Court Opinion

ID: 3180573
Source: CourtListenerOpinion
Date Created: 2016-02-25 23:07:27.945428+00
Date Added: 2024-06-11T14:07:31.536793
License: Public Domain

FILED
                                                                 FEB 25 2016
 1                         NOT FOR PUBLICATION
 2                                                           SUSAN M. SPRAUL, CLERK
                                                               U.S. BKCY. APP. PANEL
                                                               OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )      BAP No.      CC-15-1063-TaFC
                                   )
 6   INETA KOHLER,                 )      Bk. No.      12-17323-VK
                                   )
 7                  Debtor.        )      Adv. No.     12-01405-VK
     ______________________________)
 8                                 )
     INETA KOHLER,                 )
 9                                 )
                    Appellant,     )
10                                 )
     v.                            )      MEMORANDUM*
11                                 )
     LYDIA ETMAN,                  )
12                                 )
                    Appellee.**    )
13   ______________________________)
14                  Argued and Submitted on January 21, 2016
                             at Pasadena, California
15
                           Filed – February 25, 2016
16
               Appeal from the United States Bankruptcy Court
17                 for the Central District of California
18      Honorable Victoria S. Kaufman, Bankruptcy Judge, Presiding
19
     Appearances:     Andrew S. Mansfield of Higson Cheney Mansfield,
20                    PC argued for appellant Ineta Kohler.
21
22
23
          *
24           This disposition is not appropriate for publication.
     Although it may be cited for whatever persuasive value it may
25   have (see Fed. R. App. P. 32.1), it has no precedential value.
     See 9th Cir. BAP Rule 8024-1(c)(2).
26
          **
27           Appellee did not file a brief; pursuant to the BAP Clerk
     of Court’s conditional order of waiver, she waived her right to
28   appear in this appeal.
 1   Before:     TAYLOR, FARIS, and CORBIT,*** Bankruptcy Judges.
 2
 3                               INTRODUCTION
 4        Chapter 71 debtor Ineta Kohler appeals from a judgment
 5   excepting a debt from discharge under § 523(a)(2)(A) and denying
 6   discharge under § 727(a)(4)(A).       We AFFIRM the bankruptcy court.
 7                                   FACTS
 8                              The Etman Loan
 9        The Debtor and Etman were close friends for many years; so
10   much so that when the Debtor fell on hard times in late 2007,
11   Etman loaned the Debtor $25,000.      At the time, the Debtor told
12   Etman that she was selling or intended to sell her real property
13   residence, located in Simi Valley, California (the “Simi Valley
14   Property”) and that she would repay Etman from the sale
15   proceeds.    The Debtor assured Etman that the Simi Valley
16   Property provided “plenty of equity” for repayment.      Unbeknownst
17   to Etman, however, the Debtor had recently refinanced the Simi
18   Valley Property and increased the debt owed by $81,000.
19        The terms of the Etman loan were evidenced by a handwritten
20   promissory note, which provided that it matured three months
21   later, in March 2008, and was secured by the Simi Valley
22   Property.    A deed of trust, however, was neither executed nor
23   recorded.    Instead, the promissory note was notarized; according
24
25        ***
              The Honorable Frederick P. Corbit, Chief United States
     Bankruptcy Judge for the Eastern District of Washington, sitting
26
     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   to Etman, the Debtor told her that notarizing the promissory
 2   note was all that was required.
 3        The Debtor sold the Simi Valley Property in May 2008 and
 4   after payment of the debts secured by the property, a sales
 5   commission, fees, and similar charges, the Debtor realized
 6   $6,341.99 from the sale.   The Debtor did not pay Etman anything
 7   from the proceeds.   Instead, she apparently used the proceeds to
 8   defray the costs of renting a house, moving, and storage.
 9        According to Etman, she learned after the fact from the
10   Debtor’s ex-husband that the sale of the Simi Valley Property
11   had closed, that the Debtor had received the sale proceeds, and
12   that the proceeds were insufficient to repay her loan.    When
13   asked by Etman, the Debtor acknowledged the deficiency but
14   explained that she had forgotten that one of the debts was
15   subject to a prepayment penalty.
16        Over the next two years, the Debtor made 12 payments on the
17   loan at irregular intervals.   Ultimately, she repaid $8,350 of
18   the $25,000 loan; a balance of $16,650 remained at the time of
19   the petition.
20        Still, the women remained friends, and Etman learned from
21   the Debtor that she was working for a local doctor - Dr. Nguyen
22   - and being paid in cash for services rendered.   Apparently,
23   Dr. Nguyen had also assisted the Debtor in obtaining benefits
24   from social security disability insurance.   At that point, Etman
25   believed that the Debtor would never repay her, and, pro se, she
26   commenced litigation against the Debtor in state court.
27        Nearly five years after the Etman loan was made, the Debtor
28   filed a chapter 7 petition.

