In re: Jennifer Chan

FILED
OCT 08 2014
1 NO FO PUBL A IO
T R IC T N
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
2 OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. CC-13-1607-TaSpD
)
6 JENNIFER CHAN, ) Bk. No. 09-24636-BR
)
7 Debtor. ) Adv. No. 09-02187-BR
_____________________________ )
8 )
JENNIFER CHAN, )
9 )
Appellant, )
10 )
v. ) MEMORANDUM*
11 )
DRM ENTERPRISES, LLC, )
12 )
Appellee. )
13 )
14 Submitted Without Argument**
on September 18, 2014
15
Filed – October 8, 2014
16
Appeal from the United States Bankruptcy Court
17 for the Central District of California
18 Honorable Barry Russell, Bankruptcy Judge, Presiding
19
Appearances: David Brian Lally on brief for appellant Jennifer
20 Chan; Raymond H. Aver on brief for appellee DRM
Enterprises, LLC.
21
22
23
24 *
This disposition is not appropriate for publication.
25 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
26 See 9th Cir. BAP Rule 8013-1.
27 **
On June 17, 2014, this Panel entered an order deeming
28 this appeal suitable for submission on the briefs.
1 Before: TAYLOR, DUNN, and SPRAKER,*** Bankruptcy Judges.
2
3 Debtor Jennifer Chan appeals from the bankruptcy court’s
4 judgment in favor of creditor DRM Enterprises, LLC (“DRM”) for
5 false representations that her corporation, CA Price Depot, Inc.
6 (“Price Depot”), had the ability to repay certain advances made
7 by DRM in December 2008, and that such debt was nondischargeable
8 under § 523(a)(2)(A).1 We AFFIRM.
9 FACTS
10 The Debtor was an officer, director, and sole shareholder of
11 Price Depot, a regional restaurant distributor, and two related
12 corporations. Price Depot began doing business with DRM, a
13 poultry products broker, sometime between 1998 and 2000. The
14 Debtor and Ronald Richter, Jr., eventually chief executive
15 officer of DRM, were acquainted as a result of DRM’s prior
16 business relationship with the Debtor’s family. They eventually
17 became close friends.
18 Beginning in 2000, Price Depot, through Debtor, and DRM,
19 through Richter, entered into an arrangement where, at the
20 Debtor’s request, DRM advanced money to Price Depot by wire
21 transfer to its bank account; in effect, the advances were
22 extremely short-term non-interest bearing loans. Price Depot
23 repaid DRM by issuing post-dated checks.
24 In July 2008, DRM, through Richter, and at Debtor’s request,
25
***
The Honorable Gary A. Spraker, Chief Bankruptcy Judge for
26
the District of Alaska, sitting by designation.
27 1
Unless otherwise indicated, all chapter and section
28 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
2
1 agreed to further financially assist Price Depot. To help Price
2 Depot with accounts payable issues, DRM agreed to purchase non-
3 poultry products from other brokers on Price Depot’s behalf or to
4 advance payment on some of the Price Depot accounts payable. In
5 return, Price Depot agreed to repay DRM the amount paid or
6 advanced, plus a two percent fee. DRM also continued to broker
7 poultry products to Price Depot and to make short term loan
8 advances to Price Depot at the Debtor’s request.
9 Starting in September 2008, the Debtor began requesting
10 incrementally larger and more frequent short term loan advances
11 for Price Depot. DRM provided the requested advances, apparently
12 with few questions asked. As the Debtor’s requests increased,
13 however, the Debtor also caused Price Depot to provide DRM with a
14 series of blank checks already signed by the Debtor, so that
15 Richter could deposit repayment checks with greater ease.
16 The first weeks of December 2008, however, proved to be a
17 pivotal point in the relationship. The Debtor requested – and
18 obtained – even more substantial advances for Price Depot within
19 the first four days of the month. DRM simultaneously deposited a
20 number of Price Depot checks for advances then owing. And, the
21 Debtor caused Price Depot to make three consecutive wire
22 transfers to DRM in the total amount of $250,000 during the four
23 day period. Upon receipt, however, and based on the Debtor’s
24 request, DRM immediately wired the $250,000 back to Price Depot
25 as part of the advanced funds.
26 On December 9, 2008, DRM received notices of insufficient
27 funds as to all of the repayment checks deposited the week
28 before. The Debtor offered repayment to DRM of $20,000 a day to
3
1 resolve the insufficient funds issue. She, in fact, caused
2 repayment to DRM of $70,000 over the course of the next month.
