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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.

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UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. CC-12-1495-PaKiTa

)

JOHN SHART and ELKE GORDON SCHARDT,) Bk. No. 10-29973-BR

)

Debtors. ) Adv. No. 10-02555-BR

___________________________________)

)

WENDY HAIG; GREG SADLER; SHOWCASE )

81, LLC, )

)

Appellants, )

)

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

)

JOHN SHART; ELKE GORDON SCHARDT, )

)

Appellees. )

___________________________________)

 Argued and Submitted on March 22, 2013,

at Pasadena, California

Filed - April 2, 2013

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Barry Russell, Bankruptcy Judge, Presiding 

Appearances: Jesse Sequoia Finlayson of Finlayson Williams

Toffer Roosevelt & Lilly LLP argued for appellants

Wendy Haig, Greg Sadler, and Showcase 81, LLC; 

Elke Gordon Schardt argued for appellees John Shart

and Elke Gordon Schardt. 

Before: PAPPAS, KIRSCHER and TAYLOR, Bankruptcy Judges.

FILED

APR 02 2013

SUSAN M SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT
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2

 Unless otherwise indicated, all chapter, section and rule

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

to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. 

The Federal Rules of Civil Procedure are referred to as Civil

Rules.

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Creditors Wendy Haig (“Ms. Haig”), Greg Sadler (“Mr. Sadler”)

and their company, Showcase 81, LLC (together, “Creditors”) appeal

that portion of the judgment of the bankruptcy court holding that

Creditors’ claims against chapter 72 debtor Elke Gordon-Schardt

(“Ms. Schardt”) were not excepted from discharge in her bankruptcy

case under § 523(a)(2)(A). While we AFFIRM the bankruptcy court’s

determination that Ms. Schardt was not directly liable for fraud,

we VACATE in part the bankruptcy court’s judgment and REMAND the

action to the bankruptcy court to consider whether Ms. Schardt’s

spouse’s fraud may be imputed to her.

FACTS

Ms. Haig and Mr. Sadler are a married couple who lived in

Santa Fe, New Mexico. They are active equestrians, own horses,

and participate in horse shows. 

Ms. Schardt is married to John Hans Shart (“Mr. Shart” and,

together with Ms. Schardt, “Debtors”). Mr. Shart lives in

Lynville, Tennessee; Ms. Schardt resides in Acton, California. 

Mr. Shart is the 100 percent owner of Malibu Equestrian Estates,

Inc. (“MEE”). Mr. Shart and MEE operated a horse-related business

under the business name Greystone Equestrian Center (“Greystone”)

in Lynville, Tennessee. The 85-acre parcel where Greystone

operates is owned jointly by Mr. Shart and Ms. Schardt (the

“Farm”). Ms. Schardt is an attorney with a law practice in Acton,

California. 
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From 2002 through 2008, Creditors purchased horses from Shart

or MEE. Until early 2007, all of the purchased horses were

boarded at facilities in New Mexico not affiliated with Mr. Shart

or MEE.

Ms. Haig and Mr. Shart developed both a business relationship

and friendship from 2002 through 2008. Ms. Haig would purchase

horses and rely on Mr. Shart for training advice. They met

socially, with Ms. Haig occasionally staying at Greystone.

Even in the early period of their relationship, there was

considerable confusion over Mr. Shart’s billing for the purchase

and care of Creditors’ horses. On or about November 22, 2006,

Ms. Haig sent Mr. Shart a letter, listing payments she had made to

Mr. Hart or MEE between May 2005 and September 2006 totaling

$1,849,000.00, alleging that the payments were a combination of

purchases and loans, and asking Mr. Shart’s help in identifying

the purpose of each payment.

In February 2007, Ms. Haig and Mr. Shart attended a horse

show in Gulfport, Mississippi. While at the Gulfport show,

Ms. Haig agreed to have at least the majority of her horses

boarded and trained at Greystone. Between March 2007 and December

2008, Creditors boarded on average twenty to twenty-five horses at

Greystone.

On or about January 23, 2007, Ms. Haig allegedly purchased

two motor homes, paying $245,495.00 for the first (“Motor Home 1")

and $240,973.00 for the second (“Motor Home 2"). The purchases

were negotiated and implemented with the dealer by Mr. Shart. 

