OPINION

GEORGE W. EMERSON, Jr., Bankruptcy Appellate Panel Judge.

Kraus Anderson Capital, Inc. ("Lender") appeals the decision of the Bankruptcy Court determining that the debt owed by Dean R. Bradley ("Debtor") is dischargeable. The adversary complaint asserted causes of action under 11 U.S.C. § 523(a)(2)(A), (a)(4) and (a)(6) based on Lender's claim that Debtor's failure to remit the proceeds of the sale of collateral in breach of the terms of certain agreements and his false representations regarding the status of the collateral render the debt non-dischargeable. Lender also appeals the Bankruptcy Court's decision denying its motion to amend and make additional findings of fact pursuant to Federal Rule of Bankruptcy Procedure 7052. For the reasons set forth below, the Panel REVERSES the decision of the Bankruptcy Court holding the debt owed to Lender dischargeable and REMANDS for a determination regarding the amount of damages.

I. ISSUES ON APPEAL

Appellant presents two issues in this appeal. The primary issue is whether the Bankruptcy Court erred in determining that the debt owed to Lender should be held dischargeable in bankruptcy. The second issue is whether the Bankruptcy Court erred in denying Lender's motion to amend or make additional findings of fact pursuant to Federal Rule of Bankruptcy Procedure 7052.

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Appellate Panel of the Sixth Circuit ("BAP") has jurisdiction to decide this appeal. The United States District Court for the Northern District of Ohio has authorized appeals to the BAP, and no party has timely elected to have this appeal heard by the district court. 28 U.S.C. § 158(b)(6), (c)(1). A "final" order of a bankruptcy court may be appealed by right under 28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if it "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States, 489 U.S. 794, 797, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (internal quotations and citations omitted). Determinations of dischargeability are final orders for purposes of appeal. Cash Am. Fin. Servs., Inc. v. Fox (In re Fox), 370 B.R. 104, 109 (6th Cir. BAP 2007) (quoting Hertzel v. Educ. Credit Mgmt. Corp. (In re Hertzel), 329 B.R. 221, 224-25 (6th Cir. BAP 2005)).

Dischargeability determinations present mixed questions of law and fact. Hogan v. George (In re George), 485 B.R. 478, 2013 WL 135274, at *1 (6th Cir. BAP 2013) (table). When a mixed question of law and fact arises in the bankruptcy context, the reviewing court "must break it down into its constituent parts and apply the appropriate standard of review for each part." Bank of Montreal v. Official Comm. of Unsecured Creditors (In re Am. HomePatient, Inc.), 420 F.3d 559, 563 (6th Cir.2005) (citations omitted). The appellate court reviews conclusions of law de novo and factual determinations are reviewed under a clearly erroneous standard. Van Aken v. Van Aken (In re Van Aken), 320 B.R. 620, 622 (6th Cir. BAP 2005). "Under a de novo standard of review, the appellate court must `review questions of law independent of the bankruptcy court's determination.'" Phillips v. Weissert (In re Phillips), 434 B.R. 475, 482 (6th Cir. BAP 2010) (citing Bailey v. Bailey (In re Bailey), 254 B.R. 901, 903 (6th Cir. BAP 2000)). "A finding of fact is clearly erroneous when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Riverview Trenton R.R. Co. v. DSC, Ltd. (In re DSC, Ltd.), 486 F.3d 940, 944 (6th Cir.2007) (internal quotation marks and citation omitted).

Contract interpretation is a matter of law which is reviewed de novo. Bender v. Newell Window Furnishings, Inc., 681 F.3d 253, 259 (6th Cir.2012); Rhone-Poulenc Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1195 (Del.1992). The determination of whether a contract, or a term therein, is clear or ambiguous is also a question of law reviewed de novo. Official Comm. of Unsecured Creditors v. Dow Corning Corp. (In re Dow Corning Corp.), 456 F.3d 668, 676 (6th Cir.2006).

The Panel reviews the denial of a motion to amend or make additional findings of fact pursuant to Federal Rule of Bankruptcy Procedure 7052 under the abuse of discretion standard. Besser v. Sepanak, 478 Fed.Appx. 1001 (6th Cir. 2012).

Lowry v. Nicodemus (In re Nicodemus), 497 B.R. 852, 855 (6th Cir. BAP 2013).

