Seror v. Lopez

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UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
SAN FERNANDO VALLEY DIVISION
In re:
Diana Lopez
Debtor(s).
CHAPTER 7
Case No.: 1:11-bk-16307-MT
Adv No: 1:12-ap-01097-MT
David Seror
Plaintiff(s),
v.
Diana Lopez
Defendant(s).
FINDINGS OF FACT AND CONCLUSIONS
OF LAW FOLLOWING TRIAL RE CHAPTER
7 TRUSTEE’S COMPLAINT OBJECTING TO
DEBTOR'S DISCHARGE UNDER 11 U.S.C.
§ 727 (A)
Trial Dates: November 7 and 10, 2014
Time: 9:00 a.m.
Courtroom: 302
In this adversary proceeding, the Chapter 7 Trustee, David Seror (the “Trustee”) objects
to the discharge of debtor Diana Lopez (“Lopez”) under a number of provisions of 11 U.S.C. §
727 (a).1
///
1 This court has jurisdiction pursuant to 28 U.S.C. §1334 and 28 U.S.C. §157. This action is a core proceeding
pursuant to 28 U.S.C. §157(b)(2)(A), (C), and (I).
FILED & ENTERED
JUN 19 2015
CLERK U.S. BANKRUPTCY COURT
Central District of California
BY DEPUTY CLERK	Gonzalez
FOR PUBLICATION
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I. BACKGROUND
On May 20, 2011, an involuntary chapter 7 petition was filed by petitioning creditors,
Miguel Ortega, Martha Gomez, and Richard Pena in the name of Diana Lopez. See Case no.
1:11-bk-16307-MT (“Lopez Bankr.”). On July 20, 2011, Lopez filed an answer wherein she
stated that she did not oppose the entry of an order for relief. See Answer to Complaint, Lopez
Bankr. ECF Doc. 10. An order for relief was entered on July 28, 2011. See Lopez Bankr. ECF
Doc. 12. On October 31, 2011, the same petitioning creditors filed a second involuntary chapter
7 petition in the name of L.D.T. Investments, Inc. (“LDT”). See Case no. 1:11-bk-22664-MT
(“LDT Bankr.”). An order for relief was entered on December 8, 2011. See LDT Bankr. ECF
Doc. 11. David Seror is the Chapter 7 Trustee appointed in both cases.
Lopez is the sole equity holder of LDT. On August 25, 2011, the California Department
Real Estate issued an Order to Desist and Refrain against LDT (the “DRE Order”). The DRE
Order found that LDT and Lopez violated various provisions of the Financial Code and the
Business and Professions Code. Subsequently, on September 16, 2011, a Decision and Default
Order was filed from the Department of Real Estate State of California stating that LDT’s real
estate license was revoked. Lopez was named in the caption and an order issued for her to desist
and refrain from performing any activity that requires a real estate license. See Defendant Ex. 8
at 24-33 of 81.
Prior to Lopez’s first §341(a) meeting of creditors in her personal bankruptcy on August
2, 2011, Lopez filed her schedule of assets and liabilities (“Original Schedules”) and statement of
financial affairs (“SOFA”) and asserted her Fifth Amendment privilege against self-
incrimination on key questions in her SOFA. Lopez invoked her privilege with respect to:
 Item No. 1, which asked the Debtor to provide information regarding “Income
from employment or operation of business” in 2009 and 2010;
 Item No. 2, which asked the Debtor to provide information regarding “Income
other than from employment or operation of business”; and
 Item No. 8, which asked the Debtor to provide information regarding “ . . . all
losses from fire, theft, other casualty or gambling within one year immediately
preceding commencement of this case . . . .”
The initial §341(a) meeting in the personal case was held on September 22, 2011
(“§341(a) Meeting”). At the §341(a) Meeting, the Trustee questioned the Debtor regarding the
following topics, to which the Debtor invoked her Fifth Amendment privilege not to testify:
a. The production of the Debtor’s tax returns;
b. The type of business LDT was in;
c. The real property that LDT owned in the four years preceding the petition date;
d. The amount of loans made by LDT in the year preceding the Petition Date;
e. Whether and to what extent Debtor had personally signed guarantees for loans
made to LDT by various entities listed on Debtor’s Schedule F as unsecured
creditors;
f. The mere location of LDT’s corporate records;
g. The nature and extent of Debtor’s claims against Benito Rodriguez (an asset
scheduled on Debtor’s Schedule B);
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h. The source of funds relating to a gambling debt listed on Schedule F for $60,000
concerning the Palms Casino
The Trustee testified at trial that the §341(a) meeting of creditors is an important
opportunity for him to ask questions, to figure out various transfers and to understand documents
provided by the debtor. A complete SOFA allows a trustee to tell what secured debt there is,
what income might be available, what transfers have been made pre-petition, and what the larger
picture of the debtor’s financial affairs is. He usually compares the tax returns provided by the
debtor to the SOFA. In Lopez’s individual case, her refusal to testify and provide a lot of
information, combined with a failure to turn over tax returns made it very frustrating and difficult
to administer the case.
After the initial 341(a) meeting, on October 6, 2011, Lopez filed Amended Schedules and
an Amended SOFA, in which Lopez again invoked her Fifth Amendment privilege on three
questions, Items No. 1, 2, and 8 in the amended SOFA. The 341(a) meeting in the Lopez case
was concluded on the morning of October 26, 2011. After the 341(a) meeting was officially
concluded, Lopez finally provided a copy of her 2010 personal tax returns to the Trustee and
informed him that she was no longer asserting her Fifth Amendment privilege with respect to the
2010 return. See Trustee Ex 59. The following day, Lopez withdrew any claim of privilege as to
her 2009 tax return and sent a copy to the Trustee. See Trustee Ex. 60.
On February 7, 2012, in connection with LDT’s involuntary bankruptcy case, counsel for
the Trustee requested that Lopez, as the 100% shareholder, CEO, and sole officer of LDT, turn
over all books and records in her possession, custody, and control regarding LDT (the “Demand
Letter”). In response to the Demand Letter, on February 10, 2012, former counsel for Lopez
responded to the Trustee, stating that Lopez would preserve all of LDT’s books and records then
in her possession, custody, and control, and that she would produce the same to the Trustee.
Lopez’s counsel stated, however, that LDT had “sold” all of its electronic equipment, including
computers and hard drives at a garage sale (the “Garage Sale”), and Lopez therefore could not
produce them.
On February 14, 2012, former counsel for Lopez wrote to the Trustee, informing him that
Lopez needed to make copies of the LDT documents, but she believed she could deliver them by
February 29, 2012. On February 29, 2012, Lopez produced two banker’s boxes, containing a
total of eleven folders. The Trustee declined to pay for the copying of the LDT records.
On March 19, 2012, the Trustee commenced this adversary proceeding against Lopez
seeking a denial of discharge under § 727 of the Bankruptcy Code. See Case no. 1:12-ap-01097-
MT (the “Adversary”).
