Court Opinion

ID: 2757110
Source: CourtListenerOpinion
Date Created: 2014-12-03 19:08:31.446454+00
Date Added: 2024-06-11T09:16:18.498056
License: Public Domain

FILED
                                                           MAY 07 2012
                                                       SUSAN M SPRAUL, CLERK
                                                         U.S. BKCY. APP. PANEL
 1                                                       OF THE NINTH CIRCUIT

 2
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )     BAP No.     CC-11-1465-KiMkH
                                   )
 6   RAY CAI; PEILIN HU,           )     Adv. No.    09-01265-BR
                                   )
 7                  Debtors.       )     Bk. No.     08-31525-BR
                                   )
 8                                 )
     RAY CAI,                      )
 9                                 )
                    Appellant,     )
10                                 )
     v.                            )     M E M O R A N D U M1
11                                 )
     SHENZHEN SMART-IN INDUSTRY    )
12   COMPANY, LTD.; YI DANSHAN     )
     INDUSTRY COMPANY, LTD.;       )
13   HUIDONG WANDA INDUSTRY        )
     COMPANY, LTD.; HUIZHOU WANDA )
14   SHOES CO., LTD.,              )
                                   )
15                  Appellees.     )
     ______________________________)
16
                  Argued and Submitted on February 24, 2012,
17                          at Pasadena, California
18                            Filed - May 7, 2012
19               Appeal from the United States Bankruptcy Court
                     for the Central District of California
20
              Honorable Barry Russell, Bankruptcy Judge, Presiding
21
22   Appearances:    Kathleen P. March of The Bankruptcy Law Firm, P.C.
                     argued for appellant, Ray Cai;
23                   Steve Qi of the Law Offices of Steve Qi &
                     Associates argued for appellees, Shenzhen Smart-In,
24                   Industry Company, Ltd., Yi DanShan Industry
                     Company, Ltd., Huidong Wanda Industry Co., Ltd.,
25                   and Huizhou Wanda Shoes Company, Ltd.
26
27        1
            This disposition is not appropriate for publication.
     Although it may be cited for whatever persuasive value it may have
28   (see Fed. R. App. P. 32.1), it has no precedential value. See 9th
     Cir. BAP Rule 8013-1.
 1   Before: KIRSCHER, MARKELL, and HOLLOWELL, Bankruptcy Judges.
 2
 3        Before us is the second appeal in this case.2   Appellant Ray
 4   Cai (“Cai”) appeals the bankruptcy court’s further findings and
 5   judgment determining that his debts to appellees are
 6   nondischargeable under § 523(a)(2)(A).3   Appellees are Shenzhen
 7   Smart-In Co., Ltd. (“Shenzhen Smart-In”), Yi Dan Shan Industry
 8   Co., Ltd. (“Yi Dan Shan”), and Huidong Wanda Industry Co., Ltd.
 9   and Huizhou Wanda Shoes Co., Ltd. (together “Parties
10   Wanda”)(collectively “Appellees”).4   In Cai’s first appeal, the
11   Panel vacated and remanded the bankruptcy court’s
12   nondischargeability judgment against Cai for lack of sufficient
13   findings under FRCP 52(a).   Upon remand, the bankruptcy court made
14   the required further findings and again determined that Cai’s
15   debts to Appellees were nondischargeable under § 523(a)(2)(A).     We
16   AFFIRM the bankruptcy court’s further findings.   However, as more
17
18
          2
            Cai’s wife, Peilin Hu (“Hu”), was a defendant in the
19   underlying adversary proceeding and an appellant in the first
     appeal. In the first judgment, the bankruptcy court determined
20   that insufficient evidence existed regarding Appellees’ debts as
     to Hu. Upon remand of the first appeal, the bankruptcy court made
21   the same determination. Appellees have not appealed that ruling,
     and Hu is not an appellant in this appeal.
22
          3
            Unless specified otherwise, all chapter, code, and rule
23   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
     the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The
24   Federal Rules of Civil Procedure are referred to as “FRCP.”
25        4
            Guan Hang Shoes and HongKong Guan Hang International Group
     Co., Ltd. (together “Parties Guan Hang”) were plaintiffs in the
26   adversary proceeding and appellees in the first appeal. Upon
     remand of the first appeal, the bankruptcy court determined that
27   insufficient evidence existed to support nondischargeability as to
     Parties Guan Hang’s debt. Parties Guan Hang have not appealed
28   that determination.

