FILED JUN 30 2014 1 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL 2 OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. EC-13-1312-KuJuTa ) 6 ARVIND KAUR SETHI, ) Bk. No. 10-40553 ) 7 Debtor. ) Adv. No. 11-02273 ______________________________) 8 ) ARVIND KAUR SETHI, ) 9 ) Appellant, ) 10 ) v. ) MEMORANDUM* 11 ) WELLS FARGO BANK, NATIONAL ) 12 ASSOCIATION, ) ) 13 Appellee. ) ______________________________) 14 Argued and Submitted on May 15, 2014 15 at Sacramento, California 16 Filed – June 30, 2014 17 Appeal from the United States Bankruptcy Court for the Eastern District of California 18 Honorable David E. Russell, Bankruptcy Judge, Presiding 19 20 Appearances: Michael R. Totaro of Totaro & Shanahan argued for Appellant Arvind Kaur Sethi; Brandon L. Reeves of 21 Ellis Law Group, LLP argued for Appellee Wells Fargo Bank, National Association. 22 23 Before: KURTZ, JURY and TAYLOR, Bankruptcy Judges. 24 25 26 * This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8013-1. 1 INTRODUCTION 2 Arvind K. Sethi appeals from the bankruptcy court’s order 3 denying her a discharge in bankruptcy under 11 U.S.C. § 727.1 4 Because the bankruptcy court did not make sufficient findings to 5 support its ruling, we VACATE and REMAND. 6 FACTS 7 Sethi is a doctor who has been licensed to practice medicine 8 in California since 1994. Between 1999 and 2010, Sethi had her 9 own incorporated medical practice known as Arvind K. Sethi, M.D., 10 Inc. She also owned and operated an incorporated medical spa 11 business. Both businesses were operated for a time from the same 12 location on Creekside Drive in Folsom, California.2 13 In 2007, Sethi obtained from Wells Fargo Bank, National 14 Association a $1.5 million construction loan and a $225,000 15 equipment loan. The equipment loan documents indicated that the 16 borrower was her medical practice, whereas the construction loan 17 documents indicated that the borrower was Sethi individually. 18 Sethi was personally liable for both loans either as the borrower 19 or as a guarantor. The construction loan was used to build out 20 the Creekside Drive property for commercial purposes. The 21 1 22 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 23 all Rule references are to the Federal Rules of Bankruptcy Procedure. All Civil Rule references are to the Federal Rules of 24 Civil Procedure. 25 2 Sethi was unable to recall the name of the corporation 26 through which the medical spa initially was run. She also mentions a third corporation generally known as Mediwell. Some 27 of the documentation associated with Wells Fargo’s equipment loan suggests that Sethi did business as Mediwell as part of her 28 private medical practice and as part of her medical spa.
2 1 equipment loan was used to furnish the Creekside Drive Property 2 with furniture, fixtures and equipment. According to Sethi, she 3 conducted all of her business operations through one or more of 4 her corporations. 5 Sethi was in default on the equipment loan throughout 2009 6 and 2010. In December 2009, Wells Fargo notified Sethi that it 7 had arranged for an auction sale of its equipment collateral to 8 take place at the Creekside Drive property in January 2010. But 9 before the auction sale occurred, Sethi caused a friend of hers, 10 Steve Saxon, to move some of the equipment to a storage facility 11 that Saxon owned and operated. She also took some of the 12 equipment to her home and set up a laser treatment room in her 13 daughter’s old bedroom. According to Sethi, one of the reasons 14 she moved the equipment is that she did not want Wells Fargo to 15 auction the equipment at the Creekside Drive property in front of 16 her patients and employees. Another concern of Sethi’s was 17 closing down her practice gradually so that she did not incur 18 liability to health plans and to patients. 19 After a while, at least some of the equipment taken to the 20 storage unit and her home was moved back to the Creekside Drive 21 property. Later on, after Wells Fargo obtained relief from the 22 automatic stay in Sethi’s second bankruptcy case, Wells Fargo 23 repossessed the equipment collateral located at the Creekside 24 Drive property. Since she started her private practice in 1999, 25 Sethi has never kept any sort of written equipment inventory. 26 Sethi filed her first chapter 13 bankruptcy case (Case No. 27 10-25171) in March 2010. Sethi signed the petition and the 28 related filings knowing that she was stating under oath that the
