In re: Mohammad Reza Salehi

FILED
JUN 09 2014
1 NOT FOR PUBLICATION
SUSAN M. SPRAUL, CLERK
2 U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. EC-13-1171-TaKuJu
)
6 MOHAMMAD REZA SALEHI, ) Bk. No. 12-26790
)
7 Debtor. ) Adv. Proc. No. 12-02251
______________________________)
8 )
MOHAMMAD REZA SALEHI, )
9 )
Appellant, )
10 )
v. ) MEMORANDUM*
11 )
GLOBAL AUTOMOTIVE GROUP, INC.,)
12 )
Appellee. )
13 ______________________________)
14 Argued and Submitted on May 15, 2014
at Sacramento, California
15
Filed - June 9, 2014
16
Appeal from the United States Bankruptcy Court
17 for the Eastern District of California
18 Honorable Thomas C. Holman, Bankruptcy Judge, Presiding
________________________________
19
Appearances: Sasha F. Ganji argued for appellant Mohammad Reza
20 Salehi; Mark A. Serlin of Serlin & Whiteford, LLP,
argued for appellee Global Automotive Group, Inc.
21 __________________________________
22 Before: TAYLOR, JURY, and KURTZ, Bankruptcy Judges.
23
24
25
26
*
This disposition is not appropriate for publication.
27 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
28 See 9th Cir. BAP Rule 8013-1.
1 INTRODUCTION
2 Appellant, chapter 71 debtor Mohammad Reza Salehi, appeals
3 the bankruptcy court’s summary judgment in favor of Global
4 Automotive Group, Inc. (“Global Automotive”)2 denying Salehi’s
5 discharge under § 727(a)(3) and (a)(5). Because Global
6 Automotive failed to demonstrate the absence of genuine disputes
7 of material fact, we REVERSE.
8 FACTS
9 Salehi filed his bankruptcy petition on April 6, 2012, and
10 obtained waiver of the filing fee.3 He scheduled assets of
11 $2,150 and liabilities of $1,137,949. The liabilities consisted
12 of two judgments in favor of Tanl Investment Group totaling
13 $1,118,000, medical expenses, and unpaid utilities. Salehi
14 disclosed that he had no current income, but that a few days
15 prior to filing bankruptcy he reapplied for unemployment
16
1
Unless specified otherwise, all chapter and section
17 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
all “Rule” references are to the Federal Rules of Bankruptcy
18 Procedure, Rules 1001-9037.
19 2
Salehi filed a motion in this appeal seeking, among other
things, to quash all pleadings, motions, briefs, and legal
20 documents filed on behalf of Global Automotive on the grounds
that Global Automotive’s corporate powers, rights, and privileges
21 were suspended on December 3, 2013, by the California Franchise
Tax Board for failure to remit taxes. A motions panel denied the
22 motion after reviewing Global Automotive’s opposition thereto,
which included a Certificate of Revivor that resulted in
23 reinstatement of Global Automotive’s corporate rights, even to
the extent of validating otherwise invalid prior proceedings.
24
3
The excerpts of the record on appeal consist primarily of
25 argument and incomplete excerpts of testimony taken outside this
adversary proceeding. To facilitate our analysis and disposition
26 of this appeal, we have drawn some of our facts from items
referenced in the bankruptcy court’s case docket. See O’Rourke
27 v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d 955,
957-58 (9th Cir. 1989) (appellate court may take judicial notice
28 of the record in the underlying bankruptcy case).
- 2 -
1 compensation; his income in both 2010 and 2011 consisted solely
2 of unemployment benefits. The chapter 7 trustee filed a no
3 distribution report in May 2012.
4 Global Automotive, assignee of the two judgments against
5 Salehi, examined him under Rule 2004 and thereafter filed a
6 timely complaint seeking denial of his discharge pursuant to
7 § 727(a)(3), (a)(4), and (a)(5). The complaint, which is barely
8 three pages long, contains three, 2-sentence, substantive
9 paragraphs:
10 • Paragraph 7 first paraphrases § 727(a)(3), which bars
11 discharge based on the failure to keep or preserve recorded
12 information regarding debtor’s financial condition or
13 business transactions, and then states: “Specifically,
14 notwithstanding a Bankruptcy Rule 2004 subpoena and related
15 examination on June 5, 2012, the Debtor did not and could
16 not produce numerous financial and business records.”
