a || debtor’s failure to offer a satisfactory explanation is a sufficient || ground for denial of discharge
How later courts described this case
- a || debtor’s failure to offer a satisfactory explanation is a sufficient || ground for denial of discharge
Written by the judges who cited it.
The opinion
WarCn 10, □□□□□
Clerk, U.S. Bankruptcy Court
Below is an opinion of the court.
| wee
\ cone
/
ETER C. McKITTRICK
U.S. Bankruptcy Judge
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF OREGON
In Re: ) Bankruptcy Case
)} No. 16-33185-pcem7
|| PETER SZANTO )
)
Debtor. )
)
| UNITED STATES TRUSTEE, ) Adversary No. 18-3022-pcm
)
Plaintiff, )
Vv. )
) MEMORANDUM OPINION!
PETER SZANTO, )
)
Defendant. )
The United States Trustee (Plaintiff or the UST) filed a complaint
to deny Peter Szanto (Debtor) a discharge under 11 U.S.C. § 727.% 18-
3022-pem, Doc. 1. For the reasons set forth below, Debtor will be deniec
a discharge.
This disposition is specific to this case and is not intended
|} for publication or to have a controlling effect on other cases. It may,
however, be cited for whatever persuasive value it may have.
2 Unless otherwise noted, all references to chapters, sections
and rules are to the Bankruptcy Code, 11 U.S.C. § 101, et seq., and to
the Federal Rules of Bankruptcy Procedure, Rules 1001, et seg.
Page 1 - MEMORANDUM OPINION
1 Procedural Background
2 Plaintiff commenced this adversary proceeding approximately two
3 years ago, in early March of 2018. Adv. P. 18-3022-pcm, Doc. 1 (the
4 Complaint). Debtor filed a document in response to the Complaint that,
5 among other things, included allegations against additional individuals.
6 Adv. P. 18-3022-pcm, Doc. 32. Because of certain irregularities with
7 that document, the Court entered an order, Adv. P. 18-3022-pcm, Doc. 41,
8 in which, among other things, it told Debtor that if he wanted to join
9 additional defendants, “he must do so in accordance with the requirements
10 of the Fed. R. Civ. P. regarding joinder, rather than merely including
11 allegations against third parties and serving his answer on said
12 parties.” Id. at p. 3.
13 Debtor eventually filed a document captioned First Amended 1)
14 Statement of Unwillingness to Consent to Entry of Final Orders 2) Demand
15 for Jury Trial 3) Affirmative Defenses 4) Admissions 4) [sic] General and
16 Specific Denials 5) Answer 6) Counterclaim (the Answer). Adv. P. 18-
17 3022-pcm, Doc. 53. Debtor purported to assert four counterclaims against
18 Plaintiff, Nicholas Henderson and Marissa Henderson in the Answer. On
19 the same day he filed the Answer, Debtor filed a Notice of Joinder (the
20 Notice), in which he purported to join the Nicholas Henderson and Marissa
21 Henderson as indispensable parties. Adv. P. 18-3022-pcm, Doc. 54. The
22 Court entered an Order Re Notice of Joinder, Adv. P. 18-3022-pcm, Doc.
23 56. In that order, the Court found that (1) filing a mere notice of
24 joinder was insufficient, (2) if the Notice was deemed a motion, it was
25 untimely and (3) if the Notice was deemed a timely motion, it would be
26 denied in its merits. Id.
1 A few months later, I issued a letter ruling that addressed a motion
2 filed by Plaintiff to dismiss the counterclaims asserted against the UST,
3 and Debtor’s demand for a jury trial and statement in the Answer that he
4 did not consent to entry of final judgment. Adv. P. 18-3022-pcm, Doc.
5 139. I concluded that the Court lacked subject matter jurisdiction over
6 the counterclaims against Plaintiff based on sovereign immunity, there is
7 no right to a jury trial in a § 727 action, and Debtor’s refusal to
8 consent was irrelevant because the Court has jurisdiction and
9 Constitutional authority to enter final judgment in this adversary
10 proceeding. Id. Thereafter, the Court entered an order (1) dismissing
11 Debtor’s counterclaims against Plaintiff, (2) striking the jury demand
12 and (3) stating that it “has the jurisdiction and Constitutional
13 authority to enter final judgment in this matter.” Adv. P. 18-3022-pcm,
14 Doc. 140.
15 On January 21, 2020, I held a final pretrial conference (the Final
16 PTC) at which I ruled on various pretrial motions filed by the parties.
17 An audio recording of the Final PTC appears on the adversary proceeding
18 docket as docket numbers 274 and 275. See also Adv. P. 18-3022-pcm, Doc.
19 276 (Order Regarding Pretrial Motions). Debtor failed to appear at the
20 Final PTC. On January 28, 2020, Debtor filed a motion to stay the trial
21 on the basis that the Court never provided him with notice of the Final
22 PTC. Adv. P. 18-3022-pcm, Doc. 280. That contention is demonstrably
23 false, for the reasons stated in the Court’s order dated January 29,
24 2020. See Adv. P. 18-3022-pcm, Doc. 282.
25 At the time the trial in this adversary proceeding commenced, the
26 only claims remaining to be tried were Plaintiff’s claims to deny Debtor
1 a discharge under § 727. Although the Complaint asserts eleven claims
2 for relief, Plaintiff stated in its trial brief that it would pursue only
3 six (its second, fourth, fifth, sixth, tenth and eleventh claims for
4 relief). See Adv. P. 18-3022-pcm, Doc. 250, p. 1, n. 1. For the reasons
5 explained below, I find that Plaintiff has met its burden of proof on
6 each claim for relief upon which it relies.
7 There are numerous grounds to deny Debtor a discharge in addition to
8 those I address below. To the extent I do not discuss conduct relied on
9 by Plaintiff at trial, that does not mean that the UST failed to meet its
10 burden of showing that Debtor’s discharge should be denied based on that
11 conduct. Debtor is a vexatious litigant and his conduct in the main
12 bankruptcy case and numerous adversary proceedings, including this one,
13 has put an immense burden on judicial and other public resources.
14 Considerations of judicial economy prevent me from making detailed
15 findings on every factual basis established by Plaintiff for denying
16 Debtor’s discharge.
17 Analysis
18 Section 727 is construed liberally in favor of a debtor and strictly
19 against the party objecting to discharge. In re Beauchamp, 236 B.R. 727,
20 730 (9th Cir. BAP 1999). The burden is on the plaintiff to show, by a
21 preponderance of the evidence, that the requirements of § 727 are met.
22 Id.; Fed. R. Bankr. P. 4005. Section 727’s purpose is to make the
23 privilege of discharge dependent on a true presentation of the debtor’s
24 financial affairs. In re Cox, 41 F.3d 1294, 1296 (9th Cir. 1994).
