FILED JUL 02 2015 1 NOT FOR PUBLICATION 2 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP Nos. CC-14-1186-DTaKu ) 6 JAMES ELLIS ARDEN, ) Bk. No. 13-13879-VK ) 7 Debtor. ) Adv. No. 13-01164-VK ______________________________) 8 ) JAMES ELLIS ARDEN, ) 9 ) Appellant, ) 10 ) v. ) M E M O R A N D U M1 11 ) MARTINA A. SILAS, ) 12 ) Appellee. ) 13 ______________________________) 14 Argued and Submitted on June 18, 2015 at Pasadena, California 15 Filed - July 2, 2015 16 Appeal from the United States Bankruptcy Court 17 for the Central District of California 18 Honorable Victoria S. Kaufman, Bankruptcy Judge, Presiding 19 Appearances: Appellant James Ellis Arden and appellee Martina 20 A. Silas argued pro se. 21 Before: DUNN, TAYLOR and KURTZ, Bankruptcy Judges. 22 23 24 25 26 1 This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8024-1. 1 Prepetition, Martina Silas obtained a state court judgment 2 against the debtor, James Arden, for malicious prosecution. One 3 month after the debtor filed his chapter 7 bankruptcy petition, 4 Ms. Silas initiated an adversary proceeding to except the state 5 court judgment from discharge under § 523(a)(6). The debtor 6 moved to dismiss the adversary proceeding under Civil 7 Rule 12(b)(6).2 Before responding to the motion to dismiss, 8 Ms. Silas moved for summary judgment on her complaint (“summary 9 judgment motion”). The bankruptcy court granted summary judgment 10 in Ms. Silas’s favor, giving issue preclusive effect to the state 11 court judgment. It also denied the debtor’s motion to dismiss. 12 The debtor appeals the bankruptcy court’s orders granting 13 Ms. Silas’s summary judgment motion and denying his motion to 14 dismiss.3 We AFFIRM the bankruptcy court’s denial of the 15 debtor’s motion to dismiss, but VACATE and REMAND the bankruptcy 16 court’s summary judgment decision for further proceedings 17 consistent with this memorandum decision. 18 19 20 2 Unless otherwise indicated, all chapter and section 21 references are to the federal Bankruptcy Code, 11 U.S.C. 22 §§ 101-1532, and all “Rule” references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. All “Civil Rule” 23 references are to the Federal Rules of Civil Procedure, 24 Rules 1-86. 3 25 In his notice of appeal, the debtor neither listed nor included a copy of the bankruptcy court’s order denying his 26 motion to dismiss. However, in the statement of issues on 27 appeal, he did disclose his contentions regarding the bankruptcy court’s denial of his motion to dismiss. We thus address his 28 related arguments here.
2 1 FACTS4 2 A. Ms. Silas as counsel in the personal injury action 3 Both Ms. Silas and the debtor are attorneys. Fifteen years 4 ago, Ms. Silas represented Ross Gunnell in a personal injury 5 action against his former employer, Metrocolor Laboratories, Inc. 6 (“Metrocolor”), and others for injuries allegedly sustained from 7 exposure to a hazardous chemical substance Metrocolor required 8 Mr. Gunnell to use to clean its film processing laboratories. 9 Although Ms. Silas alleged several causes of action on 10 Mr. Gunnell’s behalf, including battery, intentional infliction 11 of emotional distress and fraud, only the battery cause of action 12 was presented to the jury at trial.5 Also, only Metrocolor 13 remained as a defendant in the personal injury action at trial, 14 as Ms. Silas had settled with the other defendants. 15 When conducting her legal research and factual 16 investigations for the personal injury action, Ms. Silas knew 17 that the California Workers’ Compensation Act (“WCA”) generally 18 provided the exclusive remedy for employees who have sustained 19 work-related injuries. That is, the WCA prohibited employees 20 21 4 We have taken some of the facts from the following state 22 court decisions: 1) Gunnell v. Silas, 2006 WL 204610 (2006); 2) Silas v. Arden, 2009 WL 5158842 (2009); 3) Gunnell v. 23 Metrocolor Labs., Inc., 92 Cal. App. 4th 710 (2001); and 4) Silas 24 v. Arden, 213 Cal. App. 4th 75 (2013). 5 25 Although Ms. Silas filed the civil action on Mr. Gunnell’s behalf, she did not file a worker’s compensation claim for him. 26 Apparently, Ms. Silas’ retainer agreement provided that her legal 27 services did not include the handling of any workers’ compensation claims. See Gunnell v. Silas, 2006 WL 204610 (Cal. 28 Ct. App. 2nd 2006).
