PPJE Court's Finding Grewal Vs Basu

Case 6:08-bk-17298-PC Doc 72 Filed 08/03/09 Entered 08/03/09 12:34:36 Desc
Main Document Page 1 of 25
1 UNITED STATES BANKRUPTCY COURT

2 CENTRAL DISTRICT OF CALIFORNIA
3 --oOo--
4 In Re: ) Case No. RS08-17298-PC
)
5 CHANDANA BASU, ) Riverside, California
) Monday, June 29, 2009
6 Debtor. ) 9:30 a.m.
______________________________)
7
8 ADV. 08-01362 GREWAL VS BASU

ET AL
9
TRIAL RE COMPLAINT TO
10 DETERMINE NON-DISCHARGEABILITY
OF DEBT
11
12 TRANSCRIPT OF PROCEEDINGS
BEFORE THE HONORABLE PETER CARROLL
13 UNITED STATES BANKRUPTCY JUDGE
14 APPEARANCES:
15 For the Debtor: MICHAEL J. HEMMING, ESQ.

333 West Mission Boulevard
16 Pomona, California 91766
(909) 469-6087
17
18 For the Plaintiff: JEREMY O. ARNAIZ, ESQ.

6690 Alessandro Boulevard
19 Suite A
Riverside, California 92506
20 (951) 789-6291
21 Courtroom Recorder: John Craig
United States Bankruptcy Court
22 3420 Twelfth Street
Riverside, California 92501
23
24
Proceedings recorded by electronic sound recording;
25 transcript produced by transcription service.
Briggs Reporting Company, Inc.

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1 Transcriber: Briggs Reporting Company, Inc.

6336 Greenwich Drive, Suite B
2 San Diego, California 92122
(310) 410-4151
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1 RIVERSIDE, CALIFORNIA MONDAY, JUNE 29, 2009 9:30 AM

2 --oOo--
3 (Call to order of the Court.)
4 THE COURT: Item number two, adversary 081362,
5 Grewal versus Basu. Appearances by telephone.
6 MR. ARNAIZ: Jeremy Arnaiz for Plaintiff, Narinder
7 Grewal, M.D.
8 MR. HEMMING: Michael J. Hemming on behalf of the

9 Defendant, Chandana Basu.
10 THE COURT: Good morning --

11 MR. HEMMING: "Good morning."
12 THE COURT: -- each of you are coming through loud
13 and clear. Can you hear the Court?
14 MR. HEMMING: Very clear.
15 MR. ARNAIZ: I can, your Honor.
16 THE COURT: All right. These are the Court's
17 Findings of Fact and Conclusions of Law. I'll state it
18 orally and record it in open court pursuant to Federal Rule
19 of Civil Procedure 52(c), as incorporated into Bankruptcy
20 Rule 7052.
21 Plaintiff rested at the conclusion of Plaintiff's

22 case in chief. Defendant then moved for judgment based on
23 partial findings. The Court, prior to that time, had ruled
24 that Defendant's counterclaims against the Plaintiff were
25 dismissed for lack of standing.

1 In making its findings and conclusions today, the

2 Court has reviewed the pleadings, the evidentiary record and
3 considered the arguments of counsel.
4 The Court finds that it has jurisdiction over this

5 adversary proceeding, pursuant to 28 U.S.C. sections 157(b)
6 and 1334(b). The matter is a core proceeding under 28 U.S.C.

7 section 157(b)(2)(B), (I) and (O), and the Court finds that
8 venue is appropriate in this Court.
9 The Court also notes that objections to the

10 dischargeability of a debt are to be literally and strictly
11 construed against the objector, and liberally construed in
12 favor of the Debtor.
13 In this adversary proceeding, Plaintiff claims

14 that Defendant made certain false representations to the
15 Plaintiff upon which he relied to his detriment in
16 conjunction with his medical billing agreement, which the
17 Court will refer to as "the agreement," with Healthcare
18 Business Services Group, Incorporated, which the Court will

