Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-canb-4_09-ap-04403/USCOURTS-canb-4_09-ap-04403-0/pdf.json

Parties Involved:
Marcia Flagg
Plaintiff
Nader Malek
Defendant

Document Text:

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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1All further section references herein are to the Bankruptcy

Code, 11 U.S.C. § 101 et. seq.

Decision

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

In re No. 09-45389-EDJ 7

 Chapter 7

NADER MALEK,

 Debtor. /

MARCIA FLAGG, Adv. No. 09-4403

 Plaintiff,

vs.

NADER MALEK,

 Defendant. /

DECISION

By her amended complaint herein, plaintiff Marcia Flagg

(“Flagg”), the former spouse of defendant Nader Malek, the above

debtor (“Malek”), seeks to bar Malek’s general discharge pursuant to

various subsections of Bankruptcy Code § 727(a).1 Specifically,

Signed: August 06, 2010

________________________________________

EDWARD D. JELLEN

U.S. Bankruptcy Judge

________________________________________

Entered on Docket 

August 06, 2010

GLORIA L. FRANKLIN, CLERK 

U.S BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA

Case: 09-04403 Doc# 44 Filed: 08/06/10 Entered: 08/06/10 12:12:39 Page 1 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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2

The relevant portions of Bankruptcy Code § 727(a) read as

follows:

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; 

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

connection with the case-- 

(A) made a false oath or account; 

. . .

(5) the debtor has failed to explain satisfactorily, before

determination of denial of discharge under this paragraph, any

loss of assets or deficiency of assets to meet the debtor's

liabilities; 

. . .

(6) the debtor has refused, in the case-- 

(A) to obey any lawful order of the court, other than

an order to respond to a material question or to

testify . . .. 

Decision 2

Flagg alleges Malek’s failure to keep and preserve books and

records, § 727(a)(3), making of a false oath or account, 

§ 727(a)(4)(A), failure to explain satisfactorily a loss or

deficiency of assets, § 727(a)(5), and refusal to obey a lawful

order of the court, § 727(a)(6)(A).2

Flagg also alleges that the debts Malek owes her are

nondischargeable under Bankruptcy Code § 523(a)(15) (certain debts

owing to a spouse or former spouse in connection with a divorce

proceeding). As to this claim, this court abstained in favor of the

Case: 09-04403 Doc# 44 Filed: 08/06/10 Entered: 08/06/10 12:12:39 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

California Superior Court. 

The court will issue its judgment in favor of Malek as to

Flagg’s claims under § 727(a). 

A. Background

Prior to the filing of his voluntary chapter 7 petition on June

18, 2010, Malek was in the business of selling figurines and

statuettes on the internet. Malek operated this business under the

name of “Accent Stuff.” His primary sales outlet was the popular

website, Ebay, although Malek did make some direct sales. For the

most part, Flagg’s allegations concern the records, inventory, and

sales of Accent Stuff, and the disclosures regarding the business

that Malek made in connection with his bankruptcy case.

B. Fraudulent Concealment - § 727(a)(5)

Initially, the court notes that § 727's denial of discharge

provisions must be construed liberally in favor of the debtor and

strictly against those objecting to discharge. In re Devers, 759

F.2d 751, 754 (9th Cir. 1985); In re Adeeb, 787 F.2d 1339, 1342 (9th

Cir. 1986); In re Bernard, 96 F.3d 1279, 1281 (9th Cir. 1996). 

Flagg’s complaint alleges that Malek fraudulently concealed

business inventory, thus triggering Bankruptcy Code § 727(a)(5)

(failure to explain loss of assets). At trial, however, Flagg

presented no material evidence in support of this claim, and the

court ruled at the conclusion of Flagg’s case in chief that Malek

need not put on any evidence in defense thereof. Fed. R. Civ. P.

52(c), applicable via Fed. R. Bankr. P. 7052. 

//

Case: 09-04403 Doc# 44 Filed: 08/06/10 Entered: 08/06/10 12:12:39 Page 3 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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Decision 4

C. Failure to Obey a Court Order - § 727(A)(6)(A)

Flagg’s complaint also alleges that this court ordered Malek to

attend a continued meeting of creditors and that Malek did not

attend, thus triggering Bankruptcy Code § 727(a)(6)(A). The

evidence showed, however, that there was no continued meeting of

creditors for Malek to attend because the trustee in bankruptcy had

excused Malek from appearing. The court therefore ruled at the

conclusion of Flagg’s case in chief that Malek need not put on any

evidence in defense of this claim. Fed. R. Civ. P. 52(c),

applicable via Fed. R. Bankr. P. 7052. 

D. Failure to Maintain Adequate Books and Records - § 727(a)(3)

“In order to state a prima facie case under section 727(a)(3),

a creditor objecting to discharge must show (1) that the debtor

failed to maintain and preserve adequate records, and (2) that such

failure makes it impossible to ascertain the debtor's financial

condition and material business transactions.” In re Cox, 41 F.3d

1294, 1296 (9th Cir. 1994) quoting Meridian Bank v. Alten, 958 F.2d

1226, 1232 (3d Cir.1992). 

Here, the evidence showed that Malek maintained sufficient

records from which any creditor and the trustee in bankruptcy could

ascertain his financial condition and material business

transactions. Malek possessed records regarding all of his sales

through Ebay, which Ebay maintained for Malek. Malek also kept a

running inventory, adding to it as he acquired new items for sale,

and deleting from it as items were sold. Malek also maintained

checking account statements for all his cash receipts from the

Case: 09-04403 Doc# 44 Filed: 08/06/10 Entered: 08/06/10 12:12:39 Page 4 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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Decision 5

business, whether from Ebay sales or otherwise. 

