Opinion
NOT FOR PUBLICATION
Argued and Submitted at Pasadena, California: September 22, 2006
Appeal from the United States Bankruptcy Court for the Central District of California. Bk. No. SV-04-13314-KT, Adv. No. SV-04-01343-KT. Honorable Kathleen Thompson, Bankruptcy Judge, Presiding.
Before: MONTALI, SNYDER[ and KLEIN, Bankruptcy Judges.
Hon. Paul B. Snyder, United States Bankruptcy Judge for the Western District of Washington, sitting by designation.
MEMORANDUM
A creditor and debtor were equal shareholders in a health care consulting corporation. The creditor filed an adversary proceeding alleging that debts owed by the debtor to him were nondischargeable under 11 U.S.C. § 523(a)(6). The creditor, purportedly acting on behalf of the corporation, also alleged that debtor's obligations to the corporation were nondischargeable under section 523(a)(4) and (a)(6). In response, the debtor (also purportedly acting on behalf of the corporation) filed a counterclaim asserting that the creditor had been the beneficiary of fraudulent transfers from the corporation.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036, as enacted and promulgated prior to the effective date of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, Apr. 20, 2005, 119 Stat. 23.
The bankruptcy court granted summary judgment in favor of the debtor on the nondischargeability claims. The court additionally dismissed the debtor's counterclaims pursuant to Rule 7012 and Federal Rule of Civil Procedure (" F. R. Civ. P.") 12(b)(6). We AFFIRM, on issue preclusion grounds, the court's summary judgment on the section 523(a)(4) and (a)(6) claims asserted on behalf of the corporation. We REVERSE the court's summary judgment against the creditor on his individual section 523(a)(6) claims. We further AFFIRM the bankruptcy court's dismissal of the debtor's counterclaim, but for different reasons than those cited by the bankruptcy court.
I. FACTS
Ray G. Dunn (" Debtor") owns 50% of the shares of Monterey Bay Group (" Monterey"); he is a director and the president of Monterey. Richard Bresnahan (" Creditor") also holds 50% of the shares in Monterey and is the only other director of that company. He is also its vice president and chief financial officer.
Monterey opened an office in Maryland (the " Maryland Operations"). Because the Maryland Operations were losing money, Creditor wanted to shut them down. Debtor, however, felt that they could be successful, so he formed a new corporation, eHealthFirst (" Buyer"), to purchase the Maryland Operations. Debtor and Creditor accordingly entered into an Asset Purchase Agreement and Buyer executed a promissory note (the " Note") in the amount of $400,000 to the order of Monterey. Debtor personally guaranteed repayment of Note.
Debtor and Creditor, sole directors of Monterey, also executed a corporate resolution in which Monterey's rights and interests in the guaranty (the " Guaranty") executed by Debtor were assigned to Creditor. The corporate resolution (the " Resolution") further provided that the " proceeds of the Note [would] be used to fund agreed to bonus payments to [Creditor] and his permitted successors in return for considerations previously given." Debtor and Creditor also entered into a letter agreement (" Letter Agreement") dated January 31, 2001, providing (among other things) that Debtor would reduce his salary from Monterey to an amount " equal to 50% of [Creditor's] salary from [Monterey]."
Debtor contends, and Creditor vigorously disputes, that the Letter Agreement was later amended by another letter agreement providing that Debtor's salary would equal 50% of Creditor's salary plus bonuses and commissions. Creditor contends that this purported second letter agreement is a forgery (the " Purported Forgery"). Under the Purported Forgery, Debtor's salary would have equaled half of Creditor's salary plus at least half of the Note payments from Buyer to Monterey, since the initial Letter Agreement allowed Creditor to receive any Note payments as a " bonus." Creditor also contends that Debtor altered e-mails in order to change terms of their agreements.
Creditor received $250,000 from Monterey as " bonus payments" in addition to his regular salary.
After Creditor accused Debtor of improperly using Monterey's funds to pay himself excessive salary, Creditor filed a state court lawsuit against Debtor and Monterey (as a nominal defendant) in 2002 (the " State Court Action"). Among other things, Creditor alleged that Debtor breached the Letter Agreement by taking excessive salary and breached the Guaranty. Creditor also asserted certain derivative claims against Debtor on behalf of Monterey, including, inter alia, breach of fiduciary duty and conversion.
