IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 07-41024

IN THE MATTER OF: JOHN CECIL DUNCAN

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THE CADLE COMPANY

Appellant

v.

JOHN CECIL DUNCAN

Appellee

Appeal from the United States District Court

for the Eastern District of Texas

Before DAVIS, CLEMENT, and ELROD, Circuit Judges.

PER CURIAM:

In this bankruptcy adversary proceeding, the Cadle Company (Cadle)

objected to the discharge of John Duncan (Duncan) on three separate grounds

under 11 U.S.C. § 727(a), any one of which, if proven, would prevent discharge.

The bankruptcy court denied Cadle relief and granted Duncan discharge of his

debts, including Cadle’s judgment in the amount of $420,102.50. The district

court affirmed. Cadle appealed, arguing among other things that the

United States Court of Appeals

Fifth Circuit

F I L E D

March 11, 2009

Charles R. Fulbruge III

Clerk
No. 07-41024

2

bankruptcy and district courts failed to correctly apply the presumption of Texas

law in favor of community property. We affirm.

I. FACTS AND PROCEEDINGS

Duncan is a general contractor who has built custom homes in the Dallas

area for thirty years. He has been married to Barbara Duncan (Mrs. Duncan)

since 1976. She is not a party to her husband’s bankruptcy filing or to this

adversary proceeding, in which an important issue is whether certain assets are

community property or her separate property. When he filed for bankruptcy,

Duncan omitted certain items from his assets, including oil and gas interests,

rental property, and a boat. Initially, he also scheduled the family home

(Briargrove) as his wife’s separate property. Cadle objected, claiming that

Duncan had not provided sufficient evidence that these assets were his wife’s

separate property rather than community property.

Duncan operated his business through a number of entities over the years,

beginning in the 1980s with John C. Duncan, Inc. This company took out loans

obtained by the FDIC and went out of business in 1987. The FDIC procured a

deficiency judgment against Duncan individually for nearly $300,000, plus

interest, in 1996. Cadle purchased this judgment in 2001, and began attempting

to collect it in 2002, shortly before Duncan filed for Chapter 7 bankruptcy on

December 4, 2002.

Duncan filed Bankruptcy Schedules A through J (the Schedules) and his

Statement of Financial Affairs (SOFA) on December 23, 2002. The Schedules

list Duncan’s total assets at $440,979.00 and his liabilities at $592,367.27.

Schedule E reports credit card debt of approximately $16,500, but no credit card

statements were produced. At trial, Duncan testified that he discarded the

statements each month after reconciling them. In response to questions on the

SOFA, he denied making any transfers to insiders within a year of bankruptcy,

even though he had transferred his interest in Briargrove and the stock of his
No. 07-41024

3

wholly owned entity Duncan & Sons, Inc. to Mrs. Duncan earlier that year. He

also denied making any gifts during that year, even though at one point in the

trial he characterized the stock transfer as a gift. Duncan also neglected to

include an important financial statement provided to Horizon Bank in May 2002

that listed a net worth of over $1,200,000, testifying that (1) he forgot about it,

and (2) he thought it was not important. His bankruptcy attorney testified at

trial that she personally prepared the Schedules and the SOFA because she was

familiar with Cadle’s practice of aggressively pursuing debts. She listed the

stock of Duncan & Sons, Inc. as belonging to Duncan, testifying that she did not

see any evidence of a transfer.

In 1999 and 2002 Duncan had provided financial statements to banks in

connection with his business loans. In a statement intended to reflect his

financial condition as of October 28, 1999, he listed a net worth of over

$1,000,000, including life insurance policies with a combined cash value of

$750,000 and a 35-foot boat valued at $53,000. Duncan also listed $60,000 of

income from his wife’s trust. Only months before filing for bankruptcy, Duncan

prepared a financial statement dated May 1, 2002, for Horizon Bank, reflecting

a net worth of just over $1,200,000. This statement lists insurance of only

$250,000 (but the schedule attached to the statement lists this amount as the

face value with no cash surrender value). It also lists income from a trust

attributed to Mrs. Duncan at $60,000, and all marketable securities as belonging

to her alone. Duncan testified that the $500,000 life insurance policy was

allowed to lapse because the premiums were too expensive. Duncan valued his

interest in his two entities with his partner Linda Sanders at $2,072,500, with

$1,406,500 in debt against it, as compared to the earlier statement, in which the

debt equaled the value of his interest. Duncan testified at trial that the banks

asked for the statements to reflect household finances. He also testified that the
No. 07-41024

