In re: Ray Cai Peilin Hu

FILED
MAY 07 2012
SUSAN M SPRAUL, CLERK
U.S. BKCY. APP. PANEL
1 OF THE NINTH CIRCUIT

2
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. CC-11-1465-KiMkH
)
6 RAY CAI; PEILIN HU, ) Adv. No. 09-01265-BR
)
7 Debtors. ) Bk. No. 08-31525-BR
)
8 )
RAY CAI, )
9 )
Appellant, )
10 )
v. ) M E M O R A N D U M1
11 )
SHENZHEN SMART-IN INDUSTRY )
12 COMPANY, LTD.; YI DANSHAN )
INDUSTRY COMPANY, LTD.; )
13 HUIDONG WANDA INDUSTRY )
COMPANY, LTD.; HUIZHOU WANDA )
14 SHOES CO., LTD., )
)
15 Appellees. )
______________________________)
16
Argued and Submitted on February 24, 2012,
17 at Pasadena, California
18 Filed - May 7, 2012
19 Appeal from the United States Bankruptcy Court
for the Central District of California
20
Honorable Barry Russell, Bankruptcy Judge, Presiding
21
22 Appearances: Kathleen P. March of The Bankruptcy Law Firm, P.C.
argued for appellant, Ray Cai;
23 Steve Qi of the Law Offices of Steve Qi &
Associates argued for appellees, Shenzhen Smart-In,
24 Industry Company, Ltd., Yi DanShan Industry
Company, Ltd., Huidong Wanda Industry Co., Ltd.,
25 and Huizhou Wanda Shoes Company, Ltd.
26
27 1
This disposition is not appropriate for publication.
Although it may be cited for whatever persuasive value it may have
28 (see Fed. R. App. P. 32.1), it has no precedential value. See 9th
Cir. BAP Rule 8013-1.
 1 Before: KIRSCHER, MARKELL, and HOLLOWELL, Bankruptcy Judges.
2
3 Before us is the second appeal in this case.2 Appellant Ray
4 Cai (“Cai”) appeals the bankruptcy court’s further findings and
5 judgment determining that his debts to appellees are
6 nondischargeable under § 523(a)(2)(A).3 Appellees are Shenzhen
7 Smart-In Co., Ltd. (“Shenzhen Smart-In”), Yi Dan Shan Industry
8 Co., Ltd. (“Yi Dan Shan”), and Huidong Wanda Industry Co., Ltd.
9 and Huizhou Wanda Shoes Co., Ltd. (together “Parties
10 Wanda”)(collectively “Appellees”).4 In Cai’s first appeal, the
11 Panel vacated and remanded the bankruptcy court’s
12 nondischargeability judgment against Cai for lack of sufficient
13 findings under FRCP 52(a). Upon remand, the bankruptcy court made
14 the required further findings and again determined that Cai’s
15 debts to Appellees were nondischargeable under § 523(a)(2)(A). We
16 AFFIRM the bankruptcy court’s further findings. However, as more
17
18
2
Cai’s wife, Peilin Hu (“Hu”), was a defendant in the
19 underlying adversary proceeding and an appellant in the first
appeal. In the first judgment, the bankruptcy court determined
20 that insufficient evidence existed regarding Appellees’ debts as
to Hu. Upon remand of the first appeal, the bankruptcy court made
21 the same determination. Appellees have not appealed that ruling,
and Hu is not an appellant in this appeal.
22
3
Unless specified otherwise, all chapter, code, and rule
23 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The
24 Federal Rules of Civil Procedure are referred to as “FRCP.”
25 4
Guan Hang Shoes and HongKong Guan Hang International Group
Co., Ltd. (together “Parties Guan Hang”) were plaintiffs in the
26 adversary proceeding and appellees in the first appeal. Upon
remand of the first appeal, the bankruptcy court determined that
27 insufficient evidence existed to support nondischargeability as to
Parties Guan Hang’s debt. Parties Guan Hang have not appealed
28 that determination.

