# F IL ED
MAR 11 2020 SUSAN M . SPRAUL, CLERK U. S. BKCY

. APP. PANEL O F T HE NI NT H CI RCUI T 

### ORD ERED PU BLISHED U NIT E D ST A T E S BA NK RU PT CYA PPE L L A T E PA N E L

OF T HE NINT H CIRCU IT In re: TEIN A MA R I LIO N ETTI,

Deb to r. TEIN A MA R I LIO N ETTI,

A p pellant,

v. LA WO FFIC ES O F STEVENH. MA R C U S,

A p pellee. BA P N o . C C -19-1118-LGTa Bk. N o . 8:15-b k-10705-TA A dv. N o . 8:15-b k-01257-TA

OPINION

A rgued and Sub m itted o n January 30, 2020

at Pasadena, C alifo rnia Filed – March 11, 2020 A ppeal fro m the U nited States Bankruptcy C o urt fo r the C entral Distric t o f C alifo rnia Ho no rab le Theo do r A lb ert, Bankruptc y Judge, PresidingA ppearanc es: Matthew G. Bo uslo g o f Gib s o n, Dunn & C r utcher LLP argued fo r appellant; Shai S. O ved o f The Law O ffic es o f Shai O ved argued fo r appellee.
Befo r e: LA FFER TY, GA N , and TAY LO R , Bankruptcy Judges. LA FFER TY, Bankruptcy Judge: INT ROD U CT I ON In 2011 A ppellant Teina Lio netti hired A ppellee Law O ffic es o f Steven A . Marcus (the “Marcus Firm ”) to represent her in divo r c e pro c eedings. Ms. Lio netti info rm ed the Marc us Firmat the tim e o f hiring that she had lim ited m eans. She signed an engagem ent letter granting the Marcus Firma charging lien o n any rec o very in the divo rc e pro c eeding. During the Marc us Firm ’s representatio n o f her, Ms. Lio netti info rm ed the firm she was c o nsidering b ankruptc y, and she in fac t c o nsulted with b ankruptc y c o unsel. In 2014, the fam ily law c o urt entered a Q ualified Do m esticR elatio ns O rder that awarded Ms. Lionetti her ex-husb and’s 401(k) wo rth o ver $270,000. Tho se funds were transferred to Ms. Lio netti and depo s ited into her retirem ent ac c o unt. By then, she o wed the Marcus Firmappro xim ately $150,000. She term inated the Marc us Firm ’s representatio n witho u t paying tho se fees.

2A fter Ms. Lio netti filed a chapter 7 1 petitio n in 2015, the Marcus Firm

filed a c o m plaint seeking a dec laratio n o f no ndischargeab ility o f the o utstanding fees under § 523(a)(2)(A ) and a dec laratio n that its charging lien was valid. The b ankruptc y c o urt granted sum m ary judgm ent fo r Ms. Lio netti, finding that the c harging lien was no t valid and that the no ndischargeab ility c laim failed as a m atter o f law. Ms. Lio netti then m o ved fo r an award o f atto rney’s fees under § 523(d), which the b ankruptc y c o urt denied. Bo th o rders were appealed to the U nited States Distric t C o u rt fo r the Distric t o f C alifo rnia (“Distric t C o urt”). The Distric t C o urt affirm ed the b ankruptc y c o urt’s grant o f sum m ary judgm ent b ut rem a nded the denial o f the fee award fo r the b ankruptc y c o urt to apply the c o r rec t standard. O n rem and, the b ankruptc y c o urt again denied the fee award, finding that the Marc us Firmhad b een sub stantially justified in pursuing its no ndischargeab ility c laim
. W e R E VER SE. F A C T U A L BA CK GROU N D In early 2011, Ms. Lionetti was referred to the Marc us Firmin c o nnec tio n with her divo rc e pro c eeding, and she m et with atto rney Steven