                                       3
 1                      The Adversary Proceeding
 2        The adversary complaint asserted claims for relief under
 3   §§ 523(a)(2)(A) and 727(a)(4)(A).    In particular, Etman sought
 4   to except her loan from discharge and for denial of the Debtor’s
 5   discharge, based on allegations that the Debtor failed to
 6   disclose or schedule numerous items on her bankruptcy schedules
 7   and statement of financial affairs.    The adversary complaint
 8   alleged that the Debtor omitted: the income from Dr. Nguyen; a
 9   pre-petition sale of a boat and trailer; valuable personal
10   property, including five gold pictures and two autographed
11   guitars; and fractional interests in two parcels of real
12   property in Arizona and New Mexico (the “Properties”).2
13        As the case proceeded to trial, the bankruptcy court issued
14   an amended pretrial order, which provided for direct witness
15   testimony through the submission of declarations and limited
16   testimony at trial for rebuttal.    Both parties submitted
17   declarations, both for themselves and for their witnesses.
18   Etman, in particular, submitted the declarations of five
19   witnesses who were either friends or acquaintances of the
20   Debtor; one witness also was a former employee of Dr. Nguyen.
21   Etman also filed a supplemental declaration; it appears that the
22   supplemental declaration was, in fact, a reply declaration as
23
24        2
             The adversary complaint also alleged that the Debtor
25   omitted other valuable personal property assets and an interest
     in a criminal restitution judgment in favor of the Debtor’s
26   father and great-aunt, who died prior to the bankruptcy filing.
27   The bankruptcy court ultimately determined that Etman did not
     meet her burden with respect to those items and no cross-appeal
28   was taken.

                                    4
 1   permitted by the pretrial order.
 2        The Debtor filed evidentiary objections to all of the
 3   declarations submitted by Etman.      In a tentative ruling and with
 4   one exception, the bankruptcy court addressed the Debtor’s
 5   objections to each individual declaration (including Etman’s
 6   supplemental declaration), stating its intent to sustain certain
 7   objections and overrule others.       It, however, did not, address
 8   the Debtor’s objections to Etman’s initial declaration.
 9        Following a trial, the bankruptcy court issued a detailed
10   memorandum decision in which it determined that Etman had met
11   her burden of proof under §§ 523(a)(2)(A) and 727(a)(4)(A).      In
12   the subsequent judgment, the bankruptcy court liquidated the
13   § 523(a)(2)(A) judgment in Etman’s favor in the amount of
14   $16,650, taking into account the Debtor’s payments on the Etman
15   loan.
16        The Debtor timely appealed.
17                             JURISDICTION
18        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
19   §§ 1334 and 157(b)(2)(I) and (J).      We have jurisdiction under
20   28 U.S.C. § 158.
21                                  ISSUES
22   1.   Whether the bankruptcy court ruled on the Debtor’s
23        evidentiary objections.
24   2.   Whether the bankruptcy court’s conduct of the trial
25        resulted in prejudice to the Debtor.
26   3.   Whether the bankruptcy court erred in determining that the
27        loan was excepted from discharge under § 523(a)(2)(A).
28   4.   Whether the bankruptcy court erred in denying discharge

