                                                              FILED
                                                              MAY 15 2015
 1                         NOT FOR PUBLICATION
                                                         SUSAN M. SPRAUL, CLERK
 2                                                         U.S. BKCY. APP. PANEL
                                                           OF THE NINTH CIRCUIT

 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )      BAP No.    NV-14-1358-KuDJu
                                   )
 6   MARK J. ESCOTO,               )      Bk. No.    13-10096
                                   )
 7                   Debtor.       )      Adv. No.   13-01058
     ______________________________)
 8                                 )
                                   )
 9   ROBERT G. HILLSMAN,           )
                                   )
10                   Appellant,    )
                                   )
11   v.                            )      MEMORANDUM*
                                   )
12   MARK J. ESCOTO,               )
                                   )
13                   Appellee.     )
     ______________________________)
14
                     Argued and Submitted on March 19, 2015
15                            at Las Vegas, Nevada
16                            Filed – May 15, 2015
17            Appeal from the United States Bankruptcy Court
                        for the District of Nevada
18
          Honorable Mike K. Nakagawa, Bankruptcy Judge, Presiding
19
20   Appearances:     Candace Carlyon of the Carlyon Law Group, PLLC
                      argued for appellant Robert G. Hillsman; Samuel A.
21                    Schwartz of The Schwartz Law Firm argued for
                      appellee Mark J. Escoto.
22
23   Before: KURTZ, DUNN and JURY, Bankruptcy Judges.
24
25
26        *
            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.
28   See 9th Cir. BAP Rule 8024-1.
 1                             INTRODUCTION
 2        The plaintiff, Dr. Robert Hillsman, commenced a
 3   non-dischargeability action against the defendant, Dr. Mark J.
 4   Escoto, in Escoto’s chapter 71 bankruptcy case. Hillsman alleged
 5   that Escoto fraudulently concealed a material fact and thereby
 6   induced Hillsman to extend the term of an existing loan. Citing
 7   Stevens v. Nw. Nat’l Ins. Co. (In re Siriani), 967 F.2d 302 (9th
 8   Cir. 1992), the court found that, while Escoto committed the
 9   alleged fraudulent act, Hillsman failed to demonstrate that his
10   damages were a proximate result of Escoto’s concealment.
11        On appeal, Hillsman contends that the bankruptcy court erred
12   in its proximate cause analysis. First, Hillsman submits that the
13   court applied an incorrect legal standard by requiring him to
14   show that collection remedies existed at the time he agreed to
15   extend the loan and that the value of those remedies dissipated
16   during the extension. Further, Hillsman challenges the bankruptcy
17   court’s finding that he failed to satisfy te proximate cause
18   standard articulated by the court.
19        The bankruptcy court did not consider whether all of the
20   elements for nondischargeability under § 523(a)(2)(A) existed at
21   the time Escoto’s debt to Hillsman first became due. At that
22   time, Escoto effectively may have obtained an extension of credit
23   by failing to disclose a material fact. Accordingly, we VACATE
24   and REMAND, so the bankruptcy court can make additional or
25
26        1
            Unless specified otherwise, all chapter and section
27   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
     all "Rule" references are to the Federal Rules of Bankruptcy
28   Procedure, Rules 1001-9037.

                                     2
 1   amended findings as of that time.
 2                                 FACTS
 3        In July of 2005, Escoto sued the contractor and certain
 4   subcontractors that built his home. He alleged injury to his
 5   property and family resulting from mold caused by negligent
 6   construction. While his lawsuit was pending, Escoto asked
 7   Hillsman, a friend and patient, for a loan to fund the
 8   litigation.
 9        In March of 2008, Hillsman lent Escoto $200,000. The debt is
10   evidenced by a demand promissory note bearing interest at the
11   rate of seven percent (7%) per annum, and providing for interest
12   only payments during the term of the note. The note was due on
13   demand, on settlement of Escoto’s state court litigation, or on
14   March 11, 2011. Finally, the note referenced Escoto granting
15   security interests in his dental practice, office building, and
16   other personal property but Hillsman never took steps to perfect
17   the security interests.
18        In July of 2008, Escoto settled with all defendants in the
19   construction defect litigation except for the plumbing
20   subcontractor. This $350,000 settlement was approved by the state
21   court overseeing the litigation. In October of 2009, Escoto
22   settled with the remaining defendant for an additional $350,000.
23   The state court approved that settlement in November of 2009.
24   Despite numerous and extended interactions between the friends,
25   Escoto did not tell Hillsman about either settlement. According
26   to the pretrial order that was entered in this adversary
27   proceeding, Escoto’s debt to Hillsman was secured by the
28   settlement proceeds.

