In re: Ralph E. Sanders

FILED
MAR 10 2020
NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. CC-19-1153-FSTa
RALPH E. SANDERS, Bk. No. 8:17-bk-10265-MW
Debtor. Adv. Pro. 8:17-ap-01068-MW
RALPH E. SANDERS,
Appellant,
v. MEMORANDUM*
LARNITA PETTE,
Appellee.
Argued and Submitted on February 27, 2020
at Pasadena, California
Filed – March 10, 2020
Appeal from the United States Bankruptcy Court
for the Central District of California
Honorable Mark. S. Wallace, Bankruptcy Judge, Presiding
*
This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
Appearances: Gregory Bosse argued for appellant; Appellee Larnita
Pette argued pro se.
Before: FARIS, SPRAKER, and TAYLOR, Bankruptcy Judges.
INTRODUCTION
Appellee Larnita Pette alleged that her cousin, chapter 71 debtor
Ralph E. Sanders, made false and misleading statements on his bankruptcy
documents. The bankruptcy court agreed and denied Mr. Sanders his
discharge under § 727(a)(4)(A). Mr. Sanders appeals, arguing that the
bankruptcy court’s factual findings were clearly erroneous and blaming his
bankruptcy petition preparer for the omissions and false statements.
We discern no error and AFFIRM.
FACTUAL BACKGROUND
A. Prepetition events
Ms. Pette’s mother, Bobbye Rives, was Mr. Sanders’ aunt. In or
around 2010, Ms. Rives’ behavior and her relationship with Ms. Pette, her
only child, concurrently deteriorated.
Ms. Rives’ original will dictated that Ms. Pette would receive her
entire estate. In 2011, the testamentary documents were changed to a trust
1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all “Civil Rule” references are to the
Federal Rules of Civil Procedure.
2
(“Rives Trust”) that named Mr. Sanders and another cousin, Beverly
Monique Murray-Calcote, as trustees. Under the Rives Trust, Mr. Sanders,
Ms. Pette, and three distant relatives each received a one-fifth interest in
Ms. Rives’ residence. The rest of Ms. Rives’ estate was left to Ms. Calcote.
Ms. Rives passed away in 2014. In or around 2015, Mr. Sanders and
Ms. Calcote began making distributions from the Rives Trust. Mr. Sanders
received approximately $98,000, and Ms. Calcote received approximately
$85,000. Mr. Sanders said that he spent all of the funds by March 2016.
Ms. Pette filed two state court lawsuits against Mr. Sanders and
Ms. Calcote: the first alleging elder abuse and defamation and the second
seeking to preserve the remaining trust assets.
B. Mr. Sanders’ bankruptcy filings
Three months before trial in state court, Mr. Sanders filed a chapter 7
petition with the help of bankruptcy petition preparer Grady Vickers. He
asserted that he informed Mr. Vickers about the Rives Trust and trust
distributions. Nevertheless, the bankruptcy documents contained three
significant omissions. First, Mr. Sanders failed to disclose his interest in the
Rives Trust on his Statement of Financial Affairs (“SOFA”) and schedules.
Second, he omitted his receipt of the trust distributions, despite disclosing
that he received unemployment benefits in 2015 and 2016. Third,
Mr. Sanders did not disclose his employment with a nonprofit organization
(of which he was CEO) that provided him with free housing in exchange
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for his services as property manager.
The omissions only came to light at the second session of
Mr. Sanders’ § 341 meeting of creditors. Faced with questions about the
Rives Trust, and with Ms. Pette in attendance, Mr. Sanders acknowledged
the omissions; he later amended his schedules and SOFA.
A few weeks after Mr. Sanders filed his petition, Ms. Calcote also
filed a chapter 7 petition and similarly failed to disclose her interest in the
Rives Trust and the $85,000 in trust distributions. The irregularities in
Mr. Sanders’ case caused the U.S. Trustee to object to Ms. Calcote’s
discharge. Ms. Calcote agreed to the dismissal of her case with an eight-
year bar on refiling.
C. Ms. Pette’s adversary complaint
Ms. Pette filed an adversary complaint against Mr. Sanders under
§§ 523(a)(6) and 727(a)(4). As to § 727(a)(4), she alleged that Mr. Sanders
filed fraudulent information in his bankruptcy documents and concealed
the fact that he was a co-trustee and beneficiary of the Rives Trust.