19 refer to as "HB," for short.
20 That, as a result, Plaintiff's claims -- as a

21 result, Plaintiff claims that Defendant owed Plaintiff the
22 sum of $750,000 -- $750,933.36 in post-dated checks at the
23 time of her bankruptcy, which is non-dischargeable according
24 to the Plaintiff under Section 523(a)(2)(A).
25 Plaintiff further alleges that he was damaged in

1 the amount of $3,000,000 by certain conduct of the Defendant,
2 which Plaintiff claims was willful and malicious, and
3 therefore non-dischargeable under Section 523(a)(6).
4 Defendant denies any false representation was made

5 to Plaintiff or that Defendant intended to deceive the
6 Plaintiff. And further denies that Plaintiff sustained any

7 injury by reason of willful and malicious conduct on her part
8 that would be nondischargeable under Section 523(a)(6).
9 Section 523(a)(2)(A) accepts from discharge a debt

10 for money, property or services, or an extension, renewal or
11 refinancing of credit, to the extent that it was obtained by
12 false pretenses, a false representation or actual fraud.
13 There was some discussion at the conclusion of

14 Plaintiff's case in chief, and in conjunction with oral
15 argument about or concerning Plaintiff's possible need to
16 amend its pleading to assert an alter ego theory of
17 liability.
18 Plaintiff does not need to amend his pleadings to

19 seek an alter ego theory of liability, because even an
20 indirect benefit to the Debtor, as Plaintiff pointed out in
21 the Brady case, may constitute obtaining money or property
22 within the meaning of Section 523(a)(2).
23 Plaintiff argues that its claim against Defendant

24 falls within the scope of Section 523(a)(2), even though it
25 arises out of an agreement between Plaintiff and HB, because

1 Defendant was the CEO and controlling shareholder of HB.
2 Defendant, on the other hand, argues that

3 Defendant was not a party to the agreement. Defendant's acts
4 and omissions, if any, were solely in her capacity as an
5 officer or employee of HB, and Defendant did not receive any
6 personal benefit from money that was received by HB for
7 claims processed for Plaintiff pursuant to Plaintiff's
8 agreement with HB.
9 The Court finds there was an indirect benefit to

10 the Defendant in this case. At all material times relevant
11 to the claims at issue in this adversary proceeding,
12 Defendant was the CEO and controlling shareholder of HB.
13 Defendant profited from the agreement and HB's

14 relationship with the Plaintiff because of her close
15 association with HB, and her financial interest in HB. In re

16 Ashley 903 ab 2d 599, 604, note 5, (9th Cir. 1990). Also In
17 re Winfrey, 34 br 879, 883, Bankruptcy Middle District of
18 Tennessee, 1983:
19 "Holding that a shareholder,
20 officer and director of a corporation
21 who fraudulently induces a loan to a
22 wholly-owned corporation obtains a
23 benefit under Section 523(a)(2)."
24 Whether or not the Defendant indirectly obtains
25 money or property from a plaintiff, it is the plaintiff's

1 burden to establish, as an essential element of a Section
2 523(a)(2)(A) claim that the defendant obtained that money or
3 property by false pretenses, false representation or actual
4 fraud.
5 Rule 9(b) of the Federal Rules of Civil Procedure

6 requires that in all averments of fraud and mistake, the
7 circumstances constituting fraud or mistake shall be stated
8 with particularity. That Rule is incorporated in to Federal

9 Bankruptcy Rule 7009.
10 Particularity under Rule 9(b) means, "the who,

11 what, when, where and how, the first paragraph of any
12 newspaper story," DeLeo v. Ernst Young 901 F.2d, 924, 927,
13 (7th Cir. 1990).

14 According to the Ninth Circuit, the proper -- to
15 properly plead fraud with particularity, the complaint must
16 allege the time, place and content of the allegedly
17 fraudulent representation, act or omission, as well as the
18 identity of the person alleging -- allegedly perpetrating

19 fraud. In re Glen Fed, Incorporated Securities Litigation,
20 42 F.3d 1541, 1547 (9th Cir. 1994).
21 Mere conclusory allegations of fraud are

22 insufficient, Moore v. K-Pro Package Express, 885 F.2d 531,
23 540 (9th Cir. 1989). The failure to plead fraud with the
24 requisite particularity is grounds in itself to dismiss a
25 complaint under Rule 12(b). Roll v. Tandem Computers,

