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FILED

DEC 11 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NOT FOR PUBLICATION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. AZ-13-1519-DJuKi

)

GARY E. HIRTH, ) Bk. No. 10-39593

)

Debtor. ) Adv. No. 11-00474

______________________________)

)

GARY E. HIRTH, )

)

Appellant, )

)

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

)

PEGGY DONOVAN; DAVID )

DONOVAN, )

)

Appellees. )

______________________________)

Submitted Without Oral Argument

on November 20, 2014

Filed - December 11, 2014

Appeal from the United States Bankruptcy Court

for the District of Arizona

Honorable Daniel P. Collins, Chief Bankruptcy Judge, Presiding

 

Appearances: Allan D. NewDelman and Roberta J. Sunkin of ALLAN

D. NEWDELMAN, P.C. on brief for appellant; Edwin

B. Stanley of SIMBRO & STANLEY, PLC on brief for

appellees.

 

Before: DUNN, JURY AND KIRSCHER, Bankruptcy Judges.

1 This disposition is not appropriate for publication. 

Although it may be cited for whatever persuasive value it may

have (see Fed. R. App. P. 32.1), it has no precedential value. 

See 9th Cir. BAP Rule 8013-1.
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The debtor, Gary Hirth, appeals the bankruptcy court’s order

granting summary judgment in favor of Peggy and David Donovan on

their § 523(a)(2)(A) claim.2 While this appeal was pending, the

debtor passed away. For the reasons set forth below, we AFFIRM.

FACTS3

The debtor owned and controlled Aruba Holdings, Ltd. (“Aruba

Holdings”), a corporation that handled real estate investments. 

Neither the debtor nor Aruba Holdings held real estate licenses.

Through Aruba Holdings, the debtor acquired approximately

40 acres of unimproved land in Coconino County, Arizona

(“Tract”). The Tract was part of a development known as Moqui

Ranchettes. The debtor divided the Tract into four 10-acre

parcels, one of which he sold to the Donovans in November 2004

(“Property”).4

Under Arizona law, sellers of real property are required to

disclose to prospective buyers all known material facts about the

real property being sold. To this end, sellers must fill out a

2 Unless otherwise indicated, all chapter and section

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

1532, and all “Rule” references are to the Federal Rules of

Bankruptcy Procedure, Rules 1001-9037. All “Evidence Rule”

references are to the Federal Rules of Evidence, Rules 101-1003.

3 We have taken a number of facts from the joint pre-hearing

statement submitted by the debtor and the Donovans in the

adversary proceeding.

4 According to the joint pre-hearing statement, the debtor,

Aruba Holdings and the Donovans entered into the sale agreement

on November 10, 2004. Aruba Holdings conveyed the parcel to the

Donovans by warranty deed, which they recorded on November 8,

2004.

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form titled, “Vacant Land/Lot Seller’s Property Disclosure

Statement” (“SPDS”). The SPDS lists more than 160 questions and

directions that purport to help sellers make these disclosures.

The debtor filled out the SPDS and provided a copy of it to

the Donovans. Out of the 160 plus questions and directions

listed in the SPDS, the following three are relevant to this

appeal:

1) Is the Property located in an unincorporated area of

the county?

2) If yes, and five or fewer parcels of land other than

subdivided land are being transferred, the Seller must

furnish the Buyer with a written Affidavit of

Disclosure [“Affidavit”] in the form required by law.

3) To your knowledge, is the Property within a

subdivision approved by the Arizona Department of Real

Estate?

Because he answered “yes” to the first question, the debtor

executed the Affidavit. In the Affidavit, the debtor represented

under penalty of perjury that the sale of the Property met “the

requirements of A.R.S. § 11-809 regarding land divisions.”5 He

5 Since the time the debtor executed the Affidavit on

September 13, 2004, A.R.S. § 11-809 has been amended; the current

version of A.R.S. § 11-809 addresses public works project

planning, not the requirements for approval of land divisions. 

We thus refer to the 2004 version of A.R.S. § 11-809.

A.R.S. § 11-809 provided, in relevant part:

A. The board of supervisors of each county may adopt

ordinances and regulations pursuant to this section for

staff review and approval of land divisions of five or

fewer lots, parcels or fractional interests, any of

which is ten acres or smaller in size. The county may

not deny approval of any land division that meets the

requirements of this section. If review of the request

is not completed within thirty days after receiving the

(continued...)

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answered “no” to the third question.

After they purchased the Property, the Donovans discovered

that the legal requirements for land division had not been met

and an approved subdivision plat from the county had not been

obtained for the Property. As a result, they were unable to

obtain building permits for the Property.

Meanwhile, the Arizona Department of Real Estate (“ADRE”)

commenced an investigation into certain alleged violations of

state land acquisition, division and transfer/sale laws by the

debtor and Aruba Holdings, among others. Its investigation

culminated in a consent order (“Consent Order”), dated

February 5, 2008, binding the debtor and Aruba Holdings, along

with other parties.

