In re: Tawni T.T. Nguyen

FILED MAR 10 2014 [1] SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL 2 OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. CC-13-1192-TaKuPa ) 6 TAWNI T.T. NGUYEN, ) Bk. No. 10-23224-TA ) 7 Debtor. ) Adv. No. 11-01003-TA ______________________________) 8 ) NGU NGUYEN; MAI HUONG NGUYEN, ) 9 ) Appellants, ) 10 ) v. ) MEMORANDUM* 11 ) TAWNI T.T. NGUYEN, ) 12 ) Appellee. ) 13 ) 14 Argued and Submitted on February 20, 2014 at Pasadena, California [15] Filed - March 10, 2014 [16] Appeal from the United States Bankruptcy Court 17 for the Central District of California 18 Honorable Theodor C. Albert, Bankruptcy Judge, Presiding [19] Appearances: David Brian Lally argued for appellants Ngu Nguyen 20 and Mai Huong Nguyen; Anerio Ventura Altman of Lake Forest Bankruptcy argued for appellee Tawni 21 T.T. Nguyen. [22] Before: TAYLOR, PAPPAS, and KURTZ, Bankruptcy Judges. [25] 26 * This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8013-1. [1] 1 Appellants Ngu Nguyen and Mai Huong Nguyen appeal from a 2 judgment in favor of Debtor Tawni T.T. Nguyen on their 3 § 727(a)(3)1 and (a)(4)(A) objection to discharge claims. We 4 AFFIRM. 5 FACTS 6 The Debtor is a news reporter and public figure in the 7 Vietnamese community of Orange County, California. Prior to 8 filing her chapter 7 case, the Debtor owned a local television 9 production company named Vietnamese Abroad Communications, Inc., 10 doing business as Vietnamese Abroad Television (“VA-TV”). When 11 VA-TV experienced financial difficulty, the Appellants loaned the 12 Debtor $50,000. VA-TV ultimately folded, and the Debtor repaid 13 some, but not all, of the loan; at the time of trial $22,500 plus 14 interest remained owing. 15 The Debtor was also a licensed real estate broker who owned 16 and operated a real estate brokerage firm, Alpha Funding & Real 17 Estate (“Alpha”). In 2008, Alpha earned two commissions in the 18 amount of $11,225. 19 Following the collapse of VA-TV, the Debtor worked, as an 20 independent contractor, at Vietnamese Broadcasting System 21 (“VBS”). Her engagement with VBS concluded on August 31, 2010 – 22 19 days before she filed her chapter 7 case. 23 The Appellants objected to the Debtor's discharge. Their 24 complaint alleged that she “misfiled” and incorrectly disclosed 25 certain information on her bankruptcy petition and schedules. In [26] 27 1 Unless otherwise indicated, all chapter and section 28 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532 . [2] 1 their pre-trial brief, the Appellants argued that the Debtor: 2 omitted from her Statement of Financial Affairs (“SOFA”) the 2008 3 Alpha commissions; falsely stated in her Certification of 4 Employment Income Pursuant to 11 U.S.C. § 521 (a)(1)(B)(iv) 5 (“Certification”) that she was unemployed in the 60 days prior to 6 the petition date; falsely stated in her Schedule I that she then 7 had no current income; failed to identify the source of income 8 listed in her form B22A; and failed to produce bank statements 9 from a personal bank account as requested through formal 10 discovery.2 11 After trial, the bankruptcy court issued findings of fact 12 and conclusions of law and determined that the Debtor was 13 entitled to judgment on both § 727 claims. The Appellants timely 14 appealed. 15 JURISDICTION 16 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 17 §§ 1334 and 157(b)(2)(J). We have jurisdiction under 28 U.S.C. 18 § 158. 19 ISSUES 20 1. Whether the bankruptcy court violated the Appellants’ due 21 process rights by admitting the Debtor’s bank records at 22 trial? 23 2. Whether the bankruptcy court erred in granting judgment in 24 favor of the Debtor on the Appellants’ adversary complaint 25 objecting to her bankruptcy discharge? [26] 27 2 The Appellants also disputed a number of other factual 28 issues, a majority of which are not challenged on appeal. [3] 1 STANDARD OF REVIEW 2 We review de novo allegations of a due process violation. 3 Marshall v. Marshall (In re Marshall), 721 F.3d 1032, 1039 (9th 4 Cir. 2013). 5 In an action for denial of discharge, we review: (1) the 6 bankruptcy court's determinations of the historical facts for 7 clear error; (2) its selection of the applicable legal rules 8 under § 727 de novo; and (3) its application of the facts to 9 those rules requiring the exercise of judgments about values 10 animating the rules de novo. Searles v. Riley (In re Searles), [11] 317 B.R. 368, 373 (9th Cir. BAP 2004), aff'd, 212 Fed. Appx. 589 12 (9th Cir. 2006). 