Appendix — Rzepka v. Jacobsen, 109 S. Ct. 224 (1988) (No. 88-257)

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Ang AUG 11 1938

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ae CLERK

In THE

Supreme Court of the Anited States

OctosEerR Term, 1988

IN THE MATTER OF JACOBSEN, Debtor

CASEY RZEPKA,

Petitioner,

GARY JACOBSEN,

Respondent.

|

APPENDIX TO

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

LOWELL MYERS

1060 W. North Shore

Chicago, Illinois 60626

(312) 262-8475

Counsel for Petitioner

Midwest Law Printing Co., Chicago 60611, (312) 321-0220

TABLE OF CONTENTS

TO APPENDIX

PAGE

Opinion of the United States Court of Appeals for

the Seventh Circuit, issued June 8, 1988 ... A-l

Judgment of the United States District Court,

EE te eo pew eis bd an hae aes A-7

Memorandum and Order of the United States Dis-

trict Court, dated July 7, 1987 ............ A-8

Judgment of the United States Bankruptcy Court,

issued February 12, 1987 ................. A-11

Proceedings before the United States Bankruptcy

Court on February 12, 1987 ............... A-12

Judgment of the United States Court of Appeals

for the Seventh Circuit, dated June 8, 1988 ... A-15

A-1

APPENDIX

[UNPUBLISHED ORDER NOT TO BE CITED

PER CIRCUIT RULE 53]

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

Argued February 11, 1988

June 8, 1988

Before

Hon. JOHN L. Correy, Circuit Judge

Hon. KENNETH F. RIPPLE, Circuit Judge

Hon. JESSE E. ESCHBACH, Senior Circuit Judge

IN THE MATTER OF JACOBSEN

Debtor

CASEY RZEPKA

Plaintiff-Appellant,

No. 87-2237 v.

GARY E. JACOBSEN

Defendant-Appellee.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 87 C 3071—James B. Moran, Judge.

ORDER

Casey Rzepka, a trade creditor of the bankrupt, Gary

Jacobsen, appeals from the district court judgment affirm-

A-2

ing the bankruptcy court’s grant of discharge to Jacobsen.

Rzepka’s appeal centers on two primary claims. First, he

asserts that in affirming the bankruptcy court the district

court applied the wrong legal standard. Second, appellant

contends that the bankruptcy court improperly determined

that Jacobsen was entitled to discharge under the 11 U.S.C.

§ 727 discharge provision because Jacobsen “knowingly

and fraudulently in or in connection with [his petition for

bankruptcy] made a false oath or account.” 11 U.S.C.

§ 727(aX4XA).

I

In determining whether the district court applied the

correct legal standard our review is de novo. See In re

Kimzey, 761 F.2d 421, 423 (7th Cir. 1985); In the Matter

of Evanston Motor Co., Inc., 735 F.2d 1029, 1031 (7th Cir.

1984). See also Pullman-Standard v. Swint, 456 U.S. 273,

287, 103 S. Ct. 1781, 1789 (1982). Our review of the bank-

ruptcy court’s determination that Jacobsen was entitled

to a full discharge under 11 U.S.C. § 727 is more narrowly

limited. See Kimzey, 761 F.2d at 423. Our court has stated

that, in general terms, “the right to discharge is left to

the sound discretion of the bankruptcy court, and that an

appellate court will not interfere with the decision of a

bankruptcy court to grant a discharge unless there is a

‘gross abuse of discretion.’ ”’ In re Suttles, 819 F.2d 764,

766 (7th Cir. 1987) (citation omitted) (quoting Shaver v.

Shaver, 736 F.2d 1314, 1316 (9th Cir. 1984)).

In this case our inquiry with regard to the propriety

of the bankruptcy court’s grant of discharge will focus

only on the question of whether appellee knowingly and

fraudulently made a false oath or account in connection

with his petition for bankruptcy. Questions pertaining to

a debtor’s knowing or reckless falsehoods are questions

of fact. See Carini v. Matera, 592 F.2d 378, 380 (7th Cir.

