Court Opinion

ID: 4246629
Source: CourtListenerOpinion
Date Created: 2018-02-20 22:00:42.147714+00
Date Added: 2024-06-11T13:32:31.748646
License: Public Domain

FILED
                                                                  FEB 13 2018
 1                                                         SUSAN M. SPRAUL, CLERK
                                                             U.S. BKCY. APP. PANEL
                                                             OF THE NINTH CIRCUIT
 2                           NOT FOR PUBLICATION
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
                              OF THE NINTH CIRCUIT
 4
 5   In re:                        )      BAP No.      NC-17-1061-TaBS
                                   )
 6   AZAD AMIRI,                   )      Bk. No.      13-45900
                                   )
 7                  Debtor.        )      Adv. No.     14-04011
     ______________________________)
 8                                 )
     AZAD AMIRI,                   )
 9                                 )
                    Appellant,     )
10                                 )
     v.                            )      MEMORANDUM*
11                                 )
     RAMOS OIL COMPANY, INC.,      )
12                                 )
                    Appellee.      )
13   ______________________________)
14                  Argued and Submitted on January 25, 2018
                          at San Francisco, California
15
                           Filed – February 13, 2018
16
               Appeal from the United States Bankruptcy Court
17                 for the Northern District of California
18    Honorable William J. Lafferty III, Bankruptcy Judge, Presiding
19
     Appearances:     John T. Schreiber of the Law Offices of John T.
20                    Schreiber argued for appellant; Walter R. Dahl of
                      Dahl Law, Attorneys at Law argued for appellee.
21
22   Before:   TAYLOR, BRAND, and SPRAKER, Bankruptcy Judges.
23
24
25
26
27        *
             This disposition is not appropriate for publication.
28   Although it may be cited for whatever persuasive value it may
     have (see Fed. R. App. P. 32.1), it has no precedential value.
     See 9th Cir. BAP Rule 8024-1(c)(2).
 1                               INTRODUCTION
 2        Debtor Azad Amiri’s statement of financial affairs omitted
 3   the required disclosure that he was or had been an officer or
 4   director of four corporations.    Ramos Oil Co., Inc. (“Ramos
 5   Oil”), one of Debtor’s creditors, asserted through an adversary
 6   proceeding that this omission constituted a knowing and
 7   fraudulent false oath that justified a denial of discharge under
 8   § 727(a)(4).1   After trial, the bankruptcy court agreed with
 9   Ramos Oil.    And on appeal, Debtor does not challenge most of the
10   bankruptcy court’s findings. Instead, he argues only that his
11   acknowledged omissions were not material and, thus, that they do
12   not justify denial of discharge.     We disagree, and we AFFIRM the
13   bankruptcy court.
14                                  FACTS
15        Debtor has a decades-long involvement in the oil and gas
16   industry including more recent partial ownership of Kang
17   Properties, the owner-operator of a South Lake Tahoe gas
18   station.    Ramos Oil, a Kang Properties supplier, obtained a
19   judgment against Kang Properties and Debtor through state court
20   litigation.
21        Debtor is no stranger to the bankruptcy system; he filed a
22   chapter 11 in 1993, a chapter 13 in 2009, and a chapter 13 in
23   2010.    And following the Ramos Oil judgment, he again initiated
24   personal bankruptcy and also caused Kang Properties to file a
25   bankruptcy petition.
26
27        1
             Unless otherwise indicated, all chapter and section
28   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.

                                      2
 1        Ramos Oil responded with an adversary proceeding seeking to
 2   deny Debtor a discharge under § 727(a).   Eventually, the
 3   bankruptcy court held a one-day trial related to objections to
 4   discharge under § 727(a)(2)(A) and (a)(4).   In his subsequent
 5   oral ruling, the bankruptcy judge ruled against Ramos Oil on its
 6   § 727(a)(2) claim; Ramos Oil did not appeal from this
 7   determination, and we do not discuss it further.   But the
 8   bankruptcy court ruled in favor of Ramos Oil on its § 727(a)(4)
 9   claim.   The bankruptcy judge explained: “I don’t think there’s
10   any question but that in connection with the answer to Question
11   No. 18 in the Statement of Financial Affairs that was filed by
12   the Debtor, the Debtor did not list everything that was supposed
13   to be listed.”   Hr’g Tr. (Jan. 30, 2017) 12:12-16.
14        More particularly, Statement of Financial Affairs (“SOFA”)
15   question 18 requires a debtor to disclose information about
16   business entities in which the debtor acted as an officer,
17   director, partner, or managing executive during the six years
18   before he filed bankruptcy.   And the bankruptcy court found that
19   Debtor failed to disclose that he was:
20   •    CEO/CFO and agent for service of process for Dara
21        Petroleum, Inc.;
22   •    CEO/CFO, secretary, and agent for service of process for
23        Ameri Oil Company, Inc.;
24   •    CEO, secretary, CFO, and agent for service of process for
25        Aria Oil Company;2 and
26
27        2
             Debtor submitted a post-petition resignation as agent
28   for service of process of Dara, Ameri, and Aria.

