Premier Capital, LLC v. Crawford

United States Court of Appeals
For the First Circuit
No. 16-1285
IN RE: RICHARD D. CRAWFORD,
Debtor.
PREMIER CAPITAL, LLC,
Plaintiff, Appellee,
v.
RICHARD D. CRAWFORD,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Leo T. Sorokin, U.S. District Judge]
Before
Thompson and Barron, Circuit Judges,
and McConnell, District Judge.
Emily C. Shanahan, with whom Mark S. Furman, John D. Finnegan,
and Tarlow, Breed, Hart & Rodgers, P.C. were on brief, for
appellant.
Douglass C. Lawrence, with whom Thomas H. Curran, Peter
Antonelli, and Curran Antonelli, LLP were on brief, for appellee.
October 25, 2016

Of the District of Rhode Island, sitting by designation.
MCCONNELL, District Judge. A bankruptcy court denied
Richard D. Crawford's petition for bankruptcy, in part, because
Crawford omitted the existence of his Cash Balance Plan ("CBP"),
a retirement account, from his Schedule B filing. While Crawford
omitted the existence of the account, he disclosed the account's
value through inclusion with a second retirement account, a 401(k).
On appeal, this Court considers whether omitting an asset's name
but including the asset's value on a Schedule B form clears the
materiality threshold for a false oath claim under 11 U.S.C. §
727(a)(4)(A). For the reasons set out below, we affirm.
I. Background
The genesis of this bankruptcy case dates back to a loan
that Crawford personally guaranteed. Crawford, a financially
sophisticated individual, works in the banking industry as a
mortgage originator at Wells Fargo. In 1987, Oak Street Realty
Trust ("Oak Street"), a company in which Crawford has an 80%
interest, received a $250,000 loan from Amoskeag Bank ("Amoskeag")
secured by Oak Street property. In 1989, through a Change in Terms
Agreement, Crawford guaranteed the loan in his individual capacity.
After the loan matured, neither Oak Street nor Crawford paid the
balance. The FDIC, acting as liquidating agent for Amoskeag,
assigned Amoskeag's interest to Tenth RMA Partners, L.P. ("RMA").
RMA obtained a judgment against Crawford in the amount of
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$388,753.01 and then assigned its interest to Premier who sought
and received a $456,774.041 execution on the judgment from the
Middlesex Superior Court. Save for the $7,030.68 that Premier
obtained from wage garnishments, the execution remains in full
force.
Reaching a financial impasse with liabilities far
exceeding assets, Crawford petitioned for bankruptcy. He
subsequently filed his Schedules and Statement of Financial Affairs
("SOFA"). Two weeks later, Crawford filed an amended SOFA. With
Crawford's fresh start in sight, Premier thwarted Crawford's
discharge of debt through the filing of the instant action. Two
claims formed the basis for the bankruptcy court's disposition:
(1) the making of a false oath in violation of 11 U.S.C. §
727(a)(4)(A) and (2) the intentional concealment of property in
violation of 11 U.S.C. § 727(a)(2)(A). Because we affirm on the
false oath count, we do not reach the merits of the unlawful
concealment claim.
At the time Crawford petitioned for bankruptcy, he had
two retirement accounts with Wells Fargo, a 401(k) account and a
CBP. Wells Fargo provides quarterly statements to Crawford with
the heading "401(k) Plan and Cash Balance Plan." On this
1
Premier alleges that at the time Crawford filed for
bankruptcy, Crawford owed an amount in excess of $725,000.
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statement, the two accounts are listed separately and with separate
balances, but the statement also contains a cumulative amount
reported under the label "Total Retirement Accounts."
Schedule B, item 12, requires an individual filing for
bankruptcy to disclose "[i]nterests in IRA, ERISA, Keough, or other
pension or profit sharing plans" and to "[g]ive particulars." In
addition, this form contains a column for the description and
location of property as well as the current value of the property.
After consulting with counsel, Crawford filed his Schedule B, item
12, which listed "401(k) with Wells Fargo" under the description
and "$148,000" under the value. Crawford's form made no mention
of his CBP.
Premier's complaint made a general allegation of a false
oath in Crawford's Schedules and Statement of Financial Affairs.
The CBP, though not mentioned in the complaint as the basis for a
false oath claim, became a topic of the trial on the second day of
the three day trial. At trial, Premier introduced Exhibit 847-1,
which contained Crawford's quarterly statements with Wells Fargo.
