Lassman v. Hegarty et al

On October 18, 2007, the parties entered into a Stipulation of Settlement of Certain1
Claims in Related Adversary Proceedings whereby Counts I through IV of the Complaint were
dismissed with prejudice, leaving only Count V to be litigated. See Docket No. 52.
1
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
EASTERN DIVISION
_____________________________________
IN RE:
JAMES K. HEGARTY, 	Chapter 7
DEBTOR 	Case No. 05-30245-WCH
_____________________________________
DONALD R. LASSMAN, CHAPTER 7
TRUSTEE,
PLAINTIFF,
Adversary Proceeding
v. 	No. 06-1148
JAMES K. HEGARTY,
DEFENDANT.
_____________________________________
MEMORANDUM OF DECISION
I. INTRODUCTION
The matter before the Court is Count V of the Complaint 	filed by Donald R. Lassman,1
Chapter 7 Trustee of the estate of James K. Hegarty (the “Trustee”), against James K. Hegarty (the
“Defendant” or “Debtor”) through which he seeks a determination that the Debtor is not entitled to
a discharge pursuant to 11 U.S.C. §§ 727(a)(3) or (a)(4)(D). The Trustee asserts that the Debtor
failed to keep and produce or knowingly and fraudulently withheld statements and cancelled checks
with respect to two separate bank accounts, and that these documents constitute recorded information
from which the Debtor’s financial condition might be ascertained. 	The Debtor argues that his
conduct was justified under the circumstances of this case because the Debtor’s counsel believed that
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Joint Pre-Trial Statement (“PTS”), Docket No. 104, at ¶¶ 2(3)-(6).2
PTS at ¶ 2(7).3
Id. at ¶ 2(8).4
Id. at ¶¶ 2(30)-(31). The original account number of the DBA Account ended with5
1625, but was later changed to one ending in 9404 when it was acquired by Sovereign Bank.
PTS at ¶¶ 2(32)-(33).6
2
there was an understanding with respect to the production of these documents and that the Trustee’s
subpoena of the Debtor’s personal bank records from the bank is not grounds to deny him a
discharge. For the reasons set forth below, I will enter judgment in favor of the Debtor.
II. BACKGROUND
The facts of this case are largely undisputed. The Debtor is a sophisticated business person
with considerable experience from several business ventures. Prior to his “semi-retirement” in the
mid-1990s, the Debtor served as a bank examiner for the Commonwealth of Massachusetts for
approximately ten years, as the chief executive officer of two large nursing homes for approximately
eight years, and as a consultant to banks specializing in bank-owned real estate periodically
thereafter. 	Beginning in the mid-1990s, the Debtor moved to Cape Cod and helped his wife, Paula2
H. Hegarty, operate a “tea room,” which was a combination restaurant and gift shop. 3
From 2000 to 2003, the Debtor operated a credit reporting business as a sole proprietorship
(the “Business”). 	In connection with the Business, the Debtor opened a checking account at4
Compass Bank, which was later transferred to Sovereign Bank (the “DBA Account”). 	The DBA5
Account was in the name of “James Hegarty d/b/a Credit Reporting Services,” and the Debtor was
a signatory. 	In 2003, the Debtor transferred the Business to his daughter for no consideration, and6
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Id. at ¶¶ 2(34)-(35).7
Trans. Nov. 14, 2008 at 17, ¶¶ 19-24.8
Exhibit No. 22, Check Nos. 102-174.9
Trans. Nov. 14, 2008 at 30, ¶¶ 8-15.10
Id.at 30, ¶¶ 22-23.11
PTS at ¶¶ 2(36)-(37).12
Id. at ¶ 2(38).13
Id. at ¶ 2(9).14
The Debtor became an officer of Dunlow in 2004, and prior to its bankruptcy filing,15
was the sole officer and director. Id. at ¶ 2(11).