25 “While the burden of persuasion rests at all times on the [plaintiff]
26 objecting to the discharge, it is axiomatic that the debtor cannot
if he fails to offer credible evidence after the [plaintiff]
| makes a prima facie case.” In re Devers, 759 F.2d 751, 754 (9th Cir.
1 1985). See also In re Hansen, 368 B.R. 868, 876 (9th Cir. BAP 2007) (a
|| debtor’s failure to offer a satisfactory explanation is a sufficient
|| ground for denial of discharge); 2 Barry Russell, BANKRUPTCY EVIDENCE
| MANUAL § 301.2 (2018) (“The failure of a party to provide evidence
|} peculiarly available to that party supports the inference that the truth
|| would be damaging to that party.”).
Section (2) (B)? - Plaintiff’s Second Claim for Relief
To deny a debtor a discharge under section (2) (B), the
plaintiff must show that:
(1) debtor transferred or concealed property;
(2) the property was property of the estate;
(3) the transfer or concealment occurred after the petition was
|| filed; and
(4) debtor acted with the intent to hinder, delay or defraud a
|} creditor or an officer of the estate.
| Devers, 759 F.2d at 753-54. The intent to hinder, delay or defraud must
> Section 727(a) (2) (B) provides that the Court shall grant a
|| discharge unless:
(2) 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—
kK ke kek kek
(B) property of the estate, after the date of the filing of the
petition[.]
Page 5 - MEMORANDUM OPINION
1 be actual, as opposed to constructive, intent. However, intent may be
2 inferred from the actions of the debtor and the surrounding
3 circumstances. In re Woodfield, 978 F.2d 516, 518 (9th Cir. 1992);
4 Devers, 759 F.2d at 753-54.
5 Plaintiff argues that Debtor’s discharge should be denied under
6 § 727(a)(2)(B) because Debtor (1) failed to disclose multiple financial
7 accounts in his original bankruptcy schedules and statement of financial
8 affairs (SOFA) and (2) created a new, undisclosed limited liability
9 corporation (LLC) postpetition and secretly transferred estate assets to
10 that LLC. Debtor’s discharge will be denied on both grounds.
11 A. Undisclosed Bank Accounts
12 Debtor filed a voluntary chapter 11 petition on August 16, 2016.
13 Case No. 16-33185-pcm7, Doc. 2. He filed his bankruptcy schedules and
14 SOFA a couple of weeks later, on August 30, 2016. Exhibit 1.4 Debtor’s
15 original schedules disclosed two Union Bank accounts that he used as his
16 chapter 11 debtor in possession (DIP) accounts and an E*Trade account.
17 Id. at p. 7.5
18 On September 20, 2017, the United States Department of Justice’s Tax
19 Division filed a Motion to Convert or Appoint a Trustee (the Motion to
20 Convert). Case No. 16-33185-pcm7, Doc. 185. On December 5, 2017, I
21 entered an order converting this case to chapter 7 (the Conversion Order)
22 based, in part, on Debtor’s failure to disclose estate assets. Exhibit
23 9.
24
25
4 All references to an exhibit are to documents offered and
26 admitted into evidence at trial.
5 Debtor’s DIP accounts with Union Bank ended in 2572 and 2580.
Exhibit 26, p 25.
In the conversion proceeding, I found that Debtor failed to disclose
|} numerous financial accounts, including the following:
1. Bank of America Account Ending in 2779. Exhibit 26, p. 20. See
also Exhibit 2, p. 1. The balance in this account on the petition
date was approximately $1,300. Id. at pp. 1-3.
2. Ford Interest Advantage Account Ending in 3843. Exhibit 26, p.
22. See also Exhibit 2, p. 11. The balance in this account on the
petition date was approximately $66,000. Id.
3. HSBC Account Ending in 7256. Exhibit 26, p. 24. See also
Exhibit 2, p. 13. The balance in this account on the petition date
was approximately $326,000. Id.
4. Union Bank Account Ending in 8286. Exhibit 26, p. 25. See □□□□
Exhibit 2, p. 23. The balance in this account on the petition date
was approximately $102,000. Id.°
5. Cathay Bank Account Ending in 7244. Exhibit 26, p. 25. See
also Exhibit 2, p. 9. The balance in this account on the petition
date was approximately $166. Id.
(The Undisclosed Accounts).’ Debtor’s failure to list the Undisclosed
|| Accounts in his bankruptcy schedules amounts to concealment within the
| meaning of § 727 (a) (2) (B).
My finding in the conversion proceeding that Debtor concealed the
6 In the conversion proceeding, I found that the Union Bank
account ending in 8286 had approximately $50,000 on the petition date.
That appears to have been an error. Instead, it appears from Exhibit 2
that the correct balance on the petition date was over $100,000.
In the conversion proceeding, I found that Debtor failed to
|| disclose at least seven additional accounts. See Exhibit 26, pp. 20-25.
For simplicity’s sake, I have omitted from this discussion accounts for
which the balance on the petition date is not clear from the record and
those that had a balance of less than $100 on the petition date.
Page 7 - MEMORANDUM OPINION
1 Undisclosed Accounts, and other findings that I will discuss below, apply
2 in this adversary proceeding by virtue of the doctrine of collateral
3 estoppel, also known as issue preclusion.8 Issue preclusion forecloses
4 relitigation of an issue if (1) the issue is identical to the one raised
5 in the prior litigation; (2) the issue was actually litigated in the
6 prior litigation; and (3) the determination of the issue in the prior
7 litigation was a critical and necessary part of the judgment in the
8 earlier action. Clark v. Bear Stearns & Co., 966 F.2d 1318, 1320 (9th
9 Cir. 1992).
10 The Undisclosed Accounts were property of the estate. With certain
11 exceptions not applicable here, property of the estate is comprised of
12 “all legal or equitable interests” a debtor has in property as of the
13 petition date. § 541(a)(1). Property of the estate also includes:
14 All interests of the debtor and the debtor’s spouse in community
property as of the commencement of the case that is-
15
(A) Under the sole, equal, or joint management and control of
16 the debtor; or
17 (B) liable for an allowable claim against the debtor, or for
both an allowable claim against the debtor and an allowable
18 claim against the debtor’s spouse, to the extent that such
interest is so liable.
19
20 § 541(a)(2). The Ford Interest Advantage Account Ending in 3843 is a
21 joint account owned by Debtor and his wife. Debtor’s is the only name
22 listed on the statements for the other Undisclosed Accounts. See Exhibit
23 2. I previously found in the conversion proceeding that Debtor was
24
25
8 In any event, at trial, Plaintiff provided independent evidence
26 of the Undisclosed Accounts discussed in this opinion. That evidence is
compiled in Exhibit 2. In addition, Debtor admitted at his deposition in
this matter that each of the Undisclosed Accounts was open on the
petition date. See Exhibit 27, pp. 8-15.
