LENA MANSORI JAMES, UNITED STATES BANKRUPTCY JUDGE.
This adversary proceeding came on before the Court for trial in Winston-Salem,
The United States Bankruptcy Administrator and the Chapter 7 Trustee (the "Plaintiffs") object to discharge of Queenesther Ruth Jeffries (the "Debtor") in her Chapter 7 case. The Plaintiff has asserted two claims: (1) that the Debtor knowingly and fraudulently made a false oath or account in connection with her case and should be denied a discharge under 11 U.S.C. § 727(a)(4)(A); and (2) that the Debtor, with intent to hinder, delay or defraud a creditor or an officer of the state charged with custody of property under Bankruptcy Code, transferred, removed, or concealed property within one year of the filing of the petition, so that her discharge should be denied under 11 U.S.C. § 727(a)(2)(A). This Court has jurisdiction over the subject matter of this proceeding pursuant to 28 U.S.C. §§ 1334 and 157(a) and Local Rule 83.11 entered by the United States District Court for the Middle District of North Carolina. This is a core proceeding under 28 U.S.C. § 157(b)(2), which this Court may hear and determine.
Prepetition, the Debtor met with her bankruptcy counsel, or his assistant, on three occasions. First, the Debtor and her brother, George T. Powell ("Mr.Powell"), met with the Debtor's bankruptcy counsel in April 2014 to discuss a judgment entered against the Debtor in 2009. The Debtor next met with her counsel's assistant in May 2014 to provide information for her bankruptcy schedules. Finally, in June 2015 the Debtor met with her counsel for the purpose of reviewing and signing her schedules and statements prior to filing her Chapter 7 petition. The Debtor then filed a voluntary petition under Chapter 7 of the Bankruptcy Code on June 12, 2014 (the "Petition Date"), along with her schedules and Statement of Financial Affairs ("SOFA"). W. Joseph Burns was appointed as Chapter 7 Trustee (the "Trustee").
The Debtor's schedules reflect the following:
On her SOFA, the Debtor checked the box indicating "None" to question 10, "Other transfers." This question states in part:
In addition, the Debtor checked the box indicating "None" to question 18, "Nature, location and name of business." Subsection (a) of this question requests the following information:
Other than the amended Schedule J filed five days after her Petition Date, the Debtor has not filed amended schedules or statements during the pendency of this case.
The Debtor's case was randomly selected for audit on July 1, 2014 pursuant to 28 U.S.C. § 586(f)(1) (2012). The Administrative Office of the United States Courts filed a Report of Debtor Audit ("Report") on September 2, 2014 stating that there were no material misstatements in the Debtor's petition, schedules, and statements. While the Report noted that there were no material misstatements, by separate letter to the Bankruptcy Administrator ("BA") of the same date, the auditor listed omissions from the Debtor's schedules and statement as follows: (1) a partnership known as "Dollars, Sense and Growth Investment;" (2) GQM Enterprises, LLC ("GQM") as a possible business affiliation of the Debtor; (3) one Wells Fargo savings account # 9886; and (4) two PNC bank accounts, # 2779 and # 2787.
After the first § 341 meeting,
As a result, on September 29, 2014, the Trustee filed an adversary proceeding
Thus, there is no dispute that the Debtor made multiple false statements and omissions on her bankruptcy petition and schedules, including the following:
At the continued § 341 meeting on September 12, 2014, the Debtor and her counsel, Mr. Meadows, had the following exchange with the Trustee:
Debtor's 341 Meeting, 4:2-5:11, Sept. 12, 2014.
Also during the § 341 meeting on September 12, 2014, the Trustee and counsel for the BA questioned the Debtor about the Liberty Street Property. The Debtor maintained that her name was on the original deed to the Liberty Street Property as
At the trial, the Court heard the testimony of the Trustee, the Debtor, and Mr. Powell. When the Debtor testified, she did not appear forthright or credible. Her answers were short, abrupt, and repeatedly incomplete and misleading. Again, she asserted that she did not disclose the transfer of her interest in the Liberty Street Property because she did not consider herself an owner of the property, and yet she admitted that her intent in signing the document was to transfer her interest in the property to Mr. Powell so he could sell it. She gave no explanation as to the timing of the transfer other than that she merely "obeyed her brother's directions to go to a real estate office and sign some papers." Def.'s Pretrial Br. 2. She gave no explanation as to why, if she did not consider herself an owner of the property, she met jointly with her brother and counsel to discuss the judgment which had attached to it. At times, she implied that she did not comprehend that the document that she signed was a deed. She insisted on referring to the quitclaim deed as a "paper" rather than a deed and in doing so, appeared disingenuous, particularly after she admitted that she knew that the "paper" was a deed. The Debtor clearly testified that she understood what a deed was and further demonstrated her understanding of the significance of a deed when she described that she and her husband were having an issue with the recording of an allegedly false deed to the real property they currently use as their residence.
