Case Type:
Case Status:
BAP No. AZ-20-1270-BSL (9th Circuit, Dec 22,2021) Not Published
The bankruptcy court properly granted summary judgment on a § 727(a)(3) and (a)(4)(A) nondischargability complaint against a debtor who (1) failed to maintain adequate books and records from which financial condition and business transactions could be ascertained and who presented a falsified court record as his excuse for part of his failure to maintain adequate books and records and (2) knowingly made numerous false oaths regarding his financial affairs and assets.
Procedural context:
The United States Trustee sued Dr. Kresock, the debtor, seeking to deny a discharge under § 727(a)(2), (a)(3), (a)(4)(A), and (a)(5). The UST then moved for summary judgment on its claims under subsections (a)(3) and (a)(4)(A), alleging that Dr. Kresock failed to maintain adequate financial records, filed false documents with the Court in an effort to conceal his financial condition and business transactions, and knowingly made numerous false oaths. The Bankruptcy Court granted the UST's summary judgment motion and denied Dr. Kresock a discharge under § 727(a)(3) and (a)(4)(A). Dr. Kresock appealed.
Frank Daniel Kresock is a cardiologist who is the sole owner of The Cardiovascular Center, LLC (CVC). CVC did not pay Dr. Kresock wages or a salary. Instead, Dr. Kresock had CVC pay all of his personal expenses. Important of this case, Dr. Kresock had been convicted of various tax crimes in 2000. Janine Smith is Dr. Kresock's significant other. She lives with Dr. Krescock and worked at CVC, but did not receive wages or a salary. Dr. Kresock pays for all her personal expenses, including mortgage interest payments on four houses titled in her name. For at least six years before his bankruptcy, Dr. Kresock also gave Ms. Smith gifts of $100,000, and had his CPA prepare gift tax returns for these gifts. Dr. Kresock filed a Chapter 11 petition on July 27, 2016. The Arizona Department of Revenue (ADOR) and the IRS tried to obtain financial information from him. The bankruptcy court coverted Dr. Kresock's case to a Chapter 7 proceeding for a number of omissions, including his failure to comply with an order granting the United States Trustee's motion to compel discovery responses from Dr. Kresock. The ADOR sued Dr. Kresock and demanded that he produce a journal or spreadsheet of transfers made by CVC to or for the benefit of Ms. Smith, by Dr. Kresock to or for the benefit of Ms. Smith, and by CVC to or for the benefit of Dr. Kresock. Dr. Kresock stated that he could not produce a responsive document because he did not keep a spreadsheet or journal of such transfers. The IRS questioned Dr. Kresock's income tax returns. Dr. Kresock stated that he had no reportable income for 2011 through 2015. The IRS was not impressed by Dr. Kresock's response because, during the same period, he had purchased numerous homes, vehicles, boats, and other personal property, which were identified in Dr. Kresock's "extraordinarily detailed" bankruptcy schedules. Dr. Kresock argued that he was not required to file federal or state income tax returns as a result of item 19 of his supervised release following his 2000 tax conviction. The UST adduced evidence showing that item 19 was not in the original, including a certified copy of the criminal judgment against Dr, Kresock that did not have item 19. When asked about item 19 during his deposition, Dr. Kresock invoked his Fifth Amendment right against self-incrimination and refused to answer. During his deposition, Dr. Kresock refused to answer nearly every question, invoking the Fifth Amendment. The IRS filed an amended proof of claim for $2,293,059.32, which was allowed. In his SOFA (as amended), Dr. Kresock reported CVC's gross income for 2014, 2015, and partial year for 2016. The IRS determined that Dr. Kresock's actual gross income from CVC was three times greater than the amounts listed in the SOFA. In his Chapter 11 Current Monthly Income Statement, Dr. Kresock reported that he had no gross receipts, no necessary operating expenses, and no net monthly income. When questioned about the discrepancy between CVC's actual revenues and the amounts reported by Dr. Kresock in his CMI statement, Dr. Kresock invoked the Fifth Amendment. The UST filed a complaint seeking to deny Dr. Kresock's discharge under subsections (2), (3), (4)(A), and (5) of 11 U.S.C. § 727(a), and then moved for summary judgment on its claims under § 727(a)(3) and (a)(4)(A).
BRAND, SPRAKER, and LAFFERTY, Bankruptcy Judges

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