Title to Motor Home 1 was placed in Ms. Haig’s name, but title to

Motor Home 2 was placed in Mr. Shart’s name. Ms. Haig would later
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claim that she instructed Mr. Shart to place title to both motor

homes in her name.

In 2007, Mr. Shart constructed a barn to house some of

Creditors’ horses (the “Barn”) and to provide living quarters for

Ms. Haig during Greystone visits and to provide four suites for

grooms. It is disputed whether Mr. Shart or Ms. Haig provided the

funds for the Barn’s construction. Ms. Haig also argued that

Mr. Shart promised to construct the Barn as an incentive for

Creditors to board the horses at Greystone.

On May 10, 2007, Jerry and Beverly Flowers recorded a deed

transferring a fourteen-acre parcel adjacent to the Farm to

Mr. Shart (the “Flowers Land”). Title was vested in Mr. Shart,

but the parties dispute whether Debtors or Creditors provided the

funds for the purchase of the Flowers Land, and whether title

should have been vested in Mr. Shart or Ms. Haig. 

On September 14, 2007, Ms. Haig allegedly paid $162,250.43

for the purchase of a Kenworth truck. Mr. Shart negotiated the

purchase with the dealer. Title to the truck was placed in the

name of Greystone. In her testimony, Ms. Haig alleged that,

although she authorized Mr. Shart to negotiate the purchase of the

truck, she expressly instructed him to title the truck in her

name. 

Between 2007 and 2009, there were continuing disputes between

Debtors and Creditors regarding boarding fees, documentation on

invoices, and the authority of Mr. Shart to sell horses stabled by

Creditors at Greystone. In one instance, two of Creditors’ horses

were sold by Mr. Shart on December 18, 2008. Ms. Haig was present

and objected to the sale. Given the parties’ escalating
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disagreements, on January 7-9, 2009, Creditors’ representatives

traveled to the Farm to pick up the remaining horses. Mr. Shart

demanded payment from Creditors of alleged and disputed arrearages

before releasing the horses, and eventually ordered Creditors’ 

representatives to leave without recovering the horses. 

On February 9, 2009, Creditors sued Mr. Shart, Ms. Schardt,

and MEE in state court. Haig v. Shart, dkt. no. 4394 (Chancery

Ct., Giles Cnty., Tennessee, February 9, 2009). The complaint

alleged that the defendants made multiple misrepresentations to

Creditors regarding the acquisition and sale of horses, and that

there were disputed expenses for trade shows, construction costs,

real estate, personal property acquisitions, and other matters

related to the defendants’ activities on behalf of Creditors. 

Notably, the complaint focused on the actions of Mr. Shart, and

only sought recovery against Ms. Schardt for “unjust enrichment.” 

On March 9, 2009, the Tennessee Chancery Court entered an Agreed

Temporary Injunction, prohibiting Debtors from selling any

additional horses or personal property owned by Creditors,

including the Kenworth truck. 

Creditors’ representatives returned to the Farm on March 5,

2009, to remove the remaining horses and personal property of

Creditors. Mr. Shart permitted them to remove eleven horses and

some other items of property. 

By April 2009, Creditors had determined that at least five of

their horses were still stabled at Greystone. The state court

entered an order granting Creditors possession of the horses,

their request for injunctive relief, and authorization to inspect

the Greystone premises. The bankruptcy court would ultimately
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find that Creditors never recovered seven of their horses. 

In November 2009, Mr. Shart sold the Kenworth truck to MHC

Kenworth for $80,000. 

Debtors filed a chapter 11 petition in the Central District

of California on May 18, 2010. Debtors indicated in their

schedule A that they owned the Barn and the Flowers Land. 

Schedule F listed a disputed, contingent, and unliquidated debt to

Creditors for $1 million. On September 21, 2010, the bankruptcy

court converted Debtors’ case to a chapter 7 case, and a trustee

was appointed. 

Creditors filed a proof of claim in the bankruptcy case on

January 21, 2011, in the amount of $2,600,000. Debtors objected

to the claim on June 3, 2011, arguing that they did not owe the

money. 

