FILED
MAY 06 2015
1 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
2
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. CC-14-1286-KiKuD
)
6 HAI LECONG, ) Bk. No. 2:09-40568-ER
)
7 Debtor. ) Adv. No. 10-01161
)
8 )
HAI LECONG, )
9 )
Appellant, )
10 )
v. ) M E M O R A N D U M1
11 )
ASHLEY TRAN, )
12 )
Appellee. )
13 ______________________________)
14 Argued and Submitted on February 19, 2015,
at Los Angeles, California
15
Filed - May 6, 2015
16
Appeal from the United States Bankruptcy Court
17 for the Central District of California
18 Honorable Ernest M. Robles, Bankruptcy Judge, Presiding
19
Appearances: Lewis R. Landau argued for appellant, Hai Lecong;
20 Gregory M. Salvato argued for appellee, Ashley
Tran.
21
22
Before: KIRSCHER, KURTZ and DUNN, Bankruptcy Judges.
23
24
25
26
1
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. See 9th
28 Cir. BAP Rule 8024-1.
1 Chapter 72 debtor Hai Lecong ("Debtor") appeals an order
2 granting summary judgment to appellee, Ashley Tran ("Tran"),
3 wherein the bankruptcy court determined that a state court
4 judgment in favor of Tran was excepted from Debtor's discharge
5 under § 523(a)(2)(A) on the basis of issue preclusion. We AFFIRM.
6 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
7 A. Events leading to the state court litigation
8 Tran is a dentist. Her sister, Lauren Tran ("Lauren"), is an
9 attorney and general contractor. Debtor is a licensed California
10 real estate agent and mortgage broker. Lauren and Debtor, as
11 business associates, engaged in various enterprises in the
12 building supply and construction business.
13 Debtor and Lauren met sometime before 1996, when Lauren
14 performed legal services for a company owned by Debtor and his
15 former business associate, which manufactured and sold cultured
16 marble and synthetic kitchen and bath materials. Lauren
17 eventually expressed an interest in becoming a shareholder in the
18 business.
19 In about 1998, Debtor, his former associate and Lauren formed
20 a new entity, Excelstone International, Inc. ("Excelstone"), which
21 manufactured and sold Corian countertops. To purchase her
22 one-third share of the business, Lauren borrowed $60,000 from
23 Tran, which Lauren orally agreed to pay back within two years at
24 10% interest ("First Loan"). Eventually, Lauren and Debtor bought
25 out the former associate's interest in Excelstone, and in 1999,
26
27 2
Unless specified otherwise, all chapter, code and rule
references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
28 the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
-2-
1 Lauren and Debtor formed a new entity called Lexcel Solid
2 Surfacing, Inc. ("Lexcel"). Excelstone was dissolved in 1998.
3 Shortly after the First Loan, Lauren asked Tran for an
4 additional $65,000 to invest in Excelstone/Lexcel, which Lauren
5 again orally promised to pay back in two years at 10% interest
6 ("Second Loan"). Tran provided the $65,000 for the Second Loan.
7 Lauren claimed Tran made the Second Loan to Excelstone/Lexcel;
8 Tran claimed she made the Second Loan to Lauren and Debtor. In
9 any event, Tran conceded that at the time of the First Loan and
10 Second Loan she did not speak with Debtor, only Lauren. However,
11 Tran understood that Debtor was responsible for both loans along
12 with Lauren because they involved the duo’s business. Tran also
13 provided a loan of $30,000 to Lauren and Debtor for the purchase
14 of two company cars.
15 At some point, the oral loan agreements were modified to
16 provide that the proceeds from the First Loan and Second Loan
17 would be used by Lauren and Debtor to build a single family
18 residence in Whittier, California, which would be either
19 transferred to Tran or sold and the sale proceeds used to repay
20 her. Ultimately, Lauren and Debtor used the funds from Tran to
21 construct a residence for Debtor and his wife, who apparently
22 still occupy the Whittier property. Debtor’s wife holds title to
23 the Whittier property.
24 From 1999 to 2004, Tran made several requests for repayment
25 of the First Loan and Second Loan, but no payments were made.
