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FILED

NOV 19 2014

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NOT FOR PUBLICATION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-14-1065-SpDTa

)

JOHN SHART and ) Bk. No. 2:10-bk-29973-B.R.

ELKE GORDON-SCHARDT, )

) Adv. No. 2:10-ap-02555-B.R.

Debtors. )

______________________________)

)

WENDY HAIG; GREG SADLER; )

SHOWCASE 81, LLC, )

)

Appellants, ) MEMORANDUM1

)

v. )

)

JOHN SHART; )

ELKE GORDON-SCHARDT, )

)

Appellees. )

______________________________)

Argued and Submitted on September 18, 2014

at Pasadena, California

Filed - November 19, 2014

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Barry Russell, Bankruptcy Judge, Presiding

_____________________________

Appearances: Jesse Sequoia Finlayson of Finlayson Toffer

Roosevelt & Lilly LLP argued for Appellants Wendy

Haig, Greg Sadler, and Showcase 81, LLC; Appellee

Elke Gordon-Schardt argued pro se.

 

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 8013-1.
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Before: SPRAKER2, DUNN and TAYLOR, Bankruptcy Judges.

INTRODUCTION

This is Appellants’ second appeal to this court on the issue

of whether Elke Gordon Schardt (“Ms. Schardt”) is liable for her

husband, and co-debtor, John Shart’s previously established

fraud. In the first appeal, this Panel upheld the bankruptcy

court’s determination that Ms. Schardt was not directly liable

for fraud. However, based on Tsurukawa v. Nikon Precision, Inc.

(In re Tsurukawa), 287 B.R. 515 (9th Cir. BAP 2002)

(“Tsurukawa II”), the Panel remanded the case for factual

findings as to whether Ms. Schardt was a partner with, or agent

of, her husband such that she would be vicariously liable for his

fraudulent behavior for the purpose of excepting that debt from

discharge under § 523(a)(2)(A).3

Appellants argued that Ms. Schardt’s involvement in her

husband’s business warranted imputing his fraud to her. The

bankruptcy court disagreed, and concluded that she was simply

acting as a wife who also happened to be an attorney. In

addition to finding that no partnership existed, the bankruptcy

court held that there was no basis for imputing Mr. Shart’s fraud

to his wife for purposes of nondischargeability under

§ 523(a)(2)(A). Although Appellants argue otherwise, these

findings are well supported by the record. For these reasons, we

2 Hon. Gary A. Spraker, Chief Bankruptcy Judge for the 

District of Alaska, sitting by designation.

3 Unless otherwise indicated, all chapter and section

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

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AFFIRM.

I. FACTUAL BACKGROUND

A. The Parties.

Appellants Wendy Haig and Greg Sadler are married and live

in Santa Fe, New Mexico. Both had previously worked as certified

public accountants. With their six children, they were involved

in riding, training, and showing high-end horses around the

United States. Ms. Haig, Mr. Sadler, and their children are the

owners of Appellant Showcase 81, LLC, a New Mexico limited

liability company that was formed in 2005 to hold title to the

family’s horses.

Debtors, John Shart and Elke Gordon Schardt, are a married

couple. Mr. Shart was in the business of buying, selling,

trading, training, and boarding horses for more than 30 years. 

He is the 100% owner of Malibu Equestrian Estates, Inc. 

(“Malibu”). Malibu, doing business as Greystone Equestrian

Center (“Greystone”), operated a horse-related business on an

85-acre parcel of real property located in Lynville, Tennessee,

which is owned jointly by Mr. Shart and Ms. Schardt. The

Tennessee property (sometimes referred to herein as “the Farm”)

was purchased by the couple in 2004, and Mr. Shart moved his

business there from Acton, California, in 2005. Ms. Schardt, an

attorney, continued to reside in California, where she has an

active legal practice. She would travel to the Farm

infrequently, perhaps two to three times per year, to visit her

husband. 

B. The Evolution of the Haig/Shart Business Relationship.

Between 2001 and 2003, Appellants operated their equestrian

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activities out of four locations in New Mexico, including an

equestrian center at Las Campañas, Santa Fe. Ms. Haig learned of

Mr. Shart through the director at Las Campañas’ equestrian

center, and Mr. Shart facilitated Ms. Haig’s purchase of several

high quality horses. Because those horses were successful, in

that they won several ribbons and championships, she purchased

additional horses directly from Mr. Shart starting in 2004.

Ms. Haig continued to purchase horses from Mr. Shart, or

Malibu, through 2008. Until early 2007, all of the purchased

horses were boarded at facilities in New Mexico not affiliated

with Mr. Shart or his business. A friendship developed between

Ms. Haig and Mr. Shart, and she came to rely on him for advice

regarding her horses and their training. They met socially, with

Ms. Haig and her children occasionally staying at Greystone’s

facilities in Tennessee.

In 2006, Ms. Haig sent substantial sums of money to

Mr. Shart for the purchase of horses, horse care fees, show fees,

and other purposes. Because she had not received any bills from

Mr. Shart up to this point, on or about November 22, 2006,

Ms. Haig sent him a letter asking for clarification as to the

purpose of payments she had made between May 2005 and September

2006. Her letter identified $1,849,000.00 in payments. 

Ms. Haig received no response to this letter. In spite of

this, she continued her business relationship with Mr. Shart. 

Sometime in February 2007, she and Mr. Shart attended a horse

show in Gulfport, Mississippi. While there, Ms. Haig agreed to

move the majority of her horses from New Mexico to Greystone in

Tennessee, for boarding and training. Between March 2007 and

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December 2008, Ms. Haig boarded on average twenty to twenty-five

horses with Greystone. Unfortunately, the additional business

only created further confusion regarding Ms. Haig’s bills. She

understood that her horses would be boarded for a flat fee of

$50,000.00 per month, regardless of the actual number of horses

boarded. This fee was to include board, feeding of all horses,

and routine veterinary and farrier charges. Mr. Shart recalled

that the arrangement was $2,000.00 monthly for board and

training, per horse, plus veterinary and farrier charges. 

Charges for horse shows would be separate, and charged at the

customary rates. The terms were never memorialized in a writing,

and Ms. Haig would not receive a written bill until July 2008. 

Despite the confusion surrounding the billings, Ms. Haig

became increasingly more involved with Mr. Shart and Greystone. 

In 2007, she financed significant purchases for Greystone’s use,

again without providing written instructions or executing any

written agreements with Mr. Shart.

1. The Motor Homes.

On or about January 23, 2007, Ms. Haig purchased two motor

homes, paying $245,495.00 for the first (“Motor Home 1”) and

$240,973.00 for the second (“Motor Home 2”). Mr. Shart

negotiated the purchases with the dealer. Title to Motor Home 1

was placed in Ms. Haig’s name, but title to Motor Home 2 was

placed in Mr. Shart’s name. Ms. Haig explained that Mr. Shart

had told her his existing motor home had mechanical problems and

he needed a replacement to use while he was attending horse

shows. She agreed to purchase the two motor homes for horse show

use, “enabling everyone to stay on the show grounds during shows

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- one for use by my family and one for [Mr. Shart] to use.” Haig

Decl. 12:6-8, Feb. 8, 2012, ECF No. 33. Ms. Haig would later

claim that she instructed Mr. Shart to place title to both motor

homes in her name. However, prior to making payment on Motor

Home 2, Ms. Haig was provided with a copy of the Purchase

Agreement for that vehicle, which identified the buyer as “John

Shart.” Mr. Shart contended this motor home was a gift to him

from Ms. Haig.

2. The Barn and the Flowers Land.

Also in 2007, Mr. Shart constructed a barn on the Tennessee

property to house some of Ms. Haig’s horses (“the Barn”). The

Barn is a bit of a misnomer as it included living quarters for

Ms. Haig during her visits and four suites for grooms. The

parties disputed who provided the funds for the Barn’s

construction. Ms. Haig also contended that Mr. Shart promised to

construct the Barn as an incentive for her agreement to board

horses with Greystone. She said Mr. Shart agreed that she could

have a personal residence and her own barn at the Farm, which

would belong to her and her family.

