U.S. Tr. v. Moffenbeier (In re Moffenbeier)

TRISH M. BROWN CHIEF JUDGE

TRISH M. BROWN CHIEF JUDGE STEPHEN A. RAHER LAW CLERK SUZANNE M. MARX JUDICIAL ASSISTANT Carla Gowen McClurg
Office of the United States Trustee
620 SW Main St., Room 213
Portland, OR 97205 Robert J. Vanden Bos
Vanden Bos & Chapman, LLP
319 SW Washington St., Suite 520
Portland, OR 97204

Counsel: The above-referenced adversary proceeding came before the court for trial on February 23, 2017. At the conclusion of the trial I ruled for defendant David Moffenbeier. I write today to explain the basis for my ruling. The U.S. Trustee pleads three claims under § 727(a)(4)(A) of the Bankruptcy Code. First, the U.S. Trustee seeks to deny Mr. Moffenbeier a discharge for alleged false statements in his original Statement of Financial Affairs (ECF No. 1, the "Original SOFA"). To prevail on a claim under § 727(a)(4)(A), a plaintiff must prove by a preponderance of the evidence that "(1) there was a false statement under oath or penalty of perjury; (2) made knowingly and fraudulently; and (3) regarding a material fact." Searles v. Riley (In re Searles), 317 B.R. 368, 377 (9th Cir. BAP 2004). Proof that a debtor acted with fraudulent intent must be actual, not constructive. Fogal Legware of Switzerland v. Wills (In re Wills), 243 B.R. 58, 64 (9th Cir. BAP 1999). A debtor's intent "may be found from the surrounding circumstances and certain 'badges of fraud.'" Id. A fact is material "if it bears a relationship to the debtor's business transactions or estate, or concerns the discovery of assets, business dealings, or the existence and disposition of the debtor's property." Id. at 62. On the other hand, "a false statement or omission that has no impact on a bankruptcy case is not material and does not provide grounds for denial of a discharge under § 727(a)(4)(A)." Khalil v. Developers Sur. & Indem. Co. (In re Khalil), 379 B.R. 163, 172 (9th Cir. BAP 2007). Here, Mr. Moffenbeier concedes that certain statements on the Original SOFA were inaccurate. The evidence also shows that Mr. Moffenbeier voluntarily disclosed those inaccuracies at the reconvened § 341(a) meeting of creditors (the "MOC") and promptly filed an amended SOFA correcting the previous deficiencies (ECF No. 8, the "Amended SOFA"). "The fact of prompt correction of an inaccuracy or omission may be evidence probative of lack of fraudulent intent." Searles, 317 B.R. at Finally, as her third claim, the U.S. Trustee seeks denial of discharge based on two allegedly false statements made by Mr. Moffenbeier in a Rule 2004 examination that took place on June 20, 2016 (the "2004 Exam"). Very little evidence or argument at trial addressed this claim. Ultimately, the U.S. Trustee did not carry her burden of proof. I note that both of the statements that form the basis for the third claim relate to gift and loan transactions between Debtors and their adult daughter, Lisa. Mr. Moffenbeier's testimony that he was confused about how some of the bankruptcy questions related to his transactions with Lisa is credible. For purposes of the Bankruptcy Code, certain transactions were considered "gifts" that would not ordinarily have been thought of as such; and, Mr. Moffenbeier had a reasonable, if incorrect, basis for disregarding forgiven loans when responding to questions at the 2004 Exam. In addition, the low-dollar amount and high number of transactions between Debtors and Lisa explains occasional misstatements regarding specific amounts. I am also persuaded that the third claim fails because of what the U.S. Trustee does not allege. Namely, all of the relevant transactions between Debtors and Lisa were detailed in the Amended SOFA, which was filed more than three weeks before the 2004 Exam. After examining the Debtors under oath and pursuing extensive discovery, the U.S. Trustee has not pointed to any inaccuracies in the Amended SOFA. The relatively minor misstatements alleged in connection with the third claim are not material, and thus I will dismiss this claim with prejudice. At trial, the U.S. Trustee argued thai Mr. Moffenbeier's misstatements warrant denial of discharge because the integrity of the bankruptcy system depends on honest and forthright disclosure by debtors. I agree that accurate voluntary disclosure is critical to the system, but I do not find that any of Mr. Moffenbeier's misstatements threatened the successful administration of this case. To the contrary, Mr, Moffenbeier promptly amended his inaccurate statements and provided detailed information to the chapter 7 trustee. There is absolutely no evidence that the trustee's administration of the case was impeded by Mr. Moffenbeier, and I find defendant's explanation of his initial misstatements credible and persuasive. I therefore conclude that the U.S. Trustee has not proven that Mr. Moffenbeier made knowing, false oaths in connection with this case. Counsel for Mr. Moffenbeier should upload a judgment within 14 days of the date of this letter.