Malek sometimes purchased inventory on credit, using his credit

card to fund the purchases. Malek preserved the credit card

statements for the accounts in question. Malek also preserved 

invoices, shipping documents, wire transfer confirmations, and in

some cases, photographs of his inventory.

Flagg contends that the foregoing is not enough, and that Malek

should be denied a discharge because he did not prepare formal

balance sheets and profit and loss statements.

The court rejects Flagg’s argument. Section 727(a)(3) does not

require a debtor to prepare and maintain any particular type of

financial statements or records. Cox, 41 F.3d at 1299. Here, the

records Malek kept and maintained were clearly sufficient for a 

relatively small business such as Accent Stuff. Id. 

E. False Oath - 727(a)(4)(A)

In order to bring a successful § 727(a)(4)(A) claim for false

oath, the plaintiff must show: (1) the debtor made a false oath in

connection with the case; (2) the oath related to a material fact;

(3) the oath was made knowingly; and (4) the oath was made

fraudulently. In re Wills, 243 B.R. 58, 62 (9th Cir. BAP 1999); In

re Khali, 379 B.R. 163, 172 (9th Cir. BAP 2007). 

Here, Flagg contends that Malek understated his gross income on

his Amended Statement of Financial Affairs. She arrived at this

conclusion by adding up the total amount of deposits to Malek’s

business checking account for the years in question, arguing that

the totals exceed the amount of income Malek showed on his Amended

Case: 09-04403 Doc# 44 Filed: 08/06/10 Entered: 08/06/10 12:12:39 Page 5 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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3Malek disclosed his income as $51,000 for 2007, $45,000 for

2008, and $16,411 for year-to-date 2009. Flagg calculated that

Malek deposited to his checking account $168,000 in 2007 and

$104,000 in 2008.

Decision 6

Statement of Financial Affairs.3

Malek testified that he often borrowed money from family

members and deposited the proceeds into his business checking

account, that all the deposits reflected in the statements for that

account were not gross receipts from the business, and that he

accurately disclosed his income. 

Even so, it appears that the $45,000 gross income figure Malek

disclosed for 2008 was inaccurate. Flagg’s Exhibit 3 shows that

Malek’s Ebay sales that year totaled $61,707, after deduction for

unpaid items, and that Malek sold an additional $35,000 in

merchandise (after deduction of shipping fees) other than through

Ebay. 

Malek’s federal tax return for 2008, which he filed in February

2010, showed that Malek’s gross income for the year was $96,204,

which realized him a net profit of $7,413 after deduction for cost

of goods sold, commissions, shipping expense, and advertising. 

In any event, even if the gross income figures Malek presented

were in error, Malek would still prevail as to this claim for relief

because Flagg presented no evidence that Malek made any such errors

“knowingly and fraudulently” within the meaning of § 727(a)(4)(A). 

Flagg offered no suggestion as to who Malek might have been trying

to mislead, or to what end he might have made the attempt. And

Case: 09-04403 Doc# 44 Filed: 08/06/10 Entered: 08/06/10 12:12:39 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

absent a finding of Malek’s actual intent to defraud, the errors

regarding his gross income cannot be a basis for denial of his

discharge pursuant to § 727(a)(4)(A). In re Roberts, 331 B.R. 876,

883-84 (9th Cir. BAP 2005), aff’d, 241 Fed.Appx. 420 (9th Cir.

2007). This is so even if Malek was guilty of sloppiness. In re

Coombs, 193 B.R. 557, 567 (Bankr. S.D. Cal.1996). 

Moreover, although it is not determinative, it is worth noting

that Flagg does not claim that she, the trustee in bankruptcy, or

any other party in interest in the bankruptcy case was actually

misled in any way by any misstatements by Malek of his gross income,

or that any such misstatements were detrimental to the

administration of Malek’s bankruptcy estate. See Wills, 243 B.R. at

63-64. 

Flagg also contends that Malek fraudulently misstated his rent

or mortgage payment on Schedule J (Current Expenditures) by stating

that his monthly expense for rent or mortgage payments was $1,000. 

Flagg bases this contention on the fact that Malek did not actually

make some of the payments.

This allegation is meritless. The amount a debtor is required

to disclose is not the amount of rent or mortgage payments the

debtor actually paid or made, but the “average or projected monthly

expenses” of the debtor at the time of the petition. Instructions

to Schedule J, Official Form 6J. Here, Flagg presented no evidence

that Malek misstated his average or projected rent or mortgage

expense, or that he intended anything fraudulent in making the

disclosure at issue.

Case: 09-04403 Doc# 44 Filed: 08/06/10 Entered: 08/06/10 12:12:39 Page 7 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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Decision 8

F. Conclusion

For the foregoing reasons, the court will issue its judgment

denying any relief to Flagg, and providing that, subject to the

personal financial manangement course requirement of § 727(a)(11),

Malek is entitled to a discharge of all his debts other than those

that are nondischargeable under Bankruptcy Code § 523(a).

** END OF MEMORANDUM **

Case: 09-04403 Doc# 44 Filed: 08/06/10 Entered: 08/06/10 12:12:39 Page 8 of 9 
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

Shimea C. Anderson

Law Offices of Shimea C. Anderson

427 Grand Ave.

Oakland, CA 94610 

Maria I. Lawless

Lee&Lawless

11 Embarcadero West.,Suite 140

Oakland, CA 94607 

Darya Sara Druch

Law Offices of Darya Sara Druch

1 Kaiser Plaza #480

Oakland, CA 94612 

Case: 09-04403 Doc# 44 Filed: 08/06/10 Entered: 08/06/10 12:12:39 Page 9 of 9