United States v. 2010-01-08 | 08-15572 | Lawrence Ormsby V. First American Title Company O |…

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
 In the Matter of: LAWRENCE E Nos. 08-15572 and ORMSBY; CINDY J. ORMSBY, 08-15573 Debtors,
B.C. No.
2005-28840-
LAWRENCE E ORMSBY, A-7 Appellant, D.C. No.
v. 2:07-CV-
00447-MCE FIRST AMERICAN TITLE COMPANY OF
NEVADA, OPINION
Appellee. 
Appeal from the United States District Court
for the Eastern District of California
Morrison C. England, Jr., District Judge, Presiding
Argued and Submitted
June 11, 2009—San Francisco, California
Filed January 8, 2010
Before: Marsha S. Berzon, Jane R. Roth,* and
Mary M. Schroeder, Circuit Judges
Opinion by Judge Roth
**The Honorable Jane R. Roth, Senior United States Circuit Judge for
the Third Circuit, sitting by designation.
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COUNSEL
Helga A. White, Esquire, Auburn, California, for the appel-
lant.
James A. Tiemstra, Esquire, Law Offices of James A. Tiem-
stra, California, for the appellee.
OPINION
ROTH, Circuit Judge:
This is a bankruptcy case, in which a creditor, First Ameri-
can Title Company (FATCO), seeks to prevent the discharge
of a state court judgment against the debtor, Lawrence Orms-
by, under 11 U.S.C. §§ 523(a)(4) and (a)(6). The Nevada state
court found Ormsby had converted and misappropriated prop-
erty belonging to FATCO. Ormsby filed for bankruptcy pro-
tection, and FATCO moved to prevent the discharge of the
state court judgment. The Bankruptcy Court granted summary
judgment in favor of FATCO; the District Court, acting in an
appellate capacity, affirmed. For the reasons given below, we
affirm the District Court’s order granting summary judgment
in favor of FATCO. We also affirm the District Court’s deter-
mination with regard to the withdrawal of FATCO’s prior
motion for attorney fees.
I.
We repeat here the findings of fact the Nevada state court
made when it found Ormsby had engaged in misappropriation
and conversion. FATCO, the creditor in this case, is a title
company that provides escrow services and title insurance for
real property transactions. Ormsby, the debtor in this case, is
the owner of Inter-County Title Company of Nevada (Inter-
County), which also provides escrow and title services.
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Title companies like FATCO and Ormsby’s Inter-County
facilitate title searches that could otherwise only be conducted
through an onerous search of the official public records for
transactions affecting real property. Such records in Washoe
County, Nevada, date back to the mid-1800s and reflect
deeds, deeds of trust, mortgages, judgments, among other
documents related to real property. The Washoe County
Recorder organizes the various documents by creating a
grantor/grantee index. To make the title search process easier,
title companies create base files, subdivision files, and prelim-
inary title reports, which in turn are used as aids for examin-
ing and insuring title. Title companies also compile
documents in the form of title plants, which constitute a sepa-
rate method of assembling recorded information based on the
location of the property and which offer search capabilities far
beyond the grantor/grantee index available at the county
recorder.
In Washoe County, title companies use title plants covering
four separate periods: 1901-1964, 1965-1978, 1979-1999, and
2000 to the present. These plants are leased to subscribers,
who are not free to transfer, sell, assign, or allow others to
access the plants. FATCO owned a one-seventh interest in the
1979-1999 plant and leased the other plant data.
In the spring of 2000, FATCO had possession of the three
title plants covering the 1900s on microfiche and stored them
in a non-public area for its use only. In addition, FATCO
compiled a substantial number of base files, subdivision files,
and preliminary title reports. Though these documents were
made available to customers and sometimes to other title
companies, FATCO considered most of these records private
and proprietary.
In June of 1994, Joseph McCaffrey was hired to head
FATCO’s commercial title business. McCaffrey had access to
all of FATCO’s records and title plant microfiche and used
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them on a regular basis. He was aware that these were not
public records but were private and proprietary.
In early 2000, Ormsby prepared Inter-County to begin
operations in Washoe County. He purchased rights to the title
plant for 2000 until the present but not to any of the plants
covering the 1900s. Additionally, Ormsby solicited employ-
ees of FATCO to work for Inter-County. McCaffrey was one
of the employees Ormsby was able to lure from FATCO. The
two discussed the importance of access to the title plants to
any new title company in the Washoe County area.
While he still had access to his office at FATCO, McCaf-
frey downloaded and e-mailed FATCO’s proprietary base
files, subdivision files, preliminary title reports, and other
business records. McCaffrey, with the encouragement, coop-
eration, and assistance of Ormsby, appropriated the 1901-
1964, 1965-1978, and 1979-1999 title plants from the posses-
sion of FATCO. Ormsby took the title plants and sent them
to a non-local copy service for duplication.
