George Gordon, Jr. v. United States Bankruptcy Court for the Northern District of Oklahoma

FILED
U.S. Bankruptcy Appellate Panel
of the Tenth Circuit
March 9, 2015
PUBLISH Blaine F. Bates
Clerk
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE TENTH CIRCUIT
IN RE GEORGE DAVID GORDON, BAP No. NO-14-018
JR.,
Debtor.
RICHARD A. WIELAND, United Bankr. No. 11-10045
States Trustee, Adv. No. 11-01113
Chapter 7
Plaintiff – Appellee,
v. OPINION
GEORGE DAVID GORDON, JR.,
Defendant – Appellant.
Appeal from the United States Bankruptcy Court
for the Northern District of Oklahoma
Submitted on the briefs: *
Ron D. Brown of Brown Law Firm PC, Tulsa, Oklahoma, for Defendant –
Appellant.
Ramona D. Elliott, Deputy Director/General Counsel (P. Matthew Sutko,
Associate General Counsel, and Cameron M. Gulden, Trial Attorney, with her
on the brief) Washington, D.C., and Samuel K. Crocker, United States Trustee for
Region 20 (Katherine Vance, Assistant United States Trustee, and Paul R.
Thomas, Trial Attorney, with him on the brief), Tulsa, Oklahoma for Plaintiff –
Appellee.
Before NUGENT, KARLIN, and SOMERS, Bankruptcy Judges.
*
The parties did not request oral argument, and after examining the briefs
and appellate record, the Court has determined unanimously that oral argument
would not materially assist in the determination of this appeal. See Fed. R.
Bankr. P. 8019(b)(3). The case is therefore ordered submitted without oral
argument.
SOMERS, Bankruptcy Judge.
Debtor George David Gordon, Jr. (“Gordon”) was formerly a practicing
securities attorney and a certified public accountant, who regularly engaged in
securities investing on behalf of himself, his wife, and his clients. He conducted
business through his solely-owned professional corporation, G. David Gordon &
Associates, P.C. (the “Professional Corporation” or the “PC”), which he had
incorporated for the purpose of providing legal services. In approximately 2004,
Gordon began conspiring with others in a sophisticated scheme to buy
inexpensive stocks, artificially inflate their value, and then sell them to others at a
substantial profit. This “pump-and-dump”1 conspiracy resulted in the filing of
numerous federal criminal charges against Gordon. In turn, the criminal
proceedings resulted in Gordon’s May 2010 securities fraud conviction and his
immediate and continuing imprisonment. The criminal court also imposed fines
and restitution, and ordered the forfeiture of much of Gordon’s property.
Seven months after his conviction and imprisonment, Gordon initiated this
Chapter 7 bankruptcy case, seeking to discharge any and all of his debts that
could be discharged under federal bankruptcy law. The bankruptcy court, after a
trial, denied Gordon a discharge pursuant to 11 U.S.C. § 727(a)(2)(A) and
(a)(4)(A),2 based on findings that Gordon had transferred and concealed property
for the purpose of defrauding his creditors, had knowingly and fraudulently made
false statements in his bankruptcy filings, and had withheld information regarding
his assets and business dealings from the bankruptcy trustee. Gordon appealed
1
A pump-and-dump scheme treats the investing adage, “Buy low, sell high,”
as a mechanism for deceit. The scheme involves “the inflation of stock prices on
the basis of false or fraudulent information (the ‘pump’), followed by the sale of
that stock to unsuspecting investors (the ‘dump’).” See Bankruptcy Court
Memorandum Decision, p.3 n. 4 in Appellant’s Appendix (“Appx”) at 955.
2
Unless otherwise indicated, all further statutory references in this decision
will be to the Bankruptcy Code, which is Title 11 of the United States Code.
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that ruling to this Court. 3
I. APPELLATE JURISDICTION
This Court has jurisdiction to hear timely filed appeals from “final
judgments, orders, and decrees” of bankruptcy courts within the Tenth Circuit,
unless one of the parties elects to have the district court hear the appeal. 4 An
order denying a debtor’s discharge in bankruptcy is a final order for purposes of
appeal.5 The bankruptcy court’s decision denying Gordon’s discharge was
entered on March 31, 2014, and Gordon timely filed his notice of appeal on April
13, 2014.6 Since neither party elected to have this appeal heard by the district
court, this Court is vested with appellate jurisdiction.
II. ISSUES AND STANDARDS OF REVIEW
Gordon raises three issues7 in this appeal:
1. Must a plaintiff asserting continuing fraudulent concealment
under § 727(a)(2)(A) prove that creditors were damaged as a
result of the debtor’s conduct?
This is a legal issue that is reviewed on appeal de novo. 8 De novo review
3
At all times relevant to this appeal, Gordon was married to Amy Gordon
(“Mrs. Gordon”). The Gordons cohabited in the family residence until May 2010,
when Gordon was incarcerated. In November 2012, Mrs. Gordon requested relief
from stay in Gordon’s bankruptcy case in order to proceed with a divorce. That
request was granted by the bankruptcy court on December 18, 2012. Nonetheless,
Gordon testified in September 2013 that he and Mrs. Gordon remained married.
4
28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr. P. 8002, 8005;
10th Cir. BAP L.R. 8005-1.
5
United States Trustee v. Garland (In re Garland), 417 B.R. 805, 810 (10th
Cir. BAP 2009).
6
Pursuant to Federal Rule of Bankruptcy Procedure 8002(a), a party seeking
to appeal an order must file a notice of appeal from that order within fourteen
days of its entry on the docket. F ED . R. B ANKR . P. 8002(a).
7
A fourth issue, asserting that plaintiff’s § 727(a)(3) and (5) claims were not
considered by the bankruptcy court and are therefore not subject to appellate
review, is uncontested and need not be addressed in this decision.
8
Diamond v. Vickery (In re Vickery), 488 B.R. 680, 685 (10th Cir. BAP
(continued...)
-3-
requires an independent determination of the issues, giving no special weight to
the bankruptcy court’s decision. 9
2. Was the evidence presented at trial by the plaintiff sufficient to
support the bankruptcy court’s denial of discharge under
§ 727(a)(2)?
“A decision whether to grant or deny a discharge is in the sound discretion
of the bankruptcy court, and a bankruptcy court’s denial of discharge is therefore
reviewed for abuse of discretion.”10 However, an appellant’s claim that the
evidence is insufficient to support the bankruptcy court’s conclusions presents an
issue of fact that is reviewed for clear error. 11 An appellate court must consider
the evidence presented to the trial court in the light most favorable to the
prevailing party, especially where the fact finder was, as here, the court rather
than a jury.12 A finding of fact is “clearly erroneous” only “if it is without factual
support in the record, or if the appellate court, after reviewing all the evidence, is
left with a definite and firm conviction that a mistake has been made.” 13 Finally,
the trial court’s decision need only be “permissible,” not “correct” 14 and, if
8
(...continued)
2013) (interpretation of a statute’s requirements is a legal issue reviewed de
novo).
9
Salve Regina Coll. v. Russell, 499 U.S. 225, 238 (1991).
10
In re Garland, 417 B.R. at 810 (citation and internal quotation marks
omitted).
11
Id. (citing Farmers Co-op. Ass’n v. Strunk, 671 F.2d 391, 395 (10th
Cir.1982); In re BYOC Int’l, Inc., 233 B.R. 176, 1998 WL 780435 at *2 (10th Cir.
BAP 1998) (sufficiency of the evidence is reviewed under a clearly erroneous
standard, and trial court’s decision need not be “correct,” only “permissible”)).
12
Cowles v. Dow Keith Oil & Gas, Inc., 752 F.2d 508, 510-11 (10th Cir.
1985) (such findings are “presumptively correct”).
13
Id. at 811 (citation omitted).