On May 10, 2007, Jerry and Beverly Flowers recorded a deed

transferring a fourteen-acre parcel adjacent to the Tennessee

property to Mr. Shart (the “Flowers Land”). Title was vested in

Mr. Shart, but, again, the parties disputed who provided the

funds for the purchase of the Flowers Land, and whether title

should have been vested in Mr. Shart or Ms. Haig. Ms. Haig said

Mr. Shart induced her to purchase this property because it would

be valuable as additional pastureland for her horses. She wired

$85,000.00 to Mr. Shart in May 2007 to cover the purchase price

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of this property, plus closing costs. The bankruptcy court found

this evidence to be the “smoking gun” with respect to Mr. Shart’s

fraud in this transaction. Trial Tr. 104:10-14, July 25, 2012.

3. The Kenworth Truck.

On September 14, 2007, Ms. Haig paid $162,250.43 for the

purchase of a Kenworth truck. She explained that this purchase

was necessary because Mr. Shart’s health issues prevented him

from driving the truck that he had been using to transport her

horses to shows. She again relied on Mr. Shart to negotiate the

purchase. She contends she instructed him to put title to the

truck in the name of her husband, Mr. Sadler, but title to the

truck was placed in the name of Greystone. Ms. Haig said she did

not discover this until late 2008 or early 2009.

C. Ms. Haig First Receives Billing Information in July 2008.

On July 10, 2008, Ms. Haig received a Federal Express

(“FedEx”) package containing three pages (“the 2005-2007

accounting”). The first page, titled “Accounting for Wendy Haig

2205[sic]-2007,” was a summary that showed a lump sum total of

$3,698,000.00 for monies wired from Ms. Haig, listed categories

of expenses totaling $3,942,793.46, and reflected a balance owing

of $244,793.47. The second and third pages simply listed “Wendy

Haig’s Horse Purchases” by date, price, and horse’s name, between

2005 and 2007. 

No other correspondence was included, but the handwritten

airbill on the package listed Ms. Schardt as the sender, and

included her California address. At trial, however, Ms. Schardt

testified that she didn’t recognize the handwriting on the

airbill; it was not hers. She also testified that she did not

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recall sending Ms. Haig the FedEx package.

Ms. Haig vehemently disagreed with this accounting. She

believed Mr. Shart had been overcharging her on numerous matters,

and was shocked to see any balance owing to Greystone. In July

2008, Ms. Haig also received detailed monthly bills covering

January through June of 2008, in a separate mailing from

Greystone’s new bookkeeper, Susan Rhea. These bills, prepared by

Ms. Rhea, reflected Mr. Shart’s understanding that Greystone

would bill Ms. Haig $2,000.00 monthly per horse, with veterinary

and farrier expenses charged separately. Ms. Haig challenged the

2008 monthly billing statements as well, although she conceded 

corrections were ultimately made, “with argument and difficulty.”

D. The Relationship Deteriorates and Ms. Schardt’s Involvement.

Throughout the remainder of 2008, Ms. Haig received monthly

bills from Greystone. She contested many of them, and continued

to press for a detailed accounting and reconciliation of the

total amounts she had paid to Greystone. In turn, Mr. Shart

demanded payment of the balance owed under the July 10, 2008

“accounting,” and threatened to start selling Ms. Haig’s horses

to cover the balance. 

The dispute reached its climax in December 2008, spilling

over into early January 2009. During this period, Ms. Haig and

Mr. Shart exchanged several letters regarding their dispute. In

a letter dated December 4, 2008, Ms. Haig wrote “I . . .

relinquish title to all horses at Greystone Equestrian Center,

except Cincinnati,” but declared that all other personal

property, including the trucks and trailers, remained hers. 

Mr. Shart asserted that, on December 6, 2008, he left a letter in

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Ms. Haig’s room at the Barn accepting her offer, although he

stated he would not return the truck and other personal property

Ms. Haig mentioned in her offer. Ms. Haig denied ever receiving

his response. On December 18, 2008, Mr. Shart sold two of

Ms. Haig’s horses over her objections.

The next day, Ms. Schardt arrived at the Farm for the

holidays. Ms. Haig’s attorney sent a letter to Mr. Shart that

same day, requesting a comprehensive accounting, and directing

him not to sell any more of Ms. Haig’s horses. A week later, on

December 26, 2008, Ms. Haig wrote a letter to Mr. Shart that

itemized ten billing adjustments to be made in her favor. Her

letter included a detailed spreadsheet listing Greystone’s 2008

billings and credits, together with her proposed adjustments. 

According to her calculations, Ms. Haig had a credit balance of

$137,508.90. 

Ms. Schardt testified that “we were getting all these calls”

during this time period. Trial Tr. 87:24-88:1, May 3, 2012. She

asked both her husband and Greystone’s bookkeeper, Ms. Rhea,

about the correspondence and what was going on. Ms. Rhea had

been working on an accounting of Ms. Haig’s transactions for some

time when Ms. Schardt arrived. With the bookkeeper, Ms. Schardt

reviewed all the wire transfers referenced in Ms. Haig’s letter

of December 26, 2008, and wrote notes on her copy of the letter. 

In the course of this review, they discovered one wire transfer

that had not been credited to Ms. Haig. 

Ms. Schardt also testified that Ms. Rhea complained to her

that Ms. Haig was constantly disputing and requesting changes to

Greystone’s bills. The bookkeeper told her that Ms. Haig had

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asked for so many changes it had gotten to the point where she

was confused and did not know what was right anymore. 

Ms. Schardt reminded her that Ms. Haig was a client, and

recommended that she just complete the accounting. If Ms. Haig

responded that a credit was due, then the bookkeeper could

compare and, if needed, make corrections to the account. This

recommendation was based on how Ms. Schardt handled her own

business accounts.

Mr. Shart sent four letters to Ms. Haig in early January

2009.4 The first, dated January 1, 2009, responded to Ms. Haig’s

December 26, 2008 correspondence. Mr. Shart acknowledged that

one wire transfer, for $25,000.00, had been missed and would be

credited to Ms. Haig’s account. The letter also provided

Mr. Shart’s explanation as to other disputed items. On

January 5, 2009, Ms. Haig received a revised accounting, titled

“Wendy Haig Accounting” (the “2008 accounting”). The spreadsheet

showed a beginning balance due of $244,793.47, and detailed the

monthly billings, payments, sales of horses, and miscellaneous

credits in 2008. This accounting showed a final balance of

$134,737.56 as of the end of December 2008. Ms. Haig responded

that same day, and again on January 6, 2009, by faxing additional

information to Mr. Shart in an attempt to establish further

credits in her favor that were not reflected in the 2008

accounting.

The same day that her initial response to the 2008

4 The copies of the letters dated January 2 and 4, 2009, are

virtually illegible.

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accounting was sent, on January 6, 2009, Mr. Shart wrote another

letter to Ms. Haig in which he stated that she was already “in

possession of our accounting up to December 31, 2008, and may

present [her] own accounting for comparison.” The letter also

complained about Ms. Haig’s “continuous and completely uncalled

for telephone harassment” during the past couple of days.

Ms. Schardt was still visiting the Farm when these letters

were sent. She testified that she reviewed her husband’s 

letters for grammatical and typographical errors because his

English wasn’t “exactly stellar” and he often dictated half in

German and half in English. Trial Tr. 99:13-18, May 3, 2012. As

a result, someone always proof-read Mr. Shart’s letters. 

Nonetheless, Ms. Schardt was adamant that she did not make

substantive changes to any of the letters. 

Given the parties’ escalating disagreements, on January 7–9,

2009, Ms. Haig, Mr. Sadler, and Mr. Sharp, an assistant of

Ms. Haig’s, traveled to Tennessee to pick up the remaining

horses. Mr. Shart demanded payment for the outstanding balances

before he would agree to release the horses. Ms. Haig contends

Mr. Shart “specifically told her,” during this visit, that

Ms. Schardt had advised him to demand payment of $250,000.00 from

her before releasing the horses. Haig Decl. 31:20-21. However,

Mr. Sadler stated that Ms. Haig was so upset during this visit

that she did not even speak to Mr. Shart. Sadler Decl. 4:21-23,

Feb. 8, 2012, ECF No. 35. 

