Court Opinion

ID: 7619372
Source: CourtListenerOpinion
Date Created: 2022-07-29 15:00:20.724463+00
Date Added: 2024-06-11T16:25:01.473168
License: Public Domain

21-1063-bk
Gasson v. Premier Capital, LLC

                                 UNITED STATES COURT OF APPEALS
                                      FOR THE SECOND CIRCUIT

                                          August Term, 2021

                           Argued: April 4, 2022    Decided: July 29, 2022)

                                        Docket No. 21-1063-bk

                                         ANTHONY J. GASSON,

                                                                  Debtor-Appellant,

                                               — v. —

                                       PREMIER CAPITAL, LLC,

                                                                  Appellee.*

B e f o r e:

                             CALABRESI, LYNCH, and LOHIER, Circuit Judges.

                                         __________________

      Debtor-Appellant appeals from a judgment of the district court affirming
an order of the bankruptcy court denying the Debtor-Appellant’s statutory

          *
        The Clerk of Court is respectfully directed to amend the official caption in
this case to conform with the caption above.
discharge under 11 U.S.C. § 727(a)(2). Debtor-Appellant argues that the
bankruptcy court erred by finding that he had an interest in Soroban, Inc., that
was concealed to hinder creditors, and, in the alternative, that denying discharge
was improper because the concealment began prior to the statutory one-year
period set forth in § 727(a)(2)(A). The bankruptcy court did not err in finding that
Debtor-Appellant had a valid interest in Soroban that was concealed to hinder
creditors, and properly denied the discharge because the acts of concealment
continued throughout the one-year period prior to his filing the bankruptcy
petition. We therefore AFFIRM the judgment below.

             H. BRUCE BRONSON, Bronson Law Offices PC, Harrison, NY, for Debtor-
             Appellant.

             ELENI MELEKOU, Peter Antonelli (on the brief), Curran Antonelli, LLP,
             New York, NY, for Appellee.

GERARD E. LYNCH, Circuit Judge:

      Debtor-Appellant Anthony J. Gasson (“Gasson”) is a certified public

accountant who has been self-employed as a financial consultant since the 1980s.

Prior to 2001, Gasson found himself in financial difficulties after personally

guaranteeing the debts of various manufacturing businesses that ultimately

failed. In an apparent effort to make a fresh start and give Gasson’s wife greater

control of the family finances, the couple formed Soroban, Inc., in 2001. Soroban

functioned primarily as a consulting business through which Gasson sold his

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financial consulting services, and the couple agreed that Soroban would neither

seek nor obtain bank financing. Although Gasson’s wife nominally owned

Soroban, Gasson ran the day-to-day operations, served Soroban’s clients, and

controlled the company’s finances.

      Appellee Premier Capital, LLC (“Premier”) began pursuing Gasson in 2011

to collect on judgments resulting from his earlier debts. Gasson filed for

bankruptcy in the Southern District of New York shortly thereafter, on September

27, 2012. Premier commenced an adversary proceeding against Gasson in 2014

requesting that the bankruptcy court deny Gasson’s discharge pursuant to

various provisions of 11 U.S.C. § 727(a). See Complaint to Deny Debtor’s

Discharge, Premier Cap., LLC v. Gasson (“In re Gasson”), Adv. Pro. No. 14-08217,

(Bankr. S.D.N.Y. Mar. 31, 2014), ECF 1. Following a trial, the bankruptcy court

(Sean H. Lane, J.) denied Gasson’s discharge under § 727(a)(2) after finding that

he had concealed his equitable interest in Soroban to hinder his creditors. The

bankruptcy court also concluded that the one-year limitations period under

§ 727(a)(2)(A) was satisfied under the continuous concealment doctrine because

Gasson continued to conceal his interest in Soroban throughout the one-year

                                         3
period preceding Gasson’s filing his bankruptcy petition. The district court

(Nelson S. Román, J.) affirmed the bankruptcy court’s decision.

      On appeal, Gasson challenges the bankruptcy court’s determinations that

he had an interest in Soroban, that he concealed that interest with an intent to

hinder creditors, and that the concealment occurred within the one-year statutory

period. We conclude that the district court did not err in affirming the

bankruptcy court’s findings that Gasson had an interest in Soroban as a matter of

New York property law and that Gasson had concealed his interest to hinder

creditors within the one-year statutory period. We therefore AFFIRM the

judgment of the district court.

