FILED SEP 08 2017 1 NOT FOR PUBLICATION 2 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. CC-16-1328-PaTaKu ) 6 JOSEPH ELLISON, ) Bk. No. 2:14-bk-24463-RK ) 7 Debtor. ) Adv. No. 2:15-ap-01001-RK ______________________________) 8 ) JOSEPH ELLISON, ) 9 ) Appellant, ) 10 ) v. ) M E M O R A N D U M* 11 ) JPMORGAN CHASE BANK, N.A.; ) 12 JPMORGAN SECURITIES, LLC, ) ) 13 Appellees. ) ______________________________) 14 Argued and Submitted on July 27, 2017 15 at Pasadena, California 16 Filed - September 8, 2017 17 Appeal from the United States Bankruptcy Court for the Central District of California 18 Honorable Robert N. Kwan, Bankruptcy Judge, Presiding 19 20 Appearances: David Scott Hagen of Law Offices of David S. Hagen argued for appellant; Stefan Perovich of Keesal 21 Young & Logan argued for appellees. 22 Before: PAPPAS,** TAYLOR, KURTZ, Bankruptcy Judges. 23 24 * 25 This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may 26 have, see Fed. R. App. P. 32.1, it has no precedential value, see 27 9th Cir. BAP Rule 8024-1. ** 28 The Honorable Jim D. Pappas, United States Bankruptcy Judge for the District of Idaho, sitting by designation. 1 Chapter 71 debtor Joseph Ellison (“Debtor”) appeals from the 2 bankruptcy court’s judgment denying him a discharge under 3 § 727(a)(2)(A). Debtor argues that the bankruptcy court erred, 4 as a matter of law, by considering certain transfers he made 5 prior to the bankruptcy filing as evidence of his intent to 6 hinder or delay a creditor. Absent those errors, Debtor 7 contends, the bankruptcy court could not have found he had the 8 requisite intent in order to deny discharge. Debtor also argues 9 that several of the bankruptcy court’s critical factual findings 10 were clearly erroneous. For the reasons explained below, we 11 disagree and AFFIRM. 12 I. FACTS2 13 A. The FINRA Action and Shustak Fee Dispute 14 Debtor lived in Los Angeles, California; he was employed by 15 JPMorgan Chase Bank, N.A. and JPMorgan Securities, LLC (“JPM”) as 16 a financial advisor until approximately April 2012. While 17 employed by JPM, Debtor developed an animus towards JPM. 18 In June 2012, Debtor commenced an arbitration action against 19 JPM before the Financial Regulatory Authority (“FINRA”) asserting 20 various claims related to his employment. JPM filed a 21 counterclaim in the FINRA action alleging that Debtor breached a 22 23 1 Unless otherwise indicated, all chapter and section 24 references are to the Bankruptcy Code, 11 U.S.C. §§ 101–1532, and all Rule references are to the Federal Rules of Bankruptcy 25 Procedure, Rules 1001–9037. 26 2 These facts are drawn largely from a stipulation of facts 27 entered into by the parties in the bankruptcy court, and from Debtor’s testimony at both a Rule 2004 examination and at the 28 trial in the § 727 action.
-2- 1 contract by failing to repay a $750,000 loan. 2 Initially, Debtor was represented in the FINRA action by 3 Shustak & Partners LLP ("Shustak"). However, Debtor terminated 4 Shustak due to a fee dispute, and a new attorney appeared for 5 Debtor. While Debtor believed that he did not owe Shustak 6 additional fees, Shustak disagreed, sued Debtor in state court, 7 and promptly scheduled an ex parte hearing before the court 8 seeking to freeze all of Debtor’s assets. Debtor testified that 9 he did not learn about the hearing until the night before, and 10 as a result, his wife, who is a lawyer, had to make a 4 a.m. trip 11 to San Diego to attend the hearing to thwart Shustak’s efforts. 12 Based upon this experience, Debtor testified he feared Shustak’s 13 further collection efforts. 14 B. Debtor Consults an Asset Protection Attorney 15 In January 2014, Debtor was concerned enough with protecting 16 his assets that he thought it prudent to travel to Nevada to meet 17 with an asset protection attorney, Glen Woods (“Woods”). Debtor 18 testified he understood that Woods’ financial planning services 19 were legal and appropriate and that one of his goals in meeting 20 with Woods was to learn how to protect his assets from potential 21 creditors. 22 Although Debtor found Woods to be sophisticated and 23 knowledgeable, Debtor testified that he declined to follow Woods’ 24 advice and sought a refund of the fees paid to Woods because, in 25 the days following the meeting, Woods failed to return his calls 26 and provide documents requested by Debtor. 27 C. Bank Accounts 28 During relevant times, Debtor had several financial
