SUZANNE H. BAUKNIGHT, Bankruptcy Judge.
On May 23, 2016, Plaintiff initiated this adversary proceeding by the filing of a complaint, asking the Court to deny Defendant his discharge pursuant to 11 U.S.C. § 727.
The parties have stipulated and/or the record
Fifteen days later (on February 19), Defendant filed his Chapter 7 bankruptcy case. He attended the § 341 meeting of creditors on March 22, during which he was asked by the Chapter 7 Trustee to amend his schedules because he had not listed any clothing in Schedule A/B ("Original Schedule A/B"). [Doc. 9; Adv. Docs. 58 at ¶ 3.5; 62 at ¶ 5.] To remedy the error, Defendant filed an Amended Schedule A/B ("Amended Schedule A/B") [Doc. 13] on April 1, 2016, which was served on all creditors (although it was only required to be served on the Chapter 7 Trustee, the United States Trustee, and any affected entity) [see Doc. 14].
Relying solely on the information in Amended Schedule A/B, Plaintiff timely initiated this adversary proceeding to object to Defendant's discharge approximately eight weeks after Defendant filed the Amended Schedule A/B. Defendant initially filed a Motion to Dismiss [Adv. Doc. 7], which was denied by the Court's Memorandum and Order on Motion to Dismiss by Defendant [Adv. Doc. 14] entered on August 5, 2016. Defendant then answered the complaint [Adv. Doc. 16], denying that he made false statements or that his discharge should be denied.
Ten days after answering Plaintiff's complaint, Defendant filed a second Amended Schedule A/B ("Second Amended Schedule A/B") [Doc. 27] to include all of the information that had been reflected on Original Schedule A/B as well as the clothing that had been listed in Amended Schedule A/B. [Adv. Docs. 58 at ¶ 3; 62 at ¶ 3.]
Pursuant to Rule 56 of the Federal Rules of Civil Procedure, "[t]he court shall grant summary judgment 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[,]" utilizing the following procedures:
Fed. R. Civ. P. 56(c) (applicable in adversary proceedings through Rule 7056 of the Federal Rules of Bankruptcy Procedure). The Court does not weigh the evidence to determine the truth of the matter asserted when deciding a motion for summary judgment but simply determines whether a genuine issue for trial exists. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Id.
As movant, Defendant bears the burden of proving that summary judgment is appropriate by establishing that there is no genuine dispute concerning any material fact, such that any defense alleged is factually unsupported. See Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). Once the initial burden of proof is met, the non-moving party must prove that there is a genuine dispute of material fact for trial but may not rely solely on allegations or denials contained in the pleadings. See Nye v. CSX Transp., Inc., 437 F.3d 556, 563 (6th Cir. 2006) (holding that reliance upon a "mere scintilla of evidence in support of the nonmoving party will not be sufficient"); see also Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The facts and all resulting inferences are viewed in a light most favorable to the non-moving party, and the Court must decide whether "the evidence presents a sufficient disagreement to require submission to a [fact-finder] or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 243. Nevertheless, when "the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no `genuine issue for trial.'" Matsushita, 475 U.S. at 587 (citations omitted).
A Chapter 7 discharge relieves an "honest but unfortunate" debtor of his or her debts, allowing a "fresh start" through the discharge. Buckeye Ret. Co. v. Heil (In re Heil), 289 B.R. 897, 901 (Bankr. E.D. Tenn. 2003) (citations omitted). The discharge of all prepetition debts is granted under 11 U.S.C. § 727(a) unless the bankruptcy court determines that it should apply one of the enumerated exceptions, including the provision argued by Plaintiff in this adversary proceeding: that a debtor may not receive a discharge if he or she knowingly and fraudulently made a false oath or account in connection with the case. See 11 U.S.C. § 727(a)(4)(A).
Chapter 7 debtors are "continually and affirmatively required to disclose" creditors, assets, liabilities, income, and statements of financial affairs that are "complete and reliable." Tow v. Henley (In re Henley), 480 B.R. 708, 766 (Bankr. S.D. Tex. 2012). The § 727 exceptions are in place to ensure that "abusive debtor conduct can be dealt with by denial of discharge." Roberts v. Oliver (In re Oliver), 414 B.R. 361, 373 (Bankr. E.D. Tenn. 2009) (citations omitted). Accordingly, bankruptcy courts construe § 727(a) liberally in favor of debtors, and the party objecting to discharge bears the burden of proof by a preponderance of the evidence. See Keeney v. Smith (In re Keeney), 227 F.3d 679, 683 (6th Cir. 2000); Fed. R. Bankr. P. 4005. To successfully bar Defendant's discharge under § 727(a)(4)(A), Plaintiff must prove that Defendant (1) made a statement under oath; (2) the statement was false; (3) Defendant knew that the statement was false when he made it; (4) Defendant fraudulently intended to make the statement; and (5) the statement materially related to the bankruptcy case. See Ayers v. Babb (In re Babb), 358 B.R. 343, 355 (Bankr. E.D. Tenn. 2006).