                                  BACKGROUND

      I. Gasson’s Debts and the Formation of Soroban

      Gasson has long worked in New York as a financial consultant and

certified public accountant. Prior to 2001, Gasson was also a part-owner of three

companies that manufactured and sold clothing and accessories: Swirl

Corporation, Nick Textiles, and Easley Textiles. Those companies sought

reorganization under Chapter 11 in 1995, and eventually failed in 2003, leaving

                                         4
behind substantial corporate debts that had been personally guaranteed by

Gasson. Those debts eventually resulted in three judgments against Gasson for a

total of $591,499.60. Those judgments were subsequently acquired by Premier,

appellee in the case before us.

      Gasson and his wife formed Soroban in 2001, in the midst of his financial

troubles, in a purported effort to give Gasson’s wife greater control over the

family finances. Although Gasson’s wife was listed as the sole owner and chair of

the board of Soroban, Gasson himself had day-to-day control over the company

and its affairs. Gasson was Soroban’s sole employee, provided all of the

consulting services Soroban offered to its clients, signed the vast majority of the

company’s checks, managed the movement of funds between Soroban’s bank

accounts, and signed promissory notes on Soroban’s behalf. By comparison,

Gasson’s wife had little to no involvement in the operations of Soroban, and

continued to work full-time as a nurse during the relevant period. From 2009

onwards, Soroban frequently had annual revenues in excess of $200,000, the vast

majority of which came from consulting services provided by Gasson.

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      II. Bankruptcy Court Proceedings and the Decision Below

      Premier acquired the judgments against Gasson and began attempting to

collect on them in 2011. On September 27, 2012, Gasson petitioned under Chapter

7 of the Bankruptcy Code to discharge his personal debts. On his bankruptcy

schedules, Gasson listed $7000 in personal property, no cash on hand or in his

bank accounts, and a value of $0 for his “individual consulting business.” On

March 31, 2014, Premier initiated an adversary proceeding arguing, among other

things, that Gasson should be denied a discharge under 11 U.S.C. § 727(a)(2)(A)

for having concealed his interest in Soroban in an effort to hinder his creditors.

      The bankruptcy court concluded that Gasson had an equitable interest in

Soroban under New York law, and that he had concealed that interest in an effort

to hinder creditors. See In re Gasson, Adv. Pro. No. 14-08217, 2018 WL 6603737, at

*10-16 (Bankr. S.D.N.Y. Dec. 13, 2018). Additionally, the bankruptcy court found

that the concealment occurred within the one-year statutory period set forth in

§ 727(a)(2)(A) under the continuous concealment doctrine, which has been

adopted in several of our sister circuits. Id. at *16-17. Under that doctrine “a

concealment will be found to exist during the year before bankruptcy even if the

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initial act of concealment took place before this one year period as long as the

debtor allowed the property to remain concealed into the critical year.” In re

Boyer, 328 F. App’x 711, 714 (2d Cir. 2009) (quoting the doctrine as applied in

other circuits). The district court affirmed the bankruptcy court’s judgment. See In

re Gasson, 629 B.R. 539 (S.D.N.Y. 2021). The present appeal followed.

                                    DISCUSSION

      “We exercise plenary review over a district court’s affirmance of a

bankruptcy court’s decisions, reviewing de novo the bankruptcy court’s

conclusions of law, and reviewing its findings of facts for clear error.” In re MPM

Silicones, LLC, 874 F.3d 787, 794 (2d Cir. 2017). “A finding of fact is clearly

erroneous” if the record leaves the reviewing court with a “definite and firm

conviction that a mistake has been made.” In re Reilly, 245 B.R. 768, 772 (2d Cir.

BAP 2000).

      I. Gasson Had an Interest in Soroban

      Gasson argues that the bankruptcy court erred in determining that he had

a property interest in Soroban. “Property interests are created and defined by

state law.” Butner v. United States, 440 U.S. 48, 55 (1979). “Unless some federal

                                           7
interest requires a different result, there is no reason why such interests should

be analyzed differently simply because an interested party is involved in a

bankruptcy proceeding.” Id. In the present case, the bankruptcy court

acknowledged that property interests are defined by state law, see In re Gasson,

2018 WL 6603737, at *10, and correctly determined that Gasson had a beneficial

property interest in Soroban as a matter of New York state law.

      The bankruptcy court evaluated Gasson’s beneficial interest in Soroban

using the test enunciated in In re Carl, 517 B.R. 53, 65-66 (Bankr. N.D.N.Y. 2014).

