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Title: In Re: Christopher A. Eberts

March 27, 2013

TITLE: IN RE: CHRISTOPHER A. EBERTS


The opinion of the court was delivered by: Honorable Michael W. Fitzgerald, U.S. District Judge

JS-6

CIVIL MINUTES -- GENERAL

PRESENT: HONORABLE MICHAEL W. FITZGERALD, U.S. DISTRICT JUDGE

Rita Sanchez None Present Courtroom Deputy Court Reporter ATTORNEYS PRESENT FOR APPELLANTS: ATTORNEYS PRESENT FOR APPELLEE: None Present None Present PROCEEDINGS (IN CHAMBERS): ORDER AFFIRMING BANKRUPTCY COURT ORDERS AND JUDGMENTS

Plaintiffs-Appellants Palm Finance Corporation ("Palm"), Night Train Films, LLC ("NTF LLC") and A-Mark Entertainment, LLC ("AME") have filed this bankruptcy appeal from the following: (1) Amended Judgment filed and entered September 26, 2011; (2) Order Granting in Part and Denying in Part Plaintiff's Motion to Alter [and] Amend the Judgment and to Amend or Make Additional Findings of Fact filed and entered on September 26, 2011; and, (3) Memorandum of Decision [Re:] Plaintiff's Motion to Alter and Amend the Judgment and to Amend or Make Additional Findings of Fact filed and entered on September 26, 2011, pursuant to which the Bankruptcy Court amended the Judgment After Trial filed and entered on June 9, 2011 (collectively, the "Orders and Judgments"). (See Notice of Appeal at 1-2 & Exs. A-C (Docket No. 2)).

The Court has reviewed the papers filed on this appeal and held a hearing on March 4, 2013.

Procedural Background

On November 3 and 4, 2010, and February 8, 2011, the Bankruptcy Court for the Central District of California (the Honorable Ernest M. Robles) conducted a trial in this adversary proceeding. (Excerpts of Record ("ER") 279 (Docket Nos. 17-1 to -12)). Plaintiffs-Appellants sought to exempt from discharge certain claims against Debtor-Defendant-Appellee Christopher A. Eberts. (ER 280-81).

On June 7, 2011, the Bankruptcy Court issued its Memorandum of Decision. (ER 279). And, on June 9, 2011, the Bankruptcy Court issued the corresponding Judgment After Trial. (ER 308).

In the Judgment After Trial, the Bankruptcy Court awarded judgment in favor of Palm in the amount of $190,000, finding that this claim (partially) was non-dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A). (ER 308-09). The Bankruptcy Court ruled that the remainder of Palm's claim would be subject to any discharge received by Eberts in his Chapter 7 bankruptcy case. (ER 309).

Furthermore, the Bankruptcy Court awarded judgment in favor of Eberts with respect to NTF LLC's and AME's claims and ruled that their respective claims would be subject to any discharge received by Eberts in his Chapter 7 bankruptcy case. (ER 309).

On June 23, 2011, Palm and NTF LLC filed a Motion to Alter and Amend the Judgment and to Amend or Make Additional Findings [of] Fact (the "Motion"). (See Notice of Appeal Ex. C at 1-2). On September 26, 2011, the Bankruptcy Court issued its Memorandum of Decision on the Motion, as well as an Order Granting in Part and Denying in Part the Motion and an Amended Judgment. (Notice of Appeal Exs. A-C).

In ruling on the Motion, the Bankruptcy Court amended that portion of the Judgment entered on June 9, 2011, in favor of Palm in the non-dischargeable amount of $190,000 to include prejudgment interest pursuant to 28 U.S.C. § 1961 in the total amount of $2,033.40. (Notice of Appeal Ex. A at 2). The other provisions of the Judgment entered on June 9, 2011, remained unchanged. (Notice of Appeal Ex. A at 2).

Plaintiffs-Appellants filed a timely notice of appeal on October 7, 2011. (Docket No. 2). This appeal raises five questions for review. The first three questions relate to NTF LLC's claim against Eberts, which the Bankruptcy Court concluded would be subject to discharge. The fourth relates to that part of Palm's claim against Eberts which the Bankruptcy Court likewise concluded would be subject to discharge. And the fifth relates to the calculation of prejudgment interest on the $190,000 amount of Palm's (partial) claim, which the Bankruptcy Court concluded was excepted from discharge. Specifically,

1. Plaintiffs-Appellants contend that NTF LLC's claim should be excepted from discharge pursuant to 11 U.S.C. § 523(a)(4) based on Eberts's alleged fraud or defalcation while acting in a fiduciary capacity. Did the Bankruptcy Court err by concluding that NTF LLC's claim was not excepted from discharge on this basis?