Unquestionably, affirmative false statements and omissions fall within the scope of § 727(a)(4)(A), and a debtor's statements and schedules, which are executed under penalty of perjury, are included within that scope. Id. Here, the parties do not dispute that Amended Schedule A/B did not contain complete and accurate information. In fact, Defendant acknowledged in his Statement of Undisputed Facts that Amended Schedule A/B failed to list any of the information in Original Schedule A/B including that he held an ownership interest in any business; that he held a legal or equitable interest in any real property, vehicle, household goods or furnishings, and/or electronics; that Plaintiff's workers' compensation claim was still pending; that any creditor had set off any accounts to pay Defendant's debts; and/or that he had any cash or financial accounts. [Adv. Doc. 58 at ¶¶ 1-2.] Nor is there any doubt that the information Defendant provided in his bankruptcy statements and schedules materially relates to his bankruptcy case. See Keeney, 227 F.3d at 686; Searles v. Riley (In re Searles), 317 B.R. 368, 377 (B.A.P. 9th Cir. 2004) (holding that statements are material if they are related to a debtor's bankruptcy estate, the existence and disposition of property, business enterprises or transactions, and/or matters pertinent to the discovery of assets). Accordingly, the sole question here is whether Defendant acted knowingly and fraudulently when he filed Amended Schedule A/B, such that his discharged should be denied. Based on the record and relevant case law, the Court finds that he did not and that he is entitled to discharge.
Fraudulent intent is discerned from a debtor's conduct, demonstrated through material representations or omissions that he or she knows are false and likely to create an erroneous impression, or when he or she exhibits reckless disregard or indifference for the truth through continuing patterns of omissions and/or false statements in his or her bankruptcy schedules. See Keeney, 227 F.3d at 685; Coleman v. McLean (In re McLean), Adv. No. 12-3057, 2013 WL 5863718, at *4 (Bankr. E.D. Tenn. Oct. 30, 2013 (citing cases)). "The elements of `knowingly' and `fraudulently' may not be conflated. They each must be proven." Abbey v. Retz (In re Retz), 364 B.R. 742, 754 (Bankr. D. Mont. 2007). "Knowledge that a statement is false can be evidenced by a demonstration that the debtor `knew the truth, but nonetheless failed to give the information or gave contradictory information.'" Babb, 358 B.R. at 355 (citations omitted). Statements resulting from ignorance or carelessness do not reside to the level of "knowing and fraudulent," and honest mistakes or oversight will not warrant denying a debtor's discharge, see McDermott v. Petersen (In re Petersen), 564 B.R. 636, 649 (Bankr. D. Minn. 2017); however, evidence of reckless indifference may "provide the foundation for a finding of fraudulent intent." Newton v. Sims (In re Sims), Adv. No. 10-3100, 2011 WL 2619106, at *6 (Bankr. E.D. Tenn. July 1, 2011) (citations omitted). Similarly, a debtor's subsequent voluntary disclosure may invalidate allegations of fraudulent intent, and a debtor who mistakenly or inadvertently provides false information or fails to disclose pertinent information and takes steps to amend his schedules to correct them prior to or during a meeting of creditors generally is not thought to possess the requisite fraudulent intent to deny discharge under § 727(a)(4)(A). Babb, 358 B.R. at 355-56. As summarized by the Sixth Circuit Court, "[c]ourts may deduce fraudulent intent from all the facts and circumstances of a case[; h]owever, a debtor is entitled to discharge if false information is the result of mistake or inadvertence." Keeney, 227 F.3d at 686 (citations omitted).
Throughout his defense of this adversary proceeding, Defendant has repeatedly acknowledged that Amended Schedule A/B filed on April 1 did not include the information initially listed in Original Schedule A/B — all of which was subsequently included in Second Amended Schedule A/B. The reason for the oversight was Defendant's counsel's reading of the Local Rules of the Bankruptcy Court for the Eastern District of Tennessee ("Local Rules") that were current at the time.
The prior version of E.D. Tenn. LBR 1009-1 ("2012 LBR 1009-1"), which was amended effective November 1, 2016, provided, in material part:
2012 LBR 1009-1(a)-(c). Although the Court does not read 2012 LBR 1009-1 in the way that Defendant's counsel read it, the Court acknowledges that a cursory reading of the rule could — and did — lend itself to misinterpretation, not only by Defendant's counsel but by others as well, so much so that the entire rule was amended to require not only that all previous information be included in any amendments but also that a notice of amendment, expressly detailing the amended information, be filed as well. See E.D. Tenn. LBR 1009-1 (Dec. 1, 2017).
Plaintiff has offered nothing to rebut Defendant's contentions, and the record includes nothing to indicate that Defendant has been anything but candid and credible in his arguments before this Court. Defendant's counsel, likewise, has been completely candid that it was his mistake in initially failing to include Defendant's clothing in Original Schedule A/B and that it was counsel's reading of 2012 LBR 1009-1 that led to his filing of Amended Schedule A/B with only the clothing listed. Nothing in the record remotely supports a finding that Defendant knowingly and fraudulently made false statements in either Original Schedule A/B, Amended Schedule A/B, or Second Amended Schedule A/B. The Court also finds it persuasive that the Chapter 7 Trustee filed his No Asset Report on April 5, 2016 — four days after Amended Schedule A/B was filed on April 1 — apparently comfortable with the information contained in Amended Schedule A/B and that it satisfied the requirements of the Code and his own questions from the meeting of creditors.
In sum, Defendant unquestionably made mistakes in his Original Schedule A/B, by failing to list any clothing, and in his Amended Schedule A/B, by listing only his clothing; however, these oversights do not rise to the level required to satisfy the burden of proof required under 11 U.S.C. § 727(a)(4) and do not, alone, warrant denial of Defendant's discharge. See Atkinson v. Page (In re Page), 568 B.R. 687, 701 (Bankr. D. Alaska 2017).
An Order consistent with this Memorandum will be entered.
