SUAREZ v. ALONSO
Filing
7
OPINION filed. Signed by Judge Freda L. Wolfson on 9/17/2013. (mmh)
*NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
________________________________
:
AUREA SUAREZ,
:
:
Appellant,
:
:
Case No. 13-265(FLW)(DEA)
v.
:
Bankr. Case No. 11-2190(RTL)
:
ROSA V. ALONSO
:
OPINION
:
Appellee.
:
________________________________ :
WOLFSON, United States District Judge:
Plaintiff-Appellant Aurea Suarez (“Appellant”) appeals from the Bankruptcy Court’s
December 4, 2012 order denying Appellant’s Adversary Proceeding Complaint, finding no cause
to deny discharge to Appellee-Defendant Rosa Alonso (“Debtor”). On appeal, Appellant argues
that Debtor attempted to defraud the Bankruptcy Court by providing false information on her
bankruptcy schedules and making false oaths. This Court has appellate jurisdiction to review the
decision of the Bankruptcy Court pursuant to 28 U.S.C. § 158(a). For the reasons that follow,
this Court will affirm the decision of the Bankruptcy Court.
I.
FACTS & HISTORY
The following relevant facts are taken from the findings of fact in the opinion of the
Bankruptcy Court issued in connection with its December 4, 2012 order.
See Opinion of
Bankruptcy Judge, Dec. 4, 2012, No. 11-2190 (RTL) (the “Bank. Op.”), at 1.
In 2007, Debtor, an educated and experienced business person, formed a corporation
named Mi Apogeo, Inc. (the “Company”), with Debtor as the sole owner, in order to establish an
English language website geared to the Latino market. Id. at 2. The website, named “My Latino
1
Voice,” was intended to generate revenue primarily from advertising. Id. Funding for the
business came from Debtor’s savings, a line of credit secured by her residence, and rental
proceeds from an apartment which she owned next to her residence. Id. at 2-3. Debtor estimated
that she invested several hundred thousand dollars into the Company. Id. at 3. Further, Debtor’s
parents lent $35,000, and an editor who worked with her (the “Editor”) lent $100,000 to the
Company. Id. Both loans were secured by the Company’s assets. Id.
In operating the Company, Debtor drew no salary or other compensation, and covered her
daily expenses by relying on her savings, IRA, and a line of credit. Id. Occasionally, however,
Debtor used the Company credit card for personal expenses such as groceries.
Id.
The
Company’s certified public accountant (the “CPA”) treated these purchases as repayments of
loans on the Company’s tax returns. Id.
My Latin Voice generated some revenue, but the Company never earned a profit, and net
operating losses were in the hundreds of thousands of dollars.
Id.
In December 2008,
Appellant—who was in a personal relationship with the Debtor at the time—filed a mortgage on
her home and loaned $242,000 to the Company. Id. This loan was secured by a junior lien on
Debtor’s residence, and the Company made monthly payments to Appellant equal to the amount
of her mortgage payments. Id. By the time Appellant’s loan matured in December 2010, the
Company was still losing money. Id. When the Company failed to pay Appellant’s loan,
Appellant brought suit in New York State court against the Company and Debtor. Id. at 3-4.1
Subsequently, in January, 2011, Debtor sought counsel from a New York bankruptcy
attorney (the “NY Bank. Attorney”) regarding her corporate and personal financial problems. Id.
1
The suit against Debtor was stayed by her bankruptcy; a default judgment was entered
against the Company, but Appellant has not pursued collection against the Company’s assets.
See Bank. Op. at 4 n.1.
2
at 4. She supplied him with extensive documentation regarding her business and personal
financial affairs, including financial information from the Company’s CPA and the loan
documents associated with her parents, the Editor, and Appellant. Id. The NY Bank. Attorney
determined that, although the Company had signed security agreements with Debtor’s parents
and the Editor, the security interests were not perfected. Id. Debtor relayed this information to
the Company’s attorney as well as her parents and the Editor. The Company’s attorney then
prepared and filed UCC-1 financing statements. Id.
The NY Bank. Attorney further recommended that Debtor file personal bankruptcy. Id.
He agreed to prepare all documents needed for her bankruptcy filing including the petition,
schedules and a statement of financial affairs. Id. After the NY Bank. Attorney had completed
the documents, he sent them to Debtor to review and sign, which she did. Because the NY Bank.
