Opinion
NOT FOR PUBLICATION
Submitted without oral argument by agreement of the parties, September 11, 2006
Appeal from the United States Bankruptcy Court for the Western District of Washington. Honorable Philip H. Brandt, Bankruptcy Judge, Presiding. Bk. No. 03-50831. Adv. No. 04-04017.
Before: KLEIN, DUNN, and McMANUS, [ Bankruptcy Judges.
Hon. Michael S. McManus, Chief United States Bankruptcy Judge for the Eastern District of California, sitting by designation.
MEMORANDUM
The appellant appeals the denial of her discharge pursuant to 11 U.S.C. § 727(a)(3) on the basis that the bankruptcy court's factual findings rendered orally on the record following trial are clearly erroneous. We AFFIRM.
FACTS
Lori Ann Morgan, the debtor and appellant, owned and operated a business known as Truck Rental Company (" TRC") as a sole proprietorship from 1996 through November 2002. At the same time, Morgan worked full-time managing the front office of a dental practice. Morgan's duties at the dental practice included billing, tracking accounts receivables, and preparing statements. Her education included two years of college.
In November 2002, Morgan transferred ownership of TRC to James Walls for no consideration. James Walls is the father of Christopher Walls, who is Morgan's boyfriend. Christopher Walls has a lengthy criminal record with convictions that include bank fraud.
Christopher Walls " secretly" operated TRC from 2000 through approximately July 2003. Because of Christopher Walls' criminal record for bank fraud, Morgan and then James Walls were record owners of TRC, but Christopher Walls essentially ran the business behind the scenes.
At some point, James Walls transferred ownership of TRC to Christopher Walls.
In July 2003, eight months after Morgan transferred ownership of TRC, the Superior Court of Washington for the County of Pierce issued a Temporary Restraining Order (" TRO") preventing Morgan, James Walls, and Christopher Walls from operating TRC or coming within 1000 feet of TRC's business office.
Around the same time, Christopher Walls was being investigated for a probation violation and certain business documents of TRC were turned over to the United States Probation Office.
On October 18, 2003, Morgan filed a voluntary chapter 7 bankruptcy case. Appellee, Kathryn Ellis, was appointed as the chapter 7 trustee.
Prior to the first meeting of creditors, Ellis wrote Morgan and requested that Morgan bring certain information and documentation, including business-related records, with her to the meeting to be held on November 25, 2003.
At the meeting of creditors, Ellis asked Morgan about records relating to her operation and transfer of TRC. Because Morgan did not bring the requested documents with her to the meeting, the meeting was continued. Morgan was instructed to obtain and bring to the continued meeting certain business-related records.
Such requested business records included bank statements, cancelled checks and check registers, all documents pertaining to her transfer of TRC to James Walls, and tax documents for TRC.
Morgan appeared at the continued meeting on December 9, 2003, without the requested business records. Morgan told Ellis that she could not get the requested business-related records because of the TRO that was issued in July 2003. Morgan also could not provide Ellis with her personal bank statements because she said that she did not keep them after reconciling them with her check register.
On January 26, 2004, the trustee filed an adversary complaint objecting to Morgan's discharge under 11 U.S.C. § § 727(a)(3), (a)(4)(A), (B) and/or (D), and (a)(5).
A trial was held on August 24, 2005.
At trial, Morgan again argued that all the requested business records were located at the TRC business office and that she could not produce them because the TRO prevented her from accessing such records.
During her testimony, Morgan admitted that she did not maintain records and that she had no knowledge of what the assets of TRC were at the time that she transferred the business in November 2002.
On August 29, 2005, the bankruptcy court entered its findings of fact and conclusions of law. Reasoning that there was not adequate justification under the circumstances of the case, the court denied Morgan's discharge under § 727(a)(3) for failure to " keep records adequate to ascertain her financial condition and her business transactions" and that such failure " rendered it impossible to determine her financial condition and those business transactions."
The court dismissed the trustee's causes of action under § § 727 (a)(4) and (a)(5).
This timely appeal ensued.
JURISDICTION
The bankruptcy court had jurisdiction via 28 U.S.C. § 1334. We have jurisdiction under 28 U.S.C. § 158(a)(1).
ISSUE
Whether the bankruptcy court clearly erred when it determined, as a matter of fact, that the failure of the debtor to keep or preserve records from which her financial condition or business transactions might be ascertained, was not justified under all the circumstances of the case.
STANDARD OF REVIEW
We review findings of fact for clear error. Massoud v. Ernie Goldberger & Co. (In re Massoud), 248 B.R. 160, 162 (9th Cir. BAP 2000). A factual finding is clearly erroneous if, after reviewing all the evidence, the reviewing court " is left with a definite and firm conviction that a mistake has been committed." Id. at 163, quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948).
