in re: paul denbeste and melody denbeste, 9th cir. bap (2012)

7/25/2019 In re: Paul Denbeste and Melody Denbeste, 9th Cir. BAP (2012)

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1 Thi s di sposi t i on i s not appr opr i at e f or publ i cat i on.Al t hough i t may be ci t ed f or what ever per suasi ve val ue i t mayhave ( see Fed. R. App. P. 32. 1) , i t has no pr ecedent i al val ue.See 9t h Ci r . BAP Rul e 8013- 1.

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

I n r e: ) BAP Nos. NC- 12- 1087- HPaMk) NC- 12- 1180- HPaMk

PAUL DENBESTE and MELODY ) ( Rel at ed Appeal s)DENBESTE, )

) Bk. No. 10- 13558Debt or s. )

______________________________) Adv. No. 11- 01184)

PAUL DENBESTE; MELODY )DENBESTE, )

)Appel l ant s, )

)v. ) M E M O R A N D U M1

)MANDY POWER, d/ b/ a J udgment )Enf or cement USA, )

)Appel l ee. )

______________________________)

Ar gued and Submi t t ed on Oct ober 18, 2012at San Fr anci sco, Cal i f or ni a

Fi l ed - November 6, 2012

Appeal f r om t he Uni t ed St at es Bankrupt cy Cour tf or t he Nor t her n Di st r i ct of Cal i f or ni a

Honor abl e Al an J ar osl ovsky, Chi ef Bankrupt cy J udge, Pr esi di ng

Appear ances: J ames Pat r i ck Chandl er of Law Of f i ces of J ames P.Chandl er , ar gued f or Appel l ant s; Mal col mLeader - Pi cone of Bar t l et t , Leader - Pi cone & Young,LLP, ar gued f or Appel l ee.

Bef or e: HOLLOWELL, PAPPAS, and MARKELL, Bankr upt cy J udges.

FILED

NOV 06 2012

SUSAN M SPRAUL, CLERKU.S. BKCY. APP. PANELOF THE NINTH CIRCUIT


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2 Unl ess ot her wi se i ndi cat ed, al l chapt er and sect i on

r ef er ences ar e t o t he Bankrupt cy Code, 11 U. S. C. 101- 1532.Al l Rul e r ef er ences ar e t o t he Feder al Rul es of Bankrupt cyProcedur e, Rul es 1001- 9037.

3 As par t of i t s or der appoi nt i ng t he Recei ver , t he st at ecour t addr essed t he Debt or s ongoi ng cont ent i on t hat t he

( cont i nued. . . )

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Paul and Mel ody DenBest e ( t he Debt ors) appeal t wo or ders of

t he bankr upt cy cour t : t he f i r st i s t he deni al of t he Debt or s

mot i on t o di smi ss an adver sar y pr oceedi ng, br ought by t hei r

pr i nci pal cr edi t or , t o deny t hem a di schar ge ( BAP No.

NC- 11- 1087) ; t he second i s t he bankrupt cy cour t s post - t r i al

j udgment denyi ng t hem a di schar ge under 727(a) ( 4) ( A) 2 f or

knowi ngl y and f r audul ent l y maki ng f al se oat hs on t hei r bankrupt cy

schedul es ( BAP No. NC- 11- 1180) . We AFFI RM both orders.

I. FACTS

I n Oct ober 2005, sever al j udgment s were ent ered i n

Cal i f or ni a st at e cour t agai nst t he Debt or s i n f avor of J ohn and

Br adf ord DeMeo ( t he J udgment s) . The DeMeos assi gned t he

J udgment s t o Wal t er Stei nmann dba J udgment Enf or cement USA, and

Stei nmann subsequent l y ass i gned the J udgment s t o Mandy Power dba

J udgment Enf or cement USA ( Power ) on Apr i l 14, 2010.

Power at t empt ed t o col l ect on t he J udgment s, t he bal ance due

on whi ch was appr oxi matel y $56, 000, t o no avai l . On August 20,

2010, at Power s r equest , t he st at e cour t appoi nt ed a r ecei ver( Recei ver ) , st at i ng t hat i t was l oat h t o or der t he dr ast i c

r emedy of r ecei ver shi p, but i t i s obvi ous t hat al l ot her met hods

of col l ect i on have been met wi t h st ubbor n r ef usal t o abi de by t he

mandat es of t he Cour t s l awf ul or der s and j udgment . 3


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3( . . . cont i nued)J udgment s wer e voi d or unenf or ceabl e because Power ( or i t sassi gnor ) l acked st andi ng due to noncompl i ance wi t h Cal i f or ni al aw r egar di ng t he f i l i ng of f i ct i t i ous busi ness name st at ement s.

The st at e cour t det er mi ned t here was suf f i ci ent document at i onsuppor t i ng Power s r i ght , as t he l awf ul l y desi gnat ed assi gnee oft he J udgment s, t o col l ect t hem.

4 The maj or i t y of t he Debt or s sei zed f unds i ncl uded deposi taccount s associ at ed wi t h a f ami l y t r ust .

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Ther eaf t er , t he Recei ver sei zed $66, 000 f r om t he Debt or s and t he

Debt ors were requi r ed t o show cause why t he J udgment s shoul d not

have been sat i sf i ed by the sei zed f unds. 4 On September 15, 2010,

t he day bef or e t he st at e cour t st at ed i t woul d i ssue a deci si on

on t he show cause or der , t he Debt or s f i l ed a chapt er 13

bankr upt cy pet i t i on.