26 In or around 2004, Lauren decided to open a showroom to boost
27 company sales. In late 2004, Lauren formed an entity called
28 Goldenwest Kitchen & Bath, Inc. to operate the showroom. To pay
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1 for this venture, Lauren forged a series of checks on a HELOC
2 account owned by Tran totaling $70,000. When Tran confronted
3 Lauren about the forgeries, Lauren orally agreed to pay back the
4 funds on the same terms as the First Loan and Second Loan, within
5 two years at 10% interest (the "HELOC Loan").
6 At some point, Lauren and Debtor told Tran they did not have
7 the monies to repay any of the loans, although they made oral
8 assurances to her that they would repay them. On or about
9 September 19, 2007, Lauren and Debtor signed a promissory note in
10 favor of Tran providing that each owed Tran one-half of a $135,000
11 debt ("Note"). The Note accounted for the $65,000 Second Loan and
12 the $70,000 HELOC Loan. The Note required full repayment by
13 September 12, 2008, and superseded any other prior notes. Debtor
14 conceded that he and Lauren were obligated on the Note.
15 In November 2007, Tran filed suit against Lauren, Debtor,
16 their related business entities and Debtor's wife for a variety of
17 claims, including breach of contract, fraud and conversion. In
18 her later-filed first amended complaint ("FAC"), Tran alleged with
19 respect to the fraud claim:
20 At the times Defendants made the promises [to repay the
loans], as well as the time that Defendants reaffirmed
21 and ratified said promises to Plaintiff as alleged above,
they expressly and impliedly represented to her that
22 there existed in their then present state of mind an
intention to keep the said promises.
23
The said representations were false, and each time
24 Defendants made them, they knew they were false.
25 At the time Defendants made the promises, as well as the
time of the said representations, and at the times of the
26 reliance by Plaintiff, as herein alleged, Plaintiff
believed that the said representations were true.
27
At all times herein mentioned, Defendants intended to
28 defraud and deceive Plaintiff by causing her to act to
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1 her detriment in reliance upon her belief in the truth of
Defendants' said representations.
2
In reasonable reliance upon Plaintiff's belief in the
3 truth of Defendant's [sic] said representations, she
acted as above-described and lent the Defendants the sum
4 of Two Hundred Twenty-Five Thousand Dollars ($225,000).
5 Were it not for Plaintiff's trust and confidence in
Defendants as her fiduciaries, and her said reliance upon
6 and belief in the trust of his [sic] said
representations, Plaintiff would not have acted as
7 hereinabove alleged.
8 By reason of the said fraud and deceit, Plaintiff has
suffered damages measured by the dollar amount of the
9 loss of the benefit of her bargain — either repayment of
the loan plus interest or transfer of title to real
10 property . . . .
11 Tran also alleged claims for emotional distress and punitive
12 damages, totaling $50,000.
13 The case was tried before a jury on three causes of action —
14 breach of contract and fraud against Lauren and Debtor, and
15 conversion against Lauren. As to Debtor, the jury found in favor
16 of Tran and assessed $230,335 in damages for fraud and breach of
17 contract. The jury also awarded Tran $50,000 in noneconomic
18 damages for emotional distress and $50,000 in punitive damages.
19 The jury found Lauren liable for fraud and breach of contract in
20 the amount of $407,993, as well as conversion and other damages.
21 The jury also found against Lexcel, Goldenwest and two other
22 entities involving Lauren and Debtor. Lauren and Debtor were
23 jointly and severally liable for the $230,335 breach of contract
24 and fraud award to Tran.
25 The jury's special verdict ("Judgment") made the following
26 findings with respect to the fraud claim against Debtor:
27 19. That Debtor made a false promise that was important
to the transaction to Tran;
28
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1 20. That Debtor knew the promise to Tran was false when
made, or that he made the promise recklessly and without
2 regard for the truth;
3 21. That Debtor intended for Tran to rely on the
promise;
4
22. That Tran reasonably relied on Debtor's promise;
5
23. That Tran suffered harm in reliance on Debtor's
6 promise; and
7 24. That Tran's reliance on Debtor's promise was a
substantial factor in causing harm to Tran.
8
9 The parties appealed the Judgment to the California Court of
10 Appeal. Specifically, Debtor contended that insufficient evidence
11 existed of his fraud to support the jury verdict.
