Graham Mortgage Corporation v. Tommy Goff ( 2014 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
August 22, 2014
No. 13-41148
Lyle W. Cayce
Clerk
In the Matter of: TOMMY L. GOFF,
Debtor
______________________________________
GRAHAM MORTGAGE CORPORATION,
Appellee,
v.
TOMMY GOFF,
Appellant.
Appeal from the United States District Court
for the Eastern District of Texas
USDC 4:12-CV-785
Before DAVIS, SMITH, and CLEMENT, Circuit Judges.
W. EUGENE DAVIS, Circuit Judge: *
Defendant-appellant Tommy L. Goff appeals from the denial of his
discharge in bankruptcy by the bankruptcy court and district court. For the
reasons set forth below, we affirm.
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
No. 13-41148
I.
Under § 727(a) of the bankruptcy code, 11 U.S.C. § 727(a), a debtor is
entitled to discharge in the absence of a statutory exception, which “exceptions
are construed strictly against the creditor and liberally in favor of the debtor.” 1
One such exception is found in § 727(a)(3), under which the court should deny
the discharge where:
the debtor has concealed, destroyed, mutilated,
falsified, or failed to keep or preserve any recorded
information, including books, documents, records, and
papers, from which the debtor’s financial condition or
business transactions might be ascertained, unless
such act or failure to act was justified under all of the
circumstances of the case . . . . 2
As we explained in In re Duncan, “the creditor objecting to the debtor’s
discharge bears the initial burden of production to present evidence that the
debtor failed to keep adequate records and that the failure prevented the
creditor from evaluating the debtor’s financial condition.” 3 This standard does
not require a debtor to maintain “full detail,” but does require sufficient
written evidence for a creditor to determine the debtor’s financial condition. 4
If the plaintiff satisfies this initial burden of
production—that the debtor’s failure to produce
adequate records makes it impossible to discern his
financial status—the debtor must prove the
inadequacy is “justified under all the circumstances.”
The bankruptcy court has “wide discretion” in
1 The Cadle Company v. Duncan (In re Duncan), 562 F.3d 688, 695 (5th Cir. 2009)
(citing Hudson v. Raggio & Raggio, Inc. (In re Hudson), 107 F.3d 355, 356 (5th Cir. 1997)).
2 11 U.S.C. § 727(a)(3).
3 562 F.3d at 697 (citing Robertson v. Dennis (In re Dennis), 330 F.3d 696, 703 (5th
Cir. 2003)).
4 Id.2
No. 13-41148
analyzing these shifting burdens, and its
determination is reviewed for clear error. 5
In this case, when Goff filed for bankruptcy protection, one of his
creditors, plaintiff-appellee Graham Mortgage Corp., objected, arguing that
Goff had failed to produce adequate records. The bankruptcy court ultimately
agreed and found that his failure was not justified, so it denied discharge in
bankruptcy, and the district court affirmed. Goff appeals from the final
judgment, arguing that the lower courts erred in all three decisions which led
to the final judgment denying discharge—the grant of Graham’s motion for
partial summary judgment; the denial of Goff’s motion for reconsideration; and
the bankruptcy court’s finding, following a bench trial, that Goff’s failure was
not justified.
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157,
and the district court exercised its jurisdiction over the bankruptcy appeal
under 28 U.S.C. § 158(a). We have jurisdiction over this appeal from a final
judgment under 28 U.S.C. § 1291.
II.
The district court’s ultimate order on appeal from the bankruptcy court
capably sets out the relevant facts and procedural history:
Debtor Tommy Goff operated a complex network of
limited partnerships (LPs) to conduct various
businesses focused mainly on real estate development.
In 2007, Goff obtained a loan from Graham Mortgage
to purchase real estate. Goff provided financial
estimates of his net worth and assets to obtain the
loan. Goff later defaulted on the loan, and Graham
obtained a judgment against Goff in Dallas County.
5 Id. (citations to In re Dennis omitted).
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No. 13-41148
When Graham served post-judgment discovery on
Goff, Goff filed for Chapter 7 relief. After a creditors’
meeting, Graham filed an adversarial proceeding to
challenge Goff’s ability to discharge his debt under
Chapter 7. Graham alleged that Goff should be denied
relief because Goff obtained the loan from Graham
through fraud or, alternatively, because Goff failed to
maintain adequate records of his finances.
