                                                          FILED
                                                           AUG 19 2014
                                                       SUSAN M. SPRAUL, CLERK
 1                        NO FO PUBL A IO
                            T R     IC T N               U.S. BKCY. APP. PANEL
                                                         OF THE NINTH CIRCUIT
 2
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )     BAP No.      AZ-13-1461-KiTaPa
                                   )
 6   ROSIRA A. CORREIA-SASSER,     )     Bk. No.      2:10-17877-RJH
                                   )
 7                  Debtor.        )     Adv. No.     2:10-1632-RJH
                                   )
 8                                 )
     ROSIRA a. CORREIA-SASSER,     )
 9                                 )
                    Appellant,     )
10                                 )
     v.                            )     M E M O R A N D U M1
11                                 )
     JOHN ROGONE and JASON ROGONE, )
12   individuals and successor     )
     co-trustees of the ALFREDO    )
13   CORREIA AND MARY F. CORREIA   )
     TRUST,                        )
14                                 )
                    Appellees.     )
15   ______________________________)
16                      Submitted Without Oral Argument
                               on July 25, 20142
17
                            Filed - August 19, 2014
18
               Appeal from the United States Bankruptcy Court
19                       for the District of Arizona
20       Honorable Randolph J. Haines, Bankruptcy Judge, Presiding
21
     Appearances:    Appellant Rosira Correia-Sasser pro se on brief;
22                   G. Lee Henman, Jr., of Henman Law Firm, P.C. on
                     brief for appellees, John Rogone and Jason Rogone.
23
24
          1
            This disposition is not appropriate for publication.
25   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
26   Cir. BAP Rule 8013-1.
27        2
            In an order entered on April 4, 2014, the Panel determined
     this matter was suitable for disposition without oral argument.
28   Fed. R. Bankr. P. 8012; 9th Cir. BAP R. 8012-1.
 1   Before:   KIRSCHER, TAYLOR and PAPPAS, Bankruptcy Judges.
 2        Appellant, chapter 73 debtor Rosira Correia-Sasser
 3   ("Debtor"), appeals a judgment determining that a debt arising
 4   from a California judgment was excepted from discharge under
 5   § 523(a)(4) and that a debt arising from an Arizona judgment was
 6   excepted from discharge under § 523(a)(4) and (a)(6).     We AFFIRM.
 7               I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
 8   A.   Events leading up to the California litigation
 9        Alfredo Correia, Debtor's father, died in 1989 and left
10   certain assets in a trust dated October 26, 1989 (the "Trust").
11   Debtor's sons, Jason Rogone, John Rogone (now Bing Bada Bing) and
12   James Shaw, are the Trust beneficiaries.   At all relevant times,
13   Debtor was the trustee of the Trust.   By its terms, the Trust was
14   to end in 2005, when James Shaw reached twenty-five years of age.
15        The Trust provided that upon Mr. Correia’s death, Debtor
16   would receive title to two parcels of real property located in the
17   Point Loma area of San Diego (together, the "Lots").    Lot 12,
18   which contained a home, was left to Debtor "free of trust."
19   Lot 11, which was adjacent to Lot 12, was vacant.   Lot 11 was left
20   to Debtor "as trustee for the benefit of John Rogone, Jason Rogone
21   and James Shaw."
22        In 1991, Debtor, individually and as trustee of the Trust,
23   contributed the Lots to a limited partnership known as Point Loma
24   Properties LLP (the "Developer") for a value of $620,000 for the
25
26
          3
            Unless specified otherwise, all chapter, code and rule
27   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
     the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The
28   Federal Rules of Civil Procedure are referred to as “Civil Rules.”

                                     -2-
 1   purpose of building a condominium project.4   Debtor, individually
 2   and as trustee of the Trust, became a limited partner in the
 3   limited partnership owning the condominium project.    She and the
 4   Trust were each given an equal interest in the partnership valued
 5   at $310,000, for a total of $620,000.   She and the Trust received
 6   a cash liquidating distribution on the formation of the limited
 7   partnership in the amount of $420,000, less a six percent broker
 8   commission on the value of the property contributed to the
 9   partnership, i.e., six percent of $620,000.   The net cash
10   liquidating distribution on formation, thus, amounted to
11   $383,513.95 [$420,000 less six percent of $620,000].   The $200,000
12   remaining from initial capital contribution was to be paid either
13   as a liquidating distribution or as liquidation proceeds as
14   specified in the limited partnership agreement.   As security for
15   her investment, Debtor obtained deeds of trust on the homes of
16   other partners of the Developers; the California state court found
17   such deeds of trust "illusory."
18        Debtor did not distribute any portion of the cash liquidating
19   distribution on formation to the Trust, but kept all $383,513.95
20   for herself, effectively shifting the entire risk of the
21   investment to the Trust and its beneficiaries.    Although under the
22   limited partnership agreement the Lots were each assigned a value
23   of $310,000 (or a 50/50 split), Debtor testified that she
24   allocated the cash liquidating distribution on formation to
25
26        4
            Initially, Debtor’s transaction with the Developers
     involved a sale of the two lots, but the transaction evolved into
27   a partnership wherein one group of partners contributed cash and
     Debtor, on behalf of herself and the Trust, contributed the two
28   lots.

