FILED
NOV 03 2015
1 NOT FOR PUBLICATION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-15-1005-TaKuD
)
6 PETER PEDROM ETESAMNIA, ) Bk. No. 2:12-bk-4366l-TD
)
7 Debtor. ) Adv. No. 2:13-ap-01695-TD
______________________________)
8 )
KOUROSH MALEKAN, )
9 )
Appellant, )
10 )
v. ) MEMORANDUM*
11 )
PETER PEDROM ETESAMNIA, )
12 )
Appellee. )
13 ______________________________)
14 Argued and Submitted on September 24, 2015
at Malibu, California
15
Filed – November 3, 2015
16
Appeal from the United States Bankruptcy Court
17 for the Central District of California
18 Honorable Thomas B. Donovan, Bankruptcy Judge, Presiding
19
Appearances: A. David Youssefyeh of Ady Law Group, P.C. argued
20 for appellant; Edmond Nassirzadeh of Nass Law
Firm argued for appellee.
21
22 Before: TAYLOR, KURTZ, and DUNN, Bankruptcy Judges.
23
24
25
26 *
This disposition is not appropriate for publication.
27 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
28 See 9th Cir. BAP Rule 8024-1(c)(2).
1 INTRODUCTION
2 Appellant Kourosh Malekan commenced an adversary proceeding
3 against debtor Peter Pedrom Etesamnia and sought to except
4 claims from discharge under § 523(a).1 The bankruptcy court
5 later dismissed a second amended adversary complaint with
6 prejudice pursuant to Civil Rule 12(b)(6).
7 We AFFIRM the dismissal of the § 523(a)(2)(B) and (a)(6)
8 claims. But, we AFFIRM in part and REVERSE in part on dismissal
9 of the § 523(a)(2)(A) and (a)(3)(B) claims.
10 FACTS2
11 There is no dispute that prepetition Malekan invested money
12 in three business ventures that the Debtor either managed or
13 introduced to him. After the ventures failed, Malekan commenced
14 an action on October 16, 2012 against the Debtor and in
15 California state court. Apparently the original complaint was
16 not served on the Debtor, but he was served with the first
17 amended complaint in June, 2013.
18 In the meantime, on October 4, 2012, the Debtor filed a
19 chapter 7 petition. He did not list Malekan as a creditor
20 because, as he later explained, he did not believe he owed him
21
22 1
Unless otherwise indicated, all chapter and section
references are to the Bankruptcy Code,
11 U.S.C. §§ 101-1532.
23
All “Rule” references are to the Federal Rules of Bankruptcy
24 Procedure. All “Civil Rule” references are to the Federal Rules
of Civil Procedure.
25
2
We exercise our discretion to take judicial notice of
26 documents electronically filed in the adversary proceeding and
27 in the underlying bankruptcy case. See Atwood v. Chase
Manhattan Mortg. Co. (In re Atwood),
293 B.R. 227, 233 n.9 (9th
28 Cir. BAP 2003). We do so for context only.
2
1 any money. In January 2013, the Debtor received his bankruptcy
2 discharge.
3 Malekan alleged that he was unaware of the bankruptcy
4 filing. He subsequently commenced an adversary proceeding
5 against the Debtor. The adversary complaint, as initially filed
6 and twice amended, was predicated on allegations of fraud in
7 relation to the investments and alleged claims for relief under
8 § 523(a)(2)(A), (a)(2)(B), (a)(3)(B), and (a)(6).
9 A. Factual allegations pleaded in the Second Amended Complaint
10 (“SAC”)
11 In the fall of 2007, an individual named Jalinous Nehouray
12 introduced Malekan to the Debtor; Malekan and Nehouray “were
13 good friends for many years.” Malekan soon made a series of
14 investments.
15 1. Malekan alleged as follows in connection with the
16 coins venture.
