Court Opinion

ID: 2798996
Source: CourtListenerOpinion
Date Created: 2015-05-07 03:02:38.948261+00
Date Added: 2024-06-11T11:29:30.432435
License: Public Domain

FILED
 1                         ORDERED PUBLISHED                MAY 05 2015

 2                                                     SUSAN M. SPRAUL, CLERK
                                                          U.S. BKCY. APP. PANEL
                                                          OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5
 6   In re:                        )      BAP No.    CC-14-1362-TaDPa
                                   )
 7   YURI PLYAM and NATALIA PLYAM, )      Bk. No.    2:13-bk-15020-BB
                                   )
 8                  Debtors.       )      Adv. No.   2:13-ap-01558-BB
     ______________________________)
 9                                 )
     YURI PLYAM; NATALIA PLYAM,    )
10                                 )
                    Appellants,    )
11                                 )
     v.                            )      O P I N I O N
12                                 )
     PRECISION DEVELOPMENT, LLC,   )
13                                 )
                    Appellee.      )
14                                 )
15                  Argued and Submitted on January 22, 2015
                             at Pasadena, California
16
                              Filed - May 5, 2015
17
               Appeal from the United States Bankruptcy Court
18                 for the Central District of California
19     Honorable Sheri Bluebond, Chief Bankruptcy Judge, Presiding
20
21   Appearances:     Dennis P. Riley of Mesisca Riley & Kreitenberg,
                      LLP argued for appellants Yuri Plyam and Natalia
22                    Plyam; Leo Daniel Plotkin of Levy, Small & Lallas
                      argued for appellee Precision Development, LLC.
23
24   Before:   TAYLOR, DUNN, and PAPPAS, Bankruptcy Judges.
25
26
27
28
 1   TAYLOR, Bankruptcy Judge:
 2
 3        Debtors Yuri Plyam and Natalia Plyam appeal from the
 4   bankruptcy court’s summary judgment excepting a state court
 5   judgment from discharge pursuant to § 523(a)(4)1 and (a)(6), as
 6   to Yuri,2 and pursuant to § 523(a)(6), as to Natalia.
 7        The bankruptcy court granted summary judgment based on
 8   issue preclusion and the state court judgment’s award of actual
 9   and punitive damages for breach of fiduciary duty.   We determine
10   that the bankruptcy court erred as the state court judgment did
11   not include a finding equivalent to willfulness as required for
12   § 523(a)(6) nondischargeability, notwithstanding its award of
13   punitive damages under California Civil Code § 3294.    The state
14   court judgment also failed to establish the existence of an
15   express or technical trust as required for § 523(a)(4)
16   nondischargeability.
17        As a result, we VACATE the judgment and REMAND to the
18   bankruptcy court for further proceedings consistent with this
19   opinion.
20                               BACKGROUND
21        In 2005, Yuri formed Precision Development, LLC, a Nevada
22   limited liability company (“Precision”), for the purpose of
23   developing residential real property in Southern California.
24   Initially, he was its sole member and manager.
25
          1
26           Unless otherwise indicated, all chapter and section
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
27
          2
             We refer to the parties hereafter by their first names
28   for sake of clarity; we intend no disrespect.

                                     2
 1        Precision obtained significant investment capital from
 2   Clare Bronfman and Sara Bronfman (jointly, the “Bronfmans”).
 3   According to the Bronfmans, they eventually invested
 4   approximately $26.3 million.
 5        Between 2005 and 2007, Precision acquired numerous parcels
 6   of real property.    Yuri’s separate business entity oversaw their
 7   development; it did not go well.     Precision’s funds ran out in
 8   2007 before it successfully completed development of or sold any
 9   of the properties.
10        Precision’s operating agreement provided that it would hold
11   title to all real property acquired with Precision funds.      The
12   Debtors, however, caused Precision to deed them three parcels of
13   real property (the “Transferred Properties”).    And once they
14   acquired title, the Debtors alleged ownership of the Transferred
15   Properties in loan documents and used the Transferred Properties
16   as collateral for construction loans.    The Debtors later also
17   transferred a fourth property from Yuri’s business entity to
18   Precision and then from Precision to their family trust.
19        Eventually, the Bronfmans discovered Precision’s dire
20   state; few of its developments were close to completion.
21   Indeed, some remained vacant land.    The only projects with
22   significant development were the Transferred Properties.    And,
23   the Debtors lost even the Transferred Properties to foreclosure
24   by their construction lender.
25        The Bronfmans attempted to remedy the situation.    They
26   subsequently obtained control of Precision and caused it to sue
27   the Debtors in California state court.    The complaint alleged
28   that the Debtors misused Precision funds and diverted its

                                      3
 1   assets.
 2        Following an 18-day trial, a jury entered a special verdict
 3   finding that “Yuri Plyam or Natasha [sic] Plyam” breached their
 4   fiduciary duties to Precision and that “Yuri or Natasha [sic]
 5   Plyam” acted with malice, oppression, or fraud.    The jury
 6   awarded $10,100,000 in general damages and $200,000 in punitive
 7   damages (the “State Court Judgment”).    The Debtors appealed to
 8   the California court of appeal, which affirmed the State Court
 9   Judgment.   See Precision Dev., LLC v. Plyam, 2013 WL 5801759
10   (Cal. Ct. App. Oct. 29, 2013).   The State Court Judgment is now
11   final.
12        The Debtors responded with a chapter 7 bankruptcy, and
13   Precision then commenced an adversary proceeding seeking to
14   except the State Court Judgment from discharge pursuant to
15   § 523(a)(4) (for fraud or defalcation) and (a)(6).3    It
16   subsequently moved for summary judgment or, in the alternative,
17   partial summary judgment.   It based its motion solely on the
18   State Court Judgment’s alleged issue preclusive effect.
19        The Debtors opposed.   They defended against the § 523(a)(4)
20   claim by arguing that Natalia never owed a fiduciary duty to
21   Precision and that Yuri was not a fiduciary during the time of
22   the alleged acts of defalcation.     On the § 523(a)(6) claim, they
23
24        3
             In the adversary complaint, Precision also sought
25   nondischargeability under § 523(a)(2)(A). As relevant to this
     appeal, it obtained summary judgment only as to the § 523(a)(4)
26   and (a)(6) claims. The bankruptcy court dismissed with
     prejudice the § 523(a)(2)(A) claim against both of the Debtors,
27   the § 523(a)(4) claim for defalcation against Natalia, and the
     § 523(a)(4) claim for embezzlement and/or larceny against both
28   of the Debtors. No appeal was taken from those decisions.

