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FILED

FEB 27 2015

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NOT FOR PUBLICATION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-14-1340-KuDKi

)

RICHARD JAY BLASKEY, ) Bk. No. 11-21187

)

Debtor. ) Adv. No. 11-01462

______________________________)

)

BARTON PROPERTIES, INC.; )

STEPHEN SELINGER, )

)

Appellants, )

)

v. ) MEMORANDUM*

)

RICHARD JAY BLASKEY, )

)

Appellee. )

______________________________)

Argued and Submitted on February 19, 2015

at Los Angeles, California

Filed – February 27, 2015

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Erithe A. Smith, Bankruptcy Judge, Presiding

 

Appearances: Anthony A. Patel argued for appellants Barton

Properties, Inc. and Stephen Selinger.**

 

Before: KURTZ, DUNN and KIRSCHER, 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.

**Appellee Richard Jay Blaskey did not actively participate

in this appeal.
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INTRODUCTION

Plaintiffs Barton Properties, Inc. and Stephen Selinger

obtained a judgment against their former attorney Richard Jay

Blaskey for roughly $1 million. After Blaskey filed bankruptcy,

the plaintiffs commenced an adversary proceeding seeking to have

the judgment debt declared nondischargeable under 11 U.S.C.

§§ 523(a)(2)(A), (4) and (6).1 After trial, the bankruptcy court

entered judgment against the plaintiffs, holding that the

plaintiffs had not met their burden of proof to establish that

the damages they incurred resulted from nondischargeable conduct.

The bankruptcy court correctly identified a preponderance of

the evidence as the applicable burden of proof standard but also

indicated that, in the nondischargeability context, this standard

of proof was subject to a special gloss or spin that required the

court to view the evidence “in the light most favorably” to

Blaskey. We disagree. The preponderance of the evidence

standard must be applied in nondischargeability proceedings the

same as it would be applied in any other type of proceedings.

If the court had applied the preponderance of the evidence

standard correctly, it might have ruled differently on

plaintiffs’ §§ 523(a)(2)(A) and (6) claims. We must VACATE the

bankruptcy court’s ruling on these claims and REMAND so it can

apply the preponderance of the evidence standard correctly.

On the other hand, on this record, no reasonable trier of

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.

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fact could have found either embezzlement or fiduciary

defalcation within the meaning of § 523(a)(4) even if the

preponderance of the evidence standard had been applied

correctly. Therefore, the court’s incorrect application of the

preponderance of the evidence standard was harmless error with

respect to the plaintiffs’ § 523(a)(4) claim. We AFFIRM the

bankruptcy court’s ruling on that claim on this basis.

FACTS

The plaintiffs retained Blaskey in 2004. Among other legal

matters, the parties agreed that Blaskey would represent them in

three unrelated lawsuits, which the plaintiffs refer to as the

underlying actions. The underlying actions included one lawsuit

brought by Luba and Vladmir Tomalveska against Barton Properties

(LASC Case No. SC085977) and two lawsuits brought by Barton

Properties, one against the City of Los Angeles and the other

against Geosystems, Inc. (LASC Case Nos. BC311407 and BC312631). 

In 2007, the plaintiffs discovered that Blaskey had been

derelict in representing them in the underlying actions to such

an extent that the state court presiding over the underlying

actions had entered adverse orders and judgments against Barton

Properties. As a result, in 2008, Barton Properties sued Blaskey

in state court for legal malpractice, breach of contract, fraud

and breach of fiduciary duty. The state court ultimately entered

a default judgment against Blaskey in 2010.

Blaskey commenced his bankruptcy case in August 2011, and

the plaintiffs filed their nondischargeability adversary

proceeding shortly thereafter. The plaintiffs alleged three

distinct clams for relief, one under § 523(a)(2)(A), another

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under § 523(a)(4) and another under § 523(a)(6).

The court held the trial on the plaintiffs’ three claims in

March 2014. The plaintiffs offered into evidence only a handful

of exhibits and presented the testimony of only one witness: 

Selinger, who at all relevant times was the president of Barton

Properties. Selinger testified that, in 2006, Blaskey led him to

believe that Blaskey was taking care of all of the litigation and

settlement tasks that needed taking care of in the underlying

actions and that, if he (Selinger) had known the truth – that

Blaskey was derelict in his duties – Barton Properties would not

have paid Blaskey’s 2006 invoices for legal fees to the tune of

roughly $50,000. Selinger also testified that, if Blaskey had

not lied to him about the performance of his duties, he would

have hired new counsel, who might have had opportunities to

prevent or have set aside some or all of the adverse orders and

judgments entered in the underlying actions.

