Opinion
NOT FOR PUBLICATION
Argued and Submitted at Pasadena, California: October 23, 2009
Appeal from the United States Bankruptcy Court for the Central District of California. Bk. No. LA 07-19570-BB, Adv. No. LA 08-1006-BB. Honorable Sheri Bluebond, Bankruptcy Judge, Presiding.
Before: MONTALI, PAPPAS and HOLLOWELL, Bankruptcy Judges.
MEMORANDUM
Prior to bankruptcy, a district court entered a judgment against the debtor for, inter alia, conversion and interference with prospective economic advantage. The district court further awarded the plaintiff exemplary damages in the amount of $1,000,000 " on account of [the debtor's] willful and malicious injury" to the plaintiff. The debtor filed his chapter 7 petition and the plaintiff filed an adversary proceeding to have the judgment debt declared nondischargeable under section 523. Citing the doctrine of collateral estoppel, the bankruptcy court granted summary judgment declaring $1,388,000 to be nondischargeable under sections 523(a)(4) and (a)(6) and another $425,000 to be nondischargeable under section 523(a)(6). The debtor appealed. We AFFIRM.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
I. FACTS
The following background facts are based on the findings of fact entered by the United States District Court for the Central District of California after a four-day bench trial in June 2007.
Appellant Robert Bane (" Debtor") is a fine art publisher operating under various entities, including Robert Bane, Ltd. (" RBL"), of which he is the president and of which he and his wife are the sole shareholders. In the early 1990s, Debtor contacted appellee Hajime Sorayama (" Plaintiff"), an internationally known artist, and offered to become the exclusive publisher of Plaintiff's reproductions. Plaintiff and RBL entered into several written contracts under which RBL paid a fee for the right to publish Plaintiff's reproductions, and RBL took original artwork on consignment with an agreed-upon sale price for each piece to be divided equally between the parties.
The contracts were not appended or incorporated into the district court's findings, but were attached as Exhibits A-C to Debtor's answer to the second amended complaint in the underlying adversary proceeding. Depending on the type of artwork, the pricing terms varied. All of the contracts, however, provided in section VIII(A) that accounting and payments " shall be made for all sales of originals on a monthly basis and the [Plaintiff's] share shall be wired to an account . . . in Japan." In addition, all of the contracts provide in section XIII(A) that Debtor would account and pay every thirty days for the sale of suites and graphics. " Every thirty (30) days there will be a settling up of money due to [Plaintiff] pursuant to this Agreement relating to the creation of specific projects."
In October 2000, Plaintiff's agent told Debtor that she would conduct a physical audit of the paintings at a scheduled art show in Los Angeles. RBL cancelled the show and rescheduled the audit for April 2001. In March 2001, RBL's bookkeeper asked if Plaintiff would agree to sell nine pieces to a collector at a discounted price. The parties ultimately agreed that Plaintiff would accept $30,400 as his share of the proceeds and Debtor wire-transferred $15,200 to Plaintiff as a deposit.
In April 2001, an audit was conducted and eight pieces were missing, with Debtor offering different and conflicting explanations for the loss. Plaintiff later discovered that nine pieces reportedly sold in 2001 were actually sold in January 2000. Debtor agreed to return many of Plaintiff's original artworks, but ultimately Plaintiff did not recover or receive payment for thirty-three of his original paintings.
Following efforts to resolve the financial differences between RBL and Plaintiff, RBL signed a document on September 9, 2002, promising to pay $148,800 in installments. Payments were irregular and Plaintiff eventually agreed to take back 830 limited edition pieces for a credit of $34,920 against the debt.
This settlement was described in more detail in the district court's findings, quoted infra.
In 2004, Plaintiff discovered that RBL was auctioning his limited edition reproductions on eBay at very low prices. Debtor denied selling the graphics on eBay for $100 or less, but the district court found that exhibits introduced at trial " clearly establish[ed] that he did so." As a result, Plaintiff's market and price for his limited edition pieces decreased because of the availability of the paintings through eBay. Plaintiff's annual income from the sale of reproductions decreased dramatically, with a total loss of $425,000 from 2002 through 2006.
