Opinion
NOT FOR PUBLICATION
Argued and Submitted at Pasadena, California: June 19, 2008
Appeal from the United States Bankruptcy Court for the Central District of California. Bk. No. RS 05-13979-PC, Adv. No. RS 05-01473-PC. Honorable Peter H. Carroll, Bankruptcy Judge, Presiding.
Before: SNYDER, [ PAPPAS, and MARKELL, Bankruptcy Judges.
Honorable Paul B. Snyder, Bankruptcy Judge for the Western District of Washington, sitting by designation.
MEMORANDUM
Eugene H. Perrine, Jr. (" Perrine") appeals the bankruptcy court's judgment denying his discharge pursuant to 11 U.S.C. § § 727(a)(2)(A) and (4)(A). We AFFIRM.
Unless otherwise indicated, all " Code, " chapter and section references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330, prior to its amendment by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119 Stat. 23, as the case from which the adversary proceeding and these appeals arise was filed before its effective date (generally October 17, 2005). All " Rule" references are to the Federal Rules of Bankruptcy Procedure.
I
FACTS
The following facts are uncontroverted. Prepetition, Perrine owned as his separate property a 30.32-acre tract of land located in Klamath Falls, Oregon (" Oregon Property"). On August 8, 2003, Perrine transferred the Oregon Property to the Eugene H. Perrine and Vicki L. Perrine Family Trust (" Perrine Trust"), by a Trust Transfer Grant Deed recorded on August 22, 2003.
Prior to August 22, 2003, Perrine also separately owned real property located at 285 W. Skyline Drive, La Habra Heights, California (" La Habra Property").
On August 8, 2003, Perrine signed and delivered two promissory notes to his wife, Vicki L. Perrine, in the principal sums of $143,500 and $150,000. Perrine also executed a Short Form Deed of Trust and Assignment of Rents for both notes, which encumbered the La Habra Property, apparently to secure payment of the notes. Neither was recorded. Perrine testified that the notes were executed to document cash advances or loans made from Vicki Perrine's separate funds for improvements to the La Habra Property and for loans used for expenses of Perrine Electric Company, Inc. (" Perrine Electric").
Perrine transferred his entire interest in the La Habra Property to the Perrine Trust by Trust Transfer Grant Deed recorded on September 26, 2003.
The Perrine Trust is an inter vivos revocable trust. Perrine is the trustor, cotrustee and beneficiary of the Perrine Trust. At its inception, the Perrine Trust included the following assets:
Community Property: " All items of tangible personal property, including, but not limited to, furniture and furnishings, silverware, clothing, books, collections of tangible personal property, and other tangible personal property usually kept at the Trustor's residence."
Perrine's Separate Property: (a) La Habra Property; (b) Oregon Property; (c) 50 shares of stock in Perrine Electric; and (d) a pension at Schwab & Company, Inc.
The pension plan was apparently never transferred to the Perrine Trust.
Section 1.02 of the Perrine Trust states: " All property now or hereafter conveyed or transferred to the [Trust]... shall remain, respectively, community property, quasi-community property, or the separate property of the Trustor transferring such property to the Trustee."
The Perrine Trust sold the La Habra Property in March, 2004, for approximately $875,000 and received about $450,000 in net proceeds. At the time of the sale, Vicki Perrine was in the process of purchasing the real property located at 4025 Prairie Dunes Drive, Corona, California (" Corona Property"). When the La Habra Property was sold, Perrine and Vicki Perrine, as Co-Trustees of the Perrine Trust, transferred approximately $293,500 of the net proceeds into Vicki Perrine's pending escrow for the purchase of the Corona Property. By Grant Deed recorded on March 26, 2004, the Corona Property was purchased in the name of Vicki Meyers, a married woman, as her sole and separate property. Meyers was Vicki Perrine's maiden name. Perrine and Vicki L. Meyers were married in September, 2002.
Perrine testified that they used the remaining $153,294.94 in net sales proceeds from the La Habra Property to pay personal expenses, including installing a pool, adding a patio, and making other improvements at the Corona Property.
