Cooper et al v. U. S. Trustee
Filing
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MEMORANDUM OPINION OF THE COURT. Signed by District Judge William L. Campbell, Jr on 4/23/18. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(af)
IN THE UNITED STATES DISTRICT COURT FOR
MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
IN RE: FREDERICK ARNEMAN
COOPER and KATHERINE
HARRISON COOPER,
Debtors
FREDERICK ARNEMAN COOPER and
KATHERINE HARRISON COOPER
Appellants.
v.
SAMUEL K. CROCKER,
UNITED STATES TRUSTEE,
REGIONS 8,
Appellee.
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NO. 3:17-cv-00569
JUDGE CAMPBELL
MEMORANDUM
Appellants appeal the final Bankruptcy Court’s December 8, 2016 “Order Denying
Discharge” and Memorandum Opinion (the “Order”). In the Order, the Bankruptcy Court denied
Appellants discharge of debts based on Appellants’ concealment of personal property of the
bankruptcy estate and for knowingly making a materially false oath or account under to U.S.C.
§§ 727(a)(2) and (a)(4).
Appellants argue the Bankruptcy Court committed clear error when it denied their
discharge under 11. U.S.C. § 727. Appellants allege the evidence showed miscommunication,
mistake, and inadvertence rather than intentional fraud. For the reasons set forth below, the
judgment of the Bankruptcy Court is AFFIRMED.
I.
FACTS AND PROCEDURAL HISTORY
In January 2015, Appellants hired Todd Jackson (“Mr. Jackson”) to help them file for
Chapter 7 Bankruptcy. (Doc. No. 9-1, 33). In February 2015, Appellants filled out an online
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questionnaire that was later used to draft Appellants Schedules and Statement of Financial Affairs.
(Id. at 34). Mr. Jackson then met with Appellants and went over the bankruptcy petition line-byline before Appellants signed the petition. On March 13, 2015, Appellants filed their Chapter 7
petition, and filed their Schedules and the Statement of Financial Affairs on March 19, 2015. (Id.at
29). Their petition indicated this was a “No Asset” bankruptcy case. (Id.)
On April 10, 2015, Appellants filed their first amendment to their Schedule and disclosed
Guerin Senter as a creditor. (Id.). The Chapter 7 Trustee reviewed Appellants bankruptcy pleadings
and noticed some “red flags” regarding the valuation of Appellants residence and lack of personal
property. (Id.). Thereafter, the Chapter 7 Trustee hired Ethan Massa (“Mr. Massa”) to appraise
Appellants personal property. (Id.). On April 17, 2015, Mr. Massa conducted an inventory of
Appellants assets located at their residence and discovered personal property that was not disclosed
in Appellants Schedules. (Id. at 30).
On April 20, 2015, Appellants watched a video presentation on debtor’s responsibilities in
filing for Chapter 7 bankruptcy before attending the Meeting of the Creditors. (Id.). After seeing
the video, Appellants realized they made mistakes on their filings due to a possible
miscommunication with their attorney. (Id.). Appellants believed they were only to list personal
property they planned to keep and a representative of the Trustee would take everything else. (Id.).
On May 25, 2015, Appellants amended their Schedules for the second time to add the property
found by Mr. Massa, but the value of this property was listed as “Unknown”. (Id. at 31). Their
undisclosed property eventually sold at an auction conducted by Mr. Massa for $60,033.34. (Id.).
On June 14, 2015, Appellants amended their Statement of Financial Affairs for the third time. (Id.).
With every amendment to the Schedule, Appellants added more property. (Id. at 34-36).
Appellants failed to include a pending civil suit filed against them in 2013 by Guerin Senter until
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their second amendment, and failed to list firearms they sold on consignment for approximately
$23,000 until their third amendment, Appellants never listed their 100% membership interest in
Global Track GPS, LLC, undervalued their home at $330,0001, and never listed their 2014
residential loan application. (Id. at 31-36).
Appellants are educated and have significant business experience. (Id. at 32). Appellant
Frederick Cooper has a degree in business administration, and founded a company, where he was
the president and CEO. Appellant Katherine Cooper also has a degree in business administration
and worked for Appellant Frederick Cooper’s company as the director of operations. (Id.).