Notably, however, Selinger’s testimony contained virtually

no specifics about what Blaskey reported to him about the status

of the underlying actions, when Blaskey made particular reports,

when Barton Properties made payments to Blaskey and how much was

paid in each instance. Furthermore, Selinger offered no

specifics regarding the remedial opportunities available at the

time but later lost because Barton Properties was relying on

Blaskey’s misstatements.

The plaintiffs offered two distinct types of evidence to

demonstrate the amount of damages they suffered. First, there

was Selinger’s testimony. Selinger gave a generalized account of

damages, broken down by underlying action. According to

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Selinger, as a result of Blaskey’s conduct, Barton Properties

suffered roughly $470,000 in damages in the Geosystems action,

roughly $60,000 in the Tomalveska action and $450,000 in the City

of Los Angeles action. For the most part, Selinger did not offer 

specific details concretely demonstrating how Blaskey’s

nondischargeable conduct caused Barton Properties’ damages in the

underlying actions.

The second type of evidence the plaintiffs offered at trial

to establish their damages was documentary. Specifically, the

plaintiffs offered as exhibits the complaint filed and the

$1 million default judgment entered in their state court action

against Blaskey. The plaintiffs in essence asserted that issue

preclusion applied and that these two documents established their

damages of $1 million. But plaintiffs’ issue preclusion argument

went further. According to plaintiffs, the state court judgment

not only conclusively established Blaskey’s liability for

$1 million but also conclusively established that Blaskey’s

$1 million judgment debt was nondischargeable – that Blaskey was

precluded from arguing in the adversary proceeding that the

$1 million in damages resulted from anything other than

nondischargeable conduct.

After the conclusion of the trial, the bankruptcy court

announced its findings of fact and conclusions of law at a

hearing held in May 2014. As a threshold matter, the bankruptcy

court rejected the plaintiffs’ assertion that they were entitled

to issue preclusion based on the state court judgment. The

bankruptcy court pointed out that issue preclusion was not

available unless the issues in question were the subject of

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explicit findings by the state court or, alternately, implicit

findings on those issues were essential to support the state

court’s judgment.

The bankruptcy court further pointed out that the state

court judgment was not supported by any explicit findings and

that it was impossible to tell on which causes of action the

plaintiffs had prevailed. As the bankruptcy court explained, the

state court judgment did not specify whether the $1 million in

damages were awarded based on breach of contract, fraud, legal

malpractice, breach of fiduciary duty, or some combination

thereof. All of these causes of action were set forth in the

state court complaint but none were referenced in the state court

judgment. Consequently, the bankruptcy court held, it could not

apply issue preclusion to determine the dischargeability of

Blaskey’s $1 million judgment debt because the plaintiffs had not

satisfied the “necessarily decided” element for issue preclusion. 

The court next addressed the trial record and whether the

plaintiffs had made a sufficient showing that the $1 million

judgment debt, or any portion thereof, should be declared

nondischargeable under §523(a)(2)(A). The court found that the

plaintiffs had not established by a preponderance of the evidence

that their damages resulted from fraudulent conduct. According

to the court, there was either no evidence or insufficient

evidence connecting any particular misrepresentations Blaskey

made either to the $50,000 in legal fees the plaintiffs paid

Blaskey or to the roughly $1 million in damages the plaintiffs

apparently suffered in the underlying actions.

The court further explained that the plaintiffs’ evidentiary

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deficiencies were exacerbated by the lack of any documentation to

support the amounts Blaskey billed them or the amounts the

plaintiffs actually paid. The court also pointed out that the

plaintiffs’ lack of specificity regarding when representations

were made, precisely what was said, when they paid Blaskey, and

how much they paid Blaskey all worked against them proving their

nondischargeability claims by a preponderance of the evidence. 

As for the plaintiffs’ § 523(a)(4) claim, the bankruptcy 

court found there was no evidence of any express or technical

trust as to any of the monies the plaintiffs paid to Blaskey and

there was insufficient evidence of a defalcation within the

meaning of the statute.2 And as for the plaintiffs’ §523(a)(6)

claim, the bankruptcy court found there was insufficient evidence

that Blaskey subjectively intended to injure the plaintiffs. 

