                                                          FILED
 1                                                         MAY 14 2013
                                                       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 Nos.   CC-12-1302-MkTaMo
                                     )                CC-12-1520-MkTaMo
 6   SANJESH PRASAD SHARMA and       )                (Consolidated)
     ARACELY COLOMBINA SHARMA,       )
 7                                   )     BK. No.    LA 10-61901 PC
               Debtors.              )
 8                                   )     Adv. No.   LA 11-01555 PC
                                     )
 9   SANJESH PRASAD SHARMA,          )
                                     )
10             Appellant,            )
                                     )
11        v.                         )     M E M O R A N D U M*
                                     )
12   CARMEN SALCIDO,                 )
                                     )
13             Appellee.             )
                                     )
14
                    Argued and Submitted on February 21, 2013
15                           at Pasadena, California
16                            Filed – May 14, 2013
17             Appeal from the United States Bankruptcy Court
                   for the Central District of California
18
       Honorable Peter H. Carroll, Chief Bankruptcy Judge, Presiding
19
20   Appearances:      David Brian Lally, Esq. for Appellant, Sanjesh
                       Sharma; Barak Lurie, Esq., of Lurie & Park, for
21                     Appellee, Carmen Salcido
22
     Before: MARKELL, TAYLOR, and MONTALI,** Bankruptcy Judges.
23
24
          *
           This disposition is not appropriate for publication.
25   Although it may be cited for whatever persuasive value it may
26   have, see Fed. R. App. P. 32.1, it has no precedential value.
     See 9th Cir. BAP Rule 8013-1.
27
          **
           Hon. Dennis Montali, United States Bankruptcy Judge for
28   the Northern District of California, sitting by designation.
 1                             INTRODUCTION
 2        Appellee Carmen Salcido (“Salcido”) sued Debtor-Appellant
 3   Sanjesh Prasad Sharma (“Sharma”), seeking a declaration that a
 4   loan made by Salcido to Sharma’s company — Sharma Developments,
 5   Inc. — was nondischargeable under 11 U.S.C. § 523(a)(2)(A),
 6   (a)(2)(B), (a)(4), (a)(6), and (a)(19).1    After Sharma appeared
 7   and answered, the bankruptcy court struck Sharma’s answer as a
 8   discovery sanction, entered default against Sharma, and ordered
 9   default judgment in favor of Salcido, but only on her
10   Section 523(a)(2)(A) claim.   After Sharma filed his notice of
11   appeal, the bankruptcy court granted Salcido’s motion to amend
12   the judgment to include attorney’s fees.    Sharma then appealed
13   both the bankruptcy court’s determination of nondischargeability
14   and the award of attorney’s fees.     We AFFIRM the determination of
15   nondischargeability and REVERSE the award of attorney’s fees.
16                                   FACTS2
17        Salcido made two loans to Sharma.     The first loan was made
18   soon after the two first met.    At that time, Salcido had just
19   taken out a home equity line of credit for $240,000 to start a
20   coffee shop, which never got off the ground, but Salcido still
21   had significant funds from the loan.     The line of credit had a
22
          1
23         Unless specified otherwise, all chapter and section
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101–1532; all
24   “Rule” references are to the Federal Rules of Bankruptcy
     Procedure, Fed. R. Bankr. P. 1001–1037; all “Civil Rule”
25   references are to the Federal Rules of Civil Procedure, Fed. R.
26   Civ. P. 1–86; and all “Evidence Rule” references are to the
     Federal Rules of Evidence, Fed. R. Evid. 101–1103.
27
          2
           These facts are a reformulation of the allegations in the
28   Complaint.

                                       2
 1   significant prepayment penalty, and Salcido told Sharma that she
 2   needed to invest the money in a way that would allow her to cover
 3   the large payments on the line of credit.
 4        Salcido had met Sharma in his office in April 2005.     At that
 5   time, he told her that he “flipped” homes — buying, refurbishing,
 6   and selling them at a profit.    He showed her a list of numerous
 7   homes that he claimed to own, and there were numerous people at
 8   the office that appeared to be working for him.   Sharma
 9   repeatedly took steps to impress upon Salcido that he was wealthy
10   and successful: he bragged that he drove luxury cars, took lavish
11   vacations, flew his friends around in private jets, owned
12   multiple race horses, and was in the process of building a “huge,
13   palatial” home for his family.   Compl. (Feb. 16, 2011) at ¶ 7.
14   From Salcido’s perspective, only a very successful person could
15   afford such things.
16        Based on these representations of success founded upon a
17   seemingly sound real estate investment strategy, Salcido agreed
18   to lend $240,000 to Sharma.   Sharma “guaranteed” that Salcido
19   would make a 20% profit on her “investment.”   Id. at p. 17.
20   Salcido found this rate of return enticing; she made it clear
21   that she needed the interest to survive and keep her house.    When
22   they next met, Salcido gave Sharma a check for $240,000 in
23   exchange for a document entitled “promissory note” and dated
24   May 5, 2005 (the “First Promissory Note”).   The term was eight
25   months and the “[t]otal profit to be paid” was $48,000, or 20% of
26   $240,000.   Id.   The parties to the First Promissory Note were
27   Salcido and Sharma Developments, Inc., on whose behalf Sharma
28

                                       3
 1   signed.3    Salcido did not sign the First Promissory Note.
 2        Sharma ultimately performed under the First Promissory Note,
 3   although he did not pay the interest due until March 27, 2006,
 4   nearly three months after the eight-month term had ended.
 5        Although Sharma was late with the interest payments, Salcido
 6   decided to roll over her investment for another year.    Since
 7   taking the first loan from Salcido, Sharma had continued to
 8   regale her with stories of wealth and success.    On May 5, 2006,
 9   Sharma provided Salcido with another promissory note (the “Second
10   Promissory Note”).    The term was one year.   The interest rate was
11   20% for the first $12,000 of interest and “within 10% to 15% to
12   be determined” for the remaining interest installments.       Id. at
13   p. 19.     Salcido states that the variable interest rate did not
14   comport with the verbal understanding of the parties.    As with
15   the First Promissory Note, Sharma signed the Second Promissory
16   Note on behalf of Sharma Developments, Inc., but Salcido did not
17   sign it at all.4
18        By April 5, 2007, the date that the final installment of
19   interest was due, Sharma had not paid any installments to
20
          3
           Regardless of the identity of the party to this note and
21   the next one, for simplicity we refer to Sharma as the obligor
22   for all purposes.
          4
23         Although Sharma seems to argue that the $240,000 was not a
     loan, but rather an investment in real estate, the transaction as
24   pleaded in the Complaint is best construed as a loan. Sharma
     alone prepared the documents and titled them “First Promissory
25   Note” and “Second Promissory Note.” The Second Promissory Note
26   has a schedule of “interest” payments and refers to the $240,000
     as “principal” — words more consistent with a loan than a capital
27   investment. Compl. (Feb. 16, 2011) at p. 19. Finally, Salcido
     did not sign the documents, a state of affairs more consistent
28   with a promissory note than a joint investment in real estate.

                                        4
 1   Salcido.   Salcido called Sharma multiple times (she estimates
 2   between five and ten); she literally begged him for the money as
 3   she was in “desperate straits with her mortgage.”   Id. ¶¶ 40, 41.
 4   For the next several months, through September 2007, Sharma paid
 5   her $1,200 per month.    Then he ceased paying altogether.
 6        Salcido made inquiries about what had happened to her money,
 7   and found out that Sharma had not refurbished the properties as
 8   he told her he would.    She learned that he had allowed “some or
 9   all of the properties [to] go to utter waste” and that some were
10   even condemned.   Id. ¶ 46.   Salcido’s complaint alleged that she
11   would have never invested with Sharma if she had known about his
12   “failure to maintain and/or actually refurbish the properties
13   that he was investing her money into, and the real state of his
14   finances.”   Id. ¶ 48.
15        After these discoveries, Salcido’s first legal maneuver was
16   to file suit in the Superior Court of the State of California for
17   the County of Los Angeles (the “Superior Court”) for breach of
18   contract and fraud against Sharma Developments, Inc. and Sanjesh
19   Sharma.    After meeting with a mediator, the parties agreed to
20   settle all claims in July 2008 and executed a settlement
21   agreement (the “Settlement Agreement”).   Under the Settlement
22   Agreement, Sharma Developments was to pay the principal amount —
23   $240,000 — plus interest at 7.00% over a period of five years.
24        The Settlement Agreement also provided that, in the event of
25   default by Sharma, Salcido would be entitled to file the
26   Stipulation for Entry of Judgment and Judgment (the
27   “Stipulation”) that was drafted as part of the Settlement
28   Agreement.   Sharma defaulted, and Salcido then filed the

                                       5
 1   Stipulation in December 2008.    On December 29, 2008, the Superior
 2   Court ordered judgment (the “Stipulated Judgment”) against both
 3   Sharma Developments, Inc. and Sanjesh Sharma in the amount of
 4   $240,000.
 5        Sharma did not make any payments on the Stipulated Judgment.
 6   Salcido alleged that Sharma never had any intention of repaying
 7   the loans or honoring the Stipulated Judgment — that he
 8   “maliciously and fraudulently induced [Salcido] to accept a
 9   stipulated Judgment that he never intended on performing, and has
10   made no effort to perform . . . .”    Id. ¶¶ 57–58, 64, 65.
11   Furthermore, she alleged that he “set it up so that [Salcido’s]
12   and any other judgment would be difficult, if not impossible to
13   collect because he transferred all of his assets to appear
14   insolvent and justify a bankruptcy action.”   Id. ¶ 58.
15        On December 3, 2010, Sharma filed Chapter 7. On February 16,
16   2011, Salcido filed the complaint (the “Complaint”) that
17   eventually led to this appeal.   Salcido contended that Sharma’s
18   $240,000 obligation under the Stipulated Judgment was
19   nondischargeable under Sections 523(a)(2)(A), (a)(2)(B), (a)(4),
20   (a)(6), and (a)(19).
21        Salcido’s argument under Section 523(a)(2)(A) was twofold.5
22   First, she contended that Sharma committed fraud by inducing her
23   to loan him money that he never intended to pay back by falsely
24   representing his wealth and success and by lying about his
25   investment strategy of refurbishing properties for sale.      Second,
26
          5
27         We do not discuss Salcido’s other claims under
     Section 523(a) because the bankruptcy court dismissed them and
28   they are not at issue in this appeal.

