U.S. Trustee v. Bane (In Re Bane) , 565 F. App'x 246 ( 2014 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-1457
In Re: DAVID EDGAR BANE,
Debtor.
------------------------
U.S. TRUSTEE,
Plaintiff - Appellee,
v.
DAVID EDGAR BANE,
Debtor - Appellant.
Appeal from the United States District Court for the Western
District of Virginia, at Roanoke. Samuel G. Wilson, District
Judge. (7:12-cv-00529-SGW; BK-11-70118; AP-11-07013)
Submitted: February 24, 2014 Decided: April 9, 2014
Before NIEMEYER and AGEE, Circuit Judges, and HAMILTON, Senior
Circuit Judge.
Affirmed by unpublished per curiam opinion.
Gary M. Bowman, Roanoke, Virginia, for Appellant. Judy A.
Robbins, United States Trustee, Robert B. Van Arsdale, Assistant
United States Trustee, W. Joel Charboneau, Roanoke, Virginia,
Ramona D. Elliott, P. Matthew Sutko, Robert J. Schneider, Jr.,
Executive Office for United States Trustees, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
On January 21, 2011, David Edgar Bane (Bane) filed a
voluntary Chapter 7 bankruptcy petition in the United States
Bankruptcy Court for the Western District of Virginia. On March
21, 2011, W. Clarkson McDow, Jr., the United States Trustee for
Region 4 (UST), initiated an adversary proceeding by filing a
two-count complaint in the bankruptcy court alleging that a
denial of discharge of Bane’s debts was warranted under 11
U.S.C. § 727(a)(2)(A) 1 and, alternatively, under 11 U.S.C.
§ 727(a)(4)(A). 2 Following discovery, a trial was held before
the bankruptcy court on the UST’s complaint. On June 13, 2012,
the bankruptcy court entered a decision and order denying
discharge under both § 727(a)(2)(A) and § 727(a)(4)(A). On
appeal, the district court affirmed the bankruptcy court’s
§ 727(a)(2)(A)’s decision, and, given this affirmance, declined
1
Under § 727(a)(2)(A), the bankruptcy court shall deny
discharge if, within one year before the date of the filing of
the petition, “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-- . . .
property of the debtor.” 11 U.S.C. § 727(a)(2)(A).
2
Under § 727(a)(4)(A), the bankruptcy court shall deny
discharge if the debtor “knowingly and fraudulently, in or in
connection with the case-- . . . made a false oath or account.”
11 U.S.C. § 727(a)(4)(A).
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to address the bankruptcy court’s § 727(a)(4)(A) decision. For
the reasons stated below, we affirm.
I
A
In 2007, Bane’s company, Aequitas-Energy, Inc., purchased
fifty acres of land (the Angel Lane Property) in Roanoke County,
Virginia, from Bane’s mother, Martha Bane. 3 As payment, Martha
Bane received a $400,000 note, which was to be secured by a deed
of trust that was never recorded. Aequitas-Energy, Inc. then
obtained a loan (the Loan) from Community Trust Bank (the Bank)
secured by a properly recorded deed of trust on the Angel Lane
Property. Consequently, the Bank’s lien was superior to that of
Martha Bane’s.
By 2010, the Loan was in default, and the Bank scheduled a
foreclosure sale for July 2, 2010. The day before the scheduled
foreclosure sale, Bane transferred the Angel Lane Property from
his company to himself. He also filed a voluntary Chapter 7
bankruptcy petition, which resulted in a stay of the foreclosure
sale. In September 2010, Bane moved to dismiss his bankruptcy
3
The Angel Lane Property was purchased by Martha Bane and
Phillip Bane, as tenants in common, from Gilbert Miles and
Frances McLaughlin in 1992. Phillip Bane’s half interest was
conveyed to Martha Bane’s husband, Clyde Bane, in 1993. Upon
Clyde Bane’s death in 1995, Martha Bane became the fee simple
owner of the Angel Lane Property.
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petition on the basis that he failed to engage in credit
counseling prior to the filing of his bankruptcy petition, and
the bankruptcy court granted the motion on November 9, 2010.
The Bank scheduled another foreclosure sale, this time for
January 24, 2011. On December 31, 2010, Bane prepared a deed
transferring 90% of his ownership interest in the Angel Lane
Property to his mother, with whom he then resided, for $10. The
deed recited that it was “exempt from recordation tax pursuant
to Virginia Code Section 58.1-811(d),” which exempts from
taxation transfers made for no consideration. (J.A. 66).
