Thomas J. Tucker, United States Bankruptcy Judge.
The Defendant in this adversary proceeding, Thomas Dewey French, filed a Chapter 7 bankruptcy case on January 6, 2017. In this adversary proceeding, the Plaintiff Daniel M. McDermott, United States Trustee, seeks a judgment denying Defendant French's discharge, based on the "false oath" provision in 11 U.S.C. § 727(a)(4)(A) (Count II of Plaintiff's Complaint).
The Court has considered all of the evidence and arguments presented by the parties. This includes the testimony of the witnesses — namely, Defendant Thomas French ("French"), and Colleen Capalbo.
This Court has subject matter jurisdiction over this adversary proceeding under 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1), and Local Rule 83.50(a) (E.D. Mich.). This is a core proceeding under 28 U.S.C. § 157(b)(2)(J).
Plaintiff alleges that French made many false statements under oath, with fraudulent intent, so that the Court should deny French a discharge under Bankruptcy Code § 727(a)(4)(A). To describe the law applicable to Plaintiff's claim, the Court adopts and reiterates what it said in a recent opinion in the cases of McDermott v. Wise and Wise v. Wise (In re Wise), 590 B.R. 401 (Bankr. E.D. Mich. 2018). In that opinion, the Court stated:
590 B.R. at 429, 436-38.
In this case, it is undisputed that the first two elements under § 727(a)(4)(A) are established, as to all of the alleged false statements. First, all of French's statements at issue were made under oath. Statements made under penalty of perjury, as many of French's statements were, are considered to be under oath for purposes of § 727(a)(4)(A). See, e.g., Keeney, 227 F.3d at 686; see generally 28 U.S.C. § 1746.
Second, the Court finds that French's statements listed in the chart below as Item Nos. 1-3, 5, 8, 10-11, 13-14, 16-17, 21, and 24-27 were "false," in that they were incorrect.
With respect to the fifth element, the Court finds that each of the alleged false statements by French "related materially to the bankruptcy case," because each of them clearly "bears a relationship to the bankrupt's business transactions or estate, or concerns the discovery of assets, business dealings, or the existence and disposition of his property." See Keeney, 227 F.3d at 686. This very broad definition of materiality is relatively easy to meet, in part because it literally covers even trivial matters, as long as they relate to the bankruptcy debtor's "business transactions or estate," or the debtor's "assets," or the debtor's "business dealings, or the existence and disposition of his property."
French disputes the third and fourth elements of Plaintiff's "false oath" claim, namely the elements that "the debtor knew the statement was false;" and that "the debtor made the statement with fraudulent intent." Id. at 685.
As indicated in the chart below, with respect to each of the statements that the Court finds to have been false, the Court finds that French did know that the statement was false. What this finding means is that when French made the false statements at issue, he knew the correct (true) facts, even if he may have forgotten them at the time, or simply made an erroneous statement without fraudulent intent. Thus, the Court's finding on this knowledge-of-falsity element does not establish the fraudulent-intent element as to any of the false statements at issue. That is a separate element, which the Plaintiff must prove, by a preponderance of the evidence.
The Plaintiff's case fails on the element of fraudulent intent. As the chart below indicates, the Court finds, from all the facts and circumstances of this case, that French did not make any of the statements that the Court finds to be false with fraudulent intent. Rather, the Court finds that each of these false statements that French made was: (1) an innocent mistake or inadvertent error on French's part; or (2) concerned a matter that was so trivial, or otherwise of such a nature, that French could not have had any motive or any intention to lie about it; or both (1) and (2). And while the Court finds that French made a number of false (i.e., incorrect) statements, the Court does not find that French had a reckless disregard for the truth, under the circumstances. From all of this, the Court concludes that French did not make any of the false statements with fraudulent intent.
The following chart lists all of the statements under oath made by French that the Plaintiff contends were false oaths under § 727(a)(4)(A). In this chart, the column labeled "Alleged False Oath" lists each of the false oaths alleged by the Plaintiff. These are copied from the list filed by the Plaintiff after trial.