                                       6
 1   she contended that he also committed fraud by inducing her to
 2   accept the Stipulated Judgment, which he never intended to repay.
 3        Sharma answered and the parties proceeded to discovery.      The
 4   bankruptcy court, however, ultimately ordered monetary sanctions
 5   against Sharma, struck his Answer as a sanction for discovery
 6   misconduct, and entered default against him.6   Salcido then moved
 7   for default judgment.   She supported the motion with her own
 8   declarations and with declarations by Franco Ramirez (her
 9   boyfriend then and now) and Michelle A. Seltzer (her attorney).7
10   The Motion for Default Judgment largely repeated the facts and
11   allegations of the Complaint.    She elaborated on her
12   Section 523(a)(2)(A) argument by alleging that Sharma committed
13   fraud per se by operating a Ponzi scheme.   She also argued that
14   Sharma’s alleged fraudulent transfers of property to his father
15   and then back to himself for nominal consideration demonstrate an
16   intentional plan to “avoid collection by numerous judgment
17   creditors,” including Salcido.   Mot. Default J. (Apr. 12, 2012)
18   at 11–12.   In essence, she argued that the Stipulated Judgment
19   was merely a delay tactic and that Sharma never intended to honor
20
          6
           On appeal, Sharma does not challenge the sanctions or the
21   entry of default. Consequently, we neither recite the facts
22   underlying the sanctions or the entry of default nor review the
     merits of those actions.
23
          7
           She also submitted a request for judicial notice under
24   Evidence Rule 201, seeking to have admitted a list of 13 civil
     cases in Los Angeles County and San Bernardino County against
25   Sharma, Sharma Developments, Inc., or other defendants named in
26   the Complaint. The request states that all of these cases
     resulted in either a default judgment, stipulated judgment, or
27   are stayed pending Sharma’s bankruptcy proceedings. The
     bankruptcy court did not explicitly rely on these purported
28   facts, and nor do we.

                                       7
 1   it.
 2         Sharma opposed.   He argued that the Section 523(a)(2)(A)
 3   claim must fail because Salcido did not meet her burden of proof.
 4   He contended that Sharma could not have made any representations
 5   to Salcido, false or otherwise, because she did business with
 6   Sharma Developments, Inc., not Sharma as an individual, and that
 7   she has not alleged that the corporate veil should be pierced.
 8   He then asserted that “[o]ne who intends to commit fraud does not
 9   repay 33% of the principal debt.”      Opp’n Mot. Default J.
10   (Apr. 26, 2012) at 3:18.   These arguments, however, ignore the
11   fact that the Stipulated Judgment was against both Sharma
12   individually and Sharma Developments, Inc., and that the
13   Stipulated Judgment was for the entire principal amount,
14   $240,000.   Lastly, he argued that Salcido’s contention that he
15   operated a Ponzi scheme was unfounded.8
16         To support his opposition, Sharma filed various evidentiary
17   objections to the declarations that Salcido submitted in support
18   of her Motion for Default Judgment.
19         In June 2012, the bankruptcy court ordered default judgment
20   against Sharma (the “Judgment”).       Specifically, the court ordered
21   that the $240,000 obligation under the Stipulated Judgment was
22   nondischargeable under Section 523(a)(2)(A).      The court denied
23
           8
24         Sharma is correct. Salcido only offered conclusory
     allegations to show that Sharma did not invest her funds and in
25   fact used funds from new investors to pay prior investors — the
26   hallmark of a Ponzi scheme. See Donnell v. Kowell, 533 F.3d 762,
     767 n.2 (9th Cir. 2008). While we affirm on the grounds that the
27   Complaint supports a determination of fraud under
     Section 523(a)(2)(A), we do not base that decision on the
28   existence of a Ponzi scheme.

                                        8
 1   attorney’s fees without prejudice pending compliance with local
 2   bankruptcy rules.   The court was silent as to Salcido’s other
 3   claims under Section 523(a).   The court did not articulate its
 4   reasoning.
 5        Sharma timely filed a Notice of Appeal, challenging various
 6   aspects of the bankruptcy court’s grant of the Motion for Default
 7   Judgment.
 8        In early July, the Panel requested clarification as to
 9   whether the Judgment was interlocutory because the bankruptcy
10   court had not properly dismissed some of Salcido’s claims.     The
11   bankruptcy court responded with an order dismissing Salcido’s
12   claims under Sections 523(a)(2)(B), (a)(4), (a)(6), and (a)(19)
13   against all defendants.
14        Salcido then moved to amend the Judgment to include
15   attorney’s fees and a monetary sanction.   Sharma opposed.     On
16   October 10, 2012, the bankruptcy court issued an amended judgment
17   (the “Amended Judgment”), which differed from the prior judgment
18   only in that costs and attorney’s fees were awarded.   However,
19   because the bankruptcy court had by then dismissed all of the
20   Section 523(a) claims other than the one under which Salcido
21   prevailed — Section 523(a)(2)(A) — the Amended Judgment is a
22   final and appealable order.    See Dreith v. Nu Image, Inc.,
23   648 F.3d 779, 786 (9th Cir. 2011) (default judgments are
24   appealable final orders).
25        On October 12, 2012, Sharma timely filed a second notice of
26   appeal challenging the award of attorney’s fees in the Amended
27   Judgment.    Sharma’s two appeals were then consolidated under the
28   first appeal, BAP No. 12-1302.

                                       9
 1        Sharma did not move for relief from the entry of default
 2   under Civil Rule 55(b) or the entry of default judgment under
 3   Civil Rule 60(c) in the bankruptcy court.
 4                               JURISDICTION
 5        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
 6   §§ 157(b)(2)(I) and 1334.   We have jurisdiction under 28 U.S.C.
 7   § 158.
 8                                   ISSUES
 9   1.   Must this court dismiss Sharma’s appeal because he did not
10        move for relief from default judgment under Civil Rule 60(b)
11        in the bankruptcy court?
12   2.   Did the bankruptcy court commit reversible error when it
13        ordered default judgment on Salcido’s Section 523(a)(2)(A)
14        claim?
15   3.   Did the bankruptcy court commit reversible error when it did
16        not hold a hearing on Salcido’s Motion for Default Judgment?
17   4.   Did the bankruptcy court commit reversible error when it
18        issued the Amended Judgment without articulating to what
19        extent, if any, it had considered Sharma’s “Opposition to
20        Plaintiff’s Motion for Default Judgment” and “Evidentiary
21        Objections to the Declarations of Michelle Seltzer, Carmen
22        Salcido, and Franco Ramirez in Support of Plaintiff’s Motion
23        for Default Judgment”?
24   5.   Did the bankruptcy court commit reversible error when it did
25        not deduct from the $240,000 judgment amount the $86,700 in
26        payments that Sharma made to Salcido?
27   6.   Did the bankruptcy court commit reversible error when it
28        awarded attorney’s fees to Salcido after Sharma had appealed

                                       10
 1        the order of default judgment to this court?
 2                           STANDARDS OF REVIEW
 3        We review the bankruptcy court’s entry of default judgment
 4   for abuse of discretion.   Eitel v. McCool, 782 F.2d 1470, 1471
 5   (9th Cir. 1986); In re McGee, 359 B.R. 764, 769 (B.A.P. 9th Cir.
 6   2006).   Review for abuse of discretion has two parts.   First, “we
 7   determine de novo whether the bankruptcy court identified the
 8   correct legal rule to apply to the relief requested.”    U.S. v.
 9   Hinkson, 585 F.3d 1247, 1261–62 (9th Cir. 2009) (en banc).      If
10   so, we then determine under the clearly erroneous standard
11   whether the bankruptcy court’s factual findings and its
12   application of the facts to the relevant law were “(1) illogical;
13   (2) implausible; or (3) without support in inferences that may be
14   drawn from the facts in the record.”   Id. at 1262.   In this
15   inquiry, “[w]here there are two permissible views of the
16   evidence, the fact finder’s choice between them cannot be clearly
17   erroneous.”   Anderson v. City of Bessemer City, N.C., 470 U.S.
18   564, 574 (1985).
19        Whether a bankruptcy court retains authority to order
20   attorney’s fees after a notice of appeal has been filed is a
21   question of law that we review de novo.   See Jefferies v. Carlson
22   (In re Jefferies), 468 B.R. 373, 377 (B.A.P. 9th Cir. 2012).         We
23   also review de novo whether California law allows for the award
24   of attorney’s fees in this context.    Fry v. Dinan (In re Dinan),
25   448 B.R. 775, 783 (B.A.P. 9th Cir. 2011).
26
27
28

