FILED NOV 07 2017 1 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL 2 OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT 4 5 In re: ) BAP No. AZ-17-1071-FSKu ) 6 PATRICIA MARCELLO ANDERSON ) Bk. No. 14-bk-12221-GBN and ANTHONY MARCUS ANDERSON, ) 7 ) Adv. Pro. 14-ap-00927-GBN Debtors. ) 8 _____________________________ ) ) 9 CWB HOLDINGS, LLC, ) ) 10 Appellant, ) ) 11 v. ) MEMORANDUM* ) 12 PATRICIA MARCELLO ANDERSON; ) ANTHONY MARCUS ANDERSON, ) 13 ) Appellees. ) 14 ______________________________) 15 Argued and Submitted on October 26, 2017 at Phoenix, Arizona 16 Filed – November 7, 2017 17 Appeal from the United States Bankruptcy Court 18 for the District of Arizona 19 Honorable George B. Nielsen, Jr., Bankruptcy Judge, Presiding 20 Appearances: Patrick J. Davis of Fidelity National Law Group 21 argued on behalf of appellant CWB Holdings, LLC; Amy Sells of Tiffany & Bosco, P.A. argued on 22 behalf of appellees Patricia Marcello Anderson and Anthony Marcus Anderson. 23 24 Before: FARIS, SPRAKER, and KURTZ, Bankruptcy Judges. 25 26 * 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, see 28 9th Cir. BAP Rule 8024-1. 1 INTRODUCTION 2 CWB Holdings, LLC (“CWB”) recovered a judgment in state 3 court against Patricia Marcello Anderson and Anthony Marcus 4 Anderson for their wrongful recordation and refusal to remove two 5 lis pendens against CWB’s property. After the Andersons filed a 6 chapter 71 bankruptcy petition, CWB argued that the judgment debt 7 is not dischargeable under § 523(a)(6). The bankruptcy court 8 ruled that the state court judgment precluded relitigation of all 9 issues other than the Andersons’ mental state; more precisely, 10 the court ruled that a trial was necessary to decide whether they 11 had relied on the advice of counsel. 12 After the trial, the court found that CWB did not establish 13 the Andersons’ scienter, because the Andersons’ reliance on the 14 advice of counsel negated the requisite mental state. Although 15 other courts may have found differently, we cannot say that the 16 bankruptcy court committed clear error when it found that the 17 Andersons relied on their attorneys’ advice. 18 We AFFIRM. 19 FACTUAL BACKGROUND2 20 A. Prepetition events 21 1. The real property sale 22 23 1 Unless specified otherwise, all chapter and section 24 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532. 25 2 We exercise our discretion to review the documents on the 26 bankruptcy court’s electronic docket. See Woods & Erickson, LLP v. Leonard (In re AVI, Inc.), 389 B.R. 721, 725 n.2 (9th Cir. BAP 27 2008). We additionally rely on the Arizona appellate court’s factual recitation in CWB Holdings, LLC v. Anderson, No. 1 CA-CV 28 10-0791, 2011 WL 6210526 (Ariz. Ct. App. Dec. 13, 2011).
2 1 Mr. Anderson is a sophisticated entrepreneur in the business 2 of mergers and acquisitions. In 2002, he set up a wealth 3 protection plan for the benefit of his children. Property in the 4 plan included two parcels of real property located at 8723 E. Via 5 de Commercio, Scottsdale, Arizona. 6 In 2005, Mr. Anderson sought to acquire the adjacent real 7 property located at 8727 E. Via de Commercio (the “Property”), 8 then owned by Frederick and Barbara Dettmann, for inclusion in 9 the wealth protection plan. According to Mr. Anderson, he 10 reached an oral agreement to purchase the Property for $625,000 11 and established 8727 E. Via de Commercio, LLC (“8727 LLC”) for 12 this purpose. However, the Andersons did not have a written 13 purchase agreement with the Dettmanns. 14 The Dettmanns instead agreed to sell the Property to CWB for 15 $660,000. They conveyed the Property to CWB via special warranty 16 deed recorded on February 8, 2006. 17 2. The specific performance action 18 Earlier that day, the Andersons filed a complaint against 19 the Dettmanns in Arizona state court, seeking specific 20 performance of the alleged contract to buy the Property for 21 $625,000 (the “Specific Performance Action”). About twenty 22 minutes before the deed from the Dettmanns to CWB was recorded, 23 the Andersons filed and recorded a lis pendens against the 24 Property (the “2006 lis pendens”). 25 By letter dated February 10, 2006, CWB’s attorneys demanded 26 that Mr. Anderson release the 2006 lis pendens. By a second 27 letter dated February 16, 2006, CWB requested that the Andersons 28 execute a quitclaim deed. Mr. Anderson did not comply.
