505 B.R. 878
9th Cir. BAP2014Background
- Wank, a California attorney, filed for Chapter 7; Appellees allege § 523(a)(2)(A) nondischargeability based on fraud in a currency-speculation scheme (EIS).
- Appellees invested a total of $825,000; Wank sent their funds to UNIFICO in London to invest in EIS, with no profits or return of principal.
- Settlement Agreement in state court action provided a non-dischargeable judgment of $1,100,000 and included a First Declaration signed by Wank under penalty of perjury.
- First Declaration stated, among other things, that Wank would not discharge the $1.1 million if bankruptcy occurred; it framed admitted facts of fraud and misrepresentations.
- Wank later signed a Second Declaration disavowing some statements, claiming duress and medications affected the first declaration, while offering different explanations.
- Bankruptcy court granted summary judgment against Wank, relying on the First Declaration to find § 523(a)(2)(A) nondischargeability of $825,000; on appeal, the panel vacated and remanded for trial-court credibility and reliance issues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether summary judgment based solely on the First Declaration was proper | Appellees relied on Wank’s First Declaration admissions to prove fraud. | Wank contends the First Declaration is unreliable and tainted by its prebankruptcy purpose; Second Declaration contradicts it. | No; summary judgment reversed; issues of credibility and justifiable reliance require trial. |
| Whether Wank’s Second Declaration creates genuine issues of material fact | Second Declaration corroborates or explains the first and does not negate liability. | Second Declaration negates key admissions, raising material disputes. | Yes; the court cannot weigh credibility at summary judgment; remand for trial. |
| Whether Appellees demonstrated justifiable reliance by each plaintiff | Appellees relied on Wank’s statements to invest in EIS. | Plaintiffs had their own due diligence and may have pre-decided to invest independent of Wank’s statements. | Not established; genuine issues of reliance require trial. |
| Whether the court properly treated public-policy concerns about prebankruptcy waivers | Public-policy disfavors invalidating evidence based on a prebankruptcy waiver of discharge. | Such statements are tainted by an intent to defeat discharge and are not trustworthy. | Appears acknowledged but did not resolve all policy implications; still vacated for trial. |
| Whether credibility determinations were appropriate at summary judgment | Second Declaration corroborates issues of fact; credibility should be evaluated at trial. | First Declaration admissions show fraud; credibility should not preclude summary judgment. | Not appropriate; vacate and remand for trial. |
Key Cases Cited
- Bank of China v. Huang (In re Huang), 275 F.3d 1173 (9th Cir. 2002) (public policy against prepetition waivers of discharge)
- In re Cole, 226 B.R. 647 (Bankr.N.D.Ohio 1998) (prepetition discharge waivers contrary to public policy)
- Continental Ins. Co. v. Thorpe Insulation Co. (In re Thorpe Insulation Co.), 671 F.3d 1011 (9th Cir. 2012) (reaffirms Huang and Huang/ Cole principles)
- In re SNTL Corp. v. Ctr. Ins. Co. (In re SNTL Carp.), 571 F.3d 826 (9th Cir. 2009) (standard for summary judgment in dischargeability actions)
- Yeager v. Bowlin, 693 F.3d 1076 (9th Cir. 2012) (sham affidavit rule; caution in evaluating conflicting sworn statements)