12 B. Postpetition events
13 While the appeal of the Judgment was pending, Debtor filed a
14 chapter 7 bankruptcy case on November 3, 2009.
15 1. Tran's nondischargeability complaint
16 Tran alleged that the Judgment was excepted from Debtor’s
17 discharge under § 523(a)(2)(A) and (a)(4). The bankruptcy court
18 stayed Tran’s nondischargeability action while the parties pursued
19 the appeal of the Judgment.
20 2. The Court of Appeal decision
21 The California Court of Appeal reversed the awards of
22 noneconomic and punitive damages against Debtor and a portion of
23 the breach of contract award, but upheld the fraud award of
24 $230,335. It rejected Debtor's contention that no evidence
25 existed in the record that he made any false promises to Tran.
26 The appellate court first noted that the jury found Debtor
27 knowingly or recklessly, without regard for the truth, made false
28 promises to Tran, with the intention that she rely on them. The
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1 jury further found that she relied on the promises, causing her
2 damage. The appellate court also observed that Debtor had taken
3 responsibility for at least some of the unpaid loans by signing
4 the Note, and that the money went into companies in which he was a
5 principal. Debtor had further promised Tran that the HELOC Loan
6 would be paid back with the proceeds from the sale of the Whittier
7 property, which never transpired.
8 Ultimately, the appellate court concluded:
9 "[t]here was substantial evidence that [Debtor] was at
least complicit with Lauren in connection with promises
10 regarding repayment of the loans, including interest.
The evidence that [Debtor] defrauded [Tran] is based
11 upon the promise that Lauren borrowed money with a
promise to pay back the money; Lauren's promise to pay
12 the money back was false because she never had any
intention to pay back the money; [Debtor] was involved
13 in these promises because the monies went to the
companies in which he was a principal; and [Debtor]
14 continued to participate in promising [Tran] she would
be repaid, including out of the sale of real property
15 that was not sold. . . . The evidence of his conduct
after the loans suggests his involvement with the false
16 promises. There is evidence [Tran] forbeared in
pursuing collection of monies owed her based on the
17 promises."
18 The state court later entered a Second Amended Judgment to
19 reflect the appellate court's decision. It reaffirmed that Debtor
20 was liable to Tran for fraud damages of $230,335.
21 3. Tran's motion for summary judgment
22 Subsequently, Tran moved for summary judgment on her
23 § 523(a)(2)(A) claim ("MSJ"). In essence, Tran contended that
24 because the jury's fraud findings in the Judgment established the
25 elements for a fraud claim under § 523(a)(2)(A), and given the
26 finality of the Judgment, she was entitled to summary judgment on
27 the basis of issue preclusion. In support, Tran attached the FAC,
28 the Judgment, the California Court of Appeal decision and the
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1 Second Amended Judgment reflecting the appellate court's decision.
2 Debtor opposed the MSJ, disputing that the elements for issue
3 preclusion and § 523(a)(2)(A) were met. With respect to issue
4 preclusion, Debtor conceded the Judgment was final, on the merits,
5 and involved the same parties. However, he contended Tran had
6 failed to show that the issues were identical; she did not offer
7 the jury instructions or court order establishing that fraud for
8 purposes of § 523(a)(2)(A) was the same type of fraud that was
9 litigated in the prior action. Debtor contended that Tran had
10 also failed to establish with any pleadings or evidence that the
11 fraud issue was actually litigated in the prior action. For
12 example, argued Debtor, the issue of whether Lauren's acts could
13 be imputed to him under agency principles was never litigated
14 before the state court. Debtor contended these same grounds
15 supported his argument for why the fraud issue was also not
16 necessarily decided.
17 As for the elements of Tran's § 523(a)(2)(A) claim, Debtor
18 contended: he made no misrepresentations to Tran; no evidence
19 supported his alleged knowledge of any falsity or his intent to
20 deceive Tran; she did not justifiably rely on his misstatements or
21 conduct; and Tran did not suffer damages as a proximate result of
22 any misrepresentation.
