Isaacson v. Espinosa, 12-01880

Background:

Debtor Jose Espinosa sold his one-third interest in a real-estate partnership for $80,000 in January 2011; within months he transferred $50,000 of the proceeds to his wife, Kenia, without consideration.
At the time of the sale and transfer Espinosa faced a pending suit by Diamond Life Lighting that resulted in a judgment exceeding $1.2 million.
Espinosa filed Chapter 7 within a year of the transfer and omitted several assets/income from his bankruptcy schedules: a Cartier watch, a half-interest in a 30-foot pleasure boat, and rental income from jointly owned real property.
Trustee alleged (1) the $50,000 transfer was a fraudulent transfer under 11 U.S.C. § 727(a)(2)(A) and (2) Espinosa made knowingly false oaths under 11 U.S.C. § 727(a)(4)(A) by failing to disclose the Cartier watch (and other items) on his petition and at his Rule 2004 exam.
Espinosa conceded the $50,000 transfer and turning over the watch after demand; he argued lack of fraudulent intent, claimed some omissions were immaterial (no equity in boat, net zero rental income), and disputed ownership of the Cartier watch.
The court found the boat and rental-income omissions immaterial but concluded Espinosa knowingly concealed the Cartier watch and that the transfer to his wife exhibited multiple "badges of fraud," barring discharge under §§ 727(a)(4)(A) and 727(a)(2)(A).

Issues:

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the $50,000 transfer to wife within one year before bankruptcy was done with intent to hinder, delay, or defraud creditors (11 U.S.C. § 727(a)(2)(A))	Transfer was gratuitous, to close relative, made while litigation pending, debtor insolvent — badges of fraud show intent to hinder/delay	Transfer was marital property distribution; debtor believed wife had lawful interest and there was no intent to defraud	Held for Trustee: badges of fraud (gratuitous transfer, relation, pending suit, insolvency, depletion of assets) establish intent; discharge denied under § 727(a)(2)(A)
Whether failure to list Cartier watch on schedules and denial at Rule 2004 exam was a knowing and fraudulent false oath (11 U.S.C. § 727(a)(4)(A))	Watch was valuable, not plausibly forgotten; partner's affidavit shows it was gifted to debtor — nondisclosure was knowing and material (discovery of assets)	Debtor claimed watch belonged to former partner and was merely worn; produced watch after demand; denial creates factual dispute	Held for Trustee: court disbelieved debtor's account; nondisclosure was knowing, fraudulent, and material; discharge denied under § 727(a)(4)(A)
Whether omissions of boat interest and rental income were material and warrant denial of discharge	Trustee asserted nondisclosures impede discovery of assets	Debtor claimed no equity in boat and net rental income zero, so immaterial	Held for Debtor on these items: omissions were immaterial and alone would not bar discharge
Whether summary judgment appropriate (no genuine issue of material fact)	Evidence (admissions, certifications, badges of fraud, Rule 2004 testimony) establishes no genuine dispute	Debtor argued conflicts of testimony and intent create triable issues	Held for Trustee: court concluded no genuine issue as to material facts that would preclude judgment as matter of law on the watch nondisclosure and the $50,000 transfer

Key Cases Cited

Rosen v. Benzer, 996 F.2d 1527 (3d Cir.) (badges of fraud inform intent under § 727(a)(2))
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (summary judgment standard explained)
Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment burden-shifting)
Grogan v. Garner, 498 U.S. 279 (bankruptcy discharge policy: protect the honest debtor)
Scimeca v. Umanoff, 169 B.R. 536 (D.N.J.) (materiality standard for false oath under § 727(a)(4)(A))
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (courts construe inferences in favor of nonmoving party)
Williams v. Borough of West Chester, 891 F.2d 458 (use of admissible evidence at summary judgment)