JANICE D. LOYD, Bankruptcy Judge.
Before the Court for consideration is the Motion for Default Judgment Against Defendant with Notice of Opportunity for Hearing and with Brief in Support filed by the CO&G Production Group, LLC, and Spoon Resources, LLC, (collectively the "Plaintiff") filed on July 16, 2018 (the "Motion") [Doc.15].
The Motion seeks default judgment upon the Plaintiffs' First Amended Complaint filed on February 5, 2018, which seeks to bar Agrawal from receiving a discharge pursuant to 11 U.S.C. § 727
The Court has jurisdiction over this matter hundred 28 U.S.C. §§ 1334(a) and (b) and 157(a) and (b). This matter seeking a determination of an objection to discharge and the dischargeability of a particular debt is a core proceeding under 28 U.S.C. § 157(b)(2) (I) and (J) over which this Court has authority to enter a final order. Venue is proper pursuant to 28 U.S.C. § 1409(a).
The underlying (lead) bankruptcy case to this adversary proceeding was commenced by the filing of an Involuntary Petition for Relief against Agrawal on April 4, 2016. [Case No. 16-11253, Doc.1]. After thorough briefing by the Petitioning Creditors and by Agrawal, on November 1, 2016, the Court entered its Order that there existed the three requisite Petitioning Creditors holding claims not subject to a bona fide dispute and meeting the aggregate money standard of $15,425.00 so as to be eligible to file the involuntary bankruptcy. [Case No. 16-11253, Doc. 51]. On November 2 and 4, 2016, the Court conducted a two-day evidentiary hearing to determine whether an Order for Relief should be entered adjudicating Agrawal a debtor. [Case No. 16-11253, Doc. 53 & 55]. On December 13, 2016, the Court entered its Memorandum Opinion and Order for Relief in Involuntary Proceeding [Case No. 16-11253, Doc. 63].
As stated above, in this adversary proceeding the Plaintiffs' First Amended Complaint was filed on February 5, 2018. The Docket Sheet reflects that service was had upon Agrawal by first-class mail on February 9, 2018, at both addresses which he had previously used in the bankruptcy court: 4133 N. Lincoln Blvd., Oklahoma City, Oklahoma 73105 and 6704 N.W. 110
The Order Striking Motion to dismiss did not contain a date by which Agrawal's answer was due; accordingly, pursuant to Fed.R.Bankr.P. 7012(a)(1)
Agrawal filed nothing in the case until July 6, 2018, when he filed the pleading entitled "Jurisdiction and Venue and Notice of Opportunity for Hearing" (the "Pleading"). [Doc. 10]. This filing was after the Plaintiff had filed its Plaintiffs' Application for Default Certificate-Court Clerk on June 19, 2018 [Doc. 8], and after the Court Clerk had entered a Certificate of Default on June 21, 2018, in accordance with Rule 7055. [Doc 9]. In the Pleading, Agrawal claimed that he never received notice of the Court's Order Striking Motion to dismiss which it had entered back on February 28, 2018 and which had been mailed to him by the Bankruptcy Noticing Center on March 2, 2018, until it was brought to his attention on the day he filed his Pleading, July 6, 2018. In the Pleading he stated that he "now seeks permission to file late answer to the claims of CO&G and Spoon" and "intends to supplement his Answer within five days." [Doc. 10]. On July 13, 2018, Agrawal filed another pleading entitled, in part, Second, Amended Answer, and Motion to Dismiss the Complaint etc. [Doc. 12].
Also on July 13, 2018, Agrawal filed a pleading entitled Memorandum of Points and Authorities which requested that the Complaint be dismissed for failure to state a claim under Rule 7012(b)(6), or in the alternative, that the Plaintiff be required to provide a more definite statement under Rule 7012(e). [Doc. 13]. On July 17, 2018, Plaintiff filed a Motion to Strike Debtor's Memorandum of Points and Authorities on several grounds, including that it was not titled as a "motion" and contained multiple requests for relief (dismissal of the complaint, a more definite statement and sanctions against Plaintiffs' counsel "for fraud upon the Court and violating Rules of Professional Conduct" in violation of the Local Rules). [Doc. 20]. Agrawal failed to respond to the Motion to Strike within fourteen (14) days as required by Local Rule, and as a consequence, on August 10, 2018, the Court entered its Order Granting Motion to Strike Debtor's Memorandum of Points and Authorities. [Doc. 26].
On July 17, 2018, Plaintiff filed its Amended Motion to Strike Debtor's Motion to Dismiss Complaint on the basis that the same had been filed out of time without Agrawal having obtained leave of court, and for the further reason that while the pleading included a Motion to Dismiss it failed to include the words "Notice of Opportunity for Hearing" in the title of the pleading as required by LR 9013-1.G. (Doc. 19].