On March 26, 2004, an Interspousal Deed was recorded in which Perrine transferred any interest he had in the Corona Property to his wife Vicki Perrine also known as Vicki Meyers. Perrine and Vicki Perrine resided in the Corona Property from March, 2004, to the petition date, April 21, 2005.
Perrine is the president of Perrine Electric. On April 29, 2004, Perrine was sued by AAA Electrical Supply, Inc. (" AAA") in the Superior Court of Los Angeles County (" State Lawsuit"), for $71,167.05, plus attorney fees and costs, based upon his personal guaranty of Perrine Electric's debts.
Catanzarite Law Corporation (" Catanzarite") represented Perrine and Perrine Electric in the State Lawsuit. On January 10, 2005, Perrine, individually and on behalf of Perrine Electric, signed a Stipulation for Entry of Judgment in the State Lawsuit in favor of AAA for $75,000. The next day, on January 11, 2005, Perrine and Vicki Perrine, individually and as Co-Trustees of the Perrine Trust, executed a Retainer Agreement and Application of In Kind Payment (" Retainer Agreement") in which they agreed to transfer the Oregon Property to Catanzarite for accrued attorney's fees and costs and as " a non-refundable deposit to be applied to going forward attorneys fees and costs." Perrine and Vicki Perrine both testified that they knew at the time they signed the Retainer Agreement that AAA could collect its judgment against the Oregon Property.
In the Retainer Agreement, the parties stipulated that the value of the Oregon Property was $30,000. Perrine testified that the $30,000 value was based on an opinion given to him by a real estate agent in Oregon. According to his deposition, the real estate agent suggested a listing price of $50,000.
At the time of the transfer, Catanzarite was owed $12,000 for accrued attorney's fees. The Retainer Agreement states that it is " for the purpose of securing the continued representation of the Trust and the individuals in future litigation including without limitation, with creditors and to protect the home equity of Vicki and pension of Eugene."
On January 13, 2005, Perrine and Vicki Perrine, as Co-Trustees of the Perrine Trust, executed a Statutory Bargain and Sale Deed conveying the Oregon Property to Catanzarite for a credit of $30,000. The deed was recorded on January 14, 2005. Ten days later, the Stipulation for Entry of Judgment was entered in the State Lawsuit.
Perrine filed a voluntary chapter 7 bankruptcy petition on April 21, 2005. According to Schedule A, Perrine did not own an interest in real property on the petition date. On Schedule B, Perrine listed assets valued at $415,740, consisting of cash, clothing, two vehicles and an interest in a profit-sharing plan with an estimated value of $400,000. On Schedule B, Perrine indicated that he did not own any stock or interest in a business or hold any interest in a trust as of the petition date. In Schedule F, Perrine listed nine creditors holding unsecured nonpriority claims of approximately $174,073.
In his Statement of Financial Affairs, Perrine indicated that he had not made any payments to creditors within 90 days of filing the case or transferred any property (other than in the ordinary course of business or financial affairs of the debtor) within one year of filing.
In response to Question #9 of the Statement of Financial Affairs, Perrine disclosed that he had paid Catanzarite $3,000 on January 14, 2005, for debt counseling or bankruptcy. Perrine did not disclose the Corona Property in his schedules.
Perrine admits that he did not disclose the Perrine Trust in his schedules, but claims that the Perrine Trust did not hold any property when the petition was filed and that his interest in the Perrine Trust was nominal. In response to the Chapter 7 Trustee's (" Trustee") requests for admissions, Perrine admitted that he was required by question #19 on Schedule B to disclose all contingent and noncontingent interests in a trust and that he owned a contingent or noncontingent interest in the Perrine Trust on the petition date. Perrine also admitted that the Perrine Trust had never been revoked. Perrine signed his schedules and Statement of Financial Affairs under penalty of perjury on May 6, 2005.
The first meeting of creditors was held on May 23, 2005. At this meeting, Perrine testified that both he and Vicki Perrine were on title to the La Habra Property and that the proceeds from the sale of the La Habra Property were used to purchase the Corona Property in Vicki's name alone.
