1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FILED

AUG 02 2017

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. CC-16-1136-KuLTa

)

ROGER BERNARD McCLAIN, ) Bk. No. 1:14-bk-10041-VK

)

Debtor. ) Adv. No. 1:14-ap-01058-VK

______________________________)

)

ROGER BERNARD McCLAIN, )

)

Appellant, )

)

v. ) MEMORANDUM*

)

CROWN COACHWORKS, INC., )

)

Appellee. )

______________________________)

Argued and Submitted on June 22, 2017

at Pasadena, California

Filed – August 2, 2017

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Victoria S. Kaufman, Bankruptcy Judge, Presiding

 

Appearances: Neil C. Evans argued for appellant; Martin R.

Berman of the Law Offices of Pflaster & Berman 

argued for appellee.

 

Before: KURTZ, LAFFERTY and TAYLOR, Bankruptcy Judges.

*This disposition is not appropriate for publication. 

Although it may be cited for whatever persuasive value it may

have (see Fed. R. App. P. 32.1), it has no precedential value. 

See 9th Cir. BAP Rule 8024-1.
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

INTRODUCTION

Chapter 71 debtor Roger Bernard McClain appeals from a

judgment after trial excepting from discharge under § 523(a)(4)

the judgment debt he owes to his former employer, Crown

Coachworks, Inc. On appeal, McClain contends that there was

insufficient credible evidence that he embezzled any funds from

Crown.

Applying, as we must, the clearly erroneous standard of

review to the bankruptcy court’s findings of fact, we cannot say

that the court committed reversible error when it inferred from

the trial evidence that McClain took 47 insurance company checks

payable to Crown and gave them to his friend Mariah Diaz so that

she could cash them for her own purposes and benefit. As found

by the bankruptcy court, Crown had entrusted the insurance checks

to McClain for the sole purpose of having McClain process the

checks for deposit into Crown’s bank account. The bankruptcy

court concluded that McClain deceitfully took the checks and used

them for a purpose other than that for which Crown had entrusted

them to him. 

These findings were adequately supported by the record, and

the findings were sufficient for the court to rule in Crown’s

favor on its § 523(a)(4) claim for relief. Accordingly, we

AFFIRM.

1Unless specified otherwise, all chapter and section

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

all "Rule" references are to the Federal Rules of Bankruptcy

Procedure, Rules 1001-9037.

2
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FACTS

Crown is a corporation that owned and operated an automobile

body repair shop located on the west side of Los Angeles. Jacob

Dunkel founded Crown in the early 1990s with Ronald Gross. 

Dunkel shared ownership of Crown with Gross until 2002 or 2003,

when Dunkel became the sole owner.

At the time relevant to the parties’ dispute, Crown operated

out of two adjoining properties: one referred to as the “north

building,” where the auto body repair work took place, and the

other referred to as the “south building,” where Crown’s main

office was situated. Dunkel – whose expertise was in automobile

repair – alleged that he generally spent time in the north

building. McClain disputed this point, saying that Dunkel spent

most of his time in the main office sitting across from him.

Before his departure, Gross ran the “office” portion of

Crown’s business, which included serving as an “estimator.”

According to both parties, an estimator is someone who met with

the customers and insurance adjusters, made a written assessment

of the type of work that needed to be done, and estimated the

cost of the work.

In the mid-1990s, Crown hired McClain as an additional

estimator; he initially worked with Gross in the main office. 

After Gross left in 2002 or 2003, until McClain quit in 2005,

McClain was the only estimator and also served as the office

manager.

One of McClain’s tasks was receiving cash, checks and credit

cards from customers and insurance companies. The vast majority

of Crown’s work was insurance work, and the insurance companies

3
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

almost always paid by check. Checks typically were handled in

the following manner: either McClain or Dunkel would open the

mail, then the checks would be segregated, then the checks would

be placed in a drawer in Dunkel’s desk, and then one or the other

of them would fill out a deposit slip and make the deposit. A

copy of each check was made and kept in the customer file. No

one else handled the checks to be deposited. Checks for deposit

always were stamped with Crown’s customized endorsement stamp,

which endorsed the checks for deposit in Crown’s sole bank

account.