17 The Debtor and Nehouray formed two business entities – Pars
18 Mint, Inc. and Empire Global Mint, Inc. (jointly, the “Coins
19 Entities”) – for the purposes of manufacturing and selling
20 commemorative gold coins of cultural significance, both ethnic
21 and popular. Specifically, Pars would produce and sell coins of
22 Amir Kabir, a historical Iranian political figure, while Empire
23 would focus on various coins bearing licensed images from Fox
24 Studios and Playboy. The Debtor encouraged Malekan’s investment
25 in the Coins Entities representing, among other things, that the
26 Debtor would also invest in the Coins Entities and that
27 Malekan’s investment would be used solely for the purpose of
28 creating, manufacturing, and marketing the coins.
3
1 Within a month after meeting with the Debtor and Nehouray,
2 Malekan invested approximately $160,000 in the Coins Entities.
3 In return for his investment, Malekan anticipated receipt of
4 either a 50% equity share or a return of his investment, plus
5 interest.
6 The Debtor’s representations regarding the Coins Entities
7 were false at the time made, he was aware of the falsity, and
8 Malekan reasonably relied on the false representations. In
9 fact, the initial $160,000 investment was used by the Debtor for
10 other gold coin companies, ventures in loan modifications and
11 film/entertainment, and to purchase luxury items for resale
12 (e.g., Rolex watches, antiques, coins, and rugs).
13 After the initial investment, Malekan continued to meet
14 with the Debtor and Nehouray regarding the possibility of
15 additional investments. Over the next two years, Malekan made
16 four additional investments totaling $267,500 in the Coins
17 Entities. Malekan was damaged as a result of the Debtor’s
18 fraud.
19 2. Malekan alleged as follows in connection with the
20 nutritional supplement venture.
21 In September 2008, the Debtor represented to Malekan that
22 he had connections allowing him to get licensing from BTI, a
23 nutritional supplement company, for overseas distribution
24 rights. Malekan understood that in exchange for his $21,500
25 investment, he would receive 50% of the profits, or the return
26 of his investment, plus interest; he also understood that the
27 Debtor would invest in the venture. Malekan thereafter sent a
28 check to BTI for $21,500. The Debtor subsequently contacted BTI
4
1 and procured Malekan’s investment for himself. The Debtor’s
2 representations regarding BTI were false, the Debtor was aware
3 of the falsity, Malekan reasonably relied on the false
4 representations, and Malekan was damaged when the Debtor
5 obtained the BTI investment from BTI.
6 3. Malekan alleged as follows in connection with film
7 venture.
8 The Debtor and Nehouray also approached Malekan about a
9 film investment opportunity with D Street Films. The Debtor
10 represented to Malekan that he had invested in the film and
11 urged Malekan to invest as well. Malekan then met with
12 Demetrius Navarro, President of D Street Films, who confirmed
13 the investments of the Debtor and Nehouray. In return for his
14 investment, Malekan would receive credit as a “co executive
15 producer” on the film and a 13.33% share of the film’s gross
16 receipts. As a result, Malekan invested $25,000 in the film
17 venture. The Debtor’s representations were false when made, the
18 Debtor was aware of the falsity, Malekan reasonably relied on
19 the false representations, and Malekan was damaged as a result.
20 B. Procedural history of the adversary proceeding
21 1. Initial adversary complaint
22 The Debtor moved to dismiss the initial complaint and
23 subsequently filed an answer. The Debtor admitted to very
24 little: the bankruptcy court’s jurisdiction, appropriate venue,
25 and his chapter 7 bankruptcy filing. He also admitted that he
26 did not schedule Malekan as a creditor. Otherwise, he denied
27 each allegation in the 65-paragraph complaint based on a lack of
28 sufficient knowledge or information.
5
1 At a continued status hearing, the bankruptcy court
2 expressed its concerns regarding the initial complaint. Among
3 other things, it stated that the complaint did not plead the
4 fraud claims with particularity. It cautioned that if Malekan
5 was “serious about this lawsuit, [he] need[ed] to do more.”
6 Hr’g Tr. (Mar. 6, 2014) at 6:25; 7:1. The bankruptcy court set
7 a deadline to file an amended complaint and continued the status
8 conference.
