Nguyen v. Pham et al

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28 	1 $264,253 plus prejudgment interest of $52,494.
MEMORANDUM DECISION RE
PHASE II OF TRIAL 	-1-
UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re
NGA TUY PHAM,
Debtor.
NGOC LAN THI NGUYEN,
Plaintiff,
vs.
NGA TUY PHAM, YEN CHUNG, KENNY HUNG
WAI NG, and QUAN THANH CHUNG,
Defendants.
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Case No. 08-30904 TEC
Chapter 7
Adv. Proc. No. 08-3073 TC
MEMORANDUM DECISION RE PHASE II OF TRIAL
The court held phase II of the trial in this action on
August 25 and 26, 2009. 	Robin E. Foor appeared for Plaintiff.
Roberto Ripamonti appeared for Defendant.
Plaintiff contends that Defendant owes her $316,747. 1
Plaintiff seeks to have this court liquidate the amount due
Signed and Filed: October 14, 2009
________________________________________
THOMAS E. CARLSON
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
October 15, 2009
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 08-03073 Doc# 85 Filed: 10/14/09 Entered: 10/15/09 14:45:05 Page 1 of
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2 Nor does the court address Plaintiff’s estoppel argument
because the court assumes, without deciding, that Plaintiff’s
claims are not time barred.
MEMORANDUM DECISION RE
PHASE II OF TRIAL 	-2-
Plaintiff, to have this court deny Defendant a discharge under
section 727 of the Bankruptcy Code, and if Defendant is not denied
a discharge, to have this court determine that Defendant’s debt to
Plaintiff is excepted from discharge under section 523(a) of the
Bankruptcy Code. 	Upon due consideration, and for the reasons
stated below, which shall constitute the court’s findings of fact
and conclusions of law, I determine that Defendant’s debt to
Plaintiff should not be excepted from discharge, and that Defendant
should not be denied a discharge of her debts. 	Because there is no
clear record of the amount due, and because it is unnecessary given
the court’s ruling re discharge and dischargeability, the court
does not attempt to fix the amount due Plaintiff. 2
EXCEPTION FROM DISCHARGE
A. 	Fraud in the Inducement
A debt is excepted from discharge if it results from fraud in
the inducement. 	11 U.S.C. § 523(a)(2). 	Where, as here, the debtor
has not employed a false financial statement, the creditor must
prove the following elements: (1) the debtor obtained money or
property from the creditor; (2) the debtor made a misrepresentation
of fact; (3) the debtor made such misrepresentation knowingly and
with the intent to deceive the creditor; (4) the creditor
justifiably relied upon debtor’s representation; and (5) the
creditor suffered damages as a result. 	Am. Express Travel Related
Svcs. Co., Inc. v. Hashimi (In re Hashimi), 104 F.3d 1122, 1125
(9th Cir. 1997).
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MEMORANDUM DECISION RE
PHASE II OF TRIAL 	-3-
Plaintiff alleges that Defendant obtained money from Plaintiff
by making various misrepresentations of fact, that the unpaid
amount of the loans made in reliance on those misrepresentations is
$316,747 (including prejudgment interest), and that Defendant’s
debt to Plaintiff should be excepted from discharge under section
523(a)(2)(A) as constituting fraud in the inducement. 	The court
will address each of the asserted misrepresentations.
1. 	Loan obtained without intent to repay. 	Plaintiff first
contends that the loans should be excepted from discharge because
Defendant explicitly or implicitly promised to repay the loans, but
never intended to do so.
The loans from Plaintiff to Defendant were very informal.
There is only one promissory note in the amount of $25,000. 	The
remainder of the alleged loans consist of numerous checks, some
payable to Defendant, some payable to Defendant’s family business,
some payable to Defendant’s husband, some payable to Defendant’s
daughter. 	Defendant contends that the amount Plaintiff loaned
Defendant is much less than the $264,253 claimed by Plaintiff.
