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FILED

MAR 15 2017

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. NC-15-1315-SKuB

)

STANLEY HERBERT BRODY, ) Bk. No. 13-11721

)

Debtor. ) Adv. No. 14-01039

______________________________)

)

LYNN H. CHOU, )

)

Appellant, ) MEMORANDUM1

)

v. )

)

STANLEY HERBERT BRODY, )

)

Appellee. )

______________________________)

Argued and Submitted on January 19, 2017

at San Francisco, California

Filed - March 15, 2017

Appeal from the United States Bankruptcy Court

for the Northern District of California

Honorable Alan Jaroslovsky, Bankruptcy Judge, Presiding

________________________

Appearances: Mark T. Young of Donahoe & Young LLP argued for

appellant Lynn H. Chou; Michele M. Poteracke

argued for appellee Stanley Herbert Brody.

________________________

Before: SPRAKER,2 KURTZ and BRAND, 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.

2 Hon. Gary A. Spraker, Chief Bankruptcy Judge for the 

District of Alaska, sitting by designation.
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INTRODUCTION3

Appellant Lynn Chou appeals the bankruptcy court’s decision

after trial that she failed to prove her claims under 11 U.S.C.

§ 523(a)(2) and (a)(6) to except from discharge a prepetition

judgment against appellee/debtor Stanley Brody for unpaid real

estate commissions. She contends that the court improperly

credited illogical and implausible reasons offered by the debtor

for the nonpayment of her commissions to find that the debtor

lacked an intent to defraud for purposes of § 523(a)(2). 

Additionally, she contends the debtor’s failure to pay the

commissions constitutes tortious conduct under California law

sufficient to establish a willful and malicious injury under

§ 523(a)(6). Ms. Chou further argues that the state court

judgment precludes consideration of the debtor’s testimony and

arguments presented at trial. Because the bankruptcy court’s

findings are neither illogical, nor implausible, and are

supported by facts in the record, we AFFIRM that court’s

decision.

I. FACTUAL BACKGROUND

A. Ms. Chou’s Employment with Multisource.

Multisource was a mortgage brokerage firm operated by Saul

Brody as the broker.4 Stanley Brody was Multisource’s branch

office manager, responsible for its day to day operations. 

3 Unless otherwise indicated, all chapter, section, and rule

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

to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.

4 The record does not reveal whether Multisource was a

business entity or sole proprietorship, nor does it explain what

has become of the business.

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In the summer of 1992, Multisource placed a small written

advertisement in a local Chinese newspaper soliciting a

salesperson with the promise of paying 100% of commissions

earned on loans closed. Chou saw the ad and telephoned

Multisource for more information. At the time, Chou was working

for another mortgage broker, All Star Investments.5 Chou met

Mr. Brody to discuss the ad, and employment with Multisource,

around June 10, 1992. She testified that Brody confirmed she

could retain 100% of her commissions, subject to a monthly

payment of $650.00 as a desk fee. No written contract was

presented at that time. 

At trial, Brody did not directly contradict Chou’s

recollection of their first meeting, or that Multisource agreed

to pay her 100% commissions. Rather, he explained that agent

compensation at Multisource was based upon 100% of the

commissions net of expenses and costs rather than the gross

commissions generated. He also testified that a monthly fee of 

$650.00 would be deducted from Chou’s net commissions as the

minimum desk fee. Further, if she closed more than three loans

in any month she would be charged an additional $250.00 fee for

every loan closed after the third loan. 

Chou began to work for Multisource sometime in June 1992. 

Her exact starting date is unclear, but Brody presented Chou

with a pre-printed form entitled “Broker Salesperson Contract”

5 Chou testified that, overall, she had four to five years

of experience in the mortgage business, but it is not clear how

many years of experience she had at the time she approached

Multisource.

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dated June 28, 1992 (“Salesperson Contract”). The first page of

the contract, marked as page 8, provided:

Whereas, Salesperson is now engaged in

business as a real estate licensee, duly

licensed by the State of California.

. . . .

When Salesperson shall have performed

any work hereunder whereby any commission

shall be earned and when such commission

have [sic] been collected, Salesperson shall

be entitled to a share of such commission as

determined by the current commission

schedule set forth Broker’s written policy,

except as may otherwise be agreed in writing

by Broker and Salesperson before completion

of any parties transaction. See Addendum A

& B.

. . . .

7. In compliance with Section 10138

of the California Business and Professions

Code, all commissions will be received by

Broker; S[sic] person’s share of such

commissions, however, shall be payable to

Salesperson immediately upon collection or

as soon thereafter as practica [sic]

Brody explained that he obtained both the Salesperson

Contract and its Addendum A from the California Department of

Real Estate. Addendum A, which is specific to mortgage brokers,

was attached to the contract to detail the calculation of the

commission payable to Chou. It provides that “[a]ny money not

collected from the borrower but which is identified as a cost of

processing (i.e.: courier services, Express mail, lender

statements, long distance calls, etc.) for each transaction

shall be subtracted from the gross commission.” From this

“Adjusted Gross Commission,” Addendum A further provided:

Salesperson shall pay broker a minimum

rental for office space equal to $650 per

month, for the first THREE (3) TRANSACTIONS

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(BASE) FUNDED, PLUS $250 PER TRANSACTION

FUNDED ABOVE THE BASE. Salesperson shall

receive 100% of the net commissions after

rental deductions. 

