Vucurevich v. U.S. Bank
ORDER Affirming Bankruptcy Court Decision. Signed by U.S. District Judge Karen E. Schreier on 2/13/2015. (KC)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
KENT A. VUCUREVICH,
MEMORANDUM OPINION AND
ORDER AFFIRMING BANKRUPTCY
U.S. BANK, N.A.,
Appellant, Kent A. Vucurevich, appeals from the July 9, 2014, decision
issued by the United States Bankruptcy Court for the District of South
Dakota,1 granting appellee U.S. Bank, N.A.’s motion for summary judgment in
part and denying Vucurevich a general discharge of debts. Bankr. Docket 52.2
For the following reasons, the court affirms the bankruptcy court’s decision.
The pertinent, undisputed facts of this appeal are as follows:
Vucurevich was placed into bankruptcy on June 27, 2011, following an
involuntary petition filed by several creditors. See 4:11-bk-40501. On
August 1, 2011, the bankruptcy court granted the petition and entered an
order for relief under Chapter 7 of U.S.C. title 11. U.S. Bank subsequently filed
The Honorable Charles L. Nail, Jr., Chief Judge.
“Bankr. Docket” refers to documents filed in the United States
Bankruptcy Court for the District of South Dakota under docket number 4:124005.
an adversary complaint against Vucurevich on February 2, 2012, arguing that
Vucurevich was not entitled to a discharge of indebtedness. Bankr. Docket 1.
The case was held in abeyance pending resolution of other adversary
proceedings until the bankruptcy court issued an order on November 7, 2013,
which allowed the case to resume. Bankr. Docket 28.
U.S. Bank moved for summary judgment on December 27, 2013, arguing
Vucurevich was not entitled to a discharge of debts pursuant to 11 U.S.C.
§§ 727(a)(3), (a)(4), and (a)(5). See Bankr. Docket 29-4. Accompanying its
motion and brief for summary judgment, U.S. Bank submitted a statement of
undisputed material facts and a number of evidentiary exhibits. See Bankr.
Docket 29-1 to -3. Vucurevich timely responded, raised several objections to
U.S. Bank’s motion, and argued that summary judgment was inappropriate.
See Bankr. Docket 37.
In its motion for summary judgment, U.S. Bank’s statement of
undisputed material facts set forth the following:
25. Debtor does not have a bank account but runs everything on a
32. Neither Debtor's original [Statement of Financial Affairs] nor
Amendments, disclose transfers within the last 2 years of Debtor's
interest in KCC One Real Estate, LLC for $250,000.00 nor transfer
as security Debtor's interest in 57th and Louise Partners, LLC.
47. Debtor only deals in cash.
57. Debtor considers himself a sophisticated business person and
has been a banker. 3
The bankruptcy court stated that it was unable to locate an official
transcript of the meeting that U.S. Bank cited in support of this statement, but
noted that Vucurevich raised no objection. Bankr. Docket 52 at 2 n.2.
64. When asked where all the funds went from all the sales of his
business entities, Debtor[’]s only response was that a lot went to
reinvesting, debt payments and distributions to himself. 4
Bankr. Docket 29-1 at ¶¶ 25, 32, 47, 57, 64. Vucurevich did not object to these
statements. Bankr. Docket 37-1 at ¶¶ 25, 32, 47, 57, 64.
With respect to certain assets or records of assets that U.S. Bank argued
Vucurevich had not sufficiently accounted for, U.S. Bank identified as
undisputed facts that:
62. Debtor sold a watch for $16,000.00 and furnishings for
$25,000.00, within a year before the Petition was filed, and is
unable to account for any of the $41,000.00.
63. Debtor's only explanation for the use of the $41,000.00 in sales
was he probably paid off creditors.
65. Debtor admits, under oath, that he does not have accurate
records to account for his business entity sales.
Bankr. Docket 29-1 at ¶¶ 62-63, 65. These statements were accompanied by a
transcript citation from Vucurevich’s depositions. See id. (citing 29-3 (Exhibits
34a; 34b)). Vucurevich objected to ¶¶ 62-63, contending instead that the
money from those sales went to pay for the living expenses of his estranged
wife and his children. Bankr. Docket 37-1 at ¶¶ 62-63. Regarding records from
the entity sales, Vucurevich “clarifie[d] that accurate records would exist once
files were reviewed by an accountant.”5 Id. at ¶ 65 (citing 29-3 (Exhibit 34b)).
The bankruptcy court explained that while both parties made reference
to the exhibit from which this statement was gleamed, the court was unable to
find a clear description of what the exhibit was. Bankr. Docket 52 at 3 n.3. The
bankruptcy court surmised it was a portion of a transcript taken from a
meeting of creditors.
Vucurevich’s counsel admitted during oral argument before the district
court that an accountant had not reviewed the records.
With respect to other business and financial records which U.S. Bank
alleged that Vucurevich had not kept or preserved, U.S. Bank’s statements of
undisputed material facts stated that:
42. Debtor has very limited business records, admitting he threw
43. Debtor failed to maintain business records but instead allowed
previous employees to take computers, with all business records
on them, while Debtor did not retain a copy.
44. Debtor uses emails extensively in business transactions.
45. Debtor has set up his email system to automatically purge all
emails after 2 weeks, starting in the year 2008.
46. After lawsuits started against Debtor, and after discovery
requests, Debtor made the decision that no records or emails
would be saved. Debtor decided everything was to be deleted even
from the hard drive.
Bankr. Docket 29-1 at ¶¶ 42-46 (citations omitted). Each of these facts was
also accompanied by a citation to portions of Vucurevich’s deposition
testimony. See id. Vucurevich disputed these statements because he “stopped
maintaining records for entities that were foreclosed upon and were no longer
doing business. At the time this decision was made Debtor had no intention for
filing for bankruptcy.” Bankr. Docket 37-1 at ¶ 42.
The bankruptcy court issued its decision on July 9, 2014, and ruled in
U.S. Bank’s favor. Specifically, the court concluded that Vucurevich was not
entitled to a general discharge of debts pursuant to 11 U.S.C. §§ 727(a)(3) and
(a)(5). See Bankr. Docket 52 at 6, 9. The court did not, however, grant
summary judgment under 11 U.S.C. § 727(a)(4). Id. at 11.
With respect to § 727(a)(5), the bankruptcy court found that Vucurevich’s
“schedules, as amended, show Debtor has personal property assets valued at
$2,061,245.00 and secured and unsecured claims against him of
$45,180,164.21.” Id. at 10. Based on this finding, the court concluded that
U.S. Bank’s burden of demonstrating a deficiency of assets had been met, and
that the burden shifted to Vucurevich to provide a satisfactory explanation. Id.
Vucurevich’s proffered explanation was that,
The assets Plaintiff discusses in his brief were used to provide
living expenses for the Debtor and his estranged wife and kids.
Debtor also used the funds to service debt and reinvest in other
projects. Debtor has repeatedly and consistently maintained that
this is where these funds went. Debtor[’s] explanation creates a
disputed question of material fact. Whether Debtor’s explanations
are adequate is not appropriate for summary judgment.
