Vara v. Cowan

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. Order Filed on October 23, 2019

, by Clerk, U.S. Bankruptcy

Court - District of New Jersey

In re: :

: CHAPTER 7

SCOTT P. COWAN, :

Debtor. :

: CASE NO.:: 16-14758 (SLM)

ANDREW R. VARA, :

Acting United States Trustee, : ADV. NO.: 17-01247 (SLM)

Plaintiff, :

Vv. :

SCOTT P. COWAN, :

Defendant. :

OPINION ON SUMMARY JUDGMENT

APPEARANCES :

David Gerardi, Esq.

Department of Justice, Office of the United States Trustee

One Newark Center, Suite 2100

Newark, NJ 07102

David L. Stevens, Esq.

Scura, Wigfield, Heyer, Stevens & Cammarota, LLP

1599 Hamburg Turnpike

Wayne, NJ 07470

STACEY L. MEISEL, UNITED STATES BANKRUPTCY JUDGE

In this adversary proceeding, the United States Trustee (‘UST” or “Plaintiff’) challenges

debtor Scott P. Cowan’s (“Debtor” or “Defendant”), ability to obtain a discharge in his Chapter

7 bankruptcy case. The UST seeks denial of Debtor’s discharge pursuant to § 727(a)(3) of Title

11 of the United States Code (“Bankruptcy Code’) on the basis that Debtor “concealed,

destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including

books, documents, records, and papers, from which the debtor's financial condition or business

transactions might be ascertained” and Debtor’s failure to provide adequate records was not

justified.!

Before the Court is Defendant’s Motion for an Order Granting Summary Judgment

(“Motion”) filed by Debtor, by and through his counsel, Scura, Wigfield, Heyer, Stevens &

Cammarota, LLP. Debtor argues he is entitled to summary judgment because he has not concealed,

destroyed, mutilated, falsified, or failed to keep records from which his financial condition could

be ascertained.? The UST filed Opposition to Defendant’s Motion for Summary Judgment and

Cross-Motion for Summary Judgment (““Cross-Motion’”).* The UST asserts this Court should not

grant Debtor summary judgment because Debtor failed to file corporate tax returns for his closely-

held, home-building business for the 2015 fiscal year, which demonstrates Debtor concealed or

failed to keep adequate records as required under 11 U.S.C. § 727.5 The UST also asserts Debtor

failed to demonstrate he was justified in providing inadequate records. The UST, therefore, asserts

Debtor is barred from discharge under 11 U.S.C. § 727(a)(3).6

The Court reviewed the pleadings submitted and held oral argument. The following

constitutes the Court’s findings of fact and conclusions of law as required by Federal Rule of

Bankruptcy Procedure 7052.

JURISDICTION AND VENUE

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(a) and 157(a)

and the Standing Order of Reference from the United States District Court for the District of New

Jersey dated July 23, 1984 and amended September 18, 2012. This matter constitutes a core

proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A) and (J), as it involves the administration of the

estate and objection to discharge, respectively. Venue is proper under 28 U.S.C. § 1409.

FACTUAL BACKGROUND—UNDISPUTED FACTS

On February 6, 2013, Debtor along with others formed Price Home Group, LLC (“Home

Group”) under the laws of the state of New Jersey.7 Home Group engaged in general construction

and registered with the State of New Jersey as a general home contractor.8 Home Group worked

with the State of New Jersey’s Rehabilitation, Reconstruction, Elevation and Mitigation Program

(the “State Rehabilitation Program”), the organization responsible for hirinig construction

companies to rebuild homes in the aftermath of Hurricane Sandy.9

Debtor became proficient with requirements of the State Rehabilitation Program in order

to receive projects and state funding, which included reporting to three state program managers

and to the Department of Consumer Affairs. It also involved: (1) learning how to comply with

Housing and Urban Development Section 3 regulations; and (2) obtain Environmental Protection

Agency lead, asbestos, and remediation certification. Debtor also attended meetings and seminars

to learn about building requirements.10

Home Group encountered a number of logistical and financial difficulties.11 Home

Group’s relationship with the State Rehabilitation Program became problematic when Home

Group was unable to meet what Defendant characterized as “unrealistic deadlines” established by

the State Rehabilitation Program.12 Home Group failed to meet certain deadlines and as a result,

the State Rehabilitation Program and flood insurance companies refused to pay any funds to Home

Group until it completed each reconstruction and repair project. This left Home Group unpaid for

the duration of the work.13

Home Group’s Financial Records

Home Group’s financial statements were compiled in QuickBooks™ by Joyce Burgess

Bartlett of Bartlett CPA, both Home Group’s and Debtor’s accountant. Ms. Bartlett calculated

Home Group’s profits based on the percentage of completion of Home Group’s current contracts

as required by its insurance bonding company. Ms. Bartlett’s calculations assumed 25% profits

per project. However, that number was incorrect.14 In reality, gross profits only averaged 2% in

both 2013 and 2014, with an increase to 13% in 2015.15 Additionally, Home Group’s 2014 federal

income tax return disclosed Home Group operated at a loss of $1,068, 515.16 Debtor and his co-

member received $642,260 in distributions from Home Group in 2014, as per Home Group’s 2014

tax return, Schedule K.17

The 2015 Tax Returns

In 2015, Debtor received an average of $20,000 a month in distributions from Home Group.

Debtor also received a bi-weekly salary, which amounted to approximately $32,000 annually.18

Debtor filed his personal 2015 return, which reflected a negative $411,371 net operating loss on a

line item denoted as “Other Income”.19 Debtor testified the negative $411,371 net operating loss

signified the distribution he received from Home Group.20 Notably, Home Group failed to file its

2015 tax return.

Debtor’s Other Business Experience

Over the years, Debtor also had had ownership interests in other businesses.21 From 2007

to 2010, Debtor operated Shenoa, an online jewelry store. Debtor, as Chief Operating Officer,

oversaw 80 employees.22 From 2010 to 2013, Debtor owned New Jersey State Gold Buyer, a

jewelry pawn shop.23 As of the petition date, Debtor was the sole proprietor of Cowan Consulting,

LLC, which he operated in conjunction with Home Group, and had had an ownership interest in

Palisades Regional Investment Fund II, LLC.24

Debtor Files Bankruptcy

In November 2015, Home Group began winding down operations.25 Approximately four

months later, on March 15, 2016, Debtor filed a voluntary Chapter 11 petition, Case No. 16-14758

(the “Main Case”).26 On March 30, 2016, Debtor filed his Statement of Financial Affairs (the

“SOFA”).27 Question 4 of the SOFA requires Debtor to list “any income from employment or

from operating a business during [the filing] year or the two previous calendar years. . . .” Debtor

failed to disclose both his 2016 and 2015 income or distributions from Home Group on his SOFA.

