Dated: September 5, 2025 Bonde Perf) — Brenda Moody Whinery, Bankruptcy Judge 3 5 6 7 UNITED STATES BANKRUPTCY COURT 8 DISTRICT OF ARIZONA In re: Chapter 7 Proceeding 10 MURPHY R. KITTRELL, JR. and Case No. 4:22-bk-01130-BMW BARBARA C. KITTRELL, 12 Debtors. CAROL THEISEN and NITIN “BOBBY” Adversary Case No. 4:22-ap-00123-BMW 14] PATEL, 15 Plaintiffs, MEMORANDUM DECISION 16] V. 17 MURPHY R. KITTRELL, JR. and BARBARA C. KITTRELL, 18 Defendants. 19 20 Before the Court is the Complaint to Deny Discharge Under 11 U.S.C. § 727(a)(4) (Fals. Oath) (the “Complaint’”) (DE 1)! filed by Carol Theisen (““Ms. Theisen’) and Nitin “Bobby” Pate 22 (“Mr. Patel,” and collectively with Ms. Theisen, the “Plaintiffs”’), in which the Plaintiffs ask th 23 | Court to deny Murphy R. Kittrell, Jr. (‘Mr. M. Kittrell’?) and Barbara C. Kittrell (““Ms. Kittrell, 24] and collectively with Mr. M. Kittrell, the “Debtors” or “Kittrells”) a discharge pursuant t § 727(a)(4)(A) of the Bankruptcy Code on the basis that the Kittrells knowingly and fraudulenth made at least one false oath or account in or in connection with their pending bankruptcy cas 27 28 | “DE” refers to entries on the docket in this adversary proceeding.
1 (the “Bankruptcy Case”). The Kittrells deny that they have made false oaths or accounts in or in 2 connection with their Bankruptcy Case and argue that they completed their schedules and 3 statements to the best of their ability. 4 On June 11, 2025, the Court held a trial on the Complaint (the “Trial”), at which time the 5 parties presented evidence, and testimony was provided by the Kittrells; John Greg Theisen (“Mr. 6 Theisen”), who assigned judgments against the Kittrells to Ms. Theisen, which judgments serve 7 as the basis for Ms. Theisen’s claim in the Bankruptcy Case; and Niko Kittrell (“Mr. N. Kittrell”), 8 who is the Debtors’ son. On July 18, 2025, the parties submitted post-trial briefs, and the Court 9 took this matter under advisement. 10 Based upon the pleadings, arguments of counsel, testimony offered, exhibits admitted into 11 evidence, and entire record before the Court, the Court now issues its ruling. 12 I. Jurisdiction 13 The Court has jurisdiction over these proceedings, which arise under the Bankruptcy 14 Code. 28 U.S.C. § 1334(b); In re Wilshire Courtyard, 729 F.3d 1279, 1285 (9th Cir. 2013). The 15 parties agree that this Court has jurisdiction to adjudicate this matter. (DE 1 at ¶ 2; DE 36 at ¶ 2). 16 This is a core proceeding involving an objection to the entry of a discharge, and this Court 17 therefore has the authority to enter final orders and judgments. Stern v. Marshall, 564 U.S. 462, 18 472, 131 S. Ct. 2594, 2601-02, 180 L. Ed. 2d 475 (2011). Given the silence in the pleadings, the 19 parties are deemed to consent to the entry of final orders and judgments by this Court. Local Rule 20 Bankr. P. 7012-1. 21 II. Findings of Fact and Procedural Background 22 The record reflects that in or about 2005, the Kittrells executed documentation to form a 23 revocable living trust (as subsequently amended, the “Living Trust”). (See 6/11/25 Trial Tr. 35:9- 24 10, 117:4; TE D; TE E).2 In addition to being the settlors of the Living Trust, the Kittrells have, 25 at all relevant times, been the trustees of the Living Trust. (6/11/25 Trial Tr. 9:20-10:19; DE 85 26 at 7, ¶ II.viii). According to the Kittrells’, their primary residence was transferred to and is held 27 in the name of the Living Trust. (6/11/25 Trial Tr. 17:23; TE O at 00394). 