In re: Azad Amiri

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: February 13, 2018
• Docket: NC-17-1061-TaBS
• Status: Unpublished

Opinion

FILED FEB 13 2018 1 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 2 NOT FOR PUBLICATION 3 UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT 4 5 In re: ) BAP No. NC-17-1061-TaBS ) 6 AZAD AMIRI, ) Bk. No. 13-45900 ) 7 Debtor. ) Adv. No. 14-04011 ______________________________) 8 ) AZAD AMIRI, ) 9 ) Appellant, ) 10 ) v. ) MEMORANDUM* 11 ) RAMOS OIL COMPANY, INC., ) 12 ) Appellee. ) 13 ______________________________) 14 Argued and Submitted on January 25, 2018 at San Francisco, California 15 Filed – February 13, 2018 16 Appeal from the United States Bankruptcy Court 17 for the Northern District of California 18 Honorable William J. Lafferty III, Bankruptcy Judge, Presiding 19 Appearances: John T. Schreiber of the Law Offices of John T. 20 Schreiber argued for appellant; Walter R. Dahl of Dahl Law, Attorneys at Law argued for appellee. 21 22 Before: TAYLOR, BRAND, and SPRAKER, Bankruptcy Judges. 23 24 25 26 27 * This disposition is not appropriate for publication. 28 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8024-1(c)(2). 1 INTRODUCTION 2 Debtor Azad Amiri’s statement of financial affairs omitted 3 the required disclosure that he was or had been an officer or 4 director of four corporations. Ramos Oil Co., Inc. (“Ramos 5 Oil”), one of Debtor’s creditors, asserted through an adversary 6 proceeding that this omission constituted a knowing and 7 fraudulent false oath that justified a denial of discharge under 8 § 727(a)(4).1 After trial, the bankruptcy court agreed with 9 Ramos Oil. And on appeal, Debtor does not challenge most of the 10 bankruptcy court’s findings. Instead, he argues only that his 11 acknowledged omissions were not material and, thus, that they do 12 not justify denial of discharge. We disagree, and we AFFIRM the 13 bankruptcy court. 14 FACTS 15 Debtor has a decades-long involvement in the oil and gas 16 industry including more recent partial ownership of Kang 17 Properties, the owner-operator of a South Lake Tahoe gas 18 station. Ramos Oil, a Kang Properties supplier, obtained a 19 judgment against Kang Properties and Debtor through state court 20 litigation. 21 Debtor is no stranger to the bankruptcy system; he filed a 22 chapter 11 in 1993, a chapter 13 in 2009, and a chapter 13 in 23 2010. And following the Ramos Oil judgment, he again initiated 24 personal bankruptcy and also caused Kang Properties to file a 25 bankruptcy petition. 26 27 1 Unless otherwise indicated, all chapter and section 28 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.

2 1 Ramos Oil responded with an adversary proceeding seeking to 2 deny Debtor a discharge under § 727(a). Eventually, the 3 bankruptcy court held a one-day trial related to objections to 4 discharge under § 727(a)(2)(A) and (a)(4). In his subsequent 5 oral ruling, the bankruptcy judge ruled against Ramos Oil on its 6 § 727(a)(2) claim; Ramos Oil did not appeal from this 7 determination, and we do not discuss it further. But the 8 bankruptcy court ruled in favor of Ramos Oil on its § 727(a)(4) 9 claim. The bankruptcy judge explained: “I don’t think there’s 10 any question but that in connection with the answer to Question 11 No. 18 in the Statement of Financial Affairs that was filed by 12 the Debtor, the Debtor did not list everything that was supposed 13 to be listed.” Hr’g Tr. (Jan. 30, 2017) 12:12-16. 14 More particularly, Statement of Financial Affairs (“SOFA”) 15 question 18 requires a debtor to disclose information about 16 business entities in which the debtor acted as an officer, 17 director, partner, or managing executive during the six years 18 before he filed bankruptcy. And the bankruptcy court found that 19 Debtor failed to disclose that he was: 20 • CEO/CFO and agent for service of process for Dara 21 Petroleum, Inc.; 22 • CEO/CFO, secretary, and agent for service of process for 23 Ameri Oil Company, Inc.; 24 • CEO, secretary, CFO, and agent for service of process for 25 Aria Oil Company;2 and 26 27 2 Debtor submitted a post-petition resignation as agent 28 for service of process of Dara, Ameri, and Aria.

