In re: RONDA S. PEKLAR,

Debtor. No. 00-55464

RONDA S. PEKLAR, D.C. No.

Appellant, CV 99-11382-JSL

v. OPINION

LLOYD IKERD, an individual,

Appellee.

Appeal from the United States District Court

for the Central District of California

J. Spencer Letts, District Judge, Presiding

Argued and Submitted

July 12, 2001--Pasadena, California

Filed August 9, 2001

Before: Procter Hug, Jr., Susan P. Graber, and

William A. Fletcher, Circuit Judges.

Opinion by Judge William A. Fletcher

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_________________________________________________________________

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Allan Dean Epstein, Orange, California, for the appellant.

Stephen R. Kilstofte, Cayer, Kilstofte & Craton, Long Beach,

California, for the appellee.

_________________________________________________________________

W. FLETCHER, Circuit Judge:

This case turns on the scope of the preclusive effect of a

prior state court judgment of conversion. Under 11 U.S.C.

§ 523(a)(6), a debt for "willful and malicious injury by the

debtor to another entity or to the property of another entity"

is not dischargeable in bankruptcy. The specific question in

this case is whether a civil judgment in California court for

conversion under California law necessarily includes a finding

that the defendant caused "willful and malicious injury"

within the meaning of § 523(a)(6).

Plaintiff-Appellee Lloyd Ikerd ("Ikerd") filed an adversary

proceeding in bankruptcy court seeking to have Defendant-

Appellant Ronda Peklar's ("Peklar") debt arising out of a

state court civil judgment for conversion declared nondischargeable

under § 523(a)(6). The bankruptcy court held

the debt dischargeable, and the district court reversed based

on collateral estoppel. We now reverse the district court.

I

In 1993, Peklar entered into a lease to rent commercial

space in Long Beach, California, from Ikerd. The premises

were to be used for a retail beauty and cosmetics salon called

"Rachael," in which Peklar and Todd Winnick ("Winnick")

were general partners. Peklar was a down-line member of

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Ikerd's multi-level sales organization for a line of cosmetics,

and she planned to sell Ikerd's cosmetics line at Rachael.

Ikerd had stored furniture in the leased premises, and he

allowed Peklar and Winnick to use that furniture in Rachael.

In January 1994, shortly after the lease was signed, Rachael

opened for business.

Sometime in early 1994, the Bank of America foreclosed

on the building in which Rachael's leased space was located

because Ikerd was in default on a trust deed. The bank

obtained a temporary restraining order against Ikerd, prohibiting

him from entering the building. In July 1994, the bank

served Peklar with a three-day notice to pay rent or quit, and

a thirty-day notice to quit. On advice of counsel, Peklar and

Winnick removed all the furniture from Rachael and put it

into storage, first in a garage and then in a commercial storage

space.

Ikerd successfully sued Peklar and Winnick for conversion

of the furniture in Los Angeles County Superior Court. After

Peklar filed a Chapter 7 bankruptcy petition, Ikerd initiated an

adversary proceeding in the bankruptcy court, seeking to have

Peklar's debt for conversion held non-dischargeable under 11

U.S.C. § 523(a)(6) based on collateral estoppel resulting from

the Superior Court judgment. The bankruptcy court rejected

the collateral estoppel argument and, after taking evidence,

concluded that Peklar's debt arising out of the conversion

judgment was dischargeable. On appeal, the district court

reversed and remanded based on collateral estoppel, holding

that Peklar's debt was not dischargeable. Peklar now appeals

the decision of the district court.

II

" `Because this court is in as good a position as the district

court to review the findings of the bankruptcy court, it independently

reviews the bankruptcy court's decision.' " United

Student Aid Funds v. Pena (In re Pena), 155 F.3d 1108, 1110

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(9th Cir. 1998) (quoting Ragsdale v. Haller, 780 F.2d 794,

795 (9th Cir. 1986)). Whether a claim is dischargeable presents

mixed issues of law and fact, which we review de novo.

Murray v. Bammer (In re Bammer), 131 F.3d 788, 791-92

(9th Cir. 1997) (en banc). We review pure issues of fact for

clear error. Diamond v. City of Taft, 215 F.3d 1052, 1055 (9th

Cir. 2000), cert. denied, 121 S. Ct. 763 (2001).

III

Conversion is defined under California state law as "the

wrongful exercise of dominion over the personal property of

another." Taylor v. Forte Hotels Int'l, 235 Cal. App. 3d 1119,

1124 (1991). "The act must be knowingly or intentionally

done, but a wrongful intent is not necessary." Id. (citing Poggi

v. Scott, 167 Cal. 372, 375 (1914); 5 Witkin Summary of Cal.

Law (9th ed. 1988) Torts § 624, pp. 717-18). Under California

law, "a conversion is not per se always a willful and malicious

injury to the property of another." Larsen v. Beekmann, 276

Cal. App. 2d 185, 189 (1969).