Appellants also have experience in bankruptcy due to the Chapter 11 petition filed in Nevada,
where Appellants signed pleadings and verified statements. (Id. at 33). Appellant Katherine
Cooper has personal experience in bankruptcy due to filing two Chapter 7 petitions in the 1980s
and 1990s, where she received a discharge in both petitions. (Id.).
On December 16, 2015, the Trustee filed a complaint objecting to Appellants’ discharge.
(Id. at 3-16). A trial on the issues occurred on August 29, 2016, and the Bankruptcy Court entered
its decision on December 8, 2016, denying Appellants discharge based on 11 U.S.C. §§ 727 (a)(2)
and (a)(4). (Doc. No. 9-1, 28-48). On December 22, 2016, Appellants filed a Motion to Reconsider
or Vacate Order Denying Discharge or in the alternative, Motion for New Trial. (Id. at 50-53) and
the Trustee replied. (Id. at 57-62). The Bankruptcy Court denied Appellants Motion (Id. at 69),
and Appellants filed a timely appeal on March 12, 2017. (Doc. No. 1).
II.
STANDARD OF REVIEW
The Court reviews the Bankruptcy Court’s findings of fact for clear error, and its
conclusions of law de novo. Rembert v. AT&T Univ. Card Serv. (In re Rembert), 141 F.3d 277,
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Appellants bought their home in 2014 for $405,000 and it sold at auction for $400,000.
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280 (6th Cir. 1998). A factual finding is clearly erroneous when the reviewing court is left with
the definite and firm conviction from the entire evidence that a mistake has been made. Id. If a
mixed question of law and fact exists the court “must break it down into its constituent parts and
apply the appropriate standard of review for each part.”Wesbanco Bank Barnesville v. Rafoth (In
re Baker & Getty Fin. Servs., Inc.), 106 F.3d 1255, 1259 (6th Cir.1997).
III.
ISSUE ON APPEAL
Whether the Bankruptcy Court erred in denying Appellants a discharge under 11 U.S.C. §
727(a)(2) and (a)(4).
IV.
ANALYSIS
A. Denial of Discharge Under U.S.C. § 727(a)(2)
Appellants challenge the Bankruptcy Court’s findings that they concealed personal
property of the bankruptcy estate with the intent to defraud the Chapter 7 Trustee and retain the
property. Specifically, Appellants argue the evidence supports the conclusion that Appellants
actions were due to mistake, ignorance, and confusion, which does not evince fraudulent
concealment. (Doc. No. 9, 7-11). Appellee argues the Bankruptcy Court reached the correct
conclusion based on the numerous omissions in Appellants’ schedules and statement of financial
affairs, and the lack of credibility in Appellants’ testimonies.
11 U.S.C. § 727(a)(2) states:
The court shall grant the debtor a discharge, unless—
(2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the
estate charged with custody of property under this title, has transferred, removed,
destroyed, mutilated, or concealed, or has permitted to be transferred, removed,
destroyed, mutilated, or concealed-(A) property of the debtor, within one year before the date of the filing of
the petition…
(emphasis added).
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“Concealment” is defined as, “the withholding of knowledge of an asset by the failure or refusal
to divulge information required by law to be made known.” In Re Swegan, 383 B.R. 646, 655
(B.A.P. 6th Cir. 2008). Fraudulent concealment may be inferred from circumstances in which the
debtor makes material misrepresentations, knowing they are false, or with proof that a debtor acted
with reckless disregard as to whether a representation was true. See In re Keeny, 227 F.3d 679 (6th
Cir. 2000) “The elements of a violation of 11 U.S.C. § 727 must be proved by a preponderance of
the evidence to merit denial of discharge.” In re Keeney, 227 F.3d 679, 683 (6th Cir. 2000). If the
debtor divulges false information based on mistake or inadvertence, the debtor is entitled to a
discharge. Id. at 686.