14
In re BYOC Int'l Inc., 233 B.R. 176, 1998 WL 780435 at *2 (10th Cir. BAP
(continued...)
-4-
plausible in light of the record, is not clearly erroneous even if the reviewing
court would have made a different decision.15 Thus, “[w]here there are two
permissible views of the evidence, the factfinder’s choice between them cannot be
clearly erroneous.” 16
3. Did the bankruptcy court err by denying a discharge under
§ 727(a)(4)(A) based on misstatements and omissions in Gordon’s
bankruptcy filings?
This issue involves consideration of Gordon’s interest in marital assets
under state law, which is reviewed de novo,17 as well as a challenge to the
sufficiency of the evidence supporting the bankruptcy court’s decision to deny a
discharge, which is reviewed for clear error.
III. BACKGROUND
A. The Criminal Proceedings
In 2009, Gordon was charged in a federal court in Oklahoma with
numerous securities laws violations in which he was alleged to have participated
as a principal and co-conspirator. The charges focused on four corporate entities
whose share prices Gordon and his co-conspirators manipulated for their personal
benefit (the “pump-and-dump companies”).18 In order to manipulate stock prices
in the pump-and-dump companies, it was necessary for each company’s stock to
be publicly traded. Manipulating the share prices required circumventing various
14
(...continued)
1998).
15
Iverson v. Jawort (In re Iverson), 271 B.R. 213, 2001 WL 863444 at *6
(10th Cir. BAP July 31, 2001) (unpublished).
16
Anderson v. Bessemer City, N.C., 470 U.S. 564, 574 (1985).
17
Salve Regina Coll. v. Russell, 499 U.S. 225, 231 (1991) (appellate court
reviews determinations of state law de novo).
18
Additional details of the criminal charges and proceedings may be found in
United States v. Gordon, 710 F.3d 1124 (10th Cir. 2013), in which the Tenth
Circuit Court of Appeals affirmed Gordon’s convictions.
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Securities and Exchange Commission (“SEC”) restrictions designed to prevent
just such manipulation. In 2005, several severe storms in the Gulf of Mexico had
caused serious damage in the southern United States. Wanting to use that fact to
“pump” stock prices, the conspirators targeted National Storm Management
(“National Storm”), a privately-owned Illinois roofing and siding company. They
presented the president of National Storm with various financing options for the
company, and persuaded him to take the company public.
Gordon and a co-conspirator then arranged to merge National Storm with a
publicly-traded shell company that had been incorporated in 2002 and was wholly
owned by the co-conspirator (“Shell 1”).19 Shell 1’s stock was deemed
“restricted” under SEC rules, which impose numerous restrictions on the public
trading of stocks, including detailed reporting requirements that must be met in
order to freely trade a public company’s stock. However, those restrictions do not
apply to shares that are held by non-insiders of the traded company for more than
two years. The owner of Shell 1 was clearly an insider of the company, and thus
did not qualify for this exemption, so Gordon told him to offer some of his friends
a thousand dollars each to claim they were shareholders. Gordon then prepared
false and back-dated corporate records, showing two year old transfers of shares
to those “nominees.”20 Gordon also prepared and issued legal opinion letters,
which he had an associate attorney sign, stating that the shares were freely
19
Such a transaction is called a “reverse merger,” in which a privately-owned
company acquires a publicly-traded company, thereby transforming itself into a
publicly-traded company and eliminating the need to go through the burdensome
disclosure process that is typically required prior to an initial public offering
(“IPO”) of stock.
20
As relevant here, a “nominee” is “2. A person designated to act in place of
another, usu[ually] in a very limited way.” or “3. A party who holds bare legal
title for the benefit of others or who receives and distributes funds for the benefit
of others.” B LACK ’ S L AW D ICTIONARY , “nominee” (10th ed. 2014), obtained
from Westlaw (2015 Thomson Reuters).
-6-
tradeable because the sellers qualified for the two-year ownership exemption. 21
Once the newly-merged National Storm shares were freely tradeable, the
conspirators initiated the “pump” part of their plan by engaging in coordinated
trading of National Storm’s stocks among many nominee accounts, creating a
false impression that the stock prices were rising.22 Thereafter, the conspirators
issued massive fax and email “blasts,” predicting strong market performance by
National Storm’s stock. The blasts contained many misleading statements,
including implications that the projections themselves came from outside sources,
when they were in fact prepared by the conspirators. Once outsiders began
purchasing the stock, the conspirators took advantage of the price rise by
“dumping” the National Storm shares at inflated prices. In all, the conspirators
made more than $5 million by manipulating National Storm’s stock in this way.
Two other pump-and-dump companies that were similarly manipulated by
Gordon and his co-conspirators were Deep Rock Oil & Gas (“Deep Rock”), 23 in
21
National Storm shares, like those of the other targeted companies, were
traded on “Pink Sheets,” rather than major stock exchanges. Pink Sheets are
daily, inter-dealer publications of over-the-counter (“OTC”) stocks that include
the stocks’ prices. Since Pink Sheet stocks are not traded on the major indexes,
the targeted companies were not required to file periodic reports with the SEC.
22
In the context of securities, “nominee account” means: “[a] brokerage
account in which the securities are owned by an investor but registered in the
name of the brokerage firm. • The certificate and the records of the issuing
company show the brokerage as the holder of record. But the brokerage records
show the investor as the beneficial owner of the securities in the nominee
account.” B LACK ’ S L AW D ICTIONARY , “nominee account” under “account” (10th
ed. 2014), obtained from Westlaw (2015 Thomson Reuters). The conspirators
used nominee accounts to disguise their own ownership of the National Storm
stock, which allowed them to engage in coordinated trading of the shares among
themselves, while making it appear that many parties were trading the company’s
stock. In this way, the conspirators “primed” the stock’s price by creating the
appearance of high-volume trading of it, prior to broadcasting misleading
promotional hype about the company.
23
Deep Rock was the only one of the four targeted companies that was
already publicly traded. Thus, no reverse merger was necessary to initiate the
pump-and-dump scheme with respect to Deep Rock. However, as with the other
companies, the conspirators parked shares of Deep Rock in nominee accounts in
(continued...)
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which one of the conspirators already owned the majority of non-insider shares,
and Global Beverage Company (“Global”). By manipulating Deep Rock and
Global as they had National Storm, the conspiracy made another $5 million profit
from sales of Deep Rock stock, and roughly $25 million from sales of Global
stock.
The final company included in the criminal indictment against Gordon was
International Power Group (“IPG”), a private company that Gordon reverse-
merged with a publicly-traded company that was controlled by a long-time friend
(“Shell 2”). Gordon instructed an assistant to his co-conspirator to prepare back-
dated corporate documents for Shell 2, claiming that the originals had been lost.
Again, Gordon prepared an opinion letter, stating that IPG shares were exempt
from trading restrictions based on ownership by non-insiders for at least two
years, which he had an associate attorney sign.24 This letter was used to cause a
transfer agent to issue unrestricted IPG shares, which were then gradually sold by
Richard Singer, another co-conspirator, on Gordon’s behalf. In November 2005,
Singer wire-transferred approximately $1.7 million in proceeds from IPG share
sales to pay off a construction mortgage on Gordon’s residence (the “Residence”).
Singer later prepared a false, back-dated document showing a sale of IPG stock
from Gordon to Singer for the $1.7 million, the purpose of which was to avoid the
government’s forfeiture of the Residence.
In 2004, the SEC began investigating Pink Sheet companies that had
unusual share trading and were being actively promoted, and concluded that some
of the companies had engaged in similar activities, consisting of publicly-traded
23
(...continued)
order to disguise their true ownership.
24
The attorney who signed the opinion letters for both National Storm and
IPG was Robert Bertsch, who represented another co-conspirator, New York
businessman Richard Singer.
