UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
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No. 95-20420
Summary Calendar
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IN THE MATTER OF: JERALD W. LOWRY;
SHARON L. LOWRY,
Debtors.
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JERALD W. LOWRY,
Appellant,
versus
SEABOARD SURETY COMPANY,
Appellee.
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Appeal from the United States District Court
for the Southern District of Texas
(CA-H-94-1267)
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October 5, 1995
Before DAVIS, BARKSDALE, and DeMOSS, Circuit Judges.
PER CURIAM:1
Jerald W. Lowry appeals the district court's judgment
affirming the bankruptcy court's denial of discharge pursuant to 11
U.S.C. § 727(a)(2)(A). We AFFIRM.
I.
1
Local Rule 47.5.1 provides: "The publication of opinions that
have no precedential value and merely decide particular cases on
the basis of well-settled principles of law imposes needless
expense on the public and burdens on the legal profession."
Pursuant to that rule, the court has determined that this opinion
should not be published.
In 1991, Seaboard Surety Company filed suit in federal court
in Texas against Lowry and his wife, claiming $2,591,000 under an
indemnity agreement. By letter on July 24, 1991, the Lowrys
offered Seaboard $50,000 in settlement (half in cash, with the
remainder in the form of a judgment which could not be executed
upon for one year). With that offer, they furnished their sworn
financial statement, dated July 1, 1991, reflecting that they had
$211,000 in equity in real property in Colorado, and owned stock
worth $41,560. Previously, the Lowrys had furnished Seaboard with
copies of their income tax returns for 1987-90. The letter
containing the settlement offer purported to restrict the use of
financial information for settlement purposes only, and stated that
the Colorado property was on the market, with "a large portion of
the proceeds to be used to hopefully pay a settlement with Seaboard
and other creditors".
On August 30, 1991, Seaboard obtained a judgment against the
Lowrys for $2,591,000, plus attorney's fees, court costs, and
interest.2 The Lowrys appealed to this court. (As discussed
infra, the judgment was affirmed on April 30, 1992.)
On October 31, 1991, two months after Seaboard obtained its
judgment, the Lowrys received $211,800 from the sale of the
Colorado property. They neither provided Seaboard with an updated
financial statement nor informed Seaboard of the sale. That
November, Seaboard rejected the Lowrys' $50,000 settlement offer,
2
Seaboard abstracted the judgment in Texas, but not in
Colorado, despite knowing that the Lowrys owned property there.
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on the ground that it was insufficient in light of the assets
reflected on the Lowrys' financial statement.
That December, the Lowrys offered Seaboard $100,000 in
settlement. By that time, they had spent nearly $100,000 of the
proceeds from the sale of the Colorado property; but they did not
inform Seaboard of either the sale or the disposition of nearly
half the proceeds from it. The letter containing that offer
referred to the Lowrys' financial statement that had been provided
to Seaboard with the initial settlement offer. Seaboard rejected
the second settlement offer in January 1992, based on the financial
information previously provided by the Lowrys. (Seaboard's
attorney testified at the subsequent adversary proceeding that
Seaboard would have evaluated the Lowrys' settlement offers
differently had it known that they had sold the Colorado property
and spent nearly half the proceeds.)
On April 30, 1992, our court affirmed the judgment in favor of
Seaboard. Two weeks later, the Lowrys filed a petition for relief
under Chapter 7 of the Bankruptcy Code.3 During the three months
preceding the filing of the petition, they reduced the mortgage
lien on their homestead by over $80,000 (over $43,000 of which came
from the proceeds of the sale of the Colorado property) and paid
off all of their unsecured creditors except Seaboard.4
3
The Lowrys first consulted an attorney about bankruptcy in
March 1992.
4
The proceeds from the sale of the Colorado property were used
to pay off a $62,800 promissory at Post Oak Bank on November 13,
1991; purchase an $18,000 automobile on November 19, 1991; replace
$5,000 withdrawn from an individual retirement account on November
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Seaboard objected to the Lowrys' discharge, asserting that
they had transferred property with the intent to hinder or delay
Seaboard in collecting its judgment. The bankruptcy court denied
Lowry a discharge, on the ground that he had transferred property
within one year before filing bankruptcy, with the intent to hinder
or delay Seaboard; but, it granted his wife's discharge. The
district court affirmed the judgment of the bankruptcy court.
II.