                                       -3-
 1   herself because she had been advised by her father and her real
 2   estate agent that Lot 11 (the Trust's lot) was worth only one
 3   quarter of the value of Lot 12 (her lot).   Debtor further
 4   testified that at the time she entered into the transaction with
 5   the limited partnership, she thought it was "very fair" that she
 6   receive two-thirds of the $620,000 (the nearly $400,000 in cash)
 7   and the Trust beneficiaries receive one-third (the $200,000
 8   investment risk).
 9        When the Developer failed to develop the Lots and distribute
10   the $200,000 plus interest, Debtor sued the Developer.    In her
11   individual capacity, she settled that suit for $60,000.   Debtor
12   kept all of the settlement proceeds until John and Jason brought
13   suit against her, after which she distributed $10,000 to each of
14   her sons, but kept $30,000 for herself.   Ultimately, Debtor was
15   ordered by the California state court to pay the remaining $30,000
16   in settlement proceeds to the Trust.
17   B.   The California litigation and judgment
18        In 2004, John and Jason filed suit against Debtor in
19   California state court for breach of fiduciary duty and other
20   claims.   In 2006, the California state court found that while
21   acting in her capacity as trustee, Debtor committed multiple
22   breaches of her fiduciary duty by:    (1) investing her children's
23   money in a highly speculative and risky investment; (2) taking the
24   entire cash distribution and placing the investment risk solely on
25   the Trust; (3) failing to provide annual accountings; (4) failing
26   to give the Trust beneficiaries access to Trust records; and
27   (5) failing to distribute the remaining Trust property upon its
28   termination in 2005.   Debtor was removed as trustee.

                                     -4-
 1        While the California state court found that Debtor's
 2   "inexperience, misunderstanding and misguided realtor reliance
 3   [were] not defenses to her breach of fiduciary duty," it also
 4   determined that allocating the entire risk of the investment to
 5   the Trust while taking the cash for herself was "a pure conflict"
 6   and that the transaction she entered into "was not a prudent
 7   investment."    It also found in support of mitigating damages under
 8   CAL. PROBATE CODE    § 16440(b)5 that Debtor had acted "reasonably, and
 9   in good faith under the circumstances known to [her]" and that her
10   actions "were not intentional or an attempt to take her children's
11   inheritance."       The California state court finally found that
12   Debtor was clearly taken advantage of by other partners of the
13   Developers, their attorneys and her realtor.       Punitive damages
14   were denied.
15        An amended judgment for $383,244.646 plus $4,647.60 for costs
16   was entered in March 2007 ("California Judgment").       Debtor did not
17   appeal.    John and Jason registered the California Judgment in
18   Arizona in August 2007 and recorded the California Judgment in the
19   Maricopa County Recorder’s Office in Arizona in October 2007.
20   C.   The Arizona litigation
21        While the California litigation was pending, Debtor and her
22
23        5
              CAL. PROBATE CODE § 16440(b) provides:
24        If the trustee has acted reasonably and in good faith under
          the circumstances as known to the trustee, the court, in its
25        discretion, may excuse the trustee in whole or in part from
          liability under subdivision (a) if it would be equitable to
26        do so.
27        6
            The original $414,003 judgment was reduced due to the
     partial satisfaction of $30,758.36 from the Developer suit
28   settlement proceeds.

                                         -5-
 1   current husband were busy working with legal counsel to transfer
 2   Debtor's assets to protect her from any potential adverse
 3   judgment.   In October 2007, John and Jason sued Debtor, her
 4   husband and others in Arizona state court alleging that various
 5   asset transfers violated Arizona's Uniform Fraudulent Transfer
 6   Act.    The complaint asserted that during the pendency of the
 7   California litigation, Debtor recognized she was not likely to
 8   prevail and, before the conclusion of that case, she and her
 9   husband transferred virtually all of Debtor's assets in an attempt
10   to hide them from her sons.   Specifically, John and Jason claimed
11   that Debtor made the transfers with the intent to hinder, delay or
12   defraud them in the collection of the California Judgment.
13          An advisory jury found for John and Jason in July 2009.
14   Prior to the entry of any judgment, the Arizona state court issued
15   a Minute Entry Ruling on October 8, 2009 (the "2009 Minute Entry")
16   in relation to John and Jason's post-trial motion for attorney's
17   fees.   The Arizona state court found that Debtor was liable for
18   John and Jason's fees under ARS §§ 12-349 and 12-350.7   A judgment
19   was eventually entered in November 2009 and amended in December
20   2009, nunc pro tunc.   The Arizona state court determined that
21   Debtor and her husband transferred assets with the intent to
22   hinder, delay or defraud Debtor's sons in the collection of the
23
24
          7
            ARS § 12-349 permits the court to assess attorney's fees
25   against a party who brings or defends a claim without substantial
     justification – in other words – frivolous claims or defenses. A
26   claim is "without substantial justification" if it constitutes
     harassment, is groundless and is not made in good faith. ARS
27   § 12-350 provides that the court must set forth specific reasons
     for an award under ARS § 12-349 and lists the factors the court
28   may consider to make that determination.

                                      -6-
 1   California Judgment.8   It further found that Debtor and her
 2   husband were aware of the substantial likelihood that Debtor would
 3   not be successful in the California litigation and had the intent
 4   to hide her assets from her sons by transferring them.    Debtor and
 5   her husband were found to have defended the case in bad faith.
 6   Accordingly, Debtor's sons were awarded $121,950 in attorney's
 7   fees and $3,137.21 in costs.   The Arizona state court also ordered
 8   that certain properties be sold and the net proceeds applied to
 9   satisfy the California Judgment.
10        As explained below, post-judgment motions were considered,
11   matters were appealed, and the Arizona judgment was ultimately
12   amended two more times.
13   D.   The nondischargeability action
14        Debtor filed a chapter 7 bankruptcy case on June 8, 2010.
15   John and Jason filed a complaint seeking to except the California
16   Judgment from discharge under § 523(a)(4) and to except the first
17   amended Arizona judgment from discharge under § 523(a)(6).
18        1.   The Arizona litigation continues
19        In the meantime, the Arizona litigation continued.   After
20   considering various motions to alter or amend judgment or for a
21   new trial, the Arizona state court entered another amended
22   judgment on November 19, 2010, nunc pro tunc to the original
23   November 2009 judgment (the "Second Amended Arizona Judgment").
24   Among other things, Debtor had sought relief from the attorney's
25
26        8
            The Arizona state court found that Debtor's counsel were
     never informed by Debtor of, or had any knowledge of, her intent
27   to hinder, delay or defraud her sons in the collection on their
     judgment or that counsel defended the case with the primary or
28   sole purpose to hinder, delay or defraud the sons.

