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FILED

AUG 25 2015

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. CC-14-1314-TaKuD

)

JOEL WERNER and ) Bk. No. 8:08-bk-11153-RK*

CATHLEEN WERNER, )

) Adv. No. 8:10-ap-01104-CB

Debtors. )

______________________________)

)

JASON SCOTT WICKAM, )

)

Appellant, )

)

v. ) MEMORANDUM**

)

DEBORAH IVAR; ALAN IVAR; )

DAVID ROCHE, )

)

Appellees. )

______________________________)

Argued and Submitted on June 18, 2015

at Pasadena, California

Filed - August 25, 2015

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Catherine E. Bauer, Bankruptcy Judge, Presiding

 

* The bankruptcy court consolidated four related adversary

proceedings; the lead was designated as 08:08-ap-01241-RK,

RSD Group Inc., et al. v. Werner (In re Werner). As a result,

the Werner bankruptcy case is designated as the bankruptcy case

on appeal, although neither Joel Werner nor Cathleen Werner are

parties to the appeal.

** 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 8024-1(c)(2).
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Appearances: Robert R. Anderson argued for appellant; Michael

John Carras of Conforti & Carras argued for

appellees.

 

Before: TAYLOR, DUNN, and KURTZ, Bankruptcy Judges.

INTRODUCTION

In an adversary proceeding commenced against debtor Jason

Scott Wickam, plaintiffs Alan Ivar, Deborah Ivar, and David

Roche alleged that the Debtor made misrepresentations and

fraudulently concealed material information, which induced them

to invest in an ultimately unsuccessful real estate development

project. The Ivars and Roche sought a determination from the

bankruptcy court that their particular investments were

nondischargeable under § 523(a)(2)(A).1 After trial, the

bankruptcy court entered a judgment in favor of the Ivars and

Roche, determining the amount of $1,016,000 (plus post-judgment

interest) nondischargeable.

As to the judgment, we conclude that the bankruptcy court

did not make sufficient or complete findings with respect to

each investment and each element of § 523(a)(2)(A). Therefore,

we VACATE the judgment and REMAND to the bankruptcy court with

instructions that it make additional findings. The Debtor also

argues that, in contravention of § 523(a)(2)(A), the bankruptcy

court improperly relied on statements relating to his financial

condition. We disagree and AFFIRM the bankruptcy court in this

1 Unless otherwise indicated, all chapter and section

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

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regard.

FACTS

In 2005, the Debtor and Joel Werner formed Connexian

Investments, Inc. for the purposes of developing, selling, and

marketing high-end “spec” homes in Southern California and

Colorado. Connexian’s first project was Coral Blue, the

construction and development of four lots (the “Properties”) in

Southern California (the “Coral Blue Project”). In early 2006,

it contracted to purchase the Properties for $3,825,000. But,

it lacked the funds necessary to complete the purchase and

obtained extensions to close escrow. 

The Debtor and Werner also formed Coral Blue, LLC,

specifically for the Coral Blue Project. And Connexian retained

RSD Group, Inc. to raise equity capital and financing for the

project. Through RSD, Connexian pursued potential financing

from Point Center Financial, a self-described “hard money

lender.” 

Eventually, Point Center loaned Connexian $6,587,100 to

fund the purchase of the Properties and the construction of two

spec houses. To consummate the loan, the Debtor and Werner

executed a funding agreement on behalf of Connexian, which

contained a truncated loan term and a 11.5% interest rate. 

Connexian finally completed its purchase of the Properties in

September of 2006. The recorded deed of trust in favor of Point

Center reflected that Connexian owned the Properties. 

Consistent with its charge to raise equity, in August 2006,

RSD also introduced the project to the Ivars and coordinated a

meeting between the Ivars and the Debtor and Werner. Both the

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Ivars and Roche, who was acquainted with the Debtor through

prior construction projects, soon made investments.

On August 28, 2006, the Ivars made an initial investment of

$216,000 in the Coral Blue Project (“Ivars’ First Investment”). 

