Bordonardo v. Fido's Fences, Inc.

Filing 7

MEMORANDUM AND OPINIONFor the reasons set forth herein, the January 12, 2016 Order of the Bankruptcy Court, denying debtor's discharge, is affirmed. The Clerk of the Court shall enter judgment accordingly and close the case. Ordered by Judge Joseph F. Bianco on 1/20/2017. (Hammond, Daniel)(copy mailed to pro se appellant by fcm by Chambers).

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
_____________________
Nos 16-CV-414 (JFB)
_____________________

JAMES J. BORDONARO,
Debtor, Appellant,
VERSUS

FIDO’S FENCES, INC.,
Creditor, Appellee.
___________________
MEMORANDUM AND ORDER
January 20, 2017
___________________

695. He further found that the debtor
“knowingly and fraudulently made a false
oath in the . . . bankruptcy case when [debtor], under penalty of perjury, misstated his
income and assets and misrepresented that
[creditor] held an unsecured claim rather
than a secured claim on his Schedules and
Statement of Financial Affairs.” Id. Judge
Grossman concluded that these were sufficient grounds to deny the discharge. Id.

JOSEPH F. BIANCO, District Judge:
James J. Bordonaro (“Bordonaro” or
“debtor”) appeals from an order entered by
the United States Bankruptcy Court for the
Eastern District of New York in the underlying bankruptcy proceeding. After a trial
held on May 12, 2015 and September 17,
2015, the Honorable Robert E. Grossman
issued a written opinion dated January 12,
2016 in which he denied the debtor’s discharge pursuant to 11 U.S.C. §§ 727(a)(3)
and (a)(4)(A). In re Bordonaro, 543 B.R.
692, 703 (Bankr. E.D.N.Y. 2016). Judge
Grossman found that creditor Fido’s Fences
(“creditor”) proved by a preponderance of
the evidence that debtor “concealed, destroyed, mutilated, falsified, or failed to
keep or preserve records, without justification when [debtor] (i) produced redacted
bank statements without justification and (ii)
failed to produce his log of cash transactions, despite order by the Court.” Id. at

This Court holds that the Bankruptcy
Court did not clearly err in concluding that
debtor (1) failed to produce the required
documents without adequate justification
under Section 727(a)(3), and (2) fraudulently made materially false statements on the
original petition in violation of Section
727(a)(4)(A). Moreover, in light of these
findings, the Bankruptcy Court correctly denied debtor’s discharge. Accordingly, the
Order of the Bankruptcy Court dated Janu-

1

ary 12, 2016 denying debtor’s discharge is
affirmed.

B. Bankruptcy Proceedings
1. The Original Petition

I. BACKGROUND
On January 20, 2014 (the “Petition
date”), the day before the auction, debtor
filed a voluntary petition for relief under
Chapter 7 of the Bankruptcy Code (the “Petition”) (R1 at 5–57), which stayed the auction (R2 at 88). With the Petition, he filed
various schedules, a statement of financial
affairs (“SOFA”), and a Form 22A Chapter
7 Statement of Current Monthly Income and
Means-Test Calculation (“Means Test”). He
read all of these documents before signing
them (R2 at 88) and signed them attesting to
their accuracy under penalty of perjury (R1
at 7, 34, 42, 55; R2 at 88).

A. Facts
The following facts are taken from the
record of the Bankruptcy Court in the underlying proceeding. 1
Debtor owned and operated Advance
Graphics Design and Engineering and Advance Graphics Design and Development
Corp. (collectively “Advance Graphics”).
(R2 at 86–87.) In his capacity as owner and
operator of this business, debtor became experienced in business management, including the balancing of accounts and business
accounts. (Id. at 87.) Debtor also worked as
an adjunct professor at the New York Institute of Technology and owned real property
in Bay Shore, New York located at 1707
North Gardiner Drive (“1707 North Gardiner”) and 1705 North Gardiner Drive (“1705
North Gardiner”). (Id. at 87.)

On Schedule A of the Petition, debtor
listed both of his properties as real property
in which he held a legal interest but indicated that there was $0.00 in secured claims on
1705 North Gardiner. (R1 at 12; R2 at 88.)
On Schedule B, he indicated that he maintained a business checking account at New
York Commercial Bank with a balance of
$100. (R1 at 13.) He listed only Nationstar
Mortgage as a creditor holding a secured
claim on Schedule D. (R1 at 17.) Creditor
was not listed on this schedule as a secured
creditor. (Id.; R2 at 88.) Instead, it was
listed on Schedule F as a creditor holding an
unsecured priority claim in the form of a
Money Judgment in the amount of
$150,175.14. (R1 at 24.) With respect to
his income, debtor indicated on Schedule I
that he was self-employed, earned $1,995.58
in net income from operating a business, and
received $925.00 a month in food stamps,
for a total monthly income of $2,920.58.
(R1 at 30.) He noted on Schedule J that his
monthly expenses were $2,927.80, for a net
monthly income of -$7.22. (Id. at 33.)