An Addendum B was also attached to the Salesperson

Contract. This addendum clarified that Chou’s date of

termination from All Star Investments was June 28, 1992. It

also required her to specifically identify all loans released to

Multisource by All Star Investments, and to certify that she had

not originated, processed, or caused any other lender to approve

and fund any loan application. 

Chou viewed the additional $250.00 fee per loan above the

base as departing from the newspaper ad and the terms initially

discussed with Brody. She testified that she did not sign the

Salesperson Contract because she was not comfortable with it. 

Instead, she asked Brody to explain the legal terms used in the

contract, but stated that he never got back to her. After

receiving the Salesperson Contract, she became concerned that

she was bringing loans into Multisource without any written

agreement. So, Chou hand wrote a one page summary of her

understanding of the terms of her employment and compensation,

and presented it to Brody. Both she and Brody signed this

document. It reads:

This is the confirmation to verify our

conversation for commission split between

Multisource and Lynn H. Chou (real estate

agent). Multisource will charge Lynn H.

Chou $650.00 for month of July if Lynn H.

Chou can submit at least 3 loan packages to

Multisource. 

The document is undated. 

Brody testified that the handwritten document memorialized

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their understanding, but he did not consider it to be a

contract, in part, because it was not dated. Instead,

Multisource still required her to sign the Salesperson Contract. 

He was also adamant that the commission payable to Chou remained

net of expenses or deductions. 

Multisource nonetheless permitted Chou to close loans under

its broker license. The parties always anticipated that Chou

would bring three or four loans with her from All Star

Investments that would close quickly after she changed brokers. 

Although these loans closed, Multisource did not pay Chou any

commissions from them. Chou testified that she closed a number

of additional loans in July 1992, also without receiving

compensation. 

Brody testified that he repeatedly asked Chou to sign the

Salesperson Contract and to provide him with her real estate

license. Despite these requests, he never received either of

them. The record is unclear as to why Chou never provided her

license to Multisource,6 but she explained that she never

received answers to her questions regarding the Salesperson

Contract.

Despite its concerns, Multisource paid Chou $4,102.00 on

August 17, 1992. This represented her net commission for one

loan, less the $650 desk fee for August 1992. When asked why

Multisource paid Chou without having received either a signed

Salesperson Contract or her real estate license, Brody answered

6 Chou was never asked whether she provided her license to

Brody during her examination.

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that he discovered Chou had improperly personally reimbursed a

client for closing costs on that loan. This was significant

because only brokers were authorized to reimburse clients for

closing costs. He discussed the matter with Chou and was

convinced that she understood why it was improper to directly

reimburse clients’ closing costs. She also agreed not to do so

in the future. Based on their discussion, Brody was willing to

“stick his neck out” to pay her this commission, which he viewed

as remedying the problem. 

Around this time, Brody had also become concerned with

other aspects of Chou’s performance. He generally objected to

Chou’s working outside of Multisource’s offices, and her

personal retention of loan files. He explained that this

conduct impaired Multisource’s ability to supervise her work or

verify disbursements at loan closings. In particular, the

disbursement information was needed to calculate her net

commissions. Chou testified, however, that she regularly worked

in Multisource’s office. 

On October 10, 1992, Brody terminated Chou’s employment

with Multisource. Chou testified that she was terminated

without reason. Brody stated that she was terminated after he

discovered her “rummaging through his office.” After her

termination, Brody discovered a number of irregularities in her

loan files that frustrated Multisource’s ability to calculate

the amount of the commissions owed to Chou. 

B. The State Court Litigation.

On April 12, 1994, Chou filed a complaint in the California

Superior Court, San Mateo County, against Multisource and Brody

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to recover her commissions. Originally, she pled causes of

action for breach of contract and fraud, specifically, for the

tort of making a promise without an intention to perform. She

amended her complaint shortly before trial to include a separate

claim to recover $7,800.00 in monies advanced “to cover the fees

incurred by defendants’ clients pursuant to ‘no-points’ loans.” 

In both the original and amended complaint, Chou sought

exemplary damages for the defendants’ fraud.

