United States v. J. Korte ( 2001 )

United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
No. 00-6117NI
In re: *
*
J. Marshall Harvey Korte, *
*
Debtor. *
*
*
J. Marshall Harvey Korte, * Appeal from the United
* States Bankruptcy Court
Appellant, * for the Northern District
* of Iowa
v. *
*
United States of America *
Internal Revenue Service, *
*
Appellee. *
Submitted: April 16, 2001
Filed: May 7, 2001
Before WILLIAM A. HILL, SCOTT, and DREHER, Bankruptcy Judges.
DREHER, Bankruptcy Judge.
Debtor J. Marshall Harvey Korte (“Debtor”) appeals from the bankruptcy court’s1 decision
denying Debtor his discharge pursuant to §§ 727(a)(2)(A) and (a)(4)(A) of the Bankruptcy Code. For
the reasons set forth below, we affirm the decision of the bankruptcy court.
FACTS and PROCEDURAL HISTORY
In May 1988, Earl F. McGrane, a friend of Debtor's father, created “Amstar Trust” (“Trust”), a
“Common Law Trust Organization.”2 Debtor was the “Grantor” of the Trust, and Fred J. Korte, Debtor's
father, was “Trustee” of the Trust. The purpose of the Trust, according to Debtor's father, was to protect
assets for the Trust's beneficiaries who were the minor daughters of Fred J. and Norma Korte.
Debtor transferred extensive personal property to the Trust: jewelry, clothing, antiques, collectibles,
children's toys, two trucks, a car, two motorbikes, a snowmobile, a camper, bedroom furnishings, office
furniture, sports equipment, shop tools and equipment, investments, dining room furniture, toothbrushes,
razors, towels, two tractors, three augers, an auger wagon, two gravity boxes, a grain cleaner, a corn head,
1
The Honorable William L. Edmonds, United States Bankruptcy Judge for the Northern District
of Iowa.
2
While the question of the validity of this trust is not before us, we underscore that such trust
arrangements are closely scrutinized by the courts and have long been recognized as merely being
employed by debtors as a mechanism to shield assets from their creditors. See, e.g., United States v.
Graham, 60 F.3d 463, 469 (8th Cir. 1995) (affirming lower court's imposition of criminal penalties
against attorney who “create[d] a fraudulent trust document to remove his only asset from the
bankruptcy estate”); Lewis v. Haworth (In re Haworth), 253 B.R. 478, 481 (Bankr. D. Wyo. 2000)
(finding that “trust” was not a legal entity to which debtor could transfer property under Wyoming law;
thus, property conveyed to “trust” prior to bankruptcy became property of the estate); In re
Constitutional Trust # 2-562, 114 B.R. 627, 631 (Bankr. D. Minn. 1990) (finding that “revocable
domestic trust” formed “under the common law of contracts” and “protected by” the United States
Constitution had as its only function the holding of title to certain real estate and was not engaged in a
business such that it could qualify for Chapter 11 bankruptcy protection); Giove v. Stanko, 977 F.2d
413, 417 (8th Cir. 1992) (setting aside as fraudulent transfers made to trust upon finding that transferor
“was attempting to shield his assets from current and future creditors”).
2
a combination gravel and grain box, certain tillage equipment, a corn planter, and various tanks. Though
he was Grantor of the Trust, Debtor did not take possession of or title to the subsequently-issued Trust
certificates. Rather, he directed they be transferred to his two stepsisters, the Trust's beneficiaries.
In March 1989, forty acres of real property, which included some tillable acreage, a house, and
an apartment, located at 2966 - 380th Street in Osage, Iowa was added to the Trust res. The property
had previously belonged to Debtor's father and stepmother. To prevent foreclosure on the property in
January 1987, Osage Farmers National Bank (Bank”) agreed to sell the property on contract to Debtor.
After Debtor, with financial help from family members, completed the payments, the Bank deeded the
property to the Trust.
In the years after the Trust's creation, Debtor continued to use the personalty, household items, real
property, and equipment he transferred to the Trust. For example, he used the farm equipment and tools
for his custom crop farming business in 1997, 1998, and into 1999. He also had access to and spent some
time at the apartment located on the real property. In addition, many of the personal and household items
transferred to the Trust could be found in the apartment.