In holding Peklar's debt non-dischargeable based on

collateral estoppel, the district court relied on our decision in

Impulsora Del Territorio Sur, S.A. v. Cecchini (In re Cecchini),

780 F.2d 1440, 1443 (9th Cir. 1986), in which we

stated, "When a wrongful act such as conversion, done intentionally,

necessarily produces harm and is without just cause

or excuse, it is `willful and malicious' even absent proof of a

specific intent to injure." However, we believe that Cecchini

was necessarily overruled by the Supreme Court's decision in

Kawaauhau v. Geiger, 523 U.S. 57 (1998). The question in

Geiger was whether a debt from a medical malpractice judgment

attributable to negligent or reckless conduct was dischargeable

under § 523(a)(6). The Court stated that "[t]he

word `willful' in (a)(6) modifies the word `injury,' indicating

that nondischargeability takes a deliberate or intentional

injury, not merely a deliberate or intentional act that leads to

injury." Id. at 61. "[N]ot every tort judgment for conversion

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is exempt from discharge. Negligent or reckless acts. . . do

not suffice to establish that a resulting injury is`willful and

malicious.' . . . [D]ebts arising from recklessly or negligently

inflicted injuries do not fall within the compass of

§ 523(a)(6)." Id. at 64 (internal citation omitted). See Petralia

v. Jercich (In re Jercich), 238 F.3d 1202, 1207 (9th Cir.), cert.

denied, 121 S. Ct. 2552 (2001) (relying on Geiger, stating that

"it must be shown not only that the debtor acted willfully, but

also that the debtor inflicted the injury willfully and maliciously

rather than recklessly or negligently" (emphasis in

original)); see also Spokane Ry. Credit Union v. Endicott (In

re Endicott), 254 B.R. 471, 475 (Bankr. D. Idaho 2000) (construing

Geiger to hold that in order to except a debt from discharge

under § 523(a)(6), "a debtor [must have] commit[ted]

more than a reckless or negligent act"); Branch Banking and

Trust Co. v. Powers (In re Powers), 227 B.R. 73, 75 (Bankr.

E.D. Va. 1998) (holding that after Geiger, the exception to

dischargeability under § 523(a)(6) is "limited to intentional

torts"); Avco Fin. Servs. v. Kidd (In re Kidd), 219 B.R. 278,

283-84) (Bankr. D. Mont. 1998) ("In [Geiger], the Supreme

Court held that the § 523(a)(6) `willful and malicious injury'

exception to discharge is limited to intentional torts and does

not encompass mere negligent or reckless acts.").

Our holding in Del Bino v. Bailey (In re Bailey), 197 F.3d

997 (9th Cir. 1999), is not to the contrary. In that case, defendant

Bailey had been substituted for the plaintiff as counsel in

a lawsuit. Bailey settled the suit but failed to inform the plaintiff

of the settlement and to give him part of the settlement

amount. Bailey was accused of conversion and settled with

the plaintiff, agreeing to a payment schedule. After making

some but not all of the payments, Bailey filed for bankruptcy.

Id. at 999. In concluding that Bailey's debt to the plaintiff was

dischargeable, we stated that his "conduct did not constitute

conversion and, therefore, that [the plaintiff's ] claim for attorney

fees did not fall within the meaning of 11 U.S.C.

§ 523(a)(6)." Id. at 1002. That statement means only that a

failure to prove conversion is fatal to an argument that defen-

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dant's conduct caused "willful and malicious injury." It does

not mean the converse--that proof of conversion necessarily

establishes such injury.

After rejecting Ikerd's collateral estoppel argument, the

bankruptcy court took evidence. Peklar stated in her declaration

in that court that she relied on the advice of her lawyer

in removing Ikerd's furniture from the leased premises:

[a]fter reviewing the lease, the default by Ikerd to

[Bank of America] and [Bank of America's ] subsequent

foreclosure, the notices of fire code violations

served on Ikerd, and a temporary restraining order

obtained by [Bank of America] against Ikerd prohibiting

him from entering the premises, [her lawyer]

advised Peklar and Winnick that he believed Ikerd

had breached the lease and that they had legal right

to remove all of the fixtures and personal property

from the premises, even those items [that] Ikerd

claimed an ownership interest in.

She further stated that Winnick contacted Ikerd to inform him

of Peklar's and Winnick's intent to move his furniture, and of

the name and telephone number of their lawyer. There is no

dispute that, after moving the furniture, Peklar and Winnick

kept it in a commercial storage space for almost four years.

The bankruptcy court was justified in concluding, based on

this evidence, that Peklar's conversion of Ikerd's property

was at worst negligent, and at best "innocent or technical,"

conversion, and that the debt arising from the state court judgment

was dischargeable under § 523(a)(6). See Eck v. Schuck

(In re Schuck), 13 B.R. 461, 465 (Bankr. M.D. Pa. 1980).

IV

A state court judgment is given the same preclusive

effect by a federal court as it would be given by a court of the

state in which the judgment was rendered. See 28 U.S.C.

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§ 1738; Marrese v. Am. Acad. of Orthopedic Surgeons, 470

U.S. 373 (1985). Under California preclusion law, collateral

estoppel effect is given to a judgment that "actually and necessarily"

decides the issue in question. People v. Howie, 41

Cal. App. 4th 729, 736 (1995). A judgment for conversion

under California substantive law decides only that the defendant

has engaged in the "wrongful exercise of dominion" over

the personal property of the plaintiff. It does not necessarily

decide that the defendant has caused "willful and malicious

injury" within the meaning of § 523(a)(6). A judgment for

conversion under California law therefore does not, without

more, establish that a debt arising out of that judgment is nondischargeable

under § 523(a)(6). Peklar presented evidence in

the bankruptcy court from which that court appropriately concluded

that she did not cause "willful and malicious injury."

We therefore affirm the bankruptcy court's holding that

Peklar's debt based on the judgment of conversion was dischargeable.

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