No 14-CV-546 (JFB)


                          2014 U.S. Dist. LEXIS 87286

                             June 25, 2014, Decided
                              June 25, 2014, Filed

COUNSEL: Debtor, Pro se.

For Rockstone: Paul A. Levine of Lemergy Greisler, LLC, Albany, NY.

JUDGES: JOSEPH F. BIANCO, United States District Judge.




   Joseph F. Bianco, District Judge:

   Keith Bub ("Bub" or "debtor") appeals from an order entered by the United
States Bankruptcy Court for the Eastern District of New York (the "Bankruptcy
Court") in the underlying bankruptcy proceeding. After trial and in an opinion
dated November 13, 2013 (the "November 13 Order" or "Bankr. Ct. Op."), the
Honorable Robert E. Grossman denied debtor's discharge, pursuant to 11 U.S.C. §
727(a)(4)(A), on the grounds that debtor made false and fraudulent statements
regarding his income and expenses, and his company's assets and liabilities,
with the intent to deceive the creditors and the Bankruptcy Court.

   On appeal, Bub argues that the November 13 Order should be reversed and that
he should be granted a discharge, or that the case be remanded for an
evidentiary hearing, because the Bankruptcy Court erroneously concluded that Bub
falsely and intentionally underrepresented his income and the amount of funds he
drew from his business, The Storage Guys, Inc. ("The Storage Guys");
misrepresented his monthly expenses; and misrepresented The Storage Guys' assets
and liabilities. Bub argues that the Bankruptcy Court did not thoroughly analyze
the evidence and should have sought additional information, and that the
evidence does not support a finding of falsehoods or intent to deceive. Appellee
Rockstone Capital, LLC ("Rockstone") opposes and argues, inter alia, that, in
addition to the false statements in Bub's Schedules and Statement of Financial
Affairs, upon which the Bankruptcy Court correctly relied in reaching its
determination, "[t]he court properly detailed wrongful conduct to demonstrate
that Debtor has engaged in a long campaign of hiding assets and of false
statements under oath in his efforts to evade legitimate efforts of creditors to
recover on their claims and that Debtor's falsehoods continued in his bankruptcy
schedules and his evasive testimony at the trial of this action." (Appellee's
Brief, at 3.)

   For the reasons set forth below, the Court finds debtor's arguments on appeal
to be unpersuasive and affirms the Bankruptcy Court's November 13 Order.
Specifically, having carefully reviewed the record, the Court concludes that the
Bankruptcy Court's determination that debtor made several false statements
knowingly and with fraudulent intent was not clearly erroneous. Therefore, the
Bankruptcy Court did not err in entering judgment in favor of Rockstone on its
third, fourth, and fifth causes of action.1

- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -1   The Court
would reach the same conclusion even under a de novo standard of review, for the
reasons discussed in the November 13 Order and herein.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -

I. Background

A. Facts2

- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -2   Bub does
not claim that the Bankruptcy Court incorrectly detailed the facts in the
November 13 Order (See Docket No. 1-9). Instead, he objects to the conclusions
drawn from those facts, and to the absence of further evidentiary analysis.
Therefore, the Court draws the facts from the November 13 Order, and from other
facts that were admitted in evidence at the trial and are in the appellate
record. "R   " refers to the numbered documents in the record filed with the
Court on January 24, 2014. (See Docket No. 1.) "T   " refers to the transcript
of the trial proceedings before the Bankruptcy Court on February 12, 2013. (See
R-8.) "EB   " refers to the lettered documents in the record filed with the
Court on February 18, 2014, and "ER   " refers to the numbered documents in the
record filed with the Court on February 18, 2014. (See Docket No. 6.)
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -

   Rockstone is a creditor of debtor pursuant to a judgment entered in New York
State Supreme Court, Suffolk County, on May 27, 2009, in the amount of
$632,466.80. (Complaint Objecting to Discharge ¶ 2, R-1.) The debt arose in
connection with a loan guaranteed by debtor and made by Rockstone to one of
debtor's former businesses. (Bankr. Ct. Op., at 4.) Debtor owned and operated
several businesses related to computer consulting for small businesses over the
course of his professional career. (T-41-43.) As of the petition date, debtor's
sole source of income came from The Storage Guys, a computer consulting business
owned entirely by debtor. (Bankr. Ct. Op., at 4; see Schedule I, ER-1 (Voluntary
Petition & Exhibits).)

   In his Chapter 7 Bankruptcy Petition, debtor listed that he had $91,000 in
real property assets, $114,437.13 in personal property assets, $1,531,703.12 in
liabilities to creditors holding secured claims, and $32,861.16 in liabilities
to creditors holding unsecured non-priority claims; that his current income was
$4,447.24; that his current expenditures were $4,423.09; and that he had no
domestic support obligations. According to Schedule I, $1,110 of plaintiff's
income came from his girlfriend's contribution to household expenses. Therefore,
plaintiff's monthly income from his business was $3,837.24.