After discovery, Graham moved for summary
judgment on Goff’s failure to maintain adequate
records. Graham relied on the affidavits from two
CPAs Graham hired to try and reconstruct Goff’s
financial transactions from 2007 to 2011. The CPAs
stated that they were unable to account for
approximately $15 million in assets Goff had in 2007.
The CPAs’ affidavits listed the numerous missing
documents preventing the CPAs from tracing Goff’s
assets. Goff’s response contained partial denials of
some of Graham’s claims but did not include any
evidence. The bankruptcy judge held that Graham
satisfied its initial burden to show the lack of record
keeping prevented it from tracing Goff’s finances.
Accordingly, the bankruptcy judge granted partial
summary judgment, leaving for trial whether Goff
could justify his failure to maintain records.
Goff later moved for reconsideration of the bankruptcy
judge’s ruling, claiming that Goff had retrieved
unspecified documents from the Chapter 7 trustee
that Goff believed may support his position. Goff again
failed to include any attachments. The bankruptcy
judge denied the motion to reconsider stating no new
evidence had been adduced.
Goff appealed the denial of the motion to reconsider to
this Court. This Court granted a motion to abate
briefing until the adversarial trial resulted in a final
judgment.
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No. 13-41148
The bankruptcy judge conducted a trial addressing
Goff’s justification for failing to maintain adequate
records. Goff testified that he moved three times in one
year and during that year underwent five surgical
procedures to treat esophageal cancer. Goff admitted
that he is a sophisticated businessman, that he had
not kept certain records, and that he had either given
away or lost others.
The bankruptcy judge found Goff’s testimony lacked
credibility. The bankruptcy judge further found Goff’s
stated justification was not reasonable. Accordingly,
the bankruptcy judge rendered judgment for Graham
and denied Goff Chapter 7 relief.
Goff presents three issues on appeal [to the district
court]. First, he argues that the bankruptcy judge
could not grant partial summary judgment because a
genuine issue of material fact exists regarding
whether Goff maintained proper records. Goff also
argues that a genuine issue of material fact exists on
whether the lack of records actually prevented
Graham from reconstructing his finances. Second,
Goff contends that the bankruptcy judge improperly
denied Goff’s motion to reconsider because Goff
presented new evidence that likely would have
changed the outcome of the bankruptcy judge’s
decision. Third, Goff argues that the bankruptcy judge
made erroneous findings of fact and conclusions of law
with respect to Goff’s justification. 6
The district court affirmed all three of the bankruptcy court’s decisions
in question. First, the district court affirmed the grant of partial summary
judgment in favor of Graham because it found that Graham had presented
sufficient evidence for summary judgment on the issue of Goff’s failure to keep
6 District Court’s September 18, 2013 Order on Appeal (hereinafter “District Court
Order on Appeal”), pp. 1-3, No. 4:12-cv-785 (E.D. Tex. Sept. 18, 2013).
5
No. 13-41148
adequate records, and Goff had failed to present any competent summary
judgment evidence to create a genuine issue of material fact. Second, the
district court affirmed the denial of Goff’s motion for reconsideration because
it found that the supposedly “new” evidence in question had previously been in
Goff’s possession, and Goff had failed to show that it would probably change
the outcome. Third and finally, the district court affirmed the bankruptcy
court’s finding, after the bench trial, that Goff was not justified in failing to
keep adequate records. We affirm all three decisions.
III.
With respect to the bankruptcy court’s grant of partial summary
judgment in favor of Graham, we review findings of fact for clear error and
conclusions of law de novo. 7 We review de novo the district court’s affirmance
of the bankruptcy court’s grant of partial summary judgment. 8
The bankruptcy court’s grant of summary judgment involved the usual
summary judgment standards under Fed. R. Bankr. P. 7056 and Fed. R. Civ.
P. 56. Under Rule 56, the party moving for summary judgment must
demonstrate that there is “no genuine dispute as to any material fact.” If the
movant meets this burden, the opposing party must go beyond the pleadings
and show by affidavits, depositions, answers to interrogatories, admissions on
file, or other admissible evidence that specific facts exist over which there is a
genuine issue for trial. 9 “This burden is not satisfied with ‘some metaphysical
doubt as to the material facts,’ by ‘conclusory allegations,’ by ‘unsubstantiated
7 In re Dennis, 330 F.3d at 701 (citing Gamble v. Gamble (In re Gamble), 143 F.3d 223,
225 (5th Cir. 1998)).
