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FILED

MAR 14 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NOT FOR PUBLICATION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-16-1195-CTaF

)

AZIZOLAH JAVAHERY, ) Bk. No. 2:14-bk-33249-DS

)

Debtor. ) Adv. No. 2:15-ap-01056-DS 

______________________________)

)

AZIZOLAH JAVAHERY, )

)

)

Appellant, )

)

v. ) MEMORANDUM*

)

SORAYA JAVAHERI-LEITNER; )

SIMIN JAVAHERY-KHOJASTEGAN, )

)

Appellees. )

______________________________)

Argued and Submitted on February 23, 2017

at Pasadena, California

Filed - March 14, 2017

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Deborah J. Saltzman, Bankruptcy Judge Presiding

________________________

Appearances: Michael L. Poole argued for Appellant Azizolah

Javahery; M. Jonathan Hayes of Simon Resnik Hayes

LLP argued for Appellees Soraya Javaheri-Leitner

and Simin Javahery-Khojastegan

________________________

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

This case arises out of treachery practiced over years by a

brother against his two younger sisters. Lest one think our

characterization of the brother’s actions to be unfairly harsh,

we quote the state court who passed on this dispute before it

landed in bankruptcy court. The siblings are members of a

“conservative and male-dominated Jewish Iranian family[,]” in

which the eldest male was “the most respected and dominating

member of the family.” Guided by less than noble motives, the

brother had convinced his sisters to turn over antiques, jewelry

and money to him for safekeeping and for investment, and had

promised that he would return those assets to the sisters on

request. And they did so. The state court found that the

brother “waged a systematic campaign of fraud” against his

sisters and “long planned to claim ownership” of the “fruits of

their difficult labor.” It also stated that he “took every

possible step to ensure their financial ruin.”

When the brother refused to return the sisters’ money and

other valuables, they brought suit in the California Superior

Court. After trial, the state court found for the sisters on

each of ten different common law causes of action, including

fraud and conversion and awarded compensatory damages of

approximately $500,000 as well as punitive damages of $350,000 to

each sister. 

The brother filed bankruptcy, and the sisters brought an

** Hon. Fredrick E. Clement, United States Bankruptcy Judge

for the Eastern District of California, sitting by designation.

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adversary proceeding to except from discharge the state court

judgment entered in their favor. 11 U.S.C. § 523(a)(2), (6).1

Armed with the state court judgment and asserting issue

preclusion, the sisters obtained a summary judgment excepting

their debt from discharge.

The brother appeals the order granting summary judgment and

appeals the order denying his motion to vacate the summary

judgment order. He argues that the state court did not make

sufficient findings from which the bankruptcy court could apply

issue preclusion. He also argues that his post-summary judgment

appeal of an amended judgment correcting a clerical error in the

underlying judgment, which had been otherwise long since final,

precluded the bankruptcy court from applying issue preclusion. 

We disagree and AFFIRM.

FACTS

The appellant is Azizolah Javahery (“Azizolah”); appellees

are his younger sisters, Soraya Javaheri-Leitner (“Soraya”) and

Simin Javahery-Khojastegan (“Simin”) (collectively “the

sisters”).2

A. The Sisters’ State Court Action

Starting with Azizolah, the siblings immigrated to the

1 Unless 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. All “Civil” references are to the

Federal Rules of Civil Procedure, Rules 1-86.

2 Because the parties share a common surname, the panel

refers to the parties by their given names. No disrespect is

intended.

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United States from Iran. Because of Azizolah’s greater

familiarity with business affairs in the United States and his

culturally assigned role as head of the family, the sisters

deposited with Azizolah personal property and hundreds of

thousands of dollars for investment on their behalf and for

safekeeping. By way of example, Simin deposited with Azizolah

$300,000, which she had earned by working as a dentist in Iran. 

Soraya entrusted Azizolah with antiques, gold and silver jewelry

and eight years’ earnings. 

When Azizolah refused to return the sisters’ personal

property and money, the sisters brought an action against him in

state court. Their complaint alleged causes of action for breach

of contract, conversion (two counts), fraud (two counts),

accounting, breach of fiduciary duty, constructive trust,

interference with contractual relations, and fraudulent

transfers.

After trial, the state court issued a lengthy Statement of

Decision, which contained three main parts: (1) determining

Azizolah’s liability; (2) fixing compensatory damages; and

(3) deciding whether punitive damages should be awarded and the

amount of those damages. As to the liability component of the

action, as pertinent here, the state court found for the sisters

on each of their causes of action, including conversion and

fraud. As to conversion, the state court found:

Defendant [Azizolah] wrongfully converted certain items

of antiques, silver and gold jewelry that were brought

by Soraya to the United States for her own use and

ownership. Soraya brought $3500 that she had saved as

well as antiques including a handmade rung [sic],

sterling silver and handmade artwork from the City of

Esfahan. Plaintiff Soraya estimated the weight of the

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silver to be 30 to 40 kilograms. Besides the silver,

Plaintiff Soraya also brought gold jewelry, including

18 karat gold earrings, bracelet, necklace and rings

estimated to be valued at $50,000-$60,000.3

With respect to fraud,4 the court stated, “Because Defendant

[Azizolah] took various actions to affirm his trustworthiness to

his younger sisters, Defendant was able to perpetrate the fraud

upon them until 2006.”

