Court Opinion

ID: 4192984
Source: CourtListenerOpinion
Date Created: 2017-08-03 17:03:38.376622+00
Date Added: 2024-06-11T14:40:28.771289
License: Public Domain

FILED
                                                             OCT 08 2014
 1                          NOT FOR PUBLICATION
                                                         SUSAN M. SPRAUL, CLERK
                                                           U.S. BKCY. APP. PANEL
 2                                                         OF THE NINTH CIRCUIT

 3                   UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                             OF THE NINTH CIRCUIT
 5   In re:                        )       BAP No.     CC-13-1607-TaSpD
                                   )
 6   JENNIFER CHAN,                )       Bk. No.     09-24636-BR
                                   )
 7             Debtor.             )       Adv. No.    09-02187-BR
     _____________________________ )
 8                                 )
     JENNIFER CHAN,                )
 9                                 )
               Appellant,          )
10                                 )
     v.                            )       MEMORANDUM*
11                                 )
     DRM ENTERPRISES, LLC,         )
12                                 )
               Appellee.           )
13                                 )
14                         Submitted Without Argument**
                              on September 18, 2014
15
                             Filed – October 8, 2014
16
                  Appeal from the United States Bankruptcy Court
17                    for the Central District of California
18             Honorable Barry Russell, Bankruptcy Judge, Presiding
19
     Appearances:      David Brian Lally on brief for appellant Jennifer
20                     Chan; Raymond H. Aver on brief for appellee DRM
                       Enterprises, LLC.
21
22
23
24        *
            This disposition is not appropriate for publication.
25   Although it may be cited for whatever persuasive value it may
     have (see Fed. R. App. P. 32.1), it has no precedential value.
26   See 9th Cir. BAP Rule 8013-1.
27        **
            On June 17, 2014, this Panel entered an order deeming
28   this appeal suitable for submission on the briefs.
 1   Before:    TAYLOR, DUNN, and SPRAKER,*** Bankruptcy Judges.
 2
 3        Debtor Jennifer Chan appeals from the bankruptcy court’s
 4   judgment in favor of creditor DRM Enterprises, LLC (“DRM”) for
 5   false representations that her corporation, CA Price Depot, Inc.
 6   (“Price Depot”), had the ability to repay certain advances made
 7   by DRM in December 2008, and that such debt was nondischargeable
 8   under § 523(a)(2)(A).1   We AFFIRM.
 9                                   FACTS
10        The Debtor was an officer, director, and sole shareholder of
11   Price Depot, a regional restaurant distributor, and two related
12   corporations.    Price Depot began doing business with DRM, a
13   poultry products broker, sometime between 1998 and 2000.      The
14   Debtor and Ronald Richter, Jr., eventually chief executive
15   officer of DRM, were acquainted as a result of DRM’s prior
16   business relationship with the Debtor’s family.     They eventually
17   became close friends.
18        Beginning in 2000, Price Depot, through Debtor, and DRM,
19   through Richter, entered into an arrangement where, at the
20   Debtor’s request, DRM advanced money to Price Depot by wire
21   transfer to its bank account; in effect, the advances were
22   extremely short-term non-interest bearing loans.     Price Depot
23   repaid DRM by issuing post-dated checks.
24        In July 2008, DRM, through Richter, and at Debtor’s request,
25
          ***
             The Honorable Gary A. Spraker, Chief Bankruptcy Judge for
26
     the District of Alaska, sitting by designation.
27        1
            Unless otherwise indicated, all chapter and section
28   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.

                                       2
 1   agreed to further financially assist Price Depot.   To help Price
 2   Depot with accounts payable issues, DRM agreed to purchase non-
 3   poultry products from other brokers on Price Depot’s behalf or to
 4   advance payment on some of the Price Depot accounts payable.     In
 5   return, Price Depot agreed to repay DRM the amount paid or
 6   advanced, plus a two percent fee.    DRM also continued to broker
 7   poultry products to Price Depot and to make short term loan
 8   advances to Price Depot at the Debtor’s request.
 9        Starting in September 2008, the Debtor began requesting
10   incrementally larger and more frequent short term loan advances
11   for Price Depot.   DRM provided the requested advances, apparently
12   with few questions asked.   As the Debtor’s requests increased,
13   however, the Debtor also caused Price Depot to provide DRM with a
14   series of blank checks already signed by the Debtor, so that
15   Richter could deposit repayment checks with greater ease.
16        The first weeks of December 2008, however, proved to be a
17   pivotal point in the relationship.   The Debtor requested – and
18   obtained – even more substantial advances for Price Depot within
19   the first four days of the month.    DRM simultaneously deposited a
20   number of Price Depot checks for advances then owing.   And, the
21   Debtor caused Price Depot to make three consecutive wire
22   transfers to DRM in the total amount of $250,000 during the four
23   day period.   Upon receipt, however, and based on the Debtor’s
24   request, DRM immediately wired the $250,000 back to Price Depot
25   as part of the advanced funds.
26        On December 9, 2008, DRM received notices of insufficient
27   funds as to all of the repayment checks deposited the week
28   before.   The Debtor offered repayment to DRM of $20,000 a day to

