Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-05-06033/USCOURTS-ca8-05-06033-0/pdf.json

Parties Involved:
Vicki Jo Bauder
Appellant
Michael W. Ellsworth
Appellee

Document Text:

United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

_______________

No. 05-6033NI

________________

In re: *

 *

Vicki Jo Bauder, *

*

Debtor. *

*

*

Michael W. Ellsworth, *

* Appeal from the United States

Plaintiff - Appellee, * Bankruptcy Court for the Northern

* District of Iowa

v. *

*

Vicki Jo Bauder, *

*

Debtor - Appellant. *

_____

Submitted: October 15, 2005

Filed: November 14, 2005

_____

Before SCHERMER, FEDERMAN, and VENTERS, Bankruptcy Judges.

_____

VENTERS, Bankruptcy Judge.

This is an appeal of the bankruptcy court's June 20, 2005 memorandum decision

denying the Debtor’s discharge under 11 U.S.C. § 727(a)(4). We have jurisdiction

over this appeal pursuant to 28 U.S.C. § 158(b). For the reasons set forth below, we

reverse the court’s decision. 

Appellate Case: 05-6033 Page: 1 Date Filed: 11/14/2005 Entry ID: 1974080
1

 Fed. R. Bankr. P. 8013.

2 Korte v. United States Internal Revenue Service (In re Korte), 262 B.R.

464, 470 (B.A.P. 8th Cir. 2001); Cepelak v. Sears (In re Sears), 246 B.R. 341, 347

(B.A.P. 8th Cir. 2000).

2

I. STANDARD OF REVIEW

“Findings of fact, whether based on oral or documentary evidence, shall not be

set aside unless clearly erroneous, and due regard shall be given to the opportunity of

the bankruptcy court to judge the credibility of the witnesses.”1

 The bankruptcy

court's determination that the Debtor knowingly and fraudulently made a false oath

or account under 11 U.S.C. § 727(a)(4)(A) is a factual determination which is

reviewed for clear error on appeal.2

II. BACKGROUND

The essential facts of this appeal are not disputed, although their interpretation

is. 

The Debtor, Vicki Jo Bauder, is 52 years old. Her formal education does not

extend beyond the eleventh grade, and based on her uncontradicted testimony, she

suffers from adult attention deficit disorder, depression, and anxiety. The Plaintiff,

Michael W. Ellsworth (“Ellsworth”), is Bauder’s former boyfriend. He lived with

Bauder intermittently from sometime in 2002 to September of 2003. 

Bauder filed for protection under chapter 7 of the bankruptcy code on March

10, 2004. She listed the following property on her original schedule of personal

property: household goods valued at $575; wearing apparel valued at $300; a pension

valued at $15,595.78; tax refunds and accrued wages of $1,000; and a 1999 Grand

Prix automobile valued at $3,700. The Debtor claimed exemptions for all of this

property, except for the automobile.

Appellate Case: 05-6033 Page: 2 Date Filed: 11/14/2005 Entry ID: 1974080
3

 As discussed below, the Plaintiff’s counsel’s direct examination of the

Debtor suggests that he questioned her about specific property, including the

diamond ring at issue, at the § 341 meeting, but there is no actual testimony in the

record elucidating what transpired at that meeting. 

4

 Rule 1009 of the Bankruptcy Rules provides that schedules "may be

amended by the debtor as a matter of course at any time before the case is closed.”

5

 Because the court based its holding solely on the Debtor’s failure to list the

diamond ring in her original schedules, it is not necessary to list the other property

disclosed on the amendment to her bankruptcy schedules.

6

 The list of omitted property referenced in the Plaintiff’s adversary

complaint is not part of the record.