Bankr. Docket 37-2 at 7. Vucurevich’s reference and argument regarding “[t]he
assets Plaintiff discusses in his brief” appears to be directed at U.S. Bank’s
contention that Vucurevich had not properly accounted for the $41,000 from
the watch and furnishing sales, or the proceeds from the sales of several of his
business entities. See Bankr. Docket 29-4 at 15.
The bankruptcy court then considered Vucurevich’s deposition testimony
where he stated his records from 2009 to the date of filing were poor, if not
missing. Bankr. Docket 52 at 10. The court also surveyed statements
Vucurevich made in depositions and answers to interrogatories in other
adversary disputes wherein Vucurevich admitted that some of his schedules
and statements were incomplete or inaccurate. Id. The court stated it was “left
with only Debtor’s sweeping explanation that he used some assets to provide
for his estranged wife and children, service debt, and reinvest in other
projects.” Id. The court found this explanation to be “vague, indefinite, and
unsatisfactory.” Id. (citing In re Carter, 203 B.R. 697, 707 (Bankr. W.D. Mo.
1996)). Thus, because Vucurevich offered only “his own unsubstantiated,
uncorroborated, and undocumented general statements” and a general
“prospect of an accountant’s aid at some unknown time” regarding the
whereabouts of his assets, the bankruptcy court concluded Vucurevich had not
met his burden and that there was no remaining triable issue of fact. Id. (citing
in re Vilhauer, 458 B.R. 511, 514 (B.A.P. 8th Cir. 2011)). Consequently, the
court summarily denied Vucurevich a discharge pursuant to § 727(a)(5).
Regarding § 727(a)(3), the bankruptcy court found, based on
Vucurevich’s admissions that he does not have a bank account and operates
on a cash-only basis, that he “depriv[ed] the case trustee and his creditors of
account records as a critical source of information regarding his transactions.”
Id. at 8. Further, the court took issue with Vucurevich’s decision to
“systematically have his e-mails deleted after two weeks.” Id.6 The bankruptcy
court concluded that, based on the circumstances, U.S. Bank had met its
initial burden under § 727(a)(3) and therefore the burden shifted to Vucurevich
to justify his failure to keep or preserve records. Id.
In his brief and supporting documentation filed in opposition to U.S.
Bank’s motion for summary judgment, Vucurevich did not address whether he
“concealed, destroyed, mutilated, falsified, or failed to keep or preserve” any
The bankruptcy court found a discrepancy between U.S. Bank’s
undisputed statement that Vucurevich began purging his emails in 2008 and
another passage of a deposition where Vucurevich stated that the practice
began in January or February of 2009. Thus, the court found that the practice
of deleting Vucurevich’s emails after two weeks began “not later than January
or February 2009.” Bankr. Docket 59 at 8.
records relating to his financial condition or business transactions. Rather,
Vucurevich’s position was that any such failure on his part would be ultimately
justified under the circumstances. See Bankr. Docket 37-2 at 5. Thus,
Vucurevich explained that,
The majority of Debtor’s assets were real estate investments. When
the real estate market crashed in 2008, Debtor’s investments lost
their value and creditors foreclosed on the investments. This
resulted in 39 lawsuits being filed against the Debtor between
2009 and 2011. Unable to defend against these lawsuits and
foreclosures, most of the various entities the Debtor had 
interests in lost their value. Debtor saw no need to maintain
records for these now defunct entities that held no assets. Debtor
was overwhelmed by the sheer volume of lawsuits and foreclosures
and was unable to maintain clear, up-to-date records of assets,
liabilities, and judgments.
Id. at 6. After explaining that his foray into bankruptcy was not undertaken
voluntarily, Vucurevich went on to state that,
Debtor was overextended with real estate investments and was hit
hard when the market crashed. He did not have [the] resources to
maintain accurate records of the scores [of] lawsuits and
foreclosures that were brought upon him. Debtor did require
several amendments to his bankruptcy schedules to provide
complete and accurate information. Given the complexity of
Debtor’s financial situation and the involuntary nature of the
proceedings, Debtor’s delay in providing complete information is
The bankruptcy court disagreed. The court considered that, by
Vucurevich’s own admissions, he was a sophisticated businessperson and a
former commercial lender for a bank. Bankr. Docket 52 at 8. Vucurevich had a
number of business ventures of varying size and complexity, a computerized
business office, filing system, and staff until 2009. Id. Additionally, the court
noted Vucurevich still employed an outside accountant. Id. In light of these
circumstances, the court found that Vucurevich
would understand “ordinary fair dealing and common caution”
dictate that his business record-keeping not be abandoned when
financial troubles arise, and that it was reasonable for his
creditors, taxing authorities, and regulatory authorities to expect
he would maintain appropriate records even as numerous
business entities faltered or failed or when his records changed
Id. at 8-9 (citing In re Wolfe, 232 B.R. 741, 745 (B.A.P. 8th Cir. 1999), In re
Goldstein, 123 B.R. 514 (Bankr. E.D. Pa. 1991)).
The court found that Vucurevich’s statement that “accurate records
would exist once files were reviewed by an accountant” to be “illusory if not
delusory.” Id. at 9 (citing Bankr. Docket 37-1 at ¶ 65). The court explained that
Vucurevich had failed to provide any admissible evidence related to his
finances with respect to certain assets that he alleged to have used for family
living expenses, debt repayment, and reinvestment projects. Id. The
bankruptcy court concluded that Vucurevich could not justify his lack of
records. Id. Thus, the court summarily denied Vucurevich a discharge
pursuant to § 727(a)(3). Vucurevich now seeks review of the bankruptcy court’s
decision and, pursuant to 28 U.S.C. §§ 158(a), and 158(c)(1), appealed to this
“When a bankruptcy court's judgment is appealed to the district court,
the district court acts as an appellate court and reviews the bankruptcy court's
legal determinations de novo and findings of fact for clear error.” Knudsen v.
I.R.S., 581 F.3d 696, 704 (8th Cir. 2009) (internal citation omitted), abrogated
on other grounds by Hall v. United States, 132 S. Ct. 1882 (2012).
Consequently, “[t]he bankruptcy court’s grant of summary judgment is
reviewed de novo.” In re Negus-Sons, Inc., 460 B.R. 754, 755 (B.A.P. 8th Cir.
2011); In re Patch, 526 F.3d 1176, 1179 (8th Cir. 2008).
Rule 56 of the Federal Rules of Civil Procedure is made applicable in
bankruptcy proceedings pursuant to Bankruptcy Rule 7056. In re Hecker, 459
B.R. 6, 10-11 n.8 (B.A.P. 8th Cir. 2011) (quoting In re Juve, 455 B.R. 890, 893
(B.A.P. 8th Cir. 2011)). “Summary judgment is appropriate if there is no
genuine issue as to any material fact and the moving party is entitled to a
judgment as a matter of law.” In re Craig, 144 F.3d 593, 595 (8th Cir. 1998)
(citing Fed. R. Civ. P. 56(c)). The moving party can meet his burden by
presenting evidence that there is no dispute of material fact or that the
nonmoving party has not presented evidence to support an element of its case
on which it bears the ultimate burden of proof. Celotex Corp. v. Catrett, 477
U.S. 317, 322-23 (1986). Once the moving party has met this burden, “[t]he
nonmoving party may not ‘rest on mere allegations or denials, but must
demonstrate on the record the existence of specific facts which create a
genuine issue for trial.’ ” Mosley v. City of Northwoods, Mo., 415 F.3d 908, 910
(8th Cir. 2005) (quoting Krenik v. Cnty. Of Le Sueur, 47 F.3d 953, 957 (8th Cir.