D. Trial and decision
At the trial on the § 727(a)(4) claim, Mr. Sanders testified that he filed
a bankruptcy petition at the urging of his state court attorney, due to the
costs of the state court litigation, and retained Mr. Vickers to prepare his
bankruptcy petition. He further testified that he provided Mr. Vickers with
his 2015 tax return and a breakdown of what he did with the money he
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received from the Rives Trust with the expectation that Mr. Vickers would
include that information in his bankruptcy filings. After Mr. Sanders
commenced his bankruptcy case, Mr. Vickers passed away. The
bankruptcy court admitted an e-mail from Mr. Sanders to Mr. Vickers and
the breakdown concerning the distributions. It sustained Ms. Pette’s
hearsay objections to an e-mail that Mr. Sanders received from Mr. Vickers
and two documents signed by Mr. Vickers’ widow in which she stated that
Mr. Vickers made mistakes in Mr. Sanders’ filings.
Mr. Sanders also offered inconsistent testimony concerning whether
he reviewed the bankruptcy petition. He acknowledged that he signed the
petition but alternately testified that he did and did not review it prior to
signing. When the court asked him about the inaccuracies in his filings, he
blamed the omissions and false statements on Mr. Vickers and claimed that
the omissions were not affirmatively false.
The court held that Ms. Pette had established all of the elements of
§ 727(a)(4)(A). It first stated that Mr. Sanders made a false statement or
omission regarding his interest in the Rives Trust, his receipt of over
$90,000, and his employment status. Second, it held that the omissions
were material because they bore a relationship to Mr. Sanders’ business
transactions. Finally, the court held that Mr. Sanders knowingly and
fraudulently concealed the information from creditors. It found
Mr. Sanders not credible and discounted his testimony that he gave
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Mr. Vickers the information relating to the Rives Trust.
Mr. Sanders timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334
and 157(b)(2)(J). The bankruptcy court’s order did not dispose of all claims
in the adversary proceeding, but the court entered an order pursuant to
Civil Rule 54(b) directing entry of final judgment against Mr. Sanders on
the § 727(a)(4)(A) claim. We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Whether the bankruptcy court erred in granting Ms. Pette judgment
under § 727(a)(4)(A) and denying Mr. Sanders’ discharge.
STANDARDS OF REVIEW
Mr. Sanders acknowledges that his challenges to the court’s factual
findings are reviewed for clear error. Under § 727(a)(4)(A), whether a
debtor made a false oath, whether the false statements were material, and
whether the debtor had the requisite fraudulent intent are all questions of
fact reviewed under the clearly erroneous standard. Retz v. Samson (In re
Retz), 606 F.3d 1189, 1197 (9th Cir. 2010).
Factual findings are clearly erroneous if they are illogical,
implausible, or without support in the record. Id. at 1196. “To be clearly
erroneous, a decision must strike us as more than just maybe or probably
wrong; it must . . . strike us as wrong with the force of a five-week-old,
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unrefrigerated dead fish.” Papio Keno Club, Inc. v. City of Papillion (In re
Papio Keno Club, Inc.), 262 F.3d 725, 729 (8th Cir. 2001) (citation omitted). If
two views of the evidence are possible, the court’s choice between them
cannot be clearly erroneous. Anderson v. City of Bessemer City, 470 U.S. 564,
573-74 (1985). We also give deference to inferences drawn by the trial court.
Beech Aircraft Corp. v. United States, 51 F.3d 834, 838 (9th Cir. 1995).
We review the bankruptcy court’s evidentiary rulings for an abuse of
discretion. See Ostad v. Or. Health Scis. Univ., 327 F.3d 876, 885 (9th Cir.
2003). To determine whether the bankruptcy court has abused its
discretion, we conduct a two-step inquiry: (1) we review de novo whether
the bankruptcy court “identified the correct legal rule to apply to the relief
requested” and (2) if it did, we consider whether the bankruptcy court’s
application of the legal standard was illogical, implausible, or without
support in inferences that may be drawn from the facts in the record.
United States v. Hinkson, 585 F.3d 1247, 1262-63 & n.21 (9th Cir. 2009) (en
banc).
