Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-canb-4_05-ap-04227/USCOURTS-canb-4_05-ap-04227-0/pdf.json

Parties Involved:
Patricia Berkowitz
Defendant
Nancy Foster
Plaintiff
Paul Mansdorf
Trustee

Document Text:

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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Bankruptcy Code § 727(a)(2)(A) provides: The court shall

(continued...)

Decision

DO NOT PUBLISH 

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

In re No. 05-40472

 Adv. No. 05-4227

PATRICIA BERKOWITZ,

 Debtor. /

NANCY FOSTER,

 Plaintiff,

vs.

PATRICIA BERKOWITZ,

 Defendant. /

DECISION

By this adversary proceeding, plaintiff Nancy Foster (“Foster”)

seeks a judgment denying the discharge of Patricia Berkowitz, the

above debtor (“Berkowitz”), pursuant to Bankruptcy Code § 727(a)(2)1

Signed: December 01, 2005

________________________________________

EDWARD D. JELLEN

U.S. Bankruptcy Judge

________________________________________

Entered on Docket 

December 02, 2005

GLORIA L. FRANKLIN, CLERK 

U.S BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA

Case: 05-04227 Doc# 29 Filed: 12/01/05 Entered: 12/02/05 10:37:42 Page 1 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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1(...continued)

grant the debtor a discharge, unless—

 . . . 

(2) the debtor, with intent to hinder, delay, or

defraud a creditor or an officer of the estate charged with

custody of property under this title, has transferred, removed,

destroyed, mutilated, or concealed, or has permitted to be,

transferred, removed, destroyed, mutilated, or concealed—

(A) property of the debtor, within one year before the date

of the filing of the petition.

2Bankruptcy Code § 727(a)(3): The court shall grant the

debtor a discharge, unless—

. . .

(3) the debtor has concealed, destroyed, mutilated,

falsified, or failed to keep or preserve any recorded

information, including books, documents, records, and papers,

from which the debtor's financial condition or business

transactions might be ascertained, unless such act or failure to

act was justified under all of the circumstances of the case.

3Bankruptcy Code § 727(a)(4) provides: The court shall grant

the debtor a discharge, unless—

. . . 

(4) the debtor knowingly and fraudulently, in or in

connection with the case —(A) made a false oath or account.

Decision 2

(fraudulent prepetition transfer), (a)(3)2 (concealment or

destruction of recorded information), and (a)(4)3 (false oath in

bankruptcy case). The court will enter judgment in favor of

Berkowitz.

Berkowitz is an attorney, and filed this chapter 7 bankruptcy

case on February 3, 2005. Foster is a judgment creditor of

Berkowitz, and holds a prepetition malpractice judgment against

Case: 05-04227 Doc# 29 Filed: 12/01/05 Entered: 12/02/05 10:37:42 Page 2 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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Decision 3

Berkowitz in the sum of $344,541. Foster contends that Berkowitz

should not receive a discharge, alleging that: (1) Berkowitz

fraudulently concealed her ownership of real property in Haiti by

intentionally omitting same from her bankruptcy schedules, 

(2) Berkowitz fraudulently conveyed certain real property situated

in Sea Ranch, California, (3) Berkowitz falsified her bankruptcy

schedules by intentionally understating the value of her interest in

a residence she owned, and (4) Berkowitz’s prepetition conduct shows

that she engaged in a fraudulent scheme to denude herself of her

assets at Foster’s expense.

A. Property in Haiti 

Berkowitz’s parents jointly owned two parcels of real property

in Haiti on which are situated several houses (the “Haiti

Properties”). Berkowitz’s mother died in 1972. Berkowitz’s father

died intestate in 1998, leaving behind Berkowitz, Berkowitz’s sister

Irene Kellogg, and several children born out of wedlock. 

Berkowitz did not list any interest in the Haiti Properties in

her bankruptcy schedules, as originally filed; this omission is the

centerpiece of Foster’s allegation that Berkowitz fraudulently

concealed an ownership interest in the Haiti Properties.

