In re: Ineta Kohler

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: February 25, 2016
• Docket: CC-15-1063-TaFC
• Status: Unpublished

Opinion

FILED FEB 25 2016 1 NOT FOR PUBLICATION 2 SUSAN M. SPRAUL, CLERK U.S. BKCY.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-15-1063-TaFC ) 6 INETA KOHLER, ) Bk. No. 12-17323-VK ) 7 Debtor. ) Adv. No. 12-01405-VK ______________________________) 8 ) INETA KOHLER, ) 9 ) Appellant, ) 10 ) v. ) MEMORANDUM* 11 ) LYDIA ETMAN, ) 12 ) Appellee.** ) 13 ______________________________) 14 Argued and Submitted on January 21, 2016 at Pasadena, California 15 Filed – February 25, 2016 16 Appeal from the United States Bankruptcy Court 17 for the Central District of California 18 Honorable Victoria S. Kaufman, Bankruptcy Judge, Presiding 19 Appearances: Andrew S. Mansfield of Higson Cheney Mansfield, 20 PC argued for appellant Ineta Kohler. 21 22 23 * 24 This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may 25 have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8024-1(c)(2). 26 ** 27 Appellee did not file a brief; pursuant to the BAP Clerk of Court’s conditional order of waiver, she waived her right to 28 appear in this appeal. 1 Before: TAYLOR, FARIS, and CORBIT,*** Bankruptcy Judges. 2 3 INTRODUCTION 4 Chapter 71 debtor Ineta Kohler appeals from a judgment 5 excepting a debt from discharge under § 523(a)(2)(A) and denying 6 discharge under § 727(a)(4)(A). We AFFIRM the bankruptcy court. 7 FACTS 8 The Etman Loan 9 The Debtor and Etman were close friends for many years; so 10 much so that when the Debtor fell on hard times in late 2007, 11 Etman loaned the Debtor $25,000. At the time, the Debtor told 12 Etman that she was selling or intended to sell her real property 13 residence, located in Simi Valley, California (the “Simi Valley 14 Property”) and that she would repay Etman from the sale 15 proceeds. The Debtor assured Etman that the Simi Valley 16 Property provided “plenty of equity” for repayment. Unbeknownst 17 to Etman, however, the Debtor had recently refinanced the Simi 18 Valley Property and increased the debt owed by $81,000. 19 The terms of the Etman loan were evidenced by a handwritten 20 promissory note, which provided that it matured three months 21 later, in March 2008, and was secured by the Simi Valley 22 Property. A deed of trust, however, was neither executed nor 23 recorded. Instead, the promissory note was notarized; according 24 25 *** The Honorable Frederick P. Corbit, Chief United States Bankruptcy Judge for the Eastern District of Washington, sitting 26 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 to Etman, the Debtor told her that notarizing the promissory 2 note was all that was required. 3 The Debtor sold the Simi Valley Property in May 2008 and 4 after payment of the debts secured by the property, a sales 5 commission, fees, and similar charges, the Debtor realized 6 $6,341.99 from the sale. The Debtor did not pay Etman anything 7 from the proceeds. Instead, she apparently used the proceeds to 8 defray the costs of renting a house, moving, and storage. 9 According to Etman, she learned after the fact from the 10 Debtor’s ex-husband that the sale of the Simi Valley Property 11 had closed, that the Debtor had received the sale proceeds, and 12 that the proceeds were insufficient to repay her loan. When 13 asked by Etman, the Debtor acknowledged the deficiency but 14 explained that she had forgotten that one of the debts was 15 subject to a prepayment penalty. 16 Over the next two years, the Debtor made 12 payments on the 17 loan at irregular intervals. Ultimately, she repaid $8,350 of 18 the $25,000 loan; a balance of $16,650 remained at the time of 19 the petition. 20 Still, the women remained friends, and Etman learned from 21 the Debtor that she was working for a local doctor - Dr. Nguyen 22 - and being paid in cash for services rendered. Apparently, 23 Dr. Nguyen had also assisted the Debtor in obtaining benefits 24 from social security disability insurance. At that point, Etman 25 believed that the Debtor would never repay her, and, pro se, she 26 commenced litigation against the Debtor in state court. 27 Nearly five years after the Etman loan was made, the Debtor 28 filed a chapter 7 petition.