During its ruling, the bankruptcy court stated multiple

times that the plaintiffs bore the burden of proof to establish

all of the nondischargeability elements by a preponderance of the

evidence. However, the bankruptcy court also made a couple of

statements indicating that the preponderance of the evidence

standard has a special meaning or gloss in nondischargeability

litigation. For instance, the bankruptcy court stated: 

What is relevant is that the evidence support the

claims by a preponderance of the evidence and I must

apply the standard that I’m required to apply by the

U.S. Supreme Court and, that is, that I am required to

2The record reflects that, in 2004, the plaintiffs paid a

retainer to Blaskey in an amount somewhere between $2,000 and

$5,000. Concerning the retainer, the bankruptcy court ruled that

there was no evidence indicating that the retainer could be

declared nondischargeable under § 523(a)(4) or on any other

grounds.

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view the evidence strictly against the creditor and

liberally in favor of the debtor. That is the

standard.

Hr’g Tr. (May 6, 2014) at 17:16-21 (emphasis added). The

bankruptcy court further stated that it was required to view the

evidence “in the light most favorably to the defendant and

strictly against the plaintiff.” Hr’g Tr. (May 6, 2014) at

21:9-11 (emphasis added).

On June 20, 2014, the bankruptcy court entered judgment in

favor of Blaskey and against the plaintiffs. The plaintiffs

timely appealed.

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

Did the bankruptcy court err when it ruled that issue

preclusion did not apply to the plaintiffs’ state court judgment?

Did the bankruptcy court err in its application of the

preponderance of the evidence standard?

Did the bankruptcy court err when it ruled that the

plaintiffs had not satisfied their burden of proof at trial?

STANDARDS OF REVIEW

We review de novo the bankruptcy court’s determination as to

whether issue preclusion is available. Honkanen v. Hopper

(In re Honkanen), 446 B.R. 373, 378 (9th Cir. BAP 2011).

We also review de novo questions concerning what standard of

proof must be applied. W. Wire Works, Inc. v. Lawler

(In re Lawler), 141 B.R. 425, 428 (9th Cir. BAP 1992).

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We review under the clearly erroneous standard the

bankruptcy court’s factual findings. In re Honkanen, 446 B.R. at

378. 

We can affirm on any ground supported by the record. 

Thompson v. Paul, 547 F.3d 1055, 1058–59 (9th Cir. 2008).

DISCUSSION

When the bankruptcy court declares a debt nondischargeable

under § 523(a), the debtor continues to bear part of the

financial burden that drove the debtor to file bankruptcy in the

first place; § 523(a) thus stands in tension with the fundamental

bankruptcy goal of providing debtors with a fresh start. Willms

v. Sanderson, 723 F.3d 1094, 1099-1100 (9th Cir. 2013). For this

reason, § 523(a) is narrowly construed against the objecting

creditor and in favor of the debtor. Snoke v. Riso

(In re Riso), 978 F.2d 1151, 1154 (9th Cir. 1992). Similarly,

this is why the Supreme Court has stated that exceptions to

discharge “should be confined to those plainly expressed.” 

Bullock v. BankChampaign, N.A., 133 S. Ct. 1754, 1760-61 (2013).

The bankruptcy court here indicated that the policy in

nondischargeability litigation favoring discharge of the debtor

extended beyond the construction of § 523(a) to the determination

of factual issues. We disagree. This notion is inconsistent

with Grogan v. Garner, 498 U.S. 279, 291 (1991), which held that

the “ordinary” preponderance of the evidence standard applied to

claims for relief under § 523(a). Id. While Grogan did not

elaborate on the metes and bounds of the ordinary preponderance

of the evidence standard, it is well established that this

standard requires a party bearing the burden of proof to

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establish that each element of its claim or defense “more likely

than not” exists. See, e.g., Guglielmino v. McKee Foods Corp.,

506 F.3d 696, 699, 701 (9th Cir. 2007); Metro. Stevedore Co. v.

Rambo, 521 U.S. 121, 137 n.9 (1997). 

