Summary
reviewing bankruptcy court's determination that loss of business records was justified for clear error
Summary of this case from Bordonaro v. Fido's Fences, Inc.Opinion
Summary Order No. 06-1053 (bk).
February 27, 2007.
Appeal from judgment of the United States District Court for the District of Connecticut (Dominic J. Squatrito, Judge).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the judgment of the district court be hereby AFFIRMED.Richard Levy, (Douglas M. Evans, on the brief), Kroll, McNamara, Evans, Delehanty, LLP, West Hartford, CT, for plaintiff-appellant D.A.N. Joint Venture.
Patrick W. Boatman, East Hartford, CT, for defendants-appellees Michael and Rosemarie McCormack.
PRESENT: HON. BARRINGTON D. PARKER, HON. RICHARD C. WESLEY, HON. PETER W. HALL, Circuit Judges.
Plaintiff-appellant appeals from an order of the United States District Court for the District of Connecticut (Squatrito, J.) affirming an order of the Bankruptcy Court (Dabrowski, Bankr. J.) that denied the plaintiff's objections to the defendants' bankruptcy discharges and entered judgment in favor of the defendants. On appeal, plaintiff contends that it established below that (1) the defendants concealed their position as owners of the property at 20 Cherry Ridge Road, Middlefield, Connecticut, ("the Middlefield property") in violation of 11 U.S.C. § 727(a)(2); (2) the defendants knowingly and fraudulently made false oaths in violation of 11 U.S.C. § 727(a)(4)(A); and (3) defendant Michael McCormack failed to preserve recorded information regarding his business in violation of 11 U.S.C. § 727(a)(3). Finally, plaintiff contends the bankruptcy court applied an incorrect burden of proof. We assume the parties' familiarity with the facts, the procedural history, and the specific issues on appeal.
The rulings of a district court acting as an appellate court in a bankruptcy case are subject to plenary review. In re Bean, 252 F.3d 113, 116 (2d Cir. 2001). Accordingly, this Court reviews the bankruptcy court's determinations of law de novo and accepts its findings of fact unless they are clearly erroneous. Id.
Upon our review of the record in this case, we find that there was no clear error in the bankruptcy court's finding that the defendants did not conceal an interest in the Middlefield roperty with an actual intent to hinder, delay or defraud a creditor or officer of the bankruptcy estate. See 11 U.S.C. § 727(a)(2); Halpern v. Schwartz, 426 F.2d 102, 103-04 (2d Cir. 1970). Given that the defendants did not have a secret interest in the Middlefield property, we also agree that there is no evidence in the record that defendants made false oaths regarding any interest in that property in violation of 11 U.S.C. § 727(a)(4)(A).
Plaintiff claims that defendant Michael McCormack failed to preserve documents regarding his business in violation of 11 U.S.C. § 727(a)(3). A violation of this provision requires a finding that the failure to preserve records of business transactions was not "justified under all of the circumstances of the case." § 727(a)(3); D.A.N. Joint Venture v. Stephen A. Cacioli (In re Cacioli), 463 F.3d 229, 235 (2d Cir. 2006). The evidence demonstrates that Mr. McCormack's business records were lost inadvertently, either by Mr. McCormack or one of his two employees. The bankruptcy court applied an incorrect legal standard when it stated that "a denial of discharge . . . must be premised, at a minimum, upon deliberate or intentional conduct." The correct test for whether a debtor was justified in failing to keep business records under § 727(a)(3) "is a question in each instance of reasonableness in the particular circumstances," see Cacioli, 463 F.3d at 235 (internal quotation marks omitted), so that even the negligent destruction of business records may warrant a denial of discharge. It is a "loose test, concerned with the practical problems of what can be expected of the type of person and type of business involved." Id. (internal quotation marks omitted). Here, because McCormack lacked substantial business experience, his business was simple in nature, and there was no evidence that the destruction of the records was an attempt to obscure the financial condition of the business, the bankruptcy court's ultimate conclusion that the loss of business records was justified under the circumstances was not clearly erroneous. See id.
Finally, we conclude that the bankruptcy court applied the correct burden of proof in the proceedings below. The opinion of the court stated clearly at the outset that, "[i]t is well-settled that the party objecting to the granting of a discharge bears the ultimate burden of persuasion by a preponderance of the evidence in an adversary proceeding brought pursuant to Section 727(a)." This is the correct burden of proof governing actions to except a debt from discharge. See Grogan v. Garner, 498 U.S. 279, 291 (1991).
For these reasons, we affirm the judgment of the district court.