In re: Pradeep Singh and Rindi P. Singh ( 2019 )

FILED
MAR 14 2019
NOT FOR PUBLICATION
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. CC-17-1353-FLS
PRADEEP SINGH and RINDI P. SINGH, Bk. No. 6:14-bk-19919-SC
Debtors. Adv. Pro. 6:15-ap-1008-SC
PRADEEP SINGH,
Appellant,
v. MEMORANDUM*
RINDI P. SINGH; UNITED STATES
TRUSTEE,
Appellees.
Submitted Without Argument on February 21, 2019
Filed – March 14, 2019
Appeal from the United States Bankruptcy Court
for the Central District of California
*
This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
Honorable Scott C. Clarkson, Bankruptcy Judge, Presiding
Appearances: Appellant Pradeep Singh, pro se, on brief; Ramona D.
Elliott, P. Matthew Sutko, Robert J. Schneider, Jr., Peter C.
Anderson, Russell Clementson, and Everett L. Green on
brief for appellee United States Trustee for Region 16.
Before: FARIS, LAFFERTY, and SPRAKER, Bankruptcy Judges.
INTRODUCTION
Chapter 71 debtor Pradeep Singh appeals from the bankruptcy court’s
denial of his discharge under §§ 727(a)(2)(A) and (a)(4). Mr. Singh argues
that the bankruptcy court erred when it determined that his corporation’s
transactions were attributable to him personally and that he was operating
a Ponzi scheme. He contends that he did not hide any transaction or make
false oaths. He also claims that the bankruptcy court abused its discretion
in making various pretrial and evidentiary rulings against him.
We discern no error and AFFIRM.
1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the Federal Rules
of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of
Civil Procedure.
2
FACTUAL BACKGROUND2
A. Mr. Singh’s business ventures
PradeepSingh Corporation, dba Secure Vision Associates (“SVA”)
sold insurance, annuities, and various insurance-based products. Mr. Singh
was SVA’s president, chief executive officer, chief financial officer, and
majority shareholder. Mr. Singh’s wife, co-debtor Rindi Singh, was SVA’s
secretary. The Singhs and their son were the sole shareholders of SVA.
Beginning in 2001, SVA stopped complying with many corporate
formalities. SVA did not hold required shareholder meetings or board of
directors meetings and did not prepare corporate meeting minutes.
Mr. Singh held a license to sell life and health insurance in California
but was not licensed to sell securities. Nevertheless, between 2002 and
2014, he persuaded dozens of his customers and other individuals to give
him money through SVA. He directed them to make the checks payable to
SVA. Those individuals received promissory notes that promised
repayment plus interest at above-market rates.3
SVA conducted most of its business with American Equity
2
We borrow from the bankruptcy court’s detailed ruling. We exercise our
discretion to review the bankruptcy court’s docket, as appropriate. See Woods &
Erickson, LLP v. Leonard (In re AVI, Inc.), 389 B.R. 721, 725 n.2 (9th Cir. BAP 2008).
3
The promissory notes identified the borrower as “the undersigned Pradeep
Singh president of Secure Vision Associates . . . .” But the signature line identified the
borrower as SVA, with Mr. Singh signing on its behalf.
3
Investment Life Insurance Company (“American Equity”). In 2013,
American Equity began receiving complaints from consumers that
Mr. Singh and SVA had solicited money from them. Even after American
Equity cautioned Mr. Singh that his actions violated company policy,
Mr. Singh continued to solicit funds from individuals.
American Equity terminated its contract with SVA in June 2014. A
second insurance company also terminated its contract with SVA due to
similar complaints. Mr. Singh lost all of his commission-based income and
could no longer repay any of the individuals who had given him money.
Mr. Singh dissolved the PradeepSingh Corporation in July 2014.
B. The Singhs’ chapter 7 petition
On August 4, 2014, the Singhs filed their joint chapter 7 petition. They
did not disclose loans that they allegedly made to SVA or prepetition
payments received from SVA.
Six of the individuals who had given money to SVA at Mr. Singh’s
request initiated adversary proceedings against the Singhs seeking denial
of discharge of their debts under § 523. In response to a complaint filed by
creditor Carol Taylor, Mr. Singh asserted as an affirmative defense his right
to recover funds from Ms. Taylor pursuant to the doctrine of usury and a
right to offset.
