Dongjin Semichem Co., Ltd. v. Kim

OCR transcription for search; preserved printed pages are authoritative

UNITED STATES BANKRUPTCY COURT

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For The Northern District Of California

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Entered on Docket
December 22, 2008

GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA

Uny ane ON
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MY Banik

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UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

In re ] Case No. 07-53166 ASW
]
SANGMUN KIM, ]) Chapter 7
]
Debtor. ]
]
]
DONGJIN SEMICHEM CO., LTD., ] Adv. Proc. No. 08-5023
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Plaintiff, ]
Vv. ]
]
SANGMUN KIM, ]
]
Defendant. ]
]

MEMORANDUM DECISION
Before the Court is the Application for Entry of Default
Judgment Against Defendant Sangmun Kim (the “Application”) filed by
Plaintiff Dongjin Semichem Co., Ltd. (“Dongjin”). Dongjin is
represented by Attorney Craig C. Chiang of the law firm Buchalter

Nemer. Defendant Sangmun Kim (“Debtor”) is representing himself in

propria persona. Having considered the Application, the supporting
declarations and the further pleadings in this and the underlying

Chapter 7 bankruptcy case, the Court finds that judgment should be

MEMORANDUM DECISION

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entered against Debtor under Bankruptcy Code §§ 523(a)(2) and
727(a) (3).+

This Memorandum Decision constitutes the Court’s findings of
fact and conclusions of law, pursuant to Rule 7052 of the Federal

Rules of Bankruptcy Procedure.

I.

FACTS AND PROCEDURAL BACKGROUND

On January 31, 2008, Dongjin filed a Complaint to Determine
Nondischargeability of Debt Pursuant to 11 U.S.C. Section
523(a) (2), and (a) (6) and to Object to Discharge Pursuant to
Section 11 U.S.C. Section 727(a) (2), (a)(3), (a) (4) and (a) (5) (the
‘“Complaint”). The Complaint relates to an arbitration award in the
amount of $944,696.46 issued in Dongjin’s favor against Debtor on

July 9, 2007 (the “Arbitration Award”) .?

A. Dongjin’s Investment in Emailfund

The underlying arbitration between the parties relates to
Dongjin’s investment in a California corporation named Emailfund,
Inc. (“Emailfund”). Declaration of G. Forsythe Bogeaus in Support
of Application for Entry of Default Judgment Against Defendant

Sangmum Kim (the “Bogeaus Declaration”) at 44. Dongjin is a large

' Unless otherwise provided, all references to code sections

shall mean the Bankruptcy Code, codified in Title 11 of the United
States Code, 11 U.S.C. § 101, et seq., including all amendments
thereto.

° A copy of the Arbitration Award is attached as Exhibit A to

each of the three declarations filed in support of the Application.

MEMORANDUM DECISION

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1} Korean corporate manufacturer of chemicals for the semiconductor
2|)industry. Declaration of Chun Hyuk Lee in Support of Application
3 || for Entry of Default Judgment Against Defendant Sangmun Kim (“Lee
Declaration”), @ 5. Emailfund “‘engaged in research and
development of PDA security software technology’.” Bogeaus
Declaration at @ 4 quoting October 10, 2005 deposition of Debtor.

By a stock purchase agreement dated June 24, 2000, Dongjin agreed

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software to be installed into a chip. Lee Declaration at @ 5.
10 Debtor “was the Chief Executive Officer of, and the President
11 } and a Director of, Emailfund from its inception until at least
12} July, 2001.” Arbitration Award at 1, Exhibit A to Lee and Bogeaus
13 |} Declarations. Debtor and Emailfund were determined to be alter
14 |} egos in the findings of the Arbitration Award. Id. at 5-6.

15 Under the Agreement, upon performance by Emailfund of certain
16 || conditions, Dongjin was to make staged investments up to the total
17 |} sum of $2 million in exchange for staged delivery of Emailfund

18 |} shares. Lee Declaration at 9 5. An initial $200,000 was due and

19 | paid by Dongjin upon the signing of the Agreement. Lee Declaration

20 |} at @ 18. An additional $600,000 was due upon Debtor’s assembly of

21 || the team to bring the product into its beta phase. Id. Debtor did

22 }not get the esteemed scientists he had represented would be on the
23 |} team, but assured Dongjin that the persons hired would be fine.
24 | Based on this representation, Dongjin authorized the additional
25 |} $600,000 transfer. Id. To obtain the next big chunk of the

26 || investment funds, Emailfund had to provide a successful

27 || demonstration of the beta phase of the product. Lee Declaration at

28

MEMORANDUM DECISION

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to invest in Emailfund (the “Agreement”) to develop secure internet

UNITED STATES BANKRUPTCY COURT

For The Northern District Of California

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q 20. Such a demonstration was scheduled, but not successfully
completed in Dongjin’s opinion. Lee Declaration at qT 20-23.
Dongjin asked for Emailfund’s financial information from Debtor and
was rebuffed repeatedly. Lee Declaration at FG 24-27.

