N O T FO R PUB L ICAT IO N UNITED STATES C OUR T OF APPEALS FOR THE NINTH C IR C UIT

In re : GEOR G E C HIKE IFEOR A H, De btor,

------------------------------ GEOR GE C HIKE IFEOR AH, Appe lla nt,

v. R YAN FLEGAL a

nd INVEST & DESIGN LLC , Appe lle e s. No. 15-60047 B AP No. 14-1363 B a nkr. No. 12-15356 M EM O R ANDUM *

Appe a l from

the Ninth C irc uit B a nkruptc y

Appe lla te Pa ne l Kurtz , Dunn, a

nd Ta y lor, B a n kruptc y Judge s, Pre siding Argue d a nd Subm itte d Fe brua

ry 13, 2017 Pa sa de n a , C a l ifornia B e fore : M . SM ITH a

nd OW ENS, C irc uit Judge s, a nd KOR M AN, ** Distric t Judge

. 

# FIL ED
MAR 20 2017 M OLLY C. DW Y ER, CLERK U

. S. CO URT O F APPEALS

* This disposition is not a ppropria te for public a t ion a

nd is not pre c e de nt e xc e pt a s provide d

by 9th C ir. R . 36-3. ** The Honora

ble Edwa rd R . Korm a n, Se n i or Distric t Judge for the U.S. Distric t C ourt for the Ea s te rn Distric t of Ne w York, sitting by de signa tion.Ge orge Ife o ra h, de btor, a ppe a ls from the B a nkruptc y Appe lla te Pa n e l (“ B AP” ),

r aising issue s re la ting to the prope r a pplic a tion of proxim a te c a usa t ion to t h e ba nkruptc y e xc e ption for fra ud tha t a rise s unde r 11 U.S.C . § 523(a )(2). The finding of fra ud in this c a s e a

rise s out of a la

ndlord-te na

nt dispute

. Ife ora h, the te na nt, de fa ulte d on re nt for t

he c om m e rc ia l p rope rty he wa s le a sing for his re sta ura nt. R y a n Fle g a l , t he la ndlord, re sponde d by c o m m e nc ing a n unla

w ful de ta ine r proc e e ding

a ga inst him

. On the da

y of tria l, Ife ora h c onvinc e d Fle ga l to a llow him to re m a in o n

a re duc e d re nt s ch ed ul e, in e x c ha nge for a ba lloon pa

y m e nt to b e p a id la te r, a nd a prom ise t ha t Fle g a l c ould ke e p the c om m e rc ia l kitc he n fa c ility

tha t Ife o ra h ha d built

on the le a se d pre m ise s, if Ife ora h e ve r de fa u lte d

. Ife ora h ne ve r inte nde d to ke e p tha t prom ise , a nd th e r e pre s e nta t ion tha t he wa s t he owne r of sa id e quipm e nt wa s fa lse

. Unbe k nownst to Fle ga l, Ife ora h ha d pre v iously tra nsfe rre d title to the e q u i p m ent to

a n L LC in whic h h e hel d a 6 0 % sta ke

. Although Ife ora h brie fly m a de the re quire d

re nt pa y m e nts, he e ve ntua l ly d e fa ulte d a ga in. B y the tim e tha t Fle g a l w a s a ble to e je c t him from the pre m ise s, a c c rue d but unpa id ba c k re nt ha d rise n to north of $160,000. M ore o ve r, ra the r tha

n l e a ving a turnke y kitc he n a s prom i se d, Ife ora h h ire d c ontra c tors to d ism a ntle it a nd s hip it offsite , de stroy ing m uc h of its va lue

. He subse que ntly file d for C ha pte r 1 1 b an k r u p tcy prote c tion, whic h he la te r c onve rte d to a C ha pte r 7 liquida tion.
2Fle ga l c o m m e nc e d a n a dve rsa ry proc e e ding, s e e king a de c l a r a t i on t ha t Ife ora h’ s d e bts we re non-disc ha

rge a ble

. Afte r the ba

nkruptc y c ourt rule d in fa vor of Fle ga l , Ife ora h a p pe a le d both t

he non-disc ha

rge a bility h olding a nd the da m a ge s a wa rd. The B AP a ffirm e d. This a

ppe a l followe d.

DISCUSSIO N Se c tion 523(a )(2)(A) of the B a nkruptc y C ode provide s tha t de bts a rising from fra ud a re non-disc ha

rge a ble

. A c la im

for non-disc ha

rge a bility unde r tha t

se c tion ha s five e le m e nts, but only one

— “ da m a ge to the c re ditor prox imate ly c a use d by its

re lia nc e on the de b tor’ s sta

t e m e nt or c onduc t”

— is re le va nt he re . De itz v . F

ord (In re De itz) , 760 F.3d 1038, 1050 (9th C ir. 2014) (orde r) (e m pha sis supplie d). In re le va nt pa rt, t h e aw ard inc lude d a c c rue d but unpa id b a c k re nt a nd the

m a rke t va lue o f the k itc he n e quipm e nt. W e divide the re nta l da m a ge s into distinc t

c a te gorie s. Ife ora h m isse d a pproxim at el y $33,000 in re n t pa y m e nts be fore the

se ttle m e nt a gre e m e nt, whic h a llowe d him to re m a in on the pre m ise s o n a re duc e d re nt

sc he dule

. He la t e r de fa

ulte d on a ba lloon pa

y m e nt to Fle ga l, whic h wa s to c onsist of the re n t u npa id a t the t im e of the se t tle m e nt a gre e m e nt, a nd the re nt tha t wa s de fe rre d due to the re duc e d re nt sc he dule

