In re: Terrance Alexander Tomkow Zafar David Khan

                                                       FILED
 1                       ORDERED PUBLISHED             JAN 05 2017
                                                  SUSAN M. SPRAUL, CLERK
 2                                                  U.S. BKCY. APP. PANEL
                                                    OF THE NINTH CIRCUIT
 3               UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                         OF THE NINTH CIRCUIT
 5   In re:                        )   BAP No.    CC-16-1075-TaFMc
                                   )
 6   TERRANCE ALEXANDER TOMKOW,    )   Bk. No.    2:13-bk-19712-WB
                                   )
 7                   Debtor.       )   Adv. No.   2:13-ap-01751-WB
     ______________________________)
 8                                 )
     TERRANCE ALEXANDER TOMKOW,    )
 9                                 )
                     Appellant,    )
10                                 )
     v.                            )
11                                 )
     KENNETH BARTON,               )
12                                 )
                     Appellee.     )
13   ______________________________)
                                   )
14   In re:                        )   BAP No.    CC-16-1076-TaFMc
                                   )
15   ZAFAR DAVID KHAN,             )   Bk. No.    2:13-bk-19713-WB
                                   )
16                   Debtor.       )   Adv. No.   2:13-ap-01752-WB
     ______________________________)
17                                 )
     ZAFAR DAVID KHAN,             )
18                                 )
                     Appellant,    )
19                                 )
     v.                            )   O P I N I O N
20                                 )
     KENNETH BARTON,               )
21                                 )
                     Appellee.     )
22   ______________________________)
23               Argued and Submitted on October 21, 2016
                          at Pasadena, California
24
                          Filed – January 5, 2017
25                 Ordered Published - January 17, 2017
26            Appeal from the United States Bankruptcy Court
                  for the Central District of California
27
        Honorable Julia Wagner Brand, Bankruptcy Judge, Presiding
28
 1   Appearances:    Lewis R. Landau on behalf of appellants Terrance
                     Alexander Tomkow and Zafar David Khan; Patrick C.
 2                   McGarrigle of McFarrigle, Kenney & Zampiello, APD
                     on behalf of appellee Kenneth Barton.
 3
 4   Before:   TAYLOR, FARIS, and MCKITTRICK,* Bankruptcy Judges.
 5
 6   TAYLOR, Bankruptcy Judge:
 7
 8                               INTRODUCTION
 9        Appellants1 Terrance Tomkow and Zafar Khan appeal from two
10   orders: (1) an order granting summary judgment in favor of
11   Kenneth Barton determining that a California state court
12   judgment against them was nondischargeable under § 523(a)(2)(A)2
13   and (a)(6); and (2) an order denying their subsequent motion for
14   direct appeal certification to the Ninth Circuit.
15        Binding Ninth Circuit authority controls our decision here;
16   we AFFIRM the bankruptcy court’s orders.
17
18
          *
             The Hon. Peter C. McKittrick, United States Bankruptcy
19   Judge for the District of Oregon, sitting by designation.
20        1
             Appellants submitted two separate briefs on appeal. The
21   briefs are identical, save for an additional paragraph in
     Tomkow’s brief at page 19, lines 7-22.5 (and references to
22   Appellant’s name and record citation). As discussed in this
     opinion, we conclude that the argument addressed in that
23
     paragraph lacks merit. We address both appeals in this opinion.
24   The BAP Clerk of Court is instructed to enter this disposition
     in both appeals.
25
          2
             Unless otherwise indicated, all chapter and section
26   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
27   All “Rule” references are to the Federal Rules of Bankruptcy
     Procedure. All “Civil Rule” references are to the Federal Rules
28   of Civil Procedure.

                                      2
 1                                  FACTS
 2          During the late 1990s, Appellants and Barton co-founded
 3   start-up companies including RIL, which owned or controlled
 4   various patents relating to authentication and verification of
 5   emails and electronic payments.       Barton later suffered a stroke
 6   and was sidelined from active involvement in the businesses.
 7   Afterward, his relationship with Appellants deteriorated to the
 8   point that he commenced state court litigation seeking unpaid
 9   compensation and reimbursement of expenses.
10          During that litigation, Barton discovered that Appellants
11   had taken control of his 6,016,500 common stock shares in RIL
12   and returned them to the company treasury, thereby divesting him
13   of an equity interest in the company.      In response, he commenced
14   a second action against Appellants and RIL, among others, in
15   California state court alleging causes of action including
16   conversion and fraud.
17          The state court ruled in Barton’s favor on both the
18   conversion and fraud causes of action and against Appellants and
19   RIL.    It determined that Appellants had acted with malice,
20   oppression, and fraud and, thus, that Barton was entitled to
21   punitive damages.    The state court then conducted a second phase
22   of trial to quantify punitive damages.
23          Following the parties’ submission of the punitive damages
24   issue to the state court, Appellants each filed a chapter 13
25   petition.
26          In a revised statement of decision and ruling on punitive
27   damages, the state court awarded Barton the value of his
28

                                       3
 1   converted stock in RIL.3    It ultimately entered an amended
 2   judgment awarding Barton compensatory damages in the amount of
 3   $2,840,060, damages for emotional distress, and $880,021.91 in
 4   prejudgment interest.    For punitive damages, the state court
 5   awarded $250,000 against Khan and $150,000 against Tomkow.     In
 6   so doing, it found that Khan and Tomkow acted with malice,
 7   oppression, and fraud.     Appellants appealed from the state court
 8   judgment to the California Court of Appeal.
 9        In the meantime, Barton filed an adversary complaint
10   against Appellants in the bankruptcy court, seeking a
11   nondischargeability determination under § 523(a)(2)(A), (a)(4),
12   and (a)(6) based on the state court judgment.
13        The California Court of Appeal subsequently affirmed the
14   state court’s determination of Appellants’ liability based on
15   conversion.   But, because the determination of conversion was
16   supported by substantial evidence, it did “not consider whether
17   [Appellants] were additionally liable under theories of fraud,
18   breach of fiduciary duty and unfair competition.”    It affirmed
19   the punitive damages award based on a finding of malice and
20   deceit.   The California Supreme Court denied Appellants’
21   petition for review of the appellate court’s decision.    Thus,
22   that decision is now final.    In response, Barton moved for
23   summary judgment on his nondischargeability complaint in the
24   bankruptcy court.
25
26        3
             Based on stipulations between Barton and Appellants, the
27   bankruptcy court entered orders granting stay relief to proceed
     in the state court action. See 2:13-bk-19713-WB, Dkt. Nos. 9,
28   16; 2:13-bk-19712-WB, Dkt. Nos. 9, 16.