                                     11
 1                                DISCUSSION
 2   A.   This Court is Not Required to Dismiss the Case as a Result
          of Sharma’s Failure to Move for Relief Under Civil
 3        Rule 60(b) in the Bankruptcy Court
 4        The Ninth Circuit has not definitively established whether
 5   dismissal is required when a judgment entered by default is
 6   appealed without first seeking review under Civil Rule 60(b),
 7   which is applicable here through Rule 9024.   One line of cases,
 8   on which Salcido relies, holds that an appellant-defendant’s
 9   failure to move for relief under Civil Rule 60(b) in the district
10   (or bankruptcy) court mandates the dismissal of an appeal before
11   reaching the merits.   Consorzio Del Prosciutto di Parma v. Domain
12   Name Clearing Co., LLC, 346 F.3d 1193, 1195 (9th Cir. 2003);
13   Investors Thrift v. Lam (In re Lam), 192 F.3d 1309, 1311 (9th
14   Cir. 1999); First Beverages, Inc. v. Royal Crown Cola Co.,
15   612 F.2d 1164, 1172 (9th Cir. 1980); Rohauer v. Friedman,
16   306 F.2d 933, 937 (9th Cir. 1962) (“An appeal to this court
17   cannot be used as a substitute for the timely procedure set forth
18   by Rule 60(b).”).9
19        With two exceptions, in the above cases the defendant failed
20   to answer or appear.   The courts seemed especially troubled by a
21   defendant-appellant’s intention to enter the fray for the first
22   time on appeal.   “Federal courts are not run like a casino game
23   in which players may enter and exit on pure whim.   A defaulted
24   party may not re-enter litigation, particularly on appeal, on
25   sheer caprice.    It must follow proper procedure to set aside the
26
          9
27         We even dismissed a case recently on the same grounds.
     Nguyen v. Ford (In re Nguyen), 2011 WL 3298962 at *4 (B.A.P. 9th
28   Cir. 2011).

                                      12
 1   default.”   In re Lam, 192 F.3d at 1311 (applying Rule 7055(c)).
 2        In Rohauer and First Beverages, the two exceptions, the
 3   appellant-defendants extensively participated in the proceedings
 4   below but sought to raise new factual issues on appeal.   Because
 5   the appellant-defendants were aware of the new factual
 6   circumstances after the entry of judgment and before the notice
 7   of appeal was filed, the Ninth Circuit dismissed their appeals.
 8   First Beverages, 612 F.2d at 1172 (“[The] proper approach to
 9   seeking relief from judgment because of a change in the factual
10   circumstances surrounding this case would be to make a Rule 60(b)
11   motion or a motion to reopen to hear additional proof.    Such
12   motions must be directed in the first instance to the district
13   court.”); Rohauer, 306 F.2d at 937; Civil Rule 62.1.
14        In a second line of cases, which Salcido failed to discuss
15   in her brief, the Ninth Circuit and this court elected to review
16   the merits of default judgments even though the appellant-
17   defendants had not moved under Civil Rule 60(b) below.    Dreith v.
18   Nu Image, Inc., 648 F.3d 779, 789 (9th Cir. 2011); Alan Neuman
19   Prods., Inc. v. Albright, 862 F.2d 1388, 1391–92 (9th Cir. 1988);
20   Madsen v. Bumb, 419 F.2d 4, 6 (9th Cir. 1969); In re Kubick,
21   171 B.R. 658, 660 (B.A.P. 9th Cir. 1994).
22        In these cases, the courts treated the defendant-appellants
23   as if they had applied for relief under Civil Rule 55(c) or
24   60(b), or both, to avoid an “unduly technical disposition of the
25   case.”   Madsen, 419 F.2d at 6.   In re Kubick was more to the
26   point — “[a]lthough entry of a default judgment is usually
27   attacked collaterally under Rule 60(b), on direct appeal a
28   defendant can contest the legal sufficiency of allegations

                                       13
 1   contained in the complaint.”    171 B.R. at 660 (citing Alan Neuman
 2   Prods., 862 F.2d at 1392).     The consistent thread running through
 3   these cases is that, with one exception (In re Kubick), the
 4   appellant-defendants all participated below — by actively
 5   communicating with the plaintiff, answering the complaint,
 6   participating in discovery, and/or moving to vacate the entry of
 7   default under Civil Rule 55(c).
 8        In the most recent of these cases, the Ninth Circuit
 9   declined to follow Parma and ruled on the merits when the
10   defendant’s answer was struck for discovery misconduct.        Dreith,
11   648 F.3d at 781.   The district court entered an order of default
12   upon the stricken answer and six months later granted the
13   plaintiffs’ motion for default judgment.      Id.   On appeal, the
14   defendants only challenged the entry of default.      Id.     Although
15   the defendants did not seek relief under Civil Rules 55(c) or
16   60(b) in the district court, the Ninth Circuit decided to
17   “consider the merits of this action, as both public policy and
18   the policy of this court dictate.”      Id. at 789 n.1.     While the
19   court did not overrule Parma, it seems to have softened Parma’s
20   holding.   Moreover, the facts of Dreith are analogous to those in
21   the prior Ninth Circuit and BAP cases where the courts did not
22   require a Rule 60(b) motion below in that the appellant-defendant
23   had participated in the trial court proceedings.
24        There is yet a third line of cases where the Ninth Circuit
25   and this court have reviewed the trial courts’ grant of default
26   judgment without even discussing the import, or lack thereof, of
27   a Civil Rule 60(b) motion below.       See, e.g., Televideo Sys.,
28   826 F.2d 915; Eitel, 782 F.2d 1470; In re Pryor, 2011 WL 4485796

                                       14
 1   (B.A.P. 9th Cir. 2011); In re McGee, 359 B.R. 764.    In these
 2   cases, like those above that expressly reject the Civil
 3   Rule 60(b) requirement, the appellant-defendants all participated
 4   to some degree at the trial court.
 5        While not articulated as such by the Ninth Circuit, the rule
 6   seems to be that a case will be dismissed on appeal for failure
 7   to move for relief under Civil Rule 60(b) only when the
 8   appellant-defendant failed to participate in the trial (or
 9   bankruptcy) proceedings or when the appeal raises new factual
10   issues.   For policy reasons, this is the correct rule.
11        It would be a waste of time and resources to dismiss the
12   current appeals.   If Sharma had not participated at the
13   bankruptcy court, then there may have been some benefit to having
14   him air his arguments at the bankruptcy court.   But given his
15   extensive participation — answering the Complaint and engaging in
16   discovery — we would not likely gain any new information upon
17   which to base a decision if Sharma moved for relief under
18   Rule 60(b), was denied that relief (presuming without deciding
19   that the bankruptcy court would deny the motion), and then
20   returned to this court.
21        In addition, Sharma is not raising any new factual issues,
22   only arguing that the record does not support a determination of
23   fraud under Section 523(a)(2)(A).    Thus, we have sufficient
24   policy and precedential support to proceed to the merits.10
25
          10
26         We note that the Ninth Circuit is one of few federal
     courts of appeals that refuses to hear direct appeals from
27   default judgments in some circumstances, and that the Restatement
     of Judgments supports direct appeals from default judgments. See
28                                                      (continued...)

                                     15
 1   B.     The Bankruptcy Court Did Not Abuse its Discretion When It
            Ordered Default Judgment on Salcido’s Section 523(a)(2)(A)
 2          Claim
 3          Before discussing the merits of the nondischargeability
 4   claim, we need to examine the effect of the entry of default.
 5   “The general rule of law is that upon default the factual
 6   allegations of the complaint, except those relating to the amount
 7   of damages, will be taken as true.”   Televideo Sys., 826 F.2d at
 8   917–18 (internal quotation marks and citation omitted).    However,
 9   a default does not operate as “an absolute confession of
10   liability, for the facts alleged in the complaint may be
11   insufficient to establish liability.”   In Re McGee, 359 B.R. at
12   771.    “A default establishes the well-pleaded allegations of a
13   complaint . . . .”   Id. at 772 (internal quotation marks and
14   citation omitted) (emphasis in original).
15          Facts that are not well pled include allegations that
            are made indefinite or erroneous by other allegations
16          in the same complaint, . . . allegations which are
            contrary to facts of which the court will take judicial
17          notice, or which are not susceptible of proof by
            legitimate evidence, or which are contrary to
18          uncontroverted material in the file of the case.
19   Id. (internal quotation marks and citation omitted) (emphasis in
20   original).   Put another way, the burden of proof remains with the
21   plaintiff after the entry of default; the plaintiff is not
22   entitled to default judgment as a matter of right.   See id. at
23   771, 774.
24          While the bankruptcy court has an independent duty to
25
            10
26         (...continued)
     Commonwealth Dev. Auth. v. Camacho, 2010 WL 5330503 at *6–*8 (N.
27   Mar. I., December 21, 2010) (surveying the federal courts of
     appeals) (citing Restatement (Second) of Judgments § 78 cmt. e
28   (1982)).

