Judge Karlin

BAP CO-09-057 In Re Kuwazaki - Document Text


U.S. Bankruptcy Appellate Panel
of the Tenth Circuit
September 23, 2010
Blaine F. Bates






Plaintiff – Appellee,

Defendants – Appellants.

BAP No. CO-09-057

Bankr. No. 07-21829
Adv. No. 08-01150
Chapter 7


Appeal from the United States Bankruptcy Courtfor the District of Colorado

Before CORNISH, Chief Judge, RASURE, and KARLIN, Bankruptcy Judges.

KARLIN, Bankruptcy Judge.

Debtors Harold and Michelle Kuwazaki (collectively, “Debtors”) appeal a
bankruptcy court order finding certain debts non-dischargeable. We affirm, in
part, and remand for additional findings.

* This unpublished opinion may be cited for its persuasive value, but is notprecedential, except under the doctrines of law of the case, claim preclusion, andissue preclusion. 10th Cir. BAP L.R. 8018-6.
Appellants opted not to incur the expense of obtaining and providing thisCourt with a transcript of the trial proceedings, and therefore cannot, and do not,

In 2003, Debtors and Appellee, Norma Brown (“Norma”), formed
Advanced Technology, Inc. (“ATI”), a Colorado S-corporation. Norma is a
former nun with little business experience; she became involved with ATI only to
help her nephew, Harold. Harold was ATI’s President, and his wife, Michelle,
was its Vice President and Secretary. Although Norma was the company’s Chief
Executive Officer and owned 51% of the company stock, she had little to do with
company operations. Harold worked with ATI’s clients, and Michelle kept its
books and paid the bills. In January 2004, Norma loaned ATI the sum of $50,000,
using funds from an account she had with Edward Jones (“2004 Loan”).

By 2005, ATI was struggling financially, due in large part to its significant
credit card debt. A substantial portion of ATI’s credit card debt was for non-
business expenses, which included numerous cash advances to Harold and
Michelle made at casinos, for groceries and personal services, and for their
recreational travel. In late 2005, Harold asked Norma to loan ATI more money,
telling her that the purpose for the loan was to pay off the company’s debt.

When Norma questioned him about the debt, Harold replied that the debt
was from purchases of equipment, business supplies, and parts. He failed to
disclose that a substantial portion of the debt was actually from casino cash
advances and payment of Harold and Michelle’s personal expenses. Harold told
Norma that a $130,000 loan would retire ATI’s debt, although the debt was in fact
much greater than he represented.

In January 2006, Norma agreed to loan ATI $150,000 (the “2006 Loan”).
Harold knew that in order to fund that loan, Norma would have to borrow that
amount from a third party lender, and execute a note (the “Mortgage Note”) and

challenge the bankruptcy court’s factual findings on appeal. When a trial
transcript is not provided on appeal, this Court must accept the bankruptcy court’sfactual findings as correct. Worthington v. Anderson, 386 F.3d 1314, 1320 (10thCir. 2004).


mortgage against her previously mortgage-free personal residence (the “Mortgage
Loan”). Although ATI was supposed to execute a note in favor of Norma, Harold
never caused such a note to be executed. The parties apparently agreed (perhaps
after the fact) that ATI would repay Norma on the 2006 Loan by making the
installment payments on the Mortgage Note.

In a January 7, 2006, meeting between Norma and Harold, which Michelle
did not attend, Harold promised that the 2006 Loan proceeds would be used to
pay ATI’s debts, including the 2004 Loan Norma had previously made to ATI.
Harold further promised that all ATI’s other debts could and would be paid in full
by the end of January with the loan proceeds or otherwise. The minutes from that
meeting confirm that the 2006 Loan proceeds would be used to pay off the entire
“$130,000+” debt by the end of January, that a business budget was to be
established, that monthly financial reports would thereafter be given to all
company officers—including Norma, and that monthly business meetings would
commence. Harold also agreed that any future company purchase exceeding $500
would require Norma’s approval.

When Norma received the proceeds from her Mortgage Loan, she wrote a
check to her Edward Jones account in the amount necessary for ATI to repay the
2004 Loan, and wrote a second check to ATI for $98,358.31, which represented
the balance of the 2006 Loan proceeds.2 Despite representations that the 2006
Loan would be used to pay ATI’s accumulated debt, Debtors continued to use
ATI’s funds (including the 2006 Loan proceeds) to gamble, take extravagant
vacations (such as to Japan), and pay other personal expenses.