As to the amount of compensatory damages, the state court

made findings rooted in the conversion causes of action. It

awarded Soraya $459,959 and Simin $571,570. The state court’s

treatment of the damages issue was confined to four paragraphs: 

Plaintiff Soraya testified that Defendant had

wrongfully converted antiques, gold, and silver which

belonged to her and were valued at $50,000-$60,000.00. 

The Court finds that the Plaintiff’s testimony was

credible.

California Civil Code Section 3336 states in

pertinent part that a plaintiff may receive as damages

for conversion, “[t]he value of the property at the

time of the conversion, with the interest from that

time [. . .] and [s]econd - [a] fair compensation for

the time and money properly expended in pursuit of that

property.”

Plaintiff’s expert forensic account [sic] Mr. Jack

Zuckerman testified that using the legal interest rate

of 10 percent, Plaintiff Soraya suffered damages of

approximately $346,123.00 through September 20, 2009

for the cash damages. This does not include damages

through the date of the adjudication of the matter, nor

3 The record is unclear whether the court’s findings

regarding conversion arose from the second cause of action

(conversion) or the tenth cause of action (theft/conversion/

embezzlement of plaintiff’s inheritance).

4 The Statement of Decision addresses only the third cause

of action for fraud. For reasons not clear, the fourth cause of

action, also for fraud, was not addressed in the Statement of

Decision.

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does it include the value of the antiques and silver

jewelry through the date of the adjudication of this

matter. The amount of damages for the antiques and

silver that Plaintiff Soraya brought from Iran, at a

legal rate of interest, would be $113,836.00. Thus, in

terms of actual damages alone, the Court finds that

Plaintiff Soraya suffered actual [damages] in the

amount of $459,959.00.

As to Plaintiff Simin, the Court finds that using

a legal interest rate of 10 percent, Plaintiff Simin

has suffered $571,570.00 in actual damages. 

As to the punitive damages, the Statement of Decision also

made findings of malice, oppression and fraud, as required by

Cal. Civ. Code § 3294, to support the imposition of punitive

damages. It stated, “The Court found by clear and convincing

force that punitive damages are warranted in this matter finding

that Defendant Azizolah Javahery acted with ‘malice, oppression

and fraud’ given all his actions to wrongfully take the assets of

his two sisters . . . .” (emphasis added). The state court

explained, “Defendant knew that these funds and items of personal

property were the livelihood of his sisters, and the fruits of

their difficult labor. Despite that, he waged a systematic

campaign of fraud against his sisters, in order to deprive them

of their hard earned assets.”

The court’s findings as to the amount of punitive damages

were cursory. It stated: “As punitive damages are to be awarded

in an amount that will deter and punish the Defendant, punitive

damages are awarded by this Court in the amount of $350,000.00

for each Plaintiff.”

Thereafter, the state court entered judgment for the

sisters. As relevant here, the judgment stated:

AS TO PLAINTIFF SIMIN JAVAHERY AND SORAYA JAVAHERY’S

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SECOND CAUSE OF ACTION FOR CONVERSION:

The Court rules that Plaintiffs should prevail on their

second cause of action for conversion.

AS TO PLAINTIFF SIMIN JAVAHERY AND SORAYA JAVAHERY’S

THIRD AND FOURTH CAUSE OF ACTION FOR FRAUD:

The Court rules that Plaintiffs should prevail on their

second cause of action for conversion [sic].

The Court rules that punitive damages are warranted . .

.

AS TO PLAINTIFF SIMIN JAVAHERY AND SORAYA JAVAHERY’S

TENTH CAUSE OF ACTION FOR THEFT/CONVERSION/EMBEZZLEMENT

OF PLAINTIFF’S INHERITANCE:

The Court rules that Plaintiffs should prevail on their

tenth cause of action for theft/conversion/embezzlement

of Plaintiff’s inheritance.

AS TO DAMAGES, PLAINTIFFS SHALL TAKE THE FOLLOWING:

AS TO SORAYA JAVAHERI:

$346,123.00 (Cash Damages At Legal Interest of 10%)

$113,836 (Damages for Antiques and Silver at Legal

Interest Rate of 10%)

$350,000.00 (Punitive Damages)

AS TO SIMIN SORAYA JAVAHERY:

$571,570.00 (Cash Damages at Legal Interest Rate of

10%)

$350,000.00 (Punitive Damages)

(emphases added).

