Van Zandt v. Mbunda (In re Mbunda)

• Decision Date: 14 December 2012
• Docket Number: Adversary No. 10–03267.,Bankruptcy No. 10–34095.,BAP No. NC–11–1653–MkHPa.
• Citation: 484 B.R. 344
• Parties: In re Wileharda Kilian MBUNDA, Debtor. Thomas Van Zandt, Executor for the Estate of Evaline Jeanne Malis, Appellant, v. Wileharda Kilian Mbunda, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

484 B.R. 344

In re Wileharda Kilian MBUNDA, Debtor.Thomas Van Zandt, Executor for the Estate of Evaline Jeanne Malis, Appellant,

v.Wileharda Kilian Mbunda, Appellee.

BAP No. NC–11–1653–MkHPa.

Bankruptcy No. 10–34095.

Adversary No. 10–03267.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted on Oct. 18, 2012.

Decided Dec. 14, 2012.

Appellant Thomas Van Zandt, Esq. argued on his own behalf as executor for the estate of Evaline Jeanne Malis; and Stephen D. Finestone, Esq. argued, San Francisco, CA, for Appellee Wileharda Kilian.

Before: MARKELL, HOLLOWELL, and PAPPAS, Bankruptcy Judges.

MARKELL, Bankruptcy Judge.

INTRODUCTION

Appellant Thomas Van Zandt (“Thomas”), as executor for the estate of Evaline Jeanne Malis (“Malis”),¹ sued debtor WilehardaKilian Mbunda (“Mbunda”) seeking to declare that a debt Mbunda owed to Malis's probate estate was nondischargeable. The bankruptcy court initially dismissed without leave to amend all but one of Thomas's claims for relief. At trial, the court granted Mbunda's motion for a judgment on partial findings at the close of Thomas's case, and entered judgment in favor of Mbunda. We AFFIRM.

FACTS

Mbunda filed her chapter 7 ² bankruptcy case in October 2010. In her schedules, Mbunda listed a debt to Malis in the amount of $165,000 (“Debt”). According to Mbunda's schedules, the Debt arose from business loans made by Malis to Mbunda in September and November 2005. These loans were made to Mbunda as the sole proprietor of an art and jewelry store known as the Twiga Gallery.

Thomas filed his nondischargeability complaint against Mbunda in December 2010. Thomas alleged that the Debt was nondischargeable under § 523(a)(2)(A), (4) and (6). Consistent with Mbunda's bankruptcy schedules, the complaint referred to the transactions from which the Debt arose as a $100,000 loan from Malis to Mbunda in September 2005 and a second $100,000 loan from Malis to Mbunda in November 2005. According to the complaint, Malis refinanced her home in order to loan the $200,000 to Mbunda.

In pertinent part, Thomas also alleged that Mbunda made the following misrepresentations in order to induce Malis to loan Mbunda the $200,000:

1. Mbunda would use the loan proceeds to purchase artistic materials for the art gallery, “including antique beads and quantities of gold, ivory and precious and semi-precious gemstones” (collectively, “Raw Materials”).

2. Malis would have a security interest in the Raw Materials and in other real and personal property Mbunda owned.

3. Malis also would have a security interest in the Twiga Gallery (collectively with the Raw Materials and the other real and personal property allegedly promised as security, the “Collateral”).³

4. Mbunda would execute transaction documentation memorializing the Debt and Malis's security interest in the Collateral.

5. Mbunda would make monthly payments sufficient to cover the increased amount of Malis's monthly mortgage payments resulting from Malis's home refinancing.

Mbunda moved to dismiss Thomas's complaint. In response, the bankruptcy court dismissed without leave to amend Thomas's § 523(a)(4) claim to the extent it did not deal with larceny, as well as his § 523(a)(6) claim. The bankruptcy court granted Thomas leave to amend his § 523(a)(2)(A) claim and that portion of his § 523(a)(4) claim alleging that the Debt was a debt arising from larceny.

Thomas filed an amended complaint. Mbunda again filed a motion to dismiss. The bankruptcy court granted Mbunda's motion in part, dismissing Thomas's remaining § 523(a)(4) claim without leave to amend. It then set the sole remaining claim under § 523(a)(2)(A) for trial.⁴

On November 2, 2011, the trial on Thomas's § 523(a)(2)(A) claim commenced. After Thomas presented his case in chief, Mbunda moved under Civil Rule 52(c)⁵ for a judgment on partial findings. The bankruptcy court granted that motion and, on November 10, 2011, entered a final judgment in Mbunda's favor. Thomas timely filed a notice of appeal on November 15, 2011.⁶

DISCUSSION

During the course of the adversary proceeding, the bankruptcy court ruled against Thomas on each of his three claims for relief. We address each claim for relief in turn.

