In re: Jordan Wank, 9th Cir. BAP (2014)

7/25/2019 In re: Jordan Wank, 9th Cir. BAP (2014)

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281 The Honor abl e Eddwar d Bal l i nger , J r . , Uni t ed St at es

Bankr upt cy J udge f or t he Di st r i ct of Ar i zona, si t t i ng bydesi gnat i on.

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

I n r e: ) BAP No. CC- 13- 1137- PaKuBa)

J ORDAN WANK, ) Bk. No. SV 12- 11628- MT)

Debt or . ) Adv. No. SV 12- 01156- MT___________________________________)

))

J ORDAN WANK; BRUCE WANK, ))

Appel l ant s, ))

v. ) O P I N I O N)DANI EL GORDON; BASI L SI MONA; A&S )I NVESTMENT, LLC; ATHAR SI DDI QI ; )MARK FERGUSON; GEORGE TSOUPAKI S, )

)Appel l ees. )

___________________________________)

Argued and Submi t t ed on November 21, 2013at Pasadena, Cal i f or ni a

Fi l ed - J anuar y 29, 2014

Appeal f r om t he Uni t ed St at es Bankrupt cy Cour tf or t he Cent r al Di st r i ct of Cal i f or ni a

Hon. Maur een Ti ghe, U. S. Bankrupt cy J udge, Presi di ng

Appear ances: Li ncol n Br owni ng Qui nt ana ar gued f or appel l ant sJ or dan Wank and Br uce Wank. Davi d Paul Bl ei st ei nar gued f or appel l ees Dani el Gor don, Basi l Si mona,A&S I nvest ment , LLC, At har Si ddi qi , Mar k Fer gusonand Geor ge Tsoupaki s.

Bef or e: PAPPAS, KURTZ and BALLI NGER1, Bankrupt cy J udges.

FILEDJAN 29 2014

SUSAN M. SPRAUL, CU.S. BKCY. APP. PANOF THE NINTH CIRCU


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2 Unl ess ot her wi se i ndi cat ed, al l chapt er , sect i on and r ul er ef er ences ar e t o t he Bankrupt cy Code, 11 U. S. C. 101- 1532, andt o the Feder al Rul es of Bankrupt cy Pr ocedur e, Rul es 1001- 9037.Ci vi l Rul e r ef er ences ar e t o t he Feder al Rul es of Ci vi l Pr ocedur e1- 86.

3 Br uce Wank, who i s appar ent l y a cr edi t or i n t he bankr upt cycase and son of t he debt or J or dan Wank, j oi ned i n t he not i ce ofappeal , and appear s i n t he capt i on of t he par t i es br i ef s.However , i t i s not cl ear i n t he r ecor d what hi s i nt er est i n t hi sl i t i gat i on and t he appeal may be. As near as we can t el l , he wasnot a pl ai nt i f f or def endant i n t he adver sar y pr oceedi ng i n t hebankr upt cy cour t . Ther ef or e, i n t hi s deci si on we r ef er onl y t o

t he pr i nci pal appel l ant , t he debt or Wank.4 Thi s di sput e ul t i mat el y concer ns two decl ar at i ons execut ed

by Wank, one si gned i n 2009 i n connect i on wi t h st ate cour tpr oceedi ngs, and a second, l at er decl ar at i on f i l ed i n t hi sl i t i gat i on i n 2013 i n whi ch Wank ei t her r epudi at es t he ear l i erf act ual asser t i ons, or at t empt s t o expl ai n t hem i n cont ext . Wedi scuss her e onl y those f act s we bel i eve t o be uncont r over t ed byei t her par t y.

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PAPPAS, Bankr upt cy J udge:

Chapt er 72 debtor J or dan Wank ( Wank) 3 appeal s t he summar y

j udgment of t he bankrupt cy cour t det er mi ni ng t hat a por t i on of a

j udgment debt owed by Wank t o appel l ees Dani el Gor don, Basi l

Si mona, A&S I nvest ment , LLC, At har Si ddi q, Mark Ferguson and

Geor ge Tsoupaki s ( t oget her , t he Appel l ees) i s except ed f r om

di schar ge under 523(a) ( 2) ( A) . We VACATE t he summar y j udgment

and REMAND t hi s mat t er t o the bankr upt cy cour t f or f ur t her

pr oceedi ngs.

FACTS4

Wank i s a Cal i f or ni a at t or ney who f i l ed a chapt er 7

bankrupt cy pet i t i on. The Appel l ees ar e cr edi t or s who asser t t hat

t hei r cl ai m agai nst Wank shoul d be except ed f r om di schar ge under

var i ous pr ovi si ons of 523( a) . They asser t t hat Wank i nduced

each of t hem t o i nvest i n a f r audul ent cur r ency specul at i on scheme


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5 EI S i s t he descr i pt i ve name f or t he i nvest ment scheme; i tdoes not appear t o be a f or mal or gani zat i on or ent i t y. Wankal l eges, and Appel l ees do not di sput e, t hat he sent al l of t hef unds he r ecei ved f r om Appel l ees t o t he bank account of UNI FI COHol di ngs, LLC, i n London, Uni t ed Ki ngdom, t o be i nvest ed i n EI S.

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known as t he Eur opean I nvest ment St r uct ur e ( EI S) . 5 Basi l Si mona

r esi des i n Mi chi gan and i s t he managi ng member of A&S I nvest ment s,

LLC, an ent i t y t hat i nvest ed $125, 000. Al t har Si ddi qui r esi des i n

Mi chi gan and i nvest ed $400, 000. Mark Fer guson r esi des i n Los

Angel es and i nvest ed $150, 000. Geor ge Tsoupoki s and Dani el Gordon

r esi de i n Col orado, and t hey i nvest ed $100, 000 and $50, 000

r especti vel y.

J er r y Nei di ch ( Nei di ch) i s a f r i end and nei ghbor of Wank.

Nei di ch, al ong wi t h Dani el e Romer ( Romer ) , sol i ci t ed t he

Appel l ees t o i nvest i n EI S. Ther e i s no evi dence i n t he r ecor d,

nor any cont ent i on by t he Appel l ees, t hat Wank knew, orcommuni cated wi t h, any of t he Appel l ees bef or e t he f i r st cont act

was made wi t h t hem r egardi ng t he i nvest ment s. Wank concedes,

however , t hat he r ecei ved f unds by wi r e t r ansf er f r om each of t he

Appel l ees, and t hat he i n t ur n t r ansmi t t ed al l $825, 000 of t he

money t hey sent hi m, pl us $25, 000 of hi s own f unds, t o UNI FI CO

Hol di ngs, LLC, and i t s pr i nci pal , Kur shi d Shah ( Shah) , i n car e

of a bank account i n London, Uni t ed Ki ngdom, t o i nvest t hat money

i n cur r ency specul at i on. Wank ent er ed i nt o wr i t t en cont r act s ( t he

EI S Agr eement s) wi t h each of t he Appel l ees r egardi ng t he

i nvest ment s, al t hough t hese cont r act s have not been i ncl uded i n

ei t her t he appel l at e r ecor d or t he docket of t he bankrupt cy cour t

adver sary pr oceedi ng. The part i es agr ee t hat t here i s no evi dence

t hat UNI FI CO Hol di ngs, LLC, or Shah made any t r ade wi t h the f unds;

t hey al so agr ee t hat t he Appel l ees and Wank never r ecei ved t he


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ant i ci pat ed pr of i t s f r om t hei r i nvest ment nor , i ndeed, any r et ur n

of t hei r i nvest ed f unds.

Havi ng l ost t hei r i nvest ment s, i n May 2007 t he Appel l ees sued

Wank, Nei di ch, Romer , Shah, EI S, UNI FI CO Hol di ngs, LLC, and

UNI FI CO Tr adi ng, Lt d. ( appar ent l y a d/ b/ a of UNI FI CO Hol di ngs,

LLC) i n Los Angel es Super i or Cour t . Gor don v. Wank, case no.

BC 371 999 ( t he St ate Cour t Act i on) . A Fi r st Amended Compl ai nt ,

f i l ed on Sept ember 11, 2009, i n t he St at e Cour t Act i on, cont ai ned

t went y causes of act i on, i ncl udi ng f al se pr omi se, f r aud and

conspi r acy to def r aud, agai nst al l def endant s.

On December 28, 2009, Wank, Nei di ch and Romer ent er ed i nto aset t l ement agr eement and st i pul ated j udgment wi t h t he Appel l ees

( col l ect i vel y, t he Set t l ement Agr eement ) concer ni ng t he stat e

cour t act i on. Under t he t erms of t he Set t l ement Agr eement ,

Nei di ch, Romer and the Appel l ees mut ual l y r el eased each ot her f r om

al l cl ai ms on condi t i on t hat Wank pay the Appel l ees t he t ot al sum

of $750, 000. I f Wank f ai l ed t o pay t he Appel l ees by March 15,

2010, he st i pul at ed t hat a j udgment coul d be ent ered agai nst hi m

by the st at e cour t f or t he f ul l amount of t he Appel l ees cl ai m of

$1, 100, 000. Of cr i t i cal i nt er est i n t hi s appeal , however , was the

f ol l owi ng pr ovi si on i n the Set t l ement Agr eement :

THI S J UDGMENT SHALL BE EXEMPT FROM DI SCHARGE I NBANKRUPTCY

The Par t i es agr ee t hat t he obl i gat i ons ar i si ng f r om t hi sSet t l ement Agr eement shal l be nondi schar geabl e under

t he pr ovi si ons of t he Bankr upt cy Code. Mr . Wank hasal so execut ed hi s at t ached Decl ar at i on i n Suppor t of t hef act ual basi s of why hi s obl i gat i on under t hi s Agr eementshoul d not be di schar ged i n Bankrupt cy ( Exhi bi t E) .

As par t of t he set t l ement , t he Appel l ees r equi r ed Wank to

si gn a decl arat i on under penal t y of per j ur y on December 30, 2009,


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a copy of whi ch was at t ached t o t he Set t l ement Agreement ( t he

Fi r st Decl ar at i on) . I t i ncl uded t he f ol l owi ng st at ement s:

The pur pose of t hi s Decl ar at i on i s t o provi de a f act ualbasi s t o f ur t her t he i nt ent i on of t he Pl ai nt i f f s andDef endant s i n t hi s l i t i gat i on t o ensur e t hat i f I do notpay any or al l of t he J udgment on a t i mel y basi s anddecl ar e bankrupt cy t hat t he amount s due Pl ai nt i f f s f ort hei r i nvest ment i n t he [ EI S] , pl us i nt er est , of$1, 100, 000 shal l not be di schar ged i n bankrupt cy. Fi r stDecl ar at i on at 1.

I n l at er Summer and Fal l of 2004, I ent er ed i nt o wr i t t enagr eement s wi t h [ t he Appel l ees] i n whi ch I agr eed t o actas a pr i mar y i nvest or t o i nvest t hei r moneys t hat Ir ecei ved f r om each of t hem i n t he [EI S] whi ch wasoperat ed by Mr . Kur shi d Shah. I d. at 2.

