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FILED

AUG 13 2014

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NOT FOR PUBLICATION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. CC-13-1578-BlPaKu

)

KAREN FORMAN MCALLISTER, ) Bk. No. 1:12-BK-20052-AA

)

Debtor. ) Adv. No. 1:13-AP-01045-AA

______________________________)

)

KAREN FORMAN MCALLISTER, )

)

Appellant, )

)

v. ) MEMORANDUM*

)

KRENGEL SPAMER & VANCE, LLC, )

)

Appellee. )

______________________________)

Argued on June 26, 2014, at Pasadena, California

Submitted on July 18, 2014 

Filed - August 13, 2014

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Alan M. Ahart, Bankruptcy Judge, Presiding

 

Appearances: Gary E. Klausner of Levene, Neale, Bender, Yoo &

Brill LLP argued for appellant Karen Forman

McAllister; J’aime Williams argued for appellee

Krengel Spamer & Vance, LLC.

 

Before: BLUMENSTIEL,** PAPPAS, and KURTZ, Bankruptcy Judges.

* This disposition is not appropriate for publication. 

Although it may be cited for whatever persuasive value it may

have (see Fed. R. App. P. 32.1), it has no precedential value.

See 9th Cir. BAP Rule 8013-1.

** The Honorable Hannah L. Blumenstiel, Bankruptcy Judge for

the Northern District of California, sitting by designation.
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Appellant-Debtor Karen F. McAllister (“McAllister”) appeals

a summary judgment denying her discharge under sections

727(a)(2)(A)1 and 727(a)(3) based upon claims brought by

Appellee-Creditor Krengel, Spamer & Vance, LLC (“Krengel”). Upon

de novo review, we conclude that Krengel failed to meet its

burden of establishing a prima facie case under

section 727(a)(3), and that the record gives rise to a genuine

issue of material fact as to the requisite intent under

section 727(a)(2). Accordingly, we REVERSE the summary judgment

and REMAND for further proceedings.

I. FACTS AND PROCEDURAL BACKGROUND

A. Pre-petition events

McAllister is the sole shareholder of a California

corporation, KFM Management, Inc. (“KFM”), which was incorporated

in or about July 2010. KFM’s principal place of business is Los

Angeles County, California. Through KFM, McAllister works as a

talent manager in cooperation with talent agencies or agents,

providing services akin to career guidance to actors. In

exchange for its services, KFM receives ten percent of the

client’s gross income.

KFM does not enter into written contracts with its

individual clients; all agreements are verbal. KFM also works

with multiple talent agencies, and may enter into an oral or

written contract for KFM’s management services depending on the

1 Unless otherwise indicated, all chapter, section and rule

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1330, and

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

The Federal Rules of Civil Procedure are referred to as Civil

Rules.

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agency. 

Krengel is a California limited liability company located in

Los Angeles, California, doing business as Domain. Krengel

employed McAllister from approximately January 2008 to July 2010. 

In June 2011, McAllister filed suit against Krengel in the

Los Angeles County Superior Court, case number BC462838 (the

“State Court Action”). McAllister filed the State Court Action

individually, and did not include KFM as a co-plaintiff,

apparently because McAllister did not form KFM until after her

causes of action arose. The State Court Action alleged: 

nonpayment of wages, violations of the California Labor Code,

breach of contract, intentional interference with contractual

relations, intentional interference with prospective economic

advantage, negligent interference with prospective economic

advantage, breach of implied covenant of good faith and fair

dealing, violation of the California Business and Professions

Code, and quantum meruit. 

The State Court Action went to trial in May 2012. On

November 12, 2012, the state court entered an Amended Judgment on

Special Verdict (“Judgment”). The state court entered the

Judgment in favor of McAllister and against Krengel on two causes

of action in the complaint, awarding McAllister damages of

$1,808.78. However, the state court also found in favor of

Krengel and against McAllister on four causes of action,

determined Krengel to be the prevailing party, and awarded

Krengel attorneys’ fees and costs in the amount of $276,976.35

plus interest at 10% per annum from June 7, 2012.

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B. McAllister’s bankruptcy filing

On November 14, 2012, two days after entry of the Judgment,

McAllister filed a voluntary bankruptcy petition for relief under

chapter 7 of the Bankruptcy Code. Along with her petition,

McAllister filed schedules of assets and liabilities and a

Statement of Financial Affairs (“SOFA”). In Schedule B —

Personal Property, McAllister scheduled the following assets:

Description Stated Value

• Personal Jewelry $1,000

• 100% interest in KFM $2,500;2

• 2001 Mercedes E320 $7,500

• 2003 Toyota Sequoia $5,000;3

On January 4, 2014, McAllister filed an amended Schedule B

which increased the value of her personal jewelry to $8,000 and

increased the value of KFM to $12,500. 

McAllister disclosed $5,000 in monthly income from the

operation of KFM in Schedule I — Current Income of Individual

Debtor(s). In Schedule J — Current Expenditures of Individual

Debtor(s), McAllister listed $3,086 at line 16 for “regular

expenses from operation of business, profession, or farm.” In

accordance with the instructions pertaining to line 16,

2 McAllister noted in Schedule B that KFM’s 20 clients do

not have written contracts with KFM and can leave at any time;

KFM’s value is based on McAllister’s ability and reputation, and

has no liquidation value other than the bank account balance.

3 McAllister noted in Schedule B that "[p]roperty was

acquired by non-filing spouse prior to the couple's marriage in

2005 and would constitute his separate property" and identified

the Toyota as community property.

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McAllister attached a detailed statement itemizing KFM’s monthly

business expenses, which include $1,900 for “Legal.” 

In Schedule F — Creditors Holding Unsecured Nonpriority

Claims, McAllister listed a debt owed to Krengel, incurred in

2009 in the amount of $276,976.35, which she identified as

“disputed.” McAllister also identified a debt owed to

“Taylor/Anderson” as a personal loan in the amount of $8,000.

McAllister signed a Declaration Concerning Debtor’s

Schedules, affirming under penalty of perjury that she reviewed

the schedules and that they were true and correct to the best of

her knowledge, information, and belief. 

McAllister’s SOFA included the following disclosures:

• $56,997 gross income from KFM year to date in 2012 (net

income of approximately $23,000).

• $16,469 gross income from KFM in 2011 (net loss of $14,472).

• $31,000 gross income from talent management (unincorporated)

in 2010.

• No payments exceeding $600 on loans, installment purchases

of goods or services, and other debts to any creditor within

90 days immediately preceding the commencement of the case.

• No payments within one year immediately preceding the

commencement of the case to or for the benefit of creditors

who are or were insiders.

• The 2011 short sale of a prior residence in Tarzana,

California to an unrelated third party.

