In re: Howard Fletcher Thruston ( 2013 )

FILED
JUL 09 2013
1
SUSAN M SPRAUL, CLERK
2 U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. AZ-12-1297-TaAhJu
)
6 HOWARD FLETCHER THRUSTON, ) Bk. No. 10-27593-RTB
)
7 Debtor. ) Adv. No. 10-02156-RTB
______________________________)
8 )
HOWARD FLETCHER THRUSTON, )
9 )
Appellant, )
10 )
v. ) MEMORANDUM*
11 )
DAVID M. REAVES, Chapter 7 )
12 Trustee, )
)
13 Appellee. )
)
14
Argued and Submitted on June 21, 2013
15 at Phoenix, Arizona
16 Filed - July 9, 2013
17 Appeal from the United States Bankruptcy Court
for the District of Arizona
18
Honorable Redfield T. Baum, Sr., Bankruptcy Judge, Presiding
19
20 Appearances: Howard Fletcher Thruston, appellant, argued pro
se; Misty W. Weigle of Reaves Law Group argued for
21 appellee David M. Reaves, Chapter 7 Trustee.
22
Before: TAYLOR, AHART,** and JURY, Bankruptcy Judges.
23
24
25 *
This disposition is not appropriate for publication.
Although it may be cited for whatever persuasive value it may
26 have (see Fed. R. App. P. 32.1), it has no precedential value.
See 9th Cir. BAP Rule 8013-1.
27
**
The Honorable Alan M. Ahart, Bankruptcy Judge for the
28 Central District of California, sitting by designation.
1 INTRODUCTION
2 David M. Reaves, chapter 7 trustee (“Trustee”), moved for
3 summary judgment (“MSJ”) on his adversary complaint objecting to
4 the discharge of Howard Fletcher Thruston (“Debtor”) pursuant to
5 § 727(a)(2), (a)(3), and (a)(4).1 The bankruptcy court granted
6 the MSJ and subsequently entered a judgment denying the Debtor’s
7 discharge. The Debtor appeals pro se from that judgment. We
8 VACATE the summary judgment order and judgment and REMAND to the
9 bankruptcy court for further proceedings consistent with this
10 memorandum.
11 FACTS
12 The Debtor is married to Morgen Thruston (“Mrs. Thruston”)
13 and has been since at least 1986. During the course of their
14 marriage (and prior to the petition date), Mrs. Thruston acquired
15 title to various real properties in Iowa and Arizona (the “Iowa
16 Property,” the “Citrus Property,” the “Northridge Property”, and
17 the “Wagon Wheel Property”) (collectively hereafter, the
18 “Properties”). On the petition date, Mrs. Thruston also owned a
19 2008 Hummer, leased a 2007 GMC truck, and possessed a 100%
20 membership interest in Rosemont, LLC. In turn, Rosemont, LLC
21 separately owned commercial real property in Arizona. Finally,
22 the Debtor and Mrs. Thruston are or were the sole officers of
23 Dynasty Homes, Inc. (“Dynasty Homes”).
24 On August 30, 2010, the Debtor filed a skeletal chapter 7
25 bankruptcy petition; he did not file schedules or a statement of
26 financial affairs (“SOFA”). Mrs. Thruston did not join in the
27
1
Unless otherwise indicated, all chapter and section
28 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
- 2 -
1 Debtor’s bankruptcy petition.
2 Following extensions of the time to file the requisite
3 documents, the Debtor filed his schedules and SOFA in October of
4 2010. His schedules were essentially blank; the Debtor listed
5 one checking account, a real estate license, and a contractor’s
6 license on his Schedule B. On his Schedule I, he indicated that
7 he was a self-employed real estate broker/general contractor in
8 Dynasty Homes and that his wife was a homemaker. The Debtor
9 disclosed Dynasty Homes on his SOFA, but erroneously listed
10 himself as “President” (and his wife with a “?” next to her name)
11 in response to Item 21. He also attached a list of 12 lawsuits,
12 in which he identified the name of the opposing party, the case
13 number, the name of the court, and the nature of the lawsuit.
14 The Debtor, however, did not schedule any real properties,
15 vehicles, or creditors. In executing his Declaration Concerning
16 Debtor’s Schedules, the Debtor typed “[i]ncomplete–need help”
17 next to his signature.