B. District Court Action
In February 2005, Plaintiff sued Debtor and others in the district court. Following a four-day trial, the district court entered its findings of fact and conclusions of law. Among other things, the district court found that Debtor personally was liable for the torts of conversion and of intentional interference with prospective economic advantage. With respect to the conversion claim, the district court stated: " [Debtor] personally exercised dominion and control over [P]laintiff's paintings and used that property for his own benefit and to the detriment of [P]laintiff. He is personally liable for the conversion of [P]laintiff's paintings. The value of the converted property was $388,000."
With respect to the claim for intentional interference with prospective economic advantage, the district court observed:
A cause of action for intentional interference with prospective economic advantage has the following elements: an economic relationship between plaintiff and some third party; defendants' knowledge of it; intentional acts by defendants designed to disrupt the relationship; actual disruption; and economic harm. The conduct also must be shown to be wrong by some legal measure other than the fact of the interference itself. Della Penna v. Toyota Motor Sales, 11 Cal.4th 376, 45 Cal.Rptr.2d 436, 902 P.2d 740 (1995).
Plaintiff introduced evidence which demonstrated that defendants 'dumped' scores of his limited edition works onto the market by selling them on eBay for as little as $100 or less. Further, defendants advertised themselves as the exclusive distributors of [P]laintiff's work, even though their contract had long since terminated.
Defendants contend that no such claim was proven, because under the terms of the parties' contract, they had the right to sell the reproductions for whatever price they chose. Although defendants are right about the language of the contract, it does not foreclose a tort claim for interference.
The state of the evidence is clear: [P]laintiff reasonably expected future economic benefit as a result of his relationship with his many international customers. Defendants, as [P]laintiff's American art publisher, knew of that relationship and its anticipated economic benefit to [P]laintiff. Defendants' decision to flood the market with cut-rate reproductions was clearly designed to disrupt that relationship, and did so. Plaintiff experienced great difficulty selling the reproductions in his possession, because of their availability on eBay.
Finally, the harm was wrongful by some legal measure other than the fact of the interference itself. In August 2002, [Debtor], unable to meet his financial obligations to [P]laintiff, offered " to work out a trade that is fair to [plaintiff]." In this regard, he offered to return to [P]laintiff his lithographs, valued at $300 each, and giclees valued at $700 each. He persuaded [P]laintiff to take them back and give defendants a discounted credit. He said this would greatly benefit [P]laintiff, who would have works with a total retail value of $1,030,200. Relying on those representations, [P]laintiff agreed to accept the return of many works in exchange for a reduction of defendants' debt. The benefit of that bargain was substantially reduced by defendants' bargain-basement sale of their remaining reproductions.
Based on the foregoing, the district court awarded damages in the amount of $425,000 to Plaintiff for tortious interference with prospective economic advantage.
Plaintiff also alleged that Debtor had breached his fiduciary duty to Plaintiff, but the district court specifically held that " [Debtor] personally is not in a fiduciary relationship with [P]laintiff."
In its judgment entered on September 4, 2007, the district court imposed liability against Debtor individually on the conversion and interference with prospective economic advantage claims. In addition, the court awarded exemplary damages in the amount of $1,000,000.00 against Debtor personally " on account of his willful and malicious injury to Plaintiff and Plaintiff's property." Emphasis added. These words appear in the district court's judgment, not in its separate findings and conclusions. The district court did not specify whether the " willful and malicious" conduct was the conversion or the intentional interference with economic advantage.
The district court imposed damages against Debtor personally only on tort claims: conversion and intentional interference with prospective economic advantage. The district court did not impose liability against Debtor (but only against RBL) for breach of contract. Therefore, the district court's reference to Debtor's " willful and malicious injury" necessarily applies to one or both of the tort claims.
In its findings and conclusions, the district stated the following with respect to its award of exemplary/punitive damages:
The record is replete with misrepresentations made by [Debtor] to [P]laintiff, on which [P]laintiff relied to his detriment. Paintings were sold without payment to plaintiff, then lies were told to cover up the sales. The shifting of blame, reinvention of facts, and dissembling went on for years, while [Debtor] repeatedly stated he was trying to do what was best for [Plaintiff] and was making every effort to make good on his obligations. The evidence establishes clearly and convincingly that [Debtor] perpetrated a continuing fraud against [Plaintiff], whose business and reputation have suffered as a result. Punitive damages are imposed on [Debtor] personally and in favor of [P]laintiff in the sum of $1,000,000.
