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FILED

DEC 09 2016

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NOT FOR PUBLICATION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-16-1104-KiFD

)

ROBERT LEONARD KAPLAN, ) Bk. No. 2:11-bk-60249-RK

)

Debtor. ) Adv. No. 2:12-ap-01415-RK

 )

)

ROBERT LEONARD KAPLAN, )

)

Appellant, )

)

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

)

RENEWABLE RESOURCES COALITION,)

INC.; ARTHUR HACKNEY; )

HACKNEY & HACKNEY, Inc., )

)

Appellees. )

______________________________)

Argued and Submitted on November 17, 2016, 

at Pasadena, California

Filed - December 9, 2016

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Robert N. Kwan, Bankruptcy Judge, Presiding

 

Appearances: Leslie A. Cohen argued for appellant Robert Leonard

Kaplan; Stephen W. Cusick of Nielsen, Haley &

Abbott LLP argued for appellees Renewable Resources

Coalition, Inc., Arthur Hackney and Hackney &

Hackney, Inc.

 

1 This disposition is not appropriate for publication. 

Although it may be cited for whatever persuasive value it may

have, it has no precedential value. See 9th Cir. BAP Rule 8024-1.

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Before: KIRSCHER, FARIS and DUNN,2 Bankruptcy Judges.

Appellant Robert Leonard Kaplan ("Debtor") appeals a judgment

determining that the debt of appellees was nondischargeable under

§ 523(a)(4) and (a)(6).3 The bankruptcy court applied issue

preclusion to a prepetition arbitration award obtained by

appellees and found that it and certain undisputed facts in the

record established the elements of both claims. Thus, the court

granted appellees summary judgment. Debtor also appeals the order

denying his cross-motion for summary judgment and the order

denying his motion to dismiss appellees' second amended complaint. 

We AFFIRM the judgment entered pursuant to § 523(a)(6).4

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

A. Prepetition events

1. Events leading up to the arbitration 

The instant dispute arises out of an arbitration award in

which Debtor's corporation was found to have misappropriated

Appellees’ confidential client documents by selling them to their

2 Hon. Randall L. Dunn, Bankruptcy Judge for the District of

Oregon, sitting by designation.

3 Unless specified otherwise, all chapter, code and rule

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

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

Federal Rules of Civil Procedure are referred to as "Civil Rules."

4 Debtor, not through counsel, filed a letter, dated

December 1, 2016, in this appeal, which is identified as

Document 24. Debtor requests that the Panel consider his letter

as a Request for Judicial Notice, although it appears to provide

facts and argument. At oral argument, the Panel did not request

Debtor to file any post-argument submission or any other document. 

The Panel declines to consider Debtor’s Document 24, given that

the appeal was deemed submitted for decision on November 17, 2016,

and Debtor, through counsel, had the opportunity to present his

argument through written and oral presentations based on the

submitted record.

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opponents. Debtor is a professional fund-raiser in California for

political campaigns. Fund Raising, Inc. ("FRI") is a California

corporation through which Debtor conducted his fund-raising

business. Debtor is the president, sole shareholder and sole

employee of FRI. Appellee Renewable Resources Coalition, Inc.

("RRC") is a non-profit corporation based in Alaska. It conducts

education, research, publicity and fund-raising efforts in

opposition to the proposed development of Pebble Mine – a large,

open pit mine in Alaska. Appellee Arthur Hackney is a political

consultant who helped manage the campaign in opposition to Pebble

Mine. Appellee Hackney & Hackney, Inc. is a corporation through

which Hackney conducts his political consulting business

("Hackney," together with RRC, "Appellees").

In April 2008, FRI executed a Consulting Agreement with RRC,

Hackney and others to provide fund-raising services for RRC's

anti-Pebble campaign, which included a high-profile campaign in

support of an Alaskan ballot initiative known as the Clean Water

Initiative. The Consulting Agreement did not name Debtor as a

party, but he did sign it for and on behalf of FRI. Debtor/FRI

was copied with the campaign's internal correspondence so that his

pitch for donations would accurately track the arguments being

asserted elsewhere in the campaign. Because FRI was paid a

commission on amounts donated, Debtor/FRI was also provided copies

of RRC's bank deposit records, showing donations to RRC and the

name of the person or entity making the donation. RRC also

provided Debtor/FRI with RRC's donor and membership lists for

purposes of solicitation. RRC considered its donation and

membership information to be highly confidential and expressed

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this to staff and board members. 

Under the Consulting Agreement, FRI agreed that it would,

"with respect to any information designated by Client or its

member organizations as confidential, hold such information in

confidence and use same only in connection with the services

provided hereunder." Debtor testified that he was a member of the

Board of Directors of the American Association of Political

Consultants, and considered himself bound by its Code of Ethics,

which provides, in part:

I will respect the confidence of my clients and not

reveal confidential or privileged information obtained

during our professional relationship.

Ultimately, the Clean Water Initiative failed in the August 2008

election, thereby paving the way for the Pebble Mine project to

continue. 

Unhappy with FRI's fund-raising efforts, board member Richard

Jameson, on behalf of RRC and the other parties to the Consulting

Agreement, emailed Debtor/FRI in September 2008 to advise that

they were electing to terminate the Consulting Agreement effective

October 4, 2008. In response, Debtor on behalf of FRI sent two

emails on October 1 and 30, 2008. In the October 1 email, Debtor

asserted that amounts remained due under the contract and stated

that the parties needed "a simple resolution" of his claim given

"all the focus on Alaska by the national media and all those

reporters running around looking for almost anything interesting

to write about" and "APOC’s5 review of the campaign's finances 

. . . ." In the October 30 email, Debtor quoted a number of

5 APOC, the Alaskan Public Officials Commission, is a state

regulatory body that oversees campaign finance issues in Alaska.

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internal campaign communications and suggested that RRC was set up

illegally to "veil contributors" or as a "pass through" for

contributions from Bob Gillam (a significant contributor to the

campaign effort). Debtor further referred to "anonymous

discussions with APOC" that suggested that RRC's position was

"problematic." 

2. The arbitration and APOC proceeding

a. FRI files the demand for arbitration. 

In October 2008, FRI initiated an arbitration proceeding as

provided in the Consulting Agreement. FRI asserted several claims

against RRC, Jameson and others. Retired Judge G. Keith Wisot

presided over the matter. 

While the arbitration action was pending, in early January

2009, California attorney Allan Kaplan, Debtor's brother, acting

as counsel for Debtor and FRI, contacted Alaska attorney Thomas

Amodio, who had represented Pebble Mine interests during the

campaign. Amodio confirmed that the topic of the initial contact

concerned reaching some agreement by which Amodio's Pebble clients

might acquire documentation with which to pursue an APOC complaint

for violations of campaign finance laws against opponents Gillam,

RRC and Americans For Job Security.6

Debtor on behalf of FRI met with Amodio in California on

February 2, 2009, to show Amodio documents FRI had obtained in its

work for the non-profits opposing the Pebble Mine. Amodio did not

6 Amodio had filed a prior APOC complaint against these

anti-Pebble Mine parties, but the complaint was dismissed due to

lack of evidence. However, Amodio believed the internal documents

Debtor/FRI acquired while working as a fund-raiser for RRC would

vindicate that complaint.

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recall any discussion of the merits of the arbitration; to Amodio,

the whole point of the meeting was to raise Amodio's clients'

interest in the documents held by Debtor/FRI. At that meeting,

Debtor on behalf of FRI asked Amodio whether he could provide FRI

with either legal representation in the California arbitration

proceeding or financial support for the arbitration.7

At some point in February 2009, before a second meeting with

Debtor on March 1, 2009, both Amodio and Matthew Singer — a second

Alaska attorney whose firm also represented Pebble Mine interests

– told Debtor they would not represent FRI in the California

arbitration. In an email to Debtor dated February 23, 2009,

Amodio confirmed that no ongoing attorney-client relationship

existed between him and Debtor or FRI, but Amodio did confirm that

the documents Debtor showed him on February 2 remained

confidential and protected by the attorney-client privilege,

because FRI had approached him for purposes of seeking legal

advice. 

In February 2009 phone discussions with Singer, Debtor on

behalf of FRI asked for $450,000 for the documents; Singer offered

7 A February 23, 2009 email from Debtor/FRI to Amodio

appears to reveal that Debtor/FRI also sought Amodio's assistance

for filing their own APOC complaint against FRI's former clients. 