                                      4
 1   generally contested the sufficiency of evidence and argued, in
 2   particular, that triable issues of fact existed as to the
 3   justification or excuse for their actions in relation to the
 4   Transferred Properties and the later transfer of the fourth
 5   property to their family trust.       The Debtors also argued that
 6   the State Court Judgment’s punitive damages award did not
 7   satisfy the elements for § 523(a)(6) nondischargeability.
 8        Following arguments at the hearing, the bankruptcy court
 9   relied on issue preclusion and granted summary judgment in part
10   and denied it in part.    It determined that Natalia did not owe a
11   fiduciary duty; thus, it granted summary judgment against her
12   only under § 523(a)(6).    As to Yuri, it granted summary judgment
13   on both the § 523(a)(4) and (a)(6) claims.
14        The bankruptcy court subsequently entered a judgment
15   excepting the State Court Judgment, in the total amount of
16   $10,497,843.24, from discharge.       The Debtors timely appealed.
17                               JURISDICTION
18        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
19   §§ 1334 and 157(b)(2)(I).    We have jurisdiction under 28 U.S.C.
20   § 158.
21                                   ISSUE
22        Did the bankruptcy court err in granting summary judgment
23   to Precision by giving issue preclusive effect to the State
24   Court Judgment as to the § 523(a)(4) and (a)(6)
25   nondischargeability claims?
26                            STANDARDS OF REVIEW
27        We review de novo the bankruptcy court’s decisions to grant
28   summary judgment and to except a debt from discharge under

                                       5
 1   § 523(a)(4) and (a)(6).    See Boyajian v. New Falls Corp. (In re
 2   Boyajian), 564 F.3d 1088, 1090 (9th Cir. 2009); Black v. Bonnie
 3   Springs Family Ltd. P’ship (In re Black), 487 B.R. 202, 210 (9th
 4   Cir. BAP 2013); see also Carrillo v. Su (In re Su), 290 F.3d
 5   1140, 1142 (9th Cir. 2002) (nondischargeability presents mixed
 6   issues of law and fact and is reviewed de novo).
 7          We also review de novo the bankruptcy court’s determination
 8   that issue preclusion was available.       In re Black, 487 B.R. at
 9   210.    If issue preclusion was available, we then review the
10   bankruptcy court’s application of issue preclusion for an abuse
11   of discretion.    Id.   A bankruptcy court abuses its discretion if
12   it applies the wrong legal standard, misapplies the correct
13   legal standard, or if its factual findings are illogical,
14   implausible, or without support in inferences that may be drawn
15   from the facts in the record.    See TrafficSchool.com, Inc. v.
16   Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011) (citing United
17   States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en
18   banc)).
19                                 DISCUSSION
20          Summary judgment is appropriate where the movant shows that
21   there is no genuine dispute of material fact and the movant is
22   entitled to judgment as a matter of law.      Fed. R. Civ. P. 56(a)
23   (applicable in adversary proceedings under Rule 7056).      The
24   bankruptcy court must view the evidence in the light most
25   favorable to the non-moving party when determining whether
26   genuine disputes of material fact exist and whether the movant
27   is entitled to judgment as a matter of law.      See Fresno Motors,
28   LLC v. Mercedes Benz USA, LLC, 771 F.3d 1119, 1125 (9th Cir.

                                       6
 1   2014).   And, it must draw all justifiable inferences in favor of
 2   the non-moving party.   See id. (citing Anderson v. Liberty
 3   Lobby, Inc., 477 U.S. 242, 255 (1986)).
 4        A bankruptcy court may rely on the issue preclusive effect
 5   of an existing state court judgment as the basis for granting
 6   summary judgment.   See Khaligh v. Hadaegh (In re Khaligh), 338
 7   B.R. 817, 831-32 (9th Cir. BAP 2006).   In so doing, the
 8   bankruptcy court must apply the forum state’s law of issue
 9   preclusion.   Harmon v. Kobrin (In re Harmon), 250 F.3d 1240,
10   1245 (9th Cir. 2001); see also 28 U.S.C. § 1738 (federal courts
11   must give “full faith and credit” to state court judgments).
12   Thus, we apply California preclusion law.
13        In California, application of issue preclusion requires
14   that: (1) the issue sought to be precluded from relitigation is
15   identical to that decided in a former proceeding; (2) the issue
16   was actually litigated in the former proceeding; (3) the issue
17   was necessarily decided in the former proceeding; (4) the
18   decision in the former proceeding is final and on the merits;
19   and (5) the party against whom preclusion is sought was the same
20   as, or in privity with, the party to the former proceeding.
21   Lucido v. Super. Ct., 51 Cal. 3d 335, 341 (1990).   California
22   further places an additional limitation on issue preclusion:
23   courts may give preclusive effect to a judgment “only if
24   application of preclusion furthers the public policies
25   underlying the doctrine.”   In re Harmon, 250 F.3d at 1245
26   (citing Lucido, 51 Cal. 3d at 342-43); see also In re Khaligh,
27   338 B.R. at 824–25.
28        The party asserting preclusion bears the burden of

                                     7
 1   establishing the threshold requirements.     In re Harmon, 250 F.3d
 2   at 1245.   This means providing “a record sufficient to reveal
 3   the controlling facts and pinpoint the exact issues litigated in
 4   the prior action.”      Kelly v. Okoye (In re Kelly), 182 B.R. 255,
 5   258 (9th Cir. BAP 1995), aff’d, 100 F.3d 110 (9th Cir. 1996).
 6   Ultimately, “[a]ny reasonable doubt as to what was decided by a
 7   prior judgment should be resolved against allowing the [issue
 8   preclusive] effect.”     Id.
 9        The Debtors do not challenge the bankruptcy court’s
10   determination that the State Court Judgment is final and against
11   the Debtors.    Consequently, we do not review this determination
12   on appeal.
13   A.   The bankruptcy court erred in granting summary judgment to
14        Precision on its § 523(a)(6) claim based on the issue
15        preclusive effect of the State Court Judgment.
16        1.    Exceptional circumstances justify our review of the
17                propriety of issue preclusion as to both Yuri and
18                Natalia.
19        Yuri and Natalia filed a joint opening brief on appeal that
20   requests de novo review of the availability of issue preclusion
21   in connection with the § 523(a)(6) judgment, but named only
22   Natalia when discussing this portion of the summary judgment.
23   Precision, thus, argues that Yuri did not specifically challenge
24   the § 523(a)(6) judgment against him and that he cannot obtain
25   relief from that portion of the summary judgment on appeal.      We
26   acknowledge that a technical waiver exists.     Nonetheless, based
27   on the circumstances of this case and the nature of our ultimate
28   conclusion, we determine that exceptional circumstances exist,