Defendant testified that many of the checks written by Plaintiff
did not represent loans to Defendant, but instead were given to
Defendant in exchange for cash from Defendant’s family laundry
business: i.e. that Defendant cashed checks for Plaintiff. 	This
testimony was corroborated by the testimony of Defendant’s son.
I credit Defendant’s testimony that many of the checks did not
represent loans to Defendant, but were merely cashed by Defendant,
and that the loan balance outstanding is substantially less than
claimed by Plaintiff. 	In so finding, I rely in part on the fact
that Defendant and her husband reported a substantial majority of
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3 Defendant and her husband had no source of significant
income other than the family business.
4 Only in 2003, the year Defendant signed the sole promissory
note offered to document any loan from Plaintiff, did the deposits
in the bank accounts of Defendant, her husband, and the family
together substantially exceed (by $70,549) the gross receipts
reported on Schedule C of Defendant’s tax return. 	In 2004, bank
deposits exceeded gross receipts by less than $15,000, and in 2002,
2005, 2006, and 2007, bank deposits were less than the reported
gross receipts.
MEMORANDUM DECISION RE
PHASE II OF TRIAL 	-4-
the funds received from Plaintiff as income. 	Loan proceeds are not
income. 	I note that the vast majority of checks from Plaintiff
were deposited in the bank accounts maintained by Defendant, her
husband, and the family business. 	I also note that in only one
year do bank deposits substantially exceed the business gross
receipts reported on the tax returns filed by Defendant and her
husband. 3 	There is no reason to believe that Defendant would
include in income checks from Plaintiff if those checks did not
represent the cash receipts of the family business rather than
loans from Plaintiff. 4
There clearly were some loans from Plaintiff to Defendant. 	In
January 2003, Defendant signed a promissory note in the amount of
$25,000. 	In her bankruptcy schedules, Defendant listed a debt to
Plaintiff in the amount of $41,891. 	While I cannot determine the
exact amount due, it is more likely than not that the balance
actually due is substantially less than the $316,747 (including
prejudgment interest) claimed by Plaintiff.
It is against this backdrop that the court must determine
whether Defendant obtained the loans without intent to repay.
Plaintiff, of course, has no direct evidence that Defendant never
intended to repay; such intent must be inferred from the
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MEMORANDUM DECISION RE
PHASE II OF TRIAL 	-5-
circumstances. 	Plaintiff acknowledges that Defendant repaid
Plaintiff more than $41,000 over a four-year period. 	Defendant
testified that she ceased making payments only when a dispute arose
over the amount due. 	In light of the history of payments made, I
find that Defendant did not obtain any loan from Plaintiff without
intending to repay, and therefore conclude that the loans may not
be excepted from discharge on that theory.
2. 	Posing as deceased brother’s spirit. 	Plaintiff next
asserts that Defendant fraudulently induced Plaintiff to make loans
to her by calling Plaintiff on the telephone, impersonating the
spirit of Plaintiff’s deceased brother, and in that guise urging
Plaintiff to make loans to Defendant at low interest and without
documentation. 	Plaintiff contends that she was justified in
relying upon these representations because Defendant was
Plaintiff’s close friend, because Plaintiff is a Buddhist who
believes in spirits, and because Plaintiff is unusually gullible.
Justifiable reliance is largely a subjective test in which the
sophistication of the plaintiff is taken into account. 	Field v.
Mans, 116 S.Ct. 437 (1995). 	Plaintiff testified that she is a
Buddhist for whom the spirits of dead relatives are very real and
important, and that she has been defrauded many times and is
unusually gullible. 	Defendant denies impersonating Plaintiff’s
brother.
I have serious doubts whether Defendant impersonated
Plaintiff’s deceased brother, but find that even if she did,
Plaintiff’s reliance on such a representation was not justifiable.
First, Plaintiff is not wholly unsophisticated (she attended
college for two years in Vietnam).
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MEMORANDUM DECISION RE
PHASE II OF TRIAL 	-6-
Second, Defendant made no misrepresentation of material fact.