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 1 thoroughly explained below, we must VACATE the judgment and REMAND
2 for the limited purpose of amending the judgment to include the
3 dollar amount of debt deemed nondischargeable.
4 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
5 The factual background in this case is more fully set forth
6 in the Panel’s Memorandum issued on February 2, 2011, in Cai’s
7 first appeal. CC-10-1287-DKiPa. Cai was the owner and CEO of
8 Citicross Corp. (“Citicross”), which imported and distributed
9 women’s shoes manufactured in China from 2003 until approximately
10 2007. Appellees are manufacturers and/or distributors of shoes
11 made in China. Cai, on behalf of Citicross, ordered and received
12 multiple shipments of shoes from Appellees that were not paid for
13 despite Cai’s repeated statements to each Appellee before placing
14 the orders that he intended to pay for, and had the funds to pay
15 for, the shoes.
16 In Cai’s first appeal, the Panel determined that the
17 bankruptcy court’s nondischargeability judgment lacked sufficient
18 findings to support it. It vacated the judgment and remanded the
19 matter for further findings. Upon remand, the bankruptcy court
20 did not take any additional evidence or briefing, or hold any
21 further proceedings. Therefore, the further findings are based on
22 the original record, which included a two-day trial and
23 declarations from Cai and various witnesses for Appellees.
24 On August 19, 2011, the bankruptcy court found that Cai
25 knowingly made the same two false statements to each Appellee:
26 (1) that he intended to pay for the shoes ordered and delivered;
27 and (2) that he had sufficient funds to pay for the shoes.
28 Further Findings (Aug. 19, 2011) 2:2-3. Alternatively, the court

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 1 found that even had Cai said that he intended to pay for the
2 shoes, without any reference to having sufficient funds to pay for
3 them, it would still find the debts nondischargeable. Id. at 2:6-
4 7. The court found no need to resort to an “alter ego” theory to
5 impose personal liability on Cai; Cai was personally liable
6 because he is the one who defrauded Appellees.5 Id. at 2:12-15.
7 The bankruptcy court further found that each Appellee relied
8 upon Cai’s repeated promises to pay for the shoes, and did so
9 justifiably given the “very difficult circumstances in which
10 Mr. Cai put the creditors[.] [T]heir only hope of being paid on
11 the previous shipments was to ship more shoes and hope that
12 Mr. Cai would finally live up to his promises to pay. Obviously,
13 at some point, they had enough of his lies and made no further
14 shipments.” Id. at 2:20-22.
15 Finally, the bankruptcy court concluded that Cai proximately
16 caused the damage to Appellees. It found that Cai was not a
17 credible witness, and it did not believe his alleged excuses for
18 nonpayment. Id. at 3:3. On the other hand, the court believed
19 Appellees’ testimony that they were unable to resell the
20 specially-ordered shoes. Id. at 3:3-5.
21 Cai timely filed his notice of appeal on August 29, 2011.
22 Upon review of the record, we determined that no new judgment had
23 yet been entered. As a result, the notice of appeal was
24 ineffective to confer jurisdiction. See Rule 8002. On
25
5
Although Cai raised the alter ego issue in his statements
26 of issues on appeal, he did not raise this argument in his opening
brief. Accordingly, this issue has been waived. Golden v.
27 Chicago Title Ins. Co. (In re Choo), 273 B.R. 608, 613 (9th Cir.
BAP 2002)(arguments not specifically and distinctly made in an
28 appellant’s opening brief are waived).

