FILED NOT FOR PUBLICATION MAR 8 2022 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT OF THE NINTH CIRCUIT
In re: BAP No. CC-21-1199-FLT FINNIAN OSAKPAMWAN EBUEHI and ELIZABETH OLOHIRERE EBUEHI, Bk. No. 2:18-bk-20704-NB Debtors. Adv. No. 2:20-ap-01633-NB FINNIAN OSAKPAMWAN EBUEHI; ELIZABETH OLOHIRERE EBUEHI, Appellants, v. MEMORANDUM* UNITED STATES TRUSTEE, LOS ANGELES, Appellee.
Appeal from the United States Bankruptcy Court for the Central District of California Neil W. Bason, Bankruptcy Judge, Presiding
Before: FARIS, LAFFERTY, and TAYLOR, Bankruptcy Judges.
INTRODUCTION
Chapter 71 debtors Finnian Osakpamwan Ebuehi and Elizabeth
* This disposition is not appropriate for publication. 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. Unless specified otherwise, all chapter and section references are to the 1
Bankruptcy Code, 11 U.S.C. §§ 101-1532. Olohirere Ebuehi appeal the bankruptcy court’s judgment after trial
denying their discharge under §§ 727(a)(3), (a)(4), and (a)(6). We AFFIRM.
FACTS
A. The Ebuehis’ chapter 11 bankruptcy case
The Ebuehis filed a joint chapter 11 petition and scheduled real
property including their residence (known as the “Gladstone Property”)
and three rental properties. They reported over $5,000 of monthly income
from the rental properties.
A year into their case, one of the Ebuehis’ creditors accused them of
failing to pay creditors and misdirecting rental income. The bankruptcy
court issued an order to show cause why the case should not be converted
to one under chapter 7 or a trustee should not be appointed. The Ebuehis
did not file a written response, but their counsel appeared at the hearing
and requested a continuance. The court denied their request and converted
the case to chapter 7. The October 18, 2019 order (“Conversion Order”)
directed the Ebuehis to: (1) file a schedule of unpaid debts; (2) transmit a
final report and account to the United States Trustee; (3) immediately turn
over all records and property of the estate to the chapter 7 trustee; (4) file
all applicable statements and schedules; and (5) file a statement of intention
regarding retention or surrender of property.
The certificate of notice indicated that the Conversion Order was
electronically served on the Ebuehis’ counsel on the same day. It also
indicated that the Bankruptcy Noticing Center (“BNC”) sent the
2 Conversion Order to the Ebuehis via first class mail on October 20.
The Ebuehis filed a motion for reconsideration on November 1, 2019.
In their signed declaration, the Ebuehis acknowledged that the Conversion
Order “essentially” granted the motion and converted their case to chapter
7. The court denied that motion and a subsequent reconsideration motion.
The Ebuehis did not comply with the Conversion Order. They
appealed to this Panel, but we dismissed the appeal for lack of prosecution.
B. The Ebuehis’ converted chapter 7 case
Meanwhile, the bankruptcy court appointed Peter J. Mastan as the
chapter 7 trustee in the Ebuehis’ converted case. He directed the Ebuehis to
vacate the Gladstone Property so that he could remediate numerous
unsightly conditions and market the property for sale, but they refused.
1. The turnover motion
The chapter 7 trustee filed a motion to compel the Ebuehis to vacate
the Gladstone Property and turn over the property under § 542. He
requested that the bankruptcy court order them to vacate the property and
remove all personal property within two business days.
The Ebuehis did not oppose the turnover motion or appear at the
hearing. After the court heard and orally granted the motion, they filed a
brief opposition arguing that it would be burdensome to move out of the
Gladstone Property. On April 2, 2020, the court entered a written order
requiring the Ebuehis to vacate the property within two business days (the
“Turnover Order”).
3 The certificate of notice indicated that the Turnover Order was
electronically served on the Ebuehis’ counsel on the same day. It also
indicated that the BNC sent the Turnover Order to the Ebuehis via first
class mail on April 4. Nevertheless, the Ebuehis did not vacate the
Gladstone Property.
