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FILED

OCT 13 2016

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

NOTFOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. AZ-15-1364-JuFL

)

LE KWAK LE and VINH TRONG LE, ) Bk. No. 2:11-bk-05893-MCW

)

Debtors. ) Adv. No. 2:11-ap-00727-MCW

______________________________)

LE KWAK LE; VINH TRONG LE, )

)

Appellants, )

)

v. ) M E M O R A N D U M1

)

THOMAS Q. HUYNH, )

)

Appellee. )

______________________________)

Argued and Submitted on September 23, 2016

at Phoenix, Arizona

Filed - October 13, 2016

Appeal from the United States Bankruptcy Court for the

District of Arizona

Honorable Madeleine C. Wanslee, Bankruptcy Judge, Presiding

________________________

Appearances: Christopher James Piekarski of Piekarski &

Brelsford, P.C. argued for appellants Le Kwak Le

and Vinh Trong Le; Neal H. Bookspan of Jaburg &

Wilk, P.C. argued for appellee Thomas Q. Huynh. 

___________________________

Before: JURY, FARIS, and LAFFERTY, Bankruptcy Judges.

1 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.

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Appellee Thomas Q. Huynh (Mr. Huynh) filed an adversary

complaint against appellants, Le Kwak Le (Ms. Le) and Vinh Trong

Le (collectively, Debtors), seeking a declaration that a

potential debt owed to him by Ms. Le was nondischargeable under

§ 523(a)(6).2 After a trial, the bankruptcy court found that

Ms. Le’s conduct, which included the unauthorized liquidation

and closing of a business that she jointly owned with Mr. Huynh,

was willful and malicious within the meaning of § 523(a)(6). As

a result of Ms. Le’s conduct, the court found that Mr. Huynh

suffered lost profit damages in the amount of $864,000 and 

entered a nondischargeable judgment in favor of Mr. Huynh for

that amount. This appeal followed. For the reasons set forth

below, we VACATE and REMAND.

I. FACTS3

A. Prepetition Events

On November 17, 2004, Mr. Huynh and his wife, Am T. Ta,

formed Power Car Wash and Foodmart, LLC, an Arizona limited

liability company (LLC), for the purpose of operating a gas

station, car wash, and retail store located in Mesa, Arizona 

(Gas Station). The management of the LLC was vested in its

members, Mr. Huynh and Ms. Ta, who operated the Gas Station from

2 Unless otherwise indicated, all chapter and section

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

“Rule” references are to the Federal Rules of Bankruptcy

Procedure.

3 We borrow from the bankruptcy court’s statement of facts

set forth in its Order Re: Nondischargeability of Debt entered

September 30, 2015, and from the facts set forth in the parties’

Joint Pretrial Statement.

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their domicile in Northern California. Because the business was

operated remotely, Mr. Huynh used a password protected on-line

video and accounting system with sixteen cameras to enable his

distant surveillance of the premises. Mr. Huynh personally

owned the land on which the Gas Station was built and he leased

the property to the LLC. The Gas Station was branded by

Chevron.

In early March 2006, Ms. Ta agreed to sell her membership

interest in the LLC to Ms. Le. On March 31, 2006, Ms. Ta and

Ms. Le executed the LLC Membership Interest Purchase Agreement

(Interest Purchase Agreement), whereby Ms. Ta sold to Ms. Le

500 membership interests in the LLC, representing one-half of

the outstanding membership interests. The purchase price was

$500,000 for the Gas Station and approximately $100,000 for the

inventory. Mr. Huynh retained the remaining 50% membership

interest in the LLC. The operating agreement was subsequently

amended to include Ms. Le as a member. 

Around the same time that Ms. Le purchased the inventory

and her 50% membership interest in the LLC, she and Mr. Huynh

entered into a membership agreement pertaining to the operation

and management of the LLC (Membership Agreement). Section 3.4

of the Membership Agreement provided that “[Ms.] Le [was to] be

the sole party to participate in the day-to-day management of

the business of the Partnership.” It also provided that

Mr. Huynh was to be available to “cooperate with [Ms. Le] when

needed per [Ms. Le’s] request including providing business

consultation or representation,” and that “[a]ll matters to be

determined by the members shall be determined by affirmative

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vote of a majority in interest of the members.” The Membership

Agreement further stated that the Gas Station proceeds would be

disbursed according to a sliding scale and were separate and

apart from the regular business expenses of the LLC. Finally,

under the agreement, each member had the right to inspect the

books, records, reports and accounts of the LLC during normal

business hours. 

