1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

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 8013-1.

On March 5, 2012, the Panel unanimously determined that **

oral argument was unnecessary and granted Appellee’s motion to 

submit on the briefs.

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP Nos. SC-11-1344-MkDJu

) SC-11-1377-MkDJu

ADOLFO CASTILLO, JR., and )

ANA CASTILLO, ) Bk. No. 09-02350

)

Debtors. ) Adv. No. 09-90301

______________________________)

)

ANA CASTILLO, )

)

Appellant and Cross-Appellee, )

)

v. ) MEMORANDUM*

)

GREGORY AKERS, Chapter 7 )

Trustee of the Bankruptcy )

Estate of William Juarez, )

)

Appellee and Cross-Appellant. )

 )

Submitted Without Oral Argument

On May 1, 2012**

Filed: August 24, 2012

Appeal From The United States Bankruptcy Court

for the Southern District of California

Honorable James W. Meyers, Bankruptcy Judge, Presiding

 

Before: MARKELL, DUNN and JURY, Bankruptcy Judges.

FILED

AUG 24 2012

SUSAN M SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Unless specified otherwise, all chapter and section 1

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

all Rule references are to the Federal Rules of Bankruptcy

Procedure, Rules 1001-9037. All Civil Rule references are to the

Federal Rules of Civil Procedure. 

Mr. Akers, who is the appellee and cross-appellant herein, 2

is not your garden-variety judgment creditor. As a chapter 7

trustee, he had a statutory obligation to collect and reduce to

money all assets of the bankruptcy estate, including the

judgment. See § 704(a)(1).

Unless otherwise indicated, the facts set forth herein are 3

undisputed, and many are drawn from the bankruptcy court’s

memorandum decision entered in Akers v. Castillo (In re Juarez),

Adv. No. 07-90901 (Feb. 5, 2009) (“Fraudulent Transfer Action”). 

2

INTRODUCTION

Ana Castillo’s step-father filed a chapter 7 bankruptcy, 1

and his chapter 7 trustee Gregory Akers obtained a fraudulent

transfer judgment against both Ms. Castillo and her husband

Adolfo. The Castillos then filed their own bankruptcy, so Mr.

Akers filed a complaint in the Castillos’ bankruptcy case

objecting to their discharge under § 727(a) and seeking to except

his judgment against the Castillos from discharge under

§ 523(a). 

2

After trial, the bankruptcy court granted relief under

§ 523(a)(4) as against Ms. Castillo only, but denied any relief

under § 727(a). Both sides appealed. While we AFFIRM the

court’s § 727(a) ruling, we VACATE and REMAND the bankruptcy

court’s § 523(a)(4) ruling for the reasons stated below.

FACTS3

Monica and William Juarez are Ms. Castillo’s elderly mother

and step-father. In or around 2004, the Juarezes sold their home
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

The Castillos and the Juarezes intended that the Juarezes 4

would continue to live in the home, and the Juarezes did continue

to live there after the sale closed. For a time, the Juarezes

paid $500 per month in rent to the Castillos.

3

in San Diego, California to the Castillos for a purchase price of

$400,000. The net sale proceeds of $155,000 (“Proceeds”) were

deposited in a joint bank account (“Joint Account”) in which the

Juarezes and Ms. Castillo were named account holders.

Mr. Juarez had a gambling problem. By way of the sale, the

Juarezes hoped to prevent Mr. Juarez from gambling away the

equity in his home. The Juarezes and the Castillos intended to

use the Proceeds to construct an additional rental unit on the

same lot on which the home was located. They all hoped to

generate enough rental income from the additional unit to make

monthly payments on the mortgage the Castillos took out when they

purchased the home and to cover the Juarezes’ future living

expenses.4

However, in addition to using some of the Proceeds to begin

work on the rental unit, the Proceeds also were used to make

mortgage payments, to pay monies owed to relatives, or as gifts

to other relatives. On May 31, 2006, after Mr. Juarez withdrew

some of the Proceeds from the Joint Account to gamble, Ms.

Castillo transferred (“May 31 Transfer”) the remaining balance of

the Proceeds, $92,000, from the Joint Account to another bank

account solely in her name (“Castillo Account”).

The rental unit was never built. After the May 31 Transfer,

Ms. Castillo paid most of the remaining proceeds to the

Castillos’ mortgage lender, to other relatives, and to
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4

contractors to pay for remodeling and redecorating the home.

Of the $92,000, roughly $13,000 was used to pay off some of Mr.

Juarez’s creditors. Ms. Castillo declined to pay other creditors

of Mr. Juarez from the remaining Proceeds, which ultimately led

Mr. Juarez to file an individual chapter 7 case in March 2007. 

Mr. Akers was appointed to serve as the chapter 7 trustee in

Mr. Juarez’s bankruptcy case. Mr. Akers demanded that Ms.

Castillo turn over the $14,000 in Proceeds remaining at the time

Mr. Juarez filed bankruptcy, which she did. Mr. Akers also

commenced the Fraudulent Transfer Action against the Castillos,

in which he alleged that the sale of the home and the disposition

of the Proceeds constituted both intentional and constructive

fraudulent transfers.