                                        8
 1   and we exercise our discretion and extend review as to Yuri as
 2   well.    See Mano-Y&M, Ltd. v. Field (In re Mortg. Store, Inc.),
 3   773 F.3d 990, 998 (9th Cir. 2014) (appellate court may exercise
 4   discretion to consider waived issues based on exceptional
 5   circumstances).
 6        Here, the Debtors share an attorney and filed a joint
 7   appellate brief, which squarely challenges the bankruptcy
 8   court’s § 523(a)(6) determination.   Our de novo review and
 9   resulting conclusion is based on a strictly legal point.    While
10   the Debtors do not argue this point directly as to Yuri in their
11   opening brief, they do argue in their discussion of § 523(a)(4)
12   that the State Court Judgment did not necessarily decide that
13   Yuri acted with gross recklessness, a less culpable state of
14   mind than that required for § 523(a)(6) willfulness.   We, thus,
15   determine that vacating the judgment solely as to Natalia would
16   be manifestly unjust.
17        Section 523(a)(6) excepts from discharge debts arising from
18   a debtor’s “willful and malicious” injury to another person or
19   to the property of another.   Barboza v. New Form, Inc. (In re
20   Barboza), 545 F.3d 702, 706 (9th Cir. 2008).   The “willful” and
21   “malicious” requirements are conjunctive and subject to separate
22   analysis.4   Id.; In re Su, 290 F.3d at 1146-47.
23
24        4
             A “malicious” injury requires: “(1) a wrongful act,
25   (2) done intentionally, (3) which necessarily causes injury, and
     (4) is done without just cause or excuse.” Petralia v. Jercich
26   (In re Jercich), 238 F.3d 1202, 1209 (9th Cir. 2001). The
     Debtors do not challenge the bankruptcy court’s application of
27   issue preclusion as to § 523(a)(6) maliciousness. As a result,
     that issue is deemed waived. See Padgett v. Wright, 587 F.3d
28   983, 985 n.2 (9th Cir. 2009).

                                      9
 1        2.     The State Court Judgment did not satisfy the element
 2               of willful injury as required for § 523(a)(6)
 3               nondischargeability.
 4        Under § 523(a)(6), the willful injury requirement speaks to
 5   the state of mind necessary for nondischargeability.     An
 6   exacting requirement, it is satisfied when a debtor harbors
 7   “either a subjective intent to harm, or a subjective belief that
 8   harm is substantially certain.”     In re Su, 290 F.3d at 1144; see
 9   also In re Jercich, 238 F.3d at 1208.     The injury must be
10   deliberate or intentional, “not merely a deliberate or
11   intentional act that leads to injury.”     Kawaauhau v. Geiger, 523
12   U.S. 57, 61 (1998) (emphasis in original).     Thus, “debts arising
13   from recklessly or negligently inflicted injuries do not fall
14   within the compass of § 523(a)(6).”     Id. at 64.
15        The terms “willful” and “malicious,” first appearing in the
16   Bankruptcy Act of 1898,5 seemingly derive in some measure from
17   the common law concepts of malice in fact and malice in law,
18   respectively.
19        California, for example, defines malice in law as an
20   “intent to do a wrongful act, established either by proof or
21   presumption of law . . . from the intentional doing of the act
22   without justification or excuse or mitigating circumstances.”
23   In re V.V., 51 Cal. 4th 1020, 1028 (2011) (citing Davis v.
24   Hearst, 160 Cal. 143 (1911); Cal. Penal Code §§ 7(4), 450(e);
25   1 Witkin & Epstein, Cal. Criminal Law § 11) (internal quotation
26   marks omitted); see also Tinker v. Colwell, 193 U.S. 473, 485-86
27
28        5
               30 Stat. 544, ch. II § 17(2) (1898) (repealed 1978).

                                        10
 1   (1904) (“Malice, in common acceptation, means ill will against a
 2   person, but in its legal sense it means a wrongful act, done
 3   intentionally, without just cause or excuse.” (emphasis added)
 4   (quoting Bromage v. Prosser, 4 Barn. & Cress. 247, 107 Eng. Rep.
 5   1051 (K.B. 1825) (internal quotation marks omitted)), superseded
 6   by statute, Pub. L. No. 95-598, 92 Stat. 2549 (1978); Maynard v.
 7   Fireman’s Fund Ins. Co., 34 Cal. 48, 53 (1867) (same).      Thus,
 8   malice in law squares cleanly with § 523(a)(6) maliciousness.
 9        In contrast, malice in fact is defined as “a state of mind
10   arising from hatred or ill-will, evidencing a willingness to
11   vex, annoy, or injure another person.”     Davis v. Hearst, 160
12   Cal. at 160 (emphasis added); In re V.V., 51 Cal. 4th at 1028
13   (“Malice in fact — defined as ‘a wish to vex, annoy, or injure’
14   . . . — consists of actual ill will or intent to injure.”)
15   (emphasis added).
16        This background, highlights two points critical to any
17   § 523(a)(6) willfulness determination.     First, by holding that
18   the requisite state of mind was an actual intent to injure (or
19   substantial certainty regarding injury), the Supreme Court in
20   Geiger effectively adopted a narrow construction and the most
21   blameworthy state of mind included within the common
22   understanding of malice in fact.     As relevant here, under
23   California law, the general definition of malice in fact
24   encompasses less reprehensible states of mind.
25        Second, as the Supreme Court clarified in Geiger,
26   recklessly inflicted injuries do not satisfy the § 523(a)(6)
27   willfulness requirement.   See 523 U.S. at 61-62.    This
28   necessarily includes all degrees of reckless conduct, whether

                                     11
 1   arising from recklessness simple, heightened, or gross; conduct
 2   that is reckless merely requires an intent to act, rather than
 3   an intent to cause injury as required under Geiger.    See H.R.
 4   Rep. 95-595, at 365 (1977) (“‘Willful’ means deliberate or
 5   intentional.   To the extent that Tinker v. Colwell, 193 U.S. 473
 6   [1904], held that a looser standard is intended, and to the
 7   extent that other cases have relied on Tinker to apply a
 8   ‘reckless disregard’ standard, they are overruled.”) (emphasis
 9   added); Restatement (Second) of Torts § 500 cmt. f (1965).      But
10   see Bullock v. BankChampaign, N.A., 133 S. Ct. 1754, 1757 (2013)
11   (holding that, for the purposes of § 523(a)(4), the state of
12   mind for “defalcation” includes gross recklessness).
13        Here, the State Court Judgment provided two possible bases
14   for the application of issue preclusion: the findings in the
15   punitive damages award and the determination of breach of
16   fiduciary duty under state law.    Neither basis supported an
17   application of issue preclusion on the issue of § 523(a)(6)
18   willfulness.
19        3.   The punitive damages award was an insufficient basis
20             for issue preclusion.6
21        The jury’s punitive damages award against both of the
22   Debtors was based on a disjunctive finding of malice,
23   oppression, or fraud.   The “malice, oppression or fraud” finding
24
25        6
             The Debtors make much of the fact that the jury finding
26   was made in the alternative; that is, Yuri or Natalia. But, as
     the bankruptcy court noted, the punitive damages award was
27   entered against both of the Debtors, which necessarily required
     a finding of malice, oppression, or fraud against each
28   individual.