3 1 With the state court’s permission, the Andersons filed an 2 amended complaint, substituting 8727 LLC as the plaintiff in 3 place of the Andersons personally and adding CWB as a defendant. 4 The amended complaint alleged breach of contract against the 5 Dettmanns and constructive trust against CWB and dropped the 6 prayer for specific performance. 7 In January 2007, the court dismissed the Specific 8 Performance Action for lack of prosecution. CWB requested again 9 that Mr. Anderson remove the 2006 lis pendens. The Andersons did 10 not comply. Instead, 8727 LLC successfully moved the court to 11 reinstate the case. 12 3. The wrongful recordation action 13 On May 31, 2007, CWB again requested in writing that 14 Mr. Anderson remove the 2006 lis pendens and execute a quitclaim 15 deed. When Mr. Anderson did not comply, CWB filed a state-court 16 complaint against the Andersons for wrongful recordation and 17 quiet title (the “Wrongful Recordation Action”). 18 In response, the Andersons, acting through their counsel 19 Wilenchik & Bartness, recorded a second notice of lis pendens in 20 October 2007 (the “2007 lis pendens”). Although the Andersons 21 had been prepared to release the 2006 lis pendens and “go home,” 22 they changed their mind when CWB personally named them in the 23 Wrongful Recordation Action.3 24 25 3 26 Mr. Anderson said that he was prepared to release the 2006 lis pendens because of the expense of litigation but changed his 27 mind when CWB sued him. Mr. Anderson claimed that he viewed the suit against him personally as an attempt to “punch through my 28 kids[’] trust and take their assets.”
4 1 4. Summary judgment in the specific performance action 2 In November 2007, the Dettmanns moved for summary judgment 3 in the Specific Performance Action, arguing that the Andersons 4 and 8727 LLC could not establish the existence of a contract with 5 the Dettmanns. The court granted the motion by minute order. 6 In March 2008, the state court consolidated the Specific 7 Performance Action with the Wrongful Recordation Action. 8 On April 1, 2008, the court entered judgment against the 9 Andersons in the Specific Performance Action and ordered the 10 Andersons to remove the lis pendens within ten days: 11 CWB is the lawful owner of the [Property] . . . [the Andersons and 8727] have no right, title or interest in 12 the Property. The Court hereby quashes and renders null and void any and all lis pendens recorded by [the 13 Andersons and 8727] against the Property. Notwithstanding the foregoing, the Court orders [the 14 Andersons and 8727] to remove any and all lis pendens any of them have filed against the Property by filing 15 and recording sufficient Notices of Removal of Lis Pendens with the Maricopa County Recorder within ten 16 (10) days of the date of this Judgment. 17 CWB sent the Andersons’ counsel another letter on April 8, 18 2008 demanding removal of the lis pendens. The Andersons did not 19 comply with either the letter or the court order. Mr. Anderson 20 and his attorneys – at that time, Dennis Wilenchik and Amy Sells 21 (nee Reyes) – decided that they did not need to comply with the 22 order and remove the two lis pendens because the judgment was not 23 final. Rather than comply, the Andersons filed a motion to amend 24 the judgment. The court denied that motion in June 2008. 25 On June 20, 2008, CWB sent another letter to the Andersons 26 asking that they remove the lis pendens. The Andersons did not 27 comply. 28