C. The U.S. Trustee’s adversary proceeding
Appellee United States Trustee for Region 16 (“U.S. Trustee”) filed an
4
adversary proceeding seeking to deny the Singhs discharge under
§§ 727(a)(2)(A), (a)(4), and (a)(5). He alleged that SVA was the alter ego of
the Singhs, who used SVA to shield themselves against personal liability
and further their fraudulent scheme. He claimed that Mr. Singh solicited
investments from individuals as a part of a Ponzi scheme and funneled the
funds through SVA, while both the Singhs and SVA were insolvent. In
order to pay the earlier investors and keep his scheme going, he solicited
funds from new investors. The U.S. Trustee alleged that Mr. Singh repaid
investors $400,000 (including $31,000 to himself) in the year preceding the
petition date.
The U.S. Trustee represented that the Singhs had failed to disclose
prepetition payments from SVA to Mr. Singh. The U.S. Trustee also alleged
that he discovered undisclosed bank accounts.
Accordingly, the U.S. Trustee asserted a § 727(a)(2)(A) claim based on
the Singhs’ transfer of money to and from SVA (their alter ego) for the
purpose of hindering, delaying, and defrauding creditors. The U.S. Trustee
also brought a § 727(a)(4) claim because the Singhs made false oaths by
failing to disclose loans that they had made to SVA and prepetition
payments that they received from SVA. Finally, he asserted a § 727(a)(5)
claim because the Singhs failed to explain the loss of certain assets.
Mr. Singh denied the substance of the U.S. Trustee’s allegations,
disputing that he ever engaged in investment activity; rather, he asserted
5
that the money that he received from clients were loans memorialized by
promissory notes. He also denied that he was involved in a Ponzi scheme.
D. Pretrial matters
1. The deemed admissions
In April 2016, Mr. Singh filed a motion for summary judgment,
relying on purported admissions by the U.S. Trustee. The U.S. Trustee had
served his responses to Mr. Singh’s requests for admissions six days after
an extended deadline.
The U.S. Trustee filed a motion to withdraw the deemed admissions.
He stated that his counsel had requested a seven-day extension to respond,
and Mr. Singh’s counsel agreed. When the week had passed, the U.S.
Trustee’s counsel informed Mr. Singh’s counsel that he needed another
seven days to obtain his client’s approval and said, “Please let me know if
this presents a problem.” Mr. Singh’s counsel did not respond, and the U.S.
Trustee served his responses six days later.
The U.S. Trustee argued that Mr. Singh was not prejudiced by the six-
day delay because the court extended the discovery cut-off date and expert
cut-off date. Additionally, Mr. Singh had received the responses over six
months prior to the close of fact discovery.
The U.S. Trustee also argued that many of the requests for
admissions were improper, as they requested legal admissions and were
not intended to aid in discovery. As such, withdrawing the admissions
6
would allow for the presentation of the case on the merits.
In opposition, Mr. Singh argued that the U.S. Trustee’s failure earlier
to withdraw the admissions made him feel “secure and confident in relying
upon them for his defense; therefore he [did] not engage in compelling
additional discovery, including expert depositions.”
The bankruptcy court granted the U.S. Trustee’s motion to withdraw
the admissions, holding that “reliance on a deemed admission in preparing
a summary judgment motion does not constitute prejudice in this
instance.” The court allowed the U.S. Trustee to serve revised responses by
May 31, 2016. It reopened discovery “to permit non-redundant discovery to
be conducted by Singh, solely with respect to any received Answers to
Admissions, through and including August 13, 2016.” It denied without
prejudice the motion for summary judgment.
2. Summary judgment
Mr. Singh filed another motion for summary judgment, arguing that
the U.S. Trustee had no standing to assert alter ego and that this necessarily
defeated all of his claims. Additionally, he argued that the U.S. Trustee
failed to establish factual bases for his claims.
The bankruptcy court denied Mr. Singh’s motion for summary
judgment without a hearing, holding that the U.S. Trustee was not
precluded from asserting alter ego and that there were triable factual issues
relating to the §§ 727(a)(2)(A), (a)(4), and (a)(5) claims.
7
3. Joint amended pretrial stipulation
On March 8, 2017, the parties filed a joint amended pretrial
stipulation. The U.S. Trustee did not give notice that he intended to rely on
the omission of Mr. Singh’s usury defense against Ms. Taylor as a false
oath. The bankruptcy court approved the pretrial stipulation.