In relevant part, Grogan explained that its holding would

permit virtually any state court fraud judgment to be declared

nondischargeable under § 523(a)(2)(A) via the application of

issue preclusion regardless of whether the state court in the

prior action applied the preponderance of the evidence standard 

or the more demanding clear and convincing evidence standard. 

Grogan, 498 U.S. at 290; see also id. at 283-85. 

It is impossible to reconcile Grogan with the bankruptcy

court’s position here that there is a special, higher gloss on

the preponderance of the evidence standard in nondischargeability

litigation. If that were the case, prior state court fraud

judgments based on the ordinary preponderance of the evidence

standard no longer would be readily subject to

nondischargeability in subsequent bankruptcy cases as

contemplated by the Supreme Court in Grogan.

Even so, our determination that the bankruptcy court

incorrectly applied the preponderance of the evidence standard

does not end our analysis. To the extent the plaintiffs did not

present any evidence in support of one or more of the elements

for nondischargeability, they could not possibly have prevailed

after trial regardless of how the bankruptcy court applied the

preponderance of the evidence standard.

But before we look at the underlying elements for the

plaintiffs’ nondischargeability claims and the evidence

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presented, we first note that the bankruptcy court correctly

declined to apply issue preclusion to the plaintiffs’ state court

judgment. While issue preclusion can and does apply in

nondischargeability proceedings, Grogan, 498 U.S. at 284-85 n.11,

a litigant seeking to offer a California state court judgment as

preclusive on one or more issues must establish all of the

elements that California courts require before giving the

judgment issue preclusive effect. See Cal–Micro, Inc. v.

Cantrell (In re Cantrell), 329 F.3d 1119, 1123 (9th Cir. 2003). 

When the litigant seeks to invoke issue preclusion with respect

to a California default judgment, he or she must show, among

other things, that the state court in the prior proceeding made

an express finding on the issues in question or, alternately,

that implicit findings on those issues were essential to the

court’s judgment. See In re Cantrell, 329 F.3d at 1124-25 (9th

Cir. 2003); Harmon v. Kobrin (In re Harmon), 250 F.3d 1240, 1248

(9th Cir. 2001). 

Here, the bankruptcy court correctly determined that there

was no express finding of fraud or other nondischargeable conduct

in the state court judgment against Blaskey. Nor was an implicit

finding of fraud or other nondischargeable conduct essential to

the judgment, inasmuch as the state court did not specify which

of the several causes of action stated in the plaintiffs’

complaint served as the basis for the judgment. While some of

those causes of action may have necessitated a finding of

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nondischargeable conduct, others would not have.3

Having correctly determined that issue preclusion did not

apply, the bankruptcy court focused on the evidence presented at

trial and whether the plaintiffs had met their burden of proof. 

As set forth above, the court erred because it applied a standard

of proof more demanding than the ordinary preponderance of the

evidence standard. Nonetheless, to the extent the plaintiffs

failed to present any evidence in support of one or more

essential elements of their claims, we can affirm based on this

absence of evidence. Under those circumstances, the court as

the trier of fact could not have found in favor of the plaintiffs

regardless of what standard of proof applied. See Ellsworth v.

Lifescape Medical Assocs., P.C. (In re Ellsworth), 455 B.R. 904,

919 (9th Cir. BAP 2011) (holding that any error regarding the

bankruptcy court’s application of the burden of proof was

harmless when the factual issue in question only could have been

resolved one way in light of the evidence presented); see also

Van Zandt v. Mbunda (In re Mbunda), 484 B.R. 344, 355 (9th Cir.

BAP 2012) (holding that the Panel must ignore harmless error).

With respect to the plaintiffs’ §§ 523(a)(2)(A) and (6)

claims for relief, we have reviewed the trial record, and we have

3The plaintiffs argued that the bankruptcy court should have

applied at least partial issue preclusion by apportioning their

damages between those that arose from dischargeable conduct and

those that arose from nondischargeable conduct. This argument is

meritless. The state court judgment did not make any such

apportionment, and any attempt by the bankruptcy court to apply

partial issue preclusion by doing so would have been inconsistent

with In re Cantrell and In re Harmon and the California issue

preclusion cases on which those two decisions are based.