2. The order to show cause
The chapter 7 trustee filed a motion for an order to show cause why
the Ebuehis should not be held in contempt for ignoring the Turnover
Order, frustrating the sale process, and failing to vacate the Gladstone
Property. The Ebuehis opposed the motion. They argued that they had
nothing to do with the difficult administration of the chapter 7 case.
The bankruptcy court granted the motion and issued the order to
show cause. The Ebuehis filed a response but again insisted that they had
done nothing wrong.
The bankruptcy court held a hearing on the order to show cause
(which the Ebuehis and their counsel attended) and found the Ebuehis in
contempt of the Turnover Order. It issued an order (“Contempt Order”)
that held that they had willfully failed to comply with the Turnover Order
and failed to establish that compliance was impossible. It also ordered
coercive monetary sanctions against the debtors.
In making its ruling, the bankruptcy court adopted its tentative
ruling in full. It noted “a number of excuses for their non-compliance, but
their evidence does not substantiate their claims and contains too many
4 gaps for this Court to find that they have adequately rebutted the Trustee’s
evidence that they are willingly flouting this Court’s Turnover Order.” The
court rejected each of the Ebuehis’ excuses for noncompliance.
In or around June 2020, the Ebuehis vacated the Gladstone Property.
C. The adversary proceeding
The chapter 7 trustee filed an adversary complaint to deny the
Ebuehis their discharge under §§ 727(a)(3), (a)(4), and (a)(6).
In the first and second causes of action, he asserted that denial of
discharge under § 727(a)(6) was warranted because the Ebuehis had failed
to comply with the Conversion Order and Turnover Order, respectively.
In the third cause of action, he objected to discharge under § 727(a)(4)
because the debtors made a false oath regarding the number of missed
mortgage payments: they reported that they had missed only four
payments when they in fact had missed eleven payments.
Finally, in the fourth cause of action, he urged the court to deny
discharge under § 727(a)(3) because the debtors failed to maintain records
regarding the rental payments or turn over their record-keeping notebook,
making it impossible to ascertain their financial condition.
The United States Trustee intervened and assumed prosecution of the
adversary proceeding.
Prior to trial, the parties agreed to stipulated facts and legal issues.
With regard to the Conversion Order, the parties stipulated that the
Ebuehis did not file certain required reports. They also stipulated that the
5 August 2019 monthly operating report represented that the debtors had
missed four mortgage payments, but the lender reported that they had
missed eleven payments. The parties stipulated that the Ebuehis had failed
to respond to the U.S. Trustee’s requests for admission, which included
assertions that they did not disclose accurate information in their
schedules; have no written records concerning the rental properties; did
not provide or file required reports or schedules; and did not make
mortgage payments between October 2018 and August 2019.
D. Trial
At trial, the U.S. Trustee offered evidence to support the allegations
of the complaint.
The Ebuehis conceded that the information in the monthly operating
reports was incorrect but argued that the mistake was unintentional
because they did not receive statements from the mortgage lender. They
said that Mr. Ebuehi completed the August 2019 monthly operating report
without Mrs. Ebuehi’s input and that she signed it without reading it.
They stated that they had no knowledge of the Conversion Order
because their attorney did not inform them of the conversion and they did
not receive a copy of the order. They claimed that they only found out
about the Conversion Order when they attended a § 341 meeting in
December 2019 (or when they were informed by a paralegal). Similarly,
they asserted that they did not have knowledge of the Turnover Order, so
they could not comply with its terms.
6 As to the rental proceeds, they stated that they kept information in a
book, but they could not find it. They said that they had cooperated with
the chapter 7 trustee and that he could have gotten the necessary
information from their tenants.
At the conclusion of the trial, the bankruptcy court orally announced
its ruling. It denied Mr. Ebuehi his discharge under §§ 727(a)(3), (a)(4), and
(a)(6) and denied Mrs. Ebuehi her discharge under §§ 727(a)(3) and (a)(6). It
recognized that objections to discharge must be construed strictly against
the objector but nevertheless found that “the plaintiff’s evidence in this
case is very strong, and the arguments are very strong.” It stated that, as a
general proposition, it did not find the Ebuehis credible.
