In re: Le Kwak Le and Vinh Trong Le

FILED
OCT 13 2016
1 NOT FOR PUBLICATION
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. AZ-15-1364-JuFL
)
6 LE KWAK LE and VINH TRONG LE, ) Bk. No. 2:11-bk-05893-MCW
)
7 Debtors. ) Adv. No. 2:11-ap-00727-MCW
______________________________)
8 LE KWAK LE; VINH TRONG LE, )
)
9 Appellants, )
)
10 v. ) M E M O R A N D U M1
)
11 THOMAS Q. HUYNH, )
)
12 Appellee. )
______________________________)
13
Argued and Submitted on September 23, 2016
14 at Phoenix, Arizona
15 Filed - October 13, 2016
16 Appeal from the United States Bankruptcy Court for the
District of Arizona
17
Honorable Madeleine C. Wanslee, Bankruptcy Judge, Presiding
18 ________________________
19 Appearances: Christopher James Piekarski of Piekarski &
Brelsford, P.C. argued for appellants Le Kwak Le
20 and Vinh Trong Le; Neal H. Bookspan of Jaburg &
Wilk, P.C. argued for appellee Thomas Q. Huynh.
21 ___________________________
22 Before: JURY, FARIS, and LAFFERTY, Bankruptcy Judges.
23
24
25
26 1
This disposition is not appropriate for publication.
27 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
28 See 9th Cir. BAP Rule 8024-1.

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 1 Appellee Thomas Q. Huynh (Mr. Huynh) filed an adversary
2 complaint against appellants, Le Kwak Le (Ms. Le) and Vinh Trong
3 Le (collectively, Debtors), seeking a declaration that a
4 potential debt owed to him by Ms. Le was nondischargeable under
5 § 523(a)(6).2 After a trial, the bankruptcy court found that
6 Ms. Le’s conduct, which included the unauthorized liquidation
7 and closing of a business that she jointly owned with Mr. Huynh,
8 was willful and malicious within the meaning of § 523(a)(6). As
9 a result of Ms. Le’s conduct, the court found that Mr. Huynh
10 suffered lost profit damages in the amount of $864,000 and
11 entered a nondischargeable judgment in favor of Mr. Huynh for
12 that amount. This appeal followed. For the reasons set forth
13 below, we VACATE and REMAND.
14 I. FACTS3
15 A. Prepetition Events
16 On November 17, 2004, Mr. Huynh and his wife, Am T. Ta,
17 formed Power Car Wash and Foodmart, LLC, an Arizona limited
18 liability company (LLC), for the purpose of operating a gas
19 station, car wash, and retail store located in Mesa, Arizona
20 (Gas Station). The management of the LLC was vested in its
21 members, Mr. Huynh and Ms. Ta, who operated the Gas Station from
22
23
2
Unless otherwise indicated, all chapter and section
24 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
“Rule” references are to the Federal Rules of Bankruptcy
25 Procedure.
26 3
We borrow from the bankruptcy court’s statement of facts
27 set forth in its Order Re: Nondischargeability of Debt entered
September 30, 2015, and from the facts set forth in the parties’
28 Joint Pretrial Statement.

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 1 their domicile in Northern California. Because the business was
2 operated remotely, Mr. Huynh used a password protected on-line
3 video and accounting system with sixteen cameras to enable his
4 distant surveillance of the premises. Mr. Huynh personally
5 owned the land on which the Gas Station was built and he leased
6 the property to the LLC. The Gas Station was branded by
7 Chevron.
8 In early March 2006, Ms. Ta agreed to sell her membership
9 interest in the LLC to Ms. Le. On March 31, 2006, Ms. Ta and
10 Ms. Le executed the LLC Membership Interest Purchase Agreement
11 (Interest Purchase Agreement), whereby Ms. Ta sold to Ms. Le
12 500 membership interests in the LLC, representing one-half of
13 the outstanding membership interests. The purchase price was
14 $500,000 for the Gas Station and approximately $100,000 for the
15 inventory. Mr. Huynh retained the remaining 50% membership
16 interest in the LLC. The operating agreement was subsequently
17 amended to include Ms. Le as a member.
18 Around the same time that Ms. Le purchased the inventory
19 and her 50% membership interest in the LLC, she and Mr. Huynh
20 entered into a membership agreement pertaining to the operation
21 and management of the LLC (Membership Agreement). Section 3.4
22 of the Membership Agreement provided that “[Ms.] Le [was to] be
23 the sole party to participate in the day-to-day management of
24 the business of the Partnership.” It also provided that
25 Mr. Huynh was to be available to “cooperate with [Ms. Le] when
26 needed per [Ms. Le’s] request including providing business
27 consultation or representation,” and that “[a]ll matters to be
28 determined by the members shall be determined by affirmative