The Debt or s f i l ed t hei r bankrupt cy schedul es and st at ement

of f i nanci al af f ai r s on Sept ember 29, 2010 ( Schedul es) . On

Oct ober 21, 2010, t he case was conver t ed at t he Debt ors r equest

t o chapt er 7. The 341 meet i ng of cr edi t or s was i ni t i al l y hel d

on November 5, 2010, and cont i nued t o December 7, 2010. Power

at t ended t he December 7th 341 meet i ng.

At t he st ar t of t he meet i ng, t he Debt or s t ook an oat h t o

t est i f y t r ut hf ul l y. They t est i f i ed t hat t hey had r evi ewed t he

Schedul es and t hat t he Schedul es accur at el y ref l ect ed al l t hei r

asset s and cr edi t or s wi t h t he except i on of one omi ssi on, whi ch

r equi r ed cor r ect i on. The Debt or s stat ed t hat t hey l ef t of f a

60- acre par cel of r eal pr oper t y i n Lake Count y, Cal i f or ni a ( t hePr oper t y) , f or whi ch t hey asser t ed t hey pai d $125, 000 and st i l l

owed $125, 000. However , i n r esponse t o quest i ons f r omt he


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5 The Recei ver was pur sui ng t he f unds f r om t he Tr ust . I twas not unt i l somet i me i n March 2012, t hat t he Tr ust ee determi nedt hat t he f unds wer e not est at e pr oper t y.

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Tr ust ee, as wel l as Power , t he Debt or s r eveal ed t hat t hey al so

had bank account s, hor ses, vehi cl es, i nt er est s i n t hei r cor por at e

busi ness, DenBest e Yar d & Garden ( t he Corporat i on) , and i n a

f ami l y t r ust , t he DenBest e Fami l y Tr ust ( t he Tr ust ) , t hat wer e

omi t t ed f r om t he Schedul es.

Whi l e t he Debt or s admi t t ed t hey had sever al vehi cl es

i ncl udi ng a Hummer , BMW, Corvet t e, and Chevy t r uck t hey

asser t ed t hose vehi cl es were owned by t he Corporat i on. When

Power quest i oned t he Debt or s as t o why they had f ai l ed t o l i st

t he J udgment s, her at t achment s or t he appoi nt ment of t he Recei ver

i n t hei r st at ement of f i nanci al af f ai r s and Schedul es, or t hat

Mr . DenBest e was a benef i ci ar y t o t he Tr ust , t he Debt or s st at ed

t hat t hey t hought t he i nf or mat i on was l i st ed on t hei r Schedul es. 5

Due t o t he Debt or s omi ssi ons on t he Schedul es, t he Tr ust ee

comment ed t hat : I t s pret t y cl ear t hese Debt or s have r un a

l i t t l e f ast and l oose wi t h t hei r st at ement under penal t y of

per j ur y on t hese schedul es, as wel l as t hei r st at ement s t oday

and t hat t hey ve pr obabl y gi ven . . . enough ammuni t i on t obr i ng an act i on t o deny t hei r di schar ge. The Tr ust ee cont i nued

t he 341 meet i ng t o December 21, 2010, i n order f or t he Debt ors

t o pr ovi de f ur t her i nf or mat i on about t hei r asset s and make

appr opr i ate amendment s t o t hei r Schedul es. Accor di ng t o t he

bankr upt cy cour t s docket , no amendment s t o the Debt ors

Schedul es wer e f i l ed unt i l ei ght mont hs l at er i n August 2011.

Power f i l ed, on J ul y 6, 2011, an adver sary pr oceedi ng


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6 Power sought and was gr ant ed t wo ext ensi ons of t i me i nwhi ch t o f i l e the Compl ai nt .

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agai nst t he Debt or s al l egi ng t hey knowi ngl y and f r audul ent l y

f i l ed mat er i al l y f al se bankrupt cy schedul es and shoul d be deni ed

a di schar ge under 727( a) ( 3) and ( 4) ( t he Compl ai nt ) . 6 Power

al l eged t hat t he Debt or s f ai l ed t o schedul e var i ous asset s,

i ncl udi ng t he Pr oper t y, bank account s, hor ses, vehi cl es

( i ncl udi ng the Hummer, Corvet t e and a Har l ey Davi dson

mot or cycl e) , and t hei r benef i ci al i nt er est i n t he Tr ust .

On August 10, 2011, t he Debt ors f i l ed an amended pet i t i on

and amended schedul es (Amended Schedul es) . Al t hough t he Amended

Schedul es cor r ected some of t he omi ss i ons br ought up at t he 341

meet i ng and r ef er enced i n t he Compl ai nt , t hey di d not l i st t he

Debt or s i nt er est s i n t he Tr ust or t he Cor por at i on, nor any

addi t i onal vehi cl es.

