Opinion
NOT FOR PUBLICATION
Argued and Submitted at San Francisco, California: June 16, 2011
Appeal from the United States Bankruptcy Court for the Eastern District of California. Bk. No. 09-47201, Adv. No. 10-02146. Honorable David E. Russell, Bankruptcy Judge, Presiding.
Honorable David E. Russell, Bankruptcy Judge, conducted the trial which gave rise to this appeal. Honorable Michael S. McManus, Bankruptcy Judge, signed the judgment on appeal which lists Judge Russell as the trial judge.
The Appellant argued, Pro se.
The Appellee filed a pro se brief.
Before: HOLLOWELL, PAPPAS, and JURY, Bankruptcy Judges.
This disposition is not appropriate for publication. 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 Cir. BAP Rule 8013-1.
Saherinder Kaur (Kaur) appeals the bankruptcy court's determination that a state court judgment she obtained against Davinder Kaur (the Debtor) and the Debtor's husband, Parminder Toor (Toor) was dischargeable. We AFFIRM.
I. FACTS
In March 2004, Kaur and her cousin, Toor, entered into an oral business agreement (the Agreement) to start a commercial trucking business (SP Transport). As part of the Agreement, Kaur invested $15,000 to partially fund the purchase of a Freightliner truck (the Truck). Additionally, on March 5, 2004, Kaur and Toor executed a promissory note in favor of Bank One, NA in the amount of $35,075 (the Note) for the balance of the purchase price of the Truck. Toor agreed to be responsible for making the $694.45 monthly payments under the Note. According to Kaur, Toor also agreed to obtain the registration and insurance, to secure the proper business licenses, and to manage the SP Transport business.
Pursuant to the Agreement, after SP Transport was established, it would reimburse Kaur for her $15,000 investment and its profits would be split evenly between Kaur and Toor. Kaur contends that each party had an agreed-upon role in SP Transport: Kaur would fund the down payment and maintenance of the Truck, Toor would drive the Truck, and the Debtor would handle SP Transport's accounting, scheduling and other administrative responsibilities. The Debtor, however, asserts that she was not involved in her husband's business dealings and knew little of the SP Transport business affairs.
In May 2004, Kaur paid an additional $15,000 for repairs on the Truck. In July 2004, Kaur began contacting Toor to inquire when SP Transport would repay her investment and her share of the business profits. Kaur contended that Toor and the Debtor were difficult to get a hold of, and when they did finally speak to one another, they told her the business was not profitable. In December 2004, the Truck required additional repairs. Because Kaur was told SP Transport could not afford to pay for the repairs, she agreed to pay the necessary $4,700 to fix the Truck.
In May 2006, Toor filed a Fictitious Business Statement for SP Transport listing Toor and the Debtor as the owners. In June 2006, Kaur demanded repayment of her investment. Toor signed and delivered to Kaur three $5,000 post-dated checks drawn on the SP Transport account. However, the checks were returned for insufficient funds or because they were drawn on a closed account. In August 2006, SP Transport failed to make payments under the Note and Kaur began to make the required payments.
Kaur filed a complaint against Toor and the Debtor in California state court in December 2006 (the State Court Complaint). The State Court Complaint alleged various causes of action including breach of contract, breach of fiduciary duty, promise without intent to perform, conversion, unjust enrichment, and fraud. The State Court Complaint named the marital community of Toor and the Debtor but Kaur's specific allegations were made solely against Toor. The State Court Complaint was assigned to arbitration. Toor and the Debtor did not file an arbitration brief or appear at the arbitration hearing. On January 10, 2008, the arbitrator awarded Kaur $155,158.90. The award was reduced to judgment on March 22, 2008 (the State Judgment).
At some point in 2009, Toor was sentenced to prison. The Debtor, individually, filed a chapter 7 petition on December 11, 2009. On March 15, 2010, Kaur initiated an adversary proceeding by filing a complaint against the Debtor alleging the State Judgment was nondischargeable under § 523(a)(2) and (a)(4) (the § 523 Complaint).
Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532. All " Rule" references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
In the § 523 Complaint, Kaur alleged that Toor never intended to perform his promises under the Agreement and that Toor entered into the Agreement with the intent to defraud her. Additionally, Kaur alleged that the relationship with Toor was fiduciary in nature. She contended that Toor owed her the duties of loyalty, care, and the obligation to conduct the business in good faith and fair dealing, which he failed to do by entering into agreements with others for transport services, keeping the profits from those agreements, and converting SP Transport assets, such as proceeds from the sale of a refrigerated trailer, for his and the Debtor's own use.
