Potts-Schlimme v. Zamani-Zadeh

UNITED STATES BANKRUPTCY COURT

DISTRICT OF NEW MEXICO

In re:

RAMIN ZAMANI-ZADEH, No. 20-11939-t7

Debtor.

TAEKI MARTIN, et al.,

Plaintiffs,

v. Adv. No. 20-1077-t

RAMIN ZAMANI-ZADEH,

Defendant.

REPUBLISHED OPINION

Before the Court is a judgment of the District Court remanding this adversary proceeding

for additional findings and conclusions of law. This opinion is the Court’s attempt to comply with

the directions of the District Court. As set forth below, the Court finds and concludes that a portion

of Defendant’s state court judgment debt to Plaintiff is nondischargeable under § 523(a)(2)(A).1

A. Facts.2

The Court finds:3,4

1 Unless otherwise indicated, all statutory references are to 11 U.S.C.

2 The Court takes judicial notice of the docket in this adversary proceeding and the state court

complaint, answer, and judgment that are the subject of the proceeding. See St. Louis Baptist

Temple, Inc. v. Fed. Deposit Ins. Corp., 605 F.2d 1169, 1172 (10th Cir. 1979) (a court may sua

sponte take judicial notice of its docket and of facts that are part of public records).

3 Some of the Court’s findings are in the discussion portion of the opinion. They are incorporated

by this reference.

4 All monetary figures are rounded to the nearest dollar.

Finding of Fact Citation to the trial record

In 2008, Defendant Ramin Zamani-Zadeh had 12 Trial Transcript, doc. 79, filed

years of restaurant experience and 8 years of 9/1/2023 (the “Trial Transcript”),

construction experience. p. 4 (p. 12)5 (lines 23-23).

Defendant served a sentence for bank fraud in an Trial Transcript, p. 12 (p. 45)

Oregon prison. (lines 6-20).

In prison, Defendant met Steve Martin (“Martin”). Trial Transcript, p. 3 (p. 8) (lines

2-3).

At the time Martin was about 29 years old. Martin, et al v. Zamani et al,

Multnomah County Case No.

0901-01452. Testimony of

Plaintiff Taeki Martin, audio

recording of trial (“Plaintiff’s

Testimony”), February 22-23,

2010, at 10:37:50 a.m. to

10:37:57 a.m.6

Martin was serving a five-year sentence for drug Trial Transcript, p. 12 (p. 44)

dealing. (lines 20-23); Plaintiff’s

Testimony, 10:42:00 a.m. to

10:42:16 a.m.

Defendant told Martin that Defendant wanted to start Trial Transcript, p. 3 (p. 8) (lines

a business after he got out. 12-13).

Defendant and Martin discussed a funding source for Trial Transcript, p. 4 (p. 11) (lines

the venture. 8-22).

Martin told Defendant that Martin’s mother, Plaintiff Trial Transcript, p. 13 (p. 46)

Taeki Martin, might be willing to invest in the (line 17-21).

business.

At the time, Plaintiff was 68 years old. She was born Plaintiff’s Testimony, 10:33:20

August 3, 1939. a.m. to 10:33:40 a.m.

Plaintiff was a widow. Her husband died in 2001. Plaintiff’s Testimony, 10:33:45

a.m. to 10:33:55 a.m., and

10:38:15 a.m. to 10:38:22 a.m.

Plaintiff was a native of South Korea. Plaintiff’s Testimony, 10:33:40

a.m. to 10:33:45 a.m.

Plaintiff’s English was very limited. Plaintiff’s Testimony, 10:45:40

a.m. to 10:48:10 a.m.

At some point, Martin suggested that Plaintiff Trial Transcript, p. 12 (p. 44)

mortgage her house in the Seattle, Washington area to (lines 10-19).

raise money and invest the proceeds in Defendant’s

business venture.

The house, on which Plaintiff owed between $7,000 Plaintiff’s Testimony, 10:38:25

and $8,000, was her primary asset. a.m. to 10:39:08 a.m.

5 The page numbers in parentheses are to the “mini pages” (4 to a page) in each page of the

transcript.

6 All times are to the February 22, 2010, testimony unless otherwise indicated.

At the time, Plaintiff’s income was about $2,300 per Plaintiff’s testimony, 10:40:00

month. a.m. to 10:41:12 a.m.

Martin told Plaintiff that Defendant and Defendant’s Plaintiff’s Testimony, 10:44:15

father would “help her out” to start up a business. a.m. to 10:44:49 a.m.

Martin told Plaintiff that Defendant had 17 years’ Plaintiff’s Testimony, 10:50 50

experience in the restaurant business and was a.m. to 10:51:05 a.m.

trustworthy.

Defendant was a trustworthy person, according to Plaintiff’s Testimony, 10:50:30

Martin. to 10:50:47

If and when Martin was released from prison he had Plaintiff’s Testimony, 10:50:47

to do something, so Martin wanted Plaintiff to get to 10:51:04.

involved with Defendant’s father to start up a

business, as she had good credit.

Martin told Plaintiff that Defendant had been in jail Plaintiff’s Testimony, 10:51:10

because he had been involved in some kind of tax a.m. to 10:51:50 a.m.

incident or problem.

When Defendant was released from prison he met Plaintiff’s Testimony, 10:43:20

with Plaintiff at her house. a.m. to 10:43:35 a.m.

Martin told Plaintiff that Defendant would be visiting. Plaintiff’s Testimony, 10:43:45

a.m. to 10:44:02 a.m.

The meeting was in January or February 2008. Plaintiff’s Testimony, 10:48 00

a.m. to 10:48:56 a.m.

Martin was still in jail when Defendant first met with Plaintiff’s Testimony, 10:43:35

Plaintiff. a.m. to 10:43:45 a.m.; and

Trial Transcript, p. 13 (p. 46)

(lines 5-9).

Defendant and Plaintiff agreed that Plaintiff and Trial Transcript, p. 4 (p. 12) (lines

Defendant’s father would go into the restaurant 15-19).

business together.

Defendant’s vision for the restaurant was “an elegant, Trial Transcript, p. 4 (p. 13) (lines

high-class restaurant and entertainment bar/grill.” 1-2).

Defendant told Plaintiff that if she would invest half Trial Transcript, p. 4 (p. 11) (lines

of the money needed for the restaurant venture, 19-22); Plaintiff’s Testimony,

Defendant and his father would invest the other half. 10:53:37 a.m. to 10:54:10 a.m.

Plaintiff’s understanding was that the profits from the Plaintiff’s Testimony, 10:54:05

restaurant would be divided 50/50. a.m. to 10:54:31 a.m.

Plaintiff’s capital contribution to the business was Trial Transcript, p. 13 (p. 48)

$194,644. (lines 14-17).

The only other capital contribution was an $80,000 Trial Transcript, p. 6 (p. 21) (lines

loan to Defendant from Defendant’s parents. 15-21).