This is despite Question 4 requiring Debtor to list income for either: (1) the filing year; or (2) the

previous two calendar years. Question 4 required disclosure of either 2016 income or 2014 and

2015 incomes to answer the question properly. In this case, instead of complying with the

requirements in Question 4, Debtor listed income from 2013 and 2014.28

The Bederson Report

At some point, Home Group hired the accounting firm Bederson LLP (“Bederson”) to

conduct a review of Home Group’s books, records, and financial files. A month after Debtor filed

for bankruptcy, Bederson reported its “preliminary observations” to Home Group with a letter

dated April 15, 2016 (the “Bederson Report”).29 The Bederson Report highlighted a number of

errors in Home Group’s financial records.30

The Bederson Report revealed discrepancies between Home Group’s Accounts Payable

and Line of Credit account. The Bederson Report stated:

[t]he Line of Credit is recorded as negative cash in two separate

accounts totaling ($705,000). Additionally, several payments

totaling $427,485 were made to pay down the line and recorded as

Accounts Payable payments, resulting in a Fulton Bank negative

Accounts Payable balance. Therefore, as of October 21, 2015, the

erroneously recorded transactions [regarding the Line of Credit] had

a net effect of overstating equity by $334,001 ($705,000 - $427,485

- $611,516) [sic].”31

The Bederson Report also identified and cataloged possible preference payments made by

Home Group in the amount of $1.5 million within the 90-day period between August 20, 2015 and

November 13, 2015.32 The Bederson Report stated Debtor received a total of $188,645 in

distributions from Home Group for the year ending 2015.33

The Bederson Report’s analysis of Home Group’s 2013 and 2014 financial statements

exposed an inconsistency in profit calculation in that gross profits were calculated assuming 25%

profits per project. In reality, gross profits only averaged 2% in 2013 and 2014, and 13% in 2015.34

The Bederson Report indicated Home Group failed to record “adjustments for ‘billings in excess

of costs and estimated earnings on uncompleted contracts’ of $3.0 million and $7.3 million

respectively” in QuickBooks™.35 The Bederson Report stated that Home Group’s 2014 financial

records appeared to have been adjusted after Home Group’s accountant prepared the financial

statements. Specifically, the Accounts Receivable and Account Payable amounts were recorded

differently in Home Group’s financial records versus its financial statements.36

State of New Jersey Initiates Adversary Proceeding

On June 20, 2016, the New Jersey Division of Consumer Affairs initiated an adversary

proceeding against Debtor, alleging false pretenses, false representation, actual fraud, arising out

of his activities with Home Group.37 On May 21, 2018, the Court entered a Final Consent

Judgment, which approved and authorized the settlement agreement reached by the Division of

Consumer Affairs and Debtor. Under the terms of the settlement agreement—in addition to

requiring Debtor to pay certain sums as restitution to Home Group’s clients—Debtor is

permanently enjoined from engaging in business related to home elevation or building in the State

of New Jersey.38

Debtor’s Chapter 11 Case Converts to Chapter 7

On November 2, 2016, the Court entered Order Converting Case to Chapter 7.39 On

November 3, 2016, a Chapter 7 trustee was appointed to the case.40 The UST, separate from the

Chapter 7 Trustee, also became involved in Debtor’s Chapter 7 case. On February 23, 2017,

counsel for the UST (“Counsel for the UST”) conducted an examination of the Debtor pursuant

to Federal Rule of Bankruptcy Procedure 2004 (“First Rule 2004 Examination”).41 On March 8,

2017, the UST conducted a second part to the Rule 2004 Examination (“Second Rule 2004

Examination”).42

UST Conducts 2004 Examination of Debtor

Debtor answered questions at the First Rule 2004 Examination under oath. In the First

Rule 2004 Examination, Debtor testified that he initially relied on the QuickBooks™ data that

Home Group’s accountant, Joyce Burgess Bartlett, compiled to ascertain Home Group’s financial

status. Debtor testified he raised concerns to Ms. Bartlett about the accuracy of Home Group’s

financial records—specifically how the records stated profits earned in September 2015. Debtor

testified that he then learned that Ms. Bartlett was projecting Home Group’s profits at 25% instead

of a 15% margin, which he says is what he requested in November 2013.*3 Debtor also testified

that he was surprised when Ms. Bartlett reported a $1.1 million operating loss on Home Group’s

2014 tax returns when she was preparing the return in September 2015.4 Debtor stated that at the

time, he was under the impression Home Group was operating with a $800,000 profit margin.*

At the Second Rule 2004 Examination, Debtor again answered questions under oath. In

the Second Rule 2004 Examination, Debtor testified, among other things, that Ms. Bartlett was in

the process of preparing Home Group’s 2015 tax returns, but he did not have the estimated $6,000—

8,000 to pay her to file the return.*°

UST Initiates Adversary Proceeding Objecting to Debtor’s Discharge

On April 5, 2017, the UST initiated this adversary proceeding and filed a Complaint

Objecting to Debtor’s Discharge (the “Complaint’).*”

The Complaint contains two counts:

e Count 1 (the “First Count’): Objection to Discharge Under 11 U.S.C §

727(a)(5) for Failure to Explain Satisfactorily Any Loss of Assets or Deficiency

of Assets to Meet Defendant’s Liabilities;** and

e Count 2 (the “Second Count’): Objection to Discharge Under 11 U.S.C.

§ 727(a)(3) for Concealing, Destroying, Mutilating, Falsifying, or Failing to

Keep or Preserve Recorded Information, Including Books, Records, and Papers,

from Which the Defendant’s Financial Condition or Business Transactions

Might be Ascertained.*?

The UST withdrew the First Count. °° Therefore, the Court will only discuss and decide the Second

Count, regarding § 727(a)(3).

On May 23, 2017, the Debtor filed his Answer to Adversary Complaint.51 On February 16,

2018, Counsel for the UST conducted a deposition of Debtor (the “Cowan Deposition”).52

Importantly, Debtor again answered questions under oath. Debtor testified that the negative

$411,371 net operating loss found on Line 21 and identified as “Other Income” on his 2015

personal tax return reflected the distribution he received from Home Group.53

On August 8, 2018, Counsel for the UST conducted a deposition of Ms. Bartlett who is, as

stated earlier, both Home Group’s accountant and Debtor’s personal accountant (the “Bartlett

Deposition”).54 Ms. Bartlett provided her answers under oath. In the Bartlett Deposition, Ms.

Bartlett testified her duties for Home Group did not include bookkeeping or accounting.55 Ms.

