Gasson v. Premier Capital, LLC ( 2022 )

21-1063-bk
Gasson v. Premier Capital, LLC
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term, 2021
Argued: April 4, 2022 Decided: July 29, 2022)
Docket No. 21-1063-bk
ANTHONY J. GASSON,
Debtor-Appellant,
— v. —
PREMIER CAPITAL, LLC,
Appellee.*
B e f o r e:
CALABRESI, LYNCH, and LOHIER, Circuit Judges.
__________________
Debtor-Appellant appeals from a judgment of the district court affirming
an order of the bankruptcy court denying the Debtor-Appellant’s statutory
*
The Clerk of Court is respectfully directed to amend the official caption in
this case to conform with the caption above.
discharge under 11 U.S.C. § 727(a)(2). Debtor-Appellant argues that the
bankruptcy court erred by finding that he had an interest in Soroban, Inc., that
was concealed to hinder creditors, and, in the alternative, that denying discharge
was improper because the concealment began prior to the statutory one-year
period set forth in § 727(a)(2)(A). The bankruptcy court did not err in finding that
Debtor-Appellant had a valid interest in Soroban that was concealed to hinder
creditors, and properly denied the discharge because the acts of concealment
continued throughout the one-year period prior to his filing the bankruptcy
petition. We therefore AFFIRM the judgment below.
H. BRUCE BRONSON, Bronson Law Offices PC, Harrison, NY, for Debtor-
Appellant.
ELENI MELEKOU, Peter Antonelli (on the brief), Curran Antonelli, LLP,
New York, NY, for Appellee.
GERARD E. LYNCH, Circuit Judge:
Debtor-Appellant Anthony J. Gasson (“Gasson”) is a certified public
accountant who has been self-employed as a financial consultant since the 1980s.
Prior to 2001, Gasson found himself in financial difficulties after personally
guaranteeing the debts of various manufacturing businesses that ultimately
failed. In an apparent effort to make a fresh start and give Gasson’s wife greater
control of the family finances, the couple formed Soroban, Inc., in 2001. Soroban
functioned primarily as a consulting business through which Gasson sold his
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financial consulting services, and the couple agreed that Soroban would neither
seek nor obtain bank financing. Although Gasson’s wife nominally owned
Soroban, Gasson ran the day-to-day operations, served Soroban’s clients, and
controlled the company’s finances.
Appellee Premier Capital, LLC (“Premier”) began pursuing Gasson in 2011
to collect on judgments resulting from his earlier debts. Gasson filed for
bankruptcy in the Southern District of New York shortly thereafter, on September
27, 2012. Premier commenced an adversary proceeding against Gasson in 2014
requesting that the bankruptcy court deny Gasson’s discharge pursuant to
various provisions of 11 U.S.C. § 727(a). See Complaint to Deny Debtor’s
Discharge, Premier Cap., LLC v. Gasson (“In re Gasson”), Adv. Pro. No. 14-08217,
(Bankr. S.D.N.Y. Mar. 31, 2014), ECF 1. Following a trial, the bankruptcy court
(Sean H. Lane, J.) denied Gasson’s discharge under § 727(a)(2) after finding that
he had concealed his equitable interest in Soroban to hinder his creditors. The
bankruptcy court also concluded that the one-year limitations period under
§ 727(a)(2)(A) was satisfied under the continuous concealment doctrine because
Gasson continued to conceal his interest in Soroban throughout the one-year
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period preceding Gasson’s filing his bankruptcy petition. The district court
(Nelson S. Román, J.) affirmed the bankruptcy court’s decision.
On appeal, Gasson challenges the bankruptcy court’s determinations that
he had an interest in Soroban, that he concealed that interest with an intent to
hinder creditors, and that the concealment occurred within the one-year statutory
period. We conclude that the district court did not err in affirming the
bankruptcy court’s findings that Gasson had an interest in Soroban as a matter of
New York property law and that Gasson had concealed his interest to hinder
creditors within the one-year statutory period. We therefore AFFIRM the
judgment of the district court.
BACKGROUND
I. Gasson’s Debts and the Formation of Soroban
Gasson has long worked in New York as a financial consultant and
certified public accountant. Prior to 2001, Gasson was also a part-owner of three
companies that manufactured and sold clothing and accessories: Swirl
Corporation, Nick Textiles, and Easley Textiles. Those companies sought
reorganization under Chapter 11 in 1995, and eventually failed in 2003, leaving
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behind substantial corporate debts that had been personally guaranteed by
Gasson. Those debts eventually resulted in three judgments against Gasson for a
total of $591,499.60. Those judgments were subsequently acquired by Premier,
appellee in the case before us.