-3- 1 accounts, including a City National Bank account ("Debtor's CNB 2 Account") and a Mutual Securities, Inc. account ("Joint 3 Account"). Importantly, when he later filed for bankruptcy 4 relief, Debtor did not effectively claim an exemption in the 5 funds in either of these accounts.3 6 Debtor’s wife had an account in the name of her law office 7 at City National Bank (“Wife’s CNB Account”). Debtor testified 8 that this was an account she used to pay both their personal 9 bills and law office expenses. Debtor indicated he was not a 10 signatory on the account and had no control over the way she used 11 the funds in it. Even so, Debtor claimed the funds in Wife’s CNB 12 Account as exempt in his bankruptcy schedules. 13 In the years leading up to the bankruptcy filing, the 14 couple’s income was insufficient to support their lifestyle. 15 Debtor testified that they were living off withdrawals from two 16 IRAs maintained by him and his wife while he rebuilt his 17 business. He explained that he would regularly transfer funds 18 from the IRAs to Debtor’s CNB Account, and then transfer the 19 funds from Debtor’s CNB Account to Wife’s CNB Account, to pay 20 their personal bills. 21 D. The Refinancing of Debtor’s Home Mortgages 22 Debtor and his wife owned a home in Los Angeles ("the 23 Property"). While the FINRA action was pending, they refinanced 24 3 25 To be precise, in his Schedule C, Debtor listed the accounts with “(exempt)” in parenthesis at the end of the 26 description. But the value of the claimed exemption in the 27 schedule was “$0.00.” Debtor perhaps did this because he had used the entire amount of the exemption provided under C.C.P. 28 § 703.140(b)(5) to claim the funds in Wife’s CNB Account exempt.
-4- 1 the two mortgages on the Property. Debtor testified that the 2 purpose of this refinancing was to survive during the arbitration 3 and to allow him to avoid further depleting the IRAs. Debtor 4 began his efforts to refinance the mortgages in the fall of 2013. 5 On February 14, 2014, Debtor and his wife obtained a new 6 loan for approximately $1,500,000 secured by a deed of trust on 7 the Property ("First DOT"). Two weeks later, Debtor and his wife 8 obtained another loan for $200,000 secured by a second deed of 9 trust on the Property ("Second DOT"). After the existing deeds 10 of trust encumbering the Property were paid off, the remaining 11 cash proceeds from the First and Second DOTs were deposited in 12 Debtor’s CNB Account. As a result of these deposits, as of 13 March 1, 2014, Debtor’s CNB account contained approximately 14 $249,000 of loan proceeds. 15 Debtor testified that based on appraisals he saw prior to 16 refinancing, he believed there was still significant equity in 17 the Property after refinancing. According to Debtor, he did not 18 realize the Property may be worth only approximately $1.5 million 19 until June 2014, when he saw “Zillow” numbers and appraisals done 20 in anticipation of his bankruptcy filing. If the Property was 21 indeed valued at $1.5 million when the mortgages were refinanced, 22 and the First and Second DOTs totaled approximately $1.7 million, 23 the Property was fully encumbered after the refinance. 24 E. Transfers and the Outcome of the FINRA Action 25 In March 2014, Debtor transferred approximately $38,000 from 26 Debtor’s CNB account to two of his friends. Debtor testified at 27 his Rule 2004 examination that he did so to repay a personal 28 loan, and a business project loan, although Debtor acknowledged