17 Adv. ECF #1 at 2:11-13.
18 • Paragraph 8 first paraphrases § 727(a)(5), which bars
19 discharge where a debtor fails to explain a loss of assets,
20 and then states: “For instance, the Debtor cannot
21 satisfactorily explain, and had few or no records to
22 indicate, how and where tens of thousands of dollars of
23 proceeds of automobiles owned by Debtor’s corporation,
24 Fulton Auto Depot, Inc. dba Sacramento Auto Plaza (“SAP”)
25 were expended.” Id. at 2:15-18.
26 • In Paragraph 9, Global Automotive generally alleges that
27 Salehi’s testimony at the Rule 2004 examination contained
28 false oath(s) or accounts within the meaning of
- 3 -
1 § 727(a)(4)(A), and then states: “Specifically, the Debtor
2 testified falsely at his 2004 examination regarding the
3 disposition of money and property of SAP and the proceeds
4 thereof.” Id. at 2:21-23.
5 Salehi answered the complaint, generally denying the
6 allegations in paragraphs 7, 8, and 9. Thereafter, Global
7 Automotive filed a Motion for Summary Judgment (“MSJ”) nominally
8 on all three of the alleged statutory grounds for denial of
9 discharge set forth in the complaint.
10 In the MSJ, Global Automotive asserted that Salehi produced
11 virtually no documents at the Rule 2004 examination and admitted
12 that he kept no financial records. It also asserted that Salehi
13 demonstrated conclusively that he had no documents or records of
14 a car dealership that he owned with his brother in 2009 and he
15 failed to explain and produce records of the “hundreds of
16 thousands of dollars” that Global Automotive alleged Salehi used
17 in 2010 for start up of a dealership with Omar Casas called Coast
18 to Coast. Global Automotive, however, did not specifically argue
19 or identify prepetition assets that Salehi personally owned for
20 which he failed to account. It also asserted, as fact, that
21 Salehi committed perjury: (1) by not disclosing in his schedules
22 money and income that he must have had to be able to invest in
23 the new dealership and to pay his own living expenses; and (2) at
24 his Rule 2004 examination as to the disposition of hundreds of
25 thousands of dollars from liquidation in 2009 of vehicles owned
26 by a prior dealership.
27 Global Automotive supported the MSJ with its attorney’s
28 declaration (“Counsel’s Declaration”) and a Separate Statement of
- 4 -
1 Undisputed Facts. Exhibits to Counsel’s Declaration consisted
2 of: (1) a copy of a subpoena to Salehi for the Rule 2004
3 examination with a document request; (2) excerpts of Salehi’s
4 Rule 2004 examination testimony; (3) excerpts of the November 30,
5 2011 deposition of Silva M. Maadarani (Salehi’s ex-spouse) in
6 case no. 34-2008-00009041 titled Tanl Investment Group, Inc. v.
7 Fulton Auto Depot, LLC, et al. in California Superior Court in
8 Sacramento County (“2008 State Court Action”); (4) a copy of a
9 subpoena to The Golden 1 Credit Union for business records in
10 case number 34-2010-00091338 in Superior Court in Sacramento
11 County (“2010 State Court Action”), titled Global Automotive,
12 Inc. and TANL Investment Group, Inc. v. Anosheh Satvat, et al.
13 (“Credit Union Subpoena”); and (5) copies of six checks produced
14 in response to the Credit Union Subpoena, none of which was
15 issued to or remitted by Salehi.
16 In its Separate Statement of Undisputed Facts, Global
17 Automotive listed six paragraphs of “Undisputed Facts,” supported
18 solely by Counsel’s Declaration. Two paragraphs consist of the
19 following: “[Salehi] produced almost no documents at all [at the
20 Rule 2004 examination]” (Adv. ECF #21 at 1); and “[Salehi] hid
21 the proceeds of the SAP vehicles in his mother’s deposit account,
22 which proceeds were then used for the Coast to Coast dealership.”
23 Adv. ECF #21 at 2. Global Automotive phrased the balance of
24 undisputed facts as “claims” made by Salehi, apparently during
25 the Rule 2004 examination:
26 [Salehi] [ ] claimed he had no documents pertaining to the
disposition of about 60 or so automobiles owned by Fulton
27 Auto Depot, Inc. dba Sacramento Auto Plaza (“SAP”), a car
dealership he owned with his brother.
