In re: Cristie Tolotti ( 2014 )

  •                                                            FILED
                                                                AUG 25 2014
     1                         NOT FOR PUBLICATION
                                                            SUSAN M. SPRAUL, CLERK
     2                                                        U.S. BKCY. APP. PANEL
                                                              OF THE NINTH CIRCUIT
     4                            OF THE NINTH CIRCUIT
     5   In re:                        )      BAP No. CC-14-1019-TaPaKi
     6   CRISTIE TOLOTTI,              )      Bk. No. 9:10-bk-14856-RR
     7                  Debtor.        )      Adv. No. 9:11-ap-01215-RR
     8                                 )
         CRISTIE TOLOTTI,              )
     9                                 )
                        Appellant,     )
    10                                 )
         v.                            )      MEMORANDUM*
    11                                 )
    12   INC.,                         )
    13                  Appellee.      )
                         Argued and Submitted on July 25, 2014
    15                          at Pasadena, California
    16                          Filed - August 25, 2014
    17              Appeal from the United States Bankruptcy Court
                        for the Central District of California
                  Honorable Robin Riblet, Bankruptcy Judge, Presiding
    19                      ________________________________
    20   Appearances:     Michael Jay Berger argued for appellant Cristie
                          Tolotti; Joshua S. Hopstone argued for appellee
    21                    Seaboard Produce Distributors, Inc.
    23   Before:     TAYLOR, PAPPAS, and KIRSCHER, Bankruptcy Judges.
               This disposition is not appropriate for publication.
    27   Although it may be cited for whatever persuasive value it may
         have (see Fed. R. App. P. 32.1), it has no precedential value.
    28   See 9th Cir. BAP Rule 8013-1.
     1                              INTRODUCTION
     2        Debtor Christie Tolotti appeals from a summary judgment in
     3   favor of Seaboard Produce Distributors, Inc. based on issue
     4   preclusion.   The bankruptcy court held that a state court
     5   judgment, issued on default, conclusively established all the
     6   elements necessary to except Seaboard’s claim from discharge
     7   under 11 U.S.C. § 523(a)(6).1
     8        We agree that Seaboard is entitled to issue preclusive
     9   effect of the state court’s findings that Mrs. Tolotti committed
    10   wrongful acts that resulted in more than $600,000 in damage to
    11   Seaboard’s property.   Thus, the bankruptcy court did not err when
    12   it ruled that Seaboard is entitled to rely upon the state court
    13   judgment on these elements of its § 523(a)(6) claim.
    14        We determine, however, that Seaboard was not entitled to
    15   rely upon the state court’s apparent determination that
    16   Mrs. Tolotti had the subjective state of mind necessary to except
    17   the debt from discharge under § 523(a)(6).   For issue preclusion
    18   analysis, any reasonable doubt as to what was decided by a prior
    19   judgment should be resolved against allowing issue preclusive
    20   effect; and nondischargeability actions are to be strictly
    21   construed in the debtor’s favor.   Here, Mrs. Tolotti had
    22   inadequate notice that Seaboard sought determination of her
    23   § 523(a)(6) subjective state of mind in the state court action.
    24   Seaboard did not raise Mrs. Tolotti’s subjective state of mind as
    25   a material fact to be litigated, nor did its prayer for relief
    26   for damages for waste and conversion so implicate.   Further, the
                 Unless specified otherwise, all chapter and section
    28   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
                                         - 2 -
     1   state court did not need to consider or determine Mrs. Tolotti’s
     2   subjective state of mind for purposes of determining her
     3   liability for waste and conversion.      And finally, Seaboard failed
     4   to provide any record of the default prove-up to show how or why
     5   the state court otherwise might have reached the state of mind
     6   determination on default.   As a result, Seaboard failed to carry
     7   its burden to show that the state court’s § 523(a)(6) state of
     8   mind findings were actually litigated and, thus, they are not
     9   entitled to preclusive effect.    Therefore, we VACATE the
    10   bankruptcy court’s summary judgment and REMAND this matter for
    11   further proceedings.
    12                                    FACTS
    13        Seaboard, the successful bidder at a bank’s foreclosure
    14   sale, purchased property owned by Mrs. Tolotti and her husband in
    15   Camarillo, California, consisting of a residence and
    16   approximately nine acres of avocado trees.     To obtain possession,
    17   Seaboard filed an unlawful detainer action against the Tolottis,
    18   which the Tolottis actively defended.