A jury trial lasting several days commenced in the State Court Action. At the conclusion of Creditor's case, Debtor moved pursuant to California Code of Civil Procedure section 630 (" CCP § 630") for a directed verdict as to all of the derivative claims asserted by Creditor on behalf of Monterey. Debtor alleged that " there's been a total failure of proof" as to those claims. The state court granted the motion and did not indicate that its ruling was anything other than on the merits. Creditor moved for reconsideration. The court initially granted the motion for reconsideration, but later sustained its prior directed verdict after Debtor argued that Monterey had not been properly joined as a party. The state court did not specify the grounds for its ruling.
In light of the directed verdict, only Creditor's individual breach of contract claims were submitted to the state court jury. The jury thereafter returned a verdict in favor of Creditor on his claims that Debtor had breached the Guaranty and the Letter Agreement and judgment was entered in favor of Creditor.
Debtor thereafter filed Chapter 7 and Creditor filed an adversary proceeding under section 523(a)(4) and (a)(6) to have Debtor's obligations to him declared nondischargeable. After Debtor moved several times for dismissal of the section 523(a)(4) claims because they belonged to the corporation and not Creditor, Creditor amended his complaint to assert a derivative claim on behalf of Monterey for embezzlement under section 523(a)(4) and to assert individual and derivative claims under section 523(a)(6) for willful and malicious injury.
Debtor in turn, acting derivatively on behalf of Monterey, asserted a counterclaim against Creditor. Debtor alleged fraudulent transfer claims against Creditor under California Civil Code section 3439.04(a) and (b). Creditor moved for dismissal of the counterclaim, arguing that Debtor lacked standing to assert the claims and that the claims were barred by the statute of limitations. The bankruptcy court dismissed the counterclaim, but did so on the grounds that Debtor was equitably estopped by his own wrongful conduct from asserting derivative claims on behalf of Monterey.
Throughout his papers Debtor used the term " fraudulent conveyance" but we chose to use the more modern term " fraudulent transfer." California has adopted the Uniform Fraudulent Transfer Act as California Civil Code § 3439 et seq.
Debtor filed a motion for summary judgment as to Creditor's derivative section 523(a)(4) and 523(a)(6) claims and individual section 523(a)(6) claims. Debtor argued, inter alia, that the state court's directed verdict on Creditor's derivative claims precluded Creditor from pursuing his section 523(a)(4) and (a)(6) derivative claims in the nondischargeability action. Debtor additionally argued that, at most, Debtor intentionally breached his contracts with Creditor and intentional breach of contract does not in and of itself constitute a willful and malicious injury under section 523(a)(6). The bankruptcy court agreed and entered summary judgment in favor of Debtor on both counts on September 26, 2005. Creditor filed a timely notice of appeal. That appeal is BAP No. CC-05-1406.
Upon reviewing the record in CC-05-1406, the clerk of this Panel entered an order noting that the summary judgment did not appear to be final because it did not dispose of Debtor's counterclaim. Creditor was granted a limited remand to obtain a final separate judgment resolving the counterclaim. On January 25, 2006, the bankruptcy court entered a separate order dismissing the counterclaim. Debtor filed a timely notice of appeal. That appeal is pending as BAP No. CC-06-1046. Because the appeals are so related, we are issuing a joint memorandum decision disposing of both appeals.
II. ISSUES
1. Did the bankruptcy court err in dismissing Creditor's section 523(a)(4) and (a)(6) claims asserted derivatively on behalf of Monterey?
2. Did the bankruptcy court err in dismissing Creditor's individual section 523(a)(6) claims?
3. Did the bankruptcy court err in dismissing Debtor's fraudulent transfer counterclaims?
III. STANDARD OF REVIEW
We review de novo the bankruptcy court's grant of summary judgment. Marshack v. Orange Comm'l Credit (In re Nat'l Lumber and Supply, Inc.), 184 B.R. 74, 77 (9th Cir. BAP 1995); Mordy v. Chemcarb, Inc. (In re Food Catering & Housing, Inc.), 971 F.2d 396, 397 (9th Cir. 1992). In reviewing a summary judgment, the task of an appellate court is the same as a trial court under F. R. Civ. P. 56. Hifai v. Shell Oil Co., 704 F.2d 1425, 1428 (9th Cir. 1983). Viewing the evidence in the light most favorable to the non-moving party, the appellate court must determine whether the bankruptcy court correctly found that there was no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Id.; see F. R. Civ. P. 56(c).
