Case Name: In re Robert L. MILLS, Debtor. SDRAWDE TITLEHOLDERS, INC., a California corporation, Plaintiff/Appellee, v. Robert Lee MILLS, etc., Defendants/Appellants
Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
Jurisdiction: United States
Decision Date: 1987-04-21
Citations: 73 B.R. 638
Docket Number: BAP No. CC 86-1122 MoVMe; Bankruptcy No. LA 83-00140 GM; Adv. No. 83-3882 GM
Parties: In re Robert L. MILLS, Debtor. SDRAWDE TITLEHOLDERS, INC., a California corporation, Plaintiff/Appellee, v. Robert Lee MILLS, etc., Defendants/Appellants.
Judges: Before MOOREMAN, MEYERS and YOLINN, Bankruptcy Judges.
Reporter: West's Bankruptcy Reporter
Volume: 73
Pages: 638–644

Head Matter:
In re Robert L. MILLS, Debtor. SDRAWDE TITLEHOLDERS, INC., a California corporation, Plaintiff/Appellee, v. Robert Lee MILLS, etc., Defendants/Appellants.
BAP No. CC 86-1122 MoVMe.
Bankruptcy No. LA 83-00140 GM.
Adv. No. 83-3882 GM.
United States Bankruptcy Appellate Panels of the Ninth Circuit.
Argued and Submitted Oct. 29, 1986.
Decided April 21, 1987.
Jerry H. Green, Law Offices of Jerry H. Green, Los Angeles, Cal., for defendants-appellants.
Joseph D. Frascella, Joseph D. Fraseella, P.C., Santa Monica, Cal., for plaintiff-appel-lee.
Before MOOREMAN, MEYERS and YOLINN, Bankruptcy Judges.

Opinion:
OPINION
MOOREMAN, Bankruptcy Judge.
By this appeal, the debtor challenges an order of the bankruptcy court precluding the discharge of a debt resulting from the operation of a hotel by the debtor. The trial court found that the debtor had committed waste during his possession of the hotel by failing to adequately maintain the premises. On this basis, the court refused discharge of a debt owing to the holder of the deed of trust pursuant to 11 U.S.C. Section 523(a)(6). For the reasons set forth below, we affirm.
FACTS
The debtor herein, Mills, purchased a 67 unit hotel building from Martin Edwards on December 31, 1980, with a sales price of $900,000 and deed of trust in the amount of $880,000. Prior to selling the hotel to Mills, Edwards spent approximately two years and $200,000.00 [R.T. p. 18, Ins. 17-25] to repair and refurbish the building to a reasonable condition. [See e.g. R.T. Ins. 14-16] At the time of the transfer to Mills, gross income on the property was approximately $14,000.00/month [R.T. p. 19, In. 25 — p. 20, In. 8] and the building was about 95 percent occupied. [R.T. p. 20, Ins. 9-12]
During negotiations for the sale of the building, Mills represented to Edwards that he and his wife had substantial experience with property management and that he was currently managing another hotel property. [R.T. p. 76, Ins. 1-9; Finding of Fact # 12]
Edwards conveyed his interest to the plaintiff herein, Sdrawde, and Mills subsequently took possession of the unit in February, 1981. Upon receipt of the premises by Mills, the building was in compliance with applicable codes and ordinances and in satisfactory condition and repair with no known infestation of roaches and/or other vermin. [R.T. p. 12-16, 70; Finding of Fact #11] Edwards discussed with Mills the various aspects of the operation of the premises as a hotel rather than as apartments (e.g. local law allowed easier removal of problem renters in a hotel). In addition, Edwards informed Mills of the numerous systems he had devised to maintain the premises and avoid vandalism, as well as providing the various forms to continue these mechanisms. Finally, Edwards offered Mills free consulting services with respect to the operation and management of the hotel and encouraged his use of these services. [See R.T. p. 40, Ins. 7-25; p. 43, In. 21 — p. 44, In. 25; p. 46, Ins. 15-17; p. 47, In. 23 — p. 49, In. 1]
Mills testified that the income from the building during his ownership was about $7,000/month. He also testified that spent approximately $3,000/month on maintenance and repairs for three months as well as making the first three monthly payments of $8,000/month due under the deed of trust with Edwards. [R.T. p. 84, In. 24 — p. 85, In. 1; p. 89, Ins. 10-17; see also p. 26, In. 9-16] There is no dispute that Mills did not contribute any funds either to maintain or repair the premises or on the deed of trust obligation. During this latter time period, several checks were tendered to Edwards by Mills although Mills immediately stopped payment on those checks to avoid negotiation. [R.T. p. 27, In. 12 — p. 28, In. 11; Plaintiffs Trial Exhibit # 5]
On September 3, 1981, a state court receiver removed Mills from possession based upon his failure to comply with the terms of the sales contract. As a result of Mills' default, the property was sold at a non-judi-eial trustee's sale, with Sdrawde purchasing the building for a bid of $100.00. At the time of the sale, the outstanding obligation owed by Mills was $606,565.67.
