## United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

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Nos. 09-6070/6071

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In re: Keith Burton Thomas; * Patricia Ann Thomas, * * Debtors. * * Bank of Bennington, * Appeals from the United States, * Bankruptcy Court for the Plaintiff – Appellee, * District of Nebraska – Cr oss-Appellant, * * v. * * Keith Burton Thomas; * Patricia Ann Thomas, * * Defendants – Appellants, * – Cross-Appellees. *

______ Submitted: May 28, 2010 Filed: June 22, 2010

______ Before KRESSEL, Chief Judge, FEDE RMAN and VENTERS, Bankruptcy Judges.

______ KRESSEL, Chief Judge.

1The bankruptcy court 1 sustained the Bank of Bennington’s objection to debtor Keith Thomas’s discharge and overruled its objection to debtor Patricia Thomas’s discharge. It also determined that Keith Thomas’s debts to the bank were dischargeable. Everyone appealed. We affirm the bankruptcy court’s order denying Keith Thomas’s discharge and granti ng Patricia Thomas’s discharge. We dismiss the balance of the bank’s appeal as moot and Patricia Thomas’s appeal for lack of standing.

FACTS

Keith and Patricia Thomas owned several corporations along with their son, Timothy Thomas, and his wife. Th e Thomas entities included: Four T Corporation; Sceptre Storage, L.L.C.; F our T Companies, Inc.; and Papiotrade, a wholesale distributor of tobacco products. Keith and Tim were in control of all of the Thomas entities, but their wives had ve ry little involvement. On December 12, 2002, the two couples and some of the T homas entities executed a promissory note to the Bank of Bennington in the origin al principal amount of $4,000,000, and received a line of credit on a borrowing base that included inventory, accounts receivable, and other collateral. In orde r to access the line of credit, Papiotrade was required to submit monthly borrowing base certificates to the bank. On March 27, 2004, Four T Companies, Inc. execut ed a promissory note for $400,000. The note was guaranteed by the Thomas entitie s and by the debtors personally. Papiotrade submitted monthly borrowing ba se certificates to the bank. The certificates were generally submitted by CFO Dan Kraft, but were usually 2 reviewed and approved by Keith and Tim.

1 The Honorable Timot hy J. Mahoney, United St ates Bankruptcy Judge for the District of Nebraska.

2 The bank disputes this characteriza tion of the pretrial statement. The bank submitted as uncontroverted that “The se borrowing base certificates were reviewed and approved by Keith Thomas and Tim Thomas prior to submission to the Bank.” However, in the pretrial st atement, the debtors responded, “Debtors agree with the Plaintiff’s Uncontroverted Fact (f), except that Keith Thomas and

2The borrowing base certificates showed the value of inventory, state cigarette tax stamps, accounts receivable, cash, and other miscellaneous assets. The bank relied on the accuracy of the cer tificates in reviewing the loan and deciding whether or not to allow the comp anies to continue to borrow. In late 2004, bank officers met with Keith and Ti m Thomas and told them they would need to balance their borrowing base. The bank offset $176,000 from Papiotrade’s bank account, but the borrowing base still was not sufficient. In January of 2005,
bank officers told Keith and Tim that if th e end-of-January certificate did not show sufficient assets, the bank would shut down the lending relationship.

In response to the bank’s warning, Tim initially tried to ma ke more sales to
increase accounts receivable. By the close of business on January 31, 2005, the
assets were still insufficient. Tim cont inued to “work on sa les” throughout the evening. The next morning, Papiotrade prepared a new borrowing base certificate
based on the new invoices and sales from th e night before, which showed that the assets were now sufficient to meet the requi rements of the loan. The sales invoices from the January 31 evening sa les were never sent to th e alleged purchasers. The borrowing base certificates submitted through March reflected those sales. No one from Papiotrade ever informed the bank that the sales and accounts receivable
were not actual sales or accounts receivable. Eventually, real sales increased, and all of the January 31 invoices were back ed out of the accounting system between mid-February and the end of April 2005. Papiotrade a nd the other companies later closed. After the liquidation of the bank ’s collateral, a significant amount of the
debt remains.

