Weddell v. Landis

Filing 16

ORDER affirming Bankruptcy Court's decision to deny discharge; directing Clerk to serve copy of this Order on Bankruptcy Court within 7 days (mailed 5/4/16) and constituting service as this Court's mandate; and instructing Clerk to close case. Signed by Judge Miranda M. Du on 5/4/16. (Copies have been distributed pursuant to the NEF - JC)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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***

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ROLLAND P. WEDDELL,

Case No. 3:13-cv-00123-MMD-WGC
Appellant,

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v.

ORDER

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ACTING UNITED STATES TRUSTEE
AUGUST B. LANDIS,
Appellee.

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I.

SUMMARY

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Appellant Rolland P. Weddell (“Weddell”) challenges the denial of a bankruptcy

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discharge by the United States Bankruptcy Court for the District of Nevada (“Bankruptcy

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Court”). Appellee United States Trustee (“the Trustee”) brought six denial of discharge

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claims pursuant to 11 U.S.C. § 727. After a trial, the bankruptcy court denied discharge

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on four grounds: §§ 727(a)(2), (a)(3), (a)(4), and (a)(5). Weddell argues the Bankruptcy

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Court erred on all four grounds. For the reasons discussed below, the Bankruptcy’s

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Court’s decision is affirmed.

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II.

BACKGROUND

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The following facts are taken from the Bankruptcy Court’s Findings of Fact and

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Conclusions of Law (“Findings”). (ECF No. 1-3.) Weddell filed a voluntary chapter 11

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bankruptcy petition on May 10, 2009. (Id. at 8.) Weddell’s bankruptcy estate included a

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claim for $251,561.64 owed to Weddell from the bankruptcy estate of Principle Centered,

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Inc., as well as firearms which Weddell valued at $60,000. (Id.)

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While he was in chapter 11, Weddell claimed that around Christmas of 2009 he

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traded three guns valued at approximately $60,000 for 40 gold coins valued at

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approximately $40,000 with an unnamed man he met at a sporting goods store. (Id. at

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9.) Shortly afterward, on January 6, 2010, Weddell used $149,462.50 from the

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bankruptcy estate bank account to purchase 125 gold coins. (Id.) A week later on

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January 13, 2010, Weddell withdrew an additional $39,000 from the bankruptcy estate

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account. (Id.) That same day, the Bankruptcy Court granted a motion to appoint a trustee

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and admonished Weddell regarding the use of bankruptcy estate assets. (Id.) The next

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day, on January 14, 2010, Weddell redeposited the $39,000 he had withdrawn back into

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the bankruptcy estate account. He then withdrew $7,000 in cash and $20,000 in

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cashier’s checks from the same account. Weddell cashed the cashier’s checks the same

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day. (Id.)

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Between January 14, 2010 and January 17, 2010, Weddell claimed he obtained

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20 gold coins from a man named Leonard who he met in a parking lot near a fast food

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restaurant. (Id. at 10.) According to Weddell, Leonard was behind Weddell in the drive-

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through line of a Del Taco restaurant. Leonard then followed Weddell to a parking space

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in a “little place right by the freeway,” parked next to Weddell, and struck up a

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conversation about Weddell’s license plate. (ECF No. 13-13 at 38.) The conversation

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eventually led to Leonard offering to sell Weddell tens of thousands of dollars’ worth of

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gold coins. (Id.)

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Weddell then drove to Las Vegas to meet Leonard in order to purchase 10 more

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gold coins for $10,000. (ECF No. 1-3 at 9.) When he reached Las Vegas, Weddell

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claimed a bag with 185 gold coins (worth about $1,000 a coin), about $7,600 in cash,

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and a semi-automatic pistol were stolen from his vehicle. Weddell called 911 but left

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before police officers arrived at the scene. He did not respond to calls from the Las

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Vegas Metropolitan Police (“Metro”) or the 911 operator. (Id.) The next morning, he gave

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a statement to the Carson City Sheriff’s Office (“the Sheriff’s Office”) regarding the theft.

