In re Fischer

Full title: In re BENSON J. FISCHER, (Chapter 7), Debtor. ROGER SCHLOSSBERG, CHAPTER 7…

Court: United States Bankruptcy Court, D. Maryland, (Greenbelt)

Date published: Jan 13, 2009

Case No. 03-13704-NA, Adversary Proceeding No. 03-01222 (Bankr. D. Md. Jan. 13, 2009)

Opinion

Case No. 03-13704-NA, Adversary Proceeding No. 03-01222.

January 13, 2009

MEMORANDUM DECISION (FINDINGS OF FACT AND CONCLUSIONS OF LAW) REGARDING ALL CLAIMS OTHER THAN CLAIMS THAT WERE SEVERED OUT FOR SEPARATE DISPOSITION

MARTIN TEEL JR., Bankruptcy Judge

The plaintiff, Roger Schlossberg, is the trustee in the case of the debtor, Benson J. Fischer, under chapter 7 of the Bankruptcy Code (11 U.S.C.). His complaint in this adversary proceeding seeks to deny Fischer a discharge under 11 U.S.C. §§ 727(a)(2), (3), (4)(A), (4)(D), and (5). Based on the findings of fact and conclusions of law that follow, I will dismiss the remaining claims in this adversary proceeding.¹

1 The claims for denial of discharge that grew out of litigation with Leslie Atkins were dismissed previously: as to the § 727(a)(2) claim in that regard, partial summary judgment was granted (pursuant to an oral decision as supplemented by a written decision dated April 11, 2006), and as to the remaining claims in that regard, by oral findings of fact and conclusions of law announced on July 10, 2006.

I

Section 727 of the Bankruptcy Code provides in pertinent part:

(a) The court shall 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; or

(B) property of the estate, after the date of the filing of the petition;

(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;

(4) the debtor knowingly and fraudulently, in or in connection with the case —

(A) made a false oath or account; . . .

(D) 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;

(5) the debtor has 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.

An entity of relevance to this proceeding is Montgomery Bakers, Inc. ("Montgomery Bakers"), which is an entity in which Fischer has an interest (an interest that he claims is a tenant-by-the-entirety interest).

Schlossberg claims that § 727(a)(2) applies because Fischer concealed, with the intent to hinder, delay or defraud his creditors, the existence and the extent of his assets, specifically, his counterclaim (the "TNC Counterclaim") against TNC Petroleum and Nelson Nwaoha (collectively, "TNC") in a civil action brought against Montgomery Bakers and Fischer in the Circuit Court for Montgomery County, Maryland ("the TNC Lawsuit").²

2 For reasons stated at the trial, I declined to let Schlossberg belatedly pursue a claim under § 727(a)(2), not disclosed in discovery, that Fischer and his wife had fraudulently transferred or concealed property of Montgomery Bakers. Specifically, Schlossberg attempted to claim that Fischer and his wife fraudulently transferred or concealed Montgomery Baker's recipes for baked goods, and the corporate opportunity to sell those baked goods. Schlossberg contended that Fischer and his wife established a new corporation, Montgomery Distributors, Inc., which resumed sales, previously engaged in by Montgomery Bakers to Starbucks Corporation, and utilized the recipes, constituting trade secrets of Montgomery Bakers in resuming those sales, and that Fischer concealed this corporate opportunity from the trustee. But Schlossberg raised the claim too late for it to be fair to include it in the trial.

Schlossberg invokes § 727(a)(3) and § 727(a)(4)(D) by alleging that Fischer failed to produce his latest and most relevant financial statement he had given a bank, and failed to produce other documents that the trustee requested.