They contemporaneously executed a Coral Blue, LLC operating

agreement dated August 18, 2006 (“Ivars’ LLC Agreement”),2 which

purported to give the Ivars 216,000 governance units in Coral

Blue, LLC. In pertinent part, the agreement contained the

following provision: 

2.6 BUSINESS AND PURPOSE OF THE LLC. The purpose of

the LLC is to engage in any lawful act or activities

for which a limited liability company may be organized

under the Statute and specifically the purchasing,

developing, selling, and managing four residential

properties identified as Lots 23, 26, 27 and 28,

located in Covenant Hills, Ladera Ranch (such

business, including the provision of services with

respect to the products of the LLC, is herein referred

to as the “Business of the LLC”).

(“Section 2.6”) (second emphasis added).

Apparently, in exchange for their investment, the Ivars

received from Connexian an unsecured promissory note in the

amount of $216,000. The note matured in one year, required a

balloon payment, and carried a 25% annual interest rate. 

Separately, on September 12, 2006, Roche completed a

$200,000 investment in the Coral Blue Project. He also executed

a Coral Blue, LLC operating agreement, this one dated

2 The Ivars also executed a Coral Blue, LLC subscription

agreement, which purported to give them 216,000 membership units

in the company.

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September 13, 2006 (“Roche LLC Agreement”).3

Although dated only 26 days after the Ivars’ LLC Agreement,

the Roche LLC Agreement contained material differences. They

included a completely different schedule of LLC members; the

membership list in Roche’s agreement contained only himself, the

Debtor, and Werner - there was no reference to the Ivars. And,

unlike the Ivars’ LLC Agreement, the Roche LLC Agreement did not

contain the Section 2.6 language; in fact, there was no

reference to the Properties at all. 

A few months later, the Ivars agreed to further investment

in the Coral Blue Project. Apparently, they understood that

these funds would be used to develop lots 26 and 27. According

to the Ivars, the second investment consisted of two

installments: $200,000 in December 2006 and $400,000 in April

2007 (jointly, “Ivars’ Second Investment”). 

In connection with the first installment, the Ivars

received a “straight note” from Connexian in the amount of

$200,000. Pursuant to broker escrow instructions executed by

Alan Ivar and Werner, the $200,000 was also a 30-day loan to

Connexian. The “loan” was secured by a deed of trust

encumbering lots 26 and 27; the deed of trust, however, was “to

be held unrecorded until maturity or satisfaction . . . .” 

As to the second installment, Alan Ivar and Werner (on

behalf of Connexian) executed an “investment breakdown”

worksheet dated April 18, 2007. The worksheet reflected a

3 Like the Ivars, Roche also executed a Coral Blue, LLC

subscription agreement, which allegedly gave him 200,000

membership units in the company.

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proposed rate of interest of 25% to the Ivars, which the Ivars

later attested referred to 25% of the profits from the

construction of lots 26 and 27. 

In August 2007, Connexian obtained a second loan from Point

Center, in the amount of $6.5 million dollars. According to

Connexian, this loan was intended for the construction on lots

26 and 27. The fall of 2007 then brought hurried efforts to

refinance the first Point Center loan. Connexian, however, was

ultimately unsuccessful in these efforts, and the first Point

Center loan matured without repayment. 

Point Center then learned that Connexian had encumbered the

Properties with junior liens, in express contravention of the

terms of its loans. It notified Connexian that it was in

default of the terms of the second loan and that, as a result,

Point Center was accelerating the loan balance and required

immediate payment of the second loan in full. Connexian could

not repay either of the Point Center loans, and Point Center

ultimately foreclosed on the Properties. None of the Properties

had been fully developed, much less marketed or sold. Connexian

ceased doing business in March 2008.