Mr. Sadler and Mr. Sharp met Mr. Shart at the Farm on

January 8, 2009. Mr. Sharp recalled that Mr. Shart told him he

would release the horses if Ms. Haig paid her debt to him, which

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he claimed was in excess of $200,000.00. He did not say that

this demand was suggested by Ms. Schardt. Mr. Sadler and

Mr. Sharp both stated, however, that during this visit Mr. Shart

told them that Ms. Schardt had been involved in reviewing the

billings or accountings. Unable to resolve the matter, Mr. Shart

refused to allow Ms. Haig to recover her horses. 

These events left Ms. Schardt with a “gut feeling” that

litigation might be around the corner. Trial Tr. 90:21-23,

May 3, 2012. Sometime in late December 2008 or early January

2009, she may have suggested to her husband that he consult with

an attorney, and may have looked into finding an attorney with

expertise in the equine area. Ms. Schardt also spoke to the

attorney that Mr. Shart retained with respect to Appellants’

dispute, although it is not clear from the record whether this

occurred before or after the attorney’s retention by Mr. Shart. 

This same attorney would also initially represent Ms. Schardt in

the civil action that Appellants filed against both Debtors and

Mr. Shart’s business, Malibu.

E. The State Court Litigation.

On February 9, 2009, Appellants sued Mr. Shart, Ms. Schardt,

and Malibu in state court. Haig v. Shart, dkt. no. 4394

(Chancery Ct., Giles Cnty., Tennessee, February 9, 2009). The

complaint alleged that Mr. Shart and Malibu had made multiple

misrepresentations to Ms. Haig regarding the acquisition and sale

of horses and that there were disputed expenses charged for trade

shows, construction costs, real estate, personal property

acquisitions, and other matters. Notably, the complaint focused

on the actions of Mr. Shart, and only sought recovery against

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Ms. Schardt for “unjust enrichment.”

A month later, on March 2, 2009, the Tennessee Chancery

Court entered an Agreed Temporary Injunction that prohibited

Mr. Shart and Ms. Schardt from selling any additional horses or

personal property owned by Appellants, including the Kenworth

truck. It also required Appellants to grant Mr. Shart and

Mrs. Schardt a security interest in one of the horses to secure

the claims for outstanding boarding and training services.

At the time this injunction was drafted, Mr. Shart and

Ms. Schardt were both represented by the same attorney. 

Ms. Schardt testified that she was personally involved in the

negotiations regarding the injunction. She explained that, as a

practicing attorney, she knew about injunctions, and she

discussed with their counsel her specific ideas as to what kind

of language should be in it.

Ms. Haig’s representatives returned to the Farm on March 5,

2009, to remove Appellants’ remaining horses and personal

property. They were permitted to remove eleven horses and some

other items of property. Ms. Schardt was present at the Farm on

this date, but there is no evidence that she was involved in the

return of assets to Ms. Haig or interacted with Ms. Haig’s

representatives during this visit. Roughly two weeks later, on

March 23, 2009, Mr. Shart and Ms. Schardt’s counsel substituted

out of the state court action and Mr. Shart and Ms. Schardt each

retained independent counsel. 

By April 2009, Appellants had determined that at least five

of their horses were still stabled with Greystone. The state

court entered an order granting Appellants possession of the

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horses, their request for injunctive relief, and authorization to

inspect Greystone’s premises. The bankruptcy court ultimately

found that Appellants never recovered seven of their horses.

On May 22, 2009, Appellants amended their complaint in the

Tennessee Chancery Court and also sent letters to individuals who

had purchased some of Appellants’ horses from Mr. Shart. In

response, Ms. Schardt mailed a letter dated June 2, 2009, to four

individuals, including a Ms. Filipovitch, concerning the ongoing

litigation.5 Ms. Schardt testified that she sent these letters

because people were calling and asking about the litigation. 

Although written on Greystone’s letterhead, Ms. Schardt

identified herself in the letter as Mr. Shart’s wife, and signed

it individually. She also clarified that “I own the farm

together with [Mr. Shart], but have no involvement in the horse

business; yet am being sued for unjust enrichment.” She

described Appellants’ suit as a “personal vendetta” against her

husband, and enclosed a copy of Mr. Shart’s amended answer and

counterclaim, which sought damages against Appellants for breach

of contract, pasturage and livery stable liens, a declaratory

judgment, libel, slander, intentional interference with business

relationships, and other counts.

In November 2009, Mr. Shart sold the Kenworth truck to

MHC Kenworth for $80,000. Ms. Haig’s counsel obtained

information about the sale in February 2010, and contacted

Mr. Shart’s counsel for details. Mr. Shart’s counsel sent an

5 Only the letter to Ms. Filipovitch is included in the

record, suggesting that the same letter was sent to each of the

four recipients. 

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email to Ms. Schardt inquiring about the truck. When Ms. Schardt

received this email, she was aware that her husband was attending

a horse show in Gulfport, where cell phone reception was very

poor. She replied by email to Mr. Shart’s attorney that:

Hans owns more than one Kenworth. I note

with curiosity the claim that W bought the

truck and it is titled in Hans [sic] name. 

You may recall she gave it to him, and there

is a dispute. I cannot reach Hans, therefore

no answer. Stall her, and find out what

truck, who said it was sold and where is it? 

In my humble opinion the injunction is not

worth the paper it is written on. The judge

basically said so himself last time we tried

to enforce its terms. All I am asking is

that as Hans [sic] counsel you cover his back

until he is back from the horseshow. He has

to make a living.

Ms. Schardt testified that, after sending this response, she

did nothing further with respect to the truck. She was in

California and assumed Mr. Shart’s attorney in Tennessee would

follow up on the matter. She also testified that she was not

involved in the drafting of a subsequent letter Mr. Shart’s

counsel sent to Ms. Haig’s counsel about the truck. This letter

threatened sanctions and stated that Mr. Shart had not sold the

truck. 

II. PROCEDURAL HISTORY

A. The Bankruptcy and the Original Adversary Action. 

Mr. Shart and Ms. Schardt filed a chapter 11 petition in the

Central District of California on May 18, 2010. On their

Schedule A, they indicated that they owned the Barn and the

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Flowers Land.6 Their Schedule F listed a disputed, contingent,

and unliquidated debt to Appellants for $1 million. On

September 21, 2010, the bankruptcy court converted Debtors’ case

to chapter 7, and a trustee was appointed.

Appellants filed a proof of claim in the bankruptcy case on

January 21, 2011, in the amount of $2,600,000.00. Debtors

objected to the claim, arguing that they did not owe the money. 

On August 23, 2010, Appellants filed the underlying adversary

proceeding against Debtors. As amended, Appellants’ complaint

alleged that Debtors made misrepresentations with the intent of

deceiving them into paying $1.1 million to construct the Barn and

purchase the Flowers Land, among other things, and that this debt

should be excepted from discharge under § 523(a)(2)(A). The

complaint further alleged that Debtors had engaged in fraud or

defalcation as fiduciaries related to the $1.1 million, and that

the debt should be excepted from discharge under § 523(a)(4). 

Finally, the complaint asserted that Debtors willfully,

maliciously, and intentionally injured Appellants and converted

their property, and the resulting debt should be excepted from

discharge under § 523(a)(6). In an answer filed on April 6,

2011, Debtors generally denied these allegations.

The adversary trial was consolidated with Debtors’ claim

objection and tried over five days in April, May, and July 2012. 

The bankruptcy court issued an oral ruling on July 25, 2012. It

held that Mr. Shart had engaged in fraud and that his credibility

6 Appellants assert Debtors also scheduled Motor Home 2 as

one of their assets. The Schedules themselves are not in the

record. 

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was “quite frankly, zero.” Trial Tr. 101:14-15, Jul. 25, 2012. 