On August 26, 2011, t he Debt or s f i l ed a mot i on t o di smi ss

t he Compl ai nt pur suant t o Fed. R. Ci v. P. 12( b) ( 1) and ( b) ( 6) or

i n t he al t er nat i ve, a Mot i on f or Summar y J udgment ( Mot i on t o

Di smi ss) . The Debt or s asser t ed t hat t hey wer e ent i t l ed t o

j udgment as a mat t er of l aw on t he basi s t hat Power l ackedst andi ng t o pur sue t he Compl ai nt because: ( 1) t he J udgment s were

i nval i d as t hey l acked mer i t ( t he j udgment s on whi ch pl ai nt i f f

bases her cl ai ms wer e not t he r esul t of any conduct by debt or s,

but by unmi t i gated, unr est r ai ned and out r ageous gamesmanshi p on

t he par t of t he under l yi ng cl ai mant s) ; ( 2) t he assi gnment of t he

J udgment s t o her wer e i nval i d because of her f ai l ure t o f i l e a

f i ct i t i ous busi ness name st at ement under r equi r ement s of


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Cal i f or ni a busi ness l aw; ( 3) Power coul d show no i nj ur y i n f act

t r aceabl e t o t he Debt or s conduct . Addi t i onal l y, t he Debt or s

asser t ed that t he al l egat i ons i n the Compl ai nt were render ed moot

by t he Amended Schedul es.

I n her r esponse t o the Mot i on t o Di smi ss, Power pr ovi ded t he

st at e cour t s or der appoi nt i ng t he Recei ver , whi ch r eaf f i r med t he

val i di t y of t he J udgment s and t hat Power had st andi ng despi t e t he

Debt or s al l egat i on t hat she (or her assi gnor ) di d not pr oper l y

f i l e a f i ct i t i ous busi ness name st at ement . Power al so pr ovi ded

t he bankrupt cy cour t wi t h copi es of t he recor di ng of her

f i ct i t i ous busi ness name st at ement .

Af t er t he Debt or s f i l ed a r epl y, a hear i ng on t he Mot i on t o

Di smi ss was hel d on Oct ober 14, 2011. At t he cl ose of t he

hear i ng, t he bankrupt cy cour t deni ed t he Mot i on t o Di smi ss,

f i ndi ng t hat : ( 1) Power suf f i ci ent l y al l eged i n t he Compl ai nt

t hat she was a cr edi t or of t he Debt or s havi ng been assi gned t he

J udgment s, and ( 2) t hat even i f t he i ssue of compl i ance wi t h

st at e l aw was r el evant t o t he Compl ai nt , Power submi t t edsuf f i ci ent document at i on est abl i shi ng her compl i ance wi t h

Cal i f or ni a s f i ct i t i ous busi ness name f i l i ng r equi r ement s. The

bankrupt cy cour t set a t r i al on t he Compl ai nt f or Mar ch 8, 2012.

I n December 2011, Power ser ved di scovery r equest s on t he

Debt ors. The Debt ors r esponded on J anuary 27, 2012. The Debt ors

answered each quest i on by rei t erat i ng t he argument s t hey made i n

t hei r Mot i on t o Di smi ss and chal l engi ng t he mer i t s of , andPower s r i ght t o col l ect , t he J udgment s. Al so on J anuar y 27,

2012, t he Debt or s appeal ed t he deni al of t he Mot i on t o Di smi ss.

The bankrupt cy cour t hel d a t r i al on t he Compl ai nt on


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Mar ch 8, 2012. At t r i al , Power ent er ed i nt o evi dence document s

f r omt he Depart ment of Motor Vehi cl es ( DMV) t hat demonst r ated

t her e wer e ni ne vehi cl es r egi st er ed i n t he name of t he Debt or s,

i ncl udi ng the Hummer, Corvet t e, t wo Har l ey Davi dson motorcycl es,

t hr ee t r ai l er s, and t wo t r ucks. Mr . DenBest e t est i f i ed t hat t he

Corporat i on owned t he Hummer, Corvet t e, t wo t r ai l ers and two

t r ucks, but he pr ovi ded no evi dence to suppor t t hat t est i mony.

The Debt or s t est i f i ed t hat t hey provi ded al l t hei r i nf or mat i on t o

t he Tr ust ee and, al t hough t hey agai n t est i f i ed t hat t hey r evi ewed

t he Amended Schedul es bef ore si gni ng them, t hey di d not not i ce

t hat cer t ai n asset s, i ncl udi ng t he mot or cycl es, t he Cor por at i on,

and t he Tr ust wer e not l i st ed.

Addi t i onal l y, Mr . DenBest e made cl ear t hat he vi gor ousl y

di sput ed t he val i di t y of t he J udgment s and Power s abi l i t y to

col l ect t hem:

POWER S ATTORNEY: I n i ssui ng t he or der appoi nt i ng t her ecei ver , t he Sonoma Count ySuper i or Cour t over r ul ed yourobj ecti ons t o t he val i di t y of t he

j udgment s, cor r ect ?MR. DENBESTE: Cor rect .

POWER S ATTORNEY: So you under st and t hat t he i ssuehas been l i t i gat ed and r esol ved i nan or der , cor r ect ?

MR. DENBESTE: Ti me- bar r ed by f ee arbi t r at i on.

POWER S ATTORNEY: Okay. And i t i s your i nt ent i on, i si t not , Mr . DenBest e, t o cont i nuet o do ever ythi ng i n your power t or esi st any ef f or t of Ms. Power t o

col l ect on t hese f our j udgment s,correct?

MR. DENBESTE: Ti me- bar r ed by f ee arbi t r at i on.

POWER S ATTORNEY: I s t hat a yes?


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MR. DENBESTE: Yes.

Tr i al Tr . ( Mar ch 8, 2012) at 45: 4- 18.

