In re: Arvind Kaur Sethi ( 2014 )

FILED
JUN 30 2014
1 NO FO PUBL A IO
T R IC T N
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
2 OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. EC-13-1312-KuJuTa
)
6 ARVIND KAUR SETHI, ) Bk. No. 10-40553
)
7 Debtor. ) Adv. No. 11-02273
______________________________)
8 )
ARVIND KAUR SETHI, )
9 )
Appellant, )
10 )
v. ) MEMORANDUM*
11 )
WELLS FARGO BANK, NATIONAL )
12 ASSOCIATION, )
)
13 Appellee. )
______________________________)
14
Argued and Submitted on May 15, 2014
15 at Sacramento, California
16 Filed – June 30, 2014
17 Appeal from the United States Bankruptcy Court
for the Eastern District of California
18
Honorable David E. Russell, Bankruptcy Judge, Presiding
19
20 Appearances: Michael R. Totaro of Totaro & Shanahan argued for
Appellant Arvind Kaur Sethi; Brandon L. Reeves of
21 Ellis Law Group, LLP argued for Appellee Wells
Fargo Bank, National Association.
22
23 Before: KURTZ, JURY and TAYLOR, Bankruptcy Judges.
24
25
26 *
This disposition is not appropriate for publication.
27 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
28 See 9th Cir. BAP Rule 8013-1.
1 INTRODUCTION
2 Arvind K. Sethi appeals from the bankruptcy court’s order
3 denying her a discharge in bankruptcy under 11 U.S.C. § 727.1
4 Because the bankruptcy court did not make sufficient findings to
5 support its ruling, we VACATE and REMAND.
6 FACTS
7 Sethi is a doctor who has been licensed to practice medicine
8 in California since 1994. Between 1999 and 2010, Sethi had her
9 own incorporated medical practice known as Arvind K. Sethi, M.D.,
10 Inc. She also owned and operated an incorporated medical spa
11 business. Both businesses were operated for a time from the same
12 location on Creekside Drive in Folsom, California.2
13 In 2007, Sethi obtained from Wells Fargo Bank, National
14 Association a $1.5 million construction loan and a $225,000
15 equipment loan. The equipment loan documents indicated that the
16 borrower was her medical practice, whereas the construction loan
17 documents indicated that the borrower was Sethi individually.
18 Sethi was personally liable for both loans either as the borrower
19 or as a guarantor. The construction loan was used to build out
20 the Creekside Drive property for commercial purposes. The
21
1
22 Unless specified otherwise, all chapter and section
references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
23 all Rule references are to the Federal Rules of Bankruptcy
Procedure. All Civil Rule references are to the Federal Rules of
24 Civil Procedure.
25 2
Sethi was unable to recall the name of the corporation
26 through which the medical spa initially was run. She also
mentions a third corporation generally known as Mediwell. Some
27 of the documentation associated with Wells Fargo’s equipment loan
suggests that Sethi did business as Mediwell as part of her
28 private medical practice and as part of her medical spa.
2
1 equipment loan was used to furnish the Creekside Drive Property
2 with furniture, fixtures and equipment. According to Sethi, she
3 conducted all of her business operations through one or more of
4 her corporations.
5 Sethi was in default on the equipment loan throughout 2009
6 and 2010. In December 2009, Wells Fargo notified Sethi that it
7 had arranged for an auction sale of its equipment collateral to
8 take place at the Creekside Drive property in January 2010. But
9 before the auction sale occurred, Sethi caused a friend of hers,
10 Steve Saxon, to move some of the equipment to a storage facility
11 that Saxon owned and operated. She also took some of the
12 equipment to her home and set up a laser treatment room in her
13 daughter’s old bedroom. According to Sethi, one of the reasons
14 she moved the equipment is that she did not want Wells Fargo to
15 auction the equipment at the Creekside Drive property in front of
16 her patients and employees. Another concern of Sethi’s was
17 closing down her practice gradually so that she did not incur
18 liability to health plans and to patients.
19 After a while, at least some of the equipment taken to the
20 storage unit and her home was moved back to the Creekside Drive
21 property. Later on, after Wells Fargo obtained relief from the
22 automatic stay in Sethi’s second bankruptcy case, Wells Fargo
23 repossessed the equipment collateral located at the Creekside
24 Drive property. Since she started her private practice in 1999,
25 Sethi has never kept any sort of written equipment inventory.
26 Sethi filed her first chapter 13 bankruptcy case (Case No.
27 10-25171) in March 2010. Sethi signed the petition and the
28 related filings knowing that she was stating under oath that the
3
1 documents were accurate and complete. At the same time, she also
2 knew that the petition and related filings actually were
3 inaccurate and incomplete. According to her, she personally
4 believed that the documents eventually would be amended.
