FILED MAR 19 2019 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: BAP No. CC-18-1203-LSF

MICHAEL DEKHTYAR, Bk. No. 2:17-bk-15939-ER

Debtor. Adv. No. 2:17-ap-01407-ER

MICHAEL DEKHTYAR,

Appellant,

v. MEMORANDUM*

MOYSEY CHERNYAVSKY,

Appellee.

Submitted Without Argument on February 21, 2019

Filed – March 19, 2019

Appeal from the United States Bankruptcy Court for the Central District of California

Honorable Ernest M. Robles, Bankruptcy Judge, Presiding

* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. Appearances: Appellant Michael Dekhtyar, pro se on brief; Stella Havkin of Havkin & Shrago on brief for Appellee.

Before: LAFFERTY, SPRAKER, and FARIS, Bankruptcy Judges.

INTRODUCTION

Debtor Michael Dekhtyar appeals the bankruptcy court’s order

granting Moysey Chernyavsky’s motion for summary judgment finding

Mr. Dekhtyar’s debt to Mr. Chernyavsky nondischargeable under

§ 523(a)(6)1 based on the issue preclusive effect of a state court judgment

for malicious prosecution.

We AFFIRM.

FACTUAL BACKGROUND2

In 2009, in connection with a business venture, Mr. Dekhtyar signed a

promissory note payable to Mr. Chernyavsky. In June 2010, after

Mr. Dekhtyar defaulted on the note, Mr. Chernyavsky filed a breach of

contract lawsuit in Los Angeles County Superior Court (“State Court”). In

1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code,

, all “Rule” references are to the Federal Rules of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of Civil Procedure. 2 We exercise our discretion to review the bankruptcy court’s docket, as appropriate. See Woods & Erickson, LLP v. Leonard (In re AVI, Inc.),

, 725 n.2 (9th Cir. BAP 2008).

2 that lawsuit, Mr. Dekhtyar filed a cross-complaint against

Mr. Chernyavsky alleging breach of contract, fraud, negligence, and other

torts. The State Court dismissed the cross-complaint with prejudice due to

Mr. Dekhtyar’s failure timely to file an amended cross-complaint after a

demurrer, and in February 2013 the State Court entered judgment for

Mr. Chernyavsky in the amount of $443,018.49.

Thereafter, Mr. Chernyavsky filed a malicious prosecution action

against Mr. Dekhtyar based on the cross-complaint filed in the prior

litigation. In 2016, after a bench trial, the State Court entered a $25,500

judgment in favor of Mr. Chernyavsky and against Mr. Dekhtyar on the

malicious prosecution claim (“Judgment”). In May 2018, the California

Court of Appeal affirmed the Judgment.

In May 2017, while the appeal of the Judgment was pending,

Mr. Dekhtyar filed a chapter 7 petition. Mr. Chernyavsky filed a timely

complaint seeking a declaration that the Judgment was nondischargeable

under § 523(a)(6). In May 2018, he filed a renewed motion for summary

judgment.3 The bankruptcy court granted the motion based on the issue

preclusive effect of the Judgment.

Mr. Dekhtyar timely appealed.

3 Mr. Chernyavsky had filed a previous motion for summary judgment, which the bankruptcy court denied without prejudice due to the pending appeal of the matter on which Mr. Chernyavsky based his request for preclusive effect. After the court of appeal decision became final, Mr. Chernyavsky renewed his motion for summary judgment.

3 JURISDICTION

The bankruptcy court had jurisdiction pursuant to

and 157(b)(2)(I). We have jurisdiction under

.

ISSUE

Did the bankruptcy court err in applying issue preclusion to the State

Court findings in granting summary judgment to Mr. Chernyavsky on his

§ 523(a)(6) claim?

STANDARD OF REVIEW

We review de novo the bankruptcy court’s decision to grant

summary judgment. Plyam v. Precision Dev., LLC (In re Plyam),

(9th Cir. BAP 2015). We also review de novo the bankruptcy court’s

determination that issue preclusion was available.

“De novo review

requires that we consider a matter anew, as if no decision had been made

previously.” Francis v. Wallace (In re Francis),

(9th Cir. BAP

2014) (citations omitted).

If issue preclusion was available, we review the bankruptcy court’s

application of issue preclusion for an abuse of discretion.

A bankruptcy

court abuses its discretion if it applies the wrong legal standard, misapplies

the correct legal standard, or if its factual findings are illogical, implausible,

or without support in inferences that may be drawn from the facts in the

record. TrafficSchool.com, Inc. v. Edriver Inc.,

(9th Cir. 2011)

(citing United States v. Hinkson,

(9th Cir. 2009) (en

4 banc)).

