Glenn Lee Thompson v. Nancy J. Gargula

939 F.3d 1279

• Court: Court of Appeals for the Eleventh Circuit
• Decided: October 7, 2019
• Docket: 18-11885
• Status: Published

Opinion

Case: 18-11885 Date Filed: 10/07/2019 Page: 1 of 12

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT ________________________

No. 18-11885 Non-Argument Calendar ________________________

D.C. Docket Nos. 3:17-cv-00130-TCB; 11-bkc-11192-WHD

In re: GLENN LEE THOMPSON, HEIKE BIRGIT THOMPSON,

Debtors. ____________________________________________________

GLENN LEE THOMPSON, HEIKE BIRGIT THOMPSON,

Plaintiffs - Appellants,

versus

NANCY J. GARGULA, United States Trustee,

Defendant - Appellee.

________________________

Appeal from the United States District Court for the Northern District of Georgia ________________________

(October 7, 2019) Case: 18-11885 Date Filed: 10/07/2019 Page: 2 of 12

Before MARCUS, WILSON and BRANCH, Circuit Judges.

BRANCH, Circuit Judge:

Glenn Thompson and Heike Thompson challenge a bankruptcy court order

revoking the discharge of their debt. Their case turns on their allegation that the

United States Trustee had pre-discharge knowledge of the alleged conduct that

resulted in the revocation. The legal question on appeal boils down to whether a

“lack-of-knowledge” requirement that is explicitly contained in one subsection of

the bankruptcy statute, 11 U.S.C. § 727(d)(1), can be read into the adjacent

subsection of the same statute, 11 U.S.C. § 727(d)(2), thereby barring revocation.

The question presents an issue of first impression in this Circuit.1 We decline to

rewrite the statute and thus affirm the district court.

I.

On April 3, 2011, the Thompsons filed a voluntary Chapter 13 bankruptcy

petition. At their request, the bankruptcy court converted the case to Chapter 11 on

September 1, 2011; on July 10, 2013 it converted it, again at their request, to

Chapter 7. The Thompsons owned two businesses: Nattco, LLC (“Nattco”), where

Heike Thompson served as president, and GHT United, LLC (“GHT”). On the

1 In fact, it appears to be an issue that no circuit has squarely addressed, probably because it is rare that the facts of a case would produce a dispute on this issue. A trustee who has knowledge about relevant conduct under § 727(d)(2) would likely disclose that information before the discharge. And indeed, the Trustee here disputes pre-discharge knowledge for purposes of the statute. We would need to reach that factual question, however, only if § 727(d)(2) required us to do so.

2 Case: 18-11885 Date Filed: 10/07/2019 Page: 3 of 12

same day that the Thompsons’ individual case was converted to Chapter 11, Nattco

filed a voluntary bankruptcy petition under Chapter 11.

In the meantime, during the pendency of the individual and corporate

bankruptcy cases, a former employee of Nattco submitted a fraud referral to the

Trustee, alleging misconduct by the Thompsons, including “stockpiling cash,”

“taking trips to Hawaii, Puerto Rico, and Florida,” and undergoing plastic surgery.

The Trustee received the referral and additional communications about alleged

fraud between October 2013 and January 2014, and consequently initiated an

investigation into the allegations.

On February 26, 2014, the bankruptcy court granted the Thompsons a

discharge. See 11 U.S.C. § 727(a). On February 25, 2015, the Trustee filed an

adversary complaint requesting revocation of the Thompsons’ discharge in light of

the apparent fraudulent activity and alleging that the financial reports the

Thompsons submitted in the individual and Nattco bankruptcy cases were

“incomplete, inaccurate, or erroneous.” On September 12, 2016, the Thompsons

filed a motion for summary judgment, alleging in relevant part that the Trustee was

on notice of the alleged fraud before the bankruptcy court entered the discharge,

barring the Trustee’s claim for revocation.