This email contained a draft letter authored by Debtor to a John

Shively, a Pebble entity officer, regarding the RRC documents FRI

had in its possession. In what seems to be Debtor's seeking of

approval from Amodio for the content of the letter, Debtor's

proposed pitch to Shively was: 

You can evaluate the millions of dollars in campaign and

other costs to be saved in the next few years if you are able

to call attention to the actions of your opponents through an

APOC complaint. You know these same opponents caused you and

your colleagues to spend many millions of campaign and public

education dollars to protect your interests.

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$34,000; they agreed to $50,000. 

On March 1, 2009, Debtor on behalf of FRI met with Alaska

attorneys Amodio and Singer in California. Debtor had organized

the documents with tabs identifying what he thought were various

violations of Alaska campaign laws. During the meeting, Amodio,

at Singer’s request, removed from the set of documents any that

were marked as "confidential." The $50,000 check Singer gave to

Debtor was documented in an engagement letter with Singer's firm

as a fee for FRI to be a consulting expert in the case Singer

would file with APOC. Debtor signed the engagement letter; Singer

took with him the documents not marked confidential, including

donor lists, bank account information and contact lists obtained

from RRC. 

b. The APOC Complaint is filed.

In March 2009, Singer filed a complaint before APOC on behalf

of the Pebble parties against RRC, Gillam and others. The gist of

the charge was that the non-profits, including RRC, had been set

up or used to shield from public view the fact that substantial

contributions in support of the Clean Water Initiative were being

made by Gillam, whose home is near Pebble Mine. The APOC

Complaint stated in a footnote that "the exhibits [attached to the

complaint] marked as 'Doc #000001—000132' were provided by Robert

Kaplan, who has served as a consultant in this matter." 

Jameson recognized the 132 exhibits to the APOC Complaint as

RRC documents provided to Debtor on behalf of FRI during FRI’s

retention, which included multiple internal campaign planning

communications. The exhibits also included bank deposit detail

from RRC for April through July 2008, which were unredacted and

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showed the names of all contributors, be they members or donors to

RRC, during that time and the amounts of contributions.

Ultimately, the APOC matter was settled, as memorialized in a

Consent Decree filed in February 2010. All charges against

Hackney were dismissed for lack of a legal and factual basis. The

remaining respondents agreed to pay $100,000 to the State of

Alaska, which was half of the investigation cost. The Consent

Decree recited that it "shall not constitute a formal finding on

the merits of the complaints or of any other violation of any

statute," and that "nothing [in it] constitutes any acknowledgment

of any wrongdoing by any party." 

c. Counterclaims filed in the arbitration

As a result of Debtor/FRI's sale of FRI's former clients'

documents to its political opponents, RRC brought four

counterclaims in the arbitration against both Debtor and FRI,

alleging professional negligence, breach of contract, interference

with prospective economic advantage, and unjust enrichment. 

Hackney brought similar counterclaims. RRC and Hackney alleged

they suffered damages as a result of Debtor and FRI's actions,

including loss of income, loss of grants, loss of public support

and great public embarrassment. Although RRC and Hackney named

Debtor individually as a counter-respondent, the arbitrator ruled

that as a nonparty to the Consulting Agreement, which governed the

arbitration, Debtor could not be made a party to the arbitration,

and respondents had not sufficiently alleged any alter-ego theory

to order a nonparty to participate in arbitration. 

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d. Discovery, briefing and pretrial orders in the

arbitration

During his deposition, Debtor testified that he had met on

behalf of FRI with Alaska attorneys Amodio and Singer in late

February or early March 2009, before the APOC Complaint was filed,

but only to determine whether those attorneys might either

represent FRI in its arbitration or help cover the cost of that

litigation. Debtor testified on behalf of FRI that Singer gave

him a check made payable to FRI on Singer’s law firm’s account for

$50,000 at the meeting for the sole purpose of helping cover FRI's

costs in prosecuting the arbitration. Debtor further testified:

• he never conveyed any documents to Singer in exchange for the

$50,000, nor did he authorize release of those documents to

Singer’s firm;

• he did not know how his client’s documents got into APOC’s

hands and wound up as exhibits to the APOC Complaint; and

• he did not know why he was described in the APOC Complaint as

a consultant, because he was never paid anything as a

consultant and he never authorized anyone to so describe him.

Allan, Debtor's brother and attorney representing Debtor and FRI,

gave similar testimony.

In August 2010, the arbitrator entered "Order #2," wherein he

made various findings, including that no attorney-client privilege

existed between Debtor and FRI and the Alaska attorneys based on

the crime-fraud exception. The arbitrator also found that in the

months leading up to March 4, 2009, Debtor on behalf of FRI and

Allan, in efforts to settle the fee dispute in the arbitration,

repeatedly threatened the arbitration respondents with the

following statements: "that all respondents had conspired to

violate Alaska election laws;" "that this information, if it

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became known to [APOC], would result in great embarrassment and

possible ethics investigations of the entities and individuals

involved;" that Debtor and Allan "had talked with a

politically-motivated attorney (Amonio) [sic] who represented

mining interests and were adverse to respondents in the 2008

campaign concerning Pebble Mine;" which attorney "would love to

use the damaging email correspondence from FRI’s campaign to

further prosecute election law violations;" that "Mr. Gillam, the

primary contributor to the Pebble Mine campaign, had 'a lot of

reasons' why he would not want the FRI emails to be made public;"

and that the Kaplans' terms for settlement better "be accepted, or

[those] dire consequences . . . would follow." Many of the

arbitrator's findings here were based on an exhibit submitted by

RRC, which consisted of a March 4, 2009 email drafted by RRC

attorney, Tung Khuu, reflecting his contemporaneous notes as to

what happened earlier that day in a settlement negotiating meeting

with Allan and Debtor/FRI. This exhibit has been referred to as

"Exhibit X" and was offered in support of Appellees' motion for

summary judgment. The arbitrator's findings made in Order #2 were

later incorporated into the final award. 

e. The final arbitration award

The arbitrator issued his Final Award ("Arbitration Award")

on January 6, 2012, just after Debtor filed his bankruptcy case. 

In support of his decision that RRC had proven claims for 

(1) conversion, (2) misappropriation of trade secrets and (3)

unjust enrichment, the arbitrator found that RRC's donor lists,

email listings and bank information were trade secrets and were

specifically discussed with Debtor as highly confidential

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information by Jameson. When Debtor sold the proprietary

information of his clients, he breached his fiduciary duties and

the duty of loyalty inherent in his Consulting Agreement, which

duties continued after the contract termination. The arbitrator

rejected FRI's argument that the confidentiality clause in its

Consulting Agreement provided confidentiality only to documents

"marked confidential" by the client.

In addition, the arbitrator found that Debtor committed

perjury in the arbitration on at least three material topics;

Allan was intentionally untruthful in his testimony with respect

to one topic. Specifically, the arbitrator found that Debtor on

behalf of FRI and Allan were each intentionally untruthful in

their hearing testimony and depositions regarding their reasons

for contacting attorneys Amodio and Singer and the purpose for

meeting them. Both asserted that their purpose was to seek legal

representation for the arbitration. Debtor, on behalf of FRI,

continued to so assert even with respect to the March 1, 2009

meeting, after the Alaskan attorneys had already made it clear in

February that neither of their firms would do so. 

The arbitrator found that not only should Debtor, advised by

his attorney brother Allan, know that sharing documents with

counsel for clients adverse to FRI's former clients was not a

report to the proper authorities, but Debtor persisted to the

point of committing perjury in the falsehood that he had contacted

Amodio and Singer for representation in the arbitration and

engaged in privileged discussions with them. Thus, found the

arbitrator, the purpose of the meetings was not to consult counsel

for representation in the arbitration, but rather to pursue

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Debtor’s threats to expose Gillam and the arbitration respondents

to public and regulatory review and attempt extortion in ongoing

settlement talks. 

The arbitrator found that Debtor had also committed perjury

in testifying he was "surprised" at being listed as a consultant

for Singer and the Pebble parties in the APOC Complaint. Debtor

on behalf of FRI had received, modified, returned and signed an

engagement letter to act in precisely that capacity and had so

acted by spending several hours reviewing the documents with

Singer. The arbitrator found that this evidence supported

respondents' defense of unclean hands and also established their

causes of action for breach of fiduciary duty, interference with

prospective economic advantage and unjust enrichment. 