McAllister signed her SOFA, declaring under penalty of

perjury that she had read the responses therein and that they

were true and correct.

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The meeting of creditors took place on December 20, 2012.

McAllister testified at the meeting that the bankruptcy schedules

were true to the best of her recollection. 

C. Krengel’s complaint and motion for summary judgment

On February 19, 2013, Krengel filed a complaint seeking

denial of McAllister’s discharge pursuant to sections 727(a)(2),

(a)(3), (a)(4), (a)(5), and (a)(7) (“Complaint”). In the

Complaint and the subsequent Motion for Summary Judgment (the

“Motion”), Krengel contends that McAllister purposefully

misrepresented her assets, liabilities, and other financial

information in her bankruptcy schedules and SOFA, and that these

alleged misrepresentations, along with other acts or omissions,

are evidence of wrongful intent. Krengel questioned McAllister

about each of these issues during a Rule 2004 examination of

McAllister in January 2013. Krengel’s specific allegations,

along with McAllister’s explanations as given during her

Rule 2004 examination or her declaration in opposition to the

Motion, are set forth below.

1. Prior bankruptcies

Krengel asserts and McAllister readily concedes that she

and/or her non-filing spouse, Paul McAllister, have filed a total

of four bankruptcy cases. Although Krengel sets forth the facts

of the prior bankruptcies in the Motion, and includes them in the

findings of fact, Krengel does not assert anywhere in the Motion

or in its reply that the prior bankruptcies bear upon any of the

causes of action. We address this issue here only because our

review is de novo.

Paul McAllister filed bankruptcy petitions in 1995 and 1996.

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The couple filed a joint petition under chapter 13 in 2011, which

was dismissed one month later. McAllister filed the instant case

on November 14, 2012.

McAllister stated during her Rule 2004 examination that her

husband filed two bankruptcies before they knew each other and

that she knew nothing about those cases. McAllister also

explained why she and her husband filed the chapter 13 case in

2011: their home was in foreclosure and an attorney advised them

that by filing bankruptcy, they could buy some time to find a new

place to live. On this advice, they filed a joint petition,

found a home to rent, and allowed their case to be dismissed.

2. Value of wedding ring

Krengel asserts and McAllister concedes that she did not

include the value of her wedding ring in her original Schedule B.

At the meeting of creditors, Krengel asked whether her

reference to “Personal Jewelry” in Schedule B included her

wedding ring, and McAllister responded that it probably did not. 

McAllister agreed to amend Schedule B. After the meeting of

creditors, McAllister had her wedding ring appraised and

determined it had a value of $8,000. She then amended Schedule B

to increase the value of her jewelry from $1,000 to $8,000.

 McAllister does not explain why she did not include the

value of her wedding ring in the original Schedule B, but notes

that the Trustee did not object to her claim of exemption with

respect to the ring or pursue recovery of that asset. 

3. Scheduling of debt owed to Krengel

Krengel asserts that McAllister “falsely stated” in

Schedule F that she incurred the Krengel claim in 2009. Although

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McAllister identified the Krengel claim as “disputed,” she admits

that the debt is based on a final judgment, as detailed below. 

McAllister affirms in her declaration that she identified

the debt as “disputed” on advice of counsel. Her state court

attorney advised her that the state court might have erred in

determining that Krengel was the prevailing party entitled to

attorneys’ fees and costs because she had prevailed on two causes

of action; however, she acknowledges in her declaration that the

deadline to appeal the state court judgment had passed by the

time she filed her bankruptcy petition. During the Rule 2004

examination, Ms. Cohen, Krengel’s counsel, questioned McAllister

about her characterization of the Krengel debt as “disputed” and

the following exchange took place:

Q: Okay. So I’m trying to figure out why you are

saying it is a disputed claim when they actually got a

judgment in that amount.

A: They did, but I don’t have anywhere near that money

to pay them off. That’s why I’m disputing it.

Q: Well, do you have the money to pay off Alan Meyers?

A: No.

Q: Okay. But you didn’t list him as disputed?

A: Oh, I don’t know what the difference between

disputed or – it’s marked or not marked.

Mr. Hagen [McAllister’s Counsel]: Does it really

matter?

Q: I’m just trying to figure out if there’s any reason

to dispute a liquidated debt that’s reduced to a judgment. 

I mean, you might not like it but – 

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A: Well, it’s a huge number. You know, we’re not

talking about $4,000. Alan Meyers, I owe $4,000. This is

almost $300,000. 

Q: So you dispute it because it’s so big?

A: Yes.

Q: Okay. But you do acknowledge that they have a

judgment against you for that amount?

A: I am very aware of that, yes. 

Q: Okay. So is it fair to say that you may not like

the fact that you owe the money, but you do acknowledge that

there is really no basis to dispute it at this time;

correct?

A: I don’t really understand the question. I mean,

that will go into a whole personal reason as to why I don’t

feel like I should be responsible for it.

Mr. Hagen: To answer your question, it is a

judgment.

A: It’s a judgment. It is what it is.

2004 Exam Transcript pp. 37-38. 

Ms. Cohen also asked why McAllister indicated in Schedule F

that she incurred the Krengel debt in 2009:

Q: Why did you state that was incurred in 2009, if you

remember?

A: I don’t. I mean, if the judgment was final — which

it was just recently final in September of 2012, I don’t

know why it would say 2009. 

Mr. Hagen: Technically, 2008, that’s when she

left the employment and the dispute arose.

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Q: Well, actually, let’s go briefly into that issue. 

You left Domain in 2008; is that right?

A: No. No. No. I started, I believe, in 2008. I

left Domain in July 2010.

Q: Okay, so there is no tie-in into the 2009 date is

there?

A: No.

Q: Okay.

Mr. Hagen: I’m reading the Complaint. The

Complaint says beginning of January 2008 and continued

employment to July 2008.

A: That’s a mistake in there.

Mr. Hagen: I’m just reading the Complaint.

2004 Exam Transcript p. 46. 

McAllister explained that this misstatement resulted from

carelessness and not from an intent to mislead any party in

interest, to hide any information, or to compromise the rights of

creditors. McAllister further stated that she viewed the

misstatement as benign and of no consequence to the

administration of the bankruptcy estate. 

4. Scheduling of debt owed to “Taylor/Anderson”

Taylor/Anderson represented McAllister in the State Court

Action on a contingency basis. McAllister incorrectly scheduled

an $8,000 debt owed to “Taylor/Anderson” as a personal loan when

it was actually a debt owed for legal costs. 

At the Rule 2004 examination, Ms. Cohen questioned

McAllister about the Taylor/Anderson debt:

Q: . . . [I]f you go to Schedule F . . . it shows that

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you owe them $8,000 for a personal loan . . . Can you

explain to me the relationship between this $8,000 scheduled

amount, the $11,000 or so that they charged, and the amount

that you paid to them?