    19        After conducting a trial, the unlawful detainer court
    20   awarded possession to Seaboard, along with holdover damages, and
    21   ordered the Tolottis to vacate the property.     The Tolottis,
    22   nonetheless, continued their efforts to avoid eviction through
    23   post-trial legal maneuvers.   At some point after foreclosure,
    24   Seaboard offered to pay for and to ensure watering, maintenance,
    25   and upkeep of the avocado trees.    The Tolottis either refused or
    26   failed to respond to the offer.    Mrs. Tolotti then filed
                                          - 3 -
     1   a petition under chapter 11.2
     2        Seaboard promptly obtained relief from stay and completed
     3   the eviction process.   When Seaboard took possession, the avocado
     4   trees were damaged from neglect and lack of water.   In addition,
     5   the Tolottis had removed or damaged fixtures, including toilets,
     6   sinks, kitchen appliances, portions of the HVAC system, ducts,
     7   and the outside barbeque.
     8        Mrs. Tolotti’s chapter 11 case was converted to a case under
     9   chapter 7, and Seaboard filed its adversary proceeding under
    10   § 523(a)(6).   Seaboard’s complaint (“Adversary Complaint”) sought
    11   a nondischargeable judgment for damages caused by waste,
    12   destruction and removal of fixtures from the residence, and
    13   waste, destruction and damage to the avocado orchard.
    14        After Mrs. Tolotti responded to the Adversary Complaint, she
    15   and Seaboard entered into a stipulation.   Pursuant to the
    16   stipulation, the bankruptcy court lifted the automatic stay to
    17   allow Seaboard to file and prosecute an action against
    18   Mrs. Tolotti in state court relating to the claims raised in the
    19   Adversary Complaint.
    20        Seaboard filed its complaint for waste and conversion
    21   against Mrs. Tolotti and her husband in Ventura Superior Court
    22   (“State Court Complaint”).   As its first cause of action, titled
    23   “Waste, Damage, and Destruction,” Seaboard alleged that the
    24   Tolottis improperly delayed turnover of the property.    It listed
    25   the litigation steps taken by the Tolottis in and connected to
    27        2
                 Mrs. Tolotti initially filed a chapter 13 petition that
         she subsequently dismissed; and her husband filed a separate
    28   chapter 13 petition, which was subsequently dismissed.
                                         - 4 -
     1   the unlawful detainer proceeding and the multiple bankruptcy
     2   filings.   Seaboard also alleged that the Tolottis knowingly
     3   destroyed and damaged the property and recklessly failed to
     4   maintain and care for it.     Further, Seaboard alleged that these
     5   “actions caused [Seaboard] to suffer financial injury without
     6   cause or excuse . . .; were deliberate and intentional . . .;”
     7   and the “willful and malicious actions” caused damages of not
     8   less than $250,000.   Request for Judicial Notice, Ex. A at
     9   ¶¶ 16-17 (Adv. Pro. ECF No. 40).
    10        In Seaboard’s second cause of action, for conversion, it
    11   alleged that the Tolottis knew that Seaboard owned the property
    12   and had right to its possession, yet “willfully and intentionally
    13   took unreasonable and unsuccessful steps that obstructed and
    14   thwarted” such rights.   Id. at ¶¶ 19-20.    In addition, Seaboard
    15   alleged that the Tolottis “knowingly stole fixtures belonging to
    16   [Seaboard].”   Id. at ¶ 21.
    17        Seaboard titled its third cause of action as one for “Waste,
    18   Destruction, and Damage to Avocado Orchard.”     Seaboard alleged
    19   that the Tolottis damaged the avocado trees through neglect and
    20   lack of watering, and that such lack of care was willful and
    21   intentional.   Id. at ¶¶ 23-24.    It specifically alleged that
    22   “[the Tolottis’] actions, were deliberate and intentional” (id.