DISCUSSION

The bankruptcy court granted summary judgment to

Mr. Chernyavsky based on the issue preclusive effect of the Judgment. The

bankruptcy court concluded that the State Court’s findings, as summarized

by the court of appeal, established as a matter of law that Mr. Dekhtyar

filed his cross-complaint both willfully and maliciously as required under

§ 523(a)(6). The record supports the bankruptcy court’s ruling. As

discussed below, although the findings necessary to support a malicious

prosecution judgment would not always establish the requisite intent

under § 523(a)(6), in this case the findings the State Court actually made

leave no room for doubt that Mr. Dekhtyar had a subjective motive to

inflict injury or, at a minimum, believed that injury was substantially

certain to result from his conduct in filing the cross-complaint.

A. Summary Judgment Standard

Summary judgment may be granted “if the movant shows that there

is no genuine issue as to any material fact and the movant is entitled to

judgment as a matter of law.” Civil Rule 56(a), incorporated via Rule 7056;

Barboza v. New Form, Inc. (In re Barboza),

(9th Cir. 2008).

The trial court may not weigh evidence in resolving such motions, but

rather determines only whether a material factual dispute remains for trial.

Covey v. Hollydale Mobilehome Estates,

(9th Cir. 1997),

5 opinion amended on denial of rehr’g,

(Mem.). A dispute is

genuine if there is sufficient evidence for a reasonable fact finder to hold in

favor of the non-moving party, and a fact is “material” if it might affect the

outcome of the case. Far Out Prods., Inc. v. Oskar,

, 992 (9th Cir.

2001) (citing Anderson v. Liberty Lobby, Inc.,

, 248–49 (1986)). The

initial burden of showing there is no genuine issue of material fact rests on

the moving party. Margolis v. Ryan,

(9th Cir. 1998).

B. Issue Preclusion

In applying issue preclusion to a state court judgment, the

bankruptcy court must apply the forum state’s law of issue preclusion.

Harmon v. Kobrin (In re Harmon),

(9th Cir. 2001); In re

Plyam, 530 B.R at 462. In California, application of issue preclusion requires

that: (1) the issue sought to be precluded from relitigation is identical to

that decided in a former proceeding; (2) the issue was actually litigated in

the former proceeding; (3) the issue was necessarily decided in the former

proceeding; (4) the decision in the former proceeding is final and on the

merits; and (5) the party against whom preclusion is sought was the same

as, or in privity with, the party to the former proceeding. In re Plyam,

(citing Lucido v. Super. Ct.,

(1990)). In

addition, California courts apply issue preclusion only if application of the

doctrine furthers the public policies underlying the doctrine. In re Harmon,

. Those policies include “preservation of the integrity of

6 the judicial system, promotion of judicial economy, and protection of

litigants from harassment by vexatious litigation . . . .” Lucido,

.

C. Nondischargeability under § 523(a)(6)

Section 523(a)(6) excepts from discharge debts “for willful and

malicious injury by the debtor to another entity or to the property of

another entity.” Both willfulness and maliciousness must be proven to

block discharge of a debt under § 523(a)(6). Ormsby v. First Am. Title Co. of

Nev. (In re Ormsby),

(9th Cir. 2010).

1. Willful Injury

For § 523(a)(6) to apply, the actor must intend the consequences of

the act, not simply the act itself. Kawaauhau v. Geiger (In re Geiger),

(1998). Thus, § 523(a)(6)’s willful injury requirement is met “only

when the debtor has a subjective motive to inflict injury or when the debtor

believes that injury is substantially certain to result from his own conduct.”

Carrillo v. Su (In re Su),

(9th Cir. 2002). The debtor is

charged with the knowledge of the natural consequences of his actions. In

re Ormsby,

. “In addition to what a debtor may admit to

knowing, the bankruptcy court may consider circumstantial evidence that

tends to establish what the debtor must have actually known when taking

the injury-producing action.” Jett v. Sicroff (In re Sicroff),

(9th Cir. 2005), amended, No. 03-15610,

(9th Cir. Apr. 11,

7 2005) (quoting In re Su,

n.6).

2. Maliciousness

“A malicious injury involves (1) a wrongful act, (2) done

intentionally, (3) which necessarily causes injury, and (4) is done without

just cause or excuse.” Petralia v. Jercich (In re Jercich),

(9th Cir. 2001) (citations and internal quotations omitted). Malice may be

inferred based on the nature of the wrongful act. In re Ormsby,

.

