### The Honorable Robert J. Kressel, United States Bankruptc y 1 

### Judge, District of Minnesota.



# United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT
No. 97-6018

In re: * * Kenneth L. Kasden, * * Debtor. * * * Appeal from the United Thomas F. Miller, Trustee * States Bankruptcy Court of the Bankruptcy Estate of * for the District of Kenneth L. Kasden, * Minnesota * Plaintiff-Appellee, * v. * * Kenneth L. Kasden, * * Defendant-Appellant. *
Submitted: May 16, 1997 Filed: June 20, 1997

Before HILL, KOGER and SCOTT, Bankruptcy Judges

KOGER, Chief Bankruptcy Judge

Kenneth L. Kasden, pro se , (hereafter “Debtor”) has appealed th e orde r entered by the bankruptcy court for the District of Minnesota , revoking his discharge pursuant to 11 U.S.C. § 727(d)(2)and ordering Debto r to turn over to the estate certain funds Kasden has obtained. Th e 1 judgment of the bankruptcy court is affirmed.

### Unless otherwise indicated, all statutory re ferences are to 2 

### the United States Bankruptcy C ode, 11 U.S.C. §§ 101 - 1330 (1994). 2 STANDARD OF REVIEW

In review ing a judgment following a trial, we review the bankruptcy court’s findings of fact for clear error and its legal conclusions de novo

. Four B. Corp. v. Food Barn Stores, Inc. (In re Food Barn Stores, Inc.) , 10 7 F.3d 558, 561 (8th Cir. 1997). Findings of fact shall not be set asid e unless clearly erroneous, and due regard shall b e given to the opportunity of the bankruptcy court to judge the credibility of the witnesses. Fed. R. Bankr. P. 8013.

REVOCATION OF DISCHARGE

The pu rpose of a discharge in bankruptcy is to relieve an hones t debtor from his financial burdens and to facilitate the debtor’ s unencumbered “fresh start.” See Local Loan Co. v. Hunt , 292 U.S. 234, 244 , 54 S. Ct. 695, 699 (1934). In limited circumstances, however, the debtor’ s discharge may be revo ked; but revocation is an extraordinary remedy. See Bowman v. Belt Valley Bank (In re Bowman) , 173 B.R. 922, 924 (B.A.P. 9th Cir. 1994 ). The grounds for revocation of a debtor’s discharge are se t forth in § 727(d), which provides: 2
On request of the tru stee, a creditor, or the United States trustee, and after notice and a hearing, the court shall revoke a discharge granted under subsection (a) of this section if-- * * * (2) the debtor acquired property that i s pr opertyof the estate, or became entitled t o acq uire property that would be property of th e estate, and knowingly and fraudulently failed

### 3 to report the acquisition of or entitlement to such property, or to deliver or surrend er such property to the trustee. . . . 11 U.S.C. § 727(d)(2).

After conducting a trial on the trustee’s complaint to revoke th e debtor ’s discharge under § 727(d)(2), the bankruptcy court found th e following sequence of events, all performed by the debtor in the few days before and in contemplation of his filing a petition for bankruptcy: July 27, 1994 - Debtor received a check from Indian River Dist r ibut i o n Comp a ny i n t h e amou n t o f $7,5 0 0.00.
August 1, 1994 - Deb tor cashed the $7,500.00 check from India n River.
August 1, 1994 - Debt or made a $2,500.00 payment to All America n Recreation toward the purch ase of a $6,000 hot tub. He h ad already made a $1,000.00 payment to Al l American toward the hot tub on July 21.
August 1, 1994 - Deb tor paid Knox Lumber $1,384.50 as prepaymen t for roof trusses which he did not pick up unti l after he filed bankruptcy.
August 2, 1994 - Debtor paid $2,000.00 cash to Jay Roshay a s prep ayment for labor to be provided at Debtor’ s home.
August 3, 1994 - Deb tor received another check from Indian Rive r Dis tribution Company in the amount of $2,700.0 0 fromthe sale of a skidloader. That same day , Deb tor endorsed that check over to the Fire Plac e Cen ter as well as paying an additional $853.13 i n cash, for a total payment of $3,553.13, a s prepayment for fireplace equipment. The chec k showed a deposit date of August 5, 1994, one da y after Debtor filed his bankruptcy petition.
August 3, 1994 - Debtor paid $1,800.00 in cash as an advance