    23   at ¶ 25); they “intentionally and recklessly failed to perform
    24   adequate maintenance to preserve” the trees (id. at ¶ 26); and
    25   their “willful and malicious actions” (id. at ¶ 27) caused
    26   Seaboard damages of not less than $300,000.
    27        Approximately fifteen months later, Seaboard moved for and
    28   obtained terminating sanctions against the Tolottis in the state
                                           - 5 -
     1   court action based on discovery abuses and failure to obey court
     2   orders.   The state court vacated trial and entered an order
     3   striking the answer and entering default against the Tolottis in
     4   favor of Seaboard.   Thereafter, the state court entered a default
     5   judgment against the Tolottis for a total of $660,511.85
     6   (hereinafter, the “Default Judgment”).3
     7        The Default Judgment, prepared by Seaboard’s counsel,
     8   substantially mirrored the State Court Complaint, with findings
     9   that the Tolottis committed the actions alleged therein.   In
    10   addition, it contained detailed findings describing the physical
    11   damage to the residence and the avocado trees caused by such
    12   actions and omissions.   It also included the following express
    13   findings:
    14        7. The Court finds that [the Tolottis] committed each
              of the acts referenced in this Judgment and caused the
    15        damage referenced in this Judgment without
              justification, just cause, or excuse. In taking the
    16        above actions, the Court finds that [the Tolottis]
              acted deliberately, willfully, and intended to cause
    17        injury to [Seaboard’s] security and impede [Seaboard]
              from obtaining physical possession of the property.
              8. The Court finds that [the Tolottis] acted with
    19        malice in taking the above actions and that the [the
              Tolottis’] actions described herein caused [Seaboard]
    20        to suffer and incur damages of $300,000, for the
              destruction caused to the avocados, and $250,000 for
    21        the damage caused to the Property due to removal of the
              fixtures, plus interest of $105,327.12 and costs of
    22        $5,184.73 for a total judgment of $660,511.85 together
              with interest on the judgment as provided by law.
    24   Request for Judicial Notice, Ex. D (Adv. Pro. ECF No. 40).     No
                 The Default Judgment appears to have been entered based
    26   on a default prove-up conducted by the state court without a
         hearing. The record on appeal, however, does not contain copies
    27   of any documents or evidence considered by the state court for
         the default prove-up. Therefore, our review is limited to the
    28   State Court Complaint and the Default Judgment.
                                        - 6 -
     1   appeal was filed.
     2        Seaboard thereafter filed a motion for summary judgment
     3   (hereinafter, “MSJ”) requesting that the bankruptcy court give
     4   preclusive effect to the Default Judgment.    Mrs. Tolotti opposed
     5   the MSJ on the grounds that Mrs. Tolotti’s state of mind, as
     6   required to establish nondischargeability under § 523(a)(6), was
     7   not decided by the state court, thus creating a disputed issue of
     8   fact that could not be determined by the bankruptcy court on
     9   summary judgment.4   Mrs. Tolotti also argued that the issue of
    10   dischargeability was not litigated in the state court and could
    11   only be determined in the bankruptcy court.
    12        The bankruptcy court held a hearing on the MSJ and stated
    13   its findings and conclusions on the record.   The bankruptcy court
    14   found that the Default Judgment was entitled to preclusive effect
    15   and that the findings contained therein conclusively established
    16   nondischargeability of the judgment amount under § 523(a)(6).
    17   The bankruptcy court entered its order granting summary judgment
    18   and a separate judgment of nondischargeability thereon (the
    19   “Judgment”), and Mrs. Tolotti timely appealed.
    20                              JURISDICTION
    21        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
    23        4
                 In her opposing papers, Mrs. Tolotti argued and stated by
         declaration that she removed the items from the property because
    24   she believed them to belong to her; her court filings were made
         to protect her rights; and she stopped watering the avocados
    25   months before foreclosure because she could not afford the bills
         and the trees were dying by the time Seaboard offered to
    26   reimburse her for watering. Such alleged “factual disputes are
         irrelevant here where the court’s task is to determine whether
    27   the Default Judgment will support a summary judgment for
         nondischargeability in this court.” Newsom v. Moore
    28   (In re Moore), 
    186 B.R. 962
    , 966 n.3 (Bankr. N.D. Cal. 1995).
                                        - 7 -
     1   §§ 1334 and 157(b)(2)(I).    We have jurisdiction under 28 U.S.C.
     2   § 158.
     3                                    ISSUE5
     4        Did the bankruptcy court err when it determined that the
     5   state court’s state of mind findings in the Default Judgment were
     6   entitled to issue-preclusive effect as to Seaboard’s § 523(a)(6)
     7   nondischargeability claim against Mrs. Tolotti?