1995)). “Further, ‘the mere existence of some alleged factual dispute between
the parties is not sufficient by itself to deny summary judgment. . . . Instead,
the dispute must be outcome determinative under prevailing law.’ ” Id. (quoting
Get Away Club, Inc. v. Coleman, 969 F.2d 664, 666 (8th Cir. 1992)). The facts,
and inferences drawn from those facts, are “viewed in the light most favorable
to the party opposing the motion” for summary judgment. Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting United
States v. Diebold, Inc., 369 U.S. 654, 655 (1962)).
“Denial of a discharge is a harsh remedy and, accordingly, the provisions
under § 727 of the Bankruptcy Code ‘are strictly construed in favor of the
debtor.’ ” In re Charles, 474 B.R. 680, 683 (B.A.P. 8th Cir. 2012) (quoting In re
Korte, 262 B.R. 464, 469 (B.A.P. 8th Cir. 2001)). At the same time, however,
“ ‘§ 727 was also included to prevent the debtor’s abuse of the Bankruptcy
Code.’ ” Id. Thus, the “relief afforded by a discharge of debts enables the honest
debtor to make a ‘fresh start.’ ” In re Hartman, 181 B.R. 410, 413 (Bankr. W.D.
Mo. 1995) (emphasis omitted).
Claims for a denial of discharge are often brought under both §§ 727(a)(3)
and (5), because “a failure to account for assets is often an important element
in the proof of . . . a failure to keep books.” Collier on Bankruptcy ¶ 6-727.08
(Alan N. Resnick & Henry J. Sommer eds., 16th ed.). Neither § 727(a)(3) nor
§ (5) requires an element of intent to be shown. In re Riley, 305 B.R. 873, 88283 (Bankr. W.D. Mo. 2004); In re Huynh, 392 B.R. 802, 813 (Bankr. D.N.D.
2008). In order to prevail on either claim, “the objecting party must prove each
element under § 727 by a preponderance of the evidence.” In re Freese, 460
B.R. 733, 738 (B.A.P. 8th Cir. 2011) (citing Vilhauer, 458 B.R. at 514; Fed. R.
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Bankr. P. 4005). Additionally, however, the grounds stated under § 727(a) are
phrased disjunctively, and only one ground needs to be proved in order for a
debtor to be denied a discharge. See, e.g., Farouki v. Emirates Bank. Intern.,
Ltd., 14 F.3d 244, 250 (4th Cir. 1994); In re Krehl, 86 F.3d 737, 744 (7th Cir.
1996); In re Reed, 700 F.2d 986, 989 (5th Cir. 1983).
11 U.S.C. § 727(a)(5)
A debtor may be denied a discharge if he or she fails to “explain
satisfactorily, before determination of denial of discharge under [§ 727(a)], any
loss of assets or deficiency of assets to meet the debtor's liabilities.” 11 U.S.C.
§ 727(a)(5). The purpose of this section “is to require the debtor to cooperate
with the trustee and creditors in their efforts to trace the disposition of assets
of the estate.” In re Whitehead, 483 B.R. 902, 909 (Bankr. E.D. Ark. 2012).
“The party objecting to a debtor's discharge pursuant to [§] 727(a)(5) has the
burden of proving facts establishing that a loss or shrinkage of assets actually
occurred.” In re Sendecky, 283 B.R. 760, 766 (B.A.P. 8th Cir. 2002) (citing In re
Stewart, 263 B.R. 608, 618 (B.A.P. 10th Cir. 2001)). To meet this burden, the
creditor must put forth “evidence that demonstrates that the debtor formerly
owned substantial, identifiable assets that are now unavailable to distribute to
creditors.” In re Hermanson, 273 B.R. 538, 546 (Bankr. N.D. Ill. 2002) (citing In
re Bryson, 187 B.R. 939, 955 (Bankr. N.D. Ill. 1995)). If this burden is met,
then the burden shifts to the debtor to provide a “satisfactory” explanation for
the loss or shrinkage of assets. Sendecky, 283 B.R. at 766.
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For the debtor to do so, “the issue is whether the [debtor’s] explanation
satisfactorily describes what happened to [the] assets; not whether what
happened to [the] assets was proper.” In re Perry, 252 B.R. 541, 550 (Bankr.
M.D. Fla. 2000) (citation omitted); see also Cacioli, 463 F.3d 229, 238 (2d Cir.
2006) (describing the debtor’s obligation to “explain the whereabouts of the
assets.”); In re D’Agnese, 86 F.3d 732, 735 (7th Cir. 1996) (explaining the court
is not to address “the wisdom of the debtor’s dispositions[.]”). Thus, a debtor
may succeed in providing a satisfactory explanation even if that explanation is
not meritorious. In re Riley, 305 B.R. at 885 (noting that a debtor’s explanation
that assets were transferred to hinder, delay, or defraud creditors may
nonetheless be satisfactory for purposes of this section). Additionally,
An important component in ascertaining the reasonableness of any
explanation is its capacity for verification; that is, is the
explanation sufficient to enable either the trustee or a creditor to
properly investigate the circumstances surrounding the loss or
deficiency. Unsubstantiated, uncorroborated and undocumented
testimony from the debtor is not likely sufficient.
Vilhauer, 458 B.R. at 514-15. Thus, “ ‘[i]f the [debtor’s] explanation is too
vague, indefinite, or unsatisfactory then the debtor is not entitled to a
discharge.’ ” Sendecky, 283 B.R. at 766 (quoting In re Carter, 203 B.R. 697,
707 (Bankr. W.D. Mo. 1996); In re Hartman, 181 B.R. 410, 413 (Bankr. W.D.
Mo. 1995)). Further, whether the debtor’s explanation is satisfactory is a
finding to be made by the court. Id. (footnote omitted); see also In re Gray, 295
B.R. 338, 345 (Bankr. W.D. Mo. 2003) (citations omitted) (explaining that
“[w]hat constitutes a ‘satisfactory’ explanation is left to the discretion of the
Court.”). “ ‘A debtor's failure to offer a satisfactory explanation when called on
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by the court is a sufficient ground for denial of discharge under [§] 727(a)(5).’ ”
In re Retz, 606 F.3d 1189, 1205 (9th Cir. 2010) (quoting In re Devers, 759 F.2d
751, 754 (9th Cir. 1985)).
