Robertson v. Dennis (In Re Dennis)

United States Court of Appeals Fifth Circuit F I L E D In the May 23, 2003 United States Court of Appeals Charles R. Fulbruge III for the Fifth Circuit Clerk _______________ m 02-30765 _______________ IN THE MATTER OF: KELLY DENNIS, Debtor. SIDNEY ROBERTSON, III, Appellant, VERSUS KELLY DENNIS AND GULF SOUTH TITLE CORPORATION, Appellees. _________________________ Appeal from the United States District Court for the Eastern District of Louisiana _________________________ Before SMITH, DENNIS, and CLEMENT, manded that Dennis pay him roughly $63,000 Circuit Judges. to satisfy the judgment for her post-divorce use of the house. Within days, Dennis filed a JERRY E. SMITH, Circuit Judge: petition for chapter 7 bankruptcy. Sidney Robertson sued Kelly Dennis,1 his Robertson filed two adversary proceedings ex-wife and a chapter 7 debtor, in bankruptcy in bankruptcy court. First, he requested that court over a debt of about $6,000. After a the court lift the automatic stay so he could bench trial, the bankruptcy court entered judg- obtain, from escrow, the proceeds from the ment for Dennis and discharged her debts, in- sale of the house. The court denied the re- cluding the debt owed to Robertson. The dis- quest, and the district court affirmed.2 Sec- trict court affirmed. Finding no clear error, we ond, and the subject of this appeal, Robertson affirm. sought to deny Dennis a discharge under 11 U.S.C. § 727(a) or t o make Dennis’s debt to I. him non-dischargeable under 11 U.S.C. § 523- Though the marriage of Robertson and (a)(15). Against the approximately $63,000 in Dennis lasted for barely six years, the litigious accrued rent and interest, the court recognized aftermath has lasted for over a decade. The an offset of about $57,000 for Dennis’s mort- state court granted their divorce in 1992 and gage payments, repairs, and improvements. divided their personal property, with Dennis Thus, the court concluded that Robertson had receiving approximately $8,200 more in value a valid claim against Dennis for about $6,000, than did Robertson. The court also allowed which estimate neither Robertson nor Dennis Dennis to continue living in their marital home. disputes. In 1997, Dennis married Clinton Smith, After a two-day trial, the bankruptcy court who eventually moved in with Dennis at the entered judgment for Dennis. First, the court house she once had shared with Robertson. found that she lacked actual intent to defraud Shortly thereafter and perhaps not coinciden- her creditors or the bankruptcy estate by trans- tally, Robertson sought a revised property set- ferring savings bonds to her son in the year tlement in state court. Dennis did not appear, preceding bankruptcy. The court therefore and the court entered a default judgment re- held that § 727(a)(2)(A) does not prevent her quiring her to pay Robertson monthly rent for from receiving a discharge. Second, the court use of the house, including accrued rent and found that Dennis kept and filed adequate fi- interest from 1992. Once they learned of this judgment, Dennis 2 Robertson wanted not only his share of the and Smith sold the house and bought their sale proceeds, but also Dennis’s share to compen- own. At about the same time, Robertson de- sate for the earlier unequal distribution of the per- sonal property. Coincidentally, Dennis’s share al- most exactly made up for the $8,200 difference in 1 Dennis has remarried and is now legally the personal property distribution. Notwithstand- known as Kelly Smith. For the sake of clarity, and ing Robertson’s vehement arguments to the con- because she filed for bankruptcy under her maiden trary, this adversary proceeding is not a subject of name, we refer to her as “Dennis.” the instant appeal. 2 nancial records. The court therefore held that 1. § 727(a)(3) does not prevent a discharge. Robertson reasons that the bankruptcy Third, the court found that Dennis could not court clearly erred by finding that Dennis pay the debt to Robertson and that a discharge lacked actual intent to defraud under § 727- would benefit her more than it would harm (a)(2)(A). He contends that her fraudulent Robertson. The court therefore held that the intent is shown by her purchase of savings debt is dischargeable under § 523(a)(15). The bonds for her son in the year preceding district court affirmed. bankruptcy. II. Section 727(a)(2)(A) entitles individual Robertson does not argue that the bank- debtors to a discharge unless “the debtor, with ruptcy court misunderstood or misapplied the intent to hinder, delay, or defraud a creditor governing bankruptcy law, but only that the . . . has transferred . . . property of the debtor, court clearly erred in its factual findings. “We within one year before the date of the filing of review the bankruptcy court’s findings of fact the petition.” 