D. Malicious Prosecution

“To establish a cause of action for malicious prosecution, a plaintiff

must demonstrate that the prior action (1) was initiated by or at the

direction of the defendant and legally terminated in the plaintiff's favor,

(2) was brought without probable cause, and (3) was initiated with malice.”

Siebel v. Mittlesteadt,

(2007) (citation omitted). In the

context of malicious prosecution, “malice” refers to an improper motive for

bringing the prior action; malice is present when a suit is actuated by

hostility, ill will, or for some other purpose than to secure relief, or where a

plaintiff asserts a claim with knowledge of its falsity. Nunez v. Pennisi,

(2015). The “initiated with malice” element of

malicious prosecution is not limited to actual hostility or ill will toward the

plaintiff but exists when the proceedings are instituted primarily for an

improper purpose. Arden v. Silas (In re Arden), No. CC-14-1186-DTaKu,

8

, at *9 (9th Cir. BAP July 2, 2015) (citing Albertson v. Raboff,

(1956)). An “improper purpose” may include situations

where: (1) the person instituting the lawsuit does not believe that the claim

is valid; (2) the proceedings are begun primarily because of hostility or ill

will; (3) the proceedings are initiated solely to deprive the person against

whom they are instituted of a beneficial use of his property; or (4) the

proceedings are initiated for the purpose of forcing a settlement which has

no relation to the merits of the claim. Albertson,

. As such, a

finding of malice in a malicious prosecution action does not always

establish a willful intent to injure under § 523(a)(6). See In re Arden,

, at *10 (“[I]n a malicious prosecution action, the proof may or

may not establish a willful intent to injure on the part of the defendant.”

(emphasis in original)).

E. The State Court’s Findings and the Court of Appeal’s Affirmance

The State Court’s findings are not in the record, but the court of

appeal summarized those findings in its decision. The State Court found

that all of the elements of malicious prosecution had been established. First,

the State Court found that the cross-complaint had been legally terminated

in Mr. Chernyavsky’s favor because it had been dismissed. As for the

second element–“without probable cause”–the State Court found that this

element was met based on inconsistencies in Mr. Dekhtyar’s pleadings,

Mr. Dekhtyar’s lack of credibility at trial, and because Mr. Dekhtyar had

9 presented no evidence in opposition to Mr. Chernyavsky’s motion for

summary judgment filed in the malicious prosecution action. Finally, the

State Court found that Mr. Dekhtyar had filed the cross-complaint with an

improper purpose–specifically, to obtain an offset against losses he had

incurred due to failed investments with a third party or to delay and

impede Mr. Chernyavsky’s right to recover on the promissory note by

raising claims that had no basis in fact.

The court of appeal affirmed these findings. It held that the evidence

supported the State Court’s conclusion that Mr. Dekhtyar lacked probable

cause because he had no basis to believe the factual allegations pleaded in

support of his cross-complaint were true. In affirming the malice finding,

the court of appeal clarified that the evidence presented at trial supported

the inference that not only had Mr. Dekhtyar filed the lawsuit for the

reasons cited by the State Court, but also out of hostility and a desire to

retaliate against Mr. Chernyavsky. In so doing, it held that: (1) the evidence

supported the trial court’s finding that Mr. Dekhtyar knew the factual

allegations underlying his cross-complaint were false; and (2) although

Mr. Dekhtyar testified at trial that he filed the cross-complaint because he

believed Mr. Chernyavsky had wrongfully accused him of committing

fraud and embezzlement, the claims in the cross-complaint had no relation

to embezzlement. In addition, the court of appeal stated:

The record also contains a significant amount of evidence

10 that Dekhtyar felt animosity toward Chernyavsky based on their prior business dealings, which provided a motive to engage in malicious, retaliatory conduct. First, as noted, Chernyavsky had previously voted to remove Dekhtyar from his position as president of the Huntington Restaurant Group after concluding that he had improperly withdrawn funds from the company. Dekhtyar denied those claims at trial, and contended he should not have been removed from his position at Huntington. Second, Dekhtyar’s declaration and trial testimony make clear that he held Chernyavsky responsible for the losses he incurred in the failed barbeque restaurant venture. His declaration asserts that Chernyavsky had encouraged him to invest in Herman Cothran’s smoker technology, and then declined to assist him when the Hermans restaurant began failing. Third, the evidence showed Chernyavsky had seized control of Dekhtyar’s ownership interest in Verax after he defaulted on the SBA loan and the promissory note. In his declaration, Dekhtyar contended that Chernyavsky had “forced [him] out” of Verax, which was his “last hope to maintain a source of income.” Finally, in June of 2010, Chernyavsky filed his breach of contract claims against Dekhtyar seeking repayment of the promissory note. Chernyavsky testified that shortly after he filed his complaint, Dekhtyar had physically threatened him, telling him that he would “put him in a wheelchair.” The court could reasonably infer from this evidence that Dekhtyar was extremely hostile toward Chernyavsky as a result of their past business dealings, and that he had filed the cross-claims as a retaliatory measure.

