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FILED

MAR 29 2016

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. ID-15-1065-KiFJu

)

JAY P. CLARK, ) Adv. No. 13-06042-TLM

)

Debtor. ) Bk. No. 12-00649-TLM

 )

)

JAY P. CLARK, )

)

Appellant, )

)

v. ) M E M O R A N D U M1

)

JEREMY J. GUGINO, Chapter 7 )

Trustee, )

)

Appellee. )

______________________________)

Argued and Submitted on March 17, 2016, 

at Pasadena, California

Filed - March 29, 2016

Appeal from the United States Bankruptcy Court

for the District of Idaho

Honorable Terry L. Myers, Chief Bankruptcy Judge, Presiding

 

Appearances: Appellant Jay P. Clark argued pro se; Matthew Todd

Christensen of Angstman Johnson & Associates, PLLC

argued for appellee Jeremy J. Gugino, Chapter 7

Trustee. 

 

Before: KIRSCHER, FARIS and JURY, Bankruptcy Judges.

1 This disposition is not appropriate for publication. 

Although it may be cited for whatever persuasive value it may

have, it has no precedential value. See 9th Cir. BAP Rule 8024-1.
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Appellant, chapter 72 debtor Jay P. Clark, appeals the

bankruptcy court's judgment denying his discharge under 

§ 727(a)(2)(B), (a)(3), (a)(4)(A) and (a)(6)(A). We AFFIRM.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY 

A. Prepetition events

Debtor has been in the farming business with his family in

Idaho for a number of years. In February 2008, he formed the

entity Clark's Crystal Springs Ranch, LLC (the "LLC") for his

farming operation. The LLC is owned by the Clark Farm Family

Trust, also created in 2008 by Debtor, which names Debtors' two

children as beneficiaries. Debtor has no ownership interest in

the LLC. Until May 31, 2013, Debtor was the manager of the LLC

and trustee of the Trust. After that, Robert Jones took over

those roles, followed by Debtor's sister, Judith Appleby. 

In 2010, Debtor entered into a written lease agreement with

the Hilliards (who were former clients in Debtor's former law

practice) to farm 4000 acres of the Hilliards' land known as

Crystal Springs Farm. Thereafter, the Hilliards sold the Farm to

Murphy Land and gave notice to Debtor that the lease was

terminated, demanding that Debtor quit and vacate the property. 

When Debtor failed to vacate, both Murphy Land and the Hilliards

filed separate civil actions, seeking to evict Debtor from the

property and have the lease voided and expunged from county

records ("Lease Litigation"). Debtor contended he had an interest

in the wheat and alfalfa crops growing on the Farm and a right to

2 Unless specified otherwise, all chapter, code and rule

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and

the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.

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be paid for the labor expended to produce them. 

Murphy Land and the Hilliards prevailed in their respective

lawsuits on summary judgment in March 2012. In the Hilliard case,

the state court found that Debtor had breached his fiduciary duty

to the Hilliards as his clients and, based on that breach, ruled

that the 2010 written lease agreement was void ab initio. Based

on the findings in the Hilliard case, the state court determined

in the Murphy Land case that Debtor had no possessory right or

interest in the Farm and awarded immediate possession to Murphy

Land. Debtor appealed the Murphy Land decision but not the

Hilliard decision.

B. Postpetition events

1. Events leading to the § 727 action 

Faced with eviction from the Farm, Debtor3 filed a skeletal

chapter 12 bankruptcy petition on March 27, 2012. Forrest Hymas

was appointed as chapter 12 trustee. The case was assigned to

Judge Pappas. 

On April 4, 2012, even though facing imminent eviction from

the Farm, Debtor (and/or the LLC) entered into a contract with

DeVries Family Farm to sell DeVries 1500 tons of alfalfa hay still

growing on the Farm for $270,000. DeVries paid Debtor $135,000 as

a down payment, which Debtor deposited in the LLC's bank account. 

DeVries was not aware of the Lease Litigation, the avoidance of

the Hilliard lease or of Debtor's pending eviction. 

On April 12, 2012, Murphy Land was granted relief from the

3 Debtor's petition was filed as "Jay P. Clark DBA Crystal

Springs Ranch," which apparently caused confusion as to whether he

was claiming LLC assets as his own. 

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automatic stay to continue with its eviction proceeding against

Debtor. 

On April 18, 2012, Debtor sent a letter to DeVries, notifying

them of the bankruptcy and of an upcoming hearing in the Lease

Litigation on April 23 that could potentially affect Debtor's

possession of the hay crop DeVries had already purchased. Debtor

opined that the hay crop was the most valuable asset of his

bankruptcy estate at $1.5 million. Debtor requested that DeVries

help in his efforts to remain on the Farm so that he could harvest

the profitable crop within the next two weeks.

On May 3, 2012, Debtor filed his initial schedules, statement

of financial affairs (“SOFA”) and declarations verifying under

penalty of perjury that they were true and correct to the best of

his knowledge, information and belief. The documents were

prepared and filed by his then bankruptcy attorney, Brent

Robinson. 

The initial schedules contained several assets which belonged

to the LLC. Debtor testified that Robinson felt it prudent to

include LLC assets because there was so much overlap in his

property and the LLC property and also in the LLC debts and his

debts, based on his guarantees. For example, in his Schedule B,

Debtor listed several checking accounts belonging to the LLC. At

the same time, Debtor claimed he had no ownership interest in the

LLC, asserting it was owned by the Trust. Schedule B also

disclosed that Debtor owned approximately $1,284,000 in crops. 

