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FILED

JAN 05 2017

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

ORDERED PUBLISHED

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. CC-16-1075-TaFMc

)

TERRANCE ALEXANDER TOMKOW, ) Bk. No. 2:13-bk-19712-WB

)

Debtor. ) Adv. No. 2:13-ap-01751-WB

______________________________)

)

TERRANCE ALEXANDER TOMKOW, )

)

Appellant, )

)

v. )

)

KENNETH BARTON, )

)

Appellee. )

______________________________)

)

In re: ) BAP No. CC-16-1076-TaFMc

)

ZAFAR DAVID KHAN, ) Bk. No. 2:13-bk-19713-WB

)

Debtor. ) Adv. No. 2:13-ap-01752-WB

______________________________)

)

ZAFAR DAVID KHAN, )

)

Appellant, )

)

v. ) O P I N I O N

)

KENNETH BARTON, )

)

Appellee. )

______________________________)

Argued and Submitted on October 21, 2016

at Pasadena, California

Filed – January 5, 2017

Ordered Published - January 17, 2017

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Julia Wagner Brand, Bankruptcy Judge, Presiding

 
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Appearances: Lewis R. Landau on behalf of appellants Terrance

Alexander Tomkow and Zafar David Khan; Patrick C.

McGarrigle of McFarrigle, Kenney & Zampiello, APD

on behalf of appellee Kenneth Barton.

 

Before: TAYLOR, FARIS, and MCKITTRICK,* Bankruptcy Judges.

TAYLOR, Bankruptcy Judge:

INTRODUCTION

Appellants1 Terrance Tomkow and Zafar Khan appeal from two

orders: (1) an order granting summary judgment in favor of

Kenneth Barton determining that a California state court

judgment against them was nondischargeable under § 523(a)(2)(A)2

and (a)(6); and (2) an order denying their subsequent motion for

direct appeal certification to the Ninth Circuit.

Binding Ninth Circuit authority controls our decision here;

we AFFIRM the bankruptcy court’s orders.

* The Hon. Peter C. McKittrick, United States Bankruptcy

Judge for the District of Oregon, sitting by designation.

1 Appellants submitted two separate briefs on appeal. The

briefs are identical, save for an additional paragraph in

Tomkow’s brief at page 19, lines 7-22.5 (and references to

Appellant’s name and record citation). As discussed in this

opinion, we conclude that the argument addressed in that

paragraph lacks merit. We address both appeals in this opinion. 

The BAP Clerk of Court is instructed to enter this disposition

in both appeals.

2 Unless otherwise indicated, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532. 

All “Rule” references are to the Federal Rules of Bankruptcy

Procedure. All “Civil Rule” references are to the Federal Rules

of Civil Procedure.

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FACTS

During the late 1990s, Appellants and Barton co-founded

start-up companies including RIL, which owned or controlled

various patents relating to authentication and verification of

emails and electronic payments. Barton later suffered a stroke

and was sidelined from active involvement in the businesses. 

Afterward, his relationship with Appellants deteriorated to the

point that he commenced state court litigation seeking unpaid

compensation and reimbursement of expenses.

During that litigation, Barton discovered that Appellants

had taken control of his 6,016,500 common stock shares in RIL

and returned them to the company treasury, thereby divesting him

of an equity interest in the company. In response, he commenced

a second action against Appellants and RIL, among others, in

California state court alleging causes of action including

conversion and fraud.

The state court ruled in Barton’s favor on both the

conversion and fraud causes of action and against Appellants and

RIL. It determined that Appellants had acted with malice,

oppression, and fraud and, thus, that Barton was entitled to

punitive damages. The state court then conducted a second phase

of trial to quantify punitive damages.

Following the parties’ submission of the punitive damages

issue to the state court, Appellants each filed a chapter 13

petition.

In a revised statement of decision and ruling on punitive

damages, the state court awarded Barton the value of his

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converted stock in RIL.3 It ultimately entered an amended

judgment awarding Barton compensatory damages in the amount of

$2,840,060, damages for emotional distress, and $880,021.91 in

prejudgment interest. For punitive damages, the state court

awarded $250,000 against Khan and $150,000 against Tomkow. In

so doing, it found that Khan and Tomkow acted with malice,

oppression, and fraud. Appellants appealed from the state court

judgment to the California Court of Appeal.

In the meantime, Barton filed an adversary complaint

against Appellants in the bankruptcy court, seeking a

nondischargeability determination under § 523(a)(2)(A), (a)(4),

and (a)(6) based on the state court judgment.

The California Court of Appeal subsequently affirmed the

state court’s determination of Appellants’ liability based on

conversion. But, because the determination of conversion was

supported by substantial evidence, it did “not consider whether

[Appellants] were additionally liable under theories of fraud,

breach of fiduciary duty and unfair competition.” It affirmed

the punitive damages award based on a finding of malice and

deceit. The California Supreme Court denied Appellants’

petition for review of the appellate court’s decision. Thus,

that decision is now final. In response, Barton moved for

summary judgment on his nondischargeability complaint in the

bankruptcy court.

