## United States Court of App eals

F O R T H E E I G H T H C I R C U I T

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No. 1 0- 23 95

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In re: Sv et la na Serg ey ev na Ung ar, *

*
Deb to r, *

*

----- ----- ----- ----- ----- ----- ----- ----- -- * App eal fro m th e Uni te d S ta te s

* Ban kr up tc y App el la te Pan el
Oli m Isl am ov , * fo r th e Eig ht h C irc ui t.

* App el le e, *

*

v. *

*
Sv et la na Serg ey ev na Ung ar, *

* App el la nt

. *

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Su bm it te d: Nov em

be r 16 , 20 10
Fi le d: Feb ru ary 14 , 20 11

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Befo re RI LEY, Chi ef J ud ge , MELLOY and GRUENDER, Circu it Ju dg es

.

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MELLOY, Circu it Ju dg e.

Deb to r Sv et la na Serg ey ev na Ung ar ap pe al s fro m th e jud gm en t of th e

Ban kr up tc y App el la te Pan el ("B AP") affi rm in g th e ba nk ru pt cy co ur t's jud gm en t th at 1

The Hon or ab le Tho m as L. Sal ad in o, Uni te d St at es Ban kr up tc y Ju dg e fo r th e 1

Dis tri ct of Ne br as ka

.cert ai n de bt s w e r e th e pr od uc t of frau d an d were no n- di sc ha rg eab le pu rs ua nt to 11

U.S.C. § 52 3( a)(2 )(A) an d th at th e ba nk ru pt cy co ur t po ss es se d juri sd ic ti on to red uc e

a no n- di sc ha rg eab le de bt to a jud gm en t ag ai ns t he r. In ad di ti on , sh e arg ue s i n t he

al te rn at ive that th e ba nk ru pc ty co ur t erre d in de te rm in in g th e am ou nt of th e jud gm en t.

Reg ard in g di sc ha rg eab il it y , Ung ar arg ue s th e cre d i to r's rel ia nc e up on he r

rep res en ta ti on s was no t jus ti fia bl e. As to juri sd ic ti on , sh e arg ue s th e cred it or di d no t

req ue st a jud gm en t in hi s pl ead in gs , an d th e is su e was no t pr op erl y be fo re th e co ur t.
Reg ard in g th e am ou nt of th e jud gm en t, sh e arg ue s sh e sh ou ld ha ve rece iv ed gr eat er
cred it be cau se sh e in te nd ed cert ai n rep ai d su m s to co ve r pr in ci pa l rep ay m en ts rat he r

th an ou ts id e in te res t ex pe ns es th at th e cre di to r in cu rred . W e aff irm.

I.

Ung ar em ig rat ed to th e Uni te d St at es fro m th e fo rm er So vi et st at e of Mo ld ov a.
Oli m Is la m ov em ig rat ed to th e Uni te d St at es fro m t h e f or m er So vi et st at e of
Tajik is ta n. Is la m ov rece iv ed an ad va nc ed ed uc at io n bef or e co m in g to Am eri ca an d

wor ke d m an y y ears in va rio us eco no m ic an d acco un ti ng po si ti on s. Des pi te be in g
ed uc at ed

, he was ne i t h e r e xp eri en ced wit h, no r kn owl ed ge ab le reg ard in g, Uni te d

St at es st oc k m ark et s. Ung ar an d Is la m ov , who bo th sp eak Ru ss ia n, m et in Neb ras ka

. Ung ar to ld Is la m ov th at sh e ha d be en su cces sf ul as a da y tra de r an d in du ced Is la m ov

to bo rro w m on ey on cred it card s fo r he r to in ve st on hi s be ha lf. In ex ch an ge sh e was

to rece iv e a sh are of pr of

it s th at sh e wou ld ge ne rat e as a da y tra de r. Is la m ov in it ia ll y

in ve st ed $2 5,0 00

.