DISCUSSION
A. The bankruptcy court did not clearly err in finding that
Mr. Sanders knowingly and fraudulently made false statements
and omissions in his bankruptcy documents.
Mr. Sanders primarily challenges the court’s finding that he had the
requisite intent to omit certain information from his bankruptcy filings. He
offers a number of explanations for his actions and blames the mistakes on
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Mr. Vickers. We discern no clear error.
Section 727(a) provides that a court shall deny discharge if “the
debtor knowingly and fraudulently, in or in connection with the case . . .
(A) made a false oath or account[.]” § 727(a)(4)(A). “To prevail on this
claim, a plaintiff must show, by a preponderance of the evidence, that:
‘(1) the debtor made a false oath in connection with the case; (2) the oath
related to a material fact; (3) the oath was made knowingly; and (4) the
oath was made fraudulently.’” In re Retz, 606 F.3d at 1196 (quoting Roberts
v. Erhard (In re Roberts), 331 B.R. 876, 882 (9th Cir. BAP 2005)).
Section 727(a)(4)(A) is meant “to insure that the trustee and creditors
have accurate information without having to conduct costly
investigations.” Khalil v. Developers Sur. & Indem. Co. (In re Khalil), 379 B.R.
163, 172 (9th Cir. BAP 2007), aff’d, 578 F.3d 1167 (9th Cir. 2009) (citing Fogal
Legware of Switz., Inc. v. Wills (In re Wills), 243 B.R. 58, 63 (9th Cir. BAP
1999)). “A false statement or an omission in the debtor’s bankruptcy
schedules or statement of financial affairs can constitute a false oath.” Id.
(citing In re Roberts, 331 B.R. at 882; Searles v. Riley (In re Searles), 317 B.R.
368, 377 (9th Cir. BAP 2004)).
At issue is whether Mr. Sanders acted knowingly and fraudulently.
We have stated that a debtor “acts knowingly if he or she acts deliberately
and consciously.” Id. at 173 (citing In re Roberts, 331 B.R. at 883). The
creditor may establish that the debtor acted fraudulently by proving
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“(1) [that] the debtor made the representations [e.g., a false statement or
omission in bankruptcy schedules]; (2) that at the time he knew they were
false; [and] (3) that he made them with the intention and purpose of
deceiving the creditors . . . .” Id. (citing In re Roberts, 331 B.R. at 884). The
debtor’s fraudulent intent may be demonstrated by circumstantial evidence
and inference, and the court may infer fraudulent intent based on a
“pattern of falsity.” In re Wills, 243 B.R. at 62.
Mr. Sanders argues throughout that the bankruptcy court erred in
finding him not credible. But we afford the bankruptcy court great
deference in its determinations of witness credibility. See Cooper v. Harris,
137 S. Ct. 1455, 1474 (2017). The bankruptcy court evaluated Mr. Sanders’
demeanor and considered his version of events. We find no clear error in
its decision not to believe his testimony.
Similarly, the bankruptcy court did not err in rejecting Mr. Sanders’
documentary evidence to support his testimony. The court noted that the e-
mail to Mr. Vickers regarding the trust distributions does not establish that
the breakdown of the trust distributions was attached to that e-mail. The
court properly found Mr. Sanders’ testimony not credible on this point, so
it was within its discretion to reject Mr. Sanders’ testimony that he had
disclosed the trust distributions to Mr. Vickers. And whether he told
Mr. Vickers about the Rives Trust or not, Mr. Sanders still had a duty to
review his schedules and SOFA personally before signing them. See Cusano
9
v. Klein, 264 F.3d 936, 946 (9th Cir. 2001) (“[T]he debtor has a duty to
prepare schedules carefully, completely, and accurately.” (citations
omitted)); AT&T Universal Card Servs. Corp. v. Duplante (In re Duplante), 215
B.R. 444, 447 n.8 (9th Cir. BAP 1997) (“Adopting a cavalier attitude toward
the accuracy of the schedules and expecting the court and creditors to ferret
out the truth is not acceptable conduct by debtors or their counsel.”).
