Court Opinion

ID: 2671331
Source: CourtListenerOpinion
Date Created: 2014-04-26 00:00:52.723734+00
Date Added: 2024-06-11T11:14:39.374022
License: Public Domain

FILED
                           NOT FOR PUBLICATION                             APR 25 2014

                                                                        MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                       U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

RAY CAI,                                         No. 12-56656
              Appellant - Petitioner,
  v.                                             D.C. No. 2:08-bk-31525-BR

SHENZHEN SMART-IN INDUSTRY
COMPANY, LTD.; et al.,                           MEMORANDUM*

              Appellees - Respondents.

In re: RAY CAI and PEILIN HU,                    No. 12-60037

              Debtors,                           BAP No. 11-1465

RAY CAI,
              Appellant,
  v.

SHENZHEN SMART-IN INDUSTRY
COMPANY, LTD.; et al.,

              Appellees.

                  Appeal from the United States Bankruptcy Court
                       for the Central District of California
                    Barry Russell, Bankruptcy Judge, Presiding

                         Appeal from the Ninth Circuit
                          Bankruptcy Appellate Panel
            Dunn, Kirscher, and Pappas, Bankruptcy Judges, Presiding

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
                        Argued and Submitted April 11, 2014
                               Pasadena, California

Before: N.R. SMITH and MURGUIA, Circuit Judges, and MCNAMEE, Senior
District Judge.**

      Cai appeals the bankruptcy court’s determination (affirmed by the

Bankruptcy Appellate Panel) that the claims of Shenzhen Smart-In Co., Ltd.,

Huidong Wanda Industry Co., Ltd., Huizhou Wanda Shoes Co., Ltd., and Yi Dan

Shan Industry Co., Ltd. (collectively “Creditors”) are excepted from discharge

under 11 U.S.C. § 523(a)(2)(A). He also directly appeals the bankruptcy court’s

subsequent dollar amount determinations of these claims.

      “We review de novo all decisions of bankruptcy appellate panels in cases

brought before us pursuant to 28 U.S.C. § 158(d).” Steelcase Inc. v. Johnston (In re

Johnston), 21 F.3d 323, 326 (9th Cir. 1994). We review “the bankruptcy court’s

findings of fact under the clearly erroneous standard and . . . its conclusions of law

de novo.” Id. Our review also contemplates the “fresh start policy”: “exceptions to

discharge should be strictly construed against an objecting creditor and in favor of

the debtor.” Snoke v. Riso (In re Riso), 978 F.2d 1151, 1154 (9th Cir. 1992).

                                           I.

       **
             The Honorable Stephen M. McNamee, Senior U.S. District Judge for
the for the District of Arizona, sitting by designation.

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      A debtor is not discharged in bankruptcy from any debt “for money,

property, services, or an extension, renewal, or refinancing of credit, to the extent

obtained by—false pretenses, a false representation, or actual fraud.” 11 U.S.C.

§ 523(a)(2)(A). To prevail “on any claim arising under § 523(a)(2)(A),” a “creditor

must demonstrate by a preponderance of the evidence” the following five factors:

      (1) misrepresentation, fraudulent omission or deceptive conduct by
      the debtor; (2) knowledge of the falsity or deceptiveness of his
      statement or conduct; (3) an intent to deceive; (4) justifiable reliance
      by the creditor on the debtor’s statement or conduct; and (5) damage
      to the creditor proximately caused by its reliance on the debtor’s
      statement or conduct.

Turtle Rock Meadows Homeowners Ass’n v. Slyman (In re Slyman), 234 F.3d
1081, 1085 (9th Cir. 2000). On appeal, Cai only contests the presence of the first,

third and fourth factors.1 Indep. Towers of Wash. v. Washington, 350 F.3d 925, 929

(9th Cir. 2003) (“[W]e cannot ‘manufacture arguments for an appellant’ and

therefore we will not consider any claims that were not actually argued in

appellant’s opening brief.”).