3
she became a signatory on the DBA Account. 	At trial, the Debtor testified that he believed that this7
undocumented transfer of control took place in July, 2003. 	Cancelled checks drawn on the DBA8
Account indicate, however, that the Debtor continued signing checks until September 30, 2003.9
The Debtor testified that the DBA Account statements were originally sent to a post office
box in Hyannis, Massachusetts. 	After the Debtor’s daughter assumed the Business, she forwarded10
the DBA Account statements to a post office box in East Sandwich, Massachusetts. 	At his11
deposition in August, 2008, the Debtor stated that he “might have” remained a signatory on the DBA
Account, but was unsure as he repeatedly asked his daughter to remove him as a signatory.12
Ultimately, the DBA Account was closed approximately one year ago. 13
In 2003, the Debtor was involved in the acquisition of a restaurant located in Bourne,
Massachusetts known as Shaw’s Fish and Lobster (the “Restaurant”). 	The Restaurant's assets were14
purchased by the Dunlow Corporation (“Dunlow”), 	which subsequently filed a bankruptcy petition15
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Id. at ¶ 2(10); see In re Dunlow Corporation, Case No. 05-30037-WCH.16
Id. at ¶ 2(12).17
Id. at ¶ 2(13).18
Id. at ¶ 2(14).19
Id. at ¶¶ 2(16)-(17).20
Id. at ¶¶ 2(20)-(21). The original account number of the Individual Account ended with21
3996, but was later changed to one ending in 2536 when it was transferred to Sovereign Bank.
Trans. Nov. 14, 2008 at 29, ¶¶ 9-17.22
PTS at ¶ 2(22).23
Id. at ¶ 2(23).24
4
before this Court on October 26, 2005. 	The real estate from which the Restaurant operated was16
purchased by the Hegarty Extended Family Realty Trust (the "Trust"). 	The Trust was created in17
May, 2003, and at that time the Debtor held a 50% beneficial interest. 	By July, 2003, however, the18
Debtor transferred this interest to his wife, Paula Hegarty, who then became the 100% beneficiary. 19
After the acquisition of the Restaurant, the Debtor was in charge of its operations, including
maintaining the books and records, paying bills, and managing expenses. 20
In September, 2003, the Debtor opened an individual checking account at Compass Bank,
which was later acquired by Sovereign Bank (the “Individual Account”). 	The Debtor testified that21
he did not recall having a bank account other than the DBA Account prior to opening the Individual
Account. 	As of August 19, 2008, the Debtor continued to use the Individual Account. 	Originally,22 	23
the Individual Account statements were sent to the Restaurant, but were later sent to the Debtor's
home. 	At trial, the Debtor testified that it was not his practice to retain his personal bank24
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Trans. Nov. 14, 2008 at 11, ¶¶ 3-11; see also PTS at ¶ 2(26).25
PTS at ¶¶ 2(24), (28).26
Id. at ¶ 2(1).27
Id. at ¶ 2(18); Exhibit No. 15.28
Id. at ¶ 2(19).29
Trans. Nov. 14, 2008 at 22, ¶¶ 4-9.30
Id. at 20, ¶¶ 21-25, 21, ¶¶ 1-5. Notably, neither the Business nor the DBA Account31
were listed on the Statement of Financial Affairs. See Exhibit No. 15. This issue, however, was
not raised prior to trial and is waived.
5
statements. 	It is undisputed that the Debtor did not have any of the Individual Account statements25
in his possession at the commencement of this case, and that he did not begin to retain them until
sometime in 2007. 26
The Debtor filed his Chapter 7 petition on December 20, 2005. 	At that time, the Debtor27
was represented by Attorney Shaun Ellis (“Attorney Ellis”). On Schedule B - Personal Property
(“Schedule B”), the Debtor indicated that he had a checking account but did not identify the account
number or bank at which it was maintained. 	At his deposition, the Debtor testified that the28
checking account referenced on Schedule B was the Individual Account. 	The Debtor further29
testified at trial that he assumed that Attorney Ellis would have instructed him to include the account
number and name of the bank on Schedule B if it had been necessary. 	At trial, the Debtor30
explained that his failure to list the DBA Account was due to his belief that he no longer had an
interest in the account as a result of transferring the business and the DBA Account to his daughter
two years earlier.31
The Trustee filed the present adversary proceeding on February 21, 2006. Through his five
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PTS at ¶ 2(40).32
Exhibit No. 3 (emphasis in original).33
6
count Complaint, the Trustee sought to avoid the Debtor’s transfer of his 50% interest in the Trust,
recover damages from the Debtor and Paula Hegarty (collectively, the “Defendants”) for alleged
fraudulent conduct, enjoin the Paula Hegarty from transferring any interest in proceeds from a sale
of trust property, and to deny the Debtor a discharge under 11 U.S.C. § 727. On March 31, 2006,
Attorney Gary W. Cruickshank (“Attorney Cruikshank”) filed a notice of appearance as successor
counsel to the Debtor. On the same date, Attorney Ellis filed a Motion to Withdraw as Debtor’s
Counsel, which was subsequently granted on April 11, 2006.