I advi sed each of t he [ Appel l ees] ( and set f or t h i n t he

EI S Agr eement s) t hat bef ore any t r ade was made, t het r adi ng gr oup i n Engl and woul d have an exi t buyer i npl ace, wi t h a bui l t i n pr of i t f or each t r ansact i on, andt hat t he pr of i t s f r om each t r ade woul d be deposi t ed i nt ot he account f or di st r i but i on on a mont hl y basi s. I nf act , t here was no such exi t buyer and, as ment i oned,al l of t he [ Appel l ees] and ot her s who i nvest ed l ostt hei r ent i r e i nvest ment s. I d. at 3( e) .

I communi cated t o t he [ Appel l ees] t hat t hey coul d expectmont hl y r et ur ns of 30 t o 50 per cent . I d. at 3( f ) .

I made r epr esent at i ons t o t he [ Appel l ees] , whi ch wer ef al se, t o i nduce t hem t o pl ace t hei r f unds i n my t r ustaccount , and t o per mi t me to act as t hei r pr i mar yi nvest or , and t o per mi t me t o t r ansf er [ Appel l ees ]f unds t o EI S. I d. at 4.

I communi cat ed t o t he [ Appel l ees] t hat i nvest i ng i n t he[ EI S] woul d be a saf e i nvest ment , and t hat I was anat t or ney wi t h exper t i se i n such mat t er s. Under t het er ms of t he EI S Agr eement s, t he [ Appel l ees ] f unds wer et o be r et ur ned t o t he [ Appel l ees] i n 45 days i f nof or ei gn cur r ency t r ades wer e execut ed. However , I knewat t he t i me I execut ed t he cont r act s and accept ed t hewi r e t r ansf er s f or t he [ Appel l ees ] f unds t hat t her e wasa possi bi l i t y t hat t he f unds coul d be l ost . I di d not

so i nf or m t he [ Appel l ees] . I d. at 5.By ent er i ng i nt o t he EI S Agr eement s wi t h t he Pl ai nt i f f s,I di d not compl y wi t h t he f ol l owi ng [ Cal i f or ni a Rul es ofPr of essi onal Conduct ] : ( a) [ Rul e] 3- 110 by f ai l i ng t oact compet ent l y; ( b) Rul e 3- 500, keepi ng cl i ent si nf or med of a si t uat i on i n whi ch I was act i ng f or t hem;and ( c) Rul e 4- 100 f ai l i ng t o pr eser ve i dent i t y ofcl i ent f unds. I d. at 14.


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6 Al t hough Toby Wank was named as a co- def endant i n t hecompl ai nt i ni t i at i ng t hi s adver sar y pr oceedi ng, t he r equest edr el i ef was onl y di r ect ed agai nst Wank.

7 We need not , and do not , di scuss t he part i es argument sr egar di ng t he Appel l ees cl ai ms f or an except i on t o di schar ge

( cont i nued. . . )

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The Set t l ement Agreement provi ded t hat t he si gned, or i gi nal

Fi r st Decl ar at i on woul d be kept i n a seal ed envel ope by an escr ow

agent . I f Wank f ai l ed t o make t he $750, 000 payment as pr ovi ded i n

t he Set t l ement Agr eement , and l at er f i l ed f or bankrupt cy

pr ot ect i on, t he Set t l ement Agr eement pr ovi ded t hat t he Fi r st

Decl arat i on woul d be unseal ed and submi t t ed t o t he bankr upt cy

cour t . The par t i es al so execut ed a St i pul at i on t o J udgment

pr ovi di ng t hat , i f Wank f ai l ed t o pay the r equi r ed $750, 000 by

March 15, 2010, t he st ate cour t woul d be request ed t o ent er

j udgment i n t he amount of t he f ul l cl ai m of $1, 100, 00.

Wank di d not pay t he r equi r ed $750, 000 by t he March 15, 2010deadl i ne and, at t he Appel l ees r equest , t he st at e cour t , on J une

18, 2010, ent ered t he st i pul ated j udgment agai nst Wank and i n

f avor of t he Appel l ees i n t he t ot al amount of $1, 100, 000.

Wank f i l ed a chapt er 7 bankr upt cy pet i t i on on Febr uary 20,

2012. On Schedul e F, Wank l i st ed a noncont i ngent , l i qui dat ed,

undi sput ed unsecur ed nonpr i or i t y cl ai m of $1, 250, 000 f or t he f i ve

Appel l ees.

On May 5, 2012, Appel l ees f i l ed an adver sar y compl ai nt

agai nst Wank and hi s f ormer spouse, Toby Wank, i n t he bankr upt cy

cour t . 6 Thereaf t er , t he compl ai nt was amended, seeki ng a

decl arat i on by the bankr upt cy cour t t hat t he $1, 100, 000 j udgment

debt owed t o t he Appel l ees by Wank was except ed f r om di scharge

under 523( a) ( 2) , ( 4) , ( 6) and ( 19) . 7 The Appel l ees f i r st


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7( . . . cont i nued)under 523( a) ( 4) , ( 6) and ( 19) because the bankrupt cy cour t ssummary j udgment on appeal was based sol el y on 523( a) ( 2) ( A) , andt he Appel l ees di d not cr oss- appeal t he cour t s j udgment .

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cl ai m, t he one at i ssue i n t hi s appeal , sought an except i on t o

di schar ge f or f r aud under 523( a) ( 2) ( A) , and al l eged t hat

( 1) Wank st ol e $825, 000 f r om Appel l ees and di d so del i ber at el y

and st i pul ated as much i n t he Set t l ement Agr eement , ( 2) Wank l i ed

t o the Appel l ees when asked about t he st ol en f unds, ( 3) Wank

l i ed t o t he Appel l ees when he sent t hei r i nvest ed f unds t o EI S,

and ( 4) Wank st i pul ated t hat he commi t t ed f r aud agai nst t he

Appel l ees i n t he Fi r st Decl ar at i on and Set t l ement Agr eement .

Al t hough Wank s answer t o the Appel l ees amended compl ai nt

cont ai ned a gener al deni al of t he al l egat i ons, he admi t t ed t he

par agr aph whi ch quot ed t he text of t he Fi r st Decl ar at i on not edabove, and t he paragr aph acknowl edgi ng t hat he si gned t he Fi r st

Decl ar at i on under penal t y of per j ur y.

Dur i ng t he pendency of t he l i t i gat i on, Appel l ees f i l ed a

Mot i on f or Summar y J udgment on December 31, 2012. Af t er

di scussi ng t he gener al r equi r ement s f or an except i on t o di schar ge

under 523( a) ( 2) ( A) , t he mot i on summari zed t he Appel l ees

argument i n a si ngl e paragr aph:

Here, t he admi ss i ons of Mr . Wank i n hi s pr ej udgmentdecl ar at i on meet t hese st andar ds. He admi t t ed t hat t heEI S was a f r aud. He admi t t ed t hat t he [ Appel l ees] l ostal l of t he $825, 000 t hey i nvest ed i n t he EI S. Mr . Wankadmi t t ed to maki ng f al se st at ement s t o i nduce t he[ Appel l ees] t o i nvest i n t he EI S.

Notabl y, t he Appel l ees di d not argue t hat Wank knew at t he t i me of

maki ng any r epr esent at i ons t o t hem t hat t hey wer e f al se, nor t hat

t he Appel l ees j ust i f i abl y r el i ed on t hose r epr esent at i ons.


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Wank opposed t he summar y j udgment mot i on, st at i ng t hat t he

t he Fi r st Decl ar at i on, and t he st at ement s he made i n i t , wer e

i nher ent l y unr el i abl e and i nadmi ssi bl e as evi dence i n t he

adver sary pr oceedi ng because t he Fi r st Decl ar at i on was i nt ended t o

def eat hi s r i ght t o obt ai n t he pr ot ect i ons of a di schar ge i n

bankrupt cy. Fur t her , Wank poi nt ed out , t he Appel l ees f ai l ed t o

ei t her ar gue or pr ovi de any evi dence t hat t hey j ust i f i abl y r el i ed

on any al l eged mi sr epr esent at i ons of Wank t o t hei r det r i ment , and

t hus t hey f ai l ed t o est abl i sh an essent i al el ement of except i on t o

di schar ge under 523( a) ( 2) ( A) .

At t ached t o Wank s opposi t i on t o the summar y j udgment mot i onwas the Decl ar at i on of J or dan Wank ( t he Second Decl ar at i on) . I n

t he Second Decl ar at i on, i n addi t i on t o expl ai ni ng hi s posi t i on and

cer t ai n argument s i n t he opposi t i on, Wank addr essed t he

ci r cumst ances gi vi ng r i se t o hi s execut i on of t he Fi r st

Decl ar at i on. Wank i nsi st ed t hat he had si gned t he Fi r st

Decl arat i on under dur ess and whi l e he was under t he i nf l uence of

anxi et y medi cat i on. Wank al l eged t hat he had obj ect ed t o t he

Appel l ees counsel at t he t i me he execut ed t he Fi r st Decl ar at i on

t hat some of i t s cont ent was f al se and unt r ue. Whi l e Wank

acknowl edged t hat he made f al se st atement s t o t he Appel l ees t hat

he knew t o be unt r ue, he not ed t hat hi s sol e i ncent i ve i n si gni ng

t he Fi r st Decl ar at i on was because [ t he Appel l ees ] counsel agr eed

t o a set t l ement sat i sf act i on i n t he amount of $750, 000, a l ar ge

di scount f r om t he damages al l eged i n t he sui t , and t he set t l ement

al l owed me negot i ated t erms and t i me t o pay. He al so st ated t hat

he bel i eved t hat hi s st at ement s i n t he Fi r st Decl ar at i on coul d not


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8 I n par t i cul ar , Wank aver r ed i n t he Second Decl ar at i on t hatI bel i eved t he [ Fi r st Decl ar at i on] was i l l egal and unenf or ceabl ei n any case as Pl ai nt i f f s counsel and I bot h knew t he cont ent oft he decl ar at i on was f al se. Second Decl ar at i on at 13.

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be enf orced agai nst hi m. 8

I n t he Second Decl ar at i on, Wank al so speci f i cal l y addr essed

sever al of t he st at ement s he made i n t he Fi r st Decl ar at i on. As

not ed above, t he Fi r st Decl ar at i on pr ovi ded:

I n l at er Summer and Fal l of 2004, I ent er ed i nt o wr i t t enagr eement s wi t h [ Appel l ees] i n whi ch I agr eed t o act asa pr i mar y i nvest or t o i nvest t hei r moneys t hat Ir ecei ved f r om each of t hem i n t he [EI S] whi ch wasoperated by Mr . Kur shi d Shah.

Fi r st Decl ar at i on at 2. I n t he Second Decl ar at i on, Wank

conf i r ms t hi s st at ement i s t r ue, but expl ai ns i t :

I advi sed each of t he [ Appel l ees] ( and set f or t h i n t heEI S Agr eement s) t hat bef ore any t r ade was made, t he

t r adi ng gr oup i n Engl and woul d have an exi t buyer i npl ace, wi t h a bui l t i n pr of i t f or each t r ansact i on, andt hat t he pr of i t s f r om each t r ade woul d be deposi t ed i nt ot he account f or di st r i but i on on a mont hl y basi s. I nf act , t here was no such exi t buyer and, as ment i oned,al l of t he [ Appel l ees] and ot her s who i nvest ed l ostt hei r ent i r e i nvest ment s.