4. Motion in limine
Mr. Singh filed a motion in limine to exclude the expert report and
testimony of the U.S. Trustee’s expert accountant, Hakop Jack Arutyunyan.
He argued that Mr. Arutyunyan’s expert report was inaccurate and
unreliable because it did not include supporting data or exhibits and the
expert had only consulted limited materials. Additionally, he questioned
Mr. Arutyunyan’s qualification as an expert because he was employed by
the U.S. Trustee and had not previously testified as an expert.
The bankruptcy court denied the motion in limine.
E. Trial and memorandum decision
The bankruptcy court conducted a five-day trial on the U.S. Trustee’s
§ 727 complaint. The Singhs testified, as well as three of the alleged victims,
the chapter 7 trustee, the U.S. Trustee’s bankruptcy auditor, and the
parties’ expert witnesses. The investors testified that Mr. Singh convinced
them to give him substantial sums of money for investment in the stock
market or other ventures and that he guaranteed them a high rate of return.
Although they received promissory notes, he led them to believe that he
8
was investing their money.
The U.S. Trustee’s expert, Mr. Arutyunyan, testified as to two
primary conclusions: that SVA was insolvent and that Mr. Singh was
operating a Ponzi scheme. He testified that he was not able to account for
approximately $117,000 that went into SVA’s bank account.
Mr. Singh maintained that he did not engage in a Ponzi scheme or
make a false oath. Mr. Singh’s sister testified that she had reconciled the
bank and credit card accounts and accounted for all of the loan proceeds.
Mr. Singh’s expert witness, Peter Salomon, opined that his business
dealings did not constitute a Ponzi scheme.
The bankruptcy court issued its memorandum decision in favor of
Mrs. Singh on all counts, but found against Mr. Singh on the U.S. Trustee’s
§§ 727(a)(2) and (a)(4) claims.
1. The Ponzi scheme
The bankruptcy court found that Mr. Singh was conducting a Ponzi
scheme with the customers’ investments. It found that Mr. Singh “willfully
and knowingly paid prior investors with funds from new investors, as well
as from commission checks.” The court continued:
A careful review of all of the evidence presented leaves
this Court with no doubt that [Mr. Singh] engaged in a classic
Ponzi scheme – luring invest[ments]/loans from innocent
victims with the false promises of safe and wise future
investments and high returns of 10% per annum – and repaying
some or all of the early debt/investments back with the funds
9
lured by later invest[ments]/loans.
(Citation and footnote omitted).
2. The § 727(a)(2)(A) claim
The bankruptcy court held that the U.S. Trustee had satisfied
§ 727(a)(2)(A). First, it found that the money transferred from SVA’s
accounts was “property of the debtor.” The court ruled that, under
California’s alter ego doctrine, SVA was Mr. Singh’s alter ego because
“although SVA once was a legitimate business operation, [Mr. Singh]
increasingly used SVA for his own personal Ponzi scheme banking
operation, especially as [Mr. Singh’s] insurance commission based income
declined. The existence of SVA became meaningless except as a tool to
implement fraud.” It noted that Mr. Singh “used the corporate bank
account as his own de facto account, and not for any legitimate corporate
purpose or enterprise.” As such, the court concluded that the transfers
involved Mr. Singh’s property.
Second, the court agreed with the U.S. Trustee that Mr. Singh
intended to defraud creditors by repaying the earlier investors with
contributions from the later investors. The small interest payments that
Mr. Singh paid to the investors “served no purpose other than to bolster,
sustain, and lend credibility to [the] false impression” that Mr. Singh had
invested the funds and that his operation was successful and profitable.
10
3. The § 727(a)(4) claim
The bankruptcy court next found that various omissions satisfied the
false oath requirement under § 727(a)(4).
First, the court found that Mr. Singh made a false oath by omitting
from his schedules references to assets and the transfer of monies received
from the investors. The court also held that “[f]ailing to list the usury claim
in his schedules was a false oath.”
The bankruptcy court found that these omissions were material
because they concerned Mr. Singh’s business transactions, the discovery of
assets, or the existence and disposition of his property.
Next, the court found that Mr. Singh knowingly made a false oath
because he deliberately and consciously signed the inaccurate schedules.