18 The Trustee filed an adversary complaint objecting to the
19 Debtor’s discharge under § 727(a)(2), (a)(3), and (a)(4). The
20 complaint alleged that the Debtor failed to disclose significant
21 assets held by Mrs. Thruston and to provide a number of items of
22 information, including bank statements, tax returns, and real
23 property deeds.
24 The Debtor subsequently amended2 his schedules and SOFA; he
25 disclosed a few more personal property assets, identified
26
27 2
This was not based on the Debtor's own volition, but
rather, in response to the bankruptcy court’s express instruction
28 to the Debtor at a hearing.
- 3 -
1 Mrs. Thruston as a codebtor, added numerous creditors to his
2 Schedule F, and listed a few executory contracts. But his
3 schedules A, C, D, and E remained blank.
4 Nine months after filing the adversary complaint objecting
5 to discharge, the Trustee moved for summary judgment. He stated
6 that as of the date of petition, the Debtor or Mrs. Thruston
7 owned the Properties and that Mrs. Thruston possessed an interest
8 in Rosemont, LLC, the Wagon Wheel Property, and both vehicles.
9 Consequently, the Debtor possessed a community property interest
10 in all of these properties but failed to disclose the assets on
11 his schedules or SOFA. He also asserted that Mrs. Thruston
12 transferred her membership interest in Rosemont, LLC postpetition
13 without authorization from the bankruptcy court and that her
14 membership interest was extremely valuable.
15 The Trustee pointed out that during the pendency of the
16 Debtor’s bankruptcy case, secured creditors moved for relief from
17 the automatic stay as to the Properties. In each instance, the
18 Debtor opposed the stay relief motion and asserted an interest in
19 the property at issue. He also pointed out that Mrs. Thruston,
20 Dynasty Homes, and Rosemont, LLC all filed for bankruptcy relief
21 after Debtor initiated his bankruptcy case. The Trustee asserted
22 that those bankruptcy cases were plagued by the same maladies as
23 the Debtor's bankruptcy case: a bare bones petition, no initial
24 schedules or SOFA's, and a litany of emergency motions in lieu of
25 responsive documents. As such, the Trustee argued that the
26 Debtor concealed or transferred property of the estate, concealed
27 records relating to his financial condition and business
28 transactions, and knowingly and fraudulently omitted assets from
- 4 -
1 his schedules and SOFA.3
2 In support of the MSJ, the Trustee submitted a statement of
3 facts, a number of exhibits, and his affidavit. Among other
4 things, the exhibits included deeds related to the various real
5 properties. These deeds evidenced title in the name of
6 Mr. Thruston. At least one exhibit was a disclaimer deed wherein
7 Mr. Thruston affirmatively disavowed any interest in the Wagon
8 Wheel Property.
9 Rather than respond to the MSJ, the Debtor instead filed an
10 emergency motion to extend the response deadline, which the
11 bankruptcy court granted.
12 The Debtor subsequently submitted his response to the MSJ
13 and attached several exhibits; but he did not file a declaration
14 or affidavit. First, he contested the assertion that he never
15 scheduled his creditors, stating that he submitted a list of
16 creditors one week after filing his bankruptcy petition. He also
17 contested the assertion that he hid or concealed assets, arguing
18 that the real and personal properties identified by the Trustee
19 were Mrs. Thruston’s sole and separate property. The Debtor
20 argued that, in any event, the banks foreclosed on the Citrus
21 Property and Northridge Property approximately eight months prior
22 to the petition date. In support of this assertion, he attached
23 two trustee's deeds of sales with respect to those properties.
24 The Debtor further argued that Mrs. Thruston sold the Wagon Wheel
25 Property and that the remaining properties lacked equity.
26
3
The Trustee also objected to discharge under
27 § 523(a)(3)(B). That basis was not expressly included in the
Judgment and neither party discusses it on appeal. Thus, we do
28 not consider it.
- 5 -
1 In reply, the Trustee reiterated that the Debtor was
2 required to disclose all assets. The Trustee maintained that,
3 notwithstanding the prepetition foreclosures, the Debtor
4 affirmatively asserted interests in the Citrus and Northridge
5 properties when he opposed the stay relief motions. He also
6 reiterated that regardless of title, the community property
7 presumption applied to the properties and, thus, that the Debtor
8 concealed property of the estate by failing to properly disclose
9 the various assets held by Mrs. Thruston. Finally, the Trustee
10 maintained that whether the properties contained equity or
11 whether creditors were injured by the Debtor’s nondisclosure was
12 irrelevant given the Debtor’s obligations and duties under the
13 Bankruptcy Code.
14 The parties presented arguments to the bankruptcy court on
15 March 22, 2012. The Trustee argued that the pattern of delay and
16 nonfeasance in the Debtor's bankruptcy case – in conjunction with
17 the bankruptcy cases of Mrs. Thruston and their related
18 entities – demonstrated an abuse of the bankruptcy system that
19 precluded discharge. He also called attention to the fact that,
20 even if the Debtor executed disclaimer deeds on the real
21 properties, no such deeds existed with respect to the membership
22 interest in Rosemont, LLC or the vehicles.