Debtors kept certain company credit cards hidden from Norma, both before

Although the exact balance of the 2004 Loan that was repaid with the 2006Loan proceeds is unclear, the Court will refer to the amount of the payment of the2004 Loan as $50,000, though it may have been more or less. In any event, afterrepaying the 2004 Loan, $98,358.31 was available to ATI to pay its remainingcreditors.


and after the 2006 Loan, and secretly obtained new credit cards in ATI’s name.
Rather than retiring the rest of ATI’s debt with the remaining proceeds of the
2006 Loan, as expressly promised, Debtors incurred even more debt in ATI’s
name, thus reducing the likelihood the company would ever be in a financial
position to repay the 2006 Loan.

During the next twelve months, Debtors caused ATI to make monthly
payments on Norma’s $150,000 Mortgage Note. While Debtors jointly created
and provided Norma with the promised monthly financial reports, the reports were
not accurate as they reflected that ATI had paid debts that had not been paid and
omitted numerous credit card debts. Debtors created these reports both to hide
their misappropriation of the loan funds and to induce Norma to believe that the
company was now profitable.3 Furthermore, ATI could have been profitable, and
could have repaid the 2006 Loan to Norma, had it not been for Debtors’ repeated
misappropriation of company assets. Thus, throughout 2006, Debtors hid their
personal use of company assets from Norma by both making regular payments on
the Mortgage Note and by providing her with false monthly financial reports they
jointly created.

In late 2006, Norma learned directly from credit card companies that
Debtors were using ATI credit cards to pay their personal expenses. After Norma
confronted Harold in early 2007 about the improper credit card usage, ATI
stopped paying Norma’s Mortgage Note and ceased doing business. Debtors
formed a new company called Digital Visions. Appropriating ATI’s customer
base, Digital Visions performed the same work as ATI, using ATI’s equipment
and office space. Debtors essentially transferred ATI assets to Digital Visions

As the bankruptcy court noted, “[h]ad a payment been missed, Normawould have known that further investigation was necessary. The jig would havebeen up. The Court therefore concludes that the payments do not negate theinference of intent to deceive.” Findings of Fact and Conclusions of Law(“Findings”) at 11, in App. at 199.


without consideration. The bankruptcy court valued those assets at $3,737.49.

Norma sued Debtors in state court in 2007 for, among other claims, fraud,
breach of fiduciary duty and conversion. That action was stayed when Debtors
filed a joint petition for Chapter 7 relief on October 17, 2007. Norma then filed
an adversary proceeding in Debtors’ bankruptcy case to establish the amount of
her claims and obtain a declaration that her claims were non-dischargeable. After
a two-day trial, the bankruptcy court awarded non-dischargeable damages to
Norma against both Harold and Michelle.

A decision is considered final “if it ‘ends the litigation on the merits and
leaves nothing for the court to do but execute the judgment.’”4 In this case, the
order granting Norma a money judgment on her complaint is a final order. This
Court has appellate jurisdiction over timely-filed appeals from “final judgments,
orders, and decrees” of bankruptcy courts within the Tenth Circuit, unless one of
the parties elects to have the district court hear the appeal.5 Debtors timely filed
their notice of appeal from the bankruptcy court’s judgment, and no party elected
to have this appeal heard by the district court. This Court therefore has appellate

Harold and Michelle cannot, and for the most part do not, contest the
bankruptcy court’s factual findings, as they have chosen not to provide this Court
with a trial transcript. Instead, they limit their argument on appeal to legal issues:

(1) Whether the bankruptcy court applied the proper standard to calculate
4 Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 712 (1996) (quoting Catlin

v. United States, 324 U.S. 229, 233 (1945)).
5 28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr. P. 8002; 10th Cir.
BAP L.R. 8001-3.