                                       12
 1   arises from California Civil Code § 3294 (“CC § 3294”), which
 2   provides for the recovery of punitive damages in non-contract
 3   breach civil cases.   Each finding supplies an independent basis
 4   for a punitive damages award under CC § 3294.     See Coll. Hosp.
 5   Inc. v. Super. Ct., 8 Cal. 4th 704, 721 (1994).
 6        Civil Code § 3294 provides statutory definitions of these
 7   terms.7   “Malice” is defined as either: (1) conduct that the
 8   defendant intends to cause injury to the plaintiff (“Intentional
 9   Malice”); or (2) despicable conduct carried on by the defendant
10   with a willful and conscious disregard of the rights or safety
11   of others (“Despicable Malice”).     Cal. Civ. Code § 3294(c)(1).8
12   “Oppression” means “despicable conduct that subjects a person to
13   cruel and unjust hardship in conscious disregard of that
14   person’s rights.”   Id. § 3294(c)(2).    And, “fraud” refers to “an
15   intentional misrepresentation, deceit, or concealment of a
16   material fact known to the defendant with the intention on the
17   part of the defendant of thereby depriving a person of property
18   or legal rights or otherwise causing injury.”     Id. § 3294(c)(3).
19
20
          7
             Although enacted in 1872, CC § 3294 remained largely
21   unaltered until amendment in 1980. Civil Code § 3294 was
     previously amended in 1901 (deemed unconstitutional and void in
22   Lewis v. Dunne, 134 Cal. 291 (1901)) and 1905.
          Prior to 1980, although the statute required a finding of
23   malice, oppression, or fraud to recover punitive damages, it did
24   not expressly define those categories. The 1980 amendment added
     the statutory definitions.
25        8
             In 1987, the California legislature amended CC § 3294
26   and added the “despicable” adjective to the type of conduct
     necessary for Despicable Malice and oppression. It also
27   qualified Despicable Malice with the requirement that a
     defendant willfully and consciously disregard the rights or
28   safety of another.

                                     13
 1        Only Intentional Malice, see Brandstetter v. Derebery (In
 2   re Derebery), 324 B.R. 349, 356 (Bankr. C.D. Cal. 2005), and
 3   fraud expressly require an intent to cause injury.   As a result,
 4   only those findings satisfy the § 523(a)(6) willfulness
 5   requirement for the purposes of issue preclusion.    Conversely,
 6   Despicable Malice and oppression, which arise from acts in
 7   conscious disregard of another’s rights or safety, fail to
 8   satisfy the requisite state of mind for § 523(a)(6) willfulness.
 9   As discussed in further detail below, conscious disregard is
10   akin to recklessness.
11              a.   A punitive damages award under California law can
12                   be based on acts in conscious disregard.
13        As defined by the California Supreme Court, a person acts
14   with a conscious disregard of another’s rights or safety when he
15   is aware of the probable dangerous consequences of his conduct
16   and he willfully and deliberately fails to avoid those
17   consequences.   Taylor v. Super. Ct., 24 Cal. 3d 890, 895-96
18   (1979); see also Jud. Council of Cal. Civ. Jury Instruction
19   (CACI) 3940, 3941; Cal. Civ. Jury Instructions (BAJI) 14.71,
20   14.72.1.
21        The conscious disregard requirement found in CC § 3294
22   appears to track the Taylor decision.   In Taylor, the California
23   Supreme Court examined whether the act of driving while
24   intoxicated constituted malice for the purposes of a CC § 3294
25   punitive damages award.   Previously, some California courts held
26   that reckless conduct did not establish malice as required for a
27   punitive damages award.   See G.D. Searle & Co. v. Super. Ct., 49
28   Cal. App. 3d 22 (1975); see also Ebaugh v. Rabkin, 22 Cal. App.

                                     14
 1   3d 891, 896 (1972); Gombos v. Ashe, 158 Cal. App. 2d 517 (1958).
 2   Contra Nolin v. Nat’l Convenience Stores, Inc., 95 Cal. App. 3d
 3   279, 285-88 (1979) (gross recklessness supported punitive
 4   damages award under CC § 3294).    In an earlier case, the
 5   California Supreme Court, however, used the term “reckless
 6   misconduct” in dicta.   See Donnelly v. S. Pac. Co., 18 Cal. 2d
 7   863, 869-70 (1941).
 8         The Taylor court held that “a conscious disregard of the
 9   safety of others [could] constitute malice within the meaning of
10   [CC § 3294].”   24 Cal. 3d at 895.     It also stated that to the
11   extent Gombos v. Ashe was inconsistent with its holding, that
12   case was disapproved.   Id. at 900.     Gombos previously held that
13   drunk driving, while reckless, wrongful, and illegal, did not
14   constitute malice within the meaning of CC § 3294.      158 Cal.
15   App. 2d at 527.   The Taylor court never expressly excluded
16   recklessness as a basis for an award of punitive damages; it
17   thus kept the door open to punitive damages based on a state of
18   mind other than actual intent to injure.
19         Within a year of the Taylor decision, CC § 3294 was amended
20   to require conscious disregard with respect to Despicable Malice
21   and oppression.   In so amending the statute, the California
22   legislature included the two types of malice that exist
23   currently: Intentional Malice and Despicable Malice.      Clearly,
24   it did not intend to include two identical forms of malice in
25   the statutory definition.   Thus, conscious disregard begins to
26   take shape as a state of mind less malicious than an intent to
27   injure.
28   ///