Here, Vucurevich first argues that the bankruptcy court erred by
determining that U.S. Bank had met its initial burden based upon the
discrepancy between Vucurevich’s stated assets and the secured and
unsecured claims against him. Docket 6 at 11. Vucurevich explains that this
discrepancy is due to the fact that numerous creditors had already filed or
obtained claims against his assets in foreclosure and personal guarantee
proceedings. Id. Because these figures “only reflect the nature of [his] debts,” it
was not enough for purposes of establishing a loss or deficiency of assets as
contemplated by § 727(a)(5). Id. Second, Vucurevich argues that the
bankruptcy court misinterpreted his statements regarding his use of certain
assets and their proceeds to provide for the living expenses of his estranged
wife and children, to service debt, and to make reinvestments. Id. at 12. Rather
than an explanation for the discrepancy between his assets and the various
claims against him, it was meant to be “an explanation as to how Appellant
used proceeds from the disclosed sales on his schedules and from the time
prior to the crash when he would jump from one investment to another.” Id.
(citing Bankr. Docket 29-1 at ¶ 62; Bankr. Docket 37-1 at ¶ 62). Because of
this misunderstanding, Vucurevich contends that the bankruptcy court erred.
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For its part, U.S. Bank appears to rely on the same arguments it made
before the bankruptcy court in support of summary judgment. 7 Compare
Bankr. Docket 29-4 at 14-15 with Docket 7 at 8-9. Aside from its reference to
the facts as set out in the bankruptcy court’s decision and its ultimate
conclusion that “The Bankruptcy Court’s denial of discharge under § 727(a)(3)
and § 727(a)(5) was proper,” no substantive reference is made to the
bankruptcy court’s decision. See Docket 7 at 4, 9. Because there is no
refutation of any of Vucurevich’s arguments on appeal or support for any of the
bankruptcy court’s analysis, the court will construe the arguments U.S. Bank
made in support of summary judgment as supporting the bankruptcy court’s
decision where possible.
The bankruptcy court found that because Vucurevich’s stated assets
totaled $2,061,245 and his secured and unsecured claims totaled
$45,180,164.21, this showed a literal “deficiency” in Vucurevich’s assets and
the burden shifted to Vucurevich to provide an explanation for the loss or
shrinkage of assets. The bankruptcy court did not provide any legal authority
in support of this conclusion that a comparison between Vucurevich’s stated
assets and debts on his bankruptcy schedules is sufficient to shift the burden
of providing an explanation onto him. Neither party advocated this position
For example, U.S. Bank continues to argue summary judgment is
appropriate under 11 U.S.C. § 727(a)(4). See Docket 7 at 6-8. The bankruptcy
court denied summary judgment on that ground, Bankr. Docket 52 at 11-12,
and no appeal of that denial has been taken. Consequently, the issue is not
before this court.
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before the bankruptcy court, and Vucurevich now argues that this conclusion
A survey of various case law reveals that creditors commonly attempt to
meet their burden under § 727(a)(5) by pointing out discrepancies between the
value of assets as stated on pre-petition financing statements versus the value
of the same assets as claimed on post-petition bankruptcy schedules. See, e.g.,
In re Cromer, 214 B.R. 86, 95 (Bankr. E.D.N.Y. 1997) (noting these facts are
“typical of those usually found in a § 727(a)(5) objection to discharge
proceeding.”); In re Hawley, 51 F.3d 246, 249 (11th Cir. 1995) (explaining the
creditor met its burden of showing “vast discrepancies” between the financial
statements and bankruptcy schedules); see also In re Beausoleil, 142 B.R. 31,
37-38 (Bankr. D.R.I. 1992); In re Schwartzman, 63 B.R. 348, 360 (Bankr. S.D.
Ohio 1986). Another common way for creditors to meet their burden is by
showing that the debtor owned substantial, identifiable assets prior to
bankruptcy, and that those assets are no longer available to creditors. See,
e.g., Cormer, 214 B.R. at 95; In re Jahrling, 510 B.R. 820, 831 (Bankr. N.D. Ill.
2014); In re Mart, 87 B.R. 206, 211 (Bankr. S.D. Fla. 1988). This second
scenario appears to be what U.S. Bank argued in support of its motion for
summary judgment. See Bankr. Docket 29-4 at 15 (arguing Vucurevich could
not account for the proceeds from a watch and furnishings that he sold for
$41,000 or the proceeds from the sales of several business entities he owned
prior to bankruptcy).
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There is some, albeit limited, support for the bankruptcy court’s
conclusion. In In re Ailetcher, 49 B.R. 681, 685 (Bankr. D. Haw. 1985), the
debtor sought a discharge of $769,643.29. In the debtor’s amended petition, he
listed the value of his personal property assets at the time of filing for
bankruptcy to be $13,020.00. Id. The bankruptcy court ultimately denied the
debtor’s discharge on a number of grounds, but specifically found that the
debtor could not explain satisfactorily the “extreme deficiency of assets which
he claims exists in his estate to meet his liabilities” pursuant to § 727(a)(5). Id.
at 686. No appeal was taken from the bankruptcy court’s decision. This court
is not aware of another decision that has adopted this approach with respect to
In contrast, in In re McGovern, 215 B.R. 304, 307 (Bankr. D. Conn.
1997), the creditor attempted to satisfy its burden under § 727(a)(5) by relying
on the debtor’s bankruptcy schedules, which revealed a deficiency of his assets
to meet his liabilities. The court stated that the creditor could not meet its
burden “of demonstrating an extraordinary factual scenario sufficient to shift
In In re Cacioli, 285 B.R. 778, 784 (Bankr. D. Conn. 2002), aff’d 463
F.3d 229 (2d Cir. 2006), the bankruptcy court alluded to the possibility that
the creditor could meet its initial burden simply by pointing to the debtor’s
bankruptcy schedules, “which technically reveal a ‘deficiency of assets to meet
liabilities[.]’ ” The court stated, however, that it was questionable whether this
was sufficient for purposes of the bankruptcy code, but concluded that
answering the question was unnecessary because the debtor “more than
satisfactorily explained all relevant aspects of his financial history and
condition.” Id. On appeal, the Second Circuit pointed out the bankruptcy
court’s observation regarding the technical deficiency but, without adopting it,
ultimately agreed that any deficiency of assets was satisfactorily explained by
the debtor. 463 F.3d at 239.
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the burden to the Defendant to ‘explain satisfactorily’ such deficiency.” Id. The
court concluded this argument was unavailing, noting that “[a] technical
‘deficiency of assets to meet liabilities’ is inherent in nearly all bankruptcy
cases.” Id. at n.3.
This court agrees with the pragmatic observation in McGovern that a
debtor in bankruptcy will usually have insufficient assets to meet his or her
liabilities. Although a technical or literal reading of § 727(a)(5) may support the
bankruptcy court’s conclusion that Vucurevich’s assets were deficient in this
manner, such an interpretation of the statute is at odds with the maxim that
provisions of § 727 are construed strictly in the debtor’s favor. While
Vucurevich’s stated assets are several times less than his total debts, that,
without more, is insufficient to shift the burden of providing a satisfactory
explanation onto him. Therefore, this court concludes that the bankruptcy
court erred by finding that the burden had shifted to Vucurevich to explain a
deficiency of his assets under § 727(a)(5) based on a comparison between
Vucurevich’s stated assets and liabilities on his bankruptcy schedules.
Although this court disagrees with the bankruptcy court’s preliminary
determination, the court may nonetheless affirm the bankruptcy court’s grant
of summary judgment “on any grounds supported by the record.” Cottrill v.