After Dongjin made an initial $800,000 investment, Dongjin
asserts it then discovered that material representations made by
Debtor and Emailfund to induce Dongjin to enter into the Agreement
were false. Specifically, Dongjin alleges in the Complaint at { 7
that Debtor made the following misrepresentations:

(1) Debtor and Emailfund developed an encryption technology
based on wireless technology as the first developer of
such technology in the world (see also Lee Declaration at
qi] 6, 7 and 10; Bogeaus Declaration at q 47);

(2) Emailfund owned numerous technology patents related to
encryption technology (see also Lee Declaration at q 15;
Bogeaus Declaration at q 47 citing Arbitration Trial
Transcript 3/26; 289:20-290-12);

(3) Debtor and Emailfund had a research center at Stanford
University in Palo Alto, California (see also Lee
Declaration at { 9);

(4) Debtor and Emailfund had obtained the highest level of
wireless encryption technology in the world (see also Lee
Declaration at §{ 10);

(5) Debtor and Emailfund were recruiting investment of
$2 million for the further development of the “security
software” in return for 40% of the outstanding shares of

Emailfund (See also Bogeaus Declaration at @ 42,E); and

MEMORANDUM DECISION

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(6) Debtor and Emailfund had already received investment of
$150,000 from Cess Telecom, Ltd. (see also Lee
Declaration, § 12).

Dongjin alleges, at paragraph 8 of the Complaint, that Debtor
and Emailfund made the following further misrepresentations to
Dongjin both in Emailfund’s due diligence report provided to
Dongjin, and orally:

(1) Emailfund’s researchers included Professor Phillip
Rogaway, and Dr. Peter Landrock, well-known, prominent
engineers in the field of encryption technology (see also
Lee Declaration at § 13; Bogeaus Declaration at {J 47
citing Arbitration Trial Transcript 3/28; 928:9-19);

(2) Both Professor Rogaway and Dr. Landrock were and would be
the core of the technology development team of Emailfund
(see also Lee Declaration at § 13; Bogeaus Declaration at
gq 47 citing Arbitration Trial Transcript 3/28; 928:9-19);

(3) Emailfund owed a number of technology patents including
four specific patents related to wireless encryption
technology (see also Lee Declaration, q 15, Bogeaus
Declaration at § 47 citing Arbitration Trial Transcript
3/26; 289:20-290-12); and

(4) Debtor stated that the investment in Emailfund would be
very profitable investment in light of Professor Rogaway
and Dr. Landrock being members of Emailfund’s technology
development team and Emailfund’s key patents (Lee
Declaration at @ 14).

Complaint at q 8.

MEMORANDUM DECISION

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B. The Arbitration and Bankruptcy Filings

On March 1, 2002, Dongjin initiated an action against
Emailfund in the Orange County Superior Court seeking rescission of
the Agreement and damages for breach of fiduciary duty by Debtor.
Declaration of Paul Arrow in Support of Application for Entry of
Default Judgment Against Defendant Sangmun Kim (the “Arrow
Declaration”) at 4 3; Lee Declaration at 28. This case went to AAA
international arbitration, in light of the binding arbitration
provision in the investment agreement (the “Arbitration”). Arrow
Declaration at 43, Bogeaus Declaration at ¢ 14. By order dated
December 6, 2004, Debtor became a party defendant to the
Arbitration. Bogeaus Declaration at ¢ 16. Trial in the
Arbitration was scheduled to commence on April 17, 2006. Arrow
Declaration at 97 5.

On April 14, 2006, both Debtor and Emailfund filed bankruptcy
petitions in the Central District of California. Id. “Venue was
alleged to exist there based on the location of a manuscript
allegedly written by the debtor in a bikini shop [owned by Debtor’s
acquaintance] in Malibu, California.” Complaint at 2:28-3:2; see
also Arrow Declaration at 9 7.

