Deborah J. Piazza, Chapter 7 Trustee of Anthony Br v. Bruno, Jr.

UNITED STATES BANKRUPTCY COURT NOT FOR PUBLICATION

SOUTHERN DISTRICT OF NEW YORK

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In re: :

Chapter 7

:

Anthony Bruno, Jr., :

Case No. 22-10822 (JLG)

:

Debtor. :

:

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:

Deborah J. Piazza, as Chapter 7 Trustee of :

Anthony Bruno, Jr., :

:

Plaintiff, :

:

Adv. P. No. 23-01001 (JLG)

v. :

:

Anthony Bruno, Jr., :

:

Defendant. :

:

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MEMORANDUM DECISION RESOLVING THE CHAPTER 7 TRUSTEE’S

MOTION FOR DEFAULT JUDGEMENT DENYING DISCHARGE

A P P E A R A N C E S :

TARTER KRINSKY & DROGIN LLP

Proposed Counsel to Deborah J. Piazza, Chapter 7 Trustee

1350 Broadway, 11th Floor

New York, New York 10018

By: Jill Makower, Esq.

HON. JAMES L. GARRITY, JR.

U.S. BANKRUPTCY JUDGE

Introduction

Deborah J. Piazza is the chapter 7 trustee (the “Trustee”) of the estate of Anthony J. Bruno,

a chapter 7 debtor herein (the “Debtor”). She commenced this adversary proceeding by filing a

complaint (the “Complaint”)1 seeking a judgment denying the Debtor his discharge in bankruptcy

under subsections 727(a)(2), (a)(3), (a)(4)(A), (a)(4)(D), and (a)(5) of the Bankruptcy Code. The

Debtor failed to file an answer, or otherwise respond to the Complaint. The Clerk of the Court has

docketed an Entry of Default under the Complaint against the Debtor. The matter before the Court

is the Trustee’s motion (the “Motion”)2 pursuant to Rule 55(b)(2) of the Federal Rules of Civil

Procedure (“Rule 55”)3 and the relevant portions of section 727(a) of the Bankruptcy Code for the

entry of a default judgment against the Debtor denying his discharge in bankruptcy. The Debtor

did not respond to the Motion.

The Complaint asserts five Claims for Relief. The Debtor’s default in responding to the

Complaint is not per se grounds for entering a judgment against him under those claims. The

default is merely an admission of the well-pleaded allegations in support of the claims. The Court

will not enter a default judgment against the Debtor unless it finds that those allegations are

sufficient to state grounds for relief against the Debtor. As set forth below, the Court finds that,

taken as true, the allegations in support of the Complaint’s Second and Fourth Claims for Relief,

1 Chapter 7 Trustee’s Complaint Objecting to the Debtor’s Discharge Pursuant to 11 U.S.C. § 727, AP ECF No. 1.

Citations to “AP ECF No. __” refer to documents filed in this adversary proceeding (Adv. Pro. 23-01001). Citations

to “ECF No. __” refer to documents filed in the main case (No. 22-10822).

2 Trustee’s Motion for Default Judgment Denying Discharge. AP ECF No. 8.

3 Rule 55 is made applicable herein by Rule 7055 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy

Rules”).

establish grounds to deny the Debtor’s discharge, as a matter of law, under subsections 727(a)(3)

and (a)(4)(D) of the Bankruptcy Code, respectively. Accordingly, the Court grants the Trustee

default judgments against the Debtor under the Second and Fourth Claims for Relief. The Court

denies the Trustee’s request for default judgments under the First, Third, and Fifth Claims for

Relief, as the Trustee has failed to allege facts demonstrating grounds to deny the Debtor’s

discharge under subsections 727(a)(2), (a)(4)(A) and (a)(5) of the Bankruptcy Code, respectively.

Jurisdiction

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

and the Amended Standing Order of Referral of Cases to Bankruptcy Judges of the United States

District Court for the Southern District of New York (M-431), dated January 31, 2012 (Preska,

C.J.). This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(J).