Meanwhile, on August 23, 2010, Creditors filed an adversary

proceeding against Debtors. As amended on March 9, 2011,

Creditors’ complaint alleged that Debtors made misrepresentations

to Creditors with the intent of deceiving them into paying $1.1

million to construct the Barn and purchase the Flowers Land, among

other things, and that this debt should be excepted from discharge

under § 523(a)(2)(A). The complaint further alleged that Debtors

had engaged in fraud or defalcations as fiduciaries related to the

$1.1 million, and that the debt should be excepted from discharge

under § 523(a)(4). Finally, the complaint asserted that Debtors

willfully, maliciously, and intentionally injured the Creditors

and converted their property and the resulting debt should be

excepted from discharge under § 523(a)(6). In an answer filed on

April 6, 2011, Debtors generally disputed these allegations. 
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On December 29, 2011, the bankruptcy court approved the

parties’ Joint Pretrial Order both setting forth undisputed facts

(which are incorporated in this factual discussion), and outlining

the disputed issues of fact and law. 

Over several months, the bankruptcy court conducted a

five-day consolidated trial concerning Debtors’ objection to

Creditors’ claim, and Creditors § 523(a) complaint, which

concluded on July 25, 2012. In addition to the documentary

evidence submitted by the parties, the bankruptcy court heard

testimony from numerous witnesses, including Ms. Haig, Mr. Sadler,

Mr. Shart and Ms. Schardt. 

After listening to the parties’ closing arguments, the

bankruptcy court orally announced its decision. In part, the

court stated that Mr. Shart’s “credibility, quite frankly, is zero

as far as I’m concerned. . . . It was clear to me that he will

say and did say at any time in this case what he wanted to.” 

Trial Tr. 101:14-23, July 25, 2012. The court then concluded that

it agreed with all arguments made by Creditors that Mr. Shart had

intentionally made false statements to Haig. Trial Tr. 102:1-2. 

The court examined each component of Creditor’s claim, ruling

which components would be allowed, which would be excepted from

discharge, and which would not. 

As to Creditors’ § 523(a) claims against Ms. Schardt, the

bankruptcy court concluded that she had not been actively involved

in the fraudulent behavior and representations of Mr. Shart: 

“Other than let’s say at the end helping with e-mails and things,

I don’t think she had anything to do with the actual transactions

which are the basis for the claims as well as
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3

 In their brief, Creditors note that, subsequent to entry

of the judgment on appeal, on October 29, 2012, the bankruptcy

court entered an order allowing the Creditors’ claim in the

bankruptcy case for $1,817,104.19 as “a community claim under

section 524(a)(3).” This order was not appealed.

-8-

nondischargeability.” Trial Tr. 100:21-25. Having concluded that

she had nothing to do with the false representations or fraudulent

activity of Mr. Shart, the bankruptcy court determined that

Creditors’ claims against her would not be excepted from

discharge. In particular, as to Creditors’ arguments that

Ms. Schardt could be held liable because a spouse’s fraud can be

imputed to the other spouse under principles of agency and

partnership, the court ruled “I don’t think there’s any

imputation[.]” Trial Tr. 100:3-4. The court provided no

explanation and made no findings to support that ruling, except to

question the correctness of the Panel’s decision in Tsurukawa v.

Nikon Precision, Inc. (In re Tsurukawa), 287 B.R. 515 (9th Cir.

BAP 2002) (Tsurukawa II).

On September 13, 2012, the bankruptcy court entered a

judgment in favor of Creditors and against Mr. Shart for

$860,726.43 as a debt excepted from discharge under § 523;

although the judgment did not specify which subsection of that

statute applied. The judgment also declared that Creditors’

claims against Ms. Schardt were discharged.3

Creditors filed a timely appeal on September 27, 2012,

challenging only that part of the Judgment holding that their

claims against Ms. Schardt were not excepted from discharge.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334
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and 157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.

ISSUES

Whether the bankruptcy court erred in ruling that Ms. Schardt

was not directly liable for fraud.

Whether the bankruptcy court erred in deciding that

Mr. Shart’s liability to Creditors for fraud should not be imputed

to Ms. Schardt for purposes of § 523(a)(2)(A).

