1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FILED

JAN 27 2016

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. CC-14-1176-DKiG

)

RITCHIE R. ROBERTS, ) Bk. No. 11-59389

)

Debtor. ) Adv. No. 12-01329

______________________________)

)

RITCHIE R. ROBERTS, )

)

Appellant, )

)

v. ) M E M O R A N D U M1

)

PACIFIC RESOURCE CREDIT )

UNION, )

)

Appellee. )

______________________________)

Submitted Without Oral Argument

on January 21, 2016

Filed - January 27, 2016

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Robert N. Kwan, Bankruptcy Judge, Presiding

 

Appearances: Andrew Edward Smyth on brief for appellant;

A. Lysa Simon on brief for appellee.

 

Before: DUNN, KIRSCHER AND GAN,2 Bankruptcy Judges.

1 This disposition is not appropriate for publication. 

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 Cir. BAP Rule 8024-1.

2 Hon. Scott H. Gan, United States Bankruptcy Judge for the

District of Arizona, sitting by designation.
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Pre-petition, chapter 73 debtor Ritchie R. Roberts applied

to Pacific Resource Credit Union (the “Credit Union”) for

multiple lines of credit and for subsequent increases in those

lines of credit. The Credit Union approved the applications, and

eventually Mr. Roberts became unable to pay his debts to the

Credit Union. After Mr. Roberts filed his chapter 7 petition,

the Credit Union brought an adversary proceeding seeking to have

Mr. Roberts’ debts to it declared nondischargeable. The

bankruptcy court, finding that Mr. Roberts had intentionally

misrepresented his income and expenses in connection with his

credit applications, entered judgment in favor of the Credit

Union declaring the debts nondischargeable under § 523(a)(2)(A). 

Mr. Roberts appeals. We AFFIRM.

I. FACTUAL BACKGROUND

A. The underlying debts

1. The credit card

Mr. Roberts became a member of the Credit Union in June

2004, while he was employed as an electrician with BP West Coast

Products, LLC (“BP West”). He applied for a credit card,

indicating that he was earning $5,000 per month (i.e., $60,000

per year). Based on that income, Mr. Roberts only qualified for

a “share secured” credit card, which required him to place funds

into a savings account at the Credit Union to be held as

collateral. A year later, in August 2005, Mr. Roberts applied

for an unsecured credit card (“Credit Card Application”), this

3 Unless otherwise indicated, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.

2
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

time representing that he was earning $100,000 per year from his

job at BP West, plus $80,000 in other income. He also indicated

that he was the owner of his home, valued at $60,000, with a

mortgage balance of $0 and no monthly payment. The Credit Card

Application was approved. In April 2006, Mr. Roberts applied for

an increase in his credit limit from $500 to $2,000 (“Credit Card

Increase Request”). Based on Mr. Roberts’ representation that

his income was then $110,000 per year, the Credit Union granted

the Credit Card Increase Request.

2. The HELOC

In addition to his credit card, Mr. Roberts also applied to

the Credit Union for a Home Equity Line of Credit (“HELOC”) on

November 5, 2005. On his application (“HELOC Application”),

Mr. Roberts indicated that his base monthly employment income was

$10,000 (i.e., $120,000 per year). Based upon the pay stubs

Mr. Roberts submitted with the application, however, the Credit

Union concluded that his actual income was significantly less and

denied the application. The Credit Union requested additional

proof of Mr. Roberts’ income, along with his tax returns for 2003

and 2004, to demonstrate job and income stability.

About a month later, Mr. Roberts sent the Credit Union a

letter that read as follows: “Here I send you the last statement

and also the gross income yearly any questions call me . . . my

salary came from $24.00 an hour to $31.65 an hour, also some

extra over time worked; help me to make $100,000 a year Thank

you!” (punctuation as in original) Enclosed with the letter was

a document appearing to be a pay statement printed from a BP West

computer, which indicated that Mr. Roberts’ year-to-date earnings

3
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

as of December 2, 2005, were $98,416.47. Based on that income

figure, taken together with Mr. Roberts’ letter stating that his

hourly wage had increased recently, the Credit Union decided that

Mr. Roberts’ $10,000 monthly income, as stated in the HELOC

application, was credible after all. Mr. Roberts also submitted

documents that he identified as copies of his tax returns from

2003 and 2004, which reflected income of $60,000 during 2003. 

The Credit Union extended Mr. Roberts a HELOC in the amount of

$57,000, secured by a deed of trust on Mr. Roberts’ home.

