Opinion
NOT FOR PUBLICATION
Argued and Submitted at San Francisco, California: June 16, 2011
Appeal from the United States Bankruptcy Court for the Northern District of California. Bk. No. 08-47738, Adv. Proc. No. 09-4160. Honorable Randall J. Newsome, Bankruptcy Judge, Presiding.
Malcolm Leader-Picone argued for Appellant Nor-Cal FDC. Appellees Arnold and Gayle Bellow did not submit briefs or appear in this appeal.
Before: PAPPAS, JURY and HOLLOWELL, Bankruptcy Judges.
MEMORANDUM
Appellant Northern California Financial Development Corporation (" Nor-Cal") appeals the orders of the bankruptcy court denying a continuance of the trial, denying Nor-Cal's request to suspend the trial to compel the attendance of Nor-Cal's witness, and granting judgment on partial findings to chapter 7 debtors Arnold Bellow (" Bellow") and Gayle Bellow (together " the Bellows") at the close of Nor-Cal's case-in-chief. We AFFIRM.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The Federal Rules of Civil Procedure are referred to as " Civil Rules."
FACTS
Nor-Cal is a private nonprofit corporation that contracts with the State of California and various organizations to provide loan guaranties, and direct " micro-loans, " to small and minority businesses in the nine Bay Area counties of Northern California. Bellow was president and CEO of Nor-Cal from 1995 to May 2008.
In 2003, Bellow and Randall Martinez, a Nor-Cal director, formed a separate entity, VentureCal LLC (" VentureCal"). At least at the beginning, VentureCal was to operate as an independent agency, identifying new and different sources of funding for Nor-Cal.
The board of directors and staff of Nor-Cal held a retreat on April 19, 2008. Nor-Cal alleges, but Bellow disputes, that Bellow was asked at the meeting to explain financial discrepancies in Nor-Cal's operation; that Bellow stated that he would provide answers and documentation within two weeks; and that he provided no such information and had no further contact with the board. Thereafter, at some point not clear in the record, Bellow was terminated as President and CEO of Nor-Cal.
Nor-Cal engaged an accountant, Christopher Akhidenor, CPA, to review all financial records of Nor-Cal. Nor-Cal alleges that the audit report prepared by that accountant showed that at least $406,739 of Nor-Cal funds were misappropriated by Bellow, either directly or through VentureCal.
The Bellows filed a chapter 7 petition on December 26, 2008. On March 30, 2009, Nor-Cal filed an adversary complaint against the Bellows objecting to discharge under § 727(a)(4), and for a determination that Nor-Cal's claim against them was excepted from discharge under § § 523(a)(2), (4) and (6).
Bellows filed a motion to dismiss the complaint, to which Nor-Cal objected. The bankruptcy court held a hearing on the dismissal motion on May 27, 2009, at which it denied the motion and set the cutoff date for discovery at November 27, 2009.
On June 6, 2009, the Bellows filed their answer to the complaint, generally denying its allegations, and adding a counter-complaint.
The counter-complaint and its claims are not implicated in this appeal.
The parties submitted a joint stipulation on December 2, 2009, requesting that the bankruptcy court continue the Trial-Setting Conference for 120 days. The court granted the request, continuing the Trial-Setting Conference to February 17, 2010.
At the continued Trial-Setting Conference on February 17, 2010, the attorney for Bellows failed to appear, and the bankruptcy court continued the conference again, this time to March 18, 2010. The court ordered sanctions of $200 against Bellows' counsel for failure to appear.
At the hearing on March 18, 2010, the bankruptcy court set a one-day trial for August 2, 2010. The court also granted the stipulation of the parties requesting appointment of a Resolution Advocate and assignment of the proceeding to the Bankruptcy Dispute Resolution Program. The court added the special instruction, " Mediation Session must occur by May 3, 2010."
The parties submitted another joint stipulation on April 30, 2010, requesting an extension of the mediation deadline until June 24, 2010 which was granted on May 17, 2010.