Next, the Ivars and Roche joined forces and commenced an

adversary proceeding against the Debtor.4 The adversary

complaint alleged fraud in the inducement and sought to except

4 The Ivars and Roche also commenced an action against the

Debtor in California state court, where they obtained a default

judgment. That judgment was later vacated, following the

Debtor’s bankruptcy filing.

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their investments from discharge under § 523(a)(2)(A).5

Following a successful petition for a transfer of venue to the

Central District of California, the bankruptcy court

consolidated four related adversary proceedings, including the

proceeding against the Debtor.6

During the one-day trial, counsel for the Ivars and Roche

introduced two prior tax returns and the Debtor’s statements of

financial affairs, as initially filed and twice amended, for the

purposes of impeachment. The bankruptcy court admitted the

documents as impeachment evidence. It then took the matter

under submission.

The bankruptcy court subsequently entered an amended

statement of decision. It found that Connexian’s purchase of

the Properties expressly contravened Section 2.6 of the Coral

Blue, LLC operating agreement. And it found the Debtor not

credible as a witness, stating that it instead believed the

plaintiffs’ version of the events. It thereafter entered a

judgment in favor of the Ivars for $816,000 (plus post-judgment

interest), and Roche for $200,000 (plus post-judgment interest). 

The Debtor timely appealed.

JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

5 The adversary complaint also alleged a claim under

§ 523(a)(4). The bankruptcy court later determined that because

it found in favor of the plaintiffs on their § 523(a)(2)(A)

claim, there was no need for it to rule on the alternate claim

under § 523(a)(4).

6 The parties to the other proceedings later settled,

leaving only the proceeding against the Debtor for trial.

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§§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C.

§ 158.

ISSUES7

1. Whether the bankruptcy court erred in excepting the

investments from discharge under § 523(a)(2)(A).

2. Whether the bankruptcy court erred by considering the

Debtor’s prior tax returns and statements of financial

affairs to find that he was not credible as a witness.

STANDARD OF REVIEW

In appealing from a nondischargeability determination, we

review the bankruptcy court’s findings of fact for clear error

and its conclusions of law de novo. Oney v. Weinberg

(In re Weinberg), 410 B.R. 19, 28 (9th Cir. BAP 2009), aff’d,

407 Fed. App’x. 176 (9th Cir. 2010); see also Carrillo v. Su

(In re Su), 290 F.3d 1140, 1142 (9th Cir. 2002)(“Whether a claim

is nondischargeable presents mixed issues of law and fact and is

reviewed de novo.”).

DISCUSSION

Section 523(a)(2)(A) excepts from discharge a debt “for

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

refinancing of credit” obtained by “false pretenses, a false

representation, or actual fraud, other than a statement

respecting the debtor’s . . . financial condition.” To prevail

on such a claim, a creditor must prove: (1) misrepresentation,

7 On appeal, both parties advance arguments as to the

Debtor’s alleged omissions of the terms of the first loan with

Point Center. In its decision, however, the bankruptcy court

made no findings or determination on this theory of fraud. 

Thus, we do not address those arguments.

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fraudulent omission or deceptive conduct by the debtor; (2) the

debtor’s knowledge of the falsity or deceptiveness of his

representation or omission; (3) an intent to deceive;

(4) justifiable reliance by the creditor on the debtor’s

representation 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); In re Weinberg, 410 B.R. at 35. The creditor

must prove each element by a preponderance of the evidence. 

Grogan v. Garner, 498 U.S. 279, 284 (1991).

 A principal purpose of the Bankruptcy Code is providing

the “honest but unfortunate debtor” with a fresh start. 

Danielson v. Flores (In re Flores), 735 F.3d 855, 861 (9th Cir.

2013). As a result, the § 523 exceptions to discharge are

narrowly interpreted in favor of debtors. Mele v. Mele

(In re Mele), 501 B.R. 357, 363 (9th Cir. BAP 2013).

A. As to each investment, the bankruptcy court failed to make

adequate findings on each element of § 523(a)(2)(A).