3 1 from bringing civil actions for damages against their employers 2 unless certain statutory exceptions applied. See Cal. Labor Code 3 §§ 3600, 3602. 4 She also knew that there were statutory exceptions to 5 exclusive application of the WCA, including the exception for 6 fraudulent concealment under Cal. Labor Code § 3602(b)(2). This 7 exception allowed an employee to bring a civil action against his 8 employer where the employee’s injury was aggravated by the 9 employer’s fraudulent concealment of the injury’s existence and 10 its connection with the employee’s employment. Ms. Silas knew 11 that the fraudulent concealment exception did not apply where the 12 employer first learned of the injury from the employee. 13 Based on her discussions with Mr. Gunnell, Ms. Silas did not 14 believe that his personal injury action fell within the 15 fraudulent concealment exception. She nonetheless asserted it 16 out of an abundance of caution. 17 Later, during pretrial discovery, Ms. Silas came across a 18 medical insurance form showing that Mr. Gunnell had sought 19 medical care for his hands a few days after he began working for 20 Metrocolor and that he had blamed the cleaning solution for his 21 hands’ condition. Consequently, she abandoned her argument 22 concerning the fraudulent concealment exception. 23 At trial, the jury returned a substantial verdict in 24 Mr. Gunnell’s favor. However, on Metrocolor’s motion for 25 judgment notwithstanding the verdict, the trial court overturned 26 the verdict. It determined that the WCA’s exclusive remedy 27 provision barred Mr. Gunnell’s personal injury action against 28 Metrocolor, especially in light of Johns-Manville Prods. Corp. v.
4 1 Superior Court, 27 Cal. 3d 465 (1980), a California supreme court 2 decision. (Johns-Manville held that the WCA provided the 3 exclusive remedy for toxic exposure injuries in the workplace.) 4 The trial court further determined that Mr. Gunnell’s battery 5 cause of action did not fall within the fraudulent concealment 6 exception. 7 The appellate court affirmed the trial court’s decision on 8 substantially the same grounds as set forth by the trial court in 9 its decision. See Gunnell v. Metrocolor Labs., Inc., 92 Cal. 10 App. 4th 710 (2001). 11 B. Mr. Gunnell’s legal malpractice action 12 Seven years later, acting pro se, Mr. Gunnell initiated a 13 legal malpractice action against Ms. Silas. See Gunnell v. 14 Silas, 2006 WL 204610 (2006); Gunnell v. Silas, 2009 WL 5158842 15 (2009). He alleged that Ms. Silas erroneously had abandoned 16 argument on the fraudulent concealment exception and had 17 misappropriated settlement funds. The debtor later substituted 18 in as counsel for Mr. Gunnell. 19 Moving for summary judgment, Ms. Silas argued that she did 20 not commit legal malpractice by abandoning the fraudulent 21 concealment exception argument because it did not apply as a 22 matter of law. Ms. Silas also argued that she did not 23 misappropriate settlement funds because: 1) Mr. Gunnell had 24 agreed to apply any settlement funds due him to the costs of the 25 personal injury action; and 2) he had signed the settlement 26 documents in her presence before a notary public and had signed 27 28
5 1 the back of the settlement check, endorsing it over to her.6 2 The trial court agreed with Ms. Silas, granting summary 3 judgment in her favor. The appellate court affirmed the trial 4 court’s decision. 5 C. Ms. Silas’ malicious prosecution action 6 Ms. Silas then filed a complaint against the debtor for 7 malicious prosecution of the legal malpractice action. As part 8 of her malicious prosecution cause of action, she asserted that 9 the debtor lacked probable cause in prosecuting the legal 10 malpractice action and that he prosecuted it with malice. 11 Specifically, Ms. Silas contended that the debtor continued 12 to prosecute Mr. Gunnell’s claim for misappropriation of 13 settlement funds even though the debtor was shown copies of the 14 signed and notarized settlement agreement and the endorsed 15 settlement check. 16 Ms. Silas moreover argued that she did not erroneously 17 abandon the fraudulent concealment exception argument because she 18 determined that it did not apply based on the facts of 19 Mr. Gunnell’s personal injury action and prevailing California 20 case law. She presented portions of Mr. Gunnell’s depositions 21 and trial testimony regarding his statements as to his knowledge 22 of his injuries over the years. She also pointed out that the 23 debtor had represented Mr. Gunnell at the depositions and in the 24 25 6 Ms. Silas deposited the settlement check into her trust 26 account. Once the settlement check cleared, she applied the 27 settlement funds to the outstanding cost balance. As a courtesy, she also issued a $2,500 check to Mr. Gunnell, even though the 28 costs of the case exceeded the settlement amount.
