Filed: Mar. 15, 2017
Latest Update: Mar. 03, 2020
Summary: NOT PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _ No. 16-1409 _ In re: JOON HYAN PARK, Debtor Chung Cho, Appellant v. Joon Hyan Park _ Appeal from the United States District Court for the District of New Jersey (D.C. Civ. No. 2-15-cv-03572) District Judge: Honorable Madeline Cox Arleo _ Submitted Under Third Circuit L.A.R. 34.1(a) October 24, 2016 _ Before: VANASKIE, KRAUSE, and NYGAARD, Circuit Judges. (Filed: March 15, 2017) _ OPINION* _ VANASKIE, Circuit Judge. * This di
Summary: NOT PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _ No. 16-1409 _ In re: JOON HYAN PARK, Debtor Chung Cho, Appellant v. Joon Hyan Park _ Appeal from the United States District Court for the District of New Jersey (D.C. Civ. No. 2-15-cv-03572) District Judge: Honorable Madeline Cox Arleo _ Submitted Under Third Circuit L.A.R. 34.1(a) October 24, 2016 _ Before: VANASKIE, KRAUSE, and NYGAARD, Circuit Judges. (Filed: March 15, 2017) _ OPINION* _ VANASKIE, Circuit Judge. * This dis..
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 16-1409
_____________
In re: JOON HYAN PARK,
Debtor
Chung Cho,
Appellant
v.
Joon Hyan Park
_____________
Appeal from the United States District Court
for the District of New Jersey
(D.C. Civ. No. 2-15-cv-03572)
District Judge: Honorable Madeline Cox Arleo
______________
Submitted Under Third Circuit L.A.R. 34.1(a)
October 24, 2016
______________
Before: VANASKIE, KRAUSE, and NYGAARD, Circuit Judges.
(Filed: March 15, 2017)
______________
OPINION*
______________
VANASKIE, Circuit Judge.
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7
does not constitute binding precedent.
This appeal concerns an adversary proceeding arising out of Debtor Joon Hyun
Park’s Chapter 7 bankruptcy case. Appellant Chung Cho, one of Park’s creditors,
asserted three causes of action premised upon the allegation that Park fraudulently
operated his deli business, resulting in an inability to pay an underlying debt to Cho. The
Bankruptcy Court granted Park’s motion for summary judgment and denied Cho’s cross-
motion for summary judgment. The District Court then affirmed the Bankruptcy Court
order. For the reasons that follow, we will affirm the order of the District Court.
I.
In 2001, Park purchased a residence from Cho for $665,000. According to Cho,
Park obtained a mortgage for $450,000 and tendered a check for the difference. Park,
however, asked Cho not to cash the check for a period of time. Cho completed the
transfer of the residence while awaiting payment of the remaining balance. Park
subsequently closed the account on which the check to Cho had been drawn without
depositing any money, leaving the remaining balance unpaid.
At the time of the purchase of the residence, Park worked for Cho’s sister, Ryung
Hee Cho, at Smiler’s Deli. Shortly after he purchased the residence from Cho, Park and
his wife bought Smiler’s Deli from Cho’s sister for $2 million, payable in monthly
installments of $20,000 to $30,000.
Approximately ten years after the purchase of the residence, Park and Cho entered
into binding arbitration over the unpaid balance, and in December of 2010 the arbitrator
found in favor of Cho. The arbitration award was confirmed by the New Jersey Superior
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Court. Shortly after, Cho learned that Park had transferred Smiler’s Deli back to Ryung
Hee Cho because the business had allegedly been failing.
Unable to collect on the arbitration award, Cho, in May of 2011, filed a fraudulent
transfer action in the United States District Court for the Southern District of New York
against Park, Park’s wife, Smiler’s Deli, and his sister. Cho alleged that the Parks’
purchase of the deli was designed to allow Park to siphon money from the business while
shielding his assets from Cho.
In July of 2011, while the fraudulent transfer action was pending, Park filed a
Chapter 13 bankruptcy petition in the Bankruptcy Court for District of New Jersey.
Pursuant to a reorganization plan approved by the Bankruptcy Court, Park was to satisfy
his debt to Cho over a period of five years. When he defaulted on his payments, the
Bankruptcy Court, in June of 2012, dismissed Park’s Chapter 13 petition.
On November 1, 2013, Park filed a Chapter 7 petition in the Bankruptcy Court for
the District of New Jersey. His petition referenced the debt to Cho in the schedule of
creditors holding unsecured nonpriority claims. During discovery, Cho requested
documents related to the operation of Smiler’s Deli, and Park provided income tax
records, accountant information, bank statements, checks, composition notebooks, and
other corporate documents. At his deposition, Park testified that his income had
decreased in the final year of his ownership and that he could no longer pay the taxes and
expenses. He also explained that he was unable to make home or car payments without
the income from the deli.