Af t er t he t r i al , on Mar ch 19, 2012, t he bankrupt cy cour t

i ssued a wr i t t en deci si on ( Memor andum Deci si on) , f i ndi ng t hat t he

Debt or s Schedul es wer e gr oss l y f al se, and the [ A] mended

[ S] chedul es onl y sl i ght l y l ess so. I t f ur t her f ound t hat t he

Debt or s conceal ed t hei r asset s wi t h t he i nt ent t o t hwar t Power

i n her ef f or t s t o enf or ce t he [ J ] udgment s l awf ul l y assi gned t o

her . Accor di ngl y, t he bankrupt cy cour t det er mi ned t hat t he

Debt or s wer e not ent i t l ed t o a di schar ge pur suant t o

727( a) ( 4) ( A) and ( a) ( 2) ( B) . The bankrupt cy cour t ent er ed a

j udgment denyi ng t he Debt or s di schar ge t he same day. The

Debt ors t i mel y appeal ed.

II. JURISDICTION

The bankrupt cy cour t had j ur i sdi ct i on pur suant t o 28 U. S. C.

1334 and 157( b) ( 2) ( J ) . We have j ur i sdi ct i on under 28 U. S. C.

158.

III. ISSUES

Di d t he bankrupt cy cour t er r i n denyi ng t he Mot i on t o

Di smi ss?

Di d t he bankrupt cy cour t er r i n denyi ng t he Debt or s a

di schar ge?

IV. STANDARDS OF REVIEW

[ W] hi l e deni al of a mot i on t o di smi ss an adver sary

pr oceedi ng f or f ai l ur e t o st at e a cl ai m i s gener al l yi nt er l ocut or y and t hus r ar el y revi ewed by us, any revi ew of such

a deni al i s de novo. Waag v. Per mann ( I n r e Waag) , 418 B. R.

373, 376- 77 ( 9t h Ci r . BAP 2009) ; see al so Wi r um v. War r en


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( I n r e War r en) , 568 F. 3d 1113, 1116 ( 9t h Ci r . 2009) .

We appl y t he f ol l owi ng st andard of r evi ew t o a j udgment on

an obj ect i on t o di schar ge: ( 1) t he bankrupt cy cour t s

det er mi nat i ons of t he hi st or i cal f act s ar e r evi ewed f or cl ear

er r or ; ( 2) t he sel ect i on of t he appl i cabl e l egal r ul es under

727 i s r evi ewed de novo; and ( 3) t he appl i cat i on of t he f act s

t o t hose rul es r equi r i ng t he exer ci se of j udgment s about val ues

ani mat i ng t he r ul es i s revi ewed de novo. Retz v. Samson

( I n r e Ret z) , 606 F. 3d 1189, 1196 ( 9t h Ci r . 2010) , ci t i ng Sear l es

v. Ri l ey ( I n r e Sear l es) , 317 B. R. 368, 373 ( 9t h Ci r . BAP 2004)

af f d, 212 Fed. Appx. 589 ( 9t h Ci r . 2006) .

I nt ent i s a f act ual mat t er r evi ewed f or cl ear err or . See,

e. g. , Beauchamp v. Hoose ( I n re Beauchamp) , 236 B. R. 727, 729

( 9t h Ci r . BAP 1999) . A f act ual f i ndi ng i s cl ear l y er r oneous i f

i t i s i l l ogi cal , i mpl ausi bl e, or wi t hout suppor t i n t he r ecor d.

I n r e Ret z, 606 F. 3d at 1196, ci t i ng Uni t ed St at es v. Hi nkson,

585 F. 3d 1247, 1261- 62 & n. 21 ( 9t h Ci r . 2009) ( en banc) .

V. DISCUSSION

A. Motion to Dismiss

Nei t her t he deni al of a mot i on t o di smi ss nor t he deni al of

a mot i on f or summary j udgment i s a f i nal order capabl e of

appel l at e r evi ew. I n r e Waag, 418 B. R. at 376; Lum v. Ci t y &

Cnt y. Of Honol ul u, 963 F. 2d 1167, 119- 70 ( 9t h Ci r . 1992) .

Gener al l y, an or der i s f i nal , r at her t han i nt er l ocut or y, onl y

when i t f ul l y adj udi cat es t he i ssues r ai sed and cl ear l y mani f est st he cour t s i nt ent t o be i t s f i nal act i n t he mat t er . Br own v.

Wi l shi r e Cr edi t Cor p. ( I n r e Br own) , 484 F. 3d 1116, 1120 ( 9t h

Ci r . 2007) ( quot i ng Sl i mi ck v. Si l va ( I n r e Sl i mi ck) , 928 F. 2d


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304, 307 ( 9t h Ci r . 1990) ) . However , i nt er l ocut or y or der s mer ge

i nt o a f i nal or der , when i t i s event ual l y ent er ed; a t i mel y

appeal t aken f r om a f i nal or der may cover bot h t he f i nal or der as

wel l as any i nt er l ocut or y or der l eadi ng up t o t he ent r y of t he

f i nal or der . Uni t ed St at es v. Real Pr op. Locat ed at 475 Mar t i n

Ln. , Bever l y Hi l l s, CA, 545 F. 3d 1134, 1141 ( 9t h Ci r . 2008) .

Consequent l y, t he bankrupt cy cour t s order denyi ng t he Mot i on t o

Di smi ss merged i nt o t he bankr upt cy cour t s j udgment ent ered af t er

t r i al .

