Court Opinion

ID: 9477338
Source: CourtListenerOpinion
Date Created: 2023-08-05 06:20:55.67496+00
Date Added: 2024-06-11T17:45:49.727646
License: Public Domain

*906PREGERSON, Circuit Judge,
dissenting:
I believe the majority opinion misconstrues the case law relating to bad faith waste and consequently reaches the wrong result in this case. In this case, the trial court found that the debtor acquired the subject property — a residential hotel for transients — in good condition and in compliance with applicable codes and ordinances. (Tr. Ct. Finding # 11) The trial court also found that Mills was an experienced owner-manager of commercial property who “understood the requirements for regular maintenance, operation, and management of the premises.” (Tr. Ct. Find. # 12-13) Yet by the time the deed was foreclosed, the hotel had deteriorated to such an extent that 48 of the 67 rooms and several of the communal bathrooms, hallways, and stairways violated state and city housing laws, the county fire department had cited the building for various code infractions, and the hotel had become infested with rodents, cockroaches and other vermin. (Tr. Ct. Finding # 17) Nonetheless, the majority reverses the trial court’s conclusion, upheld by the BAP, that Mills’ utter failure to maintain the property constituted bad faith waste, rendering his debt nondischargeable. I disagree.
The majority bases its holding on Cornelison v. Kornbluth, 15 Cal.3d 590, 542 P.2d 981, 125 Cal.Rptr. 557 (1975), but misapprehends the holding of that decision. According to the majority, “Sdrawde’s claim depends on whether the evidence produced at trial was sufficient to establish that Mills committed ‘bad faith’ waste rather than merely failed to maintain the property because of economic difficulties.” Op. at 904. Cornelison does not set up any such dichotomy between “bad faith” waste and damage resulting from the debtor’s “economic difficulties.” Rather, Cornelison draws the distinction between “bad faith” waste and damages caused by a general “economic downturn” or waste which results “solely or primarily” from “the economic pressures of a market depres-sion_” Cornelison, 15 Cal.3d at 604, 542 P.2d 981, 125 Cal.Rptr. 557. Cornelison, in fact, expressly holds that “recovery for waste against the mortgagor following nonjudicial foreclosure sale is barred by [Cal.Civ.Proc.Code § 580’s] proscription against deficiency judgments when the waste actually results from the depressed condition of the general real estate market but not when the waste is caused by the ‘bad faith’ acts of the mortgagor.” Id. at 605, 542 P.2d 981, 125 Cal.Rptr. 557 (emphasis added).
In Hickman v. Mulder, 58 Cal.App.3d 900, 908, 130 Cal.Rptr. 304 (1976), the court reiterated that this distinction is controlling. The Hickman court saw the issue in Cornelison as “whether the decline in the value of the security has been the result of bad faith waste or has resulted from the depressed condition of the general real estate market.” Hickman, 58 Cal.App.3d at 907, 130 Cal.Rptr. 304 (emphasis added). Hickman then explained that an appropriate affirmative defense to an allegation of bad faith waste would “assert that the impairment of the security resulted from a decline in real estate values_” Id. at 909, 130 Cal.Rptr. 304. Mills has made no such argument here.
Nowhere does Hickman or Cornelison state that economic difficulties peculiar to the debtor (as opposed to those caused by a depressed real estate market generally) establish a viable defense to allegations of bad faith waste. We would expect any debtor seeking protection of the bankruptcy laws to be in a position of serious economic distress. Cornelison does not stand for the proposition that such individual circumstances alone can insulate the debtor from charges of bad faith waste.
The question whether a debtor has committed bad faith waste is one, according to Cornelison, for the trier of fact. Comeli-son plainly declares that the cause of an impairment to a security — whether it is a general economic decline or bad faith waste — is to be ascertained by the trier of fact. Cornelison, 15 Cal.3d at 604, 542 P.2d 981, 125 Cal.Rptr. 557. See also Hickman, 58 Cal.App.3d at 908, 130 Cal.Rptr. 304. The trial judge in this case found that Mills’ total refusal to maintain the property constituted bad faith waste. We will not overturn the trial court’s factual findings unless we find them clearly erroneous. Mills had the burden of presenting sufficient evidence to give the court “the definite and firm conviction that a mistake has been committed.” Anderson v. City of Bessemer, N.C., 470 U.S. 564, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 *907L.Ed. 746 (1948)). He has failed to meet this burden. Comelison defines bad faith waste as waste committed recklessly, intentionally, or maliciously. Cornelison, 15 Cal.3d at 604, 542 P.2d 981, 125 Cal.Rptr. 557. The majority concedes that, under Hickman, neglect and inaction clearly can constitute bad faith waste. See Hickman, 58 Cal.App.3d at 908, 130 Cal.Rptr. 304. Yet, the majority fails to distinguish Hickman. In that case the court found that:
An allegation that the defendants “failed to cultivate, irrigate, fertilize, fumigate, prune and do all other acts necessary to preserve said citrus trees and vines” without question makes out a case for waste. This, coupled with the allegation of “willful mismanagement” brings the pleading effort within the concept of bad faith waste ... and entitles the beneficiaries of the deed of trust to take their case to the trier of fact for determination of whether bad faith waste has actually been committed.

Id.

Mills’ refusal to clean, repair or otherwise maintain the hotel is no different, nor any less crucial to maintaining the value of the security, from the agricultural neglect involved in Hickman. Thus, there can be no question that the type of conduct involved here may constitute bad faith waste. The only remaining issue is whether the damage caused by Mills’ inaction was committed recklessly or intentionally.
The trial court found that Mills was an experienced property owner/manager who acquired the property in good condition. The trial court further found that Mills “willfully mismanaged” the property, causing its deteriorated condition, and that he delayed foreclosure by tendering checks, but then stopping payment on them. There was also evidence that Mills ignored Edwards’ advice and refused for three months before the foreclosure to apply any funds to make desperately needed repairs. Mills has not shown any of these factual determinations to be clearly erroneous. These facts amply support the trial court’s conclusion that Mills committed bad faith waste.
Krone v. Goff, 53 Cal.App.3d 193, 127 Cal.Rptr. 390 (1975), is easily distinguishable. Krone involved impairment to a security resulting from an earthquake, fire, and the purchaser’s failure to pay taxes. Krone held only that damage caused by “ordinary wear and tear,” an Act of God, or mere failure to pay taxes does not suffice to establish waste. Krone, 53 Cal.App.3d at 195, 127 Cal.Rptr. 390. Clearly Mills’ willful neglect of the property here cannot be attributed to an Act of God and far surpasses ordinary wear and tear.
Because I find that Mills does owe a debt to Sdrawde for bad faith waste committed on the property, the question then becomes whether Mills’ acts constitute “willful and malicious injury” under 11 U.S.C. § 523(a)(6). We defined “willful and malicious injury” under that section in In re Cecchini, 780 F.2d 1440, 1443 (9th Cir.1986). In Cecchini, we held that “when a wrongful act ... done intentionally, necessarily produces harm and is without just cause or excuse, it is ‘willful and malicious’ even absent proof of a specific intent to injure.” Id. Mills’ .refusal to make any repairs or otherwise maintain the property, while he diverted funds to other uses, was wrongful, and Mills certainly knew the consequences of such acts. Consequently, I believe that Mills’ debt to Sdrawde, arising from his commission of bad faith waste, should not be discharged.
For the reasons set forth above, I dissent from the majority’s reversal of the bankruptcy appellate panel’s decision.