Schackner v. Breslin Realty Development Corp.

Filing 7

MEMORANDUM AND ORDER - For the foregoing reasons, the order of the Bankruptcy Court is AFFIRMED and the Debtor's appeal is DENIED. The Clerk of the Court is directed to mark this appeal closed. Signed by Judge Joanna Seybert on 1/5/12. (Coleman, Laurie)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK

-------------------------------------X

MARTIN SCHACKNER,

E.D. Bankr. Adv. Proc.
No. 809-08096(DTE)

Appellant,
-against-

MEMORANDUM & ORDER
11-CV-2734(JS)

BRESLIN REALTY DEVELOPMENT CORP.,
Appellee.

-------------------------------------X
APPEARANCES
For Appellant:

Katherine A. Geraci, Esq.
Richard G. Gertler, Esq.
Thaler & Gertler, LLP
90 Merrick Avenue, Suite 400
East Meadow, NY 11554

For Appellee:

Michael D. Brofman, Esq.
Weiss & Zarett, P.C.
3333 New Hyde Park Road, Suite 211
New Hyde Park, NY 11042

For Chapter 7
Trustee:

Steven B. Sheinwald, Esq.
Kirschenbaum & Kirschenbaum, P.C.
200 Garden City Plaza
Garden City, NY 11530

SEYBERT, District Judge:
Pending before the Court is an appeal arising out of a
Chapter

7

bankruptcy

Bankruptcy Court

for

the

Debtor Martin Schackner
Development

action

Corporation

filed

Eastern

District

(the "Debtor").
( "BRDC")

in

filed

the

United

States

of New York against

Appellee Breslin Realty
an

adversary

proceeding

against Debtor seeking a denial of discharge under 11 U.S. C.
727 (a) (2) (A)
Debtor

now

and

(a) (3)

appeals

the

and

moved

order

of

for

summary

Bankruptcy

judgment.

Judge

Dorothy

§

The
T.

Eisenberg

granting

summary

Debtor's

discharge

under

following reasons,

judgment
11

to

U.S.C.

§

BRDC

and

denying

the

727 (a) {3)

For

the

the order of the Bankruptcy Court is AFFIRMED

and the Debtor's appeal is DENIED.
BACKGROUND 1
The

Debtor is

a

licensed Certified Public Accountant

("CPAn) and real estate broker.

He obtained a bachelor's degree

in Accounting and Information Systems
City University of New York in 1979,
in Business Administration ("MBAn)
or

about

1983.

In

Controller position,

198 8,

BRDC

from Queens College,

and he obtained a Masters

from St. John's University in
hired

the

Debtor

to

fill

The Debtor remained in that position

until 2004 when his employment with BRDC was terminated.

was

BRDC commenced a

settled in 2008

its

and in or about 1994, BRDC promoted him to

Chief Financial Officer.

same year,

The

for

lawsuit against

$625,000.

the

Debtor,

That
which

The Debtor retained Siller

Wilk, LLP to represent him in that suit.
In 2005,
Realty
DeGroat)

Corp.
as

the Debtor began working with Smith

d/b/a

Smith

an associate

&

DeGroat

Real

real estate broker.

Estate

&

Drake

("Smith

Around the

&

same

time or shortly thereafter, the Debtor incorporated a Subchapter
1

The following facts
are drawn from the parties'
Local
Bankruptcy Rule 7056-1 statements of undisputed material facts
and their evidence in support.
Any relevant factual disputes
are noted.
2

S

corporation

("Landmark")

under
and

the

name

directed

Landmark

Smith

Real

Estate

DeGroat

&

to

deposit

commissions directly into Landmark's bank account. 2
would

then

account

periodically

to

an

account

transfer

maintained

(also known as Karen Klafter) .
his

wife's

household

funds
by

Services

The Debtor

from

Landmark's

wife

Karen

his

his

bank

Schackner

The Debtor asserts that his and

expenses

were

all

paid

from

Mrs.

Schackner's account.
On
Chapter

14,

2008,

7 petition against

legal fees.
Debtor

July

on

"Trustee")

Siller
the

Wilk

Debtor

on

filed

an

involuntary

the

basis

of

unpaid

An order for relief was entered on consent of the
September

26,

was appointed.