In the summer of 2006, Mr. Roberts submitted an application

to have his HELOC credit limit increased from $57,000 to $116,000

(“HELOC Increase Application”). He indicated that he was earning

a total of $120,000 per year at BP West, comprising $80,000 base

employment income, $30,000 overtime pay and $10,000 in bonuses. 

He also reported $10,000 per year of rental income. Based on

this information, together with the information Mr. Roberts

previously had submitted with his original HELOC Application less

than a year earlier, the Credit Union agreed to increase

Mr. Roberts’ HELOC credit limit as requested. The credit balance

on Mr. Roberts’ original HELOC was paid through this increase.

3. The state court lawsuit

Mr. Roberts made payments on the HELOC and on his credit

card account for the next several months. Then, in August 2007,

he lost his job at BP West, after which he struggled to continue

making payments. After October 2007, Mr. Roberts made no further

payments on either account. Eight months later, the holder of

the first deed of trust on Mr. Roberts’ home foreclosed, and the

home was sold at a trustee’s sale, extinguishing the Credit

4
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Union’s security interest.

In 2010, the Credit Union sued Mr. Roberts in California

state court for breach of contract based on Mr. Roberts’ failure

to pay amounts due on the credit card account and the HELOC. The

state court granted summary judgment in favor of the Credit

Union.

B. Mr. Roberts’ bankruptcy case and the adversary proceeding

1. Pretrial proceedings

Soon after the state court announced its decision to enter

summary judgment against him, Mr. Roberts filed his chapter 7

petition. The Credit Union filed an adversary complaint seeking

to have Mr. Roberts’ debts to it declared non-dischargeable. 

According to the complaint, Mr. Roberts had intentionally and

fraudulently overstated his income and understated his expenses

in connection with the Credit Card Application, the HELOC

Application, the Credit Card Increase Request and the HELOC

Increase Application. The Credit Union further alleged that the

pay statements and tax forms Mr. Roberts had submitted in support

of his applications were “fraudulent” and “counterfeit.”

The Credit Union moved for summary judgment or, in the

alternative, for partial summary adjudication. The bankruptcy

court denied the request for summary judgment but granted partial

summary adjudication as to the history of the underlying debts

and the amounts owed. The parties proceeded to trial on the

remaining issues.

2. The trial

At trial, the bankruptcy court heard testimony from Rudy

Martin, director of lending and collections at the Credit Union. 

5
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Mr. Martin testified at length about the Credit Union’s criteria

for evaluating credit applications and extending credit and in

particular about the Credit Union’s handling of Mr. Roberts’

various credit applications. Mr. Martin told the bankruptcy

court that the Credit Union would have denied Mr. Roberts’

applications if it had been aware of his actual income and

expenses.

Further testimony came from Cheryl Monteleone Rietzel, a

representative of BP West, who testified as to Mr. Roberts’

actual income as reflected by BP West records. His income,

according to Ms. Monteleone, was significantly less than what he

represented it to be in connection with his credit applications.

She testified that the pay statements Mr. Roberts had submitted

with the HELOC Application were not generated by BP West and did

not accurately represent his income.

Carl Moen, who had been Mr. Roberts’ employer in 2003,

testified concerning Mr. Roberts’ employment history at his

company. Mr. Moen testified that the 2003 tax documents

Mr. Roberts had submitted to the Credit Union did not accurately

reflect Mr. Roberts’ income and work history at Mr. Moen’s

company.

Mr. Roberts testified in his own behalf. He stated that he

had not intended to defraud the Credit Union and that the

inaccuracies in his stated income and expenses were inadvertent. 

Specifically, Mr. Roberts said that he had calculated his income

to include deferred and non-cash income, which he asserted would

account for the discrepancies pointed out by the Credit Union. 

As to the allegedly falsified documents, Mr. Roberts denied

6
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

having falsified them. With respect to the 2003 tax return,

Mr. Roberts testified that the version he had submitted to the

Credit Union was genuine, and that the discrepant version the

Credit Union introduced at trial - showing far lower income in

2003 - had been a draft that was not submitted to the IRS.

The Credit Union called Mr. Roberts’ tax preparer, Richard

Vasquez, to rebut Mr. Roberts’ testimony regarding the tax forms

he had submitted to the Credit Union. Mr. Vasquez testified that

the tax preparer’s signature on the 2003 tax return Mr. Roberts

had submitted to the Credit Union was not his.

