559 B.R. 692
6th Cir. BAP2016Background
- Earl Benard and Margaret Blasingame (Debtors) filed Chapter 7 on Aug. 15, 2008; initial petition, schedules and SOFA omitted multiple assets, accounts, annuities, and liabilities.
- Debtors signed sworn §341 affidavits and testified at the §341 meeting that they had read, signed, and were familiar with their petition, schedules and SOFA and that the information was true.
- Debtors later testified at trial that they had not read the filings and disclaimed responsibility for omissions; they admitted signing under oath but said they did not review the documents.
- Trustee and Church Joint Venture brought an adversary proceeding seeking denial of discharge under 11 U.S.C. §727 for concealment/transfer with intent to hinder (§727(a)(2)) and making false oaths (§727(a)(4)); lengthy discovery, sanctions motions, and counsel changes occurred.
- The bankruptcy court denied Debtors’ discharges under §727(a)(4) for knowingly and fraudulently making false oaths; Debtors appealed and also appealed the court’s striking of certain documents from the record.
- The BAP affirmed denial of discharge under §727(a)(4); it affirmed in part and reversed in part the striking-of-record order (allowing inclusion of several court orders but upholding exclusion of many party-filed documents).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Debtors had intent to hinder/transfer property to bar discharge under §727(a)(2) | Trustee: omissions and transfers show intent to hinder creditors | Debtors: omissions were inadvertent and they relied on counsel | Not reached on merits — BAP affirmed under §727(a)(4) and declined to decide §727(a)(2) alternative ground |
| Whether Debtors knowingly and fraudulently made false oaths under §727(a)(4) | Trustee: sworn §341 affidavits and testimony claiming familiarity were false and material | Debtors: acted in good faith, relied on counsel, lacked fraudulent intent | Held: Affirmed — Debtors knowingly made false oaths about reading/signing and familiarity; discharge denied |
| Whether Debtors reasonably relied on advice of counsel as defense to false oaths | Debtors: relied on counsel (Fullen/Grusin) to prepare and amend filings; counsel’s competence/sanctions relevant | Trustee: no evidence counsel told Debtors to falsely swear; reliance not reasonable given plain affidavit language | Held: Rejected — reliance on counsel not reasonable; advice-of-counsel defense fails |
| Whether bankruptcy court erred by striking certain documents from the designation of record on appeal | Debtors: sanctions orders and related filings are relevant to advice-of-counsel defense and should be in record | Appellees: many designated items were not considered by court and some are irrelevant | Held: Mixed — reversed as to several court orders (sanctions and denial of compromise) because they relate to counsel conduct; affirmed exclusion of numerous party filings that were not court findings |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (1991) (discharge policy favors the honest but requires full financial disclosure)
- Browning v. Levy, 283 F.3d 761 (6th Cir. 2002) (debtors have affirmative duty to disclose all assets)
- Keeney v. Smith, 227 F.3d 679 (6th Cir. 2000) (elements to deny discharge under §727(a)(4))
- Anderson v. City of Bessemer City, 470 U.S. 564 (1985) (clear-error standard for factual findings)
- Boroff v. Tully, 818 F.2d 106 (1st Cir. 1987) (debtor cannot disclaim responsibility for sworn statements by ignoring them)