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Premier Capital, LLC v. Crawford (In re Crawford)

BAP No. 16-1285 for USCA First Circuit
Affirmed the district court's ruling on the § 727(a)(4)(A) claim; therefore, we do not reach the merits of the § 727(a)(2)(A) claim.
Procedural context:
A bankruptcy court denied Richard D. Crawford's petition for bankruptcy, in part, because Crawford omitted the existence of his Cash Balance Plan ("CBP"), a retirement account, from his Schedule B filing. While Crawford omitted the existence of the account, he disclosed the account's value through inclusion with a second retirement account, a 401(k). On appeal, this Court considers whether omitting an asset's name but including the asset's value on a Schedule B form clears the materiality threshold for a false oath claim under 11 U.S.C. § 727(a)(4)(A).
Crawford, a financially sophisticated individual, works in the banking industry as a mortgage originator at Wells Fargo. In 1987, Oak Street Realty Trust ("Oak Street"), a company in which Crawford has an 80% interest, received a $250,000 loan from Amoskeag Bank ("Amoskeag") secured by Oak Street property. In 1989, through a Change in Terms Agreement, Crawford guaranteed the loan in his individual capacity. After the loan matured, neither Oak Street nor Crawford paid the balance. The FDIC, acting as liquidating agent for Amoskeag, assigned Amoskeag's interest to Tenth RMA Partners, L.P. ("RMA"). RMA obtained a judgment against Crawford in the amount of $388,753.01 and then assigned its interest to Premier who sought and received a $456,774.041 execution on the judgment from the Middlesex Superior Court. Crawford subsequently filed for bankruptcy. Two claims formed the basis for the bankruptcy court's disposition: (1) the making of a false oath in violation of 11 U.S.C. § 727(a)(4)(A) and (2) the intentional concealment of property in violation of 11 U.S.C. § 727(a)(2)(A). Because we affirm on the false oath count, we do not reach the merits of the unlawful concealment claim. At the time Crawford petitioned for bankruptcy, he had two accounts with Wells Fargo, a 401(k) account and a CBP. Wells Fargo provides quarterly statements to Crawford with the heading "401(k) Plan and Cash Balance Plan." On this statement, the two accounts are listed separately and with separate balances but the statement also contains a cumulative amount reported under the label "Total Retirement Accounts." Schedule B, item 12, requires an individual filing for bankruptcy to disclose "[i]nterests in IRA, ERISA, Keough, or other pension or profit sharing plans" and to "[g]ive particulars." In addition, this form contains a column for the description and location of property as well as the current value of the property. After consulting with counsel, Crawford filed his Schedule B, item 12, which listed "401(k) with Wells Fargo" under the description and "$148,000" under the value. Crawford's form made no mention of his CBP. During the course of the trial (Adversary Proceeding) Crawford admitted that his CBP is a retirement account and he failed to include it in his Schedule B. Pressing further, Premier directly asked why Crawford failed to list the CBP. To this, Crawford equivocated, "I don't have a good answer for you sir." On cross-examination, Crawford's counsel presented Crawford with Exhibit 847-1 and asked whether he disclosed the amount listed on the quarterly statement. Crawford affirmed that he had. On redirect, Premier once again questioned Crawford on his failure to list his CBP. Specifically, Premier asked, "Is it not separated out as a separate plan on your statement, the CBP? Is it not?" "I think it's a different heading. I agree; yes, sir," Crawford answered. In Premier's post trial brief, Premier argued that by failing to disclose his interest in the CBP, Crawford committed a false oath in violation of 11 U.S.C. § 727(a)(4)(A). In Crawford's Proposed Findings of Fact and Conclusion of Law, again contesting the disclosure, Crawford reasoned that he did disclose his CBP, or if he did fail to disclose, that failure was not the product of fraudulent intent. The bankruptcy court found Crawford "less than credible" based on numerous misrepresentations conflated with evasive answers. The court ruled that while the claim of a false oath by omission of the CBP was not raised in Premier's complaint, Crawford impliedly consented to the trial of the charge. Additionally, the court concluded that Crawford's failure to include his CBP in his Schedule B, item 12, amounted to a false oath. Finding Crawford's veracity suspect, the court reasoned that the CBP and 401(k) are separate accounts and that Crawford believed the accounts were separate when he filed his Schedule B. Premier Capital, LLC v. Crawford (In re Crawford), 531 B.R. 275 (Bankr. D. Mass. 2015). On appeal, the District of Massachusetts affirmed the false oath claim. Premier Capital, LLC v. Crawford (In re Crawford), No. 15-12726 (D. Mass. Feb. 26, 2016). Now, Crawford raises several errors with the district court's decision: the finding of implied consent, improper burden shifting, and the determination that the omission of the CBP was a false oath and material. We review the bankruptcy court's findings of fact for clear error. Davis v. Cox, 356 F.3d 76, 82 (1st Cir. 2004). We will not set aside the trier's findings absent a "strong, unyielding belief that a mistake was made." Carp v. Carp (In re Carp), 340 F.3d 15, 22 (1st Cir. 2003). In contrast, we review the bankruptcy court's conclusions of law de novo, Davis, 356 F.3d at 82, and review issues of implied consent for abuse of discretion. Antilles Cement Corp. v. Fortuno, 670 F.3d 310, 319 (1st Cir. 2012). Premier's complaint and pre-trial filings never identified the omission of the CBP as forming the basis of a false oath claim. However, "Federal Rule of Civil Procedure 15(b) allows an unpleaded claim to be considered when the parties' conduct demonstrates their express or implied consent to litigate the