3 1 documents were accurate and complete. At the same time, she also 2 knew that the petition and related filings actually were 3 inaccurate and incomplete. According to her, she personally 4 believed that the documents eventually would be amended. 5 The first meeting of creditors pursuant to § 341(a) was held 6 in April 2010, at which time Sethi was examined under oath as 7 required by § 343. She told the trustee during her examination 8 that her petition and related filings were accurate and complete, 9 even though she knew this was not true. When the trustee 10 followed up by asking her whether there were any corrections she 11 needed to make, she said she needed to correct the amount of 12 child support, and she further stated, “I’ll look at everything I 13 need to do.” § 341 meeting trans. (April 15, 2010) at 4:8. Later 14 on, when asked why she had not listed the $1.5 million 15 construction loan owed to Wells Fargo, and only listed the 16 $225,000 equipment loan, she stated: “Because, like I said, I 17 have to amend it. I have to really look at everything very 18 carefully.” § 341 meeting Trans. (April 15, 2010) at 15:16-18. 19 When asked during the examination what happened to the 20 equipment at the Creekside Drive property, she stated that she 21 did not know where it all was at the time. She indicated that 22 some of it might have been returned to her lenders and some of it 23 might have been moved to storage, but that she thought at least 24 some of it was still at the Creekside Drive property. According 25 to Sethi, she was overwhelmed, so she let her office manager and 26 Saxon decide what would be best to do with the equipment while 27 she was traveling in India. 28 In May 2010, the bankruptcy court dismissed Sethi’s first
4 1 bankruptcy case because Sethi was ineligible for relief under 2 chapter 13. Sethi nonetheless filed a second chapter 13 case in 3 August 2010. At Sethi’s request, this second case was converted 4 to chapter 11 in November 2010. Once again at Sethi’s request, 5 the case was converted to chapter 7 in February 2011. In support 6 of her motion to convert the case to chapter 11, in October 2010, 7 Sethi filed a declaration in which she attempted to explain the 8 tortuous history of her first bankruptcy case, including the 9 known omissions and inaccuracies in her first bankruptcy petition 10 and schedules. She explained that her non-attorney friend “took 11 care of everything” and “put everything together” and assured her 12 that they could later amend her filings to address the 13 inaccuracies and omissions. 14 Oddly, in the same declaration, when discussing the filing 15 of her second bankruptcy case, Sethi did not say that her friend 16 took care of everything or that her friend put everything 17 together. Instead, she stated “I filed this case” and “I asked 18 my friend to help me file another bankruptcy.” (Emphasis added.) 19 In fact, in the very first sentence of the October 2010 20 declaration, Sethi stated that she filed her second bankruptcy 21 case “by myself in pro per.” These statements in her October 22 2010 declaration were false and misleading. At her February 2012 23 deposition in the underlying adversary proceeding, she admitted 24 that she did not sign the second bankruptcy petition, she did not 25 review it or the accompanying schedules, she did not even see 26 them before they were filed, and she was not aware of 27 specifically when her friend filed them. 28 Sethi signed the October 2010 declaration under penalty of
5 1 perjury, filed it in the bankruptcy court, and served it on the 2 chapter 13 trustee, the United States trustee and on her 3 creditors. The court learned the true facts concerning the 4 filing of Sethi’s second bankruptcy case from the evidence Wells 5 Fargo submitted at the May 2013 trial in Wells Fargo’s adversary 6 proceeding. As far as we can tell from the record, Sethi never 7 voluntarily disclosed the true facts to the court or to her 8 creditors. 9 In April 2011, Wells Fargo filed its complaint seeking to 10 deny Sethi a discharge under § 727(a). The complaint stated 11 three claims for relief, one under § 727(a)(2), another under 12 § 727(a)(4) and a third under § 727(a)(5). After several 13 continuances, trial was held on May 9, 2013. In her trial brief, 14 filed the day before trial, Sethi contended that the property she 15 was accused of concealing in violation of § 727(a)(2) and not 16 accounting for in violation of § 727(a)(5) was neither property 17 of the debtor nor property of the estate. Based on this 18 contention, Sethi claimed two things: (1) the bankruptcy court 19 lacked subject matter jurisdiction; and (2) Wells Fargo could not 20 prevail on either its § 727(a)(2) claim or its § 727(a)(5) claim. 21 Sethi also argued that Wells Fargo could not prove that Sethi had 22 the requisite state of mind to prevail on its § 727(a)(2) claim 23 or its § 727(a)(4) claim. Finally, Sethi argued that Wells Fargo 24 could not demonstrate that Sethi made a false oath within the 25 narrow meaning of § 727(a)(4). 26 Sethi did not testify at the trial. Instead, the parties 27 stipulated to the admission into evidence of the transcript from 28 Sethi’s deposition, as well as the transcript from Sethi’s
