Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caeb-2_17-ap-02052/USCOURTS-caeb-2_17-ap-02052-0/pdf.json

Parties Involved:
BMW Bank of North America
Plaintiff
Alisica Bonita Davis-Brown
Defendant

Document Text:

FILED 

1 ' FOR PUBLICATION( DEC 182019 

2 UNITED STATES BJNKRUPTCY COURT 

EASTERN DISTRICT OF CALIFORNIA 

UMTED STATES BANKRUPTCY 

EASTERN DSTR;CT OF CALf F 

3 

4 In re: ALISICA DAVIS-BRQWN, 

5 Debtor. 

6 

BMW BANK OF NORTH AMERICA 

7 

Plaintiff, 

8 V . 

9 ALISICA DAVIS-BROWN, 

10 Defenda'nt. 

11 OPINION 

12 Before: Christopher M. Klein, Bankruptcy Judge 

13 

14 Timothy J. Silverman, Scheer Law Group, Newport Beach, CA, for 

BMW Bank of North America 

15 

16 

17 CHRISTOPHER M. KLEIN, Bankruptcy Judge: 

18 A bank's blind reliance on financial ratios does not qualify 

19 as "reasonable reliance" on a false financial statement for 

20 purposes of excepting a debt from discharge under 11 U.S.C. 

21 § 523(a) (2) (B) (iii) when it has information inconsistent with the 

22 credit application presented through an automobile dealer. 

23 BMW Bank of North America wants a default judgment for 

24 $46,041.96 to be entered and excepted from discharge. But the 

25 fact of default does not compel a court to enter judgment. 

26 Federal Rule of Civil Procedure 55(b) (2), as incorporated by 

27 Federal Rule of Bankruptcy Procedure 7055, requires a plaintiff 

28 to establish facts sufficient to warrant the relief sought. 

Case No. 17-21719-C-7 

Adv. Pro. No. 17-02052 

Filed 12/18/19 Case 17-02052 Doc 69
ii BMW Bank urges that it "reasonably relied" on a financial 

21 ratio in its lending algorithm despite red flags signaling bad 

3 information and urges that there is no relevance to what was 

4 known by the dealer who generated and presented the defendant's 

5 inaccurate financial statement based on customer input. 

6 BMW Bank has three problems in this case. First, BMW Bank 

7 has not carried its default judgment burden to establish 

8 reasonable reliance. Nor has it carried its burden to establish 

9 proximate cause for its loss. And, the BMW dealer's obvious 

10 manipulation in preparing and presenting the putatively false 

11 statement undermines proof of intent to deceive. 

12 After extensive default judgment proceedings, including 

13 multiple hearings, live testimony, briefs, and more briefs, this 

14 court is not persuaded BMW Bank has carried its burden of proof. 

15 BMW Bank, declining further opportunity to prove its case 

16 and preferring to appeal a dismissal, the default judgment motion 

17 will be DENIED and the adversary proceeding DISMISSED. 

18 

19 Facts 

20 On March 7, 2015, the debtor defendant traded in a model 

21 year 2013 BMW motor vehicle and purchased a used 2014 BMW from 

22 Weatherford BMW in Berkeley, California. 

23 Payments on the 2013 BMW being traded in had been current 

24 throughout the 17 months the debtor had owned the vehicle. 

25 The purchase price of the 2014 BMW was $35,079.65, to which 

26 was added the $6,509.94 deficiency occasioned by her trade-in of 

27 a 2013 BMW for $20,000.00 (on which she owed $26,509.94), plus 

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taxes and fees bringing the total financed amount to $46,263.71. 1 

The terms were 60 monthly payments of $645.29 at 2.9% annual 

interest, followed by a $11,862.00 balloon payment needed to 

squeeze the monthly payment into the debtor's ostensible ability 

to pay. In other words, BMW Bank knew from the outset, from the 

fact that a balloon payment was necessary, that the debtor lacked 

the income to pay the debt within 60 months. 

BMW Bank nevertheless chose to take from Weatherford BMW an 

assignment of the account "without recourse." 

