Rosen v. Bezner

• Decision Date: 18 June 1993
• Docket Number: No. 92-5303,92-5303
• Parties: 29 Collier Bankr.Cas.2d 93, 24 Bankr.Ct.Dec. 594, Bankr. L. Rep. P 75,312 Morris ROSEN, Debtor, v. Karen E. BEZNER, Trustee, Morris Rosen, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 1527

996 F.2d 1527

29 Collier Bankr.Cas.2d 93, 24 Bankr.Ct.Dec. 594,

Bankr. L. Rep. P 75,312

Morris ROSEN, Debtor, v. Karen E. BEZNER, Trustee, Morris Rosen, Appellant.

No. 92-5303.

United States Court of Appeals, Third Circuit.

Argued Jan. 25, 1993.

Decided June 18, 1993.

Michael Kahme (argued), Hill Wallack, Princeton, NJ, for appellee.

L. Steven Pessin (argued), A. Kenneth Weiner, East Brunswick, NJ, for appellant.

Before: STAPLETON and COWEN, Circuit Judges, and DUBOIS, District Judge. ^*

OPINION OF THE COURT

STAPLETON, Circuit Judge:

This is an appeal by a Chapter 7 debtor of an order of the district court affirming a denial of discharge issued by the bankruptcy court pursuant to 11 U.S.C. § 727(a)(2)(A). In granting summary judgment for the trustee, the bankruptcy court relied on the "continuing concealment" doctrine to conclude that the debtor had concealed an asset during the year before bankruptcy with an intent to hinder, delay, or defraud a creditor. For the reasons set forth below, we will reverse and remand for further proceedings.

I.

On December 28, 1987, Morris Rosen transferred his interest in his principal residence to his wife Laurie Rosen for no consideration. The deed was properly recorded two days later. Morris Rosen continued to live in this residence, continued to make mortgage payments, and continued to be obligated on the mortgage notes on the property. In the course of civil litigation between Rosen and his principal creditor in May 1988, Rosen offered testimony disclosing this transfer of title.

On September 12, 1989, Rosen filed a chapter 7 bankruptcy petition. At the first meeting of creditors, Rosen again testified about the transfer of title. On March 23, 1990, the chapter 7 trustee filed a proceeding against Rosen seeking to avoid the transfer of Rosen's interest in the property. The bankruptcy court granted summary judgment for the trustee, finding that Rosen, "with the actual intent to hinder, delay, or defraud a creditor," transferred his interest in his principal residence to his wife. In addition, the court granted the trustee leave to amend her complaint to add a count seeking to bar the debtor's discharge.

The trustee subsequently filed a motion seeking to block Rosen's discharge, and on October 15, 1991, the bankruptcy court granted summary judgment to the trustee on this motion. On May 6, 1992, the district court entered an order affirming the bankruptcy court. Rosen filed this timely appeal. ¹

II.

Summary judgment is proper only where "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); Bankr.R.P. 7056. "[T]he moving party has the initial burden of identifying the evidence that demonstrates the absence of a genuine issue of material fact...." J.F. Feeser, Inc. v. Serv-A-Portion, Inc., 909 F.2d 1524, 1531 (3d Cir.1990), cert. denied, --- U.S. ----, 111 S.Ct. 1313, 113 L.Ed.2d 246 (1991). "[W]here the movant bears the burden of proof at trial and the motion does not establish the absence of a genuine factual issue, the ... court should deny summary judgment even if no opposing evidentiary matter is presented." Resolution Trust Corp. v. Gill, 960 F.2d 336, 341 (3d Cir.1992). In determining whether the movant has satisfactorily established that there is no genuine issue of material fact, courts must keep in mind that "inferences to be drawn from the underlying facts ... must be viewed in the light most favorable to the party opposing the motion." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 993, 8 L.Ed.2d 176 (1962)). Because summary judgment is only appropriate where there is no issue of material fact and judgment is appropriate as a matter of law, our review of a grant of summary judgment is plenary. Jefferson Bank v. Progressive Casualty Ins. Co., 965 F.2d 1274, 1276 (3d Cir.1992). ²

III.

Section 727(a) of the Bankruptcy Code provides that a debtor shall be granted a discharge unless:

(2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate ... has transferred, removed, destroyed, mutilated, or concealed ...

(A) property of the debtor, within one year before the date of the filing of the petition.