13 Factual findings are clearly erroneous if illogical, 14 implausible, or without support from inferences that may be drawn 15 from the facts in the record. Retz v. Samson (In re Retz), [16] 606 F.3d 1189, 1196 (9th Cir. 2010). We give great deference to 17 the bankruptcy court's findings when they are based on its 18 determinations as to witness credibility. Id. (as the trier of 19 fact the bankruptcy court has "the opportunity to note variations 20 in demeanor and tone of voice that bear so heavily on the 21 listener's understanding of and belief in what is said."). 22 DISCUSSION 23 A. The bankruptcy court did not violate the Appellants’ due 24 process rights when it admitted the bank records at trial. 25 As a preliminary matter, the Appellants argue that the 26 bankruptcy court violated their due process rights when it 27 admitted two sets of the Debtor’s bank records into evidence at 28 trial over their objection. They allege that they requested [4] 1 these documents through discovery, but that they were never 2 produced.3 The Debtor responded at trial and on appeal that her 3 counsel had produced the documents via email to Appellants’ 4 counsel. While the exact date of the electronic production is 5 unclear on this record, the Appellants do not expressly dispute 6 receipt of the email attaching the bank records. Further, these 7 bank records were listed as Debtor exhibits in the parties’ joint 8 pre-trial order. 9 Fundamentally, due process requires the opportunity to be 10 heard. Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306 , 11 314 (1950). It is well-established that "[a]n elementary and 12 fundamental requirement of due process in any proceeding which is 13 to be accorded finality is notice reasonably calculated, under 14 all the circumstances, to apprise interested parties of the 15 pendency of the action and afford them an opportunity to present 16 their objections.” Id. (citation omitted). 17 Here, the record establishes that the Appellants had actual 18 access to these bank records prior to trial and actual notice 19 that they would be introduced into evidence at trial. Thus, 20 there was neither a due process violation nor error in admitting 21 these documents at trial. 22 B. The bankruptcy court did not err in granting judgment in 23 favor of the Debtor on the Appellants’ § 727 claims. 24 In general, the bankruptcy court must grant a chapter 7 [25] 26 3 The Appellants also argue that the bankruptcy court’s 27 decision violated Rule 7026. Other than citing to the rule, the Appellants advance no argument on this point and, thus, we do not 28 address it on appeal. [5] 1 discharge unless an objector establishes that a denial of 2 discharge is appropriate under one of the twelve enumerated 3 grounds in § 727(a). In the spirit of the “fresh start” 4 principles that the Bankruptcy Code embodies, claims for denial 5 of discharge are liberally construed in favor of the debtor and 6 against the objector. Khalil v. Developers Sur. & Indem. Co. 7 (In re Khalil), 379 B.R. 163, 172 (9th Cir. BAP 2007), aff'd, [8] 578 F.3d 1167 (9th Cir. 2009). For that reason, the objector 9 bears the burden to prove by a preponderance of the evidence that 10 the debtor's discharge should be denied. Id. 11 1. There was no error as to the bankruptcy court’s 12 § 727(a)(3) determination. 13 Section 727(a)(3) provides for denial of discharge where, 14 among other things, a debtor concealed or falsified recorded 15 information from which the debtor's financial condition or 16 business transactions might be ascertained. The underlying 17 purpose of this subsection is “to make discharge dependent on the 18 debtor's true presentation of his financial affairs.” Caneva v. 19 Sun Communities Operating Ltd. P’ship (In re Caneva), 550 F.3d 20 755, 761 (9th Cir. 2008). Even so, § 727(a)(3) "does not require 21 absolute completeness in making or keeping records.” Id. 22 Instead, a debtor must only "present sufficient written evidence 23 which will enable his creditors reasonably to ascertain his 24 present financial condition and to follow his business 25 transactions for a reasonable period in the past." Id. A 26 debtor’s “duty to keep records is measured by what is necessary 27 to ascertain [her] financial status.” Moffett v. Union Bank, [28] 378 F.2d 10, 11 (9th Cir. 1967); see also In re Hong Minh Tran, [1] 464 B.R. 885, 893 (Bankr. S.D. Cal. 2012) (type of debtor, as 2 well as debtor’s sophistication, informs the bankruptcy court’s 3 determination). 