damages against Harold under 11 U.S.C. §§ 523(a)(2), (a)(4), and/or (a)(6);6 and

(2) Whether the bankruptcy court’s factual findings support judgment against
Michelle under §§ 523(a)(4) and/or (a)(6), and if so, whether damages were
properly calculated. “The methodology [used] in calculating a damage award,
such as determining the proper elements of the award or the proper scope of
recovery, is a question of law.”7 To the extent that an award is determined by
application of a statute, we review the bankruptcy court’s application of the
statute de novo. In addition, the trial court’s fact findings must be sufficient to
“indicate the factual basis for [its] general conclusion as to ultimate facts.”8
Norma filed this adversary proceeding against Harold and Michelle,
claiming that the debt arising out of the 2006 Loan should not be discharged
because the Debtors’ conduct in inducing her to loan money to ATI and their
personal use of the loan proceeds falls within certain exceptions to discharge,
specifically 11 U.S.C. §§ 523(a)(2), (a)(4), and (a)(6). Following a trial, where
the bankruptcy court expressly found that Debtors’ testimony was “inconsistent,
evasive, and lacking credibility”9 (and sometimes incredible), compared with
Norma’s very credible testimony, the court awarded Norma a non-dischargeable
judgment in the amount of $135,492 against each Debtor pursuant to § 523(a)(4)
or (a)(6).10 In the alternative, the court also awarded a judgment in the same

6 Unless otherwise noted, all further statutory references in this decision willbe to the Bankruptcy Code, codified as Title 11 of the United States Code.

7 S. Colo. MRI, Ltd. v. Med-Alliance, Inc., 166 F.3d 1094, 1100 (10th Cir.

8 Hjelle v. Mid-State Consultants, Inc., 394 F.3d 873, 880 (10th Cir. 2005)
(internal quotation marks omitted).

9 Findings at 2, in App. at 190.

10 Findings at 22, in App. at 210; Judgment at 1, in App. at 211.


amount against Harold pursuant to § 523(a)(2)(A).11 In addition, the bankruptcy
court found both Debtors liable to Norma for an additional $3,737.4912 for
transferring assets to Digital Visions with the “purpose and actual intent to
hinder, defraud, and delay Norma’s collection efforts.”13

The relevant provisions of § 523 are as follows:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or1328(b) of this title does not discharge an individual debtor from anydebt-.
. .

(2) for money, property, services, or an extension, renewal, orrefinancing of credit, to the extent obtained by--
(A) false pretenses, a false representation, or actual fraud,
other than a statement respecting the debtor’s or an insider’sfinancial condition;
. . .

(4) for fraud or defalcation while acting in a fiduciarycapacity, embezzlement, or larceny;[or]
. . .

(6) for willful and malicious injury by the debtor to anotherentity or to the property of another entity.14
A. Section 523(a)(2)(A)
The bankruptcy court determined that only Harold made false statements to
Norma to induce her to make the 2006 Loan. Michelle’s false statements to
Norma consisted of creating false company financial records and presenting them
to Norma as accurate, but these misrepresentations occurred only after the loan

legal error with respect to the $3,737.49 judgment, and therefore we do not

11 Id.
12 Findings at 22, in App. at 210; Judgment at 2, in App. at 212.
13 Findings at 8, in App. at 196. In their briefs, Debtors do not assert any

review it.
11 U.S.C. § 523(a).

had been advanced. Thus, while Michelle’s false statements were made to keep
Norma from discovering Debtors’ unauthorized use of the money she had
advanced to ATI, Norma did not prove that any of Michelle’s false statements had
induced her to make the 2006 Loan.

To establish non-dischargeability under § 523(a)(2), which specifies that
the debt be “obtained by” the debtor’s fraud, a creditor must demonstrate a causal
nexus between the fraud and the debt.15 Finding that only Harold had
fraudulently induced Norma to make the 2006 Loan to ATI, the bankruptcy court
awarded § 523(a)(2) damages against Harold in the entire amount of the 2006
Loan, reduced only by the twelve mortgage payments ATI made on Norma’s
Mortgage Note, resulting in a judgment of $135,492.

Harold claims that the bankruptcy court miscalculated Norma’s § 523(a)(2)
damages by failing to further reduce her damages by the $50,000 she received
from the 2006 Loan to repay her 2004 Loan. He argues that ATI only actually
received $98,358.31 of the 2006 Loan, and that $50,000 of the 2006 Loan was
used to repay a legitimate company debt (the 2004 Loan), and thus $50,000 of the
2006 Loan was not procured by fraud.

