United General Title Insurance Company v. Karanasos
Filing
7
MEMORANDUM AND OPINION. For the reasons set forth herein, the Court vacates the judgment of the Bankruptcy Court, and remands the case to the Bankruptcy Court for further proceedings consistent with this Memorandum and Order. The Clerk of the Court shall close the case. SO ORDERED. Ordered by Judge Joseph F. Bianco on 9/5/2014. (Gibaldi, Michael)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
_____________________
No 13-CV-7153 (JFB)
_____________________
UNITED GENERAL TITLE INSURANCE COMPANY,
Appellant,
VERSUS
CHRIS KARANASOS, A/K/A CHRISTOFOROS KARANASOS,
Appellee.
___________________
MEMORANDUM AND ORDER
September 5, 2014
___________________
JOSEPH F. BIANCO, District Judge:
trial by stipulated record. On October 21,
2013, based on the stipulated record, the
Bankruptcy Court determined that UGT had
failed to establish either of its claims by a
preponderance of the evidence. Thus, the
Bankruptcy Court did not deny debtor a
discharge. Specifically, the Bankruptcy
Court held that (1) debtor had not concealed
any secret interest in the property that he had
conveyed to his wife; and (2) although
debtor made two false oaths in his petition
and the accompanying schedules, debtor had
not done so with fraudulent intent.
This bankruptcy appeal arises out of the
bankruptcy proceeding of debtor Chris
Karanasos (“Karanasos” or “debtor”) in the
United States Bankruptcy Court for the
Eastern District of New York (the
“Bankruptcy Court”). On October 6, 2011,
United General Title Insurance Company
(“UGT”)
commenced
an
adversary
proceeding against debtor, asserting that
debtor’s discharge should be denied
pursuant to 11 U.S.C. § 727. Specifically,
UGT alleged the following: (1) within one
year of filing for bankruptcy, and with the
intent to hinder, delay or defraud his
creditors, debtor concealed a secret interest
in real property that he had purportedly
conveyed to his wife, see 11 U.S.C.
§ 727(a)(2)(A); and (2) debtor knowingly
and fraudulently made certain material false
oaths in his bankruptcy petition and
accompanying
schedules,
see
id.
§ 727(a)(4)(A). UGT and debtor agreed to a
On appeal, UGT contends that the
Bankruptcy Court committed reversible
error with respect to both of its holdings. For
the following reasons, this Court agrees.
Thus, the Court vacates the judgment of the
Bankruptcy Court and remands the case to
the Bankruptcy Court for further
proceedings
consistent
with
this
Memorandum and Order. As an initial
matter, this Court reviews the Bankruptcy
1
Court’s conclusions de novo because the
Bankruptcy Court tried the case on a
stipulated record. Under this standard of
review, the Court concludes first that the
Bankruptcy Court erred in determining that
debtor had not concealed any interest in real
property. The real property at issue is
debtor’s primary residence, which he and his
wife owned as tenants by the entirety until
2008. In 2008, debtor purportedly conveyed
all interest in his residence to his wife.
However, even after conveying legal title to
the residence, debtor continued to live there
and to pay mortgage, utility, and real estate
taxes. Moreover, debtor even filed a joint
tax return with his wife, in which they took a
deduction for mortgage interest payments.
Finally, in the bankruptcy proceeding of
debtor’s wife, debtor’s wife actually referred
to her own interest in the residence as a
tenancy by the entirety. All of these facts
establish by a preponderance of the evidence
that debtor concealed an ownership interest
in his primary residence. Finally, under the
well-established “continuing concealment”
doctrine, the Court concludes that debtor
concealed his ownership interest in his
residence within one year of filing for
bankruptcy. Thus, the Court remands the
case to the Bankruptcy Court, so that the
Bankruptcy Court may determine whether
debtor harbored improper intent in
concealing this interest for purposes of
§ 727(a)(2)(A). Second, in light of the
Court’s holding on debtor’s concealment,
the Court also concludes that debtor made a
false oath by failing to disclose his
ownership interest in his primary residence
anywhere in his bankruptcy petition or
accompanying schedules. The Court also
agrees with the Bankruptcy Court that
debtor made an additional false oath by
failing to disclose the existence of a lawsuit
against him in his petition or schedules.
However, the Court does not find that debtor
committed a false oath in describing his
ownership interest in another property as
“sole tenant,” when he should have stated
“tenant in severalty.” Again, in light of the
Court’s determination concerning debtor’s
two false oaths, the Court remands the case
to the Bankruptcy Court for a determination
whether debtor made these false oaths with
fraudulent intent, as § 727(a)(4)(A) requires.
I. BACKGROUND
A. Facts
The following facts are drawn from the
stipulated record submitted in the
Bankruptcy Court, which includes (1)
eighteen exhibits; (2) the transcript of
debtor’s January 4, 2013, deposition; (3) a
list of stipulated facts; and (4) debtor’s trial
affidavit. (See R-7, 1 Stipulation, Apr. 8,
2013.)
1. Debtor’s Interests in Real Property
The instant appeal centers around
debtor’s ownership interests in real property
located at 390 Woodbridge Road in
Rockville Centre, New York (the “Rockville
Centre Property”) and 408 East 120 Street in
New York, New York (the “Manhattan
Property”). Accordingly, the Court examines
the facts surrounding debtor’s interests in
those two properties.
Debtor began living at the Rockville
Centre Property in 2002, when his wife Rosa
Karanasos (“Mrs. Karanasos”) acquired title
to that property. (R-4, Joint Pre-Trial
Memorandum (“JPTM”) at 4, ¶¶ 1–4.) Mrs.
Karanasos financed the purchase with a
mortgage from Interamerican Bank. (JPTM
Ex. A, Deposition of Chris Karanasos, Jan.
4, 2013 (“Debtor Dep.”), at 16–17, 24–25.)
“R-__” refers to the numbered documents in the
record filed with the Court on December 16, 2013.
(See ECF No. 1.)