1 Unless speci fi ed other wi se, all chapterand secti on r efer ences ar e to the Bankr uptcy Code, 11 U.S
. C. §§ 101-1532, and all “Rule” r efer ences ar e to the Feder al Rules of Bankr uptcy Pr ocedur e. 3Marcus at his o ffic e. During that m eeting, Ms. Lio netti explained that she

had lim ited inc o m e and reso urc es with which to pay the Marcu s Firm ’s legal fees, no ting that she was m a king o nly $9.25 per ho ur and wo rking appro xim a tely 25 ho urs per week. Ms. Lio netti also explained that she had o utstanding deb ts that inc luded appro x im ately $50,000 o wed to her prio r atto rney. She to ld Mr. Marcus that her ex-husb a nd o wed her o ver $150,000 in spo usal suppo rt, child suppo rt, pro perty taxes, health c o verage, and o ther reimb ursem ents. She stated that she b elieved her ex-husb and had funds in a 401(k) ac c o unt and o ther assets to whic h she b elieved she was entitled. Mr. Marcus presented Ms. Lio netti with an engagem ent letter that set o ut the term s o f the Marc us Firm ’ s representatio n o f Ms. Lio netti in her divo rc e pro c eeding. The engagem ent letter purpo r ted to grant a charging lien to the Marc u s Firmwith respec t to any rec o very in the divo rc e pro c eeding. During the sam e m eeting, witho ut leaving the Marc u s Firm ’s o ffic es, and witho u t having the c hanc e to ob tain independent legal advic e, Ms. Lio netti signed the engagem ent letter and paid a $10,000 retainer fee, using three separate c r edit c ards. During the divo rc e pro c eeding, Ms. Lio netti advised Mr. Marcus that she was c o nsidering b a nkruptc y, and Mr. Marcus pro vided her with a referral fo r b ankruptc y c o unsel. Ms. Lio netti also expressed c o nc ern ab o ut the m o unting legal fees b eing inc urred and the fac t that she had no t
4rec eived any m aterial rec o very fro mher ex-husb and sinc e the divo rc e was

filed. In January 2014, the fam ily law c o urt determ ined that the ex-husb and’s 401(k) ho lding $272,278.98 was Ms. Lio netti’s so le and separate pro perty. A few m o nths later, the funds fro mthe 401(k) were transferred to Ms. Lio netti and plac ed into an individual retirem ent ac c o u nt fo r her b enefit. A t that po int, Ms. Lio netti o wed the Marcus Firm appro xim a tely $150,000. Afew m o nths later, Ms. Lio netti term inated the Marcus Firm ’s representatio n witho ut paying the o utstanding fees. In Feb ruary 2015, Ms. Lionetti filed a c hapter 7 b ankruptc y petitio n. The Marcus Firm tim ely filed an adversary c o m plaint against her, seeking a dec laratio n that the deb t she o wed to it was no ndischargeab le under § 523(a)(2)(A ) and that the Marcu s Firmheld an enfo r c eab le c harging lien against the 401(k). 2 In A ugust 2017, Ms. Lionetti m o ved fo r sum m ary judgm ent, whic h the b ankruptc y c o urt granted, dism issing all c laim s against her. The b ankruptc y c o urt c o nc luded that the purpo rted charging lien pro vided fo r in the engagem ent letter was vo id under Rule 3-300 o f the C alifo rnia Rules o f Pro fessio nal C o nduc tb ec ause the Marcus Firmhad no tpro vided Ms. Lio netti with a reaso nab le o p po rtunity to seek the advic e o f independent c o u nsel regarding the lien. The b ankruptc y c o urt also c o nc luded that the

2 The Mar c us Fi r malso sought i ts fees and costs in pr osecuting i ts clai ms. 5Marcus Firmhad failed to pro vide suffic ient evidenc e to suppo rt the