Schlossberg points to several alleged false oaths allegedly "made knowingly and fraudulently in or in connection with the case" and thus warranting denial of the discharge under § 727(a)(4)(A). The specific § 727(a)(4)(A) claims Schlossberg raises are that, knowingly and fraudulently, Fischer:

• falsely did not disclose his financial statements when a question required him to disclose them;

• falsely did not list his counterclaim in the TNC Litigation as property he owned when required to list all of his property as of the petition date;

• falsely did not disclose that, through the intervention of his parents he paid, within one year of the commencement of his case, a debt owed jointly by him and his wife, Mona Fischer, to a bank, and falsely did not disclose the claim as now owed his parents via subrogation;

• falsely did not disclose a debt owed to his wife's sister, Lauren Brisky, and her husband, Gary Posner (no relation to Schlossberg's counsel of the same last name), for a loan made to Fischer and his wife to facilitate a loan, made in turn by Fischer and his wife, to Montgomery Bakers incident to Montgomery Bakers' purchase of a bakery business;

• falsely testified on examination at the meeting of creditors held under 11 U.S.C. § 341 that the funds lent to Montgomery Bakers came entirely from a tenancy by the entirety bank account (whereas part of the loan was made via Brisky and Posner wiring $250,000 to Montgomery Bakers, and $60,000 came from an account owned by Fischer's wife individually); and

• falsely did not reveal on his schedules two trademarks relating to Bingo! Food Systems, Inc.

Schlossberg contends that Fischer failed to account for losses or deficiency of assets such as to warrant denial of a discharge under § 727(a)(5) because Fischer failed to satisfactorily explain the substantial discrepancies between his Schedules and a personal financial statement dated March 1, 2002, which Fischer and his wife submitted to National Capital Bank.

II Schlossberg has pursued a myriad of theories for denying Fischer a discharge. Of necessity, the following recitation of the background facts relating to those theories is quite lengthy. A.

Fischer's affairs and ownership interests as a businessman over the years preceding the filing of his case are an important ingredient to assessing the complexity of his affairs and the level of his sophistication. They also help place in context the schedules and the statement of financial affairs he filed in the case, as well as his testimony at the meeting of creditors under 11 U.S.C. § 341.

Fischer attended college at American University but left before becoming eligible to graduate, and turned to operating various businesses. Over the thirty years preceding the trial of this adversary proceeding, Fischer owned and operated some fifty restaurants, creating a number of restaurant concepts. At one point, he and his father ran a string of Yummy Yogurt outlets. At another point, Fischer formed Fischer Brewing Company, Inc. to manufacture and distribute beer products, but it ceased operations in 1996. He also began a real estate brokerage business, incorporated as Fischer Organization, Inc., and was responsible for 18 brokers. That business ceased operations in 1997. In 1999, after the Flax litigation had commenced, Fischer formed Bingo! Food Systems, Inc. but that company never operated because the business concept did not pan out. In 1999, Fischer also began an investment company, The Fischer Companies, Inc., but by the meeting of creditors its only asset was a computer. Fischer began operating Montgomery Bakers in 2001, and before he filed his bankruptcy petition, that company's operations occupied most of his time.

Fischer generally set up his various companies as owned by him and his wife, Mona Fischer, as tenants by the entirety, and held many of his other assets with her as tenants by the entirety. After judgments totaling almost $1,000,000 were entered against him in the Flax litigation in December 2000, he was acutely aware of the desirability of that form of ownership.

As to corporate or partnership interests, Fischer's schedules in the bankruptcy case listed tenants by the entirety interests in:

• Montgomery Bakers (50%) (valued at $2,000,000);

• The Fischer Companies, Inc. (100%) (valued at $500);

• Adams Associates, LLP (25%) (valued at $1);

• Fischer Organization, Inc. (100%) (valued at $1);

• Bingo! Food Systems, Inc. (100%) (valued at $1);³ and

3 The schedules referred to this company as Bingo Food Systems, Inc. Schedule B listed Bingo Foods Systems, Inc. as jointly owned without indicating that it was jointly owned as tenants by the entirety property, but, consistent with it being tenants by the entirety property, Fischer claimed it exempt on Schedule C pursuant to 11 U.S.C. § 522(b)(2)(B), and Fischer produced a copy of a stock certificate showing that the company was owned as tenants by the entirety.

• 1342 Restaurant Group, Inc. (100%) (listed as "value unknown").