1 required, but failed, to disclose the Undisclosed Accounts in his
2 bankruptcy schedules because he because had a legal or equitable interest
3 in each. I reaffirm that finding here.
4 Debtor concealed the Undisclosed Accounts after the petition date by
5 failing to list them in his bankruptcy schedules and the monthly
6 operating reports that he filed during his chapter 11 case. See Case No.
7 16-33185-pcm7, Docs. 33, 42, 49, 63, 64, 72, 82, 98, 107, 124, 134, 165,
8 197, 224, 277 (chapter 11 monthly operating reports signed by Debtor
9 under penalty of perjury).
10 Finally, I find that Debtor acted with the intent to hinder, delay
11 and defraud his creditors when he concealed the Undisclosed Accounts. In
12 the conversion proceeding, I found that Debtor’s misconduct in his
13 chapter 11 case, specifically including concealment of the Undisclosed
14 Accounts, was not the result of a long series of innocent mistakes, as
15 Debtor continues to maintain. Instead, it was attributable to “a
16 deliberate and concerted effort to withhold information” from his
17 creditors and the UST. Exhibit 26, pp. 29-30. I reaffirm that finding
18 here. The number of financial accounts concealed by Debtor and the
19 amount of money involved “eliminate[s] any possible finding of mere
20 negligence that could vitiate the inference of intent.” Devers, 759
21 F.2d at 754. Debtor’s intent to hinder, delay and defraud his creditors
22 is also demonstrated by the fact that he has litigated, in this court and
23 others, virtually every third-party subpoena issued by parties in
24 interest seeking to obtain information about Debtor’s finances in general
25 and the Undisclosed Accounts in particular. Debtor’s vigorous efforts to
26 prevent the disclosure of information about his finances evidences an
1 intent to hinder, delay and defraud within the meaning of § 727(a)(2)(B).
2 Debtor offered conflicting testimony at trial about the Undisclosed
3 Accounts. He testified at one point that the Undisclosed Accounts are
4 community property. However, he also testified that, although his name
5 appears on each of the Undisclosed Accounts, he had no interest in those
6 accounts on the petition date because they were, in fact, his wife’s
7 accounts. According to Debtor, a California state court had assigned
8 them to his wife as some type of preliminary division of assets in an
9 ongoing dissolution of marriage proceeding. Finally, Debtor also
10 testified that his name appears on the accounts only because his wife
11 designated him a “pay on death beneficiary” of the accounts. There are a
12 multitude of problems with Debtor’s arguments.
13 As a threshold matter, Debtor’s arguments that the Undisclosed
14 Accounts are (1) community property and (2) his wife’s separate property
15 can not be reconciled. Moreover, Debtor’s testimony that the Undisclosed
16 Accounts are community property is contrary to a sworn statement Debtor
17 made at the inception of this case that he and his wife have never “had
18 joint/community/shared or combined property of any type[.]” Exhibit 1, p.
19 24. In any event, § 541 directs that community property is property of
20 the bankruptcy estate. Debtor provided no evidence, other than his own
21 testimony, which I do not find credible, that the California state court
22 had assigned to his wife an ownership interest in the Undisclosed
23 Accounts as of the petition date.9 The bottom line is that, even if I
24
25 9 Debtor offered one exhibit at trial. Exhibit A purports to be
a docket sheet for a dissolution of marriage proceeding in California
26 state court that remains open. Debtor did not provide this Court with
any underlying case documents to support his contention that the
California state court had assigned the Undisclosed Accounts to his wife
(continued...)
1 accept as true Debtor’s testimony about the Undisclosed Accounts, which I
2 do not, those accounts were property of the estate because Debtor had
3 either a legal or equitable interest in the Undisclosed Accounts on the
4 petition date.
5 B. Postpetition Creation of New LLC and Transfer of Funds
6 Debtor formed a new business entity, the Peter Szanto LLC (the LLC),
7 in August of 2017, approximately one year after he filed his chapter 11
8 petition. Exhibit 15; Exhibit 26, p. 26 (making same finding in
9 conversion proceeding). The LLC was property of Debtor’s bankruptcy
10 estate. § 1115(a)(1) (property of the estate in a chapter 11 case
11 includes property debtor acquires after the petition date but before the
12 case is closed, dismissed or converted).
13 Soon after he formed the LLC, Debtor opened an E*Trade account
14 ending in 5272 in the name of the LLC (the LLC E*Trade Account) and
15 transferred estate funds to the LLC. Exhibit 6; Exhibit 26, p. 26
16 (making same finding in conversion proceeding). From late September to
17 mid-October of 2017, Debtor transferred approximately $367,000 in estate
18 assets from one of his debtor in possession accounts to the LLC E*Trade
19 Account. Exhibits 5, 6. Debtor did not report the formation of the LLC
20 in his August monthly operating report. Case No. 16-33185-pcm7, Doc.
21 197. He also failed to report any of the transfers in his September and
22 October 2017 monthly operating reports. Case No. 16-33185-pcm7, Docs.
23 224 and 277.
24
25
9(...continued)
26 on the petition date. Debtor testified at trial that the state court
would not allow him to have any case documents until the dissolution case
is concluded, even though he is a party to that case. Debtor’s
contention defies belief.
1 I find that Debtor acted with the intent to hinder, delay or defraud
2 his creditors when he secretly created the LLC and then made undisclosed
3 transfers of estate property to it. In the conversion proceeding, I
4 found that Debtor’s misconduct in his chapter 11 case, specifically
5 including creating the LLC and making transfers of estate property to it,
6 was not the result of a long series of innocent mistakes, as Debtor
7 continues to maintain. Instead, it was attributable to “a deliberate and
8 concerted effort to withhold information” from his creditors and the UST.
9 Exhibit 26, p. 29-30. I reaffirm that finding here.
10 “Certain ‘badges of fraud’ strongly suggest that a transaction’s
11 purpose is to defraud creditors unless some other convincing explanation
12 appears.” Woodfield, 978 F.2d at 518. Badges of fraud include a close
13 relationship between the debtor and the transferee, and a transfer in
14 anticipation of a lawsuit. Id.
15 There is a close relationship between Debtor and the LLC. He formed
16 the LLC and is the only member listed on the formation documents.
17 Exhibit 15. Mr. Arnot, the former Chapter 7 trustee (Mr. Arnot or the
18 Trustee) testified that Debtor is the only member of the LLC.10
19 The timing of the creation of the LLC is also suspicious. In April
20 of 2017, the Court entered an order granting the IRS’s motion pursuant to
21 Rule 2004 to require Debtor to produce all statements for any financial
22 account in which he had an interest.11 Exhibit 26, p. 27. Debtor did
23
24 10 Mr. Arnot resigned as the chapter 7 trustee of this case on
March 26, 2019. Candace Amborn serves as the current chapter 7 trustee.