no ndischargeab ility c laim
. Spec ific ally, the c o urt fo und that the Marcus Firm had failed to pro vide evidenc e that Ms. Lio netti did no t intend to perfo rmher o b ligatio ns when she signed the engagem ent letter. The b ankruptc y c o urt no ted that, in his depo sitio n, Mr. Marcus had b een unab le to pro vide any spec ificdetails as todates o r c irc um s tanc es o f o ther purpo rted m isrepresentatio ns. The c o urt also fo u nd that the Marc us Firm had failed to sho w it justifiab ly relied o n Ms. Lio netti’s pro m ise to pay b ec ause she had info r m ed Mr. Marcus that she had lim ited inc o m e and reso urc es, o utstanding deb ts, and was c o nsidering b a nkruptc y. The Marcus Firm appealed the dism issal to the Distric t C o urt, which affirm ed. In the m eantim e, Ms. Lio netti filed a m o tio n seeking an award o f $80,000 in atto r ney’s fees under § 523(d). The b ankruptc y c o urt denied the m o tio n, finding that it c o uld no t determ ine o n the rec o r d b efo re it that there was no sub stantial justific atio n fo r the no ndischargeab ility ac tio n. Ms. Lio netti appealed the denial o f her m o tio n to the Distric tC o urt, which reversed and rem anded b ec ause it was unc lear whether the b ankruptc y c o u rt had im p ro perly plac ed the b urden o n Ms. Lio netti to sho w that the Marcus Firm ’s lawsuit lacked sub stantial justific atio n. O n rem and, the b ankruptc y c o urt requested b riefing and, after a hearing, o nc e again denied the m o tio n fo r fees. The c o urt c o nc luded that, despite having lo st o n sum m ary judgm ent, the Marc us Firm had
6dem o nstrated that it had sub stantial justific atio n fo r pursuing the

no ndischargeab ility c laim
. The c o urt stated that the Marcus Firm ’s fac tual allegatio ns— that Ms. Lio netti allo wed the Marcus Firmto wo rk fo r years kno wing that the fee wo uld never b e paid in the end— plausib ly fit into the definitio n o f “false pretenses,” i.e., a series o f events, ac tivities, o r c o m m unic atio ns which, when c o nsidered c o llec tively, c reate a false and m isleading set o f c irc um s tanc es that induc e the c redito r to extend c redit to the deb to r. The c o urt also no ted that the c o nc ept o f ac tual fraud has b een evo lving, c iting Husk

y Interna tio na l Electro nics, Inc. v. R itz, 136 S. C t. 1581 (2016), in which the Suprem e C o urt held that ac tu al fraud under § 523(a)(2)(A ) m ay inc lude no t o nly false representatio ns b ut also fraudulent c o nveyanc e schem es. The b ankruptc y c o urt also fo u nd that there were no spec ial c irc um stanc es that wo uld m ake the fee award unjust and that the am o unt o f fees requested, $80,000, was reasonab le. Ms. Lio netti tim ely appealed. JU RISD ICT ION The b ankruptc y c o urt had jurisdic tio n under 28 U .S.C . §§ 1334 and 157(b )(1) and (b )(2)(I). W e have jurisdic tio n under 28 U .S.C . § 158. ISSU E Whether the b a nkruptc y c o urt ab used its disc r etio n in denying Ms. Lio netti’s request fo r atto rney’s fees under § 523(d).

7ST A ND A RD OF RE V I E W

W e review the b a nkruptc y c o urt’s o rder granting o r denying atto rneys’ fees under § 523(d) fo r ab use o f disc retio n. H e rita ge Pa c. F in. LLC v. Ma chuca(In re Ma chuca ) , 483 B.R . 726, 736 (9th C ir. BA P 2012)(c iting F irst Ca rd v. Hunt (In re Hunt) , 238 F.3d 1098, 1101 (9th Cir. 2001)). U nder the ab use o f disc retio n standard, we first “determ ine de no vo whether the [b ankruptc y] c o urt identified the c o rrec t legal rule to apply to the relief requested.” United S ta tes v. Hinkso n , 585 F.3d 1247, 1262 (9th Cir. 2009) (en b anc ). If the b ankruptc y c o urt identified the c o rrec t legal rule, we then determ ine under the c learly erro neo us standard whether its fac tual findings and its applic atio n o f the relevant law were illo gic a l, im p lausib le, o r witho ut suppo rt in inferenc es that m ay b e drawn fro mthe fac ts in the rec o r d. Id. D ISCU SSION A . L eg al Standard for § 523(d) Fee Aw ards Sec tio n 523(d) perm its a deb t o r who suc c essfully defends a no ndischargeab ility ac tio n under § 523(a)(2) to rec o ver atto rney’s fees fro m the plaintiff c redito r under c ertain c irc um stanc es. Spec ific ally, the statute pro vides: If a c redito r requests a determ inatio n o f dischargeab ility o f a c o nsum er deb t under sub sec tio n (a)(2) o f this sec tio n, and such deb t is discharged, the c o urt shall grant judgm ent in favo r o f the deb to r fo r the c o sts o f, and a reaso nab le atto rney’s fee fo r,
8the pro c eeding if the c o urt finds that the po sitio n o f the c redito r