Second Decl ar at i on at 3( e) .

I n t he Second Decl ar at i on, Wank al so char ged t hat t he

Appel l ees had par aphr ased t he EI S Agr eement s i n t he Fi r st

Decl ar at i on t o suggest t hat he had made repr esent at i ons t o

Appel l ees t hat he had not :

Speci f i cal l y, t he [ Fi r st Decl ar at i on] says: I advi sedeach of t he Pl ai nt i f f s that . . . However , t he EI SAgr eement s pr esent ed t o each Appel l ee st ate, Thet r adi ng gr oup has advi sed us t hat . . . . The l astsent ence i s sheer specul at i on and conj ect ur e as no one,i ncl udi ng t he Pl ai nt i f f s or me had any knowl edge of t heexi st ence or non- exi st ence of any such exi t buyer .

As t o the repr esent at i ons i n par agr aphs 4 and 5 of t he Fi r st

Decl ar at i on, quot ed above, Wank r epudi at ed them, l abel i ng them


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f al se and unt r ue.

I n response t o Wank s cont ent i on t hat some of t he st atement s

he made i n t he Fi r st Decl ar at i on wer e f al se and unt r ue, t he

Appel l ees s i mpl y noted t hat he made t hose st atement s under penal t y

of per j ur y. However , t he Appel l ees di d not addr ess Wank s

ar gument t hat t hey had not submi t t ed evi dence t o sat i sf y t he

j ust i f i abl e r el i ance prong f or an except i on t o di schar ge under

523( a) ( 2) ( A) . Bef ore t he hear i ng on t he summary j udgment

mot i on, t he bankrupt cy cour t i ssued a Tent at i ve Rul i ng, st at i ng,

i n par t , t hat :

I n the Set t l ement Agr eement , Debt or admi t s t hat heagr eed t o act as a pr i mar y i nvest or t o i nvestPl ai nt i f f s moni es, t hat t he f unds wer e wi r ed t oDef endant s t r ust account t o be wi r ed t o EI S, t hat t heEI S was a f r aud, t hat Def endant advi sed Pl ai nt i f f s t hatEI S woul d have an exi t buyer i n pl ace, but t hat t her ewas no such exi t buyer , t hat he made r epr esent at i ons t oPl ai nt i f f s t hat wer e f al se t o i nduce t hem t o pl ace t hei rf unds i nt o hi s t r ust account and t o per mi t hi m t o act asPl ai nt i f f s pr i mar y i nvest or . These st i pul at ed f actsar e pr obat i ve and cr edi bl e evi dence of f r aud andconver si on. Def endant mai nt ai ns that he si gned t heSet t l ement Decl arat i on under dur ess and undue i nf l uencebecause i t was r equi r ed f or pur poses of r esol ut i on oft he St at e Cour t Act i on on t he eve of t r i al wher ei nDef endant had no l egal r epr esent at i on ot her t hanhi msel f . Def endant t hen admi t s, however , t hat hebel i eved t he document was i l l egal and unenf orceabl e. Heal so bel i eved t hat he woul d be abl e t o obt ai n a per sonall oan t o pay t he st i pul ated j udgment amount so t heSet t l ement Decl arat i on woul d never be unseal ed.

Def endant s r easons f or admi t t i ng t he key f act s of t hef r aud do nothi ng t o deny the admi ss i ons previ ousl y made.They ar e excuses t hat do not suf f i ce t o r ai se any doubtas to t he admi ssi ons pr evi ousl y made. Thus, pl ai nt i f f shave demonst r ated t hat t here i s no di sput ed mater i al

f act as t o t he el ement s of t he di schar geabi l i t y act i ons.

The bankr upt cy cour t made no comment i n t he Tent at i ve Rul i ng

r egar di ng whet her t he Appel l ees had j ust i f i abl y rel i ed on Wank s

st atement s.


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28 9 I t i s not cl ear what di sposi t i on was made by t hebankrupt cy cour t as t o t he Appel l ees 523( a) ( 4) cl ai m. Nei t hert he cour t s Tent at i ve Rul i ng, nor t he or der or j udgment , r ef er t ot hat cl ai m.

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Af t er hear i ng and consi der i ng the summary j udgment mot i on,

t he bankrupt cy cour t st at ed t hat i t woul d not consi der t he

Appel l ees ar gument s f or an except i on t o di schar ge under ei t her

523( a) ( 6) or ( 19) because t he cour t had not been gi ven

suf f i ci ent f act s t o make a r ul i ng concer ni ng t hose cl ai ms. Hr g

Tr . 20: 8- 21, Februar y 20, 2013. 9 Addi t i onal l y, t he cour t not ed

t hat , i n maki ng i t s deci si ons, i t had di sr egar ded t he bankrupt cy

def eat i ng cl auses i n t he Set t l ement Agr eement and t he Fi r st

Decl ar at i on, and had onl y consi der ed the f act ual admi ssi ons made

by Wank i n t he Fi r st Decl ar at i on. Hr g Tr . 19: 4- 9. However ,

even wi t hout consi der i ng t he bankrupt cy def eat i ng pr ovi si ons, t hecour t det er mi ned t hat Wank s admi ssi ons i n t he Fi r st Decl ar at i on

wer e suf f i ci ent t o est abl i sh an except i on t o di schar ge under

523( a) ( 2) ( A) , and t hat hi s expl anat i ons and r epudi at i ons of

t hose admi ssi ons i n t he Second Decl ar at i on di d not negat e those

admi ss i ons:

The st at ement s [ i n t he Second Decl ar at i on] do notdi sput e the key st at ement s made [ i n t he Fi r stDecl ar at i on] . They si mpl y t r y t o expl ai n t hem away orj ust i f y t hem or r at i onal i ze t hem. But t he st at ement st hat go t o t he f act t hat f al se r epr esent at i ons wer emade, t hey were made, accordi ng to paragr aph 4, t oi nduce t he Pl ai nt i f f s t o pl ace f unds i n Mr . Wank saccount , and t hat t her e were communi cat i ons made, andt hat t her e was an i nt ent f or t hem t o r el y on t hosest at ement s because they were made to i nduce them and t hef act t hat t her e was f r aud r eal l y ha[ s] not been di sput edwi t h a car ef ul r eadi ng of t he [ Second Decl ar at i on] .

Hr g Tr . 19: 19- 20: 4.

The bankrupt cy cour t grant ed t he Appel l ees mot i on, and on

March 13, 2013, t he court ent ered a summary j udgment det ermi ni ng


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10 Al t hough r equest ed t o do so by t he Appel l ees, t hebankr upt cy cour t decl i ned t o decl are the ent i r e amount due undert he st at e cour t st i pul at ed j udgment was except ed f r om di schar ge,l i mi t i ng i t s r ul i ng t o t he act ual amount s i nvest ed by t heAppel l ees. The Appel l ees di d not cr oss- appeal any aspect of t hecour t s j udgment .

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t hat $825, 00010 of t he debt owed by Wank t o t he Appel l ees was

except ed f r om di schar ge under 523( a) ( 2) ( A) . Wank f i l ed a t i mel y

appeal on Mar ch 22, 2013.

JURISDICTION

The bankrupt cy cour t had j ur i sdi ct i on under 28 U. S. C. 1334

and 157( b) ( 2) ( I ) . We have j ur i sdi ct i on under 28 U. S. C. 158.

ISSUE

Whet her t he bankr upt cy cour t er r ed i n gr ant i ng a summary

j udgment det er mi ni ng t hat Wank s debt t o t he Appel l ees was

except ed f r om di schar ge under 523( a) ( 2) ( A) .

STANDARDS OF REVIEW

We revi ew de novo the bankrupt cy cour t s gr ant of summary

j udgment . SNTL Cor p. v. Ct r . I ns. Co. ( I n r e SNTL Cor p. ) , 571

F. 3d 826, 834 ( 9t h Ci r . 2009) . We al so revi ew de novo whether a

debt i s except ed f r om di schar ge under 523( a) ( 2) ( A) . Tsur ukawa

v. Ni kon Pr eci si on, I nc. ( I n r e Tsur ukawa) , 258 B. R. 192, 195 ( 9t h

Ci r . BAP 2001) .

DISCUSSION

Summar y j udgment may be gr anted i f t he movant shows t hat

t here i s no genui ne i ssue as t o any mater i al f act and t he movant

i s ent i t l ed t o j udgment as a mat t er of l aw. Ci vi l Rul e 56( a) ,

i ncor por ated by Rul e 7056; Barboza v. New For m, I nc. ( I n r e

Bar boza) , 545 F. 3d 702, 707 ( 9t h Ci r . 2008) . The t r i al cour t may

not wei gh evi dence i n r esol vi ng such mot i ons, but r at her

det er mi nes onl y whet her a mat er i al f act ual di sput e r emai ns f or


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t r i al . Covey v. Hol l ydal e Mobi l ehome Est at es, 116 F. 3d 830, 834

( 9t h Ci r . 1997) . A di sput e i s genui ne i f t her e i s suf f i ci ent

evi dence f or a r easonabl e f act f i nder t o hol d i n f avor of t he

non- movi ng par t y, and a f act i s mat er i al i f i t mi ght af f ect t he

out come of t he case. Far Out Prods. , I nc. v. Oskar , 247 F. 3d 986,

992 ( 9t h Ci r . 2001) ( ci t i ng Ander son v. Li ber t y Lobby, I nc. , 477

U. S. 242, 248- 49 ( 1986) ) . The i ni t i al bur den of showi ng t her e i s

no genui ne i ssue of mat er i al f act r est s on t he movi ng par t y.

Mar gol i s v. Ryan, 140 F. 3d 850, 852 ( 9t h Ci r . 1998) .

Under 523( a) ( 2) ( A) , a debt f or money obt ai ned by t he debt or

under f al se pr et enses, a f al se r epr esent at i on, or act ual f r audmay be except ed f r om di schar ge. The Ni nt h Ci r cui t has hel d t hat

summary j udgment i s pr oper i n consi der i ng an except i on t o

di schar ge under 523( a) ( 2) ( A) i f t he pr oponent i s abl e t o show

t hat t her e i s no genui ne i ssue of mat er i al f act as t o each of t he

f i ve el ement s of except i on t o di schar ge under t hat pr ovi si on: ( 1)

mi sr epr esent at i on, f r audul ent omi ssi on or decept i ve conduct by t he

debt or ; ( 2) knowl edge of t he f al si t y or decept i veness of hi s

st at ement or conduct ; ( 3) an i nt ent t o decei ve; ( 4) j ust i f i abl e

r el i ance by the cr edi t or on t he debt or s st at ement or conduct ; and

( 5) damage to the cr edi t or pr oxi mat el y caused by i t s r el i ance on

t he debt or s st atement or conduct . Tur t l e Rock Homeowners Ass n

v. Sl yman ( I n r e Sl yman) , 234 F. 3d 1081, 1085 (9t h Ci r . 2000) .