Never t hel ess, t he mer ger of an i nt er l ocut or y di smi ssal or der

i nt o a f i nal or der does not necessar i l y mean t hat t he di smi ssal

or der wi l l be r evi ewed on appeal . Revi ew of a mot i on t o di smi ss

may be deni ed i f , at t r i al , t her e i s adequat e evi dence pr esent ed

t o suppor t t he j udgment . Bennet t v. Pi ppi n, 74 F. 3d 578, 585

( 5t h Ci r . 1996) , cer t . deni ed, 519 U. S. 817 ( af t er a pl ai nt i f f

pr evai l s on t r i al on t he mer i t s, t he suf f i ci ency of t he

al l egat i ons i n t he compl ai nt i s i r r el evant and moot ) .

Addi t i onal l y, t he Ni nt h Ci r cui t has hel d t hat t he deni al of amot i on f or summary j udgment i s not r evi ewabl e on appeal f r oma

f i nal j udgment ent er ed af t er a f ul l t r i al on t he mer i t s.

Lor r i cchi o v. Legal Ser vs. Cor p. , 833 F. 2d 1352, 1358- 59 ( 9t h

Ci r . 1987) ; see al so Lum, 963 F. 2d at 1170 ( r evi ew of deni al of

summar y j udgment af t er t r i al on mer i t s i s poi nt l ess academi c

exer ci se) ; Abbot t Mar i e J ones, Shoul d The Except i on Be The Rul e?

Advocat i ng For Appel l at e Revi ew Of Summary J udgment Deni al s,72 Al a. Law. 38 ( J an. 2011) ; J esse Lei gh J eni ke- Godshal k,

Comment , Appeal ed Deni al s And Deni ed Appeal s: Fi ndi ng A Mi ddl e

Gr ound I n The Appel l at e Revi ew Of Deni al s Of Summar y J udgment


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The Debt or s di d not asser t at t he t r i al any ar gument , orpr esent any evi dence, t hat Power l acked st andi ng. I nst ead,Mr . DenBest e t est i f i ed t hat t he st at e cour t or der appoi nt i ng t heRecei ver over r ul ed and r esol ved t he Debt or s obj ect i ons t o t heval i di t y and enf or ceabi l i t y of t he J udgment s. See Tr i al Tr .( Mar . 8, 2012) at 45: 4- 18.

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Fol l owi ng A Ful l Tr i al On The Mer i t s, 78 U. Ci nn. L. Rev. 1595

( Summer 2010) .

The bankr upt cy cour t s deni al of t he Mot i on t o Di smi ss

deci ded not hi ng ot her t han t hat : ( 1) t he al l egat i ons i n t he

Compl ai nt wer e suf f i ci ent t o st at e a cl ai m f or r el i ef ; and,

( 2) t her e wer e genui ne i ssues of f act , whi ch r equi r ed a t r i al on

t he mer i t s of t he Compl ai nt . Si nce t he t r i al has occur r ed, t her e

i s no need t o r evi ew whether t hat deci si on was er r oneous,

par t i cul ar l y because, as we di scuss bel ow, t he bankrupt cy cour t

di d not er r i n ent er i ng j udgment i n f avor of Power .

However , we note that i t may be appr opr i ate t o addr ess t he

Debt or s ar gument r egar di ng Power s s t andi ng, as quest i ons of

st andi ng must be suppor t ed at each st age of l i t i gat i on. 7 War r en

v. Fox Fami l y Wor l dwi de, I nc. , 328 F. 3d 1136, 1140 ( 9t h Ci r .

2003) . At t he Mot i on t o Di smi ss st age, Power was onl y r equi r ed

t o show t hat t he f act s, as al l eged i n t he Compl ai nt , and i f

pr oved, woul d conf er st andi ng. I d.

The Compl ai nt al l eged t hat : ( 1) Power had been ass i gned t heJ udgment s, ( 2) t he Recei ver had been appoi nted t o ai d Power s

col l ect i on ef f or t s on t he J udgment s; and, ( 3) t he st at e cour t had

i ssued an order di r ect i ng t he Debt ors t o show cause why f unds

sei zed by t he Recei ver shoul d not be used t o sat i sf y t he

J udgment s. These al l egat i ons wer e suf f i ci ent t o est abl i sh t hat


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Power was a cr edi t or of t he Debt or s wi t h st andi ng t o pur sue t he

727 act i on. See 11 U. S. C. 101( 10) ( A) ; 727( c) ( 1) ; see al so,

Cal . Ci v. Code 954 ( a j udgment cr edi t or may assi gn a j udgment

t o a t hi r d par t y) ; Car t er v. Br ooms ( I n r e Br ooms) , 447 B. R. 258,

265 ( 9t h Ci r . BAP 2011) ( an assi gnee acqui r es al l r i ght s and

r emedi es possessed by the assi gnor f or t he enf orcement of t he

debt , subj ect t o the def enses t hat t he j udgment debt or had

agai nst t he assi gnor ) .

As not ed by numer ous cour t s, t he i nt egr i t y and vi abi l i t y of

t he bankr upt cy pr ocess depend on t he f ul l , candi d and compl ete

di scl osur e by debt or s of t hei r f i nanci al af f ai r s. I n r e Sear l es,

317 B. R. at 378; Garci a v. Coombs ( I n r e Coombs) , 193 B. R. 557,

563 ( Bankr . S. D. Cal . 1996) . I ndeed, t he Bankrupt cy Code and

Rul es i mpose an af f i r mat i ve dut y on t he debt or t o di scl ose

asset s. 11 U. S. C. 521( a) ( 1) ; Rul es 1007, 1007- 1, 1008;

Hami l t on v. St at e Far m Fi r e & Cas. Co. , 270 F. 3d 778, 785 ( 9t h

Ci r . 2001) .