Emphasis added. Debtor appealed the district court judgment; the appeal is currently pending in the Ninth Circuit under No. 07-56487 and oral argument is scheduled for February 2010.
C. Bankruptcy Court Proceedings
On October 23, 2007, Debtor filed his chapter 7 petition and on January 4, 2008, Plaintiff filed his nondischargeability complaint. On October 1, 2008, Plaintiff filed a motion for summary judgment, alleging that the bankruptcy court should apply the doctrine of collateral estoppel to the district court's findings, conclusions and judgment. Plaintiff argued that the district court's ruling supported a summary judgment excepting Debtor's obligations to Plaintiff from discharge under sections 523(a)(2), (a)(4), and (a)(6). Debtor opposed the motion.
On December 23, 2008, the bankruptcy court issued a tentative ruling that it would grant a nondischargeable judgment against Debtor in the amount of $1,813,000 under section 523(a)(6), but would not grant summary judgment under subsections (a)(2) and (a)(4). In the tentative ruling, the bankruptcy court noted that the district court had awarded punitive damages and that " [i]n order to do so, it had to find that the debtor's wrongful conduct (here, the conversion and interference with prospective economic advantage) was wrongful and malicious."
At the hearing on December 23, 2008, the bankruptcy court clarified that even if the district court had not imposed the punitive damages against Debtor, the district court's descriptions of the conversion and the intentional interference with prospective economic advantage were sufficient to support liability under section 523(a)(6). The bankruptcy court also detailed the district court's other findings indicating that the injury to Plaintiff was willful and malicious.
Observing that the district court had conducted a four-day trial and imposed punitive sanctions for Debtor's " willful and malicious injury" to Plaintiff, the bankruptcy court refused to hold that the district court " was wrong on that score." The bankruptcy court preferred " to leave that to the appellate process." In addition, the bankruptcy court modified its tentative ruling to hold that the district court's findings were sufficient to establish that conversion damages were nondischargeable under section 523(a)(4)'s embezzlement provisions.
On February 12, 2009, the bankruptcy court entered its findings of fact and conclusions of law in support of summary judgment. Applying the " principles of collateral estoppel, " the bankruptcy court found that the district court's findings, conclusions, and judgment established a nondischargeable debt in the amount of $1,388,000 under section 523(a)(4). The court also found that the debt of $1,813,000 (which includes the $1,388,000 figure above) was nondischargeable under section 523(a)(6).
The " findings" were actually a legal analysis of undisputed facts. Generally, findings of fact are not required with respect to an award of summary judgment. See Fed.R.Civ.P. 52(a)(3) (incorporated by Rule 7052). The judicial function on a motion for summary judgment is limited to determining whether any material factual issue exists and does not extend to resolution of any such issue. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (" [A]t the summary judgment stage the judge's function is not . . . to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial."). " It follows that there is no such thing as a finding of fact on summary judgment. What are sometimes loosely termed 'findings' are instead facts as to which there is no genuine issue." Thompson v. Mahre, 110 F.3d 716, 719 (9th Cir. 1997). The bankruptcy court's " findings" make clear the basis of its decision and indicate the undisputed facts supporting the judgment.
On the same date, the bankruptcy court entered its judgment determining that the district court judgment of $1,813,000 was nondischargeable and that $1,388,000 of this amount was nondischargeable under subsections (a)(4) and(a)(6) while $425,000 of this amount was nondischargeable under subsection (a)(6) alone. The judgment also dismissed Plaintiff's claim for relief under section 523(a)(2)(A).
In his Opening Brief, Plaintiff argues that we could affirm the bankruptcy court's judgment because " there is sufficient evidence to find that Section 523(a)(2) was also satisfied by the District Court's explicit findings." See footnote 7 on page 13 of Appellee's Opening Brief. Such a finding would require a reversal of the bankruptcy court's dismissal (at Plaintiff's request) of his section 523(a)(2) claims. If Plaintiff wanted to preserve his section 523(a)(2) claims, he should not have consented to their dismissal or he should have filed a cross-appeal of the dismissal. While we can affirm for any reason supported by the record, we can only do so if the asserted ground would not expand the relief which has been granted. Smith v. Phillips, 455 U.S. 209, 215 n.6, 102 S.Ct. 940, 71 L.Ed.2d 78 (1982).
