In re: Steve Barlaam

Opinion

FILED JUL 11 2014

SUSAN M. SPRAUL, CLERK

1 NO FO PUBL A IO T R IC T N U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

2 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. CC-13-1382-PaKuBl ) CC-13-1503-PaKuBl 6 STEVE BARLAAM, ) (Cross Appeals)

) CC-13-1500-PaKuBl 7 Debtor. ) (Related Appeal)

___________________________________)

8 ) Bankr. No. 11-13387-GM STEVE BARLAAM, )

9 ) Adv. Proc. 11-01402-GM Appellant/Cross-Appellee,)

10 )

v. ) M E M O R A N D U M1 11 )

FINANCIAL SERVICES VEHICLE TRUST, )

12 BY AND THROUGH ITS SERVICER, BMW )

FINANCIAL SERVICES NA, LLC, )

13 )

Appellee/Cross-Appellant.)

14 ___________________________________)

)

15 FINANCIAL SERVICES VEHICLE TRUST, )

BY AND THROUGH ITS SERVICER, BMW )

16 FINANCIAL SERVICES NA, LLC, )

)

17 Appellant, )

)

18 v. )

)

19 STEVE BARLAAM, )

)

20 Appellee, )

__________________________________ )

21 Argued and Submitted on June 26, 2014, 22 at Pasadena, California 23 Filed - July 11, 2014 24 Appeal from the United States Bankruptcy Court for the Central District of California 25 26

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This disposition is not appropriate for publication.

27 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 28 Cir. BAP Rule 8013-1.

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1 Honorable Geraldine Mund, Bankruptcy Judge, Presiding 2 Appearances: Deborah Young of Ayayo Law Offices argued for Steve 3 Barlaam; Rebecca A. Caley of Caley & Associates argued for Financial Services Vehicle Trust.

4 5 Before: PAPPAS, KURTZ and BLUMENSTIEL,2 Bankruptcy Judges. 6 7 In BAP No. CC-11-1382, chapter 73 debtor Steve Barlaam 8 (“Barlaam”) appeals the judgment (“Judgment”) of the bankruptcy 9 court declaring that his debts to Financial Services Vehicle 10 Trust, by and through its servicer, BMW Financial Services NA, LLC 11 (“BMW FS”) are excepted from discharge under § 523(a)(2)(B). In 12 BAP No. CC-11-1503, BMW FS cross-appeals that portion of the 13 Judgment denying its request for an award of attorney’s fees and 14 costs. In BAP No. 11-1500, BMW FS appeals the order (“Order”) of 15 the bankruptcy court denying its Motion to Amend the Judgment to 16 Include Attorney’s Fees. 17 We AFFIRM that part of the Judgment declaring that Barlaam’s 18 debts to BMW FS are excepted from discharge. However, we REVERSE 19 the bankruptcy court’s Judgment and Order denying BMW FS’ request 20 for attorney’s fees and costs.4 21 22

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23 Hon. Hannah L. Blumenstiel, U.S. Bankruptcy Judge for the Northern District of California, sitting by designation.

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Unless otherwise indicated, all chapter and section 25 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532 and all Rule references are to the Federal Rules of Bankruptcy 26 Procedure, Rules 1001-9037. 27 4 While there are three appeals, under the circumstances, we have elected to dispose of the issues and appeals in this single 28 Memorandum.

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1 FACTS 2 Background 3 Barlaam had a penchant for high-priced automobiles. Between 4 2004 and 2010, he leased or purchased nine luxury cars and, with 5 the exception of the two involved in this appeal, paid in full or 6 satisfied the lease payment terms for all of them. As was his 7 practice, Barlaam was assisted in his acquisition of the 8 automobiles involved here by his personal assistant, Dan Ruderman 9 (“Ruderman”). When Barlaam wanted a new vehicle, he instructed 10 Ruderman to research cars and dealerships and, if he found a 11 likely candidate, negotiate a deal for Barlaam. Again, with the 12 exception of the two cars in these appeals, Ruderman took any 13 required credit applications from the dealer to Barlaam, who 14 delivered the completed applications to the dealers. 15 The 2009 Rolls Royce Phantom Sapphire (the “Rolls Royce”) 16 One of the debts implicated in these appeals arises from 17 Barlaam’s lease of a 2009 Rolls Royce Phantom Sapphire (the “Rolls 18 Royce”). Barlaam had previously leased three vehicles from Tim 19 O’Hara (“O’Hara”), general manager of O’Gara Coach Company 20 (“O’Gara”). Acting on Barlaam’s instructions, Ruderman requested 21 that O’Hara locate a special edition Rolls Royce for Barlaam. 22 When O’Hara found such a car, Ruderman went to the O’Gara 23 dealership and obtained from O’Hara the “sticker” concerning the 24 Rolls Royce, and the basic figures for a possible lease. After 25 reviewing this information, Barlaam instructed Ruderman to return 26 to O’Gara and negotiate the terms for a lease of the Rolls Royce, 27 which included a trade-in of one of the Ferraris he was leasing. 28 Ruderman returned to O’Gara on December 27, 2008, and negotiated a

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1 lease of the Rolls Royce. 2 That same day, a credit application for Barlaam was 3 electronically submitted by O’Gara to BMW FS and entered into the 4 BMW FS “APPRO” software system. One of the key disputes in this 5 appeal is who provided the information that was sent by O’Gara to 6 BMW FS via the APPRO system, and who filled out the information on 7 the written application that was given to O’Gara, which Barlaam 8 had signed. The information submitted to APPRO was, in some 9 respects, incorrect, including a variance on Barlaam’s social 10 security number. Even so, the APPRO system identified Barlaam as 11 a prior customer. Three days later, after two credit analysts at 12 BMW FS reviewed the credit application information, BMW FS 13 notified O’Gara that it had approved Barlaam’s application to 14 lease the Rolls Royce. 15 Barlaam personally went to the O’Gara dealership and signed 16 the lease and other required documents, including the credit 17 application. It is disputed whether, and to what extent, Barlaam 18 examined the credit application before signing it. The bankruptcy 19 court would later determine that the credit application contained 20 material errors, including an incorrect statement of Barlaam’s 21 annual gross income, which the application showed to be $720,000. 22 The Rolls Royce lease that Barlaam executed required him to 23 make an initial payment of $15,000, together with forty-eight 24 monthly payments of $6,193.26. After completing the paperwork, 25 Barlaam took possession of the Rolls Royce; O’Gara then assigned 26 the lease to BMW FS. After making seventeen timely monthly 27 payments, Barlaam defaulted in June 2010. At some point, Barlaam 28 surrendered the Rolls Royce, which was sold by BMW FS at a dealer