F. R. Civ. P. 56(c) is made applicable by Rule 7056.
We similarly review a bankruptcy court's dismissal for failure to state a claim under Bankruptcy Rule 7012 and Federal Rule of Civil Procedure 12(b)(6) de novo. N. Slope Borough v. Rogstad (In re Rogstad), 126 F.3d 1224, 1228 (9th Cir. 1997). We accept as true the allegations of the complaint and construe them in the light most favorable to the plaintiff. Id. at 1228. Dismissal is improper unless it appears beyond doubt that the plaintiff cannot prove any set of facts to support his claim that would entitle him to relief. Id.
IV. DISCUSSION
A. Creditor's Derivative Claims
In the state court action, (described as the " Embezzlement Lawsuit" by Creditor in paragraph 13 of his third amended nondischargeability complaint), Creditor alleged the same facts against Debtor as he later did in his nondischargeability complaint. Both complaints focused on Debtor's purported " unauthorized, " " fraudulent" " misappropriation" of Monterey's funds to pay himself " excessive" salary. The same facts underlie both lawsuits, although the nondischargeability complaint does add allegations regarding the Purported Forgery. Creditor, asserting derivative claims against Debtor on behalf of Monterey, alleged causes of action in state court for breach of fiduciary duty, conversion, restitution, constructive trust and declaratory judgment. In his nondischargeability action, Creditor asserted derivative claims for willful and malicious injury and for embezzlement.
The state court granted Debtor's motion for a directed verdict on the derivative claims, but indicated the next day (after Creditor moved for reconsideration) that it would vacate that ruling. After Debtor argued that Creditor had not properly joined Monterey as a party, the court stated " I'm going to stay with my original ruling . . . I've got to stay with my ruling yesterday granting the motion [for directed verdict]." Significantly, the court never specified that the directed verdict would operate as anything other than an adjudication of the merits. The state court did not state on the record the reasons for its ruling.
As discussed later, because the state court did not specify otherwise, the directed verdict -- as a matter of express statutory California law -- constitutes an adjudication on the merits. Cal. Code Civ. Pro. § 630(c).
Because Creditor's derivative claim for willful and malicious injury is based on the same facts and tortious claims (i.e., conversion) asserted in the state court lawsuit, the directed verdict bars his derivative section 523(a)(6) claims here under the doctrine of issue preclusion. Similarly, while Creditor did not specify that he was suing Debtor derivatively for embezzlement in the state court action (notwithstanding the " Embezzlement Lawsuit" label), the state court's directed verdict dismissing his derivative claims prevents him from pursuing his derivative section 523(a)(4) claims for embezzlement.
Issue preclusion, often called " collateral estoppel, " forecloses relitigation of matters that have already been decided in prior proceedings. Paine v. Griffin (In re Paine), 283 B.R. 33, 39 (9th Cir. BAP 2002); see also Harmon v. Kobrin (In re Harmon), 250 F.3d 1240, 1245 (9th Cir. 2001)(applying California law), quoting Lucido v. California, 51 Cal.3d 335, 272 Cal.Rptr. 767, 795 P.2d 1223, 1225 (1990); Christopher Klein, et al, Principles of Preclusion & Estoppel in Bankruptcy Cases, 79 Am. Bankr. L.J. 839, 852 (2005).
Since the question involves the issue-preclusive effect of a California state court's judgment, we apply California preclusion law. 28 U.S.C. § 1738; Marrese v. Am. Acad. of Orthopaedic Surgeons, 470 U.S. 373, 380, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985). Under California law, the party asserting issue preclusion has the burden of establishing the following requirements:
First, the issue sought to be precluded from relitigation must be identical to that decided in a former proceeding. Second, this issue must have been actually litigated in the former proceeding. Third, it must have been necessarily decided in the former proceeding. Fourth, the decision in the former proceeding must be final and on the merits. Finally, the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding.
Harmon, 250 F.3d at 1245. All of these elements are present here.