III. FACTS

On November 30, 2010, Debtor and his wife Cynthia E. Bradley, filed a joint petition for relief under chapter 7 of the Bankruptcy Code. Debtor owns Bradley Machinery, LLC ("Bradley Machinery"), which was in the business of selling and renting construction equipment. Bradley Machinery did not file a bankruptcy petition.

On March 21, 2011, Lender filed an adversary proceeding against Debtor pursuant to § 523(a)(4) and (a)(6). Lender asserts Debtor caused Bradley Machinery to sell equipment "out of trust," that is, without remitting the proceeds of the sale of collateral to Lender. Lender argues this constituted embezzlement under § 523(a)(4) and was a willful and malicious injury under § 523(a)(6). Lender subsequently amended its complaint to add a cause of action under § 523(a)(2)(A). The § 523(a)(2)(A) cause of action is based on a settlement agreement reached by the parties after the sale of some equipment "out of trust." Lender asserts that Debtor obtained an extension of credit through false representations to Lender regarding the status of certain pieces of its collateral. Kraus-Anderson Capital, Inc. v. Bradley (In re Bradley), Adv. Case No. 11-05082, ECF. Nos. 36, 43.1

Prior to trial, Lender and Debtor filed three separate stipulations of fact. The facts stipulated by the parties are as follows:

Second Joint Stipulations, ¶ 4-8, ECF No. 35.

Second Joint Stipulations, ¶ 10, ECF No. 35.

Second Joint Stipulations, ¶ 13, ECF No. 35.

Second Joint Stipulations, ¶ 18, ECF No. 35; See also Ex. 29-4, Equip. List.

Second Joint Stipulations, ¶ 19, ECF No. 35.

Second Joint Stipulations, ¶ 22, ECF No. 35.

Second Joint Stipulations, ¶ 15, ECF No. 35; Ex. 29.

Second Joint Stipulations, ¶ 16, ECF No. 35; Ex. 29-11, Confession of Judgment.

Third Joint Stipulations, ¶ 3, ECF No. 50.

Third Joint Stipulations, ¶ 4, ECF No. 50.

Second Joint Stipulations, ¶ 17, Docket No. 35.

A trial was held in the adversary proceeding on August 10, 2012. In addition to the three Joint Stipulations of Fact filed by Lender and Debtor, the parties presented the testimony of Debtor and James Stephen Jarussi, the vice president and representative of Lender. During the trial, Lender and Debtor also stipulated to the admission of thirty-three exhibits, including but not limited to the following: Guaranty dated January 27, 2005 (Ex. 1); Dealer Credit Agreement (Ex. 2) and Promissory Note dated June 16, 2006 (Ex. 3); Promissory Notes and Security Agreements for Gehl loaders (Ex. 4) and a Bobcat loader (Ex. 10); Settlement Agreement dated March 27, 2009 (Ex. 29); List detailing status of equipment as of January 31, 2009 (Ex. 29A); Confession of Judgment dated March 27, 2009 (Ex. 29C); QuikTrak audit invoice dated November 12, 2010 (Ex. 31); History of contacts by Lender with Bradley Machinery from December 13, 2005 through January 18, 2011 (Ex. 32); Email correspondence between Debtor and Lender dated April 2010 (Ex. 33). At the conclusion of trial, the parties were ordered to file written closing arguments by August 24, 2012. Debtor filed a post-trial brief and Lender filed its closing argument and findings of fact.

On February 5, 2013, the Bankruptcy Court issued a memorandum opinion and order holding that Lender had failed to show that the debt was nondischargeable. On February 19, 2013, Lender filed a motion to amend and make additional findings of fact and conclusions of law and to alter, amend, or vacate judgment entered on February 6, 2013. Debtor filed an objection. After consideration of Lender's motion and Debtor's objection, the Bankruptcy Court denied the motion in an order dated March 6, 2013. Lender timely filed this appeal.

IV. DISCUSSION

Two of the counts of the complaint are based on Debtor's actions2 prior to the Settlement Agreement. Lender asserts that under the terms of the Dealer Credit Agreement and Promissory Note, Debtor was required to remit proceeds from the sales of equipment. Lender asserts that Debtor's action of selling equipment "out of trust" constitutes embezzlement and is non-dischargeable under § 523(a)(4) and is also a non-dischargeable willful and malicious injury under § 523(a)(6). Debtor admitted that he sold the equipment "out of trust" but asserts that the debt is dischargeable. Amended Ans. to Complaint, ¶ 6, ECF No. 10; August 10, 2012 Trial Tr. 225:7-11, ECF No. 74.