23 The Debtor relied, in part, on his pro se status. He
24 emphatically argued that he disclosed everything required of him
25 and contested that he concealed or acted to defraud anyone. The
26 Debtor conceded, however, that he and his wife continued to
27 reside in the Northridge Property. At the conclusion of
28 arguments, the bankruptcy court took the matter under submission.
- 6 -
1 The bankruptcy court subsequently entered a minute
2 entry/order (“SJ Order”) granting the MSJ. It determined that
3 the Debtor asserted interests in the Properties in his objections
4 to the stay relief motions. Based on that and the Debtor’s
5 failure to disclose other assets, the bankruptcy court determined
6 that the Debtor concealed and failed to disclose significant
7 assets within one year from filing bankruptcy. It also found
8 that the Debtor made a false oath as to real and personal
9 properties. The bankruptcy court, however, made no express
10 findings as to the Debtor’s state of mind and made no reference
11 to the § 727(a)(3) claim.
12 The Debtor next filed an emergency motion for
13 reconsideration on the SJ Order. Before the bankruptcy court
14 ruled on the Debtor’s emergency motion, however, it entered a
15 judgment (“Judgment”) denying the Debtor’s discharge under
16 § 727(a)(2), (a)(3), and (a)(4). The Debtor timely filed his
17 notice of appeal.
18 JURISDICTION
19 The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
20 §§ 1334 and 157(b)(2)(J). If the judgment is final, then
21 we have jurisdiction under 28 U.S.C. § 158(b).
22 Because the Debtor filed his notice of appeal after moving
23 for reconsideration, the BAP Clerk issued an order requiring
24 clarification regarding jurisdiction. The order provided that
25 the motion for reconsideration tolled the time to appeal until
26 entry of an order disposing of that motion. The order, thus,
27 directed that the Debtor respond and provide a copy of the order
28 from the bankruptcy court ruling on his motion for
- 7 -
1 reconsideration or explain the steps taken to obtain an order.
2 The Debtor responded and provided a minute entry/order from the
3 bankruptcy court denying the Debtor’s motion for reconsideration.
4 Therefore, we have jurisdiction over this appeal.
5 ISSUE4
6 Did the bankruptcy court err in denying the Debtor’s
7 discharge under § 727(a) when it granted summary judgment in
8 favor of the Trustee?
9 STANDARD OF REVIEW
10 In an action for denial of discharge, we review: (1) the
11 bankruptcy court's determinations of the historical facts for
12 clear error; (2) its selection of the applicable legal rules
13 under § 727 de novo; and (3) its application of the facts to
14 those rules requiring the exercise of judgments about values
15 animating the rules de novo. Searles v. Riley (In re Searles),
16 317 B.R. 368, 373 (9th Cir. BAP 2004) (citation omitted), aff'd,
17 212 Fed. Appx. 589 (9th Cir. 2006).
18 We review an order granting summary judgment de novo, and,
19 thus, we are bound by the same principles as the bankruptcy
20 court. Marciano v. Fahs (In re Marciano), 459 B.R. 27, 35 (9th
21 Cir. BAP 2011), aff'd, 708 F.3d 1123 (9th Cir. 2013).
22
23
4
We do not address other issues identified by the Debtor on
24 appeal, such as whether the Trustee committed fraud and perjury
during the course of the proceedings; whether the bankruptcy
25 court erred in permitting the Trustee to retain his own law firm
as counsel; whether the bankruptcy court showed “substantial
26 favoritism” to the Trustee; or whether the bankruptcy court
permitted violations of the Debtor’s constitutional rights.
27 These issues were not raised before the bankruptcy court, not
properly raised or addressed in the Debtor’s opening brief, or
28 simply lack a cognizable legal basis.