1
2
Debtor and Mrs. Karanasos made payments
on the mortgage from a joint checking
account. (Id. at 25–26.) A little over one
year later, debtor and Mrs. Karanasos
mortgaged their home to Flagstar Bank,
F.S.B., and Mrs. Karanasos satisfied the
Interamerican mortgage. (Id. at 26–27; see
JPTM at 5, ¶ 10.) At around the same time,
by deed dated June 20, 2003, Mrs.
Karanasos conveyed her interest in the
Rockville Centre Property to herself and
debtor. (JPTM at 5, ¶ 8; Debtor Dep. at 26–
27.) After refinancing with Flagstar, debtor
and Mrs. Karanasos made payments on the
Flagstar mortgage from their joint checking
account. (Debtor Dep. at 28.)
consequently, debtor acquired title to the
Manhattan Property on September 29, 2008.
(Id. at 67; JPTM at 6, ¶¶ 18–19; see R-21,
Ex. 18, Deed.)
Debtor
borrowed
approximately
$100,000.00 from the Chase HELOC in
order to finance his transaction with Khan.
(Debtor Dep. at 41–46.) Mrs. Karanasos did
not approve of the transaction. (Id. at 41.)
She allowed him to draw approximately
$100,000.00 from the Chase HELOC, but
only on the condition that debtor give her his
ownership interest in the Rockville Centre
Property. (Id. at 41–43; R-5, Trial Affidavit
of Chris Karanasos (“Debtor Aff.”) ¶ 2.) As
debtor explained it, “for her the only way to
let me borrow the money from my home line
of credit as investment to this property, I had
to take off my name from the deed to protect
her and our children.” (Debtor Dep. at 42.)
Accordingly, debtor and Mrs. Karanasos
conveyed the Rockville Centre Property to
Mrs. Karanasos by deed that was dated
December 17, 2008, and recorded on April
9, 2009. (JPTM at 5, ¶ 9.) The deed itself
indicates that the consideration for the
conveyance was $100,000.00. (R-16, Ex. 6,
Deed.)
Also in 2003, debtor and his wife
obtained a home equity line of credit from
JPMorgan Chase Bank, N.A. (the “Chase
HELOC”) in the amount of $210,000. (Id. at
32–33; see JPTM at 5, ¶ 10; R-17, Ex. 9,
Credit Line Mortgage.) Debtor and Mrs.
Karanasos increased the Chase HELOC to
$275,000 in 2005. (Debtor Dep. at 38.)
Sometime in 2008, debtor invested
$200,000.00 in the Manhattan Property.
(Debtor Dep. at 41, 65–67.) Specifically,
debtor loaned $200,000.00 to the person
who wanted to purchase the Manhattan
Property, Mohammed Khan (“Khan”), and
debtor and Khan acquired title to the
Manhattan Property as joint tenants. (Id. at
65–67.) The terms of debtor’s arrangement
with Khan were as follows. Khan agreed to
repay debtor $200,000.00, plus interest. (Id.)
As collateral for the loan, Khan gave debtor
an unrecorded deed conveying his interest in
the Manhattan Property to debtor. (Id.) If
Khan repaid debtor in full, Khan would have
acquired sole ownership of the Manhattan
Property. If Khan did not repay debtor, then
debtor had the right to record the deed
conveying the Manhattan Property from
debtor and Khan to debtor. (Id.) As it turned
out, Khan defaulted on the loan, and
Although debtor conveyed his ownership
interest in the Rockville Centre Property to
Mrs. Karanasos, debtor continued to reside
there, and he identified the Rockville Centre
Property as his address in his petition for
bankruptcy. (JPTM at 4, ¶¶ 4–5.) Moreover,
debtor and Mrs. Karanasos continue to share
the payment obligations associated with the
mortgages on the Rockville Centre Property,
and, according to Schedule J to his petition,
debtor makes monthly mortgage and utility
payments for the Rockville Centre Property.
(Id. at 4–5, ¶¶ 6, 12.) In fact, debtor and
Mrs. Karanasos took a deduction on their
2010 jointly filed tax return for real estate
taxes and mortgage interest payments
relating to the Rockville Centre Property.
3
(Id. at 5, ¶ 11.) Finally, in Schedule A to
Mrs. Karanasos’s separate petition for
bankruptcy, she lists her ownership interest
in the Rockville Centre Property as a tenant
by the entirety. (Id. at 5, ¶ 13; see R-20, Ex.
13, Mrs. Karanasos’s Petition.)
record is unclear, however, whether a
judgment entered in this action.
B. Bankruptcy Proceedings
Debtor filed a voluntary petition for
relief under Chapter 7 of the Bankruptcy
Code on July 3, 2011. (R-14, Ex. 1,
Petition.) He listed the Rockville Centre
Property as his street address on the petition.
(Id.) On Schedule A to the petition, debtor
listed the Manhattan Property as the only
real property in which he owns an interest.
(See id.) Debtor described his interest in the
Manhattan Property as “sole tenant.” (Id.)
Debtor’s petition does not indicate that he
has any ownership interest in the Rockville
Centre Property. (JPTM at 5, ¶ 15.) The
petition does not mention UGT’s fraudulent
conveyance action against debtor, at all. (Id.
at 6, ¶ 17.)
2. UGT’s Claim against Debtor
During the time that debtor purchased
the Manhattan Property and conveyed the
Rockville Centre Property to his wife,
debtor was a defendant in a civil suit
brought by UGT in New York state court.
(JPTM at 5, ¶ 14; see R-20, Ex. 14,
Complaint.) In particular, on February 4,
2008, UGT commenced an action against
GE Abstract, debtor, and Esther Serrano
(“Serrano”). (Id.) Debtor and Serrano had
been partners in GE Abstract, a title
insurance agency that had acted as UGT’s
title insurance agent. (Id.; see Debtor Dep. at
10–12.) According to UGT’s complaint,
UGT had incurred liability to a third party in
the amount of $504,000.00 as a result of GE
Abstract’s negligence. (R-20, Ex. 14,
Complaint.) UGT sought to hold GE
Abstract, debtor, and Serrano jointly and
severally liable for $504,000.00. (Id.) On
August 30, 2010, judgment entered against
GE Abstract, debtor, and Serrano in the
amount of $677,351.03 ($504,000.00 plus
$172,611.03 in interest). (R-15, Ex. 15,
Judgment.)