A. 11 U.S.C. § 523(a)(4)

Under 11 U.S.C. § 523(a)(4), a debt is not dischargeable if it was incurred by embezzlement. Lender argues that "Debtor's sale of the equipment subject to [Lender's] security interest and retention and use of the sale proceeds constitutes embezzlement." Plaintiff's Closing Arg. ¶ 36, ECF No. 60. "A creditor proves embezzlement by establishing that (1) he entrusted his property to the debtor or debtor lawfully obtained the property, (2) the debtor appropriated the property for a use other than that for which it was intended, and (3) the circumstances indicate fraud." Robinson v. Robinson (In re Robinson), 2012 WL 4715093, at *4 (Bankr. N.D.Ohio Oct. 1, 2012) (citing Brady v. McAllister, 101 F.3d 1165, 1173 (6th Cir. 1996)). See also Fox, 370 B.R. at 115-16; Peavey Elec. Corp. v. Sinchak (In re Sinchak), 109 B.R. 273, 276 (Bankr.N.D.Ohio 1990).

The first prong of an "embezzlement claim requires a showing that the property, allegedly embezzled by the defendant, was the property of the plaintiff." Fla. Outdoor Equip., Inc. v. Tomlinson (In re Tomlinson), 220 B.R. 134, 136 (Bankr.M.D.Fla.1998). In this case, the property which Lender accuses Debtor of embezzling is the proceeds arising from the sale of equipment subject to Lender's security interest.

Many courts have held "a mere lien or security interest does not rise to the level of ownership sufficient to support a claim under § 523(a)(4)'s embezzlement provision." Hulsing Hotels Tenn., Inc. v. Steffner (In re Steffner), 479 B.R. 746, 766 (Bankr.E.D.Tenn.2012). See also First Nat'l Bank of Fayetteville v. Phillips (In re Phillips), 882 F.2d 302, 304-05 (8th Cir.1989); Mutual Mgmt. Servs., Inc. v. Fairgrieves (In re Fairgrieves), 426 B.R. 748, 756 (Bankr.N.D.Ill.2010); Morganroth & Morganroth, PLLC v. Stollman (In re Stollman), 404 B.R. 244, 272-73 (Bankr. E.D.Mich.2009); Bank of Castile v. Kjoller (In re Kjoller), 395 B.R. 845, 851 (Bankr. W.D.N.Y.2008); Banco Popular, N. Am. v. Rodriguez (In re Rodriguez), 2007 WL 543750, at *5-6 (Bankr.S.D.Tex. Feb. 15, 2007); Calumet v. Whiters (In re Whiters), 337 B.R. 326, 333 (Bankr.N.D.Ind.2006); Bombardier Capital, Inc. v. Tinkler (In re Tinkler), 311 B.R. 869, 877 (Bankr.D.Colo. 2004); Everwed Co. v. Ayers (In re Ayers), 25 B.R. 762, 774-75 (Bankr.M.D.Tenn. 1982).

This Panel agrees with this line of cases. "As owner of the collateral, the debtor remained the owner of its proceeds, even though both the collateral and its proceeds were subject to a security interest. No person can embezzle from himself." Deere & Co. v. Contella (In re Contella), 166 B.R. 26, 30 (Bankr.W.D.N.Y.1994).3

Neither the Bankruptcy Court nor either party addressed the issue of whether the proceeds of the sale of collateral were "property" of Lender for purposes of § 523(a)(4). However, "the bankruptcy court's decision ... may be affirmed on any grounds supported by the record." Montedonico v. Beckham (In re Beckham), 421 B.R. 602, 2009 WL 1726526, at *7 (6th Cir. BAP 2009) (table). See also Besing v. Hawthorne (In re Besing), 981 F.2d 1488, 1494 (5th Cir.1993); Phillips, 434 B.R. at 488 (Rhodes, J., concurring). Accordingly, the Panel AFFIRMS the Bankruptcy Court's conclusion that the elements of § 523(a)(4) are not met.

