In re Perez, Civil Action No. 07-cv-02301-MSK.

• Decision Date: 20 May 2009
• Docket Number: Civil Action No. 07-cv-02301-MSK.
• Parties: In re Jesus Armando PEREZ, Debtor. Charles F. McVay, United States Trustee Region 19, Plaintiff, Appellee, v. Jesus Armando Perez, Defendant, Appellant.
• Court: U.S. District Court — District of Colorado

411 B.R. 386

In re Jesus Armando PEREZ, Debtor.

Charles F. McVay, United States Trustee Region 19, Plaintiff, Appellee, v. Jesus Armando Perez, Defendant, Appellant.

Civil Action No. 07-cv-02301-MSK.

United States District Court, D. Colorado.

May 20, 2009.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Alison Elizabeth Goldenberg, James Snyder, U.S. Department of Justice-Co-Office of the U.S. Trustee, Denver, CO, for Plaintiff, Appellee.

John A. Berman, John A. Berman, Attorney At Law, Denver, CO, for Defendant, Appellant.

OPINION AND ORDER ON APPEAL

MARCIA S. KRIEGER, District Judge.

THIS MATTER is before the Court on appeal from an Order of the United States Bankruptcy Court for the District of Colorado (the "Bankruptcy Court"): (i) declining to approve a Stipulation to Dismiss an Adversary Proceeding brought by the United States Trustee for denial of discharge pursuant to 11 U.S.C. § 727(a)(3) and (4); and (ii) declining to enter an Order of Discharge. In determining this matter, the Court has considered the designated record and the written and oral arguments of the parties, including Appellant's Opening Brief (# 21), Appellant's Supplemental Brief (# 30), and the Submission of the United States Trustee as Amicus Curiae (# 31).

Exercising jurisdiction pursuant to 28 U.S.C. § 158, the Court REVERSES the decision of the Bankruptcy Court and REMANDS this matter for further action in accordance with this opinion.

I. Material Facts

Appellant Jesus Armando Perez (hereafter, "the Debtor") entered the United States without the authorization of the United States government in or around 1996.¹ Sometime thereafter, he used an unauthorized social security number ending in 3099 (the "3099 Number") to obtain credit.² After the Debtor married a United States citizen, he was properly issued a social security number ending in 8844 (the "8844 Number").

On August 25, 2005, the Debtor filed a voluntary petition for Chapter 7 bankruptcy relief. All of the debts listed in his schedules were acquired using the 3099 Number.³ On the Petition in the box entitled "last four digits of Soc. Sec. No./Complete EIN other Tax I.D.," the Debtor listed 3099/00-0008844. On his Statement of Social Security Number,⁴ he listed both Social Security Numbers.⁵ The § 341 Notice⁶ submitted by the Debtor also listed two social security numbers: xxx-xx-3099 and xxx-xx-8844, but according to the Debtor's counsel, the electronic form filing program caused the 8844 Number to appear as a corporate employer identification number, rather than an individual's Social Security Number. Thus, the § 341 Notice sent to creditors showed the following: xxx-xx-3099 and 00-0008844.

At the § 341 Meeting, the Chapter 7 Trustee examined the Debtor. The Debtor testified that a friend made up the 3099 Number for him, but that later he was properly issued the 8844 Number by the Social Security Administration. The Debtor stated that all of his debts had been incurred using the 3099 Number, that he had made attempts to substitute the 8844 Number when he obtained it, but that his creditors, including a mortgage lender, instructed him to use the 3099 Number.

Within a month following the § 341 Meeting, the Bankruptcy Court convened a hearing, sua sponte, for the stated purpose of clarifying the Debtor's social security numbers and confirming that the creditors had received proper notice. The Debtor appeared with counsel, and submitted a Declaration of Electronic Filing disclosing the two social security numbers, a copy of the Notice to Creditors of § 341 Meeting, the Debtor's credit report showing the 3099 Number, a copy of his 2004 Federal Tax Return showing the 8844 Number, and a copy of his Social Security Card showing the 8844 Number. In response to a question as to whether the 3099 Number had been issued to him by an agency of the U.S. Government, the Debtor first answered "no, it wasn't." The question then was repeated and the Debtor declined to respond, invoking his 5th Amendment rights. The Debtor was asked nothing further. The Debtor's counsel argued that the Debtor had fully disclosed the two social security numbers, and to the extent that there was any deficiency in notice to creditors, offered to have the § 341 notice reissued⁷ with both social security numbers clearly identified as such.