After trial, the bankruptcy court issued its memorandum

decision in February 2009, in which it ruled that none of the

alleged transfers were made with the intent to hinder, delay or

defraud Mr. Castillo’s creditors and that the sale of the home

was not a constructive fraudulent transfer. However, the court

also ruled that the May 31 Transfer was a constructive fraudulent

transfer. According to the court the May 31 Transfer rendered

Mr. Juarez insolvent.

The bankruptcy court credited against the $92,000

transferred into the Castillo Account the $13,000 paid to Mr.

Juarez’s creditors prepetition and the $14,000 paid over to Mr.

Akers postpetition. However, the court refused to give the

Castillos any credit for mortgage payments, payments to relatives

and payments to contractors. According to the court, the
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

The Castillos’ converted their chapter 7 case to chapter 13 5

in March 2010, but the case was reconverted to chapter 7 in

January 2011.

The § 523(a)(4) claim only named Ms. Castillo as a 6

defendant. The record arguably suggests that Mr. Akers abandoned

his two claims under § 523(a)(2) and (a)(6), but the court never

entered a final judgment disposing of these latter two claims. 

Instead, the court’s amended judgment entered on April 17, 2012,

only explicitly disposed of the § 727(a) claims and the

§ 523(a)(4) claim. The amended judgment also contained a

statement pursuant to Civil Rule 54(b) indicating that there was

no just cause for delay in entering a final judgment disposing of

the § 727(a) claims and the § 523(a)(4) claim. 

5

mortgage payments and the contractor payments primarily

benefitted the Castillos because they now owned the home. Based

on these rulings, the court entered judgment in favor of Mr.

Akers and against the Castillos in the approximate amount of

$65,000, plus interest (“Fraudulent Transfer Judgment”). Neither

side appealed the Fraudulent Transfer Judgment.

Within days of entry of the Fraudulent Transfer Judgment,

the Castillos filed their own chapter 7 bankruptcy case, and

Gerald Davis was appointed as their chapter 7 trustee. In July 5

2009, Mr. Akers commenced an adversary proceeding objecting to

the Castillos’ discharge under §§ 727(a)(2), (a)(3), (a)(4)(A),

(a)(4)(D) and (a)(5), and also claiming that the Fraudulent

Transfer Judgment should be excepted from discharge under

§§ 523(a)(2), (a)(4) and (a)(6) (“Discharge Action”).6

In relevant part, with respect to the § 523(a)(4) claim, Mr.

Akers alleged that “the indebtedness owed to Trustee Akers [on

account of the Fraudulent Transfer Judgment] in whole or in part

constitutes funds of an express trust and arises from a
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 The same bankruptcy judge who presided over the Fraudulent 7

Transfer Action presided over the trial of the Discharge Action. 

6

defalcation of fiduciary duty and failure to turnover and account

for such funds.” Complaint Objecting to Discharge and

Dischargeability of Debt (Jul. 27, 2009) at ¶ 48.

With respect to the § 727(a) claims, Mr. Akers alleged that

the Castillos: (1) were slow to produce and/or failed to produce

critical financial records despite numerous requests; (2) made a

number of asset transfers to their relatives, for which they

received no value in exchange; (3) failed to disclose any of

these transfers in their bankruptcy schedules and statement of

financial affairs; (4) concealed some of these transfers despite

being questioned under oath at their § 341(a) meeting of

creditors; and (5) engaged in all of the above conduct with the

intent to hinder, delay or defraud Mr. Akers as their creditor.

Shortly before trial in the Discharge Action, the bankruptcy

court issued a notice in which it framed the issues for trial and

tentatively stated its view of Mr. Akers’ documentary evidence

submitted in advance of trial. Among other things, the court 7

indicated that, in large part, Mr. Akers’ case was based upon the

prior Fraudulent Transfer Judgment. Specifically with respect to

the § 523(a)(4) claim, the court stated:

The final claim is to except [the Fraudulent Transfer

Judgment] from discharge under § 523(a)(4). After

presiding at the trial [in the Fraudulent Transfer

Action], this Court is familiar with the underlying

facts and the resulting judgment. The funds Ana

Castillo moved from the joint account with William

Juarez to her individual account was money held in

trust for William Juarez. The issues remaining for

trial on that claim will focus on whether there was a

defalcation by Ana Castillo in her role as the trustee

of that trust.
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

7

Notice of Intended Trial Procedure (Jan. 21, 2011) at 2:17-24

(emphasis added).

The bankruptcy court conducted a one-day trial on January

26, 2011, during which it heard testimony from various witnesses

and various exhibits were offered and admitted into evidence. We

do not know what testimony was given or which exhibits

specifically were offered into evidence because neither of the

parties obtained the transcript from January 26, 2011.

But we have been provided with a transcript of the

bankruptcy court’s January 27, 2011 oral rulings immediately

following trial. The bankruptcy court held that it was going to

overrule Mr. Akers’ objections to the Castillos’ discharge under

§ 727(a). In so holding, the court expressly stated that it was

“convinced” by the Castillos' testimony that any errors or

omissions by them in their chapter 7 case were the result of

“innocent oversight and that they did not intend to deceive in

any way.” Trial Trans. (Jan. 27, 2011) at 3:23-25. 

On the other hand, the court also ruled that it was inclined

to grant Mr. Akers relief on his § 523(a)(4) claim. The court

expressed a willingness to consider additional legal argument on

the § 523(a)(4) claim because the relevant legal issues had not

been adequately addressed in either the Fraudulent Transfer

Action or in the Discharge Action, and because the Castillos did

not have legal representation.

