                                                          FILED
                                                           OCT 05 2011
                                                       SUSAN M SPRAUL, CLERK
                                                         U.S. BKCY. APP. PANEL
                                                         OF THE NINTH CIRCUIT
 1
 2
 3                 UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                           OF THE NINTH CIRCUIT
 5   In re:                           )   BAP No. CC-10-1512-DPaKi
                                      )
 6   MAGDA ANGELA ESLABON CATIPON,    )   Bk. No. 09-24437
                                      )
 7                       Debtor.      )   Adv. No. 09-02084
     ________________________________ )
 8                                    )
     UNION BANK OF CALIFORNIA, N.A., )
 9                                    )
                         Appellant,   )
10                                    )
     v.                               )
11                                    )
     MAGDA ANGELA ESLABON CATIPON,    )   M E M O R A N D U M1
12                                    )
                         Appellee.    )
13   ________________________________ )
14
                  Argued and Submitted on September 23, 2011
15                          at Pasadena, California
16                         Filed - October 5, 2011
17              Appeal from the United States Bankruptcy Court
                    for the Central District of California
18
          Honorable Vincent P. Zurzolo,2 Bankruptcy Judge, Presiding
19
20
21        1
               This disposition is not appropriate for publication.
22   Although it may be cited for whatever persuasive value it may have
     (see Fed. R. App. P. 32.1), it has no precedential value. See 9th
23   Cir. BAP Rule 8013-1.
24        2
               The order from which this appeal was taken was signed by
25   Judge Zurzolo. However, the text of the order recites that Hon.
     Samuel L. Bufford was the presiding judge at the evidentiary hearing
26   upon which the order is based.

                                      1
 1   Appearances:      Jennifer Witherell Crastz, Esq. of Hemar, Rousso &
                       Heald, LLP appeared for Appellant but did not argue.
 2                     No appearance for Appellee.
 3
     Before:    DUNN, PAPPAS, and KIRSCHER, Bankruptcy Judges.
 4
 5        The bankruptcy court dismissed a creditor’s § 523(a)(2)(A)3
 6   adversary proceeding on the basis that no debt existed under
 7   California law.    We AFFIRM.
 8
 9                                   I.   FACTS
10        When Magda Angela Eslabon Catipon (“Ms. Catipon”) filed her
11   chapter 7 petition on June 9, 2009, she scheduled debts (“Vehicle
12   Debts”) incurred between April 15, 2008 and July 3, 2008, related to
13   the purchase of sixteen used luxury automobiles (“Luxury Vehicles”).
14   She also scheduled, both as a secured claim and as an executory
15   contract, a debt incurred December 30, 2004 for her personal
16   vehicle.   She did not include any of the Vehicle Debts on Schedule G
17   as executory contracts or subject to unexpired leases.
18        Ms. Catipon’s Statement of Financial Affairs reflects 2008
19   gross income in the amount of $53,695.00.    Her Schedule I reflects
20   gross monthly income in the amount of $4,128.95, with net monthly
21   take home pay in the amount of $3,264.79.    She had been employed by
22   her current employer for seven years.
23
          3
               Unless otherwise specified, all chapter and section
24
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
25   all “Rule” references are to the Federal Rules of Bankruptcy
     Procedure, Rules 1001-9037. The Federal Rules of Civil Procedure
26   are referred to as “Civil Rules.”