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(Id.)
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On February 2, 2010, Kelvin Buchanan (“Buchanan”) was appointed as the

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chapter 11 trustee. Weddell and his attorney met Buchanan, but did not disclose the

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theft that purportedly occurred in Las Vegas. (Id.) Weddell communicated several more

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times with Buchanan over the next few weeks before eventually mailing him a number of

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unfiled operating reports and a copy of Weddell’s statement to the Sheriff’s Office. (Id.)

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Buchanan learned about the alleged theft for the first time through Weddell’s statement

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to the Sheriff’s Office. (Id.)

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The Bankruptcy Court granted a motion to convert Weddell’s bankruptcy to a

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chapter 7 case. (Id. at 11.) Weddell subsequently testified at a hearing and an exam

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related to the bankruptcy proceedings. (Id.)

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On November 30, 2010, the acting U.S. Trustee August B. Landis filed a

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complaint for denial of discharge. The complaint asserts six claims for denial of

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discharge based on 11 U.S.C. § 727(a). The Bankruptcy Court conducted a trial on

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October 16, 2012. At the trial, the Trustee called four witnesses, including Weddell and

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three current or former trustees of the bankruptcy estate. A significant portion of

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Weddell’s testimony consisted of him invoking his Fifth Amendment right to remain

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silent. (See ECF No. 13-17.) Weddell called Tyler Jones, a man with whom he had

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traded guns, as his sole witness. (ECF No. 1-3 at 5.) The parties also stipulated to the

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entry of 74 documents into evidence. (Id.)
The Bankruptcy Court denied Weddell discharge based on §§ 727(a)(2), (a)(3),

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(a)(4), and (a)(5).1 Weddell appeals the Bankruptcy Court’s decision.

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III.

LEGAL STANDARD

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In the Ninth Circuit, the standard of review for an objection to discharge is: “(1) the

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court's determinations of the historical facts are reviewed for clear error; (2) the selection

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of the applicable legal rules under § 727 is reviewed de novo; and (3) the application of

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The Trustee abandoned its § 727(a)(6) claim during trial and the Bankruptcy
Court held that the Trustee failed to meet its burden of proof for denial of discharge
under § 727(a)(7).

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the facts to those rules requiring the exercise of judgments about values animating the

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rules is reviewed de novo.” In re Searles, 317 B.R. 368, 373 (B.A.P. 9th Cir. 2004), aff'd,

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212 F. App'x 589 (9th Cir. 2006). “Because discharge is a matter generally left to the

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sound discretion of the bankruptcy judge, [courts] disturb this determination only if [they]

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find a gross abuse of discretion.” In re Cox, 41 F.3d 1294, 1296 (9th Cir.1994) (citation

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omitted). Accordingly, district courts “defer to the bankruptcy court's conclusion . . .

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unless its factual findings are clearly erroneous or it applies the incorrect legal standard.”

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Id.

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IV.

DISCUSSION

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A.

Allowable inferences from invocation of Fifth Amendment privilege

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Weddell’s initial argument is that the Bankruptcy Court misapplied the applicable

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law regarding his invocation of his Fifth Amendment privilege at trial. Weddell, the

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Bankruptcy Court, and the Trustee all correctly cite the standard laid out in In re Curtis,

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177 B.R. 717, 719-720 (Bankr. S.D. Ala. 1995). “A plaintiff seeking to rely on a Fifth

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Amendment inference must first offer evidence which at least tends to prove each part of

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the plaintiff's case.” Id. at 720. A court may then add to the weight of that evidence by

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drawing inferences against the party remaining silent, but cannot rely on inferences

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alone in determining that a moving party has met its burden. Id.; see also S.E.C. v.

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Colello, 139 F.3d 674, 677-678 (9th Cir. 1998).

