Neil Campbell v. Phillip Spencer ( 2019 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS FEB 12 2019
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: PHILLIP MICHAEL SPENCER, No. 17-60065
Debtor, BAP Case No. SC-16-1253-FBJu
BK Nos. 3:14-bk-09514-MM,
------------------------------ 3:14-bk-08384-MM
NEIL F. CAMPBELL, MEMORANDUM*
Appellant,
v.
PHILLIP MICHAEL SPENCER; MARK S.
BUCKMAN, Esquire,
Appellees.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Jury, Faris, and Brand, Bankruptcy Judges, Presiding
Submitted February 8, 2019**
Pasadena, California
Before: WARDLAW and BEA, Circuit Judges, and MURPHY,*** District Judge.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
***
The Honorable Stephen J. Murphy, III, United States District Judge
for the Eastern District of Michigan, sitting by designation.
Neil Campbell appeals the Bankruptcy Appellate Panel’s (“BAP”)
affirmance of the bankruptcy court’s finding that the debt Phillip1 Spencer and
Mark Buckman owed to him was dischargeable in bankruptcy. The bankruptcy
court determined the debt was dischargeable because Spencer and Buckman’s
reliance on the advice of their counsel precluded a finding of the requisite intent
under 11 U.S.C. § 523(a)(4). We have jurisdiction under 28 U.S.C. § 158(d)(1).
We affirm.
We review decisions of the BAP de novo. In re Straightline Invs., Inc., 525
F.3d 870, 876 (9th Cir. 2008). We independently review the bankruptcy court’s
rulings on appeal from the BAP. In re Khan, 846 F.3d 1058, 1062 (9th Cir. 2017)
(citation omitted). We review questions of law and mixed questions of fact and
law—such as the dischargeability of a debt—de novo. Miller v. United States, 363
F.3d 999, 1004 (9th Cir. 2004). We review factual findings for clear error, which
means we “accept findings of fact made by the bankruptcy court unless [those]
findings leave the definite and firm conviction that a mistake has been committed
by the bankruptcy judge.” In re Khan, 846 F.3d at 1063 (alteration in original)
(citation omitted). Finally, we review a bankruptcy court’s decision to apply issue
preclusion for abuse of discretion. Dias v. Elique, 436 F.3d 1125, 1128 (9th Cir.
2006).
1
The record suggests that Spencer’s first name is spelled “Philip.”
2
During bankruptcy proceedings, a debtor cannot discharge a debt that arises
from “fraud or defalcation while [the debtor acted] in a fiduciary capacity.” 11
U.S.C. § 523(a)(4). To prove defalcation, a creditor must establish a “culpable state
of mind . . . involving knowledge of, or gross recklessness in respect to, the
improper nature of the relevant fiduciary behavior.” Bullock v. BankChampaign,
N.A., 569 U.S. 267, 269 (2013). Conduct satisfying this state-of-mind requirement
includes bad faith, moral turpitude, other immoral conduct, or an intentional
wrong—defined as “conduct that the fiduciary knows is improper” or when the
fiduciary “consciously disregards (or is willfully blind to) a substantial and
unjustifiable risk that his conduct will . . . violate a fiduciary duty.” Id. at 273–74
(internal quotation marks omitted) (citation omitted).
First, the bankruptcy court did not abuse its discretion by rejecting the
applicability of issue preclusion as to and conducting a trial on the question of
Spencer and Buckman’s intent.2 The bankruptcy court properly determined that the
arbitrator’s findings regarding intent were not sufficiently clear.
In his fiduciary-duty analysis, the arbitrator found that Spencer and
Buckman’s actions “were done purposefully (and therefore willfully),” “were
harmful to [Campbell],” and were “designed to deny him the benefits of
ownership.” In his constructive fraud analysis, however, the arbitrator determined
2
Issue preclusion was available, and no party contends otherwise.
3
that the same conduct lacked an “intent to deceive” and betrayed “more of a simple
ignorance of and perhaps a cavalier attitude toward the formalities of business
organization and governance.”
The bankruptcy court’s “reasonable doubts” about the arbitrator’s seemingly
contradictory findings precluded application of issue preclusion. See In re
Reynoso, 477 F.3d 1117, 1123 (9th Cir. 2007). The bankruptcy court’s application
of the legal standard was not “illogical, implausible, or without support in
inferences that may be drawn from the facts in the record.” United States v.
Hinkson, 585 F.3d 1247, 1262–63 (9th Cir. 2009).
Second, the bankruptcy court’s factual findings do not leave us with the
“definite and firm conviction that a mistake has been committed.” In re Khan, 846
F.3d at 1063. The bankruptcy court detailed the testimony provided at trial. In
particular, the bankruptcy court explained that it found the testimony of Spencer,
Buckman, Paul Thomas (Spencer and Buckman’s attorney), Patricia Wissehr, Ken
Bobadilla, and Jeanne Goddard (Spencer and Buckman’s accountant), more
credible than Campbell’s testimony. When considering the trial testimony, the
undisputed facts, and the arbitrator’s findings, no factual error committed by the
bankruptcy court was clear.
AFFIRMED.
4