In re French, 06-1405.

• Decision Date: 27 August 2007
• Docket Number: No. 06-1405.,06-1405.
• Citation: 499 F.3d 345
• Parties: In re Elwood Dean FRENCH, Debtor. Mercantile Peninsula Bank, a Delaware Corporation, Plaintiff-Appellee, v. Elwood Dean French, Defendant-Appellant, and George W. Liebmann, Trustee.
• Court: U.S. Court of Appeals — Fourth Circuit

499 F.3d 345

In re Elwood Dean FRENCH, Debtor.

Mercantile Peninsula Bank, a Delaware Corporation, Plaintiff-Appellee, v. Elwood Dean French, Defendant-Appellant, and George W. Liebmann, Trustee.

No. 06-1405.

United States Court of Appeals, Fourth Circuit.

Argued: May 24, 2007.

Decided: August 27, 2007.

Stanton J. Levinson, Silver Spring, Maryland, for Appellant. John B. Robins, IV, Salisbury, Maryland, for Appellee.

Before KING and GREGORY, Circuit Judges, and FRANK D. WHITNEY, United States District Judge for the Western District of North Carolina, sitting by designation.

Vacated and remanded by published opinion. Judge KING wrote the majority opinion, in which Judge GREGORY joined. Judge WHITNEY wrote an opinion concurring in part and concurring in the judgment.

OPINION

KING, Circuit Judge:

Debtor Elwood Dean French appeals from the final judgment of the district court in this matter, affirming the bankruptcy court. See French v. Peninsula Bank, 338 B.R. 668 (D.Md.2006). By its opinion of January 7, 2005, the bankruptcy court denied French's discharge petition and awarded summary judgment to creditor Mercantile Peninsula Bank ("Peninsula") on two independent grounds. See In re: French, No. 01-5-6579-JS (Bankr. D.Md. Jan. 7, 2005). First, the bankruptcy court determined that French's discharge petition should be denied because he had knowingly made false oaths during his bankruptcy proceedings. Second, the court concluded that the petition should be denied because French had failed to keep and preserve adequate records from which his financial condition could be ascertained. French contends on appeal that the bankruptcy court erred by failing to apply the appropriate principles to its assessment of Peninsula's summary judgment motion, and that the district court erred in affirming that decision. More specifically, French maintains that there are genuine issues of material fact concerning whether he knowingly made false oaths in his bankruptcy proceedings, and whether he failed to keep and preserve adequate financial records. As explained below, we vacate and remand.

I.

A.

On October 10, 2000, French filed a Chapter 7 petition for bankruptcy relief in the Middle District of Florida, claiming that he was a Florida resident and seeking to protect his Florida residence from his creditors under the state homestead exemption.¹ On January 12, 2001, Peninsula, one of French's creditors, filed a Complaint in the bankruptcy court, seeking the denial of French's petition to discharge his debts. The Complaint alleged that French had, inter alia, (1) knowingly made false oaths in connection with his bankruptcy petition, in contravention of 11 U.S.C. § 727(a)(4)(A); and (2) failed to keep or preserve recorded information from which his financial condition could be ascertained, in contravention of 11 U.S.C. § 727(a)(3). Following the filing of its Complaint, Peninsula, along with other creditors of French, filed a motion to transfer the Florida bankruptcy case to the District of Maryland for the convenience of the parties. The case was transferred on April 10, 2001.

On March 7, 2002, Peninsula moved for summary judgment on its Complaint, contending that French's bankruptcy petition should be denied on the grounds asserted in its Complaint. In support of its claim that French had knowingly made false oaths, Peninsula referred the bankruptcy court to several examples of inconsistent statements that French had made under oath in connection with his bankruptcy proceedings, including statements that he had subsequently acknowledged as inaccurate. More particularly, Peninsula focused on statements French had made concerning his entitlement to the Florida homestead exemption, whether he was a resident of Maryland or Florida, and his financial interests in several partnerships and investment groups. With regard to its claim that French had failed to keep and preserve adequate financial records, Peninsula relied on statements French had made indicating that he either had not kept or was unsure of the existence of certain records. These included records of the 1991 sale of New Cherokee Lanes, a corporation owned by French's wife; of any sources of income — other than Social Security benefits — that French may have had in 2000; of income he had received in 1998 and 1999; and of a 1991 transaction involving an entity called Chesapeake Group.