2008,

and

Chapter

7

Trustee

(the

Rule 2004 examinations were taken of
In connection with the Rule 2004

the Debtor and Mrs. Schackner.
examinations,

a

in January and February 2009,

the Debtor produced

the following financial records: 3
•

Martin and Karen Schackner' s federal income tax returns
for 2006 and 2007 and amended tax returns for 2004-2007;

•

Debtor's bank statements from Capital One
Bank from November 2005 to April 2008;

I

North

Fork

2

The parties dispute whether the employment agreement with Smith
DeGroat was with the Debtor individually or with the Debtor
through Landmark.
&

3

There
were
additional
documents
requested
during
Mr.
Schackner' s Rule 2004 examination, for example any records that
may have been delivered to his accountant; however, no records
were produced in response to these requests.
3

•

Debtor's bank statements from WaMu from January 2008 to
October 2008;

•

Debtor's credit card statements for multiple credit cards
for dates ranging from November 2007 through August 2008;

•

the Deed and
residence;

•

Blue Hill Associates' tax returns for 2006 and 2007;

•

MS Realty Services' tax returns for 2006 and 2007
bank statements from September 2008 to January 2009;

•

Landmark's tax return for 2006;

•

2007 K-1 form issued by Landmark to the Debtor;

•

Landmark's Capital One I North Fork bank statements from
November 2006 to July 2008;

•

Landmark's Bank of America
2008 to January 2009; 4

•

Landmark's Bank of America credit card statements
December 2007 and February 2008 to July 2008; and

•

miscellaneous bills for insurance premiums, telephone,
electricity,
landscaping,
college
tuition,
security
5
alarms, and car loans;

mortgage

statements

bank

for

the

statements

Schackner

from

and

April

for

4

BRDC asserts that the Debtor did not produce Landmark's Bank of
America bank statement for July 2008.
In response, the Debtor
produced a cover letter from his attorney, dated January 6,
2009, stating that the July 2008 bank statement was enclosed.
The Debtor, however, did not attach the actual Bates-stamped
statement to any of his filings in the adversarial proceeding.
5

It is unclear to whom many of these bills were addressed and
when they were dated because the Debtor provided the Bankruptcy
Court with a list of the documents produced in the form of a
Supplemental Affidavit in Further Opposition to Plaintiff's
Motion for Partial Summary Judgment ("Supplemental Affidavit"),
not with the actual documents.
4

BRDC

also obtained copies

of

the

Debtor's

commission

invoices

from Smith & DeGroat.
The
business
using

Debtor

records

Quicken

asserts

that

he

maintained

all

of

his

relating to Landmark on his personal computer

software;

however,

his

computer

crashed

in

late

2007 or early 2008.

He did not maintain any hard copies of his

financial

and

records.

records,
Therefore,

he

did

not

back-up

his

electronic

when his computer crashed,

he lost all of

his records relating to the period before 2008.

Since his hard

drive was replaced in early 2008, the Debtor has been backing-up
his records twice daily.
subsequently produce

Notably,

Landmark's

however,

tax

the Debtor did not

returns

for

2007

or

2008,

his own tax returns for 2008, or any Quicken records for 2008.
Thereafter,
adversary

BRDC and the Trustee separately commenced

proceedings

seeking

to

bar

the

Debtor's

discharge,

which were consolidated by the Bankruptcy Court on November 24,
2009.

In

December

Production of Documents
included

inter

alia:

2009,

BRDC

("Request")
all

served

a

Request

on the Debtor.

documents

reflecting

for

the

The Request
commissions

earned from Smith & DeGroat from 2006 through and including July
14, 2008; copies of all documents reflecting outstanding amounts
due for services rendered pre-petition;

copies of all documents

relating to any post-petition payments;

copies of the Debtor's

5

2008

federal

and

state

tax

returns;

and

copies

of

the

2008

federal and state tax returns for any corporate entity which is
owned

and/or

controlled

by

the

Debtor.