Debtor admitted at trial that this disclosure was not accurate and

that the crops were actually an asset of the LLC. However, Debtor

testified that he listed the crops because he hoped to pay all

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lien creditors with the crop proceeds he anticipated receiving. 

Debtor disclosed seven motor vehicles, including a 1995 Chevy

truck, a 2007 GMC truck and a 2001 "Nort PM" camper. Debtor also

disclosed receivables owed to him by Owyhee Farming Company, Dan

Carter and Lance Funk, collectively worth $326,000. However, the

contract with Owyhee Farming Company/Lance Funk indicates that the

receivable was an asset of the LLC. A later amendment reflected

this fact. 

Debtor's initial SOFA disclosed that he received no income in

the three months before filing, but he earned $2.4 million in 2011

and approximately $1.3 million in 2010. This income was actually

the putative gross income of the LLC. Debtor's actual income

drawn from the LLC was reflected in a QuickBooks account of the

LLC (labeled "Jay's Income: owner draws"), which was maintained by

Debtor's former bookkeeper, Jennifer Epis. In SOFA question 14,

Debtor indicated he was holding or in control of farm equipment

owned by either the LLC or his parents, valued at $1 million. 

Debtor stated at trial that errors existed in the itemized farm

equipment list attached to his SOFA because that list was created

in 2007 (five years before his bankruptcy filing) and several

items had since been bought and sold.

In May and June 2012, Debtor, on behalf of himself and the

LLC, recorded labor and seed liens against the Farm, asserting

that he and/or the LLC had an interest in the crops grown on the

Farm ("Lien Claims"). Debtor valued the Lien Claims at

approximately $600,000. Litigation ensued between Debtor and

Murphy Land over the Lien Claims ("Lien Litigation"). Debtor's

initial schedules and SOFA did not disclose any claims or

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counterclaims against Murphy Land, though the existence of the

Lease Litigation was disclosed in the initial SOFA. None of the

original or subsequently amended schedules reflected the existence

of the Lien Claims, although Debtor testified that disclosing his

interest in "crops" effectively disclosed them. Ultimately, the

state court ruled in July 2013 that the crops belonged to Murphy

Land, which Debtor claims was the result of a default judgment

entered against him because appellee, chapter 7 trustee Jeremy

Gugino ("Trustee"), failed to defend.

On March 18, 2013, DeVries moved to convert Debtor's case to

chapter 7; the motion was joined by another creditor. After a

two-day evidentiary hearing, Judge Pappas granted the motion on

May 31, 2013, finding that under § 1208(b), Debtor had committed

fraud "in connection with the case" stemming from the hay contract

with DeVries. After the conversion to chapter 7, Judge Pappas

recused himself from Debtor's case and it was reassigned to

Judge Myers. The district court affirmed the conversion order. 

Debtor has appealed that ruling to the Ninth Circuit Court of

Appeals, but no decision has been rendered. 

Meanwhile, on May 23, 2013, on the eve of his case being

converted to chapter 7, Debtor filed an amended Schedule B and

amended SOFA. Debtor added several business entities in which he

had an interest in the previous six years. Debtor testified that

the impetus for this amendment was creditors' counsel identifying

the omission. 

On August 7, 2013, Debtor filed amended Schedules B, C, D, E

and F and the corresponding verifications. In this amendment: 

(1) Debtor's list of vehicles no longer included the 2007 GMC

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truck, the 2001 camper or the 1995 Chevy truck; (2) Debtor no

longer asserted an interest in the Trust, in which he had

originally claimed a $150,000 interest; (3) Debtor claimed a

one-third interest in the disclosed crops instead of the full

value as before; and (4) the farm equipment listed in Schedule B

was amended to show the LLC as owner, not Debtor. 

At trial, Debtor admitted selling the 2007 GMC truck and a

2011 Arctic Fox camper (that was apparently never disclosed or was

confused with the 2001 Nort PM camper) during the chapter 12 case. 

He sold the 2007 GMC truck in September 2012 in exchange for

$12,000 in wheat seed, which benefitted the LLC. A debt to Chase

Bank secured by the truck was paid off. The sale of the 2007 GMC

truck and satisfaction of the debt were not disclosed to or

approved by the court, although Debtor testified that his attorney

Robinson told him it was okay to sell it. The 2011 Arctic Fox

camper was sold in April 2013 for $22,000, which satisfied the

outstanding secured debt and provided $500 to Debtor. This

transaction was also not disclosed to or authorized by the court,

but Debtor testified that Robinson told him it was a good idea to

sell it. 

On August 8, 2013, Debtor filed amended Schedules A, B, C and

F and the corresponding verifications. These amendments disclosed

three assets for the first time. The first was a one-third

tenancy-in-common interest in vacant land in Elmore County worth

$42,000. The documents regarding this interest included warranty

deeds recorded on March 27, 2012, less than two hours prior to

Debtor's bankruptcy filing, conveying a one-third interest to

Debtor and a two-thirds interest to his parents. Debtor testified

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that his one-third property interest was paid for by his parents. 

A title commitment in favor of Debtor and his parents for this

property was dated three weeks prior to the recording. A

settlement statement signed by Debtor was dated March 22, 2013. 

Debtor testified that the one-third property interest was not

listed previously by mistake. 