Finally, the court ruled that Mr. Singh had a fraudulent intent
because “[r]ather than submit forthright schedules as required in a
bankruptcy case, he used his schedules to continue to perpetrate his
fraudulent scheme, effectively seeking to evade making any further
payments to his victims.”
4. The § 727(a)(5) claim and claims against Mrs. Singh
The bankruptcy court ruled that the U.S. Trustee had failed to
establish any claim against Mrs. Singh, finding that she did not have the
requisite fraudulent intent. It also held that the U.S. Trustee did not meet
his burden of proof under § 727(a)(5) as to either of the Singhs.
11
The bankruptcy court entered judgment against Mr. Singh on the
§§ 727(a)(2)(A) and (a)(4) claims. Mr. Singh timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334
and 157(b)(2)(J). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Whether the bankruptcy court erred in denying Mr. Singh his
discharge under §§ 727(a)(2)(A) and (a)(4).
STANDARDS OF REVIEW
In an action for denial of discharge under § 727, we review: (1) the
bankruptcy court’s determinations of the historical facts for clear error;
(2) its selection of the applicable legal rules under § 727 de novo; and
(3) mixed questions of law and fact de novo. Searles v. Riley (In re Searles),
317 B.R. 368, 373 (9th Cir. BAP 2004), aff’d, 212 F. App’x 589 (9th Cir. 2006).
“De novo review requires that we consider a matter anew, as if no
decision had been made previously.” Francis v. Wallace (In re Francis), 505
B.R. 914, 917 (9th Cir. BAP 2014) (citations omitted).
Factual findings are clearly erroneous if they are illogical,
implausible, or without support in the record. Retz v. Samson (In re Retz),
606 F.3d 1189, 1196 (9th Cir. 2010). “To be clearly erroneous, a decision
must strike us as more than just maybe or probably wrong; it must . . .
strike us as wrong with the force of a five-week-old, unrefrigerated dead
12
fish.” Papio Keno Club, Inc. v. City of Papillion (In re Papio Keno Club, Inc.), 262
F.3d 725, 729 (8th Cir. 2001) (citation omitted). If two views of the evidence
are possible, the court’s choice between them cannot be clearly erroneous.
Anderson v. City of Bessemer City, 470 U.S. 564, 573-75 (1985).
“[W]e review a bankruptcy court’s evidentiary rulings for abuse of
discretion, and then only reverse if any error would have been prejudicial
to the appellant.” Van Zandt v. Mbunda (In re Mbunda), 484 B.R. 344, 351 (9th
Cir. 2012), aff’d, 604 F. App’x 552 (9th Cir. 2015) (citing Johnson v. Neilson (In
re Slatkin), 525 F.3d 805, 811 (9th Cir. 2008)). “We afford broad discretion to
a district court’s evidentiary rulings. . . . A reviewing court should find
prejudice only if it concludes that, more probably than not, the lower
court’s error tainted the verdict.” Id. at 352 (quoting Harper v. City of L.A.,
533 F.3d 1010, 1030 (9th Cir. 2008)).
We apply a two-part test to determine whether the bankruptcy court
abused its discretion. United States v. Hinkson, 585 F.3d 1247, 1261-62 (9th
Cir. 2009) (en banc). First, we consider de novo whether the bankruptcy
court applied the correct legal standard to the relief requested. Id. Then, we
review the bankruptcy court’s factual findings for clear error. Id. at 1262.
We must affirm the bankruptcy court’s factual findings unless we conclude
that they are illogical, implausible, or without support in inferences that
may be drawn from the facts in the record. Id.
13
DISCUSSION
A. The bankruptcy court did not err in holding that Mr. Singh made
prepetition transfers under § 727(a)(2)(A) with the requisite intent.
Section 727(a)(2) provides that the debtor is entitled to a discharge
unless:
the debtor, with intent to hinder, delay, or defraud a creditor or
an officer of the estate charged with custody of property under
this title, has transferred, removed, destroyed, mutilated, or
concealed, or has permitted to be transferred, removed,
destroyed, mutilated, or concealed –
(A) property of the debtor, within one year before the
date of the filing of the petition[.]
§ 727(a)(2)(A).
“A party seeking denial of discharge under § 727(a)(2) must prove
two things: ‘(1) a disposition of property, such as transfer or concealment,
and (2) a subjective intent on the debtor’s part to hinder, delay or defraud a
creditor through the act [of] disposing of the property.’” In re Retz, 606 F.3d
at 1200 (emphasis added) (quoting Hughes v. Lawson (In re Lawson), 122 F.3d
1237, 1240 (9th Cir. 1997)).