23 Much of Debtor's opposing argument was based on his erroneous
24 assertion the bankruptcy court could not consider the Judgment or
25 the appellate court decision because they were "inadmissible
26 hearsay," which the court properly rejected. Notwithstanding,
27 Debtor contended he made no representations to Tran before she
28 loaned the money to Lauren, and the Judgment failed to identify
-8-
1 what he allegedly said or when. While Debtor conceded the
2 appellate court's finding that his statement about the companies
3 making good on some of the loans was "circumstantial evidence" of
4 a fraudulent promise to repay, Debtor argued this was not enough
5 to satisfy the first element of § 523(a)(2)(A). Debtor further
6 contended the appellate court's determination that he was involved
7 with the false promises because the monies went to his companies
8 showed, at best, only constructive fraud.
9 Debtor also claimed there was no evidence to show that he
10 intended to deceive Tran when the alleged representations were
11 made and his reassurances of repayment were not enough to show
12 intent to deceive under § 523(a)(2)(A). In addition, Debtor
13 disputed Tran's justifiable reliance, contending he had nothing to
14 do with procuring the loans. Tran admitted at trial that she
15 never discussed the terms of any of the loans with Debtor until
16 October 2007 — years after they were given. Finally, Debtor
17 argued that proximate cause and damages were not established
18 because he did not cause Tran to make the loans and therefore
19 suffer damages for failure to repay them.
20 In reply, Tran argued that Debtor was seeking to relitigate
21 the factual findings and legal conclusions already resolved by the
22 Judgment and affirmed by the California Court of Appeal. Tran
23 contended the bankruptcy court's only concern was whether the
24 findings made in the Judgment were sufficient for her debt to be
25 excepted from discharge under § 523(a)(2)(A) or whether further
26 factual issues remained; it was not to "look behind" the Judgment
27 to determine whether it was properly entered. Tran argued that
28 the elements for common law fraud in California mirrored those
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1 under § 523(a)(2)(A) and that the jury's specific and detailed
2 findings made it clear that a claim for "actual fraud" was
3 actually litigated and necessarily decided in the prior action.
4 4. The bankruptcy court's ruling on the MSJ
5 Prior to the scheduled hearing on the MSJ, the bankruptcy
6 court issued a tentative ruling, which it ultimately adopted and
7 incorporated into its Memorandum Decision, granting the MSJ on the
8 basis of issue preclusion. The court determined that the jury had
9 made findings for a fraud cause of action sufficient for
10 § 523(a)(2)(A) based on the claim alleged in the FAC. As for
11 Debtor's requisite intent when he made representations to Tran,
12 the court reasoned that "the jury must have so found by reference
13 to the [FAC] which alleges that the defendants, including Debtor,
14 knew the representations were false each time they were made, and
15 intended to defraud and deceive [Tran]." The court further
16 concluded that the jury’s finding of Tran’s “reasonable” reliance
17 on Debtor’s false promise met the lower standard of “justifiable”
18 reliance required for § 523(a)(2)(A). Finally, the jury had found
19 that Tran was damaged as a result of Debtor's fraud in the amount
20 of $230,335.
21 The parties made their arguments at the MSJ hearing. In
22 response to Debtor's argument that the bankruptcy court was
23 relying on the FAC as evidence, the court stated it was not taking
24 the allegations of the FAC as any sort of proof, but only
25 determining whether the jury's findings were consistent with the
26 FAC. Debtor then proceeded to argue that one could not tell from
27 the Judgment what sort of fraud was litigated in the prior
28 proceeding, actual or some other kind, and the following colloquy
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1 ensued:
2 THE COURT: What you want to do is to have this Court not
only occupy the State Court's position, but also the
3 jury's position. And they said yes when asked, did Hai
Lecong make a false promise. It's fairly clear.
4
MR. COHON: Wait a minute. Where -- where is the
5 evidence of the false promise? Because here is the
issue.
6
THE COURT: I'm not dealing with the evidence. I'm just
7 dealing with the response to Number 19.
8 Hr’g Tr. (Jan. 8, 2013) 14:7-14. After hearing further argument
9 from the parties, the court took the matter under advisement to
10 review cases cited by Debtor's counsel.