                                      16
 1   determine the sufficiency of a claim, it operates with wide
 2   discretion.   Id. at 773; In re Kubick, 171 B.R. at 662.     Under
 3   Civil Rule 55(b), a bankruptcy court has the discretion to
 4   require that the plaintiff prove up the facts necessary to
 5   determine whether a valid claim exists against the defaulting
 6   party.    In re McGee, 359 B.R. at 773.   The court may “conduct
 7   hearings or make referrals” to “determine the amount of damages;
 8   . . . establish the truth of any allegation by evidence; or . . .
 9   investigate any other matter.”   Fed. R. Civ. P. 55(b)(2).
10        A prove-up hearing is only required where the damages are
11   unliquidated or not capable of mathematical calculation.     Davis
12   v. Fendler, 650 F.2d 1154, 1161 (9th Cir. 1981).    Civil
13   Rule 55(b) does not require a hearing to investigate facts not
14   related to damages, since the default itself establishes those
15   facts as alleged in the complaint.    Televideo Sys., 826 F.2d at
16   917–18.
17        One issue on appeal is whether the bankruptcy court was
18   required to hold a prove-up hearing, as Sharma argues, “in light
19   of (1) the Opposition and Evidentiary Objections filed by
20   Appellant; and (2) the unusual circumstances of this case[.]”
21   Appellant’s Am. Opening Br. (Aug. 20, 2012) at ¶ 13.    As set
22   forth above, a bankruptcy court has wide discretion to determine
23   whether a prove-up hearing is necessary.    If a bankruptcy court
24   determines that the facts as alleged in the complaint support the
25   plaintiff’s claim, then a prove-up hearing is only necessary to
26   fix unliquidated damages.   See Davis, 659 F.2d at 1161.
27        Here, the bankruptcy court ordered default judgment without
28   a prove-up hearing.   It did not state which of Salcido’s filings

                                      17
 1   it had considered or whether it had considered Sharma’s
 2   opposition and evidentiary challenges.    Nor was it required to do
 3   so.   Civil Rule 55(b) does not require that the court consider a
 4   defendant’s challenges to default judgment.   Once Sharma was in
 5   default, the only issue before the bankruptcy court was whether
 6   the well-pleaded factual allegations in the Complaint, deemed
 7   true, supported a claim under Section 523(a)(2)(A), and, if not,
 8   whether additional proof was necessary.   The bankruptcy court
 9   determined that a hearing was not necessary on the issue of
10   liability, and it had the discretion to do so.    Salcido’s motion
11   and Sharma’s opposition amounted to argument about whether the
12   facts in the Complaint supported Salcido’s claim.
13         Even if the evidence submitted by Salcido in the form of
14   declarations were inadmissible, an issue which we do not decide,
15   the Amended Judgment is not defective as the result of the
16   bankruptcy court not expressly stating that it had considered
17   Sharma’s opposition and evidentiary objections.   The factual
18   content in the challenged declarations was nearly identical to
19   that in the Complaint, and thus any reliance the bankruptcy court
20   may have placed on the declarations was harmless.   See Fed. R.
21   Evid. 103(a).
22         So long as the bankruptcy court found sufficient evidence in
23   the Complaint’s allegations to support the determination of
24   liability under Section 523(a)(2)(A), its decision survives.     The
25   bankruptcy court did not commit reversible error when it
26   determined the issue of liability without a hearing.   See Davis,
27   659 F.2d at 1161.   Nor did it commit reversible error when it did
28   not articulate to what extent, if any, it considered Sharma’s

                                     18
 1   opposition to the Motion for Default Judgment and his evidentiary
 2   objections.   See Fed. R. Civ. P. 55(b); Fed. R. Evid. 103(a).
 3        We next turn to the issue of whether a hearing was required
 4   to fix the damages.   The precise issue is whether the bankruptcy
 5   court properly gave preclusive effect, under the doctrine of
 6   issue preclusion, to the damage amount — $240,000 — that the
 7   Superior Court ordered upon the Stipulated Judgment.   Under
 8   28 U.S.C. § 1738, the Full Faith and Credit Act, federal courts
 9   must apply the preclusion law of the state whose court issued the
10   prior judgment.   Harmon v. Kobrin (In re Harmon), 250 F.3d 1240,
11   1245 (9th Cir. 2001) (citations omitted).
12        Under California law, issue preclusion bars the relitigation
13   of an issue if (1) the issue in the first and second action are
14   identical; (2) the issue was actually litigated and necessarily
15   decided in determining the first action; (3) the parties against
16   which issue preclusion is asserted are identical or in privity;
17   and (4) the prior decision was on the merits.   See Daar & Newman
18   v. VRL Intl., 28 Cal. Rptr. 3d 482, 571, 129 Cal. App. 4th 482,
19   488–89 (2005); Pajaro Valley Water Mgmt. Agency v. McGrath,
20   27 Cal. Rptr. 3d 741, 745–46, 128 Cal. App. 4th 1093, 1099–1100
21   (2005).
22        Here, the relevant parties in both actions are identical11
23   and the issue of damages is identical.   The Stipulated Judgment
24   was final and on the merits.   See Cal. State Auto. Assoc. Inter-
25
          11
26         The adversary complaint names various defendants who were
     not involved in the State Court Action, but Salcido prevailed in
27   both state court and bankruptcy court, and Sharma was
     individually liable under both the state court Stipulated
28   Judgment and bankruptcy court Amended Judgment.

                                     19
 1   Ins. Bureau v. Superior Court, 50 Cal. 3d 658, 663–65, 268 Cal.
 2   Rptr. 284, 287–88 (1990).    Finally, the issue was actually
 3   litigated because the parties themselves fixed the damages amount
 4   in the Settlement Agreement, and necessarily decided because the
 5   damages amount is on the face of the Stipulated Judgment.      The
 6   Stipulated Judgment liquidated the damages.    Consequently, the
 7   bankruptcy court was not required to hold a prove-up hearing for
 8   damages.   See Davis, 659 F.2d at 1161.
 9        Sharma argues that the bankruptcy court should not have
10   given preclusive effect to the facts underlying the Stipulated
11   Judgment because it included no findings of fact.    Sharma is
12   correct on the law, but there is no indication that the
13   bankruptcy court gave preclusive effect to the Stipulated
14   Judgment for any issue aside from damages.    Again, so long as the
15   facts in the Complaint support a determination of liability, the
16   Amended Judgment survives.
17        We now turn to the heart of this appeal — the issue of
18   whether the facts alleged in the Complaint, and deemed true upon
19   Sharma’s default, support the bankruptcy court’s determination of
20   nondischargeability under Section 523(a)(2)(A).    We may affirm
21   the bankruptcy court’s decision on any ground finding support on
22   the record.   Eitel, 782 F.2d at 1471.    As discussed above, we
23   review for abuse of discretion.    Hinkson, 585 F.3d at 1262.      So
24   long as the bankruptcy court applied the correct legal rule, we
25   reverse only if the bankruptcy court’s application of the law to
26   the facts was “illogical, . . . implausible, . . . or without
27   support in inferences that may be drawn from the record” — in
28   other words, clearly erroneous.    Id.

                                       20
 1        The first issue is whether the bankruptcy court applied the
 2   correct legal rule.     There can be no doubt that it did.
 3   Section 523(a)(2)(A) is often litigated in bankruptcy court; the
 4   Complaint clearly identified the claim under this section; and
 5   the Judgment (and Amended Judgment) specify that relief is
 6   afforded under this section.
 7        The Ninth Circuit has established a multi-factor test for
 8   the consideration of default judgments:
 9        (1) the possibility of prejudice to the plaintiff,
          (2) the merits of plaintiff’s substantive claim,
10        (3) the sufficiency of the complaint, (4) the sum of
          money at stake in the action, (5) the possibility of a
11        dispute concerning material facts, (6) whether the
          default was due to excusable neglect, and (7) the
12        strong policy underlying the Federal Rules of Civil
          Procedure favoring decisions on the merits.
13
14   Eitel, 782 F.2d at 1471–72.
15        1.     Prejudice
16        The issue is whether Salcido, if the court had not entered
17   default judgment, would have suffered lengthy and costly delays
18   or been left without other recourse for recovery or the means to
19   prevent ongoing harm.    See IO Group, Inc. v. Jordan, 708 F. Supp.
20   2d 989, 997 (N.D. Cal. 2010); Warner Bros. Entm’t Co. v. Caridi,
21   346 F. Supp. 2d 1068, 1072 (N.D. Cal. 2004); Phillip Morris USA,
22   Inc. v. Castworld Prods., Inc., 219 F.R.D. 494, 499 (C.D. Cal.
23   2003).    Sharma’s discovery misconduct led to delays in the
24   adversary proceeding and increased costs to Salcido (e.g.,
25   increased legal fees to prepare motions for sanctions).      If the
26   default judgment had not been entered, then the harm, in the form
27   of not being able to pursue relief under the Stipulated Judgment
28   due to the automatic stay, would have continued.    Salcido would

