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The Security National Bank of Sioux City, IA v. Vera T. Welte Testamentary Trust

Summarizing by Amir Shachmurove


Case Type:
Case Status:
21-1199 (9th Circuit, Mar 08,2022) Not Published
The Bankruptcy Appellate Panel of the Ninth Circuit (BAP) affirmed the judgment of the U.S. Bankruptcy Court for the Central District of California (BC) that two chapter 7 debtors in a joint case - Finnian Osakpamwan Ebuehi (FOE) and Elizabeth Olohirere Ebuehi (EOE, and with FE, DRs)-were ineligible for a discharge due to their proven commission of the kind of misconduct proscribed by §§ 727(a)(3), (a)(4), and (a)(6)
Procedural context:
In the case below, a chapter 7 case converted from a chapter 11 by the BC, the duly appointed chapter 7 trustee, Peter J. Mastan (TR), directed the DRs to vacate their residence (the Gladstone Property) so that he could remediate numerous unsightly conditions and market the property for sale, but they refused. The TR filed a motion to compel them to vacate the Gladstone Property and turn over the property under § 542; the DRs did not oppose the motion or appear at the hearing; and the BC granted it on the hearing date. Afterwards, the DRs filed a brief opposition arguing that it would be burdensome to move out of the Gladstone Property. On April 2, 2020, the BC nonetheless required the duo to vacate the property within two business days (Turnover Order). The certificate of notice indicated that the Turnover Order was electronically served on their counsel on the same day and sent to the DRs via first class mail on April 4, 2020, but the DRs did not vacate the Gladstone Property. In response, the TR filed a motion for an order to show cause why the DRs should not be held in contempt for ignoring the Turnover Order, frustrating the sale process, and failing to vacate the Gladstone Property; the DRs opposed this motion; but the BC granted it. The DRs filed a response to the resulting show cause order. At the hearing, however, the BC found them in contempt of the Turnover Order. It issued an order (Contempt Order) that held that they had willfully failed to comply with the Turnover Order and failed to establish that compliance was impossible. It also ordered coercive monetary sanctions against the debtors. In the Contempt Order, the BC went through and rejected each of the DRs'’ excuses for noncompliance. Sometime in June 2020, the DRs finally vacated the Gladstone Property. Thereafter, the TR filed an adversary complaint to deny the DRs their discharge under §§ 727(a)(3), (a)(4), and (a)(6). Later, the United States Trustee intervened and assumed prosecution of the adversary proceeding. Presented with a plethora of evidence, the BC denied FOE his discharge under §§ 727(a)(3), (a)(4), and (a)(6) and denied EOE her discharge under §§ 727(a)(3) and (a)(6). The DRs timely appealed.
The case below did not begin as a chapter 7. Nor was this the first appeal. Rather, the DRs had first commenced a chapter 11 case. In the petition whose filing opened that case, the DRs scheduled real property, including the Gladstone Property and three rental properties; from the latter triad, they reported over $5,000 of monthly income. One year into their chapter 11 case, a creditor accused the DRs of failing to pay creditors and misdirecting rental income. In response, the BC issued an order to show cause why the case should not be converted to one under chapter 7 or a trustee should not be appointed. At the scheduled hearing date, the DRs' attorney--but not the DRs--appeared. Rejecting this counsel's request for a continuance, the BC converted their case to a chapter 7 one. Dated October 18, 2019, this order (the Conversion Order) directed the DRs to:: (1) file a schedule of unpaid debts; (2) transmit a final report and account to the United States Trustee; (3) immediately turn over all records and property of the estate to the chapter 7 trustee; (4) file all applicable statements and schedules; and (5) file a statement of intention regarding retention or surrender of property. The certificate of notice indicated that the Conversion Order was served on the DRs' counsel on the date of issuance and that a copy was sent via first class mail on October 20, 2019. The DRs filed a motion for reconsideration on November 1, 2019.; the BC denied that motion and a subsequent reconsideration motion. Rather than complying with the Conversion Order, the DRs appealed to the BAP. There they too failed: the BAP dismissed their appeal for want of prosecution.
Robert J. Faris; William J. Lafferty III; and Laura S. Taylor;

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