But the bankruptcy court opined that the evidentiary record

from the Fraudulent Transfer Action appeared factually sufficient

to support the § 523(a)(4) claim and that it was leaning toward

holding that the Fraudulent Transfer Judgment was
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

8

nondischargeable as a defalcation by Ms. Castillo while acting in

a fiduciary capacity:

I think the facts are there, pretty much, so what I'm

inclined to do is continue this hearing on just the 523

for six weeks and allow the parties, especially the

debtors, to consult counsel and to see whether they

would like to make – file a further pleading, that

would have to be filed at least two weeks before the

next hearing, indicating that they have any argument

based on the record from the previous trial that [the

Fraudulent Transfer Judgment] should not be excluded

under 523 as a defalcation; in other words, it was

monies held in trust, while they may or may not have

been accounted for, they were not returned and,

therefore, they would be excepted from the discharge.

* * *

The only question left is whether the actual debt as

evidenced by the [Fraudulent Transfer Judgment] should

be excepted from the discharge. At this point, I think

on this record, where we really haven't spent that much

time dealing [with] that question, I'd be inclined to

say it is excepted on the face of it. But I'd be glad

to hear further argument.

Trial Trans. (Jan. 27, 2011) at 4:17-5:3, 10:22-11:3 (emphasis

added).

While the bankruptcy court was focused on additional legal

argument, it also left open the possibility that it might hold a

further evidentiary hearing: “And we'd have further argument on

this. And it might even involve scheduling a short hearing on

any further evidence that might come up.” Trial Trans. (Jan. 27,

2011) at 5:5-7. The court later reiterated that it ultimately

might decide to hold another evidentiary hearing in a scheduling

order entered on May 2, 2011. In that order, the court further

indicated that all § 523(a)(4) issues, including the fiduciary

capacity and defalcation issues, were still open issues:

As stated in the Notice of Intended Trial Procedure

issued on January 21, 2011, it appeared to the Court

that the funds Ana Castillo moved from the joint
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

9

account with William Juarez to her individual account

was money held in trust for William Juarez. However,

the trust issues and any defalcation by Ana Castillo as

trustee were not adequately addressed at the trial

conducted in January, and the Court continued the case

to allow the parties time to brief and present further

evidence on the § 523(a)(4) issues.

Order Setting Deadlines and Scheduling Final Pre-trial Conference

on § 523(a)(4) issues (May 2, 2011) at 2:7-14 (emphasis added).

In her supplemental brief, Ms. Castillo argued: (1) that she

had never served in a fiduciary capacity within the meaning of

§ 523(a)(4); and (2) that a defalcation had not occurred because

she disbursed the funds in the Castillo account only with the

express consent of Ms. Juarez, Mr. Juarez or both. 

Additionally, Ms. Castillo attempted to offer new evidence in the

form of written declarations from both of the Juarezes, as well

as excerpts from their deposition testimony. 

In response, Mr. Akers objected to the new evidence on a

number of different grounds. Among other things, he pointed out

that the Castillos had not identified either of the Juarezes as

witnesses despite having a duty to do so during discovery and

later during pretrial proceedings. Mr. Akers also claimed that,

even though he had previously taken the Juarezes’ depositions in

the Fraudulent Transfer Action, that action did not deal with

§ 523(a)(4), so he would be prejudiced by the admission of

testimony from the Juarezes. Mr. Akers further argued that the

Juarezes’ prior deposition testimony was wholly inconsistent with

their new declaration testimony. According to Mr. Akers, in the

former, the Juarezes had testified to not knowing how Ms.

Castillo had disbursed the proceeds. In contrast, in the latter,

the Juarezes claimed that Ms. Castillo had requested and obtained
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

10

their express approval for the amounts disbursed from the

Proceeds.

Mr. Akers also asserted, based largely on the undisputed

facts set forth above, that Ms. Castillo had admitted in the

Fraudulent Transfer Action that she was a trustee of an express

trust, in which she held the Proceeds for the benefit Mr. Juarez,

for the express purpose of building the additional rental unit. 

As Mr. Akers put it, Ms. Castillo’s disbursal of the Proceeds for

any other purpose violated the terms of the express trust.

The bankruptcy court held its final hearing, which the court

had designated as a pretrial conference, on June 3, 2011. After

giving the parties the opportunity to discuss the arguments they

had made in their briefs, the court stated that it would not

benefit from hearing the additional evidence Ms. Castillo

proposed to offer. Instead, the court ruled based on the

evidence adduced and judgment entered in the Fraudulent Transfer

Action that the Fraudulent Transfer Judgment would be excepted

from Ms. Castillo’s discharge under § 523(a)(4). According to

the bankruptcy court:

The judgment entered in the [Fraudulent Transfer

Action] of 65,000 represents a series of transactions,

and that judgment stands. I haven't –

At this point the evidence [has] suggested that the

[Fraudulent Transfer Judgment] should be excepted from

the discharge; that there was a defalcation from

someone in a position of trust; and they have not

accounted for the use of these funds in any way that

would absolve them. In other words, the funds were, to

my eye and this record, were used for their personal

benefit, even though it might, as a subsidiary matter,

be to their parents. The long and the short of it is

that I have to declare, at this point, that the debt is

excepted from the discharge.