The

Debtor

did

not

produce any documents in response to the Request.
On November 4,

2010,

BRDC moved for

summary judgment

on its Fifth and Sixth causes of action for denial of discharge
under 11 U.S.C. § 727 (a) (3)
granted

BRDC's

holding

that

denial

Debtor failed,
produce

motion

solely
of

on

the

discharge

The Bankruptcy Court

basis

was

of

§

warranted

727(a) (3),
because

the

without reasonable justification, to preserve and

records

could be

and (a) (2) (A).

from

ascertained.

(In re Schackner),

No.

E.D.N.Y. Apr. 7, 2011).

which

the

Debtor's

Breslin Realty

financial

Dev.

08-09-08096-478,

Corp.

v.

condition
Schackner

2011 WL 1331979

(Bankr.

The Debtor appealed.
DISCUSSION

In

granting

under§ 727(a) (3),

summary

judgment

sole

under

issue

11

on

denying

the Bankruptcy Court "deem[ed]

to make a determination with respect to
Action

and

U.S.C.

appeal

§
is

727(a) (2) (A),"
the

[BRDC's]
id.

appropriateness

summary judgment under § 727 (a) (3).

6

at
of

discharge

it unnecessary
Sixth Cause of
*8;
the

thus,
grant

the
of

I.

Standard of Review
A.

Standard on Bankruptcy Appeal
Federal

district

courts

appeals from final judgments,
judges.

R.

FED.

"[f]indings
evidence,

of
shall

fact,
not

orders,

P.

BANKR.

set

The

based

aside

jurisdiction

to

Bankruptcy

on

oral

Court's

documentary

clearly

unless

or

erroneous."

Id.; see also Momentum Mfg. Corp. v. Emp. Creditors Comm.
Momentum Mfg.

Corp.),

Bankruptcy Court's
novo.

legal

1136

conclusions,

(2d Cir.

however,

judgment,
novo

1994)

are

the

appellant

challenges

the appellate court reviews
because

the

determination

a

The

reviewed de

grant

Cadle Co.

(In re Jacobowitz),

(citing FDIC v.

Giammettei,

see also Hanover Direct,

that

Acquisition

Corp.),

309 B.R.

there

429,

34 F. 3d 51,

Inc.
309

v.

T.R.

B.R.

of

summary

the lower court's
are

issues of material fact is a legal conclusion."

T.R.

(In re

See Momentum Mfg. Co., 25 F.3d at 1136.
"Where

de

25 F.3d 1132,

hear

and decrees of bankruptcy

8013.

whether
be

have

435

54-55

no

835

genuine

Jacobowitz v.
(S.D.N.Y.

(2d Cir.

Acquisition Corp.
830,

ruling

(S.D.N.Y.

2004)

1994));
(In re
2003)

(" [O]n an appeal specifically from a bankruptcy court's summary
judgment
Thus,

order,

the

standard

of

review

is

de

novo

. ").

the Court reviews the Bankruptcy Court's grant of summary

judgment de novo.

7

B.

Summary Judgment Standard
"Summary

genuine
moving

disputes
party

entitled

Beck,

&

is

concerning

is

Harvis Trien

judgment

appropriate

any material
to

P. C. v.

judgment

where

there

facts,
as

a

are

and where

matter

of

67

(2d Cir. 1998)

(In re
(citing

Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548,
L. Ed. 2d 265

(1986)); see also Anderson v. Liberty Lobby,

477

247,

U.S.

242,

106 S.

Ct.

2505,

91 L.

Ed.

2d 202

the

law."

Fed. Home Loan Mortg. Corp.

Blackwood Assocs., L.P.), 153 F.3d 61,

no

91

Inc.,

(1986).

"In assessing the record to determine whether there is a genuine
issue to be tried as to any material fact,
to

resolve

all

ambiguities

and

draw

the court is required

all

permissible

factual

inferences in favor of the party against whom summary judgment
is sought."

MeLee v. Chrysler Corp., 109 F.3d 130, 134

(2d Cir.

1997) .
"The

burden

of

showing

the

absence

of

any

genuine

dispute as to a material fact rests on the party seeking summary
judgment."
144,

157,

Id.; see also Adickes v.
90 S.

Ct.