Background

On June 20, 2022 (the “Petition Date”), the Debtor filed a voluntary petition for relief under

chapter 7 of the Bankruptcy Code (the “Petition”) in this Court.4 On June 21, 2022, Ms. Piazza

was appointed as the interim trustee of the Debtor’s estate and subsequently qualified as permanent

Trustee.5 The Debtor annexed his schedules of assets and liabilities (the “Schedules”) and

Statement of Financial Affairs (“SOFA”) to his Petition. 6 In the SOFA, the Debtor disclosed that

he was a sole proprietor or self-employed. SOFA at 6. He also disclosed that he had an interest

in a rubbish removal business, Anthony Rubbish Removal, Inc. (“ARR, Inc.”), which operated

from December 13, 2004, until January 7, 2022. SOFA at 7. At the section 341 meeting of

4 Voluntary Petition for Individuals Filing Bankruptcy, ECF No. 1.

5 See Docket Entry for June 21, 2022, In re Bruno, No. 22-10822.

6 The Schedules and SOFA are attached to the Petition at pages 8-29 and 30-37, respectively.

creditors (the “341 Meeting”), the Debtor testified that he was the sole owner of ARR, Inc., and

that he closed the business in January 2022, without attempting to sell it. Complaint ¶ 11. At the

341 Meeting, the Trustee asked the Debtor to produce ARR, Inc.’s books and records for the three

years prior to the shutdown of that business. Id. By letter dated October 24, 2022, the Trustee’s

accountant requested that the Debtor produce numerous documents, including, without limitation,

ARR, Inc.’s books and records, documents relating to all of the Debtor’s businesses and interests

in businesses, as well as the Debtor’s personal bank statements and canceled checks for three years

prior to the Petition Date (the “Requested Documents”).7 Trustee’s counsel made follow-up

requests for the Requested Documents on October 31, 2022, November 2, 2022, November 4,

2022, November 28, 2022, December 21, 2022, and December 27, 2022. Complaint ¶ 14.

Debtor’s counsel reported to the Trustee that he advised the Debtor of the Trustee’s various

requests for the Requested Documents. On December 21, 2022, Debtor’s counsel purportedly

advised Trustee’s counsel that “[m]y office spoke to the [D]ebtor. He said he has nothing to give

to the [T]rustee.” Complaint ¶ 15. As of the date of the Motion, the Debtor has not produced any

of the Requested Documents to the Trustee. Id. ¶ 16.

7 The Requested Documents consist of documents that relate to the following items:

(i) All vehicles owned or leased by the Debtor in the last 3 years and current status.

(ii) All of the Debtor’s businesses and interests in businesses.

(iii) The identity of Brian P. Hughes and his relationship with Debtor.

(iv) Personal bank statements/canceled checks for 3 years prior to the Petition Date.

(v) Business bank statements for 3 years prior to the Petition Date, except those already provided.

(vi) Documents reflecting the use of withdrawals ($9900) from Chase account ending in 5869.

(vii) Copies of credit card statements for the last 3 years.

(viii) Business tax returns for 3 years prior to the Petition Date, except those already provided.

(ix) Copy of Insurance policies with Progressive.

(x) The source of tax-exempt interest income on a 2020 personal tax return.

Complaint, Ex. 1 at 2.

On January 10, 2023, the Trustee commenced this adversary proceeding by filing the

Complaint. On January 13, 2023, the Clerk of the Court issued a summons (the “Summons”).8

That same day, the Trustee caused the Summons and Complaint to be served upon the Debtor and

Debtor’s counsel.9 The Debtor did not answer or otherwise respond to the Complaint. On

February 27, 2023, the Trustee filed an affirmation in support of her request for the issuance of a

Certificate of Default.10 On February 28, 2023, the Clerk of the Court docketed an Entry of

Default.11 On March 2, 2023, the Clerk of the Court docketed a certificate of mailing of the Entry

of Default to the Debtor.12 On April 7, 2023, the Trustee filed the Motion. On April 12, 2023, the

Trustee docketed an affidavit of service of the Motion.13 On April 25, 2023, the Court heard

argument on the Motion. The Debtor did not appear at the hearing or otherwise respond to the

Motion.

Legal Standard

Rule 55 governs the entry of a default judgment. The rule “provides a ‘two-step process’

for the entry of a judgment against a party that fails to defend: first, the entry of a default, and

second, the entry of a default judgment.” City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d

114, 128 (2d Cir. 2011) (quoting New York v. Green, 420 F.3d 99, 104 (2d Cir. 2005)). “The first

step, entry of a default, formalizes a judicial recognition that a defendant has, through its failure to

8 Summons and Notice of Pre-Trial Conference in an Adversary Proceeding, AP ECF No. 2.

9 Declaration of Service, AP ECF No. 3.

10 Affirmation Pursuant to Fed. R. Bankr. P. 7055, Fed. R. Civ. P. 55(a) and Local Bankruptcy Rule 7055-1 in

Support of Trustee’s Request for Issuance of Certificate of Default, AP ECF No. 4.