D. Post-Appeal Matters
Debtor filed a timely notice of appeal on February 17, 2009. Under 28 U.S.C. § 158(c)(1)(B), Plaintiff had thirty days from service of the notice of appeal to elect to have the district court hear the appeal. Local Rule 8001-2.1.2.2 of the United States District Court for the Central District of California requires that an appellee file the statement of election with the clerk of this Panel. On February 19, 2009, Plaintiff filed his statement of election with the clerk of the bankruptcy court.
The clerk of the bankruptcy court did not forward the election to our clerk. On March 31, 2009, Debtor filed a motion for order determining that this Panel had jurisdiction over the appeal. On June 11, 2009, we entered an order observing that if the bankruptcy court had forwarded the timely but misfiled election, the Panel would have forwarded the appeal to the district court. Since the bankruptcy court did not do so, we transferred Debtor's motion to the district court to determine its own jurisdiction and closed our appeal.
On July 16, 2009, the district court entered an order determining that this Panel retained jurisdiction over the appeal and transferring the appeal to us, as Plaintiff had failed to comply with Local Rule 8001-2.1.2.2. We therefore entered an order reopening the original appeal.
II. ISSUE
Did the bankruptcy court err in entering summary judgment excepting Debtor's obligations to Plaintiff from discharge?
III. JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § 157(b)(2)(I) and § 1334. We have jurisdiction under 28 U.S.C. § 158.
Plaintiff contends in his opening brief that we do not have jurisdiction because he filed a timely election with the bankruptcy court. As noted above, the district court, in determining that it lacked jurisdiction over the appeal, found that Plaintiff did not make an effective election to have the appeal heard by that court. In light of the district court's decision, we do have jurisdiction. See also Hupp v. Educ. Credit Mgmt. Corp. (In re Hupp), 383 B.R. 476 (9th Cir. BAP 2008) (absent effective election to have appeal heard by district court, BAP retains jurisdiction). We have no authority to review the district court's decision to transfer the appeal back to us.
IV. STANDARDS OF REVIEW
We review de novo the bankruptcy court's ruling on a motion for summary judgment. Boyajian v. New Falls Corp. (In re Boyajian), 564 F.3d 1088, 1090 (9th Cir. 2009); Cutter v. Seror (In re Cutter), 398 B.R. 6, 16 (9th Cir. BAP 2008); Woodworking Enters., Inc. v. Baird (In re Baird), 114 B.R. 198, 201 (9th Cir. BAP 1990).
V. DISCUSSION
A. General Principles of Issue Preclusion
The primary issue on this appeal is whether the bankruptcy court appropriately applied preclusive effect to the district court's findings, conclusions, and judgment. Issue preclusion applies in nondischargeability proceedings. Grogan v. Garner, 498 U.S. 279, 284-85, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). " Issue preclusion . . . bars successive litigation of an issue of fact or law actually litigated and resolved in a valid court determination essential to the prior judgment, even if the issue recurs in the context of a different claim." Taylor, 128 S.Ct. at 2171 (citation, internal quotation marks omitted) (emphasis added).
Although the bankruptcy court and the parties refer to the collateral estoppel effect of the district court's rulings, the Supreme Court now generally uses the term " issue preclusion" instead of " collateral estoppel." Taylor v. Sturgell, ___ U.S. ___, 553 U.S. 880, 128 S.Ct. 2161, 2171 n.5, 171 L.Ed.2d 155 (2008) (" issue preclusion encompasses the doctrines once known as 'collateral estoppel' and 'direct estoppel'"), citing Migra v. Warren City School Dist. Bd. of Educ., 465 U.S. 75, 77 n.1, 104 S.Ct. 892, 79 L.Ed.2d 56 (1984); see also Paine v. Griffin (In re Paine), 283 B.R. 33, 38 (9th Cir. BAP 2002).