DISCUSSION
The debtor assigns error to the court's finding that she lacked justification for her failure or delay in producing certain documents requested by the trustee. She argues that some of her personal records and all of her business records were not accessible to her in light of the TRO barring her from the business premises. The debtor contends that she eventually provided all requested documents to the trustee, but that obtaining copies of the requested documents was costly and time consuming. In effect, the debtor argues that the findings of fact underlying the court's decision to deny her discharge were clearly erroneous.
I
We begin by noting that our review is impeded because the debtor did not provide a complete transcript of the trial and did not include a copy of all exhibits admitted into evidence. Morgan, as appellant, has the burden to demonstrate that the bankruptcy court's findings of fact are clearly erroneous. Gionis v. Wayne (In re Gionis), 170 B.R. 675, 681 (9th Cir. BAP 1994).
The statute at issue focuses on " all the circumstances of the case, " which ordinarily would necessitate a complete transcript. In light of the standard of review, debtor, as appellant, is responsible for providing us with the entire transcript and all other relevant evidence considered by the bankruptcy court. Price v. Lehtinen (In re Lehtinen), 332 B.R. 404, 416 (9th Cir. BAP 2005).
Because the debtor chose to provide an incomplete transcript and an incomplete set of trial exhibits, we are entitled to presume that the missing portions are not helpful to her position. Gionis, 170 B.R. at 680-81. Although the limited record before us handicaps our review, it does not preclude us from deciding this appeal. Id. at 681. We will proceed to review the matter from the record before us.
II
The bankruptcy court denied the debtor a chapter 7 discharge by virtue of § 727(a)(3):
(a) The court shall grant the debtor a discharge, unless -
(3) the debtor has . . . failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor's financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all the circumstances of the case[.]
The trustee had the initial burden of proof to show that the debtor " failed to maintain and preserve adequate records" and that such failure made it " impossible to ascertain" the debtor's financial condition and material business transactions. Lansdowne v. Cox (In re Cox), 41 F.3d 1294, 1296 (9th Cir. 1994). Once the trustee made such a showing, the burden shifted to the debtor to " justify the inadequacy or non-existence of the records." Id.
The trustee was not required to prove fraudulent intent. Id. at 1297 (intent to conceal one's financial condition is not an element under § 727(a)(3)).
Although denial of discharge issues are usually construed generously in favor of the debtor, a bankruptcy discharge is a privilege that is dependent upon a true presentation of a debtor's financial affairs. Cox v. Lansdowne (In re Cox), 904 F.2d 1399, 1401 (9th Cir. 1990). " ' Creditors are not required to risk the withholding or concealment of assets by the bankrupt under cover of a chaotic or incomplete set of books or records.'" Id., quoting Burchett v. Myers, 202 F.2d 920, 926 (9th Cir. 1953).
Debtors have an affirmative duty to produce financial records and/or business documents that accurately reflect the debtor's business affairs so that the trustee may carry out its duties under the Bankruptcy Code. 11 U.S.C. § 521(a).
The debtor's contention both at trial and on appeal is that she could not timely provide the trustee with the requested records because she did not have access to the requested records. However, the debtor repeatedly admitted at trial that she retained no records regarding TRC after she transferred ownership in November 2002. As for the records pertinent to the period prior to the transfer, the debtor testified that she relied on the availability of such records from her boyfriend Christopher Walls, a convicted felon.
The bankruptcy court found that the debtor's reliance on James Walls and Christopher Walls was not objectively reasonable under all the circumstances of this case.
The debtor transferred TRC in November 2002. The TRO was not issued until July 2003. The debtor did not file her bankruptcy until October 2003 and offered no explanation why she did not keep or access any records prior to July 2003.
As part of its " all-of-the-circumstances-of-the-case" analysis, the bankruptcy court paid particularized attention to the debtor's background, training, and experience. It found that the debtor had " two years of college, a decade's worth of experience running the front office of a dental practice, including billing, tracking accounts receivable, and preparing statements." Based on the debtor's business background and experience, the bankruptcy court reasoned that the debtor was not absolved from the duty to keep or maintain records herself. It necessarily concluded that the TRO was an inadequate justification. Thus, it concluded that the debtor did not meet her burden to justify the inadequacy and/or non-existence of the requested records. We agree.
Because the debtor admitted at trial that she did not keep (among other records) records relating to her transfer of her personal ownership interest in TRC, as would be appropriate for the owner of an active business that is transferred, and because the court rejected as objectively unreasonable the debtor's reliance on James Walls and Christopher Walls or access to records, the trustee was unable to ascertain the debtor's business transactions for a reasonable period in the past. Under these circumstances, the bankruptcy court did not err when it denied the debtor's discharge.
CONCLUSION
The bankruptcy court's findings of fact were not clearly erroneous and support its conclusion that the debtor did not preserve recorded information and was not, under all the circumstances of the case, excused from such requirement. Thus, it was not error to deny the debtor's discharge on the basis of § 727(a)(3). AFFIRMED.