                                     -2-
 1   thoroughly explained below, we must VACATE the judgment and REMAND
 2   for the limited purpose of amending the judgment to include the
 3   dollar amount of debt deemed nondischargeable.
 4                 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
 5           The factual background in this case is more fully set forth
 6   in the Panel’s Memorandum issued on February 2, 2011, in Cai’s
 7   first appeal.    CC-10-1287-DKiPa.   Cai was the owner and CEO of
 8   Citicross Corp. (“Citicross”), which imported and distributed
 9   women’s shoes manufactured in China from 2003 until approximately
10   2007.    Appellees are manufacturers and/or distributors of shoes
11   made in China.    Cai, on behalf of Citicross, ordered and received
12   multiple shipments of shoes from Appellees that were not paid for
13   despite Cai’s repeated statements to each Appellee before placing
14   the orders that he intended to pay for, and had the funds to pay
15   for, the shoes.
16           In Cai’s first appeal, the Panel determined that the
17   bankruptcy court’s nondischargeability judgment lacked sufficient
18   findings to support it.    It vacated the judgment and remanded the
19   matter for further findings.    Upon remand, the bankruptcy court
20   did not take any additional evidence or briefing, or hold any
21   further proceedings.    Therefore, the further findings are based on
22   the original record, which included a two-day trial and
23   declarations from Cai and various witnesses for Appellees.
24           On August 19, 2011, the bankruptcy court found that Cai
25   knowingly made the same two false statements to each Appellee:
26   (1) that he intended to pay for the shoes ordered and delivered;
27   and (2) that he had sufficient funds to pay for the shoes.
28   Further Findings (Aug. 19, 2011) 2:2-3.    Alternatively, the court

                                       -3-
 1   found that even had Cai said that he intended to pay for the
 2   shoes, without any reference to having sufficient funds to pay for
 3   them, it would still find the debts nondischargeable.     Id. at 2:6-
 4   7.   The court found no need to resort to an “alter ego” theory to
 5   impose personal liability on Cai; Cai was personally liable
 6   because he is the one who defrauded Appellees.5    Id. at 2:12-15.
 7         The bankruptcy court further found that each Appellee relied
 8   upon Cai’s repeated promises to pay for the shoes, and did so
 9   justifiably given the “very difficult circumstances in which
10   Mr. Cai put the creditors[.]    [T]heir only hope of being paid on
11   the previous shipments was to ship more shoes and hope that
12   Mr. Cai would finally live up to his promises to pay.     Obviously,
13   at some point, they had enough of his lies and made no further
14   shipments.”   Id. at 2:20-22.
15         Finally, the bankruptcy court concluded that Cai proximately
16   caused the damage to Appellees.    It found that Cai was not a
17   credible witness, and it did not believe his alleged excuses for
18   nonpayment.   Id. at 3:3.   On the other hand, the court believed
19   Appellees’ testimony that they were unable to resell the
20   specially-ordered shoes.    Id. at 3:3-5.
21         Cai timely filed his notice of appeal on August 29, 2011.
22   Upon review of the record, we determined that no new judgment had
23   yet been entered.   As a result, the notice of appeal was
24   ineffective to confer jurisdiction.     See Rule 8002.   On
25
           5
            Although Cai raised the alter ego issue in his statements
26   of issues on appeal, he did not raise this argument in his opening
     brief. Accordingly, this issue has been waived. Golden v.
27   Chicago Title Ins. Co. (In re Choo), 273 B.R. 608, 613 (9th Cir.
     BAP 2002)(arguments not specifically and distinctly made in an
28   appellant’s opening brief are waived).