The case proceeded to a five day bench trial. At the

conclusion of trial, the superior court ruled that Chou was

entitled to recover commissions, but also awarded credits or

deductions against those commissions.7 It also found that Chou

was no longer an employee of defendant as of October 10th, by

which date 13 cases had been substantially completed while the

remainder of cases “had substantial noncompletion of

information.” The court further found that the parties had

“continued to function under the basis of the original written

agreement as that agreement had never been replaced by another

agreement.”8 The court awarded Chou commissions in the amount

of $44,892.43 for the 13 completed cases less $6,733.86 in

7 Although both Multisource and Brody were named as

defendants in the state court action, the court generically

referred to only a single, unnamed defendant in both its oral

ruling and its subsequent Judgment dated October 1, 1997

(“Judgment”). Brody does not deny his individual liability under

the Judgment.

8 The state court does not identify the “original contract,”

although Chou’s handwritten document is the only one that was

ever signed. Nor does that court explain or discuss the

deductions credited against the commissions, other than listing

them as “processing fees” for rechecking or completing the files.

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processing fees for rechecking files; commissions of $29,317.94

for the noncompleted cases less $10,261.28 in processing fees

for completing files; and awarded defendant credits in the

amount of $13,800.00 for rebates paid by the defendant, as well

as $1,950.00 for desk fees at $650 per month for August-October

1992. In total, the court calculated the net commissions

payable to Chou to be $41,465.23. The court also awarded costs

to plaintiff, but did not award interest on her claim. 

On October 1, 1997, the superior court entered its

Judgment, but revised the gross amount of the commissions

awarded to Chou to $55,266.23. The court also reduced

defendant’s credits or deductions to $18,945.14, which equals

the processing and desk fees previously awarded, but excludes

the award of rebates. Consistent with its oral findings, the

court awarded Chou costs, but no interest. The court also

memorialized its findings that: (1) Chou was no longer an

employee of defendant as of October 10, 1992, (2) 13 cases had

been substantially completed, and the balance “had substantial

noncompletion of information,” and (3) the parties continued to

function under the original written agreement.

Although Chou originally asserted a fraud/tort claim

against Brody for a promise without intent to perform, there is

no evidence that this claim was presented at trial. The minutes

of the court’s oral ruling are devoid of any reference to the

tort claim or the request for exemplary damages. Similarly, the

Judgment fails to mention either the tort claim or the request

for exemplary damages. Further, neither the minutes of the oral

ruling, nor the Judgment, address Chou’s amended claim for

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monies advanced to pay client costs. Rather, the Judgment

merely states that she was “entitled to recover commissions

totaling $55,266.23,” and provides for credits against those

commissions. 

Chou renewed her Judgment on September 14, 2007, in the

total amount of $127,588.46. She has not been paid any amount

owed under the Judgment. 

C. Bankruptcy and Trial on the Nondischargeability

Claims.

Brody filed a chapter 13 petition on September 6, 2013. He

converted his bankruptcy to chapter 7 on November 11, 2013. 

Chou timely filed her complaint objecting to the

dischargeability of the Judgment. She seeks relief on two

grounds. She asserts Brody falsely represented his intention

to pay her commissions, rendering the debt nondischargeable

under § 523(a)(2)(A), and that the nonpayment of commissions

willfully and maliciously injured her under § 523(a)(6). 

The bankruptcy court conducted a trial on Chou’s

nondischargeability claims on August 20, 2015. Chou and Brody

were the only witnesses. After argument, the court took the

matter under submission. 

That afternoon, the bankruptcy court entered written

findings of facts and conclusions of law under Fed. R. Civ.

P. 52(a), made applicable to adversary proceedings by Fed. R.

Bankr. P. 7052.9 It ruled in Brody’s favor on both claims. As

9 At the conclusion of Chou’s case, Brody’s counsel

nominally made a motion for directed verdict. A motion for

(continued...)

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to the fraud claim under § 523(a)(2), the court concluded that

Chou’s “argument that Brody caused Multisource’s ad to be placed

in order to lure salespeople to work for Multisource with no

intent to compensation [sic] them was so lacking in evidence as

to be preposterous.” It specifically focused upon fraudulent

intent, and found that “Chou was hired in good faith, and her

failure to receive her commissions was the result of [Brody’s]

good faith belief that she could not be compensated without a

signed contract and delivery of her license.” The court further

concluded that Brody’s reasonable, good faith beliefs negated

any subjective intent to harm Chou, which precluded any finding

of willful and malicious injury under § 523(a)(6). 

The bankruptcy court entered its Judgment dismissing Chou’s

claims, with prejudice, on August 31, 2015. Chou timely

appealed this decision. 

II. JURISDICTION

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

9(...continued)

directed verdict is treated as a motion for judgment as a matter

of law under Fed. R. Civ. P. 50, and applies only in jury trials. 

Fed. R. Bankr. P. 9015(c); Fed. R. Civ. P. 50(a). In bench

trials, such a motion is treated as one for judgment on partial

findings under Fed. R. Civ. P. 52(c), made applicable to

adversary proceedings by Fed. R. Bankr. P. 7052. Here, the

bankruptcy court entered its decision under Rule 52(a), rather

than (c). The difference between the two subsections is

immaterial for purposes of this appeal, however. Even under

Rule 52(c), the bankruptcy court was entitled to weigh the

evidence presented and the credibility of witnesses. Kuan v.