The Consent Order set forth factual findings and legal

conclusions concerning the debtor and Aruba Holdings’ violations

of state land division laws. It outlined the division of the

5(...continued)

request, the land division is considered to be

approved. At its option, the board of supervisors may

submit a ballot question to the voters of the county to

allow the voters to determine the application of

subsections B and C to qualifying land divisions in

that county.

. . . 

F. It shall be unlawful for a person or group of

persons acting in concert to attempt to avoid the

provisions of this section or the subdivision laws of

this state by acting in concert to divide a parcel of

land into six or more lots or sell or lease six or more

lots by using a series of owners or conveyances. This

prohibition may be enforced by any county where the

division occurred or by the state real estate

department pursuant to title 32, chapter 20.

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Tract through various transfers, including the sale of the

Property to the Donovans.

Citing A.R.S. § 32-2181(D), the Consent Order then stated

that the debtor and Aruba Holdings tried to circumvent state

subdivision laws by acting in concert with others to divide the

land within Moqui Ranchettes by using a series of owners and/or

conveyances.6 Specifically, the Consent Order stated that the

debtor and Aruba Holdings “planned, arranged, adjusted, agreed on

6 The 2004 version of A.R.S. § 32-2181 provided, in relevant

part:

A. Before offering subdivided lands for sale or lease,

the subdivider shall notify the commissioner in writing

of the subdivider’s intention. The notice shall

contain . . . .

. . . 

D. It is unlawful for a person or group of persons

acting in concert to attempt to avoid the provisions of

this article by acting in concert to divide a parcel of

land or sell subdivision lots by using a series of

owners or conveyances or by any other method which

ultimately results in the division of the lands into a

subdivision or the sale of subdivided land. The plan

or offering is subject to the provisions of this

article. Unlawful acting in concert pursuant to this

subsection with respect to the sale or lease of

subdivision lots requires proof that the real estate

licensee or other licensed professional knew or with

the exercise of reasonable diligence should have known

that property which the licensee listed or for which

the licensee acted in any capacity as agent was

subdivided land subject to the provisions of this

article.

E. A creation of six or more lots, parcels or

fractional interests in improved or unimproved land,

lots or parcels of any size is subject to this article

except when . . . .

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and settled” between themselves and others “acting together

pursuant to some design or scheme” to subdivide the land in such

a way as to circumvent the state land division laws.

The debtor signed the Consent Order on his and Aruba

Holdings’ behalf. The Consent Order provided that, by signing

it, he admitted to the factual findings and legal conclusions set

forth therein and agreed to be bound by it. He also agreed to

waive his rights to an administrative hearing and to appeal the

factual findings and legal conclusions set forth in the Consent

Order.

The debtor further consented to entry of the Consent Order. 

He also acknowledged that his and Aruba Holdings’ acceptance of

the Consent Order “[was] to settle the specific allegations by

the [ADRE] in this matter and [did] not preclude any other agency

or officer of this State, or subdivision thereof, from

instituting other civil or criminal proceedings as may be

appropriate in the future.” Id. at 101-02. The debtor did not

challenge the Consent Order.

On March 31, 2008, the debtor and Aruba Holdings entered

into a settlement agreement (“Settlement Agreement”) with the

Donovans. The Settlement Agreement set forth several recitals,

including: 

1) [The Donovans] purchased their lot in reliance upon

representations made by the [debtor and Aruba Holdings]

that Moqui Ranchettes had been legally subdivided, that

all the legal requirements for land division had been

met, and that building permits could be obtained for

immediate construction of homes;

2) After purchasing the [Property, the Donovans]

learned that the legal requirements for land division

had not been met and an approved subdivision plat from

Coconino County had not been obtained. Consequently,

[the Donovans] have been denied building permits, have

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incurred costs, and have been denied the use and

enjoyment of their [Property] as anticipated since the

date of purchase; and

3) [The debtor and Aruba Holdings] den[ied] knowingly

engaging in any wrongdoing with respect to the sale of

the [Property to the Donovans].

The Settlement Agreement further provided that the debtor and the

Donovans agreed that the recitals were “true, correct and not

subject to dispute.”

Under the Settlement Agreement, the debtor and Aruba

Holdings were to obtain subdivision status for the Property

within 24 months. If the debtor and Aruba Holdings were unable

to obtain subdivision status within 18 months, they were required

to pay the Donovans $5,000, plus an additional $5,000 each month

thereafter, up to 180 days maximum, until the debtor and Aruba

Holdings obtained subdivision status for the Property. If the

debtor and Aruba Holdings were unable to obtain subdivision

status for the Property within 24 months, the Donovans could

choose to sell the Property back to the debtor and Aruba

Holdings.

Alternatively, the Donovans could choose to continue

receiving $5,000 per month, up to an additional 6 months past the

24-month period, until the debtor and Aruba Holdings obtained

subdivision status. If the debtor and Aruba Holdings failed to

obtain subdivision status for the Property within the 24-month

period through their acts or omissions, the Donovans retained all

rights and causes of action against the debtor and Aruba Holdings

for any and all damages arising out of their purchase of the

Property or breach of the Settlement Agreement.