-8-
shell companies doing reverse mergers with private companies in order to
publicly trade the private companies’ shares. Gordon was contacted by the SEC
in September 2005 because he represented some of the individuals and
companies, including National Storm and Deep Rock, that the SEC was
investigating. In the course of his conversation with the SEC, Gordon was
“Mirandized,”25 and then asked about the source of the National Storm and Deep
Rock promotions. Gordon denied any knowledge regarding the source of those
promotional campaigns.
In 2007, as the SEC investigation progressed, the federal government
placed a caveat (or warning) on, among other properties, the Residence, and
seized two of his Professional Corporation’s bank accounts. Subsequently, the
government filed a civil forfeiture action against the Residence, replacing the
caveat with a lis pendens lien.26 Mrs. Gordon responded to the forfeiture action,
claiming she owned the Residence, and the civil forfeiture proceeding was stayed
pending resolution of the criminal investigation.
In 2009, an indictment was issued that charged Gordon and his co-
conspirators with numerous criminal violations arising out of the alleged pump-
and-dump scheme. The criminal matter proceeded to trial in a federal district
court in Oklahoma and, in early May 2010, Gordon was convicted by a jury on
nine counts of wire fraud, five counts of securities fraud, five counts of money
laundering, one count of engaging in a wire-fraud scheme, and one count of
25
Gordon was told that he could speak with counsel prior to answering any of
the SEC’s questions, and that he had the right to choose whether or not to answer
those questions. In addition, Gordon was informed that giving false answers
would potentially subject him to both civil and criminal penalties.
26
A lis pendens lien on title to real property is intended to prevent property
subject to litigation from being transferred while that litigation is pending. Under
the lis pendens doctrine, anyone who purchases property from a party to the
pending litigation takes the property subject to the result of the litigation. See 5
T IFFANY R EAL P ROP . § 1294 (3d ed. 2014).
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obstruction of justice. He was immediately incarcerated. The district court
determined Gordon to be personally responsible for illegal gains from sales of
IPG stock in the amount of $2.7 million, as well as for the total gains of the
conspiracy from sales of the stock of National Storm, Deep Rock, and Global in
an amount exceeding $43 million. A special assessment was imposed on Gordon
in the amount of $2,300, and he was ordered to pay restitution in the amount of
approximately $6.15 million.
Based on Gordon’s criminal conviction, the district court entered three
separate criminal forfeiture orders relating to his assets: 1) The first order was
issued in September 2010, and forfeited approximately $2.75 million in assets
directly traceable to the conspiracy, which included Gordon’s interest in the
Residence (to the extent of $1.7 million that was traceable to IPG stock sales,
with the remainder of Gordon’s interest in the Residence deemed to be a
substitute asset)27 ; 2) the second order was issued on January 11, 2011 (four days
after Gordon filed his bankruptcy petition), and forfeited Gordon’s interest in
several corporations, brokerage accounts, and other real property; and 3) the final
order was issued in February 2011, and forfeited the entire Gordon Residence,
subject to a settlement with Mrs. Gordon as to her interest in that asset. 28
27
Substitute assets are not directly forfeitable as being traceable to, or the
proceeds of, a crime, and may only be forfeited in the event directly forfeitable
assets are unavailable. “An asset cannot logically be both [directly] forfeitable
and a substitute asset.” United States v. Bornfield, 145 F.3d 1123, 1139 (10th
Cir. 1998).
28
The SEC obtained its own judgment against Gordon, in which Gordon was
permanently enjoined from violating securities laws, fined civilly in the amount
of $130,000, found civilly liable in an amount exceeding $50 million, and
permanently barred from trading in penny stocks. Typically, penny stocks are
equity securities that sell for less than five dollars per share. See Amended
Judgment as to Defendant George David Gordon in Appx at 2885-89.
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B. The Bankruptcy Proceedings
Gordon initially filed his Chapter 7 Petition, Schedules, and Statement of
Financial Affairs (“SOFA”) on January 7, 2011, along with an application to
proceed in forma pauperis, in which he claimed he was unable to pay the $306 fee
for filing a Chapter 7 petition. Gordon amended his filings on three separate
occasions: 1) January 18, 2011, eleven days after the initial filing; 2) June 13,
2011, four months after the creditors meeting was held pursuant to § 341(a), and
3) December 1, 2011, after the United States Trustee’s discharge complaint was
filed and Gordon had retained counsel.
Gordon filed his bankruptcy without the assistance of bankruptcy counsel,
and thus has no one to blame but himself for the inaccuracy of his bankruptcy
filings. Both his Schedules and his SOFA, which provide the basis for the case
trustee, his creditors, and the bankruptcy court to determine his debts and assets,
were rife with misstatements and omissions. In order to promote bankruptcy’s
most fundamental purposes — granting honest but unfortunate debtors a “fresh
start” while ensuring the best permissible outcome for creditors — the filing of
these documents comes with an attendant burden of full and honest disclosure.
Gordon, who was a sophisticated businessman, attorney, and CPA, surely
understood the implications of filing a bankruptcy petition. Despite this, Gordon
later attributed the pervasive inaccuracies in his Schedules to several causes that
he presumably felt were not associated with fraudulent intent, including memory
lapse, inaccessibility of records, mistake, immateriality, and unfamiliarity with
bankruptcy law. Now, he asks this Court to conclude that the voluminous
evidence presented at trial is insufficient to support the bankruptcy court’s finding
that Gordon’s proffered excuses did not overcome the badges of fraud that
permeated his prepetition and postpetition conduct.
Throughout the bankruptcy case, Gordon took the position that he had no
interest in the Residence or in several family vehicles, ownership of which he
-11-
attributed to Mrs. Gordon. Although he disclosed his ownership of the
Professional Corporation, he listed its value as $0 and did not disclose in his
bankruptcy papers any assets that he considered to be owned by the Professional
Corporation. 29
C. The Gordon Residence and Vehicles
The Gordons purchased the real property on which the Residence would
later be built in December 2000, the same year for which they reported net capital
gains of nearly $20 million on their joint tax return (the “2000 Capital Gains”).
That property was purchased without a bank loan and, pursuant to the Gordons’
instructions, it was titled in Mrs. Gordon’s name only, although the equity
received from the sale of the Gordons’ previous, jointly-owned residence was
invested in the new one.30 Approximately two years later, Mrs. Gordon obtained
a construction-loan mortgage from Commerce Bank for construction of a home on
the property. That mortgage was subsequently amended to add Gordon as a
borrower as well, and both Gordons executed the promissory note for the
construction loan. In 2003, the Gordons spent approximately $5.4 million
building the Residence, and in 2005, they paid off the construction loan with a
final payment of $1.7 million. The funds used to pay off the mortgage came from
a Gordon co-conspirator, Singer, who later prepared a false, back-dated document
showing a sale of IPG stock from Gordon to himself for the $1.7 million,
29
Gordon protested that he did not need to disclose the Professional
Corporation’s assets in his personal bankruptcy because the PC was a separate
entity. See, e.g., Telephonic Deposition of George David Gordon, Jr., Aug. 13,
2013, (“Depo, Vol 1”), p.59 in Appx at 705. However, by assigning no value to
the PC as his asset, Gordon failed to account for assets owned by the PC,
including bank accounts, accounts receivable, securities, furniture, decor, and
office equipment.
30
Gordon claimed that his portion of the home sale funds was used to buy
furniture and “probably the tennis court.” Volume II of the Telephonic Deposition
of George David Gordon, Jr., Sept. 19, 2013 (“Depo, Vol 2”), p. 273 in Appx at
919.
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intending to assist Gordon’s effort to prevent forfeiture of the Residence. 31
Since the purchase and construction of the Residence, and throughout the
bankruptcy proceedings, Gordon was adamant that the Residence was solely Mrs.