In his bankruptcy petition, Debtor’s residence was listed as
being in Seoul, South Korea. Arrow Declaration at 4" 5. His
occupation was listed as a mathematics professor at Yonsei
University in Seoul, South Korea. Id. Debtor’s Schedules showed
he had real property valued at $400,000, secured claims of

$400,000, personal property of $1,840,595 and general unsecured

MEMORANDUM DECISION

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debts of $1,313,549.18. Arrow Declaration at 9 6. On

June 12, 2006, Debtor’s bankruptcy case was dismissed as a bad
faith filing and the court imposed a 180 day bar to refiling.
Arrow Declaration at 9 7.

On August 17, 2006, relief from stay was granted in the
Emailfund case to allow Dongjin to proceed with the Arbitration.
Arrow Declaration at gq 8.

Just a few days after the expiration of the 180-day bar, on
March 10, 2007, Debtor filed another bankruptcy case, this time in
the District of Massachusetts. Arrow Declaration at — 10. Debtor
alleged venue in that district based on residence, domicile, place
of business or principal assets. Id. Dongjin determined on its
own that an individual named “Soon B. Kim” allegedly lived at the
Belmont, Massachusetts address given by Debtor in his petition.

Id. Debtor admitted in a declaration submitted in the Arbitration,
that he was working as a professor in South Korea at the time this
second bankruptcy petition was filed. Id. In this second
bankruptcy filing, Debtor’s Schedules showed he had no real
property assets, personal property valued at $207,050 and unsecured
priority debts of $3,500 (plus a $800,000 debt to Dongjin owed
jointly by Debtor and Emailfund). Id. at q 11.

Dongjin obtained relief from stay in this second bankruptcy
and was allowed to proceed with the Arbitration. Arrow Declaration
at @ 12. The Arbitration was completed between March 26 and March
29, 2007. Id. at 13. On July 9, 2007, the arbitrator issued the
Arbitration Award in Dongjin’s favor in the total amount of

$944,696.46. Id. The basis for the Arbitration Award was

MEMORANDUM DECISION

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1} Dongjin’s claim for rescission of the contract due to failure of
2|)consideration. Id. Specifically, the Arbitration Award found:

3 Emailfund is at fault for failing to make a good faith
effort to develop the product, and that this
nonperformance is sufficiently material to go to the
essence of the agreement such that there was a failure of
consideration that entitles Dongjin to rescission.

and

[T]he alter ego doctrine is to be applied such that Kim
shall be jointly and severally liable with Emailfund to
Dongjin for the $800,000 compensatory damages awarded
against Emailfund on Dongjin’s cause of action for
rescission based on failure of consideration.

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10 |] Arbitration Award at 4-5. The Arbitration Award did not reach

11 |] Dongjin’s allegations of fraud against Debtor and Emailfund,

12 || finding:

13 Because the arbitrator has awarded Dongjin $800,000 in
rescission damages based on failure of consideration, the

14 arbitrator need not, and does not decide whether Dongjin
is entitled to rescission damages based on fraud, or to

15 any other damages based on fraud. This is because even
were the arbitrator to determine that there was fraud,

16 Dongjin could not, pursuant to any of its fraud claims,
recover damages greater than the $800,000 the arbitrator

17 has awarded Dongjin. (Dongjin does not assert that it is
entitled to greater than $800,000 in compensatory damages

18 on either of its fraud claims.) Further, any award to
Dongjin on either claim for fraud would be duplicative

19 of, and overlap, the $800,000 awarded.

20 | Arbitration Award at 4. Although Dongjin had sought punitive

21 || damages, the Arbitration Award indicates that such damages were not

22 || available under AAA Rules. Id.

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24 Cc. Proceedings before this Court
25 Shortly after the Arbitration Award was rendered, on

26 || August 22, 2007, Debtor filed a motion to transfer his bankruptcy
27 | case to the Northern District of California, on the basis that he

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MEMORANDUM DECISION

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now resided there. Arrow Declaration at 4 17. The order granting
this motion was entered on September 14, 2007. Id.

On October 22, 2007, Debtor filed a notice of voluntary
conversion to Chapter 7. Id. The Chapter 7 Trustee was appointed
on October 24, 2007.

On October 29, 2007, Debtor filed a notice of change of
address. Arrow Declaration at ¥ 18. According to the notice,
Signed by debtor, his address was “Building 90, MC: 2155, Stanford
Quad, Stanford, CA 94305-2155." Id. Dongjin is informed and
believes this is actually a building housing the Philosophy
Department of Stanford University. Id.