6 1 legal malpractice action. 2 At trial in the malicious prosecution action, the debtor 3 opined that he would be committing malpractice if he conceded 4 that Mr. Gunnell’s case lacked merit. He believed that he had to 5 proceed with it, otherwise he would have breached his duty to his 6 client, Mr. Gunnell. 7 The debtor testified that he based the legal malpractice 8 action on his contention that Ms. Silas should not have abandoned 9 the argument on the fraudulent concealment exception. He 10 believed that Johns-Manville was not controlling law as to the 11 application of the fraudulent concealment exception in 12 Mr. Gunnell’s personal injury action. He admitted that he did 13 not read all of Mr. Gunnell’s testimony in the personal injury 14 action. 15 Despite Ms. Silas’ repeated requests that he withdraw the 16 claim for misappropriation of settlement funds, the debtor 17 refused to do so. He continued to press forward with 18 Mr. Gunnell’s claim for misappropriation of settlement funds 19 because: 1) he believed that Ms. Silas did not disburse the 20 settlement funds pursuant to her fee agreement with Mr. Gunnell; 21 and 2) he believed that the settlement documents were not 22 properly authenticated as they did not indicate that the notary 23 public witnessed Mr. Gunnell signing them. However, the debtor 24 disclosed that he did not investigate Mr. Gunnell’s allegations 25 regarding Ms. Silas’ alleged misappropriation of settlement funds 26 because he was focusing on his contention concerning her 27 abandonment of the fraudulent concealment exception argument. He 28 further admitted that he recognized Mr. Gunnell’s signatures on
7 1 the settlement documents and the settlement check. 2 The debtor denied harboring any malice towards Ms. Silas. 3 He claimed that he did not harass her in any fashion as she had 4 counsel representing her. 5 Following closing argument, the jury was given the following 6 instructions: 7 Martina Silas claims that James Arden wrongfully brought a lawsuit against her. To establish this 8 claim, Martina Silas must prove all of the following: 9 (1) That James Arden was actively involved in bringing or continuing the lawsuit; 10 (2) That James Arden acted primarily for a purpose other than succeeding on the merits of the 11 claim; (3) That Martina Silas was harmed; and 12 (4) That James Arden’s conduct was a substantial factor in causing Martina Silas’s harm. 13 If you decide that James Arden’s conduct caused Martina 14 Silas harm, you must decide whether that conduct justifies an award of punitive damages. At this time, 15 you must decide whether Martina Silas has proved by clear and convincing evidence that James Arden engaged 16 in that conduct with malice or oppression. The amount of punitive damages, if any, will be decided later. 17 “Malice” means that James Arden acted with intent to cause injury or that James Arden’s conduct was 18 despicable and was done with a willful and knowing disregard of the rights or safety of another. A person 19 acts with knowing disregard when he or she is aware of the probable consequences of his or her conduct and 20 deliberately fails to avoid those consequences. “Oppression” means that James Arden’s conduct was 21 despicable and subjected Martina Silas to cruel and unjust hardship in knowing disregard of her rights. 22 “Despicable conduct” is conduct that is so vile, base, or contemptible that it would be looked down on 23 and despised by reasonable people. 24 The following additional instruction was given to the jury: 25 Suits with the hallmark of an improper purpose include, but are not necessarily limited to, those in which 26 (1) the person initiating them does not believe that the claim may be held valid; or (2) the proceedings are 27 begun primarily because of hostility or ill will. 28 The jury rendered a verdict in Ms. Silas’ favor. In the verdict
8 1 form, the jury answered a number of questions. Among them, the 2 jury answered “yes” to this question: “Did James Arden act 3 primarily for a purpose other than succeeding on the merits of 4 the claim?” It also answered “yes” to this question: “Do you 5 find by clear and convincing evidence that James Arden engaged in 6 the conduct with malice or oppression?” 7 The jury awarded Ms. Silas $145,756 in legal fees and costs, 8 $30,000 in non-economic damages and $125,000 in punitive damages. 9 The debtor moved for judgment notwithstanding the verdict, 10 which the trial court denied. He appealed, but the appellate 11 court affirmed the trial court’s decision in a published opinion, 12 Silas v. Arden, 213 Cal. App. 4th 75 (2013). 13 According to the appellate court, 14 [t]o establish a cause of action for malicious prosecution, a plaintiff must prove that the underlying 15 action was (1) terminated in the plaintiff’s favor, (2) prosecuted without probable cause, and 16 (3) initiated with malice. 17 Id. at 89 (citations omitted). 18 With respect to the element of probable cause, the appellate 19 court explained that a court must determine, “in light of the 20 facts known to counsel, whether any reasonable attorney would 21 have thought the claim tenable. This is an objective 22 standard. . . . [I]f the underlying claims were objectively 23 tenable, the malicious prosecution claim fails, regardless of any 24 evidence of malice on the part of the defendant.” Id. at 90, 25 quoting Sheldon Appel Co. v. Albert & Oliker, 47 Cal. 3d 863, 875 26 (Cal. 1989). 27 The appellate court determined that there was sufficient 28 evidence supporting the jury’s verdict on the element of probable
