McDermott v. Dunne (In re Dunne)

In Re: Amanda R. Dunne, Debtor.

Daniel M. McDermott, United States Trustee, Plaintiff, v. Amanda R. Dunne, Defendant.

Case No.: 15-33831

Adv. Pro. No. 16-3105

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF OHIO WESTERN DIVISION

March 29, 2017

The court incorporates by reference in this paragraph and adopts as the findings and orders of this court the document set forth below. This document has been entered electronically in the record of the United States Bankruptcy Court for the Northern District of Ohio.

Chapter 7

Hon. Mary Ann Whipple

MEMORANDUM OF DECISION AND ORDER GRANTING MOTION FOR SUMMARY JUDGMENT

This adversary proceeding is before the court on the unopposed Motion for Summary Judgment ("Motion") filed by the United States Trustee ("UST"). [Doc. # 14]. Defendant is proceeding pro se and is the Debtor in the underlying Chapter 7 bankruptcy case.¹ The UST's complaint seeks an order revoking Defendant's Chapter 7 discharge under 11 U.S.C. § 727(d)(1) and (d)(3). The UST's Motion addresses hisclaim under 727(d)(1) only.

The district court has jurisdiction over the Defendant's underlying Chapter 7 bankruptcy case as a case under Title 11 and over all proceedings arising in or related to that case, including this adversary proceeding. 28 U.S.C. § 1334. The Chapter 7 case and all proceedings arising in or related to that case, including this adversary proceeding, have been referred to this court for decision. 28 U.S.C. § 157(a) and General Order No. 2012-07 of the United States District Court for the Northern District of Ohio. This adversary proceeding is a core proceeding in which this court can make a final determination because it involves a debtor's right to a discharge. 28 U.S.C. § 157(b)(1) and (2)(J).

For the reasons that follow, the Motion will be granted.

FACTUAL BACKGROUND

The following facts are undisputed. On November 29, 2015, Defendant filed a petition for relief under Chapter 7 of the Bankruptcy Code. [Case No. 15-33831, Doc. # 1].² On her Chapter 7 Statement of Current Monthly Income, Official Form 22A-1, Defendant states that she is not married. [Id. at 49/51]. Similarly, Defendant's Schedule I leaves blank or indicates the information is not applicable regarding a non-filing spouse. [Id. at 25]. On January 12, 2016, the Chapter 7 Trustee held and concluded a § 341 meeting of creditors. [UST Ex. A]; 11 U.S.C. § 341(a). During the § 341 meeting, the Trustee asked Defendant what her marital status was, to which Defendant responded, "single." [Id. at 4].

On February 2, 2016, the court entered an order granting the Trustee's Motion for Turnover and requiring Defendant to turn over to the Trustee her 2015 Federal and State Income Tax Returns and non-exempt portion of income tax refunds on or before April 15, 2016. [Case No. 15-33831, Doc. # 20]. On April 7, 2016, Defendant, through her attorney, provided the Trustee with a 2015 Internal Revenue Service Form 1040, indicating that she is a "head of household" and that the return was "self-prepared." [UST Ex. B]. The 2015 Form 1040 discloses an income tax refund in the amount of $3,430. [Id. at 3]. Although the tax return shows an earned income credit based upon one qualifying child, it also shows that she is claiming only one exemption for herself. [Id. at 3-4].

In fact, Defendant was married at the time she filed her petition and schedules. [See Doc. # 9, ¶¶ 8-9]. She did not file her tax return as "head of household." She and her husband filed a joint federal incometax return for 2015, claiming three exemptions as well as the earned income credit. [Id. at 3 & Ex. A attached thereto; UST Ex. D]. The income tax return filed also shows that it was "self-prepared" and shows that Defendant was entitled to a tax refund in the amount of $7,750. [Id.] The actual income tax refund check issued by the IRS on May 26, 2016, was in the amount of $5,914. [UST Ex. C].

Defendant was granted a discharge in the underlying Chapter 7 case on March 16, 2016. [Case No. 15-33831, Doc. # 22]. The UST's complaint to revoke Defendant's discharge was timely filed on September 15, 2016. See 11 U.S.C. § 727(e).

LAW AND ANALYSIS

I. Summary Judgment Standard

Under Rule 56 of the Federal Rules of Civil Procedure, made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7056, summary judgment is proper only where there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). In reviewing a motion for summary judgment, however, all inferences "must be viewed in the light most favorable to the party opposing the motion." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-88 (1986). The party moving for summary judgment always bears the initial responsibility of informing the court of the basis for its motion, "and identifying those portions of 'the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits if any' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Where the moving party has met its initial burden, the adverse party "may not rest upon the mere allegations or denials of his pleading but . . . must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue for trial exists if the evidence is such that a reasonable factfinder could find in favor of the nonmoving party. Id. Although a party fails to respond to a motion for summary judgment, the court must nevertheless satisfy itself that the moving party has met the demands of Fed. R. Civ. P. 56 before granting the motion. See Guarino v. Brookfield Twp. Trustees, 980 F.2d 399, 407 (6th Cir. 1992).

