Liechti v. Schwarz
ORDER affirming the Bankruptcy Court's order awarding judgment in favor of Molly Schwarz, and against Marc Andreas Liechti. IT IS FURTHER ORDERED that the Bankruptcy Court's judgment is AFFIRMED in all other respects. Signed by Judge Dana L. Christensen on 4/3/2017. (NOS)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
APR 0 3 2017
Cieri<, U S District Court
District Of Montana
District Court Case No.:
MARC ANDREAS LIECHTI,
Bankruptcy Case No.:
Adversary Proceeding No.:
Plaintiff and Appellee,
MARC ANDREAS LIECHTI,
Defendant and Appellant.
Appellant Marc Andreas Liechti ("Liechti") appeals from the judgment
entered against him by the United States Bankruptcy Court for the District of
Montana in favor of Molly Schwarz ("Schwarz"), a creditor in the underlying
bankruptcy case. The Honorable Ralph B. Kirscher, Chief Judge for the United
States Bankruptcy Court, District of Montana, presided over this proceeding. 1
This Court has jurisdiction over this appeal under 28 U.S.C. § 158(a)(l). For the
reasons stated below, Judge Kirscher' s ruling if affirmed.
At the time of the disposition, Judge Kirscher was still on the bench. He recently retired
and is succeeded by the Honorable Benjamin P. Hursh, Chief Judge for the United States
Bankruptcy Court for the District of Montana.
Liechti filed a Chapter 7 bankruptcy petition on October 28, 2014, and then
filed Schedules and his Statement of Financial Affairs ("SOFA") on November 11,
2014. (Doc. 8-5 at 2.) As part of the filing, Liechti executed a Declaration that his
information was "true and correct to the best of [his] knowledge, information, and
belief." (Id. at 3.) On his first Schedule B, Liechti identified his income as $7,000
per month as a salary drawn from Apec, Inc. ("Apec"), with a net monthly income
of $5, 799.50 and monthly expenses in the total amount of $3,510.85 (Id. at 9.) He
also listed two checking and savings accounts: First Interstate Bank account#
2348 and Whitefish Credit Union account# 4998. Liechti amended Schedules B
and Con November 21, 2014, amended Schedule Jon November 25, 2014, and
further amended Schedules Band Con May 5, 2015. (Id. at 8.)
On Liechti' s personal income tax return, he listed the following payments
made to him as the sole proprietor of a business known as "Apec Engineering
Water and Sewer" ("AEWS"): $1950 per month on a contract with Glacier Ranch,
$275 on a contract with Somers Bay, and $80 as a board member of Lakeside
Water and Sewer District. When Liechti amended his Schedules B, C, and J
during his Chapter 7 bankruptcy, he continued to omit income from AEWS and
omitted his third checking account at First Interstate Bank: account number 7772,
named "Apec Engineering Water and Sewer Operation Acct". Liechti's only debit
card was for the AEWS account. When he amended Schedule B on May 12,
2015- after his 11 U.S.C. § 341(a) meeting of creditors-he still did not add any
income received from AEWS. He also never listed his interest in his sole
proprietorship AEWS in his petition, Schedules, or SOFA.
At trial, the bankruptcy Trustee, Christy Brandon, testified that she
reviewed all ofLiechti's Schedules and looked into his finances before the§ 341
meeting. (Doc. 8-4 at 16.) The Trustee indicated that she found income from
AEWS on Liechti' s bank statements, but that those amounts were not identified on
his Schedule B. She also said that Schwarz contacted her prior to the § 341
meeting and informed her about the income omitted by Liechti. (Id. at 17, pg. 67.)
The Trustee further explained that Liechti disclosed in the§ 341 meeting that he
had another bank account with income from AEWS and that he agreed to provide
her with more bank statements. The Trustee testified that the AEWS income was
important in order for her to understand the full extent of Liechti' s financial
condition. (Id. at 17, pg. 66.) During cross examination at trial, the Trustee
further noted that during the two separate § 341 meetings Liechti did not withhold
anything and agreed to comply with providing more documentation. (Id. at 18, pg.