Crawford objected to the introduction of the exhibit under Rule
403, arguing that the statements were cumulative. The bankruptcy
court overruled Crawford's sole objection on the matter. On direct
examination, Premier questioned Crawford on whether he had a CBP
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that he failed to list on his Schedule B.2 Evasive at first,
Crawford retorted, "I gave all this information to [my former
attorney]." Eventually, Crawford admitted that his CBP is a
retirement account and he failed to include it in his Schedule B.
Pressing further, Premier directly asked why Crawford failed to
list the CBP. To this, Crawford equivocated, "I don't have a good
answer for you sir." On cross-examination, Crawford's counsel
presented Crawford with Exhibit 847-1 and asked whether he
disclosed the amount listed on the quarterly statement. Crawford
affirmed that he had. On redirect, Premier once again questioned
Crawford on his failure to list his CBP. Specifically, Premier
asked, "Is it not separated out as a separate plan on your
statement, the CBP? Is it not?" "I think it's a different heading.
I agree; yes, sir," Crawford answered.
In Premier's post trial brief, Premier argued that by
failing to disclose his interest in the CBP, Crawford committed a
false oath in violation of 11 U.S.C. § 727(a)(4)(A). In Crawford's
Proposed Findings of Fact and Conclusion of Law, again contesting
the disclosure, Crawford reasoned that he did disclose his CBP, or
if he did fail to disclose, that failure was not the product of
2 Crawford objected once arguing that "this assumes facts not
in evidence." Upon elaboration, he contended that the Schedules
were prepared prior to receiving the new quarterly statement.
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fraudulent intent. At closing arguments, both parties engaged the
merits of the false oath claim at issue. Crawford averred, "So
while the CBP wasn't separately listed on his schedules, the amount
in it was included in the 401K amount that was reflected on Mr.
Crawford's schedule . . . ."
The bankruptcy court found Crawford "less than credible"
based on numerous misrepresentations and evasive answers. The
court ruled that while the claim of a false oath by omission of
the CBP was not raised in Premier's complaint, Crawford impliedly
consented to the trial of the charge. Additionally, the court
concluded that Crawford's failure to include his CBP in his
Schedule B, item 12, amounted to a false oath. Finding Crawford's
veracity suspect, the court reasoned that the CBP and 401(k) are
separate accounts and that Crawford believed the accounts were
separate when he filed his Schedule B. Premier Capital, LLC v.
Crawford (In re Crawford), 531 B.R. 275 (Bankr. D. Mass. 2015).
On appeal, the District of Massachusetts affirmed the false oath
claim. Premier Capital, LLC v. Crawford (In re Crawford), No. 15-
12726 (D. Mass. Feb. 26, 2016). Now, Crawford raises several
errors with the district court's decision: the finding of implied
consent on Crawford's part to try the omission of the CBP Plan
from Schedule B, the improper application of the burden-shifting
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method of proof for false-oath claims, and the determination that
the omission of the CBP was a false oath and material.
II. Standard of Review
We review the bankruptcy court's findings of fact for
clear error. Davis v. Cox, 356 F.3d 76, 82 (1st Cir. 2004). We
will not set aside the trier's findings absent a "strong,
unyielding belief that a mistake was made." Carp v. Carp (In re
Carp), 340 F.3d 15, 22 (1st Cir. 2003). In contrast, we review
the bankruptcy court's conclusions of law de novo, Davis, 356 F.3d
at 82, and review issues of implied consent for abuse of
discretion. Antilles Cement Corp. v. Fortuno, 670 F.3d 310, 319
(1st Cir. 2012). "Notwithstanding the fact that we are the second-
in-time reviewers, we cede no special deference to the district
court's determinations." Carp, 340 F.3d at 21.
III. Analysis
Before this Court may reach the merits of the false oath
claim, we must first consider two threshold issues -- implied
consent and improper burden shifting.
A. Implied Consent
Premier's complaint and pre-trial filings never
identified the omission of the CBP as forming the basis of a false
oath claim. However, "Federal Rule of Civil Procedure 15(b) allows
an unpleaded claim to be considered when the parties' conduct
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demonstrates their express or implied consent to litigate the
claim." Antilles Cement Corp., 670 F.3d at 319. "When an issue
not raised by the pleadings is tried by the parties' express or
implied consent, it must be treated in all respects as if raised
in the pleadings." Fed. R. Civ. P. 15(b)(2).3
A party can give implied consent to the litigation of an
unpleaded claim in two ways: by treating a claim
introduced outside the complaint 'as having been
pleaded, either through [the party's] effective
engagement of the claim or through his silent
acquiescence'; or by acquiescing during trial 'in the
introduction of evidence which is relevant only to that
issue.'