The credit application, apparently produced on the dealer's 

computer with assistance by its sales and finance personnel, is 

incomplete and internally contradictory in at least six respects, 

all of which invited scrutiny about the debtor's ability to pay 

the debt being undertaken. 2 

1The Motor Vehicle Retail Installment Contract is BMW 

E 1. 

2The incomplete Credit Application on the form designated as 

"(REV 2/09) CaE00016" (BMW Exhibit 3) has at least six 

deficiencies: 

First, Section A (Information Regarding Applicant) is selfcontradictory. The "Nearest Relative Not Living With Applicant" 

is given as her mother, at the same address as the debtor. 

Second, Section C (Asset and Debt Information) is 

incomplete. Her residence is designated as rented for $200 per 

month but omits the identity and address of the landlord. 

Third, the credit accounts box is checked as "open" but left 

blank is required information regarding "credit type," "company 

name," "address," "balance," "high," and "monthly payments." 

Fourth, the spaces are blank for "present vehicle financed 

by/leased by," "account no.," "address," and "monthly payments." 

The "Bank Reference" names a credit union but leaves blank the 

designation of "account no.," "branch address," and "balance." 

Fifth, also blank is the insurance information "previous 

insurance company or agent," "where vehicle will be garaged, 

'\policy number," and "losses in the past 5 years?" 

Sixth, the required designation of the applicant's capacify 

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The application's section for "Asset and Debt Information," 

is not credible to the naked eye. 3 No assets are listed. No 

debts are listed. No bank accounts are identified. Monthly rent 

of only $200 was accepted without confirmation from the landlord. 

The person agreeing to pay $46,263.71 for the 2014 BMW was a 

54-year-old housing desk clerk with an annual salary of $26,400. 

Although she initialed the line regarding her gross income 

from employment, she did not initial the subsequent lines listing 

Social Security of $1,400 and total monthly income of $3,600. 

The credit application ends with a notation that it would be 

presented to four named financial institutions, of which 

plaintiff was listed first as "BMWF'S-Dublin, Ohio." 6 

(individual, community, or joint) is not checked. 

3The "Asset and Debt Information" comprises more than onethird of the form with the instruction "List all debts" and "use 

a separate page if necessary," is nearly blank. The sole item of 

financial information provided in Section C (Asset and Debt 

Information) is "Rent $200" without the required identification 

of landlord. The two form lines for credit accounts are blank. 

The two form lines for "Present vehicle financed by/leased by" 

are blank. The required "Bank Reference" line names a credit 

union but omits the required identification of account, branch 

address, and balance. 

4Credit application Section A indicates that the debtor was 

54 years old and employed as a "desk clerk" for "2 yrs 10 mos" 

with "gross monthly income from employment" of $2,200, which 

figure she initialed. 

5 Section A, below the initialed line for employment income, 

has lines that are not initialed for: "amount of other monthly 

income and sources" in which appears "Social Sercutiy [sic} 

$1,400;" and (2) "total monthly income" of "$3,600." 

6Although plaintiff's counsel asserted that the debtor 

signed the application under penalty of perjury, not so. The 

Credit Application form does not require an attestation. The 

debtor signed under the line that she "acknowledges receipt of a 

copy of this credit statement." However, the lack of an 

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BMW Bank obtained a credit report before agreeing to finance 

the transaction. The credit report was inconsistent with her 

Istatement of income and revealed she also was paying $434/month 

for a Toyota vehicle and had other accounts in collection. 7 

BMW Bank's witness testified at the evidentiary hearing that 

it relied solely on a debt-income ratio. That ratio was 

satisfied by income of $3,600/month, but not $2,200/month. He 

added that BMW Bank does not pay serious attention to the credit 

report that it obtains to put in the file. He asserted that this 

approach is standard practice in the automobile finance industry. 

The implications of the need for a balloon payment were not 

considered. He concluded that BMW Bank would have rejected the 

financing if the monthly debt-income ratio was not satisfied - 

i.e., if rent was higher than $200 or income less than $3,600. 