After this judgment was entered, neither side appealed.

B. Azizolah’s Bankruptcy and the Sisters’ Adversary Proceeding

Almost three years after the state court entered judgment,

Azizolah filed a Chapter 7 bankruptcy, and the sisters responded

by filing this adversary proceeding to except from discharge

Azizolah’s debt to them. 11 U.S.C. § 523(a)(2), (6).

The sisters then filed a motion for summary judgment,

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arguing that the state court judgment together with the doctrine

of issue preclusion entitled them to judgment. Azizolah opposed,

arguing that the state court did not find that he committed

fraud. Believing that the state court judgment contained a

clerical error and that the Statement of Decision demonstrated a

clear intent to find fraud, the bankruptcy court applied the

doctrine of issue preclusion and granted summary judgment for

(1) Soraya in the amount of $113,836 as arising from

nondischargeable conversion and (2) each sister in the amount of

$350,000 arising from a finding of fraud for purposes of punitive

damages under Cal. Civ. Code § 3294. The bankruptcy court found

the record inadequate to award further damages and denied the

remainder of the motion for summary judgment.

C. Azizolah’s Motion to Amend the State Court Judgment

After the bankruptcy court granted summary judgment and

three years after the entry of judgment by the state court,

Azizolah moved the state court to correct clerical mistakes in

the judgment, noting that the judgment incorrectly memorialized

the findings in the Statement of Decision, describing erroneously

the third and fourth causes of action as for conversion and

stating that the punitive damages award arose from “the entire

complaint,” rather than the third and fourth causes of action for

fraud (mischaracterized as conversion in the judgment). The

sisters opposed Azizolah’s efforts. Consistent with the

bankruptcy court’s interpretation of the original judgment, the

state court granted the motion to correct the judgment as to the

third and fourth causes of action to add fraud, but otherwise

denied the motion. As in the original judgment, however, the

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amended judgment appended the sisters’ entitlement to punitive

damages to the fraud cause of action. 

An amended judgment was entered. As corrected, in the

pertinent part the judgment now reads:

AS TO PLAINTIFF SIMIN JAVAHERY AND SORAYA JAVAHERY’S

THIRD AND FOURTH CAUSE OF ACTION FOR FRAUD:

The Court rules that Plaintiffs should prevail on their

second cause of action for fraud. 

The Court rules that punitive damages are warranted . .

. .

Azizolah’s appeal to the California Court of Appeals

followed. That appeal remains unresolved.

D. The Sisters’ Motion for Judgment under Civil Rule 54(b) and

Azizolah’s Motion to Vacate the Order Granting Summary

Judgment

Before Azizolah’s appeal could be resolved, the sisters

moved to dismiss the remainder of their adversary complaint and

to enter judgment in their favor based on the bankruptcy court’s

order (partially) granting summary judgment. See Fed. R. Civ. P.

54(b), incorporated by Fed. R. Bankr. P. 7054. The court granted

the sisters’ motion, dismissed their remaining claims and entered

judgment for them excepting their judgment from discharge. 

Armed with the unresolved appeal from the state court order

correcting the judgment, Azizolah requested the bankruptcy court

to vacate the order granting the summary judgment, arguing that

issue preclusion may not be applied where an appeal is pending of

the prior judgment for which preclusive effect is sought. The

sisters opposed, and the court denied the motion. 

This appeal followed.

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JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C.

§§ 1334, 157(b)(2)(I). This court has jurisdiction under

28 U.S.C. § 158. 

ISSUES

Three issues dominate this appeal:

1. Whether the bankruptcy court abused its discretion by

refusing to vacate an order that was based on the issuepreclusive effect of an otherwise final state court judgment,

where the state court had later entered an amended judgment to

correct a clerical error and an appeal challenging the corrected

judgment remained unresolved;

2. Whether the bankruptcy court erred in granting summary

judgment under 11 U.S.C. § 523(a)(2)(A) based on issue

preclusion; and

3. Whether the state court’s conversion judgment made

sufficient findings of willfulness and maliciousness under

11 U.S.C. § 523(a)(6) for the bankruptcy court to apply issue

preclusion to that judgment in rendering summary judgment in

favor of the judgment creditors.

STANDARDS OF REVIEW

This court reviews a denial of a Civil Rule 60(b) motion for

abuse of discretion. Sch. Dist. No. 1J v. AC & S, Inc., 5 F.3d

1255, 1262 (9th Cir. 1993). A trial court abuses its discretion

if it does “not apply the correct law or if it rests its decision

on a clearly erroneous finding of material fact.” S.E.C. v.

Coldicutt, 258 F.3d 939, 941 (9th Cir. 2001).

Summary judgments are reviewed de novo. Conestoga Serv.

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Corp. v. Executive Risk Indem., Inc., 312 F.3d 976, 980 (9th Cir.