Bartlett affirmatively stated: “I was the CPA that came in to look at the bank accounts, to make

sure they were reconciled. I reconciled most of it or my staff came in to reconcile the banking, but

I never input anything.”56

Meaningfully, Ms. Bartlett testified Home Group’s 2014 net income amounts recorded in

QuickBooks™ do not match the income reported on the 2014 tax return.57 When asked why Home

Group’s net income reported on Home Group’s financial statements did not match what was

reported on its 2014 tax returns, Ms. Bartlett stated:

[t]hese are the financial statements the way the insurance company

wanted the financial statements and this was really just for the

insurance company. This is called a special use, special purpose

financial statement. Might even say that on here. So the report says

that, you know, this is a special purpose percentage of completion.

I don’t know.58

Ms. Bartlett also testified there are discrepancies between Home Group’s QuickBooks™ balance

sheets and its 2013 tax return.59 When asked why the members’ equity numbers reflected in Home

Group’s records did not match the numbers reported on Home Group’s 2013 tax return, Ms.

Bartlett expressed confusion, as she asserted the numbers matched before. “I have been—I really

have gone over these meticulously over and over and, like I said, I’ ve been deposed on these before

and they matched exactly. So I honestly don’t know.”

Debtor and the UST File Cross-Motions for Summary Judgment

On October 31, 2018, Debtor filed the instant Motion.°! Debtor’s pleadings included:

e Statement of Material Facts;°

© Certification of David L. Stevens, in which Debtor’s counsel certifies the attached

exhibits to the motion are true copies;

e □ copy of the Bederson Report;™

e A partial copy of Debtor’s bankruptcy petition;® and

e Partial copies of transcripts of Debtor’s Rule 2004 Examination, Deposition, and

the deposition of Joyce Burgess Bartlett.

On December 3, 2018, the UST filed the Cross-Motion.®’ The UST’s pleadings included:

e Certification of Bankruptcy Auditor Francyne D. Arendas in Support of Plaintiff's

Opposition to Defendant’s Motion for an Order Granting Summary Judgment and

Plaintiff's Cross-Motion Requesting Summary Judgment on Complaint to Deny

Discharge Pursuant to 11 U.S.C. § 727, which contains Ms. Arendas’s review of

Debtor’s Chapter 11 bankruptcy petition;®

e Acomplete copy of the Debtor’s bankruptcy petition and schedules;°”

e Acomplete copy of the Debtor’s Rule 2004 Examination;”°

e Acomplete copy of the transcript from Debtor’s Deposition;”!

e Acopy of the UST’s Subpoena to Produce Documents, Information, or Objects or

to Permit Inspection of Premises in a Bankruptcy Case (or Adversary Proceeding),

dated January 12, 2017, wherein the UST specifically requested “complete copies

of the 2015 Federal and State Tax Returns filed by the Debtor, including all

supporting documents, W-2(s), 1099(s), K-1(s) forms, and for any business in

which Debtor had an ownership interest, including, but not limited to, Price Home

Group, LLC”;””

e A Statement of Undisputed Facts Pursuant to Fed. R. Bankr. P. 7056;"° and

e A Response to Defendant’s Statement of Undisputed Facts.”

10

On December 28, 2018, Debtor filed Brief in Opposition to Plaintiff's Cross-Motion for

Summary Judgment and Response to Plaintiff's Opposition to Defendant’s Motion for Summary

Judgment.’> Debtor opposes the UST’s Cross-Motion, arguing Home Group’s tax returns are not

necessary for Debtor’s bankruptcy and that Debtor kept and provided sufficient records, which

provided a complete and accurate look of his financial condition.”°

Debtor filed:

e Defendant’s Addendum to Statement of Material Facts Not in Dispute;”

e Defendant’s Response to Plaintiffs Statement of Material Facts;’®

e A partial copy of the transcript from Debtor’s Rule 2004 Examination;”

e A copy of an excerpt from Home Group’s financial records dated 4/17/2017 (the

“Account QuickReport”);®° and

e Acopy of the UST’s Initial Disclosures Pursuant to Rule 7026.*!

Debtor denies the UST’s statement of fact (found at Docket No. 18-4, §] 35) that Debtor

testified his personal 2015 tax return did not reflect distributions from Home Group.*” Debtor

stated that he testified his 2015 personal tax returns were completed and included projections for

Home Group. Debtor also stated that although the 2015 personal tax return did not attach a K-1

from Home Group, his 2015 personal tax return reflected the Home Group K-1 income.**

On February 11, 2019, the Court entered a docket text requiring Debtor to file full copies

of the transcripts of the First and Second Rule 2004 Examinations and depositions that the parties

relied on in the Motion and Cross-Motion.™ On February 21, 2019, the UST filed Plaintiff's Reply

to Defendant’s Opposition to Plaintiff's Cross-Motion Requesting Summary Judgment on

Complaint to Deny Discharge Pursuant to 11 U.S.C. § 727.8° The UST reaffirms its argument that

Home Group’s tax return is essential to ascertain Debtor’s financial situation, and Debtor’s failure

11

to provide the document bars discharge under § 727(a)(3).86 The UST relies on Debtor’s 2015

personal tax return as evidence Debtor failed to disclose Home Group’s distributions to Debtor.87

Summary Judgment Oral Argument

The Court held a hearing on both the Motion and Cross-Motion (the “Summary Judgment

Hearing”). At the start of the argument, Debtor’s counsel stated the Debtor recently gathered

enough funds and was prepared to file Home Group’s 2015 corporate tax return.88 The Court

asked Counsel for the UST if Debtor’s filing of Home Group’s 2015 tax return would change the

UST’s position in the instant adversary proceeding. Counsel for the UST responded that it would

not change anything because too much time passed. Debtor did not request the Court delay the

hearing or decision to permit him to file the returns.

Debtor’s counsel reiterated the argument that Home Group’s 2015 tax returns were not

necessary, as the Debtor provided the UST with substantial records that accurately depict the

Debtor’s financial situation. Debtor’s counsel indicated the records were prepared by Home

Group’s accountant, Ms. Bartlett, using raw data. Debtor’s counsel expressed confidence in the

accuracy of Ms. Bartlett’s records, even when questioned on and presented with the discrepancies

mentioned in the Bederson Report.

Debtor’s counsel, when questioned about the confusion Ms. Bartlett expressed when

reviewing Home Group’s financial records during her deposition, indicated the information was

unclear to Ms. Bartlett because the transactions were misclassified in QuickBooks™. Counsel for

the UST argued the financial records Debtor provided were unclear and relied on excerpts from

the Bederson Report to support his argument. Counsel for the UST also indicated that Debtor’s

SOFA remains essentially unverified by any sources other than Debtor, especially with the

discrepancies demonstrated by other witnesses and documents. Counsel for the UST argued that

any confusion stems from the fact that Debtor provided the UST with documents that were

substantially raw data, with little explanation of how the information was recorded or organized.

