601 B.R. 318
Bankr. S.D.N.Y.2019Background
- Debtor Lee A. Bressler (former portfolio manager/ CIO for Carbon) filed Chapter 7 on October 12, 2018; Carbon, a creditor, alleged fraud and fiduciary breaches and pursued arbitration that produced a $16.8M award in April 2019 later confirmed by an Oklahoma court.
- The initial §341 meeting was scheduled for November 16, 2018 (objection deadline Jan 15, 2019); the meeting was adjourned and held Dec. 7, 2018. Carbon’s first motion to extend the discharge-objection deadline was filed Feb. 4, 2019 and denied as untimely.
- Carbon then moved under Fed. R. Bankr. P. 4004(b)(2) (post-deadline extension) asserting it learned new facts after Jan. 15, 2019: undisclosed Microsoft stock signing bonus, undisclosed Santander account and $1.165M transfer, beneficial interest in 83 Spring Close Trust, spoliation of laptop, and noncompliance with Rule 2004 subpoenas.
- Trustee separately filed a timely adversary complaint under §727 asserting substantially similar nondisclosure/spoliation claims; trial/ pretrial consolidation likely.
- The bankruptcy court evaluated each newly-alleged basis under Rule 4004(b)(2)’s requirements: (A) facts would support revocation under §727(d) if learned after discharge, and (B) movant lacked prior knowledge and moved promptly after discovery.
Issues
| Issue | Carbon's Argument | Bressler's Argument | Held |
|---|---|---|---|
| Whether Carbon may file a late objection to discharge based on an undisclosed Microsoft $50,000 stock signing bonus | Carbon lacked definitive knowledge before Jan 15, 2019 and only learned details after Rule 2004 responses; omission supports fraud-based revocation | Bressler says bonus was contingent/restricted, unvested prepetition, inadvertent non-disclosure, and the 341 testimony put Carbon on notice | Granted — court finds Carbon lacked pre-deadline notice of the bonus and cause exists to permit an objection under Rule 4004(b)(2) |
| Whether Carbon may object late based on omission of beneficial interest in 83 Spring Close Trust | Carbon says it learned of the interest after the bar date from productions; omission supports revocation | Bressler says he disclosed the trust under its prior name and revealed the error at the 341 meeting, so Carbon had pre-deadline notice | Denied — court finds Carbon had notice at the Dec. 7 §341 meeting, so Rule 4004(b)(2) relief is unavailable |
| Whether Carbon may object late based on an undisclosed Santander account and $1.165M transfer used to buy real estate | Carbon discovered the account/transfer after the bar date (April productions); omission and transfer are material and plausibly fraudulent | Bressler says account was inactive/de minimis and the transfer was a clerical mistake on behalf of a trust; inadvertent omission | Granted — court finds no pre-deadline notice, plausible fraudulent intent, and timely motion after discovery |
| Whether Carbon may object late based on spoliation (deletion of laptop files) in arbitration proceedings | Spoliation occurred March 3, 2019 (after bar date); deleted files likely relevant to estate assets and concealment; supports §727 claims | Bressler does not deny deletion but contends arbitration/state-court orders do not equate to bankruptcy-court order violations and contest relevance | Granted — court allows extension to plead spoliation-based claims (but notes revocation requires proving fraudulent intent under §727(d)) |
| Whether Carbon may object late based on alleged willful noncompliance with the bankruptcy Rule 2004 subpoena | Carbon alleges Bressler delayed, produced incomplete documents, and never appeared for testimony; refusal to obey a bankruptcy order can support denial under §727(a)(6) | Bressler says he produced >1,400 pages, objections exist, scheduling communications occurred, and there is no willful bad faith | Denied — court finds insufficient evidence of willful noncompliance and Carbon did not seek court enforcement before requesting revocation relief |
| Whether Carbon may object late based on non-disclosure of other significant assets (1 South Wacker, $6M stocks, $4M real estate, retirement accounts) | Carbon says some interests were learned after the bar date and should support an extension | Bressler/record: Carbon actually had pre-deadline notice of many of these from a personal financial statement | Mixed — extension granted for 1 South Wacker (counsel conceded it was learned after deadline); denied for the "Various Other Interests" because Carbon had notice before the bar date |
Key Cases Cited
- State Bank of India v. Chalasani, 92 F.3d 1300 (2d Cir.) (revocation/denial of discharge construed strictly in favor of debtor)
- In re Emery, 132 F.3d 892 (2d Cir.) (discussion of delay between objection period and entry of discharge)
- Citizens Bank of Clearwater v. Hunt, 927 F.2d 707 (11th Cir.) (fraud inferable from circumstantial evidence; intent question of fact)
- Yonikus v. Van Natta, 974 F.2d 901 (7th Cir.) (fraudulent intent and inference from reckless behavior in nondisclosure)
- Mid-Tech Consulting, Inc. v. Swendra, 938 F.2d 885 (8th Cir.) (notice of possible fraud prior to discharge defeats later revocation)