As is clear from both the docket in this adversary proceeding and the evidence introduced
at trial, the parties engaged in a lengthy informal discovery process with an eye towards settlement.
Between May and August, 2006, Attorney Cruikshank and Attorney Taylor A. Greene (“Attorney
Greene”), then counsel to the Trustee, exchanged numerous correspondence with respect to the status
of the Defendants’ production of documents relating both to their personal finances and the Trust.
The Trustee does not dispute that the Defendants have produced non-personal bank records and other
documents pertaining to the purchase of the Restaurant’s assets by the Trust and Dunlow. 32
By a letter dated May 26, 2006, addressed to Attorney Cruickshank, Attorney Greene
expressly requested “all ‘bank account statements and cancelled checks for the period January 2001
to February 15, 2006 for all financial accounts of any kind maintained by (1) the Debtor . . . .’”33
He renewed this request by a letter dated June 15, 2006, stating in relevant part:
Despite our numerous discussions, my letters of May 9, 2006 and May 26,
2006, assurances from your clients and the Bankruptcy Court’s February 27, 2006
order (which required that your clients produce certain documents by March 9, 2006),
your clients have still failed to produce, among other documents:
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Exhibit No. 5.34
Exhibit No. 7.35
PTS at ¶ 2(27); Exhibit 8.36
Exhibit Nos. 11 and 12. Curiously, this initial communication only references the37
United States Trustee’s request for the Individual Account’s statements for the months June
through December, 2005.
Id.; PTS at ¶ 2(39).38
7
* * *
• 	Cancelled checks and bank statements for James Hegarty’s individual
accounts;
* * *
We understand from [Attorney Cruikshank] that James Hegarty asserts that
he does not keep but discards the monthly bank statements and checks he receives
related to his personal accounts. Even if this is true, he can obtain copies of these
checks and statement from his bank(s) and produce them to us. Please confirm in
writing whether he has in fact disposed of the originals and whether he will produce
copies obtained from the bank(s). Please identify the banks and account numbers of
any such individual accounts. 34
It appears that Attorney Cruickshank first responded to Attorney Greene’s letter indirectly by
copying him on a letter to the Office of the United States Trustee in which he stated, “Mr. Hegarty
does not keep his bank statements but will order them from his bank.” 	Then, on June 28, 2006,35
Attorney Cruickshank wrote to Attorney Greene directly, stating that “Mr. Hegarty confirms that
he does not retain his bank statements and any deficiencies in the prior production request could be
sought from third party banks.”36
On August 28, 2006, Attorney Cruickshank made a written inquiry to Attorney Peter Rosa
(“Attorney Rosa”), counsel to Sovereign Bank, with respect to obtaining copies of the Individual
Account’s bank statements. 	Attorney Greene was copied on this correspondence. 	Attorney Rosa37 	38
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Exhibit No. 12.39
Exhibit No. 14, ¶ 5.40
Exhibit No. 13.41
Id.42
Id.43
8
responded via email that same day, informing him that his request had been forwarded to the
documentation unit and would be processed as soon as they received the Debtor’s signed
authorization. 	In Attorney Cruickshank’s Affidavit, he avers that he has no record or recollection39
as to whether the Debtor provided the signed authorization to his office or whether he neglected to
forward it to Sovereign Bank. 40
This matter apparently was dormant until August, 2007, when successor counsel for the
Trustee, Attorney David M. Souza (“Attorney Souza”) emailed a renewed request for the Debtor's
personal banking records to Attorney Cruickshank. 	After receiving the Individual Account’s41
account number and location, Attorney Souza sent another email to Attorney Cruickshank stating:
[Attorney Cruickshank], please ask your client if his Sovereign Bank records are
available to him. If so, I need a copy of them. If not, I’ll subpoena the bank.