5 The first meeting of creditors pursuant to § 341(a) was held
6 in April 2010, at which time Sethi was examined under oath as
7 required by § 343. She told the trustee during her examination
8 that her petition and related filings were accurate and complete,
9 even though she knew this was not true. When the trustee
10 followed up by asking her whether there were any corrections she
11 needed to make, she said she needed to correct the amount of
12 child support, and she further stated, “I’ll look at everything I
13 need to do.” § 341 meeting trans. (April 15, 2010) at 4:8. Later
14 on, when asked why she had not listed the $1.5 million
15 construction loan owed to Wells Fargo, and only listed the
16 $225,000 equipment loan, she stated: “Because, like I said, I
17 have to amend it. I have to really look at everything very
18 carefully.” § 341 meeting Trans. (April 15, 2010) at 15:16-18.
19 When asked during the examination what happened to the
20 equipment at the Creekside Drive property, she stated that she
21 did not know where it all was at the time. She indicated that
22 some of it might have been returned to her lenders and some of it
23 might have been moved to storage, but that she thought at least
24 some of it was still at the Creekside Drive property. According
25 to Sethi, she was overwhelmed, so she let her office manager and
26 Saxon decide what would be best to do with the equipment while
27 she was traveling in India.
28 In May 2010, the bankruptcy court dismissed Sethi’s first
4
1 bankruptcy case because Sethi was ineligible for relief under
2 chapter 13. Sethi nonetheless filed a second chapter 13 case in
3 August 2010. At Sethi’s request, this second case was converted
4 to chapter 11 in November 2010. Once again at Sethi’s request,
5 the case was converted to chapter 7 in February 2011. In support
6 of her motion to convert the case to chapter 11, in October 2010,
7 Sethi filed a declaration in which she attempted to explain the
8 tortuous history of her first bankruptcy case, including the
9 known omissions and inaccuracies in her first bankruptcy petition
10 and schedules. She explained that her non-attorney friend “took
11 care of everything” and “put everything together” and assured her
12 that they could later amend her filings to address the
13 inaccuracies and omissions.
14 Oddly, in the same declaration, when discussing the filing
15 of her second bankruptcy case, Sethi did not say that her friend
16 took care of everything or that her friend put everything
17 together. Instead, she stated “I filed this case” and “I asked
18 my friend to help me file another bankruptcy.” (Emphasis added.)
19 In fact, in the very first sentence of the October 2010
20 declaration, Sethi stated that she filed her second bankruptcy
21 case “by myself in pro per.” These statements in her October
22 2010 declaration were false and misleading. At her February 2012
23 deposition in the underlying adversary proceeding, she admitted
24 that she did not sign the second bankruptcy petition, she did not
25 review it or the accompanying schedules, she did not even see
26 them before they were filed, and she was not aware of
27 specifically when her friend filed them.
28 Sethi signed the October 2010 declaration under penalty of
5
1 perjury, filed it in the bankruptcy court, and served it on the
2 chapter 13 trustee, the United States trustee and on her
3 creditors. The court learned the true facts concerning the
4 filing of Sethi’s second bankruptcy case from the evidence Wells
5 Fargo submitted at the May 2013 trial in Wells Fargo’s adversary
6 proceeding. As far as we can tell from the record, Sethi never
7 voluntarily disclosed the true facts to the court or to her
8 creditors.
9 In April 2011, Wells Fargo filed its complaint seeking to
10 deny Sethi a discharge under § 727(a). The complaint stated
11 three claims for relief, one under § 727(a)(2), another under
12 § 727(a)(4) and a third under § 727(a)(5). After several
13 continuances, trial was held on May 9, 2013. In her trial brief,
14 filed the day before trial, Sethi contended that the property she
15 was accused of concealing in violation of § 727(a)(2) and not
16 accounting for in violation of § 727(a)(5) was neither property
17 of the debtor nor property of the estate. Based on this
18 contention, Sethi claimed two things: (1) the bankruptcy court
19 lacked subject matter jurisdiction; and (2) Wells Fargo could not
20 prevail on either its § 727(a)(2) claim or its § 727(a)(5) claim.