3 1 • Secretary, CFO, and agent for service of process for Ameri 2 Oil DK Property. 3 The bankruptcy court found that these omissions were 4 unquestionably false oaths, and he later determined that the 5 omissions were knowing and fraudulent. 6 The bankruptcy judge also carefully considered whether the 7 omissions were material. He recognized that the monetary impact 8 of the omitted information may have been small and acknowledged 9 Debtor’s “no harm-no foul” argument. And he recognized that 10 some cases recite that “there has to be some level of importance 11 to the failure to disclose[,]” which “is most easily measured 12 usually by the value of the thing that would have been available 13 to the estate . . . .” Hr’g Tr. 15:3-7. But he also noted that 14 other cases, such as Fogal Legware of Switzerland, Inc. v. Wills 15 (In re Wills), 243 B.R. 58 (9th Cir. BAP 1999), define 16 materiality more broadly and that materiality does not 17 necessarily “depend on the absolute value of assets that were 18 not disclosed,” but rather it could “depend on other things like 19 whether the admissions made it impossible to administer the case 20 . . . .” Id. at 15:10-24. The bankruptcy judge found this 21 concept particularly relevant. He explained: 22 [W]hen somebody doesn’t make a disclosure, it makes it impossible to follow up and to find out what happened. 23 And that affects the transparency of the system. It clearly affects the administration of the system, and 24 especially in this case, which I’ll get to in a second. And it puts us in a situation which the Wills 25 case and many other cases tell us we’re supposed to avoid, where the trustee is put to the task of having 26 to undergo lengthy and expensive investigations just to figure out what was really the story on the day the 27 Debtor filed the bankruptcy. 28 . . . [T]he fact that we don’t know anything about these

4 1 companies via the schedules is very troubling. And it’s all the more troubling frankly because these were –- [they] 2 appear[] to be closely held businesses, and they were businesses that from the testimony and the inferences I 3 think I can draw therefrom, were managed in some way by the Debtor –- might have been managed by others –- and they 4 seemed to have been either familial relationships or relationships within a community of close friends and 5 advisors. That is exactly the kind of business and exactly the kind of arrangements between businesses that can 6 sometimes lead to the discovery of assets even when the Debtor might believe that that’s not likely. 7 . . . [I]t is frequently the case that people don’t take 8 the steps they should take to insulate certain kinds of transactions or they don’t document things properly, or 9 they otherwise naively think that having done “X”, they’ve achieved “Y” and they don’t. And those are all things that 10 a trustee is entitled to look at and try to get some value for the estate, and I think both counsel . . . have been 11 through this process enough to know that in these, you know, what I will call, relatively less cumbersome and 12 smaller corporate or LLC structures, it’s frequently the case that there is some recovery available when one might 13 not expect so. 14 Id. at 16:5-15:1 (paragraph break added). The bankruptcy judge 15 finally emphasized: 16 But I do think that the nature of these businesses is extremely important in this analysis because it’s just 17 not possible to say as we sit here that we can have any confidence either that we know enough about the 18 Debtor’s involvement in the businesses or that the businesses and those relationships, had they been 19 known, you know, would not have or could not have led to something else that would have been of meaning to 20 the estate. 21 Id. at 18:7-14. 22 The bankruptcy court entered a judgment denying Debtor’s 23 bankruptcy discharge under § 727(a)(4). Debtor timely appealed. 24 JURISDICTION 25 The bankruptcy court had jurisdiction under 28 U.S.C. 26 §§ 1334 and 157(b)(2)(J). We have jurisdiction under 28 U.S.C. 27 § 158. 28

5 1 ISSUE 2 Whether the bankruptcy court erred in concluding that 3 Debtor’s omissions were material. 4 STANDARD OF REVIEW 5 We review the bankruptcy court’s: (1) determinations of the 6 historical facts for clear error; (2) selection of the 7 applicable legal rules under § 727 de novo; and (3) application 8 of the facts to those rules requiring the exercise of judgments 9 about values animating the rules de novo. Retz v. Samson (In re 10 Retz), 606 F.3d 1189, 1196 (9th Cir. 2010). A factual finding 11 is clearly erroneous if it is illogical, implausible, or without 12 support in inferences that may be drawn from the facts in the 13 record. Id. 14 DISCUSSION 15 Section 727(a)(4)(A) provides for discharge denial where 16 “the debtor knowingly and fraudulently, in or in connection with 17 the case[,] made a false oath or account.” 11 U.S.C. 18 § 727(a)(4)(A). And the objector to discharge must show that 19 “the relevant false oath relate[s] to a material fact.” Retz, 20 606 F.3d at 1198 (citing Roberts v. Erhard (In re Roberts), 331 21 B.R. 876, 882 (9th Cir. BAP 2005)). 22 “The fundamental purpose of § 727(a)(4)(A) is to insure 23 that the trustee and creditors have accurate information without 24 having to conduct costly investigations.” Id. at 1196 (internal 25 quotation marks and citation omitted). Thus, materiality must 26 be evaluated with this fundamental purpose in mind. 27 Concurrently, however, the court evaluating objections to 28 discharge must remember that they are liberally construed in

