In re Calder, Bankruptcy No. 86A-03558
| Decision Date | 27 September 1988 |
| Docket Number | Bankruptcy No. 86A-03558,Adv. No. 86PA-0989. |
| Citation | 93 BR 734 |
| Parties | In re John Richard CALDER, Debtor. Dennis and Reta JOB, Plaintiffs, v. John Richard CALDER, Defendant. |
| Court | U.S. Bankruptcy Court — District of Utah |
John Borsos, Salt Lake City, Utah, for plaintiffs.
Daniel Boone, Salt Lake City, Utah, for debtor.
This matter was tried before the Court on August 12, 1988, pursuant to Plaintiff's Complaint Objecting to Discharge. After a careful review of the evidence presented at trial and the relevant law pertaining to that evidence, the Court now renders the following memorandum decision and order.
On August 19, 1986, John Richard Calder (Calder) filed a voluntary petition seeking relief under Chapter 7 of the Bankruptcy Code (Title 11). The Statement of Affairs and the Schedules of Calder's assets were filed with the petition and were signed by him under penalty of perjury. The Complaint was brought inter alia under 11 U.S.C. § 727(a)(4)(A) which provides that:
This section is derived from the Bankruptcy Act Section 14(c). Under § 14(c), a significant and often litigated issue was allocation of the burden of proof. That issue was ultimately resolved by rule, specifically former Bankruptcy Rule 407, which made clear that the burden of proof applicable to a complaint objecting to a discharge was on the plaintiff. See Matter of Decker, 595 F.2d 185 (3rd Cir.1979) (upholding validity of Rule 407). Current Bankruptcy Rule 4005 is virtually identical to former Rule 407 in stating that the burden is on the plaintiff in a proceeding brought under 727. See 8 COLLIER ON BANKRUPTCY p. 4005 at 4005-1 to 4005-2 (15 ed. 1988).
While the plaintiff has the burden of persuasion, the burden of going forward with the evidence shifts to the debtor once the plaintiffs have shown the acts complained of occurred. In re Martin, 698 F.2d 883, 887 (7th Cir.1983). The debtor must then come forward with a credible explanation of his actions. However, the ultimate burden of proof in a proceeding objecting to discharge lies with the plaintiff. An inference of irregularity may arise from a series of assets or potential assets omitted from a debtor's schedules. In re Topping, 84 B.R. 840, 842 (Bankr.M. D.Fla.1988) The cumulative effect of evidence of assets not listed will satisfy the creditor's burden of proof. The Tenth Circuit has determined that the plaintiff need carry its burden under this section only by a preponderance of the evidence. Farmers Co-Op. Assn. of Talmage, Kansas v. Strunk, 671 F.2d 391, 395 (10th Cir.1982).
The focus of the evidence before us was on the Statement of Affairs and Schedule B-1 filled out by the debtor and filed with the petition. Paragraph 2(e) of the Statement of Affairs (Statement) asks Calder answered this question, Paragraph 4 of the Statement asked the debtor about all bank accounts. The answer listed three. Calder answered "no" in response to paragraph 12 of the Statement which asked if there were transfers of property as gifts to family members.
Plaintiffs' case under § 727(a)(4)(A) alleges that the debtor held an ownership interest in mineral rights which were not listed on Schedule B-1, that he failed to disclose certain bank accounts and that partnership income was not revealed. During direct examination, Calder acknowledged the ownership of mineral rights in the Altamont Field in Utah and two additional bank accounts. This acknowledgement included a disclaimer that the failure to list these items was based on the worthlessness of the mineral rights and the lack of any money on deposit in the accounts. The testimony also revealed that after April, 1984, and continuing to the present, monthly income has been paid to the debtor from the Redlac Partnership. The money was designated by Calder to be placed in his wife's bank account. The partnership records are still in his name and the income derived therefrom was $12,444 in 1985 and similar amounts in 1986 and 1987.
The Court of Appeals for the Third Circuit recently reiterated the absolute importance to the bankruptcy process of complete and candid disclosure by debtors. Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414 (3rd Cir.1988). Accord In re Tully, 818 F.2d 106, 110 (1st Cir.1987). Section § 727(a)(4) serves the important function of sanctioning those Chapter 7 debtors who deliberately fail to make proper disclosures. Such debtors are denied a discharge and are thus, effectively denied relief from creditors in bankruptcy. In re Ball, 84 B.R. 410, 415 (Bankr.D.Md. 1988).