This Adversary Proceeding was filed on January 31, 2008. On
February 7, 2008, one day after the service of the summons in this
Adversary Proceeding, Debtor filed a second notice of change of
address with the Court, which simply states as follows:

I hereby file a notice that as of this twenty-sixth day

of January 2008 I will not be any longer at the former

address Building 90, Stanford Quad, Stanford, CA 94305-

2155. As soon as I have a new address, I will notify you

of it.

On February 29, 2008, Debtor filed a motion to dismiss his
Chapter 7 case (the “Motion to Dismiss”). In the Motion to
Dismiss, Debtor disputed the arbitrator’s authority and
jurisdiction over him personally in the underlying Arbitration with
Dongjin. Debtor argued that the parties never agreed to allow the
arbitrator to determine arbitrability. Debtor argued the
arbitrator exceeded his authority and, therefore, the Court should

refuse to enforce the Arbitration Award against him. The Motion to

Dismiss further states:

MEMORANDUM DECISION

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Debtor will seek a judicial declaration from the

California State Court that Debtor is not validly a party

to the Arbitration and rulings of the arbitrator to the

contrary and any proceedings taken against Debtor are

void and of no force or effect, if Creditor seeks to

confirm the arbitral award against Debtor in the

California state court.

Motion to Dismiss at G 8. Debtor argued that his bankruptcy case
is primarily a two-party dispute between himself and Dongjin. Id.
at @ 11. As such, per Debtor, no parties would be harmed by
dismissing this bankruptcy case.

To this Motion to Dismiss, Debtor attached (1) various letters
he sent to the arbitrator objecting to jurisdiction over him
personally*® and (2) a copy of a California identification card
issued on October 3, 2007, which includes the same address at
Stanford University. Debtor said in his Motion to Dismiss that he
was conducting research at Stanford, but no longer works there.
Motion to Dismiss at @ 16.

On March 7, 2008, the Court indicated it would not sign the
proposed order on the basis that the Court cannot grant the Motion
to Dismiss without a noticed hearing as required by Federal Rule of
Bankruptcy Procedure 1017.* Despite instructions from the Court to
set this matter for hearing, Debtor has never done so.

Debtor has not filed a response in this Adversary Proceeding.

On April 11, 2008, the Clerk of the Bankruptcy Court entered a

> The Arbitration Award notes that “by Order dated December 6,
2004, the Arbitrator determined that Dr. Sangmun Kim, as an
individual, is a party to this arbitration as a respondent. As set
forth in that Order, Kim contended at that time that he had entered
into a written agreement to arbitrate, and that he was a party to
this arbitration.” Arrow Declaration, Exhibit A at 2-3.

* See docket entry 101 in Chapter 7 case.

MEMORANDUM DECISION

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default against Debtor.

On May 12, 2008, the Court held a case management conference
in this Adversary Proceeding. The docket entry for this hearing
indicates the Court instructed Dongjin as follows: “Plaintiff is
instructed not to request a Default Judgment for 30 days to see if
Defendant files a new address, if new address isn't filed then
Plaintiff should serve Defendant at old address.” On July 3, 2008,
Dongjin filed its Application for entry of default judgment against
Debtor. On July 29, 2008, Dongjin served the Application and its
supporting declarations on Debtor at the Stanford University
address. A review of the dockets for this Adversary Proceeding and
Debtor’s main Chapter 7 case confirms that no notice of a new

address has been filed by Debtor.

Il.
ANALYSIS
The proposed default judgment seeks relief under several
different code sections in an “and/or” alternative ruling.

Therefore, each code section cited must be considered separately.

A. 523 (a) (2)

Section 523(a)(2)provides, in pertinent part, as
follows:

(a) A discharge under section 727...of this

title does not discharge an individual debtor
from any debt--

(2) for money, property, services, or an
extension, renewal, or refinancing of credit,

MEMORANDUM DECISION

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to the extent obtained by--
(A) false pretenses, a false
representation, or actual fraud,
other than a statement
respecting the debtor’s or an
insider’s financial condition;
(B) use of a statement in writing--

(I) that is materially false;

(ii) respecting the debtor’s or an
insider’s financial condition;

(111) on which the creditor to whom
the debtor is liable for such money,
property, services, or credit
reasonably relied; and
(iv) that the debtor caused to
be made or published with intent
to deceive
A creditor must prove the elements of nondischargeabilty under
§ 523(a) by a preponderance-of~-the-evidence standard. Grogan v.