-5- 1 that he had used the purported business loan proceeds to pay for 2 living expenses. 3 In April 2014, Debtor made payments to two experts for the 4 litigation with JPM. Debtor testified that, at that time, he 5 still believed he would prevail against JPM. 6 From April 28 to May 6, 2014, the FINRA panel conducted an 7 evidentiary hearing concerning Debtor’s claim and JPM’s 8 counterclaim. 9 Later in May 2014, Debtor transferred $18,000 from Debtor’s 10 CNB Account into Wife’s CNB Account. 11 On June 3, 2014, the FINRA panel issued a decision rejecting 12 Debtor’s claims against JPM; the decision awarded JPM 13 approximately $790,000. 14 Following entry of the award, in June 2014, Debtor 15 transferred an additional $51,000 from Debtor’s CNB Account to 16 Wife’s CNB Account. Debtor also transferred $121,000 from 17 Debtor’s CNB Account to the bank account of a corporation wholly- 18 owned by Debtor, Clownputsch, Inc. (“the Clownputsch Account”). 19 But a few days later, Debtor transferred $119,000 back from the 20 Clownputsch Account to Debtor’s CNB Account. Debtor testified at 21 his Rule 2004 examination that he made the transfer to the 22 Clownputsch Account, in part, because he was afraid people were 23 going to take his money and leave his family destitute. 24 F. Prepayment of the Property Mortgages 25 On July 9, 2014, six days after receiving notice of the 26 FINRA award, and three weeks before filing his bankruptcy 27 petition, Debtor used funds in Debtor’s CNB Account to make 28 payments of approximately $41,000 and $11,000 to the lenders on
-6- 1 the First and Second DOTs, respectively. Debtor instructed them 2 to apply these amounts to the next six monthly payments due on 3 the loans. 4 Debtor acknowledged that he had never previously made 5 prepayments on the mortgages so far in advance. He explained 6 that he made these payments because he wanted to protect his 7 family and to ensure money was not available for Shustak to 8 seize. At his Rule 2004 examination, Debtor also testified he 9 felt the need to protect his family because of the FINRA award 10 and threatening letters he received from JPM. 11 On July 17, 2014, JPM commenced an action in the United 12 States District Court for the Central District of California for 13 judicial confirmation of the FINRA award. 14 G. The Bankruptcy Case and More Transfers 15 On July 29, 2014, Debtor filed a chapter 7 petition. Debtor 16 acknowledged that, but for the JPM award, he would not have filed 17 for bankruptcy relief. Debtor’s Schedule F lists unsecured debts 18 totaling approximately $925,000, including an undisputed claim of 19 $789,000 owed to JPM on account of the FINRA award, and a 20 disputed $45,000 debt owed to Shustak for attorneys fees. These 21 were Debtor’s two largest unsecured creditors. 22 Just before Debtor filed his petition, in four separate 23 transactions, Debtor transferred approximately $31,600 from the 24 non-exempt Joint Account to various parties, including a $17,000 25 transfer to Wife’s CNB Account on the petition date. As a result 26 of the four transfers, the balance of the Joint Account decreased 27 from approximately $33,000 to the approximately $2,000 Debtor 28 disclosed in his Schedule B.
-7- 1 H. The Adversary Proceeding 2 On January 2, 2015, JPM filed an adversary complaint 3 objecting to Debtor’s discharge pursuant to § 727(a)(2)(A).4 The 4 parties filed a pre-trial stipulation setting forth uncontested 5 facts, which the bankruptcy court approved. On November 19, 6 2015, the bankruptcy court conducted a trial in the adversary 7 proceeding at which Debtor testified. On September 23, 2016, the 8 bankruptcy court entered a memorandum decision and judgment 9 denying Debtor’s discharge under § 727(a)(2)(A) because, it 10 determined, Debtor made transfers within the year preceding the 11 filing of his bankruptcy petition with the intent to hinder or 12 delay a creditor. 13 Debtor timely appealed the judgment denying discharge. 14 II. JURISDICTION 15 The bankruptcy court had jurisdiction under 28 U.S.C. 16 §§ 1334 and 157(b)(2)(J). The Panel has jurisdiction over this 17 appeal under 28 U.S.C. § 158(b). 18 III. ISSUE 19 Did the bankruptcy court err by denying Debtor’s discharge 20 under § 727(a)(2)(A)? 21 IV. STANDARD OF REVIEW 22 In reviewing a judgment denying a discharge, we review: 23 ”(1) the bankruptcy court's determinations of the historical 24 4 25 JPM also objected to Debtor’s discharge under § 727(a)(2)(B). The bankruptcy court decided that JPM abandoned 26 this claim by failing to introduce evidence or argument to 27 support it at trial. Thus, the court based its judgment against Debtor solely on § 727(a)(2)(A). JPM has not argued otherwise in 28 this appeal.