11 U.S.C. § 727(a)(2)(A). The for clear error and its conclusions of law de purpose of this section “is to deny a discharge novo.” Gamble v. Gamble (In re Gamble), to those debtors who, intending to defraud, 143 F.3d 223, 225 (5th Cir. 1998). A finding transfer property which would have become of fact is clearly erroneous only if “on the en- property of the bankrupt estate.” Pavy v. tire evidence, the court is left with the definite Chastant (In re Chastant), 873 F.2d 89, 90 and firm conviction that a mistake has been (5th Cir. 1989). Section 727(a)(2)(A) has four committed.” Hibernia Nat’l Bank v. Perez (In elements: “(1) a transfer of property; (2) be- re Perez), 954 F.2d 1026, 1027 (5th Cir. longing to the debtor; (3) within one year of 1992) (quotation marks and citations omitted). the filing of the petition; (4) with intent to “[W]e must give ‘due regard . . . to the hinder, delay, or defraud a creditor . . . .” Id. opportunity of the [bankruptcy] court to judge Dennis disputes only that she had actual intent the credibility of the witnesses.’” Id. (quoting to defraud. FED. R. CIV. P. 52(a)). After a review of the record, we conclude that the court did not “The finding of intent to hinder, delay, or clearly err in any of its factual findings. defraud a creditor is a factual one which must be reviewed under the clear error standard.” A. Perez, 954 F.2d at 1029 (citing Thibodeaux v. Robertson argues first that the bankruptcy Olivier (In re Olivier), 819 F.2d 550, 552 (5th court clearly erred by granting Dennis a dis- Cir. 1987)). As plaintiff, Robertson bore the charge at all. In particular, he contends that burden to prove Dennis’s intent to defraud. the court should have denied Dennis a dis- Chastant, 873 F.2d at 90-91. “Moreover, charge under 11 U.S.C. § 727(a)(2)(A) for evidence of actual intent to defraud creditors fraudulently transferring or concealing assets is required to suppo rt a finding sufficient to and under 11 U.S.C. § 727(a)(3) for failure to deny a discharge. Constructive intent is insuf- keep and file adequate financial records. ficient.” Id. at 91 (quotation marks and inter- nal citation omitted). Given the obvious problems of proof, 3 though, “[a]ctual intent . . . may be inferred Finally, the Chastant debtor transferred far from the actions of the debtor and may be more valuable property than did Dennis. shown by circumstantial evidence.” Id. We Though Chastant, id. at 90, does not specify have identified several factors that tend to the value of the property transferred, the debt- prove actual intent to defraud: or created an income trust fund from which he expected to live, so presumably the transfer (1) the lack or inadequacy of consider- was sizable. In contrast, the limited evidence ation; (2) the family, friendship or close in the record suggests that the bonds were associate relationship between the par- worth $300; at the very most, they could have ties; (3) the retention of possession, ben- been worth about $1,200. Had Dennis actu- efit, or use of the property in question; ally intended to defraud her creditors, she (4) the financial condition of the party surely would have transferred considerably sought to be charged both before and more assets to her son. This is doubly true after the transaction in question; (5) the because she believed her debt to be $63,000, existence or cumulative effect of the not $6,000, when she filed for bankruptcy pattern or series of transactions or course of conduct after the incurring of Moreover, the fourth factor of Chastant al- debt, onset of financial difficulties, or lows the court to weigh the minimal value of pendency or threat of suits by creditors; the transfer against the fact of transfer to a and (6) the general chronology of the relative. A transfer of only a small amount of events and transactions under inquiry. property likely would not materially affect “the financial condition of the [debtor] . . . before Id. and after the transaction.” Although a transfer to