UGT
commenced
an
adversary
proceeding against debtor on October 6,
2011. (R-22, Bankruptcy Court Docket.)
UGT alleged that debtor had concealed a
secret interest in the Rockville Centre
Property within one year before filing his
petition for bankruptcy, and that he had done
so with the intent to hinder, delay, or
defraud his creditors. (See R-1, Complaint
¶¶ 58–62.) In addition, UGT claimed that
debtor had failed to disclose his secret
interest in the Rockville Centre Property,
failed to disclose UGT’s fraudulent
conveyance action against debtor, and
misrepresented his ownership interest in the
Manhattan Property, all with fraudulent
intent. (Id. ¶¶ 63–73.) Debtor answered the
complaint on December 2, 2011. (R-22,
Bankruptcy Court Docket.) Debtor moved
for summary judgment on December 4,
2012, and the Bankruptcy Court denied
debtor’s motion on April 5, 2013. (Id.)
On or about November 5, 2010, UGT
commenced a separate action against debtor
and Mrs. Karanasos in New York state
court. (JPTM at 5, ¶ 16; see R-21, Ex. 16,
Complaint.) UGT sought a judgment
declaring that the conveyance of the
Rockville Centre Property from debtor and
Mrs. Karanasos to Mrs. Karanasos was
fraudulent and void as to UGT. (JPTM at 5,
¶ 16.) Debtor neither filed an answer nor
otherwise appeared in that action. (Id.) The
Thereafter, the parties agreed to proceed
to trial on a stipulated record. (Id.) On
4
October 21, 2013, the Bankruptcy Court
ordered that debtor would not be denied a
discharge, and that debtor was entitled to
recover his costs as the prevailing party.
(Id.; see R-9, Bankruptcy Court Opinion
(“Bankr. Ct. Op.”).) First, the Bankruptcy
Court found that UGT had failed to establish
the existence of debtor’s alleged secret
interest in the Rockville Centre Property by
a preponderance of the evidence. (Bankr. Ct.
Op. at 8–9.) Because the Bankruptcy Court
concluded that debtor had not concealed a
secret interest in the Rockville Centre
Property, the court did not consider whether
debtor had acted with fraudulent intent. (Id.
at 9.) Second, the Bankruptcy Court
concluded that debtor should not be denied a
discharge under § 727(a)(4)(A) on the basis
of any alleged false oath. (Id. at 9–13.)
Specifically,
the
Bankruptcy
Court
determined that debtor had not failed to list
an ownership interest in the Rockville
Centre Property, because he had none, and
that debtor did not misstate the value of the
Manhattan Property. (Id. at 11, 13.)
However, the Bankruptcy Court did
determine that debtor made false oaths by
failing to list UGT’s fraudulent conveyance
action and by representing his ownership
interest in the Manhattan Property as “sole
tenant.” (Id. at 11–13.) Nonetheless, the
Bankruptcy Court found, in light of the
entire record, that debtor did not make these
false oaths with fraudulent intent. (Id.)
Judgment entered on November 4, 2013. (R22, Bankruptcy Court Docket; see R-10,
Judgment.)
considered the arguments and submissions
of the parties.
II. STANDARD OF REVIEW
Rule 8013 of the Federal Rules of
Bankruptcy Procedure provides that a
reviewing court may “affirm, modify, or
reverse a bankruptcy judge’s judgment,
order, or decree,” or it may “remand with
instructions for further proceedings.” Fed. R.
Bankr. P. 8013. In general, the Court
reviews the Bankruptcy Court’s legal
conclusions de novo, mixed questions of fact
and law de novo, and factual findings for
clear error. See, e.g., Denton v. Hyman (In re
Hyman), 502 F.3d 61, 65 (2d Cir. 2007);
Babitt v. Vebeliunas (In re Vebeliunas), 332
F.3d 85, 90 (2d Cir. 2003).
The Second Circuit has not explicitly
articulated the appropriate standard of
review where, as here, a case is tried on a
stipulated record before a bankruptcy court.
However, outside the bankruptcy context,
where a case is tried before a district court
on a stipulated record, it is clear that the
Second Circuit’s “review is de novo because
the district court’s rulings are necessarily
conclusions of law or mixed fact and law.”
Skoros v. City of New York, 437 F.3d 1, 13
(2d Cir. 2006); see Robinson v. Sheet Metal
Workers’ Nat’l Pension Fund, Plan A, 515
F.3d 93, 98 (2d Cir. 2008) (“Because the
district court’s judgment was based entirely
on a stipulated record, our standard of
review for that claim is de novo.”);
McCormick ex rel. McCormick v. Sch. Dist.
of Mamaroneck, 370 F.3d 275, 283 (2d Cir.
2004) (same); TCG N.Y., Inc. v. City of
White Plains, 305 F.3d 67, 75 (2d Cir. 2002)
(same). The same rationale applies where a
case is tried on a stipulated record before a
C. Appeal
UGT filed a notice of appeal in the
Bankruptcy Court on November 13, 2013,
which was docketed in this Court on
December 16, 2013. UGT filed its brief on
January 15, 2014. Debtor filed his brief on
January 27, 2014. UGT filed its reply brief
on February 10, 2014. The Court has fully
5
bankruptcy court. 2 See, e.g., Monzingo v.
Pa. Dep’t of Labor & Indus. Bureau of
Unemployment Benefits & Allowances
(BUCBA) (In re Monzingo), 234 B.R. 867
(E.D. Pa. 1999) (“When the parties to an
appeal have submitted their case on a
stipulated record of facts, a district court
makes its own independent determination
regarding the disposition of the legal issues
presented by the case.”). But see Brandt v.