Lopez then began the long process of copying additional LDT records herself and
providing them in bits and pieces to the Trustee from March 20, 2012 until November 30, 2012.
See Trustee Ex. 57 at SDL0346-0399. On June 12, 2012, after Lopez had produced 16 boxes of
documents to the Trustee, the Trustee reached a stipulation for Lopez’s voluntary appearance to
testify and finish turning over LDT documents and then sought an order under F.R.B.P. 2004 for
numerous other entities to produce records and testimony. See LDT Bankr. ECF Doc. 61. Two
weeks later, Lopez and the Trustee filed a stipulation wherein Lopez promised to use her best
efforts to finally complete her lengthy copying effort by July 30 and to be deposed on August 28,
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2012. See LDT Bankr. ECF Doc. 68. On September 24, 2012, the Trustee filed a motion to
compel LDT to: (a) file statements and schedules and a creditor matrix, (b) turn over books,
records, and property of the estate, and (c) cooperate with the Trustee. See LDT Bankr. ECF
Doc. 97. Although the Trustee’s motion to compel was granted, (LDT Bankr. ECF Doc. 141 and
163), no such items were ever filed on behalf of LDT.
On March 19, 2013, the Court entered a Memorandum of Decision and Order on the
Trustee’s Motion to Compel LDT to (1) File Statements and Schedules and Creditors Matrix, (2)
Turn Over Books, Records and Property of LDT, and (3) Cooperate with the Trustee (LDT
Bankr. ECF No. 97), in which the Court ordered Diana Lopez to: (1) immediately turn over all
books, records, and property of LDT to the Trustee, (2) turn over all computer files of LDT that
were still in her possession, (3) turn over any rents collected following the Order for Relief by
Lopez, Precious Gems Management, Inc., or Lopez’s daughters as to properties owned by LDT;
and (4) cease from engaging in any post-petition action that otherwise require Court or Trustee
approval, regardless of whether Lopez was acting on behalf of herself or LDT. (“2013 Memo of
Decision”). See LDT Bankr. ECF No. 184.
Lopez, as the sole shareholder, Chief Executive Officer, and sole corporate officer of
LDT, has never filed schedules in the LDT bankruptcy case. Debtor did eventually produce
approximately seventy cartons of copied LDT books and records. Lopez also hired CPA Ilma
Avila (“Avila”) sometime in 2013 to do an “Accountant’s Compilation Report” of her finances
and spent 22 hours with her reviewing personal and LDT records.
On May 28, 2013, Lopez filed a second amended SOFA in her personal case. The Second
Amended SOFA removed any invocation of the Fifth Amendment privilege. Lopez answered all
questions in that SOFA regarding income from LDT in 2009 and 2010; income from other
sources including her gambling winnings; and disclosed her losses. Lopez’s answers differed
from her original and first amended SOFA.
As of January 7, 2014, Lopez represented herself following the withdrawal of her
attorney of record. On January 17, 2014, Lopez filed a Motion for Summary Judgment which
was denied. The Court then held a two day trial on November 7 and 10, 2014. The Trustee
pursued only the causes of actions listed below; all others in the complaint were abandoned.
The Trustee alleged three causes of action under the Bankruptcy Code with respect to
Lopez’ personal bankruptcy:
§ 727(a)(3): that Lopez concealed, destroyed, mutilated, falsified, or failed
to keep or preserve any recorded information from which Lopez’s
financial condition or business transactions might be ascertained;
§ 727(a)(4)(D): that Lopez knowingly and fraudulently, in or in
connection with the case withheld from the Trustee any recorded
information relating to Lopez’s property or financial affairs;
§ 727(a)(5): that Lopez failed to explain satisfactorily any loss of assets
or deficiency of assets to meet Lopez’s liabilities.
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In addition, the Trustee alleged four violations under §727(a)(7) with respect
to Lopez’s activity as an officer of the LDT Investments bankruptcy, which prohibits
certain actions in connection with another case concerning an insider of Lopez (i.e.,
LDT) as follows:
§ 727(a)(2): that Lopez, with intent to hinder, delay, or defraud a creditor or an
officer of the LDT estate has transferred, removed, destroyed, mutilated, or concealed,
or has permitted to be transferred, removed, destroyed, mutilated, or concealed property
of LDT within one year of the petition date, or property of the LDT Bankruptcy
estate post-petition;
§ 727(a)(3): that Lopez concealed, destroyed, mutilated, falsified, or failed
to keep or preserve any recorded information from which LDT’s financial
condition or business transactions might be ascertained;
§ 727(a)(4)(D): that Lopez knowingly and fraudulently, in or in connection with the
LD T case withheld from the Trustee any recorded information relating to LDT’s
property or financial affairs;
§ 727(a)(5): that Lopez failed to explain satisfactorily any loss of assets or deficiency
of assets to meet LDT’s liabilities.
II. EVIDENTIARY RULINGS
At the hearing, the Trustee requested the Court take judicial notice of Lopez’s Schedule
of Assets and Liabilities and SOFA; Lopez’s amended Schedules of Assets and Liabilities and
SOFA (Trustee Ex. 1); Memorandum of Decision entered on January 29, 2013 (Trustee Ex. 2);
an Order on Chapter 7 Trustee’s Motion to Compel (Trustee Ex. 7); Lopez’s Second Amended
SOFA filed May 28, 2013(Trustee Ex. 9); and various Los Angeles Superior Court documents:
including Unlawful Detainer Complaints, 3-Day Notices to Pay Rent or Quit and 60-day Notice
to Terminate Tenancy (Trustee Ex. 36-53 “UD proceeding documents”).
The Court overruled Lopez’s objection to this request. Federal Rule of Evidence 2012
permits judicial notice because they are court documents and the accuracy of the documents have
not been questioned. Further, the earlier decision is settled law of the case. These exhibits were
also admitted under Fed. R. Evid. 801(d). “Statements in bankruptcy schedules are executed
under penalty of perjury and when offered against a debtor are eligible for treatment as judicial
admissions.” In re Bohrer, 266 B.R. 200, 201 (Bankr. N.D. Cal. 2001); see also In re Haun, 396
B.R. 522, 530 n.16 (Bankr. D. Idaho 2008) (“The submissions in [the underlying bankruptcy
case] made by Defendant under penalty of perjury, such as in his sworn schedules and statement
of financial affairs may be treated as evidentiary admissions under Fed. R. Evid. 801(d).”).
The following witnesses testified at trial: Diana Lopez, Debtor; David Seror, Chapter 7
Trustee; John Menchaca, a rebuttal witness called to testify as to the sufficiency of the expert
report of Certified Public Account Ilma Avila; Kathleen March, former counsel for Debtor; Ilma
2 Federal Rule of Evidence 201 provides that “A judicially noticed fact must be one not subject to reasonable dispute
in that it is either (1) generally known within the territorial jurisdiction of the trial court, or (2) capable of accurate
and ready determination by resort to sources whose accuracy cannot reasonably be questioned.”