                                       4
 1        Appellants opposed the motion.    They asserted primarily
 2   that pursuant to Zevnik v. Superior Court, 159 Cal. App. 4th 76
 3   (2008), where a trial court decided a case based on alternate
 4   grounds and the court of appeal affirmed on only one of those
 5   grounds, issue preclusion was available only on the ground
 6   affirmed by the appellate court.    Appellants pointed out that
 7   the California Court of Appeal had affirmed the state court
 8   judgment only on Barton’s conversion claim under California law;
 9   thus, they argued, the state court judgment was not entitled to
10   issue preclusion based on the state court’s ruling of fraud or
11   breach of fiduciary duty in relation to the § 523(a)(2)(A) or
12   (a)(4) claims.   At best, Appellants contended, the state court
13   judgment for conversion potentially supported a claim under
14   § 523(a)(6).   But, even then, they asserted, Barton barely
15   addressed the conversion claim in his motion for summary
16   judgment.   And, they noted, conversion under California law did
17   not establish a § 523(a)(6) claim conclusively.    Appellants also
18   argued that the punitive damages award on the conversion claim,
19   to the extent affirmed on appeal, fell short of establishing a
20   § 523(a)(6) claim.   Finally, Tomkow argued that Barton neglected
21   to address the fact that, with respect to the punitive damages
22   award, there was a difference in liability between Khan and
23   Tomkow; namely, the amount of damages assessed against
24   Appellants reflected a difference in the level of culpability.
25        In response, Barton argued that binding Ninth Circuit
26   precedent - DiRuzza v. County of Tehama, 323 F.3d 1147 (9th Cir.
27   2003) - established that the California Court of Appeal’s
28   affirmance of any ground contained in the state court judgment

                                     5
 1   implicitly ratified all of the trial court’s reasoning in the
 2   judgment.
 3        At the hearing, the bankruptcy court determined that the
 4   state court judgment was entitled to issue preclusive effect for
 5   the § 523(a)(2)(A) and (a)(6) claims and, thus, granted summary
 6   judgment in Barton’s favor on them.    It, however, denied the
 7   motion as to the § 523(a)(4) claim.    In response, Appellants’
 8   counsel orally requested direct appeal certification to the
 9   Ninth Circuit.   The bankruptcy court agreed that additional
10   briefing and a hearing on Appellants’ request were warranted.
11        The bankruptcy court then entered judgments determining
12   that, with the exception of the damages award for emotional
13   distress, the state court judgment was excepted from Appellants’
14   discharges under § 523(a)(2)(A) and (a)(6).    Appellants timely
15   appealed.
16        Appellants made good on their request and filed a motion
17   for direct appeal certification.    They stated that the
18   bankruptcy court “understandably rejected application of the
19   Zevnik rule based on a Ninth Circuit decision [DiRuzza]
20   predating Zevnik and that applied the 1865 California Supreme
21   Court’s Skidmore case.”   As a result of DiRuzza, they urged the
22   bankruptcy court to certify the appeal directly to the Ninth
23   Circuit under 28 U.S.C. § 158(d)(2)(A); they opined that the
24   Ninth Circuit could and would then certify the question to the
25   California Supreme Court.
26        Barton opposed the motion, and the bankruptcy court agreed
27   with him.   It concluded at a subsequent hearing that Appellants
28   had not satisfied 28 U.S.C. § 152(d)’s requirements for direct

                                     6
 1   appeal certification.    It believed that the law in the Ninth
 2   Circuit was clear and that there was no dispute requiring
 3   resolution among the California courts.    The bankruptcy court
 4   noted that the Ninth Circuit had considered and rejected the
 5   Zevnik analysis in DiRuzza and that the California Supreme Court
 6   also had, but declined, the opportunity to revisit the issue.
 7        The bankruptcy court subsequently entered an order denying
 8   Appellants’ motion.   Appellants amended their notice of appeal
 9   to include this order.
10                               JURISDICTION
11        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
12   §§ 1334 and 157(b)(2)(I).    We have jurisdiction under 28 U.S.C.
13   § 158.
14                                  ISSUES
15        1.    Whether the bankruptcy court erred in granting summary
16   judgment in Barton’s favor on his § 523(a)(2)(A) claim based on
17   the issue preclusive effect of the fraud claim in the state
18   court judgment, given that the California Court of Appeal
19   affirmed that judgment on another ground.
20        2.    Whether the bankruptcy court erred in granting summary
21   judgment in Barton’s favor on his § 523(a)(6) claim based on the
22   issue preclusive effect of the state court judgment.
23        3.    Whether the bankruptcy court erred in denying
24   Appellants’ motion for direct appeal certification to the Ninth
25   Circuit.
26                            STANDARDS OF REVIEW
27        We review de novo the bankruptcy court’s decisions to grant
28   summary judgment and to except a debt from discharge under