On January 21, 2011, the last business day before the
scheduled foreclosure sale, the deed transferring 90% of Bane’s
ownership interest in the Angel Lane Property to Bane’s mother
was notarized and recorded. Within hours, Bane filed another
voluntary Chapter 7 bankruptcy petition, which stayed the
January 24, 2011 foreclosure sale.
In conjunction with his bankruptcy petition, Bane filed
schedules of his assets and liabilities and statements of
financial affairs. In these filings, Bane failed to disclose
that: (1) he is a named beneficiary of The Martha Harrison Bane
Irrevocable Trust (the Trust); (2) V&V Land Management &
Resource Recovery, LLC (V&V Land Management) had a $25,000
judgment against him, his brother, Roy Bane, as trustee for the
Trust, and the Trust itself; (3) he and his sister had a
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judgment in the amount of $5,150 against Howard E. Payton; and
(4) he had certain property at a Louisiana storage facility.
B
As to the UST’s § 727(a)(2)(A) claim, the bankruptcy court
found that Bane’s transfer of 90% of his ownership interest in
the Angel Lane Property was done with the intent to defraud his
creditors. In so finding, the bankruptcy court observed that
the “transfer of the Angel Lane Property . . . w[ore] several
badges of fraud: (1) there was no consideration for the transfer
of the property from the Debtor to his mother; (2) the Debtor
and his mother have a close familial relationship; and (3) the
Debtor retained a partial interest in the property allowing him
to continue to use the property.” (J.A. 396-97). According to
the bankruptcy court, these facts established a prima facie case
of fraudulent intent which was not rebutted by Bane’s
implausible explanations for the transfer. See Farouki v.
Emirates Bank Intern., Ltd., 14 F.3d 244, 249 (4th Cir. 1994)
(“Although the burden may shift to the debtor to provide
satisfactory, explanatory evidence once the creditor has
established a prima facie case, the ultimate burden rests with
the creditor.”). Consequently, the bankruptcy court concluded
that the UST met his ultimate burden of persuasion and,
therefore, a denial of discharge was warranted under
§ 727(a)(2)(A).
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As to the UST’s § 727(a)(4)(A) claim, the bankruptcy court
found that Bane made material omissions in connection with his
bankruptcy petition, including Bane’s failure to disclose his
interest in the Trust, V&V Land Management’s $25,000 judgment,
the $5,150 judgment against Howard E. Payton, and the property
he kept at a Louisiana storage facility. The bankruptcy court
was most concerned about Bane’s failure to disclose V&V Land
Management’s $25,000 judgment because such disclosure would have
revealed Bane’s interest in the Trust. However, the bankruptcy
court made clear that “each individual omission constitute[d]
grounds to deny a discharge.” (J.A. 398). The bankruptcy court
found that each omission, individually and collectively, gave
rise to a presumption of fraudulent intent, thereby establishing
a prima facie case, that was not rebutted by Bane’s implausible
explanations for the omissions. Consequently, the bankruptcy
court concluded that a denial of discharge was warranted under
§ 727(a)(4)(A).
On appeal from the bankruptcy court, the district court
agreed with the bankruptcy court’s conclusion that Bane’s
transfer of 90% of his ownership interest in the Angel Lane
Property “bore common badges of fraud, including a lack of
consideration for the transfer of the property from Bane to his
mother, the close familial relationship between the parties, and
Bane’s retention of a partial interest in the property allowing
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him continued use of that property.” (J.A. 409-10). These
facts, coupled with the dearth of evidence negating fraudulent
intent, led the district court to agree with the bankruptcy
court’s conclusion that “Bane intended to defraud his
creditors.” (J.A. 410). Accordingly, the district court
affirmed the bankruptcy court’s § 727(a)(2)(A) decision, and, in
so affirming, declined to address the bankruptcy court’s
§ 727(a)(4)(A) decision.
II
“When considering an appeal from a district court acting in
its capacity as a bankruptcy appellate court, we conduct an
independent review of the bankruptcy court’s decision, reviewing
factual findings for clear error and legal conclusions de novo.”
Campbell v. The Hanover Ins. Co., 709 F.3d 388, 394 (4th Cir.
2013). A finding of fact is clearly erroneous when the entire
record demonstrates convincingly to the reviewing court that “a
mistake has been committed.” United States v. U.S. Gypsum Co.,
333 U.S. 364, 395 (1948).
On appeal to this court, Bane presses no challenge in his
opening brief to the bankruptcy court’s § 727(a)(4)(A) holding.