3 Based on stipulations between Barton and Appellants, the

bankruptcy court entered orders granting stay relief to proceed

in the state court action. See 2:13-bk-19713-WB, Dkt. Nos. 9,

16; 2:13-bk-19712-WB, Dkt. Nos. 9, 16.

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Appellants opposed the motion. They asserted primarily

that pursuant to Zevnik v. Superior Court, 159 Cal. App. 4th 76

(2008), where a trial court decided a case based on alternate

grounds and the court of appeal affirmed on only one of those

grounds, issue preclusion was available only on the ground

affirmed by the appellate court. Appellants pointed out that

the California Court of Appeal had affirmed the state court

judgment only on Barton’s conversion claim under California law;

thus, they argued, the state court judgment was not entitled to

issue preclusion based on the state court’s ruling of fraud or

breach of fiduciary duty in relation to the § 523(a)(2)(A) or

(a)(4) claims. At best, Appellants contended, the state court

judgment for conversion potentially supported a claim under

§ 523(a)(6). But, even then, they asserted, Barton barely

addressed the conversion claim in his motion for summary

judgment. And, they noted, conversion under California law did

not establish a § 523(a)(6) claim conclusively. Appellants also

argued that the punitive damages award on the conversion claim,

to the extent affirmed on appeal, fell short of establishing a

§ 523(a)(6) claim. Finally, Tomkow argued that Barton neglected

to address the fact that, with respect to the punitive damages

award, there was a difference in liability between Khan and

Tomkow; namely, the amount of damages assessed against

Appellants reflected a difference in the level of culpability.

In response, Barton argued that binding Ninth Circuit

precedent - DiRuzza v. County of Tehama, 323 F.3d 1147 (9th Cir.

2003) - established that the California Court of Appeal’s

affirmance of any ground contained in the state court judgment

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implicitly ratified all of the trial court’s reasoning in the

judgment.

At the hearing, the bankruptcy court determined that the

state court judgment was entitled to issue preclusive effect for

the § 523(a)(2)(A) and (a)(6) claims and, thus, granted summary

judgment in Barton’s favor on them. It, however, denied the

motion as to the § 523(a)(4) claim. In response, Appellants’

counsel orally requested direct appeal certification to the

Ninth Circuit. The bankruptcy court agreed that additional

briefing and a hearing on Appellants’ request were warranted.

The bankruptcy court then entered judgments determining

that, with the exception of the damages award for emotional

distress, the state court judgment was excepted from Appellants’

discharges under § 523(a)(2)(A) and (a)(6). Appellants timely

appealed.

Appellants made good on their request and filed a motion

for direct appeal certification. They stated that the

bankruptcy court “understandably rejected application of the

Zevnik rule based on a Ninth Circuit decision [DiRuzza]

predating Zevnik and that applied the 1865 California Supreme

Court’s Skidmore case.” As a result of DiRuzza, they urged the

bankruptcy court to certify the appeal directly to the Ninth

Circuit under 28 U.S.C. § 158(d)(2)(A); they opined that the

Ninth Circuit could and would then certify the question to the

California Supreme Court.

Barton opposed the motion, and the bankruptcy court agreed

with him. It concluded at a subsequent hearing that Appellants

had not satisfied 28 U.S.C. § 152(d)’s requirements for direct

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appeal certification. It believed that the law in the Ninth

Circuit was clear and that there was no dispute requiring

resolution among the California courts. The bankruptcy court

noted that the Ninth Circuit had considered and rejected the

Zevnik analysis in DiRuzza and that the California Supreme Court

also had, but declined, the opportunity to revisit the issue.

The bankruptcy court subsequently entered an order denying

Appellants’ motion. Appellants amended their notice of appeal

to include this order.

JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

§§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C.

§ 158.

ISSUES

1. Whether the bankruptcy court erred in granting summary

judgment in Barton’s favor on his § 523(a)(2)(A) claim based on

the issue preclusive effect of the fraud claim in the state

court judgment, given that the California Court of Appeal

affirmed that judgment on another ground.

2. Whether the bankruptcy court erred in granting summary

judgment in Barton’s favor on his § 523(a)(6) claim based on the

issue preclusive effect of the state court judgment.

3. Whether the bankruptcy court erred in denying

Appellants’ motion for direct appeal certification to the Ninth

Circuit.

STANDARDS OF REVIEW

We review de novo the bankruptcy court’s decisions to grant

summary judgment and to except a debt from discharge under

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§ 523(a). See Ghomeshi v. Sabban (In re Sabban), 600 F.3d 1219,

1221–22 (9th Cir. 2010); Oney v. Weinberg (In re Weinberg),

410 B.R. 19, 28 (9th Cir. BAP 2009); see also Carrillo v. Su

(In re Su), 290 F.3d 1140, 1142 (9th Cir. 2002)

(nondischargeability presents mixed issues of law and fact and

is reviewed de novo).

We also review de novo the bankruptcy court’s determination

that issue preclusion was available. Black v. Bonnie Springs

Family Ltd. P’Ship (In re Black), 487 B.R. 202, 210 (9th Cir.