Gordon’s property. Despite this, Gordon neither transferred nor disclaimed any
interest (whether marital, equitable, or other) he may have had in the Residence to
Mrs. Gordon, as he could have done under Oklahoma law. 32 The Residence was
Gordon’s primary residence. Since its completion, he exercised ownership rights
with respect to it, used marital funds from the 2000 Capital Gains to pay $50,000
in 2003-2010 property taxes on it, paid many of the utility accounts for the
Residence (most of which were opened and maintained in Gordon’s name), and
generally treated it as his own. Gordon also listed the Residence as property he
owned in two personal financial statements, submitted in November 2006 and
May 2009, in order to obtain credit in his name only. 33 Similarly, all of the
31
Because this $1.7 million payment was determined to be directly traceable
to Gordon’s fraudulent wire fraud scheme, that amount of the Residence’s value
was ordered forfeited by the criminal court in its first forfeiture order. Appx at
2644-48.
32
Gordon could have transferred any interest he had in the Residence to Mrs.
Gordon at any time by executing and recording a simple quitclaim deed. O KLA .
S TAT . tit. 16, § 18 (1910). Also, any person entitled to take an interest in a
transferred asset, including real property, may disclaim that interest by executing
and recording a written disclaimer. O KLA . S TAT . tit. 60, §§ 751-759 (1973). A
“disclaimer” is “a written instrument which declines, refuses, releases or
disclaims an interest which would otherwise be succeeded to by a beneficiary,
which instrument defines the nature and extent of the interest disclaimed thereby
and which must be signed, witnessed and acknowledged by the disclaimant in the
manner provided for deeds of real estate.” O KLA . S TAT . tit. 60, § 751(3).
Moreover, “[n]o deed, mortgage, or contract affecting the homestead exempt by
law . . . shall be valid unless in writing and subscribed by both husband and wife,
if both are living and not divorced, or legally separated, except as otherwise
provided for by law.” O KLA . S TAT . tit. 16, § 4 (1997). Thus, a married person
cannot individually transfer marketable title to real property in Oklahoma unless
his or her spouse either signs the instrument of transfer as a grantor, or is the
grantee. O KLA . S TAT . tit. 16, Ch.1, App., Std. 7.2 (2010). This restriction is
intended to protect the “marital interest” in the parties’ homestead. O KLA . S TAT .
tit. 16, Ch. 1, App., Std. 7.1 (1984).
33
Appx at 1670-76. Gordon listed a value for the Residence of $4.5 million
(continued...)
-13-
Gordon family cars (the “Vehicles”) were titled solely in Mrs. Gordon’s name,
but were treated by the Gordons as joint property. Despite the titles, each
member of the family, including Gordon, Mrs. Gordon, and their minor son, had a
vehicle that was primarily used only by him or her. 34
Mrs. Gordon was not employed during at least the ten-year period prior to
Gordon’s incarceration (May 2000 to May 2010), and it was Gordon’s legal and
accounting business, along with his investments, that paid the family’s expenses.
Beginning early in their marriage, Gordon began giving his wife shares of stock
and money to be held in her own name, but he also held property in either his own
name or the name of the Professional Corporation. This process resulted in Mrs.
Gordon’s acquisition of significant assets in her name only, which Gordon
referred to as “her money.”
Gordon filed his original Petition, pro se, on January 7, 2011. 35 Although
Gordon was an attorney, a CPA, and a sophisticated securities investor, he
claimed to have no real knowledge of bankruptcy law. His brother-in-law, Finis
Cowan, who was also a non-bankruptcy attorney, assisted Gordon somewhat with
preparing his Petition and Schedules. Gordon was incarcerated during the
preparation of his bankruptcy filings, initially in Tulsa County Jail, where his
access to information was limited. When Gordon’s Petition and subsequent
33
(...continued)
in 2006 and $4.0 million in 2009. Although he listed Mrs. Gordon as the title
holder of the Residence in both financial statements, the fact that Gordon listed it
as one of his assets is strong evidence that he did not consider it to belong
entirely to his wife.
34
Gordon assumed the vehicle he used was sold when he was incarcerated,
but had no specific knowledge of a sale.
35
Gordon testified that he filed the Petition in order to stop the
commencement of a trial in a civil suit against him in Texas, which was scheduled
to begin a few days later. See Depo, Vol 1, in Appx at 710-12. According to
Gordon, after he filed, he also “hoped that [the filing] would prevent the
government from basically, you know, taking all my assets,” but that was not his
“primary intent” in filing the Petition. Id.
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amendments were filed, however, he was housed at the Texarkana federal prison,
where he had better, though still restricted, access to information. In his original
Schedule A, Gordon denied having any interest in real property, and also stated
that “the federal government ha[d] erroneously obtained a forfeiture judgment
against his wife’s home.”36 He then listed the $1.7 million forfeiture amount as a
secured claim, stating that he was “unsure whether the government’s Forfeiture
Order is a secured claim for bankruptcy purposes but includes it in the interest of
full disclosure.”
The summary of Gordon’s initial Schedules listed a total of $112,000 worth
of personal property, $65,000 of which was claimed to be exempt. The personal
property list did not include any vehicles. Gordon almost immediately amended
his bankruptcy filings, on January 18, 2011, again acting pro se. He amended his
filings again on June 13, 2011, still acting pro se, and added the following note to
his statement disavowing his ownership of any interest in real property: “Further,
debtor states that the home was titled in the debtor’s wife’s name. To the extent
that the debtor could claim an equitable ownership in the home, any such interest
was taken by forfeiture in the debtor’s federal criminal law case.” Finally, in
August 2011, Ron Brown entered his appearance as counsel representing Gordon.
Mr. Brown filed a final amendment of Gordon’s filings in December 2011,
approximately a month after Richard A. Wieland, United States Trustee (“UST”),
filed an adversary proceeding against Gordon. The UST’s complaint sought the
bankruptcy court’s denial of Gordon’s discharge pursuant to, among other
provisions, § 727(a)(2)(A) and (a)(4)(A).
In September 2012, while the adversary proceeding was pending, the
Chapter 7 trustee appointed to administer Gordon’s estate, Patrick J. Malloy III
(“Trustee”), obtained the bankruptcy court’s approval of a settlement with Mrs.
36
Schedule A to Gordon’s 1/7/2011 Petition, in Appx at 1231.
-15-
Gordon in the main bankruptcy case.37 As part of the settlement, the Trustee
agreed to release all avoidance claims the estate might have against Mrs. Gordon,
along with any interests the estate had in the Gordons’ marital assets. In return,
Mrs. Gordon paid the estate $300,000, and agreed to withdraw an objection she
had filed to a “Coordination Agreement”38 between the estate and the United
States for the handling of claims and distributions in both the criminal and
bankruptcy cases.
The adversary complaint was tried before the bankruptcy court over three
days in October 2013. The bankruptcy court issued a decision denying Gordon’s
discharge on March 31, 2014, finding that the UST had proven his case under
both § 727(a)(2) and (a)(4).
IV. DISCUSSION
The bankruptcy court denied Gordon’s discharge under two separate
provisions of § 727(a). Ordinarily, a debtor who requests a bankruptcy discharge
will be granted one. However, “[t]he expectation is that, to be entitled to
discharge, the debtor must deal fairly with creditors and with the court. This
obligation is imposed indirectly through a series of objections to discharge set out
in Code § 727(a).”39 Thus, § 727(a) provides a mechanism for proof of certain
conduct by a debtor that may result in a denial of discharge. Subsection (a)(2)
“establishes that the fair dealing necessary to qualify for a discharge includes
refraining from actions intended to injure creditors, including the transfer,
concealment or destruction of property.”40 This provision targets asset transfers
that were made within one year of the debtor’s petition filing date, but also
37
See Order, dated Sept. 10, 2012, in Appx at 989-91.
38
Appx at 984-87.
39
4 N ORTON B ANKR . L. & P RAC . 3d § 86:3 (2014).
40
Id. § 86:4.