                                       5
 1        pursuant to § 727(a)(4)(A).
 2                           STANDARDS OF REVIEW
 3        In reviewing a bankruptcy court’s determination of an
 4   exception to discharge, we review its findings of fact for clear
 5   error and its conclusions of law de novo.     Oney v. Weinberg
 6   (In re Weinberg), 410 B.R. 19, 28 (9th Cir. BAP 2009).      A
 7   debtor’s intent is a factual finding reviewed for clear error.
 8   Candland v. Ins. Co. of N. Am. (In re Candland), 90 F.3d 1466,
 9   1469 (9th Cir. 1996).   A factual finding is clearly erroneous if
10   it is illogical, implausible, or without support in inferences
11   that may be drawn from the facts in the record.      Retz v. Samson
12   (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010).
13        We review the denial of discharge as follows:
14   (1) determinations of the historical facts are reviewed for
15   clear error; (2) selection of the applicable legal rules under
16   § 727 are reviewed de novo; and (3) application of the facts to
17   those rules requiring the exercise of judgments about values
18   animating the rules are reviewed de novo.     Id.   We give great
19   deference to the bankruptcy court’s findings when they are based
20   on its determinations as to the credibility of witnesses.       Id.
21        Whether the bankruptcy court permitted evidence to be
22   presented at trial that violated or exceeded the scope of the
23   pretrial order is reviewed for an abuse of discretion.      Cf.
24   Rafter Seven Ranches L.P. v. WNL Invs., LLC (In re Rafter Seven
25   Ranches L.P.), 414 B.R. 722, 732 (10th Cir. BAP 2009).      A
26   bankruptcy court abuses its discretion if it applies the wrong
27   legal standard, misapplies the correct legal standard, or if its
28   factual findings are clearly erroneous.   See TrafficSchool.com,

                                      6
 1   Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011).
 2                               DISCUSSION
 3        We first address the Debtor’s assertions of error on issues
 4   of evidence, the pretrial order, and the bankruptcy court’s
 5   conduct of the trial.
 6   A.   With one exception, there was no error in the bankruptcy
 7        court’s evidentiary rulings or its conduct of the trial;
 8        and, on this record, the only error was harmless.
 9        The Debtor contends that her objections to the declarations
10   submitted by Etman were never addressed or properly ruled on by
11   the bankruptcy court.   To the extent they were, however, she
12   argues summarily that we must review the rulings for foundation,
13   materiality, and probative value, as contained in her objections
14   before the bankruptcy court.
15        With one exception, the record shows that the bankruptcy
16   court ruled on the evidentiary objections.   Prior to the first
17   day of trial, it issued a tentative ruling addressing the
18   objections on a declaration-by-declaration basis.   It then
19   adopted and read its tentative ruling into the record at trial.
20        The sole exception relates to Etman’s initial declaration.
21   Neither the tentative ruling nor the trial transcripts contain a
22   ruling on the Debtor’s objections to that declaration.   And the
23   ruling on the objections to Etman’s supplemental declaration did
24   not resolve this problem; the supplemental declaration did not
25   incorporate or replace the initial declaration.   Nonetheless,
26   this oversight does not constitute reversible error.   That is
27   because, “[w]here the court fails to specifically rule on the
28   admission of evidence, and where both parties had opportunity to