B. 11 U.S.C. § 523(a)(6)

Under 11 U.S.C. § 523(a)(6), a debt is not dischargeable if it is due to a willful and malicious injury. Lender argues that "[Debtor's] sale of the equipment subject to [Lender's] security interest and retention and use of the sales proceeds were willful and malicious." Plaintiff's Closing Arg. ¶ 41, ECF No. 60. The Supreme Court has explained that for a debt to be non-dischargeable under § 523(a)(6), the "`actor [must] intend "the consequences of an act," not simply "the act itself."'" Kawaauhau v. Geiger, 523 U.S. 57, 61-62, 118 S.Ct. 974, 977, 140 L.Ed.2d 90 (1998) (quoting Restatement (Second) of Torts § 8A, Comment a, p. 15 (1964)). The Sixth Circuit Court of Appeals has further qualified that a willful and malicious injury occurs only if the debtor (1) desires "to cause the consequences of his act, or" (2) "believes those consequences are substantially certain to result from it." Markowitz v. Campbell (In re Markowitz), 190 F.3d 455, 464 (6th Cir.1999).

In reviewing the Bankruptcy Court's determination whether Lender suffered an injury and whether the injury to Lender was willful and malicious for purposes of § 523(a)(6), the Panel applies the clearly erroneous standard.

Phillips, 434 B.R. at 484.

1. Willful

Takacs v. Ruderson (In re Ruderson), 2007 WL 4570581, at *6 (Bankr.N.D.Ohio Dec. 20, 2007) (quoting J & A Brelage, Inc. v. Jones (In re Jones), 276 B.R. 797, 802 (Bankr.N.D.Ohio 2001), citing Mitsubishi Motors Credit of Am., Inc. v. Longley (In re Longley), 235 B.R. 651, 657 (10th Cir. BAP 1999)).

The Bankruptcy Court did not address Debtor's knowledge of Lender's lien rights because it found that Debtor was not required to turn over the proceeds of the sale of the collateral. This legal conclusion requires an analysis of the contract. It is a question of law reviewed de novo.

In footnotes, the Bankruptcy Court dismissed the role of the Dealer Credit Agreement and the Promissory Note dated June 16, 2006, each of which contain clauses requiring Debtor to remit the proceeds of sales of collateral to Lender. The Bankruptcy Court stated that "the court is not convinced that the Dealer Creditor Agreement has any significant relation to the individual security agreements and notes. Kraus Anderson representative Mr. Jarussi's testimony suggested that he himself was unsure about the relationship." Feb. 5, 2013, Op. at 9, n. 1, ECF No. 61.

A review of the trial transcript reveals that Mr. Jarussi was not at all unsure about the relationship. "There is no conflict in my mind. The overriding document is the dealer credit agreement." August 10, 2012, Trial Tr. 119:1-2, ECF No. 74. Mr. Jarussi explained that the Promissory Note attached to the Dealer Credit Agreement includes everything Debtor financed. It represented a revolving line of credit on which the borrower, Bradley Machinery, could (and did) draw to purchase pieces of equipment. Each individual purchase of a piece of equipment was also represented by individual schedules, security agreements, and notes under the line of credit. Tr. 133:10-22. Several times Mr. Jarussi explained that the Promissory Note attached to the Dealer Credit Agreement was a fluid or floating line of credit, with collateral coming in and going out. Tr. 139:21-24; 141:20-25. He explained that the other notes were all part of the line of credit under the Dealer Credit Agreement. Tr. 142:6-12; 145:6-11. He consistently testified that the Dealer Credit Agreement was "umbrella financing" (Tr: 132:4-6) and that the Promissory Note (Ex. 3) was a credit line limit and it spelled out the rules of the relationship. Tr. 150:15-19. Finally, he explained that if he needed to enforce the transactions with Bradley Machinery he would use the Dealer Credit Agreement, Promissory Note, subsequent notes and security agreement(s).

Examination of the documents support Mr. Jarussi's explanation of the financing arrangement. Paragraph 3 of the Dealer Credit Agreement provides in part:

Dealer Credit Agreement, ¶ 3, Ex. 2. Paragraph 3 also clearly conveys that, to secure payment on all current and future debts, Bradley Machinery granted Lender a security interest on all present and future equipment purchased with advances made by Lender from the line of credit and all proceeds of that property. Paragraph 3 further explains that Bradley Machinery was required to execute additional security documentation as additional equipment was purchased. Moreover, the Dealer Credit Agreement allowed Bradley Machinery to sell equipment in the ordinary course of business so long as Bradley Machinery paid the amounts due under the Promissory Note as a result of the sale.

