### INTHE UNI TED S TATESCOU RT OFAPPEALS FORTHEFIFTH CIRCU IT

N o. 07- 41024

I N THE M AT TE R OF : J OH N CECI L DUN CAN

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rom t h e U n i t ed S t ates D i st ri ctC ou rt f or th e E aster n D i st ri ctof T exas

B ef ore D AV IS, C L E M E N T , an d E L R O D , C i rcuitJu dg es . P E R C U R IA M: In t h i s ban kru ptcy adversary p ro ceedi n g, t h e C ad l e C om pa n y ( C ad l e) obj ect ed t o t he di s c har geo f J o hn Dunc an (D unc an) o n t hr e e s e pa r at e g r o unds
u n der 11 U

. S

. C

. § 72 7( a) , an y on e of w h i ch, if

proven , w ou l d p revent di scharge. T h e b a n k r u p tc yco u r t d e n ie dC a d le re lie f a n dg r a n te dD u n c a n d is c h a r g e o f h is deb t s, i n cl u di n g C ad l e’ s j u dg m en ti n t h e am o u n t o f $42 0, 102
. 50. Th e di st ri ct
c o ur ta f

f i r m e d. Cadl e a ppe al e d, a r gui ng am o ng o t he rt hi ngs t hatt he United States Court of App eals

Fifth Circuit 

### F I L E D Ma rch 11, 2009 Cha rl es R. F ulb ru g e II I ClerkN o. 07- 41024

2 bankrupt c y and di st r i c tc our t s fai l ed t o c or r ec t l y appl y t he pre sum pt i on of Texas l a w i n fa v o ro f

c o mmu n i t yp r o p e r t y . We a f f i r m. I . F A CT S A ND P ROC E E DI NGS D uncan i s a ge ner alcont r ac t orw ho h as bu i l tcust om h om es i n t he D al l as ar e a f o rt hi r t y ye ar s . H e has b e e n m ar r i e d t o Barba r a D unc an (M r s . D unc an)
s in c e 1 9 7 6
. S h e is n o t a p a r tyto h e rh u s b a n d ’ s b a n k r u p tc yfi l i n go rto th is ad versary proceedi n g, i n w h i ch an i m portant i ssue i s w h et h er cert ai n asset s are c om m uni t y pr ope r t y o rhers epar at e pr ope r t y. W hen he f i l ed forbankrupt c y, D u n can om i t t ed c ert ai n i t em s f rom h i s asset s, i n cl u di n g oi l an d ga s in te re sts,
r e n t a lp r o p e r t y , a n dab o a t
. I n i t i a l l y , h e a l s o s c h e d u l e dt h e fa mil yh o me ( B r i ar gr ove ) as hi s w i fe’ s se par at e pro per t y. C adl e obj ec t ed, c l ai m i n g th at D u n c a n h a dn o tp r o v id e ds u ff ic ie n te v id e n c e th a tth e s e a s s e t s w e r e h i s w ife ’s
se par at e pr ope r t y r at hert han co m m uni t y pr ope r t y. D u n can operated h i s bu si n ess t h rough a n u m ber of en t i t i es over t h e years, be gi nni ng i n t he 19 80 s w i t h Jo hn C. D unc an, I nc . Thi s c o m pa ny t o o k o utl o ans o bt ai ne d b y t he FD I C and w e nto uto f b us i ne s s i n 1 98 7. The F D I C pr o c ur e d a de f i c i e nc y j udg m e nta ga i ns tD unc an i ndivi du all y f o rne ar l y $3 00 , 00 0, pl us i nt e r e s t , i n 1 99 6. Cadl e pur c has e d thi s j udg m e nt i n 2 00 1, a nd b e ga n a t t e m pt i ng t o coll ecti ti n 200 2, short l y bef ore D u n can f

i l ed for C h ap t er 7 ban kru ptcy on D ec em ber4, 2002. D u n c a n file dB a n k r u p tc yS c h e d u le s At h r o u g h J (th e S c h e d u le s ) a n dh is S t atem en tof

F i n an ci alA f

fai rs ( S O FA) on D ecem ber 23, 200 2. T h e Sch edu l es l i stD uncan’ s t ot alas se t s at$440, 979. 0 0 a n d h i s l i abi l i t i es at$592, 367. 27. S ched u l e E report s c redi t card deb tof app roxi m ately $16 , 500 , bu tno credi tcard
s t at e m e nt s w e r e pr o duc e d. Att r i al , D unc an t est i f i e d thathe di s c ar de d the
s t at e m e nt s ea c h m o nt h af t e rre c o nc i l i ng t he m . I n r e s po ns e t o q ue s t i o ns o n t he SO FA , he de ni ed m aki ng any tr ansf er s t o i nsi der s w i t hi n a ye arof bankrupt c y, e v e n t h ou gh h e h a dtran sferred h i s i n teres t i n B ri a rg rov e a n dthe stockof h isN o. 07- 41024

