Appeal from the Ninth Circuit Bankruptcy Appellate Panel Klein, Montali, and Dunn, Bankruptcy Judges, Presiding BAP No. CC-06-01085-DKMo BAP No. CC-06-01086-DKMo.
The opinion of the court was delivered by: W. Fletcher, Circuit Judge
Argued and Submitted October 20, 2008 -- Pasadena, California
Before: Kim McLane Wardlaw, William A. Fletcher, and Richard A. Paez, Circuit Judges.
Judge William A. Fletcher
New Falls Corporation ("New Falls") brought an adversary proceeding in bankruptcy court seeking a declaration that a default judgment owed by Pateel and Salpy Boyajian ("the Boyajians") is non-dischargeable under 11 U.S.C. § 523(a)(2)(B). The judgment against the Boyajians was based on a claim that they had failed to satisfy their obligations under a lease agreement. Although the judgment was entered in favor of New Falls's predecessor-in-interest, New Falls alleges that it was assigned all rights to the judgment, including the right to non-dischargeability under § 523(a)(2)(B).
The bankruptcy court held that because New Falls had not itself relied on the Boyajians' financial statements, its claim of non-dischargeability under § 523(a)(2)(B) failed as a matter of law. The Bankruptcy Appellate Panel of the Ninth Circuit ("the BAP") reversed, holding that New Falls stood in the shoes of its predecessor and could state a claim to non- dischargeability under § 523(a)(2)(B) based upon its predecessor's reliance. We affirm the judgment of the BAP.
On July 13, 1999, the Boyajians' company, Blue Diamond Straw & Toothpick Company, Inc. ("Blue Diamond"), entered into a lease agreement with the Epic Funding Corporation ("Epic"). At the time of the agreement, Pateel Boyajian was Blue Diamond's President, and Salpy Boyajian was its Vice President. In order to obtain the lease, the Boyajians each submitted personal financial statements, and each signed a "Continuing Guaranty of Indebtedness" in which they personally guaranteed Blue Diamond's obligations under the lease. According to deposition testimony, Epic relied on the Boyajians' statements in agreeing to the lease.
On or about March 28, 2002, Epic sold its right, title, and interest in the lease to Cupertino National Bank dba The Matsco Companies ("Cupertino").*fn1 By May of that year, Blue Diamond and the Boyajians failed to make the required payments under the lease, thereby defaulting on both the lease agreement and the personal guaranties. In October, Cupertino filed a civil action against the Boyajians and Blue Diamond. Default judgment was entered against them in January 2003, and Cupertino was awarded damages totaling $193,132.69. In May 2003, Cupertino assigned all of its right, title, and interest in the judgment to Stornawaye Capital. On February 19, 2004, Stornawaye Capital in turn assigned all of its right, title, and interest in the judgment to New Falls.
The Boyajians each filed Chapter 7 bankruptcy petitions on March 16, 2004. On August 2, New Falls filed an adversary complaint against the Boyajians, seeking, inter alia, a ruling that the judgment owed by the Boyajians was non-dischargeable under § 523(a)(2)(B).*fn2 New Falls contended that the personal financial statements submitted by the Boyajians in order to obtain the lease were materially false, and that discharge was therefore unavailable. Both sides moved for summary judgment.
The bankruptcy court granted summary judgment to the Boyajians. The court held that "reliance [under § 523(a)(2)(B)(iii)] has to go to [New Falls] not to the predecessor in interest, and that at the time [New Falls] . . . purchased this debt this information was a few years old, and that there couldn't have been reliance by [New Falls]." New Falls appealed to the BAP, which reversed. New Falls v. Boyajian (In re Boyajian), 367 B.R. 138 (B.A.P. 9th Cir. 2007). In a careful opinion, the BAP held that, barring any limitations in the assignment itself, § 523(a)(2)(B)(iii) permits an assignee to stand in the shoes of its assignor and to pursue an exception to discharge based on the assignor's ...