2002).

Issue preclusion requires a two-step review. First, whether

issue preclusion is available is reviewed de novo. Krishnamurthy

v. Nimmagadda (In re Krishnamurthy), 209 B.R. 714, 718 (9th Cir.

BAP 1997), aff’d, 125 F.3d 858 (9th Cir. 1997). Second, “[i]f

issue preclusion is available, the decision to apply it is

reviewed for abuse of discretion.” Lopez v. Emergency

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

2007); Dias v. Elique, 436 F.3d 1125, 1128 (9th Cir. 2006). 

DISCUSSION

I. Legal Standards

The court shall grant summary judgment where “there is no

genuine dispute as to any material fact” and the moving party “is

entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a),

incorporated by Fed. R. Bankr. P. 7056. “The court views the

evidence in the light most favorable to the non-moving party to

determine if there are any genuine issues of material fact and

whether the moving party is entitled to judgment as a matter of

law.” Fresno Motors, LLC v. Mercedes Benz USA, LLC, 771 F.3d

1119, 1125 (9th Cir. 2014).

In federal courts, the preclusive effect of a state court

judgment is decided by the law of the state in which the judgment

was rendered. Gayden v. Nourbakhsh (In re Nourbakhsh), 67 F.3d

798, 800 (9th Cir. 1995). California has five prerequisites to

the availability of issue preclusion: 

First, the issue sought to be precluded from

relitigation must be identical to that decided in a

former proceeding. Second, this issue must have been

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actually litigated in the former proceeding. Third, it

must have been necessarily decided in the former

proceeding. Fourth, the decision in the former

proceeding must be final and on the merits. Finally,

the party against whom preclusion is sought must be the

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

proceeding.

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

2001). 

The party seeking to employ issue preclusion bears the

burden of showing its applicability. Vella v. Hudgins, 20 Cal.

3d 251, 257 (1977). In deciding this issue, the court may

consider the entire record, including the rendering court’s

Statement of Decision. Restatement (Second) of Judgments § 27

cmt. f (1982); In re Lopez, 367 B.R. at 105 (statement of

decision); Grenier v. Roback (In re Grenier), BAP No. NC-14-1396-

KiTaD, 2015 WL 3622712, at *2-3, *7 (9th Cir. BAP June 10, 2015)

(same).

II. Motion to Vacate

Civil Rule 60 allows the bankruptcy court to vacate an order

where “it is based on an earlier judgment that has been reversed

or vacated; or applying it prospectively is no longer equitable,”

or for “any other reason that justifies relief.” Fed. R. Civ. P.

60(b)(5), (6), incorporated by Fed. R. Bank. P. 9024.

The crux of Azizolah’s argument is that the bankruptcy court

abused its discretion in declining to vacate the order granting

summary judgment against him because the state court judgment,

which formed the basis of the bankruptcy court’s order, lost its

finality when he later appealed the amended judgment. 

No known case directly addresses whether issue preclusion

may be applied under this factual circumstance under California

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law. California law on issue preclusion provides for two kinds

of attacks on a judgment, i.e., direct attacks (appeals) and

collateral proceedings that assail a judgment. And it treats the

two attacks differently when deciding whether a judgment is final

for the purposes of issue preclusion. This disparate treatment

suggests that an appeal from a judgment amended to correct a

clerical error does not impact finality for issue preclusion

purposes. 

As defined by state law, issue preclusion applies only to

judgments that are final and that are not subject to a direct

attack such as an appeal. People v. Bank of San Luis Obispo,

159 Cal. 65, 82-83 (1910) (noting a “broad difference” between

judgments subject to “direct appeal,” which are not final, and

judgments subject to “collateral proceedings,” which are final

(quoting Spanagal v. Dellinger, 38 Cal. 278, 284 (1869) (Sawyer,

C.J., concurring))); see also Sandoval v. Super. Ct., 140 Cal.

App. 3d 932, 936-37 (1983); Cal. Code Civ. Proc. § 1049. A

judgment is not final for purposes of issue preclusion while an

appeal remains pending or while the period for filing an appeal

has not yet expired. Kay v. City of Rancho Palos Verdes,

504 F.3d 803 (9th Cir. 2007) (applying California law); Franklin

& Franklin v. 7 Eleven Owners for Fair Franchising, 85 Cal. App.

4th 1168, 1174 (2000); see also Cal. R. of Court 8.104(a)(1)(C)

(ordinarily an appeal must be filed not later than 180 days after

entry of judgment). The deadline to file an appeal is

jurisdictional. Van Beurden Ins. Servs. Inc. v. Customized

Worldwide Weather Ins. Agency, Inc., 15 Cal. 4th 51, 56 (1997). 

It cannot be extended or reset by entering a subsequent judgment

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or appealable order that renders the same result. Laraway v.