                                     7
 1   urge their objections, in the absence of any indication to the
 2   contrary, we can presume that admissible evidence was admitted
 3   and that inadmissible evidence was rejected.”       Wagner Tractor,
 4   Inc. v. Shields, 381 F.2d 441, 446 (9th Cir. 1967).
 5        On this record, the bankruptcy court’s failure to rule on
 6   the Debtor’s objections to the initial Etman declaration was
 7   harmless error for two reasons.       First, both the Debtor and
 8   Etman testified at trial, and the bankruptcy court had the
 9   opportunity to independently evaluate their testimony and
10   credibility.   Second, the Debtor’s objections to Etman’s initial
11   declaration mostly related to evidence immaterial to the
12   bankruptcy court’s final decision.
13        We further decline to review the rulings the bankruptcy
14   court did make.   First, the Debtor does not specifically and
15   distinctly address the bankruptcy court’s rulings on these
16   points.   Second, the record shows that she did not raise each of
17   these particular objections before the bankruptcy court.       And,
18   third, the bankruptcy court sustained some of the Debtor’s
19   objections.    As the appellant, it is the Debtor’s responsibility
20   to advance these arguments with particularity and within the
21   framework of the Federal Rules of Evidence; she has not met her
22   burden here, and we decline to shoulder it for her.
23        In our interpretation, the Debtor also challenges the
24   bankruptcy court’s conduct of the trial as unfairly prejudicial.
25   She complains that the trial transcripts are replete with
26   attacks on her character and asserts that “[a] short review of
27   the trial transcript demonstrates how many times this attack
28   recurred during the trial, infected the proceedings, and most

                                       8
 1   often came in the form of testimony from Ms. Standard,
 2   Appellee’s attorney.”    Standard, however, was not sworn in to
 3   testify as a witness at trial; thus, by definition she did not
 4   testify.    That counsel sought to impeach the Debtor’s
 5   credibility as a witness did not render any of counsel’s
 6   arguments to the bankruptcy court inadmissible character
 7   evidence.
 8        The remainder of the Debtor’s arguments with respect to the
 9   trial are similarly unavailing.       She complains that “[f]rom a
10   review of the trial transcript, it is apparent that most of the
11   provisions of the [pretrial order] were not followed.”       In
12   support of her argument, the Debtor broadly alleges that
13   exhibits were introduced at trial that were not attached to
14   declarations, as the pretrial order required.       She, however,
15   does not particularly identify the exhibits she references.         And
16   to the extent she refers obliquely to impeachment evidence,
17   there is no indication in the record that any such evidence was
18   admitted into the record.
19        The Debtor next asserts that, contrary to the pretrial
20   order’s limitation of additional evidence at trial to true
21   rebuttal evidence, “[t]he parties, as can be seen through the
22   transcript, provided lengthy direct testimony under lax control
23   allowing no time for [the Debtor] to object.”       Again, she does
24   not specifically identify which testimony she refers to, where
25   she did not have an opportunity to object, and how the lack of
26   such an opportunity resulted in prejudice.
27        The Debtor further complains that cross-examination and
28   re-direct often exceeded the scope of direct testimony as

                                       9
 1   provided in the declarations.   Once again, however, her argument
 2   is vague, and she does not point to any specific instance in the
 3   record.
 4        And, finally, the Debtor argues that the order of the
 5   witnesses’ testimony was prejudicial and improper; namely, that
 6   she was cross-examined first “when all that had happened (under
 7   the declarations) was that [Etman] had presented her case in
 8   chief.”   We do not quite understand this argument.   But, to the
 9   extent she contends that prejudice resulted because the
10   witnesses testified “out of order,” it is without merit.    The
11   record shows that, on the first day of trial, the Debtor
12   expressly asked the bankruptcy court to allow that Dr. Nguyen be
13   permitted to testify first, based on his schedule and limited
14   availability.   And nothing in the record suggests that the order
15   of witnesses had any impact on the bankruptcy court’s decision.
16   B.   The bankruptcy court did not err in denying the Debtor’s
17        discharge under § 727(a)(4)(A).
18        Section 727(a)(4)(A) provides for discharge denial where
19   “the debtor knowingly and fraudulently, in or in connection with
20   the case[,] made a false oath or account.”   A false oath
21   includes “[a] false statement or an omission in the debtor’s
22   bankruptcy schedules or statement of financial affairs . . . .”
23   Khalil v. Developers Sur. & Indem. Co. (In re Khalil), 379 B.R.
24   163, 172 (9th Cir. BAP 2007).   “The fundamental purpose of
25   § 727(a)(4)(A) is to insure that the trustee and creditors have
26   accurate information without having to conduct costly
27   investigations.”   Id. (internal quotation marks and citation
28   omitted).