25
11 Rule 2004 provides, in pertinent part, that the court may order
26 the examination of the debtor relating “to the acts, conduct, or property
or to the liabilities and financial condition of the debtor, or to any
matter which may affect the administration of the debtor’s estate, or to
(continued...)
1 not produce any statements for the Undisclosed Accounts in response to
2 the Court’s Rule 2004 Order. Id. It is likely that Debtor formed the
3 LLC in response to investigations into his finances undertaken by the IRS
4 and as an integral part of his plan to hide assets from his creditors.
5 Moreover, the timing suggests that Debtor transferred estate funds to the
6 LLC’s E*Trade Account in reaction to the IRS’s filing of the Motion to
7 Convert on September 20, 2017. Case No. 16-33185-pcm7, Doc. 185. Debtor
8 commenced the transfers just a few days later.
9 Debtor has not offered any convincing explanation for the creation
10 of, or transfers to, the LLC. Debtor claims that he formed the LLC
11 because the Court and the IRS instructed him to do so. I made no such
12 instruction, and Debtor has never provided any detail or evidence to
13 substantiate his contention. Debtor stated at trial that he intended to
14 disclose the transfers of estate funds to the LLC’s E*Trade Account, but
15 was waiting until all assets of the estate had been transferred to make
16 the disclosure. Debtor’s explanations simply are not credible. Debtor
17 was using the LLC in an attempt to hinder, delay and defraud his
18 creditors.
19 For the reasons set forth above, Debtor will be denied a discharge
20 under § 727(a)(2)(B).
21 II. Section 727(a)(4)(A)12 - Plaintiff’s Fourth, Fifth and Sixth Claims
for Relief
22
23 To deny a debtor a discharge under § 727(a)(4)(A), the plaintiff
24
25 11(...continued)
the debtor’s right to a discharge.”
26
12 Section 727(a)(4)(A) provides that the court shall grant a
debtor a discharge unless “the debtor knowingly and fraudulently, in or
in connection with the case made a false oath or account[.]”
show that “(1) the debtor made a false oath in connection with the
case; (2) the oath related to a material fact; (3) the oath was made
|| knowingly; and (4) the oath was made fraudulently.” In re Roberts, 331
876, 882 (9th Cir. BAP 2005).
“A false oath may involve a false statement or omission in the
| debtor's schedules.” In re Wills, 243 B.R. 58, 62 (9th Cir. BAP 1999).
| A statement in a monthly operating report also constitutes a statement
ff} under oath for purposes of § □□□ □□□ (4) (A), In re McKinney, 2012 Bankr.
|| LEXIS 1704, *12 (Bankr. S.D. Ga. March 5, 2012), as does a debtor’s sworr
| statement made at a Rule 341 meeting. In re Korte, 262 B.R. 464, 474
(8th Cir. BAP 2001).
A statement 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.” Wills, 243 B.R. at 62 (citing In re Chalik, 748 F.2d 616, 61%
(lith Cir. 1984)). “A false statement or omission may be material even
if it does not cause direct financial prejudice to creditors.” Wills,
1 243 B.R. at 63.
Fraudulent intent must be actual, not constructive, In re Jones, 17!
| B.R. 994, 1002 (Bankr. E.D. Ark. 1994), but “is usually proven by
circumstantial evidence or by inferences drawn from the debtor's
conduct.” In re Retz, 606 F.3d 1189, 1199 (9th Cir. 2010).
A. Plaintiff’s Fourth Claim for Relief
Plaintiff alleges that Debtor should be denied a discharge under
|| S (a) (4) (A) because he knowingly and fraudulently made false oaths in
|| his bankruptcy schedules and SOFA relating to the Undisclosed Accounts
Page 14 - MEMORANDUM OPINION
1 and a closely held business entity, the Yankee Trust Corporation. I
2 agree.
3 1. The Undisclosed Accounts
4 Debtor made a false oath relating to a material fact when he failed
5 to list the Undisclosed Accounts on Schedule A/B of his bankruptcy
6 schedules.13 See Exhibit 1, p. 7. As I discussed above, Debtor
7 concealed the Undisclosed Accounts as part of a comprehensive scheme to
8 withhold assets and information about those assets from his creditors and
9 the UST. The omission of multiple financial accounts having material
10 assets suggests that Debtor did not simply forget to include those
11 accounts in his bankruptcy schedules. Debtor acted knowingly and
12 fraudulently when he failed to list the Undisclosed Accounts on Schedule
13 A/B.
14 2. The Yankee Trust Corporation
15 Debtor formed the Yankee Trust Corporation (the YTC) in 2014 and was
16 its registered agent and a director. Exhibit 26, p. 19. He was also a
17 30 percent% owner at the time of formation. Exhibit 24, pp. 116-17.
18 Although Debtor claims that he transferred his ownership interest in the
19 YTC to his family effective January 1, 2015, he remained a director on
20 the date he filed his bankruptcy petition.14 Id. at p. 145. Debtor
21 testified that he formed the YTC to benefit his family and understands it
22 to be a testamentary device under Massachusetts law. As such, Debtor
23
24 13 Schedule A/B is the bankruptcy document on which a debtor must
disclose all property in which the debtor has a legal or equitable
25 interest.
26 14 Debtor also admitted under oath at the hearing on the Motion to
Convert that, in January of 2016, he transferred $39,000 to the YTC and
failed to disclose that transfer in his bankruptcy schedules. See
Exhibit 25, pp. 10-11.
1 testified that there was always the possibility that the YTC could revert
2 back to him.
3 Mr. Arnot testified that, despite Debtor’s claim that he no longer
4 had an ownership interest in the YTC on the petition date, Debtor made
5 extensive use of YTC assets after he allegedly divested himself of an
6 ownership interest, including during his chapter 11 case. Plaintiff’s
7 documentary evidence supports Mr. Arnot’s testimony. See Exhibit 20.
8 For example, in March of 2017, Debtor signed a check using approximately
9 $7,937 of YTC funds to pay his mortgage. Exhibit 20, p. 58. In 2017,
10 Debtor made multiple cash withdrawals from one of YTC’s account. See
11 Exhibit 20, pp. 58, 60, 63, 66, 69. Debtor also used a YTC credit card
12 to pay for personal expenses, such as his homeowner’s insurance. See,
13 e.g., Exhibit 20, p. 55. The address listed on YTC’s credit card
14 statement is Debtor’s residence.
15 Debtor made multiple, material false oaths concerning the YTC in his
16 bankruptcy schedules and SOFA. First, Debtor was at least a director of
17 the YTC on the petition date. He was required, but failed, to report
18 that interest in response to question 27 on the SOFA. See Exhibit 1, p.
