Monday, November 24, 2008

Judge Perris Denies Discharge to Chapter 7 Debtors Under Section 727(a)(4)(A) for Making "a False Oath or Account"

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys,

U.STrustee v. Killian and Lesser (In re Killian and Lesser)
Case No. 07-33641-elp7
November 17, 2008

This opinion, in which debtors were denied a Chapter 7 discharge for making a series of written and oral false oaths, is a painful-to-read story about very difficult debtors and their attorney and legal assistant, with a lot of pointing of fingers back and forth among them. It is a lesson in the kind of clients for debtors' attorneys to avoid, or else to educate very thoroughly at the beginning of representation. It also seems to be a lesson, admittedly from the perspective of the "Monday morning quarterback," of a number of important ways the attorney could have done a better job avoiding this situation.

Judge Perris' Holding

Given the egregiousness of the debtors' behavior as described in Judge Perris' factual findings, Judge Perris' decision to deny discharge is not surprising. She recited the four elements of a violation of § 727(a)(4)(A):
(1) the debtor made a false oath in connection with the case; (2) the oath related to a material fact; (3) the oath was made knowingly; and (4) the oath was made fraudulently.
The judge indicated that the first two elements were easily met as she recited a series of false oaths about debtors' assets and business affairs: 1) woefully incomplete original schedules signed under oath, 2) oral false oaths at the meetings of creditors (three meetings were needed), and 3) continued false oaths in amended schedules which still lacked significant information. These written and/or oral false oaths involved omitting numerous significant real estate transactions, continued ownership in significant items of jewelry, nondisclosure of multiple business ownerships, their disposal of jewelry and household furnishings recently purchased for many tens of thousands of dollars, and large amounts of undisclosed income. In the judge's words, debtors "omitted a breathtaking amount of significant financial information."

The key section of the opinion, on the last two elements, was introduced with: "The only remaining question is whether the false oaths were knowingly and fraudulently made." The judge determined as follows:

1) As to debtors' testimony that they were only presented by their attorney's legal assistant with the signature pages of the original bankruptcy documents, it was enough that their signatures represented that the information on them was true when it was not true: "That was a lie." Furthermore, debtors had access to the other pages and had the opportunity to review them before signing. Thus the false oath signatures on the original bankruptcy documents were knowingly and fraudulently made.
2) As to the amended bankruptcy documents, these were also false oaths knowingly and fraudulently made in that the debtors had been warned by the trustee at the original meeting of creditors of the inadequacy of the documents, a draft of the amended documents were emailed to clients, their attorney advised them to review them carefully, and yet they were still signed with a "continued failure to include anywhere near complete information."
3) And as to the debtors' testimony at the various meetings of creditors, the judge did not believe debtors "that their lawyer told them to lie under oath," and in any event "[i[t was the debtors . . . who were under oath" and '[i]t was debtors' obligation to tell the truth, regardless what their counsel may have said." So the oral false oaths were also knowingly and fraudulently made.

In sum, the debtors exhibited "a shocking level of disregard for the obligation to assure accuracy in the information provided in a bankruptcy case." "They utterly disregarded their obligation to tell the truth." The US Trustee met the four elements of

Because the justification for denial of discharge was so strong under § 727(a)(4)(A), Judge Perris did not see a need to go into three other potential statutory bases for denial of discharge.

The Monday Morning Quarterback's Areas of Improvement for Debtors' Counsel

This is a website for bankruptcy attorneys, authored by someone who spent seventeen years first as a creditors' and then mostly debtors' attorney, and then has spent the last eight years working as a paralegal for many attorneys, as an employee and on a contract basis,for those who run a tight ship and for those barely afloat. From these 25 years of varied experience, I have perhaps a better perspective on these kinds of situations than those who have primarily seen this situation from only one angle. And because I have lots of past experience in representing very difficult clients, poorly chosen and perhaps insufficiently "educated," contributing to very difficult ethical problems, I have both sympathy and strong warnings for attorneys who allow themselves and their staff to get sloppy.

In that spirit, here are some attorney-client problems Judge Perris' opinion highlights, all the more important as bankruptcy work heats up and the temptation to cut corners rears its head:

[This portion being edited--please return in a few minutes. Thanks for your interest. Please feel free to comment--I respond to all comments.]

by: Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys

Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or provide and legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

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