Adeeb, In re

Decision Date21 April 1986
Docket NumberNo. 85-5704,85-5704
Citation787 F.2d 1339
Parties, 14 Collier Bankr.Cas.2d 740, 14 Bankr.Ct.Dec. 715, Bankr. L. Rep. P 71,108 In re George Edward ADEEB, Debtor-Appellant. FIRST BEVERLY BANK, Plaintiff-Appellee, v. George Edward ADEEB, fdba Discount Gas, faw Discount Gas, Inc., faw Tires & Tune-Ups, Inc., Defendant-Appellant. CONSUMERS OIL COMPANY, R & M Petroleum Company, and H.F. Cox, Inc., Plaintiffs-Appellees, v. George Edward ADEEB, fdba Discount Gas, faw Discount Gas, Inc., faw Tires & Tune-Ups, Inc., Defendant-Appellant.
CourtU.S. Court of Appeals — Ninth Circuit

Alan M. Mirman, Epport, Kaseff & Mirman, Beverly Hills, Cal., for plaintiffs-appellees.

Mark T. Young, Mayer & Glassman Law Corp., Los Angeles, Cal., for defendant-appellant.

Appeal from the United States District Court for the Central District of California.

Before ANDERSON, PREGERSON, and WIGGINS, Circuit Judges.

WIGGINS, Circuit Judge:

George Edward Adeeb (Adeeb) appeals from the district court's order denying his appeal from a bankruptcy court judgment. The bankruptcy court found that Adeeb transferred property out of his estate within one year of bankruptcy with intent to hinder or delay his creditors. It therefore denied Adeeb's discharge in bankruptcy under 11 U.S.C. Sec. 727(a)(2)(A) (1982). We have jurisdiction over this appeal pursuant to 28 U.S.C. Sec. 158(d) (Supp. II 1984).

FACTS AND PROCEEDINGS BELOW

Adeeb operated several gas stations in the Los Angeles, California area. He experienced financial difficulties during a period of fluctuating gasoline prices. One of his creditors, ITL, Inc. (ITL), demanded that Adeeb secure his debts to it with deeds of trust on his real property. ITL threatened to seek an attachment against all of Adeeb's property if he did not comply.

Faced with these threats, Adeeb consulted with Cooper, an attorney with little or no bankruptcy experience. Cooper advised Adeeb to transfer title to some of his real property for no consideration to third parties who could be trusted. In reliance on this advice, Adeeb transferred title to several parcels of real property to friends and associates for no consideration. Beneficial ownership at all times remained in Adeeb.

As his financial condition continued to worsen, Adeeb sought advice from Mayer, a bankruptcy attorney. Mayer advised Adeeb to reverse the transfers and to disclose them to his creditors. Adeeb immediately began to reverse the transfers. While he was in this process, Adeeb called a meeting of his creditors. At that meeting, he told his creditors about the earlier transfers and stated that he was reversing them.

On April 6, 1983, after the meeting at which Adeeb disclosed the transfers, three of Adeeb's trade creditors filed an involuntary bankruptcy petition against him. Adeeb decided not to contest that petition and filed a voluntary bankruptcy petition on April 11, 1983, seeking a discharge of his indebtedness. The transfers from Adeeb to his friends and associates were made within one year of the filing of these petitions. Adeeb was apparently unable to recover all of the transferred property before the petitions were filed. 1

In June, 1983, plaintiff First Beverly Bank filed a complaint in the bankruptcy court seeking to block Adeeb's discharge in bankruptcy under 11 U.S.C. Sec. 727(a)(2)(A) (1982). In the alternative, First Beverly Bank sought to have Adeeb's debt to it held nondischargeable under 11 U.S.C. Sec. 523 (1982 & Supp. II 1984). On the same date, plaintiffs Consumers Oil Company, R & M Petroleum Company, and H.F. Cox, Inc., filed a complaint against Adeeb also seeking relief under sections 727 and 523.

The bankruptcy court consolidated the two actions. On the section 727 claims, the court found that Adeeb, within one year of his petition in bankruptcy, had transferred property without consideration and with actual intent to hinder or delay his creditors. It therefore held that section 727(a)(2)(A) barred his discharge. The court's decision on the section 727 claims made it unnecessary for the court to reach the section 523 claims.

Adeeb appealed the bankruptcy court's decision to the district court. After a hearing, the district court issued an order denying Adeeb's appeal, and Adeeb appealed to this court.

STANDARD OF REVIEW

A bankruptcy court's findings of fact are reviewed for clear error, and its conclusions of law are subject to de novo review. In re Devers, 759 F.2d 751, 753 (9th Cir.1985). The court's finding that Adeeb transferred his property with intent to defraud creditors is a finding of fact. See Losner v. Union Bank, 374 F.2d 111, 112 (9th Cir.1967) (per curiam).