Garner, 498 U.S. 279, 286 (1991).

1. 523 (a) (2) (A)

To except a debt from discharge under Bankruptcy Code
§ 523(a) (2) (A), the creditor must show: (1) the debtor made
representations to the creditor; (2) the debtor knew the
representations were false at the time they were made; (3) the
debtor made the representations with the intention and purpose of
deceiving the creditor (aka scienter); (4) the creditor justifiably
relied on the representations; and (5) the creditor sustained the
alleged loss and damage as the proximate result of the

representations having been made. In re Eashai, 87 F.3d 1082, 1086

(9th Cir. 1996).

MEMORANDUM DECISION

—Q)..

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As noted above, the Arbitration Award expressly declined to
address Dongjin’s allegations of fraud by Debtor.® However, the
evidence provided in the Lee and Bogeaus Declarations, as described
above, do tend to support each of these elements. Therefore,
default judgment can be entered against the debtor under

523 (a) (2) (a).

2. 523 (a) (2) (B)
To except a debt from discharge under 523(a)(2)(B), the

creditor must show: (1) it provided the debtor with money,

> To the extent that the Arbitration Award does address a

particular issue, it is entitled to res judicata and collateral
estoppel effect as to the parties to the arbitration. 6 Witkin,
California Procedure (5 ed. 2008) Proceedings Without Trial § 562,
Citing State Farm Mut. Auto Ins. Co. V. Superior Court, 211 C.A.3d
5, 14, 259 C.R. 50 (1989) (collateral estoppel effect as to issues
“actually, necessarily, and finally” resolved in arbitration);
Thibedeau_v. Crum,4 C.A.4th 749, 755, 6 C.R.2d 27, 7 Cal. Proc.
(5%), Judgment, §362 (1992) (res judicata doctrine applies to
arbitration award, even though unconfirmed, barring subsequent
assertion of claims within scope of arbitration); Shell, Richard,
Res Judicata and Collateral Estoppel Effects of Commercial
Arbitration, 35 U.C.L.A. L. Rev. 623 (res judicata and collateral
estoppel effect).

As discussed at pages 9-10 infra, Debtor has suggested in
other pleadings that he was not properly a party to the
Arbitration. Debtor even suggested he would seek relief from the
California State courts when and if Dongjin seeks to confirm the
Arbitration Award and enforce it against Debtor. Motion to Dismiss
at GF 8. However, the time period within which Debtor may have
moved to vacate the Arbitration Award against him has long since
passed. California Code of Civil Procedure § 1288 provides that “a
petition to vacate an award or to correct an award shall be served
and filed not later than 100 days after the date of the service of
a signed copy of the award on the petitioner.” The Arbitration
Award is dated July 9, 2007. If the party who lost in the
arbitration does not serve and file a petition to vacate within the
100-day period from the date of service of the award, the award
must be treated as final. Eternity Investments, Inc. v. Brown, 60
Cal.Rptr.3d 134, 151 Cal.App.4th 739 (Cal.App. 2 Dist. 2007).

MEMORANDUM DECISION

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feb}

property, services or credit based on a written representation of
fact by the debtor as to debtor’s financial condition; (2) the
representation was materially false; (3) the debtor made the
representation with the intention of deceiving the creditor; (4)
the creditor relied on the representation; (5) the creditor’s
reliance was reasonable; and (6) damage proximately resulted from

the representation. In re Siriani, 967 F.2d 302, 304 (9 Cir.

1992); In re Candyland, 90 F.3d 1466, 1469 (9™ Cir. 1996).

Again, although not addressed by the Arbitration Award, the
Lee and Bogeaus Declarations do tend to support each of these
elements. Therefore, a default judgment can be entered against

Debtor under 523(a)(2)(B).

B. 523 (a) (6)

Section 523(a) (6) provides:
(a) A discharge under section 727...of this

title does not discharge an individual debtor
from any debt--

(6) for willful and malicious injury by the
debtor to another entity or to the property of
another entity.

A simple breach of contract is not the type of injury intended

to by covered by § 523(a) (6). In re Jercich, 238 F.3d 1202, 1205

(9 Cir. 2001); In re Riso, 978 F.2d 1151, 1154 (9% Cir. 1992).

