Court Opinion

ID: 2977231
Source: CourtListenerOpinion
Date Created: 2015-09-22 18:04:53.509974+00
Date Added: 2024-06-11T11:44:05.495716
License: Public Domain

By order of the Bankruptcy Appellate Panel, the precedential effect
             of this decision is limited to the case and parties pursuant to 6th
             Cir. BAP LBR 8013-1(b). See also 6th Cir. BAP LBR 8010-1(c).

                                   File Name: 06b0019n.06

          BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT

In re: SCOTT W. SPENCER,                         )
                                                 )
            Debtor.                              )
______________________________________           )
                                                 )
PINNACLE TECHNOLOGY RESOURCES,                   )
INC.,                                            )
                                                 )             No. 06-8010
            Plaintiff-Appellee,                  )
                                                 )
            v.                                   )
                                                 )
SCOTT W. SPENCER,                                )
                                                 )
            Defendant-Appellant.                 )
                                                 )
______________________________________           )

                     Appeal from the United States Bankruptcy Court
                     for the Southern District of Ohio, at Columbus.
                    Bankruptcy Case No. 02-66532; Adv. No. 03-2084.

                                  Submitted: August 23, 2006

                          Decided and Filed: December 8, 2006

      Before: PARSONS, SCOTT, and WHIPPLE, Bankruptcy Appellate Panel Judges.

                                   ____________________

                                         COUNSEL

ON BRIEF: Jeffrey M. Lewis, SWEDLOW, BUTLER, INMAN, LEVINE & LEWIS, Columbus,
Ohio, for Appellee. Scott W. Spencer, Columbus, Ohio, pro se.
                                     ____________________

                                           OPINION
                                     ____________________

       JOSEPH M. SCOTT, JR., Bankruptcy Appellate Panel Judge. Scott W. Spencer (the
“Debtor”) appeals the judgment of the bankruptcy court denying his chapter 7 discharge pursuant
to 11 U.S.C. §§ 727(a)(2)(A) and (a)(4)(A), asserted in an adversary proceeding brought by Pinnacle
Technology Resources, Inc. (“Pinnacle”) based on a prepetition state court action in which the
Debtor was sanctioned for his actions as counsel.

                                    I. ISSUES ON APPEAL

       Whether the bankruptcy court erred in its denial of the Debtor’s discharge pursuant to 11
U.S.C. §§ 727(a)(2)(A) and (a)(4)(A).

                    II. JURISDICTION AND STANDARD OF REVIEW

       The Bankruptcy Appellate Panel of the Sixth Circuit (“BAP” or “Panel”) has jurisdiction to
hear and decide this appeal. The United States District Court for the Southern District of Ohio has
authorized appeals to the BAP, and neither party has timely elected to have this appeal heard by the
district court. See 28 U.S.C. § 158(b)(6), (c)(1). An order denying a discharge pursuant to 11 U.S.C.
§§ 727(a)(2)(A) and (a)(4)(A) is a final order, see, e.g., Hamo v. Wilson (In re Hamo), 233 B.R. 718,
720 (B.A.P. 6th Cir. 1999), and final orders of a bankruptcy court may be appealed by right under
28 U.S.C. § 158(a)(1).

       In reaching its denial of the Debtor’s discharge pursuant to 11 U.S.C. §§ 727(a)(2)(A) and
(a)(4)(A), the bankruptcy court entered a thirty-three page Memorandum Opinion and Order with
findings of fact and conclusions of law. The Panel reviews a bankruptcy court’s findings of fact for
clear error and its conclusions of law de novo. Adell v. John Richards Homes Bldg. Co. (In re John
Richards Homes Bldg. Co.), 439 F.3d 248, 254 (6th Cir. 2006). “A finding of fact is clearly
erroneous ‘when although there is evidence to support it, the reviewing court, on the entire evidence,
is left with the definite and firm conviction that a mistake has been committed.’” United States v.