                                     3
 1        During the summer of 2009, Escoto divorced Shirley Ann
 2   Escoto. Ms. Escoto testified that the state court set aside the
 3   decree because Escoto made fraudulent representations during the
 4   case. Ms. Escoto also testified that some time after the entry of
 5   the divorce decree, Escoto withdrew $370,000 from their joint
 6   bank account. Hillsman failed to produce additional information
 7   regarding the source, disposition and whereabouts of these funds.
 8   The Escotos are now divorced.
 9        The promissory note evidencing Escoto’s debt to Hillsman had
10   a maturity date of March 11, 2011. Before that date, Escoto
11   failed to make several interest payments required by the note. In
12   March of 2011, Escoto requested an extension of the loan term.
13   Unaware of the two settlements, Hillsman agreed to the request,
14   and the parties executed an agreement extending the repayment
15   period for one year but otherwise leaving the terms of the demand
16   promissory note unchanged. Escoto’s delinquency under the terms
17   of the note continued. In August of 2012, the two friends met and
18   Escoto reaffirmed his commitment to repay the note but once again
19   did not disclose the settlements.
20        On January 4, 2013, approximately five months after their
21   encounter, Escoto filed a chapter 7 petition. After receiving
22   notice of the petition, Hillsman contacted an attorney and
23   finally learned that Escoto had settled the construction defect
24   litigation four years earlier.
25        Eight days before he filed his bankruptcy petition, Escoto
26   submitted a financial statement in connection with his divorce
27   proceeding. The information contained in that statement
28   conflicted with the information Escoto subsequently provided in

                                      4
 1   his bankruptcy statements and schedules. In his divorce
 2   proceeding, he stated his monthly income was $6,583. On his
 3   bankruptcy Schedule I and Form B22A, he stated his monthly income
 4   was $19,623.57. At trial, Escoto conceded that he had provided
 5   conflicting information in the two pending cases but explained
 6   that he had used different professionals to prepare the
 7   documents.
 8        During the discovery process, Hillsman’s counsel deposed
 9   Escoto on three separate occasions. At these depositions, Escoto
10   testified inconsistently. For example, he initially disclosed
11   only one settlement. Only after Hillsman’s counsel obtained proof
12   of a second settlement did Escoto concede the existence of two
13   distinct $350,000 settlements. Escoto’s inconsistencies endured
14   at trial where, among other things, he testified for the first
15   time that he could identify a specific date on which he informed
16   Hillsman about the settlements. Additionally, his trial testimony
17   appeared to conflict with his deposition testimony about the
18   amount of his income in 2012.
19        At the conclusion of trial, the trial court found that
20   Hillsman did not learn of the settlements until after Escoto
21   filed his chapter 7 petition, that settlement of the litigation
22   was a maturity event requiring repayment of the debt, that Escoto
23   had a duty to disclose the two settlements to Hillsman, and that
24   Escoto’s failure to do so amounted to a fraudulent concealment on
25   which Hillsman justifiably relied when agreeing to extend the
26   maturity date of the loan. Citing Escoto’s extensive lack of
27   candor that spanned several years and multiple forums, the trial
28   court found that he was not a credible witness. The court further