When the debtor and Aruba Holdings failed to perform under

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the Settlement Agreement, the Donovans initiated a state court

action against them on May 3, 2010. The Donovans alleged in

their state court complaint that the debtor and Aruba Holdings

breached the Settlement Agreement by failing to make all payments

when due, to timely obtain subdivision status for the Property

and to repurchase the Property from the Donovans.

On December 2, 2010, the state court issued a judgment

(“State Court Judgment”) against the debtor on the Donovans’

motion for summary judgment. Under the State Court Judgment, the

Donovans were awarded a total of $174,866.80 (which included

attorney’s fees and costs) plus interest. The Donovans also were

to reconvey the Property to the debtor once they received payment

from him on the State Court Judgment.

On December 12, 2010, the debtor filed his chapter 7

bankruptcy petition. On March 14, 2011, the Donovans filed a

complaint seeking to except the State Court Judgment from

discharge under § 523(a)(2)(A). 

The Donovans referenced the State Court Judgment in their

complaint. They then went on to allege that the debtor knowingly

and falsely represented that the Property was subdivided properly

with the intent to induce them to purchase it. The Donovans

asserted that they reasonably relied on the debtor’s

misrepresentation when they purchased the Property. As a result

of the debtor’s misrepresentation, they incurred damages.

After the debtor filed his answer, the Donovans moved for

summary judgment (“Summary Judgment Motion”). They contended

that no genuine issues of material fact existed because they had

established all of the necessary elements of § 523(a)(2)(A).

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The Donovans relied on the Consent Order to establish the

debtor’s knowledge of the falsity of his representation about the

subdivision status of the Property and his intent to deceive

them.7 They asserted that the debtor admitted in the Consent

Order that he acted with reckless disregard for the truth of the

representation about the subdivision status of the Property. 

Specifically, he admitted in the Consent Order that he acted in

concert with others to subdivide land within Moqui Ranchettes by

using a series of owners and/or conveyances in an attempt to

circumvent state land division laws. The Donovans further

contended that the debtor could not collaterally attack the

Consent Order as to these two elements because he consented to

its factual findings and legal conclusions and waived all rights

to challenge them on appeal.

The debtor opposed, arguing that genuine issues of material

fact existed as to these two elements because his admissions in

the Consent Order did not rise to the level of knowledge and

intent required under § 523(a)(2)(A). He claimed that his

admissions in the Consent Order merely involved a general

negligence standard; at most, the admissions showed that the

debtor “knew or with the exercise of reasonable diligence should

have known” that the Property was subject to A.R.S. § 32-2181(D). 

The debtor’s admissions in the Consent Order did “not support a

finding that [his] actions constitute[d] reckless disregard,

which requires an extreme departure from the standards of

7 We only focus on two of the five elements of 

§ 523(a)(2)(A) as the debtor does not contest on appeal the

bankruptcy court’s determinations on the other three elements.

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ordinary care and more than simple or even inexcusable neglect.” 

In support of his opposition to the Summary Judgment Motion, the

debtor submitted his own statement of facts, which included

copies of the Affidavit and the SPDS and a portion of a

transcript of the February 28, 2012 deposition of Mr. Donovan. 

(At his deposition, Mr. Donovan testified that he thought that

the Affidavit indicated that the Property was buildable.) 

Notably, the debtor did not provide any declarations in support

of his opposition to the Summary Judgment Motion. 

At the August 8, 2013 hearing on the Summary Judgment

Motion, the bankruptcy court told counsel for the Donovans and

the debtor that it wished to focus on their arguments concerning

intent.

Counsel for the Donovans contended that the Consent Order

had preclusive effect as to the debtor’s intent under 

§ 523(a)(2)(A). He focused on the Consent Order, asserting 

that again is an administrative proceeding in an agreed

order that the [debtor] agreed to all those findings of

fact and agreed that they would not be disputed in a

court or any tribunal. And that include[d] this Court,

Judge.

Tr. of Aug. 8, 2013 hr’g, 5:11-15. Counsel for the Donovans

proceeded to highlight the factual findings in the Consent Order

that established that the debtor acted “in a conspiracy with the

other land owners to illegally subdivide the property.” Tr. of

Aug. 8, 2013 hr’g, 6:17-18. He emphasized that the debtor had

admitted to these factual findings.

Counsel for the Donovans also pointed out that A.R.S. § 32-

2181(D) contained the elements of knowledge and intent necessary

for a § 523(a)(2)(A) claim in that it provides that a person

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violates the statute if he knew or had reason to know that he was

subdividing lands illegally.8 Counsel for the Donovans again

stressed that the debtor had agreed to this statement in the

Consent Order. Counsel for the Donovans concluded that,

by admitting to his violation of [A.R.S. § 32-2181(D)]

since [A.R.S. § 32-2181(D)] has a specific knowledge

standard in it and that knowledge standard meets the

standards of [§] 523(a)(2)[(A)], then that again means

that there is no – it – no issue of fact on his

fraudulent intent because it’s now an adjudicated fact

under the ADRE consent order.

