McDermott v. Petersen (In re Petersen)
564 B.R. 636
Bankr. D. Minn.2017Background
- Debtor Kathy Lynn Petersen filed Chapter 7 on November 18, 2015 after job loss, civil suit, and criminal charges alleging embezzlement.
- In a 2013 divorce decree Petersen was awarded a 1993 Sylvan Sea Trailer (boat), a 2004 Honda Rubicon ATV, and a 500 Arctic Cat snowmobile.
- Petersen transferred title to the Sea Trailer to her son Kodi on January 7, 2014. Kodi later wrecked the ATV (early 2014) and sold its parts; the snowmobile’s engine failed in 2013.
- The U.S. Trustee (UST) brought an adversary seeking denial of discharge under 11 U.S.C. § 727(a)(2)(A), (a)(2)(B), and (a)(4)(A) for alleged concealment and false oaths.
- Court allowed UST to amend pleadings to conform to evidence (snowmobile issues) by implied consent; trial addressed whether pre- and post‑petition concealment and false statements occurred with intent and materiality.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether pre‑petition transfer/concealment of Sea Trailer (§ 727(a)(2)(A)) warrants denial | Transfer to son and continued concealment into the year before filing shows intent to hinder creditors | Transfer occurred >1 year before filing and UST focused on transfer rather than concealment of property; no continuing concealment proved | Denied — UST failed to prove continuing concealment and intent under § 727(a)(2)(A) |
| Whether post‑petition concealment of ATV and snowmobile (§ 727(a)(2)(B)) warrants denial | Omission of ATV/snowmobile from Schedule B and discussion at 341 meeting shows concealment of estate property | Assets were wrecked/disabled and no benefit or continued enjoyment to debtor shown; UST failed to show estate interest or concealment | Denied — UST failed to prove concealment or benefit/continued enjoyment under § 727(a)(2)(B) |
| Whether false oaths in schedules/SOFA and 341 testimony occurred (§ 727(a)(4)(A)) | Omissions of Sea Trailer transfer and ATV/snowmobile ownership/transfers were false sworn statements made with knowledge and fraudulent intent and were material | Some omissions may be false, but UST failed to prove debtor knew statements were false, acted with fraudulent intent, or that omissions were material | Denied — UST proved some false statements but not knowledge, intent, or materiality required for § 727(a)(4)(A) |
| Whether adverse inferences from Fifth Amendment invocations are appropriate | UST sought adverse inferences that Petersen stole from employer and related admissions | Court: adverse inference may be drawn only if other evidence tends to prove each element; UST’s evidence insufficient | Denied — no basis to draw adverse inferences where elements were not otherwise established |
Key Cases Cited
- Marrama v. Citizens Bank of Mass., 549 U.S. 365 (Bankruptcy discharge/fresh start principle)
- Grogan v. Garner, 498 U.S. 279 (discharge standards and burden in bankruptcy)
- Local Loan Co. v. Hunt, 292 U.S. 234 (history of fresh start policy)
- Rosen v. Bezner, 996 F.2d 1527 (3d Cir.) (focus on concealment of property, not merely concealment of transfer)
- Baxter v. Palmigiano, 425 U.S. 308 (adverse inference from Fifth Amendment invocation in civil proceedings)
- Korte v. United States (In re Korte), 262 B.R. 464 (8th Cir. BAP) (continuing concealment doctrine)
- Kaler v. Charles (In re Charles), 474 B.R. 680 (8th Cir. BAP) (strict/narrow construction of § 727 in debtor's favor)
- Kaler v. Craig (In re Craig), 195 B.R. 443 (Bankr. D.N.D.) (badges/indicia of fraudulent intent in transfers)