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Parties Involved:
Daren Scott Berg
Appellant
Torrington Livestock Cattle Company
Appellee

Document Text:

* The parties did not request oral argument, and after examining the briefs

and appellate record, the Court has determined unanimously that oral argument

would not materially assist in the determination of this appeal. See Fed. R.

Bankr. P. 8012. The case is therefore ordered submitted without oral argument.

FILED

U.S. Bankruptcy Appellate Panel

of the Tenth Circuit

February 16, 2010

Barbara A. Schermerhorn

Clerk PUBLISH

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE TENTH CIRCUIT

IN RE DAREN SCOTT BERG,

Debtor.

BAP No. WY-09-047

TORRINGTON LIVESTOCK CATTLE

COMPANY,

Plaintiff – CounterDefendant – Appellee,

Bankr. No. 08-20184

Adv. No. 08-02020

 Chapter 11

v. OPINION

DAREN SCOTT BERG,

Defendant – CounterClaimant – Appellant.

Appeal from the United States Bankruptcy Court

for the District of Wyoming

Submitted on the briefs:*

Frank J. Jones, Wheatland, Wyoming, for Plaintiff-Counter-Defendant –

Appellee.

Paul Hunter, Cheyenne, Wyoming, for Defendant-Counter-Claimant – Appellant.

Before RASURE, KARLIN, and ROMERO, Bankruptcy Judges.

RASURE, Bankruptcy Judge.

Appellant Daren Scott Berg (“Berg”), an individual Chapter 11 debtor,

BAP Appeal No. 09-47 Docket No. 37 Filed: 02/16/2010 Page: 1 of 10
1 Unless otherwise specified, all references to “section” or “§” refer to the

Bankruptcy Code, Title 11 of the United States Code.

2 Complaint at1-2, ¶ 3, in Amended Appellant’s Appendix (“App.”) at 1-2.

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appeals the bankruptcy court’s judgment denying his discharge under 11 U.S.C.

§ 727(a)(3).1

 Because a Chapter 11 debtor’s discharge is governed by § 1141(d),

and the bankruptcy court failed to make findings on two of the three elements

required to deny Berg’s discharge under § 1141(d)(3), we REVERSE the

judgment and REMAND this matter to the bankruptcy court.

I. BACKGROUND

On April 2, 2008, Berg filed a petition seeking to reorganize his personal

financial affairs under Chapter 11 of the Bankruptcy Code. Appellee Torrington

Livestock Cattle Company (“Torrington”) filed its Complaint Objecting to

Discharge of Debt on July 30, 2008, asserting that Berg was not entitled to

discharge his debt to Torrington pursuant to § 1141(d)(2) and § 523(a)(2) and

(a)(4), and was not entitled to discharge any debts pursuant to § 1141(d)(3) and

§ 727(a)(2)-(5) and (a)(7).2

 Approximately one year prior to the petition date, Torrington had given

Berg the authority to write drafts on its bank account to purchase cattle, with the

understanding that Berg would repay Torrington the amount advanced plus a

commission when Berg disposed of the cattle. Torrington alleged, inter alia, that

Berg (1) used funds advanced by Torrington to purchase vehicles and equipment

for his own business and personal use, and used Torrington funds for personal

living expenses; (2) failed to sell the cattle purchased with Torrington funds as

live cattle, but, contrary to their understanding, put them on feedlots or

slaughtered them and sold them as boxed meat; (3) failed to repay the advances

from the funds Berg obtained when the cattle were sold; (4) co-mingled funds

advanced by Torrington with personal funds, and co-mingled proceeds of cattle

BAP Appeal No. 09-47 Docket No. 37 Filed: 02/16/2010 Page: 2 of 10
3 Plaintiff’s Motion to Amend the Pleadings to Conform to the Evidence to

Allege a Cause of Action to Pierce the Corporate Veil, in App. at 80-90.