was no tsub stantially justified, exc ept that the c o u rt shall no t award such c o sts and fees if spec ial c irc um stanc es wo uld m ake the award unjust. To prevail o n a m o tio n fo r atto rney’s fees under § 523(d), a deb to r m ust pro ve three elem ents: (1) the c redito rrequested a determ inatio n o f the dischargeab ility o f the deb t; (2) the deb t is a c o nsum er deb t; and (3) the deb t was discharged. S tine v. F lynn (In re S tine) , 254 B.R . 244, 249 (9th C ir. BA P 2000), a

f f’d, 19 F. A pp’x 626 (9th C ir. 2001). If the deb to r estab lishes these elem ents, the b urden then shifts to the c redito r to pro ve that its ac tio ns were sub stantially justified. Id. The c redito r m u st sho w that it had sub stantial justific atio n fo r the pursuit o f the discharge litigatio n at all stages o f the litigatio n. H erita ge Pa c. F in., LLC

v. Mo nta no ( In re Mo nta no ) , 501 B.R . 96, 116 (9th C ir. BA P2013). The parties do no t dispute that Ms. Lio netti estab lished the thresho ld requirem ents fo r entitlem ent to fees under § 523(d). And the Marc us Firm did no t c ro ss-appeal the b ankruptc y c o urt’s findings that the am o unt o f fees requested was reasonab le and that there were no spec ial c irc um stanc es that wo uld m ake an award o f fees unjust. Therefo re, the so le issue presented in this appeal is whether the Marc u s Firmm et its b u rden to sho w that it was sub stantially justified in pursuing its § 523(a)(2) claim
. The “sub s t antially justified” standard requires that a claimhave a reaso nab le b asis b o th in law and in fac t . In re Hunt, 238 F.3d at 1103 (citing
9Pierce v. U

nderwo o d, 487 U .S. 552, 565 (1988)). A “no vel b ut reaso nab le” legal theo ry o r a legal theo ry subjec t to a split o f no n-b inding autho rity m ay serve as b ases fo r c o nc luding that a c laimis sub stantially justified. In re Ma chuca, 483 B.R . at 735. But a c redito rc a nno t sho w sub stantial justific atio n fo rpursing a legally plausib le § 523(a)(2) c laimif it fails to pro vide evidenc e to pro ve an essential elem ent o f the c laim
. S ee In re M o nta no , 501 B.R . at 117 (“Sinc e the b ankruptc y c o u rt c o nc luded that Heritage had no t pro ven ac tual relianc e, an essential elem ent to pro ve fo r an exc eptio n to discharge under 523(a)(2)(B), . . . it fo llo w s that Heritage did no t sho w that its po sitio n was sub stantially justified.”) A ltho ugh the initial c o nditio ns set o ut b y § 523(d) are straightfo rward and direc t

, i.e., that the deb t o r has prevailed in an ac tio n seeking no ndischargeab ility o f a c o nsum er deb t under § 523(a)(2), the last c o nditio n–the c o urt finding that “the po sitio n o f the c redito rwas no t sub stantially justified”–has pro ven diffic u lt to interpret and apply. A s an initial m atter, the language “sub stantially justified” is no t defined in this sec tio n, no r anywhere else in the C o d e. This language em anates fro mthe Equal A c c ess to Justic e A c t (“EAJA ” ). S ee In re Hunt, 238 F.3d at 1103 (no ting that the standard fo ra fee award under § 523(d) was m o deled o n the EAJA, c iting legislative histo ry). The “reaso nab le b asis in law and fac t” standard articulated b y the Suprem e C o urt in the EAJA c o ntext has b een used b y c o urts applying § 523(d). S ee, e.g., In re M a chuca, 10483 B.R . at 734. But while these referenc es are helpful, they are no tentirely

