Premier Capital, LLC v. Crawford (In re Crawford)
- Summarized by William Amann , Amann Burnett, PLLC
- 8 years 2 months ago
- Citation:
- BAP No. 16-1285 for USCA First Circuit
- Tag(s):
-
- Ruling:
- 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).
- Facts:
- 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.
- Judge(s):
- Before J. Thompson, J. Barron and J. McConnell (sitting by designation). Appeal from the USDC-Massachusetts, J. Sorokin.
ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!