                                     5
 1   found that Hillsman had proved all elements necessary to
 2   establish the debt as nondischargeable with the exception of
 3   proximate cause. Specifically, the bankruptcy court ruled that
 4   Hillsman failed to demonstrate that he possessed valuable
 5   collection remedies on the date of the extension and that those
 6   remedies lost value during the renewal period.
 7        In coming to this conclusion, the bankruptcy court examined
 8   the value of the potential remedies available to Hillsman at the
 9   time he agreed to the extension. Noting that there was no equity
10   in the pledged properties, even if Hillsman had perfected his
11   liens, the bankruptcy court discounted Hillsman’s remedies as a
12   secured creditor. As an unsecured creditor, Hillsman could pursue
13   informal collection remedies such as telephone calls and
14   correspondence but the bankruptcy court found little value in
15   these activities. The court then considered Hillsman’s ability to
16   obtain a judgment and found that he failed (1) to identify assets
17   available to satisfy a judgment that Escoto could not exempt
18   under state law; and (2) to demonstrate how the value of his
19   status as a judgment creditor declined over the extension period.
20   Finally, the bankruptcy court contemplated Hillsman’s equitable
21   remedies in the form of a constructive trust created to recognize
22   Hillsman’s interest in the settlement proceeds. The court found
23   such equitable remedies unavailable as the record indicated that
24   Escoto had disposed of the proceeds prior to the extension date.
25        The bankruptcy court entered judgment in favor of Escoto on
26   July 3, 2014. Hillsman timely filed his notice of appeal on
27   July 15, 2014.
28

                                     6
 1                             JURISDICTION
 2        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
 3   §§ 1334 and 157(b)(2)(I). This Panel has jurisdiction under
 4   28 U.S.C. § 158.
 5                                ISSUES
 6   1.   Did the bankruptcy court err by requiring Hillsman to show
 7        that valuable collection remedies existed at the time of the
 8        loan extension and that those remedies lost value during the
 9        extended repayment period?
10   2.   If the bankruptcy court applied the correct legal standard,
11        did it err in finding that Hillsman failed to sufficiently
12        demonstrate that such remedies existed and that those
13        remedies lost value during the extension?
14   3.   Did the bankruptcy court err by using the wrong time line in
15        its proximate cause analysis? Specifically, should the court
16        have considered an extension of credit to occur upon
17        settlement of the construction defect litigation rather than
18        confining its analysis to the later extension agreement?
19                          STANDARDS OF REVIEW
20        In appeals of non-dischargeability rulings, we review the
21   bankruptcy court’s findings of fact for clear error and its
22   conclusions of law de novo. Oney v. Weinberg (In re Weinberg),
23   410 B.R. 19, 28 (9th Cir. BAP 2009), aff’d, 407 Fed. Appx. 176
24   (9th Cir. 2010).
25        A bankruptcy court’s findings regarding proximate cause
26   under § 523(a)(2)(A) may be reversed only if clearly erroneous.
27   Britton v. Price (In re Britton), 950 F.2d 602, 604 (9th Cir.
28   1991). We do not consider a finding of fact clearly erroneous

                                       7
 1   unless the finding is “illogical, implausible, or without support
 2   in the record.” Retz v. Samson (In re Retz), 606 F.3d 1189, 1196
 3   (9th Cir. 2010).
 4                              DISCUSSION
 5   A.   The bankruptcy court applied the correct legal standard for
 6        determining proximate cause.
 7        Section 523(a)(2)(A) operates to except a debt from
 8   discharge when “an extension, a renewal, or a refinancing” of an
 9   existing obligation is obtained by “false pretenses, a false
10   representation, or actual fraud, other than a statement
11   respecting the debtor’s or an insider’s financial condition.” In
12   order to prevent the discharge of a particular debt under
13   § 523(a)(2)(A), a creditor must prove:
14        (1) misrepresentation, fraudulent omission2 or deceptive
15   conduct by the debtor;
16        (2) knowledge of the falsity or deceptiveness of his
17   statement or conduct;
18
          2
19          When, as here, the fraud consists of a fraudulent omission
     or concealment, the creditor must show that the omission was
20   material. See Apte v. Japra (In re Apte), 96 F.3d 1319, 1323-24
     (9th Cir. 1996). If materiality is established, then the court
21   typically may presume that the creditor justifiably relied on the
     omission. Tallant v. Kaufman (In re Tallant), 218 B.R. 58, 68
22
     (9th Cir. BAP 1998)(citing In re Apte, 96 F.3d at 1323).
23   Materiality also frees the creditor from proving some aspects of
     causation - that he or she would have acted differently but for
24   the fraudulent omission. In re Apte, 96 F.3d at 1323. But nothing
     in In re Apte or In re Tallant suggests that proof of materiality
25   renders it unnecessary for the creditor to prove whether and to
26   what extent he or she incurred damages as a result of the fraud.
     Nor are we persuaded that these decisions should be interpreted
27   in such a broad fashion as to entirely displace the causation and
     damages elements ordinarily required for a judgment of
28   non-dischargeability.