A: If I understand the question, I had made some

payments. This is what I owe them based on the $11,000

that’s on the form you have, plus an additional – I paid 4

or 5 after for the trial cost. I remember the total being

about $19,000 total in what I needed to pay them. So the

$8,000 is the remainder that is due. 

Q: Okay. That was just a misstatement. Where it says

“personal amount,” it was incorrect?

A: Yeah, that’s not correct. It was legal expenses.

2004 Exam Transcript pp. 103-104. 

McAllister attested that this misstatement also resulted

from carelessness rather than an intent to mislead any party in

interest, to hide any information, or to compromise the rights of

creditors. McAllister stated that she viewed the misstatement as

benign and of no consequence to the administration of the

bankruptcy estate. 

5. Non-disclosure of transfer of diamond necklace

McAllister’s SOFA failed to disclose that, in 2012, she gave

her brother a diamond necklace valued at $7,000, allegedly in

satisfaction of a loan. Instead, the SOFA indicated that

McAllister did not transfer any assets or make any payments to or

for the benefit of creditors who were insiders in the year

preceding the petition date. Krengel also asserts that

McAllister has no evidence of a loan from her brother. 

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In her defense, McAllister explained that she did not

understand the meaning of “insider” when she checked “none” in

response to SOFA question 3c, which calls for disclosures to

insiders. She readily disclosed the transfer when asked about it

at the meeting of creditors. 

As to the loan itself, McAllister testified at the Rule 2004

examination that she borrowed $7,000 from her brother in late

2011. They did not enter into a written agreement. She gave the

diamond necklace to him as payment for that loan in July 2012,

following trial of the State Court Action. She estimated its

value at $7,000. About ten years prior, it had been insured for

$10,000.

6. Loans or gifts from parents

Krengel asserts that McAllister’s SOFA does not disclose

approximately $60,000 given to McAllister by her mother between

2010 and mid-2012. Krengel further asserts that McAllister has

inconsistently claimed that the $60,000 was a loan (constituting

an undisclosed liability), a forgiven debt (constituting

undisclosed income), or a gift (constituting an undisclosed

gift). Finally, Krengel asserts that McAllister has no records

of an alleged loan from her mother. 

During the Rule 2004 examination, McAllister admitted that

her mother loaned her $50,000 or $60,000 between 2010 and

mid-2012, but explained that, after she “lost the case,” her

mother told her the $60,000 was a gift that would be deducted

from McAllister’s future inheritance.

When Ms. Cohen asked McAllister if she intended to report

the debt forgiveness as income, the following exchange took

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place:

Q: Are you intending to report that forgiveness income

for that?

A: I don’t know what that is.

Q: Well, I guess I can tell you. You can give me your

best answer that you can. If a debt is forgiven, then that

creates a taxable event because you no longer have to pay it

back. So the question is whether you’ll be scheduling in

your tax return the fact that this debt was forgiven, as an

income event, if you know?

A: I don’t know. We haven’t met with our accountant,

so I don’t know.

2004 Exam Transcript p. 80.

In her declaration, McAllister attested that she did not

disclose the funds received from her mother in her Schedule F or

SOFA because her mother told her she did not need to repay them. 

7. Automobiles

McAllister listed on her amended Schedule B a 2001 Mercedes

Benz automobile and a 2003 Toyota Sequoia automobile. Krengel

asserts that McAllister misrepresented information about the

automobiles in Schedule B.

During the Rule 2004 examination, McAllister explained that

her “in-laws” bought the 2001 Mercedes for her for $10,000 in

2011. McAllister valued the Mercedes at $7,500 based on an

estimate she obtained from Carmax. Krengel contends that this

testimony is inconsistent with her testimony at a deposition in

the State Court Action: that she bought a 2002 Mercedes Benz for

$12,000 in 2010. 

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As evidence of this alleged inconsistency, Krengel offers

the first declaration of Joe Vance, which attests to statements

McAllister allegedly made at a deposition taken in the State

Court Action.4 Krengel introduced the 280-page deposition

transcript (the “Deposition Transcript”) as an exhibit to the

second Joe Vance declaration. Mr. Vance, however, may not have

been present at the deposition, as the Deposition Transcript

notes the appearance of a “John Vance,” but not of a “Joe Vance.”

In addition, Krengel never provided a citation to the location of

McAllister’s allegedly inconsistent statement within the

Deposition Transcript, and this Panel could not locate one.5

McAllister testified that the Toyota Sequoia is her

husband’s car, that he bought it in 2003 before they were

married, and that she has no idea how much he paid for it. The

Toyota was not fully paid off when McAllister and her husband

married, and the remaining car payments were made with community

property. Amended Schedule B identifies the Toyota as both

community property and McAllister’s husband’s separate property. 

McAllister swears that the characterization of the Toyota as

constituting her husband’s separate property was not the result

of her intention to mislead any party in interest, to hide any

information, or to otherwise impede the administration of the

4 The first Vance declaration was filed in support of the

Motion. The second Vance declaration was filed in support of

Krengel’s reply.

5 Tevis v. Wilke, Fleury, Hoffelt, Gould & Birney, LLP

(In re Tevis), 347 B.R. 679, 686 (9th Cir. BAP 2006) (appellate

courts are not required to search an entire record, unaided, for

error).

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estate.

8. Disclosure of foreclosed property

McAllister does not dispute that she incorrectly reported on

her SOFA a short sale of her prior residence when in fact she

lost the property to foreclosure. 

The following exchange took place between Ms. Cohen,

McAllister, and Mr. Hagen during McAllister’s Rule 2004

examination:

Q: Now, in your statement of financial affairs . . .

It indicates that the Monard Place property – that’s where

you used to live; right?

A: Yes.

Q: It says that it was a short sale. But was there a

short sale or [a] foreclos[ure]?

A: No, it was foreclosed on.

Mr. Hagen: That was my mistake.

2004 Exam Transcript p. 98

In her declaration, McAllister stated: “the misstatement

regarding the nature of the sale is embedded in our attempt to

effect a short sale following receipt of the default notice. 

These attempts to conclude a short sale proved futile, and . . .

the property was ultimately lost by way of the foreclosure

process.” McAllister Decl. ¶ 31. McAllister further stated,

“[m]y confusion as to the means by how our home ‘was lost’ was

not the result of my intention to mislead any party [in]

interest, to hide any information or to otherwise act in a manner

that would compromise the rights of creditors.” Id.

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9. Value of KFM

Between her original and amended Schedule B, McAllister

adjusted the value of her 100% interest in KFM from $2,500 to

$12,500. Krengel asserts that the conflicting valuations of her

company are evidence of McAllister’s wrongful intent. At

McAllister’s Rule 2004 examination, Ms. Cohen asked why she

changed the value of KFM:

A: I’m not sure why that was changed, unless we were

anticipating that a client is going to be paying me on a

job, so — which we didn’t know when we originally filed. 