After the trade-in, after two timely $645.29 payments were 

I made to BMW Bank, the 2014 BMW was declared a total loss 

following an accident and payments ceased. 8 

attestation does not disqualify a credit application as a 

"statement" for purposes of § 523(a) (2) (B) (iii). 

7The Experian Credit Report was introduced in evidence 

during this court's evidentiary hearing as Hearing Exhibit 9. 

That March 7, 2015, credit report confirmed her $26,400/year 

employment. It indicated that she had two accounts in collection 

and six open current accounts. The six open current accounts 

called for monthly payments of $1,136. The open current accounts 

included one with Toyota Motor Credit for $24,465 with monthly 

payments of $434 that had been current for 11 months and one with 

BMW Financial Services for the 2013 BMW being traded in with 

monthly payments of $560 that had been current for 17 months. 

Exclusive of the payments for the BMW being traded in, the 

March 7 credit report revealed monthly payments of $576, 

including the $434 for the Toyota. 

8The Loan Payment History is BMW Exhibit 8. 

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1 Although BMW Bank says that the insurer denied coverage 

2 because the vehicle was wrecked by an unauthorized driver, no 

3 evidence is proffered to support that assertion. No copy of 

4 policy or of a clause permitting denial of coverage in favor of 

5 the honor for the value of the vehicle. No communication from 

6 insurer. Nothing. Nor does BMW Bank explain why, as lienor and 

7 loss payee, it did not pursue the insurer. 

8 Rather, BMW Bank seeks the full remaining $46,041.96 unpaid 

9 contract amount from the debtor (including the $6,509.94 

10 attributable to trade-in vehicle loan) on the theory that in the 

11 trade-in of the 2013 BMW for a 2014 BMW after 17 timely payments, 

12 the debtor was fraudulently acting as a straw buyer for her 

13 "boyfriend" who wrecked it after making two monthly payments. 9 

14 That theory also implies that she had been a straw buyer in 

15 acquiring the traded-in 2013 BMW. 

16 Two years after the trade-in at issue in this adversary 

17 proceeding, the debtor filed chapter 7 bankruptcy case No. 2017- 

18 21719 on March 16, 2017, without counsel. 

19 In the petition, schedules, and statements, the debtor 

20 stated that she is married and living separately, employed as a 

21 desk clerk at a housing facility in San Francisco at a rate of 

22 $2,253.33 per month, and had resided for at least three years at 

23 a rental in Vallejo, California, at 'monthly rent of $1,050. 

24 Seizing upon the differences between income and rent as 

25 stated in the 2015credit application and in the 2017 bankruptcy 

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27 9Complaint, ¶ 20 ([insurer denied coverage because] "her 

boyfriend was driving the vehicle at the time it was in an 

28 accident and was totaled. Plaintiff suspects the Debtor 

purchased the vehicle for her boyfriend and his use ......) 

Filed 12/18/19 Case 17-02052 Doc 69
1 filing, BMW Bank commenced this action. 

2 

3 Procedure 

4 The adversary proceeding was filed April 5, 2017, seeking a 

5 money judgment for the full unpaid contract amount of $46,041.96 

6 to be excepted from discharge under §§ 523(a) (2) (A) and (B). 

7 Default was entered when the debtor did not respond, after 

8 which BMW Bank requested default judgment for the full contract 

9 price and an exception to discharge on a theory of fraud. 

10 BMW Bank has abandoned its generic fraud theory under 

11 § 523(a) (2) (A) and elected to rely on a false financial statement 

12 theory under § 523 (a) (2) (B) 

13 This court proceeded with the required independent review 

14 under Civil Rule 55(b) (2) to determine for itself whether the 

15 requested default judgment is warranted in law and fact. Fed. R. 