   On Schedule B, Bub listed a one hundred percent ownership interest in Country
Road 332 LLC, with an "unknown" value. (Schedule B, at 2.) Country Road 32 LLC
owns one-third of a condominium in Gainesville, Florida (the "Gainesville
Condo"). (See T-48-49.) The other owners are Barbara Anzalone (debtor's first
wife) and Joshua Bub (debtor's adult son). (Id. at 49.) Debtor's older daughter
and her fiancé live in the condominium and do not pay rent. (Bankr. Ct. Op., at
5; T-113.) On Schedule D, debtor disclosed that he is obligated to Wells Fargo
Home Mortgage in the amount of $124,472.40. (Schedule D, at 2.) The obligation
is secured by a mortgage on the Gainesville Condo, which debtor valued at
$100,000.3 (Id.) On Schedule J, debtor listed a rent or home mortgage payment
expense in the amount of $550.00 per month. (Schedule J, at 1.) He also listed
an expense in the monthly amount of $135.00 for a maintenance fee. (Id. at 2.)
At trial, Bub testified that this was his monthly "contribution toward a
mortgage payment on [the] condo." (T-112.) He stated that he was making the
payments, despite not having any ownership interest, in lieu of repaying arrears
owed to his ex-wife in connection with unpaid child support. (Id. at 113-14.)
Debtor also testified that he stopped making payments around the time he filed
the petition because he could no longer afford to make them. (Id. at 120.)
Debtor did not amend Schedule J to correct the nature of this expense, and he
did not delete it as an expense after he stopped paying. At trial, debtor stated
that he listed it because "[i]t's something I had been paying. And that's what I
understood this [Schedule J] to be. It's my expenses."4 (Id.)

- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -3   Debtor no
longer has an ownership interest in the Gainesville Condo, but he and Anzalone
are obligors on the note. (Bankr. Ct. Op., at 5 n.2; see T-49.)
4   No documentary evidence before the Bankruptcy Court supported debtor's claim
that he was paying the mortgage and maintenance fee to satisfy a prior divorce
support obligation. (See Bankr. Ct. Op., at 8.) Bub has submitted an affidavit
from Anzalone with his brief to this Court, but the Court cannot consider it as
part of the record on appeal. See Weinstock v. Columbia Univ., 224 F.3d 33, 46
(2d Cir. 2000) (finding that evidence submitted for the first time on appeal was
"simply not part of the record" and "cannot be considered in deciding this
case"). Regardless, as set forth infra, even if the Court were to consider this
affidavit, it does not support a conclusion that the Bankruptcy Court's findings
were clearly erroneous. In addition, Bub, in his brief to this Court, admits
that these "were not rightly debtor's own living expenses." (Debtor's Brief, at
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -

   The Bankruptcy Court found that "there is no documentary evidence to support
a monthly rental or mortgage expense in this amount [$550]." (Bankr. Ct. Op., at
8.) Bank account records reflect that, for approximately one year prior to the
petition date, monthly transfers in the amount of $1100 were made from a TD Bank
account in the name of The Storage Guys to Bub's personal bank account. (Id.;
see The Storage Guys Bank Account Statements, ER-6; Bub Bank Account Statements,
EB-1.) In addition, each month, an electronic payment in the amount of $1,093.97
was made from Bub's account to Wells Fargo Home Mortgage. (Bankr. Ct. Op., at 8;
see Bub Bank Account Statements.) Neither bank account reflects a monthly
payment or debit in the amount of $550 (or $685). (Bankr. Ct. Op., at 8.) The
Bankruptcy Court thus concluded that "[t]his documentary evidence contradicts
the Debtor's testimony and supports the conclusion that the Debtor was paying
the entire monthly mortgage on the Gainesville Condo with funds generated from
The Storage Guys for the entire year prior to the Petition Date."5 (Id. at 8-9.)

- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -5   Debtor
did not address this discrepancy in his filings with this Court.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -

   On Schedule B, debtor listed his stock interest in The Storage Guys.
(Schedule B, at 2.) He indicated that The Storage Guys had "[n]o assets," and he
valued his stock interest at zero. (Id.) At the same time, however, The Storage
Guys' bank account balance was approximately $19,000. (T-110.) At trial, debtor
testified that he wrote "no assets" in his disclosure because, as of the
petition date, The Storage Guys had no "net" assets. (Id.) Debtor reached this
conclusion by offsetting the assets with The Storage Guys' corresponding $19,000
liability to Chase Manhattan Bank as of the petition date--an obligation
personally guaranteed by debtor. (Id. at 110-11; Schedule F, at 2.)

   In his Statement of Financial Affairs, debtor listed a Chase (
credit card (the "Southwest Card") in his name, which he claimed was used solely
for business expenses and paid directly by The Storage Guys. (Statement of
Financial Affairs, at 2 (stating that payments were made "with funds from
business, for business debts").) He also disclosed that $15,516.54 in payments
was made to the card over the ninety days prior to the petition date. (Id.)
Exhibits produced at trial, however, indicated that many of the charges on the
Southwest Card were for personal items. For example, there was a recurring
charge of $500.00 for an entity named "Natural Image Long Island"--an expense
for personal grooming--and charges from supermarkets, pharmacies, dry cleaning
establishments, and other retail stores. (Bankr. Ct. Op., at 9-10; see Chase
Southwest Card Statements, EB-1.) According to the Bankruptcy Court, "[b]ased on
an informal and conservative review of the expenses charged on the Chase
Southwest Card for the ninety days prior to the Petition Date, an average of
$2594.00 per month was charged for personal items unrelated to the business of
The Storage Guys."6 (Bankr. Ct. Op., at 10.)

- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -6   Bub has
not taken issue with the Bankruptcy Court's calculation. Nevertheless, this
Court has conducted its own review of the Chase Southwest Card statements and
finds no basis to conclude that the Bankruptcy Court's estimate is clearly
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -

   At trial, Bub testified that he believed he was one and the same as The
Storage Guys, and therefore The Storage Guys paid debtor's personal expenses in
lieu of salary. (See T-119 ("Q. Okay. So when the company pays the electric
bill, you sort of think that's yourself paying it because you are the company?
A. Correct."); id. at 116 ("Q. Okay. It's true though, is it not sir, that your
company, The Storage Guys, in fact paid that electric bill? A. Yes. Q. So the
statement, at least insofar as the portion that's attributable to electric is
that you're paying this as an individual expense is incorrect, because it's paid
by your company? A. Well, since I'm the one hundred percent shareholder in my
company, it is my company. And when I need money to pay bills that's what I use.
Because I don't take a salary.").)

   On Schedule I, Bub listed a monthly income of $3,837.27 from his employment
at The Storage Guys.7 (Schedule I, at 1.) He also listed a monthly contribution
towards household expenses in the amount of $1,100 from Susan Lane, his current
girlfriend (id.); a monthly health insurance expense in the amount of $661.00 (
id. at 2); and monthly electricity and heating expenses in the amount of $385 (
id.). The Storage Guys Bank Account statements reflect monthly debits for the
electricity bill, in amounts varying form $125.33 to $261.21. (Bankr. Ct. Op.,
at 11; see The Storage Guys Bank Account Statements.) Debtor also acknowledged
that his monthly health insurance in the amount of $661 is paid from that
account. (T-120.) He explained that his accountant calculated the monthly income
based on the transfers made by The Storage Guys to and on behalf of debtor. (Id.
at 190.)

- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -7   Bub
listed his 2011 salary in his Statement of Financial Affairs as $27,500.
Averaged over twelve months, the monthly income would be $2,291.67.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -

   At trial, Bub acknowledged that, during the two months before the petition
date, The Storage Guys, on Bub's behalf, paid his bankruptcy counsel
approximately $7,500 and his son $6,840 as a gift. (Id.) Bub did not know if the
sum of those payments--almost $14,000--was included in his income calculation. (
Id.) According to debtor, his accountant calculated his monthly income and
expenses over a period of time, based on his books and records, and divided the
number by the number of months reviewed, to come up with the amounts listed in
the schedules to the petition. (Id. at 190-91.)

   In its opinion, the Bankruptcy Court performed the following calculation. It
took the $1,100 per month transfer to debtor's personal bank account, added that
amount to the monthly insurance and utility expense paid by The Storage Guys on
behalf of Bub (approximately $861, assuming the business paid about $200 of the
utility expense), and amortized the payments to counsel and debtor's son over
twelve months. (Bankr. Ct. Op., at 12.) This resulted in a monthly "salary" from
the business of approximately $3,060. (Id.) The court noted, however, that this
number did not include the personal expense charges on the Southwest Card, which
averaged $2,594 per month at a minimum. (Id.) The total of those numbers, the
court noted, would exceed the monthly income listed in Schedule I by about
$1,800, and exceed the annual salary listed in the Statement of Financial
Affairs by over $3,000 per month. (Id.)

B. Bankruptcy Proceedings

   On November 22, 2011, Bub filed a voluntary petition for relief in the
Bankruptcy Court pursuant to Chapter 7 of the Bankruptcy Code. (R-9, at 3.)
Bub's gross estate exceeds $130,000, and Rockstone is Bub's largest unsecured
creditor, having filed a proof of claim in the amount of $774,225.35 based on a
judgment against Bub. Rockstone Capital LLC v. Metal, No. 13-CV-5161 (JFB), 2014
WL 13334265, at *4 (E.D.N.Y. Apr. 2, 2014).

   On April 19, 2012, Rockstone commenced an adversary proceeding against Bub,
seeking to deny his discharge pursuant to 11 U.S.C. § 727(a)(4)(A), based on
false statements made by debtor in the petition, schedules, and statement of
financial affairs. Rockstone claimed that Bub (1) falsely listed an ownership
interest in three vehicles as of the date the petition was filed because the
transfer of ownership from his minor son was not completed until post-petition;
(2) provided false and fraudulent values for the three vehicles in his schedules
and falsely claimed a vehicle exemption in one of the vehicles in the hopes of
buying one of the vehicles back from the estate for less than it was actually
worth; and (3) falsely and fraudulently overstated his expenses and understated
his income. Rockstone claimed that these false oaths were made in order to
deceive the creditors and the Bankruptcy Court regarding debtor's true financial
condition. (See generally R-1.)