Hr’g Trans. (June 3, 2011) at 35:1-13. In so ruling, the court
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

11

apparently reasoned: (1) that the evidence from the Fraudulent

Transfer Action was sufficient to establish that Ms. Castillo was

a fiduciary, (2) that a fiduciary may never receive a benefit at

the expense of the trust property, and (3) that for a trustee to

receive such a benefit constituted defalcation per se. In the

process, the court excluded the additional evidence Ms. Castillo

had sought to offer and disregarded her claim that her

disbursement of the proceeds had been authorized by the Juarezes.

The court entered a judgment denying Mr. Akers any relief on

his § 727(a) claims, but declaring the Fraudulent Transfer

Judgment excepted from discharge under § 523(a)(4). Ms. Castillo

appealed the bankruptcy court’s ruling on the § 523(a)(4) claim,

and Mr. Akers cross-appealed the court’s ruling on the § 727(a)

claims.

JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

§§ 1334 and 157(b)(2)(I) and (J). We have jurisdiction under 28

U.S.C. § 158.

ISSUES

1. Did the bankruptcy court err when it granted a judgment

in favor of Akers on his § 523(a)(4) Claim?

2. Did the bankruptcy court err when it denied relief to

Akers on his § 727 Claims?

STANDARDS OF REVIEW

In the context of an appeal from a nondischargeability

judgment, we review the bankruptcy court's findings of fact under

the clearly erroneous standard and its conclusions of law de

novo. Honkanen v. Hopper (In re Honkanen), 446 B.R. 373, 382
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

12

(9th Cir. BAP 2011). But the ultimate question of whether a

particular debt is dischargeable is a mixed question of fact and

law that we review de novo. Id.; see also Searles v. Riley (In

re Searles), 317 B.R. 368, 373 (9th Cir. BAP 2004) (stating that

mixed questions are reviewed de novo when they require the court

“to consider legal concepts and exercise judgment about values

animating legal principles.”).

We review the bankruptcy court's evidentiary rulings for

abuse of discretion. See Johnson v. Neilson (In re Slatkin),

525 F.3d 805, 811 (9th Cir. 2008) (citing Latman v. Burdette, 366

F.3d 774, 786 (9th Cir. 2004)). “We afford broad discretion to a

district court's evidentiary rulings. To reverse such a ruling,

we must find that the district court abused its discretion and

that the error was prejudicial. A reviewing court should find

prejudice only if it concludes that, more probably than not, the

lower court's error tainted the verdict.” Harper v. City of Los

Angeles, 533 F.3d 1010, 1030 (9th Cir. 2008)(citations and

internal quotation marks omitted).

Under the abuse of discretion standard of review, we first

"determine de novo whether the [bankruptcy] court identified the

correct legal rule to apply to the relief requested." United

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

And if the bankruptcy court identified the correct legal rule, we

then determine under the clearly erroneous standard whether its

factual findings and its application of the facts to the relevant

law were: "(1) illogical, (2) implausible, or (3) without support

in inferences that may be drawn from the facts in the record." 

Id. (internal quotation marks omitted).
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

13

As for judgments on objections to discharge, “(1) the

court's determinations of the historical facts are reviewed for

clear error; (2) the selection of the applicable legal rules

under § 727 is reviewed de novo; and (3) the application of the

facts to those rules requiring the exercise of judgments about

values animating the rules is reviewed de novo.” In re Searles,

317 B.R. at 373.

DISCUSSION

A. Section 523 (a)(4) nondischargeability ruling.

1. Section 523(a)(4), generally.

In pertinent part, § 523(a)(4) excepts from discharge debts

incurred for “for fraud or defalcation while acting in a

fiduciary capacity.” § 523(a)(4). The term “fiduciary” is

narrowly defined for purposes of § 523(a)(4). In re Honkanen,

446 B.R. at 378 (citing Cal–Micro, Inc. v. Cantrell (In re

Cantrell), 329 F.3d 1119, 1125 (9th Cir. 2003)). In order for

there to be liability under § 523(a)(4), the debtor’s fiduciary

capacity “must arise from an express or technical trust that was

imposed before, and without reference to, the wrongdoing that

caused the debt . . . .” In re Cantrell, 329 F.3d at 1125

(citing Lewis v. Scott (In re Lewis), 97 F.3d 1182, 1185 (9th

Cir. 1996)). A trust “ex maleficio” will not suffice. In re

Honkanen, 446 B.R. at 379. Moreover, “[t]he broad, general

definition of fiduciary - a relationship involving confidence,

trust and good faith - is inapplicable in the dischargeability

context.” In re Cantrell, 329 F.3d at 1125 (quoting Ragsdale v.

Haller, 780 F.2d 794, 796 (9th Cir. 1986)). 

Meanwhile, for purposes of § 523(a)(4), “defalcation” means
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

See Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 8

(9th Cir. 1990) (holding that pro se appellate briefs should be

liberally construed).

14

either a “misappropriation of trust funds or money held in any

fiduciary capacity” or a “failure to properly account for such

funds.” Blyler, et al. v. Hemmeter (In re Hemmeter), 242 F.3d

1186, 1190 (9th Cir. 2001). 

2. Exclusion of Ms. Castillo’s additional evidence.

Both in the bankruptcy court and on appeal, Ms. Castillo has

argued that she did not have the type of fiduciary relationship

with respect to the Proceeds that would qualify her as a

fiduciary within the meaning of § 523(a)(4). She also has argued

that there was no defalcation within the meaning of § 523(a)(4). 