28
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1 [He] claimed not to know where any of the records of SAP
were located.
2
[He] claimed to have no banking records whatsoever.
3
[He] claimed to be “borrowing” funds for living expenses,
4 but refused to state the name of the lender.
5 [He] claimed to have provided no capital to a dealership by
the name of Coast to Coast with which he was working.
6
7 Id.
8 Salehi opposed the MSJ and filed his declaration,4 but he
9 did not file a responsive statement of undisputed facts. He
10 included a list of documents that he testified he provided
11 (through his now-deceased prior counsel) before the Rule 2004
12 examination. He argued that these documents were sufficient,
13 considering that he had not been a part of the business at issue
14 for six years – since October 31, 2006. He declared that he had
15 no additional documents for Sacramento Auto Plaza because a third
16 party, Amir Razavi, was the business manager and responsible for
17 maintaining the records. He further argues that he was merely
18 the sales manager, although he omits this assertion from his
19 sworn statement. Moreover, Salehi testified that his brother
20 oversaw Salehi’s business during 2008 and 2009, when Salehi
21 himself was in an immigration detention center.
22 Salehi stated that he had answered questions to the best of
23 his ability at the Rule 2004 examination and did not commit
24 perjury. He argued further that he produced documents at the
25
26 4
Salehi was represented by counsel when he filed his
answer, however, his counsel passed away prior to Global
27 Automotive’s filing of its MSJ. Salehi’s new counsel substituted
into the adversary proceeding shortly after filing Salehi’s
28 documents in response to the MSJ.
- 6 -
1 Rule 2004 examination and that this created a genuine dispute as
2 to a material fact. Salehi did not specifically address the
3 § 727(a)(5) claim in his opposition, but Global Automotive,
4 similarly, did not include § 727(a)(5) assertions in the MSJ
5 itself.
6 The bankruptcy court held a hearing on the MSJ. Only
7 counsel for Global Automotive appeared. In its Disposition After
8 Oral Argument (formerly its Tentative Ruling), the bankruptcy
9 court granted summary judgment on the § 727(a)(3) and (a)(5)
10 claims, but denied it as to the § 727(a)(4)(A) claim.5
11 The bankruptcy court found it to be undisputed that Salehi
12 failed to produce “business records pertaining to the disposition
13 of approximately sixty (60) automobiles owned by Fulton Auto
14 Depot Inc., dba Sacramento Auto Plaza (“SAP”), a corporation
15 [Salehi] owned with his brother and failed to produce his own
16 personal banking records.” Civil Minutes (Feb. 19, 2013) (Adv.
17 ECF #34). It found that Salehi admitted he “did not have the
18 requested documents and did not know where to locate such
19 documents, and offered no justification for his failure to keep
20 and preserve such documents and records.” Id.
21 The bankruptcy court cited the following as evidence of
22 undisputed facts: Salehi’s testimony under oath that he did not
23 contribute capital to Coast to Coast Motors; the deposition
24 testimony of Salehi’s ex-spouse in the 2008 State Court Action
25 that proceeds of automobiles sold by Sacramento Auto Plaza were
26
27 5
The record does not contain a transcript of the MSJ
hearing. The bankruptcy court docketed the Disposition After
28 Oral Argument as its Civil Minutes of the hearing.
- 7 -
1 transferred to Salehi’s mother’s account(s) and later used by
2 Salehi to purchase inventory to be sold by Coast to Coast Motors;
3 a copy of a cashier’s check purchased by Sacramento Auto Plaza
4 and made payable to Salehi’s mother, Anosheh Satvat6; and copies
5 of checks from The Golden 1 Credit Union remitted by Salehi’s
6 mother to Coast to Coast Motors.
7 Specifically as to § 727(a)(3), the bankruptcy court found
8 the evidence showed that Salehi: was “a co-owner in a business
9 that maintained substantial assets”; “failed to preserve any
10 records related to the business”; and “failed to keep or preserve
11 his own personal banking account information.” Id.
12 As to § 727(a)(5), the bankruptcy court found that Salehi
13 “failed to satisfactorily explain the disposition of the proceeds
14 of the sale of vehicles by SAP” and that Salehi caused such
15 proceeds “to be transferred to Anosheh Satvat and then to Coast
16 to Coast Motors for his own personal purposes.” Id.