In March 2013, creditor obtained a money judgment against Advance Graphics and
debtor individually in the Supreme Court of
New York, County of Nassau, due to debtor’s non-payment pursuant to the terms of a
Stipulation of Settlement dated October 12,
2012. (Id.) Creditor then filed an Execution
Against Property with the Suffolk County
Sherriff’s Office to collect the amount owed.
(Id.) As a result, 1705 North Gardiner was
scheduled for auction on January 21, 2014.
1

“R1 at __” refers to the numbered documents in the
exhibit described as “additional documents 1470190” filed with the Court on March 8, 2016. (See
ECF No. 3-3.) “R2 at __” refers to the exhibit described as “additional documents part 1” (see ECF
No. 3-4), and “R3 at __” refers to the exhibit described as “additional documents part 2” (see ECF
No. 3-5).

On his SOFA, debtor indicated that his
sole source of income was the operation of

2

his business and that his income from that
business was $22,255 in 2012, $23,000 in
2013, and $3,100 in 2014 prior to the Petition Date. (Id. at 35.) He noted that creditor’s lawsuit had been “[s]ettled per
[s]tipulation” (id. at 36), that none of his
property had been attached, garnished, or
seized within one year of the Petition Date
(id.), and that he had no ownership interest
in any business (id. at 40). Debtor listed
small business checking and savings accounts with Capital One as closed financial
accounts, with $200 in checking and $50 in
savings as of March 2013. (Id. at 38.)

business even though debtor also
collected rental income.
•

•

On October 28, 2014, following the filing of the complaint, debtor amended
Schedules A, D, F, I, and J, the SOFA, and
the Means Test (the “First Amended Schedules”), signing the amendments under penalty of perjury and attesting to their accuracy.
(R1 at 350.) He amended Schedule A to reflect that there was a secured claim on 1705
North Gardiner in the amount of
$150,175.14 (id. at 352) and Schedules D
and F to reflect that creditor held a secured
claim for that amount (id. at 353, 354–59).
On Schedule I, debtor amended the following entries:

2. Creditor’s Complaint and Debtor’s
Amendments to the Petition
Creditor filed a complaint in the Bankruptcy Court on October 2, 2014, asserting
that debtor’s discharge should be denied due
to debtor’s failure to keep adequate records
and false statements he made in the Petition
that violated 11 U.S.C. § 727(a). (R2 at 4.)
Creditor alleged that debtor made the following false statements, among others:

•

•

The SOFA stated that none of
debtor’s real property had been
attached, garnished, or seized in
the past year, even though creditor obtained a lien during that period.

(R2 at 7–18.)

Finally, on debtor’s Means Test, he indicated that the monthly gross receipts from
the operation of his business were
$3,353.17,
monthly
expenses
were
$1,390.50, for a total income of $1,962.67,
or $23,552.05 per year. (Id. at 50–51.)

•

The SOFA stated that debtor had
no interest in any business, despite his ownership of Advance
Graphics.

(1) employment information, to
show debtor was not employed (id.
at 360);

Creditor was listed as an unsecured creditor when debtor knew
creditor’s debt was secured.

(2), (4), and (7), to show a monthly
income of $1,760.24 rather than
$0.00 (id. at 360–61);

Debtor’s year-to-date income for
2014 was listed as $2,920.58 and
$3,100 despite a bank deposit of
$8,621.00 during that period.

(8a) net income from rental property
and from operating a business, to
show an income of $0.00 rather than
$1,995.58 (id. at 361);

The SOFA reported that debtor
had no income other than from
employment or operation of a

(9) all other income, to show $925,
rather than none (id.);

3

(10) and (12), to show a monthly income of $2,685.24 rather than
$2,920.58 (id.); and

(the “Second Amended Schedules”) (id. at
400). He amended Schedule B to include
$12,000.00 that his former tenants owed him
as personal property (id. at 402) and Schedule F to list $500 in unsecured debt owed by
those tenants (id. at 408). The SOFA was
also amended to reflect debtor’s corresponding lawsuit against them. (Id. at 412.) 2

(13) expectation of changes in income, from “No” to “Yes,” explained by debtor’s statement that he
no longer expected to receive rental
income (id.).

3. The Trial and the Bankruptcy Court’s
Decision

Debtor also amended entries (2), (23a), and
(23c) on Schedule J, (2) to indicate he had
no dependents and remove the list of eight
dependents included in the Original Petition,
(23a) to reflect the combined monthly income of $2,685.24 reported in the amended
Schedule I, and (23c) to reflect a monthly
net income of -$242.56. (Id. at 363–64.) In
his SOFA, debtor altered his income from
employment or operation of a business for
2014 year-to-date from $3,100 to $7,696, for
2013 from $23,000 to $8,202, and for 2012
from $22,255 to no entry. (Id. at 368.) He
also amended other income to include
$9,800 from rental property and $22,200 in
food stamps; property attached to reflect
creditor’s lien on 1705 North Gardiner;
payments related to bankruptcy from $2,000
to the Law Office of Catherine May to none;
and nature, location, and name of business
from none to Advance Graphics Design and
Development Corp. and Advance Graphics
Design and Engineering. (Id. at 368–74.)
Finally, debtor amended his Means Test to
show monthly gross receipts of $1,760.24,
rather than $3,353.17, and $0.00 in monthly
expenses, rather than $1,390.50, for a total
of $1,760.24. (Id. at 376.) He also listed
$700 in gross receipts in rent and other real
property income and $925 in food stamps as
income from all other sources, both changed
from initial reports of $0.00. (Id.)