Damages were assessed against FRI as follows: the arbitrator

awarded RRC (1) $50,000 for unjust enrichment (the amount FRI

received for its misappropriation of RRC's confidential

documents), (2) the $3,169 RRC spent in attorney's fees to redact

documents in trying to salvage confidentiality after they were

delivered to APOC, (3) $386,330 for a lost grant caused by the

impact of the APOC Complaint and public investigation, as reported

in the Alaska press and other public communications, and 

(4) $156,804 for attorney's fees and $32,704 for expenses incurred

in the arbitration as a prevailing party enforcing the terms of

the Consulting Agreement; Hackney was awarded (1) $1,011,681.68

for lost clients and revenues "resulting from the APOC Complaint

with its FRI documents" and $56,120.30 for the attorney's fees

incurred in responding to the APOC investigation (for total

compensatory damages of $1,070,301.98), and (2) $675,758.76 for

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attorney's fees and $69,768.77 for expenses incurred in the

arbitration as a prevailing party enforcing the terms of the

Consulting Agreement. 

The arbitrator also awarded RRC and Hackney each $1,000,000

for punitive damages, "arising from the tort causes of action, and

perjury of FRI/Kaplan." Thus, RRC was awarded a total of

$1,628,977; Hackney was awarded a total of $2,815,829.51. These

amounts were doubled per the Consulting Agreement when FRI failed

to pay within 30 days. 

FRI's efforts to vacate the Arbitration Award failed. The

federal district court confirmed the Arbitration Award on July 31,

2012. The Arbitration Award is final.

B. Postpetition events

Debtor filed his chapter 7 bankruptcy case on December 9,

2011. He listed his 100% ownership interest in FRI in his

Schedule B with a value of $0. He also listed FRI's debts owed to

RRC and Hackney in his Schedule F. 

Appellees filed their first amended complaint ("FAC") against

Debtor on July 31, 2012, seeking to except the Arbitration Award

debt from discharge under § 523(a)(4) – for defalcation while

acting in a fiduciary capacity – and § 523(a)(6).8 Debtor's

answer denied generally Appellees' allegations. 

8 The original complaint for these same claims was filed on

March 19, 2012.

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1. Appellees' motion for summary judgment and Debtor's

cross-motion for summary judgment9

a. The initial briefing on the cross-motions

Appellees moved for summary judgment on their § 523(a)(4) and

(a)(6) claims on April 15, 2013, on the basis of issue preclusion,

contending that Debtor was precluded from relitigating the

arbitrator's findings ("MSJ"). Appellees contended that privity —

an element for purposes of issue preclusion — was the basis for

which the bankruptcy court could impose personal liability for the

Arbitration Award on Debtor. 

Even though Appellees had pleaded in the FAC a claim under 

§ 523(a)(4) based on Debtor's alleged defalcation, they now argued

that the Arbitration Award established a § 523(a)(4) claim for

embezzlement.10 Appellees contended the following findings by the

arbitrator supported their claims:

• that Debtor actively identified, sought out and expressly

induced the Alaska lawyers for his clients' opponents to

purchase the confidential documents for use against his

clients;

• that Debtor had demonstrated awareness that the documents

were proprietary and that his acts were wrongful by the

extraordinary lengths to which he and his brother went to

avoid detection of the fact that they had transferred those

documents to those opponents at all. Such efforts included:

9 The parties filed no less than 25 briefs in connection

with their cross-motions for summary judgment, Appellees' motion

for leave to amend the FAC and Debtor's motion to dismiss

Appellees' second amended complaint. We focus on those issues

still relevant to this appeal.

10 Appellees conceded that a fund-raiser/client relationship

might not rise to a level of a formal fiduciary relationship

needed to support a finding of "defalcation while acting in a

fiduciary capacity." Embezzlement, on the other hand, does not

require a fiduciary relationship between the parties. Bullock v.

BankChampaign, N.A., 133 S. Ct. 1754, 1760 (2013).

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• setting up a bogus claim to attorney-client privilege to

shield the transfer, by including in the discussions an

illogical request that Alaskan lawyers represent FRI in

an arbitration in Los Angeles under California law;

• falsely testifying that they contacted those Alaskan

attorneys solely for the purpose of obtaining such

representation, or a contribution to their fight against

now-common opponents; 

• meeting those lawyers surreptitiously, without FRI's

clients’ knowledge or permission, and transferring the

client documents to them for $50,000; and

• falsely testifying (i) that Debtor never transferred the

documents to the clients’ opponents, (ii) that they had

no knowledge how those documents came to appear as

exhibits to the APOC Complaint, and (iii) that Debtor

had never agreed to become a consultant for the Pebble

parties.

Appellees contended the awards for attorney's fees and expenses

and punitive damages were also excepted from discharge.11

Debtor opposed the MSJ. He disputed Appellees' privity

argument as a means to hold him personally liable for the

Arbitration Award. Alternatively, Appellees had not pleaded a

claim for embezzlement in the FAC, but rather for defalcation. 

Thus, argued Debtor, they could not have summary judgment on an

unpleaded claim. Debtor's statement of genuine issues filed in

support of his opposition did not respond to Appellees' fortythree proffered uncontroverted facts as required under Local Rule

7056-1(b)(2), but rather raised thirty separate issues of his own

that he believed were in dispute. 

In reply, Appellees noted that none of their forty-three

11 Appellees conceded that only the single award of damages

of $4,444,806.51 was nondischargeable as opposed to the doubled

amount of $8,889,613.02, since the doubling was the result of

FRI's nonpayment within 30 days as required under the Consulting

Agreement and not the result of Debtor's tortious conduct.

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proffered uncontroverted facts had been disputed by Debtor. As

for embezzlement, Appellees argued they had pleaded all of the

facts on which they now based their embezzlement claim in the

original complaint and FAC, even though they had not specifically

alleged that the facts showed "embezzlement" under the alternative

ground set forth in § 523(a)(4). Appellees argued, under the rule

of notice pleading, that the same alleged facts could constitute

embezzlement would not have been a surprise to Debtor's

experienced bankruptcy counsel. 

At the first hearing on the MSJ, the bankruptcy court decided

to defer ruling on it and to grant Debtor's request for more time

for limited discovery, considering the large dollar amount being

sought against him and the parties' dispute regarding privity and

the applicability of issue preclusion.

After taking further discovery (depositions of Hackney,

Gillam and Jameson), Debtor filed his own motion for summary

judgment and statement of uncontroverted facts containing

112 proffered facts ("Cross-MSJ"). Debtor contended he was

entitled to summary judgment on Appellees' claim under § 523(a)(4)

for defalcation in a fiduciary capacity, a legal theory which

Appellees were no longer pursuing. Debtor contended he was also

entitled to summary judgment on Appellees' § 523(a)(6) claim;

Appellees had provided no evidence that it was Debtor's specific

intention to cause the harms alleged by Appellees. At best,

argued Debtor, the arbitrator's findings established only a

deliberate act of turning over documents which eventually led to

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the APOC Complaint which "allegedly"12 harmed RRC and Hackney's

business. Debtor also contended he was entitled to summary

judgment because no Appellee could identify any actions by Debtor

that caused them harm and no evidence existed to support recovery. 

At minimum, Debtor contended he was entitled to summary judgment

on all claims as to Hackney because Hackney's deposition testimony

demonstrated that the dischargeability action was proceeding

without his knowledge or involvement. 

Appellees opposed the Cross-MSJ, responding to each of

Debtor's 112 proffered uncontroverted facts. Appellees argued

that Hackney's involvement, or lack thereof, in the

dischargeability action did not matter; his underlying claims

against Debtor at issue had already been litigated to a final

judgment. As for Debtor's assertion that no Appellee could

identify any actions by Debtor that caused them harm, the action

by Debtor — selling his clients' documents to his clients'

opponents for use against them for $50,000 — had been litigated,

adjudicated, found to have happened, and confirmed in a final

judgment. Moreover, much evidence existed to support Appellees'

claims: the same evidence that was submitted in the arbitration. 