Appellants’ claim was allowed in the sum of $1,817,104.19, as a

community claim under § 524(a)(3). However, the bankruptcy court

did not except the entire claim from discharge. Damages for an

initial group of 11 horses and costs allegedly incurred by

Appellants for the construction of the Barn were allowed as part

of Appellants’ claim but not excepted from discharge. The

following four components of Appellants’ allowed claim, totaling

$860,726.43, were found to be nondischargeable as against

Mr. Shart:

a) $372,503.00 attributable to “the second group of

horses,”

b) $85,000.00 for the Flowers Land,

c) $162,250.43 for the Kenworth truck, and

d) $240,973.00 for Motor Home 2 that had been titled in

Mr. Shart’s name.7

As to Ms. Schardt, the court found that none of Appellants’

claims would be excepted from discharge. It noted that her

involvement was limited to “helping with emails and things,” and

“cleanup at the end,” rather than assisting with the actual

transactions that were the basis for Appellants’ claims. 

Focusing on the issue of imputation of fraud, the court noted its

disagreement with Tsurukawa II stating, “I think even the BAP got

it wrong.” Trial Tr. 100:4-8, Jul. 25, 2012. The court found

that any involvement Ms. Schardt had in the parties’ dispute was

as a spouse and refused to impute liability for her husband’s

7 The parties do not dispute the calculation of damages on

appeal. 

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fraud. 

In September 2012, the bankruptcy court entered a judgment

in favor of Appellants, and against Mr. Shart, for $860,726.43,

with this sum being excepted from discharge under § 523.8 The

judgment further stated that Appellants’ claims against

Ms. Schardt were discharged. Appellants appealed the discharge

of their claims against Ms. Schardt, but only as to the

$860,726.43 excepted from discharge as against Mr. Shart. 

B. The First Appeal to the BAP (“Shart I”).

In the first appeal (Haig v. Shart (In re Shart), 2013 WL

1397401 (9th Cir. BAP Apr. 2, 2013)(“Shart I”)), the Panel

affirmed the bankruptcy court’s determination that Ms. Schardt

was not directly liable for fraud. It specifically referenced

Ms. Haig’s testimony that Ms. Schardt had never made a false

representation to her about the financial issues in question. 

Id. at *5. Based on this evidence, the Panel upheld the

bankruptcy court’s determination that Ms. Schardt did not have

any involvement with the actual transactions that were the basis

for Appellants’ claims. Id. at *5-6.

Although the Panel affirmed the denial of Ms. Schardt’s

direct liability for fraud, it vacated the lower court’s ruling

as to “imputed liability.” Though it noted that marriage alone

was an insufficient basis to impute fraud, under Tsurukawa II,

“imputation of liability was possible in a § 523(a)(2)(A)

8 As the Panel noted in the first appeal, the judgment does

not identify the applicable subsections of § 523(a). Haig v.

Shart (In re Shart), 2013 WL 1397401 at *4 (9th Cir. BAP Apr. 2,

2013). On appeal, Appellants have exclusively relied upon

§ 523(a)(2)(A). 

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proceeding where the court finds a partnership or agency

relationship existed between the spouses.” Id. at *6. The Panel

vacated and remanded the case because the bankruptcy court’s

findings on these issues were inadequate for review. It directed

the bankruptcy court to consider certain items culled from the

record, that might support the existence of a partnership or

agency relationship between Debtors; specifically, that

Ms. Schardt may have: (1) prepared and mailed allegedly

fraudulent accounting statements to Ms. Haig; (2) maintained

one bank account and check register for Mr. Shart's business

and assisted in preparation of tax returns; (3) made

handwritten notes on billing disputes with Appellants and

forwarded them to Mr. Shart; (4) reviewed and edited

Mr. Shart's responses to the billing disputes; (5) directed

her bookkeeper to ignore Ms. Haig's complaints about her

bills; (6) provided advice to Mr. Shart in his negotiations

with Ms. Haig; (7) prepared some of the bills sent to

Ms. Haig; and (8) signed letters on Greystone letterhead

relating to Greystone business matters. Shart I, 2013 WL

1397401 at *8. 

The Panel recognized that the bankruptcy court may have

considered this evidence, but it could not know based on the

record. It remanded the action for more specific findings on

“whether [Ms. Schardt] was involved in a partnership or agency

relationship with Mr. Shart such that his fraudulent behavior

should be imputed to Ms. Schardt for the purposes of exception to

discharge under § 523(a)(2)(A) as set forth in [Tsurukawa v.

Nikon Precision, Inc. (In re Tsurukawa), 258 B.R. 192 (9th Cir.

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BAP: 2001)(‘] Tsurukawa I[‘)] and Tsurukawa II.” Id. at *9.

C. The Bankruptcy Court’s Decision on Remand.

 On remand, the bankruptcy court incorporated the Panel’s

statement of facts from the first appeal. Haig v. Shart

(In re Shart), 505 B.R. 13, 21-24 (Bankr. C.D. Cal. 2014). 

Neither party disputes those underlying facts, and, specifically,

Mr. Shart’s liability for fraud. The court held that, even if

Ms. Schardt “magically became the partner of her husband in 2009,

she was clearly not his partner when the fraud occurred in 2007.” 

Id. at 28. It found that Mr. Shart’s fraudulent conduct occurred

in 2007, and Ms. Schardt’s involvement with her husband’s

activities did not begin until 2009, well after the fraudulent

activities had occurred. The bankruptcy court also addressed the

eight items noted by the Panel, but found the evidence to be

insufficient to establish the existence of a partnership or an

agency relationship. Id. at 26-27. After such review, the court

again concluded that “Ms. Schardt simply acted as a spouse who

happened to be an attorney and helped out her husband.” Id.

at 26. Based upon this conclusion, the bankruptcy court held

that the fraud of Mr. Shart could not be imputed to Ms. Schardt

under § 523(a)(2)(A). Shart, 505 B.R. at 27.

 Appellants filed the instant appeal on February 12, 2014. 

D. The Panel’s Subsequent Decision in Huh.

Shortly after the instant appeal was filed, the Panel issued

its en banc decision in Sachan v. Huh (In re Huh), 506 B.R. 257

(9th Cir. BAP 2014). There, a creditor sought to impute the

fraud of a real estate agent to his principal for purposes of

excepting the debt from discharge under § 523(a)(2)(A). In a

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prepetition state court action, the debtor had been found

vicariously liable, as a principal, for his agent’s wrongdoing. 

The debtor defended the discharge claims on the basis that he did

not know, or have reason to know, of his agent’s fraud. The

Panel reexamined Tsurukawa II and other governing precedent on

imputing fraud in discharge actions in light of the Supreme

Court’s decision in Bullock v. BankChampaign, N.A., __ U.S. __,

133 S.Ct. 1754, 185 L.Ed.2d 922 (2013).

Upon review, the Panel clarified Tsurukawa II’s imputation

analysis to hold that fraud may not be imputed solely based on

the existence of a partnership or agency relationship. “While

the principal/debtor need not have participated actively in the

fraud for the creditor to obtain an exception to discharge, the

creditor must show that the debtor knew, or should have known, of

the agent’s fraud.” Huh, 506 B.R. at 271-72. Thus, under Huh,

if a partnership or agency relationship is found, the debtor’s

culpability must then be evaluated to determine whether fraud may

be imputed for purposes of exceptions to discharge.

On May 22, 2014, this Panel directed the parties to

supplement their briefs to analyze the holding of Huh. 

Appellants and Ms. Schardt submitted supplemental briefs, and

Appellants also supplemented the record, to address this change

in the law. Appellants have requested that the case again be

remanded for further proceedings in light of Huh. 

III. JURISDICTION

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

§§ 1334 and 157(b)(2)(I). This court has jurisdiction under

28 U.S.C. § 158.

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IV. ISSUES

1. Did the bankruptcy court err in finding that no

partnership or agency relationship existed between Debtors, such

that there was no basis to establish Ms. Schardt’s liability for

Mr. Shart’s fraudulent conduct.

2. Did the bankruptcy court err in failing to impute

Mr. Shart’s fraud to Ms. Schardt for purposes of § 523(a)(2)(A).

V. STANDARDS OF REVIEW

Whether a claim is excepted from discharge under

§ 523(a)(2)(A) presents mixed issues of law and fact which we

review de novo. Diamond v. Kolcum (In re Diamond), 285 F.3d 822,

826 (9th Cir. 2002). “De novo means review is independent, with

no deference given to the trial court’s conclusion.” Mwangi v.