Attorney was not admitted in the District of New Jersey, where Debtor, as a New Jersey resident,
needed to file her bankruptcy petition, he arranged for another attorney to sign and file Debtor’s
petition. Id. This attorney, (the “NJ Bank. Attorney”) reviewed the bankruptcy papers, but did
not meet with the Debtor or review any supporting documentation before filing the petition.2 Id.
Debtor’s schedules filed with her original chapter 7 petition disclose the follow relevant
information.
Schedule B—Personal Property—discloses Debtor’s ownership of the
stock in Mi Apogeo, Inc., with a value of the stock at $75,000.00 and a
notation “Subject to two (2) liens totaling $135,000.” No entry was made
on Schedule B for a loan receivable from the Company.
Schedule C—Property Claimed As Exempt—lists the stock in Mi Apogeo,
Inc. as exempt under 11 U.S.C. § 522(d)(5) at “Full fair market value
(FMV)” with a value of $75,000.
Schedule D—Creditors Holding Secured Claims—lists the Debtor’s
parents and the Editor as having liens on the stock in the Company.
2
The NJ Bank. Attorney also attended the meeting of creditors, pursuant to 11 U.S.C. §
341(a). Id.
3
Schedule I—Current Income of Individual Debtors—discloses as the
Debtor’s primary source of income $12,500 per month as regular income
from operation of a business. The form requests that a detailed statement
of this business income be attached, but none was.
Schedule J—Current Expenditures of Individual Debtors—claims regular
expenses from operation of a business [as] $10,719 per month. Again the
form requested a detailed statement of these business expenses, but none
was attached.
On Form B22A—Chapter 7 Statement of Current Monthly Income and
Means-Test Calculation—the Debtor disclosed $1,781.00 on the line for
gross wages, salary, tips, bonuses, overtime, commissions and $21,372.00
as Annualized Current Monthly Income for § 707(b)(7).
Id. at 5.
Additionally, at the § 341(a) meeting of creditors, Debtor testified that nobody had ever
offered her money for her stock in the Company. Id. Appellant, who was also present at the
meeting, followed up Debtor’s testimony by asking if Debtor had ever received an offer of one
million dollars for the Company. Id. Debtor responded that such an offer had been made totally
in jest. Id.
Following the § 341(a) meeting, Appellant issued a subpoena, pursuant to Bankruptcy
Rule 2004, for the Debtor to appear for an examination and to produce certain documents. Id. at
6. Debtor largely complied with the subpoena, producing most of the information requested—
including banking records and income tax returns for herself and the Company—which
amounted to thousands of pages of documents.3 Id. On June 30, 2011, Debtor also appeared for
her examination under Rule 2004. Id. During the examination, in response to a question
regarding the identity of the Company’s advertising clients, Debtor described several customers
who had advertised during the previous year. Id. However, when Debtor was asked about
specific advertising customers from 2009, the NJ Bank. Attorney objected to the question as
3
For this reason, Debtor uploaded the documents to “Drop Box,” an internet service, from
which the NJ Bank. Attorney retrieved the documents and forwarded them to Appellant’s
attorney. Id. at 6.
4
irrelevant, being too remote in time. Id. Following the examination, Appellant requested via
letter dated July 11, 2011, additional documentation, including the names of and payments made
by all advertising customers for the website for 2009, 2010, and 2011. Id.
Before Debtor responded to the July 11 letter, Appellant filed an adversary complaint in
the Bankruptcy Court on August 1, 2011, asserting pursuant to § 727(a)(2)-(6) of the Bankruptcy
Code that Debtor was not entitled to a discharge. According to Appellant’s Complaint, Debtor’s
original schedules confused the assets, liabilities, income and expenses of her wholly-owned
corporation with her personal financial information, precluding discharge on several grounds
under the Bankruptcy Code. See Compl. at ¶¶ 6-10; see also 11 U.S.C. § 727(a)(2)-(6). Debtor
filed an Answer to the Complaint through the NJ Bank. Attorney, and supplied Appellant with
the documents requested in the July 11 letter except for the names and amount of advertising
revenue from the website’s customers.4 Bank. Op. at 6.