-16-
includes transfers made prior to that time that are concealed by the debtor within
one year.41 By its express terms, § 727(a)(2) covers only conduct that occurs
prior to the initiation of a bankruptcy case. In contrast, § 727(a)(4) specifically
targets false oaths made by debtors “in or in connection with the [bankruptcy]
case.” Typically, such false statements are made in the debtors’ bankruptcy
filings or in their testimony at the § 341 meeting of creditors. As such, the
conduct alleged by a plaintiff in support of a claim under § 727(a)(2) would
ordinarily be different from conduct that is alleged to support a § 727(a)(4) claim.
A. Fraud under § 727(a)(2)(A)
Evidence that a Chapter 7 debtor fraudulently transferred or concealed
property in order to deceive creditors or the bankruptcy court may result in the
denial of the debtor’s discharge under subparagraph (a)(2) of § 727, which
provides:
(a) The court shall grant the debtor a discharge, unless —
(2) the debtor, with intent to hinder, delay, or defraud a
creditor or an officer of the estate charged with custody
of property under this title, has transferred, removed,
destroyed, mutilated, or concealed —
(A) property of the debtor, within one year
before the date of the filing of the
petition. 42
In order to obtain a denial of discharge under § 727(a)(2)(A), a plaintiff must
show, by a preponderance of the evidence, that “(1) the debtor transferred,
removed, concealed, destroyed, or mutilated, (2) property of the [debtor],
(3) within one year prior to the bankruptcy filing, (4) with the intent to hinder,
41
See, e.g., United States Trustee v. Garland (In re Garland), 385 B.R. 280,
296 (Bankr. E.D. Okla. 2008) (failure to disclose property transfer more than one
year prior to bankruptcy may still justify discharge denial as a “continuing
concealment”), aff’d, 417 B.R. 805 (10th Cir. BAP 2009).
42
§ 727(a)(2)(A).
-17-
delay, or defraud a creditor.” 43
This Court has previously held that “despite an unqualified transfer of legal
title, debtors who retain beneficial use of the property and treat it as their own
continue to hold a beneficial interest that must be disclosed.”44 The Garland
decision enumerated several “badges of fraud” that are suggestive of fraudulent
intent when transferring property, including three that are applicable here:
gratuitous property transfers, the debtor’s continued use of the property after its
transfer, and transfers to family members.45 Concealment of assets with the intent
to “hinder, delay, or defraud a creditor” within one year of filing a bankruptcy
petition constitutes a violation of § 727(a)(2). In this case, Gordon’s asset
transfers to his wife occurred more than one year prior to his bankruptcy.
However, “[u]nder the ‘continuous concealment’ doctrine, 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.” 46 Thus:
In a situation involving a transfer of title coupled with
retention of the benefits of ownership, there may, indeed, be a
concealment of property. Where this is the case, however, the
concealment is present not because retention of the benefits of
ownership conceals the fact that the debtor no longer has legal title,
but rather because the transfer of title represents to the world that the
debtor has transferred away all his interest in the property while in
reality he has retained some secret interest — a secret interest of
43
Gullickson v. Brown (In re Brown), 108 F.3d 1290, 1293 (10th Cir. 1997).
This opinion actually listed “property of the estate” as item 2, but no bankruptcy
estate exists before the case is filed, so § 727(a)(2)(A) applies, as it says, to
“property of the debtor” that was transferred prepetition, not to property of the
estate, which is covered by § 727(a)(2)(B).
44
In re Garland, 417 B.R. at 816 (discussing a § 727(a)(4) claim).
45
Id. at 815.
46
Rosen v. Bezner, 996 F.2d 1527, 1531 (3d Cir. 1993). See also Gullickson
v. Brown (In re Brown), 108 F.3d 1290, 1293 (10th Cir.1997) (fraud can be
inferred from transfer of an asset’s title while continuing to exercise dominion
over it).
-18-
which retention of the benefits of ownership may be evidence. 47
The UST asserted, among other allegations, that Gordon placed many, if
not most, of his significant assets solely in his wife’s name in order to protect
them from his own creditors, and that his continued use and possession of those
assets indicates that both Gordon and his wife considered the ownership of them
to be, at the very least, joint. When a transfer is made between parties who
between themselves act as though no transfer actually took place, while holding
out to others that the transfer was valid, both the transfer and the insistence that it
was valid may be fraudulent. Thus, the bankruptcy court found that Gordon had
retained “all of the benefits of ownership [of the Residence] — except legal
title — which he used to his full advantage when it suited him.” 48 These facts
establish that the transfer of legal title to the Residence was not a valid transfer,
but was a fraudulent concealment of the property from Gordon’s creditors. In
addition, the parties’ conduct that perpetuated the ruse that the transfer was valid
constituted a concealment that continued for as long as the parties maintained the
ruse.
The UST alleged, and the bankruptcy court found, that although Gordon
maintained that certain assets belonged solely to Mrs. Gordon, he actually
retained an equitable interest in them, particularly with respect to the Residence
and the Vehicles. Gordon’s maintenance of that ruse was intended to shield those
assets from his creditors, and continued up to, and even after, the filing of his
Petition. This constitutes a “continuing concealment” subject to the reach of
§ 727(a)(2).
47
Rosen v. Bezner, 996 F.2d at 1532.
48
Wieland v. Gordon (In re Gordon), 509 B.R. 359, 369 (Bankr. N.D. Okla.
2014) (emphasis in original).
-19-
1. Detriment to creditors
Gordon asserts that it was error for the bankruptcy court to deny his
discharge pursuant to § 727(a)(2)(A) absent proof of resulting harm to his
creditors. However, notably absent from the elements listed by the Tenth Circuit
Court of Appeals for a successful fraudulent transfer claim under this provision is
any requirement that the debtor’s creditors suffered financially as a result of the
transfer. Nonetheless, Gordon asserts that the failure to prove such a detriment
should have doomed the UST’s claim, relying principally on statements made in
Booth and Miller. 49
Neither Booth nor Miller is binding precedent on this Court, but the
problem with Gordon’s reliance on them lies in the fact that the statements he
cites are dicta. Booth simply states that a debtor’s intent with respect to a
transfer must be “more than just an intent by the debtor to prefer a creditor,” and
“must be coupled with the transfer of the debtor’s property which reduces assets
available to other creditors.”50 In so stating, the Booth court relied on a 1985
Massachusetts bankruptcy court case, then noted that, ‘[t]his distinction has been
expressly recognized in the Tenth Circuit.”51 However, the statement was
unnecessary to the issue before the court, which was whether the debtor’s
transfers of money and farm equipment to his live-in girlfriend were in payment
of valid loans made by her to him, or were converted from capital to debt in order
to defraud the debtor’s ex-wife.
49
Booth v. Booth (In re Booth), 70 B.R. 391 (Bankr. D. Colo. 1987); Wieland
v. Miller (In re Miller), 448 B.R. 551 (Bankr. N.D. Okla. 2011).
50
In re Booth, 70 B.R. at 395.
51
Id. (citing Rutter v. Gen. Motors Acceptance Corp., 70 F.2d 479 (10th Cir.
1934)). Not only was Rutter decided well before the provision at issue here was
even enacted, it was decided based on then-existing Oklahoma preference law,
which required proof of either fraudulent intent or absence of fair value. Thus,
the Rutter decision simply does not support the interpretation of it made in Booth
and Miller.
-20-
Even more significantly, the case that Booth cites as the Tenth Circuit’s
recognition of the “reduced assets” requirement, Rutter, is not valid support for
the proposition. Rutter, a 1934 case, was decided under § 14 of the Bankruptcy
Act of 1898 and then-existing Oklahoma law. The issue in Rutter was whether a
transfer from a husband to a wife was fraudulent under an Oklahoma provision
that stated that “no transfer can be adjudged fraudulent solely on the ground that
it was not made for a valuable consideration.”52 The Rutter court noted that the
establishment of a preference, alone, is not grounds for the denial of a discharge,
saying, “[t]here is a clear and broad distinction between a preferential transfer
and a fraudulent transfer.”53 Quite simply, Rutter is wholly inapposite to the
current issue.
