Howell, Jr. et al v. Larson

1
UNITES STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
EASTERN DIVISION
___________________________________________
IN RE:
MARY G. LARSON, 	Chapter 7
DEBTOR. 	Case No. 05-20790-WCH
___________________________________________
STEPHEN E. SHAMBAN, CHAPTER 7 TRUSTEE,
PLATINIFF, 	Adversary Proceeding
No. 06-1381
v.
MARY G. LARSON,
DEFENDANT.
___________________________________________
LLOYD L. HOWELL, JR., Administrator of the
Estate of Sherri R. LaMattina-Howell,
ANTHONY M. HOWELL, a minor, by Lloyd L.
Howell, Jr., his father and next friend, and
TIFFANY R. HOWELL, a minor, by Lloyd L.
Howell, Jr., her father and next friend,
PLAINTIFFS, 	Adversary Proceeding
No. 06-1446
v.
MARY G. LARSON,
DEFENDANT.
___________________________________________
MEMORANDUM OF DECISION
I. 	INTRODUCTION
The matters before the Court are the complaints filed by the Chapter 7 trustee,
Stephen E. Shamban (the “Trustee”), and Lloyd L. Howell, Jr. (“Howell”) (collectively,
the “Plaintiffs”), against Mary G. Larson (the “Debtor”), through which they seek
Case 06-01446 Doc 38 Filed 04/20/10 Entered 04/20/10 15:12:18 Desc Main
Document Page 1 of 13

2
revocation of the Debtor’s discharge pursuant to 11 U.S.C. § 727(d)(1), asserting that the
Debtor obtained her discharge through fraud by inaccurately listing or omitting certain
assets from her Schedules. For the reasons set forth below, I will enter judgment in favor
of the Plaintiffs and revoke the Debtor’s discharge.
II. BACKGROUND
The relevant facts are largely stipulated. 	On September 8, 2002 the Debtor was
involved in an automobile accident (the “Accident”) that resulted in the death of
Howell’s wife.1 Howell subsequently brought a civil suit against the Debtor seeking
redress for the Accident (the “Civil Suit”).2 On May 24, 2005, judgment entered in favor
of Howell awarding him damages in the sum of $1,000,000.3
On October 11, 2006, the Debtor filed a Chapter 7 bankruptcy petition.4 Pursuant
to 11 U.S.C. § 521, the Debtor’s petition included a schedule of assets and liabilities, a
schedule of income and current expenditures (collectively, the “Schedules”), and a
statement of financial affairs (the “Statement of Financial Affairs”).5 The only creditors
named in the Debtor’s petition were Howell and the Debtor’s first mortgagee, whose debt
she later reaffirmed, leaving Howell as the only creditor.6 On Schedule B - Personal
Property (“Schedule B”), the Debtor listed her financial interests as: (1) Rockland Federal
Credit Union checking account (the “Checking Account”) with a market value of
1 Joint Pretrial Statement (“PTS”) at 1, Docket No. 10 in 06-01381 and Docket No. 30 in 06-1446.; In re
Larson, 515 F.3d 325, 327 (1st Cir. 2008).
2 See PTS at 1.
3 Id.
4 Id. at II ¶ 1.
5 Id. at II ¶ 2.
6 Id. at II ¶ 3.
Case 06-01446 Doc 38 Filed 04/20/10 Entered 04/20/10 15:12:18 Desc Main
Document Page 2 of 13

3
$387.58; and (2) Rockland Trust checking account (the “Trust Account”) with a market
value of $351.37. 7 On Schedule - I Current Income of Individual Debtor(s) (“Schedule
I”), the Debtor stated that her current monthly income consisted of $800.00 from social
security and trust fund income in the amount of $1,083.33. 8 Item 2 of the Debtor’s
Statement of Financial Affairs stated that her income for the preceding years, derived
from social security and a trust fund, totaled: $22,000.00 for 2003, $22,500.00 for 2004,
and $18,833.00 for 2005 up to the date of her petition.9 By filing the Schedules and
Statement of Financial Affairs, the Debtor declared under penalty of perjury that she had
read all of the schedules and that they were true and correct to the best of her knowledge,
information and belief.10
On December 12, 2005, the Debtor appeared at the meeting of creditors held
pursuant to 11 U.S.C. § 341 (the “Creditors’ Meeting”) and was examined by the
Trustee.11 During the examination, the Debtor testified under oath that, consistent with
her Schedule I, she received $1,083.00 per month from the Mary Patricia Trust Fund (the
“Trust”).12 In the absence of an objection, the Debtor received a discharge from this
Court on February 16, 2006.13
7 Id. at II ¶ 11.
8 Id. at II ¶ 12.
9 Id. at II ¶ 13.
10 Id. at II ¶ 2.
11 Id. at II ¶ 4.
12 See Trial Exhibit 2, Transcript of Creditors’ Meeting; see also, PTS at II ¶ 5.
13 PTS at II ¶ 6.
Case 06-01446 Doc 38 Filed 04/20/10 Entered 04/20/10 15:12:18 Desc Main
Document Page 3 of 13