Inter-County then used these appropriated title plants in
searching titles and issuing policies. It did so until the return
of the copied plants was compelled by court order. From May
2000 until the plants were returned in August 2002, Inter-
County handled approximately 3000 escrows. The estimated
cost savings realized by Inter-County’s use of the plants was
about $50 per transaction, resulting in an estimated $150,000
in savings.
In 2002, FATCO filed an action against Ormsby in the Sec-
ond Judicial District Court of Nevada in and for the County
of Washoe. Before trial, FATCO settled with McCaffrey for
$15,000, under the condition that McCaffrey testify against
Ormsby. The court found that Ormsby encouraged, assisted,
and cooperated with McCaffrey in misappropriating the title
plants from FATCO and used those plants to conduct title
searches for the purposes of issuing title insurance. The court
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also found that Ormsby converted for Inter-County’s use the
base files, subdivision files, and preliminary title reports of
FATCO to assist in the opening of the business. The court
found that, in the misappropriation of the title plants and files,
Ormsby had acted maliciously in that his conduct was willful,
wanton, and reckless.
The court granted $141,5001 in compensatory damages
based on the measure of a reasonable royalty for a misappro-
priator’s unauthorized disclosure or use of a trade secret.
Punitive, or exemplary, damages were also awarded in the
amount of $283,000 based on evidence of willfulness in Orm-
sby’s cooperation with McCaffrey in taking, copying, and sur-
reptitiously returning the title plants and files. The court
awarded pre-judgment interest of $47,593.83 on the compen-
satory damages, attorney fees of $223,159.50, and costs of
$36,821.83.
Ormsby and his wife subsequently filed for Chapter 7
bankruptcy protection in the Bankruptcy Court for the Eastern
District of California, Sacramento Division. FATCO filed a
complaint with the court to establish that the judgment Orm-
sby owed was non-dischargeable under 11 U.S.C. § 523(a)(4)
and (a)(6). FATCO then filed for summary judgment, which
was granted. Ormsby filed a motion for reconsideration that
was rejected. He then appealed to the Bankruptcy Appellate
Panel. FATCO filed a motion for transfer to the District Court
for the Eastern District of California, which affirmed the
bankruptcy court’s grant of summary judgment in favor of
FATCO. Ormsby now appeals to this Court.
II.
Ormsby suggests that the state court judgment against him
1Another title company, Founders, received additional compensatory
damages in the amount of $8,500 for the use of the 1901-1964 title plant.
These damages are not at issue in this case.
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did not constitute larceny within the federal definition of the
term and that the court made no findings of willful or mali-
cious injury. As a result, he contends, summary judgment was
inappropriate because the issues are not precluded by the state
court judgment. We disagree.2 The state court judgment is
sufficient to preclude relitigation of whether Ormsby’s con-
duct meets the requirements of subsection 523(a)(4) or of sub-
section 523(a)(6), either of which would be sufficient to
prevent the discharge of the judgment debt.3
A. Section 523(a)(4)
[1] Section 523(a)(4) prevents discharge “for fraud or
defalcation while acting in a fiduciary capacity, embezzle-
ment, or larceny.” 11 U.S.C. § 523(a)(4). “For purposes of
section 523(a)(4), a bankruptcy court is not bound by the state
law definition of larceny but, rather, may follow federal com-
mon law, which defines larceny as a ‘felonious taking of
another’s personal property with intent to convert it or deprive
2This Court reviews a “bankruptcy court’s decision independently,
without deference to the district court.” Zurich Am. Ins. Co. v. Int’l Fiber-
com, Inc. (In re Int’l Fibercom, Inc.), 503 F.3d 933, 940 (9th Cir. 2007).
“The bankruptcy court’s conclusions of law, including its interpretation of
the Bankruptcy Code, are reviewed de novo and its factual findings are
reviewed for clear error.” Id.
3The preclusive effect of a state court judgment rests upon the preclu-
sion law of the state in which the judgment was issued. Gayden v. Nour-
bakhsh (In re Nourbakhsh), 67 F.3d 798, 800 (9th Cir. 1995). Under
Nevada state law, issue preclusion is appropriate when “(1) the issue
decided in the prior litigation [is] identical to the issue presented in the
current action; (2) the initial ruling [was] on the merits and [has] become
final; and (3) the party against whom the judgment is asserted [is] a party
in privity with a party to the prior litigation.” Kahn v. Morse & Mowbray,
117 P.3d 227, 235 (Nev. 2005). Issue preclusion may apply “even though
the causes of action are substantially different, if the same fact issue is
presented.” LaForge v. State, Univ. & Cmty. Coll. Sys. of Nev., 997 P.2d
130, 134 (Nev. 2000) (internal citations omitted).
