### NOT FOR PU BLICA TION

U NIT E D ST A T E S BA NK RU PT CYA PPE L L A T E PA N E L

OF T HE NINT H CIRCU IT In re: MIC HA EL A . TU R C HIN,

Deb to r. MIC HA EL A . TU R C HIN,

A p pellant,

v. STEVENBERK O W ITZ,

A p pellee. BA P N o . C C -17-1252-LSTa Bk. N o . 2:16-b k-13147-BR A dv. N o . 2:16-ap-01281-BR

M E M ORA ND U M *

Sub m itted W itho ut A rgum ent o n N o vemb er 29, 2018

at Pasadena, C alifo rnia Filed – Dec emb er 21, 2018 A ppeal fro m the U nited States Bankruptcy C o urt fo r the C entral Distric t o f C alifo rnia Ho no r ab le Barry Russell, Bankruptcy Judge, Presiding

# FIL ED
DEC 21 2018 SUSAN M . SPRAUL, CLERK U. S. BKCY

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

* Thi s di sposi ti on i s not appr opr i ate for publi cati on. Although i t may be ci ted for whatev er per suasiv e v alue i t may hav e, see Fed. R. App. P. 32.1, i t has no pr ecedenti al v alue, see 9th Ci r . BAP Rule 8024-1.A ppearanc es: Michael F. C hekian o f C hekian Law O ffic e, Inc . o n b rief fo r A ppellant; R
. Parker Sem ler o f Sem ler & A sso c iates, P.C . o n b rief fo r A ppellee.
Befo r e: LA FFERTY, SPRA K ER , and TAY LO R

, Bankruptcy Judges.

INT ROD U CT I ON The b ankruptc y c o urt granted sum m a ry judgm ent to A ppellee Steven Berko witz, finding the deb t o w ed to Mr. Berko witz b y A ppellant Michael Turchin no ndischargeab le under §§ 523(a)(2)(A ) and (a)(6). 1 The
c o u rt granted sum m a r y judgm ent b a sed o n the issue prec lusive effec t o f a C o lo rado state c o urt judgm ent finding Mr. Turchin liab le fo r fraud. W e A FFIRM the b ankruptc y c o u rt’s o rder granting sum m ary judgm ent o n the § 523(a)(2)(A ) c ause o f ac tio n. Bec ause we are affirm ing o n that c laim, we need no t address the § 523(a)(6) c ause o f ac tio n. FA CT U A L BA CK GROU ND 2 Mr. Berko witz and Mr. Turchin were m emb ers o f 1335 Sage Pro perties, LLC(“Sage”), alo ng with Jo hn R eyno lds and Michael

1 Unless speci fi ed other wi s e, all chapter and secti on r efer ences ar e to the Bankr uptcy Code, 11 U.S
. C. §§ 101-1532.

2 The facts r egar d ing the ev ents gi v ing r i se to the subj ect debt ar e taken fr om the Color ado state cour t j udgment enter ed Nov ember5, 2015. 2Mac Derm o tt. Sage was fo rm ed to develo p real pro perty in A spen,

C o lo rado . Mr. Turchin, Mr. Reyno lds, and Mr. MacDerm o tt (b ut no t Mr. Berko witz) also had interests in ano ther develo pm ent pro jec t in A spen c alled the “Sno wb unny Pro j ec t.” Bo th pro

jec ts were funded in part b y lo ans fro mTimb erline Bank that were sec ured b y deeds o f trust against the subjec t real pro perties. Mr. Berko witz and Mr. Reyno lds were guaranto rs o f the lo an funding the Sage projec t. The Sno wb unny Pro jec twas funded with a c o nstruc tio n lo an guaranteed b y Mr. Reyno lds and Mr. Mac Derm o t t . The Sno wb unny lo an agreem ent pro vided that if a guaranto r o f the Sno wb unny lo an had o ther o b ligatio ns to Timb erline and defaulted o n tho se ob ligatio ns, Tim b erline c o uld sto p funding the Sno wb unny lo an. The Sage pro

