Cadles Grassy Meadow v. Passero

*Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
United States Court of Appeals
Fifth Circuit
F I L E D
March 13, 2006
Charles R. Fulbruge III
Clerk
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 05-50775
_____________________
In The Matter of: WALTER GERALD PASSERO,
Debtor.
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CADLES GRASSY MEADOWS II LLC,
Appellant,
versus
WALTER GERALD PASSERO,
Appellee.
_________________________________________________________________
Appeal from the United States District Court
for the Western District of Texas
USDC No. 3:04-CV-198
_________________________________________________________________
Before REAVLEY, JOLLY, and DeMOSS Circuit Judges.
PER CURIAM:*
Cadles Grassy Meadows II LLC (“Cadles” appeals the denial of
its motion seeking to deny Walter Gerald Passero Chapter 7 relief.
Cadles argues that Passero acted with the intent to hinder, delay,
or defraud his creditors and is thus ineligible for Chapter 7
relief under 11 U.S.C. § 727(a)(2)(A). We agree.

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2 Passero argues that the presumption under Chastant was
altered by Robertson v. Dennis (Matter of Dennis), 330 F.3d 696
(5th Cir. 2003). This argument is without merit. Dennis did not
alter the presumption under Chastant but, instead, found that the
debtor in Dennis, unlike the debtor in Chastant, failed to rebut
the presumption of fraudulent intent. Dennis, 330 F.3d at 702.
3 A finding regarding “intent to hinder, delay, or defraud .
. . is a factual one which must be reviewed under the clear error
standard.” See Dennis, 330 F.3d at 701.
4 The bankruptcy court misapplied Chastant by failing to
acknowledge the presumption in this case and instead placing the
burden of proof on Cadles to demonstrate that Passero acted with §
727(a)(2)(A) intent. However, when Cadles argued Chastant error on
appeal to the district court, the district court found that the
2
Although the party challenging Chapter 7 relief generally
bears the burden of establishing § 727(a)(2)(A) intent, this
court’s holding in Pavy v. Chastant (Matter of Chastant), 873 F.2d
89 (5th Cir. 1989), makes clear that “a presumption of actual
fraudulent intent necessary to bar a discharge arises when property
is either transferred gratuitously or is transferred to
relatives.”2 Id. at 91. By forming the spendthrift trust for the
benefit of his children with his father as trustee, Passero meets
both of the Chastant presumption requirements -- he has (1) made a
gratuitous transfer (2) to relatives. As such, a presumption of §
727(a)(2)(A) intent arose and the burden of proof shifted to
Passero to demonstrate that he acted without the requisite intent.
The record makes clear that Passero has failed to meet this burden.
Thus the district court’s finding that Passero lacked the intent to
hinder, delay, or defraud his creditors was clear error3 and is
reversed for the following reasons:4

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presumption arose, but had been effectively rebutted by Passero.
This finding is error.
3
1. The district court erred in accepting Passero’s stated
reasoning for using the Trespass Corporation bank account. Passero
concedes that he never actually tried to open such an account, nor
was any proof introduced demonstrating an attempt to open such an
account.
2. The district court erred in finding that Passero’s open
use of the account demonstrated Passero’s lack of § 727(a)(2)(A)
intent. Although the checks used by Passero and his wife to draw
on the account appeared to be personal checks and showed only the
names of Passero and his wife, the account was not in either name,
nor did either Passero or his wife claim to own any of the account
assets. Because the account was in another’s name and because
Passero denied ownership, even knowledge of the account would be of
no benefit to a creditor in the collection of Passero’s debts
unless legal steps were first taken to expose Passero’s actual
control of the account.
3. The district court erred in relying on the bankruptcy
court’s apparently sua sponte finding that all of the judgments
against Passero had expired under Texas law and thus Passero could
not have acted with intent to defraud those creditors. This
finding is incorrect as it appears that at least one judgment
against Passero had not expired under Texas law and because Passero

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4
listed outstanding judgments against him on his bankruptcy
schedules.
4. The district court further erred in finding that Passero
demonstrated that the omission of Passero’s name from the 7410
Limited Partnership’s partnership agreement, and his use of assumed
name certificates in manipulating the placement of income from the
partnership, was not evidence of intent to defraud creditors.
5. The district court erred in affirming the bankruptcy
court’s finding that Passero had not retained an interest in the
spendthrift trust nor received any benefit from it. Record
documents reflect that in 2002 alone approximately $86,000 passed
through the Trespass account held by the trustee of the children’s
trust.
6. Finally, the district court was in error to find that any
indicia of intent to defraud was effectively rebutted by the 2003
filing of an assumed name certificate under which Passero
personally associated himself with “the Passero Company.”
In the light of the entirety of the record, that is, the
establishment of the spendthrift trust arrangement through which
the debtor conducted his personal and business affairs for some
fifteen years and by the use of assumed name certificates and other
surreptitious devices to hide his income and assets, up to and
including the year before filing his petition in bankruptcy, and in
view of his inadequate explanation for such conduct of his affairs,
it is clear that Passero failed to rebut the Chastant presumption

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5
that he acted with the intent to hinder, delay, or defraud his
creditors. The judgment of the district court is therefore
reversed and the case is remanded to the district court with
instructions to grant Cadles’s motion and enter judgment denying
Walter Passero relief by means of a Chapter 7 discharge.
REVERSED and REMANDED.

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