Nonetheless, Debtor was still stating, under oath, things already

found to constitute perjury by him, or that were opposite of what

the evidence showed and what was adjudicated: (1) that he only

contacted the Alaskan attorneys for representation in the

12 Debtor continues to use the words "alleged" or "allegedly"

throughout his brief on appeal. However, with respect to findings

made by the arbitrator, those findings are no longer "alleged" but

proven and are final and cannot now be disputed. Neither can

Debtor dispute the uncontroverted facts established in the summary

judgment proceeding before the bankruptcy court.

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arbitration; (2) that he never served as a consultant for Singer

or the Pebble parties; and (3) that he never released documents

designated as confidential. Appellees contended that Debtor was

not entitled to summary judgment on either claim in the FAC,

because the evidence clearly established both claims, particularly

Debtor's intent to injure. 

In reply, Debtor disputed that issue preclusion applied: 

(1) the issues in the two proceedings were different; (2) the

issues presented here were not actually litigated or necessarily

decided in the arbitration; and (3) Debtor was not in privity with

FRI. 

b. "Seven question" briefing for the cross-motions and

hearing

During the proceedings on the cross-motions, the bankruptcy

court posed seven questions to the parties and directed further

briefing on them before ruling. Those briefs were filed. 

A hearing on the seven questions was held on February 19,

2014. There, the bankruptcy court raised the issue of Debtor's

failure to respond to Appellees' forty-three proffered

uncontroverted facts. The court and counsel for the parties then

proceeded to review all forty-three proffered facts and determine

which ones Debtor disputed. Subject to some amendments made on

the record by Debtor's counsel (e.g., reference to acts by Debtor

were reworded to read "Debtor on behalf of FRI" and some facts

were reworded to say "the arbitrator found" as opposed to any

admission by Debtor), the parties agreed and the court determined

that forty-two of Appellees' forty-three proffered facts were

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undisputed.13 (The court later deemed the forty-third fact also

undisputed.). Ultimately, the court decided that further briefing

was necessary on the cross-motions based on the now uncontroverted

facts. 

c. Briefing for the cross-motions based on joint

uncontroverted facts

The parties filed their Joint Uncontroverted Facts ("JUF")

for the cross-motions as agreed at the February 19 hearing. 

Curiously, the JUF contained a disclaimer by Debtor stating that

he did not agree with any of Appellees' forty-three proffered

facts and was reserving his right to dispute them with contrary

evidence. The parties then filed four more briefs for the crossmotions based on the JUF. One major point of contention was

whether Debtor could or could not be found personally liable for

the Arbitration Award debt through either the doctrine of alterego or privity, or both, or neither. 

d. Crawford briefing 

The bankruptcy court held another hearing on September 23,

2014, after the JUF briefs were filed. In response to Debtor's

counsel's comment that Debtor was reserving his right to present

contrary evidence to the JUF, as stated in the JUF, the court

stated that it had already ruled that the facts in the JUF were

undisputed at the February 19, 2014 hearing. The court then

ordered further briefing based on Crawford v. Gould, 56 F.3d 1162,

1168 (9th Cir. 1995), which Debtor argued prevented the court from

granting summary judgment to Appellees on their embezzlement claim

13 Debtor's 112 proffered uncontroverted facts were deemed

undisputed at a later hearing on September 23, 2014.

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under § 523(a)(4), when no allegations of embezzlement were

pleaded in the FAC. 

 In their opening Crawford brief, Appellees argued that the

case was distinguishable, but in any event suggested they could

seek leave to amend under Civil Rule 15(a) to add the embezzlement

claim. Appellees announced their intent to move to amend the FAC,

which could be heard before the final hearing on the cross-motions

scheduled in February 2015. 

2. Appellees' motion for leave to amend the FAC

Appellees moved to amend the FAC under Civil Rule 15(a)(2) on

December 8, 2014, to add what they contended was the legal theory

of embezzlement under § 523(a)(4), which was related to the same

facts already pleaded. Appellees attached a copy of the proposed

second amended complaint ("SAC"). 

Debtor opposed the motion for leave, arguing that it was

impermissible in the Ninth Circuit to amend a complaint while a

motion for summary judgment is pending. In addition, Appellees

waiting 28 months before seeking leave to amend the FAC for a

claim which they knew about constituted undue delay. Debtor

argued he would be unduly prejudiced by Appellees amending at this

late date; adding new claims would necessitate reopening

discovery, which had closed 18 months ago, the filing of an answer

and the revision of his Cross-MSJ to address the new grounds of

the SAC, all of which would create more expense and delay. 

In reply, Appellees argued that no "bright-line" rule existed

in the Ninth Circuit that no amendments can be made to a complaint

once a motion for summary judgment has been filed. Appellees

further argued that no undue prejudice existed because the parties

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had already litigated the test for embezzlement in their

cross-motions, and the claim was first raised before Debtor had

requested further time for discovery. In any event, no further

discovery was needed because the asserted claim for embezzlement

arose from the same exact transaction alleged to have constituted

a "defalcation in a fiduciary capacity." In short, Appellees

argued that given the nature of the specification Debtor demanded

for the embezzlement claim and the extent to which the claim had

already been litigated, it was more efficient to give Debtor the

more specific pleading he insisted upon and remove that ground for

objection or appeal going forward. 

Determining that under Ninth Circuit authority it had

discretion to grant leave to amend even with a summary judgment

motion pending, the bankruptcy court granted Appellees' motion to

amend their § 523(a)(4) claim for embezzlement. Debtor's counsel

indicated that a new answer would be filed within 15 days. To

give Debtor time to file anything else he felt necessary based on

the SAC, the hearing on the cross-motions was continued to March

5, 2015.14 An amended order granting leave to amend was entered on

January 14, 2015. 

3. Debtor's motion to dismiss the SAC

Rather than filing an answer, Debtor moved to dismiss the SAC

("MTD"). He contended the amendments made in the SAC exceeded the

leave granted by the court. Appellees were allowed to amend only

the embezzlement claim, yet they amended the § 523(a)(6) claim as

14 On March 4, 2015, the bankruptcy court entered a tentative

ruling stating that it would decide the pending MSJ, Cross-MSJ and

MTD on the briefs. As a result, the final hearing was vacated.

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well. Second, the claims in the SAC were time barred.15 Finally,

Debtor argued that Appellees had failed to present sufficient

facts to establish embezzlement. 

Appellees opposed the MTD, contending the allegations in the

SAC did not go beyond assertions made in the FAC and in the MSJ. 

4. More briefing on the cross-motions based on the SAC

Meanwhile, the parties filed supplemental briefing for the

cross-motions based on the SAC. Debtor made the following

arguments: (1) that the MSJ was now moot because it was based on

the FAC, which was now moot due to Appellees' filing of the SAC; 

(2) that the SAC raised issues on which Debtor had not been

permitted to take discovery; (3) that Appellees failed to provide

sufficient uncontroverted facts to establish either a § 523(a)(4)

or (a)(6) claim; (4) that Appellees had failed to show that issue

preclusion, particularly privity, applied to the Arbitration

Award; (5) that even if the MSJ could proceed and established a

viable theory for summary judgment, Appellees’ damages were

limited to $50,000, the amount awarded for misappropriation of

trade secrets.

Appellees argued that while some courts have held that

amending a complaint "ordinarily" moots a motion for summary

judgment noticed on the prior operative complaint, "ordinarily"

does not mean "necessarily." Debtor had not cited any case that

provides an absolute bar to a court's consideration of a summary

judgment motion after an amended complaint has been filed. As for

15 The bankruptcy court ruled against Debtor on the statute

of limitations argument. Debtor does not dispute that ruling on

appeal.

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additional discovery, Debtor had never identified any specific

discovery he would need to undertake despite being given several

opportunities to do so.

After the bankruptcy court took the MSJ, Cross-MSJ and MTD

under submission, the parties filed seven additional briefs. 

5. Bankruptcy court's ruling on the MSJ, Cross-MSJ and MTD

The bankruptcy court entered its Memorandum Decision, Order

and Judgment respecting the MSJ, Cross-MSJ and MTD on April 1,

2016. As a threshold matter, the court ruled that Appellees' MSJ

did not become moot because of the filing of the SAC. 

Next, the court determined that issue preclusion applied to

the Arbitration Award, ruling that Debtor was in privity with FRI,

and that the arbitrator's findings combined with the

uncontroverted facts established the elements for Appellees' claim

for embezzlement under § 523(a)(4) and claim for a willful and

malicious injury under § 523(a)(6). The court further determined

that because damages under the Arbitration Award were based on

Debtor's malicious and fraudulent conduct, the amounts awarded to

RRC and Hackney representing actual damages, including punitives,

but not the doubled amounts due to late payment, were

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

Accordingly, because Appellees were entitled to summary

judgment as a matter of law, Debtor's Cross-MSJ was denied. 