Wells Fargo Bank, N.A. (In re Mwangi), 432 B.R. 812, 818 (9th

Cir. BAP 2010); see also First Ave. W. Bldg., LLC v. James

(In re OneCast Media, Inc.), 439 F.3d 558, 561 (9th Cir. 2006).

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

error. Honkanen v. Hopper (In re Honkanen), 446 B.R. 373, 378

(9th Cir. BAP 2011). “The clear error standard is significantly

deferential and is not met unless the reviewing court is left

with a ‘definite and firm conviction that a mistake has been

committed.’” Fisher v. Tucson Unified School Dist., 652 F.3d

1131, 1135 (9th Cir. 2011)(citation omitted). There is no clear

error unless the findings of fact are “‘(1) illogical,’

(2) ‘implausible,’ or (3) without ‘support in inferences that may

be drawn from the facts in the record.’” United States v.

Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009)(en banc)(quoting

Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 577

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(1985)). “Where there are two permissible views of the evidence,

the factfinder’s choice between them cannot be clearly

erroneous.” Lewis v. Ayers, 681 F.3d 992, 999 (9th Cir. 2012) 

The bankruptcy court’s credibility determinations are

entitled to special deference. Leon v. IDX Systems Corp.,

464 F.3d 951, 958 (9th Cir. 2006)(citation omitted). Deference

is given to the trial judge in this area, “for only the trial

judge can be aware of the variations in demeanor and tone of

voice that bear so heavily on the listener’s understanding of and

belief in what is said.” Anderson v. City of Bessemer City,

N.C., 470 U.S. at 575.

This court may affirm on any ground supported by the record. 

Shanks v. Dressel, 540 F.3d 1082, 1086 (9th Cir. 2008)(citing

Atel Fin. Corp. v. Quaker Coal Co., 321 F.3d 924, 926 (9th Cir.

2003)(per curiam)). 

VI. DISCUSSION

In a nondischargeability action under § 523(a), the creditor

has the burden of proving all the elements of its claim by a

preponderance of the evidence. Grogan v. Garner, 498 U.S. 279,

291 (1991). Exceptions to discharge are strictly construed

against an objecting creditor and in favor of the debtor to

effectuate the fresh start policies under the Bankruptcy Code. 

Snoke v. Riso (In re Riso), 978 F.2d 1151, 1154 (9th Cir. 1992).

Debts for money or property are excepted from discharge “to

the extent obtained by false pretenses, a false representation,

or actual fraud.” 11 U.S.C. § 523(a)(2)(A). In Shart I, the

Panel affirmed the bankruptcy court’s ruling that Ms. Schardt had

not made false representations or engaged in actual fraud with

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respect to Appellants. In this second appeal, Appellants seek to

impute Mr. Shart’s fraud to Ms. Schardt. They must establish,

first, that Ms. Schardt was a partner in her husband’s horse

business, so that she is vicariously liable for her husband’s

fraud.9 Tsurukawa II, 287 B.R. at 527. If a partnership is

found to exist, Ms. Schardt’s culpability with respect to the

fraudulent transactions would then be evaluated under the “knew

or should have known” standard of Huh.10

Appellants contend Ms. Schardt became her husband’s business

partner through her active involvement in his business. Given

her involvement in the business, they argue that she knew, or

should have known, of his fraudulent activities, and must be

charged with his fraud for purposes of excepting her partnership

liability to Appellants from discharge under § 523(a)(2)(A). 

A. To Establish a Partnership, California Law Requires Evidence

that Ms. Schardt was a Co-Owner with a Right to Participate

in the Management of Her Husband’s Business.

The existence of a partnership is a question of fact

governed by state law. Tsurukawa II, 287 B.R. at 521. In this

instance, California law applies. Shart I, 2013 WL 1397401

9 This case was specifically remanded for factual findings

as to whether Ms. Schardt was either a partner in her husband’s

business or an agent. On remand, the parties’ focus, and the

court’s examination, was directed to whether Ms. Schardt had

entered into a business partnership with her husband, to the

exclusion of any argument that an agency relationship existed. 

Appellants do not argue on appeal that an agency relationship

existed. As such, this Panel limits its examination to whether a

business partnership existed between the spouses. 

10 This two-step analysis was unnecessary in Huh because the

debtor/broker had previously been found vicariously liable for

the acts of his agent. Huh, 506 B.R. at 261.

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at *8. California law defines a partnership as “the association

of two or more persons to carry on as co-owners a business for

profit.” Cal. Corp. Code § 16202(a)(2014). “In California, the

burden of proving a partnership is on the party alleging it.” 

In re Lona, 393 B.R. 1, 11 (Bankr. N.D. Cal. 2008)(citing Mercaco

v. Hoefler, 190 Cal.App.2d 12, 16 (Cal. Dist. Ct. App. 1961)). 

Appellants seize upon statements made in Tsurukawa II, and

repeated in Shart I, that “[a] business partnership between a

debtor and spouse for denial of discharge purposes exists where

‘the debtor assumed an active role in the [spouse’s business]

that goes beyond merely holding a community property interest in

[the spouse’s] business and performing minor services in that

business.’” Shart I, 2013 WL 1397401 at *8 (citing Tsurukawa II,

287 B.R. at 521). However, both cases recognized that more than

mere involvement in a spouse’s business is required to establish

a partnership.

Whether parties have created a partnership “depends on

whether they intended to share in the profits, losses and the

management and control of the enterprise.” Shart I, 2013 WL

1397401 at *8 (citing Bank of Cal. v. Connolly, 36 Cal.App.3d

350, 364 (Cal. Ct. App. 1973); Nelson v. Abraham, 29 Cal.2d 745,

749-50 (Cal. 1947)). Co-ownership and profit-sharing are strong

evidence of a partnership. Tsurukawa II, 287 B.R. at 521 (citing

Holmes v. Lerner, 74 Cal.App.4th 442, 453-54 (Cal. Ct. App.

1999)). But, “profit sharing is not considered the most

important indicia of a partnership under California law.” 

Utnehmer v. Crull (In re Utnehmer), 499 B.R. 705, 716 (9th Cir.

BAP 2013). Additionally, “[j]oint tenancy, tenancy in common,

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tenancy by the entireties, [or] joint property . . . does not by

itself establish a partnership, even if the co-owners share

profits made by the use of the property.” Cal. Corp. Code

§ 16202(c)(1). Rather, it is essential that there be a right of

joint participation in management and control of the business. 

Bank of Cal. v. Connolly, 36 Cal.App.3d at 364; Utnehmer,

499 B.R. at 716 (participation in management of the business is a

primary element of partnership, and essential to the

determination of whether a partnership exists). The right to

participate in management, rather than the actual exercise of

such right, is determinative of the relationship. Tsurukawa II,

287 B.R. at 522 (citing Singleton v. Fuller, 118 Cal.App.2d 733,

740-41 (Cal. Dist. Ct. App. 1953)). 

Both the parties, and the court in Shart I, rely upon

Tsurukawa II for guidance as to the quantum of evidence necessary

to establish a business partnership between husband and wife. 

The Tsurukawa II Panel applied the same body of California law to

affirm the bankruptcy court’s conclusion that a business

partnership existed. In Tsurukawa II, the husband funneled

repairs required by his employer, Nikon Precision, Inc., to a

company set up in his wife’s name. Rather than do the work, the

husband would have third parties repair the equipment, then have

his wife’s company overbill his employer. The debtor,

Mrs. Tsurukawa, was involved in this business from the beginning. 

She contributed the initial capital for the business, signed and

filed a fictitious business name statement as sole owner of the

business, opened a business bank account as sole signatory,

applied for and used a corporate credit card, identified herself

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as sole owner on the business tax returns, signed the lease for

business space, and arranged for utility service and repairs to

the business premises. Tsurukawa II, 287 B.R. at 523-24. 

Additionally, Mrs. Tsurukawa signed “hundreds of checks,”

including checks to herself exceeding $100,000. Id. at 523. She

also used the proceeds from the business “to dramatically improve

[her] standard of living, including the purchase of two

additional houses, for approximately $870,000, and three cars.” 

