United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 10-2395

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In re: Svetlana Sergeyevna Ungar, *

*

Debtor, *

*

------------------------------------------ * Appeal from the United States

* Bankruptcy Appellate Panel

Olim Islamov, * for the Eighth Circuit.

*

Appellee, *

*

v. *

*

Svetlana Sergeyevna Ungar, *

*

Appellant. *

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Submitted: November 16, 2010

Filed: February 14, 2011

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Before RILEY, Chief Judge, MELLOY and GRUENDER, Circuit Judges.

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MELLOY, Circuit Judge.

Debtor Svetlana Sergeyevna Ungar appeals from the judgment of the

BankruptcyAppellate Panel("BAP") affirming the bankruptcy court's judgment that 1

The Honorable Thomas L. Saladino, United States Bankruptcy Judge for the

1

District of Nebraska.
certain debts were the product of fraud and were non-dischargeable pursuant to 11

U.S.C. § 523(a)(2)(A) and that the bankruptcy court possessed jurisdiction to reduce

a non-dischargeable debt to a judgment against her. In addition, she argues in the

alternative that the bankrupcty court erred in determining the amount ofthe judgment.

Regarding dischargeability, Ungar argues the creditor's reliance upon her

representations was not justifiable. As to jurisdiction, she argues the creditor did not

request a judgment in his pleadings, and the issue was not properly before the court. 

Regarding the amount of the judgment, she argues she should have received greater

credit because she intended certain repaid sums to cover principal repayments rather

than outside interest expenses that the creditor incurred. We affirm.

I.

Ungar emigrated to the United Statesfromthe former Sovietstate of Moldova. 

Olim Islamov emigrated to the United States from the former Soviet state of

Tajikistan. Islamov received an advanced education before coming to America and

worked many years in various economic and accounting positions. Despite being

educated, he was neither experienced with, nor knowledgeable regarding, United

Statesstock markets. Ungar and Islamov, who both speak Russian, met in Nebraska. 

Ungar told Islamov that she had been successful as a day trader and induced Islamov

to borrow money on credit cards for her to invest on his behalf. In exchange she was

to receive a share of profits that she would generate as a day trader. Islamov initially

invested $25,000. 

Almost immediately, Ungar incurred losses but failed to report these losses to

Islamov. Islamov continued to invest additional sums with Ungar (some borrowed

on credit cards and some obtained from relatives), and Ungar continued to incur

additional losses. Ungar also used sums from Islamov to cover her personal

expenses, although Islamov advanced funds to her only for investment purposes.

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Shortly after beginning her purported investment activities for Islamov, Ungar began

representing falsely that she had generated profits for Islamov. She reported these

non-existent profits to him orally, in writing, and in spreadsheets falsely showing an

increasing account balance.

Over a course of years, Islamov "invested" $503,791 with Ungar. From the

beginning, Islamov requested payouts, in partto cover interest expenses on the money

he borrowed to invest with Ungar. Ungar returned a total of $377,615 to Islamov. 

The parties do not contest these amounts, although Ungar characterizes the amounts

she received from Islamov as loans rather than investments. Eventually, when

Islamov demanded greater repayment than Ungar could provide, she admitted her

scheme. Ungar filed a voluntary Chapter Seven bankruptcy petition, and Islamov

filed a complaint seeking a determination of non-dischargeability.

The bankruptcy court, ruling on a motion for summary judgment by Ungar,

eliminated several claims for non-dischargeability, but allowed the case to proceed

to trial on a theory of fraud, 11 U.S.C. § 523(a)(2)(A), and a theory of willful and

malicious injury, § 523(a)(6). At the trial, Ungar elected not to testify. Islamov

testified that, of the $377,615 Ungar had paid to him throughout the duration of their

relationship, $102,000 represented amounts to cover Islamov's interest expenses. 

Thus, only $275,615 ofthe amountreturned by Ungar represented a return ofinvested

principal. The bankruptcy court accepted this uncontested testimony and held that 2

Islamov's false representations regarding profits served asfraudulentstatements. The

Islamov actuallyalleged a significantly higher amount as Ungar's indebtedness 2

to him, citing a promissory note for over $1.1 million that purportedlymatched a false

account balance Ungar had reported to Islamov during their relationship. The

bankruptcy court rejected Ungar's claim as to this amount, calling the non-existent

earnings and profits reflected in the note "phantom" numbers. The court stressed that

the falsely reported earnings were not amounts "obtained by false pretenses, a false

representation, or actual fraud." 11 U.S.C. § 523(a)(2)(A).

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court found the other requirements of § 523(a)(2)(A) satisfied. Accordingly, the

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bankruptcy court determined that Ungar had obtained the $503,791 from Islamov by

fraud but gave back approximately $275,000 of principal. The court concluded the

difference in these amounts, $228,791, was non-dischargeable and entered a judgment

against Ungar in this amount. 

II.

"On appeal from a decision of the BAP, we act as a second reviewing court of

the bankruptcy court's decision, independently applying the same standard of review

as the BAP." In re Lasowski, 575 F.3d 815, 818 (8th Cir. 2009). We review the

bankruptcy court'sfactual determinationsfor clear error, and its legal determinations

de novo. Granite Reinsurance Co. v. Acceptance Ins. Cos. (In re Acceptance Ins.

Cos.), 567 F.3d 369, 376 (8th Cir. 2009). "Whether a requisite element of a claim

under § 523(a)(2)(A) has been satisfied is a factual determination, which we review

for clear error." R&R Ready Mix v. Freier (In re Freier), 604 F.3d 583, 587 (8th Cir.