4
On April 18, 2006, in connection with objections to the Debtor’s homestead
exemption filed by the Plaintiffs, I entered a pre-trial order (the “Pre-trial Order”)
permitting them to obtain discovery of the Debtor’s assets and income. 14 On June 25,
2006, during discovery conducted pursuant to the Pre-trial Order, the Plaintiffs learned,
for the first time, that the Debtor misrepresented and/or omitted information on her
Schedules, Statement of Financial Affairs, and at the Creditors’ Meeting (the “False
Statements”).15 Among the False Statements, the Debtor: (1) falsely stated in Schedule B
that the balance in the Checking Account was $387.58, when it was $8,551.76; (2)
omitted entirely from Schedule I the Alimony that she had been receiving from her
former husband since 1989 in the annual sum of $13,000.00; (3) falsely stated in
Schedule I, and again during testimony at the Creditors’ Meeting, that the amount of
monthly income that she received from the Trust was $1,083.33 per month, when it
actually was approximately $4,399.80 per month; (4) falsely stated in the Statement of
Financial Affairs that her income for 2004 was $22,500.00, when it was actually
$71,137.57; and (5) falsely stated in the Statement of Financial Affairs that her income
from June to October of 2005 was $18,833.00 when it was actually $59,676.17.16
Additionally, the Plaintiffs discovered two letters (the “Letters”) that the Debtor
had composed and sent to the Trust manager prior to her bankruptcy case. In the first, the
Debtor wrote the Trust manager:
Regarding 	the 	December 	etc 	‘distribution’ 	please 	change 	the
beneficiary from myself to son Christopher L. Larson…I would
14 Id. at II ¶ 7.
15 Id. at II ¶ 8.
16 Id. at II ¶¶ 15-23.
Case 06-01446 Doc 38 Filed 04/20/10 Entered 04/20/10 15:12:18 Desc Main
Document Page 4 of 13

5
appreciate your prompt (emphasis in original) attention to change
in beneficiaries – as I am being sued for $1,000,000 (resulting
from a horrific automobile accident…One other thing – would it be
possible to divide the distribution into thirds? 	Chris will forward
the checks monies to me – but a substantial check deposited into
his account will really create ‘problems’ with his tax man. Thank
you so much for anything you can do. Gratefully, Mary G Larson.
17
In the second letter, the Debtor instructed the Trust manager to begin depositing the
monthly income payments directly in the Checking Account.18 In that correspondence,
the Debtor wrote:
Now is the time! So far ‘Rockland Federal Credit Union’ has not
come up in any ‘disclosure’ etc. 	Anyway – Chris & Wife Donna
Larson are doing the kidney transplant thing on 3/22/04 so this is
one less thing for them to think about. 	Finally out of the deep
freeze. Praise the Lord. Sincerely & a ‘hug’ Mary P G Larson 19
On June 28, 2006, three days after discovering the False Statements, Howell’s
attorney informed the Debtor’s attorney that the Debtor’s petition did not accurately
represent the Debtor’s income, assets, and financial affairs.20 On September 12, 2006,
nearly a year after filing her original bankruptcy petition, the Debtor amended her
schedules to her bankruptcy petition to correct the errors that the Plaintiffs identified.21
On October 4, 2006, the Trustee filed a complaint seeking to revoke the Debtor’s
discharge pursuant to 11 U.S.C. § 727(d)(1). 	Subsequently, on December 27, 2006,
Howell commenced a separate adversary proceeding, filing a substantively identical
17 See Trial Exhibit 11, Four Letters between Mary Larson and Deutsche Bank Trust Officer of the Mary
Patricia Trust.
18 Id.
19 Id.
20 Id. at II ¶ 9.
21 Id. at II ¶ 10.
Case 06-01446 Doc 38 Filed 04/20/10 Entered 04/20/10 15:12:18 Desc Main
Document Page 5 of 13