                                     3
 1   •    Secretary, CFO, and agent for service of process for Ameri
 2        Oil DK Property.
 3   The bankruptcy court found that these omissions were
 4   unquestionably false oaths, and he later determined that the
 5   omissions were knowing and fraudulent.
 6        The bankruptcy judge also carefully considered whether the
 7   omissions were material.   He recognized that the monetary impact
 8   of the omitted information may have been small and acknowledged
 9   Debtor’s “no harm-no foul” argument.    And he recognized that
10   some cases recite that “there has to be some level of importance
11   to the failure to disclose[,]” which “is most easily measured
12   usually by the value of the thing that would have been available
13   to the estate . . . .”   Hr’g Tr. 15:3-7.   But he also noted that
14   other cases, such as Fogal Legware of Switzerland, Inc. v. Wills
15   (In re Wills), 243 B.R. 58 (9th Cir. BAP 1999), define
16   materiality more broadly and that materiality does not
17   necessarily “depend on the absolute value of assets that were
18   not disclosed,” but rather it could “depend on other things like
19   whether the admissions made it impossible to administer the case
20   . . . .”   Id. at 15:10-24.   The bankruptcy judge found this
21   concept particularly relevant.    He explained:
22        [W]hen somebody doesn’t make a disclosure, it makes it
          impossible to follow up and to find out what happened.
23        And that affects the transparency of the system. It
          clearly affects the administration of the system, and
24        especially in this case, which I’ll get to in a
          second. And it puts us in a situation which the Wills
25        case and many other cases tell us we’re supposed to
          avoid, where the trustee is put to the task of having
26        to undergo lengthy and expensive investigations just
          to figure out what was really the story on the day the
27        Debtor filed the bankruptcy.
28        . . . [T]he fact that we don’t know anything about these

                                      4
 1        companies via the schedules is very troubling. And it’s
          all the more troubling frankly because these were –- [they]
 2        appear[] to be closely held businesses, and they were
          businesses that from the testimony and the inferences I
 3        think I can draw therefrom, were managed in some way by the
          Debtor –- might have been managed by others –- and they
 4        seemed to have been either familial relationships or
          relationships within a community of close friends and
 5        advisors. That is exactly the kind of business and exactly
          the kind of arrangements between businesses that can
 6        sometimes lead to the discovery of assets even when the
          Debtor might believe that that’s not likely.
 7
          . . . [I]t is frequently the case that people don’t take
 8        the steps they should take to insulate certain kinds of
          transactions or they don’t document things properly, or
 9        they otherwise naively think that having done “X”, they’ve
          achieved “Y” and they don’t. And those are all things that
10        a trustee is entitled to look at and try to get some value
          for the estate, and I think both counsel . . . have been
11        through this process enough to know that in these, you
          know, what I will call, relatively less cumbersome and
12        smaller corporate or LLC structures, it’s frequently the
          case that there is some recovery available when one might
13        not expect so.
14   Id. at 16:5-15:1 (paragraph break added).   The bankruptcy judge
15   finally emphasized:
16        But I do think that the nature of these businesses is
          extremely important in this analysis because it’s just
17        not possible to say as we sit here that we can have
          any confidence either that we know enough about the
18        Debtor’s involvement in the businesses or that the
          businesses and those relationships, had they been
19        known, you know, would not have or could not have led
          to something else that would have been of meaning to
20        the estate.
21   Id. at 18:7-14.
22        The bankruptcy court entered a judgment denying Debtor’s
23   bankruptcy discharge under § 727(a)(4).    Debtor timely appealed.
24                               JURISDICTION
25        The bankruptcy court had jurisdiction under 28 U.S.C.
26   §§ 1334 and 157(b)(2)(J).   We have jurisdiction under 28 U.S.C.
27   § 158.
28

