Foster v. Berkowitz

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
1Bankruptcy Code § 727(a)(2)(A) provides: The court shall
(continued...)
Decision
DO NOT PUBLISH
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 05-40472
Adv. No. 05-4227
PATRICIA BERKOWITZ,
Debtor. 	/
NANCY FOSTER,
Plaintiff,
vs.
PATRICIA BERKOWITZ,
Defendant. /
DECISION
By this adversary proceeding, plaintiff Nancy Foster (“Foster”)
seeks a judgment denying the discharge of Patricia Berkowitz, the
above debtor (“Berkowitz”), pursuant to Bankruptcy Code § 727(a)(2) 1
Signed: December 01, 2005

EDWARD D. JELLEN
U.S. Bankruptcy Judge

Entered on Docket
December 02, 2005
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 05-04227 Doc# 29 Filed: 12/01/05 Entered: 12/02/05 10:37:42 Page 1 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
1(...continued)
grant the debtor a discharge, unless—
. . .
(2) 	the debtor, with 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—
(A) 	property of the debtor, within one year before the date
of the filing of the petition.
2Bankruptcy Code § 727(a)(3): The court shall grant the
debtor a discharge, unless—
. . .
(3) 	the debtor has concealed, destroyed, 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 to
act was justified under all of the circumstances of the case.
3Bankruptcy Code § 727(a)(4) 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.
2	Decision
(fraudulent prepetition transfer), (a)(3) 2 (concealment or
destruction of recorded information), and (a)(4) 3 (false oath in
bankruptcy case). 	The court will enter judgment in favor of
Berkowitz.
Berkowitz is an attorney, and filed this chapter 7 bankruptcy
case on February 3, 2005. 	Foster is a judgment creditor of
Berkowitz, and holds a prepetition malpractice judgment against
Case: 05-04227 Doc# 29 Filed: 12/01/05 Entered: 12/02/05 10:37:42 Page 2 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
3	Decision
Berkowitz in the sum of $344,541. 	Foster contends that Berkowitz
should not receive a discharge, alleging that: (1) Berkowitz
fraudulently concealed her ownership of real property in Haiti by
intentionally omitting same from her bankruptcy schedules,
(2) Berkowitz fraudulently conveyed certain real property situated
in Sea Ranch, California, (3) Berkowitz falsified her bankruptcy
schedules by intentionally understating the value of her interest in
a residence she owned, and (4) Berkowitz’s prepetition conduct shows
that she engaged in a fraudulent scheme to denude herself of her
assets at Foster’s expense.
A. Property in Haiti
Berkowitz’s parents jointly owned two parcels of real property
in Haiti on which are situated several houses (the “Haiti
Properties”). 	Berkowitz’s mother died in 1972. 	Berkowitz’s father
died intestate in 1998, leaving behind Berkowitz, Berkowitz’s sister
Irene Kellogg, and several children born out of wedlock.
Berkowitz did not list any interest in the Haiti Properties in
her bankruptcy schedules, as originally filed; this omission is the
centerpiece of Foster’s allegation that Berkowitz fraudulently
concealed an ownership interest in the Haiti Properties.
At the meeting of creditors held March 16, 2005, Paul Mansdorf,
trustee in bankruptcy, asked Berkowitz whether she owned any
property outside the United States. 	Berkowitz testified in response
that she did not own the Haiti Properties, that they were still in
the name of her parents, that she has no paperwork regarding them,
and that she cannot sell them. 	She admitted that she had received
Case: 05-04227 Doc# 29 Filed: 12/01/05 Entered: 12/02/05 10:37:42 Page 3 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
4Berkowitz testified that to the best of her knowledge,
(continued...)
4	Decision
some rent money from the Haiti Properties, but had used these monies
for upkeep.
Thereafter, on April 15, 2005, Berkowitz amended her Schedules
to disclose as follows:
Debtor’s mother and father died intestate in 1972 and
1998, respectively, leaving two parcels of real property
in Haiti. 	Debtor has resided in the United States since
1965. 	She has seen no documents regarding ownership of
either property. 	Debtor believes that one of the
properties, located in Petionville, Haiti, was in the name
of her father, Roger Aubry, and that the other property,
located on Bourbon in Port-au-Prince, was in the name of
her mother, Armande Aubry. 	Debtor has no idea of the
value of the subject properties.
The weight of the evidence supports a finding that Berkowitz
initial omission of the Haiti Properties from her schedules was not
fraudulent.
At trial, Berkowitz waived her attorney-client privilege as to
Martha Simon, Berkowitz’s bankruptcy counsel who represented her in
connection with the filing of her bankruptcy case and preparation of
her bankruptcy schedules. 	Simon testified that before she prepared
Berkowitz’s bankruptcy schedules, Berkowitz had told her about the
Haiti Properties. 	Simon further testified that she had advised
Berkowitz that she need not include them in her schedules because
the identity of the owner(s) under Haitian law was not clear,
because Berkowitz had no paperwork or other evidence of title, and
because Berkowitz lacked the ability as a practical matter to sell
the Haiti Properties. 4
Case: 05-04227 Doc# 29 Filed: 12/01/05 Entered: 12/02/05 10:37:42 Page 4 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
4(...continued)
bankruptcy trustee Paul Mansdorf had not been able to sell, and
had not attempted to sell the Haiti Properties.
5	Decision
Good faith reliance on the advice of counsel negates the
fraudulent intent required to deny a debtor’s discharge. 	See In re
Adeeb, 787 F.2d 1339, 1343 (9th Cir. 1986). 	Here, although
Berkowitz would have been better advised had Simon told her to
include a disclosure about the Haiti Properties in her schedules as
initially filed, the court does not believe that Simon’s advice, or
Berkowitz’s reliance on same, was not in good faith. 	Accordingly,