1598,

26 L.

Ed.

S.H. Kress
2d 142

&

Co.,

(1970)

398 U.S.
A genuine

factual issue exists if "the evidence is such that a reasonable
jury could return a verdict for the nonmoving party."
477
must

U.S.

at

248.

To defeat summary

'set forth specific facts

issue for trial.'"

judgment,

Anderson,

"the non-movant

showing that there is a genuine

Weinstock v. Columbia Univ.,
8

224 F.3d 33,

41

(2d

Cir.

2000)

(quoting

Anderson,

speculation or conjecture as

477

to the

U.S.

at

256).

"Mere

true nature of the

will not overcome a motion for summary judgment.

facts"

Knight v. U.S.

Fire Ins. Co., 804 F.2d 9, 12 (2d Cir. 1986).
Although

courts

are

often

summary judgment on objections

not

inclined

to discharge,

Wazeter v. Mich.

Nat' 1 Bank (In re Wazeter), 209 B.R. 222, 227
also

Sethi),

State
250

Bank

B.R.

of

831,

discharge

on

summary

discharge

is

sought

India,

N.Y.

840

judgment

even

on

motion

(W.D. Mich. 1997);

Branch

(Bankr.

v.

E.D.N.Y.
though

for

grant

"summary judgment

is not per se improper in a § 727 proceeding."

see

to

Sethi
2000)

"[w] hen

summary

(In

re

(denying
denial

judgment,

of

courts

exercise even greater caution").
II.

Denial of Discharge Under§ 727(a) (3)
"The

debtor's

relief

of

'fresh start'

discharge

is

the

cornerstone

of

the

It enables the debtor to

in bankruptcy.

begin his post-bankruptcy life with a clean slate vis-a-vis his
creditors."

Helms v. Gangemi

(E.D.N.Y. 2003)

(In re Gangemi),

(quoting Aid Auto Stores,

re Pimpinella), 133 B.R. 694,

697

291 B.R. 242, 246

Inc. v.

Pimpinella (In

(Bankr. E.D.N.Y. 1991))

This

relief however is a privilege, not a right, and only the "honest
but unfortunate debtor"
(In

re

Sawyer),

(quoting Grogan v.

130

is
B.R.

Grogan,

entitled to
384,

392

498 U.S.
9

it.

Walters v.

(Bankr.

279,

287,

Sawyer

E.D.N.Y.
111 S.

Ct.

1991)
654,

112 1. Ed. 2d 755
provides

(1991)).

various

Thus§ 727(a) of the Bankruptcy Code

grounds

for

denying

dishonest or otherwise unworthy debtor,
liberally in favor of the debtor.
Krohn v.

Frommann

(In re

the

discharge

of

a

which must be construed

See Gangemi, 290 B.R. at 246;

Frommann),

153 B.R.

113,

116

(Bankr.

E.D.N.Y. 1993)
Section

727 (a) (3)

exempts

from

discharge

any

debtor

who has:
concealed, destroyed, mutilated, falsified,
or failed to keep or preserve any recorded
information,
including
books,
documents,
records, and papers, from which the debtor's
financial condition or business transactions
might be ascertained, unless such act or
failure to act was justified under all of
the circumstances in the case[.]
"The fundamental policy underlying § 727 (a) (3)

is to insure that

the trustee and the creditors receive sufficient information to
enable

them

to

ascertain the

trace

debtor's

the

debtor's

financial

condition,

the debtor's business transactions."
"If a debtor

fails

to produce

Sethi,

records,

burden placed upon him by § 727(a) (3),
discharge."

analysis.

to

history,

and to

to

reconstruct

250 B.R. at 837-38.

sufficient to meet the
the Court must deny the

Gangemi, 291 B.R. at 246.

In
pursuant

financial

determining
§

727 (a) ( 3)

First,

,

whether
the

discharge

Court must

should

engage

in

be
a

denied
two-step

the Court must determine whether the Debtor's

10

records present a complete and accurate picture of the Debtor's
financial condition and business transactions.
309

B.R.

at

436

("[T]he

objecting

party

See Jacobowitz,

[must]

demonstrate[]

that the debtor's failure to keep records has made it impossible
to

ascertain

the

debtor's

business

The

." ) ;

transactions .