MFA, Inc., 443 F.3d 626, 635 (8th Cir. 2006). Thus, for U.S. Bank to meet its
initial burden under § 727(a)(5), it would need to show that Vucurevich had
substantial, identifiable assets prior to bankruptcy, and that those assets are
no longer available to creditors. Cormer, 214 B.R. at 95; see also Jahrling, 510
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B.R. at 831; Mart, 87 B.R. at 211. These lost or missing assets may include
sums of money. See, e.g., In re Seligman, 478 B.R. 497, 503-04 (Bankr. N.D.
Ga. 2012); In re Asif, 455 B.R. 768, 796 (Bankr. D. Kan. 2011). Further, the
assets may include a debtor’s interest in business entities or the assets of the
business. See, e.g., Hermanson, 273 B.R. at 548; In re Gonzalez, 302 B.R. 745,
755 (Bankr. S.D. Fla. 2003). Additionally, these assets may include valuable
jewelry or home furnishings. See, e.g., Hermanson, 273 B.R. at 547; Hibernia
Nat’l Bank v. Perez, 124 B.R. 704, 706-07 (E.D. La. 1991).
U.S. Bank sought to meet its burden before the bankruptcy court under
§ 727(a)(5) by asserting that Vucurevich had sold a watch for $16,000 and
furnishings for $25,000 in 2010, and Vucurevich could not account for where
the money from those sales went. Bankr. Docket 29-4 at 15. Vucurevich’s
original Statement of Financial Affairs and schedules appears to provide the
year of these sales, as well as the value received for the property and the
identity of the purchaser. See 4:11-bk-40501, Docket 66 at 29. Additionally,
U.S. Bank claimed that Vucurevich had sold a number of business entities, but
Vucurevich could not account for the money from those sales either. Bankr.
Docket 29-4 at 15. No specific information regarding the value of each of the
allegedly sold entities is provided, and Vucurevich acknowledged that his
Statement of Financial Affairs and the amendments to it did not disclose his
sale of KCC One Real Estate, LLC for $250,000 or the transfer of his interest in
57th and Louise Partners, LLC. See Bankr. Docket 29-1 at ¶ 32; Bankr. Docket
37-1 at ¶ 32.
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In its statement of material facts, U.S. Bank provided support for each of
its assertions by citing statements made by Vucurevich during depositions. See
Bankr. Docket 29-1 at ¶¶ 62-66. In one deposition, Vucurevich was asked
where the money from the sales of his watch and furnishings went. Bankr.
Docket 29-3 at 72 (Exhibit 34a). Vucurevich responded that it was “Probably
[used] to pay off other creditors.” Id. When asked if there was a list of creditors
that had been paid, Vucurevich stated that he would have it ready in
approximately two weeks. Id. In what appears to be a different deposition,
Vucurevich was asked about his interests in 57th and Louise Partners, LLC,
KCC One, and Winsor Heights Apartments. Bankr. Docket 29-3 at 73 (Exhibit
34b). The unidentified speaker asks, “And on all these sales, where did all the
funds go?” Id. Vucurevich replied that “a lot of it went to either reinvesting in
other projects, debt payments or distributions.” Id. Vucurevich was then asked
if he had “records of all this,” to which Vucurevich replied, “Not accurate ones,
I don’t think. I’ve got to get the accountant to go through everything.” Id. When
asked if he believed that “records [would be] available if somebody spent
enough time with your accountant,” Vucurevich replied, “I believe so.” Id.
Based on the deposition testimony, U.S. Bank showed that Vucurevich
previously owned and sold substantial, identifiable assets in the form of certain
personal property worth approximately $41,000 and interests in several
business entities worth unknown values. Although U.S. Bank has not
established the precise valuation of Vucurevich’s business entities or his
interest in the entities, the lack of those details is not significant. Hermanson,
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273 B.R. at 548 (explaining that while the creditor “has not offered past values
for most of [the debtor’s] shares in the fifteen entities, that lack is not
significant.”). Additionally, because the assets themselves have been sold and
because the proceeds from those sales have, according to Vucurevich, been
spent in various ways, U.S. Bank has also shown that substantial, identifiable
assets are not available to creditors of the bankruptcy estate. Therefore, U.S.
Bank met its initial burden of demonstrating a loss or deficiency of assets
under § 727(a)(5). See, e.g., Cormer, 214 B.R. at 95; Jahrling, 510 B.R. at 831;
Mart, 87 B.R. at 211.
Because U.S. Bank met its burden, the burden shifted to Vucurevich to
provide a satisfactory explanation. Vucurevich’s explanation before the
bankruptcy court was that the proceeds from those assets went to paying living
expenses for his estranged wife and children, to servicing debt, and to
reinvesting in other projects. See, e.g., Bankr. Docket 37-2 at 7. Vucurevich
has reiterated the same position before this court. Docket 6 at 12. Vucurevich
has not, however, provided any documentary or otherwise corroborating
evidence that would enable verification of his explanation. The only document
that appears in the record and has been cited as support for Vucurevich’s
statement is a letter submitted by his attorney to the bankruptcy trustee on
November 23, 2011. Bankr. Docket 29-3 at 74-75 (Exhibit 34c). In that letter,
his attorney wrote that “The monies received from Mr. Dykehouse and Tom
Vucurevich was used for living and support of his estranged wife and kids.” Id.
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at 75.9 This letter, however, is inadmissible hearsay if offered to prove the truth
of the matter it asserts, namely, that Vucurevich in fact used those proceeds to
provide living expenses for his estranged wife and children. See Fed. R. Evid.
801, 802; see also Novotny v. Tripp Cnty., 664 F.3d 1173, 1178 (8th Cir. 2011).
Only admissible evidence may be considered for purposes of summary
judgment. Murphy v. Mo. Dep’t of Corrections, 372 F.3d 979, 982 (8th Cir.
2004). Thus, the court is left with the bare statements Vucurevich gave during
Even if the court considered the assertion contained within the letter,
however, it would not change the fact that Vucurevich has not produced any
receipts, specific amounts, documents, dates, corroborating testimony or
affidavits from recipients of the funds, or other evidence which would allow the
court to verify that the assets were utilized in the manner Vucurevich claims.
As courts frequently observe, a debtor’s uncorroborated account of what
happened to his or her assets need not be accepted. See, e.g., D’Agnese, 86
F.3d at 735 (noting the debtor did not offer any documentary evidence or
testimony from a party who allegedly received assets); In re Chalik, 748 F.2d
616, 620 (11th Cir. 1984) (agreeing with the lower court that the debtor offered
no corroborating explanation for the disposition of money); In re Sword, 93 B.R.
757, 760 (Bankr. M.D. Fla. 1988) (finding the debtor’s explanation that assets
In Vucurevich’s original Statement of Financial Affairs, Mr. Dykehouse
is listed as the purchaser of Vucurevich’s watch for $16,000, and Tom
Vucurevich is listed as the purchase of the furnishings for $25,000. See 4:11bk-40501, Docket 66 at 29.
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were spent on living expenses was not supported by any documentation and
concluding it was unsatisfactory); In re Gordon, 83 B.R. 78, 80 (Bankr. S.D.