3. The bankruptcy court’s findings and conclusions

After the four-day trial, the bankruptcy court entered

extensive findings of fact and conclusions of law (“Findings and

Conclusions”). First, the bankruptcy court made findings as to

Mr. Roberts’ actual income at the relevant times. It concluded

that his income did not exceed $81,970.15 in 2005, even when

calculated to include deferred income. Mr. Roberts “did not earn

$120,000.00 per year for either year 2005 or year 2006 working

for BP West.” The bankruptcy court further found that

Mr. Roberts had access to accurate information concerning his

income using his employer’s computer system and that he

previously had used that system to view his income information.

The bankruptcy court found that Mr. Roberts had made the

following misrepresentations in connection with obtaining money

and credit from the Credit Union:

(1) In connection with the Credit Card Application and the

Credit Card Increase Request, Mr. Roberts misrepresented his

income and his mortgage and rental obligations. Specifically, he

7
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

represented at the time of the Credit Card Application that he

had $100,000 of yearly employment income from BP West and $80,000

of other income, and he stated that he had $0 in secured payment

obligations related to his residential property. At the time of

the Credit Card Increase Request, he represented that he was

earning $110,000 per year.

The bankruptcy court went on to make lengthy additional

findings concerning Mr. Roberts’ actual income and expenses,

which differed materially from the figures reported on the Credit

Card Application. On the Credit Card Application, Mr. Roberts

did not include information concerning his mortgage payments on

his home or his payment obligations with respect to any of the

rental properties he owned. Specifically with regard to the

Credit Card Increase Request, the bankruptcy court found that

Mr. Roberts’ income at the time was $85,458.25 per year,

including deferred income and benefits.

(2) On the HELOC Application, Mr. Roberts misrepresented

his income. On the HELOC Application form, Mr. Roberts wrote

that his base income at BP West was $120,000 per year, which was

much higher than the amount the court found to be his actual

income. After the Credit Union had informed Mr. Roberts that the

income reflected on his pay stub was insufficient to permit the

Credit Union to grant the HELOC, Mr. Roberts responded by

providing a false pay stub to support his asserted income, along

with a cover letter explaining the discrepancy. The information

in the pay statement and cover letter was false.

(3) Again in connection with the HELOC Application,

Mr. Roberts misrepresented his work history by submitting an

8
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

apparently falsified tax return for 2003. Based on a comparison

between the tax return Mr. Roberts submitted to the Credit Union

and the tax return filed with the IRS, together with the

testimony of Mr. Roberts’ tax preparer that he did not prepare

the questioned return, the bankruptcy court found that the

document was falsified.

The bankruptcy court found that Mr. Roberts in fact earned

$17,951 in wages in 2003, in contrast to the $60,004 reflected in

the false tax return. The court found Mr. Roberts’ testimony

that the rest of that amount had been earned from another

employer, which Mr. Roberts could not identify, was not credible.

There was “no reasonable explanation” for the inaccuracy in the

false tax return other than that the document was fabricated,

either by Mr. Roberts or on his behalf.

(4) When Mr. Roberts applied for the HELOC Increase, he

once again misrepresented his income and expenses, this time

reporting total income of $120,000 per year from his job with

BP West and $10,000 per year of net rental income. The

bankruptcy court found that Mr. Roberts’ actual income from

BP West, even including deferred income, was $15,000 less than

represented in the HELOC Increase Application. As to the rental

income, the bankruptcy court found that Mr. Roberts experienced a

net loss from his rental properties during the relevant period,

and even his gross rental income was less than $10,000 based on

his tax returns.

In the same application, Mr. Roberts misrepresented his

assets and expenses by neglecting to disclose loans he had

pledged against his 401(k) account.

9
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

The bankruptcy court found that Mr. Roberts knew that these

representations were false at the time he made them. It also

found that Mr. Roberts had made the misrepresentations with the

intent to deceive the Credit Union. This determination was

supported, the bankruptcy court noted, by the fact that

Mr. Roberts had gone “to the extraordinary lengths” of providing

false documentation to the Credit Union.

The court found that the Credit Union justifiably (or

reasonably4) relied on Mr. Roberts’ misrepresentations when it

granted the Unsecured Credit Card Application, the Credit Card

Increase Request and the HELOC Increase Application.5 The court

noted that the Credit Union did not simply rely on Mr. Roberts’

application to determine his creditworthiness for the HELOC, nor

did it rely solely on the value of the collateral. Instead, it

required documentation to support the application. Specifically

with regard to the HELOC Increase request, the bankruptcy court

found that the Credit Union reasonably relied on the

documentation Mr. Roberts had provided with the original HELOC

4 Throughout its Findings and Conclusions, the bankruptcy

court occasionally referred to “reasonable” reliance, as opposed

to “justifiable” reliance. As discussed below, the applicable

standard is justifiable reliance. To the extent the bankruptcy

court made findings as to the stricter standard of reasonable

reliance, any error was harmless with respect to Mr. Roberts.