1. Disposition of property of the debtor
Mr. Singh argues that the money that SVA used to make payments to
creditors and himself was not “property of the debtor” within the meaning
of § 727(a)(2). He also argues that the U.S. Trustee lacked standing to argue
14
the “alter ego” doctrine. We reject both arguments.
This Panel and other courts have held that “property of the debtor”
includes not only property nominally held by the debtor, but also property
held by the debtor’s alter ego. “In bankruptcy, an alter ego is a nominal
third party that has no substantive existence separate from the debtor, and
property purportedly held by that third party is, therefore, the debtor’s
own property.” Chantel v. Pierce (In re Chantel), BAP No. AZ-14-1511-
PaJuKi, 2015 WL 3988985, at *6 (9th Cir. BAP July 1, 2015), aff’d, 693 F.
App’x 723 (9th Cir. 2017) (citations omitted).
The imposition of the alter ego doctrine requires a broad inquiry:
Factors for the trial court to consider include the commingling
of funds and assets of the two entities, identical equitable
ownership in the two entities, use of the same offices and
employees, disregard of corporate formalities, identical
directors and officers, and use of one as a mere shell or conduit
for the affairs of the other. No one characteristic governs, but
the courts must look at all the circumstances to determine
whether the doctrine should be applied.
Toho-Towa Co. v. Morgan Creek Prods., Inc., 217 Cal. App. 4th 1096, 1108-09
(2013) (citations omitted). The proponent of the alter ego doctrine must
establish (1) a unity of interest and ownership such that the separate
personalities of the corporation and the individual no longer exist and
(2) that failure to disregard the corporation would result in fraud or
injustice. See Flynt Distrib. Co. v. Harvey, 734 F.2d 1389, 1393 (9th Cir. 1984).
15
In many cases, the alter ego doctrine is used to hold shareholders
liable for the debts or conduct of a corporation. See Toho-Towa Co., 217 Cal.
App. 4th at 1107. But the doctrine can also be employed to determine
whether a corporation or its shareholder is the true owner of property. See
Stout v. Marshack (In re Stout), 649 F. App’x 621, 623 (9th Cir. 2016)
(“[P]roperty owned by a corporation may be considered a debtor’s
property where the corporation was the debtor’s alter ego.”) (considering
§ 547(b)); Sethi v. Wells Fargo Bank, Nat’l Ass’n (In re Sethi), BAP No. EC-13-
1312-KuJuTa, 2014 WL 2938276, at *7 (9th Cir. BAP June 30, 2014) (holding
that the bankruptcy court did not make appropriate alter ego findings and
that the creditor “was entitled to prevail on its § 727(a)(2) claim only if it
proved that the property [debtor] concealed was her own property and not
property of one of her corporations”); Hoffman v. Bethel Native Corp. (In re
Hoffman), BAP No. AK-06-1298-BZR, 2007 WL 7540947, at *6 (9th Cir. BAP
May 9, 2007) (affirming the bankruptcy court’s finding that the corporation
was the debtor’s alter ego because the debtor was the sole shareholder and
director of the corporation; the corporation was undercapitalized;
corporate formalities were ignored; and the debtor transferred the
corporation’s assets to his wife’s corporation); Kendall v. Turner (In re
Turner), 335 B.R. 140, 147 (Bankr. N.D. Cal. 2005), modified on reconsideration,
345 B.R. 674 (Bankr. N.D. Cal. 2006), aff’d, 2007 WL 7238117 (9th Cir. BAP
Sept. 18, 2007) (“[A]n entity or series of entities may not be created with no
16
business purpose and personal assets transferred to them with no
relationship to any business purpose, simply as a means of shielding them
from creditors. Under such circumstances, the law views the entity as the
alter ego of the individual debtor and will disregard it to prevent
injustice.”) (considering § 544(b)); Compton v. Bonham (In re Bonham), 224
B.R. 114, 116 (Bankr. D. Alaska 1998) (denying the debtor discharge under
§ 727(a)(2) because she had “disregarded the corporate formalities in
operating both [corporations] and used the corporations as her own pocket
book. She used them for an illegal and fraudulent purpose—to operate a
Ponzi scheme. She transferred money freely and without rhyme or reason
between the corporations and herself.”).