6 1 examination at the § 341(a) meeting of creditors held in her 2 first bankruptcy case. The parties also stipulated to the 3 admission of all of Wells Fargo’s other trial exhibits. Sethi 4 did not offer any additional trial exhibits. Only one witness 5 was called and testified at trial: a Wells Fargo employee, 6 Dorothy Koster, who testified regarding the nature and extent of 7 Sethi’s obligations to the bank and the origination of those 8 obligations.3 9 On June 14, 2013, after the completion of trial, the 10 bankruptcy court orally announced its ruling. The court held 11 that Sethi’s discharge would be denied. The court did not 12 specify on which claims it was finding in favor of Wells Fargo. 13 Rather, the court’s oral findings were limited to a handful of 14 generalized statements regarding Sethi’s conduct. The court 15 twice stated that Sethi had not been honest with the court and 16 three times stated that the evidence against her was 17 overwhelming. The court also stated that Sethi “deliberately 18 . . . hid assets that were security for the bank’s loan” and that 19 she filed her two bankruptcy cases and hid the bank’s collateral 20 in an effort to prevent Wells Fargo from realizing on “its 21 security in the medical equipment of the debtor and the debtor’s 22 corporation.” Tr. Trans. (June 14, 2013) at 4:19-24.4 23 24 3 Koster’s direct testimony was presented by declaration, but cross-examination and redirect examination were conducted live in 25 court. 26 4 Ultimately, after giving Sethi’s counsel an opportunity to 27 respond, the court further found that Sethi: “has hidden assets or put assets away out of the reach of creditors, and that was 28 continue...
7 1 The court further found that Sethi lied at the § 341(a) exam 2 conducted in her first bankruptcy case: “Coming in to the first 3 meeting of creditors and telling the trustee in bankruptcy that 4 she doesn’t know where the equipment was, when, in fact, she 5 [k]new perfectly well where the equipment was and subsequently 6 admits it.” Tr. Trans. (June 14, 2013) at 5:10-14. 7 The bankruptcy court further found that Sethi made false and 8 misleading statements in her second bankruptcy case. More 9 specifically, the court pointed to the fact that, in her second 10 bankruptcy case, Sethi belatedly admitted that her second 11 bankruptcy petition was not signed by her and was filed by her 12 non-attorney friend without Sethi even looking at it. And yet, 13 the court noted, she presented the petition to the court as her 14 own bankruptcy filing without advising the court of the true 15 facts associated with the filing – facts that would have 16 undermined any reliance on the schedules and statement of 17 financial affairs that accompanied Sethi’s second bankruptcy 18 petition. 19 In the court’s own words, it described Sethi’s misconduct in 20 this respect as follows: 21 There is this other thing, you know, that she admits that her second bankruptcy petition 22 was not signed by her. It was filed by a friend of hers, she didn’t look at it, she 23 didn’t sign it, and yet she presents it to the court as her filing. That is just not 24 acceptable to the court. That is clearly the very type of misconduct, I presume, is 25 equivalent to having a debtor’s discharge 26 4 27 ...continue clearly done with the intent to delay a creditor, delay [Wells 28 Fargo].” Tr. Trans. (June 14, 2013) at 6:4-6.
8 1 denied. 2 Tr. Trans. (June 14, 2013) at 5:1-9. 3 The bankruptcy court entered its order denying Sethi’s 4 discharge on June 20, 2013, and Sethi timely appealed on July 2, 5 2013. 6 JURISDICTION 7 Sethi argues that the bankruptcy court lacked jurisdiction. 8 According to Sethi, because the property she allegedly concealed 9 or allegedly failed to account for was property of her wholly- 10 owned corporations and not property of the debtor or property of 11 the bankruptcy estate, the bankruptcy court lacked jurisdiction 12 to hear and determine Wells Fargo’s adversary proceeding. 13 Sethi’s jurisdictional argument lacks merit. She attempts 14 to turn garden-variety substantive arguments into jurisdictional 15 arguments by mis-characterizing as jurisdictional requirements 16 substantive elements for claims under §§ 727(a)(2) and 727(a)(5). 17 Contrary to Sethi’s argument, the bankruptcy court’s jurisdiction 18 was based on 28 U.S.C. §§ 1334, 157(b)(1) and 157(b)(2)(J). The 19 latter two provisions, 28 U.S.C. §§ 157(b)(1) and 157(b)(2)(J), 20 expressly confer upon the bankruptcy court “core” bankruptcy 21 jurisdiction over Wells Fargo’s objection to discharge adversary 22 proceeding. Bankruptcy jurisdiction is a creature of statute. 23 See Wilshire Courtyard v. Cal. Franchise Tax Bd. (In re Wilshire 24 Courtyard), 729 F.3d 1279, 1284-85 (9th Cir. 2013). Sethi has 25 not articulated any reason why we should not apply the 26 above-cited jurisdictional provisions in accordance with their 27 plain meaning. Nor are we aware of any such reason. Therefore, 28 Sethi’s jurisdictional argument fails.