3 wh o l l yo wn e de n t i t yD u n c a n & S o n s , I n c . t o M r s . Du n c a n e a r l i e rt h a ty e a r . H e al s o de ni e d m ak i ng anyg i f t s dur i ng t hat ye ar , e ve n t ho ugh at o ne po i nti n t he t r i al he c harac t er i ze d t he st oc k t r ansf er as a gif

t
. D uncan al so negl ec t ed to i ncl ude an i m por t ant f i nanci al st at em ent pro vi ded t o H or i zo n B ank i n M ay 200 2 th a t li steda n et w orth of ov er $ 1 , 2 0 0 , 0 0 0 , testifyi n g th a t ( 1 ) h e forgo t a b ou t it, and ( 2) he thoughti tw as noti m por t ant
. H i s bankrupt c y at t or ney t es t i f i ed at t r i alt hats he per so nal l y pre par ed t he Schedul es and t he SO FAbe c ause s he w as fam i l i arw i t h Cadl e ’ s pr ac t i ce of agg r e s s ive l y pur s ui ng de bt s . Shel i s t e d the st ock of D u n can & S on s, Inc. as bel on gi n g t o D u n can , t est i f yi n g t h at s h e di d n ot see anyevi den ce of

a t ran sfer. In 1 9 9 9 a n d2 0 0 2 D u n c a n h a dp r o v id e dfin a n c ia l s ta te m e n ts to b a n k s in
c o n n e c tio n w ith h is b u s in e s s lo a n s . In as ta te m e n t in te n d e dto re fle c t h is f i n an ci alc o ndit i o n a s o f O c t o be r2 8, 1 99 9, he l i s t e d ane tw o r t h o f o ver $1, 000 , 000 , i n cl u d in gl i fe i n suran ce pol i ci es w i t h a com bi n ed cash val u e of $75 0, 000 an d a 35

- f

ootboat valu ed at $53, 000
. D u n can al so li st ed $6 0, 000 of i nco m e f

r om h i s w i fe’ s t r ust
. O nl y m ont hs be f or e f i l i ng f orbankrupt c y, D uncan pr e pa r e d af

i nanc i als t at e m e ntda t e d M ay1 , 2 00 2, fo rH o r i z o n B ank , r e f l e c t i ng an e t w o r th o f ju s t o v e r$ 1 ,2 0 0 ,0 0 0
. T h is s ta te m e n t li s t s in s u r a n c e o f o n ly $2 50 , 00 0 (butt he s c he dul e a t t ac he d t o the st at e m e ntl i s t s t hi s a m o unta s t he face val u e w i t h no cash surrend er val u e)

. I tal so li st s i n com e fr o m a t rust att ribu t ed to M rs. D u n can at $60 , 000 , an d allm arketabl e sec u rit i es as bel onging t o he ral one. D uncan t es t i f i ed thatt he $500, 000 li fe i nsur ance p oli cyw as a llo w e dto la p s e b e c a u s e th e p r e m iu m s w e r e to o e x p e n s iv e . D u n c a n v a lu e dh is i n teres t i n h i s tw o en titi es w i th h i s p a rtn er L i n d aS a n d ers a t $2 , 0 7 2 , 5 0 0 , w i th $1 , 40 6, 50 0 i n de bta ga i ns ti t , a s c o m pa r e d t o t he e ar l i e rs t at e m e nt , i n whi c h t he de bteq ual e d t he v al ue o f hi s i nt e r e s t
. Dunc an t e s t i f i e d a tt r i alt hatt he b ank s as ke d f o rt he st at e m e nt s t o re f l e c thous e ho l d f

i nanc e s . H e al s o t e s t i f i e d t hatt heN o. 07- 41024

4 va l u es o f th e en titi es in th e later statem en t ref l ected l a n dva l u es a dj u stedto i nc l ude a4 0% pr o f

i tm ar gi n. C ad l e fil ed t h i s ad versary p roceedi n g on J u n e 1 7, 200 3 seeki n g den i alof D u n can ’ s di scharge, an d i t s c l ai m of $ 420 , 102
. 50 w as a l l ow ed i n f u l lon F ebru ary 9, 2 00 4. Cadl e pr e pa r e d al i s to f do c um e nt s t hatD unc an di d notpr o duc e i n t he ba nkr upt c y pr o c e e di ng, i nc l udi ng ba nk s t at e m e nt s f o ra ny o f

hi s e nt i t i e s ( e xc e pt f o r H e r i t ag e Cust o m H o m e s , I nc . , a n e nt i t y he no l o nge rus e d f o rb us i ne s s b ut
w h ose c h ecki n g accoun the stil l used f or personalexpen ses) , cancel l ed check s, c h e c kr e g i s t e r s , d e p o s i ts l i p s , c r e d i tc a r ds t a t e m e nt s , cr e di tc a r ds l i p s , e t c . At t r i al , aCadl e e m pl o ye e t e st i f i ed thatt he c o m pa ny o bt ai ne d s o m e o f t he b ank
s t at e m e nt s (i nc l udi ng t he f i nanc i als t at e m e nt s ) t hr o ughs ubp o e nas i n t he ban kru ptcy proc eedi n g, bu tvery l i t t l e fr om D u n can despi t e di scovery r equ est s. D uncan di d notob t ai n c opi es of cance l l ed chec ks f

r om h i s bank, te st i f

yi ng t hat it w ou l d h a ve cost a t l ea st $ 2 , 0 0 0
. B a sed on th i s l a ck of i n form a tio n , C a d le cl ai m ed i tw as i m possibl e t o verif y D u n can ’ s c l ai m s t h at M rs. D u n can ow n ed
m any of t he c oupl e’ s as se t s as hers epar at e pr ope r t y. D u n c a n t e s tifie dth a t M r s . D u n c a n h a ds u b s ta n tia l a s s e ts b e fo r e th e ir
m arri age. H e al so t est i f ied th a tshe receivedproperty andcash w h en her pa rents di ed i n 197 9 a n d 1 980 , an d an add i t i on ali n h erit an ce f rom her un cl e. The D unc ans t e s t i f i e d thatt he y m ai n t ai ne d s e pa r at e f i nanc e s f

r o m t he beginn i n g of

t h ei r m arri age, a n d that t h ey n ever ha d a j oi n tban k accou n tor credi tcard. Th ey di d n otprovi de an y docu m en t s verif yi n g t h ese i n h erit an ces. The D unc ans t e s t i f

i e d t hat M r s . D unc an hadb o r r o w e d m o ne y atv ar i o us t i m e s o ve rt he y e ar s , pl e dg i ng he r s e pa r at e as s e t s a s c o l l at e r al , a nd the n g ivi ng t he m o ne y t o D unc an f o rus e i n hi s b us i ne s s . On N o ve m be r 14 , 1 99 6 ( ab o ut
e l e ve n m o nt hs a f

t e rt he FD I C ob t ai ne d it s j u dg m e nt) , D unc an s i gne d a p rom i sso ryn ote in th e p ri n ci p a lam ou n t of $ 1 8 8 , 7 0 9
. 3 9 p a ya b l e to h i s w i fe w i th
an eff ect ive da t e of M ay 13, 1 996 , a 4 % inter estrat e, an d a m on t h l y pa ym en tofN o. 07- 41024