[ T] he ver y pur pose of cer t ai n sect i ons of t he l aw, l i ke11 U. S. C. 727( a) ( 4) ( A) , i s t o make cer t ai n t hat t hosewho seek t he shel t er of t he bankr upt cy code do not pl ayf ast and l oose wi t h t hei r asset s or wi t h t he r eal i t y oft hei r af f ai r s. The st at ut es ar e desi gned t o i nsur et hat compl et e, t r ut hf ul , and r el i abl e i nf or mat i on i sput f or war d at t he out set of t he pr oceedi ngs, so t hatdeci si ons can be made by the par t i es i n i nt er est basedon f act r at her t han f i cti on . . . [ t ] he successf ulf unct i oni ng of t he bankr upt cy act hi nges bot h upon t hebankrupt s ver aci t y and hi s wi l l i ngness t o make a f ul ldi scl osur e.

Kavanagh v. Lei j a ( I n r e Lei j a) , 270 B. R. 497, 501 ( Bankr. E. D.Cal . 2001) ( ci t at i ons omi t t ed) . Consequent l y, as a cr edi t or of

t he Debt or s, Power i s suf f i ci ent l y har med by any f ai l ur e on t he

par t of t he Debt or s t o pr ovi de t r ut hf ul i nf or mat i on i n t hei r


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8 Bot h bankrupt cy t r ust ees and cr edi t or s may obj ect t odi schar ge ( i n f act , under 704( 6) , t r ust ees have a dut y t o do soi f advi sabl e) . However , t he r eal i t y i s t hat t r ust ees commonl yt ake a back seat when a cr edi t or obj ect s t o di schar ge i n or der t oconserve r esour ces. J acobson v. Rober t Speece Props. , I nc.( I n r e Speece) , 159 B. R. 314, 322 n. 12 ( Bankr . E. D. Cal . 1993) .

The Debt or s al so made an ar gument t hat j oi nder of t he

Tr ust ee t o t he Compl ai nt was necessar y. See Appel l ant s Openi ngBr . , NC- 11- 1180. Thi s argument was not made t o t he bankr upt cycour t at t r i al ( or i n t he Debt or s Mot i on t o Di smi ss) .Accor di ngl y, t he argument i s wai ved and we do not addr ess t hemer i t s of t he ar gument . Gol den v. Chi cago Ti t l e I ns. Co.( I n r e Choo) , 273 B. R. 608, 613 ( 9t h Ci r . BAP 2002) .

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bankrupt cy case, pr ovi di ng her wi t h st andi ng t o mai nt ai n t he

Compl ai nt . 8 Thus, t o t he ext ent t he i ssue of st andi ng i s

r evi ewabl e her e, we concl ude t hat t he bankrupt cy cour t di d not

er r i n denyi ng t he Mot i on t o Di smi ss.

B. Denial of Discharge

A deni al of a di schar ge i s an act t hat must not be t aken

l i ght l y. Consequent l y, 727 must be const r ued l i ber al l y i n

f avor of t he debt or and agai nst t he obj ect or . Rober t s v. Er har d

( I n r e Rober t s) , 331 B. R. 876, 882 ( 9t h Ci r . BAP 2005) ( ci t i ng

Fi r st Bever l y Bank v. Adeeb ( I n re Adeeb) , 787 F. 2d 1339, 1342

( 9t h Ci r . 1986) ) . However , t he oppor t uni t y f or a f r esh st ar t i s

avai l abl e onl y t o t he honest but unf or t unat e debt or . Mer ena v.

Merena ( I n r e Merena) , 413 B. R. 792, 807 ci t i ng Gr ogan v. Garner ,

498 U. S. 279, 286- 87 ( 1990) . Ther ef or e, a par t y obj ect i ng t o a

debt or s di scharge must pr ove by a pr eponderance of t he evi dence

t hat t he debt or s act i ons or conduct f al l wi t hi n one of t he

except i ons t o di schar ge set f or t h i n 727. Khal i l v. Devel oper s

Sur . & I ndem. Co. ( I n r e Khal i l ) , 379 B. R. 163, 172 ( 9t h Ci r . BAP


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2007) , af f d, 578 F. 3d 1167, 1168 ( 9t h Ci r . 2009) .

The Bankrupt cy Code provi des t hat a chapt er 7 debtor shal l

be gr ant ed a di schar ge, unl ess t he debt or knowi ngl y and

f r audul ent l y, i n or i n connect i on wi t h t he case ( A) made a

f al se oat h or account . 11 U. S. C. 727( a) ( 4) ( A) . The

f undament al pur pose of 727( a) ( 4) ( A) i s t o i nsur e t hat t he

t r ust ee and cr edi t or s have accur at e i nf or mat i on wi t hout havi ng t o

conduct cost l y i nvest i gat i ons. I n r e Ret z, 606 F. 3d at 1196

ci t i ng Fogal Legwar e of Swi t z. , I nc. v. Wi l l s ( I n r e Wi l l s) ,

243 B. R. 58, 63 ( 9t h Ci r . BAP 1999) . To succeed on a

724( a) ( 4) ( A) cl ai m, t he obj ect i ng par t y must demonst r at e t hat :