Because the SAC pleaded sufficient facts upon which relief for

embezzlement could be granted, the court also denied Debtor's MTD. 

An exception to discharge judgment was entered in favor of RRC for

$1,628,977.00 and in favor of Hackney for $2,815,829.51. This

timely appeal followed.

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II. JURISDICTION

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

and 157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.16

III. ISSUES

1. Did the bankruptcy court abuse its discretion in granting 

Appellees leave to amend the FAC to include the embezzlement

claim? 

2. Did the bankruptcy court err in determining that issue 

preclusion was available, and did it abuse its discretion in

applying it to the Arbitration Award? 

3. Did the bankruptcy court err in granting summary judgment to 

Appellees determining that the debt was excepted from discharge

under § 523(a)(4) and (a)(6)? 

4. Did the bankruptcy court err in denying the Cross-MSJ or the 

MTD? 

IV. STANDARDS OF REVIEW 

We review for abuse of discretion the bankruptcy court’s

16 Debtor also appeals the bankruptcy court's decision to

deny his Cross-MSJ and his MTD. The Panel lacks jurisdiction to

hear appeals from interlocutory orders, such as an order denying a

motion to dismiss an adversary proceeding, Morrison-Knudsen Co.,

Inc. v. CHG Int’l, Inc., 811 F.2d 1209, 1214 (9th Cir. 1987), and

an order denying a motion for summary judgment, Comsource Indep.

Foodservice Cos., Inc. v. Union Pac. R.R. Co., 102 F.3d 438,

441-42 (9th Cir. 1996). However, because the bankruptcy court

decided these matters conclusively in its Memorandum Decision,

Order and Judgment, the interlocutory orders denying the Cross-MSJ

and MTD merged into the final appealable order granting the MSJ. 

The Panel may review on appeal all earlier interlocutory orders

that merge in the final appealed order. Fear v. U.S. Tr.

(In re Ruiz), 541 B.R. 892, 895 n.7 (9th Cir. BAP 2015). See also

Am. Ironworks & Erectors Inc. v. N. Am. Constr. Corp., 248 F.3d

892, 897-98 (9th Cir. 2001) ("A necessary corollary to the final

judgment rule is that a party may appeal interlocutory orders

after entry of final judgment because those orders merge into that

final judgment.").

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decision whether to grant leave to amend the complaint. See

Zadrozny v. Bank of N.Y. Mellon, 720 F.3d 1163, 1167 (9th Cir.

2013); Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th Cir.

1990).

We review summary judgment determinations de novo. See

Fresno Motors, LLC v. Mercedes Benz USA, LLC, 771 F.3d 1119, 1125

(9th Cir. 2014); Shahrestani v. Alazzeh (In re Alazzeh), 509 B.R.

689, 692-93 (9th Cir. BAP 2014). In reviewing a bankruptcy

court's determination of an exception to discharge, we review its

findings of fact for clear error and its conclusions of law de

novo. Oney v. Weinberg (In re Weinberg), 410 B.R. 19, 28 (9th

Cir. BAP 2009). 

We review de novo the preclusive effect of a judgment;

whether issue preclusion is available is a mixed question of law

and fact. Stephens v. Bigelow (In re Bigelow), 271 B.R. 178, 183

(9th Cir. BAP 2001). If issue preclusion is available, the

bankruptcy court's decision to apply it is reviewed for abuse of

discretion. Lopez v. Emergency Serv. Restoration, Inc.

(In re Lopez), 367 B.R. 99, 104 (9th Cir. BAP 2007). Under that

standard, we reverse where the bankruptcy court applied an

incorrect legal rule or where its application of the law to the

facts was illogical, implausible or without support in inferences

that may be drawn from the record. Ahanchian v. Xenon Pictures,

Inc., 624 F.3d 1253, 1258 (9th Cir. 2010) (citing United States v.

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

V. DISCUSSION

Resolution of this appeal requires the Panel to apply several

legal standards to the bankruptcy court's decision: summary

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judgment, issue preclusion and exception to discharge under 

§ 523(a)(4) and (a)(6). In particular, we must determine if the

Arbitration Award is entitled to preclusive effect and, if so,

whether any disputed material facts remained which prevented the

bankruptcy court from granting summary judgment to Appellees for

an exception to discharge under either § 523(a)(4) or (a)(6). 

A. Even if the bankruptcy court had not granted leave to amend

the FAC to include the embezzlement claim, Appellees were

entitled to summary judgment on their § 523(a)(6) claim.

Debtor contends the bankruptcy court should have denied leave

to amend the FAC because the MSJ and Cross-MSJ had been pending

for years and that the liberal amendment rules were not intended

to allow a party to circumvent the effects of summary judgment by

amending the complaint, citing Acri v. International Association

of Machinists & Aerospace Workers, 595 F. Supp. 326, 334 (N.D.

Cal. 1984). Debtor also cites Ninth Circuit authority, where the

court has expressed that a pending summary judgment motion and

completed discovery weigh heavily against allowing leave to amend. 

M/V Am. Queen v. San Diego Marine Constr. Corp., 708 F.2d 1483,

1492 (9th Cir. 1983); Schlacter-Jones v. Gen. Tel. of Cal.,

936 F.2d 435, 443 (9th Cir. 1991), overruled on other grounds by

Cramer v. Consol. Freightways, Inc., 255 F.3d 683, 692 (9th Cir.

2001). 

We disagree with Debtor. The Ninth Circuit has affirmatively

held that amendments for the purpose of adding new claims are

clearly permitted by Civil Rule 15 and may be introduced and

considered during the pendency of a motion for summary judgment. 

William Inglis & Sons Baking Co. v. ITT Cont'l Baking Co.,

668 F.2d 1014, 1053 n.68 (9th Cir. 1981) (citing 6 Moore's Federal

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Practice ¶ 56.10 (2d ed. 1976)). However, we need not reach the

merits of the bankruptcy court's decision to grant leave to amend

the FAC to include the embezzlement claim, because the FAC

supported Appellees' claim for a willful and malicious injury

under § 523(a)(6).17 As we are not reaching the merits on the

bankruptcy court’s decision to grant leave to amend the FAC, we

are also not reaching the merits of its decision respecting the 

§ 523(a)(4) claim, even though sufficient facts and conclusions by

the court exist in the record to satisfy the elements of an

embezzlement claim.

B. The bankruptcy court did not err in determining that issue

preclusion was available or abuse its discretion in applying

it to the Arbitration Award.

1. Issue preclusion standards

The doctrine of issue preclusion applies to dischargeability

proceedings under § 523(a). Grogan v. Garner, 498 U.S. 279, 284

n.11 (1991). The question of whether California or federal issue

preclusion law applied to the Arbitration Award was a subject of

much debate because the award, although based entirely on state

17 We reject Debtor's argument that he was denied the

opportunity to file an answer to the SAC. Debtor chose instead to

file the MTD. We also reject Debtor's contention that the

bankruptcy court erred in granting the MSJ because the MSJ was

rendered moot by the filing of the SAC, citing Mink v. Suthers,

482 F.3d 1244, 1254 (10th Cir. 2007), and other out-of-circuit

cases. The bankruptcy court rejected this argument as "hypertechnical" and "lack[ing] legal support." Mem. Dec. at 10. 

Specifically, the court noted that Debtor had not cited, nor had

the court found, any binding authority that required, as a per se

rule, the court to treat Appellees' MSJ as moot because of the

filing of the SAC. Id. at 9. In any event, once the SAC was

filed, the parties engaged in further briefing and filed no less

than nine briefs for the cross-motions based on the SAC. Thus,

Debtor had more than sufficient opportunity to brief his defenses

to Appellees' claims, whether based on the FAC or SAC.

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law claims, had been affirmed by a federal district court

conducted under diversity jurisdiction. Ultimately, the

bankruptcy court decided that California law applied; we agree.