Based upon our de novo r evi ew of t he recor d, we concl ude t hat

t he Appel l ees have not shown that t here ar e no genui ne i ssues of

mat er i al f act such t hat t hey ar e ent i t l ed t o an except i on t o

di schar ge under 523( a) ( 2) ( A) as a mat t er of l aw. Bef or e

exami ni ng t he def i ci enci es i n t he Appel l ees at t empt t o est abl i sh


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11 The bankrupt cy cour t made i t cl ear t hat i t was rul i ngsol el y on t he basi s of t he Fi r st Decl ar at i on. I n i t s Tent at i veRul i ng, i t st at ed, The St i pul at ed Fact s wi t hi n t he [ Fi r st ]Decl ar at i on ar e pr obat i ve evi dence of nondi schar geabi l i t y under 523( a) ( 2) and ( a) ( 6) f or f r aud and conver si on. Tent at i veRul i ng at 5, Febr uar y 20, 2013. At t he hear i ng on Febr uar y 20,2013, t he cour t observed, I ve j ust l ooked at t he mat er i aldi sput ed f act s. And t he mat er i al di sput ed f act s i n t hi s [ Fi r stDecl ar at i on] ar e suf f i ci ent t o pr ove up a [ ] 523( a) ( 2) f r audnondi schar geabi l i t y j udgment f or $825, 000. Hr g Tr . 19: 14- 17.

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t he el ement s r equi r ed f or a f r aud except i on t o di schar ge, we f i r st

addr ess Wank s ar gument t hat t he bankr upt cy cour t err ed i n

gr ant i ng t he summary j udgment based sol el y11 on t he Fi r st

Decl ar at i on f or r easons of publ i c pol i cy.

I.

The bankruptcy court should not have relied so on Wanksstatements made in the First Declaration as the solebasis for granting summary judgment to the Appellees.

I n Bank of Chi na v. Huang ( I n r e Huang) , 275 F. 3d 1173 ( 9t h

Ci r . 2002) , i n a det ai l ed pr epet i t i on set t l ement agr eement , t he

debt or agr eed he woul d not f i l e f or bankrupt cy pr ot ect i on, and

t hat , i f he di d, t he debt i n f avor of t he bank evi denced by theset t l ement agr eement woul d not be di schar geabl e. I d. at 1176- 77.

I n r ef usi ng t o enf orce t he t erms of t he agr eement when t he debt or

nonet hel ess sought bankrupt cy pr ot ect i on, t he Ni nt h Ci r cui t hel d

t hat i t i s agai nst publ i c pol i cy f or a debt or t o wai ve t he

pr epet i t i on pr ot ect i on of t he Bankrupt cy Code. I d. at 1177

( quot i ng Hayhoe v. Col e ( I n r e Col e) , 226 B. R. 647, 651- 54 ( 9t h

Ci r . BAP 1998) ) . As t he Ni nt h Ci r cui t expl ai ned: Thi s

pr ohi bi t i on of pr epet i t i on wai ver has t o be t he l aw; ot her wi se,

ast ut e cr edi t or s woul d r out i nel y requi r e t hei r debt or s t o wai ve.

I d.

Thi s Panel s opi ni on i n I n r e Col e, ci t ed i n I n r e Huang,


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pr ovi des f ur t her expl anat i on of t he r easons f or t hi s pol i cy:

Fi r st , pur suant t o 523( c) , bankrupt cy cour t s haveexcl usi ve j ur i sdi ct i on t o det er mi ne t he di schar geabi l i t yof cl ai ms ar i si ng under 523( a) ( 2) . See Seven El ves,I nc. v. Eskenazi ( I n r e Eskenazi ) , 6 B. R. 366, 368- 69( 9t h Ci r . BAP 1980) [ ci t i ng Br own v. Fel sen, 442 U. S.127, 138 ( 1979) ] . . . . Second, t her e i s no r ecogni zedexcept i on t o di schar ge f or pr epet i t i on wai ver s ofdi schar ge or di schar geabi l i t y. Sect i on 727( b) st at est hat al l debt s ar e di schar geabl e i n bankrupt cy unl essspeci f i cal l y except ed under 523. Sect i on 523enumerates t he except i ons t o di schar ge, but does notexcept f r om di schar ge t hose debt s t hat t he debt or hasagr eed pr epet i t i on not t o be di schar ged i n bankrupt cy( ci t at i ons omi t t ed) . I f bankr upt cy cour t s enf or cedpr epet i t i on wai ver s of di schar ge, t hey woul d ef f ect i vel ybe creat i ng an except i on t o di schar ge that Congr ess hadnot enumer at ed ( ci t at i ons omi t t ed) . . . . Fi nal l y, anexcept i on t o di schar ge i mpai r s t he debt or s f r esh st ar t

and shoul d not be read more br oadl y t han necessar y t oef f ectuat e pol i cy[ . ] ( ci t at i ons omi t t ed) .

I n r e Col e, 226 B. R. at 653- 54.

I n re Huang and I n r e Col e cont i nue t o be good l aw.

Cont i nent al I ns. Co. v. Thor pe I nsul at i on Co. ( I n r e Thor pe

I nsul at i on Co. ) , 671 F. 3d 1011, 1026 ( 9t h Ci r . 2012) ( i n

r eaf f i r mi ng i t s hol di ng i n I n r e Huang, and agai n ci t i ng wi t h

appr oval t o I n r e Col e, t he Ni nt h Ci r cui t obser ves i t i s agai nst

publ i c pol i cy f or a debt or t o wai ve t he pr epet i t i on pr ot ect i on of

t he bankrupt cy code. ) . Bankrupt cy cour t s i n t hi s ci r cui t have

acknowl edged t he pr ohi bi t i on agai nst pr epet i t i on wai ver s of

bankr upt cy di schar ge r i ght s announced i n I n r e Huang and I n r e

Col e. I n r e Ashwort h, 2012 WL 4596217, at *15 ( Bankr . C. D. Cal .

Oct . 1, 2012) ( ci t i ng I n r e Col e f or t he pr oposi t i on t hat

pr epet i t i on wai ver s of a di schar ge ar e cont r ar y t o publ i c pol i cy

and unenf or ceabl e) ; I n r e J enni ngs, 306 B. R. 672, 675 ( Bankr . D.

Or . 2004) ( As a mat t er of publ i c pol i cy, an agr eement i n advance

of a bankrupt cy case t hat a par t i cul ar cl ai m i s not subj ect t o


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12 6t h Ci r . R. 28( g) , i n ef f ect at t he t i me of t heLi cht enst ei n opi ni on, per mi t t ed ci t at i on t o unpubl i shed opi ni onsas per suasi ve aut hor i t y.

- 16-

di schar ge i s not enf or ceabl e. ) . And cour t s i n ot her ci r cui t s

have al so decl i ned t o enf or ce pr epet i t i on di schar ge wai ver s.

Li cht enst ei n v. Bar banel ( I n r e Li cht enst ei n) , 161 Fed. Appx. 461,

467- 68 ( 6t h Ci r . 2005) ( agr eei ng wi t h I n r e Col e, t he Si xt h

Ci r cui t hel d t hat wai vi ng a debt or s r i ght t o obt ai n a di schar ge

of a speci f i c debt i n a f ut ur e bankrupt cy case i s voi d because i t

of f ends t he publ i c pol i cy of pr omot i ng a f r esh st ar t f or

i ndi vi dual debt or s) 12; Kl i ngman v. Levi nson, 831 F. 2d 1292, 1296

n. 3 ( 7t h Ci r . 1987) ( For publ i c pol i cy r easons, a debt or may not

cont r act away the r i ght t o a di schar ge i n bankrupt cy. ) ; Fi r st Ga.

Bank v. Hal per n ( I n r e Hal per n) , 50 B. R. 260, 262 ( Bankr . N. D. Ga.1985) , af f d, 810 F. 2d 1061 ( 11t h Ci r . 1987) ( Pol i cy

consi der at i ons di ct at e t hat di schar geabi l i t y quest i ons cannot be

pr edetermi ned ei t her by a st ate cour t or by agr eement of t he

par t i es pr i or t o or i n ant i ci pat i on of t he possi bl e f i l i ng of a

bankr upt cy case. ) . Hi l l meyer v. Del l er ( I n r e Del l er ) , 2009

Bankr . Lexi s 5556, at *24 ( Bankr . W. D. Pa. 2009) ( ci t i ng bot h I n

r e Huang and I n r e Col e f or t hei r hol di ng t hat A pr epet i t i on

wai ver of t he di schar geabl e debt i s cont r ar y to publ i c pol i cy. ) .

The prohi bi t i on on prepet i t i on wai ver s of di schar ge f or

publ i c pol i cy r easons pr edat es t he Bankrupt cy Code. Fal l i ck v.

Kehr , 369 F. 2d 899, 904 (2d Ci r . 1966) ( [ A] n advance agr eement t o

wai ve t he benef i t s of t he [ Bankrupt cy] Act woul d be voi d. ) ; I n

r e Wei t zen, 3 F. Supp. 698 ( S. D. N. Y. 1933) ( same) . One bankr upt cy

cour t r ecent l y expl ai ned t he basi s f or t hi s pol i cy:


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Congr ess . . . pr ovi ded i n t he Bankrupt cy Code j ust t womethods t hr ough whi ch a debt or coul d ef f ect uate a wai veron mat t er s concer ni ng di schar ge. Fi r st , 727( a) ( 10)per mi t s debt or s t o wai ve t hei r di schar ge ent i r el y byexecut i ng a post pet i t i on wr i t t en agr eement and havi ngt hat agr eement appr oved by t he bankr upt cy cour t . Second,af t er t he commencement of t he bankrupt cy case, a debt ormay wai ve t he di schar geabi l i t y of a par t i cul ar debt bycompl yi ng wi t h t he r equi r ement s f or r eaf f i r mat i onagr eement s as set f or t h i n 524( c) . I n ei t her case,however , a debt or i s under t he pr ot ect i on of t hebankr upt cy cour t , an i mport ant commonal i t y whi ch i sl acki ng when a debt or execut es a pr epet i t i on wai ver oft hei r di schar ge.

Doubl e v. Col e ( I n r e Col e) , 428 B. R. 747, 753 ( Bankr . N. D.

Ohi o 2009) .

I n l i ght of t he st r ong publ i c pol i cy decl i ni ng t o enf or cepr ebankr upt cy di schar ge wai ver s, Wank cont ends t hat t he bankr upt cy

cour t er r ed when i t el ect ed t o i gnor e t he bankrupt cydef eat i ng

cl ause i n the Set t l ement Agr eement , but t hen consi der ed hi s

appar ent admi ssi ons i n t he Fi r st Decl ar at i on as evi dence t hat he

commi t t ed f r aud, and as t he sol e basi s f or gr ant i ng summary

j udgment i n f avor of t he Appel l ees. I n r esponse, t he Appel l ees

ar gue t hat whi l e agr eement s t hat a debt wi l l not be di schar geabl e

i n bankrupt cy ar e unenf or ceabl e, par t i es ar e f r ee t o st i pul at e t o

t he f act s gi vi ng r i se a debt , whi ch f act s can t hen be consi der ed

by t he bankr upt cy cour t i n a l at er di schar geabi l i t y act i on. I n

t hi s posi t i on, t he Appel l ees quot ed a passage f r om t hi s Panel s

deci si on i n I n r e Col e:

We have al r eady concl uded t hat t he port i on of t he

St i pul at ed J udgment t hat pur por t ed t o wai ve Appel l ee sr i ght t o obt ai n a di schar ge of t he Debt wasunenf or ceabl e as agai nst publ i c pol i cy. However , i f t hepar t i es st i pul at ed t o t he under l yi ng f act s t hat suppor ta f i ndi ng of nondi schar geabi l i t y, t he St i pul at edJ udgment woul d t hen be ent i t l ed t o col l at er al est oppelappl i cat i on.