1 Incorporated, 818 F.2d 1433, 1439 (9th Cir. 1987).
2 In this case, plaintiff's complaint does not

3 identify the time, place or content of the allegedly
4 fraudulent acts, representations or omissions by the
5 defendant. The complaint is entirely lacking of any

6 allegations of non-disclosure of material facts.
7 However, the parties went to trial based on the

8 allegations in plaintiff's complaint, and at the conclusion
9 of plaintiff's case in chief, and in response to defendant's
10 motion for judgment, plaintiff's counsel argued that
11 plaintiff was defrauded, not by a false representation, but
12 by defendant's alleged failure to disclose material facts.
13 According to Plaintiff, first, if Plaintiff had

14 known that Alta -- Alta Vista Billing Service for Complex
15 Medical Care, Incorporated, was not some form of HB, but that
16 it was a separate corporation, owned, operated and controlled
17 by Defendant, then he would not have continued his business
18 relationship with HB.

19 And secondly, if Plaintiff had known that
20 Defendant was issuing post-dated checks for the purpose of
21 recouping the money that was allegedly overpaid to Plaintiff
22 by HB, then he would not have continued his business
23 relationship with HB.
24 To establish a prima facie case of fraud, the

25 creditor must show by a preponderance of the evidence that

1 Defendant made a representation. At the time Defendant knew

2 the representation was false. The Defendant made the
3 representation with the intention and purpose of deceiving
4 the creditor. The creditor justifiably relied on the

5 Defendant's representation, and the creditor sustained the
6 alleged loss and damage as a proximate result of such
7 representation. In re Diamond, 285 F.3d 822, 827 (9th Cir.

8 2002).
9 The concealment or omission of material facts that

10 a party has a duty to disclose can support the non-
11 dischargeability of a debt on the grounds of actual fraud.
12 In re Apte, A-P-T-E, 96 F.3d 1319, 1323-24 (9th Cir. 1996).
13 A concealed fact is material if a reasonable man

14 would attach importance to the alleged omissions in
15 determining his course of conduct. In re Miller, 310(br)

16 185, 196, Bankruptcy, Central District of California, 2004.
17 The non-disclosure of a material fact in the face

18 of a duty to disclose, establishes the requisite reliance and
19 causation for actual fraud under the Bankruptcy Code. Apte,
20 96 F.3d at 1323.
21 With regard to the first alleged omission of fact,

22 it is undisputed that Plaintiff's signed the agreement with
23 HB on November 15, 2000, and HB processed Plaintiff's
24 accounts receivable for medical services pursuant to the
25 agreement for approximately seven years.

1 Plaintiff sought to terminate the agreement by

2 letter to HB on July 1, 2008. Plaintiff admits that he
3 understood that HB was a corporation, and that he was dealing
4 with Defendant as an officer or employee of the corporation,
5 and knew that his agreement was with HB, not with the
6 Defendant individually.
7 Under the terms of the agreement with HB, HB would

8 file Plaintiff's healthcare claims with the government and
9 commercial insurance companies, and would directly bill
10 patients not covered by insurance.
11 HB would receive and endorse all checks payable to

12 Plaintiff, and deposit such checks in to a doctors'
13 reimbursement account.
14 HB would prepare and forward to Plaintiff a weekly
15 reimbursement report, reflecting the amount of checks to
16 Plaintiff deposited by HB in to the doctors' reimbursement
17 accounts, as well as HB's service fee and the amount to be
18 remitted to the Plaintiff, and HB would prepare and forward

19 to Plaintiff a check for the amount remitted to the
20 Plaintiff.
21 The agreement specifically provided that, "client

22 authorizes service to receive all checks and rejects for all
23 payors. Client also authorizes service to endorse all checks

24 payable to client and deposit such checks in to our doctor's
25 reimbursement account."