On November 16, 2016, the bankruptcy court denied in part and granted in

part the Thompsons’ motion for summary judgment. The bankruptcy court applied

3 Case: 18-11885 Date Filed: 10/07/2019 Page: 4 of 12

11 U.S.C. § 727(d), which reads in relevant part as follows:

(d) On request of the trustee, a creditor, or the United States trustee, and after notice and a hearing, the court shall revoke a discharge granted under subsection (a) of this section if—

(1) such discharge was obtained through the fraud of the debtor, and the requesting party did not know of such fraud until after the granting of such discharge; [or] (2) the debtor acquired property that is property of the estate, or became entitled to acquire property that would be property of the estate, and knowingly and fraudulently failed to report the acquisition of or entitlement to such property, or to deliver or surrender such property to the trustee[.] The bankruptcy court noted that § 727(d)(1) allows for the revocation of a

discharge if the requesting party (in this case, the Trustee) “did not know of such

fraud until after the granting of such discharge.” Because the Trustee was informed

of the fraudulent activity before the discharge was granted, no revocation was

appropriate under § 727(d)(1), and the bankruptcy court granted in part the motion

for summary judgment on that ground.

The bankruptcy court, noted, however, that § 727(d)(2) contains no such

lack-of-knowledge requirement, and that the Thompsons had engaged in the

proscribed debtor conduct that § 727(d)(2) designates as sufficient support for a

revocation. On that ground, the bankruptcy court denied in part the Thompsons’

motion for summary judgment.

The case proceeded to a bench trial, after which the bankruptcy court entered

its final order and judgment revoking the Thompsons’ discharge on August 17,

4 Case: 18-11885 Date Filed: 10/07/2019 Page: 5 of 12

2017. The Thompsons appealed to the U.S. District Court for the Northern District

of Georgia, which affirmed the bankruptcy court’s final order and judgment on

April 3, 2018. This appeal followed.

II.

This Court “sits as a second court of review and thus examines

independently the factual and legal determinations of the bankruptcy court and

employs the same standards of review as the district court.” Yerian v. Webber (In

re Yerian), 927 F.3d 1223, 1227 (11th Cir. 2019) (quoting Torrens v. Hood (In re

Hood), 727 F.3d 1360, 1363 (11th Cir. 2013)). “[W]hen a district court affirms a

bankruptcy court’s order, as the district court did here, this Court reviews the

bankruptcy court’s decision.” Brown v. Gore (In re Brown), 742 F.3d 1309, 1315

(11th Cir. 2014). “We review the bankruptcy court’s factual findings for clear error

and its legal conclusions de novo.” Id. (quoting Educ. Credit Mgmt. Corp. v.

Mosley (In re Mosley), 494 F.3d 1320, 1324 (11th Cir. 2007)).

III.

Section 727(d)(1) of the Bankruptcy Code requires the bankruptcy court to

revoke a Chapter 7 discharge at the request of the Trustee if the debtor obtained the

discharge through fraud, and if the Trustee “did not know of such fraud until after

the granting of such discharge.” Section 727(d)(2) similarly requires revocation at

the request of the Trustee when the debtor “knowingly and fraudulently failed to

5 Case: 18-11885 Date Filed: 10/07/2019 Page: 6 of 12

report the acquisition of” “property that is property of the estate” or failed to

surrender the property to the Trustee, but notably it contains no exception for cases

where the Trustee had pre-discharge knowledge of the fraud. In an attempt to

overcome the plain language of the statute, the Thompsons argue that “a plaintiff

proceeding with a claim for revocation under § 727(d)(2) should be required to

prove he lacked pre-discharge knowledge of the fraud under the same standard

applied to claims under § 727(d)(1).” Both the bankruptcy court and the district

court declined to take the lack-of-knowledge requirement of § 727(d)(1) and read it

into § 727(d)(2). We also decline to do so.

A. On appeal to this Court, the Thompsons advance two primary arguments for

why this Court should incorporate the lack-of-knowledge requirement of

§ 727(d)(1) into § 727(d)(2). First, the Thompsons argue that the legislative history

of § 727(d)(2) indicates that the lack-of-knowledge requirement should apply to

both (d)(1) and (d)(2). Specifically, they assert that the statute, going all the way

back to its origins in section 15 of the Bankruptcy Act of 1898, has required that

“estoppel predicated on principles of laches may act as a bar to any attempt to

revoke a discharge.”2 In particular, they note that prior to the revision of 1970, the

2 The Thompsons also note that a small number of cases, in particular Humphreys v. Stedham (In re Stedham), 327 B.R. 889, 897 (Bankr. W.D. Tenn. 2005), have held that § 727(d)(2)

6 Case: 18-11885 Date Filed: 10/07/2019 Page: 7 of 12

statute allowed for “parties in interest” to apply for revocation of a discharge due

to fraud by the debtor only if they had “not been guilty of undue laches” and had

no knowledge of the fraud prior to the discharge. See Bankruptcy Act of 1898,

Pub. L. No. 55-541, § 15, 30 Stat. 544, 550 (1898), later codified at 11 U.S.C.