In support of her arguments, her opening appeal brief largely

relies on the additional evidence she sought to offer in the

bankruptcy court, particularly the declaration of Monica Juarez. 

Liberally construing her appeal brief, Ms. Castillo in essence 8

claims that the bankruptcy court erred when it declined to

consider her additional evidence. In his responsive brief on

appeal, Mr. Akers argued at length that Ms. Castillo’s additional

evidence, particularly the Juarezes’ declarations, were

irreconcilably inconsistent with the evidence presented in the

Fraudulent Transfer Action. He also reiterated that Ms. Castillo

did not identify the Juarezes as witnesses during discovery or

pretrial in the Discharge Action.

But the bankruptcy court did not exclude Ms. Castillo’s

additional testimony on any of the grounds articulated by Mr.

Akers. Instead, the court simply ruled: “I do not believe the
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

When the basis for the court’s evidentiary ruling is not 9

fully articulated, we may infer the basis from the court’s

statements and the surrounding circumstances. See, e.g., Obrey

v. Johnson, 400 F.3d 691, 694 (9th Cir. 2005); U.S. v.

Cruz-Garcia, 344 F.3d 951, 955-57 & n.2 (9th Cir. 2003).

15

court would benefit from hearing other evidence.” Hr’g Trans.

(June 3, 2011) at 34:17-18. Based on this statement and our

reading of the entire June 3, 2011 hearing transcript, we presume

the court meant that Ms. Castillo’s additional evidence was

irrelevant in light of the grounds on which the court based its

resolution of the fiduciary capacity and defalcation issues. 

9

a. Relevancy of additional evidence to defalcation

issue.

We will first look at the bankruptcy court’s resolution of

the defalcation issue and whether the court properly excluded the

additional evidence on relevancy grounds in light of the court’s

defalcation ruling.

The bankruptcy court held that, regardless of whether the

Proceeds had been accounted for and regardless of whether the

Juarezes had authorized Ms. Castillo’s use of the Proceeds for

her own benefit, defalcation necessarily occurred because she

used the Proceeds for her own benefit. While ordinarily a

nondischargeable defalcation occurs when a trustee retains trust

funds for his or her own benefit, see, e.g., Banks v. Gill

Distribution Centers, Inc. (In re Banks), 263 F.3d 862, 865 (9th

Cir. 2001); Lovell v. Stanifer (In re Stanifer), 236 B.R. 709,

719 (9th Cir. BAP 1999), there may be no defalcation if the

retention was authorized, either by the terms of the trust or the

consent of the beneficiaries. See RESTATEMENT (THIRD) OF TRUSTS
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

We derive this definition from the Oxford English 10

Dictionary, which defines misappropriation as “Appropriation of

(something) for a wrong use; spec. the action or an instance of

taking (funds, etc.) fraudulently or unfairly.” (Emphasis added.) 

Indeed, a person may serve both as a trustee and a 11

beneficiary under the same trust. See RESTATEMENT (THIRD) OF TRUSTS

§ 78 (referring to “[t]he common situation in which one or more

of a trust's beneficiaries are selected or authorized by the

settlor to serve as trustee or co-trustee”); see also RESTATEMENT

(THIRD) OF TRUSTS § 32, comment b (“settlors often select

beneficiaries as trustees or co-trustees, and the existence of

conflicting interests is not ordinarily a basis for a court to

remove (or deny appointment to) a trustee of the settlor's

choice.”)

16

§ 78, comments c(2) and c(3) (2007). 

 Simply put, if the Juarezes duly authorized Ms. Castillo to

keep the funds and use them for her own benefit, then there was

no misappropriation, and hence no defalcation.

To analyze this proposition, we start with the dictionary

definition of misappropriation. The dictionary definition that

meshes best with § 523(a)(4) is the broadest one – “a wrong

use.” The bankruptcy court in essence decided that any use of 10

trust funds for the benefit of the trustee constituted a misuse

and hence a misappropriation. But we simply cannot agree with

the bankruptcy court’s premise that a trustee automatically

misuses trust funds whenever that trustee uses such funds for his

or her own benefit, even when the settlor or the beneficiary has

duly authorized that particular use. As we have indicated, under

appropriate circumstances, the law of trusts permits either a

settlor or a beneficiary to authorize a trustee to benefit from

trust property. See RESTATEMENT (THIRD) OF TRUSTS § 78, cmts. c(2)

and c(3) (2007).11
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Accord, Destfino v. Bockting, 2012 WL 258408 (9th Cir. 12

Mem. Dec. Jan 30, 2012); see also In re Banks, 263 F.3d at 870

(indicating that beneficiary of trust may by agreement authorize

the trustee to keep trust funds for the trustee’s own benefit).