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1 auction for $246,000. 2 The BMW 750i 3 Barlaam reserved use of the Rolls Royce for “special” 4 occasions. In his view, he needed an “everyday” car, one with 5 good headrest support; Barlaam found that BMW cars were 6 comfortable. Barlaam had no prior contact with BMW dealers, and 7 assigned Ruderman to seek out a dealership, a car, and a deal. 8 Ruderman went to the Steve Thomas BMW dealership to discuss a 9 potential lease of a BMW 750i (the “750i”). Neither Ruderman nor 10 Barlaam had prior dealings with Steve Thomas BMW. The dealership 11 manager provided him with the lease numbers for the 750i. 12 Ruderman phoned Barlaam, who agreed to the deal. 13 Steve Thomas BMW submitted an electronic credit application 14 for the proposed Barlaam lease to BMW FS on April 19, 2010. In 15 it, Barlaam’s gross annual income was listed as $520,000. After 16 analysis via the APPRO software by a credit analyst, BMW FS 17 approved the lease application the same day. 18 Barlaam went to Steve Thomas BMW and signed all of the 19 required documents for the transaction, including the credit 20 application and lease. Again, it is disputed whether and to what 21 extent Barlaam examined the credit application before he signed 22 it. The lease Barlaam signed provided that Barlaam would pay 23 $2,861.36 at signing, and then make thirty-six monthly payments of 24 $1,618.00. After completing the paperwork, Barlaam took 25 possession of the 750i. Steve Thomas BMW assigned the lease to 26 BMW FS. 27 After making eleven timely lease payments on the 750i, 28 Barlaam defaulted in March 2011. The 750i was later sold at

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1 dealer auction for $79,500. 2 The Bankruptcy and Adversary Proceeding 3 Barlaam filed a petition for relief under chapter 7 on 4 March 18, 2011. The bankruptcy court granted BMW FS’s unopposed 5 motion for relief from stay to repossess and sell the Rolls Royce 6 and 750i, which it did. 7 On June 3, 2011, BMW FS filed a complaint against Barlaam 8 seeking an exception to discharge under § 523(a)(2)(B) for the 9 remaining amounts due on Barlaam’s leases of the Rolls Royce and 10 750i after application of the sales proceeds. BMW FS alleged that 11 the two credit applications Barlaam signed and submitted to lease 12 the vehicles contained materially false representations as to his 13 financial condition; that he submitted them with the intent not to 14 pay his obligations; and that BMW FS reasonably relied on the 15 false credit applications in extending credit to Barlaam in the 16 leases. In addition to the discharge exception, BMW FS also 17 sought a money judgment against Barlaam equal to the unpaid amount 18 due on the leases, together with an award of attorney’s fees and 19 costs. 20 Barlaam, appearing initially pro se in the adversary 21 proceeding, answered the complaint with a general denial. Barlaam 22 filed a motion to dismiss the complaint, arguing that BMW FS’s 23 reliance on the credit applications could not have been 24 reasonable, as required by § 523(a)(2)(B)(iii), because he did not 25 personally supply the allegedly false information contained in the 26 credit applications. The bankruptcy court treated this as a 27 motion for summary judgment and BMW FS submitted its own summary 28 judgment motion, arguing that there were no disputed issues of

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1 fact as to each of the elements for exception to discharge under 2 § 523(a)(2)(B). 3 The bankruptcy court conducted a hearing on the competing 4 summary judgment motions and then entered a Memorandum of Opinion 5 Regarding Plaintiff and Defendant Motions for Summary Judgment 6 (“SJ Memorandum”). The court concluded that, of the seven 7 required elements for an exception to discharge under 8 § 523(a)(2)(B), BMW FS had established the materiality of the 9 representations in the credit applications, Barlaam’s knowledge of 10 their falsity, Barlaam’s intent to deceive BMW FS, and that BMW FS 11 had suffered damages proximately caused by Barlaam’s 12 misrepresentations. However, the bankruptcy court determined that 13 the undisputed facts did not support the other three required 14 elements for a BMW FS discharge exception, and that a trial would 15 be required to examine whether Barlaam actually made the 16 misrepresentations, whether BMW FS actually and reasonably relied 17 on the misrepresentations, and the amount of damages to BMW FS. 18 A two-day trial followed, at which the court heard testimony 19 from Barlaam, Ruderman, and Kenneth Cioli, a national credit 20 manager for BMW FS. The court entered a Memorandum of Opinion 21 Regarding Judgment for Plaintiff After Trial on July 31, 2013 (the 22 “Trial Memorandum”). The court found that Barlaam and Ruderman 23 were, generally, not credible, and that the testimony of Cioli was 24 credible. In addition to restating its conclusions about the 25 facts established in the SJ Memorandum, the court made several 26 additional critical fact findings and legal conclusions: 27 – “Barlaam was aware of the falsity of his income as filled 28 out on the credit applications he signed before delivery of the

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1 cars was made. The Court finds that he reviewed the credit 2 applications and knew of the inaccuracies and accepted these as 3 true statements through the act of signing them.” Trial 4 Memorandum at 17. 5 – “BMW FS did rely on the information provided on the credit 6 applications and only authorized the dealership to hand over the 7 keys to the car[s] once Barlaam had signed the required 8 documents.” Trial Memorandum at 19. 9 – “This Court has already found that the process by which 10 BMW FS makes its credit decisions is reasonable and that to rely 11 on Defendant’s statements without further independent inquiry is 12 also reasonable.” Trial Memorandum at 19. 13 – “The damages incurred by Plaintiff through both leases 14 total $118,470.85.” Trial Memorandum at 23. 15 – “The attorney’s fees clause [in the leases]. . . is simply 16 not broad enough to cover fraud in the inducement. . . . 17 Plaintiff’s request for attorney’s fees is denied.” Trial 18 Memorandum at 25. 19 Based upon these findings and conclusions, the bankruptcy 20 court entered the Judgment, awarding $118,924.22 in damages to 21 BMW FS, and determining that the award was excepted from discharge 22 under § 523(a)(2)(B). The Judgment denied BMW FS’ request for an 23 award of attorney’s fees and costs. 24 Barlaam filed a timely appeal of the Judgment on August 9, 25 2013. 26 BMW FS filed a motion under Rule 9023, which incorporates 27 Civil Rule 59(e), to amend the Judgment on August 13, 2013, 28 arguing that, under the terms of both leases, it was entitled to