In California, issue preclusion prevents parties from

relitigating issues already decided in prior proceedings. Lucido

v. Super. Ct., 51 Cal. 3d 335, 341 (1990). Application of issue

preclusion requires that: (1) the issue sought to be precluded

must be identical to that decided in the former proceeding;

(2) the issue must have been actually litigated in the former

proceeding; (3) the issue must have been necessarily decided in

the former proceeding; (4) the decision in the former proceeding

must be final and on the merits; and (5) the party against whom

issue 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) (citing

Lucido, 51 Cal. 3d at 341). The party asserting preclusion bears

the burden of establishing the threshold requirements. Id.

Even if all five requirements are satisfied, however,

California places an additional limitation on issue preclusion: 

courts may give preclusive effect to a judgment if it would be

fair and consistent with sound public policy to impose issue

preclusion in the particular setting. Khaligh v. Hadaegh

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

this sixth element, when applying issue preclusion based on a

confirmed arbitration award, the court must examine "whether the

underlying arbitration followed basic elements of adjudicatory

procedure and was, thus, 'adjudicatory in nature.'" Id. at 828

(quoting Kelly v. Vons Cos., 67 Cal. App. 4th 1329, 1336 (1998)). 

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Finally, in the case where issue preclusion is applied offensively

to preclude a defendant from relitigating an issue the defendant

previously litigated and lost, the courts consider whether the

party against whom the earlier decision is asserted had a "full

and fair" opportunity to litigate the issue. Roos v. Red,

130 Cal. App. 4th 870, 879 (2005).

2. Analysis

Debtor does not challenge that the confirmed Arbitration

Award was final and on the merits, or that the issues were

necessarily decided in the arbitration proceeding. He takes issue

primarily with the bankruptcy court's finding of privity, the

identity of issues, whether the issues were actually litigated and

whether the court's application of issue preclusion was fair and

consistent with public policy. 

a. Whether the arbitration proceeding was adjudicatory

in nature

As a threshold matter, the bankruptcy court considered

whether the arbitration proceeding was sufficiently adjudicatory

in nature for issue preclusion to apply to the Arbitration Award —

part of the sixth element under California law. After thoroughly

analyzing the issue, which was not raised by the parties, the

court determined that the arbitration proceeding was sufficiently

adjudicatory in nature to give issue preclusive effect to the

arbitrator's findings, assuming the other five elements of issue

preclusion were also satisfied.

On appeal, Debtor contends the bankruptcy court erred in

determining that the arbitration proceeding was sufficiently

adjudicatory in nature to give issue preclusive effect to the

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arbitrator's findings for a variety of reasons: (1) it was not a

judicial-like proceeding; (2) the court failed to consider whether

the burdens of proof applied by the arbitrator to the claims in

arbitration were identical to standards for § 523; (3) the

arbitrator did not apply any legal rules to the facts in making

his determinations on the various claims at issue; and (4) the

arbitrator made sua sponte determinations of conversion and

misappropriation. Except for the last issue, Debtor never raised

any of these arguments before the bankruptcy court in his

multitude of briefs opposing the MSJ. Therefore, we will not

address them on appeal. See Ezra v. Seror (In re Ezra), 537 B.R.

924, 932 (9th Cir. BAP 2015) ("Ordinarily, federal appellate

courts will not consider issues not properly raised in the trial

courts."). 

As for the arbitrator's "sua sponte" determination that the

facts established claims for conversion and misappropriation of

trade secrets, those claims were raised by Appellees in their

closing briefs in the arbitration and opposed by Debtor in his

unsuccessful efforts to vacate the Arbitration Award. But more

importantly, Debtor's challenges to the underlying determinations

made by the arbitrator, which he makes frequently throughout his

appeal brief, come too late and before the wrong court. See

Molina v. Seror (In re Molina), 228 B.R. 248, 250 (9th Cir. BAP

1998) (confirmation of an arbitration award is a final judgment,

even if clearly erroneous, and must be given full faith and credit

by federal courts). Accordingly, for this and the reasons set

forth in the Memorandum Decision, the bankruptcy court did not err

in finding that the arbitration proceeding was sufficiently

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adjudicatory in nature for issue preclusion to apply to the

Arbitration Award.

b. Whether Debtor was in privity with FRI and whether

Debtor had a full and fair opportunity to litigate

Under California law, in the claim and issue preclusion

context, "privity" refers:

[T]o a mutual or successive relationship to the same

rights of property, or to such an identification in

interest of one person with another as to represent the

same legal rights and, more recently, to a relationship

between the party to be estopped and the unsuccessful

party in the prior litigation which is “sufficiently

close” so as to justify application of the doctrine of

collateral estoppel. “This requirement of identity of

parties or privity is a requirement of due process of

law.” “Due process requires that the nonparty have had an

identity or community of interest with, and adequate

representation by, the . . . party in the first action. 

The circumstances must also have been such that the

nonparty should reasonably have expected to be bound by

the prior adjudication . . . .”

Citizens for Open Access to Sand and Tide, Inc. v. Seadrift Ass'n,

60 Cal. App. 4th 1053, 1069-70 (1998) (internal citations

omitted).

The bankruptcy court found that Debtor was in privity with

FRI. Based on the undisputed facts, the court found that at the

time of FRI’s retention under the Consulting Agreement and

throughout the arbitration proceeding, Debtor had a sufficiently

close relationship with FRI, because he was the president, sole

shareholder and sole employee of FRI. In addition, Debtor worked

from his home to carry out FRI’s business and offered no evidence

in arbitration that he maintained any corporate formalities. 

Moreover, as a due process matter, the bankruptcy court found that

Debtor, who had counsel throughout the proceeding (in fact, his

own brother), should reasonably have expected to be bound by the

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Arbitration Award. First, Appellees had brought intentional tort

claims against FRI. Second, under California law, corporate

officers are liable to persons they tortiously injure even though

the corporation may be liable, and an officer is not relieved of

personal liability for misappropriating property of another merely

because he or she did it on behalf of his or her corporate

principal.

As further support for finding Debtor was in privity with

FRI, which somewhat overlaps with the fairness and public policy

considerations found in element six because Debtor was a nonparty

to the arbitration,18 the bankruptcy court found that Debtor had a

full and fair opportunity to litigate in the arbitration. The

arbitration proceeding was conducted in a judicial-like adversary

proceeding before a retired judge that featured at least seven

status conferences, motions in limine, taking of testimony of

witnesses (including Debtor) with cross-examination, a briefing

schedule for written closing arguments, the submission of

deposition transcripts, a twenty-six page final award that

included detailed findings of fact and conclusions of law, and

citations to witness testimony under oath. Further, nothing in

the record suggested that Debtor had no incentive to vigorously

litigate the issues in the prior action. To the contrary, it was

Debtor, through FRI, who initiated the arbitration proceeding. 

18 See Nein v. HostPro, Inc., 174 Cal. App. 4th 833, 846

(2009) (nonparty should reasonably be expected to be bound if he

had in reality contested the prior action even if he did not make

a formal appearance, for example, by controlling it; privity

appertains "against one who did not actually appear in the prior

action . . . where the unsuccessful party in the first action

might fairly be treated as acting in a representative capacity for

a nonparty").

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Moreover, Debtor had an opportunity to defend his interests and

had consented to the arbitration through his wholly owned entity,

FRI. Finally, the court found that even though Debtor was a

non-party as a matter of form, he was a signatory party as a

matter of substance; no one besides Debtor and his attorney were

present at the arbitration proceeding on FRI’s behalf.

Debtor first contends that the bankruptcy court's decision

that he was in privity with FRI is wrong because (1) the court

relied exclusively on facts derived from the Arbitration Award to

find privity, and (2) reliance on the Arbitration Award is

insufficient because the arbitrator declined to make any finding

of alter-ego, and so Debtor's relationship to FRI was neither

litigated nor established in the arbitration. Debtor's blatant 

misrepresentation of the record is alarming. The bankruptcy court

did not rely exclusively on facts derived from the Arbitration

Award to find privity (which are final in any event); it relied

almost entirely on the uncontroverted facts to determine privity,

which were supported by Debtor's deposition, his resume and his

bankruptcy schedules. Secondly, Debtor's relationship to FRI did

not have to be litigated or established in the arbitration for the

bankruptcy court to determine whether privity applied to Debtor in

this proceeding. 