3 1 The Adversary Proceeding 2 The adversary complaint asserted claims for relief under 3 §§ 523(a)(2)(A) and 727(a)(4)(A). In particular, Etman sought 4 to except her loan from discharge and for denial of the Debtor’s 5 discharge, based on allegations that the Debtor failed to 6 disclose or schedule numerous items on her bankruptcy schedules 7 and statement of financial affairs. The adversary complaint 8 alleged that the Debtor omitted: the income from Dr. Nguyen; a 9 pre-petition sale of a boat and trailer; valuable personal 10 property, including five gold pictures and two autographed 11 guitars; and fractional interests in two parcels of real 12 property in Arizona and New Mexico (the “Properties”).2 13 As the case proceeded to trial, the bankruptcy court issued 14 an amended pretrial order, which provided for direct witness 15 testimony through the submission of declarations and limited 16 testimony at trial for rebuttal. Both parties submitted 17 declarations, both for themselves and for their witnesses. 18 Etman, in particular, submitted the declarations of five 19 witnesses who were either friends or acquaintances of the 20 Debtor; one witness also was a former employee of Dr. Nguyen. 21 Etman also filed a supplemental declaration; it appears that the 22 supplemental declaration was, in fact, a reply declaration as 23 24 2 The adversary complaint also alleged that the Debtor 25 omitted other valuable personal property assets and an interest in a criminal restitution judgment in favor of the Debtor’s 26 father and great-aunt, who died prior to the bankruptcy filing. 27 The bankruptcy court ultimately determined that Etman did not meet her burden with respect to those items and no cross-appeal 28 was taken.

4 1 permitted by the pretrial order. 2 The Debtor filed evidentiary objections to all of the 3 declarations submitted by Etman. In a tentative ruling and with 4 one exception, the bankruptcy court addressed the Debtor’s 5 objections to each individual declaration (including Etman’s 6 supplemental declaration), stating its intent to sustain certain 7 objections and overrule others. It, however, did not, address 8 the Debtor’s objections to Etman’s initial declaration. 9 Following a trial, the bankruptcy court issued a detailed 10 memorandum decision in which it determined that Etman had met 11 her burden of proof under §§ 523(a)(2)(A) and 727(a)(4)(A). In 12 the subsequent judgment, the bankruptcy court liquidated the 13 § 523(a)(2)(A) judgment in Etman’s favor in the amount of 14 $16,650, taking into account the Debtor’s payments on the Etman 15 loan. 16 The Debtor timely appealed. 17 JURISDICTION 18 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 19 §§ 1334 and 157(b)(2)(I) and (J). We have jurisdiction under 20 28 U.S.C. § 158. 21 ISSUES 22 1. Whether the bankruptcy court ruled on the Debtor’s 23 evidentiary objections. 24 2. Whether the bankruptcy court’s conduct of the trial 25 resulted in prejudice to the Debtor. 26 3. Whether the bankruptcy court erred in determining that the 27 loan was excepted from discharge under § 523(a)(2)(A). 28 4. Whether the bankruptcy court erred in denying discharge

5 1 pursuant to § 727(a)(4)(A). 2 STANDARDS OF REVIEW 3 In reviewing a bankruptcy court’s determination of an 4 exception to discharge, we review its findings of fact for clear 5 error and its conclusions of law de novo. Oney v. Weinberg 6 (In re Weinberg), 410 B.R. 19, 28 (9th Cir. BAP 2009). A 7 debtor’s intent is a factual finding reviewed for clear error. 8 Candland v. Ins. Co. of N. Am. (In re Candland), 90 F.3d 1466, 9 1469 (9th Cir. 1996). A factual finding is clearly erroneous if 10 it is illogical, implausible, or without support in inferences 11 that may be drawn from the facts in the record. Retz v. Samson 12 (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010). 13 We review the denial of discharge as follows: 14 (1) determinations of the historical facts are reviewed for 15 clear error; (2) selection of the applicable legal rules under 16 § 727 are reviewed de novo; and (3) application of the facts to 17 those rules requiring the exercise of judgments about values 18 animating the rules are reviewed de novo. Id. We give great 19 deference to the bankruptcy court’s findings when they are based 20 on its determinations as to the credibility of witnesses. Id. 21 Whether the bankruptcy court permitted evidence to be 22 presented at trial that violated or exceeded the scope of the 23 pretrial order is reviewed for an abuse of discretion. Cf. 24 Rafter Seven Ranches L.P. v. WNL Invs., LLC (In re Rafter Seven 25 Ranches L.P.), 414 B.R. 722, 732 (10th Cir. BAP 2009). A 26 bankruptcy court abuses its discretion if it applies the wrong 27 legal standard, misapplies the correct legal standard, or if its 28 factual findings are clearly erroneous. See TrafficSchool.com,