STANDARDS OF REVIEW

Whether a claim is excepted from discharge under

§ 523(a)(2)(A) presents mixed issues of law and fact which we 

review de novo. Diamond v. Kolcum (In re Diamond), 285 F.3d 822,

826 (9th Cir. 2001). We review the bankruptcy court's findings of

fact for clear error. Honkanen v. Hopper (In re Honkanen),

446 B.R. 373, 378 (9th Cir. BAP 2011). Clear error is found when

the reviewing court has a definite and firm conviction that a

mistake has been committed. Lewis v. Ayers, 681 F.3d 992, 998

(9th Cir. 2012). De novo review requires the Panel to

independently review an issue, without giving deference to the

bankruptcy court's conclusions. See Cal. Franchise Tax Bd. v.

Wilshire Courtyard (In re Wilshire Courtyard), 459 B.R. 416, 423

(9th Cir. BAP 2011) (citing First Ave. W. Bldg., LLC v. James

(In re Onecast Media, Inc.), 439 F.3d 558, 561 (9th Cir. 2006)). 

DISCUSSION

I.

The bankruptcy court did not err in ruling that

Ms. Schardt was not directly liable for fraud under

§ 523(a)(2)(A).

At the hearing in this appeal, counsel for Creditors seemed
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to concede that Creditors were not challenging the bankruptcy

court’s ruling that Ms. Schardt had not directly engaged in any

fraud. In the event the Panel is incorrect in this assumption,

however, we affirm the bankruptcy court’s conclusion that

Ms. Schardt did not have direct liability for fraud.

This appeal has been characterized by a high degree of

imprecision. Creditors’ complaint sought exceptions to discharge

for the full amount of their claims against both Mr. Shart and

Ms. Schardt under § 523(a)(2)(A), (a)(4) and (a)(6). In trial

argument and post-trial briefing, the parties continued to dispute

all three subsections of § 523. However, the bankruptcy court’s

judgment simply excepted from discharge Creditors’ claim against

Mr. Shart personally under “§ 523”, with no reference to the

subsections. Because in its ruling the court did not discuss

Debtors’ fiduciary duties, embezzlement, nor willful and malicious

conduct, but rather focused on Mr. Shart’s misrepresentations and

fraud, we assume that the bankruptcy court’s judgment granted the

exception to discharge against Mr. Shart under § 523(a)(2)(A).

This assumption is buttressed in Creditors’ briefs. They

focus their argument on appeal on whether the bankruptcy court

erred in not imputing the fraud of Mr. Shart to Ms. Schardt based

on this Panel’s rulings in Tsurukawa II. Tsurukawa II, discussed

below, deals solely with imputing fraud to a spouse under

§ 523(a)(2)(A). Since Creditors included no arguments on appeal

relating to Ms. Schardt’s fiduciary duties, embezzlement, or

willful and malicious conduct, we assume in this section that

Creditors challenge only the bankruptcy court’s ruling that there

was no active involvement by Ms. Schardt in Mr. Shart’s
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misrepresentations and fraud under § 523(a)(2)(A).

 Section 523(a)(2)(A) provides that: "A discharge . . . does

not discharge an individual debtor from any debt . . . (2) for

money, property, services, or an extension, renewal, or

refinancing of credit, to the extent obtained, by — (A) false

pretenses, a false representation, or actual fraud[.]" To

demonstrate to the bankruptcy court that a debt should be excepted

from discharge under § 523(a)(2)(A), a creditor must prove five

elements: (1) misrepresentation, fraudulent omission or deceptive

conduct by the debtor; (2) knowledge of the falsity or

deceptiveness of his statement or conduct; (3) an intent to

deceive; (4) justifiable reliance by the creditor on the debtor's

statement or conduct; and (5) damage to the creditor proximately

caused by its reliance on the debtor's statement or conduct. 

Ghomeshi v. Sabban (In re Sabban), 600 F.3d 1219, 1222 (9th Cir.