9 2. First amended complaint
10 Malekan filed a first amended complaint and the Debtor
11 moved to dismiss it. At a continued hearing, the bankruptcy
12 court determined that the Debtor’s second motion to dismiss was
13 not timely filed and denied the motion on that basis. The
14 bankruptcy court noted, however, that it had an independent duty
15 to examine the amended “complaint and determine whether it
16 adequately set[] forth a basis to go forward on the prayer that
17 seeks denial of discharge, under [§] 523(a)(2)(A) especially.”
18 Hr’g Tr. (July 24, 2014) at 1:20-22. Having done that, it found
19 the complaint “ambiguous, confusing, and substantively
20 inadequate in some particulars.” Id. at 1:24-25.
21 The bankruptcy court then detailed issues and allegations
22 that it found problematic. It concluded that dismissal with
23 leave to amend was warranted, but again cautioned Malekan: “this
24 will be your third try, and if you can’t come up with something
25 more concrete that will pass the test we’ve been talking about
26 now for several months, I may have to dismiss this at the next
27 hearing with prejudice.” Id. at 11:24-25; 12:1-3.
28 ///
6
1 3. The SAC
2 After the filing of the SAC, the Debtor once again moved to
3 dismiss the complaint. Prior to the hearing, the Debtor filed a
4 request for judicial notice; in particular, he sought judicial
5 notice of a joint motion for approval of proposed settlement
6 between Nehouray, the Coins Entities, and Malekan in the state
7 court action.
8 At the hearing, the bankruptcy court dismissed the SAC with
9 prejudice based on its “assessment, after careful reading of the
10 papers, that [it was] pretty much a rehash of the initial
11 complaint” and first amended complaint. Hr’g Tr. (Nov. 12,
12 2014) at 1:16-19. It found that the SAC was “meandering and
13 confusing,” lacked specificity as to the financial documents,
14 and merely offered “labels and conclusions, a formulaic
15 recitation of elements of a cause of action.” Id. at 1:20-21;
16 3:21-22.
17 Next, the bankruptcy court entered an order dismissing the
18 SAC with prejudice. In the order, it determined that the SAC
19 “struggle[d] but fail[ed] to meet the requirements” of Civil
20 Rule 8(a)(2) and 9(b). It found that the allegations
21 “contain[ed] only vague, conclusory statements asserting [the
22 Debtor’s] fraudulent intent along with conclusory references to
23 . . . opinions rather than actionable fact about the enterprises
24 in question.” These allegations “assert[ed] the possibility of
25 fraudulent intent or conduct on the part of [the Debtor] but
26 [were] far too general to satisfy the concept of plausibility.”
27 Thus, the SAC “fail[ed] to raise any allegation of fact to the
28 level of plausibility but leaves the SAC in the realm of
7
1 conjecture about wrongdoing by [the Debtor].” Instead, “[t]he
2 SAC raise[d] nothing more than the bare possibility of fraud.”
3 Malekan timely appealed.
4 JURISDICTION
5 The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
6 §§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C.
7 § 158.
8 ISSUE
9 Whether the bankruptcy court erred in dismissing the SAC.3
10 STANDARD OF REVIEW
11 We review dismissal of an adversary proceeding under Civil
12 Rule 12(b)(6) de novo. See Johnson v. Fed. Home Loan Mortg.
13 Corp.,
793 F.3d 1005, 1007 (9th Cir. 2015).
14 DISCUSSION
15 A. Motion to Strike
16 Pursuant to Rule 8009, Malekan moves to strike a motion
17 jointly filed in the state court action by Malekan, Nehouray,
18 and the Coins Entities, seeking court approval of a settlement
19 agreement among those parties (“State Court Settlement Motion”)
20 from the Debtor’s supplemental excerpt of record. The Debtor
21 was not a party to the proposed settlement. Malekan argues that
22 he did not include the item in his designation of record on
23
3
24 Although Malekan poses the issue on appeal as whether
the bankruptcy court erred in dismissing the SAC without leave
25 to amend, he fails to advance any argument on the issue of
dismissal with prejudice. As a result, we do not address
26 that aspect of the bankruptcy court’s decision. See Padgett v.