11 Entry of Default, AP ECF No. 5.

12 Certificate of Notice, AP ECF No. 6.

13 Declaration of Service, AP ECF No. 9.

defend the action, admitted liability to the plaintiff.” Id. “The second step, entry of a default

judgment, converts the defendant’s admission of liability into a final judgment.” Id. As noted, on

February 28, 2023, the Clerk entered the default herein. The Trustee’s claim is not for a sum

certain, as she is seeking to deny the Debtor’s discharge in bankruptcy. Accordingly, Rule 55(b)(2)

is applicable herein. See Fed. R. Civ. P. 55(b)(2); see also Coated Fabrics Co. v. Mirle Corp., No.

06-5415, 2008 WL 163598, at *4 (E.D.N.Y. Jan. 16, 2008) (“Rule 55(b) of the Federal Rules of

Civil Procedure provides that when a party moves for judgment against an adverse party who has

failed to answer or otherwise appear in the action, the court may enter judgment against the

defaulting party.”).

“[A] default is an admission of all well-pleaded allegations against the defaulting party.”

Vt. Teddy Bear Co. v. 1-800 BEARGRAM Co., 373 F.3d 241, 246 (2d Cir. 2004). For that reason,

“a defendant’s default does not in itself warrant the court in entering a default judgment. There

must be a sufficient basis in the pleadings for the judgment entered.” Nishimatsu Constr. Co., Ltd.

v. Houston Nat’l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975). Accordingly, “the court may . . .

enter a default judgment if liability is established as a matter of law when the factual allegations

of the complaint are taken as true.” Bricklayers & Allied Craftworkers Loc. 2 v. Moulton Masonry

& Constr., LLC, 779 F.3d 182, 187 (2d Cir. 2015) (per curiam); see also Jackson v. Corr. Corp.,

564 F. Supp. 2d 22, 26–27 (D.D.C. 2008) (“[A] default is . . . merely an admission of the facts

cited in the Complaint, which by themselves may or may not be sufficient to establish a defendant’s

liability.” (quoting Natures Way Marine LLC v. North America Materials, Inc., No. 08-0005, 2008

WL 801702, *2 (S.D. Ala. Mar. 24, 2008))). “[T]he plaintiff is entitled to a default judgment only

if the complaint states a claim for relief.” Id. at 27 (quoting Descent v. Kolitsidas, 396 F. Supp. 2d

1315, 1316 (M.D. Fla. 2005)). However, “facts which are not established by the pleadings . . . ,

or claims which are not well-pleaded, are not binding and cannot support the [default] judgment.”

Alan Neuman Prods., Inc. v. Albright, 862 F.2d 1388, 1392 (9th Cir. 1988).

Default judgments “are generally disfavored and are reserved for rare occasions.” Enron

Oil Corp. v. Diakuhara, 10 F.3d 90, 95 (2d Cir. 1993); see also Sun Bank of Ocala v. Pelican

Homestead and Sav. Ass’n, 874 F.2d 272, 276 (5th Cir. 1989) (observing that default judgment is

a “drastic remedy, not favored by the Federal Rules and resorted to by courts only in extreme

situations”). “The dispositions of motions for entries of defaults and default judgments . . . are left

to the sound discretion of a district court because it is in the best position to assess the individual

circumstances of a given case and to evaluate the credibility and good faith of the parties.” Enron,

10 F.3d at 95; see also Batstone v. Emmerling (In re Emmerling), 223 B.R. 860, 865 (2d Cir. BAP

1997) (“The authority to grant and vacate a default judgment is within the broad discretion of the

trial court; yet, default judgments are generally disfavored, and cases should be tried on their merits

whenever possible.”); Greathouse v. JHS Sec. Inc., 784 F.3d 105, 116 (2d Cir. 2015) (“The

decision whether to enter default judgment is committed to the district court's discretion”).

Discussion

“One of the central purposes of the Bankruptcy Code and the privilege of discharge is to

allow the ‘honest but unfortunate debtor’ to begin a new life free from debt.” D.A.N. Joint Venture

v. Cacioli (In re Cacioli), 463 F.3d 229, 234 (2d Cir. 2006) (quoting Grogan v. Garner, 498 U.S.

279, 286-87 (1991)). To that end, section 727(a) states that the Court “shall grant the debtor a

discharge” unless one or more of the exceptions enumerated in the statute apply. 11 U.S.C.

§ 727(a). A denial of discharge under § 727 is an extreme penalty, and challenges to a debtor’s

discharge “must be construed strictly against those who object to the debtor's discharge and

‘liberally in favor of the bankrupt.’” In re Cacioli, 463 F.3d at 234 (quoting State Bank of India

v. Chalasani (In re Chalasani), 92 F.3d 1300, 1310 (2d Cir. 1996)); Berger & Assocs. Att’ys, P.C.

v. Kran (In re Kran), 760 F.3d 206, 210-11 (2d Cir. 2014) (describing denial of discharge as an

“extreme penalty”); Tese-Milner v. Moon (In re Moon), 385 B.R. 541, 559 (Bankr. S.D.N.Y. 2008)

(“The Second Circuit has cautioned that revocation of a debtor's discharge is an ‘extreme penalty,’

and that the provisions of the Bankruptcy Code dealing with a debtor’s discharge should be

‘construed strictly against those who object to the debtor’s discharge and liberally in favor of the

bankrupt.’” (quoting In re Chalasani, 92 F.3d at 1310)).