The Bankruptcy Court held a trial on
May 12, 2015 and September 17, 2015. (R2
at 105–278, 281–348). Debtor produced
redacted bank statements that obscured certain amounts and identities of payors and
payees (see e.g., R3 at 652; R2 at 118–20,
147–48), explaining that he made these redactions to protect trade secrets, specifically
the identities of his vendors (R2 at 119–20).
Debtor also claimed to keep a cash log detailing his cash transactions for the business,
as well as a spreadsheet separating his business expenses from his personal expenses,
but he never produced the cash log despite
being ordered to do so. (See id. at 121–122,
130, 285–87, 334–35.) Meanwhile, his account statement for his New York Commercial Bank business account indicated his remaining balance was $181.53, rather than
the $100 reported in the original petition.
(R3 at 681; see also R1 at 13.) Likewise, his
Capital One D/B/A account statement
2

In its decision, the Bankruptcy Court also indicated
that debtor filed a third amendment on September 4,
2015, amending the SOFA “to change entry # 1,
income from employment or operation of a business,
for 2013 from $8,202.00 to $7,545 ‘gross income
from Operation of D/B/A’ and $7,506 for ‘Income
derived from Corporation,’ and for 2012 from no
entry to $40,633.00 ‘Gross receipts from operation of
D/B/A.’” Bordonaro, 543 B.R. at 698. This
amendment, however, does not appear in the record
on appeal and, in any event, is immaterial to this
Court’s analysis of the issues. Therefore, it is not
considered.

After trustee Kenneth Kirschenbaum
filed a notice of discovery of assets on December 3, 2014 (id. at 384), debtor filed additional amendments on January 20, 2015

4

showed that this account was open and in
use until July 2013, with a March 2013 balance of $1,068.67 (R3 at 784, 796), where
the Petition indicated that he closed that account in March of 2013 with a balance of
only $200 (R1 at 38). To explain these inaccuracies and other inaccuracies identified
by creditor, debtor testified that they were
honest mistakes or attributable to his attorney. (See, e.g., R2 at 113–114, 133–34,
189–92, 210–11.)

II. STANDARD OF REVIEW
This Court has jurisdiction to hear appeals from bankruptcy courts under 28
U.S.C. § 158(a), which provides that “[t]he
district courts of the United States shall have
jurisdiction to hear appeals . . . from final
judgments, orders, and decrees; . . . [and]
with leave of the court, from other interlocutory orders and decrees . . . of bankruptcy
judges.” 28 U.S.C. § 158(a)(1), (3). Part
VIII of the Federal Rules of Bankruptcy
Procedure outlines the procedure governing
such appeals. Fed. R. Bankr. P. 8001.

The Bankruptcy Court issued a decision
denying debtor’s discharge on January 12,
2016. See Bordonaro, 543 B.R. at 692. The
Bankruptcy Court first concluded that creditor “established that [debtor] either failed to
keep, or at least, failed to produce, adequate
business records, such that the [creditor] and
the Court are unable to accurately ascertain
the [debtor’s] present financial condition
and the nature of the Defendant’s prepetition business transactions,” as required
under 11 U.S.C. § 727(a)(3). Bordonaro,
543 B.R. at 701. It then determined that
debtor
also
violated
11
U.S.C.
§ 727(a)(4)(A) by knowingly and fraudulently making materially false statements in
the petition. Id. at 702. Based on these conclusions, the Bankruptcy Court denied his
discharge. Id. at 703.

The Court will review the Bankruptcy
Court’s legal conclusions de novo and its
factual findings for clear error. See In re
Hyman, 502 F.3d 61, 65 (2d Cir. 2007); see
also In re Bayshore Wire Prods. Corp., 209
F.3d 100, 103 (2d Cir. 2000) (“Like the District Court, we review the Bankruptcy
Court’s findings of fact for clear error, . . . its conclusions of law de novo,
. . . [and] its decision to award costs, attorney’s fees, and damages for abuse of discretion.” (citations omitted)); accord In re Ionosphere Clubs Inc., 922 F.2d 984, 988–89
(2d Cir. 1990). Clear error exists “when although there is evidence to support it, the
reviewing court on the entire evidence is left
with the definite and firm conviction that a
mistake has been committed.” Dist. Lodge
26, Int’l Ass’n of Machinists & Aerospace
Workers, AFL-CIO v. United Techs. Corp.,
610 F.3d 44, 51 (2d Cir. 2010) (quoting
United States v. U.S. Gypsum Co., 333 U.S.
364, 395 (1948)); see also Collins v. HiQual Roofing & Siding Materials, Inc., Nos.
02-CV-0921E(F), 02-CV-0922E(F), 2003
WL 23350125, at *4 n.16 (W.D.N.Y. Dec.
18, 2003) (“‘[A] finding is only clearly erroneous when although there is evidence to
support it, the reviewing court on the entire
evidence is left with the definite and firm
conviction that a mistake has been committed. . . . This standard precludes this Court

C. Appeal
Acting pro se, debtor filed his notice of
appeal from the Bankruptcy Court’s decision on January 22, 2016. (ECF No. 1.)
The Court received the record on March 8,
2016 (ECF No. 3), and the parties filed their
briefs in April and May of 2016 (ECF Nos.
4–6.) The Court has fully considered the
parties’ submissions.