At a continued meeting of creditors on June 20, 2005, Perrine testified that he and Vicki Perrine formed the Perrine Trust shortly after their marriage and that the only asset of the trust at the time was the La Habra Property. The Trustee continued the meeting of creditors and requested further documentation. Perrine did not appear at the next continued meeting of creditors on July 12, 2005, but the Trustee noted that some, but not all of the requested documents had been provided. Perrine did not appear at any further continued meeting of creditors, and he never filed an amended Schedule B. An Amended Statement of Financial Affairs was filed on June 20, 2005, to disclose payments to Perrine's wife, listed as Vicki L. Meyers, for wages. Perrine never amended his response to Questions #9 and #10 to disclose the transfer of the Oregon Property to Catanzarite.
The Trustee filed a complaint objecting to Perrine's discharge under § 727(a)(2)(A), (a)(3), (a)(4)(A) and (a)(5) on December 16, 2005. On September 17, 2007, the bankruptcy court granted partial summary judgment. In ruling on the parties' cross motions for summary judgment, the bankruptcy court issued a lengthy written opinion containing findings of fact and conclusions of law. The Trustee's claim for relief under § 727(a)(3) was dismissed in response to a motion for summary judgment brought by Perrine, and the Trustee's claim for relief under § 727(a)(5) was abandoned at the time of entry of the joint pretrial order presented by the parties.
In granting partial summary judgment in favor of the Trustee on the § 727(a)(2)(A) claim, the bankruptcy court concluded that Perrine's interest in the Oregon Property was property of the debtor, which he had transferred within one year of filing the petition; that Perrine's interest in the Perrine Trust was property of the debtor, which he had concealed within one year of filing; and that Perrine's shares of stock in Perrine Electric were property of the debtor, which he had concealed within one year of filing. The bankruptcy court reserved for trial the issue of whether, in transferring or concealing these properties, Perrine had the subjective intent to hinder, delay or defraud a creditor or officer of the estate.
In granting partial summary judgment in favor of the trustee on the § 727(a)(4)(A) claim, the bankruptcy court concluded that Perrine declared under penalty of perjury on Schedule B that he did not own stock or an interest in a business or in a trust at the time of filing and that he declared under penalty of perjury on the Statement of Financial Affairs that he had not made any payments to creditors within 90 days of filing or transferred any property (other than in the ordinary course of business or financial affairs of the debtor) within one year of filing. The bankruptcy court further found that each of these statements was false and material. The bankruptcy court reserved for trial the issue of whether one or more of these statements were made knowingly and fraudulently.
Trial was held on November 26, 2007. On December 10, 2007, the bankruptcy court issued a Memorandum Decision and Judgment denying Perrine's discharge under § 727(a)(2)(A) and (a)(4)(A). Perrine timely appealed.
II
JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. § 1334 and § 157(b)(1) and (b)(2)(J). The Panel has jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158.
III
ISSUES
A. Whether the bankruptcy court erred in denying Perrine's discharge under § 727(a)(2)(A).
B. Whether the bankruptcy court erred in denying Perrine's discharge under § 727(a)(4)(A).
IV
STANDARD OF REVIEW
The Ninth Circuit standard of review of a judgment barring discharge is that: " (1) the court's determinations of the historical facts are reviewed for clear error; (2) the selection of the applicable legal rules under § 727 is reviewed de novo; and (3) the application of the facts to those rules requiring the exercise of judgments about values animating the rules is reviewed de novo." Riley v. Searles (In re Searles), 317 B.R. 368, 373 (9th Cir. BAP 2004), aff'd, 212 Fed.Appx. 589 (9th Cir. 2006).
" When there are two permissible views of the evidence, the trial judge's choice between them cannot be clearly erroneous." Developers Sur. & Indem. Co. v. Khalil (In re Khalil), 379 B.R. 163, 171 (9th Cir. BAP 2007) (quoting In re Baldwin Builders, 232 B.R. 406, 410 (9th Cir. BAP 1999)).
V
DISCUSSION
Section 727(a)(2) provides in relevant part:
(a) The court shall grant the debtor a discharge, unless-
(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[.]