A fact is material if it concerns information of the type that a
reasonable person would rely upon in making a loan. 	The statement
of the spirit of a deceased relative is not that type of
information.
Third, what qualifies as justifiable reliance is not entirely
subjective. 	Reliance is not justifiable when ordinary use of the
senses contradicts the representation relied upon. 	Thus, the
Supreme Court stated in Field v. Mans:
Justifiability is not without some limits, however. 	As a
comment to § 541 [of the Restatement (Second) of Torts (1976]
explains, a person is “required to use his senses, and cannot
recover if he blindly relies upon a misrepresentation the
falsity of which would be patent to him if he had utilized his
opportunity to make a cursory examination or investigation.
Thus, if one induces another to buy a horse by representing it
to be sound, the purchaser cannot recover even though the
horse has but one eye, if the horse is shown to the purchaser
before he buys it and the slightest inspection would have
disclosed the defect.”
Id. 116 S.Ct. at 444. 	Ordinary use of the senses would have
revealed to Plaintiff that her deceased brother was not talking to
her.
Fourth, Plaintiff’s relationship with Defendant does not
eliminate the problems with her reliance upon the impersonation of
a dead person. 	Friendship might entitle Plaintiff to rely upon
certain representations by Defendant without the same inquiry that
would be required if she were dealing with a stranger. 	For
instance, Plaintiff might have been justified in relying upon
Defendant’s representation that the family business had a very good
year and that Defendant had the resources to take on larger loans.
Plaintiff’s friendship with Defendant does not make it any more
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MEMORANDUM DECISION RE
PHASE II OF TRIAL 	-7-
justifiable for Plaintiff to make a business decision on the basis
of Defendant’s impersonation of Plaintiff’s deceased brother.
Plaintiff’s counsel urges that Plaintiff must be entitled to
rely upon her religious belief in spirits as a matter of freedom of
religion. 	This argument is unpersuasive. 	Plaintiff may worship
and believe as she chooses. 	Plaintiff is also free to make
business decisions on the basis of the advice of spirits.
Plaintiff has cited no authority holding that she can rely on
religious belief to prove that such a method of decision making is
justifiable for the purpose of a civil fraud suit. 	To hear audibly
the voice of a dead relative is a supernatural event. 	That it can
happen is a matter of religious belief, not a matter of fact.
Plaintiff seeks to use her religious belief to show that reliance
on the voice of her deceased brother is justifiable, and then
shifts to the realm of fact to show that Defendant pretended to be,
but was not, the spirit of her deceased brother. 	Plaintiff has
cited no authority that a party can mix the realms of fact and
religious belief in the way she seeks to do.
3. 	Fish sauce investment. 	Plaintiff next contends that, in
February 2002, Defendant induced her to invest $9,000 in a fish
sauce business that Defendant was to start in Vietnam, and that
Defendant instead kept the money for her own use. 	Plaintiff
testified that Defendant told Plaintiff that Defendant’s uncle
owned the leading fish sauce company, that Defendant had personally
developed the formula for that product, and that Defendant would
use this knowledge to start a business competing with her uncle’s
business. 	Plaintiff testified that Defendant never started the
business and never repaid Defendant.
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MEMORANDUM DECISION RE
PHASE II OF TRIAL 	-8-
Defendant testified that she did not obtain any funds from
Plaintiff for investment in a fish sauce business.
I find that Defendant did not obtain any money from Plaintiff
by representing that it would be invested in a fish sauce business.
First, it is doubtful that Defendant transferred $9,000 to
Defendant at the time in question. 	The only written evidence of
such a transfer is Plaintiff’s withdrawal of $7,500 in cash from
her savings account on February 15, 2002, and her handwritten note
that she transferred $9,000 to Defendant. 	There is no evidence of
a deposit in that amount on or about February 15, 2002 in any of
the bank accounts of Defendant or her husband. 	Second, there is no
documentation of any investment in a business to be formed.