9 1 This Panel has jurisdiction under 28 U.S.C. § 158. We 2 acknowledge that the bankruptcy court’s oral ruling and its order 3 denying Sethi’s discharge could have more precisely expressed the 4 court’s intent to fully dispose of the underlying adversary 5 proceeding by explicitly identifying, addressing and disposing of 6 each of Wells Fargo’s three claims for relief. Nonetheless, in 7 the final analysis, we are convinced that the bankruptcy court 8 intended its order denying Sethi’s discharge to be its final act 9 in the matter and to fully adjudicate all of the issues raised 10 therein. See generally Brown v. Wilshire Credit Corp. 11 (In re Brown), 484 F.3d 1116, 1120 (9th Cir. 2007); Slimick v. 12 Silva (In re Slimick), 928 F.2d 304, 307 (9th Cir. 1990). 13 Under similar circumstances, the Ninth Circuit has 14 determined a bankruptcy court’s disposition to be sufficiently 15 final to permit appellate review. See Retz v. Samson 16 (In re Retz), 606 F.3d 1189, 1195 & n.5 (9th Cir. 2010) 17 (reviewing merits of bankruptcy court's decision on § 727 claims 18 where bankruptcy court "found it unnecessary" to decide § 523 19 claims in light of its granting relief on the § 727 claims); see 20 also U.S. v. $5,644,540.00 in U.S. Currency, 799 F.2d 1357, 1361 21 (9th Cir. 1986)(even though district court’s ruling did not 22 explicitly address all claims asserted in the litigation, holding 23 that court’s explicit ruling as a practical matter effectively 24 “rendered moot” all claims not explicitly disposed of, so court 25 of appeals had jurisdiction to review the district court’s 26 27 28
10 1 ruling).5 2 Therefore, we have jurisdiction to consider the merits of 3 this appeal. 4 ISSUE 5 Did the bankruptcy court commit reversible error when it 6 denied Sethi a discharge? 7 STANDARDS OF REVIEW 8 In objection to discharge litigation, we review de novo the 9 bankruptcy court’s legal conclusions, and we review for clear 10 error the bankruptcy court’s factual findings. See In re Retz, 11 606 F.3d at 1196. When our examination requires us to review the 12 bankruptcy court’s application of the facts to the law, we 13 typically review that application de novo. See id. 14 DISCUSSION 15 Our resolution of this appeal hinges on the sufficiency of 16 the bankruptcy court’s findings of fact. Civil Rule 52, which is 17 made applicable in adversary proceedings by Rule 7052, requires 18 bankruptcy courts after conducting a bench trial to make both 19 findings of fact and conclusions of law. The Civil Rule provides 20 in relevant part: 21 (1) In General. In an action tried on the facts without a jury or with an advisory jury, the court must 22 find the facts specially and state its conclusions of law separately. The findings and conclusions may be 23 stated on the record after the close of the evidence or may appear in an opinion or a memorandum of decision 24 filed by the court. 25 Civil Rule 52(a)(1). 26 5 27 To the extent the bankruptcy court’s decision could be construed as being interlocutory, we hereby grant leave to appeal 28 pursuant to Rule 8003(c).