An objection to discharge under this section requires, within one year of filing the petition, (1) a transfer or concealment, and (2) a subjective intent on the debtor's part to hinder, delay or defraud a creditor through the transfer or concealment. There must be a finding of actual intent to hinder, delay or defraud creditors, as constructive intent is not sufficient. However, intent " 'may be established by circumstantial evidence, or by inferences drawn from a course of conduct.'" Consumers Oil Co. v. Adeeb (In re Adeeb), 787 F.2d 1339, 1343 (9th Cir. 1986) (quoting Bank of Sheridan, Mont. v. Devers (In re Devers), 759 F.2d 751, 753-54 (9th Cir. 1985)). Section 727 is to be construed liberally in favor of debtors and strictly against the creditor. Adeeb, 787 F.2d at 1342. The burden is on the party opposing discharge to prove by a preponderance of the evidence that discharge should be denied. Grogan v. Garner, 498 U.S. 279, 289, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). The bankruptcy court denied Perrine's discharge under § 727(a)(2)(A) for failure to disclose the transfer of the Oregon Property, his interest in the Perrine Trust or the Perrine Electric stock.
Perrine's interest in the Oregon Property had been transferred within one year of his filing the petition and was admittedly not disclosed in his Statement of Financial Affairs. Thus, the only issue before the court was whether the transfer was concealed with the intent to hinder or delay his creditors.
Perrine's contention is that the bankruptcy court erred in finding the requisite intent as to the Oregon Property because the property was transferred for reasonable consideration.
Contrary to Perrine's argument that the bankruptcy court discounted or ignored the case of Hultman v. Tevis, 82 F.2d 940 (9th Cir. 1936), the bankruptcy court properly recognized that the mere fact that a transfer is preferential is insufficient grounds for denying a discharge. In Hultman, the debtor transferred funds to his son within one year of filing to repay a portion of a preexisting loan. The Ninth Circuit Court of Appeals determined that the fact that the payment was a preference did not necessitate a finding that it was made with an intent to hinder of delay creditors. Hultman, 82 F.2d at 941. Absent additional evidence of intent, the Ninth Circuit upheld the district court finding that the funds were not transferred with the intent to hinder, delay or defraud creditors.
Unlike Hultman, additional evidence of intent to defraud or delay exists in this case. Although the transfer was for partial consideration, there is insufficient evidence to conclude that the consideration was adequate. When the Oregon Property was transferred, Catanzarite was owed $12,000 for legal services. However, the Oregon Property was transferred for a " stipulated" value of $30,000. Perrine provided no evidence to support the stipulated value, other than deposition testimony that a realtor suggested a sale price of $50,000. Although Catanzarite continued to perform legal services for Perrine after the transfer, it is undisputed that the fees incurred did not equal the stipulated value at the time of the transfer.
The effect of the transfer was to remove Perrine's only remaining nonexempt equity from the reach of creditors, specifically AAA. The Stipulation for Entry of Judgment in favor of AAA was entered in the State Lawsuit only ten days after Perrine transferred the Oregon Property to Catanzarite, and Perrine admits that he was concerned at the time of the transfer that the Oregon Property would be seized by AAA to satisfy its judgment. This course of conduct supports the bankruptcy court's finding of intent to hinder, delay or defraud in violation of § 727(a)(2)(A).
The bankruptcy court applied the correct legal standard, and the evidence supports its conclusion that the Oregon Property was transferred with the intent to hinder or delay creditors.
In regards to the Perrine Trust and stock interest in Perrine Electric, Perrine admitted to not disclosing these interests in his schedules. Perrine stated that he did not disclose the Perrine Trust because it had no assets as of the petition date and the stock had no value.
The bankruptcy court concluded that this nondisclosure, coupled with Perrine's misrepresentations regarding the trust assets at the meetings of creditors, supported a finding that he " concealed" the Perrine Trust and stock interest with the intent to hinder or delay the Trustee.