Lund (In re Lund), 202 B.R. 127, 130 (9th Cir. BAP 1996);

27A Fed.Proc., L.Ed. § 62:701 (March 2017). Moreover, the court

was still obligated to make “findings of fact and conclusions of

law as required by Rule 52(a).” Fed. R. Civ. P. 52(c).

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

28 U.S.C. § 158.

III. ISSUES

Whether the bankruptcy court erred when it determined that

Chou did not establish her § 523(a)(2)(A) and (a)(6) claims.

IV. STANDARDS OF REVIEW

Whether a claim is excepted from discharge under § 523(a)

presents mixed issues of law and fact which we review de novo. 

Carillo v. Su (In re Su), 290 F.3d 1140, 1142 (9th Cir. 2002); 

Diamond v. Kolcum (In re Diamond), 285 F.3d 822, 826 (9th Cir.

2002). “De novo means review is independent, with no deference

given to the trial court’s conclusion.” Mwangi v. Wells Fargo

Bank, N.A. (In re Mwangi), 432 B.R. 812, 818 (9th Cir. BAP

2010).

We review the bankruptcy court’s findings of fact for clear

error. Honkanen v. Hopper (In re Honkanen), 446 B.R. 373, 378

(9th Cir. BAP 2011). “The clear error standard is significantly

deferential and is not met unless the reviewing court is left

with a ‘definite and firm conviction that a mistake has been

committed.’” Fisher v. Tucson Unified School Dist., 652 F.3d

1131, 1135 (9th Cir. 2011)(citation omitted). There is no clear

error unless the findings of fact are “‘(1) illogical,’

(2) ‘implausible,’ or (3) without ‘support in inferences that

may be drawn from the facts in the record.’” United States v.

Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009)(en banc)(quoting

Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 577

(1985)). “Where there are two permissible views of the

evidence, the factfinder’s choice between them cannot be clearly

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erroneous.” Anderson, 470 U.S. at 574; see also Lewis v. Ayers,

681 F.3d 992, 999 (9th Cir. 2012).

The bankruptcy court’s credibility determinations are

entitled to special deference. Leon v. IDX Systems Corp.,

464 F.3d 951, 958 (9th Cir. 2006)(citation omitted). Findings

based upon determinations of credibility are given greater

deference “for only the trial judge can be aware of the

variations in demeanor and tone of voice that bear so heavily on

the listener’s understanding of and belief in what is said.” 

Anderson, 470 U.S. at 574. 

V. DISCUSSION

In a nondischargeability action under § 523(a), the

creditor has the burden of proving all the elements of its claim

by a preponderance of the evidence. Grogan v. Garner, 498 U.S.

279, 291 (1991). Exceptions to discharge are strictly construed

against an objecting creditor and in favor of the debtor to

effectuate the fresh start policies under the Bankruptcy Code. 

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

A. The Court Did Not Err by Dismissing Appellant’s

§ 523(a)(2) Claim.

Debts for money or property are excepted from discharge to

the extent obtained by “false pretenses, a false representation,

or actual fraud, other than a statement respecting the debtor’s

or an insider’s financial condition.” 11 U.S.C. § 523(a)(2)(A). 

To sustain a claim of non-dischargeability under § 523(a)(2)(A),

a creditor must prove five elements: 

(1) the debtor made . . . representations;

(2) that at the time he knew they were

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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.

Ghomeshi v. Sabban (In re Sabban), 600 F.3d 1219, 1222 (9th Cir.

2010) (quoting Am. Express Travel Related Servs. Co. v. Hashemi

(In re Hashemi), 104 F.3d 1122, 1125 (9th Cir.1996)).

Chou’s Judgment establishes a debt based in contract. Mere

breaches of contract, without more, do not support

nondischargeability under § 523(a)(2). Businger v. Storer

(In re Storer), 380 B.R. 223, 235 (Bankr. D. Mont. 2007); see

also Ubriaco v. Martino (In re Martino), 429 B.R. 66, 72 (Bankr.

E.D.N.Y. 2010)(collecting cases). To support her claim under

§ 523(a)(2)(A), Chou was required to show that Multisource,

acting through Brody, had no intent to perform. Cripe v. Mathis

(In re Mathis), 360 B.R. 662, 666 (Bankr. C.D. Ill. 2006); Brann

v. Oxford (In re Oxford), 440 B.R. 772, 777 (Bankr. W.D. Ky.

2010); Duncan v. Bucciarelli (In re Bucciarelli), 429 B.R. 372,

375 (Bankr. N.D. Ga. 2010); Mozeika v. Townsley

(In re Townsley), 195 B.R. 54, 61 (Bankr. E.D. Tex. 1996). 