                                       7
 1   § 523(a).    See Ghomeshi v. Sabban (In re Sabban), 600 F.3d 1219,
 2   1221–22 (9th Cir. 2010); Oney v. Weinberg (In re Weinberg),
 3   410 B.R. 19, 28 (9th Cir. BAP 2009); see also Carrillo v. Su
 4   (In re Su), 290 F.3d 1140, 1142 (9th Cir. 2002)
 5   (nondischargeability presents mixed issues of law and fact and
 6   is reviewed de novo).
 7        We also review de novo the bankruptcy court’s determination
 8   that issue preclusion was available.        Black v. Bonnie Springs
 9   Family Ltd. P’Ship (In re Black), 487 B.R. 202, 210 (9th Cir.
10   BAP 2013).   If issue preclusion was available, we then review
11   the bankruptcy court’s application of issue preclusion for an
12   abuse of discretion.     Id.   A bankruptcy court abuses its
13   discretion if it applies the wrong legal standard or misapplies
14   the correct legal standard, or if its factual findings are
15   illogical, implausible, or without support in inferences that
16   may be drawn from the facts in the record.        See
17   TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th
18   Cir. 2011) (citing United States v. Hinkson, 585 F.3d 1247, 1262
19   (9th Cir. 2009) (en banc)).
20        We may affirm the decision of the bankruptcy court on any
21   basis supported by the record.      See Hooks v. Kitsap Tenant
22   Support Servs., Inc., 816 F.3d 550, 554 (9th Cir. 2016).
23                                  DISCUSSION
24   A.   Standards
25        Summary judgment.     Summary judgment is appropriate where
26   the movant shows that there is no genuine dispute of material
27   fact and the movant is entitled to judgment as a matter of law.
28   Fed. R. Civ. P. 56(a) (applicable in adversary proceedings under

                                        8
 1   Rule 7056).   The bankruptcy court must view the evidence in the
 2   light most favorable to the non-moving party when determining
 3   whether genuine disputes of material fact exist and whether the
 4   movant is entitled to judgment as a matter of law.    See Fresno
 5   Motors, LLC v. Mercedes Benz USA, LLC, 771 F.3d 1119, 1125 (9th
 6   Cir. 2014).   And, it must draw all justifiable inferences in
 7   favor of the non-moving party.   See id. (citing Anderson v.
 8   Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)).
 9        Issue preclusion in a nondischargeability proceeding.      The
10   bankruptcy court may give issue preclusive effect to a state
11   court judgment as the basis for excepting a debt from discharge.
12   Harmon v. Kobrin (In re Harmon), 250 F.3d 1240, 1245 (9th Cir.
13   2001).   The party asserting preclusion bears the burden of
14   establishing the threshold requirements.   Id.   This means
15   providing “a record sufficient to reveal the controlling facts
16   and pinpoint the exact issues litigated in the prior action.”
17   Kelly v. Okoye (In re Kelly), 182 B.R. 255, 258 (9th Cir. BAP
18   1995), aff’d, 100 F.3d 110 (9th Cir. 1996).   Ultimately, “[a]ny
19   reasonable doubt as to what was decided by a prior judgment
20   should be resolved against allowing the [issue preclusive]
21   effect.”   Id.
22        We apply the forum state’s law of issue preclusion when
23   determining if issue preclusion is appropriate based on a state
24   court judgment.   In re Harmon, 250 F.3d at 1245.   Here we must
25   apply California law.
26        California issue preclusion.    California permits
27   application of issue preclusion to an existing judgment:
28   (1) after final adjudication; (2) of an identical issue;

                                      9
 1   (3) actually litigated in the former proceeding; (4) necessarily
 2   decided in the former proceeding; and (5) asserted against a
 3   party in the former proceeding or someone in privity with a
 4   party.    See DKN Holdings LLC v. Faerber, 61 Cal. 4th 813, 825
 5   (2015).    In addition, the court must determine that issue
 6   preclusion “furthers the public policies underlying the
 7   doctrine.”    In re Harmon, 250 F.3d at 1245 (citing Lucido v.
 8   Super. Ct., 51 Cal. 3d 335, 342—43 (1990)); see also Khaligh v.
 9   Hadaegh (In re Khaligh), 338 B.R. 817, 824–25 (9th Cir. BAP
10   2006).
11   B.   Based on binding Ninth Circuit authority, the bankruptcy
          court appropriately gave issue preclusive effect to the
12        fraud claim in the state court judgment; thus, it did not
          err in granting summary judgment in Barton’s favor on his
13        § 523(a)(2)(A)4 claim.
14        Appellants focus the majority of their appellate arguments
15   on one narrow issue: whether the bankruptcy court could give
16   issue preclusive effect to the state court judgment’s fraud
17   determination, given that the California Court of Appeal did not
18   review that aspect of the judgment on appeal.    They acknowledge
19   that under Ninth Circuit authority, DiRuzza, the entire judgment
20   is subject to issue preclusion.    They contend, however, that the
21   law in California has developed in the past 15 years such that
22   the Ninth Circuit’s decision no longer correctly reflects
23   California law.
24        Based on an early California Supreme Court case, DiRuzza
25   adhered to the “general California rule” that, “even if the
26
          4
27           The elements for actual fraud under California law match
     those of § 523(a)(2)(A). See Tobin v. Sans Souci Ltd. P’ship
28   (In re Tobin), 258 B.R. 199, 203 (9th Cir. BAP 2001).