1 It is also undisputed that Plaintiff did not have

2 a medical billing agreement with Alta Vista Billing Service
3 for Complex Medical Care, Incorporated.
4 Plaintiff testified on direct that some time in

5 2004, Defendant approached him and said that HB was moving
6 its doctors' reimbursement account to another bank, and it
7 would use another name, Alta Vista.
8 Defendant testified that she disclosed the Alta

9 Vista account to Plaintiff before sending him an
10 authorization from the bank to deposit checks payable to him
11 in the Alta Vista account.
12 Plaintiff testified on direct that he understood

13 that Alta Vista was "some sort of subsidiary" of HB, or it
14 was a "fictitious name" for HB, but he did not know it was a
15 separate corporation.
16 Plaintiff testified on redirect that Defendant

17 told him that "we are opening this account at the -- at this
18 bank in the -- and the name is going to be Alta Vista."

19 He testified that he understood the Alta Vista
20 account to be a doctors' reimbursement account, but that
21 Defendant did not tell him that the account would be owned by
22 a separate corporation named Alta Vista, or anything about
23 Alta Vista.
24 In light of the terms of HB's agreement with

25 Plaintiff, which states that "client also authorizes service

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1 to endorse all checks payable to client, and deposit such
2 checks in to our doctor reimbursement account," the Court
3 finds that this was a material fact in that a reasonable man
4 would attach importance to the omission in determining his
5 course of action.
6 But the evidence is conflicting as to whether

7 Defendant explained to Plaintiff prior to obtaining the --
8 the deposit authorization, that Alta Vista -- the Alta Vista
9 account was not held by HB, but was held by a separate
10 corporation, Alta Vista Billing Service for Complex Medical
11 Care, Incorporated, for which the Defendant was the principal
12 officer, director and shareholder.
13 A party to a business transaction has a duty to

14 disclose when the other party is ignorant of material facts
15 which he does not have an opportunity to discover. Apte, 96

16 F.3d at 1324.
17 Plaintiff testified that he served as a director

18 of HB for a period of three to four years, from 2004 to 2007,
19 during the seven years that the agreement with HB was in
20 effect.
21 As a director, Plaintiff owed certain fiduciary

22 obligations to HB. Plaintiff testified that during the
23 period he was on the board of directors, he did not attend
24 any board meetings nor actively participate as a director in
25 the business of HB.

11
1 As a director, Plaintiff had the opportunity to

2 inquire about Alta Vista and the relationship of HB to Alta
3 Vista, but he did not do so. Plaintiff admits signing a

4 letter to Citizen's Business Bank, dated August 3, 2004,
5 authorizing Alta Vista Business -- excuse me, Alta Vista
6 Billing Service for Complex Medical Care to deposit checks
7 payable to Plaintiff in to Citizens Bank account number
8 234284134 with or without his endorsement.
9 Plaintiff admits signing Exhibit Y, deposit and

10 endorsement authorization, dated July 3, 2004, authorizing
11 Foothill Independent Bank to accept checks payable to the
12 order of Plaintiff, for deposit into Alta Vista Billing
13 Service for Complex Medical Care, Inc.'s account at Foothill

14 Bank.
15 In signing the document, Plaintiff testified on

16 cross-examination that he understood Alta Vista was a
17 subsidiary of HB. On re-direct, Plaintiff testified in a

18 conflicting manner, in that first he stated that he did not
19 have any memory of the document, but then stated that the
20 document was blank when he signed it. Plaintiff testified on

21 re-direct that he never had any need for information about
22 Alta Vista, but that if he did, he would contact the
23 Defendant.
24 Defendant testified by deposition that she is a

25 principal officer, director and shareholder of Alta Vista

12
1 Billing Service for Complex Medical Care, Inc. That the

2 corporation was formed in 2000. That the corporation
3 regularly conducted corporate meetings, issued share
4 certificates and filed tax returns for 2001 through 2005, but
5 that it did not have any assets or employees, and acted
6 solely as a "clearinghouse account."
7 Defendant testified by deposition that the Alta

8 Vista account served as the doctors' reimbursement account
9 for all of HB's clients, approximately 70 or 80 doctors,
10 including the Plaintiff, since 2001.
11 Each doctor signed an authorization to permit

12 deposits in to the Alta Vista account. The purpose of the
13 Alta Vista account, according to Defendant, was to separate
14 HB's liability from the client -- the client's funds, so that
15 if HB was sued for some reason, the doctors' reimbursement
16 account at Alta Vista could not be attached.
17 Plaintiff never articulated in his testimony the