Pasadena Unified Sch. Dist., 98 Cal. App. 4th 579, 583 (2002). 

Once an appeal has concluded or the time to do so has expired,

the judgment becomes final.

In contrast, judgments that are the subject of an unresolved

collateral attack, those “not in the direct line of the

judgment,” such as motions for a new trial and actions to annul a

judgment, remain final. Bank of San Luis Obispo, 159 Cal. at

82-83; see also Restatement (Second) of Judgments § 13 cmt. f

(1982). More to the point, an unresolved appeal from an

unsuccessful collateral attack does not bar application of issue

preclusion. In re McNeil’s Estate, 155 Cal. 333, 337 (1909)

(finding judgment was final for issue-preclusion notwithstanding

unsuccessful action to annul the judgment and unexpired time for

appeal). It is only if and when a collateral attack actually

succeeds in overthrowing the judgment that the judgment loses

force and issue-preclusive effect. Harris v. Barnhart, 97 Cal.

546, 551 (1893).

Juxtaposed, these authorities reveal a clear line of

demarcation. While an appeal remains pending or during the

period in which an appeal might be filed, a judgment is not

final. After that, the judgment is final, and an unresolved

effort to vacate or materially modify the judgment does not

affect finality, unless and until it actually overturns the

judgment. 

As a result, Azizolah’s failure to appeal the original and

underlying judgment and the expiration of his time to do so means

that the judgment is final. Its finality, moreover, is not

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impacted by the correction of the clerical error in the judgment

and his now pending appeal of the amended judgment.

A narrow exception to the finality rule may exist for

amended judgments that substantially change the original

judgment. An amended judgment reopens a party’s right to appeal

only if the amended judgment “substantially modifies” the

original judgment. Ellis v. Ellis, 235 Cal. App. 4th 837, 843

(2015). A “substantial modification” is one that “materially

affects the rights of the parties.” Sanchez v. Strickland,

200 Cal. App. 4th 758, 765 (2011). A substantially modified

judgment supersedes the original judgment and a new period to

appeal commences. Neff v. Ernst, 48 Cal. 2d 628, 634 (1957). By

contrast, amendments that rectify clerical errors and do not

involve the exercise of judicial discretion do not result in a

new and appealable judgment.5 Stone v. Regents of Univ. of Cal.,

77 Cal. App. 4th 736, 744-45 (1999). And the aggrieved party’s

appeal period runs from the date of entry of the original

judgment, and not the date of entry of the amended judgment. Id.

If California law recognizes such an exception, it is not

applicable here. The amended judgment that is the subject of

Azizolah’s appeal merely conformed the judgment to the terms of

the state court’s Statement of Decision. It did not materially

affect the rights of the parties or substantially modify the

original judgment. Because it rectified only a clerical error in

5 Unlike the limited time for filing an appeal, a trial

court may correct a clerical error at any time. Cal. Code Civ.

P. § 473(d); Ames v. Paley, 89 Cal. App. 4th 668, 572 (2001);

In re Marriage of Kaufman, 101 Cal. App. 3d 147, 151 (1980).

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the original judgment, the amended judgment does not fall within

this exception to the finality rule for judgments. Therefore,

the amended judgment never restarted the deadline for an appeal

of the original judgment, and did not diminish the preclusive

effect of the original judgment. 

For these reasons, the original state court judgment was

final for the purposes of issue preclusion, a fact not altered by

Azizolah’s later appeal of the order amending the judgment, and

the bankruptcy court did not abuse its discretion in denying the

motion to vacate.

III. Motion for Summary Judgment

A. Availability of Issue Preclusion

1. Section 523(a)(2) Fraud

Section 523(a)(2)(A) excepts from discharge debts for money,

property, or services “to the extent obtained by false pretenses,

a false representation or actual fraud.” 11 U.S.C.

§ 523(a)(2)(A). The creditor must demonstrate by a preponderance

of the evidence: “(1) the debtor made . . . representations;

(2) that at the time he knew they were false; (3) that he made

them with the intention and purpose of deceiving the creditor;

(4) that the creditor relied on such representations; [and]

(5) that the creditor sustained the alleged loss and damage as

the proximate result of the misrepresentations having been made.” 

Am. Express v. Hashemi (In re Hashemi), 104 F.3d 1122, 1125 (9th

Cir. 1997).

“The elements of fraud under § 523(a)(2)(A) match the

elements of common law fraud and actual fraud under California

law.” Lee v. Tcast Commc’n, Inc. (In re Jung Sup Lee), 335 B.R.

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130, 136 (9th Cir. BAP 2005) (quoting Younie v. Gonya

(In re Younie), 211 B.R. 367, 373-74 (9th Cir. BAP 1997), aff’d

163 F.3d 609 (9th Cir. 1998)). As a result, a proper finding of

fraud by a California state court satisfies the identity-of-issue

requirement under the preclusion doctrine.