Repco Printers & Lithographics, Inc. (In re
Healthco Int’l, Inc.), 132 F.3d 104, 108 (1st
Cir. 1997) (holding that review of factual
findings for clear error “is not diluted
merely because parties proceed on a
stipulated record”). Accordingly, because
the instant case was tried on a stipulated
record before the Bankruptcy Court, this
Court reviews de novo all conclusions of the
Bankruptcy Court.
2006) (quoting Grogan v. Garner, 498 U.S.
279, 286–87 (1991)). However, “[a]
discharge under section 727 is a privilege,
not a right, and may only be granted to the
honest debtor.” Dubrowsky v. Estate of
Perlbinder (In re Dubrowsky), 244 B.R.
560, 572 (E.D.N.Y. 2000). Thus, “[i]n the
interest of protecting creditors,” 11 U.S.C.
§ 727 requires the denial of discharge in
certain circumstances. Id. “The party
objecting to discharge must establish those
elements by a preponderance of the
evidence.” Pisculli v. T.S. Haulers, Inc. (In
re Pisculli), 408 F. App’x 477, 479 (2d Cir.
2011) (summary order) (citing Grogan, 498
U.S. at 287); see Republic Credit Corp. I v.
Boyer (In re Boyer), 328 F. App’x 711, 714
(2d Cir. 2009) (summary order); D.A.N.
Joint Venture v. McCormack (In re
McCormack), No. 06-1053 (BK), 2007 WL
642945, at *2 (2d Cir. Feb. 27, 2007)
(summary order).
III. DISCUSSION
“One of the central purposes of the
Bankruptcy Code and the privilege of
discharge is to allow the ‘honest but
unfortunate debtor’ to begin a new life free
from debt.” D.A.N. Joint Venture v. Cacioli
(In re Cacioli), 463 F.3d 229, 234 (2d Cir.
The Second Circuit has held that Ҥ 727
imposes
an
extreme
penalty
for
wrongdoing,” because it operates as “a
blanket prohibition of a debtor’s discharge,
thereby protecting the debts owed to all
creditors,” and not just “specific debts
incurred through fraud.” State Bank of India
v. Chalasani (In re Chalasani), 92 F.3d
1300, 1309 (2d Cir. 1996). Accordingly, the
Second Circuit construes § 727 “strictly
against those who object to the debtor’s
discharge and ‘liberally in favor of the
bankrupt.’” Id. at 1310 (quoting Bank of Pa.
v. Adlman (In re Adlman), 541 F.2d 999,
1003 (2d Cir. 1976)).
2
Although the Second Circuit has not applied this
well-settled rule to bankruptcy cases, it has applied
the rule in the analogous situation involving tax
courts. See, e.g., Gluckman v. Comm’r of Internal
Revenue, 545 F. App’x 59, 62 (2d Cir. 2013)
(summary order) (“We review a decision of the tax
court based on a stipulated record de novo.”). In the
context of tax court cases, the Second Circuit has
noted some “tension” between this standard of review
and the Second Circuit’s review of mixed questions
of law and fact for clear error in tax cases. See id. at
62 n.6 (citing Scheidelman v. Comm’r of Internal
Revenue, 682 F.3d 189, 193 (2d Cir. 2012) (holding
that mixed questions of law and fact are reviewed for
clear error in tax court case)). Any such tension does
not exists here, because in bankruptcy cases, mixed
questions of law and fact are reviewed de novo. See,
e.g., Vebeliunas, 332 F.3d at 90 (“Mixed questions of
fact and law are subject to de novo review.”).
With these general principles in mind,
the Court turns to the specific issues raised
on appeal.
A. Section 727(a)(2)(A)
The first issue on appeal is whether a
preponderance of the evidence shows that
6
debtor concealed a secret interest in the
Rockville Centre Property within one year
of filing for bankruptcy. This Court
concludes that it does, and remands the case
to the Bankruptcy Court to determine
whether debtor did so with improper intent.
property with the retention of a secret
interest by the bankrupt.” Sacklow v.
Vecchione (In re Vecchione), 407 F. Supp.
609, 614 (E.D.N.Y. 1976). For instance, “[a]
concealment may be predicated on the
retention by the bankrupt of an equitable
interest in assets transferred to his wife.” Id.
In this situation, “the transfer of title
represents to the world that the debtor has
transferred away all his interest in the
property while in reality he has retained
some secret interest.” Rosen v. Bezner, 996
F.2d 1527, 1532 (3d Cir. 1993); see, e.g.,
Thibodeaux v. Olivier (In re Olivier), 819
F.2d 550, 553 (5th Cir. 1987) (“Concealing
property
for
purposes
of
section
727(a)(2)(A) can be accomplished by a
transfer of title coupled with the retention of
the benefits of ownership.”). Of course,
there must be evidence that the debtor
actually retained a secret interest in
property. Thompson v. Eck, 149 F.2d 631,
633 (2d Cir. 1945); accord Rosen, 996 F.2d
at 1532. However, record title cannot be
determinative of equitable ownership where
it is alleged that the debtor concealed an
interest in property by transferring record
title to that property to a third party. See,
e.g., Minsky v. Silverstein (In re Silverstein),
151 B.R. 657, 661 (Bankr. E.D.N.Y. 1993).
Instead, a court may properly rely upon
other evidence, such as the debtor’s
“retention of the benefits of ownership,” in
order to ascertain the existence of a secret
interest in property. Rosen, 996 F.2d at
1532; see, e.g. Vecchione, 407 F. Supp. at
615 (“Persons whose intention it is to shield
their assets from creditor attack while
continuing to derive the equitable benefit of
those assets rarely announce their purpose.
Instead, if their intention is to be known, it
must be gleaned from inferences drawn from
a course of conduct.”).