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purchased with Torrington funds with proceeds of cattle purchased with other

lenders’ funds; (5) failed to maintain adequate books and records that would

allow Torrington to determine how Berg applied its funds; (6) made

misrepresentations to Torrington’s agents when Torrington discovered that it was

not being repaid; and (7) opened a new bank account in order to hide assets from

Torrington. 

Torrington claimed a loss in excess of $500,000, and asserted that its loss

arose from actual fraud, conversion, embezzlement, and fraud by a fiduciary, and

therefore was not dischargeable. Torrington further contended that Berg’s

concealment, falsification or failure to keep adequate books and records precluded

all creditors from examining Berg’s prepetition transactions and ascertaining his

overall financial condition, and therefore Berg was not entitled to a discharge of

any debts.

Berg argued that in his transactions with Torrington, he was acting on

behalf of 4B Livestock, Inc., sometimes doing business as 4B Meats, a business

entity he owned with his non-debtor wife. Accordingly, Berg insisted that

Torrington’s claims were not viable against Berg as an individual Chapter 11

debtor. In addition, Berg denied that he defrauded Torrington, or that he had held

trust funds on behalf of Torrington, and he alleged that Torrington’s losses were

largely caused by Torrington’s interference with 4B Livestock Inc.’s business.

The bankruptcy court held a three day trial on the merits of Torrington’s

complaint. Thereafter Torrington filed a motion to amend the pleadings to

conform to the evidence, requesting the bankruptcy court to “pierce the corporate

veil” to determine that the acts and transactions Berg attributed to 4B Livestock,

Inc., sometimes doing business as 4B Meats, were the acts of Berg personally.3

BAP Appeal No. 09-47 Docket No. 37 Filed: 02/16/2010 Page: 3 of 10
4 Judgment, in App. at 110.

5 Main Bankruptcy Case Docket Nos. 85, 86.

6 Opinion, in App. at 96-109.

7 Id. at 14, in App. at 109.

8 Motion to Alter or Amend Judgment, in App. at 111-16.

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Berg did not file an objection to the motion, and the motion was granted.

On July 1, 2009, the bankruptcy court entered a judgment in the adversary

proceeding denying Berg’s discharge pursuant to § 727(a)(3) (the “Judgment”).4

The Bankruptcy Court Clerk separately docketed the Judgment in Berg’s

bankruptcy case and mailed the Judgment to all parties in interest.5

 In its Opinion

on Objection to Discharge of Debt (the “Opinion”) filed contemporaneously with

the Judgment,6

 the bankruptcy court made detailed findings of fact, including that

Berg failed to maintain business records sufficient to allow the court to determine

Berg’s financial condition or the propriety of Berg’s prepetition financial

transactions, and that Berg failed to justify the lack of adequate records. The

bankruptcy court further concluded that “[b]ecause the Court finds that Debtor’s

discharge should be denied under § 727(a)(3), the Court need not consider

whether denial of discharge is warranted under the other provisions raised by

[Torrington].”7

On July 10, 2009, Berg filed a motion to alter or amend the Judgment

(“Motion to Amend Judgment”).8

 Berg argued that in order to deny Berg’s

discharge under § 1141(d)(3), the bankruptcy court was required to find not only

that Berg would be ineligible for a discharge under § 727 if he had filed a case

under Chapter 7, but two other elements as well— namely, that Berg’s Chapter 11

plan provided for the liquidation of all or substantially all property of the estate

BAP Appeal No. 09-47 Docket No. 37 Filed: 02/16/2010 Page: 4 of 10
9 Id. at 1-2, in App. at 111-12. Berg also argued that the bankruptcy court

denied Berg a discharge on the basis of the inadequacy of 4B Livestock Inc.’s

records rather than Berg’s records, and improperly substantively consolidated a

non-debtor entity that had separate assets and creditors into Berg’s bankruptcy

estate. Id. at 2, ¶¶ 2, 3, in App. at 112.