Upon return of the property to Edwards, an inspection was performed on the premises. From this inspection, it was determined that 48 of the 67 rooms were in violation of the state and city housing laws and ordinances. [Plaintiff's Trial Exhibit # 8 & 9; Finding of Fact*# 17] The general sanitation of the building and the fire equipment were also found to be in violation of the requisite codes and ordinances. [Id.] Two of the four communal showers had deteriorated such that they were unusable and one of the four public restrooms in the building was out of service. [Id.] In light of these conditions, the vacancy factor for the building was much higher than when Mills purchased the hotel.
In order for Edwards to restore the building to acceptable standards, he was required to spend at least $125,000.00 over the six months it took to finish the repairs. [R.T. p. 38, Ins. 9-20] However, two years passed prior to achieving the income stream which had been attained prior to the sale to Mills.
Mills filed for bankruptcy protection after the trustee sale. Sdrawde, as legal title holder to the property, brought an adversary action seeking to hold non-dischargea-ble the amount owing to them. The basis of the action was that Mills had committed waste upon the property. After a hearing on the matter, the court found that the plaintiff was entitled to an award of $143,-750.00 as a result of the waste caused by Mills, and that this award was non-dis-chargeable. The debtor appeals this decision on two grounds, claiming that waste does not amount to conduct sufficient to prevent dischargeability and that based upon the amount of the bid by the plaintiff at the foreclosure sale, it is precluded from obtaining such a judgment.
STANDARD OF REVIEW
In reviewing decisions of the bankruptcy court, this Court reviews conclusions of law de novo and findings of fact shall not be set aside unless clearly erroneous. See Bankruptcy Rule 8013; Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985); In re Global Development Corp., 759 F.2d 724, 726 (9th Cir.1985).
As set forth in 11 U.S.C. Section 523(a)(6),
(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt—
(6) for willful and malicious injury by the debtor to another entity or to the property of another entity."
In a recent opinion, the Ninth Circuit Court of Appeals has defined "willful and malicious" as "an intentional act which causes injury." See In re Cecchini, 780 F.2d 1440, 1442 (9th Cir.1986). The Court set forth the appropriate standard as follows: "Therefore, a wrongful act done intentionally, which necessarily produces harm and is without just cause or excuse, may constitute a willful and malicious injury." Id., at 1443, citing 8 Collier on Bankruptcy Section 523.16 (15th ed. 1983).
In the instant case, the trial court found that debtor had committed waste through willful mismanagement by failing to adequately preserve and maintain the premises in the condition in which he obtained them from the seller, during a time period during which income was not utilized to protect the property. These findings included numerous violations of fire, health and safety codes, rendering much of the premises unusable.
The debtor challenges this conclusion, contending that the mere failure to maintain premises is not waste and that there was no evidence presented that he intentionally destroyed the premises. He finally argues that this action for waste is barred under these facts pursuant to Cornelison v. Kornbluth, 15 Cal.3d 590, 125 Cal.Rptr. 557, 542 P.2d 981 (1975).
In regard to Mills' first contention, he cites Krone v. Goff, 53 Cal.App.3d 191, 127 Cal.Rptr. 390 (1975), where the court indicated that "waste does not embrace a breach of covenant to repair, whether the damage is caused by ordinary wear and tear or an act of God." Id., 127 Cal.Rptr. at 393. While Krone does hold that ordinary wear and tear are excluded from the definition of waste, it is inapposite to the facts herein. The trial court found that Mills engaged in willful mismanagement, resulting in a majority of the rooms being in violation of state health, fire and safety codes. The violations included numerous plumbing problems, broken windows, holes in the walls and ceilings, unusable public baths and toilets, and the infestation of cockroaches throughout the building. The court also found that such acts and omissions by Mills were done in bad faith. These findings are not within the scope of "ordinary wear and tear" and are sufficient to support an action for waste. See Cornelison v. Kornbluth, supra, 125 Cal.Rptr., at 567, 542 P.2d, at 991; Hickman v. Mulder, 58 Cal.App.3d 900, 130 Cal.Rptr. 304, 310 (1976).