Plaintiff does not even state what share she was to receive for her
investment. 	Third, Plaintiff did not complain about not receiving
her share of the business until after Defendant filed her
bankruptcy petition more than six years after the alleged transfer
to Defendant. 	I find that if Plaintiff did advance the $9,000 in
question, it was a loan to Defendant, and that loan was not made
upon the representation that the proceeds would be used to start a
fish sauce business.
4. 	Vietnam land purchase. 	Plaintiff testified that she
advanced $76,835 to Defendant in April 2005 upon Defendant’s
representation that Defendant would forward those funds to
Defendant’s sister in Vietnam, that the sister would purchase land
in Vietnam for Plaintiff, and that the sister would manage that
land for Plaintiff. 	Plaintiff testified that she never received
land in Vietnam and that Defendant defrauded Plaintiff of the
$76,835 by diverting that money to Defendant’s own use.
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MEMORANDUM DECISION RE
PHASE II OF TRIAL 	-9-
Defendant testified that she never received money from
Plaintiff for the purchase of land in Vietnam, and that none of her
sisters were living in Vietnam in 2005. 	Defendant acknowledged
that she received a much smaller sum from Plaintiff for transfer to
Vietnam, but that those funds were intended to be given to, and
were in fact given to, a Vietnamese charity. 	Defendant also
acknowledged receipt of other funds from Plaintiff in April 2005,
but testified that those funds were loans from Plaintiff, repayment
of prior loans to Plaintiff, or cashing of checks for Plaintiff.
I find that Plaintiff did not transfer funds to Defendant for
the purpose of acquiring land in Vietnam, and that Defendant did
not commit fraud with respect to the funds transferred to her in
April 2005. 	In so finding, I note that there was no meaningful
documentation of any transfer of funds for the purchase of land,
and that Plaintiff would have insisted upon such documentation
because she had been defrauded in the purchase of land in a
previous transaction with another party. 	Plaintiff made loans to
Defendant, but the evidence does not indicate that the loans were
made upon the representation that the funds would be invested for
Plaintiff in land in Vietnam.
5. 	Altered check. 	On April 12, 2005, Plaintiff wrote a check
to Defendant that is internally inconsistent regarding the amount
payable. 	In words, the check states the amount payable to be “two
thousand dollars.” 	In numerals, the check states the amount
payable to be “$20,000.” 	Plaintiff testified that in writing the
check, she wrote the numerals “$2,000," and that Defendant altered
the check by adding an extra zero. 	Plaintiff also asserts that
Defendant submitted the check with a deposit slip showing the
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MEMORANDUM DECISION RE
PHASE II OF TRIAL 	-10-
amount payable as $20,000, knowing that Plaintiff intended to pay
her only $2,000.
Plaintiff did not introduce any expert testimony as to whether
the check had been altered. 	Plaintiff did not introduce evidence
that she complained either to Defendant or to her bank about the
amount transferred via the check in the three years between her
bank’s payment of $20,000 and the filing of Defendant’s bankruptcy
petition.
Defendant testified that she did not alter the check or notice
the inconsistency in the check. 	Defendant, who testified at trial
through an interpreter, stated that she does not read English, and
that she relied solely upon the numerals when filling out the
deposit slip at the time she deposited the check.
I find that Defendant did not alter the check, and did not
deposit the check knowing that Plaintiff had made a mistake in
stating the amount to be paid.
B. 	Other Theories re Exception to Discharge
Plaintiff’s counsel urges in his trial brief that Plaintiff
and Defendant had such a close relationship that Defendant had a
fiduciary duty to Plaintiff, that the acts described above
constitute fraud by a fiduciary, and that Defendant’s debt to
Plaintiff should therefore be excepted from discharge pursuant to
section 523(a)(4) of the Bankruptcy Code. 	This argument is
unpersuasive, because case law makes clear that section 523(a)(4)
applies only where an express trust was imposed before, and without
reference to, the wrongdoing that caused the debt. 	Ragsdale v.
