                                                             FILED
                                                             AUG 25 2015
 1                       NOT FOR PUBLICATION
 2                                                       SUSAN M. SPRAUL, CLERK
                                                           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.     CC-14-1314-TaKuD
                                   )
 6   JOEL WERNER and               )    Bk. No.     8:08-bk-11153-RK*
     CATHLEEN WERNER,              )
 7                                 )    Adv. No.    8:10-ap-01104-CB
                     Debtors.      )
 8   ______________________________)
                                   )
 9   JASON SCOTT WICKAM,           )
                                   )
10                   Appellant,    )
                                   )
11   v.                            )    MEMORANDUM**
                                   )
12   DEBORAH IVAR; ALAN IVAR;      )
     DAVID ROCHE,                  )
13                                 )
                     Appellees.    )
14   ______________________________)
15                 Argued and Submitted on June 18, 2015
                          at Pasadena, California
16
                          Filed - August 25, 2015
17
               Appeal from the United States Bankruptcy Court
18                 for the Central District of California
19      Honorable Catherine E. Bauer, Bankruptcy Judge, Presiding
20
21
          *
22           The bankruptcy court consolidated four related adversary
     proceedings; the lead was designated as 08:08-ap-01241-RK,
23   RSD Group Inc., et al. v. Werner (In re Werner). As a result,
24   the Werner bankruptcy case is designated as the bankruptcy case
     on appeal, although neither Joel Werner nor Cathleen Werner are
25   parties to the appeal.
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(c)(2).
 1   Appearances:     Robert R. Anderson argued for appellant; Michael
                      John Carras of Conforti & Carras argued for
 2                    appellees.
 3
 4   Before:    TAYLOR, DUNN, and KURTZ, Bankruptcy Judges.
 5
 6                               INTRODUCTION
 7        In an adversary proceeding commenced against debtor Jason
 8   Scott Wickam, plaintiffs Alan Ivar, Deborah Ivar, and David
 9   Roche alleged that the Debtor made misrepresentations and
10   fraudulently concealed material information, which induced them
11   to invest in an ultimately unsuccessful real estate development
12   project.    The Ivars and Roche sought a determination from the
13   bankruptcy court that their particular investments were
14   nondischargeable under § 523(a)(2)(A).1    After trial, the
15   bankruptcy court entered a judgment in favor of the Ivars and
16   Roche, determining the amount of $1,016,000 (plus post-judgment
17   interest) nondischargeable.
18        As to the judgment, we conclude that the bankruptcy court
19   did not make sufficient or complete findings with respect to
20   each investment and each element of § 523(a)(2)(A).      Therefore,
21   we VACATE the judgment and REMAND to the bankruptcy court with
22   instructions that it make additional findings.    The Debtor also
23   argues that, in contravention of § 523(a)(2)(A), the bankruptcy
24   court improperly relied on statements relating to his financial
25   condition.    We disagree and AFFIRM the bankruptcy court in this
26
27        1
             Unless otherwise indicated, all chapter and section
28   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.

                                      2
 1   regard.
 2                                  FACTS
 3        In 2005, the Debtor and Joel Werner formed Connexian
 4   Investments, Inc. for the purposes of developing, selling, and
 5   marketing high-end “spec” homes in Southern California and
 6   Colorado.    Connexian’s first project was Coral Blue, the
 7   construction and development of four lots (the “Properties”) in
 8   Southern California (the “Coral Blue Project”).    In early 2006,
 9   it contracted to purchase the Properties for $3,825,000.     But,
10   it lacked the funds necessary to complete the purchase and
11   obtained extensions to close escrow.
12        The Debtor and Werner also formed Coral Blue, LLC,
13   specifically for the Coral Blue Project.    And Connexian retained
14   RSD Group, Inc. to raise equity capital and financing for the
15   project.    Through RSD, Connexian pursued potential financing
16   from Point Center Financial, a self-described “hard money
17   lender.”
18        Eventually, Point Center loaned Connexian $6,587,100 to
19   fund the purchase of the Properties and the construction of two
20   spec houses.    To consummate the loan, the Debtor and Werner
21   executed a funding agreement on behalf of Connexian, which
22   contained a truncated loan term and a 11.5% interest rate.
23   Connexian finally completed its purchase of the Properties in
24   September of 2006.    The recorded deed of trust in favor of Point
25   Center reflected that Connexian owned the Properties.
26        Consistent with its charge to raise equity, in August 2006,
27   RSD also introduced the project to the Ivars and coordinated a
28   meeting between the Ivars and the Debtor and Werner.    Both the