16 Civ. P. 55(b) (2), incorporated by Fed. R. Bankr. P. 7055. 

17 Incredulous about BMW Bank's allegation that it was gulled 

18 into the transaction by debtor's statements about her finances, 

19 this court required BMW Bank to prove entitlement to the relief 

20 requested. After three hearings in which BMW Bank relied on 

21 various forms of written declarations, there was an evidentiary 

22 I hearing at which its witness testified. Further supplemental 

23 I briefing followed the evidentiary hearing. 

24 When this court announced orally on the record that it was 

25 not yet persuaded to enter default judgment and offered BMW Bank 

26 yet another opportunity to prove its case, BMW Bank stated its 

27 wish to appeal without presenting further proof and requested 

28 preparation of this formal decision denying the motion for 

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Filed 12/18/19 Case 17-02052 Doc 69
1 default judgment and dismissing the adversary proceeding. 

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3 Jurisdiction 

4 Jurisdiction is founded on 28 U.S.C. § 1334(b). This is a 

5 core proceeding that a bankruptcy judge may hear and determine. 

6 28 U.S.C. § 157 (b) (2) (I) . If it may ever be determined to be a 

7 proceeding that a bankruptcy judge may not hear and determine as 

8 of right, the plaintiff is nevertheless has agreed that it may be 

9 heard and determined by a bankruptcy judge. 

10 

11 Analysis 

12 A missing link affecting a causation issue is at the heart 

13 of the problem. BMW Bank omits all evidence regarding the role 

14 of the BMW dealer as intermediary in the financing transaction. 

15 Yet, it is inescapable that the BMW dealer manipulated the trade16 in deal in a manner that created inquiry notice of the true 

17 facts. The 17-month history of timely payments on the 2013 BMW 

18 so blinded BMW Bank and the BMW dealer to the debtor's patent 

19 inability to pay that the credit application was treated as a 

20 mere formality upon which there was not actual reliance and 

21 belies the debtor's intent to deceive. 

22 

23 I 

24 Default judgment procedure in bankruptcy courts is governed 

25 by Fedral Rule of civil Procedure 55(b), which applies in 

26 adversary proceedings and contested matters by virtue of Federal 

27 Rule of Bankruptcy Procedure 7055. Fed. R. civ. P. 55(b), 

28 I incorporated by Fed. R. Bankr. P. 7055 & 9014 (c) 

'ol 

Filed 12/18/19 Case 17-02052 Doc 69
1 Under Rule 55(b), federal trial courts have an independent 

2 duty to exercise discretion and assure themselves that the 

3 default judgments they enter are correct in law and fact. 10A 

4 CHARLES A. WRIGHT, ARTHUR R. MILLER & MARY KAY KANE, FEDERAL PRACTICE AND 

5 PROCEDURE § 2685 (4th ed. 2019) 

6 In discharge of that duty, a court may conduct hearings to 

7 establish the truth of any allegation by evidence. Fed. R. Civ. 

8 P. 55(b) (2) (C). In other words, a court need not uncritically 

9 accept a plaintiff's version of the facts. That occurred here. 

10 

11 II 

12 The matrix for analysis of plaintiff's theory of the case is 

13 § 523(a) (2) (B), which requires proof of a materially false 

14 statement regarding the debtor's financial condition on which the 

15 victim's reliance was "reasonable," not merely "justifiable." 

16 Lamar, Archer & Cofrin, LLP v. Appling, U.S. , , 138 

17 S.Ct. 1752, 1763 (2018) 

18 Where there is a false statement concerning financial 

19 condition, § 523(a) provides: 

20 (a) A discharge under section 727 . . . of this title does 

not discharge an individual debtor from any debt 

21 (2) for money, property, services, or an extension, 

renewal, or refinancing of credit, to the extent obtained by 

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(B) use of a statement in writing - 

23 (i) that is materially false; 

(ii) respecting the debtor's or an insider's 

24 financial condition; 

(iii) on which the creditor to whom the debtor is 

25 liable for such money, property, services, or 

credit reasonably relied; and 

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27 (iv) that the debtor caused to be made or 

published with intent to deceive; 

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11 U.S.C. § 523(a) (2) (B) (emphasis supplied). 