Fla. 1988) (finding unsatisfactory that the debtor did not offer any receipts or
evidence for jewelry sold or documentation to support claims for the use of the
proceeds). This is not to say that Vucurevich’s purported uses of the proceeds
were categorically impermissible or that the court is concerned with the
wisdom of his dispositions. See, e.g., Riley, 305 B.R. at 885 (noting the
explanation need not be meritorious); In re Dolin, 799 F.2d 251, 253 (6th Cir.
1986) (finding the debtor was not relieved from providing corroborating support
of his assertion that he spent money on cocaine and gambling). Nor is this to
say that there is any single method of proof which would make a debtor’s
explanation satisfactory. See Hermanson, 273 B.R. at 550 (cautioning that, in
complex cases, simply “producing for creditors a ream of potentially relevant
documents . . . will not by itself create a satisfactory explanation for the
disappearance of assets” unless the debtor “does whatever  is necessary to
make the explanation intelligible.”). Rather, because “[a]n important component
in ascertaining the reasonableness of any explanation is its capacity for
verification,” a debtor’s “[u]nsubstantiated, uncorroborated and undocumented
testimony” is insufficient. Vilhauer, 458 B.R. at 514-15 (footnotes omitted).
Thus, for an explanation to be satisfactory, it must consist of more than vague,
indefinite, and uncorroborated assertions by the debtor. See, e.g., id. at 514;
Huynh, 392 B.R. at 813; D’Agnese, 86 F.3d at 734; Hawley, 51 F.3d at 249. In
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the present case, however, that is all Vucurevich has provided to the
bankruptcy court as well as to this court.
Thus, while the bankruptcy court may have erred initially in its analysis,
the court concludes that the record ultimately supports a finding that U.S.
Bank met its initial burden of proof. Consequently, as the bankruptcy court
ultimately found, the burden shifted to Vucurevich to provide a satisfactory
explanation for his lost or missing assets. As the bankruptcy court noted, “we
are left with only [Vucurevich’s] sweeping explanation that he used some assets
to provide for his estranged wife and children, service debt, and reinvest in
other projects.” Bankr. Docket 52 at 10. Here, as Vucurevich stated on appeal,
those reasons were, in fact, “intended as an explanation” for how he used the
proceeds from the sales of those assets. Docket 6 at 12. Vucurevich did not,
however, provide anything more than his own free standing deposition
testimony that the funds were used in such a fashion. “Where the record as a
whole could not lead a rational trier of fact to find for the non-moving party,
there is no ‘ genuine issue for trial.’ ” Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986), quoting First National Bank of Ariz v. Cities
Servs. Co., 391 U.S. 253, 289 (1968). The court finds that the bankruptcy court
did not err by rejecting those bare assertions as vague, indefinite, and
unsatisfactory, or by concluding that those statements were not enough to
avoid summary judgment. See Bankr. Docket 52 at 10-11. Consequently, the
court agrees with the bankruptcy court that Vucurevich be denied a discharge
pursuant to § 727(a)(5).
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11 U.S.C. § 727(a)(3)
Debtors are required to maintain and disclose their financial and
business records that permit other parties, as well as the court, to “trace the
debtor's financial history, reconstruct financial transactions, and test the
completeness of the disclosure requirements.” In re Fokkena v. Huynh, 379
B.R. 865, 870 (Bankr. D. Minn. 2008) (citing In re Pulos, 168 B.R. 682, 690
(Bankr. D. Minn. 1994)). Thus, a debtor may be denied a discharge if he or she
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 of the
11 U.S.C. § 727(a)(3). “While the debtor may justify his failure to keep records
in some cases, a discharge may be granted only if the debtor presents an
accurate and complete account of his financial affairs.” Meridian Bank v. Alten,
958 F.2d 1226, 1230 (3d Cir. 1992); see also In re Schifano, 378 F.3d 60, 68
(2d Cir. 2004).
To meet its burden of proof under this section, a creditor must show that
the debtor has “concealed, destroyed, mutilated, falsified, or failed to keep or
preserve any recorded information . . . from which the Debtor's financial
condition or business transactions might be ascertained.” In re Swanson, 476
B.R. 236, 240 (B.A.P. 8th Cir. 2012) (quoting 11 U.S.C. § 727(a)(3)); see also
Huynh, 392 B.R. at 811. If the creditor meets this initial burden, the burden
then shifts to the debtor “to offer a justification for his record keeping (or lack
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thereof)[.]” Swanson, 476 B.R. at 240; In re Wolfe, 232 B.R. 741, 745 (B.A.P.
8th Cir. 1999) (citing In re Wiess, 132 B.R. 588, 592 (Bankr. E.D. Ark. 1991)). If
the debtor cannot justify his failure to keep or maintain these records, then the
discharge will be denied. See, e.g., In re Keller, 322 B.R. 127, 133 (Bankr. E.D.
Whether a debtor’s failure to maintain financial or business records is
justified depends on a consideration of “all of the circumstances of the case.”
Wiess, 132 B.R. at 592 (citing 11 U.S.C. § 727(a)(3)). This determination is an
objective one. Pulos, 168 B.R. at 692; see also Sendecky, 283 B.R. at 764
(explaining that the justification inquiry depends on “what records someone in
like circumstances to [the debtor] would keep.”). Several factors should be
considered such as the “debtor's education, the sophistication of the debtor,
debtor's business experience, the size and complexity of debtor's business,
debtor's personal financial structure, and any special circumstances that may
exist.” In re Beshears, 196 B.R. 468, 474 (Bankr. E.D. Ark. 1996) (quoting
Weiss, 132 B.R. at 592); see also Sendecky, 283 B.R. at 764 (agreeing with the
bankruptcy court’s determination that someone with the debtor’s “education,
business experience, and personal financial structure . . . could not be
expected to keep professional business records.”). Thus, “[t]he debtor is
required ‘to take such steps as ordinary fair dealing and common caution
dictate to enable the creditors to learn what he did with his estate.’ ” Wolfe, 232
B.R. at 745. (citing cases).
- 25 -
The type of financial information a debtor is required to keep is a
function of its financial circumstances. The more complex one's
financial situation, the more numerous and detailed one's records
are supposed to be. Conversely, a debtor whose financial affairs
are relatively simple is not expected to have maintained
voluminous detailed records.
In re Martin, 124 B.R. 542,543 (Bankr. N.D. Ind. 1991) (internal citations
Here, Vucurevich first contends that the bankruptcy court erred by
concluding U.S. Bank met its initial burden. Docket 6 at 7-8. Vucurevich
argues that the court failed to issue findings regarding the specific information
that had been denied to his creditors because he did not have a bank account.
Id. at 8. Additionally, Vucurevich asserts that the court failed to specify what
information was missing by virtue of his practice of regularly deleting emails.
Id. Second, Vucurevich argues that the bankruptcy court erred by failing to
consider his proffered justification for any missing or otherwise inadequate
record keeping. Id. at 9. Vucurevich cites a district court decision from Texas
for the proposition that “Other bankruptcy courts have found that a debtor’s
failure to provide records of a failed business is not grounds for denial of
discharge under § 727(a)(3).” Id. (citing In re Morgan, 360 B.R. 507 (Bankr.