He did raise such a challenge in response to an argument in the
UST’s brief which averred that the bankruptcy court’s
§ 727(a)(4)(A) holding could be affirmed because Bane waived any
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challenge to that holding or, alternatively, because the
bankruptcy court correctly resolved the claim on the merits.
“It is a well settled rule that contentions not raised in
the argument section of the opening brief are abandoned.”
United States v. Al–Hamdi, 356 F.3d 564, 571 n.8 (4th Cir.
2004); see also United States v. Leeson, 453 F.3d 631, 638 n.4
(4th Cir. 2006) (collecting cases). In rare circumstances,
appellate courts, in their discretion, may overlook this rule
and others like it if they determine that a “miscarriage of
justice” would otherwise result. Venkatraman v. REI Sys., Inc.,
417 F.3d 418, 421 (4th Cir. 2005).
In this case, Bane has not adequately explained why he
failed to raise a challenge to the bankruptcy court’s
§ 727(a)(4)(A) holding in his opening brief. In his reply
brief, he posits that he did not address the bankruptcy court’s
§ 727(a)(4)(A) ruling in his opening brief because the district
court did not reach this issue. The obvious flaw in Bane’s
position is that we review the bankruptcy court’s decision, not
the district court’s decision. Campbell, 709 F.3d at 394; In
re: Frushour, 433 F.3d 393, 398 (4th Cir. 2005) (noting that, in
an appeal from the district court sitting as an appellate court
from a bankruptcy court, we “review directly the bankruptcy
court’s decision”).
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Moreover, we decline to exercise our discretion to overlook
the waiver of this argument. Bane suggests that the UST would
suffer no prejudice were we to consider the § 727(a)(4)(A)
argument raised in his reply brief, which may or may not be
true, but he has neither adequately explained why the bankruptcy
court’s § 727(a)(4)(A) holding was not discussed in his opening
brief nor why our refusal to exercise our discretion will result
in manifest injustice. See A Helping Hand, LLC v. Baltimore
County, Md., 515 F.3d 356, 369 (4th Cir. 2008) (declining to
excuse waiver where the appellant had “not even explained why it
failed to raise these arguments earlier, let alone explained
why, absent our consideration, a miscarriage of justice would
result”). For these reasons, we affirm the bankruptcy court’s
decision to deny discharge under § 727(a)(4)(A).
Even though we could stop right here, we note that Bane’s
challenge to the bankruptcy court’s § 727(a)(2)(A) ruling is
without merit. The record as a whole supports the bankruptcy
court’s finding that Bane’s transfer of 90% of his ownership
interest in the Angel Lane Property was done with the intent to
defraud his creditors. The lack of consideration and the
parties to the transaction (mother/son) strongly suggest such
intent, as does the timing of the recordation of the deed and
Bane’s retention of a partial ownership interest, which allowed
his continued use of the property. Considering Bane’s
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preposterous explanations for failing to disclose the transfer
(allegedly, he thought the property was going to be sold or,
alternatively, his brother recorded the deed without his
knowledge), it is not surprising that the bankruptcy court held
that Bane did not rebut the presumption of fraudulent intent and
that the UST carried his ultimate burden of proof. 4
III
For the reasons stated herein, the judgment of the district
court is affirmed. We dispense with oral argument because the
facts and legal contentions are adequately presented in the
materials before this court and argument would not aid the
decisional process.
AFFIRMED
4
Bane argues that there was no “transfer” of the Angel Lane
Property because the deed transferring 90% of his ownership
interest to Martha Bane was never delivered to her as required
by Virginia law. This argument was not raised before either the
bankruptcy court or the district court and, therefore, is
reviewed for plain error. See In re: Celotex Corp., 124 F.3d
619, 630–31 (4th Cir. 1997) (adopting plain error standard of
review used in criminal cases, as set forth in United States v.
Olano, 507 U.S. 725 (1993), for application in civil cases when
party failed to preserve error below). Under this standard of
review, we may exercise our discretion to correct an error not
raised below if: (1) there is an error; (2) the error is plain;
(3) the error affects substantial rights; and (4) we determine,
after examining the particulars of the case, that the error
seriously affects the fairness, integrity, or public reputation
of judicial proceedings. Id. at 732-37. We have reviewed this
argument and conclude that Bane cannot meet the plain error
standard.
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