                                                 -2-
Mathews (In re Mathews), 209 B.R. 218, 219 (B.A.P. 6th Cir. 1997) (quoting Anderson v. City of
Bessemer City, 470 U.S. 564, 573, 105 S. Ct. 1504, 1511 (1985)). Because the trial transcript, and
any documentary evidence admitted at trial, are not part of the record on appeal, demonstrating clear
error is difficult at best. Under a de novo standard of review, the reviewing court decides an issue
independently of, and without deference to, the trial court’s determination. Treinish v. Norwest Bank
Minn., N.A. (In re Periandri), 266 B.R. 651, 653 (B.A.P. 6th Cir. 2001).

                                           III.   FACTS

       The facts, as set forth in the bankruptcy court’s opinion or as found in the Debtor’s
Appendix, are as follows:

       On May 13, 1985, the Debtor was admitted to practice law in the state of Ohio. He testified
that his law firm, Scott W. Spencer Co., L.P.A. (“LPA”), was formed in the mid-1990's. On
December 23, 1994, the Debtor was suspended for a year from practicing law in Ohio and was
reinstated on January 25, 1996. His original statement of affairs suggests that LPA had been in
existence since January of 1996.

       On May 21, 1998, Pinnacle sued the Debtor’s client Shafer Consulting Group, Inc. for
$295,000 in the Franklin County, Ohio, Court of Common Pleas. In the course of that state court
action, on October 11, 2000, the court awarded Pinnacle $27,846.09 in attorney fees and costs as a
sanction for the Debtor’s outrageous conduct in the case. Pinnacle Tech. Res., Inc. v. Shafer
Consulting Group, Inc., 2001 WL 1117315 (Ohio App. 10th Dist. Sept. 25, 2001), appeal denied,
762 N.E.2d 370 (Ohio 2002).

       On May 22, 2002, the Debtor registered LPA with the state of Ohio. Also on that date, which
was approximately seven months before the Debtor filed bankruptcy, he represented to Pinnacle’s
counsel, who was attempting to collect on the state court judgment, that LPA had been registered
with the state of Ohio as a corporation in July of 1995, during the period in which the Debtor had
been suspended from the practice of law, and that because of incorporation, the assets of the law firm
could not be reached. The Debtor presented Pinnacle’s counsel with a copy of the LPA’s Articles

                                                  -3-
of Incorporation dated July 11, 1995, which purported to have a registration approval. However,
the registration, which in fact had been made in May of 2002, was cancelled on December 10, 2002,
because of an insufficient funds check. The bankruptcy court stated that from the evidence at trial,
it doubted the law firm ever existed as a separate legal entity for any significant period of time.

       The Debtor’s wife was the office manager of LPA as well as having her own business,
Spencer Enterprises, which offered interpreter services. Mrs. Spencer maintained the financial
records of LPA. Business and personal expenses and income were commingled. According to the
bankruptcy court, the law firm had “financial reporting shortcomings.”

       On December 16, 2002, the Debtor filed a petition for relief under chapter 7 in the U.S.
Bankruptcy Court for the Southern District of Ohio, In re Scott W. Spencer, Case No. 02-66532. On
February 13, 2003, Pinnacle filed Adversary Proceeding No. 03-2084, Pinnacle Technology
Resources, Inc. v. Scott W. Spencer. The Debtor, pro se, filed his answer on May 1, 2003. On July
15, 2003, he resigned from the practice of law. Nine days later, on July 24, 2003, the Debtor filed
a motion to dismiss the amended complaint, pursuant to Federal Rule of Civil Procedure 12(b)(2),
(4), and (5), or in the alternative, “for an Order to Quash the Summons and Complaint Pursuant to
Fed. Civ. R. 4(j).” A little over a month later, on September 8, 2003, he filed his Motion to Quash
Service of Summons and Complaint Allegedly Served on or About July 31, 2003. The bankruptcy
court denied both motions by orders entered on October 30, 2003, and the Debtor appealed those
orders. On January 27, 2004, the BAP entered an order in Case No. 04-8004, dismissing the
interlocutory appeal for lack of jurisdiction because the appeal was untimely.