Shortly after the filing of the Answer, Debtor elected to retain a new attorney for both her
bankruptcy proceeding and Appellant’s adversary case. Id. With the guidance of this new
counsel, Debtor filed the following amended documents: (1) Schedule B, deleting reference to
the UCC liens against the Company stock; (2) Schedule D, omitting her parents and the Editor as
secured creditors; (3) Schedules I and J, attaching detailed statements of monthly income and
expenses for the Company. Id. at 6-7. Debtor was also deposed in connection with Appellant’s
case on November 16, 2011. Id. at 7.
Debtor then moved, and Appellant cross-moved, for summary judgment.
Id.
The
Bankruptcy Court denied both motions because genuine issues of material fact existed regarding
Debtor’s intent. Id.
4
Regarding this information, the NJ Bank. Attorney responded that “[t]his request has
been objected to previously.” Id.
5
The parties appeared before the Bankruptcy Court for trial on May 14, 2012. At trial,
Appellant called only two witnesses: Debtor and the NJ Bank. Attorney. Id. Debtor readily
acknowledged the errors on her original bankruptcy schedules, agreeing that she inaccurately
listed her Company stock as subject to UCC liens on Schedules B and D. Id. Debtor testified,
however, that she relied entirely on the NY Bank. Attorney to complete her bankruptcy filing;
she gave that attorney all the information regarding the loans to the Company, and trusted the
lawyer to correctly report all her information. Id. Debtor denied the suggestion by Appellant’s
attorney that Debtor was trying to shield the Company from her creditors and intended to reap
profits from it after bankruptcy; Debtor further denied that she intended to hinder, defraud, or
delay her creditors. Id. Indeed, Debtor testified that by the time she had filed for bankruptcy,
she was searching for a new job and, shortly thereafter, the website shut down and the Company
has had no further business dealings. Id. at 7-8.
The Bankruptcy Court found Debtor to be a credible witness, and resultantly found that
she did not intend to hinder, defraud, or delay her creditors, conceal any information, or
knowingly make a false oath regarding liens on her stock in the Company. Id. The court further
found that the erroneous statements regarding the UCC liens on the stock and Debtor’s
scheduling her parents and the Editor as secured creditors were attributable to a mistake by the
NY Bank. Attorney, and that Debtor was not aware of the error until it was pointed out by her
new attorney. Id. at 8. Similarly, with regard to the incorrect valuation of the stock at $75,000,
the Bankruptcy Court found that Debtor did not make the valuation with any intent to deceive.
Id. Moreover, and contrary to Appellant’s arguments that her stock was worth considerably
more than the $75,000 valuation made by Debtor on her bankruptcy schedules, the Bankruptcy
Court found that the stock actually had no value at the time she filed bankruptcy. Id. The
6
Company had never turned a profit, reporting huge losses instead. Id. Indeed, Debtor’s estimate
of a $75,000 valuation based on advertising revenue did not take into account the Company’s
debts of at least $377,000 to Appellant, Debtor’s parents, and the Editor.
Id.
Thus, the
Bankruptcy Court found that, rather than understating the value of her stock to keep the trustee
from selling it, Debtor overvalued the stock, but did so innocently. Id. at 8-9. Finally, the court
also found that the error on Schedule C, listing the stock as exempt, was solely the result of the
NY Bank. Attorney’s failure to distinguish between Debtor and the Company, and that Debtor
had no intention of improperly claiming an exemption. Id. at 9.
Regarding whether Debtor had ever received a bona fide offer to purchase the Company
for a million dollars, Debtor testified that such a statement had been made in jest, at a social
setting, before the website had even launched. Id. Again, the Bankruptcy Court found Debtor’s
testimony credible, and that there was never a serious offer to purchase the Company. Id.
With respect to Debtor’s failure to schedule a loan receivable from the Company as an
asset on her bankruptcy schedules, Debtor testified that there had been no written loan agreement
with the Company, and thus she had considered the money she put into the company as her
equity, only valuable if the Company ever made a profit. Id. Based on this testimony, and the
fact that no books or records had been introduced into evidence to the contrary, the court found
that Debtor did not knowingly fail to schedule a loan receivable from the Company as an asset.5
Id.
Lastly, as to whether Debtor misrepresented her income and expenses on Schedules I and
J and on form B22, the Bankruptcy Court found that the failure to list any wages was not in
5
In that connection, the Bankruptcy Court also found, contrary to Appellant’s arguments,
that Debtor’s use of the Company credit cards for personal purchases did not evidence a loan,
and that the tax consequence of her use of these credit cards was not an issue before the
Bankruptcy Court. Id.