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Avila, Certified Public Accountant, Debtor’s expert. Lopez had planned to call numerous other
witnesses, and subpoenas were issued for them, (Adv. ECF Doc. 97), but Lopez ultimately
decided not to call these witnesses.
Lopez represented herself at trial, although she was represented by counsel in her
personal bankruptcy case for the first 21 months of this adversary case, and appears to be still
represented in the bankruptcy case. See Lopez Bankr. ECF No. 14-1 at 22-23; and Adv. ECF
Doc. 58. The Court granted numerous continuances of the pretrial conference in order to allow
Lopez an opportunity to provide a list of facts she wished to prove at trial and to respond the
proffered pretrial stipulation drafted by the Trustee. The Court repeatedly emphasized the need
to gather all exhibits and prepare them for trial. At trial, Lopez was given as long as she wanted
to testify.
At the completion of the two day trial, the following exhibits were admitted into
evidence:
Ex.
#
Trustee’s Exhibits: Ex.
#
Defendant’s Exhibits:
1 Lopez’s schedule of assets and
liabilities and SOFA
5 IRS Proof of Claim #6 in Lopez Bankr.
2 Lopez’s AMENDED schedule of
assets and liabilities and SOFA
6 Declaration and Report of CPA Expert
Witness Ilma Avila
7 Memorandum of Decision 8 LDT Documents and Correspondence
with the Department of Real Estate
8 Order on Chapter 7 Trustee’s Motion
to Compel –
11 LDT Insurance Claims and Denials
9 Lopez’s 2nd AMENDED schedule of
assets and liabilities and SOFA
12 LDT Records and Related Financial
Documents – 628 pages
36-
53
Unlawful Detainer proceeding
documents
16 2010 Payroll Checks and Cash
Deposited by Diana Lopez
54 Expert Rebuttal Report by John
Menchaca
19 Index of LDT documents produced
and delivered to the Trustee
55 Deposition Transcript of Diana Lopez 22 Proof of Payments to IRS and Lenders
after LDT Suspension
57 Exhibits to the Depositions of Diana
Lopez and Ilma Avila
31 Income Tax Examination Revised
Report by the IRS
58 Letter from Debtor’s Former Counsel
to Trustee re amounts borrowed by
Lopez from persons listed in Schedule
E.
59 Letter from Debtor’s Former Counsel
to Trustee re waiver of 5th Am.
Privilege to 2010 Tax return
60 Letter from Debtor’s Former Counsel
to Trustee re waiver of 5th Am.
Privilege to 2009 Tax return
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The parties filed a written stipulation as to some of the facts of this case. See Adv. ECF
No. 89. The Court hereby adopts the stipulated facts as findings of fact and discusses them along
with any other trial evidence as part of the findings of fact and conclusions of law.
III. CAUSES OF ACTION
In general, the bankruptcy court must grant a discharge to an individual chapter 7 debtor
unless one of the twelve enumerated grounds in § 727(a) is satisfied. In the spirit of the “fresh
start” principles that the Bankruptcy Code embodies, claims for denial of discharge are liberally
construed in favor of the debtor and against the objector to discharge. Khalil v. Developers Sur.
& Indem. Co. (In re Khalil), 379 B.R. 163, 172 (B.A.P. 9th Cir. 2007) aff'd, 578 F.3d 1167 (9th
Cir. 2009). The objector to discharge bears the burden to prove by a preponderance of evidence
that the debtor's discharge should be denied under an enumerated ground of § 727(a). Id.
a) § 727(a)(3) - Failure to Keep or Preserve Records:
Section 727(a)(3) provides for denial of a debtor’s discharge if the debtor “has concealed,
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 was justified under all of the
circumstances of the case.” 11 U.S.C. § 727(a)(3). The [Debtor] must present sufficient written
evidence which will enable his creditors reasonably to ascertain his present financial condition
and to follow his business transactions for a reasonable period in the past. In re Cox, 904 F.2d
1399, 1400 (9th Cir. 1990). In some cases, a failure to produce proper records will not justify a
denial of discharge when the missing information can be reconstructed from records kept by
others. See Collier on Bankruptcy, ¶ 727.03 (Alan N. Resnick & Henry J. Sommer eds., 16th ed).
To determine whether the failure was justified under the circumstances, the court should
consider, among other factors it deems relevant, (1) Debtor’s intelligence and educational
background; (2) experience in business matters; (3) the extent of involvement in the businesses
for which discharge is sought; (4) Debtors reliance, including her knowledge of whether records
were being kept; (5) the nature of the marital relationship; and (6) any recordkeeping or inquiry
duties imposed upon Debtor by state law. In re Cox, 904 F.2d 1399, 1403 n.5 (9th Cir. 1990).
b) § 727(a)(4)(D) - Withholding Records:
Section 727(a)(4)(D) provides that a discharge shall be denied to a debtor who
“knowingly and fraudulently, in or in connection with the case 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.” The
purpose of § 727(a)(4) is to ensure that a debtor provides reliable information so interested
parties do not have to dig out the facts in examination or investigations. Hansen v. Moore (In re
Hansen), 368 B.R. 868, 872 (B.A.P. 9th Cir. 2007). Intent under § 727(a)(4) may be established
by circumstantial evidence, or by inferences drawn from a course of conduct. Id.
c) § 727(a)(5) - Explaining Loss of Assets:
Under 11 U.S.C §727(a)(5), a debtor may not be granted a discharge if the debtor has
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failed to explain satisfactorily, before determination of denial of discharge under this paragraph,
any loss of assets or deficiency of assets to meet the debtor's liabilities. Section 727(a)(5) is
broadly drawn and gives the bankruptcy court power to decline to grant a discharge in
bankruptcy when the debtor does not adequately explain a shortage, loss, or disappearance of
assets.” Aoki v. Atto Corp. (In re Aoki), 323 B.R. 803, 817 (B.A.P. 1st Cir. 2005). Vague,
indefinite, and uncorroborated explanations are unsatisfactory. Bell v. Stuerke (In re Stuerke), 61
B.R. 623, 626 (B.A.P. 9th Cir. 1986); Aoki, 323 B.R. at 817.
Under § 727(a)(5) an objecting party bears the initial burden of proof and must
demonstrate: (1) debtor at one time, not too remote from the bankruptcy petition date, owned
identifiable assets; (2) on the date the bankruptcy petition was filed or order of relief granted, the
debtor no longer owned the assets; and (3) the bankruptcy pleadings or statement of affairs do
not reflect an adequate explanation for the disposition of the assets. Retz v. Samson (In re Retz),
606 F.3d 1189, 1193 (9th Cir. 2010). "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." Id. at 1206 citing In re Tully, 818 F.2d 106, 108
(1st Cir. 1987).
d) § 727(a)(7) - Actions Taken in Related Case:
Section 727(a)(7) denies a discharge to a debtor who:
(1) on or within one year before the date of the filing of the petition3,
or at any time during the debtor’s own case,
(2) commits any of the objectionable acts specified in subsection
727(a)(2), (3), (4), (5) or (6),
(3) in connection with another case concerning an insider. 4
Section 727(a)(7) extends the basis for denial of discharge to the debtor’s misconduct in a
substantially contemporaneous related bankruptcy case. See Collier on Bankruptcy, ¶ 727.10
(Alan N. Resnick & Henry J. Sommer eds., 16th ed.; In re Leija, 270 B.R. 497, 500 (Bankr. E.D.