. The B AP wa s c o rre c t tha t Ife ora h w ould ha ve owe d the re n t unpa id a t the tim e of s et t le m e nt re ga rdle ss of t he fra ud, a nd the re fore it did
not fa ll within the e xc e p t ion to disc ha rge for fra ud unde r 11 U. S

. C. § 523(a )(2).
3Ne ve rthe le ss, the de fe rre d re nt due on the da te o f the b a l loon pa y m e nt (a bout $9,000) flowe d dire c tly from t

he s igning of the se ttle m e nt a gre e m e n t itse lf, whic h wa s induc e d by Ife ora h’ s fra

udule nt prom ise a nd wa

rra nty
. The third c a te gory of da m a ge s, c on sisting of the unpa id re n t a c c um ula te d be twe e n the de fa

ult on the ba lloon pa

y m e nt a nd Fle ga l ’ s ne x t a tte m pt to e v ic t Ife ora h (a bout $35,000), wa s not d ire c tly c a use d by the fra ud, be c a

use Fle ga l’ s “ re luc ta

n[c e ]
to e vic t M r. Ife o ra h without a ne w te na nt tha t c ould c om e in” was a n inte rve ning

c a use . Signific a ntly , during this pe riod of t im e , Ife ora h “ c ontinue d to m a k e m onthly

re nta l pa y m e nts to [Fle ga l] ,” a lthough h e fre q ue ntly m isse d p a y

m e nts. Thus, Fle ga l’ s de la y wa s m ost like l y c a

use d by tha t fa c t, ra the r tha n by Ife ora h’ s fra ud. Unde r the se
c irc um s ta nc e s , it wa s c l e a r e rror to inc lude this c a te gory of da m a ge s in a

n e xc e ption to disc ha rge unde r Se c t ion 523(a )(2). The fourth c a te gory of da m a ge s a c c rue d a fte r Fle ga l’ s d e m a n d tha t Ife ora h quit the pre m ise s i n Fe brua

ry 2012, until Ife o ra h le ft (a bout $65,000 )

. On the da y of the

se ttle m e nt a gre e m e nt, Fle ga l wa s on the cu s p of ev i c ting Ife ora h a fte r a prolonge d unla wful de ta ine r proc e ss. B y virtue o f the fra ud, a nd the subse que nt withdra wa l of unla wful de tai n er pr o c e e dings, Ife ora h e sse n tia lly re se t the c loc k o n the e vic tion proc e s s. W he n h e la te r de fa ulte d, Fle ga l ha d to sta

rt the e v ic t ion p roc e ss from sc ra tc h. This de la y , from t he d a te of Fle ga l ’ s s e c ond de m a nd tha t Ife ora h qu i t t h e pre m ise s

4until Ife ora h fina lly le ft in De c e m be r 2012, ga

ve Ife o ra h ne a rly

a n a dditiona l y e a r in the re nta l prope rt y. B e c a use the fra ud e na

ble d Ife ora h’ s d i la tory be ha vior, the se da m a ge s we re proxim a te ly c a use d by the fra

ud. W e turn now t o the loss of the kitc he n. The BA P h el d tha t, “ but for Ife ora h’ s fra ud, F l eg al w o u l d ha ve he ld a c ontra c t ua l e ntitle m e nt to re t a in the kitc h e n
e quipm e nt.” The proble m w ith this re a soning i s t h at Fle ga l did ha v e a c o ntra c tua l

e ntitle m e nt to the kitc he n, notwithsta nding Ife ora h’ s fra ud. Inde e d, t he c ourse of

c onduc t tha t re sulte d in the loss o f the kitc he n be ga n w he n Ife ora h re m ove d the kitc he n e quipm e nt from t he re nta l prope rty , not whe n he m i s r e pre s e nte d tha t he pe rsona lly owne d suc h e quipm e nt. The loss would ha ve be e n the sa m e i f Ife ora h’ s prom is e s we re true
. Thus, the ba nkruptc y c ourt c le a rly e rre d whe n it found tha t Fle g a l ’ s loss of the kitc he n e quipm e nt w a s a proxim a te re s ult of fra ud. Rat h e r, a s Ife ora h a rgue s, the loss of the kitc he n wa s c a use d by the bre a c h of h i s pr o m i s e t o l eav e a t u r nke y k itc he n if he de fa ulte d on the se t tle m e n t a gre e m e nt. Da m a ge s
re sulting from a bre a c h of c ontra c t, h owe ve r, a re disc ha rge a b le in ba nkruptc y . M ore o ve r, it wa s Ife o ra h’ s bre a c h of c ontra c t , n ot the fra ud, tha t c om pe lle d Fle ga l to give a re nt disc ount to h is ne w te na nt. C onse que ntly , the B AP e rre d by a wa rding Fle g a l a n e xc e ption to disc ha rge for the loss of the kitc h e n.

5W e ha ve c onside re d Ife ora h’ s othe r a rgum e nts a nd c onc l ude d tha t the y ha ve n o

m er it

. In sum , we a ffirm in pa rt a nd re ve rse in p a rt, a nd re m a n d t o the ba

nkruptcy

c ourt to c a lc ula te da m ag es, inc luding a ppropria t e c a lc ula tions for the a c c um ula tion of inte re st, in a c c orda

nc e with the fore going a

na ly sis. Ea c h pa rty sha ll be a r its own c osts on a

ppe a l. AFFIRM E D IN PART , RE V E RSE D IN PART , AND RE M ANDE D.

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