18 reason or reasons why he would have terminated his business
19 with HB had he known that the Alta -- that Alta Vista was a
20 corporation wholly owned by the Defendant, particularly since
21 he was satisfied with the fact that Alta Vista was a
22 subsidiary of a corporation wholly owned by the Defendant.
23 Plaintiff's letters to HB dated June 3, 2007 and

24 July 1, 2007, do not indicate that Alta -- the Alta Vista
25 account was a reason for Plaintiff terminating his contract

13
1 with HB in 2007.
2 Mr. Dhillon, Plaintiff's CPA, testified on direct

3 that during the period of time Plaintiff was working with HB,
4 Dhillon would review the weekly reimbursement reports to
5 determine what money should be deposited in to the bank
6 accounts, and then would check the amount that was actually
7 deposited in to Plaintiff's account.
8 Dhillon testified that he did not find any

9 material discrepancies between what was contained in the
10 weekly reimbursement reports and what was deposited in to the
11 bank accounts.
12 Plaintiff understood that Defendant was the

13 principal officer and shareholder of HB. Plaintiff testified
14 that he had knowledge of the entity named Alta Vista Billing
15 Service for Complex Medical Care, Incorporated, that he
16 understood that it was a subsidiary of HB.
17 He understood that Alta -- the Alta Vista account

18 to be a reimbursement account, a doctors' reimbursement
19 account. He signed a written deposit and endorsement
20 authorization, authorizing both Foothill Independent Bank and
21 Citizens Business Bank to accept for deposit checks payable
22 to him.
23 Plaintiff, as a director of HB, had the ability to

24 inquire and the opportunity to discover more facts about Alta
25 Vista, but he did not do so.

14
1 In view of the Code's underlying fresh-start

2 policy, which gives the benefit of the doubt to the Debtor in
3 matters of non-dischargeability, the Court finds that
4 Plaintiff has not established by a preponderance of the
5 evidence that Defendant concealed a material fact, which
6 Defendant had a duty to disclose about Alta Vista.
7 Accordingly, the Court finds for the Defendant on that issue.
8 With regard to the second alleged omission of

9 fact, that if Plaintiff had known that Defendant was issuing
10 post-dated checks for the purpose of recouping the money that
11 was allegedly overpaid to Plaintiff by HB, then he would not
12 have continued his business relationship with HB.
13 Defendant testified on direct that when HB went

14 public in 2004, the Securities and Exchange Commission
15 conducted an audit of HB's books, records and accounts for
16 the period of 2002, 2003 and 2004. And in so doing,

17 determined that Plaintiff had been overpaid under his
18 agreement with HB.

19 Defendant testified that HB had its own in-house
20 CPA review HB's records of receipts and payments to Plaintiff
21 under the agreement. Defendant testified that she broke the

22 news to Plaintiff in August of 2005, but did know of at that
23 time exactly how much Plaintiff had been overpaid under the
24 agreement.
25 Plaintiff and Defendant both testified regarding a

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1 meeting at Plaintiff's home, attended by the Plaintiff,
2 Plaintiff's spouse, the Defendant and Mr. Dhillon, at which
3 the overpayment issue was discussed.
4 Plaintiff testified that Defendant produced a

5 stack of computerized records one foot deep, which included
6 deposit information. Defendant claims that she produced more

7 records than that at the meeting.
8 Mr. Dhillon testified that Defendant produced a

9 Quick Books printout at the meeting, which he testified was
10 not sufficient to establish the overpayment, given the
11 amounts of money involved and the documents involving
12 Plaintiff's billing, and that he asked Defendant to provide
13 the weekly reimbursement reports.