       On May 18, 2004, Pinnacle filed its Second Amended Complaint, citing 11 U.S.C.
§§ 523(a)(7), 727(a)(2)(A), (a)(3), (a)(4)(A), (a)(4)(D), (a)(5), and (a)(6)(A), and the Debtor filed
his answer on June 18, 2004, asserting “Lack of Jurisdiction Over the Person,” “Failure of Process,”
“Insufficiency of Process,” and “Insufficiency of Service of Process.” Four days prior to the
scheduled trial date of October 1, 2004, on September 27, 2004, the bankruptcy court entered Order
Requiring Filing of Amended Petition, Schedules and Statement of Affairs, and List of Exhibits.
The Debtor filed amended schedules in his bankruptcy case that day.

                                                 -4-
       By the bankruptcy court’s count, twenty-five scheduling and discovery-related orders were
entered in the adversary proceeding seeking financial information from the Debtor and his wife, and
“numerous” discovery-related orders were entered in the main bankruptcy case. Several hearings
related to discovery, specifically, the exchange of “basic financial information,” were conducted.
According to the bankruptcy court, ultimately the Debtor and his wife produced some thirteen boxes
of financial information. No appeal was taken of any discovery-related orders entered in the
adversary proceeding, including the Debtor’s Motion to Compel Discovery Pursuant to Rule 45 of
the Federal Rules of Civil Procedure, which was filed between the second and third days of trial.

       The trial lasted five days, at the conclusion of which the court directed the parties to file post-
trial briefs. The transcript of the trial is six volumes and, according to the Debtor, “exceeds seven
hundred pages in length.” Appellant’s App. at p. 2.

       On February 16, 2006, the bankruptcy court entered its Memorandum Opinion and Order and
its Judgment Entry Denying Discharge, under 11 U.S.C. § 727(a)(2)(A) and (a)(4)(A), Counts I and
II, respectively, of the Second Amended Complaint. Although rejecting denial of the Debtor’s
discharge under other sections of the Code asserted by Pinnacle, as well as nondischargeability of
the debt, the court commented that the Debtor’s “course of conduct” was evident. On February 24,
2006, the Debtor, pro se, timely appealed the judgment.

                                        IV.    DISCUSSION

       Although the Debtor is pro se and might be afforded some latitude for that reason, he was
trained as an attorney. He filed neither a designation of items to be included in the record on appeal
nor a statement of the issues to be presented. See Fed. R. Bankr. P. 8006, 6th Cir. BAP LBR 8006
(requiring appellant to file and serve on appellee a designation of the items to be included in the
record on appeal and a statement of the issues to be presented). In addition, the Debtor has not
provided any part of the trial transcript. See 6th Cir. BAP LBR 8009-3(d) (“Pursuant to Rule
8009(b)(9), the appendix shall include the portions of the transcript necessary for adequate review
of the issues before the panel.”). Failure to provide the Panel with relevant portions of the trial
transcript makes evaluation of the validity of the Debtor’s arguments difficult. Cf. Knowles Bldg.

                                                   -5-
Co. v. Zinni (In re Zinni), 261 B.R. 196, 202 (B.A.P. 6th Cir. 2001) (holding that failure of appellant
to provide transcript “may hinder its ability to argue on appeal that the bankruptcy court made an
unsupported finding of fact or conclusion of law”).