11 1 The bankruptcy court’s findings are sufficient for purposes 2 of Civil Rule 52(a)(1) if they “indicate the factual basis for 3 its ultimate conclusions.” Simeonoff v. Hiner, 249 F.3d 883, 891 4 (9th Cir. 2001)(citing Vance v. Am. Haw. Cruises, Inc., 789 F.2d 5 790, 793 (9th Cir. 1986)). When the bankruptcy court does not 6 provide sufficient findings, we may vacate and remand for further 7 findings. First Yorkshire Holdings, Inc., v. Pacifica L 22, LLC. 8 (In re First Yorkshire Holdings, Inc.), 470 B.R. 864, 871 (9th 9 Cir. BAP 2012). 10 Even so, we need not vacate and remand based on conclusory 11 or sparse findings if our review of the record, in conjunction 12 with the available findings, provides us with a full 13 understanding of the issues on appeal. Simeonoff, 249 F.3d at 14 891 (9th Cir. 2001); Jess v. Carey (In re Jess), 169 F.3d 1204, 15 1208-09 (9th Cir. 1999); Swanson v. Levy, 509 F.2d 859, 860-61 16 (9th Cir. 1975). 17 With these principles in mind, we turn our attention to the 18 bankruptcy court’s ruling. The most specific and helpful of the 19 bankruptcy court’s findings relate to § 727(a)(2), which provides 20 that the bankruptcy court must grant the debtor a discharge 21 unless: 22 (2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged 23 with custody of property under this title, has transferred, removed, destroyed, mutilated, or 24 concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed-- 25 (A) property of the debtor, within one year before the 26 date of the filing of the petition; or 27 (B) property of the estate, after the date of the filing of the petition[.] 28
12 1 (Emphasis added.) Generally stated, to support a denial of 2 discharge under § 727(a)(2), a creditor or other interested party 3 must prove: “‘(1) a disposition of property, such as transfer or 4 concealment, and (2) a subjective intent on the debtor's part to 5 hinder, delay or defraud a creditor through the act [of] 6 disposing of the property.’” In re Retz, 606 F.3d at 1200 7 (quoting Hughes v. Lawson (In re Lawson), 122 F.3d 1237, 1240 8 (9th Cir. 1997)). 9 The bankruptcy court unequivocally and explicitly found that 10 both the disposition element and the intent element were present 11 here. The court stated in its oral ruling that Sethi 12 deliberately concealed Wells Fargo’s collateral with the intent 13 and for the purpose of hindering its debt collection efforts. 14 Moreover, these findings were sufficiently supported by evidence 15 in the record, and we cannot conclude that they were clearly 16 erroneous. 17 Nonetheless, Sethi has argued that, for a disposition of 18 assets to implicate § 727(a)(2), the assets must have been the 19 debtor’s property or property of the estate. Because the assets 20 she permitted to be moved to storage or moved to her home were 21 assets of her incorporated medical practice or her incorporated 22 medical spa, she reasons, her disposition of these assets does 23 not satisfy § 727(a)(2)’s requirements. 24 We agree with Sethi to a point. The plain language of the 25 statute supports her legal proposition that the assets disposed 26 of must have been her assets, rather than property of one of her 27 corporations. If Congress had wanted to include within the scope 28 of § 727(a)(2) property of another legal entity, it could have so
13 1 stated. But it did not do so. California law recognizes the 2 separateness of corporate assets and liabilities. See Sonora 3 Diamond Corp. v. Superior Court, 83 Cal.App.4th 523, 538 (2000). 4 And so have the better-reasoned federal cases interpreting the 5 scope of § 727(a)(2). See, e.g., MCorp Mgt. Solutions, Inc. v. 6 Thurman (In re Thurman), 901 F.2d 839, 841 (10th Cir. 1990); 7 Ne. Neb. Econ. Dev. Dist. v. Wagner (In re Wagner), 305 B.R. 472, 8 475-76 (8th Cir. BAP 2004); Hulsing Hotels Tenn., Inc. v. 9 Steffner (In re Steffner), 479 B.R. 746, 761-62 (Bankr. E.D. 10 Tenn. 2012); Miller v. Scott (In re Scott), 462 B.R. 735, 741-42 11 (Bankr. D. Alaska 2011). 12 While unpublished, our prior decision in Hoffman v. Bethel 13 Native Corp. (In re Hoffman), 2007 WL 7540947 (9th Cir. BAP 14 2007), is instructive. There, we upheld the bankruptcy court’s 15 denial of the debtor’s discharge under § 727(a)(2) even though 16 the property the debtor transferred belonged to his incorporated 17 property management company. Id. at **5-6. However, our 18 decision hinged on the bankruptcy court’s finding that the debtor 19 and his wholly-owned corporation were alter egos. Because the 20 bankruptcy court properly pierced the corporate veil, we 21 reasoned, the court properly could determine that debtor’s 22 transfer of corporate property implicated § 727(a)(2). Id. 23 Here, in contrast, the bankruptcy court did not make the 24 requisite alter ego findings, nor did Wells Fargo allege in its 25 complaint or set out to prove at trial the requisite elements for 26 piercing the corporate veil. On appeal, Wells Fargo for the 27 first time claims that Sethi and her medical practice and her 28 medical spa were all one in the same. We decline to address this