The other two newly-listed assets were a 2008 Chevy truck and

a 2008 Arctic Cat ATV, which were titled to both Debtor or the

LLC.4 The cause of Debtor’s late disclosure of these items was

disputed. He contended that just before the first § 341(a)

meeting with Trustee, his parents' attorney, Doug Mushlitz,

informed Trustee of these vehicles after reviewing 22 titles given

to Mushlitz by Debtors' parents. The two titles at issue showed

both Debtor and the LLC as owners, whereas the remaining

20 vehicles were titled only in the name of the LLC. Trustee

testified that Debtor only disclosed the two omitted vehicles

after Trustee discovered their existence. 

On August 14, 2013, Debtor filed an amended Schedule A and

the corresponding verification. Here, Debtor added two "interests

in mineral rights" on parcels of property located in Canyon

County, Idaho, which he valued collectively at $1,140. Debtor

stated at trial that he had forgotten about these rights because

his parents owned the parcels and had always paid the property

taxes on them. It is undisputed that this amendment resulted from

Trustee's independent investigation. 

4 Debtor now also asserted that the 2001 "Nort PM" camper

was "sold - traded in" in May 2011 prior to Debtor's bankruptcy

filing, so it is unclear why this camper was even disclosed. 

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2. The § 727 action 

Trustee sought to deny Debtor's discharge under 

§ 727(a)(2)(B), (a)(3) and (a)(4). Trustee alleged that both

before and after the petition date, Debtor entered into leases of

property or sale agreements for property, asserting at times that

these agreements were with him personally and at other times

asserting that the agreements were with the LLC. Debtor would

also routinely receive payments (for sales of property or crops)

that were made to him directly and would deposit those payments

into the LLC bank account and treat the payments as payments to

the LLC. Trustee alleged that Debtor would take "draws" from the

LLC, notwithstanding that he was not a member of the LLC entitled

to draws. The "draws" were considered Debtor's income from

managing the LLC.5

In addition to the items discussed above that were either not

disclosed or disclosed only after prompting, Trustee alleged that

Debtor never disclosed in his SOFA a disciplinary action against

him by the Idaho State Bar, which had occurred within the year

prior to his bankruptcy filing. While disclosing the $20,000

retainer Debtor paid to Robinson, he never disclosed that the

funds were paid by the LLC. Debtor also never disclosed in his

Schedule G any alleged oral leases he had with the Hilliards to

farm various properties. Finally, Trustee alleged that before and

5 Trustee also sued the LLC and the Trust, seeking a

determination that they were invalid at formation, treated as

Debtor's alter ego, and that they be substantively consolidated

with Debtor's estate ("LLC Action"). See Adv. No. 13-06016-TLM. 

Prior to issuing its decision on the § 727 action, the bankruptcy

court entered a judgment in the LLC Action in favor of Trustee on

the substantive consolidation claim. That decision has been

appealed to the BAP, case no. 15-1010.

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after the petition date, Debtor had an interest in a $350,000

check paid on account of a crop insurance claim for crops grown in

2013 by Debtor and/or the LLC which was never disclosed. However,

Debtor testified that he never claimed an interest in the crop

insurance proceeds. 

a. The parties' pretrial briefing

In his pretrial brief, Debtor first contended that the

bankruptcy court was divested of jurisdiction over the § 727

action because many of the same matters at issue had already been

litigated in the conversion action, which was on appeal to the

Ninth Circuit. In addition, Debtor contended that many of the

allegations Trustee asserted to support his § 727 claims, namely

the issues surrounding the state court litigation with Murphy Land

and the Hilliards, had been settled by Trustee in September 2013. 

Accordingly, Debtor argued that Trustee was precluded from raising

issues and claims that were previously compromised. 

As for the sales of the 2007 GMC truck and camper, Debtor

asserted that the chapter 12 trustee Hymas knew of the sales at

the time and never objected. On his alleged concealment of the

2008 Chevy truck and the 2008 ATV, Debtor contended that he timely

disclosed his ownership interest in those vehicles and provided

titles when requested at one of his five § 341(a) meetings. 

Respecting the mineral rights and the one-third property interest,

Debtor contended that Trustee had no evidence that he intended to

conceal those interests for the purpose of hindering, delaying or

defrauding creditors. Once Trustee discovered the mineral rights,

which Debtor had forgotten about, Debtor's then bankruptcy

attorney, Don Gadda, immediately prepared an amended schedule to

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correct the error. Further, since they were valued at only $500,

Debtor contended that it made no sense that he would try to

conceal their existence. As for the one-third property interest,

Debtor disputed Trustee's ability to raise that claim since

Trustee had settled the matter with Debtor's parents, who had

initially purchased and paid for the property. Alternatively,

Debtor contended that Trustee had no evidence that Debtor actually

intended to conceal that property, which he argued had no equity

available for creditors in any event. 

Lastly, since many of the same issues in the § 727 action

were about to be litigated first in the LLC Action, Debtor asked

the bankruptcy court to take judicial notice of any findings it

made in the LLC Action as they may relate to Trustee's allegations

in the § 727 action, to avoid litigating the same issues twice in

two weeks.

b. The trial 

During the two-day trial on the § 727 action, Appleby

(Debtor’s sister), Debtor and Trustee testified. On request of

the parties, the bankruptcy court admitted the testimony of Jones

(former trustee of the Trust and LLC Manager), Epis (Debtor's

bookkeeper) and Ed Gabriel (Debtor's CPA), given in the LLC Action

the week prior. 