At the beginning of 2006, before Ms. Le acquired her

interest in the LLC, Mr. Huynh renegotiated and amended the real

property lease between himself and the LLC (Amended Lease). 

Ms. Le was aware of the existence of the Amended Lease and of

its terms at the time she entered into both the Interest

Purchase Agreement and the Membership Agreement. 

From March 31, 2006, the date that Ms. Le purchased her

interest in the LLC, until approximately February 2009, Ms. Le

operated the Gas Station without incident.

In February 2009, the parties and their counsel began

addressing certain issues including, among others, accounting

issues regarding the LLC dating back to the 2006 tax year and

Ms. Le’s failure to pay the rent for the LLC’s use of the real

property. The letter writing between counsel went on for an

extended period of time, until late 2010. 

 On November 10, 2010, counsel for Mr. Huynh, as landlord,

sent a letter to Ms. Le due to the non-payment of rent (Demand

Letter). Mr. Huynh proposed several options: 

1. If Mrs. LE is willing to sell her LLC membership

interest, then Mr. HUYNH is willing to buy her

interests for the appraised value of the inventory,

including gasoline stock at wholesale;

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2. In the alternative, if Mrs. LE is willing to buy

Mr. HUYNH’s LLC membership interests, then Mr. HUYNH

is willing to sell his interests at no cost to her;

and

3. As it pertains to both offers, the amount of back

rent owing will be calculated and Mrs. LE’s fifty

percent (50%) outstanding balance will be either

credited against the value of the inventory, or the

outstanding balance will still be owing to Mr. HUYNH.

The letter requested that Ms. Le communicate her decision in

writing no later than 5:00 p.m., November 17, 2010. The letter

further advised Ms. Le that if she did not respond, Mr. Huynh

would proceed with an unlawful detainer proceeding to recover

possession of the premises. 

Ms. Le did not respond to the Demand Letter. Instead, the

undisputed facts show that she held a “going out of business”

sale and liquidated all the inventory and the gas which belonged

to the LLC and closed the Gas Station on November 17, 2010, all

without notice to Mr. Huynh.

The LLC and Chevron were parties to a Chevron Retailer

Supply Contract that required the Gas Station to continuously

operate. On November 24, 2010, after the Gas Station was closed

for seven days, Chevron terminated the Chevron Retailer Supply

Contract and debranded the Gas Station for breach of the

provision requiring the Gas Station to remain operating. 

On Friday, December 3, 2010, Mr. Huynh, as landlord of the

real property and building leased by the LLC, locked out the LLC

for its continuing failure to pay rent pursuant to the terms of

the Amended Lease. Although he attempted to rebrand the Gas

Station, he was unable to do so. Several months after Ms. Le

closed the station, Mr. Huynh reopened it as an unbranded

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station. The business eventually failed and the lender on the

underlying property foreclosed. 

Mr. Huynh filed a lawsuit in the Maricopa County Superior

Court titled Huynh v. Le, et al., CV2011-000456, seeking to

recover damages for loss of the Gas Station business and the

real property. That lawsuit was stayed when Debtors filed for

bankruptcy protection on March 9, 2011.

B. Bankruptcy Events: The Adversary Proceeding

On April 15, 2011, Mr. Huynh filed an adversary complaint

against Debtors seeking a declaration that the debt, as of yet

unliquidated, owed to him due to Ms. Le’s wrongful conduct was

nondischargeable under § 523(a)(4) and (a)(6). Mr. Huynh

alleged that Ms. Le wrongfully (1) shut off his access to the

Gas Station’s accounting and video system, to which he usually

had access on-line; (2) demanded capital contributions from him,

while at the same time preventing him from having access to

financial information regarding the Gas Station; and (3) sold

the inventory and closed the Gas Station without giving notice

to him, all in violation of the Membership Agreement. As a

result of these acts, Mr. Huynh alleged that he lost the Gas

Station business and the underlying property. He sought actual

and punitive damages for the loss.

Debtors answered the complaint and then moved for summary

judgment on both claims for relief. The bankruptcy court

granted Debtors’ motion, in part, as to the § 523(a)(4) claim. 

On January 21, 2015, the bankruptcy court held a trial on

the § 523(a)(6) claim for relief. Mr. Huynh and his expert,

Scott Evans, testified at trial, as did Ms. Le. 