Section 727(c) grants the Trustee standing to object to the Debtor’s discharge. 11 U.S.C.

§ 727(c). In the Complaint, the Trustee asserts that there are five grounds under section 727(a) for

denying the Debtor a discharge, as follows:

First Claim for Relief – challenges Debtor’s discharge under section 727(a)(2),

Second Claim for Relief – challenges Debtor’s discharge under section 727(a)(3),

Third Claim for Relief – challenges Debtor’s discharge under section

727(a)(4)(A),

Fourth Claim for Relief – challenges Debtor’s discharge under section

727(a)(4)(D), and

Fifth Claim for Relief – challenges Debtor’s discharge under section 727(a)(5).

The “burden of persuasion” rests with the Trustee to show by a preponderance of the

evidence that the Debtor is not entitled to a discharge, and “the burden of production will shift

once the objecting party has shown a violation of a court order.” Pereira v. Gardner (In re

Gardner), 384 B.R. 654, 662 (Bankr. S.D.N.Y. 2008); Cadle Co. v. Jacobowitz (In re Jacobowitz),

296 B.R. 666, 670 (Bankr. S.D.N.Y. 2003). However, as set forth above, in assessing the merits

of the Motion, the Court does not consider the merits of the Complaint. Rather, the Court focuses

on the adequacy of the pleadings in support of the Complaint.

Below, the Court reviews each Claim for Relief.

First Claim for Relief – Section 727(a)(2)

Pursuant to section 727(a)(2), a court will deny a debtor a discharge if –

the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the

estate charged with custody of property under this title, has transferred, removed,

destroyed, mutilated, or concealed, or has permitted to be transferred, removed,

destroyed, mutilated, or concealed—

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

petition; or

(B) property of the estate, after the date of the filing of the petition.

11 U.S.C. § 727(a)(2).

The purpose of this provision is “to prevent the discharge of a debtor who attempts to avoid

payment to creditors by concealing or otherwise disposing of assets.” 6 Collier on Bankruptcy

¶ 727.02 (16th ed. 2021). “To prove a § 727(a)(2) violation, a creditor must show ‘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),’ and ‘the party seeking to bar discharge must prove that both of these

components were present during the one-year period before bankruptcy.’” Republic Credit Corp.

v. Boyer (In re Boyer), 328 F. App’x 711, 714 (2d Cir. 2009) (summary order) (alteration in

original) (quoting Rosen v. Bezner, 996 F.2d 1527, 1531 (3d Cir.1993)). A court may find the

requisite intent through either: (1) direct or explicit proof, or, (2) a preponderance of circumstantial

evidence of a debtor’s illicit intent, commonly known as the “badges of fraud.” Id.

(quoting Salomon v. Kaiser (In re Kaiser), 722 F.2d 1574, 1582-83 (2d Cir. 1983)).

To state a claim for relief under section 727(a)(2)(A), the Trustee must allege facts

demonstrating that the Debtor, (i) with intent to hinder, delay or defraud his creditors (ii) has

transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred,

removed, destroyed, mutilated, or concealed, (iii) the property of the debtor (iv) within one year

before the Petition Date. See Mazer-Marino v. Levi (In re Levi), 581 B.R. 733, 744 (Bankr.

S.D.N.Y. 2017); McCarthey Inv. LLC v. Shah (In re Shah), No. 08-1762, 2010 WL 2010824, at

*7 (Bankr. S.D.N.Y. May 13, 2010), Long v. Green (In re Green), No. 06-9086, 2007 WL

1428547, at *4 (Bankr. S.D.N.Y. May 11, 2007). The only difference in the elements of a claim

under section 727(a)(2)(B), is that the Trustee must allege facts demonstrating that the removal,

destruction, mutilation, or concealment of the Debtor’s property occurred after the Petition Date.

In re Levi, 581 B.R. at 744.