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 1 October 18, 2011, we issued an order requiring the parties to
2 obtain a separate judgment from the bankruptcy court. The
3 separate judgment was entered on October 28, 2011.
4 II. JURISDICTION
5 The bankruptcy court had jurisdiction under 28 U.S.C.
6 §§ 157(b)(2)(I) and 1334. We have jurisdiction under 28 U.S.C.
7 § 158.
8 III. ISSUE
9 Did the bankruptcy court err when it entered the
10 nondischargeability judgment against Cai under § 523(a)(2)(A)?
11 IV. STANDARDS OF REVIEW
12 The parties dispute the standard of review in this case. In
13 claims for nondischargeability, the Panel reviews the bankruptcy
14 court’s findings of fact for clear error and conclusions of law de
15 novo, and applies de novo review to “mixed questions” of law and
16 fact that require consideration of legal concepts and the exercise
17 of judgment about the values that animate the legal principles.
18 Oney v. Weinberg (In re Weinberg), 410 B.R. 19, 28 (9th Cir. BAP
19 2009).
20 The determination of intent to defraud, justifiable reliance,
21 and proximate causation are questions of fact reviewed for clear
22 error. Eugene Parks Law Corp. Defined Benefit Pension Plan v.
23 Kirsh (In re Kirsh), 973 F.2d 1454, 1456 (9th Cir. 1992)
24 (justifiable reliance); First Beverly Bank v. Adeeb (In re Adeeb),
25 787 F.2d 1339, 1342 (9th Cir. 1986)(intent); Rubin v. West (In re
26 Rubin), 875 F.2d 755, 758 (9th Cir. 1989)(proximate causation).
27 The bankruptcy court’s witness credibility findings are entitled
28 to special deference, and are also reviewed for clear error.

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 1 In re Weinberg, 410 B.R. at 28; Rule 8013. If two views of the
2 evidence are possible, the trial judge’s choice between them
3 cannot be clearly erroneous. Hansen v. Moore (In re Hansen),
4 368 B.R. 868, 875 (9th Cir. BAP 2007). A finding is clearly
5 erroneous if it is illogical, implausible, or without support in
6 the record. United States v. Hinkson, 585 F.3d 1247, 1261 (9th
7 Cir. 2009)(en banc).
8 V. DISCUSSION
9 A. Section 523(a)(2)(A).
10 Section 523(a)(2)(A) provides that, “A discharge under . . .
11 this title does not discharge an individual debtor from any debt
12 (2) for money, property, services, or an extension, renewal or
13 refinancing of credit, to the extent obtained by (A) false
14 pretenses, a false representation, or actual fraud, other than a
15 statement respecting the debtor’s or an insider’s financial
16 condition.”
17 To prevail on a claim under § 523(a)(2)(A), a creditor must
18 establish five elements: (1) the debtor made representations;
19 (2) that at the time he knew were false; (3) that he made them
20 with the intention and purpose of deceiving the creditor; (4) that
21 the creditor relied on such representations; and (5) that the
22 creditor sustained the alleged loss and damage as the proximate
23 result of the debtor’s misrepresentations. Ghomeshi v. Sabban
24 (In re Sabban), 600 F.3d 1219, 1222 (9th Cir. 2010). The creditor
25 bears the burden of proving all five of these elements by a
26 preponderance of the evidence. Id. In order to strike a balance
27 between allowing debtors a fresh start and preventing a debtor
28 from retaining the benefits of property obtained by fraudulent

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 1 means, exceptions to discharge under § 523(a)(2)(A) are construed
2 strictly against creditors and in favor of debtors. Id.
3 B. The bankruptcy court did not err when it entered the
nondischargeability judgment against Cai under
4 § 523(a)(2)(A).
5 1. Cai’s statements were not oral statements of financial
condition excepted under § 523(a)(2)(A).
6
7 Cai contends that the debts to Appellees should be discharged
8 because his statements at issue were oral statements of financial
9 condition, which are expressly precluded under the statute.
10 Specifically, Cai argues that the bankruptcy court’s finding of
11 “implicit in the promise to pay is the ability to pay by having
12 sufficient funds to pay . . .” is a finding that both of Cai’s
13 statements (1) that he intended to pay for the shoes, and (2) that
14 he had sufficient funds to pay for the shoes, constitute the same
15 thing: Cai had sufficient funds to pay for the shoes. Cai
16 contends this statement is a statement of financial condition not
17 actionable under § 523(a)(2)(A). We disagree with Cai for two
18 reasons. First, Cai fails to mention the bankruptcy court’s other
19 critical finding about his statements: that even had Cai said he
20 intended to pay for the shoes, without ever representing that he
21 had sufficient funds to pay for them, the court would still have
22 found the debts nondischargeable. Second, Cai’s statement does
23 not constitute an oral statement of financial condition excepted
24 under the statute.
25 In a recent opinion decided while this appeal was pending, we
26 adopted the “narrow” view of interpreting the term “statement
27 respecting the debtor’s . . . financial condition” under
28 § 523(a)(2)(A). Barnes v. Belice (In re Belice), 461 B.R. 564,