17 The bankruptcy court determined that it could not rule in
18 Global Automotive’s favor on the § 727(a)(4)(A) claim, because
19 the testimony as to whether Salehi knowingly and fraudulently
20 made a false oath or statement was in conflict. The bankruptcy
21 court recognized that Salehi’s testimony regarding the
22 “disposition of proceeds from the sale of vehicles by SAP
23 conflict[ed] with the testimony of his ex-spouse Silva
24 Maadarani.” Id.
25 Thereafter, Global Automotive obtained approval to amend its
26
27 6
Global Automotive’s counsel and Salehi’s ex-wife provided
declaratory and deposition testimony, respectively, that Anosheh
28 Satvat is Salehi’s mother; a fact not disputed by Salehi.
- 8 -
1 complaint to omit its claim under § 727(a)(4)(A) and amended the
2 complaint accordingly. The bankruptcy court then entered a
3 judgment denying Salehi’s discharge under § 727(a)(3) and (a)(5)
4 on March 25, 2013, and Salehi timely appealed.
5 JURISDICTION
6 The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
7 §§ 1334 and 157(b)(2)(J). We have jurisdiction under 28 U.S.C.
8 § 158.
9 ISSUES
10 1. Did the bankruptcy court err when it granted summary
11 judgment and denied Salehi’s discharge under § 727(a)(5)?
12 2. Did the bankruptcy court err when it granted summary
13 judgment and denied Salehi’s discharge under § 727(a)(3)?
14 STANDARD OF REVIEW
15 We review a summary judgment de novo. Bamonte v. City of
16 Mesa, 598 F.3d 1217, 1220 (9th Cir. 2010). De novo review
17 requires that we consider a matter afresh, as if no decision had
18 been rendered previously. United States v. Silverman, 861 F.2d
19 571, 576 (9th Cir. 1988); B-Real, LLC v. Chaussee
20 (In re Chaussee), 399 B.R. 225, 229 (9th Cir. BAP 2008). Viewing
21 the evidence in the light most favorable to the non-moving party,
22 we must determine whether there are any genuine disputes of
23 material fact that remain for trial and whether the prevailing
24 party is entitled to judgment as a matter of law. New Falls
25 Corp. v. Boyajian (In re Boyajian), 367 B.R. 138, 141 (9th Cir.
26 BAP 2007).
27 DISCUSSION
28 “[A] party seeking summary judgment always bears the initial
- 9 -
1 responsibility of informing the [trial] court of the basis for
2 its motion, and identifying those portions of the pleadings,
3 depositions, answers to interrogatories, and admissions on file,
4 together with the affidavits, if any, which it believes
5 demonstrate the absence of a genuine [dispute] of material fact.”
6 Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal
7 quotation marks omitted).
8 A claim for denial of a discharge under § 727 is construed
9 liberally in favor of the discharge and strictly against the
10 objector. Retz v. Samson (In re Retz), 606 F.3d 1189, 1196 (9th
11 Cir. 2010). A creditor who asks the court to deny a debtor a
12 discharge bears the burden of proving each of the elements of the
13 applicable provision. Id. Thus, our review here is necessarily
14 technical and focuses on whether Global Automotive presented
15 undisputed evidence as to each element of each of its claims for
16 denial of discharge.7 Both in its papers and at oral argument
17 Global Automotive argued very broadly and, in so doing, failed to
18 carry its heavy burden on summary judgment.
19 A. Global Automotive failed to argue or support denial of
Salehi’s discharge under § 727(a)(5).
20
21 Section 727(a)(5) provides that the court shall grant the
22
23 7
At oral argument, Global Automotive’s counsel argued that
Salehi’s failure to comply with a Local Bankruptcy Rule that
24 required him to file a responsive statement of undisputed facts
must be viewed as conceding the lack of disputed facts. We
25 disagree. Even a complete lack of opposition to a motion for
summary judgment does not relieve the moving party of its
26 obligation to meet its burden of showing entitlement to judgment
as a matter of law. See North Slope Borough v. Rogstad
27 (In re Rogstad), 126 F.3d 1224, 1227 (9th Cir. 1997) (it is error
to grant summary judgment simply because the opponent failed to
28 oppose).