- 8 -
1 DISCUSSION
2 On appeal, the Debtor argues that the bankruptcy court erred
3 in granting the MSJ and, consequently, in denying his chapter 7
4 discharge.5 Based on the Debtor’s pro se status – both before
5 the bankruptcy court and on appeal – we liberally construe his
6 pleadings and other documents. See Nilsen v. Neilson
7 (In re Cedar Funding, Inc.), 419 B.R. 807, 816 (9th Cir. BAP
8 2009).
9 In general, the bankruptcy court must grant a discharge to
10 an individual chapter 7 debtor unless one of the twelve
11 enumerated grounds in § 727(a) is satisfied. In the spirit of
12 the “fresh start” principles that the Bankruptcy Code embodies,
13 claims for denial of discharge are liberally construed in favor
14 of the debtor and against the objector to discharge. Khalil v.
15 Developers Sur. & Indem. Co. (In re Khalil), 379 B.R. 163, 172
16 (9th Cir. BAP 2007), aff'd, 578 F.3d 1167 (9th Cir. 2009). The
17 objector to discharge, thus, bears the burden to prove by a
18 preponderance of the evidence that the debtor's discharge should
19 be denied under an enumerated ground of § 727(a). Id.
20 Summary judgment is appropriate when there is no genuine
21 dispute of material fact, and, when viewing the evidence most
22 favorably to the non-moving party, the movant is entitled to
23 prevail as a matter of law. Fed. R. Civ. P. 56 (incorporated
24 into adversary proceedings by Fed. R. Bankr. P. 7056); Celotex
25
5
The Debtor spends a significant amount of his opening
26 brief discussing his lengthy litigation with National Bank of
Arizona and includes documents related to that litigation in his
27 excerpts of record. While that litigation is clearly important
to the Debtor, it bears little to no relevance to the present
28 appeal, and, therefore, we do not address it in this memorandum.
- 9 -
1 Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Substantive law
2 governs the materiality of a fact; thus, a fact is material if,
3 under applicable substantive law, it may affect the outcome of
4 the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
5 (1986). All justifiable inferences are to be drawn in favor of
6 the non-moving party. Id. at 255.
7 The movant must first identify "those portions of the
8 pleadings, depositions, answers to interrogatories, and
9 admissions on file, together with the affidavits, if any, which
10 it believes demonstrate the absence of a genuine [dispute] of
11 material fact.” Caneva v. Sun Cmtys. Operating Ltd. P’ship
12 (In re Caneva), 550 F.3d 755, 761 (9th Cir. 2008) (citing Celotex
13 Corp., 477 U.S. at 323)). Once the movant meets its burden, the
14 burden shifts to the non-moving party to "set out specific facts
15 showing a genuine issue for trial." Id. (citing Fed R. Civ. P.
16 56(e)(2)).
17 The non-moving party, however, cannot rest on mere
18 allegations or denials in his or her pleadings. Rather, the
19 non-moving party must present admissible evidence showing that
20 there is a genuine dispute for trial. Fed. R. Civ. P. 56(e). As
21 such, “[b]riefs and oral argument do not constitute evidence.”
22 In re Hill, 450 B.R. 885, 892 (9th Cir. BAP 2011); see also
23 British Airways Bd. v. Boeing Co., 585 F.2d 946, 952 (9th Cir.
24 1978) ("[L]egal memoranda and oral argument are not evidence, and
25 they cannot by themselves create a factual dispute sufficient to
26 defeat a summary judgment motion"). It is error, however, to
27 grant summary judgment simply because the opponent failed to
28 oppose. N. Slope Borough v. Rogstad (In re Rogstad), 126 F.3d
- 10 -
1 1224, 1227 (9th Cir. 1997). Again, the movant must meet its
2 initial burden as to all elements of the cause of action.
3 Here, in order to establish that he was entitled to summary
4 judgment, the Trustee needed to show that there were no material
5 factual disputes regarding the denial of the Debtor's discharge
6 under § 727(a)(2), (a)(3), or (a)(4). We first address
7 § 727(a)(3).
8 Section 727(a)(3)
9 Section 727(a)(3) provides that denial of discharge is
10 warranted where, among other things, the debtor concealed or
11 falsified recorded information, including books, documents,
12 records, and papers, from which the debtor's financial condition
13 or business transactions might be ascertained.