Gasson and his wife formed Soroban in 2001, in the midst of his financial
troubles, in a purported effort to give Gasson’s wife greater control over the
family finances. Although Gasson’s wife was listed as the sole owner and chair of
the board of Soroban, Gasson himself had day-to-day control over the company
and its affairs. Gasson was Soroban’s sole employee, provided all of the
consulting services Soroban offered to its clients, signed the vast majority of the
company’s checks, managed the movement of funds between Soroban’s bank
accounts, and signed promissory notes on Soroban’s behalf. By comparison,
Gasson’s wife had little to no involvement in the operations of Soroban, and
continued to work full-time as a nurse during the relevant period. From 2009
onwards, Soroban frequently had annual revenues in excess of $200,000, the vast
majority of which came from consulting services provided by Gasson.
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II. Bankruptcy Court Proceedings and the Decision Below
Premier acquired the judgments against Gasson and began attempting to
collect on them in 2011. On September 27, 2012, Gasson petitioned under Chapter
7 of the Bankruptcy Code to discharge his personal debts. On his bankruptcy
schedules, Gasson listed $7000 in personal property, no cash on hand or in his
bank accounts, and a value of $0 for his “individual consulting business.” On
March 31, 2014, Premier initiated an adversary proceeding arguing, among other
things, that Gasson should be denied a discharge under 11 U.S.C. § 727(a)(2)(A)
for having concealed his interest in Soroban in an effort to hinder his creditors.
The bankruptcy court concluded that Gasson had an equitable interest in
Soroban under New York law, and that he had concealed that interest in an effort
to hinder creditors. See In re Gasson, Adv. Pro. No. 14-08217, 2018 WL 6603737, at
*10-16 (Bankr. S.D.N.Y. Dec. 13, 2018). Additionally, the bankruptcy court found
that the concealment occurred within the one-year statutory period set forth in
§ 727(a)(2)(A) under the continuous concealment doctrine, which has been
adopted in several of our sister circuits. Id. at *16-17. Under that doctrine “a
concealment will be found to exist during the year before bankruptcy even if the
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initial act of concealment took place before this one year period as long as the
debtor allowed the property to remain concealed into the critical year.” In re
Boyer, 328 F. App’x 711, 714 (2d Cir. 2009) (quoting the doctrine as applied in
other circuits). The district court affirmed the bankruptcy court’s judgment. See In
re Gasson, 629 B.R. 539 (S.D.N.Y. 2021). The present appeal followed.
DISCUSSION
“We exercise plenary review over a district court’s affirmance of a
bankruptcy court’s decisions, reviewing de novo the bankruptcy court’s
conclusions of law, and reviewing its findings of facts for clear error.” In re MPM
Silicones, LLC, 874 F.3d 787, 794 (2d Cir. 2017). “A finding of fact is clearly
erroneous” if the record leaves the reviewing court with a “definite and firm
conviction that a mistake has been made.” In re Reilly, 245 B.R. 768, 772 (2d Cir.
BAP 2000).
I. Gasson Had an Interest in Soroban
Gasson argues that the bankruptcy court erred in determining that he had
a property interest in Soroban. “Property interests are created and defined by
state law.” Butner v. United States, 440 U.S. 48, 55 (1979). “Unless some federal
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interest requires a different result, there is no reason why such interests should
be analyzed differently simply because an interested party is involved in a
bankruptcy proceeding.” Id. In the present case, the bankruptcy court
acknowledged that property interests are defined by state law, see In re Gasson,
2018 WL 6603737, at *10, and correctly determined that Gasson had a beneficial
property interest in Soroban as a matter of New York state law.
The bankruptcy court evaluated Gasson’s beneficial interest in Soroban
using the test enunciated in In re Carl, 517 B.R. 53, 65-66 (Bankr. N.D.N.Y. 2014).
Under that test:
First, courts consider whether a debtor previously
owned a similar business. Second, courts look to see
whether the debtor left his previous business venture
under financial duress. Third, and most importantly,
courts examine whether the debtor transferred his or
her salary, or the right to receive salary to a family
member or to a business entity owned by an insider.
Fourth, courts evaluate whether the debtor is actively
and actually involved in the success of the insider
business. Finally, the debtor must retain some of the
benefits of the salary, such as having expenses paid for
by the insider or the business. Even if these factors are
present, a court may grant a discharge if the debtor
demonstrates a legitimate reason for the insider
business relationship.