§ 33, 3 repealed by Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92 Stat.

2549 (1978).

necessarily includes the lack-of-knowledge requirement or it would be indistinct from § 727(a)(2), which reads: (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; or

(B) property of the estate, after the date of the filing of the petition[.]

The Thompsons mention this argument only in passing, but we note that § 727(a) is distinct from § 727(d) in several ways noted by the bankruptcy court, the most obvious of which is that § 727(a) applies to determining when a discharge may by granted or denied, while § 727(d) applies to determining when a discharge may be revoked after it has already been granted. 3 The Bankruptcy Act of 1898 originally provided:

Discharges, when Revoked.—The judge may, upon the application of parties in interest who have not been guilty of undue laches, filed at any time within one year after a discharge shall have been granted, revoke it upon a trial if it shall be made to appear that it was obtained through the fraud of the bankrupt, and that the knowledge of the fraud has come to the petitioners since the granting of the discharge, and that the actual facts did not warrant the discharge.

Pub. L. No. 55-541, § 15, 30 Stat. at 550.

7 Case: 18-11885 Date Filed: 10/07/2019 Page: 8 of 12

In 1970, Congress revised section 15, adding additional grounds for

revocation, including language that is analogous to the current version of 11 U.S.C.

§ 727(d)(2): revocation is appropriate when the debtor “received or became

entitled to receive property of any kind which is or which became a part of the

bankrupt estate and . . . he knowingly and fraudulently failed to report or to deliver

such property to the trustee.” Notably, the revised clause did not include a lack-of-

knowledge requirement; however, Congress kept the language at the beginning of

the clause limiting requests for revocation to a party in interest “who has not been

guilty of laches.” 4 In 1978, Congress completely rewrote the statute to its current

form in the Bankruptcy Code. That revision does not include the overall reference

to laches and maintains the lack-of-knowledge requirement for § 727(d)(1) only.

4 The text of the 1970 revision states:

Discharges, when revoked.—The court may revoke a discharge upon the application of a creditor, the trustee, the United States attorney, or any other party in interest, who has not been guilty of laches, filed at any time within one year after a discharge has been granted, if it shall appear (1) that the discharge was obtained through the fraud of the bankrupt, that the knowledge of the fraud has come to the applicant since the discharge was granted, and that the facts did not warrant the discharge; or (2) that the bankrupt, before or after discharge, received or became entitled to receive property of any kind which is or which became a part of the bankrupt estate and that he knowingly and fraudulently failed to report or to deliver such property to the trustee; or (3) that the bankrupt during the pendency of the proceeding refused to obey any lawful order of, or to answer any material question approved by, the court. The application to revoke for such refusal may be filed at any time during the pendency of the proceeding or within one year after the discharge was granted, whichever period is longer.

Act of Oct. 19, 1970, Pub. L. No. 91 467, sec. 4, § 15, 84 Stat. 990, 991 (1970).

8 Case: 18-11885 Date Filed: 10/07/2019 Page: 9 of 12

The Thompsons cite the congressional report concerning the current version

of the statute. The report states that the current version of the Bankruptcy Code is

supposed to “retain[] the provisions of current law governing when a discharge is

granted and when it is denied.” H.R. Rep. No. 95-595, at 128 (1977), as reprinted

in 1978 U.S.C.C.A.N. 5963, 6089. The Thompsons note that the report does not

indicate that “considerations of estoppel and laches” should be ignored, nor does it

state that the revision of the statute is “intended to change the interpretation of

existing law.” On this basis, they argue, the Trustee should not be allowed to bring

claims under § 727(d)(2) unless the Trustee can show he did not have knowledge

of the fraud prior to the discharge. The Thompsons’ arguments on this point are

unavailing. The statutory text and statutory—not legislative—history are

dispositive.

