In re: Maziyar James Khabushani

FILED
JUN 22 2021

NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT

In re: BAP No. CC-20-1242-TFL
MAZIYAR JAMES KHABUSHANI,
Debtor. Bk. No. 2:19-bk-11796-BR

MAZIYAR JAMES KHABUSHANI, Adv. No. 2:19-ap-01096-BR
Appellant,
v. MEMORANDUM*
KILEY TASLITZ ANDERSON,
Appellee.

Appeal from the United States Bankruptcy Court
for the Central District of California
Barry Russell, Bankruptcy Judge, Presiding

Before: TAYLOR, FARIS, and LAFFERTY, Bankruptcy Judges.

INTRODUCTION

An arbitrator found that Maziyar James Khabushani wrongfully

terminated Kiley Taslitz Anderson’s employment with Mr. Khabushani’s

wholly owned corporation, Madison + Vine, Inc. (“M+V”), and awarded

her damages, attorneys’ fees, and costs. In so doing, the arbitrator expressly

*
This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
rejected Mr. Khabushani’s assertion that the termination was motivated by

M+V’s financial condition, not unlawful discrimination.

Mr. Khabushani later filed a chapter 7 1 case, and Ms. Anderson filed

an adversary proceeding seeking a declaration of nondischargeability of

the wrongful termination judgment. She prevailed on a summary

judgment motion; the bankruptcy court gave issue preclusive effect to the

arbitrator’s findings and determined that the state court judgment debt was

nondischargeable under § 523(a)(6). This appeal followed.

We acknowledge that in this Circuit there is no per se rule that such a

judgment constitutes a willful and malicious injury for purposes of

§ 523(a)(6). But nonetheless, we AFFIRM. The arbitrator’s conclusions and

the Ninth Circuit authority charging Mr. Khabushani with knowledge of

the natural consequences of his wrongful actions provided an appropriate

basis for the application of issue preclusion.

FACTS 2

Mr. Khabushani was the sole officer, director, and shareholder of

M+V, a marketing and advertising company. He employed Ms. Anderson

first as a temporary employee, then as an independent contractor, and

1 Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532.
2 We exercise our discretion to take judicial notice of documents electronically

filed in the bankruptcy court’s dockets. See Atwood v. Chase Manhattan Mortg. Co. (In re
Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003). We also adopt facts as determined in
the arbitration.

2
finally, on November 2, 2017, as an M+V employee with full benefits. Five

days later, Ms. Anderson informed Mr. Khabushani that she was pregnant

and requested a maternity leave commencing in May of 2018.

Twenty-five days later, Mr. Khabushani terminated her.

In February of 2018, Ms. Anderson commenced arbitration against

Mr. Khabushani and M+V, asserting claims arising from her termination,

including sex discrimination in violation of the Fair Employment and

Housing Act (“FEHA”), Cal. Gov. Code § 12940 et seq., wrongful

termination in violation of public policy, alter ego claims, and California

Labor Code violations.

A retired judge acted as arbitrator in the proceeding. During the

three-day arbitration hearing, the parties each presented testimonial and

documentary evidence under oath and cross-examined witnesses.

The Arbitrator then issued his final award and an amended final

award correcting a single typographical error (“Award”). He found that

Mr. Khabushani and M+V were jointly and severally liable for wrongful

termination of Ms. Anderson because of her sex and pregnancy but were

not liable for Labor Code violations. Among other things, the Arbitrator

determined that:

[t]he evidence regarding the wrongful termination was very
compelling. A simple review of the time line, shows that
[Anderson] was a valued employee until she told [Khabushani]
that she was pregnant and within less than four weeks she was
terminated. This combined with the statements made by

3
 [Khabushani] to other employees3 and other actions taken by
him just two days before terminating [Anderson],4 proves
beyond doubt that her termination was because of her
pregnancy.