claim." Antilles Cement Corp., 670 F.3d at 319. On multiple occasions, Premier pointedly asked Crawford why he failed to include his CBP on his Schedule B. Crawford responded without objection. In fact, on cross-examination,Crawford's counsel attempted to rebut Premier's questions by pointing out that Crawford disclosed the value of the asset. Both Crawford and Premier continued to contest the issue in post-trial memoranda and closing arguments. Because Crawford failed to object to the trial of an unpleaded claim and engaged the merits of the claim, this Court cannot say that the bankruptcy court abused its discretion by finding Crawford impliedly consented. Crawford next asserts that both the bankruptcy court and district court prematurely applied the burden-shifting framework. Under § 727(a)(4)(A), the plaintiff bears the burden to establish each element of a prima facie case by a preponderance of the evidence. In re Mascolo, 505 F.2d 274, 276 (1st Cir. 1974). Once that party puts forth a prima facie case, the burden shifts to the debtor who must then come forth with evidence rebutting the offense. Id. Nothing in the bankruptcy court's memorandum of decision leads us to believe that the court improperly placed the onus on Crawford prior to the establishment of a prima facie case. Despite Crawford's assertion to the contrary, Premiere put forth evidence proving the materiality of the CBP omission. Namely, Premier introduced Crawford's quarterly 401(k) and CBP statements into evidence and examined Crawford regarding the omission of the CBP. The Bankruptcy Code "limits the opportunity for a completely unencumbered new beginning to the 'honest but unfortunate debtor.'" Grogan v. Garner, 498 U.S. 279, 286–87 (1991) (quoting Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934)). In considering a denial of discharge for a false oath, two competing considerations are at play. On the one hand, § 727(a)(4)(A) purports to prevent debtors who "play fast and loose with their assets or with the reality of their affairs" from seeking refuge under the Bankruptcy Code. Boroff v. Tully (In re Tully), 818 F.2d 106, 110 (1st Cir. 1987). On the other hand, "bankruptcy is an essentially equitable remedy," so "the statutory right to a discharge should ordinarily be construed liberally in favor of the debtor." Id. Where, as here, the claim falls squarely within one of the Bankruptcy Code's exceptions, the liberal construction of the right to discharge does not apply. Martin v. Bajgar (In re Bajgar), 104 F.3d 495, 498 n.1 (1st Cir. 1997). In order for § 727(a)(4)(A) to form the basis for denying discharge, the Court must find that the debtor "(i) knowingly and fraudulently made a false oath, (ii) relating to a material fact." Boroff, 818 F.2d at 110. When a debtor files her Schedules, she does so under the equivalent of an oath. FED. R. BANKR. P. 1008; Perry v. Warner (In re Warner), 247 B.R. 24, 26 (B.A.P. 1st Cir. 2000). A debtor has a duty to prepare schedules accurately and with "reasonable particularization under the circumstances." Donarumo v. Furlong (In re Furlong), 660 F.3d 81, 87 (1st Cir. 2011) (quoting In re Mohring, 142 B.R. 389, 394–95 (Bankr. E.D. Cal. 1992), aff'd, 153 B.R. 601 (B.A.P. 9th Cir. 1993), aff'd, 24 F.3d 247 (9th Cir. 1994)) (internal quotation marks omitted). "[A] debtor is required only to 'do enough itemizing to enable the trustee to determine whether to investigate further.'" Id. at 87 (quoting Payne v. Wood, 775 F.2d 202, 207 (7th Cir. 1985)). By omitting an account from his Schedule B, Crawford committed a false oath. See Harrington v. Donahue (In re Donahue), BAP No. NH 11-026, 2011 WL 6737074, at *11 (B.A.P. 1st Cir. Dec. 20, 2011) ("[W]hen a debtor omits a transaction from his Statement of Financial of Affairs, he has made a false oath."). Schedule B, item 12, instructed Crawford to disclose his "[i]nterests in IRA, ERISA, Keough, or other pension or profit sharing plans" and to "[g]ive particulars." While Crawford listed his 401(k) account with Wells Fargo and included the combined value of his 401(k) and CBP, Crawford failed to list the existence of his CBP on the form, as required by Schedule B, item 12. A false oath is material if its subject matter "bears a relationship to the bankrupt's business transactions or estate, or concerns the discovery of assets, business dealings, or the existence and disposition of his property." Boroff, 818 F.2d at 111 (quoting Chalik v. Moorefield (In re Chalik), 748 F.2d 616, 618 (11th Cir. 1984)) (internal quotation marks omitted). "[T]he threshold to materiality is fairly low." Lussier v. Sullivan (In re Sullivan), 455 B.R. 829, 839 (B.A.P. 1st Cir. 2011) (quoting Cepelak v. Sears (In re Sears), 246 B.R. 341, 347 (B.A.P. 8th Cir. 2000)) (internal quotation marks omitted). As articulated in In re Mascola, "[T]he materiality of the false oath will not depend upon whether in fact the falsehood has been detrimental to the creditors." 505 F.2d 274, 278 (1st Cir. 1974). Listing one retirement account held with a financial institution does not signal the existence of a second account held with that same institution. Our decision today, follows our ruling in Daniels v. Agin, which addressed a similar scenario. 736 F.3d 70 (1st Cir. 2013). Much like the matter before this Court, in Daniels, the debtor failed to list two IRA accounts in his Schedule B and instead included the value with that of the reported profit-sharing plan. Id. 74. Despite disclosing the value, we regarded the excluded IRA information as material. Id. at 83. By omitting the existence of the CBP, a creditor would not otherwise know of the plan's existence. Creditors have a right to investigate the history of a debtor's asset,6 and if a debtor fails to disclose the existence of an asset, then a creditor may not be able to engage in due diligence.
Before J. Thompson, J. Barron and J. McConnell (sitting by designation). Appeal from the USDC-Massachusetts, J. Sorokin.

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