Before hearing from any witnesses, the bankruptcy court

addressed Debtor's jurisdictional argument. The court determined

that the appeal of the conversion order did not impede its ability

to hear the § 727 action, either as a matter of jurisdiction or

otherwise. While some of the same facts in the prior action could

be relevant in the § 727 action, the court did not view this as a

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matter where the pendency of the appeal divested jurisdiction or

constrained the court in considering whatever evidence the parties

planned to present.

Respecting his finances and record keeping, Debtor admitted

that some of his personal expenses (student loans, travel, child

support payments, medical bills) were paid for by the LLC. 

However, Debtor explained that while the items Trustee raised

might have been paid out of an LLC account, Epis would go through

all of those charges and determine which ones were considered

personal and which ones were considered business. Epis testified

that all of the income and expenses for Debtor and the LLC were

run through the same set of QuickBooks for the LLC. However,

Debtor's expenses or draws were categorized as personal, apart

from business expenses. Epis testified that to her knowledge

Debtor properly accounted for all of his income. When questioned

about hiding assets, Epis testified that Debtor never attempted to

hide income or assets from anyone, including any taxing agencies

or his accountants. 

Gabriel, Debtor's accountant and tax preparer since at least

2008, testified that because the LLC is a single member LLC, its

income flowed through to its member, the Trust, and because Debtor

was grantor of the Trust, the Trust's income flowed through to

Debtor. Gabriel testified that it was set up that way for

simplicity, because only one tax return needed to be filed, which

was the personal return for Debtor, and it was typical to use LLCs

in a farming operation for liability protection. Gabriel

testified that his firm never saw anything in Debtor's financial

records that indicated fraud or required reporting. He further

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testified that the tax returns filed for Debtor complied with

state and federal law. 

Debtor testified that he had no intent to hinder, delay or

defraud creditors; "it was the furthest thing from [his] mind." 

Trial Tr. (Aug. 26, 2014) at 180:25-181:1. He also testified that

he never concealed or destroyed property from a creditor or

Trustee. Debtor testified that he discovered the “quite sloppy”

nature of the original schedules during the conversion hearing in

May 2013. Id. at 186:14. Debtor admitted that he should have

worked more closely with Robinson's office to ensure the schedules

were complete and accurate. Debtor took the blame for any errors,

admitting that he is not detail-oriented and that he "screwed up." 

Id. at 937:13. 

Once the parties rested, Trustee orally moved to amend his

complaint to include a claim under § 727(a)(6)(A) for Debtor's

alleged failure to comply with an injunction entered in the LLC

Action on June 24, 2013.6 The injunction's purpose was to protect

the LLC's assets pending that litigation. During the trial,

Appleby testified that Debtor was dryland farming in the summer of

2013. Debtor agreed he was doing dryland farming at that time. 

Debtor further testified that he had been helping his father farm

from November 2013 until the spring of 2014, using the LLC's

6 The injunction provided, in pertinent part: 

IT IS HEREBY FURTHER ORDERED, that the [LLC] as well as

the Trust, as well as any and all agents of the same,

are RESTRAINED and PROHIBITED from transferring any of

the assets of those entities, including any funds from

the bank accounts of the same, absent either express

written permission by the Trustee or express Order of

this Court.

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equipment. Debtor admitted he had not asked the court's or

Trustee's permission prior to using the LLC's equipment to farm

his dad's land. Debtor said he understood that only transfers or

sales of the equipment were prohibited by the injunction, not use

by his dad. 

In response to Trustee's oral motion to amend, Debtor stated

he did not know that use of the equipment was going to be an

allegation against him, and with the close of evidence, he was

prejudiced by not being able to present evidence to rebut

Trustee's claim. Debtor stated that had he known about this new

allegation, he would have had an employee testify to disprove any

violation of the injunction. The bankruptcy court agreed to take

Trustee's oral motion under advisement with all other matters once

post-trial briefs were received. 

c. The bankruptcy court's ruling on the § 727 action

After the parties submitted post-trial briefs presenting

their closing arguments, the bankruptcy court issued its

Memorandum Decision and Judgment. The court granted Trustee's

oral motion to amend his complaint to add the § 727(a)(6)(A) claim

and determined that Debtor's discharge was denied under 

§ 727(a)(2)(B), (a)(3), (a)(4)(A) and (a)(6)(A). 

II. JURISDICTION

We conclude, as discussed below, the bankruptcy court had

jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(J). We have

jurisdiction under 28 U.S.C. § 158.

III. ISSUES

1. Did the bankruptcy court err in denying Debtor's discharge 

under § 727(a)(2)(B)? 

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2. Did the bankruptcy court err in denying Debtor's discharge 

under § 727(a)(4)(A)?

3. Did the bankruptcy court err in denying Debtor's discharge 

under § 727(a)(3)? 

4. Did the bankruptcy court err in denying Debtor's discharge 

under § 727(a)(6)(A)?

IV. STANDARDS OF REVIEW

In an action for denial of discharge, we review: (1) the

bankruptcy court's determinations of the historical facts for

clear error; (2) its selection of the applicable legal rules under

§ 727 de novo; and (3) its application of the facts to those rules

requiring the exercise of judgments about values animating the

rules de novo. Searles v. Riley (In re Searles), 317 B.R. 368,

373 (9th Cir. BAP 2004), aff'd, 212 F. App'x 589 (9th Cir. 2006). 