                                       21
 1   have certainly suffered prejudice had default judgment not been
 2   entered.
 3        2.     Merits of Plaintiff’s Substantive Claims and
                 Sufficiency of the Complaint
 4
 5        The second and third factors, taken together, require that
 6   Salcido assert a claim upon which she may recover.    IO Group,
 7   708 F. Supp. 2d at 997.   Default judgment is favored where “the
 8   complaint sufficiently states a claim for relief under the
 9   ‘liberal pleading standards embodied in Rule 8’ of the Federal
10   Rules of Civil Procedure.”   Stephens Media LLC v. CitiHealth,
11   LLC, No. 2:09-cv-02285-MMD-RJJ, 2012 WL 4711957 (D. Nev. Oct. 3,
12   2012) (quoting Danning v. Lavine, 572 F.2d 1386, 1389 (9th Cir.
13   1978)).    In other words, the complaint must plead facts which, if
14   taken as true, plausibly give rise to liability for fraud under
15   Section 523(a)(2)(A).   Ashcroft v. Iqbal, 556 U.S. 662, 678–79
16   (2009).    For default judgment based solely on the complaint,
17   without the benefit of a prove-up hearing, the facts in the
18   complaint must go beyond being well-pled; they must support the
19   ultimate determination of liability.   In this circumstance, the
20   two factors collapse into a single analysis because if a
21   complaint supports a determination of liability, the claim(s)
22   upon which that liability is based were perforce well-pled.
23        Section 523(a)(2)(A) excepts from discharge debts incurred
24   under false pretenses, based on false representations, or actual
25   fraud.    11 U.S.C. § 523(a)(2)(A) (2012).   To establish fraud
26   under this section, the following five elements must be proven by
27   a preponderance of the evidence: (1) the debtor made a
28   representation; (2) the debtor knew that the representation was

                                      22
 1   false at the time he or she made it; (3) the debtor made the
 2   representation with the intent to deceive; (4) the creditor
 3   justifiably relied on the representation; and (5) the creditor
 4   sustained damage as a proximate result of the misrepresentation
 5   having been made.   Ghomeshi v. Sabban (In re Sabban), 600 F.3d
 6   1219, 1222 (9th Cir. 2010).
 7        The execution of a contract is an implied representation of
 8   intent to honor its terms.    See Karelin v. Bank of Am. Nat’l
 9   Trust and Savs. Ass’n (In re Karelin), 109 B.R. 943, 947 (B.A.P.
10   9th Cir. 1990).
11        Knowing falsity requires that Sharma either knew at the time
12   he made the representations at issue that they were false or
13   recklessly disregarded their truth.   In re Sabban, 600 F.3d at
14   1222; Gertsch v. Johnson & Johnson, Fin. Corp. (In re Gertsch),
15   237 B.R. 160, 167 (B.A.P. 9th Cir. 1999).   “A representation may
16   be fraudulent, without [actual] knowledge of its falsity, if the
17   person making it ‘is conscious that he has merely a belief in its
18   existence and recognizes that there is a chance, more or less
19   great, that the fact may not be as represented.’”   In re Gertsch,
20   237 B.R. at 168 (quoting Restatement (Second) of Torts § 526
21   cmt. e (1977)).
22        Intent to deceive may be inferred from the totality of
23   circumstances.    Citibank (S.D.), N.A. v. Eashai (In re Eashai),
24   87 F.3d 1082, 1087 (9th Cir. 1996) (“A court may infer the
25   existence of the debtor’s [deceptive] intent . . . if the facts
26   and circumstances . . . present a picture of deceptive conduct by
27   the debtor.”).    “The debtor’s assertions of an honest intent must
28   be weighed against natural inferences from admitted facts.”

                                      23
 1   4 Collier on Bankruptcy ¶ 523.08[2][e][ii] (Alan N. Resnick &
 2   Henry J. Sommer eds., 16th ed. 2013).    A court may also infer
 3   intent to deceive where the debtor makes a false representation
 4   that the debtor knows, or should know, will induce the creditor
 5   to make a loan.   Cf. In re Gertsch, 237 B.R. 160 (upholding
 6   nondischargeability determination under Section 523(a)(2)(B)
 7   where debtor knowingly provided false income and asset
 8   information on loan application).     Finally, intent to deceive may
 9   be inferred if a debtor takes no steps to perform under a
10   contract.   Merchs. Nat’l Bank & Trust Co. of Indianapolis v.
11   Pappas (In re Pappas), 661 F.2d 82, 86 (7th Cir. 1981).
12        Justifiable reliance is a subjective standard that turns on
13   a person’s knowledge under the particular circumstances.
14   In re Eashai, 87 F.3d at 1090.   “‘Justification is a matter of
15   the qualities and characteristics of the particular plaintiff,
16   and the circumstances of the particular case, rather than of the
17   application of a community standard of conduct to all cases.’”
18   Id. (quoting Field v. Mans, 516 U.S. 59, 70 (1995)).     The
19   justifiable reliance standard generally does not entail a duty to
20   investigate, and a person may be justified in relying on a
21   representation of fact even if he might have ascertained the
22   falsity of the representation had he investigated.    See Field,
23   516 U.S. at 70.   A duty to investigate, however, is imposed on a
24   creditor by virtue of suspicious circumstances.    Id. at 71; see
25   Wheels Unlimited, Inc. v. Sharp (In re Sharp), 2009 WL 511640
26   (Bankr. D. Idaho 2009).   Thus, “justifiable reliance does not
27   exist where a creditor ignores red flags.”    Mandalay Resort Grp.
28   v. Miller (In re Miller), 310 B.R. 185, 198 (Bankr. C.D. Cal.

                                      24
 1   2004) (citing In re Anastas, 94 F.3d at 1286).    “[A] person
 2   cannot purport to rely on preposterous representations or close
 3   his eyes to avoid discovery of the truth.”   In re Eashai, 87 F.3d
 4   at 1090–91.
 5        The bankruptcy court did not clearly indicate on which
 6   instance of alleged fraud — inducement of the promissory notes or
 7   inducement of the Settlement Agreement — it based the default
 8   judgment.    Nor did the bankruptcy court make any specific
 9   findings of fact.   With respect to the Section 523(a)(2)(A)
10   claims, the Amended Judgment only states,
11        ORDERED that the judgment entered for Plaintiff, Carmen
          Salcido and against Defendant, Sanjesh Sharma in the
12        amount of $240,000 in Case No. KC051243, styled Salcido
          v. Sharma Developments, Inc., et al., in the Superior
13        Court of California, County of Los Angeles, on
          December 29, 2008, is nondischargeable under 11 U.S.C.
14        § 523(a)(2)(A)[.]
15   Am. J. (Dec. 6, 2012).
16        We first note that the novation worked by the Settlement
17   Agreement is not a bar to inquiry about the underlying fraud
18   claim.   Archer v. Warner, 538 U.S. 314, 323 (2003) (The
19   “settlement agreement and releases may have worked a kind of
20   novation, but that fact does not bar the [plaintiffs] from
21   showing that the settlement debt arose out of . . . fraud[.]”
22   (internal quotation marks and citation omitted)).   Consequently,
23   the bankruptcy did not err by looking beyond the Settlement
24   Agreement to assess the fraudulent inducement of the promissory
25   notes.
26        But a fair reading of the bankruptcy court’s order is that
27   the court also relied on the fraud inducing the Settlement
28   Agreement.    The reference to the state court Stipulated Judgment,

                                      25
 1   which directly flowed from the Settlement Agreement, indicates
 2   that the court did not solely rely on the fraud inducing the
 3   promissory notes.   We need not determine on which instance the
 4   bankruptcy court relied, however.    Because we can affirm on any
 5   ground in the record, Eitel, 782 F.2d at 1471, we separately
 6   analyze both instances of alleged fraud to determine if either
 7   (or both) support the bankruptcy court’s decision.
 8             a.   Inducement of the Promissory Notes
 9        As the bankruptcy court did not explain its reasoning in the
10   Amended Judgment, the bankruptcy court would have been entirely
11   justified in relying on inferences drawn from the facts in the
12   Complaint to determine that Sharma had violated
13   Section 523(a)(2)(A).   To assess these inferences, we first look
14   at the Complaint:
15        Plaintiff told Sharma that she needed to invest this
          money, $240,000 in all, in something that would make
16        her money right away to cover her now large mortgage
          payment. . . .
17
          . . . Sharma told [Salcido] that he would buy homes,
18        refurbish them, and resell them at a profit. Sharma
          made many efforts to impress [Salcido] with his wealth
19        and success. Sharma suggested that [Salcido] meet him
          at his office[,] where [he] had numerous people who
20        appeared to be working for him. He also claimed to own
          many properties and showed [Salcido] a list of the
21        numerous homes that he claimed to own. . . .
22        . . . Sharma also made efforts on repeated occasions in
          person with both [Salcido] and Franco present in order
23        to impress them with his success and wealth. Sharma
          bragged that he drove nice cars (a Bentley, an S-Class
24        Mercedes, and a Range Rover, all newer models), took
          lavish vacations, including to the World Cup, flew his
25        friends around in private jets, owned multiple race
          horses, and was in the process of building a huge,
26        palatial home with over 14 flat screen televisions for
          just himself, his wife, and two children. Sharma
27        presented himself in very nice clothes and his office
          was extremely nice, especially to a simple person like
28        [Salcido]. To [Salcido], no one could afford these