                                     8
 1        (3) an intent to deceive;
 2        (4) justifiable reliance by the creditor on the debtor’s
 3   statement or conduct;
 4        (5) damage to the creditor proximately caused by its
 5   reliance on the debtor’s statement or conduct. In re Weinberg,
 6   410 B.R. at 35 (citing Turtle Rock Meadows Homeowners Ass’n v.
 7   Slyman (In re Slyman), 234 F.3d 1080, 1085 (9th Cir. 2000)); see
 8   also Eugene Parks Law Corp. Defined Benefit Pension Plan v. Kirsh
 9   (In re Kirsh), 973 F.2d 1454, 1457 (9th Cir. 1992). The creditor
10   must prove each element by a preponderance of the evidence.
11   Grogan v. Garner, 498 U.S. 279, 284 (1991).
12        Focusing on the final element, the Ninth Circuit has
13   clarified the nature of proximate cause in a renewal context. To
14   prove causation on a § 523(a)(2)(A) claim based on an extension,
15   a renewal, or a refinance, a creditor must show “that it had
16   valuable collection remedies at the time it agreed to renew, and
17   that such remedies lost value during the renewal period.”
18   In re Siriani, 967 F.2d at 306. See also Cho Hung Bank v. Kim
19   (In re Kim), 163 B.R. 157, 161 (9th Cir. BAP 1994), aff’d,
20   62 F.3d 1511 (9th Cir. 1995).
21        The debtors in Siriani borrowed $1.2 million to purchase an
22   apartment building in connection with their involvement in a
23   limited partnership. As part of the loan agreement, the lender
24   required a financial guaranty bond. Northwestern Insurance
25   Company agreed to issue a bond so long as the debtors indemnified
26   it for any claims the lender made against the bond. Unable to
27   repay the loan within the original term, the debtors sought an
28   extension and a renewal of the bond with Northwestern. To obtain

                                      9
 1   the renewal, the debtors submitted financial documents which
 2   understated their personal obligations. The debtors defaulted on
 3   the loan and failed to comply with the terms of the indemnity
 4   agreement after the lender collected from Northwestern. A short
 5   time later, another creditor filed an involuntary petition
 6   against the debtors and Northwestern initiated a
 7   non-dischargeability action.
 8        The bankruptcy court ruled against Northwestern for a
 9   failure to demonstrate that its loss arose from the fraudulently
10   obtained renewal. While the creditor had shown that “it possessed
11   valuable collection rights at the time it contemplated the
12   renewal, and that those rights became worthless during the
13   renewal period,” the bankruptcy court ruled that Northwestern had
14   failed to show proximate cause as it presented no evidence “that
15   it would have exercised those rights with sufficient alacrity to
16   avoid preference problems.” Id. The parties appealed and the
17   Bankruptcy Appellate Panel reversed.
18        Affirming the reversal, the Ninth Circuit agreed with the
19   bankruptcy court to the extent that proximate cause required
20   Northwestern to show “that it had valuable collection remedies at
21   the time of the renewal, and that such remedies lost value during
22   the renewal period.” Id. However, the court declined to impose a
23   “creditor’s diligence” requirement forcing a creditor to show
24   “that it would have exercised its collection remedies in a
25   sufficiently timely fashion to collect the debt.” Id. The court
26   reasoned that such a requirement would impose too great a burden
27   on defrauded creditors and would force bankruptcy courts “to
28   divine what might have happened.” Id.

