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FILED

OCT 08 2014

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NOT FOR PUBLICATION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-13-1607-TaSpD 

)

JENNIFER CHAN, ) Bk. No. 09-24636-BR

)

Debtor. ) Adv. No. 09-02187-BR

_____________________________ )

)

JENNIFER CHAN, )

)

Appellant, )

)

v. ) MEMORANDUM*

)

DRM ENTERPRISES, LLC, )

)

Appellee. )

 )

Submitted Without Argument**

on September 18, 2014

Filed – October 8, 2014

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Barry Russell, Bankruptcy Judge, Presiding

 

Appearances: David Brian Lally on brief for appellant Jennifer

Chan; Raymond H. Aver on brief for appellee DRM

Enterprises, LLC.

 

* 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.

** On June 17, 2014, this Panel entered an order deeming

this appeal suitable for submission on the briefs.
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Before: TAYLOR, DUNN, and SPRAKER,*** Bankruptcy Judges.

Debtor Jennifer Chan appeals from the bankruptcy court’s

judgment in favor of creditor DRM Enterprises, LLC (“DRM”) for

false representations that her corporation, CA Price Depot, Inc.

(“Price Depot”), had the ability to repay certain advances made

by DRM in December 2008, and that such debt was nondischargeable

under § 523(a)(2)(A).1 We AFFIRM.

FACTS

The Debtor was an officer, director, and sole shareholder of

Price Depot, a regional restaurant distributor, and two related

corporations. Price Depot began doing business with DRM, a

poultry products broker, sometime between 1998 and 2000. The

Debtor and Ronald Richter, Jr., eventually chief executive

officer of DRM, were acquainted as a result of DRM’s prior

business relationship with the Debtor’s family. They eventually

became close friends.

Beginning in 2000, Price Depot, through Debtor, and DRM,

through Richter, entered into an arrangement where, at the

Debtor’s request, DRM advanced money to Price Depot by wire

transfer to its bank account; in effect, the advances were

extremely short-term non-interest bearing loans. Price Depot

repaid DRM by issuing post-dated checks.

In July 2008, DRM, through Richter, and at Debtor’s request,

*** The Honorable Gary A. Spraker, Chief Bankruptcy Judge for

the District of Alaska, sitting by designation.

1 Unless otherwise indicated, all chapter and section 

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

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agreed to further financially assist Price Depot. To help Price

Depot with accounts payable issues, DRM agreed to purchase nonpoultry products from other brokers on Price Depot’s behalf or to

advance payment on some of the Price Depot accounts payable. In

return, Price Depot agreed to repay DRM the amount paid or

advanced, plus a two percent fee. DRM also continued to broker

poultry products to Price Depot and to make short term loan

advances to Price Depot at the Debtor’s request. 

Starting in September 2008, the Debtor began requesting

incrementally larger and more frequent short term loan advances

for Price Depot. DRM provided the requested advances, apparently

with few questions asked. As the Debtor’s requests increased,

however, the Debtor also caused Price Depot to provide DRM with a

series of blank checks already signed by the Debtor, so that

Richter could deposit repayment checks with greater ease. 

The first weeks of December 2008, however, proved to be a

pivotal point in the relationship. The Debtor requested – and

obtained – even more substantial advances for Price Depot within

the first four days of the month. DRM simultaneously deposited a

number of Price Depot checks for advances then owing. And, the

Debtor caused Price Depot to make three consecutive wire

transfers to DRM in the total amount of $250,000 during the four

day period. Upon receipt, however, and based on the Debtor’s

request, DRM immediately wired the $250,000 back to Price Depot

as part of the advanced funds. 

On December 9, 2008, DRM received notices of insufficient

funds as to all of the repayment checks deposited the week

before. The Debtor offered repayment to DRM of $20,000 a day to

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resolve the insufficient funds issue. She, in fact, caused

repayment to DRM of $70,000 over the course of the next month. 

But, these payments eventually stopped, and the Debtor stopped

payment on the rest of the blank Price Depot checks in DRM’s

possession.