4

values of the entities in the later statement reflected land values adjusted to

include a 40% profit margin.

Cadle filed this adversary proceeding on June 17, 2003 seeking denial of

Duncan’s discharge, and its claim of $420,102.50 was allowed in full on February

9, 2004. Cadle prepared a list of documents that Duncan did not produce in the

bankruptcy proceeding, including bank statements for any of his entities (except

for Heritage Custom Homes, Inc., an entity he no longer used for business but

whose checking account he still used for personal expenses), cancelled checks,

check registers, deposit slips, credit card statements, credit card slips, etc. At

trial, a Cadle employee testified that the company obtained some of the bank

statements (including the financial statements) through subpoenas in the

bankruptcy proceeding, but very little from Duncan despite discovery requests.

Duncan did not obtain copies of cancelled checks from his bank, testifying that

it would have cost at least $2,000. Based on this lack of information, Cadle

claimed it was impossible to verify Duncan’s claims that Mrs. Duncan owned

many of the couple’s assets as her separate property.

Duncan testified that Mrs. Duncan had substantial assets before their

marriage. He also testified that she received property and cash when her

parents died in 1979 and 1980, and an additional inheritance from her uncle.

The Duncans testified that they maintained separate finances from the

beginning of their marriage, and that they never had a joint bank account or

credit card. They did not provide any documents verifying these inheritances.

The Duncans testified that Mrs. Duncan had borrowed money at various

times over the years, pledging her separate assets as collateral, and then giving

the money to Duncan for use in his business. On November 14, 1996 (about

eleven months after the FDIC obtained its judgment), Duncan signed a

promissory note in the principal amount of $188,709.39 payable to his wife with

an effective date of May 13, 1996, a 4% interest rate, and a monthly payment of
No. 07-41024

5

$999.97. The Duncans also testified that this note consolidated various older

notes for amounts Duncan had borrowed from Mrs. Duncan over the years to

keep his business afloat. Both testified to having recently discovered the

underlying notes, but Duncan did not produce them in discovery. He claimed to

have paid the note from 1996 to 2002, but he admitted that he did not keep a

ledger of payments made. The bank statements provided do not indicate any

payments in the amounts called for in the note.

In 1996, on the advice of her accountant, Mrs. Duncan paid off the debt

incurred by these transactions by cashing out various investments. In June or

July 2002, again on the advice of her accountant, she and Duncan determined

that Duncan could satisfy the 1996 note by transferring to her his interest in

Briargrove, which he did. Duncan testified that the transfer was based on a

written partition agreement, but no such agreement was ever produced. Mrs.

Duncan reconveyed this interest back to Duncan after he filed for bankruptcy,

testifying that she did not want it to appear that she was getting paid before

other creditors. Duncan continued to reside at Briargrove and listed, among

other expenses, the payment amount of their $3,000 mortgage as one of his

expenses, which totaled over $7,000 a month. Mrs. Duncan testified that she

paid the mortgage, with Duncan contributing as he was able.

On July 17, 2002, Duncan assigned to Mrs. Duncan all of his stock in

Duncan & Sons, Inc., an entity Duncan had recently formed to continue his

construction business, having ceased working with his former partner, Linda

Sanders. Duncan testified this transfer was to collateralize a $23,000 loan she

made to him in 2001 to pay taxes—and yet Duncan valued the stock as worthless

on the Schedules—even though the couple’s tax liability for that year was only

$7,124. No promissory note for $23,000 is in the record. Duncan did produce a

note dated November 1999 for $22,000, which Mrs. Duncan testified was for the

payment of taxes. The couple’s 1999 tax return was not produced, but the 2000
No. 07-41024

6

return in its two-year comparison listed the couple’s 1999 tax liability at

$24,143. Duncan never gave Mrs. Duncan the stock certificates, testifying that

he could not find them.