         In his brief, the Debtor lists five issues on appeal: (1) Pinnacle’s alleged defective service of
process of its complaint; (2) the bankruptcy court’s denial of discovery by the Debtor regarding the
state court judgment; (3) the bankruptcy court’s denial of the Debtor’s chapter 7 case because of
alleged fraud by Pinnacle; (4) Pinnacle’s not having a prima facie case under 11 U.S.C.
§§ 727(a)(2)(A) and (a)(4)(A); and (5) the bankruptcy court’s finding that the Debtor’s amendment
of his Schedules was in violation of 11 U.S.C. § 727(a)(4)(A). However, the Debtor appealed from
the judgment entered by the bankruptcy court on February 16, 2006, which is in accordance with the
memorandum opinion entered that same day. The memorandum opinion is based on the Second
Amended Complaint filed May 18, 2004. Furthermore, the Debtor did not include in the list of items
in his Appendix the bankruptcy court order denying his motion to dismiss, the order denying his
motion to quash, or any of the orders denying his requests for discovery.1 See Fed. R. Bankr. P.
8009(b)(4) (requiring appellant’s appendix to include any orders relevant to the appeal). The Panel
is not obliged to treat the issues outlined in the Debtor’s brief as those properly preserved and
presented to it. See R.D.F. Devs., Inc. v. Sysco Corp. (In re R.D.F. Devs., Inc.), 239 B.R. 336, 339-
40 (B.A.P. 6th Cir. 1999). Lastly, “[a]ppellate courts ordinarily do not consider issues raised for the
first time on appeal [and] [a]n argument is waived that is not first presented to the bankruptcy court.”
Koenig Sporting Goods, Inc. v. Morse Road Co. (In re Koenig Sporting Goods, Inc.), 229 B.R. 388,
389 n.1 (B.A.P. 6th Cir. 1999) (internal citations omitted). In the present case, following entry of
the judgment, the Debtor did not file a motion for new trial or for amendment of the judgment based
on the fraud that he now alleges was committed by Pinnacle at trial. See Fed. R. Bankr. P. 9023
(incorporating Fed. R. Civ. P. 59). Thus, the only issue before the Panel is whether, based on the
findings of fact made by the bankruptcy court, it properly concluded under 11 U.S.C.
§§ 727(a)(2)(A) and (a)(4)(A) that the Debtor’s discharge should be denied.

         1
             Even if the issue of the bankruptcy court’s denial of discovery by the Debtor regarding the state court
judgment had been preserved for this appeal, the appropriateness of the state court judgment awarding Pinnacle
attorney fees and costs as a sanction against the Debtor was affirmed on appeal by the state court. Pinnacle Tech.
Res., Inc., 2001 W L 1117315. In addition, the discovery sought by the Debtor related to the merits of the state court
judgment, which, under the doctrine of res judicata, the Debtor was precluded from challenging. See, e.g.,
MetroHealth Med. Ctr. v. Hoffmann-LaRoche, Inc., 80 Ohio St. 3d 212, 216-17 (1997).

                                                         -6-
       Section 727(a)(4)(A) of the Bankruptcy Code provides:

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

               ....

               (4) the debtor knowingly and fraudulently, in or in connection with the case–

                       (A) made a false oath or account[.]

11 U.S.C. § 727(a)(4)(A).

       The BAP’s case of Hamo v. Wilson offers a guide for the review of a bankruptcy court’s
denial of discharge under this section of the Bankruptcy Code. The party seeking denial of the
debtor’s discharge has the burden of proof, by a preponderance of the evidence, of showing: (1) the
statement was made under oath (statements made in a bankruptcy case are made under oath); (2) the
statement was false; (3) the statement related materially to the bankruptcy (a fact is material if it
leads to discovery of or relates to the existence or disposal of property of the debtor); (4) the debtor
knew the statement was false (knowledge is defined as the debtor knowing the truth and not stating
it; however, reckless indifference to the truth, not mistake or inadvertence, also can be knowledge);
and (5) the debtor made the statement with fraudulent intent (intent may be inferred from
circumstantial evidence or from the debtor’s course of conduct). Hamo, 233 B.R. at 725 (citing
Hunter v. Sowers (In re Sowers), 229 B.R. 151, 158 (Bankr. N.D. Ohio 1998)). The trial court
observes the demeanor and credibility of the witness and may find a continued pattern and reckless
indifference by the debtor. Id. at 725. For a finding under this section, the court can be left with a
“significantly abridged view” of the debtor’s income and assets. Id. A recent, unpublished opinion
by this same Panel highlights the significance of the “false oath” provision of the Code. In Larocco
v. Smithers (In re Smithers), 342 B.R. 384, 2006 WL 509396 (B.A.P. 6th Cir. 2006) (unpublished
table decision), the BAP affirmed the bankruptcy court’s denial of discharge because of the debtor
having undervalued a shotgun and in not having disclosed two other guns. The BAP stated that the
debtor’s actions showed “reckless indifference for the truth of the schedules and, therefore, . . . the
requisite fraudulent intent.” Smithers, 2006 WL 509396, at *4.

