505 B.R. 13
Bankr. C.D. Cal.2014Background
- Debtors are Elke Gordon-Schardt and John Shart; Shart’s fraud in 2007 is at issue, with Schardt later alleged to be liable by imputation.
- Creditors sued Shart and MEE in Tennessee for misrepresentations and related fraud; Schardt’s conduct alleged only as controversial support to Shart’s actions.
- Bankruptcy court held Schardt not directly liable for fraud and ruled no imputation to her under §523(a)(2)(A); Creditors appealed.
- BAP remanded to consider whether Schardt’s spouse’s fraud could be imputed to her under agency/partnership theories.
- Judge concludes imputation is unwarranted under current law and that Strang v. Bradner is not good law; transaction involved shows no partnership/agency with Schardt prior to 2009.
- Court emphasizes the fresh-start policy; Bullock, Grogan, and Neal are cited to restrict imputation and require intent/culpability for non-dischargeability.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether spouse fraud can be imputed under §523(a)(2)(A). | Schar dt argues imputation via Strang to allow Creditors’ claim. | Shardt argues imputation is inappropriate under modern law; no direct fraud by Schardt. | Imputation not permitted under §523(a)(2)(A). |
| Whether Strang v. Bradner remains good law for imputing fraud. | Creditors rely on Strang to impute partner’s fraud. | Court finds Strang not controlling; modern Supreme Court decisions restrict imputation. | Strang not good law for imputation; not viably extendable to this case. |
| Whether Tsurukawa II supports imputation. | Panel argued potential agency/partnership imputation. | Schardt’s involvement is minimal; not a business partner as in Tsurukawa II. | Even under Tsurukawa II, facts do not support imputation of Shart’s fraud to Schardt. |
| Are the specific eight evidentiary factors sufficient to impute liability? | BAP listed eight possible imputing factors. | Evidence does not establish partnership/agency; involvement occurred long after fraud. | None of the eight items establish partnership/agency sufficient for imputation. |
Key Cases Cited
- Neal v. Clark, 95 U.S. 704 (U.S. 1877) (actual fraud required for non-dischargeability (not fraud implied by law))
- Bullock v. BankChampaign, N.A., 133 S. Ct. 1754 (S. Ct. 2013) (defalcation requires culpable state of mind; knowledge or gross recklessness)
- Kawaauhau v. Geiger, 523 U.S. 57 (U.S. 1998) (willful/malicious injury requires intentional wrong; reckless not enough)
- Grogan v. Garner, 498 U.S. 279 () (fresh start policy; exceptions to discharge narrowly construed)
- Strang v. Bradner, 114 U.S. 555 (U.S. 1885) (origin of imputation theory (partnership context))
- In re Cecchini, 780 F.2d 1440 (9th Cir. 1986) (imputation of partner’s knowledge/intent used in non-dischargeability)
- In re Lansford, 822 F.2d 902 (9th Cir. 1987) (questioning agency-based imputation; duties of consideration)
- In re Sherman, 658 F.3d 1009 (9th Cir. 2011) (§523(a)(19) requires debtor culpability; not applicable when debtor not responsible)
- Tsurukawa v. Nikon Precision, Inc. (In re Tsurukawa), 287 B.R. 515 (9th Cir. BAP 2002) (Tsurukawa II – framework for imputing fraud by spouse depends on partnership facts)
- Local Loan Co. v. Hunt, 292 U.S. 234 (U.S. 1934) (exemption logic for discharge; caution against broad exceptions)