14 The objector to discharge states its prima facie case under
15 § 727(a)(3) by showing: (1) that the debtor failed to maintain
16 and preserve adequate records; and (2) that this failure rendered
17 it impossible to ascertain the debtor's financial condition and
18 material business transactions. In re Caneva, 550 F.3d at 761
19 (citation and quotation marks omitted). Once the objector shows
20 inadequate or nonexistent records, the burden shifts to the
21 debtor to justify the inadequacy or nonexistence. Id. (citation
22 and quotation marks omitted).
23 Here, the Trustee argued that the Debtor’s multiple delays
24 in filing schedules and SOFA’s in his bankruptcy case and in the
25 bankruptcy cases of Mrs. Thruston and related entities was
26 tantamount to concealing information regarding the Debtor’s
27 financial condition and business transactions. In the adversary
28 complaint, however, the Trustee asserted that the Debtor failed
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1 to provide information relating to real properties, bank
2 accounts, and tax returns.
3 In connection with the MSJ, the bankruptcy court made no
4 findings as to inadequate or nonexistent documents. With one
5 exception,6 the record is devoid of a discussion of specific
6 allegedly inadequate or nonexistent documents. Aside from the
7 adversary complaint, the Trustee did not further advance a clear
8 theory or supportive evidence that the Debtor concealed or failed
9 to maintain records or documents.
10 When prompted at oral argument to articulate the basis for
11 his § 727(a)(3) claim, the Trustee could not specifically
12 identify any documents or records that the Debtor allegedly
13 failed to maintain other than the Debtor’s failure to timely file
14 his schedules and SOFA. Then, when prompted for case authority
15 that supported this proposition, the Trustee cited Retz v.
16 Sampson (In re Retz), 606 F.3d 1189, 1197 (9th Cir. 2010).
17 It is true that, after several extensions, the Debtor filed
18 his initial schedules and SOFA one day late. But it is also true
19 that the bankruptcy court granted the Debtor’s requests for
20 extensions of the time to file his requisite documents. The
21 Trustee’s dependance on these extensions is, thus, improper.
22 The Trustee’s reliance on In re Retz is also misplaced. In
23 Retz, the bankruptcy court found that the debtor’s schedules and
24 SOFA contained a number of significant inaccuracies and
25
26 6
The record shows that at a hearing in the adversary
proceeding on September 20, 2011, there was a colloquy in regards
27 to bank statements. In particular, the Trustee stated that he
was unwilling to agree that the Debtor had, in fact, produced all
28 relevant bank statements.
- 12 -
1 omissions. Id. This determination, however, was made in the
2 context of an action under § 727(a)(4) and (a)(5), see id. at
3 1197-1200, 1205-06, and not in connection with a § 727(a)(3)
4 cause of action. In fact, the opinion contains no reference to
5 § 727(a)(3). Contrary to the Trustee’s assertion, a debtor’s
6 schedules and/or SOFA are not the types of records contemplated
7 by § 727(a)(3). See Depue v. Cox (In re Cox), 462 B.R. 746, 762
8 (Bankr. D. Idaho 2011) (debtor’s failure to properly complete his
9 or her schedules or SOFA does not address the inquiry required
10 under § 727(a)(3)); see also Berger & Assocs. Att’ys, P.C. v.
11 Kran (In re Kran), --- B.R. ----, 2013 WL 1809768, at *5-6
12 (S.D.N.Y. Apr. 30, 2013) (Section 727(a)(3) “extends to only
13 certain types of record-keeping deficits, and only back to a
14 reasonable period past to present.”) (citation and quotation
15 marks omitted).
16 In sum, we reject the Trustee’s argument that the Debtor's
17 schedules or SOFA, in and of themselves, constituted inadequate
18 recorded information for the purposes of § 727(a)(3). The
19 Trustee does not otherwise sufficiently identify records that the
20 Debtor allegedly failed to maintain or produce. Nor does the
21 Trustee articulate how the Debtor failed to meet the disclosure
22 standard set forth in In re Caneva, as discussed above. We
23 cannot clearly ascertain this information from the record. As
24 such, the Trustee did not meet his burden of showing that the
25 Debtor failed to maintain or preserve adequate records pursuant
26 to § 727(a)(3) at summary judgment. Therefore, we reverse and
27 remand as to the § 727(a)(3) claim.
28
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1 Sections 727(a)(2) and (a)(4)
2 Section 727(a)(2) provides that denial of discharge is
3 warranted where the debtor disposed of or permitted the disposal
4 of his or her property, with the intent to hinder, delay, or
5 defraud a creditor or an officer of the estate, within the
6 applicable statutory period. Section 727(a)(4) provides that
7 denial of discharge is warranted where, among other things:
8 (1) the debtor made a false oath in connection with the
9 bankruptcy case; (2) the oath related to a material fact; (3) the
10 oath was made knowingly; and (4) the oath was made fraudulently.