Defendant put the $80,000 into the business.

On March 3, 2008, Defendant forged Plaintiff’s Plaintiff’s testimony, 11:16:57

signature on an application for an American Express a.m. to 11:19:00 a.m.

credit card and obtained an American Express credit

card in Plaintiff’s name.

On March 18, 2008, Defendant formed Zamani Trial Transcript, p. 13 (p. 47)

Entertainment, LLC, a Washington limited liability (line 13-19).

company (“Zamani Entertainment”).

Plaintiff was to own half of Zamani Entertainment. Trial Transcript, p. 4 (p. 11) (lines

19-22).

Plaintiff only received a 25% interest in Zamani Trial Transcript, p. 17 (p. 63)

Entertainment. (lines 19-25).

Plaintiff mortgaged her house for $202,000 and Plaintiff’s Testimony, 10:55:35

obtained cash proceeds of $194,644, which she a.m. to 10:58:06 a.m.

deposited into a newly opened Zamani Entertainment

account at US Bank.

Plaintiff invested the mortgage proceeds in the Plaintiff’s Testimony, 10:54:35

restaurant venture because she trusted Defendant. a.m. to 10:55:20 a.m.

Defendant was supposed to make the payments under Plaintiff’s Testimony, 10:58:06

the mortgage. Defendant stopped making payments a.m. to 10:58:45 a.m.

after about 5 or 6 months.

Defendant contacted brokers and looked for a Trial Transcript, p. 4 (p. 13) (lines

restaurant location in Seattle. 3-14).

Plaintiff and Defendant looked at several Seattle Trial Transcript, p. 4 (p. 13) (lines

locations and were interested in one but did not sign a 10-12).

lease.

Defendant and Plaintiff then began looking for a Trial Transcript, p. 4 (p. 13) (lines

location in Portland, Oregon. 11-14).

Eventually they found a building that formerly was Trial Transcript, p. 4 (p. 13) (lines

operated as the House of Gold restaurant. 11-23).

The lowest bid from a contractor to remodel the House Trial Transcript, p.10 (p. 37)

of Gold was $250,000. This did not include the cost (lines 5-8).

of stocking the restaurant and bars.

Obtaining a liquor license was essential to Trial Transcript, p. 4 (p. 13) (lines

Defendant’s business plan. 1-2).

However, Defendant understood that under Oregon Trial Transcript, p. 18 (p. 69)

law, liquor licenses could not be issued to businesses (lines 18-23).

owned by convicted felons.7

Because of that, even though Defendant was a co- Trial Transcript, p. 20 (p. 75-76)

owner of Zamani Entertainment he was never listed as (lines 22-25 and 1-12); p. 6 (p.

an owner. 18)(lines 8-11; 22-25); p. 7 (p.

22) (lines 12-14).

7 Defendant’s understanding was correct. See the 2008 version of O.R.S. § 471.313(4)(d) (the

Oregon Liquor Control Commission can refuse to issue a license to anyone who “[h]as been

convicted ... at any time of a felony.”).

Instead, Defendant’s father was put on all legal Trial Transcript, p. 20 (p. 75)

documents as an owner.8 (lines 3-6).

Plaintiff wanted her son Martin to be an owner of the Plaintiff’s Testimony, 10:50:50

restaurant, so he would have a useful occupation after a.m. to 10:51:00 a.m.

he was released from prison.

Martin was part of the restaurant venture. Trial Transcript, p. 3 (p. 8) (lines

12-14), p. 12. (p. 44) (line 15-19),

and p. 20 (p. 77) (line 6-21).

Because of his criminal conviction, Martin was never Trial Transcript, p. 16 (p. 60)

listed as an owner of Zamani Entertainment. (lines 8-16); p. 20 (p. 75) (lines 9-

12).

At some point in the spring or early summer of 2008, Trial Transcript, p. 6 (p. 20) (lines

Martin was released from prison and sent to a halfway 2-9).

house in the Seattle area.

Martin resided at the halfway house but was able to Trial Transcript, p. 20 (p. 74)

go to Portland on the weekends. (lines 9-21); Trial Transcript, p.

20 (p. 77) (lines 6-12).

Contrary to his mother’s hopes and wishes, Martin Trial Transcript, p. 21 (pp. 78-79)

continued to associate with the same, or same type of, (lines 19-25 and 1-4).

people he associated with before he went to prison.

Defendant described it as a drug-dealing lifestyle. Trial Transcript, p. 21 (p. 78)

(lines 24-25).

In May 2008, Defendant and Martin bought a boat, Trial Transcript, p. 14 (pp. 50-52)

using $6,104 from the Zamani Entertainment bank (lines 19-25 and 1-25 and 1-7).

account and a loan for $21,099 that Defendant

obtained in Plaintiff’s name.

Plaintiff knew nothing about the boat or the loan for Plaintiff’s testimony, 11:31:30

the boat. a.m. to 11:31:53 a.m.

There are pictures of Martin, Defendant, and an Trial Transcript, p. 14 (p. 52)

unknown women “partying” in the boat. (lines 8-13).

Plaintiff and Defendant obtained a credit card from Plaintiff’s Testimony, 10:59:15

Bank of America, applying over the phone, that was a.m. to 11:00:25 a.m.

to be used for business expenses.

Defendant pretended to be Martin to get the Bank of Plaintiff Testimony, 11:00:25

America card. a.m. to 11:01:03 a.m.

Plaintiff thought the American Express card was in Plaintiff’s Testimony, 11:18:55

Defendant’s name. a.m. to 11:23:25 a.m.

Using the American Express card, Defendant or Trial Transcript, p. 15 (p. 54)

Martin bought clothing, expensive dinners, and trips (lines 2-8); Trial Transcript, p. 15

for Martin. (p. 56-57) (lines 6-25 and 1-9).

8 This fraudulent gambit should not work. See the 2008 version of O.R.S. § 471.313(4)(h) (the

Oregon Liquor Control Commission can refuse to issue a license to anyone who “[i]s not the

legitimate owner of the business proposed to be licensed, or other persons have ownership interests

in the business which have not been disclosed.”).

In June 2008, Defendant caused Zamani Trial Transcript, p. 18 (p. 66)

Entertainment to have cashier’s checks issued from its (lines 11-21).

Bank of the West account totaling $75,000. The

cashier’s checks were deposited into an account at

Bank of the West established by Defendant for Elite

Limousine.

Zamani caused Elite Limousine to buy a “limousine” Trial Transcript, p. 7 (p. 22) (lines

to take restaurant customers home if they had had too 15-20).

much to drink.

In October 2008, Defendant caused Zamani Trial Transcript, p. 18 (p. 66)

Entertainment to pay an additional $77,396 for (lines 22-25).

limousine repairs and expenses.