1. Identical Issues
Both the derivative claims in the state court action and in the nondischargeability adversary proceeding involve the identical facts. They involve the same alleged harm: that Debtor misappropriated Monterey's funds to pay himself unauthorized and excessive salary. While the state court complaint did not assert embezzlement as a specific cause of action, both actions present identical factual issues and substantially identical legal issues. The section 523(a)(6) derivative claim is likewise substantially similar to Creditor's derivative state court claims for conversion. The substantial similarity between the claims and facts alleged in both lawsuits is sufficient for the purposes of issue preclusion. Durkin v. Shea & Gould, 92 F.3d 1510, 1515-16 (9th Cir. 1996) (" Issue preclusion applies in 'subsequent suits based on a different cause of action involving a party to the prior litigation'" and the issue " decided in the prior adjudication is [to be] substantially identical to the issue in the subsequent litigation.") (Emphasis added and citations omitted).
The state court complaint alleged that Debtor converted property of Monterey. The elements of conversion under California law include (1) the plaintiff's ownership or right to possession of property; (2) the defendant's wrongful use or conversion of the property in a manner inconsistent with the plaintiff's property rights and (3) damages. Kasdan, Simonds, McIntyre, Epstein & Martin v. World Sav. & Loan Ass'n (In re Emery), 317 F.3d 1064, 1069 (9th Cir. 2003). In contrast, embezzlement in the context of nondischargeability requires three elements: (1) property rightfully in the possession of a nonowner; (2) nonowner's appropriation of the property to a use other than that to which it was entrusted; and (3) circumstances indicating fraud. Transam. Comm'l Fin. Corp. v. Littleton (In re Littleton), 942 F.2d 551, 555 (9th Cir. 1991). The primary difference between a conversion claim and an embezzlement claim is that embezzlement requires the plaintiff to demonstrate fraudulent intent by the defendant. Because embezzlement is essentially conversion with the additional element of fraudulent intent, some courts and commentators simply characterize embezzlement as " fraudulent conversion." Therefore, if a court finds that a plaintiff has not established a case for conversion, the plaintiff likewise would be unable to prove that all of the elements of embezzlement are present.
See 26 Am. Jur. 2d Embezzlement § 3 (2006 Westlaw Update) (embezzlement " requires a fraudulent conversion of property.").
Because the state court entered a directed verdict dismissing Creditor's derivative claims that Debtor had wrongfully used or misappropriated property belonging to Monterey, Creditor cannot establish the second prong of the embezzlement inquiry. The issue was previously litigated and decided against Creditor.
Even if the issues on the derivative claims were not substantially similar in both actions, Debtor has not argued on appeal that the issues are dissimilar. To the contrary, he labeled the state court action as the " Embezzlement Action" in his bankruptcy court pleadings and in his briefs before this panel. Generally, we will not consider issues not raised on appeal. See Branam v. Crowder (In re Branam), 226 B.R. 45, 55 (9th Cir. BAP 1998), aff'd mem., 205 F.3d 1350 (9th Cir. 1999) (issues not argued in the opening brief are deemed abandoned).
2. Actually Litigated
Creditor's derivative claims and the facts supporting them were actually litigated before a jury. The court entered a directed verdict following Creditor's presentation of evidence of these claims.
3. Necessarily Decided
The state court decided the issues relating to the derivative claims when it entered its directed verdict dismissing them. In addition, following entry of its directed verdict in favor of Debtor on Creditor's derivative claims, the state court allowed the jury to consider Creditor's individual claims. In other words, the directed verdict was reflected in the final verdict in that the derivative claims were not submitted to or decided by the jury even though it heard all evidence offered in support of the derivative claims. After the jury returned a verdict in favor of Creditor on his individual claims, the state court entered its judgment which did not award Creditor damages on any derivative claim. Therefore, the derivative claims were necessarily decided.
4. Identical Parties
The parties are identical in both actions; with respect to the derivative claims, Creditor sued Debtor derivatively on behalf of Monterey in both state court and in bankruptcy court.
5. Final Judgment on the Merits
Neither party disputes that the state court judgment is final. The parties, however, dispute whether the directed verdict was on the merits. Creditor argues that because the state court's " reasons for granting the directed verdict motion was not at all clear in the record" (see Appellant's Opening Brief in BAP No. CC-05-1406 at page 20), the directed verdict cannot be " on the merits." We disagree. Section 630(c) of the California Code of Civil Procedure provides that if a motion for directed verdict is granted, " unless the court in its order directing entry of the verdict specifies otherwise, it shall operate as an adjudication on the merits." When interpreting statutes, the " plain meaning of legislation should be conclusive, except in the rare cases in which the literal application will produce a result demonstrably at odds with the intentions of its drafters." United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989). Here, the meaning of CCP § 630(c) is both plain and apparent: a directed verdict is on the merits unless the court provides otherwise. This literal result is not demonstrably at odds with the intentions of the statute's drafters, particularly given that the California Legislature used identical language in its provisions governing nonsuits. See CCP § 581c(c). We will apply CCP § 630(c) as written and we will not read between the lines of the state court judgment to find words that save Creditor here.