DISCUSSION

Adeeb argues that three grounds support reversal of the bankruptcy court's denial of his discharge: (1) the court's finding that he intended to hinder or delay his creditors is clearly erroneous; (2) his actions could not have harmed his creditors, and such actions should not be grounds for denying a discharge; and (3) a debtor who voluntarily reverses transfers penalized by section 727(a)(2)(A) should not be denied discharge of his debts. We address each of these contentions in turn.

A. Actual Intent to Hinder, Delay, or Defraud a Creditor

The bankruptcy court denied discharge of Adeeb's debts pursuant to 11 U.S.C. Sec. 727(a)(2)(A) (1982). Section 727(a)(2)(A) provides that a debtor shall not be granted a discharge if within one year of the filing of a petition in bankruptcy he "has transferred, removed, destroyed, mutilated, or concealed" his property "with intent to hinder, delay, or defraud a creditor."

Section 727's denial of discharge is construed liberally in favor of the debtor and strictly against those objecting to discharge. In re Devers, 759 F.2d 751, 754 (9th Cir.1985). Accordingly, discharge of debts may be denied under section 727(a)(2)(A) only upon a finding of actual intent to hinder, delay, or defraud creditors. Constructive fraudulent intent cannot be the basis for denial of a discharge. Id. at 753. However, intent "may be established by circumstantial evidence, or by inferences drawn from a course of conduct." Id. at 753-54.

The bankruptcy court found that Adeeb transferred real property out of his estate with actual intent to hinder or delay a creditor. Adeeb argues that the court's finding of actual intent is clearly erroneous. He contends that circumstances surrounding the transfers and events subsequent to the transfers indicate that he did not actually intend to defraud his creditors. In support of this argument, Adeeb points out that he disclosed the transfers to his creditors and recovered or attempted to recover the property. He also points out that he transferred the property on the advice of his attorney and that he intended to protect the property from one creditor for the benefit of the other creditors.

Adeeb's reliance on circumstantial evidence and inferences from his conduct to prove that he lacked actual intent is misplaced. Adeeb admitted that he transferred the property intending to put it out of the reach of one of his creditors. When a debtor admits that he acted with the intent penalized by section 727(a)(2)(A), there is no need for the court to rely on circumstantial evidence or inferences in determining whether the debtor had the requisite intent. Under these circumstances, the district court was not clearly erroneous in finding that Adeeb acted with actual intent to hinder or delay a creditor.

Further, Adeeb's claim that he lacked actual intent to hinder or delay his creditors because he relied on the advice of his attorney is mistaken. Generally, a debtor who acts in reliance on the advice of his attorney lacks the intent required to deny him a discharge of his debts. See, e.g., Hultman v. Tevis, 82 F.2d 940, 941 (9th Cir.1936); In re Nerone, 1 B.R. 658, 660 (Bankr.S.D.N.Y.1979). However, the debtor's reliance must be in good faith. See Hultman, 82 F.2d at 941; Nerone, 1 B.R. at 660. In this case, the bankruptcy court found that both Cooper and Adeeb "knew that the purpose of the transfers was to hinder or delay creditors of the debtor." Such a finding precludes the defense of good faith reliance on the advice of an attorney even if the client is otherwise innocent of any improper purpose. A debtor who knowingly acts to hinder or delay his creditors acts with the very intent penalized by section 727(a)(2)(A).

Adeeb is also mistaken in his assertion that he lacked actual intent because he intended to protect some of his creditors. Our inquiry under section 727(a)(2)(A) is whether Adeeb intended to hinder or delay a creditor. If he did, he had the intent penalized by the statute notwithstanding any other motivation he may have had for the transfer. Cf. Matter of Trinity Baptist Church, 25 B.R. 529, 532-33 (Bankr.M.D.Fla.1982) (admirable of debtor to attempt to protect assets from one creditor for benefit of all creditors; nevertheless, the result is hinderance and delay of creditors that makes the transfer voidable). Further, the statute requires only that the debtor make the transfer with intent to hinder, delay, or defraud "a creditor." There is no requirement that the debtor intend to hinder all of his creditors. See Matter of Goldberg, 2 B.R. 15, 17 (Bankr.S.D.Fla.1979).

B. Injury to Creditors

Adeeb next argues that his discharge should not be denied because these transfers did not injure his creditors. He argues that he was reversing the transfers when the involuntary petition was filed and none of his creditors has been injured. We reject this contention. Our decision on this point is controlled by our prior holdings that lack of injury to creditors is irrelevant for purposes of denying a discharge in bankruptcy. Duggins v. Heffron, 128 F.2d 546, 549 (9th Cir.1942); Harris v. Baker, 86 F.2d 936, 937-38 (9th Cir.1936).

C. Disclosure of Transfers and Recovery of Property Transferred

Finally, Adeeb contends that...

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