NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re:

MICHAEL PAUL NEWMAN,

Debtor.

BAP No. CC-21-1228-GTL 

BAP No. CC-21-1250-GTL

(Cross-Appeals)

Bk. No. 6:21-bk-11329-SC

Adv. No. 6:21-ap-01071-SC

MEMORANDUM*

MICHAEL PAUL NEWMAN,

Appellant/Cross-Appellee,

v.

CHLOE LEE, Trustee of the Sang Hoon 

Lee Living Trust,

Appellee/Cross-Appellant.

Appeal from the United States Bankruptcy Court

for the Central District of California

Scott C. Clarkson, Bankruptcy Judge, Presiding

Before: GAN, TAYLOR, and LAFFERTY, Bankruptcy Judges.

INTRODUCTION

Appellant and chapter 71 debtor Michael Paul Newman seeks 

reversal of the bankruptcy court’s grant of partial summary judgment 

* 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 Unless specified otherwise, all chapter and section references are to the 

FILED

JUN 10 2022

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT
2

excepting from discharge a state court judgment for conversion 

(“Conversion Judgment”). The bankruptcy court granted summary 

judgment on creditor Sang Hoon Lee’s2 claims for defalcation under 

§ 523(a)(4) and for willful and malicious injury under § 523(a)(6) but denied 

summary judgment on Lee’s claim for embezzlement under § 523(a)(4). In 

the related cross-appeal, Lee seeks reversal of the bankruptcy court’s denial 

of summary judgment on the embezzlement claim.

Applying the doctrine of issue preclusion, the bankruptcy court 

concluded that the issues involved in the nondischargeability claims were 

determined by the Conversion Judgment. Although conversion is a strictliability tort under California law, the bankruptcy court relied on the state 

court’s additional finding that Newman acted “intentionally and 

wrongfully in acquiring and retaining Lee’s money” to satisfy the 

culpability requirements of nondischargeability.

But, because a conversion claim under California law does not 

require a culpable state of mind, any finding of culpability was entirely 

unnecessary to the Conversion Judgment and, thus, not entitled to 

Bankruptcy Code, 11 U.S.C. §§ 101–1532, all “Rule” references are to the Federal Rules 

of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of 

Civil Procedure.

2 After filing the adversary complaint and motion for summary judgment, Mr. 

Lee died in August 2021. The bankruptcy court entered an order substituting as plaintiff 

Chloe Lee, trustee of the Sang Hoon Lee Living Trust and Mr. Lee’s daughter. We refer 

to them collectively as “Lee.”
3

preclusive effect. Without undisputed facts sufficient to establish 

Newman’s culpable state of mind, summary judgment was inappropriate.

The bankruptcy court erred by applying issue preclusion to establish 

defalcation and willful and malicious injury, but it correctly denied 

summary judgment on Lee’s embezzlement claim because the Conversion 

Judgment did not establish “circumstances indicating fraud.” Accordingly, 

we VACATE and REMAND the grant of partial summary judgment and 

AFFIRM the court’s denial of summary judgment on the embezzlement 

claim.

FACTS3

A. Prepetition Events

In December 2014, Sang Hoon Lee suffered serious injuries from a

job-related transportation accident while driving as an independent 

contractor for Arms Trans dba Arms Logistics and Caravan (“Arms”). The 

other driver, who was also on the job when the accident occurred, was at 

fault.

Lee was unable to work because of his injuries, and he discussed his 

options with Arms in early 2015. Concerned that Lee might sue for 

misclassifying him as an independent contractor, Arms offered to pay Lee 

3 Lee filed a request for judicial notice consisting of pleadings and a transcript 

from a Washington state court proceeding which was given preclusive effect in an 

unrelated bankruptcy case. Pursuant to Fed. R. Evid. 201(a), we may take judicial notice 

only of adjudicative facts. Because the documents presented by Lee do not contain 

adjudicative facts relevant to this appeal, we deny the request.
4

a salary, provide translation and transportation services, and provide the 

legal services of Newman, a newly admitted attorney recently hired as inhouse counsel for Arms.

Through 2015, Newman unsuccessfully tried to negotiate a 

settlement of Lee’s claim. In 2016, Newman had Lee, who was a native 

Korean speaker and did not fluently speak English, sign a retainer 

agreement, without explanation and without providing a translator. In the 

agreement, Newman left his fee blank because he wanted Arms to 

determine his fee.