                                     26
 1        things unless they were very successful. Neither
          [Salcido] nor Franco knew anyone with this level of
 2        wealth and success and both felt totally impressed and
          in awe of Sharma. . . .
 3
          . . . Sharma guaranteed to [Salcido] that she would
 4        make a 20% profit on investments. . . .
 5        The interest that Sharma promised was particularly
          enticing to [Salcido] because this amount would cover
 6        [Salcido’s] mortgage, taxes, and leave her with a
          little spending money. [Salcido] cried to Sharma about
 7        how she had a huge mortgage payment at an advanced age
          in life and desperately needed the interest to
 8        survive. . . .
 9        [Salcido] let Sharma know that she would like to
          invest. . . .
10
          Sharma and [Salcido] had a second meeting at Sharma’s
11        office and again with Franco present. At that time,
          [Salcido] gave Sharma a check for $240,000. Sharma
12        gave [Salcido] a check, as well, which he told her was
          an up front payment for interest, to help induce
13        [Salcido] that he had the money to cover the interest
          and payments. . . .
14
          After [Salcido] provided Sharma and his company with
15        the check for $240,000 [on May 5, 2005], Sharma
          Developments, Inc. provided [Salcido] payments totaling
16        $31,300 on May 5, 200[5] and September 1, 2005. . . .
17        . . . Sharma gave [Salcido] these large payments to
          further entice her to believe him, further impress
18        [her] with his wealth, and make her feel a false sense
          of security regarding her investment.
19
20   Compl. (Feb. 16, 2011) at ¶¶ 5–7, 10–14, 25, 27.
21        By March 27, 2006, nearly three months after the term under
22   the First Promissory Note had expired, Sharma had paid Salcido
23   the entire interest amount due — $48,000.   The Complaint
24   continues:
25        The first year, Sharma may have been late with interest
          payments, but [Salcido] was willing to work with this.
26        . . . He always seemed to make a check available, and
          then would tell them about his lavish lifestyle,
27        including his travels and expensive purchases. With
          these stories of his great wealth and his always
28        managing to pay [Salcido], even if sometimes late,

                                    27
 1        [Salcido] did not worry and felt that Sharma would
          always pay her eventually. . . .
 2
          Because the interest payments seemed profitable to
 3        [Salcido] that first year, even if they were sometimes
          sporadic, [Salcido] agreed to roll over her initial
 4        investment for another year with Sharma in May
          2005. . . .
 5
          . . . Sharma had not refurbished the properties in
 6        order to flip them, as he had told her. After
          [Salcido] invested with [Sharma], she began to find out
 7        that they had let some or all of those properties go to
          utter waste. Some even ended up being condemned during
 8        the time that [Salcido] was still dealing with [Sharma]
          and actively investing with him. . . .
 9
          . . . Sharma did nothing but sell [Salcido] a “bill of
10        goods” and return pennies to her of her own money while
          he ran off with the rest of the investment. . . .
11
          Had Plaintiff known the truth about Sharma, his failure
12        to maintain and/or actually refurbish the properties
          that he was investing her money into, and the real
13        state of his finances, she never would have invested
          with him. . . .
14
          . . . [Sharma] never intended to repay [Salcido] for
15        the money she loaned him.
16   Id. ¶¶ 31–32, 46–48, 50, 64.
17        Taking the above factual allegations as true, we cannot say
18   that the bankruptcy court erred in making the inferences
19   necessary to support a determination of nondischargeability under
20   Section 523(a)(2)(A) for fraudulent inducement of the promissory
21   notes.   The following conclusions are neither illogical,
22   implausible, or without support in inference that may be drawn
23   from facts in the record: (i) Sharma represented that he was
24   wealthy and successful, and that he would invest the loan
25   proceeds into flipping real estate; (ii) he knew these
26
27
28

                                     28
 1   representations were false at the time he made them;12 (iii) he
 2   made the representations with the intent to deceive Salcido;13
 3   (iv) Sharma justifiably relied on the representations; and
 4   (v) Salcido sustained damage — the loss of $240,000 in loan
 5   principal — as a proximate result of the misrepresentations.
 6   Hinkson, 585 F.3d at 1261–62.   Although there may be other
 7   permissible views of the evidence, Sharma has put forth none that
 8   render this view clearly erroneous.   Anderson, 470 U.S. at 574.
 9
10
11        12
           Sharma argues that the loan proceeds were in fact used for
12   “real estate development.” Appellant’s Am. Opening Br. (Nov. 14,
     2012) at ¶ 17. It is possible that Salcido and Sharma are both
13   correct — that the funds were used for real estate development
     and that some of the related properties went to utter waste.
14   Sharma, however, does not substantiate his assertion of how the
15   funds were used, and, more importantly, does not refute Salcido’s
     allegation that he was not refurbishing and selling the
16   properties as he promised he would do. Sharma represented that
     he would flip the properties, not just invest the loan proceeds
17   in “real estate development.”
18        13
           Sharma’s argument that “one who intends to commit fraud
19   does not take funds and repay it” is unavailing. Id. ¶ 24.
     Sharma has not repaid any of the principal amount, and a party
20   who wishes to defraud another may be incentivized to make several
     payments to establish trust and induce further “investments.”
21   The facts here illustrate the premise that trust is the
     foundation of a good con. Salcido agreed to roll over her loan
22
     in the Second Promissory Note based on Sharma’s performance
23   (albeit untimely) under the First Promissory Note.

24        Sharma’s argument that Salcido “assumed the risk” is equally
     unavailing. Id. ¶ 26. A creditor only assumes the risk that the
25   borrower will be unable to repay the loan, not that the borrower
26   does not intend to repay the loan in the first place. See
     In re Karelin, 109 B.R. at 947. Put another way, the act of
27   borrowing implies an intent to repay the loan. In any event, the
     fraud here is not the deception as to intent to pay but deception
28   about the ability to pay.

                                     29
 1             b.   Inducement of the Settlement Agreement
 2        Concerning this instance of fraud, the Complaint alleges:
 3        On or about August 7, 2008, Sharma stipulated to a
          judgment against his companies and him personally for
 4        $240,000. . . .
 5        Sharma never made any payment on that Judgment.
 6        Sharma never had any intention of honoring that
          Judgment.
 7
          Sharma maliciously and fraudulently induced [Salcido]
 8        to accept a stipulated Judgment that he never intended
          on performing and has made no effort to perform
 9        upon. . . . Sharma set it up so that [Salcido’s] and
          any other judgment would be difficult, if not
10        impossible, to collect because he transferred all of
          his assets to appear insolvent and justify a bankruptcy
11        action.
12        Sharma transferred assets and directed people within
          his business to transfer assets from himself to others
13        to appear insolvent.
14        [Sharma] . . . entered into stipulations and agreements
          for payment, including the Stipulated Judgment, in bad
15        faith and with no intent to ever perform . . . .
16        [Salcido] incurred damages as a result of the
          foregoing . . . .
17
18   Compl. (Feb. 16, 2011) at ¶¶ 53, 56–58, 60, 66, 68.
19        As with the promissory notes, we cannot say that the
20   bankruptcy court erred in relying on these factual allegations to
21   make the inferences necessary to support a determination of
22   nondischargeability under Section 523(a)(2)(A) for fraudulent
23   inducement of the Settlement Agreement.   The following
24   conclusions are neither illogical, implausible, or without
25   support in inference that may be drawn from facts in the record:
26   (i) Sharma represented that he would honor the Settlement
27   Agreement; (ii) he knew that representation was false at the time
28   he made it; (iii) he made the representation with the intent to

                                    30
 1   deceive Salcido; (iv) Salcido justifiably relied on the
 2   representation; and (v) Salcido sustained damage — forestalled
 3   collection remedies now valued at zero because the bankruptcy
 4   filing prevents a return to state court, and less favorable
 5   payback terms (five years at 7% under the Settlement Agreement
 6   compared to immediate payment with 10% post-judgment interest
 7   upon a judgment in state court14) — as a proximate result of the
 8   misrepresentation.     Hinkson, 585 F.3d at 1261–62.       Although there
 9   may be other permissible views of the evidence, Sharma has put
10   none forth that render this view clearly erroneous.         Anderson,
11   470 U.S. at 574.
12        As the record supports a determination of fraud in the
13   inducement as to the promissory notes and as to the Settlement
14   Agreement, the third and fourth Eitel factors strongly weigh in
15   favor of affirmance.
16        We now return to the remainder of the Eitel factors.
17        3.      Sum of Money at Stake
18        Under this factor, “the court must consider the amount of
19   money at stake in relation to the seriousness of Defendant’s
20   conduct.”     PepsiCo, Inc. v. Cal. Security Cans, 238 F. Supp. 2d
21   1172, 1176 (C.D. Cal. 2002).     Where the amount of money is high
22   and the seriousness of conduct is low, default judgment is
23   disfavored.     See id. at 1176–77.       Similarly, if the plaintiff
24   seeks equitable relief and the defendant’s conduct was severe,
25   default judgment is favored.     Id.       Although here the amount of
26   money is significant — $240,000 — it is outweighed by the
27
28        14
               Cal. Code Civ. Proc. § 685.010 (West 2012).