### 4 payment for 600 feet of marble tile which he di d not pick until after filing bankruptcy.
August 3, 1994 - Deb tor purchased paint from Knox Lumber fo r $777.02.
August 4, 1994 - Debtor filed his petition in bankruptcy.
Neither the payments to the debtor from Indian River nor the pa yments made by Debtor for the home improvement materials and services wer e reported on any of De btor’s bankruptcy schedules. In fact, while several other prepetition transfers were disclosed in the schedules, these wer e not. The debtor openly admits he performed all of these transactions with the intent of prevent ing his creditors from receiving the proceeds of the chec ks from Indian River. He maintains he did so on the advice of hi s attorney and under th e belief that he was properly and legally protecting that money from his c reditors by investing it into his homestead which he thought would be exempt.

The bankr uptcy court concluded that had the trustee found out about these transfers withi n the applicable limitations period, they would have constituted the making of a false oath and the concealing of transfers , pro viding grounds for the denial of discharge under §§ 727(a)(4)(A) an d 727(a)(2). The court also declared that the assets purchased (the hot tub , the prepaid lumber and tile, etc.) were all asse ts of the estate which the debtor did not list on his Schedule B, thereby providing further grounds for denial of discharge under §§ 727(a)(2) or 727(a)(4). Additionally, th e debtor falsely statedto the court that he was unemployed, that he had no inc ome, and did not reveal the two payments from Indian River, al l providing grounds for denial of discharge for making a false oath.

The trustee did not discover these omissions until after the

### The trustee filed this adversary complaint to revoke th e 3 

### debtor’s discharge pursuant to § 727(d)(2) on June 6, 1996. Th e case had not yet been closed, so the time requirements of § 727(e)(2)(B) for bringing an action to revoke discharge are met. 5 time had passed for o bjecting to discharge, which under Fed. R. Bankr. P. 4004(a) , is not later than 60 days following the first date set for th e first meeting of creditors. In fact, the trustee did not discover th e omissions until after the debtor received his discharge on January 24 , 1995. 3

After the discharge was entered, and during his investigation, th e trustee discovered the sale of the skidloader to Indian River Distribution Company, leading him to make inquiries of Jon Heidinger, a former officer of Indian River Distr ibution Company who was, at the time of the inquiry, winding up Indian River’s affairs. The trustee asked Heidinger to provide himwith a copy of the check which reflected the payment by Indian River Distri bution Company to Debtor for the purchase of the skidloader

. Heidinger, a friend of the debtor, notified the debtor of the trustee’ s inquiryregarding the check. Debtor met with Heidinger and altered th e check to remove the debtor’s endorsement of the check to the Fire Plac e Center as well as the deposit stamp indicating it had been deposited into the Fire Place Center’s bank account. Heidinger submitted a copy of the check to the trustee in the altered form. The b ankruptcy court found that “[t]he purpose of this alteration was to prevent the [trustee] fro m disc overing the transfer to the Fire Place Center which the [debtor ] ri ghtly feared would lead the [trustee] to uncover the series o f prepetition transfers.” The tru stee, however, was able to obtain another copy of the chec k from Indian River’s bank which contained the end orsement, thus leading the trustee to discover the alteration of the check and the other transfers. According to Heidinger’s testimony, when

### The bankruptcy court also awarded to the trustee the costs 4 

### of bringing the adversary, $120.00.
6 Debtor heard that the trustee was inquiring abou t the check, Debtor became “panicked” or “agitat ed.” Debtor testified he feared that if the trustee
saw the en dorsement to the Fire Place Center, the trustee would star t making i nquiries into the other transfers and that would cause ne w litigation over those transfers. As a result, h e testified he altered the check to prevent the trustee from instituting more litigation and incurrin g more fees for himself.

The trust ee not only discovered the series of transfers to the Fire Place Center and other home improvement businesses, but also discovere d that on January 26, 1995, and February, 22, 1995 , the debtor returned some of the fireplace equipment to the Fire Place Center and obtained refunds in the amounts of $1,402.15 and $660.83, totaling $2,062.98. The debtor also did not report t hese refunds to the bankruptcy court or the trustee.