Further findings of fact are incorporated into the discussion below.
For denial of Debtor's discharge pursuant to § 727(a)(2)(A), the Plaintiffs must establish that the debtor (1) transferred or concealed, (2) his property, (3) with the intent to hinder, delay or defraud a creditor, (4) within one year before filing the petition. Saslow v. Michael (In re Michael), 452 B.R. 908, 916 (Bankr. M.D.N.C.2011). The only element at issue is the intent to hinder, delay or defraud a creditor; the Debtor transferred her interest in the Liberty Street Property within one year (15 days) prior to the filing of her petition.
Id. at 917. The presence of only one badge of fraud may provide a basis for a finding of fraudulent intent. See Id. Also, it is irrelevant whether or not the transfer of an interest in property actually injures a creditor. Vill. of San Jose v. McWilliams (In re McWilliams), 284 F.3d 785, 793 (7th Cir.2002).
In the Debtor's case, at least six of the eight badges of fraud are present:
After careful consideration of the entire record in this case, the Court finds that the evidence presented at trial, including the presence of numerous badges of fraud, supports a finding that the Debtor transferred her interest in the Liberty Street Property with intent to hinder, delay, or defraud a creditor. As a result, the Debtor can be denied discharge pursuant to § 727(a)(2)(A), and the Court need not go further in considering alternate grounds. However, Plaintiffs have additionally raised § 727(a)(4)(A) as grounds for denial of discharge, and the Court agrees that the Plaintiffs have met their burden of proof with regard to this claim.
Section 727(a)(4)(A) provides that a court should not grant a debtor's 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). A false statement or omission in a debtor's schedules or statement of financial affairs qualifies as a false oath. Nationsbank, N.A. v. Jaray (In re Jaray), 114 F.3d 1176, 1176 (4th Cir.1997) (per curiam) (affirming a denial of discharge predicated on false statements and omissions from the debtor's schedules); Williamson v. Fireman's Fund Ins. Co., 828 F.2d 249, 251 n.2 (4th Cir.1987) (finding that false statements and omissions in filing
The purpose of § 727(a)(4)(A) is to ensure that accurate and complete information is supplied for those interested in the administration of the bankruptcy estate, without the need for the trustee or other interested parties to ferret out the true facts in examinations or investigations. LaVangie v. Mazzola (In re Mazzola), 4 B.R. 179, 181-82 (Bankr.D.Mass. 1980); see Northen v. Mack (In re Mack), Case No. 07-80496, Adv. No. 07-9024, 2009 WL 2998975, at *3 (Bankr.M.D.N.C. Sept. 18, 2009). A debtor has an affirmative duty to list all assets and liabilities and to fully answer the questions in the petition. Mazzola, 4 B.R. at 183; see Sigmon v. Belk (In re Belk), 509 B.R. 513, 518 (Bankr.W.D.N.C.2014) ("Filing bankruptcy is a serious undertaking and these are serious duties."). "[N]either the trustee nor the creditors should be required to engage in a laborious tug-of-war to drag the simple truth into the glare of daylight." The Cadle Co. v. Watkins (In re Watkins), Case No. 05-12066C-7G, Adv. No. 06-02001, 2007 WL 1459306, at *2 (Bankr. M.D.N.C. May 15, 2007) (citing In re Tully, 818 F.2d 106, 110 (1st Cir.1987)). In Kaler v. McLaren (In re McLaren), 236 B.R. 882 (Bankr.D.N.D.1999), the court explained the duty of full and truthful disclosure by a debtor in his bankruptcy petition:
Id. at 894. Certainly, a trustee and creditors should not be required to expend resources to obtain information that should be readily available by full disclosure in the schedules and statement of financial affairs.
