Case Information
*1 FILED JUN 22 2021 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY.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-20-1242-TFL MAZIYAR JAMES KHABUSHANI,
Debtor. Bk. No. 2:19-bk-11796-BR MAZIYAR JAMES KHABUSHANI, Adv. No. 2:19-ap-01096-BR Appellant,
v. MEMORANDUM [*]
KILEY TASLITZ ANDERSON,
Appellee. Appeal from the United States Bankruptcy Court for the Central District of California Barry Russell, Bankruptcy Judge, Presiding Before: T AYLOR , F ARIS , and L AFFERTY , Bankruptcy Judges.
INTRODUCTION An arbitrator found that Maziyar James Khabushani wrongfully terminated Kiley Taslitz Anderson’s employment with Mr. Khabushani’s wholly owned corporation, Madison + Vine, Inc. (“M+V”), and awarded her damages, attorneys’ fees, and costs. In so doing, the arbitrator expressly *2 rejected Mr. Khabushani’s assertion that the termination was motivated by M+V’s financial condition, not unlawful discrimination.
Mr. Khabushani later filed a chapter 7 [1] case, and Ms. Anderson filed an adversary proceeding seeking a declaration of nondischargeability of the wrongful termination judgment. She prevailed on a summary judgment motion; the bankruptcy court gave issue preclusive effect to the arbitrator’s findings and determined that the state court judgment debt was nondischargeable under § 523(a)(6). This appeal followed.
We acknowledge that in this Circuit there is no per se rule that such a judgment constitutes a willful and malicious injury for purposes of § 523(a)(6). But nonetheless, we AFFIRM. The arbitrator’s conclusions and the Ninth Circuit authority charging Mr. Khabushani with knowledge of the natural consequences of his wrongful actions provided an appropriate basis for the application of issue preclusion.
FACTS [2] Mr. Khabushani was the sole officer, director, and shareholder of M+V, a marketing and advertising company. He employed Ms. Anderson first as a temporary employee, then as an independent contractor, and *3 finally, on November 2, 2017, as an M+V employee with full benefits. Five days later, Ms. Anderson informed Mr. Khabushani that she was pregnant and requested a maternity leave commencing in May of 2018.
Twenty-five days later, Mr. Khabushani terminated her.
In February of 2018, Ms. Anderson commenced arbitration against Mr. Khabushani and M+V, asserting claims arising from her termination, including sex discrimination in violation of the Fair Employment and Housing Act (“FEHA”), Cal. Gov. Code § 12940 et seq ., wrongful termination in violation of public policy, alter ego claims, and California Labor Code violations.
A retired judge acted as arbitrator in the proceeding. During the three-day arbitration hearing, the parties each presented testimonial and documentary evidence under oath and cross-examined witnesses.
The Arbitrator then issued his final award and an amended final award correcting a single typographical error (“Award”). He found that Mr. Khabushani and M+V were jointly and severally liable for wrongful termination of Ms. Anderson because of her sex and pregnancy but were not liable for Labor Code violations. Among other things, the Arbitrator determined that:
[t]he evidence regarding the wrongful termination was very compelling. A simple review of the time line, shows that [Anderson] was a valued employee until she told [Khabushani] that she was pregnant and within less than four weeks she was terminated. This combined with the statements made by *4 [Khabushani] to other employees [3] and other actions taken by him just two days before terminating [Anderson], [4] proves beyond doubt that her termination was because of her pregnancy.
The evidence offered by [Khabushani] regarding the company’s poor financial condition was not convincing; at least at the time of [Anderson’s] termination, the company’s finances were not a consideration. The company’s condition at some later date obviously convinced [Khabushani] that the company needed to go in a different direction, but this had nothing to do with the termination of [Anderson]. [5]
The Arbitrator awarded Ms. Anderson $43,759.00 in special damages, $125,000 in emotional distress damages, $319,667.50 in attorneys’ fees, and $48,787.68 in costs, for a total award of $537,214.18. But he declined to award punitive damages after determining that “[t]he evidence presented *5 [did] not substantiate [Ms. Anderson’s] request for Punitive Damages.”
Less than two weeks after entry of the Award, Mr. Khabushani filed a chapter 7 bankruptcy. Ms. Anderson timely filed a § 523(a)(6) complaint, [6] seeking to except from Mr. Khabushani’s discharge the debt owed her for the wrongful termination. She subsequently obtained relief from the automatic stay and converted the Award to a final judgment in state court. [7]
After the appeal period expired, Ms. Anderson filed a motion for summary judgment on her § 523(a)(6) claim based on the preclusive effect of the Arbitrator’s findings and the final state court judgment.