The Amendment of Loan Documents executed by the parties after the breach further reflects the parties' understanding of their prior agreement. The Amendment of Loan Documents refers to the individual notes and security agreements as "schedules" and makes references to the Dealer Credit Agreement, "The Promissory Note," Security Agreement and Individual Guaranty. This language supports Mr. Jarussi's testimony that the Dealer Credit Agreement was the umbrella document that explained the rules of the relationship.

Likewise, the Confession of Judgment executed by the parties also reflects that Debtor owes Lender $308,828.12 under the Dealer Credit Agreement and the related schedules. Finally, Debtor himself referred to the arrangement as "a revolving line of credit." Tr. 205:14-15. The admitted exhibits included several of the amendments to the June 16, 2006 Promissory Note that reflect increases in the maximum amount of the line of credit, extension of time for the maturity date, and changes in terms of interest. Perhaps most telling is Debtor's admission that he sold equipment "out of trust." Amended Ans. to Complaint, ¶ 6, ECF No. 10, Tr. 225:7-11. In the automotive sales industry, a dealer's sale of automobile inventory without paying the secured lender is known as selling "out of trust." Eaton v. Ford Motor Credit Co., LLC, 2012 WL 3579644, at *3-4 (M.D.Tenn. Aug. 17, 2012) (citing Ford Motor Credit Co. v. Moody (In re Moody), 277 B.R. 865, 868 (Bankr. S.D.Ga.2001)).

The contract documents, exhibits and testimony show that the Dealer Credit Agreement did control and play a key role in the financing arrangement. The individual security agreements and promissory notes laid out payment plans that supplemented the Dealer Credit Agreement and were used to pay down the debt while equipment remained unsold. The individual security agreements and promissory notes, as well as the Dealer Credit Agreement and Promissory Note, allowed collateral to be sold in the ordinary course of business. The Dealer Credit Agreement provided that collateral could be sold as long as the proceeds were paid to Lender. The Promissory Note contained a specific provision for this payment to occur five days after the sale.

Accordingly, the Panel holds that based on the Dealer Credit Agreement, and other documents, Lender had a security interest in the proceeds of the sale of collateral and Debtor had a duty to use the proceeds of sales of collateral to pay Lender.

The record firmly establishes that Debtor knew about Lender's lien rights and knew that failure to remit the proceeds would be substantially certain to harm Lender. The parties intended the proceeds of sale of collateral to be used to pay down the debt owed to Lender and Debtor did not do so. He retained them for a different use. The fact that it was for a business use does not alter this finding.

Eaton, 2012 WL 3579644, at *3-4.

Debtor admitted he knew about Lender's lien rights in the collateral. Debtor described the relationship between the Debtor and Lender as "floor plan" financing. Tr. 205:15; 215:10-12. He signed the financing documents that gave Lender a security interest in the collateral. In the answer to the complaint and at trial, Debtor admitted that he sold equipment "out of trust." Tr. 225:7-11. Moreover, Debtor's action of selling the collateral and lying about it so that he did not have to turn over the proceeds of the collateral shows that Debtor knew that his conduct would cause injury to Lender's right to receive the proceeds.

Accordingly, the Panel finds that the injury to Lender was willful.

2. Malicious

The Bankruptcy Court made the factual finding that Debtor did not intend to harm Lender when it kept the proceeds of the sales of Lender's collateral. The Bankruptcy Court noted that "[Debtor] testified based on history he believed his business would recover and he would be able to pay his debts. Feb. 5, 2013, Op. at 6, ECF No. 61. However, the test for maliciousness in the context of § 523(a)(6) does not focus on Debtor's subjective intent to repay.4

Auto. Fin. Corp. v. Leonard (In re Leonard), 2012 WL 1565120, at *11 (Bankr. E.D.Tenn. May 2, 2012). While a debtor's "subjective mind set is central to the inquiry," the focus is not on whether a debtor intended to repay the debt eventually.5 Rather, the focus is on "whether debtor acted deliberately in knowing disregard of a creditors' rights in property." Ocean Equity Grp., Inc. v. Wooten (In re Wooten), 423 B.R. 108 (Bankr.E.D.Va.2010) (quoting Johnson v. Davis (In re Davis), 262 B.R. 663, 670-71 (Bankr.E.D.Va. 2001)). Under § 523(a)(6), malice is inferred when a car dealer knows the harm for his failure to remit the proceeds obtained from vehicles sold out of trust. Leonard, 2012 WL 1565120, at *11. See also Longley, 235 B.R. at 656-58; HOC, Inc. v. McAllister (In re McAllister), 211 B.R. 976, 982-83 (Bankr.N.D.Ala.1997).