14 However, Mr. Dhillon had previously testified
15 during the period of time Plaintiff was working with HB, that
16 Dhillon received and reviewed weekly reimbursement reports
17 for the Plaintiff, so he apparently already had access to
18 those records.
19 Plaintiff testified that Defendant "never
20 mentioned again the matter to me until I pursued my claim
21 against her" and HB for bounced checks and unpaid post-dated
22 checks.
23 Plaintiff testified that he began receiving post-

24 dated checks in August of 2005. That Defendant stated HB had
25 to write post-dated checks to Plaintiff because of a problem

16
1 with the bank, and that he had agreed to give HB some time to
2 sort out its finances.
3 Defendant testified that after the meeting with

4 Plaintiff, HB retained Robert Half Company in August 2005 to
5 do an independent audit of HB's records of receipts and
6 payments to Plaintiff under the agreement, which lasted about
7 three months.
8 Defendant testified that Robert Half Company

9 determined that Plaintiff had been overpaid in excess of
10 $700,000 under the agreement. And that the auditor sent a

11 letter to Plaintiff accepting the overpayment, which
12 Plaintiff refused to sign.
13 Defendant testified that, pending a determination

14 of the actual cause of the overpayment, Plaintiff agreed to
15 accept checks for payment under his agreement with HB, post-
16 dated four to six weeks.
17 Defendant stated that because Plaintiff had

18 receipts of nearly $200,000 per week, HB's books would have
19 the appearance of being in balance until the cause of the
20 overpayment was determined, and the amount allegedly overpaid
21 could be refunded.
22 Defendant testified that HB determined the cause

23 of the overpayment was a glitch in HB's accounting system.
24 The P and L by client report, which was used to make weekly
25 disbursements to Plaintiff, did not reflect amounts paid

17
1 directly to Plaintiff outside the weekly reimbursement
2 report, such as advances to Plaintiff for loans made to
3 Plaintiff that might be reflected on HB's bank records, but
4 not on the P and L.
5 Defendant testified that one such amount was a

6 $500,000 payment to Plaintiff in 2001. HB ultimately
7 determined that Plaintiff had been overpaid in excess of
8 $706,000 for the two-and-a-half year period ending in 2005
9 out of approximately $26,000,000 collected by HB on behalf of
10 the Plaintiff under the agreement.
11 Defendant testified that notwithstanding the

12 overpayment, Plaintiff was adamant about receiving a check
13 each -- with each weekly reimbursement report. Plaintiff

14 agreed that HB could send him post-dated checks so long as he
15 continued to receive a check each week with a report.
16 Defendant testified that, at that point, Plaintiff

17 agreed that he would be personally responsible for any
18 overpayment established once the accounting was completed,

19 and Defendant agreed that she would be personally responsible
20 if the accounting revealed that HB actually had underpaid
21 Plaintiff, and HB was not able to reimburse the Plaintiff.
22 Defendant testified that she gave Plaintiff post-

23 dated checks to build up a fund to cover the overpayment.
24 This was consistent with her earlier deposition testimony in
25 which she stated -- and I'm reading from page 297, line seven

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1 to 25 of Ms. Basu's deposition:
2 "Q So, you are saying then that you

3 intended to write post-dated checks in
4 order to store up what you believed was
5 owed to HB, SGI?
6 A That basically was the intention.
7 Q So you held back, you post-dated
8 the checks so that there would be a sum
9 of money that you were still holding on
10 to that was owed to Doctor Grewal, but
11 you believed Doctor Grewal owed HB, SGI?
12 A It was not only that I believed,
13 he knew he was overpayment, and he also
14 made statement, 'why you keep overpaying
15 me? Why you keep paying me more than
16 it's supposed to be?' So he knew there
17 was overpayment. He also said, 'well, I
18 file taxes, you know. I'm not going to
19 return.' And then later he said, 'I
20 will return every penny as soon as
21 everything is, you know, accepted.
22 Manny will take care of it.' So you
23 know it was a common knowledge between
24 myself and Doctor Grewal, Manny and Mrs.
25 Grewal."