Mr. Sanders contends that his willingness to amend his schedules
and SOFA demonstrates that he did not intend to deceive the court or his
creditors. But his later corrective actions (only after being caught) do not
vitiate the bankruptcy court’s finding that he intended to conceal material
information in the first place. “Amending bankruptcy schedules to disclose
material facts after those facts come out at a meeting of creditors do not
preclude denial of discharge: ‘foxhole conversions are not necessarily
convincing, and disclosures made after a debtor realizes exposure is
imminent do not absolve fraud.’” U.S. Tr. v. Ellis (In re Ellis), 591 B.R. 32, 51
(Bankr. W.D. Wash. 2018) (quoting Hansen v. Moore (In re Hansen), 368 B.R.
868, 877 (9th Cir. BAP 2007)).
Mr. Sanders argues that the court clearly erred by: (1) finding that he
engaged in a scheme with Ms. Calcote; (2) mistakenly considering the
“badges of fraud” against him; (3) failing to consider his lack of
sophistication; and (4) improperly inferring his wrongful intent in filing for
bankruptcy protection. We reject each of these arguments. The court
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carefully weighed the testimony, evidence, and circumstances of the case.
The court’s findings were not illogical, implausible, or without support in
the record.
B. The bankruptcy court did not err in conducting the trial.
Mr. Sanders argues that there were many “irregularities” in the trial.
We again discern no error.
Mr. Sanders argues that the bankruptcy court was prejudiced by
Ms. Pette’s testimony about her mother’s condition and the allegations of
elder abuse. But we have carefully reviewed the trial transcript, and there
is no indication that the bankruptcy court improperly focused on
extraneous matters. In order to understand the background of the case, the
bankruptcy court invited both parties to provide testimony as to certain
topics. Ms. Pette, who was unrepresented, did present some lengthy
narrative, but Mr. Sanders did not object, so he waived this argument on
appeal. See Price v. Kramer, 200 F.3d 1237, 1252 (9th Cir. 2000) (stating that
failure to object to trial testimony waives the argument on appeal). The
bankruptcy court’s order included certain information relating to Ms. Rives
for context, but we disagree that the court displayed an “errant focus” that
distracted from the relevant issues.
Mr. Sanders also complains that the bankruptcy court guided
Ms. Pette’s testimony and improperly prompted her to testify as to facts
showing Mr. Sanders’ fraudulent intent. He has waived this argument as
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well because he did not object at trial to the court’s questions. Furthermore,
it is entirely proper for a court to tell a pro se litigant that she has strayed
beyond the issues that are relevant to the case and to direct her back to the
right path. The court did not improperly coach or guide Ms. Pette.
C. The bankruptcy court did not err in excluding as hearsay three of
Mr. Sanders’ exhibits.
Mr. Sanders argues briefly that the bankruptcy court erred in
sustaining Ms. Pette’s hearsay objections to three of his exhibits. He
essentially argues that it was unfair to exclude the exhibits because they
evidence his intent or state of mind. We discern no error.
A hearsay statement is defined as one that “(1) the declarant does not
make while testifying at the current trial or hearing; and (2) a party offers
in evidence to prove the truth of the matter asserted in the statement.” Fed.
R. Evid. 801(c). Absent an exception, hearsay statements are not admissible
in court. See Fed. R. Evid. 802.
Exhibit B1 is an e-mail from Mr. Vickers to Mr. Sanders apologizing
for being “overwhelmed with emergencies.” Exhibits B6 and B7 appear to
be signed letters from Mrs. Vickers in which she states that Mr. Vickers
made mistakes on Mr. Sanders’ bankruptcy documents due to his illness.
There is no dispute that these exhibits contain hearsay statements.
They are out-of-court statements by Mr. Vickers and his wife offered to
prove the truth of the matter asserted. Although Mr. Vickers has passed
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away, Mr. Sanders does not explain why Mrs. Vickers could not testify in
person.
Additionally, Mr. Sanders fails to establish any exception to the
hearsay rule. There is an exception for “[a] statement of the declarant’s
then-existing state of mind (such as motive, intent, or plan) or emotional,
sensory, or physical condition (such as mental feeling, pain, or bodily
health) . . . .” Fed. R. Evid. 803(3). The proffered documents related only to
Mr. Vickers’ state of mind. Only Mr. Sanders’ mental state was relevant.
CONCLUSION
The bankruptcy court did not err in entering judgment in favor of
Ms. Pette on the § 727(a)(4)(A) claim. We AFFIRM.
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