3 But, these payments eventually stopped, and the Debtor stopped
4 payment on the rest of the blank Price Depot checks in DRM’s
5 possession.
6 The Debtor filed a chapter 11 bankruptcy case in June 2009.
7 Three months later, DRM commenced the nondischargeability action
8 against the Debtor, seeking to except its claim from discharge
9 under § 523(a)(2)(A).
10 At trial, the bankruptcy court received testimony from the
11 Debtor, Richter, and DRM expert witness, Michael Borenstein. The
12 Debtor testified that Richter and DRM were aware of Price Depot’s
13 rocky financial situation. According to the Debtor, she told
14 Richter to hold off on deposit of the returned checks because
15 Price Depot continued to experience financial problems and she
16 simply needed time “to make good on those checks.”
17 Richter’s testimony was the complete opposite; he attested
18 that he was never made aware of Price Depot’s dire financial
19 issues, that the Debtor constantly reassured him that DRM would
20 be repaid, and that, until the checks were returned for
21 insufficient funds, there were never repayment issues. He
22 further testified that the Debtor never told him to hold deposit
23 of the checks. Instead, it was his testimony that he deposited
24 checks only after he spoke to the Debtor and she verbally
25 authorized it.
26 Borenstein’s testimony was brief: he stated that he was a
27 certified public accountant who examined Price Depot’s ability,
28 at the end of 2008, to repay the DRM advances then owing. He
4
1 concluded after examining bank accounts and balance sheets that
2 the Debtor’s three businesses were collectively overdrawn
3 $81,567.36 at the beginning of October 2008, which increased to
4 $373,290.28 just two months later, even after DRM’s significant
5 cash advances. Borenstein, thus, opined that during the final
6 months of 2008, Price Depot lacked the ability to repay DRM.
7 On cross-examination, Borenstein conceded that he was
8 unaware of certain facts in conducting his analysis, i.e., the
9 returned Price Depot checks and the Debtor’s $250,000 wire
10 transfer to DRM. The Debtor, thus, moved to strike Borenstein’s
11 testimony and evidence; the bankruptcy court denied the motion.
12 At the conclusion of trial and after post-trial briefing,
13 the bankruptcy court orally ruled on the record in favor of DRM.
14 It determined that DRM established, by a preponderance of the
15 evidence, each element of § 523(a)(2)(A). The bankruptcy court
16 subsequently entered a judgment in DRM’s favor and deemed the
17 judgment nondischargeable. The Debtor timely appealed.
18 JURISDICTION
19 The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
20 §§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C.
21 § 158.
22 ///
23 ///
24 ///
25 ///
26 ///
27 ///
28 ///
5
1 ISSUES2
2 1. Did the bankruptcy court err in determining that the debt
3 was nondischargeable under § 523(a)(2)(A)?
4 2. Did the bankruptcy court abuse its discretion by admitting
5 Borenstein’s testimony and evidence?
6 STANDARDS OF REVIEW
7 We review de novo whether a debt is excepted from discharge
8 under § 523(a)(2)(A). Wank v. Gordon (In re Wank), 505 B.R. 878,
9 886 (9th Cir. BAP 2014). Whether there has been proof of an
10 essential element of § 523(a)(2)(A) is a factual determination
11 reviewed for clear error. Am. Express Travel Related Servs. Co.,
12 Inc. v. Vinhnee (In re Vee Vinhnee), 336 B.R. 437, 442-43 (9th
13 Cir. BAP 2005).
14 We review evidentiary rulings for an abuse of discretion
15 and, even then, only reverse if any error would have been
16 prejudicial to the appellant. Van Zandt v. Mbunda
17 (In re Mbunda), 484 B.R. 344, 351 (9th Cir. BAP 2012). A
18
19
2
The Debtor also identified the following issues on appeal:
20 whether the bankruptcy court abused its discretion by “forcing”
21 her to testify at trial when DRM failed to provide an
interpreter; whether the bankruptcy court clearly erred in
22 finding DRM’s witness more credible than the Debtor when she has
limited English proficiency; and whether the bankruptcy court
23 considered the Debtor’s $70,000 payment to DRM in determining the
24 amount of damages.
None of these issues were specifically and distinctly
25 addressed in the Debtor’s brief and, thus, we do not consider
these issues on appeal. See Padgett v. Wright, 587 F.3d 983, 986
26 n.2 (9th Cir. 2009) (appellate court “will not consider matters
27 on appeal that are not specifically and distinctly raised and
argued in appellant’s opening brief.”) (internal citation
28 omitted).