BAP 2013). If issue preclusion was available, we then review

the bankruptcy court’s application of issue preclusion for an

abuse of discretion. Id. A bankruptcy court abuses its

discretion if it applies the wrong legal standard or misapplies

the correct legal standard, or if its factual findings are

illogical, implausible, or without support in inferences that

may be drawn from the facts in the record. See

TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th

Cir. 2011) (citing United States v. Hinkson, 585 F.3d 1247, 1262

(9th Cir. 2009) (en banc)).

We may affirm the decision of the bankruptcy court on any

basis supported by the record. See Hooks v. Kitsap Tenant

Support Servs., Inc., 816 F.3d 550, 554 (9th Cir. 2016).

DISCUSSION

A. Standards

Summary judgment. Summary judgment is appropriate where

the movant shows that there is no genuine dispute of material

fact and the movant is entitled to judgment as a matter of law. 

Fed. R. Civ. P. 56(a) (applicable in adversary proceedings under

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Rule 7056). The bankruptcy court must view the evidence in the

light most favorable to the non-moving party when determining

whether genuine disputes of material fact exist and whether the

movant is entitled to judgment as a matter of law. See Fresno

Motors, LLC v. Mercedes Benz USA, LLC, 771 F.3d 1119, 1125 (9th

Cir. 2014). And, it must draw all justifiable inferences in

favor of the non-moving party. See id. (citing Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)).

Issue preclusion in a nondischargeability proceeding. The

bankruptcy court may give issue preclusive effect to a state

court judgment as the basis for excepting a debt from discharge. 

Harmon v. Kobrin (In re Harmon), 250 F.3d 1240, 1245 (9th Cir.

2001). The party asserting preclusion bears the burden of

establishing the threshold requirements. Id. This means

providing “a record sufficient to reveal the controlling facts

and pinpoint the exact issues litigated in the prior action.” 

Kelly v. Okoye (In re Kelly), 182 B.R. 255, 258 (9th Cir. BAP

1995), aff’d, 100 F.3d 110 (9th Cir. 1996). Ultimately, “[a]ny

reasonable doubt as to what was decided by a prior judgment

should be resolved against allowing the [issue preclusive]

effect.” Id.

We apply the forum state’s law of issue preclusion when

determining if issue preclusion is appropriate based on a state

court judgment. In re Harmon, 250 F.3d at 1245. Here we must

apply California law.

California issue preclusion. California permits

application of issue preclusion to an existing judgment:

(1) after final adjudication; (2) of an identical issue;

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(3) actually litigated in the former proceeding; (4) necessarily

decided in the former proceeding; and (5) asserted against a

party in the former proceeding or someone in privity with a

party. See DKN Holdings LLC v. Faerber, 61 Cal. 4th 813, 825

(2015). In addition, the court must determine that issue

preclusion “furthers the public policies underlying the

doctrine.” In re Harmon, 250 F.3d at 1245 (citing Lucido v.

Super. Ct., 51 Cal. 3d 335, 342—43 (1990)); see also Khaligh v.

Hadaegh (In re Khaligh), 338 B.R. 817, 824–25 (9th Cir. BAP

2006).

B. Based on binding Ninth Circuit authority, the bankruptcy

court appropriately gave issue preclusive effect to the

fraud claim in the state court judgment; thus, it did not

err in granting summary judgment in Barton’s favor on his

§ 523(a)(2)(A)4 claim.

Appellants focus the majority of their appellate arguments

on one narrow issue: whether the bankruptcy court could give

issue preclusive effect to the state court judgment’s fraud

determination, given that the California Court of Appeal did not

review that aspect of the judgment on appeal. They acknowledge

that under Ninth Circuit authority, DiRuzza, the entire judgment

is subject to issue preclusion. They contend, however, that the

law in California has developed in the past 15 years such that

the Ninth Circuit’s decision no longer correctly reflects

California law.

Based on an early California Supreme Court case, DiRuzza

adhered to the “general California rule” that, “even if the

4 The elements for actual fraud under California law match

those of § 523(a)(2)(A). See Tobin v. Sans Souci Ltd. P’ship

(In re Tobin), 258 B.R. 199, 203 (9th Cir. BAP 2001).

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appellate court refrains from considering one of the grounds

upon which the [trial court’s] decision . . . rests, an

affirmance of the decision below extends legal effects to the

whole of the lower court’s determination, with attendant

collateral estoppel effect.” 323 F.3d at 1156 (internal

quotation marks and citation omitted). We acknowledge that

subsequent California Courts of Appeal decisions have disagreed

with DiRuzza and make compelling arguments in support of their

position to the contrary. That said, DiRuzza remains

controlling precedent in our circuit. Consequently, we conclude

that issue preclusion was available and that the bankruptcy

court did not abuse its discretion in giving preclusive effect

to the fraud determination in the state court judgment.

1. The general California (or traditional) rule.

At the outset, we note that an unpublished federal district

court case - Flying J, Inc. v. Pistacchio, 2008 WL 906396, at

*33-43 (E.D. Cal. Mar. 31, 2008), aff’d, 351 F. App’x 236 (9th

Cir. 2009) - provides a highly detailed overview of the

pertinent cases, including DiRuzza, People v. Skidmore, 27 Cal.