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1 debtor a discharge, unless – “the debtor has failed to explain
2 satisfactorily, before determination of denial of discharge under
3 this paragraph, any loss of assets or deficiency of assets to
4 meet the debtor’s liabilities; . . . .” The objector must first
5 prove a disappearance of substantial assets, then the burden
6 shifts to the debtor to explain. Kistler v. Fader (In re Fader),
7 414 B.R. 640, 645 (Bankr. N.D. Cal 2009) (citing Chalik v.
8 Moorfield (In re Chalik), 748 F.2d 616 (11th Cir. 1984)).
9 Here, Global Automotive alleged in its complaint that Salehi
10 failed to explain “where tens of thousands of dollars of proceeds
11 of automobiles owned by [Salehi’s] corporation, Fulton Auto
12 Depot, Inc. dba Sacramento Auto Plaza (‘SAP’) were expended.”
13 Adv. ECF #1 at 2. In its MSJ, however, Global Automotive does
14 not pursue relief based on this allegation. In fact, the MSJ
15 contains no specific argument directed to denial of discharge
16 under § 727(a)(5); it merely recites § 727(a)(5) as grounds for
17 relief.
18 On appeal, Salehi argues that Global Automotive made no
19 evidentiary showing that Salehi controlled any funds or
20 transferred them to his mother and, thus, failed to carry its
21 burden on summary judgment.8 Global Automotive argues in
22 response that Salehi’s failure to dispute the request for relief
23 under § 727(a)(5) in his opposition to the MSJ bars Salehi’s
24 argument against such relief on appeal. We disagree. As Global
25
8
Salehi also argues on appeal that all the checks offered
26 by Global Automotive were generated during the period of time
that Salehi was in immigration detention. As Global Automotive
27 points out in its Responsive Brief on appeal, this argument is
not supported by the record. We, thus, do not consider it in our
28 analysis.
- 11 -
1 Automotive failed to specifically address § 727(a)(5) in its MSJ,
2 Salehi had no obligation to respond. And even absent opposition,
3 Global Automotive failed to carry its burden on summary judgment.
4 See North Slope, 126 F.3d at 1227. Global Automotive was
5 required to clearly identify the elements required to establish
6 its claim under § 727(a)(5) and to tie each to the evidence. The
7 record shows that it did not do so.
8 As a threshold issue under § 727(a)(5), Global Automotive
9 failed to argue or establish that “debtor at one time, not too
10 remote from the bankruptcy petition date, owned identifiable
11 assets.” See In re Retz, 606 F.3d at 1205 (quoting Olympic Coast
12 Invest., Inc. v. Wright (In re Wright), 364 B.R. 51, 79 (Bankr.
13 D. Mont. 2007)). Global Automotive’s submission of a copy of a
14 cashier’s check remitted by Fulton Auto Depot, Inc. in 2009 and
15 made payable to Anosheh Satvat’s account and copies of checks
16 issued out of Anosheh Satvat’s account to Coast to Coast in 2010,
17 on their face, fail to establish that any funds represented
18 thereby were either Salehi’s assets or assets controlled by
19 Salehi. Global Automotive offered nothing else to support such
20 an argument or finding.
21 Global Automotive generally asserted that Salehi held an
22 ownership interest in Fulton Auto Depot, Inc. dba Sacramento Auto
23 Plaza with his brother. And Global Automotive’s counsel argued
24 that Salehi failed to produce records relating to the
25 dispositions of “60 or so” Sacramento Auto Plaza vehicles, thus
26 implying that Salehi was somehow responsible for their
27 disposition. None of the cited excerpts from Salehi’s Rule 2004
28 examination testimony, however, support this implication; and
- 12 -
1 Global Automotive fails to argue when such dispositions allegedly
2 occurred. Salehi provided declaratory evidence that he had not
3 been a partner in Sacramento Auto Plaza9 for six years; that is
4 since 2006. The existence and disposition of “60 or so” vehicles
5 (at some unknown point in time) are not established by the mere
6 statements of counsel, even when echoed in Global Automotive’s
7 Separate Statement of Undisputed Facts. As to timing, which was
8 not addressed in the MSJ, Salehi testified at his Rule 2004
9 examination that he was subject to immigration detention for a
10 period of time and, thus, was incapable of active involvement in
11 vehicle sales. In his declaration he testified that his
12 detention was in 2008 and 2009. He was released in April 2009,
13 three months before Sacramento Auto Plaza ceased business
14 entirely, which, significantly, was three years before Salehi
15 filed bankruptcy. Thus, Global Automotive fails to establish an
16 absence of disputed material facts: the existence of substantial
17 assets not too remote in time from the 2012 petition date.
