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NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. CC-13-1552-LaPaKi

)

LILIANA MONICA CRACIUN, ) Bk. No. 11-57572-BB

)

Debtor. ) Adv. No. 12-01158-BB

______________________________)

)

LBS FINANCIAL CU, )

A CALIFORNIA CORPORATION, )

)

Appellant, )

)

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

)

LILIANA MONICA CRACIUN, )

)

Appellee. )

 )

Argued and Submitted on May 15, 2014 

at Pasadena, California

Filed - May 28, 2014

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Sheri Bluebond, Bankruptcy Judge, Presiding

 

Appearances: Karel Rocha, Esq. of Prenovost, Normandin, Bergh &

Dawe, APC argued for appellant LBS Financial CU;

Andre A. Khansari, Esq. of Khansari Law Corp, APC

argued for appellee Liliana Monica Craciun.

 

Before: LATHAM,2 PAPPAS, and KIRSCHER, Bankruptcy Judges.

FILED

MAY 28 2014

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

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.

2 Hon. Christopher B. Latham, U.S. Bankruptcy Judge for the

Southern District of California, sitting by designation.

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INTRODUCTION

LBS Financial Credit Union ("LBS") filed an adversary

proceeding to determine the nondischargeability of its claim

against debtor Liliana Monica Craciun ("Debtor") under

§§ 523(a)(2)(A) and (a)(6).3 The bankruptcy court struck

Debtor's answer and entered her default for failure to appear at

a pretrial status conference. LBS then filed a default judgment

motion, which the bankruptcy court denied.

The bankruptcy court eventually issued an order to show

cause why LBS's adversary proceeding "should not be dismissed for

failure to prosecute based on [LBS's] failure to come forward

with sufficient evidence to support default judgment." LBS later

filed a second motion for default judgment. The bankruptcy court

again found it insufficient, denied the motion, and dismissed the

adversary proceeding on its order to show cause. On November 4,

2013, the court entered an order to that effect, which LBS now

appeals.

We AFFIRM the bankruptcy court.

FACTS

In November 2009, Debtor applied for a loan with LBS to

purchase a 2005 BMW 645. LBS approved the loan. Debtor executed

a note and security agreement creating a lien on the vehicle in

LBS’s favor. Debtor later defaulted on the note. After she

3 Unless specified otherwise, all chapter and section

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

“Rule” references are to the Federal Rules of Bankruptcy

Procedure, Rules 1001-9037, and all “Civil Rule” references are

to the Federal Rules of Civil Procedure, Rules 1-86.

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filed her bankruptcy case, LBS commenced an adversary proceeding

to determine the nondischargeability of its claim under

§§ 523(a)(2)(A) and (a)(6).4

The complaint alleged that: “Plaintiff [sic] falsely

represented that the VEHICLE was being purchased for her own

personal use.” It also asserted that Debtor “defaulted on [the

note] and thereafter, through actual fraud, and with willful and

malicious intent to harm LBS and its personal property, absconded

with the VEHICLE and/or otherwise disposed of it to the detriment

of LBS by giving the VEHICLE to a third party without LBS

knowledge or consent.” On March 9, 2012, Debtor answered the

complaint. 

In July, the bankruptcy court held a pretrial status

conference at which Debtor failed to appear. The court promptly

issued an order to show cause why Debtor’s answer should not be

stricken and default judgment entered for this failure. Two

months later, the court held a hearing and directed LBS to:

(1) submit an order striking Debtor’s answer; and (2) file and

serve a default judgment motion by October 15, 2012.

On November 20, the court entered the order striking

Debtor’s answer and entering default. The following month, LBS

moved for default judgment. Debtor opposed the motion, and LBS

replied. After two hearings and several supplemental

declarations filed at the court’s direction, the bankruptcy court

4 Because the record on appeal is incomplete, we exercise our

discretion to take judicial notice of documents electronically

filed in the underlying adversary proceeding. See O’Rourke v.

Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d 955, 957-58

(9th Cir. 1989); Atwood v. Chase Manhattan Mortg. Co.

(In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).

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denied the motion. It then set another status conference for

June 2013, later continued by stipulation to July 2013.

Shortly after that status conference, the bankruptcy court

issued an order to show cause (“OSC”) why the adversary

proceeding “should not be dismissed for failure to prosecute

based on [LBS’s] failure to come forward with sufficient evidence

to support default judgment.” Apparently in response, LBS filed

a second motion for default judgment. Debtor opposed it.

On October 22, the court held: (1) a continued status

conference; (2) a continued hearing on the OSC; and (3) a hearing

on LBS’s second motion for default judgment. At this hearing,

the bankruptcy court extensively questioned LBS about the

sufficiency of its complaint’s allegations. It repeatedly asked

LBS where in the loan application Debtor made the affirmative

misrepresentation that she was purchasing the car for her

personal use. Yet LBS could not show any such representation.

LBS explained that Debtor’s loan application was a standard

online form. It then attempted to argue that Debtor fraudulently

omitted to disclose that she was not purchasing the car for her

personal use. It asserted that a vehicle user’s identity is

important because, in case of default, the lender must know from

whom to repossess the vehicle. It then argued that Debtor should

have disclosed the vehicle user’s identity in the “co-borrower”

fields of its online form. 

The bankruptcy court found LBS’s arguments unpersuasive, and

denied its second motion for default judgment. It then dismissed

the adversary proceeding under its OSC, and took the status

conference off calendar. On November 4, 2013, the bankruptcy

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court entered an order on these rulings. The order did not state

whether the court dismissed the adversary proceeding with or

without prejudice. LBS timely appealed.

JURISDICTION

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

§§ 1334 and 157(b)(2)(I). An order denying default judgment is

generally interlocutory, and so outside appellate jurisdiction.

See Cashco Servs., Inc. v. McGee (In re McGee), 359 B.R. 764, 770

(9th Cir. BAP 2006). But “[o]n appeal of a final judgment, ‘the

interlocutory order merges in the final judgment and may be

challenged in an appeal from that judgment.’” United States v.

Real Property Located at 475 Martin Lane, Beverly Hills, CA,

545 F.3d 1134, 1141 (9th Cir. 2008) (quoting Baldwin v. Redwood

City, 540 F.2d 1360, 1364 (9th Cir. 1976)).

This rule does not apply where the final judgment dismisses

the action without prejudice for failure to prosecute. Ash v.

Cvetkov, 739 F.2d 493, 497-98 (9th Cir. 1984). However, where a

dismissal for failure to prosecute does not specify whether it is

with or without prejudice, courts interpret the dismissal as one

with prejudice. Korea Exch. Bank v. Hanil Bank, Ltd.

(In re Jee), 799 F.2d 532, 534 n.2 (9th Cir. 1986). Here, the

bankruptcy court did not state whether it was dismissing with or

without prejudice. We therefore interpret the dismissal as one

with prejudice, and conclude that jurisdiction is proper under

28 U.S.C. § 158.

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ISSUE

Did the bankruptcy court err in denying LBS’s motion for

default judgment on its complaint seeking nondischargeability

under §§ 523(a)(2) and (6)?

STANDARD OF REVIEW

We review the denial of a motion for default judgment for

abuse of discretion. DIRECTV, Inc. v. Hoa Huynh, 503 F.3d 847,

852 (9th Cir. 2007). Additionally, we may affirm on any ground

supported by the record. Crowley v. Bannister, 734 F.3d 967, 976 

(9th Cir. 2013) (citing O’Guinn v. Lovelock Corr. Ctr., 502 F.3d

1056, 1059 (9th Cir. 2007)).

DISCUSSION

Default judgments are governed by Federal Rule of Civil

Procedure 55, which is made applicable to bankruptcy

proceedings by Rule 7055. To obtain a default judgment

of nondischargeability of a loan debt, a two-step

process is required: (1) entry of the party’s default

(normally by the clerk), and (2) entry of a default

judgment. Fed R. Civ. P. 55(a) and (b); Brooks v.

