Court Opinion

ID: 9373988
Source: CourtListenerOpinion
Date Created: 2023-02-22 16:10:59.575316+00
Date Added: 2024-06-11T17:16:49.249057
License: Public Domain

FILED
                                                                                  JAN 25 2022
                          NOT FOR PUBLICATION                                 SUSAN M. SPRAUL, CLERK
                                                                                U.S. BKCY. APP. PANEL
                                                                                OF THE NINTH CIRCUIT

          UNITED STATES BANKRUPTCY APPELLATE PANEL
                    OF THE NINTH CIRCUIT

In re:                                               BAP No. NC-21-1134-TFG
SELIM AYKIRAN,
             Debtor.                                 Bk. No. 19-42425

TERRY KWONG,                                         Adv. No. 19-4068
             Appellant,
v.                                                   MEMORANDUM1
SELIM AYKIRAN,
             Appellee.

               Appeal from the United States Bankruptcy Court
                   for the Northern District of California
               Roger L. Efremsky, Bankruptcy Judge, Presiding

Before: TAYLOR, FARIS, and GAN, Bankruptcy Judges

                                 INTRODUCTION

      Creditor Terry Kwong appeals from the bankruptcy court's dismissal

with prejudice of his §§ 523 and 727 2 claims against debtor Selim Aykiran

and the resulting judgment. We AFFIRM the dismissal of the

      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 8024-1.
       2 Unless specified otherwise, all chapter and section references are to the

Bankruptcy Code, 11 U.S.C. §§ 101-1532, all "Rule" references are to the Federal Rules of
Bankruptcy Procedure, and all "Civil Rule" references are to the Federal Rules of Civil
Procedure.
§§ 523(a)(2)(A), 523(a)(6), and 727(a)(2)(B) claims, VACATE the judgment

and the dismissal of the §§ 727(a)(2)(A), (a)(3), (a)(4)(a), and (a)(5) claims,

and REMAND with instructions to dismiss the §§ 727(a)(2)(A), (a)(3),

(a)(4)(a), and (a)(5) claims with leave to amend.

                                      FACTS 3

A. The business venture

      Prepetition, Aykiran manufactured towels and related products

("Turkish Towels") in Turkey and then sold them in the United States. He

conducted this business using several corporate forms, including a Turkish

company—Turkish Towel Classic Tekstil Kolleksiyon Ltd. ("Classic")—and

three California limited liability companies—Turkish Towel Collection-

Classic S.A., LLC ("Collection"), Turkish Towel Collection S.A., LLC ("TT

Collection"), and Turkish Towel Classic Textile LLC ("Textile") (collectively

the "Entities").

      In 2014, after discussing joint business opportunities, Kwong paid

Aykiran $537,140.50 to fund Aykiran's business. He did so based on

Aykiran's allegedly false representations that: (1) Aykiran was Classic's

sole owner; (2) Classic owned a factory; (3) the factory could manufacture

large quantities of high-quality Turkish Towels; (4) Classic qualified for

      3
        The factual recitation is derived generally from Kwong's complaints, documents
attached to his complaints, and matters of which we may take judicial notice. We
exercise our discretion to take judicial notice of documents filed in the underlying
adversary proceeding, where appropriate. See Atwood v. Chase Manhattan Mortg. Co. (In
re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
                                          2
expense reimbursements from the Turkish government; (5) he was an

established businessman; and (6) he had the intent and ability to repay any

funds advanced (collectively, the "Misrepresentations").

B. The written Agreement

      Later that year, the parties executed a written agreement (the

"Agreement"), which granted Kwong and his then-owned 4 company, First

Son Trading Ltd. ("First Son"), substantial control over Aykiran's business.

Under the Agreement, First Son would be the sole buyer of Turkish Towels

from Classic and its affiliates and would dictate Turkish Towels

production. Further, all Turkish Towels sales by Aykiran or Classic would

require Kwong's approval.