The parties did not meet with the Resolution Advocate and did not request an extension of the mediation deadline by the expiration date of June 24, 2010, nor was there any communication with the bankruptcy court for another month. On July 28, 2010, three business days before the trial date, and on the date when the parties were required to submit their trial exhibits, the parties submitted a joint stipulation requesting yet another extension of the deadline to complete mediation, this time to September 30, 2010, and asking the bankruptcy court to vacate the trial and set another Trial-Setting Conference for some date after September 30, 2010. The bankruptcy court denied the relief requested July 30, 2010. That same day, the parties jointly submitted an emergency motion for reconsideration of the court's July 30, 2010 order. There is also an entry in the docket on July 30, 2010, evidencing that a subpoena was issued to witness Christopher Akhidenor, CPA, to attend the trial on August 3, 2010, and to bring with him copies of " all audits performed for Nor-Cal, report entitled 'Nor-Cal FDC Agreed-Upon Procedures for the Period July 1, 2006 through June 20, 2007, ' all work papers and backup for the designated report."
The trial took place as scheduled on August 2, 2010. Nor-Cal and Bellow were represented by counsel. The bankruptcy court first recited on the record its reasons for denying the parties' request for a continuance and reconsideration of its decision in the previous week. After detailing the long period of time that had passed, and in its view, that both sides of the action had engaged in dilatory behavior, the court analyzed the four-part test for continuances set forth in United States v. Flynt, 756 F.2d 1352 (9th Cir. 1985.) Concluding that the parties had not shown good cause to postpone the trial again, the court then directed the parties to begin the trial.
Both of the Bellows testified regarding Nor-Cal's denial of discharge claim under § 727(a)(4). After a recess, the bankruptcy court announced its decision in favor of the Bellows rejecting Nor-Cal's objection to discharge. Nor-Cal has not appealed this aspect of the bankruptcy court's decision.
The trial then proceeded on Nor-Cal's nondischargeability claims. After hearing from Bellow's successor as CEO of Nor-Cal, Nor-Cal's attorney requested a recess to locate the accountant he had subpoenaed to appear to testify regarding the Nor-Cal books and records and the audit report. After the recess, Nor-Cal's lawyer informed the bankruptcy court that the accountant had not appeared and that he was essential to Nor-Cal's case. Nor-Cal's counsel requested that the court recess the trial so that the accountant's attendance could be compelled.
The bankruptcy court initially resisted this suggestion, especially after discovering that the accountant had been served with the subpoena, together with extensive document requests, only three days before the trial date. The court again detailed the history of Nor-Cal's dilatory practices. Eventually, though, the court relented somewhat, ordering another recess until after lunch to give Nor-Cal one last chance to produce the accountant.
When court reconvened after lunch, the accountant still had not appeared and Nor-Cal's counsel attempted to call two witnesses who were not on its witness list. He explained that the witnesses would provide testimony about the information in place of the missing accountant. The bankruptcy court rejected this tactic because, in the court's opinion, it would have been unfair to the Bellows, who were not prepared to examine the newly disclosed witnesses. After Bellow was recalled and examined, Nor-Cal repeated its request to call the two " substitute" witnesses; the court denied the request. At that point, Nor-Cal rested its casein-chief.
The Bellows moved to dismiss the adversary proceeding for failure to state a claim, nonsuit and lack of evidence. After another recess, the bankruptcy court orally reviewed each of the allegations in the complaint. The court ruled that it had not been presented sufficient evidence to determine if the Bellows owed Nor-Cal a debt for false representations, false pretenses or actual fraud, and thus Nor-Cal's claim under § 523(a)(2)(A) failed. As to the § 523(a)(4) claim, the bankruptcy court ruled that an officer of a corporation, like Bellow, does not have a fiduciary duty to the company under applicable law, and therefore, there was no evidence of defalcation; further, there was no evidence of embezzlement. And regarding the claim under § 523(a)(6), the bankruptcy court found that it had received " absolutely no evidence" that Bellow had committed a wrongful act done intentionally that necessarily caused injury to Nor-Cal, done without just cause or excuse, or committed an act with a subjective belief that harm was substantially certain to occur or that was intended to harm.