3

On April 19, 2004, the Debtor attended her § 341 meeting of creditors.3 Nine

days later, she amended her schedules to disclose additional personal property in her

possession,4

 several items of property in her possession that she held for another, and

a diamond ring valued at $300, which she indicated was in her daughter’s possession.5

Ellsworth filed the underlying adversary proceeding the day after the Debtor

amended her schedules. Ellsworth alleged that the Debtor had omitted from her

(original) schedules various pieces of personal property,6

 including the diamond ring

listed in her amended schedules. At trial, the Debtor provided various explanations

why property was omitted from her original schedule of personal property. With

regard to the diamond ring, the Debtor testified that she didn’t list it in her original

schedules because she had previously given it to her daughter for safekeeping and

forgot about it when she filled out her original schedules. She also testified that she

didn’t list it because an “office employee” at her attorney’s office told her that she

only had to list property in her possession. Regarding the ring’s value, the Debtor did

not dispute that Ellsworth purchased it for her for about $1,000, but she explained that

it had fallen into disrepair – a diamond was missing and several prongs were bent –

and that a pawn shop told her it was only worth three or four dollars. She estimated

Appellate Case: 05-6033 Page: 3 Date Filed: 11/14/2005 Entry ID: 1974080
7 Mertz v. Rott, 955 F.2d 596, 598 (8th Cir.1992). 

8 Id.

9 In re Korte, 262 B.R. at 474. 

10 Id.

11 The Court also noted its concern over what it interpreted as an improper

attempt by the Debtor to conceal assets by discounting them as valueless (and,

therefore, not necessary to be disclosed), but specifically stated that it did not

decide the issues on the failure to list “valueless” property. Memorandum

Decision, p. 8.

12 Id.

4

its value at $300, although she claimed that it really only had sentimental value. The

Debtor testified that she disclosed the ring on her amended schedules because she

learned (presumably after the § 341 meeting) that she had to list property she owned

even though it was in the possession of another, and her daughter reminded her of the

ring when they filled out the Debtor’s amended schedules together.

III. DISCUSSION

Under 11 U.S.C. § 727(a)(4)(A), a debtor shall be granted a discharge unless

“the debtor knowingly and fraudulently, in . . . the case – made a false oath.” To bar

discharge, the false oath must be material.7

 The subject matter is material if it

concerns the discovery of assets or the existence and disposition of estate property.8

Intent under § 727 can be established by circumstantial evidence.9 Statements made

with reckless indifference to the truth are regarded as intentionally false.10

The court based its denial of the Debtor’s discharge solely on the Debtor’s

failure to list a diamond ring on her original schedules.11 “Bauder’s schedules were

knowingly false because she failed to list her ownership in the diamond ring.”12 The

court reached this conclusion after determining that her explanations for not listing the

ring were not credible and were “contradictory.” 

Appellate Case: 05-6033 Page: 4 Date Filed: 11/14/2005 Entry ID: 1974080
13 122 Fed.Appx. 285, 289 (2004).

5

While we recognize that courts should be given “due regard” to determinations

of credibility and that this opinion ostensibly hinges on the Debtor’s credibility, upon

review of the record as a whole and in light of the yardstick of culpability required

under § 727(a)(4) established in In re Bren,

13 we are left with the distinct impression

that the court committed clear error when it concluded that the Debtor knowingly and

fraudulently made a false oath in the case. 

First, the court found that “the fact that her reasons for not listing the ring

contradict each other, detract from her credibility,” but the court’s discussion of that

contradiction indicates that the court’s assessment of her credibility on that point was

based on an erroneous review of the record. Specifically, it appears that the court

confused the Debtor’s explanations of why she did not list other “valueless” property

with the reasons given for why she failed to list the ring on her original schedules. 

The court found that the Debtor’s testimony that the ring only had sentimental value

was inconsistent with the decision to give it to her daughter to put it into a safe-deposit

box – an action which the court interpreted as suggesting that the Debtor believed that

the ring had significant economic value. But the Debtor never testified that she

omitted the ring because it wasn’t worth a lot, although she did offer testimony about

its lack of value. Rather, the Debtor offered only two explanations for why she failed

to list the ring on her original schedules: (1) because she believed that she only had

to list items in her possession, and (2) because she forgot about the ring at the time she

filled out her schedules. And those explanations are complementary, not

contradictory. If the Debtor believed (even if in error) that she only had to disclose

items in her possession, it is logical, and likely, that she might not recall items that

were in another’s possession. These explanations are even more plausible given the

Debtor’s limited education and affliction with attention deficit disorder.