11 In re Retz, 606 F.3d at 1197 (citation omitted).
12 A necessary element of an action under either § 727(a)(2) or
13 (a)(4) is the debtor’s intent; the objector to discharge must
14 show that a debtor harbored a subjective intent to hinder, delay,
15 or defraud a creditor or trustee under § 727(a)(2) or a
16 fraudulent intent under § 727(a)(4). Intent is a factual
17 question that requires the bankruptcy court “to delve into the
18 mind of the debtor and may be inferred from surrounding
19 circumstances . . . [or a debtor’s] course of conduct . . . .”
20 In re Searles, 317 B.R. at 379. Nonetheless, “[s]ummary judgment
21 is ordinarily not appropriate in a § 727 action where there is an
22 issue of intent,” Fogal Legware of Switz., Inc. v. Wills
23 (In re Wills), 243 B.R. 58, 65 (9th Cir. BAP 1999), since summary
24 judgment is based on the evidence before the court, without
25 determination as to the weight of evidence or credibility of
26 witnesses. See Anderson, 477 U.S. at 249 (“[A]t the summary
27 judgment stage the judge's function is not himself to weigh the
28 evidence and determine the truth of the matter but to determine
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1 whether there is a genuine [dispute] for trial.”).
2 Under § 541, commencement of a bankruptcy case creates an
3 estate comprised of all the debtor’s legal or equitable interests
4 in property. 11 U.S.C. § 541(a)(1). This includes “[a]ll
5 interests of the debtor and the debtor's spouse in community
6 property,” either under the debtor’s sole, equal, or joint
7 management and control, or liable on an allowable claim against
8 the debtor. Id. § 541(a)(2) (emphasis added). Arizona is a
9 community property state; consequently, a presumption of
10 community property arises as to property acquired during marriage
11 regardless of the form of title. See A.R.S. § 25-211(a); Carroll
12 v. Lee, 148 Ariz. 10, 16 (1986) (presumption of community
13 property “applies to property acquired during marriage even
14 though title is taken in the name of only one spouse.”) (emphasis
15 added).
16 Because the Debtor and his wife live in Arizona, the
17 presumption of community property automatically arises as to all
18 property and assets acquired during their marriage, even those
19 solely titled in Mrs. Thruston’s name. See A.R.S. § 25-211(a);
20 Carroll, 148 Ariz. at 16. To the extent the Debtor possessed a
21 community property interest in those assets, in turn, those
22 interests became property of his bankruptcy estate as of the
23 petition date. The Trustee’s case under § 727(a)(2) and (a)(4)
24 is based on the community property presumption and the argument
25 that the Debtor was required to disclose all such interests.
26 The Debtor vociferously protested against the assertion that
27 he acted with obstructive or fraudulent intent and that he was
28
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1 required to include his wife’s separate property.7 Like many
2 pro se debtors, however, the Debtor made the mistake of not
3 responding to the MSJ with evidence by way of, at a minimum, an
4 affidavit or a declaration made under the penalty of perjury.
5 This is typically fatal to a nonmoving party in showing that a
6 genuine and material factual dispute exists for trial. See
7 generally In re Hill, 450 B.R. at 892; British Airways Bd.,
8 585 F.2d at 952. Even so, the failure to properly respond does
9 not automatically result in summary judgment for the movant. See
10 2010 Amendments, Fed. R. Civ. P. 56(e) (“[S]ummary judgment
11 cannot be granted by default even if there is a complete failure
12 to respond to the motion, much less when an attempted response
13 fails to comply with [Civil] Rule 56(c) requirements.”).
14 In other words, there can be no default summary judgment.
15 Id. A court thereby errs when it grants summary judgment simply
16 because the non-movant failed to properly respond. See
17 In re Rogstad, 126 F.3d at 1227. As discussed further below,
18 here, we conclude that based on the Debtor’s pro se status, the
19 bankruptcy court’s failure to make specific findings as to the
20 Debtor’s intent, and the particular circumstantial evidence in
21 this case, the Debtor’s failure to advance evidence in response
22 to the MSJ was not fatal.