After the trial in October 2004, the bankruptcy judge issued a

memorandum opinion on March 31, 2006, rejecting Cadle’s claims. The court

found the testimony of Duncan and Mrs. Duncan to be credible and supported

“in most respects” by the documentary evidence. According to the bankruptcy

court, Mrs. Duncan owned the oil and gas interests, rental property, the boat,

other vehicles, and most of the furnishings as her separate property. The

district court affirmed in a short order. This appeal followed.

II. DISCUSSION

We apply the same standard of review as the district court, reviewing the

bankruptcy court’s findings of fact for clear error and conclusions of law de novo.

Hickman v. Texas (In re Hickman), 260 F.3d 400, 401 (5th Cir. 2001). “A finding

of fact is clearly erroneous only if ‘on the entire evidence, the court is left with

the definite and firm conviction that a mistake has been committed.’” Robertson

v. Dennis (In re Dennis), 330 F.3d 696, 701 (5th Cir. 2003) (quoting Hibernia

Nat’l Bank v. Perez (In re Perez), 954 F.2d 1026, 1027 (5th Cir. 1992)). We give

deference to the bankruptcy court’s determinations of witness credibility. Id.

The bankruptcy code requires discharge of the debtor unless a statutory

exception applies. 11 U.S.C. § 727(a). The exceptions are construed strictly

against the creditor and liberally in favor of the debtor. See Hudson v. Raggio

& Raggio, Inc. (In re Hudson), 107 F.3d 355, 356 (5th Cir. 1997). Cadle advances

three separate subsections of § 727(a) as grounds for denying discharge to

Duncan. First, Cadle argues that Duncan did not produce adequate records as

required by § 727(a)(3). Second, Cadle argues that Duncan made false

statements in his Schedules, in the SOFA, and in discovery, all in violation of §

727(a)(4). Finally, Cadle argues that Duncan transferred property—specifically
No. 07-41024

7

stock certificates and his interest in the family home—with the intent to defraud

his creditors in violation of § 727(a)(2). We address each in turn, though in a

different order from that presented by Cadle.

A. Section 727(a)(4)

Section 727(a)(4) conditions the debtor’s discharge on his truthfulness:

“The court shall grant the debtor a discharge, unless . . . the debtor knowingly

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

account.” To prevail on a claim under this subsection, an objecting plaintiff (a

creditor or the trustee) must prove by a preponderance of the evidence “that (1)

the debtor made a . . . statement under oath; (2) the statement was false; (3) the

debtor knew the statement was false; (4) the debtor made the statement with

fraudulent intent; and (5) the statement was material to the bankruptcy case.”

Sholdra v. Chilmark Fin. LLP (In re Sholdra), 249 F.3d 380, 382 (5th Cir. 2001)

(citing Beaubouef v. Beaubouef (In re Beaubouef), 966 F.2d 174, 178 (5th Cir.

1992)). Circumstantial evidence may be used to prove fraudulent intent, id., and

the cumulative effect of false statements may, when taken together, evidence a

reckless disregard for the truth sufficient to support a finding of fraudulent

intent, see id. at 383.

False statements in the debtor’s schedules or false statements by the

debtor during the proceedings are sufficient to justify denial of discharge.