At least $152,396 of Zamani Entertainment funds Trial Transcript, p. 18 (p. 66)

were transferred into Elite Limousine accounts. (lines 11-21) and p. 18 (p. 66)

(lines 22-25).

Martin had possession of or access to Zamani Trial Transcript, p. 18 (p. 67)

Entertainment credit cards and also to credit cards in (lines 17-21).

Plaintiff’s name that Defendant had obtained.

The credit cards were issued by Bank of America, Trial Transcript, p. 14 (p. 53)

Washington Mutual, Bank of the West, and American (lines 24-25); p. 15 (p. 54) (lines

Express. 1-25); p. 15 (p. 56) (lines 6-20);

and p. 16 (p. 58) (lines 10-17).

Martin used the credit cards for all his expenses, Trial Transcript, p. 18 (p. 67)

including his day-to-day living expenses. (lines 17-21).

Other than the American Express card (about which Plaintiff’s Testimony, 10:59:20

she knew nothing) and the Bank of America card a.m. to 11:30:05 a.m.

(obtained with her knowledge and approval), it is not

clear how much Plaintiff knew about, or was involved

in opening, the credit card accounts that were in her or

Zamani Entertainment’s name.

Plaintiff never was aware of, or authorized, Martin or Plaintiff’s Testimony, 11:11:20

Defendant to use her personal or any business credit a.m. to 11:20:00 a.m.

cards for any non-business expenses.

The lease for the former House of Gold building was Defendant’s Trial Ex. A at 1.

signed on June 25, 2008.

The space was remodeled by Defendant between June Trial Transcript, p. 5 (p. 14) (lines

25, 2008, and September 2008. 20-22) and p. 9 (p. 32) (line 6).

The remodeled premises featured a restaurant and bar Trial Transcript, p. 6 (p. 18) (lines

downstairs and a bar/nightclub upstairs. 8-11).

The remodeled premises apparently violated the Trial Transcript, p. 24 (pp. 90)

Oregon Fire Code. (lines 11-20).

In July 2008 Defendant, through an attorney, drafted Trial Transcript, p. 16 (pp. 59-60)

an LLC Interest Purchase Agreement (the “Purchase (lines 1-7 and 20-25).

Agreement”), which obligated Plaintiff to pay

Defendant $480,000 for 75% of Zamani

Entertainment.

Plaintiff’s obligations under the Purchase Agreement Trial Transcript, p. 16 (p. 60)

included a $50,000 down payment and monthly (lines 1-7).

payments of $13,673.

Defendant got Plaintiff to sign the Purchase Trial Transcript, p. 16 (pp. 59)

Agreement. (lines 20-25).

Defendant represented to Plaintiff that the Purchase Plaintiff’s Testimony, 11:36:30

Agreement was necessary so Defendant could tell the a.m. to 11:41:40 a.m.

Oregon Liquor Control Commission that Plaintiff

owned the entire business.

In July 2008 or later, Defendant told Plaintiff that Plaintiff’s Testimony, 11:41:00

Defendant could not be involved with a liquor license a.m. to 11:41:24 a.m..

because of his criminal record.

Defendant represented to Plaintiff that the payments Plaintiff’s Testimony, 11:45:55

required under the Purchase Agreement would be a.m. to 11:46:30 a.m. and

made from her restaurant profits. 11:58:35 a.m. to 11:58:40 a.m.

At all times, during construction and when the Plaintiff’s Testimony, 11:46:30

restaurant was operating, Defendant controlled and a.m. to 11:48:02 a.m.

managed the business venture and its finances.

The restaurant, named Ibiza, opened in September Trial Transcript, p. 6 (p. 21) (line

2008. 5), and p. 9 (p. 32) (lines 6-9).

The restaurant opened with a temporary liquor Trial Transcript, p. 18 (p. 69)

license. (lines 4, 23-25).

During the time the restaurant was open, it made very Trial Transcript, pp. 6-7 (pp. 21-

little if any profit. 22) (lines 22-25 and 1-3).

The restaurant was not able to generate enough cash Trial Transcript, p. 18 (p. 69)

to pay its rent. (lines 3-17).

One problem Ibiza had was that Martin would come Trial Transcript, p. 20 (pp. 76-77)

to the restaurant when he could get away from the (lines 22-25 of page 76 and lines

halfway house and “drink the profits.” 1-21 of page 77).

Defendant did not tell Plaintiff about Martin’s “drug Trial Transcript, p. 21 (p. 78)

dealing lifestyle” or his “drinking the profits.” (lines1-6 and 19-25).

On December 31, 2008, Defendant issued a default Trial Transcript, p. 17 (pp. 62-63)

letter to Plaintiff stating that her interest in Zamani (lines 13-25 and 1-25), and p. 20

Entertainment had been forfeited because of her (pp. 77) (lines 16-17).

default under the Purchase Agreement.

Plaintiff did not know until much later that Defendant Plaintiff’s Testimony, 11:57:54

tried to forfeit her interest in Zamani Entertainment. a.m. to 11:58:38 a.m.

Plaintiff did not recall getting a notice of default and Plaintiff’s Testimony, 11:55:25

was only made aware of it after the fact by her lawyer. a.m. to 11:57:54 a.m.

Defendant testified that he sent the default notice Trial Testimony, p. 16 (p. 61)

because he was afraid that Plaintiff would try to kick (lines 4-8).

him out of the business that they had built together.

Ibiza closed on January 30, 2009. Trial Transcript, p. 18 (pp. 68-69)

(lines 4-25 and 1-17).

Plaintiff never received any money from the Plaintiff’s Testimony, 11:06:07

restaurant. to 11:06:32 and 11:48:10 a.m. to

11:48:40 a.m.

The temporary liquor license was not renewed after it Trial Transcript, p. 18 (p. 69)

expired in January 2009. (lines 18-23).

The permanent liquor license could not be obtained Trial Transcript, p. 24 (pp. 90)

because the fire marshal may have ordered that the (lines 11-20).

restaurant premises not be approved.

Plaintiff sued Defendant, Zamani Entertainment Case 20-1077, doc. 7-1, filed

(Oregon LLC), and several of their affiliates in April 26, 2021, pp. 3-11.

Oregon state court in January 2009, bringing claims

for violation of Oregon’s Abuse of a Vulnerable

Person statute (ORS § 124.100 et seq.); conversion;

making wrongful corporate/LLC distributions; and to

expel Defendant as a member of Zamani

Entertainment and affiliated LLCs.

Defendant answered the complaint through counsel Case 20-1077 Doc. 7-1, pp. 12-

but failed to appear at the trial on the merits, scheduled 15.

for February 22, 2010.

Plaintiff examined witnesses and introduced Plaintiff’s Testimony; Case 20-

documentary evidence at the unopposed trial. 1077 Doc. 7-1, p. 15 (the

“Judgment”).