Debtor’s counsel admitted the “boxes and boxes of information” Debtor provided the UST were

substantially raw data. Counsel for the UST further argued that the 2015 tax return—just that one

document—would have clarified all of the UST’s questions about the Debtor’s financial situation

in 2015 and resolved the adversary proceeding.

Counsel for the UST also argued the Debtor failed to justify his failure to file Home

Group’s 2015 corporate tax returns. Counsel for the UST stated Home Group was a sophisticated

business that Debtor operated for three years, handling millions of dollars’ worth of funds from

clients. Counsel for the UST asserted “this is not a mom-and-pop shop on the corner.” Counsel

for the UST contended Home Group’s decision not to file its tax return fails to satisfy the

reasonableness standard required to support Debtor’s justification under § 727(a)(3). Counsel for

the UST further supported his position by relying on the fact that Home Group hired Bederson to

review its books and records. Counsel for the UST argued hiring Bederson undoubtedly cost Home

Group considerable funds. Yet Home Group, under Debtor’s control, chose not to file its 2015 tax

return.

Debtor’s counsel responded by stating Debtor’s 2015 distributions were reflected on

Debtor’s 2015 personal tax return in the amount of $2,000. Debtor’s counsel mistakenly denoted

the line as passive income, whereas the line in question refers to non-passive income on Debtor’s

tax return. The Court asked Debtor’s counsel how Debtor came to that amount as Debtor

previously testified he received around $20,000 a month in 2015. Debtor’s counsel stated the

$2,000 income was the net amount after taking into account Home Group’s net losses for the year.

The Court notes that Debtor’s deposition regarding the same issue provided a slightly

different response:

MR. ARTIS (Counsel for the UST): And there’s nothing on this tax return that reflects a

K-1?

THE WITNESS (Debtor): It doesn’t appear to be.

MR. ARTIS: Okay. And just to be clear, there’s no distributions

reported on this tax return?

THE WITNESS: Not separate from that line.

MR. ARTIS: Okay well, that line doesn’t say distribution at all. It

says net operating loss.

THE WITNESS: Correct.

MR. ARTIS: So there’s no line item that says that you received

distributions?

THE WITNESS: No.89

Debtor affirmatively testified the negative $411,371 figure on Debtor’s 2015 return is the

only reflection of Home Group’s distributions to Debtor that year.90 Yet, Debtor’s counsel directed

the Court to another line item in Debtor’s personal 2015 tax return, the $2,000 of non-passive

income from Schedule E, listed in the “Schedule K-1” column.91 Again, Debtor never received a

2015 K-1 from Home Group. The Bederson Report demonstrates Home Group made distributions

to Debtor in the amount of $188,645 in 2015.92 The Court asked Debtor’s counsel how the line

item on Debtor’s tax return could be verified, and Debtor’s counsel responded that Debtor would

need to elicit testimony from Ms. Bartlett.

Debtor’s counsel, when queried by the Court, stated that he could submit new or additional

facts that demonstrate Debtor’s justification in failing to provide Home Group’s 2015 corporate

tax return. The Court declines that offer because Debtor: (1) already filed numerous submissions;

(2) had more than sufficient time to make his point and does, in fact, present reasons to justify why

Home Group failed to file its 2015 return; and (3) provided the Court with enough information to

decide the matter. Debtor’s position is he provided the UST with enough information to ascertain

his financial situation and he is justified in not providing Home Group’s 2015 tax return, despite

it being prepared. Further, Debtor was the initial movant in prosecuting summary judgment in this

adversary proceeding. Surely if Debtor had any more information to support his Motion, he would

have pled it in one of the many filings in support of the Motion or in opposition to the Cross-

Motion.

To date, the parties dispute whether the information on Debtor’s personal 2015 tax return

reflects distributions from Home Group for that year. However, that dispute is not fatal to the

Court deciding the pending Motion and Cross-Motion.

DISCUSSION

A. Summary Judgment Standard

Federal Rule of Civil Procedure 56, made applicable to this adversary proceeding by

Bankruptcy Rule 7056, provides for entry of summary judgment where “movant shows that there

is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of

law.”93 “A fact is material when its resolution ‘might affect the outcome of the suit under

governing law . . . .’”94 An issue of material fact is considered genuine if the evidence is such that

a reasonable jury could return a verdict for the non-moving party.95

At the summary judgment stage, the role of the court “is not to weigh evidence, but to

determine whether there is a genuine issue for trial.”96 The court must construe facts and

inferences in a light most favorable to the non-moving party.97 The court can only consider

evidence that would be admissible at trial.98 Thus, “evidence whose foundation is deficient must

be excluded from consideration.”99

Parties have different evidentiary burdens at the summary judgment stage. When the

movant is the defendant, the party without the burden to prove the underlying claim, the movant

“has no obligation to produce evidence negating its opponent’s case.”100 The defendant must

simply demonstrate there is insufficient evidence to support the plaintiff’s claim.101 When the

moving party is the plaintiff, the party who bears the burden of proof at trial, the court places a

stricter standard of review.102 The Third Circuit stated that “where the movant bears the burden

of proof at trial” and the motion still demonstrates an issue of material fact, “the district court

should deny summary judgment even if no opposing evidentiary matter is presented.”103

Therefore, Debtor and the UST have different burdens of proof in order to prevail on their

respective motions for summary judgment. Debtor must show UST failed to meet its burden and

UST must show by a preponderance of the evidence that it did.104

B. Standards Under § 727(a)(3)

A discharge under § 727 of the Bankruptcy Code is the primary tool used to afford debtors

a fresh start.105 “Congress has described the discharge as the ‘heart’ of bankruptcy law's fresh

start provisions.”106 Objections to discharge under § 727(a) are liberally construed in favor of the

debtor and strictly construed against the objector.107 Accordingly, “[c]ourts will deny a discharge

only in extreme circumstances.”108 Furthermore, Federal Rule of Bankruptcy Procedure 4005

provides that “[a]t the trial on a complaint objecting to a discharge, the plaintiff has the burden of

proving the objection.”109 However, the U.S. Supreme Court has been clear that the Bankruptcy