                                       10
 1   appellate court refrains from considering one of the grounds
 2   upon which the [trial court’s] decision . . . rests, an
 3   affirmance of the decision below extends legal effects to the
 4   whole of the lower court’s determination, with attendant
 5   collateral estoppel effect.”   323 F.3d at 1156 (internal
 6   quotation marks and citation omitted).    We acknowledge that
 7   subsequent California Courts of Appeal decisions have disagreed
 8   with DiRuzza and make compelling arguments in support of their
 9   position to the contrary.   That said, DiRuzza remains
10   controlling precedent in our circuit.    Consequently, we conclude
11   that issue preclusion was available and that the bankruptcy
12   court did not abuse its discretion in giving preclusive effect
13   to the fraud determination in the state court judgment.
14        1.   The general California (or traditional) rule.
15        At the outset, we note that an unpublished federal district
16   court case - Flying J, Inc. v. Pistacchio, 2008 WL 906396, at
17   *33-43 (E.D. Cal. Mar. 31, 2008), aff’d, 351 F. App’x 236 (9th
18   Cir. 2009) - provides a highly detailed overview of the
19   pertinent cases, including DiRuzza, People v. Skidmore, 27 Cal.
20   287 (1865), and the three California Courts of Appeal cases that
21   Appellants contend have changed the legal landscape in
22   California: Zevnik, 159 Cal. App. 4th 76; Newport Beach Country
23   Club, Inc. v. Founding Members of Newport Beach Country Club,
24   140 Cal. App. 4th 1120 (2006); and Butcher v. Truck Insurance
25   Exchange, 77 Cal. App. 4th 1442 (2000).
26        A brief description of these cases as they relate to the
27   general California rule follows.
28        DiRuzza.   The Ninth Circuit examined whether issues decided

                                     11
 1   by a California trial court and crucial to its decision were
 2   entitled to preclusive effect after the court of appeal affirmed
 3   on different grounds.   323 F.3d at 1153.      The Ninth Circuit
 4   acknowledged that California case law addressing the issue was
 5   sparse but that Skidmore, a venerable California Supreme Court
 6   case, “support[ed] the conclusion that an appellate court’s
 7   affirmance for any reason implicitly ratifie[d] all reasoning
 8   given in the court below.”    Id.    In doing so, it noted that “a
 9   nebulous exception to the rule and a recent California appellate
10   decision [Butcher] cut against the timeworn precedent and may
11   counsel in favor of more selective application of collateral
12   estoppel principles.”   Id.   It concluded, however, that Skidmore
13   was controlling because the California Supreme Court had not
14   “undermin[ed] the authority of its early holding” and
15   notwithstanding Butcher’s analysis.      Id.
16        Skidmore.    As explained in DiRuzza, Skidmore involved a
17   judgment in defendants’ favor.      On initial appeal, the
18   California Supreme Court “affirmed the judgment, but relied upon
19   a procedural issue—misjoinder—in reaching its decision.”       Id. at
20   1154.   This issue was corrected and the case made its way to the
21   court a second time, for a determination as to whether the
22   plaintiff could pursue the action again.       “The court determined
23   that, regardless of its previous opinion’s reliance on the
24   misjoinder issue, the . . . [underlying recommendation] report
25   and resulting judgment, which reached the merits of the case,
26   had been affirmed by the judgment accompanying [its] previous
27   opinion.”   Id.   Thus, the California Supreme Court determined,
28   the plaintiff was precluded from bringing the action a second

                                         12
 1   time, “as the merits of the case had already been adjudicated .
 2   . . .”   Id.   The Ninth Circuit quoted the following language
 3   from Skidmore:
 4        The Court, in examining the judgment in connection
          with the errors assigned, found that there was at
 5        least one ground upon which the judgment could be
          justified, and therefore very properly refrained from
 6        considering it in connection with the other errors.
          But the affirmance, still, was an affirmance to the
 7        whole extent of the legal effect of the judgment at
          the time when it was entered in the court below. The
 8        Supreme Court found no error in the record, and
          therefore not only allowed it to stand, but affirmed
 9        it as an entirety, and by direct expression.
10   Id. at 1154–55 (quoting 27 Cal. at 292–93).
11        Subsequent courts have referred to this rule as the general
12   California rule, the Skidmore rule, or the traditional rule.
13        Skidmore’s “progeny.”    Following Skidmore, two decisions
14   were issued that bear mention based on subsequent case law
15   discussion: Bank of America National Trust & Savings Association
16   v. McLaughlin Land & Livestock Co. (“McLaughlin”), 40 Cal. App.
17   2d 620 (1940), and Natural Soda Products Co. v. City of Los
18   Angeles, 109 Cal. App. 2d 440 (1952).
19        As noted by Flying J, 2008 WL 906396, at *35, McLaughlin
20   reached the same conclusion as Skidmore, although it did not
21   refer to Skidmore.    Instead, McLaughlin relied on a rule
22   expounded in the Corpus Juris (“CJ”), providing that “[a]
23   general affirmance of a judgment on appeal makes it res judicata
24   as to all the issues, claims, or controversies involved in the
25   action and passed upon by the court below, although the
26   appellate court does not consider or decide upon all of them.”
27   40 Cal. App. 2d at 628–29 (quoting 34 C.J. 773).    Thus, the
28   McLaughlin panel determined that, where the ruling of the

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 1   district court (sitting as the bankruptcy court) was predicated
 2   on two alternate grounds and the Ninth Circuit affirmed the
 3   decision on the first ground, the district court’s entire
 4   decision was entitled to preclusive effect.     Id. at 629.
 5        Natural Soda reiterated the general rule delineated by
 6   Skidmore and McLaughlin.     In doing so, however, it stated that
 7   “the rule [was] not without exceptions, and where a finding
 8   [was] unnecessary and immaterial the rule of collateral estoppel
 9   [did] not operate.”     109 Cal. App. 2d at 446.
10        As the Ninth Circuit in DiRuzza observed, “[a]fter Natural
11   Soda, all was generally quiet on the [issue preclusion] front in
12   the courts of California for almost fifty years.”     323 F.3d at
13   1156.     Enter Butcher.
14        2.      The trilogy of recent California Courts of Appeal
                  cases and the “modern” rule.
15
16        Butcher.     As noted by DiRuzza, 323 F.3d at 1156, Butcher
17   made no reference to Skidmore at all.     There, a panel of the
18   Second District Court of Appeal examined the preclusive effect
19   of a federal court judgment based on diversity jurisdiction in
20   an insurance coverage action.     It noted that there were two
21   lines of cases: (1) cases following “the rule that the appellate
22   court in the prior action determines the preclusive effect of
23   its judgment, i.e., the judgment [was] conclusive on the []
24   ground” affirmed by the appellate court, as reflected in Moran
25   Towing & Transportation Co. v. Navigazione Libera Triestina,
26   S.A., 92 F.2d 37 (2d Cir. 1937), and the Restatement (Second) of
27   Judgments; and (2) cases holding “that it [was] the judgment of
28   the trial court, which [was] affirmed, that governs the