Azizolah advances four arguments against the finding of

nondischargeable fraud under § 523(a)(2)(A) based on issue

preclusion. First, he argues that the state court judgment did

not render judgment based on fraud. The argument assumes that

the bankruptcy court could not properly consider the state

court’s Statement of Decision. This panel disagrees. Resort to

the Statement of Decision is appropriate when applying issue

preclusion. In re Lopez, 367 B.R. at 105; In re Grenier, 2015 WL

3622712, at *2-3, *7 (9th Cir. BAP June 10, 2015). Here, the

Statement of Decision specifically found that Azizolah defrauded

his younger sisters. Moreover, though containing a clerical

error, the original judgment fairly considered also found fraud

on Azizolah’s part. As a consequence, the bankruptcy court

properly found that the state court judgment did, in fact, make a

finding of fraud.6

Second, Azizolah argues that the record is insufficient to

support issue preclusion on the element of damages under

§ 523(a)(2)(A) because the state court awarded damages only for

6 Hindsight strengthens the bankruptcy court’s finding. 

After the bankruptcy court granted summary judgment, Azizolah

moved to clarify the state court judgment because it contained a

clerical error. Consistent with the bankruptcy court’s reading,

the state court corrected the clerical error and amended the

judgment to include fraud.

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conversion and because the judgment did not specify whether it

found entitlement to punitive damages based on malice, oppression

or fraud. See, e.g., Plyam v. Precision Dev. LLC (In re Plyam),

530 B.R. 456, 465 (9th Cir. BAP 2015) (under Cal. Civ. Code

§ 3294(a), only intentional malice or fraud will support a

finding under § 523(a)(6)). But the record is adequate in this

regard. The state court found that Azizolah acted with “malice,

oppression and fraud.” (emphasis added). Therefore, the state

court awarded punitive damages for fraud, and that finding

satisfies the damages elements of § 523(a)(2)(A). 

Third, Azizolah argues that actual damages are an absolute

predicate to an award of punitive damages. See Kizer v. Cty. of

San Mateo, 53 Cal. 3d 139, 147 (1991); Mother Cobb’s Chicken

Turnovers, Inc. v. Fox, 10 Cal. 2d 203, 206 (1937). And since

the state court did not expressly award damages for fraud, an

award of punitive damages based on a finding of fraud was also

not possible.7

California Civil Code § 3294(a) authorizes punitive damages

“in addition to the actual damages.” Carefully parsed,

California decisional law does not require that there be an

express award of actual damages to support an award of punitive

damages, but rather that the plaintiff has suffered injuries from

a tortious act, even if compensatory damages were not awarded. 

Compare Clark v. McClurg, 215 Cal. 279, 282-83, 285 (1932)

7 One might wonder why punitive damages might not be

sustained under the conversion component of the judgment. The

simple answer is that the state court only awarded punitive

damages under the fraud portion of the judgment.

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(upholding $5,000 award of punitive damages, even though no

general damages were awarded), and Gagnon v. Continental Cas.

Co., 211 Cal. App. 3d 1598, 1603 n.5 (1989) (even though

compensatory damages were not available, the plaintiff was

entitled to a jury instruction that punitive damages bear a

reasonable relationship to the “actual harm or injury,” rather

than to “actual damages”), and Wayte v. Rollins Int’l, Inc.,

169 Cal. App. 3d 1, 16 (1985) (“All that is required is proof of

a tort which is of such a nature to warrant imposition of

punitive damages.”), with Berkley v. Dowds, 152 Cal. App. 4th 518

(2007) (because compensatory damages were not recoverable,

plaintiff could not pursue punitive damages), and Cheung v.

Daley, 35 Cal. App. 4th 1673 (1995) (punitive damages not

available where jury expressly determined that plaintiffs

entitled to $0.00 compensatory damages).

The case of Topanga Corp. v. Gentile, 249 Cal. App. 2d 681

(1967), is particularly illuminating. In that case, the

plaintiff corporation sought equitable relief in the form of

reformation and cancellation of shares of stock from an allegedly

fraudulent transaction involving defendant stock promoters. 

Punitive damages were requested but compensatory damages were not

sought or awarded. The trial court granted equitable relief but

denied punitive damages apparently because compensatory damages

were not sought or awarded. On that ground, the Court of Appeals

remanded the matter for further hearings stating, 

However, the fact that plaintiffs were not given a

grant of monetary damages of a certain amount is not

determinative. Plaintiff was indeed damaged by

defendants’ fraud for defendants had, as the result of

the fraud, received stock in an amount not commensurate

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with the value of their contribution to the

corporation. . . . The requirement of “actual damages”

imposed by section 3294 is simply the requirement that

a tortious act be proven if punitive damages

are to be assessed.

Id. at 691.