Antilles Cement Corp., 670 F.3d at 319 (alteration in original)
(quoting Rodriguez v. Doral Mortgage Corp., 57 F.3d 1168, 1172
(1st Cir. 1995)).
At trial, Premier introduced Crawford's quarterly
statements with Wells Fargo and examined Crawford regarding the
omission of the CBP from his Schedule B. While Crawford objected
to the admission of the statements under Rule 403, he clarified
that the duplicative nature of the documents formed the basis for
his objection. See Conjugal P'ship v. Conjugal P'ship, 22 F.3d
391, 400–01 (1st Cir. 1994) ("One sign of implied consent is that
3 Rule 15 of the Federal Rules of Civil Procedure apply in
adversary proceedings in bankruptcy court, under Rule 7015 of the
Federal Rules of Bankruptcy Procedure.
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issues not raised by the pleadings are presented and argued without
proper objection by opposing counsel." (internal quotation marks
omitted) (quoting In re Prescott, 805 F.2d 719, 725 (7th Cir.
1986))). On multiple occasions, Premier pointedly asked Crawford
why he failed to include his CBP on his Schedule B. Crawford
responded without objection. In fact, on cross-examination,
Crawford's counsel attempted to rebut Premier's questions by
pointing out that Crawford disclosed the value of the asset. Both
Crawford and Premier continued to contest the issue in post-trial
memoranda and closing arguments. Because Crawford failed to object
to the trial of an unpleaded claim and engaged the merits of the
claim, this Court cannot say that the bankruptcy court abused its
discretion by finding Crawford impliedly consented.
B. Burden Shifting
Crawford next asserts that both the bankruptcy court and
district court prematurely applied the burden-shifting framework,
saddling him (to quote his brief) with the burden of proving "that
his disclosure was not false and that it was not material without
first finding that Premier ha[d] made out its prima facie case."
Under § 727(a)(4)(A), the plaintiff bears the burden to establish
each element of a prima facie case by a preponderance of the
evidence. In re Mascolo, 505 F.2d 274, 276 (1st Cir. 1974). Once
that party puts forth a prima facie case, the burden shifts to the
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debtor who must then come forth with evidence rebutting the
offense. Id.
The bankruptcy court recited the correct burden-shifting
framework. Specifically, the court stated:
The burden of proof is on the party objecting to
discharge. . . . Tully indicates, however, that 'once
it reasonably appears that the oath is false, the burden
falls upon the [debtor] to come forward with evidence
that he has not committed the offense charged.' This
language does not shift the burden of proof or nullify
the need to prove knowledge of falsity and fraudulent
intent. Rather, it establishes that a false oath may
itself be sufficient to establish knowledge of falsity
and fraudulent intent.
Premier Capital, LLC v. Crawford (In re Crawford), 531 B.R. 275,
299 (Bankr. D. Mass. 2015) (alteration in original) (citations
omitted). Nothing in the bankruptcy court's memorandum of decision
leads us to believe that the court improperly placed the onus on
Crawford prior to the establishment of a prima facie case. The
one sentence that Crawford points to in the bankruptcy court's
memorandum of decision -- "[Crawford] does not deny, and I find,
that [the omission of the CBP] was material" -- proves unavailing
because that sentence merely explains that Crawford did not attempt
to rebut the materiality of the omission. Id. at 307. Moreover,
Crawford's position is inapposite given the bankruptcy court's
statement that "[t]he party objecting to the discharge must show
that (i) the debtor made an oath (ii) that was false and (iii)
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related to a material fact in the case (iv) knowingly and (v)
fraudulently." Id. at 306.
In addition, Crawford reasons that improper burden
shifting occurred because, in Crawford's words, Premier failed to
present any evidence of materiality. Despite Crawford's assertion
to the contrary, Premier put forth evidence proving the materiality
of the CBP omission. Namely, Premier introduced Crawford's
quarterly 401(k) and CBP statements into evidence and examined
Crawford regarding the omission of the CBP. Crawford fails to
point to language in the bankruptcy court's disposition that
indicates improper application of the burden-shifting framework,
and Premier presented evidence sufficient to make out a prima facie
case; therefore, we do not find that the bankruptcy court
improperly shifted the burden to Crawford.