2010); Oney v. Weinberg (In re Weinberg), 410 B.R. 19, 35 (9th

Cir. BAP 2009). The creditor bears the burden of proving all five

elements by a preponderance of the evidence. Grogan v. Garner,

498 U.S. 279, 291 (1991); In re Weinberg, 410 B.R. at 35.

The bankruptcy court heard testimony from Ms. Haig that

Ms. Schardt never made a false representation to her about the

financial issues in question:

COUNSEL FOR DEBTORS: Did [Ms. Schardt] ever tell you

anything that later turned out to be false?

HAIG: Well, I doubted — when she solicited me as her

client in the Merrill Lynch case, I doubted that she'd

ever had an experience with Merrill Lynch, and she

stated she — she had had cases before against Merrill

Lynch.

THE COURT: But other than that, there was nothing that

you found out later was not true as far as you know? 
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Even that you apparently have some question about?

HAIG: I have some question about that comment.

THE COURT: But other than that?

HAIG: No, she didn't — I don't think she — I don't know. 

It was mostly just conversations.

THE COURT: Okay.

Trial Tr. 83:16—84:4, April 26, 2012. 

Since we review the bankruptcy court’s factual findings for

clear error, and because the record includes Ms. Haig’s testimony

that Ms. Schardt made no false representations to her, the

bankruptcy court did not err in concluding that Creditors had not

established the elements required for exception to discharge under

§ 523(a)(2)(A), and instead concluding that “I don’t think she had

anything to do with the actual transactions which are the basis

for the claims as well as nondischargeability.” Trial Tr. 100:22-

25. 

We therefore AFFIRM the bankruptcy court’s decision that

Ms. Shardt did not engage directly in any fraud. 

II.

The bankruptcy court made inadequate findings to support

its decision not to impute liability to Ms. Schardt for

the fraud of her spouse and, consequently, we must

vacate the portion of the judgment regarding her and

remand for findings consistent with this Panel’s

holdings in Tsurukawa.

The second imprecision in this appeal concerns the bankruptcy

court’s ruling that “I don’t think there’s any imputation” of

Mr. Shart’s fraudulent behavior to his spouse, Ms. Schardt. The

bankruptcy court had been given extensive briefing from the

parties concerning the Panel’s published opinion in Tsurukawa II,
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where it held that, even in the absence of any direct fraud, 

imputation of liability was possible in a § 523(a)(2)(A)

proceeding where the court finds a partnership or agency

relationship existed between the spouses. 287 B.R. at 527. Based

on our review of the record, evidence was produced by Creditors

which may provide a basis for imputing such liability. Despite

this, the bankruptcy court made no findings to support its

conclusion that imputation was not appropriate in this case. This

is problematic.

Rather than make specific findings based on Tsurukawa or

address any of the arguments on imputed liability presented by

both parties, the bankruptcy court simply ruled that “the BAP got

it wrong.” This is not a finding of fact. Simeonoff v. Hiner,

249 F.3d 883, 891 (9th Cir. 2001) (unsupported conclusory

statements not findings). Even if, in making this statement, the

bankruptcy court decided that it was not required to follow

Tsurukawa II, this Panel is bound to follow and enforce its own

published decisions in subsequent appeals. In re Sierra Pac.

Broadcasters, 185 B.R. 575, 577 n.7 (9th Cir. BAP 1995). We

therefore turn our attention once again to the Tsurukawa

decisions. Doing so, we conclude we must vacate the portion of

the court’s judgment regarding Ms. Schardt and remand for

reconsideration of whether she was involved in a partnership or

agency relationship with Mr. Shart such that his fraudulent

behavior should be imputed to Ms. Schardt for the purposes of

exception to discharge under § 523(a)(2)(A).

The Panel issued two Tsurukawa decisions. In Tsurukawa v.

Nikon Precision, Inc. (In re Tsurukawa), 258 B.R. 192 (9th Cir.
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BAP 2001) (Tsurukawa I), it addressed the exception from discharge

of a $2 million stipulated judgment debt against the debtor under

§ 523(a)(2)(A), based on imputed liability for fraud committed by

the debtor’s husband. We held that "a marital union alone,

without a finding of a partnership or other agency relationship

between spouses, cannot serve as a basis for imputing fraud from

one spouse to the other." Id. at 198. However, in Tsurukawa I

the Panel only inferentially decided whether, based on a finding

that an agency or partnership relationship existed between

spouses, such a finding would support an exception to discharge. 