14 1 issue because Wells Fargo raised it for the first time on appeal, 2 and the bankruptcy court had no opportunity to consider it. See 3 United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 270 n.9 4 (2010) ("We need not settle that question, however, because the 5 parties did not raise it in the courts below."); Scovis v. 6 Henrichsen (In re Scovis), 249 F.3d 975, 984 (9th Cir. 2001) 7 (stating court will not consider issue raised for the first time 8 on appeal absent exceptional circumstances). 9 Consequently, Wells Fargo was entitled to prevail on its 10 § 727(a)(2) claim only if it proved that the property Sethi 11 concealed was her own property and not property of one of her 12 corporations. The bankruptcy court found that Sethi hid “assets” 13 and hid “the bank’s collateral.” The court further found that 14 Sethi hid Wells Fargo’s collateral with the intent and for the 15 specific purpose of hampering Wells Fargo’s “efforts to realize 16 on its security . . . in the medical equipment of the debtor and 17 the debtor's corporation.” 18 We cannot tell from these findings whether the bankruptcy 19 court intended to find that the property Sethi hid was her own 20 property or property of one of her corporations. Put another 21 way, we decline to read into the court’s oral ruling an implicit 22 finding regarding who specifically owned the concealed equipment 23 – Sethi or one of her corporations. While the evidence in the 24 record presented to us on appeal indicates that Sethi’s 25 incorporated medical practice purchased (and hence owned) the 26 equipment acquired with the proceeds from Wells Fargo’s equipment 27 loan, it is conceivable that somewhere in the record there might 28 be sufficient evidence for the bankruptcy court to find that
15 1 Sethi, rather than one of her corporations, owned at least some 2 of the concealed equipment. We leave it to the bankruptcy court, 3 in the first instance, to marshal the evidence and to make the 4 factual determination of who specifically owned the concealed 5 equipment. 6 Of course, if the bankruptcy court on remand based on the 7 evidence presented does not find that Sethi personally owned some 8 of the concealed equipment, then it should rule against Wells 9 Fargo on its § 727(a)(2) claim. 10 Similar to its § 727(a)(2) claim, Wells Fargo’s § 727(a)(5) 11 claim hinged on whether Sethi or one of her corporations owned 12 the assets in question. Under § 727(a)(5), the bankruptcy court 13 must deny the debtor’s discharge if he or she “failed to explain 14 satisfactorily, before determination of denial of discharge under 15 this paragraph, any loss of assets or deficiency of assets to 16 meet the debtor's liabilities.” (Emphasis added.) Thus, To 17 prevail on this claim, Wells Fargo needed to prove: 18 “(1) debtor at one time, not too remote from the bankruptcy petition date, owned identifiable assets; 19 (2) on the date the bankruptcy petition was filed or order of relief granted, the debtor no longer owned the 20 assets; and (3) the bankruptcy pleadings or statement of affairs do not reflect an adequate explanation for 21 the disposition of the assets.” 22 In re Retz, 606 F.3d at 1205 (emphasis added) (quoting Olympic 23 Coast Invest., Inc. v. Wright (In re Wright), 364 B.R. 51, 79 24 (Bankr. D. Mont. 2007)). 25 The bankruptcy court did not make findings regarding any of 26 the § 727(a)(5) elements. On remand, it should do so. In 27 addition, for the same reasons we held above that the bankruptcy 28 court needs to make findings regarding who owned the concealed