5 $ 9 9 9 .97
. Th e D u n can s al so t est i f i ed that t h i s note consol i da t ed va ri ou s ol der
n otes fo ra m ou n ts D u n ca n h a dbo rrow edf rom M rs. D u n ca n ov er th e y ea rs to ke e p hi s b us i ne s s a f l o at
. Both t e s t i f

i e d t o ha vi ng r e c e nt l y di s c o ve r e d the
u n d erlyingn otes, bu t D u n ca n d i dn ot p rod u ce th em i n discov ery . H e claim edto hav e pa i d the no t e f r o m 1 99 6 t o 2 00 2, b uthe a dm i t t ed t h at h e di d no tke e p a l e dg e ro f

p a y m e n t s mad e . T h e b a n ks t a t e m e n t s p r o v i d e dd o n o ti n d i c a t e a ny pa ym en t s i n t h e am ou n t s c al l ed f or i n t h e note. I n 1996, on the advi c e o f herac c ount ant , M r s. D uncan p a i d o ff t he deb t i n curred by these t ran sact i on s bycash i n g ou tvari ou s i n vest m en t s. I n Ju n e or Ju l y 200 2, again on the ad vi ce of her accoun t an t , she an d D u n can de te rm i n ed th a t D u n c a n co u lds a tis fyth e 1 9 9 6 n o te b ytr a n s fe r r in gto h e rh is in te r e s t in Bri ar gr o ve , w hi c h he di d. Dunc an t est i f i ed thatt he t r ans fe rw as b as e d o n a
w rit t en partit i on agreem en t , bu tno su ch ag reem en tw as ever produ ced. M rs. D uncan r ec onvey ed t hi s i nt er es tbac k t o D uncan af t erhe f i l ed f orbankrupt c y, t est i f yi n g t h at s h e di d n otw an ti tt o app ear t h at s h e w as gett i n g pa i d befor e o t he rc r e dit o r s . Dunc an c o nt i nue d t o r e s i de a tB ri argrovea nd li s t e d, a m o ng o th e re x p e n s e s , th e p a y m e n t a m o u n t o f th e ir$ 3 ,0 0 0 m o r tg a g e a s o n e o f h is
e xp e ns e s , w hi c h t o t al e d o ve r$ 7, 00 0 a m o nt h. M r s . D uncan t e s t i f i e d thats he pa i d the m ort gag e, w i t h D u n can contr ibu t i n g as he w as abl e. O n J u ly1 7 , 2 0 0 2 , D u n c a n a s s ig n e dto M r s . D u n c a n a ll o f h is s to c kin D u n c a n & S o n s , I n c ., a n e n tit yD u n c a n h a dre c e n tlyfo r m e dto co n tin u e h is
c o ns t r uc t i o n b us i ne s s , ha vi ng c e as e d wor ki ng w i t h hi s f o r m e rpa rt n er , Li nda Sand e r s . Dunc an t e s t i f i e d thi s t r ans fe rw as t o c o l l at e r ali z e a$ 23 , 00 0 l o an s he
m ad e t o hi m i n 2 001 to p ay t axes— an d yet D u n can val u ed the st ock as w ort h l ess o n th e S c h e d u le s — e v e n th o u g h th e co u p le ’ s ta xlia b ilityfo rth a t y e a rw a s o n ly $7, 124
. N o prom i ssor y n ot e f or $23, 000 i s i n t h e record. D u n can di d p rodu ce a no t e da t e d Nov e m be r1 99 9 f o r$ 22 , 00 0, w hi c h M r s . D unc an t e s t i f i e d w as f

o rt he paym entof

tax es . Th e co upl e’ s 1999 t ax re t urn w as n otproduc ed, butt he 2000N o. 07- 41024

6 r et urn i n i t s t w o- yearc om par i so n l i st ed the c oupl e’ s 1 9 99 t ax li abi l i t y at $24, 143. D uncan never gave M r s. D uncan t he st oc k c er t i f i c at es , t es t i f

yi ng t hat h e c o u l dn o tf

i n dt h e m. Af t e rt he t r i ali n Oct o be r2 00 4, t he b ank r upt cy j u dg e i s s ue d a
m em oran du m opi n i on on M arch 3 1 , 2 0 06, rej ect i n g C ad l e’ s c l ai m s. Th e court fou n d t he t e s t i m o ny o f D unc an andM r s . D unc an t o b e c r e dibl e a nd s upp o r t ed

“ i n m ostres pects ” by the docu m en t ary evi den ce. A ccor d in g t o t h e ban kru ptcy
cou rt, M rs. D u n ca n ow n edthe o il a n dga s i n teres ts, ren tal pro p erty , the bo a t,
o t he rv e hi c l e s , a nd m o s to f t he f ur ni s hi ngs a s he rs e pa r at e pr operty
. The di s t r i c tc o ur ta f

f i r m e d i n as ho r to r de r . Thi s a ppe alf o l l o w e d. I I . DI S CU S S I ON W e a pply t he s am e s t and ar d o f r e vi e w a s t he di s t r i c t c o ur t , r e vi e w i ng t he b a n k r u p t c yc o u r t ’ s f

i n d i n g s o f

fa c tfo rc l e a re r r o ra n dc o n c l u s i o n s o f l a w de no vo . Hi ckm an v. T

exas (I n reHi c km an ) , 26 0 F. 3d 40 0, 40 1 ( 5t h Ci r . 20 01 )