5

477, 479 (2d Cir. 2011) (citing Grogan v.
Garner, 498 U.S. 279, 291 (1991)).

from reversing the Bankruptcy Court’s decision if its account of the evidence is plausible, even if this Court is convinced that it
would have weighed the evidence differently.’” (quoting In re B. Cohen & Sons
Caterers, Inc., 108 B.R. 482, 484 (E.D. Pa.
1989))). Under the clear error standard,
credibility determinations “are entitled to
‘particularly strong deference.’” In re Persaud, 496 B.R. 667, 678 (E.D.N.Y. 2013)
(quoting Castrol, Inc. v. Quaker State Corp.,
977 F.2d 57, 64 (2d Cir. 1992)); accord
Falbaum v. Leslie Fay Companies, Inc., 182
F.3d 899 (2d Cir. 1999).

Here, the Bankruptcy Court rested its
denial of debtor’s discharge on two independent grounds: his failure to produce adequate business records without adequate justification in violation of 11 U.S.C.
§ 727(a)(3) and the material false oaths he
made in his original petition in violation of
11 U.S.C. § 727(a)(4)(A). Debtor challenges both holdings.

III. DISCUSSION

1. Applicable Law

The Bankruptcy Code discharges preexisting debts in order to give “honest but unfortunate” debtors a fresh start. Cohen v. de
la Cruz, 523 U.S. 213, 217 (1998). A discharge releases a debtor from personal liability for all allowed claims and debts that
arose prior to the commencement of the
debtor’s bankruptcy case. See 11 U.S.C.
§ 727(b). Nevertheless, the Bankruptcy
Code contains numerous exceptions to the
“fresh start” principle and denies relief to
debts resulting from certain types of undesirable behaviors, such as fraud. Section 727
of the Bankruptcy Code enumerates several
circumstances that require the denial of discharge, including a debtor’s failure to maintain material records or his fraudulent inclusion of knowingly false statements. 11
U.S.C. §§ 727(a)(3), (a)(4)(A).

Under Section 727(a)(3), a court may
deny discharge if “the debtor has . . . 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 of the case.”
11 U.S.C.
§ 727(a)(3). The purpose of this provision
“is to make the privilege of discharge dependent on a true presentation of the debtor’s financial affairs.” Cacioli, 463 F.3d at
234 (quoting In re Underhill, 82 F.2d 258,
260 (2d Cir. 1936)). In assessing whether a
debtor has met this requirement, courts employ “a two-step approach.” Id. at 235.
First, the creditor must “show that the debtor
failed to keep and preserve any books or
records from which the debtor’s financial
condition or business transactions might be
ascertained.” Id. In addressing this question, this Court asks “whether there is available written evidence made and preserved
from which the debtor’s present financial
condition, and his recent business transactions for a reasonable period in the past, may
be ascertained with substantial completeness
and accuracy.” In re Sethi, 250 B.R. 831,
838 (Bankr. E.D.N.Y. 2000).

A. 11 U.S.C. § 727(a)(3)

Because Section 727 “impos[es] an extreme penalty for wrongdoing, [it] must be
construed strictly against those who object
to the debtor’s discharge and liberally in favor of the bankrupt.” In re Cacioli, 463 F.3d
229, 234 (2d Cir. 2006) (citation omitted).
Correspondingly, the objecting party bears
the burden of proving the applicable elements of Section 727 by a preponderance of
the evidence. In re Pisculli, 408 F. App’x

6

Once the creditor meets the initial burden, “the burden falls upon the bankrupt to
satisfy the court that his failure to produce
them was justified.” Cacioli, 463 F.3d at
234. In deciding this issue, “the court considers the education, experience and sophistication of the debtor; the volume of the
debtor’s business; the complexity of the
debtor’s business; the amount of credit extended to debtor in his business; and any
other circumstances that should be considered in the interest of justice.” In re
Jacobowitz, 309 B.R. 429, 436 (S.D.N.Y.
2004) (quoting Meridian Bank v. Alten, 958
F.2d 1226, 1231 (3d Cir. 1992)).

in the redacted bank statements and cash
logs could have assisted the Bankruptcy
Court in determining the accuracy of debtor’s reported income and, correspondingly,
debtor’s overall credibility, an essential issue in the case. At trial, debtor testified that
he would pay personal expenses from his
business account (R2 at 121–22) and would
make some payments in cash, which he recorded in a cash log (R2 at 130). The Bankruptcy Court expressed concerns that these
practices would result in debtor understating
his income, especially in light of how low
debtor’s reported income was given his family size. (Id. at 124–28, 141–43, 147–48.)
Debtor testified that he tracked which expenses were personal and which were business-related in his personal records (id. at
121–22), but the absence of complete bank
records or debtor’s cash log prevented the
Bankruptcy Court from ascertaining whether
this was true. Correspondingly, it could not
determine whether debtor understated his
income in the Petition by not reporting personal expenses paid for through the business
account as income. Thus, creditor met its
burden in proving that debtor failed to produce “written evidence . . . from which
[debtor’s] present financial condition . . .
may be ascertained with substantial completeness and accuracy.” Sethi, 250 B.R. at
838 (emphasis added).

2. Analysis
The Bankruptcy Court here determined
that creditor met its burden in proving that
debtor failed to produce adequate business
records that would allow it to assess debtor’s
financial condition. Bordonaro, 543 B.R. at
701. Specifically, it reasoned that debtor’s
redactions on his bank statements and his
failure to produce his cash log made “it impossible for [creditor] and the Court to have
an accurate understanding of [debtor’s] financial condition. As a result, the Court is
unable to use the documents to reconcile or
corroborate the information contained in the
Petition.” Id. Furthermore, the Bankruptcy
Court was “unpersuaded by [debtor’s] argument that the redactions were to protect
the trade secrets of [debtor], especially since
the amounts [debtor] paid or was paid
[were] certainly not trade secrets.” Id. The
Bankruptcy Court, therefore, held that there
was “no good faith basis to redact the bank
statements, or to fail to produce the cash
log.” Id.