2010). 

Ungar first challenges the bankruptcy court's determination that Islamov

"justifiably" relied on her statements. A debt is non-dischargeable if "obtained by .

. . false pretenses, a false representation, or actual fraud . . . ." 11 U.S.C.

§ 523(a)(2)(A). A debt may be deemed to have been "obtained by" false

representations if the creditor justifiably relied on the representations. See Field v.

Mans, 516 U.S. 59, 70–71 (1995). In Field, the court resolved a circuit split as to the

level of reliance required by § 523(a)(2)(A), explaining the meaning of justifiable

reliance. TheCourt distinguished justifiable reliance fromreasonable reliance, noting

In addition, the court found § 523(a)(6), willful and maliciousinjury, satisfied. 3

Given our resolution of the fraud issue, we need not address this alternative ground

for non-dischargeability.

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"a person is justified in relying on a representation of fact 'although he might have

ascertained the falsity of the representation had he made an investigation.'" Id. at 70

(quoting Restatement (Second) of Torts (1976) § 540). The Court emphasized that

creditors could not turn a blind eye where a "patent" falsity could be determined by

"'a cursory examination or investigation.'" Id. at 71 (quoting Restatement (Second)

of Torts (1976) § 541, Cmt. a.). The Court, however, also emphasized that the

question of whether reliance is justifiable is a subjective question dependent upon

"'the qualities and characteristics of the particular [creditor], and the circumstances

of the particular case,'" such that the creditor's conduct need not "'conform to the

standard of the reasonable man.'" Id. at 71 (quoting Restatement (Second) of Torts

(1976) § 545A, Cmt. b). 

Here, we find no clear error in the bankruptcy court'sfactual determination that

Islamov's reliance was justifiable. As already noted, Islamov was not lacking in

education, but it is undisputed he was unsophisticated in matters of American stock

investing. Ungar used her shared language to build trust with Islamov and returned

$377,615 to himto perpetuate her fraud and lend credence to her false representations

that the account balance was much greater than it actually was. In the circumstances

of this case, Islamov's reliance may not have been reasonable, but we cannot say the

bankruptcy court erred in finding it justifiable. We note also that Ungar elected not

to contest the majority of Islamov's testimony.

Regarding the court's jurisdiction to enter a judgment against Ungar after

making its determination of non-dischargeability, our review is de novo. We agree

with the determinations of the other circuits that have addressed this issue and

unanimously concluded a "bankruptcy court, in addition to declaring a debt nondischargeable, has jurisdiction to liquidate the debt and enter a monetary judgment

against the debtor." Morrison v. W. Builders of Amarillo, Inc.(In re Morrison), 555

F.3d 473, 478 (5th Cir. 2009); see also Johnson v. Riebsell (In re Riebsell), 586 F.3d

782, 793 (10th Cir. 2009) (collecting cases from the Second, Sixth, Seventh, and

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Ninth Circuits); Abramowitz v. Palmer, 999 F.2d 1274, 1279 (8th Cir. 1993) (holding

a bankruptcy court possessed "related-to" jurisdiction to impose a constructive trust

on a debtor's home and enter a monetary judgment against the debtor's wife, where

the wife had colluded in perpetrating a fraud on the creditor). 

Ungar's argument appears to go further than merely a jurisdictional argument,

however, as she raises concerns of notice and alleges the possibility of a monetary

judgment was not properly before the court. To the extent she presents an argument

above and beyond the issue of jurisdiction, we reject her argument. First, we note

that Islamov's complaintsought "such other and further relief asthe Court deems just

and equitable." Further, we note that parties who voluntarily seek bankruptcy

protection seek a remedy that is equitable in nature, and in entering the bankruptcy

court, knowingly subject themselvesto the broad equitable powers of the bankrupcty

court. See 11 U.S.C. § 105(a) ("[T]he court may issue any order, process, or

judgment that is necessary or appropriate to carry out the provisions of this title.");

Miller v. Farmer Homes Admin. (In re Miller), 16 F.3d 240, 244 (8th Cir. 1994)

(noting that the bankruptcy court's broad equitable powers are limited in that "such

powers must be exercised consistent with the provisions of the Bankruptcy Code.")

(citation omitted).

Here, the parties did not contest the total amount Islamov advanced to Ungar

or the amounts Ungar returned to Islamov; they contested only dischargeability,

whether Islamov was entitled to the falsely reported "phantom" earnings and profits,

and whether Ungar should receive full credit for the amounts repaid to Islamov. The

amount of debt, if any, that Ungar owed to Islamov and qualified for exclusion from

discharge was precisely the issue before the court. Ungar presents no arguments or

explanations to describe how she was prejudiced by any purported lack of notice or

how the monetary judgment was inconsistent with any provisions of the Bankruptcy

Code. In particular, she fails to explain what evidence the purported lack of notice

prevented her from introducing. She also fails to explain how any alternative

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monetary judgment might differ if issued later by a state court acting in reliance upon

the bankruptcy court's determination of non-dischargeability.

Regarding the specific amount at issue in the present case, we agree withUngar 

that there was not overwhelming evidence to support Islamov's claim that $102,000

of the returned funds were payments for credit expenses rather than repayments of

principal. Still, Islamov's testimony on this issue was largely uncontested, the

bankruptcy court's interpretation of the evidence was a reasonable and permissible

interpretation, and it was not clear error for the district court to accept his testimony. 

In re Frier, 604 F.3d at 589 ("This argument, however, is one for the trier of fact.").

We affirm the judgment of the bankruptcy court.

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