Appeal from the United States Bankruptcy Court for the Northern District of California Honorable Alan Jaroslovsky, Chief Bankruptcy Judge, Presiding Bk. No. 10-13558 Adv. No. 11-01184
SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
Argued and Submitted on October 18, 2012 at San Francisco, California
Before: HOLLOWELL, PAPPAS, and MARKELL, Bankruptcy Judges.
Paul and Melody DenBeste (the Debtors) appeal two orders of the bankruptcy court: the first is the denial of the Debtors' motion to dismiss an adversary proceeding, brought by their principal creditor, to deny them a discharge (BAP No. NC-11-1087); the second is the bankruptcy court's post-trial judgment denying them a discharge under § 727(a)(4)(A)*fn2 for knowingly and fraudulently making false oaths on their bankruptcy schedules (BAP No. NC-11-1180). We AFFIRM both orders.
In October 2005, several judgments were entered in California state court against the Debtors in favor of John and Bradford DeMeo (the Judgments). The DeMeos assigned the Judgments to Walter Steinmann dba Judgment Enforcement USA, and Steinmann subsequently assigned the Judgments to Mandy Power dba Judgment Enforcement USA (Power) on April 14, 2010.
Power attempted to collect on the Judgments, the balance due on which was approximately $56,000, to no avail. On August 20, 2010, at Power's request, the state court appointed a receiver (Receiver), stating that it was "loath to order the drastic remedy of receivership, but it is obvious that all other methods of collection have been met with stubborn refusal to abide by the mandates of the Court's lawful orders and judgment."*fn3
Thereafter, the Receiver seized $66,000 from the Debtors and the Debtors were required to show cause why the Judgments should not have been satisfied by the seized funds.*fn4 On September 15, 2010, the day before the state court stated it would issue a decision on the show cause order, the Debtors filed a chapter 13
The Debtors filed their bankruptcy schedules and statement of financial affairs on September 29, 2010 (Schedules). On October 21, 2010, the case was converted at the Debtors' request to chapter 7. The § 341 meeting of creditors was initially held on November 5, 2010, and continued to December 7, 2010. Power attended the December 7th § 341 meeting.
At the start of the meeting, the Debtors took an oath to testify truthfully. They testified that they had reviewed the Schedules and that the Schedules accurately reflected all their assets and creditors with the exception of one omission, which required correction. The Debtors stated that they left off a 60-acre parcel of real property in Lake County, California (the Property), for which they asserted they paid $125,000 and still owed $125,000. However, in response to questions from the Trustee, as well as Power, the Debtors revealed that they also had bank accounts, horses, vehicles, interests in their corporate business, DenBeste Yard & Garden (the Corporation), and in a family trust, the DenBeste Family Trust (the Trust), that were omitted from the Schedules.
While the Debtors admitted they had several vehicles -- including a Hummer, BMW, Corvette, and Chevy truck -- they asserted those vehicles were owned by the Corporation. When Power questioned the Debtors as to why they had failed to list the Judgments, her attachments or the appointment of the Receiver in their statement of financial affairs and Schedules, or that Mr. DenBeste was a beneficiary to the Trust, the Debtors stated that they thought the information was listed on their Schedules.*fn5 Due to the Debtors' omissions on the Schedules, the Trustee commented that: "It's pretty clear these Debtors have run a little fast and loose with their statement under penalty of perjury on these schedules, as well as their statements today" and that "they've probably given . . . enough ammunition" to bring an action to deny their discharge. The Trustee continued the § 341 meeting to December 21, 2010, in order for the Debtors to provide further information about their assets and make appropriate amendments to their Schedules. According to the bankruptcy court's docket, no amendments to the Debtors' Schedules were filed until eight months later in August 2011.
Power filed, on July 6, 2011, an adversary proceeding against the Debtors alleging they knowingly and fraudulently filed materially false bankruptcy schedules and should be denied a discharge under § 727(a)(3) and (4) (the Complaint).*fn6 Power alleged that the Debtors failed to schedule various assets, including the Property, bank accounts, horses, vehicles (including the Hummer, Corvette and a Harley Davidson motorcycle), and their beneficial interest in the Trust.
On August 10, 2011, the Debtors filed an amended petition and amended schedules (Amended Schedules). Although the Amended Schedules corrected some of the omissions brought up at the § 341 meeting and referenced in the Complaint, they did not list the Debtors' interests in the Trust or the Corporation, nor any additional vehicles.
On August 26, 2011, the Debtors filed a motion to dismiss the Complaint pursuant to Fed. R. Civ. P. 12(b)(1) and (b)(6) or in the alternative, a Motion for Summary Judgment (Motion to Dismiss). The Debtors asserted that they were entitled to judgment as a matter of law on the basis that Power lacked standing to pursue the Complaint because: (1) the Judgments were invalid as they lacked merit ("the judgments on which plaintiff bases her claims were not the result of any conduct by debtors, but by unmitigated, unrestrained and outrageous gamesmanship on the part of the underlying claimants"); (2) the assignment of the Judgments to her were invalid because of her failure to file a fictitious business name statement under requirements of 1 California business law; (3) Power could show no "injury in fact" 2 traceable to the Debtors' conduct. Additionally, the Debtors 3 asserted that the allegations in the Complaint were rendered moot 4 by the Amended Schedules.
In her response to the Motion to Dismiss, Power provided the 6 state court's order appointing the Receiver, which reaffirmed the 7 validity of the Judgments and that Power had standing despite the 8 Debtors' allegation that she (or her assignor) did not properly 9 file a fictitious business name statement. Power also provided 10 the bankruptcy court with copies of the recording of her 11 fictitious business name statement.
12 After the Debtors filed a reply, a hearing on the Motion to 13 Dismiss was held on October 14, 2011. At the close of the 14 hearing, the bankruptcy court denied the Motion to Dismiss, 15 finding that: (1) Power sufficiently alleged in the Complaint 16 that she was a creditor of the Debtors having been assigned the 17 Judgments, and (2) that even if the issue of compliance with 18 state law was relevant to the Complaint, Power submitted 19 sufficient documentation establishing her compliance with 20 California's fictitious business name filing requirements. The 21 bankruptcy court set a trial on the Complaint for March 8, 2012.
22 In December 2011, Power served discovery requests on the 23 Debtors. The Debtors responded on January 27, 2012. The Debtors 24 answered each question by reiterating the arguments they made in 25 their Motion to Dismiss and challenging the merits of, and 26 Power's right to collect, the Judgments. Also on January 27, 27 2012, the Debtors appealed the denial of the Motion to Dismiss. 28 The bankruptcy court held a trial on the Complaint on 1 March 8, 2012. At trial, Power entered into evidence documents 2 from the Department of Motor Vehicles (DMV) that demonstrated 3 there were nine vehicles registered in the name of the Debtors, 4 including the Hummer, Corvette, two Harley Davidson motorcycles, 5 three trailers, and two trucks. Mr. DenBeste testified that the 6 Corporation owned the Hummer, Corvette, two trailers and two 7 trucks, but he provided no evidence to support that testimony.
8 The Debtors testified that they provided all their information to 9 the Trustee and, although they again testified that they reviewed 10 the Amended Schedules before signing them, they "did not notice" 11 that certain assets, including the motorcycles, the Corporation, 12 and the Trust were not listed. 13 Additionally, Mr. DenBeste made clear that he ...