The bankruptcy court's determinations concerning the debtor's

intent are factual matters reviewed for clear error. Beauchamp v.

Hoose (In re Beauchamp), 236 B.R. 727, 729 (9th Cir. BAP 1999). 

Factual findings are clearly erroneous if they are illogical,

implausible or without support in the record. Retz v. Samson

(In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010). We give great

deference to the bankruptcy court's findings when they are based

on its determinations as to the credibility of witnesses. Id.

(noting that as the trier of fact, the bankruptcy court has "the

opportunity to note variations in demeanor and tone of voice that

bear so heavily on the listener's understanding of and belief in

what is said."). If two views of the evidence are possible, the

trial judge's choice between them cannot be clearly erroneous. 

Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573-75

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(1985); Ng v. Farmer (In re Ng), 477 B.R. 118, 132 (9th Cir. BAP

2012). 

V. DISCUSSION

A. The bankruptcy court had jurisdiction over the § 727 action.

As a preliminary matter, Debtor contends the bankruptcy court

lacked subject matter jurisdiction to determine the § 727 action. 

Trustee entirely fails to address this issue. We review de novo

whether the bankruptcy court had jurisdiction. Dunmore v. United

States, 358 F.3d 1107, 1111 (9th Cir. 2004). 

A timely filed notice of appeal divests a bankruptcy court of

jurisdiction "over those aspects of the case involved in the

appeal." Sherman v. SEC (In re Sherman), 491 F.3d 948, 967 (9th

Cir. 2007). See Griggs v. Provident Consumer Disc. Co., 459 U.S.

56, 58 (1982) (proper notice of appeal generally "confers

jurisdiction on the court of appeals and divests the district

court of its control over those aspects of the case involved in

the appeal"). The bankruptcy court retains jurisdiction over all

other matters in the case. The only caveat is that the court

"'may not alter or expand upon the judgment.'" In re Sherman,

491 F.3d at 967 (citation omitted). "This judge-made principle is

designed to promote judicial economy and prevent the confusion

that would result from two courts addressing the same issue." 

Marino v. Classic Auto Refinishing, Inc. (In re Marino), 234 B.R.

767, 769 (9th Cir. BAP 1999). 

Debtor contends the bankruptcy court relied upon its previous

decision in the LLC Action, where it determined that the assets of

the LLC and the Trust should be consolidated with Debtor's assets,

to determine in the § 727 action that Debtor failed to keep

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adequate financial records. He argues that because the

appropriateness of the bankruptcy court's decision to order

substantive consolidation is pending on appeal, the basis for its

decision respecting the state of Debtor's financial records in the

§ 727 action would be uncertain if reversed on appeal. As a

result, Debtor contends the bankruptcy court lacked jurisdiction

over this issue, which requires our reversal. 

Even if we agreed with Debtor, which we do not, the

bankruptcy court's findings respecting Debtor's financial records

go only to Trustee's claim under § 727(a)(3). Any such reversal

would not affect the judgment denying his discharge under 

§ 727(a)(2)(B) or (a)(4)(A) or (a)(6)(A). Further, contrary to

Debtor's assertion, the bankruptcy court was free to rely on

previous findings of fact it made in the LLC Action for the § 727

action, when the findings made in the latter case in no way

altered or expanded on the prior judgment currently on appeal. 

Accordingly, the bankruptcy court had jurisdiction over the § 727

action. 

B. Denial of discharge under § 727 generally

The party objecting to a debtor's discharge under § 727(a)

bears the burden of proving by a preponderance of the evidence

that the debtor's discharge should be denied. In re Retz,

606 F.3d at 1196. Courts are to "'construe § 727 liberally in

favor of debtors and strictly against parties objecting to

discharge.'" Id. (quoting Bernard v. Sheaffer (In re Bernard),

96 F.3d 1279, 1281 (9th Cir. 1996)).

////

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1. The bankruptcy court did not err in denying Debtor's

discharge under § 727(a)(2)(B). 

Section 727(a)(2)(B) provides that a debtor shall not be

granted a discharge if "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 . . . property of the estate,

after the date of the filing of the petition." Under § 727(a)(2),

a party objecting to a debtor’s discharge must prove the following

elements by a preponderance of the evidence: (1) disposition of

property, such as a transfer or concealment, and (2) a subjective

intent on the debtor’s part to hinder, delay or defraud a creditor

or the trustee through the act of disposing of or concealing the

property. In re Retz, 606 F.3d at 1200. This provision requires

actual, not constructive, intent. Devers v. Bank of Sheridan

(In re Devers), 759 F.2d 751, 753 (9th Cir. 1985). The intent of

a debtor in making a transfer or concealment of property is a

question of fact that “may be established by circumstantial

evidence, or by inferences drawn from a course of conduct." Id.

at 753-54; see also Adeeb v. Adeeb (In re Adeeb), 787 F.2d 1339,

1342 (9th Cir. 1986). The basis of intent is disjunctive and,

thus, a finding of intent to hinder or delay or defraud is

sufficient to deny discharge under § 727(a)(2). In re Retz,

606 F.3d at 1200 (emphasis added).

After a two-day trial, where the bankruptcy court heard

testimony from Debtor and received a substantial amount of

documentary evidence relating to his original and amended

schedules and SOFAs and the pre-existing state court litigation,

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the bankruptcy court determined that Debtor concealed property of

the estate with the intent to hinder or defraud creditors and

Trustee. Specifically, the bankruptcy court found that Debtor

initially failed to disclose, among other assets constituting

property of the estate, the one-third property interest, the 2008

Chevy truck, the 2008 Arctic Cat ATV, the mineral rights, and the

Lien Claims and counterclaims against creditors. These assets

were not disclosed until he filed his amended schedules on

August 7 and 8, 2013, nearly 18 months after he filed his

chapter 12 bankruptcy case, and only after Trustee had discovered

most of the items from independent inquiry. The court found that

the very nature and magnitude of the assets belied Debtor's

"facile" defense that they were simply overlooked or forgotten. 