Keith and Patricia filed a voluntary chapter 7 petition on November 22,
2006. Keith and Patricia failed to disc lose on their schedules or statement of financial affairs: 1) a $397,000 tax refund th ey had received within the year prior to the filing of their petition; 2) a loan (and its repayment) in the amount of

Timothy Thomas did not always review th e monthly borrowing base certificates prior to their submission to the bank.”

3$150,000 from the wife of Keith’s relative that occurred within two years of the petition; 3) state tax refunds of $56,000; 4) $500,000 in se ttlement payments received within two years of filing the pe tition; and 5) $90,000 in payments from Papiotrade received as income within tw o years of the petition. At the § 341 meeting, the bank’s counsel brought the first three omissions to the attention of the debtors, who shortly thereafter amended their statement to include the refunds, loan and repayment. Keith still did not di sclose the fourth or fifth omissions.

The bank filed an adversary proceedi ng against Keith and Patricia. The bank sought to except from Keith’s discharge his debts arising out of the notes and guarantees made in connection with his bu siness, under 11 U.S.C. § 523(a)(2), (4) and (6), based on Keith ’s alleged involvement in submitting the fraudulent borrowing base certificates to the bank after Papiotrade en countered financial difficulties in 2004. The bank also sought to deny Keith and Patricia discharges under 11 U.S.C. § 727.

The bankruptcy court ruled against th e bank on its § 523(a) claims. The bankruptcy court found that Tim, but not Keith, was involved in creating the fraudulent sales and invoices, ordering the collection department to refrain from attempting collection and directing the acc ounts receivable to be reversed after the CFO suggested that an audit would soon occur and the auditors would find the
erroneous accounts receivable.

The bankruptcy court denied Keith’s di scharge on the basis of his numerous omissions, but did not deny Patricia’s disc harge. The court f ound (and Keith does not dispute) that Keith knew of the existe nce of all of the refunds and payments that he omitted from his petitions and sche dules but chose not to disclose them. The court found that there was insufficient evidence of Patricia’s knowledge of the
omissions.

4STANDARD OF REVIEW

We review the bankruptcy court’s findings of fact for clear error. First Nat’l Bank of Olathe , Kansas v. Pontow, 111 F.3d 604, 609 (8th Cir. 1997); Merchs. Nat’l Bank of Wino na v. Moen (In re Moen), 238 B.R. 785, 790 (B.A.P. 8th Cir. 1999). “A finding is ‘clearly e rroneous’ when although there is evidence to support it, the reviewing court on the en tire evidence is left w ith the definite and
firm conviction that a mist ake has been committed.” Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) (quoting U.S. v. U.S. Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948)). Whether the bank proved an exception to discharge unde r 11 U.S.C. § 727 is a question of law,
which we review de novo. Block v. Moss (In re Moss) , 266 B.R. 408, 413 (B.A.P. 8th Cir. 2001).

ANALYSIS

I. The court did not err in denying Ke ith’s discharge under § 727(a)(4)(A).

Section 727(a)(4)(A) provides that “[t] he court shall grant the debtor a discharge, unless ... the debtor knowingl y and fraudulently, in or in connection
with the case ... made a false oath or account .” The court found that Keith 1) made statements under oath on his petition and sc hedules and at his 341 meeting; 2) the
statements were false because he failed to list two tax refunds, a large settlement, and $90,000 from Papi otrade; 3) he knew the statements were false because he knew of the refunds, settlement and $90,000 but decided not to include them; 4) he
made the statements with fraudulen t intent, which was implied from the recklessness of the sizable omissions; and 5) the statements were material to the bankruptcy case because they concerned the discovery of assets or the existence and disposition of estate property.

5Keith disputes the court’s application of the fourth prong, intent. He argues that the court’s denial of his discharge amounts to strict liability for his omissions,
which he claims were honest mistakes that he corrected as soon as they were brought to his attention. Reckless disregard for the trut h will support a finding of fraudulent intent for the purpose of de nying a debtor his discharge under § 727(a)(4)(A). Korte v. Internal Reve nue Serv. (In re Korte) , 262 B.R. 464, 474 (B.A.P. 8th Cir. 2001) (“Intent can be es tablished by circumstantial evidence, and
statements made with reckless indiffer ence to the truth are regarded as intentionally false.”); see also Jordan v. Bren (In re Bren) , 122 Fed. Appx. 285, 286 (8th Cir. 2005) (u npublished) (citing Korte ). Keith completely ignores the court’s finding of reckless indifference to the truth, essentially arguing that his false statements were mitigated by his late r actions to provide full information, and that the failure to include the $397,000 refund on the schedules was his attorney’s
fault.

