*2 SNEED, KO- Before PREGERSON ZINSKI, Judges. Circuit Judge: KOZINSKI, Circuit case bankruptcy in this issue repairs make a debtor’s purchase ato subject on lien non-dischargea- mortgagee a gives the under CaLCiv. tortious for claim ble 1974). (West Code §

Background Mills L. Robert December On Hotel, for a hotel Beverly

purchased Ed- Martin transients, low-income wards taking posses- $900,000. Before for a down made Mills March on sion gave Edwards $100,000,and balance for trust deed wrap-around took price. When purchase of possession satis- it was ap- all with complied factory condition Edwards ordinances. codes plicable in the interest his transferred subsequently Ti- to Sdrawde trust deed tleholders, Inc. on the monthly made months, de- only three for deed He claims 1, 1981. June faulting on on $3,000 per month additional he maintenance there- He period. during that deed making payments ceased after of he on although maintenance, trust Edwards checks several tender did payment. stopped subsequently which state action instituted On receiver. aof appointment court September removed 3,1981, the time, At possession. from hotel’s Poor uninhabitable. were rooms ren- had infestations vermin sanitation dered city and fire of state violation building in building’s housing laws. unsafe deteriorated had equipment personal liability.” It is clear the condition dened with general, level. building allowing it had an action for waste follow- than far worse ing sale of secur- possession some six a foreclosure time Mills took money mortgages may ing purchase of- months earlier. purpose. Damages for ten frustrate this nonjudicial A sale trustee’s was held on defaulting pur- waste would burden purchased April and Sdrawde *3 person- loss of land and chaser with both time, building for At this Mills’ obli- $100. giving liability and the acts rise to that al Sdrawde, gation including principal, in- many liability would have been caused terest, fees, insurance, late taxes and by economic itself. cases the downturn liens, excluding prior on amounts owed to- caught example, purchaser For such circumstances $606,565.67. Thus, talled Sdrawde was left compelled $606,465.67. deficiency with a of Over a forego in the normal course events to of $125,000 period, six-month Edwards repair the maintenance and of repairing rehabilitating building, the keep up property in order to the years but it was some two before the occu- mortgage on the debt. he If pancy previous rate reached its level. eventually erty, prop- and loses the defaults bankruptcy filed for after trust- subject to to hold him additional brought adversary ee’s sale. Sdrawde liability waste would seem to run proceeding seeking to have Mills’ debt de- purpose counter to the and to section 580b non-dischargeable clared under 11 U.S.C. permit purchase money 523(a)(6) (1982) ground on the that Mills § lender to obtain what is in effect property. had committed waste on the Af- deficiency judgment. of course It trial, bankruptcy ter a court found that property true that not all owners of real Mills had committed in the waste amount subject purchase money mortgage to a $143,750, and that this debt non-dis- solely primarily commit or as a waste chargeable. appealed to the bank- pressures result of the economic ruptcy appellate panel, 73 B.R. which many are depression; market indeed affirmed a divided vote. reckless, intentional, and at times even despoilers property. In latter Discussion circumstances to which we shall convenience as waste refer for The threshold issue this case is purchase faith, committed in bad any whether Mills owes debt at all money go lender should not remediless Sdrawde. Sdrawde was left with a defi they type do not of risk since involve $606,465.67 ciency of after the trustee’s promoting intended to him in be borne law, however, sale. Under California “[n]o objectives of section 580b alluded to deficiency judgment shall lie in event above. after sale of property real ... under a Accordingly, we hold that section 580b deed given to the vendor to apply recovery should to bar in actions secure pur balance of the following foreclosure sale in price chase property_” of real Cal.Civ. apply the first instance but should not so (West 1976). Proc.Code 580b § in the second faith” instance “bad sought to avoid the bar of sec waste. by attempting tion 580b prove that Mills committed tortious 603-04, waste on the 542 P.2d under Cal.Civ.Code Cornelison (citation omitted; 2929. Cal.Rptr. added). emphasis § Kornbluth, v. Thus, Cal.3d 542 P.2d depends Sdrawde’s claim the California produced Su whether the evidence at trial was preme explained Court the delicate balance sufficient to establish that Mills committed anti-deficiency between the statute and the merely “bad faith” waste rather than failed mortgagee’s statutory right to recover for to maintain the eco waste: nomic difficulties. primary purpose of section 580b is bankruptcy court found that Mills “in the depression event of a in land requirements “knew and understood the values, prevent aggravation maintenance, regular operation, downturn defaulting that would result if (FF) management,” Finding of Fact No. purchasers lost the land and were bur- but that diverted the income from the category of waste due to finan uses,” FF No. even within to “other hotel difficulties, protected the anti-defi cial failure to maintain knew his though he Cornelison, statute. See ciency diminu- 15 Cal.3d to a substantial lead “would hotel 