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UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
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No. 00-55464
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Keywords: collateral estoppel, nondischargeability,
conversion |
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August 9, 2001
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IN RE: RONDA S. PEKLAR, DEBTOR.
RONDA S. PEKLAR, APPELLANT,
v.
LLOYD IKERD, AN INDIVIDUAL, APPELLEE.
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Appeal from the United States District Court for the
Central District of California J. Spencer Letts, District Judge,
Presiding D.C. No. CV 99-11382-JSL
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Counsel Allan Dean Epstein, Orange, California, for the
appellant. Stephen R. Kilstofte, Cayer, Kilstofte & Craton, Long
Beach, California, for the appellee.
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Before: Procter Hug, Jr., Susan P. Graber, and William
A. Fletcher, Circuit Judges.
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The opinion of the court was delivered by: W. Fletcher,
Circuit Judge
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FOR PUBLICATION
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OPINION
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Argued and Submitted July 12, 2001--Pasadena,
California
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Opinion by Judge William A. Fletcher
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OPINION
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This case turns on the scope of the preclusive effect
of a prior state court judgment of conversion. Under 11 U.S.C. §
523(a)(6), a debt for "willful and malicious injury by the debtor
to another entity or to the property of another
entity" is not dischargeable in bankruptcy. The specific question
in this case is whether a civil judgment in California court for
conversion under California law necessarily includes a finding that the
defendant caused "willful and malicious injury" within the
meaning of § 523(a)(6).
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Plaintiff-Appellee Lloyd Ikerd ("Ikerd")
filed an adversary proceeding in bankruptcy court seeking to have
Defendant-Appellant Ronda Peklar's ("Peklar") debt arising out
of a state court civil judgment for conversion declared
non-dischargeable under § 523(a)(6). The bankruptcy court held the debt
dischargeable, and the district court reversed based on collateral
estoppel. We now reverse the district court.
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I.
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In 1993, Peklar entered into a lease to rent commercial
space in Long Beach, California, from Ikerd. The premises were to be
used for a retail beauty and cosmetics salon called "Rachael,"
in which Peklar and Todd Winnick ("Winnick") were general
partners. Peklar was a down-line member of Ikerd's multi-level sales
organization for a line of cosmetics, and she planned to sell Ikerd's
cosmetics line at Rachael. Ikerd had stored furniture in the leased
premises, and he allowed Peklar and Winnick to use that furniture in
Rachael. In January 1994, shortly after the lease was signed, Rachael
opened for business.
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Sometime in early 1994, the Bank of America foreclosed
on the building in which Rachael's leased space was located because
Ikerd was in default on a trust deed. The bank obtained a temporary
restraining order against Ikerd, prohibiting him from entering the
building. In July 1994, the bank served Peklar with a three-day notice
to pay rent or quit, and a thirty-day notice to quit. On advice of
counsel, Peklar and Winnick removed all the furniture from Rachael and
put it into storage, first in a garage and then in a commercial storage
space.
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Ikerd successfully sued Peklar and Winnick for
conversion of the furniture in Los Angeles County Superior Court. After
Peklar filed a Chapter 7 bankruptcy petition, Ikerd initiated an
adversary proceeding in the bankruptcy court, seeking to have Peklar's
debt for conversion held non-dischargeable under 11 U.S.C. § 523(a)(6)
based on collateral estoppel resulting from the Superior Court judgment.
The bankruptcy court rejected the collateral estoppel argument and,
after taking evidence, concluded that Peklar's debt arising out of the
conversion judgment was dischargeable. On appeal, the district court
reversed and remanded based on collateral estoppel, holding that
Peklar's debt was not dischargeable. Peklar now appeals the decision of
the district court.
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II.
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" `Because this court is in as good a position as
the district court to review the findings of the bankruptcy court, it
independently reviews the bankruptcy court's decision.' " United
Student Aid Funds v. Pena (In re Pena), 155 F.3d 1108, 1110 (9th Cir.
1998) (quoting Ragsdale v. Haller, 780 F.2d 794, 795 (9th Cir. 1986)).
Whether a claim is dischargeable presents mixed issues of law and fact,
which we review de novo. Murray v. Bammer (In re Bammer), 131 F.3d 788,
791-92 (9th Cir. 1997) (en banc). We review pure issues of fact for
clear error. Diamond v. City of Taft, 215 F.3d 1052, 1055 (9th Cir.
2000), cert. denied, 121 S. Ct. 763 (2001).
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III.
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Conversion is defined under California state law as
"the wrongful exercise of dominion over the personal property of
another." Taylor v. Forte Hotels Int'l, 235 Cal. App. 3d 1119, 1124
(1991). "The act must be knowingly or intentionally done, but a
wrongful intent is not necessary." Id. (citing Poggi v. Scott, 167
Cal. 372, 375 (1914); 5 Witkin Summary of Cal. Law (9th ed. 1988) Torts
§ 624, pp. 717-18). Under California law, "a conversion is not per
se always a willful and malicious injury to the property of
another." Larsen v. Beekmann, 276 Cal. App. 2d 185, 189 (1969).
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In holding Peklar's debt non-dischargeable based on
collateral estoppel, the district court relied on our decision in
Impulsora Del Territorio Sur, S.A. v. Cecchini (In re Cecchini), 780
F.2d 1440, 1443 (9th Cir. 1986), in which we stated, "When a
wrongful act such as conversion, done intentionally, necessarily
produces harm and is without just cause or excuse, it is `willful and
malicious' even absent proof of a specific intent to injure."