6 1 Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011). 2 DISCUSSION 3 We first address the Debtor’s assertions of error on issues 4 of evidence, the pretrial order, and the bankruptcy court’s 5 conduct of the trial. 6 A. With one exception, there was no error in the bankruptcy 7 court’s evidentiary rulings or its conduct of the trial; 8 and, on this record, the only error was harmless. 9 The Debtor contends that her objections to the declarations 10 submitted by Etman were never addressed or properly ruled on by 11 the bankruptcy court. To the extent they were, however, she 12 argues summarily that we must review the rulings for foundation, 13 materiality, and probative value, as contained in her objections 14 before the bankruptcy court. 15 With one exception, the record shows that the bankruptcy 16 court ruled on the evidentiary objections. Prior to the first 17 day of trial, it issued a tentative ruling addressing the 18 objections on a declaration-by-declaration basis. It then 19 adopted and read its tentative ruling into the record at trial. 20 The sole exception relates to Etman’s initial declaration. 21 Neither the tentative ruling nor the trial transcripts contain a 22 ruling on the Debtor’s objections to that declaration. And the 23 ruling on the objections to Etman’s supplemental declaration did 24 not resolve this problem; the supplemental declaration did not 25 incorporate or replace the initial declaration. Nonetheless, 26 this oversight does not constitute reversible error. That is 27 because, “[w]here the court fails to specifically rule on the 28 admission of evidence, and where both parties had opportunity to

7 1 urge their objections, in the absence of any indication to the 2 contrary, we can presume that admissible evidence was admitted 3 and that inadmissible evidence was rejected.” Wagner Tractor, 4 Inc. v. Shields, 381 F.2d 441, 446 (9th Cir. 1967). 5 On this record, the bankruptcy court’s failure to rule on 6 the Debtor’s objections to the initial Etman declaration was 7 harmless error for two reasons. First, both the Debtor and 8 Etman testified at trial, and the bankruptcy court had the 9 opportunity to independently evaluate their testimony and 10 credibility. Second, the Debtor’s objections to Etman’s initial 11 declaration mostly related to evidence immaterial to the 12 bankruptcy court’s final decision. 13 We further decline to review the rulings the bankruptcy 14 court did make. First, the Debtor does not specifically and 15 distinctly address the bankruptcy court’s rulings on these 16 points. Second, the record shows that she did not raise each of 17 these particular objections before the bankruptcy court. And, 18 third, the bankruptcy court sustained some of the Debtor’s 19 objections. As the appellant, it is the Debtor’s responsibility 20 to advance these arguments with particularity and within the 21 framework of the Federal Rules of Evidence; she has not met her 22 burden here, and we decline to shoulder it for her. 23 In our interpretation, the Debtor also challenges the 24 bankruptcy court’s conduct of the trial as unfairly prejudicial. 25 She complains that the trial transcripts are replete with 26 attacks on her character and asserts that “[a] short review of 27 the trial transcript demonstrates how many times this attack 28 recurred during the trial, infected the proceedings, and most

8 1 often came in the form of testimony from Ms. Standard, 2 Appellee’s attorney.” Standard, however, was not sworn in to 3 testify as a witness at trial; thus, by definition she did not 4 testify. That counsel sought to impeach the Debtor’s 5 credibility as a witness did not render any of counsel’s 6 arguments to the bankruptcy court inadmissible character 7 evidence. 8 The remainder of the Debtor’s arguments with respect to the 9 trial are similarly unavailing. She complains that “[f]rom a 10 review of the trial transcript, it is apparent that most of the 11 provisions of the [pretrial order] were not followed.” In 12 support of her argument, the Debtor broadly alleges that 13 exhibits were introduced at trial that were not attached to 14 declarations, as the pretrial order required. She, however, 15 does not particularly identify the exhibits she references. And 16 to the extent she refers obliquely to impeachment evidence, 17 there is no indication in the record that any such evidence was 18 admitted into the record. 19 The Debtor next asserts that, contrary to the pretrial 20 order’s limitation of additional evidence at trial to true 21 rebuttal evidence, “[t]he parties, as can be seen through the 22 transcript, provided lengthy direct testimony under lax control 23 allowing no time for [the Debtor] to object.” Again, she does 24 not specifically identify which testimony she refers to, where 25 she did not have an opportunity to object, and how the lack of 26 such an opportunity resulted in prejudice. 27 The Debtor further complains that cross-examination and 28 re-direct often exceeded the scope of direct testimony as