7
error. Id. The court found that Debtor did not receive any income from the Company and the
minor use of Company credit cards should not have been reported as income. Id. at 9-10. In
fact, the Bankruptcy Court determined that the Company’s income and expenses were
incorrectly, i.e., unnecessarily, reported on Debtor’s Schedules I and J, but, once again, the errors
were committed by the NY Bank. Attorney and were not a knowing misstatement by Debtor. Id.
at 10. The court further found that Debtor had since corrected all relevant mistakes from the
original schedules. Id.
Following trial and arguments by the parties, the Bankruptcy Court issued a written
opinion, finding based on Debtor’s truthful testimony that she did not intend to hinder, defraud
or delay her creditors, or conceal any information, that any errors on Debtor’s original schedules
and statement of financial affairs were unintentional, and accordingly denied Appellant’s
objection to discharge. See generally id. On December 4, 2012, in connection with the written
opinion, the Bankruptcy Court entered its order rendering judgment in favor of Debtor, finding
no cause to deny discharge, and ordering that an order for discharge be entered for the reasons
stated in the opinion. It is from the December 4, 2012 order that Appellant now appeals.
II.
STANDARD OF REVIEW
The proper standard of review to be applied by a district court when reviewing a ruling of
a bankruptcy court is determined by the nature of the issues presented on appeal. In re Beers,
No. 3:09-CV-01666, 2009 WL 4282270, *3 (D.N.J. Nov. 30, 2009) (quoting Baron & Budd,
P.C. v. Unsecured Asbestos Claimants Committee, 321 B.R. 147, 157 (D.N.J. 2005)). A district
court reviews “the bankruptcy court’s legal determinations de novo, its factual findings for clear
error and its exercise of discretion for abuse thereof.” In re United Healthcare System, Inc., 396
F.3d 247, 249 (3d Cir. 2005) (quoting In re Trans World Airlines, Inc., 145 F.3d 124, 130-31 (3d
8
Cir. 1998)). Review of facts under the “clearly erroneous” standard is significantly deferential
and requires a “definite and firm conviction that a mistake has been committed.” Concrete Pipe
& Prods. v. Construction Laborers Pension Trust, 508 U.S. 602 (1993). Conversely, legal
conclusions from the bankruptcy court are subject to de novo, or plenary, review by the district
court. Donaldson v. Bernstein, 104 F.3d 547, 551 (3d Cir. 1997). Mixed findings of fact and
conclusions of law must be broken down, and the applicable standards—“clearly erroneous” or
“de novo”—must be appropriately applied to each component. Meridian Bank v. Alten, 958 F.2d
1226, 1229 (3d Cir. 1992) (citing In re Sharon Steel Corp., 871 F.2d 1217, 1222 (3d Cir. 1989)
and Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 102-03 (3d Cir. 1981)).
III.
DISCUSSSION
In her opening brief on appeal, Appellant advanced numerous claims of error stemming
from the Bankruptcy Court’s decision to dismiss Appellant’s Complaint and permit Debtor’s
discharge from bankruptcy. Debtor countered in her opposition papers, inter alia, that much of
Appellant’s arguments on appeal concerned facts and evidence that were not presented to the
Bankruptcy Court in the underlying proceeding. In light of this, Appellant, in her reply, appears
to have withdrawn any claim premised on new evidence. Accordingly, I will review only those
remaining claims in Appellant’s appeal based on evidence and arguments that were properly
raised before the Bankruptcy Court. 6 In re Websci Techs., Inc., 234 F. App’ x. 26, 31 (3d Cir.
2007) (finding no error by district court in refusing to permit appellant in bankruptcy matter to
supplement record with new materials relating to allegations of fraud and concealment that were
not part of the bankruptcy court’s record); Smith v. Manasquan Sav. Bank, No. 12-00085 (JAP),
6
I note that Appellant also filed a letter, prior to filing her reply brief, presenting additional
evidence in support of her appeal. I consider the contents of that letter only to the extent it
contains evidence properly in the record before the Bankruptcy Court.
9
2012 WL 4339561, at *5 (D.N.J. Sept. 20, 2012) (noting that district courts reviewing a
bankruptcy court’s decision on appeal will not consider new evidence that was not part of the
factual record before the bankruptcy court).
