First Republic Bank v. Mirner et al

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 09-49872 TT
Chapter 7
CHRISTIAN PETER MIRNER,
TAMARA LYNNE CULLEN-MIRNER,
Debtors.
___________________________/
FIRST REPUBLIC BANK, 	A.P. No. 10-4009 AT
Plaintiff,
vs.
CHRISTIAN PETER MIRNER,
TAMARA LYNNE CULLEN-MIRNER,
Defendants.
___________________________/
MEMORANDUM OF DECISION
The above-captioned adversary proceeding was tried to the Court
on 	June 	21, 	2010. 	Appearances 	were 	stated 	on 	the 	record. 	At 	the
conclusion 	of 	the 	trial, 	the 	Court 	took 	the 	proceeding 	under
submission. 	After 	due 	consideration, 	the 	Court 	now 	concludes 	that
judgment 	should 	be 	entered 	for 	the 	plaintiff. 	The 	reasons 	for 	the
Court’s decision are set forth below.
Signed: July 01, 2010
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
July 02, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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SUMMARY OF FACTS
In 	September 	2007, 	the 	defendants 	(the 	“Mirners”) 	obtained 	a
loan 	from 	the 	plaintiff 	(the 	“Bank”) 	for 	an 	amount 	in 	excess 	of 	$2
million 	and 	secured 	the 	obligation 	with 	a 	first 	deed 	of 	trust 	on
their residence, a mini-mansion located in Lafayette, California (the
“Residence”). 	In October 2007, the Mirners obtained a loan from the
Bank for an amount in excess of $600,000 and secured the obligation
with 	a 	first 	deed 	of 	trust 	on 	a 	lavishly 	appointed 	vacation 	home
located 	in 	Truckee, 	California 	(the 	“Vacation 	Home”). 	Both
obligations went into default in May 2009, and in June 2009 the Bank
began foreclosure proceedings. 	The Bank obtained appraisals of both
properties 	in 	July 	2009. 	The 	Residence 	was 	appraised 	as 	having 	a
value of $1.9 million at that time. 	The Vacation Home was appraised
as having a value of $550,000.
On 	October 	20, 	2009, 	shortly 	before 	the 	scheduled 	foreclosure
sales 	on 	two 	properties, 	the 	Mirners 	filed 	a 	chapter 	7 	petition,
commencing this bankruptcy case. 	The Bank filed motions for relief
from the automatic stay and obtained orders terminating the stay as
to both properties. 	Foreclosure sales were conducted on the Vacation
Home 	on 	December 	9, 	2009 	and 	on 	the 	Residence 	on 	January 	7, 	2010.
The 	Bank 	obtained 	title 	to 	each 	property 	at 	the 	foreclosure 	sales
based on credit bids of less than the full amount of their debt.
After 	the 	sales 	were 	conducted, 	the 	Bank 	gained 	access 	to 	the
properties 	and 	discovered 	that 	numerous 	fixtures 	had 	been 	removed,
causing significant damage to each of the properties. 	The Bank has
resold the Vacation Home for $525,000 and asserts a damage claim for
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1The Mirners challenged these amounts as unreasonable and
unsupported by the evidence. 	However, they presented no
conflicting evidence. 	Based on the photographs taken of the damage
done, the Court finds the amounts asserted by the Bank to be
reasonable.
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$25,000 with respect to that property: i.e., the difference between
the 	sale 	price 	and 	the 	appraised 	value 	of 	$550,000. 	It 	has 	not
resold the Residence. 	It asserts a $77,000 claim with respect to the
Residence based on an estimate obtained for repairing the damage done
to that property by the removal of the fixtures. 	The Bank asserts a
nondischargeable monetary claim against the Mirners totaling $102,000
based on 11 U.S.C. § 523(a)(6) (willful and malicious injury). 1
At 	trial, 	Christian 	Mirner 	(“Mr. 	Mirner”) 	admitted 	personally
removing 	most 	of 	these 	items. 	He 	testified 	that 	he 	still 	had 	the
items 	that 	he 	had 	removed 	and 	hoped 	to 	use 	them 	in 	some 	future
residence. 	As 	for 	the 	damage 	done 	to 	the 	premises, 	Mr. 	Mirner
testified 	that 	he 	did 	not 	believe 	that 	the 	Bank, 	as 	a 	secured
creditor, could obtain a monetary judgment for damages against him.