On November 25, 1998, Debtor filed a Chapter 7 bankruptcy petition. In his schedules, Debtor
listed his residence as 2966 - 380th Street in Osage, Iowa. Debtor listed only three creditors: (1) the
Internal Revenue Service (“IRS”) for debts incurred between 1989 and 1994 in the amount of $79,654.38;
(2) the Iowa Department of Revenue for debts incurred between 1989 and 1994 in the amount of
$11,397.94; and (2) Marilyn Korte, Debtor's mother, for a debt incurred in 1989 in the amount of $9,139.
Debtor indicated the he had no ownership interests in real property. As for personal property, Debtor
listed $1,265 in assets: (a) $50 cash; (b) $560 normal furnishings Osage, Iowa; (c) $150 books, tapes,
records; (d) $155 wearing apparel; (e) $50 Camaro (1978); (f) $50 Buick wagon (1980); (g) $100 Ford
Escort (1985); and (h) $150 Kawasaki snowmobile (1978). He claimed as exempt the household goods,
the wearing apparel, and the 1985 Ford Escort. In his Statement of Financial Affairs, Debtor answered
3
“none” when asked to “[l]ist all property owned by another person that the debtor holds or controls.”
Debtor signed his schedules.
Almost one month after he filed his petition, the first meeting of creditors was held. At that meeting,
Debtor said that he had transferred only a couple of vehicles to the Trust. He made no mention of any of
the other personal property or farming equipment the Trust documents show Debtor transferred to the
Trust. He also stated that he had listed all of his real and personal property in his schedules.
On April 6, 1999, the IRS commenced an adversary proceeding against Debtor.3 Specifically, the
IRS alleged that Debtor should be denied his discharge for having transferred or concealed assets within
one year of the petition date with an intent to defraud his creditors under § 727(a)(2)(A) and for having
falsely filled out his schedules under § 727(a)(4)(A). On November 27, 2000, the bankruptcy court
entered an order denying Debtor his discharge on both grounds.
In its decision, the bankruptcy court first addressed Debtor's contention that the IRS could not
bring an objection to discharge action. Specifically, Debtor disputed his tax liability, asserting that he owed
nothing to the IRS; therefore, he argued, the IRS lacked standing to object to entry of his discharge. The
bankruptcy court rejected Debtor's argument, reasoning that, under § 727(c)(1), the IRS qualified as a
“creditor” which may object to the granting of a debtor's discharge because it holds a “claim” as that term
is defined in the Bankruptcy Code.
Next, under § 727(a)(2)(A), the bankruptcy court found that Debtor had concealed personal
property with an intent to hinder, delay, or defraud his creditors within the year prior to the petition filing
date. The bankruptcy court made clear that the initial transfer or concealment of Debtor's assets took place
3
The IRS originally filed suit against Debtor on August 17, 1998, seeking to reduce to judgment
unpaid federal tax assessments against Debtor and to foreclose on certain real property. That suit was
interrupted by the imposition of the automatic stay.
4
almost a decade before he filed for bankruptcy. Even so, relying on the “continuous concealment doctrine,”
the bankruptcy court found that Debtor's concealment of his assets in the year prior to bankruptcy coupled
with his continued business and personal use of those assets warranted a denial of discharge. The
bankruptcy court also found that the IRS presented insufficient evidence to show Debtor retained an
interest in the real property located in Osage, Iowa.
Third, on the § 727(a)(4)(A) claim, the bankruptcy court found Debtor fraudulently filled out his
schedules and lied under oath at the first meeting of creditors when he failed to disclose his interests in and
transfers of certain personalty. He knew, the bankruptcy court concluded, that his schedules and testimony
were false. Immediately before and after the petition filing date, he not only possessed, but also used much
of the personal property and equipment he had ostensibly transferred to the Trust.
Debtor appealed4 the bankruptcy court's decision denying Debtor his discharge under §§
727(a)(2)(A) and (a)(4)(A).
ISSUES
This case presents two main issues on appeal.5 The first is whether the bankruptcy correctly
determined that the IRS had standing to commence an adversary proceeding against Debtor pursuant to
§ 727. The second is whether the bankruptcy court correctly denied the Debtor his discharge: in particular,
4
The IRS initially argued that Debtor had not timely filed his Notice of Appeal. The issue was
considered by an administrative panel which determined that Debtor had timely taken his appeal.