11 The bankruptcy court issued its Memorandum Decision and
12 entered a judgment excepting the Judgment debt of $230,335 from
13 discharge under § 523(a)(2)(A). Recapping Debtor's position at
14 the MSJ hearing, Debtor had argued that the debt to Tran was not
15 excepted from discharge under § 523(a)(2)(A) because he was not
16 involved in the discussions between Tran and Lauren, and did not
17 actively participate in Lauren's fraud. Debtor had also argued
18 that the jury found he made a false promise to Tran only because
19 they imputed Lauren's statements to him based on their business
20 relationship. Debtor argued that while misrepresentations could
21 be imputed for purposes of finding fraud under state law,
22 imputation was not a proper basis for nondischargeability under
23 § 523(a)(2)(A).
24 Relying on an unpublished Panel decision, Babian v. Tamamian
25 (In re Babian), 2013 WL 646386, at *5 (9th Cir. BAP Jan. 4, 2013),
26 which cited Tsurukawa v. Nikon Precision, Inc. (In re Tsurukawa),
27
287 B.R. 515, 525 (9th Cir. BAP 2002), the bankruptcy court
28 concluded that Debtor was incorrect; actual fraud could be imputed
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1 to a debtor under partnership/agency principles. Thus, based on
2 the appellate court's decision (and Debtor's counsel's concession)
3 that Lauren and Debtor were business partners, the bankruptcy
4 court found that Lauren's fraud could be imputed to Debtor for
5 purposes of Tran's claim under § 523(a)(2)(A).3
6 II. JURISDICTION
7 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334
8 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.
9 III. ISSUE
10 Did the bankruptcy court err when it granted Tran summary
11 judgment on her claim under § 523(a)(2)(A) by applying issue
12 preclusion to the Judgment?
13 IV. STANDARDS OF REVIEW
14 The bankruptcy court's order granting summary judgment is
15 reviewed de novo. Shahrestani v. Alazzeh (In re Alazzeh),
16
509 B.R. 689, 692-93 (9th Cir. BAP 2014). "Viewing the evidence
17 in the light most favorable to the non-moving party, we must
18 determine 'whether there are any genuine issues of material fact
19 and whether the trial court correctly applied relevant substantive
20 law.'" New Falls Corp. v. Boyajian (In re Boyajian),
367 B.R.
21 138, 141 (9th Cir. BAP 2007)(quoting Tobin v. San Souci Ltd.
22 P'ship (In re Tobin),
258 B.R. 199, 202 (9th Cir. BAP 2001)).
23 We also review de novo the preclusive effect of a judgment;
24 whether issue preclusion is available is a mixed question of law
25
26 3
Debtor's initial appeal of the nondischargeability judgment
was dismissed as interlocutory because the bankruptcy court had
27 not yet determined Tran's claim under § 523(a)(4). Once the court
entered an order dismissing that claim, Debtor timely appealed the
28 nondischargeability judgment.
-12-
1 and fact. Stephens v. Bigelow (In re Bigelow),
271 B.R. 178, 183
2 (9th Cir. BAP 2001). If issue preclusion is available, the
3 bankruptcy court's decision to apply it is reviewed for abuse of
4 discretion. Lopez v. Emergency Serv. Restoration, Inc.
5 (In re Lopez),
367 B.R. 99, 104 (9th Cir. BAP 2007). Under that
6 standard, we reverse where the bankruptcy court applied an
7 incorrect legal rule or where its application of the law to the
8 facts was illogical, implausible or without support in inferences
9 that may be drawn from the record. Ahanchian v. Xenon Pictures,
10 Inc.,
624 F.3d 1253, 1258 (9th Cir. 2010)(citing United States v.
11 Hinkson,
585 F.3d 1247, 1262 (9th Cir. 2009)(en banc)).
12 We can affirm on any ground supported by the record,
13 regardless of whether the bankruptcy court relied upon, rejected,
14 or even considered that ground. Fresno Motors, LLC v. Mercedes
15 Benz USA, LLC,
771 F.3d 1119, 1125 (9th Cir. 2014).
16 V. DISCUSSION
17 A. Summary judgment standards
18 Summary judgment is appropriate where the movant shows that
19 no genuine dispute of material fact exists and the movant is
20 entitled to judgment as a matter of law. Civil Rule 56(a)
21 (applicable in adversary proceedings under Rule 7056). The
22 bankruptcy court views the evidence in the light most favorable to
23 the nonmoving party in determining whether any genuine disputes of
24 material fact exist and whether the movant is entitled to judgment
25 as a matter of law. Fresno Motors,
LLC, 771 F.3d at 1125.