                                      3
 1   Ivars and Roche, who was acquainted with the Debtor through
 2   prior construction projects, soon made investments.
 3        On August 28, 2006, the Ivars made an initial investment of
 4   $216,000 in the Coral Blue Project (“Ivars’ First Investment”).
 5   They contemporaneously executed a Coral Blue, LLC operating
 6   agreement dated August 18, 2006 (“Ivars’ LLC Agreement”),2 which
 7   purported to give the Ivars 216,000 governance units in Coral
 8   Blue, LLC.   In pertinent part, the agreement contained the
 9   following provision:
10        2.6 BUSINESS AND PURPOSE OF THE LLC. The purpose of
          the LLC is to engage in any lawful act or activities
11        for which a limited liability company may be organized
          under the Statute and specifically the purchasing,
12        developing, selling, and managing four residential
          properties identified as Lots 23, 26, 27 and 28,
13        located in Covenant Hills, Ladera Ranch (such
          business, including the provision of services with
14        respect to the products of the LLC, is herein referred
          to as the “Business of the LLC”).
15
16   (“Section 2.6”) (second emphasis added).
17        Apparently, in exchange for their investment, the Ivars
18   received from Connexian an unsecured promissory note in the
19   amount of $216,000.    The note matured in one year, required a
20   balloon payment, and carried a 25% annual interest rate.
21        Separately, on September 12, 2006, Roche completed a
22   $200,000 investment in the Coral Blue Project.    He also executed
23   a Coral Blue, LLC operating agreement, this one dated
24
25
26
          2
27           The Ivars also executed a Coral Blue, LLC subscription
     agreement, which purported to give them 216,000 membership units
28   in the company.

                                      4
 1   September 13, 2006 (“Roche LLC Agreement”).3
 2        Although dated only 26 days after the Ivars’ LLC Agreement,
 3   the Roche LLC Agreement contained material differences.       They
 4   included a completely different schedule of LLC members; the
 5   membership list in Roche’s agreement contained only himself, the
 6   Debtor, and Werner - there was no reference to the Ivars.         And,
 7   unlike the Ivars’ LLC Agreement, the Roche LLC Agreement did not
 8   contain the Section 2.6 language; in fact, there was no
 9   reference to the Properties at all.
10        A few months later, the Ivars agreed to further investment
11   in the Coral Blue Project.    Apparently, they understood that
12   these funds would be used to develop lots 26 and 27.       According
13   to the Ivars, the second investment consisted of two
14   installments: $200,000 in December 2006 and $400,000 in April
15   2007 (jointly, “Ivars’ Second Investment”).
16        In connection with the first installment, the Ivars
17   received a “straight note” from Connexian in the amount of
18   $200,000.    Pursuant to broker escrow instructions executed by
19   Alan Ivar and Werner, the $200,000 was also a 30-day loan to
20   Connexian.    The “loan” was secured by a deed of trust
21   encumbering lots 26 and 27; the deed of trust, however, was “to
22   be held unrecorded until maturity or satisfaction . . . .”
23        As to the second installment, Alan Ivar and Werner (on
24   behalf of Connexian) executed an “investment breakdown”
25   worksheet dated April 18, 2007.       The worksheet reflected a
26
          3
27           Like the Ivars, Roche also executed a Coral Blue, LLC
     subscription agreement, which allegedly gave him 200,000
28   membership units in the company.

                                       5
 1   proposed rate of interest of 25% to the Ivars, which the Ivars
 2   later attested referred to 25% of the profits from the
 3   construction of lots 26 and 27.
 4        In August 2007, Connexian obtained a second loan from Point
 5   Center, in the amount of $6.5 million dollars.   According to
 6   Connexian, this loan was intended for the construction on lots
 7   26 and 27.   The fall of 2007 then brought hurried efforts to
 8   refinance the first Point Center loan.   Connexian, however, was
 9   ultimately unsuccessful in these efforts, and the first Point
10   Center loan matured without repayment.
11        Point Center then learned that Connexian had encumbered the
12   Properties with junior liens, in express contravention of the
13   terms of its loans.   It notified Connexian that it was in
14   default of the terms of the second loan and that, as a result,
15   Point Center was accelerating the loan balance and required
16   immediate payment of the second loan in full.    Connexian could
17   not repay either of the Point Center loans, and Point Center
18   ultimately foreclosed on the Properties.    None of the Properties
19   had been fully developed, much less marketed or sold.    Connexian
20   ceased doing business in March 2008.
21        Next, the Ivars and Roche joined forces and commenced an
22   adversary proceeding against the Debtor.4   The adversary
23   complaint alleged fraud in the inducement and sought to except
24
25
26        4
             The Ivars and Roche also commenced an action against the
27   Debtor in California state court, where they obtained a default
     judgment. That judgment was later vacated, following the
28   Debtor’s bankruptcy filing.