The Trustee also testified that as a trustee it is important for her to do a costbenefit analysis to determine whether to pursue a nondischarability action against
a debtor. On this subject, her testimony was as follows:
MR. DYE: ... Now, I understand from another case and also our
conversation that, that the manual for Chapter 7 trustees does have a
requirement to perform -- that you're supposed to do a cost-benefit analysis
before bringing an objection to discharge. Could you explain that to the
Court and for the record?
MS. BRANDON: Yes, that' s right. In order to determine whether to pursue
a nondischargeability action against a debtor, I am to do a cost-benefit
analysis. I'm supposed to look at the expense and whether or not the estate
has the ability to advance the expense, the likelihood of success of the
prosecution, and what benefit it would secure for the creditors.
MR. DYE: Okay. In any event, you did not-- you have not brought an
objection to Mr. Liechti's discharge, have you, as you have testified?
MS. BRANDON: Correct.
(Id. at 18, pg. 71.) Therefore, after applying the cost-benefit analysis, the Trustee
determined that it was not beneficial to pursue an objection to Mr. Liechti's
discharge of his debt to Schwarz.
Liechti's relationship with Schwarz dates back to around 2006. Liechti was
working for Schwarz Engineering and purchased Schwarz's shares in the
company. (Doc. 8-5 at 5.) Liechti gave Schwarz a promissory note and then
changed the company name to Apec, Inc. Schwarz subsequently sued Liechti
when he stopped making payments on the note. On May 27, 2011, Schwarz
obtained a judgment against Liechti in the amount of $170,070.38 plus interest at
6.5% per annum. Schwarz then served Apec with a writ of execution on March 7,
2014, to garnish Liechti' s wages from Apec. Liechti' s wife, who worked as
Apec' s accountant, responded to the writ and calculated the garnished amount of
$1,449.98 based on Liechti's total earnings of $7,000 per month. However, Apec
did not garnish any of Liechti' s wages for the four months following service of the
writ. Then, a new writ of execution was served on Apec on July 2, 2014.
Liechti' s wife responded again, but explained that Liechti was not being paid a
wage by Apec so she could not garnish any wages pursuant to the writ.
Ultimately, when Liechti filed for bankruptcy, he still owed a considerable
amount on the promissory note. Schwarz filed Proof of Claim No. 5 on February
5, 2015, asserting an unsecured nonpriority claim in the amount of $231,810.87,
based on the underlying judgment against Liechti. In the adversary bankruptcy
proceeding, Schwarz pursued two claims for relief: (1) denial ofLiechti's
discharge of her claim for knowingly and fraudulently making false oaths and
account under 11 U.S.C. § 727(a)(4)(A); and (2) exception from Liechti's
discharge of her claim under 11 U.S.C. § 523(a)(4). On December 16, 2015,
Judge Kirscher denied Schwarz's second claim for relief under§ 523(a)(4), but
granted her first claim for relief under§ 727(a)(4)(A). Thus, Liechti' s discharge
as to Schwarz's Proof of Claim No. 5 for $231,810.87 was denied.
Liechti timely appealed to this Court on January 19, 2016.
When considering an appeal from a bankruptcy court, a district court applies
the same standard of a review a circuit court would use in reviewing a decision of
a district court. In re Baro.ff, 105 F.3d 439, 441 (9th Cir. 1997). A district court
reviews a bankruptcy court's legal conclusions de novo and factual findings for
clear error. In re Leavitt, 171F.3d1219, 1222 (9th Cir. 1999) (citations omitted).
"The issue of dischargeability of a debt is a mixed question of fact and law that is
reviewed de novo." Miller v. United States, 363 F.3d 999, 1004 (9th Cir. 2004).
Under 11 U.S.C. § 727(a)(4)(A), a court may deny a discharge of the debtor
if the debtor knowingly and fraudulently made a false oath or account. When a
creditor objects to a discharge, keeping in mind the "fresh start" purposes behind
the Bankruptcy Code, a court should construe § 727 liberally in favor of the debtor
unless the debtor is not honest. Marrama v. Citizens Bank ofMassachusetts, 549
U.S. 365, 367 (2007). To prevail on a§ 727 claim, a creditor must show that: "(1)
the debtor made a false oath in connection with the case; (2) the oath related to a
material fact; (3) the oath was made knowingly; and (4) the oath was made
fraudulently." In re Roberts, 331 B.R. 876, 882 (B.A.P. 9th Cir. 2005), aff'd and
remanded, 241 F. App'x 420 (9th Cir. 2007).