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The Bankruptcy Court correctly identified, both at the trial and in its Findings, that

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a fact finder may draw adverse inferences against a civil litigant who invokes his or her

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Fifth Amendment right to remain silent in the face of probative evidence against them.

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(ECF No. 1-3 at 7; ECF No. 13-18 at 6-7.) The Bankruptcy Court also correctly

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recognized that the inferences it could draw were limited to the specific questions

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Weddell refused to answer. (ECF No. 1-3 at 7; ECF No. 13-18 at 80.) As discussed

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below, the Bankruptcy Court correctly applied this standard in each of the four grounds

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for denial of discharge.

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B.

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“A party seeking denial of discharge under § 727(a)(2) must prove two things: (1)

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a disposition of property, such as transfer or concealment, and (2) a subjective intent on

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the debtor’s part to hinder, delay or defraud a creditor through the act of disposing of the

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property.” In re Retz, 606 F.3d 1189, 1200 (9th Cir. 2010). The trustee may demonstrate

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the intent element of § 727(a)(2) by circumstantial evidence or by inferences drawn from

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the debtor’s conduct. In re Retz, 606 F.3d at 1199. Further, to meet the requirements of

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§ 727(a)(2), a debtor’s intent need not be fraudulent, “because the language of the

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statute is in the disjunctive it is sufficient if the debtor’s intent is to hinder or delay a

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§ 727(a)(2)

creditor.” Id. at 1200.

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The Bankruptcy Court observed during the trial that, besides any inferences

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drawn from Weddell’s assertion of his Fifth Amendment privilege, evidence relevant to its

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decision would include inaccurate statements and schedules, inconsistencies in

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Weddell’s previous testimony regarding guns and coins, and the absence of any

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insurance claim on the alleged theft. (ECF No. 13-17 at 20.)

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After the trial, the Bankruptcy Court found that the Trustee has met its burden of

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persuasion in regards to § 727(a)(2). Specifically, the Bankruptcy Court found two

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distinct instances wherein Weddell disposed property with the intent to hinder, delay, or

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defraud creditors. The first occurred when Weddell traded $60,000 in firearms for

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$40,000 in gold, and the second occurred when Weddell used estate property to

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purchase almost $200,000 in gold coins which later disappeared (along with cash and a

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hand gun).

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In reaching its conclusion, the Bankruptcy Court relied on Weddell’s testimony

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during earlier hearings, the absence of records documenting the sales of the firearms

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and coins, Weddell’s inability to identify either buyer, Weddell’s failure to disclose the

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sales and the theft within a reasonable time period, and documentary evidence

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regarding the alleged theft. (ECF No. 1-3 at 12-16.) The Bankruptcy Court also drew the

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following inferences from Weddell’s invocation of his Fifth Amendment privilege: 1)
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Weddell did not attempt to identify or locate the man to whom he sold the guns; 2)

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Weddell did not give or receive a bill of sale in either sale transactions; 3) nobody has

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ever seen Weddell with the guns he alleges he sold; and 4) Weddell did not assist the

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police after reporting the alleged theft. (Id. at 13, 16.)

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Weddell argues that the Trustee did not provide any probative evidence that

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Weddell stole the gold coins, cash, and gun, or that he had the intent to hinder, delay, or

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defraud creditors. (ECF No. 10 at 22.) Without an evidentiary basis, argues Weddell, the

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Bankruptcy Court also erred in making negative inferences in support of its ruling. (Id.)

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The Court finds that the Bankruptcy Court appropriately relied on Weddell’s own

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testimony and documentary evidence regarding the alleged theft to support a prima facie

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case that Weddell disposed of property with the intent to defraud creditors. As the

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Bankruptcy Court clearly explained both at the trial and in its Findings, this prima facie

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case was then strengthened by the negative inferences it drew from Weddell’s

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invocation of his Fifth Amendment privilege at trial.

