Gotcher v. Duffie (In re Duffie), 531 B.R. 847

Duffie, d/b/a SRO LIVE, entered into a September 8, 2011 Co-Ownership Agreement with the Gotchers to acquire 10% ownership in the Covellite and Rialto Theaters for $140,000; SRO LIVE would hold 85% and Stephen Michael would be involved through SRO LIVE.
Duffie purchased the Rialto and Covellite Theaters for a total consideration around $1.3579–$1.4 million and later representations suggested a $1.4 million purchase price in the Co-Ownership Agreement context.
The Gotchers made payments totaling approximately $88,348.61 under the Co-Ownership Agreement, including funds misattributed via vehicle sales and refinancings; Duffie concealed the true equity position.
Duffie and Stephen Michael allegedly manipulated the arrangement to siphon cash from the Gotchers while not transferring the 10% ownership, and Duffie admitted typing the Co-Ownership Agreement but did not sign it.
Duffie’s Rule 2004 examination and correspondence showed inconsistent marital status representations with Stephen Michael; Duffie’s alleged husband-status and related relations were used to support the business relationship.
The Gotchers stopped payments after discovering red flags; Duffie later pursued state-court remedies to enforce the contract and eviction notices, while Plaintiffs sought to have the debt deemed non-dischargeable under § 523(a)(2)(A).

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Duffie made false representations about ownership	Gotchers allege misrepresentations of joint ownership and 10% interest	Duffie did not appear; lack of proof that misrepresentations caused damages	Duffie made false representations; misrepresentation established
Whether the 10% interest transfer was actually intended	Gotchers relied on a 10% transfer under the Co-Ownership Agreement	No intent to transfer; agreement not enforceable without full payment	Intent to transfer existed on paper; actual transfer not completed
Whether Duffie’s concealment constitutes actual fraud under § 523(a)(2)(A)	Concealment and misrepresentations show intent to deceive	No direct participation by Duffie; reliance undermined	Fraud established by totality of circumstances and imputation theory
Whether the debt to the Gotchers is excepted from discharge under § 523(a)(2)(A)	Amount owed is $140,000 with undisclosed misrepresentations causing damage	Discharge exception narrowly construed; no proven loss or causation	$88,348.61 excepted from discharge under § 523(a)(2)(A)

Ghomeshi v. Sabban (In re Sabban), 600 F.3d 1219 (9th Cir. 2010) (elements of actual fraud require five-part proof by preponderance)
In re Siriani, 967 F.2d 302 (9th Cir. 1992) (fraud elements and reliance standard in § 523(a)(2)(A))
In re Gertsch, 237 B.R. 160 (9th Cir. BAP 1999) (reckless disregard can satisfy the scienter element)
In re Ettell, 188 F.3d 1141 (9th Cir. 1999) (reckless indifference supports knowledge element)
In re Khalil, 379 B.R. 163 (9th Cir. BAP 2007) (pattern of falsity or reckless disregard supports fraud finding)
In re Huh, 506 B.R. 257 (9th Cir. BAP 2014) (imputation of fraud from agent-principal relationships requires culpability)
In re Apte, 96 F.3d 1319 (9th Cir. 1996) (nondisclosure of material information can satisfy reliance and causation)
Field v. Mans, 516 U.S. 59 (1995) (false statements and intent defined by common law in fraud interpretation)
Concrete Pipe & Prods. v. Construction Laborers Pension Trust for S. Cal., 508 U.S. 602 (U.S. 1993) (preponderance standard and burden-shifting in fraud analysis)