Court Opinion

ID: 1002061
Source: CourtListenerOpinion
Date Created: 2013-07-04 18:05:12.179434+00
Date Added: 2024-06-11T09:14:08.512964
License: Public Domain

UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

In Re: FERNANDO DAMAIA; GINA
DAMAIA,
Debtors.

CITICORP REAL ESTATE,
INCORPORATED,
Appellant,
                                                               No. 99-2354
v.

FERNANDO DAMAIA; GINA DAMAIA,
Debtors-Appellees,

v.

UNITED STATES TRUSTEE,
Party-in-Interest.

Appeal from the United States District Court
for the District of Maryland, at Greenbelt.
Alexander Williams, Jr., District Judge.
(CA-99-850-AW, BK-96-18581-PM,
98-1264-PM)

Argued: June 8, 2000

Decided: July 17, 2000

Before WILKINS and LUTTIG, Circuit Judges, and
Robert R. BEEZER, Senior Circuit Judge of the
United States Court of Appeals for the Ninth Circuit,
sitting by designation.

_________________________________________________________________

Affirmed by unpublished per curiam opinion.
COUNSEL

ARGUED: John Carney Hayes, Jr., NIXON PEABODY, L.L.P.,
Washington, D.C., for Appellant. Richard Brian Rosenblatt, GARZA,
REGAN, ROSENBLATT & SOTO, P.C., Rockville, Maryland, for
Appellees. ON BRIEF: Christopher M. Cihon, NIXON PEABODY,
L.L.P., Washington, D.C., for Appellant. Linda M. Dorney, GARZA,
REGAN, ROSENBLATT & SOTO, P.C., Rockville, Maryland, for
Appellees.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Citicorp Real Estate, Incorporated (Citicorp) appeals an order of
the district court reversing a revocation by the bankruptcy court of the
discharge in bankruptcy of Fernando and Gina DaMaia. Finding no
error, we affirm.

I.

This bankruptcy action began in October 1996 when the DaMaias
filed a joint petition for personal bankruptcy with the United States
Bankruptcy Court for the District of Maryland pursuant to Chapter 7
of the Bankruptcy Code. See 11 U.S.C.A.§§ 701-728 (West 1993 &
Supp. 2000). The bankruptcy court granted the DaMaias' discharge
on April 24, 1997, and the case was closed on February 3, 1998.
Approximately one year after the discharge had been granted, Citi-
corp, the DaMaias' largest creditor, moved successfully to reopen the
case. Citicorp subsequently commenced an adversary proceeding to
revoke the discharge. As support for the relief requested, Citicorp
asserted that the DaMaias knowingly and fraudulently failed to prop-
erly notify Citicorp of the bankruptcy action, made false statements

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in the bankruptcy petition and schedules, and concealed property that
otherwise would have been property of the estate. Citicorp also
alleged that it did not learn of the fraud until after the discharge was
granted. During a bench trial, Citicorp presented evidence supporting
many of its allegations, but presented no evidence concerning when
it learned of the alleged fraud. The undisputed evidence in the record
was that Citicorp's lawyers learned of the DaMaias' bankruptcy filing
in January 1997 and began investigating the matter the very next
week.

At the close of trial, the bankruptcy court held in favor of Citicorp
and revoked the discharge pursuant to 11 U.S.C.A.§ 727(d). In
revoking the discharge, the court found that Mr. DaMaia owned an
equitable interest in a restaurant, which the DaMaias wrongfully
failed to disclose in their bankruptcy petition and schedules, and that
the DaMaias intentionally failed to provide Citicorp with notice of the
bankruptcy filing.

On appeal, the district court reversed the revocation, concluding (1)
that the bankruptcy court erred as a matter of law in attributing the
assets of the restaurant to Mr. DaMaia because he was not an equita-
ble owner of the restaurant and Citicorp did not demonstrate that the
corporate veil should be pierced in any event; and (2) that Citicorp
had failed to prove the second element of § 727(d)(1)--that Citicorp
was unaware of the debtors' fraud until after discharge was granted.

II.

Citicorp first contends that the district court erred in reversing the
revocation of the discharge, arguing that the bankruptcy court made
a factual finding that Citicorp did not have notice of the fraud until
after the discharge was entered and that that finding was not clearly
erroneous. See Meindl v. Genesys Pac. Techs., Inc. (In re Genesys
Data Techs., Inc.), 204 F.3d 124, 127 (4th Cir. 2000) (explaining that
we review the legal conclusions of the bankruptcy court and district
court de novo and the factual findings of the bankruptcy court for
clear error). We disagree.1
_________________________________________________________________
1 Because we affirm the conclusion of the district court that Citicorp
was not entitled to revocation under § 727(d)(1) on this ground, we do
not address Citicorp's challenges to the other reasons provided by the
district court for its conclusion that the elements of § 727(d)(1) were not
satisfied.