287 (1865), and the three California Courts of Appeal cases that

Appellants contend have changed the legal landscape in

California: Zevnik, 159 Cal. App. 4th 76; Newport Beach Country

Club, Inc. v. Founding Members of Newport Beach Country Club,

140 Cal. App. 4th 1120 (2006); and Butcher v. Truck Insurance

Exchange, 77 Cal. App. 4th 1442 (2000).

A brief description of these cases as they relate to the

general California rule follows.

DiRuzza. The Ninth Circuit examined whether issues decided

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by a California trial court and crucial to its decision were

entitled to preclusive effect after the court of appeal affirmed

on different grounds. 323 F.3d at 1153. The Ninth Circuit

acknowledged that California case law addressing the issue was

sparse but that Skidmore, a venerable California Supreme Court

case, “support[ed] the conclusion that an appellate court’s

affirmance for any reason implicitly ratifie[d] all reasoning

given in the court below.” Id. In doing so, it noted that “a

nebulous exception to the rule and a recent California appellate

decision [Butcher] cut against the timeworn precedent and may

counsel in favor of more selective application of collateral

estoppel principles.” Id. It concluded, however, that Skidmore

was controlling because the California Supreme Court had not

“undermin[ed] the authority of its early holding” and

notwithstanding Butcher’s analysis. Id.

Skidmore. As explained in DiRuzza, Skidmore involved a

judgment in defendants’ favor. On initial appeal, the

California Supreme Court “affirmed the judgment, but relied upon

a procedural issue—misjoinder—in reaching its decision.” Id. at

1154. This issue was corrected and the case made its way to the

court a second time, for a determination as to whether the

plaintiff could pursue the action again. “The court determined

that, regardless of its previous opinion’s reliance on the

misjoinder issue, the . . . [underlying recommendation] report

and resulting judgment, which reached the merits of the case,

had been affirmed by the judgment accompanying [its] previous

opinion.” Id. Thus, the California Supreme Court determined,

the plaintiff was precluded from bringing the action a second

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time, “as the merits of the case had already been adjudicated .

. . .” Id. The Ninth Circuit quoted the following language

from Skidmore:

The Court, in examining the judgment in connection

with the errors assigned, found that there was at

least one ground upon which the judgment could be

justified, and therefore very properly refrained from

considering it in connection with the other errors. 

But the affirmance, still, was an affirmance to the

whole extent of the legal effect of the judgment at

the time when it was entered in the court below. The

Supreme Court found no error in the record, and

therefore not only allowed it to stand, but affirmed

it as an entirety, and by direct expression.

Id. at 1154–55 (quoting 27 Cal. at 292–93).

Subsequent courts have referred to this rule as the general

California rule, the Skidmore rule, or the traditional rule.

Skidmore’s “progeny.” Following Skidmore, two decisions

were issued that bear mention based on subsequent case law

discussion: Bank of America National Trust & Savings Association

v. McLaughlin Land & Livestock Co. (“McLaughlin”), 40 Cal. App.

2d 620 (1940), and Natural Soda Products Co. v. City of Los

Angeles, 109 Cal. App. 2d 440 (1952).

As noted by Flying J, 2008 WL 906396, at *35, McLaughlin

reached the same conclusion as Skidmore, although it did not

refer to Skidmore. Instead, McLaughlin relied on a rule

expounded in the Corpus Juris (“CJ”), providing that “[a]

general affirmance of a judgment on appeal makes it res judicata

as to all the issues, claims, or controversies involved in the

action and passed upon by the court below, although the

appellate court does not consider or decide upon all of them.” 

40 Cal. App. 2d at 628–29 (quoting 34 C.J. 773). Thus, the

McLaughlin panel determined that, where the ruling of the

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district court (sitting as the bankruptcy court) was predicated

on two alternate grounds and the Ninth Circuit affirmed the

decision on the first ground, the district court’s entire

decision was entitled to preclusive effect. Id. at 629.

Natural Soda reiterated the general rule delineated by

Skidmore and McLaughlin. In doing so, however, it stated that 

“the rule [was] not without exceptions, and where a finding

[was] unnecessary and immaterial the rule of collateral estoppel

[did] not operate.” 109 Cal. App. 2d at 446.

As the Ninth Circuit in DiRuzza observed, “[a]fter Natural

Soda, all was generally quiet on the [issue preclusion] front in

the courts of California for almost fifty years.” 323 F.3d at

1156. Enter Butcher.

2. The trilogy of recent California Courts of Appeal

cases and the “modern” rule.

Butcher. As noted by DiRuzza, 323 F.3d at 1156, Butcher

made no reference to Skidmore at all. There, a panel of the

Second District Court of Appeal examined the preclusive effect

of a federal court judgment based on diversity jurisdiction in

an insurance coverage action. It noted that there were two

lines of cases: (1) cases following “the rule that the appellate

court in the prior action determines the preclusive effect of

its judgment, i.e., the judgment [was] conclusive on the []

ground” affirmed by the appellate court, as reflected in Moran

Towing & Transportation Co. v. Navigazione Libera Triestina,

S.A., 92 F.2d 37 (2d Cir. 1937), and the Restatement (Second) of

Judgments; and (2) cases holding “that it [was] the judgment of

the trial court, which [was] affirmed, that governs the

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preclusive effect, i.e., the judgment [was] conclusive on both

grounds,” as reflected in McLaughlin. 77 Cal. App. 4th at 1456.

