Liou v. Lee

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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Memorandum Decision
DO NOT PUBLISH
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 05-40370 J7
Adv. No. 05-4204
WOOSUNG LEE,
Debtor. 	/
HUEY-CHIANG LIOU,
Plaintiff,
vs.
WOOSUNG LEE,
Defendant. /
MEMORANDUM DECISION
This is an adversary proceeding in which plaintiff Huey-Chiang
Liou (“Liou”), seeks to bar the discharge of defendant Woosung Lee,
the above debtor (“Lee”), pursuant to Bankruptcy Code §727(a)(4)
(false oath or account in connection with a bankruptcy case). 	Liou
also seeks a nondischargeable judgment in the sum of $15,225 against
Lee pursuant to Bankruptcy Code §523(a)(2)(A) (debt obtained by
Signed: February 22, 2006

EDWARD D. JELLEN
U.S. Bankruptcy Judge

Entered on Docket
February 23, 2006
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 05-04204 Doc# 44 Filed: 02/22/06 Entered: 02/23/06 13:46:23 Page 1 of 8

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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1Testimony by Liou at trial.
2Id.
2	Memorandum Decision
false pretenses or fraud). 	The court, having heard the testimony of
the witnesses and the other evidence presented, will issue its
judgment in favor of Lee.
A. 	Facts
The genesis of this adversary proceeding is a pre-petition
landlord-tenant relationship between Liou and Lee. 	On or about
May 6, 2003, Liou and Lee entered into a Residential Lease-Rental
Agreement for the real property located at 2371 Marion Avenue,
Fremont, CA (“Property”), whereby Lee agreed to rent the Property
from Liou at a monthly rate of $2,000 (“Lease”). 	At the time, the
parties agreed that Lee would be allowed to pay a portion of the May
2003 rent, with the remainder to be paid between June and August
2003. 	Exhibit 1, Lease at page 3. 	At trial, Liou testified that
this term was agreed to because Lee stated that he was then
unemployed but anticipated becoming employed shortly. 1 	The parties
further orally agreed to amend section nine of the Lease and allow
Lee to sub-lease the Property. 2
Lee subsequently defaulted under the Lease. 	After entering
into, and defaulting under, several written agreements to cure
accrued rents, Lee and his son moved out of the Property on
August 7, 2004. 	Liou asserts that he is owed $15,225 in unpaid
rents and that this debt is nondischargeable.
Case: 05-04204 Doc# 44 Filed: 02/22/06 Entered: 02/23/06 13:46:23 Page 2 of 8

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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3Bankruptcy Code § 727(a)(4)(A) provides: “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.
3	Memorandum Decision
On January 28, 2005, Lee commenced this chapter 7 bankruptcy
case (the “Petition Date”). 	John Kendall is the appointed chapter 7
trustee (“Trustee”). 	On March 1, 2005, the initial section 341
meeting of creditors was held. 	On March 29, 2005, the continued
meeting of creditors was held and concluded.
Liou subsequently commenced this adversary proceeding.
B. 	Discussion
Section 727(a)(4) 3
Denial of a debtor’s discharge under section 727(a)(4)(A)
requires proof, by a preponderance of the evidence, that: (1) the
debtor knowingly and fraudulently made a false statement; and
(2) the false statement related to a material fact. 	In re Aubrey,
11 B.R. 268, 274 (9 th Cir. BAP 1990). 	Included are material false
statements in, or omissions from, the debtor’s schedules, In re
Wills, 243 B.R. 58, 62 (9 th Cir. BAP 1999), made with the actual
intent to defraud. 	In re Adeeb, 787 F.2d 139, 1342 (9 th Cir. 1986).
The purpose of section 727(a)(4) is to ensure that the
bankruptcy trustee and creditors have accurate information that
would enable them to understand the debtor’s financial affairs
without the need to conduct costly investigations. 	Aubrey, 111 B.R.
at 274. 	However, section 727 is to be construed liberally in favor
Case: 05-04204 Doc# 44 Filed: 02/22/06 Entered: 02/23/06 13:46:23 Page 3 of 8

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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4Liou submitted evidence showing that between the Petition
Date and the meet of creditors (2/3/05 to 3/3/05), Lee made
deposits to his Bank of America bank account in the total amount
of $4,609.55.
5Liou proffered evidence that Lee made two cash transfers in
the amount of $2,000 and $1,000 to “V V Asset Management” on
2/3/05 and 3/3/05, respectively.
4	Memorandum Decision
of debtors and strictly against the creditor. 	In re Mereshian, 200
B.R. 342, 347 (9 th Cir. BAP 1996), citing Adeeb, 787 F.2d at 1342.
Here, Liou argues that Lee should be denied his discharge
because Lee made various false statements under oath during the
meeting of creditors and on his schedules and Statement of Financial
Affairs. 	Specifically, Liou asserts that between the Petition Date
and the section 341 meeting of creditors, Lee made certain deposits 4
and transfers 5 of cash that he failed to disclose at the meeting of
creditors and/or failed to disclose in his schedules.
The evidence at trial did not support many of Liou’s
allegations. 	As to those that were supported, they were not
material to the point that denial of Lee’s discharge is justified.
With reference to Lee’s schedules and Statement of Financial
Affairs, Lee testified that the transfers of which Liou complained
were post-petition, and thus, that he was not obliged to disclose
them in his Statement of Financial Affairs. 	See Official Form F,
Statement of Financial Affairs, No. 7 (calling for transfers during
the one year immediately preceding the filing of the petition).
Liou submitted no contrary evidence.
Case: 05-04204 Doc# 44 Filed: 02/22/06 Entered: 02/23/06 13:46:23 Page 4 of 8