27 Wright, 587 F.3d 983, 985 n.2 (9th Cir. 2009) (per curiam)
(arguments “not specifically and distinctly raised and argued in
28 appellant’s opening brief” are deemed waived).
8
1 appeal, nor did the Debtor file a supplemental designation of
2 record so as to appropriately include the item. No response was
3 provided by the Debtor.
4 Prior to the hearing on his third motion to dismiss, the
5 Debtor requested that the bankruptcy court take judicial notice
6 of the State Court Settlement Motion; the bankruptcy court,
7 however, did not rule on the request. The State Court
8 Settlement Motion only indirectly involves the Debtor and the
9 adversary proceeding. We deny the motion to strike but look to
10 the State Court Settlement Motion solely for the purpose of
11 noting that it was filed in the state court action and not for
12 the truth of the factual assertions contained therein or the
13 declaratory evidence attached thereto.
14 B. Whether the bankruptcy court erred in dismissing the SAC
15 A motion to dismiss under Civil Rule 12(b)(6) (incorporated
16 into adversary proceedings by Rule 7012(b)) challenges the
17 sufficiency of the allegations set forth in a complaint and “may
18 be based on either a lack of [: (1)] a cognizable legal theory
19 or . . . [(2)] sufficient facts alleged under a cognizable
20 legal theory.” Johnson v. Riverside Healthcare Sys., LP,
21
534 F.3d 1116, 1121 (9th Cir. 2008) (internal quotation marks
22 and citation omitted). The court’s review is limited to the
23 allegations of material facts set forth in the complaint, which
24 must be read in the light most favorable to the non-moving
25 party, and together with all reasonable inferences therefrom,
26 must be taken as true. Pareto v. Fed. Dep’t Ins. Corp.,
27
139 F.3d 696, 699 (9th Cir. 1998).
28 Consistent with Civil Rule 8(a)(2), the factual allegations
9
1 in the complaint must state a claim for relief that is facially
2 plausible. Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009); see
3 also Bell Atlantic Corp. v. Twombly,
550 U.S. 544 (2007). Thus,
4 based on the Iqbal/Twombly rubric, the bankruptcy court must
5 first identify bare assertions that “do nothing more than state
6 a legal conclusion—even if that conclusion is cast in the form
7 of a factual allegation,” and discount them from an assumption
8 of truth. See Moss v. U.S. Secret Serv.,
572 F.3d 962, 969 (9th
9 Cir. 2009). Then, if there remain well-pleaded factual
10 allegations, the bankruptcy court should assume their truth and
11 determine whether the allegations “and reasonable inferences
12 from that content” give rise to a plausible claim for relief.
13
Id. “[D]etermining whether a complaint states a plausible claim
14 is context-specific, requiring the reviewing court to draw on
15 its experience and common sense.”
556 U.S. at 679.
16 Fraud claims are subject to a heightened pleading standard.
17 See Fed. R. Civ. P. 9(b) (incorporated into adversary
18 proceedings by Rule 7009). Civil Rule 9(b) provides that “[i]n
19 alleging fraud or mistake, a party must state with particularity
20 the circumstances constituting fraud or mistake.” Fed. R. Civ.
21 P. 9(b). Thus, a complaint alleging fraud must satisfy both
22 Civil Rules 8 and 9. Cafasso, U.S. ex rel. v. Gen. Dynamics C4
23 Sys., Inc.,
637 F.3d 1047, 1055 (9th Cir. 2011). Ultimately,
24 “the court reviews all allegations holistically, rather than in
25 isolation, to determine if a complaint is well-pleaded.” Petrie
26 v. Elec. Game Card, Inc.,
761 F.3d 959, 970 (9th Cir. 2014).
27 ///
28 ///
10
1 1. The bankruptcy court did nor err in dismissing the
2 § 523(a)(2)(B) claim.
3 Section 523(a)(2)(B) excepts from discharge a debt “for
4 money, property, services, or an extension, renewal, or
5 refinancing of credit,” obtained by the use of a materially
6 false written financial statement. The statement must set forth
7 the financial condition of the debtor (or an insider), the
8 creditor must reasonably rely on it, and the debtor must create
9 the statement or cause it to be published with an intent to
10 deceive.