                                       -4-
 1   October 18, 2011, we issued an order requiring the parties to
 2   obtain a separate judgment from the bankruptcy court.   The
 3   separate judgment was entered on October 28, 2011.
 4                               II. JURISDICTION
 5        The bankruptcy court had jurisdiction under 28 U.S.C.
 6   §§ 157(b)(2)(I) and 1334.    We have jurisdiction under 28 U.S.C.
 7   § 158.
 8                                  III. ISSUE
 9        Did the bankruptcy court err when it entered the
10   nondischargeability judgment against Cai under § 523(a)(2)(A)?
11                         IV. STANDARDS OF REVIEW
12        The parties dispute the standard of review in this case.       In
13   claims for nondischargeability, the Panel reviews the bankruptcy
14   court’s findings of fact for clear error and conclusions of law de
15   novo, and applies de novo review to “mixed questions” of law and
16   fact that require consideration of legal concepts and the exercise
17   of judgment about the values that animate the legal principles.
18   Oney v. Weinberg (In re Weinberg), 410 B.R. 19, 28 (9th Cir. BAP
19   2009).
20        The determination of intent to defraud, justifiable reliance,
21   and proximate causation are questions of fact reviewed for clear
22   error.   Eugene Parks Law Corp. Defined Benefit Pension Plan v.
23   Kirsh (In re Kirsh), 973 F.2d 1454, 1456 (9th Cir. 1992)
24   (justifiable reliance); First Beverly Bank v. Adeeb (In re Adeeb),
25   787 F.2d 1339, 1342 (9th Cir. 1986)(intent); Rubin v. West (In re
26   Rubin), 875 F.2d 755, 758 (9th Cir. 1989)(proximate causation).
27   The bankruptcy court’s witness credibility findings are entitled
28   to special deference, and are also reviewed for clear error.

                                       -5-
 1   In re Weinberg, 410 B.R. at 28; Rule 8013.       If two views of the
 2   evidence are possible, the trial judge’s choice between them
 3   cannot be clearly erroneous.    Hansen v. Moore (In re Hansen),
 4   368 B.R. 868, 875 (9th Cir. BAP 2007).       A finding is clearly
 5   erroneous if it is illogical, implausible, or without support in
 6   the record.   United States v. Hinkson, 585 F.3d 1247, 1261 (9th
 7   Cir. 2009)(en banc).
 8                                V. DISCUSSION
 9   A.   Section 523(a)(2)(A).
10        Section 523(a)(2)(A) provides that, “A discharge under . . .
11   this title does not discharge an individual debtor from any debt
12   (2) for money, property, services, or an extension, renewal or
13   refinancing of credit, to the extent obtained by (A) false
14   pretenses, a false representation, or actual fraud, other than a
15   statement respecting the debtor’s or an insider’s financial
16   condition.”
17        To prevail on a claim under § 523(a)(2)(A), a creditor must
18   establish five elements: (1) the debtor made representations;
19   (2) that at the time he knew were false; (3) that he made them
20   with the intention and purpose of deceiving the creditor; (4) that
21   the creditor relied on such representations; and (5) that the
22   creditor sustained the alleged loss and damage as the proximate
23   result of the debtor’s misrepresentations.      Ghomeshi v. Sabban
24   (In re Sabban), 600 F.3d 1219, 1222 (9th Cir. 2010).       The creditor
25   bears the burden of proving all five of these elements by a
26   preponderance of the evidence.    Id.   In order to strike a balance
27   between allowing debtors a fresh start and preventing a debtor
28   from retaining the benefits of property obtained by fraudulent