                                       14
 1   preclusive effect, i.e., the judgment [was] conclusive on both
 2   grounds,” as reflected in McLaughlin.      77 Cal. App. 4th at 1456.
 3        The first line of cases relies heavily on the Restatement
 4   (Second) of Judgments § 275 and embodies the “modern” approach
 5   approved of by the three California Courts of Appeal decisions.
 6   The Butcher panel observed that the rule cited by the McLaughlin
 7   panel, based on the CJ, was subsequently abandoned in favor of
 8   the rule followed by the Second Restatement.      It, thus,
 9   “conclude[d] [that] the reasoning of the McLaughlin court has
10   not withstood the test of time, and it would be unwise to follow
11   a rule that looks only to the judgments, without taking account
12   of the reasons for those judgments as stated in the appellate
13   courts’ opinions.”   Id. at 1460.
14        The Ninth Circuit, in DiRuzza, concluded that while
15        Butcher advance[d] plausible arguments against the
          general California rule, . . . it [came] from an
16        intermediate appellate court which failed to
          acknowledge that the California Supreme Court, in
17        Skidmore, had addressed the subject. Until we receive
          a definitive indication that Skidmore no longer
18        represents the law of California, we will adhere to
          that case’s precepts.
19
20   323 F.3d at 1156.    The Ninth Circuit, thus, rejected the Butcher
21   panel’s analysis.
22        Newport Beach Country Club.      Newport Beach, decided by a
23   panel of the Fourth District Court of Appeal, was issued three
24
          5
25           The Restatement (Second) of Judgments § 27 comment o
     (1982) provides that when “a judgment rendered by a court of
26   first instance is reversed by the appellate court and a final
27   judgment is entered by the appellate court (or by the court of
     first instance in pursuance of the mandate of the appellate
28   court), this latter judgment is conclusive between the parties.”

                                      15
 1   years after DiRuzza.     The Newport Beach panel held that, where
 2   “a trial court judgment decide[d] a case on two alternate
 3   grounds, and the appellate court affirm[ed] based on one ground,
 4   the judgment [was] binding under principles of res judicata and
 5   collateral estoppel only on the ground addressed by the
 6   appellate court.”    140 Cal. App. 4th at 1123.   The Newport Beach
 7   panel, thus, “decline[d] to follow [Skidmore] because subsequent
 8   developments in California law and the trend of decisions ha[d]
 9   weakened that case’s authority to the point where [it could]
10   conclude it no longer reflect[ed] the views of the California
11   Supreme Court.”    Id.
12        After examining Skidmore, McLaughlin, DiRuzza, Butcher,
13   Moran Towing, and the Second Restatement, the Newport Beach
14   panel expressly rejected what it referred to as the
15   “traditional” Skidmore rule in favor of the “modern” rule
16   established in the Second Restatement.     It agreed with Butcher’s
17   observation that the traditional rule “ha[d] not withstood the
18   test of time.”    140 Cal. App. 4th at 1130.   Although Skidmore
19   was a California Supreme Court case, the Newport Beach panel did
20   not believe it controlled for several reasons.     First, it stated
21   that since Skidmore was decided, “the law of res judicata ha[d]
22   undergone tremendous change culminating in the Restatement
23   Second of Judgments.”    Id. at 1131.   And it noted that “[t]he
24   California Supreme Court ha[d] expressed approval of . . . [and]
25   cited approvingly to section 27 and the comments to it.”     Id.
26   Second, it stated that the Skidmore rule was inconsistent with
27   its duty as an appellate court under the California state
28   constitution, which required that it “set forth its decisions in

                                       16
 1   writing ‘with the reasons stated.’”    Id. at 1132.   It concluded
 2   with its belief that if the California Supreme Court were
 3   presented with the issue again, it would adopt the modern rule
 4   as expressed in the Second Restatement.    Id.
 5        Zevnik.    In the most recent case, a panel in another
 6   division of the Second District Court of Appeal agreed with
 7   Newport Beach and Butcher, concluding “that the governing rule
 8   of law [was] that if a trial court relie[d] on alternative
 9   grounds to support its decision and an appellate court
10   affirm[ed] the decision based on fewer than all of those
11   grounds, only the grounds relied on by the appellate court
12   [could] establish collateral estoppel.”    159 Cal. App. 4th
13   at 79.    In doing so, it also examined the cadre of cases
14   discussed above.
15        In a departure from Newport Beach, however, the Zevnik
16   panel concluded that it “need not decide whether Skidmore
17   retain[ed] viability because [it] read the opinion narrowly to
18   apply only to res judicata, not collateral estoppel.”    Id.
19   at 88.
20        3.     Analysis.
21        Against this extensive backdrop of case law, we conclude,
22   as did the bankruptcy court, that DiRuzza remains good law and
23   thus binds the Panel.    Although Appellants make compelling
24   arguments based on recent cases by panels of the California
25   Courts of Appeal, we cannot turn a blind eye to binding
26   precedent from the Ninth Circuit.     Nor is this a situation where
27   the Ninth Circuit’s reasoning or theory in DiRuzza is clearly
28   irreconcilable with a decision of the California Supreme Court,