He also listed a 100% interest, owned solely by himself, in Fischer Brewing Company, Inc. He valued that interest in Fischer Brewing at $1. Fischer Brewing had initially been owned by him and his wife as tenants by the entirety, but they later converted it to sole ownership by Fischer after he had been advised to place the ownership in that form when the company was attempting to obtain financing. The Flax litigation grew out of Fischer Brewing's affairs.

Incident to his business concepts, Fischer registered trademarks ranging from 15 to 30 in number. On his schedules he listed the trademark for Yummy Yogurt (owned by him and his father). Incident to Fischer Brewing Company, Inc., Fischer obtained a trademark for Redneck Beer which he duly listed on his schedules. He scheduled that trademark as jointly owned, and, as already noted, claimed it as exempt under § 522(b)(2)(B) (implying that the joint ownership was with his wife although that was not expressly stated). He failed to list on his schedules two trademarks he had acquired, in his own name, relating to Bingo! Food Systems, Inc., an entity incorporated in 1999 (four years before filing of the bankruptcy case in 2003), which entailed a food concept that never took off, and never operated. No value was shown to exist for the Bingo trademarks.

B.

Fischer's financial problems stemmed principally from the judgment issued on December 6, 2000, in the Flax litigation, The Fischer Brewing Co., Inc., et al. v. Jill Flax, as Personal Representative for the Estate of Howard L. Flax, et al. , No. 97-CA-678, in the Superior Court of the District of Columbia. That judgment awarded judgment against Fischer and in favor of (1) a law firm known as Paley Rothman⁴ for "$723,187 in counsel fees and costs for bad faith litigation," (2) the Flax Estate for "$206,421 in counsel fees and costs for bad faith litigation," (3) Alan Mark for "$25,000 in punitive damages," and (4) the Flax Estate for "$15,000 in punitive damages," for a total indebtedness of almost $1,000,000.

4 The firm's full name is Paley, Rothman, Goldstein, Rosenberg Cooper, Chartered.

Fischer filed his petition primarily because he sought to obtain a discharge of the Flax litigation judgments, but those judgments were later held to be nondischargeable. Paley Rothman, which was the original plaintiff in this adversary proceeding to deny Fischer a discharge, withdrew from the proceeding and Schlossberg was substituted as the plaintiff.

In a decision of May 3, 2000, the Superior Court found in the Flax litigation that Fischer had "knowingly constructed" a fraudulent law suit against the two principal defendants and that he "orchestrated a continuing cover-up of his involvement in these deceitful activities." The Superior Court found that Fischer, using fabricated documents, had engaged in the "grossest kind of abuse of the legal process." In a reported decision, the District of Columbia Court of Appeals affirmed the decision below, stating that the Superior Court's findings "were tantamount to a determination that Fischer had `perpetrated a fraud on the court.' [Citation omitted.]" See Fischer v. Flax, 816 A.2d 1, 13 (D.C. 2003). I will assume that all of the bad things the Superior Court and the Court of Appeals said about Fischer are correct, but that does not alter the outcome of this proceeding. That Fischer engaged in misconduct in the Flax litigation, leading to the imposition of sanctions against him for bad faith litigation, does not demonstrate that he engaged in similar conduct in this case. The Superior Court's findings, of course, weigh against considering Fischer to be a credible witness. However, I had the opportunity to observe Fischer closely and to consider the facts and circumstances surrounding the acts that Schlossberg contends warrant denying a discharge. Although not finding Fischer's testimony to be highly credible, I credit it sufficiently, in light of all of the evidence, particularly the evidence as to whether it was likely that he had a motive to engage in the misconduct alleged by Schlossberg, to support finding that Fischer did not engage in that misconduct such as to require denial of a discharge.

In the period after December 2000 and until he filed his bankruptcy petition in March 2003, Fischer was subjected to post-judgment collection efforts by the Flax litigation judgment-holders, including discovery regarding his assets and sources of income.⁵ In the years leading up to the filing of his bankruptcy petition, Fischer had also suffered substantial losses in the stock market, which he blamed on poor money management by his stock brokerage firm, the bursting of the stock market's technology bubble, and the stock market's aborted recovery after the terrorist attacks of September 11, 2001.