At the meeting of creditors held March 16, 2005, Paul Mansdorf,

trustee in bankruptcy, asked Berkowitz whether she owned any

property outside the United States. Berkowitz testified in response

that she did not own the Haiti Properties, that they were still in

the name of her parents, that she has no paperwork regarding them,

and that she cannot sell them. She admitted that she had received

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UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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4Berkowitz testified that to the best of her knowledge,

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Decision 4

some rent money from the Haiti Properties, but had used these monies

for upkeep. 

Thereafter, on April 15, 2005, Berkowitz amended her Schedules

to disclose as follows:

Debtor’s mother and father died intestate in 1972 and

1998, respectively, leaving two parcels of real property

in Haiti. Debtor has resided in the United States since

1965. She has seen no documents regarding ownership of

either property. Debtor believes that one of the

properties, located in Petionville, Haiti, was in the name

of her father, Roger Aubry, and that the other property,

located on Bourbon in Port-au-Prince, was in the name of

her mother, Armande Aubry. Debtor has no idea of the

value of the subject properties. 

The weight of the evidence supports a finding that Berkowitz

initial omission of the Haiti Properties from her schedules was not

fraudulent. 

At trial, Berkowitz waived her attorney-client privilege as to

Martha Simon, Berkowitz’s bankruptcy counsel who represented her in

connection with the filing of her bankruptcy case and preparation of

her bankruptcy schedules. Simon testified that before she prepared

Berkowitz’s bankruptcy schedules, Berkowitz had told her about the

Haiti Properties. Simon further testified that she had advised

Berkowitz that she need not include them in her schedules because

the identity of the owner(s) under Haitian law was not clear,

because Berkowitz had no paperwork or other evidence of title, and

because Berkowitz lacked the ability as a practical matter to sell

the Haiti Properties.4

Case: 05-04227 Doc# 29 Filed: 12/01/05 Entered: 12/02/05 10:37:42 Page 4 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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(...continued)

bankruptcy trustee Paul Mansdorf had not been able to sell, and

had not attempted to sell the Haiti Properties.

Decision 5

Good faith reliance on the advice of counsel negates the

fraudulent intent required to deny a debtor’s discharge. See In re

Adeeb, 787 F.2d 1339, 1343 (9th Cir. 1986). Here, although

Berkowitz would have been better advised had Simon told her to

include a disclosure about the Haiti Properties in her schedules as

initially filed, the court does not believe that Simon’s advice, or

Berkowitz’s reliance on same, was not in good faith. Accordingly,

the court holds that the omission was not fraudulent.

B. Sea Ranch Property 

Paragraph 8 of Foster’s complaint herein alleges that Berkowitz

was “dealing with family members to remove property from defendant’s

name, without disclosing the full details of the transaction on the

bankruptcy schedules.” This vague allegation was apparently

intended to refer to a prepetition transaction in which Berkowitz

sold her undivided one-half interest in undeveloped real property in

Sea Ranch, California for a purchase price of $90,000, consisting of 

$50,000 cash and a $40,000 promissory note secured by a second deed

of trust.

Foster contends that this sale was a fraudulent conveyance. In

support of this allegation, Foster presented evidence showing that:

(a) Berkowitz’s son, Ashley Berkowitz, was executive director of the

buyer, Epicarts Foundation, (b) Ashley received a gift of $5,000 out

of the cash portion of the sales proceeds, and (c) Epicarts was able

Case: 05-04227 Doc# 29 Filed: 12/01/05 Entered: 12/02/05 10:37:42 Page 5 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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Given this finding, the court need not address the issue

whether paragraph 8 of the complaint was sufficient to put the

sale of the Sea Ranch property at issue. 

Decision 6

to resell a fee interest in the property for $239,000 some seven

months after it acquired Berkowitz’s one-half interest.

The evidence failed to establish that this transfer was a

fraudulent conveyance. Berkowitz disclosed the sale (although not

the $5,000 gift) in her Statement of Financial Affairs. Berkowitz

was able to effect the sale without payment of any broker’s

commission, and turned the $40,000 purchase money note over to the

trustee. 