The preclusive effect of the district court's decision is governed by the federal common law of issue preclusion. Taylor, 128 S.Ct. at 2171. Under the federal common law, issue preclusion applies if (1) the issue necessarily decided at the previous proceeding is identical to the one which is sought to be relitigated; (2) the first proceeding ended with a final judgment on the merits; and (3) the party against whom collateral estoppel is asserted was a party or in privity with a party at the first proceeding. Town of N. Bonneville v. Callaway, 10 F.3d 1505, 1508 (9th Cir. 1993).
B. Section 523(a)(6) Claims
The bankruptcy court held that the district court's judgment for intentional interference with prospective economic advantage and for conversion (and the resulting exemplary/punitive damages) constituted a nondischargeable debt under section 523(a)(6). Section 523(a)(6) provides that an individual debtor may not discharge any debt " for willful and malicious injury by the debtor to another entity or to the property of another entity." 11 U.S.C. § 523(a)(6).
The " willful" requirement is separate and distinct from the " malicious" requirement. See Barboza v. New Form, Inc. (In re Barboza), 545 F.3d 702, 706 (9th Cir. 2008). Willfulness requires a " deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury." Kawaauhau v. Geiger, 523 U.S. 57, 61, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998); Ditto v. McCurdy, 510 F.3d 1070 (9th Cir. 2007). " A 'malicious' injury involves '(1) a wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without just cause or excuse.'" Carrillo v. Su (In re Su), 290 F.3d 1140, 1146-47 (9th Cir. 2002) (quoting Petralia v. Jercich (In re Jercich), 238 F.3d 1202, 1209 (9th Cir. 2001)).
1. Claim for Intentional Interference With Prospective Economic Advantage
California law recognizes the tort of intentional interference with prospective business relations or advantages. Della Penna v. Toyota Motor Sales, U.S.A., Inc., 11 Cal.4th 376, 45 Cal.Rptr.2d 436, 902 P.2d 740 (Cal. 1995). " (A) plaintiff seeking to recover for an alleged interference with prospective contractual or economic relations must plead and prove . . . that the defendant . . . engaged in conduct that was wrongful by some legal measure other than the fact of interference itself." 11 Cal.4th at 393 (emphasis added); see also Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134, 1158, 131 Cal.Rptr.3d 29, 63 P.3d 937 (Cal. 2003) (" a plaintiff that chooses to bring a claim for interference with prospective economic advantage has a more rigorous pleading burden since it must show that the defendant's conduct was independently wrongful") (emphasis added).
Thus, to prevail on a claim for interference with prospective economic advantage under California law, a plaintiff must demonstrate more than intent to injure (i.e., willfulness); the conduct must be independently wrongful. The additional requirement of independent wrongfulness is not unlike the requirement in section 523 that the conduct be malicious in addition to willful. If a court determines that a defendant's conduct was independently wrongful, the requisites of maliciousness (wrongful act done intentionally without just cause) under Su are satisfied.
As the district court correctly recognized in its findings, a plaintiff can recover damages for intentional interference with prospective economic advantage if the following elements exist: an economic relationship between the plaintiff and a third person which contains the probability of a future economic benefit; the defendant's knowledge of this relationship; intentional acts that are independently wrongful by the defendant to disrupt the relationship; actual disruption; and resulting economic harm. Della Penna, 11 Cal.4th at 389.
The district court found that Debtor's actions in flooding the market with cut-rate reproductions were " clearly designed to disrupt" Plaintiff's relationship with his international customers; this finding establishes that Debtor acted deliberately to injure Plaintiff and Plaintiff's property interests (i.e., prospective economic advantage), thus satisfying the willfulness prong of section 523(a)(6). In addition, the court also found that the harm was wrongful by some legal measure (deprivation of benefit of bargain to be provided by settlement with Debtor) other than the interference itself. These factual findings, among others, support a determination that Debtor's actions were wrongful, done intentionally, and without just cause or excuse. Consequently, the resulting injury to Plaintiff was " malicious" under Su . 290 F.3d at 1146-47.