Haller, 780 F.2d 794, 795-96 (9th Cir. 1986). 	Plaintiff introduced
no evidence of an express trust.
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MEMORANDUM DECISION RE
PHASE II OF TRIAL 	-11-
Plaintiff’s counsel also urges that the Defendant’s debt to
Plaintiff should be excepted from discharge under section 523(a)(6)
on the basis that Defendant’s conduct constituted willful and
malicious injury. 	This argument is also unpersuasive. 	To prove
willful and malicious injury, Plaintiff must show that Defendant
intentionally performed an act with the subjective knowledge that
such act was substantially certain to cause harm to Plaintiff.
Carrillo v. Su (In re Su), 290 F.3d 1140, 1144-45 (9th Cir. 2002).
On the basis of the evidence introduced at trial, I find that
Defendant performed no acts with such intent and knowledge.
DENIAL OF DISCHARGE
A. 	False Oath
Section 727(a)(4)(A) provides that a court shall deny a debtor
a discharge if “the debtor knowingly and fraudulently,” in or in
connection with a bankruptcy case “made a false oath or account.”
To deny discharge under this provision, the plaintiff must show
that “(1) the debtor knowingly and fraudulently made a false oath;
and (2) the false oath related to a material fact.” 	Fogal Legware
of Switzerland, Inc. v. Wills (In re Wills), 243 B.R. 58, 62 (9th
Cir. BAP 1999). 	Plaintiff asserts that Defendant made several
false statements in connection with her chapter 7 case.
1. 	Jewelry. 	Plaintiff notes that the only jewelry Debtor
disclosed in her bankruptcy schedules was a ring and watch valued
together at $500. 	Plaintiff contends that Defendant in fact owned
additional jewelry and deliberately failed to schedule that
additional jewelry.
Plaintiff offered no direct evidence that Defendant had
jewelry on the petition date that she failed to disclose. 	Instead,
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MEMORANDUM DECISION RE
PHASE II OF TRIAL 	-12-
Plaintiff introduced the following checks to show that Defendant
had purchased jewelry of substantial value pre-petition.
Date 	Payee 	Amount 	Deposited by / in
1. 	December 12, 2002 	Cash 	$1,369 	an Antwerp bank
2. 	April 4, 2003 	Cash 	$1,000 	Vincent Ma Gems
3. 	August 4, 2003 	(illegible) 	$1,194 	an Antwerp bank
4. 	February 20, 2004 	Tang Huynh 	$2,000 	T. Huynh, a jeweler
5. 	March 25, 2004 	Cash 	$1,086 	Quoc Long Jewelry
6. 	August 2, 2004 	Anvir Diamonds 	$1,076 	Anvir Diamonds
Plaintiff also testified that in December 2004, she accompanied
Defendant to a pawn shop, where Defendant paid to recover numerous
items of jewelry. 	On cross-examination, Plaintiff acknowledged
that she rarely if ever saw Defendant wearing jewelry, stating that
Plaintiff was not the kind of person who wore jewelry.
Defendant testified that on the petition date she did not own
any jewelry other than the watch and ring she disclosed. 	She
testified that checks 1-3 and 5-6, noted above, were used to
purchase jewelry for friends and relatives visiting from out of
town, and that in substance she cashed those checks for her
visitors. 	Defendant testified that check 4 was used to purchase
jewelry for her daughter and grandchildren, which testimony was
corroborated by the testimony of her daughter. 	Defendant
acknowledged that she went to a pawn shop in December 2004, but
testified that she did so to surrender jewelry and borrow against
it, not to recover jewelry previously pledged.