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the owner of the same.’ ” 4 Collier on Bankruptcy ¶ 523.10[2]
(15th ed. rev. 2008).4
Ormsby’s main contention is that the facts of the state court
judgment do not prove larceny for the application of section
523(a)(4) because the federal definition of larceny requires
fraudulent intent whereas conversion5 under Nevada state law
does not require a finding of fraudulent intent. Conversion is
defined as “a distinct act of dominion wrongfully exerted over
another’s personal property in denial of, or inconsistent with
his title or rights therein or in derogation, exclusion, or defi-
ance of such title or rights. Additionally, conversion is an act
of general intent, which does not require wrongful intent and
is not excused by care, good faith, or lack of knowledge.”
M.C. Multi-Family Development, L.L.C. v. Crestdale Assoc.,
Ltd., 193 P.3d 536, 542-43 (Nev. 2008) (internal citations
omitted). Accordingly, Ormsby argues that the state court’s
finding of conversion does not translate to a finding of lar-
ceny; therefore, the issue is not precluded.
[2] We make no determination concerning whether federal
law requires a finding of fraudulent intent for larceny as
Ormsby contends.6 Were we to find that larceny required
4Felonious is defined as “ ‘proceeding from an evil heart or purpose;
malicious; villainous . . . Wrongful; (of an act) done without excuse of
color of right.’ ” Elliott v. Kiesewetter (In re Kiesewetter), 391 B.R. 740,
748 (Bankr. W.D. Pa. 2008) (quoting BLACK’S LAW DICTIONARY (8th ed.
2004)).
5The Bankruptcy Court noted that the state court seemed to merge the
findings of conversion and misappropriation. The Bankruptcy Court ulti-
mately determined that the distinction between the two bases of liability
was not sufficiently great to make a difference in its determination that the
judgment was nondischargeable. We agree with the Bankruptcy Court to
the extent that the state court conversion finding is alone sufficient to sup-
port nondischargeability under section 523(a)(4). Nondischargeability
under section (a)(6), which the Bankruptcy Court did not address, does
seem to require the finding of misappropriation to apply.
6The District Court in this case found fraudulent intent was not neces-
sary under the federal definition of larceny, though it acknowledged prece-
dent stating otherwise.
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fraudulent intent, the state court judgment would provide
enough information to determine that the court found that his
actions amounted to fraud, because “[i]ntent may properly be
inferred from the totality of the circumstances and the conduct
of the person accused.” Kaye v. Rose (In re Rose), 934 F.2d
901, 904 (7th Cir. 1991). The totality of the circumstances as
described in the state court’s findings of fact make clear that
Ormsby acted with fraudulent intent. When he started Inter-
County, he purchased the rights to use the title plant for 2000
until the present, demonstrating that he was aware of the law-
ful means of obtaining access to them. Rather than purchasing
the rights to the title plants for the 1900s, he hired McCaffrey
away from a competing title company and discussed with him
the importance of the title plants to a new title company.
While McCaffrey still had access to the plants that FATCO
possessed, Ormsby encouraged, cooperated, and assisted
McCaffrey’s removal of the plants and their reproduction. Of
particular note, Ormsby sent the microfiche containing the
plants to a non-local copying service, likely to avoid detec-
tion. Based on these facts found by the state court, Ormsby’s
conduct constituted larceny within the federal meaning of the
term; accordingly under section 523(a)(4), his debt cannot be
discharged.
B. Section 523(a)(6)
[3] Section 523(a)(6) prevents discharge “for willful and
malicious injury by the debtor to another entity or to the prop-
erty of another entity.” 11 U.S.C. § 523(a)(6). The Supreme
Court in Kawaauhau v. Geiger (In re Geiger), 523 U.S. 57
(1998), made clear that for section 523(a)(6) to apply, the
actor must intend the consequences of the act, not simply the
act itself. Id. at 60. Both willfulness and maliciousness must
be proven to block discharge under section 523(a)(6).
i. Willful Injury
[4] In this Circuit, “§ 523(a)(6)’s willful injury requirement
is met only when the debtor has a subjective motive to inflict
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injury or when the debtor believes that injury is substantially
certain to result from his own conduct.” Carillo v. Su (In re
Su), 290 F.3d 1140, 1142 (9th Cir. 2002). The Debtor is
charged with the knowledge of the natural consequences of
his actions. Cablevision Sys. Corp. v. Cohen (In re Cohen),
121 B.R. 267, 271 (Bankr. E.D.N.Y. 1990); see Su, 290 F.3d
at 1146 (“In addition to what a debtor may admit to knowing,
the bankruptcy court may consider circumstantial evidence
that tends to establish what the debtor must have actually
known when taking the injury-producing action.”).