                                          2
 1        Union Bank of California, N.A. (“Union Bank”) financed
 2   Ms. Catipon’s purchase of two of the Luxury Vehicles: a 2005
 3   Infiniti G35 (“Infiniti”) on May 8, 2008, and a 2005 Land Rover
 4   (“Land Rover”) on July 3, 2008.    By the time she filed her
 5   bankruptcy case, Ms. Catipon had defaulted on both of the loans from
 6   Union Bank.   On the Petition Date, Ms. Catipon owed Union Bank
 7   $26,106 for the Infiniti loan, and $33,013 for the Land Rover loan.
 8        Union Bank’s counsel attended the § 341(a) Meeting of Creditors
 9   in Ms. Catipon’s bankruptcy case in an effort to obtain information
10   about the locations of the Infiniti and the Land Rover.   Ms. Catipon
11   testified that the Land Rover was in the possession of Lashonda
12   Hubbard, whom Ms. Catipon described as a friend.
13        Ms. Catipon further testified at the § 341(a) Meeting of
14   Creditors that she purchased the cars for friends and relatives who
15   had bad credit.   All of the Luxury Vehicles were purchased from
16   Richard Unite, the owner of Unite Cars in San Pedro, California.
17   Both the chapter 7 trustee and Union Bank’s counsel questioned
18   Ms. Catipon generally about how she was able to finance the Luxury
19   Vehicles where her annual salary was approximately $50,000.
20   Ms. Catipon testified that she was truthful in the loan applications
21   she made in obtaining the financing for the Luxury Vehicles, that
22   she listed on the loan applications all of the previously financed
23   Luxury Vehicles, and that she (apparently in some instances)
24   provided a copy of her pay stub.   In response to a rhetorical
25   question by the trustee about why the banks would approve her loans
26   for the Luxury Vehicles, Ms. Catipon responded: “That’s also my

                                        3
 1   question.   I don’t know why they approve[d] me.”
 2        During the course of the bankruptcy case, Union Bank recovered
 3   the Infiniti and the Land Rover, and foreclosed its security
 4   interest in each of the vehicles through a private auction. Union
 5   Bank filed a timely complaint pursuant to § 523(a)(2)(A), seeking to
 6   except from Ms. Catipon’s discharge the debt which remained after
 7   the foreclosures (“deficiency”).   The total deficiency asserted by
 8   Union Bank was $27,751.03, plus interest and late charges.   In its
 9   complaint, Union Bank asserted that Ms. Catipon had engaged in a
10   scheme with Richard Unite, whereby they would “alter certain credit
11   information” so that Union Bank and others would be induced to
12   extend credit to Ms. Catipon.
13        When Ms. Catipon failed to file an answer to Union Bank’s
14   complaint, default was entered against her by the Clerk of the
15   Court.   The bankruptcy court conducted a “trial” (“Trial”) on the
16   adversary complaint on March 11, 2010.4
17        As relevant to our analysis in this appeal, Union Bank’s third
18   witness at the Trial was its litigation adjustment officer, Jody
19   Curry, who was responsible, inter alia, for sending defaulted loan
20   accounts to outside counsel for litigation, and managing those loan
21   accounts until the conclusion of the collection process.   Ms. Curry
22
23        4
               The Trial was in fact a “prove up” hearing for purposes of
     entering a default judgment as contemplated by Civil Rule 55(b)(2),
24
     which authorized the bankruptcy court to “conduct hearings . . .
25   when, to enter . . . judgment, it needs to . . . (C) establish the
     truth of any allegation by evidence; or (D) investigate any other
26   matter.”