On the evidence submitted at trial, I cannot say that it is
more likely than not that Plaintiff failed to disclose jewelry in
her bankruptcy schedules. 	In so finding, I note that: (a) even
according to Plaintiff, Defendant had been forced to pawn jewelry
at a date after Defendant’s participation in all of the purchases
noted above; (b) Plaintiff herself testified that she has rarely,
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MEMORANDUM DECISION RE
PHASE II OF TRIAL 	-13-
if ever, seen Defendant wearing jewelry; (c) Defendant’s tax
returns show that her family never enjoyed a large income from
which to buy jewelry; and (d) no one testified to seeing Defendant
post-petition in possession of any jewelry other than the ring and
watch disclosed.
2. 	Community property interest in laundry. 	Plaintiff
contends that Defendant falsely stated in her schedules that the
Yen Laundromat and Cleaners was her husband’s property rather than
community property. 	While it is very likely that the business is
community property, I find no credible evidence that Defendant
misstated its character intentionally and with intent to defraud.
Defendant is not sophisticated or well educated and is not well-
versed in the concept of community property. 	More important, the
property was listed in the schedules and the trustee would have
investigated whether the property was community or separate
property if that question ever became important. 	Defendant gained
no advantage by listing it as community property. 	There being no
direct evidence of intentional misstatement and intent to defraud,
and Defendant gaining no advantage as result of the statement, the
circumstances do not justify an inference that Defendant misstated
the character of the property intentionally and with intent to
defraud.
3. 	Authority to sign checks. 	Plaintiff next contends that
Debtor falsely testified that only her husband was authorized to
write checks on the Yen Laundromat checking account at Gateway
Bank. 	I find that Debtor is not guilty of a false statement within
the meaning of section 727 for two reasons. 	First, Plaintiff did
not show that the statement was false. 	Plaintiff did not introduce
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5 Debtor’s tax returns for 2002-2007 show $9,360 average
annual income from the laundry, which works out to monthly income
of $780. 	The laundry income shown in Debtor’s tax returns declined
every year, from a high of $12,976 in 2002, to less than half that
in 2007.
MEMORANDUM DECISION RE
PHASE II OF TRIAL 	-14-
the signature card for the account; she showed only that Debtor
signed a few checks. 	Second, and more important, neither the
circumstances nor any direct evidence suggests that any
misstatement by Debtor was made intentionally and with intent to
defraud.
4. 	Laundry income. 	Plaintiff next contends that Debtor
understated the monthly income of the laundry business. 	In her
Schedule I, Debtor lists the monthly income of the business as
$794. 	Debtor’s tax return for 2007 shows $6,145 annual net income
from the laundry business, which works out to monthly net income of
$512, less than the amount shown in Debtor’s bankruptcy schedules. 5
The only evidence Plaintiff introduced to show that the laundry
income was understated was a reconstruction of expected income
based on an IRS formula and using per-load prices charged by other
laundries at a time more than a year after Debtor filed her
petition. 	I find that Debtor did not knowingly and fraudulently
misstate the income of the laundry business.
5. 	Amount of Nguyen claim. 	Plaintiff contends that Defendant
falsely stated in her schedules that the amount Defendant owed
Plaintiff was only $42,800, rather than the $316,747 Plaintiff
claims. 	I find that Defendant in good faith believed that she
correctly stated the amount owed. 	As noted above, Defendant
testified that many of the checks from Plaintiff were not loans,
but were given in exchange for cash from the laundry, and as noted
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MEMORANDUM DECISION RE
PHASE II OF TRIAL 	-15-
above, I credit that testimony. 	Thus, the debt was less than the
amount claimed by Plaintiff. 	The loans were very informal and
hardly documented at all. 	Plaintiff did not keep a loan ledger and
did not provide Defendant with statements of the balance due. 	To
the extent that Defendant did misstate the amount due, I find that
she did not make that misstatement intentionally and with the
intent to defraud.
6. 	Opening of jewelry store. 	Plaintiff asserts that
Defendant testified falsely at Phase I of the trial. 	Defendant
testified at Phase I that she selected and paid for certain jewelry
at the February 2004 grand opening of a jewelry store operated by
Tran Huynh. 	At Phase II of the trial, Plaintiff introduced
evidence that the grand opening of Mr. Huynh’s store did not occur
until May 2004. 	Plaintiff asserts that Defendant deliberately lied
in her testimony.