Although Harold’s argument at first has some superficial appeal, the United
States Supreme Court has specifically rejected it in Cohen v. de la Cruz.16 In
Cohen, the debtor appealed an award under § 523(a)(2) that included treble
damages pursuant to state law, arguing that the additional damages award had not
been “obtained by” fraud. The Supreme Court analyzed § 523(a)(2), and
concluded that it prohibits discharge of any liability “arising from a debtor’s
fraudulent acquisition of money,” which included an award of treble damages for

15 Archer v. Warner, 538 U.S. 314, 325 (2003).
16 Cohen v. de la Cruz, 523 U.S. 213 (1998).

fraud.17 In the process, the Supreme Court rejected a “restitutionary”
interpretation of § 523(a)(2), stating, “if, as petitioner would have it, the fraud
exception only barred discharge of the value of any money, property, etc.,
fraudulently obtained by the debtor, the objective of ensuring full recovery by the
creditor would be ill served.”18 The Court noted that such an interpretation of
§ 523(a)(2) would allow a debtor “to discharge any liability for losses caused by
his fraud in excess of the amount he initially received, leaving the creditor far
short of being made whole.”19

For the purposes of this appeal, Debtors admit that Harold fraudulently
induced Norma to make the 2006 Loan, as the bankruptcy court held. Debtors
likewise cannot contest the bankruptcy court’s finding that the parties’ agreement
was that Norma would obtain $150,000 for the express purpose of paying all of
ATI’s debts, including her 2004 Loan. Norma fulfilled her agreement by
borrowing $150,000, using approximately $50,000 of it to pay one of the
company debts—her 2004 Loan– and turning the rest of the money over to the
Debtors, who had agreed to use it to pay the remainder of ATI’s debts. Instead,
Debtors principally used the money to continue to gamble and make personal
purchases having nothing whatsoever to do with ATI’s business.

Thus, the entire $150,000 that was provided to ATI by Norma in
accordance with the parties’ agreement was “obtained by” Harold’s fraud. That
some of the proceeds were used to pay company debts is irrelevant to Norma’s
claim, at least under § 523(a)(2). As the Cohen Court explained, the phrase “to

Id. at 221.
Id. at 222.
Id. at 223.

the extent obtained by” in § 523(a)(2) modifies “money,” rather than “debt.”20
Therefore, once Norma established that the 2006 Loan was obtained by fraud,
“‘any debt’ arising therefrom is excepted from discharge.”21

In this case, the non-dischargeable “debt” consists of damages arising from
the fraudulent 2006 Loan transaction. Regardless of how Debtors used the
proceeds, Norma was still liable to the third-party lender on the Mortgage Note
(and her home in danger of being foreclosed), a liability she would not have
incurred but for Harold’s fraud. The bankruptcy court found that the debt
resulting from the fraud was $150,000, less payments ATI made on the Mortgage
Note. The bankruptcy court deducted the actual payments made on the loan,
twelve payments of $1,209 each, from $150,000, resulting in a judgment against
Harold in the amount of $135,492.22

This Court agrees with the bankruptcy court that the mortgage payments
differ from use of the 2006 Loan proceeds to pay off the 2004 Loan because the
mortgage payments reduced the 2006 Loan debt, whereas payment of the 2004
Loan did not reduce the principal balance of the 2006 Loan in any amount.
Norma was still obligated to pay $150,000 to her lender after the 2004 Loan was
paid. In other words, use of proceeds of the 2006 Loan to pay ATI’s prior debt to
Norma did not reduce the amount of the 2006 Loan any more than if Norma had
turned the full $150,000 over to ATI, and ATI had used that $50,000 to instead
pay other legitimate ATI creditors. While that payment might have satisfied the

Mortgage Note (or the 2006 Loan) in the full amount of each payment, but

20 Id. at 218.
21 Id.
22 We note that the twelve payments did not likely reduce the principal of the

nothing in the bankruptcy court’s opinion or in the record establishes an interestrate or the principal balance of either loan as of Debtors’ petition date. As Norma
has not appealed the amount of damages awarded under § 523(a)(2), we expressno opinion as to whether the method used by the bankruptcy court in calculatingdamages in the amount of $135,492 is appropriate.


commitment to pay company debts, again, it would not have reduced the debt ATI
owed to Norma or the debt Norma owed to her lender.

