Court Opinion

ID: 2753151
Source: CourtListenerOpinion
Date Created: 2014-11-19 19:00:52.354418+00
Date Added: 2024-06-11T10:18:56.948058
License: Public Domain

In the

    United States Court of Appeals
                For the Seventh Circuit
                    ____________________
No. 13-1881
IN RE: SOFIA KATSMAN,
                                                               Debtor.

VLADIMIR SKAVYSH,
                                                  Plaintiff-Appellee,

                                v.

SOFIA KATSMAN,
                                              Defendant-Appellant.
                    ____________________

        Appeal from the United States District Court for the
          Northern District of Illinois, Eastern Division.
           No. 12 C 3807 — Charles R. Norgle, Judge.
                    ____________________

 ARGUED SEPTEMBER 23, 2014 — DECIDED NOVEMBER 19, 2014
                ____________________

   Before POSNER, ROVNER, and WILLIAMS, Circuit Judges.
    POSNER, Circuit Judge. Sofia Katsman, represented by a
lawyer named David Freydin, filed for bankruptcy under
Chapter 7 of the Bankruptcy Code. After she filed Schedule F
of the bankruptcy petition—the schedule on which the debt-
2                                                   No. 13-1881

or is required to list the names of (and other relevant infor-
mation concerning) “all entities holding unsecured claims
without priority against the debtor or the property of the
debtor, as of the date of filing of the petition,” the trustee in
bankruptcy reported that no assets were available for distri-
bution to the creditors from the estate in bankruptcy. The
usual result of such a report is the discharge of the debtor
from bankruptcy, wiping out the creditors’ claims.
     But before discharge could be ordered, Vladimir
Skavysh, the son of the debtor’s ex-husband, filed an adver-
sary proceeding in the bankruptcy challenging the discharge
of the debtor. See Rule 7001(4) of the Federal Rules of Bank-
ruptcy Procedure. He invoked a provision of the Bankruptcy
Code that denies discharge if “the debtor knowingly and
fraudulently, in or in connection with the case[,] made a
false oath or account.” 11 U.S.C. § 727(a)(4)(A). Skavysh’s
objective was, by persuading the bankruptcy court to deny
discharge, to enable Katsman’s creditors, of whom Skavysh
is one, to enforce their claims against her. The bankruptcy
judge conducted a trial of Skavysh’s objection to discharge
and concluded that although there were omissions in Kats-
man’s schedules, they were not fraudulent. The only witness
at the trial was Katsman, and the judge decided that her tes-
timony had been truthful.
   The judge’s rejection of Skavysh’s objection to discharge
was not a final order in the bankruptcy proceeding as a
whole, but it was a final order with respect to the adversary
proceeding between Skavysh and Katsman. And as ex-
plained in Zedan v. Habash, 529 F.3d 398, 402 (7th Cir. 2008),
“an order [that] resolves a discrete dispute that, but for the
continuing bankruptcy, would have been a stand-alone suit
No. 13-1881                                                    3

by or against the trustee” in bankruptcy is deemed final and
therefore appealable under 28 U.S.C. § 158(a)(1). Otherwise,
because bankruptcy proceedings can drag out for a very
long time, the resolution of entirely separable disputes em-
bedded in the overall proceeding would often be long de-
layed for no good reason.
    So Skavysh was able to appeal the bankruptcy judge’s
order to the district court. The district judge reversed and
ruled that Skavysh’s objection was valid and that Katsman
therefore was not entitled to a discharge. She appeals the
district court’s ruling to us, pursuant to 28 U.S.C. § 158(d)(1).
   She admitted at the trial in the bankruptcy court that she
had deliberately omitted four creditors from her Schedule F.
They were friends and family members who had lent her
money for food, shelter, and legal expenses while she was
going through an acrimonious divorce from Skavysh’s fa-
ther. She hoped to repay these loans, and she testified that “I
couldn’t include them [in the Schedule F list of creditors] …
and never pay them.” Not so. After she was discharged, she
could pay anyone anything. If she didn’t know that, her
lawyer did. But her motive for not listing the four creditors
remains obscure—and, as we’ll see, irrelevant.
    Her filings in the bankruptcy court contained other ques-
tionable omissions. Skavysh was not listed as a creditor. He
was ex-family, but no friend. The debtor failed to list proper-
ty that she owned jointly with her ex-husband, including her
home in Indiana and a time share in Las Vegas. She omitted
alimony payments that she received from her ex. She had
excuses for all these omissions, as she did for the failure to
list the five creditors (Skavysh, plus the four friends and
family members whom she intended to pay back). But given
4                                                   No. 13-1881