21 Sethi also argued that Wells Fargo could not prove that Sethi had
22 the requisite state of mind to prevail on its § 727(a)(2) claim
23 or its § 727(a)(4) claim. Finally, Sethi argued that Wells Fargo
24 could not demonstrate that Sethi made a false oath within the
25 narrow meaning of § 727(a)(4).
26 Sethi did not testify at the trial. Instead, the parties
27 stipulated to the admission into evidence of the transcript from
28 Sethi’s deposition, as well as the transcript from Sethi’s
6
1 examination at the § 341(a) meeting of creditors held in her
2 first bankruptcy case. The parties also stipulated to the
3 admission of all of Wells Fargo’s other trial exhibits. Sethi
4 did not offer any additional trial exhibits. Only one witness
5 was called and testified at trial: a Wells Fargo employee,
6 Dorothy Koster, who testified regarding the nature and extent of
7 Sethi’s obligations to the bank and the origination of those
8 obligations.3
9 On June 14, 2013, after the completion of trial, the
10 bankruptcy court orally announced its ruling. The court held
11 that Sethi’s discharge would be denied. The court did not
12 specify on which claims it was finding in favor of Wells Fargo.
13 Rather, the court’s oral findings were limited to a handful of
14 generalized statements regarding Sethi’s conduct. The court
15 twice stated that Sethi had not been honest with the court and
16 three times stated that the evidence against her was
17 overwhelming. The court also stated that Sethi “deliberately
18 . . . hid assets that were security for the bank’s loan” and that
19 she filed her two bankruptcy cases and hid the bank’s collateral
20 in an effort to prevent Wells Fargo from realizing on “its
21 security in the medical equipment of the debtor and the debtor’s
22 corporation.” Tr. Trans. (June 14, 2013) at 4:19-24.4
23
24 3
Koster’s direct testimony was presented by declaration, but
cross-examination and redirect examination were conducted live in
25 court.
26 4
Ultimately, after giving Sethi’s counsel an opportunity to
27 respond, the court further found that Sethi: “has hidden assets
or put assets away out of the reach of creditors, and that was
28 continue...
7
1 The court further found that Sethi lied at the § 341(a) exam
2 conducted in her first bankruptcy case: “Coming in to the first
3 meeting of creditors and telling the trustee in bankruptcy that
4 she doesn’t know where the equipment was, when, in fact, she
5 [k]new perfectly well where the equipment was and subsequently
6 admits it.” Tr. Trans. (June 14, 2013) at 5:10-14.
7 The bankruptcy court further found that Sethi made false and
8 misleading statements in her second bankruptcy case. More
9 specifically, the court pointed to the fact that, in her second
10 bankruptcy case, Sethi belatedly admitted that her second
11 bankruptcy petition was not signed by her and was filed by her
12 non-attorney friend without Sethi even looking at it. And yet,
13 the court noted, she presented the petition to the court as her
14 own bankruptcy filing without advising the court of the true
15 facts associated with the filing – facts that would have
16 undermined any reliance on the schedules and statement of
17 financial affairs that accompanied Sethi’s second bankruptcy
18 petition.
19 In the court’s own words, it described Sethi’s misconduct in
20 this respect as follows:
21 There is this other thing, you know, that she
admits that her second bankruptcy petition
22 was not signed by her. It was filed by a
friend of hers, she didn’t look at it, she
23 didn’t sign it, and yet she presents it to
the court as her filing. That is just not
24 acceptable to the court. That is clearly the
very type of misconduct, I presume, is
25 equivalent to having a debtor’s discharge
26
4
27 ...continue
clearly done with the intent to delay a creditor, delay [Wells
28 Fargo].” Tr. Trans. (June 14, 2013) at 6:4-6.
8
1 denied.
2 Tr. Trans. (June 14, 2013) at 5:1-9.
3 The bankruptcy court entered its order denying Sethi’s
4 discharge on June 20, 2013, and Sethi timely appealed on July 2,
5 2013.
6 JURISDICTION
7 Sethi argues that the bankruptcy court lacked jurisdiction.
8 According to Sethi, because the property she allegedly concealed
9 or allegedly failed to account for was property of her wholly-
10 owned corporations and not property of the debtor or property of
11 the bankruptcy estate, the bankruptcy court lacked jurisdiction
12 to hear and determine Wells Fargo’s adversary proceeding.
13 Sethi’s jurisdictional argument lacks merit. She attempts
14 to turn garden-variety substantive arguments into jurisdictional
15 arguments by mis-characterizing as jurisdictional requirements
16 substantive elements for claims under §§ 727(a)(2) and 727(a)(5).