It is true that the sale was for a price less than 50% of the

price for which Epicarts subsequently sold the entire property. 

However, the court does not believe the difference is significant to

the extent of establishing fraud. The court has no evidence showing

that Berkowitz could have sold her undivided 50% interest on the

open market for a greater net amount. Moreover, Berkowitz

testified, without contradiction, that before the sale, she had

sought the advice of a professional broker, who advised her that the

value of the fee was between $155,000 and $159,000.

The court holds that Berkowitz is entitled to prevail as to

this claim for relief.5

C. Valuation of Personal Residence

Foster contends that, in her schedules, Berkowitz intentionally

undervalued her residence. This allegation is based on the fact

that Berkowitz scheduled the residence as having a value of $620,000

Case: 05-04227 Doc# 29 Filed: 12/01/05 Entered: 12/02/05 10:37:42 Page 6 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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Decision 7

whereas in a prepetition loan application for a refinance, Berkowitz

listed the value as $675,000, an amount approximately nine percent

greater. Berkowitz testified that she based her valuation in the

schedules on a market analysis she had obtained, and disclaimed

knowledge of the valuation placed in the refinance application.

The court received no evidence of the actual value of the

property as of the date of Berkowitz’s bankruptcy petition, and the

mere fact of the nine percent disparity between the two amounts does

not ipso facto establish that Berkowitz’s valuation in the schedules

was fraudulent. See, generally, Cusano v. Klein, 264 F.3d 936, 946

(9th Cir. 2001). Moreover, no evidence was presented showing that

the trustee or anyone else was mislead in any way by Berkowitz’s

valuation. In re Adair, 253 B.R. 85, 89-90 (9th Cir. BAP 2000). 

The court therefore holds that Berkowitz is entitled to prevail

as to this claim for relief.

D. Scheme to Defraud Creditors

Foster contends that Berkowitz engaged in a scheme to defraud

her by transfering her assets to third parties after Foster had

commenced the malpractice litigation against Berkowitz. In support,

Foster relies on the Sea Ranch sale mentioned above, and the fact

that over the year that followed the filing of the malpractice

complaint, Berkowitz repaid various debts she owed to the IRS, the

California Franchise Tax Board, and individual persons other than

Foster. 

The court has already discussed the Sea Ranch sale. As to the

other repayments, the court holds that no fraud is established by

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UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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Decision 8

the fact that Berkowitz repaid valid debts she owed to creditors

other than Foster, but did not pay Foster. 

One additional transaction that Foster cites as evidence of the

alleged fraudulent scheme is a transfer of $85,000 that Berkowitz

made in March 2004, some four and one-half months after Foster filed

her malpractice complaint. Berkowitz testified that she made this

transfer to repay a series of loans made by a Haitian creditor named

Pierre Charment, starting in 1997. Foster contends that because an

action to collect all or some portion of any such loan would have

been barred by the statute of limitations, the repayment was

fraudulent. 

The court disagrees. Neither the very limited facts regarding

this transaction that the parties introduced into evidence, nor any

law that Foster has cited, establish that the transaction was

fraudulent. 

 E. Conclusion

For the foregoing reasons, the court will issue its judgment in

favor of Berkowitz.

**END OF DECISION**

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UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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Decision 9

COURT SERVICE LIST

Howard R. Melamed, Esq.

319 Lennon Lane

Walnut Creek, CA 94598

Martha J. Simon, Esq.

155 Montgomery Street, Suite 1004

San Francisco, CA 94104

Paul Mansdorf, Chapter 7 Trustee

4071 San Pablo Dam Road, #433

El Sobrante, CA 94803

Minnie Loo

Office of the U.S. Trustee

1301 Clay Street, #690N

Oakland, CA 94612

Case: 05-04227 Doc# 29 Filed: 12/01/05 Entered: 12/02/05 10:37:42 Page 9 of 9