The Debtor filed a chapter 11 bankruptcy case in June 2009. 

Three months later, DRM commenced the nondischargeability action

against the Debtor, seeking to except its claim from discharge

under § 523(a)(2)(A).

At trial, the bankruptcy court received testimony from the

Debtor, Richter, and DRM expert witness, Michael Borenstein. The

Debtor testified that Richter and DRM were aware of Price Depot’s

rocky financial situation. According to the Debtor, she told

Richter to hold off on deposit of the returned checks because

Price Depot continued to experience financial problems and she

simply needed time “to make good on those checks.”

Richter’s testimony was the complete opposite; he attested

that he was never made aware of Price Depot’s dire financial

issues, that the Debtor constantly reassured him that DRM would

be repaid, and that, until the checks were returned for

insufficient funds, there were never repayment issues. He

further testified that the Debtor never told him to hold deposit

of the checks. Instead, it was his testimony that he deposited

checks only after he spoke to the Debtor and she verbally

authorized it.

Borenstein’s testimony was brief: he stated that he was a

certified public accountant who examined Price Depot’s ability,

at the end of 2008, to repay the DRM advances then owing. He

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concluded after examining bank accounts and balance sheets that

the Debtor’s three businesses were collectively overdrawn

$81,567.36 at the beginning of October 2008, which increased to

$373,290.28 just two months later, even after DRM’s significant

cash advances. Borenstein, thus, opined that during the final

months of 2008, Price Depot lacked the ability to repay DRM.

On cross-examination, Borenstein conceded that he was

unaware of certain facts in conducting his analysis, i.e., the

returned Price Depot checks and the Debtor’s $250,000 wire

transfer to DRM. The Debtor, thus, moved to strike Borenstein’s

testimony and evidence; the bankruptcy court denied the motion. 

At the conclusion of trial and after post-trial briefing,

the bankruptcy court orally ruled on the record in favor of DRM. 

It determined that DRM established, by a preponderance of the

evidence, each element of § 523(a)(2)(A). The bankruptcy court

subsequently entered a judgment in DRM’s favor and deemed the

judgment nondischargeable. The Debtor timely appealed.

JURISDICTION

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

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

§ 158.

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ISSUES2

1. Did the bankruptcy court err in determining that the debt

was nondischargeable under § 523(a)(2)(A)? 

2. Did the bankruptcy court abuse its discretion by admitting

Borenstein’s testimony and evidence?

STANDARDS OF REVIEW

We review de novo whether a debt is excepted from discharge

under § 523(a)(2)(A). Wank v. Gordon (In re Wank), 505 B.R. 878,

886 (9th Cir. BAP 2014). Whether there has been proof of an

essential element of § 523(a)(2)(A) is a factual determination

reviewed for clear error. Am. Express Travel Related Servs. Co.,

Inc. v. Vinhnee (In re Vee Vinhnee), 336 B.R. 437, 442-43 (9th

Cir. BAP 2005).

We review evidentiary rulings for an abuse of discretion

and, even then, only reverse if any error would have been

prejudicial to the appellant. Van Zandt v. Mbunda

(In re Mbunda), 484 B.R. 344, 351 (9th Cir. BAP 2012). A

2 The Debtor also identified the following issues on appeal:

whether the bankruptcy court abused its discretion by “forcing”

her to testify at trial when DRM failed to provide an

interpreter; whether the bankruptcy court clearly erred in

finding DRM’s witness more credible than the Debtor when she has

limited English proficiency; and whether the bankruptcy court

considered the Debtor’s $70,000 payment to DRM in determining the

amount of damages. 

None of these issues were specifically and distinctly

addressed in the Debtor’s brief and, thus, we do not consider

these issues on appeal. See Padgett v. Wright, 587 F.3d 983, 986

n.2 (9th Cir. 2009) (appellate court “will not consider matters

on appeal that are not specifically and distinctly raised and

argued in appellant’s opening brief.”) (internal citation

omitted).

