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Parties Involved:
Massey-Ferguson Credit Corporation
Appellee
Massey-Ferguson, Inc.
Appellee
Garner Pettigrew
Appellant
Laverne Pettigrew
Appellant

Document Text:

_r_l I • • • - I • •• • .J • 

UNITED STATES COURT OF APPEAI; 

FOR THE TENTH CIRCUIT 

. Leu 3tc.~~., (:O,\t: o~ i'q:::::..,, 

• 'fc \t'"l Circui ~ 

FE81 3 1992 

In re: GARNER PETTIGREW and LAVERNE 

PETTIGREW, 

Debtors. 

MASSEY-FERGUSON, INC., a corporation, 

and MASSEY-FERGUSON CREDIT CORPORATION, 

a corporation, 

Plaintiffs-Appellees, 

v. 

GARNER PETTIGREW and LAVERNE PETTIGREW, 

Defendants-Appellants. 

) 

) 

) 

) 

) 

ROBERT L. HOECKEE 

Clerl: 

) No. 91-6245 

) (D.C. No. CIV-91-50-P) 

) (W.D. Okla.) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

ORDER AND JUDGMENT* 

Before MOORE, TACHA, and BRORBY, Circuit Judges. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34 . 1.9. 

submitted without oral argument. 

The case is therefore ordered 

* This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

Appellate Case: 91-6245 Document: 010110222560 Date Filed: 02/13/1992 Page: 1 
Defendants appeal the district court's order affirming the 

bankruptcy court's denial of discharge pursuant to 11 U.S.C. 

§ 727(a)(2), granting of an exception from discharge pursuant to 

11 U.S.C. § 523(a)(4), and granting of permission to amend the 

complaint. On appeal, Defendants argue that (1) Plaintiffs' 

original complaint did not state a cause of action and, thus, the 

amended complaint did not relate back to the original complaint; 

(2) the bankruptcy court erred in denying discharge pursuant to 

S 727(a)(2), because Defendants did not conceal property within 

one year of their petition and post-petition with intent to 

defraud a creditor; (3) the bankruptcy court erred when it held 

that Okla. Stat. tit. 21, S 1834.1 created the requisite fiduciary 

capacity under§ 523(a)(4); and (4) the bankruptcy court erred in 

excepting discharge 

of the floor-planned 

pursuant to§ 523(a)(4) because the proceeds 

equipment were not held in trust since 

Plaintiffs received guarantees of payment. We affirm. 

After Defendants filed for bankruptcy relief, Plaintiffs 

filed an adversary proceeding objecting to discharge under 

§ 523(a)(4) and § 727(a)(2). Subsequently, with the bankruptcy 

court's permission, Plaintiffs amended their complaint. After 

holding a three-day trial, the bankruptcy court denied discharge 

pursuant to§ 727(a)(2) and granted Plaintiffs an exception to 

discharge pursuant to S 523(a)(4) if Defendants received a 

discharge. The district court affirmed the bankruptcy court. 

We review the bankruptcy court's factual findings under a 

clearly erroneous standard. =I=n~~r~e~~C~o~o=n=e-=-s, F.2d , Nos. 

90-8113, 90-8114, slip op. at 2 (10th Cir. Jan. 3, 1992). We 

2 

Appellate Case: 91-6245 Document: 010110222560 Date Filed: 02/13/1992 Page: 2 
review the district 

determinations de novo. 

(10th Cir. 1987). 

court's and bankruptcy 

Id.; In re Mullet, 817 

I. 

court's legal 

F.2d 677, 679 

Defendants first argue that because the original complaint, 

which was filed within appropriate time limits, failed to state a 

cause of action, the amended complaint did not relate back to the 

original complaint. Accordingly, Defendants argue this action was 

barred by the statute of limitations and the bankruptcy court had 

no discretion to enlarge the time for this action. 

Plaintiffs filed their original complaint within the time 

limits set by Bankruptcy Rules 4004(a) (§ 727) and 4007(c) 

(§ 523). Because the complaint alleged only the statutory 

language of§ 523(a)(4) and§ 727(a)(2), Defendants filed a motion 

for a more definite statement. Thereafter, Defendants filed a 

motion to dismiss alleging that Plaintiffs' claims were time 

barred. The bankruptcy court held a hearing on the motions at 

which Defendants withdrew the motion to dismiss, and Plaintiffs 

agreed to amend the complaint. The bankruptcy court entered an 

order, approved by the parties, indicating the motion to dismiss 

was withdrawn and Plaintiffs were to file an amended complaint, 

which they did . 

Thereafter, Defendants filed a motion for summary judgment 

alleging that because the original complaint failed to state a 

cause of action, the amended complaint did not relate back and, 

thus, was time barred. The bankruptcy court denied the motion, 

finding that there was relation back because Defendants had notice 

3 

Appellate Case: 91-6245 Document: 010110222560 Date Filed: 02/13/1992 Page: 3 
of the general complaints objecting to discharge. The bankruptcy 

court determined that Defendants' withdrawal of their motion to 

dismiss was their indication that they had notice of the claims 

asserted. Also, the court stated that the facts alleged in the 

amended complaint expanded upon the original complaint and did not 

raise new grounds after the time deadlines. 