Code “limits the opportunity for a completely unencumbered new beginning to the ‘honest but

unfortunate debtor.’”110 “Accordingly, to receive a discharge, debtors must provide an accurate

picture of their pre-petition financial affairs.”111

Section 727 sets forth certain circumstances under which a court will deny the debtor his

discharge. Section 727(a)(3) provides that the court shall grant a discharge unless:

the debtor has concealed, destroyed, mutilated, falsified, or failed to

keep or preserve any recorded information, including books,

documents, records, and papers, from which the debtor's financial

condition or business transactions might be ascertained, unless such

act or failure to act was justified under all of the circumstances of

the case[….]112

Section 727(a)(3) requires debtors to maintain and preserve sufficient and accurate record-

keeping so that creditors and the trustee may ascertain their financial history and business

dealings.113 To prove a claim under § 727(a)(3), a plaintiff must show by a preponderance of the

evidence that: (1) the debtor failed to preserve adequate financial records; and (2) such failure

makes it impossible to ascertain the debtor's financial condition.114 Intent is irrelevant.115 The

only showing required is that the debtor unjustifiably failed to keep records of his financial

condition.116

Once the plaintiff demonstrates a failure to maintain records, the burden shifts to the debtor,

who then must justify his failure to the court's satisfaction.117 “Justification is not articulated in

the Bankruptcy Code; thus, the trier of fact must make a determination considering the case's

circumstances.”118 Justification depends largely on what a normal, reasonable person would do

under similar circumstances.119 The inquiry includes: the education, experience, and

sophistication of the debtor; the volume of the debtor's business; the complexity of the debtor's

business; the amount of credit extended to debtor in his business; and any other circumstances that

should be considered in the interest of justice.120 When a debtor is unsophisticated or lacks

experience in financial recordkeeping, courts have set a lower threshold for justification.121

Debtors may not avoid producing information regarding their financial history “under

cover of a chaotic or incomplete set of books or records.”122 “Creditors have the right to receive

sufficient information so that they can trace a debtor's financial transactions and should not be

forced to ‘speculate as to the financial history or condition of the debtor, nor should they be

compelled to reconstruct the debtor's affairs.’”123 A person seeking protection under the

Bankruptcy Code must have records to qualify for a discharge.124 Without records a discharge

may not be granted.125

In the instant case, Debtor contends he provided the UST with sufficient records to properly

ascertain his financial situation. Debtor argues that he prevails because no substantial questions

remain regarding the Debtor’s financial condition in 2015. In the UST’s Cross-Motion, the UST

argues (a) Debtor kept inadequate records; and (b) failed to justify the inadequacy. For the UST

to prevail on its Cross-Motion, there must be no question of material fact as to either prong of the

inquiry.

1. The UST Demonstrated Defendant Failed to Preserve

Adequate Records

To prove a claim under § 727(a)(3), a plaintiff must first show the debtor failed to preserve

adequate financial records.126 Undoubtedly, the UST met its initial burden. The information

regarding Home Group’s books and records that Debtor provided in this case creates confusion

and is wholly inconsistent in every aspect. While business records may not always be necessary

to provide third-parties with a complete picture of a debtor’s financial situation, that premise

simply does not apply here. Debtor testified he received on average $20,000 a month in

distributions and approximately $32,000 in annual salary from Home Group in 2015. The

Bederson Report concluded that Debtor received over $188,000 in distributions from Home Group

in 2015. The amount is significant enough to alter the Debtor’s financial outlook and,

consequently, is worthy of review.

It is unclear whether Home Group’s distributions to Debtor are reflected on Debtor’s

personal 2015 tax returns. Debtor’s counsel stated at the Summary Judgment Hearing that Home

Group’s 2015 distribution to Debtor was recorded in Schedule E of Debtor’s individual return as

$2,000 of non-passive income. Notably, Debtor listed the $2,000 amount to which Debtor’s

counsel refers in the “K-1 Schedule” column of the tax return, despite Home Group admittedly

never issuing the Debtor a K-1. There is no dispute that Home Group failed to file its corporate

tax returns for 2015. Further, Debtor’s SOFA provides no information on income he received

from Home Group for either 2015 or 2016, because Debtor failed to answer Question 4 of the

SOFA properly. Instead, income is only reflected for 2013 and 2014.

Counsel’s argument regarding Debtor’s tax return does not correspond to Debtor’s

testimony that the only Home Group distribution found on his 2015 tax return is a net operating

loss in the amount of $411,371. When asked if there were any other distributions recorded on

Debtor’s 2015 tax return, Debtor responded, “No.”127 With no K-1 issued by Home Group to the

Debtor for 2015, any reflected distribution from Home Group on Debtor’s 2015 personal tax return

remains unverified and certainly cannot align with the Home Group’s books and records because

those also contain errors. As per the Bederson Report, Home Group’s distribution to Debtor in

2015 was $188,645. Debtor gave differing numbers—$20,000 per month in distributions and

$32,000 in annual salary. The numbers do not match. Nowhere is the information readily

verifiable. The Bederson Report is the only place information could be verified and the scope of

work and circumstances for hire are unknown to this Court.128 These discrepancies make it

impossible for the UST or anyone else to readily ascertain Debtor’s correct financial situation.

The UST relies on In re Adalian to show a failure to timely file tax returns “is a blatant

example of a failure to maintain adequate records. . .where a debtor has not filed pre-petition tax

returns, the trustee and every creditor is denied potential access to a considerable amount of

relevant information and other information.”129 Debtor argues In re Adalian does not apply here

because the debtor in Adalian failed to file over 10 years of personal and corporate tax returns,

whereas Home Group is only missing one year. This Court disagrees with Debtor. As the UST

correctly points out, Home Group was in operation for only three years. Even one year without

tax returns reflects one-third of Home Group’s financial history and is, therefore, a significant

omission.

Debtor instead relies on In re Juzwiak to argue he provided the UST with adequate

records.130 Interestingly, the Juzwiak court denied the debtor’s Chapter 7 discharge because it

determined the debtor failed to preserve records that adequately disclosed his business

transactions.131 The court focused on the fact that the debtor’s business records neither reflected

the source of the funds deposited into its account, nor did the records identify the cost of the goods

sold.132 Here, Debtor contrasts himself to the debtor in Juzwiakbecause, unlike the Juzwiak debtor,

he supplied the UST with numerous financial documents regarding Home Group. In fact, Debtor’s

counsel stressed at oral argument, and the UST agreed, that Debtor supplied the UST with boxes

and boxes of information. But Debtor’s counsel also acknowledged that the information provided

was simply raw data. Nothing was organized. It was simply boxes and boxes of documents. No

one could discern what the information meant without employing an expert to make sense of the

information. This Court agrees with the UST that review of such information would require a

herculean effort to even begin to understand. Further, as shown by the numerous conflicts in Home

Group’s books and records, the repository of information supplied by Debtor fails to fill in the

gaps that the 2015 Home Group tax return would answer. Instead, one is left to fill in the blanks

with information that conflicts from one source to the next, thereby making it wholly unreliable.

Debtor attempts to mitigate the failure to file and produce Home Group’s 2015 tax return

by offering the UST the Bederson Report. The Bederson Report, however, falls far short in filling

the void found in Debtor’s financial records regarding 2015. Notably, the Bederson Report’s peek

into Home Group’s finances revealed several deficiencies with Home Group’s books and records.