The evidence offered by [Khabushani] regarding the company’s
poor financial condition was not convincing; at least at the time
of [Anderson’s] termination, the company’s finances were not a
consideration. The company’s condition at some later date
obviously convinced [Khabushani] that the company needed to
go in a different direction, but this had nothing to do with the
termination of [Anderson]. 5

The Arbitrator awarded Ms. Anderson $43,759.00 in special damages,

$125,000 in emotional distress damages, $319,667.50 in attorneys’ fees, and

$48,787.68 in costs, for a total award of $537,214.18. But he declined to

award punitive damages after determining that “[t]he evidence presented

3
The Arbitrator found that before the termination, Mr. Khabushani told other
M+V employees that he was disappointed that Ms. Anderson would be taking
maternity leave and informed them that he might terminate her employment because
she was not doing a great job and she let her children interfere with her career.
4 The Arbitrator found that during a November 28, 2017, meeting between

Mr. Khabushani and Ms. Anderson, he questioned her ability to hit her sales targets
given that she was having a baby and would be “leaving,” reduced her performance
bonuses because he “changed his mind,” and attempted to raise her sales targets to
“make up” for the time that she would be “losing” during maternity leave.
5 The Arbitrator determined that: Mr. Khabushani told M+V employees that he

terminated Ms. Anderson due to undisclosed performance issues and that M+V was
financially stable; within a week of Ms. Anderson’s termination, Mr. Khabushani
booked an expensive vacation using M+V funds and began looking for her replacement;
and in January of 2018, Mr. Khabushani hired two new employees, including a new
President. The Arbitrator made these determinations while also acknowledging that,
within a few months of terminating Ms. Anderson, Mr. Khabushani terminated nearly
all of M+V’s employees.
4
[did] not substantiate [Ms. Anderson’s] request for Punitive Damages.”

Less than two weeks after entry of the Award, Mr. Khabushani filed a

chapter 7 bankruptcy. Ms. Anderson timely filed a § 523(a)(6) complaint,6

seeking to except from Mr. Khabushani’s discharge the debt owed her for

the wrongful termination. She subsequently obtained relief from the

automatic stay and converted the Award to a final judgment in state court. 7

After the appeal period expired, Ms. Anderson filed a motion for

summary judgment on her § 523(a)(6) claim based on the preclusive effect

of the Arbitrator’s findings and the final state court judgment.

Mr. Khabushani opposed the summary judgment motion and

contended, among other things, that summary judgment would be

improper because the issues underpinning a willful and malicious injury

determination were not at issue, actually litigated, or necessarily decided in

the arbitration.

After holding a hearing on the motion, the bankruptcy court entered

an order granting Ms. Anderson summary judgment. The order was

accompanied by findings of fact and conclusions of law in which the

bankruptcy court determined that issue preclusion barred Mr. Khabushani

from relitigating whether he inflicted a willful and malicious injury on

6
The complaint also included a § 727 claim, which will not be discussed herein as
it was voluntarily dismissed.
7 The state court entered judgment confirming the $537,214.18 Award and

granting Ms. Anderson $32,821.59 in prejudgment interest and $8,445 in additional
attorneys’ fees and costs for a total judgment of $578,480.77.
5
Ms. Anderson by terminating her employment with M+V.

Mr. Khabushani timely appealed from the summary judgment.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.

ISSUE

Did the bankruptcy court err in granting summary judgment on

Ms. Anderson’s § 523(a)(6) claim based on issue preclusion?

STANDARDS OF REVIEW

We review a bankruptcy court’s grant of summary judgment and

§ 523(a)(6) nondischargeability determination de novo. See Black v. Bonnie

Springs Family Ltd. P'ship (In re Black), 487 B.R. 202, 210 (9th Cir. BAP 2013).

We likewise review a bankruptcy court’s determination that issue

preclusion is available de novo. Id. If issue preclusion is available, we

review its application for an abuse of discretion. Id. A bankruptcy court

abuses its discretion if it applies the wrong legal standard, misapplies the

correct legal standard, or its factual findings are illogical, implausible, or

without support by inferences from the facts in the record. See

TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011).