In both Booth and Miller, the debtors’ discharges were denied. However,
in Miller, one allegedly fraudulent transfer was excluded from consideration
because the plaintiff failed to offer evidence of the asset’s value. In eliminating
that single transfer, which did not affect the discharge denial, the court relied on
the dicta in Booth to the effect that intent must be tied to a transfer that reduces
assets available to creditors in order to satisfy the statute. 54
The Tenth Circuit stated in the Strunk decision (again, as dicta) that
“[d]etriment to a creditor need not be shown in order to establish fraudulent
concealment or a false oath barring discharge.” 55 The nondischargeability claims
52
Rutter, 70 F.2d at 481.
53
Id. at 481-82.
54
In re Miller, 448 B.R. at 574-75 & n.76.
55
Farmers Co-op Ass’n v. Strunk, 671 F.2d 391, 396 (10th Cir. 1982)
(emphasis added) (this statement is dicta as to a § 727(a)(2)(A) claim because it
was made in the court’s discussion of false oath). A similarly superficial
statement rejecting a § 727(a)(2) detriment element was made in Freelife Int’l,
LLC v. Butler (In re Butler), 377 B.R. 895, 923 (Bankr. D. Utah 2006) (stating, in
a § 727(a)(4) case, that “as with § 727(a)(2) . . . no actual detriment to a creditor
(continued...)
-21-
in Strunk included both fraudulent concealment and a false oath, based on bad
checks written by the debtor. The checks were dishonored by the debtor’s bank,
which the debtor claimed caused him to believe that the account had no funds in
it, which is what he reported in his schedules. The debtor asserted in defense that
he had tendered a check to the trustee in the amount of the funds that were in the
account on the petition date and, therefore, no harm resulted. This proffered
defense was rejected by the court, which affirmed the bankruptcy court’s denial
of discharge.
Courts in other jurisdictions have soundly rejected a detriment element
under § 727(a)(2).56 In particular, a Michigan bankruptcy court reasoned:
This court believes that the reasons that justify ignoring the
effects of debtor’s actions in nonexempt-to-exempt cases, justify
ignoring the effects of debtor’s actions in other § 727(a)(2) cases as
well. First, the statute focuses on debtor’s intent at the time of the
transfer, and not at the results of the transfer to see if the creditor has
been delayed, hindered or defrauded. Second, where Congress wants
courts to apply an effects test it says so. For example, under
§ 547(b) a transfer is voidable as a preference if, as a result of the
transfer, the creditor receives more than he would upon liquidation.
The rule is not that a transfer is voidable as a preference if the debtor
intends to prefer a creditor. Hence it is clear that the Trustee can
make his case under § 727(a)(2), regardless of whether a creditor is
actually delayed, hindered or defrauded. All that the Trustee must
prove is that the debtor intended to hinder, delay or defraud creditors
when it transferred property within a year of filing. 57
In any event, serious consideration of whether § 727(a)(2) requires proof of
a detriment to creditors is unnecessary in this case because such a detriment was
established by the UST’s settlement with Mrs. Gordon. That settlement, which
was based on Gordon’s marital or equitable interest in property obtained by
55
(...continued)
needs to be shown”).
56
See 4 B ANKR . S ERV . L. E D . § 39:121 (2014) (proof of harm is not required
element of transfer or concealment under § 727(a)(2)).
57
Taunt v. Wojtala (In re Wojtala), 113 B.R. 332, 336 (Bankr. E.D. Mich.
1990).
-22-
Gordon but held solely in Mrs. Gordon’s name, resulted in the recovery of
$300,000 for the bankruptcy estate. Those funds would not have been available to
Gordon’s creditors had the UST simply accepted Gordon’s denial of any interest
in those assets.
2. Sufficiency of the evidence
Not surprisingly, this case presented the Trustee with significant challenges
with respect to gathering estate assets. Gordon outright denied ownership,
claimed not to remember details of many transactions, was evasive, and failed to
keep adequate records of his business dealings. He asserted a variety of excuses
for his omissions and misstatements, including that he was not a bankruptcy
attorney, was incarcerated and therefore unable to obtain documents, didn’t
understand marital property rights, and believed any rights he may have had to
have been forfeited. The principal basis for the bankruptcy court’s rejection of
Gordon’s defenses to the denial of discharge in this case was his lack of
credibility.58 The sheer number of mistakes, omissions, and denials of access to
58
Ordinarily, this Court would give the bankruptcy court great deference with
respect to witness credibility. See, e.g., Vaughn v. United States (In re Vaughn),
765 F.3d 1174, 1180 (10th Cir. 2014) (“Where . . . certain ‘findings are based on
determinations regarding the credibility of witnesses, Rule 52(a) [of the Federal
Rules of Civil Procedure] demands even greater deference to the trial court’s
finding[s].’” (quoting Bessemer City, 470 U.S. at 565)). See also Fed. R. Civ. P.
52(a)(6), made applicable to adversary proceedings by Fed. R. Bankr. P. 7052
(appellate court must give due regard to trial court’s opportunity to judge witness
credibility). The UST relies on this concept in his brief, despite the lack of any
such ability of the bankruptcy court to judge Gordon’s credibility at trial. Gordon
did not appear at trial, and his only testimony came from the written transcript of
a telephonic deposition that was taken not long before trial. Under these
circumstances, the bankruptcy court was in no better position to judge the
credibility of the debtor than is this Court. However, Bankruptcy Rule 9017
makes the Federal Rules of Evidence applicable to bankruptcy cases, and Federal
Rule of Evidence 609(a) provides that evidence of a criminal conviction of “any
crime regardless of the punishment . . . must be admitted [for purposes of
attacking a witness’s character for truthfulness] if the court can readily determine
that establishing the elements of the crime required proving . . . a dishonest act or
false statement.” Thus, the bankruptcy court was entitled to rely on Gordon’s
securities fraud convictions in concluding that his deposition testimony was not
credible.
-23-
documents that Gordon asserted would alone be enough to disregard his
testimony. When combined with his conviction for securities fraud, it is difficult
to deny an overwhelming aura of fraudulent intent.
The situation in the present case is remarkably similar, in some respects, to
the one presented in this Court’s 2009 Garland decision.59 In Garland, the debtor
was a semi-retired plaintiffs’ class-action lawyer who, like Gordon, claimed no
interest in the residence in which he had lived for many years prior to filing for
bankruptcy relief. Although Mr. Garland’s machinations with the title to his
residence went far beyond simply titling the property in someone else’s name, his
issues with the federal government were tax-related rather than criminal. As did
Gordon, Garland stated on his Schedule A that he had no “legal, equitable, or
future interest” in any real property, claimed the stock he owned in his
Professional Corporation was without value, and failed to list his ownership or
directorship in a number of businesses, as well as his signatory authority on
several bank accounts. Also like Gordon, Garland asserted that he was not
required to list his residence as his property because he had no ownership interest
in it. This Court rejected that contention, stating:
[I]n analogous cases, bankruptcy courts have determined that, despite
an unqualified transfer of legal title, debtors who retain beneficial use
of the property and treat it as their own continue to hold a beneficial
interest that must be disclosed. . . .
. . . .
. . . Debtor had continuous and exclusive use of the Property,
provided improvements and maintenance on the Property, and paid
the Property’s expenses, both before and after he allegedly
relinquished his ownership of it. Each and every transfer of the
Property involved Debtor’s friends or family and, in addition, Debtor
was actively involved in the formation of the corporation whose sole
purpose was to foreclose on the Property and thereby eliminate the
IRS’s tax liens. Despite these facts, Debtor did not even list the
Property as property “held” by him for another on his SOFA or his
59
United States Trustee v. Garland (In re Garland), 417 B.R. 805 (10th Cir.