The first line of cases relies heavily on the Restatement

(Second) of Judgments § 275 and embodies the “modern” approach

approved of by the three California Courts of Appeal decisions. 

The Butcher panel observed that the rule cited by the McLaughlin

panel, based on the CJ, was subsequently abandoned in favor of

the rule followed by the Second Restatement. It, thus,

“conclude[d] [that] the reasoning of the McLaughlin court has

not withstood the test of time, and it would be unwise to follow

a rule that looks only to the judgments, without taking account

of the reasons for those judgments as stated in the appellate

courts’ opinions.” Id. at 1460.

The Ninth Circuit, in DiRuzza, concluded that while

Butcher advance[d] plausible arguments against the

general California rule, . . . it [came] from an

intermediate appellate court which failed to

acknowledge that the California Supreme Court, in

Skidmore, had addressed the subject. Until we receive

a definitive indication that Skidmore no longer

represents the law of California, we will adhere to

that case’s precepts.

323 F.3d at 1156. The Ninth Circuit, thus, rejected the Butcher

panel’s analysis.

Newport Beach Country Club. Newport Beach, decided by a

panel of the Fourth District Court of Appeal, was issued three

5 The Restatement (Second) of Judgments § 27 comment o

(1982) provides that when “a judgment rendered by a court of

first instance is reversed by the appellate court and a final

judgment is entered by the appellate court (or by the court of

first instance in pursuance of the mandate of the appellate

court), this latter judgment is conclusive between the parties.”

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years after DiRuzza. The Newport Beach panel held that, where

“a trial court judgment decide[d] a case on two alternate

grounds, and the appellate court affirm[ed] based on one ground,

the judgment [was] binding under principles of res judicata and

collateral estoppel only on the ground addressed by the

appellate court.” 140 Cal. App. 4th at 1123. The Newport Beach

panel, thus, “decline[d] to follow [Skidmore] because subsequent

developments in California law and the trend of decisions ha[d]

weakened that case’s authority to the point where [it could]

conclude it no longer reflect[ed] the views of the California

Supreme Court.” Id.

After examining Skidmore, McLaughlin, DiRuzza, Butcher,

Moran Towing, and the Second Restatement, the Newport Beach

panel expressly rejected what it referred to as the

“traditional” Skidmore rule in favor of the “modern” rule

established in the Second Restatement. It agreed with Butcher’s

observation that the traditional rule “ha[d] not withstood the

test of time.” 140 Cal. App. 4th at 1130. Although Skidmore

was a California Supreme Court case, the Newport Beach panel did

not believe it controlled for several reasons. First, it stated

that since Skidmore was decided, “the law of res judicata ha[d]

undergone tremendous change culminating in the Restatement

Second of Judgments.” Id. at 1131. And it noted that “[t]he

California Supreme Court ha[d] expressed approval of . . . [and]

cited approvingly to section 27 and the comments to it.” Id. 

Second, it stated that the Skidmore rule was inconsistent with

its duty as an appellate court under the California state

constitution, which required that it “set forth its decisions in

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writing ‘with the reasons stated.’” Id. at 1132. It concluded

with its belief that if the California Supreme Court were

presented with the issue again, it would adopt the modern rule

as expressed in the Second Restatement. Id.

Zevnik. In the most recent case, a panel in another

division of the Second District Court of Appeal agreed with

Newport Beach and Butcher, concluding “that the governing rule

of law [was] that if a trial court relie[d] on alternative

grounds to support its decision and an appellate court

affirm[ed] the decision based on fewer than all of those

grounds, only the grounds relied on by the appellate court

[could] establish collateral estoppel.” 159 Cal. App. 4th

at 79. In doing so, it also examined the cadre of cases

discussed above.

In a departure from Newport Beach, however, the Zevnik

panel concluded that it “need not decide whether Skidmore

retain[ed] viability because [it] read the opinion narrowly to

apply only to res judicata, not collateral estoppel.” Id.

at 88.

3. Analysis.

Against this extensive backdrop of case law, we conclude,

as did the bankruptcy court, that DiRuzza remains good law and

thus binds the Panel. Although Appellants make compelling

arguments based on recent cases by panels of the California

Courts of Appeal, we cannot turn a blind eye to binding

precedent from the Ninth Circuit. Nor is this a situation where

the Ninth Circuit’s reasoning or theory in DiRuzza is clearly

irreconcilable with a decision of the California Supreme Court,

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the only intervening higher authority on a matter of California

state law. See Rodriguez v. AT & T Mobility Servs. LLC,

728 F.3d 975, 979 (9th Cir. 2013) (“[T]he relevant court of last

resort must have undercut the theory or reasoning underlying the

prior circuit precedent in such a way that the cases are clearly

irreconcilable. But it is not enough for there to be some

tension between the intervening higher authority and the prior

circuit precedent.”) (internal quotation marks and citations

omitted); Miller v. Gammie, 335 F.3d 889, 893 (9th Cir. 2003)

(en banc).