                                       15
 1                    i.   Conscious disregard is the equivalent of
 2                         reckless conduct.
 3          In the continuum of states of mind supporting a judgment
 4   based on tort, recklessness rests between negligence, requiring
 5   no intent, and intentional misconduct, requiring both a
 6   deliberate act and the desire to cause the consequences of the
 7   act.    In Donnelly v. S. Pac. Co., 18 Cal. 2d 863 (1941), the
 8   California Supreme Court considered whether existing law
 9   precluded a personal injury action based on negligence.      It
10   examined the contours of negligence and intentional torts and
11   identified the existence of a third, intermediary category of
12   tort law: “[a] tort having some of the characteristics of both
13   negligence and willfulness occur[ed] when a person with no
14   intent to cause harm intentionally perform[ed] an act so
15   unreasonable and dangerous that he kn[ew], or should [have]
16   know[n], it [was] highly probable that harm [would] result.”
17   Id. at 869 (emphasis added).    Noting the various terms employed
18   by the courts to describe this category of tort, it adopted with
19   approval the term “wanton and reckless misconduct.”    Id.
20          This type of tort, the California Supreme Court explained,
21   “involve[d] no intention, as [did] willful misconduct, to do
22   harm, and i[t] differ[ed] from negligence in that it . . .
23   involve[d] an intention to perform an act that the actor [knew],
24   or should [have] know[n], [would] very probably cause harm.”
25   Id.    Importantly, it recognized that “wanton and reckless
26   misconduct” was more closely akin to willful misconduct than to
27   negligence and, “[t]hus, it justifie[d] an award of punitive
28   damages.”    Id. at 869-70.

                                      16
 1        The Donnelly court’s analysis on this point is dicta, but
 2   it is also consistent with the Restatement of Torts discussion
 3   of reckless conduct.9     The Restatement explains that one type of
 4   recklessness involves the situation where a person knows, or has
 5   reason to know (based on an objective person standard),10 of
 6   facts creating a high degree of risk of physical harm to
 7   another, and deliberately proceeds to act, or fails to act, in
 8   conscious disregard of, or indifference to, that risk.
 9   Restatement (Second) of Torts § 500 cmt. a (1965) (emphasis
10   added).11     The person must know (or have reason to know of) the
11   facts creating an unreasonable risk.     Id.
12        The critical difference between intentional and reckless
13   misconduct is the necessary state of mind; for conduct to be
14   reckless, the person must intend the reckless act but need not
15   intend to cause the resulting harm.     Id., cmt. f.   To establish
16   recklessness, it is sufficient that the person realizes (or
17   should realize) the “strong probability that harm may result,
18   even though he hopes or even expects that his conduct will prove
19   harmless.”     Id.   But, a strong probability is not equivalent to
20
          9
             We refer to the Restatement (Second) of Torts, in
21   deference to the Supreme Court’s discussion of the Restatement
     Second in Geiger and the Ninth Circuit’s decisions in In re
22   Jercich and In re Su. The Restatement (Third) of Torts:
     Liability for Phys. & Emot. Harm §§ 1 (Intent) (2010) and 2
23
     (Recklessness) (2010) do not contain substantive differences
24   that change our analysis.
          10
25               See Restatement (Second) of Torts § 12(1) (1965).
          11
26           The Restatement Second also points out a second type of
     reckless conduct: where the person knows (or has reason to know)
27   of the facts but does not realize or appreciate the high degree
     of risk involved, although a reasonable man in his position
28   would do so. Restatement (Second) of Torts § 500 cmt. a (1965).

                                        17
 1   substantial certainty.   See id. (“[A] strong probability is a
 2   different thing from the substantial certainty without which he
 3   cannot be said to intend the harm in which his act results.”);
 4   id. § 8A cmt. b.   Thus, “[a]s the probability that [injurious]
 5   consequences will follow decreases, and becomes less than
 6   substantial certainty, the [person’s] conduct loses the
 7   character of intent, and becomes mere recklessness.”    Id. § 8A
 8   cmt. b.
 9        Comparing the explanations of reckless conduct provided by
10   the Donnelly court and the Restatement of Torts with the
11   definition of conscious disregard, it becomes clear that
12   conscious disregard proceeds from reckless conduct.    The common
13   factor between conscious disregard and reckless conduct is the
14   accompanying state of mind; both require solely an intent to act
15   and the focus lies there, rather than on an intent to cause the
16   consequences of the act as required by Geiger.   Degrees of
17   recklessness may exist; but, again, whether recklessness is
18   heightened or gross, it is insufficient for a determination of
19   § 523(a)(6) willfulness.
20        In defining conscious disregard, the California Supreme
21   Court in Taylor employed a description consistent with reckless
22   conduct.   As stated, acting with a conscious disregard within
23   the meaning of CC § 3294 requires: (1) being aware of the
24   probable dangerous consequences of one’s own conduct; and
25   (2) willfully and deliberately failing to avoid those
26   consequences.   Taylor, 24 Cal. 3d at 895-96.
27        First, to be aware of probable dangerous consequences, a
28   person must first know or have reason to know of the facts

                                     18
 1   giving rise to a high degree of risk of harm to another.
 2   Knowledge of such facts is an essential element of recklessness.
 3   See Restatement (Second) of Torts § 500 cmt. a.
 4        Second, whether consequences are “dangerous” relates to the
 5   character of a person’s unreasonable conduct and the necessarily
 6   high degree of risk that serious harm will result from that
 7   conduct.   See id., cmts. a, c.
 8        Third, the probability factor of dangerous consequences
 9   also relates to reckless conduct.      See id., cmt. a.   Even a
10   strong probability that consequences may result, however, is not
11   equivalent to substantial certainty for the purposes of intent.
12   See id., cmt. f; id. § 8A cmt. b.      In this context, probable
13   means more likely than not, while substantial certainty requires
14   near certainty.
15        Fourth, the terms “willfully” and “deliberately” mean only
16   that the person failed, by design, to avoid the consequences of
17   his wrongful act.   His intent is focused on the act of being
18   unsuccessful in preventing potential bad consequences, rather
19   than on the actual consequences of his act.      See id. § 500
20   cmt. b (“Conduct cannot be in reckless disregard of the safety
21   of others unless the act or omission is itself intended[.]”).
22        The Supreme Court’s decision in Bullock, although involving
23   a different exception to discharge and federal common law rather
24   than California state law, also strengthens the connection
25   between conscious disregard and recklessness.      There, the
26   Supreme Court held that the term “defalcation,” within the
27   meaning of § 523(a)(4), included a state of mind involving gross
28   recklessness with respect to improper fiduciary behavior.        133