                                      17
 1   the only intervening higher authority on a matter of California
 2   state law.   See Rodriguez v. AT & T Mobility Servs. LLC,
 3   728 F.3d 975, 979 (9th Cir. 2013) (“[T]he relevant court of last
 4   resort must have undercut the theory or reasoning underlying the
 5   prior circuit precedent in such a way that the cases are clearly
 6   irreconcilable.   But it is not enough for there to be some
 7   tension between the intervening higher authority and the prior
 8   circuit precedent.”) (internal quotation marks and citations
 9   omitted); Miller v. Gammie, 335 F.3d 889, 893 (9th Cir. 2003)
10   (en banc).
11        Here, the California Supreme Court has neither overruled
12   Skidmore nor adopted the modern rule announced in Butcher,
13   Newport Beach, and Zevnik.    In the absence of a decision by the
14   California Supreme Court contrary to the Skidmore rule, we
15   remain bound by DiRuzza.6    In Flying J, the district court
16
17        6
             Some justices of the California Courts of Appeal no
18   longer follow Skidmore. As stated, we are bound by Ninth
     Circuit authority; thus, we, without question, follow DiRuzza
19   and, as a result, Skidmore.
          The Appellants, no doubt, will urge the Ninth Circuit to
20   directly certify this question for review by the California
21   Supreme Court or to reconsider DiRuzza en banc. We acknowledge
     that the Ninth Circuit implicitly rejected such a request in
22   Flying J. In anticipation of such a renewed request, however,
     we note our concerns as bankruptcy judges.
23        Decisions regarding dischargeability are weighty ones. The
24   failure to discharge a debt may leave a debtor incapable of a
     normal future financial life. And bankruptcy courts frequently
25   consider the issue preclusive effect of California judgments in
     determining whether a debtor can discharge a debt.
26        In cases involving California judgments that have gone
27   through appeal, the bankruptcy courts need certainty regarding
     the law we must apply; DiRuzza currently supplies this
28                                                      (continued...)

                                      18
 1   arrived at the same conclusion, stating that:
 2        Because the California Supreme Court’s decision in
          Skidmore and the Ninth Circuit’s decision in DiRuzza
 3        are binding law of the state and Ninth Circuit,
          respectively, and a federal trial court does not have
 4        the authority to change the state law of California
          even if a Supreme Court decision is criticized and not
 5        followed by more recent intermediate California
          appellate decisions, see Butcher, Newport Beach, and
 6        Ze[v]nik, the rule of Skidmore applies.
 7   2008 WL 906396, at *41.   We note that the Ninth Circuit affirmed
 8   the district court in Flying J in 2009, although its memorandum
 9   decision does not refer to the DiRuzza/Skidmore issue.   See
10   351 F. App’x 236.
11
12        6
           (...continued)
13   certainty.
          Given the impact of our dischargeability decisions,
14   however, we also should know the assumptions of the California
15   Court of Appeal panel reviewing a California judgment. In order
     to do justice, we need to know either that the panel jurists
16   assume that issues they do not decide will have preclusive
     effect, as is the rule articulated in Skidmore, or that the
17   panel jurists assume that issues not decided are not entitled to
18   preclusive effect in other proceedings. Given the current state
     of law, we do not have complete certainty that our
19   interpretation of a specific California Court of Appeal decision
     is consistent with the interpretation of the jurists who decided
20   the matter on appeal. We do not know whether a failure to
21   address a claim means that the panel agreed that the state court
     below correctly decided the issue or whether the panel detected
22   error but did not raise it given that the judgment could be
     affirmed on another basis. In situations where only an issue
23   not decided on appeal subsequently supports a nondischargeable
24   judgment, as may be the case here, the current disconnect
     between Skidmore and certain jurists of the California Courts of
25   Appeal may lead to inequitable results.
          We acknowledge that this is a problem that neither the
26   Ninth Circuit nor the BAP nor the trial courts can solve in any
27   absolute sense. It apparently will require that the California
     Supreme Court either reiterate its holding in Skidmore or state
28   that it is no longer the law.

                                     19
 1          We also recognize certain limitations in the precedential
 2   value of decisions of the California Courts of Appeal.      For
 3   example, the justices of the Courts of Appeal — divided into six
 4   geographical districts — are not bound by decisions of either
 5   sister districts or even panels within the same district.      See
 6   Froyd v. Cook, 681 F. Supp. 669, 672 n.9 (E.D. Cal. 1988)
 7   (collecting cases).    And it is well established that
 8   “[d]ecisions of every division of the District Courts of Appeal
 9   are binding . . . upon all the superior courts of this state,
10   and this is so whether or not the superior court is acting as a
11   trial or appellate court.”    Auto Equity Sales, Inc. v. Super.
12   Ct., 57 Cal. 2d 450, 455 (1962).      That said, where California
13   Courts of Appeal decisions conflict, the superior court “can and
14   must make a choice between the conflicting decisions.”      Id. at
15   456.
16          Here, Butcher, Newport Beach, and Zevnik theoretically bind
17   the California trial courts, but the trial courts clearly remain
18   bound by Skidmore.    See Auto Equity Sales, Inc., 57 Cal. 2d at
19   455 (“The decisions of [the California Supreme] [C]ourt are
20   binding upon and must be followed by all the state courts of
21   California.”).    Further, the precedential value of a California
22   Court of Appeal decision does not extend to another panel within
23   the same appellate district, let alone to another appellate
24   district in California.    As the case law reflects, appellate
25   panels in the Second and Fourth District Courts of Appeal did
26   not follow Skidmore; it remains to be seen whether other panels
27
28