We may affirm on any basis supported by the record. In re Black,

487 B.R. at 211.

6
 DISCUSSION

A. Summary judgment and issue preclusion standards

Summary judgment is appropriate if the pleadings and supplemental

materials demonstrate that there is no genuine issue as to any material fact

on the claims at issue and the moving party is entitled to judgment as a

matter of law. Roussos v. Michaelides (In re Roussos), 251 B.R. 86, 91 (9th Cir.

BAP 2000), aff’d, 33 F. App’x 365 (9th Cir. 2002). While the evidence must be

viewed in the light most favorable to the nonmoving party, only factual

disputes that might affect the outcome of the lawsuit can defeat a summary

judgment motion. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

(1986); Lopez v. Smith, 203 F. 3d 1122, 1131 (9th Cir. 2000) (en banc).

The bankruptcy court may grant summary judgment in a

nondischargeability proceeding based on the issue preclusive effect of an

arbitration award confirmed by a California state court. See Khaligh v.

Hadaegh (In re Khaligh), 338 B.R. 817, 826, 832 (9th Cir. BAP 2006), aff’d, 506

F.3d 956 (9th Cir. 2007). To do so, the bankruptcy court must apply

California’s law on issue preclusion. Migra v. Warren City Sch. Dist. Bd. of

Educ., 465 U.S. 75, 81 (1984).

California law provides that issue preclusion, also known as

collateral estoppel, prevents a party from relitigating a previously decided

issue in a second suit where: (1) the issue is identical to what was decided

in the first suit; (2) the issue was actually litigated in the first suit; (3) the

issue was necessarily decided in the first suit; (4) the decision in the first

7
suit is final and on the merits; and (5) the party against whom preclusion is

sought is the same as, or in privity with, a party to the first suit. Lucido v.

Super. Ct., 51 Cal. 3d 335, 341 (1990). Even where these five requirements

are met, a court may not apply issue preclusion unless its application is

consistent with sound public policy. Id. at 343.

The party advocating for issue preclusion must prove all the criteria

for its application by presenting a record sufficient to reveal the controlling

facts and issues litigated in the first suit. Kelly v. Okoye (In re Kelly), 182 B.R.

255, 258 (9th Cir. BAP 1995), aff’d, 100 F.3d 110 (9th Cir. 1996). Any

reasonable doubt regarding what was decided in the first suit will weigh

against application of issue preclusion. Id.

B. Issue preclusion is available.

On appeal, we need not, and do not, address the bankruptcy court’s

unchallenged determination that the fourth (final judgment on the merits)

and fifth (same parties) issue preclusion criteria are met. And we conclude

that Ms. Anderson produced evidence showing that there is no genuine

issue as to any material fact that the other criteria are met.

1. Willful injury

A creditor seeking to hold a debt nondischargeable under § 523(a)(6)

has the burden of proving by the preponderance of the evidence that the

debt is “for willful and malicious injury by the debtor to another entity or

to the property of another entity.” § 523(a)(6); Grogan v. Garner, 498 U.S.

279, 289 (1991). The requirements of “willful” and “malicious” are

8
considered separately. Carrillo v. Su (In re Su), 290 F.3d 1140, 1146 (9th Cir.

2002).

a. Intentional tort

A “willful” injury is “a deliberate or intentional injury, not merely a

deliberate or intentional act that leads to injury.” Kawaauhau v. Geiger,

523 U.S. 57, 61 (1998) (emphasis in original). “[T]he (a)(6) formulation

triggers in the lawyer’s mind the category ‘intentional torts,’ as

distinguished from negligent or reckless torts. Intentional torts generally

require that the actor intend ‘the consequences of an act,’ not simply ‘the act

itself.’” Id. at 61-62 (emphasis in original) (citation omitted). Thus, tortious

conduct is a required element for a § 523(a)(6) nondischargeability finding.

Lockerby v. Sierra, 535 F.3d 1038, 1040-41 (9th Cir. 2008). A tort-like statutory

injury suffices. See Petralia v. Jercich (In re Jercich), 238 F.3d 1202, 1205-06

(9th Cir. 2001).