He 	believed 	that 	the 	Bank’s 	only 	remedy 	upon 	his 	default 	was 	to
foreclose 	on 	the 	real 	property. 	He 	also 	expressed 	the 	belief 	that
the 	resale 	value 	of 	foreclosed-upon 	real 	property 	would 	not 	be
affected 	by 	the 	removal 	of 	the 	fixtures. 	He 	did 	not 	explain 	the
basis for this conclusion.
DISCUSSION
This adversary proceeding presents two distinct issues. 	First,
does 	the 	Bank 	have 	a 	claim 	for 	damages 	against 	the 	Mirners 	under
state 	law? 	Second, 	if 	so, 	is 	the 	claim 	excepted 	from 	the 	Mirners’
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26 2The Bank asserted other legal theories in its complaint.
However, it failed to advance or support these legal theories at
trial, and the Court concluded that they were abandoned.
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bankruptcy 	discharge 	under 	11 	U.S.C. 	§ 	523(a)(6). 	The 	Court 	will
address each issue in turn.
A. 	DOES THE BANK HAVE A CLAIM FOR DAMAGES AGAINST THE MIRNERS UNDER
STATE LAW?
The 	Bank 	asserts 	a 	claim 	for 	“bad 	faith 	waste” 	against 	the
Mirners 	based 	on 	Mr. 	Mirner’s 	removal 	of 	various 	fixtures 	from 	the
Residence and the Vacation Home and the resulting damage. 2 	Section
2929 of the California Civil Code provides that:
No person whose interest is subject to the lien
of 	a 	mortgage 	may 	do 	any 	act 	which 	will
substantially impair the mortgagee’s security.
Cal. Civ. Code § 2929. 	A violation of this statutory provision gives
rise 	to 	a 	claim 	of 	“waste.” 	This 	claim 	becomes 	part 	of 	the 	debt
secured by the deed of trust. 	See Cornelison v. Kornbluth, 15 Cal.
3d 590 (1975).
California law provides that a secured creditor has no right to
a deficiency judgment if a deed of trust is foreclosed nonjudicially.
See Cal. Civ. Proc. Code § 580b. 	In addition, it provides that, if
the secured debt was incurred to purchase a single family dwelling,
there 	is 	no 	right 	to 	a 	deficiency 	judgment 	in 	any 	event. 	See 	Cal.
Civ. Proc. Code § 580d. 	There is no dispute that the Bank provided
purchase 	money 	loans 	on 	both 	properties, 	that 	both 	properties 	were
single family dwellings, and that both deeds of trust were foreclosed
nonjudicially.
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California 	case 	law 	has 	a 	well 	established 	exception 	to 	the
prohibition on deficiency judgments under these circumstances. 	The
leading case on this issue is Cornelison v. Kornbluth, 15 Cal. 3d 590
(1975) which is still good law. 	The Cornelison court noted that the
same economic forces that cause a borrower to default on its secured
debt 	may 	sometimes 	result 	in 	a 	borrower’s 	failure 	to 	maintain 	the
collateral as well, resulting in waste. 	It concluded that this type
of 	“waste” 	was 	properly 	barred 	by 	California’s 	anti-deficiency
legislation referred to above.
However, the Cornelison court concluded that the anti-deficiency
legislation 	did 	not 	intend 	to 	bar 	a 	claim 	for 	“bad 	faith 	waste”:
i.e., damage to the real property done recklessly, intentionally, or
maliciously 	by 	the 	borrower. 	See 	Cornelison, 	15 	Cal.3d 	at 	603-04.
Mr. 	Mirner 	admitted 	intentionally 	removing 	the 	fixtures 	and 	was
clearly 	aware 	that 	he 	was 	doing 	damage 	to 	the 	properties 	in 	the
process. 	Based on the foregoing, the Court concludes that the Bank
has 	a 	claim 	for 	“bad 	faith 	waste” 	against 	the 	Mirners 	under
California 	law. 	The 	Court 	finds 	and 	concludes 	that 	the 	principal
amount of that claim is $102,000.