Mem. of Decision (Feb. 12, 2015) at 25. 

In determining Debtor's actual intent, the bankruptcy court

"carefully evaluated Debtor's testimony," finding that his

"credibility was not strong" and that on important questions of

nondisclosure of significant assets, his "explanations were not

persuasive." Id. Debtor claimed to have poor memory on certain

subjects, yet on other occasions, he professed firm recall and

specific knowledge. When pressed by Trustee on cross-examination,

previous unconditional responses became equivocal. The court

further found that Debtor claimed to understand the importance of

signing a document under the penalty of perjury, yet failed on

"multiple accounts" to include assets on his schedules, knowing

that the purpose of the schedules is to provide an accurate list

of ownership in property. Id. Debtor's explanations as to why he

failed to disclose these assets were "insufficient." Id. at 26. 

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That the assets were later disclosed in amended schedules, after

Trustee's discovery, "provide[d] no absolute defense." Id. 

Debtor disputes generally the bankruptcy court's factual

findings, contending that the evidence did not support a claim

under § 727(a)(2)(B). Debtor contends that finding he

intentionally concealed the Lien Claims and counterclaims asserted

in the Lien Litigation was erroneous because creditors were aware

of these assets since that litigation was commenced after the

petition date; thus, no further notice was necessary. We disagree

with Debtor for a few reasons. 

Unlike the Lien Litigation, the Lease Litigation was

commenced just prior to Debtor's bankruptcy filing. Debtor was

aware of any counterclaims (which ultimately became the Lien

Claims) he had against Murphy Land at that time regarding his

asserted interest in the growing crops. He disclosed the Lease

Litigation in his SOFA, but failed to disclose his counterclaims

of which he was fully aware on the petition date, particularly

since Debtor is legally trained. Further, simply because

creditors may be aware of pending litigation claims does not

obviate a debtor's duty to disclose those claims on his schedules

and SOFA, or to amend those documents as needed for their

disclosure. In re Searles, 317 B.R. at 378 (every debtor has a

continuing duty to assure the accuracy and completeness of

schedules, which implies a duty to amend). 

Debtor contends the bankruptcy court completely disregarded

his unrefuted reliance upon legal counsel to list these assets. 

The bankruptcy court did not disregard it; its Memorandum of

Decision reflects that the court carefully considered all of the

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evidence. It simply was not persuaded by Debtor's contention,

noting that neither attorney Robinson nor his staff were called to

testify and finding that "given Debtor's intimate familiarity with

(and sole control over) the operations of the LLC and the Trust,

and because of his training as a lawyer, and in light of the whole

of his testimony, the attempted deflection [that Robinson was to

blame for any filing errors] was not persuasive. Mem. of Decision

(Feb. 12, 2015) at 6-7 n.14. In any event, the bankruptcy court

did accept Debtor's testimony, that he relied on Robinson's advice

that selling the 2007 GMC truck and camper was proper, to conclude

that Trustee had failed to establish the requisite intent for

their transfers postpetition under § 727(a)(2)(B). 

Debtor further contends that the finding he intentionally

concealed the 2008 Chevy truck, the 2008 Arctic Cat ATV and the

one-third property interest was contrary to the evidence. 

Specifically, Debtor points to the letter sent to Trustee by

Mushlitz, his parents' counsel. Debtor contends it was Mushlitz

who first made Trustee aware of the existence of these assets and

their inadvertent omission in the schedules. The Mushlitz letter

states that "You [Trustee] requested information relative to the

purchase of [the Elmore property and Debtor's 1/3 interest in

it]." This indicates Trustee discovered this omitted asset first. 

Trustee testified to this fact. Debtor also contends it was not

reasonable to speculate he had any motivation to conceal this

property interest because he never had any equity in it. It is

true that lack of equity can negate a debtor's wrongful intent

under § 727(a)(2). Baker v. Mereshian (In re Mereshian), 200 B.R.

342, 346 (9th Cir. BAP 1996). However, the court was not required

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to focus simply on each individual asset and the value thereof,

but could consider all of the facts and circumstances to determine

Debtor's fraudulent intent under § 727(a)(2)(B). Furthermore,

contrary to Debtor's contention, the record indicates the onethird property interest was worth $42,000 with no secured debt

against it. 

As for the omitted vehicles, the Mushlitz letter is not clear

as to who first discovered them, but in addition to Debtor's

testimony that he and Mushlitz did, Trustee testified that he did,

and that he made demand on Debtor to produce the titles, which

Mushlitz enclosed with the responding letter. Ultimately, the

bankruptcy court had to choose between the contradictory facts

presented. Unfortunately for Debtor, the court did not choose his

version of them. We cannot say, on this record, that the court's

interpretation of that evidence was not plausible and, thus,

clearly erroneous. Anderson, 470 U.S. at 574. This is

particularly true given that the findings the court made for

Trustee's claim under § 727(a)(2)(B) were partially based on

Debtor's credibility. Id. at 576.