1979); In re Nelson, 561 F.2d 1342, 1347 (7th Cir. 1976).

FepD. R. BANKR. P. 8013 (1987) explicitly states:

A-3

On an appeal the district court . . . may affirm,

modify, or reverse a bankruptcy court’s judgment,

order, or decree or remand with instructions for fur-

ther proceedings. Findings of fact, whether based on

oral or documentary evidence, shall not be set aside

unless clearly erroneous, and due regard shail be

given to the opportunity of the bankruptcy court to

judge the credibility of the witnesses.

Like the district court, our review of factual findings of

the bankruptcy court is also limited to the clearly errone-

ous standard. Evanston Motor Co., Inc., 735 F.2d at 1031;

Kimzey, 761 F.2d at 423. See also In the Matter of Neis,

723 F.2d 584, 589 (7th Cir. 1983); In re Land Investors,

Inc., 544 F.2d 925, 933 (7th Cir. 1976).

II

Appellant believes that the district court’s conclusion

that the bankruptcy court had determined that “the debtor,

while incredibly sloppy, was not intentionally lying in his

statement” demonstrates that in reviewing the bankruptcy

court’s grant of discharge to Jacobsen, the district court

interpreted § 727(aX4XA) improperly. He submits that the

district court read § 727(a)4XA) to require that a debtor

make an intentional false oath or account in order for a

denial of discharge to be warranted.

The portion of 11 U.S.C. § 727(a) relevant to this appeal

states that “(t]he court shall grant the debtor a discharge

unless—. . . (4) the debtor knowingly and fraudulently, in

or in connection with the case—(A) made a false oath or

account.”’ The language of § 727(aX4XA) is unambiguous.

It clearly requires that for a debtor to be denied discharge

he must have made a statement under oath which he

knew was false and he must have made that statement

with an intent to defraud. See Williamson v. Fireman’s

Fund Insurance Company, 828 F.2d 249, 251 (4th Cir.

1987). See also In the Matter of Melnick, 360 F.2d 918,

920 (2d Cir. 1966) (“The words of the statute requiring

that the testimony be given ‘knowingly and fraudulent-

A-4

ly’ mean no more than ‘an intentional untruth in a mat-

ter material to the issue which is itself material.’ ’’) (quot-

ing Troeder v. Lorsch, 150 F.2d 710, 713 (Ist Cir. 1906));

In the Matter of Kaufhold, 256 F.2d 181, 185 (3d Cir.

1958) (in order for discharge to be denied “‘it is sufficient

that the bankrupt knows what is true and, so knowing,

wilfully and intentionally swears to what is false’). It also

well established that the § 727(aX4XA) ground for denial

of discharge is satisfied where the debtor makes a false

oath or account material to his case with reckless indiffer-

ence to the facts. See Morimura Aria & Co. v. Taback,

279 U.S. 24, 33, 49 S. Ct. 212, 215 (1929) (either actual

knowledge that a statement was incorrect, or reckless in-

difference to the available facts, was sufficient grounds

to deny discharge to a debtor under a predecessor provi-

sion to § 727(aX4XA)); See also Diorio v. Kreisler-Borg

Construction, 407 F.2d 1330, 1331 (2d Cir. 1969) (holding,

in a case involving a creditor’s objections to a discharge,

ay — tniibeents to the truth is the equivalent

of fraud).

When the district court’s order affirming the

court is read in its entirety there can be no doubt that

it relied upon the proper § 727(aX4XA) standard in review-

ing the bankruptcy court’s grant of di . The district

court opinion identifies the “knowingly fraudulently”

state of mind requirement established by § 727(aX4XA) for

denial of discharge and then measures the bankruptcy

court’s determination that Jacobsen was entitled to dis-

charge against that requirement. It concludes: “this court

is confident that the bankruptcy court in fact found that

Jacobsen’s protestations of inadvertence, rather than fraud-

ulent or ess conduct were true.” The subsequent para-

phrase in the district court opinion of the bankruptcy

court’s conclusion that appellee while “incredibly sloppy,

was not intentionally lying in his statement” does not es-

tablish that the district court applied the wrong standard

for determining if the bankru court had y granted

Jacobsen discharge. Rzepka’s claim that district court

so erred is rejected.