( 1) a f al se oat h or st atement was made by t he debt or ;

( 2) knowi ngl y and f r audul ent l y; ( 3) whi ch was mat er i al t o t he

cour se of t he bankrupt cy pr oceedi ngs. I d. ; I n r e Rober t s,

331 B. R. at 882.

A f al se oat h or st at ement i s made when i t occur s i n t he

debt or s schedul es or at an exami nat i on dur i ng t he cour se of t he

pr oceedi ngs. I n r e Rober t s, 331 B. R. at 882. The Debt or st est i f i ed at t he 341 meet i ng t hat t hei r Schedul es, si gned under

penal t y of per j ur y, accur at el y r ef l ected al l t hei r asset s and

l i abi l i t i es except f or t he omi ssi on of t he Pr oper t y, whi ch t hey

st at ed was f ul l y encumber ed. However , i t was l at er r eveal ed

dur i ng t he meet i ng t hat t hey al so omi t t ed numerous ot her asset s.

On thei r Amended Schedul es, t he Debt or s l i st ed the Pr oper t y,

whi ch t ur ned out t o be unencumbered, f our bank account s, andt hr ee hor ses, but t hey st i l l f ai l ed t o l i st al l t he vehi cl es

di scussed at t he meet i ng, or t hei r i nt er est s i n t he Cor por at i on

and the Tr ust ( even t hough i t was much l ater determi ned not t o be


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est at e pr oper t y) .

A debt or s bankrupt cy schedul es must be ver i f i ed or cont ai n

an unswor n decl ar at i on under penal t y of per j ur y. 28 U. S. C.

1746; Rul e 1008. Accor di ngl y, a f al se st at ement or omi ssi on i n

a debt or s schedul es i s a f al se oat h under 727( a) ( 4) ( A) . As a

r esul t , t he bankrupt cy cour t di d not er r when i t f ound t hat t he

f i r st el ement of 727( a) ( 4) ( A) was sat i sf i ed.

A f al se oat h i s mat er i al , and t hus suf f i ci ent t o bar

di schar ge i f i t bear s a r el at i onshi p t o t he bankr upt s busi ness

t r ansact i ons or est at e, or concer ns t he di scover y of asset s,

busi ness deal i ngs, or t he exi st ence and di sposi t i on of hi s

pr oper t y. Mer t z v. Rot t , 955 F. 2d 596, 598 ( 8t h Ci r . 1992) ;

I n r e Retz, 606 F. 3d at 1198. An omi ss i on or mi ss t atement t hat

det r i ment al l y af f ect s t he admi ni st r at i on of t he est at e i s

mat er i al . I n r e Rober t s, 331 B. R. at 883. The Debt or s

omi ssi on of sever al si gni f i cant asset s on t hei r Schedul es as wel l

as on t hei r Amended Schedul es prevent ed t he Tr ust ee and credi t ors

f r om havi ng accur at e i nf or mat i on, whi ch af f ect ed t headmi ni st r at i on of t he est at e and t he Tr ust ee s and cr edi t or s

under st andi ng of t he Debt or s f i nanci al af f ai r s and t r ansact i ons.

Ther ef or e, t he omi ssi ons wer e appr opr i at el y f ound by t he

bankrupt cy cour t t o be mat er i al .

The l ast el ement i s i ntent . The Debt or s must have

knowi ngl y and f r audul ent l y made t he omi ss i ons on t hei r

Schedul es. A debt or act s knowi ngl y i f he or she act sdel i ber at el y and consci ousl y. I n r e Khal i l , 379 B. R. at 173

( quot i ng I n r e Rober t s, 331 B. R. at 883) . Her e, t he Debt or s

act ed del i ber at el y and consci ousl y because they l i st ed t hei r


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9 The Debt or s asser t t hat t he del ay i n amendi ng thei rSchedul es was because t he Recei ver had sei zed t hei r f i nanci alr ecor ds and woul d not r etur n t hem. However , i t i s somewhat

( cont i nued. . . )

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asset s on t hei r Schedul es and answered quest i ons at t he 341

meet i ng r el at i ng t o any omi ssi ons ( ot her t han t he Pr oper t y) i n

t he negat i ve when t hey act ual l y had ot her si gni f i cant asset s,

whi ch wer e not l i st ed on t hei r Schedul es.

The el ement of f r audul ent i ntent i s sat i sf i ed i f t he debtor

made a f al se st atement or omi ss i on i n hi s bankr upt cy schedul es

t hat he knew at t he t i me to be f al se and t hat he made wi t h t he

i nt ent i on and pur pose of decei vi ng cr edi t or s. I d. at 175. The

Debt or s asser t t hat [ t ] her e was absol ut el y no evi dence pr esent ed

t hat t he al l eged omi ss i ons were anyt hi ng more t han i nadver t ent

er r or s or const i t ut ed an i nt ent t o def r aud. Appel l ant s Openi ng

Br . at 8, 16. The bankrupt cy cour t f ound ot her wi se, and af t er

r evi ewi ng t he r ecor d, we concl ude t hat t he bankrupt cy cour t s

f i ndi ng was not i l l ogi cal , i mpl ausi bl e or unsuppor t ed by t he

r ecor d.