17 Contrary to Sethi’s argument, the bankruptcy court’s jurisdiction
18 was based on 28 U.S.C. §§ 1334, 157(b)(1) and 157(b)(2)(J). The
19 latter two provisions, 28 U.S.C. §§ 157(b)(1) and 157(b)(2)(J),
20 expressly confer upon the bankruptcy court “core” bankruptcy
21 jurisdiction over Wells Fargo’s objection to discharge adversary
22 proceeding. Bankruptcy jurisdiction is a creature of statute.
23 See Wilshire Courtyard v. Cal. Franchise Tax Bd. (In re Wilshire
24 Courtyard), 729 F.3d 1279, 1284-85 (9th Cir. 2013). Sethi has
25 not articulated any reason why we should not apply the
26 above-cited jurisdictional provisions in accordance with their
27 plain meaning. Nor are we aware of any such reason. Therefore,
28 Sethi’s jurisdictional argument fails.
9
1 This Panel has jurisdiction under 28 U.S.C. § 158. We
2 acknowledge that the bankruptcy court’s oral ruling and its order
3 denying Sethi’s discharge could have more precisely expressed the
4 court’s intent to fully dispose of the underlying adversary
5 proceeding by explicitly identifying, addressing and disposing of
6 each of Wells Fargo’s three claims for relief. Nonetheless, in
7 the final analysis, we are convinced that the bankruptcy court
8 intended its order denying Sethi’s discharge to be its final act
9 in the matter and to fully adjudicate all of the issues raised
10 therein. See generally Brown v. Wilshire Credit Corp.
11 (In re Brown), 484 F.3d 1116, 1120 (9th Cir. 2007); Slimick v.
12 Silva (In re Slimick), 928 F.2d 304, 307 (9th Cir. 1990).
13 Under similar circumstances, the Ninth Circuit has
14 determined a bankruptcy court’s disposition to be sufficiently
15 final to permit appellate review. See Retz v. Samson
16 (In re Retz), 606 F.3d 1189, 1195 & n.5 (9th Cir. 2010)
17 (reviewing merits of bankruptcy court's decision on § 727 claims
18 where bankruptcy court "found it unnecessary" to decide § 523
19 claims in light of its granting relief on the § 727 claims); see
20 also U.S. v. $5,644,540.00 in U.S. Currency, 799 F.2d 1357, 1361
21 (9th Cir. 1986)(even though district court’s ruling did not
22 explicitly address all claims asserted in the litigation, holding
23 that court’s explicit ruling as a practical matter effectively
24 “rendered moot” all claims not explicitly disposed of, so court
25 of appeals had jurisdiction to review the district court’s
26
27
28
10
1 ruling).5
2 Therefore, we have jurisdiction to consider the merits of
3 this appeal.
4 ISSUE
5 Did the bankruptcy court commit reversible error when it
6 denied Sethi a discharge?
7 STANDARDS OF REVIEW
8 In objection to discharge litigation, we review de novo the
9 bankruptcy court’s legal conclusions, and we review for clear
10 error the bankruptcy court’s factual findings. See In re Retz,
11 606 F.3d at 1196. When our examination requires us to review the
12 bankruptcy court’s application of the facts to the law, we
13 typically review that application de novo. See id.
14 DISCUSSION
15 Our resolution of this appeal hinges on the sufficiency of
16 the bankruptcy court’s findings of fact. Civil Rule 52, which is
17 made applicable in adversary proceedings by Rule 7052, requires
18 bankruptcy courts after conducting a bench trial to make both
19 findings of fact and conclusions of law. The Civil Rule provides
20 in relevant part:
21 (1) In General. In an action tried on the facts
without a jury or with an advisory jury, the court must
22 find the facts specially and state its conclusions of
law separately. The findings and conclusions may be
23 stated on the record after the close of the evidence or
may appear in an opinion or a memorandum of decision
24 filed by the court.
25 Civil Rule 52(a)(1).
26
5
27 To the extent the bankruptcy court’s decision could be
construed as being interlocutory, we hereby grant leave to appeal
28 pursuant to Rule 8003(c).
11
1 The bankruptcy court’s findings are sufficient for purposes
2 of Civil Rule 52(a)(1) if they “indicate the factual basis for
3 its ultimate conclusions.” Simeonoff v. Hiner, 249 F.3d 883, 891
4 (9th Cir. 2001)(citing Vance v. Am. Haw. Cruises, Inc., 789 F.2d
5 790, 793 (9th Cir. 1986)). When the bankruptcy court does not
6 provide sufficient findings, we may vacate and remand for further
7 findings. First Yorkshire Holdings, Inc., v. Pacifica L 22, LLC.