Id. at 524. Despite these facts, Mrs. Tsurukawa was found to

have no actual intent to defraud the creditor. Id. at 520. 

In examining whether a partnership existed between the

spouses, the Tsurukawa II Panel reiterated the bankruptcy court’s

admonition that “[t]he assumption of [business functions] by a

spouse may not carry the weight that such conduct on the part of

a stranger would imply.” Tsurukawa II, 287 B.R. at 522 (internal

citation omitted). Yet, the evidence of a partnership was

“overwhelming.” Id. at 524. The court rejected Mrs. Tsurukawa’s

argument that no partnership existed because she did not control

the business or participate in its day to day operations. As the

owner of the company, she held the right to its management and

control, whether she exercised that right or not. Id. at 522.

B. The Bankruptcy Court Correctly Found No Partnership Existed.

 On remand in this case, the bankruptcy court examined each

of the items identified in Shart I as possibly probative of a

partnership between Ms. Schardt and her husband. Taken

individually or together, the bankruptcy court found them 

insufficient to establish a partnership.

 Appellants contend the bankruptcy court clearly erred

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because it: (1) failed to properly account for each of the eight

items identified in Shart I, (2) inaccurately found that

Ms. Schardt’s involvement in Greystone did not begin until 2009,

and (3) ignored Ms. Schardt’s “pre-litigation” declaration. 

Ms. Schardt responds that any involvement she had with her

husband’s business never rose to the level necessary to create a

partnership and that Appellants’ disagreement with the bankruptcy

court’s factual findings does not make them clearly erroneous as

they are supported by the record. We agree.

1. The Bankruptcy Court’s Findings as to the Items

Identified in Shart I.11

a) Ms. Schardt’s Involvement in the Preparation of

Accountings and Billings. 

In Shart I, the Panel noted that there was some evidence

Ms. Schardt prepared and mailed allegedly fraudulent accounting

statements, as well as some bills, to Ms. Haig. Shart I, 2013 WL

1397401 at *8. On remand, the bankruptcy court recognized that

Ms. Schardt had sent the FedEx package containing the 2005-2007

accounting to Ms. Haig in July 2008, but found that there was no

evidence she prepared the enclosed documents. Shart, 505 B.R.

at 26. Similarly, it concluded that “there was simply no

evidence that proves that Ms. Schardt prepared some of the

bills.” Id. In neither instance did the bankruptcy court

address the testimony of Mr. Sharp, or Mr. Sadler, regarding

11 Although the Panel listed eight items that might be

probative of a partnership, and the bankruptcy court specifically

addressed each one, the same underlying evidence overlaps several

of these items. For this reason, we have combined the discussion

of those items, where appropriate, in light of the evidence in

the record.

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Mr. Shart’s statement to them, on January 8, 2009, that his wife

had worked on Greystone’s billings or accountings. Appellants

contend that this testimony, taken together with the FedEx

package, establishes Ms. Schardt’s active, ongoing involvement in

Greystone’s business. They also argue that her preparation of

these accountings and billings demonstrates knowledge of her

husband’s fraudulent activities. 

Appellants improperly conflate these separate events – a

FedEx package sent in July 2008 and hearsay testimony regarding a

conversation in January 2009 – to support their arguments. But,

Mr. Sharp’s and Mr. Sadler’s testimony is vague as to what type

of document Mr. Shart said his wife prepared. In his trial

declaration, Mr. Sharp recalled “a lengthy discourse [by

Mr. Shart] about the bills sent to Wendy and all the work it had

taken his wife, Elke Gordon Schardt, to prepare them (somewhere

between days to months).” Sharp Decl. 4:21-23, Feb. 8, 2012

(ECF No. 35)(emphasis added). At trial, Mr. Sharp essentially

reiterated this point, although he added that Mr. Shart had told

him his “secretary, Marie” had also worked on them. Trial

Tr. 151:7-10, April 26, 2012. Mr. Sadler’s testimony was even

more vague; he stated that Mr. Shart had told them “that Elke and

his bookkeeper Marie had spent a long time working up the

accountings.” Sadler Decl. 4:4-5, Feb. 8, 2012 (ECF No. 36)

(emphasis added). 

It is clear that this hearsay testimony reflects slightly

differing versions of the same conversation with Mr. Shart on

January 8, 2009, but it is so vague and contradictory as to be

unhelpful. One witness recalled Mr. Shart saying that his wife

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had been involved with billings, while the other remembered

Mr. Shart saying she had worked on accountings, a significant

difference in this case. Both mentioned that “Marie” was also

involved, although Mr. Sadler identified her as Mr. Shart’s

secretary, while Mr. Sharp believed she was his bookkeeper. The

record reflects that Ms. Schardt employed a women named Marie as

her assistant in California, but there is no evidence that Marie

had any involvement in these matters between July 2008 and

January 2009. 

Further, there is other evidence regarding who prepared the

billings, as opposed to accountings, that squarely contradicts

Mr. Sharp’s and Mr. Sadler’s testimony. Ms. Haig did not begin

to receive monthly billings from Greystone until July 2008. 

Those billings came from Susan Rhea, who was Greystone’s

bookkeeper throughout this period. Ms. Haig testified to having

numerous discussions with Ms. Rhea in 2008 about them. Indeed,

in her December 26, 2008 letter, Ms. Haig wrote to Mr. Shart

that, “I looked through my files and the only details of billings

that I have received have been for the current year 2008, which

Susan prepared.” Ms. Haig’s trial declaration is consistent with

this statement; all the billings that she received came from

Greystone’s bookkeeper. The record below supports a conclusion

that Ms. Schardt did not prepare any billings.

As to Greystone’s accountings, two are in evidence. One was

the 2005-2007 accounting, enclosed in the FedEx package sent to

Ms. Haig in July 2008, and the other was the 2008 accounting,

sent to Ms. Haig six months later, on January 5, 2009. The

bankruptcy court correctly noted the absence of any evidence that

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Ms. Schardt prepared the accounting sent in the FedEx package. 

Appellants infer that she must have prepared the documents

because the airbill identified her as the sender. Yet,

Ms. Schardt provided the only direct testimony on the topic. She

testified that she did not remember sending any accountings to

Ms. Haig, and did not think anyone in her office did, either. 

Trial Tr. 168:13-17, May 3, 2012. Moreover, the handwriting on

the FedEx label was not hers, and she did not recognize it. Id.

at 168:18-24. Ms. Schardt suggested that her husband, or someone

else at Greystone, could have sent the package. Mr. Shart

confirmed that he had previously used his wife’s FedEx account

because he did not have one for Greystone. Trial Tr. 170:23-24,

Apr. 27, 2012. He also testified that Ms. Schardt was not

involved in the accounting. 

At trial Ms. Schardt denied ever working on any bills, or

preparing any accounting. She did review Ms. Haig’s December 26,

2008 letter and the proposed billing adjustments with Ms. Rhea,

Greystone’s bookkeeper, during her holiday visit. She also

testified that she advised Ms. Rhea to complete the accounting

she was working on, and to transmit it to Ms. Haig. It is wholly

consistent with the record below that Ms. Haig received

Ms. Rhea’s accounting on January 5, 2009, which was later

discussed between Mr. Shart, Mr. Sadler, and Mr. Sharp on

January 8, 2009. Regardless, Ms. Schardt’s review of Ms. Haig’s

letter, and her general advice to Ms. Rhea, the bookkeeper, did

not equate to preparation of an accounting. More importantly,

these actions do not evidence co-ownership or any right to

participate in the management of her husband’s horse business as

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is necessary to establish a partnership. Because the bankruptcy

court chose from two permissible views of the evidence, and its

findings are plausible in light of the record, there was no

error. Lewis, 681 F.3d at 999. 

 b) Ms. Schardt may have maintained one bank account

and check register for Mr. Shart’s business and

assisted in preparation of tax returns.