Under that test:

             First, courts consider whether a debtor previously
             owned a similar business. Second, courts look to see
             whether the debtor left his previous business venture
             under financial duress. Third, and most importantly,
             courts examine whether the debtor transferred his or
             her salary, or the right to receive salary to a family
             member or to a business entity owned by an insider.
             Fourth, courts evaluate whether the debtor is actively
             and actually involved in the success of the insider
             business. Finally, the debtor must retain some of the
             benefits of the salary, such as having expenses paid for
             by the insider or the business. Even if these factors are
             present, a court may grant a discharge if the debtor
             demonstrates a legitimate reason for the insider
             business relationship.

                                          8
Id. (internal citations omitted). Though recognizing that property interests are

determined by reference to state law, Appellant Br. at 24, Gasson does not argue

that Carl is inconsistent with New York case law. Rather, he argues that Carl may

be set aside as “not a binding precedent,” or may be otherwise distinguished on

its facts. Id. at 28-29. We agree that Carl is not binding. Moreover, the relevant

portion of the Carl opinion does not acknowledge that property interests are

defined by state law and fails to cite any authoritative state law cases. See 517 B.R.

at 65-66. Therefore, we must first address whether the test enunciated in Carl, as

applied by the bankruptcy court below, is consistent with New York law.

      Under New York law, persons exercising dominion and control over an

asset and the benefits derived therefrom may be found to have a de facto

property interest in that asset.1 There is no single list of factors that must be

      1
        See, e.g., Andrew Carothers, M.D., P.C. v. Progressive Ins. Co., 33 N.Y.3d 389,
399 (2019) (In the insurance context, New York courts identify “de facto” owners
by examining whether “they exhibited the attributes of ownership, particularly
that they exercised dominion and control over the corporation and its assets, and
that they shared risks, expenses[,] and interest in the profits and los[s]es of the
corporation.”); Metromedia, Inc. v. Tax Comm'n of the City of New York, 60 N.Y.2d
85, 91 (1983) (“Although the parties’ labeling of one as owner is not enough to
create a taxable interest, a finding of such an interest is justified where that party
exercises dominion and control over the property.”); McCormack Fam. Charitable
Found. v. Fid. Brokerage Servs., LLC, 195 A.D.3d 420 (N.Y. App. Div.), leave to

                                           9
examined when determining if a property interest exists. Rather, New York

courts engage in a general inquiry aimed at assessing the totality of the

circumstances. The approach employed in Andrew Carothers, M.D., P.C. v.

Progressive Ins. Co., 33 N.Y.3d 389 (2019) is instructive. In that case, the New York

Court of Appeals did not endorse the trial court’s “specific list of factors,” but

nonetheless found that the various factors included in the trial court’s jury

instructions “satisfactorily directed the jury to the ultimate inquiry of control

over a professional corporation.” Id. at 406 n.4. Those factors included: (1)

whether the purported owners’ dealings with the business were “designed to

give [them] substantial control over the [business] and channel profits” to

themselves; (2) whether they “exercised dominion and control” over business

assets, including bank accounts; (3) the extent to which business funds were used

appeal denied, 37 N.Y.3d 912, 175 N.E.3d 1258 (2021) (“A defendant must have
dominion and control over transferred assets to be liable as a transferee for a
fraudulent conveyance. Dominion and control is the right to put the money to
one’s own purposes.”); Abele Tractor & Equip. Co. v. Schaeffer, 137 N.Y.S.3d 174,
177 (3d Dep’t 2020) (“In discerning the owner of a titled vehicle . . . the
presumption arising out of the certificate of title may therefore be rebutted by
evidence which demonstrates that another individual owned the vehicle in
question. This may consist of proof that the other individual had possessory
interest in the vehicle, with its attendant characteristics of dominion and
control.”).

                                          10
for “personal rather than corporate purposes;” (4) whether they were responsible

for “hiring, firing, and payment of salaries” for the employees; (5) whether “the

day-to-day formalities of corporate existence were followed;” (6) whether the

business “shared common office space and employees” with other companies

owned by the purported owners; and (7) whether other parties “played a

substantial role in the day-to-day and overall operation and management” of the

business. Andrew Carothers, M.D., P.C. v. Progressive Ins. Co., 51 N.Y.S.3d 551, 556

(2d Dep’t 2017) (summarizing jury instructions).

      Taken as a whole, the factors enumerated by Carl also satisfactorily direct

the bankruptcy court as finder of fact “to the ultimate inquiry of control over a

professional corporation,” Carothers, 33 N.Y.3d at 406 n.4, and appropriately

address whether the debtor “exhibited the attributes of ownership” in the context

of bankruptcy proceedings, id. at 399. All of the Carl factors considered by the

bankruptcy court are consistent with the list of factors that formed part of the

charge described by the New York Court of Appeals in Carothers, and with New

York law in general. Gasson fails to identify, and our review has not revealed,

any other factor utilized by New York appellate courts under New York law that

                                         11
would point to a different result or affect the outcome of this case had the

bankruptcy court explicitly addressed it. The bankruptcy court thus did not err

by examining the factors enumerated in Carl.