Alm os t im m ed ia te ly, Ung ar in cu rred lo ss es bu t fai le d to rep or t th es e lo ss es to

Is la m ov . Is la m ov co nt in ue d to in ve st ad di ti on al su m s wit h Ung ar (s om e bo rro wed

on c r e d i t card s an d so m e ob ta in ed fro m rel at iv es ), an d Ung ar co nt in ue d to in cu r
ad di ti on al lo ss es

. Ung ar al so us ed su m s fro m Is la m ov to co ve r he r pe rs on al

ex pe ns es , al th ou gh Is la m ov ad va nc ed fu nd s to he r on ly fo r in ve st m en t pu rp os es

.

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-Sh or tl y aft er be gi nn in g he r pu rp or te d in ve st m en t act iv it ie s fo r Is la m ov , Ung ar be ga n

rep res en ti ng fal se ly th at sh e ha d ge ne rat ed pr of it s fo r Is la m ov

. Sh e rep or te d th es e

no n- ex is te nt pr of

it s to hi m or al ly, in writ in g, an d in sp read sh eet s fal se ly sh owi ng an

in crea si ng acco un t b al an ce.

Ove r a co ur se of y ears , Is la m ov "i nv es te d" $5 03

, 7 9 1 wit h Ung ar. Fro m th e
be gi nn in g, Is la m ov req ue st ed pa y ou ts

, in pa rt to co ve r in te res t ex pe ns es on th e m on ey
he bo rro wed to in ve st wit h Ung ar. Ung ar ret ur ne d a to ta l of $3 77 ,61 5 to Is la m ov

. The pa rti es do no t co nt es t th es e am ou nt s, al th ou gh Ung ar ch arac te riz es th e am ou nt s
sh e rece iv ed fro m Is la m ov as lo an s ra t h e r t ha n in ve st m en ts

. Eve nt ua ll y , whe n

Is la m ov de m an de d gr eat er rep ay m en t th an Ung ar co ul d pr ov id e, sh e ad m it te d he r

sc he m e. Ung ar fil ed a vo lu nt ar y Ch ap te r Sev en ba nk ru pt cy pe ti ti on , an d Is la m ov

fil ed a co m

pl ai nt see ki ng a de te rm in at io n o f no n- di sc ha rg eab il it y

.

The ba nk ru pt c y co ur t, ru li ng on a m ot io n fo r su m m ary jud gm en t by Ung ar,
el im in at ed se ve ral cl ai m s fo r no n- di sc ha rg eab il it y , b ut a ll owe d th e cas e to pr oc eed

to tri al on a th eo ry of frau d, 11 U.S.C. § 52 3( a)(2 )(A), an d a th eo ry of wil lfu l an d

m al ic io us in

jury, § 5 2 3 ( a ) (6 ). At th e tri al

, Ung ar el ect ed no t to te st ify. Is la m ov

te st ifi ed th at

, of th e $3 77 ,61 5 Ung ar ha d pa id to hi m th ro ug ho ut th e du rat io n of th ei r
rel at io ns hi p, $1 02 ,00 0 r ep res en te d am ou nt s to co ve r Is la m ov 's in te res t ex pe ns es

. Thu s, on ly $2 75 ,61 5 of th e am ou nt ret ur ne d by Ung ar rep res en te d a ret ur n of in ve st ed

pr in ci pa l. The ba nk ru pt cy co ur t ac cep te d th is un co nt es te d tes ti m on y an d hel d th at

2

Is la m ov 's fal se rep res en tati on s reg ard in g pr of it s se rv ed as frau du le nt st at em en ts

. The

Is la m ov ac tua lly al le ge d a si gn ifi can tl y hi gh er am ou nt as Ung ar ' s ind eb te dne ss 2

to hi m , ci ti ng a pr om is so ry no te fo r ov er $1 .1 m il li on th at pu rp or te dl y m at ch ed a fal se

acco un t ba la n c e U n g a r ha d rep or te d to Is la m ov du rin g th ei r rel at io ns hi p. The
ba nk ru pt cy co ur t reject ed Ung ar' s c l a i m a s to th is am ou nt

, cal li ng th e no n- ex is te nt

earn in gs an d pr of

it s refl ect ed in th e no te "p ha nt om " nu m be rs

. The co ur t st res se d th at th e fal se ly repo rte d e arn in gs were n ot am ou nt s "ob ta in ed by fal se pre te ns es , a fal se
rep res en ta ti on , or a ct ua l fr au d." 11 U.S.C. § 5 23 (a)( 2) (A).