Mr. Khabushani opposed the summary judgment motion and contended, among other things, that summary judgment would be improper because the issues underpinning a willful and malicious injury determination were not at issue, actually litigated, or necessarily decided in the arbitration.
After holding a hearing on the motion, the bankruptcy court entered an order granting Ms. Anderson summary judgment. The order was accompanied by findings of fact and conclusions of law in which the bankruptcy court determined that issue preclusion barred Mr. Khabushani from relitigating whether he inflicted a willful and malicious injury on *6 Ms. Anderson by terminating her employment with M+V.
Mr. Khabushani timely appealed from the summary judgment.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.
ISSUE Did the bankruptcy court err in granting summary judgment on Ms. Anderson’s § 523(a)(6) claim based on issue preclusion?
STANDARDS OF REVIEW
We review a bankruptcy court’s grant of summary judgment and
§ 523(a)(6) nondischargeability determination de novo.
See Black v. Bonnie
Springs Family Ltd. P'ship (In re Black)
,
We may affirm on any basis supported by the record.
In re Black
,
DISCUSSION
A. Summary judgment and issue preclusion standards
Summary judgment is appropriate if the pleadings and supplemental
materials demonstrate that there is no genuine issue as to any material fact
on the claims at issue and the moving party is entitled to judgment as a
matter of law.
Roussos v. Michaelides (In re Roussos)
,
The bankruptcy court may grant summary judgment in a nondischargeability proceeding based on the issue preclusive effect of an arbitration award confirmed by a California state court. See Khaligh v.
Hadaegh (In re Khaligh)
,
California law provides that issue preclusion, also known as collateral estoppel, prevents a party from relitigating a previously decided issue in a second suit where: (1) the issue is identical to what was decided in the first suit; (2) the issue was actually litigated in the first suit; (3) the issue was necessarily decided in the first suit; (4) the decision in the first *8 suit is final and on the merits; and (5) the party against whom preclusion is sought is the same as, or in privity with, a party to the first suit. Lucido v.
Super. Ct.
,
The party advocating for issue preclusion must prove all the criteria
for its application by presenting a record sufficient to reveal the controlling
facts and issues litigated in the first suit.
Kelly v. Okoye (In re Kelly)
, 182 B.R.
255, 258 (9th Cir. BAP 1995),
aff’d
,
B. Issue preclusion is available.
On appeal, we need not, and do not, address the bankruptcy court’s unchallenged determination that the fourth (final judgment on the merits) and fifth (same parties) issue preclusion criteria are met. And we conclude that Ms. Anderson produced evidence showing that there is no genuine issue as to any material fact that the other criteria are met.
1. Willful injury
A creditor seeking to hold a debt nondischargeable under § 523(a)(6) has the burden of proving by the preponderance of the evidence that the debt is “for willful and malicious injury by the debtor to another entity or to the property of another entity.” § 523(a)(6); Grogan v. Garner , 498 U.S.
279, 289 (1991). The requirements of “willful” and “malicious” are
*9
considered separately.
Carrillo v. Su (In re Su)
,
a. Intentional tort
A “willful” injury is “a deliberate or intentional
injury
, not merely a
deliberate or intentional act that leads to injury.”
Kawaauhau v. Geiger
,
This requirement is easily met here; because pregnancy
discrimination violates the California Constitution’s ban on sex
discrimination, an employer who fires an employee based on her
pregnancy may be subject to tort liability for wrongful discharge in
violation of public policy.
See id
. at 1206 (holding that the court must look
to state law to determine whether conduct is tortious and determining that
debtor’s nonpayment of wages was tortious because it violated California
*10
Labor Code § 216);
Kelley v. Conco Cos.
,
b. Intentional discrimination
A determination of willful injury also requires that the debtor either
had the subjective motive to inflict injury or committed a “deliberate act
with knowledge that the act is substantially certain to cause injury. . . .”
In
re Jercich
,
We begin with the elements of Ms. Anderson’s discrimination claim
under the FEHA. The FEHA prohibits an employer from discriminating
*11
against any person in terms, conditions, or privileges of employment
because of the person’s sex, which includes pregnancy or medical
conditions related to pregnancy. Cal. Gov. Code §§ 12926(r)(1), 12940(a). As
relevant here, disparate treatment discrimination under the FEHA is
intentional discrimination against a person on prohibited grounds.