                                     10
 1        The objector to discharge must show, by a preponderance of
 2   the evidence, that: “(1) the debtor made a false oath in
 3   connection with the case; (2) the oath related to a material
 4   fact; (3) the oath was made knowingly; and (4) the oath was made
 5   fraudulently.”    In re Retz, 606 F.3d at 1196-97 (quoting Roberts
 6   v. Erhard (In re Roberts), 331 B.R. 876, 882 (9th Cir. BAP
 7   2005)).    Objections to discharge are liberally construed in
 8   favor of the debtor and against the objector.    In re Khalil,
 9 379 B.R. at 172.    For that reason, the objector bears the burden
10   to prove by a preponderance of the evidence that the debtor’s
11   discharge should be denied.    Id.
12        Here, the Debtor focuses solely on the materiality element.
13   She contends that “[e]very single one of the alleged omissions
14   or false statements raised by [Etman] [were] immaterial or
15   relate to exempt property that [was] not property of the
16   estate.”    We disagree.
17        “A fact is material if it bears a relationship to the
18   debtor’s business transactions or estate, or concerns the
19   discovery of assets, business dealings, or the existence and
20   disposition of the debtor’s property.”    Id. at 173 (internal
21   quotation marks and citation omitted).    Materiality requires an
22   impact in the bankruptcy case and may exist “even if it does not
23   cause direct financial prejudice to creditors.”    Id. at 177
24   (internal quotation marks and citation omitted).
25        The bankruptcy court determined that a significant
26   omission from the schedules was the Debtor’s income from
27   Dr. Nguyen.    Based on the testimony of Etman and her five
28   witnesses, the bankruptcy court found that, prepetition, the

                                      11
 1   Debtor worked for Dr. Nguyen and that she received money in
 2   exchange for her work.    It found the testimony of these
 3   individuals more credible than that of the Debtor and Dr.
 4   Nguyen, as the plaintiff’s witnesses had no motivation to
 5   provide false testimony.    In contrast, the Debtor was receiving
 6   benefits from social security disability insurance and did not
 7   want to jeopardize her receipt of this money.
 8        Contrary to the Debtor’s assertion, this omission was
 9   material.   As the bankruptcy court pointed out, the omission
10   potentially impacted the Debtor’s ability to file a chapter 7
11   case, given that she also received social security disability
12   benefits at the time of petition.     And it frustrated the
13   chapter 7 trustee’s access to a complete and honest snapshot of
14   the Debtor’s financial landscape.
15        The bankruptcy court also found that the Debtor omitted or
16   misrepresented the following items on her schedules and SOFA:
17   five gold pictures, two autographed guitars, the Properties, and
18   the pre-petition sale of the boat and trailer.     The Debtor
19   contends that these alleged omissions or misrepresentations were
20   immaterial based on the small value of the asset or the fact
21   that it was completely exempt in bankruptcy.     That was perhaps
22   true in isolation in regards to a specific asset; here, however,
23   the bankruptcy court considered the omission of several assets
24   and a material pre-petition transaction that the Debtor was
25   required to disclose.    We cannot conclude that the bankruptcy
26   court clearly erred in determining that the cumulative omissions
27   and misrepresentations were material.
28        The Debtor also attempts to defend herself on the basis

