FILED APR 15 2024 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP No. NC-23-1139-GFS MARK STEVEN BOYKO, Debtor. Bk. No. 21-30417
MARK STEVEN BOYKO, Adv. No. 21-03042 Appellant, v. MEMORANDUM* AUGUST BARIZON; SARA BOROUMAND, Appellees.
Appeal from the United States Bankruptcy Court for the Northern District of California Dennis Montali, Bankruptcy Judge, Presiding
Before: GAN, FARIS, and SPRAKER, Bankruptcy Judges.
INTRODUCTION
Chapter 131 debtor Mark Steven Boyko appeals the bankruptcy
court’s nondischargeable judgment in favor of creditors August Barizon
and Sara Boroumand (together “Appellees”). The bankruptcy court
determined that Boyko made fraudulent statements and omissions to
* 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 8024-1. 1 Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101–1532. induce Appellees to sign an agreement with Boyko’s former partner, Ruben
Citores, for construction work at their home. Due to Citores’s faulty
construction, Appellees incurred monetary damages of $483,582.
Boyko argues the court erred by finding him liable because he did
not sign the contract, did not receive direct payments from Appellees, and
did not have an active partnership with Citores. He maintains that
Appellees failed to prove the elements of nondischargeability and their
complaint should be precluded by prior state court findings that Citores
operated a construction business without a license and may have stolen
Boyko’s identity. Finally, he disputes the award of postjudgment interest at
the rate provided by state law.
The bankruptcy court properly applied the law, and its factual
findings are not clearly erroneous. However, because the court determined
both the existence and dischargeabilty of the debt, postjudgment interest
should be calculated at the federal rate. We AFFIRM the decision and
MODIFY the judgment to accrue interest at the federal judgment rate,
effective as of the date of its entry.
FACTS 2
A. Prepetition events
In 2017, Appellees bought a home and made immediate plans to
substantially remodel by adding bedrooms and a bathroom and expanding
2 We exercise our discretion to take judicial notice of documents electronically
2 the kitchen and living room. Their architect completed the plans and
recommended a few contractors, including Boyko and Citores, whom he
indicated were partners. Appellees contacted Citores and discussed their
plans, timeline, budget, and their need to have a licensed contractor.
Citores informed them that he had discussed the plans with Boyko, and the
two had prepared a construction proposal. Appellees scheduled a meeting
with Citores and Boyko in July 2017 to discuss the project.
Citores and Boyko arrived at the meeting together and brought
copies of their construction proposal, which was under the name “Rubens
& Boyko Construction.” During the hour-long meeting, Appellees
reviewed the proposal and asked Boyko about his qualifications and
experience. Boyko told Appellees he was a licensed contractor who had
completed many similar projects, and he would supervise the construction.
When Appellees asked for Boyko’s contractor’s license number, he pointed
to the construction proposal, which listed his license number at the top of
each page. Boyko and Citores informed Appellees that they had insurance,
and they provided a certificate of liability insurance with coverage of
$1,000,000. They told Appellees they would complete the construction in
about three months and after signing the contract, Boyko would obtain the
permit. Appellees asked if they should make the initial payment to
filed in the adversary proceeding and main bankruptcy case. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003). 3 “Rubens & Boyko Construction,” but Boyko told them to make the check
out to Citores individually because he handles the money.
After the meeting, Appellees verified Boyko’s contractor’s license
was active, and they signed the construction proposal on July 26, 2017.
Boroumand then accompanied Boyko to San Mateo City Hall where Boyko
signed for the construction permit as the licensed contractor for the project.
According to Appellees, the work on the project was incomplete and
extremely defective. They state that Boyko and Citores acknowledged the
deficiencies during multiple meetings in 2018, but after a couple of months,
they stopped responding to their calls, emails, and text messages and
abandoned the project in December 2018. Appellees hired new contractors
to repair the faulty construction work, and they paid multiple
subcontractors whom Citores and Boyko had not paid. Appellees later
learned that Boyko’s contractor’s license was suspended six months prior
to their July 2017 meeting, and he failed to maintain insurance coverage for
the duration of the project.
Boyko claims that he met the Appellees only briefly, did not review
any documents or make any representations about the project, and did not
supervise or manage the work. He asserts that Citores improperly used
Boyko’s identity and contractor’s license to do other remodeling projects.
Boyko states that he got involved with Appellees only to help resolve the
issues with Citores’s faulty construction. Boyko filed a complaint against
Citores with the Contractors License Board, and he contacted the San
4 Mateo County District Attorney’s Office which informed him that they had
an open case against Citores with Boyko listed as a victim of identity theft.