26 B. Issue preclusion standards
27 The doctrine of issue preclusion applies to dischargeability
28 proceedings under § 523(a). Grogan v. Garner,
498 U.S. 279, 284
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1 n.11 (1991). In determining the effect of a state court judgment,
2 we must apply, as a matter of full faith and credit, the state's
3 law of issue preclusion. Gayden v. Nourbakhsh (In re Nourbakhsh),
4
67 F.3d 798, 800 (9th Cir. 1995); Jung Sup Lee v. Tcast Commc'ns,
5 Inc. (In re Jung Sup Lee),
335 B.R. 130, 136 (9th Cir. BAP 2005).
6 Under California law, a prior judgment is entitled to issue
7 preclusive effect if all five of the following requirements are
8 met:
9 (1) The issue sought to be precluded must be identical to
that decided in the former proceeding;
10
(2) The issue must have been actually litigated in the
11 former proceeding;
12 (3) The issue must have been necessarily decided in the
former proceeding;
13
(4) The decision in the former proceeding must be final
14 and on the merits;
15 (5) The party against whom issue preclusion is sought
must be the same as, or in privity with, the party to the
16 former proceeding.
17 Harmon v. Kobrin (In re Harmon),
250 F.3d 1240, 1245 (9th Cir.
18 2001); Lucido v. Super. Ct.,
51 Cal. 3d 335, 341 (1990). Even if
19 all five requirements are satisfied, however, California places an
20 additional limitation on issue preclusion: courts may give
21 preclusive effect to a judgment "only if application of preclusion
22 furthers the public policies underlying the doctrine."
23 In re
Harmon, 250 F.3d at 1245 (citing
Lucido, 51 Cal. 3d at 342).
24 The party asserting preclusion bears the burden of
25 establishing these threshold requirements.
Id. This burden means
26 providing "a record sufficient to reveal the controlling facts and
27 pinpoint the exact issues litigated in the prior action." Kelly
28 v. Okoye (In re Kelly),
182 B.R. 255, 258 (9th Cir. BAP 1995),
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1 aff'd,
100 F.3d 110 (9th Cir. 1996). Any reasonable doubt as to
2 what was decided by a prior judgment should be resolved against
3 allowing the [issue preclusive] effect."
Id.
4 The bankruptcy court initially ruled that based on the jury's
5 express findings of actual fraud and the cause of action alleged
6 in the FAC, the jury had found Debtor liable for actual fraud, and
7 therefore he was precluded from relitigating that issue.
8 Accordingly, Tran's fraud damages were excepted from discharge
9 under § 523(a)(2)(A). The bankruptcy court also determined, as a
10 separate and sufficient basis, the Judgment supported a finding
11 that Debtor was imputedly liable for Lauren's fraud.
12 C. The bankruptcy court did not err in applying issue preclusion
to the Judgment.
13
14 Debtor spends a great deal of time disputing the bankruptcy
15 court's finding of imputed fraud, contending that Lauren's fraud
16 could not be imputed to him because nothing in the record
17 establishes that he knew or should have known of Lauren's fraud.
18 Debtor, however, glosses over the bankruptcy court's initial
19 ruling that Tran's debt was nondischargeable based on his actual
20 fraud found by the jury, the basis on which we affirm. Debtor
21 does not dispute that the Judgment was final and on the merits,
22 and that the parties are the same. Therefore, we only address the
23 first three elements of issue preclusion.
24 1. Identity of issues
25 Section 523(a)(2)(A) excepts from discharge any debt for
26 money, property, services or an extension, renewal, or refinancing
27 of credit, to the extent obtained by false pretenses, a false
28 representation or actual fraud. The creditor bears the burden of
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1 demonstrating, by a preponderance of the evidence, each of the
2 following five elements: (1) misrepresentation, fraudulent
3 omission or deceptive conduct by the debtor; (2) knowledge of the
4 falsity or deceptiveness of the representation or omission; (3) an
5 intent to deceive; (4) the creditor's justifiable reliance on the
6 representation or conduct; and (5) damage to the creditor
7 proximately caused by reliance on the debtor's representations or
8 conduct. Ghomeshi v. Sabban (In re Sabban),
600 F.3d 1219, 1222
9 (9th Cir. 2010).