4 An objector establishes a prima facie case under § 727(a)(3) 5 by showing that: (1) the debtor failed to maintain and preserve 6 adequate records; and (2) this failure rendered it impossible to 7 ascertain the debtor's financial condition and material business 8 transactions. In re Caneva, 550 F.3d at 761 . Once the objector 9 makes this showing, the burden shifts to the debtor to justify 10 the inadequacy or nonexistence of records. Id. Whether a debtor 11 failed to maintain and preserve adequate records is a finding of 12 fact, which we review for clear error. Cox v. Lansdowne 13 (In re Cox), 904 F.2d 1399, 1401 (9th Cir. 1990). 14 Emphasizing the Debtor’s duty to preserve records, the 15 Appellants argue that she failed to produce complete documents 16 and “hid” documents until trial. They, however, do not 17 specifically identify the documents that the Debtor failed to 18 produce. 19 If their concern relates to the bank records, there is no 20 dispute that the Debtor did not retain physical records for 21 either her personal bank account or the joint account with Alpha. 22 The bankruptcy court, however, found the Debtor’s explanation 23 reasonable; she moved residences twice prior to filing for 24 bankruptcy and failed to retain physical possession of the 25 records. It also observed that “in this day and age persons 26 often forego keeping much of the paper records that cluttered up 27 desks and cabinets in years past, relying instead on the computer 28 and the internet.” Statement of Decision After Trial at 5. The [7] 1 fact that Alpha ceased operating prepetition and the size of that 2 business further supported its finding that the omissions or 3 non-disclosures were reasonable and, thus, excused. In any 4 event, the bankruptcy court determined that the Appellants’ 5 argument as to bank records was rendered moot when the Debtor 6 produced them to the Appellants. 7 These findings were not clearly erroneous. See In re Retz, [8] 606 F.3d at 1196 ; see also Palmdale Hills Prop., LLC v. Lehman 9 Commercial Paper, Inc. (In re Palmdale Hills Prop., LLC), [10] 457 B.R. 29, 40 (9th Cir. BAP 2011) (when there are two 11 permissible views of the evidence, the bankruptcy court's choice 12 between them cannot be clearly erroneous). As a result, the 13 bankruptcy court did not err in determining that the Debtor’s 14 failure to preserve physical records was justified under the 15 circumstances and, thus, granting judgment in the Debtor’s favor 16 on the § 727(a)(3) claim. 17 2. There was no error as to the bankruptcy court’s 18 § 727(a)(4)(A) determination. 19 Section 727(a)(4)(A) provides for denial of discharge where: 20 (1) the debtor made a false oath in connection with the 21 bankruptcy case; (2) the oath related to a material fact; (3) the 22 oath was made knowingly; and (4) the oath was made fraudulently. 23 In re Retz, 606 F.3d at 1197 (citation and internal quotation 24 marks omitted). 25 Appellants first contend that the bankruptcy court erred by 26 finding that the Debtor did not make a false oath. In 27 particular, they focus on her failure to disclose the 2008 income 28 in her SOFA and her failure to accurately disclose her income and [8] 1 employment during the 60 days prior to her bankruptcy. 2 The bankruptcy court, however, found that the Debtor’s 3 disclosure on her SOFA of zero income for 2008 was not 4 “technically correct,” because, subsequently, the Debtor admitted 5 that Alpha earned $11,225 in 2008. Similarly, the bankruptcy 6 court found that the Debtor’s Certification was incorrect. There 7 the Debtor asserted that she was unemployed in the 60 days prior 8 to filing bankruptcy. Subsequently the Debtor acknowledged that 9 she was an independent contractor (but not an employee) of VBS, 10 and that her engagement with VBS ended less than a month before 11 her bankruptcy filing. The record also reflects that she listed 12 $1,965 in her form B22A in response to “income from the operation 13 of a business, profession, or farm.” These statements, thus, 14 constituted a false oath. See In re Searles, 317 B.R. at 377 (“A 15 false oath is complete when made.”). 