apt–the EAJA is no t used regularly in b a nkruptc y pro c eedings, no r do m o st o f its no n-b ankruptc y applic atio ns invo lve ac tio ns b ased o n alleged fraud. O f c o urse, § 523(d) do es no t c o m e into play unless and until the c redito r’s challenge to dischargeab ility has b een unsuc c essful. And the m ere fac t o f having lo st o n the no ndischargeab ility c laim, even in so m e instanc es o n a m o tio n fo r sum m ary judgm ent, do es no t require a finding o f no sub stantial justific atio n. Id. R ather, the statute requires that the trial c o u rt evaluate whether the “po sitio n” o f the c redito r was sub stantially justified, which stro ngly suggests that the standard applies toso m ething c o nsiderab ly m o re am o rpho us than the ultim ate persuasive po wer o f the fac t s adduc ed o r argum ents presented. In o ther wo rds, an inquiry ab o ut sub stantial justific atio n usually requires a so r t o f weighing o f the c redito r’s view o f the fac ts o r its prem ises rather than its failure ultim a tely to prevail. This task is m ade m o re diffic ult b ec ause pro ving fraud alm o st always relies, in part, o n the use o f inferenc es. S ee Gertsch v. Jo hnso n &Jo hnso n, F in. Co rp. (In re Gertsch) , 237 B.R . 160, 167-68 (9th C ir. BA P 1999) (intent to dec eive c an b e inferred fro mthe to tality o f the c irc um stanc es, inc luding rec kless disregard fo r the truth); Ta lla nt v. K a ufm a n (In re Ta lla nt) , 218 B.R
. 58, 66 (9th C ir. BA P 1998) (intent m ay b e inferred fro mthe to tality o f the c irc u m stanc es). But while the use o f inferenc es in a fraud ac tio n is appro priate to estab lish an elem ent o f the c laimthat is unlikely to b e
11adm itted and is no t o therwise subjec t to objec tive verific a tio n, e.g., the

fraudulent intent o f the defendant, it is no t no rm a lly appro priate to use inferenc es to pro ve o ther elem ents o f the c laimthat are sub jec t to objec tive verific a tio n. Stated differently, while it m ay b e nec essary to utilize inferenc es to estab lish so m e elem ents o f a fraud c laim, to have “sub stanc e,” a fraud c laimm ust em anate fro mso m e o bjec tive fac ts that wo uld dem o nstrate a m isrepresentatio n o r dec eptive ac t, kno wledge o f the dec eptio n b y the defendant, relianc e, and harm
. The attem pt to use inferenc es (o r inferenc es o n inferenc es) to estab lish m u ltiple–o r all–o f the predic ates fo r a fraud c laim inappro priately equates a sense o f o verall inequity with sub s t antial justific atio n. R equiring at least so m e o bjec t ive fac tual b asis fo r a fraud c laim c o m p o rts with the m o s tfundam ental m eaning o f the phrase “sub stantially justified” as interpreted b y the Suprem e C o urt (i.e., having a reaso nab le b asis in law and fac t). But the sim pler and m o re fundam ental m eaning o f “sub stantially justified,” i.e., presenting o r o ffering so m ething o f sub stanc e, as o ppo sed to surm ise, m ay pro vide the answer to the inquiry whether a po sitio n falls within the standard. It do es here. The Marcus Firm did no t o ffer any objec tive fac tual b asis fo r a § 523(a)(2)(A ) c laimthat wo uld have suppo rted a finding that its c laimwas sub stantially justified. R ather, it asserts that the “to tality o f the c irc u m stanc es” (inc luding the no tio n that it was unfair fo r the Marc us Firm
12to have ac c rued sub stantial fees in suc c essfully representing Ms. Lio netti in

her divo rc e and to go unpaid) sho ws sub s tantial justific atio n fo r its c laim
. This assertio n attem pts to turn the inquiry c o nc erning “sub stanc e” into an exerc ise in sifting thro ugh m iasm as o f alleged inequities, and is far fro m the standard o f sub stantial justific atio n that § 523(d) o ught to require. B. T he bankruptcy c ourt erred in itsapplic ation of the “s u bs tantially jus tified” s tandard. To prevail o n its no ndischargeab ility c laimunder § 523(a)(2)(A ), the Marcus Firmwo uld have had to pro ve, b y a prepo nderanc e o f the evidenc e: (1) m isrepresentatio n, fraudulent o m issio n o r dec eptive c o nduc t b y the deb to r; (2) kno wledge o f the falsity o r dec eptiveness o f his statem ent o rc o nduc t; (3) an intent to dec eive; (4) justifiab le relianc e b y the c redito r o n the deb to r’s statem ent o r c o nduc t; and (5) dam age to the c redito r pro xim ately c aused b y its relianc e o n the deb to r’s statem ent o r c o nduc t. Turtle R o ck