Tr. of Aug. 8, 2013, 8:4-9.

Counsel for the debtor countered that the debtor’s

statements in the Consent Order did not satisfy the elements of

intent and knowledge under § 523(a)(2)(A). Specifically, counsel

for the debtor argued that the standards for intent and knowledge

in A.R.S. § 32-2181(D) were not the same as those in 

§ 523(a)(2)(A). A.R.S. § 32-2181(D) requires that a person “knew

or with the exercise of reasonable diligence should have known of

the problems with the subdivision . . . .” Tr. of Aug. 8, 2013,

12:4-5. However, within the Ninth Circuit, fraudulent intent 

must involve more than simple or even inexcusable

negligence. It requires such an extreme departure from

the standards of ordinary care that it presents a

danger of misleading those who rely on the truth of the

representation.

Tr. of Aug. 8, 2013 hr’g, 12:10-14. Counsel for the debtor

argued that because the two standards for intent under A.R.S. 

8 Counsel for the debtor and the Donovans both seemed to

conflate the knowledge and intent elements in their arguments

before the bankruptcy court and before us. The bankruptcy court

also appeared to have merged these two elements in its analysis. 

We have tried to distinguish to the extent possible the arguments

and analysis concerning each of these two elements.

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§ 32-2181(D) and § 523(a)(2)(A) were not the same, a genuine

issue of material fact existed. He contended that the Settlement

Agreement, the State Court Judgment and the Consent Order did not

conclusively establish that the debtor acted with fraudulent

intent.

The bankruptcy court asked counsel for the debtor that if it

were to conduct a trial, what evidence would he submit that was

not already before it? Counsel for the debtor answered that he

would present evidence of the debtor’s transactions and the way

in which the sale occurred through witness testimony.

Counsel for the debtor acknowledged that he did not provide

an affidavit of the debtor in his opposition to the Summary

Judgment Motion. Counsel for the debtor believed that he did not

need to provide an affidavit because he thought that the Donovans

failed to show in the Summary Judgment Motion that no genuine

issue of material fact existed. He contended that it was 

up to this Court to listen to the testimony, listen to

witness testimony, establish credibility and determine

whether [the debtor] either intended to defraud the

Donovans or acted – you know his conduct was reckless

and that it involved more than simple or even

inexcusable neglect or negligence. And it had to be an

extreme departure from the standards of ordinary care. 

And that’s what testimony we’d put on.

Tr. of Aug. 8, 2013 hr’g, 13:6-12. 

Counsel for the debtor further explained that he did not

“put forth a lot of evidence of what [the debtor’s] intent [was]

because [the Donovans] haven’t shown his intent.” Tr. of Aug. 8,

2013 hr’g, 19:18-19. He claimed that

[the] documents don’t prove [the debtor] committed

fraud. Those documents show [the debtor] knew or he

should’ve known, simple as that. And to [counsel for

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the debtor] fraud carries a much higher burden. And

until, you know, the moving party presents sufficient

evidence that there was no genuine issue of material

fact, and they are entitled to a judgment as a matter

of law, we don’t have an obligation to put forth, you

know, contradictory evidence of intent . . . .

Tr. of Aug. 8, 2013 hr’g, 19:20-25, 20:1-2. Counsel for the

debtor informed the bankruptcy court that if the matter went to

trial, he would present witness testimony as to the elements of

intent and knowledge under § 523(a)(2)(A).

Counsel for the Donovans returned that, when he opposed the

Summary Judgment Motion, the debtor should have “step[ped] up

with admissible evidence to the [bankruptcy court] and put it in

the record and not speculate upon what the evidence might or

might not be at a later date.” Tr. of Aug. 8, 2013 hr’g,

14:7-10. But counsel for the Donovans asserted that such

evidentiary presentation would have been futile, given that the

Consent Order had issue preclusive effect. Counsel for the

Donovans further countered that the Consent Order included

sufficient language concerning intent; he argued that it

contained “intent-type language.” Tr. of Aug. 8, 2013 hr’g,

20:25. 

He also argued that the Consent Order included sufficient

language concerning knowledge in that it confirmed that the

debtor had “agree[d], planned, and he schemed.” Tr. of Aug. 8,

2013 hr’g, 22:3. The Consent Order cited A.R.S. § 32-2181(D)

which “has got the specific level of knowledge and intent that is

involved.” Tr. of Aug. 8, 2013 hr’g, 22:4-5. Counsel for the

Donovans argued that “knowing that it’s wrong or having good

reason to know it’s wrong, that clearly meets the standard of

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reckless disregard [which is] not a negligence standard as . . .

suggested [by the debtor.” Tr. of Aug. 8, 2013 hr’g, 22:8-11.

At the conclusion of argument at the hearing, the bankruptcy

court took the Summary Judgment Motion under advisement. On

September 18, 2013, the bankruptcy court issued an order granting

summary judgment (“Summary Judgment Order”) in favor of the

Donovans. The bankruptcy court set forth its factual findings

and legal conclusions in the Summary Judgment Order.