8 (In re First Yorkshire Holdings, Inc.), 470 B.R. 864, 871 (9th
9 Cir. BAP 2012).
10 Even so, we need not vacate and remand based on conclusory
11 or sparse findings if our review of the record, in conjunction
12 with the available findings, provides us with a full
13 understanding of the issues on appeal. Simeonoff, 249 F.3d at
14 891 (9th Cir. 2001); Jess v. Carey (In re Jess), 169 F.3d 1204,
15 1208-09 (9th Cir. 1999); Swanson v. Levy, 509 F.2d 859, 860-61
16 (9th Cir. 1975).
17 With these principles in mind, we turn our attention to the
18 bankruptcy court’s ruling. The most specific and helpful of the
19 bankruptcy court’s findings relate to § 727(a)(2), which provides
20 that the bankruptcy court must grant the debtor a discharge
21 unless:
22 (2) the debtor, with intent to hinder, delay, or
defraud a creditor or an officer of the estate charged
23 with custody of property under this title, has
transferred, removed, destroyed, mutilated, or
24 concealed, or has permitted to be transferred, removed,
destroyed, mutilated, or concealed--
25
(A) property of the debtor, within one year before the
26 date of the filing of the petition; or
27 (B) property of the estate, after the date of the
filing of the petition[.]
28
12
1 (Emphasis added.) Generally stated, to support a denial of
2 discharge under § 727(a)(2), a creditor or other interested party
3 must prove: “‘(1) a disposition of property, such as transfer or
4 concealment, and (2) a subjective intent on the debtor's part to
5 hinder, delay or defraud a creditor through the act [of]
6 disposing of the property.’” In re Retz, 606 F.3d at 1200
7 (quoting Hughes v. Lawson (In re Lawson), 122 F.3d 1237, 1240
8 (9th Cir. 1997)).
9 The bankruptcy court unequivocally and explicitly found that
10 both the disposition element and the intent element were present
11 here. The court stated in its oral ruling that Sethi
12 deliberately concealed Wells Fargo’s collateral with the intent
13 and for the purpose of hindering its debt collection efforts.
14 Moreover, these findings were sufficiently supported by evidence
15 in the record, and we cannot conclude that they were clearly
16 erroneous.
17 Nonetheless, Sethi has argued that, for a disposition of
18 assets to implicate § 727(a)(2), the assets must have been the
19 debtor’s property or property of the estate. Because the assets
20 she permitted to be moved to storage or moved to her home were
21 assets of her incorporated medical practice or her incorporated
22 medical spa, she reasons, her disposition of these assets does
23 not satisfy § 727(a)(2)’s requirements.
24 We agree with Sethi to a point. The plain language of the
25 statute supports her legal proposition that the assets disposed
26 of must have been her assets, rather than property of one of her
27 corporations. If Congress had wanted to include within the scope
28 of § 727(a)(2) property of another legal entity, it could have so
13
1 stated. But it did not do so. California law recognizes the
2 separateness of corporate assets and liabilities. See Sonora
3 Diamond Corp. v. Superior Court, 83 Cal. App. 4th 523, 538 (2000).
4 And so have the better-reasoned federal cases interpreting the
5 scope of § 727(a)(2). See, e.g., MCorp Mgt. Solutions, Inc. v.
6 Thurman (In re Thurman), 901 F.2d 839, 841 (10th Cir. 1990);
7 Ne. Neb. Econ. Dev. Dist. v. Wagner (In re Wagner), 305 B.R. 472,
8 475-76 (8th Cir. BAP 2004); Hulsing Hotels Tenn., Inc. v.
9 Steffner (In re Steffner), 479 B.R. 746, 761-62 (Bankr. E.D.
10 Tenn. 2012); Miller v. Scott (In re Scott), 462 B.R. 735, 741-42
11 (Bankr. D. Alaska 2011).
12 While unpublished, our prior decision in Hoffman v. Bethel
13 Native Corp. (In re Hoffman), 2007 WL 7540947 (9th Cir. BAP
14 2007), is instructive. There, we upheld the bankruptcy court’s
15 denial of the debtor’s discharge under § 727(a)(2) even though
16 the property the debtor transferred belonged to his incorporated
17 property management company. Id. at **5-6. However, our
18 decision hinged on the bankruptcy court’s finding that the debtor
19 and his wholly-owned corporation were alter egos. Because the
20 bankruptcy court properly pierced the corporate veil, we
21 reasoned, the court properly could determine that debtor’s
22 transfer of corporate property implicated § 727(a)(2). Id.