Alleged False Oath Proven Knowledge of Fraudulent Intent False? Falsity? Proven? 1. That the Defendant's Schedules were true, Proven Proven Not Proven accurate and complete. [Ex. 1, p.76]. False 2. That the Defendant's Statement of Proven Proven Not Proven Financial Affairs was true and correct. [Ex. False 1, p.83]. 3. The Defendant's 341 testimony that his Proven Proven Not Proven5 Schedules and his Statement of Financial False Affairs were truthful and accurate, and that no changes needed to be made to those documents. [Ex. 2, 4:4-22]. 4. That Schedule A/B, line 19 discloses no Not Proven not applicable not applicable current interests in incorporated or False6 unincorporated businesses. [Ex. 1, p.13]. 5. If the Defendant's testimony is believed Schedule 17 Proven Not Proven8 that he is an employee of American Expo Proven Pros, that Schedule I does not disclose that False employment or any income from that employment. [Ex. 1. pp.72-73].
6. That Question 4 on the Statement of Not Proven not applicable not applicable Financial Affairs does not include the money False 9 the Defendant grossed on the power washing job with Dr. Coombs in 2016. [Ex. 1, p.77, Trial Tr., 64:4-5]. 7. If the Defendant's testimony is believed SOFA # 18 not applicable not applicable that his girlfriend's corporations are separate Not Proven from his former ones, that Question 18 on the False10 Statement of Financial Affairs discloses no transfers of assets to his girlfriend's companies, including the "Marijuana Phone Number" discussed at trial. [Ex. 1, p.81]. 8. That Question 27 on the Statement of Proven11 Proven Not Proven12 Financial Affairs does not disclose Show False Pros, LLC. [Ex. 1, pp.82-83]. 9. That Question 27 on the Statement of Not Proven not applicable not applicable Financial Affairs does not disclose American False13 Expo Pros, LLC. [Ex. 1, pp.82-83]. 10. That Question 27 on the Statement of Proven Proven Not Proven Financial Affairs discloses that Blastaway False "never got started." [Ex. 1, pp.82-83]. 11. That Question 27 on the Statement of Proven14 Proven Not Proven15 Financial Affairs discloses that Blastaway False "never operated." [Ex. 1, pp.82-83]. 12. During his 341 testimony, when asked Not Proven not applicable not applicable about the two companies the Defendant False, disclosed he was involved in [during] the four because years prior to his bankruptcy, that the Defendant Defendant did not disclose there were was not additional companies not listed. [Ex. 2, asked this at 9:14-19]. the cited point during his 341 testimony
13. During his 341 testimony, that Defendant Proven Proven Not Proven 16 testified there was "nothing more than files False and a computer" when AMMP shut down, omitting the "Marijuana Phone Number" discussed at trial. [Ex. 2, 11:17-20]. 14. During his 341 testimony, when asked Proven Proven Not Proven17 about any businesses the Defendant was False involved in [during] the six years prior to his bankruptcy, that the Defendant only disclosed Blastaway. [Ex. 2, 13:19-23]. 15. The Defendant's testimony during his Not Proven not applicable not applicable 341 meeting that Blastaway "never got off the False18 ground." [Ex. 2, 14:2]. 16. The Defendant's testimony during his Proven Proven Not Proven19 341 meeting that Blastaway "never did any False business." [Ex. 2, 8-10]. 17. After discussing Blastaway in his 341 Proven Proven Not Proven20 testimony, that the Defendant testified that False there were no other business entities that he had been involved in during the six years prior to his bankruptcy. [Ex. 2, 14:19-21]. 18. The Defendant's testimony during his Not Proven not applicable not applicable 341 meeting that no one owed the Defendant False21 any money as of the 341 date. [Ex. 2, 15:11-12]. 19. If the Defendant's testimony is believed Not Proven not applicable not applicable that his girlfriend's corporations are separate False22 from his former ones, the Defendant's testimony during his 341 meeting that he did not sell, transfer or give away anything in the last two years, including the "Marijuana Phone Number" discussed at trial. [Ex. 2, 16:13-15]. 20. The Defendant's testimony during his Not Proven not applicable not applicable 341 meeting that he does not own or operate a False23 business currently. [Ex. 2, 16:21-23].