                                      12
 1   that later, she made payments to Etman on the loan.    But the
 2   discharge denial was based on the Debtor’s false oaths on her
 3   schedules and SOFA – not on the Etman loan.    She also, again,
 4   alleges improper trial procedures and that this somehow
 5   undermined the bankruptcy court’s rulings.    For the reasons
 6   already discussed, we disagree.
 7        The Debtor does not challenge the other requirements of
 8   § 727(a)(4)(A).3   On that basis, and given the bankruptcy
 9   court’s extensive findings and conclusions in its memorandum
10   decision, we conclude that it did not err in denying the
11   Debtor’s discharge under § 727(a)(4)(A).
12   C.   The bankruptcy court did not err in excepting the Etman
13        loan from discharge under § 523(a)(2)(A).
14        Section 523(a)(2)(A) excepts from discharge a debt
15   resulting from “false pretenses, a false representation, or
16   actual fraud, other than a statement respecting the debtor’s or
17   an insider’s financial condition.”     A creditor seeking to except
18   a debt from discharge based on fraud bears the burden of proof
19   of showing, by a preponderance of the evidence, satisfaction of
20   the following elements: (1) misrepresentation, fraudulent
21   omission or deceptive conduct; (2) knowledge of the falsity or
22   deceptiveness of such representation(s) or omission(s); (3) an
23   intent to deceive; (4) justifiable reliance by the creditor on
24   the subject representation(s) or conduct; and (5) damage to the
25
          3
             The Debtor broadly argues that a false oath requires
26   fraudulent intent, which must be proven with particularity and
27   not simply alleged. She does not, however, argue that the
     bankruptcy court’s findings of fraudulent intent were clearly
28   erroneous.

                                       13
 1   creditor proximately caused by its reliance on such
 2   representation(s) or conduct.   Ghomeshi v. Sabban
 3   (In re Sabban), 600 F.3d 1219, 1222 (9th Cir. 2010); Oney v.
 4   Weinberg (In re Weinberg), 410 B.R. 19, 35 (9th Cir. BAP 2009).
 5        On appeal, the Debtor’s argument focuses solely on intent;
 6   she argues, in effect, that she did not possess the intent to
 7   deceive at the time that the loan was made because she believed
 8   that the Simi Valley Property would sell for more than it
 9   actually did.   She also points to her subsequent payments as
10   proof that she always intended to repay the loan.
11        Whether a debtor possessed an intent to deceive within the
12   meaning of § 523(a)(2)(A) is a question of fact that “can be
13   inferred from surrounding circumstances.”   Cowen v. Kennedy
14   (In re Kennedy), 108 F.3d 1015, 1018 (9th Cir. 1997).   The
15   bankruptcy court found that in order to induce Etman to make the
16   loan, the Debtor misrepresented her intent and ability to repay
17   the loan.   And, insofar as the parties’ version of events
18   resulting in the loan conflicted, it found that the Debtor was
19   not a credible witness, based on other instances of
20   misrepresentation.4
21        Based on the record, the bankruptcy court’s intent finding
22   was not clearly erroneous.   This is particularly true here,
23
          4
24           These misrepresentations included: the Debtor’s
     testimony that she was only a “volunteer” in Dr. Nguyen’s office
25   when other evidence established that she worked there and
     received income; false statements made by the Debtor in the 2007
26   refinancing application on the Simi Valley Property; incorrect
27   information regarding the sale of the boat and trailer in
     documents submitted to the DMV; and a misrepresentation as to
28   the condition of the boat in the Debtor’s SOFA.

                                     14
 1   where its findings were based in part on its evaluation of
 2   witness credibility, to which we afford significant deference.
 3        Several facts in the record are beyond dispute, namely
 4   that: in November 2007, the Debtor told Etman that she would
 5   repay the loan from the sale proceeds of the Simi Valley
 6   Property; the Debtor promised to repay the loan by March 2008,
 7   as evidenced by the promissory note; the Debtor did not repay
 8   the loan under the terms of the note; when the Simi Valley
 9   Property sale finally closed and she received the sale proceeds,
10   the Debtor did not tell Etman; and the Debtor did not pay Etman
11   anything from the net sale proceeds.     The bankruptcy court
12   appropriately inferred from the Debtor’s misrepresentation
13   regarding the loan repayment that she harbored the requisite
14   intent to deceive.
15        The Debtor does not particularly challenge the bankruptcy
16   court’s findings or conclusions regarding the other elements of
17   § 523(a)(2)(A).   Given that fact, and the quality of the
18   bankruptcy court’s findings and conclusions on those elements in
19   its memorandum decision, we conclude that it did not err in
20   determining that the loan was excepted from discharge under
21   § 523(a)(2)(A).
22                               CONCLUSION
23        Based on the foregoing, we AFFIRM.
24
25
26
27
28

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