jec t had financ ial diffic ulties that c aused Sage todefault
o n its ob ligatio ns to Timb erline. Sage so ught and ob tained fro mTimb erline an extensio n to pay b ut was unab le to c o m ply with the term s o f the extensio n. Sage so ught ano ther extensio n. Timb erline agreed to a further extensio n o n c o nditio n that an additio nal $250,000 in c o llateral b e pledged. Mr. Turchin, Mr. Mac Derm o tt, and Mr. Reyno lds appro ached Mr. Berko witz to ask if he wo uld b e willing to put up additio nal c o llateral. Mr. Berko witz agreed o n c o nditio n that the o ther three m emb ers each indem nify him against any lo sses related tothe Sage lo an in pro po rtio n to their o wnership interests in Sage. A ltho ugh Mr. Turchin disputes that he
3agreed to the indem nific a tio n, the state c o urt fo und that he and the o ther

m emb ers o f Sage o rally agreed to indem nify Mr. Berko witz as pro po sed. Based o n that agreem ent, Mr. Berko w itz exec uted a deed o f trust o n his ho m e as additio nal c o llateral fo r the Sage lo an. Timb erline granted the extensio n, b ut Sage was still unab le to pay the lo an as agreed. Tim b erline therefo r e c o m m enc ed a c ivil ac tio n in Pitkin C o unty, C o lo rado, Distric t C o urt to fo rec lo se the deeds o f trust, inc luding the o ne granted b y Mr. Berko witz. Mr. Berko w itz paid $250,000 toob tain the release o f the deed o f trust against his ho m e. A s a guaranto r, Mr. Berko witz rem ained liab le fo r any defic ienc y after fo rec lo sure o f Tim b erline’s first deed o f trust
sec uring the Sage lo an. He therefo re signed ano ther pro m isso ry no te fo r $650,000 which was secured b y a new deed o f trust against his ho m e. He also paid $75,000 in interest and $39,322.29 in attorneys’ fees. In the fo rec lo sure ac tio n, Mr. Berko witz c ro ss-c laim ed against Mr. Turchin fo rfraud, b reach o f c o ntrac t, unjust enrichm ent, pro m isso ry esto ppel, c o m m o n law c o ntrib utio n, and c ivil c o nspiracy. 3 A fter a b ench trial, in N o vemb er 2015, the state c o urt entered a judgm ent in favo r o f Mr. Berko witz and against Mr. Turc hin in the am o unt o f $624,822.53 fo r b reach o f c o ntrac t, pro m isso ry esto ppel, and fraud.

3 Mr . Ber kowi tz also cr oss-clai med agai nst Mr . Reynolds and Mr . MacDer mott. The MacDer mott cr oss-clai m was settled; the state cour t enter ed j udgment agai nst Mr . Reynolds for br each of contr act, pr omi ssor y estoppel and contr ib uti on. 4W ith respec t to the fraud c laim, the state c o urt fo und:

A gainst Turchin o nly, Berko witz m akes a fraud c laim . In light o f the additio nal findings ab o ve, the C o urt finds Turchin pro m ised to indem nify Berko witz to the extent o f Turchin’s pro rata interest in Sage c alc ulated witho ut Berko w itz’s interest. This pro m ise was m aterial to Berko witz’s agreem ent and ac tio n to enc umb er his ho m e as additio nal c o llateral fo rthe Sage Lo an. Turchin knew he did no t intend to pay the indem nific atio n he pro m ised, and he knew this at the tim e he m ade the pro m ise in the 2008 m eeting. Turchin intended that Berko w itz rely o n his pro m ise, and Berko witz reaso nab ly did so to his detrim ent. His relianc e has dam aged Berko witz to the extent o f the indem nific atio n lo sses attrib utab le to Turchin as discussed ab o ve. Mr. Turchin appealed the state c o urt judgm ent to the C o lo rado C o urt
o f A ppeals, which affirm ed. Mr. Turchin filed a c hapter 7 petitio n in March 2016. Mr. Berko witz filed an adversary pro c eeding seeking a dec laratio n that the state c o urt judgm ent was no ndischargeab le pursuant to §§ 523(a)(2)(A ), (a)(4), and/o r (a)(6). Mr. Berko witz then m o ved fo r sum m ary judgm ent o n the §§ 523(a)(2)(A ) and (a)(6) c laim s b ased o n the issue prec lusive effec t o f the state c o urt judgm ent. The b ankruptc y c o urt granted the m o tio n, stating “I amgo ing to grant this m o tio n. . . . I read very c arefully what the state c o urt did and just
o ne paragraph, b u t that paragraph says it all. SoI’mgo ing to grant it.” The
c o u rt entered its written o rder o n A ugust 15, 2017; Mr. Turc hin tim ely
5appealed.