Liechti raises three issues on appeal and argues Judge Kirscher erred by : (1)
finding that substantial evidence established that Liechti acted with fraudulent
intent and the omissions in the schedules were material to the administration of the
estate; (2) arbitrarily disregarding the uncontradicted and unimpeached testimony
of the Trustee that the omissions at issue were not material to estate
administration; and (3) finding that Liechti acted with the fraudulent intent in light
of the uncontradicted and unimpeached testimony from the Trustee that Liechti
was completely open and cooperative in his dealings with the Trustee.
Therefore, under§ 727, the only elements in dispute on appeal are two and
four: whether the false oath was related to a material fact, and whether the fals e
oath was made fraudulently.
Fraudulent Intent and Materiality
Due to the order of Liechti's arguments on appeal, this Court will review the
issue of fraudulent intent first and then will review the materiality issue. First, in
order to show that the false oaths were made fraudulently, the burden is on the
plaintiff to show actual rather than constructive intent on the part of the debtor. In
re Retz, 606 F.3d 1189, 1196 (9th Cir. 2010). To demonstrate fraudulent intent,
the plaintiff bears the burden of showing that: "( 1) [the debtor] made the
representations (e.g., a false statement or omission in bankruptcy schedules); (2) ...
at the time he knew they were false; [and] (3) ... he made them with the intention
and purpose of deceiving the creditors." Id. at 1198. Here, it is clear that Liechti
made the omissions and knew his schedules were false. Thus, what is in dispute is
his intent and whether he made these omissions with the intention and purpose of
deceiving the creditors. The Ninth Circuit explained that:
Intent is usually proven by circumstantial evidence or by inferences drawn
from the debtor's conduct. Devers v. Bank of Sheridan, Mont. (Jn re
Devers), 759 F.2d 751, 753-54 (9th Cir.1985); see also In re Roberts, 331
B.R. at 884. Reckless indifference or disregard for the truth may be
circumstantial evidence of intent, but is not sufficient, alone, to constitute
fraudulent intent. In re Khalil, 379 B.R. 163, 173-175 (B.A.P. 9th Cir.
2007), afj"d, 578 F.3d 1167 (9th Cir. 2009).
"Generally, a debtor who acts in reliance on the advice of his attorney
lacks the intent required to deny him a discharge of his debts." In re Adeeb,
787 F.2d at 1343. "However, the debtor's reliance must be in good faith."
Id. The advice of counsel is not a defense when the erroneous information
should have been evident to the debtor. Boroff v. Tully (Jn re Tully), 818
F .2d 106, 111 (1st Cir.1987). "A debtor cannot, merely by playing ostrich
and burying his head deeply enough in the sand, disclaim all responsibility
for statements which he has made under oath." Id.
Id. at 1199.
Liechti argues that he did not act with fraudulent intent when he omitted
income from his Schedules and that those omissions were not material to the
administration of the bankruptcy estate. First, he contends that he did not list
income from AEWS in 2013 because he lost money for that year. (Doc. 11 at 7.)
He also states that he did not list any income from AEWS in 2014 because his
taxes had not yet been completed when he filed for bankruptcy. (Id.) Second, he
claims that the Trustee's testimony establishes that the omissions were not made
with fraudulent intent because he "volunteered" the information about his A WES
income. (Doc. 11 at 7.)
Liechti cites to the following testimony of the Trustee when she found out
about the existence of Liechti' s AWES bank account:
MR. DYE: Did he disclose it to you in the 341 meeting?
MS. BRANDON: I'm sorry, I misheard you, then. He did disclose it; yes,
he did. And he agreed to send me bank statements, and he did that.
MR. DYE: Okay. And did he disclose it in response to your question or did
he volunteer it, a disclosure?
MS. BRANDON: I asked him questions, and he disclosed it. I asked for
production, and he agreed to do it and did it.