6
complaint (collectively, the “Complaints”). 	The Complaints alleged that the Debtor
obtained her discharge by making false statements and a false oath of account in
connection with her bankruptcy case, with intent to hinder or defraud the Plaintiffs, and
that the Plaintiffs had no knowledge of the false and fraudulent misrepresentations at the
time that they were made. 	The Debtor answered the Complaints alleging that the
identified inaccuracies and omissions in her petition were inadvertent and not made with
the intent to hinder, delay or defraud the Plaintiffs. On June 26, 2007, the two adversary
proceedings were consolidated.
On January 28, 2010, I conducted a trial on the Complaints at which time the
Debtor testified and sixteen exhibits were introduced into evidence. At its conclusion, I
took the matter under advisement. Subsequently, the parties filed post-trial briefs.
III. POSITION OF THE PARTIES
The Plaintiffs
In seeking revocation of the Debtor’s discharge, the Plaintiffs argue that the
Debtor intentionally made statements that she knew were false while under oath at the
Creditors’ Meeting, on her Schedules, and on the Statement of Financial Affairs, with the
intent to defraud the Plaintiffs. 	The Plaintiffs support their argument by offering the
communications between the Debtor and the manager of the Trust to demonstrate that the
False Statements are part of a pattern of deceit on the part of the Debtor with the intent to
fraudulently hide assets from creditors. The Plaintiffs also argue that they were unaware
that the Debtor had made the false statements regarding her assets at the time of her
discharge and further assert that if their falsity had been known in time to file a complaint
objecting to her discharge would have been denied.
Case 06-01446 Doc 38 Filed 04/20/10 Entered 04/20/10 15:12:18 Desc Main
Document Page 6 of 13

7
The Debtor
The Debtor argues that revocation of her discharge is inappropriate because she
lacked the requisite mens rea to commit fraud as all of her misstatements were
inadvertent. 	Furthermore, the Debtor argues that her filing of amended schedules and
statement of financial affairs upon learning of the errors in the originals removes any
fraudulent taint that may be attributed to her original filing. Moreover, the Debtor argues
that the Letters are insignificant to showing her intent to hide her assets from creditors
because the Trust manager had the discretion to elect the payee of the Trust income.
Finally, the Debtor argues, even if her conduct could be characterized as fraudulent,
misreporting the income from the Trust and Alimony was immaterial as those sources of
income were exempt and hence not property of the estate.
IV. 	DISCUSSION
Section 727(d)(1) of the Bankruptcy Code provides that “on request of the trustee,
a creditor or the Untied States Trustee, and after notice and a hearing, the Court shall
revoke a discharge granted under subsection (a) of this section if . . . such discharge was
obtained through the fraud of the debtor, and the requesting party did not know of such
fraud until after the granting of such discharge.”22 “[B]ecause revoking a discharge is an
extraordinary remedy, § 727(d) should be construed liberally in favor of the debtor and
strictly against those objecting to discharge.”23
In determining whether to revoke a discharge, the United States Bankruptcy
Appellate Panel for the First Circuit has instructed that a court must consider whether:
22 11 U.S.C. § 727(d)(1).
23 Gillis v. Gillis (In re Gillis), 403 B.R. 137, 144 (B.A.P. 1st Cir. 2009)
Case 06-01446 Doc 38 Filed 04/20/10 Entered 04/20/10 15:12:18 Desc Main
Document Page 7 of 13

8
“(1) the debtor obtained the discharge through fraud; (2) the creditor possessed no
knowledge of the debtor’s fraud prior to the granting of the discharge; and (3) the fraud,
if known, would have resulted in denial of discharge under § 727(a).” 24 To satisfy the
first element, the Plaintiffs must 	show that “the debtor obtained a discharge by
committing ‘actual fraud’ or ‘fraud in fact,’ such as the intentional failure to schedule an
asset of the estate.”25 Similarly, the third element serves to emphasize that in order for a
debtor’s discharge to be revoked, the debtor must have “committed a fraud ‘in fact’
which would have barred the discharge had the fraud been known . . . ”26 In this way, the
third element subsumes the first to the extent that an analysis of the third element, which
in this case is under 11 U.S.C. § 727(a)(4), inherently requires the same analysis of
whether the debtor committed fraud in fact.
Because it is undisputed that the Plaintiffs were unaware of the False Statements
prior to entry of the Debtor’s discharge, the second element of the revocation of
discharge analysis is satisfied. 27
24 In re Gillis, 403 B.R. at 144.
25 Id.
26 Wilson v. Wilson (In re Wilson), 2002 WL 1067450 *4 (Bankr. D.N.H. 2002) (The court goes on to say,
“[I]t is insufficient that a debtor’s fraud would have rendered a particular debt nondischargeable; rather, the
party seeking revocation must allege that the entire discharge would not have been granted but for the
debtor’s fraud.”)(citing Lawrence Nat’l Bank v. Edmonds (In re Edmonds), 924 F.2d 176, 180 (10th Cir.
1991)).
27 PTS II at ¶ 8.
Case 06-01446 Doc 38 Filed 04/20/10 Entered 04/20/10 15:12:18 Desc Main
Document Page 8 of 13