                                          31
 1   seriousness of Sharma’s fraudulent conduct.     The allegations of
 2   the Complaint are that he misled Salcido, an unemployed person in
 3   dire straits, and thereby induced her to hand over the proceeds
 4   of a home equity line of credit — a line of credit whose payments
 5   he knew depended on the performance of investments which he did
 6   not even make.   This factor strongly favors upholding the Amended
 7   Judgment.
 8        4.     Possibility of Dispute Concerning Material Facts
 9        This factor “considers the possibility of a dispute
10   concerning material facts.”   In re Eitel, 782 F.2d at 1471–72.
11   The more precise question is whether there is even a possibility
12   of a dispute concerning material facts as a result of the
13   default.    See Cal. Security Cans, 238 F. Supp. 2d at 1176;
14   Caridi, 346 F. Supp. 2d at 1072.      The answer is no.   We rely only
15   on the facts alleged in the Complaint (deemed true by operation
16   of Sharma’s default).   Thus, there is no possibility of disputing
17   the material facts contained in the Complaint, as Sharma’s own
18   actions resulted in the entry of default and the consequent
19   position that the well-plead allegations of the Complaint were
20   undisputed.   See Caridi, 238 F. Supp. 2d at 1072.
21        5.     Default Due to Excusable Neglect
22        Default judgment is generally disfavored where default
23   resulted from excusable neglect.      “A defendant’s conduct is
24   culpable if he has received actual or constructive notice of the
25   filing of the action and failed to answer.”     Meadows v. Dominican
26   Republic, 817 F.2d 517, 521 (9th Cir. 1987).      Sharma’s behavior
27   went well beyond failing to answer a properly-served complaint.
28   He answered and actively participated in discovery.       His

                                      32
 1   discovery abuse led to sanctions, including striking his Answer,
 2   which in turn led directly to the entry of default.    This factor
 3   strongly favors upholding the Amended Judgment.
 4        6.   Policy Favoring Decisions on the Merits
 5        While there is a “strong policy underlying the Federal Rules
 6   of Civil Procedure favoring decisions on the merits,”
 7   In re Eitel, 782 F.2d at 1470, this factor standing alone is
 8   insufficient to prevent entry of default judgment.    Caridi,
 9   346 F. Supp. 2d at 1073.   As this is the only factor in Sharma’s
10   favor, it does not carry sufficient weight to justify reversing
11   the Amended Judgment.    Id.
12        Because the Eitel factors strongly weigh in favor of
13   upholding the Amended Judgment in the amount of $240,000,15 we
14   have no difficulty doing so.
15        Even if the Eitel factors did not weigh so heavily, we would
16   likely affirm in any case because of the potential negative
17   effects of a reversal.   In this specific context — a default
18   judgment following sanctions for discovery abuse that include a
19   stricken answer — a reversal would likely lead to the bankruptcy
20   court allowing the plaintiff to amend her complaint.    The
21   defendant would then have the opportunity to file an answer.     The
22
23
          15
           We do not credit the $86,700 that Sharma paid to Salcido
24   against the $240,000 loan principal. Sharma agreed to liability
     for $240,000 in the Stipulated Judgment after he had made the
25   $86,700 payments to Salcido. To the extent that anyone has a
26   complaint about the judgment amount, it would be Salcido as she
     may have had a right to seek additional amounts for interest
27   incurred. But she also agreed to the judgment amount in the
     Stipulated Judgment. Thus, neither party has grounds to
28   challenge the judgment amount and $240,000 is the correct figure.

                                     33
 1   sting of the sanction striking the answer would thus be removed,
 2   as the defendant would ultimately have the opportunity to
 3   challenge the plaintiff’s factual allegations.   A defendant’s
 4   obstruction and malfeasance in discovery, which is the very
 5   process by which a plaintiff obtains information necessary to
 6   prove the facts plead in the complaint, would thus be rewarded.
 7   Instead of moving to dismiss under Civil Rule 12(b)(6) for
 8   failure to state a claim or moving for summary judgment under
 9   Civil Rule 56, a defendant believing that either the complaint is
10   insufficient or that the plaintiff has insufficient facts to
11   proceed to trial could affirmatively thwart a plaintiff’s
12   discovery efforts with the knowledge that a stricken answer will
13   merely lead to an amended complaint and the opportunity to
14   replead the answer.   In addition, the plaintiff would lose the
15   opportunity to meaningfully amend its pleadings under Rule 7015
16   because the plaintiff would not be able to discover the very
17   facts that would support such amendment.   Rule 7015.
18        Moreover, there is a strong inference that the court
19   believed in the sufficiency of the Complaint and intended
20   striking the answer to be a terminating sanction.   If not, the
21   Judgment would not have followed so closely behind the sanction
22   order and/or the bankruptcy court would have held a prove-up
23   hearing to determine liability.    If the Complaint were
24   insufficient to support liability, striking the answer would have
25   been an essentially meaningless action as Salcido’s only avenue
26   for relief would have been to amend the Complaint, which in turn
27   would have given Sharma the opportunity to replead the answer.
28   If we were to reverse, we would be diminishing the bankruptcy

                                       34
 1   court’s power to monitor the litigation before it by making
 2   terminating sanctions partially or completely irrelevant.    See
 3   In re Nguyen, 447 B.R. 268, 280 (B.A.P. 9th Cir. 2011) (en banc)
 4   (“Bankruptcy courts have the inherent authority to regulate the
 5   practice of attorneys who appear before them.”) (citing Chambers
 6   v. NASCO, Inc., 501 U.S. 32, 43–45 (1991)).    We refuse to condone
 7   the behavior that would likely follow from a reversal.
 8        We now turn to the issue of attorney’s fees.
 9   C.   The Bankruptcy Court Erroneously Awarded Attorney’s Fees to
          Salcido.
10
          1.     The Bankruptcy Court’s Jurisdiction to Award Attorney’s
11               Fees
12        The effective filing of a notice of appeal transfers
13   jurisdiction from the bankruptcy court to this court with respect
14   to all matters involved in the appeal.   See Masalosalo by
15   Masalosalo v. Stonewall Ins. Co., 718 F.2d 955, 956 (9th Cir.
16   1983) (citing Griggs v. Provident Consumer Disc. Co., 459 U.S. 56
17   (1982) (per curiam)).   But this rule of exclusive appellate
18   jurisdiction is a “creature of judicial prudence . . . and is not
19   absolute.   It is designed to avoid the confusion and inefficiency
20   of two courts considering the same issues simultaneously.”     Id.
21   To avoid piecemeal appeals, “prevent delay and duplication at the
22   appellate level, [and] prevent hasty consideration of
23   postjudgment fee motions,” bankruptcy courts “retain the power to
24   award attorney’s fees after the notice of appeal has been filed.”
25   Id. at 957 (discussing the power of the district court); U.S. ex
26   rel. Shutt v. Cmty. Home & Health Care Servs., Inc., 550 F.3d
27   764, 766 (9th Cir. 2008); U.S. v. Edwards, 800 F.2d 878, 884 (9th
28   Cir. 1986); J.J.W.C. Enters. v. Pugh (In re Pugh), 72 B.R. 174,

                                      35
 1   178 (D. Or. 1986).
 2        Accordingly, the bankruptcy court retained the power to
 3   order attorney’s fees upon Salcido’s post-Notice of Appeal motion
 4   and did not err by exercising that power.
 5        2.   The Merits of the Attorney’s Fee Award / California Law
 6        Although the bankruptcy court had the power to order
 7   attorney’s fees, the thornier question is whether the court
 8   applied the correct legal rule.    As a matter of law, was Salcido
 9   entitled to attorney’s fees?   Under the principle known as the
10   “American Rule,” prevailing parties in federal court are not
11   ordinarily entitled to attorney’s fees unless authorized by
12   contract or by statute.   Alyeska Pipeline Serv. Co. v. Wilderness
13   Soc’y, 421 U.S. 240, 257 (1975).       The Bankruptcy Code does not
14   provide a general right to recover attorney’s fees.      Heritage
15   Ford v. Baroff (In re Baroff), 105 F.3d 439, 441 (9th Cir. 1997).
16        The Supreme Court has addressed the precise issue of whether
17   a prevailing creditor can recover attorney’s fees in a
18   Section 523(a)(2) action.    In Cohen v. de la Cruz, 523 U.S. 213
19   (1998), the Court held that a debt incurred by fraud can include
20   costs and attorney’s fees.   “Once it has been established that
21   specific money or property has been obtained by fraud, . . . ‘any
22   debt’ arising therefrom is excepted from discharge.”      Id. at 218.
23        A prevailing creditor’s right to attorney’s fees is not
24   absolute, however.   We have interpreted Cohen such that “the
25   determinative question for awarding attorney’s fees is whether
26   the creditor would be able to recover the fee outside of
27   bankruptcy under state or federal law.”      AT & T Universal Card
28   Servs., Corp. v. Hung Tan Pham (In re Hung Tan Pham), 250 B.R.