United States, 29 F.Supp.2d 613, 618 (N.D. Cal. 1998),

aff’d mem., 162 F.3d 1167 (9th Cir. 1998). See

generally 10A Charles Alan Wright, Arthur R. Miller &

Mary Kay Kane, FED. PRAC. & PROC. CIV. 3D § 2682

(Thomson/West 2006).

In re McGee, 359 B.R. at 770. The issue presented in this appeal

concerns step two: whether the bankruptcy court properly denied

entry of default judgment.

A. The bankruptcy court had broad authority to review the

motion for default judgment and allow opposition.

As a threshold matter, LBS argues that once the court

entered Debtor’s default, it could not: (1) allow Debtor to

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oppose its motion for default judgment; or (2) review the default

judgment motion for anything other than a determination of

damages. These arguments are unpersuasive.

1. The bankruptcy court did not err in allowing Debtor to

oppose LBS’s default judgment motion.

LBS’s assertion that the court cannot allow a defendant in

default to file an opposition is without merit. To support its

argument, LBS relies on Clifton v. Tomb, 21 F.2d 893, 897 (4th

Cir. 1927). At least one court has noted, however, that this

“Fourth Circuit decision from 1927 . . . stands for nothing more

than the uncontroversial proposition that a defendant may not

file an answer, that is, a pleading, after entry of default - an

issue which is wholly distinct from presenting [an opposition to

default judgment].” J & J Sports Prods., Inc. v. Vazquez, 2012

WL 3025916, at *3 (N.D. Cal. July 24, 2012). 

Further, Civil Rule 55(b)(2) provides that “[i]f the party

against whom a default judgment is sought has appeared personally

or by a representative, that party or its representative must be

served with written notice of the application [for default

judgment] at least 7 days before the hearing.” “The purpose of

the notice requirement in [Civil] Rule 55(b)(2) is to permit a

party to show cause for its failure to timely appear.” Sea-Land

Serv., Inc. v. Ceramica Europa II, Inc., 160 F.3d 849, 852 (1st

Cir. 1998). Indeed, Civil Rule 55(b)(2)’s notice requirement

would be pointless if the defaulting defendant could not file

papers or be heard in opposition.

Finally, LBS’s position stands in tension with the remainder

of Civil Rule 55(b)(2), which provides that “[t]he court may

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conduct hearings . . . when, to enter or effectuate judgment, it

needs to: (A) conduct an accounting; (B) determine the amount of

damages; (C) establish the truth of any allegation by evidence;

or (D) investigate any other matter.” Civil Rule 55 does not

limit who may appear or present argument for these hearings. See

J & J Sports Prods., 2012 WL 3025916, at *3. Accordingly, the

bankruptcy court did not err in allowing Debtor’s opposition to

LBS’s motion for default judgment.5

2. The bankruptcy court did not err in reviewing the

default judgment motion for something other than a

determination of damages.

LBS’s assertion that the bankruptcy court could not review

the default judgment motion for anything other than a

determination of damages likewise fails. “Entry of default does

not entitle the non-defaulting party to a default judgment as a

matter of right.” Valley Oak Credit Union v. Villegas

(In re Villegas), 132 B.R. 742, 746 (9th Cir. BAP 1991) (citing

Gordon v. Duran, 895 F.2d 610, 612 (9th Cir. 1990)). “The

general rule of law is that upon default the factual allegations

of the complaint, except those relating to the amount of damages,

will be taken as true.” Geddes v. United Fin. Grp., 559 F.2d

557, 560 (9th Cir. 1977). But,

facts which are not established by the pleadings of the

prevailing party, or claims which are not well-pleaded,

are not binding and cannot support the judgment. 