(same).

burden

financial

of

proving

condition

Gangemi,
the

and

291

adequacy

material

B.R.
of

at

the

246

debtor's
See In re

records rests with the party objecting to discharge.
Martin, 554 F.2d 55, 58

(2d Cir. 1977); see also Sethi, 250 B.R.

at

Court

838.

failure
See

Second,

must

determine

if

to maintain and produce adequate records

Jacobowitz,

debtor

the

to

309

justify

B.R.

the

at

436.

absence

of

The

burden

comprehensive

the
is

debtor's
justified.

shifts

to

the

records.

See

727 (a} (3}

must

Pimpinella, 133 B.R. at 698.
A.

Inadequacy of Debtor's Records
A party objecting to discharge under

show,

by a preponderance of the evidence,

§

that:

( 1)

failed to keep or preserve adequate records; and (2)

the debtor
"'that such

failure makes it impossible to ascertain the debtor's financial
condition and material business transactions.'"
B.R. at 436

(quoting Meridian Bank v. Alten,

(3d Cir. 1992)).

Here,

Jacobowitz,

309

958 F.2d 1226, 1230

it is undisputed that the Debtor failed

to maintain adequate records as he admits that all of Landmark's
business records pre-dating 2008 were lost when his hard drive
11

crashed in late 2007 or early 2008.

Thus, the issue before this

Court on appeal is whether, as a matter of law, it is impossible
to

ascertain

the

Debtor's

financial

condition

based

on

the

records that were produced.
The
were

Bankruptcy

insufficient.

Circuit have

Court

held

Court

agrees.

The

that

the

Debtor's

Courts

consistently denied discharge

in

records

the

on summary

Second

judgment

when certain categories of documents essential to determining a
debtor's
their

history

underlying

Wolfson

(In

("Income

re

tax

are

missing--specifically,

financial

records.

Wolfson),

returns

are

152

~'

See,

B.R.

830,

quintessential

tax

833

returns

and

Nisselson

v.

(S.D.N.Y.

documents

1993)

'from which

the debtor's financial condition or business transactions might
be

ascertained,'

U.S.C.

in the words

727 (a) (3)));

§

of subsection

Jacobowitz,

309 B.R.

(3) . "

at 437

(quoting

11

(finding tax

returns inadequate as a matter of law when no supporting records
were produced);

Sethi,

250 B.R.

at 840

("[I]t is impossible to

determine whether the tax returns that the debtor produced are
accurate,

because none of the underlying financial records were

produced."); see also Wazeter, 209 B.R. at 229
have

suggested

that

essential

to

cases)).

Here, it

produce

his

certain

determining

and his

is

categories
a

debtor's

undisputed

wife's

that

personal
12

tax

of

("[V]arious cases

information

history."
the

be

(collecting

Debtor

returns

may

for

failed

to

2008

and

Landmark's tax returns for 2007 or 2008.
the

Debtor

did

produce

some

specifically bank statements,

In addition,

supporting

although

documentation,

and credit card and other bills,

it is undisputed that the Debtor did not produce any evidence of
his

or

Landmark's

although

BRDC

had

returns for 2006,
accuracy

expenses
copies

of

to

the

November

Debtor's

2007.

and

Thus,

Landmark's

tax

there are no bills or invoices to confirm the

any

of

prior

deductions

other

or

expenses.

reported

Similarly, while some bills and invoices were produced for 2008,
the

Debtor

did

not

copies

of

his,

his

Court

to

determine

the

Debtor's

or
are

the Trustee,

or

condition

insufficient as a matter of law to enable BRDC,
the

wife's,
records

and

incomplete

Such

returns.

tax

Landmark's

provide

financial

recent business transactions.
Additionally,
plaintiff

raises

the

summary judgment is appropriate when "a
inference

maintain appropriate records[]
failed

to produce

debtor

fails

documents."

to

records

rebut

Gangemi,

291

the

Debtor's

hard

drive

a

debtor

has

failed

to

by asserting that the debtor has

in the

this

Here, in addition to the

that

course

of discovery,

presumption with the
B.R.

at

246-47

and the

production of

(collecting

cases).

records that were allegedly lost when
crashed,

the

Debtor

also

failed

to

produce the following documents that were specifically requested
of

him:

his

2008

tax

returns,
13

Landmark's

2007

and

2008

tax

returns,

any

documents

accountant

to

in

the

documents

reflecting

any

earned
were

aid

that

pre-petition

not

but

were

turned

preparation
real

were

Rather,

this.