17

Moreover, the Ninth Circuit has held that the meaning of

defalcation for purposes of § 523(a)(4) does not include a

diminution of trust assets resulting from actions the trustee

explicitly was authorized to take. Blyler, et al. v. Hemmeter

(In re Hemmeter), 242 F.3d 1186, 1191 (9th Cir. 2001). In

Hemmeter, pension plan participants commenced an adversary

proceeding against the debtor, alleging that losses suffered by

the plans were nondischargeable debts of the debtor under

§ 523(a)(4). Id. at 1189. The employee plan participants

further alleged that the plan losses resulted from the debtor’s

investment of plan funds in the stock of the employer company

that had established the pension plans. Id. at 1191. In

affirming the bankruptcy court’s Civil Rule 12(b)(6) dismissal,

the Hemmeter court pointed out that the plans specifically

authorized plan fiduciaries to invest plan funds in the employer

company’s stock. Id. According to Hemmeter, the loss of the

plan funds under the alleged circumstances, as a matter of law,

could not have constituted a defalcation for purposes of

§ 523(a)(4) because the plans explicitly authorized the

transactions that led to the losses. Id.12

Based on the Restatement and Hemmeter, we hold that the

bankruptcy court erred as a matter of law when it declined to

consider whether Ms. Castillo was authorized to use the Proceeds

in the ways that she did. As a result, the court also erred when

it excluded Ms. Castillo’s additional evidence on relevancy
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Mr. Akers has asserted that Ms. Juarez had no authority to 13

direct Ms. Castillo regarding the use of the Proceeds because

they were solely Mr. Juarez’s property. Assuming without

deciding that the Proceeds were Mr. Juarez’s sole and separate

property, he still may have authorized Ms. Juarez, as his agent,

to direct Ms. Castillo as to how the Proceeds should be used. 

The undisputed facts on which both parties rely could support an

inference of such authorization. On remand, the bankruptcy court

will be free to address the ownership and authorization issues. 

On its face, this solitary statement is ambiguous as to 14

the specific type of fiduciary the court found Ms. Castillo to

be. It would have been relatively easy for the court simply to

have stated that Ms. Castillo was the trustee of an express trust

consisting of the Proceeds, which she held for Mr. Juarez’s

benefit. That is precisely what Mr. Akers alleged and argued

throughout the Discharge Action. But the court used no such

language. Instead, the court used language sounding more like a

reference to a “position of trust and confidence” which in

California can cause a generic fiduciary relationship to arise. 

See, e.g., Lewis v. LeBaron, 61 Cal.Rptr. 903, 911 (Cal. Ct. App.

1967); Sime v. Malouf, 212 P.2d 946, 955 (Cal. Ct. App. 1949). 

These types of generic fiduciary relationships do not by

themselves give rise to liability under § 523(a)(4). As the

Ninth Circuit has repeatedly held, “[t]he broad, general

definition of fiduciary - a relationship involving confidence,

(continued...)

18

grounds. The Juarezes’ declarations spoke directly to the issue

of whether either or both of them had authorized Ms. Castillo to

use the Proceeds for her own benefit. Accordingly, the

bankruptcy court erred when it concluded that the additional

evidence was irrelevant to the defalcation issue.13

b. Relevancy of additional evidence to fiduciary

capacity issue.

The bankruptcy court relied upon the facts drawn from the

Fraudulent Transfer Action to infer that Ms. Castillo was a

fiduciary. Based on these facts, the court ruled that “there was

a defalcation from someone in a position of trust.” (emphasis

added). The court did not explain why it considered Ms. 14
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

(...continued) 14

trust and good faith - is inapplicable in the dischargeability

context.” See In re Cantrell, 329 F.3d at 1125 (quoting Ragsdale

v. Haller, 780 F.2d 794, 796 (9th Cir. 1986)).

19

Castillo’s additional evidence irrelevant to this issue. As set

forth above, the court merely stated “I do not believe the court

would benefit from hearing other evidence.” Hr’g Trans. (June 3,

2011) at 34:17-18. 

We disagree with the bankruptcy court. If it had considered

and credited the statements in the Juarezes’ declarations

regarding their directions on the use of the Proceeds, those

facts would have tended to undermine Mr. Akers’ claim that Ms.

Castillo was the Trustee of an express trust. 

To explain why this is so, we must look at the substantive

law of trusts. In California, an express trust requires a

settlor by acts or words to objectively manifest an intent to

create a trust. See Lonely Maiden Prods., LLC v. GoldenTree

Asset Mgmt, LP, 135 Cal. Rptr. 3d 69, 78 (Cal. Ct. App. 2011);

Chang v. Redding Bank of Commerce, 35 Cal. Rptr. 2d 64, 70 (Cal.

Ct. App. 1994); Petherbridge v. Prudential Sav. & Loan Ass'n, 145

Cal. Rptr. 87, 93 (Cal. Ct. App. 1978). The trustor’s acts or

words also must establish what property is subject to the trust,

the trust’s purpose, and the trust’s beneficiary. See Chang, 35

Cal. Rptr. 2d at 70; Abrams v. Crocker–Citizens Nat'l Bank, 114

Cal. Rptr. 913, 915 (Cal. Ct. App. 1974). 

Most importantly, in ascertaining the settlor’s intent, all

of the circumstances surrounding the transaction ordinarily

should be considered. See Lonely Maiden Prods., 135 Cal. Rptr.

3d at 78; Petherbridge, 145 Cal. Rptr. at 93. The Juarezes’
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

See generally id. at 97-98 (stating that the parties’ 15

conduct is often the most probative evidence of the intent to

create a trust and holding that the parties’ conduct was

inconsistent with a trust relationship and the attendant legal

consequences).

On the settlor’s power to revoke or modify an inter vivos 16

trust, see generally RESTATEMENT (THIRD) OF TRUSTS § 63 (2003).