Cal. 2001). Thus, if the debtor engages in objectionable conduct in a case involving . . . a
corporation of which the debtor is an officer, director or controlling person, the debtor may be
denied a discharge in the debtor’s own case. Id. This provision is intended to induce the
cooperation of individuals in related bankruptcy cases. In re Krehl, 86 F.3d 737, 741 (7th Cir.
1996); In re Miller, 448 B.R. 551, 570 (Bankr. N.D. Okla. 2011) (§727(a)(7) broadens the reach
of discharge exceptions to encompass actions of insiders).
e) § 727(a)(2) - Fraudulent Transfer or Concealment of Property:
Under § 727(a)(2), the court may deny the debtor a discharge, where the debtor, with
3 As of the date the order for relief was entered in the event of an involuntary.
4 “Insider” is defined in § 101. If the debtor is an individual, the term includes relatives of the debtor, partnerships in
which the debtor is a general partner, a general partner of the debtor and corporations of which the debtor is a
director, officer or person in control. See Collier on Bankruptcy ¶ 727.10 (Alan N. Resnick & Henry J. Sommer eds.,
16th ed.).
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intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of
property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has
permitted to be transferred, removed, destroyed, mutilated, or concealed either property of the
debtor, within one year before the date of the filing of the petition; or property of the estate, after
the date of the filing of the petition.
A party seeking denial of discharge under 11 U.S.C.S. § 727(a)(2) must prove two things:
(1) a disposition of property, such as transfer or concealment, and (2) a subjective intent on the
debtor's part to hinder, delay or defraud a creditor through the act of disposing of the property.
Retz v. Samson (In re Retz), 606 F.3d 1189, 1193 (9th Cir. 2010).
IV. FINDINGS OF FACT AND CONCLUSIONS OF LAW5
A. Documents, Books and Records
A debtor has the affirmative duty to surrender all estate property and records to the
chapter 7 trustee. See 11 U.S.C. § 521(a)(4). This duty is non-negotiable. See generally Brower
v. Evans, 257 F.3d 1058, 1068 n. 10 (9th Cir.2001) (“Shall means shall.”) Section 521(a)(3) also
requires that a debtor “cooperate with the trustee as necessary to enable the trustee to perform the
trustee's duties....” Federal Rule of Bankruptcy Procedure 4002(a)(4) underlines those
responsibilities by requiring that debtors “cooperate with the trustee in ... the administration of
the estate.” In re Starky, 522 B.R. 220, 227 (B.A.P. 9th Cir. 2014). “Creditors are not required to
risk the withholding or concealment of assets by the [debtor] under cover of a chaotic or
incomplete set of books or records.” In re Cox, 904 F.2d 1399, 1401 (9th Cir. 1990), citing
Burchett v. Myers, 202 F.2d 920, 926 (9th Cir.1953). “Concealment” of records is not confined
to physical secretion. It covers other conduct, such as withholding knowledge of assets by failure
or refusal to divulge owed information. See Collier on Bankruptcy, ¶ 727.02 (Alan N. Resnick &
Henry J. Sommer eds., 16th ed). As discussed below, Lopez concealed and withheld documents
and financial records in both the LDT and her personal bankruptcy cases under these standards.
1. LDT Records
The order for relief in the LDT case was entered on December 8, 2011. It ordered debtor
LDT to file a list containing the name and address of each entity included on Schedule D, E, F,
G, and H; LDT was also ordered to file schedules, a SOFA and a verified Statement of Social
Security Number(s) (Official Form B21) referred to in Federal Rule of Bankruptcy Procedure
1007(a), (c) and (f) within 14 days after entry of the Order For Relief. See LDT Bankr. ECF No.
11. The Trustee then held a §341(a) meeting of creditors on January 23, 2012 and had to
continue it to February 21, 2012, because there were still no LDT schedules and no appearance
by LDT. See LDT Bankr. ECF No. 31. Lopez had already invoked her Fifth Amendment
privilege not to testify on September 22, 2011, and October 26, 2011, in response to many
questions in her personal case that related to LDT assets and records. The 341(a) meeting was
concluded on February 21, 2012, and still no items required under F.R.B.P. 1007 had been filed
on behalf of LDT and no one appeared on behalf of LDT.
5 The findings of fact and legal conclusions herein constitute the court’s findings under Federal Rule of Civil
Procedure 52(a), applicable in this bankruptcy proceeding under Federal Rule of Bankruptcy Procedure 9014. To
the extent any findings of fact constitute conclusions of law, they are adopted as such. To the extent that any of the
conclusions of law constitute findings of fact, they are adopted as such.
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Lopez allowed all of LDT’s computers with all of its digital records to be sold at a garage
sale. The garage sale occurred pre-petition before either the Lopez or the LDT bankruptcies
were filed. Lopez testified that LDT stopped operating in April 2011. After LDT was evicted
from its business location, Lopez let LDT’s furnishings go and did not keep the computers. See
Three Day Notice to Vacate, Defendant Ex. 12 at 427 dated May 10, 2011. Lopez claimed she
had paper copies of all the documents and there was no reason for her to preserve the computers.
Under the circumstances, liquidating the computers at a garage sale without proof of any
knowledge of a potential future involuntary bankruptcy is not a basis for denial of discharge.
Because LDT’s electronic records were lost, the Trustee had a greater need for the hard copies of
any records to be provided clearly and quickly so the missing information could possibly be
reconstructed from the records that were kept.
Although Lopez eventually provided significant amounts of records of LDT, she did so in
a manner designed to slow the Trustee down and thwart any real understanding of her personal
and LDT’s corporate finances. Despite multiple demands by the Trustee and Court orders, the
Trustee never obtained schedules for LDT or a coherent explanation of the business. Lopez only
started turning over documents after the Trustee filed a complaint objecting to her discharge.
Lopez then gradually provided documents over a 12-month period, and did organize some of
them into specific groups such as a box of foreclosed properties, closed transactions, short sale
negotiations, and “cash for keys” properties. She did list the addresses of each set of property
records as they were turned over. Many of the records, however, were not organized in any
fashion and there was no way to tell whether the provided documents included the full universe.
The Trustee employed accountants to attempt to figure out LDT’s financial condition, but after
hundreds of hours, the accountants were not able to link up documents to determine a coherent
view of LDT’s financial transactions. The trustee needs to link an individual’s finances with
those of a corporation and to follow any business transaction to see what can be recovered for the
estate and what claims of creditors are proper. See, e.g. In re Cox, 904 F.2d 1399, 1402 (9th Cir.