The Bederson Report indicated Home Group’s 2013 and 2014 records included erroneous

transactions that resulted in an overstatement of equity by $334,001.133 Additionally, the Bederson

Report’s analysis of the 2013 and 2014 financial statements showed a discrepancy in profit

calculation: gross profits were calculated assuming 25% profits per project whereas in reality,

gross profits only averaged 2% in 2013 and 2014, and 13% in 2015.134 The Bederson Report also

stated billings in excess of costs in the amount of $3 million and estimated earnings on

uncompleted contracts in the amount of $7.3 million were never recorded in the company’s

financial records.135 Finally, the Bederson Report indicated Home Group’s 2014 financial records

were adjusted after Home Group’s accountant prepared the financial statements, which seems to

be supported by Ms. Bartlett.136 The Accounts Receivable and Account Payable amounts differ

from source to source. In short, the Bederson Report raises more questions regarding Home

Group’s finances than it answers.

Ms. Bartlett, Debtor’s and Home Group’s accountant, sometimes appears to understand

Home Group’s discrepancies—such as the overstatement of profits in 2013 and 2014. But, other

times, she does not appear to understand the errors. For instance, when asked why Home Group’s

net income reported on Home Group’s financial statements did not match what was reported on

its 2014 tax returns, Ms. Bartlett explained she prepared “special purpose” financial statements for

the insurance companies, using a formula that ultimately did not reflect reality.137 But when asked

about the discrepancy between Home Group’s 2013 financial statements and its 2013 tax return,

Ms. Bartlett expressed confusion, as she was confident the numbers matched at the time she was

previously deposed in another matter.

This Court cannot fathom how Debtor could expect a report that details a number of

inaccuracies in Home Group’s books and records to satisfy Debtor’s obligations to provide true

and correct information regarding his finances. This Court notes that the Bederson Report was

simply that—a report. The inaccuracy of the source documents raises the question as to what other

discrepancies exist, since the Bederson Report is limited to the scope designated by the Debtor

(and unknown to the Court). The Court is well aware that Debtor also controlled Home Group

and Home Group hired Bederson. But, for purposes of summary judgment, it is enough that the

financial information Debtor provided to the UST is replete with conflicting information.

While it is not germane to the decision, the Court also notes the Debtor and his counsel

seem to disagree as to the reliability of Home Group’s accountant. In the Debtor’s 2004

Examination, Debtor testified that he lost confidence in Ms. Bartlett’s accounting around

September 2015.138 It was then Debtor learned Ms. Bartlett was projecting profits at 25% instead

of a 15% margin like he requested in November 2013.139 Debtor also testified that he was shocked

when Ms. Bartlett reported a $1.1 million operating loss on Home Group’s 2014 tax returns, as

Debtor was under the impression the company was operating with a $800,000 profit margin.140

At the Summary Judgment Hearing, however, Debtor’s counsel highlighted the work done by Ms.

Bartlett to show Debtor provided sufficient ascertainable financial information to the UST.

Debtor’s attorney expressed confidence in the accuracy of Ms. Bartlett’s records, even when

questioned about the inconsistencies the Bederson Report highlighted. The Court finds this

confidence perplexing—even more so when considering the Debtor blamed Ms. Bartlett for the

discrepancies found in Home Group’s financial books and records. Although interestingly Ms.

Bartlett refutes Debtor’s testimony by testifying that she never handled Home Group’s

bookkeeping or its accounting; rather, she was hired as a CPA to review Home Group’s bank

accounts and to confirm they were reconciled.141 The conflicting statements simply support that

the information provided by Debtor is inconsistent, confusing, and unreliable as provided.

The Court is cognizant—and wary—of the fact that all of Debtor’s available personal and

business financial information was heavily filtered by Debtor himself. Debtor testified extensively

as to Home Group’s finances, from accounting errors and discrepancies, to his personal cash

distributions. It is only through Debtor’s testimony that one has some semblance of Home Group’s

and subsequently, Debtor’s financial status. Ms. Bartlett used information Debtor provided her

about Home Group’s financials to make her assessment, further demonstrating all of Home

Group’s information came from Debtor and remains unverified. As the UST points out, neither

the Chapter 7 Trustee nor the Court is required to “take a debtor’s word for his financial

dealings.”142 However, since this is the summary judgment stage, the Court is not weighing the

testimony, simply examining the testimony, along with the information provided to find that

Debtor failed to provide enough information to understand his financial condition.

To receive a discharge through bankruptcy, a debtor is obligated to disclose his financial

situation to the appropriate authorities.143 This entails telling a story that already exists. Instead,

the Court finds Debtor is writing the story—crafting his financial outlook and offering

uncorroborated supporting documents. Debtor provides financial summaries generated from

Home Group’s books, but those summaries are from a compilation of unverified information.

Again, the information Debtor produced provides no answers but raises many questions.

The lack of reliable financial records leaves one needing to “speculate as to the financial

history” of Debtor and requiring a “reconstruction” of his financial condition, which is the exact

situation § 727(a)(3) seeks to avoid.144 As a result, the Court concludes the UST successfully

established Debtor’s financial records are inadequate under § 727(a)(3).

2. Debtor Failed to Demonstrate the Lack of Records was

Justified

Now that the Court determined the UST met its initial burden to demonstrate Debtor failed

to provide adequate records to show Debtor’s financial situation, the burden shifts to Debtor to

prove the lack of records was justified.145 As stated previously, the Court is bound to an objective

standard—what a reasonable person might do under similar circumstances.146 The Court’s review

of reasonableness includes: the debtor’s education, experience, and sophistication; the volume of

the debtor's business; the complexity of the debtor's business; the amount of credit extended to

debtor in his business; and any other circumstances that should be considered in the interest of

justice.147

Generally, justification is a factual issue warranting trial. Here, however, a trial is

unnecessary. The Debtor repeatedly provided his justification for failure to produce records.

Debtor states he provided enough information to the UST and there was no need to provide more.

Debtor also stated he could not afford to file Home Group’s tax returns. Debtor used his

justification to argue it was satisfactory for Debtor to fail to produce Home Group’s 2015 tax

return. Debtor’s justification is woefully inadequate.

Here, Debtor is undoubtedly an experienced, sophisticated businessman. Even though

Debtor knew little about construction when he started Home Group with his co-members, Debtor

made numerous forays into business.148 As stated earlier, Debtor either owned or operated a

number of businesses since 2007.