28 1 In or about 2011, the judgments that have been assigned to Ms. Theisen (the “Theisen 2 Judgments”), which judgments form the basis for Ms. Theisen’s claim in the Bankruptcy Case, 3 were entered. (DE 85 at 5-6, ¶¶ II.ii-iv; 6/11/25 Trial Tr. 14:15-15:9, 63:7-11; TE 1 at 00010- 4 00012). The Theisen Judgments awarded judgment against the Kittrells and others in the sum of 5 $1,501,546.25 plus interest, attorneys’ fees, and taxable costs.3 (DE 85 at 5-6, ¶¶ II.ii-iv). The 6 Theisen Judgments arose as a result of land and construction loans that were not repaid. (See 7 6/11/25 Trial Tr. 63:3-63:6, 103:7-9). 8 In or about 2012, Mr. M. Kittrell became involved in the medical marijuana industry. (See 9 6/11/25 Trial Tr. 80:22-81:1). As explained by Mr. M. Kittrell, the State of Arizona awarded 10 medical marijuana licenses to marijuana dispensaries referred to by the parties as Greenmed and 11 Purplemed, and Mr. M. Kittrell acquired ownership interests in for-profit management companies 12 that contracted with Greenmed and Purplemed to manage the Greenmed and Purplemed 13 dispensaries. (6/11/25 Trial Tr. 80:15-81:1). 14 On June 3, 2013, the Kittrells executed an Amendment to Murphy and Barbara Kittrell 15 Living Trust (the “Living Trust Amendment”) (TE D). The Living Trust Amendment purported 16 to transform the Living Trust from a revocable trust to an irrevocable trust. (6/11/25 Trial Tr. 17 16:15-17:9; TE D at 00045). The Kittrells nevertheless continued to regularly use assets of the 18 Living Trust to pay their personal expenses and purported to retain ownership and/or control of 19 assets held by the Living Trust, including their residence. (6/11/25 Trial Tr. 17:20-24:13, 32:19- 20 22, 47:15-19, 51:23-52:2; TE 57; TE 59; TE 68; TE 69). Pursuant to Mr. M. Kittrell’s testimony, 21 he and Ms. Kittrell are not prohibited from using assets in a trust they form to pay for their 22 personal expenses, regardless of whether the trust is labelled or intended to be a revocable or 23 irrevocable trust, unless the trust documents explicitly state that they cannot. (See 6/11/25 Trial 24 Tr. 112:21-113:12). 25 On or about April 25, 2014, Mr. M. Kittrell borrowed money from Mr. Patel, as evidenced 26 by a promissory note in the amount of $340,000, which note was not repaid. (DE 85 at 6, ¶¶ II.v- 27
28 3 Ms. Theisen has filed a proof of claim in the amount of $4,113,446.63 in the Kittrells’ Bankruptcy Case. 1 vi; 6/11/25 Trial Tr. 101:12-102:4). 2 On or about October 21, 2014, the Kittrells executed the Kittrell Children’s Trust Trust 3 Agreement (the “Children’s Trust Agreement”) (TE A), which established the Kittrell Children’s 4 Trust (the “Children’s Trust”), which purports to be an irrevocable trust. The Kittrells have been 5 the trustees of the Children’s Trust since its formation. (TE A at 00001; DE 85 at 7, ¶ II.viii). 6 Pursuant to the terms of the Children’s Trust Agreement, the Trustee shall hold the trust estate 7 and any additions thereto under the terms and conditions set forth in the Children’s Trust 8 Agreement. (TE A at 00005). 9 Also on or about October 21, 2014, the Kittrells filed articles of organization for a series 10 of “MKHS” entities, including MKHS Holding Company (“MKHS Holding”), MKHS, LLC 11 (“MKHS”), MKHS Cultivation Services, LLC (“MKHS Cultivation”), and MKHS Dispensary 12 Services, LLC (“MKHS Dispensary Services,” and collectively with MKHS Holding, MKHS, 13 and MKHS Cultivation, the “MKHS Entities”). (DE 85 at 6, ¶ II.vii). The membership interests 14 in the MKHS Entities were then transferred by the Kittrells to the Children’s Trust. (DE 85 at 6, 15 ¶ II.vii). Mr. M. Kittrell testified that the Children’s Trust owns MKHS Holdings, which owns 16 MKHS, which owns MKHS Cultivation and MKHS Dispensary Services. (6/11/25 Trial Tr. 17 83:24-84:8). Mr. M. Kittrell also directed the transfer of the management rights pertaining to the 18 Greenmed and Purplemed marijuana dispensaries to MKHS Cultivation and MKHS Dispensary, 19 and signed the management agreements as President of MKHS Cultivation and Managing 20 Member of MKHS Dispensary Services. (6/11/25 Trial Tr. 80:22-81:7, 96:19-98:23; TE 33; TE 21 34). Mr. M. Kittrell further testified that he directed this restructuring because creditors were 22 interfering with his marijuana business. (6/11/25 Trial Tr. 96:9-15). 