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1 recover its attorney’s fees and costs. Barlaam opposed the 2 motion, asserting that the plain language of the leases did not 3 allow for an award of attorney’s fees in what was essentially an 4 action for fraud. In a Memorandum of Opinion Denying Plaintiff’s 5 Motion to Amend (the “Reconsideration Memorandum”), the court 6 reaffirmed its conclusion in the Trial Memorandum that the 7 attorney’s fee provision in the leases referred only to 8 “collection” of amounts due under contract, not tort claims, and 9 again denied BMW FS’s request for attorney’s fees. An order 10 denying the BMW FS motion was entered on October 1, 2013 (the 11 “Reconsideration Order”). 12 BMW filed a timely appeal of the Reconsideration Order and a 13 timely cross-appeal of the portion of the Judgment denying its 14 request for attorney’s fees. 15 JURISDICTION 16 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 17 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158. 18 ISSUES 19 Whether the bankruptcy court erred in determining that 20 Barlaam’s debts to BMW FS were excepted from discharge under 21 § 523(a)(2)(B). 22 Whether the bankruptcy court abused its discretion in denying 23 BMW FS’s request for attorney’s fees. 24 STANDARDS OF REVIEW 25 In reviewing a bankruptcy court's determination of an 26 exception to discharge, we review its findings of fact for clear 27 error and its conclusions of law de novo. Oney v. Weinberg 28 (In re Weinberg), 410 B.R. 19, 28 (9th Cir. BAP 2009).

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1 We review the bankruptcy court’s decision to award or deny 2 attorney’s fees for abuse of discretion, but any elements of 3 statutory interpretation which figure in the bankruptcy court’s 4 decision are reviewable de novo. Evon v. Law Offices of Sidney 5 Mickell, 688 F.3d 1015, 1032 (9th Cir. 2012). Under the abuse of 6 discretion standard, we "affirm unless the [bankruptcy] court 7 applied the wrong legal standard or its findings were illogical, 8 implausible or without support in the record." Gonzalez v. City 9 of Maywood, 729 F.3d 1196, 1201-02 (9th Cir. 2013). 10 The bankruptcy court’s interpretation of contract terms is 11 reviewed de novo. United States v. 300 Units of Rentable Hous., 12 668 F.3d 1119, 1122 (9th Cir. 2012). 13 DISCUSSION 14 I. 15 The bankruptcy court did not err in deciding that Barlaam’s debts to BMW FS were excepted from discharge under § 523(a)(2)(B).

16 A debt resulting from a creditor’s reasonable reliance on a 17 debtor’s written false representation concerning his or her 18 financial condition may be excepted from discharge under 19 § 523(a)(2)(B), which provides:

20 (a) A discharge under . . . this title does not 21 discharge an individual debtor from any debt . . .

(2) for money, property, services, or an extension, 22 renewal, or refinancing of credit, to the extent obtained by . . . (B) use of a statement in writing – 23 (I) that is materially false; (ii) respecting the debtor’s or an insider’s financial condition; (iii) on 24 which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied;

25 and (iv) that the debtor caused to be made or published with intent to deceive[.]

26 27 The Ninth Circuit has enumerated the necessary elements for a 28 § 523(a)(2)(B) discharge exception, requiring that there be a

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1 writing that contains: "(1) a representation of fact by the 2 debtor, (2) that was material, (3) that the debtor knew at the 3 time to be false, (4) that the debtor made with the intention of 4 deceiving the creditor, (5) upon which the creditor relied, 5 (6) that the creditor's reliance was reasonable, [and] (7) that 6 damage proximately resulted from the representation." Candland v. 7 Ins. Co. of N. Am. (In re Candland), 90 F.3d 1466, 1469 (9th Cir. 8 1996) (quoting Siriani v. Nw. Nat’l Ins. Co. (In re Siriani), 9 967 F.2d 302, 304 (9th Cir. 1992)). The creditor seeking an 10 exception must prove these elements by a preponderance of the 11 evidence. Grogan v. Garner, 498 U.S. 279, 291, 111 S. Ct. 654, 12 112 L. Ed. 2d 755 (1991). 13 The bankruptcy court addressed and made appropriate findings 14 on each of these seven criteria in the SJ Memorandum and Trial 15 Memorandum. As discussed below, we find no error in the court’s 16 decision that Barlaam’s debt to BMW FS is excepted from discharge 17 under § 523(a)(2)(B). 18 A. There must be a statement in writing by the Debtor containing a false representation of fact.

19 20 At the heart of this appeal are two credit applications 21 executed by Barlaam, one in 2008 in seeking lease financing for 22 the Rolls Royce, the other in 2010 to support the lease financing 23 for the 750i. The credit applications each contain information 24 about Barlaam’s allegedly then-current annual income. A credit 25 application containing information about an applicant’s income 26 constitutes a statement in writing respecting the applicant’s 27 financial condition for purposes of § 523(a)(2)(B). Cashco Fin. 28 Servs. v. McGee (In re Cashco), 359 B.R. 764, 768 (9th Cir. BAP

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1 2006); Bayer Emples. Credit Union v. Sapp (In re Sapp), 364 B.R. 2 618, 627 (Bankr. N.D. W.Va. 2007) (holding that it is axiomatic 3 that a signed credit application is a writing considered under 4 § 523(a)(2)(B)(ii)). 5 Barlaam testified that he signed the credit application for 6 the Rolls Royce at the O’Gara dealership on December 30, 2008. He 7 acknowledged in that testimony that the line on the application 8 directly above his signature states, in part, “This information in 9 the application is true and correct to the best of my knowledge.” 10 Trial Tr. 81:24-25. Barlaam also testified that he signed the 11 credit application for the 750i at Steve Thomas BMW on April 23, 12 2010. The two credit applications are identical in form, and the 13 750i application likewise contained the same assurance by Barlaam 14 that the information in the application was true and correct. 15 On the Rolls Royce application, submitted in 2008, Barlaam’s 16 gross annual income was listed at $720,000. On the 750i 17 application, submitted in 2010, Barlaam’s gross annual income was 18 listed at $520,000. However, the evidence presented to the 19 bankruptcy court in connection with the summary judgment motions 20 and at trial showed that Barlaam’s income at those times was much, 21 much lower. For example, Barlaam’s federal income tax return for 22 2008 was submitted to the bankruptcy court in connection with the 23 summary judgment motions, and it reported Barlaam had adjusted 24 gross income of just $8,852 for that year. Barlaam had testified 25 at his § 341(a) meeting of creditors in the bankruptcy case under 26 penalty of perjury that he earned about $100,000 in 2008. And 27 Barlaam testified at trial, confirming the amounts reported on his 28 2008 tax return and in his comments at the § 341(a) meeting.