5 For example, in what the parties have referred to as the "traverse proceeding," which transpired over the period of 2001 to 2002, the Flax parties unsuccessfully attempted to require Montgomery Bakers, which was paying no salary to Fischer, to be treated as owing Fischer a salary for his work (salary that could then be subjected to garnishment).

Starting around May 2001, Fischer's principal activity related to the operation of Montgomery Bakers. The crowning blow preceding Fischer's filing his bankruptcy petition on March 28, 2003, was a roof collapse on February 17, 2003, that caused the cessation of the manufacturing and distribution operations of Montgomery Bakers.

C.

Fischer, his wife, and his parents formed Montgomery Bakers to acquire the assets of another company (Montgomery Donuts, Inc.) which was in a bankruptcy case. Fischer and his wife owned 50% of the shares of stock of Montgomery Bakers; his parents owned the other 50%. In May of 2001, Fischer and his wife lent $310,000 to the corporation incident to financing the corporation's acquisition of the assets of Montgomery Donuts, Inc. After acquiring those assets, Montgomery Bakers proceeded to manufacture and sell baked goods. Fischer ran the day-to-day operations of Montgomery Bakers; his father ran the financial side of dealing with accounts receivables. The company's operations occupied most of Fischer's time. Montgomery Bakers became his primary source of his income via payments on the loan he and his wife had made to the company.

But, as already noted, the operations of Montgomery Bakers as a manufacturer and distributor of baked goods ground to a halt on February 17, 2003. On that date, a heavy snowstorm caused the total collapse of the roof of the building that the company used as its manufacturing facility and corporate offices. Fischer filed his bankruptcy petition thirty-nine days later.

When the roof collapsed, Fischer was not allowed to go into the building for a period of time, and it rained (or snowed) throughout most of the time for several months, soaking everything. When clean-up crews came in on the landlord's behalf, without Fischer's knowledge or consent, they went into the company's offices and bagged stuff up and threw it in a warehouse, but the papers were mostly mush from having gotten wet. He was unable to retrieve most of the papers he and the company had kept in the company's offices. In a risky act bordering on bravado, his father did manage to retrieve from the offices a record of the company's accounts receivable. The collapse of the roof led to a period of intense and almost overwhelming activity for Fischer (dealing with helping the company's 100 employees find new employment, dealing with unemployment claims, removing food product, dealing with insurance adjusters, and with the county's fire and building departments, and so forth). This occupied a great deal of Fischer's attention in the period preceding his filing his schedules and his statement of financial affairs and appearing for an examination at the meeting of creditors under 11 U.S.C. § 341.

Notwithstanding the prepetition roof collapse which destroyed Montgomery Bakers' ability to continue to manufacture and distribute baked goods, Fischer scheduled the 50% interest held by him and his wife in Montgomery Bakers as worth $2,000,000 (based on the prospect of recovery of insurance proceeds), of which Fischer claimed $1,500,000 as exempt. Fischer scheduled as tenants by the entirety property both his (and his wife's) 50% stock ownership in Montgomery Bakers as well as the note obligation owed to him and his wife by Montgomery Bakers. That note obligation was scheduled by him as standing at $186,770.79 as of the petition date.

D.

On March 28, 2003, Fischer, as the debtor, filed his voluntary petition commencing his bankruptcy case under chapter 7 of the Bankruptcy Code. On April 25, 2003, he filed schedules and a statement of financial affairs as required by F.R. Bankr. P. 1007. Those papers were signed under penalty of perjury. The schedules listed total assets of $3,022,299.79, including real estate (Fischer's home) valued at $775,000.00 and personal property valued at $2,247,299.79. The schedules also reflected total liabilities of $2,102,160.16, including secured debt of $471,245.85 and general unsecured debt of $1,630,914.31. The schedules claimed the bulk of the Fischer's assets to be exempt as held by him and his wife as tenants by the entirety, and listed only modest joint debt.