I nt ent may be pr oven t hr ough ci r cumst ant i al evi dence or by

i nf er ences dr awn f r om a debt or s cour se of conduct . I n r e Ret z,

606 F. 3d at 1199; I n r e Khal i l , 578 F. 3d at 1168. An exampl e ofci r cumst ant i al evi dence suggest i ng an i nt ent t o def r aud may be

f ound wher e t he debt or f ai l s t o cl ear up al l i nconsi st enci es and

omi ss i ons, even havi ng had an opport uni t y t o do so, such as by

f i l i ng amended schedul es. See I n r e Khal i , 379 BR. at 176. Her e,

t he Debt ors di d not f i l e t he Amended Schedul es unt i l ei ght mont hs

af t er t he 341 meet i ng and af t er Power had f i l ed t he Compl ai nt . 9


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9( . . . cont i nued)

di si ngenuous t o ar gue that t he Schedul es coul d not have beenpr ompt l y amended because t hey l acked i nf ormat i on. Some of t heasset s t hat wer e omi t t ed wer e readi l y known t o the Debt or s, f orexampl e, t hei r i nt er est s i n t he Cor por at i on and t he Tr ust .Mor eover , t he i ssue of vehi cl es and owner shi p was di scussed att he 341 meet i ng.

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The r ecor d i ndi cat es t hat t he Debt or s omi ssi ons wer e not

t he resul t of honest mi st ake pr ompt l y cor r ect ed by an amendment .

The Amended Schedul es f ai l ed t o cl ear up al l i nconsi st enci es or

omi ssi ons; t hey di d not r ef l ect t he Debt or s owner shi p of sever al

vehi cl es, whi ch wer e, accor di ng t o D. V. r ecor ds, r egi st er ed i n

t hei r names. Fur t her mor e, al t hough t he i ssue of t he vehi cl es and

mot or cycl es, as wel l as t hei r i nt er est s i n t he Cor por at i on and

t he Trust , were br ought up at t he 341 meet i ng, t he Debt ors di d

not endeavor t o ensure those i t ems were i ncl uded on t he Amended

Schedul es. I nst ead, t hey i nsi st ed t hat t he D. V. r ecor ds wer e

i ncor r ect and t hat t he Hummer , Cor vet t e, t wo t r ai l er s and t wo

t r ucks were owned by the Corporat i on and t hat t hey had di scussed

t hi s wi t h t he Tr ust ee. St i l l , t hey pr ovi ded no evi dence t o

demonst r at e t hat t he Cor por at i on pai d f or or owned t he vehi cl es.

Mor e i mpor t ant l y, si mpl y pr ovi di ng i nf or mat i on t o t he Tr ust ee

does not sat i sf y the Debt or s bur den t o di scl ose t hei r asset s on

t hei r bankrupt cy schedul es. I n r e Sear l e, 317 BR. at 377 ( pr oper

method of cor r ect i ng any i naccur acy or omi ss i on must be thr oughamendment s i n pl ai n vi ew of al l par t i es i n i nt er est ) .

Debt ors have a dut y, t hr oughout t he bankr upt cy case, t o

ensur e t hat t hei r bankrupt cy schedul es ar e accur at e. I d. I n

t hi s case, t he Debt or s l ack of at t ent i on i n cor r ect i ng any


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omi ssi on appear s r eckl ess, par t i cul ar l y af t er t he Tr ust ee s

admoni t i on at t he 341 meet i ng t hat t he Debt ors were pl ayi ng

f ast and l oose, and because t here was a chal l enge t o t hei r

di schar ge. See, e. g. , I n r e Khal i , 578 F. 3d at 1168

( r eckl essness combi ned wi t h ot her ci r cumst ant i al evi dence may

pr ove f r audul ent i nt ent ) .

Fi nal l y, Mr . Densest admi t t ed t hat he i nt ended t o r esi st any

ef f or t by Power t o col l ect on t he J udgment s. I ndeed, t he

bankrupt cy cour t f ound that t he Debt or s wer e mot i vat ed to

conceal t hei r asset s because they bel i eve t hat t he [ J udgment s

assi gned t o [ Power] were wr ongl y made by t he st ate cour t and t hat

t he st at e cour t r ul ed i mpr oper l y i n hol di ng t hat t he [ J udgment s

ar e enf or ceabl e. The [ Debt or s] t her ef or e f eel j ust i f i ed i n

obst r uct i ng t hei r enf or cement . Thi s at t i t ude i s f ul l y appar ent

i n t hei r r esponses t o di scover y. Memor andum Deci si on at 2.

Mot i ve can suppor t a f i ndi ng of knowi ng and f r audul ent i nt ent .

I n r e Khal i , 370 BR. at 176.

Af t er car ef ul l y r evi ewi ng t he r ecor d, we have no di f f i cul t yconcl udi ng t hat t he bankrupt cy cour t di d not er r i n f i ndi ng t hat

t he Debt ors knowi ngl y and f r audul ent l y made a f al se oath on t hei r

Schedul es ( and Amended Schedul es) , whi ch mater i al l y af f ected t he

Tr ust ee s and cr edi t or s abi l i t y t o f ul l y det er mi ne t he Debt or s

f i nanci al af f ai r s. Ther ef or e, we AFFI RM t he bankr upt cy cour t s

j udgment denyi ng t he Debt or s di schar ge.

VI. CONCLUSION

For t he f oregoi ng r easons, we AFFI RM t he j udgment denyi ng

t he Debt or s di schar ge.

in re: paul denbeste and melody denbeste, 9th cir. bap (2012)

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