FILED

NOV 01 2012
1 SUSAN M SPRAUL, CLERK
U.S. BKCY. APP. PANEL
2 OF THE NINTH CIRCUIT

3 UNITED STATES BANKRUPTCY APPELLATE PANEL

4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. 12-1269-JuKiD
)
6 JAMES LARRY SACCHERI and ) Bk. No. 09-17721
JUDITH ANNE SACCHERI, )
7 ) Adv. No. 09-1273
Debtors. )
8 ______________________________)
JAMES LARRY SACCHERI, )
9 )
Appellant, )
10 )
v. ) M E M O R A N D U M*
11 )
ST. LAWRENCE VALLEY DAIRY; )
12 JUDITH ANNE SACCHERI, )
)
13 Appellees. )
______________________________)
14
Argued and Submitted on October 19, 2012
15 at Sacramento, California
16 Filed - November 1, 2012
17 Appeal from the United States Bankruptcy Court
for the Eastern District of California
18
Honorable Richard T. Ford, Bankruptcy Judge, Presiding
19 _____________________________________
20 Appearances: Appellant James Larry Saccheri argued pro se;
Jeff Reich, Esq. argued for appellee St. Lawrence
21 Valley Dairy.
____________________________________
22
23 Before: JURY, KIRSCHER, and DUNN Bankruptcy Judges.
24
25
26 *
This disposition is not appropriate for publication.
27 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
28 See 9th Cir. BAP Rule 8013-1.

-1-
 1 Chapter 71 debtor, James Larry Saccheri (Saccheri or
2 Debtor), appeals from the bankruptcy courts judgment in favor
3 of appellee, St. Lawrence Valley Dairy, Inc. (the Dairy),
4 finding that his debt in the amount of $492,006.67 plus
5 attorneys fees of $59,382.50 and costs of $2,737.50 was
6 nondischargeable under 523(a)(2)(A) and (4).
7 We AFFIRM the bankruptcy courts decision finding that the
8 debt was nondischargeable under 523(a)(2)(A) and
9 (a)(4)(embezzlement), except for the award of attorneys fees
10 which we REVERSE. We remand this proceeding to the bankruptcy
11 court for entry of judgment consistent with this disposition.
12 I. FACTS
13 A. Prepetition Events
14 Saccheri, an attorney,2 approached his friends and clients
15 to invest in a dairy farm located in Chateaugay, New York. One
16 of the investors, Michael J. Montgomery (Montgomery), was a
17 distant family member of Saccheri and Saccheris client for
18 almost twenty years.3 The other investors, James and Joan
19 Kozera, had known Saccheri since grade school and were also
20
21
1
22 Unless otherwise indicated, all chapter and section
references are to the Bankruptcy Code, 11 U.S.C. 101-1532, and
23 Rule references are to the Federal Rules of Bankruptcy
Procedure.
24
2
Saccheri resigned from the California State Bar in April
25 2001 with charges pending.
26 3
Montgomery was also a farmer and real estate investor. He
27 testified that he owned approximately 135 income properties
consisting of single family residences, commercial buildings and
28 apartment buildings. Montgomery invested $480,000 in the Dairy.

-2-
 1 former clients.4 Montgomery and the Kozeras did not want to
2 invest in the Dairy if loans were involved.
3 From September 4, 2003 until November 24, 2003, Saccheri
4 was the sole officer and director of the Dairy. On November 24,
5 2003, Montgomery became the secretary/treasurer. On April 12,
6 2004, at the Dairys first annual meeting of shareholders and
7 directors, Montgomery, James Kozera, Joan Kozera and Saccheri
8 were elected to the board of directors. Saccheri was elected
9 president, Montgomery was elected secretary/treasurer,
10 Mr. Kozera was elected vice-president and Mrs. Kozera was a
11 director. The officers and directors remained the same until
12 December 27, 2007.
13 At all times, Saccheri had control of the Dairys bank
14 accounts and he alone kept the companys books and prepared the
15 financial statements. Over time, Saccheri began taking
16 substantial sums of money from the Dairy in the form of loans
17 without board approval and which far exceeded his annual
18 compensation of $30,000.5 These loans were capitalized as
19 other assets on the Dairys balance sheet with a line item
20 entitled North Country Trust or NC Trust.
21 In 2007, Montgomery became aware that he had signed papers
22 for an unauthorized secured loan arranged by Saccheri in the
23
24 4
There were other investors as well. Saccheri testified
that his sister, Janice, and her husband invested $20,000. The
25
record also shows that Dr. Lee invested in the Dairy. Dr. Lees
26 shares were bought back for $50,000 (500 shares at $100 a share).
5
27 Saccheri disputes the bankruptcy courts factual finding
that his salary was $30,000. As noted below, we do not find any
28 of the courts factual findings clearly erroneous.

-3-
 1 amount of $350,000 from Yankee Farm Credit to the Dairy.
2 Montgomery received a letter from the bank stating that the
3 property taxes were not being paid on the property in New York,
4 which was a requirement of the loan.
5 Also in 2007, Montgomery further learned about Saccheris
6 self-dealings and concealment of the financial condition of the
7 Dairy through his trust attorney, Paul Franco, who had reviewed
8 the Dairys records. Saccheris self-dealings included, among
9 other things, obtaining the unauthorized secured loan from
10 Yankee Farm Credit and his use of the Dairys money to pay
11 personal expenses, including payments on his house and for
12 health insurance. Montgomery also learned from his trust
13 attorney that he had personally guaranteed the $350,000 Yankee
14 Farm Credit loan by signing a document without reading it.
15 Montgomery called a meeting at Mr. Francos office. The
16 Kozeras, Montgomery, Saccheri and others attended. After they
17 left the meeting, the board members realized that Saccheri alone
18 was preparing the financial statements and doing the bookkeeping
19 for the Dairy. They agreed that a CPA should be hired. At a
20 subsequent meeting, after Saccheri failed to bring in an
21 accountant, Saccheri resigned.
22 Subsequently, Mrs. Kozera and Mr. Ezell, the CPA, discussed
23 money going in and out of the Dairys bank account to other bank
24 accounts the board members knew nothing about. They discovered
25 that Saccheri had written checks from the Dairy to pay back
26 funds to the Palmira Marando Trust, which was maintained for
27 Montgomerys grandmother. Saccheri had taken funds from the
28