9 1 cause. The debtor lacked probable cause in prosecuting the legal 2 malpractice claim against Ms. Silas in that: 1) the fraudulent 3 concealment exception did not apply as a matter of law based on 4 the holding in Johns-Manville and the fact that Mr. Gunnell was 5 aware of his condition and its cause, which Mr. Gunnell had 6 disclosed to a Metrocolor supervisor; and 2) the debtor continued 7 to prosecute the claim for misappropriation of settlement funds, 8 even after he was presented with the settlement documents and 9 settlement check, which bore Mr. Gunnell’s signatures. 10 As for the element of malice, the appellate court noted that 11 this element went to “the defendant’s subjective intent,” though 12 it was “not limited to actual hostility or ill will toward the 13 plaintiff.” Silas v. Arden, 213 Cal. App. 4th at 90. The 14 appellate court explained that malice could exist 15 where the proceedings are initiated for the purpose of forcing a settlement which has no relation to the 16 merits of the claim. A lack of probable cause is a factor that may be considered in determining if the 17 claim was prosecuted with malice . . . but the lack of probable cause must be supplemented by other, 18 additional evidence. Since parties rarely admit an improper motive, malice is usually proven by 19 circumstantial evidence. . . . [T]hat evidence must include proof of either actual hostility or ill will on 20 the part of the defendant or a subjective intent to deliberately misuse the legal system for personal gain 21 or satisfaction at the expense of the wrongfully sued defendant. Suits with the hallmark of an improper 22 purpose are those where (1) the person initiating them does not believe that his claim may be held valid; 23 (2) the proceedings are begun primarily because of hostility or ill will; (3) the proceedings are 24 initiated solely for the purpose of depriving the person against whom they are initiated of a beneficial 25 use of his property; (4) the proceedings are initiated for the purpose of forcing a settlement which has no 26 relation to the merits of the claim. 27 Id. at 90-91 (citations omitted). 28 With respect to the element of malice, the appellate court
10 1 determined that sufficient evidence supported the jury’s verdict. 2 Id. at 92. According to the appellate court, the evidence 3 demonstrated that the debtor had acted maliciously in instigating 4 and continuing with the malicious prosecution action through 5 [his] failure to investigate the merits of applicability of the fraudulent misrepresentation 6 exception and his failure to withdraw allegations of misappropriation even when confronted with unequivocal 7 evidence the allegations were not supported by the facts. 8 9 Id. at 92. Having concluded that the elements for malicious 10 prosecution were met, the appellate court upheld the trial 11 court’s decision. 12 The debtor unsuccessfully petitioned the California supreme 13 court to review the appellate court’s decision. Ms. Silas’ 14 judgment in the malicious prosecution action against the debtor 15 is final. 16 D. Ms. Silas’ § 523(a)(6) complaint 17 A month after the debtor filed his chapter 7 bankruptcy 18 petition on June 7, 2013, Ms. Silas filed a complaint seeking to 19 except the state court judgment from discharge under 20 § 523(a)(6).7 She contended that the state court judgment must 21 7 22 Ms. Silas also sought to except the state court judgment from discharge under § 523(a)(2) and to deny the debtor’s 23 discharge under §§ 707(b) and 727(a). The debtor moved to dismiss these claims under Civil Rule 12(b)(6). 24 The bankruptcy court held a hearing on both Ms. Silas’ 25 summary judgment motion and the debtor’s motion to dismiss. As we describe more fully below, the bankruptcy court granted 26 summary judgment as to Ms. Silas’ claim under § 523(a)(6) only. 27 It granted the debtor’s motion to dismiss the claims under §§ 523(a)(2) and 707(b) with prejudice, and § 727(a) with leave 28 (continued...)
11 1 be given issue preclusive effect because it was based on an 2 intentional tort requiring proof of malice, which constituted a 3 willful and malicious injury within the meaning of § 523(a)(6). 4 The debtor filed his motion to dismiss the complaint under 5 Civil Rule 12(b)(6) on the ground that Ms. Silas failed to allege 6 facts showing that he had maliciously and willfully injured her 7 within the meaning of § 523(a)(6). He argued that the malice 8 requirement for malicious prosecution was not the same as the 9 malice and willful requirements for § 523(a)(6). According to 10 the debtor, to establish malice for malicious prosecution, the 11 plaintiff must show that the injurious conduct was intended to 12 cause injury or was carried out with a willful and conscious 13 disregard of the rights or safety of others. The level of intent 14 required for malicious prosecution did not satisfy that required 15 for willful and malicious injury under § 523(a)(6). 16 Before filing her opposition to the motion to dismiss, 17 Ms. Silas filed her summary judgment motion. She maintained that 18 the state court judgment had issue preclusive effect because the 19 requirements for malicious prosecution were the same as those for 20 willful and malicious injury under § 523(a)(6). 21 With respect to the willfulness requirement, Ms. Silas 22 asserted that, in California, “malicious prosecution [was] deemed 23 a willful act as a matter of law.” (Emphasis in original.) As 24 for the malice requirement, she pointed out that the plaintiff 25 26 7 (...continued) 27 to amend. To date, Ms. Silas has not amended her complaint as to her 28 § 727(a) claim.
12 1 must prove that the defendant either had actual hostility or ill 2 will or a subjective intent to misuse the legal system 3 deliberately for personal gain at the plaintiff’s expense. 4 The bankruptcy court held a hearing on both the motion to 5 dismiss and the summary judgment motion. The bankruptcy court 6 granted summary judgment in Ms. Silas’ favor and denied the 7 debtor’s motion to dismiss as to her claim under § 523(a)(6). It 8 concluded that issue preclusion applied because the requirements 9 for malicious prosecution in California satisfied the 10 requirements for willful and malicious injury under § 523(a)(6). 11 The bankruptcy court determined that the test for malice 12 under California law for malicious prosecution was the “same or 13 equivalent to [the test for] malice under § 523(a)(6).” It found 14 that the debtor acted with malice and abused the court system by 15 maintaining the malpractice action as leverage against Ms. Silas. 16 It further noted that “the jury was instructed on malice in a way 17 that [met] the standards under [§] 523(a)(6) as defined in the 18 Ninth Circuit case law.” The bankruptcy court also determined 19 that the debtor acted willfully because he continued the legal 20 malpractice action against Ms. Silas, despite knowing that he 21 could not prevail given that he lacked both legal and factual 22 support for it. It thus declined to retry the issue as to 23 whether the debtor was liable for malicious prosecution. 24 The bankruptcy court entered an order denying the debtor’s 25 motion to dismiss on January 15, 2014. Three months later, it 26 entered an order granting Ms. Silas’ summary judgment motion. On 27 the same day, it entered judgment excepting the jury award from 28 discharge under § 523(a)(6).