5 1 5. The order to show cause and release of the lis pendens 2 On July 1, 2008, the court issued an order to show cause 3 (the “OSC”) why 8727 LLC and the Andersons should not be held in 4 contempt for failing to remove the lis pendens. The hearing date 5 on the OSC was August 7. 6 On July 31, the Andersons and 8727 LLC filed releases of the 7 lis pendens. Mr. Anderson claimed that he still did not believe 8 that he needed to release the lis pendens and that he did so as 9 “a courtesy.” 10 The Andersons and 8727 LLC also filed a notice of appeal in 11 the Specific Performance Action. They challenged only the entry 12 of judgment against them personally and did not attack the 13 portion of the judgment requiring them to release the lis 14 pendens. In November 2009, the Arizona appeals court vacated the 15 judgment as to the Andersons; as such, the Andersons were not 16 personally liable on the judgment. 17 6. Summary judgment in the wrongful recordation action 18 In December 2008, CWB filed a motion for partial summary 19 judgment on liability as to the wrongful recordation. CWB argued 20 that, in light of the court’s grant of summary judgment in the 21 Specific Performance Action and the finding that no agreement 22 existed between the parties, the Andersons must have known that 23 the lis pendens were groundless or otherwise invalid. 24 Following a hearing, the court granted the motion for 25 partial summary judgment, holding the Andersons liable for 26 wrongfully recording the lis pendens. After a trial, a jury 27 awarded actual damages of $180,000 to CWB and against the 28 Andersons. The court awarded CWB treble damages under Arizona
6 1 Revised Statutes section 33-420(A) and (C), for a total of 2 $540,000 plus fees and costs (the “Judgment”). 3 The Andersons appealed the Judgment, but the Arizona court 4 of appeals affirmed it in its entirety. 5 B. Bankruptcy events 6 1. CWB’s § 523(a)(6) claim 7 In August 2014, the Andersons filed a chapter 7 petition in 8 the United States Bankruptcy Court for the District of Arizona. 9 CWB filed an adversary proceeding seeking a determination of 10 nondischargeability of the Judgment under §§ 523(a)(2)(A) and (6) 11 and denial of discharge under § 727(a)(2)(A). 12 2. Motion for summary judgment 13 CWB filed a motion for partial summary judgment on its 14 § 523(a)(6) claim (“Motion for Summary Judgment”). It argued 15 that the Judgment precluded the Andersons from relitigating the 16 same issues raised in the Wrongful Recordation Action, including 17 willful and malicious injury, and that, regardless of issue 18 preclusion, the Andersons’ actions were willful and malicious. 19 As to the application of issue preclusion, CWB argued that 20 the Judgment established all of the elements of § 523(a)(6). 21 Liability under section 33-420(C) of the Arizona Revised Statutes 22 requires that a person “wilfully refuses to release or correct” a 23 recorded document that encumbers real property “when that person 24 knows that the document is forged, groundless, contains a 25 material misstatement or false claim or is otherwise invalid.” 26 CWB argued that “the Andersons willfully refused to release the 27 lis pendens even after the State Court ordered them to do so. 28 Only when faced with a show cause hearing did the Andersons
7 1 finally release the lis pendens — 29 months after the first 2 demand to release had been made.” It also argued that the 3 Andersons acted maliciously because they wrongfully recorded the 4 lis pendens; they intentionally refused to release the lis 5 pendens, even though the state court said it was groundless; 6 there was no just cause or excuse; and the state court determined 7 that CWB suffered actual damages. 8 CWB alternatively argued that, even if the court did not 9 apply issue preclusion, the undisputed facts demonstrated that 10 the Andersons’ actions resulted in willful and malicious injury. 11 In opposition, the Andersons argued that “[t]here was no 12 discussion by the Court or by the jury as to the issue of 13 ‘willful and malicious’ actions by the Defendants.” They also 14 claimed that section 33-420 required only a willful act, not a 15 malicious act. They asserted that their actions were not 16 malicious and argued that they acted on the advice of their 17 attorneys: “Upon advice of counsel, we did not release the Notice 18 of Lis Pendens based upon his recommendation that we appeal the 19 judgment . . . .” 20 At the hearing on the Motion for Summary Judgment, the 21 bankruptcy court granted the motion in part, holding that CWB had 22 established all elements of § 523(a)(6) except the issue of the 23 Andersons’ scienter. It recited the extensive facts of the case 24 and stated: 25 Under these facts I have little difficulty in concluding that the Plaintiff has established 26 sufficient evidence here for a finding of summary judgment, but there’s a nagging problem here that’s 27 loose and that is the advice of counsel defense. Again, the Plaintiff has established a strong record 28 for granting summary judgment, but as noted by the