23 Ms. Kittrell testified that she and Mr. M. Kittrell formed the Children’s Trust to protect 24 their assets against “thieves,” including certain of the Kittrells’ creditors, for the benefit of their 25 children. (6/11/25 Trial Tr. 11:21-14:2; TE 120 at 01334-01338). The Kittrells’ children are the 26 named beneficiaries of the Children’s Trust in the Children’s Trust Agreement, and according to 27 Mr. N. Kittrell, the current beneficiaries of the Children’s Trust are the Kittrells’ children and 28 grandchildren. (TE A at 00001, § 1.02; 6/11/25 Trial Tr. 139:9-11). The Children’s Trust has 1 purportedly made no distributions to beneficiaries. (6/11/25 Trial Tr. 58:17-21, 87:19-23). 2 The Children’s Trust Agreement also contains a Limited Power of Appointment provision, 3 which provides in part:
4 (1) During the lifetime of the Grantor, Niko Kittrell shall have: . . . 5 (b) the authority (exercisable in a non-fiduciary capacity) to add 6 to the beneficiaries entitled to receive income or principal any person or person who are descendants of the Grantor’s 7 parents, or an organization described by the provisions of 8 section 170(c) and section 2055(a) of the Internal Revenue Code; 9 (c) the authority (exercisable in a non-fiduciary capacity) to remove any person as a beneficiary entitled to receive income 10 or principal provided that the remaining beneficiaries are 11 persons who are descendants of the Grantor’s parents, or an organization described by section 170(c) and section 2055(a) 12 of Internal Revenue Code; and 13 (d) the authority (exercisable in a non-fiduciary capacity) to revoke the Trusts created hereunder and distribute the trust 14 estate to any person or persons who are descendants of the Grantor’s parents, or an organization described by the 15 provisions of section 170(c) and section 2055(a) of the 16 Internal Revenue Code[.] 17 (TE A at 00002, § 2.03). 18 The Kittrells understood that given the language of the Limited Power of Appointment 19 provision, they could be added as beneficiaries of the Children’s Trust and/or receive the assets 20 of the Children’s Trust in the event the Children’s Trust Agreement were to be revoked.4 (See 21 6/11/25 Trial Tr. 37:10-43:15, 44:5-13, 46:6-11; TE 120 at 01352-01354). Mr. N. Kittrell 22 acknowledged that he has exercised his rights under the Limited Power of Appointment provision 23 on at least one occasion. (6/11/25 Trial Tr. 137:21-138:9; see TE B). 24 The Children’s Trust Agreement also contains a Power to Substitute Property provision, 25 which provides in relevant part: 26
27 4 The Court does not find Ms. Kittrell’s or Mr. N. Kittrell’s testimony that the Limited Power of Attorney 28 provision is not consistent with the intent of the settlors to be credible, and any such testimony is directly 1 Substitutor. The Substitutor shall have the power while Grantor is 2 living, acting solely in a non-fiduciary capacity within the meaning of Code Sec. 675(4)(C), without the approval or consent of any person, 3 including the Trustee, to acquire the assets of any trust held under this 4 instrument, by substituting property of an equivalent value. The Grantor directs that this power is not assignable, and any attempted assignment 5 will make this power void.
6 (TE A at 00003, § 2.04).