-4-
 1 trust in his role as trustee.6 They also discovered that
2 Saccheri had written unauthorized checks totaling $152,400.44
3 from the Dairy to the Trenhaile Estate. At an April 1, 2008,
4 shareholder meeting, when Saccheri was asked why he took the
5 money from the Dairy, Saccheri replied that he was in debt from
6 his declining law practice 1995 to 2000. Then from 2000 to 2004
7 he stated that he accumulated even more personal consumer debt.
8 On June 25, 2008, the parties entered into a settlement and
9 release agreement (Settlement Agreement) whereby they settled
10 the claims for $375,000. In connection with the Settlement
11 Agreement, Saccheri signed an unsecured promissory note for
12 $299,000 and a second note for $76,000 which was secured by a
13 deed of trust on Saccheris family home. Under the terms of the
14 settlement, if Saccheri was not in default, the Dairy agreed not
15 to pursue any action at law or equity against him. The
16 Settlement Agreement contained an attorneys fees clause which
17 stated that the losing party shall pay the prevailing party a
18 reasonable sum for attorneys fees incurred in bringing an
19 action for the purpose of enforcing this Settlement Agreement or
20 pursuing a breach thereof.
21 Saccheri made only a few payments on the notes before
22 defaulting.
23 B. Bankruptcy Events
24 On August 12, 2009, Saccheri and his wife Judith filed a
25 joint chapter 7 petition. In Schedule D, debtors listed the
26
27
6
Saccheri admitted that he wrote twenty-eight checks to the
28 Palmira Marando Trust totaling $81,525.

-5-
 1 Dairy as having a secured debt in the amount of $75,597 against
2 their residence. In Schedule F, debtors listed the Dairy as
3 having an unsecured debt in the amount of $297,416.
4 The Adversary Proceeding
5 On November 9, 2009, the Dairy filed a nondischargeability
6 complaint against Debtor for an unliquidated amount. On
7 June 25, 2010, the Dairy filed a third amended complaint
8 (TAC). The TAC alleged four claims for relief, with the first
9 three claims asserted against Debtor and the fourth claim
10 asserted against Judith. The first and second claims for relief
11 were based on 523(a)(4) and alleged that Debtor had committed
12 fraud or defalcation while acting in a fiduciary capacity and
13 embezzlement. The third claim for relief, based on
14 523(a)(2)(A), alleged that Debtor had obtained money and goods
15 by false pretenses, false representation and actual fraud. The
16 facts underlying each of the claims for relief were essentially
17 the same and related to the numerous unauthorized loans Debtor
18 had taken from the Dairy and his concealment of those loans
19 from the other board members.
20 The fourth claim for relief, asserted against Judith only,
21 was based on 523(a)(6). The bankruptcy court dismissed the
22 claim against Judith on summary judgment.
23 On April 6, 2011, the bankruptcy court held a final pre-
24 trial hearing and bifurcated the trial into liability and damage
25 phases. The court set a trial for the liability phase on May 9
26 and 10, 2011. At the conclusion of the trial the matter was
27 submitted to allow for further findings and briefs.
28 On June 29, 2011, the bankruptcy court issued its findings

-6-
 1 of fact and conclusions of law. The bankruptcy court found that
2 the Dairy had proven all the elements for embezzlement under
3 523(a)(4), for defalcation while acting as fiduciary under
4 523(a)(4) and for fraud under 523(a)(2)(A). Based on these
5 conclusions, the court found that the debt in an unspecified
6 amount was nondischargeable.
7 On July 18, 2011, the Dairy filed a fourth amended
8 complaint which restated its TAC and added a fifth claim for
9 relief requesting a declaration that Judiths community property
10 interest was liable for the nondischargeable debt attributed to
11 her spouse.
12 The damage phase proceeded to trial on November 29 and 30,
13 and December 1, 2011. On April 6, 2012, the bankruptcy court
14 issued additional findings of fact and conclusions of law. In a
15 forty-four line item chart which listed various checks and
16 transactions, certain amounts were charged against Saccheri,
17 credited or disallowed. The court addressed each of the items,
18 ultimately finding the total nondischargeable amount was
19 $399,131.35. The court also found that the Dairy, as the
20 prevailing party, was entitled to its attorneys fees and costs
21 under the terms of the Settlement Agreement. In its conclusions
22 of law, the bankruptcy court found that Judiths community
23 assets were liable for the damages. Also, due to Debtors
24 fraudulent conduct, the bankruptcy court applied the doctrine of
25 unclean hands and found Debtor was not entitled to the benefit
26 of doubt on the issues of damages. The bankruptcy court noted
27 that Debtor had deceived people who had trusted him over a
28 substantial period of time.

-7-
 1 The Dairy then submitted its application for attorneys
2 fees and costs seeking $59,382.50 in fees and $2,737.50 in costs
3 for a total of $62,120. The Dairy attached detailed time
4 records to the application.
5 On May 2, 2012, Debtor filed an opposition to the fee
6 application. Relying on Itule v. Metlease, Inc. (In re Itule),
7 114 B.R. 206, 213 (9th Cir. BAP 1990); Grove v. Fulwiler
8 (In re Fulwiler), 624 F.2d 908, 910 (9th Cir. 1980); and
9 AT&T Universal Card Servs. v. Bonnifield (In re Bonnifield),
10 154 B.R. 743, 745 (Bankr. N.D. Cal. 1993), Debtor argued that
11 the attorneys fees and costs should not be awarded because the
12 attorneys fees provision in the Settlement Agreement was
13 conditioned on an action that was brought for the purpose of
14 enforcing the agreement or pursuing a breach thereof. Debtor
15 asserted that the Dairy was not seeking to enforce the
16 Settlement Agreement or the notes in the adversary, instead
17 choosing to litigate issues related to fraud, not contract.
18 Debtor also objected to the amount of fees requested because
19 they were unreasonable.
20 In reply, the Dairy argued that the adversary was simply
21 the enforcement of the subject Settlement Agreement. In such
22 matters, attorney[s] fees are permissible. The Dairy, citing
23 Transought v. Johnson, 931 F.2d 1505 (11th Cir. 1991), asserted
24 the general rule that attorneys fees are properly awarded to a
25 creditor prevailing on a bankruptcy claim if there exists a
26 statute or valid contract authorizing the fees.
27 On May 7, 2012, the bankruptcy court issued further
28 findings of fact and conclusions of law. The court found that