A-5

Ill

Rzepka’s claim that a denial of discharge under § 727

(aX4XA) was warranted in Jacobsen’s case turns on ap-

pellee’s concededly false statements in answering three

of the questions on the Statement of Financial Affairs

bank accounts in his name or the name of one or more

of the several firms he owned and operated. None of those

accounts was active on the March 4, 1986 date of :

lee’s original SFA and none had any monies in them

November, 1985. Appellant next points to Jacobsen’s fail.

ure to report a $649.12 federal income tax refund he re-

svete abtand eee oo

ceived in 1984 and 1985 that totaled $324.74. Finall Hard

sen failed to list on his SFA the name of Todd

A-6

IV

The district court applied the correct legal standard in

reviewing the decision of the bankruptcy court. The bank-

ruptcy court’s finding of fact that Jacobsen did not know-

ingly or fraudulently make a false oath or account was

not clearly erroneous. Accordingly, the judgment of the

district court is AFFIRMED.'

FOOTNOTE

nal. In response to a question from the bench at oral nt,

counsel acknowledged that neither of these periodical arti was

a of the record before the district court. Counsel's action in

ectively incorporating the articles into the record on appeal by

reference to them in his brief is in direct contravention of Feb.

R. App. P. 10(a) and our, parallel, 7th Cir. R. 10.

Fep. R. App. P. 10(a) specifies the materials that are properly

included in the record on appeal. It states: “(The eigiadl gupers

and exhibits filed in the district court, the transcript of proceed-

i a certified copy of the docket entries prepared

by the clerk of the district i

appeal in all cases.” Under this definition “only those matters that

in fact presented | i i

A-7

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

JUDGMENT IN A CIVIL CASE

CASE NUMBER 87 C 3071

CASEY RZEPKA

v.

GARY E. JACOBSEN

(J Jury Verdict. This action came before the Court for

a trial by jury. The issues have been tried and the

jury has rendered its verdict.

& Decision by Court. This action came to trial or hear-

ing before the Court. The issues have been tried or

heard and a decision has been rendered.

IT IS ORDERED AND ADJUDGED

That the decision of the bankruptcy judge is affirmed.

(See Memorandum and Order dated Hialy 7, 1987)

Date July 7, 1987

/s/ H. StuaART CUNNINGHAM

Clerk

/s/ WiLuir A. HAYNES

Deputy Clerk

A-8

IN THE

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

CASEY RZEPKA,

Plaintiff,

No. 87 C 3071 Vs.

GARY E. JACOBSEN,

Defendant.

MEMORANDUM AND ORDER

A trade creditor appeals the decision of the bankruptcy

judge discharging the debtor in bankruptcy. The decision

of the bankruptcy judge is affirmed.

There is very little in this case, factually or legally,

which is in dispute. The debtor, who was in the building

maintenance and rehabilitation business, filed a schedule

of debts and property which represented that his total

secured debts were more than his total property. There

were, in addition, almost $200,000 in unsecured claims. No

one is attacking the substantial accuracy of the filings of

debts and assets. He also filed a statement of financial

affairs for a debtor engaged in business. This statement

was false in material respects. The debtor listed five bank

accounts as those which he had maintained within the two

years immediately preceding the bankruptcy petition.

After the trustee raised a question about the accuracy

of that representation, apparently on the basis of records

turned over by the debtor to the trustee, the debtor listed

seven more bank accounts. The creditor here thereafter

turned up nine more bank accounts. The debtor failed to

list a business carried on under the name “Todd’s Hard-

ware Supply Co.” He stated that he had not received any

tax refunds during the two years immediately preceding

A-9

the filing of the bankruptcy petition. In fact, he had re-

ceived a federal tax refund of $649.12 and a state tax re-

fund of $324.74. He denied that there was an incorporated

entity, when, in fact, there was. 11 U.S.C. §727(a) pro-

vides that debtor not be discharged if he knowingly and

fraudulently, in or in connection with the case, makes a

false oath or account.