Citores later pleaded guilty to operating a construction business without a
license.
In 2020, Appellees filed suit in state court against Boyko and Citores
for breach of contract, fraud, negligence, and other causes of action.
B. The bankruptcy case and adversary proceeding
In July 2021, while the state court case was pending, Boyko filed a
chapter 13 petition. Appellees filed a proof of claim for $967,164, consisting
of payments to Citores and his subcontractors, costs to repair the faulty
work, storage costs, and emotional damages. They attached the
construction proposal, the state court complaint, and a declaration
outlining their damages and claims against Boyko. Appellees then filed
their adversary complaint to hold the debt nondischargeable.
In response, Boyko filed a motion to dismiss, arguing that Appellees
failed to state a claim for fraud because the allegations involved a breach of
contract without independent tortious conduct. Boyko stated that he
performed the work under the contract and had nearly finished the project
when Appellees decided to have another contractor complete the job
because they were unsatisfied with the roof. The bankruptcy court denied
the motion.
In April 2022, Boyko filed a motion for summary judgment. Boyko
contended that he was not liable because he never had a contract with
5 Appellees and did not have a partnership with Citores. He argued that he
was the victim of identity theft, and the court should apply issue
preclusion to find him not liable because Citores pleaded guilty to
conducting a construction business without a license.
Also in April 2022, Boyko filed an objection to Appellees’ proof of
claim. He asserted that Appellees did not attach any supporting
documentation and they failed to produce evidence to support their claim
because Boyko did not sign the contract or receive any payments from
Appellees. The bankruptcy court consolidated the claim objection with the
motion for summary judgment and, after a hearing, denied both. The court
determined there was a genuine dispute of material fact because Boyko’s
version of events was in sharp contrast with Appellees’ version, and it
reasoned that the criminal case against Citores was irrelevant to whether
Boyko made fraudulent representations under § 523(a)(2)(A). The court
noted that Appellees’ proof of claim provided prima facie evidence
sufficient to allow the claim, subject to proof at trial.
C. The trial and the court’s decision
At the June 2023 trial, Boyko admitted he was hired by Appellees to
remodel their home, but he disputed the contention that he lacked the
intent to manage and supervise the project. His trial testimony contradicted
his deposition in which he claimed he never intended to manage and
supervise the project.
6 Boyko testified that he previously ceased his partnership with Citores
because of a lawsuit over faulty construction work, and he did not want to
be directly associated with Citores on construction projects.
Notwithstanding his concerns, Boyko acknowledged he had an agreement
with Citores that when he needed a permit for a construction project,
Boyko would use his contractor’s license to obtain the permit and ensure
the construction passed the city inspection. Boyko admitted Citores paid
him $8,000 for obtaining the permits for Appellees’ project.
On July 21, 2023, the bankruptcy court rendered an oral ruling
holding the debt nondischargeable under § 523(a)(2)(A). The court
determined that Boyko made false representations that he would be the
contractor for Appellees’ project, and he made fraudulent omissions about
his relationship with Citores. The court held that Boyko intended to
deceive Appellees based on inconsistencies between his trial testimony and
deposition, which caused the court to reject his testimony as not credible. It
determined that Appellees justifiably relied on the misrepresentations to
their detriment, and they sustained monetary damages in the amount
asserted in their proof of claim, but not emotional damages.
The court entered its nondischargeable judgment on July 27, 2023,
which provided for postjudgment interest at 10% per annum under
California Code of Civil Procedure § 685.010(a). Boyko timely appealed.
7 JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Did the bankruptcy court err by holding the debt nondischargeable
under § 523(a)(2)(A)?
STANDARDS OF REVIEW
The ultimate question of whether a claim is nondischargeable is a
mixed question of law and fact, which we review de novo. Carillo v. Su (In
re Su), 290 F.3d 1140, 1142 (9th Cir. 2002). Under de novo review, “we
consider a matter anew, as if no decision had been made
previously.” Francis v. Wallace (In re Francis), 505 B.R. 914, 917 (9th Cir.
2014).
When the appellant challenges the bankruptcy court’s factual
findings supporting its nondischargeability decision, we review those
findings for clear error. In re Su, 290 F.3d at 1142. Factual findings are
clearly erroneous if they are illogical, implausible, or without support in
the record. Retz v. Samson (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010).
“Where there are two permissible views of the evidence, the factfinder’s
choice between them cannot be clearly erroneous.” Anderson v. City of
Bessemer City, 470 U.S. 564, 574 (1985).
8 DISCUSSION
Boyko argues the bankruptcy court erred by finding him liable
because Appellees’ contract was with “Rubens & Boyko Construction,” a
nonexistent entity, and he did not receive any payments from Appellees.