(Doc. 8-4 at 16, pg. 64-65.) Thus, Liechti argues that this testimony shows that he
did not fraudulently continue to conceal his AEWS income from the Trustee.
However, while he complied with supplying the documentation to the
Trustee, he never amended his Schedules to account for this income nor did he list
his additional bank account on his SOFA. Moreover, on Exhibit NNN his spouse
wrote that Liechti was not drawing a paycheck from the previous quarter when in
actuality he did have income from AEWS. Furthermore, he omitted his income
from his AEWS account on Exhibit FFF before the§ 341 meeting. This Court
agrees with Judge Kirscher that "[l]ittle doubt exists that if the Trustee had not
asked Liechti about AEWS, its income and account no. 7772 at the creditors'
meeting, he never would have admitted to their existence." (Doc. 8-5 at 31.)
Liechti's numerous declarations under penalty of perjury in his Schedules never
accounted for the significant amount of money he had in his AEWS account. He
cannot now disclaim all responsibility for his omissions which he made under
oath-especially when he amended his Schedules twice and continued to omit
income from AEWS-simply because the Trustee eventually discovered his
AEWS account and he agreed to volunteer the AEWS account information.
Notably, even after the Trustee discovered the discrepancy and asked for the
AEWS income and account information, Liechti still never amended his Schedules
and SOFA to include it. There is more than enough circumstantial evidence here
to show that Liechti disregarded the truth and acted with fraudulent intent when he
omitted his AEWS income from his Schedules, SOFA, and amended Schedules.
Similarly, the false oaths made by Liechti did relate to a material fact. "A
fact is material 'if it bears a relationship to the debtor's business transactions or
estate, or concerns the discovery of assets, business dealings, or the existence and
disposition of the debtor's property."' In re Khalil, 379 B.R. at 173. Liechti
argues that the Trustee's testimony at trial proves that the income omitted in his
Schedules and SOFA did not amount to a material fact. This Court disagrees.
The omitted information is material because it bears upon the administration
of the bankruptcy estate, Liechti's financial affairs, and Liechti's property.
Notably, the approximate $2,305.00 received per month in his AEWS account is
significant and is certainly large enough for it to be known to a debtor and should
be disclosed during a bankruptcy proceeding. Regardless of whether the Trustee
eventually discovered the AEWS income and Liechti volunteered the information,
the important issue is timing. Liechti chose not to include the AEWS income and
account on his first Schedules and SOFA, and then continued to omit the
information on his amended Schedules. The amount of money that was omitted is
material because it bears a relationship on the total amount of the debtor's estate
and also shows the total amount of assets he owned and the nature of his business
dealings. Therefore, even though the Trustee testified that Liechti gave her the
requested AEWS documents upon request and even though the Trustee did not
pursue an objection to the discharge based on her cost-benefit analysis, there is no
doubt that the information omitted by Liechti goes to a material fact of the overall
Consequently, both Liechti's arguments regarding fraudulent intent and
materiality are without merit.
Testimony of Trustee
Due to the Court's analysis above, the Court will not further address
whether the trial court arbitrarily disregarding the uncontradicted and
unimpeached testimony of the Trustee because it has been fully analyzed above.
The Court finds that the testimony of the Trustee regarding the omissions at issue
do not overcome the fact that the omissions were material to the estate
Fraudulent Intent in Light of Testimony of Trustee
Again, pursuant to the analysis above, the Court finds that Liechti did act
with fraudulent intent, even in light of the testimony of the Trustee.
Upon a de novo review of the Bankruptcy Court's legal conclusions, the
Court determines the Bankruptcy Court's order awarding judgment against
Appellant Liechti in favor of Appellee Schwarz was based on legal grounds within
the contemplation of the Bankruptcy Code and on factual findings that are not
IT IS ORDERED that the Bankruptcy Court's order awarding judgment in
favor of Molly Schwarz, and against Marc Andreas Liechti is AFFIRMED.
IT IS FURTHER ORDERED that the Bankruptcy Court's judgment is
AFFIRMED in all other respects.
DATED this ~day of April, 201
Dana L. Christensen, Chief Judge
United States District Court
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