In rе: OLIVIER FRANCOIS P. RIGON and CHRISTINE HUI SEOUN KWON, Debtors. OLIVIER FRANCOIS P. RIGON; CHRISTINE HUI SEOUN KWON, Appellants, v. UNITED STATES TRUSTEE, SEATTLE, Appellee.
BAP No. WW-23-1206-GBS
Bk. No. 2:21-bk-11641-CMA
Adv. No. 2:22-ap-01011-CMA
UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
NOV 13 2024
Before: GAN, BRAND, and SPRAKER, Bankruptcy Judges. Memorandum by Judge Gan. Partial Concurrence Partial Dissent by Judge Spraker.
NOT FOR PUBLICATION; Appeal from the United States Bankruptcy Court for the Western District of Washington, Christopher M. Alston, Chief Bankruptcy Judge, Presiding
Chapter 71 debtor Olivier Francois P. Rigon appeals the bankruptcy court‘s judgment denying his discharge under
Mr. Rigon maintains that he was generally unaware of the undisclosed assets and transfers, and he relied on Ms. Kwon‘s superior financial sophistication when he signed the schedules and statements. He argues the bankruptcy court erred by imputing Ms. Kwon‘s actions and knowledge to him, and by denying his discharge without a sufficient evidentiary basis.
While much of the evidence presented at trial involved Ms. Kwon, and not all the court‘s findings are clearly directed toward Mr. Rigon, there is a sufficient evidentiary basis for the court‘s decision, and we discern no error. Mr. Rigon failed to maintain and disclose records of community assets, and he knowingly omitted assets, income, and transfers from his schedules and statements. Accordingly, we AFFIRM.
A. Prepetition events
Mr. Rigon and Ms. Kwon met sometime before 2013 when Mr. Rigon, while living in France, visited a friend in the United States. In 2013, Mr. Rigon moved to Atlanta, Georgia to live with Ms. Kwon. In 2015, Amazon recruited Ms. Kwon to work for it as a data engineer. The couple moved to Washington, and they married in 2016.3
In 2015, Ms. Kwon formed Rock PI, LLC (“Rock PI“) to purchase, renovate, rent, and sell real properties. Since its formation, Ms. Kwon was the sole managing member of Rock PI, and she managed its finances. She obtained a real estate license and was a real estate broker for several years.
From its formation until 2020, Mr. Rigon worked exclusively for Rock PI. He held himself out as a co-founder, and he attended various real estate networking events where he pitched the business to potential investors. Mr. Rigon‘s primary role at Rock PI was to manage projects. He was not always paid for his work, but he sometimes received a salary from Rock PI. Mr. Rigon obtained a real estate license in 2019.
1. The Kwon Irrevocable Trust
In 2016, Mr. Rigon and Ms. Kwon hired accountants from a company called Perfect Tax (“Perfect Tax“) for tax-related services. Perfect Tax created an irrevocable trust (the “Trust“), which named Ms. Kwon as trustor and Mr. Rigon as primary beneficiary. Perfect Tax also established an entity for the couple called Chrisol, LLC (“Chrisol“).4
During a two-year period, Chrisol transferred over $100,000 to the Trust. Ms. Kwon testified that she transferred money to Chrisol from either the couple‘s joint bank account or Rock PI‘s account, then transferred money from Chrisol to the Trust‘s bank account. Although she initiated the
From 2018 through 2020, the Trust paid over $100,000 to American General Life Insurance Company for a life insurance policy owned by the Trust with Mr. Rigon named as beneficiary (the “AIG Policy“). Mr. Rigon claimed he did not know he was the beneficiary of the AIG Policy.
The couple also received checks from the Trust totaling over $100,000. Neither Ms. Kwon nor Mr. Rigon explained the payments from the Trust, and they offered conflicting testimony about whether they deposited money into the Trust‘s bank account, had access to its account, or ever wrote checks from the Trust‘s account. The Trust‘s bank statements reveal that Ms. Kwon made many deposits into its account.