Even an intentional breach of contract generally will not lead to
nondischargeability under § 523(a)(6) unless accompanied by
malicious and willful tortious conduct. Jercich, 238 F.3d at 1205;

Riso, 978 F.2d at 1154. The Arbitration Award obtained by Dongjin

MEMORANDUM DECISION

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was on the basis of rescission of the contract for failure of
consideration. This does not appear to be the type of “willful and
malicious” conduct contemplated by 523(a)(6), and Dongjin has not
presented sufficient evidence to support such a finding.

Therefore, a default judgment should not be entered against the

debtor under 523(a)(6).

Cc. 727 (a) (2)
Section 727(a) (2) provides:

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

(2) the debtor, with intent to hinder,
delay, or defraud a creditor or an officer
of the estate charged with custody of
property under this title, has
transferred, removed, destroyed,
mutilated, or concealed--
(A) property of the debtor, within
one year before the date of the
filing of the petition; or
(B) property of the estate, after the
date of the filing of the petition
In this case, evidence has been submitted that Debtor diverted
$742,000 belonging to EmailFund to BZ21, another corporation wholly
owned and controlled by Debtor, to himself and to an unknown
entity. Arbitration Award at 5. These transfers appear to have
occurred in 2001. Bogeaus Declaration at @ 34. To the extent that
the corporate veil has been pierced by the Arbitration Award, then
this would be a diversion of Debtor’s property. However, these

transfers appear to have occurred roughly 6 years prior to the

filing of Debtor’s current bankruptcy case. Since these transfers

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were not made within one year of the bankruptcy filing, Bankruptcy
Code § 727(a)(2) is not applicable. There is no other evidence
currently before the Court regarding transfers by Debtor just prior
to his bankruptcy filing. Therefore, default judgment cannot be

rendered in Dongjin’s favor under 727(a) (2).

D. 727 (a) (3)

Section 727(a) (3) provides:

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

(3) the debtor concealed, destroyed,
mutilated, falsified, or failed to keep or
preserve any recorded information,
including books, documents, records, and
papers, from which the debtor’s financial
condition or business transactions might
be ascertained, unless such act or failure
to act was justified under all of the
circumstances of the case

Under 727(a) (3), the debtor’s actions are analyzed under an
objective standard. “[{I]f the extent and nature of the debtor's
transactions were such that others in like circumstances would
ordinarily keep financial records, she must show more than that she
did not comprehend the need for them.” In re Cox, 41 F.3d 1294,
1297 (9th Cir 1994). The mere failure to keep whatever books and
records are objectively typical under the circumstances is enough
to trigger the statute. It is not necessary that the failure have
been based on a wrongful desire to conceal information or harm

creditors. Id.

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Evidence has been submitted by Dongjin that Debtor failed to
maintain the business records of Emailfund. The arbitrator
specifically noted:

Emailfund’s failure to observe corporate formalities and
maintain proper books and records. This includes
incomplete, inadequate ledgers, journals and other
accounting records, and falsified signatures on minutes
of what were claimed to be meetings of Emailfund’s board
of directors.

Arbitration Award at 5. Per the Arbitration Award, there were no
payroll records and no employment contracts for Debtor or any other
officer of Emailfund. This evidence does support a denial of

discharge under 727 (a) (3).

E. 727 (a) (4)
Section 727{(a) (4) provides:

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

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

(A) made a false oath or account;
(B) presented or used a false claim;

(C) gave, effected, received, or
attempted to obtain money, property, or
advantage, or a promise of money,
property, or advantage, for acting or
forbearing to act; or

(D) withheld from an officer of the
estate entitled to possession under this
title, any recorded information, including
books, documents, records, and papers,
relating to the debtor’s property or
financial affairs

MEMORANDUM DECISION

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Per Bankruptcy Rule 4005, plaintiff bears the burden of
proving by a preponderance of the evidence that false oaths were
“knowingly and fraudulently” made, in or in connection with the
bankruptcy case. The mere making of a false oath in or in

connection with the bankruptcy case is not enough to deny discharge

under §727(a) (4). The false oath must have been made “knowingly
and fraudulently”. In re Adeeb, 787 F.2d 1339 (9th Cir. 1986); In
re Devers, 759 F.2d 751 (9th Cir. 1985). Actual, and not merely

constructive, intent to defraud must be shown. In re Woodfield,

978 F.2d 516 (9th Cir. 1992). Such actual intent may be inferred
from the surrounding circumstances. Id. Thus, the nature of each
false oath made in or in connection with the case must be examined
in the context of the bankruptcy case to determine whether it
supports an inference that it was made “knowingly and
fraudulently”, i.e., with the intent to defraud the court, the
trustee, or creditors.