-8- 1 facts for clear error; (2) its selection of the applicable legal 2 rules under § 727 de novo; and (3) its application of the facts 3 to those rules requiring the exercise of judgments about values 4 animating the rules de novo.” DeNoce v. Neff (In re Neff), 5 505 B.R. 255, 262 (9th Cir. BAP 2014) (citing Searles v. Riley 6 (In re Searles), 317 B.R. 368, 373 (9th Cir. BAP 2004), aff'd, 7 212 Fed.Appx. 589 (9th Cir. 2006)). 8 The bankruptcy court’s determinations concerning the 9 debtor’s intent are factual matters reviewed for clear error. 10 Beauchamp v. Hoose (In re Beauchamp), 236 B.R. 727, 729 (9th Cir. 11 BAP 1999). Fact findings are clearly erroneous if they are 12 illogical, implausible, or without support in the record. Retz 13 v. Samson (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010). We 14 give great deference to the bankruptcy court’s fact findings when 15 based upon its determinations as to the credibility of witnesses. 16 Id. If two views of the evidence are possible, the trial judge’s 17 choice between them cannot be clearly erroneous. Anderson v. 18 City of Bessemer City, N.C., 470 U.S. 564, 573–75 (1985); Ng v. 19 Farmer (In re Ng), 477 B.R. 118, 132 (9th Cir. BAP 2012). 20 V. DISCUSSION 21 The bankruptcy court denied Debtor’s discharge under 22 § 727(a)(2)(A), which provides that: 23 The court shall grant the debtor a discharge, unless . . . the debtor, with intent to hinder, delay, or 24 defraud a creditor . . . has transferred . . . property of the debtor, within one year before the date of the 25 filing of the petition. 26 § 727(a)(2)(A). 27 The party seeking denial of a discharge under § 727(a)(2) 28 must prove by a preponderance of evidence that there was: “(1) a
-9- 1 disposition of property, such as a transfer or concealment, and 2 (2) a subjective intent on the debtor’s part to hinder, delay or 3 defraud a creditor through the act [of] disposing of the 4 property.” Hughes v. Lawson (In re Lawson), 122 F.3d 1237, 1240 5 (9th Cir. 1997); Khalil v. Developers Sur. & Indem. Co. 6 (In re Khalil), 379 B.R. 163, 172 (9th Cir. BAP 2007) (holding 7 that the burden of proof in a § 727 action is a preponderance of 8 the evidence). Courts should interpret § 727 liberally in favor 9 of debtors and strictly against parties objecting to discharge. 10 In re Retz, 606 F.3d at 1196 (quoting Bernard v. Sheaffer 11 (In re Bernard), 96 F.3d 1279, 1281 (9th Cir. 1996)). 12 A. Transfers 13 Relying on the Code’s definition of “transfer”, § 101(54), 14 the bankruptcy court concluded that, because each of the 15 following transactions involved the disposition of or parting 16 with property occurring within the statutory time period, they 17 constituted transfers by Debtor for purposes of the first Lawson 18 element: 19 (1) the refinancing of the mortgages on the Property and the 20 transfers of the loan proceeds to Debtor’s accounts; 21 (2) the $38,000 transfer to pay off loans from friends; 22 (3) the $51,000 transfer to Wife’s CNB Account; 23 (4) the five months of prepayments made to the mortgage 24 lenders;5 25 26 5 The bankruptcy court found that because the amounts Debtor 27 paid the lenders included the currently-due monthly payment, the transfers amounted to only a five month prepayment, despite the 28 (continued...)
-10- 1 (5) the $31,600 in transfers from the Joint Account, 2 including $17,000 to Debtor’s wife on the petition date; and 3 (6) the $2,000 transferred to the Clownputsch Account that 4 was not later transferred back. 5 We agree with the bankruptcy court that these transactions 6 were transfers for purposes of deciding whether Debtor’s 7 discharge should be denied under § 727(a)(2)(A).6 8 B. Intent 9 Whether Debtor acted with the intent to hinder, delay, or 10 defraud a creditor in making the subject transfers in this case 11 “is a question of fact that requires the trier of fact to delve 12 into the mind of the debtor.” In re Searles, 317 B.R. at 379 13 (citing Emmett Valley Assocs. v. Woodfield (In re Woodfield), 14 978 F.2d 516, 518 (9th Cir. 1992)). To do so, the bankruptcy 15 court could infer Debtor’s intent from the circumstances 16 surrounding the transactions. In re Woodfield, 978 F.2d at 618 17 (citing First Beverly Bank v. Adeeb (In re Adeeb), 787 F.2d 1339, 18 1342-43 (9th Cir. 1986)). Debtor’s course of conduct could also 19 be probative on the question of his intent. Wolkowitz v. Beverly 20 (In re Beverly), 374 B.R. 221, 243 (9th Cir. BAP 2007), aff'd in 21 5 22 (...continued) parties’ stipulation that it was six months. 23 6 At oral argument, Debtor for the first time challenged the 24 bankruptcy court’s decision that some of these transactions 25 qualified as “transfers” for purposes of § 727(a)(2)(A). However, Debtor waived that argument by failing to raise it in 26 his opening brief, and we decline to address it. See Darby v. 27 Zimmerman (In re Popp), 323 B.R. 260, 273 (9th Cir. BAP 2005) (citing Laboa v. Calderon, 224 F.3d 972, 982 n.6 (9th Cir. 28 2000)).