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Weddell seems to suggest that because nobody directly testified that he stole the

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coins, there is no evidence in the Bankruptcy Court record that he attempted to defraud

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creditors. To the contrary, Weddell’s own testimony, specifically its gaps and

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inconsistencies, provides circumstantial evidence from which a fact finder could

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determine he met both elements of § 727(a)(2). “Circumstantial evidence . . . ‘is proof of

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one or more facts from which you could find another fact.’ . . . [T]he probative value of

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circumstantial evidence depends entirely upon the strength of the inferences that can be

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drawn from the proven circumstances.” Mosier v. Stonefield Josephson, Inc., 815 F.3d

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1161, 1171 (9th Cir. 2016) (citing Ninth Circuit Model Civil Jury Instructions 1.9 (2015)).

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It is clear from Weddell’s testimony and from documentary evidence that he withdrew

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large sums from the bankruptcy estate account and some of that money later

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disappeared. It is also clear that Weddell could not provide the name of the man with

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whom he traded guns for gold or the full name of the man known as Leonard. Weddell’s

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suspected behavior when he allegedly discovered that around $200,000 of bankruptcy
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estate assets were stolen is also crystalized through his testimony and documentary

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evidence. Weddell left the scene of the theft after calling police officers and did not

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return any of their calls, which is not behavior commensurate with a victim who is

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interested in obtaining a return of the purportedly stolen property. The Bankruptcy Court

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drew the reasonable inference from this circumstantial evidence that Weddell had

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disposed of the assets himself in an attempt to deceive creditors. It then bolstered those

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inferences with the inferences it drew from Weddell’s silence at trial.

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The Bankruptcy Court identified the correct legal standard, and applied it

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correctly, and its factual findings are not clearly erroneous. Its decision to deny discharge

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based on § 727(a)(2) is therefore affirmed.

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C.

§ 727(a)(3)

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Section 727(a)(3) “places an affirmative duty on the debtor to create books and

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records accurately documenting his business affairs.” In re Caneva, 550 F.3d 755, 762

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(9th Cir. 2008). “[T]he debtor must present sufficient written evidence which will enable

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his creditors reasonably to ascertain his present financial condition and to follow his

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business transactions for a reasonable period in the past.” Id. at 761 (quotations

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omitted). The Trustee bears the burden of proving by a preponderance of the evidence

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that: 1) “the debtor failed to maintain and preserve adequate records, and 2) that such

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failure makes it not possible to determine the debtor’s financial condition and material

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business transactions.” Id. at 761. “After showing inadequate or nonexistent records, the

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burden of proof then shifts to the debtor to justify the inadequacy or nonexistence of the

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records.” Id. The intent to conceal financial information is not a prerequisite to finding

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that records are inadequate, nor is a lack of records justified by an honest belief that

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records do not need to be kept. In re Cox, 41 F.3d 1294, 1297 (9th Cir. 1994). There is

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no requirement to prove that a debtor’s failure to maintain records be “knowing” or

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“fraudulent.” In re Knowling, 2011 WL 5024298 (Bankr. D. Or. 2011). In order to justify

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the fact that records were not kept, Weddell needed to establish that others in like

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circumstances would not keep them. Id. at 763.
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The Bankruptcy Court found that the Trustee proved Weddell failed to maintain

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and preserve adequate records without resorting to any negative inferences from

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Weddell’s Fifth Amendment invocation. The Bankruptcy Court specifically referenced the

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lack of records evidencing any gun for gold trades or any cash for gold trades with the

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man known as Leonard. The absence of records relating to these liquid assets, the

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Bankruptcy Court determined, made it impossible to determine Weddell’s financial

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condition and material business transactions.

