Hannon v. ABCD Holdings, LLC
839 F.3d 63
| 1st Cir. | 2016Background
- Patrick J. Hannon and his wife filed Chapter 11 in May 2012 (case later converted to Chapter 7); Hannon operated ABC&D Recycling and Ware Real Estate and estimated monthly needs ~ $13,180.
- Third-party investor (ABCD Holdings, controlled by Hannon’s former lawyer McLaughlin) gained majority interests and eventually removed Hannon from company control; forensic accounting later alleged diversion of business funds to Hannon.
- Hannon, as debtor-in-possession, filed monthly operating reports (MORs) signed under penalty of perjury; MORs required disclosure of disbursements made for the debtor’s benefit by non-debtor accounts.
- Companies alleged Hannon diverted roughly $99,000 from the companies (May–Sept 2012) but disclosed only ≈$4,200 on MORs; Hannon admitted at least $19,323.22 in payments were for his benefit and conceded at least $12,830.97 were received but largely unreported.
- Bankruptcy court granted summary judgment denying discharge under 11 U.S.C. § 727(a)(4)(A) (false oath/false account); district court affirmed; Hannon appealed to this court.
Issues
| Issue | Plaintiff's Argument (Companies) | Defendant's Argument (Hannon) | Held |
|---|---|---|---|
| Whether false statements on MORs constitute a false oath under §727(a)(4)(A) | MORs were certified under penalty of perjury and thus are sworn statements; omissions are false oaths | MOR certification is subjective "to the best of my knowledge and belief" and not an oath under §1746; argument raised only on appeal | Court: MOR certification is effectively a verification under oath; issue forfeited but would likely fail on merits |
| Whether Hannon acted knowingly and fraudulently (or recklessly indifferent) in omitting disclosures | Multiple and significant undisclosed payments, prior accurate disclosures in May–June show knowledge; omissions demonstrate reckless indifference/intent to deceive | Omissions were careless or due to lack of sophistication, reliance on counsel, missing records, and no motive to conceal; some transactions were business expenses | Court: Summary judgment appropriate; undisputed facts support reckless indifference and fraudulent intent as a matter of law |
| Whether contradictory affidavit explanations (e.g., vacation homes) create factual dispute | Prior creditors’ meeting testimony contradicted later affidavits; no satisfactory explanation for change | Affidavit explanations and expert affidavit on layperson confusion create genuine issues | Court: Prior sworn testimony contradicted later affidavits; explanations implausible and do not create genuine factual dispute |
| Materiality of omitted statements | Omissions related to business transactions, assets, and estate viability; therefore material | Hannon did not contest materiality on appeal; focused on intent and oath issues | Court: Omissions were material because they prevented accurate assessment of reorganization and estate condition |
Key Cases Cited
- Moultonborough Hotel Group, LLC v. 2010-1 SFG Venture, LLC (In re Moultonborough Hotel Group), 726 F.3d 1 (1st Cir.) (appellate standard and review of bankruptcy court decisions)
- Varrasso v. Desmond (In re Varrasso), 37 F.3d 760 (1st Cir.) (summary judgment and inferences concerning debtor intent)
- Boroff v. Tully (In re Tully), 818 F.2d 106 (1st Cir.) (§727(a)(4)(A) false oath standard; reckless indifference treated as functional equivalent of fraud)
- Bank of Marin v. England, 385 U.S. 99 (U.S. 1966) (equitable principles govern bankruptcy jurisdiction)
- Retz v. Samson (In re Retz), 606 F.3d 1189 (9th Cir.) (false statements or omissions in bankruptcy schedules can constitute a false oath)
- Beaubouef v. Beaubouef (Matter of Beaubouef), 966 F.2d 174 (5th Cir.) (false statements/omissions in schedules justify denial of discharge)
- Chalik v. Moorefield (In re Chalik), 748 F.2d 616 (11th Cir.) (omission from sworn statement of affairs may constitute a false oath)