Church Joint Venture, L.P. v. Blasingame (In re Blasingame)Church Joint Venture, L.P. v. Blasingame (In re Blasingame)
OPINION
In thеse consolidated appeals, Earl Be-nard Blasingame (“Benard Blasingame”) and Margaret Gooch Blasingame (“Marga-ret Blasingame”) (together, “Debtors”) ap-peal the order denying their discharges and the order striking certain documents from the record on appeal. For the reasons stated below, the Panel affirms the order denying Debtors’ discharges, and affirms in part and reverses in part the order striking dоcuments from the record.
ISSUES ON APPEAL
Debtors raised the following issues on appeal:
1. Was the bankruptcy court’s finding that Debtors concealed assets or trans-ferred property with intent to hinder and delay a creditor or officer of the estate, as .required to deny their dis-charges pursuant to § 727(a)(2)(A) and(B) of the Bankruptcy Code, clearly er-roneous?
2. Was the bankruptcy court’s finding that Debtors knowingly and fraudulently made false oaths for purposes of11 U.S.C. § 727(a)(4) clearly erroneous?
3. Was the bankruptcy court’s finding that Debtors did not reasonably rely on the advicе of their bankruptcy counsel in connection with their bankruptcy filings clearly erroneous, not supported by the facts, and contrary to the law of the case?
4. Was the bankruptcy court’s decision to strike certain documents in the record on appeal in BAP Case No. 15-8008 (specifically ECF Nos. 543, 556, 557 and 564 in the underlying bankruptcy case, and ECF Nos. 477, 508, 528, 535, 536 and 537 in the adversary proceeding) clearly erroneous and an abuse of dis-cretion?
JURISDICTION AND STANDARD OF REVIEW
Under
The Panel reviews a “bankruptcy court’s factual findings for clear error and [its] conclusions of law de novo.” Adell v. John Richards Homes Bldg. Co. (In re John Richards Homes Bldg. Co.),
FACTS
After meeting with several attornеys, Debtors filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code on August 15, 2008. Tommy L. Fullen (“Fullen”) signed the petition as the attor-ney of record. The petition, schedules, and statement of financial affairs (“SoFA”), as initially filed, did not disclose Debtors’ in-terests in several trusts and corporations, certain household goods, multiple annuities, property held for others, several bank accounts and several liabilities, and an as-signment to Martin Grusin (“Grusin”).
Lengthy and contentious litigation en-sued, which is detailed in other opinions, including- an opinion from this Panel en-tered contemporaneously with this opin-ion.
Debtors timely filed this appeal assert-ing that, the bankruptcy court erred in determining that they had fraudulent in-tent under
I. Denial of Debtors’ Discharges (BAP Case No. 15-8008)
Section 727(a)(4) provides that: (a) The court shall grant the debtor a discharge, unless—
[[Image here]]
(4) the debtor knowingly and fraudu-lently, in or in connection with the case—
(A) made a false oath or account[.]
Statements made in bankruptcy sched-ules, the statement of financial affairs, the 341 meeting of creditors, and testi-mony given at Rule 2004 exams are made under oath. See, e.g., Hamo v. Wilson (In re Hamo),233 B.R. 718 , 725 (B.A.P. 6th Cir.1999). Statements are material if they concern the discovery of assets or the existence and disposition of a debtor’s propеrty. In re Keeney,227 F.3d at 686 (citation omitted). The debt- or had knowledge of the statement if “the debtor knew the truth, but nonetheless failed to give the information or gave contradictory information.” In re Hamo,233 B.R. at 725 (quotation marks and citation omitted). “[A] knowingly false statement or omission made by the Debtor with reckless indifference to the truth will suffice as grounds for the de-nial of a Chapter 7 general discharge.” Id.
Beckham,
In the case on appeal, the bankruptcy court found that:
The evidence of the Plaintiffs over-whelmingly demonstrates that the De-fendants repeatedly gave false oaths in connection with their bankruptcy case. Their Schedules and SoFA made under oath were fraught with omissions and misstatements. In addition, they gave false oaths at their meeting of creditors.