The Court has no doubt that Agrawal was not only served with process in this adversary but, most importantly for the Motion for Default Judgment presently before the Court, that he was served with a copy of the Order Striking Motion to dismiss entered on February 28, 2018, which was mailed to him at his address shown on the docket sheet by the Bankruptcy Noticing Center on March 2, 2018. His attempts to file an answer and various motions more than three months later without leave of Court, and which attempts were stricken as procedurally infirm, clearly placed him in default status. The question then becomes whether there were any extenuating circumstances underlying his tardiness which may permit the Court to grant relief from the default. The Court cannot find any.
On July 6, 2018, Agrawal filed a Notice of Change Of Address in the lead bankruptcy case requesting a "change of address" to 4133 N. Lincoln Blvd., Oklahoma City, OK 73105. [Case No. 16-11253, Doc. 270]. The Docket Sheet reflects that was the same address which was entered by the clerk when the case was opened on April 4, 2016, and the same address when Agrawal was added as an "interested party" as a result of him filing a Special Entry of Appearance of Kris K. Agrawal on April 5, 2017 utilizing that address. [Case No. 16-11253, Doc. 85]. That was the address which Agrawal had been using to file pleadings nearly from the inception of representing himself pro se.
The Notice of Change of Address which Agrawal filed on July 6, 2018, indicates that the mail should be sent to the 4133 N. Lincoln Blvd. address because:
Those statements do not afford Agrawal any relief from his default status. First, most of the mail in the bankruptcy proceedings, including the crucial Order Striking Motion to dismiss, had always been sent to the N. Lincoln Blvd. address, a business address at which his disabled daughter would be unlikely to have hidden the mail under a pillow or mattress. Second, whatever injuries Agrawal may have sustained on May 16, 2018, occurred two months after he was already in default for having failed to file an answer by March 19, 2018. Third, any assertion that Agrawal was unable to timely file an answer or otherwise participate in legal proceedings because of his injuries is made suspect, if not refuted by, the fact that he was apparently able to prepare and file numerous (more than ten) pro se pleadings in Oklahoma District Court,
Section 727(a)(4)(B) prohibits the granting of a discharge to a debtor who "knowingly and fraudulently, or in connection with the case . . . Presented or used a false claim." This provision of the Code is sparsely used, and the courts that have considered objections to discharge for presenting a "false claim" require the plaintiff to prove that the debtor "presented or used an inflated or fictitious claim." Hendon v. Oody (In re Oody), 249 B.R. 482, 487 (Bankr. E.D. Tenn. 2000). For purposes of § 727(a)(4)(B), a "claim" as defined by § 101(5) to mean a "right to payment" or a "right to an equitable remedy for breach of performance if such breach gives rise to a right to payment." A fictitious defense ("paralysis") created against a motion for default judgment is not such a "false claim" falling within the purview § 727(a)(4)(B).
The entry of default judgments is governed by Federal Rule of Civil Procedure 55, made applicable to these proceedings by Rule 7055. Generally, a "defendant by his default, admits the plaintiff's well-pleaded allegations of fact." Olcott v. Delaware Flood Co., 327 F.3d 1115, 1125 (10
In its Motion for Default Judgment, Plaintiff cites the supporting law for the entry of a default judgment as would be the case in matters not involving non-dischargeability, i.e. a default admits all well-pleaded facts but not legal conclusions. However, when it comes to default judgments involving non-dischargeability complaints there appears to be a heightened or more stringent standard which bankruptcy courts apply. A movant is not entitled to a default judgment as a matter of right, even though a debtor is in default for failing to answer or otherwise respond to a complaint. AT & T Universal Card Services, Corp. v. Sziel (In re Sziel), 206 B.R. 490, 493 (Bankr.N.D. Ill.1997) (citing Wells Fargo Bank v. Beltran (In re Beltran), 82 B.R. 820, 823 (9
As the court stated in In re Bungert, 315 B.R. 735, 740 (Bankr. E.D. Wis. 2004):
Similarly, in In re Marquardt, 561 B.R. 715, 721 (Bankr. C.D. Ill. 2016):
Although this is not a consumer debt, another good statement of the test which the Court believes it should apply in determining whether the default judgment can be entered in a non-dischargeability matter is from Sziel, supra. 206 B.R. at 495:
In considering whether to enter a default judgment the Court must be mindful of the special deference which should be paid to a debtor obtaining a discharge. "[A] central purpose of the Code is to provide a procedure by which certain insolvent debtors can reorder their affairs, make peace with their creditors, and enjoy `a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.'" Grogan v. Garner, 498 U.S. 279, 286, 111 S.Ct. 654 (1991). In order to effectuate this "fresh start" policy of bankruptcy relief, exceptions to discharge are narrowly construed with all doubts resolved in the Defendant's favor. Bellco First Federal Credit Union v. Kaspar (In re Kaspar), 125 F.3d 1358, 1361 (10