-8-
 1 the amount of damages listed as $399,131.35 was incorrect. The
2 bankruptcy court noted that the correct amount of damages was
3 $492,006.57. Citing Fleishmann Distilling Corp. v. Maier
4 Brewing Co., 386 U.S. 714, 717 (1967), the bankruptcy court
5 noted that attorneys fees are not ordinarily recoverable in the
6 absence of a statute or enforceable contract providing for such
7 fees. The court concluded that the Settlement Agreement clearly
8 provided for allowance of attorneys fees. The court also
9 observed that Cal. Code Civ. P. 1021 provided for attorneys
10 fees by agreement, express or implied. In the end, the
11 bankruptcy court decided that the requested fees were reasonable
12 and awarded them in full.
13 On May 7, 2012, the bankruptcy court filed the judgment
14 finding $492,006.57 plus attorneys fees of $59,382.50 and costs
15 of $2,737.50 nondischargeable under 523(a)(2)(A) and (4). On
16 May 8, 2012, the bankruptcy court entered the judgment. Debtor
17 timely filed a notice of appeal.
18 II. JURISDICTION
19 The bankruptcy court had jurisdiction over this proceeding
20 under 28 U.S.C. 1334 and 157(b)(2)(I). We have jurisdiction
21 under 28 U.S.C. 158.
22 III. ISSUES
23 A. Whether the bankruptcy court erred in concluding that
24 the Dairy proved the elements for nondischargeability under
25 523(a)(2)(A);
26 B. Whether the bankruptcy court erred in concluding that
27 the Dairy proved the elements for embezzlement under
28 523(a)(4);

-9-
 1 C. Whether the bankruptcy court erred in finding that
2 Debtor was a fiduciary within the meaning of 523(a)(4);
3 D. Whether the bankruptcy court erred in its calculation
4 of damages; and
5 E. Whether the bankruptcy court erred in awarding the
6 Dairy its attorneys fees.7
7 IV. STANDARDS OF REVIEW
8 In the context of an appeal from a nondischargeability
9 judgment, we review the bankruptcy courts findings of fact
10 under the clearly erroneous standard and its conclusions of law
11 de novo. Honkanen v. Hopper (In re Honkanen), 446 B.R. 373, 382
12 (9th Cir. BAP 2011). However, the ultimate question of whether
13 a particular debt is dischargeable is a mixed question of fact
14 and law that we review de novo. Id.; see also Searles v. Riley
15 (In re Searles), 317 B.R. 368, 373 (9th Cir. BAP 2004) (stating
16 that mixed questions are reviewed de novo when they require the
17 court to consider legal concepts and exercise judgment about
18 values animating legal principles.).
19 The determination of justifiable reliance [under
20 523(a)(2)(A)] is a question of fact subject to the clearly
21 erroneous standard of review. Eugene Parks Law Corp. Defined
22 Benefit Pension Plan v. Kirsh (In re Kirsh), 973 F.2d 1454, 1456
23 (9th Cir. 1992) (per curiam).
24 The bankruptcy courts factual findings regarding the
25
7
26 Debtor lists twenty-one issues for purposes of this
appeal. The majority of the issues pertain to the bankruptcy
27 courts factual findings, most of which relate to the courts
calculation of damages. We address Debtors factual errors
28 arguments below.

-10-
 1 amount of damages are also reviewed under a clearly erroneous
2 standard. Lundell v. Ulrich (In re Ulrich), 236 B.R. 720, 723
3 (9th Cir. BAP 1999).
4 A bankruptcy courts factual findings are clearly erroneous
5 if they are illogical, implausible, or without support from
6 inferences that may be drawn from the record. United States v.
7 Hinkson, 585 F.3d 1247, 125961 (9th Cir. 2009) (en banc). It
8 is well settled that review under the clearly erroneous
9 standard is significantly deferential, requiring a definite
10 and firm conviction that a mistake has been committed.
11 Concrete Pipe & Prods. of Cal., Inc. v. Constr. Laborers Pension
12 Trust for So. Cal., 508 U.S. 602, 622 (1993). We are required
13 to uphold any determination of the bankruptcy court that falls
14 within a broad range of permissible conclusions. Cooter & Gell
15 v. Hartmarx Corp., 496 U.S. 384, 400 (1990).
16 The issue of whether a relationship is fiduciary within
17 the meaning of 532(a)(4) is a question of law, Runnion v.
18 Pedrazzini (In re Pedrazzini), 644 F.2d 756, 758 (9th Cir.
19 1981), which we review de novo. Ragsdale v. Haller, 780 F.2d
20 794 (9th Cir. 1986).
21 We review the bankruptcy courts evidentiary rulings for
22 abuse of discretion. See Johnson v. Neilson (In re Slatkin),
23 525 F.3d 805, 811 (9th Cir. 2008). We also review for abuse of
24 discretion the bankruptcy courts award of prejudgment interest,
25 but review de novo whether an award of prejudgment interest is
26 authorized under state or federal law. Id. at 820.
27 Under the abuse of discretion standard of review, we first
28 determine de novo whether the [bankruptcy] court identified the