Here, the California Supreme Court has neither overruled

Skidmore nor adopted the modern rule announced in Butcher,

Newport Beach, and Zevnik. In the absence of a decision by the

California Supreme Court contrary to the Skidmore rule, we

remain bound by DiRuzza.6 In Flying J, the district court

6 Some justices of the California Courts of Appeal no

longer follow Skidmore. As stated, we are bound by Ninth

Circuit authority; thus, we, without question, follow DiRuzza

and, as a result, Skidmore.

The Appellants, no doubt, will urge the Ninth Circuit to

directly certify this question for review by the California

Supreme Court or to reconsider DiRuzza en banc. We acknowledge

that the Ninth Circuit implicitly rejected such a request in

Flying J. In anticipation of such a renewed request, however,

we note our concerns as bankruptcy judges.

Decisions regarding dischargeability are weighty ones. The

failure to discharge a debt may leave a debtor incapable of a

normal future financial life. And bankruptcy courts frequently

consider the issue preclusive effect of California judgments in

determining whether a debtor can discharge a debt.

In cases involving California judgments that have gone

through appeal, the bankruptcy courts need certainty regarding

the law we must apply; DiRuzza currently supplies this

(continued...)

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arrived at the same conclusion, stating that:

Because the California Supreme Court’s decision in

Skidmore and the Ninth Circuit’s decision in DiRuzza

are binding law of the state and Ninth Circuit,

respectively, and a federal trial court does not have

the authority to change the state law of California

even if a Supreme Court decision is criticized and not

followed by more recent intermediate California

appellate decisions, see Butcher, Newport Beach, and

Ze[v]nik, the rule of Skidmore applies.

2008 WL 906396, at *41. We note that the Ninth Circuit affirmed

the district court in Flying J in 2009, although its memorandum

decision does not refer to the DiRuzza/Skidmore issue. See

351 F. App’x 236.

6(...continued)

certainty.

Given the impact of our dischargeability decisions,

however, we also should know the assumptions of the California

Court of Appeal panel reviewing a California judgment. In order

to do justice, we need to know either that the panel jurists

assume that issues they do not decide will have preclusive

effect, as is the rule articulated in Skidmore, or that the

panel jurists assume that issues not decided are not entitled to

preclusive effect in other proceedings. Given the current state

of law, we do not have complete certainty that our

interpretation of a specific California Court of Appeal decision

is consistent with the interpretation of the jurists who decided

the matter on appeal. We do not know whether a failure to

address a claim means that the panel agreed that the state court

below correctly decided the issue or whether the panel detected

error but did not raise it given that the judgment could be

affirmed on another basis. In situations where only an issue

not decided on appeal subsequently supports a nondischargeable

judgment, as may be the case here, the current disconnect

between Skidmore and certain jurists of the California Courts of

Appeal may lead to inequitable results.

We acknowledge that this is a problem that neither the

Ninth Circuit nor the BAP nor the trial courts can solve in any

absolute sense. It apparently will require that the California

Supreme Court either reiterate its holding in Skidmore or state

that it is no longer the law.

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We also recognize certain limitations in the precedential

value of decisions of the California Courts of Appeal. For

example, the justices of the Courts of Appeal — divided into six

geographical districts — are not bound by decisions of either

sister districts or even panels within the same district. See

Froyd v. Cook, 681 F. Supp. 669, 672 n.9 (E.D. Cal. 1988)

(collecting cases). And it is well established that

“[d]ecisions of every division of the District Courts of Appeal

are binding . . . upon all the superior courts of this state,

and this is so whether or not the superior court is acting as a

trial or appellate court.” Auto Equity Sales, Inc. v. Super.

Ct., 57 Cal. 2d 450, 455 (1962). That said, where California

Courts of Appeal decisions conflict, the superior court “can and

must make a choice between the conflicting decisions.” Id. at

456.

Here, Butcher, Newport Beach, and Zevnik theoretically bind

the California trial courts, but the trial courts clearly remain

bound by Skidmore. See Auto Equity Sales, Inc., 57 Cal. 2d at

455 (“The decisions of [the California Supreme] [C]ourt are

binding upon and must be followed by all the state courts of

California.”). Further, the precedential value of a California

Court of Appeal decision does not extend to another panel within

the same appellate district, let alone to another appellate

district in California. As the case law reflects, appellate

panels in the Second and Fourth District Courts of Appeal did

not follow Skidmore; it remains to be seen whether other panels

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of the California Courts of Appeal will follow suit.7

Appellants do not argue that the other elements of

California issue preclusion were not satisfied as to Barton’s

§ 523(a)(2)(A) claim. On this record, we conclude that issue

preclusion was available with respect to the fraud claim based

on the state court judgment and that the bankruptcy court did

not abuse its discretion in applying issue preclusion to the

state court judgment. As that left no genuine dispute of

material fact for the bankruptcy court to adjudicate, it did not

err in granting summary judgment in Barton’s favor on his

§ 523(a)(2)(A) claim.