The bankruptcy court found that, prior to 2005, Ms. Schardt

and her assistant would enter some information in a check

register for Mr. Shart’s company, Malibu. Additionally,

Ms. Schardt was a signatory on a joint account for Malibu prior

to Mr. Shart’s move to Tennessee, from which she would wire funds

to him while he was buying horses overseas. Ms. Schardt would

also act as a messenger by occasionally taking documents to

Mr. Shart’s California accountants. The court concluded that

these actions were “simply evidence of a married couple and [do]

not in any way give rise to a partnership.” Shart, 505 B.R. at

26.

As to this finding, Appellants simply disagree with the

inferences drawn by the bankruptcy court. They argue that this

evidence establishes that Ms. Schardt “maintained” the check

register for Malibu, was a co-signer on Mr. Shart’s business

account, and “provided information” to his business accountant. 

The record does not support these assertions. Ms. Schardt

testified that before Mr. Shart moved his business and bank

accounts to Tennessee in 2005, both of them used the services of

the same individual to review their separate bills and write

checks. This arrangement ended once Mr. Shart moved his business

to Tennessee in 2005. Similarly, Ms. Schardt testified that the

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joint bank account existed before Mr. Shart moved to Tennessee,

and was an accommodation to his need for funds while traveling

overseas. Again, this arrangement stopped after Mr. Shart moved

to Tennessee in 2005. Ms. Schardt also testified that she still

occasionally took documents for her husband to his California

accountant, but that she did not prepare those documents. 

Appellants offered no evidence to contradict Ms. Schardt’s

testimony. 

Co-ownership of a bank account, by itself, would not

establish a partnership. Cal. Corp. Code § 16202(c)(1). 

Moreover, no inference as to management or control of Mr. Shart’s

business can be made from these facts. The evidence only

establishes that Ms. Schardt, or her assistant, entered

information in a check register; it does not require the

conclusion that Ms. Schardt wrote checks on Mr. Shart’s business

account. While Ms. Schardt may have wired funds to her husband

in the early 2000’s as an accommodation when he traveled

overseas, this is in stark contrast to the situation in

Tsurukawa II where the debtor deposited, wrote, and signed

“hundreds of checks,” including payments to herself. It is also

unclear how, or why, a wife’s delivery of documents to her

husband’s out of state accountant advances Appellants’ claims

that Ms. Schardt was in a partnership with her husband. We agree

with the bankruptcy court that this is simply evidence of

transactions typical in a marriage rather than an indication of

Ms. Schardt’s co-ownership or control of her husband’s business,

especially given that these events occurred well before the

events pertinent to the fraud in 2007. 

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c) Ms. Schardt’s activities in December 2008 and

January 2009.

The cornerstone of Appellants’ challenge rests on

Ms. Schardt’s actions during her visit to the Farm for Christmas,

2008. She arrived for the holidays on December 19, 2008, to find

a quickly escalating business dispute between her husband and a

primary client. The day before, her husband had sold two horses

over Ms. Haig’s objections, prompting a written demand for an

accounting from Ms. Haig’s attorney the same day Ms. Schardt

arrived. Ms. Haig subsequently made numerous calls to the house

during Ms. Schardt’s visit. On December 26, 2008, Ms. Haig sent

the letter to Mr. Shart detailing 10 errors in Greystone’s

billings. 

Aware that something was going on, Ms. Schardt spoke with

Greystone’s bookkeeper, Ms. Rhea, about the ongoing dispute. The

bookkeeper complained about numerous calls and complaints from

Ms. Haig challenging her accounting. Ms. Schardt gave her some

advice as to how to handle the situation. She also reviewed the

matters raised in Ms. Haig’s December 26, 2008 letter with her

husband and Ms. Rhea. She made handwritten notes based on what

she discovered on a copy of the letter. There is no evidence

that these notes were provided to anyone. 

In early January 2009, Ms. Schardt also reviewed two of her

husband’s letters, including his response to Ms. Haig’s

December 26, 2008 letter. She examined them for grammatical

errors because he would dictate half in German, half in English

and his letters were always proof-read by someone. Still,

Ms. Schardt was adamant that she did not change the substance of

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the letters. She acknowledged, however, that she suggested he

retain counsel and made inquiries on his behalf.

Finally, in Shart I, the Panel noted that Ms. Schardt may

have provided negotiating advice to Mr. Shart, based on

Ms. Haig’s declaration. The only evidence of advice is

Ms. Haig’s testimony that Mr. Shart “specifically told her” that

Ms. Schardt had advised him to demand payment of $250,000.00

before releasing the horses. However, Ms. Haig’s declaration was

controverted by her husband’s statement that she was so upset

that she did not speak to Mr. Shart during their January 7-9,

2009 visit to Greystone. 

The bankruptcy court separately addressed Ms. Schardt’s

handwritten notes, her review and editing of her husband’s

correspondence, her discussions with the bookkeeper, and the

prospect that she may have provided negotiating advice. In sum,

it discounted these items as evidence of a partnership, and

considered them merely assistance from a spouse who happened to

be an attorney. We perceive no clear error in that analysis. 

Appellants view these same acts as evidence that Ms. Schardt

took an active role in her husband’s business. They find it

implausible that a lawyer, such as Ms. Schardt, would not have

done more, or would not have actually advised her husband on his

business negotiations. Given the evidence presented, however,

the bankruptcy court’s findings are entirely plausible. They

point to a wife assisting her husband with a business dispute. 

These acts fail to show any control or management of Mr. Shart’s

underlying business. Nor did Ms. Schardt hold herself out as a

co-owner to Appellants or anyone else. Her involvement was

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limited to aiding her husband in his dispute with Ms. Haig,

rather than running the business, and later as a co-defendant in

the state court litigation brought by Appellants. We agree with

the bankruptcy court’s findings as to these actions.

d) Ms. Schardt signed letters on Greystone letterhead

relating to Greystone’s business matters. 

On June 2, 2009, Ms. Schardt sent a letter to four of her

husband’s customers regarding the state court litigation. It was

written on Greystone letterhead, but Ms. Schardt signed the

letter in her individual capacity. In the letter, she explained

that, although she co-owned the Farm with Mr. Shart, she had no

interest in his horse business. The letter accused Ms. Haig of

pursuing a personal vendetta against her husband. Enclosed with

the letter was a copy of Mr. Shart’s answer and counterclaim,

which sought damages against Ms Haig. Ms. Schardt explained that

she sent the letters after Appellants published ads and posted

fliers at horse shows about their missing horses, and Mr. Shart’s

customers began making phone inquiries about the missing horses. 

The bankruptcy court remarked that “the fact that the letter

may have been hate-filled is irrelevant to the issue of

[Ms. Schardt] being a partner.” Shart, 505 B.R. at 26. While

her use of Greystone letterhead is some evidence of a connection

between Ms. Schardt and her husband’s business, she makes no

representations in the letter as to holding any position with

that business. To the contrary, she disclaims any ownership in

the business and clearly identifies herself as the owner’s wife. 

The letter discusses her personal opinion of a pending state

court lawsuit, in which she was a named defendant, and how that

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suit has affected her personally. The bankruptcy court’s finding

that the letter did not establish a partnership between

Ms. Schardt and her husband is not clearly erroneous.

2. The Pre-Litigation Declaration.

Before Appellants filed the instant adversary action,

Ms. Schardt executed a declaration dated July 20, 2010, which was

filed in the bankruptcy case. The record does not reflect the

context in which she made the declaration, although footers on

that document, and the appended certificate of service, indicate

that the declaration was filed in connection with a motion for

protective order regarding a Rule 2004 examination of

Ms. Schardt. In the declaration, Ms. Schardt gives an overview

of the history of the dispute. With respect to Ms. Haig and

Greystone, she wrote that “we afforded her service above and

beyond the call.” She also stated that the “second barn at

Malibu” was built “entirely from the funds of Malibu, my husband

and I.” Additionally, she referenced “Debtors” collectively,

rather than her husband, individually, when describing efforts to

recover past due boarding fees and the sale of horses. 

Appellants view these statements as an admission from Ms. Schardt

that she was heavily involved in, and knew of, her husband’s

business. They contend the bankruptcy court, which does not

mention the declaration in its opinion, erred by failing to give

it the conclusive weight it deserves. 