11 The SAC discussed written financial statement(s) only in
12 connection with the coins. In particular, it alleged that:
13 • Between October and November 2007, the Debtor showed
14 Malekan “various financial documents for [the Coins
15 Entities] purporting to show not only the expected expenses
16 of producing the three types of gold coins . . . but . . .
17 the expected sales and profits from selling these coins.”
18 • Between November 2007 and July 2008, the Debtor showed
19 Malekan “various alleged financial statements/documents for
20 the [Coins Entities]” showing “that the costs of
21 development and production of the coins were higher than
22 what he and Nehouray expected due to unforeseen
23 manufacturing costs, but that their licensing and marketing
24 plans were progressing well and that there was high demand
25 for the coins.”
26 • By the end of July 2008, the Debtor emailed and showed
27 Malekan “various financial statements purporting to show
28 the use of [Malekan’s] funds for the manufacture[] of gold
11
1 coins.”
2 • On or about July 20, 2008, the Debtor showed Malekan
3 “various financial statements for the [Coins Entities]”
4 showing “that both [Coins Entities] were coming along well
5 but that production costs were continuing to rise so more
6 money was needed to finish production of the gold coins.”
7 • Through June 2010, Debtor continued to show Malekan
8 “financial statements and marketing materials for the two
9 [Coins Entities], on the work him and Nehouray were
10 allegedly doing on the projects and continued to represent
11 to Plaintiff that he was moving forward on the plan to
12 manufacture the coins.”
13 The term “various financial statements,” however, is vague
14 and ambiguous. Viewing the SAC in the light most favorable to
15 Malekan, the factual content as pleaded was insufficient and
16 precluded the drawing of a reasonable inference that the Debtor
17 was liable for the alleged fraud by means of materially false
18 written financial statements respecting the Coins Entities’
19 financial condition. Malekan had three opportunities to allege
20 a plausible claim; he failed to do so. It remains unclear
21 what documents the SAC referred to. Therefore, the bankruptcy
22 court properly dismissed the § 523(a)(2)(B) claim.
23 2. The bankruptcy court did nor err in dismissing the
24 § 523(a)(6) claim.
25 Section 523(a)(6) excepts from discharge a debt arising
26 from a debtor’s “willful and malicious” injury to another person
27 or to the property of another. Barboza v. New Form, Inc.
28 (In re Barboza),
545 F.3d 702, 706 (9th Cir. 2008). A predicate
12
1 of § 523(a)(6) is a tort claim under state law. See Lockerby v.
2 Sierra,
535 F.3d 1038, 1041 (9th Cir. 2008).
3 At the outset, we note that this claim was technically
4 late; it survived only to the extent that the § 523(a)(3) claim
5 supports it. In the SAC, however, the § 523(a)(3) claim does
6 not reference § 523(a)(6).
7 Further, Malekan failed to allege a plausible § 523(a)(6)
8 claim. In the prior complaints, Malekan referred to an alleged
9 § 523(a)(6) claim solely in the caption and, implicitly, in the
10 prayer for relief, which broadly referred to four claims for
11 relief. The SAC did not improve on this cursory treatment; it
12 incorporated paragraphs 1-59 of the factual allegations and
13 asserted that the Debtor “willfully and maliciously damaged
14 [Malekan’s] claims against [the Debtor] arise out of . . .
15 § 523(a)(6).” This was insufficient.
16 The SAC did not identify the alleged tort Malekan believed
17 actionable. To the extent that the tort was fraud, it was
18 merely duplicative of the § 523(a)(2)(A) claim. The SAC, thus,
19 failed to allege particular well-pleaded facts that supported a
20 plausible § 523(a)(6) claim for relief. The bankruptcy court
21 did not err when it dismissed this claim.
22 3. With one exception, the bankruptcy court erred in
23 dismissing the § 523(a)(2)(A) claim.
