FILED
FEB 13 2018
1 SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
2 NOT FOR PUBLICATION
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
4
5 In re: ) BAP No. NC-17-1061-TaBS
)
6 AZAD AMIRI, ) Bk. No. 13-45900
)
7 Debtor. ) Adv. No. 14-04011
______________________________)
8 )
AZAD AMIRI, )
9 )
Appellant, )
10 )
v. ) MEMORANDUM*
11 )
RAMOS OIL COMPANY, INC., )
12 )
Appellee. )
13 ______________________________)
14 Argued and Submitted on January 25, 2018
at San Francisco, California
15
Filed – February 13, 2018
16
Appeal from the United States Bankruptcy Court
17 for the Northern District of California
18 Honorable William J. Lafferty III, Bankruptcy Judge, Presiding
19
Appearances: John T. Schreiber of the Law Offices of John T.
20 Schreiber argued for appellant; Walter R. Dahl of
Dahl Law, Attorneys at Law argued for appellee.
21
22 Before: TAYLOR, BRAND, and SPRAKER, Bankruptcy Judges.
23
24
25
26
27 *
This disposition is not appropriate for publication.
28 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
See 9th Cir. BAP Rule 8024-1(c)(2).
1 INTRODUCTION
2 Debtor Azad Amiri’s statement of financial affairs omitted
3 the required disclosure that he was or had been an officer or
4 director of four corporations. Ramos Oil Co., Inc. (“Ramos
5 Oil”), one of Debtor’s creditors, asserted through an adversary
6 proceeding that this omission constituted a knowing and
7 fraudulent false oath that justified a denial of discharge under
8 § 727(a)(4).1 After trial, the bankruptcy court agreed with
9 Ramos Oil. And on appeal, Debtor does not challenge most of the
10 bankruptcy court’s findings. Instead, he argues only that his
11 acknowledged omissions were not material and, thus, that they do
12 not justify denial of discharge. We disagree, and we AFFIRM the
13 bankruptcy court.
14 FACTS
15 Debtor has a decades-long involvement in the oil and gas
16 industry including more recent partial ownership of Kang
17 Properties, the owner-operator of a South Lake Tahoe gas
18 station. Ramos Oil, a Kang Properties supplier, obtained a
19 judgment against Kang Properties and Debtor through state court
20 litigation.
21 Debtor is no stranger to the bankruptcy system; he filed a
22 chapter 11 in 1993, a chapter 13 in 2009, and a chapter 13 in
23 2010. And following the Ramos Oil judgment, he again initiated
24 personal bankruptcy and also caused Kang Properties to file a
25 bankruptcy petition.
26
27 1
Unless otherwise indicated, all chapter and section
28 references are to the Bankruptcy Code,
11 U.S.C. §§ 101-1532.
2
1 Ramos Oil responded with an adversary proceeding seeking to
2 deny Debtor a discharge under § 727(a). Eventually, the
3 bankruptcy court held a one-day trial related to objections to
4 discharge under § 727(a)(2)(A) and (a)(4). In his subsequent
5 oral ruling, the bankruptcy judge ruled against Ramos Oil on its
6 § 727(a)(2) claim; Ramos Oil did not appeal from this
7 determination, and we do not discuss it further. But the
8 bankruptcy court ruled in favor of Ramos Oil on its § 727(a)(4)
9 claim. The bankruptcy judge explained: “I don’t think there’s
10 any question but that in connection with the answer to Question
11 No. 18 in the Statement of Financial Affairs that was filed by
12 the Debtor, the Debtor did not list everything that was supposed
13 to be listed.” Hr’g Tr. (Jan. 30, 2017) 12:12-16.
14 More particularly, Statement of Financial Affairs (“SOFA”)
15 question 18 requires a debtor to disclose information about
16 business entities in which the debtor acted as an officer,
17 director, partner, or managing executive during the six years
18 before he filed bankruptcy. And the bankruptcy court found that
19 Debtor failed to disclose that he was:
20 • CEO/CFO and agent for service of process for Dara
21 Petroleum, Inc.;
22 • CEO/CFO, secretary, and agent for service of process for
23 Ameri Oil Company, Inc.;
24 • CEO, secretary, CFO, and agent for service of process for
25 Aria Oil Company;2 and
26
27 2
Debtor submitted a post-petition resignation as agent
28 for service of process of Dara, Ameri, and Aria.