See Guz
v. Bechtel Nat’l, Inc.
,
In analyzing claims of disparate treatment discrimination under the
FEHA, California courts employ a three-stage burden-shifting approach
established by the United States Supreme Court in
McDonnell Douglas Corp.
v. Green
,
App. 5th 1168, 1181 (2017). The McDonnell Douglas three-step approach is *12 as follows: (1) the plaintiff must establish a prima facie case by a preponderance of evidence that: (a) she had a protected characteristic; (b) she was qualified for her position or performed competently in it; (c) she suffered an adverse employment action; and (d) her protected characteristic motivated the action; (2) the employer may rebut a presumption of discrimination established by the plaintiff’s prima facie case by proffering a nondiscriminatory reason for the action; and (3) the plaintiff then will bear the burden to show by a preponderance of the evidence that the employer’s proffered reasons are pretexts for discrimination. Id .; Heard v. Lockheed Missiles & Space Co. , 44 Cal. App. 4th 1735, 1749 (1996).
The McDonnell Douglas framework:
presupposes that the employer has a single reason for taking an adverse action against the employee and that the reason is either discriminatory or legitimate. By hinging liability on whether the employer’s proffered reason for taking the action is genuine or pretextual, the McDonnell Douglas inquiry aims to ferret out the “true” reason for the employer’s action.
Harris
,
With respect to the employer’s reason for termination, if it is nondiscriminatory:
“[i]t is the employer’s honest belief in the stated reasons for firing an employee and not the objective truth or falsity of the underlying facts that is at issue in a discrimination case.” ( King v. United Parcel Service, Inc . (2007)152 Cal. App. 4th 426 , 436, 60 *13 Cal. Rptr. 3d 359 ( King ).) As the Supreme Court explained in Guz , “if nondiscriminatory, [the employer’s] true reasons need not necessarily have been wise or correct. [Citations.] While the objective soundness of an employer’s proffered reasons supports their credibility . . . , the ultimate issue is simply whether the employer acted with a motive to discriminate illegally . Thus, ‘legitimate’ reasons [citation] in this context are reasons that are facially unrelated to prohibited bias , and which, if true, would thus preclude a finding of discrimination. [Citations.]” ( Guz , supra ,24 Cal. 4th at p. 358 , 100 Cal. Rptr. 2d 352,8 P.3d 1089 , original italics.).
Wills v. Super. Ct.
,
Thus, and contrary to Mr. Khabushani’s urging, the objective truth or falsity of Mr. Khabushani’s alleged nondiscriminatory reason for terminating her— i.e. , an alleged rapid deterioration of the financial condition of his business and his need to cut costs by eliminating employees, including Ms. Anderson—was not at issue. Rather, the Arbitrator was charged with assessing whether Mr. Khabushani honestly believed he must terminate Ms. Anderson to eliminate costs and whether that belief motivated his decision to terminate her. And faced with Ms. Anderson’s and Mr. Khabushani’s competing proffered explanations for Ms. Anderson’s termination, the Arbitrator ruled that Mr. Khabushani wrongfully terminated Ms. Anderson based on her sex and the fact that she was pregnant and not on the subjective nondiscriminatory reason claimed by Mr. Khabushani.
c. Natural consequences of intentional discrimination
While the Arbitrator did not need to go a step further and find that
Mr. Khabushani had the subjective intent to injure Ms. Anderson or that he
believed that her injury was substantially certain to occur as a result of his
conduct, Mr. Khabushani is charged with knowledge of the natural
consequences of his intentional discrimination.
Ormsby v. First Am. Title Co.
of Nev. (In re Ormsby)
,
Willfulness is established by the Arbitration Judgment. The Arbitrator necessarily decided an actually litigated issue as to Mr. Khabushani’s intentional commitment of a wrongful act, pregnancy discrimination. And as to intent to injure, Mr. Khabushani is charged with knowledge of the natural consequences of his wrongful act. And while he *15 argues vehemently that the Arbitrator was incorrect in his determination of wrongful intent, he has never argued that he did not know that termination would harm Ms. Anderson. To the contrary, before the bankruptcy court, he emphasized how upset he was at taking this action. The record and a common sense determination regarding knowledge of the natural consequences of his actions support the bankruptcy court’s conclusion that Mr. Khabushani acted with certainty of the harmful impact of an act that the Arbitrator found to be wrongful.
d. Lack of punitive damages Nevertheless, Mr. Khabushani contends that the Arbitrator’s decision to not award punitive damages creates a triable issue of fact regarding his intent to injure. Put another way, he asserts that this creates sufficient uncertainty that retrial is required. We disagree.