Moreover, the debtor’s lack of intent to perform must exist at

the time he entered the contract. Paik v. Lee (In re Lee),

536 B.R. 848, 855 (Bankr. N.D. Cal. 2015)(citing New Falls Corp.

v. Boyajian (In re Boyajian), 367 B.R. 138, 147 (9th Cir. BAP

2007)). 

Although the bankruptcy court stated that Chou failed to

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establish any of the elements of her claim under § 523(a)(2),

its analysis was primarily directed to whether Brody acted with

fraudulent intent. Chou’s appeal is similarly focused. She

acknowledges that Brody testified at length regarding his

understanding that a broker could not pay a salesperson absent

both a signed contract and possession of that person’s original

real estate license. But, she argues that his explanation was

not credible; so much so that when properly viewed it actually

proves his fraudulent intent. As an initial matter, Chou argues

that the state court Judgment precludes Brody from challenging

the nondischargeability of the debt. Alternatively, she

contends that Brody’s reasons for nonpayment of her commissions

are illogical and implausible because they are legally

incorrect. 

1. The Judgment Did Not Preclude Brody from

Presenting Evidence of his Intent. 

It is well settled that “[p]rinciples of collateral

estoppel apply to proceedings seeking exceptions from discharge

brought under 11 U.S.C. § 523(a).”10 Baldwin v. Kilpatrick

(In re Baldwin), 249 F.3d 912, 917 (9th Cir. 2001)(citing

Grogan, 498 U.S. at 284 n.11)). If a state court judgment

determines the elements necessary to establish an exception to

the debtor’s discharge, the debtor is precluded from contesting

the basis for denial of the dischargeability of that debt. 

10 Collateral estoppel is now referred to as “issue

preclusion.” Yaikian v. Yakian (In re Yaikian), 508 B.R. 175,

182 (Bankr. S.D. Cal. 2014); Lucido v. Superior Court, 51 Cal.3d

335, 341 n.3 (1990).

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In re Diamond, 285 F.3d at 826. 

The preclusive effect of a state court judgment is

determined by application of that state’s laws. Id.;

In re Baldwin, 249 F.3d at 917. California law, therefore,

governs the preclusive effect of the Judgment. For collateral

estoppel to apply, California requires that the issue sought to

be precluded be identical to that previously decided, that the

issue was actually litigated and necessarily decided on the

merits, and that the party to be precluded was the same as, or

in privity with, the party in the prior litigation. Lucido v.

Superior Court, 51 Cal.3d 335, 341 (1990). As a final

requirement, California courts must determine “whether

imposition of issue preclusion in the particular setting would

be fair and consistent with sound public policy.” Khaligh v.

Hadaegh (In re Khaligh), 338 B.R. 817, 824–25 (B.A.P. 9th Cir.

2006), aff'd, 506 F.3d 956 (9th Cir. 2007)(citing Lucido,

51 Cal.3d at 341-43). 

As the party seeking preclusion, Chou “must introduce a

record sufficient to reveal the controlling facts and pinpoint

the exact issues litigated in the prior action.” Kelly v. Okoye

(In re Kelly), 182 B.R. 255, 258 (9th Cir. BAP 1995), aff’d,

100 F.3d 110 (9th Cir. 1996). Any reasonable doubt as to what

was decided for purposes of issue preclusion is resolved against

the moving party. Id. 

 Chou contends that the bankruptcy court erred by

considering Brody’s explanation for Multisource’s nonpayment of

the commissions based on his understanding of California law

governing a real estate broker’s employment of salespersons. 

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She maintains the state court rejected Brody’s defenses because

it entered the Judgment notwithstanding her failure to sign the

Salesperson Contract or provide her original realtor’s license.

There is nothing in the record to establish that the state

court considered, much less decided, why Multisource failed to

pay Chou’s commissions. Originally, Chou asserted a separate

tort claim that Brody hired her without any intent to pay her

the commissions she generated. Neither the Judgment, nor

anything in the record, suggests that she actually litigated

this claim at trial in the state court. Indeed, Chou now

acknowledges that the state court made no findings of fraud in

the 1997 trial. 

Chou has failed to establish that the parties actually

litigated, or the state court necessarily decided, the issue of

Brody’s intent as to the nonpayment of Chou’s commissions. 

Therefore, collateral estoppel does not preclude Brody from

litigating his subjective beliefs and intent before the

bankruptcy court on Chou’s nondischargeability claims.

2. The Bankruptcy Court Did Not Err in Finding that

Brody Lacked the Fraudulent Intent Required to

Except a Debt from Discharge under

§ 523(a)(2)(A).

Because intent to deceive is rarely subject to direct

evidence, creditors must generally rely upon circumstantial

evidence to establish fraudulent intent. Citibank (South

Dakota), N.A. v. Eashai (In re Eashai), 87 F.3d 1082, 1090 (9th

Cir. 1996). For this reason, courts may draw inferences from

the debtor’s actions and the surrounding circumstances. Devers

v. Bank of Sheridan, Montana (In re Devers), 759 F.2d 751, 754

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(9th Cir. 1985); In re Lee, 536 B.R. at 855.