                                        4
 1   testified that Union Bank had recovered possession of both the
 2   Infiniti and the Land Rover from persons other than Ms. Catipon, and
 3   that both vehicles had been sold through private auctions.
 4   Ms. Curry testified as to the auction sales prices, the net proceeds
 5   from the auction, and the deficiencies remaining on the Infiniti
 6   loan and the Land Rover loan.
 7            The bankruptcy court admitted Exhibits 9 and 17 into evidence
 8   for the purpose of determining whether the notices sent by Union
 9   Bank to Ms. Catipon were sufficient to create a deficiency under
10   state law.    Exhibit 9 was the Notice of Intent to Dispose of a
11   Repossessed or Surrendered Vehicle served on Ms. Catipon by Union
12   Bank with respect to the Infiniti.       Exhibit 17 was the Notice of
13   Intent to Dispose of a Repossessed or Surrendered Vehicle served on
14   Ms. Catipon by Union Bank with respect to the Land Rover.
15        At the conclusion of the Trial, the bankruptcy court found
16   that, under California law, no debt existed after Union Bank
17   foreclosed its security interest in the Infiniti and the Land Rover
18   because (1) a private party auction is not a commercially reasonable
19   disposition of collateral and (2) the notices provided to
20   Ms. Catipon were not sufficient.5       After an unexplained delay of
21   nine months, the bankruptcy court entered its order dismissing the
22
23        5
               The bankruptcy court found that even if Union Bank had
     shown Ms. Catipon owed it a debt, there was no evidence in the
24
     record that Ms. Catipon made a representation to Union Bank that was
25   false and upon which Union Bank detrimentally relied to its damage.
     In short, the bankruptcy court determined that Union Bank had failed
26   to prove that any debt it was owed was incurred by fraud.

                                         5
 1   adversary proceeding.      Union Bank timely filed its Notice of Appeal.
 2
 3                                    II.   JURISDICTION
 4           The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334
 5   and 157(b)(2)(I).      We have jurisdiction under 28 U.S.C. § 158.
 6
 7                                      III.   ISSUES6
 8           Whether the bankruptcy court erred when it determined that
 9   Union Bank did not hold an enforceable debt for purposes of
10   § 523(a)(2)(A).
11
12                              IV.    STANDARDS OF REVIEW
13           We review a bankruptcy court’s interpretation of state law de
14   novo.       State Bd. of Equalization v. Leal (In re Leal), 366 B.R. 77,
15
16           6
                    Other issues asserted by Union Bank on appeal include:
17       Whether the bankruptcy court abused its discretion when it
18       refused to admit into evidence:
              a.   Ms. Catipon’s testimony from the Meeting of
19                 Creditors,
              b.   Ms. Catipon’s bankruptcy schedules and Statement
20                 of Financial Affairs, and
21            c.   computerized records offered by the Bank; and

22       Whether the bankruptcy court erred when it determined that
         Union Bank did not provide sufficient evidence that any
23       debt Ms. Catipon might owe to Union Bank was incurred by
         fraud.
24
25   Because the bankruptcy court correctly determined that Union Bank
     held no right to collect a deficiency following the sales of its
26   collateral, we express no opinion on these issues.

                                               6
 1   80 (9th Cir. BAP 2007).   De novo review requires that we consider a
 2   matter anew, as if it had not been heard before, and as if no
 3   decision had been rendered previously.   United States v. Silverman,
 4   861 F.2d 571, 576 (9th Cir. 1988); B-Real, LLC v. Chaussee (In re
 5   Chaussee), 399 B.R. 225, 229 (9th Cir. BAP 2008).
 6
 7                               V.   DISCUSSION
 8        A chapter 7 discharge will not discharge an individual debtor
 9   from any “debt”
10        for money, property, services, or an extension, renewal,
          or refinancing of credit, to the extent obtained by --
11              (A) false pretenses, a false representation, or
          actual fraud, other than a statement respecting the
12        debtor’s or an insider’s financial condition
          . . .
13
14   Section 523(a)(2)(A).   The elements for establishing that a debt is
15   nondischargeable under § 523(a)(2)(A) are well established by Ninth
16   Circuit authority.
17       The Ninth Circuit employs a five-part test for determining
         when a debt is non-dischargeable under § 523(a)(2)(A). The
18       creditor must show: (1) that the debtor made the
         representations; (2) that the debtor knew they were false;
19       (3) that the debtor made them with the intention and
         purpose of deceiving the creditor; (4) that the creditor
20       relied on the statements; (5) that creditor sustained
         damages as the proximate result of the representations.
21       In re Britton, 950 F.2d 602, 604 (9th Cir. 1991).
22   Cowen v. Kennedy (In re Kennedy), 108 F.3d 1015, 1018 n.2 (9th
23   Cir. 1997).   Union Bank bore the burden of proving, by a
24   preponderance of the evidence, each of the elements of its
25   claim for relief under § 523(a)(2)(A).   Grogan v. Garner,
26   498 U.S. 279, 291 (1991).