Appellant does not explicitly set forth the bases for her appeal.7
After reviewing
Appellant’s arguments, however, the Court can discern two claims of error based on evidence
that has been presented below. First, Appellant asserts that the Bankruptcy Court should not
have excused any errors or omissions in Debtor’s bankruptcy filings on the ground that the errors
were the fault of Debtor’s attorney. See App. Reply Br., 7. Second, Appellant argues that the
Bankruptcy Court erred when it determined that Debtor’s failure to provide the names of
advertising customers for the website, and the specific revenue attributable to those customers,
was not a material omission precluding Debtor’s discharge from Bankruptcy. This second claim,
as explained in more detail infra, rises or falls with Debtor’s argument that the Bankruptcy Court
erred in calculating the amount of the Company’s revenue and finding that the value of Debtor’s
interest in her Company stock was worthless.
With respect to Appellant’s first claim, she appears to argue that the Bankruptcy Court
erred, as a matter of law, when it determined that Debtor’s inaccurate filings could be excused
because Debtor relied on her attorney, and thus Debtor’s discharge was not barred under §
727(a)(4), for providing a false oath.8
See App. Reply Br., 14-15.
This argument also
7
Apart from following a basic brief structure, Appellant’s papers are not organized in any
meaningful fashion. Nevertheless, I make every attempt to extricate from these papers
Appellant’s claims on appeal.
8
Specifically, Appellant argues:
The trial court erred in denying [Appellant’s] complaint on the basis of
discrepancies on [D]ebtor’s schedule as a result of attorney reliance, however the
advice of counsel should not have been relied [on] as a defense when in this case
10
necessarily challenges any factual finding by the Bankruptcy Court regarding Debtor’s
knowledge of the errors and her intent to commit them. Indeed, the success of Appellant’s claim
turns on these factual findings. Accordingly, I first review these findings, applying the clearly
erroneous standard of review, before analyzing the legal aspect of Appellant’s claim under a de
novo standard.
Appellant principally argues that, contrary to the Bankruptcy Court’s finding, Debtor had
full knowledge that she failed to disclose all pertinent information to her NY Bank. Attorney,
and that she was aware that her Bankruptcy filings inaccurately reflected her financial situation.
Thus, Appellant contends that “the reasonableness of [a debtor’s] reliance on an attorney to
accurately complete bankruptcy schedules is undermined” where, as here, Debtor failed to
provide full and truthful information to the attorney completing the schedules. See App. Reply
Br., 10-12. In that connection, with regard to the adequacy of Debtor’s disclosures in her filings,
the Bankruptcy Court found as a fact that Debtor “did not intend to hinder, defraud or delay her
creditors, conceal any information, or knowing make a false oath regarding liens on the stock in
the Company.” Bank. Op., 8. The Bankruptcy Court also found that Debtor did not “knowingly
fail to schedule a loan receivable from the Company as an asset.” Id. at 9. Finally, the
Bankruptcy Court found that Debtor did not withhold information from her Schedules I and J
because “Debtor and the Company’s CPA provided the [NY Bank. Attorney] with all the
relevant information” and, moreover, “the correct filing would not include the corporate income
and expenses [of the Company] on the individual Debtor’s schedules.” Id. at 10 (emphasis
added).
With respect to the NY Bank. Attorney’s involvement in Debtor’s filings, the
the [D]ebtor had full and complete knowledge and is agreement not to divulge the
required information.
App. Reply Br., 7.
11
Bankruptcy Court found that “the erroneous statement regarding the UCC liens on the stock . . .
was attributable to a mistake by the [NY Bank. Attorney] in failing to distinguish between the
Debtor and the Company. The Debtor was not aware of the error until it was pointed out by
Plaintiff’s attorney.” Id. at 8 (emphasis added). Similarly, the Bankruptcy Court found that the
NY Bank. Attorney’s “failure to distinguish between the Debtor and the Company caused him to
incorrectly list the stock on Schedule C as exempt. The Debtor had no intention of improperly
claiming an exemption.” Id. at 9. Finally, the Bankruptcy Court found that any error on
Debtor’s Schedules I and J, and in the Means-Test form, “was committed by the [NY Bank.
Attorney] and was not a knowing misstatement by the Debtor.”