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Much of Mr. Huynh’s testimony was focused on the debranding

of the Gas Station which happened due to Ms. Le’s shut down of

the business. He testified that it would have been difficult,

if not impossible, to reopen the Gas Station within the sevenday period after Ms. Le shut it down to avoid the debranding by

Chevron. He explained that he was initially denied physical

access by Ms. Le and her counsel. He further explained that

after he gained access, he found the Gas Station empty of any

usable contents; the station had no inventory, computers, books,

records or vendor lists. Mr. Huynh testified that the computer

used to run the convenience store and keys which were used to

run different equipment were missing. 

Mr. Huynh also testified that by debranding the Gas

Station, Chevron removed all its trademarks from the facility. 

He further explained that operating an unbranded gas station was

more expensive due to price fluctuations with the gas. Finally,

he testified that by using the Chevron brand, it was Chevron who

bore the loss due to any fraudulent use of credit or debit cards

as opposed to the owner of an unbranded station. 

Mr. Huynh stated that he sought to obtain branding from

other gasoline companies. He was unsuccessful because the Gas

Station was closed for three months. Mr. Huynh testified that

he eventually reopened the Gas Station a few months later

without any branding, but it ultimately failed. Without income

from the Gas Station, Mr. Huynh explained that he was unable to

pay the carrying costs on the real property and it was sold at a

foreclosure sale. 

Mr. Huynh also testified that he and his wife were liable

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to Chevron under a personal guaranty with respect to a

debranding fee of approximately $38,000. Mr. Huynh said that he

also still owed the Small Business Administration (SBA) over

$770,000 with respect to the loan on the underlying property. 

The SBA attempted to garnish his wages, but Mr. Huynh explained

that he was not earning enough money to actually have any wages

garnished. Finally, Mr. Huynh repeatedly testified that he

believed had Ms. Le not closed the Gas Station, he would not

have lost the Chevron branding or the underlying property. 

After Mr. Huynh’s testimony, Scott Evans testified about

Mr. Huynh’s damages. Mr. Evans opined that the business was

substantially impacted by the debranding in addition to the shut

down. In his opinion, if the station had remained branded, it

would have been in a better financial position than as an

unbranded station. He further opined that Mr. Huynh’s actual

damages totaled approximately $368,000 and his future damages,

taken conservatively five years out from the closure, were

$496,000. 

Ms. Le then testified. She testified that she had the

computer that had all the information on it to operate the

business in her possession away from the store. She said that

she did not know the shut down would harm Mr. Huynh because she

thought he could simply reopen the business. However, later she

admitted that she testified at her deposition that she knew

shutting down the business would harm Mr. Huynh financially. 

Ms. Le further testified that she was aware of the Chevron

branding contract and that Mr. Huynh and his wife had guarantees

to Chevron at the time she shut down the Gas Station. However,

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she explained that she did not know about debranding and did not

know that by shutting down the Gas Station that debranding would

happen. She also admitted to knowing that Mr. Huynh had a loan

on the real property. 

In responding to questions from Mr. Huynh’s counsel

regarding whether she knew the shut down would harm Mr. Huynh, 

she repeatedly stated that Mr. Huynh could simply reopen the

business: “What I think is that when I shut down he can reopen

it. He had a lot of money and he can buy the inventory back and

put everything back. . . . I did not think he would default on

the loan because he do have a lot of money.” Ms. Le also

admitted that she had other options besides closing the

business. However, she testified that she did not respond to

the Demand Letter sent by Mr. Huynh’s attorney, she did not talk

to Mr. Huynh directly or through his attorney, and she never

told Mr. Huynh that she was going to shut down the business. 

After the trial, the bankruptcy court issued a decision and

order finding that Mr. Huynh had proven the requirements of

§ 523(a)(6) by demonstrating that Ms. Le’s wrongful conduct

consisting of, among other things, the unauthorized liquidation

and closing of the Gas Station was willful and malicious and

caused him injury. The court also concluded that Mr. Huynh

suffered lost profit damages in the amount of $864,000 due to

Ms. Le’s willful and malicious conduct. The bankruptcy court 

entered a nondischargeable judgment in favor of Mr. Huynh for

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that amount. Debtors timely appealed from that judgment.4

II. JURISDICTION

The bankruptcy court had jurisdiction over this proceeding

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

under 28 U.S.C. § 158. 

III. ISSUES

Did the bankruptcy court err in granting judgment for

Mr. Huynh under § 523(a)(6)?