As the project manager of Home Group, Debtor took on the sales and marketing

responsibilities of the company.149 Debtor testified that his role became more prominent after

taking over his co-member’s responsibilities.150 Debtor became proficient in the State

Rehabilitation Program in order to receive projects and state funding. This included reporting to

three state program managers and to the Department of Consumer Affairs. It also involved

becoming proficient in Housing and Urban Development Section 3 regulations, as well as

Environmental Protection Agency lead, asbestos, and remediation certification. Debtor also

attended meetings and seminars to learn about building requirements.151

Debtor also testified Home Group was entrusted with millions of dollars from its

customers over the course of three years.152 This business was not a “mom-and-pop shop on the

corner,” as Counsel for the UST argued at the Summary Judgment Hearing. Clearly Debtor is a

sophisticated businessman with complex business interests despite being unsuccessful with Home

Group. He has vast experience in overseeing many employees and handling millions of dollars.

Therefore, Debtor must be held to a higher standard to demonstrate a valid justification supporting

the decision not to file the 2015 Home Group tax return.

The Court finds Debtor’s explanations unsatisfactory. Debtor justifies Home Group’s

failure to file 2015 tax returns because of the lack of sufficient funds to pay the accountant. Under

many scenarios, that justification could prevail. In this case, it simply is not enough. Debtor

testified that Home Group’s accountant asked for $6,000 to $8,000 to file the 2015 tax return but

the money was not available.153 Supposedly, the returns were complete or nearly complete.

Interestingly, Home Group had enough money to hire Bederson to review Home Group’s books

and records and prepare the Bederson Report, which Debtor relied on in this case. One must

wonder how much that cost. Surely the money would have been better spent in preparing and

filing Home Group’s 2015 tax returns, which may have saved Debtor’s discharge. One can only

speculate as to why Debtor employed this strategy, which was not a very good one. Further, Debtor

could have even attempted to subpoena a copy of the unfiled return to demonstrate he at least made

an effort to obtain the documentation the UST repeatedly requested. Here, the Court sees no effort.

Instead it appears Debtor made every effort to obfuscate his records by providing a lot of

meaningless, unreliable, and conflicting information. All Debtor had to do was supply one simple

document, and as per the UST, this case would not have proceeded. Debtor chose to roll the dice

and lost. This Court cannot reward this Debtor with a discharge when he purposefully chose to

play fast and loose with the requirements of the Bankruptcy Code.

The UST met its burden demonstrating Debtor did not provide adequate records and that

the Debtor failed to justify the lack of records. Therefore, denial of Debtor’s discharge under

§ 727(a)(3) is appropriate.

CONCLUSION

Based on the foregoing, Defendant’s Motion for Summary Judgment is DENIED.

Plaintiff's Cross-Motion for Summary Judgment is GRANTED. An appropriate Order will be

entered by the Court.

DATED: October 23, 2019 Ltnsuy x Aheca~14

Honorable Stacey L. Meisel

United States Bankruptcy Judge

! See 11 U.S.C. § 727(a)(3).

2 Docket. No. 15 (All Docket citations refer to Adversary Proceeding, Case No. 17-01247, unless indicated otherwise).

3 Docket No. 15-2.

26

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* Docket No. 18.

> Docket No. 18-3.

° Id. The UST formally withdrew its claim regarding § 727(a)(5), leaving the Court solely to analyze the UST’s

allegations under § 727(a)(3).

Docket No. 15-1.

8

Id.

10 Docket No. 25-1, First Rule 2004 Examination 39-40: 1-25.

'! Docket No. 25-8, Cowan Deposition 35-37:1-25.

2 Id.

13 Td. at 66:1-22.

4 Docket No. 15-6 at 3.

5 Id.

'6 Docket No. 15-11.

"7 Td.

'8 Docket No. 25-4, Second Rule 2004 Examination.

Docket No. 26-1.

° Docket No. 25-8, Cowan Deposition 125:15—20.

21 Main Case Docket No. 10.

22 Id.

23 Id.

24 Td.

25 Docket No. 25-6, Second Rule 2004 Examination 84:15-20.

26 Main Case Docket No. 1.

27 Main Case Docket No. 10.

28 Td.

° Docket No. 15-6.

30 Td.

31 Id. at 2-3, § 2. Apparently Bederson mistakenly labeled the $705,000 figure as a positive number and the other

figures as negative numbers in its calculation of equity. Based on the preceding sentences discussing the equity

calculation, the Court determines Bederson’s conclusion that Home Group’s financial records overstated equity by

$334,001 is correct and the copy of the calculation was simple error.

32 Id. at 3,95.

33 Id. at 3,4 6.

4 Id. at49§ 1.

35 Docket No. 15-6 at 4, § 2.

36 Id. at 4,9 3.

37 Case No. 16-01527, Docket No. 1.

38 Case No. 16-01527, Docket No. 19.

39 Main Case Docket No. 68.

40 Main Case Docket No. 71.

41 Docket Nos. 25, 25-1, 25-2, 25-3, First Rule 2004 Examination.

Docket Nos. 25-4, 25-5, 25-6, 25-7, Second Rule 2004 Examination.

43 Docket No. 25-2, First Rule 2004 Examination 67:3-22.

“4 Td. at 66:10—24.

45 Td.

46 Docket No. 25-5, Second Rule 2004 Examination 41:15-19.

“7 Docket No. 1.

48 Td.

49 Td.

5° Docket No. 18.

>! Docket No. 5.

2 Docket No. 25-8, Cowan Deposition.

%3 Td. at 125:15-20.

4 Docket No. 25-9, 25-10, Bartlett Deposition.

>> Docket No. 25-9, Bartlett Deposition 10:9-18.

27

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6 Id.

57 Id. at 13-16:1-25.

8 Id. at 14:14—23.

Td. at 25-27:1-25.

69 Td. at 26:9-12.

Docket No. 15.

Docket No. 15-2.

Docket No. 15-3.

Docket No. 15-6.

Docket No. 15-9.

°° Docket Nos. 15-5, 15-14, 15-15, 15-16, 15-17.

67 Docket No. 18.

68 Docket No. 18-1.

6 Docket No. 18-2.

70 Id.

"Td.

? Td.

™ Docket No. 18-4.

™ Docket No. 18-5.

™ Docket No. 20.

78 Id.

™ Tocket No. 20-1.

78 Docket No. 20-2.

Docket No. 20-4.

8° Docket No. 20-5.

8! Docket No. 20-6.

82 Docket No. 20-2, 4 35.

83 Id.

84 Docket No. 23.

85 Docket No. 26.

86 Td.

87 Docket No. 26-1.

88 To date, Debtor never advised the Court that he filed the Home Group 2015 tax return.

8° Docket No. 25-5, Second Rule 2004 Examination 52:4-15.

9 Td.

°! Docket No. 26-1.

Docket No. 15-6 at 3, 6.