The bankruptcy court based its ruling on the witness testimony, noting that the documentary evidence offered by Nor-Cal was largely inadmissible. The court ruled that no evidence at all had been presented against Mrs. Bellows. The court ordered that judgment be entered for the Bellows.
The court entered judgment in favor of Bellows on all claims on August 11, 2010. Nor-Cal filed a timely appeal.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § 1334 and 157(b)(2)(I) and (J). We have jurisdiction under 28 U.S.C. § 158.
ISSUES
1. Whether the bankruptcy court abused its discretion in denying a motion for a continuance made three business days before trial, or during trial.
2. Whether the bankruptcy court erred in entering a judgment on partial findings against Nor-Cal.
STANDARDS OF REVIEW
A trial court's decision to deny a continuance is reviewed for abuse of discretion. Orr v. Bank of America, 285 F.3d 764, 783 (9th Cir. 2002).
In reviewing the bankruptcy court's judgment on partial findings under Civil Rule 52(c), we review its findings of fact for clear error and legal conclusions de novo. Dubner v. City & County of San Francisco, 266 F.3d 959, 965 (9th Cir. 2001).
DISCUSSION
I.
The bankruptcy court did not abuse its discretion in denying a continuance.
At the beginning of the trial, the bankruptcy court recited an extensive explanation why it had not granted the continuance jointly requested by the parties before trial. The court justified its decision by reference to the four-part test adopted by the Ninth Circuit in United States v. Flynt, 756 F.2d 1352 (9th Cir. 1985):
We structure our review in accordance with four salient factors that appellate courts have considered when reviewing denials of requests for continuances. First, we consider the extent of appellant's diligence in his efforts to ready his defense prior to the date set for hearing. Second, we consider how likely it is that the need for a continuance could have been met if the continuance had been granted. Third, we consider the extent to which granting the continuance would have inconvenienced the court and the opposing party, including its witnesses. Finally, we consider the extent to which the appellant might have suffered harm as a result of the district court's denial.
Id. at 1358-59 (citations omitted).
Although Flynt was a criminal proceeding decided some 26 years ago, it remains good law, and is also binding precedent in civil proceedings. See United States v. Kloehn, 620 F.3d 1122 (9th Cir. 2010)(applying four-part test in criminal proceedings); Danjaq LLC v. Sony Corp., 263 F.3d 942, 961 (9th Cir. 2002) (applying four-part test in civil proceedings).
In weighing a trial court's denial of a continuance, the first criterion focuses on the extent of an appellant's diligence in efforts to ready its case prior to the date set for the trial or hearing. In this case, the bankruptcy court found that Nor-Cal had " unequivocally not" shown diligence. The court listed the numerous continuances of hearings that had been granted; that the parties admitted that substantial discovery remained to be completed after the discovery cutoff date; and after sixteen months of delays, and several continuances for the specific purpose of completing mediation, they still had not met with a mediator. The bankruptcy court did not err in its finding that Nor-Cal had not shown it acted diligently in preparing for the trial.
The second criterion asks whether the requested continuance would be useful. The bankruptcy court concluded from the record and past performances of the parties that they would simply be seeking continuances as a matter of course. In this regard, it bears noting that the parties were not asking the bankruptcy court just to continue the trial, but rather for an order vacating the trial date and setting yet another status conference. Again, we agree with the bankruptcy court that Nor-Cal did not show a continuance under such circumstances would have been useful.
The third criterion measures the inconvenience of a continuance on the court and the parties. Here, the bankruptcy judge noted that he would be retiring at the end of the year, that the court's schedule would not allow resumption of the trial before his retirement, and that it would represent an inconvenience for the judge taking his docket to get up to speed on an action that was almost two years old. Again, we find no error in the bankruptcy court's analysis of this factor.
The final criterion examines whether there would be prejudice to the party requesting a continuance if denied. The bankruptcy court reasoned that there could be no prejudice to Nor-Cal in this case, since its wounds were self-inflicted. The parties had been aware since March 18 that the trial was scheduled to begin on August 2nd and any documentary evidence to be submitted at trial was due on July 28th. Instead of complying with the pretrial instructions, on July 28, the parties requested yet another continuance. The bankruptcy court observed that Nor-Cal " had not done anything to try to prepare for trial." While declining to continue the trial likely prejudiced Nor-Cal's ability to present the best evidence it could have, we can not say the bankruptcy court abused its discretion in balancing the existence of that prejudice against the other relevant factors in this case.