C. False Oath
The Bankruptcy Code "limits the opportunity for a
completely unencumbered new beginning to the 'honest but
unfortunate debtor.'" Grogan v. Garner, 498 U.S. 279, 286–87
(1991) (quoting Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934)).
In considering a denial of discharge for a false oath, two
competing considerations are at play. On the one hand,
§ 727(a)(4)(A) purports to prevent debtors who "play fast and loose
with their assets or with the reality of their affairs" from
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seeking refuge under the Bankruptcy Code. Boroff v. Tully (In re
Tully), 818 F.2d 106, 110 (1st Cir. 1987). On the other hand,
"bankruptcy is an essentially equitable remedy," so "the statutory
right to a discharge should ordinarily be construed liberally in
favor of the debtor." Id. Where a claim falls squarely within
one of the Bankruptcy Code's exceptions -- and Premier's false
oath claim certainly does -- the liberal construction of the right
to discharge does not apply. Martin v. Bajgar (In re Bajgar), 104
F.3d 495, 498 n.1 (1st Cir. 1997).
"The court shall grant the debtor a discharge, unless .
. . the debtor knowingly and fraudulently, in or in connection
with the case . . . made a false oath or account . . . ." 11 U.S.C.
§ 727(a)(4)(A). In order for § 727(a)(4)(A) to form the basis for
denying discharge, the Court must find that the debtor "(i)
knowingly and fraudulently made a false oath, (ii) relating to a
material fact." Boroff, 818 F.2d at 110. On appeal, Crawford
advances arguments encompassing the false oath and material fact
elements.4
When a debtor files her Schedules, she does so under the
equivalent of an oath. Fed. R. Bankr. P. 1008; Perry v. Warner
(In re Warner), 247 B.R. 24, 26 (B.A.P. 1st Cir. 2000). A debtor
4Crawford does not raise error with the intent component --
"knowingly and fraudulently." § 727(a)(4)(A).
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has a duty to prepare schedules accurately and with "reasonable
particularization under the circumstances." Donarumo v. Furlong
(In re Furlong), 660 F.3d 81, 87 (1st Cir. 2011) (quoting In re
Mohring, 142 B.R. 389, 394–95 (Bankr. E.D. Cal. 1992), aff'd, 153
B.R. 601 (B.A.P. 9th Cir. 1993), aff'd, 24 F.3d 247 (9th Cir.
1994)) (internal quotation marks omitted). "[A] debtor is required
only to 'do enough itemizing to enable the trustee to determine
whether to investigate further.'" Id. at 87 (quoting Payne v.
Wood, 775 F.2d 202, 207 (7th Cir. 1985)).
By omitting an account from his Schedule B, Crawford
made a false oath. See Harrington v. Donahue (In re Donahue), BAP
No. NH 11-026, 2011 WL 6737074, at *11 (B.A.P. 1st Cir. Dec. 20,
2011) ("[W]hen a debtor omits a transaction from his Statement of
Financial of Affairs, he has made a false oath."). Schedule B,
item 12, instructed Crawford to disclose his "[i]nterests in IRA,
ERISA, Keough, or other pension or profit sharing plans" and to
"[g]ive particulars." While Crawford listed his 401(k) account
with Wells Fargo and included the combined value of his 401(k) and
CBP, Crawford failed to list the existence of his CBP on the form,
as required by Schedule B, item 12.
A false oath is material if its subject matter "bears a
relationship to the bankrupt's business transactions or estate, or
concerns the discovery of assets, business dealings, or the
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existence and disposition of his property." Boroff, 818 F.2d at
111 (quoting Chalik v. Moorefield (In re Chalik), 748 F.2d 616,
618 (11th Cir. 1984)) (internal quotation marks omitted). "[T]he
threshold to materiality is fairly low." Lussier v. Sullivan (In
re Sullivan), 455 B.R. 829, 839 (B.A.P. 1st Cir. 2011) (quoting
Cepelak v. Sears (In re Sears), 246 B.R. 341, 347 (B.A.P. 8th Cir.