3
1 • Secretary, CFO, and agent for service of process for Ameri
2 Oil DK Property.
3 The bankruptcy court found that these omissions were
4 unquestionably false oaths, and he later determined that the
5 omissions were knowing and fraudulent.
6 The bankruptcy judge also carefully considered whether the
7 omissions were material. He recognized that the monetary impact
8 of the omitted information may have been small and acknowledged
9 Debtor’s “no harm-no foul” argument. And he recognized that
10 some cases recite that “there has to be some level of importance
11 to the failure to disclose[,]” which “is most easily measured
12 usually by the value of the thing that would have been available
13 to the estate . . . .” Hr’g Tr. 15:3-7. But he also noted that
14 other cases, such as Fogal Legware of Switzerland, Inc. v. Wills
15 (In re Wills),
243 B.R. 58 (9th Cir. BAP 1999), define
16 materiality more broadly and that materiality does not
17 necessarily “depend on the absolute value of assets that were
18 not disclosed,” but rather it could “depend on other things like
19 whether the admissions made it impossible to administer the case
20 . . . .” Id. at 15:10-24. The bankruptcy judge found this
21 concept particularly relevant. He explained:
22 [W]hen somebody doesn’t make a disclosure, it makes it
impossible to follow up and to find out what happened.
23 And that affects the transparency of the system. It
clearly affects the administration of the system, and
24 especially in this case, which I’ll get to in a
second. And it puts us in a situation which the Wills
25 case and many other cases tell us we’re supposed to
avoid, where the trustee is put to the task of having
26 to undergo lengthy and expensive investigations just
to figure out what was really the story on the day the
27 Debtor filed the bankruptcy.
28 . . . [T]he fact that we don’t know anything about these
4
1 companies via the schedules is very troubling. And it’s
all the more troubling frankly because these were –- [they]
2 appear[] to be closely held businesses, and they were
businesses that from the testimony and the inferences I
3 think I can draw therefrom, were managed in some way by the
Debtor –- might have been managed by others –- and they
4 seemed to have been either familial relationships or
relationships within a community of close friends and
5 advisors. That is exactly the kind of business and exactly
the kind of arrangements between businesses that can
6 sometimes lead to the discovery of assets even when the
Debtor might believe that that’s not likely.
7
. . . [I]t is frequently the case that people don’t take
8 the steps they should take to insulate certain kinds of
transactions or they don’t document things properly, or
9 they otherwise naively think that having done “X”, they’ve
achieved “Y” and they don’t. And those are all things that
10 a trustee is entitled to look at and try to get some value
for the estate, and I think both counsel . . . have been
11 through this process enough to know that in these, you
know, what I will call, relatively less cumbersome and
12 smaller corporate or LLC structures, it’s frequently the
case that there is some recovery available when one might
13 not expect so.
14 Id. at 16:5-15:1 (paragraph break added). The bankruptcy judge
15 finally emphasized:
16 But I do think that the nature of these businesses is
extremely important in this analysis because it’s just
17 not possible to say as we sit here that we can have
any confidence either that we know enough about the
18 Debtor’s involvement in the businesses or that the
businesses and those relationships, had they been
19 known, you know, would not have or could not have led
to something else that would have been of meaning to
20 the estate.
21 Id. at 18:7-14.
22 The bankruptcy court entered a judgment denying Debtor’s
23 bankruptcy discharge under § 727(a)(4). Debtor timely appealed.
24 JURISDICTION
25 The bankruptcy court had jurisdiction under 28 U.S.C.
26 §§ 1334 and 157(b)(2)(J). We have jurisdiction under 28 U.S.C.
27 § 158.
28
5
1 ISSUE
2 Whether the bankruptcy court erred in concluding that
3 Debtor’s omissions were material.
4 STANDARD OF REVIEW
5 We review the bankruptcy court’s: (1) determinations of the
6 historical facts for clear error; (2) selection of the
7 applicable legal rules under § 727 de novo; and (3) application
8 of the facts to those rules requiring the exercise of judgments
9 about values animating the rules de novo. Retz v. Samson (In re
10 Retz),
606 F.3d 1189, 1196 (9th Cir. 2010). A factual finding
11 is clearly erroneous if it is illogical, implausible, or without
12 support in inferences that may be drawn from the facts in the
13 record.
Id.
14 DISCUSSION
15 Section 727(a)(4)(A) provides for discharge denial where
16 “the debtor knowingly and fraudulently, in or in connection with
17 the case[,] made a false oath or account.” 11 U.S.C.