The bankruptcy court held that it had already ruled in the contempt
proceedings that the Ebuehis had willfully failed to comply with the
Turnover Order and determined that issue preclusion prevented
relitigation of the § 727(a)(6) claim. Alternatively, it held that the U.S.
Trustee had established that the Ebuehis should be denied their discharge
under § 727(a)(6) because the Ebuehis were aware of the Conversion Order
and Turnover Order yet chose to ignore them. It rejected the Ebuehis’
argument that their noncompliance should be excused, instead finding that
the debtors were derelict for putting their “head[s] in the sand.” It did not
credit the Ebuehis’ testimony that they lacked receipt of and knowledge
about the content of the Conversion Order and Turnover Order. It found
that they had filed documents that acknowledged the orders and took
7 judicial notice of its docket reflecting that BNC had mailed the Conversion
Order and the Turnover Order to the Ebuehis’ mailing address.
As to § 727(a)(3), the bankruptcy court held that the Ebuehis’ failure
to turn over financial records made it impossible for the chapter 7 trustee to
ascertain their financial condition. It found the Ebuehis not credible
regarding the missing records and rejected the argument that the chapter 7
trustee could have obtained the same information from the tenants.
As to § 727(a)(4), the bankruptcy court held that Mr. Ebuehi
knowingly and fraudulently reported that they had missed only four
mortgage payments. However, there was no evidence that Mrs. Ebuehi had
prepared or reviewed the monthly operating reports before signing them.
The bankruptcy court entered judgment against the Ebuehis. The
Ebuehis timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(J). We have jurisdiction under 28 U.S.C. § 158.
ISSUES
(1) Whether the bankruptcy court erred in denying the Ebuehis their
discharge under § 727(a)(3).
(2) Whether the bankruptcy court erred in denying Mr. Ebuehi his
discharge under § 727(a)(4).
(3) Whether the bankruptcy court erred in denying the Ebuehis their
discharge under § 727(a)(6).
8 STANDARDS OF REVIEW
In an appeal from a § 727 denial of discharge: (1) the bankruptcy
court’s determinations of the historical facts are reviewed for clear error;
(2) the court’s selection of the applicable legal rules under § 727 is reviewed
de novo; and (3) the court’s application of the facts to those rules requiring
the exercise of judgments about values animating the rules is reviewed de
novo. Searles v. Riley (In re Searles), 317 B.R. 368, 373 (9th Cir. BAP 2004),
aff'd, 212 F. App’x 589 (9th Cir. 2006).
“De novo review requires that we consider a matter anew, as if no
decision had been made previously.” Francis v. Wallace (In re Francis), 505
B.R. 914, 917 (9th Cir. BAP 2014).
Factual findings are clearly erroneous if they are illogical,
implausible, or without support in the record. Retz v. Samson (In re Retz),
606 F.3d 1189, 1196 (9th Cir. 2010). If two views of the evidence are
possible, the trial judge’s choice between them cannot be clearly erroneous.
Anderson v. City of Bessemer City, 470 U.S. 564, 574 (1985).
We give especially great deference to the bankruptcy court's
determinations of witnesses’ credibility. An appellate court must “give
singular deference to a trial court’s judgments about the credibility of
witnesses. That is proper, we have explained, because the various cues that
‘bear so heavily on the listener's understanding of and belief in what is
said’ are lost on an appellate court later sifting through a paper record.”
Cooper v. Harris, 137 S. Ct. 1455, 1474 (2017) (citations omitted). An attack
9 on credibility determinations rarely succeeds, because “when a trial judge’s
finding is based on his decision to credit the testimony of one of two or
more witnesses, each of whom has told a coherent and facially plausible
story that is not contradicted by extrinsic evidence, that finding, if not
internally inconsistent, can virtually never be clear error.” Anderson, 470
U.S. at 575.
DISCUSSION
Section 727(a) provides in relevant part that the bankruptcy court
may deny a debtor a discharge if the debtor has engaged in certain kinds of
misconduct.