                                       -6-
 1   means, exceptions to discharge under § 523(a)(2)(A) are construed
 2   strictly against creditors and in favor of debtors.    Id.
 3   B.   The bankruptcy court did not err when it entered the
          nondischargeability judgment against Cai under
 4        § 523(a)(2)(A).
 5        1.    Cai’s statements were not oral statements of financial
                condition excepted under § 523(a)(2)(A).
 6
 7        Cai contends that the debts to Appellees should be discharged
 8   because his statements at issue were oral statements of financial
 9   condition, which are expressly precluded under the statute.
10   Specifically, Cai argues that the bankruptcy court’s finding of
11   “implicit in the promise to pay is the ability to pay by having
12   sufficient funds to pay . . .” is a finding that both of Cai’s
13   statements (1) that he intended to pay for the shoes, and (2) that
14   he had sufficient funds to pay for the shoes, constitute the same
15   thing: Cai had sufficient funds to pay for the shoes.    Cai
16   contends this statement is a statement of financial condition not
17   actionable under § 523(a)(2)(A).    We disagree with Cai for two
18   reasons.   First, Cai fails to mention the bankruptcy court’s other
19   critical finding about his statements: that even had Cai said he
20   intended to pay for the shoes, without ever representing that he
21   had sufficient funds to pay for them, the court would still have
22   found the debts nondischargeable.     Second, Cai’s statement does
23   not constitute an oral statement of financial condition excepted
24   under the statute.
25        In a recent opinion decided while this appeal was pending, we
26   adopted the “narrow” view of interpreting the term “statement
27   respecting the debtor’s . . . financial condition” under
28   § 523(a)(2)(A).   Barnes v. Belice (In re Belice), 461 B.R. 564,

                                     -7-
 1   577-78 (9th Cir. BAP 2011).     In Belice, we held that such
 2   statements “are those that purport to present a picture of the
 3   debtor’s overall financial health.”      Id.   Relying on Cadwell v.
 4   Joelson (In re Joelson), 427 F.3d 700, 714 (10th Cir. 2005), we
 5   explained:
 6           Statements that present a picture of a debtor's overall
             financial health include those analogous to balance
 7           sheets, income statements, statements of changes in
             overall financial position, or income and debt statements
 8           that present the debtor or insider's net worth, overall
             financial health, or equation of assets and liabilities
 9           . . . . What is important is not the formality of the
             statement, but the information contained within it —
10           information as to the debtor's or insider's overall net
             worth or overall income flow.
11
12   Id. at 578 (citing In re Joelson, 427 F.3d at 714).
13           Based on this narrow interpretation, Cai’s statement that he
14   had sufficient funds to pay for the shoes does not constitute a
15   statement respecting his financial condition.      While this
16   statement may be a closer call than those at issue in Belice, it
17   does not shed any real light on Cai’s overall net worth or his
18   overall income flow.
19           However, even if Cai’s statement that he had sufficient funds
20   to pay for the shoes somehow constituted an oral statement of
21   financial condition, this was not his only statement to Appellees.
22   When each Appellee asked Cai before shipping out another order for
23   payment for the previous unpaid shipments, Cai repeatedly told
24   them that he intended to pay for the shoes but that he needed more
25   time.     Clearly, this statement is not a statement respecting Cai’s
26   financial condition.     As noted by Judge Pappas at oral argument in
27   Cai’s first appeal:
28           But, if a debtor tells a creditor, ‘I have the money to

                                        -8-
 1        repay the debt, or the loan that I’m about to get from
          you,’ it seems to me that, arguably, that’s a statement
 2        about the debtor’s financial condition.     I have the
          money. If the debtor says, ‘I intend to repay you,’ but
 3        does not have the intent to repay, is the statement, ‘I
          intend to repay you,’ a statement about the debtor’s
 4        financial condition? Aren’t they two different things?
 5        . . .
 6        . . . But, the problem is, is I think -- didn’t the
          bankruptcy judge find that your client made both types of
 7        representations?
 8   Tr. of BAP Appellate Oral Argument for Cai v. Shenzhen Smart-In
 9   Co., Ltd., CC-10-1287 (2011) (09-01265) (January 21, 2011) 3:12-
10   20; 4:1-3.    Therefore, we conclude Cai’s statements are actionable
11   under § 523(a)(2)(A).
12        2.      Cai’s statements were false representations.
13        The bankruptcy court found that, based on the totality of the
14   circumstances, Cai’s statements were false and that he lacked any
15   intent to pay Appellees for the shoe orders at issue.       Cai
16   contends the court’s findings are fatally vague as to “when” Cai
17   made the statements, and without knowing when the statements were
18   made to each Appellee, the dollar amount of shoe shipments
19   Appellees shipped in reliance on those statements cannot be
20   calculated.    Cai contends that the record did not establish what,
21   if any, shoe shipments were shipped after his statements, so
22   therefore Appellees failed to prove their damages.    Cai ignores
23   the evidence in this case.
24        The testifying witness for Shenzhen Smart-In, Dawson Li Guan
25   (“Mr. Guan”), testified that Cai’s initial orders with Shenzhen
26   Smart-In were small and paid for promptly.    However, beginning in
27   February 2006, Cai’s orders became substantially larger, totaling
28   approximately $578,367.00.    Because of the order’s size, Mr. Guan