Chou points to the fact that she was not paid her

commissions as proof of Brody’s fraudulent intent. She cites 

Sharma v. Salcido, (In re Sharma), 2013 WL 1987351 (9th Cir. BAP

May 14, 2013), in support of the proposition that “intent to

deceive may be inferred if a debtor takes no steps to perform

under a contract.” Id. at *10. In In re Sharma, the debtor

promised an investor a 20% return on monies invested with him

for the purpose of refurbishing and selling houses. Although

some interest was paid, the debtor never worked on the houses to

be sold, and let them go to waste. From this, the BAP held that

the bankruptcy court did not err in its determination that the

debt was nondischargeable under § 523(a)(2)(A), concluding that

“[a]lthough there may be other permissible views of the

evidence, [the debtor] has put forth none that render this view

clearly erroneous.” Id. at *13 (citing Anderson, 470 U.S. at

574).

In re Sharma demonstrates Chou’s burden to establish clear

error. While nonpayment of her commission could support an

inference of fraudulent intent, it does not compel such a

conclusion. This determination was for the trial court to make

based upon Brody’s testimony and its measure of his credibility. 

It found his explanation to be credible. To prevail on appeal,

Chou must point to evidence that contradicts Brody’s testimony,

or suggests that “the story itself [is] so internally

inconsistent or implausible on its face that a reasonable

factfinder would not credit it.” Anderson, 470 U.S. at 575.

Chou contends that Brody’s explanations are a sham,

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unsupported by California law. She cites Grant v. Marinell,

112 Cal.App.3d 617, 619 (1980), to show that California’s

statute of frauds does not bar oral contracts to share

commissions between brokers, or between brokers and

salespersons. Grant establishes that a salesperson may recover

commissions under an oral contract with a broker. Grant does

not, however, negate the licensing requirements imposed by the

California Code of Regulations, which mandate that a real estate

broker “shall have a written agreement with each of his

salesmen.”11 Cal. Code Regs. tit. 10, § 2726. The regulations

further require that the written contract be dated and signed by

the parties, and cover the “material aspects of the relationship

between the parties, including supervision of licensed

activities, duties and compensation.”12 Id. 

11 One treatise has reconciled the requirement for a written

agreement between brokers and salespersons with the right to

recover on oral agreements as follows:

The regulations of the Real Estate

Commissioner require that the salesperson’s

employment agreement must be in writing, but

the Real Estate Law does not specifically

provide that an oral agreement between a

broker and salesperson is unenforceable. 

Therefore, while the absence of the required

written agreement may subject the broker to

discipline by the Real Estate Commissioner,

the oral agreement for compensation remains

enforceable between the parties. 

Miller and Starr, 2 Cal. Real Estate § 5:15 (4th ed. Dec. 2016

update).

12 Similarly, California’s Labor Code § 2751(a) requires

employers who use employees compensated through commissions to

(continued...)

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Although Brody signed Chou’s handwritten document, it is

undated and fails to cover the material aspects of her

employment by Multisource. California’s regulatory requirements

support Brody’s understanding regarding the need for a signed

Salesperson Agreement as well as Addendum A. They also explain

his testimony as to why he believed the lack of a date on Chou’s

handwritten document was significant. 

As for Brody’s understanding that a salesperson must

provide her broker with an original license, he specifically

referenced “§ 10160” as the basis for this requirement during

his testimony at trial. This section provides:

The real estate salesman’s license shall

remain in the possession of the licensed

real estate broker employer until canceled

or until the salesman leaves the employ of

the broker, and the broker shall make his

license and the licenses of his salesman

available for inspection by the commissioner

or his designated representative.

California Bus. & Prof. Code § 10160. It is also “unlawful” for

a licensed real estate broker to employ or compensate any

unlicensed brokers or salespersons. Cal. Bus. & Prof. Code

§ 10137. Both statutes provide for the suspension or revocation

of the real estate license for violations. Cal. Bus. & Prof.

Code §§ 10160 and 10137. California’s regulatory scheme

governing real estate agents supports Brody’s understanding that

real estate brokers must verify and hold the license of a

salesperson before compensating that person, or face serious

12(...continued)

have a written contract that “shall set forth the method by which

the commissions shall be computed and paid.”

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consequences.

Chou argues that Brody’s explanation is merely a cover for

keeping her commissions. This is one possible inference to be

drawn from his testimony. Alternatively, one may infer that

Brody sincerely, but erroneously, believed that Multisource

could not pay her commissions until Chou complied with

applicable state laws and regulations. Which of the competing

inferences to make was for the bankruptcy court to decide,

taking into account credibility issues and observation of the

witnesses uniquely available at the trial. That court chose to

credit Brody’s testimony and explanation. Chou’s disagreement

with that determination and the resulting inference is

insufficient, by itself, to overcome the considerable deference

given to the bankruptcy court. Anderson, 470 U.S. at 574; see

also Rodriquez v. Holder, 683 F.3d 1164, 1171 (9th Cir. 2012). 