This requirement is easily met here; because pregnancy

discrimination violates the California Constitution’s ban on sex

discrimination, 8 an employer who fires an employee based on her

pregnancy may be subject to tort liability for wrongful discharge in

violation of public policy. See id. at 1206 (holding that the court must look

to state law to determine whether conduct is tortious and determining that

debtor’s nonpayment of wages was tortious because it violated California

8
California Constitution, article I, section 8, provides that “[a] person may not be
disqualified from . . . pursuing . . . employment because of sex . . . .”
9
Labor Code § 216); Kelley v. Conco Cos., 196 Cal. App. 4th 191, 214, (2011)

(“Sex discrimination in employment may support a claim of tortious

discharge in violation of public policy.” (citation omitted)); Badih v. Myers,

36 Cal. App. 4th 1289, 1296 (1995) (“[W]e conclude that pregnancy

discrimination is a form of sex discrimination under article I, section 8 of

the California Constitution. Since article I, section 8 expresses a

fundamental public policy against sex discrimination in employment,

[Plaintiff] was properly allowed to maintain her cause of action for

wrongful discharge in contravention of public policy.” (internal citation

omitted)). So, Ms. Anderson holds a claim that may form the basis for

§ 523(a)(6) nondischargeability.

b. Intentional discrimination

A determination of willful injury also requires that the debtor either

had the subjective motive to inflict injury or committed a “deliberate act

with knowledge that the act is substantially certain to cause injury. . . .” In

re Jercich, 238 F.3d at 1208 (citation omitted). Mr. Khabushani, thus,

contends § 523(a)(6) liability is not established for issue preclusive

purposes because the Arbitrator neither was required to find, nor actually

found, that he had the subjective intent to injure Ms. Anderson or believed

her injury was substantially certain to occur as a result of his conduct. We

disagree with his conclusion.

We begin with the elements of Ms. Anderson’s discrimination claim

under the FEHA. The FEHA prohibits an employer from discriminating

10
against any person in terms, conditions, or privileges of employment

because of the person’s sex, which includes pregnancy or medical

conditions related to pregnancy. Cal. Gov. Code §§ 12926(r)(1), 12940(a). As

relevant here, disparate treatment discrimination under the FEHA is

intentional discrimination against a person on prohibited grounds. See Guz

v. Bechtel Nat’l, Inc., 24 Cal. 4th 317, 361 (2000). To establish an employer’s

liability for such discrimination, a plaintiff must demonstrate that her

protected characteristic was a substantial motivating factor in the

challenged employment decision. Harris v. City of Santa Monica, 56 Cal. 4th

203, 231-32 (2013); Cal. Code Regs., tit. 2, § 11009(c). Judicial Council of

California Advisory Committee on Civil Jury Instructions 2507 provides

that “[a] ‘substantial motivating reason’ is a reason that actually

contributed to the [. . . adverse employment action]. It must be more than a

remote or trivial reason. It does not have to be the only reason motivating

the [adverse employment action].” (Emphasis in original).9

In analyzing claims of disparate treatment discrimination under the

FEHA, California courts employ a three-stage burden-shifting approach

established by the United States Supreme Court in McDonnell Douglas Corp.

v. Green, 411 U.S. 792 (1973). Husman v. Toyota Motor Credit Corp., 12 Cal.

App. 5th 1168, 1181 (2017). The McDonnell Douglas three-step approach is

9 “The Judicial Council endorses [model jury] instructions for use and makes
every effort to ensure that they accurately state existing law. The articulation and
interpretation of California law, however, remains within the purview of the
Legislature and the courts of review.” Cal. R. of Court 2.1050(b).
11
as follows: (1) the plaintiff must establish a prima facie case by a

preponderance of evidence that: (a) she had a protected characteristic;

(b) she was qualified for her position or performed competently in it;

(c) she suffered an adverse employment action; and (d) her protected

characteristic motivated the action; (2) the employer may rebut a

presumption of discrimination established by the plaintiff’s prima facie

case by proffering a nondiscriminatory reason for the action; and (3) the

plaintiff then will bear the burden to show by a preponderance of the

evidence that the employer’s proffered reasons are pretexts for

discrimination. Id.; Heard v. Lockheed Missiles & Space Co., 44 Cal. App. 4th

1735, 1749 (1996).