In addition, this Court finds that the
Bankruptcy Court did not clearly err in declaring debtor’s explanation inadequate. See
In re McCormack, No. 06-1053-(BK), 2007
WL 642945, at *1 (2d Cir. Feb. 27, 2007)
(slip op.) (reviewing bankruptcy court’s determination that loss of business records was
justified for clear error). First, debtor offered no justification for his initial failure to
produce the cash log and, indeed, assured
the Bankruptcy Court at the May 12 trial
that he would produce it “tomorrow.” (R2
at 130.) At the September 17 trial, counsel
informed the Bankruptcy Court that he

As a threshold matter, this Court concludes that the Bankruptcy Court did not err
in concluding that creditor met its initial
burden. See Cacioli, 463 F.3d at 234; Sethi,
250 B.R. at 838. The information contained

7

failed to produce the log because he misunderstood the order, taking the word “tomorrow” to mean “at the conclusion of the hearing.” (Id. at 285.) Given the plain meaning
of the Bankruptcy Court’s order directing
production of the cash log “tomorrow,” i.e.,
the next day, this Court finds counsel’s misunderstanding of that directive unreasonable, and thus it does not constitute an adequate basis for failing to produce the cash
log.

were not reported as income. (R2 at 124–
28, 141–43, 147–48.)
On the basis of the record, therefore, this
Court is not “left with the definite and firm
conviction that a mistake has been committed” by the Bankruptcy Court when it rejected debtor’s justification for his failure to
produce the material documents.
Dist.
Lodge 26, 610 F.3d at 51 (quoting U.S. Gypsum Co., 333 U.S. at 395). It follows that
the Bankruptcy Court did not err in denying
his discharge, pursuant to 11 U.S.C.
§ 727(a)(3), on this ground.

With respect to the redacted bank statements, the Bankruptcy Court correctly concluded that debtor’s justification—the protection of trade secrets—was inadequate to
explain why he redacted the amounts paid
from his bank statements, as that information posed no risk of exposing the identities of his vendors. Furthermore, to the extent the Bankruptcy Court simply disbelieved debtor’s testimony regarding the reasons for the redactions based on his demeanor and the totality of the circumstances,
see Bordonaro, 543 B.R. at 701 (“This
Court is unpersuaded by [debtor’s] argument
that the redactions were to protect [his] trade
secrets . . . .”); id. at 700 (“Based on the
conduct of [debtor], the Court finds his testimony lacks credibility and is to be discounted.”), there is no basis to disturb that
credibility finding. See, e.g., In re Southold
Dev. Corp., 173 B.R. 63, 73 (E.D.N.Y.
1994) (“On appeal, the Court must give due
deference to the trial court’s opportunity to
observe, firsthand, witness demeanor and
credibility, and credibility findings cannot
be disregarded in the absence of facts which
would compel contrary inferences. Simply
put, the trial court is in a much better position to determine credibility.”). Indeed, as
noted above, the Bankruptcy Court expressed concerns at trial that the real reason
for the redactions might have been debtor’s
desire to conceal personal transactions completed through his business account that

B. 11 U.S.C. § 727(a)(4)(A)
1. Applicable Law
Under Section 727(a)(4)(A), a court may
deny a discharge if “the debtor knowingly
and fraudulently, in or in connection with
the case . . . made a false oath or account.”
11 U.S.C. § 727(a)(4)(A). To prove an objection to discharge under this section, the
party objecting to discharge must establish
that: “(1) the debtor made a statement under
oath; (2) the statement was false; (3) the
debtor knew that the statement was false;
(4) the debtor made the statement with intent
to deceive; and (5) the statement related materially to the bankruptcy case.” In re
Moreo, 437 B.R. 40, 59 (E.D.N.Y. 2010)
(citation omitted); see also In re Boyer, 328
F. App’x 711, 715 (2d Cir. 2009). A single
statement
in
violation
of Section
727(a)(4)(A) is sufficient to deny a debtor’s
discharge. In re Nazzaro, No. 810-74869REG, 2013 WL 145627, at *7 (Bankr.
E.D.N.Y. Jan. 14, 2013); see also, e.g., In re
Grondin, 232 B.R. 274, 277 (B.A.P. 1st Cir.
1999); Matter of Beaubouef, 966 F.2d 174,
178 (5th Cir. 1992).
The materially false statements recognized under Section 727(a)(4)(A) may have
been made as part of or omitted from the

8

opportunity to clarify or correct inconsistencies.

bankruptcy petition, schedules, statement of
affairs, or during examinations or the bankruptcy proceeding itself. See, e.g., In re
Abramov, 329 B.R. 125, 132 (E.D.N.Y.
2005); In re Smorto, No. 07-CV-2727 (JFB),
2008 WL 699502, at *4 (E.D.N.Y. Mar. 12,
2008). A debtor’s intent to defraud or deceive can be proven by evidence of either
(1) the debtor’s actual intent to deceive or
(2) reckless disregard for the truth. In re
Adler, 395 B.R. 827, 843 (E.D.N.Y. 2008);
see also Dranichak v. Rosetti, 493 B.R. 370,
379 (N.D.N.Y. 2013); In re Gardner, 384
B.R. 654, 667 (Bankr. S.D.N.Y. 2008) (citations omitted). Intent to defraud, however,
“will not be found in cases of ignorance or
carelessness.” Gardner, 384 B.R. at 667.