F. The bankruptcy court did not err in applying issue preclusion to the findings supporting the Judgment.

There is no dispute that the Judgment is final and that the parties to

11 the malicious prosecution action and the nondischargeability action are the

same. In the bankruptcy court, Mr. Dekhtyar argued that the issues were

not identical, i.e., that nothing in the court of appeal’s affirmance

established that he intended to injure Mr. Chernyavsky or believed that

injury to Mr. Chernyavsky was likely to occur. We disagree.

The State Court apparently did not explicitly find an intent to injure,

but the evidence cited by the court of appeal establishes that such a finding

was implicit in its decision. The court of appeal held that the record

established that: (1) Mr. Dekhtyar was extremely hostile toward

Mr. Chernyavsky based on a perception that Mr. Chernyavsky had caused

him harm; (2) the allegations of the cross-complaint were untrue, and

Mr. Dekhtyar knew this; and (3) his purpose in filing the cross-complaint

was malicious and retaliatory. Given this evidence, and the fact that

Mr. Dekhtyar is “charged with the knowledge of the natural consequences

of his actions,” In re Ormsby,

, only one conclusion is

possible: that Mr. Dekhtyar filed the cross-complaint with the intent to

injure Mr. Chernyavsky by forcing him to incur time and expense

defending a meritless lawsuit.

The bankruptcy court also correctly found that the malice element of

§ 523(a)(6) was satisfied. The prosecution of a lawsuit initiated by a

complaint containing knowingly false allegations is a tortious (and thus

wrongful) act that would necessarily cause injury, and the record reflects

12 no just cause or excuse for this act. To the contrary, the record establishes

that Mr. Dekhtyar filed the lawsuit to retaliate. Based on all of the

foregoing, the bankruptcy court did not err in finding that the elements of

issue preclusion were satisfied.

On appeal, Mr. Dekhtyar argues that the issues in the

nondischargeability action were not identical to those decided in the

malicious prosecution action because the state court did not need to find

willful injury in the malicious prosecution context. He also notes that the

fact that a tort is intentional does not necessarily mean that any injury

caused by the tortfeasor is willful, citing Ditto v. McCurdy,

(9th Cir. 2007). While these points are correct as a general matter, the

record in this case established the requisite intent to injure under

§ 523(a)(6), and the bankruptcy court did not err in so finding.

Moreover, the bankruptcy court did not abuse its discretion in

applying the doctrine, as its application in this case furthered the public

policies of “preservation of the integrity of the judicial system, promotion

of judicial economy, and protection of litigants from harassment by

vexatious litigation.” We agree with the bankruptcy court that

[a]pplying preclusion law preserves the integrity of the judicial system by giving full effect to a judgment that was obtained after both parties were afforded full opportunity to litigate the matter. Preclusion promotes judicial economy by obviating the need for a duplicative and unnecessary trial. The avoidance of an unnecessary trial promotes the public policy against

13 vexatious litigation.

Mr. Dekhtyar also argues that the State Court presiding over the

breach of contract suit erroneously dismissed his cross-complaint for

failure timely to amend it. He alleges that the deadline to file the amended

cross-complaint fell on a holiday, and under California court rules, the

deadline was extended to the next day, the day he filed the amendment. As

a result, he argues, the requirement for a malicious prosecution claim–that

the lawsuit be legally terminated in the plaintiff’s favor–was not met. He

also argues that the “lack of probable cause” element was not litigated in

the malicious prosecution action but was assumed from dismissal of the

cross-complaint. Based on the foregoing, he argues that applying issue

preclusion to the Judgment would not be consistent with sound public

policy.

Mr. Dekhtyar did not make these arguments to the bankruptcy court;

thus, we need not consider them. See O’Rourke v. Seaboard Surety Co. (In re

E.R. Fegert, Inc.),

(9th Cir. 1989). In any event, the record

does not contain any evidence supporting Mr. Dekhtyar’s assertions, and

nothing in the court of appeal’s decision suggested that he raised them in

his appeal of the Judgment.

CONCLUSION

The bankruptcy court did not err in finding that the elements of issue

preclusion were met, nor did it abuse its discretion in applying issue

14 preclusion to the Judgment. For these reasons, we AFFIRM.

15