   After a trial on February 12, 2013, the Bankruptcy Court issued a Memorandum
Decision Denying the Debtor's Discharge on November 13, 2013. The Bankruptcy
Court held that debtor's statements regarding the three vehicles were neither
false nor fraudulent, and, therefore, it dismissed Rockstone's first two causes
of action. The court, however, determined that "the causes of action regarding
the false and misleading representations in the Debtor's petition and schedules
relative to his income and expenses, which were the subject of minimal
discussion during the trial but are fully set forth in the evidentiary record,
do present a clear basis for the denial of the Debtor's discharge." (Bankr. Ct.
Op. at 2.) The Bankruptcy Court summarized its conclusion as follows:

        As a result of the misstatements, including the Debtor's failure to
     disclose all of the income he derived from his wholly owned business,
     the Debtor's monthly income was understated by at least $1,800.00. The
     Debtor accomplished this by falsely representing in the statement of
     financial affairs that he used a personal credit card solely for
     business expenses, when in fact this credit card was used for business
     and personal expenses. The Debtor's explanation that he relied on his
     accountant's calculations to prepare Schedules I and J does not
     support his defense. Neither the total amount of income listed, nor
     the individual expenditures themselves, bear any relationship to the
     Debtor's actual income and expenses, based on the Debtor's own
     financial records. Furthermore, the Debtor's explanation that he and
     his solely owned business are one and the same, so he had the right to
     run his personal expenses through the bank account for the business,
     does not absolve the Debtor in this case. Regardless of whether he
     used his solely owned business as his personal piggy bank, it is the
     Debtor's failure to include as income all of the funds he took from
     this business for his own personal benefit, the fact that the Debtor's
     listed income and expenses are not supported by the documentary
     evidence, along with his misrepresentation in the petition that the
     Debtor's business had no assets, that warrant denial of the Debtor's
     discharge. Based on the foregoing, the Debtor's discharge is denied
     pursuant to 11 U.S.C. § 727(a)(4)(A).

(Id. at 2-3.)

   The court entered the Judgment Denying the Debtor's Discharge on November 13,
2013. (Notice of Appeal, at 5.)

C. Appeal

   Appellant filed a notice of appeal of the November 13, 2013 Order in the
Bankruptcy Court on November 26, 2013, which was docketed in this Court on
January 24, 2014. Appellant filed his brief on March 12, 2014. Rockstone filed
its brief on March 28, 2014. Appellant did not file a reply. The Court has fully
considered the parties' submissions.

II. Standard of Review

   Rule 8013 of the Federal Rules of Bankruptcy Procedure provides that a
reviewing court may "affirm, modify, or reverse a bankruptcy judge's judgment,
order, or decree," or it may "remand with instructions for further proceedings."
Fed. R. Bankr. P. 8013.

   The Court reviews the Bankruptcy Court's legal conclusions de novo and its
factual findings for clear error. See Denton v. Hyman (In re Hyman), 502 F.3d
61, 65 (2d Cir. 2007) ("The Bankruptcy Court's legal conclusions are reviewed de
novo and its factual conclusions are reviewed for clear error."); see Bankruptcy
Servs., Inc. v. Ernst & Young (In re CBI Holding Co., Inc.), 529 F.3d 432, 449
(2d Cir. 2008); Lubow Mach. Co. v. Bayshore Wire Prods. Corp. (In re Bayshore
Wire Prods. Corp.), 209 F.3d 100, 103 (2d Cir. 2000); Shugrue v. Air Line Pilots
Ass'n, Int'l (In re Ionosphere Clubs Inc.), 922 F.2d 984, 988-89 (2d Cir. 1990).
"'A finding is 'clearly erroneous' when although there is evidence to support
it, the reviewing court on the entire evidence is left with the definite and
firm conviction that a mistake has been committed.'" Dist. Lodge 26, Int'l Ass'n
of Machinists & Aerospace Workers, AFL-CIO v. United Techs. Corp., 610 F.3d 44,
51 (2d Cir. 2010) (quoting United States v. U.S. Gypsum Co., 333 U.S. 364, 395
(1948)); see also Collins v. Hi-Qual Roofing & Siding Materials, Inc., Nos.
02-CV-0921E(F), 02-CV-0922E(F), 2003 WL 23350125, at *4 n.16 (W.D.N.Y. Dec. 18,
2003) ("'[A] finding is only clearly erroneous when although there is evidence
to support it, the reviewing court on the entire evidence is left with the
definite and firm conviction that a mistake has been committed. . . . This
standard precludes this Court from reversing the Bankruptcy Court's decision if
its account of the evidence is plausible, even if this Court is convinced that
it would have weighed the evidence differently." (quoting In re B. Cohen & Sons
Caterers, Inc., 108 B.R. 482, 484 (E.D. Pa. 1989))).

III. Discussion

A. Denial of a Discharge Pursuant to 11 U.S.C. § 727(a)(4)(A)

   Section 727(a)(4)(A) of Title 11 of the United States Code ("Section 727")

        (a) The court shall grant a debtor a discharge, unless--

        (4) the debtor knowingly and fraudulently, in or in connection with
     the case--

        (A) made a false oath or account.