2000)) (internal quotation marks omitted). Like many of our sister
courts, we have rejected the notion that valuation determines
materiality. 5 Boroff, 818 F.2d at 110 n.4. Therefore, the
disclosure of an asset's value does not dispense with the
materiality question.
Regardless of whether a creditor may reach an asset, the
debtor still must disclose that asset's existence. Daniels v.
Agin, 736 F.3d 70, 84 (1st Cir. 2013). After all, the creditor,
5E.g., Palatine Nat'l Bank v. Olson (In re Olson), 916 F.2d
481, 484 (8th Cir. 1990) ("While we are not prepared to say that
value is irrelevant to materiality, we are certain that it is not
determinative."); Chalik, 748 F.2d at 618 ("The recalcitrant debtor
may not escape a section 727(a)(4)(A) denial of discharge by
asserting that the admittedly omitted or falsely stated information
concerned a worthless business relationship or holding; such a
defense is specious." (citations omitted)); see also U.S. Trustee
v. Garland (In re Garland), 417 B.R. 805, 814 (B.A.P. 10th Cir.
2009) ("[M]ateriality is not defeated by the fact that the
undisclosed property interests are determined to be without
value."); cf. Fogal Legware of Switz., Inc. v. Willis (In re
Wills), 243 B.R. 58, 63 (B.A.P. 9th Cir. 1999) ("A false statement
or omission may be material even if it does not cause direct
financial prejudice to creditors.").
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not the debtor, is in the best position to determine what may or
may not affect that creditor. As articulated in In re Mascolo,
"[T]he materiality of the false oath will not depend upon whether
in fact the falsehood has been detrimental to the creditors." 505
F.2d 274, 278 (1st Cir. 1974) (quoting In re Slocum, 22 F.2d 282,
285 (2d Cir. 1927)) (internal quotation marks omitted). Thus, we
need not analyze the character of the asset or whether creditors
could recover from the asset.
Critically for our purposes, when it comes to
materiality, we distinguish an asset from an asset's value.
Knowledge of an asset's value alone does little to forewarn
creditors and the court of unscrupulous dealings. For this reason,
the discovery of an asset's existence, as in the case of the CBP,
clears the threshold for materiality. Boroff, 818 F.2d at 111.
Listing one retirement account held with a financial institution
does not signal the existence of a second account held with that
same institution. To hold otherwise would be at odds with the
principles of a rule rooted in honest disclosures. Our decision
today, follows our ruling in Daniels, which addressed a similar
scenario. 736 F.3d at 82–83. Much like the matter before this
Court, in Daniels, the debtor failed to list two IRA accounts in
his Schedule B and instead included the value with that of the
reported profit-sharing plan. Id. at 74. Despite disclosing the
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value, we regarded the excluded IRA information as material. Id.
at 83.
Bankruptcy disclosures are not meant to create a trap
for the unwary,6 and we see no perverse result in affirming the
denial of Crawford's bankruptcy. By omitting the existence of the
CBP, a creditor would not otherwise know of the plan's existence.
Creditors have a right to investigate the history of a debtor's
asset,7 and if a debtor fails to disclose the existence of an
asset, then a creditor may not be able to engage in due diligence.
IV. Conclusion
We affirm the district court's ruling on the
§ 727(a)(4)(A) claim; therefore, we do not reach the merits of the
§ 727(a)(2)(A) claim.
Affirmed.
6 One false step does not lead to draconian results. See,
e.g., Dotson v. Cogswell (In re Cogswell), 462 B.R. 28, 35 (Bankr.
D. Mass. 2012) (misstating the year of a boat and misstating an
inconsequential sum on a credit card statement are "harmless
errors"); see also Steele v. Boutiette (In re Boutiette), 168 B.R.
474, 482 (Bankr. D. Mass. 1994) ("[A] debtor [should] not be put
at risk that discharge will be denied by a mischaracterization
which is esoteric.").
7 "[C]reditors are entitled to judge for themselves what will
benefit, and what will prejudice, them." Harrington v. Mazzone
(In re Mazzone), 510 B.R. 439, 445 (Bankr. D. Mass. 2014) (quoting
JP Morgan Chase Bank, N.A. v. Koss (In re Koss), 403 B.R. 191, 213
(Bankr. D. Mass. 2009)) (internal quotation marks omitted); Chalik
v. Moorefield (In re Chalik), 748 F.2d 616, 618 (11th Cir. 1984).
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