Creditor acknowledges on pages 25 and 26 of his brief that the state court's directed verdict could have been based on misjoinder grounds or could have been based on a finding that Creditor had not presented evidence to support his derivative claims.
Nothing in the record indicates that the court based its ruling solely on procedural grounds; in fact, as Creditor concedes, the record is ambiguous as to the grounds for the state court's decision. But whatever the state court's reasoning was, California law clearly mandates that the directed verdict operates as an adjudication on the merits in light of the court's failure to specify otherwise. Creditor has cited no case law interpreting CCP § 630(c) any differently. Accordingly, the directed verdict was an adjudication on the merits.
Because all of the grounds for issue preclusion under California law are present here, Creditor's derivative section 523(a)(4) and (a)(6) claims are barred as a matter of law and undisputed fact. We therefore AFFIRM the bankruptcy court's summary judgment in favor of Debtor on the derivative section 523(a)(4) embezzlement claim and the derivative section 523(a)(6) willful and malicious injury claim.
Because we conclude that issue preclusion applies, we do not address certain other arguments raised by the Debtor in support of the summary judgment. Nonetheless, we do observe that such arguments are not persuasive. First, Debtor contends that Creditor cannot establish the " fraudulent intent" element of embezzlement. Creditor, however, raises disputed and triable issues of fact as to this element, such as whether Debtor attempted to conceal his receipt of the higher salary. Summary judgment would thus be inappropriate based on this theory.
B. Creditor's Individual Section 523(a)(6) Claim
The bankruptcy court erred in holding that as a matter of undisputed fact and law, Creditor had no cognizable individual claim under section 523(a)(6); rather, Creditor raised issues of material fact which should not be resolved in the context of a summary judgment motion.
The court and Debtor correctly stated that intentional breach of contract, in and of itself, does not give rise to a section 523(a)(6) nondischargeability claim for willful and malicious injury. Petralia v. Jercich (In re Jercich), 238 F.3d 1202, 1206 (9th Cir. 2001), cert. denied, 533 U.S. 930, 121 S.Ct. 2552, 150 L.Ed.2d 718 (2001). To be excepted from discharge under section 523(a)(6), " a breach of contract must be accompanied by some sort of 'tortious conduct' that gives rise to 'willful or malicious injury.'" Id.
The bankruptcy court held that Debtor's breach of the Guaranty and the Letter Agreement was not accompanied by any tortious conduct by Debtor, and therefore granted summary judgment denying Creditor's individual nondischargeability claims under section 523(a)(6). The record, however, does not establish as a matter of undisputed fact that the breaches of contract were unaccompanied by tortious acts.
In his amended complaint and other pleadings, as well as in affidavits opposing summary judgment, Creditor alleges that Debtor committed forgery in a scheme to justify or hide that he had wrongfully breached the Letter Agreement. At the summary judgment hearing, Creditor argued that this act of purported forgery constituted a " tortious act" accompanying the breach of the Letter Agreement. The court disagreed, observing that the forgery must have occurred after Debtor breached the contracts and Creditor sustained his losses. But the record contains evidence that is inconsistent with that observation. The Purported Forgery in the Excerpts of Record shows a transmission stamp dated December 22, 2000, from Debtor's fax machine. Debtor allegedly breached the Letter Agreement by wrongfully paying himself excess salary in 2001 and 2002. Thus, the record contains evidence that a material factual and legal issue may be in dispute: was Debtor's intentional breach accompanied by a tortious act?
If Debtor forged documents in a scheme to cover or justify his breaches of the Letter Agreement before he actually committed the breaches, Debtor's breaches of contract were potentially accompanied by tortious conduct which may or may not give rise to a claim under Jercich and section 523(a)(4). At a minimum, Creditor has presented an issue for the trier of fact which cannot be resolved as a matter of undisputed fact and law: Did Debtor engage in tortious conduct in connection with his breach of contracts and did that tortious conduct result in the willful and malicious injury of Creditor?