5
In his appellate brief, Debtor raises several additional issues, most of which relate to his firmly-
held belief that he does not have to pay taxes or his assertion that the IRS has never produced “law”
stating that Debtor is required to file a tax return. These issues are wholly unrelated to the two
dischargeability issues properly before us. We could not determine such issues even if they were
properly before us because Debtor failed to provide us with a transcript of the hearing in which he
claims to have raised all of these arguments. We also decline to address Debtor's assertions that the
bankruptcy court treated him unfairly or prejudicially when it refused to continue the trial in this matter
despite learning that Debtor had retained counsel fewer than 24 hours before the time of trial.
5
whether the bankruptcy court correctly determined that under § 727(a)(2)(A), Debtor transferred and
concealed assets with the intent to hinder or defraud his creditors and that under § 727(a)(4)(A), Debtor
falsely filled out his schedules and lied under oath about his assets at the first meeting of creditors.
STANDARD OF REVIEW
The appellate court reviews a bankruptcy court’s conclusions of law de novo and its findings of
fact for clear error. See Merchants Nat’l Bank of Winona v. Moen (In re Moen), 238 B.R. 785, 790
(B.A.P. 8th Cir. 1999); Bachman v. Laughlin (In re McKeeman), 236 B.R. 667, 670 (B.A.P. 8th Cir.
1999). “A finding is ‘clearly erroneous’ when although there is evidence to support it, the reviewing court
on the entire evidence is left with a definite and firm conviction that a mistake has been committed.”
Anderson v. Bessemer City, 470 U.S. 564, 573 (1985) (quoting United States v. United States Gypsum
Co., 333 U.S. 364, 395 (1948)). A bankruptcy court’s factual findings may not, however, be overturned
on appeal merely because the appellate court may have decided the issue differently. See Anderson, 470
U.S. at 573.
In this case, the bankruptcy court's determination that the IRS had standing to bring the adversary
proceeding objecting to the Debtor's discharge is a question of law subject to de novo review. See In
re FedPak Sys., Inc., 80 F.3d 207, 211 (7th Cir. 1995); Simon v. New Ctr. Hosp. (In re New Ctr.
Hosp.), 187 B.R. 560, 566 (E.D. Mich. 1995) (“Applying the de novo standard for review of questions
of law, the decision of the Bankruptcy Court as to standing is affirmed.”); Manson v. Stacescu, 11 F.3d
1127, 1130 (2d Cir. 1993); Argeras v. GF Corp., 140 B.R. 884, 885 (N.D. Ohio 1992).
A bankruptcy court's determination that a debtor concealed or transferred assets with an intent to
hinder or defraud his creditors under § 727(a)(2)(A) is reviewed for clear error on appeal, as is the
bankruptcy court's determination that a debtor knowingly and fraudulently made a false oath or account
under § 727(a)(4)(A). See, e.g., Secor Bank v. Tschirn (In re Tschirn), No. 92-0868, 1992 WL 142699,
6
at *4 (E.D. La. June 15, 1992) (“The finding of the bankruptcy court regarding whether the debtor acted
with the intent to hinder, delay or defraud creditors is a factual one, and may set aside only if clearly
erroneous.” (citing Hibernia Nat'l Bank v. Perez (In re Perez), 954 F.2d 1026, 1029 (5th Cir. 1992));
Cepelak v. Sears (In re Sears), 246 B.R. 341, 347 (B.A.P. 8th Cir. 2000) (stating that the question of a
debtor's knowledge and intent under § 727(a)(4) is “a matter of fact”); Casey v. Kasal, 223 B.R. 879, 884
(E.D. Pa. 1998) (“The statement must be knowingly fraudulent; there must be an intent to hinder, delay or
defraud for the actions to have been done knowingly and fraudulently. ... Fraudulent intent is a question of
fact.” (citations omitted)).
DISCUSSION
A. Standing
As a threshold matter, Debtor suggested that the IRS lacks standing to bring an adversary
proceeding to object to entry of Debtor's discharge. Specifically, Debtor alleged that because he disputes
the fact that he owes any taxes, the IRS has no interest or stake in his bankruptcy. In response, the IRS
maintained it is a creditor which has standing to object to Debtor's discharge, even if Debtor's tax liability
is disputed. Reasoning that the IRS qualified as a creditor who holds a claim, the bankruptcy court
determined that the IRS had standing to commence an adversary proceeding objecting to Debtor's
discharge.