                                       -9-
 1   asked Cai if he had sufficient funds to purchase the shipment.
 2   Cai responded that he did, and that the balance would be promptly
 3   paid just as their prior transactions.   Cai did not pay for the
 4   February order as promised.   This pattern repeated itself in March
 5   2006 (total order $209,032.00), in May 2006 (total order
 6   $45,360.00), in June 2006 (total order $19,108.00), in August 2006
 7   (total order $92,601.20), in September 2006 (total order
 8   $8,376.00), and in October 2006 (total order $70,776.00).    After
 9   receiving no payment for any of the shipped orders between
10   February and October 2006, Shenzhen Smart-In refused to make any
11   further shipments.   Overall, Cai incurred a debt of about $1.2
12   million to Shenzhen Smart-In, of which he still owes $958,000.00.
13        Naizhong Li (“Mr. Li”) of Yi Dan Shan testified to a similar
14   story.   In 2005, Yi Dan Shan’s first year of doing business with
15   Citicross, Cai placed small orders and promptly paid for them.
16   Beginning in April 2006, however, the quantity increased
17   dramatically.   Before Yi Dan Shan would ship April’s $489,942.00
18   order, Mr. Li asked Cai if he had sufficient funds to pay for the
19   order.   Cai assured him that he had the funds ready for payment.
20   Cai did not pay for the April order as promised.   Like Shenzhen
21   Smart-In, this pattern repeated itself in May 2006 (total order
22   $181,800.00), in June 2006 (total order $294,720.12), in July 2006
23   (total order $137,337.00), and in August 2006 (total order
24   $145,314.00).   After receiving no payment for any of the shipped
25   orders between April and August 2006, Yi Dan Shan refused to make
26   any further shipments.   Cai’s debt to Yi Dan Shan totaled nearly
27   $1 million, of which he still owes $833,229.54.
28        Parties Wanda’s experience parrots that of Shenzhen Smart-In

                                     -10-
 1   and Yi Dan Shan.   Shengda Chen (“Mr. Chen”) testified that Cai
 2   stopped making payments on Citicross’s accounts in September 2006.
 3   In September 2006, Cai placed a large shoe order for $93,483.00.
 4   When Mr. Chen asked Cai if he had sufficient funds to make the
 5   purchase, Cai assured him that he did and that payment would be
 6   made promptly as in prior purchases.     When Cai called in October
 7   2006 to place an order for $44,838.00, Mr. Chen inquired about the
 8   unpaid September invoice and asked Cai whether he had the funds to
 9   pay for the orders.   Cai assured Mr. Chen that he had the money
10   but that he needed more time to make the payments.     Parties Wanda
11   shipped out the October order.   Cai did not pay for the orders.
12   On cross-examination, Mr. Chen testified that Cai also failed to
13   pay for orders he placed in August, November, and December 2006.
14   Cai’s total debt to Parties Wanda was approximately $500,000.00.
15        Contrary to Cai’s argument, the record clearly established
16   “when” Cai made the repeated false statements to each Appellee and
17   how many shoe orders were shipped after he made the false
18   statements.   Therefore, assuming Appellees established Cai’s
19   intent to deceive, their reliance on his false statements, and
20   that Cai caused their damages, Appellees’ damages could be easily
21   calculated.   Accordingly, we see no error here.
22        3.   Cai intended to deceive Appellees.
23        A promise made with a positive intent not to perform or
24   without a present intent to perform satisfies § 523(a)(2)(A).
25   In re Rubin, 875 F.2d at 759.    The “intent to deceive can be
26   inferred from the totality of the circumstances, including
27   reckless disregard for the truth.”      Gertsch v. Johnson (In re
28   Gertsch), 237 B.R. 160, 167-68 (9th Cir. BAP 1999).      Cai contends