Civil Rule 52(a) (incorporated into adversary proceedings

by Rule 7052) instructs that “[i]n an action tried on the facts

without a jury, . . . the court must find the facts specially

and state its conclusions of law separately.” These findings

and conclusions may be stated on the record or in a memorandum

decision. The findings must be sufficient to indicate the

factual basis for the trial court’s ultimate conclusion. Unt v.

Aerospace Corp., 765 F.2d 1440, 1444 (9th Cir. 1985). And, the

findings must be sufficiently explicit such that the appellate

court has a clear understanding of the basis of the trial

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court’s decision and can determine the grounds on which the

trial court reached its decision. Mattel, Inc. v. Walking

Mountain Prods., 353 F.3d 792, 815 (9th Cir. 2003); Unt,

765 F.2d at 1444; Veal v. Am. Home Mortg. Servicing, Inc.

(In re Veal), 450 B.R. 897, 919 (9th Cir. BAP 2011). Even when

a bankruptcy court does not make formal findings, however, we

may proceed with review “if a complete understanding of the

issues may be obtained from the record as a whole or if there

can be no genuine dispute about omitted findings.” Id. at

919-20. 

Here, there were three different investment transactions

involving two unrelated parties; the Ivars and Roche learned of

one another and joined forces only after they were shorn of

their investments. Nonetheless, the bankruptcy court’s sparse

findings lump the transactions together. This is problematic

because the basis for its one clear finding of misrepresentation

applied only to the Ivars’ First Investment. Also problematic

is the complete absence of findings on three of § 523(a)(2)(A)’s

required elements. 

The bankruptcy court found at least one, but possibly three

misrepresentations. First, it found that despite Coral Blue,

LLC’s “clear purpose” of buying the Properties as set forth in

its operating agreement, Coral Blue, LLC did not, in fact, buy

the Properties – Connexian did. This, it found, contravened the

Section 2.6 language in the Ivars’ LLC Agreement. Section 2.6,

however, did not actually state that Coral Blue, LLC would hold

title to the Properties. And nothing else in the agreement made

reference to property ownership.

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Significantly more problematic, however, is that

Section 2.6 existed only in the Ivars’ LLC Agreement. Although

both the Roche LLC Agreement and the Ivars’ Coral Blue II, LLC

Operating Agreement contained a section discussing the business

and purpose of the LLC’s, only the Section 2.6 in the Ivars’ LLC

Agreement made any reference to the Properties. Therefore, the

emphasized Section 2.6 language relied upon by the bankruptcy

court pertained only to the Ivars’ First Investment – not to the

Roche Investment and not to the Ivars’ Second Investment. To

the extent it found that this was a misrepresentation as to all

three investments, it appears to be clear error.

Unlike the Ivars, however, Roche provided additional

evidence on this issue. In his declaration, Roche attested that

he was informed that Coral Blue, LLC would purchase the

Properties. But, he did not identify who made that

representation to him. And his testimony at trial did not touch

upon the issue. To the extent that Werner made the

representation, the bankruptcy court would need to make the

necessary findings as required by this Panel’s decision in

Sachan v. Huh (In re Huh), 506 B.R. 257 (9th Cir. BAP 2014),8 so

as to impute Werner’s alleged misrepresentation (if any) to the

Debtor.9

8 In re Huh was filed on March 11, 2014; this was after

the adversary trial but before the bankruptcy court issued its

amended statement of decision.

9 There is also ambiguity as to whether the bankruptcy

court admitted Werner’s declaration into evidence. Insofar as

it was admitted, the bankruptcy court did not resolve contrary

(continued...)

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Second, the bankruptcy court found that the Ivars and Roche

were led to believe that the Debtor was an experienced real

estate developer, which it determined to be untrue. On this

record, however, we are unclear as to whether it found that this

was a representation made by the Debtor; it made no findings as

to who made the representation to the Ivars and Roche or when. 