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13 Of cour se, unl i ke i n I n r e Col e, Wank s admi ssi ons i n t heFi r st Decl ar at i on wer e not st i pul at ed, nor wer e t hey ref er encedi n t he st at e cour t s st i pul at ed j udgment . I nst ead, as di scussedbel ow, t he Fi r st Decl ar at i on was a st andal one document , execut edonl y by Wank, not submi t t ed f or consi der at i on by t he st ate cour t ,and t hen seal ed, t o be used by the Appel l ees onl y i n a bankr upt cypr oceedi ng.

14 Counsel f or t he Appel l ees, at or al ar gument , conf i r medt hat hi s l aw f i r m dr af t ed t he Fi r st Decl ar at i on.

15 I n t he Second Decl ar at i on, Wank st ates, and t he Appel l eeshave not sought t o di sput e, t hat : I n appr oxi mat el y May or J une2010, t he Super i or Cour t hel d hear i ngs t o ent er t he st i pul at edj udgment . Pl ai nt i f f s counsel had at t empted t o i nt r oduce t he


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226 B. R. at 653. 13

Whi l e we do not her e at t empt t o addr ess al l possi bl e

scenar i os, we agr ee wi t h Wank t hat , gi ven t he ci r cumst ances

sur r oundi ng hi s execut i on of t he Fi r st Decl ar at i on i n t hi s case,

and when vi ewed i n l i ght of t he st r ong publ i c pol i cy pr ohi bi t i ng

debt or s f r om cont r act i ng wi t h credi t or s t o f or ego t he pr ot ect i ons

of a bankrupt cy f i l i ng, Wank s st at ement s i n t he Fi r st Decl ar at i on

must , at a mi ni mum, be vi ewed wi t h gr eat skept i ci sm. As a r esul t ,

and consi der i ng t he ot her f act s i n t he r ecor d, we bel i eve i t was

i nappr opr i ate f or t he bankr upt cy cour t t o gr ant a summary j udgment

t o t he Appel l ees based sol el y on Wank s st atement s made i n t heFi r st Decl ar at i on.

Ther e can be no doubt about t he pur pose f or t he Fi r st

Decl ar at i on; i t was dr af t ed by the Appel l ees counsel wi t h a

si ngul ar goal i n mi nd. 14 The Fi r st Decl ar at i on not i nt ended t o

evi dence t hat Wank was i ndebt ed t o t he Appel l ees t hat goal was

ef f ect i vel y accompl i shed by t he t erms of t he Set t l ement Agr eement .

The Fi r st Decl ar at i on was al so not desi gned t o be ef f ect i ve f or

use by the Appel l ees i n st at e cour t . 15 I nst ead, t he i nt r oduct or y


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15( . . . cont i nued)[ Fi r st Decl ar at i on] . I n per sonal , i n- cour t t est i mony t o J udgeRosenf i el d of t he Super i or Cour t and wi t h Pl ai nt i f f s counselpr esent , I speci f i cal l y recant ed t he t r ut h of t he cont ent s of t he

[ Fi r st Decl ar at i on] and obj ected t o i t s use. Pl ai nt i f f s counselt hen wi t hdr ew t he document . Second Decl arat i on at 20.

16 Of cour se, t he Fi r st Decl ar at i on was i nt ended t o suppor tan except i on t o di schar ge of onl y t he Appel l ees debt . But evenwi t hout knowi ng t he det ai l s of Wank s other debt s, i t i s doubt f ult hat , i f he emer ged f r om bankrupt cy bur dened by t he Appel l ees$825, 000 j udgment , Wank woul d enj oy much of a f r esh st ar t vi ahi s di schar ge of ot her debt s.

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par agr aph of t he Fi r st Decl ar at i on r eveal s t he t r ue i nt ent i on of

t he dr af t er s r egar di ng Wank s s t at ement s:

The pur pose of t hi s Decl ar at i on i s t o provi de a f act ualbasi s t o f ur t her t he i nt ent i on of t he Pl ai nt i f f s andDef endant s i n t hi s l i t i gat i on t o ensur e t hat i f I do notpay any or al l of t he J udgment on a t i mel y basi s anddecl ar e bankrupt cy t hat t he amount s due Pl ai nt i f f s f ort hei r i nvest ment i n t he [ EI S] , pl us i nt er est , of$1, 100, 000 shal l not be di schar ged i n bankr upt cy.

Fi r st Decl ar at i on at 1.

Gi ven t he reasons f or Wank s execut i on of t he Fi r st

Decl ar at i on, we t hi nk t he r el i abi l i t y of t he f act ual st at ement s

t hat f ol l ow ar e pot ent i al l y t ai nt ed by t he Appel l ees mot i ves.

The document was sol el y i ntended t o ensure t hat Wank coul d notobt ai n ef f ect i ve r el i ef i n bankr upt cy. 16 Whi l e, perhaps, some of

Wank s f actual st at ement s coul d be t r ust ed, t o do so woul d r equi r e

t he bankrupt cy cour t t o wei gh t he cr edi bi l i t y of t hose st at ement s

agai nst t he ci r cumst ances under whi ch t he Fi r st Decl ar at i on was

execut ed. And whi l e t he bankr upt cy cour t coul d pr oper l y eval uat e

t he Fi r st Decl ar at i on i n t he cont ext of a t r i al , i t i s a f ar

di f f er ent mat t er f or t he cour t t o r el y excl usi vel y on Wank s

admi ssi ons i n t he Fi r st Decl ar at i on as t he sol e basi s f or

grant i ng Appel l ees a summary j udgment t hat Wank commi t t ed f r aud.


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17 Ther e i s evi dence i n t he Fi r st Decl ar at i on t hat t her e mayhave been anot her , ul t er i or mot i ve f or t he document . As not edabove, i n i t , Wank concedes t hat , i n hi s deal i ngs wi t h t heAppel l ees, he f ai l ed t o abi de by sever al pr ovi si ons of t heCal i f or ni a Rul es of Pr of essi onal Conduct . I f Wank s st at ement s

ar e i ndeed t r ue, avoi di ng t he consequences of bar di sci pl i ne woul dal so const i t ut e a st r ong i ncent i ve f or hi m t o si gn t he decl ar at i onand per f or m t he Set t l ement Agr eement . Of cour se, as the par t i esagr eed i n t hei r set t l ement , t he i nf or mat i on about Wank st r ansgr essi ons as a Cal i f or ni a at t or ney woul d be hel d i nconf i dence unl ess he f i l ed a bankrupt cy pet i t i on. We ar e al souncomf or t abl e wi t h t hi s st r at egy, addi ng t o our r el uct ance t oendor se t he f act s r eci t ed i n t he Fi r st Decl ar at i on vi a asummar y j udgment .

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I n our vi ew, t o gr ant a summary j udgment i n t hi s f ashi on, and

wi t hout a t r i al , under mi nes t he Ni nt h Ci r cui t s concer n about

gi vi ng ef f ect t o agr eement s mot i vat ed by a cr edi t or s desi r e to

i nsul at e debt s f r om di schar ge i n bankrupt cy, and encour ages t he

sor t of r out i ne i ncl usi on of such f act ual st at ement s i n set t l ement

agr eement s t he cour t was at t empt i ng t o di scour age. 17

Besi des t he bankrupt cydef eat i ng cl auses, t her e ar e ot her r ed

f l ags suggest i ng t hat Wank s st at ement s i n t he Fi r st Decl ar at i on

wer e unt r ust wor t hy. Wank st ated l at er , i n t he Second Decl ar at i on,

and wi t hout cont r adi ct i on by t he Appel l ees, t hat he execut ed t he

Fi r st Decl ar at i on because he f el t compel l ed t o do so, at a t i mewhen he was t aki ng pr escr i pt i on medi cat i ons, and because he di d

not bel i eve he coul d physi cal l y wi t hst and t he r i gor s of a t r i al .

Wank, a l awyer , al so st at ed t hat he bel i eved hi s f act ual

st at ement s i n the Fi r st Decl ar at i on woul d be unenf or ceabl e agai nst

hi m. Whi l e t he bankrupt cy cour t was under st andabl y r el uct ant t o

al l ow Wank t o cr eat e f act i ssues by ar gui ng wi t h hi msel f , Wank s

l at er obser vat i ons, consi der ed i n cont ext wi t h t he ot her

ci r cumst ances surr oundi ng hi s execut i on of t he Fi r st Decl ar at i on,

wer e ent i t l ed t o some consi derat i on, and shoul d have gi ven t he


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bankrupt cy cour t pause bef or e adopt i ng t he Fi r st Decl ar at i on as

t he sol e basi s f or det er mi ni ng t he mat er i al f act s i n t hi s act i on.

We acknowl edge t hat t he bankr upt cy cour t at t empt ed t o cl ar i f y

t hat i t woul d not consi der t he bankrupt cydef eat i ng pr ovi si ons of

t he Set t l ement Agr eement and t he Fi r st Decl ar at i on, and woul d r el y

sol el y on t he f act ual mat t er s addr essed i n Wank s decl ar at i on:

THE COURT: The f act t hat t her e was a st i pul at i on t hati t woul d not be di schar geabl e i n bankrupt cy i s t o beexci sed out of t he decl ar at i on and i s cannot beconsi der ed and i s not t he l aw. Ther ef or e, I ve onl yconsi der ed act ual st at ement s and whet her or not t her e sa reasonabl e di sput ed f act s as t o t he st atement s made.

Hr g Tr . 19: 4- 9, December 19, 2012. However , i n t hi s st at ement ,t he cour t i ncor r ect l y descr i bed t he pr ovenance of t he Fi r st

Decl ar at i on. The Fi r st Decl ar at i on was never par t of t he

st i pul at ed j udgment . The Fi r st Decl ar at i on was at t ached t o t he

Set t l ement Agr eement , and seal ed by t he part i es and deposi t ed wi t h

an escr ow company, onl y t o be opened i f Wank f i l ed a bankr upt cy

pet i t i on, t hen t o be submi t t ed t o t he bankrupt cy cour t . As

di scussed above, i n our vi ew, t he Fi r st Decl ar at i on does not f al l

under t he except i on t o pr ohi bi t i on of wai ver s ar t i cul at ed i n I n r e

Col e, wher e a cour t may sever f r om a st i pul at i on f or j udgment a

bankrupt cydef eat i ng cl ause, whi l e gi vi ng ef f ect t o t he ot her

f act s i ncl uded i n t he st i pul at ed j udgment . 226 B. R. at 655. By

i t s t er ms, t he Fi r st Decl ar at i on was a st andal one document t hat

was seal ed by the part i es and onl y t o be used i n t he event of a

bankrupt cy f i l i ng t o pr ovi de gr ounds f or an except i on t o

di schar ge.