13 1 The debtor timely appealed. 2 3 JURISDICTION 4 The bankruptcy court had jurisdiction under 28 U.S.C. 5 §§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C. 6 § 158. 7 8 ISSUES 9 1) Did the bankruptcy court err in denying the debtor’s 10 motion to dismiss the complaint as to Ms. Silas’s § 523(a)(6) 11 claim? 12 2) Did the state court judgment for malicious prosecution 13 satisfy the elements of malice and willfulness for an exception 14 to discharge under § 523(a)(6)? 15 3) Did the bankruptcy court err in granting Ms. Silas’s 16 summary judgment motion by giving issue preclusive effect to the 17 state court judgment? 18 19 STANDARDS OF REVIEW 20 We review de novo the bankruptcy court’s decisions to grant 21 summary judgment, Szajer v. City of Los Angeles, 632 F.3d 607, 22 610 (9th Cir. 2011), and to deny a motion to dismiss for failure 23 to state a claim, S.E.C. v. Colello, 139 F.3d 674 (9th Cir. 24 1998). 25 “‘We review de novo whether a particular type of debt is 26 nondischargeable as a willful and malicious injury under 27 § 523(a)(6).’” Maaskant v. Peck (In re Peck), 295 B.R. 353, 360 28 (9th Cir. BAP 2003), quoting Tsurukawa v. Nikon Precision, Inc.
14 1 (In re Tsurukawa), 258 B.R. 192, 195 (9th Cir. BAP 2001). See 2 also Carrillo v. Su (In re Su), 290 F.3d 1140, 1142 (9th Cir. 3 2002)(“Whether a claim is nondischargeable presents mixed issues 4 of law and fact and is reviewed de novo.”). We review the 5 bankruptcy court’s conclusions of law and interpretation of 6 provisions of the Bankruptcy Code de novo. Anwar v. Johnson, 7 720 F.3d 1183, 1186 (9th Cir. 2013), quoting Greene v. Savage 8 (In re Greene), 583 F.3d 614, 618 (9th Cir. 2009). 9 We review de novo the bankruptcy court’s determination that 10 issue preclusion is available. See Miller v. County of Santa 11 Cruz, 39 F.3d 1030, 1032 (9th Cir. 1994). If we conclude that 12 issue preclusion is available, we review for abuse of discretion 13 the bankruptcy court’s application of issue preclusion to the 14 state court judgment. Id. A bankruptcy court abuses its 15 discretion if it applies the wrong legal standard, misapplies the 16 correct legal standard or if it makes factual findings that are 17 illogical, implausible or without support in inferences that may 18 be drawn from the facts in the record. See TrafficSchool.com, 19 Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011), citing 20 United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) 21 (en banc). 22 23 DISCUSSION 24 Before we launch into our analysis, we must set forth the 25 legal standards that guide it. 26 A. Applicable legal standards 27 1. Motion to dismiss 28 “In order to survive a motion to dismiss, a party must
15 1 allege ‘sufficient factual matter, accepted as true, to state a 2 claim to relief that is plausible on its face.’” In re Fitness 3 Holdings, Intern., Inc., 714 F.3d 1141, 1144 (9th Cir. 2013) 4 (“Fitness Holdings”), quoting Telesaurus VPC, LLC v. Power, 5 623 F.3d 990, 1003 (9th Cir. 2010). See also Nordeen v. Bank of 6 Am., N.A. (In re Nordeen), 495 B.R. 468, 477 (9th Cir. BAP 2013). 7 “‘A claim has facial plausibility when the plaintiff pleads 8 factual content that allows the court to draw the reasonable 9 inference that the defendant is liable for the misconduct 10 alleged.’” Fitness Holdings, 714 F.3d at 1144, quoting Ashcroft 11 v. Iqbal, 556 U.S. 662, 678 (2009). See also Nordeen, 495 B.R. 12 at 477. In reviewing a denial of a motion to dismiss for failure 13 to state a claim, we accept “‘[a]ll well-pleaded allegations of 14 material fact as true’” and construe them “‘in the light most 15 favorable to the non-moving party.’” Fitness Holdings, 714 F.3d 16 at 1144, quoting Faulkner v. ADT Sec. Servs., Inc., 706 F.3d 17 1017, 1019 (9th Cir. 2013). 18 After reviewing her complaint, we determine that Ms. Silas 19 has alleged facts sufficient to plead that the judgment she 20 obtained against the debtor in the malicious prosecution action 21 may be excepted from discharge under § 523(a)(6). We thus 22 conclude that the bankruptcy court did not err in denying the 23 debtor’s motion to dismiss. 24 2. Summary judgment may be based on the issue preclusive effect of a state court judgment 25 26 When reviewing its decision on a summary judgment motion, we 27 apply the same standards for summary judgment as the bankruptcy 28 court. Summary judgment is appropriate when the record shows
