Court Opinion

ID: 9490263
Source: CourtListenerOpinion
Date Created: 2023-08-05 13:38:01.257572+00
Date Added: 2024-06-11T17:53:59.366752
License: Public Domain

BEEZER, Circuit Judge:
James Murray, a creditor of Steven Bammer, appeals a final judgment of the Bankruptcy Appellate Panel (“BAP”). The BAP held that Bammer’s actions were not malicious within the meaning of 11 U.S.C. § 523(a)(6) and that Bammer’s debt to Murray was dischargeable. We have jurisdiction pursuant to 28 U.S.C. § 158(d) and affirm.
I
Alta Bammer, Steven’s mother, embezzled money from Murray and others through fictitious real estate transactions between 1985 and 1990. Her residential mortgage payments were delinquent, and that, coupled with other credit difficulties, impaired her ability to obtain a further loan secured by a third mortgage. She informed Steven of her legal and financial difficulties. By agreement, she conveyed her residential property to her son without consideration and with the understanding that he would obtain a loan using the property as collateral. No judgment liens were recorded against the property at the time of the conveyance.
The proceeds of the loan were to be used to pay Alta Bammer’s debts. Alta and Steven Bammer agreed that the encumbered property would be sold and the net proceeds of sale were to be applied in payment of the mortgage debt. Steven Bammer testified that, although he considered himself able to make payments on the third mortgage loan, he did not intend to have to make these payments because of the Bammers’ plan to sell the property.
When the loan closed in November 1990, most of the proceeds were applied in payment of past due and future mortgage payments and in satisfaction of other debts incurred by Alta Bammer. Alta Bammer received the balance of the third mortgage loan proceeds and applied them to her personal use. Steven Bammer transferred the property back to his mother in April 1991.
At nearly the same time Bammer obtained the loan, Murray brought actions for fraud against Alta Bammer and for fraud and fraudulent conveyance against Steven Bammer. A restitution lien in favor of Murray was recorded against the property in April 1991 after Steven Bammer had conveyed the property back to his mother. Although the Bammers had planned to sell the property quickly, it did not sell until November 1991. In March 1992, a California state court awarded Murray a judgment of more than $107,000 against Alta and Steven Bammer jointly and severally. Steven Bammer filed for bankruptcy in June 1992. Murray sought to have his judgment against Steven Bammer declared nondischargeable under 11 U.S.C. § 523(a)(6). The bankruptcy court determined that Bammer had “just cause” for his actions and concluded that his debt to Murray was dischargeable. The BAP affirmed.
II
We review decisions of the BAP de novo. In re Alsberg, 68 F.3d 312, 314 (9th Cir.1995), cert. denied, — U.S. -, 116 S.Ct. 1568, 134 L.Ed.2d 667 (1996). We review the bankruptcy court’s findings of fact for clear error. Id.
The Bankruptcy Code is “designed to afford debtors a fresh start, and we interpret liberally its provisions favoring debtors.” In re Bugna, 33 F.3d 1054, 1059 (9th Cir. 1994). Exceptions to discharge under 11 U.S.C. § 523, consistent with effectuating the underlying purposes of the bankruptcy code, are to be construed narrowly. In re Riso, 978 F.2d 1151, 1154 (9th Cir.1992).
III
11 U.S.C. § 523(a)(6) provides:
*1358(а) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt—
(б) for willful and malicious injury by the debtor to another entity or the property of another entity[.]
A “willful and malicious” act, for purposes of 11 U.S.C. § 523(a)(6), has been characterized as “a wrongful act, done intentionally, which necessarily causes injury and is without just cause or excuse.” In re Cecchini, 780 F.2d 1440, 1443 (9th Cir.1986).
We need not consider whether the conveyance from Alta Bammer to Steven Bammer was fraudulent or whether Steven Bammer’s actions in obtaining a secured loan constituted common law fraud or deceit. These matters are inherently state law questions that have been resolved by California state courts in this matter.1 Dischargeability in bankruptcy proceedings, conversely, is entirely a federal law question upon which the bankruptcy court received evidence, especially on the issue of whether Bammer’s actions were “malicious” within the meaning of 11 U.S.C. § 523(a)(6).
We have considered both objective facts and subjectively held beliefs of the debtor in determining whether an individual’s conduct was malicious. See, e.g., In re Littleton, 942 F.2d 551, 555-56 (9th Cir.1991) (acknowledging that the debtors’ actions violated loan agreements with creditor, and that debtors’ efforts to make business survive, rather than personal gain, was debtors’ “dominant motivation”). A debtor is not free to injure others maliciously, however, and escape liability for his actions by pleading that he subjectively held a belief that his actions would lead to good. Instead, the debtor’s subjectively held beliefs are examined for their objective reasonableness. This inquiry falls to the bankruptcy court, where the objective reasonableness of a debtor’s actions implicitly or explicitly will be considered in the determination whether a debtor’s actions were willful and malicious.
The court made a number of findings regarding Bammer’s beliefs and motivations. The court found Bammer credible when he testified that he did not obtain the loan as a way of unjustly enriching himself at the expense of creditors, but rather, as a way to help his mother with expenses he viewed as critical. The court also accepted Bammer’s testimony that he and his mother planned to sell the property soon after obtaining the third mortgage loan.
In addition to finding that Bammer acted out of compassion for his mother, the bankruptcy court made a number of objective findings. The court found that the property conveyance by mother to son without consideration violated a California statute against fraudulent conveyances. It found that Bam*1359mer did not exert any personal control over the loan proceeds.
Taken together, we conclude that Bammer’s motives and the lack of personal benefit he derived from obtaining the loan are compelling reasons favoring discharge of his debt to Murray. See Littleton, 942 F.2d at 554-56. The California statute against fraudulent conveyances provides that the remedies for its violation may include civil liability for transferees who receive the property. See Cal.Civ.Code § 3439.08. Civil liability does not equal nondischargeability, however. Although Bammer did accept conveyance of his mother’s property without consideration, this was not an element of a scheme to injure creditors by wasting the proceeds of the loan and then declaring bankruptcy. After carefully reviewing the record, we conclude that Bammer’s actions were not malicious within the meaning of 11 U.S.C. § 523(a)(6) and that his debt to Murray was properly discharged.
AFFIRMED.

.California Superior Court found Steven Bammer had violated the California statute against fraudulent conveyances. See Cal.Civ.Code §§ 3439.04, 3439.05. The dissent makes a number of references to Bammer's "fraud." The bankruptcy court at several points termed Bammer's violation of the California's statute concerning fraudulent conveyances “constructive fraud.”
Constructive fraud is quite different from actual fraud, however. Sections 1572-73 of the California Civil Code define actual and constructive fraud. They provide:
§ 1572. Actual fraud
Actual fraud, within the meaning of this Chapter, consists in any of the following acts, committed by a party to the contract, or with his connivance, with intent to deceive another party thereto, or to induce him to enter into the contract:
1. The suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
2. The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true;
3. The suppression of that which is true, by one having knowledge or belief of the fact;
4. A promise made without any intention of performing it; or
5. Any other act fitted to deceive.
§ 1573. Constructive fraud
Constructive fraud consists:
1. In any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him; or,
2. In any such act or omission as the law specially declares to be fraudulent, without respect to actual fraud.
§§ 1572-73 Cal.Civ.Code (emphasis added).