18 § 727(a)(4)(A). And the objector to discharge must show that
19 “the relevant false oath relate[s] to a material fact.” Retz,
20
606 F.3d at 1198 (citing Roberts v. Erhard (In re Roberts), 331
21 B.R. 876, 882 (9th Cir. BAP 2005)).
22 “The fundamental purpose of § 727(a)(4)(A) is to insure
23 that the trustee and creditors have accurate information without
24 having to conduct costly investigations.” Id. at 1196 (internal
25 quotation marks and citation omitted). Thus, materiality must
26 be evaluated with this fundamental purpose in mind.
27 Concurrently, however, the court evaluating objections to
28 discharge must remember that they are liberally construed in
6
1 favor of the debtor and against the objector. Khalil v.
2 Developers Sur. & Indem. Co. (In re Khalil),
379 B.R. 163, 172
3 (9th Cir. BAP 2007), aff’d,
578 F.3d 1167 (9th Cir. 2009).
4 A fact is material if:
5 “[‘]it bears a relationship to the debtor’s business
transactions or estate, or concerns the discovery of
6 assets, business dealings, or the existence and
disposition of the debtor’s property.’” In re Khalil,
7
379 B.R. at 173 (quoting In re Wills,
243 B.R. at 62).
An omission or misstatement that “detrimentally
8 affects administration of the estate” is material. In
re Wills,
243 B.R. at 63 (citing 6 Lawrence P. King et
9 al., Collier on Bankruptcy ¶ 727.04[1][b] (15th ed.
rev. 1998)).
10
11 Retz,
606 F.3d at 1198.
12 Debtor argues that the bankruptcy court uses an overly
13 broad definition of “material” that renders the term
14 meaningless; in essence, he argues that the bankruptcy court
15 applied an incorrect legal standard when assessing materiality.
16 We disagree; the bankruptcy court identified and recited the
17 correct legal standard for materiality and then correctly
18 applied this standard under the facts of this case.3
19 The bankruptcy court explained why the omissions were
20 highly relevant to the administration of Debtor’s bankruptcy
21 case and estate. It emphasized the nature of the corporations:
22 small companies where Debtor’s friends or family were in
23
24 3
We assume that we conduct a de novo, as opposed to clear
25 error, review of a “materiality” determination under § 727(a)(4)
as it appears to be a mixed question of law and fact. But we
26 also acknowledge some murkiness in the relevant caselaw. Here,
27 however, the standard of review is not outcome-determinative
because we agree with the bankruptcy court’s conclusion even
28 under the more exacting de novo review standard.
7
1 control; this appropriately suggested to the bankruptcy court
2 that a chapter 7 trustee would have looked carefully for
3 recovery opportunities and might have found them. It limited
4 its findings to the specific facts of the case. We also find
5 support in the record for the materiality determination in the
6 numerosity of the omissions and the fact that the omissions of
7 officer status were in connection with business transactions or
8 dealings. A failure to omit membership on a not-for-profit
9 board might require a different ruling, but here there is no
10 dispute that the businesses were profit-centered.
11 Debtor also notes that the chapter 7 trustee did not find
12 anything material missing or have difficulty administering the
13 estate because the trustee, after the meeting of creditors,
14 issued a no distribution report. And at oral argument, Debtor’s
15 counsel emphasized that the chapter 7 trustee did not pursue any
16 actions related to the non-disclosed positions, suggesting that
17 the omissions were de minimis and thus not material.
18 This is disingenuous; at oral argument, Debtor’s counsel
19 conceded that he did not know if Debtor disclosed the
20 information at the § 341(a) meeting, and the transcript of the
21 § 341(a) meeting is not on the docket and was not presented to
22 the bankruptcy court.4 Debtor’s assertion is pure postulation,
23 ungrounded in fact.
24 Further, even an omission of a non-asset is material if the
25
26 4
Although Ramos Oil’s counsel, at oral argument, stated
27 that Debtor did not disclose the information at the § 341(a)
meeting, he conceded that the record does not include the
28 § 341(a) transcript.
8
1 omission negatively impacts a trustee’s administration of the
2 estate. In re Wills,
243 B.R. at 63 (“However, an omission or
3 misstatement relating to an asset that is of little value or
4 that would not be property of the estate is material if the
5 omission or misstatement detrimentally affects administration of
6 the estate.”). The bankruptcy court identified exactly this
7 type of negative impact in its materiality determinations.