                                      -11-
 1   that the bankruptcy court’s finding of his “lack of intent to pay”
 2   is negated by the evidence for six reasons.
 3        First, Cai argues that of the 2006 shoe orders complained of
 4   by Appellees, Citicross paid them $3.84 million of the $5.8
 5   million owed, which is a 66.2% payment overall, and no reported
 6   case has found lack of intent to pay under such circumstances.
 7   This argument is problematic for two reasons.     A debtor’s partial
 8   payment of a debt does not necessarily equate to a lack of intent
 9   to defraud.   Here, by making at least some payments, Cai was able
10   to induce Appellees to continue to ship shoes to Citicross.
11   Moreover, Cai appears to be basing his figures on the total amount
12   of purchases he ever made with each Appellee while in business,
13   which is irrelevant for purposes here.     Cai claims he paid Yi Dan
14   Shan $1,250,000 out of the $2 million owed.     The orders at issue
15   actually total approximately $1,250,000 and Cai still owes Yi Dan
16   Shan $833,229.54.   Shenzhen Smart-In’s orders at issue total just
17   over $1 million and Cai still owes it $958,000.     Finally, Cai owes
18   Parties Wanda approximately $500,000, almost the entire balance of
19   the orders at issue.
20        Second, Cai argues that Appellees failed to controvert the
21   historic evidence that Citicross had to sell the shoes ordered
22   from Appellees and then pay Appellees from the proceeds.     In other
23   words, Cai contends that the parties’ agreement was that unless
24   the shoes sold, Citicross could not or would not have to pay
25   Appellees.    This too is incorrect.    Each Appellee testified that
26   payments for shoes ordered were due in full within 30-45 days of
27   invoice.   Appellees provided Citicross with credit on a Net 30-45
28   basis.   Cai even admitted at trial that payments to Appellees were

                                      -12-
 1   due in full within 30-45 days after the shoes arrived at port.        In
 2   any event, Citicross apparently sold the shoes from these numerous
 3   unpaid orders, but never paid Appellees from the proceeds or
 4   otherwise.
 5        Third, Cai contends that he was hindered from selling the
 6   shoes, and therefore unable to pay for them, due to Appellees:
 7   (1) repeatedly delivering shoes late (past the selling season);
 8   and (2) delivering poor quality shoes.       On these issues, the
 9   bankruptcy court found Cai’s testimony not credible.       Morever,
10   Appellees offered contrary testimony as to the alleged late and/or
11   poor quality shipments.   Notably, Citicross employees stationed at
12   Appellees’ manufacturing facilities in China oversaw production
13   and scheduled timing of all shipments.       If any shipment was to be
14   late, Cai knew about it in advance.       Granted, if delays in
15   production existed beyond Citicross’s control, it follows that
16   Citicross would not have control over late shipments, assuming it
17   still wanted the delayed shipment.        However, when the bankruptcy
18   court questioned Cai, a savvy businessman, why he accepted late,
19   unsellable shipments of shoes, Cai had no real explanation other
20   than that Appellees begged him to do so.       Trial Tr. (May 20, 2010)
21   at 81:9-23.   The bankruptcy court found that, considering the
22   sophistication level of the parties, Cai’s explanation “[didn’t]
23   make any sense.”   Id. at 100:6.    Mr. Chen testified that no
24   shipments from Parties Wanda were ever late.       Moreover, although
25   Cai testified to possessing documents reflecting his
26   communications with Appellees that he was deducting certain
27   amounts for the late shipments, Cai admitted that he did not
28   submit these documents in the record.       What documents Cai did