8 1 State Court of Appeals and interpreting A.R.S. 33-420 liability is imposed only if the person causing the 2 filing of the invalid document knows or has reason to know the document is invalid, thereby mandating the 3 finding of scienter on the part of the person causing the filing. 4 The court expressed skepticism that the Andersons could 5 establish that they relied on the advice of their counsel, but it 6 nevertheless determined that a trial was necessary. 7 3. Trial 8 Only Mr. Anderson and attorney Dennis Wilenchik (who 9 represented the Andersons between late 2007 and July of 2008) 10 testified at trial. 11 Mr. Wilenchik’s representation spanned the period including 12 the filing of the 2007 lis pendens, the state court’s January 25, 13 2008 minute order dismissing the Andersons’ Specific Performance 14 Action, the April 1, 2008 judgment ordering the Andersons to 15 remove the lis pendens within ten days, the July 2008 OSC, and 16 the eventual removal of the lis pendens in July 2008. 17 Mr. Wilenchik testified that he had no recollection of any 18 discussion with the Andersons about removing the lis pendens, nor 19 did he recall ever advising the Andersons not to release the 20 lis pendens. Rather, he testified that the decision to remove 21 the lis pendens was up to the attorney – not the clients - and 22 that he would not have removed the lis pendens, even if 23 Mr. Anderson had instructed him to do so: 24 I don’t believe I would have gone to the Andersons and 25 consulted them as to whether it should be released or not. I would have probably, if anything, told them 26 this is the way I see it, if it came up. I don’t recall it coming up quite honestly and I certainly 27 don’t recall them dictating to me nor would I listen to it as to what I should do with it. 28
9 1 Mr. Wilenchik testified that he did not believe that he had 2 to remove the lis pendens - even in the face of the state court’s 3 order - because he had filed a postjudgment motion to amend. He 4 thus thought that it was not necessary to either remove the lis 5 pendens within ten days or seek a motion to stay pending appeal. 6 Mr. Anderson gave somewhat shifting testimony. He stated 7 that he could not recall any specific conversation with 8 Mr. Wilenchik about removing the lis pendens, but he recalled 9 discussing the matter with Mr. Wilenchik’s then-associate, 10 Amy Sells.4 He could not remember any specific conversations or 11 advice, but testified that they determined that they would not 12 release the lis pendens. He said that the attorneys conveyed 13 “[t]hat it would be a mistake” to do so. 14 Regarding advice by other attorneys, Mr. Anderson gave 15 ambiguous testimony about whether any of his prior attorneys had 16 advised him not to release the lis pendens earlier: “it wasn’t 17 nice, neat conversations where they said, I advise you this, it 18 was merely you handled the case as the attorneys, you know, you 19 did what you think is right, that really was the nature of the 20 advice or the guidance. It wasn’t conversations where they say, 21 I advise you. It wasn’t that nice and convenient.” 22 After the parties submitted written closing briefs and oral 23 closing argument, the court announced its findings of fact and 24 conclusions of law. While the court did not agree with 25 Mr. Wilenchik’s legal views, it found his testimony credible and 26 4 27 Counsel for CWB pointed out that Mr. Anderson had previously testified at his deposition that there were no 28 conversations between April 1, 2008 and July 31, 2008.