9 1 provided in the declarations. Once again, however, her argument 2 is vague, and she does not point to any specific instance in the 3 record. 4 And, finally, the Debtor argues that the order of the 5 witnesses’ testimony was prejudicial and improper; namely, that 6 she was cross-examined first “when all that had happened (under 7 the declarations) was that [Etman] had presented her case in 8 chief.” We do not quite understand this argument. But, to the 9 extent she contends that prejudice resulted because the 10 witnesses testified “out of order,” it is without merit. The 11 record shows that, on the first day of trial, the Debtor 12 expressly asked the bankruptcy court to allow that Dr. Nguyen be 13 permitted to testify first, based on his schedule and limited 14 availability. And nothing in the record suggests that the order 15 of witnesses had any impact on the bankruptcy court’s decision. 16 B. The bankruptcy court did not err in denying the Debtor’s 17 discharge under § 727(a)(4)(A). 18 Section 727(a)(4)(A) provides for discharge denial where 19 “the debtor knowingly and fraudulently, in or in connection with 20 the case[,] made a false oath or account.” A false oath 21 includes “[a] false statement or an omission in the debtor’s 22 bankruptcy schedules or statement of financial affairs . . . .” 23 Khalil v. Developers Sur. & Indem. Co. (In re Khalil), 379 B.R. 24 163, 172 (9th Cir. BAP 2007). “The fundamental purpose of 25 § 727(a)(4)(A) is to insure that the trustee and creditors have 26 accurate information without having to conduct costly 27 investigations.” Id. (internal quotation marks and citation 28 omitted).

10 1 The objector to discharge must show, by a preponderance of 2 the evidence, that: “(1) the debtor made a false oath in 3 connection with the case; (2) the oath related to a material 4 fact; (3) the oath was made knowingly; and (4) the oath was made 5 fraudulently.” In re Retz, 606 F.3d at 1196-97 (quoting Roberts 6 v. Erhard (In re Roberts), 331 B.R. 876, 882 (9th Cir. BAP 7 2005)). Objections to discharge are liberally construed in 8 favor of the debtor and against the objector. In re Khalil, 9 379 B.R. at 172. For that reason, the objector bears the burden 10 to prove by a preponderance of the evidence that the debtor’s 11 discharge should be denied. Id. 12 Here, the Debtor focuses solely on the materiality element. 13 She contends that “[e]very single one of the alleged omissions 14 or false statements raised by [Etman] [were] immaterial or 15 relate to exempt property that [was] not property of the 16 estate.” We disagree. 17 “A fact is material if it bears a relationship to the 18 debtor’s business transactions or estate, or concerns the 19 discovery of assets, business dealings, or the existence and 20 disposition of the debtor’s property.” Id. at 173 (internal 21 quotation marks and citation omitted). Materiality requires an 22 impact in the bankruptcy case and may exist “even if it does not 23 cause direct financial prejudice to creditors.” Id. at 177 24 (internal quotation marks and citation omitted). 25 The bankruptcy court determined that a significant 26 omission from the schedules was the Debtor’s income from 27 Dr. Nguyen. Based on the testimony of Etman and her five 28 witnesses, the bankruptcy court found that, prepetition, the

11 1 Debtor worked for Dr. Nguyen and that she received money in 2 exchange for her work. It found the testimony of these 3 individuals more credible than that of the Debtor and Dr. 4 Nguyen, as the plaintiff’s witnesses had no motivation to 5 provide false testimony. In contrast, the Debtor was receiving 6 benefits from social security disability insurance and did not 7 want to jeopardize her receipt of this money. 8 Contrary to the Debtor’s assertion, this omission was 9 material. As the bankruptcy court pointed out, the omission 10 potentially impacted the Debtor’s ability to file a chapter 7 11 case, given that she also received social security disability 12 benefits at the time of petition. And it frustrated the 13 chapter 7 trustee’s access to a complete and honest snapshot of 14 the Debtor’s financial landscape. 15 The bankruptcy court also found that the Debtor omitted or 16 misrepresented the following items on her schedules and SOFA: 17 five gold pictures, two autographed guitars, the Properties, and 18 the pre-petition sale of the boat and trailer. The Debtor 19 contends that these alleged omissions or misrepresentations were 20 immaterial based on the small value of the asset or the fact 21 that it was completely exempt in bankruptcy. That was perhaps 22 true in isolation in regards to a specific asset; here, however, 23 the bankruptcy court considered the omission of several assets 24 and a material pre-petition transaction that the Debtor was 25 required to disclose. We cannot conclude that the bankruptcy 26 court clearly erred in determining that the cumulative omissions 27 and misrepresentations were material. 28 The Debtor also attempts to defend herself on the basis