21. If the Defendant's testimony is believed this 341 Proven Not Proven 24 that his girlfriend's corporations are separate testimony from his former ones, the Defendant's Proven testimony during his 341 meeting that he has False no income aside from as "sales and office help" for American Medical Professionals. [Ex. 2, 17:4-6]. 22. The Defendant's trial testimony that he Not Proven not applicable not applicable did not sign the Articles of Organization for False25 American Expo Pros, LLC. [Ex. 4, p.2; Trial Tr., 82:15-22]. 23. The Defendant's statement in the Not Proven not applicable not applicable Declaration under Penalty of Perjury in False; no support of denying summary judgment that such Blastaway only had one client. [Ex. 20, p.8; statement Trial Tr., 65:10-25]. made in that Declaration 24. That the debt to Thomas Coombs Schedule F Proven Not Proven26 disclosed in Schedule F was from 2014, Proven undisputed, and pursuant to a judgment. [Ex. False 1, p.64; Trial Tr., 66:20-25]. 25. The Defendant's 2004 testimony that Proven Proven Not Proven27 Show Pros, LLC was involved with the THC False Expo. [Ex. 15, 20:8-16; Trial Tr., 80:2-8]. 26. If the Defendant's testimony is believed Proven that Proven Not Proven28 that his girlfriend's corporations are separate either from his former ones, the Defendant's failure Schedule to disclose commissions from American Expo A/B false, or Pros as either money earned in 2016 or 2017 in the on Question 4 to the Statement of Financial alternative, Affairs, or as currently still owing on SOFA #4 Schedule A/B. [Trial Tr., 103:14-18, false, one or 113:9-18]. the other
Alleged False Oath Proven Knowledge of Fraudulent Intent False? Falsity? Proven? 27. If the Defendant's testimony is believed Schedule Proven Not Proven29 that his girlfriend's corporations are separate A/B Proven from his former ones, that the Defendant did False not disclose joint ownership of the "Marijuana Phone Number" on Schedule A/B. [Trial Tr., 157:6-16].
Based on the findings of fact, conclusions of law, and the reasons stated in this Opinion, the Court will enter judgment for the Defendant Thomas French and against the Plaintiff United States Trustee on Count II of the Complaint, and will enter a judgment dismissing the Plaintiff's complaint, with prejudice. Entry of such judgment will conclude this adversary proceeding.
The Court finds that the business known as American Expo Pros was and is a sole proprietorship owned entirely by Ms. Capalbo, and that French worked for that business only as an employee, or as a 1099 independent contractor, selling vendor space for two shows that the business put on in late February and March 2017. The testimony of French and Capalbo about this is corroborated by the documents the Plaintiff obtained from the Roostertail, the venue where the 7th Annual THC Expo occurred, on March 17-19, 2017 (JX-12). This exhibit includes a lease for the event that was signed by Colleen Capalbo, and this exhibit includes copies of 10 checks written to the Roostertail, totaling $16,400.00 and dated over the time period January 14, 2017 to February 7, 2017. All of these checks were drawn on an account in the name of "COLLEEN CAPALBO DBA AMERICAN EXPO PROS." And all of these checks were signed by Colleen Capalbo. (See also French, Tr. at 120, lines 8-16).
French earned sales commissions from Capalbo's business, American Expo Pros, totaling roughly $9,000.00 during the 2016-2017 time period. French admitted in his testimony that he did not include American Expo Pros as an employer or source of income, and did not list any income from that source, in his Schedule I. (JX-1 at pdf pages 72-73; French, Tr. at 99-100, 103).
The Plaintiff failed to prove, by a preponderance of the evidence, that French had a fraudulent intent in failing to disclose his employment with American Expo Pros, and in failing to show any income from that source on his Schedule I. The income was irregular in amount and sporadic, and spread over several months. Under the circumstances, this income was not large enough that French would have had a motive to conceal it.