The McDonnell Douglas framework:

presupposes that the employer has a single reason for taking an
adverse action against the employee and that the reason is
either discriminatory or legitimate. By hinging liability on
whether the employer’s proffered reason for taking the action is
genuine or pretextual, the McDonnell Douglas inquiry aims to
ferret out the “true” reason for the employer’s action.

Harris, 56 Cal. 4th at 215.

With respect to the employer’s reason for termination, if it is

nondiscriminatory:

“[i]t is the employer’s honest belief in the stated reasons for
firing an employee and not the objective truth or falsity of the
underlying facts that is at issue in a discrimination case.” (King
v. United Parcel Service, Inc. (2007) 152 Cal. App. 4th 426, 436, 60

12
 Cal. Rptr. 3d 359 (King).) As the Supreme Court explained in
Guz, “if nondiscriminatory, [the employer’s] true reasons need
not necessarily have been wise or correct. [Citations.] While the
objective soundness of an employer’s proffered reasons
supports their credibility . . . , the ultimate issue is simply
whether the employer acted with a motive to discriminate
illegally. Thus, ‘legitimate’ reasons [citation] in this context are
reasons that are facially unrelated to prohibited bias, and which, if
true, would thus preclude a finding of discrimination.
[Citations.]” (Guz, supra, 24 Cal. 4th at p. 358, 100 Cal. Rptr. 2d
352, 8 P.3d 1089, original italics.).

Wills v. Super. Ct., 195 Cal. App. 4th 143, 170-71 (2011), as modified on denial

of reh’g (May 12, 2011).

Thus, and contrary to Mr. Khabushani’s urging, the objective truth or

falsity of Mr. Khabushani’s alleged nondiscriminatory reason for

terminating her—i.e., an alleged rapid deterioration of the financial

condition of his business and his need to cut costs by eliminating

employees, including Ms. Anderson—was not at issue. Rather, the

Arbitrator was charged with assessing whether Mr. Khabushani honestly

believed he must terminate Ms. Anderson to eliminate costs and whether

that belief motivated his decision to terminate her. And faced with

Ms. Anderson’s and Mr. Khabushani’s competing proffered explanations

for Ms. Anderson’s termination, the Arbitrator ruled that Mr. Khabushani

wrongfully terminated Ms. Anderson based on her sex and the fact that she

was pregnant and not on the subjective nondiscriminatory reason claimed

by Mr. Khabushani.

13
 c. Natural consequences of intentional discrimination

While the Arbitrator did not need to go a step further and find that

Mr. Khabushani had the subjective intent to injure Ms. Anderson or that he

believed that her injury was substantially certain to occur as a result of his

conduct, Mr. Khabushani is charged with knowledge of the natural

consequences of his intentional discrimination. Ormsby v. First Am. Title Co.

of Nev. (In re Ormsby), 591 F.3d 1199, 1206 (9th Cir. 2010). He must have

known that it was substantially certain that Ms. Anderson would suffer

injury as a result of the wrongful termination. After all, emotional and

financial damages are normal, natural, and direct consequences of a

wrongful termination decision.10

Willfulness is established by the Arbitration Judgment. The

Arbitrator necessarily decided an actually litigated issue as to

Mr. Khabushani’s intentional commitment of a wrongful act, pregnancy

discrimination. And as to intent to injure, Mr. Khabushani is charged with

knowledge of the natural consequences of his wrongful act. And while he

10
Indeed, some courts take a more per se approach and hold that a discriminatory
employment action taken in violation of laws comparable to the FEHA meets the
requisite intentional injury requirement of § 523(a)(6). See, e.g., Jones v. Svreck (In re
Jones), 300 B.R. 133, 141 (1st Cir. BAP 2003) (“This Panel concludes that a finding of
sexual harassment constitutes the requisite injury and is equivalent to a finding of
malicious and willful injury for dischargeability purposes under § 523(a)(6).”); Fuller v.
Rea (In re Rea), 606 B.R. 531, 537-39 (Bankr. S.D.N.Y. 2019) (“This Court now holds that
discriminatory termination is the injury Plaintiff suffered and that a judgment finding a
Defendant intentionally caused that injury, particularly when an unlawful
discriminatory animus is apparent, is enough to meet the prong of willfulness under
§ 523(a)(6) of the Bankruptcy Code.”).
14
argues vehemently that the Arbitrator was incorrect in his determination of