The bank accounts which were not disclosed did not con-

tain any assets at the time of the bankruptcy. The undis-

closed business did not independently hold any assets. The

tax refunds were, in the context of over a million dollars

in liabilities, nominal and the proceeds had long since been

dissipated. The operating entity was in substance disclosed.

Ns ertheless, the creditor contends, and we believe quite

correctly, that a false oath regarding worthless assets does

constitute a material omission.

The appeal flounders, however, on the issue of debtor’s

intent. The statute prohibits discharge when the debtor

knowingly and fraudulently states a false oath or account,

and the law equates reckless indifference to the truth with

fraud. However, the bankruptcy court, having the benefit

of the testimony of the debtor and his explanations, found

that the debtor’s conduct did not rise (or, perhaps, more

accurately, fall) to that standard. The bankruptcy judge’s

findings were not particularly artful, as they referred to

Jacobsen as not a “dishonest man.” The creditor quite

rightfully points out that the debtor’s general character

is not the matter in issue. However, in context, this court

is confident that the bankruptcy court in fact found that

Jacobsen’s protestations of inadvertence, rather than fraud-

ulent or. reckless conduct, were true. Bankruptcy Rule

8013 provides that findings of fact shall not be set aside

unless clearly erroneous, and due regard shall be given

to the opportunity of the bankruptcy court to judge the

credibility of the witnesses. The bankruptcy court did

judge the credibility of the debtor here and, while the

record amply demonstrates false material statements, this

court cannot conclude that the bankruptcy court was clear-

ly erroneous in finding, in effect, that the debtor, while

A-10

incredibly sloppy, was not intentionally lying in his state-

ment. A perception of the mental state of an individual

is one particularly dependent upon perceptions of credibil-

ity. It is, therefore, accorded great deference upon review.

While this court might perhaps have reached a different

conclusion, the conclusion reached by the bankruptcy court

was not clearly erroneous.

The court does note that the creditor’s counsel submitted

memoranda in a somewhat unconventional form. This court

found them particularly easy to follow and commends

counsel for the manner of presentation.

/s/ JAMES B. MORAN

Judge,

United States District Court

July 7, 1987.

All

UNITED STATES BANKRUPTCY COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

(EASTERN DIVISION)

No. 86 A 812

(85 B 15349)

JUDGMENT

ON DECISION

BY THE COURT

CASEY RZEPKA v. GARY E. JACOBSEN

Plaintiff Defendant

This proceeding having come on for trial or hearing

before the court, Honorable THOMAS JAMES, United

States Bankruptcy Judge, presiding, and the issues hav-

ing been duly tried or heard and a decision having been

rendered,

It is Ordered and Adjudged that Objection to discharge

is overruled. Judgment is entered in favor of defendant.

/s/ WAYNE E. NELSON

Clerk of Bankruptcy Court

[Seal of the U.S. Bankruptcy Court]

Date of issuance: 2-12-87

By: /s/ SHEILA ANDERSON

Deputy Clerk

A-12

IN THE

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

No. 85 B 15349

No. 86 A 812

Judge James

In the Matter of:

CASEY RZEPKA

February 12, 1987

11:00 a.m.

VS.

GARY E. JACOBSEN.

PROCEEDINGS BEFORE

THE HONORABLE THOMAS JAMES

APPEARANCES:

MR. STEVEN B. LEVITT

appeared on behalf.of the Debtor;

MR. BENJAMIN MYERS

appeared on behalf of the Plaintiff.

THE COURT: All during your arguments, gentlemen,

and I appreciate your arguments but for the personal cast

you give to—

It is not necessary, so don’t do that.