In this case, the bankruptcy court was free to employ the alter ego
doctrine in order to determine whether the transferred monies were
“property of the debtor.” The court found unity of interest and ownership:
it said that “although SVA once was a legitimate business operation,
[Mr. Singh] increasingly used SVA for his own personal Ponzi scheme
banking operation . . . . The existence of SVA became meaningless except as
a tool to implement fraud.” Although Mr. Singh directed the investors to
make their checks payable to SVA, the promissory notes that Mr. Singh
drafted identified the borrower as “Pradeep Singh president of Secure
Vision Associates[.]” This arguably made him the obligor under the
promissory notes or at least blurred the distinction between SVA and
17
Mr. Singh personally. The court also found that failure to disregard the
corporation would result in fraud or injustice: it said that “the company
was simply a convenient conduit used by [Mr. Singh] to funnel the money
he scammed from innocent victims.” Neither of these findings is clearly
erroneous. Thus, the bankruptcy court did not err in finding that the
transferred assets were “property of the debtor” under § 727(a)(2)(A).
Mr. Singh incorrectly argues that the U.S. Trustee cannot assert an
alter ego claim. Congress has specifically authorized the U.S. Trustee to
“object to the granting of a discharge under [§ 727(a)].” See § 727(c)(1). That
authorization would be hamstrung if the U.S. Trustee could not employ the
alter ego doctrine when litigating the issue of whether certain assets are
property of the debtor. Decisions limiting the standing of a chapter 7 or
chapter 11 trustee to impose liabilities on alter egos are inapposite because
the authority of the U.S. Trustee is different from that of a case trustee, and
limitations on the attribution of liabilities under the doctrine do not
necessarily apply when the doctrine is employed to attribute assets.
2. Intent to hinder, delay, or defraud
Mr. Singh challenges the bankruptcy court’s finding that he intended
to hinder, delay, or defraud creditors. “A debtor’s intent need not be
fraudulent to meet the requirements of § 727(a)(2). Because the language of
the statute is in the disjunctive it is sufficient if the debtor’s intent is to
hinder or delay a creditor.” In re Retz, 606 F.3d at 1200. Debtors rarely
18
admit harboring fraudulent intent, so courts may rely on circumstantial
evidence, sometimes called “badges of fraud,” to support a finding of
intent.4
The bankruptcy court’s determinations concerning the debtor’s intent
are factual matters reviewed for clear error. Beauchamp v. Hoose (In re
Beauchamp), 236 B.R. 727, 729 (9th Cir. BAP 1999). We give great deference
to the bankruptcy court’s determinations of witnesses’ credibility.
Anderson, 470 U.S. at 575.
The bankruptcy court found that Mr. Singh’s intent to defraud
creditors was established by his operation of a Ponzi scheme: he used
newly contributed funds to make payments to older contributors, thereby
obscuring the falsity of his representation that he could repay creditors
through a real and profitable business or investment. Cf. Sec. Inv'r Prot.
Corp. v. Bernard L. Madoff Inv. Sec. LLC, 531 B.R. 439, 471 (Bankr. S.D.N.Y.
4
The badges of fraud include:
(1) a close relationship between the transferor and the transferee; (2) that
the transfer was in anticipation of a pending suit; (3) that the transferor
Debtor was insolvent or in poor financial condition at the time; (4) that all
or substantially all of the Debtor's property was transferred; (5) that the
transfer so completely depleted the Debtor’s assets that the creditor has
been hindered or delayed in recovering any part of the judgment; and
(6) that the Debtor received inadequate consideration for the transfer.
In re Retz, 606 F.3d at 1200 (quoting Emmett Valley Assocs. v. Woodfield (In re Woodfield),
978 F.2d 516, 518 (9th Cir. 1992)).
19
2015) (“Once it is determined that a Ponzi scheme exists, all transfers made
in furtherance of that Ponzi scheme are presumed to have been made with
fraudulent intent.”). The court found that he was “motivated by an effort to
convey to contributors a false impression that they are receiving funds
because of a legitimate profit making opportunity.” He gave investors the
impression that he invested their funds and the funds were generating a
profitable return. The court found that “[t]he fraudulent intent arises not
from the act of repayment but from the false message communicated in the
repayment – that the payment results from the return of an investment
when no such investment exists.”