According to Newman, he later reached an agreement with Arms to

be paid 15% of any settlement. Newman then coordinated with Arms to 

have Lee sign an amended retainer agreement reflecting a 15% contingency 

fee. Newman never spoke to Lee about the fee and never confirmed that 

Lee agreed to it.

In March 2016, Newman settled the case for $1,000,000. While the 

settlement was being approved, Arms negotiated a separate deal with Lee 

under which Lee would waive claims against Arms and pay Arms $130,000 

as reimbursement for the services it provided Lee. Arms claimed that it 

reached an agreement with Newman that he receive a $20,000 flat fee from 

the expected 15% contingency and Arms would receive the remaining 

$130,000. When Arms asked Newman if he needed to amend the retainer 

agreement which stated a fee of 15%, Newman responded, “I wouldn’t 

have taken the 15% anyways, better to [sic] leave to show discount.”
5

After receiving the settlement funds, Newman informed Lee that he 

would have to pay Newman $150,000 and pay Arms an additional 

$130,000. Lee told Newman not to disburse the funds and confirmed with 

Arms that the $150,000 fee was intended to cover both Newman’s fee and 

the agreed reimbursement to Arms.

Newman refused to meet with Lee and Arms to discuss the confusion 

over the fee and instead immediately resigned as in-house counsel. He then

paid himself $150,000 from the settlement proceeds and delivered a final 

check to Lee in August 2016. After learning that Newman did not pay 

Arms, Lee paid the $130,000 reimbursement to Arms. Newman refused to 

answer Lee’s questions, refused to refund the $130,000, and instead 

referred Lee to fee arbitration with the state bar.

B. The State Court Judgment And Appeal

In 2017, Lee sued Newman in state court for conversion, fraud, and 

legal malpractice. He alleged that he did not agree to pay Newman a 15% 

contingency fee, and he sought to avoid the retainer agreement. After a 

bench trial, the state court granted Newman’s motion for nonsuit on Lee’s 

malpractice claim because it was barred by the statute of limitations.

The state court then found that Lee failed to prove his fraud claim, 

but because Lee proved that Newman agreed to accept a flat fee of $20,000, 

the state court held that Newman converted $130,000 of Lee’s settlement 

funds. In this context, the court determined that Newman “acted 

intentionally and wrongfully in acquiring and retaining Lee’s money,” and 
6

it entered judgment in favor of Lee in the amount of $130,000 plus prejudgment interest.

Newman appealed the Conversion Judgment, and Lee crossappealed the denial of the fraud claim. The California Court of Appeal 

affirmed the trial court on both appeals. 

C. The Motion For Summary Judgment And The Court’s Ruling

After the Conversion Judgment was affirmed on appeal, Newman

filed his chapter 7 petition. Lee filed an adversary complaint, seeking to 

except the Conversion Judgment from discharge under § 523(a)(4) for 

defalcation while acting in a fiduciary capacity, embezzlement, and 

larceny, and under § 523(a)(6) for willful and malicious injury.

Lee then filed a motion for summary judgment and argued that the 

elements of his nondischargeability claims were established by the 

Conversion Judgment.4 Lee attached the Conversion Judgment and the 

appellate decision to the motion but did not offer any other facts or 

evidence in support of the motion.

Newman opposed the motion and argued that because conversion is 

a strict-liability tort under California law, the Conversion Judgment did not 

establish the requisite “culpable state of mind” on the § 523(a)(4) 

defalcation claim, or a “willful and malicious” injury under § 523(a)(6). He

4 Lee sought summary judgment on his claims for defalcation and embezzlement 

under § 523(a)(4) and for willful and malicious injury under § 523(a)(6) but not on his 

claim for larceny under § 523(a)(4). After the court entered partial summary judgment, 
7

also maintained that the Conversion Judgment did not establish 

embezzlement, which requires “circumstances indicating fraud,” and 

argued that because the state court denied Lee’s fraud claim, Lee should be 

precluded from relitigating the issue of whether Newman subjectively 

intended to injure Lee.

The bankruptcy court granted summary judgment on the § 523(a)(4) 

defalcation claim and the § 523(a)(6) claim but denied summary judgment 

on the § 523(a)(4) embezzlement claim. It held that the state court’s finding 

that Newman acted “intentionally and wrongfully” was sufficient to 

establish defalcation, which requires “intentional improper conduct” or 

conduct in which a fiduciary is “willfully blind to or consciously 

disregard[s] a substantial and unjustifiable risk.” The bankruptcy court also 

relied on the state court’s finding that Newman acted intentionally and 

wrongfully to establish willfulness and malice.