12 1 that later, she made payments to Etman on the loan. But the 2 discharge denial was based on the Debtor’s false oaths on her 3 schedules and SOFA – not on the Etman loan. She also, again, 4 alleges improper trial procedures and that this somehow 5 undermined the bankruptcy court’s rulings. For the reasons 6 already discussed, we disagree. 7 The Debtor does not challenge the other requirements of 8 § 727(a)(4)(A).3 On that basis, and given the bankruptcy 9 court’s extensive findings and conclusions in its memorandum 10 decision, we conclude that it did not err in denying the 11 Debtor’s discharge under § 727(a)(4)(A). 12 C. The bankruptcy court did not err in excepting the Etman 13 loan from discharge under § 523(a)(2)(A). 14 Section 523(a)(2)(A) excepts from discharge a debt 15 resulting from “false pretenses, a false representation, or 16 actual fraud, other than a statement respecting the debtor’s or 17 an insider’s financial condition.” A creditor seeking to except 18 a debt from discharge based on fraud bears the burden of proof 19 of showing, by a preponderance of the evidence, satisfaction of 20 the following elements: (1) misrepresentation, fraudulent 21 omission or deceptive conduct; (2) knowledge of the falsity or 22 deceptiveness of such representation(s) or omission(s); (3) an 23 intent to deceive; (4) justifiable reliance by the creditor on 24 the subject representation(s) or conduct; and (5) damage to the 25 3 The Debtor broadly argues that a false oath requires 26 fraudulent intent, which must be proven with particularity and 27 not simply alleged. She does not, however, argue that the bankruptcy court’s findings of fraudulent intent were clearly 28 erroneous.

13 1 creditor proximately caused by its reliance on such 2 representation(s) or conduct. Ghomeshi v. Sabban 3 (In re Sabban), 600 F.3d 1219, 1222 (9th Cir. 2010); Oney v. 4 Weinberg (In re Weinberg), 410 B.R. 19, 35 (9th Cir. BAP 2009). 5 On appeal, the Debtor’s argument focuses solely on intent; 6 she argues, in effect, that she did not possess the intent to 7 deceive at the time that the loan was made because she believed 8 that the Simi Valley Property would sell for more than it 9 actually did. She also points to her subsequent payments as 10 proof that she always intended to repay the loan. 11 Whether a debtor possessed an intent to deceive within the 12 meaning of § 523(a)(2)(A) is a question of fact that “can be 13 inferred from surrounding circumstances.” Cowen v. Kennedy 14 (In re Kennedy), 108 F.3d 1015, 1018 (9th Cir. 1997). The 15 bankruptcy court found that in order to induce Etman to make the 16 loan, the Debtor misrepresented her intent and ability to repay 17 the loan. And, insofar as the parties’ version of events 18 resulting in the loan conflicted, it found that the Debtor was 19 not a credible witness, based on other instances of 20 misrepresentation.4 21 Based on the record, the bankruptcy court’s intent finding 22 was not clearly erroneous. This is particularly true here, 23 4 24 These misrepresentations included: the Debtor’s testimony that she was only a “volunteer” in Dr. Nguyen’s office 25 when other evidence established that she worked there and received income; false statements made by the Debtor in the 2007 26 refinancing application on the Simi Valley Property; incorrect 27 information regarding the sale of the boat and trailer in documents submitted to the DMV; and a misrepresentation as to 28 the condition of the boat in the Debtor’s SOFA.

14 1 where its findings were based in part on its evaluation of 2 witness credibility, to which we afford significant deference. 3 Several facts in the record are beyond dispute, namely 4 that: in November 2007, the Debtor told Etman that she would 5 repay the loan from the sale proceeds of the Simi Valley 6 Property; the Debtor promised to repay the loan by March 2008, 7 as evidenced by the promissory note; the Debtor did not repay 8 the loan under the terms of the note; when the Simi Valley 9 Property sale finally closed and she received the sale proceeds, 10 the Debtor did not tell Etman; and the Debtor did not pay Etman 11 anything from the net sale proceeds. The bankruptcy court 12 appropriately inferred from the Debtor’s misrepresentation 13 regarding the loan repayment that she harbored the requisite 14 intent to deceive. 15 The Debtor does not particularly challenge the bankruptcy 16 court’s findings or conclusions regarding the other elements of 17 § 523(a)(2)(A). Given that fact, and the quality of the 18 bankruptcy court’s findings and conclusions on those elements in 19 its memorandum decision, we conclude that it did not err in 20 determining that the loan was excepted from discharge under 21 § 523(a)(2)(A). 22 CONCLUSION 23 Based on the foregoing, we AFFIRM. 24 25 26 27 28