     8                             STANDARD OF REVIEW
     9        We review decisions on summary judgment de novo.     Bamonte v.
    10   City of Mesa, 
    598 F.3d 1217
    , 1220 (9th Cir. 2010).     We also
    11   review de novo whether a debt is excepted from discharge as a
    12   willful and malicious injury under § 523(a)(6).     Black v. Bonnie
    13   Springs Family Ltd. P’ship (In re Black), 
    487 B.R. 202
    , 210 (9th
    14   Cir. BAP 2013); see also Carrillo v. Su (In re Su), 
    290 F.3d 15
       1140, 1142 (9th Cir. 2002) (nondischargeability presents mixed
    16   issues of law and fact and is reviewed de novo).
    17        Our review of the bankruptcy court's determination that
    18   issue preclusion was available is also de novo.     In re Black,
    19   487 B.R. at 210.   If issue preclusion was available, we then
    20   review the bankruptcy court's application of issue preclusion for
    21   an abuse of discretion.    Id.   The bankruptcy court abused its
    22   discretion only if it applied the incorrect legal rule or its
    23   application of the correct legal rule was illogical, implausible,
    24   or without support in the record.     See United States v. Hinkson,
                 On appeal, Mrs. Tolotti states the issue more broadly,
    26   but only one of her arguments addresses the bankruptcy court’s
         issue preclusion determination. Mrs. Tolotti does not dispute
    27   the finality of the Default Judgment; nor question the identity
         of the parties involved. We, therefore, do not address these
    28   elements.
                                          - 8 -
    585 F.3d 1247
    , 1261-62 (9th Cir. 2009) (en banc).
     2                          DISCUSSION AND ANALYSIS
     3   A.   Standards and burdens.
     4        1.    Summary judgment
     5        A bankruptcy court may grant summary judgment when the
     6   pleadings and evidence demonstrate “that there is no genuine
     7   issue as to any material fact and that the moving party is
     8   entitled to a judgment as a matter of law.”      Celotex Corp. v.
     9   Catrett, 
    477 U.S. 317
    , 322 (1986).       The movant has the burden of
    10   proof.    See N. Slope Borough v. Rogstad (In re Rogstad), 
    126 F.3d 11
       1224, 1227 (9th Cir. 1997) (It is error to grant summary judgment
    12   simply because the opponent failed to oppose.).
    13        The issue preclusive effect of a prior state court judgment
    14   may serve as the basis for granting summary judgment.      See
    15   Khaligh v. Hadaegh (In re Khaligh), 
    338 B.R. 817
    , 832 (9th Cir.
    16   BAP 2006); see also Grogan v. Garner, 
    498 U.S. 279
    , 284 (1991)
    17   (holding that the doctrine of issue preclusion applies in
    18   bankruptcy court proceedings seeking to except debts from
    19   discharge).   Federal courts must give “full faith and credit” to
    20   the judgments of state courts.    28 U.S.C. § 1738.
    21        2.    Issue preclusion
    22        The party asserting preclusion bears the burden of
    23   establishing the threshold requirements.      Harmon v. Kobrin
    24   (In re Harmon), 
    250 F.3d 1240
    , 1245 (9th Cir. 2001).      This means
    25   providing “a record sufficient to reveal the controlling facts
    26   and pinpoint the exact issues litigated in the prior action.”
    27   Kelly v. Okoye (In re Kelly), 
    182 B.R. 255
    , 258 (9th Cir. BAP
    28   1995), aff'd, 
    100 F.3d 110
     (9th Cir. 1996).      “Any reasonable
                                          - 9 -
     1   doubt as to what was decided by a prior judgment should be
     2   resolved against allowing the [issue preclusive] effect.”    Id.
     3        In determining whether a state court judgment is entitled to
     4   preclusive effect in a bankruptcy proceeding, the bankruptcy
     5   court must apply the forum state's law of issue preclusion.
     6   In re Harmon, 250 F.3d at 1245.    Since the question here involves
     7   the preclusive effect of a California state court judgment, we
     8   apply California preclusion law.   See id.
     9        Under California issue preclusion law, the proponent must
    10   establish the following:
    11        1) the issue sought to be precluded . . . must be
              identical to that decided in the former proceeding;
    12        2) the issue must have been actually litigated in the
              former proceeding; 3) it must have been necessarily
    13        decided in the former proceeding; 4) the decision in
              the former proceeding must be final and on the merits;
    14        and 5) the party against whom preclusion is being
              sought must be the same as the party to the former
    15        proceeding.
    16   Honkanen v. Hopper (In re Honkanen), 
    446 B.R. 373
    , 382 (9th Cir.
    17   BAP 2011); Lucido v. Super. Ct., 
    51 Cal. 3d 335
    , 341 (1990).