However, certain insurance checks made payable to Crown

ended up being cashed. The underlying litigation concerns

roughly 47 cashed insurance company checks. These 47 cashed

checks all were endorsed with a handwritten signature, and most

appear to include the same telephone number just below the

endorsement signature. While the check copies are of

exceptionally poor quality, McClain identified the endorsement

signature on at least some of them as that of Mariah Diaz. He

also identified the phone number as belonging to Diaz or her

brother. 

Neither side disputes that Diaz cashed these 47 insurance

checks. The real dispute concerns how Diaz obtained possession

of the checks and for what purpose. Diaz was not an employee of

Crown; she rented space from Crown for her auto detail business. 

In exchange for the rental space, Diaz provided “free” auto

detailing services for cars that Crown was working on. But this

arrangement only lasted for roughly eight months. After this

arrangement ended, Diaz had no other apparent connection to Crown

4
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

– other than the fact that her name and phone number were

endorsed on the back of 47 insurance checks payable to Crown,

spanning the course of a two-year period, between 2003 and 2005. 

McClain admits that, after Gross left Crown, he sometimes

would give checks to Diaz to cash at a local check cashing

agency, in 2003 and 2004. But he maintained that, when he gave

checks to Diaz, he was following Dunkel’s direction and that

Dunkel always received the cash proceeds. According to McClain,

he frequently witnessed Diaz cashing checks for Dunkel and

returning the cash to Dunkel. Another former employee of Crown,

Samuel Key, testified that, in 2005, shortly after he came to

work at Crown as McClain’s replacement, Dunkel spoke to him about

Crown’s check cashing practices. According to Key, Dunkel told

him he sometimes had others cash checks made payable to Crown on

his behalf - including Diaz. Around the same time, Dunkel

supposedly asked Key to take an insurance check and cash it at a

local check cashing business, but Key refused.

According to McClain, when he left Crown in 2005 to go work

for a competitor, he thinks Dunkel was angry at him for leaving;

McClain suggests that this might be why Dunkel accused him of

misappropriating the 47 insurance checks.

But Dunkel told a much different story. He testified that

insurance checks were supposed to be deposited in Crown’s bank

account and that he never asked or authorized anyone at Crown to

cash insurance checks for him – at any check cashing agency or

elsewhere. The thrust of Dunkel’s testimony is that McClain

misappropriated the 47 insurance checks by giving them to Diaz so

that she could cash them for her or their own purposes.

5
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Crown sued McClain and others in state court for (among

other things) conversion, fraud and money had and received. 

Crown settled the lawsuit with McClain in May 2008 by entering

into a stipulation for entry of judgment. The stipulation

required McClain to pay Crown $25,000 over three years, in

monthly installments. If McClain timely made all the required

payments, then Crown was required to dismiss the lawsuit with

prejudice. However, McClain defaulted on his settlement payment

obligations after eleven months of payments. Consequently,

pursuant to the terms of the stipulation for entry of judgment,

the state court entered judgment against McClain in the amount of

$56,049.25. It is this judgment debt that Crown’s

nondischargeability complaint sought to except from discharge.

After two days of testimony and closing argument, in April

2016, the bankruptcy court issued a written statement of decision

in which it held that Crown had not proven by a preponderance of

the evidence its claims under §§ 523(a)(2)(A), 523(a)(6) or

727(a)(4). In addition, the bankruptcy court determined that the

state court stipulated judgment only was entitled to preclusive

effect as to the amount of debt McClain owed Crown. Crown did

not cross appeal any of these rulings.

On the other hand, the bankruptcy court found in favor of

Crown on its § 523(a)(4) claim for relief, holding that Crown had

proven, by a preponderance of the evidence, that McClain had

embezzled the 47 insurance checks.

On May 2, 2016, the bankruptcy court entered judgment

against McClain excepting his $56,049.25 judgment debt from

discharge and awarding Crown pre- and post-judgment interest. 

6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

McClain timely appealed.