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1 Defendant denies that she ever told the Plaintiff

2 that he needed to take post-dated checks because there were
3 not funds in the account to recover the checks, or that there
4 was a bank error that had to be corrected.
5 Defendant denies that she ever took money out of

6 the doctors' reimbursement account to fund other projects.
7 Plaintiff did not offer any evidence that Defendant took
8 money out of the doctors' reimbursement account to fund

9 other projects, or that any of the other 70 or 80 doctors who
10 were clients of HB were not receiving appropriate payments
11 under their respective medical billing agreements with HB
12 between 2005 and 2007.
13 The Court notes that Plaintiff was a director of

14 HB from 2004 to 2007. Plaintiff accepted post-dated checks
15 from HB pursuant to his agreement with HB, from 2005 to 2007,
16 during the period he was a director of HB, and had a
17 fiduciary obligation to the corporation to clear up this
18 overpayment issue.
19 Defendant testified that Plaintiff knew of the
20 overpayment problem, but stalled her and did not want to deal
21 with it. Defendant testified that Plaintiff never retained

22 an independent auditor to review HB's books and records to
23 confirm the amount of the overpayment.
24 Plaintiff testified that HB's post-dated checks

25 started to be returned for insufficient funds in February of

20
1 2007. Plaintiff did not explain why he continued to accept

2 post-dated checks from HB between August of 2005 and February
3 of 2007, other than to give HB time to sort out its finances.
4 By letter dated June 3, 2007, Plaintiff demanded

5 payment of "all monies" that HB had received on his behalf as
6 of June 1, 2007. By letter dated July 1, 2007, Plaintiff

7 advised HB that its contract with HB was terminated.
8 Plaintiff testified that upon termination of his

9 contract with HB, he held unpaid post-dated checks from HB
10 totaling $750,934.01. Defendant testified that, based on her

11 review of HB's books and records, Plaintiff currently owes HB
12 between two-and-a-half and $3,000,000.
13 The Court finds, based upon this evidentiary

14 record, that Plaintiff has not established by a preponderance
15 of the evidence Defendant concealed a material fact regarding
16 the reason Plaintiff was receiving post-dated checks under
17 his agreement with HB between August of 2005 and July of
18 2007.
19 To the extent Plaintiff claims that he relied on
20 statements allegedly made by Defendant concerning the reasons
21 for the delay in payment, and the need for post-dated checks
22 as set forth in his direct testimony declaration, Defendant
23 denies making such statements, and the weight of the evidence
24 supports a finding that even if such statements were made,
25 Plaintiff's reliance on such statements was not justifiable,

21
1 given the facts and circumstances of this case.
2 Therefore, having considered the evidentiary

3 record, the arguments of counsel, and given the Ninth
4 Circuit's mandate that objections to discharge --
5 dischargeability are to be literally and strictly construed
6 against the objector, and liberally construed in favor of the
7 Debtor, the Court finds that Plaintiff has failed to
8 establish by a preponderance of the evidence a prima facie
9 case for non-dischargeability of a debt by the Defendant to
10 the Plaintiff under Section 523(a)(2)(A).
11 With regard to Section 523(a)(6), Section

12 523(a)(6) accepts from discharge debts resulting from willful
13 and malicious injury by the Debtor to another entity or to

14 the property of another entity. Section 523(a)(6) applies
15 only to intentional torts, whether the conduct is tortious as
16 determined by state law.
17 Section 523(a)(6) requires separate findings on

18 the issues of willful and malicious. The willful injury
19 requirement of Section 523(a)(6) is met when it is shown that
20 either the Debtor had a subjective motive to inflict injury
21 or the Debtor believed that injury was substantially certain
22 to occur as a result of the Debtor's conduct. In re Su, S-U,

23 290 F.3d 1140, 1146 to 47 (9th Cir. 2002).
24 "A malicious injury involves a

25 wrongful act done intentionally, which

22
1 necessarily causes injury and is done

2 without just cause or excuse."
3 In re Gersich, 238 F.3d at 1209.
4 At the conclusion of Plaintiff's case in chief,
5 Plaintiff did not offer any argument regarding Plaintiff's
6 523(a)(6) claim, nor discuss how the evidentiary record
7 established the elements of his Section 523(a)(6) claim.
8 Plaintiff did not establish that Plaintiff had an

9 agreement with the Defendant individually, or that Defendant
10 either individually or on behalf of, as an officer of HB,
11 agreed to hold monies in trust for Plaintiff as alleged in
12 the complaint.
13 There is nothing in Plaintiff's agreement with HB

14 characterizing the doctors' reimbursement account as a trust
15 account.
16 In sum, the evidence does not support a finding