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considered all of the elements necessary to establish claims for

relief under §§ 523(a)(2)(A) and (6). To support their

§ 523(a)(2)(A) claim, the plaintiffs needed to show:

(1) misrepresentation, fraudulent omission or deceptive

conduct by the debtor; (2) knowledge of the falsity or

deceptiveness of his statement or conduct; (3) an

intent to deceive; (4) justifiable reliance by the

creditor on the debtor's statement or conduct; and

(5) damage to the creditor proximately caused by its

reliance on the debtor's statement or conduct.

Ghomeshi v. Sabban (In re Sabban), 384 B.R. 1, 5 (9th Cir. BAP

2008), aff'd, 600 F.3d 1219, 1222 (9th Cir. 2010). 

To support their § 523(a)(6) claim, the plaintiffs needed to

show that the injury they incurred was both willful and

malicious. Barboza v. New Form, Inc. (In re Barboza), 545 F.3d

702, 706 (9th Cir. 2008). Under § 523(a)(6), a debtor has acted

willfully only if he acted with the subjective intent to cause

harm or with the subjective knowledge that harm was substantially

certain to occur from his actions. Carrillo v. Su (In re Su),

290 F.3d 1140, 1144-45 (9th Cir. 2002). And a malicious injury

requires: “(1) a wrongful act, (2) done intentionally, (3) which

necessarily causes injury, and (4) is done without just cause or

excuse.” In re Barboza, 545 F.3d at 706.

While we agree with the bankruptcy court that the evidence

presented at trial was quite thin, we cannot say that no

reasonable trier of fact could have found for the plaintiffs on

each of the elements necessary to establish nondischargeability

under §§ 523(a)(2)(A) and (a)(6) if the ordinary preponderance of

evidence standard had been applied. Put another way, if the

bankruptcy court had applied the preponderance of the evidence

standard correctly, it might have made different findings

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regarding whether plaintiffs’ damages were incurred as a result

of conduct within the scope of either or both § 523(a)(2)(A) and

(a)(6).

We are not saying that, on remand, the bankruptcy court must

make different findings. We express no opinion on what findings

the bankruptcy court ultimately should make on remand. Instead,

we are merely saying that, before we can review the bankruptcy

court’s findings, we need to ensure that the bankruptcy court

applied the ordinary preponderance of the evidence standard. 

The plaintiffs’ § 523(a)(4) claim is a different matter. In

conjunction with their § 523(a)(4) claim for relief, the

plaintiffs asserted that Blaskey committed defalcation while

acting in a fiduciary capacity. However, the only type of

fiduciary covered within the scope of § 523(a)(4) is the trustee

of an express trust or a technical trust imposed before and

without reference to any alleged wrongdoing by the debtor. 

In re Honkanen, 446 B.R. at 378-79. In California, unless an

attorney holds funds in his or her client trust account on behalf

of a client, the attorney is not a fiduciary within the meaning

of § 523(a)(4). See Banks v. Gill Distrib. Ctrs., Inc.

(In re Banks), 263 F.3d 862, 870-71 (9th Cir. 2001). Here, the

plaintiffs presented no evidence indicating that any of the funds

they paid to Blaskey were held in trust in Blaskey’s client trust

account.

Alternately, the plaintiffs asserted that Blaskey committed

nondischargeable embezzlement, which also is covered by

§ 523(a)(4). For purposes of the nondischargeability statute, a

claim based on embezzlement requires proof of:

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(1) property rightfully in the possession of a

nonowner; (2) nonowner's appropriation of the property

to a use other than which it was entrusted, and

(3) circumstances indicating fraud.

Transam. Comm’l Fin. Corp. v. Littleton (In re Littleton),

942 F.2d 551, 555 (9th Cir. 1991). Here, the plaintiffs

presented no evidence indicating that they intended to retain

ownership of the funds they paid to Blaskey or that he used the

funds for a purpose other than that which the plaintiffs intended

the funds to be used.

In short, the plaintiffs did not present any evidence in

support of essential elements of their § 523(a)(4) claim, and we

can affirm the bankruptcy court’s ruling in favor of Blaskey on

the § 523(a)(4) claim on that basis. 

CONCLUSION

For the reasons set forth above, we AFFIRM the bankruptcy

court’s ruling on the plaintiffs’ § 523(a)(4) claim. However, 

we VACATE the bankruptcy court’s ruling on the plaintiffs’

§§ 523(a)(2)(A) and (6) claims, and we REMAND this matter for

further proceedings consistent with this memorandum decision.

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