Filed 12/18/19 Case 17-02052 Doc 69
In contrast, where the fraud involves a false statement 

other than a false statement concerning financial condition, the 

reliance element is "justifiable" reliance other than 

"reasonable" reliance. 11 U.S.C. § 523(a) (2) (A); Field v. Mans, 

516 U.S. 59, 77 (1995). 10 

As the Supreme court explained in Field v. Mans and again in 

Appling, congress endeavored to balance potential misuse of 

financial statements by debtors and by creditors in order to 

moderate the burden on individuals who submitted false financial 

statements, not because lies about financial condition are less 

blameworthy than others, but because the relative equities might 

be affected by practices of consumer finance companies, which 

sometimes have encouraged such falsity by their borrowers for the 

very purpose of insulating their own claims from discharge. 

Appling, 138 s.ct. 1763-64; Field v. Mans, 516 U.S. at 76_77.11 

"°A nondischargeable "actual fraud" need not always involve 

a false representation. Husky Int'l Elecs., Inc. v. Ritz, 

U.S. , 136 s.ct. 1581, 1589-91 (2016) 

"The mischief lies in the practice described in the House 

lReport on the Bankruptcy Reform Act of 1978: 

It is a frequent practice for consumer finance companies 

to take a list from each loan applicant of other loans or 

debts that the applicant has outstanding. While the 

consumer finance companies use these statements in 

evaluating the credit risk, very often the statements are 

used as a basis for a false financial statement exception to 

discharge. The forms that the applicant fills out often 

have too little space for a complete list of debts. 

Frequently, a loan applicant is instructed by a loan officer 

to list only a few or only the most important of his debts. 

Then, at the bottom of the form, the phrase "I have no other 

debts" is either printed on the form, or the applicant is 

instructed to write the phrase in his own handwriting. 

H.R. Rep. No. 95-595, pp. 130-31, U.S. CODE CONG. & ADMIN. NEws 

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1 This case smacks of a creditor strategy to obtain financial 

2 statements that are designed more for the purpose of snaring the 

3 borrower than for making a responsible business decision. 

4 The BMW credit application form invited the inccuracies 

5 about which BMW Bank now complains. The BMW dealeris personnel 

6 plainly were complicit in preparing the document and in tailoring 

7 the numbers to satisfy BMW Bank's financial ratios. 

8 In addition, as noted in Field v. Mans, § 523(a) (2) (B) also 

9 requires proof of causation, which concept overlaps with the 

10 requirement of materiality. 516 U.S. at 78. 

11 

12 III 

13 The facts are assessed through the prism of § 523(a) (2) (B) 

14 with a view to reasonable reliance, materiality, and causation. 

15 I 

16 WA 

17 Weatherford BMW had an opportunity to sell a 2014 BMW for 

18 I $35,000 to an existing customer with a spotless 17-month record 

19 of current payments on the 2013 BMW being traded in. 

20 That 17-month history of timely payments imparted confidence 

21 that the new loan would similarly be timely performed. 

22 But there was a problem. The customer's annual income from 

23 her desk-clerk job, coupled with the fact that she was also 

24 paying for a $24,465 Toyota, was not adequate to support a 

25 $46,263.71 automobile loan. 

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27 1978, pp. 5787, 6091 (1977) (footnote omitted), quoted, Field v. 

Mans, 516 U.S. at 77 n.13, and Appling, 138 S.Ct. at 1763-64. 

28 It is noteworthy that Justice Scalia, who decried references 

to legislative history, did not do so in Field v. Mans. 

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Filed 12/18/19 Case 17-02052 Doc 69
1 The dealer's solution for meeting BMW Bank's financial ratio 

2 for lending had two parts. First, fudge her finances by ignoring 

3 its own rules by not providing the landlord information required 

4 to verify the improbable amount of $200/month rent in the San 

5 Francisco market, and accepting a financial statement that was 

6 otherwise incomplete, internally inconsistent and vague. In that 

7 typed statement (filled out on a computer), somebody 

8 interlineated an unsigned and uninitialed handwriting adding 

9 $1,400/month in Social Security income. 

10 Second, having shoehorned all the monthly credit possible 

11 into the debtor's income and expenses by fudging numbers and 

12 still being unable to make payments that would fully amortize the 

13 loan in 60 months, the transaction added a balloon payment of 

14 $11,862.00 at month 61 to make the numbers "work" for purposes of 

15 the lending aglorithm. 