                                       6
 1   their investments from discharge under § 523(a)(2)(A).5
 2   Following a successful petition for a transfer of venue to the
 3   Central District of California, the bankruptcy court
 4   consolidated four related adversary proceedings, including the
 5   proceeding against the Debtor.6
 6        During the one-day trial, counsel for the Ivars and Roche
 7   introduced two prior tax returns and the Debtor’s statements of
 8   financial affairs, as initially filed and twice amended, for the
 9   purposes of impeachment.   The bankruptcy court admitted the
10   documents as impeachment evidence.    It then took the matter
11   under submission.
12        The bankruptcy court subsequently entered an amended
13   statement of decision.   It found that Connexian’s purchase of
14   the Properties expressly contravened Section 2.6 of the Coral
15   Blue, LLC operating agreement.    And it found the Debtor not
16   credible as a witness, stating that it instead believed the
17   plaintiffs’ version of the events.    It thereafter entered a
18   judgment in favor of the Ivars for $816,000 (plus post-judgment
19   interest), and Roche for $200,000 (plus post-judgment interest).
20   The Debtor timely appealed.
21                              JURISDICTION
22        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
23
          5
24           The adversary complaint also alleged a claim under
     § 523(a)(4). The bankruptcy court later determined that because
25   it found in favor of the plaintiffs on their § 523(a)(2)(A)
     claim, there was no need for it to rule on the alternate claim
26
     under § 523(a)(4).
27        6
             The parties to the other proceedings later settled,
28   leaving only the proceeding against the Debtor for trial.

                                       7
 1   §§ 1334 and 157(b)(2)(I).   We have jurisdiction under 28 U.S.C.
 2   § 158.
 3                                ISSUES7
 4   1.   Whether the bankruptcy court erred in excepting the
 5        investments from discharge under § 523(a)(2)(A).
 6   2.   Whether the bankruptcy court erred by considering the
 7        Debtor’s prior tax returns and statements of financial
 8        affairs to find that he was not credible as a witness.
 9                          STANDARD OF REVIEW
10        In appealing from a nondischargeability determination, we
11   review the bankruptcy court’s findings of fact for clear error
12   and its conclusions of law de novo.    Oney v. Weinberg
13   (In re Weinberg), 410 B.R. 19, 28 (9th Cir. BAP 2009), aff’d,
14   407 Fed. App’x. 176 (9th Cir. 2010); see also Carrillo v. Su
15   (In re Su), 290 F.3d 1140, 1142 (9th Cir. 2002)(“Whether a claim
16   is nondischargeable presents mixed issues of law and fact and is
17   reviewed de novo.”).
18                               DISCUSSION
19        Section 523(a)(2)(A) excepts from discharge a debt “for
20   money, property, services, or an extension, renewal, or
21   refinancing of credit” obtained by “false pretenses, a false
22   representation, or actual fraud, other than a statement
23   respecting the debtor’s . . . financial condition.”    To prevail
24   on such a claim, a creditor must prove: (1) misrepresentation,
25
          7
             On appeal, both parties advance arguments as to the
26   Debtor’s alleged omissions of the terms of the first loan with
27   Point Center. In its decision, however, the bankruptcy court
     made no findings or determination on this theory of fraud.
28   Thus, we do not address those arguments.

                                     8
 1   fraudulent omission or deceptive conduct by the debtor; (2) the
 2   debtor’s knowledge of the falsity or deceptiveness of his
 3   representation or omission; (3) an intent to deceive;
 4   (4) justifiable reliance by the creditor on the debtor’s
 5   representation or conduct; and (5) damage to the creditor
 6   proximately caused by its reliance on the debtor’s statement or
 7   conduct.    Ghomeshi v. Sabban (In re Sabban), 600 F.3d 1219, 1222
 8   (9th Cir. 2010); In re Weinberg, 410 B.R. at 35.   The creditor
 9   must prove each element by a preponderance of the evidence.
10   Grogan v. Garner, 498 U.S. 279, 284 (1991).
11         A principal purpose of the Bankruptcy Code is providing
12   the “honest but unfortunate debtor” with a fresh start.
13   Danielson v. Flores (In re Flores), 735 F.3d 855, 861 (9th Cir.
14   2013).   As a result, the § 523 exceptions to discharge are
15   narrowly interpreted in favor of debtors.   Mele v. Mele
16   (In re Mele), 501 B.R. 357, 363 (9th Cir. BAP 2013).
17   A.   As to each investment, the bankruptcy court failed to make
18        adequate findings on each element of § 523(a)(2)(A).
19        Civil Rule 52(a) (incorporated into adversary proceedings
20   by Rule 7052) instructs that “[i]n an action tried on the facts
21   without a jury, . . . the court must find the facts specially
22   and state its conclusions of law separately.”   These findings
23   and conclusions may be stated on the record or in a memorandum
24   decision.   The findings must be sufficient to indicate the
25   factual basis for the trial court’s ultimate conclusion.    Unt v.
26   Aerospace Corp., 765 F.2d 1440, 1444 (9th Cir. 1985).   And, the
27   findings must be sufficiently explicit such that the appellate
28   court has a clear understanding of the basis of the trial