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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6In his Schedule C, Lee claimed California State exemptions
under CCP §703.140(b)(1)-(5) as follows: 	$40.00 in cash; $1,000
in household goods and furnishings; $14,000 for a 2003 Toyota
Camry. 	There thus remained a total of $6,535 in available
unclaimed exemptions.
5	Memorandum Decision
As to his testimony at the meeting of creditors, Lee testified
at trial that he did disclose the transfers as best he could recall.
Although Lee may have been less than candid, and not fully accurate,
the court cannot say that the inaccuracies were material. 	See In re
Mereshian, 200 B.R. 342, 346 (9 th Cir. BAP 1996)(a court may consider
the fact that an asset has little value as a factor in its
determination of a debtor’s intent under section 727(a)(4)).
Moreover, to the extent that Lee omitted disclosure of postpetition
assets or transactions, they did not involve property of the estate.
In In re Wills, the court stated “omissions or misstatements
concerning property that would not be property of the estate may not
meet the materiality requirements of section 727(a)(4)(A).” 	Wills,
243 B.R. at 63, citing In re Swanson, 36 B.R. 99 (9 th Cir. BAP 1984).
In Wills, the court also said “A false statement or omission that
has no impact on a bankruptcy case is not grounds for denial of
discharge under section 727(a)(4)(A).” 	Id.
Furthermore, the sums Liou alleges Lee failed to disclose could
have been claimed as exempt from the estate even if they were pre-
petition assets. 	Again, materiality is questionable. 6
The court holds that section 727(a)(4) does not bar Lee from
obtaining his discharge herein.
Case: 05-04204 Doc# 44 Filed: 02/22/06 Entered: 02/23/06 13:46:23 Page 5 of 8

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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6	Memorandum Decision
Section 523(a)(2)(A)
Liou argues that Lee’s debt for rent is nondischargeable under
section 523(a)(2)(A). 	To prevail under § 523(a)(2)(A), a creditor
must establish that: (1) the debtor made a representation, (2) with
knowledge of its falsity, (3) with the intention and purpose of
deceiving the creditor, (4) that the creditor justifiably relied on
the representation, and (5) that the creditor sustained damage as
the proximate result thereof. 	In re Kirsh, 973 F.2d 1454, 1457 (9th
Cir. 1992); In re Britton, 950 F.2d 602, 604 (9th Cir. 1991). The
creditor must establish each of these elements by a preponderance of
the evidence. 	Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654 (1991).
Here, Liou has failed to establish the requiste elements.
There was no evidence presented that showed that Lee entered into
the Lease with Liou without intending to perform. 	With reference to
the justifiable reliance requirement, Liou was aware of Lee’s
precarious financial condition when he agreed to allow Lee to let
the premises, and thereafter when he agreed to the extensions.
Liou argues that the fact that Lee used certain sublease rent
for his own purposes shows that his conduct was fraudulent, but
failed to show at trial how or why this was so. 	In fact, Liou
expressly authorized Lee to enter into a sublease.
Lee argues that Liou wrote him some checks that failed to
clear, and thereby obtained more time to stay in the premises. 	This
argument fails because Liou presented no evidence that Lee knew the
checks would not clear.
Case: 05-04204 Doc# 44 Filed: 02/22/06 Entered: 02/23/06 13:46:23 Page 6 of 8

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STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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7	Memorandum Decision
Liou also argues that Lee had promised him that he would make
up the past due rent from various other sources (e.g., a tax
refund). 	The court holds that any reliance by Liou on any such
representations was not justifiable. 	If made, such representations
came after the date of the alleged bounced checks, after Lee told
Liou he was out of work, and after Liou had served Lee with a notice
to quit the premises.
The court holds that Liou’s claims under section 523(a)(2)(A)
fail.
C. 	Conclusion
For the foregoing reasons, the court will issue its judgment in
favor of Lee.
END OF DOCUMENT
Case: 05-04204 Doc# 44 Filed: 02/22/06 Entered: 02/23/06 13:46:23 Page 7 of 8

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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8	Memorandum Decision
COURT SERVICE LIST
Woosung Lee
P.O. Box 362315
Milpitas, CA 95036
Huey-Chiang Liou
2371 Marion Avenue
Fremont, CA 94539
Case: 05-04204 Doc# 44 Filed: 02/22/06 Entered: 02/23/06 13:46:23 Page 8 of 8