      Nor did the bankruptcy court err in finding that Gasson had a beneficial

interest in Soroban in light of his history with similar businesses, the

circumstances surrounding Soroban’s founding, and his substantial control over

both the business’s finances and day-to-day operations. See In re Gasson, 2018 WL

6603737, at *10-12. All of the factors considered in Carl and in Carothers point, on

this record, to the same conclusion: Gasson exercised complete dominion and

control over Soroban, and thus had an ownership interest in it.

      II. Gasson Concealed His Interest in Soroban with the Intent to Hinder
       Creditors

      Next, we address Gasson’s argument that the bankruptcy court erred in

determining that Gasson concealed his interest in Soroban with an intent to

hinder his creditors. “To prove a § 727(a)(2) violation, a creditor must show an

act (i.e., a transfer or a concealment of property) and an improper intent (i.e., a

subjective intent to hinder, delay, or defraud a creditor)” within the statutory

period. In re Boyer, 328 F. App’x at 714 (internal quotations and alterations

                                          12
omitted); see also 11 U.S.C. § 727(a)(2). The bankruptcy court found that Gasson

concealed his interest in Soroban because “he organized his affairs so that he

would receive the benefit of Soroban without ever making such benefits within

the reach of creditors,” In re Gasson, 2018 WL 6603737, at *12, and generally

engaged in a “pattern of deception” both before and during the bankruptcy

proceedings, id. at 13. The bankruptcy court also found that Gasson’s explanation

for failing to properly fill out his bankruptcy schedules lacked credibility given

his level of business sophistication and past experience with bankruptcy

proceedings. See id. at *13.

      On appeal, Gasson urges us to review the bankruptcy court’s

determinations de novo, and generally argues that the bankruptcy court engaged

in an impermissible “hindsight approach” in finding that Soroban was used to

conceal assets from creditors. See Appellant Br. at 29-32. Gasson also urges that

we should view the evidence in the light most favorable to the debtor, and find

that any purported acts of concealment were innocently motivated. See Appellant

Br. at 32-35. Those arguments are unavailing.

                                         13
      As a preliminary matter, we reiterate that we review the bankruptcy

court’s findings of fact only for clear error. See In re MPM Silicones, 874 F.3d at

794. “[W]e have described § 727 as imposing an extreme penalty for wrongdoing,

which must be construed strictly against those who object to the debtor’s

discharge and liberally in favor of the bankrupt.” In re Cacioli, 463 F.3d 229, 234

(2d Cir. 2006) (internal quotations and alterations omitted). But that liberal

construction in favor of the debtor does not change the underlying standard of

review, nor does it imply that all of the evidence presented at trial must be

viewed in the light most favorable to the debtor. See id. at 234 (applying the

conventional standards of review to a bankruptcy court ruling under § 727).

      In the present case, the record evidence fully supports the bankruptcy

court’s findings that Gasson concealed his interest in Soroban, and that the

concealment was done with an intent to hinder his creditors. See In re Gasson,

2018 WL 6603737, at *10-16. That evidence includes, among other things: (1)

Gasson’s denying any business affiliation with Soroban or salary derived from

Soroban in response to Premier’s informational subpoenas, id. at *12 ; (2) placing

incorrect information on his bankruptcy schedules and otherwise obfuscating the

                                          14
fact that he received substantial value from his consulting business, id. at *13; (3)

routinely siphoning money out of Soroban bank accounts for personal use while

avoiding a substantive paper trail, id.; and (4) creating Soroban following “rough

times” when“[t]he IRS was seizing assets from [Gasson], and [he] was under

threat from other creditors,” id. at *15; see also In re Kaiser, 722 F.2d 1574, 1582-83

(2d Cir. 1983) (badges of fraud may include financial difficulties, the threat of

suits by creditors, and the general chronology of the events). The findings of the

bankruptcy court on those matters were not clearly erroneous, and the court

acted within its discretion in finding that Gasson’s testimony to the contrary

lacked credibility. Id. at *13, *16.