Second, we find it problematic that the court did not give any weight to (or even

mention) the fact that the Debtor disclosed the ring in her amended schedules shortly

Appellate Case: 05-6033 Page: 5 Date Filed: 11/14/2005 Entry ID: 1974080
14 See, e.g, Gullickson v. Brown (In re Brown), 108 F.3d 1290, 1294 (10th

Cir. 1997); In re Kilson, 83 B.R. 198, 203 (Bankr. D. Conn. 1988).

15 The transcript does contain a statement by Plaintiff’s counsel that he

questioned the Debtor about “these items” at the § 341 meeting, but that statement

does not constitute testimony or evidence. The Debtor’s answers on direct did not

confirm or contradict Plaintiff’s counsel’s statement.

6

after the § 341 meeting of creditors and before this adversary was filed. A debtor’s

subsequent disclosure of an asset does not absolve a debtor from an initial omission,

but depending on the circumstances, it may be evidence of innocent intent.14 And in

this case, we believe that it is – primarily because there is no evidence in the record

regarding the impetus for the Debtor’s subsequent disclosure of the ring. It is fair to

assume that she disclosed it in response to something that occurred at the § 341

meeting, but the record is devoid of any indication as to what transpired at that

meeting.15 The Debtor testified that some time after the § 341 meeting she and her

daughter went to the Debtor’s attorney’s office where her daughter assisted her in

compiling the list of items to be added to the Debtor’s schedules. Many of those items

were in her daughter’s possession. That testimony is consistent with the Debtor’s

testimony that she thought she didn’t have to list things in other people’s possession

and the fact that the ring was in her daughter’s possession. 

Appellate Case: 05-6033 Page: 6 Date Filed: 11/14/2005 Entry ID: 1974080
16 In re Sendecky, 283 B.R. 760, 762 (B.A.P. 8th Cir. 2002) (“The denial of a

debtor's discharge is a ‘harsh sanction,’ therefore, the provisions of 11 U.S.C. §

727(a) are ‘strictly construed in favor of the debtor.’ The burden of proof is on the

objecting party to prove each element of a section 727 Complaint by a

preponderance of the evidence.”) (citations omitted).

17 See In re Lebahn, 2004 WL 726915, *4 (Bankr. N.D. Iowa 2004). Cf. 

Mertz v. Rott, 955 F.2d 596, 598 (8th Cir. 1992) (holding that omission of exempt

property is material even though the creditors are not affected by the omission).

18 Even valued at $300, the omission is borderline immaterial.

19 In re Bren, 122 Fed.Appx. at 289.

7

The Plaintiff bears the burden of proof to establish fraudulent intent,16 so in the

absence of any evidence indicating that the Debtor’s disclosure was not selfmotivated, we take the Debtor’s prompt disclosure of the ring on her amended

schedules – filed before this adversary proceeding and as authorized by Bankruptcy

Rule 1009(a) – to be evidence of the Debtor’s innocent intent which the court failed

to consider.

Third, we have reservations as to whether the omission, even if made

knowingly, was material. The omission of property of trivial value is immaterial,17

and the Debtor’s testimony that the ring in its current condition is only worth a few

dollars was uncontradicted.18

Finally, we are guided in our decision here by the Court of Appeals recent

decision in In re Bren, where the Court granted a discharge to a significantly more

sophisticated debtor who initially failed to list, but later disclosed prior to the filing

of an objection to discharge, her interest in a “modest” inheritance, and who claimed

ignorance of other significant omissions related to property and business dealings

allegedly managed entirely by her husband.19 Put simply, if Mrs. Bren qualifies for

a discharge, then a person who has a limited education, who has attention deficit

Appellate Case: 05-6033 Page: 7 Date Filed: 11/14/2005 Entry ID: 1974080
20 Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511

(1985).

21 Id.; Handeen v. LeMaire (In re Le Maire), 898 F.2d 1346, 1349 (8th Cir.

1990)(en banc).

22 Anderson, 470 U.S. at 573, 105 S.Ct. at 1511.

8

disorder and other mental/emotional problems, and who omits but then timely

discloses a worthless ring from her schedules certainly should.