8 Shcolnik v. Rapid Settlements Ltd. (In re Shcolnik), 670 F.3d 624, 627 (5th Cir. 2012)
(citing In re Ark–La–Tex Timber Co., 482 F.3d 319, 328 (5th Cir. 2007)).
9 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986).
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No. 13-41148
assertions,’ or by ‘only a ‘scintilla’ of evidence.’” 10
As explained above, Graham bore the initial burden of production to
present evidence that Goff failed to keep adequate records and that the failure
prevented Graham from evaluating Goff’s financial condition. 11 Graham did
this by presenting a detailed statement of uncontested material facts
supported by competent summary judgment evidence. The evidence submitted
by Graham showed, among other things, that Graham had retained accounting
experts to assess Goff’s finances, and these experts stated that certain
documents which were necessary to reconstruct Goff’s finances were absent.
Graham requested these documents from Goff, who was able to produce some
but not all of those listed by Graham’s experts. During his deposition, Goff
admitted to giving away computers that likely contained relevant financial
statements. As the district court summarized:
The bankruptcy judge issued findings of fact centered
around Goff’s implicit admission to the truth of
Graham’s allegations. . . Based on the evidence put
forward by Graham, and Goff’s failure to put forth any
evidence, the bankruptcy judge’s findings of facts are
not clearly erroneous. The only facts in the record
support the findings that Goff failed to maintain
adequate records and that this failure prevented
Graham from assessing Goff’s financial condition. 12
Both the bankruptcy court and district court are correct. Because Goff
failed to present any competent summary judgment evidence in opposition to
Graham’s well supported motion, we affirm the grant of partial summary
10 Duffie v. United States, 600 F.3d 362, 371 (5th Cir. 2010) (quoting Little v. Liquid
Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (internal citations omitted)).
11 In re Duncan, 562 F.3d at 697.
12 District Court Order on Appeal, pp. 5-6.
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No. 13-41148
judgment establishing that Goff failed to maintain adequate records under 11
U.S.C. § 727(a)(3).
IV.
Next, Goff appeals the bankruptcy court’s denial of his motion to
reconsider the order granting partial summary judgment in favor of Graham,
on the ground that he had recently recovered documents from his Chapter 7
trustee which would potentially support his position in opposition to the motion
for partial summary judgment. We review for abuse of discretion the denial of
the motion to reconsider the grant of partial summary judgment. 13
A motion for reconsideration should only be granted in extraordinary
circumstances. 14 “[A]n unexcused failure to present evidence available at the
time of summary judgment provides a valid basis for denying a subsequent
motion for reconsideration.” 15 A motion for reconsideration is not properly
granted unless: (1) the new facts discovered would probably change the
outcome; (2) the facts are actually newly discovered—which means they could
not have been discovered earlier through proper diligence; and (3) the facts are
neither cumulative nor merely impeaching. 16 Evidence is not newly discovered
if it was available or easily accessible to a party prior to the movant moving for
summary judgment. 17
Goff’s motion to reconsider was only three pages long, contained no legal
13 ICEE Distribs., Inc. v. J&J Snack Foods Corp., 445 F.3d 841, 847 (5th Cir. 2006)
(citing Lake Hill Motors, Inc. v. Jim Bennett Yacht Sales, Inc., 246 F.3d 752, 757 (5th Cir.
2001)).
14 Id. (internal quotation marks omitted).
15 Templet v. HydroChem Inc., 367 F.3d 473, 479 (5th Cir. 2004).
16 Infusions Res., Inc. v. Minimed, Inc., 351 F.3d 688, 696-97 (5th Cir. 2003).
17 See ICEE Distribs., 445 F.3d at 848.
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No. 13-41148
citations, and failed to attach any evidence. Instead, it described files found on
a thumb drive “which may support Defendant’s position.” Goff claimed that he
originally gave the thumb drive to his Chapter 7 trustee, who had subsequently
denied possession of the information when Goff inquired about it in response
to Graham’s documents request. Goff claimed the thumb drive resurfaced in
the trustee’s office and became available only after Graham’s motion for
summary judgment, and Goff sought to have the information introduced as
evidence. As both lower courts pointed out, the documents in question had been
in Goff’s possession in the past, and Goff failed to present a good reason why
he no longer had them. More important, Goff failed to explain why he had failed
to obtain them despite having had months to conduct discovery, and why he
never even sought an extension of the discovery period.