In support of the First Claim for Relief, the Trustee alleges that the Debtor was the sole

owner of ARR, Inc., that he closed the business on January 7, 2022, without attempting to sell it,

and that he has failed to comply with the Trustee’s requests that he produce ARR, Inc.’s books and

records for the three years prior to the Debtor’s closing of that business. Complaint ¶¶ 9-15. On

that basis, the Trustee alleges that by reason of the Debtor’s failure to turn over the Requested

Documents –

[she] believes the Debtor, with intent to hinder, delay, or defraud a creditor or the

Trustee, has transferred, removed, destroyed, mutilated, or concealed, or has

permitted to be transferred, removed, destroyed, mutilated, or concealed — (A)

property of the Debtor, within one year before the [Petition] Date; or (B) property

of the estate, after the [Petition] Date.

Id. ¶ 20.

The Trustee does not identify specific property of the Debtor that the Debtor allegedly

transferred, removed, destroyed, or mutilated, or permitted to be transferred, removed, destroyed,

or mutilated either before or after the Petition Date. A debtor “conceals” some “property of the

debtor” for purposes of § 727(a)(2) by either placing it beyond the reach of its creditors or

proffering false or misleading answers regarding such property. Gardiners Bay Landscape &

Design, Inc. v. Postiglione (In re Postiglione), No. 17-8012, 2019 WL 2590946, at *7 (Bankr.

E.D.N.Y. June 24, 2019) (citing Marine Midland Bank v. Portnoy (In re Portnoy), 201 B.R. 685,

694-95 (Bankr. S.D.N.Y. 1996)). The Trustee does not allege facts demonstrating the Debtor

concealed his property or permitted his property to be concealed either before or after the Petition

Date. Finally, whether a debtor acts with “actual intent to hinder, delay or defraud” is a

fact-specific inquiry. In re Levi, 581 B.R. at 745. The Trustee has alleged no facts demonstrating

that the Debtor acted with the intent to hinder, delay, or defraud his creditors.

Taken as true, the allegations in the Complaint in support of the First Claim for Relief do

not establish grounds to deny Debtor’s discharge under section 727(a)(2). The Trustee has not met

her burden for a default judgment on the First Claim for Relief in the Complaint.

Second Claim for Relief – Section 727(a)(3)

Pursuant to section 727(a)(3), a court shall deny a discharge when, “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.” 11 U.S.C. § 727(a)(3). “The purpose and intent of [§ 727(a)(3)]

of the Bankruptcy Act is to make the privilege of discharge dependent on a true presentation of

the debtor’s financial affairs.” In re Cacioli, 463 F.3d at 234 (alteration in original) (quoting In re

Underhill, 82 F.2d 258, 260 (2d Cir. 1936)); see also O’Hearn v. Gormally (In re Gormally), 550

B.R. 27, 55 (Bankr. S.D.N.Y. 2016) (“The fundamental policy underlying § 727(a)(3) is to insure

that the trustee and the creditors receive sufficient information to enable them to trace the debtor’s

financial history, to ascertain the debtor’s financial condition, and to reconstruct the debtor’s

business transactions.” (quoting State Bank of India v. Sethi (In re Sethi), 250 B.R. 831, 837-38

(Bankr. E.D.N.Y. 2000))). Accordingly, to make a threshold showing that a court should bar a

debtor’s discharge under section 727(a)(3), the party objecting to discharge must demonstrate:

“(1) that the debtor failed to keep or preserve adequate records; and (2) ‘that such failure makes it

impossible to ascertain the debtor’s financial condition and material business transactions.’” In re

Jacobowitz, 309 B.R. at 436 (quoting Meridian Bank v. Alten, 958 F.2d 1226, 1232 (3d Cir. 1992)).

The objecting party is not required to demonstrate that, in failing to produce its records, the debtor

intended to hide its financial condition. See Stillwater Liquidating LLC v. Gray (In re Gray),

No. 14-2235, 2016 WL 1039559, at *3 (Bankr. S.D.N.Y. Mar. 15, 2016) (“The plaintiff is not

required to establish that the debtor intended to conceal or destroy financial information.”); Aspire

Fed. Credit Union v. Robinson (In re Robinson), 595 B.R. 148, 161 (Bankr. S.D.N.Y. 2019)

(“Intent to defraud is not an element of Section 727(a)(3).”). Although section 727(a)(3) focuses

on records relating to the debtor’s personal financial affairs, its failure to keep adequate financial

records regarding the business transactions of a closely held corporation that are necessary to

determine its personal financial affairs may result in the denial of a discharge. Beach Lane Mgmt.,

Inc. v. White (In re White), No. 13–01108, 2015 WL 9274771, at *3 (Bankr. S.D.N.Y. Dec. 18,

2015) (collecting cases).