JURISDICTION

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

§§ 1334 and 157(b)(2)(I) and (J), and we have jurisdiction under

28 U.S.C. § 158.

ISSUE

Did the bankruptcy court commit reversible error when it

ruled in favor of Crown on its § 523(a)(4) embezzlement claim?

STANDARDS OF REVIEW

We review the bankruptcy court's findings of fact under the

clearly erroneous standard and its conclusions of law de novo. 

Oney v. Weinberg (In re Weinberg), 410 B.R. 19, 28 (9th Cir. BAP

2009), aff'd, 407 F. App’x 176 (9th Cir. 2010).

DISCUSSION

 In relevant part, § 523(a)(4) excepts from discharge debts

arising from embezzlement. We look to federal law instead of

state law for the meaning of the term “embezzlement” for purposes

of § 523(a)(4). First Del. Life Ins. Co. v. Wada (In re Wada),

210 B.R. 572, 576 (9th Cir. BAP 1997). To find that an

embezzlement has occurred for nondischargeability purposes, the

bankruptcy court must find: (1) that the debtor rightfully was in 

possession of property as a nonowner, (2) that the debtor

appropriated (used) the property for a purpose other than for

which it was entrusted; and (3) “circumstances indicating fraud” 

Transamerica Commercial Fin. Corp. v. Littleton

(In re Littleton), 942 F.2d 551, 555 (9th Cir. 1991); In re Wada,

210 B.R. at 576.

The type of conduct necessary to satisfy the third

7
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

embezzlement element – circumstances indicating fraud – need not

include a misrepresentation or any other particularized type of

fraud identified in § 523(a)(2)(A). Phillips v. Arnold

(In re Phillips), 2016 WL 7383964, at *5 (Mem. Dec.) (9th Cir.

BAP Dec. 16, 2016) (citing Husky Int'l Elecs., Inc. v. Ritz,

136 S. Ct. 1581 (2016)). When the debtor attempts to conceal the

misappropriation or to deceive the creditor regarding the

misappropriation, evidence of such concealment or deception can

satisfy the “circumstances indicating fraud” element. PMM Invs., 

LLC v. Campbell (In re Campbell), 490 B.R. 390, 402 (Bankr. D.

Ariz. 2013); Bello Paradiso, LLC v. Hatch (In re Hatch),

465 B.R. 479, 487-90 (Bankr. W.D. Mich. 2012); see also

In re Phillips, 2016 WL 7383964, at *5 (“The record here

sufficiently establishes misconduct that falls within the broader

definition of actual fraud and even more plainly meets the

§ 523(a)(4) requirement of indicia of fraud.”).

The bankruptcy court correctly recited and applied the

above-referenced law governing embezzlement under § 523(a)(4). 

The only genuine issue presented by this appeal is whether the

record supported the bankruptcy court’s finding that McClain had

misappropriated the 47 insurance checks.

In its statement of decision, the bankruptcy court offered a

careful and detailed assessment of the evidence supporting its 

misappropriation finding.

First and foremost, the bankruptcy court found that only

Dunkel and McClain had access to the incoming checks and that

cashing insurance checks was not in Crown’s “ordinary course of

business.” These findings were consistent with Dunkel’s

8
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

testimony that he never cashed insurance checks, that he never

directed anyone else to cash insurance checks and that only he

and McClain ever handled insurance checks.

McClain argues that Dunkel’s testimony was not credible. 

McClain complains that, throughout the trial, Crown’s counsel

asked Dunkel leading questions designed to elicit from Dunkel

specific, desired answers rather than truthful answers. 

According to McClain, Dunkel answered these questions in

accordance with how he thought his counsel wanted him to answer

them, instead of based on his actual knowledge or recollection. 

Having reviewed the trial record, we assume and acknowledge that

the manner of Crown’s counsel’s direct examination of Dunkel

might, at times, have diminished the credibility of some of

Dunkel’s testimony. However, on the critical points – the major

points in dispute regarding how Crown processed incoming

insurance checks and what McClain was authorized to do with these

insurance checks – Dunkel repeatedly was asked the same questions

in several different ways (by both counsel) and Dunkel’s

testimony always was consistent and unequivocal: Crown never

cashed insurance checks, Dunkel never asked anyone to cash

insurance checks and only he and McClain handled checks for

deposit.