The Panel holds that Debtor acted maliciously as defined by § 523(a)(6). The record establishes that Debtor acted in "knowing disregard" of Lender's security interest in the proceeds of the collateral. Debtor's extensive efforts to keep information regarding the sales hidden from Lender, indicates that Debtor knew that his action of keeping the proceeds of the sales was wrongful under the terms of the contracts. Debtor knew that his use of the proceeds for other business purposes would injure Lender's right to receive the proceeds. The fact that Debtor may have had a subjective intent to eventually repay the debt owed to Lender does not excuse the injury to Lender's security interest. The record is devoid of any facts which could support the notion that Debtor acted with just cause or excuse.

Debtor converted the proceeds of the sales of collateral which were subject to Lender's security interest. Lender's damages are a debt that is the result of a willful and malicious injury. Accordingly, it is non-dischargeable pursuant to § 523(a)(6). The record before the Panel does not reflect the amount of proceeds that were retained by Debtor upon the sale of Lender's collateral. Accordingly, the matter is REMANDED for a determination regarding the amount of damages.6

C. 11 U.S.C. § 523(a)(2)(A)

Section 523(a)(2)(A) excepts from discharge "any debt ... for money, property, services, or ... an extension, renewal, or refinance of credit, to the extent obtained by ... false pretenses, a false representation, or actual fraud." 11 U.S.C. § 523(a)(2)(A). Under § 523(a)(2)(A), the creditor bears the burden of proving by a preponderance of the evidence, that:

See Old Republic Title Co. of Tenn. v. Looney (In re Looney), 453 B.R. 252, 259 (6th Cir. BAP 2011); Rembert v. AT & T Universal Card Servs., Inc. (In re Rembert), 141 F.3d 277, 280-81 (6th Cir.1998).

In the present case, there is no dispute that the first and second prongs of § 523(a)(2)(A) are met. In the stipulated facts and at trial, Debtor testified that he lied to Lender regarding which pieces of equipment had been sold prior to entering into the Settlement Agreement. August 10, 2012, Trial Tr. 225:23-25; 240:4-12, ECF No. 74. Moreover, Debtor admitted at trial that he knew he was deceiving Lender and that he did so to get Lender to agree to an extension of credit. Tr. 226:5-6. Debtor testified that he made a conscious choice to disclose some, but not all of the sales of Lender's collateral because he did not want to "make it look any worse." Tr. 226:8. He admitted that when he entered the Settlement Agreement in March, there was an equipment list attached that affirmatively stated that he had possession of the Bobcat loader and two Gehl loaders that he did not have possession of because they had already been sold. Tr. 244:10-13; 247:5-6. He admitted that he continued to he to Lender for over eighteen months because he was trying to give himself more time to pay off the debt. Tr. 226:18-24. See also Ex. 33-1 (email from Debtor to Lender's representative containing false information regarding hours on a Bobcat loader that had already been sold.) Additionally, he lied to Lender's auditors and supplied them with false documents so that Lender would not know that its collateral had been sold. He also stipulated that he knew Lender would rely on these misrepresentations. Second Joint Stipulations, ¶ 17, ECF No. 35.

The Bankruptcy Court, however, found that Lender did not justifiably rely on the misrepresentations. The Bankruptcy Court found that Lender "did little to keep tabs on its collateral." Feb. 5, 2013, Op. at 7, ECF No. 61. The Bankruptcy Court noted that Lender did send auditors to investigate the status of equipment, however, once told by Defendant that the equipment was at another job site, the auditors ended the inquiry. The Bankruptcy Court found that since Lender knew that Debtor had previously sold equipment without turning over the proceeds (having "lied") it was not reasonable to enter into a Settlement Agreement without conducting a more thorough investigation. The Bankruptcy Court held that § 523 actions "are not meant to be substitutes for appropriate due diligence. [And Lender] could have done more to monitor the status of the equipment." Therefore, the Bankruptcy Court found that Lender's reliance on Debtor's omissions and misrepresentations regarding the status of the collateral was not justifiable. Feb. 5, 2013, Op. at 7, ECF No. 61.