Accordingly, because the 2006 Loan was “obtained by” Harold’s fraud,
Norma can recover it in its entirety against him. Further, because we affirm the
$135,492 award against Harold under § 523(a)(2)(A), we need not, and do not,
consider the bankruptcy court’s alternative awards against Harold pursuant to
§ 523(a)(4) and (a)(6), since this Court may affirm on any grounds for which
there is an adequate record.23

B. Sections 523(a)(4) and (6)
We now turn to whether the bankruptcy court erred in finding that Michelle
could not discharge a $135,492 debt owed to Norma under either § 523(a)(4) or
(a)(6). Specifically, Michelle challenges whether the balance of the 2006 Loan is
the appropriate measure of damages.

Section 523(a)(4) bars discharge of a debt for, among other things,
embezzlement, and § 523(a)(6) excepts debts from discharge that are the result of
a debtor’s “willful and malicious injury” to the plaintiff. The bankruptcy court
determined that Michelle both embezzled funds under § 523(a)(4) and willfully
and maliciously converted funds under § 523(a)(6).24 “For purposes of
establishing nondischargeability under section 523(a)(4), embezzlement is defined
under federal common law as the fraudulent appropriation of property by a person

23 In re Hodes, 402 F.3d 1005, 1011 (10th Cir. 2005). The bankruptcy courtalso determined that Michelle was not liable to Norma under § 523(a)(2).
Because neither Norma nor Michelle appealed that portion of the decision, we donot review it either.

24 The Court also found that Michelle had committed fraud or defalcation
while acting in a fiduciary capacity, another exception to discharge in § 523(a)(4).
Michelle does not contest the factual determination that she embezzled funds,
only contending that the embezzlement does not include any part of the 2006Loan that was used for a legitimate business purpose. Therefore, this Court neednot, and declines to, address whether the same conduct could also constitute fraudor defalcation while acting in a fiduciary capacity under § 523(a)(4).


to whom such property has been entrusted or into whose hands it has lawfully
come.”25 Similarly, conversion is defined as the “wrongful possession or
disposition of another’s property as if it were one’s own.”26 Although money is
not typically subject to being “converted,” conversion does apply where funds
have been placed in the custody of another for a specific purpose but are diverted

to another use by the custodian.27

Because Debtors did not provide us with a record of the evidence adduced
at trial, we cannot review the bankruptcy court’s factual finding that Michelle
exerted unauthorized dominion or ownership over some of the proceeds of
Norma’s 2006 Loan, nor the finding that the taking was willful and malicious.
Michelle further contends, however, that the bankruptcy court erred in calculating
Norma’s damages at $135,492, which of course is the precise amount the
bankruptcy court found was the balance of the 2006 Loan. Michelle argues that
the bankruptcy court should have instead required Norma to introduce evidence of
the exact amounts that were in fact embezzled or converted to arrive at damages,
and that the bankruptcy court’s findings had to identify the specific amounts of
funds it determined had been embezzled or misappropriated.

As the plaintiff, Norma had the burden to prove her damages.28 Michelle is

25 Klemens v. Wallace (In re Wallace), 840 F.2d 762, 765 (10th Cir. 1988)
(internal quotation marks omitted).

26 Black’s Law Dictionary (8th ed. 2004).

27 Ogden v. Big Sky Motors, Ltd. (In re Ogden), 314 F.3d 1190, 1200 (10thCir. 2002). See also, Rhino Fund, LLLP v. Hutchins, 215 P.3d 1186, 1196 (Colo.
Ct. App. 2008); Burke v. Napieracz, 674 So.2d 756, 758 (Fla. Dist. Ct. App.
1996); Dillard v. Payne, 615 S.W.2d 53, 55 (Mo. 1981).

28 Homemakers, Inc. v. Salamone (In re Salamone), 78 B.R. 74, 77 (Bankr.

E.D. Pa. 1987) (“requirement that the creditor prove the damages resulting fromthe embezzlement is implicit in the embezzlement exception to discharge”); John
P. Ludington, Bankruptcy: What constitutes embezzlement of funds giving rise tonondischargeable debt under 11 U.S.C.A. § 523(a)(4), 99 A.L.R. Fed. 124 § 43(1990) (“the creditor [must] prove the damages resulting from the

correct that damages for conversion or embezzlement claims are limited to money
or property that was used in an unauthorized way, which means that Norma’s
damages should not include any amounts that actually were used in accordance
with the parties’ agreement.29 The issue is therefore whether the bankruptcy court
could properly have found from the evidence presented that $135,492 (which was
apparently calculated as the original 2006 Loan minus the twelve mortgage
payments) was subjected to Michelle’s unauthorized use.