(Mem. Op. at 41, Jan. 15, 2015, Adv. No. 09-00482 ECF No. 598). On appeal, Debt-ors challenge the bankruptcy court’s con-clusion:
While the Debtors concede that the ini-tial Schedules and SoFA contained omissions regarding several material matters, they contend that they always acted in good faith, and without fraudu-lent intent, to provide the information that their lawyers requested prior to their initial filing and throughout the case in order for their lawyers to pre-pare appropriate documents to be sub-mitted to the Court. They further con-tend that they reasonably relied upon counsel to include that information ap-рropriately on their Schedules and SoFA; that they reasonably relied on their counsel to prepare and file appro-priate amendments; and that at no time did they have actual fraudulent intent to deceive which would warrant a denial of their discharge.
(Appellants’ Br. at 22, BAP Case No. 15-8008 ECF No. 26).
Debtors made sworn statements at the § 341 Meeting and in the § 341
Based on their own testimony, Debtors gave false oaths in connection with this bankruptcy when they signed thе § 341 Affidavits and testified at their § 341 Meeting that they had read the documents and were personally familiar with the con-tents of the documents. The bankruptcy court found Debtors’ trial testimony to be credible on this, point and correctly held: “These false oaths alone would provide cause to deny their discharge.”-(Mem. Op. at 47).
Debtors cannot claim that they relied upon the advice of counsel with regard to the false oaths they made in the § 341 Affidavits and at the § 341 Meeting that they had read and signed their petition, schedules, and SoFA, and disclosed all of their assets and liabilities. Certainly, there is no indication in the record that either Fullen or Grusin told Debtors to testify that they had read the documents before signing them if they had not. Even if-Debt-ors tried to claim such advice, reliance upon it would not be reasonable. The im-portance of having reаd and being familiar with the information in the petition, sched-ules, and SoFA should have been abun-dantly clear to Debtors given that they were asked to sign a written document acknowledging that they had done so and testified in person under oath to that ef-fect. Moreover, both Debtors testified at trial that they understood that they had signed the petition, schedules and SoFA under oath. There is no reason to deter-mine that Debtors did not have the same understanding with regard to the § 341 Affidavits.
During oral argument, Debtors’ attorney attempted to explain the inconsistency be-tween their paths at the § 341 Meeting and their trial testimony. He argued that it is possible that Debtors did not under-stand what documents the § 341 Affidavits referenced. However, the § 341 Affidavits specifically listed the petition, schedules, statements and related documents filed in the bankruptcy case. Debtors’ attorney also argued that Debtors should be ab-solved from their responsibility to be truthful in their § 341 Affidavits because Fullen did not tell Debtors how important it was. Debtors’ attorney even went so far as to state that Fullen should have stopped Debtors from signing the § 341 Affidavits. But Fullen signed the § 341 Affidavits stating that he had reviewed that document with his clients. And the record is devoid of any . evidence that he did not review the affidavits with the Debtors, or that Debtors did not understand the seri-ousness of the § 341 Affidavits.
The Panel finds Debtors’ argument without merit. The § 341 Affidavits are written in plain English. Debtors should not need an attorney to tell them
A debtor has “a paramount duty to care-fully consider all questions included in the Schedules and Statement [of Finan-cial Affairs] and see that each is an-swered accurately and completely.” In re Colvin, 288 B.R. [477] at 480 [ (Bankr. E.D. Mich. 2003) ] (quoting Casey v. Kasal (In re Kasal),217 B.R. 727 , 734 (Bankr. E.D. Pa. 1998), aff'd,223 B.R. 879 (E.D. Pa. 1998)). “The burdеn is on the debtors to complete their schedules accurately,” Rion v. Spivey (In re Springer),127 B.R. 702 , 707 (Bankr. M.D. Fla. 1991). “A debtor is assumed to have read his bankruptcy petition and schedules before signing them under pains and penalties of perjury, and he is responsible for their contents.” Carpenter v. Fanaras (In re Fanaras),263 B.R. 656 , 667 (Bankr. D. Mass. 2001). A “debtor’s failure to read the schedules before signing them indicates a complete disregard for the duty of honesty imposed by the Bankruptcy Code.” In re Lundy,216 B.R. 609 , 611 (Bankr. E.D. Mich. 1998). “A debtor сannot, merely by playing ostrich and burying his head deeply enough in the sand, disclaim all responsibility for statements which he has made under oath.” Boroff v. Tully (In re Tully),818 F.2d 106 , 111 (1st Cir. 1987). See also Mosley v. Sims (In re Sims),148 B.R. 553 , 557 (Bankr. E.D. Ark. 1992) (Debtor’s assertion that he merely glanced over the petition constituted proof of a “cavalier and reckless disregard for truth which is inconsistent with the relief to be afforded the honest debtor.”).