-3

-c o u r t f

o un d th e ot he r req ui rem en ts of § 52 3( a)(2 )(A) sa ti sf ie d. Acco rd in gl y , t h e 3

ba nk ru pt cy co ur t de te rm in ed th at Ung ar ha d ob ta in ed th e $5 03 ,79 1 fro m Is la m ov by

frau d bu t gav e b ack ap pr ox im at el y $2 75 ,00 0 o f pr in ci pa l. The co ur t con cl ud ed th e
dif fe re nc e in the se am ount s, $228 ,79 1, was no n- di sc ha rg eab le an d en te red a jud gm en t

ag ai ns t Un ga r in th is am ou nt

.

II.

"On ap pe al fro m a de ci si on of th e BAP, we act as a se co nd rev ie win g co ur t of

th e ba nk ru pt cy co ur t's de ci si on , in de pe nd en tl y ap pl y in g th e sa m e st an da rd of rev ie w

as th e BAP." In r e La so wsk i, 57 5 F.3 d 81 5, 81 8 (8 th Ci r. 20 09 ). W e rev ie w th e
ba nk ru pt cy co ur t's fact ua l de te rm in at io ns fo r cl ear erro r, an d it s le ga l de te rm in at io ns

de n o v o

. Gran it e Rei ns ur an ce Co

. v. Accep ta nc e In s. Co s. (In re Accep ta nc e In s.

Co s.), 5 6 7 F

. 3d 36 9, 37 6 (8 th Ci r. 20 09 ). "Whet he r a req ui si te el em en t of a cl ai m

un de r § 52 3( a)(2 )(A) ha s be en sa ti sf ie d is a fact ua l de te rm in at io n, whi ch we rev ie w
fo r cl ear erro r." R&R Rea dy Mi x v. Frei er (In re Frei er), 60 4 F.3 d 58 3, 58 7 (8 th Ci r.

20 10 ).

Ung ar fir st ch al le ng es th e ba nk ru pt cy co ur t's de te rm in at io n th at Is l am ov "jus ti fia bl y " reli ed on he r st at em en ts . A deb t i s no n- di sc ha rg eab le if "o bt ai ne d by

.

. . fal se pr et en se s, a fal se rep res en ta ti on , or act ua l frau d

. . . ." 11 U.S.C.
§ 52 3( a)(2 )(A). A de bt m ay be de em ed to ha ve be en "o bt ai ne d by" fal se

rep res en ta ti on s if th e cred it or jus ti fia bl y rel ie d o n t he rep res en ta ti on s. See Fi el d v.

Man s, 51 6 U.S. 59

, 70 –7 1 (1 99 5)

. In Fi el d, th e co ur t res ol ve d a ci rcu it sp li t as to th e
le ve l of rel ia nc e req ui red by § 52 3( a)(2 )(A), ex pl ai ni ng th e m ean in g of jus ti fia bl e
rel ia nc e. The Co ur t di st in gu is he d jus ti fi ab le re lia nc e fr om re as ona

ble rel ia nc e, no ti ng

In ad di ti on , the co ur

t fo und § 523(a) (6 ), wil lfu l an d m al ic io us in jury, sa ti sf

ie d. 3

Giv en ou r res ol ut io n of the frau d is su e, we ne ed no t ad dr es s th is al te rn at iv e gr ou nd
fo r no n- di sc ha rg eab il it y

.