      The Agreement also provided that Kwong's $537,140.50 payment

would be treated as a loan (the "Loan"), repayable from gross revenues of

Turkish Towels sales. Related, it provided that, after repayment of the

Loan, net profits for First Son, Classic, and TT Collection would be split

between First Son, on the one hand, and Aykiran, Classic, or TT Collection,

on the other hand.

C. Aykiran's post-Agreement actions

      Aykiran did not repay the Loan. Instead, he took various actions and

made various post-Agreement transfers with the alleged intent to hinder,

delay, or defraud Kwong and his collection efforts.

      First, Aykiran allegedly failed to provide Turkish Towels to First Son.

                                      3
      Second, he allegedly prevented Kwong's agent from observing

factory operations.

      Third, after Aykiran married Sharon D. Block, he allegedly

transferred to Block and her company, SD Block Tekstil ("SD Block"),

"rights and control" in the Entities ("Control") despite the previous grants

to Kwong under the Agreement. For example, Block eventually became

sole registered owner of the "Turkish Towel Collection" fictitious business

name. In addition, Block allegedly used Classic to import her own line of

Turkish products.

      Fourth, Aykiran allegedly ceased operations and formally cancelled

TT Collection so its net profits could not be split with First Son after

repayment of the Loan and then registered Textile to conduct sales in the

United States.5

      And fifth, Block established SD Block with the alleged intent and

purpose of hindering and defrauding Aykiran's creditors. SD Block sells its

own line of Turkish Towels from Textile's location.

      Kwong claims that through these actions Aykiran diverted and

dissolved the means and sources from which he could repay the Loan,

diverted business profits, and put assets and profits out of the reach of his

creditors.

      4
          It is unclear whether Kwong still owns First Son.
      5
          It is unclear whether Textile ever sold Turkish Towels.
                                             4
D. The state court action, bankruptcy, and adversary proceeding

      Kwong sued Aykiran in state court for damages related to Aykiran's

failure to repay the Loan. Trial was set for January 2020, but Aykiran filed

his chapter 7 petition before trial commenced.

      Kwong responded with an adversary complaint against Aykiran,

which he amended under Civil Rule 15(a), made applicable by Rule 7015,

before effecting service. The first amended complaint (the "FAC") included

claims to except debt from Aykiran's discharge under §§ 523(a)(2)(A) and

(a)(6) and to deny him a discharge under §§ 727(a)(2)(A), (a)(2)(B), (a)(3),

(a)(4)(a), and (a)(5).6

      1. The nondischargeability claims

      The FAC included two § 523(a)(2)(A) claims—one alleging that

Aykiran obtained the Loan through the Misrepresentations (the

"523(a)(2)(A) Loan claim") and the other alleging that Aykiran created

debts to Kwong through his fraudulent transfer of Control in the Entities to

Block and SD Block (the "523(a)(2)(A) Control claim"). And the FAC had

two § 523(a)(6) claims—one alleging that the failure to repay the Loan

caused willful and malicious injury to Kwong (the "523(a)(6) Loan claim")

and the other alleging that Aykiran's transfer of Control in the Entities to

Block and SD Block willfully and maliciously injured Kwong (the "523(a)(6)

Control claim").

      6
        The FAC also included claims against the Entities, Block, and SD Block and a
§ 523(a)(4) claim against Aykiran. Kwong eventually dismissed these claims.
                                           5
      2. The denial of discharge claims

      Regarding the denial of discharge claims, the FAC claimed that

Aykiran failed to disclose assets and liabilities in his bankruptcy schedules,

made false statements in connection with the bankruptcy case, and failed to

provide adequate books and records to the chapter 7 trustee.

      3. The dismissal of claims

      Aykiran filed a motion to dismiss the FAC for failure to state a claim

for relief, citing Civil Rule 12(b)(6), made applicable by Rule 7012. Kwong

opposed. At the hearing, the bankruptcy court dismissed all claims and

granted Kwong leave to amend only the 523(a)(2)(A) Loan claim, the

523(a)(6) Loan claim, and the 523(a)(6) Control claim.