In denying summary judgment on the embezzlement claim, the 

bankruptcy court reasoned that the state court’s denial of the fraud claim

was not preclusive of the existence of “circumstances indicating fraud.”

The bankruptcy court held that Lee did not present any evidence to prove 

that the issue was actually litigated or necessarily decided by the state 

court.

the parties stipulated to dismiss, with prejudice, the remaining claim for larceny.
8

The bankruptcy court entered a written order granting partial 

summary judgment. Newman timely appealed, and Lee timely crossappealed the court’s denial of summary judgment for embezzlement.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 

157(b)(2)(I). We have jurisdiction over Newman’s appeal under 28 U.S.C. 

§ 158. We granted Lee’s motion for leave to appeal an interlocutory order

and therefore have jurisdiction over Lee’s cross-appeal under 28 U.S.C. 

§ 158(a)(3).

ISSUES

Did the bankruptcy court err by applying issue preclusion to grant 

summary judgment for defalcation under § 523(a)(4)? 

Did the bankruptcy court err by applying issue preclusion to grant 

summary judgment for willful and malicious injury under § 523(a)(6)? 

Did the bankruptcy court err by denying summary judgment on

Lee’s claim for embezzlement under § 523(a)(4)?

STANDARDS OF REVIEW

We review de novo the bankruptcy court’s grant or denial of 

summary judgment. Fresno Motors, LLC v. Mercedes Benz USA, LLC, 771 

F.3d 1119, 1125 (9th Cir. 2014). We also review de novo the bankruptcy 

court’s determination that issue preclusion is available. Lopez v. Emergency 

Serv. Restoration, Inc. (In re Lopez), 367 B.R. 99, 103 (9th Cir. BAP 2007). 

Under de novo review, “we consider a matter anew, as if no decision had 
9

been made previously.” Francis v. Wallace (In re Francis), 505 B.R. 914, 917 

(9th Cir. 2014).

DISCUSSION

A. Legal Standards For Summary Judgment And Issue Preclusion

Civil Rule 56(a), made applicable by Rule 7056, provides 

that summary judgment is appropriate when “there is no genuine dispute 

as to any material fact and the movant is entitled to judgment as a matter of 

law.” The moving party bears the initial burden of demonstrating an 

absence of a genuine issue of material fact. See Matsushita Elec. Indus. Co. v. 

Zenith Radio Corp., 475 U.S. 574, 586 n.10 (1986). We must view the evidence 

in the light most favorable to the non-moving party and draw all justifiable 

inferences in its favor. Fresno Motors, 771 F.3d at 1125.

Lee’s motion for summary judgment is based solely on issue 

preclusion; there are no disputed facts. Consequently, summary judgment 

is appropriate here only if issue preclusion is available and the elements of 

Lee’s nondischargeability claims are established as a matter of law by the 

Conversion Judgment.

The doctrine of issue preclusion applies to actions to except debts 

from discharge under § 523(a). Grogan v. Garner, 498 U.S. 279, 284 n.11 

(1991). In applying issue preclusion, the bankruptcy court “must give to a 

state-court judgment the same preclusive effect as would be given that 

judgment under the law of the State in which the judgment was rendered.” 

Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 81 (1984). The party 
10

asserting issue preclusion bears the burden of establishing the threshold 

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

2001), and must prove the criteria for its application by providing a 

sufficient record to reveal the controlling facts and issues litigated in the 

first suit. Kelly v. Okoye (In re Kelly), 182 B.R. 255, 258 (9th Cir. BAP 1995), 

aff’d, 100 F.3d 110 (9th Cir. 1996).

To determine the issue preclusive effect of the California judgment, 

we apply California’s issue preclusion law, which requires:

(1) the issue sought to be precluded from relitigation is 

identical to that decided in a former proceeding; (2) the issue 

was actually litigated in the former proceeding; (3) the issue 

was necessarily decided in the former proceeding; (4) the 

decision in the former proceeding is final and on the merits; 

and (5) the party against whom preclusion is sought was the 

same as, or in privity with, the party to the former proceeding.

