorded said confidential communication

with the aid of an electronic recording

device without the knowledge, consent, or

permission, expressed or implied, of plain-

tiff, in violation of Section 632 of the

California Penal Code, and without lawful

privilege.

ll. That as a proximate result of

said defendant's wrongful recording of said

confidential communication, plaintiff suf-

fered injury, as hereinafter alleged.

12. That plaintiff suffered injury

in that said wrongful recording constituted

an unwarranted and unlawful invasion of

plaintiff's right of privacy, and plaintiff

‘is therefore entitled to recover from de-

fendant statutory damages in the sum of

$3,000.00, pursuant to Section 637.2 of

the California Penal Code.

13. That said defendant wilfully and

and intentionally concealed from plaintiff

the fact of said wrongful recording until

April 15, 1974, and plaintiff did not be-

come aware of said wrongful recording and

the resulting unlawful invasion of his

right of privacy until April 15, 1975; that

plaintiff, in the exercise of ordinary care,

_ could not have acquired knowledge of such

fact until April 15, 1974.

WHEREFORE, plaintiff prays judgment

as follows:

1. For judgment that his claim

against the defendant is non-dischargeable

under the provisions of Section 17(a) (2),

(4) and (8) of the National Bankruptcy Act.

2. For judgment for money damages in

the amount of the judgment previously en-

tered in the Municipal Court of the State

64 '

of California in the amount of $3,022, plus

7% interest from August 7, 1975.

DATED MARCH 19, 1976

SMITH,BIGGINS, BOLLMAN & MOGILNER

BY: ru James J. BEapins Jr.

J " ; ;

Attorneys for Plaintiff

Filed: January 29, 1978

Bankruptcy Court

San Diego, California

APPENDIX H

IN THE UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

OBJECTIONS OF FINDINGS OF FACT

AND CONCLUSIONS OF LAW

air de | No. 76-235 M/S

Adversary Proceeding No. 1

COMES NOW the Plaintiff, RONALD E.

GREGG, and objects to the Findings of Fact

and Conclusions of Law lodged herein on

August 2, 1977 by Defendant, CHARLES BARRY

RAHM as follows:

1. Plaintiff objects to proposed

Finding of Fact No. 7 on the grounds that:

a) Said finding is not supported

by the evidence,

and b) knowledge, consent, and per-

mission was not in issue in this action in

that it had already been adversely deter-

. mined against Defendant in action No. 92087

in the Municipal Court of California,

Beverly Hills Judicial District.

2. Plaintiff objects to Finding of

Fact No. 8 on the grounds that:

a) Said finding is not supported by

the evidence,

and b) The Court reserved:a ruling on

said issue having found the telephone con-

versation was with the consent of Plaintiff.

3. Plaintiff objects to Finding of

Fact No. 10 on the grounds that it is only

partially correct and submits as an alter-

native finding the following: That said

telephone call was made by Defendant for the

dual purpose which was to obtain legal ad-

vice and to commit Plaintiff to a version

of facts respecting the fee argument with

his law firm so that said recording could

be used in any future dispute between De-

fendant and Plaintiff".

5. Plaintiff object to Conclusions of

Law 17, 18, 19, and 20 on the grounds that

said conclusions are not supported by valid

Findings of Fact.

Dated:

JAMES J. BIGGINS, JR.

Attorney for Plaintiff,

RONALD E. GREGG

APPENDIX I

IN THE UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

HONORABLE LELAND C. NIELSEN,

JUDGE PRESIDING

REPORTER'S TRANSCRIPT OF PROCEEDINGS

San Diego, California

Monday, February 26, 1979

(Edited by Petitioner)

Case 76-0235-M/S

Civil No. 78-0057-N

THE CLERK: No. 21 on calendar, Case

No. 76-235-M/S, Bankruptcy: In Re Charles

Barry Rahm, Bankrupt; hearing appeal from

Bankruptcy Court, Compalint No. 1, Appeal

No. l.

THE COURT: Let's hear the Rahm matter.

MR. BIGGINS: James Biggins for the

appellant, your Honor.

Our position, briefly, is that the

California legislature, in effect, has de- |

fined the conduct complained of. That def-

inition is tantamount to wilful and

malicious conduct of the Bankruptcy Act and

the federal bankruptcy court must or should

honor the state's definition, that it's

consistent with a ruling in Tinker v.

Caldwell, although the gravament of the

complaints were different, but in each in-

stance a very serious right was violated.

I think there's no controversy as to

whether or not the violations took place

because of. the Twelfth Judgment and we sub-

mit as a matter of law what the defendant

did was not dischargeable.

THE COURT: I think it's a close case,

but I think that his finding on the remand

that it was not done wilfully or malicious-

ly within the intent of the Bankruptcy Act

is not clearly erroneous and the appeal

will be denied.

APPENDIX J

IN THE MUNICIPAL COURT OF BEVERLY HILLS

MUNICIPAL DISTRICT, COUNTY OF LOS

ANGELES, STATE OF CALIFORNIA

DECLARATION OF RONALD E. GREGG UNDER

CCP 585(4) IN LIEU OF PERSONAL

TESTIMONY AND MEMORANDUM OF POINTS

- AND AUTHORITIES IN SUPPORT OF ENTRY

OF DEFAULT JUDGMENT AGAINST

DEFENDANT, CHARLES B. RAHM

(Edited by Petitioner)

No. 92087

I, the undersigned, declare and state:

I am the Plaintiff herein.

This Declaration is made pursuant to

Code of Civil Procedure §484(4) in support

of judgment after default against Defendant

CHARLES B. RAHM.

If sworn as a witness, I can compe-

tently testify as follows:

On February 15, 1973, CHARLES B. RAHM

called me on the telephone at my place of

business located at 9777 Wilshire Boulevard,

Beverly Hills, California, for the purpose

of obtaining legal advice from me.

I am now, and was on February 15,

1973, an attorney at law, licensed to prac-

tice in the State of California.

The said telephone conversation was

believed by me and intended by me to be

confidential in nature as the conversation

covered a legal matter I was handling for

Mr. Rahm and his associate, defendant,

JOHN F. HUTSEL.

During the said telephone conversation,

Mr. Rahm and Mr. Hutsel recorded our con-

versation by means of an electronic record-

ing device. This was done without my knowl-

edge or consent and it was not discovered by

me until April 15, 1974.

| The act of Mr. Rahm in recording our

telephone conversation was in violation of

Penal Code Section 632 and, as such, consti-

tuted an unlawful invasion of my right to

privacy.

Under Penal Code Section 637.2, I am

entitled to maintain a civil action against

Defendant CHARLES B. RAHM and recover from

him the statutory sum of $3,000.00, for the

unlawful invasion of my right to privacy,

notwithstanding the fact that actual dam-

ages are not shown.

_ I declare under penalty of perjury

that the foregoing is true and correct.

Executed this 24th day of July, 1975,

at Beverly Hills, California.

/s/

~~RONALD E. GREGG

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.