       III. Gasson Concealed His Interest Within the Statutory Period.

       Finally, we address the bankruptcy court’s application of the continuous

concealment doctrine. Under § 727(a)(2)(A), the party objecting to the discharge

must establish that the wrongful act complained of occurred “within one year

before the date of the filing of the petition.” As applied in other circuits,2 the

       2
        Some variant of the continuous concealment doctrine, also referred to as
the continuing concealment doctrine, has been applied by federal appellate
courts in the Third, Fifth, Sixth, Seventh, Ninth, and Eleventh circuits. See, e.g.,
Rosen v. Bezner, 996 F.2d 1527, 1531 (3d Cir. 1993); Thibodeaux v. Olivier (In re

                                           15
continuous concealment doctrine holds that “a concealment will be found to exist

during the year before bankruptcy even if the initial act of concealment took

place before this one year period as long as the debtor allowed the property to

remain concealed into the critical year.” Rosen v. Bezner, 996 F.2d 1527, 1531 (3d

Cir. 1993); see also In re Lawson, 122 F.3d 1237, 1240 (9th Cir. 1997) (“[A] transfer

made and recorded more than one year prior to filing may serve as evidence of

the requisite act of concealment where the debtor retains a secret benefit of

ownership in the transferred property within the year prior to filing.”). However,

the continuous concealment doctrine still requires that the party objecting to

discharge “prove an improper subjective intent during the year before

bankruptcy.” Rosen, 996 F.2d at 1533. In effect, the doctrine recognizes that

“concealment of an interest in an asset that continues, with the requisite intent,

into the year before bankruptcy constitutes a form of concealment which occurs

Olivier), 819 F.2d 550, 555 (5th Cir.1987); In re Keeney, 227 F.3d 679, 685 (6th Cir.
2000); In re Kauffman, 675 F.2d 127, 128 (7th Cir. 1981); In re Lawson, 122 F.3d 1237,
1242 (9th Cir. 1997); In re Coady, 588 F.3d 1312, 1317 (11th Cir. 2009). As discussed
in Olivier, the doctrine predates § 727(a)(2)(A) and has a significant history dating
back to at least the early 1900’s. See 819 F.2d at 555 n.7 (collecting cases). It
appears that no federal appellate court has ever explicitly rejected the doctrine as
inconsistent with § 727(a)(2)(A).

                                          16
within the year before bankruptcy and, therefore, that such concealment is within

the reach of [§] 727(a)(2)(A).” In re Olivier, 819 F.2d 550, 555 (5th Cir. 1987).

      We find the logic and the rationale behind the continuous concealment

doctrine compelling, and adopt the formulation articulated by Rosen as law in

this Circuit. Moreover, we conclude that the bankruptcy court appropriately

applied that doctrine to conclude that Gasson had concealed his interest in

Soroban within the statutory period.

      On appeal, Gasson suggests that the bankruptcy court misapplied the

doctrine by “completely disregard[ing] the Debtor’s purpose in setting up his

financial affairs the way he did,” Appellant Br. at 36, and focusing on his intent in

forming Soroban rather than his wrongful intent during the critical one-year

period prior to filing the bankruptcy petition. The bankruptcy court’s opinion

appropriately considered Gasson’s account of the circumstances surrounding

Soroban’s formation, but found the testimony supporting that account

unconvincing in view of the other evidence in the record. See, e.g., In re Gasson,

2018 WL 6603737, at *3 (summarizing his wife’s testimony that “Soroban was

created because her husband was not consulting at the time that the company

                                           17
was created, that she and her husband had debts, and that they wanted to make a

fresh start.”); id at *15 (acknowledging Gasson’s contention that “he was unaware

of the debts now owned by Premier”). A reviewing court owes “particularly

strong deference” where the fact findings are premised on credibility

determinations. Mathie v. Fries, 121 F.3d 808, 812 (2d Cir. 1997). The bankruptcy

court’s rejection of Gasson’s explanation was not clearly erroneous.

      As for Gasson’s intent during the critical one-year period, the bankruptcy

court found that “[Gasson’s] way of conducting his financial affairs persisted into

the year prior to the Debtor’s bankruptcy filing,” and that “[t]his continuing

concealment of his finances during the year prior to the bankruptcy filing is also

reflected in [Gasson’s] responses to the information subpoena before the

bankruptcy and the information he provided in his Schedules and Statement of

Financial Affairs filed with the bankruptcy.” In re Gasson, 2018 WL 6603737, at

*16-17. As discussed above, based on the record before us, the bankruptcy court’s

findings were highly persuasive, and certainly not clearly erroneous. The

bankruptcy court thus did not err in concluding that § 727(a)(2)(A) was satisfied.

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                                 CONCLUSION

      For the reasons set forth above, we conclude that the bankruptcy court and

the district court properly denied the discharge of Gasson’s debt pursuant to 11

U.S.C. § 727(a)(2). Accordingly, the judgment of the district court is AFFIRMED.

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