B. 	IS THE BANK’S CLAIM FOR DAMAGES NONDISCHARGEABLE?
The 	Bank 	seeks 	to 	except 	its 	damage 	claim 	against 	the 	Mirners
from 	their 	chapter 	7 	discharge 	based 	on 	11 	U.S.C. 	§ 	523(a)(6).
Section 	523(a)(6) 	provides 	that 	a 	chapter 	7 	discharge 	does 	not
discharge a debtor from a 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). 	Determining whether the Bank’s
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claim 	for 	“bad 	faith 	waste” 	should 	be 	excepted 	from 	the 	Mirners’
bankruptcy discharge under this provision requires the consideration
of 	two 	distinct 	issues: 	(1) 	whether 	Mr. 	Mirner 	acted 	willfully 	and
(2) whether Mr. Mirner acted maliciously. 	The Court will address the
latter issue first.
In 	the 	Ninth 	Circuit, 	for 	purposes 	of 	11 	U.S.C. 	§ 	523(a)(6),
malice 	requires: 	“(1) 	a 	wrongful 	act, 	(2) 	done 	intentionally, 	(3)
which necessarily causes injury, and (4) is done without just cause
or 	excuse.” 	In 	re 	Ormsby, 	591 	F.3d 	1199, 	1207 	(9th 	Cir. 	2010)
(quoting In re Jercich, 238 F.3d 1202, 1209 (9th Cir. 2001)). 	Based
on 	the 	evidence 	presented, 	the 	Court 	finds 	that 	Mr. 	Mirner 	acted
maliciously in removing the various fixtures from the two properties.
The 	action 	was 	clearly 	intentional. 	It 	was 	wrongful 	because 	it
violated Cal. Civ. Code § 2929.
The 	Court 	finds 	and 	concludes 	that 	the 	damage 	necessarily
affected 	the 	value 	of 	the 	properties 	and 	thus 	caused 	injury 	to 	the
Bank, which is clearly undersecured. 	Finally, the Court finds that
there 	was 	no 	just 	cause 	or 	excuse 	for 	the 	Mirners’ 	conduct. 	Mr.
Mirner’s 	testimony 	that 	he 	believed 	that 	the 	Bank 	had 	no 	remedy
against 	him 	for 	the 	damage 	to 	the 	property 	does 	not 	provide 	a 	just
cause or excuse for the action.
The more difficult issue is whether Mr. Mirner acted willfully.
To 	be 	willful 	for 	purposes 	of 	11 	U.S.C. 	§ 	523(a)(6), 	the 	injury 	as
well as the action must be intended. 	Kawaauhau v. Geiger, 523 U.S.
57, 	61-62(1998). 	In 	Geiger, 	the 	debtor, 	a 	doctor, 	negligently
prescribed ineffective medication, resulting in the amputation of the
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plaintiff’s 	right 	leg 	below 	the 	knee. 	Id. 	at 	69. 	The 	bankruptcy
court found that the debtor’s conduct was intentional and necessarily
led to the injury suffered. 	As a result, the debt was excepted from
the debtor’s discharge under 11 U.S.C. § 523(a)(6).
The 	Supreme 	Court 	held 	otherwise. 	It 	noted 	that 	such 	an
approach:
...could 	place 	within 	the 	excepted 	category 	a
wide 	range 	of 	situations 	in 	which 	an 	act 	is
intentional, 	but 	injury 	is 	unintended, 	i.e.,
neither 	desired 	nor 	in 	fact 	anticipated 	by 	the
debtor. 	Every traffic accident stemming from an
initial 	intentional 	act-for-example,
intentionally 	rotating 	the 	wheel 	of 	an
automobile 	to 	make 	a 	left-hand 	turn 	without
first 	checking 	oncoming 	traffic-could 	fit 	the
description.