-11-
 1 correct legal rule to apply to the relief requested. Hinkson,
2 585 F.3d at 1262. And if the bankruptcy court identified the
3 correct legal rule, we then determine under the clearly
4 erroneous standard whether its factual findings and its
5 application of the facts to the relevant law were illogical,
6 implausible, or without support in inferences that may be drawn
7 from the facts in the record. Id.
8 Awards of attorney[s] fees are generally reviewed for an
9 abuse of discretion. However, we only arrive at discretionary
10 review if we are satisfied that the correct legal standard was
11 applied and that none of the [bankruptcy courts] findings of
12 fact were clearly erroneous. We review questions of law de
13 novo. Rickley v. Cnty. of L.A., 654 F.3d 950, 953 (9th Cir.
14 2011). To the extent the issue is whether California law allows
15 the award of attorneys fees, our review is de novo. Fry v.
16 Dinan (In re Dinan), 448 B.R. 775, 783 (9th Cir. BAP 2011).
17 V. DISCUSSION
18 On appeal, Debtor argues that the bankruptcy court erred in
19 concluding that the debt owed to the Dairy was nondischargeable
20 under 523(a)(2)(A) and (4) due to mistakes of fact and law.
21 Debtor alleges numerous factual errors, contending that the
22 bankruptcy court improperly found the element of justifiable
23 reliance was met under 523(a)(2)(A) and charged or failed to
24 give him credit for certain amounts when it calculated the
25 damage award. Debtor also asserts that he was not a fiduciary
26 within the meaning of 523(a)(4). Finally, Debtor contends
27 that the bankruptcy court erred in awarding attorneys fees to
28 the Dairy because the issues litigated in the adversary

-12-
 1 proceeding fell outside the scope of the attorneys fee clause
2 in the Settlement Agreement.
3 Before addressing Debtors contentions of law, we address
4 his asserted factual errors which are listed under his issues on
5 appeal. As appellant, Debtor had the responsibility to file an
6 adequate record, and the burden of showing that the bankruptcy
7 courts findings of fact are clearly erroneous. [Debtor] should
8 know that an attempt to reverse the trial courts findings of
9 fact will require the entire record relied upon by the trial
10 court be supplied for review. Kritt v. Kritt (In re Kritt),
11 190 B.R. 382, 387 (9th Cir. BAP 1995) (citing Burkhart v. FDIC
12 (In re Burkhart), 84 B.R. 658, 660-61 (9th Cir. BAP 1988)).
13 Debtor has provided us with only select portions of the
14 relevant transcripts. Moreover, Debtor refers to trial exhibits
15 which are ostensibly included under Tab Y; however, the
16 documents under Tab Y do not have exhibit numbers on them,
17 making it nearly impossible for us to match the exhibits with
18 testimony. To compound the problem, it does not appear that
19 Debtor included all the exhibits from trial in the record. Due
20 to the incomplete record, effective appellate review of factual
21 errors under the clearly erroneous standard will be difficult if
22 not impossible.8
23 The settled rule on transcripts in particular is that
24
25 8
BAP Rule 8006-1 provides: The excerpts of the record
26 shall include the transcripts necessary for adequate review in
light of the standard of review to be applied to the issues
27 before the Panel. The Panel is required to consider only those
portions of the transcript included in the excerpts of the record
28 . . . .

-13-
 1 failure to provide a sufficient transcript may, but need not,
2 result in dismissal or summary affirmance and that the appellate
3 court has discretion to disregard the defect and decide the
4 appeal on the merits. Kyle v. Dye (In re Kyle), 317 B.R. 390,
5 393-94 (9th Cir. BAP 2004), affd, 170 Fed.Appx. 457 (9th Cir.
6 2006). Having obtained the partial transcripts and some
7 exhibits, although unnumbered, we exercise our discretion to
8 review Debtors alleged factual errors on the merits.
9 We first observe that Debtor failed to match the majority
10 of the asserted factual errors with any of the elements under
11 523(a)(2)(A) or (a)(4). Indeed, the only element Debtor
12 discusses in his brief pertaining to 523(a)(2)(A) is
13 justifiable reliance, which we address below. From what we can
14 tell, some of the factual errors alleged relate to the nature
15 and extent of Debtors fraudulent conduct.
16 Specifically, Debtor contends that the bankruptcy court
17 erroneously found his compensation was $30,000 per year9 when he
18 testified that his compensation package was later modified with
19 board approval to include management fees, health insurance, and
20 other expenses. Hrg Tr. at 315-17, 5/10/11. However, the
21 bankruptcy court did not believe Debtors testimony regarding
22 his modified compensation package and there was no written
23 evidence to support his testimony.
24 Debtor also takes issue with the bankruptcy courts factual
25
9
26 James Kozera testified that the directors allowed this
salary although it was never discussed. Kozera also testified
27 that this salary had not changed. Hrg Tr. at 152, 162-63,
5/9/11. Montgomery testified that he remembered Debtors annual
28 compensation as $32,000. Hrg Tr. at 91, 5/9/11.

-14-
 1 finding that Montgomery and the other directors were not aware
2 of the $350,000 loan between the Dairy and Yankee Farm Credit
3 until 2007. The record shows there were numerous documents
4 pertaining to the loan, including a guarantee by Montgomery,
5 that Montgomery signed. Montgomery testified that he did not
6 read or understand the documentation that he signed authorizing
7 the $350,000 loan and did not learn about it until he received
8 the letter from Yankee Farm Credit that the taxes were not being
9 paid on the property. Debtor contends that Montgomerys
10 testimony should not have been believed because Montgomery was
11 an educated man and experienced buyer of real estate. Debtor
12 maintains that Montgomerys testimony is beyond the realm of
13 possibility.
14 The record shows that the bankruptcy court found otherwise
15 based on the relationship between Debtor and Montgomery.
16 Montgomery testified that he trusted Debtor and that he did not
17 read legal papers, instead referring them to Debtor, his
18 attorney for twenty years. The court found Montgomerys
19 testimony believable. The bankruptcy court also believed the
20 testimony of the Kozeras that they did not know about the loan
21 and would never have authorized it.
22 On this record we cannot say that the courts factual
23 findings in connection with the boards discovery of the Yankee
24 Farm Credit loan are illogical, implausible, or without support
25 from inferences drawn from the record. Hinkson, 585 F.3d at
26 1259-61. In addition, findings based on determinations
27 regarding the credibility of witnesses demand[] even greater
28 deference to the trial courts findings; for only the trial