. “A f i ndi ng of fa c t is cl ea rl y e rron eo u s on l y if ‘ on the en tire ev i d en ce, th e cou rt i s l eft w i th th e d efi n i te an df

i rm con victi on tha t a m i stak e h a s be en com m i tted.’” R obert son v . D en n is(In reD en n is ) , 330 F. 3d 696, 701 ( 5t h C i r . 2003) ( quot i ng Hib er n ia Nat’ lB an k v. Perez(In rePerez) , 954 F. 2d 1026, 1027 ( 5t h C i r . 1992) )

. W e give d e fe r e n c e to th e b a n k r u p tc yco u r t’s d e te r m in a tio n s o f w itn e s s cr e d ib ility

. I d. T h e b an kru ptcy code requ i res di scharge of the deb t or u n l ess a st atutor y e x c e p tio n a p p lie s . 1 1 U .S .C . § 7 2 7 (a ). T h e e x c e p tio n s a r e co n s tr u e ds tr ic tly
a g a in s t th e c r e d ito r a n d lib e r a lly in fa v o r o f th e d e b to r . S eeH u d so n v. R ag g io & R aggi o, I

n c. (In reHu d son ) , 107 F
. 3d355 , 356 (5th C i r. 1 997 )

. C ad l e adv an ces th ree sep a ra te su b section s of § 72 7 (a) a s gro u n d s f or d en yin g d i sch a rg e to D uncan. Fi r st , C adl e a r gues t hat D uncan di d notpr oduc e a dequat e r ec or ds as requ i red by § 727 ( a) ( 3)

. Secon d, C ad l e argu es t h at D u n can m ad e fal se sta te m e n ts inh is S ch e d u les , inth e S O FA , a n din d isco v e ry , a llin v iola tion of § 7 2 7 (a )(4 ). F in a lly , C a d le a r g u e s th a t D u n c a n tr a n s fe r r e dp r o p e r ty

— s p e c ific a llyN o. 07- 41024

7 s t o c k c e r t i f

i c at e s a nd h i s i nt e r e s ti n t he fam i l y ho m e — w i t h t he i nt e ntt o de f r aud h i s c redit o r s i n vi o l at i o n o f § 72 7( a) ( 2)

. W e ad dr e s s e ac h i n t ur n, t ho ugh i n a di f ferent or der f

rom t h at pres en t ed byC ad l e. A
. Sec t i on 727(

a) ( 4) S ect i on 727 ( a )(4) cond i t i on s t h e debtor’ s di scharge on hi s t ruthful n ess: “T h e co u r t s h a ll g r a n t t h e d e b to ra d is c h a r g e , u n le s s . . . th e d e b to rk n o w in g ly
an d f rau du l en t l y, i n or i nconn ect i on w i t h t h e case . . . m ad e a fal se oath or
a cc o u n t.” T o p re v a ilon acla im u n d e r th is su b se ctio n , a n ob jec tin gp la in tiff (a
c r edit oror t he t r ust ee ) m ust pro ve by a pre ponder ance of t he e vi denc e “t hat( 1) t he de bt o rm ad e a. . . st at e m e ntunde roa t h; ( 2) t he st at e m e ntw as fal s e ; ( 3) t he d eb tor k n ew the statem en t w a s fa l se; (4 ) th e d eb tor m a d e th e sta tem en t w i th fr a u d u le n t in te n t; a n d (5 ) th e s ta te m e n t w a s m a te r ia l to th e b a n k r u p tc yca s e .” Sho l drav . Chi l m a rkFi n. LLP (In reS h ol d ra) , 249 F. 3d 380, 382 ( 5t h C i r . 2001) (c i t i ng B ea u b o u ef v

. B ea u b o u ef (In reB eau bou ef ) , 966 F
. 2d 174 , 178 ( 5th C i r. 1 9 9 2 )). C ir c u m s ta n tia l e v id e n c e m a yb e u s e dt o p r o v e fr a u d u le n t in te n t, i d. , a nd t h e cum u l ative ef

fectof fal se stat em en t s m ay, w h en tak en together, evi den ce a
r e c kl e s s di s r e ga r d f

o r t he t r ut h s uf

f i c i e nt t o s upp o r t a f i n di n g of

f r aud ul e nt in te n t, s e ei d. at383. Fal s e s t at e m e nt s i n t he de bt o r ’ s s c he dul e s o rfal s e s t atem e nt s b y t he deb t or duri n g t h e proceedi n gs are s u f f i ci en tt o j u st i f

y den i alof

di sch arge. B eau bou ef

, 9 6 6 F .2 da t 1 7 8
. F u r th e r , t h e m a te r ia lityo f a n o m is s io n is n o t s o le ly b a s e d o n t h e v a l u e of the i tem om i tted o r w h eth er itw a s d etrim en tal t o c r e d ito r s . I

d. Rat he r , t he s t at e m e ntne e d o nl y “be ar [] a re l at i o ns hi p t o t he ban kru pt’ s busi n ess t ran sact i on s or estat e, or concern[] t h e di scovery of asset s, b u sine ss d ea l i n gs , or th e ex i sten ce an d d i sp ositi on of h i s p rop erty
. ” I d. ( quo t i ng Chal i k v. Mo o r ef

i e l d (In reCh a lik) , 74 8 F. 2d 61 6, 61 7 ( 11 t h Ci r . 1 98 4) )