                                       36
 1   93, 99 (B.A.P. 9th Cir. 2000).   Put more precisely, the question
 2   is “whether [the] creditor would be entitled to fees in state
 3   court for ‘establishing those elements of the claim which the
 4   bankruptcy court finds support a conclusion of
 5   nondischargeability.’”   In re Dinan, 448 B.R. at 785 (quoting
 6   Kilborn v. Haun (In re Haun), 396 B.R. 522, 528 (Bankr. D. Idaho
 7   2008)).
 8        Because the basis for attorney’s fees can be statutory or
 9   contractual, id. at 786, and there is no express statutory basis
10   for attorney’s fees, our analysis centers on the attorney’s fee
11   provision in the Settlement Agreement as construed under non-
12   bankruptcy law (as there is no such provision in either of the
13   promissory notes).   If the scope of the attorney’s fee provision
14   is broad enough to encompass a state court action that has the
15   same elements as a Section 523(a)(2)(A) claim — common law fraud
16   — then Salcido is entitled to attorney’s fees.   Turtle Rock
17   Meadows Homeowners Ass’n v. Slyman (In re Slyman), 234 F.3d 1081,
18   1083 (9th Cir. 2000) (all five elements of common law fraud under
19   California law must be proven to support nondischargeability
20   determination under § 523(a)(2)(A)).
21        In relevant part, the attorney’s fee provision states,
22        [I]t is agreed by the parties that all attorneys’ fees
          and costs incurred as a result of or in connection to
23        the LAWSUIT, mediation, and settlement shall be borne
          by the parties who incurred such attorneys’ fees and
24        costs. Should suit be brought to enforce or interpret
          any part of this Agreement, the “prevailing party”
25        shall be entitled to recover as an element of costs of
          suit and not as damages, reasonable attorneys’ fees
26        fixed by the Court. The “prevailing party” shall be the
          party entitled to recover his/her/its costs of suit,
27        regardless of whether such suit proceeds to final
          judgment.
28

                                      37
 1   Settlement Agreement (July 8, 2008) at ¶ 19 (emphasis added).
 2   Salcido is unquestionably the prevailing party, as we affirm the
 3   bankruptcy court’s determination of fraud in the procurement of
 4   the Settlement Agreement.    We focus solely on that fraud because,
 5   of the two frauds committed by Sharma, it is the only one that
 6   involves the Settlement Agreement and thus the only one that
 7   could support attorney’s fees under that agreement.
 8           We interpret the Settlement Agreement under California law
 9   because the “governing law” provision in the agreement so
10   mandates.    Id. ¶ 16.   California statute expressly allows parties
11   to contract as they see fit concerning the payment of attorney’s
12   fees.    “Except as attorney’s fees are specifically provided for
13   by statute, the measure and mode of compensation of attorneys is
14   left to the agreement, express or implied, of the parties[.]”
15   Cal. Code Civ. Prov. § 1021 (West 2012).    The type of claim —
16   tort, contract, or otherwise — is irrelevant under the statute.
17   Miske v. Bisno, 139 Cal. Rptr. 3d 626, 634, 204 Cal. App. 4th
18   1249, 1259 (2012); see Redwood Theaters, Inc. v. Davison
19   (In re Davison), 289 B.R. 716, 724 (B.A.P. 9th Cir. 2003).     The
20   sole issue is whether the contractual provision itself covers
21   tort claims for fraud.    See Miske, 139 Cal. Rptr. 3d at 634.
22           The California courts have repeatedly interpreted clauses
23   that authorize attorney’s fees to “enforce” or “interpret” a
24   contract to not include tort claims for fraud.    Exxess
25   Electronixx v. Heger Realty Corp., 75 Cal. Rptr. 2d 376, 383–84,
26   64 Cal. App. 4th 698, 707–08 (1998); see Xuereb v. Marcus &
27   Millichap, Inc., 5 Cal. Rptr. 2d 154, 157, 3 Cal. App. 4th 1338,
28   1341–42 (1992).    On the other hand, California courts have held

                                       38
 1   that certain broadly-worded clauses do cover fraud claims.
 2   Santisas v. Goodin, 951 P.2d 399, 405, 17 Cal. 4th 599, 608
 3   (1998) (“claims arising out of the execution of the agreement or
 4   the sale” (internal quotation marks omitted) (emphasis added));
 5   Miske, 204 Cal. Rptr. 3d at 628–29 (“If any dispute arises
 6   between the Partners . . . prevailing party shall be entitled to
 7   . . . reasonable attorney’s fees.” (emphasis added)); Lerner v.
 8   Ward, 16 Cal. Rptr. 2d 486, 488, 13 Cal. App. 4th 155, 159 (1993)
 9   (“in any action or proceeding arising out of this agreement”
10   (internal quotation marks omitted) (emphasis added)); Xuereb,
11   5 Cal. Rptr. 2d at 160–61 (“attorney fees and costs in any
12   lawsuit or other legal proceeding to which this Agreement gives
13   rise” (internal quotation marks omitted) (emphasis added)).
14        Xuereb stated that “gives rise” even includes events that
15   occurred prior to contract formation.   5 Cal. Rptr. 2d at 160–61.
16   But even the phrase “any dispute” is not determinative, as a
17   clause limiting fees to “any dispute under this agreement” does
18   not cover fraud claims because “under this agreement” limits the
19   claims to those that arise directly out of the contract and not
20   those that rely on events that occurred before contract
21   formation.    See Thompson v. Miller, 4 Cal. Rptr. 3d 905, 911, 112
22   Cal. App. 4th 327, 334 (2003).
23        The attorney’s fee provision in the Settlement Agreement is
24   limited to actions to “enforce or interpret any part of this
25   agreement.”   The plain language of the provision is not broad
26   enough to encompass a claim for fraud in the inducement.   See
27   Exxess Electronixx, 75 Cal. Rptr. 2d at 383–84; Xuereb, 5 Cal.
28   Rptr. 2d at 157.   Under California law, a tort claim does not

                                      39
 1   “enforce” a contract or operate to declare a party’s rights under
 2   a contract.   Exxess Electronixx, 75 Cal. Rptr. 2d at 384.
 3        Moreover, the first quoted sentence of the attorney’s fee
 4   provision defines a broader category of matters — all those “in
 5   connection to the LAWSUIT, mediation, and settlement” — and
 6   states that each party shall bear its own fees in connection
 7   thereto.   The parties apparently contemplated a wide range of
 8   actions that could arise from the agreement and the underlying
 9   suit and set the American Rule as a baseline.     The next sentence
10   demarcates a more limited universe of actions — those that
11   “enforce” or “interpret” the agreement itself — which does not
12   include tort claims for fraud.   Id. at 383–84.
13        Salcido argues that because the state court complaint
14   alleged fraud and the Settlement Agreement was executed to settle
15   the fraud claim (as well as the breach of contract claim), then
16   the attorney’s fee provision must contemplate fraud claims.     This
17   would be a reasonable, although incorrect, reading of Archer.
18   Archer does not speak to the interpretation or scope of any
19   particular term of a settlement agreement.   Rather, it authorizes
20   courts to review settlement agreements to determine if they
21   “reflect[] settlement of a valid claim for fraud.”    Archer,
22   538 U.S. at 320.   Archer examined the permissible scope of
23   settlement agreements on the whole in light of Congress’s intent
24   under Section 523(a) to “ensure that all debts arising out of
25   fraud are excepted from discharge, no matter what their form.”
26   Id. at 321 (internal quotation marks and citation omitted).      The
27   dischargeability of the underlying fraudulently incurred debt is
28   not dependent on the scope of an attorney’s fee provision.      Thus,

                                      40
 1   Archer should not be read to mean that all attorney’s fee
 2   provisions, no matter their specific language, contemplate the
 3   fraud claims underlying the settlement.   In other words,
 4   Congress’s intent is fully served once a fraudulently incurred
 5   debt is excluded from discharge.
 6        It may be correct that Salcido subjectively intended the
 7   attorney’s fee provision to cover the fraud claim.   Contracts,
 8   however, are interpreted objectively.    See Donovan v. RRL Corp.,
 9   26 Cal. 4th 261, 271, 109 Cal. Rptr. 2d 807, 815 (2001).    We only
10   look to the facts and circumstances surrounding a contract’s
11   formation and apply the rules of interpretation if the meaning is
12   uncertain from the plain language.   Edwards v. Arthur Andersen
13   LLP, 44 Cal. 4th 937, 953, 81 Cal. Rptr. 3d 282, 295 (2008)
14   (“Where the language of a contract is clear and not absurd, it
15   will be followed.” (internal quotation marks omitted)).     Here,
16   the meaning of the attorney’s fee provision in the Settlement
17   Agreement is certain.   Multiple California cases have interpreted
18   essentially identical clauses and determined that fraud is not an
19   action to “enforce” or “interpret” a contract.   As a matter of
20   law then, Salcido was not entitled to attorney’s fees.
21   Accordingly, we REVERSE the award of attorney’s fees.
22                               CONCLUSION
23        The bankruptcy court applied the correct rule to analyze the
24   nondischargeability of Sharma’s debt to Salcido under
25   Section 523(a)(2)(A).   It acted within its discretion when it
26   decided that the facts in the Complaint supported the elements of
27   fraud for both instances of fraud — in the inducement of the
28   promissory notes and in the inducement of the Settlement

                                     41
 1   Agreement.   The Eitel factors weigh heavily in favor of upholding
 2   the Amended Judgment.   We thus AFFIRM the bankruptcy court’s
 3   determination of nondischargeability under Section 523(a)(2)(A)
 4   for Sharma’s debt to Salcido in the amount of $240,000.
 5        The bankruptcy court erred in determining that attorney’s
 6   fees were allowable to Salcido, as, under California law, the
 7   attorney’s fee provision in the Settlement Agreement was not
 8   broad enough to include tort actions for fraud.   We thus REVERSE
 9   the award of attorney’s fees to Salcido.
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

                                     42