10 1 that, while Mr. Wilenchik did not recall ever advising 2 Mr. Anderson not to release the lien, he must have somehow 3 communicated that belief to Mr. Anderson. The bankruptcy court 4 concluded: 5 As I’ve indicated, the advice of counsel issue is not strongly established by the Defense, but I believe 6 it was established clearly, that is Mr. Wilenchik’s opinion on these matters and clearly in some manner 7 Mr. Anderson gained that understanding as well and it’s very clear to the fact finder that he never received 8 advice from his attorney that he should release the lis pendens sooner than the date that he actually did 9 so, which was done for economic reasons. 10 The bankruptcy court issued its final judgment (with Civil 11 Rule 54(b) certification) dismissing CWB’s § 523(a)(6) claim. 12 CWB timely filed its notice of appeal. 13 JURISDICTION 14 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 15 §§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C. 16 § 158. 17 ISSUES 18 (1) Whether the bankruptcy court erred in declining to apply 19 issue preclusion to the issue of scienter. 20 (2) Whether the bankruptcy court erred in dismissing CWB’s 21 § 523(a)(6) claim based on its finding that the Andersons lacked 22 willful and malicious intent in refusing to remove the lis 23 pendens because they relied on the advice of their counsel. 24 STANDARDS OF REVIEW 25 In bankruptcy discharge appeals after trial, we review the 26 bankruptcy court’s findings of fact for clear error and 27 conclusions of law de novo, and we apply de novo review to mixed 28 questions of law and fact. Oney v. Weinberg (In re Weinberg),
11 1 410 B.R. 19, 28 (9th Cir. BAP 2009), aff’d, 407 F. App’x 176 (9th 2 Cir. 2010) (citation omitted). De novo review requires that we 3 consider a matter anew, as if no decision had been rendered 4 previously. United States v. Silverman, 861 F.2d 571, 576 (9th 5 Cir. 1988). 6 A factual finding is clearly erroneous if, after examining 7 the evidence, the reviewing court “is left with the definite and 8 firm conviction that a mistake has been committed.” Anderson v. 9 City of Bessemer City, 470 U.S. 564, 573 (1985). “To be clearly 10 erroneous, a decision must strike us as more than just maybe or 11 probably wrong; it must . . . strike us as wrong with the force 12 of a five-week-old, unrefrigerated dead fish.” Papio Keno Club, 13 Inc. v. City of Papillion (In re Papio Keno Club, Inc.), 262 F.3d 14 725, 729 (8th Cir. 2001) (quoting Parts & Elec. Motors, Inc. v. 15 Sterling Elec., Inc., 866 F.2d 228, 233 (7th Cir. 1988)). The 16 bankruptcy court’s choice among multiple plausible views of the 17 evidence cannot be clear error. United States v. Elliott, 18 322 F.3d 710, 714 (9th Cir. 2003). 19 The availability of issue preclusion is reviewed de novo, 20 but “[i]f issue preclusion is available, the decision to apply it 21 is reviewed for abuse of discretion.” Lopez v. Emergency Serv. 22 Restoration, Inc. (In re Lopez), 367 B.R. 99, 103 (9th Cir. BAP 23 2007) (citations omitted). To determine whether the bankruptcy 24 court has abused its discretion, we conduct a two-step inquiry: 25 (1) we review de novo whether the bankruptcy court “identified 26 the correct legal rule to apply to the relief requested” and 27 (2) if it did, whether the bankruptcy court’s application of the 28 legal standard was illogical, implausible, or without support in
12 1 inferences that may be drawn from the facts in the record. 2 United States v. Hinkson, 585 F.3d 1247, 1262–63 & n.21 (9th Cir. 3 2009) (en banc). 4 DISCUSSION 5 A. The bankruptcy court did not err in declining to apply issue preclusion to the question of the Andersons’ scienter. 6 7 CWB argues that the bankruptcy court erred in refusing to 8 apply issue preclusion to the question of the Andersons’ scienter 9 because the state court had already determined their willful and 10 malicious intent. We disagree. 11 The doctrine of issue preclusion prohibits relitigation of 12 issues that have been adjudicated in a prior action. 