The false statements that Dongjin has alleged Debtor has made
relating to this bankruptcy case are: (1) his address and (2) his
Schedules, which were vastly different from those filed in his
prior bankruptcy case roughly one year prior. With respect to the
issue of his address, Debtor has submitted a copy of a California
identification card with the same address as that used to establish
venue before this Court. With respect to the Schedules, a $400,000

real estate property in Korea was eliminated along with its

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corresponding $400,000 disputed secured debt owed to Dongjin. More
troubling, however, is the reduction of value of Debtor’s personal
property from $1,840,595 to $207,050.° Unsecured debts also shrank
from $1,313,549.18 to $803,500 (including the $800,000 award to
Dongjin which was valued at $800,000 in Debtor’s 2006 Schedules but
is listed as an “unknown” amount in Debtor’s 2007 Schedules) .’
However, there was a one-year gap between the filing of the two
sets of schedules. Many things could have happened. Therefore, on
the scant evidence currently before the Court, a default judgment

under 727(a)(4) is not supported.

F. 727(a) (5

Section 727(a) (5) provides:

(a) The court shall grant the debtor a
discharge unless-~~

6° The bulk of this change in value of Debtor’s personal

property is attributable to the devaluation by Debtor of stock
holdings in corporations formed by Debtor. In his 2006 Schedules,
Debtor valued his 2.9 million shares of Emailfund at $510,000. In
his 2007 Schedules, these same shares were valued at $0. In his
2006 Schedule B, Debtor also listed 8.2 million shares in MobileBZ
(82% ownership) valued at $700,000. The MobileBZ shares are not
listed in his 2007 Schedule B, which is dated 1 year and one day
after his 2006 Schedules. Likewise missing from his 2007 Schedule
B is a $50,000 pension from Yonsei University. Debtor lists the
intellectual property of a “mathematics manuscript” in both sets of
Schedules, but the value decreases from $574,000 in his 2006

Schedule B to $200,000 in his 2007 Schedule B.

7 The most significant change in Debtor’s unsecured claims

was the elimination of a $400,000 personal loan by Hwang Kyu of
Chunan, Korea was listed in Debtor’s 2006 Schedule F, but not
listed in Debtor’s 2007 Schedule F.

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Cap

(5) the debtor has failed to explain
satisfactorily, before determination of denial
of discharge under this paragraph, any loss of
assets or deficiency of assets to meet the
debtor’s liabilities
Section 727(a) (5) denies a discharge to a debtor who has
failed to explain satisfactorily any loss or deficiency of assets.

Whether an explanation is satisfactory must necessarily be

determined on a case by case basis. See In re Devers, 759 F.2d 751

(9th Cir 1985).

There has been no discussion of any kind about a loss of
assets by Debtor at this point. Dongjin has its suspicions, but
there is currently no evidence before the Court on this issue.
Therefore, on the evidence currently before the Court, default

judgment under 727(a)(5) is not appropriate.

Tit.

CONCLUSION

For the above stated reasons, the Application is granted. The
Court shall enter a Default Judgment against Debtor, but only under
the provisions of Bankruptcy Code §§ 523(a)(2) and 727(a) (3).

The evidence currently before the Court does not support the entry
of a default judgment under the remaining alternative bases
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MEMORANDUM DECISION

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asserted by Dongjin, namely Bankruptcy Code §§ 523(a) (3),

523 (a) (4), 523 (a) (5), 727 (a) (2), 727 (a) (4) and 727 (a) (5).

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ARTHUR S. WEISSBRODT

UNITED STATES BANKRUPTCY JUDGE

MEMORANDUM DECISION

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4

Court Service List

Craig C. Chiang, Esq.
Buchalter Nemer

333 Market St., 25% Floor
San Francisco, CA 94105-2126

Sangmun Kim

aka Suang Muon Kim
Building 90, MC 2155
Stanford Quad

Stanford, CA 94305-2155

Carol Wu

Chapter 7 Trustee

25A Crescent Dr. #412
Pleasant Hill, CA 94523

Office of the U.S. Trustee

280 S. 18* St #268
San Jose, CA 95113

MEMORANDUM DECISION

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