Locke v. Nguyen et al

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
THAO TRAN and ANDREW HUNGLAM
NGUYEN, 	No. 09-10549
Debtor(s).
______________________________________/
JEFFRY LOCKE, Trustee,
Plaintiff(s),
v. 	A.P. No. 09-1055
THAO TRAN and ANDREW HUNGLAM
NGUYEN,
Defendant(s).
_______________________________________/
Memorandum After Trial
_________________
The initial petition, schedules and statement of affairs filed by counsel for Chapter 7 debtors
Thao Tran and Andrew Hunglam Nguyen contained horrific omissions. Neither the petition nor the
statement of affairs reflected that the Nguyens owned and were operating a furniture store. None of
the business assets were listed. Real property owned by the Nguyens was not disclosed in the
Schedule A. Two vehicles, a 2008 Mercedes and a 2006 Lexus, were omitted from Schedule B. A
large payment to counsel made just before the filing was not mentioned. 	A bank account containing
over $13,000.00 was not disclosed. The court has never seen such materially false bankruptcy papers
in any other bankruptcy case.
The Nguyens did not bring any of the omissions to the attention of plaintiff Jeffry Locke, the
Entered on Docket
January 22, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 09-01055 Doc# 14 Filed: 01/22/10 Entered: 01/22/10 17:04:37 Page 1 of 4

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Chapter 7 trustee assigned to the Nguyens’ case. 	He discovered the furniture business during his
questioning at the 341 hearing and asked his attorney, Ray Olmstead, to take at look at the premises.
Olmstead discovered a large showroom filled with furniture. When he looked in the office of the
furniture store, he noticed an insurance card describing a 2008 Mercedes. He also noticed paperwork
for a storage locker.
When Olmstead realized that there was a large inventory of furniture which belonged to the
estate, he asked the trustee’s auctioneers, Scott and Tom Dupont, to examine the store premises. Scott
Dupont called Andrew Nguyen to arrange an appointment. He asked to view the premises at 1:00
P.M. on a certain day. Nguyen told him that he could not be there at 1:00 P.M., and suggested 4:00
P.M., to which Dupont agreed. However, the Duponts arrived at 1:00 P.M. anyway, to discover
Nguyen loading up two large vans with furniture from the store. The Duponts asked him to return the
furniture from the vans to the store, and Nguyen complied.
Sensing that the furniture store premises were not secure, the Duponts returned that evening
and placed chain locks on the doors. They returned the next morning at 8:00 A.M. and discovered that
they had not secured one door and it looked like furniture from the store had been removed through
that door. Tom Dupont then remembered seeing a van of the same type Nguyen had used the day
before parked a few blocks away. Upon investigating, he discovered that the van was filled with
furniture from the store. Nguyen then showed up and complied with Dupont’s request that he return
the furniture to the store.
Through his investigations, Olmstead discovered that the Nguyens did in fact own a 2008
Mercedes. At the continued meeting of creditors, Olmstead asked Andrew Nguyen about the storage
locker. Nguyen admitted owning the locker, but told Olmstead that it contained only “garbage.” This
statement was false. It was full of valuable furniture, including several couches.
The Nguyens continued to operate their business unlawfully for about a month after they filed
their bankruptcy petition. When Locke asked him to account for about $20,000.00 in funds which
passed through his hands, Nguyen stated that he lost them gambling. Nguyen later produced copies of
Case: 09-01055 Doc# 14 Filed: 01/22/10 Entered: 01/22/10 17:04:37 Page 2 of 4

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Courts have consistently held that vague and unsubstantiated claims of gambling losses do not
satisfactorily explain loss of assets so as to preserve a right to discharge. In re Dolin, 799 F.2d 251 (6th
Cir.1986); Matter of Reed, 700 F.2d 986, 993 (5th Cir. 1983); In re Wilch, 157 B.R. 342, 345
(Bkrtcy.N.D.Ohio 1993); In re Burns, 133 B.R. 181, 185 (Bkrtcy.W.D.Pa.1991); In re McMahon, 116
B.R. 857, 861 (Bkrtcy.M.D.Fla.1990); etc., etc. Nguyen has not come anywhere near substantiating
his gambling claims.
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certified checks for about $14,000.00 paid to vendors during this period, and changed his story to state
that he only lost the missing balance of about $5,500.00 by gambling.
It is clear that the Mercedes at least was actively concealed from Locke. The Nguyens had
disclosed the Mercedes to their attorney, who had included it in a draft of the schedules. However, his
office deleted it without question when asked to do so by the Nguyens. This concealment was made
with the intent to hide the vehicle from an from an officer of the estate and requires denial of the
Nguyens’ discharge pursuant to § 727(a)(2)(B) of the Bankruptcy Code.
Nguyen knew that he was not allowed to remove furniture from the store because he had been
stopped from removing furniture by the Duponts earlier the same day and could see that chain locks
had been placed on the doors. He nonetheless returned in the night and removed a van load of
furniture through the one door that had not been secured. He therefore removed property of the estate
after the filing with the intent to hinder Locke. This act requires the court to deny the Nguyens’
discharge pursuant to § 727(a)(2)(B) of the Bankruptcy Code. There is no mitigation in the fact that
when discovered by happenstance Nguyen returned the stolen furniture.
The court does not believe that Andrew Nguyen lost any money gambling. He has offered no
evidence to corroborate this explanation for the missing money, and he changed his story as to how
much he gambled away after he was able to produce some copies of certified checks for part of the
missing funds. The court finds it more likely that Nguyen has secreted the funds and is concealing
them from Locke.1 This act also requires denial of discharge pursuant to § 727(a)(2)(B) as well as §
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727(a)(5).
The court notes that it is not relying on the false schedules in reaching its conclusion that the
Nguyens are not entitled to a discharge, as their counsel has admitted that he changed the schedules
before he filed them and they were never actually signed by the Nguyens. It is clear to the court that
the attorney, Joel J. Margolis, is not fit to practice law. He will be the subject of disciplinary action.
Among his many other transgressions, Margolis failed to properly counsel the Nguyens and allowed
his non-lawyer wife to handle the Nguyens’ case without any meaningful supervision.
There is no doubt that competent advice of counsel, if followed, would have preserved the
Nguyens’ discharge. 	Reliance on the advice of counsel can, in some cases, vitiate the finding of intent
necessary to deny a discharge. However, it is no defense to a finding of active concealment and lying
to an officer of the estate that their attorney did not tell them not to. 	The Nguyens actively concealed
their ownership of the Mercedes. Andrew Nguyen lied about the gambling losses and the contents of
the storage locker, and he stole property of the estate. The absence of proper legal advice cannot
excuse these acts.
For the foregoing reasons, the Nguyens will be denied a discharge. Locke shall recover his
costs of suit.
This memorandum constitutes the court’s findings and conclusions pursuant to FRCP 52(a) and
FRBP 7052. Counsel for Locke submit an appropriate form of judgment forthwith.
Dated: January 22, 2010
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 09-01055 Doc# 14 Filed: 01/22/10 Entered: 01/22/10 17:04:37 Page 4 of 4