wrongful intent, he has never argued that he did not know that termination

would harm Ms. Anderson. To the contrary, before the bankruptcy court,

he emphasized how upset he was at taking this action. 11 The record and a

common sense determination regarding knowledge of the natural

consequences of his actions support the bankruptcy court’s conclusion that

Mr. Khabushani acted with certainty of the harmful impact of an act that

the Arbitrator found to be wrongful.

d. Lack of punitive damages

Nevertheless, Mr. Khabushani contends that the Arbitrator’s decision

to not award punitive damages creates a triable issue of fact regarding his

intent to injure. Put another way, he asserts that this creates sufficient

uncertainty that retrial is required. We disagree.

As explained above, the parties actually litigated and the Arbitrator

necessarily decided that Mr. Khabushani intentionally discriminated

against Ms. Anderson when he terminated her employment. And as

Mr. Khabushani is charged with knowledge of the natural consequences of

this wrongful termination, he necessarily willfully injured Ms. Anderson

by wrongfully terminating her employment. The Arbitrator’s decision not

to award punitive damages does not undercut this conclusion.

While punitive damages findings under Cal. Civ. Code § 3294 that

In his declaration, he stated that “When I had to lay off the Plaintiff, I was sick
11

to my stomach having to break the news to her . . . ”
15
“are clearly and solely based on a finding of Intentional Malice, fraud, or

both . . . are sufficient to meet the willfulness requirement of § 523(a)(6)[,]”

Plyam v. Precision Dev., LLC (In re Plyam), 530 B.R. 456, 470 (9th Cir. BAP

2015), 12 the Arbitrator was not compelled to award punitive damages even

if he found “Intentional Malice, fraud, or both” because an award of

punitive damages is always a discretionary matter. Brewer v. Second Baptist

Church of L.A., 32 Cal. 2d 791, 801 (1948) (“Upon the clearest proof of malice

in fact, it is still the exclusive province of the jury to say whether or not

punitive damages shall be awarded. A plaintiff is entitled to such damages

only after the jury, in the exercise of its untrammeled discretion, has made

the award.” (citation omitted)). Ms. Anderson had no “right” to punitive

damages as she was presumptively made whole by the compensatory

damages award. See State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408,

419 (2003) (“It should be presumed a plaintiff has been made whole for his

injuries by compensatory damages, so punitive damages should only be

awarded if the defendant’s culpability, after having paid compensatory

damages, is so reprehensible as to warrant the imposition of further

sanctions to achieve punishment or deterrence.” (citation omitted));

12 In Plyam, we defined “Intentional Malice” as “conduct that the defendant
intends to cause injury to the plaintiff” and “Despicable Malice” as “despicable conduct
carried on by the defendant with a willful and conscious disregard of the rights or
safety of others . . . ” 530 B.R. at 465. We additionally held that “a punitive damages
award based on Despicable Malice or oppression does not establish the subjective intent
required for § 523(a)(6) willfulness.” Id. at 470.

16
Ferguson v. Lieff, Cabraser, Heimann & Bernstein, LLP, 30 Cal. 4th 1037, 1051

(2003).

Also, in assessing whether to award punitive damages, the Arbitrator

was confined to awarding damages that were proportionate to the

defendants’ ability to pay. Adams v. Murakami, 54 Cal. 3d 105, 112 (1991).