18 Nor can we discern from the record that Salehi himself ever
19 owned or disposed of “60 or so” vehicles at any point in time.
20 Salehi’s bankruptcy schedules, filed under penalty of perjury,
21 disclose that his sole source of income in the two years pre-
22
9
The offered evidence and argument made by both sides
23 regarding Sacramento Auto Plaza itself are ambiguous at best. It
appears possible that the dba was initially used by either a
24 partnership or a limited liability company and later by a
corporate entity. Neither side presented evidence of the
25 ownership or structure to resolve this ambiguity. And other than
Salehi’s testimony that Sacramento Auto Plaza ceased business in
26 July 2009, Global Automotive presented no evidence to provide any
temporal reference points in connection with the alleged
27 disposition of “60 or so” automobiles. And it bears repeating,
Global Automotive presented no evidence of any specific vehicles,
28 much less “60 or so” vehicles.
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1 filing was unemployment benefits. The excerpts of Salehi’s
2 Rule 2004 examination testimony are consistent on this point. He
3 testified that Sacramento Auto Plaza closed down in July 2009,
4 nearly three years before he filed bankruptcy, and that he had no
5 idea what happened to proceeds of any vehicles from Sacramento
6 Auto Plaza.
7 The bankruptcy court found, in connection with its grant of
8 summary judgment under § 727(a)(5), that Salehi caused the
9 proceeds of the sale of vehicles “to be transferred to Anosheh
10 Satvat and then to Coast to Coast Motors for his own personal
11 purposes.” Civil Minutes (Feb. 19, 2013) at 2. To make this
12 finding the bankruptcy court necessarily had to determine that
13 Salehi’s testimony to the contrary was not credible and, instead,
14 give credit to Salehi’s ex-spouse’s testimony.10 In addition,
15 the bankruptcy court had to make an adverse inference based on
16 Global Automotive’s unsupported argument, that Salehi controlled
17 both Sacramento Auto Plaza and Coast to Coast Motors. Both the
18 credibility determination and the adverse inference were
19 inappropriately made on summary judgment.11 See Oswalt v.
20 Resolute Indus., 642 F.3d 856, 861 (9th Cir. 2011) (“‘Credibility
21 determinations, the weighing of the evidence, and the drawing of
22 legitimate inferences from the facts’ are inappropriate at the
23
24 10
The bankruptcy court found the testimony in connection
with Global Automotive’s § 727(a)(4)(A) claim in conflict, thus
25 requiring denial of summary judgment. This conflicting testimony
likewise failed to support summary judgment under § 727(a)(5).
26
11
The scant evidence submitted by Global Automotive was
27 open to possible evidentiary objections; Salehi, however, did not
make any and we do not consider evidentiary objections that were
28 not preserved.
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1 summary judgment stage.”) (internal citation omitted). Thus, the
2 bankruptcy court erred – Global Automotive was not entitled to
3 summary judgment under § 727(a)(5) – and we must reverse.
4 B. The bankruptcy court erred by granting summary judgment to
Global Automotive under § 727(a)(3).
5
6 Section 727(a)(3) provides, in relevant part, that a debtor
7 is not entitled to a discharge if he fails “to keep or preserve
8 any recorded information, including books, documents, records,
9 and papers, from which the debtor’s financial condition or
10 business transactions might be ascertained, unless such act or
11 failure to act was justified under all of the circumstances of
12 the case.” To succeed on its objection to discharge under
13 § 727(a)(3), Global Automotive must show “‘(1) that [Salehi]
14 failed to maintain and preserve adequate records, and (2) that
15 such failure makes it impossible to ascertain [Salehi’s]
16 financial condition and material business transactions.’”
17 Lansdowne v. Cox (In re Cox), 41 F.3d 1294, 1296 (9th Cir. 1994)
18 (quoting Meridian Bank v. Alten, 958 F.2d 1226, 1232 (3d Cir.