Nishimatsu Construction Co. v. Houston National Bank,

515 F.2d 1200 (5th Cir. 1975).

5 We also note that there is no indication that the

bankruptcy court relied on Debtor’s opposition. Nor did LBS move

to strike it.

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Alan Neuman Prods., Inc. v. Albright, 862 F.2d 1388 (9th Cir.

1988).

“[Civil] Rule 55 gives the court considerable leeway as to

what it may require as a prerequisite to the entry of a default

judgment.” TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917

(9th Cir. 1987). And again, Civil Rule 55(b)(2) allows the court

to conduct hearings on default judgment motions for a variety of

reasons. “This provides the trial court with discretion to

require, at a hearing under [Civil] Rule 55(b)(2), some proof of

the facts that are necessary to a valid cause of action or to

determine liability.” In re Villegas, 132 B.R. at 746 (citing

Peerless Indus., Inc. v. Herrin Ill. Cafe, Inc., 593 F. Supp.

1339, 1341 (E.D. Mo. 1984), aff’d without opinion 774 F.2d 1172

(8th Cir. 1985)).

In reviewing a motion for default judgment, the court may

consider the following factors:

(1) the possibility of prejudice to the plaintiff;

(2) the merits of plaintiff’s substantive claim;

(3) the sufficiency of the complaint;

(4) the sum of money at stake in the action;

(5) the possibility of a dispute concerning material

facts;

(6) whether the default was due to excusable neglect;

and

(7) the strong policy underlying the Federal Rules of

Civil Procedure favoring decisions on the merits. 

Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). Given

the complaint’s vague assertion that Debtor made a fraudulent

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misrepresentation, the court was well within its discretion to

require a hearing to establish the truth of LBS’s allegations by

evidence. From the hearing’s transcript, it is apparent that the

bankruptcy court properly reviewed the default judgment motion

and based its denial on the second and third Eitel factors. 

B. The bankruptcy court did not err in denying default judgment

on LBS’s § 523(a)(2)(A) claim.

LBS’s complaint relied on, in part, § 523(a)(2)(A), which

provides that debts are nondischargeable if debtors obtain them

by: “false pretenses, a false representation, or actual fraud

. . . .” Section 523(a)(2)(A) refers to the general common law

of torts, which the Restatement (Second) of Torts describes. 

Field v. Mans, 516 U.S. 59, 70 (1995); Citibank (S.D.), N.A. v.

Eashai (In re Eashai), 87 F.3d 1082, 1087 (9th Cir. 1996). For

the following reasons, the bankruptcy court did not err in

denying default judgment of LBS’s § 523(a)(2)(A) claim.

1. LBS’s § 523(a)(2)(A) allegations are insufficient under

Civil Rule 9(b).

Rule 9(b) of the Federal Rules of Civil Procedure,

applicable in bankruptcy cases as Rule 7009, mandates that, “[i]n

alleging fraud . . . a party must state with particularity the

circumstances constituting fraud . . . .” The court may

disregard any fraud allegations that do not satisfy Civil

Rule 9(b)’s particularity requirement. Sanford v. MemberWorks,

Inc., 625 F.3d 550, 558 (9th Cir. 2010). “To meet this standard,

[LBS’s] complaint must ‘identify the who, what, when, where, and

how of the misconduct charged . . . .’” Salameh v. Tarsadia

Hotel, 726 F.3d 1124, 1133 (9th Cir. 2013) (quoting Cafasso, U.S.

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ex rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 (9th

Cir. 2011)).

LBS’s complaint states, “Plaintiff [sic] falsely represented

that the VEHICLE was being purchased for her own personal use.” 

It also asserts that Debtor defaulted on her obligation to LBS

“and thereafter, through actual fraud . . . absconded with the

VEHICLE and/or otherwise disposed of it to the detriment of LBS

by giving the VEHICLE to a third party without LBS knowledge or

consent.” These allegations of fraud are bare and conclusory. 

They fail to state when, where or how Debtor: (1) fraudulently

misrepresented that she was the car’s user; or (2) fraudulently

disposed of or “absconded” with a car that she held title to.

