Ashley, In re
| Decision Date | 10 August 1989 |
| Docket Number | No. 88-5944,88-5944 |
| Citation | 903 F.2d 599 |
| Parties | 23 Collier Bankr.Cas.2d 176, 20 Bankr.Ct.Dec. 344, Bankr. L. Rep. P 73,230 In re Robert Floyd ASHLEY, aka Robert Ashley, Debtor. Robert Floyd ASHLEY, aka Robert Ashley, Appellant, v. C. Eugene CHURCH; Helen L. Church, Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Robert G. Leff, Robert G. Leff & Associates, Encino, Cal., for appellant.
Joseph S. Dzida, Los Angeles, Cal., for appellees.
Appeal from the United States District Court for the Central District of California.
Before BROWNING, FARRIS and CANBY, Circuit Judges.
Robert Ashley appeals from the decision of the district court affirming the bankruptcy court's judgment that Ashley owes the appellees, Helen and Eugene Church $61,000 in principal damages and $10,000 in attorney's fees, and that the debt is not dischargeable in bankruptcy. This Court has jurisdiction under 28 U.S.C. Sec. 158(d) to review the district court's decision. We affirm in part and reverse in part.
The Churches first encountered Ashley, an accountant, in the late 1970s, when they sought his advice on the tax consequences of selling a certain parcel of real estate which they owned; later, they hired Ashley to prepare their tax returns for 1978, 1979 and 1980. During this period, Ashley was involved with Darrold and Dwight Efflandt in a plan to finance, establish and develop machine shops. The Churches eventually invested in two of those shops, Trinity Manufacturing Corporation ("Trinity") and American Machine Manufacturing Corporation ("AMM"). Only the AMM transactions are at issue in this case.
In January 1981, the Churches made a loan of $36,000 to AMM; in April of that year, they made a second loan of $25,000. Each loan was made by means of a check payable to AMM; and in exchange for each, the Churches received a promissory note from the Efflandts and a deed of trust in Darrold Efflandt's residential property on Pine Street in El Segundo, California. The parties disagree about what role Ashley played in these transactions. The Churches allege that Ashley induced them to lend the money by falsely telling them that he knew AMM to be solid and profitable, that he had made unsecured loans to AMM himself, and that the Pine Street property was sound collateral for the Churches' loans to AMM. Ashley contends that he did little more than introduce the Churches to the Efflandts, who were the principals in the AMM enterprise.
In June 1981, the Churches learned from a public notice that the Pine Street property was to be sold in a foreclosure proceeding. At about the same time, payments to the Churches on the Trinity and AMM loans ceased. The Churches brought a state action, which was stayed when Ashley and the Efflandts filed for bankruptcy in federal court. The Churches then brought this adversary action in the bankruptcy court, claiming that Ashley and the Efflandts must repay them for the loans they made to AMM and Trinity, and that this debt was not dischargeable under federal bankruptcy laws.
The bankruptcy court ruled in favor of the Churches with respect to the two AMM loans, and held Ashley and Darrold Efflandt jointly and severally liable for repaying the $61,000. According to the bankruptcy court, Ashley and Darrold Efflandt "knowingly induced [the Churches] to make these two loans by means of false, material misrepresentations concerning the profitability and creditworthiness of ... [AMM] and the value of the Efflandts' equity in the Pine Street property." The court also awarded the Churches $10,000 for attorney's fees. Ashley appealed to the district court, which affirmed the bankruptcy court's decision.
On this appeal, Ashley raises four issues. He argues that the bankruptcy court erred (A) in considering the deposition testimony of Al Behrens, (B) in holding that the federal bankruptcy code precluded discharging the Church debt, and (C) in awarding attorney's fees to the Churches; he also argues that the district court erred (D) in denying Ashley's claim for a new trial owing to the loss of portions of the bankruptcy court record. We review the bankruptcy court's findings of fact for clear error and its conclusions of law de novo, Ragsdale v. Haller, 780 F.2d 794, 795 (9th Cir.1986); we review the district court's conclusions of law de novo, United States v. McConney, 728 F.2d 1195, 1201 (9th Cir.) (en banc), cert. denied, 469 U.S. 824, 105 S.Ct. 101, 83 L.Ed.2d 46 (1984).