1. Legal Standard
Section
following:
727(a)(2)(A)
provides
the
(a) The court shall grant the
debtor a discharge, unless—
(2) the debtor, with intent to
hinder, delay, or defraud a
creditor or an officer of the
estate charged with custody
of property under this title,
has transferred, removed,
destroyed, mutilated,
or
concealed, or has permitted
to be transferred, removed,
destroyed, mutilated,
or
concealed—
(A) property of the debtor,
within one year before the
date of the filing of the
petition.
To prove a violation of § 727(a)(2), a
creditor must establish, by a preponderance
of the evidence, (1) “an act (i.e., a transfer or
a concealment of property)”; and (2) “an
improper intent (i.e., a subjective intent to
hinder, delay, or defraud a creditor).” Boyer,
328 F. App’x at 714. Moreover, the creditor
must show that “both of these components
were present during the one year period
before bankruptcy.” Id. (emphasis in
original).
With respect to the first element, a
concealment “has been defined as the
transfer to a third party of legal title to
Moreover, “‘[u]nder the ‘continuous
concealment’ doctrine, a concealment will
be found to exist during the year before
7
Accordingly, “courts look to see if certain
‘badges of fraud,’ which are strong indicia
of actual fraudulent intent, are present.”
Vidro, 497 B.R. at 687; see Boyer, 328 F.
App’x at 715 (citing Salomon v. Kaiser (In
re Kaiser), 722 F.2d 1574, 1582 (2d Cir.
1983)). Badges of fraud include the
following:
bankruptcy even if the initial act of
concealment took place before this one year
period as long as the debtor allowed the
property to remain concealed into the critical
year.’” Boyer, 328 F. App’x at 714–15
(quoting Rosen, 996 F.2d at 1531). This
doctrine “recognizes that a failure to reveal
property previously concealed can, in some
circumstances, properly be considered
culpable conduct during the year before
bankruptcy warranting a denial of
discharge.” Rosen, 996 F.2d at 1531.
Although the Second Circuit has not yet
adopted the continuous concealment
doctrine, see Boyer, 328 F. App’x at 714–15
(noting that the Second Circuit “has not yet
addressed the issue,” but assuming arguendo
that the continuous concealment doctrine
applied), the doctrine is well settled in other
Circuits, see, e.g., Keeney v. Smith (In re
Keeney), 227 F.3d 679, 685 (6th Cir. 2000);
Hughes v. Lawson (In re Lawson), 122 F.3d
1237, 1241 (9th Cir. 1997); Rosen, 996 F.2d
at 1531–32; Olivier, 819 F.2d at 555;
Friedell v. Kauffman (In re Kauffman), 675
F.2d 127 (7th Cir. 1981). Moreover, lower
courts in this Circuit have consistently
applied the continuous concealment
doctrine. See Vecchione, 407 F. Supp. at 614
(“It matters not how long before the filing of
the petition the suspect transfer occurred
because the act of concealment is considered
a continuous one.”); see also Flushing
Savings Bank, FSB v. Vidro (In re Vidro),
497 B.R. 678, 686–87 (Bankr. E.D.N.Y.
2013); Congress Talcott Corp. v. Sicari (In
re Sicari), 187 B.R. 861, 877 (Bankr.
S.D.N.Y. 1994); Silverstein, 151 B.R. at
661. This Court finds the rationale for the
continuous concealment doctrine to be
“compelling,” Lawson, 122 F.3d at 1241,
and joins those courts who have recognized
it.
(1) the lack or inadequacy of
consideration;
(2) the family, friendship or
close associate relationship
between the parties;
(3)
the
retention
of
possession, benefit or use of
the property in question;
(4) the financial condition of
the party sought to be
charged both before and after
the transaction in question;
(5)
the
existence
or
cumulative effect of a pattern
or series of transactions or
course of conduct after the
incurring of debt, onset of
financial
difficulties,
or
pendency or threat of suits by
creditors; and
(6) the general chronology of
the events and transactions
under inquiry.
Kaiser, 722 F.2d at 1582–83. “The transfer
of property by the debtor to his spouse while
insolvent, while retaining the use and
enjoyment of the property, is a classic badge
of fraud.” Id. at 1583.
2. Application
As for the second element, the intent to
hinder, delay, or defraud “is rarely subject to
direct proof.” Boyer, 328 F. App’x at 715.
Here, the stipulated record demonstrates
by a preponderance of the evidence that
8
debtor was concealing a secret, beneficial
interest in the Rockville Centre Property
within one year of filing his petition for
bankruptcy. In short, after debtor and Mrs.
Karanasos transferred legal title to the
Rockville Centre Property to Mrs.
Karanasos, debtor “‘continu[ed] to treat the
property in the same manner after the
transfer as before the transfer.’” Vidro, 497
B.R. at 687 (quoting Doubet, LLC v.
Palermo (In re Palermo), 370 B.R. 599, 615
(Bankr. S.D.N.Y. 2007)). Specifically,
debtor lived in the Rockville Centre
Property and continued to make mortgage,
utility, and real estate tax payments for that
property. (JPTM at 4–5, ¶¶ 4–5, 11–12.)
Debtor even took deductions for real estate
taxes and mortgage interest payments
relating to the Rockville Centre Property on
his and Mrs. Karanasos’s 2010 joint federal
tax return. (Id. at 5, ¶ 11.) Moreover, in Mrs.
Karanasos’s own petition for bankruptcy,
she listed her ownership interest in the
Rockville Centre Property as a tenant by the
entirety,
thereby
indicating
her
understanding that debtor retained an
interest in the property. (See id. at 5, ¶ 13;
R-20, Ex. 13, Mrs. Karanasos’s Petition.)
All of these facts, taken together, are
sufficient to establish debtor’s concealed,
beneficial interest in the Rockville Centre
Property. See, e.g., Keeney, 227 F.3d at 683–
84 (“A beneficial interest of ownership in
the property can be inferred, however, from
[debtor’s] payment for and use of the
properties, including his rent-free residence
on each and payment of all mortgage
obligations.”); Kauffman, 675 F.2d at 128
(“[Debtor] also claims he retained no
beneficial interest in the property. His
assertion is belied by the evidence. [Debtor]
took out several personal loans using the
house as collateral. He lived in the house
and continued to make mortgage, tax, and
insurance escrow payments on the house.