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Id. (internal citations omitted). Though recognizing that property interests are
determined by reference to state law, Appellant Br. at 24, Gasson does not argue
that Carl is inconsistent with New York case law. Rather, he argues that Carl may
be set aside as “not a binding precedent,” or may be otherwise distinguished on
its facts. Id. at 28-29. We agree that Carl is not binding. Moreover, the relevant
portion of the Carl opinion does not acknowledge that property interests are
defined by state law and fails to cite any authoritative state law cases. See 517 B.R.
at 65-66. Therefore, we must first address whether the test enunciated in Carl, as
applied by the bankruptcy court below, is consistent with New York law.
Under New York law, persons exercising dominion and control over an
asset and the benefits derived therefrom may be found to have a de facto
property interest in that asset.1 There is no single list of factors that must be
1
See, e.g., Andrew Carothers, M.D., P.C. v. Progressive Ins. Co., 33 N.Y.3d 389,
399 (2019) (In the insurance context, New York courts identify “de facto” owners
by examining whether “they exhibited the attributes of ownership, particularly
that they exercised dominion and control over the corporation and its assets, and
that they shared risks, expenses[,] and interest in the profits and los[s]es of the
corporation.”); Metromedia, Inc. v. Tax Comm'n of the City of New York, 60 N.Y.2d
85, 91 (1983) (“Although the parties’ labeling of one as owner is not enough to
create a taxable interest, a finding of such an interest is justified where that party
exercises dominion and control over the property.”); McCormack Fam. Charitable
Found. v. Fid. Brokerage Servs., LLC, 195 A.D.3d 420 (N.Y. App. Div.), leave to
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examined when determining if a property interest exists. Rather, New York
courts engage in a general inquiry aimed at assessing the totality of the
circumstances. The approach employed in Andrew Carothers, M.D., P.C. v.
Progressive Ins. Co., 33 N.Y.3d 389 (2019) is instructive. In that case, the New York
Court of Appeals did not endorse the trial court’s “specific list of factors,” but
nonetheless found that the various factors included in the trial court’s jury
instructions “satisfactorily directed the jury to the ultimate inquiry of control
over a professional corporation.” Id. at 406 n.4. Those factors included: (1)
whether the purported owners’ dealings with the business were “designed to
give [them] substantial control over the [business] and channel profits” to
themselves; (2) whether they “exercised dominion and control” over business
assets, including bank accounts; (3) the extent to which business funds were used
appeal denied, 37 N.Y.3d 912, 175 N.E.3d 1258 (2021) (“A defendant must have
dominion and control over transferred assets to be liable as a transferee for a
fraudulent conveyance. Dominion and control is the right to put the money to
one’s own purposes.”); Abele Tractor & Equip. Co. v. Schaeffer, 137 N.Y.S.3d 174,
177 (3d Dep’t 2020) (“In discerning the owner of a titled vehicle . . . the
presumption arising out of the certificate of title may therefore be rebutted by
evidence which demonstrates that another individual owned the vehicle in
question. This may consist of proof that the other individual had possessory
interest in the vehicle, with its attendant characteristics of dominion and
control.”).
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for “personal rather than corporate purposes;” (4) whether they were responsible
for “hiring, firing, and payment of salaries” for the employees; (5) whether “the
day-to-day formalities of corporate existence were followed;” (6) whether the
business “shared common office space and employees” with other companies
owned by the purported owners; and (7) whether other parties “played a
substantial role in the day-to-day and overall operation and management” of the
business. Andrew Carothers, M.D., P.C. v. Progressive Ins. Co., 51 N.Y.S.3d 551, 556
(2d Dep’t 2017) (summarizing jury instructions).
Taken as a whole, the factors enumerated by Carl also satisfactorily direct
the bankruptcy court as finder of fact “to the ultimate inquiry of control over a
professional corporation,” Carothers, 33 N.Y.3d at 406 n.4, and appropriately
address whether the debtor “exhibited the attributes of ownership” in the context
of bankruptcy proceedings, id. at 399. All of the Carl factors considered by the
bankruptcy court are consistent with the list of factors that formed part of the
charge described by the New York Court of Appeals in Carothers, and with New
York law in general. Gasson fails to identify, and our review has not revealed,
any other factor utilized by New York appellate courts under New York law that
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would point to a different result or affect the outcome of this case had the
bankruptcy court explicitly addressed it. The bankruptcy court thus did not err
by examining the factors enumerated in Carl.