Did the bankruptcy court err in calculating Mr. Huynh’s

lost profit damages in the amount of $864,000?

IV. STANDARDS OF REVIEW

 “Because the bankruptcy court entered its judgment after

trial, we review the bankruptcy court’s findings of fact for

clear error, and its conclusions of law de novo.” Thiara v.

Spycher Brothers (In re Thiara), 285 B.R. 420, 426 (9th Cir. BAP

2002) (citing Carrillo v. Su (In re Su), 290 F.3d 1140, 1142

(9th Cir. 2002)). 

4 Mr. Huynh named Ms. Le and Mr. Le in his complaint and the

nondischargeable judgment is against both of them. There is

nothing in the record that shows Mr. Le participated in Ms. Le’s

conduct nor did the bankruptcy court make any findings pertaining

to Mr. Le’s conduct and the elements of § 523(a)(6). Generally,

a spouse’s subjective malicious intent cannot be imputed to the

debtor for § 523(a)(6) purposes. See In re Jenkins, 2015 WL

735799 (9th Cir. BAP Feb. 20, 2015) (citing Luc v. Chien

(In re Chien), 2008 WL 8240422, at *7 (9th Cir. BAP Feb. 7,

2008)); cf. Sachan v. Huh, 506 B.R. 257 (9th Cir. BAP 2014). 

However, nowhere did Debtors argue this point in the bankruptcy

court nor did they object to the judgment on this basis. 

Moreover, they never argued that the bankruptcy court erred by

entering judgment against Mr. Le in this appeal. Accordingly,

those arguments are deemed waived for purposes of this appeal. 

Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999).

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A court’s factual determination is clearly erroneous if it

is illogical, implausible, or without support in the record. 

United States v. Hinkson, 585 F.3d 1247, 1261-62 & n. 21 (9th

Cir. 2009) (en banc) (quoting Anderson v. City of Bessemer City,

470 U.S. 564, 577 (1985)) (explaining that the clearly erroneous

standard of review is an element of the clarified abuse of

discretion standard). On appeal, we give “due regard . . . to

the opportunity of the bankruptcy court to judge the credibility

of the witnesses.” In re Thiara, 285 B.R. at 426. “This

deference is also given to inferences drawn by the trial court.” 

Id. 

“The bankruptcy court’s conclusions of law regarding

nondischargeability, as well as its interpretation of state law,

are reviewed de novo.” Id. We also review de novo the

bankruptcy court’s application of the legal standard in

determining whether a debt resulting from Debtors’ wrongful

conduct is dischargeable as a willful and malicious injury. Id.

Whether the bankruptcy court properly awarded lost profit

damages to Mr. Huynh in the amount of $864,000 is governed by

Arizona law. We review state law legal issues de novo. Id. 

V. DISCUSSION

Section 523(a)(6) excepts from discharge any debt “for

willful and malicious injury by the debtor to another entity or

to the property of another entity.” The willful and malice

requirements are analyzed separately and both elements must be

met. In re Su, 290 F.3d at 1146–47; Ormsby v. First Am. Title

Co. of Nev. (In re Ormsby), 591 F.3d 1199, 1206 (9th Cir. 2010). 

Whether a debtor acted willfully is a subjective inquiry:

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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.” In re Ormsby, 591 F.3d at 1206. Further, when

determining the debtor’s intent under § 523(a)(6), there is a

presumption that the debtor knows the natural consequences of

his actions. Id. 

“‘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.’” In re Su, 290 F.3d at

1146-47. “Malice may be inferred based on the nature of the

wrongful act.” In re Ormsby, 591 F.3d at 1206.

Although the bankruptcy court found that Ms. Le breached

the Membership Agreement by unilaterally liquidating the

inventory and closing the business, “it is well settled that a

simple breach of contract is not the type of injury addressed by

§ 523(a)(6).” Snoke v. Riso (In re Riso), 978 F.2d 1151 (9th

Cir. 1992). However, when an intentional breach of contract is

accompanied by tortious conduct which results in willful and

malicious injury, the resulting debt is excepted from discharge

under § 523(a)(6). Lockerby v. Sierra, 535 F.3d 1038, 1040–42

(9th Cir. 2008) (citing Petralia v. Jercich (In re Jercich),

238 F.3d 1202, 1205 (9th Cir. 2001) (“[a]n intentional breach of

contract is excepted from discharge under § 523(a)(6) only when

it is accompanied by malicious and willful tortious conduct.”)). 