6
1 bankruptcy court abuses its discretion if it applies the wrong
2 legal standard, misapplies the correct legal standard, or if its
3 factual findings are illogical, implausible or without support in
4 inferences that may be drawn from the facts in the record. See
5 TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th
6 Cir. 2011) (citing United States v. Hinkson, 585 F.3d 1247, 1262
7 (9th Cir. 2009) (en banc)).
8 We may affirm on any basis in the record. Caviata Attached
9 Homes, LLC v. U.S. Bank, N.A. (In re Caviata Attached Homes,
10 LLC), 481 B.R. 34, 44 (9th Cir. BAP 2012).
11 DISCUSSION
12 A. Exception to discharge under § 523(a)(2)(A).
13 A debtor is not discharged in bankruptcy from any debt
14 obtained by “false pretenses, a false representation, or actual
15 fraud.” 11 U.S.C. § 523(a)(2)(A). The creditor bears the burden
16 of demonstrating, by a preponderance of the evidence, each of the
17 following five elements: (1) misrepresentation, fraudulent
18 omission or deceptive conduct by the debtor; (2) knowledge of the
19 falsity or deceptiveness of the representation or omission;
20 (3) an intent to deceive; (4) the creditor’s justifiable reliance
21 on the representation or conduct; and (5) damage to the creditor
22 proximately caused by reliance on the debtor’s representations or
23 conduct.3 Ghomeshi v. Sabban (In re Sabban), 600 F.3d 1219, 1222
24
3
25 In her statement of issues in the opening brief, the
Debtor challenges whether there was sufficient, admissible
26 evidence supporting each element of § 523(a)(2)(A). She does
27 not, however, specifically and distinctly address the fifth
element of damages in her brief and, thus, we do not consider it
28 on appeal. See Padgett, 587 F.3d at 986 n.2.
7
1 (9th Cir. 2010).
2 1. Misrepresentation.
3 The bankruptcy court first found that the Debtor
4 misrepresented that Price Depot had the ability to repay DRM on
5 account of the advances made in the final months of 2008. In so
6 determining, the bankruptcy court found Richter’s testimony more
7 credible than the Debtor’s on two points: (1) whether the Debtor
8 adequately disclosed her businesses’ financial problems during
9 that time period; and (2) whether the Debtor told Richter to hold
10 his deposit of the checks. It reasoned that the Debtor’s version
11 of events made “absolutely no sense.” Hr’g Tr. (Nov. 27, 2013)
12 at 33:20. Noting that DRM had possession of the $250,000 wire
13 transfers during the first week of December, it questioned why
14 DRM would relinquish this money and then continue the advances if
15 the Debtor actually told Richter to hold the checks for deposit
16 and disclosed the full extent of Price Depot’s precarious
17 financial situation.
18 Viewed through the deferential lens required on appellate
19 review, these findings are not clearly erroneous. The bankruptcy
20 court’s skepticism of the Debtor’s allegations of full disclosure
21 was reasonable. Its finding that a misrepresentation occurred is
22 bolstered by the expert testimony establishing the overdrawn
23 condition of Price Depot and the Debtor’s other businesses, and
24 the lack of contrary evidence of the financial situation from the
25 Debtor. The findings also were based heavily on the bankruptcy
26 court’s determinations of witness credibility to which we afford
27 significant deference. See Hussain v. Malik (In re Hussain),
28 508 B.R. 417, 425 (9th Cir. BAP 2014) (the bankruptcy court is in
8
1 the best position to evaluate the documentary and testimonial
2 evidence).
3 2. Knowledge.
4 Next, the bankruptcy court found that, at a minimum, at the
5 time the Debtor told Richter to deposit the last set of checks,
6 she knew that DRM would not be repaid. In its estimation, it was
7 likely that the Debtor was aware of the inability to pay in late
8 October 2008; but, giving her the benefit of the doubt, the
9 bankruptcy court determined that the Debtor had the requisite
10 knowledge in early December.
11 Again, the bankruptcy court’s finding is not clearly
12 erroneous. The evidence before the bankruptcy court showed that
13 the bank accounts for Price Depot and the Debtor’s other two
14 businesses were collectively overdrawn in late October and were
15 increasingly overdrawn through the end of December 2008. And,
16 the Debtor herself testified that, although Price Depot was
17 struggling financially and she needed more time to “make good on
18 the checks,” she continuously requested greater and more frequent
19 advances from DRM.