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 1 vote of a majority in interest of the members.” The Membership
2 Agreement further stated that the Gas Station proceeds would be
3 disbursed according to a sliding scale and were separate and
4 apart from the regular business expenses of the LLC. Finally,
5 under the agreement, each member had the right to inspect the
6 books, records, reports and accounts of the LLC during normal
7 business hours.
8 At the beginning of 2006, before Ms. Le acquired her
9 interest in the LLC, Mr. Huynh renegotiated and amended the real
10 property lease between himself and the LLC (Amended Lease).
11 Ms. Le was aware of the existence of the Amended Lease and of
12 its terms at the time she entered into both the Interest
13 Purchase Agreement and the Membership Agreement.
14 From March 31, 2006, the date that Ms. Le purchased her
15 interest in the LLC, until approximately February 2009, Ms. Le
16 operated the Gas Station without incident.
17 In February 2009, the parties and their counsel began
18 addressing certain issues including, among others, accounting
19 issues regarding the LLC dating back to the 2006 tax year and
20 Ms. Le’s failure to pay the rent for the LLC’s use of the real
21 property. The letter writing between counsel went on for an
22 extended period of time, until late 2010.
23 On November 10, 2010, counsel for Mr. Huynh, as landlord,
24 sent a letter to Ms. Le due to the non-payment of rent (Demand
25 Letter). Mr. Huynh proposed several options:
26 1. If Mrs. LE is willing to sell her LLC membership
interest, then Mr. HUYNH is willing to buy her
27 interests for the appraised value of the inventory,
including gasoline stock at wholesale;
28

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 1 2. In the alternative, if Mrs. LE is willing to buy
Mr. HUYNH’s LLC membership interests, then Mr. HUYNH
2 is willing to sell his interests at no cost to her;
and
3
3. As it pertains to both offers, the amount of back
4 rent owing will be calculated and Mrs. LE’s fifty
percent (50%) outstanding balance will be either
5 credited against the value of the inventory, or the
outstanding balance will still be owing to Mr. HUYNH.
6
7 The letter requested that Ms. Le communicate her decision in
8 writing no later than 5:00 p.m., November 17, 2010. The letter
9 further advised Ms. Le that if she did not respond, Mr. Huynh
10 would proceed with an unlawful detainer proceeding to recover
11 possession of the premises.
12 Ms. Le did not respond to the Demand Letter. Instead, the
13 undisputed facts show that she held a “going out of business”
14 sale and liquidated all the inventory and the gas which belonged
15 to the LLC and closed the Gas Station on November 17, 2010, all
16 without notice to Mr. Huynh.
17 The LLC and Chevron were parties to a Chevron Retailer
18 Supply Contract that required the Gas Station to continuously
19 operate. On November 24, 2010, after the Gas Station was closed
20 for seven days, Chevron terminated the Chevron Retailer Supply
21 Contract and debranded the Gas Station for breach of the
22 provision requiring the Gas Station to remain operating.
23 On Friday, December 3, 2010, Mr. Huynh, as landlord of the
24 real property and building leased by the LLC, locked out the LLC
25 for its continuing failure to pay rent pursuant to the terms of
26 the Amended Lease. Although he attempted to rebrand the Gas
27 Station, he was unable to do so. Several months after Ms. Le
28 closed the station, Mr. Huynh reopened it as an unbranded