603-04, FF No. premises.” in the value of tion that Mills’ concluded The court might well have reached a dif We “in bad faith appropriately to act ferent conclusion had the evidence shown FF No. 18. or excuse.” just cause without put little or no into the support findings do These hotel, attempting instead to milk it for as committed bad that Mills conclusion possible abandoning much as cash is true by Comelison. It defined as waste however, Mills, paid approximately it. committed can be that bad $50,000 commissions, pay in sales a down act destruction any affirmative without $100,000, monthly pay ment of and three mere failure maintain spoliation; $8,000, ments for a total investment of Hickman See enough. can be *4 $174,000, counting some $9,000 not the additional 908, 900, Cal. Mulder, 130 Cal.App.3d 58 claims he on mainte Mills (allegation that defendants (1976) Rptr. 304 $84,000 nance. He received no more than fertilize, cultivate, irrigate, fumi “failed to rents, probably considerably in less.1 necessary other acts all gate, prune and do using Far the hotel as a means of from stat and vines” citrus trees preserve to generating profits expense at the of the proper agricultural ed claim security, Mills lost the of his invest bulk 597, Cornelison, ty); see also ment. see 557. But Cal.Rptr. 981, P.2d 125 542 indi- majority found additional The BAP 191, 195, 127 Goff, 53 Cal.App.3d v. Krone delay attempts to in Mills’ of cia bad (“waste (1975) does Cal.Rptr. 393 tendering to Ed- checks foreclosure repair, of covenant a breach embrace pay- immediately stopping then wards and ordinary damage is caused however, This, entirely consistent ment. God”). How an act of tear or wear Judge As financial difficulties. with finding faith waste ever, of bad below, a in his dissent out pointed Volinn made, requires a show Comelison hold desire to understandable mortgagor’s “reckless, acted as ing defendant that despite financial difficul- onto his despoiler[ of malicious ] intentional [or] reckless, him a render does not itself ties inability to out of rather than property,” proper- despoiler of intentional financially. 15 Cal.3d at meet make ends possession is retained ty, at least when Cal.Rptr. 557. 603-04, 125 542 P.2d briefly after default. only here. showing was made such No mortgage his made Conclusion inwas months of the six three expended may have possession, and proving of had the burden Sdrawde the last For as well. maintenance sums on adequate mainte- perform Mills’ failure the income months, he diverted three malicious, of Mills’ the result nance was uses,” FF No. “other the hotel to acts, rather than reckless intentional or indication what no clear there is The bank- his financial difficulties. merely only evi been. may have uses other finding and our made no such ruptcy court testi is Edwards’ own point on this dence no evi- reveals trial record review of the making payments stopped mony that find- justified such have dence that would money prob having “he was pre- 580b ing it made. Section had some with was involved lems .... [H]e deficiency, so recovery cludes a lot of and needed properties, other Mills, dis- against no claim that’s properties, and deal with those chargeable or otherwise. Reporter’s gotten behind.” he had why REVERSED. squarely This falls 76-77. Transcript at $7,000 $14,- yielded gross receipts were 1. Edwards that the hotel testified that the testified gross monthly possession, and both 000 in revenue at the the month after he took time sale, rate, assuming agree receipts in occupancy. were full At and Edwards this $6,000 $7,000 $84,000 per range when the Mills would have the six month collected over However, possession. appointed September in months he was receiver 906 general real estate mar- condition ket PREGERSON, Judge, dissenting: Circuit but not when the waste is caused opinion miscon- majority I believe the mortgagor.” the ‘bad faith’ acts of Id. relating to strues the case law Cal.Rptr. 125 557 at (emphasis wrong consequently reaches the waste result in court found that the debtor subject property added). case, case. In this the trial acquired the Mulder, Hickman Cal.App.3d residential hotel for Cal.Rptr. the court —a good compli- transients —in condition and reiterated that this distinction is control applicable ance with codes and ordinances. ling. The Hickman court saw the issue in (Tr. 11) Finding Ct. # The trial court also Cornelison as “whether the decline experienced found that Mills manager derstood the owner- value of security has been the result of who “un- commercial bad faith waste or has resulted requirements regular depressed condition real maintenance, operation, management Hickman, estate market.” Cal.App.3d (Tr. 12-13) premises.” Find. # Ct. (emphasis added). foreclosed, byYet the time the deed was explained Hickman then appropri the hotel had deteriorated to such an extent that 48 of the 67 ate affirmative allegation defense and several of the rooms bad faith waste would “assert bathrooms, hallways, communal and stair- impairment security resulted from a values_” ways city laws, housing violated state and decline in real estate Id. at county fire department had cited the 304. Mills has made no infractions, building for code various argument such here. rodents, the hotel had cockroaches and other vermin. infested with become Nowhere does Hickman or Cornelison *5 (Tr. Ct. state that economic peculiar difficulties to 17) Nonetheless, Finding # the re- majority (as opposed