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 1 577-78 (9th Cir. BAP 2011). In Belice, we held that such
2 statements “are those that purport to present a picture of the
3 debtor’s overall financial health.” Id. Relying on Cadwell v.
4 Joelson (In re Joelson), 427 F.3d 700, 714 (10th Cir. 2005), we
5 explained:
6 Statements that present a picture of a debtor's overall
financial health include those analogous to balance
7 sheets, income statements, statements of changes in
overall financial position, or income and debt statements
8 that present the debtor or insider's net worth, overall
financial health, or equation of assets and liabilities
9 . . . . What is important is not the formality of the
statement, but the information contained within it —
10 information as to the debtor's or insider's overall net
worth or overall income flow.
11
12 Id. at 578 (citing In re Joelson, 427 F.3d at 714).
13 Based on this narrow interpretation, Cai’s statement that he
14 had sufficient funds to pay for the shoes does not constitute a
15 statement respecting his financial condition. While this
16 statement may be a closer call than those at issue in Belice, it
17 does not shed any real light on Cai’s overall net worth or his
18 overall income flow.
19 However, even if Cai’s statement that he had sufficient funds
20 to pay for the shoes somehow constituted an oral statement of
21 financial condition, this was not his only statement to Appellees.
22 When each Appellee asked Cai before shipping out another order for
23 payment for the previous unpaid shipments, Cai repeatedly told
24 them that he intended to pay for the shoes but that he needed more
25 time. Clearly, this statement is not a statement respecting Cai’s
26 financial condition. As noted by Judge Pappas at oral argument in
27 Cai’s first appeal:
28 But, if a debtor tells a creditor, ‘I have the money to

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 1 repay the debt, or the loan that I’m about to get from
you,’ it seems to me that, arguably, that’s a statement
2 about the debtor’s financial condition. I have the
money. If the debtor says, ‘I intend to repay you,’ but
3 does not have the intent to repay, is the statement, ‘I
intend to repay you,’ a statement about the debtor’s
4 financial condition? Aren’t they two different things?
5 . . .
6 . . . But, the problem is, is I think -- didn’t the
bankruptcy judge find that your client made both types of
7 representations?
8 Tr. of BAP Appellate Oral Argument for Cai v. Shenzhen Smart-In
9 Co., Ltd., CC-10-1287 (2011) (09-01265) (January 21, 2011) 3:12-
10 20; 4:1-3. Therefore, we conclude Cai’s statements are actionable
11 under § 523(a)(2)(A).
12 2. Cai’s statements were false representations.
13 The bankruptcy court found that, based on the totality of the
14 circumstances, Cai’s statements were false and that he lacked any
15 intent to pay Appellees for the shoe orders at issue. Cai
16 contends the court’s findings are fatally vague as to “when” Cai
17 made the statements, and without knowing when the statements were
18 made to each Appellee, the dollar amount of shoe shipments
19 Appellees shipped in reliance on those statements cannot be
20 calculated. Cai contends that the record did not establish what,
21 if any, shoe shipments were shipped after his statements, so
22 therefore Appellees failed to prove their damages. Cai ignores
23 the evidence in this case.
24 The testifying witness for Shenzhen Smart-In, Dawson Li Guan
25 (“Mr. Guan”), testified that Cai’s initial orders with Shenzhen
26 Smart-In were small and paid for promptly. However, beginning in
27 February 2006, Cai’s orders became substantially larger, totaling
28 approximately $578,367.00. Because of the order’s size, Mr. Guan

