532 B.R. 140
C.D. Cal.2015Background
- Involuntary Chapter 7 petitions were filed against Diana Lopez (personal) and L.D.T. Investments, Inc. (LDT); Lopez is LDT’s sole shareholder/officer and both cases resulted in orders for relief in 2011.
- Lopez initially invoked the Fifth Amendment at her § 341 meetings and in her SOFA, delayed production of tax returns, and only provided 2009–2010 returns after the Trustee concluded the 341 meeting.
- Lopez allowed LDT computers to be sold prepetition, produced fragmented LDT records slowly over ~12 months (ultimately many boxes), and never filed schedules for LDT.
- Trustee alleged denial of discharge under multiple § 727 grounds based on withheld/poor records, failure to explain asset losses, and related misconduct in the LDT case (including alleged rent collection and post-petition acts).
- The court found Lopez impeded the Trustee’s administration, withheld and poorly produced records, and invoked the Fifth Amendment in a manner that, combined with other conduct, justified adverse inferences.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Lopez failed to keep/preserve recorded information under § 727(a)(3) (personal & LDT) | Trustee: Lopez withheld, destroyed, or failed to preserve books/records preventing ascertainment of finances | Lopez: Computers sold prepetition, later produced voluminous records and cooperated; Fifth Amendment invocation protected nonproduction | Held for Trustee: denied discharge under § 727(a)(3) (personal) and § 727(a)(3) via § 727(a)(7) (LDT) — records production was untimely, disorganized, and insufficient |
| Whether Lopez knowingly and fraudulently withheld records under § 727(a)(4)(D) (personal & LDT) | Trustee: conduct and timing show knowing and fraudulent withholding of documents from Trustee | Lopez: eventual production and assertion of Fifth Amendment made withholding permissible; relied on professionals | Held for Trustee: denied discharge under § 727(a)(4)(D) (personal) and (via § 727(a)(7)) for LDT — intent inferred from conduct and timing |
| Whether Lopez failed to satisfactorily explain loss/deficiency of assets under § 727(a)(5) (personal & LDT) | Trustee: Lopez’s high prior income and LDT assets not reconciled; no satisfactory explanation for disappearance of LDT assets | Lopez: personal losses explained by LDT collapse; CPA report said assets could be ascertained from records | Held mixed: § 727(a)(5) not proven for Lopez’s personal case; § 727(a)(5) proven as applied through § 727(a)(7) for LDT — insufficient explanation of LDT asset dispositions |
| Whether Lopez committed transfers or concealments under § 727(a)(2) (LDT) | Trustee: Lopez acted post-petition to collect rents, authorize deeds, and divert funds (e.g., to family management) to hinder estate | Lopez: asserted inability to act for suspended corporation; disputed that successful transfers/collections occurred | Held for Lopez on § 727(a)(2): Trustee did not prove actual successful transfer/concealment with requisite intent |
Key Cases Cited
- Khalil v. Developers Sur. & Indem. Co., 578 F.3d 1167 (9th Cir. 2009) (objector bears burden to prove denial of discharge by preponderance; exceptions construed in debtor’s favor)
- Cox v. Zale Delaware, Inc., 904 F.2d 1399 (9th Cir. 1990) (debtor must preserve records sufficient to ascertain financial condition; context for § 727(a)(3) analysis)
- Retz v. Samson, 606 F.3d 1189 (9th Cir. 2010) (elements the objector must show under § 727(a)(5); intent and burden shifting)
- Devers v. Bank of Am., 759 F.2d 751 (9th Cir. 1985) (intent can be inferred from course of conduct for discharge denial)
- Adeeb v. Adeeb, 787 F.2d 1339 (9th Cir. 1986) (intent to hinder or delay may be inferred from conduct)
- Stamat v. Neary, 635 F.3d 974 (7th Cir. 2011) (reckless disregard and nondisclosure support inference of fraudulent intent under § 727)
- Burchett v. Myers, 202 F.2d 920 (9th Cir. 1953) (conception of concealment of records not limited to physical hiding; duty to preserve for creditors)