                                      -7-
 1   fee award, contending that the Arizona state court failed to make
 2   the requisite findings to support it.   The Arizona state court
 3   disagreed, referring to the 2009 Minute Entry wherein it made the
 4   required findings.   Debtor's motion for a new trial on the
 5   attorney's fees was denied.
 6        Notably, after Debtor sought relief from the attorney's fee
 7   award, the Arizona state court entered a "Ruling" on February 24,
 8   2010, which appears to be the Memorandum in support of the Second
 9   Amended Arizona Judgment and a supplement to the 2009 Minute Entry
10   (the "2010 Minute Entry").    The 2010 Minute Entry was drafted by
11   the court, as opposed to the Second Amended Arizona Judgment,
12   which was drafted by John and Jason's counsel.   These facts become
13   important later.   The 2010 Minute Entry set forth the same
14   findings made in the Second Amended Arizona Judgment as to the
15   attorney's fee award under ARS § 12-349 and the court's denial to
16   reconsider that issue.   It also noted that Debtor had admitted at
17   trial "that she transferred Arizona property during the pendency
18   of the California litigation to insulate herself and her assets
19   from suit," which the Arizona state court found to be an admission
20   under the UFTA.
21        In January 2011, Debtor cross-appealed from portions of the
22   Second Amended Arizona Judgment, including the determination that
23   she had defended the case in bad faith, that resulted in the
24   monetary sanction of attorney's fees.
25        2.   Motion for summary judgment and ruling
26        In March 2011, John and Jason moved for summary judgment on
27   their nondischargeability complaint ("MSJ").   In short, they
28   argued that issue preclusion applied to both the California

                                      -8-
 1   Judgment and the Second Amended Arizona Judgment.
 2        The bankruptcy court granted the MSJ.   Applying the Ninth
 3   Circuit's pre-Bullock9 standard, the court reasoned that Debtor's
 4   breach of fiduciary duty, even if innocent, satisfied the
 5   requirement for a defalcation under § 523(a)(4) and therefore the
 6   California Judgment was nondischargeable.    As for the Second
 7   Amended Arizona Judgment, the bankruptcy court determined that
 8   Debtor's actions established a willful and malicious injury under
 9   § 523(a)(6).   The Arizona state court found she acted wrongfully
10   when she voluntarily and intentionally transferred her property
11   and property interests, the transfers were made with the actual
12   intent to hinder, delay or defraud her sons, and her actions
13   injured her sons in their attempt to collect on the California
14   Judgment.   Therefore, the Second Amended Arizona Judgment was a
15   debt incurred due to Debtor's willful and malicious injury and was
16   nondischargeable under § 523(a)(6).
17        3.     Debtor's motion to stay entry of judgment
18        In November 2011, Debtor moved to stay entry of the
19   nondischargeability judgment pending a ruling by the Arizona state
20   court.    Apparently, the language in the Second Amended Arizona
21
          9
            Bullock v. BankChampaign, N.A., 133 S.Ct. 1754 (2013).
22   Prior to Bullock, the rule in the Ninth Circuit was that no
     particular state of mind was required to satisfy § 523(a)(4)'s
23   defalcation requirement. See Sherman v. Sec. & Exch. Comm'n.
     (In re Sherman), 658 F.3d 1009, 1017-18 (9th Cir. 2011). Even an
24   innocent failure to account for trust property could constitute a
     defalcation. See id. (citing Blyler v. Hemmeter (In re Hemmeter),
25   242 F.3d 1186, 1190-91 (9th Cir. 2001)). Bullock, however,
     overruled In re Sherman and In re Hemmeter to the extent those two
26   decisions did not recognize that for purposes of § 523(a)(4), a
     "defalcation" includes a scienter or "state of mind" component.
27   See Pemstein v. Pemstein (In re Pemstein), 492 B.R. 274, 278 (9th
     Cir. BAP 2013)(recognizing Bullock and the abrogation of the Ninth
28   Circuit's previous intent standard).

                                      -9-
 1   Judgment, which the bankruptcy court had relied upon for its
 2   ruling, was being reviewed by the Arizona state court for possible
 3   "fraud upon the court" committed by John and Jason's counsel who
 4   drafted it.    The Arizona Court of Appeals had suspended the appeal
 5   of the Second Amended Arizona Judgment and revested jurisdiction
 6   in the trial court for the purpose of permitting Debtor to file a
 7   motion to set the judgment aside.    Debtor filed that motion, which
 8   was pending.
 9        No order was entered on the motion to stay entry of the
10   nondischargeability judgment, but the bankruptcy court informally
11   agreed to not enter it pending the outcome of the Arizona
12   litigation.
13        4.      The third amended Arizona judgment
14        About eighteen months later, the Arizona state court issued a
15   third amended judgment (the "Third Amended Arizona Judgment") on
16   May 1, 2013, nunc pro tunc to the original November 2009 judgment.
17   It replaced and superceded the Second Amended Arizona Judgment
18   because that judgment "contained multiple, material and
19   surreptitiously added provisions not authorized by any prior court
20   ruling[.]"    The Third Amended Arizona Judgment, however, and
21   contrary to statements made by Debtor's counsel at the later trial
22   before the bankruptcy court, expressly incorporated the findings
23   set forth in the 2010 Minute Entry, which incorporated similar
24   findings made in the 2009 Minute Entry.    The Arizona state court
25   maintained its ruling that Debtor had defended the fraudulent
26   transfer claims in bad faith and, therefore, she was still liable
27   for the attorney's fee award for the reasons stated in the 2010
28   Minute Entry.