M e a do ws H

o m eo wners Ass’n v. S lym a n (In re S lym a n) , 234 F.3d 1081, 1085 (9th C ir. 2000). Tothe extent the Marc us Firmasserted that the fraud at issue was a fraudulent om issio n, it needed to sho w that the o m itted fac t was m aterial and that Ms. Lio netti had a duty to disc lo se. S ee Apte v. Japra

, M .D . , F .A.C
. C ., Inc. (In re Apte) , 96 F.3d 1319, 1323 (9th Cir. 1996). If tho se elem ents were pro ven, the relianc e and c a usatio n elem ents wo uld b e deem ed estab lished witho ut needing to b e separately pro ven. Id.

13In its c o m p laint, the Marc u s Firm appeared to rely so lely o n a fraud

in the induc em ent theo ry, i.e., that Ms. Lio netti did no t intend to pay the Marcus Firmat the tim e she signed the engagem ent letter. Later, in its o ppo sitio n to Ms. Lio netti’s m o tio n fo r sum m ary judgm ent, the Marc us Firm po sited two alternative theo ries in suppo rt o f its no ndischargeab ility c laim : (1) a fraudulent c o nveyanc e schem e; and (2) fraudulent o m issio ns. W ith respec t to the fraudulent c o nveyanc e theo ry, the Marc us Firm alleged that after Ms. Lio netti granted the Marc us Firma charging lien o n any rec o very fro mthe divo r c e pro c eeding, she later so ught and rec eived c o u nseling fro mtwo b ankruptc y atto r neys, her ac c o u ntant, and her so n-inlaw, an atto rney with Gib so n, Dunn &C rutcher LLP, the firm that represented her in the no ndischargeab ility pro c eeding (and no w represents her in this appeal). 3 Then, after the fam ily law c o urt awarded the 401(k) to Ms. Lio netti, she refused to endo rse the c hec k to the Marc us Firmfo r paym ent as pro m ised in the engagem ent letter and thereafter term inated the firm ’s servic es. The Marcus Firmargued that these fac ts c o uld b e interpreted o nly o ne way–as evidenc e that Ms. Lio netti “knew exac tly what she was do ing and why, and its adverse im pac t upo n Plaintiff’s ab ility to enfo rc e and c o llec t his [sic ] fees, all the while c o ntinuing to ac c ept the b enefit o f Plaintiff’s servic es which resulted in the delivery o f m o re than

3 Accor di ng to Ms. Li onetti ’s supplemental declar ati on i n suppor t of her moti on for summar y j udgment, she deni ed hav i ng been counseled by herson-in-law. 14$272,278.98 intoher hands.” A ltho ugh no t c learly artic ulated, the Marcus

Firm seem ed to argue that the referenc ed events c o nstituted a transfer schem e designed to hinder the c o llec tio n o f a deb t. A s fo r justifiab le relianc e, the Marc us Firmargued that it relied o n Ms. Lio netti’s representatio n in the engagem ent letter that she intended to pay the am o u nts due regardless o f whether the firm ’s effo rts were suc c essful. A lternatively, under its fraudulent o m issio n theo ry, the Marc us Firm argued that Ms. Lio netti fraudulently failed to disc lo s e at the tim e she signed the engagem ent letter that she had no intentio n o f autho r izing the firm to sign the 401(k) c hec k in paym ent o f its fees if do ing so wo uld result in adverse tax c o nsequenc es to her, and sub sequently fraudulently failed to disc lo se that in 2012 she had c o nsulted with the ab o ve-m entio ned atto rneys. Suppo rting its o ppo sitio n to sum m ary judgm ent were the dec laratio ns o f Steven H. Marc u s and Lo u is J. Esb in, c o unsel fo r the Marc us Firm . Mr. Marcus testified, in relevant part, that altho ugh Ms. Lio netti was b illed eac h m o nth, she never asked the firm to sto p its representatio n and instead “b egged” Mr. Marcus to rem ain as c o unsel, and “repeatedly assured m e that she wo u ld pay o ur fees fro mthe pro c eeds sinc e there was no o ther so urc e availab le to her and she knew that she o wed us these funds.” Fo r this assertio n, Mr. Marcus c ited an em ail fro mMs. Lio netti dated January 15, 2013, toher ac c o untant, which inc luded a c o py o f a
15pro po sed em ail to Mr. Marcus. There was nopro o f such an em ail was ever