2. The Denny Street properties
In 2016, Rock PI purchased three real properties located on Denny Street in Bremerton, Washington (“2315 Denny,” “2317 Denny,” “2319 Denny,” and collectively the “Denny Street Properties“). In 2017, Rock PI transferred the Denny Street Properties to Ms. Kwon for no consideration. Ms. Kwon explained that Rock PI would purchase properties and quitclaim them to her to refinance at a more favorable interest rate.
From 2017 until 2020, Mr. Rigon and Ms. Kwon collected rents of approximately $3,000 per month from tenants in the Denny Street Properties. They reported the rental income on their personal tax returns.
Ms. Kwon testified that she and Mr. Rigon had several discussions about how to use the sale proceeds. They considered using the funds to “buy back” their home following its July 2020 foreclosure, but they ultimately decided to pay six months’ advance rent for a residence and use the remaining proceeds for their last real estate project.
3. Interests in other companies
Ms. Kwon held a 50% interest in Sands Partners, LLC (“Sands Partners“), which purchased a motel in Ocean Shores, Washington in August 2019. Ms. Kwon also held a 25% interest in Sands Holdings, LLC (“Sands Holdings“), which purchased a hotel in Ocean Shores, Washington in August 2019. Her ownership of each company was later reduced to 5%, but she did not rеceive any payment in exchange for her reduced equity, and she failed to explain why her ownership was reduced.
Ms. Kwon‘s bank statements show that she received approximately $25,000 from Sands Holdings in 2021. The couple‘s joint bank account shows that they received $10,000 from Sands Holdings in July and August 2021, and an additional $5,000 from Bamboo Consulting, Inc.—a company
B. The bankruptcy and adversary complaint
In 2020, three different creditors obtained judgment against Ms. Kwon, Mr. Rigon, and Rock PI, totaling approximately $300,000. Rock PI filed a chapter 7 petition in February 2021, and the couple filed a joint chapter 7 petition in August 2021.
Mr. Rigon and Ms. Kwon filed their schedules and statement of financial affairs (“SOFA“) in September 2021. They did not schedule their interests in the Trust, the AIG Policy, or a Bank of Amеrica savings account (the “BofA Account“). They did not disclose the rental income or sales proceeds from the Denny Street Properties, and they did not disclose the Trust or income they received from it. Despite receiving $15,000 from Sands Holdings and Bamboo Consulting, Inc. within a few weeks of filing their petition, the couple did not disclose the income. They each affirmed they reviewed the schedules and SOFA, and that the information provided was correct.
At the initial § 341 meeting of creditors, Mr. Rigon and Ms. Kwon again testified that their schedules were complete and accurate. They confirmed they did not transfer or sell any property within two years of the petition date. However, when confronted with records of the sales of the Denny Street Properties, Ms. Kwon admitted they sold the properties but said they misunderstood the question in the SOFA. The couple stated they
Mr. Rigon and Ms. Kwon did not immediately provide the documents. Their ongoing failure to provide necessary information and disclose all their assets resulted in eleven § 341 meetings. Although the chapter 7 trustee repeatedly informed them that their schedules and SOFA were incomplete and inaccurate, the couple did not amend their documents until March 2022, when they made a single amendment to reduce the value of one vehicle from approximately $9,000 to $6,000.
The chapter 7 trustee made several requests for the couple‘s personal tax returns, but the most recent return they provided was for 2017. After months of delay, they filed their 2018 return, which they finalized in August 2022 and amended in November 2022. Mr. Rigon and Ms. Kwon promised they would produce their 2019 and 2020 returns within a year of the initial § 341 meeting, but they had not done so by October 2023.
In March 2022, the United States Trustee (the “UST“) filed an adversary complaint to deny the couple‘s discharges. The UST made allegations against each debtor individually. Pertinent to Mr. Rigon, the UST alleged he failed to keep adequate records, made false oaths, and failed to adequately explain the loss of community assets.