In arguing that the bankruptcy court failed adequately to

consider due process, Debtor contends he did not have, and should

not have had, any expectation whatsoever to be bound by the

Arbitration Award; he was not a party to the Consulting Agreement,

and the arbitrator refused to hold him personally liable for the

Arbitration Award against FRI without a litigated finding of

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alter-ego. The standard is not whether Debtor had any expectation

to be bound by the Arbitration Award, but rather whether he had a

reasonable expectation to be bound. The bankruptcy court's

findings as to Debtor's incentive to litigate on behalf of FRI and

his control over that litigation, which we do not find clearly

erroneous, belie Debtor's argument. Further, Debtor is

sophisticated enough to know that he cannot commit intentional

torts and perjury behind the shield of his corporation without

encountering adverse consequences. His reasonable expectation to

be bound by the Arbitration Award is also evidenced by his

immediate bankruptcy filing after the arbitration had concluded

and the fact that he listed the Arbitration Award debt in his

bankruptcy schedules. Finally, as noted above, a finding of

alter-ego was not needed in this proceeding to find Debtor

personally liable for the Arbitration Award like it was in the

arbitration proceeding.

Accordingly, the bankruptcy court did not clearly err in

finding that Debtor was in privity with FRI. 

c. Whether the issues are identical

"The 'identical issue' requirement addresses whether

'identical factual allegations' are at stake in the two

proceedings, not whether the ultimate issues or dispositions are

the same." Lucido, 51 Cal. 3d at 342 (citing People v. Sims,

32 Cal. 3d 468, 485 (1982)). To determine whether issues in prior

and subsequent proceedings are identical for purposes of applying

issue preclusion, a court examines whether the requirements for

proving the issue at stake in the subsequent proceeding "closely

mirror" requirements of proving issues presented in the prior

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action. See Nourbakhsh v. Gayden (In re Nourbakhsh), 162 B.R.

841, 844 (9th Cir. BAP 1994).

Debtor raises a host of arguments here, but his primary

complaint is that the issues in the adversary proceeding were not

identical to those in the arbitration, and the arbitrator did not

make any express findings of Debtor's intent, fraud or malice to

provide a basis for the bankruptcy court's determination that the

issues in the arbitration were identical to those in the adversary

proceeding. We disagree.

The bankruptcy court determined that the Arbitration Award

included factual findings that were identical to the elements

required to establish willful and malicious injury under 

§ 523(a)(6). First, the award and uncontroverted facts

established that Debtor made multiple implied threats to Appellees

about revealing the confidential documents. The court determined

that this factual finding, combined with other undisputed facts

proving that Debtor later sold those confidential documents to

Singer, demonstrated that Debtor had a "subjective motive to

inflict injury" to Appellees, which was identical to the issue of

whether Debtor acted willfully. The court further determined that

the Debtor's act of misappropriating FRI's former clients'

documents, which was the causal event that contributed to the loss

of grant funds of $386,300 by RRC and the $1,070.301.68 in lost

revenues to Hackney, was identical to the issue of whether

Debtor's wrongful and intentional act necessarily caused injury to

Appellees. 

Here, Debtor argues that in determining whether the issue of

his willfulness was identical to the issues in the arbitration,

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the bankruptcy court pointed only to uncontroverted fact 21, which

concerned Debtor's "alleged" email threats about revealing

confidential RRC documents and was based exclusively on the selfserving Exhibit X — the email between counsel for Appellees. Not

only does Debtor fail to state why this was erroneous if true, it

is not true. In determining that Debtor's willfulness was at

issue in the arbitration, the bankruptcy court relied not only on

uncontroverted fact 21, but also on the other undisputed fact that

Debtor later sold the confidential documents to Singer, which

confirmed Debtor's subjective intent to injure Appellees in the

precise way he did. In addition, Debtor fails to mention his

October 1 and October 30 emails to Appellees, wherein he made

similar threats to expose his former clients' confidential

documents to their opponents. 

Accordingly, we see no clear error in the bankruptcy court's

finding that the issues were identical. While the causes of

actions alleged may have been different in the arbitration — not

willful and malicious injury — the factual allegations respecting

Debtor's conduct were identical.

d. Whether the issues were actually litigated 

An issue is "actually litigated" when the issue was raised,

actually submitted for determination, and determined. Baker v.

Hull, 191 Cal. App. 3d 221, 226 (1987). The bankruptcy court

found that based on the Arbitration Award’s detailed findings of

fact as to Debtor's conduct (whether his misappropriation of RRC's

confidential documents and subsequent perjury about that conduct

constituted embezzlement or inflicted a willful and malicious

injury on Appellees) and the other arbitration proceeding

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documents presented by the parties, the issues were actually

litigated in the prior proceeding. 

Debtor contends that nothing in the record demonstrates that

the required elements for embezzlement or willful and malicious

injury were ever considered, applied or actually litigated. In

addition, Debtor contends that his intent or fraud was not

litigated in the arbitration. 

The elements of a state law cause of action are rarely

identical to those proving a claim under § 523(a)(4) or (a)(6). 

However, issue preclusion will apply if the findings of fact

actually and necessarily litigated in the arbitration meet the

bankruptcy-law definitions for those claims. The bankruptcy court

determined that the arbitrator's findings met the bankruptcy-law

definitions for willful and malicious injury, as stated more fully

above, which we conclude is correct. Thus, the bankruptcy court

did not err in determining that the identical issues were actually

litigated in the prior proceeding. 

Therefore, because all of the necessary elements for applying

issue preclusion to the Arbitration Award were met here, the

bankruptcy court did not err in determining that issue preclusion

was applicable to the Arbitration Award. 

C. The bankruptcy court did not err in granting summary judgment

to Appellees for their claim under § 523(a)(6).

1. Summary judgment standards

Summary judgment may be granted by the trial court "if the

pleadings, the discovery and disclosure materials on file, and any

affidavits show that there is no genuine issue as to any material

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

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law." Civil Rule 56(a), as incorporated by Rule 7056; Barboza v.

New Form, Inc. (In re Barboza), 545 F.3d 702, 707 (9th Cir. 2008). 

Summary judgment should not be entered when there are disputes

over facts that may affect the outcome of the suit under the

governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249

(1986). The moving party bears the initial burden of showing that

no material factual dispute exists. Celotex Corp. v. Catrett,

477 U.S. 317, 322-23 (1986). When ruling on a motion for summary

judgment, a court must view all the evidence in the light most

favorable to the nonmoving party. Cty. of Tuolumne v. Sonora

Cmty. Hosp., 236 F.3d 1148, 1154 (9th Cir. 2001).

2. The elements for a willful and malicious injury

under § 523(a)(6) were met. 

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

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

property of another entity." Both willfulness and maliciousness

must be proven in order to apply § 523(a)(6). Ormsby v. First Am.

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

2010). "A 'willful' injury is a 'deliberate or intentional

injury, not merely a deliberate or intentional act that leads to

injury.'" In re Barboza, 545 F.3d at 706 (quoting Kawaauhau v.

Geiger, 523 U.S. 57, 61 (1998) (emphasis in original)). The

willful injury requirement under § 523(a)(6) "is met only when the

debtor has a subjective motive to inflict injury or when the

debtor believes that injury is substantially certain to result

from his own conduct." In re Ormsby, 591 F.3d at 1206. "A

malicious injury involves (1) a wrongful act, (2) done

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

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done without just cause or excuse. Malice may be inferred based

on the nature of the wrongful act." Id. at 1207. 

Debtor's primary contention here is that his intent was not

litigated or determined in the arbitration, and Appellees had

failed to present any evidence of Debtor's intent here or in the

arbitration. Apparently, Debtor needs to review the record and

the uncontroverted facts. 

The undisputed facts established that Debtor made various

threats implying he would reveal RRC's documents if Appellees

refused to settle his fee dispute arising from the Consulting

Agreement to his satisfaction. On March 1, 2009, Debtor sold

various RRC documents, including donor lists, bank account

information and contact lists to Singer. In sum, Debtor

threatened RRC with harm in an attempt to coerce RRC to pay him,

and then carried through on his threats when Appellees did not

cooperate. On these facts, the bankruptcy court determined that

Debtor acted willfully within the meaning of § 523(a)(6) because

he had a "subjective motive to inflict injury." Mem. Dec. at 28. 