19 44. Given Debtor’s extensive use of YTC assets, I do not believe that he
20 in fact transferred his ownership interest in the YTC to his family in
21 January of 2015. Thus, he made a false oath by failing to report that
22 ownership interest on Schedule A/B in response to question 19. See
23 Exhibit 1, p. 7. However, even if Debtor really did transfer his
24 ownership interest in the YTC to his family, which I do not believe, he
25 made a false oath when he failed to disclose that transfer in response to
26 question 13 of the SOFA. See Exhibit 1, p. 39. Finally, Debtor
1 testified he believed that the YTC is a testamentary device under
2 Massachusetts law that gives rise to a reversionary interest. If Debtor
3 believed that to be true, then he was obligated, but failed, to disclose
4 that equitable interest in response to question 25 of Schedule A/B. See
5 Exhibit 1, p. 9.
6 Debtor’s testimony at trial in this matter, including about the YTC,
7 was inconsistent, evasive and equivocal. On one hand, Debtor testified
8 that he did not make use of assets held in the name of the YTC and that
9 someone else, either his wife or one of his children, was responsible for
10 his apparent use of those assets.15 Later, Debtor appeared to admit that
11 he made at least some of the transfers. He said he formed the YTC as a
12 vehicle to teach his family about stock trading and when they had losses,
13 he would “journal over money” to protect his family from financial
14 losses. Debtor also testified that his failure to disclose his
15 relationship to the YTC was simply the result of an innocent mistake and
16 that no creditors had been harmed by the omission.
17 Debtor made the false oaths about the YTC knowingly and
18 fraudulently. I have carefully considered Debtor’s testimony and
19 conclude it is entitled to no weight insofar as he tries to lay blame on
20 others. Debtor has never, including at trial in this matter, offered any
21
15 The YTC credit card statement reflects a charge for a hotel in
22 Portland, Oregon on September 21, 2016. Exhibit 20, p. 53. That is the
same day the Court held the initial case management conference in
23
Debtor’s then new chapter 11 bankruptcy case. Debtor attended that
hearing in person. Debtor disputed at trial that the hotel charge was
24
for his benefit because he lived in Portland then. As evidence of that
25 fact, Debtor points to his sworn statement in his bankruptcy petition
that he lived in Portland when he filed his bankruptcy petition. I have
26 long been skeptical that Debtor lived in Portland on the petition date.
Suffice it to say that the fact that Debtor made a sworn statement to
that effect does not make it true or lessen my skepticism about Debtor’s
residency.
1 corroborative evidence to support his frequent attempts to shift blame to
2 others. A debtor’s “failure to produce available explanatory or
3 rebutting evidence when the circumstances attending the transfer are
4 suspicious” is indicative of fraudulent intent. In re Titus, 75 B.R.
5 256, 259 (Bankr. W.D. Mo. 1985). Debtor’s failure to disclose his
6 relationship with the YTC was not the result of an innocent mistake.
7 Instead, Debtor concealed his relationship with the YTC because he wished
8 to shelter assets nominally held in the name of the YTC from his
9 creditors while, at the same time, retaining unfettered access to those
10 funds for his own benefit. The administration of Debtor’s chapter 7 case
11 remains ongoing and it is far from clear that Debtor’s actions have had
12 no impact on his creditors. In any event, it is not necessary that a
13 debtor’s actions “succeed in harming creditors to warrant denial of
14 discharge. . . .” In re Bernard, 96 F.3d 1279, 1281-82 (9th Cir. 1996).
15 Plaintiff has proved its case for denial of discharge under this
16 claim.
17 B. Plaintiff’s Fifth Claim for Relief
18 Plaintiff alleges that Debtor should be denied a discharge under
19 § 727(a)(4)(A) because he knowingly and fraudulently made material false
20 oaths during his chapter 11 case when he failed to disclose in his
21 September and October 2017 monthly operating reports the transfers to the
22 LLC discussed above in relation to Plaintiff’s second claim for relief
23 brought pursuant to § 727(a)(2)(B). I agree. My findings set forth
24 above with regard to Plaintiff’s second claim for relief support entering
25 judgment against Debtor on Plaintiff’s fifth claim for relief as well.
26
1 C. Plaintiff’s Sixth Claim for Relief
2 Plaintiff alleges that Debtor should be denied a discharge under
3 § 727(a)(4)(A) because he knowingly and fraudulently made a material
4 false oath at the initial Rule 341 meeting. I agree.
5 Debtor admitted at trial that he testified under oath at his initial
6 Rule 341 meeting that his bankruptcy schedules were true and correct.
7 They were not close to being true and correct, for the many reasons
8 discussed above.
9 Debtor made the false oath knowingly and fraudulently. Debtor
10 clearly knew that his bankruptcy schedules were not true and correct when
11 he testified at the Rule 341 meeting of creditors. The number and
12 materiality of the inaccuracies in Debtor’s schedules eliminates the
13 possibility of mere negligence or oversight. In re Khalil, 379 B.R. 163,
14 175 (9th Cir. BAP 2007)(multiple omissions of material assets or
15 information support an inference of fraud if the nature of the assets or
16 transactions suggests that the debtor was aware of them at the time of
17 preparing the schedules and that there was something about the assets or
18 transactions which, because of their size or nature, a debtor might want
19 to conceal). In addition, Debtor is no ordinary pro se debtor. This is
20 Debtor’s third bankruptcy case, and he testified that he has a masters
21 degree in business administration with a specialty in accounting and a
22 law degree.
23 For the reasons set forth above, Debtor will be denied a discharge
24 under § 727(a)(4)(A).
25
26
III. Section (6) (A)*® - Eleventh Claim for Relief
Under this subsection of § 727(a), the plaintiff must prove “that
|| the debtor (a) was aware of the order; and (b) willfully or intentionally
|| refused to obey the order (i.e. something more than a mere failure to
| obey the order through inadvertency, mistake or inability to comply).”
| In re Clark, 525 B.R. 442, 463 (Bankr. D. Idaho 2015). A discharge will
not be denied when the debtor's failure to comply with a court order is
| because of inadvertence, inability or mistake. The debtor’s disobedience
have been intentional. In re Jarrell, 129 B.R. 29, 33 (Bankr. D.
|| Del. 1991); In re Dowell, 61 B.R. 75, 78 (Bankr. W.D. Mo. 1986). Once
the plaintiff has proved that the debtor violated a lawful order of the
| court, the burden shifts to the debtor to prove that he did not commit ar
| objectionable act. In re Reavis, 92 B.R. 380, 383 (Bankr. W.D. Mo.
| 1988).
Plaintiff argues that Debtor should be denied a discharge under
S (a) (6) (A) because he refused to obey three separate orders of the
Court. I agree.