                                      3
 1   resolve the insufficient funds issue.   She, in fact, caused
 2   repayment to DRM of $70,000 over the course of the next month.
 3   But, these payments eventually stopped, and the Debtor stopped
 4   payment on the rest of the blank Price Depot checks in DRM’s
 5   possession.
 6        The Debtor filed a chapter 11 bankruptcy case in June 2009.
 7   Three months later, DRM commenced the nondischargeability action
 8   against the Debtor, seeking to except its claim from discharge
 9   under § 523(a)(2)(A).
10        At trial, the bankruptcy court received testimony from the
11   Debtor, Richter, and DRM expert witness, Michael Borenstein.        The
12   Debtor testified that Richter and DRM were aware of Price Depot’s
13   rocky financial situation.   According to the Debtor, she told
14   Richter to hold off on deposit of the returned checks because
15   Price Depot continued to experience financial problems and she
16   simply needed time “to make good on those checks.”
17        Richter’s testimony was the complete opposite; he attested
18   that he was never made aware of Price Depot’s dire financial
19   issues, that the Debtor constantly reassured him that DRM would
20   be repaid, and that, until the checks were returned for
21   insufficient funds, there were never repayment issues.    He
22   further testified that the Debtor never told him to hold deposit
23   of the checks.   Instead, it was his testimony that he deposited
24   checks only after he spoke to the Debtor and she verbally
25   authorized it.
26        Borenstein’s testimony was brief: he stated that he was a
27   certified public accountant who examined Price Depot’s ability,
28   at the end of 2008, to repay the DRM advances then owing.      He

                                      4
 1   concluded after examining bank accounts and balance sheets that
 2   the Debtor’s three businesses were collectively overdrawn
 3   $81,567.36 at the beginning of October 2008, which increased to
 4   $373,290.28 just two months later, even after DRM’s significant
 5   cash advances.   Borenstein, thus, opined that during the final
 6   months of 2008, Price Depot lacked the ability to repay DRM.
 7         On cross-examination, Borenstein conceded that he was
 8   unaware of certain facts in conducting his analysis, i.e., the
 9   returned Price Depot checks and the Debtor’s $250,000 wire
10   transfer to DRM.   The Debtor, thus, moved to strike Borenstein’s
11   testimony and evidence; the bankruptcy court denied the motion.
12         At the conclusion of trial and after post-trial briefing,
13   the bankruptcy court orally ruled on the record in favor of DRM.
14   It determined that DRM established, by a preponderance of the
15   evidence, each element of § 523(a)(2)(A).    The bankruptcy court
16   subsequently entered a judgment in DRM’s favor and deemed the
17   judgment nondischargeable.    The Debtor timely appealed.
18                                JURISDICTION
19         The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
20   §§ 1334 and 157(b)(2)(I).    We have jurisdiction under 28 U.S.C.
21   § 158.
22   ///
23   ///
24   ///
25   ///
26   ///
27   ///
28   ///

                                       5
 1                                   ISSUES2
 2   1.   Did the bankruptcy court err in determining that the debt
 3        was nondischargeable under § 523(a)(2)(A)?
 4   2.   Did the bankruptcy court abuse its discretion by admitting
 5        Borenstein’s testimony and evidence?
 6                           STANDARDS OF REVIEW
 7        We review de novo whether a debt is excepted from discharge
 8   under § 523(a)(2)(A).   Wank v. Gordon (In re Wank), 505 B.R. 878,
 9   886 (9th Cir. BAP 2014).    Whether there has been proof of an
10   essential element of § 523(a)(2)(A) is a factual determination
11   reviewed for clear error.    Am. Express Travel Related Servs. Co.,
12   Inc. v. Vinhnee (In re Vee Vinhnee), 336 B.R. 437, 442-43 (9th
13   Cir. BAP 2005).
14        We review evidentiary rulings for an abuse of discretion
15   and, even then, only reverse if any error would have been
16   prejudicial to the appellant.    Van Zandt v. Mbunda
17   (In re Mbunda), 484 B.R. 344, 351 (9th Cir. BAP 2012).    A
18
19
          2
            The Debtor also identified the following issues on appeal:
20   whether the bankruptcy court abused its discretion by “forcing”
21   her to testify at trial when DRM failed to provide an
     interpreter; whether the bankruptcy court clearly erred in
22   finding DRM’s witness more credible than the Debtor when she has
     limited English proficiency; and whether the bankruptcy court
23   considered the Debtor’s $70,000 payment to DRM in determining the
24   amount of damages.
          None of these issues were specifically and distinctly
25   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
26   n.2 (9th Cir. 2009) (appellate court “will not consider matters
27   on appeal that are not specifically and distinctly raised and
     argued in appellant’s opening brief.”) (internal citation
28   omitted).