                                      7
 1        In the absence of an enforceable obligation, however,
 2   there is no “debt” that can be held nondischargeable.    Mandalay
 3   Resort Grp. v. Miller (In re Miller), 292 B.R. 409, 412 (9th
 4   Cir. BAP 2003).   The bankruptcy court ruled that Union Bank
 5   held no valid debt that could be subject to a
 6   nondischargeability judgment under § 523(a)(2)(A).
 7   Specifically, the bankruptcy court determined that under
 8   California Law, Union Bank had no right to enforce any
 9   deficiency from its sales of the Infiniti and the Land Rover.
10        Cal. Civ. Code § 2983.2(a) provides in relevant part:
11       [A]ny provision in any conditional sale contract for
         the sale of a motor vehicle to the contrary
12       notwithstanding, at least 15 days' written notice of
         intent to dispose of a repossessed or surrendered
13       motor vehicle shall be given to all persons liable on
         the contract. The notice shall be personally served
14       or shall be sent by certified mail, return receipt
         requested, or first-class mail, postage prepaid,
15       directed to the last known address of the persons
         liable on the contract. . . . Except as otherwise
16       provided in Section 2983.8, those persons shall be
         liable for any deficiency after disposition of the
17       repossessed or surrendered motor vehicle only if the
         notice prescribed by this section is given within 60
18       days of repossession or surrender and does all of the
         following:
19
         (1) Sets forth that those persons shall have a right
20       to redeem the motor vehicle by paying in full the
         indebtedness evidenced by the contract until the
21       expiration of 15 days from the date of giving or
         mailing the notice and provides an itemization of the
22       contract balance and of any delinquency, collection
         or repossession costs and fees and sets forth the
23       computation or estimate of the amount of any credit
         for unearned finance charges or canceled insurance as
24       of the date of the notice.
25       (2) States either that there is a conditional right
         to reinstate the contract until the expiration of 15
26       days from the date of giving or mailing the notice

                                     8
 1   and all the conditions precedent thereto or that
     there is no right of reinstatement and provides a
 2   statement of reasons therefor.
 3   (3) States that, upon written request, the seller or
     holder shall extend for an additional 10 days the
 4   redemption period or, if entitled to the conditional
     right of reinstatement, both the redemption and
 5   reinstatement periods. The seller or holder shall
     provide the proper form for applying for the
 6   extensions with the substance of the form being
     limited to the extension request, spaces for the
 7   requesting party to sign and date the form, and
     instructions that it must be personally served or
 8   sent by certified or registered mail, return receipt
     requested, to a person or office and address
 9   designated by the seller or holder and received
     before the expiration of the initial redemption and
10   reinstatement periods.
11   (4) Discloses the place at which the motor vehicle
     will be returned to those persons upon redemption or
12   reinstatement.
13   (5) Designates the name and address of the person or
     office to whom payment shall be made.
14
     (6) States the seller's or holder's intent to dispose
15   of the motor vehicle upon the expiration of 15 days
     from the date of giving or mailing the notice, or if
16   by mail and either the place of deposit in the mail
     or the place of address is outside of this state, the
17   period shall be 20 days instead of 15 days, and
     further, that upon written request to extend the
18   redemption period and any applicable reinstatement
     period for 10 days, the seller or holder shall
19   without further notice extend the period accordingly.
20   (7) Informs those persons that upon written request,
     the seller or holder will furnish a written
21   accounting regarding the disposition of the motor
     vehicle as provided for in subdivision (b). The
22   seller or holder shall advise them that this request
     must be personally served or sent first-class mail,
23   postage prepaid, or certified mail, return receipt
     requested, to a person or office and address
24   designated by the seller or holder.
25   (8) Includes notice, in at least 10-point bold type
     if the notice is printed, reading as follows:
26   “NOTICE. YOU MAY BE SUBJECT TO SUIT AND LIABILITY IF