A. The Court’s Two Orders Concerning Conversion
The evidentiary hearing on the Motion to Convert commenced on
| Wednesday, November 29, 2017. Exhibit 24, p. 1. Debtor attended that
|) hearing in person. Id. At the end of that day, the UST made an oral
Section (6) (A) provides that the court shall grant the
debtor a discharge unless
(6) the debtor has refused, in the case—
(A) to obey any lawful order of the court, other than an order
to respond to a material question or to testifyl[.]
An order is lawful if it is issued by a court with subject matter and
personal jurisdiction. Maness v. Meyers, 419 U.S. 449, 459 (1975).
Page 20 - MEMORANDUM OPINION
1 motion to restrain Debtor from transferring estate property pending a
2 decision on the Motion to Convert. Id. at p. 246. A long discussion
3 ensued on the topic. Id. at pp. 246-56. Debtor voluntarily and
4 repeatedly agreed to entry of an order restricting him from transferring
5 funds among his various accounts or to third parties. Id. at pp. 247-48,
6 252, 254. I instructed the UST to submit an order, but made it clear
7 that the restriction on transfers was effective immediately. Id. at 251.
8 Debtor also stated, repeatedly, that he had already stopped all automatic
9 transfers of funds:
10 THE COURT: And if you're trading, you know, Cisco for Intel, that's
fine. It's not fine to be transferring money to HSBC or to -- and
11 to the extent that's happening automatically, which I have my
question as to whether it would, if it's happening automatically
12 where --
13 MR. SZANTO: No, no, no. And -- and that's -- that –- that’s –
14 THE COURT: -- E*TRADE's just sending money to HSBC –
15 MR. SZANTO: What's the whole –
16 THE COURT: -- that needs to stop.
17 MR. SZANTO: That, that's the whole point of -- Your Honor, that's
the whole point of what I've tried to demonstrate here today, that,
18 yes, they've discovered things that I was doing that appear to be
improper. I've offered my explanation and all of the things that
19 were questionable, that were not being reported properly, I've taken
steps to stop. One of the problems with the E*TRADE was I had
20 dozens of accounts. There were dozens of accounts that were special
purpose for very limited --
21
THE COURT: All right. Well, I'm -- my point is that I want to be
22 sure that money's not being transferred --
23 MR. SZANTO: Of course. Of course.
24 THE COURT: -- and if there's some way it's happening automatically
to HSBC, that needs to stop.
25
MR. SZANTO: Of course. Of course. And it has.
26
THE COURT: Okay.
MR. SZANTO: It -- it -- it stopped as soon as --
1 THE COURT: Great.
2 MR. SZANTO: -- it was brought to my attention about how it looked.
3 MS. McCLURG: So –
4 MR. SZANTO: So that, that's already stopped. There was –
5 MS. McCLURG: Here's what I plan --
6 MR. SZANTO: -- nothing like that.
7 Id. at pp. 252-254.
8 The next day, on November 30, 2017, the Court entered an Order
9 Limiting Transfer of Estate Property (the No-Transfer Order). Exhibit 8.
10 With two exceptions not relevant here, the No-Transfer Order provides:
11 The debtor and all entities the debtor directly or indirectly owns,
controls, or uses to conduct business shall not transfer or cause
12 the transfer of any property of the estate, including without
limitation all funds held in bank, investment, or other financial
13 accounts, to any other persons or entities or between such
accounts[.]
14
15 Exhibit 8, p. 1.
16 The evidentiary hearing on the Motion to Convert resumed on Monday,
17 December 4, 2017. Exhibit 25, p. 1. Debtor did not appear in person as
18 expected, but I permitted him to appear via telephone. Id. at p. 4. At
19 the end of that hearing, I announced that I would rule on the Motion to
20 Convert the next day. Id. at p. 100. The UST responded that it had
21 prepared a draft order for the Court in the event I decided to grant the
22 Motion to Convert, which I ultimately did, and that Debtor should
23 understand that the UST would ask that any conversion order immediately
24 freeze, and allow the newly appointed chapter 7 trustee to exercise
25 authority over, all of Debtor’s financial accounts. Id. at pp. 99-100.
26 At my instruction, immediately after the December 4 hearing adjourned,
1 the UST submitted to the Court and emailed to Debtor a draft form of
2 order. Case No. 16-33185-pcm7, Doc. 274.
3 The next day, I made extensive findings on the record, see Exhibit
4 26, and entered the Conversion Order. The material terms of the
5 Conversion Order are consistent with both the discussion that took place
6 on the record on December 4 and with the UST’s draft order. The
7 Conversion Order provides, in part:
8 4. The debtor shall not use any property of the bankruptcy estate
as defined in 11 U.S.C. §§ 541 and 1115, including without
9 limitation all monies, funds, investments, and/or securities held
or titled in the name(s) of the debtor or Peter Szanto LLC, Peter
10 Szanto Company, Portland Trust Corp, and New Tahoe Corporation
(collectively the “Related Entities”).
11
5. By December 19, 2017, the debtor must provide the Chapter 7
12 Trustee with the following:
13 * * * * *
14 b. An itemized accounting with documentation for all sums
transferred during the chapter 11 to those entities owned
15 and/or controlled by the debtor, including but not limited to
the Related Entities;
16
c. Current account statements for all checking, savings and
17 other financial accounts, including E-trade, in the debtor’s
name or the name(s) of the Related Entities and any other
18 account in which the debtor owns and/or controls directly or
indirectly; and
19
* * * * *
20
9. The debtor shall cooperate with the Chapter 7 Trustee as
21 necessary to enable the Chapter 7 Trustee to perform the Chapter 7
Trustee’s duties under United States Code Title 11.
22
10. The debtor shall surrender to the Chapter 7 Trustee all property
23 of the estate and any recorded information, including books,
documents, records, and papers relating to property of the estate.
24
25 Exhibit 9.
26 There is no question that Debtor was aware of the No-Transfer and
1 Conversion Orders. Debtor willfully and intentionally refused to obey
2 those two orders in multiple ways.
3 Mr. Arnot testified that Debtor never provided him with the itemized
4 accounting and financial statements required under paragraphs 5(b) and
5 5(c) of the Conversion Order and did not turnover to him all property of
6 the estate as required by paragraph 10. Debtor’s response is two-fold.
7 First, Debtor claims to have no financial account statements,
8 including for the period of time his chapter 11 case was pending. I do
9 not believe Debtor and, even if I did believe him, that would in itself
10 likely be grounds to deny his discharge under § 727(a)(3).17 Second,
11 Debtor argued that he was excused from complying with the Conversion
12 Order because the chapter 7 trustee could have obtained the documents via
13
14 17 Section 727(a)(3) provides that a debtor shall be granted a
discharge unless, among other things, the debtor has
15
concealed, destroyed . . . or failed to keep or preserve any
16 recorded information, including books, documents, records, and
papers, from which the debtor’s financial condition or business
17 transactions might be ascertained, unless such act or failure to act
was justified under all the circumstances of the case[.]