The problem is that Debtors elected not to provide this Court with the full
trial record, including the apparently voluminous bank and corporate records
frequently referenced in the lengthy court decision. In fact, Norma argues that
this was a tactical decision to deprive this court of the ability to review “the
extremely prejudicial bank and credit card statements showing the ubiquitous
charges for gambling and personal expenses by Appellants that ran the company
further into debt crushing any chance for the company to pay back its debt.”30

The bankruptcy court’s decision makes numerous references to specific
amounts, and categories of expense, that it found improper:

The opinion outlined a series of improper cash advances, ATMwithdrawals, and purchases on ATI credit and/or debit cards, totaling$4,172.97, made immediately prior to disbursement of the 2006 Loan(but after Debtors were aware Norma’s Mortgage Loan had closedand the transfer of money was imminent), which were used forDebtors’ personal affairs, and another $8,042.80 of improperadvances, withdrawals and purchases made immediately upon ATI’s
28 (...continued)

See, e.g., Int’l Fid. Ins. Co. v. Fox (In re Fox), 357 B.R. 770, 778 (Bankr.

E.D. Ark. 2006) (only the portion of the property entrusted that is usedinappropriately is non-dischargeable under § 523(a)(4)); Telmark, LLC v. Booher(In re Booher), 284 B.R. 191, 214 (Bankr. W.D. Pa. 2002) (non-dischargeabledebt under § 523(a)(4) is limited to amounts actually embezzled).
Appellee’s Opening Brief at 18.


receipt of the 2006 Loan proceeds;31

The opinion listed numerous checks written by Michelle, totaling$4,949.45 in February 2006, and $4,213.76 in March 2006, alongwith an additional $4,709.96 in casino ATM cash advances orwithdrawals in March 2006, that Debtors opted to omit from thefinancial reports they compiled and gave to Norma, which reportswere part of the consideration she sought before making the 2006Loan.
It can certainly be inferred from the opinion that the court believed all of these

itemized amounts were converted.32

In addition to very specific findings, the court’s thorough opinion contained

several more general references to the content and quality of the evidence

received on this subject:

The opinion referenced that “[t]he company’s bank statements andcredit cards reflect casino withdrawals and cash advances throughoutthe year”;33
The opinion noted that “[t]he company’s bank and credit cardstatements also reflect further personal expenses throughout 2006. In
the fall of 2006, Harold and Michelle traveled to Japan. Althoughthe trip was a vacation, the expenses were charged to AdvancedTechnology’s credit cards;”34
The opinion stated, based “on the evidence,” that “Harold andMichelle’s gambling and personal spending not only did not end, butincreased immediately following the loan;”35
The decision noted the evidence established that “[t]hroughout 2006,
Harold and Michelle continued to live large on the company’s creditcards and bank account. Not only did they fail to reduce thecompany’s debt, they took actions to increase it, taking out newcredit cards and immediately maxing them out with gambling andother personal expenses, including a vacation to Japan.”36
Findings at 4, in App. at 192.

Id. at 6-7, in App. at 194-95.

Id. at 7, in App. at 195 (emphasis added).

Id. (emphasis added).

Id. at 10, in App. at 198.

Id. at 11, in App. at 199 (emphasis added).


Accordingly, although these specific findings may not provide the exact dollar
amount of every improper check or withdrawal, they clearly show that the
bankruptcy court found Michelle had embezzled or converted funds in excess of
those separately itemized.

Michelle argues that the evidence presented at trial does not support a
finding that Norma was damaged in the amount of at least $135,492 as a result of
her conversion or embezzlement. Alternatively, she apparently argues that the
court failed to make adequate findings of fact under Federal Rules of Civil
Procedure 52(a),37 to justify the total claimed damages.

“When the appellant intends to argue on appeal that the findings or
conclusions of the district court are unsupported or contrary to the evidence, the
appellant must include in the record a transcript of all the evidence relevant to
such a finding or conclusion. Fed. R. App. P. 10(b)(2).”38 Debtors elected not to
provide that transcript, nor did they include any of the documentary evidence
admitted at trial, and therefore we cannot review the sufficiency of the evidence.