The party objecting to discharge “bears the burden of proving by a
preponderance of the evidence that [the debtor’s] discharge should be
denied. . . . [D]ischarge provisions are liberally construed in favor of
debtors and strictly against the person objecting to the discharge.” Khalil v.
Developers Sur. & Indem. Co. (In re Khalil), 379 B.R. 163, 172 (9th Cir. BAP
2007), aff’d, 578 F.3d 1167, 1168 (9th Cir. 2009).
A. The bankruptcy court did not err in denying the Ebuehis their discharge under § 727(a)(3).
The Ebuehis argue that the bankruptcy court erred in denying their
discharge under § 727(a)(3) because their records were not necessary to
determine their financial status and they were justified in failing to turn
them over. We disagree.
Section 727(a)(3) provides that the bankruptcy court must deny a
10 discharge when the debtor has “concealed . . . or failed to keep or preserve
any recorded information . . . from which the debtor’s financial condition
or business transactions might be ascertained, unless such act or failure to
act was justified under all of the circumstances of the case . . . .” The Ninth
Circuit has stated “that the purpose of § 727(a)(3) is to make discharge
dependent on the debtor’s true presentation of his financial affairs.” Caneva
v. Sun Cmtys. Operating Ltd. P’ship (In re Caneva), 550 F.3d 755, 761 (9th Cir.
2008) (citing Lansdowne v. Cox (In re Cox), 41 F.3d 1294, 1296 (9th Cir. 1994)).
The debtor is required to “present sufficient written evidence which will
enable his creditors reasonably to ascertain his present financial condition
and to follow his business transactions for a reasonable period in the past.”
Id. (quoting Rhoades v. Wikle, 453 F.2d 51, 53 (9th Cir. 1971)). This
“requirement removes the risk to creditors of ‘the withholding or
concealment of assets by the bankrupt under cover of a chaotic or
incomplete set of books or records.’” Id. (quoting Burchett v. Myers, 202 F.2d
920, 926 (9th Cir. 1953)).
To assess the sufficiency of the debtor’s records under § 727(a)(3), the
bankruptcy court must engage in a two-part analysis. First, a creditor
makes a prima facie case by showing “(1) that the debtor failed to maintain
and preserve adequate records, and (2) that such failure makes it
impossible to ascertain the debtor’s financial condition and material
business transactions.” Id. (quoting In re Cox, 41 F.3d at 1296). If the creditor
meets his burden of showing inadequate or nonexistent records, “the
11 burden of proof then shifts to the debtor to justify the inadequacy or
nonexistence of the records.” Id. (quoting In re Cox, 41 F.3d at 1296).
In this case, the chapter 7 trustee testified that the Ebuehis gave him
no accounting for their receipt or disposition of the rental payments. The
Ebuehis do not deny this, but they argue that the trustee could have
obtained the information from the tenants or their financial institutions.
The premise of this argument is false: the chapter 7 trustee did ask the
tenants about their rental payments and did examine bank records;
unsurprisingly, the tenants knew what they had paid the Ebuehis, but did
not know what the Ebuehis did with the rental payments, and the bank
records revealed that the money was never deposited into the estate’s
accounts. The argument is also erroneous because the debtor has an
affirmative duty to disclose his financial records, and it is not the trustee’s
responsibility to verify the account of an uncooperative debtor. See In re
Caneva, 550 F.3d at 762; see also Chen v. U.S. Tr. (In re Chen), BAP No. WW-
17-1067-KuFB, 2017 WL 4768104, at *6 (9th Cir. BAP Oct. 17, 2017) (“Trustee
was not required to investigate and acquire [debtor’s] records. It was
[debtor’s] duty to keep and preserve records and provide sufficient
information.” (citations omitted)).
The burden thus shifted to the Ebuehis to establish that they were
justified in their failure to produce their financial records. They contend
that they were justified in not providing the information because they
“lost” or “misplaced” the notebook containing the rental records, possibly
12 when they moved out of the Gladstone Property. But the bankruptcy court
simply did not believe Mr. Ebuehi’s testimony. This was not clear error. See
Cooper, 137 S. Ct. at 1474; Anderson, 470 U.S. at 575.