Mr. Rigon argued that any omissions were inadvertent or de minimis, or that such transfers were not required to be disclosed because
C. The trial and the court‘s judgment
The bankruptcy court conducted a trial, which concluded in October 2023. Mr. Rigon acknowledged that he signed the schedules and SOFA and testified at the § 341 meeting that he was personally familiar with the information in the documents, but he testified at trial that he did not actually review the documents or do anything to ensure they were accurate.
Mr. Rigon admitted that he met with Perfect Tax in 2016 and discussed forming the Trust, but he did not review the Trust document. According to Mr. Rigon, he was unaware of his interest in the Trust or the AIG Policy, and although he knew the Denny Street Properties were sold, he did not knоw who owned them. Mr. Rigon stated he was aware of rental income from the Denny Street Properties, but he did not know whether he disclosed that income in his SOFA.
Ms. Kwon testified that although she personally held title to the Denny Street Properties, she considered them business assets belonging to
After trial, the bankruptcy court entered an order and judgment denying Mr. Rigon‘s discharge under
The bankruptcy court also held that Mr. Rigon made false oaths or omissions of material fact in his schedules and SOFA. Despite not knowing if the documents were accurate, he falsely stated they were, with the intent that creditors and the trustee would rely on the documents. Mr. Rigon did not disclose his interest in sale proceeds from the Denny Street Properties, income from Sands Holdings, the BofA Account, or the Trust. Finally, the court held that Mr. Rigon fаiled to satisfactorily explain the decrease in his
JURISDICTION
The bankruptcy court had jurisdiction under
ISSUE
Did the bankruptcy court err by denying Mr. Rigon‘s discharge?
STANDARDS OF REVIEW
In an appeal from a denial of discharge under
Under de novo review, “we consider a matter anew, as if no decision had been made previously.” Francis v. Wallace (In re Francis), 505 B.R. 914, 917 (9th Cir. 2014).
Factual findings are clearly erroneous if they are illogical, implausible, or without support in the record. Retz v. Samson (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010). “Where there are two permissible views of the evidence, the factfinder‘s choice between them cannot be clearly erroneous.” Anderson v. City of Bessemer City, 470 U.S. 564, 574 (1985).
Mr. Rigon argues he was unaware of most of the undisclosed financial assets and transactions, and the bankruptcy court improperly imputed Ms. Kwon‘s actions and knowledge to him. He asserts that the evidence does not provide a basis to deny his discharge. Mr. Rigon contends that his failure to schedule the BofA account was not material, and he was not required to include the Denny Street Property sales because they were made in the ordinary course of business.
A. Legal standards
The bankruptcy court denied Mr. Rigon‘s discharge under three independent grounds:
1. § 727(a)(3)
Pursuant to
“[T]he purpose of
Consequently, a debtor must “present sufficient written evidence which will enable his creditors reasonably to ascertain his present financial condition and to follow his business transactions for a reasonable period in the past.” Id. (quoting Rhoades v. Wikle, 453 F.2d 51, 53 (9th Cir. 1971)). The statute “places an affirmative duty on the debtor to create books and records accurately documenting his business affairs.” Id. at 762 (citations omitted).
2. § 727(a)(4)
Section
To prevail on a
The intent element of
3. § 727(a)(5)
Pursuant to
B. The bankruptcy court did not err by denying Mr. Rigon‘s discharge.
Mr. Rigon‘s primary argument is that he was unaware of the various assets and transactions and should not be denied a discharge because of his failure to maintain records of those assets, disclose them in his schedules and SOFA, or explain their loss. But despite Ms. Kwon‘s superior financial acumen, Mr. Rigon had a duty to maintain adequate records of his financial condition and to disclose assets and income about which he knew. “A debtor cannot, merely by playing ostrich and burying his head deeply enough in thе sand, disclaim all responsibility for statements which he has made under oath.” In re Retz, 606 F.3d at 1199 (cleaned up).