On March 28, 2002, French filed a memorandum opposing Peninsula's summary judgment motion. In responding to Peninsula's contention on false oaths, French maintained that there was a genuine issue of material fact on whether he had knowingly and intentionally made any false statements. In this regard, French offered his own affidavit, asserting that he had always sought to be truthful in his testimony in the bankruptcy proceedings, and maintaining that any inconsistencies in the evidence were the result of confusion, his failure to understand certain questions he had been asked (in part because of his limited education — high school only — and unfamiliarity with legal terminology), and his inability to recall the information requested. French's affidavit also stated that he had been preliminarily diagnosed with a medical condition that affected his memory, his understanding of language, and his ability to give full, complete, and consistent testimony.

With regard to his financial records, French's affidavit asserted that, although he initially believed that he had lost many of the financial records sought, he eventually produced many of the records that Peninsula had alleged were missing. More specifically, French advised that he had disclosed: (1) complete bank records, including all checks, check registers, bank statements, and deposit tickets, from his Atlantic Bank checking account, which he had used for all business and personal transactions in 1998 and 1999; (2) records showing his personal monthly expenses for 1998, 1999, and 2000; (3) bank records for the two personal checking accounts he maintained in 2000; and (4) tax returns for 1998, 1999, and 2000. French also explained that, early in the bankruptcy proceedings, he had not known of the existence or whereabouts of many of these records, but that he had subsequently located and produced in 2001 substantially all of the records Peninsula and the trustee sought.

On April 17, 2002, French filed a pre-trial memorandum and attached two additional affidavits from proposed expert witnesses. French's first expert was Dr. Daniel J. Freedenburg, a psychiatrist who had examined French and whose affidavit specified that "Mr. French was suffering from a progressive disorder in the nature of a dementia which adversely impacts his cognitive functions and which is particularly intensified under stressful situations, such as testimony in a deposition or hearing." J.A.1988.² Dr. Freedenburg further asserted in his affidavit that "[w]hile I am not yet prepared to label this disorder as Alzheimer's, I am of the opinion that Mr. French's apparent difficulties at times in recollection, in organizing thoughts, and even in keeping full and accurate records, derive from this disorder rather than from a lack of honesty or effort." Id. The Freedenburg affidavit continued: "This problem causes him at times to provide inaccurate and sometimes even contradictory responses to questions despite a desire and effort to be truthful, a symptom I personally observed during my examination." Id. Moreover, Dr. Freedenburg asserted that "[t]his problem also exhibits itself in Mr. French's inability at times to understand questions or terms used by a questioner in the same way as they are intended to be understood." Id.

French's second expert was Charles G. Fagan, a CPA, whose affidavit asserted that he had examined French's financial records and concluded that they were reasonably sufficient to determine French's financial condition for the years 1998 and 1999. More specifically, Fagan stated, "While Mr. French is not able to document all transactions in detail, ... it is my opinion that the records he provided are sufficient to determine his financial condition in general terms without necessarily tracking each transaction." J.A.1987. Fagan advised that he had not yet examined French's bank records for 2000 and thus had not formulated an opinion on the adequacy of French's records relating to that year.

On May 10, 2002, Peninsula filed an amended motion for summary judgment, asserting the same claims it had addressed in its earlier motion, and providing additional examples of inconsistent statements French had made in connection with his bankruptcy proceedings. On June 12, 2002, French filed a memorandum opposing Peninsula's amended summary judgment motion, again asserting that genuine issues of material fact were apparent on Peninsula's claims that he had knowingly made false oaths and that he had failed to keep and preserve adequate financial records. Several months later, on September 25, 2002, the bankruptcy court heard oral argument on Peninsula's amended summary judgment motion. At the conclusion of the argument, the court announced from the bench that it would grant Peninsula's motion for summary judgment and deny the discharge in bankruptcy sought by French.

B.

More than two years later, on January 7, 2005, the bankruptcy court entered its Memorandum Opinion and Order awarding summary judgment to Peninsula and denying French the discharge he had sought. See In re: French, No. 01-5-6579-JS (Bankr.D.Md. Jan. 7, 2005) (the "Bankruptcy Opinion").³ The Bankruptcy Opinion concluded that French had made false oaths and had failed to keep and preserve adequate financial records, and that each of those grounds warranted the denial of his discharge in bankruptcy. The court rejected French's position that the inaccuracies in his testimony were the result of misunderstandings and his impaired mental function, concluding that French was not credible and...