                                       -10-
 1        5.    The motion to amend the MSJ ruling
 2        In light of the Third Amended Arizona Judgment and the
 3   issuance of Bullock, Debtor moved to amend the bankruptcy court's
 4   ruling on the MSJ under Civil Rule 59(a).   Debtor contended that
 5   the findings in the Third Amended Arizona Judgment failed to
 6   support a § 523(a)(6) claim for two reasons.    First, the judgment
 7   contained no findings that the fraudulent transfers were done with
 8   the actual intent to hinder, delay or defraud Debtor's sons, only
 9   that they were "fraudulent and of no force and effect."   Second,
10   the only monetary relief granted to Debtor's sons was the
11   attorney's fees.   She noted that the judgment stated only that
12   Debtor had defended the matter in "bad faith," and that finding,
13   standing alone, was insufficient to establish a willful and
14   malicious injury under § 523(a)(6).
15        Debtor also argued that the California Judgment did not
16   support a defalcation under § 523(a)(4).    She asserted that the
17   California state court's findings that Debtor's breach was not
18   intentional or an attempt to take her children's inheritance, and
19   that she had acted reasonably and in good faith under the
20   circumstances, were insufficient to meet the heightened intent
21   standard under Bullock.   John and Jason opposed Debtor's motion.
22        The bankruptcy court granted Debtor's motion to amend and
23   ordered a limited trial on the application of Bullock to her
24   intent.   Although not expressly stated in its minute entry, Debtor
25   would also be allowed to present evidence as to her intent when
26   she made the property transfers during the California litigation.
27   However, the bankruptcy court's decision to allow that evidence
28   was "without prejudice" and subject to the court later concluding

                                     -11-
 1   after trial that issue preclusion did in fact apply to the Arizona
 2   state court's findings on the matter.
 3        6.   The trial and bankruptcy court's ruling
 4        The bankruptcy court held a trial on the issues of Debtor's
 5   intent as a fiduciary under Bullock and her intent with respect to
 6   the fraudulent transfers made during the California litigation.
 7   Debtor and Jason testified.    After summation by the parties, the
 8   bankruptcy court announced its findings and conclusions on the
 9   record, ruling that the California Judgment was excepted from
10   discharge under § 523(a)(4) and that the Third Amended Arizona
11   Judgment for John and Jason's attorney's fees was excepted from
12   discharge under § 523(a)(4) and (a)(6).     A judgment consistent
13   with the court's oral ruling was entered on September 11, 2013.
14   This timely appeal followed.
15                             II. JURISDICTION
16        The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334
17   and 157(b)(2)(I).   We have jurisdiction under 28 U.S.C. § 158.
18                                 III. ISSUES
19   1.   Did the bankruptcy court err in determining the California
20   Judgment was excepted from discharge under § 523(a)(4)?
21   2.   Did the bankruptcy court err in determining the Third Amended
22   Arizona Judgment was excepted from discharge under § 523(a)(4) and
23   (a)(6)?
24                         IV. STANDARDS OF REVIEW
25        In reviewing a bankruptcy court's nondischargeability
26   determination, we review its findings of fact for clear error and
27   its conclusions of law de novo.    Oney v. Weinberg
28   (In re Weinberg), 410 B.R. 19, 28 (9th Cir. BAP 2009).    However,

                                       -12-
 1   the ultimate question of whether a particular debt is
 2   dischargeable is a mixed question of fact and law that we review
 3   de novo.    See Honkanen v. Hopper (In re Honkanen), 446 B.R. 373,
 4   382 (9th Cir. BAP 2011).   The availability of issue preclusion is
 5   a question of law we review de novo.    Wolfe v. Jacobson
 6   (In re Jacobson), 676 F.3d 1193, 1198 (9th Cir. 2012).      If issue
 7   preclusion is available, the decision to apply it is reviewed for
 8   abuse of discretion.   Lopez v. Emergency Serv. Restoration, Inc.
 9   (In re Lopez), 367 B.R. 99, 103 (9th Cir. BAP 2007).    A bankruptcy
10   court abuses its discretion if it applies an incorrect legal
11   standard or its factual findings are illogical, implausible or
12   without support from evidence in the record.    TrafficSchool.com v.
13   Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011).
14                               V. DISCUSSION
15   A.   The bankruptcy court did not err when it determined that the
          California Judgment was excepted from discharge under
16        § 523(a)(4).
17        A debt is excepted from discharge under § 523(a)(4) where
18   "1) an express trust existed, 2) the debt was caused by fraud or
19   defalcation, and 3) the debtor acted as a fiduciary to the
20   creditor at the time the debt was created."    Mele v. Mele
21   (In re Mele), 501 B.R. 357, 363 (9th Cir. BAP 2013)(quoting Otto
22   v. Niles (In re Niles), 106 F.3d 1456, 1459 (9th Cir. 1997)).     A
23   party must prove these elements by a preponderance of the
24   evidence.   Lovell v. Stanifer (In re Stanifer), 236 B.R. 709, 713
25   (9th Cir. BAP 1999).
26        In California, "[t]he five elements required to create an
27   express trust are (1) a competent trustor, (2) trust intent,
28   (3) trust property, (4) trust purpose, and (5) a beneficiary."