23 The record contains no evidence showing that the Debtor
24 admitted to acting with obstructive or fraudulent intent. Thus,
25
7
At oral argument, the Debtor asserted that he received
26 some form of legal assistance from an attorney through his
church. The Debtor, however, never provided evidence in
27 connection to this representation. Thus, to the extent he
attempts to advance good faith reliance on the advice of counsel,
28 we decline to consider the argument on appeal.
- 16 -
1 determining whether such intent exists is dependant on
2 circumstantial evidence. The Trustee relied on several cases in
3 support of his argument as to the inference of intent under
4 § 727(a)(4). Only one of those cases, Sholdra v. Chilmark
5 Financial LLP (In re Sholdra), 249 F.3d 380, 383 (5th Cir. 2001),
6 however, involved a summary judgment. And In re Sholdra is
7 distinguishable. There the debtor did not admit intent, but
8 admitted to a knowing failure to schedule significant assets.
9 Id. at 382. Here, in contrast, the Debtor consistently defended
10 his failure to list what he characterized as his wife’s assets.
11 On this record – and viewing all the facts and evidence in
12 the light most favorable to the Debtor, as we must on summary
13 judgment – there remains a genuine dispute as to whether the
14 Debtor acted with the requisite state of mind under § 727(a)(2)
15 or (a)(4) necessary to deny his discharge.
16 There is no serious dispute that the Debtor failed to
17 schedule or disclose the assets identified by the Trustee. The
18 pertinent inquiry here, however, is whether he did so with the
19 requisite intent under § 727(a)(2) or (a)(4). While the record
20 certainly raises questions, it is far from dispositive as to the
21 issue of intent with respect to all of the allegedly undisclosed
22 assets identified by the Trustee and expressly relied upon by the
23 bankruptcy court. The failure of the bankruptcy court to make
24 findings in this area complicates the issue.
25 The Debtor argued that he was not required to disclose the
26 assets at issue because these assets were his wife's sole and
27 separate property. In particular, he argued that he executed
28 “disclaimer deeds” on the real properties acquired during the
- 17 -
1 marriage and titled in Mrs. Thruston’s name. In Arizona, a party
2 may rebut the presumption of community property by establishing,
3 among other things, that one spouse executed a disclaimer deed,
4 which disclaims all interests, claims, and rights to real
5 property. See Bell-Kilbourn v. Bell-Kilbourn, 216 Ariz. 521, 524
6 (Ariz. Ct. App. 2007) (disclaimer deed is a contract between the
7 parties and such evidence rebuts the community property
8 presumption).
9 The Debtor's argument alone could be insufficient to rebut
10 an inference of improper intent given the Trustee’s prima facie
11 showing of the Debtor’s nondisclosure and the circumstantial
12 evidence. See In re Wills, 243 B.R. at 65 (denial of summary
13 judgment demands “credible evidence beyond mere self-serving
14 statements of intent which creates a genuine issue of material
15 fact” as to whether a debtor acted with the requisite intent)
16 (emphasis added). Our review of the record, however, shows that
17 one of the Trustee’s own MSJ exhibits included a copy of a
18 disclaimer deed to the Wagon Wheel Property. The disclaimer deed
19 rebutted the presumption of community property as to that
20 property, and, thus, the Debtor was not clearly required to
21 schedule the Wagon Wheel Property. Further review of the record
22 also shows that at the Citrus Property stay relief hearing, the
23 secured creditor asserted that the Debtor executed a disclaimer
24 deed with respect to that property, and, thus, that the Citrus
25 Property was Mrs. Thruston’s sole and separate property. This
26 evidence goes beyond self-serving statements and creates
27 ambiguity as to whether the Debtor actually executed disclaimer
28 deeds on the other real properties or similar agreements as to
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1 other assets. And, ultimately, it goes to the Debtor’s state of
2 mind in failing to disclose his wife’s assets.
3 The Debtor also provided evidence that two of the allegedly
4 undisclosed real properties – the Citrus Property and the
5 Northridge Property – were foreclosed on prepetition. Our review
6 of the record additionally shows that, in seeking stay relief,
7 the secured creditor movants attached copies of trustee’s deeds
8 with respect to the same properties in support of requested
9 relief. These prepetition foreclosure sales extinguished any
10 ownership interest that Mrs. Thruston or the Debtor (either
11 directly or as community property) had therein. See A.R.S.
12 § 33-811(c) (unless trustor obtains an injunction prior to a
13 scheduled trustee’s sale, the trustor waives all defenses and
14 objections to the sale); id. at § 33-811(e) (trustee's deed of
15 sale conveys the trustor's title, interest and claims in the
16 subject property to the purchaser without right of redemption).