11 U.S.C. § 727(a)(4)(A). Because Section 727 "impos[es] an extreme penalty for
wrongdoing, [it] must be construed strictly against those who object to the
debtor's discharge and liberally in favor of the bankrupt." D.A.N. Joint Venture
v. Cacioli (In re Cacioli), 463 F.3d 229, 234 (2d Cir. 2006) (quotations and
citation omitted); see also Berger & Assocs. Attorneys, P.C. v. Kran (In re
Kran), 493 B.R. 398, 403 (S.D.N.Y. 2013) (accord). "The objecting creditor bears
the burden to establish the requirements of § 727 by a preponderance of the
evidence." Virovlyankaya v. Virovlyanskiy (In re Virovlyanskiy), 485 B.R. 268,
272 (Bankr. E.D.N.Y. 2013); Moreo v. Rossi (In re Moreo), 437 B.R. 40, 59
(E.D.N.Y. 2010); Carlucci & Legum v. Murray (In re Murray), 249 B.R. 223, 228
(E.D.N.Y. 2000).

   To prove an objection to discharge under § 727(a)(4)(A), the party objecting
to discharge must establish by a preponderance of the evidence that: "(1) the
debtor made a statement under oath; (2) the statement was false; (3) the debtor
knew that the statement was false; (4) the debtor made the statement with intent
to deceive; and (5) the statement related materially to the bankruptcy case." In
re Moreo, 437 B.R. at 59 (quotations and citation omitted); see also Republic
Credit Corp. I v. Boyer (In re Boyer), 328 F. App'x 711, 715 (2d Cir. 2009).

   The materially false statements recognized under this subsection may have
been made as part of or omitted from the bankruptcy petition, schedules,
statement of affairs, or during examinations or the bankruptcy proceeding
itself. E.g., New World Rest. Grp., Inc. v. Abramov (In re Abramov), 329 B.R.
125, 132 (E.D.N.Y. 2005); see also Pergament v. Smorto (In re Smorto), No.
07-CV-2727 (JFB), 2008 WL 699502, at *4 (E.D.N.Y. Mar. 12, 2008) (same).
Further, "the debtor must have presented or used, with intent to defraud,
inflated or fictitious claims in a bankruptcy case." Perniciaro v. Natale (In re
Natale), 136 B.R. 344, 349 (Bankr. E.D.N.Y. 1992); see also Dranichak v. Rosetti
, 493 B.R. 370, 378 (N.D.N.Y. 2013); Painewebber Inc. v. Gollomp (In re Gollomp)
, 198 B.R. 433, 439 (S.D.N.Y. 1996). "In either case, whether it be a false
statement under oath or use of a false claim, the wilful intent to defraud is a
crucial element of the cause of action." Natale, 136 B.R. at 349. Intent to
defraud can be proven by evidence of either (1) the debtor's actual intent to
deceive or (2) reckless disregard for the truth. Adler v. Lisa Ng (In re Adler),
395 B.R. 827, 843 (E.D.N.Y. 2008); see also Pereira v. Gardner (In re Gardner),
384 B.R. 654, 667 (Bankr. S.D.N.Y. 2008) (citations omitted). Intent to defraud,
however, "will not be found in cases of ignorance or carelessness." Gardner, 384
B.R. at 667.

   Because "[f]raudulent intent is rarely susceptible to direct proof[,] . . .
courts have developed 'badges of fraud' to establish the requisite actual intent
to defraud." Salomon v. Kaiser (In re Kaiser), 722 F.2d 1574, 1582 (2d Cir.
1983) (internal citation omitted) (quoting In re Freudmann, 362 F. Supp. 429,
433 (S.D.N.Y. 1973), aff'd 495 F.2d 816 (2d Cir. 1974) (per curiam)). "Badges of
fraud" include secreting proceedings of a transfer, transferring property to
family members, the lack or inadequacy of consideration, the general chronology
of the events or transactions in question, and the concealment of relevant
facts. See id. at 1582-83 (quoting and citing cases). Further, "[w]here there
has been a 'pattern' of falsity, or a 'cumulative effect' of falsehoods, a court
may find that [fraudulent] intent has been established." Monety Corp. v. Maletta
(In re Maletta), 159 B.R. 108, 112 (Bankr. D. Conn. 1993) (citation omitted).
With respect to reckless indifference to the truth, the Second Circuit has
recognized that fraudulent intent may be inferred from a series of incorrect
statements and decisions contained in the schedules. See Dubrowsky v. Estate of
Perlbinder (In re Dubrowsky), 244 B.R. 560, 571-72 (E.D.N.Y. 2000) ("[I]t is
important to note that under section 727(a)(4)(A), a reckless indifference to
the truth is sufficient to sustain an action for fraud." (citations omitted));
Castillo v. Casado (In re Casado), 187 B.R. 446, 450 (Bankr. E.D.N.Y. 1995)
(citing, inter alia, Diorio v. Kreister--Borg Constr. Co., 407 F.2d 1330, 1331
(2d Cir. 1969); Kaiser, 722 F.2d at 1583 n.4)); see also Smorto, 2008 WL 699502,
at *6 (citing cases).