10 In denying the Motion to Amend Judgment, the bankruptcy court stated that

it did not substantively consolidate 4B Livestock, Inc. with Berg’s estate, but

merely found that because the financial records produced by Berg did not

segregate the corporation’s assets, income or expenses from Berg’s personal

assets, income or expenses, the court could not ascertain Berg’s individual

financial condition. Order on Motion to Alter or Amend Judgment at 2, in App. at

120-21.

11 Id. at 1-2, in App. at 120-21. In fact, Berg had filed a plan and disclosure

statement on January 27, 2009, prior to the trial. The court approved the

disclosure statement on July 16, 2009, and denied confirmation of the plan on

November 6, 2009. Main Bankruptcy Case Docket Nos. 48, 49, 91, 112.

12 Motion for Clarification, in App. at 122-23.

13 Id. at 2, in App. at 123.

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and that Berg would not be engaging in business after consummation of the plan.9

On August 11, 2009, the bankruptcy court denied the Motion to Amend

Judgment.10 In its order, the bankruptcy court explained that it “did not consider

the denial of the Debtor’s discharge under § 1141(d)(3) at this time, as it is

premature until the Debtor files a plan.”11

On August 13, 2009, in light of the apparent conflict between the entry of

the Judgment denying Berg’s discharge under § 727(a)(3) and the bankruptcy

court’s subsequent order indicating that it was premature to consider whether to

deny Berg’s discharge under § 1141(d)(3), Berg filed a motion for clarification,

seeking guidance from the bankruptcy court regarding whether the Judgment was

intended to be considered a final appealable order.12 If it was not, Berg requested

that the bankruptcy court vacate the Judgment denying his discharge, so that it

would be clear that the court’s determination was interlocutory and Berg would

not lose his right to appeal the denial of his discharge pursuant to § 727(a)(3) by

failing to timely appeal the Judgment.13 On the same day, Berg also filed a motion

BAP Appeal No. 09-47 Docket No. 37 Filed: 02/16/2010 Page: 5 of 10
14 Motion to Extend Time for Appeal, in App. at 124-25.

15 Notice of Appeal, in App. at 127-28.

16 Order Denying Motion for Clarification, in App. at 133; Order Denying

Motion to Extend Time for Appeal, in App. at 134. On September 18, 2009, Berg

amended his notice of appeal in order to also appeal the order denying the motion

for clarification. Amended Notice of Appeal, in App. at 135-36.

17 28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr. P. 8001; 10th Cir.

BAP L.R. 8001-1.

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to extend the time to appeal.14 The bankruptcy court did not rule on either motion

before August 21, 2009, the last day Berg could timely file an appeal of the

Judgment.

On August 21, 2009, Berg filed a notice of appeal of the Judgment and of

the order denying the Motion to Amend Judgment.15 On September 8, 2009, the

bankruptcy court denied as moot both the motion for clarification and the motion

to extend time to appeal.16 

Berg lists seven issues on appeal, which we reduce to three essential

questions: (1) Is the Judgment a final order? (2) Did the bankruptcy court err by

denying Berg’s Chapter 11 discharge without making findings concerning two of

the three elements of § 1141(d)(3)? (3) Could evidence of insufficient recordkeeping of a related non-debtor entity be considered when determining whether to

deny Berg’s discharge under § 727(a)(3)?

II. APPELLATE JURISDICTION

This Court has jurisdiction to hear timely filed appeals from “final

judgments, orders, and decrees” of bankruptcy courts within the Tenth Circuit

unless one of the parties elects to have the district court hear the appeal.17 Neither

party elected to have this appeal heard by the United States District Court for the

District of Wyoming. The parties have therefore consented to appellate review by

this Court. Berg filed his notice of appeal within ten days of the bankruptcy

court’s order denying the Motion to Amend Judgment, and therefore the appeal

BAP Appeal No. 09-47 Docket No. 37 Filed: 02/16/2010 Page: 6 of 10
18 Fed. R. Bankr. P.8002(b) (2009) (amended Dec. 1, 2009).