. I nde e d, [t] he r ec al c i t r antd e b t o rm a yn o te s c a pe a se c t i on 727( a) ( 4) (A) deni al o f d is c h a r g e b ya s s e r t in gth a t t h e a d m itt e d lyo m itt e do rfa ls e lyN o. 07- 41024

The obj ecting creditor also bears the ultimate burden of persua sion

. Fed. R . B ankr. 1 P. 400 5. 8 sta te d i n f

orm ati on concerneda w ort h l ess bu si n ess rel ati on shi p or ho l di ng; s uc h a de fe ns e i s s pe c i o us . I tm ak e s no dif fe r e nc e t hathe does n ot i n t en d t o i nj u re h i s credi t ors w h en h e m ak es a fa lse s ta te m e n t. C r e d ito r s a r e e n tit le dto ju d g e fo rth e m s e lv e s w h a t w ill b e n e f i t , a n dw h a tw i l lp r ej u d i c e , t h e m. I d. ( quot i ng Ch a lik , 7 4 8 F .2d a t 6 1 8 ). U n der ban kru ptcy l aw , a cr edi t or obj ect i n g t o t h e debtor’ s di scharge bea rs t h e i n i t i albu rdenof produ ct i on t o present evi den ce t h at t h e deb t or m ad e fal se sta te m e n ts. F e d

. R
. B a n k r. P
. 4 0 0 5 a d v iso ry co m m ittee ’ s n o te
. If th e p la in tiff 1
e s t ab l i s he s apr i m a fac i e c as e , then the b ur de n s hi f t s t o t he de bt o rt o pr e s e nt
e v id e n c e th a t h e is in n o c e n t o f th e ch a r g e do ffe n s e . S e eFir s t T ex . S a v ings A s s ’n
v. R eed(In reR eed) , 700 F
. 2d9 8 6 , 9 9 2 ( 5th C i r. 198 3) (“W h i l e t h e bu rden of p e r s u a s io n re s ts a t a ll tim e s o n th e cr e d ito ro bje c tin gto d is c h a r g e , it is axiom ati c th at the deb t or can n otp revai lif h e fai l s to of

fer credibl e evi den ce af t er th e cr e d ito rm a k e s ap r im afa c ie ca s e .”); see als o B orof f v. Tu l l y (In reTu lly) , 818 F
. 2d106 , 110 (1stC i r. 1 987 ) (“ [ O ] n ce i treason ably app ears t h at th e oath i s fal se, t he bur den fal l s upon t he bankr uptt o c om e f or w ar d w i t h evi denc e thathe has
n o t co m m itted th e offe n se ch a rg e d .”) (i n te rn a l qu o ta tion m a rk s o m itted ). In t h e ban kru ptcy court, C ad l e argu ed th at D u n can m ad e nu m erous fal se st atem e nt s i n t he Sc he dul e s a nd i n t he SO FA

. The b ank r upt c y c o ur ts o rt ed t he s e a r gum e nt s i nt o f ivec at e go r i e s : ( 1) fail ur e t o l i s tc e r t ai n a sse t s a nd
ow ner shi p i nt er es t s t hatD uncan c l ai m ed ar e hi s w i fe’ s se par at e pr ope r t y; ( 2) fai l u re to value bu si n ess ven t u res corr ect l y or t o i den t i f y t h ei r ass et s; ( 3) fai l u re t o i nc l ude t he s t o c k t r ans fe ro rt he t r ansfe ro f Br i ar gr o vei n t he SO FA , a nd related om i ssion s; ( 4 ) fai l u re to i d en tify an drep ort i n com e; a n d( 5 ) fai l u re to d is c lo s e th e M a y 2 0 0 2 fi n a n c ia l s t a t e m e n t
. T h e s e c a t e g o r ie s a ls o r e fl e c tC a d le ’s
ar gum e nt s o n a ppe al

. The b ank r upt c y c o ur ta nalyz e d the s e a r gum en t s a ndN o. 07- 41024

9 f ound onl y o ne fal ses t at em ent : D uncan’ s fai l ure t o di sc l os e i n t he S O FAthe M ay 2002 f i nanci als t at em ent
. The c our texcused t hi s om i ss i on by f i ndi ng t hat D u n ca n h on estly f

org ot to i n cl u d e it

. T h e ban kru ptcy co u rtal so c on cl u ded t h at c ert ai n i t em s of t h e D u n can s’ property w ere sepa rat e in ch aract er, b el on gi n g t o M rs. D u n can , a n d thu s w ere pr o pe r l y o m i t t e d f

r o m t he Sc he dul e s a nd the SO FA

. Sp e c if i c all y, t he c o ur tf

o und
as a m at t erof

fac tt hat M s. D uncan hol ds oiland gas i nt er es t s as w ellas r en t alr eal pro per t y as hers epar a te p rop erty
. M s. D uncan al soow ns a boat and oth er ve hi c l es w hi c h ar e no tc om m uni t y pr ope r t y. A l ar ge porti on of

t h e persona li t em s l ocat ed i n t h ei r hom e b e lon g t o M s. D uncan as hers epar at e pr ope r t y. N o e vi denc e w as i nt r oduc ed at tr ia l to s u p p o r t C a d le ’ s a lle g a tio n th a t [D u n c a n ] h a s a n yo w n e r s h ip i nt er es ti n and/orr i ghtt o s uch pr ope r t y. B ased on t h i s and rel ated f i n di n gs, th e cou rtconcl u ded t h at D u n can di d n ot
m ak e an y fal se s t atem en t s i n t h e Sch edu l es ori n t h e SO FAregardi n g t h ese as s e t s . I n c o nne c t i o n wi t h t hi s f i ndi ng, t he c o ur td i d no ta ddr e s s t he pr e s u m p ti o n t hata r i s e s und e rTe xa s l aw i n fav o ro f c o m m uni t y pr o pe r t y andt he b u r d e n D u n c a n b o r e to o v e r c o m e th a tp r e s u m p tio n . S ee Tex
. Fam
. Cod e Ann. § 3 .0 0 3 ; see als o McKi n ley v. McKi n ley , 4 96 S. W
. 2d5 40 , 5 43 (Tex
. 1 97 3) (ho l di ng t h at propert y possessed du ri n g m arri age i s presum ed com m u n i t y i n character
a n dap a rtym u st p re se n t cle a r a n dco n v in cin gev id e n ce to p ro v e oth e rw ise ). Y etev en if