16 Even if the Appellants met their burden of establishing that 17 the Debtor made a false oath, they also bore the burden under 18 § 727(a)(4)(A) of establishing that the Debtor did so 19 fraudulently. A debtor acts with fraudulent intent when: (1) she 20 makes a misrepresentation; (2) that at the time she knew was 21 false; and (3) with the intention and purpose of deceiving 22 creditors. In re Retz, 606 F.3d at 1198-99 . Fraudulent intent 23 is typically “proven by circumstantial evidence or by inferences 24 drawn from the debtor's conduct.” Id. at 1199 . A pattern of 25 falsity or a debtor's reckless indifference or disregard for the 26 truth may support a finding of intent. Id. Fraudulent intent is 27 a finding of fact reviewed for clear error. Id. at 1197 . 28 Here, the bankruptcy court found that the Debtor’s [9] 1 explanation as to her omission of the 2008 income was reasonable. 2 The Debtor testified that she erroneously believed that the SOFA 3 called for information as to net rather than gross income. Thus, 4 she listed zero income for 2008 because, based on her erroneous 5 assumption, the $11,225 was offset by rental payments and 6 advertising costs for Alpha during 2008. The bankruptcy court 7 accepted this explanation and, notably, observed that the 8 “discrepancy was trivial and in good faith,” particularly given 9 the period of time between receipt of the income in 2008 and the 10 bankruptcy filing in 2010. 11 The bankruptcy court also found acceptable the explanation 12 as to the errors in the Certification. It noted that the 13 Debtor’s Schedule I contained a favorable clarification; namely, 14 a statement that the Debtor was “unemployed since September 1, 15 2010.” It also noted that the Debtor disclosed $1,965 in 16 business income in her form B22A. It construed these facts 17 together with the Debtor's apparent confusion regarding employee 18 versus independent contractor status and found insufficient 19 evidence of an intent to deceive. 20 While the record may contain facts supportive of alternate 21 inferences, the bankruptcy court was in the best position to 22 evaluate the documentary and testimonial evidence. See 23 In re Retz, 606 F.3d at 1196 . The record shows that, after 24 evaluating the evidence, the bankruptcy court declined to infer 25 fraudulent intent based on the Debtor’s course of conduct and 26 other circumstantial evidence. Viewed through the required 27 deferential lens on appellate review, the bankruptcy court’s 28 findings were not clearly erroneous. See id. Thus, it did not [10] 1 err in finding a lack of fraudulent intent. 2 This analysis likewise applies to the Appellants’ argument 3 that the evidence sufficiently demonstrated the Debtor’s reckless 4 indifference or disregard for the truth. Although the bankruptcy 5 court did not make explicit findings in this regard, as 6 previously discussed, the record reflects that it declined to 7 find the requisite state of mind necessary for denial of 8 discharge. Its analysis, thus, is inconsistent with a finding of 9 a reckless indifference or disregard for the truth based on the 10 totality of the evidence. 11 Along the same lines, the Appellants argue that the 12 bankruptcy court erred in failing to determine that a sufficient 13 pattern and practice of dishonesty existed in the Debtor’s 14 schedules and SOFA to warrant denial of discharge. We disagree. 15 The bankruptcy court determined that, even if construed in the 16 aggregate, the Debtor’s omissions and misstatements were 17 ultimately inconsequential and, thus, insufficient to warrant a 18 denial of discharge. It observed that the omissions and 19 misstatements were likely the product of inadvertence or perhaps 20 the fact that English was the Debtor’s second language. Once 21 again, the bankruptcy court findings were not clearly erroneous. 22 See id. Thus, it did not err in determining a lack of dishonest 23 pattern or practice.4 24 In sum, the Appellants have shown no error in the bankruptcy [25] 26 4 Given the determination that the Appellants failed to meet 27 their burden of proof as to fraudulent intent, it is unnecessary to consider whether the bankruptcy court correctly considered the 28 other elements of a § 727(a)(4)(A) claim. [11] 1 court's judgment as to the § 727(a)(4)(A) claim. 2 CONCLUSION 3 We AFFIRM the bankruptcy court’s judgment in favor of the 4 Debtor.