Nor did the bankruptcy court err in finding that Gasson had a beneficial
interest in Soroban in light of his history with similar businesses, the
circumstances surrounding Soroban’s founding, and his substantial control over
both the business’s finances and day-to-day operations. See In re Gasson, 2018 WL
6603737, at *10-12. All of the factors considered in Carl and in Carothers point, on
this record, to the same conclusion: Gasson exercised complete dominion and
control over Soroban, and thus had an ownership interest in it.
II. Gasson Concealed His Interest in Soroban with the Intent to Hinder
Creditors
Next, we address Gasson’s argument that the bankruptcy court erred in
determining that Gasson concealed his interest in Soroban with an intent to
hinder his creditors. “To prove a § 727(a)(2) violation, a creditor must show an
act (i.e., a transfer or a concealment of property) and an improper intent (i.e., a
subjective intent to hinder, delay, or defraud a creditor)” within the statutory
period. In re Boyer, 328 F. App’x at 714 (internal quotations and alterations
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omitted); see also 11 U.S.C. § 727(a)(2). The bankruptcy court found that Gasson
concealed his interest in Soroban because “he organized his affairs so that he
would receive the benefit of Soroban without ever making such benefits within
the reach of creditors,” In re Gasson, 2018 WL 6603737, at *12, and generally
engaged in a “pattern of deception” both before and during the bankruptcy
proceedings, id. at 13. The bankruptcy court also found that Gasson’s explanation
for failing to properly fill out his bankruptcy schedules lacked credibility given
his level of business sophistication and past experience with bankruptcy
proceedings. See id. at *13.
On appeal, Gasson urges us to review the bankruptcy court’s
determinations de novo, and generally argues that the bankruptcy court engaged
in an impermissible “hindsight approach” in finding that Soroban was used to
conceal assets from creditors. See Appellant Br. at 29-32. Gasson also urges that
we should view the evidence in the light most favorable to the debtor, and find
that any purported acts of concealment were innocently motivated. See Appellant
Br. at 32-35. Those arguments are unavailing.
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As a preliminary matter, we reiterate that we review the bankruptcy
court’s findings of fact only for clear error. See In re MPM Silicones, 874 F.3d at
794. “[W]e have described § 727 as imposing an extreme penalty for wrongdoing,
which must be construed strictly against those who object to the debtor’s
discharge and liberally in favor of the bankrupt.” In re Cacioli, 463 F.3d 229, 234
(2d Cir. 2006) (internal quotations and alterations omitted). But that liberal
construction in favor of the debtor does not change the underlying standard of
review, nor does it imply that all of the evidence presented at trial must be
viewed in the light most favorable to the debtor. See id. at 234 (applying the
conventional standards of review to a bankruptcy court ruling under § 727).
In the present case, the record evidence fully supports the bankruptcy
court’s findings that Gasson concealed his interest in Soroban, and that the
concealment was done with an intent to hinder his creditors. See In re Gasson,
2018 WL 6603737, at *10-16. That evidence includes, among other things: (1)
Gasson’s denying any business affiliation with Soroban or salary derived from
Soroban in response to Premier’s informational subpoenas, id. at *12 ; (2) placing
incorrect information on his bankruptcy schedules and otherwise obfuscating the
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fact that he received substantial value from his consulting business, id. at *13; (3)
routinely siphoning money out of Soroban bank accounts for personal use while
avoiding a substantive paper trail, id.; and (4) creating Soroban following “rough
times” when“[t]he IRS was seizing assets from [Gasson], and [he] was under
threat from other creditors,” id. at *15; see also In re Kaiser, 722 F.2d 1574, 1582-83
(2d Cir. 1983) (badges of fraud may include financial difficulties, the threat of
suits by creditors, and the general chronology of the events). The findings of the
bankruptcy court on those matters were not clearly erroneous, and the court
acted within its discretion in finding that Gasson’s testimony to the contrary
lacked credibility. Id. at *13, *16.