Perrine argues that the failure to disclose the Perrine Trust cannot warrant denial of a discharge under § 727(a)(2)(A) because there was no transfer of the Perrine Trust as a whole within one year of filing. Perrine cites U.S. Trustee v. Snodgrass (In re Snodgrass), 359 B.R. 278 (Bankr. D. Idaho 2007), in which the bankruptcy court determined that a debtor's failure to disclose the existence of disability payments and corresponding bank accounts in his schedules was not a violation of § 727(a)(2)(A). The bankruptcy court in Snodgrass stated:
While his post-petition conduct leaves no doubt as to his intent to conceal assets, there is no evidence that Defendant attempted or intended to conceal the assets prior to filing, other than by his failure to disclose them in the bankruptcy schedules. Without evidence of a transfer coupled with an intent to defraud creditors beyond his failure to disclose the assets, Defendant's discharge cannot be denied on the basis of § 727(a)(2)(A).
Snodgrass, 359 B.R. at 287-88.
While the Debtor's argument suggests that § 727(a)(2)(B) may be more descriptive of his conduct than § 727(a)(2)(A), see Peterson v. Scott (In re Scott), 172 F.3d 959, 967-68 (7th Cir. 1999), the Panel need not reach this issue. We may affirm for any reason supported by the record. 28 U.S.C. § 2111; Dittman v. California, 191 F.3d 1020, 1027 n.3 (9th Cir. 1999). As concluded in our analysis of the Oregon Property, the bankruptcy court correctly denied the Debtor's discharge under § 727(a)(2)(A).
Section 727(a)(4)(A) provides that a court should grant a discharge to a debtor, unless the debtor knowingly and fraudulently, in or in connection with the case, made a false oath or account. For purposes of this section, proof that the debtor merely omitted information from bankruptcy schedules is not sufficient to establish fraudulent intent on a debtor's part. La Brioche, Inc. v. Ishkhanian (In re Ishkhanian), 210 B.R. 944, 956 (Bankr. E.D. Pa. 1997).
To deny a debtor a discharge under § 727(a)(4)(A), the plaintiff must show that (1) the debtor knowingly and fraudulently made a false oath, and (2) the false oath related to a material fact. Thomas v. Aubrey (In re Aubrey), 111 B.R. 268, 274 (9th Cir. BAP 1990). As with § 727(a)(2)(A), intent may be inferred from the actions of the debtor. A party objecting to a debtor's discharge on false oath grounds must establish " that the information was omitted for the specific purpose of perpetrating a fraud and not simply because [a] debtor was careless or failed to fully understand his attorney's instructions." Estate of Perlbinder v. Dubrowsky (In re Dubrowsky), 244 B.R. 560, 571-72 (E.D.N.Y. 2000). " Recklessness by itself will not suffice, but recklessness combined with other circumstances can support an inference that he acted with knowing and fraudulent intent." Khalil, 379 B.R. at 177. While some courts have found the requisite intent where there has been a pattern of falsity or from a reckless indifference to the truth, the ultimate question is still whether fraud has been established. Khalil, 379 B.R. at 174.
" A false statement is material if it bears a relationship to the debtor's business transactions or estate, or concerns the discovery of assets, business dealings, or the existence and disposition of the debtor's property." Fogal Legware of Switzerland, Inc. v. Wills (In re Wills), 243 B.R. 58, 62 (9th Cir. BAP 1999) (citing In re Chalik, 748 F.2d 616, 618 (11th Cir. 1984)).
The bankruptcy court concluded that Perrine made a false oath in failing to disclose the transfer of the Oregon Property, his interest in the Perrine Trust, and the Perrine Electric stock. The bankruptcy court further determined that these oaths related to a material fact. Perrine has not taken issue with these conclusions on appeal.
Perrine's primary contention is that the bankruptcy court erred in concluding that he could not rely on an advice-of-counsel defense to the § 727(a)(4)(A) claim.
Generally, a debtor who acts in reliance on the advice of counsel lacks the requisite intent necessary to deny a discharge of his or her debts. Adeeb, 787 F.2d at 1343. Typically, if an item is omitted on the honest advice of counsel, to whom the debtor has disclosed all pertinent facts, the item will not be deemed falsely omitted. Abbey v. Retz (In re Retz), 364 B.R. 742, 758 (Bankr. D. Mont. 2007). The debtor's reliance, however, must be in good faith. Adeeb, 787 F.2d at 1343. In addition, " the advice of counsel is not a defense when it is transparently plain that the property should be scheduled." Rita Girl, Inc. v. Mascolo (In re Mascolo), 505 F.2d 274, 277 n.4 (1st Cir. 1974). " A debtor cannot, merely by playing ostrich and burying his head deeply enough in the sand, disclaim all responsibility for statements which he has made under oath." Boroff v. Tully (In re Tully), 818 F.2d 106, 111 (1st Cir. 1987).