In re Antoniou, 515 B.R. 9, 24 (Bankr.
E.D.N.Y. 2014) (citations omitted). In addition, “while subsequent disclosure before an
objection to discharge is filed may be some
evidence of innocent intent, the effect of a
false statement is not cured by correction in
a subsequently filed schedule.” 3 Weiss v.
Winkler, No. 98-CV-5742 FB, 2001 WL
423050, at *3 (E.D.N.Y. Mar. 30, 2001) (citation omitted).
Once the moving party meets its initial
burden to produce evidence of a false statement, “the burden of production then shifts
to the debtor[] to produce a ‘credible explanation’ for making the ‘false and fraudulent
representations,’” In re St. Clair, No. 13MC-1057 (SJF), 2014 WL 279850, at *7
(E.D.N.Y. Jan. 21, 2014) (quoting Moreo,
437 B.R. at 59), or to “prove that it was not
an intentional misrepresentation,” Gardner,
384 B.R. at 668 (citations omitted). In assessing a debtor’s explanation, “[c]ourts
may consider the debtor’s education, business experience, and reliance on counsel . . .
but the debtor is not exonerated by pleading
that he or she relied on patently improper
advice of counsel.” In re Maletta, 159 B.R.
at 112 (quoting In re Kelly, 135 B.R. 459,
462 (Bankr. S.D.N.Y. 1992)). Furthermore,
purported reliance on the advice of counsel
cannot excuse a false representation in a petition when the error should be plainly obvious to the debtor. Dubrowsky, 244 B.R. at
573 (“An explanation by the debtor that he
acted on advice of counsel, who in turn was
fully aware of all the relevant facts, generally rebuts an inference of fraud. However,

With respect to reckless indifference to
the truth, courts in the Second Circuit have
correctly recognized that fraudulent intent
may be inferred from a series of incorrect
statements contained in the schedules. See
In re Dubrowsky, 244 B.R. 560, 571–72
(E.D.N.Y. 2000) (“[I]t is important to note
that under section 727(a)(4)(A), a reckless
indifference to the truth is sufficient to sustain an action for fraud.” (citations omitted)); In re Casado, 187 B.R. 446, 450
(Bankr. E.D.N.Y. 1995) (citing, inter alia,
Diorio v. Kreister–Borg Constr. Co., 407
F.2d 1330, 1331 (2d Cir. 1969); In re Kaiser, 722 F.2d at 1583 n.4)); see also Smorto,
2008 WL 699502, at *6 (citing cases). In
examining whether debtors exhibited a reckless disregard or indifference to the truth, a
court may consider, among other factors:
(a) the serious nature of the information sought and the necessary attention to detail and accuracy in answering; (b) a debtor’s lack of financial sophistication as evidenced by
his or her professional background;
and (c) whether a debtor repeatedly
blamed recurrent errors on carelessness or failed to take advantage of an

3

For this reason, debtor’s argument that he had a
right to amend and that his amended schedules
“should not be held against [him]” (Appellant’s Br.,
ECF No. 4, at 16) is unpersuasive, given that he only
amended the Petition after creditor filed an objection.

9

as evidenced by his analysis of his bank
statements in order to determine and segregate his personal and business deductions.”
Id. From this, the Bankruptcy Court inferred
that debtor “would have been aware of the
amounts and sources of his income, the
amounts in his bank accounts, and the date
of closing of his Capital One Account, especially given the fact that he prepared his own
tax returns and reviewed the documents in
preparing the Petition.” Id. Furthermore,
the Bankruptcy Court pointed out that, at
trial, debtor “testified that, while reviewing
and signing the Petition, he knew that [creditor] had obtained a lien on 1705 North Gardiner and that said lien had attached within
the prior year.” Id.

even the advice of counsel is not a defense
to a charge of making a false oath or account
when it is transparently plain that the property should be scheduled.”) (citing In re
Mascolo, 505 F.2d 274, 277 (1st Cir. 1974));
Kelly, 135 B.R. at 462 (“The defense of reliance on counsel is not available when it is
transparently plain that the advice is improper.”)).
2. Analysis
Here, the Bankruptcy Court cited several
false statements in the original Petition as
the basis for its Section 727(a)(4)(A) holding, including:
listing [creditor] as an unsecured
creditor without a lien; that no property had been attached in the preceding year; the New York Community
Bank account had a $100 balance;
the Capital One Bank account had
been closed in March, 2013 with a
$200 balance; [debtor] had not issued any financial statements to any
financial institution within two years;
that [debtor] did not own any businesses, etc.

Having determined that creditor established that debtor knowingly made materially false statements, the Bankruptcy Court
shifted the burden to debtor to proffer an
explanation for those statements. Id. It
held, however, that debtor failed to provide
such an explanation, finding his “claim of
innocent mistake . . . unpersuasive given that
[debtor] had access to and was familiar with
the bank statements and other documents
detailing his financial condition, and that he
was aware of [creditor’s] lien.” Id. In addition, after finding that “the timing of [debtor’s] amendments to the schedules call[ed]
into serious question [his] assertion that the
amendments were good faith attempts to
meet his disclosure obligations,” the Bankruptcy Court generally discounted his credibility because of the “numerous instances of
misstatements and dishonest conduct by
[debtor] . . . including making demonstrably
false statements regarding the location of his
residence, his assets, and his income, to various Federal and New York State agencies
and a bank.” Id. at 699–700.