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 1 asked Cai if he had sufficient funds to purchase the shipment.
2 Cai responded that he did, and that the balance would be promptly
3 paid just as their prior transactions. Cai did not pay for the
4 February order as promised. This pattern repeated itself in March
5 2006 (total order $209,032.00), in May 2006 (total order
6 $45,360.00), in June 2006 (total order $19,108.00), in August 2006
7 (total order $92,601.20), in September 2006 (total order
8 $8,376.00), and in October 2006 (total order $70,776.00). After
9 receiving no payment for any of the shipped orders between
10 February and October 2006, Shenzhen Smart-In refused to make any
11 further shipments. Overall, Cai incurred a debt of about $1.2
12 million to Shenzhen Smart-In, of which he still owes $958,000.00.
13 Naizhong Li (“Mr. Li”) of Yi Dan Shan testified to a similar
14 story. In 2005, Yi Dan Shan’s first year of doing business with
15 Citicross, Cai placed small orders and promptly paid for them.
16 Beginning in April 2006, however, the quantity increased
17 dramatically. Before Yi Dan Shan would ship April’s $489,942.00
18 order, Mr. Li asked Cai if he had sufficient funds to pay for the
19 order. Cai assured him that he had the funds ready for payment.
20 Cai did not pay for the April order as promised. Like Shenzhen
21 Smart-In, this pattern repeated itself in May 2006 (total order
22 $181,800.00), in June 2006 (total order $294,720.12), in July 2006
23 (total order $137,337.00), and in August 2006 (total order
24 $145,314.00). After receiving no payment for any of the shipped
25 orders between April and August 2006, Yi Dan Shan refused to make
26 any further shipments. Cai’s debt to Yi Dan Shan totaled nearly
27 $1 million, of which he still owes $833,229.54.
28 Parties Wanda’s experience parrots that of Shenzhen Smart-In

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 1 and Yi Dan Shan. Shengda Chen (“Mr. Chen”) testified that Cai
2 stopped making payments on Citicross’s accounts in September 2006.
3 In September 2006, Cai placed a large shoe order for $93,483.00.
4 When Mr. Chen asked Cai if he had sufficient funds to make the
5 purchase, Cai assured him that he did and that payment would be
6 made promptly as in prior purchases. When Cai called in October
7 2006 to place an order for $44,838.00, Mr. Chen inquired about the
8 unpaid September invoice and asked Cai whether he had the funds to
9 pay for the orders. Cai assured Mr. Chen that he had the money
10 but that he needed more time to make the payments. Parties Wanda
11 shipped out the October order. Cai did not pay for the orders.
12 On cross-examination, Mr. Chen testified that Cai also failed to
13 pay for orders he placed in August, November, and December 2006.
14 Cai’s total debt to Parties Wanda was approximately $500,000.00.
15 Contrary to Cai’s argument, the record clearly established
16 “when” Cai made the repeated false statements to each Appellee and
17 how many shoe orders were shipped after he made the false
18 statements. Therefore, assuming Appellees established Cai’s
19 intent to deceive, their reliance on his false statements, and
20 that Cai caused their damages, Appellees’ damages could be easily
21 calculated. Accordingly, we see no error here.
22 3. Cai intended to deceive Appellees.
23 A promise made with a positive intent not to perform or
24 without a present intent to perform satisfies § 523(a)(2)(A).
25 In re Rubin, 875 F.2d at 759. The “intent to deceive can be
26 inferred from the totality of the circumstances, including
27 reckless disregard for the truth.” Gertsch v. Johnson (In re
28 Gertsch), 237 B.R. 160, 167-68 (9th Cir. BAP 1999). Cai contends