We agree with the bankruptcy court that both debtors exhibited willful ignorance of their assets and liabilities, particularly involving Chrisol and thе Trust. But despite the numerous “red flags” surrounding their actions, neither the record presented, nor the court‘s decision, clearly delineate each individual debtor‘s involvement, intent, and liability. Many of the court‘s factual findings are based on Ms. Kwon‘s actions and knowledge of assets that she controlled. Notwithstanding the fact that Ms. Kwon was primarily responsible for the couple‘s financial dealings, Mr. Rigon was obligated to maintain records and disclose his known interests in community assets. His complete reliance on Ms. Kwon in verifying the accuracy and completeness of his schedules and SOFA—which omitted assets he knew about—was at least reckless indifference to the truth, and the evidence supports the court‘s decision to deny Mr. Rigon‘s dischаrge.
Mr. Rigon was aware of the BofA Account but argues he was justified in concealing it because it had no value and there was no evidence that he used the account. Similarly, he knew of the Denny Street Properties sales, but argues he was not required to disclose them because they were sold in the ordinary course of Ms. Kwon‘s business. Mr. Rigon contends he was unaware of thе Sands Holdings income, and he blames his failure to timely file tax returns on Perfect Tax and the complex tax strategies it devised for the couple. Mr. Rigon‘s excuses are unavailing.
First, he is not relieved of his statutory obligation to maintain and disclose financial records merely because he believes the records pertain to
Second, although Mr. Rigon claims he was unaware of the Sands Holdings income, the court found his testimony not credible. While it is plausible that Mr. Rigon was unaware of the Trust—given that the only evidence of his knowledge was his presence at the initial 2016 meeting with Perfect Tax—the same cannot be said for the Sands Holdings income. The debtors received at least $10,000 from Sands Holdings within a few weeks of filing their chapter 7 petition. Mr. Rigon had access to the joint account and made payments from it. It is not plausible that he was unaware of the Sands Holdings income, and he was obligated to maintain and disclose records of it.
Moreover, Mr. Rigon‘s justification fоr failing to keep records does not depend on his subjective knowledge. The “justification for a bankrupt‘s failure to keep or preserve books or records will depend on . . . whether others in like circumstances would ordinarily keep them.” Id. at 763
Finally, tax returns are important for the trustee and creditors to check the accuracy of a debtor‘s schedules and SOFA. See Nisselson v. Wolfson (In re Wolfson), 152 B.R. 830, 833 (S.D.N.Y. 1993) (“Income tax rеturns are quintessential documents ‘from which the debtor‘s financial condition or business transactions might be ascertained,’ in the words of subsection (3).“); Fox v Miller, 589 B.R. 659, 664 (C.D. Cal. 2018) (“Appellant‘s failure to file tax returns provides another basis for denying Appellant‘s discharge under section 727(a)(3) because it prevents creditors and trustees from obtaining important financial information.“) (cleaned up). It is immaterial whether Mr. Rigon intentionally failed to file his returns. Fox, 589 B.R. at 665.
Mr. Rigon blamed Perfect Tax for delays in filing his returns, but he provided no evidence to corroborate his claim. The bankruptcy court relied on email communications and found that the delays stemmed from Mr. Rigon‘s and Ms. Kwon‘s failure to provide accurate information.
The evidence also supports the court‘s conclusion that Mr. Rigon was aware of income and proceeds from the Denny Street Properties. Ms. Kwon
Mr. Rigon argues that the court erred by rejecting his “ordinary course of business” defense, but he does not cogently explain why the defense should apply. We agree with the bankruptcy court that Rock PI was engaged in buying and selling real properties, but there is no evidence in the record that Mr. Rigon or Ms. Kwon personally engaged is such business. The record demonstrates that Ms. Kwon worked as a data engineer, or directly for Rock PI, and Mr. Rigon worked solely for Rock PI until he began working as a police officer. Additionally, Mr. Rigon offers no explanation why he was not obligated to disclose rental income generated by the Denny Street Properties, which the couple reported in their personal tax returns.
Mr. Rigon had an independent obligation to disclose records and he knowingly made material omissions in his schedules and SOFA. The bankruptcy court did not err in denying his discharge.