   Once the moving party meets its initial burden to produce evidence of a false
statement, "the burden of production then shifts to the debtor[] to produce a
'credible explanation' for making the 'false and fraudulent representations,'"
Cadles of Grassy Meadows II, L.L.C. v . St. Clair (In re St. Clair), No.
13-mc-1057(SJF), 2014 WL 279850, at *7 (E.D.N.Y. Jan. 21, 2014) (quoting Moreo,
437 B.R. at 59), or to "prove that it was not an intentional misrepresentation,"
Gardner, 384 B.R. at 668 (citations omitted). "Courts may consider the debtor's
education, business experience, and reliance on counsel when evaluating the
debtor's knowledge of a false statement, but the debtor is not exonerated by
pleading that he or she relied on patently improper advice of counsel." Maletta,
159 B.R. at 112 (quoting Zitwer v. Kelly (In re Kelly), 135 B.R. 459, 462
(Bankr. S.D.N.Y. 1992)).

B. Application

   Bub contends that the Bankruptcy Court's findings of falsity and fraudulent
intent were clearly erroneous. For the following reasons, the Court affirms the
Bankruptcy Court's November 13 Order.

1. Falsity of Statements

   Based on the record developed before and during the trial, the Bankruptcy
Court correctly determined that the following statements by debtor were material
falsehoods: (1) the claim that he paid $550 in mortgage expenses; (2) the claim
that he had a monthly income from The Storage Guys of $3,837.24; and (3) the
claim that The Storage Guys had no assets and only $19,000 in liabilities.

   First, debtor contends that, although the mortgage payments were not actually
his living expenses, they were the result of a prior divorce support obligation
to his ex-wife. Debtor argues that the Bankruptcy Court should have requested
evidence to corroborate the child support arrears justification. (Debtor's
Brief, at 5-6.) The Court disagrees. Even crediting debtor's explanation, it is
evident that the statements were false in three material respects: (1) Schedule
J provides that debtor made payments of $550 on the home mortgage, not the
$1,093.97 that he actually transferred from his bank account to Wells Fargo each
month (see Bankr. Ct. Op., at 20); (2) based on debtor's testimony, the nature
of the $550 expense was not to cover debtor's mortgage obligation, but to cure a
child support arrears, and debtor never disclosed in Schedules E or J that he
had any domestic support obligations (see Schedules E, J; T-113-14 (testimony
that debtor made payments in lieu of repaying arrears owed to ex-wife)); and (3)
debtor never amended his statements to state that he stopped making the payments
around the time of the petition (see T-120)). Therefore, the Bankruptcy Court's
conclusion that debtor made a false statement about his mortgage expenses was
not clearly erroneous.

   Second, debtor argues that the Bankruptcy Court erred in its analysis of his
monthly income because (1) unlike debtor's accountant, the court improperly
amortized the "one-time expenses" of his legal bill to his bankruptcy lawyer and
his gift for his son's wedding ($14,340); and (2) if the court added the
amortized monthly sum of $1,195 to the extra $685 paid for the mortgage and
condominium maintenance fee, the total--$1880--would amount approximately to the
$1800 the Bankruptcy Court found was missing from the monthly expense and income
schedules. (Debtor's Brief, at 6.) Debtor, however, misreads the Bankruptcy
Court's opinion, and his argument does not address the discrepancies identified
in the November 13 Order.

   Specifically, the Bankruptcy Court focused on debtor's claim that the Chase
Southwest Card was used solely for The Storage Guys' business expenses. The
Bankruptcy Court found, however, that for the three months prior to the petition
date, Bub used the Chase Southwest Card for personal expenses in the amount of
at least $2,594 per month. (Bankr. Ct. Op., at 21-22.) This Court has reviewed
the Chase Southwest Card statements for the months in question and finds that
the Bankruptcy Court's calculation was not clearly erroneous; arguably, it was
generous to debtor. (See generally Chase Southwest Card Statements.) On appeal,
debtor proffers no explanation for his failure to report as income the expenses
he charged on the Chase Southwest Card or for his false representation in the
Statement of Financial Affairs that the card was used solely for business
purposes. In addition, debtor's income calculation ignores the fact that the
Bankruptcy Court included the additional mortgage payments in its calculation. (
See Bankr. Ct. Op., at 12, 22 (adding $1,100 in mortgage payments).) Further,
even if one subtracts the attorney fee and gift payments from the monthly income
calculation, there is no logical way to reach debtor's claimed $3,837.24 monthly
income. For instance, absent the Chase Southwest Card expenses, the monthly
income would be markedly below the claimed amount. On the other hand, including
the Chase Southwest Card expenses of approximately $2,594, the mortgage payments
of $,1100, and the maintenance fee of $135, the total is $3,829. That amount,
however, does not include other personal expenses paid by The Storage Guys (that
Bub concedes were part of his income), and which would bring the total monthly
income amount well above the claimed amount. (See T-190 (testifying that monthly
income listed in Schedule I included expenses for home electricity and health
insurance).) Therefore, the Bankruptcy Court's conclusion that debtor made a
false statement by underrepresenting his monthly income from The Storage Guys
was not clearly erroneous.