                                      5
 1                                 ISSUE
 2        Whether the bankruptcy court erred in concluding that
 3   Debtor’s omissions were material.
 4                           STANDARD OF REVIEW
 5        We review the bankruptcy court’s: (1) determinations of the
 6   historical facts for clear error; (2) selection of the
 7   applicable legal rules under § 727 de novo; and (3) application
 8   of the facts to those rules requiring the exercise of judgments
 9   about values animating the rules de novo.    Retz v. Samson (In re
10   Retz), 606 F.3d 1189, 1196 (9th Cir. 2010).    A factual finding
11   is clearly erroneous if it is illogical, implausible, or without
12   support in inferences that may be drawn from the facts in the
13   record.   Id.
14                               DISCUSSION
15        Section 727(a)(4)(A) provides for discharge denial where
16   “the debtor knowingly and fraudulently, in or in connection with
17   the case[,] made a false oath or account.”    11 U.S.C.
18   § 727(a)(4)(A).   And the objector to discharge must show that
19   “the relevant false oath relate[s] to a material fact.”   Retz,
20   606 F.3d at 1198 (citing Roberts v. Erhard (In re Roberts), 331
21   B.R. 876, 882 (9th Cir. BAP 2005)).
22        “The fundamental purpose of § 727(a)(4)(A) is to insure
23   that the trustee and creditors have accurate information without
24   having to conduct costly investigations.”    Id. at 1196 (internal
25   quotation marks and citation omitted).   Thus, materiality must
26   be evaluated with this fundamental purpose in mind.
27   Concurrently, however, the court evaluating objections to
28   discharge must remember that they are liberally construed in

                                     6
 1   favor of the debtor and against the objector.   Khalil v.
 2   Developers Sur. & Indem. Co. (In re Khalil), 379 B.R. 163, 172
 3   (9th Cir. BAP 2007), aff’d, 578 F.3d 1167 (9th Cir. 2009).
 4        A fact is material if:
 5        “[‘]it bears a relationship to the debtor’s business
          transactions or estate, or concerns the discovery of
 6        assets, business dealings, or the existence and
          disposition of the debtor’s property.’” In re Khalil,
 7        379 B.R. at 173 (quoting In re Wills, 243 B.R. at 62).
          An omission or misstatement that “detrimentally
 8        affects administration of the estate” is material. In
          re Wills, 243 B.R. at 63 (citing 6 Lawrence P. King et
 9        al., Collier on Bankruptcy ¶ 727.04[1][b] (15th ed.
          rev. 1998)).
10
11   Retz, 606 F.3d at 1198.
12        Debtor argues that the bankruptcy court uses an overly
13   broad definition of “material” that renders the term
14   meaningless; in essence, he argues that the bankruptcy court
15   applied an incorrect legal standard when assessing materiality.
16   We disagree; the bankruptcy court identified and recited the
17   correct legal standard for materiality and then correctly
18   applied this standard under the facts of this case.3
19        The bankruptcy court explained why the omissions were
20   highly relevant to the administration of Debtor’s bankruptcy
21   case and estate.   It emphasized the nature of the corporations:
22   small companies where Debtor’s friends or family were in
23
24        3
             We assume that we conduct a de novo, as opposed to clear
25   error, review of a “materiality” determination under § 727(a)(4)
     as it appears to be a mixed question of law and fact. But we
26   also acknowledge some murkiness in the relevant caselaw. Here,
27   however, the standard of review is not outcome-determinative
     because we agree with the bankruptcy court’s conclusion even
28   under the more exacting de novo review standard.

                                     7
 1   control; this appropriately suggested to the bankruptcy court
 2   that a chapter 7 trustee would have looked carefully for
 3   recovery opportunities and might have found them.    It limited
 4   its findings to the specific facts of the case.    We also find
 5   support in the record for the materiality determination in the
 6   numerosity of the omissions and the fact that the omissions of
 7   officer status were in connection with business transactions or
 8   dealings.   A failure to omit membership on a not-for-profit
 9   board might require a different ruling, but here there is no
10   dispute that the businesses were profit-centered.
11        Debtor also notes that the chapter 7 trustee did not find
12   anything material missing or have difficulty administering the
13   estate because the trustee, after the meeting of creditors,
14   issued a no distribution report.     And at oral argument, Debtor’s
15   counsel emphasized that the chapter 7 trustee did not pursue any
16   actions related to the non-disclosed positions, suggesting that
17   the omissions were de minimis and thus not material.
18        This is disingenuous; at oral argument, Debtor’s counsel
19   conceded that he did not know if Debtor disclosed the
20   information at the § 341(a) meeting, and the transcript of the
21   § 341(a) meeting is not on the docket and was not presented to
22   the bankruptcy court.4   Debtor’s assertion is pure postulation,
23   ungrounded in fact.
24        Further, even an omission of a non-asset is material if the
25
26        4
             Although Ramos Oil’s counsel, at oral argument, stated
27   that Debtor did not disclose the information at the § 341(a)
     meeting, he conceded that the record does not include the
28   § 341(a) transcript.