                                      -13-
 1   Keitel v. Heubel, 103 Cal.App.4th 324, 337 (2002).     Although a
 2   copy of the Trust was not offered in the record, no one disputes
 3   its existence.   Debtor also admitted that she was the trustee of
 4   the Trust, which no one disputes is a "fiduciary" within the
 5   meaning of § 523(a)(4), at the time the California debt was
 6   created.    Therefore, the only issue the bankruptcy court had to
 7   resolve is whether the California Judgment was caused by a
 8   defalcation.
 9        A defalcation has two elements:    a breach of fiduciary duty
10   and wrongful intent.   A breach of fiduciary duty is satisfied
11   either by misappropriating trust assets or by failing to account
12   for such assets.   In re Hemmeter, 242 F.3d at 1190 (citing Lewis
13   v. Scott (In re Lewis), 97 F.3d 1182, 1186 (9th Cir. 1996)).     A
14   "defalcation" can occur for purposes of § 523(a)(4) if the
15   fiduciary either misappropriated trust assets or failed to account
16   for them.   See id.
17        "Wrongful intent" requires a culpable state of mind
18   "involving knowledge of, or gross recklessness in respect to, the
19   improper nature of the relevant fiduciary behavior."    Bullock,
20   133 S.Ct. at 1757.    Reckless conduct qualifies as the equivalent
21   of "actual knowledge of wrongdoing."    Id. at 1759.   A fiduciary's
22   conduct is sufficiently reckless "if the fiduciary consciously
23   disregards or is willfully blind to a substantial and
24   unjustifiable risk that his conduct will turn out to violate a
25   fiduciary duty."   Id. (quotation marks omitted).
26        The bankruptcy court found that Debtor's conduct in failing
27   to allocate, without justification, any of the $383,513.95 in sale
28   proceeds and placing the entire risk of the limited partnership

                                      -14-
 1   investment on the Trust was, at minimum, a willful blindness to a
 2   substantial and unjustifiable risk that would violate her
 3   fiduciary duties to the Trust:
 4        To me the most significant fact in this case is not so
          much how the sales price was allocated between the two
 5        lots, but rather how the down payment was allocated
          between the two lots.    And there is no testimony that
 6        Ms. Correia relied on the advice of anyone else that she
          was acting properly or authorized to allocate all of the
 7        cash down payment to her own benefit while allocating an
          investment in, frankly, either a deferred debt secured by
 8        a deed of trust or, as it turned out, a limited
          partnership interest to the trust, to Lot 11. Nor did I
 9        even   hear  from   Ms.   Correia   any  explanation   or
          justification for that allocation, that is allocating all
10        of the down payment to herself instead of, as she
          contended, well, it should have been allocated – that is
11        the sale price should have been allocated three quarters
          perhaps to Lot 12 and one quarter to Lot 11. She didn't
12        even provide any justification for similarly allocating
          the down payment. That is where I find that, by taking
13        all of the cash for herself and leaving the trust with a
          limited partnership interest, she acted at a minimum with
14        willful blindness to her fiduciary duties to the Trust.
          Willfully blind to the substantial risk of the limited
15        partnership investment.
16        Again, it doesn't really matter how much she thought that
          risk was, there's absolutely no justification for putting
17        all of that risk, however much it might be, on the trust
          while taking none for herself and instead taking all of
18        the cash. That's where I find that she acted recklessly
          within the meaning of the standard adopted by Bullock.
19
20   Trial Tr. (Sept. 9, 2013) 120:6-121:7.
21        Debtor contends the bankruptcy court erred by failing to give
22   preclusive effect to the California state court's findings that
23   she acted reasonably and in good faith, and that her actions were
24   not intentional or an attempt to harm her children.
25        The doctrine of issue preclusion applies in bankruptcy
26   dischargeability proceedings to preclude the relitigation of state
27   court findings relevant to dischargeability.   Grogan v. Garner,
28   498 U.S. 279, 285 n.11 (1991); T & D Moravits & Co. v. Munton

                                      -15-
 1   (In re Munton), 352 B.R. 707 (9th Cir. BAP 2006).   The party
 2   asserting issue preclusion has the burden to prove each required
 3   element.   Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1050-51
 4   (9th Cir. 2008).   Any reasonable doubt regarding what the prior
 5   court decided is resolved against applying issue preclusion.
 6   In re Honkanen, 446 B.R. at 382.
 7        For issue preclusion to apply to the California Judgment,
 8   the California state court must have made findings that Debtor
 9   engaged in a "defalcation" within the meaning of § 523(a)(4).10
10   These findings must have been actually litigated and necessary to
11   the California Judgment.   The other requirements of issue
12   preclusion are satisfied because the issues in each proceeding are
13   the same (breach of fiduciary duty and damages), the parties are
14   the same, and the California Judgment is final.
15        To establish a breach of fiduciary duty in California,
16   plaintiff must show the existence of a fiduciary relationship, its
17   breach, and damage proximately caused by that breach.   Oasis W.
18   Realty, LLC v. Goldman, 51 Cal.4th 811, 820 (2011).   No particular
19   scienter element is required.   The California state court's
20   language of "lack of prudence" and "acted reasonably" implies a
21   negligence standard was applied in Debtor's case and not the
22   subjective knowingly or reckless standard required by Bullock.
23
          10
            In California, the party asserting issue preclusion must
24   establish the following five elements: (1) the issue sought to be
     precluded from relitigation must be identical to that decided in a
25   former proceeding; (2) this issue must have been actually
     litigated in the former proceeding; (3) it must have been
26   necessarily decided in the former proceeding; (4) the decision in
     the former proceeding must be final and on the merits; and (5) the
27   party against whom preclusion is sought must be the same as, or in
     privity with, the party to the former proceeding. Lucido v.
28   Super. Ct., 51 Cal.3d 335, 341 (1990)(en banc).

