Britton, In re, 90-56027

• Citation: 950 F.2d 602
• Decision Date: 06 December 1991
• Docket Number: No. 90-56027,90-56027
• Parties: Bankr. L. Rep. P 74,355 In re Robert BRITTON, Debtor. Robert BRITTON, Defendant-Appellant, v. Mary PRICE, Plaintiff-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 602

950 F.2d 602

Bankr. L. Rep. P 74,355

In re Robert BRITTON, Debtor Robert BRITTON, Defendant-Appellant, v. Mary PRICE, Plaintiff-Appellee.

No. 90-56027.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Oct. 11, 1991.

Decided Dec. 6, 1991.

Charles B. Harris, San Diego, Cal., for defendant-appellant.

John E. Yeager, San Diego, Cal., for plaintiff-appellee.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel.

Before FLETCHER, D.W. NELSON and BRUNETTI, Circuit Judges.

FLETCHER, Circuit Judge:

Robert Britton, the debtor, appeals from the decision of the Bankruptcy Appellate Panel ("BAP") affirming in part the bankruptcy court's holding that a judgment against him for fraud obtained by Mary Price was nondischargeable. Britton argues that there is insufficient evidence to support the bankruptcy court's finding that his conduct constituted fraud, for the purposes of 11 U.S.C. § 523(a)(2)(A) ("Section 523(a)(2)(A)"), which excepts from discharge debts for money or property obtained by a fraud or false representations, and that there is also insufficient evidence to support the finding that his conduct caused "willful and malicious injury," making the debt incurred by such injury nondischargeable under 11 U.S.C. § 523(a)(6) ("Section 523(a)(6)"). Britton further argues that, even if there is evidence to support a finding of willful and malicious injury, the punitive damages portion of the judgment is dischargeable. Price contends Britton's appeal is frivolous, and asks for an award of attorney's fees.

We affirm the BAP's decision, but decline to award attorney's fees.

BACKGROUND

In 1977, Robert Britton was employed as an office manager and consultant by Dr. Cavanaugh at the Academy of Cosmetic Surgery Medical Group.

In July, 1977, Mary Price read an advertisement about the Academy's cosmetic surgery procedures. Price made an appointment at the Academy for a consultation about a lipectomy (removal) of abdominal fat. At the Academy, Price met with a nurse/receptionist and with Britton. Britton and Price discussed arrangements for financing the procedure; Britton subsequently made all necessary arrangements for Price to obtain financing from a local finance company. Britton also gave Price a document about the procedure that had been prepared by Dr. Cavanaugh for use as part of the cosmetic surgery sales presentation. According to Price, Britton wore a name tag that identified him as a doctor, and was addressed as "doctor" by the nurse.

Price was then given a physical examination, at which Britton was present. The nurse was also present at the examination. Price testified that during the examination she revealed her abdomen, and that Britton touched the area of her stomach where there was excess fat and showed her where the incision would be made.

Dr. Cavanaugh performed the surgical procedure on Price with Britton present. Britton arranged for Price's transfer to Hillside Convalescent Hospital after the procedure. According to Price, she was in considerable pain after the operation. At the hospital, tubing was found in Price's body at the site of the incision. Within three days of the procedure, the area of the incision became infected; Price ultimately required corrective surgery.

Price filed suit in state court alleging medical malpractice by Dr. Cavanaugh and fraud by both Cavanaugh and Britton. Dr. Cavanaugh did not appear at the trial and judgment was entered against him on both claims. The jury awarded $50,000 against Dr. Cavanaugh for medical negligence and $25,000 in actual damages for fraud and $275,000 for punitive damages against both Britton and Dr. Cavanaugh.

Britton subsequently filed a chapter 7 bankruptcy petition, and Price filed a complaint in bankruptcy court for a determination that Britton's judgment debt to her was nondischargeable under section 523.

The bankruptcy court held a hearing to determine the dischargeability of the debt. It found that Britton's misrepresentation of himself as a doctor constituted fraud within the meaning of section 523(a)(2)(A) and that the judgment was therefore nondischargeable under that section. The bankruptcy court found that the judgment was also nondischargeable under section 523(a)(6).

Britton appealed to the BAP, arguing that there was insufficient evidence to support the findings of fraud and of willful and malicious injury, and that sections 523(a)(2)(A) and 523(a)(6) did not except from discharge the punitive damages portion of the judgment. ¹ The BAP reversed the bankruptcy court as to the dischargeability of punitive damages under section 523(a)(2)(A), relying on its recent decision in Ellwanger v. McBroom (In re Ellwanger), 105 B.R. 551 (Bankr.9th Cir.1989), that that subsection bars discharge only of actual damages. The BAP affirmed as to the other issues.