Attorney Cruickshank forwarded this email to the Debtor, who responded as follows:
[H]i [Attorney Cruickshank], I believe that your office had requested soveign [sic]
bank to forward those records to you a while back. [O]ne of the trustees requested
them may be [sic] a year ago, if unavailable I will send for them again but [I] need
to know what time period they are looking for , thanks again jim 42
In a subsequent email, Attorney Souza specifically identified the documents between the Debtor and
Sovereign Bank that he required. 	Attorney Cruickshank forwarded the Debtor's response to43
Attorney Souza and with a note stating that “[i]t may be just as easy to subpoena what you want.”
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Id.44
Id.45
Exhibit No. 14, ¶¶ 9, 11.46
9
A few hours later, Attorney Cruickshank sent the following email to Attorney Souza:
Hi David;
I am out of the office next week on vacation until September 4, 2007. Is it ok to
review this request upon my return? My file is quite voluminous.
Regards,
Gary44
Attorney Souza then sent the following response shortly thereafter:
Gary, sorry I missed your call, thank you for your message. I will review my files
again, but given that [Attorney Greene] already reviewed the documents and your
impression of what you have (or did have), I will likely subpoena the bank.
Enjoy your vacation,
Dave45
In his affidavit, Attorney Cruickshank summarized his understanding at that time regarding the
production of the Debtor’s personal bank records:
9. 	I would have followed up with the Sovereign Bank statements upon my return
from vacation but Counsel to the Trustee had, in my opinion, indicated he would
subpoena these documents because of my vacation.
* * *
11. Based upon that email in late August of 2007, I felt that there was a cooperative
effort to obtain the Sovereign Bank statements and I did not believe any further
action on my part was required.46
On August 30, 2007, the Trustee filed a Motion for Order Authorizing Issuance of a
Subpoena seeking to obtain bank account records from Sovereign Bank. I granted the motion on
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Exhibit No. 16.47
I overruled the Trustee’s hearsay objection to the admission of Attorney Cruickshank’s48
affidavit, Exhibit No. 14.
Trans. Nov. 13, 2008 at 11, ¶¶ 14-19.49
Id. at 35, ¶¶ 13-25; 36, ¶¶ 1-25.50
10
September 11, 2007, and Attorney Souza served the subpoena on Sovereign Bank by Deputy Sheriff
on September 28, 2007. 	As a result of the subpoena, the Trustee obtained copies of the account47
statements and cancelled checks for both the Individual Account and the DBA Account.
Nearly two months later, on October 18, 2007, 	the parties entered into a Stipulation of
Settlement of Certain Claims in Related Adversary Proceedings whereby Counts I through IV of the
Complaint were dismissed with prejudice. I approved the stipulation on November 29, 2007. The
Trustee, however, continued to seek denial of the Debtor’s discharge under Count V of the
Complaint on the basis that he failed to keep or concealed documentation from which the Trustee
might ascertain his financial condition.
After several more months of discovery, I conducted a trial on the matter on November 14,
2008. 	At trial, the parties introduced twenty-four 	joint exhibits consisting primarily of48
correspondence between the parties and account statements and cancelled checks for both the
Individual Account and the DBA Account (collectively, “the Bank Records”). The Debtor was the
only witness, and he testified that it has always been his practice to discard his personal bank
statements. He also testified that it was his understanding that his counsel would obtain copies from
Sovereign Bank to satisfy the Trustee’s request. 	The Debtor conceded, however, that as of49
December, 2005, the Individual Account statements and cancelled checks were the only documents
from which a person could have determined his financial condition. 	At the conclusion of the trial,50
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Razzaboni v. Schifano (In re Schifano), 378 F.3d 60, 68 (1st Cir. 2004).51
See Katz v. Kurtaj (In re Kurtaj), 284 B.R. 528, 531 (Bankr. D. Conn. 2002); Casa52
Investments Co. v. Brenes (In re Brenes), 261 B.R. 322, 333 (Bankr. D. Conn. 2001); Krohn v.