Id. That question was settled affirmatively in Tsurukawa II,

287 B.R. at 519 (“In a § 523(a)(2)(A) action, one spouse's fraud

may be imputed to the other spouse under agency principles when,

as in this case, they are also business partners.”). 

The Tsurukawa I panel surveyed the case law regarding

imputation of fraud in bankruptcy cases, observing that early

Supreme Court cases were reluctant to impute fraud. Tsurukawa I,

258 B.R. at 196 (discussing Neal v. Clark, 95 U.S. 704, 704

(1877)). In the Clark decision, the Supreme Court interpreted

bankruptcy law excepting debts for fraud as targeting a debtor’s

actual or positive fraud, not fraud implied in law. Clark,

95 U.S. at 709. Because the debtor did not directly cause the

fraud, he was entitled to a discharge of that debt. Id.

However, in Strang v. Bradner, 114 U.S. 555 (1885), the

Supreme Court imputed fraud committed by one partner to other

partners. Id. at 560-561. In Strang, the debtors and the

wrongdoer were partners. The Supreme Court held that because

there was a partnership relationship with the debtors, and because
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the wrongdoing involved a partnership transaction, the wrongdoing

of a partner was properly imputed to the partners, that is, the

debtors.

Relying on Strang, various courts have imputed the fraudulent

conduct of one partner to another in bankruptcy situations. In

BancBoston Mortg. Corp. v. Ledford (In re Ledford), 970 F.2d 1556

(6th Cir. 1992), the court, citing Strang, held that the wrongful

acts of a partner were imputed to an innocent partner for purposes

of § 523(a)(2)(A) when (1) the debtor was a partner, (2) the

debtor's partner committed fraud while acting on behalf of the

partnership in the ordinary course of business, and (3) the

debtor/partner reaped the monetary benefits of the unlawful

conduct. Id. at 1561. 

The Fifth Circuit reached a similar conclusion in Luce v.

First Equip. Leasing Corp. (In re Luce), 960 F.2d 1277 (5th Cir.

1992)(per curiam). In Luce, the court held that a debtor is

liable for a debt incurred by the deception of his spouse/partner

if the debtor benefited monetarily from such deception. Id. at

1283. Indeed, the court viewed "the imputation issue as one about

business partners" and stated that "the concepts of law we employ

do not turn on the nature of the marital relationship, but on the

nature of the business relationship between the [business

partners]." Id. at 1284 n.10. But also see Allison v. Roberts

(In re Allison), 960 F.2d 481 (5th Cir. 1995), where the Fifth

Circuit refused to impute fraud to an innocent spouse where there

was "no basis for applying the agency fraud theory.” Id. at 486.

Importantly, the Ninth Circuit, in La Trattoria, Inc. v.

Lansford (In re Lansford), 822 F.2d 902 (9th Cir. 1987), in dicta
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4 Tsurukawa I and II arose from the same bankruptcy case. 

In Tsurukawa I, the bankruptcy court ruled that the debtor was

liable to creditor based on her knowing participation in, and

benefit from, the fraudulent business of her husband, but

declining to find either fraudulent intent or that she and her

husband were partners in the fraudulent business. On appeal, the

Panel reversed and remanded “for a determination as to whether

(1) an agency relationship existed between Debtor and [her

husband] or (2) Debtor had the requisite fraudulent intent to

deceive[.] Tsurukawa I, 258 B.R. at 197. On remand, the

bankruptcy court concluded that debtor and spouse “were business

partners, inferring their intent to create such a relationship

from their acts” and “found the existence of a principal-agent

relationship.” Tsurukawa II at 520. The Tsurukawa II panel

affirmed. Tsurukawa II, 287 B.R. at 521. The Panel agreed with

the bankruptcy court that the debtor “performed substantial

activities for the business . . . and assumed an active role in

[the company] that goes beyond merely holding a community property

interest in her husband’s business and performing minor services

for that business.” Id. at 522-23.

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has stated that if it were "to rely on strict agency or

partnership principles," it might have been forced to conclude

that a spouse who was not directly liable for fraud was liable for

her husband's fraud. Id. at 904-05.

