Jeffrey Klobucar, Bassford Remele, P.A.
Contributing Editor: Karl Johnson, Hellmuth & Johnson, PLLC
Snyder_v_Zaligson__17-4113_.pdf
In Snyder v. Zaligson (In re Zaligson), the bankruptcy court held that revocation of discharge under § 727(d)(1) must be strictly and narrowly construed in favor of the debtor and found that the US Trustee failed to show by a preponderance of the evidence that the debtor’s discharge was obtained by fraud because the debtor is not required to disclose property owned or held by a corporation.
The debtor was the sole owner of a corporation that sold watches. The debtor’s schedules indicated he owned the corporation, but didn’t list any luxury watches or any property held for somebody other than the debtor. The debtor gave the trustee lists of the store’s owned and consignment inventory, but the lists did not disclose any Ulysse Nardin brand luxury watches. A creditor subsequently informed the chapter 7 trustee that the debtor had posted YouTube videos in which he wears Ulysse Nardin watches and refers to the watches as “my watch.”
During a Rule 2004 examination conducted by the chapter 7 trustee, the debtor testified that the watches had been sold to a customer but then the customer dropped them off for repairs and never picked them up. The debtor further testified that he misspoke when he referred to the watches as “my watch.” The debtor provided documentation of the sale including sales tax records and testimony of people who had been told that the watch was not for sale because it had already been sold. Also, the customer was deposed and testified that he did not pick up the watches because he had been out of the country, but he wanted the watches back.
To determine whether the discharged should be revoked for fraud under § 727(d)(1), the court analyzed the elements for a false oath or account under § 727(a)(4): (1) the debtor made a statement under oath; (2) that statement was false; (3) the debtor knew the statement was false; (4) the debtor made the statement with a fraudulent intent; and (5) the statement related materially to the debtor’s bankruptcy case.
Although the schedules and statement of financial affairs were statements under oath, the court held that omitting the watches was not a false statement because a debtor is not required to disclose property of a corporation even if the debtor is the sole owner of the corporation. Also, the inventory lists were not false since a watch held for repairs is not part of inventory. Furthermore, the court found that the US Trustee failed to prove that the watches were owned by the debtor rather than the customer because there was corroborating evidence of the sale. Because the statements were not false, the court held that the US Trustee failed to prove that the debtor made false statements under oath with the fraudulent intent required for revocation of discharge under § 727(d)(1).