Brody’s explanation for why Multisource did not immediately pay

Chou her commissions is neither illogical, nor implausible. 

Chou fails to point to any other evidence or inconsistency

within the record to support her contention that the bankruptcy

court clearly erred in determining that Brody lacked fraudulent

intent. To the contrary, the remainder of the evidence

presented at trial is consistent with both Brody’s explanation

and the court’s finding that he lacked fraudulent intent. 

First, the Salesperson Contract presented to Chou specifically

detailed the proposed calculation of commissions, the duties of

the parties, was to be dated, and required signatures of both

parties. The agreement tracks Brody’s understanding that

California law required the parties to sign a detailed, written

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contract. 

Second, Chou never testified that she rejected the

Salesperson Contract. Rather she stated only that she was

uncomfortable with it and wanted more information. This

suggests that both parties acknowledged the need for a more

detailed, written contract despite the signing of her

handwritten document. The fact that the state court credited

deductions against Chou’s claimed commissions further indicates

that the handwritten document did not encompass all the

contractual terms of the parties’ relationship. 

Third, Multisource, acting through Brody, did pay Chou one

commission despite not having an executed Salesperson Contract. 

Brody explained that he approved the payment only after he

discovered that Chou had improperly paid a client for closing

costs. Brody discussed the situation with Chou and obtained

assurances that she would not directly pay clients in the

future. His testimony on this point is uncontradicted, and

demonstrates a significant attempt to work with Chou, rather

than defraud her. 

Most importantly, Brody testified that due to the problems

with Chou’s files Multisource could not determine the expenses

to be deducted from the gross commissions on Chou’s loans. The

amounts actually due to Chou were not determined until the state

court trial; and then her net commissions were reduced by

roughly $19,000.00. 

Tellingly, the state court declined to award interest on

the net commissions awarded to her. Under Cal. Civ. Code

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3287(a),13 interest is recoverable on “damages certain, or

capable of being made certain by calculation,” from the time the

right to recover is vested. The state court’s denial of

interest on Chou’s claims further supports Brody’s argument that

the amounts of the commissions owed were not ascertainable until

trial. 

Brody’s explanation as to why Multisource did not pay Chou

is both consistent with the other evidence admitted at trial,

and supported by California’s statutes and regulations governing

a real estate broker’s employment of salespersons. The

bankruptcy court’s reliance on that explanation to find that

Brody acted in good faith and without fraudulent intent is well

supported. Chou’s view to the contrary does not render this

finding clearly erroneous. 

B. The Court Did Not Err by Dismissing Appellant’s

§ 523(a)(6) Claim.

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

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

13 The version of Cal. Civ. Code § 3287(a) in effect in

1992, when the Judgment was entered, provided:

Every person who is entitled to recover damages

certain, or capable of being made certain by

calculation, and the right to recover which is vested

in him upon a particular day, is entitled also to

recover interest thereon from that day, except during

such time as the debtor is prevented by law, or by the

act of the creditor from paying the debt. This section

is applicable to recovery of damages and interest from

any such debtor, including the state or any county,

city, city and county, municipal corporation, public

district, public agency, or any political subdivision

of the state.

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property of another entity.” 11 U.S.C. § 523(a)(6). To

establish a claim under § 523(a)(6), the creditor must prove

“not only that the debtor acted willfully, but also that the

debtor inflicted the injury willfully and maliciously rather

than recklessly or negligently.” Petralia v. Jercich

(In re Jercich), 238 F.3d 1202, 1207 (9th Cir. 2001)(citing

Kawaauhau v. Geiger, 523 U.S. 57, 64 (1998)(emphasis in

original)). “Willful” and “malicious” are separate components;

both must be found to except a debt from discharge under

§ 523(a)(6). In re Su, 290 F.3d at 1146.

As with actions under § 523(a)(2)(A), “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, 1154 (9th Cir. 1992). 

The Ninth Circuit requires “[s]omething more than a knowing

breach of contract . . . before conduct comes within the ambit

of § 523(a)(6),” and has “defined that ‘something more’ as

tortious conduct.” Lockerby v. Sierra, 535 F.3d 1038, 1041 (9th

Cir. 2008); see also In re Riso, 978 F.2d at 1154. Whether

conduct is tortious depends upon state law. Lockerby, 535 F.3d

at 1041-42. To prevail on her § 523(a)(6) claims, therefore,

Chou must prove a tortious breach of contract that resulted in a

willful and malicious injury. Id. 