The bankruptcy court essentially incorporated in the Summary

Judgment Order the factual findings set forth in the Settlement

Agreement and the Consent Order. It also referenced the

Affidavit, pointing out that the debtor represented in the

Affidavit that the Property was subdivided properly. The

bankruptcy court mentioned that the debtor and Aruba Holdings

breached the Settlement Agreement by failing to make liquidated

damages payments and refusing to repurchase the Property. It

also noted that the debtor and Aruba Holdings consented to the

factual findings and legal conclusions in the Consent Order. The

bankruptcy court highlighted the language in the Consent Order

that stated that the debtor and Aruba Holdings, through their

conduct, “acted in concert to divide parcels of land within Moqui

Ranchettes, as defined by A.R.S. § 32-2101(1) and in violation of

A.R.S. § 32-2181(D).”

The bankruptcy court excepted the State Court Judgment from

discharge under § 523(a)(2)(A). With respect to the elements of

knowledge and intent, it determined that the Consent Order

established that 1) the debtor knew or with the exercise of

reasonable diligence should have known that the representation

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about the subdivision of the Property was false, and 2) he made

the representation with reckless indifference or disregard for

its truth. The bankruptcy court based its determination on the

Consent Order, pointing out that it was binding on the debtor.

The Consent Order stated that the debtor acted in concert to

violate A.R.S. § 32-2181(D), which requires that “the real estate

licensee or other licensed professional knew or with the exercise

of reasonable diligence should have known that the property which

the licensee listed or for which the licensee acted in any

capacity as agent was subdivided land subject to [the statute].” 

Citing Cal. State Emps. Credit Union No. 6 v. Nelson

(In re Nelson), 561 F.2d 1342 (9th Cir. 1977), and Houtman v.

Mann (In re Houtman), 568 F.2d 651 (9th Cir. 1978), the

bankruptcy court determined that, within the Ninth Circuit,

“making a false statement with reason to know of its falsity

suffices to demonstrate fraudulent intent.”

The bankruptcy court reasoned that “the ‘know or should have

known’ standard [in A.R.S. § 32-2181(D)] is akin to [the]

recklessness [standard in § 523(a)(2)(A)].” Within the Ninth

Circuit, the “reckless disregard” standard requires that the

debtor have “reckless indifference to his actual circumstances”

when he made the representation. Here, the bankruptcy court

determined, at the time he executed the Affidavit averring that

the Property was subdivided properly, the debtor knew or should

have known that it was false. But the debtor recklessly

disregarded the truth by going forward in signing the Affidavit. 

The bankruptcy court concluded that the debtor could not present

credible evidence showing that he was negligent when the

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Affidavit stated that the Property was subdivided properly. Id. 

The debtor timely appealed the Summary Judgment Order. 

However, while this appeal was pending, the debtor passed away.

JURISDICTION

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

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

§ 158, subject to the jurisdictional issue below.

ISSUES

(1) In granting summary judgment to the Donovans, did the

bankruptcy court err in giving issue preclusive effect to the

Consent Order?

(2) In granting summary judgment to the Donovans, did the

bankruptcy court err in determining that they had established the

debtor’s knowledge of the falsity of the representation and his

intent to deceive under § 523(a)(2)(A)?

STANDARDS OF REVIEW

We review de novo the bankruptcy court’s grant of summary

judgment. Diamond v. Kolcum (In re Diamond), 285 F.3d 822, 826

(9th Cir. 2002). The question of whether a claim is excepted

from discharge presents mixed issues of law and fact, which we

also review de novo. Id. (citing Peklar v. Ikerd (In re Peklar),

260 F.3d 1035, 1037 (9th Cir. 2001)). Under de novo review, we

review the bankruptcy court’s decision independently, giving no

deference to its determinations. First Avenue West Building, LLC

v. James (In re Onecast Media, Inc.), 439 F.3d 558, 561 (9th Cir.

2006).

///

///

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DISCUSSION

A. Constitutional mootness

As a preliminary matter we note the potential that this

appeal is moot. We cannot exercise jurisdiction over a moot

appeal. Felster Publ’g v. Burrell (In re Burrell), 415 F.3d 994,

998 (9th Cir. 2005). If an appeal becomes moot while it is

pending before us, we must dismiss it. U.S. v. Pattullo

(In re Pattullo), 271 F.3d 898, 900 (9th Cir. 2001). 

A moot case is one where the issues presented are no longer

live, and no case or controversy exists. Burrell, 415 F.3d at

998. See also City Ctr. W., LP v. Am. Modern Home Ins. Co.,

749 F.3d 912, 913 (9th Cir. 2014)(“‘Constitutional mootness

doctrine is grounded in the Article III requirement that federal

courts may only decide actual ongoing cases or controversies.’”)

(quoting Prier v. Steed, 456 F.3d 1209, 1212 (10th Cir. 2006)). 