Al l t hi ngs consi der ed, we t hi nk t he Fi r st Decl ar at i on f al l s

wi t hi n t he publ i c pol i cy pr ohi bi t i on on wai ver s of bankrupt cy


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2818 I n Yeager v. Bowl i n, 693 F. 3d 1076, 1081 ( 9t h Ci r . 2012) ,


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pr ot ect i on ar t i cul at ed i n I n r e Huang. The bankrupt cy cour t ,

under t hese uni que ci r cumst ances, shoul d not have r el i ed

excl usi vel y on Wank s st at ement s i n t he Fi r st Decl ar at i on i n

awardi ng t he Appel l ees a summary j udgment .

II.

The bankruptcy court made credibility determinations,weighed evidence and drew inferences in favor of themoving party, which are inappropriate in considering amotion for summary judgment.

Even assumi ng t he bankr upt cy cour t s r el i ance upon t he Fi r st

Decl arat i on i n gr ant i ng summary j udgment t o t he Appel l ees di d not

t r ansgr ess t he publ i c pol i cy agai nst enf or ci ng pr epet i t i onagr eement s t o wai ve bankrupt cy pr ot ect i ons, t he cour t s deci si on

must nonet hel ess be vacat ed.

I t i s a basi c t enet t hat [ c]r edi bi l i t y det er mi nat i ons, t he

wei ghi ng of t he evi dence, and the dr awi ng of l egi t i mat e i nf er ences

f r om t he f act s ar e i nappr opr i at e at t he summar y j udgment st age.

Oswal t v. Resol ut e I ndus. , 642 F. 3d 856, 861 ( 9t h Ci r . 2011)

( quot i ng Ander son v. Li ber t y Lobby, I nc. , 477 U. S. 242, 255

( 1986) ) . Cont r ar y t o t hi s admoni t i on, an anal ysi s of t he

bankrupt cy cour t s r ul i ng demonst r at es t hat i t necessar i l y made

cr edi bi l i t y f i ndi ngs, wei ghed Wank s var i ous swor n st at ement s, and

dr ew i nf er ences i n f avor of t he Appel l ees i n gr ant i ng t hem a

summar y j udgment .

I t i s i mpor t ant t o not e t hat t he bankrupt cy cour t di d not

st r i ke t he Second Decl ar at i on as a sham, nor ot her wi se di scount

i t as pat ent l y unr el i abl e. 18 I ndeed, we agr ee t hat t he Second


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18( . . . cont i nued)t he Ni nt h Ci r cui t exami ned t he sham af f i davi t r ul e, whi ch al l owsa t r i al cour t t o make a cr edi bi l i t y det er mi nat i on on summar yj udgment by r ej ect i ng a second swor n st at ement f r om a wi t ness t hatconf l i ct s wi t h hi s or her ear l i er deposi t i on t est i mony. Ther at i onal e f or t he r ul e i s t hat deposi t i ons ar e adver sar i al i nnat ur e wher e the wi t ness i s subj ect t o exami nat i on and cr oss-exami nat i on and, t heref ore, deposi t i on t est i mony may be deemedi nher ent l y mor e r el i abl e t han sel f - ser vi ng af f i davi t s. I d. ;Dar nel l v. Tar get St or es, 16 F. 3d 174, 179 ( 7t h Ci r . 1994) .However , t he Yeager cour t not ed t hat t he sham af f i davi t r ul e mustbe appl i ed wi t h caut i on, because eval uat i ng t wo conf l i ct i ngst at ement s f r om t he same par t y necessar i l y i nvol ves det er mi ni ng

cr edi bi l i t y, and the [ t r i al ] cour t i s not t o make cr edi bi l i t ydet er mi nat i ons when maki ng or denyi ng summar y j udgment . Yeager ,693 F. 3d at 1080. Of cour se, t hi s appeal pr esent s a conf l i ctbet ween Wank s t wo decl ar at i ons, not a deposi t i on, so t he shamaf f i davi t except i on t o t he pr ohi bi t i on on credi bi l i t ydet ermi nat i ons i n summary j udgment does not appl y.

19 Agai n, t hese were not st i pul at ed f act s; t hey wer e Wank sst at ement s i n t he Fi r st Decl ar at i on.

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Decl ar at i on was pr oper l y bef or e t he cour t f or i t s consi der at i on i n

r esol vi ng t he summary j udgment mot i on. We di sagree wi t h t he

cour t , however , t hat i t was f r ee t o cr edi t t he cont ent s of t he

Fi r st Decl ar at i on when t he Second Decl ar at i on cl ear l y cal l ed t hose

st at ement s i nt o quest i on.

I n i t s Tent at i ve Rul i ng, t he bankr upt cy cour t expl ai ned,

I n t he [ Fi r st ] Decl ar at i on, [ Wank] admi t s t hat he agr eedt o act as a pr i mar y i nvest or t o i nvest [ Appel l ees ]moni es, t hat t he f unds wer e wi r ed t o t he EI S, t hat t heEI S was a f r aud, t hat [ Wank] advi sed [ t he Appel l ees]t hat EI S woul d have an exi t buyer i n pl ace, but t hatt here was no such exi t buyer , t hat he mader epr esent at i ons t o Pl ai nt i f f s whi ch wer e f al se, t oi nduce t hem t o pl ace t hei r f unds i n hi s t r ust account

and t o per mi t hi m t o act as [ Appel l ees ] pr i mar yi nvest or . These st i pul at ed f act s[ 19] ar e pr obat i ve andcr edi bl e evi dence of f r aud and conver si on.

Tent at i ve Rul i ng at 6.

Then, at t he hear i ng, t he bankrupt cy cour t cont i nued,

The st at ement s t hat ar e di sput ed or t he addi t i onalst atement s [ i n t he Second Decl ar at i on] do not di sput et he key st atement s made. They si mpl y t r y t o expl ai n


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t hemaway or r at i onal i ze t hem. But t he st atement s t hatgo t o the f act t hat f al se st at ement s wer e made, t heywere made, accor di ng t o paragr aph f our , t o i nduce the[ Appel l ees] t o pl ace f unds i n Mr . Wank s account , andt hat t her e were communi cat i ons made, and t hat t her e wasan i nt ent f or t hem t o rel y on t hose st at ement s becauset hey were made to i nduce t hem, and t he f act t hat t herewas f r aud r eal l y have not been di sput ed wi t h a car ef ulr eadi ng of t he subsequent decl ar at i ons. They r e sort ofexpl ai ned f ur t her , and they r e suppl ement ed, and t hey r er at i onal i zed, but t hey r e j ust not mat er i al l y di sput ed.

Hr g Tr . 19: 1820: 7.

As can be seen, i n eval uat i ng Wank s st at ement s i n t he Fi r st

Decl ar at i on, t he bankrupt cy cour t made a cr edi bi l i t y

det er mi nat i on. I ndeed, t he bankrupt cy cour t descr i bes Wank s

st at ement s i n t he Fi r st Decl ar at i on as const i t ut i ng credi bl eevi dence. To measure t he val ue of t he st at ement s i n t he Fi r st

Decl ar at i on agai nst Wank s st at ement s i n t he Second Decl ar at i on

r equi r ed t he bankrupt cy cour t t o assi gn t hem wei ght . Thi s cannot

be done i n t he context of summary j udgment . Domi nguez- Curr y v.

Nevada Transp. Dep t , 424 F. 3d 1027, 1036 ( 9t h Ci r . 2005) ( At

summary j udgment , t he j udge does not wei gh di sput ed evi dence wi t h

r espect t o a di sput ed mat er i al f act . Nor does t he j udge make

cr edi bi l i t y det er mi nat i ons wi t h r espect t o st at ement s made i n

af f i davi t s, answer s t o i nt er r ogat or i es, admi ssi ons, or

deposi t i ons. ) ; SEC v. M&A W. , I nc. , 538 F. 3d 1043, 1054- 55 ( 9t h

Ci r . 2008) ( Thi s Cour t , and ot her s, have l ong r ecogni zed t hat

summar y j udgment i s si ngul ar l y i nappr opr i at e wher e cr edi bi l i t y i s

at i ssue. Onl y af t er an evi dent i ar y hear i ng or a f ul l t r i al can

t hese credi bi l i t y i ssues be appr opr i at el y r esol ved . . . . The

di st r i ct cour t s assessment of [ ] credi bi l i t y may ul t i mat el y be

cor r ect , but such an assessment may onl y be made af t er a f ul l

evi dent i ary hear i ng, and i s i nappr opr i ate at t he summary j udgment


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st age. ) ( ci t at i ons and i nt er nal quot at i on mar ks omi t t ed) . Whi l e

t he bankr upt cy cour t character i zed Wank s st atement s i n t he Second

Decl ar at i on as expl ai ni ng away, suppl ement i ng or r at i onal i zi ng t he

st at ement s he made i n t he Fi r st Decl ar at i on, i n doi ng so, t he

cour t was necessar i l y requi r ed t o wei gh t he val ue of t hose l at er

st at ement s, t o cr edi t some of t hem, and t o r ej ect ot her s. Thi s

pr ocess was not appr opr i at e wi t hout a t r i al .

Mor eover , we di sagr ee wi t h the bankrupt cy cour t s

char act er i zat i on of t he st at ement s i n Wank s Second Decl ar at i on as

mer el y expl ai ni ng or r at i onal i zi ng t he stat ement s i n t he Fi r st

Decl ar at i on. As t o key el ement s of except i on t o di schar ge under 523( a) ( 2) ( A) , t he Second Decl ar at i on f l at l y cont r adi ct s, not

expl ai ns or r at i onal i zes, t he st at ement s i n t he Fi r st Decl ar at i on.

For exampl e, t he Appel l ees were requi r ed t o pr ove t hat Wank

made r epr esent at i ons t o t hem. I n t he Second Decl arat i on, Wank

f l at l y deni es t hat he made any repr esent at i ons t o t he Appel l ees.

Second Decl arat i on at 4. I nst ead, Wank r emi nds t he cour t t hat

hi s r epr esent at i ons were made vi a the EI S Agr eement s, document s

whi ch were not submi t t ed t o t he bankr upt cy cour t . Wank s deni al

t hat he made st at ement s t o t he Appel l ees t her ef or e rai ses an

i ssue of mat er i al f act suf f i c i ent t o r equi r e a t r i al .

I n addi t i on, nei t her of Wank s decl ar at i ons cont ai n an

admi ss i on t hat he knew t hat t he repr esent at i ons he made t o t he

Appel l ees were f al se when he made them, anot her el ement f or a

523( a) ( 2) ( A) f r aud except i on t o di schar ge. Wank acknowl edges he

knew t hat t he Appel l ees f unds wer e pot ent i al l y at r i sk at t he

t i me he si gned t he EI S Agr eement s and t r ansf err ed t he f unds.

However , t he bankr upt cy cour t t hen i nf err ed knowl edge of t he


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f al si t y of hi s r epr esent at i ons at t he t i me t hey wer e made f r om

Wank s admi ssi on i n t he Second Decl ar at i on t hat , at a l at er dat e,

he came t o know t he r epr esent at i ons were f al se. Dr awi ng such an

i nf erence agai nst Wank and i n f avor of t he Appel l ees was

i nappr opr i at e i n thi s cont ext of a summar y j udgment mot i on.