16 It is apparent that this engineering must have occurred with 

17 I connivance by the BMW dealer who knew the rules of the game. But 

18 BMW Bank provides zero evidence regarding events at the BMW 

19 dealership. Rather, BMW Bank treats the debtor as dealing 

20 directly, i.e. bilaterally, with BMW Bank at arm's length without 

21 any input by the BMW dealer. That defies credulity; the BMW 

22 dealer was at center stage, helping to craft a credit application 

23 that would meet lending criteria. 

24 Since BMW Bank has the burden to prove the relevant 

25 circumstances, its complete omission of evidence regarding the 

26 dealer constitutes a failure of proof, even under the lenient 

27 standards of default judgments. 

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IN 

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The firsthurdle is the question whether BMW Bank really 

relied on the credit application - i.e., whether the alleged 

misstatement in the credit application was material. 

The fact of reliance is a mixed question of law and fact in 

which facts predominate, thereby committing the primary decision 

to the trial court subject to appellate review for clear error. 

See U.S. Bank, N.A., Tr. v. Village at Lakeridge, LLC, U.S. 

138 S.Ct. 960, 966-67 (2018) 

BMW Bank claims that it based its lending decision solely on 

the nominal financial ratio reported in the credit application as 

prepared with the assistance of the BMW dealer. 

BMW Bank admits that it also obtained an Experian credit 

report. 12 Although it proffers a declaration asserting that the 

credit report actually was scrutinized, no sentient banker could 

have construed the credit report as supporting the accuracy of 

the credit application. 

And, BMW Bank admits it ignored the corollary to the fact 

I that the transaction needed an $11,862.00 balloon payment at 

month 61 in order to make the deal "work": absent a prospect for 

the debtor's finances to improve, no sentient banker would have 

believed she probably will be able to pay such a sum. 

Regardless of whether it may be "justifiable" for an 

automobile financier to rely on statements in a credit 

application that are contradicted by a credit report, it is not 

"reasonable" to rely without at least making a searching inquiry. 

12 Supplemental Decl. in Support of Motion for Entry of 

IDefault Judgment, ¶91 6-7 & 15-17. 

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Filed 12/18/19 Case 17-02052 Doc 69
l 

There was no such inquiry in this case. 

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The next hurdle is reliance. In order to be excepted from 

5 discharge under § 523(a) (2), the debt for the BMW vehicle must 

6 have been "obtained by" fraud. 11 U.S.C. § 523(a). 

7 BMW Bank contends that the financial ratios of 60 percent 

8 debt to income and 35 percent payment to income derived from the 

9 credit application were what caused it to approve the loan. 13 

10 That is not credible. 

- 11 The credible explanation for this transaction is that the 

12 business decision was made because of the 17-month history of 

13 timely payments on the 2013 BMW that was being traded in. The 

14 requirement that there be in the file a credit application 

15 showing the requisite financial ratios was treated by BMW Bank 

16 and the BMW dealer as a formality. Window dressing is not fraud. 

17 It does not follow from the mere presence in the file of an 

18 inaccurate credit application and a contradictory credit report 

19 that the debt was "obtained by" false financial statement fraud. 

20 BMW Bank's witness testified that anything below the required 

21 financial ratios would be "automatically denied." 14 

22 If the financial ratios computed from the credit application 

23 had genuinely been material to the loan decision, then there 

24 would have been scrutiny in light of the credit report and an 

25 effort to explain the apparent contradictions. BMW Bank has 

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13j•, 9191 10-11. 

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¶ 11. 

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Filed 12/18/19 Case 17-02052 Doc 69
1 proffered no evidence to establish that the contradictory credit 

2 application and credit report "caused" it to make the loan. 

3 Nor has BMW Bank proffered evidence probative of intent to 

4 deceive as required by § 523(a) (2) (B) (iv) . The circumstantial 

5 evidence of the 17-month payment history on the 2013 BMW being 

6 traded in is more probative of the dynamics of the lending 

7 decision and is more consistent with lack of intent to deceive. 