After all, “the purpose of punitive damages is not served by financially

destroying a defendant. The purpose is to deter, not to destroy.” Id. It

appears probable from the Arbitrator’s findings that Ms. Anderson failed

to establish that the defendants’ financial condition permitted an award of

punitive damages. Id. at 119 (“In light of our holding that evidence of a

defendant’s financial condition is essential to support an award of punitive

damages, Evidence Code section 500 mandates that the plaintiff bear the

burden of proof on the issue. A plaintiff seeking punitive damages is not

seeking a mere declaration by the jury that he is entitled to punitive

damages in the abstract. The plaintiff is seeking an award of real money in

a specific amount to be set by the jury. Because the award, whatever its

amount, cannot be sustained absent evidence of the defendant’s financial

condition, such evidence is ‘essential to the claim for relief.’ (Evid. Code,

§ 500.)”).

Specifically, the Arbitrator found that within a few months of

terminating Ms. Anderson, Mr. Khabushani terminated all of M+V’s

employees, “except himself and maybe one other employee. There was no

new income because [he] had let go all of the sales personnel.” Thus, the

17
defendants’ ability to pay punitive damages was dubious at best.

The Arbitrator, however, did not explain why he declined to award

punitive damages. But this gap does not require retrial on the intent to

injure element, because even if the Arbitrator denied punitive damages on

the alternative basis that Ms. Anderson failed to prove Intentional Malice

or fraud, his ruling would be immaterial to the issue of whether the

Arbitrator’s intentional discrimination findings should preclude

Mr. Khabushani from litigating the “willful injury” requirement of

§ 523(a)(6). Intentional Malice and fraud for the purpose of awarding

punitive damages involve a higher standard of proof than is required for a

“willful injury” finding under § 523(a)(6) or for a determination of sex-

based discrimination. For an award of punitive damages, clear and

convincing evidence must be presented. Cal. Civ. Code § 3294(a). But for

determinations of nondischargeability and intentional discrimination, the

elements need only be proven by a preponderance of the evidence. Grogan,

498 U.S. at 279; Heard, 44 Cal. App. 4th at 1749.

We discussed the consequences of the different burdens of proof in

Branam v. Crowder (In re Branam), 226 B.R. 45, 47 (9th Cir. BAP 1998), aff’d,

205 F.3d 1350 (9th Cir. 1999). In Branam, the bankruptcy court granted a

creditor summary judgment on its § 523(a)(6) claim solely based on the

preclusive effect of a California state court judgment for assault and battery

under Cal. Labor Code § 3601(a). We affirmed, notwithstanding that the

state court jury failed to find “malice” for the purpose of awarding

18
punitive damages. We reasoned that the failure to find malice was

irrelevant to the issue of nondischargeability under § 523(a)(6) in part

because malice under Cal. Civ. Code § 3294(a) involves a different (higher)

standard of proof. Id. at 53; accord Hernandez v. Powers & Effler Ins. Brokers

(In re Hernandez), BAP No. EC-10-1025-JuMkZi, 2011 WL 3300927, at *6

(9th Cir. BAP Jan. 5, 2011) (relying on Branam). Thus, it is irrelevant

whether the Arbitrator failed to find Intentional Malice or fraud. 13

For all these reasons, we determine that the bankruptcy court

properly found that the Arbitrator’s findings were entitled to preclusive

effect on the issue of willful injury.

2. Malicious injury

The bankruptcy court likewise properly found that the Arbitrator’s

findings were entitled to preclusive effect on the issue of malicious injury.

An injury is malicious if it is “a wrongful act, done intentionally, which

necessarily causes injury, and which is done without just cause or excuse.”

Thiara v. Spycher Bros. (In re Thiara), 285 B.R. 420, 427 (9th Cir. BAP 2002)

(citing In re Jercich, 238 F.3d at 1208). We agree with the bankruptcy court

that the Arbitrator’s determination that Mr. Khabushani unlawfully

terminated Ms. Anderson based on her sex and the fact that she was

pregnant establishes three of the four maliciousness elements: a legally

wrongful act, done intentionally, which necessarily caused injury.