16 1 that no genuine dispute of material fact exists, and the moving 2 party is entitled to judgment as a matter of law. Fresno Motors, 3 LLC v. Mercedes Benz USA, LLC, 771 F.3d 1119, 1125 (9th Cir. 4 2014). In making this determination, the bankruptcy court must 5 view the evidence in the light most favorable to the non-moving 6 party. Id. It must draw all justifiable inferences in the non- 7 moving party’s favor. Id. 8 A bankruptcy court may grant summary judgment based on the 9 issue preclusive effect of an existing state court judgment. See 10 Harmon v. Kobrin (In re Harmon), 250 F.3d 1240, 1245 (9th Cir. 11 2001). In doing so, it must apply the forum state’s issue 12 preclusion law. Id. See also 28 U.S.C. § 1738. Here, 13 California preclusion law applies. 14 In California, issue preclusion bars relitigation of an 15 issue when: 1) the issue sought to be precluded is identical to 16 that decided in a prior proceeding; 2) the issue was actually 17 litigated in the prior proceeding; 3) the issue was necessarily 18 decided in the prior proceeding; and 4) the decision in the prior 19 proceeding is final and on the merits. Lucido v. Superior Court, 20 51 Cal. 3d 335, 341 (1990). Additionally, in California, issue 21 preclusion may only be applied if it furthers underlying public 22 policies. See id. at 343. 23 The party asserting issue preclusion bears the burden of 24 establishing these requirements. Id. at 341. To do so, “[the] 25 party must produce a record sufficient to reveal the controlling 26 facts and pinpoint the exact issues litigated in the prior 27 action. Any reasonable doubt as to what was decided by a prior 28 judgment should be resolved against allowing [issue preclusive]
17 1 effect.” Kelly v. Okoye (In re Kelly), 182 B.R. 255, 258 (9th 2 Cir. BAP 1995), aff’d, 100 F.3d 110 (9th Cir. 1996). 3 3. The elements required to establish § 523(a)(6) 4 Section 523(a)(6) excepts from discharge debts arising from 5 a debtor’s willful and malicious injury to another person. 6 Barboza v. New Form, Inc. (In re Barboza), 545 F.3d 702, 706 (9th 7 Cir. 2008). We must analyze the willful and malice requirements 8 separately, Carillo v. Su (In re Su), 290 F.3d 1140, 1146-47 9 (2002), and we must determine that both have been met, Ormsby v. 10 First Am. Title Co. of Nev. (In re Ormsby), 591 F.3d 1199, 1206 11 (9th Cir. 2010). 12 “A ‘willful’ injury is a deliberate or intentional injury, 13 not merely a deliberate or intentional act that leads to injury.” 14 Barboza, 545 F.3d at 706, quoting Kawaauhau v. Geiger, 523 U.S. 15 57, 61 (1998). To satisfy the willfulness requirement, it must 16 be shown that the debtor either had “a subjective intent to harm 17 or a subjective belief that harm is substantially certain.” Su, 18 290 F.3d at 1144. When determining the debtor’s intent under 19 § 523(a)(6), there is a presumption that the debtor knows the 20 natural consequences of his actions. Ormsby, 591 F.3d at 1206. 21 “A malicious injury involves ‘(1) a wrongful act, (2) done 22 intentionally, (3) which necessarily causes injury, and (4) is 23 done without just cause or excuse.’” Su, 290 F.3d at 1146-47, 24 quoting Petralia v. Jercich (In re Jercich), 238 F.3d 1202, 1209 25 (9th Cir. 2001). “Within the plain meaning of this definition, 26 it is the wrongful act that must be committed intentionally 27 rather than the injury itself.” Jett v. Sicroff (In re Sicroff), 28 401 F.3d 1101, 1106 (9th Cir. 2005), citing Murray v. Bammer
18 1 (In re Bammer), 131 F.3d 788, 791 (9th Cir. 1997)(“This four-part 2 definition does not require a showing of biblical malice, i.e., 3 personal hatred, spite, or ill will. Nor does it require a 4 showing of an intent to injure, but rather it requires only an 5 intentional act which causes injury.”). “Malice may be inferred 6 based on the nature of the wrongful act.” Ormsby, 591 F.3d at 7 1206, citing Transamerica Comm. Fin. Corp. v. Littleton 8 (In re Littleton), 942 F.2d 551, 554 (9th Cir. 1991)(determining 9 that, in the case of conversion, malice may be inferred). 10 4. The elements required to establish malicious prosecution 11 12 In California, the common law tort of malicious prosecution 13 provides a remedy for individuals subjected to maliciously 14 instituted criminal and civil proceedings. See Sheldon Appel Co. 15 v. Albert Oliker, 47 Cal. 3d 863, 871-72 (1989). To establish a 16 cause of action for malicious prosecution of a civil proceeding, 17 the plaintiff must show “that the prior action (1) was commenced 18 [or continued] by or at the direction of the defendant and was 19 pursued to a legal termination in his [or her], plaintiff’s, 20 favor; (2) was brought without probable cause; and (3) was 21 initiated [or continued] with malice.” Id., quoting Bertero v. 22 Nat’l Gen. Corp., 13 Cal. 3d 43, 50 (1974)(internal quotation 23 marks omitted). 24 “Probable cause . . . is a question of law that turns on 25 whether the underlying claim was ‘legally tenable, as determined 26 on an objective basis.’” Tucker, 515 F.3d at 1031, quoting 27 Padres L.P. v. Henderson, 114 Cal. App. 4th 495, 517 (2004). 28 Probable cause “is measured by the state of the defendant’s