Section 727 governs discharges in bankruptcy generally. Subsection (c)(1) of that provision
specifically provides that “[t]he trustee, a creditor, or the United States trustee may object to the granting
of a discharge under subsection (a) of this section.” 11 U.S.C. § 727(c)(1) (1994). A “creditor,” in turn,
is defined as an “entity that has a claim against the debtor that arose at the time of or before the order for
relief concerning the debtor.” 11 U.S.C. § 101(10)(A) (1994). A “claim” is a “right to payment, whether
or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured, or unsecured.” 11 U.S.C. § 101(5)(A) (1994). Rule
7
7001(4) of the Federal Rules of Bankruptcy Procedure states that “a proceeding to object to or revoke
a discharge” is an adversary proceeding. Fed. R. Bankr. P. 7001(4) (1994). As stated in Rule 4004(a),
an adversary proceeding objecting to a debtor's discharge must be commenced within certain time limits.
See Fed. R. Bankr. P. 4004(a) (1994).
In this case, the bankruptcy court correctly determined that the IRS had standing to commence an
adversary proceeding objecting to Debtor's discharge. Debtor listed the IRS as one of only three creditors
in his bankruptcy schedules. Moreover, though Debtor may dispute the amount or nature of the IRS's claim
or that claim may ultimately be reduced or disallowed, the IRS nevertheless holds a “claim,” thereby
qualifying it as a “creditor” under § 727(c)(1) with standing to object to Debtor's discharge. Finally, the
IRS complied with all of the procedural requisites in this instance. The IRS commenced an adversary
proceeding, as required under Rule 7001(4), within the time limits established under Rule 4004(a).
B. Denial of Discharge
The IRS sought a denial of the Debtor’s discharge on two grounds under § 727. Generally
speaking, denying the debtor a discharge is a “harsh and drastic penalty.” American Bank v. Ireland (In
re Ireland), 49 B.R. 269, 271 n.1 (Bankr. W.D. Mo. 1985). See generally Peoples State Bank v.
Drenckhahn (In re Drenckhahn), 77 B.R. 697, 705 (Bankr. D. Minn. 1987) (recognizing that denial of
discharge is a “harsh sanction”); McDonough v. Erdman (In re Erdman), 96 B.R. 978, 984 (Bankr. D.N.D.
1988) (“Denying a discharge to a debtor is a serious matter not to be taken lightly by a court.”).
Accordingly, the denial of discharge provisions of § 727 “are strictly construed in favor of the debtor.” Fox
v. Schmit (In re Schmit), 71 B.R. 587, 589-90 (Bankr. D. Minn. 1987). Importantly, however, § 727 was
also included to prevent the debtor's abuse of the Bankruptcy Code. See id. at 590.
The burden of proof in a denial of discharge case is on the objecting party. See Fed. R. Bankr.
P. 4005; Ramsay v. Jones (In re Jones), 175 B.R. 994, 997 (Bankr. E.D. Ark. 1994). The objecting
party, the IRS in this case, must prove each element by a preponderance of the evidence. See, e.g.,
8
Grogan v. Garner, 498 U.S. 279, 285 (1991); Kirchner v. Kirchner (In re Kirchner), 206 B.R. 965, 973
(Bankr. W.D. Mo. 1997) (citing Barclays/American Bus. Credit v. Adams (In re Adams), 31 F.3d 389(6th Cir. 1994)); Kaler v. Craig (In re Craig), 195 B.R. 443, 448-49 (Bankr. D.N.D. 1996)(citing, inter
alia, Farouki v. Emirates Bank Int'l, Ltd., 14 F.3d 244 (4th Cir. 1994); First Nat’l Bank v. Serafini (In
re Serafini), 938 F.2d 1156 (10th Cir. 1991)).
1. Concealment of Assets
The first ground on which the IRS asked the bankruptcy court to deny Debtor his discharge is
§ 727(a)(2)(A). The IRS alleged that Debtor concealed within a year of the petition filing date various
assets with the intent to hinder or defraud his creditors, and the bankruptcy court agreed. Invoking the
continuous concealment doctrine, the bankruptcy court reasoned that even though Debtor actually
transferred personalty and agricultural equipment to the Trust more than one year before filing a bankruptcy
petition, he continued to use that property and failed to disclose any kind of interest in that property in his
schedules or at the first meeting of creditors.