The granting of a default judgment in a non-dischargeability action also appears to be especially scrutinized if the debtor, as here, is pro se. Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 96 (2
With all the principles above in mind, the Court now turns to look at each Claim for Relief in the First Amended Complaint to see whether the facts as the Plaintiff has alleged, and are deemed admitted by Agrawal, meet the burden of establishing the legal elements for a non-dischargeable determination. The Plaintiff's First Amended Complaint contains six Claims for Relief for either barring Agrawal's discharge or denying the dischargeability of his debts to the Plaintiffs:
Plaintiffs by their First Amended Complaint seek both a determination that Agrawal is barred from obtaining a discharge under § 727(a) and a determination that the debt owed them by Agrawal is non-dischargeable under § 523(a). In their Motion for Default Judgment, however, Plaintiffs only seek a default judgment on their § 523(a) claims in the event that the Court does not enter a judgment barring the debtor's discharge under § 727. Because this Opinion and Order finds that Agrawal is not entitled to a discharge under § 727 as discussed below, the Court need not address the Plaintiffs' § 523(a) Claims for Relief.
Plaintiffs assert that Agrawal failed to disclose numerous assets and other transactions in his Schedules and Statement of Financial Affairs (SOFA), and that such omissions constitute false oaths within the meaning of § 727(a)(4)(A). To prevail on a claim for denial of discharge under § 727(a)(4)(A), the plaintiff must establish the following elements by a preponderance of the evidence: (1) that the debtor made a statement under oath; (2) that the statement was false; (3) that the debtor knew the statement was false; (4) that the debtor made the statement with intent to defraud; and (5) that the statement related materially to the debtor's bankruptcy case. Gullickson v. Brown (In re Brown), 108 F.3d 1290, 1294 (10
Congress set the bar for denial of a discharge under this section very high by specifying that the debtor must have made a false oath or account "knowingly and fraudulently". It is not enough for the trustee or objecting creditor to point to inaccuracies and inconsistencies in the debtor's schedules, as troubling as those might be. In re Phouminh, 339 B.R. 231, 242 (Bankr. D. Colo. 2005). Debtor will not be denied discharge if a false statement is due to mere mistake or inadvertence. Brown at 1294; In re Butler, 38 B.R. 884, 889 (Bankr. D Kan. 1984). Moreover, an honest error or mere inaccuracy is not a proper basis for denial of discharge. Brown at 1295; In re Magnuson, 113 B.R. 555, 558-59 (Bankr. D. N.D. 1989). However, the "mistake" or "I didn't think it was important" defenses have their limits. A debtor has an uncompromising duty to disclose whatever ownership interests are held in property, and "it is not for the debtor to pick and choose or obfuscate the answers". Fokkena v. Tripp, (In re Tripp), 224 B.R. 95, 98 (Bankr. N.D. Iowa 1998). It is not necessary to show that the debtor acted deliberately to deceive the trustee and the creditors; rather, the requisite fraudulent intent can be shown by establishing that the debtor acted with reckless disregard for the truth. In re Croft, 500 B.R. 823, 857-58 (Bankr. W.D. Tex. 2013). The cumulative effect of a number of falsehoods in the Debtor's schedules is evidence of reckless disregard for the truth, and is sufficient to circumstantially prove fraudulent intent under § 727(a)(4)(A). In re Crumley, 428 B.R. 349, 366-67 (Bankr. N.D. Texas 2010).
In attempting to ascertain fraudulent intent with regard to the Debtor's Schedules, the Court cannot ignore considering Agrawal's overall conduct of his financial affairs and his credibility and candor as a witness before this Court. In hearings regarding the entry of an order for relief in the involuntary case, extracting the most basic information from Agrawal by testimony was difficult and argumentative. Even attempting to ascertain Agrawal's primary residence was difficult with Agrawal testifying that he moved about, sometimes sleeping at a house titled in the name of his wife (although she lives elsewhere), sometimes at a house titled in the name of his daughter, sometimes sleeping in his office (titled in the name of company owned by his daughter) and sometimes he sleeps in his car ("I do not have a primary residence"). He has not owned any real property in his name since approximately 1985. Rental properties are owned by his children's trust managed by a corporation owned by his wife. He performs some maintenance and other jobs for such rental properties but does not receive any income. Several businesses which he assists in managing are owned by his children or companies owned by his children operate out of an office located at 4133 N. Lincoln Boulevard in Oklahoma City which is titled in the name of Vance Properties I owned by his children. He manages Vance Properties but testified he receives no income from that company. Agrawal's wife has been employed for years by the Federal Aviation Administration, but he says he does not know what her job there is because of a security clearance issue.