8 Notwithstanding that the bankruptcy court found material
9 omissions in Debtor’s response to SOFA question 18, Debtor
10 attempts to use the question’s text to bolster his argument that
11 his omissions were not material. As relevant here, SOFA
12 question 18 requires that an individual debtor disclose:
13 the names, addresses, taxpayer identification numbers,
nature of the businesses, and beginning and ending
14 dates of all businesses in which the debtor was an
officer, director, partner, or managing executive of a
15 corporation, . . . within six years immediately
preceding the commencement of this case, or in which
16 the debtor owned 5 percent or more of the voting or
equity securities within six years immediately
17 preceding the commencement of this case.5
18 Debtor repeatedly emphasizes the required disclosure related to
19 companies where a debtor held a 5% equity interest during the
20 six years preceding his bankruptcy. But the 5% equity
21 disclosure requirement in SOFA question 18 is neither
22
23 5
The Statement of Financial Affairs form has since been
24 revised, effective April 1, 2016. Revised Official Form 107
question 27 is even clearer; it asks: “Within 4 years before you
25 filed for bankruptcy, did you own a business or have any of the
following connections to any business?” It then provides a
26 number of check-boxes, including: “An officer, director, or
27 managing executive of a corporation” and, separately, “An owner
of at least 5% of the voting or equity securities of a
28 corporation[.]”
9
1 controlling nor even necessarily relevant to SOFA question 18’s
2 dual requirement that a debtor disclose companies where the
3 debtor was an officer or director; it is written as an
4 “either/or” not a “both/and.”
5 Thus, Debtor’s argued interpretation that materiality in
6 relation to a SOFA question 18 omission exists only where he was
7 both an officer and the holder of at least a 5% equity interest
8 is severely flawed. The bankruptcy court correctly concluded
9 that “the Code requires complete and thorough and
10 uneditorialized disclosure of all these issues, including those
11 in businesses that may not be equity interests.” Hr’g Tr. at
12 16:16-19. Debtor was not free to selectively omit responsive
13 information and then to excuse the omission in this convoluted
14 fashion.
15 Further, Debtor’s position is contradicted by language from
16 the Ninth Circuit case he cites; materiality exists where the
17 omitted fact, among other things, relates to a debtor’s business
18 transactions, the discovery of assets, or business dealings.
19 Retz,
606 F.3d at 1198. Here, Debtor failed to disclose facts
20 (his being an officer in four corporations) that involved his
21 business dealings and might have led a trustee to the discovery
22 of assets. At oral argument, Debtor’s counsel further suggested
23 that the disclosure of Debtor’s “business dealings” was not
24 relevant because this was his personal bankruptcy filing; we
25 disagree: even an individual debtor has business dealings.
26 Debtor also next argues that all of the relevant
27 § 727(a)(4) materiality caselaw involves omissions of estate
28 assets or former debtor assets. We disagree that the caselaw
10
1 limits materiality as Debtor argues. In the laundry list of
2 cases Debtor cites and discusses, the relevant material
3 omissions involved assets, as Debtor puts it, “belonging or that
4 had belonged to the debtor’s estate.” That does not, however,
5 mean that only omissions related to property of the estate
6 qualify as material omissions for § 727(a)(4) purposes. Neither
7 § 727(a)(4) as written nor its caselaw developed elements have a
8 “property of the estate” component.6
9 In short, we find no error in the bankruptcy court’s
10 conclusion that, under the facts of this case, Debtor’s
11 omissions of his status as an officer or director of four
12 corporations during the time period identified by SOFA question
13 18 were material. Debtor does not otherwise challenge the
14 bankruptcy court’s findings.
15 CONCLUSION
16 Based on the foregoing, we AFFIRM.
17
18
19
20
21 6
Debtor obliquely refers to Robertson v. Swanson (In re
22 Swanson),
36 B.R. 99 (9th Cir. BAP 1984), but does not discuss
it in any depth. It is not analogous. There, the Panel
23 reversed the bankruptcy court’s judgment denying a debtor a
24 discharge because the debtor did not list his accountancy
practice in his bankruptcy schedules.
Id. at 99-100. The Panel
25 reversed because the debtor fully disclosed his employment
history, including his accountancy practice, and because, under
26 § 541(a)(6), any future earnings would not be property of the
27 bankruptcy estate. Id. at 100. As the Panel explained: “No
asset was hidden.” Id. In the present case, Debtor never
28 disclosed his relationship with any of the four companies.
11