1990) (denial of discharge where trustee found no ledgers or books of account for the debtor’s
individually or for their major corporation which made it impossible to ascertain financial
position or follow business transactions with any assurance of accuracy.)
Lopez’s accounting expert CPA Avila testified that she was hired by Lopez to review and
analyze LDT’s financial information. Avila stated that over a two day period, she reviewed
thousands of LDT documents and with the assistance of Lopez, was able to discern LDT’s
finances. Avila stated that her report offered no opinion on the sufficiency of Lopez’s records
personally, but the review of LDT financials did include some of Lopez’s personal records.
John Menchaca (“Menchaca”) was the Trustee’s accounting rebuttal expert and was hired
by the Trustee solely to analyze Avila’s report. Menchaca testified that Avila’s report did not
provide enough of a basis to conclude what it concludes. Menchaca was convincing that what
Avila reviewed did not support the opinions she expressed in her expert report.
2. Personal Records
Avila did not support Lopez’s argument that the records she turned over were adequate.
Avila provided no opinion on the sufficiency of records for Lopez personally. Although Lopez
admitted to significant gambling losses and self-employment income over $300,000 in certain
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years, the source of either LDT or other funds for this was never clearly explained. Menchaca
testified that his review of the gambling records were that Lopez had $2.5 million in gambling
winnings in various Las Vegas casinos, but losses of $1.6 million. As she only claimed
$315,000 in income at that time, there was more to explain as to how she generated those
winnings. As a CPA, Menchaca did not see how anyone could opine as to Lopez’s personal
finances or LDTs assets without looking at a larger universe of bank records to explain such
things.
Lopez also made it extremely difficult for the Trustee to ascertain her personal financial
condition or material business transactions for over two years during her personal bankruptcy
case because she never produced any personal financial information such as bank statements or
canceled checks, and other information normally relied upon by a Chapter 7 Trustee to
investigate and understand a debtor’s financial condition. The documents Lopez produced to the
Trustee regarding her financial information were mainly her tax returns, and they were not
turned over to the Trustee until after he had concluded the §341(a) Meeting. Lopez’s individual
tax returns were then grossly inaccurate and insufficient to determine her financial condition as
the testimony of Menchaca showed. Lopez was willing and able to explain sufficient personal
financial information for the IRS to lower her tax liability through LDT, but did not make that
effort for the Trustee. See IRS report dated May 16, 2014, Defendant Ex. 31.
3. Justification
The Court must consider that the records and information needed to be gathered from a
company that had been quickly shut down and evicted from its business premises and that Lopez
did not have a staff to assist her. Even considering those circumstances, Lopez’s actions were not
justified. Although, Lopez was forced into an involuntary bankruptcy, she did not oppose the
entry of the order for relief in either her personal or LDT’s case. Her failure to bring any
coherent explanation to the documents is only explained in part by the prepetition sale of the
computers. Although Lopez did not graduate high school, she was still quite experienced in real
estate sales and was intelligent and sophisticated enough to start and run a business. Lopez began
her career at age twenty one as a receptionist and worked her way up to sales, then became a title
representative and eventually an Escrow Officer. As LDT’s sole shareholder, she was
extensively involved in the business and was required by law to maintain books and records for
LDT, particularly for tax purposes. Through all of these positions, she appears to have been
aware of the need to document and maintain records in order to run the business. She also
demonstrated that she had the capacity to track specific transactions through complex LDT
records as part of running the company pre-petition and in the report she prepared for the IRS
and introduced as defendants Exhibit 31.
In her testimony at trial, Lopez stated that she relied on other people’s expertise in
accounting and bookkeeping and figured the Trustee would put it all together with his
accountants. Although Lopez is correct that the Trustee has the affirmative duty to investigate
the financial affairs of the debtor, the “information about a debtor’s assets, of necessity, must
come primarily if not entirely from the debtor. The trustee cannot conjure it out of thin air.”
Starky v. Birdsell, 522 B.R. 220, 227 (9th Cir BAP 2014). She avoided explaining why she did
not attempt to explain the records in more detail to the extent she could without her accountant,
and instead kept launching into a discussion of how she lost her investment and it is inequitable
for the Trustee to have any money belonging to LDT when she is broke. Even if her claim were
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correct that she put more into the company than she took out, she never pointed to records of the
operations or finances of LDT in a way that the Trustee could have figured out the total assets or
liabilities to the benefit of all creditors, including potentially herself.
Lopez also hindered the Trustee from filing avoidance actions. The passage of time—
without more—erodes the Trustee's potential use of his avoidance and asset recovery powers.
Most generally, those powers are limited in 11 U.S.C. § 546; an action or proceeding under §§
544, 545, 547, 548 and 552 “may not be commenced” (under the circumstances of this Chapter 7
case) after two years from the petition date. In re Boyajian, 486 B.R. 306, 322-23 (Bankr. D.N.J.
2013). The orders for relief entered on July 28, 2011 and December 8, 2011 for the Lopez and
LDT bankruptcies respectively, started the running of the § 546 period of limitation, which
expired shortly after Lopez waived her Fifth Amendment privilege. The mass production of
nearly 75,000 pages that took almost a year to deliver to the Trustee could only have been
analyzed thereafter by the Trustee over a reasonable period of time in order to determine whether
avoidance actions were warranted. In an effort to not miss any deadlines, however, the Trustee
filed hundreds of adversary proceedings in the LDT bankruptcy. With insufficient LDT records,
the Trustee testified it was hard to find and serve defendants. When the Trustee found and
properly served the defendants, they had evidence to support the disbursement and the Trustee
lacked evidence to pursue the case further, so the Trustee had to dismiss a majority of those
actions.
Lopez’s extreme delay in turning over documents to the Trustee coupled with her
assertion of the Fifth Amendment privilege grossly impeded the Trustee’s ability to administer
her personal case in an efficient manner. The lack of schedules and a SOFA in the LDT case
further compounded this, resulting in Lopez withholding information and concealing LDT’s
financial condition.
B. Failure To Explain Losses/ Concealment of Assets
The complaint alleges that there is an inadequate explanation of a loss of assets in both
the personal and LDT cases. As discussed earlier, the Trustee has the initial burden to show the
debtor owned identifiable assets, and that the debtor has failed to explain the loss of those assets
in the bankruptcy. The burden then shifts to the debtor to explain the loss of assets. A debtor's
failure to offer a satisfactory explanation when called on is a sufficient ground for denial of
discharge. In re Retz, 606 F.3d 1189 (9th Cir. 2010).
The Trustee alleged in his complaint that Lopez’s individual income for the two years
prior to the petition date was in excess of $300,000, but her statements and schedules filed in this
case do not sufficiently account for the disparity between her previous substantial income and the
value of her scheduled assets. Lopez testified that any gambling income she received she then
invested into LDT. Lopez did not provide complete enough LDT records to corroborate her
explanation. She did show, however, that she was able to convince the IRS that she put more
money into LDT than they originally believed. She also provided records of money put into
LDT, although Lopez was evasive during the trial as to exactly what she put into LDT from
personal income as opposed to funds received previously from LDT.