9
Turning to the first and third elements, 11 U.S.C. § 727(a)(4)(A) 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 . . .28
“Under §727(a)(4)(A), the debtor can be refused his discharge only if he (i) knowingly
and fraudulently made a false oath, (ii) relating to a material fact.”29
The United States Court of Appeals for the First Ciruit in In re Tully explains that
the philosophical underpinning of 11 U.S.C. § 727(a) is to:
[M]ake certain that those who seek the shelter of the Bankruptcy Code do
not play fast and loose with their assets or with the reality of their affairs.
The statute[] [is] designed to insure that complete, truthful and reliable
information is put forward at the outset of the proceedings, so that
decisions can be made by the parties in interest based on fact rather than
fiction. . .‘[t]he successful functioning of the bankruptcy act hinges both
upon 	the 	bankrupt’s 	veracity 	and 	his 	willingness 	to 	make 	a 	full
disclosure.’. . .Neither the trustee nor the creditors should be required to
engage in a laborious tug-of-war to drag the simple truth into the glare of
daylight . . .
***
A petitioner cannot omit items from his schedules, force the trustee and
the creditors, at their peril, to guess that he has done so-and hold them to a
mythical requirement that they search through a paperwork jungle in the
hope of finding an overlooked needle in a documentary haystack . . .
***
Sworn statements filed in any court must be regarded as serious business.
In bankruptcy administration, the system will collapse if the debtors are
not forthcoming. 30
28 11 U.S.C. § 727(a)(4)(A).
29 Boroff v. Tully (In re Tully), 818 F.2d 106, 110 (1st Cir. 1987).
30 In re Tully, 818 F.2d at 110-112 (citations omitted).
Case 06-01446 Doc 38 Filed 04/20/10 Entered 04/20/10 15:12:18 Desc Main
Document Page 9 of 13

10
“Allegations of lying in the filed Schedules and Statement of Affairs, and the 341
Meeting . . . satisfy the requirement of alleging a post-petition fraud.”31 “A debtor’s
Schedules and Statement of Financial Affairs are unsworn declarations made under
penalty of perjury and are, according to federal law, the equivalent of a verification under
oath.”32 “A false oath may consist of a statement or omission in the debtor’s schedules or
statement of affairs.”33 “[A]ll that is required for a denial of discharge is a single ‘false
oath or account.’”34 “[R]eckless indifference to the truth has consistently been treated as
the functional equivalent of fraud for purposes of [11 U.S.C.] § 724(a)(4)(A).”35 The
party moving to revoke a debtor’s discharge bears the burden of proving each element by
a preponderance of the evidence.36
As has been stipulated, the Debtor’s False Statements were made on Schedules B,
I, the Statement of Financial Affairs, and at the Creditors’ Meeting. 	The Debtor claims
that the False Statements were made unintentionally.37 Nonetheless, the sheer number
and significance of the inaccuracies and omissions encompassing the False Statements
demonstrates, at the very least, a reckless indifference to the truth- the functional
31 Richardson v. McCullough (In re McCullough), 259 B.R. 509 (Bankr. D. R.I. 2001) (cited with approval
in In re Gillis, 403 B.R. at 145).
32 Smith v. Grondin (In re Grondin), 232 B.R. 274, 276 (B.A.P. 1st Cir. 1999).
33 Gordon v. Mukerjee (In re Mukerjee), 98 B.R. 627, 629 (Bankr. D.N.H. 1989) (citing Field v. Irving (In
re Irving), 27 B.R. 943, 945 (Bankr. E.D.N.Y. 1983)).
34 In re Grondin, 232 B.R. at 277.
35 In re Tully, 818 F.2d at 112.
36 See In re Gillis, 403 B.R. at 144.
37 See Transcript of Trial, Case No. 06-1446, (Doc. 33), page 58.
Case 06-01446 Doc 38 Filed 04/20/10 Entered 04/20/10 15:12:18 Desc Main
Document Page 10 of 13