Id. at 10.
In sum, the
Bankruptcy Court found Debtor credible, that she did not knowingly or intentionally withhold or
misstate information on her filings, and that any errors were a result of the NY Bank. Attorney
and not Debtor.9
Appellant advances no credible argument that these findings were in error, except to
claim that Debtor should have disclosed specific information relating to the Company’s
advertising customers. As I explain in more detail below, however, the Bankruptcy Court
properly determined that such information was immaterial to Debtor’s personal bankruptcy case.
Beyond this information, Appellant points to nothing specific that should have been disclosed
that was not. Thus, Appellant has not carried her burden of showing that the Bankruptcy Court
clearly erred when it found that Debtor fully disclosed to the NY Bank. Attorney all relevant
information about her financial situation and that of the Company. To the contrary, the record
9
The Bankruptcy Court also found that Debtor truthfully testified that there had been no
bona fide offer to purchase the Company for one million dollars, and that Debtor’s use of her
credit card for grocery purchases was not sufficient cause to deny discharge under § 727(a)(4).
Although Appellant does not appear to challenge these findings or determination on appeal, I
nonetheless note that the Bankruptcy Court did not err in this regard.
12
supports the Bankruptcy Court’s finding, as Debtor disclosed “thousands of pages” of documents
in response to Appellant’s Rule 2004 subpoena, and, with the guidance of new counsel, promptly
corrected and amended her filings when she discovered her errors. Furthermore, as the above
cited findings demonstrate, the Bankruptcy Court based its findings primarily on credibility
determinations after receiving testimony from Debtor. On appeal, this Court’s review of such
determinations is highly circumscribed, “review of factual findings is limited to clear error . . .
and [I] give deference to the trial court’s determination of credibility.” In re Graves, 33 F.3d
242, 251 (3d Cir. 1994) (citation omitted) (citing In re Brown, 951 F.2d 564, 567 (3d Cir. 1991));
Kool, Mann, Coffee & Co. v. Coffey, 300 F.3d 340, 353 (3d Cir. 2002) (“[I]n reviewing the
bankruptcy court’s factual findings we are to give due regard to the opportunity of that court to
judge first-hand the credibility of witnesses.”). In light of this significant deference I must give
to the Bankruptcy Court’s credibility determination of Debtor, I conclude that Appellant’s
challenge fails with respect to whether the Bankruptcy Court correctly found that Debtor fully
disclosed her financial situation to her attorneys.
The remaining issue in this aspect of Appellant’s appeal is whether the Bankruptcy Court
properly excused Debtor’s initial filing errors as an unintentional error resulting from reasonable
reliance on the NY Bank. Attorney. In its opinion, the Bankruptcy Court relied on the seminal
Third Circuit case, In re Topper, 229 F.2d 691 (3d Cir. 1956), concluding that “[u]nder the
Topper rule any inaccuracies are excusable and not the product of the Debtor’s intentional
misrepresentation or concealment.” Bank. Op., 16-18. The court distinguished case law cited by
Appellant, primarily on the grounds that the debtors in those cases were intentionally concealing
assets from their attorneys and the court. Id. at 17-18. Because Debtor lacked such intent, the
Bankruptcy Court concluded that there was no cause to deny Debtor’s discharge due to
13
inaccurate filings by her attorney. Id. at 18.
Although I review de novo the Bankruptcy Court’s decision in this regard, Appellant
provides this Court with no argument, and cites no law, showing that Topper does not apply, or
that the Bankruptcy Court misapplied the Topper rule to Debtor’s circumstances.