Plaintiff testified about non-economic damages. She Plaintiff’s Testimony, February

testified [paraphrased]: 23, 2010, 2:54:00 p.m. to 3:00:45

I really believed Defendant. After my son was p.m.

released from the jail, Defendant told me that once I

get my mortgage loan, Defendant would take care of

everything. When my son was released from prison I

was going to buy a car for him. But Zamani said he

would take care of that so I did not have to worry. I

rented a car for my son. I used my Discover credit card

to rent the car. Defendant showed me three different

“licenses,” one for me, one for him, and one for my

son, so I didn’t need to buy a car. The rental cost was

more than $10,000. I am paying that off. I am also

making the mortgage payments, which were in

arrears. The credit card payments were close to $300

but now are down to $230. It was really hard for me

to make the credit card and mortgage payments. We

had mutual bonds and some other bonds. I used all the

assets I had to make the payments. It has been very

difficult for me because this case has been dragged on.

I am barely making ends meet. Even coming to the

court is hard. I cannot go to sleep at night without

taking pills. I had no idea Zamani had been using me

to this scale. I had no idea. I was really surprised and

upset. The reason I can endure is because I believe in

God. That is how I have been surviving.

On May 14, 2010, the state court entered a judgment Judgment.

of $1,001,866 in favor of Plaintiff and Zamani

Entertainment against Defendant and others under

Oregon’s Abuse of Vulnerable Person statute. The

judgment included $233,955 in “economic damages,”

$100,000 in “non-economic” damages, and treble

damages. The judgment accrues interest at 9% and

remains unpaid.

The judgment included the following: Judgment.

The Court makes a specific finding that the

lease documents executed in favor of Lease

Company of America do not bear the genuine

signature of Plaintiff Martin, but rather

represent forgeries by Defendant Ramin

Zamani, aka Ramin Zamani-Zadeh.

The judgment also included the finding that all named Judgment.

defendants are alter egos of Defendant.

The judgment finds and concludes: Judgment.

Defendants are liable for violations of the

prohibitions on financial elder abuse as

provided by ORS 124.100 by way of

Defendants and each of them having engaged

in a scheme designed to deprive the Plaintiffs

of money through artifice, false pretense, and

fraud which were established clearly and

convincingly.

Defendant filed this no-asset chapter 7 case on Case 20-11939 doc. 1, and doc.

October 7, 2020, and was granted a discharge on 20.

August 17, 2021.

Plaintiff filed this adversary proceeding on December Case 20-1077 doc. 1.

30, 2020.

B. Issue Preclusion Establishes Two Facts.

The Court earlier denied Plaintiff’s motion for summary judgment based on issue

preclusion. See Doc. 19, filed August 12, 2021, in this adversary proceeding. The Court stands by

that ruling—in this matter, issue preclusion was not a sufficient ground to grant summary

judgment. However, the Court rules that two subsidiary findings of fact by the Oregon court, i.e.,

 All named defendants were conduits and vehicles for fraud and were alter

egos of Defendant Ramin Zamani, aka Ramin Zamani-Zadeh; and

 The court makes a specific finding that the lease documents executed in

favor of Lease Company of America do not bear the genuine signature of

Plaintiff Martin, but rather represent forgeries by Defendant Ramin Zamani,

aka Ramin Zamani-Zadeh,

are entitled to preclusive effect under applicable Oregon and federal law. In so ruling, the Court

finds and concludes that the parties were the same; the causes of action were different; and the

issues were actually litigated during the lengthy default judgment hearing. See In re Bond, 548

B.R. 570, 576 (Bankr. D. Or. 2016), and the Court’s opinion entered in this adversary proceeding

on August 21, 2021, doc. 19, pp. 8-12.

C. No Reliance on the State Court Complaint or Unadopted Statements of Plaintiff’s

Counsel for the Truth of the Matters Asserted Therein.

As set forth in the facts table, the Court did not and does not rely on the state court

complaint or the unadopted statements of Plaintiff’s counsel made during the state court trial to

establish the truth of any facts.

D. Section 523(a)(2)(A); False Representations, False Pretenses, or Actual Fraud.

Section 523(a)(2)(A) prohibits the discharge of a debt “for money . . . to the extent obtained

by . . . false pretenses, a false representation, or actual fraud[.]” To prevail in her § 523(a)(2)(A)

claim, Plaintiff must prove the requisite facts by a preponderance of the evidence. In re Young, 91

F.3d 1367, 1373 (10th Cir. 1996).

1. False Pretenses.

“False pretenses under Section 523(a)(2)(A) are implied misrepresentations

intended to create and foster a false impression” and “‘can be defined as any series

of events, when considered collectively, that create a contrived and misleading

understanding of a transaction, in which a creditor is wrongfully induced to extend

money or property to the debtor.’” Bank of Cordell v. Sturgeon (In re Sturgeon),

496 B.R. 215, 223 (10th Cir. BAP 2013) (quoting Stevens v. Antonious (In re

Antonious), 358 B.R. 172, 182 (Bankr. E.D. Pa. 2006)). “Intent to deceive can be

inferred from the totality of the circumstances.” Id. at 222 (citing Copper v. Lemke

(In re Lemke), 423 B.R. 917, 922 (10th Cir. BAP 2010)).

Woods, 660 B.R. 905, 920, n.45 (10th Cir. BAP 2024); see also In re Osborne, 520 B.R. 861, 869

(Bankr. D.N.M. 2014) (same).

[F]alse pretenses include conduct and material omissions. See Marks v. Hentges (In

re Hentges), 373 B.R. 709, 725 (Bankr. N.D. Okla. 2007) (false pretenses are

“implied misrepresentations or conduct intended to create and foster a false

impression.”) (internal quotations omitted).

In re Woods, 616 B.R. 803, 812-13 (Bankr. N.D. Okla. 2020). A false pretenses claim presents the

issue of “whether, by silence, insinuation, or inference, [the d]ebtor knowingly acted in [a way] as

to create a false impression in the mind of [the creditor]” about the transaction at issue. Id at 813.

The elements of a nondischargeability proceeding based on false pretenses are:

(1) The debtor made a false representation [or omission];

(2) The debtor made the representation [or omission] with the intent to deceive the

creditor;

(3) The creditor relied on the representation [or omission];

(4) The creditor’s reliance was justifiable; and

(5) The debtor’s representation [or omission] caused the creditor to sustain a loss.