t he bankr upt c y c our ter r ed byfai l i ng t o c ons i dert he Texas pr e s um pt i o n i n fav o ro f c o m m uni t y pr o pe r t y i n it s § 7 27( a) ( 4) a nalys i s a nd D uncan i n fac tm ade a ddi t i onalfal ses t at em ent s, C adl e m ust pro ve t hatD uncan ac t e d wi t h f

r aud ul e ntintent t o pr e va i l

. Thi s Cadl e ha s no tdo ne . The b a n k r u p tc yco u r t fo u n dth a t D u n c a n “d e a lt h o n e s tly w ith h is c r e d ito r s a n d

. . . m ad e a f

u l la n dc o m p l e t e d i s c l o s u r e o f a l lo f h i s a s s e t s a n dl i a b i l i t i e s , ” t h a the
c o o pe r at e d wi t h Cadl e i n “i t s a t t e m ptt o i de nt i f y ad dit i o nali nf

o r m at i o n, ” a ndN o. 07- 41024

10 t hathe “ di d no tpo s s e s s a ny f r aud ul e nti nt e nt
. ” W e c anno ts ay , o n t hi s r e c o r d, t h a tth e s e fi n d in g s a r e c le a r lye r r o n e o u s . A c c o r d in g ly , w e r eje c tC a d le ’s § 7 2 7 ( a ) ( 4 ) c l a i m. B
. Sec t i on 727(

a) ( 3) T h e s e c o n de x c e p tio n to d is c h a r g e t h a t C a d le ra is e s inth is a p p e a l is § 727 ( a) ( 3) , w h i ch reads as f ol l ow s: ( a) T h e courtshallgran tt h e debtor a dis cha rge, un l ess –

. . . . ( 3) t h e debtor h a s co n ceal ed, dest royed, m u t i l ated, fal sif i ed, or fail e d t o ke e p o rpr e s e rve an y re c o r de d i nf o r m at i o n, i nc l udi ng b o o k s , d o c u m e n t s , r e c o r d s , a n dp a p e r s , fr o m w h ic h th e d e b t o r ’s f i nanc i al c o ndit i o n o r bus i ne s s t r ans ac t i o ns m i ghtb e a s c e r t ai ne d, unl e s s s uc h a c to rfail ur e t o a c tw as j us t i f i e d un de r a l lo f

t he circum st an ces of

t h e case. U nde rt hi s s e c t i o n, t he c r e dit o ro bj e c t i ng t o t he de bt o r ’ s di scharge be ar s t he i n i t i albu rden of

produ ct i on t o present evi den ce th a tt h e debtor fai l ed to keep ad e qua t e r e c o r ds and t hatt he fail ur e pr e ve nt e d t he cr e dit o rf r o m e va l uat i ng t he d e b to r ’ s fin a n c ia l co n d itio n . D en n is , 3 3 0 F .3 da t 7 0 3 ; s e eals o PherPart ners v. W om ble ( In reW om ble) , 289 B
. R
. 836, 856 ( B ankr. N
. D
. Tex. 2003) (not i ng t hat
a c r e dit o rm us tes t ab l i s h t w o e l e m e nt s und e r1 1 U
. S. C. § 7 27 ( a) ( 3) : “ ( 1) t hatt he deb t or fai l ed to keep or preserve books o r re co rd s; an d ( 2) t h at s u ch fai l u re
m a k e s itim p o s s ib le to a s c e r t a in th e d e b t o r ’s fi n a n c ia l c o n d it io n ” ). “Ad e b t o r ’s f i n an ci alrec ords neednot c on t ai n ‘f u l ldetai l , ’bu t ‘ t h ere s h ou l d be w rit t en ev i d en ce’of th e d eb tor’ s f i n a n ci a lcon d i ti on . ” D en n is , 3 30 F. 3da t7 03 ( quo t i ng G off v . R u ss ell Co . (In reG off) , 4 9 5 F .2 d1 9 9 , 2 0 1 (5 th C ir . 1 9 7 4 )); seealso I n re Juz w i ak , 89 F .3 d a t 4 2 8 (“[ C ]ou rts an dcred i tors sh ou l dn ot be req u i red to speculat e a s to the f

i n an ci alh i st ory or cond i t i on of the d ebtor , n or s h ou l d they b e co m p e lle dt o re c o n s tr u c t t h e d e b to r ’ s a ffa ir s .” (c ita tio n s o m itt e d)); W o m b le , 2 8 9 B .R . a t8 5 6 (“ C r e d it o r s a r e e n t it le dto w r it t e n e v id e n c e o f t h e d e b t o r ’s f i n an ci alsit u ati on an d p ast t ran sactio n s; m ai n t en an ce of such records i s aN o. 07- 41024

11 p r e r e q u is ite to ad is c h a r g e .”)