In re Rice,
Debtors bear responsibility for the accu-racy of their own petitions, schedules and SoFA, Debtors gave false oaths at the § 341 Meeting when they testified that they had read and were personally familiar with the contents of the documents. Debt-ors signed the § 341 Affidavits, which plainly stated that they had read and were personally familiar with the contents of their petition and schedules. But then, they testified to the 'contrary at the trial. Both admitted at trial that they nevеr fully read the documents and they were not aware of the contents. Thus, Debtors’ sworn statements in the § 341 Affidavits and at the § 341 Meeting that they had read and were personally familiar with the documents were false. The petition and schedules were material documents to Debtors’ bankruptcy, and the record sup-ports the conclusion that Debtors’ § 341 testimony and § 341 Affidavits were made knowing those statements were false and with fraudulеnt intent.
Moreover, these false oaths cannot be blamed on rebanee on the advice of counsel. Debtors cannot avoid the consequences of their false oaths.
The bankruptcy system is intended to grant a discharge to the “honest but unfortunate debtor,” Grogan v. Garner,498 U.S. 279 , 287,111 S.Ct. 654 ,112 L.Ed.2d 755 (1991) (internal quotation omitted), and depends on debtors being “fully forthcoming about their financial affairs.” Swartz v. Spears (In re Spears),291 B.R. 825 , 829 (Bankr. C.D. Ill. 2003) (internal quotation omitted). A discharge will be deniеd to “a debtor who was less than honest.” Village of San Jose v. McWilliams,284 F.3d 785 , 790 (7th Cir. 2002); see also Peterson v. Scott (In re Scott),172 F.3d 959 , 968 (7th Cir. 1999) (noting that “complete financial disclosure is a condition precedent to the privilege of discharge”) (internal quotations omitted).
Jeffrey M. Goldberg & Assocs., Ltd. v. Holstein (In re Holstein),
The Panel need not address Debtors’ argument that the bankruptcy court’s find-ings in the sanctions orders and order denying the motion to compromise the malpractice action regarding Fullen and Grusiris competence is the law of the cаse which somehow absolves Debtors from their responsibility to be truthful. As pre-viously stated, there is no evidence that either Fullen or Grusin encouraged Debt-ors to lie in their § 341 Affidavits or at the § 341 Meeting. And even if they had done so, Debtors should know that is not advice upon which they could reasonably rely.
Because the Panel affirms the bankrupt-cy court’s conclusion that Debtors’ dis-charges should be denied pursuant to
II. Designation of Record (BAP Case No. 15-8025)
Debtors also appeal the bankruptcy court’s order granting Appellees’ motion to strike certain documents from the designation of record filed in BAP Case 15-8008. Debtors argue that the sanctions orders against Grusin and Fullen and related doc-uments, such as motions and briefs filed by the parties (Adv. No. 09-0482 ECF Nos. 477, 508, 528, 535, 536, 537), as well as the order denying the motion to compromise the malpractice action and related docu-ments (Bankr. Case No. 08-28289 ECF Nos. 543, 556, 557, 564) contain important factual findings and conclusions of law re-lated to their advice of counsel defense. The bankruptcy court granted Apрellees’ motion to strike all of these documents from the record, holding that the court did not consider those orders and related doc-uments when making its decision on the discharge issue.