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 1 station. The business eventually failed and the lender on the
2 underlying property foreclosed.
3 Mr. Huynh filed a lawsuit in the Maricopa County Superior
4 Court titled Huynh v. Le, et al., CV2011-000456, seeking to
5 recover damages for loss of the Gas Station business and the
6 real property. That lawsuit was stayed when Debtors filed for
7 bankruptcy protection on March 9, 2011.
8 B. Bankruptcy Events: The Adversary Proceeding
9 On April 15, 2011, Mr. Huynh filed an adversary complaint
10 against Debtors seeking a declaration that the debt, as of yet
11 unliquidated, owed to him due to Ms. Le’s wrongful conduct was
12 nondischargeable under § 523(a)(4) and (a)(6). Mr. Huynh
13 alleged that Ms. Le wrongfully (1) shut off his access to the
14 Gas Station’s accounting and video system, to which he usually
15 had access on-line; (2) demanded capital contributions from him,
16 while at the same time preventing him from having access to
17 financial information regarding the Gas Station; and (3) sold
18 the inventory and closed the Gas Station without giving notice
19 to him, all in violation of the Membership Agreement. As a
20 result of these acts, Mr. Huynh alleged that he lost the Gas
21 Station business and the underlying property. He sought actual
22 and punitive damages for the loss.
23 Debtors answered the complaint and then moved for summary
24 judgment on both claims for relief. The bankruptcy court
25 granted Debtors’ motion, in part, as to the § 523(a)(4) claim.
26 On January 21, 2015, the bankruptcy court held a trial on
27 the § 523(a)(6) claim for relief. Mr. Huynh and his expert,
28 Scott Evans, testified at trial, as did Ms. Le.

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 1 Much of Mr. Huynh’s testimony was focused on the debranding
2 of the Gas Station which happened due to Ms. Le’s shut down of
3 the business. He testified that it would have been difficult,
4 if not impossible, to reopen the Gas Station within the seven-
5 day period after Ms. Le shut it down to avoid the debranding by
6 Chevron. He explained that he was initially denied physical
7 access by Ms. Le and her counsel. He further explained that
8 after he gained access, he found the Gas Station empty of any
9 usable contents; the station had no inventory, computers, books,
10 records or vendor lists. Mr. Huynh testified that the computer
11 used to run the convenience store and keys which were used to
12 run different equipment were missing.
13 Mr. Huynh also testified that by debranding the Gas
14 Station, Chevron removed all its trademarks from the facility.
15 He further explained that operating an unbranded gas station was
16 more expensive due to price fluctuations with the gas. Finally,
17 he testified that by using the Chevron brand, it was Chevron who
18 bore the loss due to any fraudulent use of credit or debit cards
19 as opposed to the owner of an unbranded station.
20 Mr. Huynh stated that he sought to obtain branding from
21 other gasoline companies. He was unsuccessful because the Gas
22 Station was closed for three months. Mr. Huynh testified that
23 he eventually reopened the Gas Station a few months later
24 without any branding, but it ultimately failed. Without income
25 from the Gas Station, Mr. Huynh explained that he was unable to
26 pay the carrying costs on the real property and it was sold at a
27 foreclosure sale.
28 Mr. Huynh also testified that he and his wife were liable

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 1 to Chevron under a personal guaranty with respect to a
2 debranding fee of approximately $38,000. Mr. Huynh said that he
3 also still owed the Small Business Administration (SBA) over
4 $770,000 with respect to the loan on the underlying property.
5 The SBA attempted to garnish his wages, but Mr. Huynh explained
6 that he was not earning enough money to actually have any wages
7 garnished. Finally, Mr. Huynh repeatedly testified that he
8 believed had Ms. Le not closed the Gas Station, he would not
9 have lost the Chevron branding or the underlying property.
10 After Mr. Huynh’s testimony, Scott Evans testified about
11 Mr. Huynh’s damages. Mr. Evans opined that the business was
12 substantially impacted by the debranding in addition to the shut
13 down. In his opinion, if the station had remained branded, it
14 would have been in a better financial position than as an
15 unbranded station. He further opined that Mr. Huynh’s actual
16 damages totaled approximately $368,000 and his future damages,
17 taken conservatively five years out from the closure, were
18 $496,000.
19 Ms. Le then testified. She testified that she had the
20 computer that had all the information on it to operate the
21 business in her possession away from the store. She said that
22 she did not know the shut down would harm Mr. Huynh because she
23 thought he could simply reopen the business. However, later she
24 admitted that she testified at her deposition that she knew
25 shutting down the business would harm Mr. Huynh financially.
26 Ms. Le further testified that she was aware of the Chevron
27 branding contract and that Mr. Huynh and his wife had guarantees
28 to Chevron at the time she shut down the Gas Station. However,