13 In re Lopez, 367 B.R. at 104. The party asserting issue 14 preclusion bears the burden of proof as to all elements and must 15 introduce a sufficient record to reveal the controlling facts and 16 the exact issues litigated. Kelly v. Okoye (In re Kelly), 17 182 B.R. 255, 258 (9th Cir. BAP 1995), aff’d, 100 F.3d 110 18 (9th Cir. 1996). “Any reasonable doubt as to what was decided by 19 a prior judgment should be resolved against allowing the [issue 20 preclusive] effect.” Id. 21 Issue preclusion applies in nondischargeability litigation. 22 Grogan v. Garner, 498 U.S. 279, 284–285 (1991). A bankruptcy 23 court may rely on the issue preclusive effect of an existing 24 state court judgment as the basis for granting summary judgment. 25 See Khaligh v. Hadaegh (In re Khaligh), 338 B.R. 817, 831–32 (9th 26 Cir. BAP 2006). In so doing, the bankruptcy court must apply the 27 forum state’s law of issue preclusion. Harmon v. Kobrin 28 (In re Harmon), 250 F.3d 1240, 1245 (9th Cir. 2001); see
13 1 28 U.S.C. § 1738 (federal courts must give “full faith and 2 credit” to state court judgments). Accordingly, we apply 3 Arizona’s law of issue preclusion. 4 In Arizona, “issue preclusion is applicable when the issue 5 or fact to be litigated was actually litigated in a previous 6 suit, a final judgment was entered, and the party against whom 7 the doctrine is to be invoked had a full opportunity to litigate 8 the matter and actually did litigate it, provided such issue or 9 fact was essential to the prior judgment.” Chaney Bldg. Co. v. 10 City of Tucson, 148 Ariz. 571, 573, 716 P.2d 28, 30 (1986) (en 11 banc). 12 However, Arizona recognizes that, “even in cases in which 13 the technical requirements for the application of collateral 14 estoppel are met, courts do not preclude issues when special 15 circumstances exist.” Hullett v. Cousin, 204 Ariz. 292, 298, 16 63 P.3d 1029, 1035 (2003) (en banc) (citing Ferris v. Hawkins, 17 135 Ariz. 329, 331, 660 P.2d 1256, 1258 (App. 1983) (“Principles 18 of issue preclusion should not be applied . . . where ‘there is 19 some overriding consideration of fairness to a litigant, which 20 the circumstances of the particular case would dictate.’”)); see 21 Kirkland v. Barnes (In re Kirkland), BAP No. AZ–08–1143–EMoMk, 22 2008 WL 8444824, at *7–8 (9th Cir. BAP Nov. 26, 2008) (“Even when 23 the threshold requirements for issue preclusion are met, its 24 application may not be appropriate when the policies of judicial 25 economy and avoidance of inconsistent results are outweighed by 26 other substantive policies[.]”). 27 In the present case, CWB sought to give issue preclusive 28 effect to the state court’s Judgment against the Andersons under
14 1 section 33-420, in order to avoid relitigation of its § 523(a)(6) 2 claim. We must compare the elements of § 523(a)(6) with the 3 state court’s rulings under section 33-420. 4 Section 523(a)(6) renders nondischargeable any debt arising 5 from “willful and malicious injury by the debtor to another 6 entity or to the property of another entity.” § 523(a)(6). The 7 “willful” and “malicious” requirements are conjunctive and 8 subject to separate analysis. Barboza v. New Form, Inc. 9 (In re Barboza), 545 F.3d 702, 706 (9th Cir. 2008). 10 Regarding the “willful” prong, we have stated: 11 The willful injury requirement speaks to the state of mind necessary for nondischargeability. An exacting 12 requirement, it is satisfied when a debtor harbors either a subjective intent to harm, or a subjective 13 belief that harm is substantially certain. The injury must be deliberate or intentional, not merely a 14 deliberate or intentional act that leads to injury. Thus, debts arising from recklessly or negligently 15 inflicted injuries do not fall within the compass of § 523(a)(6). 16 17 Plyam v. Precision Dev., LLC (In re Plyam), 530 B.R. 456, 463 18 (9th Cir. BAP 2015) (internal citations and quotation marks 19 omitted). 20 In contrast, “a ‘malicious’ injury involves ‘(1) a wrongful 21 act, (2) done intentionally, (3) which necessarily causes injury, 22 and (4) is done without just cause or excuse.’” Petralia v. 23 Jercich (In re Jercich), 238 F.3d 1202, 1209 (9th Cir. 2001) 24 (citation omitted). 25 The Arizona state court held that the Anderson were liable 26 to CWB under section 33-420: 27 A. A person purporting to claim an interest in, or a lien or encumbrance against, real property, who causes 28 a document asserting such claim to be recorded in the