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1 The disparity between income reported on the 750i credit 2 application, $520,000, and the documents submitted by BMW FS in 3 the summary judgment proceedings was also striking. Barlaam’s 4 income on his 2010 federal return was a negative ($54,312). 5 Barlaam’s Statement of Financial Affairs filed in his bankruptcy 6 case stated his income for 2010 was only $13,800. 7 At best, then, based upon this evidence, there was a serious 8 question of fact as to the amount of Barlaam’s income in 2008 and 9 2010. And based on the evidence in the record, the bankruptcy 10 court was justified in finding that the income information in the 11 credit applications was false. In other words, the two credit 12 applications were writings about Barlaam’s financial condition 13 within the meaning of § 523(a)(2)(B) and they contained false 14 information. Barlaam does not dispute this. 15 What has been heatedly contested, however, was the source of 16 the income information contained in the credit applications. Both 17 Barlaam and Ruderman testified that neither of them provided the 18 information used in the credit applications and, instead, that for 19 both the Rolls Royce and 750i credit applications, it was the 20 dealers that provided the information sent to BMW FS. 21 The only testimony heard by the bankruptcy court concerning 22 the source of the information on the credit applications came from 23 Barlaam and Ruderman; there was no testimony or declarations from 24 the dealers. Indeed, Ruderman speculated in his testimony that 25 the Rolls Royce dealer, in the midst of the 2008 recession with 26 few sales, was so desperate to make a sale that O’Hara might have 27 made up information submitted in the credit application to BMW FS. 28 But the bankruptcy court discounted this speculation, concluding

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1 instead that the Rolls Royce dealer “had every reason to believe 2 Barlaam would qualify.” The record amply supports this finding. 3 Indeed, Barlaam had paid over $300,000 for the 2005 Rolls Royce 4 purchased through O’Gara and, as far as the dealer knew, Barlaam 5 had an unblemished credit history. 6 In addition, Ruderman’s credibility was cast into doubt 7 concerning his comments that the Steve Thomas BMW manager who sold 8 Barlaam the 750i told him that he would submit the credit 9 information electronically from information already existing in 10 the system. The bankruptcy court, however, had testimony from Ken 11 Cioli, national credit manager for BMW FS, attesting that a local 12 BMW dealer would not have access to BMW FS’s financial databases 13 and, because there was no prior business relationship between 14 Barlaam and Steve Thomas BMW, there would be no information in 15 their computer files about him. Moreover, Cioli pointed out, in 16 the unlikely event that Steve Thomas BMW somehow got access to the 17 BMW FS databases, it would have found that Barlaam had reported 18 his income in 2008 to be $720,000, and the dealer would not likely 19 have plucked the $520,000 income out of thin air. 20 The bankruptcy court also found that Barlaam lacked 21 credibility concerning numerous issues and, in particular, in 22 connection with his repeated assertions that he never read the 23 information on the credit applications before he signed them. 24 Indeed, Barlaam’s position is inconsistent with his other 25 testimony: 26 BMW FS COUNSEL: When you came in on both occasions for the [Rolls Royce} Phantom and for the [750i] BMW, you 27 didn’t read any of the documents? You just signed them?

. . .

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1 BARLAAM: Ask again the question, because you’re confusing me.

2 BMW FS COUNSEL: You just signed and didn’t read any of 3 the documents. You just signed them. 4 BARLAAM: No, I glanced over to see what I was signing.

I didn’t review every single word.

5 6 Trial Tr. 91:13-18, July 8, 2013. Based upon this testimony, the 7 bankruptcy court explained: 8 While Barlaam repetitively asserts that he did not even turn over the credit application, he also stated that he 9 scanned the documents before signing them. Each credit application is only a single page, no small print, and 10 includes just a few numbers. Because he scanned it, he could not possibly have missed the errors.

11 12 Trial Memorandum at 14. 13 We discuss below the evidence concerning Barlaam’s intent to 14 deceive. But for purposes of this element of the § 523(a)(2)(B) 15 exception, we conclude that the bankruptcy court did not clearly 16 err in determining that Barlaam made written [mis]representations 17 of fact concerning his financial condition. In re Candland, 18 90 F.3d at 1466 (instructing that whether there was a 19 misrepresentation is a question of fact for the bankruptcy court 20 reviewed on appeal for clear error.). 21 B. The misrepresentation must be material. 22 To constitute a material misrepresentation under 23 § 523(a)(2)(B), the debtor’s statement must be substantially 24 inaccurate, and of the type that would affect the creditor's 25 decision making process: 26 To except a debt from discharge, the creditor must show not only that the statements are inaccurate, but also 27 that they contain important and substantial untruths. . . . Material misrepresentations for this 28 statutory section are substantial inaccuracies of the

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1 type which would generally affect a lender’s or guarantor’s decision. . . . Significant 2 misrepresentations of financial condition — of the order of several hundred thousand dollars — are of the 3 type which would generally affect a lender’s or guarantor’s decision.

4 5 In re Candland, 90 F.3d at 1470 (citing First Interstate Bank of 6 Nev. (In re Greene), 96 B.R. 279, 283 (9th Cir. BAP 1989)); 7 Tallant v. Kaufman (In re Tallant), 218 B.R. 58, 71 (9th Cir. BAP 8 1998) ("'Material falsity' in a financial statement can be 9 premised upon the inclusion of false information or upon the 10 omission of information about a debtor's financial condition."). 11 In the bankruptcy court’s SJ Memorandum, it found the 12 misrepresentation of Barlaam’s income on the two credit 13 applications to be material: 14 The misrepresentations of $100,000s of Defendant’s income are precisely the type of misrepresentations 15 cited by Candland that would affect a lender’s decision to lend. They were material both (1) in the sense that 16 income is one of the most (if not the most) important facts in the application and (ii) the amount of the 17 income misstatement. 18 SJ Memorandum at 11. 19 The bankruptcy court’s finding on materiality is supported by 20 evidence in the record of the summary judgment proceedings. The 21 team leaders of the two credit analyst groups at BMW FS that 22 approved the Barlaam applications submitted declarations that 23 included the following comments: 24 Had [BMW FS] known that [Barlaam's] income was either zero or $13,800, [BMW FS] would never have approved the 25 application on behalf of [Barlaam] as there would have been no income stream to support the lease, much less 26 support all his other credit obligations and living expenses.

