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Case Type:
Case Status:
BAP No. CC-22-1074-LSG (9th Circuit, Nov 04,2022) Not Published
The Bankruptcy Appellate Panel of the Ninth Circuit upheld a bankruptcy court's post-trial judgment excepting a $514,245 debt from the chapter 7 debtor/appellant's discharge under 11 USC § 523(a)(2)(A) and (B).
Procedural context:
After a one-day trial, the bankruptcy court entered a judgment concluding that the creditor's debt was excepted from the debtor's discharge under 11 U.S.C. § 523(a)(2)(A) and (B), though it denied relief on the creditor's claims under § 523(a)(4) and (a)(6). The debtor appealed the judgment and raised three arguments. First, the debtor contended the bankruptcy court abused its discretion by admitting into evidence the transcript of the debtor's testimony at the first meeting of creditors, contending it contained not properly authenticated hearsay. The panel disagreed, finding the debtor (1) had not explained why the evidence offered on the transcript's authenticity was insufficient, and (2) had waived an argument under Federal Rule of Civil Procedure 30(f)(1) by not raising it below. Second, the debtor argued the record did not support a judgment against him under § 523(a)(2)(A), contesting the misrepresentation and justifiable reliance elements of the claim. After discussing the bankruptcy court's factual findings on each element, and explaining that it must defer to the bankruptcy court's credibility assessment of the debtor's testimony, the panel held "the bankruptcy court’s factual findings on the elements of the § 523(a)(2)(A) claim were not illogical, implausible, or without support in the record." Third, the debtor averred the record did not support a judgment against him under § 523(a)(2)(B), disputing that he made a materially false written representation on which the creditor actually or reasonably relied. The panel rejected the debtor's view of the factual record and found the bankruptcy court did not clearly err.
Appellant/Debtor Vance Zachary Johnson, a physician, owned a medical group. He obtained a $514,245 loan from creditor Bankers Healthcare Group, LLC on the medical group's behalf and personally guaranteed the debt. He provided a loan application that included a signed “Statement of Intended Primary Purpose of the Loan” advising that "practice expansion” was the “specific business reason” for the loan. The statement required the debtor to acknowledge his understanding that he sought "a commercial loan to be used 'primarily for other than personal, family, or household purposes' and that '[the creditor] has reasonably and justifiably relied on this [statement] in connection with reviewing and considering my loan application for approval and funding.'” The debtor also submitted a personal financial statement and a company financial statement. While reviewing the application, the creditor discovered the debtor owed a $151,891 debt to the IRS and had a monthly domestic support obligation of $18,000, which the debtor had not disclosed. Nevertheless, the creditor disbursed loan proceeds in July 2017 and required that a portion thereof be used to satisfy the IRS debt. Upon obtaining the proceeds, the debtor paid the IRS debt, paid $72,468 in back child support, and purchased jewelry for $9,935. The record lacked evidence of what happened to the remainder of the loan proceeds; no evidence was presented that the debtor used the loan proceeds to expand the medical group's practice. About five weeks after the creditor disbursed funds, the medical group ceased operations. The medical group only made five payments on the debt, the last in December 2017. The debtor filed a chapter 11 petition in February 2018 in the U.S. Bankruptcy Court for the Central District of California; his schedules included debts incurred prior to July 2017 not disclosed on his financial statement. The debtor's case was converted to chapter 7 a few months later. Thereafter, the creditor filed an adversary proceeding, seeking to except its debt from the debtor's discharge under § 523(a)(2)(A) and (B), (a)(4), and (a)(6).

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