Further, the Ebuehis argue that Mrs. Ebuehi was not involved in
collecting rents or keeping financial records. But Mrs. Ebuehi is equally
responsible for providing records to the chapter 7 trustee. In fact, she
represented in their joint declaration that they had provided all
information to the trustee. The fact that she did not collect the rents did not
absolve her of her responsibility to cooperate with the trustee. 2 Moreover,
the Ebuehis never raised this argument in the bankruptcy court. We will
not entertain new arguments in the first instance on appeal. See Padgett v.
Wright, 587 F.3d 983, 985 n.2 (9th Cir. 2009).
B. The bankruptcy court did not err in denying Mr. Ebuehi his discharge under § 727(a)(4).
Mr. Ebuehi argues that the bankruptcy court erred in ruling that he
knowingly and fraudulently made a false oath in the monthly operating
reports. We discern no error.
Section 727(a)(4)(A) denies a discharge to a debtor who “knowingly
2 The Ebuehis cite Cox, in which the Ninth Circuit held that a wife was entitled to a discharge where she relied on her husband’s recordkeeping. However, in that case, the couple had a strict division of marital responsibilities, and the wife explicitly understood that she did not have to concern herself with her husband’s business affairs. In re Cox, 41 F.3d at 1298. The Ninth Circuit held that, in such a case, the wife’s failure to keep records was justified. Id. at 1299. Conversely, the Ebuehis did not even argue, let alone offer any evidence, that they had such a division of responsibility. 13 and fraudulently, in or in connection with the case[,] . . . made a false oath
or account[.]” “The fundamental purpose of § 727(a)(4)(A) is to insure that
the trustee and creditors have accurate information without having to
conduct costly investigations.” Fogal Legware of Switz., Inc. v. Wills (In re
Wills), 243 B.R. 58, 63 (9th Cir. BAP 1999).
The party objecting to discharge must show by a preponderance of
the evidence that: (1) the debtor made such a false statement or omission
(2) regarding a material fact, (3) he did so knowingly, and (4) he did so
fraudulently. See In re Retz, 606 F.3d at 1197; Searles, 317 B.R. at 377.
The Ebuehis do not contest that Mr. Ebuehi misreported the number
of missed mortgage payments in the monthly operating statements or that
such facts were material. They only argue on appeal that the bankruptcy
court erred in finding that he did so knowingly and fraudulently. “A
finding of fraudulent intent is a finding of fact reviewed for clear error.” In
re Retz, 606 F.3d at 1197.
A debtor “acts knowingly if he or she acts deliberately and
consciously.” In re Khalil, 379 B.R. at 173 (quoting Roberts v. Erhard (In re
Roberts), 331 B.R. 876, 883 (9th Cir. BAP 2005)). A debtor acts with
fraudulent intent when: (1) the debtor makes a misrepresentation, (2) that
at the time he or she knew was false, and (3) with the intention and
purpose of deceiving creditors. In re Retz, 606 F.3d at 1198-99.
The Ebuehis’ primary argument on appeal is that Mr. Ebuehi did not
knowingly or fraudulently misreport information because the mortgagee
14 did not provide them with a statement listing the missing payments, so
they had no way of knowing how many payments they had missed. He
faults the chapter 7 trustee and the U.S. Trustee’s office for failing to
contact him and request that he correct the mistakes.
The bankruptcy court did not err in finding that Mr. Ebuehi made the
statements knowingly and fraudulently. His excuse makes no sense. He
knew whether he made a mortgage payment, regardless of whether the
mortgagee told him he had or had not done so. The bankruptcy court
simply did not believe him. This was not error.
C. The bankruptcy court did not err in denying the Ebuehis their discharge under § 727(a)(6).
The Ebuehis contend that the bankruptcy court erred in ruling that
they failed to comply with court orders. Their arguments are unavailing.
Section 727(a)(6)(A) provides that the court shall grant a discharge
unless “the debtor has refused, in the case . . . to obey any lawful order of
the court, other than an order to respond to a material question or to
testify[.]” In order to establish that the debtors “refused” to comply with an
order, the party seeking to deny discharge “must show that Debtors
(1) were aware of the order and (2) willfully or intentionally refused to
obey the order (i.e., something more than a mere failure to obey the order
through inadvertence, mistake or inability to comply).” Vaughan v.