Geiger, 523 U.S. at 62. 	The Ninth Circuit has held that the debtor’s
intent 	to 	injure, 	for 	purposes 	of 	11 	U.S.C. 	§ 	523(a)(6) 	must 	be
determined 	based 	on 	a 	subjective 	test. 	In 	re 	Su, 	290 	F.3d 	1140,
1145-46 	(9th 	Cir. 	2002). 	In 	Su, 	the 	plaintiff, 	a 	pedestrian, 	was
severely injured when struck by a vehicle driven by the debtor. 	The
debtor 	was 	speeding 	and 	drove 	through 	a 	red 	light. 	The 	bankruptcy
court held that the plaintiff had a claim for willful and malicious
injury. 	It 	used 	an 	objective 	test 	in 	making 	its 	determination 	of
whether the debtor acted willfully. 	Id., 290 F.3d at 1141-42.
The 	Ninth 	Circuit 	Court 	of 	Appeals 	reversed 	and 	remanded,
directing 	the 	bankruptcy 	court 	to 	make 	the 	determination 	using 	a
subjective 	test. 	It 	noted 	that 	the 	Restatement 	(Second) 	of 	Torts
dictated the use of a subjective test to determine whether an action
is 	intentional. 	Id., 	290 	F.3d 	at 	1143. 	It 	noted 	that 	the 	Sixth
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Circuit 	had 	adopted 	a 	subjective 	test 	while 	the 	Fifth 	Circuit 	had
adopted 	an 	objective 	one. 	In 	re 	Su, 	290 	F.3d 	at 	1143-44. 	It
acknowledged that prior case law had not made a clear choice between
these 	two 	tests. 	See 	In 	re 	Su, 	238 	F.3d 	at 	1142 	(citing 	In 	re
Jercich, 	238 	F.3d 	1202 	(9th 	Cir. 	2001), 	cert. 	denied 	533 	U.S. 	930
(2001)).
Following the rationale of Geiger, the Su court concluded that
a 	subjective 	test 	should 	be 	applied 	to 	prevent 	the 	category 	of
nondischargeable 	debts 	from 	being 	unduly 	expanded. 	Thus, 	the
debtor’s particular state of mind must be judged and determined. 	The
debt 	will 	only 	be 	excepted 	from 	the 	discharge 	under 	11 	U.S.C. 	§
523(a)(6) 	if 	the 	debtor 	had 	“actual 	knowledge 	that 	harm 	to 	the
creditor was substantially certain.” 	In re Su, 290 F.3d at 1145-46.
Applying 	this 	test 	to 	the 	facts 	presented 	here, 	the 	Court
concludes that Mr. Mirner’s conduct was willful within the meaning of
11 U.S.C. § 523(a)(6). 	Mr. Mirner testified convincingly that he had
no desire to cause harm to the Bank, that he was merely acting in his
own financial interest. 	Thus, the Court finds that he did not desire
the Bank’s injury. 	However, Mr. Mirner clearly could see that he was
doing substantial damage to the properties in the process of removing
the 	fixtures. 	Thus, 	he 	had 	“actual 	knowledge” 	that 	damage 	to 	the
Bank was “substantially certain” to occur. 	His unexplained testimony
that he did not believe that the damage would have any effect on the
Bank’s resale price was not convincing.
CONCLUSION
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The Bank is entitled to a nondischargeable judgment against the
Mirners pursuant to 11 U.S.C. § 523(a)(6) in the principal amount of
$102,000, 	plus 	pre-judgment 	interest 	at 	the 	statutory 	rate 	under
California 	law 	from 	January 	7, 	2010, 	and 	reasonable 	costs 	of 	suit.
Counsel 	for 	the 	Bank 	is 	directed 	to 	submit 	a 	proposed 	form 	of
judgment in accordance with this decision.
END OF DOCUMENT
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COURT SERVICE LIST
Edward Tredinnick
Greene, Radovsky, Maloney and Share
4 Embarcadero Center #4000
San Francisco, CA 94111
Christian Peter Mirner
Tamara Lynne Cullen-Mirner
1331 Martino Rd
Lafayette, CA 94549
Tevis Thompson
P.O. Box 1110
Martinez, CA 94553
Lynette C. Kelly
U.S. Office of the U.S. Trustee
1301 Clay St.
Oakland, CA 94612
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