Unpublished Disposition, 851 F.2d 360 (9th Cir. 1988)Annotate this Case
United States Court of Appeals, Ninth Circuit.
Before WALLACE and REINHARDT, Circuit Judges, and ALBERT LEE STEPHENS,** Jr., District Court Judge.
Rodger Kenneth Jones appeals the district court's affirmance of the bankruptcy court's ruling that Jones' debt to his former partner, Stephen L. Gallagher, Jr., was nondischargeable under 11 U.S.C. § 523(a) (6). The bankruptcy judge held the debt nondischargeable on the ground that it involved a willful and malicious injury. On appeal, Jones contended that his actions were motivated not by malice but by legitimate business reasons. He also challenged the computation which led to the state court judgment which is the subject of Jones' nondischargeable debt. The district court affirmed. Because the district court's findings were not clearly erroneous and because it did not err in its conclusions, we affirm.
Jones and Gallagher entered into a partnership to purchase and operate a mansion, known as The Honeyman House, that had been converted into office space. When the partners were faced with financial and personality difficulties, they agreed to disolve the partnership and sell the property. An offer was made for the property, contingent on the tenants vacating the property. Jones refused to leave and the offer was withdrawn.
Jones and Gallagher then submitted their differences to binding arbitration. The arbitrator computed the partners' respective share of debt to the partnership and suggested the two enter into a buy-sell agreement. Jones refused to abide by the arbitrator's award, refused to pay his share of the arbitrator's fee, and refused to sign a buy-sell agreement.
Gallagher filed suit in state court for dissolution of the partnership and damages for Jones' breach of his fiduciary duty. Gallagher also requested a receiver be appointed to manage the property during the pendency of the suit. Jones appealed the appointment of a receiver and then later voluntarily dismissed that appeal. The state court eventually found that Jones had breached his fiduciary duty and entered a money judgment in favor of Gallagher.
Jones filed for relief under chapter 7 of the Bankruptcy Act. Gallagher filed a petition contesting the dischargeability of the state court judgment against Jones. The bankruptcy judge found, among other things, that (1) Jones' refusal to vacate the premises pursuant to the purchase offer caused the withdrawal of that offer, (2) the offer involved was the best price that could have reasonably been expected at the time, (3) Jones had no just cause to refuse to abide by the arbitrator's award, (4) Jones' refusal to sign the buy-sell agreement was unreasonable, (5) the appeal from the appointment of the receiver was unreasonable, and (6) Jones acted without sufficient legal or business reasons. The bankruptcy judge also found that Jones was "motivated by a very high degree of spite." From these findings, the bankruptcy court drew the legal conclusion that Jones' debt to Gallagher was nondischargeable under 11 U.S.C. § 523(a) (6) because it involved a willful and malicious injury. The bankruptcy judge also held that the debt did not involve fraud or defalcation while Jones was acting in a fiduciary capacity, so 11 U.S.C. § 523(a) (4) did not prevent discharge of the debt.
Both parties appealed the decision to the district court. The district court affirmed the bankruptcy court's decision regarding willful and malicious injury, but declined to address the issue of fraud while acting in a fiduciary capacity because it was unnecessary to the disposition of the case. Jones filed a timely appeal and Gallagher filed a timely cross-appeal.
* Standard of Review and Legal Standard
This court is in an equally advantageous position to review the bankruptcy court as was the district court; accordingly, we independently review the bankruptcy court's decision. Ragsdale v. Haller, 780 F.2d 794, 795 (9th Cir. 1986). The bankruptcy court's findings of fact are reviewed for clear error and its conclusions of law are reviewed de novo. Id.; see Bnkr.R. 8013. A finding of fact is clearly erroneous when, after reviewing the evidence, we are "left with the definite and firm conviction that a mistake has been committed." Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948)).
Jones contends the bankruptcy court's findings are clearly erroneous because, even if in hindsight his actions involved poor judgment, at the time they were taken he had legitimate business reasons. His contention is without merit.
A debt is nondischargeable if it is the result of "willful and malicious injury by the debtor to another entity or to the property of another entity." 11 U.S.C. § 523(a) (6). An act is willful and malicious if it was done intentionally, it necessarily produces harm, and it is done without just cause or excuse. Impulsora Del Territorio Sur, S.A. v. Cecchini (In Re Cecchini), 780 F.2d 1440, 1443 (9th Cir. 1986). The bankruptcy judge explicitly found that Jones' actions were motivated by spite. However, an act may still be willful and malicious without a specific intent to injure. Id.
Although Jones maintains his actions were motivated by business reasons, it was not unreasonable for the bankruptcy court to view the evidence as showing a pattern of intentional conduct that necessarily resulted in an injury to Gallagher. Accordingly, the bankruptcy court did not clearly err in finding that Jones' activities were willful and malicious. It follows that the bankruptcy court was correct in holding that the debt was nondischargeable under 11 U.S.C. § 523(a) (6). Finally, the bankruptcy court could only look behind the state court judgment to determine the nature of the debt; res judicata principles bound the bankruptcy court as to the extent of the debt. See Comer v. Comer (In Re Comer), 723 F.2d 737, 740 (9th Cir. 1984).1
This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3
Honorable Albert Lee Stephens, Jr., Senior United States District Judge for the Central District of California, sitting by designation
Gallagher cross-appeals the district court's decision not to review the bankruptcy court's holding that Jones' debt did not involve fraud or defalcation while acting in a fiduciary capacity which, if true, would also make the debt nondischargeable under 11 U.S.C. § 523(a) (4). We decline to reach the issue whether the debt is also nondischargeable under 11 U.S.C. § 523(a) (4) because it is unnecessary to the disposition of this case