In re Woods, 660 B.R. 905, 918 (10th Cir. BAP 2024) (citing In re Young, 91 F.3d 1367, 1373 (10th

Cir. 1996)); see also In re Osborne, 520 B.R. 861, 868 (Bankr. D.N.M. 2014) (same).9

2. False Representation. “False representations are representations knowingly and

fraudulently made that give rise to the debt.” Osborne, 520 B.R. at 868, quoting In re Sutherland–

Minor, 345 B.R. 348, 354 (Bankr. D. Colo. 2006), see also In re Lewis, 271 B.R. 877, 885 (10th

Cir. BAP 2002) (same); In re Johnson-Battle, 599 B.R. 769, 783 (Bankr. D.N.J. 2019) (to the same

effect). The elements of a nondischargeability action based on false representation are the same as

for false pretenses. Woods, 660 B.R. at 918; Young, 91 F.3d at 1373.

9 Both false pretenses and false representation are inducement-based frauds. Woods, 660 B.R. at

918 and 920 n.45.

3. Actual Fraud. The term “actual fraud” in § 523(a)(2)(A) “denotes any fraud that

involves moral turpitude or intentional wrong.” Husky Intern. Elecs., Inc. v. Ritz, 578 U.S. 356,

360 (2016). It can be proven by showing “a scheme to deprive or cheat [the creditor] of property

or a legal right.” In re Vickery, 488 B.R. 680, 690 (10th Cir. BAP 2013); see also 4 Collier on

Bankruptcy ¶ 523.08[1][e] (16th ed.) (actual fraud is “a deceit, artifice, trick or design involving

direct and active operation of the mind, used to circumvent and cheat another—something said,

done or omitted with the design of perpetrating what is known to be a cheat or deception.”).

The Supreme Court ruled that “actual fraud” is difficult to define precisely but

“connotes deception or trickery” that is “done with wrongful intent,” and the fraud

must be “actual” “in contrast to ‘implied’ fraud or fraud ‘in law.’” The Supreme

Court held: (a) “[t]he term ‘actual fraud’ in § 523(a)(2)(A) encompasses forms of

fraud, like fraudulent conveyance schemes, that can be effected without a false

representation,” and (b) proof of reliance is not required to except a debt from

discharge under § 523(a)(2)(A) based on a fraud that is not an inducement-based

fraud, such as a fraudulent conveyance scheme.

Woods, 660 B.R. 905, 917 (10th Cir. BAP 2024) (discussing Husky); see also In re Thompson, 555

B.R. 1, 10) (10th Cir. BAP 2016) (for actual fraud, there is no requirement that the creditor rely on

the fraud or part with assets at the inception of, or concurrently with, the fraud, nor is there a

requirement that the fraud induce the creditor to part with property).

The “actual fraud” prong of § 523(a)(2)(A) requires that a creditor prove the following

elements:

(1) Fraud;

(2) Wrongful intent, as opposed to constructive or implied fraud;

(3) The debtor obtained “money, property, services, or . . .credit” by the actual

fraud; and

(4) The subject debt arises from the actual fraud.

In re Thompson, 555 B.R. 1, 10-14 (10th Cir. BAP 2016); see also In re Jahelka, 442 B.R. 663,

669 (Bankr. N.D. Ill. 2010) (abrogated on other grounds by Husky Int’l Electronics, Inc. v. Ritz,

578 U.S. 355 (2016)); In re Eisenstein, 525 B.R. 428, 439 (Bankr. N.D. Ill. 2015) (to the same

effect); Liebl, 434 B.R. at 538 (same).

E. Material Omissions and the Duty to Disclose.

1. Material omissions can constitute false pretenses.

False pretenses under Section 523(a)(2)(A) are implied misrepresentations intended

to create and foster a false impression. Unlike false representations, which are

express misrepresentations, false pretenses include conduct and material omissions.

See Marks v. Hentges (In re Hentges), 373 B.R. 709, 725 (Bankr. N.D. Okla. 2007)

(false pretenses are “implied misrepresentations or conduct intended to create and

foster a false impression.”) (internal quotations omitted). False pretenses can be

“defined as any series of events, when considered collectively, that create a

contrived and misleading understanding of a transaction, in which a creditor is

wrongfully induced to extend money or property to the debtor.” Stevens v.

Antonious (In re Antonious), 358 B.R. 172, 182 (Bankr. E.D. Pa. 2006) (citing Rezin

v. Barr (In re Barr), 194 B.R. 1009, 1019 (Bankr. N.D. Ill. 1996)).

In re Sturgeon, 496 B.R. 215, 223 (10th Cir. BAP 2013).

A false pretense as used in § 523(a)(2)(A) includes material omissions, and means

“implied misrepresentations or conduct intended to create and foster a false

impression.” An overt misrepresentation is not required, because “omissions or a

failure to disclose on the part of the debtor can constitute misrepresentations for

purposes of nondischargeability where the circumstances of the case are such that

omissions or failure to disclose create a false impression which is known by the

debtor.”

In re Perkins, 298 B.R. 778, 788 (Bankr. D. Utah 2003) (footnotes omitted).

2. Material omissions can also be false representations.

In appropriate circumstances, material omissions can constitute false

representations. See e.g., In re Piccolomini, 87 B.R. 385, 387 (Bankr. W.D. Pa.

1988).

In re Howarter, 95 B.R. 180, 187 (Bankr. S.D. Cal. 1989).

When a debtor has an affirmative duty to disclose information, the failure to convey

the information may be considered a false representation for purposes of Section

523(a)(2). Fowler, 91 F.3d at 1374–75. Moreover, “false pretense[s] as used in

§ 523(a)(2)(A) includes material omissions, and means ‘implied misrepresentations

or conduct intended to create and foster a false impression.’” William W. Barney,

M.D. P.C. Retirement Fund v. Perkins (In re Perkins), 298 B.R. 778, 788 (Bankr.

D. Utah 2003), quoting Peterson v. Bozzano (In re Bozzano), 173 B.R. 990, 993

(Bankr. M.D.N.C. 1994) (abrogated on other grounds). “An overt

misrepresentation is not required, because ‘omissions or a failure to disclose on the

part of the debtor can constitute misrepresentations for the purpose of

nondischargeability where the circumstances of the case are such that omissions or

failure to disclose create a false impression which is known by the debtor.’” Id.

In re Hentges, 373 B.R. 709, 725 (Bankr. N.D. Okla. 2007); see also In re Bozzano, 173 B.R. 990,

993 (Bankr. M.D.N.C. 1994) (abrogated on other grounds by Cohen v. de la Cruz, 523 U.S. 213

(1998)) (citing In re Booker, 165 B.R. 164 (Bankr. M.D.N.C. 1994)) (omissions or a failure to

disclose on the part of the debtor can constitute misrepresentations for purposes of

nondischargeability where the circumstances of the case are such that omissions or failure to

disclose create a false impression which is known by the debtor).

3. The duty to disclose. Restatement (Second) of Torts, Section 551, provides:

(1) One who fails to disclose to another a fact that he knows may justifiably induce

the other to act or refrain from acting in a business transaction is subject to the same

liability to the other as though he had represented the nonexistence of the matter

that he has failed to disclose, if, but only if, he is under a duty to the other to exercise

reasonable care to disclose the matter in question.