The California Supreme Court in Korea Supply stated that an act is " independently wrongful if it is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard." 29 Cal.4th at 1159. The district court found that by depriving Plaintiff of the full value of his settlement with Debtor, Debtor satisfied the " independent wrongfulness" standard. We are not sitting as the appellate court for the district court. As the Ninth Circuit observed in Bugna v. McArthur (In re Bugna), 33 F.3d 1054, 1057-58 (9th Cir. 1994), a bankruptcy court errs if it permits relitigation of issues fully and fairly decided by another court. We will not and cannot revisit the district court's findings and judgment. Paine, 283 B.R. at 40.
The district court necessarily decided the following issues when it held that Debtor intentionally interfered with Plaintiff's prospective economic advantage: (1) did Plaintiff have an economic relationship with third parties about which Debtor was aware, (2) did Debtor knowingly and deliberately disrupt Plaintiff's economic relationship with others, (3) was the disruption wrong by some legal measure other than the interference itself, and (4) did the disruption cause economic harm to Plaintiff? These issues are relevant to and encompassed within those that a bankruptcy court would consider in determining if Debtor's actions constituted a willful and malicious tortious injury to Plaintiff. Relitigation of these already decided issues is precluded. Bugna, 33 F.3d at 1059 (" The bankruptcy court's otherwise broad powers do not include the power to reject a party's invocation of collateral estoppel on an issue fully and fairly litigated in another court.").
Because the issues are identical, the district court's judgment was final and on the merits, and the same parties are involved in both actions, the federal requisites for application of issue preclusion are satisfied. N. Bonneville, 10 F.3d at 1508. The bankruptcy court therefore did not err in granting preclusive effect to the district court's findings and to the district court's conclusion that Debtor was liable to Plaintiff in the amount of $425,000 because of intentional interference with prospective economic advantage.
2. Conversion
The district court found that Debtor " personally exercised dominion and control over [P]laintiff's paintings and used that property for his own benefit and to the detriment of [P]laintiff. He is personally liable for the conversion of [P]laintiff's paintings." The court valued the converted property at $388,000. Debtor contends that because conversion is not a " per se" willful and malicious injury under California law, the bankruptcy court erred in declaring that liability to be nondischargeable under section 523(a)(6). See Peklar v. Ikerd (In re Peklar), 260 F.3d 1035 (9th Cir. 2001); Thiara v. Spycher Bros. (In re Thiara), 285 B.R. 420 (9th Cir. BAP 2002).
Debtor is correct that not all conversions are " willful and malicious" injuries. The Ninth Circuit stated in Peklar that a judgment for conversion under California law " does not, without more, establish that a debt arising out of that judgment is non-dischargeable under § 523(a)(6)." Peklar, 260 F.3d at 1038.
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).
Id . Here, the district court's findings offered " more" (id.) than a mere judgment for conversion.
The district court's findings in support of its exemplary damages reflect an ongoing campaign by Debtor to cover up the conversion of the paintings and to deceive Plaintiff about Debtor's tortious disposition of them, thus demonstrating willfulness as well as maliciousness in intent. A debtor's intent can be established by circumstantial evidence. Ormsby v. First Am. Title Co. of Nev. (In re Ormsby), 591 F.3d 1199, 2010 WL 47560 at *3 (9th Cir. 2010) (in section 523 action, " intent may properly be inferred from the totality of the circumstances and the conduct of the person accused"); Khalil v. Dev. Sur. & Indem. Co. (In re Khalil), 578 F.3d 1167 (9th Cir. 2009) (section 727 case). Other courts have considered a subsequent cover-up of a conversion as probative of a debtor's intent. See United States v. Foust (In re Foust), 52 F.3d 766, 769 (8th Cir. 1995) (debtor's fabrication of grain thefts to cover up conversion provided evidence of knowledge and intent); First Stuttgart Bank & Trust Co. v. Jackson (In re Jackson), 203 B.R. 146, 148 (Bankr. E.D. Ark. 1996) (the " wilful and malicious element of the [conversion] cause of action is further demonstrated by the fact that the debtor attempted to conceal the disposition . . ."); Kopelman & Shatz, Inc. v. Mastrangelo (In re Mastrangelo), 34 B.R. 399 (Bankr. D. Mass. 1983) (evidence that a debtor lied or fabricated a story regarding the disposition of property or funds may constitute circumstantial evidence of fraudulent intent; debtor " lied" about possession of consigned diamonds and did not satisfactorily explain their disappearance).