-11- 1 part, dismissed in part, 551 F.3d 1092 (9th Cir. 2008) (citing 2 In re Adeeb, 787 F.2d at 1343 and other cases)). 3 In this appeal, Debtor focuses on two questions, both of 4 which he argues are “legal” issues concerning the bankruptcy 5 court’s decision: 6 (1) Did the bankruptcy court commit an error of law by considering Debtor’s pre-bankruptcy payments to 7 creditors as evidence of his intent to hinder, delay, or defraud a creditor? 8 (2) Did the bankruptcy court err, as a matter of law, 9 by considering his transfer of community property funds from Debtor’s CNB Account to Wife’s CNB Account as 10 evidence of Debtor's intent to hinder, delay, or defraud a creditor? 11 12 Debtor also contests a number of the specific factual findings 13 made by the bankruptcy court. 14 1. Payments to Creditors as Evidence of Intent to Hinder or Delay a Creditor 15 16 The bankruptcy court concluded that while Debtor’s 17 prepayments to the mortgage lenders, standing alone, could not 18 support a denial of discharge, those transfers could be 19 considered as evidence of his intent in making the transfers, and 20 others, in connection with the other relevant facts. Relying on 21 the Ninth Circuit’s decision in Hultman v. Tevis, Debtor argues 22 that the bankruptcy court erred, as a matter of law, when it 23 considered the mortgage prepayments as evidence of his intent to 24 hinder or delay a creditor. 82 F.2d 940 (9th Cir. 1936). We 25 disagree. 26 In Hultman, within the year preceding the debtor’s 27 bankruptcy, he used money he received from a spendthrift trust to 28 partially pay a large debt owed to his son. 82 F.2d at 941.
-12- 1 Prior to making the payment, the debtor’s attorney advised him 2 that the money received from the trust could not be taken by his 3 creditors, even after it reached his hands. Id. In litigation 4 in his bankruptcy case, a special master found that: 5 The bankrupt, in good faith, believed and relied on his attorneys’ advice and acted on it in making the 6 transfer to his son. Furthermore, the amount of money so transferred was less than the amount then owing by 7 the bankrupt to his son. The mere fact a bankrupt has made a preferential payment or transfer to one of his 8 creditors is no ground for denying a discharge. 9 Id. (emphasis added). Based upon these findings, the district 10 court rejected the trustee’s objection to the debtor’s discharge. 11 Id. On appeal by the trustee to the Ninth Circuit, the master’s 12 findings of fact were not challenged by the trustee, and were 13 accepted by the Ninth Circuit. Id. 14 Debtor urges us to interpret the highlighted statement that 15 was accepted by the Ninth Circuit in Hultman to mean that a 16 debtor’s payment or transfer to a creditor can never be 17 considered as evidence of the debtor’s intent to hinder, delay, 18 or defraud his other creditors. But Hultman does not so hold. 19 First, the debtor in Hultman was found to have made the transfers 20 in good faith because of his reliance on the advice of counsel. 21 82 F.2d at 941. And second, because the debtor in Hultman made 22 the transfers in good faith, “the mere fact” that the debtor 23 elected to pay a creditor was the “only” fact that supported 24 denial of discharge. Id. 25 Unlike in Hultman, here, Debtor did not rely on advice of 26 counsel in making the various transfers to his creditors. In 27 addition, the bankruptcy court identified more than a single 28 payment to a creditor to support its decision to deny Debtor’s
-13- 1 discharge. Therefore, Hultman does not control. Instead, we 2 conclude that, in determining whether Debtor should benefit from 3 a discharge of creditors’ claims against him, the bankruptcy 4 court did not err by considering Debtor’s prepetition payments to 5 his mortgage and other creditors, along with all other relevant 6 evidence, to discern whether Debtor acted with the sort of intent 7 discouraged under § 727(a)(2)(A). 8 This interpretation of § 727(a)(2)(A) and Hultman is 9 consistent with the Panel’s prior decisions. Recently, in Cooke, 10 although all but one of the debtor’s transfers were payments to 11 creditors, a majority of the Panel affirmed the bankruptcy 12 court’s decision denying a discharge under § 727(a)(2)(A), 13 perceiving no clear error had been made by the bankruptcy court 14 in finding that debtor intended to hinder or delay a judgment 15 creditor. 2016 WL 4039699 at * 6.7 In that case, like here, the 16 debtor testified that he knew the objecting creditor might try to 17 collect and that he did not want the creditor to have the money 18 he paid to other creditors. Id. There was also other evidence 19 to support the bankruptcy court’s finding that the debtor acted 20 with the requisite intent. Id. at *78; see also Perrine v. 21 Speier (In re Perrine), 2008 WL 8448835, *5 (9th Cir BAP 2008) 22 (“unlike [in] Hultman, there was additional evidence of intent to 23 7 24 The majority in Cooke distinguished Hultman because the debtor did not effectively raise any “advice of counsel” defense. 25 2016 WL 4039699 at *5 n. 5. 26 8 The bankruptcy court considered the timing and amount of 27 the transfers, debtor's motivation to make the transfers, and the credibility of the debtor's explanation regarding the transfers. 28 In re Cooke, 2016 WL at *7 n.6.