Further, the property was listed as one of his
assets on personal financial statements. The
evidence was sufficient to show he retained
a beneficial interest in the property into the
statutory period.”); Anderson v. Hooper (In
re Hooper), 274 B.R. 210, 216 (Bankr.
D.S.C. 2001) (“Courts have found a secret
interest in a variety of situations, but the
typical scenario is where, after transferring
the property, the debtor continues to live on
the property and makes mortgage, tax, and
or insurance payments.”); Silverstein, 151
B.R. at 661–62 (finding concealed property
interest where debtor had transferred house
to his wife but continued to live there, paid
mortgage, taxes, and maintenance on the
property from a joint account, and “filed
joint tax returns with his wife showing
interest deductions from the home’s
mortgages”); cf. Hooper, 274 B.R. at 216–
17 (finding insufficient evidence of secret
interest where debtors continued to live in
the house at issue but did not make any
mortgage, tax, or insurance payments).
Moreover, nothing in the stipulated
record supports a contrary conclusion. The
Court has considered debtor’s explanation
for the transfer of his legal title to the
Rockville Centre Property, as well as the
purported consideration involved, to
determine whether they tend to show that
debtor conveyed all of his interest in that
property to Mrs. Karanasos in 2008. Cf.
Boyer, 328 F. App’x at 715 (“If the 1989
transfer of property was bona fide, the
Debtor could not have retained a concealed
interest in those assets, and the alleged
concealment of a property interest could not
have continued into the one-year reach-back
period.”). They do not. As noted supra,
although the deed itself indicates that
$100,000.00 in consideration supported the
conveyance (R-16, Ex. 6, Deed), the
circumstances surrounding the conveyance
were more complicated. Mrs. Karanasos did
not give debtor $100,000.00 in exchange for
debtor’s interest in the Rockville Centre
9
Property. Instead, as a condition for
allowing debtor to draw $100,000.00 on the
Chase HELOC that encumbered their home,
Mrs. Karanasos demanded that debtor
remove his name from the deed “to protect
her and [their] children.” (Debtor Dep. at
41–43.) The record is unclear as to what
benefit Mrs. Karanasos actually received
from this arrangement (as her house
remained the collateral for debtor’s loan,
even after debtor took his name off the deed
to the house.) However, from the limited
record, it appears most likely that Mrs.
Karanasos demanded the deed to the
property as security for debtor’s having
borrowed an additional $100,000.00 against
the marital home. If that were true, then the
conveyance would be a mortgage, and
debtor would have retained an ownership
interest in the property. See N.Y. Real Prop.
Law § 320 (“A deed conveying real
property, which, by any other written
instrument, appears to be intended only as a
security in the nature of a mortgage,
although an absolute conveyance in terms,
must be considered a mortgage . . . .”);
Leonia Bank v. Kouri, 772 N.Y.S.2d 251,
254 (N.Y. App. Div. 2004) (“‘[T]he courts
are steadfast in holding that a conveyance,
whatever its form, if in fact given to secure a
debt, is neither an absolute nor a conditional
sale, but a mortgage, and that the grantor
and grantee have merely the rights and are
subject only to the obligations of mortgagor
and mortgagee.’” (quoting Mooney v. Byrne,
163 N.Y. 86, 93 (1900))). Debtor’s retention
of an interest in the Rockville Centre
Property under these terms would be
consistent with the other facts in the
stipulated record, discussed supra, showing
that debtor continued to enjoy the benefits of
ownership. Overall, whether debtor’s
transfer of the Rockville Centre Property to
his wife was really a mortgage or a total
sham transaction is immaterial. What
matters is that no facts concerning the
transfer itself contradict the other evidence
in the record establishing that debtor
retained a secret interest in the Rockville
Centre Property.
In reaching a different conclusion, the
Bankruptcy Court’s reliance on Rosen was
misplaced. In that case, before the debtor
filed for bankruptcy, he had transferred his
interest in his primary residence to his wife
for no consideration. 996 F.2d at 1529.
Notwithstanding his transfer of legal title to
his home, the debtor “continued to live in
this residence, continued to make mortgage
payments, and continued to be obligated on
the mortgage notes on the property.” Id. at
1529–30. Consistent with other decisions in
this area, see supra, the Third Circuit held
that the debtor’s “retention of the benefits of
ownership [was] evidence tending to show
that [the debtor] did retain a secret interest
pursuant to an express or tacit agreement
with his wife, such as a right to
reconveyance on demand or a right to live in
the house rent-free.” 996 F.2d at 1532.
Significantly, the Third Circuit did not hold
that such evidence was insufficient to find
by a preponderance of the evidence that the
debtor had concealed a secret interest in
property. Instead, the Third Circuit held only
that such evidence was insufficient to
conclude as a matter of law, on a motion for
summary judgment, that the debtor retained
a secret interest, in light of the debtor’s
claim that he had transferred all of his
interest to his wife and was living in the
house subject to eviction at will. Id. Given
the instant case’s different procedural
posture, Rosen is relevant only insofar as it
holds that a debtor’s retention of the benefits
of ownership in property, after transferring
legal title to another, is evidence of the
debtor’s continuing, secret interest in such
property.
Overall, in this Court’s view, UGT
demonstrated by a preponderance of the
10
evidence that debtor concealed a beneficial
interest in the Rockville Centre Property
within one year of filing for bankruptcy. The
issue remains whether debtor harbored an
improper intent within one year of filing his
petition. The Bankruptcy Court did not
reach this issue. Accordingly, the Court
remands this case to the Bankruptcy Court
for a determination concerning debtor’s
intent. On remand, the Bankruptcy Court
retains the discretion to rely solely on the
stipulated record, request supplemental
submissions, and/or conduct a trial on any
disputed issues.
false; (3) the debtor knew that the statement
was false; (4) the debtor made the statement
with fraudulent intent; and (5) the statement
related materially to the bankruptcy case.”
