In re: Vance Zachary Johnson

CourtUnited States Bankruptcy Appellate Panel for the Ninth Circuit
DecidedNovember 4, 2022
DocketCC-22-1074-LSG
StatusUnpublished

This text of In re: Vance Zachary Johnson (In re: Vance Zachary Johnson) is published on Counsel Stack Legal Research, covering United States Bankruptcy Appellate Panel for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re: Vance Zachary Johnson, (bap9 2022).

Opinion

FILED NOV 4 2022 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY.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. CC-22-1074-LSG VANCE ZACHARY JOHNSON, Debtor. Bk. No. 6:18-bk-10939-MH

VANCE ZACHARY JOHNSON, Adv. No. 6:18-ap-01106-MH Appellant, v. MEMORANDUM∗ BANKERS HEALTHCARE GROUP, LLC, Appellee.

Appeal from the United States Bankruptcy Court for the Central District of California Mark D. Houle, Bankruptcy Judge, Presiding

Before: LAFFERTY, SPRAKER, and GAN, Bankruptcy Judges.

INTRODUCTION

Debtor Vance Johnson appeals the bankruptcy court’s judgment

declaring his $514,245 debt owed to Bankers Healthcare Group, LLC

(“BHG”) nondischargeable under § 523(a)(2)(A) and (B). 1

∗ 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. “Rule” referenced are to the Federal Rules of Bankruptcy Procedure, and “Civil Rule” references are to the Federal Rules of Civil Procedure. 1 We AFFIRM.

FACTS

A. Pre-Bankruptcy Events

Dr. Johnson is a physician and 100% owner of Temecula Valley Pain

Medical Group, Inc. (“TVPMG”). In 2017, Dr. Johnson obtained on behalf

of TVPMG a $514,245 loan from BHG, which he personally guaranteed.

As part of the loan approval process, Dr. Johnson submitted a loan

application to BHG, which included a signed “Statement of Intended

Primary Purpose of the Loan” (“Purpose Statement”) indicating that the

“specific business reason” for the loan was “Practice Expansion.” The

Purpose Statement also included an acknowledgment that Dr. Johnson

understood that the loan was a commercial loan to be used “primarily for

other than personal, family, or household purposes” and that “BHG has

reasonably and justifiably relied on this Statement of Intended Purpose in

connection with reviewing and considering my loan application for

approval and funding.”

Dr. Johnson also provided a signed personal financial statement

(“PFS”), a company financial statement for TVPMG (“CFS”), and a

personal guaranty. The PFS showed total annual income of $250,000, assets

of $2,010,000, and liabilities of $468,614, consisting of a $463,594 mortgage

and $5,020 in credit card debt. The PFS also indicated that Dr. Johnson did

not pay alimony or child support. The CFS indicated TVPMG had assets of

$655,966.21 and no liabilities.

2 During the application process, BHG discovered that Dr. Johnson

owed the IRS $151,891 and directed payment of that liability from the loan

proceeds. It also apparently discovered that Dr. Johnson had a monthly

domestic support obligation of $18,000. 2

BHG disbursed the loan proceeds to Dr. Johnson’s newly opened

personal bank account in July 2017. From those proceeds, Dr. Johnson paid

$151,229.08 to the IRS, $72,468 for back child support, and $9,935 for

jewelry. The record contains no evidence of how the remaining funds were

spent.

Approximately five weeks after the disbursement, TVPMG ceased

operations. TVPMG made five loan payments to BHG, the last on

December 25, 2017.

B. Bankruptcy Events

Dr. Johnson filed a chapter 11 petition in February 2018. He listed on

his schedules the unsecured debt owed to BHG on his personal guaranty.

He also included on his schedules a secured debt to the IRS of $142,337,

priority debts to the California Franchise Tax Board (“FTB”) of $62,888 for

2015 and $14,563 for 2016, and a nonpriority unsecured debt to Pacific

Premier Bank (“PPB”) of $218,060 incurred in 2016-2017. Proofs of claim

were filed reflecting debts incurred before July 2017 that had not been

Although no domestic support obligation appears on the PFS, it is listed in 2

documents prepared by BHG. 3 included on Dr. Johnson’s PFS. 3 For example, the IRS filed a proof of claim

in the total amount of $168,237.65 (later amended to $178,586.04),

pertaining to tax debt incurred for 2012-2018, and Dr. Johnson’s ex-wife

filed a proof of claim that included past due support dating back to 2012.

A few months after the petition date, the bankruptcy court granted

Dr. Johnson’s motion to convert the case to chapter 7. BHG filed an

adversary proceeding objecting to the discharge of its claim under

§ 523(a)(2)(A) and (B), (a)(4), and (a)(6). The matter proceeded to a one-day

trial. Daniel Johnston, portfolio servicing manager for BHG, testified on

behalf of the plaintiff, and Dr. Johnson testified for the defense.

After trial, the bankruptcy court issued a memorandum of decision

and a judgment declaring the debt nondischargeable under § 523(a)(2)(A)

and (a)(2)(B).4 The bankruptcy court concluded that BHG had not

established the required elements under § 523(a)(4) or (a)(6). Dr. Johnson

timely appealed.

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.

3 The bankruptcy court took judicial notice that the claims were filed, but not for the truth of the matters asserted therein. 4 Bankers Healthcare Grp. v. Johnson (In re Johnson), 638 B.R. 782 (Bankr. C.D. Cal.

2022). 4 ISSUES

Did the bankruptcy court abuse its discretion in admitting into

evidence the § 341(a) hearing transcript?

Did the bankruptcy court err in finding Dr. Johnson’s debt to BHG

nondischargeable under § 523(a)(2)(A)?

Did the bankruptcy court err in finding Dr. Johnson’s debt to BHG

nondischargeable under § 523(a)(2)(B)?

STANDARDS OF REVIEW

We review the bankruptcy court’s evidentiary rulings for abuse of

discretion, and we reverse only if any error would have been prejudicial to

the appellant. Van Zandt v. Mbunda (In re Mbunda), 484 B.R. 344, 351–52 (9th

Cir. BAP 2012), aff’d, 604 F. App’x 552 (9th Cir. 2015). To determine whether

the bankruptcy court abused its discretion, we conduct a two-step inquiry:

(1) we review de novo whether the bankruptcy court “identified the correct

legal rule to apply to the relief requested”; and (2) if it did, we consider

whether the bankruptcy court’s application of the legal standard was

illogical, implausible, or without support in inferences that may be drawn

from the facts in the record. United States v. Hinkson, 585 F.3d 1247, 1262

(9th Cir. 2009) (en banc).

The determination that a claim is excepted from discharge under

§ 523(a)(2) presents mixed issues of law and fact that we review de novo.

Diamond v.

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