°3 Fed. R. Civ. P. 56(a); Fed. R. Bankr. P. 7056; Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

4 Justofin v. Metro. Life Ins., 372 F.3d 517, 521 (3d Cir. 2004).

°° Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

Knauss v. Dwek, 289 F. Supp. 2d 546, 549 (D.N.J. 2003) (citing Anderson, 477 U.S. at 248).

°7 Sauers v. Sauers, 2014 WL 4771857, at *3 (Bankr. D.N.J. Sept. 23, 2014) (Steckroth, J.).

°8 Williams v. Borough of West Chester, Pa., 891 F.2d 458, 471 (3d Cir. 1989).

Williams, 891 F.2d at 471.

100 Nat’! State Bank v. Bank of N.Y., 979 F.2d 1579, 1581-82 (3d Cir. 1992).

101 7. at 1582 (citing Celotex Corp., 477 U.S. at 323-25).

102

103 Resolution Trust Corp. v. Gill, 960 F.2d 336, 340 (3d Cir. 1992).

104 I re DiLoreto, 266 Fed.Appx. 140, 145 (3d Cir. 2013) (“In order to state a claim under § 727(a)(3), the [movant]

must demonstrate by a preponderance of the evidence that: (1) [debtor] concealed or failed to maintain and preserve

adequate records, and (2) this failure made it impossible to ascertain his financial condition and material business

transactions.”).

108 In re Grammenos, 469 B.R. 535, 546 (Bankr. D.N.J. 2012) (Gambardella, J).

106 Grammenos, 469 B.R. at 546 (quoting BMMD vy. Vasquez (In re Vasquez), 2010 WL 1644175, at *2 (Bankr. □□□□□□

Apr. 21, 2010) (Steckroth, J.) (further citations omitted).

28

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107 In re Drossel, No. 06-21154 (DHS), 2009 WL 3230794, at *4 (Bankr. D.N.J. Oct. 1, 2009) (Steckroth, J.) (citing

Rosen v. Bezner, 996 F.2d 1527, 1533 (3d Cir.1993); Stapleton v. Yanni (In re Yanni), 354 B.R. 708, 712 (Bankr. E.D.

Pa. 2006)).

108 Grammenos, 469 B.R. at 546 (quoting Vasquez, 2010 WL 1644175 at *2 (further citations omitted).

10 Grammenos, 469 B.R. at 546 (quoting Fed. R. Bankr. P. 4005).

110 Grogan y. Garner, 498 U.S. 279, 286-87 (1991) (further quotations omitted).

“1 Grammenos, 469 B.R. at 546 (quoting Vasquez, 2010 WL 1644175 at *2) (further citations omitted).

12-11 U.S.C. § 727(a)(3).

In re Kennedy, No. 10-24535 (VFP), 2017 WL 573471, at *18 (Bankr. D.N.J. Feb. 8, 2017) (Papalia, J.) (citing

Meridian Bank v. Allen, 958 F.2d 1226, 1230 (3d Cir. 1992)).

4 Kennedy, 2017 WL 573471 at *18 (citing In re French, 499 F.3d 345, 354 (4th Cir. 2007)).

3 In re Carlbon, No. 10-14413 (RTL), 2011 WL 6739507, at *5 (Bankr. D.N.J. Dec. 20, 2011) (Lyons, J.) (citing

Panda Herbal Int'l, Inc. v. Luby (In re Luby), 438 B.R. 817, 830-33 (Bankr. E.D. Pa. 2010)).

16 Grammenos, 469 B.R. at 548-49 (citing Meridian Bank, 958 F.2d at 1234).

"7 Td., at 549 (citing Meridian Bank, 958 F.2d at 1233).

8 In re Drossel, No. 06-21154 (DHS), 2009 WL 3230794, at *5 (Bankr. D.N.J. Oct. 1, 2009) (Steckroth, J.) (citing

Meridian Bank, 958. F.2d at 1231; Yanni, 354 B.R. at 715).

119 Grammenos, 469 B.R. at 549.

120 Td. (citing Meridian Bank, 958 F.2d at 1231).

!21 Grammenos, 469 B.R. at 549 (citing Meridian Bank, 958 F.2d at 1231) (“Obviously an unsophisticated wage earner

dealing primarily in cash should not be denied a discharge because he failed to keep books of account. A higher

standard of care is required, however, for a merchant actively engaged in credit transactions.”) (internal citation

omitted).

12 Kennedy, 2017 WL 573471 at *19 (quoting Meridian Bank, 958 F.2d at 1230).

123 Td. (quoting Juzwiak, 89 F.3d at 428).

4 Carlbon, 2011 WL 6739507 at *7.

(citing In re Prupis, No. 04-48414 (RTL), 2007 WL 295351, at *1 (Bankr. D.N.J. Jan. 24, 2007) (Lyons, J.)).

26 Kennedy, 2017 WL 573471 at *18.

7 Docket No. 25-5, Second Rule 2004 Examination 52:15.

The Bederson Report shows numerous inaccuracies in Debtor’s books and records. However, the Court has many

questions regarding the circumstances and scope surrounding its preparation. Regardless of the outstanding questions,

the Court is able to utilize the report for purposes of summary judgment as both parties permitted it as an undisputed

fact.

129 500 B.R. 402, 407-408 (Bankr. M.D. Pa. 2013).

130 89 F.3d 424 (7th Cir. 1996).

131 Juzwiak, 89 F.3d at 425.

12 Td. at 426.

Docket No. 15-6 at 2-3.

134 Td. at 4.

135 Iq.

136 Td.; Docket No. 25-9, Bartlett Deposition 42-44: 1-25.

The Court notes that insurance companies assuredly do not desire faulty information, regardless of formula

calculations.

138 Docket No. 25-2, First Rule 2004 Examination 67:3-22.

139 Id.

140 Td. at 66:10-24.

'41 Docket No. 25-9, Bartlett Deposition 10:12-18.

12 In re Tanglis, 344 B.R. 563, 569 (Bankr. N.D. Ill. 2006).

43 Broad Nat'l Bank v. Kadison, 26 B.R. 1015, 1018 (D.N.J. 1983).

4 Juzwiak, 89 F.3d at 428.

45 Kennedy, 2017 WL 573471 at *18; Meridian Bank, 958 F.2d at 1233.

46 Meridian Bank, 958. F.2d at 1231.

47 Grammenos, 469 B.R. at 549 (citing Meridian Bank, 958 F.2d at 1231).

488 Docket Nos. 25, 25-1, 25-2, 25-3, First Rule 2004 Examination.

49 Docket No. 25-1, First Rule 2004 Examination 31:2-11.

150 Td. at 31:1-25, 43-44:1-25.

29

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51 Td. at 39-40:1-25.

152 Docket Nos. 25, 25-1, 25-2, 25-3, First Rule 2004 Examination.

53 Docket No. 25-5, Second Rule 2004 Examination 41:15-19.

30