                                    10
 1        To comply with Siriani and demonstrate that the extension
 2   proximately caused his loss, Hillsman needed to show: (1) that he
 3   possessed valuable collection remedies at the time the loan term
 4   was extended; and (2) a depreciation in the value of those
 5   remedies during the extended repayment period. See In re Kim,
 6   163 B.R. at 161. While Hillsman observes that § 523(a)(2)(A) does
 7   not contain the specific standard articulated in Siriani, neither
 8   the bankruptcy court nor this Panel may disregard Siriani.
 9   Accordingly, we find that the bankruptcy court did not commit
10   reversible error by applying the proximate cause standard
11   specified in Siriani.
12   B.   The bankruptcy court’s finding that Hillsman failed to
13        establish proximate cause with respect to the extension
14        agreement is not clearly erroneous.
15        At the outset, the Panel notes that, “[t]he bankruptcy
16   court’s finding of proximate cause is reviewed for clear error,
17   ‘even though the finding may depend to some extent upon law.’”
18   In re Siriani, 967 F.2d at 304 (quoting Rubin v. West
19   (In re Rubin), 875 F.2d 755, 758 (9th Cir. 1989)).
20        Hillsman contends that if the bankruptcy court correctly
21   applied Siriani's proximate cause standard, it erred because
22   Hillsman presented evidence sufficient to overcome the burden
23   imposed by Siriani with respect to the period of time the
24   extension agreement was in effect. To support his position,
25   Hillsman points to assets and funds potentially in Escoto’s
26   possession at various points in time. These include $370,000
27   withdrawn from a bank account, approximately $160,000 of income
28   Escoto claimed in 2011, Escoto’s monthly earnings of $19,623.57

                                    11
 1   in 2012, income from Escoto’s businesses, and a Land Rover that
 2   Escoto eventually sold for $23,500. While Hillsman’s evidence
 3   shows that Escoto received a substantial amount of money over an
 4   extended period of time, this evidence alone does not satisfy
 5   Siriani.
 6        Identifying funds to which Escoto may have had access is
 7   insufficient. Siriani requires a creditor to demonstrate the
 8   existence of valuable collection remedies at a specific point in
 9   time. By simply pointing to evidence of certain funds, Hillsman
10   did not necessarily place these funds in Escoto’s possession at
11   the time the extension agreement was entered into or during the
12   extension period. For instance, Ms. Escoto testified that Escoto
13   withdrew $370,000 from the couple’s joint bank account on an
14   unidentified date. Even if the Panel assumes her testimony is
15   true, Hillsman provided no evidence that Escoto possessed these
16   funds at any time relevant to the extension agreement.
17        A second defect with Hillsman’s argument is that placing
18   assets or funds in Escoto’s possession at the relevant time does
19   not end the proximate cause analysis. In addition to identifying
20   the existence of remedies, Siriani requires a creditor to show a
21   reduction in the value of such remedies during a specific period
22   of time. Assuming Escoto possessed funds or available assets at
23   the requisite point in time, Hillsman did not present any
24   evidence that these funds or assets were dissipated during the
25   extension period. As an example of this defect, Hillsman points
26   out that Escoto sold a Land Rover he may have possessed at the
27   time of the extension. However, the record shows that the sale of
28   the Land Rover occurred approximately one year after the

                                    12
 1   expiration of the extension. Hillsman does not explain how this
 2   translated into the loss of a valuable remedy during the
 3   extension period.
 4        The bankruptcy court recognized such deficiencies in the
 5   record before it. After examining his status as a secured
 6   creditor, an unsecured creditor, and a judgment creditor, the
 7   bankruptcy court found that Hillsman had neither demonstrated the
 8   existence of valuable collection remedies available when the
 9   extension agreement was entered into or how such remedies lost
10   value during the extension period.
11        We cannot hold that the bankruptcy court committed
12   clear error simply because it declined to draw certain inferences
13   from an inconclusive record. Rather than speculating about the
14   nature and extent of assets and any associated collection
15   remedies available when the extension agreement was negotiated,
16   the bankruptcy court made a factual determination based on the
17   record before it: “Hillsman has failed to meet his burden of
18   proof under Section 523(a)(2)(A).” Our review of the record does
19   not reveal any factual findings on this issue that are
20   “illogical, implausible, or without support in the record.”
21   In re Retz, 606 F.3d at 1196. Consequently, we cannot conclude
22   that the bankruptcy court committed clear error regarding this
23   issue.
24   C.   The bankruptcy court erred by limiting its proximate cause
25        analysis to the date of the extension agreement.
26        Hillsman’s final argument calls into question the timing of
27   Escoto’s fraudulent conduct as determined by the bankruptcy
28   court. According to Hillsman, Escoto’s failure to disclose the