7 The Kittrells have, at times, testified that they are or were paid for serving as trustees of 8 the Children’s Trust, but have, at other times, asserted that they do not receive any compensation 9 for serving as trustees, and are instead W-2 employees paid by one of the MKHS Entities or a 10 related entity.5 (6/11/25 Trial Tr. 87:24-92:14, 131:5-16; TE 14 at 00254-00255; TE 121 at 11 01543-01544). 12 Mr. Theisen testified that after the Kittrells’ October 2014 transfer of assets to the 13 Children’s Trust, Mr. M. Kittrell continued to hold himself out as the owner of certain of the 14 transferred assets. (6/11/25 Trial Tr. 64:1-20, 66:16-67:6, 67:23-69:13, 72:5-73:1). Further, after 15 the transfer of the MKHS Entities to the Children’s Trust, the record reflects that the Kittrells 16 withdrew cash from an MKHS account (the “MKHS Account”) and signed checks and paid bills 17 using the MKHS Account.6 (6/11/25 Trial Tr. 92:18-94:13; TE 116). The Kittrells also had 18 personal checks in the name of Mr. M. Kittrell printed for the MKHS Account. (6/11/25 Trial Tr. 19 104:4-107:9; TE 117 at 01261). 20 In 2017, the Kittrells pledged the assets of MKHS, MKHS Holding, and the Children’s 21 Trust as collateral for a personal loan (6/11/25 Trial Tr. 108:6-109:20; TE 46; TE 47), and in an 22 agreement dated October 22, 2019, Mr. M. Kittrell represented that he was the sole owner of 23 24 5 According to the Kittrells’ filings in the Bankruptcy Case, the Kittrells have gross income of $21,900 25 per month, all of which is derived from their work as supervisors for ADND Payroll Services. (TE O at 26 00407-00408). Mr. N. Kittrell testified that Mr. M. Kittrell performs property management and maintenance services for the family marijuana business, and that Ms. Kittrell performs administrative 27 work, but also that the Kittrells are retired and/or full-time nannies for their children. (6/11/25 Trial Tr. 141:1-142:13). 28 6 The record reflects that in January 2017, the Kittrells withdrew no less than $42,000 from MKHS 1 MKHS Holding. (6/11/25 Trial Tr. 84:9-87:4; TE 121 at 01620-01621). 2 According to the Kittrells, neither the Living Trust nor the Children’s Trust has ever filed 3 a tax return, and the Children’s Trust has never had a bank account. (6/11/25 Trial Tr. 24:10-13, 4 47:9-14, 51:12-22). 5 In October 2019, the Kittrells, the Living Trust, the Children’s Trust, and related entities 6 asserted in state court filings that Greenmed and Purplemed had a combined market value of 7 more than $30,000,000. (6/11/25 Trial Tr. 48:19-49:25; TE 15 at 00259, 00262). At some point, 8 Purplemed was sold. (See 6/11/25 Trial Tr. 50:1-3). Greenmed remains affiliated with the 9 Children’s Trust and MKHS Entities, and Mr. Kittrell testified that he is a director of Greenmed. 10 (6/11/25 Trial Tr. 48:6-12, 79:23-24). The Kittrells did not opine as to the value of the Greenmed 11 dispensary during the Trial. (See 6/11/25 Trial Tr. 48:4-51:10, 94:14-95:17). 12 On July 15, 2020, the Kittrells executed a First Amendment and Restatement of the 13 Murphy and Barbara Kittrell Revocable Trust Dated October 27, 2005 (TE E) in which they 14 purport to revoke the Amendment to Living Trust Agreement, whereby transforming the Living 15 Trust back to a revocable trust. (6/11/25 Trial Tr. 33:13-36:10, 52:22-53:1). Ms. Kittrell testified 16 that she was aware of no reason why she and Mr. M. Kittrell could not change the Children’s 17 Trust into a revocable trust just as they had done with the Living Trust. (6/11/25 Trial Tr. 18 36:11:15; see also 6/11/25 Trial Tr. 53:9-23). Overall, the Kittrells’ testimony regarding the 19 Living Trust and the Children’s Trust and their control and dealings with the assets of such trusts 20 was vague, inconsistent, and thus lacking in credibility. 21 On February 25, 2022 (the “Petition Date”), the Kittrells filed their petition for relief under 22 Chapter 7 of the Bankruptcy Code (the “Petition”) (TE O at 00377-00384). 