C. The bankruptcy court properly granted summary judgment on

Barton’s § 523(a)(6) claim.

Section 523(a)(6) excepts from discharge debts arising from

a debtor’s “willful and malicious” injury to another person or

to the property of another. Barboza v. New Form, Inc.

(In re Barboza), 545 F.3d 702, 706 (9th Cir. 2008). The

“willful” and “malicious” requirements are conjunctive and

subject to separate analysis. Id.; In re Su, 290 F.3d at

1146–47.

A “malicious” injury requires: “(1) a wrongful act,

(2) done intentionally, (3) which necessarily causes injury, and

7 For example, in People ex rel. Brown v. Tri-Union

Seafoods, LLC, 171 Cal. App. 4th 1549, 1574 (2009), one panel in

the First District Court of Appeal appears to approve the

position advanced by Newport Beach. In an unpublished case,

however, another panel in the First District Court of Appeal

distinguished Newport Beach. See Borrette Lane Estates, LLC v.

Warren, 2010 WL 292754, at *5-6 & n.4 (Cal. Ct. App. Jan. 26,

2010).

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(4) is done without just cause or excuse.” Petralia v. Jercich

(In re Jercich), 238 F.3d 1202, 1209 (9th Cir. 2001) (internal

quotation marks and citation omitted).

The willful injury requirement speaks to the state of mind

necessary for nondischargeability. An exacting requirement, it

is satisfied when a debtor harbors “either a subjective intent

to harm, or a subjective belief that harm is substantially

certain.” In re Su, 290 F.3d at 1144; see also In re Jercich,

238 F.3d at 1208. The injury must be deliberate or intentional,

“not merely a deliberate or intentional act that leads to

injury.” Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998) (emphasis

in original). Thus, “debts arising from recklessly or

negligently inflicted injuries do not fall within the compass of

§ 523(a)(6).” Id. at 64. Under California law, an award of

punitive damages under California Civil Code (“CC”) § 3294

requires a finding of fraud, malice, or oppression. Only fraud

and one aspect of malice, as that term is defined for the

purposes of the California punitive damages statute, satisfy the

willful injury requirement of § 523(a)(6). Plyam v. Precision

Dev., LLC (In re Plyam), 530 B.R. 456 (9th Cir. BAP 2015).

Appellants contend that the bankruptcy court erred in

determining that the fraud finding in the punitive damages award

of the state court judgment established the willful and

malicious injury requirements necessary for nondischargeability

under § 523(a)(6). More specifically, they contend that the

bankruptcy court erred because the California Court of Appeal

“did not carry the [state court judgment’s] conjunctive findings

[of fraud, malice, and oppression] forward into its [d]ecision.” 

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Instead, the California Court of Appeal’s decision “affirmed the

award of punitive damages based solely on the finding of there

being substantial evidence of ‘malice and deceit’ with no

reference to fraud.” Under Plyam, Appellants contend that

“malice” by itself in a punitive damages award under CC § 3294

does not, without an accompanying finding of “intentional

malice,” establish the willful injury requirement under

§ 523(a)(6). They similarly argue that under California law,

“deceit” may include negligent misrepresentation, which does not

require an intent to defraud.

Issue preclusion was available. First, the state court’s

ruling on conversion and punitive damages satisfied

§ 523(a)(6)’s requirement of an underlying tort and “malicious”

injury. And there is no dispute that this aspect of the state

court judgment was affirmed by the California Court of Appeal. 

Conversion under California law does not per se establish the

necessary state of mind for § 523(a)(6) nondischargeability

because intent is not a necessary element. But there is no

question that it establishes a tort that can support a

§ 523(a)(6) nondischargeability claim and a wrongful act that

necessarily causes injury as required for a finding of

§ 523(a)(6) malicious injury. And there is also no question

that the acts of conversion were intentional and without just

cause or excuse. The California Court of Appeal as well as the

trial court made clear findings that Tomkow and Khan harmed

Barton intentionally, with malice, and through deceit. On this

record, then, § 523(a)(6) malice was established through

specific findings at both the trial court and appellate court

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level.

Second, given the foregoing discussion of DiRuzza and

Skidmore, we similarly conclude that the bankruptcy court

appropriately gave issue preclusive effect to the state court’s

punitive damages award, which was based on findings of fraud,

malice, and oppression; this satisfies § 523(a)(6)’s willfulness

requirement.

The trickier issue is one we need not decide: whether, if

issue preclusion is based only on the appellate court’s

affirming the conversion determination (i.e., the modern trend),

rather than the entirety of the trial court’s decision (i.e.,

Skidmore), a willful injury is established. The California

Court of Appeal’s decision gives us pause in two respects. 

First, a determination of conversion, even if intentional, does

not necessarily establish an intent to injure or a substantial

certainty that injury will occur. Thus, the California Court of

Appeal’s decision, in isolation, may not establish § 523(a)(6)

willfulness. Second, the California Court of Appeal limited its

affirmance of the punitive damages award to “malice” and

“deceit,” which could differ in substance from the trial court’s

finding of fraud, malice, and oppression for the purposes of CC

§ 3294.