1. Section 523(a)(2)(A).

Section 523(a)(2)(A) excepts from discharge debts incurred under false pretenses, based on false representations, or based on actual fraud. In particular, to establish fraud under § 523(a)(2)(A), the creditor must prove each of the following five elements by a preponderance of the evidence:

(1) the debtor made a representation;

(2) the debtor knew the representation was false at the time he or she made it;

(3) the debtor made the representation with the intent to deceive;

(4) the creditor justifiably relied on the representation; and

(5) the creditor sustained damage as a proximate result of the misrepresentation having been made.

Ghomeshi v. Sabban (In re Sabban), 600 F.3d 1219, 1222 (9th Cir.2010). When, as here, the bankruptcy court has resolved the matter under Civil Rule 52(c), we review the “ ‘court's findings of fact for clear error and its legal conclusions de novo.’.... The same standard applies to the district court's involuntary dismissal of a claim under [Civil] Rule 52(c).' ”

Lee v. W. Coast Life Ins. Co., 688 F.3d 1004, 1009 (9th Cir.2012) (quoting Price v. U.S. Navy, 39 F.3d 1011, 1021 (9th Cir.1994)). When deciding a motion under Civil Rule 52(c), as incorporated by Rule 7052, the bankruptcy court is “ ‘not required to draw any inferences in favor of the non-moving party; rather, the district court may make findings in accordance with its own view of the evidence.’ ” Id. (quoting Ritchie v. United States, 451 F.3d 1019, 1023 (9th Cir.2006)). Accordingly, we review Thomas's contentions that the bankruptcy court did not correctly find an absence of essential elements of the fraud claim under the clearly erroneous standard. See Candland v. Ins. Co. of N. Am. (In re Candland), 90 F.3d 1466, 1469 (9th Cir.1996); Am. Express Travel Related Servs. Co. v. Vee Vinhnee (In re Vee Vinhnee), 336 B.R. 437, 443 (9th Cir. BAP 2005) (citing Anastas v. Am. Sav. Bank (In re Anastas), 94 F.3d 1280, 1283 (9th Cir.1996)).

Here, in support of its Civil Rule 52(c) ruling, the bankruptcy court determined that there was no admissible evidence from which it could find that Thomas had proved the first or second elements of his § 523(a)(2)(A) claim: that Mbunda had made any knowingly false representations. In particular, the court found that Thomas presented no admissible evidence that Mbunda had made any affirmative misrepresentations regarding: the provision of security or collateral for the Debt; the execution of particular documentation for the Debt; or the timing or amount of monthly payments on the Debt.

While the bankruptcy court acknowledged that Mbunda had testified that she had told Malis of her need to repay certain debts around the time of the original transaction, the court found that what Mbunda generally told Malis did not amount to a representation that the loan proceeds would be used only to pay those debts. Furthermore, the court also found that what Mbunda generally told Malis was consistent with Mbunda's actual use of the proceeds. According to the court, Mbunda's uncontradicted testimony reflected that she used most of the proceeds to pay her debts, including those she owed to her landlord and to certain consignors of goods.

The bankruptcy court further found that Mbunda's promise to repay the Debt was not false when made. It instead found that Mbunda intended to repay the loan at the time she borrowed the $200,000 from Malis. In support of this finding, the court relied on the exhibits, offered by Thomas and admitted into evidence, reflecting that Mbunda had made payments on the Debt of at least $40,000, and perhaps as much as $50,000. According to the court, these payments “completely undermined” any notion that Mbunda did not intend to repay the Debt at the time she incurred it. This finding was not clearly erroneous, as it is not illogical, implausible, or without support in the record. United States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir.2009)(en banc).

Perhaps because of the high standard of review, Thomas did not argue in his opening brief that the bankruptcy court's findings were clearly erroneous. Instead, he argued that the bankruptcy court committed reversible error by excluding certain evidence. Of the evidence the bankruptcy court excluded, the most significant is Thomas's testimony regarding what Malis supposedly told him about the Debt before she passed away.

This is also a difficult argument for any appellant, as we review a bankruptcy court's evidentiary rulings for abuse of discretion, and then only reverse if any error would have been prejudicial to the appellant. See Johnson v. Neilson (In re Slatkin), 525 F.3d 805, 811 (9th Cir.2008) (citing Latman v. Burdette, 366 F.3d 774, 786 (9th Cir.2004)). “We afford broad discretion to a district court's evidentiary rulings. To reverse such a ruling, we must find that the district court abused its discretion and that the error was prejudicial. A reviewing court should find prejudice only if it concludes that, more probably than not, the lower court's error tainted the verdict.” Harper v. City of Los Angeles, 533 F.3d 1010, 1030 (9th Cir.2008) (citations and internal quotation marks omitted); see also S.E.C. v. Jasper, 678 F.3d 1116, 1122 (9th Cir.2012) (stating that a trial court's evidentiary rulings should not be disturbed absent a “clear abuse of discretion” and prejudice).

Here, the record makes clear the content of Thomas's proposed testimony. We have the record of Thomas's arguments made at trial, his offers of proof, and a declaration that he filed in support of his opposition to Mbunda's motion in limine to exclude such evidence. These portions of the record reflect that, according to Thomas, Malis told him in 2009 and 2010 that Mbunda had made the...