Plyam v. Precision Dev., LLC (In re Plyam), 530 B.R. 456, 462 (9th Cir. BAP 

2015) (citing Lucido v. Super. Ct., 51 Cal. 3d 335, 341 (1990)). The court must 

additionally assess “whether imposition of issue preclusion in the 

particular setting would be fair and consistent with sound public policy.” 

Khaligh v. Hadaegh (In re Khaligh), 338 B.R. 817, 824-25 (9th Cir. BAP 2006), 

aff’d, 506 F.3d 956 (9th Cir. 2007) (citing Lucido, 51 Cal. 3d at 341-43).

B. The Bankruptcy Court Erred By Applying Issue Preclusion To 

Grant Summary Judgment.

Newman argues that conversion is a strict-liability tort and, therefore,

the culpable mental state required for nondischargeability was neither 
11

actually litigated nor necessary to the judgment. He suggests that the state 

court’s finding that he acted intentionally and wrongfully pertains only to

Newman’s volitional act and is insufficient to establish either defalcation or 

willfulness and malice.

To determine whether issue preclusion is available in this 

nondischargeability action, we must compare the elements required to 

establish liability in the Conversion Judgment with the elements required 

for nondischargeability under § 523(a)(4) and (6). 

The elements of conversion under California law are: “(1) the 

plaintiff’s ownership or right to possession of the property; (2) the 

defendant’s conversion by a wrongful act or disposition of property rights; 

and (3) damages.” L.A. Fed. Credit Union v. Madatyan, 209 Cal. App. 4th

1383, 1387 (2012). “The act must be knowingly or intentionally done, but a 

wrongful intent is not necessary.” Taylor v. Forte Hotels Int’l, 235 Cal. App.

3d 1119, 1124 (1991).

1. Issue Preclusion Is Not Available For Defalcation.

A debt is nondischargeable under § 523(a)(4) if: (1) there is an express 

trust; (2) the debt is created by fraud or defalcation; and (3) the debtor 

acted as a fiduciary to the creditor when the debt was created. Otto v. Niles 

(In re Niles), 106 F.3d 1456, 1459 (9th Cir. 1997), abrogated on other grounds by 

Bullock v. BankChampaign, N.A., 569 U.S. 267, 274 (2013). Whether Newman

was a fiduciary for purposes of § 523(a)(4) and whether his actions 
12

constituted defalcation are governed by federal law. Mele v. Mele (In re 

Mele), 501 B.R. 357, 363 (9th Cir. BAP 2013).

The attorney-client relationship between the parties is sufficient to 

establish the first and third elements of the claim because the state court 

found that Newman converted Lee’s funds from a client trust account. See 

Banks v. Gill Distrib. Ctrs., Inc., 263 F.3d 862 (9th Cir. 2001) (holding that an 

express trust and fiduciary relationship are satisfied when an attorney 

deposits a client’s funds into his trust account). 

But defalcation requires a “culpable state of mind.” Bullock, 569 U.S. 

at 269. To establish defalcation, a movant must show: (1) bad faith, moral 

turpitude, or other immoral conduct; or (2) an intentional wrong. Id. at 273-

74. A fiduciary’s conduct is intentional if he knows the conduct is improper 

or he “consciously disregards (or is willfully blind to) a substantial and 

unjustifiable risk.” Id. at 274 (cleaned up).

The record in this case does not show that Newman’s culpable 

mental state was actually litigated or necessary to the Conversion 

Judgment. “An issue is actually litigated when it is properly raised, by the 

pleadings or otherwise, and is submitted for determination, and is 

determined.” Wabakken v. Cal. Dep’t of Corr. & Rehab., 801 F.3d 1143, 1148 

(9th Cir. 2015) (cleaned up). The “necessarily decided” element requires 

that the issue is not “‘entirely unnecessary’ to the judgment in the initial 

proceeding.” Samara v. Matar, 5 Cal.5th 322, 327 (2018) (quoting Lucido, 51 

Cal. 3d at 342).
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Lee has the burden of proving the elements of issue preclusion, but 

without a sufficient record, we cannot determine whether Newman’s 

culpability was properly raised in the pleadings or submitted for 

determination. See In re Harmon, 250 F.3d at 1245; In re Kelly, 182 B.R. at 258. 

Although the state court determined that Newman acted “intentionally 

and wrongfully,” we cannot say with sufficient certainty whether 

Newman’s culpability was determined by the court. The state court’s 

finding may refer merely to the fact that Newman intended the act of 

retaining the funds, which was a wrongful dominion, and may have no 

relevance to whether Newman knew the conduct was wrong or whether he 

consciously disregarded a substantial and unjustifiable risk. We must 

resolve any ambiguity about what the state court decided against 

application of issue preclusion. In re Kelly, 182 B.R. at 259.