Accordingly, we do not discern any clear error with the

bankruptcy court's determination that "[b]ased on the existence of

pre-petition litigation, the nature of the disclosure in Debtor's

initial schedules, Debtor's belated amendments to those schedules

to disclose significant assets, and his insufficient explanations

regarding the same," Debtor concealed these assets with the intent

to hinder or defraud creditors of the estate and Trustee. Mem. of

Decision (Feb. 12, 2015) at 26. Thus, the court did not err in

denying Debtor's discharge under § 727(a)(2)(B).

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2. The bankruptcy court did not err in denying Debtor's

discharge under § 727(a)(4)(A). 

Section 727(a)(4)(A) states: "The court shall grant the

debtor a discharge, unless . . . the debtor knowingly and

fraudulently, in or in connection with the case made a false oath

or account." "The fundamental purpose of § 727(a)(4)(A) is to

insure that the trustee and creditors have accurate information

without having to conduct costly investigations.” Fogal Legware

of Switz., Inc. v. Wills (In re Wills), 243 B.R. 58, 63 (9th Cir.

BAP 1999) (citing Aubrey v. Thomas (In re Aubrey), 111 B.R. 268,

274 (9th Cir. BAP 1990)). 

To obtain a denial of discharge under § 727(a)(4)(A), the

objector 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 Retz, 606 F.3d at 1197.

a. False oath 

"A false statement or an omission in the debtor's bankruptcy

schedules or statement of financial affairs can constitute a false

oath." Khalil v. Developers Sur. & Indem. Co. (In re Khalil),

379 B.R. 163, 172 (9th Cir. BAP 2007); see also In re Wills,

243 B.R. at 62.

The bankruptcy court began by noting that the "concealment"

of assets addressed under § 727(a)(2)(B) was largely relevant for

this claim as well. The court found the evidence showed that

Debtor omitted numerous items from his originally filed bankruptcy

schedules — i.e., the Lien Claims; the counterclaims against

Murphy Land later asserted in litigation; his interests in various

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business entities; the claims to proceeds from a crop insurance

policy; the one-third property interest; the 2008 Chevy truck and

the 2008 Arctic Cat ATV; and the mineral rights. While Debtor

eventually disclosed some of these items on amended schedules,

those disclosures were only made after the omissions were

discovered by creditors or Trustee. 

The bankruptcy court rejected Debtor's reliance-on-counsel

defense as not asserted in good faith. The court reasoned that

Robinson had no apparent reason to know about the omission of

information; all information originated from Debtor. In addition,

Debtor had the opportunity to see how his counsel characterized

the disclosed assets and information. He was intimately involved

with the farming and the LLC's operations. If Robinson or his

staff erred in preparing the documents, Debtor was required to see

that those mistakes were corrected before signing and filing. 

Moreover, Debtor had signed the several declarations, verifying

under the penalty of perjury that the statements were true and

correct to the best of his knowledge and belief, but "[c]learly

they were not true and correct." Mem. of Decision (Feb. 12, 2015)

at 28. The court found Debtor's argument that he failed to read

the schedules and SOFAs well or thoroughly, or merely forgot or

overlooked assets, "lack[ed] credibility and persuasiveness." Id.

at 29. As a result, the court found that Debtor's statements,

made under oath, omitted assets and therefore constituted a false

oath under § 727(a)(4)(A). 

Debtor does not appear to contest the bankruptcy court's

false oath finding, other than to suggest that his bookkeeper Epis

was responsible for providing Debtor's financial information to

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Robinson to complete the original schedules and SOFA and clearly

made mistakes in preparing them. While Epis may have assisted

Debtor in gathering his financial records for the purpose of

filing for bankruptcy, as the bankruptcy court found, Debtor was

ultimately responsible for the accuracy of the information

presented in his schedules and SOFA, not Epis, Robinson or anyone

else.

The evidence in this case established that Debtor made a

false oath. Therefore, the bankruptcy court did not clearly err

in finding that Debtor made a false oath in his original schedules

and SOFA and his amended schedules and SOFA. 

b. Materiality 

A fact is material "'if it bears a relationship to the

debtor's business transactions or estate, or concerns the

discovery of assets, business dealings, or the existence and

disposition of the debtor's property.'" In re Khalil, 379 B.R. at

173 (quoting In re Wills, 243 B.R. at 62); see also In re Retz,

606 F.3d at 1198. An omission or misstatement that "detrimentally

affects administration of the estate" is material. In re Wills,

243 B.R. at 63 (citing 6 Lawrence P. King et al., Collier on

Bankruptcy ¶ 727.04[1][b] (15th ed. rev. 1998)).

The bankruptcy court found that Debtor's omitted assets were

material. Specifically, the court found that several of the

assets at issue, when finally disclosed in amended schedules,

showed potential value for creditors. The one-third property

interest alone was listed on the amended Schedule A as worth

$42,000 with no secured debt against it. In addition, the various

alleged claims and counterclaims against creditors were relevant

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and material to the bankruptcy process and Trustee's investigation

and administration independent of Debtor's suggested values.