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bankruptcy court abuses its discretion if it applies the wrong

legal standard, misapplies the correct legal standard, or if its

factual findings are illogical, implausible or without support in

inferences that may be drawn from the facts in the record. See

TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th

Cir. 2011) (citing United States v. Hinkson, 585 F.3d 1247, 1262

(9th Cir. 2009) (en banc)).

We may affirm on any basis in the record. Caviata Attached

Homes, LLC v. U.S. Bank, N.A. (In re Caviata Attached Homes,

LLC), 481 B.R. 34, 44 (9th Cir. BAP 2012).

DISCUSSION

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

A debtor is not discharged in bankruptcy from any debt

obtained by “false pretenses, a false representation, or actual

fraud.” 11 U.S.C. § 523(a)(2)(A). The creditor bears the burden

of demonstrating, by a preponderance of the evidence, each of the

following five elements: (1) misrepresentation, fraudulent

omission or deceptive conduct by the debtor; (2) knowledge of the

falsity or deceptiveness of the representation or omission;

(3) an intent to deceive; (4) the creditor’s justifiable reliance

on the representation or conduct; and (5) damage to the creditor

proximately caused by reliance on the debtor’s representations or

conduct.3 Ghomeshi v. Sabban (In re Sabban), 600 F.3d 1219, 1222

3 In her statement of issues in the opening brief, the

Debtor challenges whether there was sufficient, admissible

evidence supporting each element of § 523(a)(2)(A). She does

not, however, specifically and distinctly address the fifth

element of damages in her brief and, thus, we do not consider it

on appeal. See Padgett, 587 F.3d at 986 n.2.

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(9th Cir. 2010).

1. Misrepresentation.

The bankruptcy court first found that the Debtor

misrepresented that Price Depot had the ability to repay DRM on

account of the advances made in the final months of 2008. In so

determining, the bankruptcy court found Richter’s testimony more

credible than the Debtor’s on two points: (1) whether the Debtor

adequately disclosed her businesses’ financial problems during

that time period; and (2) whether the Debtor told Richter to hold

his deposit of the checks. It reasoned that the Debtor’s version

of events made “absolutely no sense.” Hr’g Tr. (Nov. 27, 2013)

at 33:20. Noting that DRM had possession of the $250,000 wire

transfers during the first week of December, it questioned why

DRM would relinquish this money and then continue the advances if

the Debtor actually told Richter to hold the checks for deposit

and disclosed the full extent of Price Depot’s precarious

financial situation.

Viewed through the deferential lens required on appellate

review, these findings are not clearly erroneous. The bankruptcy

court’s skepticism of the Debtor’s allegations of full disclosure

was reasonable. Its finding that a misrepresentation occurred is

bolstered by the expert testimony establishing the overdrawn

condition of Price Depot and the Debtor’s other businesses, and

the lack of contrary evidence of the financial situation from the

Debtor. The findings also were based heavily on the bankruptcy

court’s determinations of witness credibility to which we afford

significant deference. See Hussain v. Malik (In re Hussain),

508 B.R. 417, 425 (9th Cir. BAP 2014) (the bankruptcy court is in

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the best position to evaluate the documentary and testimonial

evidence). 

2. Knowledge.

Next, the bankruptcy court found that, at a minimum, at the

time the Debtor told Richter to deposit the last set of checks,

she knew that DRM would not be repaid. In its estimation, it was

likely that the Debtor was aware of the inability to pay in late

October 2008; but, giving her the benefit of the doubt, the

bankruptcy court determined that the Debtor had the requisite

knowledge in early December.

Again, the bankruptcy court’s finding is not clearly

erroneous. The evidence before the bankruptcy court showed that

the bank accounts for Price Depot and the Debtor’s other two

businesses were collectively overdrawn in late October and were

increasingly overdrawn through the end of December 2008. And,

the Debtor herself testified that, although Price Depot was

struggling financially and she needed more time to “make good on

the checks,” she continuously requested greater and more frequent

advances from DRM.