24 Section 523(a)(2)(A) excepts from discharge a debt “for
25 money, property, services, or an extension, renewal, or
26 refinancing of credit” obtained by “false pretenses, a false
27 representation, or actual fraud, other than a statement
28 respecting the debtor’s . . . financial condition.” To prevail
13
1 on such a claim, a creditor must prove, by a preponderance of
2 the evidence: (1) misrepresentation, fraudulent omission or
3 deceptive conduct by the debtor; (2) the debtor’s knowledge of
4 the falsity or deceptiveness of his representation or omission;
5 (3) an intent to deceive; (4) justifiable reliance by the
6 creditor on the debtor’s representation or conduct; and
7 (5) damage to the creditor proximately caused by its reliance on
8 the debtor’s statement or conduct. Ghomeshi v. Sabban
9 (In re Sabban),
600 F.3d 1219, 1222 (9th Cir. 2010).
10 a. Coins venture
11 Malekan argues that the SAC “list[ed] eight different
12 knowingly false representations made by [the] Debtor . . . which
13 [he] relied upon and initially led [him] to give Debtor the
14 money he was requesting.” Op. Br. at 12-13. He further argues
15 that the SAC also “list[ed] in detail ten additional materially
16 and knowingly false representations by Debtor to induce
17 [Malekan] to continue giving him additional funds.” Id. at 13.
18 The SAC generally alleged that the Debtor knew that his
19 representations to Malekan were false at the time made and that
20 the Debtor never intended to use the investments for the coins
21 venture; that Malekan relied on the Debtor’s representations in
22 making the investments; and that Malekan was damaged, as he
23 never received a 50% equity interest or the return of his
24 investment.
25 Some of the alleged misrepresentations – e.g., that the
26 Debtor and Nehouray had the “know-how,” relationships, and
27 connections to get the “best pricing” for the coins venture,
28 that there was an extensive demand for the coins, and that the
14
1 Coins Entities were “coming along well” - were subjective
2 expressions of opinion, rather than factual statements capable
3 of objective verification. “Puffing” is not tantamount to a
4 misrepresentation. See Or. Pub. Emps. Ret. Fund v. Apollo Grp.
5 Inc.,
774 F.3d 598, 606 (9th Cir. 2014) (“‘Puffing’ concerns
6 expressions of opinion, as opposed to knowingly false statements
7 of fact . . . .”) (citation omitted).
8 But, after applying the standards required to the remaining
9 allegations, we conclude that the SAC alleged sufficient facts
10 in relation to the investments in the coins venture, so as to
11 state a § 523(a)(2)(A) claim that was plausible on its face. In
12 particular, the SAC alleged that the Debtor solicited Malekan’s
13 investments based on the following allegedly false
14 representations:
15 • The Debtor would invest his own funds in the Coins
16 Entities;
17 • Malekan’s investment would be used solely for the purpose
18 of creating, manufacturing, and marketing the coins;
19 • The cost of creating and producing the molds for the three
20 coins was $80,000 per coin;
21 • The Fox licensing fees were $50,000;
22 • Production of the coins was imminent and Malekan would soon
23 be able to see dies, sculpts, or molds of the coins;
24 • In return for his investment, Malekan would receive a
25 50% equity share or the return of his investment, plus
26 interest; and
27 • Later, that production costs continued to rise and
28 additional capital was needed to finish production of the
15
1 coins.
2 The SAC alleged that these representations were false,
3 which the Debtor knew at the time he made them, based on the
4 following:
5 • The Debtor did not invest his own funds in the Coins
6 Entities;
7 • Malekan’s investment was not solely used for the coins
8 venture but, instead, was “used for personal expenses and
9 other business ventures of [the Debtor], unrelated to
10 [Malekan],” e.g., “other ‘gold’ coin companies (unrelated
11 to [the Coins Entities], real estate ventures, loan
12 modification ventures, and film/entertainment ventures
13 (including but not limited to D Street Films), and to
14 purchase Rolex watches, and other antiques, coins and rugs
15 which were sold to third parties by [the Debtor] the
16 proceeds of which were kept by him.”