   Third, the Bankruptcy Court concluded that debtor made a false statement with
respect to The Storage Guys' assets and liabilities when he stated that the
business had no "net assets," and did not list his own assets and liabilities as
the company's assets and liabilities despite testifying "at trial that he and
The Storage Guys were one and the same." (Bankr. Ct. Op., at 23.) Debtor argues
that the Bankruptcy Court erred because (1) The Storage Guys is a separate legal
entity, and just because he was paid on the basis of distributions did not mean
his assets and liabilities were the company's; and (2) both he and The Storage
Guys "had no assets . . . having rightfully given all of [the] assets to the
Bankruptcy Trustee." (Debtor's Brief, at 7.) Debtor's second argument is
frivolous. His first argument is unpersuasive.

   As Rockstone notes, debtor testified that there was no difference between
himself and The Storage Guys--at least when it came to his income and expenses.
(See T-116 ("Well, since I'm the one hundred percent shareholder in my company,
it is my company. And when I need money to pay bills that's what I use. Because
I don't take a salary."); id. at 119 ("Q. Okay. So when the company pays the
electric bill, you sort of think that's yourself paying it because you're the
company? A. Correct."); id. at 141 ("But I am the Storage Guys . . . .").)
Debtor, however, never attributed any of The Storage Guys' liabilities to his
own, and vice versa. Given this testimony, the Bankruptcy Court did not err in
concluding that debtor ignored corporate formalities and consequently should
have attributed his own assets and liabilities to The Storage Guys, and vice
versa. See Pisculli v. T.S. Haulers, Inc. (In re Pisculli), 426 B.R. 52, 60-61
(E.D.N.Y. 2010) [hereinafter In re Pisculli II] (explaining that "the corporate
veil will be pierced to achieve equity, even absent fraud, [w]hen a corporation
has been so dominated by an individual . . . and its separate entity so ignored
that it primarily transacts the dominator's business instead of its own and can
be called the other's alter ego" (quoting Williams v. Lovell Safety Mgmt. Co.,
LLC, 896 N.Y.S.2d 150, 151 (N.Y. App. Div. 2010)) (alteration in original));
T.S. Haulers, Inc. v. Pisculli (In re Pisculli), Nos. 805-89678-reg,
806-8335-reg, 806-8337-reg, 2009 WL 700059, at *3 (Bankr. E.D.N.Y. Mar. 4, 2009)
[hereinafter In re Pisculli I] ("Ordinarily, the stock of a debtor's closely
owned corporation, and consequently the value of its assets, after payment of
the corporation's debts, is property of a debtor's bankruptcy estate.")).
Therefore, the Bankruptcy Court's conclusion that debtor made a false statement
about The Storage Guys' assets and liabilities was not clearly erroneous.

2. Intent to Defraud

   On appeal, debtor argues that the Bankruptcy Court erred in finding that
debtor had intent to defraud because (1) the Bankruptcy Court did not credit the
veracity of debtor's claim that he was paying the mortgage expenses to cure
child support arrears; (2) debtor properly relied on his accountant's analysis,
and any discrepancy in his monthly income calculation was not intentional; and
(3) the Bankruptcy Court recognized that debtor's statement regarding The
Storage Guys' assets and liabilities, standing alone, would not suffice to deny
the discharge. As discussed below, viewing the misstatements and omissions
individually and collectively, there was ample evidence in the record to support
the reasoned conclusion by the Bankruptcy Court.

   With respect to the mortgage expenses, the Bankruptcy Court found it
unnecessary to determine why debtor "deceived the Court and the creditors, only
to determine whether he has done so. . . . The only conclusion the Court can
draw from [debtor's failure to correctly list the monthly expense] is that the
Debtor intentionally failed to disclose that he was paying the note . . . in
full." (Bankr. Ct. Op., at 21.) In Dubrowsky, the court held that the "gross
discrepancy . . . coupled with the omission of the jointly owned property
evidences, at the minimum, a reckless disregard for the truth which has
consistently been treated as the functional equivalent of fraud for purposes of
§ 727(a)(4)(A)." 244 B.R. at 575-76 (citation omitted); see also MacLeod v.
Arcuri (In re Arcuri), 116 B.R. 873, 881 (Bankr. S.D.N.Y. 1990) ("[D]e minimis
value . . . may tend to vitiate the debtor's fraudulent intent"). Here, debtor
has presented no evidence in the record suggesting that his failure to disclose
the $1,100 in mortgage payments ($550 of it, at least, to address an undisclosed
child support obligation) was an innocent oversight. These were not
insignificant omissions in the disclosures, debtor benefited from the additional
income he drew from his business, and it is irrelevant that debtor believes he
legally was obligated to make those payments. See Sanderson v. Ptasinski (In re
Ptasinski), 290 B.R. 16, 23 (Bankr. W.D.N.Y. 2003) ("[I]f items were omitted
from the debtor's schedules because of an honest mistake . . . such a false
declaration may not be sufficiently knowingly and fraudulently made so as to
result in a denial of discharge."). Therefore, the Court finds that the
Bankruptcy Court had ample basis to conclude that debtor intentionally
misrepresented his expenses to create a false picture of his financial
circumstances to the creditors and the Court.