    18        Even if all five requirements are satisfied, however,
    19   California places an additional limitation on issue preclusion;
    20   courts may give preclusive effect to a judgment “only if
    21   application of preclusion furthers the public policies underlying
    22   the doctrine.”   In re Harmon, 250 F.3d at 1245 (citing Lucido,
    23   51 Cal. 3d at 342).
    24        3.   Issue preclusive effect of default judgments
    25        Most jurisdictions do not consider a default judgment to be
    26   capable of satisfying the requirements for the application of
    27   issue preclusion.   See Murray v. Alaska Airlines, Inc., 
    522 F.3d 28
       920, 924 (9th Cir. 2008) (citing Restatement (Second) Judgments
                                       - 10 -
     1   § 27, cmt. E).   In California, however, issue preclusion may
     2   apply to a default judgment; the issue to be precluded, however,
     3   “must have been necessarily litigated in the action resulting in
     4   the default judgment.”     In re Harmon, 250 F.3d at 1246 n.5
     5   (internal quotation and citation omitted).
     6        The “‘necessarily litigated’ requirement imposes two
     7   separate conditions: the issue must have been ‘actually
     8   litigated’ and it must have been ‘necessarily decided’ by the
     9   default judgment.”   Id.    The defendant must have had “actual
    10   notice of the proceedings and a ‘full and fair opportunity to
    11   litigate,’”   Cal-Micro, Inc. V. Cantrell (In re Cantrell),
    329 F.3d 1119
    , 1123-24 (9th Cir. 2003) (citing In re Harmon,
    13   250 F.3d at 1247 n.6); and the material factual issues must have
    14   been raised in the pleadings and must have been necessary to
    15   sustain the judgment.    Id. at 1247.
    16        "[A] default judgment conclusively establishes, between the
    17   parties so far as subsequent proceedings on a different cause of
    18   action are concerned, the truth of all material allegations
    19   contained in the complaint in the first action, and every fact
    20   necessary to uphold the default judgment; but such judgment is
    21   not conclusive as to any defense or issue which was not raised
    22   and is not necessary to uphold the judgment."     Mitchell v. Jones,
    172 Cal. App. 2d 580
    , 586-587 (1959).     In default situations, the
    24   defendant generally has a right to depend upon the pleadings to
    25   determine whether or not to appear and litigate the matter.       It
    26   is ordinarily held that it would be doing a defendant serious
    27   wrong and injustice to uphold a judgment that gives relief beyond
    28   that asked for in the complaint.     Thus, “[a] default judgment
                                         - 11 -
     1   will have a[n issue preclusive] effect only as to material issues
     2   actually raised in the pleadings.”      Heiser, California Civil
     3   Procedure § 9.03 (Matthew Bender & Co. 2nd ed. 2005) (citing
     4   English v. English, 
    9 Cal. 2d 358
     (1937); Four Star Elec. Inc. v.
     5   Feh Constr., 
    7 Cal. App. 4th 1375
     6        4.    Section 523(a)(6) state of mind requirements.
     7        A creditor objecting to the dischargeability of its claim
     8   bears the burden of proving, by a preponderance of the evidence,
     9   that the particular debt falls within one of the exceptions to
    10   discharge enumerated in section 523(a).      Grogan v. Garner,
    11   498 U.S. at 286-91.   Section 523(a)(6) excepts from discharge
    12   debts arising from a debtor’s “willful and malicious injury” to
    13   another person or to the property of another.      Barboza v. New
    14   Form, Inc. (In re Barboza), 
    545 F.3d 702
    , 706 (9th Cir. 2008).
    15   “The word ‘willful’ in (a)(6) modifies the word ‘injury,’
    16   indicating that nondischargeability takes a deliberate or
    17   intentional injury, not merely a deliberate or intentional act
    18   that leads to injury.”   Kawaauhau v. Geiger, 
    523 U.S. 57
    , 61
    19   (1998).   In the Ninth Circuit, “§ 523(a)6)’s willful injury
    20   requirement is met only when the debtor has a subjective motive
    21   to inflict injury or when the debtor believes that injury is
    22   substantially certain to result from his own conduct.”       Ormsby v.
    23   First Am. Title Co. (In re Ormsby), 
    591 F.3d 1199
    , 1206 (9th Cir.
    24   2010).    This standard is an exacting one under any circumstance.