Moreover, even if we could conclude that Newman’s culpable mental 

state was actually litigated, it was not necessarily decided. See In re Harmon, 

250 F.3d at 1248 n.9 (“An issue may actually have been litigated without its 

determination having been necessary to the court’s decision.”). Because 

conversion in California is a strict-liability tort, “[t]he foundation of the 

action rests neither in the knowledge nor the intent of the defendant. 

Instead, the tort consists in the breach of an absolute duty; the act of 

conversion itself is tortious. Therefore, questions of the defendant’s good 

faith, lack of knowledge, and motive are ordinarily immaterial.” L.A. Fed. 

Credit Union, 209 Cal. App. 4th at 1387 (citation omitted). The Conversion 
14

Judgment is just for conversion. There is no evidence that punitive 

damages were sought or awarded, and we see no other basis for the state 

court’s finding that Newman acted “intentionally and wrongfully.” To the 

extent that the finding is intended to be a determination of Newman’s 

culpable mental state in converting Lee’s property, it is entirely 

unnecessary to the judgment and not entitled to preclusive effect.

Issue preclusion is not available to establish Newman’s culpable state 

of mind and the bankruptcy court erred by granting summary judgment on 

the defalcation claim.

2. Issue Preclusion Is Not Available To Establish Willful and 

Malicious Injury.

Section 523(a)(6) excepts from discharge any debt arising from 

“willful and malicious injury by the debtor to another entity or to the 

property of another entity.” A creditor must prove both willfulness and 

malice. Ormsby v. First Am. Title Co of Nev. (In re Ormsby), 591 F.3d 1199, 

1206 (9th Cir. 2010). 

The “willful injury requirement is met only when the debtor has a 

subjective motive to inflict injury or when the debtor believes that injury is 

substantially certain to result from his own conduct.” Carillo v. Su (In re Su), 

290 F.3d 1140, 1142 (9th Cir. 2002). This requires an inquiry into the 

debtor’s subjective state of mind. See id. at 1145-46. It is not enough to 

prove that the debtor acted intentionally and caused an injury. Kawaauhau 

v. Geiger, 523 U.S. 57, 61 (1998).
15

“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.” Petralia v. Jercich (In re Jercich), 238 F.3d 1202, 1209 

(9th Cir. 2001) (cleaned up).

A judgment for conversion under California law decides only that a 

defendant has engaged in wrongful dominion over a plaintiff’s property; it 

does not decide that a defendant caused “willful and malicious” injury. 

Peklar v. Ikerd (In re Peklar), 260 F.3d 1035, 1039 (9th Cir. 2001). Accordingly, 

“[a] judgment for conversion under California law . . . does not, without 

more, establish that a debt arising out of that judgment is nondischargeable under § 523(a)(6).” Id.

To prevail on a § 523(a)(6) claim arising from a California conversion 

judgment, a creditor must “first establish that a conversion has occurred 

under California law, and second that the conversion is willful and 

malicious.” Comcast of L.A., Inc. v. Sandoval (In re Sandoval), 341 B.R. 282, 295 

(Bankr. C.D. Cal. 2006); see also Thiara v. Spycher Bros. (In re Thiara), 285 B.R. 

420, 429 (9th Cir. BAP 2002) (“Even though a conversion occurred, 

[creditor] still had to prove that Debtor converted the proceeds with 

‘wrongful intent.’”).

As discussed above, the record provided by Lee does not evidence 

that Newman’s mental state was actually litigated or necessarily decided 

by the Conversion Judgment. And although the bankruptcy court may rely 

on circumstantial evidence to find willfulness, In re Su, 290 F.3d at 1146 n.6, 
16

and malice may be inferred from the nature of the wrongful act if it is 

willful, In re Thiara, 285 B.R. at 434, Lee relied exclusively on issue 

preclusion grounds and did not provide any other evidence in support of 

the motion. Issue preclusion is not available here to establish the requisite 

mental state necessary to find willfulness and malice, and the bankruptcy 

court erred by granting summary judgment on Lee’s § 523(a)(6) claim.

C. The Bankruptcy Court Correctly Denied Summary Judgment On 

Lee’s Embezzlement Claim.