The evidence at trial showed that Lopez freely used LDT funds for her own personal
benefit, i.e., in extensive gambling, paying for personal expenses such as her BMW, and paying
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for tickets to expensive sporting events. See Trustee Exhibits 32 and 33. Lopez’s testimony
combined with the exhibits at trial of her expenditures and funds returned to LDT actually
showed that Lopez was unlikely to have had any assets in her personal estate at the time she
filed. The evidence showed that she did not adequately distinguish between her own income, the
income of family members who worked for LDT, and income of LDT. She spent fairly wildly
when things were going well without regard to what was hers or the corporation’s and failed to
maintain sufficient cash reserves to pay LDT’s rent or storage costs. She counted on a regular
influx of distressed properties and rents to keep the operation afloat and lost her personal cash
flow when LDT was ordered to cease and desist. The only conclusion that can be drawn from the
totality of the evidence is that Lopez personally had little at the time the order for relief was
entered as any assets belonged to LDT. Lopez’s testimony that the sudden closure of LDT left
her “broke” was credible and consistent with the way she operated the company. Oddly, this
adequately explained Lopez’s loss of personal income and assets post-petition since she appears
to have counted on LDT’s continuing cash flow to keep her lifestyle afloat. There was
insufficient evidence shown to prove any violation of §727(a)(5) in Lopez’s personal
bankruptcy.
Conversely, there was no explanation of what happened with LDT’s assets and
properties. There is no question that LDT still had properties at the point when the order for
relief was entered. Lopez herself alleges there was equity in some of the properties and seemed
to think there was money to be made collecting rent on some of them. LDT handled
approximately 180 properties in some capacity during its existence, although it is unclear how
many were for rent collection, for “flipping” into profits or for purposes of negotiating a “short
sale.” The Court has held hearings and granted relief from stay orders on over 25 different
properties, and it appeared there was no equity in them. Without the proper records, however, the
Trustee could not ascertain LDT’s financial condition and Lopez, as LDT’s sole shareholder,
failed to explain satisfactorily any loss of assets or deficiency of assets to meet LDT’s liabilities.
Although Lopez eventually turned over LDT documents to the Trustee, provision of voluminous
financial documents is no defense where they still do not explain the assets and liabilities of an
estate. In re Hazelrigg, No. Adv. 12-01966-TWD, 2013 WL 6154102, at *7 (B.A.P. 9th Cir.
Nov. 19, 2013).
Lopez submitted the expert report of CPA Avila and asserted the assets of LDT could be
ascertained from the records she turned over. Neither Lopez nor Avila provided any explanation
of how these documents explained the transfers or disposition of all or some of the properties and
rents. Avila’s opinion as to the sufficiency of LDT records was too vague as she did not quantify
the time period her examination applied to. Although she opined that there was no unexplained
loss of assets, she never stated what assets she referred to – cash or property and as of which
beginning and ending date. Without beginning cash inflows and outflows between 2007 and
2011, there was no basis for concluding that there had been no loss of cash assets of LDT.
Avila’s opinion seemed concerned mainly with showing that Lopez put lots more money into
LDT than she ever took out, but it did not explain what happened to the assets of LDT,
regardless of where they came from.
Lopez argued that LDT had properties, and if the Trustee had only allowed her to sell
them, she could have turned the company around and paid everyone. She believes placing her
into involuntary bankruptcy is what brought ruin on everyone. Although there is no evidence that
anyone could have continued to operate LDT in a legally permissible manner, if it were possible,
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she never provided this information on how to bring so much revenue into the LDT estate. The
evidence showed that Lopez failed to explain what actually happened to LDT’s assets and
properties after the Trustee demonstrated that there were significant assets of LDT pre-petition.
Thus, she is not entitled to a discharge under §727(a)(5) as applied through §727(a)(7).
The Trustee has also alleged a transfer or concealment of LDT assets under §727(a)(2).
This allegation seems to be that Lopez collected rents from property belonging to the estate. The
Court has previously made undisputed factual findings in its 2013 Memo of Decision as follows:
 Lopez recalls unlawful detainer proceedings having been commenced by LDT as
late as 2012. Lopez admits having authorized those suits. See Trustee Ex. 7 at
2:5–9; see also Trustee Exhibits 36–53.
 In 2012, Lopez, on behalf of LDT, retained Express Evictions. Retainer
agreements were entered into by Lopez on behalf of LDT. In order to commence
the unlawful detainer actions, Lopez also had “3-Day Notice to Pay Rent or Quit”
notices posted on certain properties. The notice instructed tenants to pay rent to
Precious Gems Management, a management company owned by Celeste Lopez, a
relative of Diane Lopez. See Trustee Exhibits 34, 35, 41, 45, 47, 49 & 50.
 Lopez also authorized an August 6, 2010 grant deed to be recorded on May 17,
2012. See Trustee Ex. 7 at 2:10–16. This transaction also took place after the
Order for Relief and, importantly, after the Trustee concluded the 341(a) meeting
of creditors on February 21, 2012 (LDT Bankr. Doc. No. 46), and after Debtor
Lopez produced some documents to the Trustee. PTO Undisputed Facts ¶¶ 23–26.
 There is no dispute that Lopez authorized Precious Gems Management to collect
rent. See Trustee Ex. 7 at 5:23–24.
The evidence showed that there was an attempt to collect rents from properties belonging
to LDT, but it is unclear whether Lopez or her family members actually collected any rent or
took possession of any LDT properties. This evidence is probative of other issues, but there was
insufficient evidence of a successful violation of §727(a)(2).
C. LDT/Lopez Status
As of the petition date of her personal bankruptcy, Lopez was the 100% shareholder,
Chief Executive Officer and sole corporate officer of LDT. See Pretrial Stipulation and Order,
Adv. ECF No. 91 at ¶ 8. As such, she is considered an insider of LDT under 11 U.S.C.
§101(31)(A)(iv), and LDT is an insider of debtor Lopez under §101(31)(B)(iii). Lopez has
argued that she could not take any actions on behalf of LDT because LDT was a suspended
corporation. That fact, however, does not excuse Lopez from filing schedules or turning over
LDT’s book and records. The Court already ruled that LDT’s defunct status did not excuse its
compliance with §521. See Trustee Ex. 7 at 4:9. The Court explained in its 2013 Memo of
Decision that although LDT may generally not continue to conduct business, this Court still has
jurisdiction over LDT in order to wind up its affairs under California law. The Court required
LDT to submit the information necessary to wind up its business and administer the estate for the
benefit of the creditors. Reed v. Norman, 48 Cal. 2d 338, 343 (Cal. 1957); Weinstock v. Sinatra,
379 F. Supp. 274, 277 (C.D. Cal. 197). Regardless of whether a Corporation is suspended, it is
still required to comply with the Bankruptcy Code, which LDT failed to do so. Lopez was the
only individual who could have caused LDT’s compliance with court orders.