                                       6
 1   bankruptcy court abuses its discretion if it applies the wrong
 2   legal standard, misapplies the correct legal standard, or if its
 3   factual findings are illogical, implausible or without support in
 4   inferences that may be drawn from the facts in the record.     See
 5   TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th
 6   Cir. 2011) (citing United States v. Hinkson, 585 F.3d 1247, 1262
 7   (9th Cir. 2009) (en banc)).
 8        We may affirm on any basis in the record.     Caviata Attached
 9   Homes, LLC v. U.S. Bank, N.A. (In re Caviata Attached Homes,
10   LLC), 481 B.R. 34, 44 (9th Cir. BAP 2012).
11                                 DISCUSSION
12   A.   Exception to discharge under § 523(a)(2)(A).
13        A debtor is not discharged in bankruptcy from any debt
14   obtained by “false pretenses, a false representation, or actual
15   fraud.”     11 U.S.C. § 523(a)(2)(A).   The creditor bears the burden
16   of demonstrating, by a preponderance of the evidence, each of the
17   following five elements: (1) misrepresentation, fraudulent
18   omission or deceptive conduct by the debtor; (2) knowledge of the
19   falsity or deceptiveness of the representation or omission;
20   (3) an intent to deceive; (4) the creditor’s justifiable reliance
21   on the representation or conduct; and (5) damage to the creditor
22   proximately caused by reliance on the debtor’s representations or
23   conduct.3    Ghomeshi v. Sabban (In re Sabban), 600 F.3d 1219, 1222
24
          3
25          In her statement of issues in the opening brief, the
     Debtor challenges whether there was sufficient, admissible
26   evidence supporting each element of § 523(a)(2)(A). She does
27   not, however, specifically and distinctly address the fifth
     element of damages in her brief and, thus, we do not consider it
28   on appeal. See Padgett, 587 F.3d at 986 n.2.

                                        7
 1   (9th Cir. 2010).
 2        1.     Misrepresentation.
 3        The bankruptcy court first found that the Debtor
 4   misrepresented that Price Depot had the ability to repay DRM on
 5   account of the advances made in the final months of 2008.    In so
 6   determining, the bankruptcy court found Richter’s testimony more
 7   credible than the Debtor’s on two points: (1) whether the Debtor
 8   adequately disclosed her businesses’ financial problems during
 9   that time period; and (2) whether the Debtor told Richter to hold
10   his deposit of the checks.    It reasoned that the Debtor’s version
11   of events made “absolutely no sense.”    Hr’g Tr. (Nov. 27, 2013)
12   at 33:20.    Noting that DRM had possession of the $250,000 wire
13   transfers during the first week of December, it questioned why
14   DRM would relinquish this money and then continue the advances if
15   the Debtor actually told Richter to hold the checks for deposit
16   and disclosed the full extent of Price Depot’s precarious
17   financial situation.
18        Viewed through the deferential lens required on appellate
19   review, these findings are not clearly erroneous.    The bankruptcy
20   court’s skepticism of the Debtor’s allegations of full disclosure
21   was reasonable.    Its finding that a misrepresentation occurred is
22   bolstered by the expert testimony establishing the overdrawn
23   condition of Price Depot and the Debtor’s other businesses, and
24   the lack of contrary evidence of the financial situation from the
25   Debtor.   The findings also were based heavily on the bankruptcy
26   court’s determinations of witness credibility to which we afford
27   significant deference.    See Hussain v. Malik (In re Hussain),
28   508 B.R. 417, 425 (9th Cir. BAP 2014) (the bankruptcy court is in

