Harrington v. Simmons
810 F.3d 852
| 1st Cir. | 2016Background
- Michael J. Simmons (debtor) owned 27 rental properties before his Chapter 7 filing in November 2010 and listed only five in his bankruptcy schedules (all to be surrendered).
- He reported little or no income from 2008–2010, near-zero bank balances, and depended on family support; schedules showed nearly $3.5 million in unsecured debt from mortgage deficiencies/foreclosures.
- The U.S. Trustee sought documents (bank statements, cancelled checks, rent rolls, tax returns); Simmons produced limited, disorganized records (tax returns for a single property; later an unlabeled document dump) but no rent rolls, ledgers, or coherent bank records.
- Trustee filed an adversary proceeding seeking denial of discharge under 11 U.S.C. § 727(a)(3) (failure to preserve records) and § 727(a)(5) (failure to explain loss of assets) and moved for summary judgment.
- Bankruptcy Court granted summary judgment denying discharge on both statutory grounds; the BAP affirmed. The First Circuit likewise affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Simmons failed to keep or preserve adequate records under §727(a)(3) | Trustee: Simmons kept virtually no records for 27 properties; missing rent rolls, bank statements, transaction records — prima facie inadequate | Simmons: He produced what he had and claims he was a "dupe" manipulated by managers, justifying lack of records | Court: Record-keeping objectively inadequate; debtor failed to prove an objectively reasonable justification; discharge denied under §727(a)(3) |
| Whether Simmons satisfactorily explained loss or disposition of assets under §727(a)(5) | Trustee: Debtor cannot account for disposition of 22 properties or rental proceeds; burden shifts to debtor | Simmons: Asserts he produced all information in his possession and was a "dupe"; offers no corroborated explanation | Court: Trustee met initial burden; Simmons offered no corroborated, non-speculative explanation; discharge denied under §727(a)(5) |
| Whether summary judgment was appropriate on these issues | Trustee: No genuine dispute of material fact; entitled to judgment as a matter of law | Simmons: Disputed facts and need for further discovery/trial would flesh out his claims | Court: Summary judgment appropriate; debtor did not seek or justify Rule 56(d) discovery and offered only conclusory assertions insufficient to create a triable issue |
| Whether debtor’s claimed justification (being a "dupe") excused record failures | Trustee: Conclusory assertion; no specifics or corroboration; not objectively reasonable given debtor’s sophistication | Simmons: Claimed manipulation by managers relieved him of recordkeeping responsibility | Court: Rejected the dupe defense absent specific evidence; debtor’s experience and volume of business made recordkeeping duty clear; justification not proven |
Key Cases Cited
- Meridian Bank v. Alten, 958 F.2d 1226 (3d Cir. 1992) (records must permit "intelligent inquiry" into transactions)
- Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (conclusory allegations insufficient to defeat summary judgment)
- Anderson v. Liberty Lobby, 477 U.S. 242 (1986) (summary judgment requires absence of genuine dispute of material fact)
- In re Schifano, 378 F.3d 60 (1st Cir. 2004) (standard for adequacy of records and justification defense)
- Beaubouef v. Beaubouef (In re Beaubouef), 966 F.2d 174 (5th Cir. 1992) (affirmance is proper if any independent ground supports the denial)
- In re Cox, 41 F.3d 1294 (9th Cir. 1994) (examples of justified recordkeeping failures where justified by circumstances)
- In re Devine, 11 B.R. 487 (Bankr. D. Mass. 1981) (legislative purpose of §727(a)(3) to give a reasonably complete picture of debtor’s finances)