Mr. Singh contends that he solicited loans rather than investments.
We reject this argument for two reasons. First, the distinction is irrelevant.
The existence of a Ponzi scheme does not depend on the form the schemer
uses to raise money. In fact, the namesake of the Ponzi scheme, Charles
Ponzi himself, raised funds by “borrowing money on his promissory
notes.” Cunningham v. Brown, 265 U.S. 1, 7 (1924). Second, the
determination that the transactions were investments is a factual finding
subject to clear error review. The court considered all of the evidence and
reached conclusions that were not illogical, implausible, or without support
in the record.
Mr. Singh argues that there was no Ponzi scheme because he
operated a legitimate business (an insurance agency) which generated
20
commission income (until the insurance companies he represented cut him
off because he was borrowing money from his customers). But the presence
of some legitimate business activities does not necessarily negate the
existence of a Ponzi scheme. If the revenues of the legitimate business are
insufficient to pay the claims of creditors and investors, such that the
schemer must solicit new investors to meet the claims of old investors,
there is a Ponzi scheme. See, e.g., Hayes v. Palm Seedlings Partners-A (In re
Agric. Research & Tech. Grp., Inc.), 916 F.2d 528 (9th Cir. 1990). After all,
Bernard Madoff had a legitimate business in the securities industry at the
same time as he perpetrated the largest Ponzi scheme in history. See James
Bandler, How Bernie did it, Fortune.com,
http://archive.fortune.com/2009/04/24/news/newsmakers/madoff.fortune/in
dex.htm (last visited Feb. 12, 2019).
Mr. Singh argues that the payments that the court characterized as
§ 727(a)(2) transfers were “made in the ordinary course of business” and
that “the Court cannot make a determination as to which deposits were
responsible for which payments.” He offers no authority for the
proposition, however, that the U.S. Trustee had to prove that every transfer
to the investors came from newer investors’ money. The court carefully
considered the evidence provided by the parties, including competing
expert testimony, and reviewed the dozens of transactions that occurred in
the year preceding the Singhs’ bankruptcy filing. It was not unreasonable
21
for the bankruptcy court to conclude that some of the monies paid to earlier
investors came from later investors’ funds. This finding is not clearly
erroneous, and it is legally sufficient.
Accordingly, the bankruptcy court did not err in denying Mr. Singh’s
discharge under § 727(a)(2)(A).5
B. The bankruptcy court did not err in its pretrial and evidentiary
rulings.
Mr. Singh raises a litany of other purported errors. He believes that
the bankruptcy court treated him unfairly. We are not convinced.
1. Deemed admissions
Mr. Singh contends that the bankruptcy court erred by allowing the
U.S. Trustee to withdraw his deemed admissions, because Mr. Singh was
relying on the U.S. Trustee’s non-responses to support his first motion for
summary judgment. The bankruptcy court did not abuse its discretion.
Civil Rule 36, made applicable in adversary proceedings by Rule
7036, provides that:
A matter admitted under this rule is conclusively established
unless the court, on motion, permits the admission to be
withdrawn or amended. Subject to Rule 16(e), the court may
5
Because our affirmance of the bankruptcy court’s § 727(a)(2)(A) holding
provides a sufficient basis to affirm the judgment, we do not reach Mr. Singh’s
arguments concerning § 727(a)(4), including his arguments about the U.S. Trustee’s
reliance on the usury defense and his allegedly false oaths pertaining to bank accounts
and asset transfers.
22
permit withdrawal or amendment if it would promote the
presentation of the merits of the action and if the court is not
persuaded that it would prejudice the requesting party in
maintaining or defending the action on the merits.
Civil Rule 36(b) (emphasis added). A bankruptcy court has discretion to
allow a party to withdraw its deemed admissions. See 999 v. C.I.T. Corp.,
776 F.2d 866, 869 (9th Cir. 1985).
The bankruptcy court correctly determined that the case should be
decided on the merits, rather than on a procedural error stemming from a
failure of communication among counsel. It also correctly determined that
the U.S. Trustee’s late responses did not prejudice Mr. Singh. The responses
were only six days late, and the court extended the discovery cut-off for
three months after it allowed the U.S. Trustee to amend his responses. This
negated any prejudice that Mr. Singh might have suffered. The burden of
having to prove the merits of one’s case (rather than prevailing by default)
is not “prejudice” under Civil Rule 36(b). See Conlon v. United States, 474
F.3d 616, 622 (9th Cir. 2007). We discern no abuse of discretion.