Despite the bankruptcy court's express citation to the case as precedent, in this appeal Nor-Cal ignores Flynt, not even mentioning this decision in its briefs. Rather, in its briefs and at oral argument, Nor-Cal asserted that Civil Rule 6(b)(1) required the bankruptcy court to apply a " good cause" standard for granting or denying a continuance. See Ahanchian v. Xenon Pictures, 624 F.3d 1253 (9th Cir. 2010). Nor-Cal's position lacks merit.
A careful reading of the Bankruptcy Rules shows that Civil Rule 6(b)(1) does not apply in adversary proceedings. Unlike many other Civil Rules, the Rules do not incorporate Civil Rule 6. Instead, portions of Civil Rule 6 are adopted via Rule 9006, which governs, generally, " enlargement" of time periods. And while some of the language of Civil Rule 6(b)(1) is similar to that in Rule 9006(b), the provisions of Civil Rule 6(b)(1) establishing the " good cause" standard for granting extensions of time are not adopted in the Rules. Therefore, reliance on Ahanachian's good cause standard is misplaced. Instead, Flynt and its four factors apply to Nor-Cal's continuance request.
Nor-Cal also challenges the bankruptcy court's refusal to suspend the trial and compel the attendance of Nor-Cal's accountant. Again, we find no abuse of discretion by the bankruptcy court.
According to Flynt, requests for continuances made during trial to obtain the attendance of absent witnesses are subject to a special set of rules.
In United States v. Hoyos, 573 F.2d 1111, 1114 (9th Cir. 1978), we set forth the showing a party ordinarily must make when seeking a continuance to obtain absent witnesses. This showing includes the substance of the desired testimony; that the testimony would be relevant; that it could be obtained if the continuance were granted; and that due diligence has been exercised to obtain the testimony prior to the date of the proceeding. See also United States v. Sterling, 742 F.2d 521, 525 (9th Cir. 1984).
Flynt, 756 F.2d at 1359 n.7.
In this case, Nor-Cal describes the appearance and testimony of the accountant, Christopher O. Akhidenor, as " critical" to presentation of its case-in-chief. Akhidenor conducted the review of Nor-Cal's books and records and produced the auditor's report that outlined the alleged discrepancies in the records. An analysis of those discrepancies formed the basis of Nor-Cal's claim that Bellow misappropriated more than $400,000 of Nor-Cal's funds. Assuming Nor-Cal's representations concerning this witness' role in presenting its case are correct, this would appear to satisfy the first two criteria for granting a trial continuance, an explanation of the substance of testimony and its relevance.
However, under these facts, Nor-Cal's requested continuance does not satisfy the remaining two requirements. Whether the accountant's testimony could be obtained if a continuance was granted was not shown. On the contrary, counsel for Nor-Cal admitted that, in response to Nor-Cal's attorney's request that he appear and testify, the accountant refused and had used profanity, slammed the door in his face, and had his own attorney protest the subpoena. The Ninth Circuit has held that failure to show that a party can actually produce a recalcitrant witness justifies denial of continuance. United States v. Fowlie, 24 F.3d 1059, 1070 (9th Cir. 1994); Falls v. Yates, * 33 (E.D. Cal. 2011) (in a civil case, denial of continuance proper where party was previously unsuccessful in calling witness and no reasonable assurance that witness would be able to comply).
Even assuming Nor-Cal could assure Akhidenor's presence at a continued trial, the bankruptcy court found that Nor-Cal had not exercised due diligence to obtain the accountant's testimony. In addition to all the continuances the parties had obtained without showing due diligence in preparing for trial, Nor-Cal was particularly deficient in relation to the accountant. As the bankruptcy court noted, the accountant was a professional CPA who maintained a business office in the court's district, and the accountant had been engaged by Nor-Cal. Yet Nor-Cal's attorney admitted that he had not contacted the accountant before serving him with a subpoena, requiring not only the accountant's presence at trial, but that he produce extensive files and work papers, on short notice. In the bankruptcy court's words, " to wait until Friday afternoon to attempt to subpoena a professional CPA to appear at a hearing on Monday morning at 9:30, it's simply unreasonable." Trial Tr. at 73:23-25. We cannot disagree with the bankruptcy court's decision.