We agree with the bankruptcy court's holdings. Rules 4004(a) 

and 4007(c) require that complaints under § 727(a)(2) and 

§ 523(a)(4) be filed "not later than 60 days following the first 

date set for the meeting of creditors held pursuant to § 341(a) . " 

These filing requirements are strict and mandatory, see, e.g., In 

re Alton, 837 F.2d 457, 459 (11th Cir. 1988)(per curiam); Neeley 

v. Murchison, 815 F.2d 345, 347 (5th Cir. 1987); In re American 

Sports Innovations (ASI), 105 B.R. 614, 616 (Bankr. W.D. Wash . 

1989); In re Booth, 103 B.R. 800, 802 (Bankr. S.D. Miss. 1989); 

contra In re Santos, 112 B.R. 1001, 1006, 1009 (Bankr. 9th Cir. 

1990), and were met when the original complaint was filed. The 

parties agree that the complaint may be amended only if the claims 

asserted in the amended complaint relate back to the date the 

original complaint was filed. 

The grant or denial of leave to amend is within the 

discretion of the bankruptcy court. Zenith Radio Corp. v. 

Hazeltine Research, Inc . , 401 U. S . 321, 330 (1971); LeaseAmerica 

Corp. v. Eckel, 710 F.2d 1470, 1473 (10th Cir. 1983). Federal 

Rule of Civil Procedure 15, as made applicable by Bankruptcy Rule 

7015, provides that leave to amend should be freely given when 

justice requi res. LeaseAmeri ca Corp., 710 F.2d at 1473. Before 

4 

Appellate Case: 91-6245 Document: 010110222560 Date Filed: 02/13/1992 Page: 4 
granting leave to amend, the bankruptcy court must inquire whether 

there is undue delay by the movant, futility of amendment, and 

undue prejudice to the party opposing amendment. See Foman v. 

Davis, 371 U.S. 178, 182 (1962). In the absence of undue delay or 

prejudice, amendment may be permitted if the amendment claim 

arises out of the transaction or occurrence set forth in the 

original complaint. In re Barnes, 96 B.R. 833, 836 (Bankr. N.D. 

Ill. 1989). 

Defendants argue that since the original complaint contained 

only statutory language without stating facts of fraud or a 

fiduciary relationship it could not be amended. Defendants cite 

several cases indicating that the mere pleading of a statute is 

insufficient to provide anything for an amended complaint to 

relate back to. See, e.g., In re Metzeler, 66 B.R. 977, 983 

(Bankr. S.D.N.Y. 1986). 

Although Plaintiffs concede their initial complaint was 

defective, they contend the complaint could be amended if the 

debtors had notice of the objections to discharge and 

dischargeability. See In re Wahl, 28 B.R. 688, 690 (Bankr. W.D. 

Ky. 1983)(test of relation back is adequacy of notice given to 

defendant by original complaint of general wrong and conduct 

complained of); cf. In re Barnes, 96 B.R. at 838 (where some form 

of timely filing is made, creditors allowed to correct procedural 

errors after Rule 4007(c) deadline). In this case, Defendants did 

have notice. They moved for an order directing Plaintiffs to 

provide a more definite statement of the facts supporting their 

claims. This motion was filed outside of the Rule 4004 and 4007 

5 

Appellate Case: 91-6245 Document: 010110222560 Date Filed: 02/13/1992 Page: 5 
time limits. Also, they voluntarily withdrew their motion to 

dismiss and conceded to the amendments. Defendants waived any 

possible objections to the filing of an amended complaint. 

In addition, the facts alleged in the amended complaint did 

not raise additional or new grounds. The amended complaint 

averred acts stated in the original complaint, but in an amplified 

form which related back to the date of the original complaint. 

See In re Ludlum Enters., Inc., 493 F.2d 1345, 1347 (5th Cir. 

1974); see also In re Shebel, 54 B.R. 196, 197 (Bankr. D. Vt. 

1985)(creditor is permitted to file a more definite statement when 

it insufficiently alleges fraud under § 727(a)(2)); In re De 

Stefano, 54 B.R. 813, 814 (Bankr. D.N.J. 1985)(when a § 523 

complaint merely tracks the language of the statute, leave to 

amend should be granted). Because the initial filing was timely, 

and the amendment arises out of the same transaction or 

occurrence, see In re Barnes, 96 B.R. at 839, the bankruptcy court 

did not abuse its discretion in granting leave to amend. 

II. 

Defendants argue that the bankruptcy court erred when it held 

that Plaintiffs proved that Defendants concealed property within 

one year of their petition and post-petition with the intent to 

defraud a creditor, and, therefore, Defendants' discharge should 

be denied pursuant to§ 727(a)(2) . Defendants argue that there 

was sufficient evidence presented at trial to establish that both 

Defendants should be granted a discharge. 