The trustee brought an adversary complaint seeking to have th e debtor ’s discharge revoked pursuant to § 727(d)(2) because the debto r acquired property that was property of the estate and knowingly an d frau dulentlyfailed to report the acquisition of the property and t o deliver or surrender such property to the trustee.

The ban kruptcy court entered an order revoking the debtor’ s discharge, also order ing the debtor to turn over to the trustee $2,062.98 representing the fire equipment refunds. The bankruptcy court ordered the 4 debt or to turn over only those refunds because in another adversar y proceeding, the trustee was able to obtain a refund for the hot tub from All A merican Recreation. Also, the rest of the home improvement item s obtained by the debtor as a result of the prepetition transfers went t o improve the debtor’s home which was found to be non-exempt. In re Kasden , 186 B.R. 667

### 7

(D. Minn. 1995), aff’d 84 F.3d 1104 (8th Cir. 1996). Consequently, th e improvements that the debtor made to the home ac tually went to improve the property of the estate which the trustee subsequently sold. Thus, th e only prop erty of the estate that the debtor still possessed was th e $2,062.98 in refunds from the Fire Place Center.
Clearly, both the prepayments on the fireplace equipment and th e cash refunds for the equipment were property of the estate under § 541(a). Tha t section provides a very broad definition of prop erty of the estate, namely all le gal or equitable interests of the debtor in property as of th e
com mencement of the case, wherever located and by whomever held. Debto r does not dispute his acquisition of the fireplace equipment or the refunds , and he does not dispu te his failure to report them. It follows, then, as the bankruptcy court stated, the only remaining question is whether or not the debtor knowingly and fraudulently failed to report his acquisition of the funds. Debtor de clares that he did not know that the refunds were property of the estate or that he had any obligation to r eport them to the trustee. Debtor asserts he was acting on the advice of co unsel and under a mistaken belief that his prepetition expenditures were legitimate investments in hi s homestead, but the subsequent events, as the bankruptcy court noted, do no t support that contention. First, none of the transfers were reported on hi s original schedules or his amended schedules, despite the fact that other prepetition transfers and payments were listed. Debtor’s assertion that he did not think he h ad to list them in his schedules does not excuse the omiss ion. To the contrary, “[d]ebtors have an absolute duty to repor t whatever interests they hold in property, even if they believe their asset s
are worthless or are unavailable to the bankruptcy estate.” In re Yonikus , 974 F.2d 901, 904 (7th Cir. 1992); see also Mertz v. Rott , 955 F.2d 596, 598 (8th Cir. 1992) (holding that where a debtor believes an

### 8

asset is exemptible, he cannot simply omit it from his schedule; rather, he must list the asset on his schedules and then claim the exemption).

At 1 1 U.S.C. § 522, the Bankruptcy Code permits debtors t o claim certain property as exempt from the bankruptcy estate

. How ever, Bankruptcy Rule 4003 and § 522( l ) of the Bankruptc y Code dictates that debto rs who claim exemptions must list such exe mpt property on the required schedule of assets. Al l property the debtor owns at the time the bankruptcy petition is filed becomes property of the bankruptcy estate. Rather than withholding property from the estate, the debtor ac tually seeks a return of the property from the estate by filing the clai m for exemption. The bankruptcy court, not the debtor, decides what property is exempt from the bankruptcy estate.
In re Yonikus , 974 F.2d at 905 (citations and footnote omitted).
Moreover, and very significantly, im mediately upon learning that the trustee was investigating the skidloader check, the debtor intentionally set out to delete the endorsement which would le ad the trustee to discover the ot her transactions, particularly the dealings with the Fire Plac e Center an d the refunds he had received. The trial court properly foun d this to be very strong evidence that the debtor purposely failed to report the r efunds and then took deliberate steps to prevent the trustee fro m discovering them. Debtor’s explanation for altering the check did no t convince the bankruptcy court. Debtor testified at trial that he be lieved the trustee wanted to see the check for the sole purpose of establishing ownership of the skidloader

. Although not discussed by the partes or the bankruptcy court, thi s statement by the debtor to be revealing because it was the discovery of th e skidloa der in Debtor’s garage after discharge that led the trustee t o inquire of Jon Heidinger about it. Debtor was still in possession of a skid loader he allegedly sold many months prior. That he thought th e trustee only