Dubrowsky, 244 B.R. at 572 (citations
omitted); see Boyer, 328 F. App’x at 715.
With respect to the first and second
elements, “[b]oth omissions and affirmative
misstatements qualify as false statements
under § 727(a)(4)(A).” E.g. Moreo v. Rossi
(In re Moreo), 437 B.R. 40, 61 (E.D.N.Y.
2010). Moreover, a debtor’s bankruptcy
petition and the accompanying schedules
constitute statements under oath for
purposes of Section 727(a)(4)(A). E.g. id. at
59 (citing Nof v. Gannon (In re Gannon),
173 B.R. 313, 320 (Bankr. S.D.N.Y. 1994)).
Accordingly, the debtor’s omission of a fact
from his petition and accompanying
schedules constitutes a false statement under
oath.
B. Section § 727(a)(4)(A)
The second issue on appeal is whether
debtor made false oaths in his bankruptcy
petition and accompanying documents, and
if so, whether he did so with fraudulent
intent. This Court concludes that debtor
made two false oaths, and remands the case
to the Bankruptcy Court to determine, in
light of both false oaths, whether debtor
harbored fraudulent intent.
The third element, knowledge of the
falsity, “is satisfied by showing that ‘the
bankrupt knows what is true and, so
knowing, wilfully and intentionally swears
to what is false.’” Id. at 62 (quoting In re
Kaufhold, 256 F.2d 181, 185 (3d Cir.
1958)). “Courts may consider the debtor’s
education, business experience, and reliance
on counsel when evaluating the debtor’s
knowledge of a false statement, but the
debtor is not exonerated by pleading that he
or she relied on patently improper advice of
counsel.” Montey Corp. v. Maletta (In re
Maletta), 159 B.R. 108, 112 (Bankr. D.
Conn. 1993) (quoting Zitwer v. Kelly (In re
Kelly), 135 B.R. 459, 462 (Bankr. S.D.N.Y.
1992)); see, e.g., Pergament v. Smorto (In re
Smorto), No. 07-CV-2727 (JFB), 2008 WL
699502, at *5 (E.D.N.Y. Mar. 12, 2008);
accord Perrine v. Speier (In re Perrine), No.
CC-07-1470-SnPaMk, 2008 WL 8448835,
at *8 (B.A.P. 9th Cir. July 10, 2008).
1. Legal Standard
Section
following:
727(a)(4)(A)
states
the
(a) The court shall grant the
debtor a discharge, unless—
(4) the debtor knowingly and
fraudulently, in or in
connection with the case—
(A) made a false oath or
account.
11 U.S.C. § 727(a)(4)(A). To prove an
objection to discharge under § 727(a)(4)(A),
the party objecting to discharge must
establish, by a preponderance of the
evidence, that: “(1) the debtor made a
statement under oath; (2) the statement was
11
schedules warrant a denial of debtor’s
discharge under § 727(a)(4)(A):
The fourth element, fraudulent intent,
can be proven by evidence of either (1)
actual intent to deceive or (2) reckless
disregard for the truth. Adler v. Ng (In re
Adler), 395 B.R. 827, 843 (E.D.N.Y. 2008);
see also Pereira v. Gardner (In re Gardner),
384 B.R. 654, 667 (Bankr. S.D.N.Y. 2008)
(citations omitted). Fraudulent intent “will
not be found in cases of ignorance or
carelessness.” Gardner, 384 B.R. at 667. As
noted supra, “[f]raudulent intent is rarely
susceptible to direct proof.” Kaiser, 722
F.2d at 1582. Accordingly, the badges of
fraud discussed supra are relevant to this
determination. See, e.g., id. In addition,
“[t]he Second Circuit has recognized that
fraudulent intent may be inferred from a
series of incorrect statements and omissions
contained in the schedules.” Moreo, 437
B.R. at 62; see Dubrowsky, 244 B.R. at 576
(“As the Second Circuit has recognized,
fraudulent intent may be inferred from a
series of incorrect statements contained in
the schedules.”).
(1) debtor’s use of the term “sole
tenant” to describe his
ownership interest in the
Manhattan Property;
(2) debtor’s failure to list his
ownership interest in the
Rockville Centre Property;
and
(3) debtor’s failure to list UGT’s
fraudulent conveyance action
against debtor.3
For the following reasons, the Court
concludes that only the second and third
omissions were false oaths. The Court
remands the case to the Bankruptcy Court to
determine whether, in light of these two
false oaths and other evidence, debtor made
them with fraudulent intent.
a. Use of the Term “Sole Tenant”
As for the fifth element, “[a]n item is
material if it is related to the debtor’s
‘business transactions or estate which would
lead to the discovery of assets, business
dealings, or existence or disposition of
property.’” Moreo, 437 B.R. at 65 (quoting
Carlucci & Legum v. Murray (In re
Murray), 249 B.R. 223, 228 (E.D.N.Y.
2000)). “‘Virtually every imaginable asset
becomes property of the estate upon the
filing of a bankruptcy petition.’” Id. (quoting
Murray, 249 B.R. at 230). “‘Lying about
assets that are part of the estate—even if
possibly
exempt—certainly
bears
a
relationship to the estate.’” Id. (quoting
Murray, 249 B.R. at 230).
First, the Court rejects UGT’s contention
that debtor’s use of the term “sole tenant”
was a false oath. To be sure, New York law
does not recognize the term “sole tenant” or
“sole tenancy” to describe an ownership in
real property. Specifically, New York law
identifies estates “as to the number of
persons owning an interest therein” as
follows: (1) in severalty; (2) joint tenancy;
(3) tenancy in common; and (4) tenancy by
the entirety. N.Y. Est. Powers & Trusts Law
§ 6-2.1. A tenancy in severalty is the proper
3
UGT had also argued in the Bankruptcy Court that
debtor’s valuation of the Manhattan Property at
$800,000.00 constituted a false oath. (See Bankr. Ct.