Certainly, the omitted assets bore a relationship to Debtor's

business transactions and estate and concerned the discovery of

assets and Debtor's business dealings. The only argument Debtor

makes here is that the bankruptcy court failed to address whether

the two mineral rights were of material value. Debtor contends

these rights have no market value and, thus, were not material

assets of the estate. As the bankruptcy court noted, value and

equity are not required. The fact that this undisclosed asset may

have lacked value, which contradicts the record before the

bankruptcy court at the time, is of no consequence for purposes of

§ 727(a)(4)(A). An omission may be material even if it does not

cause direct financial prejudice to creditors. In re Wills,

243 B.R. at 63. And a lack of realizable value for creditors

certainly does not negate a debtor's duty of full and candid

disclosure of his financial condition. Palmer v. Downey

(In re Downey), 242 B.R. 5, 17 (Bankr. D. Idaho 1999). Debtor was

obligated to disclose all assets in which he held an interest,

valuable or not. 

The evidence in this case established that Debtor's false

oaths related to material facts. We perceive no clear error with

the bankruptcy court's finding of materiality.

c. Knowingly made and fraudulent intent

A debtor "'acts knowingly if he or she acts deliberately and

consciously.'" In re Khalil, 379 B.R. at 173 (quoting Roberts v.

Erhard (In re Roberts), 331 B.R. 876, 883 (9th Cir. BAP 2005));

see also In re Retz, 606 F.3d at 1198. A debtor acts with

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fraudulent intent when: (1) the debtor makes a misrepresentation;

(2) that at the time he or she knew was false; and (3) with the

intention and purpose of deceiving creditors. Id. at 1198-99. 

Fraudulent intent is typically proven by circumstantial evidence

or by inferences drawn from the debtor's conduct. Id. at 1199. 

Circumstantial evidence may include showing a reckless

indifference or disregard for the truth. In re Wills, 243 B.R. at

64 (intent may be established by a pattern of falsity, debtor's

reckless indifference, or disregard of the truth).

The bankruptcy court found that, after carefully considering

Debtor's testimony, Debtor knew his omissions were false and that

he acted with the intent and purpose of deceiving creditors and

Trustee. The court gave "little weight" to Debtor's testimony

insofar as he attempted to lay the blame for errors and omissions

on his counsel or others. Mem. of Decision (Feb. 12, 2015) at 31. 

The court further found Debtor's credibility "tainted" not only

because some of his testimony was impeached by Trustee, "but by

the equivocations and qualifications Debtor attempted to overlay

on prior testimony once contrary information was highlighted." 

Id. The court found that Debtor knew of the assets and failed to

disclose them, and in fact "deliberately and consciously" signed

multiple sworn schedules without disclosing the assets when he had

ample opportunity throughout the chapter 12 process to do so. Id. 

The court considered, but rejected, Debtor's claim that he was

confused or uncertain, or that he simply made mistakes based on

lack of care, thought or time. The court was not persuaded by

Debtor's "excuses" given the nature of the errors and omissions

and their importance to the attempted reorganization. Id. 

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Debtor asserts essentially the same contentions on appeal as

he did before the bankruptcy court: that he had no intent to

hinder, delay or defraud creditors, but only to pay them with crop

proceeds; that while mistakes and oversights were made in the

schedules and SOFAs, none were made knowingly or with a fraudulent

purpose; that Trustee presented no evidence from the chapter 12

trustee Hymas that Debtor committed any malfeasance in connection

with his chapter 12 case; that once the omissions in the schedules

were realized, Debtor worked diligently with his parent’s counsel

Mushlitz and his second bankruptcy attorney Gadda to correct any

errors; that Debtor's bad intent was negated because he disclosed

two real properties he owned free and clear of any debt; that he

had forgotten about his interest in the mineral rights because his

parents owned the parcels and paid the taxes on them; and that the

overall circumstances illustrate that at no point during his

bankruptcy case did he ever have the intent to defraud creditors.

It is clear from the record the bankruptcy court considered

all of Debtor's testimony regarding his intent, as well as his

conduct and the surrounding circumstances. The court simply did

not believe Debtor. Even if we were to conclude differently as

the finder of fact, we cannot say the court's choice between the

two views of the evidence here was clearly erroneous. Anderson,

470 U.S. at 574. This is particularly true because of the great

deference we must give the bankruptcy court's findings based on

its assessment of Debtor's credibility at trial. In re Retz,

606 F.3d at 1196. At a minimum, the record supports a finding

that Debtor's reckless indifference to or disregard for the truth

of his schedules and SOFAs provided sufficient circumstantial

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evidence to prove fraudulent intent for purposes of

§ 727(a)(4)(A). In re Wills, 243 B.R. at 64. Thus, we see no

clear error with the bankruptcy court's finding that Debtor's

false oath was made knowingly and fraudulently.

The bankruptcy court did not err in finding that Debtor made

a false omission in his schedules and SOFAs, that his false

omission related to material facts, and that he omitted the

information knowingly and fraudulently. Therefore, the bankruptcy

court did not err in denying his discharge under § 727(a)(4)(A).

Because we conclude that the bankruptcy court did not err in

denying Debtor's discharge under § 727(a)(2)(B) and (a)(4)(A), we

need not determine whether it erred in denying his discharge under

§ 727(a)(3) and (a)(6)(A).

VI. CONCLUSION

For the reasons stated above, we AFFIRM.

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