17 • The Debtor never intended to pay the coins vendors, whom,
18 in fact, he failed to pay;
19 • Malekan never saw the dies, sculpts, or molds for any of
20 the coins;
21 • The cost of each coin mold was $20,000, not $80,000; and
22 • The Fox licensing fees were $25,000, not $50,000.
23 Moreover, the SAC alleged that neither the Debtor nor Nehouray
24 informed Malekan that they had received $135,000 from a
25 licensing rights dispute with Fox but split those funds between
26 themselves. And, finally Malekan alleged that even if some of
27 his investments were used for the coins production, the “process
28 was far behind schedule and [the Debtor] had no reasonable basis
16
1 for asserting to [Malekan] that the production schedule was
2 going ahead as planned.”
3 As to the $150,000 investment, the SAC further alleged that
4 Malekan was the primary caretaker of his cancer-stricken father,
5 which the Debtor and Nehouray were aware of; consequently,
6 Malekan alleged that he was prevented from verifying the status
7 of the coins venture. Then, as to the final investment of
8 $12,500, the SAC alleged that after Malekan inquired about the
9 status of the venture and in an effort to keep “stringing him
10 along,” the Debtor showed Malekan a “sample” of the Amir Kabir
11 coin and “plans for other coins that were ‘about to be
12 produced.’” Based on his belief that “everything was on
13 target,” Malekan provided a final investment of $12,500 in
14 November 2009.
15 These allegations were not conclusory and, thus, were
16 entitled to an assumption of truth. Accepted as true and
17 construed in the light most favorable to Malekan, the
18 allegations were adequate to assert a plausible fraud claim as
19 to the coins venture investment. Consequently, the bankruptcy
20 court erred in dismissing the § 523(a)(2)(A) claim as to the
21 coins venture, and we REVERSE that aspect of the dismissal
22 order.
23 b. Film venture
24 In his brief on appeal, Malekan does not address the
25 § 523(a)(2)(A) issue in relation to the film venture with
26 specificity; his focus is on the coins venture. Nonetheless, on
27 de novo review, we conclude that the bankruptcy court erred in
28 dismissing the § 523(a)(2)(A) claim with respect to this
17
1 investment.
2 The SAC alleged that, in October 2008, in order to procure
3 additional money from Malekan, the Debtor misrepresented that he
4 had also invested in the film venture and, later, that the film
5 was being made. It also alleged the following
6 misrepresentations:
7 • Navarro, as president of D Street Films, told Malekan that
8 the Debtor had already invested in D Street Films;
9 • The Debtor, Nehouray, and Navarro all told Malekan that the
10 film was about to be made and distributed; and
11 • In exchange for his investment, Malekan would get credit as
12 “co-executive producer” on the film and would receive
13 13.33% of the film’s gross receipts.
14 The SAC alleged that these representations were not true, which
15 the Debtor knew at the time, based on the following:
16 • The Debtor never invested his own money in the venture;
17 • But, to the extent the Debtor invested any money, the funds
18 were derived from Malekan’s investments in the coins
19 venture;
20 • Navarro and D Street Films were “fronts” for the Debtor and
21 Nehouray;
22 • The Debtor, Nehouray, and Navarro “split up” Malekan’s
23 investment amongst themselves; and
24 • No film was ever made.
25 These allegations were not conclusory and, thus, were
26 entitled to an assumption of truth. Accepted as true and
27 construed in the light most favorable to Malekan, the
28 allegations were adequate to assert a plausible fraud claim as
18
1 to the film investment. As a result, the bankruptcy court erred
2 in dismissing the § 523(a)(2)(A) claim as to the film venture,
3 and we REVERSE that aspect of the dismissal order.
4 c. Nutritional supplement venture
5 The nutritional supplement venture is a different matter.
6 Again, Malekan does not address the nutritional supplement
7 venture specifically in his brief on appeal. We conclude that
8 there was no error with respect to dismissal of the fraud claim
9 related to this investment.
10 The SAC alleged that, in September 2008, the Debtor
11 knowingly made the following false representations to Malekan:
12 • The Debtor had connections to get the BTI licensing rights
13 for overseas distribution rights;
14 • Malekan would receive 50% profit return or a return of the
15 investment, plus interest; and
16 • The Debtor would match Malekan’s investment.
