In re: Le Kwak Le and Vinh Trong Le
AZ-15-1364-JuFL
| 9th Cir. BAP | Oct 13, 2016Background
- In 2004 Huynh and his wife formed an LLC to operate a Chevron-branded gas station; Huynh owned the real property and leased it to the LLC.
- In 2006 Le purchased a 50% membership interest and, by written agreement, assumed day-to-day management authority; Huynh retained inspection rights and other contractual protections.
- After disputes over accounting and unpaid rent, Huynh’s counsel sent a demand letter in November 2010; Le did not respond and instead conducted a going-out-of-business sale, liquidated inventory and fuel, and closed the station on November 17, 2010, without notice.
- Chevron debranded the station after seven days of closure; Huynh reopened an unbranded station months later which ultimately failed and the underlying property was foreclosed; Huynh alleged substantial losses, including an SBA debt and debranding fees.
- Huynh sued in state court; the suit was stayed by debtors’ bankruptcy. In an adversary proceeding Huynh sought a declaration that Le’s debt was nondischargeable under 11 U.S.C. § 523(a)(6). The bankruptcy court found Le’s conduct willful and malicious and awarded $864,000 in lost profits as nondischargeable.
- The BAP vacated and remanded, concluding the bankruptcy court failed to decide whether Le’s conduct constituted a tort under Arizona law (a necessary threshold under Jercich) and therefore whether § 523(a)(6) applied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether debt is nondischargeable under § 523(a)(6) for willful and malicious injury | Huynh: Le intentionally liquidated inventory and closed the station, knowing injury to him was substantially certain; conduct was willful and malicious | Le: Actions were a breach of the membership agreement, not tortious conduct subject to § 523(a)(6) | Vacated and remanded — BAP held the bankruptcy court did not first determine whether Le’s conduct was a tort under Arizona law as required by Jercich |
| Whether Le’s conduct constituted a tort (e.g., intentional interference with contract) under Arizona law | Huynh (argued at closing): unilateral shutdown equates to tortious interference with contract causing damages | Le: Trial record and briefing did not support finding of tort; argued breach of contract defenses and lack of intent to cause specified harms | Remanded for bankruptcy court to address in the first instance; appellate court declined to decide on the record |
| Whether lost-profit damages of $864,000 were properly awarded under Arizona law | Huynh: Expert testified to actual and future lost profits totaling $864,000 | Le: Challenged sufficiency and causation of damages tied to tort (and argued breach-of-contract framing) | Vacated as part of remand — damages assessment depends on outcome of threshold tort analysis |
| Whether judgment against spouse Vinh Le is proper | Huynh named both spouses; judgment entered against both | Debtors: No findings that Vinh participated; imputation of intent is improper but not argued below | Appellate note: Issue waived on appeal; BAP did not revisit |
Key Cases Cited
- In re Thiara, 285 B.R. 420 (9th Cir. BAP 2002) (standards for appellate review of bankruptcy findings and conclusions)
- In re Su, 290 F.3d 1140 (9th Cir. 2002) (willful and malicious standard under § 523(a)(6))
- Jercich v. Petralia (In re Jercich), 238 F.3d 1202 (9th Cir. 2001) (establishing threshold inquiry whether conduct is tortious before applying § 523(a)(6))
- Lockerby v. Sierra, 535 F.3d 1038 (9th Cir. 2008) (intentional breach of contract nondischargeable only when accompanied by malicious, willful tortious conduct)
- Ormsby v. First American Title Co. of Nevada (In re Ormsby), 591 F.3d 1199 (9th Cir. 2010) (subjective intent and presumption re: natural consequences for § 523(a)(6))
- Snoke v. Riso (In re Riso), 978 F.2d 1151 (9th Cir. 1992) (simple contract breach not covered by § 523(a)(6))
- United States v. Hinkson, 585 F.3d 1247 (9th Cir. 2009) (clear-error standard discussion)
- Anderson v. City of Bessemer City, 470 U.S. 564 (1985) (standard for clearly erroneous factual findings)
- Safeway Ins. Co. v. Guerrero, 106 P.3d 1020 (Ariz. 2005) (elements and ‘improper’ factor analysis for tortious interference with contract)
- Wells Fargo Bank v. Arizona Laborers, Teamsters & Cement Masons Local No. 395 Pension Trust Fund, 38 P.3d 12 (Ariz. 2002) (factors for weighing ‘improper’ conduct in tortious interference)