(2) One party to a business transaction is under a duty to exercise reasonable care

to disclose to the other before the transaction is consummated,

(a) matters known to him that the other is entitled to know because

of a fiduciary or other similar relation of trust and confidence

between them; and

(b) matters known to him that he knows to be necessary to prevent

his partial or ambiguous statement of the facts from being

misleading; and

(c) subsequently acquired information that he knows will make

untrue or misleading a previous representation that when made was

true or believed to be so; and

(d) the falsity of a representation not made with the expectation that

it would be acted upon, if he subsequently learns that the other is

about to act in reliance upon it in a transaction with him; and

(e) facts basic to the transaction, if he knows that the other is about

to enter into it under a mistake as to them, and that the other,

because of the relationship between them, the customs of the trade

or other objective circumstances, would reasonably expect a

disclosure of those facts.

This standard is commonly used by bankruptcy courts in § 523(a)(2)(A) cases. See, e.g., In re

Belice, 461 B.R. 564, 580 (9th Cir. BAP 2011); In re Miller, 2025 WL 40884, at *8 (Bankr. C.D.

Cal.); In re Bloom, 622 B.R. 366, 414 (Bankr. D. Colo. 2020); In re Davis, 494 B.R. 842, 872-73

(Bankr. D.S.C. 2013) In re Borschow, 454 B.R. 374, 395-96 (Bankr. W.D. Tex. 2011); In re

Hentges, 373 B.R. at 725; and In re Perkins, 298 B.R. 778, 788 (Bankr. D. Utah 2003). The Court

will use it as well.

The Court finds that Defendant had a duty to disclose all material facts regarding the

proposed restaurant venture and Plaintiff’s purchase of a membership interest in Zamani

Entertainment, for the reasons listed in the Restatement (Second) of Torts §551(2) (a), (b), (c), and

(e).

a. Fiduciary duty or similar relation of trust and confidence. Under Washington law,

the managing member of a limited liability company owes fiduciary duties to the company and to

other members. See Dragt v. Dragt/DeTray, LLC, 139 Wash. App. 560, 574-75 (2007) (only the

managing member of a Washington LLC has fiduciary duties to other members); Braddock v.

Zaycon Foods, LLC, 2019 WL 3974355, at *7 n. 5 (W.D. Wash.) (citing and following Dragt).

Although the Zamani Entertainment operating agreement is not in evidence, the Court finds that

Defendant was at all times the manager of Zamani Entertainment. Plaintiff was a purely passive

member. As such, Defendant owed fiduciary duties to Plaintiff.

Furthermore, there was a relation of trust and confidence because of Defendant’s

experience and sophistication and Plaintiff’s age, education, lack of sophistication, and limited

English.

b. Matters known to him that he knows to be necessary to prevent his partial or

ambiguous statement of the facts from being misleading. Throughout the relationship between

Defendant and Plaintiff, Defendant knew matters that had to be disclosed to prevent his partial or

ambiguous statements from being misleading. For example, Defendants represented to Plaintiff

that his father would be involved in the restaurant venture. In fact, the father was only named in

some of the legal documents but had no role in the venture. Similarly, Defendant said he would be

an equal investor in the restaurant business. In fact, he only put in $80,000 of money he borrowed

from his parents. Finally, Defendant stated or implied that the money invested was sufficient for

the restaurant venture. It may have been sufficient for a modest restaurant that required little

remodeling, but was woefully inadequate for Defendant’s Ibiza concept, especially after deducting

the money wasted on the boat and limousine.

c. Subsequently acquired information that he knows will make untrue or misleading

a previous representation that when made was true or believed to be so. Information acquired by

Defendant rendered untrue or misleading several of his previous representations. For example,

Defendant and Plaintiff agreed that their investment would fund their business venture – the

restaurant. However, Defendant used a substantial amount of the capital investment to buy a

limousine for another company that only Defendant owned, and to fund Steve Martin’s “drug

dealer” lifestyle. In addition, once Defendant obtained a construction estimate of at least $250,000

for remodeling the restaurant, he should have told Plaintiff that they did not have enough capital

to proceed. Finally, once Defendant realized that Martin was an unreformed drug dealer and

financially irresponsible, he should have told Plaintiff that the restaurant venture would fail if

Martin was part of it.

e. Facts basic to the transaction, if he knows that the other is about to enter into it

under a mistake as to them, and that the other, because of the relationship between them, the

customs of the trade or other objective circumstances, would reasonably expect a disclosure of

those facts. Finally, there were facts basic to the restaurant venture as to which Plaintiff was

mistaken. Because of the nature of the relationship between Plaintiff and Defendant, Plaintiff

would have reasonably expected Defendant to correct her mistaken understanding. For example,

Plaintiff apparently was under the impression that Defendant was competent to remodel the

restaurant space. Defendant should have told Plaintiff that he was not a qualified contractor and

was not competent to do the remodel. When completed, the restaurant apparently did not comply

with the Oregon Fire Code. Similarly, Defendant should have told Plaintiff that Zamani

Entertainment did not have enough money to remodel, furnish, stock, and operate an “elegant,

high-class restaurant and entertainment bar/grill.” She was led to believe it did. Defendant should

have told Plaintiff that he forged her name on the American Express credit card application, the

Lease Company of America lease, and the application for the boat loan. Plaintiff was under the

mistaken impression that Defendant was trustworthy and would not forge her signature. Again,

Plaintiff was under the mistaken impression that she needed to sign the Purchase Agreement to

help Defendant get the needed liquor license. Defendant’s father, not Defendant, was listed on all

legal documents as an owner of the business venture. Defendant should have told Plaintiff that the

real reason for the Purchase Agreement was to divest her of her ownership interest in Zamani

Entertainment. Finally, Defendant should have told Plaintiff she was only getting 25% of the LLC

membership interest in exchange for her 70.87% capital investment. She mistakenly thought she

would get half.

F. Plaintiff Carried her Burden of Proving the Inducement-Based Frauds of False Pretenses

and False Misrepresentation.

Plaintiff carried her burden of proving the elements of a § 523(a)(2)(A) nondischargeability

claim based on inducement-based fraud, i.e., false pretenses or false representation.

