955 F.2d 134 (1st Cir. 1992), 91-1606, In re Burgess

Docket Nº:91-1606, 91-1607.
Citation:955 F.2d 134
Party Name:In re Philip N. BURGESS, Jr., Debtor. COMMERCE BANK & TRUST COMPANY, Appellant, v. Philip N. BURGESS, Jr., Appellee. In re Philip N. BURGESS, Sr., Debtor. COMMERCE BANK & TRUST COMPANY, Appellant, v. Philip N. BURGESS, Sr., Appellee.
Case Date:January 31, 1992
Court:United States Courts of Appeals, Court of Appeals for the First Circuit
 
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Page 134

955 F.2d 134 (1st Cir. 1992)

In re Philip N. BURGESS, Jr., Debtor.

COMMERCE BANK & TRUST COMPANY, Appellant,

v.

Philip N. BURGESS, Jr., Appellee.

In re Philip N. BURGESS, Sr., Debtor.

COMMERCE BANK & TRUST COMPANY, Appellant,

v.

Philip N. BURGESS, Sr., Appellee.

Nos. 91-1606, 91-1607.

United States Court of Appeals, First Circuit

January 31, 1992

Heard Nov. 6, 1991.

Page 135

Henry J. Boroff with whom James F. Coffey and Boroff & Associates, Boston, Mass., were on brief, for appellant.

Donald R. Coblentz, Worcester, Mass., for appellee Philip N. Burgess, Jr.

Carl D. Aframe, Worcester, Mass., for appellee Philip N. Burgess, Sr.

Page 136

Before SELYA, Circuit Judge, COFFIN, Senior Circuit Judge, and CYR, Circuit Judge.

CYR, Circuit Judge.

Commerce Bank and Trust Company ("Bank") appeals a district court judgment affirming the dismissal by the bankruptcy court of adversary proceedings opposing appellees' right to a discharge in bankruptcy and, alternatively, challenging the dischargeability of particular debts. We affirm.

I

BACKGROUND

The Bank held six notes on which appellees Philip Burgess, Sr. and Philip Burgess, Jr., father and son, were either makers or personal guarantors. Burgess Electric and Mechanical Contractors, Inc. ("BEMC"), whose president was Philip Burgess, Jr., was the principal obligor on three notes, totalling $575,000. 1 It is stipulated that Burgess Sr., Burgess Jr. and BEMC, jointly and severally, owed the Bank a total balance of $650,000, inclusive of interest and costs.

On or about November 15, 1988, the Bank and other creditors filed involuntary chapter 7 petitions against the Burgesses and BEMC. See 11 U.S.C. § 303(a). Burgess Sr. consented to an order for chapter 7 relief in March 1989, and orders for involuntary chapter 7 relief were entered against Burgess Jr. and BEMC in April, 1989. In February 1990, the Bank initiated adversary proceedings opposing the allowance of discharges in bankruptcy to the Burgesses and, in the alternative, challenging the dischargeability of particular debts. At trial, the bankruptcy court directed appellees' counsel to submit a motion to dismiss, see Fed.R.Bankr.P. 7041; Fed.R.Civ.P. 41(b), after the presentation of the Bank's case. The Bank appealed the ensuing dismissal order. The district court affirmed on the ground that the Bank had "fallen far short" of demonstrating that the bankruptcy court's findings were clearly erroneous. The Bank appealed. After a careful examination of the entire record, we affirm the district court judgment.

II

DISCUSSION

The burden of persuasion rests with the party either opposing a discharge in bankruptcy under Bankruptcy Code § 727, see Fed.R.Bankr.P. 4005; In re Tully, 818 F.2d 106, 109 (1st Cir.1987), or contesting the dischargeability of a particular debt under Bankruptcy Code § 523, see, e.g., In re Black, 787 F.2d 503, 505 (10th Cir.1986); In re Hunter, 780 F.2d 1577, 1579 (11th Cir.1986). The Bank's burden of persuasion is especially onerous in the present case, as the bankruptcy court's findings of fact alone are challenged. 2

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Thus, we review only for clear error, with "due regard ... to the opportunity of the bankruptcy court to judge the credibility of witnesses." Fed.R.Bankr.P. 8013; see also In re Tully, 818 F.2d at 109. Moreover, the statutory requirements for a discharge in bankruptcy are "construed liberally in favor of the debtor" and " '[t]he reasons for denying a discharge ... must be real and substantial, not merely technical and conjectural.' " Id., (quoting Dilworth v. Boothe, 69 F.2d 621, 624 (5th Cir.1934)).