Beaubouef, 966 F.2d at 178. Further, the materiality of an omission is not solely

based on the value of the item omitted or whether it was detrimental to

creditors. Id. Rather, the statement need only “bear[] a relationship to the

bankrupt’s business transactions or estate, or concern[] the discovery of assets,

business dealings, or the existence and disposition of his property.” Id. (quoting

Chalik v. Moorefield (In re Chalik), 748 F.2d 616, 617 (11th Cir. 1984)). Indeed,

[t]he recalcitrant debtor may not escape a section 727(a)(4)(A) denial

of discharge by asserting that the admittedly omitted or falsely
No. 07-41024

 The objecting creditor also bears the ultimate burden of persuasion. Fed. R. Bankr. 1

P. 4005.

8

stated information concerned a worthless business relationship or

holding; such a defense is specious. It makes no difference that he

does not intend to injure his creditors when he makes a false

statement. Creditors are entitled to judge for themselves what will

benefit, and what will prejudice, them.

Id. (quoting Chalik, 748 F.2d at 618).

Under bankruptcy law, a creditor objecting to the debtor’s discharge bears

the initial burden of production to present evidence that the debtor made false

statements. Fed. R. Bankr. P. 4005 advisory committee’s note. If the plaintiff 1

establishes a prima facie case, then the burden shifts to the debtor to present

evidence that he is innocent of the charged offense. See First Tex. Savings Ass’n

v. Reed (In re Reed), 700 F.2d 986, 992 (5th Cir. 1983) (“While the burden of

persuasion rests at all times on the creditor objecting to discharge, it is

axiomatic that the debtor cannot prevail if he fails to offer credible evidence after

the creditor makes a prima facie case.”); see also Boroff v. Tully (In re Tully), 818

F.2d 106, 110 (1st Cir. 1987) (“[O]nce it reasonably appears that the oath is false,

the burden falls upon the bankrupt to come forward with evidence that he has

not committed the offense charged.”) (internal quotation marks omitted).

In the bankruptcy court, Cadle argued that Duncan made numerous false

statements in the Schedules and in the SOFA. The bankruptcy court sorted

these arguments into five categories: (1) failure to list certain assets and

ownership interests that Duncan claimed are his wife’s separate property; (2)

failure to value business ventures correctly or to identify their assets; (3) failure

to include the stock transfer or the transfer of Briargrove in the SOFA, and

related omissions; (4) failure to identify and report income; and (5) failure to

disclose the May 2002 financial statement. These categories also reflect Cadle’s

arguments on appeal. The bankruptcy court analyzed these arguments and
No. 07-41024

9

found only one false statement: Duncan’s failure to disclose in the SOFA the May

2002 financial statement. The court excused this omission by finding that

Duncan honestly forgot to include it.

The bankruptcy court also concluded that certain items of the Duncans’

property were separate in character, belonging to Mrs. Duncan, and thus were

properly omitted from the Schedules and the SOFA. Specifically, the court found

as a matter of fact that

Ms. Duncan holds oil and gas interests as well as rental real

property as her separate property. Ms. Duncan also owns a boat

and other vehicles which are not community property. A large

portion of the personal items located in their home belong to Ms.

Duncan as her separate property. No evidence was introduced at

trial to support Cadle’s allegation that [Duncan] has any ownership

interest in and/or right to such property.

Based on this and related findings, the court concluded that Duncan did not

make any false statements in the Schedules or in the SOFA regarding these

assets. In connection with this finding, the court did not address the

presumption that arises under Texas law in favor of community property and the

burden Duncan bore to overcome that presumption. See Tex. Fam. Code Ann.

§ 3.003; see also McKinley v. McKinley, 496 S.W.2d 540, 543 (Tex. 1973) (holding

that property possessed during marriage is presumed community in character

and a party must present clear and convincing evidence to prove otherwise).

Yet even if the bankruptcy court erred by failing to consider the Texas

presumption in favor of community property in its § 727(a)(4) analysis and

Duncan in fact made additional false statements, Cadle must prove that Duncan

acted with fraudulent intent to prevail. This Cadle has not done. The

bankruptcy court found that Duncan “dealt honestly with his creditors and . . .

made a full and complete disclosure of all of his assets and liabilities,” that he

cooperated with Cadle in “its attempt to identify additional information,” and
No. 07-41024

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that he “did not possess any fraudulent intent.” We cannot say, on this record,

that these findings are clearly erroneous. Accordingly, we reject Cadle’s

§ 727(a)(4) claim.