Frommann (In re Frommann), 153 B.R. 113, 117 (Bankr. E.D.N.Y. 1993);
Matter of Juzwiak, 89 F.3d 424, 429 (7th Cir. 1996).53
Structured Asset Servs., LLC v. Self (In re Self), 325 B.R. 224, 244 (Bankr. N.D. Ill.54
2005).
11
I took the matter under advisement, and the parties filed post-trial briefs.
III. POSITIONS OF THE PARTIES
A. The Trustee
The Trustee asserts that it is undisputed that the Debtor discarded the Bank Records, and that
the Bank Records are recorded information from which the debtor’s financial condition might be
ascertained. As such, the Trustee contends that the Debtor cannot carry his burden of proving that
his conduct was justified under all the circumstances of this case. First, the United States Court of
Appeals for the First Circuit has held that complete disclosure of even de minis accounts is a
condition precedent to the granting of a discharge. 	Second, 	the Trustee argues that failure to51
maintain financial records is only justified in unusual circumstances and that numerous courts have
rejected defenses based upon a debtor’s common practice not to retain financial records. 	Third,52
the Trustee asserts that his subpoena of the Bank Records from Sovereign Bank is irrelevant because
“the burden is not on the [Trustee] to organize and reconstruct the debtor’s business affairs.” 	The53
Trustee relies on In re Self 	for the proposition that the ability to obtain financial records via54
subpoena from various financial institutions does not relieve the Debtor of his duty to produce these
records.
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Lassman v. Keefe (In re Keefe), 380 B.R. 116 (Bankr. D. Mass. 2007).55
This argument appears to respond to an allegation that the Debtor made a false oath or56
account under 11 U.S.C. § 727(a)(4)(A). This issue was not included in the Joint Pre-Trial
Statement and was not raised at trial. As the pre-trial order provides that the Joint Pre-Trial
Statement supercedes all prior pleadings and governs the course of trial, the Trustee waived any
argument under 11 U.S.C. § 727(a)(4)(A).
12
B. The Debtor
The Debtor asserts that his discharge should not be denied because he discarded the Bank
Records pursuant to his common practice and not in an effort to prevent the Trustee from
determining his financial condition. Relying on In re Keefe, 	the Debtor infers that because the the55
discarded Bank Records could be, and in fact were, easily subpoenaed from Sovereign Bank, they
were not “concealed” or “destroyed” within the meaning of 11 U.S.C. § 727. Moreover, the Debtor
argues that under the circumstances of this case, denial of discharge is not warranted because the
Trustee subpoenaed and obtained the Bank Records. 	The Debtor asserts that in light of the
correspondence between Attorney Cruickshank and Trustee’s counsel, the Trustee was not forced
to subpoena the Bank Records, but did so in the context of ongoing cooperative discovery after the
request had been “placed on the backburner.”
With respect to the DBA Account, the Debtor argues that it was not disclosed on his
schedules because he had transferred the business, including the DBA Account, to his daughter two
years prior to his bankruptcy filing and believed that the name on the account had been changed.56
Moreover, because the DBA Account statements were sent to a post office box to which he did not
have access, the Debtor contends he was justified in not having them in his possession.
IV. DISCUSSION
Section 727(a) of the Bankruptcy Code sets forth conduct that can preclude a debtor from
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In re Schifano, 378 F.3d at 66.57
Palmacci v. Umpierrez (In re Umpierrez), 121 F.3d 781, 786 (1st Cir. 1997).58
11 U.S.C. § 727(a)(3).59
Meridian Bank v. Alten, 958 F.2d 1226, 1230 (3d Cir. 1992) (citing 4 Collier on60
Bankruptcy ¶ 727.-03[1] (15th ed. 1979)).