Perrine argues that this defense applies because any omissions were made on the advice of Catanzarite, to whom he had disclosed all of the pertinent facts regarding the Oregon Property, Perrine Trust and Perrine Electric stock.
The bankruptcy court considered this defense and determined that it did not apply to this case because any reliance by Perrine was not in good faith. The bankruptcy court determined that the " number and pervasiveness of the false statements and omissions" in the schedules and Statement of Financial Affairs, " coupled with" the false statements made at the meetings of creditors, failure to provide requested documentation to the Trustee, and failure to amend the schedules and statements, " vitiate[] any element of good faith."
In rendering its decision, the bankruptcy court also considered the fact that Perrine was an experienced businessman, not a naive or unsophisticated debtor. Courts may consider the debtor's education and business experience when evaluating the debtor's knowledge of a false statement. See, e.g., Montey Corp. v. Maletta (In re Maletta), 159 B.R. 108, 112 (Bankr. D. Conn. 1993). The bankruptcy court took these factors into consideration and weighed the credibility of Perrine's testimony in determining that any reliance by him on the advice of counsel was not in good faith. The panel gives due regard to the opportunity of the bankruptcy court to judge the credibility of witnesses. Rule 8013; Price v. Lehtinen (In re Lehtinen), 332 B.R. 404, 411 (9th Cir. BAP 2005).
The bankruptcy court's determination of a lack of good faith reliance is supported by the record. Perrine falsely represented on Schedule B that he did not own an interest in a trust and that he did not own stock in a corporation. Perrine later admitted that he did own a contingent or noncontingent interest in the Perrine Trust as of the bankruptcy petition date and that he was required to disclose any interest on Schedule B. In his Statement of Financial Affairs, Perrine falsely represented that he had not transferred any property within one year of filing (other than in the ordinary course of business). Perrine falsely represented that he paid $3,000 to Catanzarite on January 14, 2005, and failed to disclose that he had instead transferred the Oregon Property to Catanzarite on that date for a stipulated value of $30,000.
Perrine never filed an amended Schedule B that disclosed the transfer of the Oregon Property to Catanzarite. In Schedules I and J, he represented that he had no income or expenses. On Schedule J, he identified his wife as Vicki Martinez, even though she had not used that name since her first marriage. No explanation for this discrepancy was provided. He also disclosed on Schedule I that she had no income, only to later file an amended Schedule I after revealing at a meeting of creditors that she was employed as Perrine Electric's business manager. The bankruptcy court found that at the meetings of creditors, Perrine inaccurately testified that the only asset of the Perrine Trust was the La Habra Property when the trust's assets at its inception also included the Oregon Property, 50 shares of stock in Perrine Electric, and the pension at Schwab. The bankruptcy court also found that Perrine inaccurately testified that Vicki Perrine was on title to the La Habra Property, when it was actually his separate property until sold by the Perrine Trust.
Perrine made several substantial omissions and misstatements in his schedules and Statement of Financial Affairs and at the meetings of creditors. Perrine's explanations were not convincing to the bankruptcy court, and he failed to correct the deficiencies when given the opportunity. Although counsel may have been apprised of the facts surrounding these assets, based on the extent and nature of the omissions and misstatements made, Perrine cannot defer responsibility. Perrine signed the statements under penalty of perjury and provided testimony at the meetings of creditors under oath. The evidence establishes that Perrine knowingly and fraudulently made material and false oaths. Any reliance on the advice of counsel was not in good faith. Perrine has not shown clear error, and the bankruptcy court properly denied his discharge under § 727(a)(4)(A).
VI
CONCLUSION
The Panel AFFIRMS the bankruptcy court's judgment denying Perrine's discharge under § 727(a)(2)(A) and under § 727(a)(4)(A).