    25        “A malicious injury involves (1) a wrongful act, (2) done
    26   intentionally, (3) which necessarily causes injury, and (4) is
    27   done without just cause or excuse.      Malice may be inferred based
    28   on the nature of the wrongful act.”      Id. at 1207.   The willful
                                        - 12 -
     1   injury must be established, however, before malice may be
     2   inferred.   See id. (citing Thiara v. Spycher Bros.
     3   (In re Thiara), 
    285 B.R. 420
    , 434 (9th Cir. BAP 2002) (“the ‘done
     4   intentionally’ element of a ‘malicious’ injury brings into play
     5   the same subjective standard of intent which focuses on . . .
     6   knowledge of harm to the creditor.”)).
         B.   Mrs. Tolotti’s subjective state of mind was not actually
     8        litigated in the state court action.
     9        Here, Seaboard appropriately argued below, and repeats on
    10   appeal, that default judgments in California are entitled to
    11   issue preclusive effect.   And Seaboard also correctly argues that
    12   the Default Judgment contains findings that would support
    13   nondischargeability under § 523(a)(6).      The state court expressly
    14   found that Mrs. Tolotti “caused the damage referenced in this
    15   Judgment without justification, just cause, or excuse.”      Request
    16   for Judicial Notice, Ex. D at ¶ 7 (Adv. Pro. ECF No. 40).      It
    17   found that Mrs. Tolotti “acted deliberately, willfully, and
    18   intended to cause injury . . . .”     Id.   In addition, it found
    19   that Mrs. Tolotti “acted with malice in taking the . . . actions
    20   and . . . the actions . . . caused [Seaboard] to suffer and incur
    21   damages . . . .”   Id. at ¶ 8.    These words and phrases appear
    22   facially to satisfy the state of mind requirements.      But the
    23   problem with this view is that these words and phrases when used
    24   in the context of state court causes of action for waste and
    25   conversion do not comport with the very particular definitions in
    26   the Ninth Circuit for bankruptcy nondischargeability purposes.
    27        Moreover, nowhere in the state court complaint did Seaboard
    28   allege that Mrs. Tolotti intended to cause injury to Seaboard, a
                                          - 13 -
     1   critical element of the subjective state of mind required to
     2   support a § 523(a)(6) claim.   This material factual issue was
     3   neither raised by Seaboard in the State Court Complaint nor
     4   necessary to support a state court judgment based on waste and
     5   conversion.
     6        Thus, prior to her default, Mrs. Tolotti could not know that
     7   intent to injure would be litigated in the state court action.
     8   This determination arose for the first time in the context of
     9   Default Judgment and was not a required determination for
    10   liability in connection with the state court waste and conversion
    11   claims.
              1.   Mrs. Tolotti’s “intent to cause injury” was not raised
    13             in the State Court Complaint.
    14        In the State Court Complaint, Seaboard pled that
    15   Mrs. Tolotti’s actions and omissions, labeled waste and
    16   conversion, were intentional and deliberate.   It also summarily
    17   alleged that such “willful and malicious actions” caused Seaboard
    18   to incur damages.   Willful and intentional actions, however, are
    19   not synonymous with willful or intentional injury.   See Geiger,
    20   523 U.S. at 61; and see Dominguez v. Elias (In re Elias),
    302 B.R. 900
    , 909 (Bankr. D. Idaho 2003) (emphasis on the
    22   importance of the debtor’s subjective intent under § 523(a)(6)
    23   required denial of issue preclusive effect of a criminal
    24   judgment).    As Mrs. Tolotti argues on appeal, willful, as used in
    25   state court tort actions, is not synonymous with willful under
    26   § 523(a)(6).
    27        2.   California “willfulness” vs. § 523(a)(6) “willfulness.”
    28        California law recognizes “willful” misconduct as a type of
                                        - 14 -
     1   misconduct that is more culpable than negligence but falls short
     2   of intentional wrong.   New v. Consol. Rock Prods. Co., 
    171 Cal. 3
       App. 3d 681, 689 (1985).    “Wilful or wanton misconduct is
     4   intentional wrongful conduct, done either with a knowledge that
     5   serious injury to another will probably result, or with a wanton
     6   and reckless disregard of the possible result.”    Id.   Such
     7   willful misconduct is known under several other names: “serious
     8   and wilful misconduct,” “wanton misconduct,” “reckless
     9   disregard,” “recklessness ” – an aggravated form of negligence.