The bankruptcy court gave LBS the opportunity to

substantiate its fraud allegations through the default judgment

hearings, but it failed to do so. At the hearing, the court

questioned LBS extensively about the fraudulent

misrepresentation.6 But LBS could not show that Debtor made any

affirmative representation – false or otherwise – about the car’s

intended user. Instead, LBS tried another tack: it argued that

Debtor’s failure to disclose that she was not purchasing the

vehicle for her own personal use was a fraudulent omission for

6 At the hearing, neither the court nor LBS addressed how

giving a third party possession of the vehicle constituted actual

fraud. LBS’s briefs likewise fail to address this. We therefore

decline to consider the question. Padgett v. Wright, 587 F.3d

983, 985 n.2 (9th Cir. 2009) (“This court ‘will not ordinarily

consider matters on appeal that are not specifically and

distinctly raised and argued in appellant’s opening brief.’”

(quoting Int’l Union of Bricklayers & Allied Craftsman Local

Union No. 20, AFL-CIO v. Martin Jaska, Inc., 752 F.2d 1401, 1404

(9th Cir. 1985))).

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purposes of § 523(a)(2)(A). That argument is likewise

unavailing.

2. LBS’s § 523(a)(2)(A) allegations fail to state a claim

for relief based on fraudulent omission.

Under the Restatement, “[a] debtor’s failure to disclose

material facts constitutes a fraudulent omission . . . if the

debtor was under a duty to disclose and the debtor’s omission was

motivated by an intent to deceive.” Harmon v. Kobrin

(In re Harmon), 250 F.3d 1240, 1246 n.4 (9th Cir. 2001) (citing

In re Eashai, 87 F.3d at 1890-90).

[A] party to a business transaction is under a duty to

exercise reasonable care to disclose to the other

before the transaction is consummated . . . (e) facts

basic to the transaction, if he knows that the other is

about to enter into it under a mistake as to them, and

that the other, because of the relationship between

them, the customs of the trade or other objective

circumstances, would reasonably expect a disclosure of

those facts.

RESTATEMENT (SECOND) OF TORTS § 551 (2014). Further,

A basic fact is a fact that is assumed by the parties

as a basis for the transaction itself. It is a fact

that goes to the basis, or essence, of the transaction,

and is an important part of the substance of what is

bargained for or dealt with. Other facts may serve as

important and persuasive inducements to enter into the

transaction, but not go to its essence. These facts

may be material, but they are not basic. If the

parties expressly or impliedly place the risk as to the

existence of a fact on one party or if the law places

it there by custom or otherwise the other party has no

duty of disclosure.

Id. at cmt. j.

At the hearing, LBS argued that the vehicle user’s identity

is important to the transaction because, in the event of default,

repossessing the vehicle will be more difficult if an unknown

party has possession. Taking this statement as true, LBS implies

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that the vehicle user’s identity was a fact basic to its

transaction with Debtor. LBS did not, however, raise this

argument in its opening brief. Even if it had, the argument is

without merit. LBS’s transaction contemplated the exchange of:

(1) funds to purchase a car; and (2) an interest-bearing note

secured by a lien on that car. The identity of the car’s user

is, at best, material to the transaction; it is not basic. To

hold otherwise would make a fraudster out of every person who

borrows money to purchase a vehicle without disclosing that it is

intended for a family member’s use. 

In addition, LBS admitted that the loan application it

provided to Debtor was a standard form used widely throughout the

auto loan industry. The form could have requested the vehicle

user’s identity, but it did not. LBS’s argument that Debtor

should have disclosed the user’s identity anyway – in the form’s

“co-borrower” fields – is not convincing. LBS fails to explain

how, once it receives the form, it would know the difference

between a co-borrower and a vehicle user. The two are not

synonymous. A vehicle user drives a vehicle; a co-borrower is

liable for the debt. Yet, following LBS’s argument, loan

applicants should somehow infer that they must disclose the

user’s identity in the co-borrower fields. Under these

circumstances, we find no reason why LBS could reasonably have

expected Debtor to identify other intended users in the loan

application. Debtor consequently had no independent duty to

disclose to LBS that the car would be used by another person. 