I have been concerned about the problems that I hope

that I have spoken to both—to you, Mr. Myers, and Mr.

Levit—and I have been concentrating on the matter of

Hussan, H-u-s-s-a-n, the case found in 56 BR 288 which

makes some general statements of the law, trying to

figure out just what these statements mean.

A-13

And I would call the parties’ attention to page 290

where near the bottom of the first column the bankrupt-

cy judge states: “To sustain an objection to discharge pur-

suant to section 727(AX4Xa), the trustee or the creditor—”’

as in this case—“‘must establish that the debtor knowingly

made a false statement under oath with the intent to de-

fraud his creditors regarding a matter material to the ad-

ministration of his estate. Cases cited”.

There is no doubt that the answers to the various ques-

tions which have been admitted to have been, in the

Court’s words “false,” regard matter material to the ad-

ministration of the estate.

I am concerned about the statement in this case that

says “the debtor knowingly.” I look on—further on in this

paragraph in the second—the right-hand column on page

90 where it says, “The subject matter of a false oath is

material and thus sufficient to bar discharge if it bears

a relationship to the debtor’s business transactions or es-

tate or concerns the discovery of assets, business deal-

ings, or the existence and disposition of his property.”

I am trying to equate or find out what that particular

statement means as to the debtor knowingiy making a

false statement under oath.

It is difficult for this Court, under the facts that has

been submitted to it, knowing the work, the fine work

that this creditor did, to state that Gary E. Jacobsen

knowingly made a false statement under oath unless the

Court finds that such inattention was given to the prepa-

ration of the schedules and statement that the omissions

that were made in the answers as shown by the amend-

ments that were filed afterwards rise to such a extent

to state that the debtor knowingly h~s done these various

acts.

A-14

There has been no question that the debtor did, in fact,

list all of his assets. The purpose of answering the state-

ments in the—or the statements of the person filling out

the statements is to give creditors an opportunity to make

their own investigation, to make sure that every avenue

to find out about the debtor’s business affairs or personal

affairs may be followed.

I cannot agree with the harshness of the Tabibian case.

This Court is as much concerned about honesty and in-

tegrity of a debtor’s filing. And I suppose what the an-

swer is when we have a creditor who has undertaken to

find out these facts as have been submitted to the Court

through the proper investigation by Mr. Myers looking

through records—and I will accept that statement even

though we don’t have any evidence other than his state-

ment about that. And I smile because I don’t like to con-

sider lawyer’s statements as evidence—

How do I protect these creditors to do that? But I can-

not in good conscience say that Jacobsen is a dishonest

man, and I suppose that is where it lies. He may be guilty

of the grossest misconduct here in not taking care to fill

out those questionaires, the statements of a person con-

ducting business.

But I have no feeling, from having observed his testi-

mony and accepting his statements, that he is the type

of dishonest person who should not have a discharge. And

I suppose that is where the answer will lie, Mr. Myers;

and therefore the objections to the discharge will be over-

ruled and Mr. Jacobsen will receive a discharge. Thank

you very much.

A-15

JUDGMENT — ORAL ARGUMENT

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

June 8, 1988

Before

Hon. JOHN L. CoFrrey, Circuit Judge

Hon. KENNETH F. RIPPLE, Circuit Judge

Hon. JESSE E. ESCHBACH, Senior Circuit Judge

IN THE MATTER OF JACOBSEN

Debtor

CASEY RZEPKA,

Plaintiff-Appellant,

No. 87-2237 vs.

GARY E. JACOBSEN,

Defendant-A ppellee.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 87-C-3071—James B. Moran, Judge.

This cause was heard on the record from the United

States District Court for the Northern District of Illinois,

Eastern Division, and was argued by counsel.

On consideration whereof, IT IS ORDERED AND AD-

JUDGED by this Court that the judgment of the said

District Court in this cause appealed from be, and the

same is hereby, AFFIRMED, with costs, in accordance

with the order of this Court entered this date.