                                        -13-
 1   offer to prove the alleged late shipments fail to identify which
 2   manufacturer was responsible for that particular order, or whether
 3   any of those orders were even placed with Appellees.
 4           Cai also alleged that because the shoes were defective, his
 5   customers refused to pay Citicross, and therefore Citicross could
 6   not pay Appellees.    This testimony is contradicted by the facts of
 7   the case and Appellees’ testimony.       Citicross employees oversaw
 8   manufacturing in China at various stages and inspected the goods
 9   before they left the factory for shipment.      Each Appellee
10   testified that if a quality issue arose with a certain shipment,
11   the parties would negotiate a discount to Citicross.      Mr. Li
12   testified that total deductions to Citicross for defective shoes
13   from Yi Dan Shan were $2,685.00.    Mr. Chen testified that total
14   deductions to Citicross for defective shoes from Parties Wanda
15   were approximately $4,000.    Cai admitted he had no documentary
16   evidence reflecting his communications with Appellees about the
17   many defective shoes.    The only documentary evidence Cai submitted
18   in the record were some emails and photos from Citicross customers
19   complaining about the quality of certain shipments.      Besides
20   overcoming hearsay and other authentication issues with these
21   documents, all of the complaint emails are dated from mid-2007,
22   which is long after any of the alleged defective shipments from
23   2006.    Further, none of the complaint emails prove that Appellees
24   were the manufacturers of these shoes.
25           Appellees’ discounts of approximately $7,000 for admittedly
26   defective shoes certainly does not excuse Cai from paying
27   Appellees for the nearly $3 million in goods Citicross received.
28   It also defies credulity that Cai would continue to place orders

                                       -14-
 1   with companies that were repeatedly sending Citicross a large
 2   amount of defective shoes.
 3        Fourth, Cai contends that “Appellees” made it impossible for
 4   Citicross to sell any of the delivered shoes because they sued
 5   Citicross in state court for nonpayment and attached the shoes.
 6   Cai has failed to meet his burden of proof on this issue.    All we
 7   have in the record to support his argument is a handwritten
 8   application for an ex parte writ of attachment by Shenzhen
 9   Smart-In that is not signed by the state court.   No evidence
10   exists of any attachment order applied for, or entered in favor
11   of, Yi Dan Shan or Parties Wanda.   Although not in the record,
12   counsel for Appellees admits on appeal that an attachment order
13   exists, but contends it was for only approximately $20,000 worth
14   of goods, and even most of those shoes had already been sold.
15        Fifth, Cai argues that his and Hu’s equity contribution to
16   Citicross for $844,000, which Cai claims Citicross paid to
17   Appellees, is contrary to no intent to pay.   Although Citicross
18   paid Appellees some money, nothing in the record establishes that
19   Appellees received anywhere near $844,000, or proves that
20   Citicross used any of the funds to pay Appellees.
21        Finally, Cai contends that his and Hu’s posting of their home
22   as collateral for a loan for Citicross, which they lost to
23   foreclosure, is contrary to how a person having a lack of intent
24   to pay acts.   But this single fact, even if true, does not negate
25   all of the evidence of Cai’s bad intent.
26        Based upon our clearly erroneous standard of review, and
27   considering the special deference we must accord the bankruptcy
28   court on its witness credibility determinations, we conclude the

                                     -15-
 1   bankruptcy court’s finding that Cai intended to deceive Appellees
 2   is not illogical, implausible, or without support in the record.
 3   Hinkson, 585 F.3d at 1261.
 4        4.      Appellees justifiably relied on Cai’s false statements.
 5        A creditor must establish that it relied on a debtor’s false
 6   statement.    The Supreme Court has held that the degree of the
 7   creditor’s reliance need only be justifiable, not reasonable.
 8   Field v. Mans, 516 U.S. 59, 74 (1995); Citibank (South Dakota),
 9   N.A. v. Eashai (In re Eashai), 87 F.3d 1082, 1090 (9th Cir. BAP
10   1996).    Justification “is a matter of the qualities and
11   characteristics of the particular plaintiff, and the circumstances
12   of the particular case, rather than of the application of a
13   community standard of conduct to all cases.”    Field, 516 U.S. at
14   71 (quoting Restatement (Second) of Torts § 545A, cmt. b (1976)).
15        Cai contends that reliance was not proven in this case
16   because: (1) Appellees were relying on proceeds from shoe sales to
17   get paid; (2) the further finding that Appellees’ “only hope of
18   being paid on previous shoe shipments was to ship more shoes”
19   recognized that fact; and (3) Appellees admitted they shipped
20   shoes to Citicross based on Citicross’s past history of payments.
21   We have already rejected Cai’s first argument above.    Appellees
22   extended Citicross credit on a Net 30-45 basis and expected
23   payment in full within 30 or 45 days after invoice.
24        As for his second argument, even if Appellees recognized that
25   Citicross needed to sell shoes from future orders to pay for
26   previous ones, Appellees sent the shoes in reliance on Cai’s
27   statement that he was eventually going to pay them for all of the
28   shipments.    Despite receiving the additional orders, Cai still