15 1 office of the county recorder, knowing or having reason to know that the document is forged, groundless, 2 contains a material misstatement or false claim or is otherwise invalid is liable to the owner or beneficial 3 title holder of the real property for the sum of not less than five thousand dollars, or for treble the 4 actual damages caused by the recording, whichever is greater, and reasonable attorney fees and costs of the 5 action. 6 . . . 7 C. A person who is named in a document which purports to create an interest in, or a lien or encumbrance 8 against, real property and who knows that the document is forged, groundless, contains a material misstatement 9 or false claim or is otherwise invalid shall be liable to the owner or title holder for the sum of not less 10 than one thousand dollars, or for treble actual damages, whichever is greater, and reasonable attorney 11 fees and costs as provided in this section, if he wilfully refuses to release or correct such document of 12 record within twenty days from the date of a written request from the owner or beneficial title holder of 13 the real property. 14 Ariz. Rev. Stat. § 33-420(A), (C). Subsection (A) deals with the 15 recordation of the document, while subsection (C) concerns the 16 failure to remove the document. 17 We have previously held (in an unpublished disposition) that 18 a finding of liability under section 33-420 satisfies the willful 19 and malicious elements of § 523(a)(6). In Bosworth v. TEM 20 Holdings, LLC (In re Bosworth), BAP No. AZ-11-1157-JuKiWi, 2012 21 WL 603715 (9th Cir. BAP Feb. 2, 2012), we considered whether a 22 judgment against the debtors for wrongful recordation of a 23 fraudulent power of attorney was sufficient to establish willful 24 and malicious injury for issue preclusion purposes. We held that 25 “the liability imposed for a knowing violation of the statute is 26 the equivalent of an intentional injury under § 523(a)(6)” and 27 “that the conduct proscribed by ARS § 33–420 required TEM to 28 prove the classic elements of a malicious injury under
16 1 § 523(a)(6).” 2012 WL 603715, at *6. 2 Bosworth is not binding precedent and is factually 3 distinguishable. First, the Andersons claim that they filed and 4 refused to release the lis pendens based on the advice of 5 counsel; the debtor in Bosworth made no such claim. Second, the 6 state court in Bosworth found that the debtors knew their filing 7 was improper; the Bosworth panel declined to address the question 8 whether issue preclusion would apply if the state court had found 9 that the debtors only “ha[d] reason to know” that the filing was 10 improper. Id. at *6 n.10. In this case, as far as we can tell 11 from the record on appeal, the state court did not explicitly 12 find that the Andersons knew (rather than had reason to know) 13 that the lis pendens were improper. Third, Arizona law provides 14 that courts have discretion to decline to apply issue preclusion 15 in exceptional circumstances, even when all of the minimum 16 requirements are met. See Hullett, 204 Ariz. at 298, 63 P.3d at 17 1035. So the bankruptcy court was not compelled to apply issue 18 preclusion in any event. 19 Therefore, the bankruptcy court did not abuse its discretion 20 in declining to give issue preclusive effect to the state court 21 Judgment as to the Andersons’ scienter. 22 B. The bankruptcy court’s consideration of the effect of advice of counsel on the Andersons’ scienter was not clear error. 23 24 CWB argues that the bankruptcy court erred in finding that 25 the Andersons relied on the advice of their counsel when they 26 refused to release the lis pendens. We conclude that the 27 bankruptcy court did not clearly err in finding that the 28 Andersons lacked the necessary scienter under § 523(a)(6).