19 Opinion at 14, in App. at 109.

20 Judgment, in App. at 110.

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was timely.18

A. Finality

Resolution of Berg’s first issue on appeal is required to determine whether

this Court has jurisdiction over this appeal. If the Judgment is not a final order,

this Court cannot assume jurisdiction to review the merits of the Judgment. We

hold that the Judgment denying Berg’s discharge under § 727(a)(3) is the final

order that fully adjudicated Torrington’s complaint and resulted in a Judgment

denying Berg’s discharge. A three day trial on the merits was held to determine

whether Torrington’s debt should be excepted from discharge under § 1141(d)(2)

and § 523(a)(2) or (a)(4), and whether discharge of all Berg’s debts should be

denied under § 1141(a)(3) and § 727(a)(2)-(5) or § 727(a)(7). In its Opinion, the

bankruptcy court found grounds to deny discharge of all Berg’s debts under

§ 727(a)(3), and declined to consider whether Berg’s discharge could be denied on

other grounds asserted by Torrington.19 Essentially, the bankruptcy court

concluded that Torrington’s other causes of action were rendered moot because

Torrington obtained all the relief it requested–that its debt not be discharged–with

its successful resolution of the § 727(a)(3) claim.

Based on the Opinion, the court entered the Judgment which plainly states

“Debtor’s discharge is denied under 11 U.S.C. § 727(a)(3).”20 The Judgment was

separately docketed in the bankruptcy case and mailed to all parties in interest

pursuant to Bankruptcy Rule 4006. Although the bankruptcy court later explained

that it did not consider whether the discharge could be denied under § 1141(d)(3)

because it believed that claim to be premature, it did not leave the door open for

further proceedings on the discharge issue. The bankruptcy court did not vacate

BAP Appeal No. 09-47 Docket No. 37 Filed: 02/16/2010 Page: 7 of 10
21 See Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 712 (1996).

22 See In re Gledhill, 164 F.3d 1338, 1340 (10th Cir. 1999) (if the resolution

of the appeal hinges on interpretation of a statute, the issue is a matter of law that

is reviewed de novo).

23 See Kelly v. Giguere (In re Giguere), 165 B.R. 531, 534 (Bankr. D. R.I.

1994).

24 11 U.S.C. § 1141(d)(5)(A). 

25 11 U.S.C. § 1141(d)(2). Debts excepted from discharge under § 523

(continued...)

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the Judgment when Berg requested clarification of the court’s intent, which

indicates that the court considered it a final order. We conclude that the Judgment

was intended to, and thus did, “[end] the litigation on the merits and [left] nothing

for the court to do but execute the judgment,”21 and is therefore a final appealable

order. 

III. STANDARD OF REVIEW

Whether a Chapter 11 debtor’s discharge may be denied based solely on a

finding that the debtor would have been denied a Chapter 7 discharge under § 727

is an issue of law that is reviewed de novo.

22 Whether evidence of insufficient

record keeping of a related non-debtor entity may be considered when determining

whether discharge should be denied under § 727(a)(3) is also an issue of law and

is reviewed de novo.

IV. DISCUSSION

Berg is an individual Chapter 11 debtor seeking a Chapter 11 discharge. 

Chapter 11 discharges are governed by § 1141(d).23 Section 1141(d)(5) provides

that in the case of an individual Chapter 11 debtor, the bankruptcy court generally

may not enter an order discharging debts until the debtor has completed all

payments required under a confirmed Chapter 11 plan.24 Section 1141(d)(2)

provides that a Chapter 11 discharge does not discharge an individual Chapter 11

debtor from debts excepted from discharge under § 523.25 Finally, § 1141(d)(3)

BAP Appeal No. 09-47 Docket No. 37 Filed: 02/16/2010 Page: 8 of 10
25 (...continued)

include, but are not limited to, certain tax debts, student loans, domestic support

obligations, debts to spouses and former spouses, and debts arising or resulting

from fraud, defalcation by a fiduciary, embezzlement, larceny, and intentional

torts.