The Debtor filed an answer to the § 523 Complaint on April 9, 2010, denying the allegations. On August 6, 2010, Kaur filed a one-page motion for summary judgment (MSJ) contending the State Judgment established that the debt was nondischargeable under § 523(a)(2)(A) pursuant to the principles of issue preclusion. However, the MSJ did not cite to any legal authority to support the contention, including whether issue preclusion applied.
On August 17, 2010, the Debtor filed a response to the MSJ. She asserted that she was not involved in the business dealings of SP Transport and was not responsible for any debt resulting from her husband's fraudulent acts. On September 28, 2010, the bankruptcy court denied the MSJ because it did not comply with proper procedural requirements, including that it failed to provide legal authority to support it.
A trial was held on the § 523 Complaint on September 30, 2010 (the Trial). The bankruptcy court made its findings of fact and conclusions of law orally at the close of the Trial. On October 7, 2010, it entered a final judgment by Civil Minute Order determining the State Judgment was dischargeable. Kaur timely appealed.
II. JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. § § 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.
III. ISSUES
Did the bankruptcy court err in finding that the State Judgment was dischargeable?
IV. STANDARDS OF REVIEW
Whether a claim is dischargeable presents mixed issues of law and fact, which we review de novo. Peklar v. Ikerd (In re Peklar), 260 F.3d 1035, 1037 (9th Cir. 2001). The Ninth Circuit has held that the bankruptcy court's findings made in the context of a dischargeability analysis are factual findings reviewed under the clearly erroneous standard. Candland v. Ins. Co. of N. Am. (In re Candland), 90 F.3d 1466, 1469 (9th Cir. 1996). Thus, whether a creditor has proven an essential element of a cause of action under § 523 is a factual determination reviewed for clear error. Id .; Cossu v. Jefferson Pilot Sec. Corp. (In re Cossu), 410 F.3d 591, 595-96 (9th Cir. 2005); Am. Express Travel Related Servs. Co., Inc. v. Vee Vinhnee (In re Vee Vinhnee), 336 B.R. 437, 443 (9th Cir. BAP 2005).
A finding is clearly erroneous if it is " illogical, implausible, or without support in the record." Retz v. Samson (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010) (citing United States v. Hinkson, 585 F.3d 1247, 1261-62 & n.21 (9th Cir. 2009) (en banc)). The clearly erroneous standard does not " entitle a reviewing court to reverse the finding of the trier of fact simply because it is convinced that it would have decided the case differently." Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985).
Moreover, when factual findings are based on determinations regarding the credibility of witnesses, we give great deference to the bankruptcy court's findings, because the bankruptcy court, as the trier of fact, had the opportunity to note " variations in demeanor and tone of voice that bear so heavily on the listener's understanding of and belief in what is said." Id . at 575; see also Rule 8013.
V. DISCUSSION
The Bankruptcy Code excepts from discharge any debt for money, property, services, or credit obtained by false pretenses, a false representation, or actual fraud. 11 U.S.C. § 523(a)(2)(A). To prevail on a claim under § 523(a)(2)(A), a creditor must demonstrate five elements: (1) misrepresentation, fraudulent omission or deceptive conduct by the debtor; (2) knowledge of the falsity or deceptiveness of the debtor's 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); In re Candland, 90 F.3d at 1469.
Additionally, § 523(a)(4) excepts from discharge a debt " for fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny." 11 U.S.C. § 523(a)(4). In an action to except a debt from discharge under § 523(a)(4), three elements must be demonstrated: (1) the existence of an express trust, (2) the debt was caused by the debtor's fraud or defalcation, and (3) the debtor acted as a fiduciary to the creditor at the time the debt was created. Otto v. Niles (In re Niles), 106 F.3d 1456, 1459 (9th Cir. 1997); Jacks v. Jacks (In re Jacks), 266 B.R. 728, 735 (9th Cir. BAP 2001).
The meaning of " fiduciary" under § 523(a)(4) is a matter of federal law. Ragsdale v. Haller, 780 F.2d 794, 796 (9th Cir. 1986). Thus, for purposes of § 523(a)(4), the debtor must have been a trustee through an express or technical trust imposed before and without reference to the wrongdoing that caused the debt. Lewis v. Scott (In re Lewis), 97 F.3d 1182, 1185 (9th Cir. 1996). The broad definition of fiduciary - a relationship involving confidence, trust and good faith - is inapplicable in the dischargeability context. Ragsdale v. Haller, 780 F.2d at 796. Here, there was no evidence or argument provided at the Trial that an express trust existed.