In support of the Second Claim for Relief, the Trustee alleges that the Debtor was the sole

owner of ARR, Inc., that he closed the business on January 7, 2022, without attempting to sell it,

and that he has failed to produce the Requested Documents. Complaint ¶¶ 9-15. The Trustee

asserts that

[g]iven the Debtor’s failure to produce the Requested Documents, as requested by

the Trustee on numerous occasions, upon information and belief, the Debtor has

concealed, destroyed, mutilated, falsified or failed to keep or preserve recorded

information, including books, documents, records and papers from which the

Debtor’s financial condition or business transactions might be ascertained, and such

conduct was not justified.

Complaint ¶ 23. The Debtor’s failure to produce any documentation to the Trustee is grounds

under section 727(a)(3) to deny Debtor’s discharge in bankruptcy. See In re Gormally, 550 B.R.

at 55 (“If a debtor fails to produce records, sufficient to meet the burden placed upon him by

[Section] 727(a)(3), the Court must deny the discharge.” (quoting Ng v. Adler, 518 B.R. 228, 241

(E.D.N.Y. 2016) (alteration in original))); In re Jacobowitz, 296 B.R. at 671 (“Courts have held

that a debtor’s absence of records is justification for denial of discharge.”); Agai v. Antoniou (In

re Antoniou), 527 B.R. 71, 81 (Bankr. E.D.N.Y. 2015) (Section 727(a)(3) “places an affirmative

duty on the debtor to create books and records accurately documenting his financial affairs”

(quoting In re Self, 325 B.R. 224, 241 (Bankr. N.D. Ill. 2005))); Ochs v. Nemes (In re Nemes), 323

B.R. 316, 325 (Bankr. E.D.N.Y. 2005) (“While bank statements and credit card receipts or monthly

statements may be simple records, they ‘form the core’ of what [is necessary] to ascertain [the

Debtor’s] financial condition, primarily his use of cash assets.” (quoting The Cadle Co. v. Terrell,

2002 WL 22075, at *5 (N.D. Tex. Jan. 7, 2002) (alterations in original), aff'd, 46 F. App’x. 731

(5th Cir. 2002))).

The Trustee has met her burden for a default judgment on the Second Claim for Relief in

the Complaint pursuant to section 727(a)(3) of the Bankruptcy Code.

Third Claim for Relief – Section 727(a)(4)(A)

In the Third Claim for Relief, the Trustee alleges that, in violation of section 727(a)(4)(A),

the Debtor lied in his Schedules and SOFA. In support of that claim, the Trustee alleges that in his

SOFA, the Debtor represented that (i) he was a sole proprietor or self-employed, (ii) he had an

interest in ARR, Inc., and (iii) ARR, Inc. operated from December 3, 2004, through January 7,

2022. Complaint ¶¶ 9-10. The Complaint is silent with respect to the Schedules. The Trustee

concedes that the Debtor’s testimony at the 341 Meeting with respect to his business was consistent

with the information contained in the SOFA, see Complaint ¶ 11, but complains that the Debtor

has failed to produce any of the Requested Documents. Complaint ¶ 13-15. On that basis, the

Trustee alleges that “upon information and belief,” the Debtor (i) made false oaths in his Schedules

and SOFA, including but not limited to failing to disclose transfers and property interests of the

Debtor owned as of the Filing Date, and failing to disclose personal assets including funds received

from sales of ARR, Inc.’s business assets; and (ii) “knowingly and fraudulently” made his false

statements in his Schedules and SOFA. Complaint ¶¶ 26-27.

To state a claim for relief under section 727(a)(4)(A), the Trustee must allege facts

demonstrating that the Debtor (i) made a statement under oath; (ii) the statement was false; (iii) he

knew the statement was false; (iv) he made the statement with fraudulent intent; and (v) the

statement related materially to the bankruptcy case. Baron v. Klutchko (In re Klutchko), 338 B.R.

554, 567 (Bankr. S.D.N.Y. 2005).

Section 727(a)(4)(A) requires an objector to plead and prove that the debtor “knowingly

and fraudulently” made a false oath or account. The mere failure to list assets does not support an

objection to discharge. Objections to discharge based on section 727(a)(4)(A) sound in fraud and

must comply with the special pleading requirements contained in Rule 9(b) of the Federal Rules

of Civil Procedure.14 See In re Meffert, 232 B.R. 71, 74 (Bankr. S.D.N.Y. 1998) (collecting cases).

A pleader cannot allege fraud based upon information and belief unless the facts are peculiarly

within the opposing party’s knowledge, and even then, the pleader must allege the facts upon

which his belief is based. Campaniello Imports, Ltd. v. Saporiti Italia S.p.A., 117 F.3d at 664;

14 Rule 9(b) is made applicable herein by Bankruptcy Rule 7009. Rule 9(b) states:

In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated

with particularity. Malice, intent, knowledge, and other condition of mind of a person may be

averred generally.