a relative might suggest intent, a minimal Robertson leans heavily on the second fac- transfer just as strongly suggests a lack of tor, namely, Dennis’s purchase of the bonds intent. Other courts agree that “the low value for her (and Robertson’s) minor son. Rob- of assets [is] one factor to be considered when ertson also notes that “a presumption of actual determining whether the debtor had an intent fraudulent intent to bar a discharge arises to defraud,” Baker v. Mereshian (In re when property . . . is transferred to relatives.” Mereshian), 200 B.R. 342, 346 (B.A.P. 9th Id. (quoting In re Butler, 38 B.R. 884, 888 Cir. 1996), as does Collier on Bankruptcy.3 (Bankr. D. Kan. 1984)). He therefore con- tends that the purchase of the bonds creates a Given the low value of the bonds, we con- presumption of Dennis’s actual intent to de- clude that the bankruptcy court did not clearly fraud, which she has not rebutted. err by finding that Dennis lacked actual intent to defraud. Moreover, other factors from Chastant, however, is distinguishable from Chastant also support the court’s finding: The this case. Most important, the court in Chas- record reveals no sinister or calculating pattern tant reviewed a finding of actual intent to de- fraud, whereas we review a finding that Dennis lacked actual intent. Next, Dennis, unlike the 3 6 COLLIER ON BANKRUPTCY ¶ 727.02[3][b], debtor in Chastant, offered evidence to rebut at 727-19-20 (L. King ed., 15th ed. 2003) (“The the presumption of actual intent. Id. at 91. fact that the property transferred or concealed is of small value . . . tends to negate fraudulent intent.”). 4 of transactions to place assets outside her 495 F.2d 199, 201 (5th Cir. 1974).5 If bankruptcy estate, and the general chronology Robertson satisfied his burden, Dennis must is similarly benign. Indeed, Dennis began to prove that the inadequacy is “justified under all purchase the bonds months before she consid- the circumstances.” Sadler, 282 B.R. at 263; ered filing for bankruptcy, i.e., months before Vitek, 271 B.R. at 558. The bankruptcy court Robertson began to hector her for payment of has “wide discretion” in both inquiries, Goff, the greatly exaggerated debt. In short, Dennis 495 F.2d at 202, and its determination is a effectively rebutted the Chastant presumption, finding of fact reviewed for clear error, id. at and Robertson did not prove that she intended 200. to defraud her creditors by purchasing a few savings bonds for their son.4 The court did not clearly err by finding that Dennis kept and filed adequate records. Rob- 2. ertson failed his burden of proof: He never Robertson further contends that the bank- specifies which records are missing or why ruptcy court clearly erred by finding that Den- their absence prevented him from understand- nis kept and filed adequate financial records. ing Dennis’s financial condition. He claims Section 727(a)(3) entitles individual debtors to that Dennis filed no bank or payroll records, a discharge unless “the debtor has . . . failed to but the record contains numerous bank, pay- keep or preserve any recorded information . . . roll, and other records. Dennis also filed sev- from which the debtor’s financial condition . . . eral income tax returns, the “quintessential might be ascertained, unless such . . . failure documents” in a personal bankruptcy. Nissel- . . . was justified under all the circumstances.” son v. Wolfson (In re Wolfson), 152 B.R. 830, 11 U.S.C. § 727(a)(3). As plaintiff, Robertson 833 (S.D.N.Y. 1993); see also Lubman v. Hall bore the initial burden to prove that Dennis (In re Hall), 174 B.R. 210, 215 (Bankr. E.D. failed to keep and preserve her financial Va. 1994). Notably, the chapter 7 trustee did records and that this failure prevented him not object to these submissions. In sum, Den- from ascertaining her financial condition. nis is “an unsophisticated wage earner” who Grant v. Sadler (In re Sadler), 282 B.R. 254, kept and filed records appropriate to her com- 263 (Bankr. M.D. Fla. 2002); Spiezio v. Vitek monplace assets and liabilities. Goff, 495 F.2d (In re Vitek), 271 B.R. 551, 558 (Bankr. S.D. at 201. Ohio 2001). A debtor’s financial records need not contain “full detail,” but “there should be B. written evidence” of the debtor’s financial Failing in his effort to deny Dennis a dis- condition. Goff v. Russell Co. (In re Goff), charge altogether, Robertson argues that the bankruptcy