18
19 The debtor's justification will be measured against what a reasonable
person would do under similar circumstances and will be evaluated in
20 light of the education, experience and sophistication of the debtor, the
nature and extent of the debtor's business, and the amount of credit
21 extended to the debtor. Meridian Bank v. Alten, 958 F.2d 1226, 1231 (3d
Cir. 1992). “[W]hen a debtor owns and controls numerous business
22 entities and engages in substantial financial transactions, the complete
absence of recorded information related to those entities and
23
transactions establishes a prima facie violation of 11 U.S.C. §
727(a)(3).” In re Caneva, 550 F.3d 755, 762 (9th Cir. 2008).
24
25 It is inconceivable that Debtor’s claimed failure to have even a
single financial statement to provide to the Trustee could be justified
26 under the circumstances of this case. Plaintiff alleged that Debtor
should be denied a discharge under § 727(a)(3) in its fourth claim for
relief. However, Plaintiff indicated in its trial brief that it would
not pursue its § 727(a)(3) claim at trial.
1 other means. Specifically, Debtor maintains that the Trustee should have
2 subpoenaed the relevant documents directly from the pertinent financial
3 institutions. Debtor’s argument is completely without merit and
4 indicative of his ongoing bad faith and vexatious abuse of the bankruptcy
5 system.
6 The Conversion Order clearly requires Debtor to provide the Trustee
7 with the specified documents. That the Trustee arguably could have
8 obtained the documents from other sources is beside the point and does
9 not excuse Debtor’s noncompliance. Indeed, Debtor would have been
10 obliged to provide the Trustee with the specified information upon the
11 Trustee’s request even if the Conversion Order had not specifically
12 required it. See Rule 4002 (requiring a debtor to cooperate with a
13 trustee’s administration of the bankruptcy estate). “[C]omplete
14 disclosure is the touchstone in a bankruptcy case.” In re Bernard, 99
15 B.R. 563, 570 (Bankr. S.D.N.Y. 1989). Neither a chapter 7 trustee nor a
16 debtor's creditors “should be required to engage in a laborious [and
17 expensive] tug-of-war to drag the simple truth into the glare of
18 daylight.” In re Tully, 818 F.2d 106, 110 (1st Cir. 1987). Debtor has
19 fallen far short of providing complete disclosure, and his failure to do
20 so is attributable to a deliberate and concerted effort to withhold
21 information he is obligated to disclose.18
22
18 Section 727(a)(4)(D) provides that the court shall grant the
23
debtor a discharge unless
24
(4) the debtor knowingly and fraudulently, in or in connection with
25 the case—
26 * * * *
(D) withheld from an officer of the estate entitled to
(continued...)
1 Mr. Arnot further testified, in extensive detail, that Debtor
2 willfully and intentionally violated the No-Transfer and Conversion
3 Orders by making multiple transfers of substantial funds from December 1,
4 2017 - December 7, 2017.19 I find that those transfers provide multiple,
5 independent and additional grounds upon which to deny Debtor a discharge
6 under § 727(a)(6)(A).
7 For example, from December 1 - December 5, 2017, Debtor made three
8 transfers totaling almost $278,000 from the LLC E*Trade Account, the
9 existence of which he concealed during his chapter 11 case, to an HSBC
10 account ending in 9269 (the HSBC 9269 Account). The HSBC 9269 Account is
11 one of the many accounts I found Debtor failed to disclose during the
12 conversion proceeding. See Exhibit 26, p. 23. Debtor admitted under
13 oath at the conversion hearing that the HSBC 9269 Account was open on the
14 petition date, had funds, and that no one else had access to the
15 account.20 Exhibit 24, pp. 186-87. Debtor testified at the conversion
16 proceeding that he did not disclose that account because he did not
17 intend to use it anymore. Id. at p. 187. As is clear now, Debtor used
18
19 18(...continued)
possession under this title, any recorded information,
20 including books, documents, records, and papers, relating to
the debtor’s property or financial affairs[.]
21
Plaintiff argues that Debtor should be denied a discharge under
22 § 727(a)(4)(D) because, despite repeated requests, Debtor knowingly and
fraudulently withheld from the Trustee the itemized accounting and
23
financial statements required under paragraphs 5(b) and 5(c) of the
24 Conversion Order. I agree.
25 19 In addition to Mr. Arnot’s detailed testimony, the transfers
are documented in Exhibits 3 and 19.
26
20 The HSBC 9269 Account is not included in the list of
Undisclosed Accounts I discuss above because the account balance on the
petition date is not clear from the record.
1 the HSBC 9269 Account to secretly move funds in an attempt to shield
2 those funds from his creditors. Mr. Arnot testified to, and Plaintiff
3 provided documentary evidence of, numerous other transfers in violation
4 of the No-Transfer and Conversion Orders, including various global
5 transfers.21
6 In response, Debtor claims that he did not violate the No-Transfer
7 and Conversion Orders because he did not make the transfers. Debtor
8 claims that the transfers all happened automatically in accordance with
9 his proprietary trading software instructions because of the Trustee’s
10 alleged failure to properly monitor Debtor’s accounts following entry of
11 the Conversion Order. There are so many problems with Debtor’s argument
12 that it is difficult to know where to begin.
13 First, as is detailed above, Debtor repeatedly stated at the
14 November 29, 2019, conversion hearing that he had already stopped all
15 automatic transfers in his accounts. In any event, I do not believe that
16 the transfers resulted automatically from preexisting trading
17 instructions put in place by Debtor. This is not the first time that
18 Debtor has made such a claim, but he has never provided any independent
19 corroborative proof of the existence of such software. In fact, Mr.
20 Arnot testified he asked Debtor to provide him with a thumb drive that
21 contained the program, but Debtor refused to comply with that request.22
22
21 Mr. Arnot testified at length and in detail at trial that
23
Debtor made global transfers of estate assets to HSBC Australia and
24 Singapore in violation of the No-Transfer and Conversion Orders. Those
transfers are documented in Exhibit 19. In addition, Debtor made two
25 undisclosed global transfers of almost $100,000 each in June of 2017,
approximately six months before entry of the Conversion Order. Exhibit
26 26, p. 26.
22 If the trading program exists, which I do not believe it does,
(continued...)
1 Debtor willfully and intentionally violated the No-Transfer and
2 Conversion Orders when he initiated the transfers. Finally, I have
3 already addressed and rejected, multiple times in this bankruptcy case,
4 Debtor’s claim that Mr. Arnot mismanaged estate assets. In any event,
5 some of the transfers occurred before entry of the Conversion Order and
6 cannot possibly be attributable to Mr. Arnot.
