Worley v. Magers (In re Robinson)

Financial professional was held to a higher standard in valuing estate assets.

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Case Type:
Case Status:
15-2346 (4th Circuit, Feb 28,2017) Published
When a valuation model or estimate falls outside the realm of common sense, denial of a discharge for making a false oath under 11 U.S.C. § 727(a)(4) is appropriate. This is particularly so when the debtor is a sophisticated and educated financial advisor and should have known better to use a different valuation method. He also cannot use relying on advice of counsel as a defense. The implicit bargain for discharge is simple: candid, good faith disclosure of the debtor’s financial affairs in return for the freedom of a clean slate.
Procedural context:
The bankruptcy court for the Middle District of North Carolina denied debtor a discharge under § 727(a)(4) for making a false oath by significantly undervaluing his interest in an entity. The district court affirmed. The 4th Circuit reviewed the bankruptcy court’s findings of fact were reviewed for clear error and affirmed.
Debtor had a university degree in finance, a MBA from Emory University and worked at Edward Jones as a financial advisor for almost 10 years. Debtor contributed $65,000 for a 49% interest in Gemini Land Trust, LLC, whose sole asset was a 10% interest in a Pelham Land Group, LLC, which owned 587 acres of Georgia timberland. Debtor filed bankruptcy and classified his case as a no-asset case. Debtor valued his interest in Gemini at $2,500 using the capitalization rate method. Plaintiffs sued to have debtor’s discharge denied because he intentionally misrepresented the value of his interest in Gemini. The day before trial, Pelham sold a large tract of land and distributed approximately $100,000 to Gemini. Pelham intended to capitalize on market timing and flip the property at a premium rather than have the property produce significant income. As a result, the bankruptcy court found that the capitalization rate method was not appropriate. Based on the evidence at trial, the bankruptcy court found that the value of debtor’s interest in Gemini was at least $13,212 and determined that debtor intentionally shortchanged his creditors given the magnitude of the undervaluation.
Wilkinson, Niemeyer, Keenan (Wilkinson)

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