The test for mootness is whether an appellate court still can

grant effective relief to the appealing party if it decides the

merits in his favor. Burrell, 415 F.3d at 998. “Federal courts

may hear a dispute only when its resolution ‘will have practical

consequences to the conduct of the parties.’” City Ctr. W., LP,

749 F.3d at 913 (quoting Columbian Fin. Corp. v. BancInsure,

Inc., 650 F.3d 1372, 1376 (10th Cir. 2011)).

On appeal, the debtor sought to vacate the Summary Judgment

Order and remand to the bankruptcy court so that it could conduct

a trial on the Donovans’ § 523(a)(2)(A) claim where he could

present evidence as to his knowledge and intent. Counsel for the

debtor admitted that he did not provide much evidence in support

of the debtor’s opposition to the Summary Judgment Motion because

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he believed that the Donovans failed to bear their burden of

proof to demonstrate that no genuine issues of material fact

existed. But, as he explained at the hearing, counsel for the

debtor planned to provide witness testimony at trial.

However, as we noted earlier, the debtor has passed away; he

cannot provide any testimony at trial, either in person or by

affidavit, as to his knowledge and intent. We also wonder: What

other evidence can the debtor’s estate provide to support his

position? Given that he is deceased, the debtor cannot locate

and provide any additional documentation.

If the bankruptcy court simply is going to review the same

documents already submitted by the Donovans in support of their

Summary Judgment Motion, how will the result be any different? 

What effective relief can we grant to the debtor in these

circumstances? However, potential mootness issues aside,

considering this appeal on its merits, we affirm for the

following reasons.

B. Consent Order as Evidentiary Admission

On appeal, the debtor asserts that the bankruptcy court

erred in giving the Consent Order issue preclusive effect because

the Consent Order did not meet certain due process requirements. 

He maintains that, in order for an administrative order to have

issue preclusive effect, the following conditions must have been

satisfied: 1) the administrative agency acted in a judicial

capacity; 2) the administrative agency resolved the disputed

factual issues before it; and 3) the parties involved had an

adequate opportunity to litigate. The debtor argues that none of

these conditions were met when the debtor entered into the

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Consent Order.

Specifically, the debtor argues that: the ADRE did not prove

its case, even admitting that it only “believed” it had

sufficient grounds to prove its case; no administrative law judge

actually oversaw the proceedings; and the underlying allegations

charged by the ADRE had not been litigated. The debtor further

contends that the Donovans submitted no evidence to show that he

had a full and fair opportunity to litigate the findings and

conclusions in the Consent Order.

As noted above, the bankruptcy court applied issue

preclusion to the Consent Order. However, we apply a different

principle: we construe the Consent Order as including statements

against interest (a.k.a., admissions against interest).9

“Relevant admissions of a party, whether consisting of oral

or written assertions . . ., are admissible when offered by an

opponent.” Hon. Barry Russell, Bankruptcy Evidence Manual,

Vol. 2, § 801.12 (2013 ed.). Admissions constitute substantive

evidence. Id. However, “as is the case with most evidence, an

admission under Rule 801 is generally not conclusive. It is

entitled to whatever weight the trier of fact gives it.” Id. 

See also, e.g., In re Harris, 279 B.R. 254, 264 (9th Cir. BAP

2002)(Klein, J., dissenting)(determining that “every fact [the

debtor’s lawyer] asserted that could be used to support a finding

of ‘substantial abuse’ [under § 707(b)] is a non-hearsay

9 Evidence Rule 801(d)(2) provides, in relevant part, that a

statement is not hearsay if it “is offered against a party and is

(A) the party’s own statement, in either an individual or a

representative capacity . . . .”

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evidentiary admission under Rule 801(d)(2).”)(citation omitted).

Here, the debtor explicitly admitted to the factual findings

and legal conclusions in the Consent Order and agreed to be bound

by them. He also agreed to waive his rights to an administrative

hearing and to appeal the factual findings and legal conclusions

set forth in the Consent Order. Moreover, the debtor did not

provide evidence to counter the admissions he made in the Consent

Order. As the trier of fact, the bankruptcy court could and did

give the Consent Order due weight in making its determination. 

It did not err in doing so.

C. Knowledge and intent under § 523(a)(2)(A)

Summary judgment is appropriate “‘if the pleadings,

depositions, answers to interrogatories and admissions on file,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party

is entitled to a judgment as a matter of law.’” Ilko v. Cal.

State Bd. of Equalization (In re Ilko), 651 F.3d 1049, 1052 (9th

Cir. 2011)(quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322

(1986)). “An issue is ‘genuine’ only if there is a sufficient

evidentiary basis on which a reasonable fact finder could find

for the nonmoving party, and a dispute is ‘material’ only if it

could affect the outcome of the suit under the governing law.” 

Barboza v. New Form, Inc. (In re Barboza), 545 F.3d 702, 707 (9th

Cir. 2008)(citation omitted). The moving party bears the burden

of showing that no genuine issue of material fact exists. Id. 

The bankruptcy court must view all evidence in the light most

favorable to the nonmoving party. Id. 

“In response to a properly submitted summary judgment

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motion, the burden shifts to the [nonmoving] party to set forth

specific facts showing that there is a genuine issue for trial. 

