Sethi v. Wells Fargo Bank (In re Sethi)

Summarized by Joel Newell , Ballard Spahr, LLP
11 years 8 months ago

Citation:

In re Sethi, 13-1312 (9th BAP June 30, 2014)

Tag(s):

Ruling:

In the unpublished decision, the 9th Circuit BAP ruled that the bankruptcy court's order denying the debtor's discharge pursuant to 11 U.S.C. Sec. 727 did not make sufficient findings to support its ruling; therefore, the bankruptcy court's ruling was vacated and remanded. In regards to the 11 U.S.C. Sec. 727(a)(2) claim, the BAP ruled that there was sufficient evidence supporting the bankruptcy court's findings that Wells Fargo's collateral had been concealed; however, the BAP could not decipher from the bankruptcy court's findings whether property the debtor hid was the debtor's property of the medical practice's property. Similarly, the claims pursuant to 11 U.S.C. Sec. 727(a)(4) and (5) were remanded to obtain more specific findings directly related to the claims raised by Wells Fargo.

Procedural context:

Appeal by the debtor from the Bankruptcy Court for the Eastern District of California’s decision in favor of the creditor pursuant to 11 U.S.C. Sec. 727(a)(2), (4), and (5). The 9th Circuit BAP reviewed the Bankruptcy Court’s conclusions of law de novo and for clear error its factual findings thereof.

Facts:

Sethi ("debtor") is a doctor licensed in the State of California since 1994. The debtor had incorporated her own medical practice. On or about 2007, the debtor obtained two loans from Wells Fargo. The first loan was in the amount of $1.5 million construction loan ("Loan 1") and the second in the amount of $225,000 for the purpose of acquiring certain equipment ("Loan 2"). Loan 1 identified the debtor's medical practice as the borrower; however, the debtor personally guaranteed the obligation. The debtor, individually, was identified as the borrowed in Loan 2. The proceeds from Loan 2 were utilized to acquire equipment for the debtor's medical practice. Between 2009 and 2010 the debtor was in default as to both Loans 1 and 2. Wells Fargo arranged to auction the equipment, but prior to the auction, the debtor and a friend removed all of the equipment from the medical practice location. The debtor filed her first chapter 13 bankruptcy in March 2010, which was dismissed in May 2010 based on the debtor not being eligible for chapter 13 relief. The debtor filed a second bankruptcy, and in April 2011, Wells Fargo filed its complaint seeking denial of debtor's discharge pursuant to 11 U.S.C. Sec. 727(a)(2), (4), and (5). The debtor asserted that Wells Fargo on its 11 U.S.C. Sec. 727(a)(2) or (5) claims because the property at issue was neither the debtor's property nor property of the estate. The debtor did not testify at trial; rather, the prior deposition and 11 U.S.C. Sec. 341(a) transcripts were admitted into evidence.

Judge(s):

Honorable Judge Frank L. Kurtz, Honorable Judge Meredith A. Jury, Honorable Laura S. Taylor

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