[5] Ormsby contends section 523(a)(6) does not apply
because the state court did not adopt a finding that Ormsby
had the subjective intent to injure FATCO or that he believed
that FATCO’s injury was substantially certain to occur as a
result of his conduct. Ormsby must have known that
FATCO’s injury was substantially certain to occur as a result
of his conduct. Because Ormsby paid for access to the title
plants for 2000 until present, he was necessarily aware that
his use of FATCO’s title plants and other materials without
paying for them had an economic value. The state court
explicitly found that FATCO’s suffered injury by granting
$141,500 in compensatory damages based on the measure of
a reasonable royalty for a misappropriator’s unauthorized dis-
closure or use of a trade secret. Ormsby therefore inflicted
willful injury on FATCO.
ii. Malicious Injury
[6] “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.” Petralia v. Jercich
(In re Jercich), 238 F.3d 1202, 1209 (9th Cir. 2001) (internal
citations omitted). Malice may be inferred based on the nature
of the wrongful act. See Transamerica Commercial Fin.
Corp. v. Littleton (In re Littleton), 942 F.2d 551, 554 (9th Cir.
1991).7 To infer malice, however, it must first be established
that the conversion was willful. See Thiara, 285 B.R. at 434.
7The Supreme Court in Geiger did not address the malicious prong of
section 523(a)(6). The Bankruptcy Appellate Panel for this Circuit has
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In this case, Ormsby knew that FATCO’s injury was sub-
stantially certain to occur as a result of his conduct. Ormsby
additionally knew the legal way to obtain access to the title
plants was to purchase rights. The state court found FATCO
suffered an injury as a result of this use, and Ormsby has
offered no just cause or excuse for his conduct.8 Moreover, in
granting attorney’s fees, the state court found the misappro-
priation was willful and malicious.
[7] Based on these facts found by the state court, Ormsby’s
conduct meets both the willful and malicious prongs of sec-
tion 523(a)(6); accordingly, we affirm the nondischargeability
of the judgment.
III.
Ormsby contests the District Court’s grant of FATCO’s
motion to withdraw from the Bankruptcy Court consideration
of FATCO’s prior motion for attorney’s fees.9 The court with-
drew FATCO’s motion for fees to the Bankruptcy Court,
which had dropped the motion from the court’s calendar until
the completion of the appellate process. See 11 U.S.C.
§ 157(d) (“The district court may withdraw, in whole or in
part, any case or proceeding referred under this section, on its
thus determined that its discussion of malice in Littleton survived Geiger.
See Thiara v. Spycher Bros. (In re Thiara), 285 B.R. 420, 434 (B.A.P. 9th
Cir. 2002).
8See Jercich, 238 F.3d at 1209 (finding maliciousness, the Ninth Circuit
stated, “[T]he state court found Jercich knew he owed Petralia the wages
and that injury to Petralia was substantially certain to occur if the wages
were not paid; that Jercich had the clear ability to pay Petralia the wages;
and that despite his knowledge, Jercich chose not to pay and instead used
the money for his own personal benefit. Jercich has pointed to no ‘just
cause or excuse’ for his behavior.”).
9This court reviews a district court’s decision to withdraw the reference
for an abuse of discretion. See Security Farms v. Int’l Bhd. of Teamsters,
Chauffers, Warehousemen & Helpers 124 F.3d 999, 1008 (9th Cir. 1997).
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own motion or on timely motion of any party, for cause
shown.”). The District Court determined that judicial econ-
omy justified the withdrawal. See Security Farms, 124 F.3d
at 1008 (“In determining whether cause exists, a district court
should consider the efficient use of judicial resources, delay
and costs to the parties, uniformity of bankruptcy administra-
tion, the prevention of forum shopping, and other related fac-
tors.”).
[8] The District Court’s withdrawal of the motion and sub-
sequent decision on attorney’s fees was not improper. This
Circuit has stated “that a district court retains the power to
award attorney’s fees after a notice of appeal from the deci-
sion on the merits has been filed.” U.S. ex rel. Shutt v. Cmty.
Home & Health Care Servs., Inc., 550 F.3d 764, 766 (9th Cir.
2008) (internal citation omitted). Accordingly, we affirm the
District Court’s grant of FATCO’s motion to withdraw the
reference in regard to its motion for attorney’s fees.
IV.
[9] For the foregoing reasons, we affirm the District
Court’s judgment that Ormsby’s debt is nondischargeable
under either section 523(a)(4) and (a)(6). Additionally, we
affirm the District Court’s grant of FATCO’s motion to with-
draw the reference in regard to its motion for attorney’s fees.
AFFIRMED.
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