23 The Kittrells, through counsel, filed their Schedule A/B: Property (“Schedules”) and 24 Statement of Financial Affairs for Individuals Filing for Bankruptcy (“SOFA”) with the Petition. 25 (TE O). 26 / / / 27 / / / 28 1 The Schedules include the following disclosures pertaining to the Kittrells’ interests 11 trusts and equitable and/or future interests in property: 3 25, Trusts, equitable or future interests in property (other than anything listed in line 1), and rights or powers exercisable for your benefit ONo 4 Ml Yes. Give specific information about them... 5 Debtors are the Settlors of The Murphy and Barbara Kittrell Living Trust formed on October 27, 2005, which is a revocable trust that holds only one asset: Debtor's primary residence located at 10640 6 E. Elkridge PI., Tucson, AZ 85730. No value to debtors other than their homestead which is fully exempt. $0.00 7 Debtors are the Settlors of The Kittrell Children’s Trust formed on 8 October 20, 2014, which is an irrevocable trust in which Debtors’ children are the sole beneficiaries. No value to debtors. $0.00 9 10] (TE O at 00394). 1 As reflected below, on the SOFA, the Kittrells identified no property being held or 12 controlled for another. 13 Identify Property You Hold or Control for Someone Else 14 23. Do you hold or control any property that someone else owns? Include any property you borrowed from, are storing for, or hold in trust for someone. 15 HM No O Yes. Fill in the details. 1 6 Owner's Name Where is the property? Describe the property Value Address (Number, Street, City, State and ZIP Code) ee Street, City, State and ZIP 17 18 (TE O at 00418). 19 . . . . . The Kittrells disclosed the following business connections: 20 Give Details About Your Business or Connections to Any Business 21 27. Within 4 years before you filed for bankruptcy, did you own a business or have any of the following connections to any business? 22 OA sole proprietor or self-employed in a trade, profession, or other activity, either full-time or part-time 3 Hf A member of a limited liability company (LLC) or limited liability partnership (LLP) OA partner in a partnership 24 ll An officer, director, or managing executive of a corporation 25 0 An owner of at least 5% of the voting or equity securities of a corporation OD No. None of the above applies. Go to Part 12. 26 Hes. Check all that apply above and fill in the details below for each business. 27 28
Business Name Describe the nature of the business Employer Identification number ] —— uadrea : Do not include Social Security number or ITIN. Number, Street, ime of accountant or bookkeeper Dates business existed 2 A & K Coyote Properties, LLC EIN: 9420 E Golf Links, Ste 164 3 Tucson, AZ 85730 From-To §=7/13/2006 4 A & K Safford Properties, LLC EIN: 9420 E Golf Links, Ste. 164 5 Tucson, AZ 85730 From-To 6/1/2006 & K Skyline Development, LLC EIN: 6 5710 E Pima St. #110 Tucson, AZ 85712 From-To 7/23/2003 7 A& K Ventures, LLC EIN: 5210 E Pima St #110 Tucson, AZ 85712 From-To 4/9/2001 9 AKG Group LLC EIN: 6625 N Casas Adobes Rd 10 Tucson, AZ 85704 From-To 6/3/2004 ‘urple Monke : A? Purple Monkey LLC EIN 1] 9420 E Golf Links #285 Tucson, AZ 85730 From-To 2/1/2018 12 Clone Depot, LLC EIN: 9420 E Golf Links #285 13 Tucson, AZ 85730 From-To 7/26/2016 14|| DM Property Development, LLC EIN: 8055 E Shadow Canyon 15 Tucson, AZ 85750 From-To 42/9/2003 16 MD Transportation, LLC EIN: 8055 E Shadow Canyon 17 Tucson, AZ 85750 From-To 8/15/2005 18 MK Equipment Holdings, LLC EIN: 9420 E Golf Links #285 Tucson, AZ 85730 From-To 7/27/2016 19 MK Golf Links, LLC EIN: 20 9420 E Golf Links #285 Tucson, AZ 85730 From-To 7/26/2016 21 MK Littletown, LLC EIN: 9420 E Golf Links #285 22 Tucson, AZ 85730 From-To 9 7/26/2016 MK Wentworth, LLC EIN: 9420 E Golf Links #285 Tucson, AZ 85730 From-To 7/26/2016 24 MK Wilmot, LLC EIN: 25 9420 E Golf Links #285 Tucson, AZ 85730 From-To 8/22/2016 26 a7 /// agi ///