The year after Tsurukawa I was decided, the Panel decided

Tsurukawa II.4 In its opinion, the Panel expressly adopted the

rule that fraud may be imputed to a spouse under partnership/

agency principles in a § 523(a)(2)(A) action. The Panel’s ruling

has since been accepted both within and outside the Ninth Circuit. 

Hawkins v. Franchise Tax Bd. (In re Hawkins), 430 B.R. 225, 239

n.25 (Bankr. N.D. Cal. 2010) (citing Tsurukawa II for the

proposition that, “One spouse can be vicariously liable for bad

acts of the other spouse committed in furtherance of a business

partnership including both spouses.”), aff’d 447 B.R. 191 (N.D.

Cal. 2011); Stevens v. Antonious (In re Antonious), 358 B.R. 172,

185 (Bankr. E.D. Pa. 2006) (extensively quoting from Tsurukawa II

in adopting the rule); In re Banke, 275 B.R. 317, 329 (Bankr. N.D.
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Iowa 2002) (“If a husband and wife are partners in a business,

separate from the marital relationship, both may be held

responsible for the fraudulent acts of one of them.”).

The teachings of Tsurukawa II can be summarized in three

principles:

First, marriage alone is not sufficient to impute fraud from

one spouse to another. A business partnership between a debtor

and spouse for denial of discharge purposes exists where “the

debtor assumed an active role in the [spouse’s business] that goes

beyond merely holding a community property interest in [the

spouse’s] business and performing minor services in that

business.” Tsurukawa II, 287 B.R. at 521.

Second, “fraud may be imputed to a spouse under

agency/partnership principles in a § 523(a)(2)(A) action.” Id. at

525. Whether an agency or partnership sufficient to justify

imputation of fraud to a spouse exists is a question to fact to be

decided under state law. California law applies in this case. A

California partnership is "an association of two or more persons

to carry on as co-owners a business for profit." CAL. CORP. CODE

§ 16101(7) (2013). Whether parties have entered into a

partnership relationship, rather than some other form of

relationship, is a question of fact “to be determined by the trier

of fact from the evidence and inferences to be drawn therefrom”

and depends on whether they intended to share in the profits,

losses and the management and control of the enterprise. See Bank

of Cal. v. Connolly, 36 Cal. App. 3d 350, 364 (Cal. Ct. App.

1973); Nelson v. Abraham, 177 P.2d 931, 933 (Cal. 1947). Property

co-ownership of any sort, as well as profit-sharing, are factors
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which tend to establish partnership. But see Holmes v. Lerner, 88

Cal. Rptr. 2d 130, 138 (Cal. Ct. App. 1999) (holding that sharing

of profits is one evidence of partnership, but not a required

element).

 Each partner is an agent of the partnership for the purpose

of its business. CAL. CORP. CODE 16301(a) (2013). Each partner

acts as principal for himself or herself and as agent for the

copartners in the transaction of partnership business. Tufts v.

Mann, 2 P.2d 500, 503 (Cal. 1931). In addition, "a general

partner's liability is the same as that of a principal for the

fraud of his agent while acting within the scope of his

authority." Pearson v. Norton, 230 Cal. App. 2d 1, 14-15 (Cal.

Ct. App. 1964) (finding partner-wife liable for partner-husband's 

fraud in sale of partnership property).

Third, it is not necessary to prove “any knowledge on the

‘innocent’ debtor’s part of the fraudulent conduct” for imputed

liability purposes. Id. at 525. Of course, if the debtor

participated directly in the spouse’s fraud, that could be grounds

for finding direct liability rather than imputed liability. Id.

at 527.

In this case, evidence was presented which the bankruptcy

court could review in determining the existence of an agency or

partnership between Debtors sufficient to impute liability for the

fraudulent actions of Mr. Shart to Ms. Schardt. For example, the

evidence showed that: (1) Ms. Schardt may have prepared and mailed

allegedly fraudulent accounting statements to Ms. Haig (testimony

of John Sharp, an assistant to Ms. Haig and former vice

president/general manager with Hilton International);
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5

 At the argument before the Panel, Ms. Schardt suggested

that some of her communications on behalf of her husband may have

been undertaken in her role as his attorney. We have carefully

examined the record before the bankruptcy court and find no

instance where either Ms. Schardt or Mr. Shart asserted such

argument to the bankruptcy court. Barring “exceptional

circumstances,” we will not review on appeal an issue not raised

in the bankruptcy court. Smith v. Arthur Anderson LLP, 421 F.3d

989, 1000 (9th Cir. 2005).