23 Here, in contrast, the bankruptcy court did not make the
24 requisite alter ego findings, nor did Wells Fargo allege in its
25 complaint or set out to prove at trial the requisite elements for
26 piercing the corporate veil. On appeal, Wells Fargo for the
27 first time claims that Sethi and her medical practice and her
28 medical spa were all one in the same. We decline to address this
14
1 issue because Wells Fargo raised it for the first time on appeal,
2 and the bankruptcy court had no opportunity to consider it. See
3 United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 270 n.9
4 (2010) ("We need not settle that question, however, because the
5 parties did not raise it in the courts below."); Scovis v.
6 Henrichsen (In re Scovis), 249 F.3d 975, 984 (9th Cir. 2001)
7 (stating court will not consider issue raised for the first time
8 on appeal absent exceptional circumstances).
9 Consequently, Wells Fargo was entitled to prevail on its
10 § 727(a)(2) claim only if it proved that the property Sethi
11 concealed was her own property and not property of one of her
12 corporations. The bankruptcy court found that Sethi hid “assets”
13 and hid “the bank’s collateral.” The court further found that
14 Sethi hid Wells Fargo’s collateral with the intent and for the
15 specific purpose of hampering Wells Fargo’s “efforts to realize
16 on its security . . . in the medical equipment of the debtor and
17 the debtor's corporation.”
18 We cannot tell from these findings whether the bankruptcy
19 court intended to find that the property Sethi hid was her own
20 property or property of one of her corporations. Put another
21 way, we decline to read into the court’s oral ruling an implicit
22 finding regarding who specifically owned the concealed equipment
23 – Sethi or one of her corporations. While the evidence in the
24 record presented to us on appeal indicates that Sethi’s
25 incorporated medical practice purchased (and hence owned) the
26 equipment acquired with the proceeds from Wells Fargo’s equipment
27 loan, it is conceivable that somewhere in the record there might
28 be sufficient evidence for the bankruptcy court to find that
15
1 Sethi, rather than one of her corporations, owned at least some
2 of the concealed equipment. We leave it to the bankruptcy court,
3 in the first instance, to marshal the evidence and to make the
4 factual determination of who specifically owned the concealed
5 equipment.
6 Of course, if the bankruptcy court on remand based on the
7 evidence presented does not find that Sethi personally owned some
8 of the concealed equipment, then it should rule against Wells
9 Fargo on its § 727(a)(2) claim.
10 Similar to its § 727(a)(2) claim, Wells Fargo’s § 727(a)(5)
11 claim hinged on whether Sethi or one of her corporations owned
12 the assets in question. Under § 727(a)(5), the bankruptcy court
13 must deny the debtor’s discharge if he or she “failed to explain
14 satisfactorily, before determination of denial of discharge under
15 this paragraph, any loss of assets or deficiency of assets to
16 meet the debtor's liabilities.” (Emphasis added.) Thus, To
17 prevail on this claim, Wells Fargo needed to prove:
18 “(1) debtor at one time, not too remote from the
bankruptcy petition date, owned identifiable assets;
19 (2) on the date the bankruptcy petition was filed or
order of relief granted, the debtor no longer owned the
20 assets; and (3) the bankruptcy pleadings or statement
of affairs do not reflect an adequate explanation for
21 the disposition of the assets.”
22 In re Retz, 606 F.3d at 1205 (emphasis added) (quoting Olympic
23 Coast Invest., Inc. v. Wright (In re Wright), 364 B.R. 51, 79
24 (Bankr. D. Mont. 2007)).
25 The bankruptcy court did not make findings regarding any of
26 the § 727(a)(5) elements. On remand, it should do so. In
27 addition, for the same reasons we held above that the bankruptcy
28 court needs to make findings regarding who owned the concealed
16
1 equipment for purposes of § 727(a)(2), we similarly hold that,
2 for purposes of § 727(a)(5), the bankruptcy court needs to make
3 findings regarding who owned the assets that Sethi allegedly
4 failed to account for – Sethi or one of her corporations.