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 1 that the bankruptcy court’s finding of his “lack of intent to pay”
2 is negated by the evidence for six reasons.
3 First, Cai argues that of the 2006 shoe orders complained of
4 by Appellees, Citicross paid them $3.84 million of the $5.8
5 million owed, which is a 66.2% payment overall, and no reported
6 case has found lack of intent to pay under such circumstances.
7 This argument is problematic for two reasons. A debtor’s partial
8 payment of a debt does not necessarily equate to a lack of intent
9 to defraud. Here, by making at least some payments, Cai was able
10 to induce Appellees to continue to ship shoes to Citicross.
11 Moreover, Cai appears to be basing his figures on the total amount
12 of purchases he ever made with each Appellee while in business,
13 which is irrelevant for purposes here. Cai claims he paid Yi Dan
14 Shan $1,250,000 out of the $2 million owed. The orders at issue
15 actually total approximately $1,250,000 and Cai still owes Yi Dan
16 Shan $833,229.54. Shenzhen Smart-In’s orders at issue total just
17 over $1 million and Cai still owes it $958,000. Finally, Cai owes
18 Parties Wanda approximately $500,000, almost the entire balance of
19 the orders at issue.
20 Second, Cai argues that Appellees failed to controvert the
21 historic evidence that Citicross had to sell the shoes ordered
22 from Appellees and then pay Appellees from the proceeds. In other
23 words, Cai contends that the parties’ agreement was that unless
24 the shoes sold, Citicross could not or would not have to pay
25 Appellees. This too is incorrect. Each Appellee testified that
26 payments for shoes ordered were due in full within 30-45 days of
27 invoice. Appellees provided Citicross with credit on a Net 30-45
28 basis. Cai even admitted at trial that payments to Appellees were

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 1 due in full within 30-45 days after the shoes arrived at port. In
2 any event, Citicross apparently sold the shoes from these numerous
3 unpaid orders, but never paid Appellees from the proceeds or
4 otherwise.
5 Third, Cai contends that he was hindered from selling the
6 shoes, and therefore unable to pay for them, due to Appellees:
7 (1) repeatedly delivering shoes late (past the selling season);
8 and (2) delivering poor quality shoes. On these issues, the
9 bankruptcy court found Cai’s testimony not credible. Morever,
10 Appellees offered contrary testimony as to the alleged late and/or
11 poor quality shipments. Notably, Citicross employees stationed at
12 Appellees’ manufacturing facilities in China oversaw production
13 and scheduled timing of all shipments. If any shipment was to be
14 late, Cai knew about it in advance. Granted, if delays in
15 production existed beyond Citicross’s control, it follows that
16 Citicross would not have control over late shipments, assuming it
17 still wanted the delayed shipment. However, when the bankruptcy
18 court questioned Cai, a savvy businessman, why he accepted late,
19 unsellable shipments of shoes, Cai had no real explanation other
20 than that Appellees begged him to do so. Trial Tr. (May 20, 2010)
21 at 81:9-23. The bankruptcy court found that, considering the
22 sophistication level of the parties, Cai’s explanation “[didn’t]
23 make any sense.” Id. at 100:6. Mr. Chen testified that no
24 shipments from Parties Wanda were ever late. Moreover, although
25 Cai testified to possessing documents reflecting his
26 communications with Appellees that he was deducting certain
27 amounts for the late shipments, Cai admitted that he did not
28 submit these documents in the record. What documents Cai did