Moreover, the record does not support this finding cleanly;

there was no dispute that RSD introduced the Ivars to the Coral

Blue Project (and, by extension, the Debtor). And, Roche was

already acquainted with the Debtor through prior construction

projects.

Third, the bankruptcy court found that, contrary to the

loan documents related to Point Center’s senior lien, “a junior

lien was [created and] recorded against the Properties . . .

without Point Center’s prior knowledge or consent and

constituted a serious breach of the terms of the loan secured by

the senior lien on the Properties.” Again, we are unclear as to

whether the bankruptcy court determined that this was a

misrepresentation or omission. Insofar as it did, it is unclear

(...continued)

evidence contained therein; namely, that Werner did not make any

representation that Coral Blue, LLC would own the Properties.

The adversary proceeding docket shows that, prior to trial,

the Ivars and Roche moved to strike Werner’s declaration. There

was no ruling on this request prior to trial. But, at the

conclusion of trial, it appears that the bankruptcy court

admitted into evidence the declarations of witnesses to the

extent they contained references to exhibits. The record is

unclear as to whether this referred only to the declarations of

witnesses who testified at trial. In its decision, the

bankruptcy court made no reference one way or another to

Werner’s declaration.

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how this related to the investments made by the Ivars and Roche. 

The bankruptcy court then broadly found that “the

misrepresentations made by [the Debtor] proximately caused

Plaintiffs’ [losses].” It did not, however, particularly

explain its finding. Again, that is a concern here, given the

existence of some anomalous facts.

As noted by the bankruptcy court, Connexian held title to

the Properties, rather than Coral Blue, LLC. But, the Ivars

received promissory notes only from Connexian with respect to

their investments. And, in connection with the Second

Investment, the Ivars also received a deed of trust from

Connexian securing the promissory note. To the extent the

pertinent misrepresentation was that Coral Blue, LLC would hold

title to the Properties, the existence of these notes and deed

of trust bear some relevance on the issue of proximate cause and

reliance. 

Finally, the bankruptcy court made no findings as to the

Debtor’s knowledge of falsity and intent to deceive or the

plaintiffs’ justifiable reliance. 

Additional findings are necessary here. That the

bankruptcy court found the Debtor not credible and, conversely,

accepted the plaintiffs’ version of events, did not absolve it

of the requirement to make specific findings, particularly in a

nondischargeability proceeding and given this record. 

B. The bankruptcy court did not err by considering admissible

impeachment evidence to find that the Debtor was not

credible as a witness.

The Debtor also contests the bankruptcy court’s reliance on

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prior tax returns and his statements of financial affairs, as

initially filed and twice amended (collectively, the “SOFAs”),

in determining that he was not a credible witness. He argues

that because these documents constituted statements relating to

his financial condition, the bankruptcy court could not rely on

them in assessing his credibility as a witness.

We disagree. While it is true that § 523(a)(2)(A) excludes

statements respecting a debtor’s financial condition, that

subsection does not speak to the use of admissible impeachment

evidence. Here, the record shows that the bankruptcy court

admitted the documents into evidence to impeach the Debtor’s

credibility as a witness. 

At trial, the bankruptcy court permitted counsel for the

Ivars and Roche to cross-examine the Debtor as to

inconsistencies between prior tax returns and his SOFAs. The

Debtor was given the opportunity to explain. And, counsel for

the Ivars and Roche expressly offered the documents as

impeachment evidence. 

Contrary to the Debtor’s argument, the bankruptcy court did

not rely on the tax returns and SOFAs as the misrepresentations

themselves. Instead, it found that the evidence showed that the

Debtor was not a successful real estate developer. The

bankruptcy court ultimately found that the Debtor was not

credible based on the cumulative evidence before it, including

the impeachment evidence. We discern no error in this regard. 

CONCLUSION

We VACATE the judgment and REMAND to the bankruptcy court

with instructions to make adequate findings. But, to the extent

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that the bankruptcy court relied on impeachment evidence

respecting the Debtor’s financial condition, we AFFIRM.

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