       In the case at hand, Pinnacle’s claim was based on the assertion that the Debtor’s failure to
list the physical assets and/or contingent assets of his unincorporated law firm constituted a knowing

                                                  -7-
and fraudulent false oath or account. The Debtor admitted that he had initially failed to disclose
these assets, but argued that he had no obligation to list any assets of the LPA. The bankruptcy court
concluded that Pinnacle had sustained its burden of proof for denial of discharge under
§ 727(a)(4)(A), enumerating five reasons for this result: (1) regardless of the legal status of the LPA,
the Debtor had a legal and equitable interest in its assets because he was its primary, if not sole,
shareholder and therefore had a legal duty to disclose its assets; (2) the amendments to his Schedules,
filed on the eve of trial and pursuant to court order, disclosed additional assets which appeared to
have existed at the time of the Debtor’s filing bankruptcy; (3) the Debtor, an attorney, was in the best
position to know of the existence of receivables or contingent claims from the law practice; (4) the
fact that some of the receivables appeared to have become valueless did not obviate the need for full
and complete disclosure by the Debtor, and full disclosure would have given the Trustee and
creditors the time and opportunity to fully evaluate the assets; and (5) errors and omissions in the
original filing and the Debtor’s course of conduct indicated that he “knowingly provided a false
account with the intent to defeat [Pinnacle’s] collection efforts.” Appellant’s App., No. 27 at p. 25.
This course of conduct included the fact that it took months of discovery litigation to extract basic
information from the Debtor, at trial the Debtor and his wife were evasive and gave conflicting
information regarding their financial affairs, and they commingled business and personal monies
rendering it more difficult to ascertain potential sources of recovery.

        We find no error in the bankruptcy court’s conclusions of law. The factual findings of the
court established the required elements of § 727(a)(4)(A). The Debtor’s Schedules were under oath
and were false in that they failed to include the Debtor’s interests in the LPA. The omissions related
materially to the Debtor’s bankruptcy case because they concerned the existence of the Debtor’s
assets. See Hamo, 233 B.R. at 725. The court’s findings also established the Debtor’s knowledge
of the omissions and the Debtor’s evasive conduct supported the court’s conclusion of fraudulent
intent. Accordingly, the Debtor’s assertion that Pinnacle failed to establish a prima facie case under
§ 727(a)(4)(A) is without merit.

        The bankruptcy court also concluded that the Debtor’s discharge should be denied under
Section 727(a)(2)(A), which provides:

                                                  -8-
       (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 the
                         filing of the petition[.]

11 U.S.C. § 727(a)(2)(A).

       In Keeney v. Smith (In re Keeney), 227 F.3d 679 (6th Cir. 2000), the court considered this
section of the Bankruptcy Code and applied the judicially created “continuous concealment
doctrine.” The party seeking a denial of discharge under this section has the burden of proving, by
a preponderance of the evidence: (1) disposition of property, such as concealment, and (2) intent to
hinder, delay, or defraud a creditor by disposing of the property. Keeney, 227 F.3d at 683 (citing
Hughes v. Lawson (In re Lawson), 122 F.3d 1237, 1240 (9th Cir. 1997)). Intent may be inferred
from the surrounding circumstances. Id. at 684 (citing In re Snyder, 152 F.3d 596, 601 (7th Cir.
1998)). Although, under the statute, the disposition or concealment of property must have been
within one year of filing bankruptcy, the continuous concealment doctrine permits denial of the
debtor’s discharge if the concealment, with the requisite intent, commenced prior to the one-year
period and the debtor retained a secret benefit of ownership in the property within the year prior to
filing. Id. at 684-85.