5 The original HELOC was paid off when the HELOC Increase

Application was granted. Therefore, the court had no need to

find reliance with respect to the grant of the original HELOC. 

However, with respect to the HELOC Increase Application, the

bankruptcy court found that the Credit Union justifiably relied,

among other things, on Mr. Roberts' misrepresentations made in

2005 in connection with the original HELOC Application.

10
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Application, as that documentation had been submitted only eight

months prior.

The court found that the misrepresentations were material

because Mr. Roberts would not have qualified for the credit card

or the HELOC on the basis of his true income and expenses.

Finally, the bankruptcy court found that Mr. Roberts’

misrepresentations were the cause of the Credit Union’s damages

“because [Mr. Roberts] did not in fact have the financial

resources to repay the amounts loaned and he defaulted on [his

obligations].”

In its conclusions of law, the bankruptcy court noted that

the adversary complaint did not specify the subsection of § 523

on which the Credit Union was relying for relief. After

discussing § 523(a)(2)(A) and (a)(2)(B), the bankruptcy court

concluded that the applicable provision of § 523(a)(2) was

subdivision (A). It laid out the elements that a plaintiff must

prove to prevail on a non-dischargeability claim under

§ 523(a)(2)(A):

(1) misrepresentation, fraudulent omission or

deceptive conduct by the debtor;

(2) knowledge of the falsity or deceptiveness of his

statement or conduct;

(3) an intent to deceive;

(4) justifiable reliance by the creditor on the

debtor’s statement or conduct[;] and

(5) damage to the creditor proximately caused by its

reliance on the debtor’s statement or conduct.

Based upon its fact findings, the bankruptcy court concluded

that the Credit Union had satisfied all five of these elements. 

Consistent with its Findings and Conclusions, the bankruptcy

court entered judgment awarding the Credit Union a total of

$165,542.74, including interest and late fees, and declaring that

11
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

amount non-dischargeable under § 523(a)(2)(A).

This timely appeal followed.

II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C.

§§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C.

§ 158.

III. ISSUES

1. Whether the bankruptcy court erred in applying

§ 523(a)(2)(A) rather than § 523(a)(2)(B).

2. Whether the bankruptcy court erred in its application of

§ 523(a)(2)(A).

IV. STANDARDS OF REVIEW

We review the bankruptcy court’s findings of fact for clear

error and its conclusions of law de novo. Bronitsky v. Bea

(In re Bea), 533 B.R. 283, 285 (9th Cir. BAP 2015). Clear error

exists only where the bankruptcy court’s factual findings are

illogical, implausible or unsupported by inferences that may be

drawn from facts in the record. Americans for Prosperity Found.

v. Harris, ___ F.3d ___, ___; 2015 WL 9487728 at *2 (9th Cir.

Dec. 29, 2015); United States v. Hinkson, 585 F.3d 1247, 1263

(9th Cir. 2009) (en banc).

V. DISCUSSION

A. The bankruptcy court properly applied § 523(a)(2)(A) rather 

 than § 523(a)(2)(B)

The bankruptcy court made it clear that its determination of

non-dischargeability was premised on subdivision (A) only and

expressly ruled against the Credit Union “to the extent it

12
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

allege[d] a claim under Section 523(a)(2)(B).”6

Section 523(a)(2) creates an exception to discharge for

debts incurred “for money, property, services, or an extension,

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

either of two categories of misrepresentation, which are spelled

out in subdivisions (A) and (B) respectively. Subdivision (A)

concerns “false pretenses, a false representation, or actual

fraud,” but expressly excludes “a statement respecting the

debtor’s or an insider’s financial condition.” Subdivision (B)

covers precisely the ground excluded from subdivision (A) -

statements concerning the debtor’s or an insider’s financial

condition - but with certain limitations: (I) the statement must

have been in writing; and (ii) the creditor must have reasonably

relied on the statement. This second limitation is significant,

because liability based on actual fraud under subdivision (A)

requires only “justifiable” rather than “reasonable” reliance by

the creditor on the debtor’s misrepresentation. Field v. Mans,

516 U.S. 59, 74-75 (1995).

For purposes of § 523(a)(2), a “statement respecting the

debtor’s . . . financial condition” is a statement presenting “a

6 The bankruptcy court stated on page 29 of its Findings and

Conclusions: “Defendant is not entitled to discharge his debts

owed to the Credit Union on his unsecured credit card account and

his July 2006 HELOC pursuant to 11 U.S.C. § 523(a)(2)(A) and

(a)(2)(B).”