17 It further alleged that once the Debtor was made aware that
18 Malekan had made his investment, the Debtor contacted BTI and
19 “arranged for a refund of [Malekan’s] investment back to him
20 personally, pocketing the money for his personal uses.”
21 Other than offering conclusory statements, the SAC did not
22 plead with the requisite particularity that BTI served as a
23 cover for the Debtor’s fraudulent activities. There was no
24 allegation in regards to BTI’s legal structure, where and when
25 Malekan sent the $21,500 investment check, or whether BTI was
26 the alter ego of the Debtor. Nor was there an allegation that
27 Malekan made the investment in the Debtor’s name.
28 Even accepting the factual allegations as true, we are not
19
1 required to accept as reasonable the inference that the Debtor
2 had the ability to contact BTI directly and procure Malekan’s
3 investment. That inference is not reasonable based on the
4 factual allegations pleaded in the SAC. While it is possible
5 that the Debtor had the means and ability to do so, the factual
6 allegations were inadequate to assert a plausible fraud claim in
7 regards to the nutritional supplement investment.
8 Based on the foregoing, the bankruptcy court did not err in
9 dismissing the § 523(a)(2)(A) claim as to the nutritional
10 supplement venture.
11 4. The bankruptcy court erred in dismissing the
12 § 523(a)(3)(B) claim solely to the extent that the
13 claim rests on § 523(a)(2)(A).
14 Section 523(a)(3)(B) excepts a debt from discharge where
15 the debtor fails to schedule the creditor and the debt, and the
16 debt is “of a kind specified in paragraph (2), (4), or (6)” of
17 § 523(a). The creditor, however, must not possess notice or
18 actual knowledge of the bankruptcy case. See Perle v. Fiero
19 (In re Perle),
725 F.3d 1023, 1026 (9th Cir. 2013).
20 The SAC incorporated paragraphs 1-59 in relation to the
21 § 523(a)(3)(B) claim and alleged that the Debtor failed to
22 schedule him as a creditor, “despite the fact that [Malekan]
23 ha[d] been hounding [the Debtor] for years asking for his money
24 back and accusing [the Debtor] of committing fraud.” It further
25 alleges that the Debtor did not have notice of the bankruptcy in
26 time to file a timely objection to discharge.
27 A claim under § 523(a)(3)(B) is predicated on a
28 § 523(a)(2), (a)(4), or (a)(6) claim; a function solely of
20
1 timing, it does not exist independently of the three enumerated
2 subsections providing for an exception to discharge. See
3 Urbatek Sys., Inc. v. Lochrie (In re Lochrie),
78 B.R. 257,
4 259-60 (9th Cir. BAP 1987). Here, as previously stated, the
5 § 523(a)(3)(B) claim was not pleaded in relation to the
6 § 523(a)(6) claim; thus, § 523(a)(6) cannot serve as a basis for
7 a viable § 523(a)(3)(B) claim. Dismissal of the § 523(a)(3)(B)
8 claim also remains appropriate, to the extent it derived from
9 the § 523(a)(2)(B) claim or the nutritional supplement
10 investment contained within the § 523(a)(2)(A) claim.
11 But, as stated, the SAC contained sufficient allegations to
12 support a plausible § 523(a)(2)(A) claim as to the investments
13 in the coins venture and the film venture. As a result, the SAC
14 contained sufficient allegations to state a plausible
15 § 523(a)(3)(B) claim based on § 523(a)(2)(A). Thus, dismissal
16 of the § 523(a)(3)(B) claim in that respect was erroneous, and
17 we REVERSE that aspect of the dismissal order.
18 CONCLUSION
19 Based on the foregoing, We AFFIRM the bankruptcy court on
20 its dismissal of the § 523(a)(2)(B) and (a)(6) claims. But, we
21 AFFIRM in part and REVERSE in part on its dismissal of the
22 § 523(a)(2)(A) and (a)(3)(B) claims.
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