In summary, we conclude that the bankruptcy court did not abuse its discretion in denying the parties' request for a continuance three business days before the trial, and denying Nor-Cal's request for continuance during the trial.
II.
The court did not err in granting Bellow's motion for a judgment on partial findings .
Civil Rule 52(c), incorporated in Rule 7052, authorized the bankruptcy court to enter judgment against Nor-Cal during trial, provided that Nor-Cal had been fully heard on the issues and the bankruptcy court could make an appropriate disposition on the evidence. A Civil Rule 52(c) judgment is reversible only if the factual findings made by the trial court are clearly erroneous, even though the underlying conclusions of law are reviewed de novo. Ritchie v. United States, 451 F.3d 1019 (9th Cir. 2006); Wright & Miller, Federal Practice & Procedure: Civil 3d ¶ 2573.1 (2008). The trial court is not required to draw any inferences in favor of the nonmoving party; rather, the court may make findings in accordance with its own view of the evidence. Ritchie, 451 F.3d at 1023. In deciding whether to dismiss a case or claim under Civil Rule 52(c), the trial court weighs the evidence and resolves the issues based on the preponderance of the evidence standard. Int'l Union of Operating Eng'rs v. Ind. Constr. Corp., 13 F.3d 253, 257 (7th Cir. 1994).
After the close of Nor-Cal's case-in-chief, counsel for Bellow moved to dismiss the adversary proceeding, arguing that,
[Nor-Cal] hasn't established any of the elements of the allegations listed in this complaint. He hasn't shown that any entity was actually owed money. He hasn't traced the money. There's no source documents. Frankly, Your Honor, [Nor-Cal] didn't put on any evidence today. Trial Tr. at 92:5-13. Before ruling on Bellow's motion, the bankruptcy court engaged in a colloquy with Nor-Cal's counsel regarding a lack of evidence supporting Nor-Cal's § 523(a) claims: THE COURT: First of all, there's been . . . not the slightest bit of evidence that connects . . . Nor-Cal with VentureCAL. . . . It's not at all clear to me that [Bellow] did in fact profit from any of this. There's no tracing of the money. . . .
LEADER-PICCONE [counsel for Nor-Cal]: Your Honor, the evidence establishes that Mr. Bellow . . . created this entity, VentureCAL. . . . [and] set about to use that entity to basically steal money from Nor-Cal FDC. . . .
THE COURT: Excuse me. Apparently with full complicity of Nor-Cal.
LEADER-PICCONE: Certain aspects of the VentureCal relationship were with their complicity. . . . But what I'm talking about here is about $164,000 where they billed banks for which they had no right to bill banks.
THE COURT: I have nothing before me that would indicate they had no right to bill banks. . . .
LEADER-PICCONE: I'm reading you a [California Civil Code] statute which says that the --
THE COURT: I don't care what the statute says; it doesn't make it clear at all that what was going on here was illegal. Much less that [Bellow] was personally responsible or profited from it.
LEADER-PICCONE: These loans were the basic business of Nor-Cal FDC, and [Bellow] created another entity so that he could get paid twice essentially. He could get paid his salary --
THE COURT: I have no evidence that he got paid twice -- none. I don't have any bank records; I don't have any pay stubs; I don't have any checks. I don't have anything that has his name on it -- nothing in front of me. Do I?
LEADER-PICCONE: No, Your Honor.
Trial Tr. at 93:1-95:8.
After a brief recess, the bankruptcy court returned and recited its findings and conclusions on the record for each of the three remaining claims presented in Nor-Cal's complaint under § 523(a)(2), (4) and (6). We review the bankruptcy court's decision on each claim below.