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This excuse of “suspended status” for not assisting the Trustee with basic information
necessary for winding up a corporation is also not credible in light of other actions taken by
Lopez. While the Trustee was attempting to obtain basic information about LDT, Lopez was
attempting to gather whatever remaining funds she could out of the failed LDT real estate
business. Although Lopez maintained that she was not able to act on behalf of LDT, she
nevertheless authorized LDT to continue to pursue unlawful detainer proceedings after the LDT
and Lopez orders for relief were entered.
On June 26, 2013, Lopez also filed a motion, which was granted, requesting authorization
to speak to the IRS and California Franchise Tax Board about LDT’s pre-petition tax liability on
the basis that any tax assessed against LDT would flow through to Lopez personally because of
LDT’s “S corporation” status. See LDT Bankr. ECF Doc. 198. Notably, where her personal
liability was at issue, Lopez found a way to provide information about LDT. Where assistance to
the Trustee was required in the LDT case, she took the position that she could not do anything
despite her status as LDT’s sole officer and shareholder.
Notably, this failure to assist the Trustee in understanding even what real property
belonged to LDT and what the liabilities were occurred at the same time there were over twenty
five relief from stay motions filed in the LDT case. The Trustee had limited opportunity and
very little information to respond to motions that, theoretically, were critical to the question of
what return creditors would receive in the case. During the course of the LDT case, there have
been over 500 docket entries, indicating the complexity of its administration and the need for
information to wrap up its affairs.
D. Fifth Amendment Privilege Against Self Incrimination
Lopez correctly argues she cannot be denied a discharge for previously invoking her Fifth
Amendment privilege against self-incrimination. The Bankruptcy Code contemplates that the
Fifth Amendment privilege can be invoked in bankruptcy cases and adversary proceedings. 11
U.S.C.S. § 344; 11 U.S.C.S. § 727(a)(6). Proper invocation of the privilege against self-
incrimination is not a basis for denial of discharge in and of itself. 11 U.S.C. § 727(a)(6)(B) and
(C). Exercising her privilege against self-incrimination did not excuse Lopez from cooperating
with the Trustee and does not protect Lopez from being denied a discharge. See In re Ciotti, 442
B.R. 412 (Bankr. W.D. Pa. 2011), subsequent determination, 448 B.R. 694, 65 Collier Bankr.
Cas. 2d (MB) 671 (Bankr. W.D. Pa. 2011) (when debtor refuses to answer questions at trial,
citing a Fifth Amendment privilege, debtor could be denied discharge because assertion of the
privilege precludes the fair and effective administration of the bankruptcy estate); In re Connelly,
59 B.R. 421, 14 Bankr. Ct. Dec. (CRR) 274 (Bankr. N.D. Ill. 1986) (invoking Fifth Amendment
does not excuse debtor from performing duties under Bankruptcy Code).
The trier of fact is also free to draw adverse inferences from a failure of proof arising out
of the assertion of the privilege. In re Nat'l Audit Def. Network, 367 B.R. 207 (Bankr. D. Nev.
2007) (Although civil litigants may invoke the privilege against self-incrimination, the court is
empowered to do more than simply draw adverse inferences; in appropriate cases it may strike
pleadings, bar evidence, and even rule against a party based upon that party's refusal to testify).
In certain circumstances, a negative inference arises from a defendant's failure to produce
documents that should have been in his possession. The inference is that the documents would
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have been damaging to the defendant. This adverse inference rule is applicable when: (1) it
appears that the documentary evidence exists or existed; (2) the suppressing party has possession
or control of the evidence; (3) the evidence is available to the suppressing party, but not to the
party seeking production; (4) it appears that there has been actual suppression or withholding of
evidence. Id. Whether an adverse inference should be drawn depends upon the facts of the case.
Nationwide Life Ins. Co. v. Richards, 541 F.3d 903, 910 (9th Cir. 2008).
No adverse inference may be drawn, however, unless there is a substantial need for the
information and there is not a less burdensome way of obtaining that information. In re Martinez,
500 B.R. 608 (Bankr. N.D. Cal. 2013). The court must also determine whether the value of
presenting the evidence is substantially outweighed by the danger of unfair prejudice to the party
asserting the privilege. Id. Full, complete and timely schedules and SOFA’s are designed to
provide the critical information needed at the beginning of any bankruptcy case. “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.” In re Tabibian, 289 F.2d 793,797 (2d Cir. 1961).
Although Lopez properly invoked her privilege against self-incrimination, adverse
inferences may fairly be made. Lopez was in possession of information and documents that were
not available to the Trustee for a critical phase of the case. Clear explanations through full and
timely schedules and assistance with understanding the financial circumstances of either her
personal estate or the LDT estate were never provided. The Trustee had a substantial need for the
information in both the Lopez and LDT bankruptcies. There was no less burdensome way of
obtaining that information; the Trustee attempted to gather it at great expense to the estate by
hiring an accountant, but still was unable to get a clear picture. LDT’s computers were sold in a
garage sale, and Lopez was the only person with any paper records of her personal and LDT’s
finances.
Lopez also argues that since she eventually turned over documents to the Trustee and
withdrew her assertion of her Fifth Amendment privilege, the Trustee’s claim is moot. Putting
aside whether Lopez’s late provision of information was of any use, Lopez’s alleged eventual
cooperation with the Trustee in this case did not erase the damage already done to the estate’s
creditors. Here, Lopez did not waive her privilege in her personal bankruptcy schedules until
long after entry of the Order for Relief. Significantly, she timed the letter explaining that she was
no longer asserting her Fifth Amendment privilege so that it arrived right after the Trustee had
concluded the 341(a) examination. Her assertion of the privilege shut down the Trustee’s ability
to obtain necessary information required in the first year of the case when assets are marshaled,
avoidance actions and other causes of action are investigated and claims are analyzed. The
Trustee testified that Lopez’s assertion of her privilege kept him from exploring and fulfilling his
duties as a chapter 7 Trustee because he did not have any of her personal financial information
and an insufficient understanding of LDT’s finances.
Lopez’s invocation of the Fifth Amendment also cannot be viewed in isolation. It was
combined with a whole host of other actions or failures to act that harmed the Lopez and LDT
estates. Lopez also failed to file LDT schedules, allowed valuable computer records to be sold at
a garage sale pre-petition, sought to secretly continue some of LDT’s business, delayed
inexcusably in providing remaining records to the Trustee and provided little meaningful or
helpful testimony when she was finally examined under oath.
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E. State of Mind/Intent
Various subsections of § 727(a) require a specific state of mind. Violations of subsection
(a)(2) require “an intent to hinder, delay, or defraud a creditor or officer of the estate.” A debtor's
intent need not be fraudulent to deny a discharge for concealment of assets; it is sufficient if the
debtor's intent is to hinder or delay a creditor. In re Retz, 606 F.3d 1189 (9th Cir. 2010). In
determining whether a debtor has acted with intent to defraud, the debtor's “whole pattern of
conduct” should be considered. In re Sever, 438 B.R. 612, 620 (Bankr. C.D. Ill. 2010).