19 1 knowledge, not by his intent.” Sheldon Appel Co., 47 Cal. 3d at 2 881, quoting Dir. Gen. v. Kastenbaum, 263 U.S. 25, 27-28 (1923) 3 (“Kastenbaum”). The question ultimately is not whether the 4 defendant believed the facts to constitute probable cause, but 5 whether the court believes they did, an objective standard. 6 Sheldon Appel Co., 47 Cal. 3d at 881, quoting Kastenbaum, 7 263 U.S. at 27-28. 8 “The ‘malice’ element of the malicious prosecution tort 9 relates to the subjective intent or purpose with which the 10 defendant acted in initiating the prior action.” Estate of C. 11 Delores Tucker v. Interscope Records, Inc., 515 F.3d 1019, 1030 12 (9th Cir. 2008)(“Tucker”), quoting Sheldon Appel Co., 47 Cal. 3d 13 at 874 (internal quotation marks omitted). However, the malice 14 required in malicious prosecution “is not limited to actual 15 hostility or ill will toward [the] plaintiff but exists when the 16 proceedings are instituted primarily for an improper purpose.” 17 Albertson v. Raboff, 46 Cal. 2d 375, 383 (Cal. 1956). See also 18 Tucker, 515 F.3d at 1030, quoting Sierra Club Found. v. Graham, 19 72 Cal. App. 4th 1135, 1147 (1999)(“Sierra Club”). 20 The California Supreme Court has explained: 21 [T]he principal situations in which the civil proceedings are initiated for an improper purpose are 22 those in which (1) the person instituting them does not believe that his claim may be held valid; (2) the 23 proceedings are begun primarily because of hostility or ill will; (3) the proceedings are initiated solely for 24 the purpose of depriving the person against whom they are instituted of a beneficial use of his property; 25 [or] (4) the proceedings are initiated for the purpose of forcing a settlement which has no relation to the 26 merits of the claim. 27 Albertson, 46 Cal. 2d at 383, quoting Rest., Torts § 676. 28 Accordingly, in a malicious prosecution action, the proof may or
20 1 may not establish a willful intent to injure on the part of the 2 defendant. 3 B. Summary judgment in this appeal 4 On appeal, the debtor contends that the bankruptcy court 5 erred in granting summary judgment in Ms. Silas’ favor on her 6 § 523(a)(6) claim based on issue preclusion. He challenges the 7 bankruptcy court’s application of the first and third California 8 elements for issue preclusion: 1) that the issue sought to be 9 precluded is identical to that decided in the prior proceeding; 10 and 2) that the issue was necessarily decided in the prior 11 proceeding.8 12 With respect to the first issue preclusion element, he 13 8 14 The debtor advances two additional arguments. First, he contends that the bankruptcy court erred in relying on the 15 determinations made by the state appellate court in its opinion, Silas v. Arden, 213 Cal. App. 4th 75 (2013), “in lieu of [the] 16 proof of what happened at trial.” Reading the transcript of the 17 hearing, we do not get a sense that the bankruptcy court relied on the background facts discussed in the state appellate court’s 18 opinion in making its determination. In fact, the bankruptcy 19 court told the debtor that it “relied on the materials submitted with them – with the briefs,” which included not only the state 20 appellate court’s opinion, but also the jury instructions. The bankruptcy court moreover indicated that it mostly relied on the 21 jury instructions and Ms. Silas’ brief. 22 The bankruptcy court also explained to the debtor that it was not a state appellate court. If it looked behind the state 23 court’s decision, it would “be assuming that the state court was wrong.” 24 Second, the debtor argues that the bankruptcy court merged 25 issue preclusion with the Rooker-Feldman doctrine. At the hearing, the bankruptcy court explicitly stated that it was not a 26 state appellate court and could not review a state appellate 27 court’s decisions. The bankruptcy court did not err in considering the state appellate court’s analysis of California 28 state law issues in this case.