In the cross-appeal, Lee argues that the bankruptcy court erred by 

denying summary judgment on the § 523(a)(4) claim for embezzlement. 

Lee contends that the state court’s factual findings are sufficient to establish 

“circumstances indicating fraud.” In response, Newman maintains that 

because the state court denied Lee’s fraud claim, Lee should be precluded 

from litigating whether “circumstances indicating fraud” existed.

Embezzlement for purposes of § 523(a)(4) is governed by federal 

law. First Del. Life Ins. Co. v. Wada (In re Wada), 210 B.R. 572, 576 (9th Cir. 

BAP 1997). Embezzlement is defined as “the fraudulent appropriation of 

property by a person to whom such property has been [e]ntrusted or into 

whose hands it has lawfully come.” Id. (citation omitted). Embezzlement 

“requires a showing of wrongful intent.” Bullock, 569 U.S. at 274. 

To prevail on a claim for embezzlement, a creditor must prove: 

(1) the property was rightfully in the possession of a non-owner; (2) the 

non-owner appropriated the property to a use other than which it was 
17

entrusted; and (3) circumstances indicating fraud. Transamerica Com. Fin. 

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

The bankruptcy court did not err by denying summary judgment on 

Lee’s embezzlement claim. It properly determined that the existence of 

circumstances indicating fraud was not an issue actually litigated or 

necessarily decided in the state court action.

And contrary to Newman’s argument, circumstances indicating 

fraud, as an element of embezzlement, is not coterminous with an intent to 

defraud, as an element of Lee’s state court fraud claim.5 See Phillips v. 

Arnold (In re Phillips), BAP No. WW-15-1178-TaKuJu, 2016 WL 7383964, at 

*5 (9th Cir. BAP Dec. 16, 2016) (“The finding required for a determination 

of § 523(a)(4) embezzlement is that Debtor’s actions indicated fraud. Such a 

determination is not synonymous with an intent to defraud . . . “).

Essentially, Lee asks us to look at the totality of the state court’s 

factual findings and conclude that Newman’s actions involved 

circumstances indicating fraud. Our role as an appellate tribunal is limited; 

5 Furthermore, the state court denied Lee’s fraud claim but did not make specific 

findings as to each element. The elements of fraud under California law are: 

(1) misrepresentation (false representation, concealment, or nondisclosure); 

(2) knowledge that the representation is false; (3) intent to defraud; (4) justifiable 

reliance; and (5) resulting damages. Lazar v. Sup. Ct., 12 Cal. 4th 631, 638 (1996). The 

Conversion Judgment is preclusive of whether Newman defrauded Lee, but because 

denial of the fraud claim could be based on insufficient proof of any, or all, elements, 

we cannot determine if the state court decided whether Newman intended to defraud 

Lee. See In re Kelly, 182 B.R. at 259 (“Any reasonable doubt as to what was decided by a 

prior judgment should be resolved against allowing the [issue preclusive] effect.”).
18

we do not find facts or weigh evidence. Lee cites Cornell v. U.S. Energy 

Corp. (In re Cornell), BAP No. NV-04-1398-SKP, 2006 WL 6810931 (9th Cir. 

BAP Feb. 23, 2006), and Thoroughman v. Savittieri, 323 F. App’x 548 (9th Cir. 

2009), for the proposition that we can infer circumstances indicating fraud 

from the record without weighing evidence.

These cases involve appellate courts affirming nondischargeability 

judgments based on inferences from evidence presented to the bankruptcy 

court. But Lee did not present any evidence in support of summary 

judgment and instead relied solely on the doctrine of issue preclusion. And 

the bankruptcy court did not make any factual findings. It merely applied 

issue preclusion. Thus, our review is limited to whether issue preclusion is 

available to establish the elements of nondischargeability as a matter of

law.

The bankruptcy court correctly determined that the existence of 

circumstances indicating fraud was neither actually litigated nor 

necessarily decided by the state court. The court did not err by denying 

Lee’s motion for summary judgment on the § 523(a)(4) embezzlement 

claim.

CONCLUSION

Based on the foregoing, we VACATE the bankruptcy court’s grant of 

summary judgment on Lee’s § 523(a)(4) defalcation claim and § 523(a)(6) 

willful and malicious injury claim. We AFFIRM the court’s denial of 
19

summary judgment on Lee’s § 523(a)(4) embezzlement claim, and we 

REMAND for further proceedings consistent with this disposition.