Court Opinion

ID: 9521946
Source: CourtListenerOpinion
Date Created: 2023-08-07 02:15:45.711272+00
Date Added: 2024-06-11T13:02:06.287610
License: Public Domain

VOLINN, Bankruptcy Judge,
dissenting:
Six months before filing a petition in bankruptcy, the debtor invested $150,000 to purchase a subordinate interest in a hotel for low-income transients. The Beverly Hotel was already encumbered by four liens in the total amount of $700,000. The debtor acquired the hotel believing that it would generate sufficient income to cover maintenance and debt service.1 It rapidly became clear that his belief was unwarranted. The seller had represented to the debtor that the hotel would generate a monthly income of $14,000. The debtor never received more than $7,000 per month. The debtor asserts he spent $3,000 per month on maintenance and repairs, but such expenditures proved inadequate. During the six months the debtor had possession of the hotel, its condition deteriorated until it was in violation of a number of health and safety regulations. In addition, because of abuse by tenants, a number of its rooms became uninhabitable.
The debtor’s failure to make adequate repairs appears to have stemmed directly from his negative cash flow. This predicament was compounded by financial problems arising from other property he owned. Bankruptcy soon followed. Appellee testified that in order to return the premises to an acceptable state, $125,000 of repairs were required. The bankruptcy court determined that the debtor was guilty of waste. The court held that the debtor’s *643waste was intentional and that therefore the cost of repairs would be nondischargeable under Bankruptcy Code section 523(a)(6).
The issue on appeal is whether the findings of the trial court can support a conclusion of intentional waste.
The court below and the majority have relied on the recent Ninth Circuit opinion of In re Cecchini, 780 F.2d 1440 (9th Cir.1986), holding deliberately forged endorsements of checks to be conversions and therefore nondischargeable as intentional torts pursuant to 11 U.S.C. § 523(a)(6). By its very nature, conversion requires a deliberate or purposeful act with actual knowledge of the consequences or with certain consequences necessarily ensuing. For this reason, conversion is usually an intentional tort, as it was in Cecchini.2
The tort of waste, in contrast, is of a different nature. Waste is often a passive tort. Its origin is commonly in neglect or failure to perform certain acts. Cornelison v. Kornbluth, 15 Cal.3d 590, 594, 598-98, 125 Cal.Rptr. 557, 542 P.2d 981 (1975) (acts of omission as well as commission); Smith v. Cap Concrete, 133 Cal.App.3d 769, 775, 184 Cal.Rptr. 308 (1982). Normally when waste is caused by omission, the tortfeasor’s level of culpability is only negligence.
In the case before us, the debtor failed to undertake certain necessary repairs and maintenance during a relatively short period, six months. The results of the debtor’s omissions were undeniably dramatic. The Beverly was located in a low income area. It was remodeled to cater to transients who were required to pay on a daily basis. The debtor was unable to control the slovenly and destructive behavior of its clientele. The deterioration and destruction was attributed by the trial court to the debtor’s inability to repair, and possibly his inability to screen and supervise tenants. These omissions were considered serious enough to be characterized as intentional.
Although deciding that the debtor’s failure to repair was intentional, the bankruptcy court’s conclusion was qualified. The court, in its oral opinion, ruled out fraud or looting on the part of the debtor, stating:
I don’t think that the income he [the debtor] was generating from it was sufficient to ... find any fraud on his part. I just think that he acted in such a manner that, again under that Ninth Circuit case, he had to have known from his own background, what the outcome of basically abandoning that property in that neighborhood would be. And he acted in such a way that that was, indeed, the outcome. Therefore the debt is nondis-chargeable.
Fraud and looting clearly come within the compass of intentional torts. Failure to make repairs or screen tenants does not. The California courts have recognized that waste may occur purely as a result of a property holder’s financial circumstances.
In construing the anti-deficiency statutes, the California Supreme Court has drawn a distinction between two kinds of waste. The first kind may occur as the result of economic pressures, such as those created in the 1930’s by the Depression.
For example, a purchaser caught in such circumstances may be compelled in the normal course of events to forego the general maintenance and repair of the property in order to keep up his payments on the mortgage debt. If he eventually defaults and loses the property, to hold him subject to additional liability for waste would seem to run counter to the purpose of section 580b and to permit the purchase money lender to obtain a deficiency judgment.
Cornelison, 15 Cal.3d at 604, 125 Cal.Rptr. 557, 542 P.2d 981; accord Hickman v. Mulder, 58 Cal.App.3d 900, 908, 130 Cal.Rptr. 304 (1976).
The first kind of waste, caused by economic circumstances, is contrasted with “bad faith waste.” Property holders guilty of bad faith waste “are reckless, intention*644al, and at times even malicious despoilers of property.” Cornelison, 15 Cal.3d at 604, 125 Cal.Rptr. 557, 542 P.2d 981. The California courts have concluded that the anti-deficiency statutes should not protect those who commit bad faith waste.
The majority contends that the debtor demonstrated bad faith by prolonging his control over the property after default. The court below suggested that the debtor might sooner have recognized his inability to manage the property and given it up to the plaintiff. While in hindsight such action would have been provident, the desire of the debtor to stay with his investment is understandable. This is inconsistent with any conclusion that he abandoned the property or that he intentionally subjected the hotel to the depredations of its transient guests.
The court below suggested that once the debtor was in default, retention of possession in the face of his inability to keep pace with hotel guests’ excessive wear and tear somehow equated with an intention that it happen. If there was a difference in the debtor’s behavior or its consequence during the first three months of his tenure, while he was paying on the contract and the last three months, when he was in default, there is no proof in the record allocating damages to either period.
The majority suggests that the debtor’s having given appellee checks on which he later stopped payment somehow related to an intention on the part of the debtor that the premises be destroyed. These facts, if they evidence anything, demonstrate the debtor’s intention to retain the premises in order to salvage his investment.
The purpose of bankruptcy law is to protect honest albeit incompetent and unfortunate debtors from the consequences of bad business judgment. It is inappropriately harsh to transform improvidence, bungling and ineptitude into nondischargeability for an intentional tort.
I respectfully dissent.

. Debt service was $8,000 per month, which the debtor paid plaintiff for three months.

. "One who does not intentionally exercise dominion or control over a chattel is not liable for a conversion even though his act or omission is negligent.” Restatement (Second) of Torts § 224 (1965).