Nevertheless, the court went on to state on page 32: “[T]he

court determines that the false representations at issue in this

case fall within the scope of Section 523(a)(2)(A) rather than

Section 523(a)(B) [sic][.]” Notwithstanding this apparent

contradiction, it is quite clear that the bankruptcy court based

its ultimate determination on subdivision (A) only.

13
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

picture of the debtor’s overall financial health,” such as a

balance sheet. Barnes v. Belice (In re Belice), 461 B.R. 564,

577-78 (9th Cir. BAP 2011) (quoting Cadwell v. Joelson

(In re Joelson), 427 F.3d 700, 714 (10th Cir. 2005)). Such a

statement must contain “information as to the debtor’s . . .

overall net worth or overall income flow.” In re Belice,

461 B.R. at 578, quoting In re Joelson, 427 F.3d at 714. 

Statements that provide some information concerning a debtor’s

income and expenses do not meet this definition if they do not

“reveal anything meaningful or comprehensive about [the debtor’s]

overall net worth.” In re Belice, 461 B.R. at 579.

Here, the information contained in the applications did not

present a picture of Mr. Roberts’ overall financial health. The

applications requested information concerning the debtor’s

employment income, his rental income, and a subset of his

liabilities and expenses, including his monthly mortgage payments

and the amount owed on his home loan. This is not equivalent or

analogous to a balance sheet. In connection with the

applications, the Credit Union did not request, and Mr. Roberts

did not provide, comprehensive information about his overall net

worth. The bankruptcy court properly concluded that

§ 523(a)(2)(A), rather than (a)(2)(B), should govern its

analysis.7

7 Many of Mr. Roberts’ arguments on appeal refer to

§ 523(a)(2)(B). Although he does not expressly argue that the

bankruptcy court erred by applying subdivision A, his arguments

presuppose as much. Because we have concluded that the

bankruptcy court properly excluded subdivision B from its

(continued...)

14
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

B. The bankruptcy court did not err in its application of 

 § 523(a)(2)(A)

To establish non-dischargeability under § 523(a)(2)(A) based

on actual fraud, a plaintiff must prove each of the following

elements by a preponderance of the evidence:

(1) [T]he debtor made representations;

(2) that at the time he knew they were false;

(3) that he made them with the intention and purpose of

deceiving the creditor;

(4) that the creditor relied on such representations;

[and]

(5) that the creditor sustained the alleged loss and

damage as the proximate result of the misrepresentations

having been made.

Sabban v. Ghomeshi (In re Sabban), 600 F.3d 1219, 1222 (9th Cir.

2010) (internal quotations omitted). The plaintiff also must

prove that its reliance on the defendant’s representations was

justifiable. Turtle Rock Meadows Homeowners Ass’n v. Slyman

(In re Slyman), 234 F.3d 1081, 1085 (9th Cir. 2000). As noted

above, the bankruptcy court identified these elements and made

factual findings regarding each of them.

1. Misrepresentations, knowledge of falsity and intent to 

 deceive

Mr. Roberts argues that the inaccuracies in the information

he provided to the Credit Union were immaterial and inadvertent. 

Specifically, he argues that, even if his representations of

income and expenses were false, they were “substantially true”

in that he actually had the ability to repay the extensions of

credit at the time. In other words, the substance of

7(...continued)

analysis, we do not address Mr. Roberts’ arguments concerning

subdivision B any further.

15
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Mr. Roberts’ representations was that he had the financial

wherewithal to repay the Credit Union, and the exact amounts he

stated on the application forms should be treated as immaterial

details.

Contrary to this argument, Mr. Roberts’ representations did

not simply equate to a representation of his ability to repay

the amounts owed. Rather, he made specific representations of

the amounts of his income and expenses, which the bankruptcy

court found to be materially false. This finding was based in

part on Mr. Martin’s detailed testimony regarding the Credit

Union’s procedures for evaluating credit applications and his

statement that Mr. Roberts would not have qualified for any

unsecured credit if he had disclosed his income and expenses

accurately. We perceive no clear error in the finding that the

representations were knowingly and materially false.