In respo nse to the Panel’s o rder regarding finality, the parties dism issed the § 523(a)(4) c laim
. JU RISD ICT ION The b ankruptc y c o urt had jurisdic tio n pursuant to28 U .S.C . §§ 1334 and 157(b )(2)(I). W e have jurisdic tio n under 28 U .S.C . § 158. ISSU E Did the b ankruptc y c o urt err in granting sum m ary judgm ent in favo r o f Mr. Berko witz o n his § 523(a)(2)(A ) c laimb ased o n the issue prec lusive effec t o f the state c o urt judgm ent? ST A ND A RD S OF RE V IE W W e review de no vo the b ankruptc y c o urt’s grant o f sum m ary judgm ent. Plya m v. Precisio n D ev., LLC (In re Plya m ) , 530 B.R . 456, 461 (9th C ir. BA P 2015). W e also review de no vo the b a nkruptc y c o urt's determ inatio n that issue prec lusio n is availab le. Lo pezv. Em erg. S erv. R esto ra tio n, Inc. (In re Lo pez ) , 367 B.R . 99, 103 (9th C ir. BA P2007). When we review an issue under the de no vo standard o f review, “we c o nsider [the]
m atter anew, as if no dec isio n had b een rendered previo usly.” K a shika r v. Turnstile Ca pita l M

gm t., LLC(In re K

a shika r) , 567 B.R . 160, 164 (9th C ir. BA P 2017). If we determ ine that issue prec lusio n is availab le, we then review the b ankruptc y c o urt’s dec isio n to apply it fo ran ab use o f disc retio n. In re
6Lo pez, 367 B.R . at 103. Ab ankruptc y c o u rt ab uses its disc r etio n if it applies

the wro ng legal standard o r its findings o f fac t are illo gic al, im plausib le o r witho ut suppo rt in the rec o rd. Tra fficS cho o l.co m, Inc. v. Edriver Inc. , 653 F.3d 820, 832 (9th C ir. 2011). D ISCU SSION Issue prec lusio n applies in no ndischargeab ility pro c eedings. Groga n v. Ga r ner , 498 U
. S. 279, 284 n.11 (1991). Bec ause the relevant judgm ent was rendered under C o lo rado law, full faith and c redit princ iples require us to apply C o lo rado issue prec lusio n law. S e e28 U .S.C . § 1738; Ma rrese v. Am
. Aca d em y o

f O r tho pa edic S urgeo ns , 470 U
. S. 373, 380 (1985). Under C o lo rado law, issue prec lusio n is availab le if: (1) the issue so ught to b e prec luded is identic al to an issue ac tually determ ined in the prio r pro c eeding; (2) the party against who mesto p p el is asserted has b een a party to o r is in privity with a party to the prio r pro c eeding; (3) there is a final judgm ent o n the m erits in the prio r pro c eeding; and (4) the party against who mthe do c trine is asserted had a full and fair o ppo rtunity to litigate the issue in the prio r pro c eeding. Ma rtin v. H

a uck (In re H

a uck) , 466 B.R
. 151, 163 (Bankr. D. C o lo
. 2012), a ff’d , 489 B.R . 208 (D. C o lo . 2013), a ff’d , 541 F. A pp’x 898 (10th C ir. 2013) (quo ting S unny Acres V