                                      20
 1   of the California Courts of Appeal will follow suit.7
 2        Appellants do not argue that the other elements of
 3   California issue preclusion were not satisfied as to Barton’s
 4   § 523(a)(2)(A) claim.   On this record, we conclude that issue
 5   preclusion was available with respect to the fraud claim based
 6   on the state court judgment and that the bankruptcy court did
 7   not abuse its discretion in applying issue preclusion to the
 8   state court judgment.   As that left no genuine dispute of
 9   material fact for the bankruptcy court to adjudicate, it did not
10   err in granting summary judgment in Barton’s favor on his
11   § 523(a)(2)(A) claim.
12   C.   The bankruptcy court properly granted summary judgment on
          Barton’s § 523(a)(6) claim.
13
14        Section 523(a)(6) excepts from discharge debts arising from
15   a debtor’s “willful and malicious” injury to another person or
16   to the property of another.   Barboza v. New Form, Inc.
17   (In re Barboza), 545 F.3d 702, 706 (9th Cir. 2008).     The
18   “willful” and “malicious” requirements are conjunctive and
19   subject to separate analysis.   Id.; In re Su, 290 F.3d at
20   1146–47.
21        A “malicious” injury requires: “(1) a wrongful act,
22   (2) done intentionally, (3) which necessarily causes injury, and
23
          7
24           For example, in People ex rel. Brown v. Tri-Union
     Seafoods, LLC, 171 Cal. App. 4th 1549, 1574 (2009), one panel in
25   the First District Court of Appeal appears to approve the
     position advanced by Newport Beach. In an unpublished case,
26   however, another panel in the First District Court of Appeal
27   distinguished Newport Beach. See Borrette Lane Estates, LLC v.
     Warren, 2010 WL 292754, at *5-6 & n.4 (Cal. Ct. App. Jan. 26,
28   2010).

                                     21
 1   (4) is done without just cause or excuse.”    Petralia v. Jercich
 2   (In re Jercich), 238 F.3d 1202, 1209 (9th Cir. 2001) (internal
 3   quotation marks and citation omitted).
 4        The willful injury requirement speaks to the state of mind
 5   necessary for nondischargeability.    An exacting requirement, it
 6   is satisfied when a debtor harbors “either a subjective intent
 7   to harm, or a subjective belief that harm is substantially
 8   certain.”   In re Su, 290 F.3d at 1144; see also In re Jercich,
 9   238 F.3d at 1208.    The injury must be deliberate or intentional,
10   “not merely a deliberate or intentional act that leads to
11   injury.”    Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998) (emphasis
12   in original).   Thus, “debts arising from recklessly or
13   negligently inflicted injuries do not fall within the compass of
14   § 523(a)(6).”   Id. at 64.   Under California law, an award of
15   punitive damages under California Civil Code (“CC”) § 3294
16   requires a finding of fraud, malice, or oppression.    Only fraud
17   and one aspect of malice, as that term is defined for the
18   purposes of the California punitive damages statute, satisfy the
19   willful injury requirement of § 523(a)(6).    Plyam v. Precision
20   Dev., LLC (In re Plyam), 530 B.R. 456 (9th Cir. BAP 2015).
21        Appellants contend that the bankruptcy court erred in
22   determining that the fraud finding in the punitive damages award
23   of the state court judgment established the willful and
24   malicious injury requirements necessary for nondischargeability
25   under § 523(a)(6).   More specifically, they contend that the
26   bankruptcy court erred because the California Court of Appeal
27   “did not carry the [state court judgment’s] conjunctive findings
28   [of fraud, malice, and oppression] forward into its [d]ecision.”

                                      22
 1   Instead, the California Court of Appeal’s decision “affirmed the
 2   award of punitive damages based solely on the finding of there
 3   being substantial evidence of ‘malice and deceit’ with no
 4   reference to fraud.”   Under Plyam, Appellants contend that
 5   “malice” by itself in a punitive damages award under CC § 3294
 6   does not, without an accompanying finding of “intentional
 7   malice,” establish the willful injury requirement under
 8   § 523(a)(6).   They similarly argue that under California law,
 9   “deceit” may include negligent misrepresentation, which does not
10   require an intent to defraud.
11        Issue preclusion was available.   First, the state court’s
12   ruling on conversion and punitive damages satisfied
13   § 523(a)(6)’s requirement of an underlying tort and “malicious”
14   injury.   And there is no dispute that this aspect of the state
15   court judgment was affirmed by the California Court of Appeal.
16   Conversion under California law does not per se establish the
17   necessary state of mind for § 523(a)(6) nondischargeability
18   because intent is not a necessary element.   But there is no
19   question that it establishes a tort that can support a
20   § 523(a)(6) nondischargeability claim and a wrongful act that
21   necessarily causes injury as required for a finding of
22   § 523(a)(6) malicious injury.   And there is also no question
23   that the acts of conversion were intentional and without just
24   cause or excuse.   The California Court of Appeal as well as the
25   trial court made clear findings that Tomkow and Khan harmed
26   Barton intentionally, with malice, and through deceit.    On this
27   record, then, § 523(a)(6) malice was established through
28   specific findings at both the trial court and appellate court

                                     23
 1   level.
 2        Second, given the foregoing discussion of DiRuzza and
 3   Skidmore, we similarly conclude that the bankruptcy court
 4   appropriately gave issue preclusive effect to the state court’s
 5   punitive damages award, which was based on findings of fraud,
 6   malice, and oppression; this satisfies § 523(a)(6)’s willfulness
 7   requirement.
 8        The trickier issue is one we need not decide: whether, if
 9   issue preclusion is based only on the appellate court’s
10   affirming the conversion determination (i.e., the modern trend),
11   rather than the entirety of the trial court’s decision (i.e.,
12   Skidmore), a willful injury is established.     The California
13   Court of Appeal’s decision gives us pause in two respects.
14   First, a determination of conversion, even if intentional, does
15   not necessarily establish an intent to injure or a substantial
16   certainty that injury will occur.     Thus, the California Court of
17   Appeal’s decision, in isolation, may not establish § 523(a)(6)
18   willfulness.   Second, the California Court of Appeal limited its
19   affirmance of the punitive damages award to “malice” and
20   “deceit,” which could differ in substance from the trial court’s
21   finding of fraud, malice, and oppression for the purposes of CC
22   § 3294.
23        We acknowledge that the labels used by the California Court
24   of Appeal may not be sufficient for a § 523(a)(6) willfulness
25   determination.    Given the extensive comment that underscores
26   these conclusions, however, this is a close call.    As we
27   acknowledge, we must draw all justifiable inferences in favor of
28   the Appellants.    Accordingly, we decline to affirm on this