IV. CONCLUSION

For the reasons stated above, we reverse the bankruptcy court’s denial of the

Debtor’s discharge pursuant to 11 U.S.C. § 727(a)(4), and remand for entry of an

order of discharge.

SCHERMER, Bankruptcy Judge, Dissenting.

I respectfully disagree with the majority’s conclusion that the bankruptcy court

erred in denying the Debtor’s discharge. I agree with the majority that the bankruptcy

court’s determination that the Debtor knowingly and fraudulently made a false oath

or account under 11 U.S.C. § 727(a)(4) is a factual determination which is reviewed

for clear error. Findings of fact shall not be set aside unless clearly erroneous. A

finding is clearly erroneous when although there is evidence to support it the

reviewing court is left with the definite and firm conviction that a mistake has been

committed.20 A reviewing court cannot reverse the trial court’s findings simply

because it is convinced that it would have decided the case differently.21 An appellate

court oversteps its bounds if it decides factual issues de novo.

22 If the trial court’s

account of the evidence is plausible in light of the record viewed in its entirety, the

appellate court may not reverse even though it would have weighed the evidence

Appellate Case: 05-6033 Page: 8 Date Filed: 11/14/2005 Entry ID: 1974080
23 Anderson, 470 U.S. at 574, 105 S.Ct. at 1511.

24 Id.

25 Anderson, 470 U.S. at 575, 105 S.Ct. at 1512; LeMaire, 898 F.2d at 1349;

Cepelak v. Sears (In re Sears), 246 B.R. 341, 352 (B.A.P. 8th Cir. 2000).

26 Anderson, 470 U.S. at 575, 105 S.Ct. at 1512.

9

differently.23 Furthermore, where there are two permissible views of the evidence, the

trial court’s choice cannot be clearly erroneous.24 

Due regard shall be given to the opportunity of the trial court to judge the

credibility of the witnesses. Fed. R. Civ. P. 52(a). Accordingly, great deference must

be given to the trial court when its findings turn on an assessment of credibility.25

“[O]nly the trial judge can be aware of the variations in demeanor and tone of voice

that bear so heavily on the listener’s understanding of and belief in what is said.”26

In the instant case, the bankruptcy court’s decision was based on its assessment

of the credibility of the Debtor’s testimony. The Debtor gave three reasons why she

did not list the diamond ring: she forgot about it because it was not in her possession;

she was told she did not have to list items not in her possession; and it was essentially

valueless. Her reasons for not listing the ring are inconsistent. If she had forgotten

about the ring, she would not have asked if she needed to list it as property when it

was not in her possession. If she believed it had no value, why did she give it to her

daughter to store in her safe deposit box? The trial judge observed the Debtor as she

testified and determined, based on her demeanor and tone, that she had knowingly and

fraudulently failed to disclose the ring on her schedules which she signed under oath.

Such a determination is not clearly erroneous. The majority accept the Debtor’s

inconsistent explanations because, in part, the Debtor has a limited education and is

afflicted with attention deficit disorder. I respectfully disagree that the Debtor’s

inconsistencies in her explanations should be excused. If a debtor has the capacity to

attest under oath as to the truthfulness and accuracy of schedules, then the accuracy

of such schedules should not be dependent upon one’s education or condition.

Appellate Case: 05-6033 Page: 9 Date Filed: 11/14/2005 Entry ID: 1974080
27 In re Searles, 317 B.R. 368, 378 (B.A.P. 9th Cir. 2004).

28 Rule 28A(I) of the United States Court of Appeals for the Eighth Circuit

states that unpublished opinions are not precedent and parties generally should not

cite them. The rule contains an exception permitting reliance on unpublished

opinions if the opinion has persuasive value on a material issue but only if no

published opinion of the Eighth Circuit Court of Appeals or another court would

serve as well. The Eighth Circuit Court of Appeals has published two other

opinions directly on point: Mertz v. Rott, 955 F.2d 596 (8th Cir. 1992) and

Palatine Nat’l Bank of Palatine, Illinois v. Olson, 916 F.2d 481 (8th Cir. 1990). 