As explained above, the parties actually litigated and the Arbitrator necessarily decided that Mr. Khabushani intentionally discriminated against Ms. Anderson when he terminated her employment. And as Mr. Khabushani is charged with knowledge of the natural consequences of this wrongful termination, he necessarily willfully injured Ms. Anderson by wrongfully terminating her employment. The Arbitrator’s decision not to award punitive damages does not undercut this conclusion.
While punitive damages findings under Cal. Civ. Code § 3294 that
*16
“are clearly and solely based on a finding of Intentional Malice, fraud, or
both . . . are sufficient to meet the willfulness requirement of § 523(a)(6)[,]”
Plyam v. Precision Dev., LLC (In re Plyam)
,
Also, in assessing whether to award punitive damages, the Arbitrator
was confined to awarding damages that were proportionate to the
defendants’ ability to pay.
Adams v. Murakami
,
After all, “the purpose of punitive damages is not served by financially destroying a defendant. The purpose is to deter, not to destroy.” Id . It appears probable from the Arbitrator’s findings that Ms. Anderson failed to establish that the defendants’ financial condition permitted an award of punitive damages. Id. at 119 (“In light of our holding that evidence of a defendant’s financial condition is essential to support an award of punitive damages, Evidence Code section 500 mandates that the plaintiff bear the burden of proof on the issue. A plaintiff seeking punitive damages is not seeking a mere declaration by the jury that he is entitled to punitive damages in the abstract. The plaintiff is seeking an award of real money in a specific amount to be set by the jury. Because the award, whatever its amount, cannot be sustained absent evidence of the defendant’s financial condition, such evidence is ‘essential to the claim for relief.’ (Evid. Code, § 500.)”).
Specifically, the Arbitrator found that within a few months of terminating Ms. Anderson, Mr. Khabushani terminated all of M+V’s employees, “except himself and maybe one other employee. There was no new income because [he] had let go all of the sales personnel.” Thus, the *18 defendants’ ability to pay punitive damages was dubious at best.
The Arbitrator, however, did not explain why he declined to award
punitive damages. But this gap does not require retrial on the intent to
injure element, because even if the Arbitrator denied punitive damages on
the alternative basis that Ms. Anderson failed to prove Intentional Malice
or fraud, his ruling would be immaterial to the issue of whether the
Arbitrator’s intentional discrimination findings should preclude
Mr. Khabushani from litigating the “willful injury” requirement of
§ 523(a)(6). Intentional Malice and fraud for the purpose of awarding
punitive damages involve a higher standard of proof than is required for a
“willful injury” finding under § 523(a)(6) or for a determination of sex-
based discrimination. For an award of punitive damages, clear and
convincing evidence must be presented. Cal. Civ. Code § 3294(a). But for
determinations of nondischargeability and intentional discrimination, the
elements need only be proven by a preponderance of the evidence.
Grogan
,
We discussed the consequences of the different burdens of proof in
Branam v. Crowder (In re Branam)
,
For all these reasons, we determine that the bankruptcy court properly found that the Arbitrator’s findings were entitled to preclusive effect on the issue of willful injury.
2. Malicious injury
The bankruptcy court likewise properly found that the Arbitrator’s
findings were entitled to preclusive effect on the issue of malicious injury. An injury is malicious if it is “a wrongful act, done intentionally, which
necessarily causes injury, and which is done without just cause or excuse.”
Thiara v. Spycher Bros. (In re Thiara)
,
*20
As for the fourth and final maliciousness element—the absence of just
cause or excuse—the record did not contain any argument of just cause or
excuse, except for Mr. Khabushani’s contention that he subjectively
believed that the termination was justified by the financial deterioration of
his business and his need to cut costs. But this contention is barred by the
preclusive effect of the Arbitrator’s findings regarding the true motivation
behind Ms. Anderson’s termination. The Arbitrator expressly rejected this
stated reason for terminating Ms. Anderson. Mr. Khabushani also
necessarily failed to prove that he would have made the same decision to
terminate Ms. Anderson for lawful reasons even if he had not taken
Ms. Anderson’s sex and pregnant status into account because
Ms. Anderson would not have been entitled to an award of damages had
he done so.