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 1 she explained that she did not know about debranding and did not
2 know that by shutting down the Gas Station that debranding would
3 happen. She also admitted to knowing that Mr. Huynh had a loan
4 on the real property.
5 In responding to questions from Mr. Huynh’s counsel
6 regarding whether she knew the shut down would harm Mr. Huynh,
7 she repeatedly stated that Mr. Huynh could simply reopen the
8 business: “What I think is that when I shut down he can reopen
9 it. He had a lot of money and he can buy the inventory back and
10 put everything back. . . . I did not think he would default on
11 the loan because he do have a lot of money.” Ms. Le also
12 admitted that she had other options besides closing the
13 business. However, she testified that she did not respond to
14 the Demand Letter sent by Mr. Huynh’s attorney, she did not talk
15 to Mr. Huynh directly or through his attorney, and she never
16 told Mr. Huynh that she was going to shut down the business.
17 After the trial, the bankruptcy court issued a decision and
18 order finding that Mr. Huynh had proven the requirements of
19 § 523(a)(6) by demonstrating that Ms. Le’s wrongful conduct
20 consisting of, among other things, the unauthorized liquidation
21 and closing of the Gas Station was willful and malicious and
22 caused him injury. The court also concluded that Mr. Huynh
23 suffered lost profit damages in the amount of $864,000 due to
24 Ms. Le’s willful and malicious conduct. The bankruptcy court
25 entered a nondischargeable judgment in favor of Mr. Huynh for
26
27
28

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 1 that amount. Debtors timely appealed from that judgment.4
2 II. JURISDICTION
3 The bankruptcy court had jurisdiction over this proceeding
4 under 28 U.S.C. §§ 1334 and 157(b)(2)(I). We have jurisdiction
5 under 28 U.S.C. § 158.
6 III. ISSUES
7 Did the bankruptcy court err in granting judgment for
8 Mr. Huynh under § 523(a)(6)?
9 Did the bankruptcy court err in calculating Mr. Huynh’s
10 lost profit damages in the amount of $864,000?
11 IV. STANDARDS OF REVIEW
12 “Because the bankruptcy court entered its judgment after
13 trial, we review the bankruptcy court’s findings of fact for
14 clear error, and its conclusions of law de novo.” Thiara v.
15 Spycher Brothers (In re Thiara), 285 B.R. 420, 426 (9th Cir. BAP
16 2002) (citing Carrillo v. Su (In re Su), 290 F.3d 1140, 1142
17 (9th Cir. 2002)).
18
19 4
Mr. Huynh named Ms. Le and Mr. Le in his complaint and the
20 nondischargeable judgment is against both of them. There is
nothing in the record that shows Mr. Le participated in Ms. Le’s
21 conduct nor did the bankruptcy court make any findings pertaining
to Mr. Le’s conduct and the elements of § 523(a)(6). Generally,
22
a spouse’s subjective malicious intent cannot be imputed to the
23 debtor for § 523(a)(6) purposes. See In re Jenkins, 2015 WL
735799 (9th Cir. BAP Feb. 20, 2015) (citing Luc v. Chien
24 (In re Chien), 2008 WL 8240422, at *7 (9th Cir. BAP Feb. 7,
2008)); cf. Sachan v. Huh, 506 B.R. 257 (9th Cir. BAP 2014).
25 However, nowhere did Debtors argue this point in the bankruptcy
26 court nor did they object to the judgment on this basis.
Moreover, they never argued that the bankruptcy court erred by
27 entering judgment against Mr. Le in this appeal. Accordingly,
those arguments are deemed waived for purposes of this appeal.
28 Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999).