That number might have gone up a little bit.

Q: What customer made you change the valuation?

A: Well, I no longer represent this client. Actually,

your client represents her. Her name is Vivian Bang, and I

put her on a series. And I know the show has been picked

up, so she should be paying me even though I don’t represent

her anymore. But I’m not sure if she was legally picked up

to be a part of the show. So that would increase it . . . .

Q: Approximately when did you find that out?

A: The end of the year or maybe just after the first

of the year.

Q: And that was the basis of your changing the

valuation of the company?

A: I believe so.

Q: Okay. Was it a guesstimate? I mean, how do you — 

A: Yeah, it’s a guesstimate. 

2004 Exam Transcript pp. 54-56. 

Consistent with this testimony, McAllister stated in her

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declaration that she amended Schedule B to increase the

liquidation value of KFM to $12,500 “based upon possible

additional revenue from a client arising from her being cast in

an upcoming television series.” McAllister Decl. ¶ 15.

10. KFM income and expenses included in Schedules I and J

McAllister included $5,000 per month business income in

Schedule I and $3,086 per month business expenses in Schedule J. 

The attachment to Schedule J indicates that these business

expenses include “gifts and entertainment for clients,” “office

expenses,” “corporate taxes,” and “legal fees.” KFM, however, is

a separate corporate entity. The $1,900 monthly legal fees

expense represents McAllister’s personal legal fees, which KFM is

no longer paying. Krengel asserts that McAllister wrongfully

inflated her personal expenses by including KFM business

expenses.

McAllister testified that she (through KFM) is no longer

paying $1,900 per month in legal fees and that the last such

payment took place in October or November 2012. She stated that

she included the legal fees as an expense because she had paid it

throughout most of the year and, in preparing for her bankruptcy

filing, her counsel asked her for an estimate of her year-to-date

expenses.

In her declaration, McAllister confirmed that she included

KFM’s monthly business expenses in Schedule J upon the advice of

her counsel, who told her that although the information is not

required, many trustees request it. McAllister further stated

that she did not intend to mislead any party in interest, to hide

any information, or otherwise impede the administration of the

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estate. 

11. Payments to creditors within 90 days of petition

McAllister’s SOFA indicates that she made no payments to

creditors in the 90 days preceding the petition date,

November 14, 2012. Krengel points out that McAllister stated

during her Rule 2004 examination that KFM stopped making payments

on her behalf for legal fees in October or November 2012. 

Krengel contends that McAllister should have disclosed KFM’s

payment of her legal bills in the SOFA.

McAllister offered the following explanation during her

Rule 2004 examination:

Q: And you didn’t list the payments to D2 – Taylor

Anderson or D2 in your statement of affairs because that was

paid by the corporation; is that right?

A: I believe so.

2004 Exam Transcript p. 42. 

Q: [O]n your statement of affairs it says . . . “list

each payment or other transfer to any creditor made within

90 days immediately preceding the commencement of the case”

. . . . And you put “none.” Is that because you didn’t pay

anyone within the 90 days or because you thought since KFM

paid it, you didn’t need to list it? 

A: I don’t think I paid anybody three months before I

filed bankruptcy.

2004 Exam Transcript pp. 115—16.

There is no other evidence in the record concerning payments

to creditors within 90 days pre-petition and no evidence that

McAllister made any such payments.

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12. KFM’s payment of McAllister’s personal legal fees

Krengel points out that McAllister’s schedules and SOFA do

not indicate any debt owed to KFM, nor any gifts from KFM, on

account of its payment of her legal fees. Krengel asserts that

McAllister should have accounted for Krengel’s payment of her

legal fees as either debt or income. McAllister, however,

disclosed $5,000 monthly income from her business on Schedule I.

When asked why KFM paid her legal fees as opposed to her

paying them personally, McAllister responded: “[B]ecause I

couldn’t pay anybody out of my account with my husband, because

we didn’t have — we were using that money to live on. So his

salary is based on every expense we were paying. So any money

that I had coming into the KFM was money I was putting towards

the lawsuit. So I just took the money out of there.” 2004 Exam

Transcript pp. 114-15; 118. Ms. Cohen asked if KFM’s books

reflected the payment of legal fees by KFM as McAllister’s

income, and McAllister responded affirmatively. 

With respect to how KFM’s payment of the legal fees were

reported on KFM’s corporate and McAllister’s personal tax

returns, McAllister stated, “I’m not sure how my accountant

listed things. I know we put it on corporation taxes, what I had

made, but he knew that I spent all the money in legal fees. So I

don’t know how he listed it.” 2004 Exam Transcript p. 119. 

While testifying concerning KFM’s 2011 corporate tax return,

McAllister stated, “If I am looking at it correctly, it says

$16,469 was my income. So that would have been my income. And

I’m sure all of that went to my legal expenses because they were

more than that.” 2004 Exam Transcript pp. 119-120. She further

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stated, “My accountant didn’t think that was a problem that I –

when I told him that I was paying right out of my KFM account, he

said that was fine.” Id.

13. Non-disclosure of executory contracts on Schedule G

McAllister did not schedule KFM’s executory contracts on

Schedule G. Krengel asserts that McAllister should have

disclosed KFM’s contracts with clients and talent agencies.

During her Rule 2004 examination, McAllister testified that

KFM has numerous ongoing executory contracts with clients at

various talent agencies. Consistent with her prior testimony,

McAllister declared that she is not party to any executory

contract or unexpired lease; the contracts she described during

the Rule 2004 examination are between KFM and the clients. 

14. Books and records

Krengel asserts that McAllister failed to keep or preserve

any recorded information, including books, documents, records,

and papers, regarding (1) loans or gifts from her mother and

brother, and (2) transactions between herself and KFM. Krengel

contends the alleged failure to maintain records warrants relief

under section 727(a)(3). 

During her Rule 2004 examination, McAllister testified about

her personal and corporate tax returns. She also discussed the

contracts between KFM and its clients, KFM’s lease, and that she

kept the books for KFM. And she discussed the lack of

documentation of the alleged loan from her brother. At no point

during the Rule 2004 examination did Krengel’s attorney question

McAllister about her personal record-keeping practices, or those

of KFM. Likewise, McAllister’s record-keeping practices are

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never discussed in the Deposition Transcript, or any of the

declarations supporting Krengel’s motion for summary judgment.

D. Summary judgment proceedings

Krengel filed the Motion on September 25, 2014. Evidence

submitted by Krengel included the declaration of Joe Vance, who

is a principal of Krengel; the bankruptcy petition, schedules,

and SOFA; and the transcript of the Rule 2004 examination. 