In short, both lower courts found that Goff had absolutely failed to show
that he was entitled to reconsideration under the standards set out above.
Considering the circumstances, there is nothing to suggest that the bankruptcy
court abused its discretion in denying Goff’s motion for reconsideration of its
order granting Graham partial summary judgment establishing that Goff had
failed to keep adequate records for Graham to determine Goff’s financial
situation. Accordingly, we affirm the denial of Goff’s motion for
reconsideration.
V.
The only issue remaining is whether the bankruptcy court erred in
ruling, after a bench trial, that Goff’s failure to maintain adequate records was
not “justified under all of the circumstances,” 18 and that, as a result, Goff is
not entitled to discharge in bankruptcy. We review for clear error the
18 11 U.S.C. § 727(a)(3).
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No. 13-41148
bankruptcy court’s ultimate ruling denying the debtor’s discharge pursuant to
11 U.S.C. §727(a)(3), giving proper deference to the bankruptcy court’s “wide
discretion,” and we review the district court’s affirmance for clear error. 19
No set standard exists for when a debtor’s failure to keep adequate
records may be justified. The trier of fact must decide based on the
circumstances of each case. 20 The sophistication of the debtor and the scale of
the debtor’s business are critical factors in this analysis. 21 Because this issue
turns largely on the debtor’s credibility, the bankruptcy judge’s finding of
credibility, or lack thereof, is reviewed with particular deference. 22
Regarding Goff’s justification evidence, the bankruptcy judge found that
Goff was admittedly a sophisticated debtor with experience in real estate
ventures. 23 The bankruptcy court also found that Goff’s testimony, which was
the only evidence supporting his justification, was not credible, and his
explanations for why the relevant records were missing were not reasonable
under the circumstances. 24 Thus, Goff’s failure to preserve records was not
justified. Goff has pointed to nothing that suggests that the bankruptcy judge’s
findings of fact are erroneous.
Goff continues to argue that he made a diligent effort to locate the
records that he had and reiterates that he did not intentionally destroy any
evidence. Goff also argues that the facts of this case are analogous to those in
19 In re Dennis, 330 F.3d at 703 (citing In re Goff, 495 F.2d 199, 200, 202 (5th Cir.
1974)).
20 See Meridian Bank v. Alten, 958 F.2d 1226, 1231 (3d Cir. 1992).
21 See Goff v. Russel Co. (In re Goff), 495 F.2d 199, 201-02 (5th Cir. 1974).
See Schlesinger v. Herzog, 2 F.3d 135, 139 (5th Cir. 1993) (citing Anderson v.
22
Bessemer City, 470 U.S. 564, 575 (1985)).
23 District Court Order on Appeal, p. 8.
24 Id.10
No. 13-41148
In re Morgan, where the bankruptcy court found that a debtor’s failure to keep
adequate records was justifiable. 25 Goff is correct that he is similar to the
debtor in Morgan in that both moved offices several times within a year,
discontinued use of a storage facility, and lost access to a computer that held
records. 26 However, Morgan is easily distinguishable in that the Morgan court
found that the debtor’s testimony was credible and noted that the debtor had
provided documentary evidence which was “quite voluminous.” 27 Here, not
only did the bankruptcy court find that Goff’s testimony was not credible, the
uncontested material facts on summary judgment established that the records
Goff submitted had material gaps, even failing to identify the sources of funds
used to purchase certain relevant real property.
Goff’s reliance on a single case is misplaced, especially because the
bankruptcy court’s conclusion here rests primarily on its determination that
Goff’s testimony was not credible. Because Goff’s testimony was the only
evidence in support of his affirmative defense of justification, we affirm the
bankruptcy court’s determination that Goff’s failure to maintain adequate
records was not justified under all of the circumstances, and the district court’s
decision upholding that finding. Consequently, we conclude, as did the
bankruptcy court and district court, that Goff is not entitled to discharge in
bankruptcy under § 727(a)(3).
VI.
For the reasons set out above, we AFFIRM.
25 8400 N.W. Expressway, LLC v. Morgan (In re Morgan), 360 B.R. 507, 536 (Bankr.
N.D. Tex. 2007), aff’d, 05-34981-SGJ-7, 2007 WL 4165701 (N.D. Tex. Nov. 19, 2007), aff’d,
297 F. App’x 302 (5th Cir. 2008).
26 Id.27 Id.11