Therefore, the bankruptcy court did not commit reversible

error when it permitted Crown’s counsel to ask Dunkel leading

questions. The bankruptcy court had broad discretion in deciding

the extent to which leading questions were necessary to help

develop Dunkel’s testimony. Fed. R. Evid. 611(c); see also

accompanying Advisory Committee Notes (“The matter [of leading

9
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

questions] clearly falls within the area of control by the judge

over the mode and order of interrogation and presentation and

accordingly is phrased in words of suggestion rather than

command.”). Moreover, we perceive no prejudice or unfairness

resulting from the leading questions asked. In the absence of

such prejudice or unfairness, we cannot reverse on this basis. 

As the Ninth Circuit Court of Appeals recently observed:

“Reversal on the basis of improper leading questions is only

appropriate if the district court’s ruling ‘amounted to, or

contributed to, the denial of a fair trial.’” United States v.

Garcia-Gastelum, 650 F. App'x 470 (9th Cir. 2016) (quoting Miller

v. Fairchild Indus. Inc., 885 F.2d 498, 514 (9th Cir. 1989) (as

amended)).

The bankruptcy court found Dunkel’s version of events more

credible than McClain’s or Key’s. We give particular deference

to the bankruptcy court’s credibility findings given the

bankruptcy court’s ability to view firsthand the witnesses’

demeanor and tone on the witness stand. Retz v. Samson

(In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010) (citing

Anderson v. City of Bessemer City, 470 U.S. 564, 575 (1985)). 

Furthermore, a factual finding is not clearly erroneous

unless it is “illogical, implausible, or without support in the

record.” In re Retz, 606 F.3d at 1199. We perceive nothing

illogical, implausible or unsupported in the bankruptcy court’s

assessment of Dunkel’s credibility on the critical points in

dispute, nor in the dispositive inferences the court drew from

10
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

his testimony.2

The other critical evidence supporting the bankruptcy

court’s misappropriation finding concerned body work that Crown

performed for Henry Sahin – McClain’s brother-in-law. In late

2004, after the body work on Sahin’s Mercedes had been completed,

Dunkel repeatedly asked McClain if Crown had received payment for

that work, and McClain repeatedly assured Dunkel that the work

would be paid for. In the course of making his payment

inquiries, Dunkel discovered a copy of a check identifying Amex

Assurance Company as the payor and made payable to Sahin and

Crown in the amount of $8,032.56. But Dunkel never found a copy

of any deposit slip setting forth this dollar amount, or any

other indication that the Amex check ever was deposited in

Crown’s bank account.

After Dunkel confronted McClain regarding this discrepancy, 

McClain eventually presented Dunkel with a new check in the

amount of $8,000, this one identifying Sahin’s corporation as the

payor and Crown as the sole payee.

Later on, Dunkel obtained from Amex Assurance Company a copy

of the original Amex check. This copy showed endorsement

2In the parties’ joint pretrial statement, the parties

stipulated to the following fact: “Plaintiff used persons other

than the defendant to take checks from customers of the plaintiff

to a check cashing facility to obtain cash.” But the record

indicates a distinction between “customer checks” and “insurance

company checks.” The focus of the parties’ dispute – and

Dunkel’s testimony – always was on insurance company checks and

not on customer checks. Thus, the fact that customer checks

sometimes were cashed does not significantly undermine the

credibility of Dunkel’s version of events regarding Crown’s

handling of insurance company checks.

11
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

information on the back of the check similar to the other 46

insurance checks that Crown accused McClain of embezzling. 

According to Crown, McClain gave all of these insurance checks to

Diaz for cashing instead of processing them for deposit in

Crown’s bank account, as directed by Dunkel.

When McClain testified at trial, he admitted that the

signature on the back of the Amex check was Diaz’s, that the

phone number on the back of the check also was hers, and that he

gave it to Diaz to cash. McClain insisted, however, that Dunkel

had directed him to have Diaz cash the Amex check, that he had

given Dunkel the proceeds from the cashed Amex check, and that

Dunkel later gave him back this cash and asked McClain to obtain

a new check from Sahin.