The “knowing and fraudulent” intent standard of § 727(a)(4) means that Debtor Lopez
must have actual (not constructive) intent in concealing records or making an omission in
schedules. In re Wills, 243 B.R. 58, 64 (9th Cir. BAP 1999). Fraudulent intent may be proved
by circumstantial evidence, and reckless disregard combined with other circumstances may
support an inference of fraudulent intent. Matter of Sholdra, 249 F.3d 380, 382 (5th Cir. 2001);
In re Khalil, 379 B.R. 163, 174 (9th Cir. BAP 2007); Retz, 606 F.3d at 1199; Stamat v. Neary,
635 F.3d 974, 982 (7th Cir. 2011) (reckless disregard shown where debtors who failed to
disclose business interests were highly educated and had significant business experience). Intent
can be established by consideration of the totality of circumstances. In re Devers, 759 F.2d 751,
753–54 (9th Cir. 1985). The necessary intent under § 727(a)(2) “may be established by
circumstantial evidence, or by inferences drawn from a course of conduct.” In re Adeeb, 787
F.2d 1339, 1343 (9th Cir.1986) (quoting Devers, 759 F.2d at 753–54)).
Sections 727(a)(3) and (5) do not have an intent or state of mind requirement. Denial of
discharge under these provisions only requires the debtor to act. In re Scott, 172 F.3d 959, 969
(7th Cir. 1999); Cox, 904 F.2d at 1401 (quoting Burchett v. Myers, 202 F.2d 920, 926 (9th
Cir.1953)).
Intent can be inferred because Lopez had the ability and willingness to work with others
to reconstruct records or find information when it benefited her, as she did with the IRS and CPA
Avila, but failed to do with the Trustee. Facing a significant tax liability, she found a way to
assist the IRS find and put together the financial information they needed to determine her tax
liability. See IRS report dated May 16, 2014, Defendant Ex. 31. The IRS claim was originally $3
million but with the help of Lopez, the liability decreased significantly to $178,858.65. See
Amended Proof of Claims # 6-4 and 6-5, Lopez Bankr. Lopez’s fraudulent intent can also be
inferred based on the timing of Debtor’s final waiver of the Fifth Amendment privilege and lack
of filing of LDT bankruptcy schedules. Lopez waived the Fifth Amendment privilege for her
schedules and SOFA three months after the Court ordered her cooperation with the Trustee in
connection with the LDT Bankruptcy Case and twenty one months after the order for relief in her
personal case.
The Court has considered Lopez’s defenses carefully and listened closely to her
testimony and argument at all pretrial hearings and trial. She is clearly a hard worker, a single
mother with seven children who has struggled to advance herself with little to no formal
education. Her efforts throughout the pretrial discussions and trial appeared to consistently be
intended to prove that she had invested more in LDT than ever was returned to her and that the
investors who filed the involuntary bankruptcies were the ones who were at fault. Although the
Court continually continued hearings and sought to get her to focus on the specific issues the
Trustee alleged in the discharge action, and provided a clear explanation of the applicable law in
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numerous memoranda before trial, she did not appear to ever address the need for the Trustee
and creditors to have a better explanation of her personal and LDT’s financial matters. Her
testimony was also not completely credible at trial, and she sometimes became evasive whenever
pressed to answer a specific question she did not wish to answer on cross examination.
Based on the correspondence between the Trustee and debtor’s former counsel, the Court
sought to discern whether Lopez was relying on advice of counsel or was possibly just confused
or misguided. While her actions delaying turnover of records violated §727(a)(3) regardless of
whether she had a fraudulent intent, the Court has concluded that any fair reading of her
activities, trial testimony and demeanor shows that she also possessed a knowing and fraudulent
intent and did indeed seek to hinder and delay the Trustee. Lopez never stated at any point that
she took the actions she did in obstructing any reasonable administration of this estate solely
because of advice of counsel or because she thought she was somehow helping the Trustee or
creditors. She also very definitely made choices to ignore clear court orders that were served on
her individually.
Based on her testimony at her 2004 examination (Trustee Ex. 55), and her trial testimony,
Lopez appears to have relied on various professionals throughout the operation of LDT and the
two bankruptcy proceedings to take care of all tax, accounting and legal matters. She seemed to
blame most of the failures in properly paying taxes, sending items to regulatory agencies,
accounting for transactions and explaining the finances to the Trustee on these professionals. She
consistently followed these professionals’ advice, however, where it was to her immediate
benefit. She operated before and after the bankruptcy with an attitude that was reckless about
any personal responsibility as an officer of a company and then a debtor and principle of a
corporate debtor. She freely admitted gambling extensively with LDT’s money (Trustee Ex. 55
at SDL0051-59), then argued that it was all her money when she “invested” it in LDT. She
frequently avoided answering questions directly or claimed a lack of memory. Every document
and answer was pulled out of her after extensive time and expense to the estate.
Lopez chose to attempt to continue running the LDT business after the order for relief
was entered because she stubbornly believed that the creditors who filed the involuntary
bankruptcy had wronged her. She knew she needed to be deceptive in doing so because she
switched payments over to “Precious Gems,” her daughter’s company, instead of LDT. Although
she may not have a finance or business degree, she chose what to learn about financial or
business matters and where to claim a lack of sophistication or fail to listen to simple
instructions. She operated an extensive real estate investment operation involving 180 properties
after working as an escrow officer and learning how to acquire property. She had the talent to
obtain these distressed properties from lenders and homeowners and knew enough to keep a
“cash for keys” operation going for years. Such a business entailed significant paperwork,
coordination, record keeping, regulatory compliance, accounting and legal work. This
demonstrates an ability to fill out information on schedules and the statement of affairs and to
answer questions posed by the Trustee in a helpful manner, but that was never proffered.
Lopez may well have had a factual and lawful basis to rely on her right not to testify. It is
important to remember, however, that a debtor’s choice to protect her own personal interests can
also be a choice to harm the interests of the estate, especially when combined with other
activities taken in these two bankruptcy cases. Being a debtor or a principle of a debtor in a
bankruptcy proceeding is generally not a pleasant process. The trade-off for cooperation and
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honesty in this process is the discharge of debts.
V. CONCLUSION
Thus, based on the facts stated above, Lopez is denied her discharge under §§727(a)(3),
and (a)(4)(D) as a result of actions in her personal bankruptcy. With respect to the LDT
bankruptcy, her discharge is denied under §727(a)(3), (a)(4)(D) and (a)(5) as applied through
§727(a)(7). As explained above, the Trustee has not met his burden of proof as to §727(a)(5) in
the personal bankruptcy and §727(a)(2) in the LDT bankruptcy. The Trustee shall submit an
order and judgment consistent with this ruling.
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Date: June 19, 2015
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