A. § 523(a)(2)(A) .
Section 523(a)(2)(A) provides that, " A discharge under section 727 . . . does not discharge an individual debtor from any debt- . . . (2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained, by -- (A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition[.]"
To support a claim of nondischargeability under § 523(a)(2)(A), the creditor must prove: (1) the debtor made . . . representations; (2) that at the time he knew they were false; (3) that he made them with the intention and purpose of deceiving the creditor; (4) that the creditor relied on such representations; and (5) that the creditor sustained the alleged loss and damage as the proximate result of the misrepresentations having been made. Ghomeshi v. Sabban (In re Sabban), 600 F.3d 1219, 1222 (9th Cir. 2010). The standard of proof for discharge exceptions is preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); Gill v. Stern (In re Stern), 345 F.3d 1036, 1043 (9th Cir. 2003).
The bankruptcy court found that Nor-Cal had presented inadequate proof that Bellow had engaged in misrepresentations, the lynchpin element in proving Nor-Cal's fraud claim:
There's nothing to suggest, I should say, that there was any failure to tell or any omission or any false pretense or any false representation whatsoever that was made to Nor-Cal about what VentureCal was doing. There's just no evidence whatsoever, even of a representation or even of a scheme of some sort, a fraudulent scheme on which Nor-Cal could have relied at all. . . . Even if the existence and/or activities of VentureCal LLC were somehow wrongful, there's been no indication at all as to how [Bellow] profited from this or obtained money from this. There are no bank records; there are no canceled checks; there is nothing whatsoever to indicate that this person, Mr. Bellow, made any money off of any of this. . . .
Trial Tr. at 97:14-98:7. Based upon these findings, the bankruptcy court concluded that " Even if I were to admit Exhibits 1, 2 and 3, I still would not have enough to find that somehow there was a debt that was created by way of false representations, false pretenses, or actual fraud, which is what [§ ] 523(a)(2) of the Bankruptcy Code requires." Trial Tr. at 98:20-24.
Exhibit 1 was the letter terminating Bellow's employment as president and CEO of Nor-Cal. Exhibit 2 was a letter from Nor-Cal's counsel to Bellow detailing certain financial irregularities. Exhibit 3 was the auditor's report. The court did not admit them for the truth of their contents. Trial Tr. at 98:9-11. Nor-Cal did not appeal the court's evidentiary rulings.
The bankruptcy court's findings of fact were not clearly erroneous and are well-supported by the record. The bankruptcy court did not err in dismissing Nor-Cal's claim under § 523(a)(2)(A).
B. § 523(a)(4) .
Section 523(a)(4) excepts from discharge debts " for fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny." In an action under § 523(a)(4), a creditor must establish: (1) that an express trust existed between the debtor and creditor; (2) that the debt was caused by the debtor's fraud or defalcation; and (3) that the debtor was a fiduciary to the creditor at the time the debt was created. Otto v. Niles (In re Niles), 106 F.3d 1456, 1459 (9th Cir. 1997); Nahman v. Jacks (In re Jacks), 266 B.R. 728, 735 (9th Cir. BAP 2001).
The bankruptcy court found that there was no evidence that Bellow had committed a defalcation. A defalcation is the " misappropriation of trust funds or money held in a fiduciary capacity; failure to properly account for such funds." Lewis v. Scott (In re Lewis), 97 F.3d 1182, 1186 (9th Cir. 1996). The bankruptcy court found that Nor-Cal had not shown an express trust existed under these facts. The court further found that there was no evidence that Bellow had a fiduciary duty to Nor-Cal, because an officer of a California corporation does not owe a fiduciary duty to the corporation for § 523(a)(4) purposes. The court's conclusion in this regard is consistent with Ninth Circuit and California law. Cal-Micro, Inc. v. Cantrell (In re Cantrell), 329 F.3d 1119, 1126 (9th Cir. 2003) (noting that " California case law has consistently held that while officers possess the fiduciary duties of an agent, they are not trustees with respect to corporate assets.").