CONCLUSION
Based on the foregoing, we AFFIRM the bankruptcy court‘s judgment denying Mr. Rigon‘s discharge.
Partial concurrence and partial dissent begins on next page.
I agree with my colleagues that the bankruptcy court did not err in denying Mr. Rigon his discharge under
I. The failure to keep and preserve adequate records under § 727(a)(3).
A. The savings account.
The bankruptcy court denied Mr. Rigon‘s discharge for his failure to disclose the BofA Account because “[c]reditors and the Trustee could not accurately ascertain the Defendants’ financial condition . . . .” Order and Judgement (Dec. 12, 2023) at 22. Mr. Rigon failed to disclose this savings account in the original and amended Schedule A/B that he and his wife filed. Nonetheless, the parties have stipulated that the debtors produced bank statements for the BofA Account in response to a subpoena from the chapter 7 trustee. Having produced the relevant bank statements, I do not see how the original failure to disclose the savings account made “it impossible to ascertain the debtor‘s financial condition and material business transactions.” This is not to condone the failure to disclose the savings account, which may serve as the basis for denial of discharge for
B. Sands Holdings.
The bankruptcy court found that the defendants failed to maintain or preserve adequate records relating to income and interests from Sands Partners and Sands Holdings. The record amply supports Ms. Kwon‘s knowledge and involvement in both compаnies and her failure to keep and preserve records of her interests in both, including the reduction of her interests in both companies. But there is no finding as to Mr. Rigon‘s involvement in Sands Partners or Sands Holdings, or even his knowledge of Ms. Kwon‘s interest or the income she received from them. He denied any such knowledge. My colleagues address this point by noting that the bankruptcy court found Mr. Rigon not credible. The bankruptcy court specifically found Ms. Kwon not credible in several specific instances. It did not, however, make any similar specific findings as to Mr. Rigon. Rather, the court stated, “[t]he Defendants feigned ignorance as to their Trust‘s assets and actions.” There is no such comment as to the Sands companies.
The majority decision concludes: “The debtors received at least $10,000 from Sands Holdings within a few weeks of filing their chapter 7 petition. Mr. Rigon had access to the joint account and made payments from it. It is not plausible that he was unaware of the Sands Holdings income, and he was obligated to maintain and disclose records of it.” My colleagues draw a reasonable inference from the totality of the record. But their conclusion hinges on a factual determination that Mr. Rigon knew of the Sands interest and income. The bankruptcy court made no such finding. As the majority decision observes at Footnote 8, “[a]lthough the ownership interеsts were community assets, there is no evidence that Mr. Rigon had knowledge of Ms. Kwon‘s involvement in [Sands Holdings and Sands Partners].” The bankruptcy court found Mr. Rigon not credible as to his knowledge of the Trust rather than the Sands companies. It was the UST‘s burden to prove that Mr. Rigon knew of the interest and income from the Sands companies such that he was required to keep and preserve that information.2 Thus, if this were the sole basis for denying Mr. Rigon
C. The Trust.
The bankruptcy court also held that the defendants failed to keep and preserve records as to the Trust because “[t]he Defendants were unable to explain the thousands of dollars they transferred into their Trust.” The UST has specifically referenced threе checks from the Trust. Each of these checks was signed by Ms. Velasquez as trustee of the Trust and is dated between 2017 and 2019: “(1) a $66,000 check payable to Ms. Kwon dated January 30, 2017; (2) a $40,000 check payable to Ms. Kwon dated January 1, 2019; and (3) a $2,500 check payable to Ms. Kwon and Mr. Rigon for ‘school fee’ dated September 26, 2019.” The record does not reveal who endorsed the checks. Again, the record demonstrates that Ms. Kwon was well aware of these payments, but there is a dearth of evidence to show that Mr. Rigon was. It is unclear what rights his status as beneficiary entitled him to under the Trust such that he was under any obligation to keep and preserve records of the Trust.
