Trustee Blog

Conversion II

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Following our discussion from last week, Nov. 22, 2013, Trustee was Helen Frazer and Judge Houle continued his discussion on granting a complaint for conversion for a debtor hiding a vehicle  and not returning to the creditor.

a. Embezzlement under § 523(a)(4)

Though Creditor provides in the complaint that discharge should be denied under § 523(a)(4), Creditor does not include this section in its Memorandum in support of the Motion. As such, the Court will address only the sections found both in the Complaint and the Memorandum.

b. Willful and Malicious Damage to Property under §523(a)(6)

Section 523(a)(6) provides in relevant part that a discharge under § 727 does not discharge an individual debtor from any debt for willful and malicious injury by
the debtor to another entity or to the property of another entity. 11 U.S.C. § 523(a)(6).

A debt based on conversion by the Debtor may be nondischargeable under § 523(a)(6). Bino v. Bailey (In re Bailey), 197 F.3d 997, 1000 (9th Cir. 1999). The elements of conversion under California law are:

• the creditor’s ownership or right to possession of the property at the time of conversion;

• the debtor’s conversion by a wrongful act or disposition of property rights; and

• damages.

See In re Thiara, 285 B.R. 420, 427 (B.A.P. 9th Cir. 2002). When conversion has been proven under California law, the court must also find that the injury was both willful and malicious for the damages to be nondischargeable under § 523(a)(6). Thiara, supra, 285 B.R .at 429.

Here, Plaintiff alleges that it has a right to the Vehicle under the Agreement, Defendant refused to surrender the Vehicle, and Plaintiff suffered damages in amount of $45,480.03. As such, the Court finds that Plaintiff pled sufficient facts for a conversion action.

i. Willfulness

First, for an injury to be willful, the debtor must have a subjective motive to inflict injury or must believe that injury is substantially certain to occur as a result of his or her conduct. Petralia v. Jercich (In re Jercich), 238 F.3d 1202, 1208 (9th Cir. 2001). In other words, the debtor must have acted with “actual knowledge that harm to the creditor was substantially certain” to result. Su v. Su (In re Su), 290 F.3d at 1146 (9th Cir. 2002); Ditto v. McCurdy (In Re McCurdy), 510 F .3d 1070, 1078 n. 8 (9th Cir. 2007).

In support of their claim of willfulness, Plaintiff asserts the following facts in its Complaint:

On or about June 10, 20xx, Defendant, for valuable consideration, made, executed, and delivered to creditor a Loan Agreement (“Agreement”) requesting an automobile loan in the amount of $28,134.00 to be secured by 20xx Nissan Frontier 2WD.

After defaulting under the terms of the aforementioned Agreement, Defendant refused to return the Vehicle or disclose its location to Creditor. Creditor is informed and believes that after October 25, 20xx, Defendant willfully and maliciously converted the Vehicle in order to hinder, delay and defraud Creditor from recovering its Vehicle.

The location or status of the Vehicle is presently unknown to Creditor.

On these facts, the Court finds that Defendant acted willfully to harm the interests of Plaintiff because he refused to return the Vehicle, which Creditor was entitled to in the event of default, as collateral for the Agreement. Further, Defendant failed to disclose the location of the Vehicle.

Thus, Plaintiff has established that Defendant acted willfully with respect to his conduct in failing to surrender the Vehicle or disclose the location of the Vehicle to the detriment of Plaintiff.

ii. Malice

In addition to the willfulness requirement, a claim under § 523(a)(6) requires that the injury be caused with malice. See Su at 1146-47. A ‘malicious’ injury involves (1) a wrongful act, (2) done intentionally, (3) which necessarily causes injury, and (4) is done without just cause or excuse. Id. (internal citations omitted).

Here, Plaintiff has sufficiently shown that Defendant acted with malice. In particular, Plaintiff has established that Defendant:

  1. Failed to pay Plaintiff under the Agreement;
  2. Failed to return the Vehicle to Plaintiff;
  3. Failed to disclose the location of the Vehicle to Plaintiff.
  4. Subjected Plaintiff to liabilities of approximately $45,480.03;
  5. Intended to cause injury to Plaintiff; and

6. Committed these wrongful acts without just cause or excuse as evidenced by a failure to respond or answer the allegations of the Complaint.

Thus, the Court finds that Plaintiff has established that Defendant acted with the requisite malice.

Based on the foregoing, the Court finds that Plaintiff has established that Defendant’s debt is nondischargeable because it is a debt for willful and malicious injury by the Defendant to Plaintiff. 11 U.S.C. § 523(a)(6).


Practice Pointer:

The above is a text book discussion for conversion  and 523(a)(6).


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