19 1992)). Adequate records should enable creditors to follow a
20 debtor’s transactions “for a reasonable period in the past.”
21 Caneva v. Sun Cmtys. Operating Ltd. P’ship (In re Caneva),
22 550 F.3d 755, 761 (9th Cir. 2008)(quoting Rhoades v. Wikle,
23 453 F.2d 51, 53 (9th Cir. 1971)).
24 Here, Global Automotive argued that Salehi admitted that he
25 kept no financial records and failed to maintain records for
26 Sacramento Auto Plaza. It also argued that Salehi could not
27 produce records pertaining to his investment in 2010 in the Coast
28 to Coast dealership. To find in Global Automotive’s favor on
- 15 -
1 these points would require us to accept counsel’s argument as
2 fact and make inferences and credibility determinations in Global
3 Automotive’s favor – none of which is appropriate on summary
4 judgment. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255
5 (1986) (all justifiable inferences must be drawn in favor of the
6 non-moving party); Oswalt v. Resolute Indus., 642 F.3d at 861
7 (credibility determinations, weighing of evidence, and the
8 drawing of legitimate inferences from the facts are inappropriate
9 on summary judgment); and British Airways Bd. v. Boeing Co.,
10 585 F.2d 946, 952 (9th Cir. 1978) (“Legal memoranda and oral
11 argument are not evidence”). And, the nonmovant’s “evidence is
12 to be believed.” McSherry v. City of Long Beach, 584 F.3d 1129,
13 1133 (9th Cir. 2009).
14 1. Sacramento Auto Plaza business records
15 During Salehi’s Rule 2004 examination, he testified that he
16 did not know the location of business records for Sacramento Auto
17 Plaza. Global Automotive implicitly argues that Salehi not only
18 should know where the records were, presumably based on his
19 alleged ownership interest in Sacramento Auto Plaza, but that he
20 should have produced them in advance of the Rule 2004
21 examination; and, it then asserts that, having failed on both
22 accounts, he should not be entitled to a discharge.
23 First, as discussed above, Global Automotive failed to
24 establish that Salehi recently held any ownership interest in
25 Sacramento Auto Plaza entitling him to access to, or
26 responsibility for, Sacramento Auto Plaza’s business records.
27 Second, the only evidence in the record reflects that Sacramento
28 Auto Plaza ceased operating nearly three years before Salehi
- 16 -
1 filed bankruptcy. Third, Salehi testified at his Rule 2004
2 examination that “Amir was in charge for all that stuff, . . . .”
3 Depo. Tr. (June 5, 2012) at 26:22-24 (Adv. ECF #20). And in his
4 declaration in opposition to the MSJ, Salehi expanded on this
5 point when he testified that Amir Razavi “made and maintained all
6 business records for Sacramento Auto Plaza.” Adv. ECF #28 at
7 2:10-11. Global Automotive offered only excerpts of Salehi’s
8 Rule 2004 examination testimony as evidence on these points; and
9 as the non-moving party on summary judgment, Salehi was entitled
10 to have his evidence and Rule 2004 examination testimony
11 believed.
12 Global Automotive next argues that Salehi’s argument
13 regarding control of Sacramento Auto Plaza’s documents conflicted
14 with Salehi’s Rule 2004 examination testimony that he did not
15 know where Sacramento Auto Plaza’s business documents were. We
16 disagree. In Salehi’s Rule 2004 examination testimony he stated
17 that he did not know what happened to the records and that Amir
18 Razavi was in charge of the business records. Salehi’s
19 statements were not facially inconsistent. Thus, Global
20 Automotive did not establish the absence of a genuine dispute of
21 material fact necessary to support judgment under § 727(a)(3)
22 based on a lack of business records for Sacramento Auto Plaza.
23 2. Coast to Coast automobile dealership records
24 Global Automotive argued on summary judgment that Salehi’s
25 discharge should be denied because Salehi lacked records
26 regarding funds he allegedly used in 2010 to start Coast to
27 Coast. Global Automotive’s evidence consisted solely of Salehi’s
28 Rule 2004 examination testimony and Salehi’s ex-wife’s deposition
- 17 -
1 testimony in the 2008 State Court Action.
2 Salehi’s testimony was that at some point prepetition he
3 tried to help his friend Omar Casas open a car dealership in
4 Sacramento called Coast to Coast. He testified that he
5 contributed no capital and no vehicles; he only contributed his
6 knowledge to the effort. Coast to Coast itself lasted only a
7 couple of months.
