Porobil v. Autry ( 1999 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
____________________
No. 98-30779
Summary Calendar
____________________
IN THE MATTER OF GREGORY M POROBIL,
Debtor.
---------------------------
GREGORY M POROBIL,
Appellant,
v.
SANDRA A AUTRY,
Appellee.
_________________________________________________________________
Appeal from the United States District Court
for the Eastern District of Louisiana
(98-CV-288-R)
_________________________________________________________________
June 4, 1999
Before KING, Chief Judge, WIENER and DENNIS, Circuit Judges.
PER CURIAM:*
Appellant Gregory Porobil appeals a bankruptcy court’s order
denying him a discharge of his debts under Chapter 7 of the
bankruptcy code, 11 U.S.C. §§ 701-766, based on allegedly
fraudulent statements that Porobil included in his application
for bankruptcy relief. We affirm.
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
I. FACTUAL & PROCEDURAL BACKGROUND
Appellant Gregory Porobil filed a petition for protection
under Chapter 7 of the bankruptcy code on December 14, 1995.
Porobil, an attorney practicing in Louisiana, stated in a
schedule attached to his petition that he held an interest of
unknown value in a professional law corporation bearing his name
(the PLC). Porobil stated that he had an employment agreement
with the PLC and had received $25,000 in salary since January 1,
1995. Porobil listed no other interest in any incorporated or
unincorporated business in the schedules attached to his
petition, and he marked “[n]one” when asked on his Statement of
Financial Affairs to “list the names and addresses of all
businesses in which [he] was an officer, director, partner, or
managing executive of a corporation, partnership, sole
proprietorship, or was [a] self-employed professional within the
two years immediately preceding the commencement of this case, or
in which [he] owned 5 percent or more of the voting or equity
securities within the two years immediately preceding the
commencement of this case.” Finally, Porobil listed appellee
Sandra Autry, the receiver of Comco Insurance Company (Comco), as
an unsecured creditor in the amount of $748,518.43 resulting from
a 1993 judgment in favor of Comco.
Autry filed a complaint to deny Porobil discharge under 11
U.S.C. § 727(a)(2), (4), and (5) on March 18, 1996.1 Autry
1
Section 727(a) provides, in part, that the court shall
grant a discharge unless:
2
alleged, inter alia, that Porobil had failed to reveal properly
both his ownership interest in an insurance company named
Southern Assurance, Inc. (SA) and his interest in a salary and
legal fees from the PLC. Specifically, Autry asserted that
Porobil owned one hundred percent of SA’s stock, was entitled to
$100,000 per year in salary from the PLC, and collected a fee in
excess of $24,000 six days after filing his Chapter 7 petition.
Autry claimed that the “overwhelming majority” of the fee was
earned prior to Porobil’s bankruptcy filing, and that the fee
resulted from the settlement of a case (the Fenasci case) that
was at least partially negotiated prior to the filing. Autry
argued that, in light of the above information, Porobil knowingly
and fraudulently made false statements in his Chapter 7 petition
and therefore should be denied a discharge of his debts.
(2) 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; or
(B) property of the estate, after the date of the
filing of the petition;
. . .
(4) the debtor knowingly and fraudulently, in or in
connection with the case--
(A) made a false oath or account; [or]
. . .
(5) the debtor has failed to explain satisfactorily, before
determination of denial of discharge under this paragraph,
any loss of assets or deficiency of assets to meet the
debtor’s liabilities[.]
3
The bankruptcy court heard evidence regarding Autry’s
complaint and entered an order denying Porobil discharge on
October 15, 1997. Although the bankruptcy court found
insufficient evidence to support Autry’s claims under 11 U.S.C.
§ 727(a)(2) and (a)(5), the court determined that Porobil’s
failure to disclose his fees from his interest in the Fenasci
case and his failure to disclose his connection with SA were both
material to a determination of Porobil’s true financial
condition. The court found that “[i]t is obvious that [Porobil]
must have put in the bulk of his time on the Fenasci case pre-
petition,” and that his omission of either the fees themselves or
his contingent interest in the case was a false statement.
Furthermore, the court did “not find it credible” that Porobil
did not know that SA was still doing business in the two years
prior to his filing, pointing to tax returns that indicated that
SA had gross receipts of $1,749,456 in 1993 and $137,715 in 1994,
and a net income of $4238 in 1995. The court concluded that
“[t]he effect of the Debtor’s multiple omissions and the failure
to clear them up with the filing of amended schedules evidence to
the Court a reckless disregard for the truth and, thus, the
intent to deceive required for § 727(a)(4)(A).” The United
States District Court for the Eastern District of Louisiana
affirmed the order denying discharge, see Autry v. Porobil, No.
CIV.A.98-288, 1998 WL 395137, at *1 (E.D. La. July 14, 1998), and
Porobil timely appeals.
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II. DISCUSSION
Porobil argues on appeal that he was not required to
disclose his ownership interest in SA in either the schedules
attached to his Chapter 7 petition or the Statement of Financial
Affairs because SA “ceased operations and closed its doors in
March, 1995,” and was defunct at the time of filing. Porobil
argues that SA had no assets or other value, and that therefore
his failure to list his interest in it caused no prejudice.
Porobil asserts that his omission of SA “did not rise to the
level of making a knowing and fraudulent false oath” because he
“believed, at the time he executed the schedules[,] that the
information contained therein was both truthful and all that was
required.” In addition, Porobil argues that he was not required
to disclose the fee from the Fenasci case because the fee was
received by the PLC and not by Porobil personally.