For the court to deny a debtor a discharge under § 727(a)(4)(A), the plaintiff must show that: (1) the debtor made a statement under oath; (2) the statement was false; (3) the debtor knew the statement was false; (4) the debtor made the statement with fraudulent intent; and (5) the statement related materially to the bankruptcy case. Beaubouef v. Beaubouef (Matter of Beaubouef), 966 F.2d 174, 178 (5th Cir.1992). The plaintiff bears the burden of proving that the discharge should be denied under § 727(a) and must meet this burden by a preponderance of the evidence as to all five elements. FED. R. BANKR. P. 4005; Farouki v. Emirates Bank Intern., Ltd., 14 F.3d 244, 249 (4th Cir.1994).
In this district, discharges in bankruptcy have been denied due to a debtor's failure to disclose or truthfully disclose all of the information requested in the bankruptcy schedules or statement of financial affairs. In a recent Middle District of North Carolina case, a debtor was denied his discharge on the grounds of making a false oath or account for his substantial undervaluation of one of his disclosed assets.
In another case in this district, the bankruptcy court discussed the various omissions and false statements in the debtors' petition and statement of financial affairs regarding their exempt assets, sale of vehicles in prior years, and discrepancies in income reported. Ferguson v. Pepper (In re Pepper), Case No. 10-51103 C-7W, Adv. No. 10-06058, 2011 WL 5288737, at *1 (Bankr.M.D.N.C. Nov. 2, 2011). The debtors alleged in their answer to the trustee's complaint that the omissions and misstatements were either immaterial or the result of "simple oversight." Id. In denying the debtors their discharge, the bankruptcy court stated, "These material inaccuracies and omissions were accompanied by a panoply of minor deficiencies, which cumulatively amount to a material misstatement." Id. at *2.
In yet another case, West v. Barnette (In re Barnette), Case No. 00-80450C-7D, Adv. No. 01-9002, 2002 WL 1544472 (Bankr.M.D.N.C. July 8, 2002), the debtors failed to list their ownership interests in stock in various corporations and as well as three personal assets in their petition. The court made it clear that even if the omission of corporate interests was not at issue, the failure to schedule the three items of personalty
In the present case, the Plaintiffs contend that the Debtor should be denied a discharge under § 727(a)(4)(A) for her failure to disclose that she conveyed an interest the Liberty Street Property to her brother 15 days prior to her bankruptcy filing, in combination with her other omissions and false statements. While the property transfer itself already operates to preclude the Debtor from discharge pursuant to § 727(a)(2)(A), the Plaintiffs also take issue with the degree of falsity with which the Debtor has repeatedly conducted herself in this case. Concealment of the property transfer is but one of several false oaths that collectively suggest that the Debtor has been playing fast and loose with her discharge.
The Debtor concedes that elements (1), (2), and (5) of § 727(a)(4)(A) are "present in this case and cannot be disproved." Def.'s Pretrial Br. 2. The third and fourth elements, whether the Debtor knew her statements and omissions were false and whether such statements and omissions were made with the requisite intent, are largely matters of credibility and demeanor when testifying at her objection to discharge hearing. See Williamson, 828 F.2d at 252.
As to the third element, that the Debtor knowingly made false statements and omissions in furtherance of her case, the Debtor's background is relevant in demonstrating her level of sophistication. The Debtor has a college degree and has worked at various positions during her adult life, including as a sales associate at Macy's and as an office manager for GQM, an entertainment booking company. Also, the Debtor participated in an investment club partnership. She is sufficiently educated
The next element of a § 727(a)(4)(A) objection to discharge concerns the Debtor's fraudulent intent in making the false oath. "Direct evidence of fraudulent intent is not required; rather, it is sufficient to prove by circumstantial evidence either a pattern of concealment and errors or other conduct that suggests reckless indifference to the truth." Neugebauer v. Senese (In re Senese), 245 B.R. 565, 575 (Bankr.N.D.Ill.2000). See Angell v. Williams (In re Williams), Case No. 08-02284, Adv. No. 08-00188, 2010 WL 364459, at 9 (Bankr.E.D.N.C. Jan. 27, 2010) (citing Kremen v. Slattery (In re Slattery), 333 B.R. 340, 346 (Bankr.D.Md. 2005)) (finding that a pattern of omissions and inaccuracies on a debtor's sworn schedules indicates a reckless disregard for the truth).