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 1 offer to prove the alleged late shipments fail to identify which
2 manufacturer was responsible for that particular order, or whether
3 any of those orders were even placed with Appellees.
4 Cai also alleged that because the shoes were defective, his
5 customers refused to pay Citicross, and therefore Citicross could
6 not pay Appellees. This testimony is contradicted by the facts of
7 the case and Appellees’ testimony. Citicross employees oversaw
8 manufacturing in China at various stages and inspected the goods
9 before they left the factory for shipment. Each Appellee
10 testified that if a quality issue arose with a certain shipment,
11 the parties would negotiate a discount to Citicross. Mr. Li
12 testified that total deductions to Citicross for defective shoes
13 from Yi Dan Shan were $2,685.00. Mr. Chen testified that total
14 deductions to Citicross for defective shoes from Parties Wanda
15 were approximately $4,000. Cai admitted he had no documentary
16 evidence reflecting his communications with Appellees about the
17 many defective shoes. The only documentary evidence Cai submitted
18 in the record were some emails and photos from Citicross customers
19 complaining about the quality of certain shipments. Besides
20 overcoming hearsay and other authentication issues with these
21 documents, all of the complaint emails are dated from mid-2007,
22 which is long after any of the alleged defective shipments from
23 2006. Further, none of the complaint emails prove that Appellees
24 were the manufacturers of these shoes.
25 Appellees’ discounts of approximately $7,000 for admittedly
26 defective shoes certainly does not excuse Cai from paying
27 Appellees for the nearly $3 million in goods Citicross received.
28 It also defies credulity that Cai would continue to place orders

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 1 with companies that were repeatedly sending Citicross a large
2 amount of defective shoes.
3 Fourth, Cai contends that “Appellees” made it impossible for
4 Citicross to sell any of the delivered shoes because they sued
5 Citicross in state court for nonpayment and attached the shoes.
6 Cai has failed to meet his burden of proof on this issue. All we
7 have in the record to support his argument is a handwritten
8 application for an ex parte writ of attachment by Shenzhen
9 Smart-In that is not signed by the state court. No evidence
10 exists of any attachment order applied for, or entered in favor
11 of, Yi Dan Shan or Parties Wanda. Although not in the record,
12 counsel for Appellees admits on appeal that an attachment order
13 exists, but contends it was for only approximately $20,000 worth
14 of goods, and even most of those shoes had already been sold.
15 Fifth, Cai argues that his and Hu’s equity contribution to
16 Citicross for $844,000, which Cai claims Citicross paid to
17 Appellees, is contrary to no intent to pay. Although Citicross
18 paid Appellees some money, nothing in the record establishes that
19 Appellees received anywhere near $844,000, or proves that
20 Citicross used any of the funds to pay Appellees.
21 Finally, Cai contends that his and Hu’s posting of their home
22 as collateral for a loan for Citicross, which they lost to
23 foreclosure, is contrary to how a person having a lack of intent
24 to pay acts. But this single fact, even if true, does not negate
25 all of the evidence of Cai’s bad intent.
26 Based upon our clearly erroneous standard of review, and
27 considering the special deference we must accord the bankruptcy
28 court on its witness credibility determinations, we conclude the

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 1 bankruptcy court’s finding that Cai intended to deceive Appellees
2 is not illogical, implausible, or without support in the record.
3 Hinkson, 585 F.3d at 1261.
4 4. Appellees justifiably relied on Cai’s false statements.
5 A creditor must establish that it relied on a debtor’s false
6 statement. The Supreme Court has held that the degree of the
7 creditor’s reliance need only be justifiable, not reasonable.
8 Field v. Mans, 516 U.S. 59, 74 (1995); Citibank (South Dakota),
9 N.A. v. Eashai (In re Eashai), 87 F.3d 1082, 1090 (9th Cir. BAP
10 1996). Justification “is a matter of the qualities and
11 characteristics of the particular plaintiff, and the circumstances
12 of the particular case, rather than of the application of a
13 community standard of conduct to all cases.” Field, 516 U.S. at
14 71 (quoting Restatement (Second) of Torts § 545A, cmt. b (1976)).
15 Cai contends that reliance was not proven in this case
16 because: (1) Appellees were relying on proceeds from shoe sales to
17 get paid; (2) the further finding that Appellees’ “only hope of
18 being paid on previous shoe shipments was to ship more shoes”
19 recognized that fact; and (3) Appellees admitted they shipped
20 shoes to Citicross based on Citicross’s past history of payments.
21 We have already rejected Cai’s first argument above. Appellees
22 extended Citicross credit on a Net 30-45 basis and expected
23 payment in full within 30 or 45 days after invoice.
24 As for his second argument, even if Appellees recognized that
25 Citicross needed to sell shoes from future orders to pay for
26 previous ones, Appellees sent the shoes in reliance on Cai’s
27 statement that he was eventually going to pay them for all of the
28 shipments. Despite receiving the additional orders, Cai still