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 1 A court’s factual determination is clearly erroneous if it
2 is illogical, implausible, or without support in the record.
3 United States v. Hinkson, 585 F.3d 1247, 1261-62 & n. 21 (9th
4 Cir. 2009) (en banc) (quoting Anderson v. City of Bessemer City,
5 470 U.S. 564, 577 (1985)) (explaining that the clearly erroneous
6 standard of review is an element of the clarified abuse of
7 discretion standard). On appeal, we give “due regard . . . to
8 the opportunity of the bankruptcy court to judge the credibility
9 of the witnesses.” In re Thiara, 285 B.R. at 426. “This
10 deference is also given to inferences drawn by the trial court.”
11 Id.
12 “The bankruptcy court’s conclusions of law regarding
13 nondischargeability, as well as its interpretation of state law,
14 are reviewed de novo.” Id. We also review de novo the
15 bankruptcy court’s application of the legal standard in
16 determining whether a debt resulting from Debtors’ wrongful
17 conduct is dischargeable as a willful and malicious injury. Id.
18 Whether the bankruptcy court properly awarded lost profit
19 damages to Mr. Huynh in the amount of $864,000 is governed by
20 Arizona law. We review state law legal issues de novo. Id.
21 V. DISCUSSION
22 Section 523(a)(6) excepts from discharge any debt “for
23 willful and malicious injury by the debtor to another entity or
24 to the property of another entity.” The willful and malice
25 requirements are analyzed separately and both elements must be
26 met. In re Su, 290 F.3d at 1146–47; Ormsby v. First Am. Title
27 Co. of Nev. (In re Ormsby), 591 F.3d 1199, 1206 (9th Cir. 2010).
28 Whether a debtor acted willfully is a subjective inquiry:

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 1 the “willful injury requirement is met only when the debtor has
2 a subjective motive to inflict injury or when the debtor
3 believes that injury is substantially certain to result from his
4 own conduct.” In re Ormsby, 591 F.3d at 1206. Further, when
5 determining the debtor’s intent under § 523(a)(6), there is a
6 presumption that the debtor knows the natural consequences of
7 his actions. Id.
8 “‘A malicious injury involves (1) a wrongful act, (2) done
9 intentionally, (3) which necessarily causes injury, and (4) is
10 done without just cause or excuse.’” In re Su, 290 F.3d at
11 1146-47. “Malice may be inferred based on the nature of the
12 wrongful act.” In re Ormsby, 591 F.3d at 1206.
13 Although the bankruptcy court found that Ms. Le breached
14 the Membership Agreement by unilaterally liquidating the
15 inventory and closing the business, “it is well settled that a
16 simple breach of contract is not the type of injury addressed by
17 § 523(a)(6).” Snoke v. Riso (In re Riso), 978 F.2d 1151 (9th
18 Cir. 1992). However, when an intentional breach of contract is
19 accompanied by tortious conduct which results in willful and
20 malicious injury, the resulting debt is excepted from discharge
21 under § 523(a)(6). Lockerby v. Sierra, 535 F.3d 1038, 1040–42
22 (9th Cir. 2008) (citing Petralia v. Jercich (In re Jercich),
23 238 F.3d 1202, 1205 (9th Cir. 2001) (“[a]n intentional breach of
24 contract is excepted from discharge under § 523(a)(6) only when
25 it is accompanied by malicious and willful tortious conduct.”)).
26 Under Jercich, courts are instructed to first consider
27 whether the debtor’s conduct was “tortious,” and then ask
28 whether the debtor’s conduct was both “willful” and “malicious.”