27 28 Declaration of Donald Skeen [Team Leader of the BMW FS credit

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1 analyst team that approved the Rolls Royce lease] at 6, July 3, 2 2012. 3 Had [BMW FS] known that [Barlaam’s] income was either zero or $100,000, [BMW FS] would never have approved the 4 application on behalf of [Barlaam] as there would have been no income stream to support the lease, much less 5 support all his other credit obligations and living expenses.

6 7 Declaration of Jason Bozarth [Team Leader of the analyst team that 8 approved the 705i lease] at 7, July 3, 2012. 9 The bankruptcy court’s finding on materiality was further 10 supported at trial by the testimony of Cioli: 11 BMW FS COUNSEL: And had Mr. Barlaam’s annual income actually been $13,800 for the month, would that have 12 been something you would approve the deal on? $13,800 a year? . . .

13 [CIOLI]: No. That dollar amount per year wouldn’t 14 support — it wouldn’t support one of the Rolls Royce payments.

15 16 Trial Tr. 160:3-14, July 9, 2013. 17 Here, the bankruptcy court did not clearly err in finding 18 that the misrepresentations concerning Barlaam’s income on the two 19 credit applications were material. In re Nelson, 561 F.2d 1342, 20 1347 (9th Cir. 1977) (materiality is a question of fact reviewed 21 for clear error). 22 C. The debtor knew the misrepresentation at the time to be false and that the debtor made it with the intention of 23 deceiving the creditor. 24 Knowledge of the falsity of Barlaam’s representations of 25 income on his credit applications can be inferred from the 26 bankruptcy court’s analysis of the other discharge exception 27 factors discussed above. Because Barlaam admitted that he 28 “glanced over” the documents before signing them, in the words of

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1 the court, the bankruptcy court was entitled to find that he was 2 aware of the errors in the applications concerning his income. 3 Indeed, both credit applications overstated his income by over a 4 half million dollars a year. The court concluded in its 5 SJ Memorandum that Barlaam had to have known that the income 6 statement was untrue. SJ Memorandum at 12. We find no error in 7 this finding. 8 But even if Barlaam had been completely truthful in insisting 9 that he signed the applications without reading them “word for 10 word,” considering the significance of these transactions, this 11 practice would still amount to the sort of gross recklessness from 12 which the bankruptcy court could impute Barlaam’s knowledge of 13 both the falsity of the statements and his intent to deceive 14 BMW FS. As another trial court, cited in this case by the 15 bankruptcy court, commented: 16 [A d]ebtor cannot simply sign a document that purports to describe his own financial condition without reading 17 or questioning anyone as to its contents and then be held blameless if the statement contains materially 18 false information. A creditor need not establish that the debtor had actual knowledge of the falsity of the 19 representation in order to prevail under section 523(a)(2). He may satisfy this element of the required 20 showing by proving that the false statement “was either knowingly made or made with sufficient recklessness as 21 to be fraudulent.” 22 Merchants Bank of Cal. v. Oh (In re Oh), 278 B.R. 844, 858 (Bankr. 23 C.D. Cal. 2002) (quoting Alside Supply Ctr. v. Aste (In re Aste), 24 129 B.R. 1012, 1017 (Bankr. D. Utah 1991)).5 25 Besides serving to impute the knowledge of falsity, a finding 26

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27 The Oh and Alside Supply Cr. cases are the progeny of Cent. Nat’l Bank & Trust Co. v. Liming (In re Liming), 797 F.2d 28 895, 897 (10th Cir. 1986) (“a statement need only be made with reckless disregard for the truth . . . . under § 523(a)(2)(B)”).

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1 that a debtor acted with gross recklessness satisfies the element 2 of intentional deception in § 523(a)(2)(B)(iv). Knoxville 3 Teachers Credit Union v. Parkey, 790 F.2d 490, 492 (6th Cir. 4 1986); Se. Neb. Coop. Corp. v. Schnuelle (In re Schnuelle), 5 441 B.R. 616, 624 (8th Cir. BAP 2011) (“An intent to deceive can 6 also be established by a debtor's reckless indifference and 7 reckless disregard of accuracy of information on a financial 8 statement.”); Gertsch v. Johnson & Johnson Fin. Corp. 9 (In re Gertsch), 237 B.R. 160, 167-68 (9th Cir. BAP 1999) (courts 10 look to the totality of the circumstances, including a reckless 11 disregard for the truth, to determine whether debtors intended to 12 deceive). See also Texas American Bank, Tyler, N.A. v. Barron 13 (In re Barron), 126 B.R. 255, 260 (Bankr. E.D. Tex. 1991) (Proof 14 of intent to deceive does not require the demonstration that the 15 debtor acted with a malignant heart but only that the debtor's 16 actions demonstrate reckless indifference to the actual facts.). 17 Since few debtors admit to a deceitful intent, all facts, 18 including circumstantial evidence, may be relied upon in making 19 the determination as to intent. Devers v. Bank of Sheridan 20 (In re Devers), 759 F.2d 751, 754 (9th Cir. 1985). 21 The bankruptcy court found that Barlaam’s intent to 22 misrepresent his income so as to deceive BMW FS can be inferred 23 from the totality of the circumstances, especially the gross 24 recklessness he displayed in signing the credit applications 25 allegedly without reviewing them. The bankruptcy court’s finding 26 on this point was not clearly erroneous. Runnion v. Pedrazzini 27 (In re Pedrazzini), 644 F.2d 756, 758 (9th Cir. 1981) (Knowledge 28 of the falsity or deceptiveness of a statement and intent to

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1 deceive are questions of fact.). 2 D. The creditor must reasonably rely on the misrepresentation.