13
But, we acknowledge, liability under Cal. Labor Code § 3601(a) requires a
specific intent to injure. In re Branam, 226 B.R. at 53.
19
 As for the fourth and final maliciousness element—the absence of just

cause or excuse—the record did not contain any argument of just cause or

excuse, except for Mr. Khabushani’s contention that he subjectively

believed that the termination was justified by the financial deterioration of

his business and his need to cut costs. But this contention is barred by the

preclusive effect of the Arbitrator’s findings regarding the true motivation

behind Ms. Anderson’s termination. The Arbitrator expressly rejected this

stated reason for terminating Ms. Anderson. Mr. Khabushani also

necessarily failed to prove that he would have made the same decision to

terminate Ms. Anderson for lawful reasons even if he had not taken

Ms. Anderson’s sex and pregnant status into account because

Ms. Anderson would not have been entitled to an award of damages had

he done so. See Harris, 56 Cal. 4th at 241 (“If the employer proves by a

preponderance of the evidence that it would have made the same decision

for lawful reasons, then the plaintiff cannot be awarded damages, backpay,

or an order of reinstatement.”).

Accordingly, we perceive no error in the bankruptcy court’s holding

that the Arbitrator’s factual determinations established, for issue preclusion

purposes, § 523(a)(6) maliciousness.

C. Any failure to conduct a public policy analysis constituted harmless

error.

After determining that the five threshold criteria for issue preclusion

were met, the bankruptcy court was required to consider whether

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imposing issue preclusion would be fair and consistent with sound public

policy. In re Khaligh, 338 B.R. at 824-25. We agree with Mr. Khabushani that

the record does not clearly reflect that the bankruptcy court conducted a

public policy inquiry. There was no discussion of this element at the

hearing but in finding number twelve there is a discussion of those

elements typically considered in such an analysis—conservation of judicial

resources and avoidance of multiple, and potentially inconsistent, results.

The bankruptcy court found these interests served by an application of

issue preclusion here.

And we disagree that if there was an oversight, it constitutes

reversible error because we can conduct the analysis in the first instance

given that the record allows a complete understanding of these issues.

Delannoy v. Woodlawn Colonial, L.P. (In re Delannoy), 615 B.R. 572, 583

(9th Cir. BAP 2020) aff’d, 2021 WL 1923744 (9th Cir. 2021) (citing Swanson v.

Levy, 509 F.2d 859, 861 (9th Cir. 1975)).

In Vandenberg v. Superior Court, the California Supreme Court held

that in deciding whether there is “fairness and sound public policy,”

“courts consider the judicial nature of the prior forum, i.e., its legal

formality, the scope of its jurisdiction, and its procedural safeguards,

particularly including the opportunity for judicial review of adverse

rulings.” 21 Cal. 4th 815, 829 (1999). Thus, when applying issue preclusion

based on a confirmed arbitration award, a court must examine “whether

the underlying arbitration followed basic elements of adjudicatory

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procedure and was, thus, ‘adjudicatory in nature.’” In re Khaligh, 338 B.R. at

828 (quoting Kelly v. Vons Cos., 67 Cal. App. 4th 1329, 1336 (1998)); see also

Jacobs v. CBS Broad., Inc., 291 F.3d 1173, 1177–79 (9th Cir. 2002). The

arbitration proceedings must be adjudicatory in nature even if the award

was confirmed by the state court. In re Khaligh, 338 B.R. at 829. In other

words, the arbitration should afford the parties “the opportunity for a

hearing before an impartial and qualified officer, at which they may give

formal recorded testimony under oath, cross-examine and compel the

testimony of witnesses, and obtain a written statement of decision.” Kelly,

67 Cal. App. 4th at 1336.

Nothing in the record causes us to question the adjudicatory nature

of the arbitration here. The parties agreed to settle any dispute regarding

the termination of Ms. Anderson’s employment by final and binding

arbitration. During the arbitration proceedings, they were represented by

counsel who filed written arguments, submitted exhibits, and presented

three days of testimony by multiple witnesses. The Arbitrator was a retired

judge who presided over numerous discovery disputes and status

conferences in the arbitration. And after considering the evidence, the

Arbitrator produced his five-page Award setting forth the bases for his

decision to award $537,214.18 to Ms. Anderson. Mr. Khabushani fails to

raise any public policy concern; reversal on this point is not appropriate.

CONCLUSION

Based on the foregoing, we AFFIRM.

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