3. Intent to deceive.

The bankruptcy court found that the Debtor intended to

deceive DRM when she failed to inform it of the inability to

repay the advances in December of 2008. Its finding is not

clearly erroneous; it is neither illogical nor implausible to

infer, as the bankruptcy court did here, that the Debtor’s

failure to disclose the full extent of Price Depot’s financial

troubles was purposely done in order to continue the available

and critically required flow of cash from DRM. And, again, the

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bankruptcy court’s finding was heavily intertwined with its

credibility determinations, to which we afford significant

deference. See In re Hussain, 508 B.R. at 425. We, thus,

decline to second guess the bankruptcy court’s plausible view of

the evidence. See id. (where there are two permissible views of

the evidence, the bankruptcy court’s choice between them cannot

be clearly erroneous).

4. Justifiable reliance.

In determining justifiable reliance, the bankruptcy court

“must look to all of the circumstances surrounding the particular

transaction, and must particularly consider the subjective effect

of those circumstances upon the creditor.” In re Wank, 505 B.R.

at 894. 

The bankruptcy court here found that Richter justifiably

relied on the Debtor’s representations. It noted that Richter

was aware that the Debtor’s business operation “was sort of a

balancing act . . . [,] trying to get better credit . . . [,]

better terms.” Hr’g Tr. (Nov. 27, 2013) at 32:18-20. It also

determined that Richter had simply tried to help a very close

friend and, thus, he had not “stuck his head in the sand” as to

the potential signs of financial distress. But, the bankruptcy

court also found that Richter was a businessman who expected

repayment and that had he known the extent of the Debtor’s

cumulative financial problems, he would not have caused DRM to

advance additional money.

The record confirms that long-term personal and business

relationship between the parties; a relationship grounded in

friendship and trust. Unfortunately, a decade plus of friendship

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and trust quickly cratered at the end of 2008. Had the long-term

relationship not existed, the Debtor’s requests for larger and

more frequent advances may have raised some legitimate red flags. 

But given the relationship and history of repayment over a number

of years, the bankruptcy court did not clearly err in finding

that DRM (through Richter) developed, fairly, a trust in the

Debtor that she would make good on the advances. Coupled with

the evidentiary record and affording due deference to the

bankruptcy court’s credibility determinations, we determine that

the bankruptcy court did not clearly err in finding justifiable

reliance.

Based on the foregoing, the Debtor has not shown that the

bankruptcy court’s findings were clearly erroneous. We, thus,

conclude that the bankruptcy court did not err in determining

that the debt owed to DRM was excepted from discharge under

§ 523(a)(2)(A).

B. Expert witness testimony and evidence.

The Debtor also argues that DRM’s expert witness lacked

credibility because he was unaware of key facts: the Price Depot

checks returned for insufficient funds and the Debtor’s $250,000

wire transfer to DRM during the first week of December 2008. She

contends that Borenstein lacked complete financial data in

rendering his analysis and, thus, challenges his opinion that

Price Depot could not repay DRM. 

We will reverse a bankruptcy court’s evidentiary ruling only

if it abused its discretion and the error was prejudicial to the

appellant. See In re Mbunda, 484 B.R. at 351. On this record,

there is no indication that the bankruptcy court abused its

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discretion. As it indicated at trial, the Debtor’s motion to

strike Borenstein’s testimony related to credibility, not whether

the testimony was admissible. 

And, although Borenstein acknowledged at trial that he was

unaware of certain facts when he conducted his analysis, he

pointed out that his analysis was limited to “inflows, the wire

transfers in and the intercompany transfers.” As both the Debtor

and Richter testified, the $250,000 in wire transfers were not

intended as repayment to DRM; DRM immediately returned the funds. 

In sum, the Debtor has not shown an abuse of discretion as to the

evidentiary ruling in relation to the Borenstein testimony.

CONCLUSION

Based on the foregoing, we AFFIRM the bankruptcy court.

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