                                      8
 1   omission negatively impacts a trustee’s administration of the
 2   estate.   In re Wills, 243 B.R. at 63 (“However, an omission or
 3   misstatement relating to an asset that is of little value or
 4   that would not be property of the estate is material if the
 5   omission or misstatement detrimentally affects administration of
 6   the estate.”).   The bankruptcy court identified exactly this
 7   type of negative impact in its materiality determinations.
 8        Notwithstanding that the bankruptcy court found material
 9   omissions in Debtor’s response to SOFA question 18, Debtor
10   attempts to use the question’s text to bolster his argument that
11   his omissions were not material.    As relevant here, SOFA
12   question 18 requires that an individual debtor disclose:
13        the names, addresses, taxpayer identification numbers,
          nature of the businesses, and beginning and ending
14        dates of all businesses in which the debtor was an
          officer, director, partner, or managing executive of a
15        corporation, . . . within six years immediately
          preceding the commencement of this case, or in which
16        the debtor owned 5 percent or more of the voting or
          equity securities within six years immediately
17        preceding the commencement of this case.5
18   Debtor repeatedly emphasizes the required disclosure related to
19   companies where a debtor held a 5% equity interest during the
20   six years preceding his bankruptcy.    But the 5% equity
21   disclosure requirement in SOFA question 18 is neither
22
23        5
             The Statement of Financial Affairs form has since been
24   revised, effective April 1, 2016. Revised Official Form 107
     question 27 is even clearer; it asks: “Within 4 years before you
25   filed for bankruptcy, did you own a business or have any of the
     following connections to any business?” It then provides a
26   number of check-boxes, including: “An officer, director, or
27   managing executive of a corporation” and, separately, “An owner
     of at least 5% of the voting or equity securities of a
28   corporation[.]”

                                     9
 1   controlling nor even necessarily relevant to SOFA question 18’s
 2   dual requirement that a debtor disclose companies where the
 3   debtor was an officer or director; it is written as an
 4   “either/or” not a “both/and.”
 5        Thus, Debtor’s argued interpretation that materiality in
 6   relation to a SOFA question 18 omission exists only where he was
 7   both an officer and the holder of at least a 5% equity interest
 8   is severely flawed.    The bankruptcy court correctly concluded
 9   that “the Code requires complete and thorough and
10   uneditorialized disclosure of all these issues, including those
11   in businesses that may not be equity interests.”    Hr’g Tr. at
12   16:16-19.    Debtor was not free to selectively omit responsive
13   information and then to excuse the omission in this convoluted
14   fashion.
15        Further, Debtor’s position is contradicted by language from
16   the Ninth Circuit case he cites; materiality exists where the
17   omitted fact, among other things, relates to a debtor’s business
18   transactions, the discovery of assets, or business dealings.
19   Retz, 606 F.3d at 1198.    Here, Debtor failed to disclose facts
20   (his being an officer in four corporations) that involved his
21   business dealings and might have led a trustee to the discovery
22   of assets.    At oral argument, Debtor’s counsel further suggested
23   that the disclosure of Debtor’s “business dealings” was not
24   relevant because this was his personal bankruptcy filing; we
25   disagree: even an individual debtor has business dealings.
26        Debtor also next argues that all of the relevant
27   § 727(a)(4) materiality caselaw involves omissions of estate
28   assets or former debtor assets.    We disagree that the caselaw

                                       10
 1   limits materiality as Debtor argues.     In the laundry list of
 2   cases Debtor cites and discusses, the relevant material
 3   omissions involved assets, as Debtor puts it, “belonging or that
 4   had belonged to the debtor’s estate.”     That does not, however,
 5   mean that only omissions related to property of the estate
 6   qualify as material omissions for § 727(a)(4) purposes.     Neither
 7   § 727(a)(4) as written nor its caselaw developed elements have a
 8   “property of the estate” component.6
 9        In short, we find no error in the bankruptcy court’s
10   conclusion that, under the facts of this case, Debtor’s
11   omissions of his status as an officer or director of four
12   corporations during the time period identified by SOFA question
13   18 were material.   Debtor does not otherwise challenge the
14   bankruptcy court’s findings.
15                               CONCLUSION
16        Based on the foregoing, we AFFIRM.
17
18
19
20
21        6
             Debtor obliquely refers to Robertson v. Swanson (In re
22   Swanson), 36 B.R. 99 (9th Cir. BAP 1984), but does not discuss
     it in any depth. It is not analogous. There, the Panel
23   reversed the bankruptcy court’s judgment denying a debtor a
24   discharge because the debtor did not list his accountancy
     practice in his bankruptcy schedules. Id. at 99-100. The Panel
25   reversed because the debtor fully disclosed his employment
     history, including his accountancy practice, and because, under
26   § 541(a)(6), any future earnings would not be property of the
27   bankruptcy estate. Id. at 100. As the Panel explained: “No
     asset was hidden.” Id. In the present case, Debtor never
28   disclosed his relationship with any of the four companies.

                                     11