The creditor bears the burden of proving each element of § 523(a) by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 287, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). In order to strike a balance between allowing debtors a fresh start and preventing a debtor from retaining the benefits of property obtained by fraudulent means, § 523(a) is strictly construed against creditors and in favor of debtors. In re Slyman, 234 F.3d at 1085; Ghomeshi v. Sabban (In re Sabban), 384 B.R. 1, 5 (9th Cir. BAP 2008), aff'd, 600 F.3d 1219, 1222 (9th Cir. 2010).
Kaur contends the Debtor made false statements to induce her to invest money in SP Transport and that the Debtor never intended to share the profits of that business. Both elements involve factual determinations subject to the clearly erroneous standard of review.
The bankruptcy court found that there was no misrepresentation or deceptive conduct on the part of the Debtor because there was no testimony demonstrating that the Debtor took part in any of the discussions that led to the formation of the SP Transport business or about the initial Agreement to split profits or repay Kaur's investment. " [W]ithout any misrepresentations by [the Debtor], there was no fraud by her." Trial Tr. (Sept. 30, 2010) at 33:14-15.
Our review of the entire record convinces us that the bankruptcy court's assessment of the evidence was plausible and supported by inferences that may be drawn from the record. Indeed, Kaur testified that she entered into the Agreement with Toor and negotiated its terms with Toor. Kaur testified that she did not know that the Debtor was initially even involved in the SP Transport business. Kaur testified that she first began talking to the Debtor about the business in July 2004, when Toor was unavailable. She testified that the majority of her communications with the Debtor occurred in 2006, when Kaur began pressing for her share of the profits and could not reach Toor.
The Debtor testified that she told her husband not to start the business with his relative. " And after that, . . . he didn't tell me after that anything." Id . at 28. The Debtor testified that Toor put her name on the SP Transport business in 2006, so that she could write checks when he was out of town. She testified that she wrote the checks as requested but had no idea what transpired between Toor and Kaur. Furthermore, she testified that she worked as a nurse's aid and that her husband did not consider her a partner in the business. She did not sign the Fictitious Business Statement naming her as an owner of SP Transport. Finally, the Debtor testified that, as far as she knew, the business was never profitable.
Based on this testimony, the bankruptcy court could reasonably infer that the Debtor was not involved in the initial discussions about the Agreement and, therefore, did not make any misrepresentations to Kaur about repaying her investment or sharing profits. Therefore, Kaur failed to satisfy the first element of fraud - misrepresentation or deceptive conduct by the Debtor.
While it is clear that the business relationship soured and that the Debtor may have provided misinformation to Kaur about SP Transport's profits, the evaluation of whether a debtor intended to deceive a creditor by misrepresentation or false pretenses is determined at the time the misrepresentation was made. Monarch Capital Corp. v. Bath (In re Bath), 442 B.R. 377, 389 (Bankr. E.D. Pa 2010). A promise of future performance is generally not actionable as fraud at common law unless at the time the promise was made the debtor had no intention of carrying through. See Restatement (Second) of Torts § 530 (1976). Since the testimony of both Kaur and the Debtor support the finding that the Debtor was not involved in the Agreement at its inception, it follows that she could not have possessed the required intent to deceive Kaur. Accordingly, Kaur could not carry her burden of proving the essential elements of § 523(a)(2)(A) or (a)(4). As a result, the bankruptcy court did not err in determining the State Judgment was dischargeable.
The statements by Toor and the Debtor regarding the profitability of SP Transport were made after the Agreement was made. Even so, the bankruptcy court found that there was no proof in the record that there were any profits, as alleged by Kaur. The bankruptcy court found " there were statements, oh, that the business was or was not profitable. . . . There is proof that the trucking company received money. But that doesn't prove there was a profit. And even if there was, that's a statement that's made after the original misconduct at the beginning of the contract." Trial Tr. (Sept. 30, 2010) at 36-37. Based on a review of the record, these findings are not illogical, implausible, or unsupported by the evidence, and therefore, are not clearly erroneous.
VI. CONCLUSION
Because we have concluded that the bankruptcy court did not make clearly erroneous factual findings supporting its determination that the elements of § 523(a)(2) and (a)(4) were not met, we AFFIRM.