The court noted that the Trust‘s money had been used to purchase and maintain the AIG Policy, which named Mr. Rigon as the beneficiary. Yet, there is no evidence that Mr. Rigon ever wrote any checks to, or from, the Trust. The only evidence of his involvement is his attendance at the initial meeting with the accountant in 2016 where creation of the Trust was discussed. The only specific evidence of Mr. Rigon‘s subsequent
D. The failure to file tax returns.
The bankruptcy court also concluded that “[t]he Defendants’ failure to timely file tax returns, in addition to their failure to keep or preserve other records, is grounds for denying the Defendants’ discharge.” The debtors filed their last tax return for 2017 and produced an unsigned return for 2018. No tax return was presented for 2019 or 2020, though the debtors filed their bankruptcy in August 2021.
The failure to prepare and file tax returns timely may be strong evidence of the failure to keep and preserve adequate records of a debtor‘s financial condition. See Pher Partners v. Womble (In re Womble), 289 B.R. 836, 858 (Bankr. N.D. Tex. 2003), aff‘d, 299 B.R. 810 (N.D. Tex. 2003), and aff‘d, 108 F. App‘x 993 (5th Cir. 2004); see also Wachovia Bank v. Spitko (In re Spitko), 357 B.R. 272, 310 (Bankr. E.D. Pa. 2006). But the failure to file tax returns, by itself, is insufficient to establish that a debtor failed to maintain and preserve records that made it impossible to ascertain the debtor‘s finanсial condition and material business transactions. Compare Murray v. Altendorf (In re Altendorf), 2015 WL 4575219, at *8 (Bankr. D.N.D. July 29, 2015) (“Failing to file a tax return or to produce it during discovery in an adversary proceeding, without more, does not rise to the level of concealing or destroying financial documents under the circumstances of this case.“), with Jou v. Adalian (In re Adalian), 474 B.R. 150, 164 (Bankr. M.D. Pa. 2012) (“while not alone dispositive, a debtor‘s failure to file timely tax returns—especially for several years in a row—is a blatant example of a failure to maintain adequate records.” (cleaned up)), and Bell v. Claybrook (In re Claybrook), 385 B.R. 842, 852 (Bankr. E.D. Tex. 2008) (“Defendant‘s failure to file timely tax returns, to produce her tax returns to Bell, to produce the documents underlying her tax returns, or to introduce the allegedly filed returns into evidence are factors for the Court to consider under § 727(a)(3).“), aff‘d, 2008 WL 4646929 (E.D. Tex. Oct. 20. 2008). This is because the party challenging the debtor‘s discharge under § 727(a)(3) must prove that Mr. Rigon‘s failure to keep and preserve records made it impossible to ascertain his financial condition. Caneva, 550 F. 3d at 761. Debtors are not required to keep or present any specific types of records to satisfy this requirement; they only need to keep records that adequately explain their financial condition.
Mr. Rigon failed to initially disclose the BofA Account, a joint check payable to him and his wife from Sands Holdings, and his interest in the Trust as a beneficiary. Yet, that information was ultimately provided to the chapter 7 trustee. The initial failure to disclose—later rectified—is not an
Denying a motion for summary judgment, the bankruptcy court in Texas Capital Bank v. Sharp (In re Sharp), 2015 WL 860496, at * 9 (Bankr. E.D. Tex. Feb. 26, 2015) observed in a similar situation:
The Plaintiff has failed to tender any summary judgment evidence that Ms. Sharp, a registered nurse, had any involvement in the business operations of her husband or played any role in the apparent dissipation of any cattle/equipment assets. Indeed, other than the documentation itself, the Plaintiff has failed to tender any summary judgment evidence against Ms. Sharp at all. A plaintiff in this context must make a proper showing as against each individual debtor. The mere existence of the marital relationship does not determine a spouse‘s entitlement to discharge.
This appeal demonstrates the importance of separate findings as to the basis for denial of each spouse‘s individual discharge under
In sum, I concur in the result as to the denial of Mr. Rigon‘s discharge under