-14- 1 defraud or delay . . . .”). 2 Of course, the Cooke decision was not unanimous, and Debtor 3 urges us to adopt the position taken in the dissent. But the 4 dissent specifically acknowledges that its “analysis is 5 independent of the bankruptcy court’s finding of intent.” Id. at 6 *14. Thus, the dissent’s reasoning in Cooke is inapplicable 7 under the facts in this case. 8 For these reasons, the Panel concludes that the bankruptcy 9 court committed no legal error and properly considered the 10 transfers made by Debtor to some of his creditors, with other 11 relevant evidence, to determine his intent to hinder or delay a 12 creditor. 13 2. Transfer of Community Property from Debtor’s CNB Account to Wife’s CNB Account 14 15 In a similar vein to his first argument, relying on Gill v 16 Stern (In re Stern), 345 F.3d 1036 (9th Cir. 2003), Debtor argues 17 that the bankruptcy court erred, as a matter of law, by 18 considering Debtor’s transfer of funds from the non-exempt Joint 19 and Debtor’s CNB Accounts to the exempt Wife’s CNB Account as 20 evidence that he “crossed the line” between acceptable and 21 prohibited pre-bankruptcy planning. The bankruptcy court 22 considered Stern, and concluded that, although a debtor’s pre- 23 bankruptcy transactions converting non-exempt assets to exempt 24 assets may not be fraudulent in isolation, such transfers could 25 support a denial of discharge if accompanied by a subjective 26 intent to hinder, delay, or defraud a creditor. The Panel 27 agrees. 28 In Stern, the Ninth Circuit examined whether a transfer was
-15- 1 fraudulent for purposes of determining whether the debtor could 2 claim an exemption in the funds transferred. 345 F.3d at 3 1042–1044. “[T]he principle evidentiary inference relied upon by 4 the Trustee [was] that non-exempt assets were converted to exempt 5 assets immediately prior to bankruptcy.” Stern, 345 F.3d at 6 1044. The Ninth Circuit held that “this inference is 7 insufficient as a matter of law to establish a fraudulent 8 transfer.” Id. (citing Wudrick v. Clements, 451 F.2d 988, 989 9 (9th Cir. 1971) (“the purposeful conversion of non-exempt assets 10 to exempt assets on the eve of bankruptcy is not fraudulent per 11 se.”)) To Debtor, this means that a bankruptcy court cannot 12 consider the conversion of nonexempt assets to exempt status as 13 evidence of an intent to hinder or delay a creditor under 14 § 727(a)(2)(A). But Stern is distinguishable when compared to 15 the facts of this case. 16 Of course, Stern was not a denial of discharge case; and it 17 only considered whether the debtor acted with fraudulent intent, 18 not the intent to hinder or delay a creditor at issue here. 19 Furthermore, the debtor’s transfer in Stern was between two 20 exempt retirement accounts, there was no direct evidence 21 probative of intent, and the circumstantial evidence was little 22 more than the timing of the transfer in question. Beverly, 23 374 B.R. at 241 (summarizing Stern, 345 F.3d 1036). 24 In contrast, in this contest, Debtor’s transfers effectively 25 converted assets from non-exempt to exempt status, there is 26 direct evidence probative of intent, including Debtor’s own 27 testimony about his pre-bankruptcy intentions, and the 28 circumstantial evidence of Debtor’s intent goes beyond the timing
-16- 1 of the transfers. 2 The discharge denial analysis in Beverly is more on point 3 than Stern. Indeed, the Panel published Beverly “to dispel the 4 myth that the toleration of bankruptcy planning for some purposes 5 insulates such planning from all adverse consequences—it does 6 not.” 374 B.R. at 226. There, a lawyer, anticipating a large 7 judgment on community debt, employed a marital settlement 8 agreement to transfer virtually all of the couple’s non-exempt 9 assets to his soon-to-be former wife, in exchange for her 10 relinquishment of the exempt assets that their creditors could 11 not reach. Id. at 227. In reversing the bankruptcy court’s 12 decision to not deny the debtor’s discharge, the BAP held the 13 bankruptcy court had “overstat[ed] the effect of exemption 14 planning”. Id. at 244. 