In re Gertsch

• Decision Date: 30 July 1999
• Docket Number: BAP No. CC-98-1288-BKMe. Bankruptcy No. LA 96-53197-SB. Adversary No. LA 97-02452-SB.
• Citation: 237 BR 160
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit
• Parties: In re Ronald L. GERTSCH, Debtor. Ronald L. Gertsch, Appellant, v. Johnson & Johnson, Finance Corporation, Appellee.

237 B.R. 160 (1999)

In re Ronald L. GERTSCH, Debtor.

Ronald L. Gertsch, Appellant, v. Johnson & Johnson, Finance Corporation, Appellee.

BAP No. CC-98-1288-BKMe. Bankruptcy No. LA 96-53197-SB. Adversary No. LA 97-02452-SB.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted January 20, 1999.

Decided July 30, 1999.

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L. Scott Keehn, Robbins & Keehn, San Diego, CA, for Ronald L. Gertsch.

Joshua D. Wayser, Stern, Neubauer, Greenwald & Pauly, Santa Monica, CA, for Johnson & Johnson Finance Corporation.

Before BRANDT, MEYERS, and KLEIN, Bankruptcy Judges.

OPINION

BRANDT, Bankruptcy Judge.

OVERVIEW

The bankruptcy court granted summary judgment, finding plaintiff's state court judgment nondischargeable under § 523(a)(2)(B) of the Bankruptcy Code¹. We AFFIRM, but vacate the judgment in part and remand for clarification that the bankruptcy court's judgment is not an independent money judgment, but merely a determination that the state court's judgment is excepted from discharge.

I. FACTS

Debtor/appellant Ronald Gertsch ("Gertsch") is a general surgeon licensed to practice medicine in California. He operated his own practice from 1979 through at least 1995, initially as "Ronald Gertsch, M.D., Inc.," and eventually forming four other medical corporations, including Outpatient Care Group ("OCG"), set up in the mid-1980's to run an outpatient surgery center. Gertsch was responsible for the day-to-day administration of the center, including review of accounting issues. In the course of forming and operating his businesses, he sought financing from various sources, and had entered into equipment leasing transactions.

In January 1993, OCG, which had filed a Chapter 11 petition in the Southern District of California in 1992, failed recertification by the California Department of Health Services, resulting in the shutdown of OCG and appellant's other entities until 28 June 1993. The shutdown caused Gertsch a serious cash flow problem; he engaged the services of Portfolio Capital Partners ("Portfolio"), a loan broker with whom he had prior dealings, to help him obtain $2 million in working capital. In early April 1993, Portfolio submitted a loan proposal to Johnson & Johnson Finance Corporation ("JJFC"), which included a personal financial statement he completed 19 March 1993, and various documentation. None of the documents submitted to JJFC indicated that debtor's medical practices had been shut down, nor did Gertsch otherwise disclose that fact to JJFC.

The personal financial statement reflected a net worth of $1,088,000, and indicated a contingent liability of $150,000 for federal income taxes as his only liability. He projected $650,000 as his salary for 1993. Omitted were the rent arrearages for the business premises, on which Gertsch was personally liable, a $400,000 loan from OCG, an obligation owed to another doctor, and the obligation he owed on OCG.

In April or May, after filling out his financial statement, Gertsch borrowed approximately $100,000 from the parents of Caroline Baddour, his then-girlfriend. He was also served with two unlawful detainer complaints, filed by the landlords of his surgery centers. None of these events was disclosed to JJFC.

JJFC turned down Gertsch's request for a $2 million loan. He then sought a reduced loan of $900,000, based on the same application documents, which was approved. On 6 May he executed a Loan and Security Agreement, a Promissory Note, and security documents in favor of JJFC, and the loan was funded on 7 May 1993.

Gertsch made the first four monthly payments and partially paid the fifth installment. In February of 1994, the parties renegotiated the loan, and he signed an addendum to the original loan and security agreement, explicitly an amendment to the 1993 agreement, and a new promissory note. In October 1994, Gertsch again fell behind in payments, and the parties again renegotiated. He executed another promissory note and another addendum to the 1993 agreement, refinancing the past due amounts and late fees. After further default, JJFC filed a complaint against Gertsch for breach of contract in San Diego County Superior Court, obtaining a default judgment for $1,157,574.96 on 24 May 1996.

Gertsch then filed his voluntary Chapter 7 petition, and JJFC filed this adversary proceeding, seeking to have its state court judgment declared nondischargeable under §§ 523(a)(2)(A) and (a)(2)(B), and praying the court find Gertsch liable to JJFC "for damages in a sum according to proof." JJFC moved for summary judgment based on the facts admitted in the joint pre-trial order.