Section 727(a)(2)(A) provides in relevant part that a debtor’s discharge should be denied when:
the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate ... has
transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred,
removed, destroyed, mutilated, or concealed ... property of the debtor, within one year before the
date of the filing of the petition.
11 U.S.C. § 727(a)(2)(A) (1994). To succeed on a § 727(a)(2)(A) claim, the objecting creditor must
prove by a preponderance of the evidence: (1) that the act complained of was done within one year prior
to the date of petition filing; (2) the act was that of the debtor; (3) it consisted of a transfer, removal,
destruction or concealment of the debtor's property; and (4) it was done with an intent to hinder, delay,
or defraud either a creditor or an officer of the estate. Kaler v. Craig (In re Craig), 195 B.R. 443, 448
(Bankr. D.N.D. 1996).
9
Applying the first three elements, the statute requires that the debtor transfer, remove, destroy, or
conceal his property within one year of the date of the petition filing. Relevant to this case, “concealment
is a continuing event and under the established doctrine of 'continuing concealment,' a concealment that
originated outside the one year limitation period is within the reach of § 727(a)(2)(A) if the concealment
continued on into the year preceding the filing coupled with the requisite intent.” In re Craig, 195 B.R. at449 (citing Rosen v. Bezner, 996 F.2d 1527 (3d Cir. 1993); In re Olivier, 819 F.2d 550 (5th Cir. 1987)).
Asset concealment “is typically found to exist where the interest of the debtor in property is not apparent
but where actual or beneficial enjoyment of that property continued.” In re Craig, 195 B.R. at 449 (citing
as illustrative In re Towe, 147 B.R. 545 (Bankr. D. Mont. 1992)).
Here, Debtor transferred legal title to the personalty and agricultural equipment to the Trust well
outside the one year window, but he concealed that property after the actual transfer and into the requisite
time frame. He used both the personalty while he resided at the apartment and the equipment in his farming
operations in the months immediately prior to filing the bankruptcy petition. See Rosen v. Bezner, 996 F.2d
1527, 1532 (3d Cir. 1993) (“In a situation involving a transfer of title coupled with retention of the benefits
of ownership, there may, indeed, be a concealment of property. Where this is the case, however, the
concealment is present not because retention of the benefits of ownership conceals the fact that the debtor
no longer has legal title, but rather because the transfer of title represents to the world that the debtor has
transferred away all his interest in the property while in reality he has retained some secret interest–a secret
interest of which retention of the benefits of ownership may be evidence.”). The case law and the evidence
support the bankruptcy court's conclusion that the IRS, relying on the continuous concealment doctrine,
met its burden of proof on the first, second, and third elements.
In terms of the fourth element, while the objecting creditor need not show fraudulent intent on the
debtor’s part to succeed on a § 727(a)(2)(A) claim, it must show the debtor acted with actual intent to
hinder, delay, or defraud a creditor. See Fox v. Schmit (In re Schmit), 71 B.R. 587, 590, 591 (Bankr. D.
Minn. 1987) (citing Lovell v. Mixon), 719 F.2d 1373, 1376-77 (8th Cir. 1983); Huntington Nat'l Bank
10
v. Schwartzman (In re Schwartzman), 63 B.R. 348, 360 (Bankr. S.D. Ohio 1986)). Proving the requisite
actual intent with direct evidence is difficult. See In re Schmit, 71 B.R. at 590. Thus, such actual intent may
be “inferred from the facts and circumstances of the debtor's conduct.” Id.In this case, the bankruptcy court found that Debtor concealed his assets, specifically his personalty
and equipment, with the express intent to hinder the taxing authorities in their efforts to collect outstanding
taxes from him.6 Indeed, though not required under the statute, the bankruptcy court went so far as to infer
fraudulent intent. To support its conclusion, the bankruptcy underscored that other than his mother, the
taxing authorities were Debtor's only creditors; that Debtor adamantly maintained the IRS has no authority
to assess taxes against him or to levy against his property; and that Debtor ostensibly transferred assets to
close family members even as he retained control over and use of such assets.