. T h e a d e q u a c yo f th e d e b to r ’ s re c o r d s is d e t e r m in e do n ac a s e b yc a s e b a s is , u s i n gs u c h c o n s id e r a t io n s a s th e “d e b t o r ’s
o c c u p a t i o n , f

i n a n c i a l s t r u c t u r e , e d u c a t i o n , e x p e r i e n c e , s o p h i s t i c a t i o n a n da ny o th e rcir c u m s ta n c e s th a t s h o u ldb e co n s id e r e dinth e in t e r e s to f ju s tic e .” W o m b le , 2 8 9 B .R
. a t 8 5 6 (i n te rn a l qu o ta tion m a rk s o m itted ). I f t h e p la in t if

f s a t is fi e s t h is in it ia l b u r d e n o f p r o d u c t io n— t h a tth e d e b t o r ’s fai l ure t o pro duce adequat e r ec or ds m akes i ti m pos sibl e t o di sc er n hi s f i nanci al
s t at us — t he de bt o rm us tpr o vet he i nad e qua c y i s “j us t i f i ed u n der allt he ci rcu m stan ces.” D en n is , 3 30 F
. 3d a t7 03
. The b ank r upt c y c o ur tha s “w i de d is c r e t io n ” in a n a ly z in gth e s e s h iftin gb u r d e n s , a n dits d e te r m in a tio n is
r e v ie w e dfo rcle a re r r o r . I d. C a d l e’ s cen tral § 7 2 7 (a)( 3 ) ar gu m en t on a p p ea lra i ses s i m i l a r com m u n i ty p rop ertyi ssu es to th ose d is c u s sed ab ov e, n a m ely, tha t D u n ca n ’ s fa i l u re to p r o v id e e v id e n c e o f M r s . D u n c a n ’s s e p a r a t e p r o p e r t ym a d e im p o s s ib le C a d le ’s task of d i s c e r n in gthe statu s of D u n ca n ’ s f i n a n ci a laffa i rs. C a d l e d i dn ot, h ow ever, add resst h i s argum en tt o the ban kru ptcy court, rais i n g i tf or th e f i rst t i m e on ap pea lt o t h e di st ri ctcourt , an d w e w i l lnot hear i t
. “ Iti s a bedrock p r in c ip le o f a p p e lla te re v ie w th a t cla im s r a is e d fo r th e fir s t t im e o n a p p e a l w ill
n ot be con sider ed

. ” S te w a r t G la s s & Mir ro r, I n c . v . U.S . A u to G la s s D is c . C trs ., Inc. , 2 0 0 F .3d 3 0 7 , 3 1 6

– 1 7 (5t h C ir. 2 0 0 0 ). C a d le a lso a rg u e s th a t D u n c a n ’s fai l u re t o provi de p a y e e i n f orm ati on f

rom cancel l ed check s, cr edi tcard
s t a t e m e n t s , a n dd e p o s its li p s . B u tth e b a n k r u p t c yc o u r tfo u n dD u n c a n ’s di sc l os ure s adequat e, not i ng t hathe pr ovi ded per so naland c or por at e t ax
r e tu r n s , b a n ks ta te m e n ts , fo r m a tio n d o c u m e n ts fo r h is m o s t re c e n t en tit ie s , h is
w i l l , l i f e i ns ur anc e po li c y, a nd o t he rdo c um e nt s . I n l i gh tof th e e vi de nc e , t he b a n k r u p tc yco u rt’ s f

i n d i n g th a t D u n c a n ’ s d is c lo s u r e s s u ffic ie n tlyillu m in a te dh is f i nanci alaf

fai r s i s notc l ear l y e r r oneo us. Th e bankrupt c y c our tc onc l uded t hatN o. 07- 41024

In view of thisconclu sion , wedo nota ddre ss the b ankruptcycourt’saltern ative 2 finding(and Cadle’s argu ments contesting the finding) th at Duncan was j ustified in failing to provide documentationif he in fact did fail to provide that information

. 12 C adl e fai l ed t o m ake a p rim afa cie case u n der § 727 ( a) ( 3)

. W e agree an d rej ect C a d l e ’ s c l a i m. 2 C

. Sec t i on 727(

a) ( 2) T h e f i n alex cepti on t o di scharge that C ad l e i n vok es i s § 727 ( a) ( 2) , w h i ch reads: ( a) T h e courtshallgran tt h e debtor a dis cha rge, un l ess –

. . . . ( 2) t h e debtor, w i t h i n t en t t o h i n der, del ay, or def rau d a credi t or or an of f i cer of t h e est ate c h argedw i t h cust odyof property un der t h i s t i t l e, ha s t ran sferred, rem oved , d e str oyed , m u t i l ated, or c o nc e al e d, o rha s pe r m i t t e d t o b e t rans fe r r e d, r e m o ve d, de s t r o ye d, m ut i l at e d, o rc o nc e al e d – (A) property of t h e deb t or, w i t h i n one yea r bef ore th e date of filin go f th e p e tit io n . . . . To e s t ab l i s h ac l ai m unde r§ 727 ( a) ( 2) (A) , t he pl ai nt i f f m us tpr o vet he f

o l l o w i ng fo u re le m e n ts : “(1 ) atr a n s fe ro f p r o p e r ty ; (2 ) b e lo n g in gto th e d e b to r ; (3 ) w ith in
o ne y e arof

t he f i l i ng o f t he pet i t i o n; ( 4) w i t h i nt e ntt o hi nde r , de l ay , o rde f r aud
acr ed i tor or off

i cer o f th e es tate.” Pa vy v . Ch a sta n t (In reCh a sta n t) , 873 F. 2d 89 , 9 0 ( 5t h C i r . 198 9)