20 3. Intent to deceive.
21 The bankruptcy court found that the Debtor intended to
22 deceive DRM when she failed to inform it of the inability to
23 repay the advances in December of 2008. Its finding is not
24 clearly erroneous; it is neither illogical nor implausible to
25 infer, as the bankruptcy court did here, that the Debtor’s
26 failure to disclose the full extent of Price Depot’s financial
27 troubles was purposely done in order to continue the available
28 and critically required flow of cash from DRM. And, again, the
9
1 bankruptcy court’s finding was heavily intertwined with its
2 credibility determinations, to which we afford significant
3 deference. See In re Hussain, 508 B.R. at 425. We, thus,
4 decline to second guess the bankruptcy court’s plausible view of
5 the evidence. See id. (where there are two permissible views of
6 the evidence, the bankruptcy court’s choice between them cannot
7 be clearly erroneous).
8 4. Justifiable reliance.
9 In determining justifiable reliance, the bankruptcy court
10 “must look to all of the circumstances surrounding the particular
11 transaction, and must particularly consider the subjective effect
12 of those circumstances upon the creditor.” In re Wank, 505 B.R.
13 at 894.
14 The bankruptcy court here found that Richter justifiably
15 relied on the Debtor’s representations. It noted that Richter
16 was aware that the Debtor’s business operation “was sort of a
17 balancing act . . . [,] trying to get better credit . . . [,]
18 better terms.” Hr’g Tr. (Nov. 27, 2013) at 32:18-20. It also
19 determined that Richter had simply tried to help a very close
20 friend and, thus, he had not “stuck his head in the sand” as to
21 the potential signs of financial distress. But, the bankruptcy
22 court also found that Richter was a businessman who expected
23 repayment and that had he known the extent of the Debtor’s
24 cumulative financial problems, he would not have caused DRM to
25 advance additional money.
26 The record confirms that long-term personal and business
27 relationship between the parties; a relationship grounded in
28 friendship and trust. Unfortunately, a decade plus of friendship
10
1 and trust quickly cratered at the end of 2008. Had the long-term
2 relationship not existed, the Debtor’s requests for larger and
3 more frequent advances may have raised some legitimate red flags.
4 But given the relationship and history of repayment over a number
5 of years, the bankruptcy court did not clearly err in finding
6 that DRM (through Richter) developed, fairly, a trust in the
7 Debtor that she would make good on the advances. Coupled with
8 the evidentiary record and affording due deference to the
9 bankruptcy court’s credibility determinations, we determine that
10 the bankruptcy court did not clearly err in finding justifiable
11 reliance.
12 Based on the foregoing, the Debtor has not shown that the
13 bankruptcy court’s findings were clearly erroneous. We, thus,
14 conclude that the bankruptcy court did not err in determining
15 that the debt owed to DRM was excepted from discharge under
16 § 523(a)(2)(A).
17 B. Expert witness testimony and evidence.
18 The Debtor also argues that DRM’s expert witness lacked
19 credibility because he was unaware of key facts: the Price Depot
20 checks returned for insufficient funds and the Debtor’s $250,000
21 wire transfer to DRM during the first week of December 2008. She
22 contends that Borenstein lacked complete financial data in
23 rendering his analysis and, thus, challenges his opinion that
24 Price Depot could not repay DRM.
25 We will reverse a bankruptcy court’s evidentiary ruling only
26 if it abused its discretion and the error was prejudicial to the
27 appellant. See In re Mbunda, 484 B.R. at 351. On this record,
28 there is no indication that the bankruptcy court abused its
11
1 discretion. As it indicated at trial, the Debtor’s motion to
2 strike Borenstein’s testimony related to credibility, not whether
3 the testimony was admissible.
4 And, although Borenstein acknowledged at trial that he was
5 unaware of certain facts when he conducted his analysis, he
6 pointed out that his analysis was limited to “inflows, the wire
7 transfers in and the intercompany transfers.” As both the Debtor
8 and Richter testified, the $250,000 in wire transfers were not
9 intended as repayment to DRM; DRM immediately returned the funds.
10 In sum, the Debtor has not shown an abuse of discretion as to the
11 evidentiary ruling in relation to the Borenstein testimony.
12 CONCLUSION
13 Based on the foregoing, we AFFIRM the bankruptcy court.
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
12