Case authority indicates that retention of such a beneficial use interest, coupled with Debtor's
attempts to evade payment of taxes, demonstrated the kind of actual intent § 727(a)(2)(A) requires. See
generally In re Craig, 195 B.R. at 450 (“Courts have long been concerned over situations where ... debtors
shield their property from the reach of creditors by placing legal title in others–all the while retaining an
equitable interest.”); Keeney v. Smith (In re Keeney), 227 F.3d 679, 683 (6th Cir. 2000) (finding that
bankruptcy court correctly inferred requisite intent to hinder or defraud creditors where debtor concealed
his beneficial interest in real property which was titled in his parents' names but on which he resided rent-
free and had made several mortgage payments); Hughes v. Lawson (In re Lawson), 122 F.3d 1237, 1241
(9th Cir. 1997) (“Evidence was adduced below that allowed the court to infer that the debtor retained and
concealed from her creditors a secret benefit in regard to the deed of trust.”); Coggin v. Coggin (In re
6
The bankruptcy court also concluded that there was insufficient evidence to show Debtor
retained an interest in the real property formerly owned by his father and stepmother in the year prior to
bankruptcy. Because we agree with the bankruptcy court's conclusion that Debtor retained an interest
in other personal property and equipment sufficient to deny Debtor his discharge under § 727(a)(2)(A),
we need not consider whether the bankruptcy court's decision regarding the Debtor's interest, or lack
thereof, in the real property was clearly erroneous.
11
Coggin), 30 F.3d 1443, 1451 (11th Cir. 1994) (affirming bankruptcy court's finding that debtor's transfer
of $13,000 to his son was carried out with intent to hinder, defraud, or delay where transfer occurred while
debtor was insolvent, there were many existing creditors, and transfer was made to avoid claims of debtor's
ex-wife). While we need not decide whether Debtor's actions rose to the level of fraudulent intent, we find
the bankruptcy court's conclusion that Debtor transferred and concealed his personalty and farming
equipment with the actual intent to hinder the taxing authorities' collection efforts is well-supported by the
evidence and not clearly erroneous. Therefore, we affirm the bankruptcy court's denial of Debtor's
discharge under § 727(a)(2)(A).
2. False Oath
The second ground on which the IRS asked the bankruptcy court to deny Debtor his discharge is
§ 727(a)(4)(A). The IRS argued Debtor failed to disclose certain assets and property interests on his
schedules and to answer truthfully questions about those assets and interests at the first meeting of creditors.
Specifically, according to the IRS, Debtor lied to the trustee when he responded that he had listed all of
his property in his schedules and that he had transferred only a couple of vehicles to the Trust. In response,
Debtor maintained he had no interest in those assets and was, therefore, not required to schedule them and
that he was wholly forthright with the trustee at the first meeting of creditors.
Section 727(a)(4)(A) “provides a harsh penalty for the debtor who deliberately secretes
information from the court, the trustee, and other parties in interest in his case.” Cepelak v. Sears (In re
Sears), 246 B.R. 341, 347 (B.A.P. 8th Cir. 2000). That provision provides in relevant part that a debtor
is entitled to a discharge unless he “knowingly and fraudulently, in or in connection with the case ... made
a false oath or account.” 11 U.S.C. § 727(a)(4)(A) (1994). For such a false oath or account to bar a
discharge, the false statement must be both material and made with intent. See Mertz v. Rott, 955 F.2d
596, 597-98 (8th Cir. 1992); Palatine Nat'l Bank v. Olson (In re Olson), 916 F.2d 481, 483-84 (8th Cir.
1990); Chalik v. Moorefield (In re Chalik), 748 F.2d 616, 618 (11th Cir. 1984)). Noting that the
“threshold to materiality is fairly low,” this court recently articulated the standard for materiality: “The
12
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.” In re Sears, 246 B.R. at 347 (quoting In re Chalik, 748
F.2d at 618). The question of a debtor's “knowledge and intent under § 727(a)(4) is a matter of fact.”
In re Sears, 246 B.R. at 347 (citing In re Olson, 916 F.2d at 484). Intent “can be established by
circumstantial evidence,” and “statements made with reckless indifference to the truth are regarded as
intentionally false.” Golden Star Tire, Inc. v. Smith (In re Smith), 161 B.R. 989, 992 (Bankr. E.D. Ark.