On his schedules, Fischer claimed his tenancy by the entirety interest in Montgomery Bakers to be exempt under 11 U.S.C. § 522(b)(2)(B) as to $1,500,000 of its estimated $2,000,000 value, and exempted under § 522(b)(2)(B) the full value of the other interests in business entities that he owned with his wife as tenants by the entirety.⁶ Fischer's schedules also claimed as exempt under § 522(b)(2)(B) his home, checking account, household goods and furnishings, books, pictures, other art objects, collectibles, a video camera, a promissory note owed by Montgomery Bakers, a trademark for Redneck Beer, a 1999 Chevrolet Corvette, and a civil action against Salomon-Smith Barney.

6 When an asset is claimed as exempt under § 522(b)(2)(B), that entitles a debtor to exempt the entire asset from the reach of creditors not owed joint debts of the debtor and his wife. Fischer exempted $20,000.00 with respect to his interest in The Fischer Companies, Inc., an asset he valued — without deducting the exemption — as worth $500.00. This sloppiness in exempting more for The Fischer Companies, Inc. than the interest was worth suggests that correspondingly the failure to claim the full $2,000,000 of the Montgomery Bakers interest as exempt may have been sloppiness as well.

Although the claimed exemptions under § 522(b)(2)(B) could be objected to as ineffective as to debts owed jointly by Fischer and his wife, Fischer scheduled only one such joint debt not secured by collateral, namely, $30,135.00 owed for a bond posted in the Flax litigation. His wife was not liable for any of the remainder of the $1,630,914.31 in general unsecured debts he scheduled.⁷

7 Fischer scheduled no unsecured debts entitled to priority, under 11 U.S.C. § 507(a), over his general unsecured debts.

Fischer's properties not claimed as exempt under § 522(b)(2)(B) were relatively insignificant, and, for the most part, claimed as exempt on other grounds. If the claimed exemptions of assets were fully allowed against creditors whose claims were not joint claims against Fischer and his wife, the only assets scheduled that would be available for such creditors were (1) a malpractice claim against Stanley Goldschmidt (who represented Fischer in the Flax litigation) and (2) Fischer's interest in a Yummy Yogurt trademark. Accordingly, if the schedules were accurate, that would leave little for a chapter 7 trustee to do other than to satisfy the one small debt of $30,135.00 owed jointly by Fischer and his wife, and to liquidate the two assets not exempted which appear to have been far from sufficient to provide a significant dividend to creditors holding general unsecured claims against only Fischer.⁸

8 The malpractice claim against Goldschmidt had some value and was liquidated by Schlossberg, via a settlement with Goldschmidt, for $25,000, but the Yummy Yogurt trademark has not yet yielded anything for the estate. The $30,135.00 jointly owed debt can be readily satisfied from the equity in the Fischers' home should Fischer or his wife not satisfy that debt independently.

E.

Merrill Cohen, the initial Chapter 7 trustee in this case, presided at the meeting of creditors but resigned in December 2004, after which Schlossberg was appointed as successor trustee of Fischer's bankruptcy estate. Fischer was examined under oath at a meeting of creditors under 11 U.S.C. § 341 on May 6, 2003, was examined under oath at a further examination under F.R. Bankr. P. 2004 on January 19, 2004, and was examined under oath at a deposition in this adversary proceeding on September 26, 2005.

The initial trustee (Cohen) and Fischer's largest unsecured creditor, Paley Rothman, filed a joint objection to Fischer's exemptions, and that objection (to which Schlossberg has succeeded as a party in place of Cohen) is currently pending before another judge. The exemptions objection challenged Fischer's attempted exemption of all property he allegedly owned with his wife as tenants by the entirety.