      Kwong filed his second amended complaint (the "SAC"), which

reasserted and supplemented his three remaining claims. Aykiran moved

to dismiss the SAC under Civil Rule 12(b)(6). Following briefing and a

hearing, the bankruptcy court dismissed the claims and granted Kwong

leave to amend only the 523(a)(2)(A) Loan claim. Kwong later dismissed

this claim with prejudice.

      The bankruptcy court then entered judgment for Aykiran. Kwong

appealed.

                              JURISDICTION

      The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(I) and (J). We have jurisdiction under 28 U.S.C. § 158.

                                      6
                                     ISSUES

      1. Whether the bankruptcy court erred in dismissing Kwong's claims.

      2. Whether the bankruptcy court abused its discretion in denying

Kwong leave to amend.

                          STANDARDS OF REVIEW

      We review a bankruptcy court's grant of a Civil Rule 12(b)(6) motion

to dismiss de novo. Movsesian v. Victoria Versicherung AG, 670 F.3d 1067,

1071 (9th Cir. 2012). De novo review requires us to look at the matter anew,

giving no deference to the bankruptcy court's determinations. Francis v.

Wallace (In re Francis), 505 B.R. 914, 917 (9th Cir. BAP 2014).

      A dismissal without leave to amend is reviewed for abuse of

discretion. Willard v. Lockhart-Johnson (In re Lockhart-Johnson), 631 B.R. 38, 44

(9th Cir. BAP 2021). A bankruptcy court abuses its discretion if it applies an

incorrect legal standard or misapplies the correct legal standard or its

factual findings are illogical, implausible, or without support from

evidence in the record. United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir.

2009) (en banc).

      We may affirm on any ground fairly supported by the record.

Leavitt v. Soto (In re Leavitt), 171 F.3d 1219, 1223 (9th Cir. 1999).

                                 DISCUSSION

      Only the dismissals of the 523(a)(2)(A) and (a)(6) Control claims and

                                         7
the §§ 727(a)(2)(A), (a)(3), (a)(4)(a), and (a)(5) claims are at issue. 7 As

explained below, the bankruptcy court properly dismissed the claims, but

it abused its discretion in denying leave to amend the § 727 claims.

A. Dismissal of the 523(a)(2)(A) Control claim

       Dismissal under Civil Rule 12(b)(6) is proper if the complaint fails to

allege adequate facts to state a claim to relief that is facially plausible. Bell

Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A motion to dismiss "may be

based on either a lack of a cognizable legal theory or the absence of

sufficient facts alleged under a cognizable legal theory." Johnson v. Riverside

Healthcare Sys., LP, 534 F.3d 1116, 1121 (9th Cir. 2008) (quotation omitted).

       Section 523(a)(2)(A) exempts from a debtor's discharge "any debt . . .

for money, property, services, or . . . credit, to the extent obtained by . . . false

pretenses, a false representation, or actual fraud." § 523(a)(2)(A) (emphasis

added). That is, "it prevents discharge of any debt respecting money,

property, services, or credit that the debtor has fraudulently obtained."

Cohen v. de la Cruz, 523 U.S. 213, 218 (1998) (cleaned up).

       The 523(a)(2)(A) Control claim seeks to except from Aykiran's

       7 Kwong's statement of issues asserted error in the dismissals of these additional
claims: (1) the 523(a)(2)(A) Loan claim to the extent that it alleges fraudulent transfers of
Control in the Entities to Block and SD Block; (2) the 523(a)(6) Loan claim; and (3) the
§ 727(a)(2)(B) claim. We do not address these dismissals because the 523(a)(2)(A) Loan
claim issues he articulates on appeal are identical to the 523(a)(2)(A) Control claim
issues discussed below and because Kwong failed to provide any argument for error in
the dismissal of his 523(a)(6) Loan claim and § 727(a)(2)(B) claim. See Resorts Int'l, Inc. v.
Lowenschuss (In re Lowenschuss), 67 F.3d 1394, 1402 (9th Cir. 1995) (issue included in
statement of issues but not discussed in brief is considered waived).
                                              8
discharge: (1) the Loan debt; and (2) nonspecific debt for lost profits. The

claim fails because Kwong cannot possibly show that Aykiran fraudulently

created these debts through his transfer of Control in the Entities to Block

and SD Block.8 We discuss each debt separately.