See Harris
,
Accordingly, we perceive no error in the bankruptcy court’s holding that the Arbitrator’s factual determinations established, for issue preclusion purposes, § 523(a)(6) maliciousness.
C. Any failure to conduct a public policy analysis constituted harmless error.
After determining that the five threshold criteria for issue preclusion
were met, the bankruptcy court was required to consider whether
*21
imposing issue preclusion would be fair and consistent with sound public
policy.
In re Khaligh
,
And we disagree that if there was an oversight, it constitutes reversible error because we can conduct the analysis in the first instance given that the record allows a complete understanding of these issues.
Delannoy v. Woodlawn Colonial, L.P. (In re Delannoy)
,
In
Vandenberg v. Superior Court
, the California Supreme Court held
that in deciding whether there is “fairness and sound public policy,”
“courts consider the judicial nature of the prior forum, i.e., its legal
formality, the scope of its jurisdiction, and its procedural safeguards,
particularly including the opportunity for judicial review of adverse
rulings.”
Nothing in the record causes us to question the adjudicatory nature of the arbitration here. The parties agreed to settle any dispute regarding the termination of Ms. Anderson’s employment by final and binding arbitration. During the arbitration proceedings, they were represented by counsel who filed written arguments, submitted exhibits, and presented three days of testimony by multiple witnesses. The Arbitrator was a retired judge who presided over numerous discovery disputes and status conferences in the arbitration. And after considering the evidence, the Arbitrator produced his five-page Award setting forth the bases for his decision to award $537,214.18 to Ms. Anderson. Mr. Khabushani fails to raise any public policy concern; reversal on this point is not appropriate.
CONCLUSION
Based on the foregoing, we AFFIRM.
Notes
[*] 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.
[1] Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
[2] We exercise our discretion to take judicial notice of documents electronically
filed in the bankruptcy court’s dockets.
See Atwood v. Chase Manhattan Mortg. Co. (In re
Atwood)
,
[3] The Arbitrator found that before the termination, Mr. Khabushani told other M+V employees that he was disappointed that Ms. Anderson would be taking maternity leave and informed them that he might terminate her employment because she was not doing a great job and she let her children interfere with her career.
[4] The Arbitrator found that during a November 28, 2017, meeting between Mr. Khabushani and Ms. Anderson, he questioned her ability to hit her sales targets given that she was having a baby and would be “leaving,” reduced her performance bonuses because he “changed his mind,” and attempted to raise her sales targets to “make up” for the time that she would be “losing” during maternity leave.
[5] The Arbitrator determined that: Mr. Khabushani told M+V employees that he terminated Ms. Anderson due to undisclosed performance issues and that M+V was financially stable; within a week of Ms. Anderson’s termination, Mr. Khabushani booked an expensive vacation using M+V funds and began looking for her replacement; and in January of 2018, Mr. Khabushani hired two new employees, including a new President. The Arbitrator made these determinations while also acknowledging that, within a few months of terminating Ms. Anderson, Mr. Khabushani terminated nearly all of M+V’s employees.
[6] The complaint also included a § 727 claim, which will not be discussed herein as it was voluntarily dismissed.
[7] The state court entered judgment confirming the $537,214.18 Award and granting Ms. Anderson $32,821.59 in prejudgment interest and $8,445 in additional attorneys’ fees and costs for a total judgment of $578,480.77.
[8] California Constitution, article I, section 8, provides that “[a] person may not be disqualified from . . . pursuing . . . employment because of sex . . . .”
[9] “The Judicial Council endorses [model jury] instructions for use and makes every effort to ensure that they accurately state existing law. The articulation and interpretation of California law, however, remains within the purview of the Legislature and the courts of review.” Cal. R. of Court 2.1050(b).
[10] Indeed, some courts take a more
per se
approach and hold that a discriminatory
employment action taken in violation of laws comparable to the FEHA meets the
requisite intentional injury requirement of § 523(a)(6).
See, e.g., Jones v. Svreck (In re
Jones)
,
[11] In his declaration, he stated that “When I had to lay off the Plaintiff, I was sick to my stomach having to break the news to her . . . ”
[12] In
Plyam
, we defined “Intentional Malice” as “conduct that the defendant
intends to cause injury to the plaintiff” and “Despicable Malice” as “despicable conduct
carried on by the defendant with a willful and conscious disregard of the rights or
safety of others . . . ”
[13] But, we acknowledge, liability under Cal. Labor Code § 3601(a) requires a
specific intent to injure.
In re Branam
,