                                      9
 1   court’s decision and can determine the grounds on which the
 2   trial court reached its decision.      Mattel, Inc. v. Walking
 3   Mountain Prods., 353 F.3d 792, 815 (9th Cir. 2003); Unt,
 4   765 F.2d at 1444; Veal v. Am. Home Mortg. Servicing, Inc.
 5   (In re Veal), 450 B.R. 897, 919 (9th Cir. BAP 2011).      Even when
 6   a bankruptcy court does not make formal findings, however, we
 7   may proceed with review “if a complete understanding of the
 8   issues may be obtained from the record as a whole or if there
 9   can be no genuine dispute about omitted findings.”      Id. at
10   919-20.
11        Here, there were three different investment transactions
12   involving two unrelated parties; the Ivars and Roche learned of
13   one another and joined forces only after they were shorn of
14   their investments.    Nonetheless, the bankruptcy court’s sparse
15   findings lump the transactions together.      This is problematic
16   because the basis for its one clear finding of misrepresentation
17   applied only to the Ivars’ First Investment.      Also problematic
18   is the complete absence of findings on three of § 523(a)(2)(A)’s
19   required elements.
20        The bankruptcy court found at least one, but possibly three
21   misrepresentations.   First, it found that despite Coral Blue,
22   LLC’s “clear purpose” of buying the Properties as set forth in
23   its operating agreement, Coral Blue, LLC did not, in fact, buy
24   the Properties – Connexian did.    This, it found, contravened the
25   Section 2.6 language in the Ivars’ LLC Agreement.      Section 2.6,
26   however, did not actually state that Coral Blue, LLC would hold
27   title to the Properties.   And nothing else in the agreement made
28   reference to property ownership.

                                       10
 1        Significantly more problematic, however, is that
 2   Section 2.6 existed only in the Ivars’ LLC Agreement.      Although
 3   both the Roche LLC Agreement and the Ivars’ Coral Blue II, LLC
 4   Operating Agreement contained a section discussing the business
 5   and purpose of the LLC’s, only the Section 2.6 in the Ivars’ LLC
 6   Agreement made any reference to the Properties.      Therefore, the
 7   emphasized Section 2.6 language relied upon by the bankruptcy
 8   court pertained only to the Ivars’ First Investment – not to the
 9   Roche Investment and not to the Ivars’ Second Investment.       To
10   the extent it found that this was a misrepresentation as to all
11   three investments, it appears to be clear error.
12        Unlike the Ivars, however, Roche provided additional
13   evidence on this issue.    In his declaration, Roche attested that
14   he was informed that Coral Blue, LLC would purchase the
15   Properties.   But, he did not identify who made that
16   representation to him.    And his testimony at trial did not touch
17   upon the issue.   To the extent that Werner made the
18   representation, the bankruptcy court would need to make the
19   necessary findings as required by this Panel’s decision in
20   Sachan v. Huh (In re Huh), 506 B.R. 257 (9th Cir. BAP 2014),8 so
21   as to impute Werner’s alleged misrepresentation (if any) to the
22   Debtor.9
23
          8
24           In re Huh was filed on March 11, 2014; this was after
     the adversary trial but before the bankruptcy court issued its
25   amended statement of decision.
26        9
             There is also ambiguity as to whether the bankruptcy
27   court admitted Werner’s declaration into evidence. Insofar as
     it was admitted, the bankruptcy court did not resolve contrary
28                                                           (continued...)