court clearly erred by finding that Dennis’s debt to him was dischargeable. A 4 property settlement “incurred by the debtor in In addition, Robertson argues that Dennis be- trayed her actual intent to defraud by omitting a the course of a divorce” is non-dischargeable small savings account and child support payments unless “the debtor does not have the ability to from her bankruptcy court financial statements. The bankruptcy court attributed this omission to a 5 clerical oversight, not actual fraudulent intent. Goff, 495 F.2d at 201 n.4, interprets an older Robertson does not cite, and the record does not version of § 727(a)(3), but that version is materi- contain, any evidence to contradict this finding. ally identical to the current § 727(a)(3). 5 pay such debt,” or “discharging such debt pay the debt to Robertson. 6 would result in a benefit to the debtor that outweighs the detrimental consequences to . . . III. [the creditor] former spouse.” 11 U.S.C. Robertson also appeals the bankruptcy § 523(a)(15)(A)-(B). court’s decision to quash a deposition sub- poena to Smith because the subpoena did not Robertson and Dennis agree that the disput- come with a reasonable mileage allowance.7 ed debt is a property settlement incurred in the We review the decision to quash a subpoena course of a divorce. They dispute only for abuse of discretion, Theriot v. Parish of whether Dennis qualifies for an exception to Jefferson, 185 F.3d 477, 491 (5th Cir. 1999). the general rule of non-dischargeability. Den- nis bears the burden to prove one of the ex- “Service of a subpoena upon a person ceptions. Gamble, 143 F.3d at 226. Though named therein shall be made by delivering a either exception would suffice, the bankruptcy copy . . . and, if the person’s attendance is court found that Dennis qualified for both. commanded, by tendering to that person the These determinations are findings of fact re- fees for one day’s attendance and the mileage viewed for clear error. Id. allowed by law.” FED. R. CIV. P. 45(b)(1).8 “Although the correct reading of this portion The bankruptcy court did not clearly err by of Rule 45[(b)(1)] is an issue of first im- finding that Dennis “does not have the ability pression for this court, it requires little com- to pay” the debt to Robertson, in either a lump ment.” CF&I Steel Corp. v. Mitsui & Co. sum or periodic payments. 11 U.S.C. § 523- (U.S.A.), 713 F.2d 494, 496 (9th Cir. 1983). (a)(15)(A). Smith and Dennis had a combined income of about $100,000, which would seem The conjunctive form of the rule indicates to put them comfortably in the middle class. that proper service requires not only personal Gamble, 143 F.3d at 226 (noting that the delivery of the subpoena, but also tendering of court should consider income and assets of the witness fee and a reasonable mileage al- debtor’s new spouse). Yet, they also had lowance. “[T]he plain meaning of Rule primary custody of three dependent children, 45[(b)(1)] requires simultaneous tendering of and the court found that this gave them high witness fees and the reasonably estimated but reasonable expenses. The court also found that their monthly income exceeded their 6 monthly expenses by just a few dollars, based Because we uphold the decision that the debt on Dennis’s financial records and her was dischargeable under § 523(a)(15)(A), we need testimony. Finally, the court found that not address the alternative finding that it also was Dennis would retain sizable debt, dischargeable under § 523(a)(15)(B). notwithstanding the discharge, because her 7 Robertson sent two subpoenas to Smith, but student loans were non-dischargeable, and she acknowledged the deficiency of the first and then had to reaffirm several other debts, e.g., sent the second subpoena at issue here. mortgages and a car loan. These findings are not clearly erroneous, so neither is the court’s 8 Rule 45(b)(1) applies to proceedings in the conclusion that Dennis lacked the ability to bankruptcy court. F ED. R. BANKR. P. 9016. Until 1991, this part of the rule appeared in sub- section (c). 