Lowry concedes that he transferred property; he contends that
the evidence is insufficient to prove that the transfer was with
the actual intent to hinder or delay Seaboard in collecting its
judgment against him. The bankruptcy court denied Lowry's
discharge pursuant to 11 U.S.C. § 727(a)(2)(A), which provides in
relevant part that a debtor shall be granted a discharge unless
(2) the debtor, with intent to hinder, delay, or
defraud a creditor ... has transferred,
removed, destroyed, mutilated or concealed ...
(A) property of the debtor, within one year
before the date of the filing of the
petition ....
11 U.S.C. § 727(a)(2)(A).
"The finding of intent to hinder, delay, or defraud a creditor
is a factual one which must be reviewed under the clear error
standard." Hibernia Nat'l Bank v. Perez (Matter of Perez), 954
25, 1991; pay approximately $45,000 to reduce the mortgage on the
Lowrys' homestead in February and March 1992; pay $12,000 for
college-related expenses of the Lowrys' son in January, February,
and April 1992; and pay $25,000 to the IRS for capital gains tax on
the proceeds from the sale of the Colorado property. The remainder
of the proceeds (about $35,000) were used to pay other creditors
and to pay ordinary living expenses.
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F.2d 1026, 1029 (5th Cir. 1992). "Although evidence of actual
intent ... is required to support a finding sufficient to deny
discharge, ... actual intent may be inferred from the actions of
the debtor and may be proven by circumstantial evidence." Id.
(internal quotation marks, citations, and brackets omitted).
The mere conversion of non-exempt property to exempt property
on the eve of bankruptcy is insufficient to defeat discharge,
because the Code permits a debtor to make use of the exemptions to
which he is entitled. See NCNB Texas Nat'l Bank v. Bowyer (Matter
of Bowyer), 932 F.2d 1100, 1102 (5th Cir. 1991). But, evidence of
such conversion is relevant where other evidence proves actual
intent to hinder, delay, or defraud creditors. Id.
The bankruptcy court did not rely solely on Lowry's conversion
of non-exempt property to exempt property during the months
preceding bankruptcy in denying discharge. It found, in addition,
that Lowry intended to lull Seaboard into refraining from taking
any action to execute on its judgment by (1) telling Seaboard that
the Colorado property was for sale, (2) giving Seaboard a schedule
of assets and liabilities, but providing that the information could
be used only in connection with the settlement negotiations (i.e.,
not in connection with collection efforts), (3) not telling
Seaboard that the Colorado property had been sold, (4) failing to
inform Seaboard of the change in his financial circumstances as a
result of the sale of the Colorado property and disposition of the
proceeds from that sale, and (5) failing to tell Seaboard that he
had sold or was in the process of selling non-exempt assets or that
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he intended to use the proceeds to make principal payments on his
home mortgage. The bankruptcy court found that, as a result of
Lowry's delaying tactics in the settlement negotiations, and his
failure to disclose changes in his financial condition, Seaboard
was prevented from obtaining any portion of the $250,000 in assets
owned by Lowry at the time of the first settlement offer, which
were disposed of and/or converted into exempt property without
Seaboard's knowledge.
Lowry contends that no evidence was presented from which the
bankruptcy court could have found that his pre-bankruptcy transfers
were anything other than legitimate, permitted conversions of non-
exempt property to exempt property. He stresses that he did not
decide to file bankruptcy until late March 1992, and maintains that
any actions he took prior to making that decision cannot form the
basis for a denial of discharge.
As our court has noted, "[u]nfortunately, the line between
legitimate pre-bankruptcy planning and intent to defraud creditors
contrary to section 727(a)(2) is not clear". Swift v. Bank of San
Antonio (Matter of Swift), 3 F.3d 929, 931 (5th Cir. 1993). As the
finder of fact, however, the bankruptcy court has the primary duty
to determine where that line must be drawn. See id. And, we are
not free to overturn that decision unless we are "left with the
definite and firm conviction that a mistake has been committed".
Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573 [105 S.
Ct. 1504, 1511] (1985) (citation omitted). "Where there are two
permissible views of the evidence, the factfinder's choice between
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them cannot be clearly erroneous." Id. at 574. Considering the
entirety of the evidence before the bankruptcy court, we cannot say
that its finding that Lowry transferred property with the intent to
hinder or delay Seaboard in collecting its judgment is clearly
erroneous.
III.
For the foregoing reasons, the judgment is
AFFIRMED.
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