Bordonaro, 543 B.R. at 702. Furthermore,
the Bankruptcy Court found, “most materially,” that debtor “made various misrepresentations regarding the amounts and sources of
his income, as evidenced both by the testimony at trial and the subsequent amendment
of these amounts and sources.” Id. It
deemed all these statements material because “they relate directly to [debtor’s] finances, business dealings, and disposition of
his property.” Id.
The Bankruptcy Court then found that
the evidence established debtor’s knowledge
of the statements’ falsity because his “testimony demonstrated a deep involvement
with and understanding of his own finances,

The Bankruptcy Court did not err in
concluding that creditor met its burden on
the first two elements because debtor filed
10

amendments to his original petition, which
is typically sufficient to prove those elements. See In re Virovlyanskiy, 485 B.R.
268, 272 (Bankr. E.D.N.Y. 2013) (“The first
two factors are typically satisfied when a
debtor files an amended petition or amended
schedules and statements.”), aff’d, No. 13
CV 1511 RJD, 2014 WL 1800411
(E.D.N.Y. May 6, 2014). 4 Furthermore, the
Bankruptcy Court correctly concluded that
creditor adduced sufficient evidence of
knowledge on the part of debtor. The record
plainly supports the Bankruptcy Court’s
finding that debtor was intimately familiar
with his own finances. (See, e.g., R2 at
302–20). It was not unreasonable for the
Bankruptcy Court to infer from this extensive knowledge, as well as debtor’s sophistication and education, that, at the time he
filed the petition, he knew or should have
known that the statements identified by the
Bankruptcy Court were false. See In re
Casado, 187 B.R. 446, 449 (Bankr.
E.D.N.Y. 1995) (knowledge requirement
satisfied where debtor “knew or should have
known” about false statement); In re
Ishahak, 130 B.R. 16, 19 (Bankr. E.D.N.Y.

1991) (same). Moreover, the sheer volume
of false statements in the original Petition
alone was enough to justify the Bankruptcy
Court’s conclusion that debtor knew of, or at
the very least recklessly disregarded, their
falsity. See Casado, 187 B.R. at 450 (“[T]he
cumulative effect of all the falsehoods together evidences a pattern of reckless and
cavalier disregard for the truth serious
enough to supply the necessary fraudulent
intent required by § 727(a)(4)(A).” (quoting
In re Diodati, 9 B.R. 804, 808 (Bankr. D.
Mass. 1981))).
The Bankruptcy Court also committed
no error in concluding that the bulk of plaintiff’s false statements were material because
almost all of them plainly “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. Indeed, all of the specific statements the Bankruptcy Court identified as the basis for its
Section 727(a)(4)(A) holding concerned issues critical to determining his financial status, such as (1) whether creditor held a secured or an unsecured lien, (2) whether any
lien had attached within the previous year,
(3) the status and amount in debtor’s bank
accounts, (4) debtor’s interest in any businesses, and (5) the amounts and sources of
his income. 5

4

For this reason, to the extent debtor argues that
statements he made in the original Petition are true,
those arguments are unavailing. For instance, in
response to the Bankruptcy Court’s skepticism about
debtor’s 2013 income as reported in the initial SOFA,
debtor claims that it accurately reflects his adjusted
gross income rather than his gross income. Apart
from the instruction on the SOFA to report “the gross
amount of income the debtor has received” (R1 at
35), the fact that debtor changed this number from
$23,000 to $8,202 in his First Amended Schedules is
sufficient to establish its falsity (compare R1 at 35
with R1 at 368). See Virovlyanskiy, 485 B.R. at 272.
The same can be said for his 2014 year-to-date income (compare R1 at 35 (reported as $3,100) with
R1 at 368 (reported as $7,696)) and income other
than from employment or operation of a business
(compare R1 at 35 (reported as “none”) with R1 at
368 (reported as $9,800 from rental property and
$22,200 in food stamps)), among other discrepancies.

Debtor primarily challenges the Bankruptcy Court’s conclusion on the fourth ele5

Debtor only challenges the materiality of his understatement of the balance in his New York Commercial Bank Account—i.e., the $100 reported in the
Petition versus the $181.53 that was actually in that
account on the Petition date—claiming that the difference is too small to justify a discharge. (Appellant’s Br. at 16, 21.) Given that the other statements
that form the basis for the Bankruptcy Court’s discharge are unquestionably material, however, the
Court need not and does not address the materiality
of this particular false statement.