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Cho filed an adversary proceeding in the Bankruptcy Court objecting to the
discharge of Park’s indebtedness to him because of Park’s allegedly fraudulent operation
of Smiler’s Deli. Cho asserted three causes of action, contending that Park: (1)
knowingly and fraudulently made a false oath in connection with the Chapter 7 case in
violation of 11 U.S.C. § 727(a)(4)(A); (2) failed to keep and preserve the deli’s business
records in violation of 11 U.S.C. § 727(a)(3); and (3) failed to give a satisfactory
explanation for the loss of assets in the deli in violation of 11 U.S.C. § 727(a)(5). The
parties filed cross-motions for summary judgement and, after oral argument, the
Bankruptcy Court granted Park’s motion and denied Cho’s.
Cho appealed this decision to the District Court, which affirmed. The District
Court found that Cho had not established reversible error on the part of the Bankruptcy
Court and had not identified a genuine issue of material fact for the purposes of summary
judgment. The District Court also concluded that the Bankruptcy Court properly refused
to consider the arguments in Cho’s cross-motion for summary judgment that went beyond
the scope of Cho’s adversary complaint. The District Court then denied Cho’s request to
amend his complaint, both because he did not request leave to amend in the Bankruptcy
Court and because amending would be futile. This timely appeal followed.1
1
It should be noted that the section of Appellant’s Brief labeled “Statement of
Issues Presented on Appeal” sets forth questions that relate to a separate appeal filed by
Cho and that concerns Bankruptcy Court orders approving a settlement of the Bankruptcy
Trustee’s fraudulent transfer claim and denying sanctions for conduct of Park’s counsel.
That appeal is docketed to No. 15-2768. Our discussion in this Opinion is limited to the
decisions of the Bankruptcy and District Courts on Cho’s adversary complaint. A
separate opinion will address the issues concerning the approval of the settlement and the
denial of sanctions.
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II.
The Bankruptcy Court had jurisdiction over the initial proceedings pursuant to 28
U.S.C. §§ 157(b) and 1334. The District Court had jurisdiction over Cho’s appeal
pursuant to 28 U.S.C. § 158(a). We have appellate jurisdiction over the District Court’s
ruling under 28 U.S.C. §§ 158(d) and 1291. “We exercise plenary review over the
District Court’s appellate review of the Bankruptcy Court’s decision and exercise the
same standard of review as the District Court in reviewing the Bankruptcy Court’s
determinations.” In re Miller, 730 F.3d 198, 203 (3d Cir. 2013). We review the grant of
summary judgment de novo. In re G-I Holdings, Inc.,
755 F.3d 195, 201 (3d Cir. 2014).
Summary judgment is appropriate “if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56.
III.
Cho’s adversary complaint contained three causes of action, all of which allege the
withholding or misrepresentation of financial information during the bankruptcy
proceedings. We will address each in turn.
First, Cho claims that Park made a false oath in violation of 11 U.S.C. §
727(a)(4)(A) when he stated that Smiler’s Deli was doing poorly despite tax returns that
showed an increase in revenue. Under § 727(a)(4)(A), a debtor is not entitled to a
discharge when he “knowingly and fraudulently, in or in connection with the case . . .
made a false oath or account.” 11 U.S.C. § 727(a)(4)(A). The party objecting to
discharge has the burden of proof by a preponderance of the evidence. Grogan v.
5
Garner, 498 U.S. 279, 289 (1991); Fed. R. Bankr. P. 4005. The objecting party must
prove an “actual intent on the part of the bankrupt to hinder, delay and defraud his
creditors.” In re Topper,
229 F.2d 691, 692 (3d Cir. 1956) (citation and internal
quotation marks omitted).
As the District Court noted, the record supports the Bankruptcy Court’s conclusion
that there was no evidence that Park made a false oath or account. Park disclosed his
cash payments to Cho’s sister at the arbitration proceedings, provided documentation to
support his conclusion that the business was failing, and relied on his CPA and wife to
oversee financial matters at home and with the business. The record also reflects that
Park was relatively unsophisticated in business matters and communicated through an
interpreter in his depositions. We, like the Bankruptcy and District Courts, reject Cho’s
argument that an increase in revenue alone would render Park’s statement that the
business was failing a knowing and fraudulent false oath. An increase in revenue is not
synonymous with financial success, especially considering Park’s testimony that his
expenses also increased. Cho provided no additional evidence to support his contention
that Park violated 11 U.S.C. § 727(a)(4)(A). Thus, the Bankruptcy Court properly found
that summary judgment in favor of Park on this claim was appropriate.
Second, Cho alleges that Park violated both 11 U.S.C. § 727(a)(3) and (a)(5) by
failing to provide sufficient information regarding the financial condition of Smiler’s
Deli. Section 727(a)(3) prohibits discharge when a debtor “has concealed, destroyed,
mutilated, falsified, or failed to keep or preserve any recorded information, including
books, documents, records, and papers, from which the debtor’s financial condition or
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business transactions might be ascertained, unless such act or failure to act was justified
under all of the circumstances of the case.” 11 U.S.C. § 727(a)(3). In order to state a
claim under § 727(a)(3), “a creditor objecting to the discharge must show (1) that the
debtor failed to maintain and preserve adequate records, and (2) that such failure makes it
impossible to ascertain the debtor’s financial condition and material business
transactions.” Meridian Bank v. Alten, 958 F.2d 1226, 1232 (3d Cir. 1992). “The
Bankruptcy Code does not . . . require an impeccable system of bookkeeping,” so long as
“the records . . . sufficiently identify the transactions [so] that intelligent inquiry can be
made of them.