In re Schifano, 378 F.3d at 69 (quoting Meridian Bank, 958 F.2d at 1230).61
13
receiving a discharge in bankruptcy. 	“Exceptions to discharge are narrowly construed in57
furtherance of the Bankruptcy Code’s fresh start policy.”58
A. Denial of Discharge Under 11 U.S.C. § 727(a)(3)
Section 727(a)(3) of the Bankruptcy Code provides in relevant part:
(a) The court shall grant the debtor a discharge, unless–
* * *
(3) the debtor has 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; 59
The purpose of this provision is “to give creditors and the bankruptcy court complete and accurate
information concerning the status of the debtor's affairs and to test the completeness of the disclosure
requisite to a discharge.” 	The Bankruptcy Code does not “require an impeccable system of60
bookkeeping,” but merely records that “sufficiently identify the transactions [so] that intelligent
inquiry can be made of them.”61
Under 11 U.S.C. § 727(a)(3), “[t]he initial burden is on the party objecting to discharge to
prove two things: (i) that the debtor ‘concealed, destroyed, mutilated, falsified, or failed to keep or
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In re Keefe, 380 B.R. at 120 (quoting 11 U.S.C. § 727(a)(3)).62
Id.63
In re Schifano, 378 F.3d at 71; Campana v. Pilavis (In re Pilavis), 244 B.R. 173, 17664
(B.A.P. 1st Cir. 2000).
14
preserve any recorded information;’ and (ii) that the recorded information was information ‘from
which the debtor's financial condition or business transactions might be ascertained.’” 	The62
objecting party need not establish specific intent of any kind. 	Once the objecting party has proven63
these two elements, the burden shifts to the debtor to demonstrate that such act or failure to act was
justified under the circumstances of the case.64
In the present case, it is undisputed that the Debtor routinely discarded his personal bank
statements prior to 2007. The Debtor also conceded that on December 20, 2005, the Individual
Account statements and cancelled checks were the only documents from which a person could have
ascertained his financial condition. In order to determine whether the Trustee has met his burden,
it is necessary to first consider the nature and significance of the act of discarding bank statements
under these circumstances.
It is clear that the Debtor neither “mutilated” nor “falsified” any recorded information by
discarding the Bank Records. Despite the Debtor’s initial failure to disclose the Individual Account
number and bank at which it was maintained in Schedule B, “concealed” is an equally erroneous
characterization. The Debtor credibly testified that this omission was due to ignorance of such a
requirement, and it is illogical to conclude that he intended to conceal an asset listed in his schedules.
Further, if the Trustee has determined that the Debtor’s description of the account was deficient, he
could have requested him to amend the schedule. While “destroyed” may have a superficial appeal,
it is undercut by the reality that the Bank Records were not only obtained by the Trustee, but
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While I do not find that documents maintained by third parties can never be65
“destroyed” for purposes of 11 U.S.C. § 727(a)(3) so long as a copy is available, such a
characterization here, where the documents in question have been recovered and introduced into
evidence, is inappropriate. Even if “destroyed” was the correct characterization, the documents’
recovery would likely justify their prior destruction. See In re Keefe, 380 B.R. at 121 (“If the
records could be recovered easily and without much cost, perhaps their destruction would be
deemed justified in the sense that the destruction was inconsequential.”).
The American College Dictionary 668 (1970).66
See Peterson v. Scott (In re Scott), 172 F.3d 959, 969 (7th Cir. 1999); Strzesynski v.67
Devaul (In re Devaul), 318 B.R. 824, 833 (Bankr. D. Ohio 2004); Volpe v. McDonough (In re
Volpe), 317 B.R. 684, 690 (Bankr. D.S.C. 2003); In re Brenes, 261 B.R. at 330 n.9.
See, e.g., In re Kurtaj, 284 B.R. at 531 (financial records were not kept because it was68
the debtor’s routine practice to destroy them).