Evaluating Chou’s § 523(a)(6) claim, the bankruptcy court

again focused on Brody’s belief that Multisource could not pay

Chou her commissions until she signed the proposed form contract

and provided her license. The bankruptcy court properly

recognized that a willful injury is shown only if the creditor

proves “either a subjective intent to harm, or a subjective

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belief that harm is substantially certain.” In re Su, 290 F.3d

at 1144. It reemphasized that “[r]egardless of whether

[Brody’s] understanding of state law was correct, there was a

good faith disagreement as to whether Chou was entitled to be

paid.” For this reason, the court found that Brody did not

subjectively intend to harm Chou, nor did he believe that harm

was substantially certain. 

Chou does not distinguish between subjective intent to harm

and a subjective belief that injury was substantially certain. 

She simply argues that the bankruptcy court erred by crediting

Brody’s explanations for Multisource’s decision not to pay

commissions to her. As explained above, however, the bankruptcy

court’s findings as to Brody’s subjective beliefs and intent

were neither implausible, nor illogical, and were supported by

the record. That another trier of fact might draw different

inferences from Brody’s testimony does not render the bankruptcy

court’s factual finding clearly erroneous. Lewis v. Ayers,

681 F.3d at 999-1000. Such findings support the bankruptcy

court’s determination that Brody lacked a subjective intent to

harm Chou. 

Chou also argues that damages from a breach of contract

were substantially certain and, therefore, Brody must have known

that withholding the commissions would injure her. This

argument, however, strays beyond the subjective inquiry required

under In re Su, 290 F.3d at 1145-46. The intent to injure is

not measured objectively, by what a reasonable person should

have known, or understood, to be substantially certain. Id. at

1145. For this reason, “recklessly inflicted injuries do not

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satisfy the § 523(a)(6) willfulness requirement.” Plyam v.

Precision Dev., LLC (In re Pylam), 530 B.R. 456, 464 (9th Cir.

BAP 2015). It is the debtor’s actual, subjective state of mind

that is dispositive. In re Su, 290 F.3d at 1145-46. Even when

evaluating whether a debtor had actual knowledge that harm was

substantially certain, the focus remains “on what was actually

going through the mind of the debtor at the time he acted.” Id.

at 1146 n.6. 

 Brody subjectively believed that state law prohibited

payment of Chou’s commissions until Multisource received the

signed form contract and license from her. As recognized by the

bankruptcy court, his legal analysis may have been faulty, but

that does not equate to a subjective belief of certain harm. 

Multisource’s failure to pay Chou her commissions was attributed

to Brody’s efforts to comply with state law rather than a

willful refusal to pay outstanding commissions. As credited by

the bankruptcy court, Brody necessarily lacked the subjective

belief that harm to Chou was substantially certain; in his view

she was not entitled to payment of those commissions until she

complied with California law. Chou failed to prove that Brody

had a subjective belief that nonpayment was substantially

certain to injure her for purposes of establishing a willful

injury to support her claim under § 523(a)(6). 

Because a willful injury has not been established, analysis

of the other two elements of her § 523(a)(6) claim – whether

Brody tortiously breached any contractual obligations under

California law, or whether such conduct resulted in malicious

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injury – is unnecessary.14

CONCLUSION

The bankruptcy court found that the failure to pay Chou was

borne of a good faith misunderstanding of controlling law rather

than any wrongful refusal to pay her. Its finding negated any

intent to defraud or to willfully injure Chou. Despite her

continued disagreement with these findings, the bankruptcy

court’s findings, and the resulting decision, are neither

illogical, nor implausible. Moreover, the remainder of the

record supports denial of Chou’s claims under §§ 523(a)(2) and

(a)(6). We perceive no clear error in the bankruptcy court’s

decision. It is, therefore, AFFIRMED.

14 Chou argues that the Ninth Circuit’s decision in Petralia

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

requires reversal of the bankruptcy court’s decision. In

Jercich, an unpaid employee sought to hold his prepetition

judgment for unpaid wages nondischargeable under § 523(a)(6). 

The debtor in Jercich was found to have willfully refused to pay

outstanding wages while having the clear ability to do so. 

Instead, the debtor diverted the monies for his personal benefit,

leading the state court to find that he had committed oppression

under California Civil Code § 3294, warranting an award of

punitive damages. Based on those particular circumstances, the

debtor’s nonpayment of wages was found to constitute tortious

conduct resulting in willful and malicious injury. Here,

however, the state court made no findings of oppression, and no

punitive damages were awarded. There were also substantial

issues regarding the calculation of Chou’s commissions, resulting

in sizeable credits against the amounts she claimed were due her. 

Thus, unlike Jercich, Chou’s state court Judgment did not

dispositively resolve the elements of her claim under

§ 523(a)(6). The bankruptcy court did not address whether there

was tortious conduct or a malicious injury because Chou failed to

prove a willful injury, and we agree that this failure of proof

moots the need to make a finding on these other elements of

§ 523(a)(6).

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