                                      24
 1   basis.   Instead, we affirm because binding Ninth Circuit
 2   authority, as the bankruptcy court recognized, compels this
 3   result notwithstanding any limitations in the basis for
 4   affirmance.    Thus, the bankruptcy court appropriately gave issue
 5   preclusive effect to the punitive damages award, and it did not
 6   err in granting summary judgment in Barton’s favor on his
 7   § 523(a)(6) claim.
 8   D.   Even though lesser punitive damages were assessed against
          him, Tomkow was equally complicit in willfully injuring
 9        Arnold.
10        Tomkow alleges that both the California state court and the
11   Court of Appeal recognized that his conduct was less egregious
12   than that of Khan’s for purposes of the punitive damages award.
13   He contends that they found that he was complicit in the
14   conversion and, thus, that his liability was imputed based on
15   Khan’s acts.   Tomkow asserts that a subjective state of mind
16   cannot be imputed for the purposes of § 523(a)(6).
17        Tomkow’s argument is unavailing.   First, the Ninth Circuit
18   has imputed the knowledge and intent of a business partner to a
19   debtor for the purposes of § 523(a)(6).   See Impulsora Del
20   Territorio Sur, S.A. v. Cecchini (In re Cecchini), 780 F.2d 1440
21   (9th Cir. 1986).   As this Panel has recognized, however, that
22   decision predates the United States Supreme Court’s decision in
23   Geiger and, thus, “the continued efficacy of Cecchini as
24   precedent on related questions is compromised.”   See Sachan v.
25   Huh (In re Huh), 506 B.R. 257, 268 (9th Cir. BAP 2014) (en
26   banc).
27        Second, the California state court and Court of Appeal
28   determined that both Khan and Tomkow engaged in conversion.     In

                                      25
 1   its initial statement of decision, the state court found:
 2        Tomkow and Khan determined that Barton was making
          little or no contributions to the success of [RIL].
 3        Tomkow provided the idea and technical savvy and Khan
          proved to be a skilled fundraiser to keep the company
 4        afloat. What was Barton’s role they wondered, and if
          indeed he was not even providing legal counsel, why
 5        should he continue as a shareholder of [RIL]? . . .
          The manner by which Khan and Tomkow attempted to
 6        separate him from that ownership gives rise to a
          proper claim for punitive damages.
 7
 8   The state court made no distinction between Khan and Tomkow.
 9   True, in its revised decision, the state court found that
10   Tomkow’s conduct was less onerous and that he was “complicit in
11   the conversion of [Barton’s] shares.”   That said, the finding
12   does not impact or negate the state court’s prior finding of
13   intent.
14        The California Court of Appeal then reaffirmed that
15   “Barton’s harm resulted from K[ha]n and Tomkow’s malice and
16   deceit, not mere accident.”   (Emphasis added.)   That Tomkow’s
17   conduct was less egregious than Khan’s is reflected in the
18   reduced amount of punitive damages assessed individually against
19   Tomkow.   This distinction, however, does not change the analysis
20   of the § 523(a)(6) willful injury requirement.
21   E.   The bankruptcy court did not err in denying Appellants’
          motion for direct appeal certification.
22
23        Appellants also contend that the bankruptcy court erred by
24   denying their application for direct appeal certification to the
25   Ninth Circuit pursuant to Rule 8006 and 28 U.S.C.
26   § 158(d)(2)(A)(i)–(iii).   They urge us to reverse the bankruptcy
27   court’s ruling.
28        Although the case law on this issue is sparse, it does not

                                     26
 1   appear that a denial of an application for direct appeal
 2   certification under Rule 8006 and 28 U.S.C.
 3   § 158(d)(2)(A)(i)–(iii) is a final order.      For example, denial
 4   of a 28 U.S.C. § 1292(b) certification is not appealable.        See
 5   May v. Warner Amex Cable Commc’ns, 871 F.2d 1088 (6th Cir. 1989)
 6   (table); see also McCall v. Deeds, 849 F.2d 1259 (9th Cir. 1988)
 7   (denial of Civil Rule 54(b) certification is not appealable);
 8   Mem’l Hosp. for McHenry Cty. v. Shadur, 664 F.2d 1058 (7th Cir.
 9   1981) (court of appeals reviewed matter by petition for writ of
10   mandamus after denial of 28 U.S.C. § 1292(b) certification).
11        Even if such an order is final and subject to review when
12   joined with the final decision on summary judgment, for the
13   reasons discussed above, we conclude that the bankruptcy court
14   did not err in denying the application.      As stated, the
15   bankruptcy court correctly determined that it was bound by
16   DiRuzza and Skidmore.   As a result, whether it believed that the
17   matter was of public importance or required resolution of
18   conflicting decisions is irrelevant.      Finally, even if the
19   bankruptcy court erred in denying Appellants’ application —
20   something that we do not determine — Appellants now have a
21   direct path of appeal to the Ninth Circuit without the need for
22   a Rule 8006 certification.   Reversing the bankruptcy court on
23   this point would be impractical and a waste of judicial
24   resources.
25                                CONCLUSION
26        Based on the foregoing, we AFFIRM.
27
28

                                      27