-15-
 1 judge can be aware of the variations in demeanor and tone of
2 voice that bear so heavily on the listeners understanding of
3 and belief in what is said. Anderson v. City of Bessemer City,
4 N.C., 470 U.S. 564, 575 (1985).
5 We also point out that the outcome of this appeal does not
6 stand or fall on these alleged factual errors regarding Debtors
7 fraud. The record shows Debtor committed multiple frauds by
8 writing unauthorized checks on the Dairys bank account for his
9 personal use none of which were evidenced by independent
10 director approval, board authorization, or any directors
11 meeting minutes. Debtor admitted his liability on many of these
12 unauthorized transactions: he admitted to borrowing $81,525
13 from the Dairy to repay monies that he had taken from the
14 Palmira Marando Trust,10 to taking unauthorized ATM charges of
15 $61,444.63 (with an offset of $1,531.48), to making payments on
16 his home totaling $34,418.52, and he did not dispute charges
17 against him for the 2004 checks totaling $60,530.78, the 2005
18 checks totaling $72,300, the 2006 checks totaling $42,850, and
19 the 2007 checks totaling $44,625. Thus, there is ample evidence
20 to show Debtor engaged in fraud and a continuing course of
21 deceptive conduct.
22 Debtor asserts numerous factual errors with respect to the
23 bankruptcy courts calculation of damages. Again, the record
24
10
In addition, the record shows that Debtor was not
25 authorized to borrow $152,504.44 from the Dairy to repay monies
26 he had taken from the Trenhaile Estate. Although Debtor
testified that he was authorized to borrow the money for the
27 repayment to the Trenhaile Estate, the bankruptcy court did not
find his testimony believable nor was there any documentation to
28 support his contentions.

-16-
 1 reveals that Debtor submitted no corporate minutes or other
2 writings conclusively establishing that he had obtained
3 authorization from any director or the board for the
4 transactions involved in this appeal.11 The lack of
5 documentation made it difficult for the bankruptcy court to
6 evaluate the numerous alleged charges and credits and calculate
7 the damages with any type of precision.
8 Where a defendant by his own wrong has prevented a
more precise computation . . . [the factfinder] may
9 make a just and reasonable estimate of the damage
based on relevant data, and render its verdict
10 accordingly. Any other rule would enable the
wrongdoer to profit by his wrongdoing at the expense
11 of his victim. It would be an inducement to make
wrongdoing so effective and complete in every case as
12 to preclude any recovery, by rendering the measure of
damages uncertain.
13
14 In re Ulrich, 236 B.R. at 723. In the end, Debtors financial
15 machinations coupled with the lack of documentation were a major
16 problem for him, especially in light of the fact that he was an
17 attorney who had practiced law for decades. The bankruptcy
18 court found [b]y education and by professional experience as an
19
20
11
The bankruptcy court found there was no clear evidence
21 to support Debtors contention that he should receive $10,000
credit for the purchase of the Dairys stock. The bankruptcy
22
court also requested documentation showing that Debtor was
23 entitled to a credit of the dividends that he received on stock
that he never validly purchased. The record shows that Debtor
24 never pointed to any documentation regarding this credit. With
respect to the charges for Dr. Lee, the record shows that Debtor
25 never explained why Dr. Lee would loan money to the Dairy nor
26 did he provide any documentation to support such a loan.
Likewise, with Debtors remaining challenges to the bankruptcy
27 courts factual findings on damages, Debtor points to no
documents in the record that would support his testimony or
28 asserted errors on appeal.

-17-
 1 attorney, Defendant was well aware that he should document
2 everything, especially when involved in self-dealing efforts, he
3 did not.
4 Without conclusive documentation, the bankruptcy court was
5 not compelled to believe Debtors self-serving testimony, which
6 in most instances, the court did not find credible. We do not
7 disturb the quintessentially factual determination of
8 credibility in the absence of clear error. United States v.
9 Lummi Indian Tribe, 841 F.2d 317, 319 (9th Cir. 1988). Debtor
10 has pointed to no evidence in the record that suggests the
11 bankruptcy courts assessments of witness credibility were so
12 blatantly wrong as to require reversal.
13 Moreover, under the doctrine of unclean hands, Debtor must
14 come into court with clean hands or he will be denied relief,
15 regardless of the merits of his claim. Precision Instrument
16 Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 81415 (1945);
17 Republic Molding Corp. v. B.W. Photo Utils., 319 F.2d 347, 350
18 (9th Cir. 1963) (plaintiffs unclean hands weigh in the
19 equitable balance that underlies the design of a remedy). Here,
20 the bankruptcy court applied the doctrine of unclean hands
21 finding that Debtor was not entitled to the benefit of doubt
22 regarding the charges or credits with respect to the calculation
23 of the damages because he had deceived people who had trusted
24 him over a substantial period of time.12
25
12
26 Generally, the application of the equitable doctrine of
unclean hands is within the discretion of the trial court and is
27 reviewed for abuse of that discretion. See TransWorld Airlines,
Inc. v. Am. Coupon Exch., Inc., 913 F.2d 676, 694 (9th Cir.
28 (continued...)

-18-
 1 On this record, we conclude that the bankruptcy courts
2 factual findings Debtor challenges on appeal fell within the
3 broad range of permissible conclusions. Cooter & Gell, 496 U.S.
4 at 400. Therefore, the bankruptcy courts factual findings were
5 not clearly erroneous.
6 A. Debtors Liability Under 523(a)(2)(A)
7 To establish that a debt is nondischargeable under
8 523(a)(2)(A), a creditor must establish five elements:
9 (1) misrepresentation, fraudulent omission or deceptive conduct
10 by the debtor; (2) knowledge of the falsity or deceptiveness of
11 the statement or conduct; (3) an intent to deceive;
12 (4) justifiable reliance by the creditor on the debtors
13 statement or conduct; and (5) damage to the creditor proximately
14 caused by its reliance on the debtors statement or conduct.
15 Turtle Rock Meadows Homeowners Assn v. Slyman (In re Slyman),
16 234 F.3d 1081, 1085 (9th Cir. 2000). The Dairy had the burden
17 of proving the various elements by a preponderance of the
18 evidence. Id. The burden of showing something by a
19 preponderance of the evidence, . . . simply requires the
20 trier of fact to believe that the existence of a fact is more
21 probable than its nonexistence before [he] may find in favor of
22 the party who has the burden to persuade the [judge] of the
23
12
24 (...continued)
1990). Debtor does not raise any issue with respect to the
25 courts application of the doctrine on appeal. Nonetheless, we
26 mention the courts application of the doctrine because it
clearly relates to the courts credibility assessment of Debtors
27 testimony on damages. Findings based on determinations regarding
the credibility of witnesses demand[] even greater deference to
28 the trial courts findings . . . . Anderson, 470 U.S. at 575.

