Bernier v. Hang (In re Hang), BK No. 17-11567

Decision Date22 June 2018
Docket NumberA.P. No. 18-01028,BK No. 17-11567
Citation589 B.R. 234
Parties IN RE: Marsha S. HANG, Debtor Robert W. Bernier, Plaintiff v. Marsha S. Hang, Defendant
CourtU.S. Bankruptcy Court — District of Rhode Island

Christopher Lefebvre, Law Office of Claude Lefebvre & Sons, Pawtucket, RI, for Plaintiff.

Stephen P. Levesque, Cranston, RI, for Defendant.


Diane Finkle, U.S. Bankruptcy JudgeCreditor Robert Bernier commenced this adversary proceeding seeking the denial of debtor Marsha Hang's discharge under Bankruptcy Code § 727(a)(3) and (4)1 based on her alleged misconduct in or in connection with her bankruptcy case. As it turns out, Ms. Hang is ineligible for a discharge under the temporal discharge bar of § 727(a)(8) because she received a discharge in a prior bankruptcy case filed within eight years of the filing of her present case. She moves to dismiss the complaint for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7012(b). The motion raises the issues of Mr. Bernier's Article III standing, the ripeness of his claims for judicial review, and whether Ms. Hang's ineligibility for a discharge under § 727(a)(8) moots Mr. Bernier's § 727(a)(3) and (4) claims. Mr. Bernier objects to the motion, citing the immediate adverse impact an order dismissing the complaint would have on his rights as a creditor and his ability to assert those rights under §§ 727(a)(3) and (4) and 523(a)(10).

The use of the temporal discharge bar of § 727(a)(8) as a shield against denial of discharge under § 727(a)(2) through (7), which relate to a debtor's misconduct in or in connection with a case, presents an issue of first impression. At first blush, Ms. Hang's position appears deceptively straightforward and appealing. Why waste judicial time and resources adjudicating such claims if the debtor is ineligible for a discharge under § 727(a)(8) ? Upon a more in-depth review, however, the flaws in her arguments become apparent; they ignore the important distinctions between § 727(a)'s subsections, their underlying legislative goals, and the significance of the interplay between §§ 523(a)(10) and 727(a)(2) through (7). Accordingly, the motion to dismiss must be denied.

I. Jurisdiction

The Court has jurisdiction over this matter under 28 U.S.C. §§ 1334 and 157(b), and Rule 109 of the Local Rules of the United States District Court for the District of Rhode Island. This is a core proceeding under 28 U.S.C. § 157(b)(2)(J).

II. Background

Although required to do so, Ms. Hang did not disclose on her bankruptcy petition that she previously filed a chapter 7 bankruptcy case in the United States Bankruptcy Court for the Middle District of Florida on June 6, 2010, and received a discharge on October 7, 2010. See Bk. No. 10-13349-KRM. Some seven years later, on September 8, 2017, she filed the present chapter 7 case in this Court. Ms. Hang readily agrees that § 727(a)(8)'s eight-year bar renders her ineligible for a discharge in this present case. In fact, her discharge ineligibility is the foundation of her dismissal arguments.

In support of his § 727(a)(3) claim, Mr. Bernier alleges that Ms. Hang unjustifiably failed to maintain business records for the cleaning business she operated for at least five years before filing this case, a business which was her primary source of income during that period. See Plaintiff's Complaint to Deny Discharge ("Complaint," Doc. # 1). To support his § 727(a)(4) claim, Mr. Bernier alleges that Ms. Hang knowingly engaged in fraudulent behavior in connection with this case by omitting, misrepresenting, or failing to accurately disclose on her bankruptcy petition, schedules, and statement of financial affairs material information about her pre-bankruptcy financial condition, the value of her assets and liabilities, her prior filing history, past and present employment and income, property interests, bank accounts, and pre-petition property transfers or sales. Notably, Ms. Hang stated under oath at the initial § 341 meeting of creditors that she had read each page of these documents before they were filed and that they contained accurate and true information.2

III. Positions of the Parties
A. Ms. Hang's Motion

Seeking dismissal under Rule 12(b)(1), Ms. Hang asserts that: (i) Mr. Bernier lacks standing because there is no particularized injury that is actual or imminent, (ii) her ineligibility for a discharge under § 727(a)(8) precludes the Court from affording him meaningful relief and renders this proceeding moot, (iii) the controversy is not ripe because any alleged harm is merely prospective, and (iv) Mr. Bernier will not suffer a hardship if review is denied because his request for relief is moot. See Defendant's Motion to Dismiss Complaint to Deny Discharge ("Motion," Doc. # 7). At their core, her arguments are that Mr. Bernier's claims fail to present a justiciable "case or controversy," thereby divesting the Court of subject matter jurisdiction over this adversary proceeding.3