                                A. Misrepresentation

      1
       Further, Cai only challenges one of the two fraudulent representations the
bankruptcy court found that he made: he claims his statements that he intended to
repay the obligations were not misrepresentations, because he did intend to repay.

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      A failure to “disclose to [a] creditor [one’s] intent not to pay” may constitute

a false representation under § 523(a)(2)(A). Citibank (S.D.), N.A. v. Eashai (In re

Eashai), 87 F.3d 1082, 1088 (9th Cir. 1996). This determination presents a

question of fact. See Moore v. Jogert, Inc. (In re Jogert, Inc.), 950 F.2d 1498,

1504-05 (9th Cir. 1991).

      The bankruptcy court did not clearly err when, after hearing testimonial

evidence and argument, it concluded that Cai lacked intent to repay (and thus his

statements asserting an intent to repay were misrepresentations). It found him not

credible and disbelieved his excuses for failing to repay the obligations. As a

sophisticated businessman, Cai would not have accepted non-conforming goods or

goods that were shipped late out of goodwill. These findings are plausible in light

of the record. Further, a trial court’s credibility determinations deserve “special

deference.” Husain v. Olympic Airways, 316 F.3d 829, 840 (9th Cir. 2002).

                                 B. Intent to Deceive

      Whether a debtor possessed intent to deceive under § 523(a)(2)(A) is a

question of fact that “can be inferred from surrounding circumstances.” Cowen v.

Kennedy (In re Kennedy), 108 F.3d 1015, 1018 (9th Cir. 1997). For the same

reasons the bankruptcy court did not clearly err in concluding that Cai

                                          -4-
misrepresented his intent to repay, it did not clearly err in finding that Cai intended

to deceive the Creditors.

                                C. Justifiable Reliance

      Whether one’s reliance was justifiable “is a matter of the qualities and

characteristics of the particular [person], and the circumstances of the particular

case.” Field v. Mans, 516 U.S. 59, 71 (1995). Yet, reliance is not justifiable where

“a person of normal intelligence, experience and education [puts] faith in

representations which any such normal person would recognize at once as

preposterous.” Eugene Parks Law Corp. Defined Benefit Pension Plan v. Kirsh (In

re Kirsh), 973 F.2d 1454, 1458 (9th Cir. 1992) (per curiam) (internal quotation

marks and alterations omitted). Finally, justifiable reliance is a question of fact. Id.

at 1456.

      The bankruptcy court did not clearly err when it found the Creditors actually

and justifiably relied on Cai’s misrepresentations, notwithstanding Cai’s failure to

pay for multiple past shoe orders. Cai had established a history of making timely

payments with each Creditor prior to his defaults.

                                           II.

      The bankruptcy court rightly concluded that Cai’s statement that he intended

to pay for the orders was a sufficient misrepresentation by itself to support a

                                           -5-
finding of exception from discharge under § 523(a)(2)(A). See In re Eashai, 87
F.3d at 1087. Thus, it’s irrelevant whether Cai’s statement that he had funds to pay

for the shoes was a statement of financial condition per 11 U.S.C. § 523(a)(2)(A).

                                         III.

      Finally, the bankruptcy court had authority to enter a “dollar amount”

judgment of nondischargeability. Stern v. Marshall, 131 S. Ct. 2594 (2011), does

not raise any constitutional concerns about the bankruptcy court’s adjudication in

this case, because Stern implicitly recognized that bankruptcy courts do have

authority to adjudicate a state law counterclaim if the counterclaim would

necessarily be decided through the claims allowance process. Stern, 131 S. Ct. at

2618. Determining the scope of the debtor’s discharge is a fundamental part of the

bankruptcy process, and determining whether a claim against a creditor is

discharged under § 523(a)(2)(A) does not raise any issues of state law. Cf. Field,
516 U.S. at 69.

      AFFIRMED.

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