Nor are we persuaded that the bankruptcy court clearly

erred in finding that Mr. Roberts’ false statements were

intended to deceive the Credit Union. Mr. Roberts argues that

he used a “reasonable method” of calculating his income, which

included his anticipated deferred income. But the bankruptcy

court spelled out in detail in its Findings and Conclusions

that, even giving Mr. Roberts the benefit of every doubt

concerning his income calculations, he overstated his income by

$15,000 on the HELOC Application. The finding that this

misrepresentation was intentionally deceptive was not clearly

erroneous.

Much the same can be said regarding Mr. Roberts’ failure to

disclose his mortgage obligations on the Credit Card

16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Application. Although Mr. Roberts argues that his omission of

some of these obligations was due to confusion regarding the

application form, the bankruptcy court did not clearly err by

finding that his representation of $0 in mortgage payment

obligations was intentionally deceptive. See Citibank (South

Dakota), N.A. v. Eashai (In re Eashai), 87 F.3d 1082, 1089 (9th

Cir. 1996) (omission can constitute misrepresentation when there

is a duty to disclose).

2. Justifiable reliance

Next, Mr. Roberts argues that the bankruptcy court erred in

its finding that the Credit Union justifiably relied on

Mr. Roberts’ misrepresentations. He argues that the proper

standard is that of the “ordinary and average person.” Although

it is true that “reasonable reliance” under § 523(a)(2)(B) is

judged by the standard of the “reasonably prudent person,” see

Heritage Pac. Fin., LLC v. Machuca (In re Machuca), 483 B.R.

726, 736 (9th Cir. BAP 2012), that standard does not apply under

§ 523(a)(2)(A). Rather, the “less demanding” standard of

“justifiable reliance” applies. Field v. Mans, 516 U.S. at 439.

“Justification is a matter of the qualities and

characteristics of the particular plaintiff, and the

circumstances of the particular case[.]” Id. at 444 (quoting

Restatement (Second) of Torts § 545A, cmt b). Although a

creditor “cannot purport to rely on preposterous

representations,” it “ordinarily has no duty to investigate the

truth of a representation[.]” In re Eashai, 87 F.3d at 1090-91

(quoting Romesh Japra, M.D., F.A.C.C., Inc. v. Apte

(In re Apte), 180 B.R. 223, 229 (9th Cir. BAP 1995)).

17
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Here, the Credit Union did not rely on “preposterous

representations.” Mr. Roberts has not shown that the Credit

Union had any reason to doubt the truth of his representations

of income and expenses. With respect to the HELOC Application

and the HELOC Increase Application, the Credit Union relied on

pay statements and tax returns whose authenticity it had no

reason to doubt at the time. The bankruptcy court did not err

in finding that the Credit Union justifiably relied on these

representations.

3. Causation

Finally, Mr. Roberts argues that the bankruptcy court’s

analysis of the causation element was flawed. He argues that

the Credit Union’s loss was not the result of his

misrepresentations. Rather, it was the loss of his job at BP

West that caused him to cease making payments, and at that point

he would have been unable to make the payments even if his

income initially had been as high as he represented it to be.

There is no need to indulge in speculation about what would

have happened if Mr. Roberts’ income had been as high as he told

the Credit Union it was. Nor is the bankruptcy court’s finding

of causation undermined by the fact that Mr. Roberts’ job loss

immediately precipitated his inability to pay his debts to the

Credit Union. The bankruptcy court found, with ample support

from the record, that the Credit Union would have denied

Mr. Roberts’ credit applications if it had known the true state

of his income and expenses. Indeed, this is precisely what

happened when Mr. Roberts first applied for the unsecured credit

card and the HELOC. It was only after he supplied false

18
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

information that the Credit Union changed its decisions. If the

Credit Union had not extended credit to Mr. Roberts, he could

not have defaulted.

Mr. Roberts then argues that his omission of any mention of

his mortgage obligations on the Credit Card Application was not

the cause of the Credit Union’s loss, because the Credit Union

would have approved the Credit Card Application even if he had

disclosed the existence of his mortgage. But the bankruptcy

court never found that this misrepresentation, standing alone,

was the cause of the Credit Union’s loss in its entirety. What

the court found was that, “had the Credit union known

[Mr. Roberts’] actual income and his outstanding debt

obligations, [he] would not have qualified for any unsecured

credit from the Credit Union.” This finding was not clearly

erroneous.

VI. CONCLUSION

Based on the foregoing, we conclude that the bankruptcy

court did not err in its legal conclusions, nor did it clearly

err in its factual findings. We AFFIRM.

19