As stated recently by the 9th Circuit Court of Appeals, "The debtor . . . must be scrupulous in providing notice of all assets to which others may make a legitimate claim." In re Woodson, 839 F.2d 610, 616 (9th Cir.1988). The leading case on 727(a)(4)(A) is In re Chalik, 748 F.2d 616 (11th Cir.1984) where it was held that the debtor's concealment of assets even if worthless, warrants loss of discharge in bankruptcy.
When a Chapter 7 debtor failed to list three assets in his original sworn schedule of assets, omitted two of the assets on his first amended schedule of assets, listed one of the remaining two assets in his second amended schedule of assets after being grilled at a creditor's meeting, and never listed the last asset at any time in any schedule; the 1st Circuit found the debtor exhibited reckless indifference to the truth which has consistently been treated as the functional equivalent of fraud for purposes of denial of discharge for false oath under 11 U.S.C. § 727(a)(4)(A) In re Tully, 818 F.2d 106 (1st Cir.1987).
Other Courts have decided that through deliberate omission on Schedules and Statements of Affairs, conduct is exhibited which constitutes the making of a false oath as prescribed by § 727(a)(4)(A). A debtor's intent to frustrate creditors and officers of the Court can be inferred from such conduct. In re Olivier, 819 F.2d 550 (5th Cir.1987); In re Lah, 88 B.R. 141 (Bankr.N.D.Ohio, 1988). In In re Cutignola, 87 B.R. 702 (Bankr.M.D.Fla.1988), the debtors listed three bank accounts on their Statement of Affairs. It was later established that there existed a fourth bank account which was still open at the time of filing. The explanation by the debtors that it had zero balance did not persuade the Court. The Court was further shocked by the revelation that payments to relatives for a previous loan were not disclosed on the Statement of Affairs. The Court pointed out that when the debtors signed their Statement of Financial Affairs they certified that all answers to questions set forth in the statement were true and that failure to list the bank account, as well as a burial plot, constituted false oaths with at minimum a reckless disregard for the truth and that due to the false oaths made in the case the debtors be denied a discharge pursuant to § 727(a)(4)(A).
Calder testified that he believed his omissions were rectified because he had revealed the ownership of the mineral rights and the additional bank accounts to the trustee at the § 341 meeting. However, in In re Garcia, 88 B.R. 695 (Bankr.E.D.Pa. 1988), the Court was not impressed when the debtor amended the schedules subsequent to the plaintiff's complaint for denial of discharge pursuant to § 727(a)(4)(A). The court said there was no merit in the position taken by the debtor that the amendment excused the original failure. "The existence of sanctions for failure to disclose assets would serve no purpose if deficiencies could simply be remedied at any time parties in interest call attention to them." In that case, the debtor failed to list two bank accounts, a safe deposit box and a contingent unliquidated claim.
In In re Martin, 88 B.R. 319 (D.Colo.1988), the debtor omitted two bank accounts from his Statement of Affairs. The Court pointed out that a false answer on a Statement of Affairs constitutes a false oath for purposes of § 727. The primary purpose of § 727(a)(4)(A) is to ensure that dependable information is supplied to those interested in the administration of the bankruptcy estate so they can rely upon it without the need for the trustee or other interested parties to dig out these true facts in examination or investigation. The Court determined that the debtor's failure to reveal the existence of the accounts was material because knowledge of their existence could have possibly occasioned discovery of past transactions which might have led to other objections to discharge or possible fraudulent conveyances or preferences. The Court was not dissuaded from denying discharge by the fact that the debtor amended the schedules to list the bank accounts prior to the trial.
Ultimately, what is presented in this case is a suggestion of a debtor who filed a chapter 7 petition in a careful plan to have it proceed as a no-asset case. Any asset which a prudent trustee might have investigated was deliberately left off. The trustee and the creditors are entitled to honest and accurate signposts on the trail showing what property has passed through the debtor's hands during the period prior to bankruptcy. In re Gonday, 27 B.R. 428, 432 (Bankr.M.D.La.1983); In re Espino, 806 F.2d 1001 (11th Cir.1986). While it is true that a false statement in the bankruptcy Schedule or Statement of Financial Affairs caused by mere mistake or inadvertence is not sufficient to require denial of discharge,...
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