-4

-"a pe rs on is jus ti fie d in rel y in g o n a r e p r e s e nt at io n of fact 'al th ou gh he m ig ht ha ve

as cert ai ne d th e fal si ty of th e rep res en ta ti on ha d he m ad e an in ve st ig at io n.'" Id

. at 70
(q uo ti ng Res ta te m en t (S eco nd ) of Tort s (1 97 6) § 5 40 ). The Co ur t em ph as iz ed th at

cred it or s co ul d n ot tu rn a bl in d ey e whe re a "p at en t" fal si ty cou ld be de te rm in ed by

"'a cur so ry

ex am in at io n or inv es ti ga ti on .'" Id

. at 71 (q uo ti ng Res ta te m en t (Seco nd )

of Tort s (1 97 6) § 54 1, Cm t. a.). The Co ur t, ho wev er, al so e mp h as iz ed th at th e

qu es ti on of whe th er rel ia nc e is jus ti fia bl e is a su bjec ti ve qu es ti on de pe nd en t up on

"'t he qu al it ie s an d ch arac te ris ti cs of th e pa rti cu la r [cre di to r], an d t he ci rcu m st an ces

of th e pa rti cu la r cas e,'" su ch th at th e cred it or 's co nd uc t ne ed no t "'co nf o r m t o t he

st an da rd of th e reas on ab le m an .'" Id . at 7 1 (q uo ti ng Res ta te m en t (S eco nd ) of Tort s (1 97 6) § 5 45 A, Cm

t. b ).

Here, we fin d no cl ear erro r in th e ba nk ru pt cy co ur t's fact ua l de te rm in at io n th at

Is la m ov 's rel ia nc e was jus ti fia bl e. As al read y no t e d

, I s la m ov was no t la ck in g in

ed uc at io n, bu t it is un di sp ut ed he was un so ph is ti cat ed in m at te rs of Am eri can st oc k

in ve st in g. Ung ar us ed he r sh ared la ng ua ge to bu il d tru st wit h Isl am ov an d retu rn ed

$3 77 ,61 5 to hi m to pe rp et ua te he r frau d an d le nd cred en ce to he r fal se rep res en ta ti on s

th at th e acco un t ba la nc e was m uc h gr eat er th an it act ua ll y was

. In th e ci rcu m st an ces

of th is cas e, Is la m ov 's rel ia nc e m ay no t ha ve be en reas on ab le

, bu t we can no t sa y th e
ba nk ru pt cy co ur t erre d in fin di ng it jus ti fia bl e. W e no te al so th at Ung ar el ect ed no t

to co nt es t t he m ajor it y

of I sl am ov 's t es ti m on y

.

Reg ard in g th e co ur t's juri sd ic ti on to en t e r a jud gm en t ag ai ns t Ung ar aft er

m ak in g it s de te rm in at io n o f no n- di sc ha rg eab il it y , ou r rev ie w is de no vo . We a gr ee
wit h th e de te rm in at io ns of th e ot he r ci rcu it s th at ha v e ad dr es se d th is is su e an d

un an im ou sl y co nc lu de d a "b an kr up tc y co ur t, in ad di ti on t o de cl ari ng a de bt no ndi sc ha rg eab le , h as juri sd ic ti o n t o l i qu id at e th e de bt an d en te r a m on et ary jud gm en t

ag ai ns t th e de bt or ." Mo rri so n v. W

. Bu il de rs of Am ari ll o, In c.(In re Mo rri so n)

, 55 5

F.3 d 47 3, 47 8 (5 th Ci r. 20 09 ); se e al so Jo hn so n v. Ri eb se ll (In re Ri eb se ll ), 58 6 F.3 d

78 2, 79 3 (1 0t h Ci r. 20 09 ) (co l l e c ti ng cas es fro m th e Seco nd

, Si xt h, Sev en th

, an d

-5

-Nin th Ci rcu it s) ; Abr am owi tz v. Pal m er, 99 9 F.2 d 12 74

, 12 79 (8 th Ci r. 19 93 ) (h ol di ng

a ba nk ru pt cy co ur t po ss es se d "re la te d- to " juri sd ic ti on to im po se a co ns tru ct iv e tru st

on a de bt or 's ho m e an d en te r a mo n e t ary jud gm en t ag ai ns t th e de bt or 's wife , wh ere

th e wif e h ad co ll ud ed in pe rp et rat in g a frau d o n t he cred it or ).