                    3
Section 727(d)(1) states in pertinent part,

          On request of the trustee, 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--

          (1) such discharge was obtained through the
          fraud of the debtor, and the requesting party did
          not know of such fraud until after the granting of
          such discharge . . . .

11 U.S.C.A. § 727(d)(1) (emphasis added)."[A] party requesting
revocation of a discharge has the burden of proving its lack of knowl-
edge of the fraud before discharge, and failure to carry this burden is
fatal to the party's case." 6 Collier on Bankruptcy ¶ 727.15[3] (Law-
rence P. King ed., 15th ed. rev. 2000).

It is undisputed that Citicorp's lawyers learned of the bankruptcy
filing in January 1997, more than three months prior to the discharge,
and began to investigate the matter the very next week. Counsel obvi-
ously learned of the alleged fraud at some subsequent time. The
record simply does not reflect whether that time was before or after
the discharge. Accordingly, the bankruptcy court should have con-
cluded that Citicorp failed to meet its burden of proving that it did not
learn of the fraud until after the discharge was granted.

Citicorp argues that the exception to the requirements of
§ 727(d)(1) created by the Second Circuit in Citibank, N.A. v. Emery
(In re Emery), 132 F.3d 892 (2d Cir. 1998), would apply even if Citi-
corp had not otherwise presented sufficient evidence. We disagree. In
Emery, the Second Circuit was called upon to decide whether a credi-
tor could seek revocation of a discharge under § 727(d)(1) when the
creditor learned of the debtor's fraud after the expiration of the time
period in which the creditor was allowed to object to the discharge,
but before the discharge order was entered.2 See Emery, 132 F.3d at
_________________________________________________________________
2 Bankruptcy Rule 4004(a) provides that "[i]n a chapter 7 liquidation
case a complaint objecting to the debtor's discharge under § 727(a) of the
Code shall be filed no later than 60 days after the first date set for the
meeting of creditors under § 341(a)." Fed. R. Bankr. 4004(a).

                     4
894. This "gap period" came about because the bankruptcy court
granted the discharge 80 days after the expiration of the period
allowed for objecting to discharge instead of immediately after expi-
ration of the period.3 See id. at 895. The Emery court heldthat the
fact that the discharge was granted late, thereby causing the creditor
to learn of the fraud before the discharge was granted but after he
could do anything about it, did not deprive the creditor of its right to
object to the discharge of the claim. See id. at 896. The court reasoned
that Congress intended the expiration of the time to file an objection
to the discharge and the issuance of discharge to be a unitary event,
and never contemplated that they would not be. See id. at 895. Thus,
the court determined that Congress did not intend in these circum-
stances to require the creditor to prove that it learned of the fraud only
after the discharge in order to revoke the discharge under § 727(d)(1).
See id. at 895-96.

This exception plainly does not apply here. Unlike the creditor in
Emery, Citicorp presented no evidence that it did not learn of the
fraud at issue until after the time for objecting to the discharge had
expired. Accordingly, the district court correctly reversed the order of
the bankruptcy court revoking the discharge under§ 727(d)(1).

III.

Citicorp maintains that even if the revocation of the discharge was
not supportable under 11 U.S.C.A. § 727(d)(1), the district court erred
in reversing the revocation because Citicorp satisfied the elements of
11 U.S.C.A. § 727(d)(2). We disagree.

Section 727(d)(2) allows revocation when

           the debtor acquired property that is property of the estate,
           or became entitled to acquire property that would be prop-
           erty of the estate, and knowingly and fraudulently failed to
_________________________________________________________________
3 Bankruptcy Rule 4004(c)(1) provides, with exceptions not relevant
here, that "[i]n a chapter 7 case, on expiration of the time fixed for filing
a complaint objecting to discharge and the time fixed for filing a motion
to dismiss the case pursuant to Rule 1017(e), the court shall forthwith
grant the discharge." Fed. R. Bankr. 4004(c)(1) (emphasis added).

                     5
          report the acquisition of or entitlement to such property, or
          to deliver or surrender such property to the trustee.

11 U.S.C.A. § 727(d)(2) (emphasis added). A careful reading of this
section reveals that it applies only to property acquired by a debtor
after his petition has been filed. See 6 Collier on Bankruptcy
¶ 727.15[4].4 Here, Citicorp has neither alleged nor proven that
DaMaia acquired property that was property of the bankruptcy estate,
or became entitled to any estate property, after the commencement of
the case. Accordingly, Citicorp was not entitled to a revocation under
this section.

IV.

For all of these reasons, we conclude that the district court cor-
rectly reversed the revocation of the DaMaias' discharge.

AFFIRMED
_________________________________________________________________
4 We note that in In re Yonikus, the Seventh Circuit affirmed a dis-
charge revocation under § 727(d)(2) when the debtor did not disclose a
pre-petition personal injury claim. See In re Yonikus, 974 F.2d 901, 904-
06 (7th Cir. 1992). However, the debtor in Yonikus apparently did not
argue that the section was inapplicable.

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