In re: Zhen Chen
WW-17-1067-KuFB
| 9th Cir. BAP | Oct 17, 2017Background
- Debtor Zhen Chen, a Chinese native with bookkeeping training, filed Chapter 7 in early 2016 listing ~$417,000 of unsecured gambling debts and large gambling losses.
- Trustee served Rule 2004 subpoenas seeking bank records, tax returns, property closing documents, and records of large deposits/withdrawals for 2014–2015; Chen produced many documents but large gaps remained.
- Key unexplained items: approximately $900,000 (Chen’s claimed family transfers) and numerous other large deposits/withdrawals in 2014–2015; incomplete records for purchase of 201st Court Property; missing HUD-1 and disposition documents for sale of 35th Place Property and missing documentation for $30,000 from sale of a 2013 Lexus.
- Trustee moved for summary judgment under 11 U.S.C. § 727(a)(3), arguing Chen failed to keep records so her financial condition could not be ascertained; bankruptcy court granted MSJ and denied discharge.
- Chen appealed; she argued Trustee engaged in "creative accounting," that she produced what she had, relied on oral explanations (family gifts, gambling losses, loans to/from friends), and raised credibility issues. The BAP affirmed, holding Chen’s justifications failed as a matter of law under an objective standard.
Issues
| Issue | Trustee's Argument | Chen's Argument | Held |
|---|---|---|---|
| Whether Chen failed to keep/preserve adequate records under § 727(a)(3) | Chen’s records were incomplete: large unexplained deposits/withdrawals, undocumented transfers, missing closing and loan docs — impossible to ascertain financial condition | She produced what she had, received ~ $900,000 from family, losses from gambling, language barrier and emotional reasons explain lack of records | Grant — Chen failed to maintain adequate records; Trustee met prima facie burden |
| Whether the record gaps rendered it impossible to ascertain Chen’s financial condition | Gaps were material (large sums, multiple transactions) and prevented tracing of funds | Alleged availability of other sources and that oral testimony should be credited | Held — gaps were material and prevented ascertainment; objective inability to verify transactions |
| Whether Chen’s justifications excused the record failures | No — justifications (gambling addiction, embarrassment, language) are insufficient and must be judged objectively given Chen’s education/sophistication | Justifications (depression, cultural norms re: friends, limited English) mean she did her best | Held — objective standard applied; justifications insufficient as matter of law |
| Whether credibility issues preclude summary judgment | Not required — intent/credibility not necessary elements for § 727(a)(3); documentary proof required | Credibility and disputes over amounts create triable issues | Held — no genuine material fact disputes; summary judgment appropriate |
Key Cases Cited
- Caneva v. Sun Communities Operating Ltd. P’ship, 550 F.3d 755 (9th Cir.) (establishes § 727(a)(3) standards and objective justification test)
- Cox v. Lansdowne (In re Cox), 41 F.3d 1294 (9th Cir.) (materiality requirement and elements for § 727(a)(3))
- Meridian Bank v. Alten, 958 F.2d 1226 (3d Cir.) (formulation of § 727(a)(3) two-part test)
- Juzwiak v. United States (In re Juzwiak), 89 F.3d 424 (7th Cir.) (oral testimony cannot substitute for written records)
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment burdens)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (summary judgment standard; credibility and inferences)
- Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099 (9th Cir.) (nonmovant burden at summary judgment)
- Publishing Clearing House, Inc. v. Fagan, 104 F.3d 1168 (1st Cir.) (conclusory self-serving affidavits insufficient)
- McBee v. Sliman, 512 F.2d 504 (5th Cir.) (gambling explanations require corroborating evidence to avoid being a ruse)