       1. The Loan debt

       Kwong relies heavily on Husky International Electronics, Inc. v. Ritz,

578 U.S. 356 (2016), to argue that the Loan debt is nondischargeable. In

Husky, the Supreme Court reversed the Fifth Circuit's ruling that the

"obtained by . . . actual fraud" language in § 523(a)(2)(A) requires a fraud

that "involves a false representation to a creditor." 578 U.S. at 357. The

Supreme Court held that "[t]he term 'actual fraud' in § 523(a)(2)(A)

encompasses forms of fraud, like fraudulent conveyance schemes, that can

be effected without a false representation." Id. at 359. While Kwong alleges

Aykiran fraudulently transferred assets and that under Husky this suffices

to save his § 523 claims from dismissal, he is wrong; Husky is

distinguishable.

       Husky is factually distinguishable because the bankruptcy debtor,

unlike Aykiran, did not originally owe the debt at issue. Rather, a

       8 Aykiran argues that the 523(a)(2)(A) Control claim fails because it does not
allege a transfer of property. Though unartfully plead, the claim seems to be alleging
that he transferred intangible assets, such as books of business and ongoing business
concerns, when he ceded Control in the Entities to Block and SD Block. Such assets may
be the subject of fraudulent transfer claims. See Exec. Benefits Ins. Agency v. Arkison (In re
Bellingham Ins. Agency, Inc.), 702 F.3d 553, 571 (9th Cir. 2012). Thus, while Aykiran
argues we need not decide whether he obtained a debt by his transfer of Control, we do.
                                              9
corporation did. The bankruptcy debtor only later became potentially and

partially liable for the debt under an applicable Texas veil-piercing statute

when he "drained [the corporation] of assets it could have used to pay its

debts to creditors[.]" Id. at 358.

      And Husky's holding is not nearly as broad as Kwong contends. The

Supreme Court did not eliminate § 523(a)(2)(A)'s requirement that the

money or property giving rise to the debt must have been "obtained by"

false pretenses, a false representation, or actual fraud. Instead, it held that

fraudulent schemes effected without misrepresentations—including

fraudulent transfers of assets to hinder, delay, or defraud creditors—may

satisfy the "obtained by" requirement in some cases. Id. at 365 (noting that

"fraudulent conveyances are not wholly incompatible with the 'obtained

by' requirement" of § 523(a)(2)(A), though "[s]uch circumstances may be

rare"). It then remanded for a determination of whether the alleged

fraudulent scheme satisfied the "obtained by" requirement. Id. at 365 n.3.

      Thus, in Husky, fraudulent acts potentially created the debt at issue.

See id. at 357. In contrast, Kwong alleges that Aykiran's fraudulent transfer

of Control in the Entities to Block and SD Block somehow transformed

Aykiran's preexisting Loan debt into a nondischargeable debt. Kwong's

523(a)(2)(A) Control claim, as to the Loan debt, fails regardless of whether

Aykiran engaged in "actual fraud" because the Loan was not "obtained by"

the alleged subsequent transfer of Control fraud.

                                       10
      2. The lost profits debt

      Neither can the nonspecific lost profits debt arising from Aykiran's

breach of the Agreement be said to be "obtained by" fraud. As the Supreme

Court observed in Husky:

      [T]he transferor does not obtain debts in a fraudulent
      conveyance. But the recipient of the transfer—who, with the
      requisite intent, also commits fraud—can obtain assets by his or
      her participation in the fraud. If that recipient later files for
      bankruptcy, any debts traceable to the fraudulent conveyance
      will be nondischargeable under § 523(a)(2)(A).