In addition, the district court's judgment itself stated that Debtor inflicted intentional and malicious injuries on Plaintiff. The district court's findings in support of the exemplary damages reflect an ongoing campaign by Debtor to cover up the conversion of the paintings and to deceive Plaintiff about Debtor's disposition of them. As the findings in support of the exemplary damages refer to the uncompensated and misrepresented sales of the paintings, the " willful and malicious" injury giving rise to the punitive damages was the conversion.
Because the district court's judgment and findings describe a totality of circumstances demonstrating that Debtor willfully and maliciously converted Plaintiff's property, the bankruptcy court did not err in applying issue preclusion and granting summary judgment to Plaintiff on the conversion claim.
Debtor argues that application of issue preclusion and consideration of the circumstantial evidence required the bankruptcy court to make improper inferences about the district court's ruling. We disagree. In the context of a summary judgment, a court may infer intent from the " totality of circumstances" described in another court's findings of fact. See Ormsby, 591 F.3d 1199, 2010 WL 47560 at *3 (affirming a summary judgment in a nondischargeability action, the Ninth Circuit held that the debtor's fraudulent intent could be inferred from the totality of the circumstances and the " totality of circumstances as described in the state court's findings of fact make clear that [the debtor] acted with fraudulent intent").
3. Exemplary Damages
The district court awarded $1,000,000 in exemplary or punitive damages because of Debtor's " willful and malicious" injury to Plaintiff and Plaintiff's property. California law on allowance of punitive or exemplary damages requires both a tort action and a finding of " oppression, fraud or malice." Cal. Civ. Code § 3294(a); Butcher v. Sunclipse, Inc. (In re Butcher), 200 B.R. 675, 679 (Bankr. C.D. Cal. 1996). " In California, 'an award of exemplary damages cannot be based on mere speculation; it depends instead on a definite showing of a willingness to vex, harass, or injure consistent with a wrongful intent to injure." Butcher, 200 B.R. at 679 (quoting Roth v. Shell Oil Co., 185 Cal.App.2d 676, 682, 8 Cal.Rptr. 514 (1960)).
As discussed above, the exemplary damages relate to and flow from the district court's conclusion that Debtor had converted property belonging to Plaintiff. Consequently, as the exemplary damages were awarded " with respect to" or " by reason of" the same underlying conduct giving rise to the nondischargeable compensatory damages, the exemplary damages are nondischargeable. de la Cruz, 523 U.S. at 220-21.
Debtor contends that the exemplary damages and the district court's designation of " willful and malicious" conduct cannot be tied to any particular tort. We disagree, as the findings in support of the exemplary damages refer to the sale of paintings without payment to Plaintiff and the " lies . . . told to cover up the sales." Those findings tie the exemplary damages to the tortious conversion. In any event, the district court's judgment was limited to two torts; the punitive damages necessarily related to one or both of those torts. We are affirming the bankruptcy court's decision that the compensatory damages from both of these torts are nondischargeable. As the punitive damages relate to and flow from either one or both of these torts, they are nondischargeable. Cohen v. de la Cruz, 523 U.S. 213, 220-21, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998) (treble damages awarded with respect to or by reason of the underlying conduct which precluded discharge of the compensatory damages were also nondischargeable); Suarez v. Barrett (In re Suarez), 400 B.R. 732, 738-39 (9th Cir. BAP 2009) (applying Cohen v. de la Cruz to section 523(a)(6) claims).
As we are affirming the bankruptcy court's judgment that all of the damages (compensatory and exemplary) awarded by the district court are nondischargeable under section 523(a)(6), we do not have to reach the issue of whether the $425,000 in conversion damages are also nondischargeable under section 523(a)(4) (providing that debts for embezzlement are nondischargeable).
VI. CONCLUSION
For the foregoing reasons, we AFFIRM the summary judgment declaring the debt for interference with prospective economic advantage nondischargeable under section 523(a)(6) and AFFIRM the summary judgment declaring $425,000 to be a nondischargeable debt for conversion under section 523(a)(6). We also AFFIRM the bankruptcy court's judgment that the punitive damages are nondischargeable under section 523(a)(6).