3 4 There is ample evidence in the record to sustain the 5 bankruptcy court’s finding that BMW FS reasonably relied on 6 Barlaam’s representations about his income in approving the credit 7 applications. Barlaam disputes this finding, arguing that BMW FS 8 did not rely on his income statements but, instead, on a host of 9 other factors, such as Barlaam’s then-impeccable credit record. 10 In support of Barlaam’s argument, he provided various training 11 documents used by BMW FS credit analysts, none of which discuss 12 “income” as a factor in making credit decisions. 13 The bankruptcy court acknowledged that, based on the 14 evidence, income was not the only criterion used by BMW FS in 15 approving a credit application. Trial Memorandum at 17. 16 However, Cioli testified at trial that it was the first criterion. 17 According to him, after the credit application information is 18 transmitted from the dealer to BMW FS’s APPRO computer system, the 19 APPRO program presents the “Big Picture” as the first screen seen 20 by the credit analyst. The Big Picture takes the income reported 21 and makes several calculations, including total debt to income, 22 and payment to income. If those calculations are not within the 23 acceptable parameters or “rules” for the particular amount of the 24 credit, it is unlikely that the loan will be approved. In 25 particular, Cioli explained that Barlaam’s debt to income, and 26 payment to income, calculations for lease transactions of this 27 size were excellent when the annual income figure used was 28 $720,000 or $520,000 per year, but that the deals would not be

21

1 approved if the income reported on his bankruptcy schedules were 2 instead considered by BMW FS. In contrast, all of the evidence 3 submitted by Barlaam dealt with procedures that would take place 4 in analyzing his credit applications only after the Big Picture 5 had measured his income and made its calculations. 6 A related argument posed by Barlaam was that the credit 7 applications were actually approved before he signed them, and 8 thus BMW FS did not actually “rely” on the written applications. 9 However, the bankruptcy court disposed of this argument, again 10 based on Cioli’s testimony, because it found that the loan 11 approvals were all “contingent” upon receipt of the written 12 signature of the borrower on the credit applications. Cioli 13 testified that “[w]e have to have an original signature so that we 14 legally know that the customer signed and agreed to the 15 information on the application.” Trial Tr. 195:22-25. He also 16 indicated, without contradiction, that dealers are under 17 instructions not to release cars to lessees without a signed 18 credit application. 19 On this record, the bankruptcy court did not clearly err in 20 determining that BMW FS actually relied on the false 21 representations concerning Barlaam’s income in the credit 22 applications. But was it reasonable for BMW FS to do so? 23 Reasonable reliance under § 523(a)(2)(B) means reliance that 24 would have been reasonable to a hypothetical average 25 person. Heritage Pac. Fin. LLC v. Machuca (In re Machuca), 26 483 B.R. 726, 736 (9th Cir. BAP 2012). Reasonable reliance is 27 analyzed under a "prudent person" test. Cashco Fin. Servs., Inc. 28 v. McGee (In re McGee), 359 B.R. 764, 774 (9th Cir. BAP 2006);

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1 In re Cacciatori, 465 B.R. at 555 (bankruptcy court must 2 objectively assess the circumstances to determine if creditor 3 exercised degree of care expected from a reasonably cautious 4 person in the same business transaction under similar 5 circumstances). Reasonable reliance is judged in light of the 6 totality of the circumstances on a case-by-case basis. 7 In re Machuca, 483 B.R. at 736. A creditor is under no duty to 8 investigate in order for its reliance to be reasonable. 9 In re Gertsch, 237 B.R. at 170 ("[A]lthough a creditor is not 10 entitled to rely upon an obviously false representation of the 11 debtor, this does not require him or her to view each 12 representation with incredulity requiring verification."). 13 Furthermore, a creditor's reliance may be reasonable if it adhered 14 to its normal business practices. Id. at 172. 15 In the bankruptcy court, Barlaam challenged whether it was 16 reasonable for BMW FS to accept his credit applications given the 17 numerous errors in them (e.g., an incorrect social security number 18 and phone number, and his claim to own a home “free and clear” 19 while the application also listed a mortgage payment). However, 20 Barlaam has not continued these challenges on appeal and only 21 challenges the actual reliance, as discussed above. Barlaam’s 22 arguments about the reasonableness of BMW FS’ reliance on the 23 credit applications are therefore waived. Cervantes v. 24 Countrywide Home Loans, Inc., 656 F.3d 1034, 1035 (9th Cir. 2011) 25 (arguments not raised in opening brief are waived). 26 But even if these arguments were not waived, a creditor’s 27 reliance may be reasonable if it has a well-organized set of 28 business practices that it adheres to. In re Gertsch, 237 B.R. at

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1 170. In this appeal, there is no dispute that BMW FS’s handling 2 of the two credit applications was consistent with its normal 3 business practices. 4 In sum, on this record, the bankruptcy court did not clearly 5 err in determining that BMW FS actually and reasonably relied on 6 the misrepresentations of Barlaam about his income in the credit 7 applications. In re Nelson, 561 F.2d at 1347 (determination of 8 reliance and reasonable reliance are questions of fact reviewed 9 for clear error). 10 E. The creditor suffered damages proximately resulting from the misrepresentation.

11 12 On appeal, Barlaam has not challenged the bankruptcy court’s 13 computation and determination that BMW FS was damaged in the 14 amount of $118,470.85 as a result of the misrepresentations of 15 Barlaam. 16 F. The lease debts were excepted from discharge. 17 Based upon our review of the record, we conclude that the 18 bankruptcy court did not clearly err in the various fact findings 19 it made to support its decision that Barlaam’s debts to BMW FS 20 were excepted from discharge under § 523(a)(2)(B). While the 21 evidence is in some respects disputed, adequate proof was offered 22 by BMW FS to show that Barlaam submitted false information to 23 BMW FS about his annual income in the credit applications to 24 induce BMW FS to give him credit in connection with the Rolls 25 Royce and 750i leases. The bankruptcy court’s Judgment so holding 26 is AFFIRMED.

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1 II. 2 The bankruptcy court abused its discretion in declining to award attorney’s fees to BMW FS.6 3 4 BMW FS argues that the bankruptcy court should have awarded 5 it the attorney’s fees and costs it incurred in successfully 6 prosecuting the § 523(a)(2)(B) action against Barlaam. We agree. 7 There is no independent right to recover attorney's fees in 8 an adversary proceeding in a bankruptcy case. Heritage Ford v. 9 Baroff (In re Baroff), 105 F.3d 439, 441 (9th Cir. 1997). The 10 prevailing party may be awarded attorney's fees, however, if 11 attorney's fees would have been awarded under substantive state 12 law. Id. (citing In re Johnson, 756 F.2d 738, 741 (9th Cir. 13 1985)). Here, the applicable “substantive, nonbankruptcy law” is 14 California state law. S. Cal. Permanente Med. Grp. v. Ehrenberg 15 (In re Moses), 215 B.R. 27, 32 (9th Cir. BAP 1997). 16 California law enforces parties’ agreements concerning 17 18 6 The bankruptcy court’s decision to deny BMW FS’s request for an award of attorney’s fees and costs is the focus of both 19 BAP. No. CC-13-1503, BMW FS’s cross-appeal of the bankruptcy court’s Judgment, and BAP No. CC-13-1500, BMW FS’ appeal of the 20 court’s order denying its motion to amend the Judgment. A cross-appeal is proper when a party seeks to enlarge its 21 substantive rights or decrease its monetary liabilities. Lee v.