Instead,
Appellant cites three cases, each for the general proposition that a debtor must make a full
disclosure of her financial situation in bankruptcy filings.10 See In re Zimmerman, 320 B.R. 800,
808 (Bankr. M.D. Pa. 2005); In re Arcuri, 116 B.R. 873, 881 (S.D.N.Y. 1990); In re Chalik,748
F.2d 616, 618 (11th Cir. 1984). None of these cases deal with a debtor’s reasonable reliance on
an attorney, and thus do not undermine the rule set forth in Topper, and correctly restated by the
Bankruptcy Court, that because § 727(a)(4) requires an actual intent to defraud, “the advice of
counsel may be an excuse for an inaccurate or false oath.”11 229 F.2d at 693. In Zimmerman,
the court found that the debtor exhibited a “reckless indifference to the truth” in his filings and
statements, and did so with a fraudulent intent, thus barring discharge under § 727(a)(4). In
Arcuri, the court found that the plaintiff challenging the debtor’s discharge under § 727(a)(4) had
failed to show that the debtor had actually made a false statement. 116 B.R. 881-82. Finally, in
Chalik, the court considered whether the deliberate failure to disclose worthless assets
constituted a false oath. 748 F.2d at 618. In contrast, in the present case, the has been no finding
by the Bankruptcy Court that Debtor acted with reckless indifference to the truth or failed to
disclose worthless assets; to the contrary, as previously noted, the Bankruptcy Court found that
there was no fraudulent intent in Debtor’s inaccurate filings, and that Debtor, if anything,
disclosed certain assets unnecessarily. For these reasons, I conclude that the Bankruptcy Court
10
Appellant does not cite any of the same cases she presented to the Bankruptcy Court,
however, having reviewed the Bankruptcy Court’s analysis, I agree that those cases are not
contrary to Topper.
11
I further note that none of these decisions are binding on this Court.
14
did not err when it rejected Appellant’s argument that § 727(a)(4) barred Debtor’s bankruptcy
discharge.
Turning to Appellant’s second claim, Appellant takes issue with Debtor’s failure to
disclose advertising customer names and revenue received from the years 2009-2011, and the
Bankruptcy Court’s determination that such information was not material to Debtor’s bankruptcy
case. App. Reply Br., 8-10.12 Appellant further contends that Debtor failed to “provide any
factual or legal support for [her] failure to turn over the advertising revenue of the [C]ompany for
2009, 2010 and 2011.” Id. at 9.
As Debtor and the Company are distinct entities, and only Debtor’s personal finances are
at issue in this chapter 7 case, the Company’s revenue is only relevant insofar as it pertains to
Debtor’s finances, i.e., the value of Debtor’s Company stock. See Bank. Op., 12, 14; see also In
re DiLoreto, 266 F. App’x 140, 142-43 (3d Cir. 2008) (where no finding of basis to reversepierce corporation, corporation’s assets irrelevant in determining individual’s assets); In re
Thurman, 901 F.2d 839, 841 (10th Cir. 1990) (“MBank has cited no authority, and we have
found none, which holds that the transfer of property of another [such as a corporation] which
has incidental effect upon the assets of a debtor satisfies the requirements of § 727(a)(2)(A).”).
In that connection, the Bankruptcy Court determined that the specific names of advertising
customers for the company, and the respective amount of revenue collected from each customer,
was not relevant to Debtor’s bankruptcy filing because it pertained to the Company and not
Debtor. See Bank. Op., 14-15. The Bankruptcy Court further reasoned that if Appellant “had a
12
As best as the Court can discern, this argument appears to be related to Appellant’s
claims that Debtor’s discharge should be precluded under § 727(a)(2) (concealment or
destruction of evidence with intent to hinder or defraud creditors), (a)(3) (failure to preserve
business records), (a)(5) (failure to satisfactorily explain loss or deficiency of assets), and/or
(a)(6) (refusal to obey a court order). Again, I analyze each of Appellant’s challenges, legal and
factual, under the appropriate standards.
15
legitimate reason for requesting the customer names from 2009, she could have moved to compel
disclosure, but she failed to do so.”13 Id. at 15. Appellant has not shown on this appeal why the
identity of the Company’s advertising customers is relevant, and thus why the Bankruptcy Court
erred when it found that information immaterial to Debtor’s bankruptcy.
Indeed, the Bankruptcy Court, was satisfied with Debtor’s explanation, and supporting
documents, that all of the Company’s revenue was traceable on the disclosed bank statements,
and, thus, the Company stock could be accurately valued.14 See id. at 8-9, 15. Although,
Appellant argues that the stock should be valued higher, she fails to show how the Bankruptcy
Court’s calculations finding the stock worthless are clearly erroneous.15 See App. Reply Br., 15.