Akers strenuously and at length has asserted that the

Juarezes’ later statements regarding the use of the Proceeds were

inconsistent with their earlier testimony, going so far as to

characterize the later statements as a fraud on the court. 

However, notwithstanding Mr. Akers’ presentation, it still is

conceivable that the Juarezes might have been able to reconcile

or at least explain the differences in their various statements

if they had been given the opportunity to testify at a further

evidentiary hearing. The bankruptcy court as the trier of fact

needed to find whether the Juarezes’ various statements regarding

the Proceeds were credible. In other words, the issue of the

Juarezes’ veracity went to the weight and credibility that should

be given to their declarations and not to their admissibility.

20

various statements about what the Proceeds were supposed to be

used for are directly relevant to the issue of the alleged

trust’s purpose and, indeed, whether Mr. Juarez intended to

create a trust at all. Moreover, even if we were to assume 15

that a trust was created in the first instance, it also is

possible that Mr. Juarez as settlor later modified or revoked the

trust, either by directly authorizing alternate uses of the

Proceeds, or indirectly through Ms. Juarez as his representative

or agent. Such modifications would not be unusual or unexpected 16

when, as here, the trust allegedly was created through oral

statements, and not by a written instrument.

Unless inadmissible on some other grounds, all relevant

evidence generally is admissible. See Fed. R. Evid. 402; Shad v.

Dean Witter Reynolds, Inc., 799 F.2d 525, 529 (9th Cir. 1986). 

Evidence is considered relevant if it has “any tendency to make a
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

21

[material] fact more or less probable than it would be without

the evidence." Fed. R. Evid. 401 (emphasis added); see also

Shad, 799 F.2d at 529. Here, as explained above, Ms. Castillo’s

additional evidence was relevant to both the defalcation and

fiduciary capacity issues. Consequently, the bankruptcy court

erred when it excluded Ms. Castillo’s additional evidence on

relevancy grounds.

3. Harmless error.

Having determined that the bankruptcy court abused its

discretion in excluding Ms. Castillo’s additional evidence as

irrelevant, we still must determine whether Ms. Castillo was

prejudiced by the court’s abuse of discretion. Harper, 533 F.3d

at 1030; In re Slatkin, 525 F.3d at 811. An appellant has been

prejudiced by the trial court’s erroneous evidentiary ruling if

it is more probable than not that the error tainted the trial

court’s decision. Molina v. Astrue, 674 F.3d 1104, 1119 (9th

Cir. 2012); Harper, 533 F.3d at 1030.

In determining whether the error was prejudicial, we must

look at the circumstances of the particular case. See Shinseki

v. Sanders, 556 U.S. 396, 407-08, 129 S.Ct. 1696, 1704-05, 173

L.Ed.2d 532 (2009). More specifically, we must look at factors

such as whether the evidence erroneously excluded was either

tangential or cumulative, and also whether the overall strength

of the case against Ms. Castillo was so great as to render the

erroneously excluded evidence inconsequential. Molina, 674 F.3d

at 1119. While the harmless error analysis sometimes may require

a review of the entire record, the surrounding circumstances of

the case often will make it clear to the appellate court “that
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 On the distinctions between trusts, agencies and agency- 17

trusts, see generally Chang, 35 Cal. Rptr. 2d at 70-71.

22

the ruling, if erroneous, was harmful and nothing further need be

said.” Shinseki, 556 U.S. at 410, 129 S.Ct. at 1706.

This is one of those cases where the prejudice to the

appellant from the erroneous evidentiary ruling is rather

obvious. As our above discussion of relevancy demonstrates, Ms.

Castillo’s additional evidence cannot be characterized as

tangential. Nor can it be characterized as cumulative. 

"Cumulative evidence" is evidence which replicates other admitted

evidence. U.S. v. Ives, 609 F.2d 930, 933 (9th Cir. 1979). 

Here, Mr. Akers’ oft-repeated argument that the additional

evidence was inconsistent with the evidence adduced in the

Fraudulent Transfer Action belies any notion that the additional

evidence could be considered cumulative.

Moreover, our view of the overall strength of Mr. Akers’

case persuades us that his position was not so strong as to

render Ms. Castillo’s additional evidence inconsequential. The

undisputed facts on which he relied to establish the existence of

an express trust are not necessarily inconsistent with a mere

agency relationship. But an agency would have been 17

insufficient by itself to impose liability under § 523(a)(4); as

we previously stated, a debtor is not a fiduciary within the

meaning of § 523(a)(4) unless he or she is trustee of an express

or technical trust. In re Cantrell, 329 F.3d at 1125.

Indeed, our doubts regarding Mr. Akers’ case are amplified

by the apparent tension between the bankruptcy court’s 

Fraudulent Transfer Judgment and its fiduciary capacity ruling. 
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Mr. Akers also argued that we should have dismissed Ms. 18

Castillo’s appeal because she did not provide us with all

necessary transcripts. While there is no question that Ms.

Castillo should have provided us with the missing transcripts and

that such transcripts would have facilitated our review, we

decline to dismiss on this basis because we were able to conduct

a meaningful review without the transcripts. See Kyle v. Dye (In

re Kyle), 317 B.R. 390, 393-94 (9th Cir. BAP 2004), aff'd, 170

Fed. Appx. 457 (9th Cir. 2006) (holding that, so long as record 

permits meaningful review, failure to provide all required

transcripts need not result in dismissal or summary affirmance,

and the appellate court has discretion to disregard the defect

and decide the appeal on the merits).