We review the bankruptcy court’s findings of fact under the
clearly erroneous standard, but the court’s conclusions of law
are subject to de novo review. See In re Beaubouef, 966 F.2d
174, 177 (5th Cir. 1992). To prevail on her claim that Porobil
is not entitled to discharge under 11 U.S.C. § 727(a)(4)(A),
Autry must demonstrate that: (1) Porobil made a statement under
oath; (2) the statement was false; (3) Porobil knew the statement
was false; (4) Porobil made the statement with fraudulent intent;
and (5) the statement related materially to the bankruptcy case.
See Beaubouef, 966 F.2d at 178. We have previously determined
that false oaths that are “sufficient to justify the denial of
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discharge include ‘(1) a false statement or omission in the
debtor’s schedules or (2) a false statement by the debtor at the
examination during the course of the proceedings.’” Id. (quoting
4 COLLIER ON BANKRUPTCY ¶ 727.04[1] (15th ed. 1992)).
We agree with the district court’s determination that the
first three elements outlined above “are clearly met” with
respect to Porobil’s failure to disclose his interest and role in
SA. Autry, 1998 WL 395137, at *2. Porobil admits that he owned
all the stock of SA when he filed his Chapter 7 petition, and his
failure to list this interest in either the schedule or his
Statement of Financial Affairs renders both disclosures, which
were both made under oath, false. Furthermore, we agree with the
district court that, “given the tax returns of SA for 1994 and
1995, the bankruptcy court did not clearly err when it found that
Porobil knew the statements were false.” Id.
Porobil claims that “the mere omission of property from the
schedules does not necessarily establish fraudulent intent on the
part of the debtor,” quoting In re Woerner, 66 B.R. 964, 973
(Bankr. E.D. Pa. 1986), and that his failure to list SA “was not
an attempt to conceal his former interests in it, nor . . . the
result of any intent to hinder, delay, or defraud the Receiver.”
The bankruptcy court rejected these arguments and found that the
evidence presented at trial showed that Porobil made “knowing and
fraudulent false oaths” because he made multiple omissions in his
schedules and Statement of Financial Affairs, did not rectify
these omissions by filing amended schedules, and had “doubtful
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credibility in certain areas of explanation.” After carefully
reviewing the record and granting due deference to the trial
court on issues of credibility, we find no clear error in its
conclusion that Porobil intended to fraudulently omit relevant
information from the schedules and Statement of Financial
Affairs. See In re Cline, 48 B.R. 581, 584 (Bankr. E.D. Tenn.
1985) (“It is sufficient [to find fraudulent intent] if the
debtor knows the truth and nonetheless willfully and
intentionally swears to what is false.”); 6 COLLIER ON BANKRUPTCY
¶ 727.04[1][a] (15th ed. rev. 1999) (“The requisite intent [to
defraud] . . . may be discovered by inference from the facts.”).
Porobil, quoting In re Lineberry, 55 B.R. 510, 513 (Bankr.
W.D. Ky. 1985), argues that “a debtor who, without fraud, omits
from his sworn schedules property of no value is not guilty of
making a false and fraudulent oath,” and that “[i]f the false
oath pertains to an asset of de minimis value . . . this may tend
to vitiate the debtor’s fraudulent intent.” In re Arcuri, 116
B.R. 873, 881 (Bankr. S.D.N.Y. 1990). Porobil thus attempts to
use his assertion that SA has no value to challenge the
bankruptcy court’s findings of both fraudulent intent and
materiality. Porobil’s effort fails, however, because we see no
clear error in the district court’s finding, based on tax returns
indicating net income as recently as 1995, that SA continued to
conduct business in 1993 and 1994 and that its omission from
Porobil’s Chapter 7 petition was both material and detrimental to
an accurate determination of his financial condition. See
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Beaubouef, 966 F.2d at 178 (“‘The subject matter of a false oath
is “material,” and thus sufficient to bar discharge, if it 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.’”) (quoting In re
Chalik, 748 F.2d 616, 617 (11th Cir. 1984)). Furthermore, as we
stated in Beaubouef,
“The recalcitrant debtor may not escape a section
727(a)(4)(A) denial of discharge by asserting that the
admittedly omitted or falsely stated information concerned a
worthless business relationship or holding; such a defense
is specious. It makes no difference that he does not intend
to injure his creditors when he makes a false statement.
Creditors are entitled to judge for themselves what will
benefit, and what will prejudice, them. The veracity of the
bankrupt’s statements is essential to the successful
administration of the Bankruptcy Act.”
Id. (quoting Chalik, 748 F.2d at 617). We therefore conclude
that the bankruptcy court properly denied Porobil discharge under
11 U.S.C. § 727(a)(4)(A).2
III. CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the
district court affirming the judgment of the bankruptcy court.
2
Because we determine that the bankruptcy court properly
denied Porobil discharge after finding that he knowingly and
fraudulently made a false oath by omitting information relating
to his interest and role in SA in both the schedules and the
Statement of Financial Affairs attached to his Chapter 7
petition, we need not consider the bankruptcy court’s finding
that Porobil also made a false oath in violation of 11 U.S.C.
§ 727(a)(4)(A) by failing to include information relating to fees
from the settlement of the Fenasci case.
8