the court holds that the omission was not fraudulent.
B. 	Sea Ranch Property
Paragraph 8 of Foster’s complaint herein alleges that Berkowitz
was “dealing with family members to remove property from defendant’s
name, without disclosing the full details of the transaction on the
bankruptcy schedules.” 	This vague allegation was apparently
intended to refer to a prepetition transaction in which Berkowitz
sold her undivided one-half interest in undeveloped real property in
Sea Ranch, California for a purchase price of $90,000, consisting of
$50,000 cash and a $40,000 promissory note secured by a second deed
of trust.
Foster contends that this sale was a fraudulent conveyance. 	In
support of this allegation, Foster presented evidence showing that:
(a) Berkowitz’s son, Ashley Berkowitz, was executive director of the
buyer, Epicarts Foundation, (b) Ashley received a gift of $5,000 out
of the cash portion of the sales proceeds, and (c) Epicarts was able
Case: 05-04227 Doc# 29 Filed: 12/01/05 Entered: 12/02/05 10:37:42 Page 5 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
5Given this finding, the court need not address the issue
whether paragraph 8 of the complaint was sufficient to put the
sale of the Sea Ranch property at issue.
6	Decision
to resell a fee interest in the property for $239,000 some seven
months after it acquired Berkowitz’s one-half interest.
The evidence failed to establish that this transfer was a
fraudulent conveyance. 	Berkowitz disclosed the sale (although not
the $5,000 gift) in her Statement of Financial Affairs. 	Berkowitz
was able to effect the sale without payment of any broker’s
commission, and turned the $40,000 purchase money note over to the
trustee.
It is true that the sale was for a price less than 50% of the
price for which Epicarts subsequently sold the entire property.
However, the court does not believe the difference is significant to
the extent of establishing fraud. 	The court has no evidence showing
that Berkowitz could have sold her undivided 50% interest on the
open market for a greater net amount. 	Moreover, Berkowitz
testified, without contradiction, that before the sale, she had
sought the advice of a professional broker, who advised her that the
value of the fee was between $155,000 and $159,000.
The court holds that Berkowitz is entitled to prevail as to
this claim for relief. 5
C. 	Valuation of Personal Residence
Foster contends that, in her schedules, Berkowitz intentionally
undervalued her residence. 	This allegation is based on the fact
that Berkowitz scheduled the residence as having a value of $620,000
Case: 05-04227 Doc# 29 Filed: 12/01/05 Entered: 12/02/05 10:37:42 Page 6 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
7	Decision
whereas in a prepetition loan application for a refinance, Berkowitz
listed the value as $675,000, an amount approximately nine percent
greater. 	Berkowitz testified that she based her valuation in the
schedules on a market analysis she had obtained, and disclaimed
knowledge of the valuation placed in the refinance application.
The court received no evidence of the actual value of the
property as of the date of Berkowitz’s bankruptcy petition, and the
mere fact of the nine percent disparity between the two amounts does
not ipso facto establish that Berkowitz’s valuation in the schedules
was fraudulent. 	See, generally, Cusano v. Klein, 264 F.3d 936, 946
(9th Cir. 2001). 	Moreover, no evidence was presented showing that
the trustee or anyone else was mislead in any way by Berkowitz’s
valuation. 	In re Adair, 253 B.R. 85, 89-90 (9th Cir. BAP 2000).
The court therefore holds that Berkowitz is entitled to prevail
as to this claim for relief.
D. 	Scheme to Defraud Creditors
Foster contends that Berkowitz engaged in a scheme to defraud
her by transfering her assets to third parties after Foster had
commenced the malpractice litigation against Berkowitz. 	In support,
Foster relies on the Sea Ranch sale mentioned above, and the fact
that over the year that followed the filing of the malpractice
complaint, Berkowitz repaid various debts she owed to the IRS, the
California Franchise Tax Board, and individual persons other than
Foster.
The court has already discussed the Sea Ranch sale. 	As to the
other repayments, the court holds that no fraud is established by
Case: 05-04227 Doc# 29 Filed: 12/01/05 Entered: 12/02/05 10:37:42 Page 7 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
8	Decision
the fact that Berkowitz repaid valid debts she owed to creditors
other than Foster, but did not pay Foster.
One additional transaction that Foster cites as evidence of the
alleged fraudulent scheme is a transfer of $85,000 that Berkowitz
made in March 2004, some four and one-half months after Foster filed
her malpractice complaint. 	Berkowitz testified that she made this
transfer to repay a series of loans made by a Haitian creditor named
Pierre Charment, starting in 1997. 	Foster contends that because an
action to collect all or some portion of any such loan would have
been barred by the statute of limitations, the repayment was
fraudulent.
The court disagrees. 	Neither the very limited facts regarding
this transaction that the parties introduced into evidence, nor any
law that Foster has cited, establish that the transaction was
fraudulent.
E. 	Conclusion
For the foregoing reasons, the court will issue its judgment in
favor of Berkowitz.
END OF DECISION
Case: 05-04227 Doc# 29 Filed: 12/01/05 Entered: 12/02/05 10:37:42 Page 8 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
9	Decision
COURT SERVICE LIST
Howard R. Melamed, Esq.
319 Lennon Lane
Walnut Creek, CA 94598
Martha J. Simon, Esq.
155 Montgomery Street, Suite 1004
San Francisco, CA 94104
Paul Mansdorf, Chapter 7 Trustee
4071 San Pablo Dam Road, #433
El Sobrante, CA 94803
Minnie Loo
Office of the U.S. Trustee
1301 Clay Street, #690N
Oakland, CA 94612
Case: 05-04227 Doc# 29 Filed: 12/01/05 Entered: 12/02/05 10:37:42 Page 9 of 9