Burlington N. Santa Fe Ry. Co., 245 F.3d 1102, 1107 (9th Cir.

22 2001). The cross-appeal is a rule of practice, and the appellate court has broad authority to make such dispositions as justice 23 requires. Mahach-Wilson v. Depee, 593 F.3d 1054, 1063 (9th Cir.

2010). On the other hand, an appeal of reconsideration of an 24 order under Civil Rule 59(e) is a disfavored practice, requiring that the appellant show: (1) newly discovered evidence; (2) clear 25 error or manifest injustice; or (3) intervening change in controlling law. Duarte v. Bardales, 526 F.3d 563, 567 (9th Cir.

26 2008). Below, we reverse the decision of the bankruptcy court in BAP No. CC-13-1503, the cross-appeal. As a result, we need not 27 reach the questions raised in BAP No. CC-13-1500, because the relief BMW FS requests in that appeal is the same as that granted 28 on the cross-appeal, and BMW FS is otherwise not prejudiced.

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1 recovery of attorney's fees. Cal. Code Civ. Proc. § 1021 2 provides: 3 Except as attorney's fees are specifically provided for by statute, the measure and mode of compensation of 4 attorneys and counselors at law is left to the agreement, express or implied, of the parties[.]

5 6 Section 1021 permits recovery of attorney's fees by agreement 7 between the parties in actions sounding in tort as well as 8 contract. Redwood Theaters, Inc. v. Davison (In re Davison), 9 289 B.R. 716, 724 (9th Cir. BAP 2003) (“CCP § 1021 does not limit 10 the recovery of attorney's fees to [contract] claims . . . . 11 [A]ttorney's fees may be recoverable under CCP § 1021 even though 12 they are not recoverable under CC § 1717[7] . . . . California 13 law permits recovery of attorney's fees by agreement, for tort as 14 well as contract actions.”).8 15 The decision by a bankruptcy court determining the 16 dischargability of a debt under § 523(a)(2)(B) resolves a tort 17 claim. In re Candland, 90 F.3d at 1470. Moreover, whether a 18 false statement injured a party requires the resolution of a tort 19 claim under California law. Intel. Corp. v. Hamidi, 30 Cal. 4th 20 21

7

Cal. Civ. Code § 1717 is limited to actions on a contract, 22 and is not implicated in this appeal. 23 8 Other provisions of California law relevant to the dispute in this appeal are: (1) Cal. Code. Civ. Proc. § 1332(b), which 24 provides that “except as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover 25 costs in any action or proceeding”; and (2) Cal. Civ. Code § 1033.5(a)(10), which provides that attorney fees are “allowable 26 as costs” when they are authorized by either contract, statute or law.” These statutes evidence the intent of the California 27 legislature to provide an entitlement to attorney’s fees when the conditions of the statutes are met. Santisas v. Gordon, 17 Cal.

28 4th 599, 619 (1998).

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1 1342, 1347 (2003). 2 Under California case law, if the parties’ contract provides 3 for the recovery of attorney’s fees and costs, we are instructed 4 to examine the language of the agreement to determine whether an 5 award of attorney’s fees is warranted. In re Tobacco Cases I, 6 193 Cal. App. 4th 1591, 1601 (2011). Here, the lease agreements 7 signed by Barlaam for the Rolls Royce and the 750i both provide 8 that: 9 I [Barlaam] will be in default under this Lease if . . . 10 * * * 11 (g) Any information in my credit application or a guarantor’s credit application is false or misleading.

12 13 Lease Agreements at ¶ 26(g). Within the same paragraph 26, the 14 Lease Agreements explain the consequences of a default by the 15 lessee, which includes: 16 If I am in default, you may do any or all of the following:

17 (e) require that I pay . . . . all fees and costs of 18 collections, including attorneys’ fees, court costs, interest, and other related expenses for all losses you incur 19 in connection with my “default” of this Lease.” 20 Id. at ¶ 26(e). 21 In reviewing paragraph 26 of the Lease Agreement, we note two 22 salient points: (1) paragraph 26 contains the only provision 23 providing for recovery of attorney’s fees and costs by BMW FS, and 24 it is the only provision listing the default conditions; 25 (2) paragraph 26 explicitly labels providing false or misleading 26 information on the credit application, a pre-contract formation 27 act of fraud in the inducement, a default. Thus, Barlaam’s 28 misconduct in providing false credit applications at the inception

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1 of the lease transactions was an event of default, which in turn 2 authorized BMW FS to recover “all fees and costs of collections, 3 including attorneys’ fees [and] court costs . . . BMW FS incur[s] 4 in connection with [Barlaam’s] default.” ¶ 26(e). 5 The bankruptcy court denied BMW FS’s request for an award of 6 attorney’s fees and costs, because: 7 The Court is not persuaded that paragraph 26 taken as a whole provides for attorney’s fees in a state court 8 action for fraud in the inducement, or for any action in contract. It does not have the broad sweep of the 9 attorney’s fees provisions that have been held to cover fees in tort actions. Instead, the provision seems 10 limited to actions in contract. Attorney’s fees are included within the general category of cost of 11 “collections,” which, under reasonable interpretation, refers to collections of amounts due under the contract.

12 13 Memorandum of Opinion Denying Plaintiff’s Motion to Amend the 14 July 31, 2013 Judgment for Plaintiff’s After Trial to Include 15 Attorney’s Fees. The bankruptcy court based its analysis of the 16 attorney’s fee question on its reading of a recent unpublished BAP 17 decision, Sharma v. Salcido (In re Sharma), 2013 Bankr. LEXIS 2286 18 (9th Cir. BAP May 14, 2013). We determine, however, that Sharma 19 must be distinguished on its facts from the current appeal. 20 The Sharma case involved an award of attorney’s fees for 21 fraud in the inducement of a settlement agreement. The fee 22 provision provided: 23 [I]t is agreed by the parties that all attorneys' fees and costs incurred as a result of or in connection to 24 the LAWSUIT, mediation, and settlement shall be borne by the parties who incurred such attorneys' fees and costs.