-19-
 1 facts existence. Concrete Pipe & Prods. of Cal., Inc.,
2 508 U.S. at 622.
3 Debtors Fraud
4 As described above, Debtors deceptive conduct amounted to
5 multiple frauds, some of which he admitted.
6 Knowledge and Intent to Deceive
7 Debtor does not identify errors of fact or law with any
8 degree of specificity regarding the elements of knowledge and
9 intent to deceive. Rather, Debtor makes a blanket statement
10 that the bankruptcy courts conclusion that Debtor was liable
11 under 523(a)(2)(A) was erroneous. To the extent Debtors
12 assignment of error is directed at the knowledge and intent to
13 deceive elements, we reject it.
14 Debtors knowledge and intent to deceive may be inferred by
15 circumstantial evidence and from Debtors conduct. Edelson v.
16 Commr, 829 F.2d 828, 832 (9th Cir. 1987) (A court may infer
17 fraudulent intent from various kinds of circumstantial
18 evidence.); Donaldson v. Hayes (In re Ortenzo Hayes), 315 B.R.
19 579, 587 (Bankr. C.D. Cal. 2004) (Knowledge may be proven by
20 circumstantial evidence and inferred from the debtors course of
21 conduct.).
22 Here, the bankruptcy court found numerous transactions by
23 the Debtor with the Dairy were unauthorized by the board. The
24 court further found that during Debtors tenure as president, he
25 prepared all of the financial books and records of the Dairy,
26 had control of the checkbooks, and concealed the unauthorized
27 loans under the NC Trust. In addition, the bankruptcy court
28 observed that Debtor had been an attorney for over twenty years,

-20-
 1 and as an experienced attorney, he would have known the
2 importance of documenting financial arrangements with others.
3 Yet, Debtor did not document any of the loans he allegedly
4 received from plaintiff.
5 These factual findings are not independent of each other
6 but show a continuing pattern of wrongful conduct. Therefore,
7 the bankruptcy court could reasonably infer that Debtor had
8 knowledge of his deceptive conduct and the intent to deceive.
9 The Directors Justifiable Reliance
10 Debtor argues that the bankruptcy court erred in finding
11 that the Kozeras and Montgomery justifiably relied on Debtors
12 misrepresentations and/or deceptive conduct. The bankruptcy
13 court found that the directors had no reason not to believe
14 Debtor. The court properly considered that Debtor had been both
15 the Kozeras and Montgomerys attorney for years and their
16 trusted friend. See In re Kirsch, 973 F.2d at 1458 (In
17 considering whether reliance is justifiable, the court must take
18 into account the knowledge and relationship of the parties.).
19 In addition, the bankruptcy court found that the financial
20 documents all looked good as they were made to conceal the
21 money that Debtor had been taking through the line item on the
22 balance sheet showing his alleged loans as other assets
23 under what he called North Country Trust or NC Trust. The
24 NC Trust supposedly held money that the Dairy had not expended,
25 but it actually reflected the money Debtor had taken from the
26 Dairy in unauthorized loans.
27 Debtor contends the bankruptcy court erred in finding that
28 the Dairy justifiably relied on his misrepresentations because

-21-
 1 the statute of limitations on the Dairys fraud claims had
2 expired by June 30, 2007.13 Debtor argues that by June 30, 2004,
3 when Montgomery had finished signing all the loan documents, the
4 Dairy knew or should have known or should have discovered the
5 facts on which the Dairy bases it claims for relief.
6 We are not persuaded by Debtors statute of limitations
7 defense. First, the only place we see the statute of
8 limitations mentioned is in Debtors answer to the TAC. It does
9 not appear from the record that Debtor argued the issue at trial
10 in the bankruptcy court. See Barnes v. Belice (In re Belice),
11 461 B.R. 564, 569 n.4 (9th Cir. BAP 2011) (holding that
12 arguments not raised in the bankruptcy court can be deemed
13 waived for appeal purposes).
14 Second, under California law, the Dairys cause of action
15 for fraud did not accrue[ ] until the discovery . . . of the
16 facts constituting the fraud or mistake. Cal. Code Civ. P.
17 338(d). As noted above, the bankruptcy court believed
18 Montgomery that he did not learn of the Debtors fraud until
19 2007 when he received the letter from Yankee Farm Credit stating
20 that the property taxes were not being paid on the property in
21 New York.
22 Third, Debtor limits the discovery of his fraud as
23 relating only to the unauthorized $350,000 Yankee Farm Credit
24 loan. However, Debtor obtained numerous other unauthorized
25 loans from the Dairy which the record shows were discovered by
26
13
27 Since the gravamen of the Dairys complaint is based on
fraud, Californias three year statute of limitation under Cal.
28 Code Civ. P. 338 would apply.

-22-
 1 the Kozeras and Montgomery only after the CPA they hired
2 examined the Dairys books and records.
3 For these reasons, we conclude that the bankruptcy courts
4 finding on the justifiable reliance element was not clearly
5 erroneous.
6 Damages
7 As noted, the record supports the bankruptcy courts
8 factual findings regarding an award of damages. We discuss the
9 bankruptcy courts award of prejudgment interest and attorneys
10 fees in further detail below.
11 In sum, on the record provided, we discern no error with
12 the bankruptcy courts conclusion that the Dairy had proved all
13 the elements for 523(a)(2)(A) by a preponderance of the
14 evidence.
15 B. Debtors Liability Under Section 523(a)(4)
16 Section 523(a)(4) prohibits the discharge of debts for
17 fraud or defalcation while acting in a fiduciary capacity,
18 embezzlement, or larceny.
19 The elements for embezzlement are (1) property rightfully
20 in the possession of a nonowner; (2) nonowners appropriation of
21 the property to a use other than that for which it was
22 entrusted; and (3) circumstances indicating fraud. Transamerica
23 Commercial Fin. Corp. v. Littleton (In re Littleton), 942 F.2d
24 551, 555 (9th Cir. 1991). Again, Debtor does not address errors
25 of fact or law specifically related to these elements in his
26 briefs.
27 The bankruptcy court found that the Dairys money was
28 rightfully in the possession of Debtor, but then he