6 1 favor of the debtor and against the objector. Khalil v. 2 Developers Sur. & Indem. Co. (In re Khalil), 379 B.R. 163, 172 3 (9th Cir. BAP 2007), aff’d, 578 F.3d 1167 (9th Cir. 2009). 4 A fact is material if: 5 “[‘]it bears a relationship to the debtor’s business transactions or estate, or concerns the discovery of 6 assets, business dealings, or the existence and disposition of the debtor’s property.’” In re Khalil, 7 379 B.R. at 173 (quoting In re Wills, 243 B.R. at 62). An omission or misstatement that “detrimentally 8 affects administration of the estate” is material. In re Wills, 243 B.R. at 63 (citing 6 Lawrence P. King et 9 al., Collier on Bankruptcy ¶ 727.04[1][b] (15th ed. rev. 1998)). 10 11 Retz, 606 F.3d at 1198. 12 Debtor argues that the bankruptcy court uses an overly 13 broad definition of “material” that renders the term 14 meaningless; in essence, he argues that the bankruptcy court 15 applied an incorrect legal standard when assessing materiality. 16 We disagree; the bankruptcy court identified and recited the 17 correct legal standard for materiality and then correctly 18 applied this standard under the facts of this case.3 19 The bankruptcy court explained why the omissions were 20 highly relevant to the administration of Debtor’s bankruptcy 21 case and estate. It emphasized the nature of the corporations: 22 small companies where Debtor’s friends or family were in 23 24 3 We assume that we conduct a de novo, as opposed to clear 25 error, review of a “materiality” determination under § 727(a)(4) as it appears to be a mixed question of law and fact. But we 26 also acknowledge some murkiness in the relevant caselaw. Here, 27 however, the standard of review is not outcome-determinative because we agree with the bankruptcy court’s conclusion even 28 under the more exacting de novo review standard.

7 1 control; this appropriately suggested to the bankruptcy court 2 that a chapter 7 trustee would have looked carefully for 3 recovery opportunities and might have found them. It limited 4 its findings to the specific facts of the case. We also find 5 support in the record for the materiality determination in the 6 numerosity of the omissions and the fact that the omissions of 7 officer status were in connection with business transactions or 8 dealings. A failure to omit membership on a not-for-profit 9 board might require a different ruling, but here there is no 10 dispute that the businesses were profit-centered. 11 Debtor also notes that the chapter 7 trustee did not find 12 anything material missing or have difficulty administering the 13 estate because the trustee, after the meeting of creditors, 14 issued a no distribution report. And at oral argument, Debtor’s 15 counsel emphasized that the chapter 7 trustee did not pursue any 16 actions related to the non-disclosed positions, suggesting that 17 the omissions were de minimis and thus not material. 18 This is disingenuous; at oral argument, Debtor’s counsel 19 conceded that he did not know if Debtor disclosed the 20 information at the § 341(a) meeting, and the transcript of the 21 § 341(a) meeting is not on the docket and was not presented to 22 the bankruptcy court.4 Debtor’s assertion is pure postulation, 23 ungrounded in fact. 24 Further, even an omission of a non-asset is material if the 25 26 4 Although Ramos Oil’s counsel, at oral argument, stated 27 that Debtor did not disclose the information at the § 341(a) meeting, he conceded that the record does not include the 28 § 341(a) transcript.