7 B. The Court’s Contempt Order
8 In late July of 2018, the Trustee filed a motion to hold Debtor in
9 contempt for violation of the Conversion Order (the Contempt Motion).
10 Exhibit 17. The Trustee asserted that he had been unsuccessful in his
11 attempts to obtain Debtor’s cooperation with the recovery of
12 approximately $424,000 in estate assets that Debtor transferred to HSBC
13 accounts in Australia and Singapore (the Foreign Accounts) shortly before
14 and after entry of the Conversion Order. Id.
15 The Court held an evidentiary hearing and, on October 2, 2018, I
16 entered an order granting the Contempt Motion (the Contempt Order).
17 Exhibit 10. I found that Debtor’s acts or omissions resulted in estate
18 funds being transferred to the Foreign Accounts. Case No. 16-33185-pcm7,
19 Doc. 651, p. 4. Although I declined at that time to determine whether
20 Debtor made the transfers intentionally or whether they occurred
21 automatically, I have explained above why I do not believe that the
22 transfers that happened shortly before and after entry of the Conversion
23 Order occurred automatically. However, it is not necessary to decide
24 that question for purposes of ruling on this claim for relief because the
25
26
22(...continued)
it is property of the estate that Debtor is required to turn over to the
Trustee, regardless of whether Debtor considers it to be proprietary.
1 dispositive issue is Debtor’s subsequent refusal to obey the Contempt
2 Order’s provisions requiring that he assist the Trustee in the Trustee’s
3 efforts to obtain information about and recover those funds.
4 The Contempt Order provides, in part:
5 IT IS FURTHER ORDERED that the debtor shall sign copies of the
Authorization to Disclose Financial Records [the Release Form]
6 directed to HSBC Bank, as modified, and the Account Fund Transfer
Forms with HSBC Bank Singapore Ltd. and HSBC Bank Australia Ltd.,
7 attached hereto as Exhibit 1, and deliver those signed copies to the
Trustee no later than October 12, 2018[.]
8
* * * * *
9
IT IS FURTHER ORDERED that the debtor must surrender to the Trustee
10 all funds that constitute property of the estate and take all
actions and execute all such documents necessary to assist the
11 Trustee in obtaining turnover of all property of the bankruptcy
estate that was transferred to and/or on deposit with HSBC Bank
12 Australia Ltd. and/or HSBC Bank Singapore Ltd. . . .
13 Exhibit 10, pp. 1-2. The Release Form authorizes HSBC Bank USA,
14 Australia, and Singapore, and HSBC Foreign Exchange, to release account
15 information to the Trustee and to turn over to the Trustee “all funds in
16 all bank and/or financial accounts with your institution in [Debtor’s]
17 name solely, [or] jointly with another.” Id. at p. 3.
18 Plaintiff argues that Debtor should be denied a discharge under
19 § 727(a)(6)(A) because Debtor willfully and intentionally refused to obey
20 the Contempt Order. I agree.23
21
22 23 Plaintiff did not allege in the Complaint that Debtor’s
violation of the Contempt Order was a basis to deny his discharge,
23
because the Complaint was filed before entry of the Contempt Order.
However, Fed. R. Civ. P. 15, made applicable by Rule 7015, directs that
24
“[w]hen an issue not raised by the pleadings is tried by the parties’
25 express or implied consent, it must be treated in all respects as if
raised in the pleadings.” Plaintiff argued in its trial brief that
26 Debtor should be denied a discharge under § 727(a)(6)(A) for violating
the Contempt Order and Debtor did not object at trial to the introduction
of evidence on the topic. Therefore, the question was tried with
(continued...)
1 Debtor was aware of the Contempt Order and willfully and
2 intentionally refused to comply with it. Mr. Arnot testified that Debtor
3 refused to sign the Release Form and that, as a result, he was forced to
4 hire special counsel in Singapore to assist with the Trustee’s efforts to
5 recover estate property.24
6 Debtor does not dispute that he has refused to sign the Release Form
7 and admitted at trial that he has participated in every hearing before
8 the court in Singapore, either in person or by phone, in opposition to
9 the Trustee’s efforts there. Debtor testified that he is justified in
10 refusing to comply with the Contempt Order because the money in Singapore
11 belongs to his wife, not to him. Debtor testified that the money came
12 from his wife’s Israeli military pension and was necessary to pay for a
13 recent liver transplant his wife had in Singapore.
14 I am skeptical about the veracity of Debtor’s representations
15 concerning the nature of the funds in Singapore. Debtor has never
16 provided any corroborative documentary or third-party testimonial
17 evidence to support his representations. I have told Debtor numerous
18 times that he does not represent, and may not advance claims on behalf
19 of, his wife. See, e.g., Doc. 651, p. 3. I have also repeatedly assured
20 Debtor that if any funds are turned over to the estate from the Foreign
21 Accounts, it will not impact any right that his wife has under the
22 Bankruptcy Code and applicable federal rules with regard to those funds.
23 Id. Even if I were to accept as true Debtor’s unsupported, self-serving
24
25 23(...continued)
Debtor’s implied consent. 3 Moore’s Federal Practice, § 15.18 (Matthew
26 Bender 3d Ed.).
24 Mr. Arnot testified that he may have recovered the Australian
funds but not those in Singapore.
1 testimony that he did not comply with the Contempt Order because he
2 feared the Trustee would seize funds necessary for Mrs. Szanto’s medical
3 care, which I do not, that is not a defense to the UST’s claim in this
4 matter. Debtor was still required to comply with the Contempt Order,
5 because a lawful order must be obeyed unless and until it is reversed.
6 Maness v. Meyers, 419 U.S. 449, 459 (1975). Debtor did not appeal the
7 Contempt Order. An order of civil contempt issued in a main bankruptcy
8 case, unlike in an adversary proceeding, is a final appealable order. In
9 re Stasz, 387 B.R. 271, 272 (9th Cir. BAP 2008).
10 Under § 727(a)(6)(A), once the plaintiff has shown that the debtor
11 violated a lawful order of the court, which the UST has done, the burden
12 shifts to the debtor show why his discharge should not be denied. Debtor
13 has not met that burden and his discharge will be denied under
14 § 727(a)(6)(A) based on his wilful and intentional violation of the No-
15 Transfer, Conversion, and Contempt Orders as detailed above.
16 Conclusion
17 For the reasons set forth above, Debtor will be denied a discharge
18 under § 727(a)(2)(B), (4)(A), (4)(D) and (6)(A). Counsel for Plaintiff
19 should submit a judgment within 14 days of entry of this memorandum
20 opinion.
21 ###
22 cc: Peter Szanto (via ECF)
Martin L. Smith (via ECF)
23
24
25
26