On appeal, Keith argues that the bankr uptcy court “ignored evidence” that mitigated his responsibility. We presum e that the bankruptcy court reviewed all evidence presented to it and it specifica lly referred to Keith’s evidence several times and simply found it unpersuasive. In any event, the bankruptcy court’s findings were supported by the record and, except for the finding of intent, not disputed by Keith. Regarding the finding of intent, the court noted several omissions, which Keith does not dispute, and the court inferre d intent from the recklessness and magnitude of the omi ssions. These omissions were serious enough to support the court’s inference of fraudulent intent. The bankruptcy court’s findings were not clearly erroneous.

II. The bankruptcy court did not err in not denying Patricia’s discharge under § 727(a)(4)(A).

The bank also objected to Patricia’s discharge under § 727 based on the
same omissions. The court found that ther e was “insufficient evidence with regard to Mrs. Thomas’s knowledge and understa nding of the dates on which certain

6settlement monies were received and tr ansferred and no evidence concerning her knowledge of the $90,000 that Keith Thom as received in several checks from Papiotrade in February and May of 2005.”

The bank did very little to make a ca se against Patricia. It asked no questions of her at trial. The court found insufficient evidence of intent, and the bank has not pointed to anything in the record to support its position that the bankruptcy court erred in not de nying Patricia’s discharge. See Jordan v. Bren (In re Bren) , 122 Fed.Appx. 285 (8th Cir. 2005) (unpublished) (ba nkruptcy court did not have basis to deny wife’s discha rge based on omissions from the married couple’s joint bankruptcy petition and sche dules where wife was not involved in business’s financial affairs and was ignora nt of her own financ ial affairs). The bankruptcy court’s findings as to Patricia are supported by the record and were not clearly erroneous.

III. The balance of the bank’s appeal is moot.

Because we find that the bankruptc y court properly denied Keith’s discharge, the dischargeability of its particular debt is moot. See Cepelak v. Sears (In re Sears) , 246 B.R. 341, 352 (B.A.P . 8th Cir. 2000) ( “Since the granting of an exception to discharge under § 523(a) is s ubsumed within a de nial of general discharge under § 727(a), the cross-appeal is mooted by our disposition of the Debtors’ appeal.”) (citing Vaughn v. Aboukhater (In re Aboukhater), 165 B.R. 904, 912 (B.A.P. 9th Cir. 1994); Columbia Farms Distrib., Inc. v. Maltais (In re Maltais), 202 B.R. 807, 810 ( Bankr. D. Mass. 1996); Kellogg-Citizens Nat’l Bank of Green Bay v. DeBruin (In re DeBruin), 144 B.R. 90, 94 (Bankr. E.D. Wis. 1992); Watson v. City Nat’l Bank (In re Watson), 78 B.R. 267, 271 (Bankr. C.D. Cal. 1987)). Since Keith is not receiving a discharge, it is obvious the question of whether a debt is excepted from his discharg e is irrelevant. At oral argument, the bank expressed concern that if Keith file d another case, it w ould be put in the position of having to prove its exception to discharge. However, the bank’s debt,

7together with the debts of all current cr editors, would not be discharged in any subsequent case. 11 U.S.C. § 523(a)(10).

IV. Patricia lacks standing to appeal.

Although Patricia joined in the app eal filed by Keith, she was in no way aggrieved by the bankruptcy court’s order or judgment and thus lacks standing to appeal.

CONCLUSION

We affirm the bankruptcy court’s deci sion to deny Keith’s discharge and to grant Patricia hers. We dismiss as mo ot the bank’s appeal of the bankruptcy court’s decision determining its debts to be dischargeable. Lastly, we dismiss Patricia’s appeal for lack of standing.

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