11
equivalent to fraud. 	The False Statements infect every asset-related schedule and
statement in the bankruptcy petition so as to completely shed doubt on the Debtor’s
honesty. 	Not only did the Debtor grossly underrepresent the value of the Checking
Account, her largest liquid asset at the time that she filed her bankruptcy petition, she
failed to disclose that she had been receiving Alimony amounting to almost 20% of her
annual income, she underrepresented the value of her monthly payments from the Trust
by 	approximately 	75% 	on 	Schedule 	I 	and 	again 	at 	the 	Creditors’ 	Meeting, 	and
underreported her annual income by almost 70% for the year of and two years preceding
the filing of her bankruptcy petition on the Statement of Financial Affairs. Moreover, the
communications between the Debtor and the Trust manager demonstrate an apparent
long-standing practice of attempting to conceal her assets from her creditors. The Trust
manager’s discretion is irrelevant because the letters clearly illustrate the Debtor’s
intention to conceal assets, regardless of what the Trust manager actually did. Under the
totality of the circumstances, it is hard to believe that the False Statements were
inadvertent.
The Debtor contends that the act of amending her schedules after the Plaintiffs
notified her of the False Statements removes their fraudulent taint. She cites In re Tully
and In re Tracey38 in support of this position. In both cases, the courts cited the debtors’
failure to amend their schedules as a consideration in determining the debtors’ fraudulent
intent.39 The Debtor erroneously interprets these holdings to stand for the proposition
that amending her schedules after the Plaintiffs notified her of the False Statement
38 Sulllivan, et al. v. Tracey (In re Tracey), 76 B.R. 876 (Bankr.D.Mass. 1987).
39 Id.
Case 06-01446 Doc 38 Filed 04/20/10 Entered 04/20/10 15:12:18 Desc Main
Document Page 11 of 13

12
ameliorates any fraud she may be responsible for. 	A debtor’s act of amending false
statements in her schedules and statement of financial affairs, however, is merely one
factor to consider in determining whether she acted fraudulently.40 In light of the
numerous False Statements, the letters between the Debtor and the Trust manager, and
the Debtor’s failure to amend her schedules until after the Plaintiffs had informed her of
the misstatements, I am not persuaded that the amendments to the Schedules and
Statement of Financial Affairs demonstrate the absence of fraud. 	Thus, I find that the
Debtor knowingly and fraudulently made the False Statements.
With respect to the materiality requirement, “[m]atters are material if pertinent to
the discovery of assets, including the history of a bankrupt’s financial transactions.”41
Although there is a legal issue as to whether the Trust income and Alimony income were
exempt assets and thus not property of the bankruptcy estate, the Debtor’s failure to
accurately disclose the existence of the Alimony, the value of the Trust income, the value
of the Checking Account, and her total annual income was material to the Plaintiffs’
investigation of the Debtor’s assets, the value of the estate, and the potential return to
creditors.42 Thus, I find that the False Statements were relating to a material fact.
Accordingly, I find that the Debtor obtained her discharge through fraud.
40 Id.
41 Matter of Mascolo, 505 F.2d 274, 277 (1st Cir. 1974) (cited with approval in In re Tully, 818 F.2d at
110); See also In re Chalik, 748 F.2d 616, 618 (11th Cir. 1984) (false oath material if subject matter “bears
a relationship to the bankrupt’s…estate, or concerns the discovery of assets,…or the existence and
disposition of his property.”).
42 See In re Gillis, 403 B.R. at 145.
Case 06-01446 Doc 38 Filed 04/20/10 Entered 04/20/10 15:12:18 Desc Main
Document Page 12 of 13

13
V. CONCLUSION
In light of the foregoing, I will enter an order revoking the Debtor’s discharge
pursuant to 11 U.S.C. § 727(d)(1).
______________________________
William C. Hillman
United States Bankruptcy Judge
Dated: April 20, 2010
Case 06-01446 Doc 38 Filed 04/20/10 Entered 04/20/10 15:12:18 Desc Main
Document Page 13 of 13