Id. at 365 (cleaned up); see also Quarré v. Saylor (In re Saylor), 178 B.R. 209,

213 (9th Cir. BAP 1995), aff'd, 108 F.3d 219 (9th Cir. 1997) (observing that it

is unclear how a creditor's remedies for fraudulent transfer could create a

right to payment from the transferor for purposes of nondischargeability,

citing Cal. Civ. Code § 3439.07 (West 1994)). In this case, Aykiran was the

transferor, but not the transferee, of the alleged fraudulent transfers. Thus,

he did not obtain or create a lost profits debt by fraud as required by

§ 523(a)(2)(A).

      Moreover, the 523(a)(2)(A) Control claim would fail even if a

fraudulent transfer could create a right to payment against a transferor

because Kwong would lack standing to pursue such payment. The lost

profits debt would be owed to First Son—and not Kwong—under the

terms of the Agreement, which provides that "[n]et profits for [Classic]

shall be divided between First Son and [Classic]. Net profits for

                                        11
[TT Collection] shall be divided between First Son and [TT Collection]."

(emphasis added).

      Furthermore, as the bankruptcy court properly determined, Kwong

did not allege any factual matter to plausibly suggest that Aykiran's actions

and "schemes" amounted to fraud. While Aykiran and Kwong's business

venture failed, Kwong asserts no facts to suggest that Aykiran harbored ill

intent or set out to harm Kwong. In fact, Kwong alleges that Aykiran spent

the Loan funds on the Entities' business expenses. Such expenditures are

inconsistent with an intent to hinder, delay, or defraud Kwong.

      And finally, the 523(a)(2)(A) Control claim fails to plausibly assert

lost profit damages. The damages are too speculative. Kwong does not

attempt to allege any amount of profits that he could have reasonably

expected to receive had he obtained Control in the Entities. It is implausible

that he would have received any profit after repayment of the $537,140.50

Loan debt based on his allegations that: (1) Aykiran misrepresented

ownership interests in the Entities and the factory, the factory's

manufacturing capabilities, and his ability to obtain business expense

reimbursements; and (2) Kwong would not have made the Loan had he

known Aykiran's representations were false.

      For the foregoing reasons, the bankruptcy court properly dismissed

the 523(a)(2)(A) Control claim.

B. Dismissal of the 523(a)(6) Control claim

      The 523(a)(6) Control claim likewise seeks to except a lost profit debt

                                      12
from Aykiran's discharge based on his transfer of Control in the Entities to

Block and SD Block. It, too, fails.

      The lost profit debt is a breach of contract debt. Debts resulting from

intentional breaches of contract are not actionable under § 523(a)(6) unless

the breaches were accompanied by tortious conduct that resulted in willful

and malicious injury. Petralia v. Jercich (In re Jercich), 238 F.3d 1202, 1205

(9th Cir. 2001). To determine whether a breach of contract renders debt

nondischargeable, a bankruptcy court employs a two-part test: first, it must

determine if the debtor's conduct was tortious under state law, then it must

determine if the debtor's conduct was also willful and malicious. Lockerby v.

Sierra, 535 F.3d 1038, 1040-41 (9th Cir. 2008).

      The 523(a)(6) Control claim does not satisfy the tortious conduct

requirement. Fraud is unquestionably an intentional tort under California

law. Engalla v. Permanente Med. Grp., Inc., 15 Cal. 4th 951, 974-75 (1997).

Kwong, however, did not plausibly suggest that Aykiran's alleged actions

rose above intentional breaches of the Agreement to the level of fraud.

Thus, the bankruptcy court did not err in dismissing the claim.

C. Dismissal of the § 727 claims

      The bankruptcy court duly dismissed the § 727 claims as well. As we

explain, they were too vague, scattershot, and contradictory to raise a right

to relief above the speculative level on the assumption that all the

allegations in the FAC were true.

                                        13
       1. Transfers underlying the 523(a)(2)(A) and (a)(6) Control claims

       Kwong claims that the fraudulent transfers forming the basis of his

523(a)(2)(A) and (a)(6) Control claims justify a denial of discharge under

§ 727(a)(2)(A). 9 He is wrong. First, many of the transfers occurred well

outside the one-year period. And second, for the reasons discussed above,

he failed to plead sufficient plausible facts to establish fraud as to the

activities.