5 We next turn to Wells Fargo’s § 727(a)(4)(A) claim. The
6 relevant part of the statute provides: “The court shall grant the
7 debtor a discharge, unless . . . (4) the debtor knowingly and
8 fraudulently, in or in connection with the case – (A) made a
9 false oath or account . . . .” § 727(a)(4)(A). To prevail on
10 this claim, Wells Fargo needed to demonstrate that: “‘(1) the
11 debtor made a false oath in connection with the case; (2) the
12 oath related to a material fact; (3) the oath was made knowingly;
13 and (4) the oath was made fraudulently.’” In re Retz, 606 F.3d
14 at 1197 (quoting Roberts v. Erhard (In re Roberts), 331 B.R. 876,
15 882 (9th Cir. BAP 2005)); see also Khalil v. Developers Sur. &
16 Indem. Co. (In re Khalil), 379 B.R. 163, 172 (9th Cir. BAP 2007),
17 aff'd, 578 F.3d 1167, 1168 (9th Cir.2009) (citing same factors).
18 The bankruptcy court here did not specifically recite these
19 factors in its ruling, nor did it make explicit findings as to
20 each of these factors. Even so, the record reflects that there
21 was no dispute or confusion regarding the applicable factors. In
22 their respective pretrial briefs, both Wells Fargo and Sethi
23 cited the same factors as enunciated in In re Retz and
24 In re Khalil.
25 Additionally, most of the elements were established by
26 Sethi’s own admissions – admissions she neither recanted nor
27 otherwise distanced herself from. For instance, in her
28 deposition testimony, which was accepted into evidence at trial,
17
1 Sethi admitted that she did not read or sign or even see her
2 second bankruptcy petition and schedules before her friend filed
3 them on her behalf in August 2010. Yet Sethi filed a declaration
4 under penalty of perjury in October 2010 in which she adopted the
5 August 2010 petition and schedules as her own and led her
6 creditors and the court to believe that she reviewed, signed and
7 filed these documents. Sethi did not file corrected and amended
8 schedules until February 2011, six months after the filing of her
9 second bankruptcy case and four months after she adopted the
10 schedules as her own. Even a quick comparison between her August
11 2010 schedules and her February 2011 amended schedules reveals
12 that the August 2010 schedules were inaccurate and incomplete.
13 Untrue statements in a declaration signed by the debtor
14 under penalty of perjury and submitted to the court qualify as a
15 false oath for purposes of § 727(a)(4)(A). Abbey v. Retz
16 (In re Retz), 438 B.R. 237, 301 (Bankr. D. Mont. 2007), aff’d,
17 2008 WL 8448824 (9th Cir. BAP 2008), aff’d, 606 F.3d 1189 (9th
18 Cir. 2010). Given the nature of the statements in her October
19 2010 declaration and her later admissions, Sethi has not and
20 cannot legitimately dispute that she knowingly made false
21 statements in connection with her second bankruptcy case
22 specifically regarding the circumstances surrounding the
23 commencement of the case.
24 Nor can Sethi cast legitimate doubt on the materiality of
25 her false and misleading statements. Materiality for purposes of
26 § 727(a)(4)(A) is broadly conceived and includes, among other
27 things, “[a]n omission or misstatement that ‘detrimentally
28 affects administration of the estate.’” In re Retz, 606 F.3d at
18
 1 1198 (quoting Fogal Legware of Switz., Inc. v. Wills
2 (In re Wills), 243 B.R. 58, 63 (9th Cir. BAP 1999)). Disclosure
3 of the true facts concerning the commencement of Sethi’s second
4 bankruptcy case – that Sethi did not prepare, sign, file or even
5 look at her petition and schedules before they were filed by her
6 non-attorney friend – would have completely undermined the
7 reliability of her bankruptcy petition and schedules.
8 Put another way, the false and misleading statements
9 contained in her October 2010 declaration led her creditors and
10 the court to incorrectly believe that the petition and the
11 schedules originally filed in her second bankruptcy case had at
12 least some measure of reliability. As such, these statements
13 were wholly at odds with the fundamental purpose underlying
14 § 727(a)(4)(A): “to insure that the trustee and creditors have
15 accurate information without having to conduct costly
16 investigations.” In re Retz, 606 F.3d at 1196; see also Searles
17 v. Riley (In re Searles), 317 B.R. 368, 378 (9th Cir. BAP 2004)
18 (“the viability of the system of voluntary bankruptcy depends
19 upon full, candid, and complete disclosure by debtors of their
20 financial affairs.”)