BAP 2009).
-24-
schedules . . . . 60
Like Garland, Gordon retained continuous use of the Residence and the
Vehicles, provided maintenance for them, and paid their expenses the entire time
those assets were titled in Mrs. Gordon’s name. In addition, the money with
which Mrs. Gordon purportedly purchased the Residence came partially from the
sale of the Gordons’ joint property. And the property that generated the portion
of the purchase price that was paid by Mrs. Gordon had originally been given to
her by her husband, who thereafter increased its value through his (fraudulent)
investments. Thus, the criminal court determined that $1.7 million of the money
that was used to pay off the mortgage on the Residence was directly traceable to
Gordon’s fraudulent securities scheme. Finally, Gordon also listed the Residence
as property he owned in two personal financial statements, submitted in November
2006 and May 2009, in order to obtain credit.
In Oklahoma, both real and personal property that is acquired during a
marriage is presumed to be marital property, regardless of how the title to the
property is held.61 Gordon’s assertion that he believed this principle only
applied to divorce actions belies his general knowledge of this concept. 62 He
certainly knew enough about his state’s property laws to understand that even if
the Residence was titled solely in his wife’s name, he still held, at the very least, a
60
417 B.R. at 816-17.
61
Manhart v. Manhart, 725 P.2d 1234, 1240 (Okla. 1986) (both real and
personal property acquired during marriage is presumed marital property); Garrett
v. Gordon, 314 P.3d 264, 271 (Okla. Civ. App. 2013) (property acquired during
marriage is presumed to be marital property); see also O KLA . S TAT . tit. 43,
§ 121(B) (1985) (“As to . . . property, whether real or personal, which has been
acquired by the parties jointly during their marriage, whether the title thereto be
in either or both of said parties, the court shall, subject to a valid antenuptial
contract in writing, make such division between the parties as may appear just and
reasonable”).
62
See, e.g., Depo, Vol 1, p.46, ll. 11-20 in Appx at 692.
-25-
contingent marital or equitable interest that he had not validly extinguished. 63
There is ample evidence in the record that supports the bankruptcy court’s
conclusion that Gordon titled major assets solely in his wife’s name because he
wanted to keep them out of the reach of his own creditors and, given the elaborate
fraud he was perpetrating, Gordon surely understood that there were likely to be
claims made against him.
Gordon’s conduct constituted a fraud against his creditors in nearly every
sense of the word. “There is little question that if an individual transfers title of
an item but continues to exercise dominion over it, that fraud could be inferred.” 64
Knowingly placing property in his wife’s name while continuing to use the
property as his own and repeatedly asserting that the property was not his
constituted both fraud and the continuing concealment of that fraud. Thus,
Gordon had an equitable or marital interest in, at the very least, both the
Residence and the Vehicles, which he concealed by placing title to those assets in
his wife’s name. His concealment of his interests in those assets continued up to
and after the filing of his Petition through his ongoing denials of his interests, and
those denials were made with the intent to conceal his assets from his creditors
and mislead them regarding his assets. Because these facts fully satisfy the
statutory elements of a § 727(a)(2) claim, we affirm the bankruptcy court’s
judgment under that provision.
B. False Oath under § 727(a)(4)
Gordon was also denied discharge pursuant to the following provision:
(a) The court shall grant the debtor a discharge, unless —
. . .
63
United States Trustee v. Garland (In re Garland), 385 B.R. 280, 295
(Bankr. E.D. Okla. 2008) (beneficial interest in property may be found if a debtor
exercises control over property, even without legal title to it), aff'd, 417 B.R. 805
(10th Cir. BAP 2009).
64
Gullickson v. Brown (In re Brown), 108 F.3d 1290, 1293 (10th Cir.1997).
-26-
(4) the debtor knowingly and fraudulently, in or in connection
with the case —
(A) made a false oath or account. 65
The various discharge exceptions of § 727(a) are independent, and a plaintiff need
only prove the elements of one exception by a preponderance of the evidence in
order to obtain a denial of discharge.66 Thus, a judgment under any § 727(a)
subparagraph is sufficient for a denial of discharge. Having affirmed the
bankruptcy court’s ruling based on § 727(a)(2), this Court need not consider that
court’s § 727(a)(4) ruling. Nonetheless, as the bankruptcy court considered and
ruled on both exceptions, this Court will also.
As he did with respect to the § 727(a)(2) denial of discharge, Gordon
challenges the bankruptcy court’s denial of his discharge under § 727(a)(4) on the
basis of insufficiency of the evidence. The bankruptcy court based its decision to
deny discharge under § 727(a)(4)(A) primarily on Gordon’s failure to disclose his
interest in the Residence. Gordon asserts that the bankruptcy court erred in
reaching this conclusion because he did adequately disclose the existence of the
Residence, both by the address he listed as the location of his personal property
and by his statements that although the Residence belonged solely to Mrs.
Gordon, the criminal court had erroneously forfeited any interest he might have
had in it prior to the filing of his Petition.67 Gordon also asserts that the criminal
forfeiture eliminated any interest he might otherwise have had in the Residence
and, therefore, his failure to list the Residence as an asset was the truth. 68
65
§ 727(a)(4)(A).
66
In re Garland, 417 B.R. at 810-11.
67
In his initial Schedule A, filed on January 7, 2011, Gordon indicated that he
did not own any real property, and stated also that “the federal government has
erroneously obtained a forfeiture judgment against [Gordon’s] wife’s home at
10726 S. Lakewood, Tulsa, OK.” Appx at 1231.
68
Only the first forfeiture order, which was entered on September 15, 2010,
(continued...)
-27-
This Court may affirm on any ground that is supported by the record 69 and,
without reaching the merits of Gordon’s assertion that any interest he had in the
Residence when he filed his Petition had been forfeited, we conclude that there
was ample other evidence presented to the bankruptcy court to support its ultimate
conclusion that Gordon had made prohibited false oaths. Principally, Gordon
failed to accurately disclose in his Schedules real and personal property in which
he had an interest, and also failed in his SOFA to disclose financial accounts that
he either controlled or had signatory authority over within the one-year period
prior to filing his Petition, and companies in which he was an officer or director
within the six-year period prior to filing his Petition. 70
68
(...continued)
actually predated Gordon’s filing of his Petition and Schedules. In those
Schedules, Gordon asserted that he did “not own interests in any real estate but
the federal government has erroneously obtained a forfeiture judgment against his
wife’s home.” The 2010 order forfeited Gordon’s interest in the Residence “to
the extent of $1,702,000, which is traceable proceeds to the Count 23 wire fraud
scheme,” and the remainder of the Residence as a “substitute asset.” Order for
Criminal Forfeiture Money Judgments, Preliminary Order of Forfeiture of
Property and Order for Forfeiture of Substitute Asset ¶¶ 4-5 in Appx at 2646.
With respect to Gordon’s assertion that the prepetition forfeiture eliminated any
interest he may have had in the Residence, we note that the $1.7 million forfeiture
in that order represents less than half of the Residence’s value, according to
Gordon’s own valuations. Thus, in a financial statement he submitted to
Commerce Bank in 2009, Gordon listed the value of the Residence as $4 million.
Appx at 1669-70. In addition, Gordon testified in connection with the bankruptcy
that he and Mrs. Gordon spent approximately $5.4 million on construction of the
Residence in 2003. Appx at 835, 838. Under these valuations, Gordon would
have retained, at the very least, a contingent interest in the Residence, over and
above the $1.7 million forfeiture, because the criminal court designated the
remainder of the Residence only as a “substitute asset.”
69
Buke, LLC, v. Eastburg (In re Eastburg), 447 B.R. 624, 632 (10th Cir. BAP
2011).