2. The U.S. Trustee’s expert
Mr. Singh argues that the bankruptcy court erred in denying his
motion in limine to exclude Mr. Arutyunyan’s expert report. He also
contends that the court should not have relied on his testimony at trial.
Federal Rule of Evidence 702 provides:
A witness who is qualified as an expert by knowledge, skill,
23
experience, training, or education may testify in the form of an
opinion or otherwise if:
(a) the expert’s scientific, technical, or other specialized
knowledge will help the trier of fact to understand the evidence
or to determine a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and
methods; and
(d) the expert has reliably applied the principles and methods
to the facts of the case.
Fed. R. Evid. 702. “[T]he trial court has discretion to decide how to test an
expert’s reliability as well as whether the testimony is reliable, based on the
particular circumstances of the particular case.” City of Pomona v. SQM N.
Am. Corp., 750 F.3d 1036, 1044 (9th Cir. 2014) (citation omitted). Once the
expert’s testimony is deemed admissible, “the expert may testify and the
fact finder decides how much weight to give that testimony.” Id.
Mr. Singh challenges Mr. Arutyunyan’s qualification as an expert
because (1) Mr. Arutyunyan was biased since he works for the U.S. Trustee;
and (2) Mr. Arutyunyan had never testified as an expert before. These
arguments are meritless. No rule or doctrine prohibits expert testimony
from an employee of a party or permits only experienced witnesses to give
expert testimony. Mr. Singh was free to (and did) argue at trial that
24
Mr. Arutyunyan was biased and inexperienced, but those arguments go to
the weight of his testimony, not its admissibility.
Mr. Singh believes that Mr. Arutyunyan’s testimony had less weight
that his witnesses’ contrary testimony. When evaluating factual findings,
“we give singular deference to a trial court’s judgments about the
credibility of witnesses. That is proper, we have explained, because the
various cues that ‘bear so heavily on the listener’s understanding of and
belief in what is said’ are lost on an appellate court later sifting through a
paper record.” Cooper v. Harris, 137 S. Ct. 1455, 1474 (2017) (citations
omitted). An attack on credibility determinations rarely succeeds, because
“when a trial judge’s finding is based on his decision to credit the
testimony of one of two or more witnesses, each of whom has told a
coherent and facially plausible story that is not contradicted by extrinsic
evidence, that finding, if not internally inconsistent, can virtually never be
clear error.” Anderson, 470 U.S. at 575.
The bankruptcy court was presented with conflicting testimony by
Mr. Singh’s and the U.S. Trustee’s witnesses. The bankruptcy court simply
found more credible and persuasive the expert and lay witness testimony
presented by the U.S. Trustee. Mr. Singh only argues that the bankruptcy
court should have preferred his version of the facts. The court’s decision to
believe the U.S. Trustee’s evidence was not clear error. Id. at 573-75.
25
3. Admission of the U.S. Trustee’s exhibits
Mr. Singh argues that the bankruptcy court erred in “reopening” the
U.S. Trustee’s case after he had rested to allow the U.S. Trustee to offer
exhibits for admission into evidence. Mr. Singh misconstrues the record.
The U.S. Trustee had not rested or otherwise waived his right to
move to admit his exhibits. The parties had told the court that they would
reach an agreement on the admission of exhibits during a recess, and that
issue was pending. The U.S. Trustee’s counsel’s statement to the court that
he had no further witnesses did not preclude the later admission of
exhibits.
In any event, even if the U.S. Trustee had rested, the bankruptcy
court always had discretion to reopen his case. See Keith v. Volpe, 858 F.2d
467, 478 (9th Cir. 1988) (“we have held that such reopening [a case to
permit introduction of evidence] is within the discretion of the trial court,
noting that the evidence requested should both be important as a matter
preventing injustice and reasonably be available”); Love v. Scribner, 691 F.
Supp. 2d 1215, 1235 (S.D. Cal. 2010), aff’d sub nom. Love v. Cate, 449 F. App’x
570 (9th Cir. 2011) (“A motion to reopen the record to submit additional
evidence is addressed to the sound discretion of the Court.”). The
bankruptcy court did not abuse its discretion.
CONCLUSION
The bankruptcy court did not err. We AFFIRM.
26