    10   Id.; and see Carlsen v. Koivumaki, 
    227 Cal. App. 4th 879
    , 895
    11   (2014).   But negligence, even aggravated negligence, is
    12   insufficient to support a nondischargeable claim under
    13   § 523(a)(6).   See Petralia v. Jercich (In re Jercich), 
    238 F.3d 14
       1202, 1207 (9th Cir. 2001) (“[I]t must be shown not only that the
    15   debtor acted willfully, but also that the debtor inflicted the
    16   injury willfully and maliciously rather than recklessly or
    17   negligently.”).   Nonetheless, Seaboard incorporated in its
    18   allegations of waste and conversion such descriptors as “willful
    19   and malicious actions,” “deliberate,” and “intentional.”      Having
    20   done so, however, Seaboard did not place at issue Mrs. Tolotti’s
    21   subjective state of mind.    In a default situation, if a material
    22   fact was not raised in the pleadings, unless it was necessarily
    23   decided, the issue was not actually litigated.    See In re Harmon,
    24   250 F.3d at 1248.
    25        “Whether an issue was necessarily decided has been
    26   interpreted to mean that the issue was not entirely unnecessary
    27   to the judgment in the prior proceeding.”    Murphy v. Murphy,
    164 Cal. App. 4th 376
    , 400 (2008) (internal quotation and
                                        - 15 -
     1   citation omitted).    Here, Seaboard was not required to prove
     2   Mrs. Tolotti’s subjective intent to injure in order to prove her
     3   liability for waste or conversion.
              3.   Section 523(a)(6) willfulness was not necessary for
     5             Seaboard’s judgment for waste.
     6        In California, waste is an unlawful act or omission of duty
     7   by a person in possession of real property that results in an
     8   injury to that property.    S. Pac. Land Co. v. Kiggins, 
    110 Cal. 9
       App. 56, 60-61 (1930).    “Proof of conduct which has resulted in
    10   substantial depreciation of the market value of the land
    11   establishes waste.”    Smith v. Cap Concrete Inc., 
    133 Cal. App. 3d 12
       769, 776 (1982).    Thus, liability based on this property tort
    13   does not require a showing of a subjective motive to injure.
              4.   Section 523(a)(6) willfulness was not necessary for
    15             Seaboard’s judgment for conversion.
    16        Conversion is “the wrongful exercise of dominion over
    17   another’s personal property in denial of or inconsistent with his
    18   rights in the property.”    In re Emery, 
    317 F.3d 1064
    , 1069 (9th
    19   Cir. 2003).   To succeed on a claim of conversion, the plaintiff
    20   must show: (1) a present right to possess the property, (2) the
    21   defendant’s conversion by a wrongful act or disposition of
    22   property, and (3) damages.    Hernandez v. Lopez, 
    180 Cal. App. 4th 23
       932, 939-40 (2009).    A cause of action for conversion does not
    24   require a showing that the “defendant did the act in question
    25   from wrongful motives, or generally speaking, even
    26   intentionally.”    Henderson v. Sec. Nat’l Bank, 
    72 Cal. App. 3d 27
       764, 771 (1977).    In fact, “a want of such motives, or of
    28   intention, is no defense.”    Id.
                                        - 16 -
     1        Thus, the finding that Mrs. Tolotti intended to cause injury
     2   to Seaboard,6 was unnecessary and immaterial to establish
     3   Seaboard’s right to recover its claimed damages.7   As such,
     4   Mrs. Tolotti’s § 523(a)(6) subjective state of mind was not
     5   necessarily decided by the state court.8
     6        5.   Seaboard did not seek or obtain punitive damages.
     7        Arguably, if Seaboard sought and obtained a ruling in the
     8   state court awarding punitive damages against Mrs. Tolotti, the
     9   findings necessary to support such damages might be sufficient to
    10   satisfy the state of mind requirement under § 523(a)()6).      See
    11   In re Jercich, 238 F.3d at 1209 (a finding of substantial
    12   oppression under Cal. Civ. Code § 3294, for punitive damages,
    13   held to be sufficient to show malicious injury under
    14   § 523(a)(6)).   Seaboard did not pray for punitive damages,
    15   however, in its State Court Complaint; thus, no related findings
    16   were necessary to support the decision.
    19           We reiterate that the record on appeal fails to establish
         that the state court had anything more than the State Court
    20   Complaint on which to base its decision.
    21        7
                 In oral argument, Seaboard’s counsel argued that the
         state court read between the lines to find Mrs. Tolotti’s intent
    22   to injure. The record here does not support Seaboard’s
         contention that the state court consciously and appropriately
    23   made such inferences unless we also read between the lines.