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 1 never paid for the shoes as promised.
2 We also reject Cai’s third argument. Each Appellee testified
3 that when they began doing business with Citicross, Cai placed
4 smaller orders and promptly paid for them. Over time, Cai built a
5 sense of trust with Appellees. Based on Citicross’s past prompt
6 payments, Appellees trusted Cai would continue this pattern when
7 the quantities increased, and they extended Citicross the same
8 payment terms. Nonetheless, before they shipped the larger shoe
9 orders, each Appellee asked Cai whether Citicross had the funds to
10 pay for the shipments. Cai assured them that he had the funds and
11 that payment would be prompt as usual. Once Citicross failed to
12 pay for the first larger orders, each Appellee inquired about
13 payment and Cai again reassured each of them that payment was soon
14 forthcoming. After Cai’s assurances failed several times,
15 Appellees finally quit believing Cai and cut their losses. While
16 the circumstances of this case may extend the limits of what we
17 may normally consider justifiable reliance, at least with respect
18 to some of the later orders, on this record we cannot conclude the
19 bankruptcy court’s finding that Appellees justifiably relied on
20 Cai’s false statements is illogical, implausible, or without
21 support in the record. Hinkson, 585 F.3d at 1261.
22 5. Cai proximately caused the damages to Appellees.
23 Causation or proximate cause entails (1) causation in fact,
24 which requires a defendant’s misrepresentations to be a
25 substantial factor in determining the course of conduct that
26 results in loss, and (2) legal causation, which requires a
27 creditor’s loss to “reasonably be expected to result from the
28 reliance.” Beneficial Cal., Inc. v. Brown (In re Brown), 217 B.R.

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 1 857, 862 (Bankr. S.D. Cal. 1998)(citing Restatement (Second) of
2 Torts §§ 546, 548A (1976)).
3 Cai does not appear to contest the bankruptcy court’s finding
4 that he caused Appellees’ damages, other than arguing that
5 Appellees had a duty to mitigate their damages and take back
6 unsold shoes and resell them. Based on Appellees’ testimony, the
7 bankruptcy court found that Appellees were unable to take back any
8 unsold shoes because they were special orders with Citicross’s
9 name already embossed on them. In addition, Mr. Li of Yi Dan Shan
10 testified that when he visited Citicross’s warehouse in California
11 in August 2006, he noticed that his company’s inventory had
12 already been sold.
13 In any event, we have already concluded that the bankruptcy
14 court did not err when it determined that Appellees shipped the
15 shoe orders at issue in reliance on Cai’s false statements that he
16 would pay for them and that he had the funds to do so. As a
17 result of his false statements and deceptive conduct, Cai incurred
18 the debts to Appellees. Cai did not pay Appellees for the shoes
19 and they, therefore, suffered an actual loss as a result.
20 Accordingly, we conclude the bankruptcy court did not err in
21 determining that the debts to Appellees are nondischargeable under
22 § 523(a)(2)(A).
23 VI. CONCLUSION
24 For the foregoing reasons, we AFFIRM the bankruptcy court’s
25 further findings. However, we agree with Cai that the new
26 judgment is fatally vague because it states only that “Mr. Cai’s
27 debts to [Appellees] shall not be discharged” and fails to state
28 which debts are owed to whom and in what amounts. As a result, we

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 1 must VACATE the judgment and REMAND with instructions that the
2 bankruptcy court must make a determination of the amounts and
3 allocations owing to the Appellees in accordance with the evidence
4 and this memorandum, given the complaint’s prayer for relief and
5 given the fact that the bankruptcy court did not state any reason
6 for not granting full relief in the form of both a liquidation of
7 the claims and a finding of nondischargeability.
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