He maintains that without a partnership, he cannot be liable for Citores’s
fraud, and the bankruptcy court lacked authority to find Citores liable and
impute that fraud to Boyko. He also argues the bankruptcy court
erroneously based its factual findings on Boyko’s failure to refute
Appellees’ contentions rather than Appellees’ burden to prove each
element by a preponderance of the evidence.
A. Legal standards governing nondischargeability
Section 523(a)(2)(A) excepts from discharge any debt “obtained by
false pretenses, a false representation, or actual fraud, other than a
statement respecting the debtor’s or an insider’s financial condition.” To
prevail on a nondischargeability claim under § 523(a)(2)(A), a creditor must
prove, by a preponderance of the evidence: (1) misrepresentation,
fraudulent omission, or deceptive conduct by the debtor; (2) knowledge of
the falsity or deceptiveness of his statement or conduct; (3) an intent to
deceive; (4) justifiable reliance on the debtor’s statement or conduct; and
(5) damage proximately caused by its reliance on the statement or
conduct. Turtle Rock Meadows Homeowners Ass'n v. Slyman (In re Slyman),
234 F.3d 1081, 1085 (9th Cir. 1996). A fraudulent omission of a material fact
may constitute a false representation if the debtor is under a duty to
9 disclose. Apte v. Japra, M.D., F.A.C.C., Inc. (In re Apte), 96 F.3d 1319, 1323-24
(9th Cir. 1996); Citibank (South Dakota), N.A. v. Eashai (In re Eashai), 87 F.3d
1082, 1089 (9th Cir. 1996).
B. The bankruptcy court did not err by determining Boyko committed fraud.
1. Boyko was liable for his own conduct.
Boyko’s primary contention on appeal is that after Appellees signed
the contract, their subsequent damages are limited to breach of contract.
Because he did not have a contractual relationship with Appellees or an
active partnership with Citores, Boyko argues Appellees have no claim
against him and there is no debt which could be held nondischargeable.
Section 523(a)(2)(A) excepts from discharge debts caused by fraud.
Boyko is liable for his own fraudulent misrepresentations and omissions—
and the consequential damages caused by Appellees’ reliance on his
fraud—regardless of whether he had a contract with Appellees or a
partnership with Citores. As the bankruptcy court correctly explained:
But for [Boyko’s] active defrauding of [Appellees] about his expected critical and mandatory role in the execution of the project, including his active concealment of Citores’[s] prior mischief, and lack of a license, there would have been no project and no damages suffered by [Appellees]. What he did and didn’t do, as just described was actual fraud, regardless of the existence or non-existence of a partnership.
Hr’g Tr. at 15:14-21, July 21, 2023.
10 And the bankruptcy court correctly held that § 523(a)(2)(A) does not
limit a debt for fraud to amounts received by the debtor. See Cohen v. de la
Cruz, 523 U.S. 213, 215 (1998) (Section 523(a)(2)(A) “prevents the discharge
of all liability arising from fraud”); Ghomeshi v. Sabban (In re Sabban), 600
F.3d 1219, 1222 (9th Cir. 2010) (“[W]e have concluded that there is no
requirement that the debtor have received a direct or indirect benefit from
his or her fraudulent activity in order to make out a violation of
§ 523(a)(2)(A).” (cleaned up)).
In short, it is irrelevant whether Boyko signed the contract, received
payments from Appellees, or had a partnership with Citores, because the
bankruptcy court found he made intentional fraudulent representations
and omissions, which caused Appellees’ damages. Accordingly, because
Boyko’s liability is based on his own conduct, we reject his arguments that:
(1) the bankruptcy court lacked authority to hold Citores liable for fraud
and impute that liability to him as a partner; and (2) the bankruptcy court
could not find Boyko liable based on prior state court rulings of Citores’s
wrongdoing.
2. Appellees’ unrefuted evidence supports the bankruptcy court’s findings.
Boyko claims his statements at the July 2017 meeting were merely
opinions regarding future events and cannot form the basis to rescind a
contract for fraud. Once Appellees signed the contract with Citores, Boyko
argues their subsequent damages are based on breach of contract and are
11 thus dischargeable under the holding of Lockerby v. Sierra, 535 F.3d 1038
(9th Cir. 2008).
In Lockerby, the Ninth Circuit held that an intentional breach of
contract does not give rise to nondischargeability under § 523(a)(6) unless
the breach is accompanied by tortious conduct under state law. Id. at 1040.