McAllister opposed the Motion and objected to the Vance

declaration. Evidence submitted by McAllister included her

declaration, a June 8, 2012 Partial Judgment on Special Verdict

entered in the State Court Action, and the November 12, 2012

Amended Judgment on Special Verdict. Krengel filed a reply and a

second declaration from Joe Vance, which included the Deposition

Transcript. McAllister also objected to the second Vance

declaration and the Deposition Transcript.

The bankruptcy court issued the following tentative ruling

prior to the hearing on the Motion:

“Grant the motion under (Sec.) 727(a)(2) and (a)(3) because

the debtor transferred, removed or concealed the necklace

with intent to hinder of delay creditor within one year

before the petition was filed and because the debtor failed

to keep or preserve recorded information of loans or gifts

from her mother, a loan from her brother and transactions

between herself and KFM.”

Appellant Brief p. 9. The tentative ruling did not otherwise

address the evidentiary objections. 

At the hearing on the Motion, the bankruptcy court adhered

to its tentative ruling, and in doing so granted the Motion,

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denied McAllister’s discharge pursuant to sections 727(a)(2) and

(a)(3), and overruled her evidentiary objections. The bankruptcy

court then instructed Krengel to prepare and submit an order that

included specific findings of fact and conclusions of law. 

McAllister objected to the findings in paragraphs 1 through

24 of Krengel’s proposed order. Krengel responded to the

objection, stating: “The only material fact that the Debtor

denied was with respect to her intent when she gave her brother

her diamond necklace on the eve of bankruptcy and then failed to

schedule that in her bankruptcy filings. The Court found the

Debtor’s assertions that she forgot about the diamond necklace,

and/or didn’t realize her brother was an insider, not to be

credible.” Response to Opposition to Proposed Order p. 2. 

The bankruptcy court entered Krengel’s proposed order6 and

McAllister filed this timely appeal.

II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. § 1334

and 28 U.S.C. § 157(b)(1)(J). We have jurisdiction under

28 U.S.C. § 158.7

6 It appears that the proposed order was entered without any

changes. Krengel’s proposed order is not included in the

excerpts of record, nor is it available from the adversary

proceeding docket. However, the upper left corner of the order

granting summary judgment indicates that the signed order was

prepared by counsel for Krengel.

7 At oral argument in this appeal, the Panel noted that the

order on appeal was interlocutory because it did not resolve all

of appellant's claims and therefore was not a final judgment. On

June 30, 2014, the Panel entered an order of limited remand

directing appellant to obtain an amended judgment from the

continue...

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III. ISSUES

1. Did the bankruptcy court abuse its discretion in

overruling McAllister’s evidentiary objections?

2. Did the bankruptcy court err in determining that there

was no dispute of material fact with respect to the requisite

intent to hinder, delay, or defraud her creditors under section

727(a)(2)(A)?

3. Did the bankruptcy court err in determining that there

was no dispute of material fact with respect to McAllister’s

failure to keep and maintain records under section 727(a)(3)?

IV. STANDARD OF REVIEW

The Panel reviews a bankruptcy court’s grant of summary

judgment de novo. Caneva v. Sun Communities Operating Ltd.

P’ship (In re Caneva), 550 F.3d 755, 760 (9th Cir. 2008). 

In reviewing an order granting summary judgment, the Panel

“must view the evidence in the light most favorable to the

non-moving party and ‘determine whether there are any genuine

issues of material fact and whether the bankruptcy court

correctly applied the substantive law.’” Id. (quoting Bagdadi v.

Nazar, 84 F.3d 1194, 1197 (9th Cir. 1966)). A material fact is

one that, under governing substantive law could affect the

outcome of the case. Id. A genuine issue of material fact

exists when the evidence is such that a reasonable jury could

return a verdict for the nonmoving party. Id. at 761. Findings

7...continue

bankruptcy court to resolve the finality issue. On July 16,

2014, the bankruptcy court entered its amended judgment, which

the Panel has found to be a final, appealable judgment over which

it has jurisdiction.

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of fact made in summary judgment proceedings are not entitled to

the “clearly erroneous” standard of review because the trial

court has not weighed the evidence or resolved disputed factual

issues. Am. Fed’n of State, County and Municipal Employees,

Local 2051 v. Stephens (In re Stephens), 51 B.R. 591, 594 (9th

Cir. BAP 1985).

Plaintiff bears the initial burden of setting forth credible

evidence to support each element of the claim. “[W]hen a

creditor makes out a prima facie case, the debtor who fails to

respond with credible evidence cannot prevail in a discharge

case.” Aubrey v. Thomas (In re Aubrey), 111 B.R. 268, 273 (9th

Cir. BAP 1990)(citing Devers v. Bank of Sheridan, Mont.

(In re Devers), 759 F.2d 751, 754 (9th Cir. 1985)).

A trial court's exclusion of evidence in a summary judgment

motion is reviewed for an abuse of discretion. Orr v. Bank of

Am., NT & SA, 285 F.3d 764, 773 (9th Cir. 2002)(citing Gen. Elec.

Co. v. Joiner, 522 U.S. 136, 141, (1997)). It follows that we

must affirm the trial court unless its evidentiary ruling was

manifestly erroneous and prejudicial. Orr, 285 F.3d at 773

(citing Joiner, 522 U.S. at 142; Maffei v. N. Ins. Co., 12 F.3d

892, 897 (9th Cir. 1993)).

V. DISCUSSION

A. The Bankruptcy Court did not abuse its discretion in

overruling McAllister’s evidentiary objections

McAllister filed two evidentiary objections prior to the

bankruptcy court’s ruling on the Motion. McAllister’s first

objection attacked several pieces of evidence Krengel offered in

support of its Motion. In response to McAllister’s opposition to

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the Motion and her first evidentiary objection, Krengel filed a

reply that included a new declaration, which introduced the

Deposition Transcript. McAllister objected to the new evidence

included with the reply declaration. The bankruptcy court orally

overruled both evidentiary objections at the hearing on the

Motion.8

When attempting to establish the absence or existence of a

dispute of material fact, parties must cite to specific materials

in the record or show that the materials cited do not establish

the absence or existence of a genuine dispute. Fed. R. Civ.

P. 56(c)(1). Statements in a brief, unsupported by the record,

cannot be used to create an issue of fact. Barnes v. Indep.

Auto. Dealers Ass'n Health & Benefit Plan, 64 F.3d 1389, 1396 n.3

(9th Cir. 1995). Only evidence admissible at trial may be

considered in ruling on a motion for summary judgment. Orr,

285 F.3d at 773. In determining admissibility for summary

judgment purposes, it is the contents of the evidence rather than

its form that must be considered. Fraser v. Goodale, 342 F.3d

1032, 1036-37 (9th Cir. 2003). If the contents of the evidence

could be presented in an admissible form at trial, those contents

may be considered on summary judgment. Id.; see also Fed. R.