The Bankruptcy Court's finding is clearly erroneous. The Bankruptcy Court imposed a duty upon the Lender to investigate the truthfulness of Debtor's representations that is not required by law.

In Field v. Mans, 516 U.S. 59, 72-75, 116 S.Ct. 437, 444-46, 133 L.Ed.2d 351 (1995), the Supreme Court specifically rejected the notion that creditors must conduct an investigation to discover fraud. See also Foley & Lardner v. Biondo (In re Biondo), 180 F.3d 126, 135 (4th Cir.1999) (citing Field for the proposition that a creditor has no duty to investigate a debtor's factual representations, even if the falsity easily could be discovered).

Field, 516 U.S. at 72, 116 S.Ct. 437 (quoting 1 F. Harper & F. James, Law of Torts 7.12, pp. 581-83 (1956)). See also Lentz v. Spadoni (In re Spadoni), 316 F.3d 56, 59 (1st Cir.2003) (citing Field for the rule that "the circumstances of the reliance claim must be taken into account and that the individual is not obliged to investigate statements made to him (although he cannot shut his eyes to an obvious falsehood)."); Eugene Parks Law Corp. Defined Benefit Pension Plan v. Kirsh (In re Kirsh), 973 F.2d 1454, 1459 (9th Cir.1992) (noting that under the justifiable reliance standard, "although a person ordinarily has no duty to investigate the truth of a representation, a person cannot purport to rely on preposterous representations or close his eyes to avoid discovery of the truth") (citation omitted); Holmes v. Nat'l City Bank (In re Holmes), 414 B.R. 115, 122-23 (E.D.Mich.2009).

If Debtor had confessed the sales, Lender would not have entered the Settlement Agreement. August 10, 2012, Trial Tr. 184:23-185:4, ECF No. 74 (testimony of Mr. Jarussi that if Lender had known the collateral had been sold "there would have been nothing to work out."). Lender relied on oral statements and written documentation provided by Debtor (whom the Bankruptcy Court found "quite credible") that the equipment had not been sold and was still held as collateral subject to a security interest for the extension of credit provided by the Settlement Agreement and Amendment to Loan Documents. Lender relied on Debtor's continued false representations as to the status of the collateral in its decision to agree to a forbearance under the Settlement Agreement. Lender did attempt to determine the location and status of its collateral following the Settlement Agreement through several audits and requests for information from Debtor. The reasons given for the equipment to be unavailable to view (because it was on lease to third parties) appeared legitimate in light of the supporting documentation provided by Debtor indicating that this was an authorized use of the equipment under the terms of the parties' agreements. Lender did not "shut [its] eyes to an obvious falsehood." Accordingly, Lender's reliance on Debtor's misrepresentation of the equipment's status was, in fact, justifiable. The Bankruptcy Court's finding to the opposite is clearly erroneous.

The last element Lender is required to prove for a finding of non-dischargeability under § 523(a)(2)(A) is that reliance on the material misrepresentation is the proximate cause of its loss. The Bankruptcy Court did not conduct a separate analysis of this prong but simply stated that Lender's "actions at the time it entered into the Settlement Agreement and thereafter do not support a finding... of justifiable reliance or that Debtor's deceit was the proximate cause of its loss." Feb. 5, 2013, Op. at 5, ECF No. 61. In his post-trial brief, Debtor argues that the misrepresentation of the status of the equipment was not the proximate cause of Lender's loss because if Lender had not entered into the Settlement Agreement, and instead had pursued a judgment against Debtor under the guaranty, it would not have recovered any more money because Debtor did not have any more assets in 2009 than he had at the time the petition was filed. Def. Post-Tr. Br. at 3, ECF No. 59. On appeal, Debtor argues that even if this Panel reverses the Bankruptcy Court, only a portion of the total debt would be non-dischargeable because not all of the loss is a direct result of the lies about the status of the equipment.