21 1 argues that the state court judgment did not have issue 2 preclusive effect because the malice requirement for malicious 3 prosecution is not the same as the willful requirement for 4 § 523(a)(6). 5 With respect to the second issue preclusion element, the 6 debtor maintains that the bankruptcy court erred in refusing to 7 consider evidence as to the debtor’s subjective intent at the 8 time he continued the legal malpractice action on Mr. Gunnell’s 9 behalf. He claims that the evidence would show that he did not 10 intend to harm Ms. Silas in prosecuting the malicious prosecution 11 action on Mr. Gunnell’s behalf. Rather, he simply sought to 12 carry out his duty as counsel to his client, Mr. Gunnell. He 13 also believed that Mr. Gunnell had a meritorious malpractice 14 claim against Ms. Silas. 15 He moreover argues that “it was impossible to know” from the 16 jury instructions and the verdict whether the jury actually found 17 that he had intended to cause Ms. Silas injury in filing the 18 malicious prosecution action. In fact, the only instruction 19 given to the jury concerning malice defined “malice” as either 20 that “(1) [the debtor] intended to cause injury to [Ms.] Silas 21 when he represented Mr. Gunnell or (2) [his] representation of 22 [Mr.] Gunnell was despicable and done with knowing disregard of 23 [Ms.] Silas’ rights.” Appellant’s Opening Brief at 37. Also, 24 the jury finding that the debtor had acted for a purpose “other 25 than succeeding on the merits” did not describe what that purpose 26 might have been. Appellant’s Opening Brief at 38. 27 Comparing the elements of the California intentional tort of 28 malicious prosecution with the requirements to establish a
22 1 willful and malicious injury excepted from the debtor’s discharge 2 under § 523(a)(6), we have no quarrel with the bankruptcy court’s 3 conclusion that the “malicious” element was established, but 4 although we acknowledge that it is a very close question, we 5 disagree that the “willful” standard was necessarily met. We 6 thus conclude that the bankruptcy court erred in granting summary 7 judgment in Ms. Silas’ favor based on the issue preclusive 8 effects of the state court judgment with respect to the 9 § 523(a)(6) “willful injury” element. 10 As we explained above, in order to except a debt from 11 discharge as a willful and malicious injury under § 523(a)(6), we 12 must analyze the elements of willfulness and maliciousness 13 separately, Su, 290 F.3d at 1146-47, and determine that both have 14 been met, Ormsby, 591 F.3d at 1206. The § 523(a)(6) willfulness 15 requirement involves a deliberate or intentional injury. 16 Willfulness is not a separate and distinct element of the 17 tort of malicious prosecution, though it may be inferred from the 18 debtor’s intent in commencing or continuing litigation. 19 Moreover, “‘[m]erely because a tort is classified as intentional 20 does not mean that any injury caused by the tortfeasor is 21 willful.’” Ditto v. McCurdy, 510 F.3d 1070, 1078 (9th Cir. 22 2007), quoting Miller v. J.D. Abrams Inc. (In re Miller), 23 156 F.3d 598, 604 (5th Cir. 1998). 24 The state court judgment did not necessarily include 25 findings of willfulness within the meaning of § 523(a)(6). The 26 instructions to the jury did not ask specifically that the jury 27 find that the debtor continued the legal malpractice action 28 against Ms. Silas with a subjective intent to harm her. Rather,
23 1 the jury instructions asked the jury to determine whether the 2 debtor “acted primarily for a purpose other than succeeding on 3 the merits of the claim.” The additional jury instructions did 4 not require the jury to specify this purpose. Moreover, the 5 verdict form merely repeated this instruction in the form of a 6 question, to which the jury answered “yes.” 7 One of the jury instructions stated that Ms. Silas must 8 prove that the debtor’s conduct was a substantial factor in 9 causing her harm. But this instruction does not indicate whether 10 the conduct was wrongful and was done intentionally. Moreover, 11 the question in the verdict form asking if the jury found that 12 the debtor “engaged in the conduct with malice or oppression” was 13 in the disjunctive. The jury’s simple “yes” did not determine 14 definitely whether the debtor acted willfully. 15 The punitive damages instructions to the jury required the 16 jury to determine whether the debtor’s conduct was so 17 reprehensible as to support a determination by clear and 18 convincing evidence that the debtor acted with “malice or 19 oppression,” referencing “despicable conduct” as an applicable 20 standard. As described in the instructions, “despicable conduct” 21 is “conduct that is so vile, base, or contemptible that it would 22 be looked down on and despised by reasonable people.” Even so, 23 as the Panel recently discussed at length in Plyam v. Precision 24 Dev’t, LLC, 530 B.R. 456, 464-70 (BAP 9th Cir. 2015), a 25 California punitive damages award does not necessarily establish 26 “willfulness” for § 523(a)(6) purposes. We conclude, on the 27 record before us, that the issue of whether the debtor willfully 28 injured Ms. Silas was not necessarily decided in the malicious
24 1 prosecution action. 2 3 CONCLUSION9 4 Based on our review of the record, Ms. Silas alleged facts 5 sufficient to support her claim under § 523(a)(6). The 6 bankruptcy court did not err in denying the debtor’s motion to 7 dismiss. We AFFIRM the bankruptcy court’s order denying the 8 debtor’s motion to dismiss. 9 However, we VACATE and REMAND the bankruptcy court’s order 10 granting Ms. Silas’ motion for summary judgment. Because the 11 results in the malicious prosecution action did not establish the 12 element of “willfulness” for § 523(a)(6) purposes, the state 13 court judgment lacked issue preclusive effect. The bankruptcy 14 court thus erred in granting summary judgment in Ms. Silas’ favor 15 on her § 523(a)(6) claim. 16 17 18 19 20 21 22 23 24 9 25 While this appeal was pending, Ms. Silas filed a motion to sanction the debtor and his counsel for filing a frivolous appeal 26 (“sanctions motion”). Because we conclude that the bankruptcy 27 court erred in granting Ms. Silas’ summary judgment motion, the debtor’s appeal is not frivolous. We thus deny Ms. Silas’ 28 sanctions motion.