17 1 In the context of bankruptcy and dischargeability, the Ninth 2 Circuit has stated: 3 It is true that “[g]enerally, a debtor who acts in reliance on the advice of his attorney lacks the intent 4 required to deny him a discharge of his debts.” That reliance, however, must be “in good faith.” This court 5 has held that the advice of counsel claim is not a separate defense, but rather “a circumstance indicating 6 good faith which the trier of fact is entitled to consider on the issue of fraudulent intent.” 7 8 Maring v. PG Alaska Crab Inv. Co. LLC (In re Maring), 338 F. 9 App’x 655, 658 (9th Cir. 2009) (internal citations and emphasis 10 omitted). “[T]he debtor’s reliance must be in good faith.” 11 First Beverly Bank v. Adeeb (In re Adeeb), 787 F.2d 1339, 1343 12 (9th Cir. 1986) (internal citations omitted). The defendant has 13 the burden of proving the requisite elements of advice of 14 counsel. See Bisno v. United States, 299 F.2d 711, 720 (9th Cir. 15 1961) (declining to give an advice of counsel instruction when 16 the defendant did not testify and establish each element); 17 Stephens v. Stinson, 292 F.2d 838, 838 (9th Cir. 1961) (“Of 18 course, it is usually a question of fact whether clients 19 implicitly relied on advice of counsel. . . . And, clearly, here 20 the burden of proof shifted to the bankrupts.”). 21 In other words, advice of counsel can negate the mental 22 state required by § 523(a)(6) only if the debtor establishes that 23 counsel actually gave advice and that the debtor acted in good 24 faith reliance on that advice. 25 In the present case, the bankruptcy court found that 26 Mr. Anderson relied on the advice of Mr. Wilenchik and his 27 associate when he refused to remove the lis pendens after the 28 state court ordered the Andersons to do so within ten days of the
18 1 April 1, 2008 judgment. The bankruptcy court recognized that the 2 evidence on this point was thin. Mr. Wilenchik testified that he 3 could not remember specifically advising Mr. Anderson not to 4 release the lis pendens, but he would not have released it, 5 regardless of what the Andersons instructed him to do, because 6 the judgment was not final. The bankruptcy court did not agree 7 with Mr. Wilenchik’s legal analysis, but it nevertheless found 8 his testimony credible and determined that Mr. Wilenchik or his 9 associate must have communicated that advice to Mr. Anderson. 10 Although other judges might reach the opposite conclusion on 11 the same or similar facts, we cannot say that the bankruptcy 12 court clearly erred. See Anderson, 470 U.S. at 573 (requiring 13 “the definite and firm conviction that a mistake has been 14 committed”). If the bankruptcy court is faced with multiple 15 plausible views of the evidence, its choice among them cannot be 16 clear error. See Elliott, 322 F.3d at 714. There was evidence 17 to support the bankruptcy court’s inference that Mr. Wilenchik or 18 his associate did advise Mr. Anderson not to remove the lis 19 pendens. 20 CWB argues that the Andersons could not have relied on this 21 advice in good faith, because Mr. Anderson was a sophisticated 22 businessman and knew he should not defy a court order. But the 23 bankruptcy court cited the correct legal standard and carefully 24 weighed the evidence. It heard testimony that Mr. Anderson 25 relied on the legal advice of Mr. Wilenchik (and his prior 26 attorneys), and Mr. Wilenchik held a very strong belief (correct 27 or not) that he did not need to release the lis pendens. It was 28 not clear error for the court to conclude that the Andersons
19 1 relied on the advice in good faith. 2 CWB argues that the bankruptcy court erred because the 3 Andersons could not have acted on the advice of counsel when they 4 initially filed the lis pendens in 2006 and 2007 and repeatedly 5 refused to release them. Specifically, CWB twice demanded that 6 the Andersons remove the lis pendens in February 2006 and May 7 2007, and the Andersons rejected or ignored both demands. Both 8 of these instances predate Mr. Wilenchik’s representation of the 9 Andersons, so he could not have advised the Andersons to decline 10 CWB’s written requests. Although the bankruptcy court did not 11 make any explicit findings as to advice by any attorney other 12 than Mr. Wilenchik, it took evidence concerning Mr. Anderson’s 13 pre-2008 interaction with counsel and their litigation 14 decisions.5 The court could have logically concluded that the 15 Andersons’ actions were pursuant to counsels’ advice. We cannot 16 say that the bankruptcy court clearly erred. 17 Although we may not have made the same findings as the 18 bankruptcy court, we note that the bankruptcy court carefully 19 considered all of the evidence, extensively examined the 20 witnesses itself, and made logical inferences from the evidence. 21 We must defer to the court’s factual findings. 22 CONCLUSION 23 For the foregoing reasons, we AFFIRM. 24 25 26 5 Mr. Anderson testified that it was the idea of his then- 27 attorney, E.J. Peskind, to file the 2006 lis pendens. He also testified that his attorneys never advised him to release the 28 lis pendens.