                                       19
 1   S. Ct. at 1757.    In doing so, it concluded that “[w]here actual
 2   knowledge of wrongdoing is lacking, we consider conduct as
 3   equivalent if the fiduciary ‘consciously disregards’ (or is
 4   willfully blind to) ‘a substantial and unjustifiable risk’ that
 5   his conduct will turn out to violate a fiduciary duty.”      Id. at
 6   1759 (quoting Model Penal Code § 2.02(2)(c) (1985)) (emphasis
 7   added).
 8        In sum, conscious disregard within the meaning of CC § 3294
 9   is consistent with reckless conduct as discussed by California
10   cases, the Restatement of Torts, and Bullock.
11                     ii.   California statutory authority and case law
12                           otherwise support that conscious disregard
13                           proceeds from reckless conduct.
14        A statutory analogue lends significant support to the
15   determination that conscious disregard arises from reckless
16   conduct.   California law provides for enhanced remedies in cases
17   of elder abuse.    See Cal. Welf. & Inst. Code § 15657.    In order
18   to claim these enhanced statutory remedies, a defendant must be
19   found guilty of recklessness, oppression, fraud, or malice in
20   the commission of abuse.     See id.    For the purposes of an elder
21   abuse act claim, recklessness is defined as “a ‘deliberate
22   disregard’ of the ‘high degree of probability’ that an injury
23   will occur.”   Delaney v. Baker, 20 Cal. 4th 23, 31 (1999)
24   (citing Cal. Civ. Jury Instructions (BAJI) 12.77, defining
25   “recklessness” for intentional infliction of emotional distress;
26   Restatement (Second) of Torts § 500)).      Thus, recklessness
27   “rises to the level of a conscious choice of a course of action
28   . . . with knowledge of the serious danger to others involved in

                                        20
 1   it.”    Id. at 31-32 (citing Restatement (Second) of Torts § 500
 2   cmt. g).
 3          The descriptions of recklessness for the purpose of an
 4   elder abuse claim and conscious disregard within the meaning of
 5   CC § 3294 are substantively similar.    Indeed, the California
 6   Supreme Court has held that a plaintiff alleging an elder abuse
 7   claim must allege conduct “essentially equivalent” to conduct
 8   necessary to support a CC § 3294 punitive damages award.      See
 9   Covenant Care, Inc. v. Super. Ct., 32 Cal. 4th 771, 789 (2004).
10   It, thus, implicitly recognized that an award of CC § 3294
11   punitive damages can be based on reckless conduct.
12          Moreover, various California courts have recognized the
13   availability of CC § 3294 punitive damages for nonintentional
14   torts when the offensive conduct is a conscious disregard of the
15   rights or safety of others.    See Peterson v. Super. Ct., 31 Cal.
16   3d 147, 158 (1982) (“Nonintentional torts may [] form the basis
17   for punitive damages when the conduct constitutes conscious
18   disregard of the rights or safety of others.”); Potter v.
19   Firestone Tire & Rubber Co., 6 Cal. 4th 965, 1004 (1993)
20   (“[P]unitive damages sometimes may be assessed in unintentional
21   tort actions under [CC §] 3294.”).    Nonintentional torts,
22   including those predicated on reckless conduct, require only an
23   intent to act.    See, e.g., Peterson, 31 Cal. 3d at 158-59
24   (Punitive damages are available to punish “[n]onintentional
25   conduct . . . when a party intentionally performs an act from
26   which he knows, or should know, it is highly probable that harm
27   will result.”) (emphasis added).
28   ///

                                      21
 1                     iii. That “willful” is an additional requirement
 2                          for Despicable Malice does not change the
 3                          outcome of the analysis.
 4        As stated, Despicable Malice is defined as despicable
 5   conduct done willfully and in conscious disregard of the rights
 6   or safety of another; oppression, notably, requires only a
 7   conscious disregard.    Cal. Civ. Code § 3294(c)(1)-(2).    The
 8   additional “willful” requirement in Despicable Malice, however,
 9   does not change the outcome of the analysis.
10        In the context of CC § 3294, the term “willful” refers only
11   to the deliberate conduct committed by a person in a despicable
12   manner.   The statute, thus, employs the dictionary definition of
13   “willful.”    See Geiger, 523 U.S. at 61 n.3 (noting that Black’s
14   Law Dictionary defined “willful” as “voluntary” or
15   “intentional”).    There is no indication that “willful” refers to
16   a subjective intent to injure or a subjective belief that injury
17   is substantially certain to result.     And, this interpretation
18   makes practical sense; to read the statute otherwise would
19   render the inclusion of Intentional Malice in CC § 3294
20   superfluous.
21                b.   Determining that conscious disregard is
22                     insufficient to satisfy the § 523(a)(6)
23                     willfulness requirement is consistent with
24                     existing precedent.
25        Construing conscious disregard as a form of reckless
26   conduct is consistent with Geiger and its progeny, including the
27   Ninth Circuit’s decisions in In re Jercich and In re Su.       As the
28   Supreme Court recognized in Geiger, expanding § 523(a)(6) to

                                       22
 1   include reckless conduct “would obviate the need for
 2   § 523(a)(9), which specifically exempts ‘debts for death or
 3   personal injury caused by the debtor’s operation of a motor
 4   vehicle if such operation was unlawful because the debtor was
 5   intoxicated from using alcohol, a drug, or another substance.’”
 6   Geiger, 523 U.S. at 62 (quoting 11 U.S.C. § 523(a)(9)).
 7        Yet, the availability of punitive damages for injuries
 8   caused while driving intoxicated was exactly the issue before
 9   the California Supreme Court in Taylor.   It was this issue that
10   caused the California Supreme Court to determine that conscious
11   disregard could constitute malice.   Not long after, the
12   California legislature codified the inclusion of conscious
13   disregard into CC § 3294.
14        We cannot reconcile the rationale supplied by the Supreme
15   Court in Geiger in regards to § 523(a)(9) with the factual
16   circumstances giving rise to the conscious disregard standard in
17   Taylor.   Thus, consistent with Geiger, we must reject the
18   attempt to give issue preclusive effect to findings based on
19   conscious disregard in the context of § 523(a)(6) willfulness.
20   As recognized in Geiger, a determination to the contrary would
21   render superfluous § 523(a)(9) in nondischargeability
22   proceedings.
23              c.   Despicable conduct, as also required for
24                   Despicable Malice and oppression, is based on an
25                   objective person standard.
26        In addition to conscious disregard, both Despicable Malice
27   and oppression require conduct that is despicable.   Cal. Civ.
28   Code § 3294(c)(1)-(2).   Conduct is despicable when it is so