III. Gasson Concealed His Interest Within the Statutory Period.
Finally, we address the bankruptcy court’s application of the continuous
concealment doctrine. Under § 727(a)(2)(A), the party objecting to the discharge
must establish that the wrongful act complained of occurred “within one year
before the date of the filing of the petition.” As applied in other circuits,2 the
2
Some variant of the continuous concealment doctrine, also referred to as
the continuing concealment doctrine, has been applied by federal appellate
courts in the Third, Fifth, Sixth, Seventh, Ninth, and Eleventh circuits. See, e.g.,
Rosen v. Bezner, 996 F.2d 1527, 1531 (3d Cir. 1993); Thibodeaux v. Olivier (In re
15
continuous concealment doctrine holds that “a concealment will be found to exist
during the year before bankruptcy even if the initial act of concealment took
place before this one year period as long as the debtor allowed the property to
remain concealed into the critical year.” Rosen v. Bezner, 996 F.2d 1527, 1531 (3d
Cir. 1993); see also In re Lawson, 122 F.3d 1237, 1240 (9th Cir. 1997) (“[A] transfer
made and recorded more than one year prior to filing may serve as evidence of
the requisite act of concealment where the debtor retains a secret benefit of
ownership in the transferred property within the year prior to filing.”). However,
the continuous concealment doctrine still requires that the party objecting to
discharge “prove an improper subjective intent during the year before
bankruptcy.” Rosen, 996 F.2d at 1533. In effect, the doctrine recognizes that
“concealment of an interest in an asset that continues, with the requisite intent,
into the year before bankruptcy constitutes a form of concealment which occurs
Olivier), 819 F.2d 550, 555 (5th Cir.1987); In re Keeney, 227 F.3d 679, 685 (6th Cir.
2000); In re Kauffman, 675 F.2d 127, 128 (7th Cir. 1981); In re Lawson, 122 F.3d 1237,
1242 (9th Cir. 1997); In re Coady, 588 F.3d 1312, 1317 (11th Cir. 2009). As discussed
in Olivier, the doctrine predates § 727(a)(2)(A) and has a significant history dating
back to at least the early 1900’s. See 819 F.2d at 555 n.7 (collecting cases). It
appears that no federal appellate court has ever explicitly rejected the doctrine as
inconsistent with § 727(a)(2)(A).
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within the year before bankruptcy and, therefore, that such concealment is within
the reach of [§] 727(a)(2)(A).” In re Olivier, 819 F.2d 550, 555 (5th Cir. 1987).
We find the logic and the rationale behind the continuous concealment
doctrine compelling, and adopt the formulation articulated by Rosen as law in
this Circuit. Moreover, we conclude that the bankruptcy court appropriately
applied that doctrine to conclude that Gasson had concealed his interest in
Soroban within the statutory period.
On appeal, Gasson suggests that the bankruptcy court misapplied the
doctrine by “completely disregard[ing] the Debtor’s purpose in setting up his
financial affairs the way he did,” Appellant Br. at 36, and focusing on his intent in
forming Soroban rather than his wrongful intent during the critical one-year
period prior to filing the bankruptcy petition. The bankruptcy court’s opinion
appropriately considered Gasson’s account of the circumstances surrounding
Soroban’s formation, but found the testimony supporting that account
unconvincing in view of the other evidence in the record. See, e.g., In re Gasson,
2018 WL 6603737, at *3 (summarizing his wife’s testimony that “Soroban was
created because her husband was not consulting at the time that the company
17
was created, that she and her husband had debts, and that they wanted to make a
fresh start.”); id at *15 (acknowledging Gasson’s contention that “he was unaware
of the debts now owned by Premier”). A reviewing court owes “particularly
strong deference” where the fact findings are premised on credibility
determinations. Mathie v. Fries, 121 F.3d 808, 812 (2d Cir. 1997). The bankruptcy
court’s rejection of Gasson’s explanation was not clearly erroneous.
As for Gasson’s intent during the critical one-year period, the bankruptcy
court found that “[Gasson’s] way of conducting his financial affairs persisted into
the year prior to the Debtor’s bankruptcy filing,” and that “[t]his continuing
concealment of his finances during the year prior to the bankruptcy filing is also
reflected in [Gasson’s] responses to the information subpoena before the
bankruptcy and the information he provided in his Schedules and Statement of
Financial Affairs filed with the bankruptcy.” In re Gasson, 2018 WL 6603737, at
*16-17. As discussed above, based on the record before us, the bankruptcy court’s
findings were highly persuasive, and certainly not clearly erroneous. The
bankruptcy court thus did not err in concluding that § 727(a)(2)(A) was satisfied.
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CONCLUSION
For the reasons set forth above, we conclude that the bankruptcy court and
the district court properly denied the discharge of Gasson’s debt pursuant to 11
U.S.C. § 727(a)(2). Accordingly, the judgment of the district court is AFFIRMED.
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