   With respect to the monthly income, the Bankruptcy Court concluded that
debtor knew that the income listed in Schedule I was false and covered it up by
making a false representation about the use of the Chase Southwest Card. (Bankr.
Ct. Op., at 22.) The court reasoned that debtor's scheme was to use The Storage
Guys "to hide his true income and expenses to deceive the creditors and the
Court," and that there was no justifiable purpose for his failure to disclose
all his income. (Id. at 23.) As noted supra, on appeal, debtor does not discuss
the Chase Southwest Card charges at all, and he misunderstands the Bankruptcy
Court's analysis. He also proffers no evidence demonstrating that his omissions
were innocent or otherwise excusable. Debtor's reliance on his accountant's
evaluation is unavailing, because "it is transparently plain" that the actual
use of the Chase Southwest Card should have been disclosed. Dubrowksy, 244 B.R.
at 573 ("[E]ven the advice of counsel is not a defense to a charge of making a
false oath or account when it is transparently plain that the property should be
scheduled. (citations omitted)). Therefore, there is no basis to disturb the
Bankruptcy Court's determination that debtor acted with fraudulent intent as to
those statements.

   Finally, with respect to The Storage Guys' assets and liabilities, the
Bankruptcy Court found fraudulent intent based on debtor's pattern of wrongful
behavior. (Bankr. Ct. Op., at 23-24.) In particular, the court explained:

        According to the Plaintiff, the Debtor's listing of the liabilities
     of The Storage Guys in his petition, and not the $19,000 in the bank
     account for The Storage Guys, constitutes grounds to deny the Debtor's
     discharge as well. The Debtor admits to stating in Schedule B that The
     Storage Guys had no assets. His explanation for this representation is
     that because The Storage Guys owed a debt to Chase bank in the
     approximate amount of $19,000.00, The Storage Guys had no "net
     assets." However, this excuse does not ring true. The Debtor testified
     at trial that he and The Storage Guys were one and the same.
     Therefore, the assets and liabilities of The Storage Guys were his own
     assets and liabilities. In order to be consistent, the Debtor had to
     list both, and he did not. If this were his only questionable
     statement in the petition, perhaps the Debtor's explanation would
     persuade the Court to find that the Debtor did not have the requisite
     intent to deceive the Court. However, this is one in a series of false
     statements which, standing together, show a pattern of deceptive
     behavior on the part of the Debtor. As courts have recognized,
     evidence of a "pattern of wrongful behavior" presents a more
     compelling case of intent to defraud than does an isolated instance of
     an omission by a debtor. Such is the case with this Debtor. In
     addition, the Debtor's testimony was evasive and lacked credibility,
     as it was contradicted by his own exhibits. This is not the honest
     debtor who deserves a fresh start.

(Id. (citations omitted).) Although Bub objects to this finding, this Court
finds his objection to be without merit. The alleged misrepresentation, along
with the other statements at issue, should not simply be examined in isolation
when determining whether debtor acted with fraudulent intent or with reckless
indifference to the truth, but rather should also be examined collectively in
conjunction with the other evidence before the Bankruptcy Court. Here, when each
of the statements is considered as whole in the context of the entire record,
there is no basis to conclude that the Bankruptcy Court erred in its
characterization of debtor's scheme and in its finding of fraudulent intent.

   It is evident that debtor, who had business experience and at least some
financial sophistication, repeatedly made material omissions and
misrepresentations in his bankruptcy petition, schedules, and other submissions
to the Bankruptcy Court. Such a pattern of behavior, as the Bankruptcy Court
noted, supports a finding of fraudulent intent based, at least, on reckless
indifference to the truth. See, e.g., IBA, Inc. v. Hoyt (In re Hoyt), 337 B.R.
463, 468 (W.D.N.Y. 2006) (referencing that debtor was a "sophisticated
businessman" in finding fraudulent intent and denying debtor's discharge);
Dubrowksy, 244 B.R. at 571-72. Further, a bankruptcy judge's "intent"
determination often relies heavily upon the judge's evaluation of the
credibility and demeanor of the debtor. See, e.g., Essenfeld v. Schultz (In re
Schultz), 239 B.R. 664, 668 (E.D.N.Y. 1999) ("As the judge hearing the testimony
and viewing the witness, Judge Conrad was clearly in the best position to make
this type of decision and this Court will not interfere with Judge Conrad's
factual conclusions."). Thus, deference is given to the original factfinder
because of that court's superior position to make determinations of credibility.
See, e.g., Tully, 818 F.2d at 109 (citing Anderson v. Bessemer City, 470 U.S.
564, 575 (1985)). In the instant case, the Bankruptcy Court considered the
credibility and demeanor of debtor and found him to be evasive and lacking
credibility. (Bankr. Ct. Opp., at 24.) Debtor has pointed to no evidence that
would support a finding that the Bankruptcy Court's determination on the issue
of his credibility and intent was erroneous.

   In sum, after careful review of the record and debtor's arguments, the Court
concludes that the Bankruptcy Court did not err in finding that debtor made the
false statements knowingly and with fraudulent intent, and did not err in
entering judgment for Rockstone on its third, fourth, and fifth causes of action
in the adversary proceeding.

IV. Conclusion

   For the foregoing reasons, the Court affirms the order and judgment of the
Bankruptcy Court in its entirety. The Clerk of the Court shall close the case.



   United States District Judge

   Dated: June 25, 2014

   Central Islip, New York