Fed. R. Civ. P. 9(b).

Schlick v. Penn–Dixie Cement Corp., 507 F.2d 374, 379 (2d Cir.1974), cert. denied, 421 U.S. 976

(1975); Segal v. Gordon, 467 F.2d 602, 608 (2d Cir. 1972). Moreover, “[t]he party objecting to a

discharge based on the omission of information in a sworn statement must show that the

information was omitted for the specific purpose of perpetrating a fraud and not simply because

the debtor was careless or failed to fully understand an attorney's instructions.” In re Levi, 581

B.R. at 746 (citing Moreo v. Rossi (In re Moreo), 437 B.R. 40, 62 (E.D.N.Y. 2010)). A false oath

must relate to a material matter in order to justify the denial of a discharge. In re Boyer, 328

F. App’x at 715. A false statement or omission is material if it “bears a relationship to the debtor’s

business transactions or estate, or concerns the discovery of assets, business dealings, or the

existence and disposition of the debtor’s property.” Gordon v. Tese-Milner (In re Gordon), 535

B.R. 531, 538 (S.D.N.Y. 2015) (quoting Chalik v. Moorefield (In re Chalik), 748 F.2d 616, 618

(11th Cir. 1984) (per curiam)).

The Trustee has failed to state a claim for relief under section 727(a)(4)(A) of the

Bankruptcy Code. The Trustee alleges that Debtor submitted two sworn statements—the

Schedules and SOFA. However, none of the facts alleged in support of the Complaint demonstrate

that the facts alleged therein are false, or that the Debtor omitted facts from those statements at all,

let alone for the specific purpose of perpetrating a fraud on his creditors, or that she has a

reasonable basis for believing that the Debtor’s actions run afoul of section 727(a)(4)(A). Taken

as true, the allegations in support of the Third Claim for Relief do not establish grounds to deny

the Debtor’s discharge under section 727(a)(4)(A) of the Bankruptcy Code. The Trustee has not

met her burden for a default judgment under the Third Claim for Relief.

Fourth Claim for Relief –Section 727(a)(4)(D)

Section 727(a)(4)(D) states that a debtor will be denied a discharge in bankruptcy if it

“knowingly and fraudulently, in or in connection with the case . . . withheld from an officer of the

estate entitled to possession under this title, any recorded information, including books,

documents, records, and papers, relating to the debtor’s property or financial affairs.” 11 U.S.C.

§ 727(a)(4)(D). This subsection imposes an “affirmative duty on the debtor to cooperate with the

trustee ‘by providing all requested documents to the trustee for his review, and failure to do so

constitutes grounds for denial of discharge.’” In re Gardner, 384 B.R. at 668 (quoting Thaler v.

Erdheim (In re Erdheim), 197 B.R. 23, 28 (Bankr. E.D.N.Y. 1996) (holding that the debtor failed

to fulfill the duty to cooperate when the trustee was forced to seek production from third parties of

documents the debtor had available to him)). The subsection also requires a finding of intent.

Such intent “must be actual, as distinguished from constructive, intent.” Gold v. Guttman (In re

Guttman), 237 B.R. 643, 647 (Bankr. E.D. Mich. 1999). In In re Young, the court summarized

that “[c]ourts have found the requisite intent to act ‘knowingly and fraudulently’ was present where

the debtor's conduct was evasive or persistently uncooperative” and, in contrast, “have found that

the requisite intent to act ‘knowingly and fraudulently’ was absent where the records were

unavailable through no fault of the debtor.” In re Young, 346 B.R. 597, 615 (Bankr. E.D.N.Y.

2006).

To state a claim for relief under section 727(a)(4)(D), the Trustee must allege facts

demonstrating that that (i) the Debtor knowingly and fraudulently, (ii) withheld from the Trustee

any recorded information, including books, documents, records, and papers relating to the Debtor’s

property or financial affairs, (iii) in or in connection with the Debtor’s own case. 11 U.S.C.

§ 727(a)(4)(D). In support of the claim, the Trustee focuses her allegations on the Debtor’s failure

to comply with the Trustee’s requests that he produce the Requested Documents, including ARR,

Inc.’s books and records for the three years prior to the closure of that business. Complaint ¶¶ 9-

15. On that basis, she asserts that the Court should deny the Debtor a discharge under section

727(a)(4)(D) because

[t]he Debtor, both knowingly and fraudulently, in or in connection with the

Debtor’s Case, withheld from the Trustee recorded information, including books,

documents, records, and papers, relating to the Debtor’s property or financial

affairs, including the Requested Documents, to which the Trustee, under the

Bankruptcy Code, is entitled to possession.