The Bankruptcy Court found Appellants were “educated and sophisticated business
[people] who have experience within the bankruptcy system.” (Doc. No. 9-1 at 39). Appellants
offered excuses for failing to disclose all of their property, but the Bankruptcy Court found their
explanations were not plausible given their experience. (Id). The Bankruptcy Court acknowledged
the purpose of bankruptcy allows debtors to obtain a fresh start, but to do that debtors must disclose
all property to determine the assets available for creditors. (Id). While Appellants argued they
believed they were only required to list items they intended to keep, the Bankruptcy Court found
it nonsensical that Appellants believed the Trustee could identify and liquidate their estate when
Appellants only disclosed the assets they intended to keep. (Id.). The Bankruptcy Court held the
testimony showed Appellants hoped, “. . . the Trustee would simply rely on their disclosures or
would at least not discover all of the undisclosed assets.” (Id. at 39-40).
On appeal, Appellants argue the record is replete with indications that their actions were
due to mistake, ignorance, and miscommunications. See In re Keeney, 227 F.3d 679, 686 (6th Cir.
2000). Based on testimony, Appellants believed they were only to list items they wanted to keep
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and the Trustee would dispose of everything else. (Doc. No. 9 at 8). Appellants incorrectly filled
out their schedules under the belief they followed proper protocol, and upon realizing their mistake
at the Meeting of Creditors they immediately attempted to rectify their mistakes. (Id. at 9).
Furthermore, according to the Appellants, the circumstantial evidence shows they did not conceal
their possessions with the subjective intent to defraud because they allowed Mr. Massa access into
their home, and their personal possessions, which were not listed in the first schedule, were all in
plain view during Mr. Massa’s visit. (Id. at 10). Appellants argue there is no proof of actual intent
to conceal, and their explanations during trial are plausible. (Id).
Based on the facts presented during trial, the Bankruptcy Court found Appellants had
knowledge of the undisclosed assets, and the evidence indicated Appellants acted in bad faith. The
testimony and exhibits showed numerous errors and omissions in each of Appellants’ amended
schedules and statement of financial affairs. (Doc. No 9-1 at 31-33; Doc. No. 10 at 36-37).
Furthermore, Appellants’ experience and education in previous bankruptcy proceedings
substantiates the conclusion that Appellants attempted to conceal their assets from the Trustee.
The Bankruptcy Court noted Appellants did not amend their schedules until Mr. Massa conducted
a “surprise inventory” of Appellants assets at their residence, and even then only listed the value
of the personal property as “Unknown.” (Doc. No. 9-1 at 30-31).
The Bankruptcy Court did not commit clear error in denying Appellants discharge pursuant
to 11 U.S.C. § 727(a)(2). Inferences from the testimony and exhibits show Appellants continuously
and intentionally withheld information about their assets from the Trustee by a preponderance of
the evidence. Importantly, as the Bankruptcy Court found, Appellant’s assertions of mistake that
became known to them at the April 20, 2015 Meeting of the Creditors are belied by the fact that
they continued to provide incomplete amendments in the months that followed. Put another way,
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Appellants claim to have understood the importance of full and accurate disclosure after the
Meeting of Creditors, yet the subsequent disclosures were neither full nor accurate. The multiple
piecemeal amendments to the schedule, undervaluing of their estate and other assets, and their
prior knowledge of bankruptcy proceedings all contribute to Appellants concealment.
Accordingly, the Bankruptcy Court’s holding is supported by the evidence and was not clearly
erroneous.
B. Denial of Discharge Under U.S.C. § 727(a)(4)(A)
Appellants further argue the Bankruptcy Court’s conclusions that Appellant knowingly
made false oaths under 11 U.S.C. § 727 (a)(4)(A) was in clear error based on evidence. Appellants
assert they incorrectly filled out the schedules by only listing property they sought to retain, and
their mistake does not indicate actual intent to make false statements under oath.
It is well established that “[a] debtor has an affirmative duty to disclose all of its assets”.