This whole episode involving the two Sahin checks took place

in late 2004 and early 2005, shortly before McClain quit working

for Crown and went to work for a competitor. McClain said that

he quit because Dunkel was attempting to impose a new cash

acceptance policy that would require McClain to sign for all cash

he received on behalf of Crown, but the bankruptcy court found

that his quitting at that time was part of his attempt to conceal

the 47 insurance checks he misappropriated.

More pertinently, the bankruptcy court found that McClain’s

testimony regarding the two Sahin checks was “especially lacking

in credibility.” According to the court, it did not make any

sense for Dunkel to ask for the Amex check to be cashed and 

later to return this cash and ask for payment to be resubmitted

by Sahin in the form of a new check made payable to Crown. As

the bankruptcy court further found: “[t]he more likely

12
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

explanation is that Defendant cashed the check and later had his

brother-in-law write a new check, after Mr. Dunkel noticed that

Plaintiff did not receive the insurance company payment for work

done to Mr. Sahin’s car.” Statement of Decision (April 13, 2016)

at p. 19 of 22.

On this record, we cannot say that these findings (or the

bankruptcy court’s ultimate finding that McClain embezzled all 47

insurance company checks) were illogical, implausible or without

support in the record.

McClain complains that there was no evidence that McClain

received a single penny from the 47 cashed insurance checks. 

We agree that there was no direct evidence that McClain received

any of the cashed check proceeds, but the bankruptcy court

obviously inferred from the entirety of the trial record that

McClain received some sort of benefit as a result of the

insurance checks he misappropriated. The court specifically

found that McClain was friends with Diaz, acted in concert with

Diaz, and had financial troubles, which gave him motive to seek

funds beyond what Crown paid him. None of these findings were

clearly erroneous. In any event, personal benefit is not a

required element for an embezzlement claim under § 523(a)(4). 

See In re Littleton, 942 F.2d at 555; In re Wada, 210 B.R. at

576. Put another way, while the personal benefit the defendant

hoped to gain is relevant to the embezzlement claim, it is not a

prerequisite.

There are several other facts the bankruptcy court relied

upon in support of its inference that McClain misappropriated the

47 insurance checks. For instance, the bankruptcy court pointed

13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

out that Diaz only rented space from Crown for roughly eight

months, whereas the check cashing scheme spanned two years –

between 2003 (shortly after Gross left) and 2005 (shortly before

McClain quit). As the bankruptcy court reasoned, someone must

have helped Diaz (who was not a Crown employee) access the checks

– either McClain or Dunkel. And the bankruptcy court, despite

some conflicting evidence, believed Dunkel’s version of events:

that McClain, without Crown’s authorization or knowledge, gave

the checks to Diaz to cash them for her own purposes. We cannot

conclude that the bankruptcy court’s ruling crediting Dunkel’s

testimony on this issue over McClain’s and Key’s testimony was

illogical, implausible or without support in the record. “Where

there are two permissible views of the evidence, the fact

finder's choice between them cannot be clearly erroneous.” 

Anderson, 470 U.S. at 574.

Finally, the bankruptcy court rejected McClain’s supposition

that Dunkel was motivated to cash insurance checks, instead of

depositing them, as part of a scheme to evade income tax

liability for revenue derived from the insurance checks. As the

bankruptcy court pointed out, both Dunkel and McClain agreed in

their testimony that insurance companies routinely issued IRS

Form 1099's documenting for income tax purposes the insurance

payments they made to Crown. Since the insurance payments

already were documented for income tax purposes, the bankruptcy

court reasoned, cashing insurance checks would not help Crown

evade income tax liability.

In sum, McClain has not persuaded us that any of the

bankruptcy court’s essential findings in support of its

14
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

embezzlement determination were clearly erroneous.

CONCLUSION

For the reasons set forth above, the bankruptcy court’s 

§ 523(a)(4) judgment is AFFIRMED.

15