         Issue preclusion analysis does not permit us to do so.
    24   Mrs. Tolotti’s counsel conceded that Mrs. Tolotti’s conduct might
         appear “outrageous” but that in Mrs. Tolotti’s mind she was
    25   legitimately entitled to do as she had done. Seaboard had the
         burden, and on this point, failed to carry it.
                 Seaboard’s recitation of the elements required for issue
    27   preclusion in California omitted the word “necessarily” in the
         third factor: “necessarily decided.” And on appeal Seaboard does
    28   no more than state that all the issues were decided.
                                       - 17 -
     1        6.    A § 523(a)(6) “malice” finding necessarily requires
                    intentional injury.
     3        As discussed earlier, Mrs. Tolotti’s intent to cause injury
     4   was not actually litigated.   Even assuming the state court based
     5   its “malice” finding on inferences from Mrs. Tolotti’s actions,
     6   without having appropriately first determined the “intentional
     7   injury,” such an inference was premature, at best.   And because
     8   the application of issue preclusion as to the intentional injury
     9   finding was not appropriate, we determine that application of
    10   issue preclusion to the finding of malice is likewise not
    11   appropriate.9
    12        7.    Public policy considerations
    13        Seaboard argues that the bankruptcy court held that public
    14   policy considerations favored application of issue preclusion.
    15   We determine that policy considerations favor application of
    16   issue preclusion to the findings regarding Mrs. Tolotti’s actions
    17   and the damages caused thereby.   To give preclusive effect to the
    18   facial § 523(a)(6) state of mind findings included in the Default
    19   Judgment, however, is inconsistent with fairness and public
    20   policy.   The State Court Complaint failed to provide notice to
    21   Mrs. Tolotti that her § 523(a)(6) state of mind would be
                 As to the “malice” finding by the state court,
    23   Mrs. Tolotti argues on appeal that the state court erred in
         relying on allegations that she employed improper litigation
    24   tactics to prevent Seaboard’s possession of the property –
         because she had a legal right to litigate. Thus, Mrs. Tolotti
    25   argues, the bankruptcy court erred by giving the malice finding
         preclusive effect. Mrs. Tolotti asks the bankruptcy court and
    26   this Panel to sit as reviewing courts with respect to the Default
         Judgment - in effect a de facto appeal of a state court decision
    27   that is barred by the Rooker-Feldman doctrine. See Exxon Mobil
         Corp. v. Saudi Basic Indust. Corp., 
    544 U.S. 280
    , 284 (2005). We
    28   appropriately decline to do so.
                                       - 18 -
     1   presented to the state court for decision.   Her failure to defend
     2   against that material factual issue, thus, cannot appropriately
     3   be considered an admission of its truth.10   The fact that the
     4   state court action involved terminating sanctions does not change
     5   this conclusion.   The resulting Default Judgment was broader than
     6   the State Court Complaint and arguably conflated tortious conduct
     7   with the “intent to injure” necessary to support
     8   nondischargeability under § 523(a)(6).   Here, the ultimate
     9   determination of Mrs. Tolotti’s § 523(a)(6) state of mind must
    10   remain a finding to be made by the bankruptcy court.11   We
    11   reiterate that only Mrs. Tolotti’s state of mind remains to be
    12   determined.
    13                               CONCLUSION
    14        Based on the foregoing, we VACATE the bankruptcy court’s
    15   summary judgment and REMAND this matter for further proceedings.
    20        10
                 Seaboard argued that Mrs. Tolotti admitted willful and
         malicious injury when she did not dispute Seaboard’s statement of
    21   undisputed facts and conclusions of law filed in support of the
         MSJ. We agree with Mrs. Tolotti’s assertion, however, that
    22   Mrs. Tolotti only agreed that such findings were contained in the
         Default Judgment. She did not agree that the findings themselves
    23   were undisputed.
    24        11
                 Mrs. Tolotti also contends that the bankruptcy court
         improperly weighed evidence by disregarding Mrs. Tolotti’s
    25   declaration in opposition to the MSJ to the effect that she did
         not intend to harm Seaboard. Mrs. Tolotti does not cite to any
    26   point in the record to support the contention that the bankruptcy
         court weighed the evidence, and, as noted earlier, the contention
    27   is inconsistent facially with the bankruptcy court’s analysis and
         ruling based solely on its application of issue preclusion to the
    28   Default Judgment.
                                       - 19 -