D.N.D. Tex. 2007)). Given the various foreclosure proceedings that rendered
many of his assets defunct and without assets, Vucurevich maintains that his
decision to destroy the records of those businesses was justified under the
circumstances. Id. at 10. Vucurevich concludes that the question of
reasonableness attendant to his justification should have precluded the
bankruptcy court from entering summary judgment in favor of U.S. Bank. Id.
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As with the § 727(a)(5) issue, U.S. Bank appears to rely on the same
arguments that it used in support of summary judgment before the bankruptcy
court, and it does not refute any of the arguments Vucurevich has raised on
appeal or any substantive argument made in support of the bankruptcy court’s
decision. Compare Bankr. Docket 29-4 at 10-12 with Docket 7 at 4-6. Thus,
this court will again construe U.S. Bank’s arguments in favor of summary
judgment as supporting the bankruptcy court’s decision where possible.
Did Vucurevich Fail to Keep or Preserve Financial Records?
First, Vucurevich provides no legal authority for his argument that the
bankruptcy court was under any obligation to issue findings about the specific
information creditors had been deprived of by virtue of Vucurevich’s deleted
emails or his lack of bank account records. It is not the duty of the court or
creditors to “speculate as to the financial history or condition of the debtor, nor
should they be compelled to reconstruct the debtor’s affairs.” In re Juzwiak, 89
F.3d 424, 428 (7th Cir. 1996). For the bankruptcy court to speculate on the
specific information lacking from the very records that the court does not–and
perhaps cannot–inspect is at odds with “the practical reality that [the] debtor is
the gatekeeper of his or her own documents and information.” In re Devaul, 318
B.R. 824, 834 (Bankr. N.D. Ohio 2004). That is why “a discharge may be
granted only if the debtor presents an accurate and complete account of his
financial affairs.” Merdian Bank, 958 F.2d at 1230.
Vucurevich’s related argument asserts that the bankruptcy court and his
creditors were nonetheless required to sift through the documentation that had
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been turned over and attempt to piece together his financial history. Docket 6
at 8 (arguing the bankruptcy court did not issue findings regarding “what
aspect of Appellant’s financial condition could not be determined” and that
“boxes of records” had been provided to the trustee and creditors). This
argument, however, transposes the debtor’s obligation to completely and
accurately disclose his financial condition before being entitled to a discharge
with the creditor’s burden under § 727(a)(3) of showing the debtor had failed to
keep or preserve records relevant to that purpose. Cf. Pulos, 168 B.R. at 692
(“Contrary to Debtors' beliefs, the debtor has the obligation to compile the
financial information, and must provide more than just a vague ‘hodge podge’
of financial transactions.”) (quoting In re Harper, 117 B.R. 306, 310 (Bankr.
N.D. Ohio 1990) (emphasis in original)). As courts frequently observe, the
debtor has an affirmative duty to create and maintain financial and business
records. See, e.g., Juzwiak, 89 F.3d at 429 (“The debtor has the duty to
maintain and retain comprehensible records” and “[c]reditors are not required
to sift through documents and attempt to reconstruct the flow of the debtor’s
assets” (quotation omitted); In re Caneva, 550 F.3d 755, 763 (9th Cir. 2008)
(noting the statute imposes a duty to “keep and preserve recorded information
that will allow his creditors to ascertain his financial condition and business
transactions.”); In re French, 499 F.3d 345, 355 (4th Cir. 2007) (explaining that
a debtor is “obliged by the statute to preserve sufficient and adequate financial
records”). Therefore, while Vucurevich was not required to keep perfect records,
neither his creditors nor the bankruptcy court were required to determine first
- 28 -
if the needle was truly amidst the haystack. Meridian Bank, 958 F.2d at 123031.
Thus, the proper inquiry, which the bankruptcy court undertook, was
whether U.S. Bank met its initial burden of proving Vucurevich “concealed,
destroyed, mutilated, falsified, or failed to keep or preserve any recorded
information . . . from which the Debtor's financial condition or business
transactions might be ascertained.” See 11 U.S.C. § 727(a)(3) (emphasis added);
see also Devaul, 318 B.R. at 833 (noting the statute’s breadth by applying to
“any recorded information” which “might” bear on the debtor’s financial
condition or business transactions). This inquiry ensures that “ ‘creditors and
the bankruptcy court [have] complete and accurate information concerning the
status of the debtor’s affairs and to test the completeness of the disclosure
requisite to a discharge.” Cacioli, 463 F.3d at 234 (quoting Meridian Bank, 958
F.2d at 1230). By Vucurevich’s own admissions, he no longer keeps a bank
account, operates on a cash-only basis, did not disclose the transfers of his
interests in KCC One Real Estate, LLC and 57th and Louise Partners, LLC in
his Statement of Financial Affairs or its subsequent amendments, admitted to
throwing away business records, allowed employees to take possession of and
keep as their own computers that housed business records without
maintaining a copy of the data, and set up an automated system of purging his
emails (including those used in business transactions) every two weeks since at
least 2009. Further, as discussed in the § 727(a)(5) context, Vucurevich has
also failed to produce any records related to the disposition of proceeds from
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certain personal property or business entity sales. Although the bankruptcy
court did not recount each of these particulars in its analysis, it took note of
them when it discussed the factual background of Vucurevich’s case. See
Bankr. Docket 52 at 2-4. Additionally, it is not Vucurevich’s lack of a bank
account or even the systematic deletion of his emails that the bankruptcy court
viewed in isolation. Rather, it was the amalgamation of what had not been kept
or preserved that led the bankruptcy court to conclude that Vucurevich
“cannot, by his own admission, meet his obligation of disclosure” and his
“concessions are, in light of all the circumstances, sufficient to satisfy [U.S.
Bank’s] initial burden[.]” Id. at 8. For these reasons, the court agrees with the
bankruptcy court’s determination that U.S. Bank met its initial burden under
§ 727(a)(3) of demonstrating that Vucurevich had not adequately kept or
preserved records from which his financial condition or business transactions
might be ascertained. Consequently, the burden shifted to Vucurevich to
proffer a justification for his lack of business and financial records.
Was the Lack of Records Justified?
First, Vucurevich is incorrect that the bankruptcy court simply did not
consider his explanation. See Docket 6 at 9 (“The Bankruptcy Court erred in
not considering Appellant’s explanation for any missing or inadequate
records.”). The bankruptcy court reproduced Vucurevich’s proffered
justification in its entirety, Bankr. Docket 52 at 4-5, and then rejected it. Id. at
8-9. Thus, the bankruptcy court did not ignore or otherwise fail to consider
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Second, Vucurevich stresses that it was not his intention to file for
bankruptcy and that he did not believe records of his defunct businesses would
need to be kept. See, e.g., Docket 6 at 10 (arguing “Appellant, who had no
plans of filing for bankruptcy, saw no need to maintain records for several
defunct entities with no remaining assets.”); see also Bankr. Docket 37-2 at 6.
Vucurevich’s subjective beliefs, however, are not proper considerations. Rather,
a court’s inquiry in this context is an objective one. See Pulos, 168 B.R. at 692.