Weinstein (In re Vaughan), BAP No. NV-15-1254-JuKiD, 2016 WL 878308, at
*7 (9th Cir. BAP Feb. 29, 2016).
15 The bankruptcy court held that the Ebuehis willfully failed to comply
with both the Conversion Order and the Turnover Order. The court did not
credit their testimony that they had no knowledge of the orders, either
personally or from their counsel. It pointed out that the orders were served
both electronically on their counsel and by mail on the debtors, that the
Ebuehis did not complain about not receiving any other court document,
that a paralegal informed them that their case had been converted, and that
they filed a motion for reconsideration (including their signed declaration)
that acknowledged the Conversion Order. The court found that the
Ebuehis knew of the two orders and chose to ignore them. Even if the
Ebuehis did not initially know about the orders, once they learned of them,
they put their “head[s] in the sand” and chose not to comply. The
bankruptcy court’s credibility assessment and factual findings are not
clearly erroneous.
The Ebuehis argue that the bankruptcy court should not have taken
judicial notice of the BNC certificates of notice. But the bankruptcy court
did not need to rely on the certificates of notice; the Ebuehis’ testimony and
their own court filings demonstrated that they knew of the Conversion
Order and Turnover Order yet refused to comply.
They also seem to argue that, because the orders were not served on
them with enough time to comply, they were not required to abide by the
orders. This argument is nonsensical. By their logic, a party who flouts a
deadline is absolved of any responsibility to comply with the court order
16 once that deadline has passed. Cf. Maness v. Meyers, 419 U.S. 449, 458-59
(1975) (“[A]ll orders and judgments of courts must be complied with
promptly. . . . The orderly and expeditious administration of justice by the
courts requires that an order issued by a court with jurisdiction over the
subject matter and person must be obeyed by the parties until it is reversed
by orderly and proper proceedings.” (citation and quotation marks
omitted)); Chapman v. Pac. Tel. & Tel. Co., 613 F.2d 193, 197 (9th Cir. 1979) (A
party “who believes a court order is erroneous is not relieved of the duty to
obey it. The proper course of action, unless and until the order is
invalidated by an appellate court, is to comply and cite the order as
reversible error should an adverse judgment result.”). The bankruptcy
court did not err in requiring the Ebuehis to comply with (or at least make
an effort to investigate) the court’s orders once they learned of them.3
3 The bankruptcy court alternatively held that its Contempt Order had issue preclusive effect over whether the Ebuehis willfully failed to comply with the Turnover Order. We think that the law of the case doctrine is more applicable to this situation. That doctrine grants a court discretion to decline “reconsidering an issue that has already been decided by the same court, or a higher court in the identical case.” Rebel Oil Co. v. Atl. Richfield Co., 146 F.3d 1088, 1093 (9th Cir. 1998). Orders entered in the main bankruptcy case are law of the case in adversary proceedings associated with that case. See Rickert v. Specialized Loan Servicing, LLC (In re Rickert), BAP No. MT-20-1100- BGF, 2020 WL 7043609, at *4 (9th Cir. BAP Dec. 1, 2020) (applying law of the case where a subsequent order in an adversary proceeding involved “precise issues that the bankruptcy court previously decided, both explicitly and implicitly, in favor of [the appellee]. As such, these issues are barred by the doctrine of law of the case.”), aff’d, No. 21-60003, 2021 WL 5985026 (9th Cir. Dec. 16, 2021). However, any error in relying on issue preclusion was harmless. The bankruptcy court correctly held that the elements of issue preclusion applied, and the law of the case test is less stringent than issue preclusion. See generally Arizona v. California, 460 U.S. 605, 618 (1983) (noting that, 17 CONCLUSION
The bankruptcy court did not err in denying the Ebuehis their
discharge. We AFFIRM.
“[u]nlike the more precise requirements of res judicata, law of the case is an amorphous concept”), decision supplemented, 466 U.S. 144 (1984). More importantly, the court independently determined that denial of discharge was warranted under § 727(a)(6). 18