                                     -16-
 1   Thus, whether a "defalcation" occurred for purposes of § 523(a)(4)
 2   involves a different legal standard than the breach of fiduciary
 3   duty found by the California state court.    Therefore, whether
 4   Debtor's conduct rose to the level of a "defalcation" under
 5   Bullock was never actually litigated or necessarily decided in the
 6   prior action.
 7        Nevertheless, in mitigating the beneficiaries' damages under
 8   CAL. PROBATE CODE § 16440(b), the California state court found that
 9   Debtor had "acted reasonably and in good faith under the
10   circumstances known to [her]."    Thus, intent findings were made
11   for the purpose of assessing damages.    Debtor contends the
12   bankruptcy court was required to give preclusive effect to these
13   "favorable" intent findings and could not make its own findings on
14   that issue.    We disagree.   On this record, it is not clear whether
15   these findings pertain to just Debtor's decision on the failed
16   investment, which the California state court focused heavily on
17   and tied to unscrupulous third parties, to Debtor's failure to
18   provide accountings or access to Trust records, or to all of her
19   breaches of fiduciary duty, including her act of "pure conflict"
20   in keeping the sale proceeds for herself while allocating 100% of
21   the investment risk to the Trust.    Thus, it is not clear which
22   breach or breaches were necessary to the California Judgment, and
23   it cannot support a finding that Debtor did not commit a
24   defalcation.
25        We further conclude the California state court's findings
26   that Debtor's actions "were not intentional or an attempt to take
27   her children's inheritance" were entirely unnecessary to the
28   California Judgment.    Under California law, an issue has been

                                       -17-
 1   "necessarily decided" if it is not "entirely unnecessary" to the
 2   judgment in the initial proceeding.     Zevnik v. Super. Ct.,
 3   159 Cal.App.4th 76, 83 (2008)(citing Lucido, 51 Cal.3d at 342).
 4   See also Yates v. United States, 354 U.S. 298, 336 (1957)(issue
 5   preclusion "makes conclusive in subsequent proceeding only
 6   determinations of fact . . . that were essential to the
 7   decision").   Ultimately, these findings were unnecessary to the
 8   court's determination on damages, because its findings of Debtor's
 9   "reasonable" and "good faith" conduct were sufficient to support
10   its decision to mitigate damages under CAL. PROBATE CODE § 16440(b).
11   As a result, the bankruptcy court did not have to give these
12   additional and unnecessary findings preclusive effect.
13        Because the California Judgment had no preclusive effect as
14   to Debtor's intent for purposes of § 523(a)(4), the bankruptcy
15   court was free to make its own findings to determine whether it
16   was excepted from discharge.   The bankruptcy court found the most
17   significant breach of Debtor's fiduciary duty was how she
18   allocated the cash liquidating distribution on formation between
19   her and the Trust.   No one advised Debtor that allocating the
20   entire cash distribution to herself, while allocating only the
21   limited partnership interest and the $200,000 remaining capital
22   account to the Trust, was proper.   Further, Debtor provided no
23   explanation or justification for that allocation, or for her
24   failure to allocate the cash distribution in accordance with the
25   values she placed on the Lots.   By taking all of the cash for
26   herself and leaving the Trust with only a limited partnership
27   interest and a $200,000 remaining capital account, Debtor, at
28   minimum, was willfully blind to a substantial and unjustifiable

                                      -18-
 1   risk that her conduct would violate her fiduciary duties.    This
 2   conduct is what led the bankruptcy court to conclude that Debtor
 3   had acted recklessly within the meaning of Bullock.
 4        We see no clear error in the bankruptcy court's findings.
 5   Accordingly, it did not err in determining the California Judgment
 6   was excepted from discharge under § 523(a)(4).
 7   B.   The bankruptcy court did not err when it determined that the
          Third Amended Arizona Judgment was excepted from discharge
 8        under § 523(a)(6) and (a)(4).
 9        Section 523(a)(6) excepts from discharge debts "for willful
10   and malicious injury by the debtor to another entity or to the
11   property of another entity."   Both willfulness and maliciousness
12   must be proven to apply § 523(a)(6).    Ormsby v. First Am. Title
13   Co. of Nev. (In re Ormsby), 591 F.3d 1199, 1206 (9th Cir. 2010).
14   "A 'willful' injury is a 'deliberate or intentional injury, not
15   merely a deliberate or intentional act that leads to injury.'"
16   Barboza v. New Form, Inc. (In re Barboza), 545 F.3d 702, 706 (9th
17   Cir. 2008)(quoting Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998)
18   (emphasis in original)).    At a minimum, willful requires "a
19   deliberate act with knowledge that the act is substantially
20   certain to cause injury."   Petralia v. Jercich (In re Jercich),
21   238 F.3d 1202, 1208 (9th Cir. 2001).    In other words, a debtor's
22   act is "willful" only if he or she actually intended to cause
23   injury or actually believed that injury was substantially certain
24   to occur.   Carrillo v. Su (In re Su), 290 F.3d 1140, 1144-45 (9th
25   Cir. 2002).
26        Proving a "malicious" injury requires a showing that the
27   debtor (1) committed a wrongful act, (2) done intentionally,
28   (3) which necessarily causes injury, and (4) was done without just