As stated previously, it is undisputed that the Debtor made multiple false statements and omissions on her schedules and SOFA. The Debtor additionally withheld or attempted to mislead the Court on the following occasions at trial:
The Debtor's demeanor and the tenor of her testimony echo the description of a debtor's testimony in a case where discharge was denied pursuant to §§ 727(a)(4)(A) and (a)(2)(A), mainly due to concealment of stock in a construction company. In United Bank v. Fedczak (In re Fedczak), No. 05-3418, Adv. Proc. No. 05-195, 2007 WL 1670110 (Bankr. N.D.W.Va. June 6, 2007), the debtor testified at his § 341 meeting that "Martha Frame ... was an elderly lady and I sort of ran things for her." Id. at *2. He testified that she was the owner of a company for which he was the President. Id. The debtor then testified that he had no idea what happened to any of the assets of the company. Id. at *3. Later it was discovered that Martha Frame was the debtor's mother, that she died nine years prior to the filing of the debtor's bankruptcy, and that he worked for the company up to one year prior to filing for bankruptcy. Id. at *4. This less-than-forthcoming testimony by the debtor in this case led the bankruptcy court to conclude:
Id. at *7.
The Court interprets the Debtor's comparable lack of candor and withholding of information at trial as a reckless disregard for the truth. Reckless disregard means not caring whether some representation is true or false, and has been treated as the functional equivalent of fraud for the purposes of § 727(a)(4)(A). Rupp v. Biorge (In re Biorge), 536 B.R. 24, 31 (Bankr. D.Utah 2015). This requisite intent necessary for the denial of discharge under § 727(a)(4)(A) may be inferred from circumstantial evidence, such as a pattern of nondisclosure and concealment. Giansante & Cobb, LLC v. Singh (In re Singh), 433 B.R. 139, 159 (Bankr. E.D.Pa.2010). See Williamson, 828 F.2d at 252 (citing Farmers Co-operative Association v. Strunk, 671 F.2d 391, 395 (10th Cir.1982) ("Fraudulent intent ... may be established by ... inferences drawn from a course of conduct.")).
Furthermore, when the false statements and omissions are contained in the schedules and statements of the bankruptcy petition, the debtor has a "continuing duty" to assure the accuracy of such schedules and statements, i.e. "the proper method of correction is a formal amendment of the schedules." Searles v. Riley (In re Searles), 317 B.R. 368, 377 (9th Cir. BAP 2004), aff'd 212 Fed.Appx. 589 (9th
Id. at 638 (citation omitted).
Here, the Debtor's omissions and misstatements on her schedules and SOFA, her testimony at the 341 hearings, her testimony and demeanor at trial, and her failure to amend her schedules and SOFA
The materiality of the false statements and omissions is the last element in the determination of whether a discharge should be denied under § 727(a)(4)(A). Although this element was unequivocally conceded in the Debtor's pretrial brief, her counsel indirectly raised this element in his arguments at the trial. False statements and omissions are related to material matters in that they concerned the existence and disposition of the Debtor's property. See Williamson, 828 F.2d at 252 (citing Chalik v. Moorefield (In re Chalik), 748 F.2d 616, 618 (11th Cir.1984) ("The subject matter of a false oath is `material' and thus sufficient to bar discharge if it bears a relationship to the debtor's business transactions or estate, or concerns the discovery of assets or business dealings, or the existence and disposition of property.")). The dollar amounts of the undisclosed bank accounts are minimal,
Veracity and transparency are of utmost importance in completing schedules and statements in the debtor's petition. A debtor simply must answer the questions in the statement of financial affairs candidly. The most troubling of all aspects of this case is the failure of the Debtor to answer question 10 of her Statement of Financial Affairs truthfully with regard to the transfer of her interest in the Liberty Street Property to Mr. Powell, just days prior to the Petition Date, and after she and Mr. Powell met with Debtor's counsel to discuss the judgment. The Court does not believe that the Debtor did not realize the significance of signing a quitclaim deed for the Liberty Street Property. This belief is not "mere skepticism"
Based upon the foregoing, the Court finds that the Bankruptcy Administrator and Trustee have met their burden under both § 727(a)(2)(A) and § 727(a)(4)(A). The Court shall enter a separate judgment consistent with this memorandum opinion denying the Debtor's discharge.