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 1   never paid for the shoes as promised.
 2        We also reject Cai’s third argument.    Each Appellee testified
 3   that when they began doing business with Citicross, Cai placed
 4   smaller orders and promptly paid for them.    Over time, Cai built a
 5   sense of trust with Appellees.    Based on Citicross’s past prompt
 6   payments, Appellees trusted Cai would continue this pattern when
 7   the quantities increased, and they extended Citicross the same
 8   payment terms.    Nonetheless, before they shipped the larger shoe
 9   orders, each Appellee asked Cai whether Citicross had the funds to
10   pay for the shipments.    Cai assured them that he had the funds and
11   that payment would be prompt as usual.    Once Citicross failed to
12   pay for the first larger orders, each Appellee inquired about
13   payment and Cai again reassured each of them that payment was soon
14   forthcoming.    After Cai’s assurances failed several times,
15   Appellees finally quit believing Cai and cut their losses.      While
16   the circumstances of this case may extend the limits of what we
17   may normally consider justifiable reliance, at least with respect
18   to some of the later orders, on this record we cannot conclude the
19   bankruptcy court’s finding that Appellees justifiably relied on
20   Cai’s false statements is illogical, implausible, or without
21   support in the record.    Hinkson, 585 F.3d at 1261.
22        5.      Cai proximately caused the damages to Appellees.
23        Causation or proximate cause entails (1) causation in fact,
24   which requires a defendant’s misrepresentations to be a
25   substantial factor in determining the course of conduct that
26   results in loss, and (2) legal causation, which requires a
27   creditor’s loss to “reasonably be expected to result from the
28   reliance.”    Beneficial Cal., Inc. v. Brown (In re Brown), 217 B.R.

                                       -17-
 1   857, 862 (Bankr. S.D. Cal. 1998)(citing Restatement (Second) of
 2   Torts §§ 546, 548A (1976)).
 3        Cai does not appear to contest the bankruptcy court’s finding
 4   that he caused Appellees’ damages, other than arguing that
 5   Appellees had a duty to mitigate their damages and take back
 6   unsold shoes and resell them.    Based on Appellees’ testimony, the
 7   bankruptcy court found that Appellees were unable to take back any
 8   unsold shoes because they were special orders with Citicross’s
 9   name already embossed on them.   In addition, Mr. Li of Yi Dan Shan
10   testified that when he visited Citicross’s warehouse in California
11   in August 2006, he noticed that his company’s inventory had
12   already been sold.
13        In any event, we have already concluded that the bankruptcy
14   court did not err when it determined that Appellees shipped the
15   shoe orders at issue in reliance on Cai’s false statements that he
16   would pay for them and that he had the funds to do so.   As a
17   result of his false statements and deceptive conduct, Cai incurred
18   the debts to Appellees.   Cai did not pay Appellees for the shoes
19   and they, therefore, suffered an actual loss as a result.
20   Accordingly, we conclude the bankruptcy court did not err in
21   determining that the debts to Appellees are nondischargeable under
22   § 523(a)(2)(A).
23                               VI. CONCLUSION
24        For the foregoing reasons, we AFFIRM the bankruptcy court’s
25   further findings.    However, we agree with Cai that the new
26   judgment is fatally vague because it states only that “Mr. Cai’s
27   debts to [Appellees] shall not be discharged” and fails to state
28   which debts are owed to whom and in what amounts.   As a result, we

                                      -18-
 1   must VACATE the judgment and REMAND with instructions that the
 2   bankruptcy court must make a determination of the amounts and
 3   allocations owing to the Appellees in accordance with the evidence
 4   and this memorandum, given the complaint’s prayer for relief and
 5   given the fact that the bankruptcy court did not state any reason
 6   for not granting full relief in the form of both a liquidation of
 7   the claims and a finding of nondischargeability.
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