                                    13
 1   settlements fraudulently induced Hillsman to effectively forbear
 2   from immediately demanding repayment of the loan and that this
 3   forebearance amounted to an extension of credit. Because the
 4   forbearance predates the extension agreement, Hillsman submits
 5   that the bankruptcy court should have applied the proximate cause
 6   analysis beginning on the date of settlement, rather than
 7   focusing solely on the date Hillsman voluntarily agreed to extend
 8   the loan. Hillsman posits that such an analysis would have
 9   satisfied the Siriani requirements since Escoto’s fraudulent
10   omissions and depletion of the settlement proceeds allegedly
11   denied Hillsman the opportunity to collect from those monies.
12        In examining Hillsman’s argument, it is important to keep in
13   mind what occurred at trial. In a joint pretrial memorandum,
14   Hillsman informed the bankruptcy court that he would proceed only
15   under his § 523(a)(2)(A) claim for Escoto’s fraudulent omission
16   in relation to the settlement. Hillsman did not pursue a claim
17   for Escoto’s conversion of the settlement proceeds nor did
18   Hillsman allege fraud in relation to the original loan
19   transaction. At trial, although he alleged fraud upon
20   consummation of the settlements, the main thrust of Hillsman’s
21   argument focused on Escoto’s concealment in relation to the
22   extension agreement. At the conclusion of trial, the bankruptcy
23   court rendered a memorandum decision finding that Escoto’s
24   concealment amounted to fraud and induced Hillsman to grant the
25   extension. Nevertheless, the court ruled against Hillsman for his
26   failure to demonstrate that he had lost valuable collection
27   remedies existing at the time he agreed to extend the repayment
28   term. Importantly, the memorandum decision does not address the

                                    14
 1   contention that Escoto effectively obtained an extension of
 2   credit earlier – at the time he first failed to disclose the
 3   settlement(s).
 4        In the parties’ joint pretrial memorandum, Hillsman cited
 5   Field v. Mans, 516 U.S. 59, 116 S.Ct. 437, 133 L.Ed.2d 351
 6   (1995), in support of the notion that Escoto’s fraudulent
 7   nondisclosure amounted to an extension and, thus, rendered the
 8   debt nondischargeable.
 9        In Field v. Mans, the Fields sold real property to a
10   corporation wholly owned by Mans. A second mortgage containing a
11   due on sale clause secured a portion of the purchase price along
12   with Mans’ personal guarantee. Shortly after the transaction,
13   Mans caused his corporation to transfer the property to a newly
14   formed partnership. Within a few days of this second transfer,
15   Mans’ attorney wrote to the Fields requesting a waiver of the due
16   on sale clause in a manner suggesting that the second transfer
17   had not yet occurred. The Fields offered to waive the clause in
18   exchange for $10,000. Mans responded in a second letter refusing
19   the offer but again failing to disclose the transfer. The
20   discussion ceased, and Mans never disclosed the transfer. The
21   Fields finally learned of the transfer upon Mans’ filing of a
22   bankruptcy petition. They reacted by filing a complaint alleging
23   that Mans’ misdirection fraudulently induced them to forbear from
24   exercising their rights under the due on sale clause and that
25   their forbearance amounted to an extension of credit. The Fields
26   further asserted that, because of this, Mans’ personal obligation
27   was non-dischargeable under § 523(a)(2)(A).
28        The bankruptcy court found that, while the Fields may have