illa , Inc. v. Co o p er

, 25 P.3d 44, 47 (C o lo . 2001) (en b anc )). Mr. Turchin do es no t dispute that elem ents (2) thro ugh (4) are m et here. He argues, ho wever, that the issues dec ided in the state c o urt were
no t identic al to tho se nec essary to find the deb t no ndischargeab le under
7§§ 523(a)(2)(A ) and (a)(6). W e find no erro r o r ab use o f disc retio n in the

c o u rt’s c o nc lusio n that the state c o urt judgm ent suppo rted a finding o f
no ndischargeab ility under sub sec tio n (a)(2)(A ). Sec tio n 523(a)(2)(A ) exc epts fro ma deb to r's discharge deb ts resulting fro m“false pretenses, a false representatio n, o r ac tual fraud, o ther than a statem ent respec ting the deb to r’s o r an insider's financ ial c o nditio n.” A
c redito r seeking to exc ept a deb t fro mdischarge b ased o n fraud must estab lish each o f five elem ents: (1) m isrepresentatio n, fraudulent o m issio n o r dec eptive c o nduc t; (2) kno wledge o f the falsity o r dec eptiveness o f such representatio n(s) o r o m issio n(s); (3) an intent to dec eive; (4) justifiab le relianc e b y the c redito ro n the subjec t representatio n(s) o r c o nduc t; and (5) dam age to the c redito r p r o xim ately c aused b y its relianc e o n such representatio n(s) o r c o nduc t . O ney v. W einberg (In re W

einberg) , 410 B.R . 19, 35 (9th C ir. BA P 2009), a ff’d , 407 Fed. A ppx. 176 (9th C ir. 2010). The state c o urt fo und that: (1) Mr. Turchin pro m ised to indem nify Mr. Berko witz to the extent o f Mr. Turchin’s pro rata interest in Sage; (2) Mr. Turchin knew at the tim e he m ade the pro m ise that he did no t intend to pay the indem nific atio n he pro m ised; (3) he intended Mr. Berko witz to rely o n that pro m ise; (4) Mr. Berko witz reaso nab ly relied o n that pro m ise; and (5) Mr. Berko witz’s relianc e o n that pro m ise dam aged himto the extent o f the indem nific atio n lo sses. A dditio nally, the state c o urt’s fraud judgm ent im plic itly estab lished that the state c o urt fo und that the elem ents
8o f c o m m o n law fraud under C o lo rado law were m et. In o ther wo rds, the

c o u rt nec essarily had to find that Mr. Berko witz had estab lished that: (I) Mr. Turchin m ade a false representatio n o f a m aterial fac t; (ii) he knew the representatio n was false; (iii) Mr. Berko witz did no t kno w o f the falsity; (iv) the representatio n was m ade with the intent that it b e ac ted upo n; and (v) the representatio n resulted in dam ages. S ee Bro dy v. Bo ck , 897 P.2d 769, 775–76 (C o lo . 1995) (c itatio n o m itted). Mr. Turchin argues that the state c o urt did no t m ake any findings
am o u nting to a m isrepresentatio n, fraudulent o m issio n, o r dec eptive
c o nduc t. But under C o lo rado law, “[a] c laimo f fraud m ay b e prem ised upo n o ne party’s pro m ise c o nc erning a future ac t c o upled with a present intentio n no t to fulfill the pro m ise.” Id. at 776 (c iting Kinsey v. Preeso n , 746 P.2d 542, 551 (C o lo . 1987)) (internal quo tatio ns and alteratio ns o m itted). The state c o urt’s findings that Mr. Turchin pro m ised to indem nify Mr. Berko witz witho ut the present intent to pay the indem nific atio n am o u nts to a finding o f a m isrepresentatio n, fraudulent o m issio n, o r dec eptive c o nduc tsuffic ient to satisfy § 523(a)(2)(A ). R ubin v. W est (In re R ubin) , 875 F.2d 755, 759 (9th Cir. 1989). Mr. Turchin also c o ntends that the state c o u rt m ade no finding that he intended to dec eive Mr. Berko witz. But an intent to dec eive is im plic it in the state c o urt’s findings that Mr. Turchin m ade a pro m ise he did no t intend to fulfill and did so intending Mr. Berko witz to rely o n it. S ee In re
9H