10 The "identical issue" requirement addresses whether
11 "identical factual allegations" are at stake in the two
12 proceedings.
Lucido, 51 Cal. 3d at 342. "The elements of
13 § 523(a)(2)(A) 'mirror the elements of common law fraud' and match
14 those for actual fraud under California law, which requires the
15 plaintiff to show: (1) misrepresentation; (2) knowledge of the
16 falsity of the representation; (3) intent to induce reliance;
17 (4) justifiable reliance; and (5) damages." In re Tobin,
258 B.R.
18 at 203 (citing Younie v. Gonya (In re Younie),
211 B.R. 367,
19 373-74 (9th Cir. BAP 1997), aff'd,
163 F.3d 609 (9th Cir. 1998)
20 (table decision)).
21 The FAC alleged what appears to be a cause of action for
22 actual and/or promissory fraud. The elements of a fraud claim
23 based on a false promise are (1) a promise by the defendant
24 (2) made without an intent to perform and (3) made with the intent
25 to induce reliance by the plaintiff, followed by (4) reasonable
26 reliance by the plaintiff that results in (5) injury to the
27 plaintiff. CAL. CIV. CODE §§ 1572, 1710; Lazar v. Super. Ct.,
28
12 Cal. 4th 631, 638 (1996). "'Promissory fraud' is a subspecies
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1 of the action for fraud and deceit. A promise to do something
2 necessarily implies the intention to perform; hence, where a
3 promise is made without such intention, there is an implied
4 misrepresentation of fact that may be actionable fraud." Lazar,
5 12 Cal. 4th at 638. See also Rubin v. West (In re Rubin),
875 F.2d
6 755, 759 (9th Cir. 1989)(a promise made with a positive intent not
7 to perform or without a present intent to perform satisfies
8 § 523(a)(2)(A)).
9 The FAC alleged the required elements for either cause of
10 action, including that Debtor had made promises or representations
11 to Tran that he never intended to keep and/or knew were false at
12 the time he made them, that he intended for Tran to rely on the
13 false promises or representations, and that Tran reasonably relied
14 on the false promises or representations and suffered damages as a
15 result. In the special verdict supporting the Judgment, the jury
16 expressly found that Debtor made a knowing false promise he
17 intended Tran to rely on, that Tran reasonably relied on the false
18 promise and that she suffered harm as a result. Although the jury
19 found "reasonable" reliance as opposed to the "justifiable"
20 reliance required under § 523(a)(2)(A), a finding of reasonable
21 reliance meets the lower standard of justifiable. Tallant v.
22 Kaufman (In re Tallant),
218 B.R. 58, 69 (9th Cir. BAP 1998). The
23 Judgment, therefore, was an adjudication of a fraud claim
24 identical to that required to find the debt nondischargeable under
25 § 523(a)(2)(A).
26 2. Actually litigated and necessarily decided
27 Debtor argues "the record contains no factual determinations
28 that could support a fraud claim under § 523(a)(2)(A)." Debtor
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1 contends that if his fraud could not be established as a matter of
2 vicarious liability based on Lauren's actions, the bankruptcy
3 court was required to find that he made fraudulent representations
4 to Tran, that he knew were false, with intent to deceive, upon
5 which Tran justifiably relied and which proximately caused her
6 damage. Debtor contends the bankruptcy court failed to identify
7 what "allegedly false representation" he made to Tran and that we
8 are unable to determine whether the allegedly false representation
9 arose out of operation of imputed fraud or is based on some
10 representation by Debtor.
11 What Debtor fails to recognize is that when faced with a
12 prior judgment where a jury has made express findings of actual
13 fraud that satisfy the elements of a claim under § 523(a)(2)(A),
14 the bankruptcy court is not required to "look behind" that
15 judgment to determine whether the factual record supported it, or
16 whether or not any representation was made. That was the role of
17 the California Court of Appeal, which affirmed the actual fraud
18 judgment against Debtor.