8 Indeed, the determinative factor, upon which BMW Bank 

9 relied, was the existence of that 17-month payment history, not 

10 statements in the credit application. 

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13 The next mystery is why BMW Bank quietly acquiesced in the 

14 insurance company's decision to decline coverage for the damage 

15 to the vehicle when it supposedly was totaled. 

16 It merely says that the "vehicle was in an accident and was 

17 deemed a total loss by the insurance carrier" and that the 

18 insurer denied the claim because the debtor's boyfriend was 

19 driving the vehicle. 15 

20 No evidence is presented regarding follow-up with the 

21 insurance company. Why did the insurer decline coverage to the 

22 lienor? What protest did BMW Bank make? Why damages of $46K 

23 when the purchase price was $35K, which means the insurance claim 

24 for the value of the vehicle was probably less than $35K? 

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28 15Decl. in Support of Motion for Entry of Default Judgment, 

HI 18. 

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Proximate causation for BMW Bank's loss also must be 

established. The established pattern of nineteen consecutive 

timely payments on the two BMW vehicles in question is probative 

of cause. 16 The primary reason the financing by BMW Bank of the 

second vehicle occurred was the record of timely payments. 

BMW Bank's theory is that the debtor was acting as straw 

buyer for her boyfriend. 17 That theory is difficult to gainsay. 

But it also suggests that the actual cause of the loss was 

something other than a false financial statement. The pattern of 

satisfactory timely payments, including for the first two months 

after the transaction, suggests that the payments would have 

continued for the full contract period if only the vehicle had 

not been destroyed in an accident more than two months after the 

credit transaction in question. 

The accidental destruction of the vehicle is an intervening 

unanticipated cause. BMW Bank has not carried its burden to 

establish what loss, if any, was proximately caused by the 

putative false financial statement. 

Conclusion 

BMW Bank alleges that it was deceived into making the 

original loan because the credit application in its file had been 

16As two prongs of § 523(a) (2) implicate the tort of 

intentional misrepresentation, proximate cause is a relevant 

concept. See Grogan v. Garner, 498 U.S. 279, 283-90 (1991) 

17•, ¶ 19 ("Because the Debtor discloses ownership of two 

other Toyota vehicles in her schedules despite having no claimed 

dependents, BMW suspects that the Debtor may have purchased the 

vehicle for her boyfriend who regularly drove it.") 

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manipulated to show a required financial ratio. 

The evidence supports the inference that the business 

decision to make the loan was based primarily on the 17-month 

history of payment on the BMW being traded-in. 

BMW Bank disclaims any responsibility to compare the credit 

report with the incomplete and facially improperly-prepared 

credit application. It makes no effort to account for the role 

of the BMW dealer in the transaction, which, at a minimum, 

included willful ignorance. 

As to the amount of the loss, BMW Bank does not explain why 

it passively accepted the denial by the insurer of coverage for 

I the collision damage to the vehicle. Nor does it establish 

proximate cause or otherwise explain why the proper measure of 

damage should be $46,263.71 for a vehicle purchased for 

$35,079.65 and wrecked after two timely payments were made. 

All of these are matters as to which BMW Bank has not 

carried its burden of proof despite having been afforded multiple 

opportunities by the court to do so. 

The motion for entry of default judgment will be denied. In 

view of BMW Bank's expressed desire to have final judgment so 

that it may have an opportunity to appeal, the denial is with 

prejudice and the adversary proceeding will be dismissed. 

I December 18, 2019 

United 

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Filed 12/18/19 Case 17-02052 Doc 69
1 INSTRUCTIONS TO CLERK OF COURT 

SERVICE LIST 

2 

The Clerk of Court is instructed to send the attached 

3 document, via the ENC, to the following parties: 

4 Timothy J. Silverman 

Scheer Law Group, LLP 

5 85 Argonaut, Suite 202 

Aliso Viejo, CA 92656 

6 

Alisica Bonita Davis-Brown 

7 1944 Sutter Street 

Vallejo, CA 94590 

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Filed 12/18/19 Case 17-02052 Doc 69