                                      -19-
 1   cause or excuse.   Id. at 1146-47.
 2        After hearing no testimony from Debtor attempting to justify
 3   why she engaged in the fraudulent transfers of her assets during
 4   the California litigation, the bankruptcy court decided the
 5   Arizona state court's finding that Debtor defended the fraudulent
 6   transfer action in bad faith would be given preclusive effect:
 7        As to the Arizona litigation, there is a finding which is
          entitled to res judicata effect that she defended the
 8        fraudulent transfer action in bad faith. At a minimum,
          that means as a matter of law it's a given that she had
 9        no bona fide defense to the claim that the transfer of
          her assets was made with actual intent to hinder, delay,
10        and [sic] defraud creditors.    And before me today the
          only evidence is that the only creditors she had were her
11        children.
12        She had the opportunity in testimony here to provide any
          justification she may have had as to either why that
13        transfer was made in good faith, made for some reason
          other than with actual intent to hinder, delay, or
14        defraud creditors, namely her children, or to put on any
          defense – any justification as to why she had a bona fide
15        defense to that argument, and she did not come forward
          with any. In fact, all we really heard about why the
16        transfer occurred at all was that it was originally
          advised that it made sense to put her husband's rental
17        properties in an LLC. No testimony as to why she was
          advised that her own property should go into an LLC.
18
          Consequently, the only conclusion that can be drawn from
19        the judgment, coupled with the lack of any other
          justification for it in her testimony today, is that it
20        was made with the intent to keep her assets from her
          creditors and that constitutes willful and malicious
21        injury under § 523(a)(6).
22        . . .
23        Consequently, I find and conclude that on the testimony
          the attorney's fees incurred in the Arizona litigation are
24        also non-dischargeable pursuant to § 523(a)(6).
25   Trial Tr. (Sept. 9, 2013) 121:8-122:6; 122:13-15.
26        Debtor argues the Arizona state court made no findings that
27   her conduct was willful or malicious and the bankruptcy court was
28   limited to the finding in the Third Amended Arizona Judgment that

                                     -20-
 1   she litigated the case in "bad faith."   Debtor argues that a bad
 2   faith finding is insufficient to satisfy a claim for a willful and
 3   malicious injury under § 523(a)(6).    She further argues the
 4   bankruptcy court erred in determining the debt for the attorney's
 5   fees was excepted from discharge under § 523(a)(6) because the
 6   transfers did not result in any monetary damage to her sons.    We
 7   disagree with all of Debtor's arguments.
 8        The elements of a state court action are rarely identical to
 9   those for proving a willful and malicious injury.   However, issue
10   preclusion will apply if the facts established by the state court
11   judgment establishes that a debtor's violation of the UFTA was a
12   willful and malicious injury.   We conclude the findings made by
13   the Arizona state court established both the willful and malicious
14   prongs for purposes of nondischargeability under § 523(a)(6).
15        A judgment for "actual" fraudulent transfer can satisfy the
16   elements for a willful and malicious injury.   In re Fairgrieves,
17   426 B.R. 748, 758 (Bankr. N.D. Ill. 2010)(judgment for "actual"
18   fraudulent transfer can demonstrate a willful and malicious injury
19   under § 523(a)(6)).   See Vazquez v. AAA Blueprint & Digital
20   Reprographics (In re Vazquez), 2013 WL 6571693, at *4-6 (9th Cir.
21   BAP Dec. 13, 2013)(affirming bankruptcy court's ruling that
22   creditor's judgment for actual fraudulent transfer under CAL. CIV.
23   CODE § 3439.04(a)(1) satisfied the elements for a willful and
24   malicious injury under § 523(a)(6), so issue preclusion was
25   properly applied).
26        Although the Third Amended Arizona Judgment had eliminated
27   the "intent" language previously stated in the Second Amended
28   Arizona Judgment — i.e., that Debtor transferred her assets "with

                                     -21-
 1   the intent to hinder, delay or defraud Plaintiffs" — the Third
 2   Amended Arizona Judgment incorporated the findings made in the
 3   2010 Minute Entry, which also incorporated and supplemented the
 4   findings made in the 2009 Minute Entry.   The 2010 Minute Entry
 5   found that "Rose's own admission at trial that she transferred the
 6   Arizona property during the pendency of the California litigation
 7   to insulate herself and assets from suit was an admission under
 8   the UFTA."   The 2009 Minute Entry states:
 9        [T]he Court finds by a preponderance of the evidence that
          Rosira Correia and John Sasser transferred assets with
10        the intent to hinder, delay or defraud Plaintiffs.
11        . . .
12        Defendants Rosira Correia and John K. Sasser defended the
          case in bad faith. They transferred assets intending to
13        hinder, delay or defraud Plaintiffs. They tried to hide
          her assets from Plaintiffs and then denied that was their
14        intent.
15   Thus, the Third Amended Arizona Judgment established that Debtor
16   engaged in an "actual" fraudulent transfer.
17        In addition, the Arizona state court's finding that Debtor
18   defended the fraudulent transfer action in bad faith only further
19   establishes a willful and malicious injury within the meaning of
20   § 523(a)(6).   As the bankruptcy court properly concluded, as a
21   matter of law, because the Arizona state court found Debtor liable
22   for John and Jason's attorney's fees under ARS § 12-349, clearly
23   Debtor had no bona fide defense to the claim that the transfers of
24   her assets were made with the actual intent to hinder, delay or
25   defraud her sons and that the transfers were made with the intent
26   to keep her assets from them.   And, contrary to Debtor's
27   contention, the bankruptcy court was not limited only to the
28   Arizona state court's finding of "bad faith."   In support of the