1. False Representations or Omissions. Defendant made a number of false

representations or omissions to Plaintiff, including:

a. Defendant told Plaintiff that, in return for her investment, she would get half

the membership interest in Zamani Entertainment. Plaintiff got only a 25% interest;

b. Defendant told Plaintiff that he would match her investment in Zamani

Entertainment. In fact, he put in only $80,000;

c. None of the $80,000 was Defendant’s own money. Rather, it was his

parents’ money. Defendant had no “skin in the game”;

d. Defendant did not tell Plaintiff that on March 3, 2008, Defendant forged

Plaintiff’s signature on an application for an American Express credit card, opened a credit

card account and obtained an American Express credit card in Plaintiff’s name;

e. Defendant did not tell Plaintiff that he was in prison for bank fraud;

f. Defendant did not tell Plaintiff that all the money he took from Zamani

Entertainment and gave to Elite Limousine benefitted himself only (through his sole

ownership of Elite Limousine) rather than Plaintiff through her membership interest in

Zamani Entertainment;

g. Defendant did not tell Plaintiff that her son continued to live a “drug dealer

lifestyle” funded by Zamani Entertainment after he got out of prison, jeopardizing the

success of Zamani Entertainment;

h. Defendant did not tell Plaintiff that he used Zamani Entertainment money

to buy a boat;

i. Defendant did not tell Plaintiff that he applied for and obtained a loan in her

name to finance the purchase of the boat;

j. Defendant did not tell Plaintiff that the Purchase Agreement allowed him to

forfeit her interest in Zamani Entertainment if she failed to make the monthly payments,

even though Defendant knew Plaintiff had no money with which to make any such

payments;

k. Defendant did not tell Plaintiff that he forged her signature on a lease with

Lease Company of America;

l. Defendant did not tell Plaintiff that Zamani Entertainment could not afford

to make any payments under the Purchase Agreement;

m. Defendant did not tell Plaintiff that payments allegedly due under the

Purchase Agreement were not being made by Zamani Entertainment, causing her to be in

default; and

n. Defendant did not tell Plaintiff the Martin would visit the restaurant from

time to time and “drink up the profits.”

Misrepresentations “a” through “e” were made before Plaintiff invested her money in

Zamani Entertainment.

2. Intent to deceive. The Court finds that Defendant made the material misstatements

and omissions with the intent to deceive Plaintiff. The Court finds and concludes that Defendant

was unwilling to tell Plaintiff the truth about his proposed restaurant venture, e.g., that Plaintiff

was only getting 25% of Zamani Entertainment in exchange for contributing 70.87% of the capital,

and that Defendant’s first act in furtherance of the business venture was to forge Plaintiff’s

signature on an American Express credit card application. Such simple but devastating disclosures

would have changed Plaintiff’s mind about investing anything in Defendant’s restaurant venture.

Defendant knew that, so he hid the truth from her.

3. Reliance. “Actual reliance is the equivalent of causation-in-fact, which is defined

as a “substantial factor in determining the course of conduct that results in ... loss.” In re Desouza,

659 B.R. 288, 296 (Bankr. E.D. Tex. 2024) (citing In re Mercer, 246 F.3d 391, 403 (5th Cir. 2001)).

Actual reliance “requires little of the creditor.” Id. The Court finds that Plaintiff relied on

Defendant’s misrepresentations and omissions. She thought she was Defendant’s 50/50 partner

and that he was investing as much money in the business as she was. She also thought Defendant

had been jailed for a “tax problem,” not bank fraud. She trusted him and relied on his

misrepresentations and omissions.

4. Her reliance was justifiable. To prove that reliance was justifiable,

a creditor need not show that it acted consistent with ordinary prudence and care.

Instead, to determine whether a creditor's actual reliance was justifiable, the Court

applies a subjective standard that takes into account the qualities and characteristics

of the particular creditor, not a community standard of conduct applicable to all

cases. To justifiably rely, a party is “required to use its senses, and cannot recover

if it blindly relies upon a misrepresentation, the falsity of which would be patent to

it if it had utilized its opportunity to make a cursory examination or investigation.”

In other words, justifiable reliance is the standard applicable to a victim's conduct

in cases of alleged misrepresentation and ... “[i]t is only where, under the

circumstances, the facts should be apparent to one of its knowledge and intelligence

from a cursory glance, or it has discovered something which should serve as a

warning that it is being deceived, that it is required to make an investigation of its

own.”

Justifiable reliance on a false representation requires a creditor to make an

investigation only if: (1) (a) the creditor discovers a “red flag” (which is a warning

sign that calls into question the veracity of the representation) or the creditor

otherwise is, in fact, suspicious of a deception, or (b) under the circumstances, a

red flag should have been obvious to the creditor, taking into account the creditor's

knowledge and sophistication, so that the creditor should have been suspicious of a

deception; and (2) the red flag or other suspicion indicates that reliance is

unwarranted without further investigation. If, after making an investigation, the

creditor concludes that the representation is credible, the reliance is justifiable.

Woods, 660 B.R. at 921-22 (citing cases) (footnotes omitted). Here, Plaintiff was an

unsophisticated, elderly widow with very limited knowledge of English. She was convinced by

Defendant that he was an experienced and trustworthy businessman. To someone as naive as

Plaintiff, there were no red flags. She did not know Defendant had been convicted of bank fraud,

nor that he had forged her signature on a credit card application. If the Defendant had been open

and honest with Plaintiff, it would have raised red flags, but she never suspected anything was

amiss until Defendant had spent all her money. Plaintiff was not knowledgeable or sophisticated

in business or legal matters. Defendant gained Plaintiff’s confidence. While a better educated,

more sophisticated, and more experienced person might well have been suspicious about

Defendant’s request for her life savings, the Court finds that Plaintiff justifiably relied on

Defendant’s misrepresentations and omissions.

5. Plaintiff’s reliance caused her to sustain a loss.

The Supreme Court in Cohen v. de la Cruz gave guidance for applying the fifth

requirement, explaining that under § 523(a)(2)(A) “‘[t]o the extent obtained by’

modifies ‘money, property, services, or ... credit’—not ‘any debt’—so that the

exception encompasses ‘any debt for money, property, services, or ... credit, to the

extent [that the money, property, services, or ... credit is] obtained by’ fraud.”

Applying this construction of § 523(a)(2)(A), the Supreme Court concluded that

“[t]he phrase thereby makes clear that the share of money, property, etc., that is

obtained by fraud gives rise to a nondischargeable debt.

Woods, 660 B.R. at 923 (footnotes omitted). The Court finds that Defendant’s misrepresentations

and omissions induced Plaintiff to invest her life savings of $194,644, all of which was lost for the

reasons, and in the manner, outlined in this opinion.

In sum, the Court finds and concludes that Plaintiff carried her burden of proving that she

was the victim of fraud in the inducement (either false pretenses or false representation, or both),

which caused her to sustain an actual loss of $194,644.10

G. Alternatively, Plaintiff Carried her Burden of Proving Actual Fraud.

As an alternative finding to fraud in the inducement, the Court finds that the entire

restaurant enterprise scheme constituted an “actual fraud” under § 523(a)(2)(A). The Court

analyzes the elements of Plaintiff’s “actual fraud” claim as follows:

1. Fraud. As set forth above, there was abundant, ongoing fraud throughout the

restaurant venture, from start to finish. After Defendant fraudulently induced Plaintiff to invest her

life savings for a 25% interest in Zamani Entertainment, Defendant continued to defraud Plaintiff

by, inter alia, buying a boat with Zamani Entertainment’s money;11 transferring $152,396 to Elite

Limousine; forging her signature on the Lease Company of America lease; using company credit

cards to pay Martin’s living expenses; using company credit cards to buy clothing, expensive

dinners, and trips; and convincing Plaintiff to sign the Purchase Agreement as a way to cheat her

out of her investment.