The nonmoving party may not rely on denials in the pleadings but

must produce specific evidence, through affidavits or admissible

discovery material, to show that the dispute exists.” Id.

(citations and internal quotation marks omitted).

The bankruptcy court cannot grant summary judgment based on

its assessment of the credibility of the evidence presented. Id.

(quoting Agosto v. INS, 436 U.S. 748, 756 (1978)). At the

summary judgment stage, the bankruptcy court cannot weigh the

evidence and determine the truth of the matter. Id. (quoting

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)). It

must limit itself to determining whether there is a genuine issue

for trial. Barboza, 545 F.3d at 707 (quoting Anderson, 477 U.S.

at 249).

Under § 523(a)(2)(A), a bankruptcy court may except from

discharge any debt for money, property, services or credit

obtained by false pretenses, a false representation or actual

fraud. To prevail on a claim under § 523(a)(2)(A), a creditor

must establish the following five elements: 1) misrepresentation,

fraudulent omission or deceptive conduct by the debtor;

2) knowledge of the falsity or deceptiveness of the debtor’s

statement or conduct; 3) an intent to deceive; 4) justifiable

reliance by the creditor on the debtor’s statement or conduct;

and 5) damage to the creditor proximately caused by its reliance

on the debtor’s statement or conduct. Turtle Rock Meadows

Homeowners Ass’n v. Slyman (In re Slyman), 234 F.3d 1081, 1085

(9th Cir. 2000). The creditor must prove each element of

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§ 523(a)(2)(A) by a preponderance of the evidence. Grogan v.

Garner, 498 U.S. 279, 287 (1991).

On appeal, the debtor contends that the bankruptcy court

erred in granting summary judgment because two elements under 

§ 523(a)(2)(A) had not been met. Specifically, he argues that

the Donovans failed to meet their burden of proof to establish

the elements of knowledge and intent.

1. Knowledge of falsity and intent to deceive

When analyzing knowledge and intent, reckless disregard for

the truth of the representation or reckless indifference to the

debtor’s actual circumstances may support a § 523(a)(2)(A) claim. 

Arm v. A. Lindsay Morrison, M.D., Inc. (In re Arm), 175 B.R. 349,

354 (9th Cir. BAP 1994)(citations omitted). See also Houtman v.

Mann (In re Houtman), 568 F.2d 651, 656 (9th Cir. 1978),

overruled in part on other grounds by Grogan v. Garner, 498 U.S.

279 (1991)(holding that “either actual knowledge of the falsity

of a statement, or reckless disregard for its truth, satisfies

the scienter requirement for nondischargeability of a debt under

§ 17(a)(2) [predecessor to § 523(a)(2)(A)].”); Gertsch v. Johnson

& Johnson Fin. Corp. (In re Gertsch), 237 B.R. 160, 167-68 (9th

Cir. BAP 1999)(quoting Houtman, 568 F.2d at 656). Within the

Ninth Circuit, the phrase “reckless indifference to his actual

circumstances” is used interchangeably with the phrase “reckless

disregard for the truth of a representation.” Advanta Nat’l Bank

v. Kong (In re Kong), 239 B.R. 815, 826 (9th Cir. 1999)(citations

omitted). Both the knowledge and intent elements under 

§ 523(a)(2)(A) may be established by circumstantial evidence and

inferences drawn from a course of conduct. See Tallant v.

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Kaufman (In re Tallant), 218 B.R. 58, 66 (9th Cir. BAP 1998).

When determining the knowledge element, “[a] representation

may be fraudulent, without knowledge of its falsity, if a person

making it is conscious that he has merely a belief in its

existence and recognizes that there is a chance, more or less

great, that the fact may not be as it is represented.” Gertsch,

237 B.R. at 168 (quoting Restatement (Second) of Torts § 526

cmt. e (1977)(internal quotation marks omitted)). In such

circumstances, the person makes the representation “without

[believing] in its truth or recklessly, careless of whether it is

true or false.” Kong, 239 B.R. at 827 (quoting Restatement

(Second) of Torts § 526 cmt. e).

When determining the intent element, recklessness alone does

not equate to fraudulent intent; it is probative of intent only. 

See Khalil v. Developers Sur. & Indem. Co. (In re Khalil),

379 B.R. 163, 174 (9th Cir. BAP 2007). Reckless conduct must

involve more than simple or inexcusable negligence. Kong,

239 B.R. at 826. “The essential point is that there must be

something about the adduced facts and circumstances which suggest

that the debtor intended to defraud creditors of the estate.” 

Khalil, 379 B.R. at 175 (quoting Garcia v. Coombs (In re Coombs),

193 B.R. 557, 565-66 (Bankr. S.D. Cal. 1996)(internal quotation

marks omitted)). That is, “the focus must be on ‘the totality of

the circumstances and whether they create the overall impression

of a deceitful debtor.’” Nwas Okla., Inc. v. Kraemer

(In re Kraemer), 2011 WL 3300360 at * 6 (9th Cir. BAP 2011)

(quoting Wolf v. McGuire (In re McGuire), 284 B.R. 481, 493

(Bankr. D. Colo. 2002)).