Because Debtor has not established as a matter of undisputed fact and law that Creditor has no individual section 523(a)(6) claim, we REVERSE this aspect of the bankruptcy court's summary judgment.
C. Debtor's Derivative Counterclaim for Fraudulent Transfer
Acting derivatively on behalf of Monterey, Debtor asserted a fraudulent transfer counterclaim against Creditor pursuant to California Civil Code section 3439.04(a) and (b). Creditor sought dismissal of the counterclaim on the ground that Debtor lacked standing to assert the claims. The bankruptcy court dismissed the counterclaim, but did so on the grounds that Debtor's wrongful conduct equitably estopped him from asserting derivative claims on behalf of Monterey. We affirm the dismissal as correct for a different reason: as a participant in the purported fraudulent transfer (i.e., the Resolution designating Note payments as bonus payments from Monterey to Creditor for services previously rendered), Debtor lacked standing under California law to assert the fraudulent transfer claims.
First, to the extent Debtor is acting derivatively on behalf of Monterey, he lacks standing because Monterey lacks standing to assail a fraudulent transfer in which it participated. Tognazzi v. Wilhelm, 6 Cal.2d 123, 125, 56 P.2d 1227, 1228 (1936). (" '[H]e who executes a conveyance of property for the purpose of hindering, delaying or defrauding his creditors cannot by an action in equity obtain a reconveyance from his grantee, nor can anyone claiming under him, except an innocent purchaser.'"); see also Jones v. Re-Mine Oil Co., 47 Cal.App.2d 832, 842, 119 P.2d 219 (1941) (one who has transferred his property to defraud his creditors cannot thereafter recover from his grantee that which he has conveyed); Xydias v. Adamson (In re Xydias' Estate), 92 Cal.App.2d 857, 860-61, 208 P.2d 378, 379 (1949) (" No rule of law is more strictly adhered to than the rule that one who has conveyed his property in order to defraud his creditors, under circumstances such as are present here, cannot thereafter recover from his grantee that which he has conveyed.").
Secondly, the California fraudulent transfer laws on their face only confer standing on a creditor of the transferor debtor. Gen. Elec. Capital Auto Lease, Inc. v. Broach (In re Lucas Dallas, Inc.), 185 B.R. 801, 805 (9th Cir. BAP 1995). Debtor's counterclaim does not allege that he was acting as a creditor of Debtor. Moreover, and more importantly, to the extent Debtor is acting as a creditor of Monterey in seeking to invalidate the purported fraudulent transfer, he cannot do so because he executed the Resolution giving rise to the transfer. A creditor who ratifies or participates in a fraudulent transfer may be estopped from attacking the transfer. 16A Cal. Jur. 3d Creditors § 404 (2006) (citing Sullivan v. Johnson, 127 Cal. 230, 59 P. 583 (1899)).
Because the panel can affirm for any reason supported by the record ( Dittman v. California, 191 F.3d 1020, 1027 n.3 (9th Cir. 1999)), we AFFIRM the bankruptcy court's dismissal of Debtor's fraudulent transfer claims, but base the affirmance on Debtor's lack of standing to pursue such claims.
V. CONCLUSION
For the foregoing reasons, we AFFIRM the bankruptcy court's summary judgment denying Creditor's derivative section 523(a)(4) and (a)(6) claims, REVERSE the bankruptcy court's summary judgment denying Creditor's individual section 523(a)(6) claims, and AFFIRM the bankruptcy court's dismissal of Debtor's derivative fraudulent transfer counterclaim.
Debtor also argues that Creditor's derivative claims were time-barred. In his initial complaint, Creditor asserted the section 523(a)(4) claims on his own behalf. After the deadline for objecting to dischargeability passed, he amended the complaint to assert the section 523(a)(4) claims derivatively on behalf of the corporation. Because the amended complaint alleges the same facts as the initial complaint, the " two pleadings . . . share a common core of operative facts sufficient to impart fair notice of the transaction, occurrence, or conduct called into question." Fed. Dep. Ins. Corp. v. Jackson, 133 F.3d 694, 702 (9th Cir. 1998). Consequently, because the specified conduct in the amended complaint is identifiable with the conduct alleged in the initial complaint, the amended complaint relates back to the initial complaint. Id.