B. Mr. Bernier's Objection

Defending against the motion, Mr. Bernier counters that Ms. Hang erroneously conflates the temporal discharge bar under § 727(a)(8) with the significantly different grounds for denial of a discharge under § 727(a)(3) and (4). See Plaintiff's Objection to Motion to Dismiss ("Objection," Doc. # 8). He maintains that the Court has jurisdiction to hear his claims because of the "critical distinction" between temporary ineligibility for discharge for an objective time period and the permanency of the discharge bar effectuated by § 523(a)(10) where discharge has been denied under § 727(a)(2) through (7). Unlike the time limitations imposed by § 727(a)(8), he emphasizes, § 523(a)(10) severely sanctions a debtor for misconduct in or in connection with a particular case that undermines the integrity of the bankruptcy system. This distinction, Mr. Bernier contends, gives rise to a concrete injury for purposes of standing, which ripens his adversary proceeding for adjudication and provides the basis for meaningful relief.

IV. Dismissal Motions Under Rule 12(b)(1)

A motion to dismiss under Rule 12(b)(1) may be brought by (i) accepting "the plaintiff's version of jurisdictionally-significant facts" while challenging their sufficiency to establish subject matter jurisdiction, or (ii) "controverting the accuracy" of those facts and providing "materials of evidentiary quality in support of that position." Resurgent Capital Servs., L.P. v. Harrington (In re Cushman) , 2017 WL 818254, at *1 (Bankr. D. Me. Mar. 1, 2017) (quoting Valentin v. Hosp. Bella Vista , 254 F.3d 358, 363 (1st Cir. 2001) ). When a motion attacks the sufficiency of jurisdictionally-significant facts, the court "must credit the plaintiff's well-pleaded factual allegations ..., draw all reasonable inferences from them in [the plaintiff's] favor, and dispose of the challenge accordingly." Id. (citation omitted).

V. Relevant Discharge Provisions
A. Denial of Discharge Under § 727(a) and the Impact of § 523(a)(10)

Section 727(a) provides that the court shall grant a discharge to a chapter 7 debtor unless one or more of the grounds for denial of discharge listed in subsections (a)(1) through (12) are established. Enforcement of these subsections is through § 727(c)(1), which vests the right in "[t]he trustee, a creditor, or the United States trustee [to] object to the granting of a discharge under subsection (a) of this section." 11 U.S.C. § 727(c)(1). The permanency of a discharge denial under subsections (a)(2) through (7), however, is established by § 523(a)(10), which provides that:

A discharge under § 727... does not discharge an individual debtor from any debt ... that was or could have been listed or scheduled by the debtor in a prior case ... in which the debtor ... was denied a discharge under section 727(a)(2), (3), (4), (5), (6), or (7)....

11 U.S.C. § 523(a)(10).

Section 523(a)(10) applies where the debtor is denied a discharge under any of the grounds listed in § 727(a)(2) through (7). See Cheng v. Wong(In re Wong) , Adversary No. 09-01112 (REG), 2010 WL 1544415, at *2 (Bankr. S.D.N.Y. Apr. 19, 2010) ("By negative implication and basic logic, § 523(a)(10) is not applicable when a debtor was denied a discharge in a previous case solely pursuant to a subsection of § 727(a) that is not listed in § 523(a)(10)."). The denial of a discharge under any of the enumerated subsections in § 523(a)(10) renders debts in a prior case permanently and automatically nondischargeable. See McDermott v. Graft(In re Graft) , 489 B.R. 65, 73 (Bankr. S.D. Ohio 2013) (discussing revocation of discharge under § 727(a)(6) and ability to apply § 523(a)(10) in later case); Osenkowski v. Moretti(In re Moretti) , 278 B.R. 300, 301 n.1 (Bankr. D.R.I. 2002) ("Because the Debtor's prior Chapter 7 case[ ] was filed more than six years prior to the instant Chapter 7 petition, Section 727(a)(8) [then a 6-year bar] is not implicated and the Debtor is entitled to another discharge in this proceeding."). Unlike the denial of a discharge based on an objective time period, "the grounds for denial of [a] chapter 7 discharge under §§ 727(a)(2) through (a)(7) are all on account of blameworthy conduct[.]" Filice v. United States (In re Filice) , 580 B.R. 259, 263 (Bankr. E.D. Cal. 2018). Section 523(a)(10) does not prevent the discharge of debts in a subsequent bankruptcy that survived the earlier case because of the time-limited discharge bar of § 727(a)(8). Id.

B. Section 727(a)(3) and (4)

By invoking § 727(a)(3) and (4), Mr. Bernier seeks to bar the discharge of all of Ms. Hang's pre-petition debts existing as of the filing date based on of her alleged improper conduct in or in connection with the present case. Section 727(a)(3) addresses an individual debtor's failure to maintain adequate records of his or her assets or financial affairs, and directs the court to...

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