Ashley contends that the bankruptcy court committed reversible error by admitting into evidence the deposition testimony of Mr. Behrens because (1) neither Ashley nor his attorney attended the deposition, (2) Behrens did not sign the deposition, (3) Behrens was available as a witness at the time of trial, and (4) portions of the deposition testimony were irrelevant. None of these arguments has merit.
The absence of Ashley and his attorney from the Behrens deposition did not preclude the use of the deposition against Ashley. Behrens' deposition was admissible "against any party who was present or represented at [its taking] or who had reasonable notice thereof." Fed.R.Civ.P. 32(a). Ashley does not dispute that the Churches notified his attorney that they were planning to depose Behrens. Instead, he merely alludes to the fact that this attorney "was in the process of withdrawing" from the case when the Churches served notice. That circumstance, however, does not undermine the adequacy of notification. Ashley's attorney was still his counsel of record at the relevant time, and thus the notice was not defective.
Nor did Behrens' failure to sign render the deposition inadmissible. The pretrial order, which was issued almost four months before trial, listed the Behrens deposition among the exhibits that the Churches intended to use. Ashley had an opportunity to object then. By not moving to suppress with "reasonable promptness after [the] defect [was], or with due diligence might have been, ascertained," Ashley waived any objection he may have made on the basis of "[e]rrors and irregularities in the manner in which ... the deposition [was] ... signed." Fed.R.Civ.P. 32(d)(4).
Ashley's argument that the Behrens deposition was inadmissible because the Churches did not prove Behrens was unavailable runs counter to the record of the bankruptcy proceedings. The rules permitted the Churches to offer Behrens' deposition if they were "unable to procure the attendance of [Behrens] by subpoena." Fed.R.Civ.P. 32(a)(3)(D). According to the transcript of the bankruptcy proceedings, the Churches satisfied the court, by means of an affidavit of nonservice, that they had made a reasonable, albeit unsuccessful, effort to have Behrens testify in person at the trial. 1 Ashley presents no reason for disturbing the bankruptcy court's conclusion that Behrens was unavailable.
The transcript of the bankruptcy proceedings directly undercuts Ashley's argument that the Behrens deposition should have been excluded because of irrelevance. The court made explicit its finding that the contents were "relevant," although not "crucial." Cf. Fed.R.Evid. 401 (). Inasmuch as the Churches offered the testimony to show that Ashley's representations about the Pine Street property were knowingly false, rather than merely mistaken, and the testimony concerned Ashley's representations to Behrens about the value of that property as collateral, the bankruptcy court certainly did not abuse its discretion in ruling that the deposition was relevant. See United States v. Kessi, 868 F.2d 1097, 1107 (9th Cir.1989); United States v. Gilley, 836 F.2d 1206, 1213 (9th Cir.1988) ().
Ashley presents four challenges to the bankruptcy court's conclusion that the debt was nondischargeable: (1) he did not receive the AMM loan funds himself; (2) the alleged fraud was not "aggravated"; (3) the alleged misrepresentations did not concern past or present facts; and (4) the Churches' reliance upon his representations was not reasonable. 3
Whether the Church judgment would be nondischargeable under Sec. 523(a)(2) had Ashley received nothing himself as a result of the Church loans is evidently an open question of bankruptcy law. See 1 D. Cowans & E. Cohen, Cowans Bankruptcy Law and Practice Sec. 619, at 650-51 (1987). 4 At trial, however, Darrold Efflandt testified that Ashley had contributed to a series of loans Efflandt sought in order to keep the financially troubled AMM afloat. According to the bankruptcy court, Ashley's conduct in arranging the Church loans was part of "a business plan to gain a foothold in the machine shop industry." Thus, although slightly attenuated, Ashley's link with AMM placed him in a position to benefit from any infusion of capital to that enterprise. Under these circumstances, inducing the Churches to invest in AMM was indeed obtaining something for himself. 5
Ashley's contention that his fraud was not "aggravated" is irrelevant. Neither the bankruptcy statute nor our precedent requires "aggravated" fraud for exclusion of a debt from discharge under Sec. 523(a)(2). See, e.g., Rubin, 875 F.2d at 758-59 (); Houtman v. Mann (In re Houtman), 568 F.2d 651, 655 (9th Cir.1978) ().
Ashley's argument that his statements to the Churches were mere opinions, rather than representations of fact, lacks credibility. The...
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