Creditors have the burden of proving debtors are not entitled 

to a discharge. Farmers Co-op. Ass'n v. Strunk, 671 F.2d 391, 

6 

Appellate Case: 91-6245 Document: 010110222560 Date Filed: 02/13/1992 Page: 6 
394-95 (10th Cir. 1982). Creditors objecting to discharge must 

prove their case by a preponderance of the evidence. In re 

Serafini, 938 F . 2d 1156, 1157 (10th Cir. 1991). On review, this 

court gives great weight to the opportunity of the bankruptcy 

court to assess the credibility of the testifying parties and 

witnesses. Carini v. Matera, 592 F . 2d 378, 381 (7th Cir. 1979). 

To affirm denial of discharge under§ 727(a)(2), the evidence 

must show a transfer of the debtors' property by the debtors or at 

their direction within one year of the bankruptcy case and, 

contemporaneous with the transfer, that the debtors had an intent 

to hinder, delay, or defraud the creditors. In re Reitz, 69 B.R. 

192, 197 (N.D . Ill. 1986); In re Zell, 108 B.R. 615, 624 (Bankr. 

S.D. Ohio 1989). Discharge of debts under § 727(a)(2) may be 

denied only upon a finding of actual intent to hinder, delay, or 

defraud creditors. In re Zell, 108 B.R. at 624. Intent may be 

established by circumstantial evidence or inferences drawn from a 

course of conduct . In re Reed, 700 F.2d 986, 991 (5th Cir. 1983); 

In re Zell, 108 B.R. at 624; In re Swift, 72 B. R. 563, 565 (Bankr. 

W. D. Okla. 1987) . Although intent may be proven by circumstantial 

evidence, In re Bobroff, 58 B.R. 950, 952 (Bankr. E.D. Pa. 1986), 

aff'd, 69 B.R. 295 (E.D. Pa. 1987), constructive intent is not a 

basis for denial of discharge, In re Bernard, 99 B.R. 563, 572 

(Bankr. S.D.N.Y. 1989); cf. In re Maxted, 107 B.R. 289, 291 

(Bankr. D. Mont. 1988)(property transferred within one year of 

filing for bankruptcy for l e ss than fair consi deration leads to a 

presumption that property was transferred to hinder or delay 

creditors); In re Lubin, 61 B.R. 511, 514 (Bankr. S.D.N.Y. 

7 

Appellate Case: 91-6245 Document: 010110222560 Date Filed: 02/13/1992 Page: 7 
1986)(presumption of intent to defraud arises when property is 

gratuitously transferred or transferred for inadequate 

consideration). Reckless indifference to the truth is sufficient 

to constitute requisite fraudulent intent to deny discharge under 

§ 727 . In re Maxted, 107 B.R. at 291; In re Ingle, 70 B.R. 979, 

983 (Bankr. E.D.N.C. 1987). 

Defendants contend that Garner Pettigrew should not be denied 

discharge because he was physically and emotionally ill. The 

record showed that from 1975 Mr. Pettigrew suffered from Bangs 

disease or undulant fever, which could impair his mind. 

Accordingly, Defendants maintain that Mr. Pettigrew was unaware of 

day-to-day operations and, thus, could not have the specific 

intent to hinder or defraud Plaintiffs. 

The record fails to show credible evidence that Mr. Pettigrew 

was sufficiently mentally impaired that he could not have formed 

the requisite intent to defraud Plaintiffs. In contrast, the 

record shows that Mr. Pettigrew bought and financed certain 

equipment and that he signed retail installment contracts and 

security agreements for that . t 1 equipmen. The bankruptcy 

schedules, however, did not include the equipment described in the 

installment contracts that he admitted signing. Failure to 

include the owned equipment on the bankruptcy schedules evidences 

an intent to defraud creditors. 

In addition, Defendants contend that no evidence was 

presented showing Laverne Pettigrew had actual or specific intent 

1 Plaintiffs sued Mr. Pettigrew in state court on the retail 

contracts and obtained a judgment against him, despite his denial 

in the state lawsuit that the sales ever took place. 

8 

Appellate Case: 91-6245 Document: 010110222560 Date Filed: 02/13/1992 Page: 8 
to conceal property. The evidence presented, however, showed that 

she signed account confirmations confirming ownership of the 

equipment, which was not listed on the bankruptcy schedules, and 

indicating on some of the confirmations that payments on the 

equipment had been made. 

from her course of conduct . 

An intent to defraud can be inferred 

Plaintiffs proved by a preponderance of the evidence that 

Defendants should not receive a general discharge of indebtedness. 

The bankruptcy court did not err in denying discharge pursuant to 

§ 727(a)(2). 

Having concluded the bankruptcy court did not err in denying 

a general discharge, we need not discuss the remaining issues 

regarding the dischargeability of Plaintiffs' individual debt. 

The judgment of the United States District Court for the 

Western District of Oklahoma is AFFIRMED. 

Entered for the Court 

John P. Moore 

Circuit Judge 

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Appellate Case: 91-6245 Document: 010110222560 Date Filed: 02/13/1992 Page: 9