512 B.R. 1
Bankr. D. Mass.2014Background
- Debtor filed Chapter 11 on May 3, 2012 with spouse as joint debtor; he owned Ware Real Estate and ABC & D Recycling, later reorganized under ABCD Holdings’ control.
- ABCD Holdings, controlled by former attorney, held warrants enabling purchase of majority interests in both companies.
- 341 meeting held on June 6, 2012; Debtor’s testimony about Wells House and Truro House suggested limited use and non-rentability.
- ABCD Holdings ousted Debtor as manager/officer of Ware Real Estate and gained control of both entities, with McLaughlin appointed president of Ware Real Estate; Debtor continued operating ABC & D Recycling.
- MORs were filed May–September 2012; Debtor’s counsel prepared MORs from DIP accounts; Debtor signed MORs under penalty of perjury.
- Verdolino & Lowey investigated company records in 2012 and identified over $200,000 in disbursements from company accounts for Debtor’s benefit, prompting plaintiffs’ lawsuit.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Debtor’s MORs contain a false oath under 727(a)(4)(A). | Debtor underreported outside disbursements; admitted personal benefits. | Disbursements had business purposes; reliance on counsel; not all omissions were intentional. | Yes; Debtor made false oaths on MORs. |
| Whether omissions were material to the estate. | Omissions affected assessment of assets/viability of reorganization. | Some personal expenses were immaterial. | Yes; omissions were material to the estate. |
| Whether the false oaths were committed knowingly and with fraudulent intent. | Volume and pattern of omissions show reckless indifference to the truth. | Some omissions due to misunderstanding; relied on counsel. | Yes; reckless indifference established fraudulent intent. |
| Whether the false statements were proven by circumstantial evidence sufficient for summary judgment. | Uncontroverted admissions and large omissions support SJ. | Issues of intent/motivation require trial. | Yes; SJ appropriate given circumstantial evidence. |
Key Cases Cited
- In re Sieber, 489 B.R. 531 (Bankr.D.Md. 2013) (receipts from third parties must be disclosed on MORs)
- In re Donahue, 2011 WL 6737074 (BAP 1st Cir. 2011) (reckless disregard may prove fraudulent intent under §727(a)(4)(A))
- In re Tully, 818 F.2d 106 (1st Cir. 1987) (1st Cir.) (reliance on counsel not a defense for omissions when duties are evident)
- In re Pilavis, 244 B.R. 173 (Bankr. D. Mass. 2000) (principles on motions for summary judgment in fraud contexts)