15 In Beverly, the Panel recognized that certain types of 16 bankruptcy planning is permissible but observed that “the 17 existence of intent to hinder, delay, or defraud creditors 18 nevertheless may warrant denial of discharge.” Id. at 245 19 (citing Smiley v. First Nat’l Bank of Belleville (In re Smiley), 20 864 F.2d 562, 568 (7th Cir. 1989); Norwest Bank Nebraska, N.A. v. 21 Tveten, 848 F.2d 871, 874–76 (8th Cir. 1988); First Texas Savings 22 Ass’n, Inc. v. Reed (In re Reed), 700 F.2d 986, 990–92 (5th Cir. 23 1983)). It further explained that while the line between 24 legitimate bankruptcy planning and a prohibited intent to defraud 25 a creditor is difficult to draw, “two things are certain about 26 the line.” Id. First, “denial of discharge involving exemption 27 planning requires that there be evidence other than the mere 28 timing of the transformation of property from non-exempt to
-17- 1 exempt status.” Id. And “[s]econd, there is a principle of ‘too 2 much.’” Id. 3 Contrary to Debtor’s position here, as explained in Beverly, 4 bankruptcy courts can properly rely on the debtor’s conversion of 5 non-exempt assets to exempt status, in conjunction with 6 additional evidence of a debtor’s intent, to support a denial of 7 discharge under § 727(a)(2)(A). Here, relying on Beverly, the 8 bankruptcy court identified evidence other than Debtor’s 9 transformation of property from non-exempt to exempt, and the 10 timing thereof, to support its findings about Debtor’s intent. 11 Because of this, it did not err, as a matter of law, in finding 12 that Debtor’s bankruptcy planning was “too much” and supported a 13 denial of discharge. Debtor argues that Beverly is 14 “distinguishable for the candor in which the debtor expressed his 15 intent to hinder, delay or defraud his creditors.“ Debtor’s Br. 16 at 45. But regardless of the extent of the facts in Beverly, the 17 legal principles announced in that decision hold true here. 18 3. Totality of Circumstances 19 In isolation, many of the Debtors’ transfers may seem to 20 have been benign. However, in considering the totality of the 21 circumstances, the bankruptcy court found that Debtor crossed the 22 line from permissible prebankruptcy transactions to making 23 prohibited transfers with an intent to hinder or delay a 24 creditor. Debtor argues the bankruptcy court erred in its 25 ultimate conclusion because “every circumstance that forms the 26 ‘totality’ is flawed and cannot support the judgment that denied 27 [Debtor’s] discharge.” Reply at 1. But when we examine Debtor’s 28 citations of error, we conclude that the bankruptcy court
-18- 1 committed no clear error in finding the facts. 2 a. Admissions of Intent 3 Debtor argues that the bankruptcy court erred by finding his 4 admitted desire to prefer some of his creditors equated to an 5 admission that he intended to hinder or delay a creditor for 6 purposes of § 727(a)(2)(A). But, to be accurate, Debtor admitted 7 to more than intending to prefer certain creditors. Debtor 8 explicitly testified that he preferred his mortgage lenders in 9 order to keep funds from JPM and Shustak. Moreover, the 10 bankruptcy court found Debtor’s various admissions were only 11 “additional evidence of his intent” to hinder or delay his 12 creditors and also rested its decision on additional 13 circumstantial evidence such as the timing and quantity of the 14 prepayments, as well as their irregular nature and the fact that 15 they were not yet legally due. It also took exception to the 16 fact that the funds used to prepay the mortgage lenders 17 originated from the equity in the Property that was available to 18 creditors until it was monetized through the refinancing. Thus, 19 the bankruptcy court properly considered Debtor’s admissions as 20 support of its finding of Debtor’s intent to hinder or delay a 21 creditor. 22 Debtor further argues his fear of Shustak’s future 23 unscrupulous collection actions were well founded and cannot 24 support a finding that he intended to hinder or delay a creditor. 25 But given the record, his supposed fear does not persuade the 26 Panel that the bankruptcy court erred in finding he intended to 27 hinder or delay Shustak’s efforts to collect, both scrupulous and 28 unscrupulous.