We acknowledge that the labels used by the California Court

of Appeal may not be sufficient for a § 523(a)(6) willfulness

determination. Given the extensive comment that underscores

these conclusions, however, this is a close call. As we

acknowledge, we must draw all justifiable inferences in favor of

the Appellants. Accordingly, we decline to affirm on this

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basis. Instead, we affirm because binding Ninth Circuit

authority, as the bankruptcy court recognized, compels this

result notwithstanding any limitations in the basis for

affirmance. Thus, the bankruptcy court appropriately gave issue

preclusive effect to the punitive damages award, and it did not

err in granting summary judgment in Barton’s favor on his

§ 523(a)(6) claim.

D. Even though lesser punitive damages were assessed against

him, Tomkow was equally complicit in willfully injuring

Arnold.

Tomkow alleges that both the California state court and the

Court of Appeal recognized that his conduct was less egregious

than that of Khan’s for purposes of the punitive damages award. 

He contends that they found that he was complicit in the

conversion and, thus, that his liability was imputed based on

Khan’s acts. Tomkow asserts that a subjective state of mind

cannot be imputed for the purposes of § 523(a)(6).

Tomkow’s argument is unavailing. First, the Ninth Circuit

has imputed the knowledge and intent of a business partner to a

debtor for the purposes of § 523(a)(6). See Impulsora Del

Territorio Sur, S.A. v. Cecchini (In re Cecchini), 780 F.2d 1440

(9th Cir. 1986). As this Panel has recognized, however, that

decision predates the United States Supreme Court’s decision in

Geiger and, thus, “the continued efficacy of Cecchini as

precedent on related questions is compromised.” See Sachan v.

Huh (In re Huh), 506 B.R. 257, 268 (9th Cir. BAP 2014) (en

banc).

Second, the California state court and Court of Appeal

determined that both Khan and Tomkow engaged in conversion. In

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its initial statement of decision, the state court found:

Tomkow and Khan determined that Barton was making

little or no contributions to the success of [RIL]. 

Tomkow provided the idea and technical savvy and Khan

proved to be a skilled fundraiser to keep the company

afloat. What was Barton’s role they wondered, and if

indeed he was not even providing legal counsel, why

should he continue as a shareholder of [RIL]? . . .

The manner by which Khan and Tomkow attempted to

separate him from that ownership gives rise to a

proper claim for punitive damages.

The state court made no distinction between Khan and Tomkow. 

True, in its revised decision, the state court found that

Tomkow’s conduct was less onerous and that he was “complicit in

the conversion of [Barton’s] shares.” That said, the finding

does not impact or negate the state court’s prior finding of

intent.

The California Court of Appeal then reaffirmed that

“Barton’s harm resulted from K[ha]n and Tomkow’s malice and

deceit, not mere accident.” (Emphasis added.) That Tomkow’s

conduct was less egregious than Khan’s is reflected in the

reduced amount of punitive damages assessed individually against

Tomkow. This distinction, however, does not change the analysis

of the § 523(a)(6) willful injury requirement.

E. The bankruptcy court did not err in denying Appellants’

motion for direct appeal certification.

Appellants also contend that the bankruptcy court erred by

denying their application for direct appeal certification to the

Ninth Circuit pursuant to Rule 8006 and 28 U.S.C.

§ 158(d)(2)(A)(i)–(iii). They urge us to reverse the bankruptcy

court’s ruling.

Although the case law on this issue is sparse, it does not

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appear that a denial of an application for direct appeal

certification under Rule 8006 and 28 U.S.C.

§ 158(d)(2)(A)(i)–(iii) is a final order. For example, denial

of a 28 U.S.C. § 1292(b) certification is not appealable. See

May v. Warner Amex Cable Commc’ns, 871 F.2d 1088 (6th Cir. 1989)

(table); see also McCall v. Deeds, 849 F.2d 1259 (9th Cir. 1988)

(denial of Civil Rule 54(b) certification is not appealable);

Mem’l Hosp. for McHenry Cty. v. Shadur, 664 F.2d 1058 (7th Cir.

1981) (court of appeals reviewed matter by petition for writ of

mandamus after denial of 28 U.S.C. § 1292(b) certification).

Even if such an order is final and subject to review when

joined with the final decision on summary judgment, for the

reasons discussed above, we conclude that the bankruptcy court

did not err in denying the application. As stated, the

bankruptcy court correctly determined that it was bound by

DiRuzza and Skidmore. As a result, whether it believed that the

matter was of public importance or required resolution of

conflicting decisions is irrelevant. Finally, even if the

bankruptcy court erred in denying Appellants’ application —

something that we do not determine — Appellants now have a

direct path of appeal to the Ninth Circuit without the need for

a Rule 8006 certification. Reversing the bankruptcy court on

this point would be impractical and a waste of judicial

resources.

CONCLUSION

Based on the foregoing, we AFFIRM.

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