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a. Knowledge of falsity

The debtor argues that there is no evidence that he knew or

had reason to know that the Property was not subdivided properly

at the time he sold it to the Donovans. He claims that the

factual findings in the Consent Order are not determinative as to

his knowledge concerning the subdivision of the Property because

the issue had not been actually litigated. Instead, the debtor

simply signed the Consent Order following negotiations with the

ADRE. He further contends that nothing in the Settlement

Agreement indicated that the debtor knew that the statement

regarding the requirements of A.R.S. § 11-809 in the Affidavit

was incorrect.

The debtor complains that there is no evidence showing that

he knew or should have known that the Property was not subdivided

properly. The Donovans provided the SPDS, the Affidavit and the

Consent Order as evidence demonstrating the debtor’s knowledge of

the falsity of his representation concerning the Property’s

subdivision status. And the debtor did not proffer his own

evidence to counter the Donovans’ evidence.

Although the debtor denied “knowingly engaging in any

wrongdoing with respect to the sale of the [Property]” in the

Settlement Agreement, he nonetheless showed reckless disregard

for the truth of his representation about the Property’s

subdivision status. This reckless disregard is discernable in

his inconsistent statements in the SPDS and the Affidavit. In

the SPDS, the debtor represented that, to his knowledge, the

Property was not within a subdivision approved by the ADRE. But

in the Affidavit, he stated, under penalty of perjury, that the

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sale of the Property met “the requirements of A.R.S. § 11-809

regarding land divisions.” (Mr. Donovan even testified at his

deposition that he thought the Affidavit indicated that the

Property was buildable.) These inconsistent statements show that

the debtor was careless as to whether the Property was subdivided

properly. The debtor’s careless disregard for the truth of the

representation regarding the Property’s subdivision status

satisfies the knowledge element under § 523(a)(2)(A). Based on

the evidence before it, the bankruptcy court did not err in

deciding in the Donovans’ favor on the knowledge element under 

§ 523(a)(2)(A).

b. Intent to deceive

The debtor further contends that there is no evidence

demonstrating that he intended to deceive the Donovans at the

time he sold the Property to them. He stresses that there is no

independent evidence that he fraudulently or recklessly made the

inaccurate statement about the Property’s subdivision status in

the Affidavit to induce the Donovans to purchase the Property.

However, the debtor did not provide any evidence of his own,

through affidavit or other admissible discovery material, showing

that he lacked intent to deceive under § 523(a)(2)(A), even

though he bore the production burden in his opposition to the

Summary Judgment Motion. See Barboza, 545 F.3d at 707. If he

had evidence (including his own declaration or affidavit) to

raise a genuine issue of material fact as to his intent, the

debtor should have presented it to the bankruptcy court. He

presented no such evidence.

The debtor also argues that the bankruptcy court erroneously

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relied on “an incorrect interpretation of state law [i.e., A.R.S.

§ 32-2181(D)] and the non-litigated findings contained in the

Consent Order to establish that [the debtor] intended to deceive

the Donovans when he filled out the [Affidavit].” Appellant’s

Opening Brief at 25. 

For the first time on appeal, the debtor argues that the

intent element in A.R.S. § 32-2181(D) does not apply to him. He

points out that A.R.S. § 32-2181(D) specifically provides that,

Unlawful acting in concert pursuant to this subsection

with respect to the sale or lease of subdivision lots

requires proof that the real estate licensee or other

licensed professional knew or with the exercise of

reasonable diligence should have known that property

which the licensee listed or for which the licensee

acted in any capacity as agent was subdivided land

subject to this article.

According to the debtor, under A.R.S. § 32-2181(D), only

real estate licensees or other licensed professionals are subject

to the intent element. The debtor maintains that he is not a

real estate licensee or other licensed professional. Because the

intent element under A.R.S. § 32-2181(D) only applies to real

estate licensees, which he is not, the bankruptcy court erred in

relying on the Consent Order to find that the debtor

intentionally deceived the Donovans within the meaning of 

§ 523(a)(2)(A).

We deem this argument waived because the debtor did not

raise it before the bankruptcy court. O’Rourke v. Seabord Sur.

Co. (In re E.R. Fegert, Inc.), 887 F.2d 955, 957 (9th Cir. 1989). 

Moreover, even if he raised this argument before the bankruptcy

court, whether or not the debtor was a real estate licensee is

immaterial. The debtor explicitly admitted and agreed to be

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bound by the findings in the Consent Order, including the finding

that he conspired with others (at least one of whom held a real

estate salesperson’s license) to violate A.R.S. § 32-2181(D).

Further, as we explained above, the debtor showed reckless

disregard for the truth of his representation concerning the

Property’s subdivision status based on his inconsistent

representations in the Affidavit and the SPDS. The bankruptcy

court thus did not err in granting summary judgment in the

Donovans’ favor on the intent element under § 523(a)(2)(A).

CONCLUSION

For the foregoing reasons, we AFFIRM.

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