Draining $158,500 in cash from Zamani Entertainment for the boat and limousine was

particularly egregious. Zamani Entertainment was undercapitalized and needed every penny it had.

Also egregious was the Purchase Agreement, the default letter, and Defendant’s attempt to take

away Plaintiff’s interest in Zamani Entertainment. From the forged credit card application and the

10 A helpful analogy is the sale of a security in violation of applicable federal or state “anti-fraud”

laws. Before 2002, when § 523(a)(19) was added to the Bankruptcy Code, plaintiffs brought

nondischargeability actions under § 523(a)(2)(A) for money judgments entered because debtors

had made misrepresentations when purchasing or selling securities. See, e.g., Grogan v. Garner,

498 U.S. 279 (1991).

11 $6,104 and obtaining a loan in Plaintiff’s name for $21,099 for the remainder of the purchase.

misrepresentations/omissions that induced Plaintiff to invest in the restaurant venture, through the

inevitable closure of the restaurant after its short, money-losing life, Defendant committed one

fraud or forgery after another. Plaintiff was the perfect “mark” and Defendant took full advantage

of her vulnerability. The fraudulent scheme continued until all the money was gone.

2. Wrongful intent. For the reasons given elsewhere in this opinion, the Court finds

that Defendant wrongfully intended to defraud Plaintiff out of her life savings. Defendant’s

repeated acts of fraud and forgery were actual, not implied or constructive. Defendant knew

Plaintiff loved her son and wanted to help Martin after he got out of prison. Defendant used this

“hook” to con Plaintiff into investing in Zamani Entertainment, with the promise of a successful

business venture Martin could step into when he returned to civilian life. Plaintiff’s blind love for

Martin, together with her other vulnerabilities discussed above, made her an easy target for fraud.

3. Money obtained by the actual fraud. Defendant obtained at least $194,644 from the

actual fraud.

4. The subject debt arises from the actual fraud. The Court finds and concludes that a

portion of the subject debt arose from the actual fraud. See the discussion below.

G. Debts “Arising From” the Fraud.

1. Actual damages of $194,644. Under either the fraud in the inducement theory or

the actual fraud theory, Plaintiff is entitled to a nondischargeability judgment of $194,644, the

amount she lost as a result of Defendant’s fraud.

Plaintiff arguably suffered the following additional damages:

 50% of $152,396 when Defendant spent Zamani Enterprise’s money on the

limousine and its entity, Elite Limousine, which was wholly owned by Defendant;

 50% of $27,203 for the boat Defendant purchased for personal use by himself and

Steve Martin; and

 50% of $114,644, the difference between $80,000 (Defendant’s contribution to

Zamani Entertainment, borrowed from his parents) and the amount Plaintiff

invested in Zamani Entertainment.

These amounts total $147,122.

If Plaintiff is made whole by recovering the money she invested and lost, however,

awarding additional damages for the limousine, boat, and other frauds would overcompensate

her.12 On the other hand, if her actual damages are limited to $147,122, then she would not be fully

compensated for the money she lost through Defendant’s fraud. The Court finds that Plaintiff’s

actual damages arising from fraud are $194,644.

2. Damages “arising from” the fraud. Once the bankruptcy court determines that a

debtor owes a creditor money obtained by fraud, the court must declare nondischargeable all debts

“arising from” the money fraudulently obtained. Cohen v. de la Cruz, 523 U.S. 213, 223 (1998)

(“‘any debt ... for money, property, services, or ... credit, to the extent obtained by’ fraud

encompasses any liability arising from money, property, etc., that is fraudulently obtained,

including treble damages, attorney’s fees, and other relief that may exceed the value obtained by

the debtor.”); see also Woods, 660 B.R. at 923 (citing and following Cohen). The Court has

concluded that Defendant defrauded Plaintiff out of, at a minimum, $194,644. Those damages are

nondischargeable under § 523(a)(2)(A).

The state court judgment makes clear it is based on Defendant’s fraud:

Defendants are liable for violations of the prohibitions on financial elder abuse as

provided by ORS 124.100 by way of Defendants and each of them having engaged

in a scheme designed to deprive the Plaintiffs of money through artifice, false

pretense, and fraud which were established clearly and convincingly.

12 In addition, it is not clear the Plaintiff had standing to recover for the first two of these damages

claims, as they may be owned by Zamani Entertainment. See, e.g., Marchman v. NCNB Texas Nat.

Bank, 120 N.M. 74, 81 (S. Ct. 1995) (shareholder of a corporation does not have an individual

right of action against a third party for damages that result from injury to the corporation).

The $194,644 Defendant procured by fraud clearly constitutes “economic damages” under

Oregon’s elder abuse statute, ORS 124.100 et seq. The state court judgment also includes $100,000

for “non-economic” damages. See ORS 124.100(2)(b) and ORS 31.705. Plaintiff gave testimony

regarding her non-economic damages in the Oregon trial. The Court finds and concludes that those

damages arose from Defendant’s fraud. Likewise, the treble damages award arose from the fraud.

See ORS 124.100(2)(a) and (b).13 Finally, the award of post-judgment interest arose from

Defendant’s fraud. See In re Deerman, 482 B.R. 344, 376 (Bankr. D.N.M. 2012) (citing In re

Markarian, 228 B.R. 34, 35 (1st Cir. BAP 1998)).

I. The Court Does Not Rely on the Oregon Judgment to Find Causation Between the

Fraudulent Conduct and the Judgment Debt.

As shown by the fact-finding and discussion in this opinion, the Court does not rely on the

Oregon judgment to find causation between Defendant’s fraudulent conduct and the judgment

debt. Based on its own fact-finding, the Court concludes that Defendant defrauded Plaintiff,

causing at least $194,644 in actual damages. Added to this are non-economic damages, treble

damages, and post-judgment interest, as required by Cohen.

13 Because the Court’s actual damages finding is less than the Oregon court’s, the nondischargeable

amount is $883,933, i.e., ($194,644 + $100,000) x 3.

Conclusion

Plaintiff is entitled to a declaratory judgment from this Court that $883,992 of the state

court judgment, plus interest accruing on that amount at 9% per annum after May 14, 2010, is

nondischargeable under § 523(a)(2)(A). A separate judgment will be entered.

LEE...

Hon. David T. Thuma

United States Bankruptcy Judge

Entered: April 9, 2025

Copies to: counsel of record

-25-