11 U.S.C. § 727(a) (1988). Congress described § 727's discharge provision as "the heart of the fresh start provisions of the bankruptcy law." H.R.Rep. No. 595, 95th Cong., 1st Sess. 384 (1977). The section is to be construed liberally in favor of the debtor. See, e.g., In re Burgess, 955 F.2d 134, 136 (1st Cir.1992); In re Adeeb, 787 F.2d 1339, 1342 (9th Cir.1986); In re Devers, 759 F.2d 751 (9th Cir.1985). Completely denying a debtor his discharge, as opposed to avoiding a transfer or declining to discharge an individual debt pursuant to § 523, is an extreme step and should not be taken lightly.

Section 727 provides an exception to the general rule that a court must grant a debtor his discharge; that exception consists of two components: an act (i.e. a transfer or a concealment of property) and an improper intent (i.e., a subjective intent to hinder, delay, or defraud a creditor). The party seeking to bar discharge must prove that both of these components were present during the one year period before bankruptcy; anything occurring before that one year period is forgiven. In this case, it is undisputed that Rosen's transfer of the residence occurred more than a year before discharge. Thus, the summary judgment denying a discharge in this case can only be sustained if the uncontradicted evidence demonstrates that Rosen concealed property from his creditors, with the requisite intent, during the year before bankruptcy.

Under the "continuous concealment" doctrine, a concealment will be found to exist during the year before bankruptcy even if the initial act of concealment took place before this one year period as long as the debtor allowed the property to remain concealed into the critical year. See In re Olivier, 819 F.2d 550, 555 (5th Cir.1987) (discussing "the well-settled doctrine that ... the concealment of an asset that continues, with the requisite intent, into the year before bankruptcy constitutes a form of concealment which occurs within the year before bankruptcy"). This doctrine does not negate the "act" requirement of § 727 but merely recognizes that a failure to reveal property previously concealed can, in some circumstances, properly be considered culpable conduct during the year before bankruptcy warranting a denial of discharge.

The bankruptcy court's reliance on the continuous concealment doctrine in barring Rosen's discharge on the trustee's motion for summary judgment was, however, erroneous. The evidence before the bankruptcy court was insufficient to establish that there was no genuine issue of fact with respect to two critical elements necessary to support application of the doctrine, namely, that Rosen had a property interest to "conceal" and, that his concealment of this interest, if it existed during the year before bankruptcy, was motivated by an improper intent. Because genuine issues of material fact exist, the summary judgment denying Rosen a discharge under the continuing concealment doctrine cannot stand.

A.

Under § 727(a), a relevant concealment can occur only if property of the debtor is concealed. Thus, it is clear from the language of the statute that the debtor must possess some property interest in order to be barred from discharge on the grounds of a "continuing concealment."

In this case, the bankruptcy court concluded, in its oral opinion, that "there was concealment of the transfer" and that the requirements of the "continuing concealment" doctrine were met because there was "a transfer of title [coupled] with the retention of the benefits of ownership" which continued into the year before bankruptcy. App. at 40. ³ In the bankruptcy court's view, when one transfers title and retains the benefits of ownership, there is a concealment because the debtor has concealed the transfer: by retaining the benefits of ownership the debtor falsely represents to the world that he still owns the property in question. See App. at 36 ("The concealment is transferring the legal title to someone else and living there in a manner which suggests you're still the owner."). This, however, is an erroneous view of the law. What is critical under the concealment provision of § 727(a) is whether there is concealment of property, not whether there is concealment of a transfer.

In a situation involving a transfer of title coupled with retention of the benefits of ownership, there may, indeed, be a concealment of property. Where this is the case, however, the concealment is present not because retention of the benefits of ownership conceals the fact that the debtor no longer has legal title, but rather because the transfer of title represents to the world that the debtor has transferred away all his interest in the property while in reality he has retained some secret interest--a secret interest of which retention of the benefits of ownership may be evidence. A legally relevant concealment can exist, however, only if there is, in fact, some secret interest ⁴ in the property retained by the debtor. See, e.g., In re Smith, 11 B.R. 20, 22 (Bankr.N.D.Ohio 1981) ("Concealment has generally been defined as the transfer of legal title to property to a third party with the retention of a secret interest by the Bankrupt.") (quoted in Olivier, 819 F.2d at 553); In re Vecchione, 407 F.Supp. 609, 614 (E.D.N.Y.1976) (same); cf. Thompson v. Eck, 149 F.2d 631, (2d Cir.1945) (noting that "the bankrupt must have some legal interest in the property before he can be charged with its concealment" (citation omitted)).

Here, it is undisputed that Rosen continued to live in the property...