8 Salehi’s ex-wife testified to the contrary, based on
9 conversations in Farsi that she overheard. She also testified,
10 however, that she is Lebanese, did not speak Farsi, but had taken
11 some classes. From such overheard conversations, she testified
12 that she found out that Salehi put some money in his mother’s
13 account from the sale of Sacramento Auto Plaza vehicles and then
14 used the funds to help buy cars for Coast to Coast. And she
15 finally testified that she believed the money went back into
16 Salehi’s mother’s account, when Coast to Coast failed, because:
17 “[w]here else would it go.” Depo. Tr. (November 30, 2011) at
18 34:9 (Adv. ECF #20).
19 The conflicting testimony excerpts presented by Global
20 Automotive cannot serve as the basis for summary judgment.
21 Determination of the facts required assessment of the witnesses’
22 credibility, which, as already stated, is inappropriate on
23 summary judgment. Therefore, the bankruptcy court erred in
24 determining the absence of a genuine dispute as required to
25 support judgment under § 727(a)(3) based on lack of records for
26 Coast to Coast.
27 3. Debtor’s personal financial records
28 Global Automotive also argued that Salehi should be denied
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1 his discharge because he produced no personal banking records for
2 his Rule 2004 examination and admitted to keeping no records. It
3 is undisputed that Salehi was unemployed when he filed bankruptcy
4 and had been unemployed the two years prior to filing. Global
5 Automotive argued in its MSJ, however, that it was implausible
6 that Salehi could have no income for over a year but still pay
7 personal expenses, and implicitly that Salehi, thus, must have
8 banking records.
9 Again, the only evidence offered by Global Automotive
10 consists of Salehi’s Rule 2004 examination testimony in which he
11 testified that he went to Bank of America to obtain his bank
12 statement, obtained a copy of it, but did not bring it to the
13 Rule 2004 examination because it was negative for the prior two
14 to three years. He also testified that he had a second account
15 at Bank of America that was set up for direct deposit of his
16 unemployment benefits, accessible with an ATM card. He alleged,
17 however, that he never received any written statements on either
18 account and did not write checks. He also testified that he
19 either paid cash on his few monthly bills, like his cell phone,
20 or paid using a friend’s credit card and that he lived with his
21 parents.
22 A debtor must only "present sufficient written evidence
23 which will enable his creditors reasonably to ascertain his
24 present financial condition and to follow his business
25 transactions for a reasonable period in the past." In re Caneva,
26 550 F.3d at 761. A debtor's "duty to keep records is measured by
27 what is necessary to ascertain [his] financial status." Moffett
28 v. Union Bank, 378 F.2d 10, 11 (9th Cir. 1967); see also United
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1 States Tr. v. Hong Minh Tran (In re Hong Minh Tran), 464 B.R.
2 885, 893 (Bankr. S.D. Cal. 2012) (type of debtor, as well as
3 debtor's sophistication, informs the bankruptcy court's
4 determination). Here, Global Automotive does not argue that
5 Salehi had no banking records. Instead, it implicitly argues
6 that Salehi had no hard copies of bank records or, at best, that
7 he failed to produce any at his Rule 2004 examination. Salehi’s
8 undisputed testimony, if believed (as it must be on summary
9 judgment), is consistent with electronic access to paperless
10 accounts, one set up for automatic deposit of unemployment
11 benefit payments, and the foregoing of paper records in this era
12 of electronic accessibility.
13 Moreover, failure to produce documents in response to a
14 discovery request, alone, does not justify denial of discharge
15 under § 727(a)(3). Global Automotive could have obtained written
16 copies of Salehi’s bank records through formal discovery in the
17 adversary proceeding if it was not satisfied with what Salehi
18 produced in response to his Rule 2004 examination.
19 Drawing justifiable inferences in favor of Salehi, which we
20 must on summary judgment, and construing evidence liberally in
21 favor of the discharge, we determine that the bankruptcy court
22 erred when it granted summary judgment in favor of Global
23 Automotive under § 727(a)(3) based on an alleged lack of personal
24 financial records.
25 CONCLUSION
26 Based on the foregoing, we REVERSE the bankruptcy court’s
27 grant of summary judgment.
28
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