2014 WL 2882613
E.D.N.Y.2014Background
- Rockstone Capital, Bub’s largest unsecured creditor, filed an adversary proceeding seeking denial of discharge under 11 U.S.C. § 727(a)(4)(A) based on false statements.
- Bub filed for Chapter 7; at petition, he listed The Storage Guys, Inc. as his sole income source and claimed modest assets and liabilities.
- Bankruptcy Court found Bub underreported income, overstated expenses, and misrepresented The Storage Guys’ assets and liabilities, with fraudulent intent.
- Key disputed items included a $550 monthly mortgage expense, use of a Chase Southwest Card for substantial personal expenses, and treating The Storage Guys as having no net assets while Bub treated it as his own.
- Evidence showed transfers from The Storage Guys to Bub and payments by Bub to Wells Fargo that contradicted his Schedule J and other statements.
- Bankruptcy Court concluded Bub’s false statements, taken together, indicated a pattern of deception and warranted denial of discharge under § 727(a)(4)(A).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Bub made false oaths in bankruptcy filings | Rockstone contends Bub underreported income and misrepresented assets and liabilities. | Bub argues statements were accurate or reflects accounting method and corporate-personal boundary. | Yes; statements were false and material. |
| Whether Bub acted with fraudulent intent | Rockstone shows pattern of falsehoods and concealment to deceive creditors and the court. | Bub asserts reliance on accountant and lack of intent; any misstatements were inadvertent. | Yes; fraudulent intent proven by substantial misstatements and pattern of conduct. |
| Whether misstatements regarding The Storage Guys’ assets/liabilities support denial of discharge | Rockstone argues failure to treat company assets/liabilities as Bub’s own demonstrates intent to defraud. | Bub contends separate entities; asset/liability treatment should reflect corporate form. | Yes; alter ego finding and misrepresentations supported denial. |
Key Cases Cited
- In re Moreo, 437 B.R. 40 (E.D.N.Y. 2010) (preponderance standard and fraudulent intent analysis)
- Dubrowsky v. Estate of Perlbinder (In re Dubrowsky), 244 B.R. 560 (E.D.N.Y. 2000) (reckless indifference as fraud sufficient for § 727(a)(4)(A))
- In re Kaiser, 722 F.2d 1574 (2d Cir. 1983) (badges of fraud and pattern of falsehoods can show intent)
- In re Casado, 187 B.R. 446 (Bankr. E.D.N.Y. 1995) (reckless misstatements and intent to deceive)
- In re Gollomp, 198 B.R. 433 (S.D.N.Y. 1996) (strict construction against creditors seeking discharge denial)
- In re Hoyt, 337 B.R. 463 (W.D.N.Y. 2006) (sophisticated debtor may indicate fraudulent intent)