21 Nonetheless, there are two significant obstacles that
22 prevent us, without more specific findings, from upholding the
23 bankruptcy court’s § 727(a)(4)(A) ruling. The first obstacle
24 concerns the false statements that Sethi made at the first
25 meeting of creditors in her first bankruptcy case. While these
26 false statements might be probative on the issue of Sethi’s
27 intent, they are not, in and of themselves, false oaths for
28 purposes of § 727(a)(4)(A). The plain language of the statute
19
1 makes clear that only statements made in her current bankruptcy
2 case are actionable under § 727(a)(4)(A). In this regard, we
3 find persuasive the analysis and holding of Micoz v. Carter
4 (In re Carter), 125 B.R. 631, 634 (Bankr. D. Utah 1991) (holding
5 that false statement and schedules in first bankruptcy case were
6 not actionable under § 727(a)(4)(A) in the debtors’ second
7 bankruptcy case).
8 From the limited nature of the bankruptcy court’s findings,
9 it is impossible for us to tell whether the bankruptcy court
10 relied on Sethi’s misstatements in the first case merely in
11 considering Sethi’s intent or whether the court improperly relied
12 on those statements as a false oath for purposes of
13 § 727(a)(4)(A).
14 On the other hand, Sethi’s false and misleading statements
15 in her October 2010 declaration regarding the commencement of her
16 second bankruptcy case may suffice as the requisite false oath.
17 We leave it to the bankruptcy court, on remand, to explicitly
18 state whether it was the October 2010 declaration that the court
19 relied upon for purposes of ruling in favor of Wells Fargo on its
20 § 727(a)(4)(A) claim for relief.
21 The second obstacle to our upholding, without additional
22 findings, the bankruptcy court’s § 727(a)(4)(A) ruling concerns
23 the issue of intent. Because of the gravity and practical effect
24 of denying a debtor his or her discharge, the burden of proving
25 the requisite fraudulent intent is a heavy one. In proving
26 fraudulent intent, Wells Fargo needed to show that Sethi (1) made
27 the false statements, (2) at the time she knew they were false,
28 and (3) that she made them with the intent to deceive and for the
20
1 purpose of deceiving her creditors. In re Retz, 606 F.3d at
2 1198-99. The evidence of fraudulent intent typically is
3 circumstantial and may include (but cannot be limited to) proof
4 of a reckless indifference or disregard for the truth. Id. at
5 1199 (citing In re Khalil, 379 B.R. at 173-75).
6 While the first two intent elements (false statements and
7 knowledge) are evident from Sethi’s admissions, we decline to
8 read into the record a finding that Sethi included false and
9 misleading statements in her October 2010 declaration with the
10 intent to deceive and for the purpose of deceiving her creditors.
11 Retz, 606 F.3d at 1198-99, and Khalil, 379 B.R. at 173-77,
12 when read together, provide a roadmap of factors and
13 circumstances that the bankruptcy court can and should consider
14 in determining the debtor’s state of mind for purposes of ruling
15 on a § 727(a)(4)(A) claim. Because the bankruptcy court is in
16 the best position to marshal the available facts relevant to
17 Sethi’s state of mind and to render in the first instance a
18 finding regarding her intent, the better practice is for us to
19 remand to permit the bankruptcy court to make the necessary
20 intent finding.
21 Sethi also argues that the bankruptcy court abused its
22 discretion by denying her request for an extension of time to
23 file a closing brief. At the conclusion of the presentation of
24 evidence at trial, both parties agreed to a timetable for filing
25 closing briefs and to a hearing date of June 14, 2013, for the
26 court to announce its final ruling. Apparently, Sethi’s counsel
27 was unable to comply with the agreed-upon deadline for filing
28 Sethi’s closing brief and, instead of submitting the closing
21
1 brief when due on June 6, 2013, submitted an untimely written
2 extension request on June 12, 2013, two days before the final
3 hearing.
4 At the time of the final hearing, the court denied the
5 extension request. The court noted that Sethi previously had
6 been granted more than one lengthy continuance of the trial and
7 that the court previously had ruled that “enough is enough”. The
8 court further commented that Sethi’s request to continue the
9 hearing for the court to make its final ruling so that Sethi
10 could have more time to file a closing brief was simply “too
11 little, too late.” The court proceeded to rule against Sethi on
12 the merits, effectively denying the extension request.
13 In light of our decision that the bankruptcy court’s denial
14 of discharge must be vacated and this matter remanded for further
15 findings, it is unnecessary for us to decide whether the
16 bankruptcy court abused its discretion in denying Sethi an
17 extension of time to file a closing brief.
18 CONCLUSION
19 For the reasons set forth above, we VACATE and REMAND for
20 the bankruptcy court to make further findings as discussed in
21 this decision.
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