2. Alternatively, Plaintiffs-Appellants contend that NTF LLC's claim should be excepted from discharge pursuant to 11 U.S.C. § 523(a)(4) based on Eberts's alleged embezzlement. Did the Bankruptcy Court err by concluding that NTF LLC's claim was not excepted from discharge on this basis?

3. Alternatively, Plaintiffs-Appellants contend that NTF LLC's claim should be excepted from discharge pursuant to 11 U.S.C. § 523(a)(6) based on conversion. Did the Bankruptcy Court err by concluding that NTF LLC's claim was not excepted from discharge on this basis?

4. Plaintiffs-Appellants contend that Palm's claim should be excepted from discharge pursuant to 11 U.S.C. § 523(a)(2)(B) based on a materially false writing. Did the Bankruptcy Court err by concluding that Palm's claim was not excepted from discharge on this basis?

5. Plaintiffs-Appellants contend that Palm should have been awarded prejudgment interest on the Judgment amount of $190,000 pursuant to California Civil Code Sections 3287 and 3289. Did the Bankruptcy Court err in awarding prejudgment interest pursuant to 28 U.S.C. § 1961 rather than California law?

(Appellants' Opening Br. at 2 (Docket No. 17)).

Factual Background

By now, the facts are well known to the parties and the Bankruptcy Court. Here, the Court only briefly summarizes the facts relevant to this appeal, relying on the Bankruptcy Court's post-trial Memorandum of Decision and the parties' own briefing on this appeal.

Eberts

Eberts is a movie producer. (Appellee's Br. at 1 (Docket No. 20)). Eberts was the co-member and co-manager of a small production company, Rifkin/Eberts, LLC ("RE LLC"). (Appellee's Br. at 1-2). Eberts filed his bankruptcy petition in February 2009. (Appellants' Reply Br. at 17 (Docket No. 25)).

NTF LLC's Claim Against Eberts

NTF LLC was a limited liability company set up to finance the film "Night Train," and its original members were AME and R/E LLC. (ER 286). R/E LLC dissolved in early 2008. (ER 286). NTF's sole current member is AME. (ER 287).

In July 2007, Palm loaned NTF LLC $2,539,541.25. The loan proceeds were deposited into a City National Bank ("CNB") account. (ER 287). R/E was responsible for the production of Night Train, and Eberts handled this CNB account. (ER 287). The CNB account was a special purpose vehicle dedicated to cover the costs of producing Night Train and for no other purpose. (ER 287).

NTF argues that Eberts effected several money transfers from out of this CNB account that were prohibited because the transfers were not related to the production of Night Train. (See, e.g., ER 287-89). Palm's Claim Against Eberts

Palm's claim against Eberts is based on two loan transactions that Eberts personally guaranteed. (ER 281). Specifically, on October 11, 2006, Palm loaned $1 million to Who's Your Caddy, LLC ("WYC LLC"), and on September 26, 2007, Palm loaned $350,000 to Stag Night Films, LLC ("Stag Night LLC"). (ER 281).

Palm asserts that it relied on a written financial statement regarding Eberts's assets and liabilities (the "Financial Statement") in making both loans. (ER 281). The Financial Statement showed that Eberts had a net worth in the amount of $12,577,060.00, as of August 31, 2006. (ER 281). The Financial Statement was an attachment to the Guarantor's Verification of Accuracy of Financial Statement ("Verification"), which provided that the Financial Statement was complete and accurate as of August 31, 2006, and as of October 11, 2006 (i.e., the effective date of the Verification). (ER 281). Eberts prepared the Financial Statement by himself, and Palm reviewed and materially relied on it in making the two loans. (ER 281).

Palm contends that Eberts's Financial Statement was false because it overstated the value of certain assets and failed to include certain liabilities. (See, e.g., ER 282-85). Palm argues that Eberts was most likely insolvent at the time of these loans, and that he had a reckless disregard for the truth of his financial circumstances as reflected in the Financial Statement. (ER 285). Palm also contends that Eberts submitted the Financial Statement with the intent to deceive Palm as evidenced by the totality of the circumstances, and that Palm reasonably relied on the Financial Statement in making these loans. (ER 285).

Standards of Review

The parties agree on the following standards of review:

"Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the ...


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