The bankruptcy court also found a lack of evidence that Bellow had embezzled Nor-Cal's funds. Embezzlement is defined as " the fraudulent appropriation of property by a person to whom such property has been entrusted or into whose hands it has lawfully come." First Del. Life Ins. Co. v. Wada (In re Wada), 210 B.R. 572, 576 (9th Cir. BAP 1997) (quoting Moore v. United States, 160 U.S. 268, 269, 16 S.Ct. 294, 40 L.Ed. 422 (1895)). In the context of an exception to discharge claim, embezzlement requires (1) property rightfully in the possession of a nonowner, (2) a nonowner's appropriation of the property to a use other than which it was entrusted, and (3) circumstances indicating fraud. Transam. Commercial Finance Corp. v. Littleton (In re Littleton), 942 F.2d 551, 555 (9th Cir. 1991).
The bankruptcy court found that there was no evidence that Bellow had taken any funds, and no evidence of fraud.
There's no evidence whatsoever that an embezzlement occurred here. In order for there to have been an embezzlement, there would have to be some evidence that this particular Defendant [Bellow] took money from VentureCal or Nor-Cal fraudulently. And there isn't any indication of that. As I indicated, there are no check stubs; there are no payroll stubs; there are no corporate records. There is nothing to indicate by way of bank records that this person took any money of any kind in a way that would have committed fraud.
Trial Tr. at 99:24-100:8.
The court therefore concluded:
There's simply no basis on which to establish either larceny or embezzlement under 523(a)(4). So absent the establishment of an express trust and thus a fiduciary relationship, and absent anything that would indicate embezzlement or other kind of theft, 523(a)(4) simply doesn't apply.
Trial Tr. at 100:9-14.
Based on our review of the record, the bankruptcy court's findings were not clearly erroneous, and its legal conclusion comports with the Bankruptcy Code and case law. The bankruptcy court did not err in denying Nor-Cal's claim under § 523(a)(4).
C. § 523(a)(6) .
Section 523(a)(6) excepts debt from discharge " for willful and malicious injury by the debtor to another entity or to the property of another entity[.]" Whether a particular debt is for willful and malicious injury by the debtor to another or the property of another under § 523(a)(6) requires application of a two-pronged test to the conduct giving rise to the injury. The creditor must prove that the debtor's conduct in causing the injuries was both willful and malicious. Barboza v. New Form, Inc. (In re Barboza), 545 F.3d 702, 711 (9th Cir. 2008) (reinforcing Carrillo v. Su (In re Su), 290 F.3d 1140, 1146-47 (9th Cir. 2002) and the application of a separate analysis in each prong of " willful" and " malicious").
" Willfulness" requires proof that the debtor deliberately or intentionally injured the creditor or the creditor's property, and that in doing so, the debtor intended the consequences of his act, not just the act itself. Su, 290 F.3d at 1143. The debtor must act with a subjective motive to inflict injury, or with a belief that injury is substantially certain to result from the conduct. Id.
For conduct to be malicious, the creditor must prove that the debtor: (1) committed a wrongful act; (2) done intentionally; (3) which necessarily causes injury; and (4) was done without just cause or excuse. Id.
The bankruptcy court properly entered separate findings on the willful and malicious prongs. As to wilfulness, the court determined, " I have nothing to indicate ? there is absolutely no evidence of a wrongful act . . .that was done with a subjective belief that harm was substantially certain to occur or that was intended to harm." Trial Tr. at 100:21-101:1. As to the malicious prong, the court found: " I have nothing to indicate -- there is absolutely no evidence of a wrongful act done intentionally which necessarily causes injury and was done without just cause or excuse[.]" Trial Tr. at 100:21-24. The court completed its discussion of Nor-Cal's § 523(a)(6) case with its general conclusion of law regarding all three claims for nondischargeability:
So based on the evidence that's before me, the testimony primarily, since the documents are largely inadmissible, I find that the causes of action that are stated in the complaint are without merit and that judgment shall enter in favor of the Defendant [Bellow].
Trial Tr. at 101:2-6.
Again, based on our review of the record, the bankruptcy court's findings were not clearly erroneous. The bankruptcy court did not err in denying Nor-Cal a nondischargeable claim under § 523(a)(2), (4) and (6).
CONCLUSION
We AFFIRM the judgment of the bankruptcy court.