that she was represented by a lawyer who was said by the
district judge without contradiction to be competent, it is
impossible to take her testimony at face value. It is particu-
larly striking that the lawyer who handled her bankruptcy
did not testify at the trial and does not represent her in this
court. His absence reinforces the inference that her many
false statements bespeak a pattern of reckless indifference to
the truth, implying fraudulent intent. Stamat v. Neary, 635
F.3d 974, 982 (7th Cir. 2011). The bankruptcy judge missed
the pattern.
    The bankruptcy judge’s ruling in favor of Katsman was
further vitiated by a misunderstanding of “fraudulently …
ma[king] a false oath or account” in 11 U.S.C. § 727(a)(4)(A).
The bankruptcy judge thought that Katsman couldn’t have
violated the statute unless she had intended by her false
statements to obtain a pecuniary benefit rather than, as ap-
pears to be the case, merely to benefit one group of creditors
over another for personal reasons. As explained in United
States v. Gellene, 182 F.3d 578, 586–87 (7th Cir. 1999), “fraudu-
lent” in bankruptcy law includes “inten[ding] to deceive,”
which need not connote intending to obtain a pecuniary
benefit. United States v. Sabbeth, 262 F.3d 207, 217 (2d Cir.
2001); Collier on Bankruptcy ¶ 7.02[1][a][iv][B] (Alan N. Res-
nick & Henry J. Sommer eds., 16th ed. 2010). Although
Katsman is an immigrant and English is not her native
tongue, she knows English and had as we said competent
counsel, who doubtless advised her (or if asked by her
would have advised her) to list all her creditors. She did not
list them all. Conceivably she did not understand the legal
meaning of “creditor,” and thought someone she hoped to
repay in the future was therefore not a creditor. But failing to
seek advice of counsel, while knowing that she lacked legal
No. 13-1881                                                 5

training or knowledge, bespoke a reckless indifference to
truth, and no more is required for fraudulent intent in bank-
ruptcy.
    It is true that even a deception must be material to the
bankruptcy proceeding to be a ground for refusal to dis-
charge the debtor. Stamat v. Neary, supra, 635 F.3d at 978.
And it might seem that Katsman’s deceptive omission of cer-
tain creditors from her Schedule F was immaterial because,
had she listed on the schedule the family-and-friend credi-
tors whom she wanted to repay, her debts would still have
been discharged in bankruptcy and having thus received her
“fresh start” she would be free to repay those creditors from
new earnings. But such an argument if accepted would
mean that a no-asset debtor wouldn’t have to so much as
submit a Schedule F, because the creditors he would list on it
could recover nothing from the estate in bankruptcy—there
would be no estate. That can’t be right. A bankruptcy pro-
ceeding can’t be concluded without knowledge of who the
debtor’s creditors are, unless omitting to mention them
would be immaterial, United States v. Key, 859 F.2d 1257,
1260–61 (7th Cir. 1988); United States v. Lindholm, 24 F.3d
1078, 1083–84 (9th Cir. 1994), which it would be only if the
amount owed them was utterly trivial. Collier on Bankruptcy,
supra, ¶ 727.04[1][b]. That was not the case here.
                                                   AFFIRMED.