Here, there is no question that the state court found

compensable fraud. What the state court did not do was to

articulate its findings artfully or to differentiate compensatory

damages for that fraud from other relief awarded.

Fourth, Azizolah argues that the amount of nondischargeable

damages attributable to fraud cannot be ascertained from the

record. To the extent that the bankruptcy court found punitive

damages nondischargeable, this panel disagrees. The bankruptcy

court found that the award of punitive damages of $350,000 to

each sister was sufficiently tied to fraud and granted summary

judgment as to those damages. 

An award of punitive damages under California Civil Code

§ 3294(a) based on a finding of fraud is nondischargeable under

11 U.S.C. § 523(a)(2). Cohen v. de la Cruz, 523 U.S. 213, 218

(1998) (“The most straightforward reading of § 523(a)(2)(A) is

that it prevents discharge of ‘any debt’ respecting ‘money,

property, services, or . . . credit’ that the debtor has

fraudulently obtained, including treble damages, assessed on

account of the fraud.”); In re Plyam, 530 B.R. at 465 (only

intentional malice or fraud under Cal. Civ. Code § 3294(a) will

support a finding of nondischargeability under 11 U.S.C.

§ 523(a)(6)).

Here, the underlying state court judgment awarded punitive

damages based on a finding of “malice, oppression and fraud.” 

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(emphasis added). As a result, the bankruptcy court’s

application of issue preclusion was not erroneous.

2. Section 523(a)(6) Willful and Malicious Injury

Section 523(a)(6) excepts from discharge debts for “willful

and malicious injury” by the debtor to another. “Willful” means

that the debtor entertained “a subjective motive to inflict the

injury or that the debtor believed that injury was substantially

certain to occur as a result of his conduct.” Petralia v.

Jercich (In re Jercich), 238 F.3d 1202, 1208 (9th Cir. 2001);

Carrillo v. Su (In re Su), 290 F.3d 1140, 1144 (9th Cir. 2002). 

Maliciousness is defined as “(1) a wrongful act, (2) done

intentionally, (3) which necessarily causes injury, and (4) done

without justification or excuse.” Jercich, 238 F.3d at 1209;

Thiara v. Spycher Bros. (In re Thiara), 285 B.R. 420, 427 (9th

Cir. BAP 2002).

Debts incurred by conversion of another’s property may be

nondischargeable under § 523(a)(6). Del Bino v. Bailey

(In re Bailey), 197 F.3d 997, 1000 (9th Cir. 1999). The elements

of conversion in California are the creditor’s ownership or right

to possession of property at the time of conversion, a wrongful

act or disposition of that property by another, and damages. 

In re Thiara, 285 B.R. at 427. Proof of conversion under state

law is a necessary but not sufficient basis to deny discharge

under § 523(a)(6). Id. A creditor must also demonstrate that

the injury was willful and malicious. Id. 

Azizolah argues that the state court award of conversion

damages to Soraya in the amount of $113,836 was not supported by

the requisite findings of intent. While the state court did not

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use the words “willful” or “malicious,” the record contains

sufficient findings of intent to support such findings under

§ 523(a)(6). The most telling finding as to willfulness was that

Azizolah held the subjective intent to injure:

Defendant knew that these funds and items of personal

property were the livelihood of his sisters, and the

fruits of their difficult labor. Despite that, he

waged a systematic campaign of fraud against his

sisters, in order to deprive them of their hard earned

assets. Defendant never showed any concern or mercy

for the rights of his sisters, but rather took every

possible step to ensure their financial ruin. 

(emphases added).

Additional findings buttress the conclusion that Azizolah

believed that injury to his sisters was substantially certain to

occur from his actions. First, he used his position of

authority, i.e., his culturally assigned role as head of the

family, to obtain control of his sisters’ personal property and

money. He knew that his sisters would not defy him and would

completely believe anything he told them. He engaged in violence

against them. 

Second, over a period of years he intentionally injured his

sisters by falsely representing that he would invest monies and

hold properties for their behalf, and he would return these

monies and assets when requested. Soraya gave Azizolah antiques,

gold and silver jewelry, as well as large amounts of money, for

investment on her behalf and for safekeeping. The silver weighed

30 to 40 kilograms. The gold jewelry was worth $50,000 to

$60,000. Soraya deposited all of her earnings for 8 years into a

joint account with Azizolah. He repeatedly told Soraya that he

would hold and invest these funds on her behalf. But Azizolah

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never intended to keep his promises and “long planned to claim

ownership” to both his sisters’ funds. He exercised “complete

control over his sister’s financial affairs.” He placed his name

on every bank account holding his sisters’ money and retained the

interest paid on those accounts.