sent to Mr. Marcus, b u t even if there were, the em ail itself c o ntains no assuranc e o f paym ent. In sho rt, Mr. Marcus pro vided no spec ific s as tothe dates, tim es, o r plac es o f any purpo rted assuranc es o f paym ent, no r did he c ite any o ther evidenc e po inting to a fraudulent intent o n Ms. Lio netti’s part. 4 A s fo und b y the b ankruptc y c o urt–and affirm ed b y the Distric t C o urt–the Marcus Firm did no t pro ffer any evidenc e that Ms. Lio netti did no t intend to pay the firmwhen she signed the engagem ent letter, and, in fac t , Ms. Lio netti’s paym ent o f the $10,000 retainer negated any inferenc e that she lac ked such intent. The Distric t C o urt also affirm ed the b ankruptc y c o u rt’s rejec tio n o f the fraudulent c o nveyanc e theo r y as applied to the transfer o f the 401(k) funds into Ms. Lio netti’s retirem ent ac c o unt b ec ause the undisputed fac ts sho wed that no funds were transferred to a third party. The Marcus Firm do es no t dispute these findings, no r c o uld it, given that it did no t appeal the Distric t C o urt’s dec isio n. S ee In re Ma chuca, 483 B.R . at 735-36 (c redito r c o uld no t attac k final judgm ent o n sum m ary

4 In hi s declar ati on, Mr . Esbin authenti c ated v ar i ous attached documents, i ncluding the r efer enced emai l and other s obtai n ed fr om Ms. Li onetti i ndi scov er y. Those emai l s cor r obor a te the allegati on that Ms. Li onetti sought the adv i ce of bankr uptcy counsel in late 2012 or ear ly 2013. Although those emai l s show that Ms. Li onetti i ntended to ask bankr u ptcy counsel about how the Mar cus Fi r m’s fees would be tr eated i n bankr uptcy, ther e was no suggesti on of any fr audulent scheme or i ntent. 16judgm ent thro ugh a § 523(d) pro c eeding). Instead, it argues that the to tality

o f the c irc um s tanc es pro vided a reaso nab le fac tual b asis fo r its pursuit o f the no ndischargeab ility c laim . But the Marcus Firmpo ints to no evidenc e that wo uld suppo rt a no ndischargeab ility c laimunder any o f the pro ffered theo ries. 5 N o r has o ur review o f the rec o rd suggested a reaso nab le fac tual b asis fo r such a c laim
. In its ruling after rem a nd, altho u gh the c o urt ac kno wledged the c o r rec t standard–that the plaintiff must sho w that it had a reaso nab le legal and fac tual b asis fo r its c laim–the b ankruptc y c o urt fo cu sed alm o st entirely o n whether the Marc us Firmhad po sited a a reaso nab le leg al theo ry fo r its c laim, i.e., false pretenses o r a fraudulent c o nveyanc e schem e. The b ankruptc y c o urt did no tanalyze with spec ific ity whether there was any reaso nab le fac tual b asis fo r the Marc us Firmto b elieve that it c o uld estab lish the elem ents o f a § 523(a)(2)(A ) c laimunder tho se theo ries. There was no spec ificevidenc e o f m isrepresentatio n, fraudulent o m issio n, o r fraudulent intent b efo re the c o u rt, and the c o urt c ited no objec tive evidenc e that wo uld have suppo r t ed, either direc tly o r b y inferenc e, a false pretenses