The Appel l ees wer e al so r equi r ed t o prove t hat Wank i ntended

t o decei ve Appel l ees. To sat i sf y t hi s requi r ement , t he bankrupt cy

cour t r el i ed on Wank s st at ement i n t he Fi r st Decl ar at i on, but

appar ent l y di scount ed hi s st atement i n t he Second Decl ar at i on t hat

not onl y di d he not i nt end t o decei ve t he Appel l ees by

f aci l i t at i ng t hei r i nvest ment s, t hat he i n f act i nvest ed $25, 000of hi s own money i n t he vent ur e. Agai n, t he conf l i ct i ng

st at ement s r ai se a t r i al i ssue of mat er i al f act as t o Wank s

i nt ent i on t o decei ve.

I n sum, whi l e t her e wer e obvi ousl y aspect s of Wank s Fi r st

Decl ar at i on t hat t ended t o est abl i sh t hat he i nt ent i onal l y i nduced

t he Appel l ees t o i nvest i n a r i sky scheme, whether he commi t t ed

t he sor t of knowi ng f r aud cont empl at ed i n 523( a) ( 2) ( A) was

cal l ed i nt o l egi t i mat e quest i on by t he cont ent s of t he Second

Decl arat i on. Si nce Wank s t wo compet i ng st atement s were t he onl y

f act ual r ecor d t he bankrupt cy cour t coul d consi der , i n gr ant i ng a

summary j udgment t o t he Appel l ees, i t assi gned wei ght t o hi s

var i ous admi ss i ons and st atement s, and dr ew i nf erences agai nst

Wank f r om t hose st at ement s. Thi s was er r or .

/ /

/ /

/ /

/ /


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III.

The Appellees did not establish that they justifiablyrelied on on Wanks representations.

Even i f t he Fi r st Decl ar at i on coul d be used agai nst Wank, and

even i f t he bankrupt cy cour t di d not i nappr opr i at el y wei ght t he

evi dence i n t he r ecor d, t her e r emai ned a gl ar i ng hol e i n t he

Appel l ees pr oof t hat compel s us t o vacat e the summary j udgment .

I n consi der i ng a r equest f or an except i on t o di schar ge under

523( a) ( 2) ( A) ,

[ A] credi t or must pr ove j ust i f i abl e r el i ance upon t her epr esent at i ons of t he debt or . I n det er mi ni ng t hat

i ssue, t he cour t must l ook t o al l of t he ci r cumst ancessur r oundi ng t he par t i cul ar t r ansact i on, and mustpar t i cul ar l y consi der t he subj ect i ve ef f ect of t hoseci r cumst ances upon t he cr edi t or .

I n r e Ki r sh, 973 F. 2d 1454, 1460 ( 9t h Ci r . 1992) ; see al so

Ci t i bank (S. D. ) N. A. v. Eashai ( I n r e Eashai ) , 87 F. 3d 1082, 1090

( 9t h Ci r . 1996) ( not i ng t hat whet her a credi t or s r el i ance on a

debt or s r epr esent at i ons i s j ust i f i ed r equi r es t he appl i cat i on of

a subj ect i ve st andar d. ) As t he Supr eme Cour t expl ai ned t hi s

st andar d, [ j ] ust i f i cat i on i s a mat t er of t he qual i t i es and

char acter i st i cs of t he par t i cul ar pl ai nt i f f , and t he ci r cumst ances

of t he par t i cul ar case . . . . Fi el d v. Mans, 516 U. S. 59, 71

( 1995) , ci t i ng t he Rest atement ( Second) of Tor t s 545A, comment

b. ( 1976) .

I n t hi s case, t o be ent i t l ed t o an except i on f r om di schar ge

under 523( a) ( 2) ( A) , each of t he Appel l ees must show t hat t hey,

i ndi vi dual l y, wer e j ust i f i ed i n r el yi ng on any f al se

r epr esent at i ons made t o t hem by Wank. I n hi s ar gument s t o t he

bankrupt cy cour t t hat t her e wer e di sput ed mat er i al f act s r egar di ng


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whet her t he Appel l ees each j ust i f i abl y r el i ed on hi s al l eged f al se

st at ement s, Wank r epeat edl y i nsi st ed t hat [ Appel l ees] had al r eady

made up t hei r mi nds t o i nvest i n t he EI S, and, t her ef or e di d not

r el y on hi s st at ement s. Second Decl ar at i on at 9. I nst ead of

r el yi ng upon hi s st atement s, Wank ar gued t hat t he Appel l ees had

each ar r i ved at t hei r deci si on t o i nvest af t er speaki ng wi t h

Nei di ch, and af t er conduct i ng t hei r own chosen due di l i gence. I d.

Wank s uncont r adi ct ed st at ement s about t he Appel l ees l ack of

r el i ance depi ct a pl ausi bl e scenar i o whi ch f i nds other suppor t i n

t he par t i es submi ssi ons. For exampl e, t he Appel l ees at t ached as

an exhi bi t t o t hei r Mot i on f or Summar y J udgment a cer t i f i ed copyof t he Fi r st Amended Compl ai nt t hey f i l ed i n t he St at e Cour t

Act i on. Al t hough t he Appel l ees never di scussed i n t he bankrupt cy

cour t whet her t hey j ust i f i abl y r el i ed ( or r el i ed at al l , f or t hat

mat t er ) on Wank s r epr esent at i ons, t hey al l eged i n t he st at e cour t

compl ai nt t hat ( 1) Nei di ch made t he f i r st cont act wi t h Si di qqi by

t el ephone and ext ol l ed t he vi r t ues of t he [ EI S] . 24; ( 2)

Nei di ch and Romer had a meet i ng wi t h Fer guson i n J une of 2004 i n

whi ch t hey ext ol l ed t he vi r t ues of t he [ EI S] , whi ch Def endant s

Nei di ch and Romer cl ai med, among ot her t hi ngs, pai d i t s i nvest or s

8% per mont h, whi ch pur por t ed t o yi el d r et ur ns of 155% per year ,

or wor ds t o t hat ef f ect . 25; ( 3) i n Mar ch 2004, Nei di ch and

Romer sent Gordon an emai l or emai l s i n whi ch they ext ol l ed t he

vi r t ues of t he [ EI S] . They al so made t he same r epr esent at i ons

r egar di ng an 8% mont hl y yi el d and 155% annual yi el d on t he

i nvest ment . 26( a) ; ( 4) I n ear l y 2004, Nei di ch sol i ci t ed Mr .

Tsoupaki s s i nvest ment i n t he [ EI S] , whi ch he cl ai med pai d

ext r aor di nar i l y hi gh r at es of r et ur n. 27; and ( 5) i n Sept ember


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20 At or al ar gument bef or e t he Panel , counsel f or t heAppel l ees was i nvi t ed t o expl ai n whether t he Appel l ees may haver el i ed on t he r epr esent at i ons of Nei di ch and Romer , whi ch t heyent er ed i nt o the bankrupt cy cour t s r ecor d, r at her t han t heal l eged r epr esent at i ons of Wank. Counsel si mpl y st at ed, Theyr el i ed on Wank.

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2004, Nei di ch cont act ed A&S I nvest ment and extol l ed the vi r t ues

of t he [ EI S] . 28. 20 Col l ecti vel y, t hese al l egat i ons i n t he

Appel l ees st at e cour t compl ai nt t end t o show t hat t hey each wer e

f i r st cont act ed by ei t her Nei di ch or Romer , not Wank, and t hat

Nei di ch and/ or Rohmer made gl owi ng and unf ounded r epr esentat i ons

t o t hem concer ni ng t he EI S. I n shor t , Appel l ees own pl eadi ng i n

st at e cour t pl ausi bl y suppor t Wank s cont ent i on t hat : Pl ai nt i f f s

had al r eady made up t hei r mi nds t o i nvest i n t he EI S, and,

t her ef or e di d not r el y on hi s st at ement s. And as Wank observes,

t he Appel l ees have submi t t ed no decl arat i ons, nor any document ary

evi dence ( such as t he EI S Agr eement s t hat t hey admi t t hey si gnedi n connect i on wi t h t hei r i nvest ment s) t o show t hei r j ust i f i abl e

r el i ance on hi s r epr esent at i ons.

Mor eover , even i f t hey di d act ual l y rel y upon Wank s

st at ement s i n i nvest i ng i n t he EI S, each of t he Appel l ees must

est abl i sh t hat i t was j ust i f i abl e f or t hem t o do so, based upon

t hei r backgr ound, t r ai ni ng and exper i ence as i nvest or s. The

r ecor d cont ai ns no f act s t o demonst r at e t hat , assumi ng t hey i n

f act t ook hi s wor d, t hey l acked ot her r easons not t o appr eci at e

t he r i sks associ at ed wi t h t he cur r ency i nvest ment . As Wank poi nt s

out , whet her t he Appel l ees coul d show j ust i f i abl e r el i ance was i n

doubt because at l east some of t hem wer e ar guabl y sophi st i cat ed,

educated i nvest ors: a mort gage banker , a CPA, an i nsurance br oker ,

a Por sche deal er , and a medi cal doct or .


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At best , whet her t he Appel l ees each j ust i f i abl y rel i ed on

Wank s r epr esent at i ons was di sput ed; at wor st , t he recor d cont ai ns

no evi dence t o show such r el i ance. Because of t hi s, t he

bankr upt cy cour t er r ed by det ermi ni ng t hat t he debt Wank owed t o

Appel l ees was except ed f r om di schar ge under 523( a) ( 2) ( A) .

CONCLUSION

I n gr ant i ng summary j udgment t o t he Appel l ees, t he bankr upt cy

cour t shoul d not have r el i ed sol el y upon a decl ar at i on expr essl y

desi gned t o def eat Wank s abi l i t y t o obt ai n ef f ect i ve r el i ef under

t he bankr upt cy l aws. I n l i ght of a cont r adi ct or y decl ar at i on,

t he bankr upt cy cour t shoul d not have wei ghed t he val ue of hi svar i ous st at ement s, det er mi ned Wank s cr edi bi l i t y, or dr awn

i nf er ences i n f avor of t he Appel l ees. Fi nal l y, t her e was not hi ng

i n t he r ecor d t o show t hat t he Appel l ees j ust i f i abl y rel i ed upon

any of Wank s al l eged f al se r epr esent at i ons i n maki ng t hei r

i nvest ment s. Because genui ne i ssues of mat er i al f act r emai n

r equi r i ng a t r i al , we VACATE t he bankr upt cy cour t s summary

j udgment and REMAND t hi s mat t er f or f ur t her proceedi ngs.

Bal l i nger J r . , Bankr upt cy J udge, concur r i ng:

I agr ee that t he bankrupt cy cour t s r ul i ng i n t hi s case must

be rever sed, but not f or t he reasons announced by t he maj or i t y.