19 Given the jury's findings in the special verdict, it is clear
20 that the issue of actual fraud was actually litigated and
21 necessarily decided in the prior state court proceedings. The FAC
22 specifically alleged that Debtor made false promises and
23 representations to Tran, that he made them knowingly with the
24 intent to defraud and deceive her and that Tran reasonably relied
25 on them to her detriment. The jury's express findings that Debtor
26 was liable for each element of actual/promissory fraud necessarily
27 included a determination of all of the facts required for such a
28 claim under California law, which mirrors the elements of
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1 § 523(a)(2)(A). The jury awarded Tran damages of $230,335 based
2 on Debtor's fraud, which the appellate court affirmed.
3 Accordingly, the bankruptcy court properly applied issue
4 preclusion to the jury's findings of actual/promissory fraud in
5 the Judgment. See Mading v. Shepherd (In re Mading),
1994 WL
6 718767, at *1 (9th Cir. Dec. 27, 1994)(where jury makes specific
7 finding of "yes" to actual fraud against debtor the judgment is
8 conclusive on that specific jury finding and supports the damages
9 awarded as a result of the fraud; issue preclusion properly
10 applied); Cobe v. Smith (In re Cobe),
229 B.R. 15, 17 (9th Cir.
11 BAP 1998)(bankruptcy court properly applied issue preclusion when
12 it granted summary judgment based on jury's affirmative findings
13 on all elements to support claim under § 523(a)(2)(A));
14 In re Davis,
486 B.R. 182, 190-92 (Bankr. N.D. Cal. 2013)(applying
15 issue preclusion and granting summary judgment for § 523(a)(2)(A)
16 claim based on jury's express findings of actual fraud).
17 Even if the bankruptcy court could have looked behind the
18 Judgment to determine what misrepresentation(s) Debtor made, if
19 any, to support the jury's finding of actual/promissory fraud, we
20 reject Debtor's argument that Tran's debt could not be excepted
21 from discharge because he was not involved in obtaining any of the
22 loans from Tran.
23 Section 523(a)(2)(A) also applies to a debtor who obtains an
24 "extension, renewal or refinancing of credit." An "extension of
25 credit" is "an indulgence by a creditor giving his debtor further
26 time to pay an existing debt." John Deere Co. v. Gerlach
27 (In re Gerlach),
897 F.2d 1048, 1050 (10th Cir. 1990) (internal
28 quotation marks omitted). Section 523(a)(2) protects a creditor
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1 deceived into forbearing collection efforts. Ojeda v. Goldberg,
2
599 F.3d 712, 718-19 (7th Cir. 2010); Lardner v. Biondo
3 (In re Biondo),
180 F.3d 126, 131-32 (4th Cir. 1999) (extension of
4 credit under § 523(a)(2)(A) is properly viewed as merely an agreed
5 enlargement of time allowed for payment); In re Gerlach,
897 F.2d
6 at 1050. The record, particularly the conclusion reached by the
7 California Court of Appeal, reflects that: Debtor made false oral
8 promises of repayment to Tran; Tran extended the time for
9 repayment of the loans based on Debtor's false promises to repay;
10 and she was deceived into forbearing her collection efforts as a
11 result and suffered damages.
12 Thus, even if the jury's findings were based on Debtor's
13 false promises to repay rather than representations made in
14 connection with obtaining the loans initially, this is sufficient
15 to establish fraud within the meaning of § 523(a)(2)(A).4
16 VI. CONCLUSION
17 Because the bankruptcy court did not err in concluding that
18 the issue of whether Debtor committed fraud within the meaning of
19 § 523(a)(2)(A) was precluded by the Judgment and could not be
20 relitigated in the bankruptcy court, and because no genuine issues
21 of material fact were in dispute, summary judgment was properly
22 granted to Tran. We AFFIRM.
23
24
25
4
The bankruptcy court did not determine whether public
26 policy favored applying issue preclusion in this case. However,
because Debtor has not raised this issue on appeal, it has been
27 waived. Golden v. Chi. Title Ins. Co. (In re Choo),
273 B.R. 608,
613 (9th Cir. BAP 2002)(arguments not raised in appellant's
28 opening brief are deemed waived).
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