Appellant’s efforts are misplaced, as she fails to demonstrate that the Bankruptcy Court clearly
erred when it found that, throughout the Company’s existence, its debt—in the form of
considerable loans—far exceeded its revenue, and that Debtor never drew a salary from the
Company. See Bank. Op., 8. Appellant’s alternative calculations of revenue, and the resulting
value of the Company’s stock, fail to account for the Bankruptcy Court’s findings with respect to
the Company’s ongoing and considerable liabilities. I therefore cannot conclude, based on
Appellant’s arguments, that in reviewing the Bankruptcy Court’s findings, I am left with a
“definite and firm conviction that a mistake has been committed.” Concrete Pipe & Prods. v.
Construction Laborers Pension Trust, 508 U.S. 602. Accordingly, Appellant’s claim that Debtor
13
I note that Appellant’s papers on appeal refer to the failure to disclose information for
2009-2011, while the Bankruptcy Court opinion refers only to 2009. The Bankruptcy Court’s
reasoning regarding the relevance of the 2009 information, however, applies with equal force to
2010 and 2011.
14
Appellant, in her own papers, identifies a trial colloquy between the Bankruptcy Court
and Debtor, explaining how the Company bank statements could easily be read to show the
amount of revenue collected by the Company. See App. Reply Br., 12.
15
It is difficult to follow Appellant’s calculations, which at times appear to be nothing more
than correcting Debtor’s original calculations. See App. Reply Br., 13-14.
16
did not disclose specific information regarding the Company’s advertising revenue fails because
it is relevant only in connection with the valuation of Debtor’s stock, and Appellant has not
carried her burden on this appeal showing that the Bankruptcy Court clearly erred when it found
the stock to be worthless.
Beyond these claims, Appellant only presents generalized arguments, which the Court
construes as claims that the Bankruptcy Court erred, in law and/or in fact, when it determined
that Debtor was not precluded under § 727(a)(2)-(6) of the Bankruptcy Code from being
discharged from bankruptcy. At bottom, these claims stem from Appellant’s apparent belief that
Debtor has hidden evidence of her true financial condition from Appellant, Debtor’s other
creditors, and the Bankruptcy Court. See App. Reply Br., 8. In other words, each of Appellant’s
remaining claims is a variation of Appellant’s contention that Debtor was less than truthful in the
proceedings below, which led to erroneous findings by the Bankruptcy Court. See, e.g., App.
Reply Br., 12-13 (explaining that in relying on Debtor’s bank statements to calculate the
Company’s revenue, the Bankruptcy Court “did not take into account the multiple false oaths
and errors which directly related to [D]ebtor’s business”). Because the Bankruptcy Court found
Debtor to be credible and truthful, and Appellant has pointed to no testimony or other evidence
properly considered on this appeal to show that such a finding was clearly erroneous, Appellant
cannot prevail on her remaining claims that the court below erred. In re Dr. R.C. Samanta Roy
Institute of Sci. Tech. Inc., 465 F. App’x 93, 96 (3d Cir. 2011) (“A bankruptcy court's ‘ultimate
determination of fact’ will not be set aside unless ‘that determination is completely devoid of
minimum evidentiary support displaying some hue of credibility or bears no rational relationship
to the supportive evidentiary data.’” (Quoting Fellheimer, Eichen & Braverman, P.C. v. Charter
Techs., Inc., 57 F.3d 1215, 1223 (3d Cir. 1995))); see also Kool, Mann, Coffee & Co. v. Coffey,
17
300 F.3d at 353 (deferring to Bankruptcy Court’s credibility determinations).
As noted throughout this Opinion, the Bankruptcy Court found that Debtor fully
disclosed all information material to her bankruptcy proceeding, and cured any errors in her
filings once she retained new counsel. After reviewing the record, this Court is satisfied that the
Bankruptcy Court’s findings, rooted in credibility determinations and documentary evidence,
that Debtor’s initial filing errors in this matter were unintentional, honest mistakes based on
advice she received from counsel, and furthermore, that Debtor made every effort to correct
these errors and to disclose all materially relevant information pertaining to her finances, were
not in error. I find no basis to reverse the Bankruptcy Court’s decision that Debtor should not be
precluded from discharge under § 727(a)(2)-(4).
IV. CONCLUSION
For the reasons set forth above, the Court concludes that the Bankruptcy Court did not err
in denying Appellant’s Adversary Proceeding Complaint. Accordingly, the Court AFFIRMS the
Bankruptcy Court’s order.
Date: September 17, 2013
/s/ Freda L. Wolfson
Hon. Freda L. Wolfson, U.S.D.J.
18
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