                                    15
 1   relied on Mans’ misrepresentation in forbearing, their reliance
 2   was not reasonable. Therefore, the court concluded that the debt
 3   was dischargeable. The circuit court affirmed. See Field v. Mans,
 4   36 F.3d 1089 (1st. Cir. 1994). Upon further appeal, the Supreme
 5   Court granted certiorari and concluded that the applicable
 6   standard to determine non-dischargeability under § 523(a)(2)(A)
 7   is justifiable, rather than reasonable, reliance. Field v. Mans,
 8   516 U.S. at 74-75. The Court remanded the matter to the
 9   bankruptcy court for further proceedings.
10         On remand, Mans questioned whether the Fields’ forbearance
11   equated to an extension within the meaning of § 523(a)(2). See
12   Field v. Mans (In re Mans), 203 B.R. 355 (Bankr. D.N.H. 1996).
13   Upon a second appeal, the First Circuit held that a forbearance
14   from the exercise of a right to accelerate the maturity date of
15   an existing debt constitutes an extension of credit for the
16   statute’s purpose. Field v. Mans, 157 F.3d 35, 45-46 (1st Cir.
17   1998). While the court acknowledged that “the concealed sale was
18   not technically a new ‘agreement’ concerning the existing credit,
19   it triggered legal rights ... which markedly altered the credit
20   relationship between the parties.” Field v. Mans, 157 F.3d at 43.
21   Further, “by deceiving [the Fields] into continuing a credit
22   arrangement they now had the right to terminate, the fraud
23   related to what can properly be called ‘an extension of credit.’”
24   Id.
25         In arriving at its conclusion, the court examined the
26   policies behind discharge exceptions under § 523(a)(2) and stated
27   that such considerations “militate against a narrow and
28   hyper-technical parsing of the individual terms” contained in the

                                     16
 1   statute. Field v. Mans, 157 F.3d at 44. Too narrow a reading, the
 2   court reasoned, would result in situations where “one dishonest
 3   debtor would receive a ‘new beginning’ while another, who engaged
 4   in fraudulent conduct that was virtually identical, would not -
 5   for reasons unrelated to the object of denying bankruptcy
 6   protection to debtors whose debts were procured by fraud.” Id. In
 7   essence, rigidly interpreting the term “extension” in a way that
 8   renders dissimilar results in substantively similar situations
 9   conflicts with the purpose of § 523(a)(2).
10        This Panel agrees with the First Circuit’s reasoning and
11   considers it appropriate to apply the First Circuit’s holding to
12   the facts of this case. Escoto’s settlement of the construction
13   defect litigation triggered Hillsman’s right to immediate
14   repayment of Escoto’s debt. Escoto’s concealment deprived
15   Hillsman of the ability to exercise that right, and Escoto
16   thereby effectively procured a forbearance. The fact that Escoto
17   obtained the forbearance without Hillsman’s knowledge serves to
18   further illustrate the surreptitious nature of the fraud. Escoto
19   should not be permitted to benefit from an overly narrow
20   definition of the term “extension” that is disconnected from the
21   statute that informs its meaning. As the First Circuit stated in
22   Field v. Mans, “[i]t is no great leap to say that fraudulent
23   concealment and frustration of [Hillsman’s] acceleration right
24   was tantamount to an ‘extension’ ... of the existing credit.” Id.
25   Thus, the Panel concludes that Escoto’s concealment of the
26   settlement(s) resulted in an extension of credit for purposes of
27   § 523(a)(2).
28        In light of our holding that Escoto effectively obtained an

                                    17
 1   extension of credit when he failed to disclose the settlement and
 2   thereby prevented Hillsman from immediately demanding repayment
 3   in accordance with the terms of the note, on remand, the
 4   bankruptcy court will need to focus on this earlier time period
 5   and make additional or amended findings in order to determine
 6   whether all of the § 523(a)(2)(A) elements were satisfied. We
 7   express no opinion on what sort of findings the bankruptcy court
 8   should make on remand.
 9                              CONCLUSION
10        For the reasons set forth above, we VACATE the bankruptcy
11   court’s judgment, and we REMAND for additional or amended
12   findings.
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