B. Section 727(a)(3)

The second exception to discharge that Cadle raises in this appeal is

§ 727(a)(3), which reads as follows:

(a) The court shall grant the debtor a discharge, unless –

. . . .

(3) 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.

Under this section, the creditor objecting to the debtor’s discharge bears the

initial burden of production to present evidence that the debtor failed to keep

adequate records and that the failure prevented the creditor from evaluating the

debtor’s financial condition. Dennis, 330 F.3d at 703; see also Pher Partners v.

Womble (In re Womble), 289 B.R. 836, 856 (Bankr. N.D. Tex. 2003) (noting that

a creditor must establish two elements under 11 U.S.C. § 727(a)(3): “(1) that the

debtor failed to keep or preserve books or records; and (2) that such failure

makes it impossible to ascertain the debtor’s financial condition”). “A debtor’s

financial records need not contain ‘full detail,’ but ‘there should be written

evidence’ of the debtor’s financial condition.” Dennis, 330 F.3d at 703 (quoting

Goff v. Russell Co. (In re Goff), 495 F.2d 199, 201 (5th Cir. 1974)); see also In re

Juzwiak, 89 F.3d at 428 (“[C]ourts and creditors should not be required to

speculate as to the financial history or condition of the debtor, nor should they

be compelled to reconstruct the debtor’s affairs.” (citations omitted)); Womble,

289 B.R. at 856 (“Creditors are entitled to written evidence of the debtor’s

financial situation and past transactions; maintenance of such records is a
No. 07-41024

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prerequisite to a discharge.”). The adequacy of the debtor’s records is

determined on a case by case basis, using such considerations as the “debtor’s

occupation, financial structure, education, experience, sophistication and any

other circumstances that should be considered in the interest of justice.”

Womble, 289 B.R. at 856 (internal quotation marks omitted).

If the plaintiff satisfies this initial burden of production—that the debtor’s

failure to produce adequate records makes it impossible to discern his financial

status—the debtor must prove the inadequacy is “justified under all the

circumstances.” Dennis, 330 F.3d at 703. The bankruptcy court has “wide

discretion” in analyzing these shifting burdens, and its determination is

reviewed for clear error. Id.

Cadle’s central § 727(a)(3) argument on appeal raises similar community

property issues to those discussed above, namely, that Duncan’s failure to

provide evidence of Mrs. Duncan’s separate property made impossible Cadle’s

task of discerning the status of Duncan’s financial affairs. Cadle did not,

however, address this argument to the bankruptcy court, raising it for the first

time on appeal to the district court, and we will not hear it. “It is a bedrock

principle of appellate review that claims raised for the first time on appeal will

not be considered.” Stewart Glass & Mirror, Inc. v. U.S. Auto Glass Disc. Ctrs.,

Inc., 200 F.3d 307, 316–17 (5th Cir. 2000). Cadle also argues that Duncan’s

failure to provide payee information from cancelled checks, credit card

statements, and deposit slips. But the bankruptcy court found Duncan’s

disclosures adequate, noting that he provided personal and corporate tax

returns, bank statements, formation documents for his most recent entities, his

will, life insurance policy, and other documents. In light of the evidence, the

bankruptcy court’s finding that Duncan’s disclosures sufficiently illuminated his

financial affairs is not clearly erroneous. The bankruptcy court concluded that
No. 07-41024

 In view of this conclusion, we do not address the bankruptcy court’s alternative 2

finding (and Cadle’s arguments contesting the finding) that Duncan was justified in failing to

provide documentation if he in fact did fail to provide that information.

12

Cadle failed to make a prima facie case under § 727(a)(3). We agree and reject

Cadle’s claim.2

C. Section 727(a)(2)

The final exception to discharge that Cadle invokes is § 727(a)(2), which

reads:

(a) The court shall grant the debtor a discharge, unless –

. . . .