Id. at 1230.
The undisputed facts support the Bankruptcy Court’s conclusion that Park did not
violate § 727(a)(3). Park provided bank statements, tax returns, and credit card sales
reports. He testified about the manner in which he managed the deli’s register and the
documents he prepared to record business transactions. He also provided documents in
response to Cho’s document requests. Furthermore, as the Bankruptcy Court noted,
Park’s accounting standards were consistent with his lack of financial sophistication, and
therefore in accordance with the requirements of § 727(a)(3). Meridian Bank, 958 F.2d
at 1231 (“Depending upon the sophistication of the debtor and the extent of his activities,
different record keeping practices are necessary.”). Summary judgment on Cho’s §
727(a)(3) claim was therefore appropriate.
Cho’s § 727(a)(5) claim fails for similar reasons. Section 727(a)(5) prohibits
discharge when “the debtor has failed to explain satisfactorily . . . any loss of assets or
deficiency of assets to meet the debtor's liabilities.” 11 U.S.C.A. § 727(a)(5). “The party
7
objecting to a debtor's discharge . . . has the burden of proving facts establishing that a
loss or shrinkage of assets actually occurred.” In re Sendecky, 283 B.R. 760, 765 (B.A.P.
8th Cir. 2002). “Once the plaintiff has shown the loss or deficiency of assets, it falls upon
the debtor to provide a satisfactory explanation.” In re Simmons,
525 B.R. 543, 548
(B.A.P. 1st Cir. 2015), aff’d,
810 F.3d 852 (1st Cir. 2016). The primary issue with
respect to § 727(a)(5) is “whether the explanation satisfactorily describes what happened
to the assets, not whether what happened to the assets was proper.” In re Buzzelli,
246
B.R. 75, 117 (Bankr. W.D. Pa. 2000). “What constitutes a ‘satisfactory’ explanation for
§ 727(a)(5) purposes is left to the discretion of the court.” In re
Simmons, 525 B.R. at
548 (citation omitted). Here, the Bankruptcy Court found Park’s explanation for selling
Smiler’s Deli to be satisfactory given the circumstances and nature of the business and
Park’s financial condition at the time, including a pending eviction action. This
determination is supported by the record, and therefore the Bankruptcy Court
appropriately granted summary judgment in favor of Park.
Cho also argues that the Bankruptcy Court should have denied the discharge of
Park’s indebtedness to him. This argument relates to the unpaid check for the balance of
the purchase price on the house and does not concern the operation of Smiler’s Deli. Cho
claims that discharge is improper under 11 U.S.C. §§ 105(a) and 523(a)(2)(A).2 Because
2
According to Cho, Park’s debt should not be discharged because he obtained
property from Cho in violation of 11 U.S.C.A. § 523(a)(2)(A), which prohibits any
Section 727 discharge “for money, property, services, or an extension, renewal, or
refinancing of credit, to the extent obtained by . . . false pretenses, a false representation,
or actual fraud, other than a statement respecting the debtor's or an insider's financial
condition.” 11 U.S.C.A. § 523(a)(2)(A). Despite not raising this claim in his adversary
8
Cho did not include these claims in his adversary complaint, both the Bankruptcy Court
and the District Court declined to address them. We agree with the Bankruptcy Court
that the claims should have been raised in the pleadings and should not be addressed on
appeal. See Josey v. John R. Hollingsworth Corp., 996 F.2d 632, 642 (3d Cir. 1993).
Cho contends that the District Court should have permitted him to amend his
complaint to include his § 523 claim. We conclude, however, that the District Court
properly denied this request both because (1) Cho did not present a motion to amend to
the Bankruptcy Court, and (2) the § 523 claim is time barred. A complaint to determine
the dischargeability of any debt pursuant to § 523 must be filed within 60 days of the
§341 meeting of the creditors. Fed. R. Bankr. P. 4007(c). Here, the § 341 meeting
occurred on December 6, 2013 and Park waited until July 6, 2015 to seek leave to
amend—far longer than the 60 days allowed under the Federal Rules of Bankruptcy
Procedure. We accordingly perceive no error in the denial of leave to amend.
IV.
For the foregoing reasons, we will affirm the District Court’s order of February
18, 2016.
complaint, Cho argues the Court should deny discharge sua sponte on the basis of the
Bankruptcy Court’s equity power under 11 U.S.C. § 105(a), as such relief is “necessary
or appropriate to enforce or implement court orders or rules, or to prevent an abuse of
process.” 11 U.S.C. § 105(a).
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