Rever sal i s war r ant ed onl y because t he bankrupt cy cour t f ai l ed t o

j ust i f y i t s deci si on t o di sr egar d Wank s swor n di savowal of t he

Fi r st Decl ar at i on and, t her ef or e, i mpr oper l y wei ghed t he evi dence

when consi der i ng pl ai nt i f f s r equest f or summar y j udgment . Had


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1 The Second Decl arat i on i s t en pages l ong and cont ai nsdet ai l s of Wank s ver si on of t he ci r cumst ances sur r oundi ng cr eat i onof each par agr aph of t he Fi r st Decl ar at i on.

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t he bankr upt cy cour t f ound Wank s Second Decl ar at i on the sel f -

servi ng pr oduct of a shammer , I woul d vot e t o af f i r m. I

r espect f ul l y di sagr ee wi t h t he panel t hat t he Fi r st Decl ar at i on,

coupl ed wi t h undi sput ed mat er i al f act s, di d not est abl i sh al l t he

el ement s r equi si t e t o gr ant i ng r el i ef under Bankrupt cy Code

sect i on 523( a) ( 2) ( A) .

A bankr upt cy cour t has t he power t o di sr egard sworn avowal s

meant t o def eat summar y j udgment i f i t f i nds t hem t o be concl usor -

y, sel f - ser vi ng or t o const i t ut e a sham. See F. T. C. v. Pub.

Cl ear i ng House, I nc. , 104 F. 3d 1168, 1171 ( 9t h Ci r . 1997)

( concl usor y and sel f - ser vi ng af f i davi t s l acki ng det ai l ed f act s andany suppor t i ng evi dence ar e i nsuf f i ci ent t o cr eat e a genui ne i ssue

of mat er i al f act ) ; Kennedy v. Al l i ed Mut . I ns. Co. , 952 F. 2d 262,

267 ( 9t h Ci r . 1991) ( t o di sr egar d an af f i davi t as one conj ur ed t o

avoi d summary j udgment , t he di st r i ct cour t must make a f actual

f i ndi ng t hat t he cont r adi ct i on was a sham) .

I n t hi s case, Wank s Second Decl ar at i on i s cl ear l y sel f -

ser vi ng, but not concl usor y. 1 I nst ead of decl ar i ng Wank s more

r ecent decl ar at i on a sham not t o be consi der ed, t he bankrupt cy

cour t r evi ewed t he Second Decl ar at i on and essent i al l y bal anced i t s

credi bi l i t y agai nst t he admi t t ed f act s cont ai ned i n t he Fi r st

Decl ar at i on. St at ement s i n t he Second Decl ar at i on cont r adi ct ed

f act s essent i al t o pl ai nt i f f s case and creat ed genui ne di sput es

r egar di ng mat er i al i ssues. These di sput ed i ssues pr ecl ude gr ant i ng

summary di sposi t i on and compel us t o r everse t he bankr upt cy


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cour t s or der . But , I r espectf ul l y di sagr ee t hat t hi s r esul t

f l ows f r om any i nher ent unr el i abi l i t y wi t h Wank s i ni t i al swor n

admi ssi ons or a publ i c pol i cy concer n. I bel i eve t her e was

evi dence at t he t r i al cour t suppor t i ng a f i ndi ng t hat Wank s debt

t o pl ai nt i f f s shoul d be except ed f r om hi s bankrupt cy di schar ge.

Sect i on 523( a) ( 2) ( A) except s f r om di schar ge any debt f or money,

pr oper t y or credi t obt ai ned by f al se pr et enses, f al se

r epr esent at i ons or act ual f r aud. To obt ai n r el i ef a credi t or must

est abl i sh f i ve el ement s: 1) t he debt or made a r epr esent at i on; 2)

t he debt or knew at t he t i me t he r epr esent at i on was f al se; 3) t he

r epr esent at i on was made wi t h t he i nt ent and pur pose of decei vi ngt he credi t or ; 4) t he credi t or j ust i f i abl y r el i ed on t he

r epr esent at i on; and 5) t he cr edi t or was damaged as a pr oxi mate

cause of t he r epr esent at i on. Ghomeshi v. Sabban ( I n r e Sabban) ,

600 F. 3d 1219, 1222 (9t h Ci r . 2010) ; Tur t l e Rock Meadows

Homeowner s Ass n v. Sl yman ( I n r e Sl yman) , 234 F. 3d 1081, 1085

( 9t h Ci r . 2000) .

I n t hi s case, t he l ast el ement i s not di sput ed; Wank

acknowl edges t hat pl ai nt i f f s suf f er ed subst ant i al damage as a

r esul t of t he scheme i n whi ch he encour aged t hem t o i nvest . And

t he Fi r st Decl ar at i on, st andi ng al one, pr ovi des suf f i ci ent

evi dence that a cour t coul d concl ude sat i sf i es a number of t he

ot her el ement s of sect i on 523( a) ( 2) ( A) . The maj or i t y di sagr ees

and f i nds t he Fi r st Decl ar at i on i nher ent l y unr el i abl e. I t al so

concl udes t he bankr upt cy cour t err ed because t he r ecor d shows

pl ai nt i f f s di d not est abl i sh j ust i f i abl e r el i ance. Wi t h r espect

t o t he r el i abi l i t y of admi ssi ons f ound i n t he Fi r st Decl ar at i on,

t he maj or i t y di scusses t he l ong r ecogni zed publ i c pol i cy


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2 Ther e i s no di sput e t hat t he Fi r st Decl ar at i on cont ai ns ani mpr oper bankrupt cypr oof i ng pr ovi si on. The bankrupt cy cour tpr oper l y hel d t hat t hi s t er m was voi d and woul d not be consi der ed.But , case l aw cl ear l y pr ovi des t hat t he bankrupt cy cour t canconsi der under l yi ng f act s cont ai ned i n mat er i al s t hat i ncl ude abankrupt cy def eat i ng cl ause. Hayhoe v. Col e ( I n r e Col e) , 226B. R. 647, 651 ( 9t h Ci r . BAP 1998) , ci t i ng Kl i ngman v. Levi nson,831 F. 2d 1292, 1296 n. 3 ( 7t h Ci r . 1987) . The maj or i t yacknowl edged, ci t i ng Col e, t hat t he Bankrupt cy Appel l at e Panel hasdr awn a di st i nct i on bet ween t he publ i c pol i cy agai nst de f act obankrupt cy di schar ge wai ver s and det er mi nat i ons or st i pul at i onsr egar di ng f act s t hat may be r el evant t o det er mi ni ng i f a debt i sdi schar geabl e. I n Col e, t he bankrupt cy cour t i gnor ed a bankrupt cydef eat i ng cl ause cont ai ned i n a st at e cour t j udgment , butconsi der ed st i pul at ed f act s cont ai ned t her ei n t o det er mi ne i fcol l at er al est oppel appl i ed. The maj or i t y poi nt s out t hat t her eare no st i pul at ed f act s and j udgment i n t hi s case. But , Col e andLevi nson do not r equi r e t hat t he under l yi ng f act s be st i pul at edt o, nor do those cases r equi r e the f act s be t aken f r om a j udgment .Her e, we have admi t t ed f act s i n a decl ar at i on si gned under penal t yof per j ur y. Whet her t he f act s wer e st i pul at ed t o or ar e a si ngl epart y admi ss i on, and whether t hey were cont ai ned i n a j udgment ora decl ar at i on, shoul d make no di f f er ence t o a bankr upt cy cour t

t asked wi t h det er mi ni ng i f t hose f act s suppor t a cl ai m of non-di schar geabi l i t y f or pur poses of summar y j udgment . The maj or i t y sconcl usi on t hat t he publ i c pol i cy agai nst bankrupt cy def eat i ngcl auses cr eat es a gener al skept i ci sm of t he admi t t ed f act s goest oo f ar . Col e and Levi nson si mpl y al l ow t he cour t t o di sr egar dt he i mpr oper l anguage and exami ne, wi t hout a pr esumpt i on ofsuspi ci on, t he under l yi ng f act s.

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pr ohi bi t i on agai nst pr epet i t i on wai ver s of Bankrupt cy Code

di schar ge ri ght s and f i nds t hat t hi s pol i cy di ct at es t hat Wank s

admi ssi ons i n t he Fi r st Decl ar at i on be vi ewed wi t h gr eat

skept i ci sm.

I di sagr ee t hat t hi s pol i cy consi der at i on i s rel evant t o t hi s

case. 2 As t he panel not es, t he bankrupt cy j udge cor r ect l y rul ed

t hat she woul d not consi der t he bankrupt cy def eat i ng l anguage

f ound bot h i n t he Fi r st Decl ar at i on and t he agr eement set t l i ng t he

par t i es st at e cour t case. The quest i on her e i s whet her t he

bankrupt cy j udge i ncor r ect l y f ound t hat swor n admi ssi ons cont ai ned

i n t he Fi r st ( and di savowed i n t he Second) Decl ar at i on est abl i shed


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el ement s j ust i f yi ng r el i ef under sect i on 523( a) ( 2) ( A) . Rever sal

i s r equi r ed not because t he bankrupt cy j udge coul d not gi ve

cr edence to t he Fi r st Decl ar at i on s admi ssi ons, but r at her because

t he recor d l acks a f act ual f i ndi ng t hat t he j udge deemed t he

f act ual cont r adi ct i ons i n t he Second Decl ar at i on unwor t hy of

consi derat i on. Had t he bankr upt cy cour t f ound t he Second

Decl arat i on a sham, no publ i c pol i cy concern woul d have pr event ed

i t f r om hol di ng t hat t he admi ssi ons cont ai ned i n t he Fi r st

Decl ar at i on concl usi vel y est abl i shed t he f ol l owi ng t hr ee el ement s

r equi r ed f or r el i ef under sect i on 523( a) ( 2) ( A) :

!

That Wank made f al se r epr esent at i ons t o pl ai nt i f f s t oconvi nce t hem t o t r ansf er hundr eds of t housands of dol l ar s t ohi m;

! That Wank was awar e t hat most , i f not al l , of t her el evant r epr esent at i ons were f al se when he made t hem;and

! That t he f al se r epr esent at i ons const i t ut ed decei t .Wank made t hemt o cr eat e f al se i mpr essi ons i npl ai nt i f f s mi nds ( e. g. t hat Wank had exper t i se i n t hef i nanci al scheme t hey wer e t o i nvest i n and t hat t hei rmoney woul d never be put at r i sk of l oss) .

The maj or i t y al so r est s i t s deci si on on t he bel i ef t hat

pl ai nt i f f s f ai l ed t o establ i sh t he j ust i f i abl e r el i ance needed

t o obt ai n a j udgment because t he Second Decl arat i on cont ai ns

Wank s assert i ons t hat pl ai nt i f f s had al r eady deci ded t o

i nvest i n t he EI S cur r ency specul at i on scheme pr i or t o meet i ng

wi t h hi m. Thi s concl usi on suppor t s t he vi ew t hat i f t he

bankr upt cy j udge had memor i al i zed her bel i ef t hat t he Second

Decl ar at i on was cont r i ved and bogus, t he deci si on at t he t r i al

cour t woul d have t o be af f i r med. More i mport ant are Wank s

sworn acknowl edgment s i

In re: Jordan Wank, 9th Cir. BAP (2014)

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Transcript of In re: Jordan Wank, 9th Cir. BAP (2014)