Among the evidence on summary judgment was Gertsch's declaration, filed 6 January 1993 in connection with a motion to continue the employment of OCG's counsel in its separate bankruptcy case. In the declaration, Gertsch stated that his monthly living expenses far exceeded his income; that he did not own any real property or have any equitable or contingent interest in real property; and that he was unable to repay a shareholder loan from OCG, given his lack of assets and current personal financial situation.

At hearing on JJFC's motion on 7 April 1998, the bankruptcy court granted summary judgment in favor of JJFC for $1,373,867.02, declaring that sum nondischargeable under § 523(a)(2)(B). Contemporaneously with the judgment, the court entered written findings and conclusions tendered by counsel for the prevailing party. As submitted, conclusion 11 stated that JJFC had reasonably relied on the financial statement. The judge crossed out "reasonably" and wrote in "justifiably." JJFC filed an ex parte application under Rule 9024 and FRCP 60(a) to have the findings and conclusions amended to change "justifiably" back to "reasonably," the reliance required for nondischargeability under § 523(a)(2)(B). A copy of the application was delivered to Gertsch's counsel. The judge entered an order granting JJFC's request, and later entered the amended findings. This appeal followed.

II. ISSUES

A. Whether Gertsch waived arguments not listed in his Rule 8006 statement of issues;

B. Whether the bankruptcy court had jurisdiction to amend its findings and conclusions under Rule 9024 after the notice of appeal had been filed;

C. Whether summary judgment that the debtor made misrepresentations with the intent to deceive, and that JJFC reasonably relied on debtor's personal financial statement, was proper; and

D. Whether the bankruptcy court erred in including a money judgment in the nondischargeability judgment.

III. STANDARDS OF REVIEW

We review summary judgments de novo; facts determined for summary judgment proceedings are not entitled to the clearly erroneous standard of appellate review. In re Audre, Inc., 216 B.R. 19, 25 (9th Cir. BAP 1997). If the pleadings, depositions, answers to interrogatories, and admissions on file, together with any affidavits, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law, summary judgment will be upheld. FRCP 56(c), incorporated by Rule 7056; see Aubrey v. Thomas (In re Aubrey), 111 B.R. 268, 272 (9th Cir. BAP 1990).

Where intent is at issue, summary judgment is seldom granted, see Provenz v. Miller, 102 F.3d 1478, 1489 (9th Cir. 1996), cert. denied, 522 U.S. 808, 118 S.Ct. 48, 139 L.Ed.2d 14 (1997); however, "summary judgment is appropriate if all reasonable inferences defeat the claims of one side, even when intent is at issue." Newman v. Checkrite California Inc., 912 F.Supp. 1354, 1380 (E.D.Cal.1995) (citing White v. Roper, 901 F.2d 1501, 1505 (9th Cir.1990)). See also Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir.1990) ("Even in cases where elusive concepts such as motive or intent are at issue, summary judgment may be appropriate if the non-moving party rests merely upon conclusory allegations, improbable inferences, and unsupported speculation.") See also, 10B Charles Alan Wright, et. al., Federal Practice & Procedure: Civil 3d § 2730 (1998).

IV. DISCUSSION

A. Arguments not raised in statement of issues on appeal

Gertsch's Rule 8006 statement lists two issues, and purports to reserve a right to present additional issues in his opening brief. That brief includes several issues not in the statement of issues.

JJFC, citing our decision in In re Pine Mountain, Ltd., 80 B.R. 171, 173 (9th Cir. BAP 1989), argues that Gertsch waived the additional issues. Although Pine Mountain and our decision in In re National Lumber & Supply, Inc., 184 B.R. 74 (9th Cir. BAP 1995), support this waiver argument, recent Ninth Circuit authority casts doubt upon that proposition.

The Ninth Circuit has held that the U.S. Trustee did not waive arguments not specifically listed in the Rule 8006 statement of issues, because that rule does not limit a party's appeal from a bankruptcy court's judgment: "Rule 8006 exists to ensure the adequacy of the record, and does not affect the ability of any party to appeal findings or conclusions of the bankruptcy court." In re Bishop, Baldwin, Rewald, Dillingham & Wong, Inc., 104 F.3d 1147, 1148 (9th Cir.1997), citing 9 Collier on Bankruptcy § 8006.04 (15th ed.1996).

The rationale for the holding in Bishop is that the Rule 8006 statement of issues relating to the first layer of bankruptcy appeal "does not impact upon issue statements required by the court of appeals at the second layer of bankruptcy appeal under the Federal Rules of Appellate Procedure. The two are separate in nature and distinct in result." Id.

Regardless of whether Bishop squarely applies to appeals before this Panel, we have been willing to entertain arguments not specified in the Rule 8006 statement of issues when a complete understanding of the case can be discerned from the briefs and the record. In re Turner, 186 B.R. 108, 113 (9th Cir. BAP 1995). In the end, it is a matter of common sense: it...