17 Essentially, the Debtor was a squatter in the Northridge
18 Property. A failure to schedule such an alleged interest does
19 not form an unambiguous basis for the inference of obstructive or
20 fraudulent intent.
21 And while the Debtor never directly scheduled the disputed
22 real properties, the Debtor identified litigation related to the
23 Properties on his SOFA; his disclosure identified pending
24 litigation and indicated that the actions related to “forcible
25 detainer judgment,” “deficiency action,” and “foreclosure.”
26 Again, while improperly disclosed, this is inconsistent with a
27 determination of intentional concealment. Here, the combination
28 of the oblique reference to the Properties through the listing of
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1 the litigation coupled with the disclaimer deed as to the Wagon
2 Wheel Property provides circumstantial evidence that is
3 inconsistent with an assertion of improper intent in connection
4 with his failure to schedule the real properties. In short, on
5 this record, it is far from clear that the Debtor acted with the
6 intent to defraud, conceal, hinder, or delay disclosure of the
7 real property assets.8
8 Perhaps acknowledging the quandary arising in relation to
9 the real properties, the Trustee also contended that the Debtor
10 nevertheless failed to disclose his wife's membership interest in
11 Rosemont, LLC and the vehicles. Again, given the evidence of
12 disclaimer deeds as to other property and making all inferences
13 in favor of the Debtor as we must at summary judgment, wrongful
14 intent cannot be inferred solely on this basis. The fact that
15 one of the vehicles is leased only by Mrs. Thruston - a fact that
16 could create a question in the mind of even a sophisticated
17 debtor - further supports the conclusion that the failure to
18 schedule these assets does not provide sufficient unambiguous
19 evidence of wrongful intent.
20 And while we do not suggest that the Debtor’s acknowledgment
21 of the incompleteness of the schedules and SOFA on the face of
22 the document is sufficient to avoid a finding of wrongful intent
23 even at summary judgment, it is another factor that balances
24 against summary judgment as to intent.
25 Finally, the Trustee relied on activity in the bankruptcy
26
27 8
Moreover, it appears that some of the allegedly
undisclosed assets were scheduled and disclosed in the other
28 bankruptcy cases.
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1 cases of Rosemont, LLC and Mrs. Thruston to support his assertion
2 of wrongful intent. But the fact that these entities filed and
3 submitted assets directly to the jurisdiction of the bankruptcy
4 courts could be viewed as favorable to the Debtor, at least as to
5 his state of mind. Again, at summary judgment, we are not free
6 to weigh the evidence against the Debtor where there are two
7 legitimate ways to view the evidence. At oral argument, the
8 Trustee argued that, in particular, Mrs. Thruston’s postpetition
9 transfer of her interest in Rosemont, LLC (on the same day that
10 Rosemont filed a petition) evidenced the Debtor’s obstructive or
11 fraudulent intent. To use this evidence against the Debtor,
12 however, requires us to make assumptions disfavorable to the
13 Debtor and ignores the fact that according to the record the
14 value of that entity was solely in real property concurrently
15 submitted to the jurisdiction of a bankruptcy court; fraudulent
16 intent is not unambiguously clear based on this transaction.
17 To be clear, we do not hold that the Debtor prevailed on the
18 adversary complaint or determine that he is entitled to his
19 bankruptcy discharge. Nor do we purport to establish that a
20 debtor may use his or her pro se status as a shield to nefarious
21 conduct. As stated, the record contains facts supportive of an
22 abusive filing. The record also shows that the bankruptcy court
23 repeatedly advised the Debtor to seek the assistance of counsel
24 and provided him information regarding free or low cost
25 bankruptcy legal services. The Trustee ultimately may prove that
26 the Debtor is not entitled to a bankruptcy discharge based on the
27 totality of the circumstantial evidence. Of course, the
28 bankruptcy court enjoys substantial discretion in weighing
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1 evidence and making determinations as to credibility at trial.
2 But on this record and in the context of a summary judgment,
3 there remains a genuine dispute as to whether the Debtor acted
4 with the intent necessary for denial of his chapter 7 discharge
5 under § 727(a)(2) or (a)(4).
6 CONCLUSION
7 Based on the foregoing, we VACATE the SJ Order and Judgment,
8 and REMAND to the bankruptcy court for further proceedings
9 consistent with this memorandum.
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