26 11 U.S.C. § 1141(d)(3). Although the leading sentence of the statute

implies that discharge occurs upon confirmation, § 1141(d)(5) defers the

discharge of an individual Chapter 11 debtor until after the debtor has completed

making payments under a plan.

27 See In re T-H New Orleans Ltd. P’ship, 116 F.3d 790, 803-04 (5th Cir.

1997) (“all three requirements [of § 1141(d)(3) must] be present in order to deny

(continued...)

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provides– 

The confirmation of a plan does not discharge a debtor if– 

(A) the plan provides for the liquidation of all or substantially all of

the property of the estate;

(B) the debtor does not engage in business after consummation of the

plan; and 

(C) the debtor would be denied a discharge under section 727(a) of

this title if the case were a case under chapter 7 of this title.26

In this case, Torrington sought to except its debt from Berg’s Chapter 11

discharge under § 1141(d)(2) by asserting that its debt was non-dischargeable

under § 523(a)(2) (fraud) and § 523(a)(4) (defalcation or fraud by a fiduciary,

larceny and/or embezzlement). Torrington also sought to deny Berg a discharge

altogether under § 1141(d)(3) by asserting that Berg would be denied a discharge

under § 727(a)(3) if Berg had filed under Chapter 7.

Although the bankruptcy court concluded that Torrington had established

the third element of § 1141(d)(3)–that Berg would not have been eligible for a

Chapter 7 discharge due to inadequate record keeping– it failed to address the first

and second elements– i.e., whether Berg had confirmed a liquidating plan and

whether Berg intended to engage in business after consummating the plan. All

three elements of § 1141(d)(3) must be established before a Chapter 11 debtor’s

discharge may be denied.27 A Chapter 11 discharge cannot be denied solely on the

BAP Appeal No. 09-47 Docket No. 37 Filed: 02/16/2010 Page: 9 of 10
27 (...continued)

the debtor a discharge”). See also Grausz v. Sampson (In re Grausz), 63 F. App’x

647, 650 (4th Cir. 2003) (lower court erred in failing to consider second element

of § 1141(d)(3) before denying Chapter 11 debtor’s discharge).

In the T-H New Orleans case, the Fifth Circuit Court of Appeals quoted

legislative history that appears to express the intention that a Chapter 11 debtor

that does not plan to repay creditors with post-petition earnings but rather seeks

to liquidate its assets under Chapter 11 rather than under Chapter 7 should be

faced with the same obstacles to discharge as a Chapter 7 debtor. 116 F.3d at 804

n.14.

28 Only a Chapter 7 debtor’s discharge may be denied under Section 727. See

11 U.S.C. § 103(b) (“[C]hapter 7 of this title appl[ies] only in a case under such

chapter.”).

29 Because we reverse and remand for further adjudication consistent with this

Opinion, we decline to review the propriety of the bankruptcy court’s

determination of the third element of § 1141(d)(3), including whether the court

could consider 4B Livestock, Inc.’s records in determining that Berg failed to

keep records from which Berg’s financial condition and business transactions

could be ascertained.

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ground that the debtor would have been denied a discharge under Chapter 7.28

Thus, the Judgment denying Berg’s discharge solely under § 727(a)(3) must

be reversed.29

V. CONCLUSION

Because the bankruptcy court declined to adjudicate Torrington’s claims

under § 1141(d)(2), believing them to be moot, and failed to make findings on two

of the three elements of § 1141(d)(3), the Judgment is REVERSED and the matter

REMANDED to the bankruptcy court for further adjudication of Torrington’s

claims consistent with this Opinion.

BAP Appeal No. 09-47 Docket No. 37 Filed: 02/16/2010 Page: 10 of 10