1 Business Name Describe the nature of the business Employer Identification number Add Do not include Social § i ber or ITIN. (Number, Steet City. State and ZIP Code} Name of accountant or bookkeeper MONEE ELSE LIS LIES 2 Dates business existed 3] New Copia, LLC EIN: 9420 E Golf Links #285 4 Tucson, AY #5730 From-To = 0/23/2017 5 Omilas, LLC EIN: 9010 W George St Tucson, A? 85735 From-To 6/7/2016 6 Purple Healing Center LLC EIN: 7 3615 E Golf Links Tucson, AZ 85713 From-To = 1/11/2013 8 Purple Monkey 1, LLC EIN: 9420 E Golf Links #285 9 Tucson, AZ #5730 From-To = 2/1/2018 10 Tucson Purple Group, LLC EIN: 2200 E River Rd Ste 120 ll Tucson, AZ #5718 From-To 4/3/2014 Turnkey Technologies, LLC EIN: 12 1200 N El Dorado P! Ste G-700 Tucson, AZ 85715 From-To 5/19/2015 13 MKHS Properties, LLC EIN: 3615 E Golf Links Rd 14] Tucson, AZ 85718 From-To 1/13/2017 15 MKHS Littletown, LLC EIN: 9420 E Golf Links #285 16 Tucson, AZ 85730 From-To 9 1/13/2017 6467 E Littletowns, LLC EIN: 17] 9420 E Golf Links #285 Tucson, AZ 85730 From-To 4/13/2017 18 BBC Funding Group, LLC EIN: 19 3615 E Golf Links Rd Tucson, AZ 85713 From-To 6/17/2017 20 Desert Skys Ventures, LLC EIN: 9420 E Golf Links #164 21] Tucson, AZ 85730 From-To 9/8/2017 22|| FEV Holdings, LLC EIN: 3615 E Golf Links Rd 93 Tucson, AZ 85713 From-To 6/22/2017 94 River Road Management Serv. Hld. EIN: Co. LLC 2200 E River Rd Ste 120 From-To 7/10/2017 Tucson, AZ 85718 26 Synergy Delivery Services, LLC EIN: 9420 E Golf Links #285 27 Tucson, AZ 85730 From-To 1/13/2017 28
1 cae Name Describe the nature of the business □ eee (Number, Steet City. State and ZIP Code} Name of accountant or bookkeeper SEPSIS 2 Dates business existed 3 Synergy Health & Wellness, Inc. EIN: 9420 E Golf Links #285 4 Tucson, AZ 85730 From-To §/2/2016 Tucson Health & Wellness Center, EIN: Inc. >| 9430 E Golf Links #285 From-To 7/15/2016 6 Tucson, AZ 85730
7 (TE O at 00419-00421). 8 The Kittrells testified that they reviewed the Schedules and SOFA before they were filed 9] and testified that the Schedules and SOFA are complete. (6/11/25 Trial Tr. 60:8-13, 133:17-19) 10] Conclusions of Law 1] Pursuant to § 727(a)(4)(A), the Kittrells are not entitled to a discharge if they “knowingl: 12] and fraudulently, in or in connection with the case made a false oath or account[.]” “Th 13] fundamental purpose of § 727(a)(4)(A) is to insure that the trustee and creditors have accurat 14] information without having to conduct costly investigations.” Retz v. Samson (In re Retz), 60 15] F.3d 1189, 1196 (9th Cir. 2010) (quoting Khalil v. Developers Sur. & Indem. Co. (In re Khalil) 16] 379 B.R. 163, 172 (9th Cir. BAP 2007). “[T]he opportunity to obtain a fresh start is . . 17] conditioned upon truthful disclosure.” Fogal Legware of Switz., Inc. v. Wills (In re Wills), 24 18] B.R. 58, 63 (9th Cir. BAP 1999) (quoting Jn re Aubrey, 111 B.R. 268, 274 (9th Cir. BAP 1990)) 19 To prevail on their § 727(a)(4)(A) claim, the Plaintiffs must establish, by a preponderance 20] of the evidence, that: “(1) the debtor[s] made a false oath in connection with the [bankruptcy 21] case; (2) the oath related to a material fact; (3) the oath was made knowingly; and (4) the oatl 22|| was made fraudulently.”* In re Retz, 606 F.3d at 1197 (quoting Roberts v. Erhard (In re Roberts) 331 B.R. 876, 882 (9th Cir. BAP 2005)). “In keeping with the ‘fresh start’ purposes behind th 24|| Bankruptcy Code, courts should construe § 727 liberally in favor of debtors and strictly agains 25|| parties objecting to discharge.” Bernard v. Sheaffer (In re Bernard), 96 F.3d 1279, 1281 (9th Cir 26|| 1996). That being said, “[w]hen factual findings are based on determinations regarding th 27 $$ 8’ The Debtors take issue with the fact that the Plaintiffs did not testify in support of their Complaint, an: 28] that the Plaintiffs did not call the Chapter 7 Trustee to testify, but as discussed herein, the focus of th Plaintiffs’ § 727(a)(4)(A) claim is on the Debtors and the disclosures they made in their Bankruptcy Case
1 credibility of witnesses, . . . great deference [is given] to the bankruptcy court’s findings . . . .” In 2 re Retz, 606 F.3d at 1196.