                               9
 1       THE AMOUNT OBTAINED UPON DISPOSITION OF THE VEHICLE
         IS INSUFFICIENT TO PAY THE CONTRACT BALANCE AND ANY
 2       OTHER AMOUNTS DUE.”
 3       (9) Informs those persons that upon the disposition
         of the motor vehicle, they will be liable for the
 4       deficiency balance plus interest at the contract
         rate, or at the legal rate of interest pursuant to
 5       Section 3289 if there is no contract rate of
         interest, from the date of disposition of the motor
 6       vehicle to the date of entry of judgment.
 7   (emphasis added).
 8        Because our review is de novo, we review Union Bank’s
 9   “Notice of Intent to Dispose of a Repossessed or Surrendered
10   Vehicle” (“Notice”) to determine whether Ms. Catipon is liable
11   to Union Bank for any deficiency following its disposition of
12   the Infiniti and the Land Rover.     We conclude that the Notice
13   did not comply with the provisions of Cal. Civ. Code
14   § 2983.2(a) in a number of ways.
15        For instance, it did not inform Ms. Catipon that she had
16   15 days from the date of the Notice to redeem the vehicle as
17   required by Cal. Civ. Code § 2983.2(a)(1), or that Union Bank
18   intended to dispose of the vehicle upon the expiration of 15
19   days from the mailing date of the Notice as required by Cal.
20   Civ. Code § 2983.2(a)(6).   Instead, Union Bank’s Notice stated:
21   “The debtor[] . . . may redeem the collateral before
22   sale . . .”   and   “Redemption payment must be made before sale
23   . . . .”   No sale date was included in either the Infiniti
24   Notice or the Land Rover Notice.     Thus, neither Notice served
25   to inform Ms. Catipon of her need to act to redeem within any
26   specified or referenced time period.

                                     10
 1        The Notice stated that “[i]n the absence of redemption or,
 2   if available, reinstatement, [Union Bank] will dispose of the
 3   collateral in the manner provided for in the ‘Notice of Our
 4   Plan to Sell Property’ that accompanies this [Notice].”   We
 5   note first that no “Notice of Our Plan to Sell Property” was in
 6   the record for our review; neither did Union Bank offer it as
 7   evidence in the adversary proceeding.   Second, this language
 8   was not sufficient to inform Ms. Catipon whether a right of
 9   reinstatement existed as required by Cal. Civ. Code
10   § 2983.2(a)(2) and (6).
11        Further, the Notice did not describe the process for
12   requesting an extension of the redemption or any reinstatement
13   period as required by Cal. Civ. Code § 2983.2(a)(3).    Nor did
14   the Notice advise Ms. Catipon how she could obtain an
15   accounting after the sale of the vehicle as provided by Cal.
16   Civ. Code § 2983.2(a)(7).   Finally,7 the Notice did not advise
17   Ms. Catipon of the extent of the liability that would remain
18   after the disposition of the vehicle as required by Cal. Civ.
19   Code § 2983.2(a)(9).
20        In light of Union Bank’s failure to provide appropriate
21   notice of its proposed disposition of the vehicles as required
22   by Cal. Civ. Code § 2983.2(a), Union Bank is not entitled to a
23
24        7
               The use of the word “finally” here does not suggest that
25   we are providing a complete catalog of the deficiencies of the
     Notice. Rather, it is meant to signal that we will not continue in
26   our identification of statutory defects in the Notice.