a uck , 466 B.R . at 164-65 (b ankruptc y c o urt fo und that defendants’ state
c o u rt stipulatio n that they kno wingly m ade false representatio ns with the intent that the plaintiff wo uld rely o n tho se representatio ns, that plaintiff justifiab ly relied o n the representatio ns and such relianc e c aused injuries and dam ages to plaintiff, satisfied the elem ents o f § 523(a)(2)(A )). N ext, Mr. Turchin argues that the state c o urt’s findings were inadequate to suppo rt the § 523(a)(2)(A ) c laim b ec ause the state c o urt did
no t pro vide any analysis o f: (1) whether Mr. Turchin had the ab ility to pay the indem nific atio n; (2) whether Mr. Turchin knew o r sho uld have kno wn a default wo uld o c c ur; o r (3) whether Mr. Berko witz’s dec isio n to pledge additio nal c o llateral was m ade after a financ ial investigatio n. These argum ents go to the questio n o f Mr. Berko w itz’s relianc e. N o t o nly are these argum ents essentially a c o llateral attac k o n the state c o urt’s fraud finding, analyses o f the c ited issues were no t required fo r the b ankruptc y c o urt to c o nc lude that the elem ents o f § 523(a)(2)(A )
were m et. The state c o urt fo und that Mr. Berko witz “reaso nab ly” relied o n Mr. Turchin’s pro m ise, while the standard under § 523(a)(2)(A ) is “justifiab le” relianc e. F ield v. Ma ns , 516 U
. S. 59, 73-75 (1995). R easo nab le relianc e is a m o re stringent, o bjec tive standard that m a y, in so m e c irc u m stanc es, entail a duty to investigate if a prudent perso n wo uld have do ne so . S ee H

erita ge Pa c . F i n., LLC v. Ma chuca(In re Ma chuca ) , 483 B.R . 726, 736-37 (9th C ir. BA P2012). But a person m a y justifiab ly rely o n a
10representatio n even if its falsity c o uld have b een disc o vered upo n

investigatio n. Ja p ra v. Apte (In re Apte) , 180 B.R . 223, 229 (9th C ir. BA P 1995). Typic a lly, then, if relianc e is fo und to b e reaso nab le, it alsom eets the lesser, subjec tive standard o f justifiab le relianc e. Ta lla nt v. K a ufm a n (In re Ta lla nt) , 218 B.R . 58, 69 n.15 (9th C ir. BA P 1998). N o thing in the rec o r d suggests that this is the atypic al c ase. Finally, Mr. Turchin o b serves (c o rrec tly) that the state c o urt did no t have jurisdic t io n to find no ndischargeab ility. A s such, he c o ntends that the b ankruptc y c o urt sho uld no t have relied so lely o n the state c o urt findings. But there is no questio n that the b ankruptc y c o u rt m ay give issue prec lusive effec t to state c o urt findings in sub sequent no ndischargeab ility pro c eedings. Groga n , 498 U .S. at 284 n.11; H a r m o n v. K

o b rin (In re H

a rm o n) , 250 F.3d 1240, 1245 (9th Cir. 2001); To m ko w v. Ba rto n (In re To m ko w) , 563 B.R
. 716, 722 (9th C ir. BA P 2017). Bec ause we c o nc lude that the b ankruptc y c o urt did no t err o r ab use its disc retio n in applying issue prec lusio n to the state c o urt’s findings to estab lish no ndischargeab ility under § 523(a)(2)(A ), we need no t address Mr. Turchin’s argum ent that the dec laratio ns sub m itted in suppo rt o f his
o ppo sitio n to the m o tio n fo r sum m ary judgm ent raised triab le issues o f fac t . CONCL U SION Fo r these reaso ns, we A FFIRM the b ankruptc y c o urt’s grant o f
11sum m ary judgm ent o n the § 523(a)(2)(A ) c ause o f ac tio n. A c c o rdingly, we

need no t address the § 523(a)(6) claim
.

12