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 1 In re Jercich, 238 F.3d at 1206-09. Whether a breach of
2 contract is tortious is determined under state law. Lockerby,
3 535 F.3d at 1041 (“[C]onduct is not tortious under § 523(a)(6)
4 simply because injury is intended or ‘substantially likely to
5 occur,’ but rather is tortious if it constitutes a tort under
6 state law.”) (citing Jercich, 238 F.3d at 1206). We thus can
7 only affirm if Ms. Le’s conduct would constitute a tort under
8 Arizona law. Lockerby, 535 F.3d at 1041.
9 In its findings, the bankruptcy court did not address the
10 threshold issue as instructed in Jercich; i.e., whether Ms. Le’s
11 conduct was tortious under Arizona law. Indeed, the only place
12 we found a tort mentioned in the record was in Mr. Huynh’s
13 counsel’s closing argument. There, he argued that Ms. Le’s
14 unilateral decision to liquidate the gas and inventory and shut
15 down the Gas Station was not only improper under the Membership
16 Agreement, but also equated to tortious interference with
17 contract under Arizona law. While we are free to affirm on any
18 ground supported by the record, we think it more appropriate to
19 remand the case to the bankruptcy court, for two reasons.
20 First, the bankruptcy court’s findings do not clearly
21 include all of the elements of intentional interference with
22 contract under Arizona law. To establish a prima facie claim
23 for tortious interference with contract, a plaintiff must show
24 “(1) existence of a valid contractual relationship,
25 (2) knowledge of the relationship on the part of the interferor,
26 (3) intentional interference inducing or causing a breach,
27 (4) resultant damage to the party whose relationship has been
28 disrupted, and (5) that the defendant acted improperly.”

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 1 Safeway Ins. Co. v. Guerrero, 106 P.3d 1020, 1025 (Ariz. 2005).
2 The Arizona Supreme Court has stated that:
3 While the ‘intentional’ element of tortious
interference focuses on the mental state of the actor,
4 the ‘improper’ element in contrast generally is
determined by weighing the social importance of the
5 interest the defendant seeks to advance against the
interest invaded. Our case law thus emphasizes that a
6 plaintiff must show more than the defendant’s
knowledge that his or her conduct would induce a
7 breach to establish intentional interference with
contractual relations.
8
9 Id. at 1026–27 (internal citations and quotation marks omitted).
10 To ascertain whether the defendant’s actions were “improper,”
11 courts must consider:
12 (a) the nature of the actor’s conduct, (b) the actor’s
motive, (c) the interests of the other with which the
13 actor’s conduct interferes, (d) the interest sought to
be advanced by the actor, (e) the social interests in
14 protecting the freedom of action of the actor and the
contractual interests of the other, (f) the proximity
15 or remoteness of the actor’s conduct to the
interference, and (g) the relations between the
16 parties.
17 Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons
18 Local No. 395 Pension Tr. Fund, 38 P.3d 12, 32 (Ariz. 2002).
19 Second, there is no indication that the parties discussed
20 or argued the applicability of this tort, or any other tort,
21 during the course of this adversary proceeding or at trial.
22 Therefore, we leave the question of whether Ms. Le’s conduct was
23 tortious under Arizona law to the bankruptcy court to address in
24 the first instance - if appropriate - based on the evidence
25 presented at trial. See Paskaly v. Seale, 506 F.2d 1209, 1211
26 n.4 (9th Cir. 1974) (noting that the appellate court could
27 affirm on any ground supported by the record as long as the
28 parties had the opportunity to discuss in it in their appellate

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 1 briefs); Bogey v. Ford Motor Co., 538 F.3d 352, 355 (5th Cir.
2 2008) (“Although we have the authority to consider grounds
3 presented to but not ruled upon by the district court, we
4 decline to do so because the plaintiffs did not address the
5 various other grounds in their briefing, and we think the better
6 course is for the district court to address those issues in the
7 first instance.”); see also Lohoti v. Vericheck, Inc., 586 F.3d
8 1190, 1196 (9th Cir. 2009) (“Although we may affirm on ‘any
9 ground supported by the record, even if it differs from the
10 [bankruptcy] court’s rationale,’ where it is unclear whether the
11 [bankruptcy] court relied on proper law, we may vacate the
12 judgment and remand with instructions to apply the correct legal
13 standard.”).
14 VI. CONCLUSION
15 Accordingly, we VACATE the judgment in favor of Mr. Huynh
16 and REMAND to the bankruptcy court so that it may consider
17 whether Ms. Le’s conduct was tortious under Arizona law.
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