Ung ar's arg um en t ap pe ars to go fu rth er th an m erel y a juri sd ic ti on al arg um en t,

ho wev er, as s he rai se s co nc ern s of no ti ce an d al le ge s th e po ss ib il it y of a m on et ary jud gm en t was no t pr op erl y be fo re th e co ur t. To th e ex te nt sh e pr es en ts an arg um en t

ab ov e an d be y on d th e i s s u e o f ju ris di ct io n, we reject he r arg um en t. Fi rs t, we no te

th at Is la m ov 's co m

pl ai nt so ug ht "s uc h ot he r an d fu rth er rel ie f as th e Co ur t de em s jus t

an d eq ui ta bl e." Fu rth er, we no te th at pa rti es who vo lu nt ari ly se ek ba nk ru pt cy

pr ot ect io n se ek a rem ed y th at is eq ui ta bl e in na tu re, an d in en te rin g th e ba nk ru pt cy

co ur t, kn owi ng ly su bjec t th em se lv es to th e br oa d eq ui ta bl e po wers of th e ba nk ru pc ty

co ur t. See 11 U.S.C. § 10 5( a) ("[ T] he co ur t m ay is su e an y or de r, pr oc es s, or jud gm en t th at is ne ces sa ry or ap pr op ria te to carr y o ut th e pr ov is io ns of th is ti tl e.");

Mi ll er v. Farm er Hom es Adm in

. (In re Mi ll er), 16 F.3 d 2 4 0

, 24 4 (8 th Ci r. 19 94 )
(n ot in g t ha t th e ba nk ru pt cy co ur t's br oa d eq ui ta bl e po wers are l im it ed in th at "s uc h

po wers m us t be ex erci se d con si st en t with th e pr ov is io ns of th e Ban kr up tc y Co de .")
(ci ta ti on om it te d)

.

Here, t he pa rti es di d no t con te st th e to ta l am ou nt Is la m ov ad va nc ed to Ung ar

or th e am ou nt s Ung ar ret ur ne d to Is la m ov ; th ey co nt es te d on ly di sc ha rg eab il it y , whe th er Is la m ov was en ti tl ed to th e fal se ly rep or te d "p ha nt om " earn in gs an d pr of it s,

an d whe th er Ung ar sh ou ld rece iv e fu ll cred it fo r th e am ou nt s rep ai d to Is la m ov

. The

am ou nt of de bt

, if an y , th at Ung ar owe d to Is la m ov an d qu al ifi ed fo r ex cl us io n fro m
di sc ha rg e was pr eci se ly th e is su e be fo re t he co ur t. Ung ar pres en ts no arg um en ts or

ex pl an at io ns to de sc rib e ho w sh e was pr ejud ic ed by an y pu rp or te d la ck of no ti ce or
ho w th e m on et ary jud gm en t was in co ns is te nt wit h an y pr ov is io ns of th e Ban kr up tc y

Co de

. In pa rti cu la r, sh e fai ls to ex pl ai n wha t ev id en ce th e pu rp or te d la ck of no ti ce

pr ev en te d he r fro m in tro du ci ng

. Sh e al so fai ls to ex pl ai n ho w an y al te rn at iv e

-6

-m on et ary jud gm en t m ig ht di ffer if is su ed la te r by a st at e co ur t act in g in rel ia nc e up on

th e b an kr up tc y

co ur t's de te rm in at io n o f no n- di sc ha rg eab il it y

.

Reg ard in g th e sp eci fic am ou nt at is su e in th e pr es en t cas e, we ag re e w ith Ung ar

th at th ere was no t ov erwh el m in g ev id en ce to su pp or t Is la m ov 's cl ai m th at $1 02 ,00 0

of th e ret ur ne d fu nd s were pa y m en ts fo r cred it ex pe ns es rat h e r th an rep ay m en ts of

pr in ci pa l. St il l, Is la m ov 's te st im on y on th is is su e was la rg el y un c o n te st ed

, th e
ba nk ru pt cy co ur t's in te rp ret at io n of th e ev id en ce was a reas on ab le an d pe rm is si bl e

in te rp ret at io n, an d it was no t cl ear erro r fo r th e di st ric t co ur t to acce pt hi s te st im on y

. In re Frier

, 60 4 F.3d at 58 9 (" Thi s ar gu m en t, h owe ve r, is on e fo r th e tr ie r of fact .").

W e aff irm th e jud gm en t o f th e b an kr up tc y co ur t.

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