29 One member of the three judge panel which decided the Bren case

dissented, arguing that Mrs. Bren should have been denied a discharge. Both

Mertz and Olson were unanimous decisions.

30 Mertz v. Rott, 955 F.2d 596, 598 (8th Cir. 1992); Palatine Nat’l Bank of

Palatine, Illinois v. Olson, 916 F.2d 481, 484 (8th Cir. 1990).

31 In re Chalik, 748 F.2d 616, 618 (11th Cir. 1984), quoted in Mertz, 955

F.2d at 598, and Olson, 916 F.2d at 484.

10

Accuracy of schedules “is fundamental because the viability of the system of

voluntary bankruptcy depends on full, candid, and complete disclosure by debtors

. . .”27 

The majority relies heavily on the Bren decision in reaching its conclusion,

noting that if Mrs. Bren qualifies for a discharge, this Debtor should too. I believe the

majority puts too much emphasis on Bren. Although it is the most recent decision of

the Eighth Circuit Court of Appeals on the subject of a false oath in bankruptcy, it is

but one unpublished28 split29 opinion. Published precedent in this circuit makes it

clear that in order for a false statement to bar a discharge, the false statement must be

material.30 The subject matter of a false oath is material and thus sufficient to bar

discharge if it “bears a relationship to the bankrupt’s business transactions or estate,

or concerns the discovery of assets, business dealings, or the existence and disposition

of his property.”31 The Debtor’s failure to list the ring in her schedules clearly

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32 Id. As this court has previously stated, “an omission of a relatively modest

asset will merit denial of discharge, if done with knowledge and fraudulent intent.” 

Cepelak v. Sears (In re Sears), 246 B.R. 341, 347 (B.A.P. 8th Cir. 2000).

33 Metz, 955 F.2d at 598. See also, Korce v. United States Internal Revenue

Service (In re Korce), 262 B.R. 464, 474 (B.A.P. 8th Cir. 2001), in which this court

said:

As § 727(a)(4)(A) makes clear, “[t]he Code requires nothing less than a full

and compete disclosure of any and all apparent interest of any kind. 

Phocaena v. Trip (In re Trip), 224 B.R. 95, 98 (Bankr. N.D. Iowa

1998)(citing In re Craig, 195 B.R. 443, 445 (Bankr. D. N.D. 1996)).

The court added:

The failure to comply with the requirements of disclosure and veracity

necessarily affects the creditors, the application of the Bankruptcy Code, and

the public’s respect for the bankruptcy system as well as the judicial system

as a whole.

(quoting Nat’l Am. Ins. Co. v. Guajardo (In re Guajardo), 215 B.R. 739, 742

(Bankr. W.D. Ark. 1997)).

34 Id.

11

“concerns the discovery of assets” and the “existence of property” and is therefore

material.

The fact that the ring may have minimal value does not render the Debtor’s

omission immaterial. The Eighth Circuit Court of Appeals rejected that argument in

Olson. “While we are not prepared to say that value is irrelevant to materiality, we

are certain that it is not determinative.”32 The debtor’s duty is to disclose all assets,

not merely assets that the debtor believes have value. The petition, schedules, and

statements must be accurate and reliable.33 Trustees and creditors should not be

required to dig out and conduct independent examinations to get the facts.34

Appellate Case: 05-6033 Page: 11 Date Filed: 11/14/2005 Entry ID: 1974080
12

Bankruptcy provides debtors with a great benefit: the discharge of debts. The price

a debtor must pay for that benefit is honesty and candor. If a debtor does not provide

an honest and accurate accounting of assets to the court and creditors, the debtor

should not receive a discharge. Section 727(a)(4) serves to ensure that only honest

debtors receive the benefit of a discharge.

In my opinion the bankruptcy court did not err in its finding that the Debtor

knowingly and fraudulently made a false oath. Since the bankruptcy court’s decision

is consistent with Eighth Circuit precedent, I would affirm.

 

Appellate Case: 05-6033 Page: 12 Date Filed: 11/14/2005 Entry ID: 1974080