Assuming arguendo that the misstatement was material, I find
that Defendant did not make the misstatement intentionally and with
intent to defraud. 	The question at Phase I to which the purchase
of jewelry from Mr. Huynh was relevant was whether Defendant’s
daughter exercised dominion and control over the proceeds of a
January 20, 2004 cashier’s check in the amount of $8,500 that was
made payable to Defendant’s daughter, but requested by and
delivered to Defendant. 	Defendant and Defendant’s daughter both
testified that Defendant directed the use of all the proceeds of
that check, including the $2,000 paid Mr. Huynh for jewelry. 	Mr.
Huynh’s testimony supported the testimony of Defendant and her
daughter regarding this crucial point – he testified that it was
Defendant who gave him a $2,000 check and that he had no dealings
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with the daughter. 	Mr. Huynh also testified that he did show
jewelry to friends and acquaintances before the grand opening, and
that it was at such a showing that Defendant selected a bracelet
and several chains. 	I note that all the witnesses were testifying
about events that occurred more than five years before and that
were not matters of great import when they did occur. 	On the basis
of the evidence introduced at Phase I and Phase II, I find that any
misstatement by Defendant regarding the date of the grand opening
and the circumstances in which Defendant paid Mr. Huynh was the
product of failure to recollect correctly and was not made
knowingly and with intent to defraud.
B. 	Failure to Explain Loss of Assets
Plaintiff urges finally that Defendant should be denied
discharge pursuant to section 727(a)(5), because Defendant has
failed to account for the dissipation of the $264,253 that
Plaintiff contends Defendant borrowed and has not repaid.
To prevail under section 727(a)(5), Plaintiff must show that
some specific asset is missing. 	The burden then shifts to
Defendant to provide an explanation regarding the loss of that
asset. 	Leimbach v. Lane (In re Lane), 302 B.R. 75, 82 (Bankr. D.
Idaho 2003).
Plaintiff has not shown that Defendant borrowed the full
$264,253 claimed by Plaintiff. 	As explained above, I find that a
substantial dollar amount of the checks delivered to Defendant were
not loans from Plaintiff, but were in exchange for cash receipts of
the Yen Laundromat and Cleaners. 	Thus, the loan proceeds whose
loss must be explained is substantially less than the amount
assumed by Plaintiff.
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Defendant’s records offer a credible explanation of the non-
fraudulent disposition of the loan proceeds – that they were simply
spent by this low-income family over the six years of the lending
relationship. 	As noted above, the bank records of Defendant and
her husband indicate that the vast majority of the checks from
Plaintiff went into the bank accounts of Defendant and her husband.
There are no unexplained transfers of large sums out of those
accounts. 	The amount loaned was substantially less than the
$264,253 claimed by Plaintiff. 	The tax returns filed by Defendant
and her husband show an average annual adjusted gross income of
$17,720 for calendar years 2002-2007. 	Furthermore, Defendant’s
family income declined from $19,862 in 2005 to $9,539 in 2007, so
that Defendant would have found it more and more compelling to use
loan proceeds for ordinary living expenses, and harder and harder
to repay the loan. 	In light of all the evidence, it is more likely
than not that Defendant and her family gradually spent the loan
proceeds on normal living expenses. 	I find that Defendant has
adequately explained why she no longer had the loan proceeds at the
time she filed her chapter 7 case.
CONCLUSION
Defendant should not be denied a discharge, and none of the
debt owed Plaintiff should be excepted from discharge.
**END OF MEMORANDUM DECISION**
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Court Service List
Robin E. Foor, Esq.
Law Offices of Robin E. Foor
2843 Alhambra Drive
Belmont, CA 94002
Roberto Ripamonti, Esq.
Tsao-Wu, Chow & Yee LLP
685 Market Street, Suite 460
San Francisco, CA 94105
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