1993) (citing In re Sanders, 128 B.R. 963, 964 (Bankr. W.D. La. 1991)).
As § 727(a)(4)(A) makes clear, “[t]he Code requires nothing less than a full and complete
disclosure of any and all apparent interests of any kind.” Fokkena v. Tripp (In re Tripp), 224 B.R. 95, 98
(Bankr. N.D. Iowa 1998) (citing In re Craig, 195 B.R. 443, 451 (Bankr. D.N.D. 1996)). The debtor's
“petition, including schedules and statements, must be accurate and reliable, without the necessity of digging
out and conducting independent examinations to get the facts.” In re Sears, 246 B.R. at 347 (citing Mertz
v. Rott, 955 F.2d 596, 598 (8th Cir. 1992)). See generally National Am. Ins. Co. v. Guarjardo (In re
Guajardo), 215 B.R. 739, 742 (Bankr. W.D. Ark. 1997) (“[T]he Bankruptcy Code requires disclosure
of all interests in property, the location of all assets, prior and ongoing business and personal transactions,
and, foremost, honesty. The failure to comply with the requirements of disclosure and veracity necessarily
affects the creditors, the application of the Bankruptcy Code, and the public's respect for the bankruptcy
system as well as the judicial system as a whole.”). Statements made in schedules are signed under
penalties of perjury and have “the force and effect of oaths,” and testimony elicited at the first meeting of
creditors is given under oath. In re Smith, 161 B.R. at 992 (citing In re Sanders, 128 B.R. 963 (Bankr.
W.D. La. 1991)).
In this case, the bankruptcy court applied the correct legal standard, and its findings were not
clearly erroneous. Debtor failed to disclose on his schedules and in his testimony at the first meeting of
creditors the interests he retained in property transferred to the Trust. Debtor retained actual possession
13
of much of that property and continued to use it both personally and in his business. Debtor's testimony
at the first meeting of creditors also appears to have been untruthful on another ground. Debtor testified
he transferred only some worthless vehicles to the Trust, though the Trust documents clearly show Debtor
purportedly transferred extensive personalty and equipment to the Trust.
Next, Debtor's omissions and misstatements were certainly, as the bankruptcy court concluded,
material. Applying the materiality standard set forth in In re Sears, they related directly to Debtor's business
dealings, the discovery of his assets, and the existence and disposition of his property. In re Sears, 246
B.R. at 347.
Finally, citing an abundance of circumstantial evidence, the bankruptcy court determined that
Debtor intentionally made materially false statements on his schedules and in his testimony. We agree with
the bankruptcy court that Debtor not only clearly knew what he was doing, he intended to do exactly what
he did. Debtor tried to portray himself as propertyless even as he continued to possess and make use of
extensive personalty and valuable farming equipment. Debtor transferred all of his assets to a family trust
to protect them and, at the same time, to deceive, in a blatantly defiant manner, the taxing authorities. Given
the evidence presented, the bankruptcy court's denial of Debtor's discharge under § 727(a)(4)(A) was not
clearly erroneous.
ACCORDINGLY, having found that Debtor's arguments lack merit and that his appeal borders
on being frivolous,7 we affirm the decision of the bankruptcy court to deny Debtor his discharge under §§
727(a)(2)(A) and (a)(4)(A).
7
Bankruptcy Appellate Panels may award damages or impose sanctions against a party for a
frivolous appeal under Rule 8020. See Fed. R. Bankr. P. 8020. That rule, however, explicitly
provides that such an award can be entertained only upon notice from the court or a separately-filed
motion. See Fed. R. Bankr. P. 8020. Thus, although we may deem Debtor's appeal frivolous, we
cannot impose sanctions or award damages against Debtor at this juncture. See, e.g., Wendover Fin.
Servs. v. Hervey (In re Hervey), 252 B.R. 763, 769 (B.A.P. 8th Cir. 2000); Williams v. Kemp (In re
Kemp), 242 B.R. 178, 183 (B.A.P. 8th Cir. 1999); Ebersold v. DeLaughter (In re DeLaughter), 213
B.R. 839, 842 n.6 (B.A.P. 8th Cir. 1997).
14
A true copy.
Attest:
CLERK, U.S. BANKRUPTCY APPELLATE PANEL
FOR THE EIGHTH CIRCUIT
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