the debtor to those by caused a conclusion, upheld verses the trial court’s depressed real generally) estate market es- BAP, by the that Mills’ utter failure to tablish a viable allegations defense to maintain the constituted bad faith bad faith waste. expect We would any waste, rendering nondischarge- debt seeking protection debtor of the bankrupt- disagree. I able. cy laws to in position a of serious eco- nomic distress. Cornelison does not stand majority The holding its bases on Corne for proposition the that such individual cir- Kornbluth, 590, lison v. 15 Cal.3d cumstances alone can insulate the debtor 981, 125 Cal.Rptr. misappre 557 charges from of bad faith waste. holding hends the ing that decision. Accord majority, to the “Sdrawde’s claim de question whether a debtor has com pends produced on whether the evidence at mitted bad one, faith waste is according to trial was sufficient to establish that Mills Cornelison, for the trier of fact. Comeli- committed ‘bad faith’ waste rather than plainly son declares that the cause of an merely failed to the maintain be impairment to a security it is a —whether cause of economic 904. Cornelison Op. difficulties.” at general economic decline or bad faith up any does set such waste—is to be by ascertained the trier of dichotomy between “bad faith” waste and Cornelison, fact. P.2d 604, 15 Cal.3d at 542 damage resulting the from debtor’s “eco 981, 125Cal.Rptr. 557. See also Hick Rather, nomic difficulties.” Cornelison man, Cal.App.3d 908, 58 at Cal.Rptr. 130 draws the distinction between “bad faith” judge 304. The trial in this case found that damages waste and caused Mills’total refusal to maintain the property “economic or downturn” waste which re constituted bad faith waste. We will not “solely primarily” sults or from “the eco overturn the trial findings court’s factual pressures nomic depres- market unless clearly we find them erroneous. sion_” Cornelison, 604, Mills had the presenting burden of suffi 981, 542 Cal.Rptr. P.2d 125 557. Corneli give cient evidence to the court “the defi

son, fact, expressly “recovery holds that nite and firm convictionthat a mistake has against mortgagor following the been committed.” City Anderson v. nonjudicial foreclosure sale is barred Bessemer, N.C., 564, 470 U.S. 105 S.Ct. proscription [Cal.Civ.Proc.Code § 580’s] (1985) 84 (quoting L.Ed.2d 518 against deficiency judgments when the United States v. Gypsum States United actually depressed waste the results Co., 333 U.S. 68 S.Ct. 92 faith bad committed that conclusion to meet failed (1948)). He has L.Ed. this burden. waste. faith defines bad Comelison recklessly, inten committed Cal.App.3d as Goff, waste waste Krone Cornelison, 15 maliciously. distinguish easily or tionally, (1975), is Cal.Rptr. 390 Cal.Rptr. 981, 125 P.2d to a se impairment at Cal.3d involved Krone able. that, under fire, concedes majority earthquake, resulting curity 557. clearly can inaction and Hickman, neglect pay taxes. to failure purchaser’s the and Krone Hickman, waste. See caused damage bad constitute held 908, 130 God, tear,” at Act of Cal.App.3d and “ordinary wear distinguish Hick to fails not suf Yet, majority does taxes pay to mere or that: court found Krone, that case 53 Cal. In man. waste. to establish fice Clearly “failed defendants allegation App.3d Mills’ willful An to fertilize, fumigate, here neglect of the cultivate, irrigate, necessary to Act of God and acts other do all be attributed prune and cannot far vines” ordinary and tear. wear citrus trees surpasses said preserve case out makes question without waste. a debt does owe I find that Because allegation This, coupled with committed bad to Sdrawde brings the mismanagement” of “willful then becomes question property, concept bad within effort pleading faith waste “willful constitute acts Mills’ benefi- entitles ... 11 U.S.C. under injury” take their the deed ciaries mali 523(a)(6). “willful We defined § cious for determination fact of faith waste trier to the case In re that section under injury” actually of whether (9th Cir. 1440, 1443 Cecchini, 780 F.2d committed. “when a Cecchini, held 1986). we neces intentionally, done wrongful Id. act just is without produces harm sarily otherwise clean, repair or refusal Mills’ and malicious’ excuse, it is ‘willful different, nor or no cause even injure.” hotel maintain specific intent proof maintaining the value absent crucial less to make .refusal neglect in- Id. agricultural from the security, maintain no otherwise Thus, can be repairs while wrongful, there in Hickman. volved uses, was to other funds he diverted involved conduct type question con *6 certainly knew faith waste. constitute here I Consequently, acts. such the dam- sequences is whether remaining issue Sdrawde, arising debt to commit- believe inaction by Mills’ age caused waste, of bad his commission intentionally. recklessly or ted discharged. not be should was an that Mills found court The trial above, I dissent set forth owner/manager reasons who For experienced acquired of the bank- reversal majority’s good condition. panel’s decision. appellate ruptcy found further trial caus- mismanaged” the “willfully condition, ing its deteriorated checks, tendering foreclosure delayed them. stopping then but There ignored evidence also for three refused and foreclosure advice Edwards’ months funds apply repairs. needed desperately make factual of these not shown Mills determinations These clearly erroneous. court’s the trial support amply facts