-23-
 1 appropriated it to his own use by spending it or paying his
2 bills and obligations which was not known or authorized by the
3 Plaintiffs . . . and it was done with a fraudulent intent. The
4 record amply supports the bankruptcy courts findings of fact
5 and conclusions of law regarding the elements for embezzlement.
6 Therefore, we do not disturb the courts decision on appeal.
7 To prevail on a claim arising from fraud or defalcation
8 while acting in a fiduciary capacity, the creditor must prove
9 not only the debtors fraud or defalcation, but also that the
10 debtor was acting in a fiduciary capacity when the debtor
11 committed the fraud or defalcation. Citing the Fifth Circuit
12 case of Moreno v. Ashworth (In re Moreno), 892 F.2d 417 (5th
13 Cir. 1990), the bankruptcy court found Debtor was acting as a
14 fiduciary because he was the president of a private corporation
15 entrusted with funds for a particular purpose. On appeal,
16 Debtor maintains that he was not a fiduciary for purposes of
17 523(a)(4) citing Cal-Micro, Inc. v. Cantrell (In re Cantrell),
18 329 F.3d 1119, 1125-1128 (9th Cir. 2003). We agree that the
19 holding in Cantrell applies to these facts.
20 In Cantrell, the Ninth Circuit reiterated that the term
21 fiduciary is construed narrowly for purposes of 523(a)(4).
22 Id. at 1125. Under this narrow construction, the fiduciary
23 relationship must arise from an express or technical trust. Id.
24 (The broad, general definition of fiduciarya relationship
25 involving confidence, trust and good faithis inapplicable in
26 the dischargeability context.) (citing Ragsdale v. Haller
27 (In re Haller), 780 F.2d 794, 796 (9th Cir. 1986)).
28 Bankruptcy courts look to state law to determine whether an

-24-
 1 express trust relationship exists. In re Cantrell, 329 F.3d at
2 1125. Under California corporations law, corporate officers and
3 directors are not fiduciaries within the meaning of 523(a)(4).
4 Id. at 1127. The Cantrell court explained, although officers
5 and directors [under California law] are imbued with the
6 fiduciary duties of an agent and certain duties of a trustee,
7 they are not trustees with respect to corporate assets. Id. at
8 1126 (emphasis added). Cantrell relied on Bainbridge v. Stoner,
9 106 P.2d 423 (Cal. 1940), which explicitly held that the
10 relationship in California between a director on the one hand
11 and the corporation and its shareholders on the other hand,
12 strictly speaking, was one of agency and not trust.
13 In re Cantrell, 329 F.3d at 1126 (citing Bainbridge, 106 P.2d at
14 426).
15 The Dairy recognizes that California law draws a
16 distinction between the fiduciary duties of corporate officers
17 and directors who are viewed as agents and the fiduciary duties
18 of a trustee. Nonetheless, the Dairy argues that Debtor was a
19 trustee because he was entrusted with the bank accounts of the
20 Dairy and had virtually unlimited sway over them. We are not
21 persuaded. In the Fifth Circuit case of In re Moreno, the
22 debtor, an officer, did not dispute that he was a fiduciary
23 under Texas law which is inapposite to California law.
24 In re Moreno, 892 F.2d at 421. Moreover, although Debtor was in
25 a relationship with the board members that involved confidence,
26 trust and good faith, this general definition of fiduciary is
27 inapplicable in the dischargeability context. Accordingly, we
28 conclude that the bankruptcy court erred in finding that Debtor

-25-
 1 was a fiduciary within the meaning of 523(a)(4).
2 However, because the courts embezzlement finding was
3 correct, the bankruptcy courts conclusion that the damages were
4 nondischargeable under 523(a)(4) will not be disturbed on
5 appeal.
6 C. Other Damages
7 Prejudgment Interest
8 Debtor asserts that the bankruptcy court erred in charging
9 him for interest in the amount of $47,464.22 on the promissory
10 notes on two grounds: first, Debtor maintains that there was no
11 testimony to support how the Dairy calculated the interest on
12 the notes and second, Debtor argues that the notes form a part
13 of the Settlement Agreement and release and the Dairy did not
14 state a claim for breach of the Settlement Agreement in the
15 adversary proceeding, instead pursuing claims based on fraud.
16 In its findings, the bankruptcy court noted that it was
17 reluctant to award the interest claims as set forth in the
18 Settlement Agreement and two promissory notes but that there was
19 no other way to compensate the Dairy for its loss of property
20 and money except by allowing interest. The court further found
21 that since no other interest calculations were offered by either
22 party, it seems reasonable to allow the interest that the
23 parties agreed upon in the [notes].14
24 The award of prejudgment interest in nondischargeability
25
26 14
Although Debtor contends that there was no testimony to
27 support how the Dairy calculated the interest on the notes, this
argument cannot form a basis for reversal on appeal when we do
28 not have the complete transcripts in the record.

-26-
 1 proceedings is authorized under Cohen v. de la Cruz, 523 U.S.
2 213, 223 (1998), where the United States Supreme Court concluded
3 that the text of 523(a)(2)(A) encompasses any liability
4 arising from money, property, etc., that is fraudulently
5 obtained, including treble damages, attorneys fees and other
6 relief that may exceed the value obtained by the debtor.
7 In awarding prejudgment interest, the bankruptcy court did
8 not specifically state what law it was applying when it awarded
9 the prejudgment interest. Under federal law, courts may allow
10 prejudgment interest even though a governing statute is silent
11 regarding such interest. Frank Music Corp. v.
12 MetroGoldwynMayer, Inc., 886 F.2d 1545, 1550 (9th Cir. 1989),
13 cert. denied, 494 U.S. 1017 (1990). [T]he award of prejudgment
14 interest in a case under federal law is a matter left to the
15 sound discretion of the trial court. Awards of prejudgment
16 interest are governed by considerations of fairness and are
17 awarded when it is necessary to make the wronged party whole.
18 Acequia Inc. v. Clinton (In re Acequia, Inc.), 34 F.3d 800 (9th
19 Cir. 1994) (determining that an award of prejudgment interest in
20 a 548(a) case is left to the sound discretion of the trial
21 court and is awarded when necessary to make the wronged party
22 whole).
23 Where a debt that is found to be nondischargeable arose
24 under state law, the award of prejudgment interest on that debt
25 is also governed by state law. Otto v. Niles (In re Niles),
26 106 F.3d 1456, 1463 (9th Cir. 1997). Under California law, the
27 court may award prejudgment interest in actions other than
28 contract in its discretion. Cal. Civ. Code 3288 (In an