The Plaintiffs' have pointed out, and the Court can see for itself, numerous material misstatements or non-disclosure by Agrawal in his Schedules, SOFA, or testimony. The pertinent facts relative to the misstatements include, but are not limited to:
(1). Agrawal testified at the hearing on the involuntary petition that he had no income, owned no real property since approximately 1985 and no ownership interest in several businesses which he manages (without compensation) for his children or companies owned by his children.
(2). In his SOFA Agrawal listed only one ownership interest in a business entity, that being a membership interest of unknown value in Realty Management Associates, LLC. [Case No. 16-11253, Doc.108, Schedule A/B, Question 19; SOFA, Part 11, Question 27].
(3). On July 27, 2009, GEO Exploration, LLC, filed bankruptcy in the United Bankruptcy Court for the Western District of Oklahoma with Agrawal signing the Schedules States on behalf of the debtor as "Managing Member." [Case No. 09-14024, Doc. 1, pg. 29]. The SOFA reflected a 100% ownership interest held by Amy Agrawal (Agrawal's daughter). When Agrawal filed Debtor's Motion to Reopen Case on behalf of GEO Exploration, LLC, nine years later on January 9, 2018, he signed the same as "Member-Manager". [Case No. 09-14024, Doc. 98]. His Member-Manager status is repeated in the Motion to Reconsider Denying Motion to Reopen filed on February 13, 2018, in which he further alleges that "GEO Exploration, LLC, was not owned by Amy Agrawal." [Case No. 09-14024, Doc. 101].
(4). In the hearing on the Involuntary Petition on November 2, 2016, Agrawal testified that the ownership interest in Coal Gas USA, LLC, was held by his daughter, Amy Agrawal. On December 18, 2017, during the pendency of this bankruptcy, Agrawal as "Member/Manager", filed a Petition for Relief under Chapter 7 on behalf of Coal Gas USA, LLC. [Case No.17-15068]. Contrary to his prior testimony, the SOFA indicated that Agrawal was the Member/Manager holding a 100% membership interest in the LLC. [Case No. 17-15068, Doc. 1, pg. 22, ¶ 28].
(5). In hearings on the Involuntary Petition Agrawal repeatedly testified that he received no compensation (other than reimbursement of expenses) from any of the numerous Agrawal family affiliates, in almost all of which Agrawal was the Manager. Similarly, his Schedules do not reflect any claim that he might have for wages or salary. However, in the GEO Exploration, LLC, bankruptcy Agrawal filed a Proof of Claim for $75,000 for "services". [Case No. 09-14024, Claim 24-1].
"The subject matter of a false oath is material and warrants a denial of discharge if it is related to the debtor's business transactions, or if it concerns the discovery of assets, business dealings, or the existence of a disposition of the debtor's property". See, e.g. In re Calder, 907 F.2d 953, 955 (10
Because the Court has found that Agrawal should be denied a discharge on grounds of a false oath under § 727(a)(4)(A), it need not address the other grounds asserted by the Plaintiffs to bar a discharge.
Pursuant to Fed.R.Bankr P. 7054 and 9021, a separate judgment will be entered contemporaneously with and in accordance with this Opinion and Order.
The thirty-five (35) page pleading with seventy-six (76) pages of exhibits pertains to extraneous matters, mostly the state court litigation between Agrawal and others going back nearly a decade. Agrawal's pleading sought damages against individuals for "$11 million for defrauding the Court and Agrawal" and requesting that such individuals "be turned over to Law Enforcement lacking authority of this Court." [Doc. 12, pg. 36]. Though the First Amended Complaint is one objecting to Agrawal's discharge, Agrawal's lengthy pleading makes only a passing reference to discharge/non-dischargeability issues by briefly mentioning that "there is no consent to non-dischargeability, 28 USC sec 157(C)" and that "there is no reason that the discharge should not have been granted with (sic) 180 days." [Doc. 12, pg. 2].
The Court is entitled to take judicial notice of both its own docket sheets and the state court docket sheets. United States v. Ahidley, 486 F.3d 1184,1192, n. 5 (10