(2) the debtor, with intent to hinder, delay, or defraud a creditor

or an officer of the estate charged with custody of property under

this title, has transferred, removed, destroyed, mutilated, or

concealed, or has permitted to be transferred, removed,

destroyed, mutilated, or concealed –

(A) property of the debtor, within one year before the date of

filing of the petition . . . .

To establish a claim under § 727(a)(2)(A), the plaintiff must prove the following

four elements: “(1) a transfer of property; (2) belonging to the debtor; (3) within

one year of the filing of the petition; (4) with intent to hinder, delay, or defraud

a creditor or officer of the estate.” Pavy v. Chastant (In re Chastant), 873 F.2d

89, 90 (5th Cir. 1989). Constructive intent is inadequate; proof of actual intent

is necessary, see id. at 91, which can be inferred from the debtor’s actions and

circumstantial evidence, Perez, 954 F.2d at 1029.

This circuit has adopted a six-factor test to evaluate evidence of actual

intent to defraud under § 727(a)(2)(A):

(1) the lack or inadequacy of consideration; (2) the family, friendship

or close associate relationship between the parties; (3) the retention

of possession, benefit or use of the property in question; (4) the

financial condition of the party sought to be charged both before and

after the transaction in question; (5) the existence or cumulative

effect of the pattern or series of transactions or course of conduct
No. 07-41024

13

after the incurring of debt, onset of financial difficulties, or

pendency or threat of suits by creditors; and (6) the general

chronology of the events and transactions under inquiry.

Chastant, 873 F.2d at 91 (quoting In re Schmit, 71 B.R. 587, 590 (Bankr. D.

Minn. 1987)). A presumption of actual fraudulent intent arises if the debtor

transfers property gratuitously or to a relative. Id. If the plaintiff can

demonstrate either of these facts, then the burden shifts to the debtor to prove

that he lacked fraudulent intent. Id. The presence or absence of fraudulent

intent is a finding of fact, and is reviewed under the clearly erroneous standard.

Dennis, 330 F.3d at 701.

 Here, both the transfer of stock and the transfer of Briargrove to Mrs.

Duncan were within one year of Duncan’s bankruptcy petition, these transfers

were to a relative, and were property of the debtor. The only remaining element

is actual fraudulent intent.

First, Cadle asserts the transfer was without consideration, but the

bankruptcy court found otherwise, stating that the transfers were to clear up

outstanding debt. Second, Cadle is correct in asserting that Mrs. Duncan is a

close relative of Duncan. Third, Duncan has retained beneficial use of

Briargrove, though he may legitimately do so through his wife. See IRS v.

Petersen (In re Petersen), 312 B.R. 385, 392 (Bankr. N.D. Iowa 2004) (reasoning

that ownership of property by spouse and the debtor’s derivative rights may

support a finding that fraudulent intent is absent). Fourth, Cadle argues

Duncan lost tremendous value during the time of these transfers, as evidenced

by a comparison of the May 2002 statement and the Schedules. Duncan claimed

the value of the stock was negligible and his homestead interest in Briargrove

was exempt. The bankruptcy court noted that these considerations weighed in

favor of finding fraudulent intent but were not dispositive. Finally, combining

the last two factors, Cadle asserts Duncan had a pattern of avoiding creditors,
No. 07-41024

14

but the bankruptcy court noted that Duncan was not intending to file for

bankruptcy when he made the transfers, and he disclosed them on the

Schedules.

The bankruptcy court weighed the evidence relating to these factors,

looking “to the surrounding facts and circumstances, the credibility of [Duncan’s]

testimony, and the general chronology of events,” and found that Duncan “did

not have actual fraudulent intent “to hinder, delay or defraud his creditors” in

transferring the stock and his interest in Briargrove. Viewing the record in light

of the deferential standard of review, we cannot say this finding is clearly

erroneous, and we reject Cadle’s § 727(a)(2) claim.

CONCLUSION

For the reasons set forth above, the judgment of the district court is

AFFIRMED.