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Weddell argues that “substantial records” documenting the purchase and theft of

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gold coins were entered into the record at trial. (ECF No. 10 at 20.) Weddell does not

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cite any of these records specifically, but he is likely referring to bank records indicating

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that he withdrew money from the bankruptcy estate account and police records

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documenting his contact with Metro and the Sheriff’s Office. However, as the Bankruptcy

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Court clearly pointed out, there are no contracts or receipts documenting the purchase of

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gold coins from the unnamed man or Leonard. As is evident from references to an

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“unnamed man” and “a man known only as Leonard” in both this opinion and the

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Bankruptcy Court’s Findings, any record of these exchanges, which involved tens of

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thousands of dollars, is woefully incomplete if for no other reason than the buyers and

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sellers were not identified.

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The Trustee established that Weddell failed to keep records; and Weddell did not

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show that his failure to maintain records was justified. Therefore, the Bankruptcy Court

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did not err in denying discharge under § 727(a)(3) and its ruling is affirmed.

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D.

§ 727(a)(4)

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In order to deny discharge under §727(a)(4), the Trustee must show, by a

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preponderance of the evidence, that: “(1) the debtor made a false oath in connection

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with the case; (2) the oath related to a material fact; (3) the oath was made knowingly;

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and (4) the oath was made fraudulently.” In re Retz, 606 F.3d at 1197. “A finding of

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fraudulent intent is a finding of fact reviewed for clear error.” Id.

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The Bankruptcy Court found that the Trustee satisfied its burden relating to the

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alleged theft of approximately $200,000 of cash, gold, and a weapon in Las Vegas. The

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Bankruptcy Court called Weddell’s story “incredible” and found that Weddell’s account of

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his behavior immediately after the theft unbelievable. (ECF No. 1-3 at 20.) Therefore, the

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Bankruptcy Court reasoned, the Trustee demonstrated that Weddell had knowingly and

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fraudulently made a false oath related to assets of the bankruptcy estate. (Id.)

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Weddell argues, once again, that the Bankruptcy Court erred because there is no

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direct evidence that he fabricated the story about the Las Vegas theft. (ECF No. 10 at

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21.) Once again, however, this Court finds that the Bankruptcy Court appropriately relied

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on circumstantial evidence while acting as a fact finder. The Bankruptcy Court’s finding

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of fraudulent intent is not clearly erroneous and its conclusion that Weddell made a

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material false oath in violation of § 727(a)(4) to support denial of discharge is affirmed.

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E.

§ 727(a)(5)

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“[U]nder Section 727(a)(5) after a creditor makes a prima facie showing that an

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asset existed, but that neither it nor its proceeds can be located, the burden shifts to the

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debtor to provide a satisfactory explanation for the missing asset.” In re Retz, 606 F.3d

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at 1205. “Whether a debtor has satisfactorily explained a loss of assets is a question of

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fact for the bankruptcy court, overturned only for clear error.” Id.

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The Bankruptcy Court found Weddell’s explanation for missing $200,000 worth of

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bankruptcy estate assets unsatisfactory. (ECF No. 1-3) Accordingly, it found that the

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Trustee met its burden under § 727(a)(5). Weddell reiterates the same arguments to

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oppose denial of discharge under § 727(a)(5) as under § 727(a)(4) and (a)(2) infra. His

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arguments are unpersuasive for the same reasons articulated above. The Bankruptcy

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Court based its conclusion on probative evidence in the record as well as appropriate

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inferences from Weddell’s silence at trial. The Bankruptcy Court’s finding that Weddell

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failed to satisfactorily explain the disappearance of bankruptcy estate assets is not

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clearly erroneous and its decision to deny discharge under § 727(a)(5) is affirmed.

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V.

CONCLUSION
It is hereby ordered that the Bankruptcy Court’s decision to deny discharge is

affirmed.

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The Clerk is directed to serve a copy of this Order on the Bankruptcy Court within

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seven (7) days and such service constitutes this Court’s mandate. The Clerk of the Court

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is further instructed to close this case.

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DATED THIS 4th day of May 2016.

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MIRANDA M. DU
UNITED STATES DISTRICT JUDGE

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