But Appellees’ complaint under § 523(a)(2)(A) is based on Boyko’s
misrepresentations or actual fraud, not on a purported intentional breach
of contract.
To prevail on their § 523(a)(2)(A) claim, Appellees must prove that
Boyko made a fraudulent misrepresentation with intent to deceive.3
Appellees testified that at the July 2017 meeting Boyko fraudulently
represented that he would manage and supervise the project, and
Appellees would not have signed the construction agreement had they
known his true intent. Boyko disputed Appellees’ version of events, but the
bankruptcy court did not find him credible; it believed Appellees and
determined Boyko made the misrepresentations with intent to deceive. We
give particular deference to the bankruptcy court’s credibility findings, In
re Retz, 606 F.3d at 1196, and the bankruptcy court’s choice between two
possible views of the evidence cannot be clearly erroneous, Anderson, 470
3 On appeal, Boyko does not challenge the bankruptcy court’s finding that he made fraudulent omissions, which forms an independent basis to affirm. See Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999). 12 U.S. at 573-74. The evidence supports the bankruptcy court’s factual
findings, and we discern no clear error.
Next, Boyko argues that the bankruptcy court erred by determining
the validity and amount of Appellees’ claim based on his failure to refute
their prima facie claim instead of independently analyzing the evidence of
damages. In denying Boyko’s claim objection, the court determined that
Appellees presented sufficient evidence to make a prima facie showing of
their claim, subject to proof at trial.
Appellees presented a detailed declaration and trial testimony from
Boroumand outlining their damages. Boyko cross-examined Boroumand
about Appellees’ measure of damages and argued to the court that
damages should be limited to the $8,000 Boyko received from Citores. But
he did not present any evidence to refute the amount of their claim. The
bankruptcy court properly evaluated the evidence and considered Boyko’s
argument. It reasoned that Appellees did not offer any concrete proof of
emotional harm, and it disallowed their request for such damages. The
court then determined that Appellees provided evidence of their monetary
damages in the amount of $483,582, and those damages were caused by
Boyko’s fraud under the holding of Cohen v. de la Cruz, 523 U.S. 213, 215
(1998). Appellees proved their damages by a preponderance of the
evidence, and Boyko does not demonstrate any error by the bankruptcy
court.
13 C. Boyko’s other arguments
Boyko contends the bankruptcy court erred by admitting his motion
to dismiss as evidence in the trial. He argues that the motion was
unverified, included incorrect statements of fact, and was withdrawn prior
to Boyko filing his motion for summary judgment.
We review a bankruptcy court’s evidentiary rulings for abuse of
discretion, and then only reverse if any error would have been prejudicial
to the appellant. Van Zandt v. Mbunda (In re Mbunda), 484 B.R. 344, 351 (9th
Cir. BAP 2012), aff’d, 604 F. App’x 552 (9th Cir. 2015).
But Boyko makes no argument—much less a credible showing—that
he was prejudiced by admission of the motion to dismiss. See Harper v. City
of L.A., 533 F.3d 1010, 1030 (9th Cir. 2008) (“We afford broad discretion to a
district court’s evidentiary rulings. To reverse such a ruling, we must find
that the district court abused its discretion and the error was prejudicial. A
reviewing court should find prejudice only if it concludes that, more
probably than not, the lower court’s error tainted the verdict.” (cleaned
up)).
The bankruptcy court based its decision on the evidence offered by
Appellees and on Boyko’s lack of credibility. There is nothing in the record
that indicates the court relied on statements made in Boyko’s motion to
dismiss, and Boyko offers no argument why the court’s decision would
have been any different if the motion to dismiss were excluded.
14 Consequently, admission of the motion to dismiss cannot constitute
reversible error.
Finally, Boyko argues that the court erred by allowing postjudgment
interest at the California rate of 10% per annum. If a bankruptcy court
holds nondischargeable an existing state court judgment debt, the
judgment will continue to accrue postjudgment interest under state law.
Hamilton v. Elite of L.A., Inc. (In re Hamilton), 584 B.R. 310, 322-23 (9th Cir.
BAP 2018), aff’d, 785 F. App’x 438 (9th Cir. 2019). But where there is no
prior state court judgment, and the bankruptcy court must determine both
the existence of the debt and its dischargeability, federal law governs
postjudgment interest. Id. at 324. Because Appellees did not have a prior
state court judgment, the bankruptcy court’s judgment should accrue
interest at the federal rate, as required by 28 U.S.C. § 1961(a).
CONCLUSION
Based on the foregoing, we AFFIRM the bankruptcy court’s
judgment and MODIFY it to incur postjudgment interest at the federal rate
as of the date of judgment.