Debtors argue these documents should be included in the record on appeal pursuant to Bankruptcy Rule 8009 which provides, in part: “The record on appeal must include ... any opinion, findings of fact, and conclusions of law relating to the issues on appeal, including transcripts of all oral rulings[.]”
The general rule for designation of the record is that only items considered by the bankruptcy court in reaching a decision should be included. In re Ames Department Stores, Inc., 320 B.R. [518] at 521 [ (Bankr. S.D.N.Y. 2005) ] (quoting Metro North State Bank v. The Barrick Grp., Inc. (In re Barrick Grp., Inc.),100 B.R. 152 , 154 (Bankr. D. Conn.1989)) (other citations omitted). As noted in the Purvi Petroleum decision, there is a recognized exception to this rule. In re Purvi Petroleum III, LLC,2012 WL 360047 at *2 [ (Bankr. M.D.Tenn. 2012)]. Courts have allowed the inclusion of other pleadings in a case even though they were nоt made exhibits andwere not considered by the court if the pleading to be added is closely related to the matter at issue. Food Distribution Ctr. v. Food Fair, Inc., (In re Food Fair, Inc.), 15 B.R. 569 , 572 (Bankr. S.D.N.Y. 1981) (finding record may be supplemented with materials from other adversary proceedings arising from the same bankruptcy case closely related to the appeal); Saco Local Development Corp. v. Armstrong Business Credit Corp. (In re Saco Local Development Corp.),13 B.R. 226 , 230 (Bankr. D. Me. 1981).
In re McKenzie, No. 08-16378,
The Panel agrees with Debtors that some of the documents should not have been stricken. The sanctions orders and the order denying the motion to compromise are opinions that closely relate to the jssues presented in this appeal. Although the bankruptcy court did not consider those documents in reaching its decision, they contain findings of fact and legal conclusions regarding the actions of Debtors’ former counsel in this case. Debtors assert that those findings and conclusions relate directly to Debtors’ advice of counsel defense, which formed a large part of Debtors’ argument on appeal. It is appropriate to include these orders in the record even though they were not considered by the bankruрtcy court. The same cannot be said about the related documents (Adv. No. 09-0482 ECF Nos. 477, 508, 535, 536 and Bankr. Case No. 08-28289 ECF Nos. 543, 556, 557). Those documents were filed by the parties; do not contain findings of fact or legal conclusions of the court, and thus are not appropriately included in the record for this appeal. On this point, the bankruptcy court did not err. When considering motions to strike designated items for the record on appeal, bankruptcy courts should be mindful that they should only strike documents that were not filed in the case, have no bearing on the appeal, or contain evidence which was not admit-ted at trial. When in doubt, it is better to err on the side of caution, include the items, and allow the appellate court to determine the relevance of the designated items. See Saco Local Dev. Corp.,
In the present appeal, the Panel has reviеwed the inappropriately stricken doc-uments and has determined that they have no relevance to the issues that the Panel finds determinative. None of the stricken documents persuade the Panel that Debt-ors relied on the advice of their counsel in making false oaths at their § 341 Meeting and in their § 341 Affidavits regarding whether they had read and signed their petition, schedules, and SoFA, or in stating that they were familiar with those docu-ments.
CONCLUSION
For the reasons stated, the bankruptcy court’s order denying Debtors’ discharges pursuant to
Notes
. On August 8, 2008, Margaret Blasingame executed an engagement letter with Grusin, purportedly assigning Grusin her interest in $20,000 held by the McNairy County (Tennes-see) Circuit Court as payment for representation in connection with Church Joint Venture et al. v. Aqua Air Aviation, and related issues arising therefrom. The engagement letter did not mention debt counseling or bankruptcy proceedings, although Grusin has conceded that he consulted with Fullen and advised Debtors on many issues in connection with the bankruptcy case. Grusin actively partici-pated in the bankruptcy case ostensibly as attorney for Debtors’ children, the trusts, and the corporations.
. The adversary proceeding also sought other relief not relevant to this opinion.
. Church Joint Venture v. Blasingame (In re Blasingame), 14-8046,