The Bankruptcy Court determined that the § 341 notice had only disclosed only the 3099 Number in full, but did not order that a new or supplemental notice be given. Instead, it focused upon the Debtor's invocation of his rights under the 5th Amendment.⁸ Citing its authority under 11 U.S.C. § 105(a), the Bankruptcy Court ordered that no discharge would enter until "the issue ha[d] been clarified," directed the Debtor to notify the credit reporting agencies and others of the 8844 Number, and "reserve[d] the option to continue this hearing and/or dismiss this case based on the new information at hand." The Bankruptcy Court also announced that it would refer the matter to the U.S. Attorney's Office, and directed the United States Trustee to "fulfill its obligation, or her obligation to pursue this matter," to bring it to the "proper authority's attention," and to report to the Court every 30 days thereafter about the status of the impending "investigation and evaluation of the situation."

Shortly after the hearing, the Debtor filed a Notice of Multiple Social Security Numbers, in which he disclosed that he had used the 3099 Number to incur debts and that his correct social security number was the 8844 Number. He also wrote to the United States Trustee stating that he had purchased the 3099 Number, as described above.

The United States Trustee filed a Complaint⁹ against the Debtor seeking to deny discharge pursuant to 11 U.S.C. § 727(a)(3) and (a)(4)(A). The United States Trustee alleged that the Debtor should be denied a discharge pursuant to § 727(a)(3) because the Debtor's use of two different social security numbers was a form of falsifying recorded information from which his identity and financial condition could be ascertained, and pursuant to § 727(a)(4)(A) because the Debtor's listing of the 3099 Number on his petition and his failure to list the name "Cazales" constituted a false oath material to his bankruptcy case.¹⁰ The adversary proceeding was assigned to the same judge who had conducted the earlier hearing.

The United States Trustee conducted extensive discovery, requesting and receiving information from the Debtor and contacting every scheduled creditor, both to see what information the Debtor had provided and to learn about the creditor's practices relative to verification/replacement of duplicative social security numbers. Based upon the Debtor's complete cooperation, and the results of the investigation which were reviewed by several attorneys in the United States Trustee's office, the United States Trustee determined that the complaint to deny discharge should not and could not be pursued.

Prior to the scheduled trial, the United States Trustee and Debtor filed a Stipulation for Dismissal of Adversary Proceeding (the "Stipulation of Dismissal") pursuant to Fed. R. Bankr.P. 7041. The Stipulation of Dismissal reflected the parties' agreement that the § 727 action be dismissed with prejudice and that no consideration had been given to or promised by the Debtor for the dismissal. Indeed, the parties agreed to pay their own fees and costs. Pursuant to the local rules of the bankruptcy court, they submitted a Notice of the Stipulation of Dismissal to be forwarded to the Bankruptcy Noticing Center ("BNC") and served on all creditors. Unfortunately, however, the notice was not sent by the Clerk to the BNC and no creditor received the Notice.

In the context of the adversary proceeding, the Bankruptcy Court sua sponte convened a second hearing, this time to address the Stipulation of Dismissal. The parties appeared through counsel.¹¹ The United States Trustee advised the Bankruptcy Court that although he was concerned about the Debtor's pre-petition use of the 3099 Number, he had concluded that the action under § 727 was no longer appropriate. The United States Trustee detailed the information that had been obtained during discovery, identified the resulting evidentiary shortcomings in proving the § 727 claims, and concluded with a representation that allegations in the complaint could not be pursued in compliance with Fed. R Bankr.9011.¹² The United States Trustee confirmed that the Debtor had been unable to obtain credit with the 8844 Number, that all of his creditors had extended credit based upon the 3099 Number, that his investigation had been thorough, and that the decision to dismiss was made only after review by a number of attorneys in the United States Trustee's office. The Trustee explained that the § 727(a)(3) claim was especially weak in light of the Debtor's honesty and candor during the bankruptcy proceedings, the Debtor's concerted efforts to pay off the debts associated with the 3099 Number, and the creditors' apparent complicity in the continued use of the 3099 Number. The § 727(a)(4)(A) claim was correspondingly weak because the Debtor had used name "Cazales" only once, apparently at the request of a loan officer, and there was no evidence of that the Debtor knowingly or fraudulently intended to make a false statement in his Petition.

Reacting to the Court's concerns at the prior hearing, through his counsel, the Debtor stated that he had never intended to invoke rights pursuant to the 5th Amendment, had formally waived such rights, and had voluntarily supplied information about the 3099 Number and any other requested information to the United States Trustee. Counsel confirmed that the United States Trustee had contacted every creditor listed in the schedules, subpoened documents, and gathered information as to the creditor's knowledge of the social security numbers and processes used to identify and address duplicate numbers....