                                     23
 1   vile, base, contemptible, miserable, wretched, or loathsome that
 2   ordinary decent people would look down upon and despise it.
 3   Coll. Hosp. Inc., 8 Cal. 4th at 725 (describing despicable as
 4   circumstances that are “base,” “vile,” or “contemptible.”); Jud.
 5   Council of Cal. Civ. Jury Instruction (CACI) 3940, 3941; Cal.
 6   Civ. Jury Instructions (BAJI) 14.71, 14.72.1.
 7        Whether conduct is despicable is measured by an objective
 8   person standard.   See In re Derebery, 324 B.R. at 356.   But, an
 9   objective, reasonable person standard is not allowed in the
10   § 523(a)(6) willfulness analysis.    See In re Su, 290 F.3d at
11   1145 (“By its very terms, the objective standard disregards the
12   particular debtor’s state of mind and considers whether an
13   objective, reasonable person would have known that the actions
14   in question were substantially certain to injure the
15   creditor.”).   Thus, a punitive damages award based on Despicable
16   Malice or oppression does not establish the subjective intent
17   required for § 523(a)(6) willfulness.
18             d.    The disjunctive findings in the punitive damages
19                   award included Despicable Malice and oppression.
20        Here, the CC § 3294 findings in the punitive damages award
21   were stated in the disjunctive: that Yuri and Natalia each acted
22   with malice or oppression or fraud.     On this record, we cannot
23   ascertain the exact basis for the jury’s findings.    Because the
24   punitive damages award may have been based only on a finding of
25   Despicable Malice or oppression, issue preclusion was
26   unavailable on the issue of § 523(a)(6) willfulness.
27        To be clear, our holding does not eviscerate a bankruptcy
28   court’s ability or opportunity to apply issue preclusion to a

                                     24
 1   state court jury’s findings pursuant to CC § 3294.    To the
 2   extent the findings are clearly and solely based on a finding of
 3   Intentional Malice, fraud, or both, such findings are sufficient
 4   to meet the willfulness requirement of § 523(a)(6).    And, of
 5   course, a state court judgment based on an intentional tort may
 6   independently satisfy the § 523(a)(6) willfulness requirement.
 7        But, to the extent that CC § 3294 findings are stated in
 8   the disjunctive or based on Despicable Malice or oppression or
 9   both, those findings prevent the use of issue preclusion as to
10   § 523(a)(6) willfulness.   Even then, however, those particular
11   findings are not without value to a creditor seeking
12   nondischargeability under § 523(a)(6).   The creditor is still
13   entitled to seek issue preclusion on other issues based on
14   findings of Despicable Malice or oppression, including the
15   maliciousness requirement of § 523(a)(6).   Under those
16   circumstances, the bankruptcy court need only try the singular
17   issue of the debtor’s intent for the purposes of § 523(a)(6)
18   willfulness; that is, whether the debtor subjectively intended
19   to cause injury or was substantially certain that injury would
20   follow.   It need not retry the entire state court case a second
21   time.
22        4.   The breach of fiduciary duty determination under
23              California law was an insufficient basis for issue
24              preclusion on the issue of § 523(a)(6) willfulness.
25        In California, the elements for a breach of fiduciary duty
26   are the existence of a fiduciary relationship, breach of that
27   fiduciary duty, and damages.   Oasis W. Realty, LLC v. Goldman,
28   51 Cal. 4th 811, 820 (2011).   There is no particular scienter

                                     25
 1   requirement, let alone a requirement of a subjective intent to
 2   injure.   See Correia-Sasser v. Rogone (In re Correia-Sasser),
 3   2014 WL 4090837, at *8 (9th Cir. BAP Aug. 19, 2014).    As a
 4   result, without more, a judgment for breach of fiduciary duty
 5   under California law cannot support a willfulness determination
 6   under § 523(a)(6).
 7   B.   The bankruptcy court erred in granting summary judgment to
 8        Precision on its § 523(a)(4) claim against Yuri based on
 9        the issue preclusive effect of the State Court Judgment.
10        Section 523(a)(4) excepts from discharge debts for fraud or
11   defalcation while acting in a fiduciary capacity.    Whether a
12   debtor is a fiduciary for the purposes of § 523(a)(4) is a
13   question of federal law.   Lewis v. Scott (In re Lewis), 97 F.3d
14   1182, 1185 (9th Cir. 1996).   The definition is construed
15   narrowly, requiring that the fiduciary relationship arise from
16   an express or technical trust that was imposed prior to the
17   wrongdoing that caused the debt.     Ragsdale v. Haller, 780 F.2d
18   794, 796 (9th Cir. 1986) (“The broad, general definition of
19   fiduciary—a relationship involving confidence, trust and good
20   faith—is inapplicable in the dischargeability context.”); see
21   also Otto v. Niles (In re Niles), 106 F.3d 1456, 1459 (9th Cir.
22   1997).
23        1.    Express or technical trust
24        State law determines whether the requisite trust
25   relationship exists.   See In re Lewis, 97 F.3d at 1185; Mele v.
26   Mele (In re Mele), 501 B.R. 357, 365 (9th Cir. BAP 2013).      The
27   Debtors argue that here an express trust did not exist because
28   the elements for a trust were not satisfied under California

                                     26
 1   law.    They maintain that, at best, the 2005 operating agreement
 2   required that Yuri hold the properties in trust for Precision;
 3   but, because Yuri was the sole member of Precision from 2005 to
 4   2008, the duty to hold the properties in trust was effectively a
 5   duty to himself.
 6          In response, Precision argues that the Debtors ignore
 7   Yuri’s status as its manager, which independently established
 8   fiduciary duties owed to the company.     In any event, it contends
 9   that, based on the 2008 amendment, the Bronfmans’ membership
10   interests in Precision were deemed issued as of the date of the
11   2005 operating agreement.     And, it argues that pursuant to
12   former California Corporations Code § 17153, a manager of a
13   limited liability company is subject to the same fiduciary
14   duties as a partner in a partnership; thus, by extension and
15   pursuant to Ragsdale, a manager is a trustee of the limited
16   liability company.
17          Something that neither party addresses is that Precision is
18   a Nevada limited liability company.     Pursuant to the 2005
19   operating agreement, Precision was organized under the laws of
20   Nevada.     Former California Corporations Code § 17450(a),12 in
21   effect at the time of the underlying events and the state court
22   action, established that: “[t]he laws of the state . . . under
23   which a foreign limited liability company is organized shall
24   govern its organization and internal affairs and the liability
25   and authority of its managers and members.”     Emphasis added.
26          The 2008 amendment to the Precision operating agreement
27
            12
             The new version, California Corporations Code
28   § 17708.01, provides for the same.