Third, he took monies that were the sisters’ livelihood and

the fruits of their difficult labors, as well as monies earmarked

for them by their parents. For example, when the siblings’

parents died, Azizolah took for himself the inheritance his

parents intended to be jointly divided among the siblings. He

also lied about this fact. He gave some of those funds to a

third party and used some of the funds to pay for his defense of

the sisters’ state court action against him. A similar event

occurred when the siblings’ father sent Azizolah money for

Soraya’s tuition, and Azizolah withheld it from her. 

Fourth, Azizolah utilized deception to hide his acts and

make collection efforts by the sisters more difficult. For

example, with respect to the conversion causes of action, he

denied indebtedness to the sisters. And when the sisters brought

suit against him, he engaged in fraudulent transfers to hide the

assets and prevent the recovery of the assets. 

The state court also found the underpinnings of malice. 

Conversion committed over a period of years and motivated by the

desire to cause financial ruin easily demonstrates a wrongful act

done intentionally. This wrongful act would necessarily cause

injury. And it did cause injury. The factual grounds for the

award of punitive damages eliminate justification or excuse. As

a result, this panel has no difficulty in finding that Azizolah’s

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actions were wrongful, intentional, injurious and unjustified.

Accordingly, the bankruptcy court did not err. 

B. Decision to Apply Issue Preclusion

If available, the decision to apply issue preclusion falls

within the broad discretion of the trial court. Parklane Hosiery

Co. v. Shore, 439 U.S. 322, 331 & nn. 14-16 (1979); In re Lopez,

367 B.R. at 107 (applying California law). That decision always

involves “a measure of discretion and flexibility.” In re Lopez,

367 B.R. at 107 (citing Restatement (Second) of Judgments,

Title E, Introductory Note (1980)); Restatement (Second) Judgment

§ 28 (specifying circumstances where application may not be

appropriate).

Azizolah argues that even if issue preclusion was available,

the bankruptcy court should have declined to apply issue

preclusion to this case. Stated more specifically, he might

argue that the bankruptcy court should have declined to apply

issue preclusion for two reasons. First, because the state court

judgment was sufficiently nonspecific as to the basis of its

findings or the amount of damages attributable to

nondischargeable causes of action, Azizolah lacked incentive to

prosecute an appeal in the state court. 

Lack of “an adequate opportunity or incentive to obtain a

full and fair adjudication in the initial action” is a basis for

the bankruptcy court to refuse application of issue preclusion. 

Restatement (Second) of Judgments § 28(5)(c). Refusal to give

preclusive effect to a final judgment requires a “compelling

showing of unfairness,” and a showing that the first decision was

“patently erroneous” is insufficient. Id. at cmt. j. Examples

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of such compelling circumstances include a judgment that was the

product of concealed facts, the disability of a party that has

since been resolved, a jury verdict that was the result of

compromise, or a judgment based on a small amount in controversy

compared to the amount in dispute in the action for which issue

preclusion is sought. Id. 

Here, Azizolah had sufficient incentive to challenge the

adverse judgment to support application of issue preclusion. The

state court awarded the sisters upwards of $1.7 million against

him. Measured by any standard, Azizolah had a strong incentive

to raise any and all grounds for overturning or reducing the

judgment against him. The mere fact that the state court

judgment was flawed does not preclude the use of issue

preclusion. Samuels v. CMW Joint Venture (In re Samuels),

273 Fed. App’x 691, 693-94 (9th Cir. 2008); Lucido v. Super. Ct.,

51 Cal. 3d 335, 344-45 (1990). Azizolah’s decision not to

prosecute an appeal of the original judgment may have been a

calculated decision to leave the original judgment vague or

flawed so as to prevent application of issue preclusion. In

contrast, an appeal of the original judgment might have resulted

in a remand with instruction to correct the judgment, foreclosing

arguments against issue preclusion.

Second, Azizolah might argue that as of the date of the

hearing on the motion to vacate, the appeal of the judgment

amended to correct a clerical error changed the complexion of the

case sufficiently that the court should have declined to apply

issue preclusion.

An “intervening change in the applicable legal context” is a

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basis to refuse to apply issue preclusion. An intervening change

in the relative legal climate may justify the court’s actions if

that change would “impose on one of the parties a significant

disadvantage or confer on him a significant benefit, with respect

to his competitors.” Restatement (Second) of Judgments § 28

cmt. c.

Here, the pendency of Azizolah’s post-summary judgment

appeal of an amended judgment correcting a clerical error in the

underlying judgment offers neither the sisters, nor Azizolah,

disadvantage or benefit with respect to the other. Rather, it

leaves their comparative positions in the adversary proceeding

unchanged, and the bankruptcy court did not abuse its discretion

in refusing to find an intervening change in the legal context.

For these reasons, we find that the bankruptcy court did not

abuse its discretion in deciding to apply issue preclusion.

CONCLUSION

Finding no error in the bankruptcy court’s order denying

Azizolah’s motion to vacate or its order granting summary

judgment, we AFFIRM.

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