                                    11
 1   deficiency by the express language of the statute.      See, e.g.,
 2   Bank of America v. Lallana, 19 Cal.4th 203, 210, 77 Cal.Rptr.2d
 3   910, 915 (Cal. 1998):
 4       Accordingly, we hold that to obtain a deficiency
         judgment, a secured creditor who sells a defaulting
 5       debtor’s repossessed car must do so in a manner that
         complies not only with all the provisions of the
 6       [Rees-Levering Motor Vehicle Sales and Finance Act,
         Cal. Civ. Code § 2981 et seq], but also with any
 7       relevant provisions in division 9 of the California
         Uniform Commercial Code.
 8
 9   (emphasis added).
10        Union Bank asserts on appeal that the bankruptcy court
11   abused its discretion when it raised, sua sponte, the issue of
12   whether the Notice was adequate to impose liability on
13   Ms. Catipon for the deficiency.       Union Bank characterizes the
14   bankruptcy court’s inquiry into the adequacy of the Notice as
15   inappropriately raising an affirmative defense for Ms. Catipon.
16   Union Bank also complains that it had insufficient notice that
17   the adequacy of the Notice would be at issue.      Union Bank
18   asserts that because the bankruptcy court raised the issue only
19   after Union Bank had presented its case, Union Bank was
20   precluded from presenting evidence about other “notifications”
21   it might have made.
22        We disagree.     The Notice was facially defective in a
23   number of respects.    Union Bank had the burden of proving, at
24   the time of the Trial, that it held a “debt” that Ms. Catipon
25   could not discharge.    In evaluating the adequacy of the Notice,
26   the bankruptcy court did nothing more than rule on Union Bank’s

                                      12
 1   assertion that it held a debt, based upon a deficiency, that
 2   should be excepted from discharge.
 3         We observe that the bankruptcy court was required to
 4   construe exceptions to the discharge of Ms. Catipon’s debts
 5   strictly against Union Bank and liberally in favor of
 6   Ms. Catipon.   Snoke v. Riso (In re Riso), 978 F.2d 1151, 1154
 7   (9th Cir. 1992).   The application of this imperative required
 8   the bankruptcy court to find that a debt in fact existed,
 9   rather than deem the debt admitted as suggested by Union Bank.
10         In a case with allegations of a debtor’s fraud it may seem
11   harsh to enforce a creditor’s strict compliance with a notice
12   statute designed to protect that debtor’s rights.   However,
13   Cal. Civ. Code § 2983.2 provides no exceptions to compliance in
14   cases involving alleged or actual fraud by the debtor.   By
15   comparison, Cal. Civ. Code § 2983.3 authorizes a creditor to
16   deny a right to reinstatement, if the creditor has a good faith
17   belief that, inter alia, any person “liable on the contract by
18   omission or commission intentionally provided false or
19   misleading information of material importance on his or her
20   credit application.”
21         We are required to apply California law as written by the
22   California legislature and as interpreted by the California
23   courts.   On its face, the Notice did not comply with Cal. Civ.
24   Code § 2983.   As a consequence, Union Bank has no right to
25   ///
26   ///

                                    13
 1   assert a deficiency claim against Ms. Catipon.8
 2        Because Union Bank holds no enforceable debt against
 3   Ms. Catipon, the bankruptcy court did not err when it dismissed
 4   the adversary proceeding.
 5
 6                            VI.   CONCLUSION
 7        Union Bank did not comply with the notice requirements of
 8   Cal. Civ. Code § 2983.2 in selling the Infiniti and the Land
 9   Rover.   As a consequence, Union Bank was not entitled to a
10   deficiency enforceable against Ms. Catipon. The bankruptcy
11   court appropriately dismissed Union Bank’s adversary proceeding
12   which sought a determination that the deficiency was
13   nondischargeable pursuant to § 523(a)(2)(A).
14        We AFFIRM.
15
16
17
18
19
20
21
22
23
24        8
               We need not reach the bankruptcy court’s alternative
25   holding that Cal. Civ. Code § 2983.8 precluded Union Bank from the
     right to a deficiency because a private auction was not a
26   commercially reasonable disposition of the vehicles.

                                     14