. Cons t r uc t ivei nt e nti s i nad e qua t e ; pr o o f o f a c t uali nt e nt is n e c e s s a r y , s e ei d. a t 9 1 , wh i c h c a n b e i n fe r r e d f r o m t h e d e b t o r ’ s a c t i o n s a nd
c ir c u m s ta n tia l e v id e n c e , Perez , 954 F. 2d at1029. Th i s c i r c ui thas adopt ed a six- fac t ort es tt o e val uat e e vi denc e o f ac t ual in te n t to d e fra u du n d e r § 7 2 7 (a)(2)(A): (1 ) th e la c k o r in a d e q u a c y o f c o n s id e r a tio n ; (2 ) th e fa m ily , frie n d s h ip or c l ose assoc i ate r el ati on shi p betw een the pa rt i es; ( 3) t h e ret en t i on o f po s s e s s i o n, b e ne f

i to rus e o f

t he pr o pe r t y i n q ue s t i o n; ( 4) t he f i nanc i alc o ndit i o n o f

t he pa r t y s o ugh tt o b e c har ge d bo t h be f o r e a nd af t er t he t r ansac t i on i n ques t i on; ( 5) t he exi st enc e or cu m ul at ive ef fe c to f t he pa t t e r n o rs e r i e s o f t r ans ac t i o ns o rc o ur s e o f c on du ctN o. 07- 41024

13 af t er th e i n curri n g of deb t, o n setof

f i n an ci aldi f

f i cul t i es, or pendenc y o rt hre atof s ui t s by c r edit or s; and ( 6) t he ge ner al c hro nol ogyof

t he e vent s and t r ansac t i ons under i nqui r y. Chas t ant , 8 7 3 F
. 2 d at91 ( quot i ng In reS ch m it , 7 1 B
. R. 5 8 7 , 5 9 0 ( Ba n k r . D. M i n n . 1 98 7) )

. A pr e s um pt i o n o f a c t ualf

r aud ul e nti nt e nta r i s e s if t he de bt or tr a n s fe r s p r o p e r tyg r a tu ito u s lyo rto are la tiv e . I d. I f t he p l a i nt i f

f c an dem ons t r at e e i t herof t hes e fac t s, t hen t he bur den s hi f t s t o the deb t ort o pr ove th a t h e la c k e dfr a u d u le n t in te n t. I d. The pr e s e nc e o ra bs e nc e o f f r aud ul e nt i nt e nti s af

i ndi ng o f

fac t , and i s r e vi e w e d un de rt he c l e ar l y e r r o ne o us s t and ar d. D en n is , 330 F. 3d at701. H ere , b o th th e t ran sfer of st ock an d the t ran sfer of B ri argrove t o M rs. D u n can w ere w i t h i n on e y ear of D u n can ’ s ban kru ptcy pet i t i on , t h ese t ran sfers
w e r e t o a re l at ive , and wer e pr o pe r t y o f t he de bt o r . The o nl y r e m ai ni ng e l e m e nt i s ac tu a lf

ra u d u l en t i n ten t. Fi r s t , C ad l e a s s e r t s t he t r ans fe rw as w i t ho utc o ns i de r at i o n, b utt he ba nkr upt c y c o ur tf

o und o t he r w i s e , s t at i ng t hatt he t ran sfers w e r e t o c l e arup ou t st an di n g deb t
. Secon d, C ad l e i s co rr ecti n asser t i n g t h at M rs. D u n can i s a cl ose r el ative of

D u n can . Th i rd, D u n can ha s r et ai n ed b en ef i ci aluse of B r ia r g r o v e , th o u g h h e m a yle g itim a te lyd o s o th r o u g h h is w ife

. SeeI R S v. Pe t e rs e n (

I n rePe t e rs e n) , 312 B
. R. 385 , 392 ( Bankr

. N
. D
. I o w a 20 04 ) (r e as o ni ng t hatow n er shi p of

pr ope r t y by spo use and t he deb t or ’ s der ivat ive r i ght s m ay sup port a f

i n di n g t h at f

rau du l en ti n t en ti s abs e n t). F ou rt h , C ad l e argu es D u n can l ostt rem en dou s value du ri n g t h e t i m e of t h ese t ran sfers, as evi den ced by a com pa ri son of

t h e M ay 20 02 stat em en tan d the S ched u l es. D u n can cl ai m ed t he val ue of t he s t oc k w as negli gibl e a nd hi s hom es t ead i nt er es ti n B r i ar gr ove w a s e x e m p t. T h e b a n k r u p tc yco u r t n o te dth a t t h e s e co n s id e r a tio n s w e ig h e din fav o ro f f i ndi ng f r aud ul e nti nt e ntbutw e r e no tdi s po s i t ive . Fi nall y, c o m bi ni ng t h e l ast t w o fact ors, C ad l e asser t s D u n can ha d a pa t t ern of a voi di n g credi t ors,N o. 07- 41024

14 bu tt h e ban kru ptcy c ou rtnoted th a t D u n can w as not i n t en di n g t o f i l e f or ba nkr upt c y w he n he m ad e t he t r ans fe r s , a nd h e d i scl o s e d the m o n t he S ched u l es. T h e b a n kru ptcy c ou rtw ei gh ed the evi den ce r el ati n g t o t h ese fact ors, l ooking “t o t h e surroun di n g fact s and circum st an ce s , thec r e dibility o f [D u n can ’ s] te s tim o n y , a n dth e g e n e r a l ch r o n o lo g yo f e v e n ts ,” a n dfo u n dth a t D u n c a n “d id
n o t h a v e a c tu a l f

r a u d u le n t in te n t “t o h in d e r , d e la yo rd e fr a u dh is cr e d ito r s ” in t r ans fe r r i ng t he s t o c k and hi s i nt e r e s t i n Bri ar gr o ve . Vi e w i ng t he r e c o r d i n l i ght
o f th e d e fe r e n tia l s ta n d a r do f r e v ie w , w e ca n n o t s a yth is fin d i n gis cle a r ly
e r r o n e o u s , a n dw e reje c t C a d le ’ s § 7 2 7 (a )(2 ) c la im

. CO NC L US I ON F o rth e re a s o n s s e t fo r t h a b o v e , th e ju d g m e n t o f th e d is tr ic t c o u r t is AF F I RMED.