Civ. P. 56(c)(2). Civil Rule 56(c)(2) permits a party to object

to material offered in support of a motion for summary judgment

if the material cannot otherwise be presented in a form that

8 As noted earlier, the bankruptcy court issued a tentative

ruling, which is not included in the record on appeal. It is

unclear whether the tentative ruling addressed the evidentiary

objections.

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would be admissible in evidence.

1. The first objection

McAllister’s first evidentiary objection takes issue with

the first declaration from Joe Vance and with Krengel’s statement

of uncontroverted facts and conclusions of law. A statement of

uncontroverted facts is not evidence, but a pleading which states

the facts that the filer believes to be undisputed. Civil

Rule 56 does not contemplate the lodging of evidentiary

objections against such pleadings. In this respect, McAllister’s

objection is improper and should be disregarded. 

Turning to the first declaration of Joe Vance, McAllister

enumerates twelve factual assertions which she finds

objectionable. For each factual assertion, McAllister raises one

or more grounds for objection, specifically: lack of foundation

(enumerated assertions 1-12), relevance (enumerated assertions

2-4, 8-10, and 12), best evidence (enumerated assertion 5), and

hearsay (enumerated assertions 11 and 12).

a. Relevance

The fact that a statement may be irrelevant has no bearing

upon a motion for summary judgment. A bankruptcy court can award

summary judgment only when there exists no genuine dispute of

material fact. It cannot rely on irrelevant facts; thus,

relevance objections are redundant. Burch v. Regents of the

Univ. of Cal., 433 F. Supp. 2d 1110, 1119 (E.D. Cal. 2006). If a

decision on summary judgment relies on certain statements, they

are by definition relevant. Instead of objecting, parties should

simply argue that the statements in question are not material. 

Therefore, the bankruptcy court correctly overruled McAllister’s

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relevance objections.

b. Lack of foundation

Assertions 1 through 7 involve facts that could be within

the personal knowledge of the declarant. To be admissible,

however, the declarant must state facts sufficient to establish

the basis for his or her personal knowledge. Based upon the

contents of the declaration, it was not an abuse of discretion

for the bankruptcy court to overrule this objection. It is also

difficult to see how McAllister was prejudiced by the admission

of the declaration, as much of its contents had already been

admitted by McAllister in her answer, or could have been

introduced in other ways, such as via the Rule 2004 examination

transcript (for example, all statements relating to the

underlying state court action). 

c. Best evidence/hearsay

The bankruptcy court also did not abuse its discretion with

respect to the remaining assertions. Again, the challenged

statements relate to facts that McAllister had already admitted,

can be derived from other parts of the record, or are legal

conclusions mixed with facts.9 To the extent the statements

contain factual allegations, it was not an abuse of discretion

for the bankruptcy court to consider them. And while a

supporting affidavit is not the proper place to include legal

argument, it was not “manifestly improper” for the bankruptcy

9 For example, McAllister objects to assertion 11, which

states “I am informed and believe Debtor’s amended Schedule B

indicates she owns a 2001 Mercedes Benz automobile; at the 2004

Examination, Debtor indicated her parents-in-law purchased just

such a vehicle for her for $10,000 in 2011.”

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court to choose not to exclude these statements. 

2. The second objection

McAllister’s second evidentiary objection focuses on the

second declaration of Joe Vance and the Deposition Transcript

attached thereto. McAllister raises two arguments. First, she

asserts that it is inappropriate for Krengel to offer evidence in

its reply brief that it could have offered as part of the Motion. 

Second, she asserts that the Deposition Transcript should have

been excluded because it was not properly authenticated.

a. Consideration of evidence or argument presented in

a reply

In support of her first argument, McAllister cites Civil

Rule 6(c)(2), which states in relevant part: “[a]ny affidavit

supporting a motion must be served with the motion.” Fed. R.

Civ. P. 6(c)(2). McAllister also cites several out of circuit

cases. 

Burns v. Gadsden State Community College, 908 F.2d 1512,

1519 (11th Cir. 1990), addresses the interplay between Civil

Rule 6 and Civil Rule 56(c). Burns, however, addresses a trial

court’s exclusion of late filed affidavits by a nonmovant; it

does not involve evidence included in a reply brief that could

have been included in an original motion. While the case is not

directly on point, it does support the assertion that Civil

Rule 56(c), in combination with Civil Rule 6, are designed to

provide the nonmoving party a meaningful opportunity to respond

to the factual assertions and legal arguments contained within a

motion for summary judgment.

Reid v. Lockheed Martin Aero. Co., 205 F.R.D. 655 (N.D. Ga.

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2001) involves a motion for class certification. Plaintiffs bore

the burden of establishing adequacy of representation. The court

held that Plaintiffs failed to cite a single piece of evidence in

support of their assertion that the requirement had been

satisfied. In a footnote, the court acknowledged that Plaintiffs

had filed an affidavit in support of their contentions with their

reply brief and stated, without citation or analysis, that “[a]s

a general rule, a party may not submit evidence with a reply that

was available but not included with the original motion.” Reid,

205 F.R.D. at 678 n.30. 

Finally, in Tetra Techs, Inc. v. Harter, 823 F. Supp. 1116

(S.D.N.Y. 1993), the parties moving for summary judgment saved

several legal and factual arguments for their reply brief. The

court noted that this was for the “obvious purpose of sandbagging

their adversary” and was foreign to the spirit of the Federal

Rules of Civil Procedure. Harter, 823 F. Supp. at 1120. While

the court discussed the reply brief with disdain, it is unclear

from the opinion whether the brief was disregarded.

It does not appear that the Ninth Circuit takes such a

strict approach to new information contained within a reply. 

Most cases addressing the issue conclude that consideration of

new arguments or evidence in a reply falls within the discretion

of the trial court. See, e.g., Zamani v. Carnes, 491 F.3d 990,

996 (9th Cir. 2007)(“The district court need not consider

arguments raised for the first time in a reply brief”); Glenn K.

Jackson, Inc. v. Roe, 273 F.3d 1192, 1201-02 (9th Cir. 2001)(A

district court has discretion to consider an issue on summary

judgment even if first raised in the reply brief.). Other

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circuits have acknowledged that the consideration of new evidence

or argument at the reply stage can be permissible in certain

circumstances. See, e.g., Green v. New Mexico, 420 F.3d 1189,

1196 (10th Cir. 2005)(If a reply contains new information

(defined as either new evidence or new legal arguments), the

Court needs to give the nonmoving party an opportunity to respond

only if the Court will rely on that new material. It is not an

abuse of discretion to ignore the new material and preclude a

surreply).