5 The Mar c us Fi r mstates i n i ts appellate br i ef that i t “i ncor por ates i ts for mer br i efs on r emand as though set for th at length.” Howev er , we need not consi d er ar guments not speci fi cally and di sti nctly made in a par ty’s appellate br i ef. Price v. Lehtinen (In re Lehtinen) , 332 B.R. 404, 410 (9th Ci r . BAP 2005), aff’d, 564 F.3d 1052 (9th Ci r . 2009). See also Monsanto Co. v. Scruggs , 459 F.3d 1328, 1335 (Fed. Ci r . 2006) (Under Fed. R. App. P. 28 [whi ch sets for th br i efing r equi rements and i s substantiv ely i denti cal to Rule 8014], ar guments ar e not pr oper ly r ai sed by in c or por ati ng them by r efer ence fr om a summary j udgment memor andum.). 17o r fraudulent c o nveyanc e schem e theo ry.

A dditio nally, there was no evidenc e that wo uld have suppo rted the c o nc lusio n that the Marc us Firmjustifiab ly relied o n any representatio ns m ade b y Ms. Lio netti. Given that the firm was indisputab ly aware o f Ms. Lio netti’s financ ial c irc um s tanc es, the o nly reaso nab le inferenc e to b e drawn fro mthe evidenc e was that the Marcus Firm relied o n its charging lien in c o ntinuing to pro vide legal servic es. C. T here is no polic y reas on to lim it the applic ation of § 523(d) to s ituations inv olv ingc ons um er financ e c om panies . W e no te finally that the attem p t b y the Marcus Firmto argue against applic atio n o f § 523(d) b ec ause this c ase is no t a “third party c redit c ard transac tio n” o r a “typic al o ne-sided b attle against [a c o nsum er deb to r]” lac ks m erit. A s an initial m atter, no thing in the statute o r the c a se law indic ates that such a lim itatio n o n applic atio n o f § 523(d) was c o ntem plated b y C o ngress o r is appro priate. In fac t, far fro mfalling o utside the intended sc o pe o f the statute, this c ase pro vides a prim e exam ple o f the dilem m a a c o nsum er deb to rc o nfro nts when a c redito r initiates a no ndischargeab ility ac tio n--i.e., the c hallenge o f m o unting--and financ ing--an effec tive defense o n what is typic ally a fac t-intensive, and therefo re po tentially quite expensive, m atter. The Marcus Firm do es no t dispute that Ms. Lio netti’s c o u nsel reaso nab ly inc urred the $80,000 sought via the § 523(d) m o t io n in the suc c essful effo rt to defend against its c laimo f no ndischargeab ility (and

18that the firm ac tually inc urred sum s greatly in exc ess o f tho se so ught in the

§ 523(d) m o tio n thro u gho ut this lo ng and c o ntentio us m atter), o r that the firm c o uld no t reaso nab ly expec t to c o llec t such a fee fro mMs. Lio netti. Ab s ent the go o d fo r tune o f o b t aining what wo uld essentially b e a pro b o no representatio n, a c o nsum er deb to r will typic ally lac k the ab ility perso nally to fund such a defense. Thus, the po ssib ility o f a § 523(d) award m ay pro vide a deb to r ’s o nly c hanc e fo r attrac ting an atto rney and o b taining an appro priate and vigo ro u s defense. Mo reo ver, where the c redito rasserting no ndischargeab ility is a law firm, the deterrent effec t o f § 523(d) m ay b e espec ially im po rtant. The po tential c o st o f such litigatio n, in and o f itself, m ay in m any c a ses c ause appro priate restraint b y po tential plaintiffc redito rs. But a law firmc an pursue the litigatio n witho ut signific ant o ut o f po c ket c o sts. W itho ut the deterrent o f § 523(d), a law firmm ay b e m uch m o re likely to pursue questio nab le litigatio n in an attem pt to ob tain a settlem ent in a weak o r m eritless c ase. CONCL U SION A ltho ugh the b ankruptc y c o u rt identified the c o rrec t legal rule in denying Ms. Lio netti’s m o tio n fo r fees, the c o urt did no t pro perly apply that rule, as it identified no thing in the rec o rd fro mwhic h it c o uld have determ ined that the Marc us Firmhad a reaso nab le fac tu al b asis fo r its no ndischargeab ility c laim ; it thus ab u sed its disc retio n in denying the fee m o tio n. A c c o rdingly, we R EVER SE.

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