For the foregoing reasons, LBS’s complaint was insufficient

under Civil Rule 9(b) and did not otherwise state a fraudulent

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omission claim under § 523(a)(2)(A). The bankruptcy court’s

denial of judgment on that claim was therefore not erroneous.

C. The bankruptcy court did not err in denying default judgment

on LBS’s § 523(a)(6) claim.

LBS’s complaint also relied in part on § 523(a)(6). 

Section 523(a)(6) excepts from discharge any debt “for willful

and malicious injury by the debtor to another entity or to the

property of another entity.” “‘A malicious injury involves (1) a

wrongful act, (2) done intentionally, (3) which necessarily

causes injury, and (4) is done without just cause or excuse.’” 

Ormsby v. First Am. Title Co. of Nev. (In re Ormsby), 591 F.3d

1199, 1207 (9th Cir. 2010) (quoting Petralia v. Jercich

(In re Jercich), 238 F.3d 1202, 1209 (9th Cir. 2001)).

The word “willful” in (a)(6) modifies the word

“injury,” indicating that nondischargeability takes a

deliberate or intentional injury, not merely a

deliberate or intentional act that leads to injury.

. . . [T]he (a)(6) formulation triggers in the

lawyer’s mind the category ‘intentional torts,’ as

distinguished from negligent or reckless torts.

Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998).

For § 523(a)(6) purposes, conduct is “only tortious if it

constitutes a tort under state law.” Lockerby v. Sierra,

535 F.3d 1038, 1041-42 (9th Cir. 2008) (citing In re Jercich,

238 F.3d at 1206)). And “[t]he elements of fraud under

Section 523(a)(2)(A) . . . match those for actual fraud under

California law . . . .” Shahverdi v. William Hablinski

Architecture (In re Shahverdi), 2013 WL 2466862, at *12 (9th Cir.

BAP June 7, 2013) (citing Tobin v. Sans Souci Ltd. P’ship

(In re Tobin), 258 B.R. 199, 203 (9th Cir. BAP 2001)(internal

quotations omitted)).

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For the same reasons that LBS’s attempted claim under

§ 523(a)(2)(A) is untenable, its § 523(a)(6) claim necessarily

fails to assert the intentional tort of fraud under California

law. Moreover, LBS’s opening brief presents no argument that

Debtor committed any other intentional tort - let alone one

arising from willful and malicious conduct - under California

law.7 Thus, neither LBS’s § 523(a)(2)(A) nor its § 523(a)(6)

allegations met Civil Rule 9(b)’s particularity requirement or

otherwise stated a claim for relief.

Under these circumstances, we conclude that the bankruptcy

court did not abuse its discretion in denying LBS’s motion for

default judgment. Further, LBS’s opening brief focuses solely on

this denial of default judgment. It does not argue that the

bankruptcy court improperly dismissed its complaint under the

pending order to show cause, or for any other reason. We

therefore decline to consider the issue. Padgett v. Wright,

587 F.3d 983, 986 n.2 (9th Cir. 2009); see also In re McGee,

359 B.R. at 770; Quarré v. Saylor (In re Saylor), 178 B.R. 209,

215 (9th Cir. BAP 1995).

CONCLUSION

Based on the foregoing, we AFFIRM the bankruptcy court’s

order denying LBS’s motion for default judgment and dismissing

7 The complaint alleges that when Debtor gave the vehicle to

a third party, she somehow worked a conversion of it under state

law. But at the hearing, neither the bankruptcy court nor LBS

discussed how this act amounted to conversion or any other

intentional tort under California law. Nor does LBS’s brief

address the issue. We therefore decline to consider it. 

Padgett, 587 F.3d at 986 n.2.

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its adversary proceeding.

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