11

(Id. at 15.) Finally, debtor attempts to explain the $3,100 he reported as his 2014
year-to-date income, despite a deposit of
$8,621 during that period, as resulting from
his first attorney’s amortization of the
$8,621 according to when it was earned, i.e.,
that debtor only earned $3,100 of that
amount in 2014. (Id. at 14–15.)

ment, fraudulent intent. For every false
statement identified by the Bankruptcy
Court, debtor offers explanations as to why
the original Petition and the various amendments prove his truthfulness at trial, but only
his arguments with respect to the specific
bases for the Bankruptcy Court’s Section
727(a)(4)(A) holding will be summarized.
See Bordonaro, 543 B.R. at 702. First,
debtor argues that the petition and his
amendments prove that he honestly made a
mistake in failing to list creditor as a secured
creditor and failing to indicate his property
had been attached in the previous year.
(Appellant’s Br. at 14, 19.) Specifically, he
points out that the Petition itself listed creditor as holding a money judgment in Schedule F, and debtor indicates that he thought
money judgments were per se secured priority claims. (Id. at 14.) Thus, by listing creditor’s claim as a “money judgment” in
Schedule F, he indicated that the claim was
secured but “in the wrong place” within the
Petition. (Id.) Second, debtor argues that
the Petition itself establishes he mistakenly
marked the “No” box to indicate that he did
not have an ownership interest in any company because in multiple other places
throughout the Petition, he clearly indicated
that his only source of income was from
“operating a business.” (Id. at 12.) Finally,
with respect to debtor’s “most material[ ]”
false statements—his “misrepresentations
regarding the amounts and sources of his
income,” Bordonaro, 543 B.R. at 702—
debtor offers a plethora of explanations to
explain each of the many discrepancies. For
instance, to explain why he listed $23,000 as
his income in the original SOFA, debtor
claims that he thought it meant his adjusted
gross income rather than his gross income.
(Appellant’s Br. at 9.) Likewise, debtor argues that he did not report his rental income
in the original petition because his tenants
had left in 2013 and he, therefore, was not
receiving rental income on the Petition date.

The Bankruptcy Court, however, declined to credit debtor’s testimony generally
and his claims of innocent mistake in particular. See Bordonaro, 543 B.R. at 699–700,
702. Again, there is no basis to secondguess these credibility determinations, as the
trial court had the opportunity to observe
firsthand “the demeanor, body language,
tone, and reactions of the live witnesses,”
whereas this Court has “only the benefit of a
written transcript” and the written filings
that were present before the trial court.
United States v. Williams, No. 11 CR. 663
AT, 2014 WL 4651968, at *6 (S.D.N.Y.
Sept. 15, 2014) (quoting In re Case Nova of
Lansing, Inc., 146 B.R. 370, 377 (Bankr.
W.D. Mich. 1992)); see also Southold, 173
B.R. at 73; Oquendo v. Scully, No. CV 891208(RR), 1990 WL 88620, at *5 (E.D.N.Y.
June 11, 1990) (“Certainly the trial court,
which had the opportunity to observe this
testimony and to assess the witness’s demeanor and candor, was in a far better position to make a credibility finding than this
court.”); Norlin Corp. v. Rooney, Pace Inc.,
744 F.2d 255, 261 (2d Cir. 1984) (“[A] trial
court is in a better position to assess the
credibility of testimony and make factual
findings than an appellate court.”); In re Ciena Capital LLC, 440 B.R. 47, 52 (S.D.N.Y.
2010) (“In reviewing findings for clear error, [the appellate court is] not allowed to
second-guess either the trial court’s credibility assessments or its choice between permissible competing inferences. Even if the
appellate court might have weighed the evidence differently, it may not overturn findings that are not clearly erroneous.” (altera12

tion in original)). In any event, debtor’s arguments and citations to the record do not
convince this Court that the Bankruptcy
Court made a mistake in discounting debtor’s credibility to the extent required to establish clear error. See Dist. Lodge 26, 610
F.3d at 51. As such, this Court defers to
those credibility determinations. See Persaud, 496 B.R. at 678. As these determinations serve as the foundation for the Bankruptcy Court’s finding of fraudulent intent,
that finding will not be disturbed. 6

the Court shall enter judgment accordingly
and close the case.

SO ORDERED.

______________________
JOSEPH F. BIANCO
United States District Judge
Dated: January 20, 2017
Central Islip, New York

In sum, the Bankruptcy Court did not
clearly err in concluding that creditor satisfied its burden of proof under Section
727(a)(4)(A) or that debtor failed to offer an
adequate explanation for the materially false
statements. Therefore, the discharge pursuant to that section was warranted.

***
Appellant is proceeding pro se. Appellee is
represented by Jennifer Coden, 6800 Jericho
Turnpike, Suite 209E, Syosset, NY 11791.

III. CONCLUSION
For these reasons, the January 12, 2016
Order of the Bankruptcy Court, denying
debtor’s discharge, is affirmed. The Clerk of
6

To the extent debtor argues that the false statements
resulted from his attorneys’ mistakes, this Court concludes that this explanation does not exonerate the
misrepresentations because, given debtor’s extensive
knowledge of his own finances, the falsity of at least
some of those statements—such as the indication that
he did not own his own business—should have been
“transparently plain” to debtor. Dubrowsky, 244 B.R.
at 573; see also Maletta, 159 B.R. at 112. In addition, whether debtor’s attorneys were, in fact, responsible for the misstatements debtor now identifies was
a question of fact reserved for the Bankruptcy Court,
and, therefore, it is not appropriate for this Court to
address this issue for the first time on appeal. See In
re DPH Holdings Corp., 468 B.R. 603, 619
(S.D.N.Y. 2012) (“[I]t is in this Court’s discretion
whether to review issues raised for the first time on
appeal that present only a question of law that
requires no additional findings of fact.”); In re
Pappas, 239 B.R. 448, 453 (E.D.N.Y. 1999) (“As a
general rule, an appellate court will not address
arguments that initially were not presented to the
lower court.”).

13