Under Jercich, courts are instructed to first consider

whether the debtor’s conduct was “tortious,” and then ask

whether the debtor’s conduct was both “willful” and “malicious.” 

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In re Jercich, 238 F.3d at 1206-09. Whether a breach of

contract is tortious is determined under state law. Lockerby,

535 F.3d at 1041 (“[C]onduct is not tortious under § 523(a)(6)

simply because injury is intended or ‘substantially likely to

occur,’ but rather is tortious if it constitutes a tort under

state law.”) (citing Jercich, 238 F.3d at 1206). We thus can

only affirm if Ms. Le’s conduct would constitute a tort under

Arizona law. Lockerby, 535 F.3d at 1041. 

In its findings, the bankruptcy court did not address the

threshold issue as instructed in Jercich; i.e., whether Ms. Le’s

conduct was tortious under Arizona law. Indeed, the only place

we found a tort mentioned in the record was in Mr. Huynh’s

counsel’s closing argument. There, he argued that Ms. Le’s

unilateral decision to liquidate the gas and inventory and shut

down the Gas Station was not only improper under the Membership

Agreement, but also equated to tortious interference with

contract under Arizona law. While we are free to affirm on any

ground supported by the record, we think it more appropriate to

remand the case to the bankruptcy court, for two reasons.

First, the bankruptcy court’s findings do not clearly

include all of the elements of intentional interference with

contract under Arizona law. To establish a prima facie claim

for tortious interference with contract, a plaintiff must show

“(1) existence of a valid contractual relationship,

(2) knowledge of the relationship on the part of the interferor,

(3) intentional interference inducing or causing a breach,

(4) resultant damage to the party whose relationship has been

disrupted, and (5) that the defendant acted improperly.” 

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Safeway Ins. Co. v. Guerrero, 106 P.3d 1020, 1025 (Ariz. 2005). 

The Arizona Supreme Court has stated that: 

While the ‘intentional’ element of tortious

interference focuses on the mental state of the actor,

the ‘improper’ element in contrast generally is

determined by weighing the social importance of the

interest the defendant seeks to advance against the

interest invaded. Our case law thus emphasizes that a

plaintiff must show more than the defendant’s

knowledge that his or her conduct would induce a

breach to establish intentional interference with

contractual relations.

Id. at 1026–27 (internal citations and quotation marks omitted). 

To ascertain whether the defendant’s actions were “improper,”

courts must consider: 

(a) the nature of the actor’s conduct, (b) the actor’s

motive, (c) the interests of the other with which the

actor’s conduct interferes, (d) the interest sought to

be advanced by the actor, (e) the social interests in

protecting the freedom of action of the actor and the

contractual interests of the other, (f) the proximity

or remoteness of the actor’s conduct to the

interference, and (g) the relations between the

parties.

Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons

Local No. 395 Pension Tr. Fund, 38 P.3d 12, 32 (Ariz. 2002).

Second, there is no indication that the parties discussed

or argued the applicability of this tort, or any other tort,

during the course of this adversary proceeding or at trial. 

Therefore, we leave the question of whether Ms. Le’s conduct was

tortious under Arizona law to the bankruptcy court to address in

the first instance - if appropriate - based on the evidence

presented at trial. See Paskaly v. Seale, 506 F.2d 1209, 1211

n.4 (9th Cir. 1974) (noting that the appellate court could

affirm on any ground supported by the record as long as the

parties had the opportunity to discuss in it in their appellate

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briefs); Bogey v. Ford Motor Co., 538 F.3d 352, 355 (5th Cir.

2008) (“Although we have the authority to consider grounds

presented to but not ruled upon by the district court, we

decline to do so because the plaintiffs did not address the

various other grounds in their briefing, and we think the better

course is for the district court to address those issues in the

first instance.”); see also Lohoti v. Vericheck, Inc., 586 F.3d

1190, 1196 (9th Cir. 2009) (“Although we may affirm on ‘any 

ground supported by the record, even if it differs from the

[bankruptcy] court’s rationale,’ where it is unclear whether the

[bankruptcy] court relied on proper law, we may vacate the

judgment and remand with instructions to apply the correct legal

standard.”).

VI. CONCLUSION

Accordingly, we VACATE the judgment in favor of Mr. Huynh

and REMAND to the bankruptcy court so that it may consider

whether Ms. Le’s conduct was tortious under Arizona law.

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