In re Mazzola

• Decision Date: 05 May 1980
• Docket Number: Adversary No. 79-0057-HL.,Bankruptcy No. 79-01910-HL
• Citation: 4 BR 179
• Parties: In re Dennis Joseph MAZZOLA and Anne Tresa Mazzola, Debtors. Wayne LaVANGIE and Gayle LaVangie, Plaintiffs, v. Dennis Joseph MAZZOLA and Anne Tresa Mazzola, Defendants.
• Court: U.S. Bankruptcy Court — District of Massachusetts

4 B.R. 179 (1980)

In re Dennis Joseph MAZZOLA and Anne Tresa Mazzola, Debtors Wayne LaVANGIE and Gayle LaVangie, Plaintiffs, v. Dennis Joseph MAZZOLA and Anne Tresa Mazzola, Defendants.

Bankruptcy No. 79-01910-HL, Adversary No. 79-0057-HL.

United States Bankruptcy Court, D. Massachusetts.

May 5, 1980.

Paul J. Driscoll, Driscoll & Davis, Marshfield, Mass., for plaintiffs.

Richard S. Weiss, Boston, Mass., for defendants-debtors.

MEMORANDUM ON DISCHARGE

HAROLD LAVIEN, Bankruptcy Judge.

The plaintiffs in this proceeding, Wayne and Gayle LaVangie, seek to bar the discharge of the debtors, Dennis Joseph Mazzola and Anne Tresa Mazzola, pursuant to the provisions of sections 727(a)(4)(A) and 727(a)(2)(A) of the Bankruptcy Code. The plaintiffs allege the debtors made false oaths on their petition and transferred and concealed property within one year preceding the filing of the petition. The debtors concede the inaccuracies in their schedules and statement of affairs. Mrs. Mazzola contends she simply signed the documents without reading them and Mr. Mazzola contends that the inaccuracies were the result of innocent misunderstandings and mistakes and were not the product of any fraudulent intent. They each deny any fraudulent intent in the sale of real estate, the deposit of the funds in their nonbankrupt corporation, and the use of the funds to pay corporate creditors. After an evidentiary hearing at which both debtors testified and were cross-examined, I make the following findings of fact.

The debtors filed a joint petition under Chapter 7 of the Bankruptcy Code on October 15, 1979. At the time of filing, the debtor Dennis Mazzola was the sole stockholder of the Dennis M. Construction Co., Inc., and was engaged in the home construction industry. Just prior to the filing of the bankruptcy, the plaintiffs had been involved in bitter litigation with the debtors (Dennis M. Construction Co., Inc. was not a party) over a claim of faulty home construction. In fact, in August of 1979, the plaintiffs obtained an attachment on two parcels of property owned by the debtors jointly. In early September of 1979 the debtors accomplished the dissolution of the attachment, sold the properties speedily, deposited the $14,000 received from the sale in the checking account of Dennis M. Construction Co., Inc. and used the proceeds to pay the corporation's creditors. The debtors then abandoned their defense in the state court action and filed a petition in bankruptcy on October 15, 1979. The testimony adduced at trial revealed several false answers in the debtors' schedules and statement of affairs.

(1) In response to item "t" on schedule B 2, a question seeking disclosure of the description, location, and market value of the debtors\' interest (without deduction for secured claims or exemptions) in "stocks and interests in incorporated and unincorporated companies", the debtors answered "0". In fact, however, the debtor Dennis Mazzola was the sole stockholder of the Dennis M. Construction Co., Inc.

(2) The debtors answered "No" to question 10c of the statement of affairs which reads:

Has any of your property been attached, garnished, or seized under any legal or equitable process within the year immediately preceding the filing of the original petition herein? (If so, describe the property seized or person garnished, and at whose suit.) In fact, the plaintiffs herein had obtained an attachment on two parcels of property owned by the debtors in August of 1979. The attachment in question was dissolved approximately two weeks after it was initially granted.

(3) In response to question 12b on the statement of affairs which reads:

Have you made any other transfer, absolute or for the purpose of security, or any other disposition, of real or tangible personal property during the year immediately preceding the filing of the original petition herein?

(give a description of the property, the date of the transfer or disposition, to whom transferred or how disposed of, and, if the transferee is a relative or insider, the relationship, the consideration, if any, received therefor, and the disposition of such consideration.)

the debtors answered "No". The debtors, however, transferred two parcels of land which they held in their joint names to homebuyers. The proceeds of the sale were transferred to the corporate account and were used to pay creditors of the corporation rather than the debtors\' personal creditors.