The undisputed facts showed that: (1) Debtor was provided

with the documents during his retention by RRC to enable him to

perform his contractual duties; (2) Jameson had specifically

discussed with Debtor that the subject documents were highly

confidential; (3) RRC designated its membership and donor

information as confidential to staff and on its website; (4) FRI

had contracted with RRC to keep the documents in confidence and to

use the documents only in connection with the services to be

provided under the contract; (5) Debtor, as a professional

political consultant, considered himself ethically bound to not

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reveal confidential information obtained during his professional

relationship; and (6) despite all of the foregoing, Debtor sold

the confidential documents for $50,000 to Singer, who then used

those confidential documents in the APOC Complaint against RRC,

Hackney, Gilliam and others. On these facts, the bankruptcy court

determined that Debtor's act was wrongful. Mem. Dec. at 29.

The undisputed facts showed that Debtor's act of selling the

confidential documents to Singer was done intentionally. Debtor

made threats implying he would reveal RRC’s information and that

if his terms for settlement were not accepted, dire consequences

would follow. On these facts, the bankruptcy court found that

Debtor's wrongful act was intentional.

The undisputed facts further showed that Debtor's act of

selling the confidential documents to Singer necessarily caused

injury. The arbitrator found an "inescapable inference" that the

APOC Complaint, which incorporated the confidential documents and

public investigation, was a causal event that contributed to the

cancellation of $386,300 in grant funds to RRC and loss of clients

and revenues to Hackney, for which the arbitrator awarded

$1,070,301.68. In addition, the record reflects that the prior

APOC complaint Amodio filed against Appellees was unsuccessful,

and that the second one resulted in an investigation of Appellees

only because of the confidential RRC documents Debtor sold to

Singer. Accordingly, the bankruptcy court found that Debtor's act

necessarily caused injury to Appellees.

Finally, the bankruptcy court determined that Debtor's act of

selling FRI's former clients’ confidential documents to their

political opponents for use against them was done without just

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cause or excuse. Although Debtor portrayed himself as an

altruistic whistle blower in the arbitration, the arbitrator found

that Debtor and his attorney brother Allan should have known that

sharing documents with counsel for clients adverse to FRI's former

clients was not a report to the proper authorities, and certainly

not for a fee of $50,000 (although Debtor wanted $450,000). The

bankruptcy court also found that Debtor's perjury regarding his

act of selling the documents evidenced that he himself did not

believe he had a just cause or excuse for doing so.

In short, Debtor sold his former clients’ confidential

materials to their Pebble Mine opponents, and he did so to help

the Pebble Mine parties in their efforts to take out Appellees in

their role as the organized opposition to the Pebble Mine. Debtor

articulated that plan both in written communications to Appellees

and to the Alaska attorneys representing the Pebble parties,

thereby documenting his intent to injure Appellees in precisely

that manner. He then repeatedly testified, falsely, that he had

never transferred those materials at all. Clearly, the undisputed

facts show that Debtor inflicted a willful and malicious injury on

Appellees. 

Accordingly, with no genuine issues of material fact in

dispute and the elements satisfied, the bankruptcy court did not

err in granting summary judgment to Appellees on their § 523(a)(6)

claim. We now consider whether the damages awarded were

appropriate. 

3. The bankruptcy court did not err in determining that all

damages awarded to Appellees in the Arbitration Award

were nondischargeable. 

The bankruptcy court determined that all of the damages the

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arbitrator awarded to RRC and Hackney, including punitive damages,

were nondischargeable under § 523(a)(4) and (a)(6), because they

flowed from Debtor's malicious and fraudulent conduct, which had

been actually litigated and was necessary to the Arbitration

Award.

To recap, the arbitrator awarded RRC: (1) the $50,000 FRI

received for its misappropriation of RRC's confidential documents;

(2) $3,169 RRC spent in attorney's fees to redact documents in

trying to salvage confidentiality after they were delivered to

APOC; (3) $386,330 for a lost grant caused by the impact of the

APOC Complaint and public investigation; and (4) $156,804 for

attorney's fees and $32,704 for expenses incurred in the

arbitration as a prevailing party on the Consulting Agreement. 

Hackney was awarded: (1) $1,011,681.68 for lost clients and

revenues "resulting from the APOC Complaint with its FRI

documents" and $56,120.30 for the attorney's fees incurred in

responding to the APOC investigation; and (2) $675,758.76 for

attorney's fees and $69,768.77 for expenses incurred in the

arbitration as a prevailing party on the Consulting Agreement. 

It is clear by the arbitrator's findings that the course of

misconduct by Debtor — his selling of RRC confidential documents

which resulted in the APOC Complaint and investigation and his

lying about his actions — was the direct cause of Appellees'

actual damages. Thus, these damages are nondischargeable. Cohen

v. de la Cruz, 523 U.S. 213, 220 (1998). Likewise, the attorney's

fees and expenses awarded to RRC and Hackney for the arbitration

proceeding, which were awardable based on the Consulting

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Agreement, are part of the nondischargeable debt.19 Id. at 223. 

Cohen stands for the general proposition that any liability duly

imposed as a direct, but-for result of the defendant's

nondischargeable conduct constitutes a nondischargeable debt,

including attorney's fees and costs. See also Suarez v. Barrett

(In re Suarez), 400 B.R. 732, 738-39 (9th Cir. BAP 2009) (applying

Cohen to affirm bankruptcy court's determination under § 523(a)(6)

that attorney's fees and costs were nondischargeable, even though

no compensatory damages were awarded); Roussos v. Michaelides

(In re Roussos), 251 B.R. 86, 94 (9th Cir. BAP 2000) (attorney's

fees and costs, if awardable under state law, are also part of the

nondischargeable debt). 

The arbitrator also awarded RRC and Hackney each $1,000,000

for punitive damages, "arising from the tort causes of action, and

perjury of FRI/Kaplan." For an award of punitive damages in

California under Cal. Civ. Code § 3294(a),20 clear and convincing 

evidence of either malice, oppression or fraud must be presented. 

Debtor contends the Arbitration Award is devoid of any express

findings of malice, oppression or fraud, and none of these were 

19 The attorney's fees clause in the Consulting Agreement is

very broad, to include an award of fees and costs to the

prevailing party not only for proceedings to enforce or interpret

the contract, but also "to resolve any other dispute or

controversy between the Parties[.]"

20 Cal. Civ. Code § 3294(a) provides:

In an action for the breach of an obligation not arising from

contract, where it is proven by clear and convincing evidence

that the defendant has been guilty of oppression, fraud, or

malice, the plaintiff, in addition to the actual damages, may

recover damages for the sake of example and by way of

punishing the defendant.

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elements of any claims determined in the award. We have held that

an award of punitive damages, even absent specific findings of

malice or oppression or fraud, is entitled to preclusive effect in

a nondischargeability action. See In re Roussos, 251 B.R. at 94;

In re Molina, 228 B.R. at 250-51 (if legal test for award of

punitive damages for malice, oppression or fraud is the same legal

test as would be applied under § 523(a)(6), then punitive damages

are given preclusive effect). Cal. Civ. Code § 3294(c) defines

"malice" as "conduct which is intended by the defendant to cause

injury to the plaintiff . . . ." This statutory definition of

malice, which must be proven by the more onerous clear and

convincing evidence standard, comports with the "willful and

malicious injury" elements of § 523(a)(6), which need be proven

only by a preponderance of the evidence, and which the bankruptcy

court correctly found were established here. Thus, the punitive

damages awarded to RRC and Hackney are nondischargeable under 

§ 523(a)(6). 

Accordingly, the bankruptcy court did not err in giving

preclusive effect to the Arbitration Award damages and determining

that all were nondischargeable.

D. The bankruptcy court did not err in denying the Cross-MSJ or

the MTD. 

Because we conclude that Appellees were entitled to summary

judgment as a matter of law on their § 523(a)(6) claim for a

willful and malicious injury, we conclude that Debtor was not

entitled to summary judgment. Alternatively, even if the

bankruptcy court abused its discretion in allowing Appellees to

amend the FAC, which we conclude it did not, their claim under 

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§ 523(a)(6) would stand even with the FAC as the operative

complaint. Thus, it would still have been proper for the court to

deny Debtor's Cross-MSJ on that claim. Along this same vein,

because the SAC alleged a plausible and timely claim for exception

to discharge under § 523(a)(6), the court did not err in denying

the MTD.

VI. CONCLUSION

For the foregoing reasons, we AFFIRM the judgment entered

under § 523(a)(6), and conclude that given this affirmance, it is

unnecessary to reach the merits on the other issues.

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