Complaint ¶ 31. The Court finds that those allegations, taken as true, establish grounds for denying

the Debtor’s discharge under Section 727(a)(4)(D). See In re Gardner, 384 B.R. at 668 (denying

discharge under section 727(a)(4)(D) where debtor’s failure to disclose records of timeshare

interests evidenced an “attempt to continue the concealment of [his] assets.”); Piazza v. Keswani

(In re Keswani), No. 20-01345, 2022 WL 90605, at *11 (Bankr. S.D.N.Y. Jan. 7, 2022) (granting

chapter 7 trustee judgment denying discharge under section 727(a)(4)(D) where the debtor “failed

to produce documents after numerous written requests from the [t]rustee and . . . failed to set forth

any facts explaining her failure to comply”); In re Erdheim, 197 B.R. at 28-29 (granting chapter 7

trustee judgment denying discharge under section 727(a)(4)(D) where “unrebutted evidence

produced by the [t]rustee demonstrates the [t]rustee’s repeated attempts to obtain the necessary

records from the Debtor to administer the case . . . fell on deaf ears”).

The Trustee has met her burden for a default judgment on the Fourth Claim for Relief in

the Complaint under section 727(a)(4)(D) of the Bankruptcy Code.

Fifth Claim for Relief - Section 727(a)(5)

Section 727(a)(5) bars the discharge of a debtor who “has failed to explain satisfactorily . . .

any loss of assets or deficiency of assets to meet the debtor’s liabilities.” 11 U.S.C. § 727(a)(5).

“The purpose of section 727(a)(5) is to prevent the abuse of the bankruptcy process by the debtor

‘obfuscating the true nature of [the debtor’s] affairs, and then refusing to provide a credible

explanation.’” In re Robinson, 595 B.R. at 161 (alteration in original) (quoting In re Johnson, 98

B.R. 359, 366 (Bankr. N.D. Ill. 1988)). This provision contains no intent requirement and creates

a two-part burden-shifting analysis. In re Cacioli, 463 F.3d at 238. First, a plaintiff must show a

loss or deficiency of assets. Id. Once the plaintiff makes this showing, the debtor must explain

the whereabouts of the assets. Id.

“Section 727(a)(5) is broadly drawn and clearly gives a court broad power to decline to

grant a discharge in bankruptcy where the debtor does not adequately explain a shortage, loss or

disappearance of assets.” First Federated Life Ins. v. Martin (In re Martin), 698 F.2d 883, 886

(7th Cir. 1983). To state a claim for relief under this section, the Trustee must allege facts

demonstrating that “that the debtor no longer has assets which the debtor previously owned and

that the debtor has failed to explain the loss.” Riumbau v. Colodner (In re Colodner), 147 B.R. 90,

94 (Bankr. S.D.N.Y. 1992) (dismissing a complaint that failed to “allege the diminution or loss of

any of the debtor's assets or that the debtor has failed to give a satisfactory explanation for the

deficiency or loss of any of his assets”); see also In re Gardner, 384 B.R. at 663

(“Under § 727(a)(5), a prima facie case requires the plaintiff to produce some evidence of the

disappearance of substantial assets.”); HSBC Bank USA v. Handel (In re Handel), 266 B.R. 585,

590 (Bankr. S.D.N.Y. 2001) (“This section is given broad interpretation and can include any

unexplained disappearance or shortage of assets.”); Minsky v. Silverstein (In re Silverstein), 151

B.R. 657, 663 (Bankr. E.D.N.Y. 1993) (“The proper question the court must ask under Section

727(a)(5) is what happened to the assets, not why it happened.”).

In support of this Claim for Relief, the Trustee does not allege facts demonstrating that the

Debtor has not accounted for assets that he previously owned. Rather, without identifying any of

the Debtor’s assets, she asserts that “[t]he Debtor has failed to explain satisfactorily the loss of

asserts or deficiency of assets.” Complaint ¶ 35. The Trustee plainly fails to meet her burden for

a default judgment under the Fifth Claim for Relief in the Complaint pursuant to section 727(a)(5)

of the Bankruptcy Code.

Conclusion

Based on the foregoing, the Court awards the Trustee default judgments under the Second

and Fourth Claims for Relief in the Complaint and denies the Debtor a discharge in bankruptcy

under sections 727(a)(3) and 727(a)(4)(D) of the Bankruptcy Code, respectively. The Court denies

the Trustee’s request for the entry of default judgments against the Debtor under the First, Third,

and Fifth Claims for Relief.

The Trustee is directed to submit an Order.

Dated: New York, New York

April 27, 2023

/s/ James L. Garrity, Jr.

Hon. James L. Garrity, Jr.

U.S. Bankruptcy Judge