-19- 1 b. Debtor’s Meeting with Woods 2 Debtor argues that the bankruptcy court erred by relying on 3 his meeting with attorney Woods as evidence of his intent, 4 because the meeting preceded any of the critical transfers, and 5 any intent he had at the time of that meeting was vitiated before 6 he made those transfers. 7 But recall, bankruptcy courts may rely on a debtor’s course 8 of conduct, or other circumstantial evidence, to infer intent to 9 hinder or delay a creditor. In re Woodfield, 978 F.2d at 618; 10 In re Beverly, 374 B.R. at 243. Here, the bankruptcy court was 11 not relying on Debtor’s intent in meeting with Woods alone as 12 sufficient to support a finding of his intent to hinder or delay 13 a creditor. Rather, it found that the timing of Debtor's meeting 14 with Woods, together with Debtor’s knowledge and planning in 15 doing so, was "additional evidence" that supported a finding of 16 Debtor's intent to hinder or delay a creditor, particularly in 17 prepaying his home loan lenders. In sum, the bankruptcy court 18 appropriately relied on Debtor’s intent in meeting with Woods as 19 circumstantial evidence to supports its finding of Debtor’s 20 intent at the time he made the transfers to his creditors. 21 c. Refinancing 22 The bankruptcy court found that, through refinancing, Debtor 23 extracted almost $250,000 from equity in the Property, depleting 24 almost all of it, and shielding the equity that exceeded the 25 limited $100,000 homestead exemption. Debtor argues that the 26 fact that he likely over-encumbered the Property via the 27 refinancing should not be held against him because he believed 28 the Property was worth more than the amount he borrowed when he
-20- 1 refinanced. But the bankruptcy court’s findings show that it gave 2 Debtor’s version of the facts little weight. The bankruptcy 3 court did not err in doing so. The Panel gives great deference 4 to the bankruptcy court’s determination of Debtor’s credibility. 5 Additionally, the limited amount of the new second mortgage loan 6 and Debtor’s admission that traditional lenders had declined to 7 extend credit to him for a second mortgage support such a 8 finding. 9 Debtor also argues his intent in refinancing was not to 10 hinder or delay his creditors, but that he only intended to limit 11 his dependence on the IRAs while he survived during the 12 arbitration with JPM. But even if this was one reason Debtor 13 refinanced, his intent to hinder or delay a creditor still 14 warrants denial of discharge "notwithstanding any other 15 motivation" for the transfer. In re Adeeb, 787 F.2d at 1343 16 (holding the intent to hinder or delay warrants denial of 17 discharge “notwithstanding any other motivation” for the 18 transfer). 19 For these reasons, the bankruptcy court did not err in 20 finding that refinancing the Property supported a finding of 21 Debtor’s intent to hinder or delay a creditor and denial of his 22 discharge. 23 d. The Transfers to Wife’s CNB Account 24 Debtor next argues the bankruptcy court erred in 25 considering his transfer of funds from his bank account to his 26 wife’s bank account as evidence of an intent to hinder or delay 27 his creditors because it “overlooked” the fact that his wife had 28 a community property interest in the funds in his account and the
-21- 1 community estate will remain liable for his debts. 2 In addressing a similar argument the bankruptcy court found 3 that even though Debtor had a community property interest in 4 Wife’s CNB Account, and that creditors could potentially collect 5 the funds transferred to that account, Debtor intended these 6 transfers to make it difficult for his creditors to collect by 7 putting the funds out of his name and into his wife’s name and 8 control. Furthermore, although Debtor testified the $86,0009 9 that was transferred from Debtor’s CNB Account to Wife’s CNB 10 Account was used to pay “customary bills,” the bankruptcy court 11 found that $61,00010 of it was disbursed for the benefit of 12 Debtor and his wife. 13 These findings are supported by the record and similarly 14 defeat Debtor’s present argument. Although Debtor’s creditors 15 may have the option of collecting through his wife’s joint 16 liability, they would nonetheless be hindered and delayed in 17 doing so when compared to collecting directly from him. As such, 18 the bankruptcy court did not err in finding Debtor made these 19 transfers with the intent to hinder or delay a creditor. 20 e. The Transfers to Clownputsch and Friends 21 In response to statements in JPM’s brief, Debtor argues that 22 the transfer of funds to his friends and the Clownputsch Account 23 9 24 This amount includes the $18,000 transferred after the arbitration hearing, the $51,000 transferred after the FINRA 25 award was entered against him, and the $17,000 transferred on the eve of bankruptcy. 26 10 27 This is the difference between the $86,000 transferred to Wife’s CNB Account and the $25,000 remaining in Wife’s CNB 28 Account as of the petition date.
-22- 1 were not evidence of his intent to hinder or delay a creditor. 2 The bankruptcy court did not rely on the transfer to the 3 Clownputsch Account, and expressly stated the transfers to his 4 friends did not support a finding of his intent to hinder or 5 delay a creditor. As such, the Panel need not address these 6 arguments. 7 f. Intent to Hinder or Delay 8 In sum, the bankruptcy court relied on numerous facts to 9 support its finding of Debtor’s intent to hinder or delay a 10 creditor. In addition to the foregoing facts, the bankruptcy 11 court identified certain “badges of fraud” such as Debtor’s close 12 relationship with his wife, the timing of the transfers in 13 relation to the FINRA action, Debtor’s poor financial condition, 14 and that substantially all of Debtor's property was transferred. 15 Additionally, it found that Debtor’s prepetition transfers caused 16 a large dilution of non-exempt assets, and the approximately 17 $250,000 in the non-exempt Debtor’s CNB Account was reduced to 18 $600 by the time of filing. 19 On this record, the bankruptcy court did not err in finding 20 that Debtor made transfers with the intent to hinder or delay a 21 creditor justifying the denial of his discharge under 22 § 727(a)(2)(A). 23 VI. CONCLUSION 24 The bankruptcy court committed no legal or factual errors. 25 We AFFIRM. 26 27 28
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