15
presented to the Court as trial exhibits. 65
The final acts contemplated by the statute are the failure “to keep or preserve” any recorded
information. 	In his brief, the Trustee asserts that the Debtor failed to “keep and produce” his
personal statements. 	While the word “keep” is commonly understood to mean, inter alia, “to
retain,” 	courts have held that in the context of 11 U.S.C. § 727(a)(3), the word “keep” means “to66
maintain a record by entering it in a book” because, under the rules of statutory construction, it
cannot be synonymous with “preserve.” 	While not all courts have used this language with such67
specificity, 	I nonetheless find that by failing to retain the Bank Records in his possession, the68
Debtor failed “to preserve” recorded information from which his financial condition might have been
ascertained within the meaning of the statute. 	Accordingly, the burden shifts to the Debtor to
demonstrate that his actions were justified under all circumstances of this case.
Whether a failure to preserve records is justified is a question of fact to be determined under
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Cohen Steel Supply, Inc. v. Fagnant, No. 03-10496-JMD, 2005 WL 1244866 (Bankr.69
D.N.H. Apr. 14, 2005) aff’d, 337 B.R. 729 (B.A.P. 1st Cir. Feb. 9, 2006).
In re Keefe, 380 B.R. at 121.70
Oochs v. Nemes (In re Nemes), 323 B.R. 316, 327 (Bankr. E.D.N.Y. 2005); In re71
Devaul, 318 B.R. at 838.
In re Schifano, 378 F.3d at 68.72
In re Keefe, 380 B.R. at 121; cf. Wortman v. Ridley (In re Ridley), 115 B.R. 731, 73573
(Bankr. D. Mass. 1990) (reconstruction of debtor’s records based on accountant’s estimates of
business activities is insufficient).
In re Kurtaj, 284 B.R. at 531.74
16
all the particular circumstances of the case. 	“An act is justified if it is right or appropriate in the69
circumstances.” 	A valid justification may arise where a combination of factors led to the failure70
to preserve records. 	Among the relevant circumstances to be considered is the education and71
sophistication of the debtor. 	Additionally, in In re Keefe, Judge Somma suggested, albeit in dicta,72
that if records could be recovered easily and without much cost, their loss would be deemed justified
in the sense that the loss was inconsequential. 73
In the present case, the Debtor routinely discarded his personal bank statements prior to 2007
simply because that was his practice. Routine practice, by itself, however, is insufficient justification
to avoid denial of discharge because it would render the rule meaningless. 	The Debtor, through74
his involvement with numerous business ventures and work as a bank examiner and consultant, is
clearly sophisticated, and normally, a sophisticated debtor faces a greater burden to demonstrate that
his failure to preserve recorded information was justified. 	Here, however, the Debtor’s
sophistication and experience bolster his claim of justification. The trial testimony and evidence
before me indicate that the Debtor was well aware that copies of his personal bank statements could
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In re Self, 325 B.R. at 244; In re Nemes, 323 B.R. at 323-324; In re Volpe, 317 B.R. at75
690.
In re Self, 325 B.R. at 244.76
Id.77
17
be obtained from Sovereign Bank if needed. Moreover, the fact that they ultimately were obtained
by the Trustee demonstrates that the Debtor’s failure to preserve the Bank Records was
inconsequential. 	There is, of course, one problem: the Debtor did not obtain the Bank Records
himself.
Courts uniformly recognize that 11 U.S.C. § 727(a)(3) does not place the burden on the
objecting party to organize and reconstruct the debtor’s business affairs. 	In In re Self, the debtor75
produced few financial records to explain the loss of over $252,095.90, but argued that the objecting
creditor could simply have obtained the necessary documents from the various financial institutions
and the mortgage holder by subpoena. 	Rejecting this argument, the court denied the debtor a76
discharge, concluding that it is not the objecting party’s burden to produce the debtor’s financial
records.77
The present case, however, is distinguishable from In re Self due to the unique facts and
circumstances surrounding the discovery process. While the Trustee, and not the Debtor, ultimately
obtained the Bank Records, it is not clear from the record that the burden of production
inappropriately shifted. The Debtor testified that he understood that Attorney Cruickshank would
obtain the Bank Records from Sovereign Bank in response to the Trustee’s request. 	The
correspondence in evidence that demonstrates that Attorney Cruickshank contacted Sovereign Bank
for that purpose in August, 2006. Although it is unclear why, the issue was not revisited until a year
later, as I note that the Trustee offered no evidence indicating continued pursuit of the Bank Records
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11 U.S.C. § 727(a)(4)(D).78
In re Ridley, 115 B.R. at 736.79
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before Attorney Souza’s August, 2007, email. Moreover, the Trustee did not resort to subpoenaing
Sovereign Bank until after an ambiguous exchange with Attorney Cruickshank in which he asked
to defer the discovery request until his vacation. In response, the Trustee implied that he would
obtain the documents directly. 	Given the informal manner in which the parties proceeded with
discovery, Attorney Cruickshank’s understanding, or misunderstanding, that Attorney Souza would
subpoena the Bank Records to accommodate his impending vacation was not unreasonable.
