holding that absent specific evidence of fraud by debtor, court could not find presence of intent to defraud for purposes of denial of discharge
How later courts described this case
- holding that absent specific evidence of fraud by debtor, court could not find presence of intent to defraud for purposes of denial of discharge
- “All complaints objecting to discharge are strictly construed against creditors in order to effectuate the debtor’s fresh start.”
- discussing whether there was actual intent to hinder, delay, or defraud creditors in the context of a motion to deny a debtor a discharge
- reversing denial of discharge where no extrinsic evidence of actual intent to defraud
Written by the judges who cited it.
The opinion
MOORE, Circuit Judge
(dissenting):
The only issue on this appeal is whether Mrs. Adlman (“bankrupt”) converted nonexempt property into exempt property with intent to “hinder, delay or defraud” her creditors under 11 U.S.C. § 32 (c). Whether or not the bankrupt did act with such actual intent is a purely factual question, properly resolved by the trier of facts — -here, the bankruptcy judge — and not subject to reversal on appeal unless clearly erroneous. 1
Once the evidence established some reasonable ground to believe that the bankrupt acted with intent to defraud creditors in violation of § 32(c) (and I believe that the undisputed facts of the sale to and leaseback from relatives of realty with continued occupancy thereof, with proceeds used *1007 to prepay life insurance premiums constituted such reasonable ground), the burden of proof shifted to the bankrupt to demonstrate to the court’s satisfaction that a discharge was warranted. In re Freudmann, 495 F.2d 816, 817 (2d Cir.), aff’ing 362 F.Supp. 429 , cert. denied, 419 U.S. 841 , 95 S.Ct. 72 , 42 L.Ed.2d 69 (1974). In making its factual finding, the bankruptcy judge was free to consider circumstantial evidence, 2 and was in the best possible position to determine the question of motive since the bankrupt testified in person and at some length before the court. 3
In light of the record, it can hardly be argued that Bankruptcy Judge Radoyevitch’s finding of actual intent was “clearly erroneous”. On the contrary, it is amply supported by the testimony presented to the Court, and the undisputed facts alone are indicative of a scheme to defraud creditors. The sale and leaseback was not an arm’s length transaction; the immediate conversion of the proceeds into exempt property was not for the purpose of paying premiums due and owing on the policy, but rather for the prepayment of future premiums. It is conceded that the bankrupt was counselled in this course of action by a spouse who was an experienced, albeit not necessarily successful, businessman. The court could fairly infer from all of the above that there was actual intent to place assets beyond the reach of creditors, and under such circumstances, discharge was properly denied.
I would affirm the lower court’s denial of a discharge.
. Rule 810, Bankruptcy Rules, 411 U.S. 1090 ; McDowell v. John Dure Industrial Equipment Co., 461 F.2d 48, 50 (6th Cir. 1972); In re Osborn, 389 F.Supp. 1137, 1138 (N.D.N.Y. 1975).
. In re Freudmann, supra, at 362 F.Supp. 431 .
. See In re Mimshell Fabrics, Ltd., 491 F.2d 21, 23 (2d Cir. 1974).