After the Settlement Agreement, Debtor continued in business for approximately eighteen months. During that time, Debtor continued to provide false reports to Lender regarding the status of its collateral. Debtor stipulated that he sold at least one piece of equipment that was subject to Lender's Security interest after the Settlement Agreement without turning over proceeds.7 Second Joint Stipulations ¶ 13, ECF No. 35. Lender may be able to establish that it would have been able to recover more collateral, or collateral with less depreciation, or that it may have been able to pursue other remedies with more likelihood of success, if it had not entered into the Settlement Agreement with Bradley Machinery and Debtor and had begun pursuing its remedies almost two years earlier. Additionally, Debtor testified that he took a "draw" from Bradley Machinery of $15,900 in 2009 and $23,000 in 2010. August 10, 2012, Trial Tr. 243:8-10, ECF No. 74. Therefore, it does appear that the business had enough assets to pay Debtor $38,900 while Lender continued to extend credit based on Debtor's material misrepresentations regarding Lender's collateral. Additionally, ceasing business almost two years earlier might have provided even more assets if all overhead was eliminated rather than just reduced. (See Debtor's testimony that he reduced overhead by $2,000 per month by firing all other employees and moving to a new location. August 10, 2012, Trial Tr. 249:19-22, ECF No. 74.) Finally, during 2009 and 2010, Lender expended funds attempting to, as the Bankruptcy Court put it, "keep tabs on" its collateral due to Debtor's material misrepresentations. If Lender had known the collateral had been sold, Lender may not have needed to pay for some or all of an auditor's services.

Accordingly, the Panel holds that the Bankruptcy Court's factual finding that reliance on Debtor's misrepresentation(s) regarding the status of the collateral was not the proximate cause of loss is clearly erroneous. Lender suffered a loss due to Debtor's misrepresentations and lies regarding the status of the collateral. The Panel must remand for further factual findings to determine the amount of damages attributable to Lender's forbearance from collection that resulted from entering into the Settlement Agreement.8

The Bankruptcy Court relied heavily on its determination that at the time of the Settlement Agreement, Debtor had a subjective intent to repay the debt. However, Debtor's subjective intent to repay is not a factor under the § 523(a)(2)(A) Rembert test when there is a separate specific false material misrepresentation. Debtor's representation that Bradley Machinery still possessed three pieces of valuable equipment that were collateral for the loans in question was a material misrepresentation. Debtor stipulated that he intended to deceive the creditor. Further, Debtor knew that Lender would rely on these misrepresentations when determining whether to continue to extend credit to him. Accordingly, the Bankruptcy Court's determination that Lender did not prove the elements of § 523(a)(2)(A) is REVERSED and the case is REMANDED for a determination of damages.

D. Lender's Motion to Amend or Make Additional Findings of Fact

Federal Rule of Bankruptcy Procedure 7052 applies Rule 52 of the Federal Rules of Civil Procedure to bankruptcy adversary proceedings. Fed. R. Bankr.P. 7052. Rule 52(a)(1) states that "[i]n an action tried on the facts without a jury ... the court must find the facts specially and state its conclusions of law separately." Id. "Findings [of fact] are to be liberally construed in support of a judgment, even if the findings are not as explicit or detailed as might be desired." Fordu, 201 F.3d at 710 (citation omitted).

Orlett v. Cincinnati Microwave, Inc., 954 F.2d 414, 418 (6th Cir.1992) (citing Grover Hill Grain Co. v. Baughman-Oster, Inc., 728 F.2d 784, 792-93 (6th Cir.1984)).

In the present case, there were more stipulated facts than the Bankruptcy Court included in the written opinion. There were also additional facts in the admitted exhibits and provided by the testimony of both witnesses. Those additional facts dictate a different result on the merits. Therefore, the Bankruptcy Court erred in not granting the Rule 7052 motion.

V. CONCLUSION

The Bankruptcy Court's holding that Lender did not prove the elements of § 523(a)(4) is AFFIRMED on alternative grounds.

However, the debt is non-dischargeable pursuant to § 523(a)(2)(A) and § 523(a)(6). Debtor obtained an extension of credit, via the Settlement Agreement, due to Lender's reliance on Debtor's false statements. Debtor's actions show that he knew that he had a duty to remit the proceeds to Lender and that his failure to remit the proceeds would harm Lender. Additionally, the Bankruptcy Court abused its discretion in denying Lender's motion to amend the findings of fact and conclusions of law. The Bankruptcy Court's ruling that the debt owed to Lender is dischargeable is REVERSED. The case is REMANDED for a determination of the amount of damages that Lender suffered due to Debtor's conversion pursuant to § 523(a)(6) and fraudulent misrepresentations pursuant to § 523(a)(2)(A) and for an entry of judgment in favor of Lender accordingly.