### Debtor held onto the cashier’s check until July 14, 1995 , 5 

### and thereafter allegedly used the money to improve his homestead. On July 19, 1995, however, the District Court of Minnesota hel d that the Debtor’s homestead was not exempt. 9 wanted to establish ownership of it does not make sense and raises eve n more questions as to the debtor’s course of conduct.
Finally, Debtor offered in his own d efense evidence that he took the proceeds of the first refund, the check for $1,402.15, and converted the funds into a cashier’s check which he simply ret ained in his possession in that form for some five months without using the funds. He offered this to show that he ultimately used the money represented by that cashier’ s che ck for other improvements to his home that all along he though t represented legitimate investments in his homest ead. The bankruptcy court conclu ded that this scenario proved more than disproved his fraudulen t intent because rather than depositing the money with the trustee or into
an i dentifiable account, he secretly converted the money into a for m unlikely to be discovered and then held onto it for five months withou t informing anyone he had it. This admission by t he debtor provides further support for the bankruptcy court’s conclusion that he knew the funds shoul d have gone to the estate and that he intentionally prevented the truste e from finding out about them. 5 Debtor’s fraudulent intent may be established by showing that th e debtor knowingly made an omission that misleads the trustee or that th e debtor engaged in a f raudulent course of conduct. See In re Yonikus , 974 F.2d at 905; In re Wa lters , 176 B.R. 835, 876 (Bankr. N.D. Ind. 1994). A debtor ’s fraudulent intent may be inferred from all the surroundin g circumstances where t he debtor’s pattern of conduct supports a finding of fraudule nt intent. See In re Van Horne , 823 F.2d 1285, 1287 (8th Cir

. 1987) ; Walters , 176 B.R. at 876. The focus is on whether the debtor’ s actions “appear

### 10

so inconsistent with [his] self-serving statemen t of intent that the proof leads t he court to disbelieve the debtor.” Van Horne , 823 F.2d at 128 7 ( quoting In re Hunt , 30 B.R. 425, 441 (M.D. Tenn . 1983)). The trustee may also prove the debtor’s fraudulent intent by sho wing that the debtor acted so recklessly that fr aud can be implied. See Owens v. United States , 98 F.Supp. 621, 627 (W.D. Ark. 1951), aff’d , 197 F.2d 450 (8th Cir. 1952); se e also Walters , 176 B.R. at 876.

Debtor argues that the bankruptcy court’s determination as to hi s intent is error because “Judge Kressel had not walked in the [debtor’s ] shoes for the last fi ve years, and has absolutely no idea whatsoever what the state of mind was of the [debtor] during that period of time.” This is the very reason, absent an admission of intent to defraud, that th e trial court must look at the circumstantial evidence and the events that occurred to try to determine intent from that evidence. See Van Horne , 82 3 F.2d at 1287; Owens , 98 F.Supp. at 627.
The bankruptcy court properly applie d this principle and we can find
no error in the bankruptcy court’s credibility determination and factual findin gs and the conclusion that the debtor knowingly and fraudulentl y failed to report and turn over property that belonged to the estate.

ORDER TO TURN OVER THE REFUNDS
Having found that the debtor was in possession of property of th e estate, it was proper for the bankruptcy court t o order the debtor to turn over those funds to t he estate under § 542(a), which enables a trustee to
recover t he value of property of the estate from any party holding tha t property during the pendency of the

### It was not necessary for the Court to order the debtor to 6 

### turn over any of the other items because they were incorporate d into the house and, after Debt or lost his homestead exemption, the tru stee sold the house with the improvements. Consequently, th e estate benefitted from those items. Some of these points are raised in the portion of Debtor’s 7 

### brief regarding the revocation of discharge argument rather tha n the due process portion of the brief. Nevertheless, the Cour t addresses all of the trial error arguments here.
11 case. 6

DUE PROCESS

Deb tor also argues he is entitled to a new trial because he wa s denied due process. He points to several rulings and occurrences during the trial which he asserts were either error or claims the bankruptcy cour t should have given him special consideration because he appeared at th e trial, pro se . 7

First, Debtor contends the bankruptcy court erred in refusing t o admit a particular letter he sought to introduce. The transcript reveals that while Kasden was testifying on his own behalf (in ”direct examination ” of himself), he sought to introduce a letter written by his former attorne y to the trustee’s attorney. The attorney represented Debtor in thi s bank ruptcycase and adversary until a couple of months before trial

. Debtor contends the letter supported his belief that the property wa s exempt. The trustee’ s attorney objected not only on hearsay grounds, but also because a paragr aph of the letter had been redacted. The bankruptcy court sustained both objections.

