Jerry Jones v. US Trustee, Eugene

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
JERRY ALAN JONES, Debtor, No. 12-35665
Appellant,
D.C. No.
v. 6:12-cv-00440-HO
U.S. TRUSTEE, EUGENE,
Appellee. OPINION
Appeal from the United States District Court
for the District of Oregon
Michael R. Hogan, District Judge, Presiding
Argued and Submitted
November 5, 2013—Portland, Oregon
Filed December 2, 2013
Before: Milan D. Smith, Jr. and Andrew D. Hurwitz,
Circuit Judges, and James C. Mahan, District Judge.*
Opinion by Judge Milan D. Smith, Jr.
*
The Honorable James C. Mahan, District Judge for the U.S. District
Court for the District of Nevada, sitting by designation.
2 JONES V. U.S. TRUSTEE
SUMMARY**
Bankruptcy
Affirming the district court’s judgment, the panel held
that a fraud that would have served as grounds for denying a
chapter 7 bankruptcy discharge if it had been known at the
time of the discharge could serve as grounds for the later
revocation of that discharge.
The United States Trustee moved to revoke the discharge
pursuant to 11 U.S.C. § 727(d)(1), which provides that a
chapter 7 discharge may be revoked if it was obtained
through the fraud of the debtor and the requesting party did
not know of the fraud until after the granting of the discharge.
The bankruptcy court found that the debtor’s
misrepresentations of the value or existence of a number of
assets in the schedules he filed and in the testimony he gave
during the creditors meeting amounted to a violation of
§ 727(a)(4)(A), which provides that a bankruptcy court
should deny discharge if the debtor knowingly or
fraudulently, in or in connection with the case, made a false
oath or account. The bankruptcy court granted the Trustee’s
motion, and the district court affirmed.
The panel rejected the debtor’s argument that the
concealment of his fraud, rather than the fraud itself, procured
his discharge. Adopting the reasoning of the Bankruptcy
Appellate Panel and other circuits, the panel held that a
material fraud, which would have resulted in the denial of a
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
JONES V. U.S. TRUSTEE 3
chapter 7 discharge had it been known at the time of such
discharge, can justify subsequent revocation of that discharge
under § 727(d)(1).
COUNSEL
Keith D. Karnes (argued), Salem, Oregon, for Appellant.
Phyllis Rebecca Kamitsuka (argued), Trial Attorney, Office
of the United States Trustee, Eugene, Oregon; Robert Joseph
Schneider, Trial Attorney, United States Department of
Justice, Washington, D.C., for Appellee.
OPINION
M. SMITH, Circuit Judge:
This appeal poses the question of whether a fraud that
would serve as grounds for denying a bankruptcy discharge
if it were known at the time of the discharge can serve as
grounds for the later revocation of that discharge. We
conclude that it may, and we therefore affirm the judgment of
the district court.
FACTS AND PRIOR PROCEEDINGS
On December 23, 2008, Appellant Jerry Alan Jones filed
a chapter 7 bankruptcy petition in United States Bankruptcy
Court for the District of Oregon. On January 16, 2009, Jones
filed schedules of assets under penalty of perjury pursuant to
11 U.S.C. § 521(a)(1)(B). During a February 6, 2009,
meeting of creditors required by 11 U.S.C. § 341(a), Jones
4 JONES V. U.S. TRUSTEE
testified under oath as required by 11 U.S.C. § 343. On April
9, 2009, the bankruptcy court entered an order granting Jones
a chapter 7 discharge of his debts.
Subsequent to the entry of the discharge order, the United
States Trustee (Trustee) learned that Jones had
misrepresented the value or existence of a number of assets
in both the schedules Jones had filed and in the testimony he
gave during the creditors meeting. Jones did not dispute that
he omitted certain assets, but he claimed that the omission
was due to inadvertence rather than fraud. The bankruptcy
court disagreed, and found that Jones made false oaths in
connection with his petition for discharge.
The Trustee moved to revoke Jones’ discharge pursuant
to 11 U.S.C. § 727(d)(1). In deciding the motion, the
bankruptcy court looked to whether Jones’ misrepresentations
constituted a violation of 11 U.S.C. § 727(a)(4)(A). Finding
that the misrepresentations amounted to a violation of
§ 727(a)(4)(A), the bankruptcy court granted the Trustee’s
motion to revoke Jones’ discharge pursuant to 11 U.S.C.
§ 727(d)(1).
Jones appealed the bankruptcy court’s decision to the
district court, arguing that his fraud did not procure the
discharge. The district court affirmed the bankruptcy court,
finding the bankruptcy court’s findings of fact to be “without
clear error and supported by the extensive record.” The
district court found that Jones’ discharge had been “properly
revoked,” because “but for Jones’ numerous, knowing,
fraudulent statements regarding his business interests and
holdings, he would not have received his chapter 7
discharge.” Jones timely appealed.
JONES V. U.S. TRUSTEE 5
JURISDICTION AND STANDARD OF REVIEW
We have jurisdiction to review the district court’s order
under 28 U.S.C. § 158. We review the bankruptcy court’s
decision independently, without deference to the district
court’s decision. Decker v. Tramiel (In re JTS Corp.),
617 F.3d 1102, 1109 (9th Cir. 2010). We review the
bankruptcy court’s findings of law de novo, and its findings
of fact for clear error. Id.