8 1 omission negatively impacts a trustee’s administration of the 2 estate. In re Wills, 243 B.R. at 63 (“However, an omission or 3 misstatement relating to an asset that is of little value or 4 that would not be property of the estate is material if the 5 omission or misstatement detrimentally affects administration of 6 the estate.”). The bankruptcy court identified exactly this 7 type of negative impact in its materiality determinations. 8 Notwithstanding that the bankruptcy court found material 9 omissions in Debtor’s response to SOFA question 18, Debtor 10 attempts to use the question’s text to bolster his argument that 11 his omissions were not material. As relevant here, SOFA 12 question 18 requires that an individual debtor disclose: 13 the names, addresses, taxpayer identification numbers, nature of the businesses, and beginning and ending 14 dates of all businesses in which the debtor was an officer, director, partner, or managing executive of a 15 corporation, . . . within six years immediately preceding the commencement of this case, or in which 16 the debtor owned 5 percent or more of the voting or equity securities within six years immediately 17 preceding the commencement of this case.5 18 Debtor repeatedly emphasizes the required disclosure related to 19 companies where a debtor held a 5% equity interest during the 20 six years preceding his bankruptcy. But the 5% equity 21 disclosure requirement in SOFA question 18 is neither 22 23 5 The Statement of Financial Affairs form has since been 24 revised, effective April 1, 2016. Revised Official Form 107 question 27 is even clearer; it asks: “Within 4 years before you 25 filed for bankruptcy, did you own a business or have any of the following connections to any business?” It then provides a 26 number of check-boxes, including: “An officer, director, or 27 managing executive of a corporation” and, separately, “An owner of at least 5% of the voting or equity securities of a 28 corporation[.]”

9 1 controlling nor even necessarily relevant to SOFA question 18’s 2 dual requirement that a debtor disclose companies where the 3 debtor was an officer or director; it is written as an 4 “either/or” not a “both/and.” 5 Thus, Debtor’s argued interpretation that materiality in 6 relation to a SOFA question 18 omission exists only where he was 7 both an officer and the holder of at least a 5% equity interest 8 is severely flawed. The bankruptcy court correctly concluded 9 that “the Code requires complete and thorough and 10 uneditorialized disclosure of all these issues, including those 11 in businesses that may not be equity interests.” Hr’g Tr. at 12 16:16-19. Debtor was not free to selectively omit responsive 13 information and then to excuse the omission in this convoluted 14 fashion. 15 Further, Debtor’s position is contradicted by language from 16 the Ninth Circuit case he cites; materiality exists where the 17 omitted fact, among other things, relates to a debtor’s business 18 transactions, the discovery of assets, or business dealings. 19 Retz, 606 F.3d at 1198. Here, Debtor failed to disclose facts 20 (his being an officer in four corporations) that involved his 21 business dealings and might have led a trustee to the discovery 22 of assets. At oral argument, Debtor’s counsel further suggested 23 that the disclosure of Debtor’s “business dealings” was not 24 relevant because this was his personal bankruptcy filing; we 25 disagree: even an individual debtor has business dealings. 26 Debtor also next argues that all of the relevant 27 § 727(a)(4) materiality caselaw involves omissions of estate 28 assets or former debtor assets. We disagree that the caselaw

10 1 limits materiality as Debtor argues. In the laundry list of 2 cases Debtor cites and discusses, the relevant material 3 omissions involved assets, as Debtor puts it, “belonging or that 4 had belonged to the debtor’s estate.” That does not, however, 5 mean that only omissions related to property of the estate 6 qualify as material omissions for § 727(a)(4) purposes. Neither 7 § 727(a)(4) as written nor its caselaw developed elements have a 8 “property of the estate” component.6 9 In short, we find no error in the bankruptcy court’s 10 conclusion that, under the facts of this case, Debtor’s 11 omissions of his status as an officer or director of four 12 corporations during the time period identified by SOFA question 13 18 were material. Debtor does not otherwise challenge the 14 bankruptcy court’s findings. 15 CONCLUSION 16 Based on the foregoing, we AFFIRM. 17 18 19 20 21 6 Debtor obliquely refers to Robertson v. Swanson (In re 22 Swanson), 36 B.R. 99 (9th Cir. BAP 1984), but does not discuss it in any depth. It is not analogous. There, the Panel 23 reversed the bankruptcy court’s judgment denying a debtor a 24 discharge because the debtor did not list his accountancy practice in his bankruptcy schedules. Id. at 99-100. The Panel 25 reversed because the debtor fully disclosed his employment history, including his accountancy practice, and because, under 26 § 541(a)(6), any future earnings would not be property of the 27 bankruptcy estate. Id. at 100. As the Panel explained: “No asset was hidden.” Id. In the present case, Debtor never 28 disclosed his relationship with any of the four companies.