UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

NORTHBAY WELLNESS GROUP, INC., No. 13-17381 a corporation, Appellant, D.C. No. 3:11-cv-06255- v. JSW MICHAEL KENNETH BEYRIES, Appellee. OPINION

Appeal from the United States District Court for the Northern District of California Jeffrey S. White, District Judge, Presiding

Argued and Submitted—January 14, 2015 San Francisco California

Filed June 5, 2015

Before: Milan D. Smith, Jr., Jacqueline H. Nguyen, and Michelle T. Friedland, Circuit Judges.

Opinion by Judge Friedland 2 NORTHBAY WELLNESS V. BEYRIES

SUMMARY *

Bankruptcy

The panel reversed the district court’s affirmance of the bankruptcy court’s conclusion that a judgment debt was not nondischargeable under 11 U.S.C. § 523(a)(4) as a debt for fraud or defalcation while acting in a fiduciary capacity.

The debt was for the chapter 7 debtor’s breach of contract and conversion of a legal defense trust fund for Northbay Wellness Group, operator of a medical marijuana dispensary. The debtor served on Northbay’s board of directors and acted as its attorney. The bankruptcy court held that under the doctrine of unclean hands, Northbay’s illegal marijuana sales prevented it from obtaining relief under § 523(a)(4). The panel reversed because the debtor’s wrongdoing outweighed Northbay’s and because application of the unclean hands doctrine to absolve an attorney of responsibility for stealing from his client would be contrary to the public interest.

* This summary constitutes no part of the opinion of the court. It has been prepared by court staff for the convenience of the reader. NORTHBAY WELLNESS V. BEYRIES 3

COUNSEL Lisa L. Gygax (argued), Law Offices of Lisa L. Gygax, Forestville, California, for Appellant. Jon C. Chandler (argued), David N. Chandler, Sr., and David N. Chandler, Jr., Law Offices of David N. Chandler, Santa Rosa, California, for Appellee.

OPINION FRIEDLAND, Circuit Judge:

Attorney Michael Beyries stole $25,000 from his client, a medical marijuana dispensary known as Northbay Wellness Group (“Northbay”). Beyries later filed for bankruptcy, and Northbay sought a determination that the $25,000 was a nondischargeable debt. The bankruptcy court recognized that debts arising from theft are typically nondischargeable, but it applied the doctrine of unclean hands to hold that Northbay’s illegal marijuana sales prevented Northbay from obtaining relief. Because Beyries’s wrongdoing outweighs Northbay’s, and because application of the unclean hands doctrine to absolve an attorney of responsibility for stealing from his client would be contrary to the public interest, we reverse. 1

1 We address Northbay’s other arguments in a concurrently filed memorandum disposition. 4 NORTHBAY WELLNESS V. BEYRIES

I. Background

Northbay Wellness Group operated as a California medical marijuana dispensary in 2005 and 2006 under the leadership of Dona Frank. Michael Beyries served on Northbay’s board of directors and received $5,000 per month to act as its attorney. In addition to the monthly payments, Northbay entrusted Beyries with at least $25,000 of its marijuana sales revenue as a legal defense trust fund, for use in the event that a Northbay employee, board member, or patient was arrested on marijuana-related charges. Northbay made the trust fund payments to Beyries in cash. Although Beyries assured Frank that he was keeping track of the trust fund deposits, Beyries never provided Frank with a receipt or other record of the funds.

On June 14, 2006, Beyries resigned fr