STANDARD OF REVIEW

This court and the BAP review the bankruptcy court's conclusions of law de novo. Findings of fact are upheld unless they are clearly erroneous. Rubin v. West (In re Rubin), 875 F.2d 755, 758 (9th Cir.1989).

I. Evidentiary Issues

A. Finding of Fraud within the meaning of section 523(a)(2)(A)

Section 523(a)(2)(A) provides:

(a) A discharge under section 727, 1141, 1228(a), 1228(b) or 1328(b) of this title does not discharge an individual debtor from any debt--

(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by--

(A) false pretenses, a false representation, or actual fraud ...

11 U.S.C. § 523(a)(2)(A).

The Ninth Circuit has employed a five-part test for determining when a debt is nondischargeable under section 523(a)(2)(A). The creditor must show that:

(1) the debtor made the representations;

(2) that at the time he knew they were false;

(3) that he made them with the intention and purpose of deceiving the creditor;

(4) that the creditor relied on such representations;

(5) that the creditor sustained the alleged loss and damage as the proximate result of the representations having been made.

Houtman v. Mann (In re Houtman), 568 F.2d 651, 655 (9th Cir.1978) (emphasis omitted) (quoting Public Fin. Corp. of Redlands v. Taylor (In re Taylor), 514 F.2d 1370, 1373 (9th Cir.1975)). In Houtman, the court was determining dischargeability under the predecessor to section 523(a)(2)(A), section 17(a)(2) of the Bankruptcy Act.

The BAP acknowledged there were inconsistencies in Price's testimony and conflicts between the testimony of Price and Britton's version of the events. It nonetheless found that the bankruptcy court's findings with respect to the debtor's fraudulent conduct were not clearly erroneous.

On this appeal, Britton focuses on the element of proximate causation. He argues that the injury Price suffered was not the "proximate result" of his misrepresentation. The "clearly erroneous" standard of appellate review applies to findings of proximate cause, "even though the finding may depend to some extent upon law." Rubin, 875 F.2d at 758.

Proximate cause

is sometimes said to depend on whether the conduct has been so significant and important a cause that the defendant should be legally responsible. But both significance and importance turn upon conclusions in terms of legal policy, so that they depend on whether the policy of the law will extend the responsibility for the conduct to the consequences which have in fact occurred.

W. Page Keeton et al., Prosser and Keeton on The Law of Torts § 42 at 273 (5th ed. 1984).

On this issue, the bankruptcy judge's findings were not clearly erroneous. Malpractice can be seen as a foreseeable consequence of any medical procedure, including plastic surgery; Britton employed fraud to convince Price to submit to surgery. Moreover, on these facts, there appears to be no policy argument for limiting the extent of Britton's liability for Price's injuries. Britton cannot escape the consequences of his intentional misconduct by arguing that the injury Price suffered was not the proximate result of the fraud he committed.

B. Finding of "willful and malicious injury" within the meaning of section 523(a)(6)

1. Required showing under section 523(a)(6)

Section 523(a)(6) provides that a debt for "willful and malicious injury by the debtor" will not be discharged. 11 U.S.C. § 523(a)(6). "Willful," in this context, means "deliberate or intentional." H.R.Rep. No. 595, 95th Cong., 1st Sess. 365, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5963, 6320-21; see Impulsora del Territorio Sur, S.A. v. Cecchini (In re Cecchini), 780 F.2d 1440, 1443 (9th Cir.1986). Thus, the creditor must show the debtor acted intentionally. The intent required is intent to do the act at issue, not intent to injure the victim. C.I.T. Fin. Serv., Inc. v. Posta (In re Posta), 866 F.2d 364, 367 (10th Cir.1989) ("The 'willful' element is straightforward. It simply addresses whether the debtor intentionally performed the basic act complained of.").

To prove malice, the creditor must make a further showing. The creditor need not prove that the debtor specifically intended to injure the creditor. See Cecchini, 780 F.2d at 1443. However, the creditor must show "the debtor's actual knowledge or the reasonable foreseeability that his conduct will result in injury to the creditor." Posta, 866 F.2d at 367. In its leading case on this issue, the Ninth Circuit has stated: "When a wrongful act such as conversion, done intentionally, necessarily produces harm and is without just cause or excuse, it is 'willful or malicious' even absent proof of a specific intent to injure." Cecchini, 780 F.2d at 1443. "As set forth in Cecchini, the act must necessarily cause harm to the creditor, but the creditor need not show that the debtor acted with an intent to harm the creditor." Transamerica Commercial Finance Corporation v. Littleton (In re Littleton), 942 F.2d 551, 555 (9th Cir.1991); see also Andrews v. Manser (In re Manser), 99 B.R. 434, 436 (Bankr.9th Cir.1989) (test for...