Northbay Wellness Group, Inc. v. Beyries
- Citation:
- Northbay Wellness Group, Inc. v. Beyries, No. 13-17381 (9th Cir. June 5, 2015)
- Tag(s):
-
- Ruling:
- REVERSING the district court's affirmance of the bankruptcy court's conclusion that a judgment debt was non-dischargeable under section 523(a)(4) of the Bankruptcy Code, the Ninth Circuit Court of Appeals held that application of the unclean hands doctrine to absolve an attorney of responsibility for stealing from his client (who operated a medical marijuana dispensary) would be contrary to the public interest. The panel emphasized that the bankruptcy court failed to balance the alleged wrongdoing of the plaintiff against that of the defendant or weigh the substance of the right asserted by the plaintiff against the transgression which, it is contended, serves to foreclose the right.
- Procedural context:
- Creditor appealed from the district court's affirmance of the bankruptcy court's conclusion that a judgment debt was non-dischargeable under section 523(a)(4) of the Bankruptcy Code.
- Facts:
- Creditor operated as a California medical marijuana dispensary. Debtor served on creditor's board of directors and received monthly compensation to act as its attorney. In addition to monthly compensation, creditor entrusted debtor with funds to be held in a legal defense trust fund. Debtor subsequently resigned and absconded with the trust fund money. Creditor sued debtor and obtained a state-court award for the converted funds as well as breach of contract and punitive damages. Several years later, debtor filed a chapter 7 bankruptcy case. Creditor commenced an adversary proceeding against debtor, alleging that the state-court award was non-dischargeable under section 523(a). The bankruptcy court concluded that the doctrine of unclean hands precluded any judgment in favor of creditor, as creditor generated the trust fund using proceeds from its operation of an illegal medical marijuana dispensary. Creditor appealed.
- Judge(s):
- Milan D. Smith, Jr., Jacqueline H. Nguyen, and Michelle T. Friedland, Circuit Judges
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