At trial, Ms. Schardt was extensively examined about the

declaration. With regard to her statement that “we afforded

[Ms. Haig] service above and beyond the call,” she explained that

she was referring to the fact that Ms. Haig’s children had lived

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at Greystone, and been taken care of there. She was not

referring to horse-related services, of which she lacked personal

knowledge, but to extra, “personal things.” Trial Tr. 154:3-12,

May 3, 2012. One of Ms. Haig’s teenage daughters lived at

Greystone permanently in 2007 and 2008. Ms. Schardt also

testified that she opted not to go to Greystone for Christmas in

2007 because Ms. Haig’s teenage son would be staying there for

the month, and she felt this would interfere with family time. 

Similarly, when questioned about the Barn, Ms. Schardt

testified that she believed some of the funds from the sale of

property she and Mr. Shart owned in California were used “for the

building of barns and rings and whatever” at Greystone, although

she didn’t know what was actually being built. Id. at 158:8-

159:3. Ms. Schardt was asked why she would say this in light of

other inconsistent evidence at trial that indicated Ms. Haig had

paid $396,000.00 for the barn construction. She responded that

the pre-litigation declaration was based on her beliefs at the

time, and that she had learned a lot since then, over the course

of the litigation. 

“‘Clear error is not demonstrated by pointing to conflicting

evidence in the record.’” Nat’l Wildlife Fed’n v. Nat’l Marine

Fisheries Serv., 422 F.3d 782, 795 (9th Cir. 2005)(quoting United

States v. Frank, 956 F.2d 872, 875 (9th Cir. 1991)). Rather, it 

exists if the bankruptcy court’s findings of fact are illogical,

implausible, or without support in the record. Hinkson, 585 F.3d

at 1262. The bankruptcy court sifted through the voluminous

evidence and testimony submitted in this case, and evaluated the

credibility of all witnesses. Its determination that no

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partnership existed between the spouses is clearly predicated

upon crediting Ms. Schardt’s testimony that she had no interest,

or right to participate, in Mr. Shart’s underlying business. We

must defer to the trial judge’s determinations as to

Ms. Schardt’s credibility. Anderson v. City of Bessemer City,

N.C., 470 U.S. at 574. Moreover, the court’s findings are amply

supported by the evidence in the record, and, therefore, are not

clearly erroneous. It was unnecessary for the court to comment

on every piece of evidence presented at trial. See

In re Braithwaite, 197 B.R. 834, 835 (Bankr. N.D. Ohio 1996)

(quoting Erickson Tool Co. v. Balas Collet Co., 227 F. Supp 226,

234-35 (N.D. Ohio 1967), aff’d 404 F.2d 35 (6th Cir. 1968))(“‘The

Court need not fragmentize the evidence and make extensive

findings to negative every offer of proof which has failed to

persuade it . . . .’”).

3. The Timing of Ms. Schardt’s Involvement.

The bankruptcy court repeatedly noted that Ms. Schardt’s

involvement occurred predominantly in 2009, whereas the

fraudulent actions of Mr. Shart that gave rise to his

nondischargeable liabilities occurred in 2007. Appellants argue

that this finding was clearly erroneous because of the evidence

that Ms. Schardt sent the FedEx package in July 2008, and they

believe that she was involved much earlier. They also contend

Mr. Shart’s fraud was not limited to actions taken in 2007, but

continued until sometime in 2010. 

The timing of Mr. Shart’s fraud is significant only if

vicarious liability exists, as to Ms. Schardt, by virtue of a

partnership. In that instance, it would be necessary to

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establish the date the partnership was created, because a new

partner is generally not liable for the debts of an existing

firm. See 48 Cal. Jur. 3d Partnership § 89 (2014); Cal. Corp.

Code § 16306(b)(“[a] person admitted as a partner into an

existing partnership is not personally liable for any partnership

obligation incurred before the person’s admission as

partner.”).12 Because no partnership ever existed, Ms. Schardt

is not vicariously liable for any partnership debts. Therefore,

the timing of Mr. Shart’s fraud is immaterial and need not be

addressed further. 

C. Tsurkawa II Does Not Compel a Different Result as to the

Existence of a Partnership.

Appellants also contend that the bankruptcy court clearly

erred in its finding that no partnership existed because

Ms. Schardt was more extensively involved in her husband’s

business than the debtor/wife in Tsurukawa II, where a

partnership was found to exist. The comparison is ill founded. 

Unlike Ms. Schardt, Mrs. Tsurukawa was the owner of the business

and repeatedly held herself out as such. Tsurukawa II, 287 B.R.

at 522. As owner, she held the legal right to control the

management of the business, even though she chose not to exercise

12 This would preclude vicarious liability for Mr. Shart’s

fraudulent procurement of the Kenworth truck, Motor Home 2, or

the Flowers Land, all of which he obtained in 2007, well before

the earliest possible date of the partnership advanced by

Appellants. Mr. Shart’s liability for the second set of horses,

however, arose in 2009. While the failure to establish a

partnership moots the issue, it appears that his liability for

the horses may have been founded on conversion rather than fraud. 

The only issue preserved on appeal, however, is the

nondischargeability of damages for fraud under § 523(a)(2)(A). 

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such right. Id. Moreover, Mrs. Tsurukawa contributed the

initial capital for the business, signed the lease for the

company, opened the company bank account, wrote and deposited

checks, and applied for business credit cards. Id. She also

participated in the “profits” of the business by taking almost

$1 million in income and benefits from the business. Id. at 

522-24. 

In contrast, there is no evidence that Ms. Schardt ever held

herself out as having an interest in her husband’s underlying

business. The only public manifestation of any relationship

between her and her husband’s business remains the letter written

on Greystone stationery to her husband’s clients discussing the

state court lawsuit. Even then, she disclaimed any interest in

the business, identified herself as Mr. Shart’s wife, and signed

the letter in her individual capacity. Whereas Mrs. Tsurukawa

had a legal right to control the business as its named owner,

Ms. Schardt had no ownership interest in Greystone. Nor is there 

evidence that she had the right to participate, or actually

participated, in the management of her husband’s business. 

Unlike Mrs. Tsurukawa, there is also no evidence that she shared

in the profits of her husband’s business. Rather, she assisted

her husband in one discrete business dispute. Once sued, she

also participated in the state court litigation. These actions

did not establish a partnership. 

D. Imputation of Fraudulent Intent.

Under California law, partners are jointly and severally

liable for partnership debts, Cal. Corp. Code § 16306(a),

including damages for fraud. Tsurukawa II, 287 B.R. at 521. 

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Under Huh, however, more is needed to except a partner’s

vicarious liability from discharge under § 523(a). The creditor

must establish the debtor’s individual culpability rather than

relying exclusively on the co-debtor or nondebtor partner’s bad

acts. Huh, 506 B.R. at 271. The debtor/partner need not have

actively participated in the fraud. Id. at 271. Instead, a

creditor seeking to impute another partner’s fraud for purposes

of § 523(a)(2)(A) need only show the debtor “knew or should have

known” of the other partner’s fraudulent activities. Id. at 271-

72. 

Here, the bankruptcy court found that no partnership existed

between Ms. Schardt and her husband. It did not clearly err in

that determination. In the absence of a partnership, Ms. Schardt

is not vicariously liable for her husband’s fraud and the

question of what she knew or should have known, under the Huh

analysis, becomes immaterial. No further examination as to her

culpability is required.

CONCLUSION

To prevail on their nondischargeability claims under

§ 523(a)(2)(A) against Ms. Schardt, Appellants were required to

prove on remand that she: (1) was vicariously liable for her

husband’s fraud as his business partner, and (2) knew or should

have known of his fraudulent conduct. The bankruptcy court’s

decision that Ms. Schardt was not a partner and, therefore, not

vicariously liable for the damages caused by her husband’s fraud,

is supported by considerable evidence. The lower court’s

findings are plausible in light of the entire record, which

establishes Ms. Schardt’s limited involvement in a business

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dispute, rather than a right to control her husband’s business. 

Appellants’ disagreement with those findings, based on

unpersuasive or conflicting evidence, does not render them

clearly erroneous. 

Having reviewed the totality of the record, we perceive no

clear error in the bankruptcy court’s decision on remand. It is,

therefore, AFFIRMED.

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