It should also be noted that the trial court's determination was not based solely upon Mills' inaction. The record reflects that Mills actively delayed Edwards from foreclosing on the property by tendering checks for the amounts owing and immediately stopping payment prior to negotiation. This combined with the fact that Mills ignored and refused all of the advice and suggestions made by Edwards and put no funds into maintenance and repair of the building for three months while he was engaged in delaying the foreclosure supports the trial court's finding that Mills acted in bad faith.
Had Mills not filed a petition for relief in the bankruptcy court, the facts surrounding the transaction would have supported an action for waste in the state court. See e.g. Cornelison v. Kornbluth, supra, 125 Cal.Rptr., at 567, 542 P.2d, at 991. Where parties are "[rjeckless, intentional, and at times even malicious despoilers of property . the purchase money lender should not go remediless...." Id. A bankruptcy petition should not alter this result, although it should be made clear that this decision should not be construed to affect any of the traditional defenses to an action for waste. See e.g. Powell, Real Property Par. 647 (1986).
Further, Mills has failed to present evidence sufficient to support a finding that the trial court's determination of the facts involved herein was clearly erroneous. In order to meet this standard, evidence must be presented such that this Court is left "with the definite and firm conviction that a mistake has been committed." Anderson v. City of Bessemer City, N.C., supra, 105 S.Ct., at 1511 (citing United States v. United States Gypsum Co., 333 U.S. 364, 68 S.Ct. 525, 92 L.Ed. 746 (1948)). The debtor has not presented any such compelling evidence as a basis for such a finding. In making its determination, the court found that Mills had previous experience in operating hotels and commercial property and that he knew that by failing to maintain the premises, there would be a substantial diminution in the value of the property. Such a finding supports the trial court's determination of non-dischargeability. Pursuant to In re Cecchini, supra, one need only prove an intent to act and that harm will necessarily result from the act of inaction.
Accordingly, as the record demonstrates that Mills intentionally refused to maintain the premises and that harm would necessarily result from such inaction, the order of the trial court must be affirmed.
Mills also challenges the ability of the plaintiff to bring this action. He claims that due to the bid by Sdrawde at the foreclosure, any claims for waste are precluded, citing Cornelison v. Kornbluth, supra. In Cornelison, the California Supreme Court made the following statement:
If the beneficiary or mortgagee at the foreclosure sale enters a bid for the full amount of the obligation owing to him together with the costs and fees due in connection with the sale, he cannot recover damages for waste, since he cannot establish any impairment of his security, the lien of the deed of trust or mortgage having been theretofore extinguished by his full credit bid and all his security interest in the property thereby nullified. If, however, he bids less than the full amount of the obligation and thereby acquires the property valued at less than the full amount, his security has been impaired and he may recover damages for waste in an amount not exceeding the difference between the amount of his bid and the full amount of the outstanding indebtedness immediately prior to the foreclosure sale.
Id., 125 Cal.Rptr., at 569, 542 P.2d, at 993. The trial court found that the plaintiff bid $100.00 at the foreclosure sale, at a time when the outstanding liability amounted to $606,565.67. As the bid was not a full credit bid, damages for waste may be recovered. See id. The court also found that the plaintiffs security interest had been impaired in the amount of $143,750.00 by the acts and omissions of Mills. As this amount awarded does not exceed the difference between the amount of the bid and the amount of the indebtedness prior to the sale, it falls within the guidelines as set forth in Cornelison, supra.
Accordingly, as the record in this matter does not support the appellant's contentions, the order of the bankruptcy court is hereby AFFIRMED.
. The deed of trust signed by Mills indicates a down payment of $20,000.00. Appellant argues in his brief that he spent approximately $192,-000.00 in down payment, mortgage payments and repairs. However, in briefs filed before the trial court he argued that this amount was $150,000.00. While the calculation of these amounts differs, it does not affect the disposition herein.