                                       27
 1   states that: “[n]otwithstanding a conflict of [l]aws, the
 2   operating agreement may be enforced in the Courts of the State
 3   of California and or in the Courts of the State of New York,
 4   including the Federal District Courts of California and/or New
 5   York.”    Enforcing the operating agreement in a California or New
 6   York court, however, does not alter the law under which the
 7   agreement arose or by which it is governed.    Thus, it appears
 8   that, for the purposes of § 523(a)(4), we look to Nevada law to
 9   determine whether an express or technical trust existed such
10   that Yuri was a fiduciary to Precision.
11               a.   An express trust did not exist.
12        Under Nevada law, an express trust requires that:
13   (1) “[t]he settlor properly manifest[] an intention to create a
14   trust; and [(2)] [t]here is trust property . . . .”    Nev. Rev.
15   Stat. § 163.003.    There are various methods to create a trust,
16   including a declaration by the owner of property that he or she
17   holds the property as trustee or a transfer of property by the
18   owner during his or her lifetime to another person as trustee.
19   Id. § 163.002.    Nevada also permits the creation of a business
20   trust.    See Nev. Rev. Stat. §§ 88A.010-88A.930 (2003).   To
21   create a business trust, a party must file with the Nevada
22   secretary of state a certificate of trust.    See id. § 88A.210
23   (2005).
24        Here, there is no indication that an express trust existed.
25   Neither the 2005 operating agreement nor the 2008 amendment
26   satisfied the requirements for an express trust.    Nor is there
27   anything else in the record that suggests the creation of an
28   express trust during the time that Yuri was manager of

                                      28
 1   Precision.    Similarly, nothing in the record before us evidences
 2   the creation of a business trust.      Thus, the next issue is
 3   whether a technical trust existed under Nevada law.
 4                b.   On this record, we cannot determine whether a
 5                     technical trust existed.
 6        Nevada law does not define a technical trust.      In the
 7   absence of a definition under state law, we construe a technical
 8   trust as one imposed by law.    See In re Mele, 501 B.R. at 365;
 9   see also Teamsters Local 533 v. Schultz (In re Schultz), 46 B.R.
10   880, 885 (Bankr. D. Nev. 1985) (“[A technical] trust . . . may
11   arise by operation of a state statute which imposes trust-like
12   obligations on those entering into certain kinds of
13   contracts.”).
14        Our review of the Nevada Revised Statutes (“NRS”) reflects
15   that a Nevada limited liability company does not necessarily
16   involve a trust relationship between a manager or member and the
17   limited liability company.    One exception — NRS § 86.391 —
18   provides that “[a] member holds as trustee for the company
19   specific property stated in the articles of organization or
20   operating agreement as contributed by the member, but which was
21   not so contributed.”    Nev. Rev. Stat. § 86.391(2) (emphasis
22   added).   And, NRS § 86.311 establishes that “[r]eal and personal
23   property owned or purchased by a company must be held and owned,
24   and conveyance made, in the name of the company.”
25        Unlike California, Nevada does not have a statute equating
26   the fiduciary duties of a manager in a limited liability company
27   context to those of a partner in a partnership.      Therefore,
28   duties under partnership law are irrelevant.      Instead, Nevada

                                       29
 1   law establishes that, in addition to a limited liability
 2   company’s articles of organization, the operating agreement, if
 3   any,13 is central to defining the contours of the fiduciary
 4   relationship.   And, parties to an operating agreement have
 5   significant latitude in expanding or limiting fiduciary duties.
 6   See Nev. Rev. Stat. § 86.286 (2013).
 7        Here, the 2005 operating agreement does not expressly
 8   establish the existence or the non-existence of fiduciary duties
 9   owed to Precision by its manager.     Nor does it provide that Yuri
10   contributed any property to the company, the only manner in
11   which Nevada law expressly creates a fiduciary duty to a limited
12   liability company.    See Nev. Rev. Stat. § 86.391(2).   The
13   operating agreement, however, provides that “[n]o real or other
14   property of the LLC shall be deemed to be owned by any Member
15   individually, but shall be owned by and title shall be vested
16   solely in the LLC.”    While that provision and NRS § 86.311
17   created duties owed to Precision, we cannot determine whether
18   either appropriately relates to a technical trust, rather than
19   to a constructive or resulting trust.    The latter trusts, of
20   course, are insufficient to support § 523(a)(4)
21   nondischargeability.    See Ragsdale, 780 F.2d at 796.
22        Other documents and evidence may also exist that fill the
23   lacuna here; for example, Precision’s articles of organization,
24   required to create a limited liability company under Nevada law.
25   See Nev. Rev. Stat. § 86.151(1)(a) (2003).    Such document may or
26
27        13
             In Nevada, “[a] limited-liability company may, but is
     not required to, adopt an operating agreement.” Nev. Rev. Stat.
28   § 86.286.

                                      30
 1   may not establish that a trust relationship existed between Yuri
 2   and Precision.   These determinations, however, must be made by
 3   the bankruptcy court, rather than the Panel, in the first
 4   instance.
 5        On this record, we cannot conclude that, as a matter of
 6   law, a technical trust existed under Nevada law.   The bankruptcy
 7   court, thus, abused its discretion in giving preclusive effect
 8   to the State Court Judgment on the issue of whether there
 9   existed a fiduciary relationship in relation to a technical
10   trust for the purposes of § 523(a)(4) nondischargeability.14
11   C.   Judgment amount excepted from discharge
12        Finally, the Debtors argue that the bankruptcy court was
13   required to conduct a separate inquiry into the measure of
14   damages attributable to the specific tortious conduct at issue
15   in the state court action.   They contend that there were
16   multiple breaches of fiduciary duty alleged and to the extent
17   any of the breaches do not constitute a breach under federal
18   law, any damages flowing from such breach are dischargeable.
19   They also contend that only a damages judgment for fraud is
20   subject to issue preclusion without further analysis by the
21   bankruptcy court.
22        Based on our conclusions on both the § 523(a)(6) and (a)(4)
23   issues, we need not address this argument on appeal.
24                                CONCLUSION
25        Given the unavailability of issue preclusion, the
26   bankruptcy court erred in granting summary judgment in favor of
27
          14
             Given our conclusion, we do not address the other issues
28   related to the § 523(a)(4) nondischargeability judgment.

                                      31
 1   Precision based on the preclusive effects of the State Court
 2   Judgment.   Therefore, we VACATE the summary judgment and REMAND
 3   to the bankruptcy court for further proceedings consistent with
 4   this opinion.
 5
 6
 7
 8
 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

                                     32