Michelle also argues that the bankruptcy court’s 22 page, single-spaced
decision does not contain sufficient findings to support its damage award. In
other words, although the opinion contains many itemized amounts, and many
general references to the documentary evidence of conversion and embezzlement,
she essentially argues that the court did not total the converted/embezzled
amounts to arrive at the award, but instead simply used the amount of the unpaid
2006 Loan. The Court agrees that it appears that is how the court arrived at the
precise judgment amount, since the conversion and embezzlement damages came

37 Rule 52(a) is made applicable to bankruptcy adversary proceedings byFederal Rule of Bankruptcy Procedure 7052.

38 Vu v. Frank, 972 F.2d 357, 1992 WL 192721, at *1 (10th Cir. 1996); Oyler

v. Jensen, 76 F.3d 393, 1996 WL 50510, at *1 (10th Cir. 1996).

to such a precise number, and more importantly, because it exactly matched the
unpaid amount of the 2006 Loan.

Trial courts are required by Federal Rules of Civil Procedure 52(a) to state
their findings and conclusions. “[T]he touchstone for whether findings of fact
satisfy Rule 52(a) is whether they are sufficient to indicate the factual basis for
the court’s general conclusion as to ultimate facts so as to facilitate a meaningful
review of the issues presented.”39 However, findings of fact need not be
“inordinately detailed,”40 as long as “they afford the reviewing court a clear
understanding of the factual basis for the trial court’s decision.”41 Thus, “to
facilitate appellate review, a district court must make clear on the record the
findings of fact on which it relies.”42

Although we were provided none of the trial evidence as part of the
appellate record, we can immediately say that, as a matter of law, the portion of
the 2006 Loan used to pay off the 2004 Loan cannot, by definition, be considered
“unauthorized.” Payment of this loan was expressly part of the promised
consideration for making the loan. Furthermore, it fell into the “corporate debt”
category that Harold had specifically represented would be paid in full either with
the loan proceeds or with other corporate assets by January 2007. Maybe even
more importantly, we know Norma agrees the payment of this debt was
authorized, because she effectively paid that loan, herself, by remitting enough of

39 Denmon v. Runyon, 89 F.3d 849, 1996 WL 362743 at *1 (10th Cir. 1996)
(internal quotation marks omitted) (Findings of fact need not be “inordinatelydetailed,” provided they give the reviewing court “a clear understanding of thefactual basis for the trial court’s decision.” Id.).

40 Colo. Flying Acad., Inc. v. United States, 724 F.2d 871, 878 (10th Cir.

41 Bell v. AT & T, 946 F.2d 1507, 1510 (10th Cir. 1991) (internal quotationmarks omitted).

42 Bartee v. Michelin N. Am., Inc., 374 F.3d 906, 913 (10th Cir. 2004).


the $150,000 loan proceeds directly to her Edward Jones account to repay that
loan. Therefore, Michelle did not exercise unauthorized dominion over at least
$50,000 of the 2006 Loan proceeds, and that payment should not have been
included in any award for conversion and/or embezzlement damages, assuming it

Because it appears from the face of the opinion that the trial court used the
wrong measure of calculating damages under §§ 523(a)(4) and (6), we must
remand its award of conversion and/or embezzlement damages against Michelle
for further findings consistent with this opinion. It could well be that sufficient
evidence was received showing that there were truly unauthorized transactions
exceeding the $135,492 award (which of course by definition may not include
repayment of the 2004 Loan or any other legitimate ATI business expenses). But
because we are unable to definitely determine from the opinion that the
bankruptcy court used the correct methodology for determining damages, we must
remand that portion of the decision.

We affirm the non-dischargeable judgment against Harold, in the amount of
$135,492, pursuant to § 523(a)(2)(A). We remand the § 523(a)(4) and (6)
judgment in the amount of $135,492 against Michelle, for additional findings and
a determination regarding the amount of damages that are non-dischargeable
under §§ 523(a)(4) and/or (a)(6).43

Because the judgment on the § 523(a)(4) and/or (6) claims holds Haroldand Michelle jointly and severally liable, any reduction in the amount of judgmenton remand will apply to both Michelle and Harold with respect to those claims,
but will not affect the amount of Harold’s separate liability under § 523(a)(2).


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