       Helpful to understanding the doctrine of continuous concealment is the Third Circuit Court
of Appeals’ decision in Rosen v. Benzer, 996 F.2d 1527 (3rd Cir. 1993), wherein the court explained:

       This doctrine does not negate the “act” requirement of § 727 but merely recognizes
       that a failure to reveal property previously concealed can, in some circumstances,
       properly be considered culpable conduct during the year before bankruptcy
       warranting a denial of discharge.
996 F.2d at 1531.

       In the case before the Panel, the bankruptcy court concluded that Pinnacle had sustained its
burden of proof for denial of discharge under this section. The court found from the evidence at trial,

                                                  -9-
which included the Debtor’s and Mrs. Spencer’s testimony, and from the record, which included the
originally filed Schedules and Statement of Financial Affairs as well as amendments to them, that
the Debtor had concealed income, had deliberately misrepresented the legal status of his law
practice, and had made the discovery of potential assets difficult. Specifically, the court recited that
during 2001 and 2002, the two-year period during which Pinnacle was attempting to collect its
approximately $28,000 judgment against the Debtor, the Debtor failed to deposit any funds into a
bank account in his name or that of his LPA. Yet during the same time period, some $63,000 was
deposited into Mrs. Spencer’s personal checking account even though she had only nominal income
from her own business. The court also found that on May 22, 2002, approximately seven months
prior to the bankruptcy filing, the Debtor represented to Pinnacle’s counsel that assets of the law firm
were unreachable for collection of the judgment against him because the assets were protected by
the incorporation of the business which he advised occurred in 1995, even though the registration
was taking place simultaneously with the misrepresentation. As for making the discovery of assets
difficult, the court noted that receivables and potential receivables owed by the Debtor’s former
clients were not disclosed on his original or amended Schedule B. According to the court:

        The Defendant has not been forthcoming in providing financial information. It took
        months of significant discovery litigation to obtain the financial information that was
        ultimately provided. Also, the Defendant failed to amend his bankruptcy schedules
        and statement of affairs until the eve of trial and only after direction by the Court.
        All of this information, had it been provided in a timely manner, may have aided the
        Plaintiff’s efforts to obtain some recovery.

Appellant’s App., No. 27 at p. 31. The court commented that the Debtor and his wife had given
evasive and confusing, if not inaccurate, testimony during the course of discovery and at trial
regarding bank accounts they maintained, there being more than ten discussed at trial. Furthermore,
the commingling of business and personal expenses and income made it “extremely difficult to
ascertain the [Debtor’s] true financial status.” Appellant’s App., No. 27 at p. 32. In conclusion,
based on all of the information in the record, the court stated that “through all these efforts during
the years of 2001 and 2002 the Defendant was intentionally engaged in the process of continuously
concealing and shielding his law practice income, including receivables and cash, from collection
by the Plaintiff.” Id.

                                                  -10-
        Clearly, the factual findings support the bankruptcy court’s conclusions of law and establish
the required elements of § 727(a)(2)(A) of the Bankruptcy Code: a concealment of property within
the year prior to the Debtor’s bankruptcy filing with the intent to hinder, delay or defraud a creditor’s
collection efforts. See In re Keeney, 227 F.3d at 683. As such, the Debtor’s contention that Pinnacle
failed to present a prima facie case under § 727(a)(2)(A) is erroneous.

        In sum, based on the incomplete record on appeal as presented by the Debtor, the Panel must
accept the bankruptcy court’s findings of fact relied upon by it in further finding the requisite intent
under §§ 727(a)(4)(A) and (a)(2)(A). Those findings support the court’s determinations that the
Debtor knowingly provided a false account under oath with the intent to defeat Pinnacle’s collection
efforts and that he was intentionally engaged in the process of continuously concealing and shielding
his law practice income from collection by Pinnacle. The court’s findings are not clearly erroneous
and the court correctly denied the Debtor’s discharge under §§ 727(a)(4)(A) and (a)(2)(A).

                                        V. CONCLUSION

        For the forgoing reasons, the judgment of the bankruptcy court in denying the Debtor’s
discharge pursuant to 11 U.S.C. §§ 727(a)(2)(A) and (a)(4)(A) is AFFIRMED.

                                                  -11-