Therefore, under these unique circumstances, I find the Debtor’s failure to obtain the Bank Records
was justified.
B. Denial of Discharge Under 11 U.S.C. § 727(a)(4)(D)
Section 727(a)(4)(D) provides in relevant part:
(a) The court shall grant the debtor a discharge, unless–
* * *
(4) the debtor knowingly and fraudulently, in or in connection with
the case–
* * *
(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; 78
Pursuant to this section, “a debtor has the affirmative duty to surrender to the trustee all recorded
information relating to the property of the estate, and is also obligated to cooperate with the trustee
by, among other things, providing the trustee with all relevant documents and papers.”79
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Olson v. Slocombe (In re Slocombe), 344 B.R. 529, 534 (Bankr. W.D. Mich. 2006).80
See Desmond v. Varrasso (In re Varrasso), 37 F.3d 760, 764 (1st Cir.1994).81
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The party objecting to discharge under § 727(a)(4)(D) has the initial burden of
proving that: 1) the withholding of documents was done by the debtor or someone
for whose conduct the debtor is legally responsible; 2) was in connection with a case;
3) was withheld from an officer of the estate entitled to possession; 4) was done
knowingly and fraudulently; and 5) relates to the debtor's property or financial
affairs.80
Because debtors rarely give direct evidence of fraudulent intent, fraudulent intent can be proven by
circumstantial evidence.81
In the present case, the Trustee failed to sustain his burden of proof. There is simply no
evidence before me from which I can infer fraudulent intent. To the contrary, the testimony and
evidence offered at trial indicate that the Debtor intended to produce the Bank Records, but due to
Attorney Cruickshank’s apparent misunderstanding, did not to do so. To the extent that the Debtor
initially failed to disclose the DBA Account, I find that this failure was not occasioned by fraud.
Although the Debtor at one time used the DBA Account for personal expenses, the evidence
presented reflects that he ceased signing checks from the DBA Account and transferred control to
his daughter in September, 2003, over two years prior to the filing of this case. The Debtor credibly
testified that he believed that he no longer held an interest in the DBA Account, even though it
apparently remained in his name. Moreover, I am unconvinced that the Debtor “withheld” anything,
as it is undisputed that the Bank Records were not in his possession. In sum, this claim is merely
a reassertion of the Trustee’s claim under 11 U.S.C. § 727(a)(3) without regard to its distinct
elements.
I note that this matter could have been resolved easily by either party without the need of a
trial. The Debtor could have and should have promptly followed up with Sovereign Bank regarding
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the status of his records request when the documents were not produced by the Bank. The Trustee's
conduct is even more questionable. If his true aim was to review the Bank Records to assess the
Debtor's financial condition, he could have waited for Attorney Cruickshank’s return from vacation
to address the matter or he could have subpoenaed the Bank Records himself, as he did, and sought
sanctions and costs against the Debtor for his time and effort. 	There is no allegation that the Bank
Records ultimately revealed anything untoward, or that they are inadequate to enable the Trustee to
ascertain the Debtor’s financial condition. 	Instead, the Trustee used what was essentially an
ambiguous discovery dispute as a basis to preserve the sole remaining count in the complaint. This
resulted in an unnecessary trial and use of resources.
V. CONCLUSION
In light of the foregoing, I will enter judgment in favor of the Debtor on Count V of the
Complaint.
______________________________
William Hillman
United States Bankruptcy Judge
Dated: December 16, 2008
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