In this case, the bankruptcy court could have, in its

discretion, considered the new information provided by Krengel

with its reply. The declaration served little purpose other than

to introduce the Deposition Transcript. While permitting the

moving party to introduce new information on summary judgment

without giving the nonmoving party an opportunity to respond can

be prejudicial to the nonmoving party, the bankruptcy court’s

overruling of McAllister’s objection was not “manifestly

erroneous” under these circumstances, specifically given the fact

that McAllister had prior knowledge of the contents of the

Deposition Transcript and of her own testimony under oath. 

Accordingly, the bankruptcy court did not abuse its discretion in

overruling the second evidentiary objection.

b. Failure to properly authenticate

McAllister’s second objection also asserts that the

Deposition Transcript was inadmissable because Joe Vance did not

lay a proper foundation. The Deposition Transcript purportedly

sets forth McAllister’s testimony in connection with the State

Court Action. 

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As noted above, it is the contents of the evidence, and not

its form, which dictates its admissibility for purposes of

summary judgment. Fraser, 342 F.3d at 1036-37. While the

Deposition Transcript itself might not be admissible at trial

without appropriate authentication, McAllister’s statements

therein can be considered in the summary judgment context. Id.

at 1037 (notwithstanding a hearsay objection, in the context of a

motion for summary judgment the contents of a diary were “mere

recitations of events within the [plaintiff/appellant’s] personal

knowledge and, depending on the circumstances, could be admitted

into evidence at trial in a variety of ways.”). 

Further, the bankruptcy court’s consideration of the

unauthenticated Deposition Transcript would only constitute

harmless error given that the document could have easily been

authenticated at trial. See Hal Roach Studios, Inc. v. Feiner &

Co., 896 F.2d 1542 (9th Cir. 1990)(Trial court’s consideration of

unauthenticated registration statement was harmless where failure

could have been easily remedied by a statement from a competent

witness, or substitution of certified copy). McAllister does not

argue that the deposition never took place or that the Deposition

Transcript was somehow inaccurate. She simply contends that Mr.

Vance is not competent to authenticate that document. A

competent witness, namely McAllister, could easily cure this

alleged defect. Alternatively, the bankruptcy court could have

permitted Krengel to obtain a certified copy of the Deposition

Transcript. For these reasons, the bankruptcy court did not

abuse its discretion by overruling McAllister’s objection and

considering this evidence.

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B. The Bankruptcy Court erred by weighing evidence to determine

that McAllister had the requisite intent to hinder, delay,

or defraud Krengel under section 727(a)(2)(A)

A bankruptcy court must deny a discharge if “the debtor,

with intent to hinder, delay, or defraud a creditor ... has

transferred, removed, destroyed, mutilated, or concealed property

of the debtor, within one year before the date of the filing of

the petition. . . .” 11 U.S.C. § 727(a)(2)(A). The burden of

proof is on the creditor to show that: (1) the debtor

transferred or concealed property; (2) the property belonged to

the debtor; (3) the transfer occurred within one year of the

bankruptcy filing; and (4) the debtor executed the transfer with

the intent to hinder, delay or defraud a creditor. In re Aubrey,

111 B.R. 268, 273 (9th Cir. BAP 1990). 

Section 727(a)(2) states its intent requirement in the

disjunctive. Thus, a movant need only demonstrate one of the

three alternatives, either intent to hinder or to delay or to

defraud creditors. Beauchamp v. Hoose (In re Beauchamp),

236 B.R. 727, 731-32 (9th Cir. BAP 1999), aff’d 5 Fed. Appx. 743

(9th Cir. 2001) (adopting the Panel’s opinion). A court must

liberally construe a claim for denial of a discharge in favor of

the discharge and strictly against the party arguing for its

denial. First Beverly Bank v. Adeeb (In re Adeeb), 787 F.2d

1339, 1342 (9th Cir. 1986).

Constructive fraudulent intent cannot be the basis for

denial of discharge. Id. at 1343. However, fraudulent intent

sufficient to justify denial of discharge may be established by

circumstantial evidence or by inferences drawn from a course of

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conduct. Id. (citing In re Devers, 759 F.2d at 753-754 (noting

that a debtor is unlikely to testify directly that his intent was

fraudulent)). In examining the relevant circumstances or

conduct, a court may focus on “badges of fraud,” including: 

(1) a close relationship between the transferor and the

transferee; (2) the transfer was in anticipation of a pending

suit; (3) the transferor debtor was insolvent or in poor

financial condition at the time of the transfer; (4) all or

substantially all of the debtor's property was transferred;

(5) the transfer so completely depleted the debtor's assets that

the creditor has been hindered or delayed in recovering any part

of the judgment; and (6) the debtor received inadequate

consideration for the transfer. Roberts v. Erhard

(In re Roberts), 331 B.R. 876, 885 (9th Cir. BAP 2005). These

factors need not all be present in order to find that a debtor

acted with the requisite intent. Id.

Krengel’s argument for denial of discharge pursuant to

section 727(a)(2) consists of two sentences: “Defendant has

misrepresented the value and description of her assets, including

her jewelry, KFM and two automobiles. This omission warrants

denial of discharge under § 727(a)(2).” Motion p. 8. In

Krengel’s argument for denial of discharge pursuant to section

727(a)(4), Krengel asserts, “[i]n light of a pattern of behavior

abusing the bankruptcy process, these acts when weighed

altogether evidence cause to deny Debtor’s discharge per

§ 727(a)(4).” Motion p. 10. Finally, Krengel asserts in its

argument for denial of discharge pursuant to section 727(a)(5),

“[t]hat a 2004 Examination was needed just to flesh out some of

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the discrepancies in her schedules is evidence of possible

wrongful intent.” Motion p. 11. Taken together, the Panel can

infer from these statements that Krengel believes the

misrepresentations and omissions in McAllister’s bankruptcy

documents are evidence of her intent to hinder, delay, or defraud

creditors. 

McAllister does not dispute that she amended her schedules

to increase the reported value of her jewelry and KFM, or that

she described the two automobiles as Krengel complains. 

McAllister flatly disagrees with Krengel’s assertion that the

misstatements in her schedules and SOFA — to the extent that they

were misstatements — warrant a denial of her discharge. 

McAllister asserts that the misstatements were benign, did not

affect the administration of the estate, and were not made with

any intent to hinder, delay or defraud creditors.

The bankruptcy court erred in granting summary judgment

pursuant to section 727(a)(2) for two reasons. First, Krengel

did not meet its burden of establishing an intent to hinder,

delay, or defraud creditors. Krengel did not even address the

element of intent in its argument. And in fact, Krengel’s

response to McAllister’s objection to the proposed order

acknowledges the existence of a factual dispute regarding intent,

and that the bankruptcy court weighed the evidence in finding

McAllister’s explanations lacking credibility. Response to

Opposition to Proposed Order p. 2.