70
Schedule A requires debtors to list all of their real property, and
specifically directs them to include all real property in which they have “any
legal, equitable, or future interest.” In addition, married debtors are instructed to
“state whether the husband, wife, both, or the marital community own the
property by placing an ‘H,’ ‘W,’ ‘J,’ or ‘C’ in the [appropriate] column.”
Schedule B requires debtors to list all of their personal property, and specifies
various categories of property that must be listed, including stock and interests in
incorporated and unincorporated business, interests in partnerships or joint
(continued...)
-28-
On Schedule B, Gordon indicated that he did not own any vehicles. In
response to ¶ 13 of Schedule B, which asks for “[s]tock and interests in
incorporated and unincorporated businesses,” Gordon attached a list of nine
companies, plus “[v]arious illiquid or insolvent penny stocks,” to which he
assigned a total value of $46,100. The Professional Corporation, which was listed
first, was assigned an estimated value of “-0-”. 71 Gordon admitted many of the
inaccuracies in his deposition, but blamed them on his memory, lack of access to
records, mistake, and misunderstanding of the law. For example, when questioned
about his failure to disclose accounts with Fidelity Investments and
tradeMONSTER, Gordon replied “I just missed it. Okay?”72 Likewise, with
respect to his failure to list EffTec International stock, Gordon responded that it
was “[p]robably an oversight,”73 regarding an undisclosed promissory note from
LifeStyle Innovations, he stated, “[b]ecause I had forgot about it. And LifeStyle
has nothing in it anyway,”74 and, finally, as to shares in SGD Holdings that were
not disclosed in his initial Schedules, he claimed he “thought [those] were
70
(...continued)
ventures, accounts receivable, equitable or future interests not listed in Schedule
A, office equipment, furnishings and supplies, and “[o]ther personal property of
any kind not already listed.” Like Schedule A, Schedule B also directs married
debtors to disclose whether such property is held by one or the other spouse,
jointly, or by the marital community. Paragraph 18 of the SOFA requires
individual debtors to disclose “all businesses in which the debtor was an officer,
director, partner, or managing executive of a corporation . . . or in which the
debtor owned 5 percent or more of the voting or equity securities,” within the six-
year period prior to filing their bankruptcy petition.
71
Appx at 1235.
72
Id. at 882. Earlier in his deposition, Gordon stated that he didn’t remember
the Fidelity account “when we had to file in a hurry.” Id. at 730. However,
Gordon signed the bankruptcy papers in November 2010 and they were held until
he later learned that a lawsuit against him was going forward. Thus, his claim
that the documents were prepared and filed “in a hurry” is inaccurate.
73
Id. at 883.
74
Id. at 885-86.
-29-
disclosed in my bankruptcy filings.” 75
Gordon also testified that he “just didn’t recall having signatory authority”
on the Gordons’ household checking accounts,76 and that when his Petition was
filed in January 2011, he was in jail and “didn’t have anything” in the way of
financial records with which to prepare his filings.77 Gordon did list Delvest, Inc.,
of which he claimed to own 83%, in his initial Schedule B, but assigned it a value
of $30,000, even though it owned several hundred thousand dollars worth of real
property. When asked how he arrived at that valuation, Gordon stated “I don’t
recall.” 78
The number of false statements made by Gordon in his bankruptcy papers is
overwhelming. It is inconceivable that he did not know he had some retained
interests in the marital assets that he gave to his wife, whether or not he believed
his interests to be valuable. It is similarly inconceivable that he would fail to
disclose his interests in marital assets because of criminal forfeiture orders that
post-dated his Petition. In any event, throughout the bankruptcy proceedings,
Gordon continued to deny that he ever had any interest in the marital assets.
When questioned about any marital interest he may have had in assets titled solely
in his wife’s name, Gordon responded, “I don’t believe I had a marital interest”
because “I’m not a divorce lawyer, but I don’t believe a marital interest even
forms until a divorce is filed . . . .”79 Moreover, the “most important[]” reason he
75
Id. at 884.
76
Id. at 707.
77
Id. at 786, 791-92.
78
Id. at 892. Although Gordon claimed to have later revised his valuation of
Delvest to $230,000, that figure does not appear in any of the amended Schedules
he filed. He did, however, testify at the creditors meeting that “[t]he Delvest
assets should have been listed as $230,000, not $30,000.” Id. at 1346.
79
Id. at 689-90, 692.
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did not disclose an interest in the Residence was that it “was forfeited to the
government in September of 2010.”80 Likewise, although Gordon admitted that he
had control of Delvest when he filed his Petition, it was only “for like, three
days.”81 In addition, Gordon did not disclose sales of some personally-owned
assets because “I didn’t believe the sale of stock and brokerage accounts counted
as transfers, so I did not disclose it.” 82
Finally, Gordon repeatedly asserted that he didn’t need to list any assets
owned by the Professional Corporation in his bankruptcy filings because assets
owned by a separate entity are not his personal assets.83 It is true, as Gordon
contends, that he was not required to itemize the assets of his wholly-owned
Professional Corporation or of Delvest in his personal bankruptcy. However, he
was required to state values for those companies that took into account the assets
that the companies owned. Indeed, Gordon testified that he listed the corporations
that he owned, but not their assets, noting, “I just put what the value of the
corporations were.”84 But Gordon did not state valid values for the companies he
owned in his filings. Rather, he assigned a zero value to the Professional
Corporation, and a value of $30,000 to his Delvest interest. Although a property
owner is considered to be competent to testify about the value of his own
property, Gordon’s value figures apparently were not based on an impartial
assessment of relevant facts.
80
Id. at 689-90 (referring to the criminal court’s first forfeiture order).
81
Id. at 1244 (referring to the criminal court’s second forfeiture order that
was entered 4 days after Gordon filed his Petition).
82
Id. at 705-06.
83
Id. at 705, 795, 826, 871.
84
Id. at 795.
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The appellate record is replete with evidence from which the bankruptcy
court could have denied Gordon’s discharge based on his false oaths. We cannot
conclude that the findings underpinning that holding were clearly erroneous. Our
review of the record reveals that Gordon made numerous false statements and
omitted much requested information in his bankruptcy filings. The bankruptcy
court did not believe, nor does this Court, that the many inaccuracies in Gordon’s
filings resulted from memory lapses, lack of legal knowledge, or mistake. Rather,
they were intentionally made in order to keep as many of Gordon’s assets out of
the hands of his creditors as possible. Gordon was a sophisticated debtor who
understood the law (of both bankruptcy and marital property) well enough to
interpret it in ways that were beneficial to him. He consciously decided to make
only a half-hearted effort to list assets in his bankruptcy filings, anticipating that
he could offer up any number of excuses for any inaccuracies that were
discovered. In particular, Gordon’s assessment of the Professional Corporation’s
value at $0 (which should have included whatever assets it had, such as stocks,
cash, accounts receivable, and furniture), based on his opinion that “after three or
four days after I filed bankruptcy, I no longer owned [the PC]” 85 was deliberately
misleading. Both Gordon’s conduct and his testimony exhibit a complete
disregard for the bankruptcy system, which he seems to view as simply a
mechanism by which to avoid personal responsibility. The bankruptcy system is
set up to protect “honest but unfortunate debtors,” not those who would abuse it to
further their own interests. The bankruptcy court’s conclusion that Gordon made
false oaths within the purview of § 727(a)(4)(A) is not clearly erroneous.
85
Id. at 722. Gordon also admitted to using nearly all of the PC’s assets to
pay his criminal attorneys’ fees, contending that those fees had been “a business
expense.” Id. at 833.
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V. CONCLUSION
For the reasons stated herein, the bankruptcy court’s order denying
Gordon’s discharge pursuant to § 727(a)(2)(A) and (a)(4)(A) is affirmed.
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