On appeal, Debtor argues:

Jud ge Kressel should have informed the [debtor] that just b y stating the letter is a true and exact copy with the

### 12 exception of paragraph 1, that letter would have been entered into evidence. The [deb tor] believes it was the obligation of the H onorable Judge Kressel to assist him in his pro s e representation in order the find the truth and justice served.

By definition, a document is not a true and accurate copy if it has been altered. The bankruptcy court correctly found the letter to be hearsay an d Deb tor offers no exception to the hearsay rule which would make i t admissi ble, even if it had been introduced in proper form. See Fed. R

. Evid. 801 and 802.

Next, Debtor argues that the bankruptcy court erred in quashing a subpoena Debtor served on the trustee’s attorney. The court quashed the subpoena because it had not been signed by an attorney or officer of the court as required by the rules. Debtor contends he was given incorrec t informa tion by bankruptcy court personnel and that, in any event, th e trustee’s attorney sh ould have been required to testify regardless of the subpoena because he was in court to represent the trustee and he was liste d
on the de btor’s witness list. The debtor, however, never called him t o testify at trial. So, even assuming he could have testified, th e bankruptcy court merely quashed an improper subp oena; it did not refuse to allow the debtor to c all him as a witness. The bankruptcy court’s ruling to quash the subpoena was not error. Since the court never had a chance to rule on whether the trustee’s attorney could testify, there can be no
error. Furthermore, Debtor offers no indication what this witness would have testified about or how the testimony may have “vindicated” him as he contends.

Debto r also points to another portion of his own direct testimon y where he asked the bankruptcy court for permission to leave the witnes s sta nd to retrieve a document from the counsel table where he had bee n sitting. The bankruptcy court asked his purpose and the debtor replied, “for my notes.” The court told the

### 13

debtor, “Well, you can’t read from your notes. You have to testify from your memory.” Debtor without objection then continued with his testimony without his notes. He now complains that he cou ld not adequately remember everyt hing and thus could not conduct his complete defense, wa s intimidated, and interpreted the court’s statement to mean that he could not use notes at all. The transcript reveals otherwise. The fact tha t Debtor misinterpreted the bankruptcy court’s seemingly clear statement doe s not constitute error. Second, Debtor does not n ow offer any indication as to what he would have testified to had he had hi s notes and whether or how it would have changed the outcome.
Finally, Debtor asserts the bankruptcy court erred in refusing t o admit, on relevancy g rounds, certain receipts Debtor sought to introduce. The receipts were for additional home improvement items which the debtor pu rchased post-petition. Debtor sought to introduce these receipts , total ing some $4,500.00, to show that he used the fireplace refunds t o improve his homestead. This, he contends, wouldhave demonstrated that he did not i ntend to defraud his creditors but rather that he honestl y believed the money belonged to him as part of his homestead.

The bankr uptcy court correctly concluded that the receipts were not relev ant. If the receipts show that the debtor invested an additiona l $4,500.00 into his homestead post-petition, it would make no difference.

CONCLUSION The bankruptcy court properly found that Debtor had a duty to report the tr ansactions related to the home improvements and particularly th e refund s on the fireplace equipment, and that Debtor knowingly an d fraudulently failed to report his acquisition of those funds. Accordingly , the bankruptcy court did not err in

### 14

revoking the debtor’s discharge pursuant to 11 U.S.C. § 727(d)(2). Becaus e the refunds were prop erty of the estate, it was proper for the bankruptcy court to order the debtor to turn those funds ov er to the trustee pursuant to 11 U.S.C. § 542. Accordingly, we affirm.

A true copy. Attest:

CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE EIGHTH CIRCUIT