The

tax

until

Debtor's

returns,
that

any
were

post-petition

Debtor does

not

or

contest
produced

he

that

argues

repeatedly

he

the

commissions

paid

yet paid and still due.

to

his

of

estate

not

over

"voluminous" records in response to the demands by BRDC and the
Trustee.

6

But "it is not quantity, but quality,

to the § 727 (a) (3)
B.R.
place

682,

691

sacks

(Bankr.

of
the

and attempt

to

Hughes),

153

Miller v.

D. Minn.

records

and request

Frommann,

inquiry."

before

1994).
the

judge or trustee
reconstruct

B.R.

at

873 F.2d 262,
Accordingly,

the

118
264

Pulos

that is relevant

(In re Pulos),

168

The Debtor "cannot simply

bankruptcy

judge

or

trustee

to sift through the documents

flow of the

(citing

Hughes

[D] ebtor' s
v.

assets."

Lieberman

(In

re

(11th Cir. 1989)).

the

Court

finds

that

BRDC

has

demonstrated that no genuine issue of material fact exists with
respect

to the

adequacy of the

Debtor's

6

records

or its

ability

The Court notes that while the Debtor did produce over 900
pages of Bates-stamped records, more than ninety pages appear to
be duplicates.
For example, the Debtor's Supplemental Affidavit
which
lists
all
of
the
documents
produced
and
their
corresponding Bates numbers states that Landmark's Bank of
America checking account statements for April 2008 to January
2009 were produced at Bates numbers 761 to 794, and the same
statements for April 2008 to June 2008 were reproduced at Bates
numbers 447 to 460.
14

to

ascertain

the

Debtor's

financial

condition

and

business

transactions from the proffered records.
B.

Debtor's Justification
"Even where an objecting party makes out a prima facie

case for discharge under §
granted

if

the

[ D] ebtor

establishes

records was justified."
Debtor

argues

because

that

the

hard

727 (a) (3),

Jacobowitz,

the

deficiency

drive

on

his

Landmark's electronic records,
early 2008.
to

However,

produce records

crashed--including
Debtor's
returns

for

earnings
"[T]he

Quicken
2008,

that

Debtor's

documents .

any

his

failure

in his

records

is

which

to

keep

Here,

309 B.R. at 438.

computer,

the

justified
maintained

crashed and had to be replaced in

to

the

financial

program,
and

the

any

have

the

period
data

information

been

received
failure

Court

to

after

as

Debtor's

inexplicable

. leads

that

this does not explain the Debtor's failure

relating

may

discharge should still be

his

recorded

in

the

Landmark's

and

tax

regarding
or

due

to

believe

computer

pre-petition

post-petition.

produce
that

the

the[se]
Debtor's

failure to preserve the requisite documents is either an attempt
to conceal evidence as to his assets and liabilities or reflects
gross

negligence

discharge."
30

and

as

to

warrant

barring

Thaler v. Erdheim (In re Erdheim),

(Bankr. E.D.N.Y.

Trustee

so

1996)

barring

the

Debtor's

197 B.R. 23,

29-

(granting summary judgment in favor of

Debtor's

discharge
15

under

§

727 (a) (3)).

Since the Debtor has

offered no explanation for his

produce these documents,

failure

to

he has wholly failed to meet his burden

to withstand summary judgment.
CONCLUSION
For the foregoing reasons,

the order of the Bankruptcy

Court is AFFIRMED and the Debtor's appeal is DENIED.

The Clerk

of the Court is directed to mark this appeal closed.

SO ORDERED.
/s/ JOANNA SEYBERT
Joanna Seybert, U.S.D.J.
Dated:

January
5 , 2012
Central Islip, New York

16