Moreover, we note that, in the bankruptcy court, Ms. Schardt 

frequently denied that she had anything to do with her husband’s

business. When asked by counsel at trial whether she had given

him legal advice, she testified “not ever”:

Q: And even though you’re an attorney and you already

suspected litigation was likely, you didn’t feel any

need to counsel your husband in terms of how — what he

should say in [the letter of December 26].

SCHARDT: You didn’t know my husband. I don’t counsel my

husband what he says.

(continued...)

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(2) Ms. Schardt may have maintained one bank account and check

register for Mr. Shart’s business and assisted in preparation of

tax returns (testimony of Ms. Schardt); (3) Ms. Schardt may have

made handwritten notes on billing disputes with Creditors and

forwarded them to Mr. Shart (testimony of Ms. Schardt);

(4) Ms. Schardt may have reviewed and edited Mr. Shart’s responses

to the billing disputes (testimony of Ms. Schardt);

(5) Ms. Schardt may have directed her bookkeeper to ignore

Ms. Haig’s complaints about her bills (testimony of Ms. Schardt);

(6) Ms. Schardt may have provided advice to Mr. Shart in his

negotiations with Ms. Haig (deposition of Ms. Haig);

(7) Ms. Schardt may have prepared some of the bills sent to

Ms. Haig (deposition of John Sharp); (8) Ms. Schardt signed

letters on Greystone letterhead relating to Greystone business

matters.5
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5(...continued)

Q: All right.

SCHARDT: Not ever.

Trial Tr. 100:23–101:4, May 3, 2012.

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All of the points noted above were referenced in testimony

and other evidence at trial. Of course, evaluating the weight to

be assigned to such evidence is the province of the bankruptcy

court. See Groves v. Pickett, 420 F.2d 1119, 1126 (9th Cir. 1970)

(“Invading the extremely delicate area of passing on the

credibility of witnesses is not our function.”). Perhaps, in this

case, the bankruptcy court considered these points and discounted

them. But on this record, we simply cannot know.

Findings must be made and sufficiently explicit to provide

the appellate court with an understanding of the basis of the

trial court's decision and the grounds upon which the trial court

reached that decision. Keane v. Comm’r of Internal Revenue,

865 F.2d 1088, 1091 (9th Cir. 1989). If the findings are so

conclusory or incomplete that the appellate court is unable to

review them "in the light of the evidence in the record and

applicable legal principles," the appellate court must remand to

the trial court to make the missing findings. Sumner v. San Diego

Urban League, Inc., 681 F.2d 1140, 1142 (9th Cir. 1982).

While the bankruptcy court’s oral comments at the conclusion 

of the trial adequately evidence its finding that Ms. Schardt did

not engage in direct, active fraud, they do not sufficiently

address whether a partnership or agency relationship may have

existed between the spouses here so as to justify imputation of
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liability for the fraud of Mr. Shart to her. We are therefore

left with one option: we must VACATE that portion of the judgment

that determined that Ms. Schardt’s debts to Creditors were

discharged and REMAND this action to the bankruptcy court for

consideration of, and the entry of, fact findings whether she was

involved in a partnership or agency relationship with Mr. Shart

such that his fraudulent behavior should be imputed to Ms. Schardt

for the purposes of exception to discharge under § 523(a)(2)(A) as

set forth in Tsurukawa I and Tsurukawa II.

CONCLUSION

We AFFIRM that portion of the bankruptcy court’s decision

concluding that Ms. Schardt did not directly engage in any

fraudulent conduct. However, because Mr. Shart’s fraud may be

imputed to her, we VACATE that portion of the judgment relating to

Ms. Schardt and REMAND this action to the bankruptcy court for

further proceedings consistent with this decision.