                                     -22-
 1   fee award under ARS § 12-349, the Arizona state court set forth
 2   its complete findings in the 2009 Minute Entry (incorporated in
 3   the 2010 Minute Entry, which was incorporated into the Third
 4   Amended Arizona Judgment), which states:   "The Court finds that
 5   Defendants' defense constituted harassment, was groundless, was
 6   not made in good faith and was solely or primarily for delay."
 7        With the Arizona state court's finding of actual intent, it
 8   follows that Debtor intended to cause injury to her sons or
 9   believed that injury was substantially certain to occur as a
10   result of her transferring virtually all of her assets during the
11   California litigation to prevent her sons from executing on what
12   became the eventual California Judgment.   Thus, a "willful" injury
13   was established.
14        A "malicious" injury was also established.   A wrongful act is
15   self-evident given the nature of Debtor's conduct in transferring
16   her assets for the purpose of hindering her sons’ collection
17   efforts.   By finding her liable for actual fraudulent transfers,
18   the Arizona state court also necessarily found that Debtor's acts
19   were intentional.   Her wrongful actions, as evidenced by the
20   attorney's fee award under ARS § 12-349, necessarily caused her
21   sons injury; they were forced to incur attorney's fees by having
22   to file an action to undo the transfers in hopes of collecting on
23   the California Judgment.   See Suarez v. Barrett (In re Suarez),
24   400 B.R. 732, 739-740 (9th Cir. BAP 2009)("injury" can include
25   litigation expenses; no underlying compensatory judgment is
26   necessary for an award of attorney's fees to be nondischargeable).
27   Finally, as also evidenced by the attorney's fee award, Debtor's
28   actions were done without just cause or excuse.   As the Arizona

                                     -23-
 1   state court found, her defense to the fraudulent transfer claims
 2   was without substantial justification.    The bankruptcy court even
 3   offered Debtor the opportunity to provide any good faith reasons
 4   for the transfers; she offered none.
 5        The doctrine of issue preclusion prohibits relitigation of
 6   issues adjudicated by the Arizona state court.    In re Lopez,
 7   367 B.R. at 104.   Under Arizona law, issue preclusion applies
 8   "when an issue was actually litigated in a previous proceeding,
 9   there was a full and fair opportunity to litigate the issue,
10   resolution of the issue was essential to the decision, a valid and
11   final decision on the merits was entered, and there is common
12   identity of parties."    Hullett v. Cousin, 63 P.3d 1029, 1034-35
13   (Ariz. 2003)(en banc).
14        All of the foregoing elements are satisfied in this case.
15   The factual issues relevant to Debtor's willful and malicious
16   injury under § 523(a)(6) were actually litigated by the Arizona
17   state court.   Second, the record reflects that Debtor, who was
18   represented by counsel, had a full and fair opportunity to, and
19   did, litigate the fraudulent transfer claims and the attorney's
20   fees under ARS § 12-349.   Third, that Debtor tried to hide her
21   assets and defended subsequent litigation in bad faith by denying
22   her intent were essential to the Arizona state court's finding in
23   the Third Amended Arizona Judgment that John and Jason were
24   entitled to attorney's fees under ARS § 12-349.    Fourth, a valid
25   and final judgment on the merits was entered on May 1, 2013, nunc
26   pro tunc, to the original judgment entered on November 24, 2009.
27   Finally, the parties were the same.     Accordingly, the bankruptcy
28   court did not err in giving preclusive effect to the Arizona state

                                      -24-
 1   court's findings supporting its conclusion that the Third Amended
 2   Arizona Judgment for the statutory attorney's fees is a debt for a
 3   willful and malicious injury.
 4        The bankruptcy court also determined the debt for the
 5   attorney's fees was nondischargeable under § 523(a)(4) as a direct
 6   consequence of John and Jason's attempt to satisfy the California
 7   Judgment:
 8        In addition, however, I believe their non-dischargeability
          stands on an independent ground.         I believe those
 9        attorney's fees are also predictable consequences of the
          underlying actions and consequently are part of the debt
10        determined to be non-dischargeable in the California
          actions. They are like the damages or I think in the case
11        it was treble damages in Cohen versus Del La Cruz, the
          Supreme Court holding.     They are by her own actions,
12        intentional consequences of the underlying action that
          rendered the breach of her fiduciary duty non-
13        dischargeable under § 523(a)(4).       And consequently I
          believe the attorney's fees in the Arizona litigation are
14        also non-dischargeable under § 523(a)(4).
15   Trial Tr. (Sept. 9, 2013) 122:16-123:2.   In her statement of
16   issues presented in her opening brief, Debtor questioned the
17   bankruptcy court's decision that the attorney's fee award was
18   nondischargeable under § 523(a)(4) because her sons did not seek
19   such relief.   However, nowhere in her brief did Debtor provide any
20   more argument or authority on the matter.   As a result, this issue
21   has been abandoned.   City of Emeryville v. Robinson, 621 F.3d
22   1251, 1262 n.10 (9th Cir. 2010)(appellate court in this circuit
23   "will not review issues which are not argued specifically and
24   distinctly in a party's opening brief.").
25        In any event, we see no error in the bankruptcy court's
26   decision.   The attorney's fees awarded in the Third Amended
27   Arizona Judgment are nondischargeable because they flowed from
28   Debtor's nondischargeable conduct under § 523(a)(4).   See Cohen v.

                                     -25-
 1   de la Cruz, 523 U.S. 213, 223 (1998)(nondischargeable debt can
 2   include attorney's fees and costs incurred as a result of debtor's
 3   nondischargeable fraudulent conduct; applying § 523(a)(2) but
 4   reading it in pari materia with other nondischargeability
 5   sections, including § 523(a)(4) and (a)(6)); In re Suarez,
 6   400 B.R. at 738-39 (applying § 523(a)(6)).
 7        Accordingly, the bankruptcy court did not err in determining
 8   the Third Amended Arizona Judgment was excepted from discharge
 9   under § 523(a)(4) and (a)(6).
10                             VI. CONCLUSION
11        For the foregoing reasons, we AFFIRM.
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