                                       8
 1   the best position to evaluate the documentary and testimonial
 2   evidence).
 3        2.   Knowledge.
 4        Next, the bankruptcy court found that, at a minimum, at the
 5   time the Debtor told Richter to deposit the last set of checks,
 6   she knew that DRM would not be repaid.    In its estimation, it was
 7   likely that the Debtor was aware of the inability to pay in late
 8   October 2008; but, giving her the benefit of the doubt, the
 9   bankruptcy court determined that the Debtor had the requisite
10   knowledge in early December.
11        Again, the bankruptcy court’s finding is not clearly
12   erroneous.   The evidence before the bankruptcy court showed that
13   the bank accounts for Price Depot and the Debtor’s other two
14   businesses were collectively overdrawn in late October and were
15   increasingly overdrawn through the end of December 2008.    And,
16   the Debtor herself testified that, although Price Depot was
17   struggling financially and she needed more time to “make good on
18   the checks,” she continuously requested greater and more frequent
19   advances from DRM.
20        3.   Intent to deceive.
21        The bankruptcy court found that the Debtor intended to
22   deceive DRM when she failed to inform it of the inability to
23   repay the advances in December of 2008.   Its finding is not
24   clearly erroneous; it is neither illogical nor implausible to
25   infer, as the bankruptcy court did here, that the Debtor’s
26   failure to disclose the full extent of Price Depot’s financial
27   troubles was purposely done in order to continue the available
28   and critically required flow of cash from DRM.   And, again, the

                                      9
 1   bankruptcy court’s finding was heavily intertwined with its
 2   credibility determinations, to which we afford significant
 3   deference.   See In re Hussain, 508 B.R. at 425.   We, thus,
 4   decline to second guess the bankruptcy court’s plausible view of
 5   the evidence.    See id. (where there are two permissible views of
 6   the evidence, the bankruptcy court’s choice between them cannot
 7   be clearly erroneous).
 8        4.   Justifiable reliance.
 9        In determining justifiable reliance, the bankruptcy court
10   “must look to all of the circumstances surrounding the particular
11   transaction, and must particularly consider the subjective effect
12   of those circumstances upon the creditor.”   In re Wank, 505 B.R.
13   at 894.
14        The bankruptcy court here found that Richter justifiably
15   relied on the Debtor’s representations.   It noted that Richter
16   was aware that the Debtor’s business operation “was sort of a
17   balancing act . . . [,] trying to get better credit . . . [,]
18   better terms.”   Hr’g Tr. (Nov. 27, 2013) at 32:18-20.   It also
19   determined that Richter had simply tried to help a very close
20   friend and, thus, he had not “stuck his head in the sand” as to
21   the potential signs of financial distress.   But, the bankruptcy
22   court also found that Richter was a businessman who expected
23   repayment and that had he known the extent of the Debtor’s
24   cumulative financial problems, he would not have caused DRM to
25   advance additional money.
26        The record confirms that long-term personal and business
27   relationship between the parties; a relationship grounded in
28   friendship and trust.    Unfortunately, a decade plus of friendship

                                       10
 1   and trust quickly cratered at the end of 2008.    Had the long-term
 2   relationship not existed, the Debtor’s requests for larger and
 3   more frequent advances may have raised some legitimate red flags.
 4   But given the relationship and history of repayment over a number
 5   of years, the bankruptcy court did not clearly err in finding
 6   that DRM (through Richter) developed, fairly, a trust in the
 7   Debtor that she would make good on the advances.   Coupled with
 8   the evidentiary record and affording due deference to the
 9   bankruptcy court’s credibility determinations, we determine that
10   the bankruptcy court did not clearly err in finding justifiable
11   reliance.
12        Based on the foregoing, the Debtor has not shown that the
13   bankruptcy court’s findings were clearly erroneous.   We, thus,
14   conclude that the bankruptcy court did not err in determining
15   that the debt owed to DRM was excepted from discharge under
16   § 523(a)(2)(A).
17   B.   Expert witness testimony and evidence.
18        The Debtor also argues that DRM’s expert witness lacked
19   credibility because he was unaware of key facts: the Price Depot
20   checks returned for insufficient funds and the Debtor’s $250,000
21   wire transfer to DRM during the first week of December 2008.    She
22   contends that Borenstein lacked complete financial data in
23   rendering his analysis and, thus, challenges his opinion that
24   Price Depot could not repay DRM.
25        We will reverse a bankruptcy court’s evidentiary ruling only
26   if it abused its discretion and the error was prejudicial to the
27   appellant.   See In re Mbunda, 484 B.R. at 351.   On this record,
28   there is no indication that the bankruptcy court abused its

                                     11
 1   discretion.   As it indicated at trial, the Debtor’s motion to
 2   strike Borenstein’s testimony related to credibility, not whether
 3   the testimony was admissible.
 4        And, although Borenstein acknowledged at trial that he was
 5   unaware of certain facts when he conducted his analysis, he
 6   pointed out that his analysis was limited to “inflows, the wire
 7   transfers in and the intercompany transfers.”   As both the Debtor
 8   and Richter testified, the $250,000 in wire transfers were not
 9   intended as repayment to DRM; DRM immediately returned the funds.
10   In sum, the Debtor has not shown an abuse of discretion as to the
11   evidentiary ruling in relation to the Borenstein testimony.
12                               CONCLUSION
13        Based on the foregoing, we AFFIRM the bankruptcy court.
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

                                     12