6 mileage allowed by law with service of a sub- subpoena through artful travel accounting. poena.” Id. The courts uniformly agree with Rule 45(b)(1), however, does not require clair- this interpretation of rule 45(b)(1), 9 as do the voyance, but only “the reasonably estimated leading treatises on civil procedure.10 mileage allowed by law.” CF&I, 713 F.2d at 496 (emphasis added). Accordingly, the subpoena was not prop- erly served. A deposition witness is entitled to Of course, even when a subpoena comes a statutory fee of forty dollars and a reasonable with an estimated mileage allowance, the wit- mileage allowance based on his mode and ness may persuade the court that the estimate distance of transportation. 28 U.S.C. is unreasonable and therefore have the sub- § 1821(b)-(c). Robertson tendered the forty- poena quashed. In this situation, however, we dollar fee with the subpoena but did not tender can determine whether the court abused its the mileage allowance. Yet, by tendering the discretion based on factors such as the wit- fee, he implicitly acknowledged his concomi- ness’s distance from the deposition site, his tant duty to tender the mileage allowance. To common mode of travel, his expected mode of be sure, the allowance would have been less travel, the common mode of travel in the com- than five dollars, because Smith lived just a munity, advance planning between the sub- few miles from the deposition site, but rule poenaing party and the witness, the expected 45(b)(1) contains no de minimis exception. length of the deposition, and so forth.11 But when the subpoenaing party makes no attempt Robertson’s strongest argument may seem to calculate and tender at least a reasonably intuitively appealing: How can one know the estimated mileage allowance, he plainly vio- mileage allowance in advance when one does lates rule 45(b)(1) and leaves us with no fac- not know the precise distance the witness must tual basis from which to review the court’s travel or even the mode of transportation he decision. Thus, a court does not abuse its will use? In Robertson’s view, CF&I might discretion by quashing a subpoena where the allow a recalcitrant witness to evade a subpoenaing party tendered no mileage allow- ance whatsoever with the subpoena.12 9 See, e.g., Tedder v. Odel, 890 F.2d 210 (9th 11 Cir. 1989); In re Stratosphere Corp. Secs. Litig., We do not suggest that this list is exclusive or 183 F.R.D. 684 (D. Nev. 1999); Alexander v. Je- that the courts always must consider every factor suits of Mo. Province, 175 F.R.D. 556 (D. Kan. when ruling on a motion to quash. We merely 1997); Smith v. Midland Brake, Inc., 162 F.R.D. observe that these factors could prove helpful in 683 (D. Kan. 1995); Coleman v. St. Vincent de determining whether a subpoenaing party’s esti- Paul Soc’y, 144 F.R.D. 92 (E.D. Wis. 1992); Mey- mate of the mileage allowance is reasonable. er v. Foti, 720 F. Supp. 1234 (E.D. La. 1989); 12 Badman v. Stark, 139 F.R.D. 601 (M.D. Pa. Though the dispute in this case involves just 1991). a few dollars, consider the more instructive ex- ample of a witness who travels by plane. The sub- 10 See, e.g., 9 JAMES W. MOORE ET AL., poenaing party may estimate the price of a ticket at MOORE’S FEDERAL PRACTICE § 45.03[4][b][ii] (3d $200, when the actual price turns out to be $400. ed. 1997); 9A CHARLES A. WRIGHT & ARTHUR R. In this example, the court is left with the factual MILLER, FEDERAL PRACTICE AND PROCEDURE questions of which amount is proper under § 2454, at 25-26 (2d ed. 1995). (continued...) 7 The judgment of the district court, affirm- ing the bankruptcy court, is AFFIRMED.13 (...continued) § 1821(c)(1) and, if the subpoenaing party’s es- timate is incorrect, whether it nevertheless rea- sonably complies with rule 45(b)(1). These would be discretionary rulings, but the reviewing court could examine them easily enough for abuse of discretion. 13 Robertson raises one final issue on appeal: that the bankruptcy court committed reversible er- ror by instructing Smith, at trial, that he did not have to answer questions about his financial con- dition. Robertson contends that the court violated FED. R. EVID. 103(a)(2), which requires the pro- ponent of excluded evidence to make an offer of proof to preserve an evidentiary ruling for appeal. We agree that Robertson’s “position was adequate- ly stated , and the record clearly is susceptible to proper appellate review.” Parliament Ins. Co. v. Hanson, 676 F.2d 1069, 1074 (5th Cir. 1982). Yet, Robertson devotes so much time to the molehill, i.e., how he preserved the ruling for appeal, that he completely neglects the mountain, i.e., why the ruling was incorrect. We therefore treat this issue as waived for failure to brief ade- quately. FED. R. APP. P. 28(a)(9)(A). 8