       2. Nondisclosure of assets

       Kwong also claims Aykiran should be denied a discharge under

§§ 727(a)(2)(A), 727(a)(4)(A),10 and 727(a)(5)11 based on alleged false

statements and omissions in his bankruptcy schedules and statements.

       But Kwong's factual allegations regarding Aykiran's business

dealings undermine his § 727 claims. Specifically, Kwong alleges that

Aykiran conducted his business through his Entities. If this is true, then the

bulk of the assets allegedly omitted from the schedules—including

inventory, equipment, machinery, website domain(s), business goodwill,

investments, profits, PayPal accounts, a lawsuit against a Turkish

individual, Block's investments, a vehicle lease, and rental deposits—

       9 Section 727(a)(2)(A) provides that a debtor may be denied a discharge if he,
"with intent to hinder, delay, or defraud a creditor or [the bankruptcy trustee],"
transferred or concealed his property during the year preceding the petition date.
       10 Section 727(a)(4)(A) provides that a debtor may be denied a discharge if he

"knowingly and fraudulently, in or in connection with the case . . . made a false oath[.]"
       11 Section 727(a)(5) provides that a debtor may be denied a discharge if he "failed

to explain satisfactorily, before determination of denial of discharge under this
                                            14
would likely be the Entities' assets. And Aykiran's scheduling of an

ownership interest in the Entities would sufficiently disclose his interests.

       Consistent with this observation, Aykiran asserts that these assets

were subsumed into his business valuations included in his Schedule B,

line 19. Therein, he listed 100 percent and 70 percent ownership interests in

Textile and Towel Classic Tekstil, respectively, valuing such interests at $0

and "unknown," respectively. He explained in his motion to dismiss the

FAC, that the value of these businesses are $0 and "unknown" because

either their liabilities exceed their assets or because their value is unknown.

Kwong fails to sufficiently allege that these valuations are false or that

Aykiran should have separately reported his business assets in his

schedules.

       The alleged undisclosed assets also include refunds and

reimbursements from the Turkish government, which are presumably the

Entities' assets, not Aykiran's assets. Kwong does not allege to the contrary.

Further, it appears unlikely that these assets even exist, as Kwong alleges in

the FAC that refunds and reimbursement requests were denied.

       Even if any of the alleged undisclosed assets are Aykiran's personal

assets, Kwong fails to allege what value, if any, they have. Such allegations

are necessary to draw a reasonable inference that Aykiran should have

scheduled the assets. Many of the assets are likely valueless. For example,

Kwong vaguely alleges that Aykiran did not disclose "clothing." Likewise,

paragraph, any loss of assets or deficiency of assets to meet the debtor's liabilities[.]"
                                            15
he alleges that Aykiran did not disclose his interest in TT Collection. But

elsewhere in the FAC, he alleges that Aykiran "cancelled" TT Collection

over two years before filing bankruptcy. The FAC contains no allegations

indicating that TT Collection or the clothing have any value and should

have been disclosed because the omissions are material.

      3. Nondisclosure of liabilities

      As for liabilities, Kwong alleges that Aykiran failed to disclose debt

to the Turkish government. But Kwong also alleges that businesses in

Turkey are exposed to expensive long-term financial obligations. Such

debt, then, logically belongs to the Entities and not Aykiran. There are

insufficient allegations to suggest otherwise.

      Similarly, while Kwong alleges that Aykiran did not disclose a

promissory note in connection with his store's location and debts to his

accountant/CPA, Block, and a third party, no details of the note or debts

are given. It is thus unknown whether the note or debts belong to Aykiran

individually or to his Entities.

      4. Inadequate records

      In addition, Kwong sought a discharge denial under § 727(a)(3) based

on his allegations that Aykiran failed to produce records explaining why he

stated a $0 value for Textile and only draws $1,000 per month from it. But

again, Schedule B, line 19 discloses that Textile's liabilities exceed its assets.

As such, it presumably has no value and cannot make distributions greater

than $1,000. Kwong does not allege to the contrary.

