MORRISON C. ENGLAND, JR., CHIEF JUDGE, UNITED STATES DISTRICT COURT
Appellant Cheung ("Cheung") appeals the Bankruptcy, Court's judgment in favor of Appellee Fletcher ("Fletcher"). The Bankruptcy Court held that Cheung's debt to Fletcher was nondischargable under 11 U.S.C. §§ 727(a)(2)(A) and 727(a)(4)(A). For the reasons set forth below, this Court affirms the Bankruptcy Court's decision.
Fletcher owned Truckee Tahoe Transportation, Inc. ("TTT") which operated a private car service in the Truckee, Tahoe and Reno areas. In 2011, Cheung agreed to purchase a 50% interest in TTT. She paid Fletcher $50,000 cash over several months and executed a $50,000 promissory note in favor of Fletcher. Cheung and Fletcher agreed that Cheung would manage TTT, and Fletcher would take an advisory role and drive on some of the trips. After a dispute arose between Cheung and Fletcher, however, they agreed to go their separate ways. By that point, Cheung had made $30,000 of her required initial payment. On November 6, 2012, Cheung and Fletcher agreed to dissolve TTT and distribute its assets and liabilities between them, but the dissolution and distribution were never completed. On November 14, 2012, Cheung and Gubitosi, a new business
On November 27, 2012, Cheung filed a Chapter 7 bankruptcy petition. On December 27, 2012, the Debtor's initial 341 meeting was held. A continued hearing was held on January 7, 2013. On the basis of Cheung's petition, the Chapter 7 Trustee Thomas Aceituno issued its finding that "there is no property available for distribution from the estate over and above that exempted by law." Fletcher did not object to the trustee's finding within the thirty day period provided by Rule 5009(a) of the Federal Rules of Bankruptcy Procedure.
On February 24, 2013, Fletcher filed an adversary complaint objecting to any discharge for Cheung under § 727. The adversary complaint alleges that Cheung fraudulently failed to disclose the following: (1) Cheung's ownership interest in Tahoe Elite; (2) Cheung's property as a result of the dissolution of TTT (the TTT telephone number, the TTT corporate goodwill, and a 2007 Yukon vehicle); and (3) her 50% interest in TTT. On August 4, 2014, the Bankruptcy Court entered judgment holding that Cheung's debt to Fletcher was nondischargable under 11 U.S.C. §§ 727(a)(2)(A) and 727(a)(4)(A). On August 19, 2014, Cheung filed a Notice of Appeal.
An appellant may petition the district court for review of a bankruptcy court's decision. Fed. R. Bankr. P. 8013. The applicable standard of review is identical to that which circuit courts of appeal apply when reviewing district court decisions.
Cheung argues that the Bankruptcy Court erred in denying her discharge because: (1) no evidence supports that she concealed her assets under § 727(a)(2)(A); (2) no evidence supports that Cheung knowingly and fraudulently failed to disclose the value of the TTT telephone number, goodwill, and the 2007 Yukon under § 727(a)(4)(A); and (3) Cheung reasonably relied on the Liquidation Proposal to assign zero valuation to TTT.
A discharge may be denied if it is demonstrated that:
11 U.S.C. § 727(a)(2)(A).
The Bankruptcy Court correctly found that Cheung transferred the TTT
Intent may be inferred from surrounding circumstances.
As applied to Cheung's transfer of the TTT telephone number, the TTT customer information, and the 2007 Yukon to Tahoe Elite, the Bankruptcy Court relied on circumstantial evidence and course of conduct to establish Cheung's intent to hinder, delay or defraud Fletcher. First, with respect to the TTT telephone number, the Bankruptcy Court properly concluded that the TTT telephone number was an asset of substantial value. Fletcher had used the same number to build his customer base in Tahoe and Truckee for private car service. The Bankruptcy Court also found that people in Tahoe and Truckee were accustomed to calling this number to arrange transportation. ECF No. 6-1, at 199. Second, with respect to the TTT customer information, the Bankruptcy Court also concluded that given the personal services nature of the business, the customer information that Fletcher had established for a decade had substantial value. Finally, with regard to the 2007 Yukon, the Bankruptcy Court held that the transfer of the 2007 Yukon should have been documented in the filling because it was property of the bankruptcy estate before the agreement to dissolve.
Particularly when coupled with the substantial value of these assets, the new business relationship between Cheung and Gubitosi supports by a preponderance of evidence that Tahoe Elite was created to transfer assets to hinder or delay Fletcher in collecting the remaining value owed from the purchase of TTT.
Section 727(a)(4)(A) denies a discharge to a debtor who knowingly and fraudulently makes a false oath in the course of the bankruptcy proceedings. In order to bring a successful § 727(a)(4)(A) claim for false oath, the plaintiff must show: (1) debtor made a false oath in connection with the case; (2) the oath related to a material fact; (3) the oath was made knowingly; and (4) the oath was made fraudulently.
A false oath may involve a false statement or omission in the debtor's schedules.
Additionally, the Bankruptcy Court was not clearly erroneous in determining that Cheung knowingly failed to make these disclosures. A debtor "acts knowingly if she acts deliberately and consciously."
Finally, the Bankruptcy Court was not clearly erroneous in finding that Cheung made a false oath fraudulently. The fraud provision of § 727(a)(4) is similar to common law fraud.
A debtor's fraudulent intent may also be established by circumstantial evidence or by inferences drawn from her course of conduct.
Here, the Bankruptcy Court relied on circumstantial evidence to conclude by a preponderance of evidence that Cheung fraudulently made a false oath. In filing bankruptcy, Cheung operated under her counsel's advice to hide her ownership
The Bankruptcy Court was not clearly erroneous in finding that Cheung knowingly and fraudulently assigned a value of zero to her 50% interest in TTT. First, the Bankruptcy Court was not clearly erroneous in finding that Cheung made a false oath regarding the value of her interest.
In advocating a different conclusion, Cheung argues that she valued her interest in TTT at zero because TTT was insolvent. The Bankruptcy Court rejected Cheung's argument because although "dividends to shareholders were not being paid, they were being compensated in other ways from the assets of TTT." ECF No. 6-1, at 197. Considering that TTT was a closed corporation with only two shareholders, the Bankruptcy Court rejected Cheung's claim of TTT's insolvency. Additionally, Cheung's decade of experience as a sale agent, the business relationship she embarked in with Gubitosi, and the fact she was receiving advice from bankruptcy counsel all point to the inescapable conclusion that Cheung knew TTT had a value greater than zero. She also admitted that TTT's goodwill value "could easily have been $20,000 or $30,000" when Cheung filed her petition in November 2012. ECF No. 10 at 10.
Lastly, the Bankruptcy Court did not clearly err when it found that Cheung made the false oath fraudulently. Cheung's course of conduct and pattern of action demonstrate her fraudulent intent for purposes of § 727(a)(4)(A). The Bankruptcy Court found that "the statement that TTT had no value is way too cavalier given the fact that both of the operators continued to operate in business and with customers and customer lists." ECF No. 6-1, at 202. Further, the Bankruptcy Court pointed to Cheung's reliance on counsel to conclude by a preponderance of evidence that Cheung "was playing so close to the line in an effort to hide, that it is actually over the line."
Based on all of the foregoing, the decision of the Bankruptcy Court is hereby AFFIRMED.
IT IS SO ORDERED.