3 1. The Debtors Must Have Made a False Oath in Connection with their 4 Bankruptcy Case 5 “A false statement or an omission in the debtor’s bankruptcy schedules or statement of 6 financial affairs can constitute a false oath.” In re Retz, 606 F.3d at 1196 (quoting In re 7 Khalil, 379 B.R. at 172). 8 As discussed above, the Kittrells disclosed the following information about the Children’s 9 Trust on their Schedules: “Debtors are the Settlors of The Kittrell Children’s Trust . . . , which is 10 an irrevocable trust in which Debtors’ children are the sole beneficiaries. No value to debtors.” 11 The Kittrells disclosed on their SOFA that they did not hold or control any property for anyone 12 else, including property held in trust. However, the Kittrells do not dispute that, as of the Petition 13 Date, they were not only the settlors of the Children’s Trust, but also the trustees of the Children’s 14 Trust, charged with holding the trust estate, which includes the MKHS Entities and any other 15 assets of the Children’s Trust. In addition, Mr. M. Kittrell, pursuant to § 2.04 of the Children’s 16 Trust, has unfettered authority to acquire assets of the Children’s Trust by substituting property 17 determined by him to be of equivalent value. Further, the Kittrells did not disclose that they are 18 potential beneficiaries under the Children’s Trust Agreement. 19 Unlike the Kittrells’ disclosures pertaining to the Living Trust, which include a description 20 of at least one asset purportedly held therein, the Kittrells did not and have not disclosed the 21 assets of the Children’s Trust, which assets remain under their control, in their Bankruptcy Case. 22 The record reflects that the MKHS Entities are held by the Children’s Trust, yet none of these 23 entities are disclosed on the Schedules or SOFA. Further, the Kittrells’ relationship with such 24 entities during the four-year period preceding the Petition Date are not disclosed, including Mr. 25 M. Kittrell’s officer/manager roles with MKHS Dispensary Services and MKHS Cultivation and 26 his role as a director of Greenmed. 27 Given the nature of the omissions set forth above, and based upon the totality of the 28 circumstances, the Court finds that the Kittrells’ failure to disclose their role as trustees of the 1 Children’s Trust, failure to disclose the true nature of their interests in and rights pertaining to 2 the Children’s Trust, failure to disclose the assets held in the Children’s Trust, and failure to 3 disclose connections to various entities and the entities themselves (collectively, the 4 “Omissions”) constitute false oaths made in connection with the Bankruptcy Case. 5 2. The Oath Must Have Related to a Material Fact 6 “Materiality is broadly defined.” In re Wills, 243 B.R. at 62. “A fact is material ‘if it bears 7 a relationship to the debtor’s business transactions or estate, or concerns the discovery of assets, 8 business dealings, or the existence and disposition of the debtor’s property.’” In re Retz, 606 F.3d 9 at 1198 (quoting In re Khalil, 379 B.R. at 173). “An omission or misstatement that ‘detrimentally 10 affects administration of the estate’ is material.” Id. (quoting In re Wills, 243 B.R. at 63). 11 In this case, the Kittrells’ failure to disclose their role as trustees of the Children’s Trust 12 and status as potential recipients of the trust’s assets are omissions that pertain directly to the 13 Kittrells’ financial affairs. Further, given the nature of the Children’s Trust, the assets held in the 14 Children’s Trust likewise bear on the Kittrells’ financial affairs, as do the Kittrells’ roles and 15 business connections with the entities affiliated with the Children’s Trust. Given the 16 circumstances surrounding the Children’s Trust, the Court finds that the Kittrells’ Omissions 17 were material. 18 3. The Oath Must Have Been Made Knowingly 19 “A debtor ‘acts knowingly if he or she acts deliberately and consciously.’” In re Retz, 606 20 F.3d at 1198 (quoting In re Khalil, 379 B.R. at 173). The Children’s Trust Agreement was drafted 21 at the direction of and executed by the Kittrells, the assets in the Children’s Trust were transferred 22 to the trust by or at the direction of the Kittrells, the Kittrells have remained the trustees of the 23 Children’s Trust, and the record reflects that the Kittrells have clear knowledge of Mr. M. 24 Kittrells’ ongoing undisclosed roles and business connections with entities owned by or affiliated 25 with the Children’s Trust. Further, the Kittrells acknowledged that they reviewed and signed their 26 incomplete Schedules and SOFA before they were filed, attesting that such documents were 27 complete and accurate. Given the foregoing, the Court finds that the Kittrells’ Omissions 28 regarding their roles and rights with respect to the Children’s Trust, as well as the assets held 1 therein, were knowing and intentional. 