Op. at 12–13.) The Bankruptcy Court determined that
UGT had failed to provide any evidence concerning
the accurate value of the Manhattan Property. (Id. at
13.) UGT does not press this claim on appeal.
2. Application
On appeal, UGT contends that the
following statements in, and omissions
from, debtor’s petition and accompanying
12
term to describe sole ownership under New
York law. 1 New York Law & Practice of
Real Property § 4:6 (2d ed. 2013); accord 4
Thompson on Real Property § 31.01 (David
A. Thomas ed., Supp. 2013). However, sole
ownership of real property has also been
described as a “sole tenancy.” See Personal
Financial Planning Handbook: With Forms
& Checklists ¶ 12.05[2][a] (2d ed. Supp.
2013) (“Sole tenancy is ownership by a
single party with complete title to the
property.”); cf. United States v. Craft, 553
U.S. 274, 292 (2002) (noting that, under
Michigan law and English common law, a
tenancy by the entirety “does not belong to
either spouse, but to a single entity
composed of the married persons,” and that
such an estate thus “constitutes an
indivisible ‘sole tenancy’”). Accordingly,
although debtor’s use of the term “sole
tenant” to describe a tenancy in severalty
was technically incorrect under New York
law, the Court cannot conclude that it was a
false statement. Moreover, even assuming
arguendo that it were false, the Court
accepts debtor’s explanation for his use of
the term as one that is used in the mortgage
business. (See Debtor Aff. ¶ 6.) Thus, even
if false, the statement was not fraudulent.
which he may deem to be valuable,
important or relevant. Rather, a debtor is
obliged to completely and accurately list all
property of every kind and nature, tangible
and intangible, legal and equitable, which
may comprise his bankruptcy estate, and to
respond truthfully to all questions in the
Schedules and Statement of Financial
Affairs.” Sicari, 187 B.R. at 881.
In sum, this Court concludes that debtor
made a false oath in failing to list his
ownership interest in the Rockville Centre
Property. The only remaining issue is
whether debtor did so knowingly and
fraudulently. The Bankruptcy Court did not
reach this issue because the Bankruptcy
Court determined that debtor had no
ownership interest in the Rockville Centre
Property. In light of this Court’s
determination to the contrary, the Court
remands the case to the Bankruptcy Court to
determine debtor’s intent in the first
instance.
c. Failure to List UGT’s
Fraudulent Conveyance Action
Finally,
debtor’s
petition
and
accompanying schedules fail entirely to
mention UGT’s fraudulent conveyance
action against debtor in New York state
court. A debtor’s failure to list all lawsuits to
which he is a party constitutes a material,
false oath for purposes of § 727(a)(4)(A).
See, e.g., Moreo, 437 B.R. at 61–65 (holding
that debtor’s failure to list three lawsuits in
his petition and accompanying schedules
warranted denial of discharge under
§ 727(a)(4)(A)); O’Connell v. DeMartino
(In re DeMartino), 448 B.R. 122, 129
(Bankr. E.D.N.Y. 2011) (denying discharge
to debtor under § 727(a)(4)(A), based in part
on fact that debtor listed only some lawsuits
to which he was a party); see also Castillo v.
Casado (In re Casado), 187 B.R. 446, 450
(Bankr. E.D.N.Y. 1995) (“The Debtor is
b. Failure to List the
Rockville Centre Property
As discussed supra, this Court has
concluded that debtor maintained a secret
ownership interest in the Rockville Centre
Property within one year of filing his
bankruptcy petition. Accordingly, debtor’s
failure to list this ownership interest in his
petition and accompanying schedules
constituted a false oath that related
materially to his bankruptcy case. Contrary
to debtor’s argument on appeal, it does not
matter whether the property “had virtually
no equity.” (Appellee Br. at 2). “A debtor
may not pick and choose among his assets
and holdings so as to schedule only those
13
required to notify creditors through the
schedules and statement of financial affairs
of any litigation in which he is involved.”).
Memorandum and Order. The Clerk of the
Court shall close the case.
SO ORDERED.
Again, the only issue remaining is
whether debtor made this false oath
knowingly and fraudulently. Although
debtor failed to provide an explanation for
this omission, the Bankruptcy Court found
no fraudulent intent on the part of debtor.
However,
the
Bankruptcy
Court’s
determination on this issue was contingent
upon its finding that debtor had not
concealed an interest in the Rockville Centre
Property. (See Bankr. Ct. Op. at 12 (finding
no fraudulent intent when considering the
omission in light of debtor’s entire petition
and accompanying schedules).) The
Bankruptcy Court should re-evaluate this
conclusion in light of the fact that debtor not
only failed to list the fraudulent conveyance
action, but also failed to list his interest in
the Rockville Centre Property. See, e.g.,
Dubrowsky, 244 B.R. at 576 (“As the
Second Circuit has recognized, fraudulent
intent may be inferred from a series of
incorrect statements contained in the
schedules.”).
*
*
_______________________
JOSEPH F. BIANCO
United States District Judge
Dated: September 5, 2014
Central Islip, NY
*
*
*
Appellant is represented by Daniel
Walsh of Belowich & Walsh LLP, 445
Hamilton Avenue, Suite 1102, White Plains,
NY 10601. Appellee is represented by John
M. Stravato, Esq., P.O. Box 298, Bethpage,
NY 11717.
*
In sum, the Court concludes that debtor
made two false oaths: (1) failure to disclose
his interest in the Rockville Centre Property;
and (2) failure to disclose UGT’s fraudulent
conveyance action against him. The Court
remands the case to the Bankruptcy Court
for a determination of debtor’s state of mind
concerning these false oaths.
IV. CONCLUSION
For the reasons set forth herein, the
Court vacates the judgment of the
Bankruptcy Court, and remands the case to
the Bankruptcy Court for further
proceedings
consistent
with
this
14
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