23

If Ms. Castillo held the Proceeds pursuant to an express trust

for Mr. Juarez’s benefit, Mr. Juarez still held that beneficial

interest in the Proceeds notwithstanding the May 31 Transfer. In

other words, to the extent an express trust existed, the May 31

Transfer did not transfer anything of value from Mr. Juarez to

Ms. Castillo. Simply put, it is difficult to reconcile Mr.

Akers’ case for an express trust with the bankruptcy court’s

prior Fraudulent Transfer Judgment.

Given the above-referenced circumstances, we conclude that

Ms. Castillo was prejudiced by the bankruptcy court’s erroneous

exclusion of her additional evidence. Accordingly, we must

VACATE the bankruptcy court’s § 523(a)(4) ruling and REMAND for

further proceedings.18

B. Section 727(a) objection to discharge ruling.

In his cross-appeal, Mr. Akers has asked this Panel to

review the “facts and evidence in this case” and to hold that the

bankruptcy court erred in denying him any relief on his § 727(a)

claims. See Aple. Opn. Brf. (Sept. 27, 2011) at p. 31. Mr.

Akers in essence has argued on appeal that the record does not
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

24

support the bankruptcy court’s dispositive findings that the

Castillos’ testimony was credible and that any errors or

omissions by the Castillos in their bankruptcy case resulted from

inadvertence rather than intentional deceit.

Because Mr. Akers’ cross-appeal challenged the bankruptcy

court’s dispositive factual findings, it was incumbent upon him

to demonstrate how those findings were clearly erroneous, and he

needed to provide us with the bankruptcy court's findings and all

evidence upon which those findings were based. Burkhart v. Fed.

Dep. Ins. Corp. (In re Burkhart), 84 B.R. 658, 660 (9th Cir. BAP

1988). Failure to provide necessary transcripts may be grounds

for dismissal or summary affirmance of the appeal. See, e.g.,

Jones v. City of Santa Monica, 382 F.3d 1052, 1057 (9th Cir.

2004) (dismissing portion of appeal dependent on hearing

transcripts not provided); Syncom Capital Corp. v. Wade, 924 F.2d

167, 169 (9th Cir. 1991) (dismissing appeal based on appellant's

failure to provide necessary trial transcript); see also In re

Kyle, 317 B.R. at 393 (stating that “failure to provide a

sufficient record to support informed review of trial-court

determinations may, but need not, lead either to dismissal of the

appeal or to affirmance for inability to demonstrate error.”).

While we often attempt to conduct some measure of review in

the absence of necessary transcripts, see, e.g., In re Kyle, 317

B.R. at 393-94, we cannot do so here. Mr. Akers’ only assignment

of error in his cross-appeal concerns the bankruptcy court’s

dispositive findings on the § 727(a) claims, and we simply cannot

meaningfully consider those findings without the January 26, 2011

trial transcript.
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

As it turned out, we were able to conduct a meaningful 19

merits review of her appeal without all of the requisite

transcripts. See n.17, supra. The same cannot be said for our

ability to conduct a merits review of Mr. Akers’ appeal.

25

Under appropriate circumstances, when we are confronted with

a materially incomplete record, including the absence of

essential transcripts, we may either dismiss the appeal or

summarily affirm. Id. We acknowledge that, before we do so, we

typically consider whether some judicial action short of

dismissal or summary affirmance is justified in light of the

circumstances presented. See Ehrenberg v. Cal. State Fullerton

(In re Beachport Enter.), 396 F.3d 1083, 1087 (9th Cir. 2005). 

When considering what action to take, we ordinarily look at the

impact of the sanction and the possibility of employing alternate

sanctions. Id. We also assess whether the appellant or his or

her counsel is more responsible for the procedural noncompliance. 

Id. 

However, as Beachport itself pointed out, when the

noncompliance with procedural rules is “egregious” an explicit

discussion of alternative sanctions is unnecessary. Id. at 1087.

“Egregious” is precisely how we would describe Mr. Akers’ failure

to supply the January 26, 2011 trial transcript. Mr. Akers was

well aware of the requirement to provide necessary transcripts. 

In fact, he argued on appeal that Ms. Castillo’s failure to

provide such transcripts should result in dismissal of her

appeal. Less than two pages earlier, he had argued in his 19

appellate brief that we should overturn the bankruptcy court’s

§ 727(a) ruling, which hinged solely on the court’s findings

regarding the Castillos’ credibility and their intent. We simply
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

26

cannot fathom how Mr. Akers expected us to address the merits of

his appellate argument without the January 26, 2011 trial

transcript. 

Furthermore, we explicitly warned both parties in an order

we issued on December 29, 2011, that the failure of either party

to provide us with necessary transcripts could result in

dismissal or summary affirmance of either or both of the

cross-appeals. Yet Mr. Akers still took no action to provide us

with the transcript we needed to address his cross-appeal from

the § 727(a) ruling.

Under these circumstances, we consider it appropriate to

summarily affirm the bankruptcy court’s § 727(a) ruling.

CONCLUSION

For the reasons set forth above, we VACATE AND REMAND the

bankruptcy court’s § 523(a)(4) ruling, and we AFFIRM the court’s

§ 727(a) ruling.