                                        16
      5. False oaths

      The alleged false statements forming the basis of Kwong's § 727(a)(5)

claim include the above-described deficiencies in Aykiran's schedules.

They also include Aykiran's § 341(a) meeting of creditors testimony that he

stopped manufacturing Turkish Towels in 2014. Kwong alleges that this

testimony is false and that Aykiran in fact ceased manufacturing Turkish

Towels in 2018 or later. Kwong does not explain how the misrepresentation

would merit a denial of discharge.

      Based on the foregoing, the bankruptcy court properly dismissed

Kwong's § 727 claims.

D. Denial of leave to amend

      We now address the bankruptcy court's denial of leave to amend.

      Under Civil Rule 15, made applicable by Rule 7015, a bankruptcy

court should grant leave to amend when justice so requires. It should grant

leave to amend "unless it determines that the pleading could not possibly

be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1130

(9th Cir. 2000) (quotation omitted).

      In determining whether to grant a plaintiff leave to amend, a

bankruptcy court should consider: (1) undue delay; (2) bad faith or dilatory

motive by the plaintiff; (3) repeated failure to cure deficiencies by previous

amendments; (4) undue prejudice to the defendant; and (5) futility of

amendment ("Foman factors"). Foman v. Davis, 371 U.S. 178, 182 (1962). The

consideration of prejudice to the defendant is paramount. Eminence Cap.,

                                       17
LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). "Absent prejudice, or

a strong showing of any of the remaining Foman factors, there exists a

presumption under Rule 15(a) in favor of granting leave to amend." Id.

      1. Denial of leave to amend the § 523 Control claims

      The bankruptcy court properly denied Kwong leave to amend the

523(a)(2)(A) Control claim because the problems with it are incurable. As

we explained above, the claim is not just factually implausible. Rather, it

suffers from legal impossibility; Kwong cannot prove under any set of facts

that the alleged debts were obtained (created) by fraud.

      Curiously, while the bankruptcy court properly denied leave to

amend the 523(a)(2)(A) Control claim in the FAC, it granted Kwong leave

to amend the 523(a)(6) Control claim. Kwong thereby had an opportunity

to attempt to cure the deficiencies that pervaded his overlapping

523(a)(2)(A) and (a)(6) Control claims in his SAC. But the SAC was met

with another successful motion to dismiss. The bankruptcy court properly

denied Kwong a second opportunity to amend the 523(a)(6) Control claim

because he could not prove that Aykiran's breach of the Agreement was

accompanied by the tortious conduct alleged, fraud.

      2. Denial of leave to amend the § 727 claims

      But unlike the § 523 Control claims, we cannot conclude with

certainty that the § 727 claims were doomed by legal impossibility to the

extent that they were based on allegations other than the fraudulent

transfer of Control in the Entities to Block and SD Block. The bankruptcy

                                      18
court notably did not find that an amendment to the § 727 claims in the

FAC would be futile, would cause undue delay, or would unduly prejudice

Aykiran. Nor did it determine that Kwong asserted the § 727 claims in bad

faith. As explained above, the § 727 claims could potentially be saved by

amendment to the extent that they neither rely on the alleged fraudulent

transfer of Control in the Entities to Block and SD Block nor relate to non-

disclosure of non-estate assets. While the § 727 claims are undoubtably

improbable, amendment would not necessarily be futile. Kwong should be

afforded at least one opportunity to amend the claims to make them

plausible. Thus, the bankruptcy court abused its discretion by denying

leave to amend the § 727 claims.

                                CONCLUSION

      Thus, we AFFIRM the dismissal of the §§ 523(a)(2)(A), 523(a)(6), and

727(a)(2)(B) claims with prejudice, VACATE the judgment and the

dismissal of the §§ 727(a)(2)(A), (a)(3), (a)(4)(a), and (a)(5) claims with

prejudice, and REMAND with instructions to dismiss the §§ 727(a)(2)(A),

(a)(3), (a)(4)(a), and (a)(5) claims with leave to amend.

                                       19