Discharge in Bankruptcy

The Bank claims that the bankruptcy court committed reversible error by granting Philip Burgess, Sr. a discharge in bankruptcy notwithstanding numerous allegedly false statements in violation of Bankruptcy Code § 727(a)(4)(A). See 11 U.S.C. § 727(a)(4)(A). 3 "Under § 727(a)(4)(A), [a] debtor can be refused [a] discharge only if he (i) knowingly and fraudulently made a false oath, (ii) relating to a material fact [in connection with the case]." In re Tully, 818 F.2d at 110. "Because a determination concerning fraudulent intent depends largely upon an assessment of the credibility and demeanor of the debtor, deference to the bankruptcy court's factual findings is particularly appropriate." Williamson v. Fireman's Fund Ins. Co., 828 F.2d 249, 252 (4th Cir.1987). The Bank points to no "real and substantial" evidence that any misstatement by Burgess Sr. was made with fraudulent intent. Moreover, in certain instances the Bank failed to produce evidence that the alleged misstatements were material. 4 We discern no clear error in the finding that Burgess Sr. "made no false oath within the meaning of 11 U.S.C. § 727(a)(4)(A)."

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The Burgesses concede that proceeds from BEMC's accounts receivable were transferred to the Burgess Sr. checking account within one year prior to the filing of these involuntary chapter 7 petitions. The Bank contends, therefore, that both Burgesses should have been denied a discharge in bankruptcy by virtue of Bankruptcy Code §§ 727(a)(2)(A) and 727(a)(7), which require the Bank to show that:

(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 ... (A) property of the debtor, within one year before the date of the filing of the petition; or ... (7) [the debtor does the same] in connection with another case, under this title or under the Bankruptcy Act, concerning an insider.

11 U.S.C. §§ 727(a)(2)(A) and 727(a)(7). The Burgesses testified that these transfers were made for the purpose of enabling BEMC to meet its payroll due to the unwillingness of any bank to deal with the corporate entity. The Bank's exclusive reliance on its conclusory assertion that the Burgesses' testimony should not have been believed falls far short of a showing of clear error in the bankruptcy court's finding that these transfers were not made with "intent to hinder, delay or defraud." 5 See, e.g., Anderson v. Beatrice Foods Co., 900 F.2d 388, 392 (1st Cir.1990) (" 'Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous.' ") (quoting Anderson v. City of Bessemer City, 470 U.S. 564, 573-75, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985)).

The Bank further contends that Burgess Jr. should have been denied a discharge in bankruptcy pursuant to Bankruptcy Code § 727(a)(6)(A), for failure to file Schedules of Assets and Liabilities and Statements of Affairs on or before June 12, 1989, as ordered by the bankruptcy court. Section 727(a)(6)(A) provides for the denial of a discharge in bankruptcy when "the debtor has refused, in the case--(A) to obey any lawful order of the court...." (emphasis added).

The present record makes clear that the required filings, though late, were made on or about August 2, 1989. Although we do not minimize the importance of prompt compliance with all bankruptcy court orders, we do recognize that the bankruptcy judge who issues the order, or oversees its compliance, normally is in the best position to evaluate whether a delay in compliance warrants denial of a discharge in bankruptcy. See In re Jones, 490 F.2d 452, 456 (5th Cir.1974). Since Burgess Jr. belatedly submitted the statements and schedules ordered by the court, and there was no evidence either of harm to creditors or contumacy, see id.; In re Kokoszka, 479 F.2d 990, 997-998 (2d Cir.1973), we are disinclined to second-guess the bankruptcy judge's determination that Burgess Jr. did not refuse to obey the court order.

The Bank asserts that Burgess Jr. should have been denied a discharge in bankruptcy for failure to keep and preserve appropriate books and records of BEMC, see 11 U.S.C. § 727(a)(3), or, in the alternative, for failure to turn over BEMC's books and records to the trustee in bankruptcy, see 11 U.S.C. § 727(a)(4)(D). 6

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The evidence demonstrates that records and information concerning BEMC's financial condition were kept and preserved, including records of vendors, creditors, payables and receivables. The Bank presented insufficient evidence to sustain its burden of showing that BEMC's records were inadequate. See In re Calisoff, 92 B.R. 346, 356 (Bankr.N.D.Ill.1988) (plaintiff bears burden of proving that debtor did not keep adequate records). Moreover, although the evidence indicates some ill will between Burgess Jr. and the trustee in bankruptcy, the Bank failed to adduce any evidence that...

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