DISCUSSION
Section 727(d)(1) of Title 11, United States Code,
provides that a Chapter 7 discharge may be revoked if the
“discharge was obtained through the fraud of the debtor, and
the requesting party did not know of such fraud until after the
granting of such discharge . . . .” Section 727(a)(4) provides,
in turn, that a bankruptcy judge should deny discharge if,
inter alia, “the debtor knowingly and fraudulently, in or in
connection with the case . . . made a false oath or account
. . . .” Jones does not dispute that the Trustee lacked the
requisite knowledge at the time of Jones’ discharge, and
moved to revoke the discharge within one year, both of which
are required by Section 727(d)(1). Jones does, however,
contend that the bankruptcy court incorrectly applied the law
with respect to whether the “discharge was obtained through
the fraud of the debtor.”
Jones’ argument can be summarized as follows: In order
to revoke a discharge under Section 727(d)(1), the discharge
must have been caused by the debtor’s fraud. See In re
Nielsen, 383 F.3d 922, 925 (9th Cir. 2004) (“[Plaintiff] must
at least show that, but for the fraud, the discharge would not
have been granted.”). Jones asserts that his fraud –
6 JONES V. U.S. TRUSTEE
concealing assets – did not “procure” the discharge because,
had Jones not revealed the assets, the discharge would still
have been granted. Thus, Jones argues that the bankruptcy
court should not have looked to whether his fraud would have
resulted in a denial of the discharge had it been known at the
time, but rather whether knowledge of the facts concealed by
the fraud would have been an independent ground for denial
of the discharge under Section 727(a). Put yet another way,
Jones argues that the concealment of his fraud, rather than the
fraud itself, procured his discharge, and that the Trustee never
provided any evidence that the fraud itself procured the
discharge. Jones’ argument is unavailing.
The Bankruptcy Appellate Panel of the Ninth Circuit
(BAP) has repeatedly held that a discharge may be revoked
upon a showing that the debtor made false oaths that would
have caused the bankruptcy court to deny the discharge under
Section 727(a) had the fraud been timely known. See, e.g., In
re Gilliam, Nos. CC–11–1248–MkHKi, RS 08–26743–CB,
2012 WL 1191854, at *10 (B.A.P. 9th Cir. Apr. 6, 2012)
(“Thus, a finding of fraud in the procurement requires
evidence of some conduct that under § 727(a) would have
been sufficient grounds for denying a discharge in the first
instance, such as the debtor knowingly and fraudulently
making a false oath in connection with the bankruptcy
case.”); In re Wahl, No. BAP No. CC–08–1218–MkPaD,
2009 WL 7751412, at *5 (B.A.P. 9th Cir. June 22, 2009)
(“[T]he trustee established that Mr. Wahl should not retain
his discharge under the standard for denial of a discharge.”);
see also In re Guadarrama, 284 B.R. 463, 469 (C.D. Cal.
2002) (“Thus, to secure revocation of Valencia’s discharge,
the Trustee was required to show that the fraud in which
Valencia engaged would have caused the bankruptcy court to
JONES V. U.S. TRUSTEE 7
deny her a discharge under § 727(a)(4)(A) had it been known
at the time.”).
The BAP’s reading comports both with In re Nielsen and
the text of the statute. Section 727(d)(1) requires that the
discharge be obtained through the fraud of the debtor.
Nielsen clarified that the fraud must be a but-for cause of the
discharge. In re Nielsen, 383 F.3d at 925. Nielsen also noted
that if “in her proceeding to revoke the discharge, [the
plaintiff had] shown that, in truth, there were assets, or that
there was some reason that the Nielsens should not have been
discharged, this would be quite a different case.” Id. at 926.
Nielsen is thus properly read as establishing the rule that the
fraud must be material, i.e., must have been sufficient to
cause the discharge to be refused if it were known at the time
of discharge.
Here, the bankruptcy court conducted just such an
analysis. In order to determine whether the discharge was
procured by fraud, the bankruptcy court analyzed whether
Jones would have been in violation of Section 727(a)(4)(a)
had his fraud been known at the time of discharge. In order
to prove a violation of Section 727(a)(4)(A), the plaintiff
must show that the debtor (1) made a false oath in connection
with the case; (2) related to a material fact; (3) knowingly;
and (4) fraudulently. See In re Retz, 606 F.3d 1187, 1197
(9th Cir. 2010). After conducting the Retz analysis, the
bankruptcy court properly concluded that Jones’
misstatements were material. Accordingly, the bankruptcy
court’s decision comports with Nielsen because Jones’ fraud,
had it been known at the time of the discharge, would have
been grounds for denying the discharge. See also In re
Edmonds, 924 F.2d 176, 180 (10th Cir. 1991) (Section
727(d)(1) requires a showing that the debtor “committed a
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fraud in fact which would have barred the discharge had the
fraud been known.”) (emphasis added).
CONCLUSION
We adopt the reasoning of the BAP and our sister circuits
in holding that a material fraud, which would have resulted in
the denial of a Chapter 7 discharge had it been known at the
time of such discharge, can justify subsequent revocation of
that discharge under 11 U.S.C. § 727(d)(1). Accordingly we
affirm the judgment of the district court.
AFFIRMED