25 Should suit be brought to enforce or interpret any part of this Agreement, the "prevailing party" shall be 26 entitled to recover as an element of costs of suit and not as damages, reasonable attorneys' fees fixed by the 27 Court. The "prevailing party" shall be the party entitled to recover his/her/its costs of suit, 28 regardless of whether such suit proceeds to final

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1 judgment. 2 In re Sharma, 2013 Bankr. LEXIS at * 51. On its face, this 3 provision distinguishes between the ordinary costs of suit, to 4 which the Sharma bankruptcy court applied the American Rule 5 requiring parties to bear their own attorney fees, and any further 6 action “to enforce or interpret” the agreement, for which the 7 prevailing party would be entitled to attorney’s fees. The Sharma 8 panel determined that the first clause set the baseline and 9 general rule for application of attorney’s fees, and that fees 10 would only be recoverable in the restricted case of an action to 11 enforce or interpret the settlement agreement. Id. at *54. 12 There was no reference to fraud in the inducement in the 13 Sharma agreement. Since there was no provision in the Sharma 14 agreement relating to fraud in the inducement, the contractual 15 provision for interpretation and enforcement of the agreement 16 would not apply to “events that occurred before contract 17 formation.” Id. The Sharma panel concluded that 18 The attorney's fee provision in the Settlement Agreement is limited to actions to "enforce or interpret any part 19 of this agreement." The plain language of the provision is not broad enough to encompass a claim for fraud in 20 the inducement. See [Exxess Electronixx v. Heger Realty Corp., 68 Cal. App. 4th 376, 380 (1998)]; Xuereb v.

21 Marcus & Milichap, 3 Cal. App. 4th 1338, 1342 (1992)].

Under California law, a tort claim does not "enforce" a 22 contract or operate to declare a party's rights under a contract. Exxess Electronixx, 75 Cal. App. 4th at 1342.

23 24 Id. 25 However, unlike the Sharma case, the Lease Agreements in the 26 current appeal include a specific “fraud in the inducement” 27 clause. As quoted above, paragraph 26 clearly provides that a 28 fraud in the inducement of the agreement (i.e., the lessee’s

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1 provision of false or misleading information) was a defined event 2 of default, and the occurrence of a default entitled the 3 prevailing party to recover attorney’s fees. Thus, the “plain 4 language” of that provision in the Lease Agreements is not only 5 “broad enough,” but in fact explicitly commands, that BMW FS be 6 able to recover its attorney’s fees. In our view, the bankruptcy 7 court’s reliance on Sharma was therefore misplaced. 8 The bankruptcy court then applied a restrictive 9 interpretation to what constitutes a “collection” action under the 10 Lease Agreements. Instead, we view “collections,” as used in the 11 leases, as referring to the phrase “expenses for all losses you 12 incur in connection with my ‘default’ of this Lease." In other 13 words, if there is a default based on the lessee’s provision of 14 false and misleading information in the credit application, the 15 attorney’s fees provision would apply. 16 This conclusion is consistent with California state court 17 case law interpreting attorney’s fee provisions. "If a 18 contractual attorney fee provision is phrased broadly enough . . . 19 it may support an award of attorney fees to the prevailing party 20 in an action alleging both contract and tort claims." Santisas v. 21 Goodwin, 17 Cal. 4th at 608. In Santisas, the California Supreme 22 Court addressed an attorney’s fees provision that provided: "In 23 the event legal action is instituted by the Broker(s), or any 24 party to this agreement, or arising out of the execution of this 25 agreement or the sale, or to collect commissions, the prevailing 26 party shall be entitled to receive from the other party a 27 reasonable attorney fee to be determined by the court in which 28 such action is brought." 17 Cal. 4th at 603. Based upon the

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1 plain language of the attorney’s fee provision, the California 2 Supreme Court stated this "provision embraces all claims, both 3 tort and breach of contract . . . because all are claims ‘arising 4 out of the execution of the agreement or the sale.'" Id. at 608 5 (emphasis added). 6 Similarly, in Miske v. Bisno, the California Court of Appeals 7 examined an attorney’s fees provision found in a limited 8 partnership agreement as it applied to a fraud in the inducement 9 claim. 204 Cal. App. 4th 1249 (2012). The attorney’s fees 10 provision there provided: "If any dispute arises between the 11 Partners, whether or not resulting in litigation, the prevailing 12 party shall be entitled to recover from the other party all 13 reasonable costs, including, without limitation, reasonable 14 attorneys' fees." Id. at 1259. The court found that "the above 15 attorney fee provision is broad enough to cover the type of fraud 16 in the inducement claims brought against appellants." Id. 17 (emphasis added); see also Lerner v. Ward, 13 Cal. App. 4th 155, 18 159 (1993) (finding attorney’s fees appropriate in a tort action 19 based upon a clause in the contract which provided “in any action 20 or proceeding arising out of this agreement”); but see Redwood 21 Theaters, Inc. v. Davison (In re Davison), 289 B.R. 716, 724 (9th 22 Cir. BAP 2003) (applying California law and denying attorney’s 23 fees on a tort cause of action based upon a contract provision 24 that limited recovery of such fees to those “necessary to enforce 25 or to interpret the terms” of the contract); Exxess Electronixx v. 26 Heger Realty Corp., 64 Cal. App. 4th 698, 707-08 (1998) (denying 27 attorney’s fees on a tort cause of action under an attorney’s fees 28 provision that fees were recoverable that are “incurred to enforce

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1 the contract”). 2 In this case, we conclude that the plain language of the 3 provisions of the Lease Agreements is broad enough to encompass a 4 claim by BMW FS against Barlaam for fraud in the inducement. In 5 fact, the contracts expressly contemplate such a tort claim as an 6 event of default, which in turn entitles BMW FS to recover its 7 fees and costs of collections for all losses it incurred in 8 connection with the default. Because it erred in its construction 9 of the Lease Agreements, we conclude that the bankruptcy court 10 abused its discretion in limiting recovery of attorney’s fees only 11 to those incurred in "collections" of amounts due under the 12 contract. Further, the bankruptcy court abused its discretion by 13 subjecting the terms of the parties’ contracts defining the scope 14 of actions in which attorney’s fees and costs could be recovered 15 to an overly narrow interpretation. We therefore REVERSE that 16 portion of the bankruptcy court’s Judgment denying attorney’s fees 17 and costs, and REMAND this action to the bankruptcy court for 18 further proceedings consistent with this decision. 19 CONCLUSION 20 We AFFIRM the Judgment of the bankruptcy court determining 21 that Barlaam’s debt to BMW FS is excepted from discharge under 22 § 523(a)(2)(B). We REVERSE that part of the Judgment, and the 23 Order, denying an award of attorney’s fees and costs to BMW FS and 24 REMAND this action to the bankruptcy court for further proceedings 25 consistent with this decision. 26