As one court has stated, “surely it would be an impractical rule if only those
debtors who planned to seek bankruptcy protection were required to maintain
adequate records.” In re Nemes, 323 B.R. 316, 329 (Bankr. E.D.N.Y. 2005)
(emphasis in original). Likewise, “the debtor's honest belief that he does not
need to keep the records in question, or that his records are sufficient, or his
statement that it is not his practice to keep additional records, does not
constitute justification for failure to keep or preserve records under
§ 727(a)(3).” In re Sethi, 250 B.R. 831, 839 (Bankr. E.D.N.Y. 2000). Thus, the
fact that Vucurevich did not plan on seeking bankruptcy or that he honestly
believed he no longer needed to maintain records cannot serve as a justification
for his failure to maintain those records.
Rather, in order to objectively test Vucurevich’s explanation, a court
should assess a number of factors related to his education, experience, and
sophistication. See, e.g., Beshears, 196 B.R. at 474; Sendecky, 283 B.R. at
764. Vucurevich does not contest the bankruptcy court’s articulation of the
undisputed facts regarding his level of business sophistication, the size,
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number, and complexity of the entities he was involved with, his prior work
history as a banker, or the fact that he continues to employ an accountant. See
Bankr. Docket 52 at 8. Likewise, Vucurevich does not dispute that the
bankruptcy court was then required to consider whether “others in like
circumstances [to Vucurevich] would ordinarily keep” the records that he did
not. See, e.g., Pulos, 168 B.R. at 692 (citations omitted). Instead, Vucurevich’s
argues that the bankruptcy court’s answer to that final question was incorrect,
and that a genuine dispute of fact remains over whether his failure to keep or
preserve records was justified.
In support of his position, Vucurevich relies upon Morgan, 360 B.R. at
536, a case out of the Fifth Circuit where the bankruptcy court ultimately
found the debtor’s failure to keep or preserve records was justified. Although
the Morgan debtor also owned a number of business ventures, the case is
distinguishable. Moreover, the Morgan opinion does not appear to use a factorbased inquiry before determining whether the debtor’s actions were objectively
reasonable, and it contains a number of references to the debtor’s intent. See,
e.g., id. (explaining the records “were not intentionally lost, destroyed, or
mutilated by Debtor with the intent or purpose of concealing his financial
condition and business transactions” and that the debtor did not destroy
records “in contemplation of bankruptcy to frustrate creditors.”). A debtor’s
intent, however, is not relevant in a § 727(a)(3) inquiry. See, e.g., Wolfe, 232
B.R. at 745. Nonetheless, the debtor in Morgan lost many of his records
because he moved offices several times over a period of years prior to filing for
- 32 -
bankruptcy, discontinued use of a storage facility several years prior to
bankruptcy which, caused other documents to be lost, and no longer had
access to the computer server that housed other records. Morgan, 360 B.R. at
536. Further, the majority of the debtor’s businesses ceased operation in 2001
and he stopped maintaining their records in 2002, while eventually filing for
bankruptcy in mid-2005. Id. Moreover, the Morgan court observed that the
debtor was “winding down his business life” because he was near the age of
retirement. Id. The court also noted that the debtor managed to turn over a
“quite voluminous” number of records irrespective of those that were missing.
By contrast, Vucurevich states that his businesses began to decline in
2008, but that it was between 2009 and 2011–the same year he was placed
into bankruptcy–that some 39 lawsuits were filed against him causing his
business interests to lose their value. See Bankr. Docket 37-2 at 6 (explaining
that he “saw no need to maintain records for these now defunct entities that
held no assets.”). Vucurevich is not being asked to “keep such records
indefinitely,” nor was he winding down his businesses in contemplation of
retirement. See Morgan, 360 B.R. at 536. Although a number of other ways in
which Vucurevich’s records were lost have been identified, the only comparable
circumstance overlapping from Morgan is that Vucurevich no longer has access
to a computer containing some of his business records. See id. In Vucurevich’s
case, however, it is not that he no longer has access to the server that housed
the records but rather because he allowed an employee to take the computer
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without making a copy of its records beforehand. Bankr. Docket 29-1 at ¶ 43.
For these reasons, a comparison to Morgan is inapposite.
Notably, Vucurevich argued before the bankruptcy court that, “[g]iven
the complexity of Debtor’s financial situation . . . Debtor’s delay in providing
complete information is justified.” Bankr. Docket 37-2 at 6. But it is not the
sheer complexity of a debtor’s financial situation that justifies a lack of records.
It is the fact that a debtor’s financial situation is complex that the law demands
a higher standard of recordkeeping to be followed. Pulos, 168 B.R. at 692 (“The
more complex the debtor’s financial situation, the more numerous and detailed
the debtor’s financial records are supposed to be.”) (citation omitted). As a
former banker, a businessman who has held substantial interests in a number
of entities, and someone who continues to employ an accountant, Vucurevich
is held to a high level of accountability in order to justify the missing records.
Vucurevich states that he began dealing only in cash and no longer
maintained a bank account because he was “sued by virtually every bank in
the community.” Docket 6 at 6. Even if that is true, Vucurevich does not
explain why someone with his level of knowledge and experience would
nonetheless fail to keep a ledger or a journal, or why the accountant he
employed did not help him keep a record of his revenue and expenses. As one
court observed, while “[the debtor] dealt almost exclusively in cash during all
his business transactions, keeping little or no verifiable records . . . his dislike
of banks did not absolve him from keeping records.” In re Barman, 244 B.R.
- 34 -
896, 900 (Bankr. E.D. Mich. 2000). Similarly, Vucurevich does not explain why
someone with his background and level of business sophistication would
believe that his emails should be routinely purged and that records of business
transactions would not need to be kept. See In re Wazeter, 209 B.R. 222, 231
(Bankr. W.D. Mich. 1997) (“No reasonably sophisticated business person would
consider it appropriate to routinely purge all financial records and fail to keep
such important records as real estate closing documents.”). Moreover, although
a number of Vucurevich’s business entities may have been rendered defunct en
masse around the time of his bankruptcy, Vucurevich does not explain why
someone with his expertise and education would conclude that records from
those businesses should not be kept. See Caneva, 550 F.3d at 763 (“Although
it may appear to be unsympathetic to a debtor to expect him or her to explain
by books and records that a corporation or other entity conducted no business
. . . a conclusory statement . . . that an absence of records is justified is not
enough to avoid summary judgment.”); see also Meridian Bank, 958 F.2d at
1232 (explaining “insolvency cannot be used as an excuse to avoid the
obligation to provide records to illuminate that condition.”). Given Vucurevich’s
level of sophistication and the high level of accountability he is held to, the
bankruptcy court did not err by concluding that the explanations he offered
were not suitable to justify his missing records as a matter of law. Pulos, 168
B.R. at 692. Therefore, the court agrees that Vucurevich should be denied a
discharge pursuant to § 727(a)(3).
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The court affirms the bankruptcy court’s decision granting U.S. Bank
summary judgment and denying Vucurevich a discharge of debts pursuant to
§§ 727(a)(5) and 727(a)(3). Accordingly, it is
ORDERED that the bankruptcy court’s decision denying Vucurevich a
discharge of debts is affirmed.
Dated February 13, 2015.
BY THE COURT:
/s/ Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE
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