17 that the wrongdoing of the Defendant, as an officer of HB,
18 alleged by Plaintiff in the complaint, rises to the degree of

19 culpability necessary to satisfy either the willful
20 requirement or the malicious requirement of Section
21 523(a)(6), or that Plaintiff was damaged by malicious and
22 intentional acts of the Defendant in the amount of
23 $3,000,000.
24 Therefore, Defendant's motion is granted and

25 judgment will be entered for the Defendant dismissing the

23
1 causes of action alleged in Plaintiff's complaint. The Court

2 will prepare the judgment.
4 I certify that the foregoing is a correct

5 transcript from the electronic sound recording of the
6 proceedings in the above-entitled matter.
8 /s/ Holly Martens 8-3-09

9 Transcriber Date
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Case 6:08-bk-17298-PC Doc 72 Filed 08/03/09 Entered 08/03/09 12:34:36 Desc

Main Document Page 1 of 25

1 UNITED STATES BANKRUPTCY COURT

8 ADV. 08-01362 GREWAL VS BASU

15 For the Debtor: MICHAEL J. HEMMING, ESQ.

18 For the Plaintiff: JEREMY O. ARNAIZ, ESQ.

Briggs Reporting Company, Inc.

1 Transcriber: Briggs Reporting Company, Inc.

Briggs Reporting Company, Inc.

1 RIVERSIDE, CALIFORNIA MONDAY, JUNE 29, 2009 9:30 AM

8 MR. HEMMING: Michael J. Hemming on behalf of the

10 THE COURT: Good morning --

21 Plaintiff rested at the conclusion of Plaintiff's

25 dismissed for lack of standing.

Briggs Reporting Company, Inc.

1 In making its findings and conclusions today, the

3 considered the arguments of counsel.

4 The Court finds that it has jurisdiction over this

6 and 1334(b). The matter is a core proceeding under 28 U.S.C.

8 venue is appropriate in this Court.

9 The Court also notes that objections to the

11 construed against the objector, and liberally construed in

12 favor of the Debtor.

13 In this adversary proceeding, Plaintiff claims

15 Plaintiff upon which he relied to his detriment in

16 conjunction with his medical billing agreement, which the

17 Court will refer to as "the agreement," with Healthcare

18 Business Services Group, Incorporated, which the Court will

20 That, as a result, Plaintiff's claims -- as a

22 sum of $750,000 -- $750,933.36 in post-dated checks at the

23 time of her bankruptcy, which is non-dischargeable according

24 to the Plaintiff under Section 523(a)(2)(A).

25 Plaintiff further alleges that he was damaged in

Briggs Reporting Company, Inc.

1 the amount of $3,000,000 by certain conduct of the Defendant,

2 which Plaintiff claims was willful and malicious, and

3 therefore non-dischargeable under Section 523(a)(6).

4 Defendant denies any false representation was made

6 Plaintiff. And further denies that Plaintiff sustained any

8 that would be nondischargeable under Section 523(a)(6).

9 Section 523(a)(2)(A) accepts from discharge a debt

11 refinancing of credit, to the extent that it was obtained by

12 false pretenses, a false representation or actual fraud.

13 There was some discussion at the conclusion of

15 argument about or concerning Plaintiff's possible need to

16 amend its pleading to assert an alter ego theory of

18 Plaintiff does not need to amend his pleadings to

20 indirect benefit to the Debtor, as Plaintiff pointed out in

21 the Brady case, may constitute obtaining money or property

22 within the meaning of Section 523(a)(2).

23 Plaintiff argues that its claim against Defendant

25 arises out of an agreement between Plaintiff and HB, because

Briggs Reporting Company, Inc.

1 Defendant was the CEO and controlling shareholder of HB.

2 Defendant, on the other hand, argues that

5 officer or employee of HB, and Defendant did not receive any

6 personal benefit from money that was received by HB for

7 claims processed for Plaintiff pursuant to Plaintiff's

8 agreement with HB.

9 The Court finds there was an indirect benefit to

12 Defendant was the CEO and controlling shareholder of HB.

13 Defendant profited from the agreement and HB's

15 association with HB, and her financial interest in HB. In re