II. 11 U.S.C. § 727(d)(1)

A bankruptcy discharge is considered the heart of the Bankruptcy Code's "fresh start" policy. Sayre (In re Sayre), 321 B.R. 424, 427 (Bankr. N.D. Ohio 2004). For this reason, the statutory exceptions to discharge are generally to be strictly construed in favor of the debtor. United States v. Storey, 640 F. 3d 739, 743 (6th Cir. 2011); Smith v. Jordan (In re Jordan), 521 F.3d 430, 433 (4th Cir. 2008). On the otherhand,

the very purpose of certain sections of the law, like 11 U.S.C. § 727(a)(4)(A), is to make certain that those who seek the shelter of the bankruptcy code do not play fast and loose with their assets or with the reality of their affairs. The statutes are designed to insure that complete, truthful, and reliable information is put forward at the outset of the proceedings, so that decisions can be made by the parties in interest based on fact rather than fiction. As we have stated, "the successful functioning of the bankruptcy act hinges both upon the bankrupt's veracity and his willingness to make a full disclosure." Neither the trustee nor the creditors should be required to engage in a laborious tug-of-war to drag the simple truth into the glare of daylight.

Boroff v. Tully (In re Tully), 818 F.2d 106, 110 (1st Cir. 1987) (citations omitted).

As the party seeking revocation of Defendant's discharge, the UST bears the burden of proof, see Fed. R. Bankr. P. 4005, by a preponderance of the evidence, McDermott v. Davis (In re Davis), 538 B.R. 368, 384 (Bankr. S.D. Ohio 2015); Sayre, 321 B.R. at 428.³

Under § 727(d)(1), a debtor's bankruptcy discharge will be revoked if "such discharge was obtained through the fraud of the debtor, and the requesting party did not know of such fraud until after the granting of such discharge." 11 U.S.C. § 727(d)(1). Thus, to succeed on a 727(d)(1) claim, a plaintiff must prove: (1) fraud that would have prevented the debtor's discharge had it been brought to the court's attention prior to discharge and (2) that the plaintiff was unaware of the debtor's fraud prior to the discharge. Buckeye Retirement Co. L.L.C. v. Heil (In re Heil), 289 B.R. 897, 903 (Bankr. E.D. Tenn. 2003); In re Sayre, 321 B.R. at 327.

The UST contends that by misrepresenting her marital status as single, Defendant obtained her Chapter 7 discharge by fraud. That the UST did not know Defendant's representation that she was single was untrue until after Defendant received her discharge on March 16, 2016, is shown by the fact that, on April 7, 2016, Defendant provided a Form 1040 income tax return to the Trustee showing that she was notmarried, continuing the misrepresentation made in her bankruptcy schedules, means test form, and testimony at the § 341 meeting of creditors. As to the first element of his claim, the UST contends that Defendant would have been denied a discharge under § 727(a)(2) and (a)(4)(A) had the court been aware of her misrepresentation. Because Defendant's discharge must be revoked under § 727(d)(1) and (a)(4)(A), the court does not address Plaintiff's arguments under § 727(a)(2)(A).

Under § 727(a)(4)(A), a debtor is denied a discharge if "the debtor knowingly and fraudulently, in or in connection with the case. . .made a false oath or account[.]" In order to prevail, a plaintiff must prove, by a preponderance of the evidence that:

1) the debtor made a statement under oath; 2) the statement was false; 3) the debtor knew the statement was false; 4) the debtor made the statement with fraudulent intent; and 5) the statement related materially to the bankruptcy case.

Keeney v. Smith (In re Keeney), 227 F.3d 679, 685 (6th Cir. 2000).

The first three elements under Keeney are readily satisfied. False statements made by Defendant on her schedules, means test, and at the § 341 meeting of creditors regarding her marital status were all under oath. See Noland v. Johnson (In re Johnson), 387 B.R. 728, 743 (Bankr. S.D. Ohio 2008) (citing Hamo v. Wilson (In re Hamo), 233 B.R. 718, 725 (6th Cir. BAP 1999)); Gandy v. Schuchardt (In re Gandy), 645 F. App'x 348, 353 (6th Cir. 2016). And there is no dispute that she knowingly misrepresented her marital status as...