In Re Beckham, 2009 WL 1726526 at *8 (6th Cir. BAP 2009) (citing Browning v. Levy, F.3d
761,775 (6th Cir. 2002)). Section 727(a)(4)(A) denies a discharge from bankruptcy if “the debtor
knowingly and fraudulently, in or in connection with the case ... made a false oath or account.” In
order to deny a debtor discharge under this section, “a [Trustee] must prove by a preponderance
of the evidence that: 1) the debtor made a statement under oath; 2) the statement was false; 3) the
debtor knew the statement was false; 4) the debtor made the statement with fraudulent intent; and
5) the statement related materially to the bankruptcy case.” In re Debusk, 2009 WL 1256891 at *4
(E.D. Tenn. May 1, 2009) (quoting Keeney v. Smith (In re Keeney), 227 F.3d 679, 685 (6th
Cir.2000)). Whether a debtor has made a false oath under section 727(a)(4)(A) is a question of
fact. Keeney, 227 F.3d at 685.
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The Bankruptcy Court found the Trustee’s allegations supported the facts in the case and
Appellants failed to fill out the bankruptcy papers honestly and accurately. (Doc. No. 9-1 at 42).
Appellants’ amendments to the schedule continuously failed to disclose assets and personal
property and the Court did not find their excuses for their omissions credible. (Id. at 42-43). At
one point, Appellants blamed their attorney, Mr. Jackson, for the deficiencies, but Mr. Jackson
testified he went over the Statements and Schedules with Appellants line-by-line prior to filing the
petition. (Id. at 43). The Bankruptcy Court reasoned, “[b]ased on the facts in this case, the
cumulative omissions, and the credibility of the witness . . . these debtors had no regard for
providing complete and accurate information.” (Id.). Appellants only made amendments due to the
Trustee’s persistence throughout the proceedings, and Appellants prior experience in business and
the bankruptcy system did not entitle them to a discharge. (Id.).
Here, Appellants argue they did not realize their statements were false when they
completed the petition, and they did not act with intent. (Doc. No. 13 at 5). Instead, Appellants
took efforts to remedy their mistakes and errors. (Id.). They spoke with their attorney about
amending their petition, voluntarily provided access to Mr. Massa during the home inspection, and
helped load their personal assets into Mr. Massa’s truck. (Doc. No. 9 at 12). Appellants assert these
actions show their lack of intent to knowingly make a false oath. (Id.). Finally, Appellants state
their prior bankruptcies does not impute special knowledge because various attorneys and
accountants were involved in their previous bankruptcies. (Id. at 6). Appellee responds by arguing
Appellants provided the Bankruptcy Court with no explanation for many of the omissions and
errors in their amended schedules. (Doc. No. 10 at 36). The instructions on the face of the schedules
are clear and are inconsistent with Appellants interpretations, therefore the Bankruptcy Court’s
findings support the evidence. (Id. at 37).
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The Bankruptcy Court found that despite Appellants watching the Chapter 7 video about
disclosing all assets, Appellants subsequently made false statements under oath by not disclosing
all their assets in good faith.2 Appellants argue the Bankruptcy Court erred in finding their false
oaths were intentional because they simply were mistaken and confused throughout the Chapter 7
bankruptcy process. (Doc No. 13). However, the Bankruptcy Court found, and this Court agrees,
that Appellants were informed on multiple occasions that all property and assets should be
disclosed in their schedules and financial statements, but yet, with each amendment Appellants
knowingly chose to omit certain assets. The Bankruptcy Court considered the multiple
amendments, undisclosed assets, and Appellants prior bankruptcy experience as circumstantial
evidence to infer that Appellants had actual intent to make false statements under oath. See Keeney,
227 F.3d at 683-84.
The Bankruptcy Court did not clearly err in inferring from the circumstances of the case
that Appellants knowingly and intentionally made materially false statements under oath.
Accordingly, denial of discharge under Section 727 (a)(4)(A) was proper.
V.
CONCLUSION
After applying the relevant standard of review, the Bankruptcy Court correctly denied
Appellants discharge pursuant to 11 U.S.C. §§ 727(a)(2) and (a)(4). Accordingly, the Bankruptcy
Court’s “Order Denying Discharge” and Memorandum Opinion entered December 8, 2016 is
AFFIRMED and the appeal is DISMISSED.
It is so ORDERED.
____________________________________
WILLIAM L. CAMPBELL, JR.
UNITED STATES DISTRICT JUDGE
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See Doc. No. 9-1 at 42-43.
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