Second, even if the Panel could infer intent from

McAllister’s multiple misstatements, McAllister has proffered

evidence sufficient to create a genuine dispute of material fact. 

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Her declaration, as well as the statements she made under oath at

the Rule 2004 examination, explain each of the issues raised by

Krengel. Appropriately considered in a light most favorable to

McAllister, a trier of fact could find that the misstatements did

not evidence a pattern of misconduct, but were simply unintended

errors or benign mistakes. Assessment of a witness’ credibility

is appropriate for trial, not in considering a motion for summary

judgment. Musick v. Burke, 913 F.2d 1390, 1394 (9th Cir. 1990)

(“When judging the evidence at the summary judgment stage, the

district court is not to make credibility determinations or weigh

conflicting evidence, and is required to draw all inferences in a

light most favorable to the nonmoving party.”).

C. The Bankruptcy Court erred by finding that Krengel met its

burden as to McAllister’s failure to keep or preserve

recorded information under section 727(a)(3)

Section 727(a)(3) provides that a court shall grant a debtor

a discharge unless “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.” 

11 U.S.C. § 727(a)(3). 

The initial burden of proof under section 727(a)(3) is on

the plaintiff. Lansdowne v. Cox (In re Cox), 41 F.3d 1294, 1296

(9th Cir. 1994)(Cox II). In order to establish a prima facie

case, the plaintiff must show (1) that the debtor failed to

maintain and preserve adequate records, and (2) that such failure

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makes it impossible to ascertain the debtor's financial condition

and material business transactions. Id. 

What constitutes adequate records must be decided case by

case, based on debtor's business operations and sophistication. 

AVCO Fin. Servs. of Billings v. Sullivan (In re Sullivan),

111 B.R. 317, 321 (Bankr. D. Mt. 1990)(citing In re Horton,

621 F.2d 968 (9th Cir. 1980)(construing 11 U.S.C. § 32(c)(2) of

the Bankruptcy Act)). The debtor must maintain “sufficient

written evidence which will enable his creditors reasonably to

ascertain his present financial condition and to follow his

business transactions for a reasonable period in the past.” 

Cox v. Lansdowne (In re Cox), 904 F.2d 1399, 1402 (9th Cir.

1990)(Cox I)(quoting In re Horton, 621 at 971). “Keep” means to

maintain a record, as in “to keep a diary.” Peterson v. Scott

(In re Scott), 172 F.3d 959, 969 (7th Cir. 1999). “This language

places an affirmative duty on the debtor to create books and

records accurately documenting his business affairs.” Id.

Once the objecting party shows that the debtor’s records are

absent or inadequate, the burden of proof shifts to the debtor to

justify the inadequacy or nonexistence of records. Cox II,

41 F.3d at 1296. The debtor must show, by a preponderance of the

evidence, that failure to keep adequate business records was

justified under all of the circumstances in the case. Id. at

1297.

Krengel’s Motion argues that denial of discharge was

justified under section 727(a)(3) because McAllister: (1) failed

to adequately explain certain expense items on her schedules

during her deposition; (2) failed to disclose the loan

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forgiveness by her mother, the loans from her family members, the

transfer of the diamond necklace, and payments made on her behalf

by KFM; (3) incorrectly listed her debt to Krengel as “disputed”

in her schedules; and (4) failed to keep adequate records for

KFM. After making these allegations in its Motion, Krengel

states the conclusion that “Defendant has undeniably failed to

keep and maintain adequate records, including financial

documentation.” Motion p. 9. 

The first three allegations are not material to a

determination that McAllister (1) failed to maintain records, and

(2) that said failure made it impossible to ascertain the

debtor’s financial condition. Section 727(a)(3) is concerned

with a debtor’s record keeping, not the adequacy of her

disclosures (which is relevant under sections 727(a)(2) and

(a)(4)). The Motion makes no attempt to relate the adequacy of

McAllister’s disclosure with her failure to maintain records. In

its appellate brief, Krengel goes a bit further, alleging that

McAllister was “unable to produce records to explain (1) the

commingling of income and expenses on Debtor’s schedules, but

[sic] (2) the failure to disclose the executory contracts/clients

of the wholly-owned business entity, or (3) the payment of

Debtor’s legal expenses in the State Court Action made by KFM

(not a party to the State Court Action).” Appellee’s Brief

p. 30. Even if this assertion had been raised before the

bankruptcy court (which it was not), Krengel does not cite to,

and we have not been able to find, any material in the record to

support the assertion that McAllister did not maintain or turn

over information related to these business records. 

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Unlike the first three allegations in the Motion, Krengel’s

fourth allegation could satisfy the first prong of section

727(a)(3). However, Krengel again fails to cite in its Motion or

in its reply to any material in the record to support this

allegation. While a movant should cite to particular parts of

the record to support its position on summary judgment, a court

may consider uncited materials in the record. Fed. R. Civ.

P. 56(c)(3). We are unable to find any evidence, apart from

Krengel’s bare assertion, that McAllister failed to keep and

maintain adequate records for KFM. The 2004 examination

transcript is full of instances where Krengel asks McAllister if

she possessed or could produce documents, to which she repeatedly

replied that she (1) had already provided such documentation,

(2) could provide it, or (3) had an accountant who maintained

such information. McAllister also testified that she maintained

books for KFM. Krengel does not allege, and the record does not

reflect, that McAllister did not keep records of her transactions

with KFM. The record simply does not support the result reached

by the bankruptcy court.

As for McAllister’s transactions with her mother and

brother, looking beyond the unsupported facts and arguments

contained in Krengel’s Motion and reply, we have been able to

find just two specific instances of McAllister not keeping or

maintaining records that are specifically mentioned in the record

on appeal. First, McAllister did not keep a written record of

the loan from her brother; second, KFM did not have written

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contracts with its clients.10 

If the absence of written records was sufficient by itself

to justify denial of discharge under section 727(a)(3), summary

judgment might have been appropriate. However, the movant must

also establish that these failures resulted in an inability to

assess the debtor’s financial condition. Here again, there

appears to be no evidence in the record to support such a

conclusion. For these reasons, the bankruptcy court should have

denied summary judgment on Krengel’s claim under section

727(a)(3).

VI. CONCLUSION

For the reasons stated above, the bankruptcy court should

not have granted summary judgment in favor of Krengel under

sections 727(a)(2) or (a)(3). We therefore REVERSE and REMAND

for further proceedings.

10 In its brief, Krengel asserts that, in addition to

failing to keep records of the loan from her brother, McAllister

failed to keep a record of the loan from her mother. The

declarations, 2004 exam transcript, and Deposition Transcript

make no reference as to whether the loan with her mother was

reduced to writing or evidenced in some other way.

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