The statutory text is clear enough on its own: § 727(d)(1) contains a lack-of-

knowledge requirement, while § 727(d)(2) does not. That fact alone might

foreclose the Thompsons’ argument. But the statutory amendments described

above are the nail in the coffin. In Keene Corp. v. United States, 508 U.S. 200

(1993), the Supreme Court explained, that we have a duty “to refrain from reading

a phrase into the statute when Congress has left it out. ‘Where Congress includes

particular language in one section of a statute but omits it in another, it is generally

presumed that Congress acts intentionally and purposely in the disparate inclusion

9 Case: 18-11885 Date Filed: 10/07/2019 Page: 10 of 12

or exclusion.’” Id. at 208 (quoting Russello v. United States, 464 U.S. 16, 23

(1983)) (alterations adopted); see also Pollitzer v. Gebhardt, 860 F.3d 1334, 1340

(11th Cir. 2017). Here, in revising the bankruptcy statute, Congress removed the

language requiring a party in interest to be innocent of “undue laches,” and kept

the lack-of-knowledge requirement solely in § 727(d)(1), omitting it from

§ 727(d)(2). The provisions in question are adjacent and were revised at the same

time. If ever there was a case where the fundamental principle explained in Keene

should apply, it is this one.

At various other points in the briefing, both parties rely on legislative history

to support their positions. But “[w]hen the words of a statute are unambiguous, . . .

[the] ‘judicial inquiry is complete.’” Villareal v. R.J. Reynolds Tobacco Co., 839

F.3d 958, 969 (11th Cir. 2016) (en banc) (quoting Conn. Nat’l Bank v. Germain,

503 U.S. 249, 254 (1992)); see also United States v. Steele, 147 F.3d 1316, 1318

(11th Cir. 1998) (“Where the language Congress chose to express its intent is clear

and unambiguous, that is as far as we go to ascertain its intent because we must

presume that Congress said what it meant and meant what it said.”). 5 The

bankruptcy court correctly assumed Congress meant what it said, and thus its

5 We note, only in passing, that the legislative history on which the Thompsons rely does nothing to help their case. The bifurcation between the language of § 727(d)(1) and § 727(d)(2) occurred in 1970, and the statute was revised again in 1978, resulting in its current form. Nothing in the legislative history indicates that we should import principles of estoppel or laches from one version to the other, or that we should disregard settled principles of statutory interpretation.

10 Case: 18-11885 Date Filed: 10/07/2019 Page: 11 of 12

inquiry was complete. It did not err in construing the statutory text.

B. Next, the Thompsons argue that it is necessary to incorporate the lack-of-

knowledge requirement into § 727(d)(2) in order for § 727 to comport with the

disclosure obligations levied on the Trustee by § 704 of the Bankruptcy Code. In

particular, the Thompsons point to various disclosure requirements that § 704(a)

places on a trustee, including furnishing the court with information about the

debtor’s estate and other information material to the discharge decision.

The Thompsons’ argument does not explain how these two provisions are

actually in conflict. Section 704 does indeed enumerate duties of the Trustee, but

even if we were to assume that those duties include disclosing knowledge of fraud

to the bankruptcy court before the court grants a discharge, there is nothing in

§ 704 that says the Trustee’s pre-discharge knowledge of fraud disallows a later

revocation, regardless of whether the Trustee fulfilled those duties. Contrary to the

Thompsons’ assertion, nothing in the bankruptcy court’s decision on the

§ 727(d)(2) revocation issue carves out an exception to or limits the scope of

§ 704, so the Thompsons’ argument does not present a reason to reverse the

bankruptcy court.

IV.

Both parties argue that they should prevail if this court construes § 727(d)(2)

11 Case: 18-11885 Date Filed: 10/07/2019 Page: 12 of 12

to have a lack-of-knowledge requirement, with the Thompsons claiming pre-

discharge knowledge by the Trustee, and the Trustee denying that knowledge. But

we do not have to reach the factual determination of whether the Trustee had prior

knowledge of the fraud issue, because it would be inappropriate to rewrite

§ 727(d)(2) to include that requirement. The bankruptcy court and district court

correctly interpreted § 727(d)(2). Thus, the judgment of the district court is

AFFIRMED.