16 1 equipment for purposes of § 727(a)(2), we similarly hold that, 2 for purposes of § 727(a)(5), the bankruptcy court needs to make 3 findings regarding who owned the assets that Sethi allegedly 4 failed to account for – Sethi or one of her corporations. 5 We next turn to Wells Fargo’s § 727(a)(4)(A) claim. The 6 relevant part of the statute provides: “The court shall grant the 7 debtor a discharge, unless . . . (4) the debtor knowingly and 8 fraudulently, in or in connection with the case – (A) made a 9 false oath or account . . . .” § 727(a)(4)(A). To prevail on 10 this claim, Wells Fargo needed to demonstrate that: “‘(1) the 11 debtor made a false oath in connection with the case; (2) the 12 oath related to a material fact; (3) the oath was made knowingly; 13 and (4) the oath was made fraudulently.’” In re Retz, 606 F.3d 14 at 1197 (quoting Roberts v. Erhard (In re Roberts), 331 B.R. 876, 15 882 (9th Cir. BAP 2005)); see also Khalil v. Developers Sur. & 16 Indem. Co. (In re Khalil), 379 B.R. 163, 172 (9th Cir. BAP 2007), 17 aff'd, 578 F.3d 1167, 1168 (9th Cir.2009) (citing same factors). 18 The bankruptcy court here did not specifically recite these 19 factors in its ruling, nor did it make explicit findings as to 20 each of these factors. Even so, the record reflects that there 21 was no dispute or confusion regarding the applicable factors. In 22 their respective pretrial briefs, both Wells Fargo and Sethi 23 cited the same factors as enunciated in In re Retz and 24 In re Khalil. 25 Additionally, most of the elements were established by 26 Sethi’s own admissions – admissions she neither recanted nor 27 otherwise distanced herself from. For instance, in her 28 deposition testimony, which was accepted into evidence at trial,
17 1 Sethi admitted that she did not read or sign or even see her 2 second bankruptcy petition and schedules before her friend filed 3 them on her behalf in August 2010. Yet Sethi filed a declaration 4 under penalty of perjury in October 2010 in which she adopted the 5 August 2010 petition and schedules as her own and led her 6 creditors and the court to believe that she reviewed, signed and 7 filed these documents. Sethi did not file corrected and amended 8 schedules until February 2011, six months after the filing of her 9 second bankruptcy case and four months after she adopted the 10 schedules as her own. Even a quick comparison between her August 11 2010 schedules and her February 2011 amended schedules reveals 12 that the August 2010 schedules were inaccurate and incomplete. 13 Untrue statements in a declaration signed by the debtor 14 under penalty of perjury and submitted to the court qualify as a 15 false oath for purposes of § 727(a)(4)(A). Abbey v. Retz 16 (In re Retz), 438 B.R. 237, 301 (Bankr. D. Mont. 2007), aff’d, 17 2008 WL 8448824 (9th Cir. BAP 2008), aff’d, 606 F.3d 1189 (9th 18 Cir. 2010). Given the nature of the statements in her October 19 2010 declaration and her later admissions, Sethi has not and 20 cannot legitimately dispute that she knowingly made false 21 statements in connection with her second bankruptcy case 22 specifically regarding the circumstances surrounding the 23 commencement of the case. 24 Nor can Sethi cast legitimate doubt on the materiality of 25 her false and misleading statements. Materiality for purposes of 26 § 727(a)(4)(A) is broadly conceived and includes, among other 27 things, “[a]n omission or misstatement that ‘detrimentally 28 affects administration of the estate.’” In re Retz, 606 F.3d at
18 1 1198 (quoting Fogal Legware of Switz., Inc. v. Wills 2 (In re Wills), 243 B.R. 58, 63 (9th Cir. BAP 1999)). Disclosure 3 of the true facts concerning the commencement of Sethi’s second 4 bankruptcy case – that Sethi did not prepare, sign, file or even 5 look at her petition and schedules before they were filed by her 6 non-attorney friend – would have completely undermined the 7 reliability of her bankruptcy petition and schedules. 8 Put another way, the false and misleading statements 9 contained in her October 2010 declaration led her creditors and 10 the court to incorrectly believe that the petition and the 11 schedules originally filed in her second bankruptcy case had at 12 least some measure of reliability. As such, these statements 13 were wholly at odds with the fundamental purpose underlying 14 § 727(a)(4)(A): “to insure that the trustee and creditors have 15 accurate information without having to conduct costly 16 investigations.” In re Retz, 606 F.3d at 1196; see also Searles 17 v. Riley (In re Searles), 317 B.R. 368, 378 (9th Cir. BAP 2004) 18 (“the viability of the system of voluntary bankruptcy depends 19 upon full, candid, and complete disclosure by debtors of their 20 financial affairs.”) 21 Nonetheless, there are two significant obstacles that 22 prevent us, without more specific findings, from upholding the 23 bankruptcy court’s § 727(a)(4)(A) ruling. The first obstacle 24 concerns the false statements that Sethi made at the first 25 meeting of creditors in her first bankruptcy case. While these 26 false statements might be probative on the issue of Sethi’s 27 intent, they are not, in and of themselves, false oaths for 28 purposes of § 727(a)(4)(A). The plain language of the statute