2 4. The Oath Must Have Been Made Fraudulently 3 In order to establish the final element of their § 727(a)(4)(A) claim, the Plaintiffs must 4 show that: (1) the Debtors made the Omissions; (2) the Debtors knew the Omissions were false 5 when made; and (3) the Debtors made the Omissions with the intention and purpose of deceiving 6 creditors. In re Retz, 606 F.3d at 1198-99. “Intent is usually proven by circumstantial evidence 7 or by inferences drawn from the debtor’s conduct.” Id. at 1199. “Reckless indifference or 8 disregard for the truth may be circumstantial evidence of intent, but is not sufficient, alone, to 9 constitute fraudulent intent.” Id. 10 In this case, Ms. Kittrell testified that the Kittrells formed the Children’s Trust for the 11 purpose of shielding their assets from creditors, and Mr. M. Kittrell confirmed that he directed 12 and/or authorized the transfer of assets to the Children’s Trust in order to hinder creditors’ 13 attempts to interfere with his business dealings. To date, the Kittrells have remained elusive about 14 the assets held in the Children’s Trust and the estimated value of such assets and their related 15 business connections. 16 Although the Kittrells assert an advice of counsel defense, and debtors who act in reliance 17 on the advice of their attorneys generally lack the requisite fraudulent intent to support a 18 § 727(a)(4) denial of discharge,9 in this case, the Kittrells’ advice of counsel arguments pertain 19 to the drafting of the relevant trust documents, not to the disclosures they have made in their 20 Bankruptcy Case. The Kittrells have continued to maintain that their Schedules and SOFA are 21 truthful and complete despite the plain language of trust agreements they signed and the clear 22 record before the Court, which reflect that material omissions were made. Those omissions are 23 attributable to the Kittrells. 24 The record before the Court reflects that the Kittrells made the Omissions with the clear 25 intention and purpose of deceiving creditors. 26 Given the foregoing, the Plaintiffs have established that the Debtors are not eligible to 27
28 9 In re Retz, 606 F.3d at 1199 (quoting First Beverly Bank v. Adeeb (In re Adeeb), 787 F.2d 1339, 1343 1 receive a discharge pursuant to 11 U.S.C. § 727(a)(4)(A). The Court need not determine whether 2 the Debtors knowingly and fraudulently made any additional false oaths or accounts in 3 connection with their Bankruptcy Case.10 4 IV. Conclusion 5 The Kittrells declared under penalty of perjury that, as of the Petition Date: (a) they were 6 the settlors of the Children’s Trust, in which trust they had no interest, and which trust was of no 7 value to them; (b) they did not hold or control any property for anyone else; and (c) they did not 8 have business connections with entities owned by or affiliated with the Children’s Trust. The 9 record reflects that, in fact, the Kittrells have at all relevant times been the trustees of the 10 Children’s Trust, hold undisclosed assets of the Children’s Trust for the benefit of others, are 11 potential beneficiaries of the Children’s Trust, and have the ability to acquire the assets of the 12 Children’s Trust by substitution. In addition, Mr. M. Kittrell has held and continues to hold 13 management and director roles in entities held by or affiliated with the Children’s Trust, which 14 roles were not disclosed. 15 Given the facts and circumstances in this case, it is the determination of the Court that the 16 Kittrells’ Omissions were material, and were made knowingly and fraudulently in an attempt to 17 conceal assets and information from creditors, the Chapter 7 Trustee and the Court. The Kittrells 18 are therefore not entitled to a discharge pursuant to 11 U.S.C. § 727(a)(4)(A) of the Bankruptcy 19 Code. 20 A judgment will issue contemporaneously with this Memorandum Decision. 21 DATED AND SIGNED ABOVE. 22 23 24 25 26
27 10 The Court likewise makes no determination as to whether any assets held or purportedly held by the Children’s Trust are assets of the Debtors’ bankruptcy estate. The Chapter 7 Trustee’s adversary 28 proceeding to determine what assets are property of the estate and recover alleged avoidable transfers