-27-
 1 action for the breach of an obligation not arising from
2 contract, and in every case of oppression, fraud, or malice,
3 interest may be given, in the discretion of the jury.).15
4 Here, the parties entered into a Settlement Agreement on
5 June 25, 2008, agreeing that the Diarys claim against Debtor
6 was $375,000. Since that time and actually well before the
7 Debtor has had possession and use of the Dairys money. Thus,
8 the underlying purpose justifying an award of prejudgment
9 interest is present compensation to the Dairy for its loss of
10 the use of its money that Debtor loaned himself without
11 authorization. Additionally, because the parties did not offer
12 any other interest calculations, the bankruptcy court found it
13 reasonable to use the interest rate agreed to by the parties
14 in the promissory notes. See Blau v. Lehman, 368 U.S. 403, 414
15 (1962) ([I]nterest is not recovered according to a rigid theory
16 of compensation for money withheld, but is given in response to
17 considerations of fairness). Without contrary evidence, the
18 bankruptcy court properly exercised its discretion by selecting
19
15
20 California law also provides that prejudgment interest is
a matter of right where there is a vested right to recover
21 damages certain as of a particular day. Cal. Civil Code
3287(a). [T]he certainty requirement of [Civil Code] section
22
3287, subdivision (a) has been reduced to two tests: (1) whether
23 the debtor knows the amount owed or (2) whether the debtor would
be able to compute the damages. Firemans Fund Ins. Co. v.
24 Allstate Ins. Co., 234 Cal.App.3d 1154, 1173 (Cal. Ct. App.
1991). It is equally possible that the bankruptcy court was
25 awarding prejudgment interest as a matter of right rather than by
26 exercising its discretion. After all, the parties had liquidated
the amount of damages owed in the Settlement Agreement. The fact
27 that the amount may have later increased due to charges, credits
or disallowances did not make the amount of the damages less
28 certain.

-28-
 1 the rate of interest set forth in the promissory notes.16
2 Accordingly, we conclude that the bankruptcy court did not abuse
3 its discretion in awarding the Dairy prejudgment interest.
4 Attorneys Fees and Costs
5 Debtor contends that the bankruptcy court erred in awarding
6 the Dairy attorneys fees in this proceeding because the issues
7 litigated were based on fraud and nondischargeability and thus
8 not within the scope of the attorneys fee provision in the
9 Settlement Agreement. We agree.
10 Attorneys fees may be awarded and declared
11 nondischargeable in an action to determine dischargeability of
12 debt. Cohen, 523 U.S. at 223. However, before attorneys fees
13 are awarded, two requirements must be met: (1) an underlying
14 contract or nonbankruptcy law must provide a right to recover
15 attorneys fees, and (2) the issues litigated in the
16 dischargeability action must fall within the scope of the
17 contractual or statutory attorneys fees provision. See
18 In re Dinan, 448 B.R. at 785 (9th Cir. BAP 2011) (under Cohen,
19 the determinative question for awarding attorneys fees is
20 whether the creditor would be able to recover the fee outside of
21 bankruptcy under state or federal law).
22 The Dairy contends that the award of attorneys fees was
23 appropriate and cites the Eleventh Circuit case Transouth,
24 931 F.2d 1505, which, in turn, cited Fleishmann Distilling
25 Corp., 386 U.S. at 717, in support of its position. These cases
26
27
16
If the trial court had selected the California Judgment
28 rate of interest of 10%, the award would have been much higher.

-29-
 1 simply stand for the proposition that attorneys fees are
2 properly awarded to a creditor prevailing on a bankruptcy claim
3 if there exists a statute or valid contract that authorizes the
4 fees. However, these cases do not address the remaining
5 question for the award of attorneys fees in nondischargeability
6 actions: whether the issues litigated in the dischargeability
7 action fall within the scope of the contractual or statutory
8 attorneys fees provision.
9 In the bankruptcy court, the Dairy asserted that the
10 present issue before the court is simply the enforcement of the
11 subject Settlement Agreement. In such matters, attorneys fees
12 are permissible. The Dairy distinguished the cases of
13 In re Fulwiler, 624 F.2d 908, and In re Bonnifield, 154 B.R.
14 743, contending that in those cases dischargeability was at
15 issue and not the enforcement of a Settlement Agreement.
16 Exactly. The Dairys claims in the nondischargeability
17 proceeding were not brought to enforce the terms of the
18 agreement or to pursue a breach. The Dairy did not plead that
19 Debtor was liable under the Settlement Agreement nor did it
20 litigate that Debtor had breached the agreement. Rather, the
21 action pursued the remedy of nondischargeability based on the
22 tort claims of fraud, breach of fiduciary duty and embezzlement
23 for purposes of 523(a)(2)(A) and (a)(4). Moreover, the
24 attorneys fees clause was in an agreement that was not even in
25 existence at the time the acts which led to nondischargeability
26 occurred. The adversary proceeding concerned those acts, not
27 the Settlement Agreement. Therefore, the attorneys fee clause
28 in the agreement was inapplicable to the claims litigated.

-30-
 1 Accordingly, we conclude that the bankruptcy court erred in
2 awarding the attorneys fees.
3 VI. CONCLUSION
4 For the reasons stated, we AFFIRM the bankruptcy courts
5 decision finding that the debt was nondischargeable under
6 523(a)(2) and (a)(4)(embezzlement), except for the award of
7 attorneys fees which we REVERSE. We remand this proceeding to
8 the bankruptcy court to enter a judgment consistent with this
9 disposition.
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

-31-