                                      11
 1        Second, the bankruptcy court found that the Ivars and Roche
 2   were led to believe that the Debtor was an experienced real
 3   estate developer, which it determined to be untrue.     On this
 4   record, however, we are unclear as to whether it found that this
 5   was a representation made by the Debtor; it made no findings as
 6   to who made the representation to the Ivars and Roche or when.
 7   Moreover, the record does not support this finding cleanly;
 8   there was no dispute that RSD introduced the Ivars to the Coral
 9   Blue Project (and, by extension, the Debtor).    And, Roche was
10   already acquainted with the Debtor through prior construction
11   projects.
12        Third, the bankruptcy court found that, contrary to the
13   loan documents related to Point Center’s senior lien, “a junior
14   lien was [created and] recorded against the Properties . . .
15   without Point Center’s prior knowledge or consent and
16   constituted a serious breach of the terms of the loan secured by
17   the senior lien on the Properties.”    Again, we are unclear as to
18   whether the bankruptcy court determined that this was a
19   misrepresentation or omission.   Insofar as it did, it is unclear
20
21   (...continued)
     evidence contained therein; namely, that Werner did not make any
22   representation that Coral Blue, LLC would own the Properties.
              The adversary proceeding docket shows that, prior to trial,
23   the Ivars and Roche moved to strike Werner’s declaration. There
24   was no ruling on this request prior to trial. But, at the
     conclusion of trial, it appears that the bankruptcy court
25   admitted into evidence the declarations of witnesses to the
     extent they contained references to exhibits. The record is
26   unclear as to whether this referred only to the declarations of
27   witnesses who testified at trial. In its decision, the
     bankruptcy court made no reference one way or another to
28   Werner’s declaration.

                                      12
 1   how this related to the investments made by the Ivars and Roche.
 2        The bankruptcy court then broadly found that “the
 3   misrepresentations made by [the Debtor] proximately caused
 4   Plaintiffs’ [losses].”   It did not, however, particularly
 5   explain its finding.   Again, that is a concern here, given the
 6   existence of some anomalous facts.
 7        As noted by the bankruptcy court, Connexian held title to
 8   the Properties, rather than Coral Blue, LLC.   But, the Ivars
 9   received promissory notes only from Connexian with respect to
10   their investments.   And, in connection with the Second
11   Investment, the Ivars also received a deed of trust from
12   Connexian securing the promissory note.   To the extent the
13   pertinent misrepresentation was that Coral Blue, LLC would hold
14   title to the Properties, the existence of these notes and deed
15   of trust bear some relevance on the issue of proximate cause and
16   reliance.
17        Finally, the bankruptcy court made no findings as to the
18   Debtor’s knowledge of falsity and intent to deceive or the
19   plaintiffs’ justifiable reliance.
20        Additional findings are necessary here.   That the
21   bankruptcy court found the Debtor not credible and, conversely,
22   accepted the plaintiffs’ version of events, did not absolve it
23   of the requirement to make specific findings, particularly in a
24   nondischargeability proceeding and given this record.
25   B.   The bankruptcy court did not err by considering admissible
26        impeachment evidence to find that the Debtor was not
27        credible as a witness.
28        The Debtor also contests the bankruptcy court’s reliance on

                                     13
 1   prior tax returns and his statements of financial affairs, as
 2   initially filed and twice amended (collectively, the “SOFAs”),
 3   in determining that he was not a credible witness.   He argues
 4   that because these documents constituted statements relating to
 5   his financial condition, the bankruptcy court could not rely on
 6   them in assessing his credibility as a witness.
 7        We disagree.   While it is true that § 523(a)(2)(A) excludes
 8   statements respecting a debtor’s financial condition, that
 9   subsection does not speak to the use of admissible impeachment
10   evidence.   Here, the record shows that the bankruptcy court
11   admitted the documents into evidence to impeach the Debtor’s
12   credibility as a witness.
13        At trial, the bankruptcy court permitted counsel for the
14   Ivars and Roche to cross-examine the Debtor as to
15   inconsistencies between prior tax returns and his SOFAs.    The
16   Debtor was given the opportunity to explain.   And, counsel for
17   the Ivars and Roche expressly offered the documents as
18   impeachment evidence.
19        Contrary to the Debtor’s argument, the bankruptcy court did
20   not rely on the tax returns and SOFAs as the misrepresentations
21   themselves.   Instead, it found that the evidence showed that the
22   Debtor was not a successful real estate developer.   The
23   bankruptcy court ultimately found that the Debtor was not
24   credible based on the cumulative evidence before it, including
25   the impeachment evidence.   We discern no error in this regard.
26                               CONCLUSION
27        We VACATE the judgment and REMAND to the bankruptcy court
28   with instructions to make adequate findings.   But, to the extent

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 1   that the bankruptcy court relied on impeachment evidence
 2   respecting the Debtor’s financial condition, we AFFIRM.
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