However, we believe that Cecchini was necessarily overruled by the
Supreme Court's decision in Kawaauhau v. Geiger, 523 U.S. 57 (1998). The
question in Geiger was whether a debt from a medical malpractice
judgment attributable to negligent or reckless conduct was dischargeable
under § 523(a)(6). The Court stated that "[t]he word `willful' in
(a)(6) modifies the word `injury,' indicating that nondischargeability
takes a deliberate or intentional injury, not merely a deliberate or
intentional act that leads to injury." Id. at 61. "[N]ot every
tort judgment for conversion is exempt from discharge. Negligent or
reckless acts. . . do not suffice to establish that a resulting injury
is`willful and malicious.' . . . [D]ebts arising from recklessly or
negligently inflicted injuries do not fall within the compass of §
523(a)(6)." Id. at 64 (internal citation omitted). See Petralia v.
Jercich (In re Jercich), 238 F.3d 1202, 1207 (9th Cir.), cert. denied,
121 S. Ct. 2552 (2001) (relying on Geiger, stating that "it must be
shown not only that the debtor acted willfully, but also that the debtor
inflicted the injury willfully and maliciously rather than recklessly or
negligently" (emphasis in original)); see also Spokane Ry. Credit
Union v. Endicott (In re Endicott), 254 B.R. 471, 475 (Bankr. D. Idaho
2000) (construing Geiger to hold that in order to except a debt from
discharge under § 523(a)(6), "a debtor [must have] commit[ted]
more than a reckless or negligent act"); Branch Banking and Trust
Co. v. Powers (In re Powers), 227 B.R. 73, 75 (Bankr. E.D. Va. 1998)
(holding that after Geiger, the exception to dischargeability under §
523(a)(6) is "limited to intentional torts"); Avco Fin. Serv.
v. Kidd (In re Kidd), 219 B.R. 278, 283-84) (Bankr. D. Mont. 1998)
("In [Geiger], the Supreme Court held that the § 523(a)(6)
`willful and malicious injury' exception to discharge is limited to
intentional torts and does not encompass mere negligent or reckless
acts.").
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Our holding in Del Bino v. Bailey (In re Bailey), 197
F.3d 997 (9th Cir. 1999), is not to the contrary. In that case,
defendant Bailey had been substituted for the plaintiff as counsel in a
lawsuit. Bailey settled the suit but failed to inform the plaintiff of
the settlement and to give him part of the settlement amount. Bailey was
accused of conversion and settled with the plaintiff, agreeing to a
payment schedule. After making some but not all of the payments, Bailey
filed for bankruptcy. Id. at 999. In concluding that Bailey's debt to
the plaintiff was dischargeable, we stated that his "conduct did
not constitute conversion and, therefore, that [the plaintiff's ] claim
for attorney fees did not fall within the meaning of 11 U.S.C. §
523(a)(6)." Id. at 1002. That statement means only that a failure
to prove conversion is fatal to an argument that defendant's conduct
caused "willful and malicious injury." It does not mean the
converse--that proof of conversion necessarily establishes such injury.
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After rejecting Ikerd's collateral estoppel argument,
the bankruptcy court took evidence. Peklar stated in her declaration in
that court that she relied on the advice of her lawyer in removing
Ikerd's furniture from the leased premises:
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[a]fter reviewing the lease, the default by Ikerd to
[Bank of America] and [Bank of America's ] subsequent foreclosure, the
notices of fire code violations served on Ikerd, and a temporary
restraining order obtained by [Bank of America] against Ikerd
prohibiting him from entering the premises, [her lawyer] advised Peklar
and Winnick that he believed Ikerd had breached the lease and that they
had legal right to remove all of the fixtures and personal property from
the premises, even those items [that] Ikerd claimed an ownership
interest in.
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She further stated that Winnick contacted Ikerd to
inform him of Peklar's and Winnick's intent to move his furniture, and
of the name and telephone number of their lawyer. There is no dispute
that, after moving the furniture, Peklar and Winnick kept it in a
commercial storage space for almost four years. The bankruptcy court was
justified in concluding, based on this evidence, that Peklar's
conversion of Ikerd's property was at worst negligent, and at best
"innocent or technical," conversion, and that the debt arising
from the state court judgment was dischargeable under § 523(a)(6). See
Eck v. Schuck (In re Schuck), 13 B.R. 461, 465 (Bankr. M.D. Pa. 1980).
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IV.
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A state court judgment is given the same preclusive
effect by a federal court as it would be given by a court of the state
in which the judgment was rendered. See 28 U.S.C. § 1738; Marrese v.
Am. Acad. of Orthopedic Surgeons, 470 U.S. 373 (1985). Under California
preclusion law, collateral estoppel effect is given to a judgment that
"actually and necessarily" decides the issue in question.
People v. Howie, 41 Cal. App. 4th 729, 736 (1995). A judgment for
conversion under California substantive law decides only that the
defendant has engaged in the "wrongful exercise of dominion"
over the personal property of the plaintiff. It does not necessarily
decide that the defendant has caused "willful and malicious
injury" within the meaning of § 523(a)(6). A judgment for
conversion under California law therefore does not, without more,
establish that a debt arising out of that judgment is non-dischargeable
under § 523(a)(6). Peklar presented evidence in the bankruptcy court
from which that court appropriately concluded that she did not cause
"willful and malicious injury." We therefore affirm the
bankruptcy court's holding that Peklar's debt based on the judgment of
conversion was dischargeable.
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The judgment of the district court is REVERSED.
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