19 1 makes clear that only statements made in her current bankruptcy 2 case are actionable under § 727(a)(4)(A). In this regard, we 3 find persuasive the analysis and holding of Micoz v. Carter 4 (In re Carter), 125 B.R. 631, 634 (Bankr. D. Utah 1991) (holding 5 that false statement and schedules in first bankruptcy case were 6 not actionable under § 727(a)(4)(A) in the debtors’ second 7 bankruptcy case). 8 From the limited nature of the bankruptcy court’s findings, 9 it is impossible for us to tell whether the bankruptcy court 10 relied on Sethi’s misstatements in the first case merely in 11 considering Sethi’s intent or whether the court improperly relied 12 on those statements as a false oath for purposes of 13 § 727(a)(4)(A). 14 On the other hand, Sethi’s false and misleading statements 15 in her October 2010 declaration regarding the commencement of her 16 second bankruptcy case may suffice as the requisite false oath. 17 We leave it to the bankruptcy court, on remand, to explicitly 18 state whether it was the October 2010 declaration that the court 19 relied upon for purposes of ruling in favor of Wells Fargo on its 20 § 727(a)(4)(A) claim for relief. 21 The second obstacle to our upholding, without additional 22 findings, the bankruptcy court’s § 727(a)(4)(A) ruling concerns 23 the issue of intent. Because of the gravity and practical effect 24 of denying a debtor his or her discharge, the burden of proving 25 the requisite fraudulent intent is a heavy one. In proving 26 fraudulent intent, Wells Fargo needed to show that Sethi (1) made 27 the false statements, (2) at the time she knew they were false, 28 and (3) that she made them with the intent to deceive and for the
20 1 purpose of deceiving her creditors. In re Retz, 606 F.3d at 2 1198-99. The evidence of fraudulent intent typically is 3 circumstantial and may include (but cannot be limited to) proof 4 of a reckless indifference or disregard for the truth. Id. at 5 1199 (citing In re Khalil, 379 B.R. at 173-75). 6 While the first two intent elements (false statements and 7 knowledge) are evident from Sethi’s admissions, we decline to 8 read into the record a finding that Sethi included false and 9 misleading statements in her October 2010 declaration with the 10 intent to deceive and for the purpose of deceiving her creditors. 11 Retz, 606 F.3d at 1198-99, and Khalil, 379 B.R. at 173-77, 12 when read together, provide a roadmap of factors and 13 circumstances that the bankruptcy court can and should consider 14 in determining the debtor’s state of mind for purposes of ruling 15 on a § 727(a)(4)(A) claim. Because the bankruptcy court is in 16 the best position to marshal the available facts relevant to 17 Sethi’s state of mind and to render in the first instance a 18 finding regarding her intent, the better practice is for us to 19 remand to permit the bankruptcy court to make the necessary 20 intent finding. 21 Sethi also argues that the bankruptcy court abused its 22 discretion by denying her request for an extension of time to 23 file a closing brief. At the conclusion of the presentation of 24 evidence at trial, both parties agreed to a timetable for filing 25 closing briefs and to a hearing date of June 14, 2013, for the 26 court to announce its final ruling. Apparently, Sethi’s counsel 27 was unable to comply with the agreed-upon deadline for filing 28 Sethi’s closing brief and, instead of submitting the closing
21 1 brief when due on June 6, 2013, submitted an untimely written 2 extension request on June 12, 2013, two days before the final 3 hearing. 4 At the time of the final hearing, the court denied the 5 extension request. The court noted that Sethi previously had 6 been granted more than one lengthy continuance of the trial and 7 that the court previously had ruled that “enough is enough”. The 8 court further commented that Sethi’s request to continue the 9 hearing for the court to make its final ruling so that Sethi 10 could have more time to file a closing brief was simply “too 11 little, too late.” The court proceeded to rule against Sethi on 12 the merits, effectively denying the extension request. 13 In light of our decision that the bankruptcy court’s denial 14 of discharge must be vacated and this matter remanded for further 15 findings, it is unnecessary for us to decide whether the 16 bankruptcy court abused its discretion in denying Sethi an 17 extension of time to file a closing brief. 18 CONCLUSION 19 For the reasons set forth above, we VACATE and REMAND for 20 the bankruptcy court to make further findings as discussed in 21 this decision. 22 23 24 25 26 27 28