At trial both debtors acknowledged the authenticity of their signatures on the petition, schedules and statement of affairs. By way of explanation of the false answers, Mr. Mazzola testified that (1) he did not list the stock of the Dennis M. Construction Co., Inc., because in his estimation the stock had no value and therefore was not within the purview of the question; (2) he did not list the attachment obtained by the plaintiffs because he considered the attachment illegal and void and because it was dissolved approximately two weeks after it was granted; (3) he failed to disclose the transfer of the two properties because he misunderstood the question and though it asked what other properties he currently owned rather than what properties he had transferred.

The explanation offered by Mrs. Mazzola for her signing of the documents containing the false statements was simply that she did not participate in the preparation of the documents and that she signed the documents without first reading them even though she was the individual who maintained the books and disbursed checks and was thoroughly conversant with the true facts.

On the schedules and statement of affairs, an essential part of any petition in bankruptcy,¹ the debtors' signatures were immediately preceded by the following language:

We Dennis Joseph Mazzola and Anne Tresa Mazzola certify under penalty of perjury that we have read the foregoing schedules, consisting of 14 sheets, and that they are true and correct to the best of our knowledge, information, and belief.

Section 727(a)(4)(A) of the Bankruptcy Code provides:

(a) The court shall grant the debtor a discharge, unless —

(4) the debtor knowingly and fraudulently, in or in connection with the case —

(A) made a false oath or account;

11 U.S.C. § 727(a)(4)(A).

The purpose of section 727(a)(4)(A) and its predecessor, section 14c(1) of the Bankruptcy Act is to ensure that dependable information is supplied for those interested in the administration of the bankruptcy estate on which they can rely without the need for the trustee or other interested parties to dig out the true facts in examinations or investigations. See, e.g., In re Tabibian, 289 F.2d 793, 797 (2d Cir. 1961). Cf. United States v. Stone, 282 F.2d 547, 553 (2d Cir. 1960). The trustee and creditors are entitled to honest and accurate signposts on the trail showing what property has passed through the bankrupt's hands during a period prior to his bankruptcy. In re Mascolo, 505 F.2d 274, 278 (1st Cir. 1974) (quoting In re Slocum, 22 F.2d 282, 285 (2d Cir. 1927)). A false statement in the schedules or statement of affairs due to mere mistake or inadvertence is insufficient for the denial of a discharge; fraudulent intent is necessary to bar a discharge. See, e.g., In re Mascolo, 505 F.2d 274, 276 (1st Cir. 1974); Avallone v. Gross, 309 F.2d 60, 61 (2d Cir. 1962). A reckless disregard of both the serious nature of the information sought and the necessary attention to detail and accuracy in answering may rise to the level of fraudulent intent necessary to bar a discharge. In re Diorio, 407 F.2d 1330, 1331 (2d Cir. 1969). The determination of relevance and importance of the question is not for the debtor to make. It is the debtor's role simply to consider the question carefully and answer it completely and accurately. See, In re Condura, 5 Bankr.Ct.Dec. 578, 579-80 (S.D.N.Y.1979).

There is no question in the present case that the schedules and statement of affairs filed by the debtors contained numerous false statements. The debtors concede the false statements exist. The determinative issue with regard to the ultimate granting or denial of discharge is whether those false statements were knowingly and fraudulently made so as to fall within the prohibition of section 727(a)(4)(A).

After hearing and observing Mr. Mazzola at trial, the court finds the explanations offered by Mr. Mazzola for the false statements in the documents not credible. The present facts do not reflect mere mistake or inadvertence but rather are indicative at the very least of such a cavalier and reckless disregard for truthfulness as to cause the court to find fraudulent intent. The court finds Mr. Mazzola's explanation for the false answer to question 12b on the statement of affairs to be particularly disturbing. Question 12b clearly asks the debtors whether they have transferred any real or tangible personal property during the year immediately preceding the filing of the petition (for full text of question 12b see supra). The debtors answered "No" to the question. Mr. Mazzola stated at trial, under oath, that he interpreted the question to ask if he currently owned any property. The court cannot accept this explanation as credible. Mr. Mazzola is not an unintelligent individual inexperienced in real estate transactions as is evidenced by the fact that for many years he made his living building homes and buying and selling real estate. Mr. Mazzola's alleged interpretation of question 12b cannot be deemed a reasonable and honest misinterpretation of the question. The question is entitled, in bold face, "Transfers of property". There is nothing that could justify any genuine belief that "transfer" meant "present ownership". In fact, the entire page of the statement of affairs asks questions only about transfers. The pleadings further belie the credibility of this explanation, as the debtors' answer to the plaintiffs' complaint states that the debtor simply overlooked these...