Schlossberg has distrusted Fischer's claim that most of his assets were held by him as a tenant by the entirety. Unless Schlossberg can demonstrate that some of the properties were improperly claimed to be tenants by the entirety properties, Schlossberg will be left with no significant assets to liquidate on behalf of the creditors holding non-joint claims in the case (including the holders of the judgments in the Flax litigation). Thus, if Fischer could get away with doing so, it was in Fischer's interests to hide any information that might cast doubt on the validity of his claim that properties were held by him as a tenant by the entirety. This, Schlossberg contends, furnished a motive for Fischer to make false statements regarding, and to impede inquiry by the bankruptcy estate and creditors into, matters relating to some of the more important tenants by the entirety assets. Schlossberg further contends that Fischer had a motive not to disclose debts that he and his wife owed to relatives, as those debts would be payable from tenants by the entirety property.

F.

At the section 341 meeting, Cohen (the initial trustee) requested that Fischer produce various documents regarding his property and financial affairs. Fischer did produce certain documents, but when Schlossberg became the successor trustee he sent Fischer's attorney, Richard Rosenblatt, a letter dated January 5, 2005, requesting the production of various documents. Eventually Schlossberg resorted to formal discovery in the litigation of the objection to Fischer's exemptions, and a motion to compel, to secure production of various documents. Fischer's alleged lack of total responsiveness to Cohen's request, and his forcing Schlossberg to resort to securing an order compelling production are part of Schlossberg's contention that Fischer should be denied a discharge under § 727(a)(4)(D). In addition, Fischer produced only three of four financial statements dated, respectively, April 1, 2000, August 1, 2001, October 15, 2001 (the October 15, 2001, one apparently being misdated, and actually a financial statement prepared in March 2001); Schlossberg contends that Fischer intentionally omitted the latest and the most relevant one dated March 1, 2002. Schlossberg asserts that under §§ 727(a)(3) and 727(a)(4)(D) this justifies denying Fischer a discharge.

G.

I address below each of Schlossberg's bases for denying Fischer a discharge, and conclude that Schlossberg has not carried his burden of proof.

III THE TNC COUNTERCLAIM (§§ 727(A)(2) AND 727(A)(4))

Schlossberg points to facts that in isolation facially make out a plausible basis for denying Fischer a discharge based on the omission of Fischer's counterclaim in the TNC Litigation on his schedules and Fischer's failure to notify Schlossberg of the recovery of a judgment against the TNC parties. Fischer knew of his TNC Counterclaim when his Schedules were filed because Fischer, through counsel, asserted his TNC Counterclaim prepetition. After the filing of his bankruptcy petition, Fischer continued through counsel to prosecute his TNC Counterclaim, and ultimately obtained a judgment against TNC in the amount of $12,799.67 on December 23, 2003, which he failed to disclose to Schlossberg or to Schlossberg's predecessor, Cohen. Moreover, through his attorney he asserted, when inquiry was made by a creditor, that he had not recovered a monetary judgment. It is understandable that Schlossberg would view the TNC matter as a classic case for denying the debtor a discharge under §§ 727(a)(2) and 727(a)(4).

However, a consideration of all the evidence convinces me that Fischer neither knowingly omitted the TNC Counterclaim from his schedules nor attempted to conceal the TNC judgment from Cohen or Schlossberg, and thus §§ 727(a)(2) and 727(a)(4) have not been shown to require denying Fischer a discharge. Question 20 of Schedule B specifically asked Fischer to list "all contingent and unliquidated claims of every nature, including tax refunds, counterclaims of the debtor, and rights to setoff claims." [Emphasis added.] Fischer scheduled two items: a potential malpractice action against Stanley Goldschmidt (the attorney who represented Fischer in the Flax litigation) and a civil action against Salomon-Smith Barney. The scheduled value for each of these actions is "unknown." Fischer failed to disclose in the Schedules his TNC Counterclaim he had for abuse of process but he did so through inadvertence, not through making a knowing omission.

Although the TNC parties initiated the litigation, the actual party owed money pursuant to the parties' contracts (relating to opening a bakery store and receiving baked goods from Montgomery Bakers) was Montgomery Bakers. The TNC parties sued Montgomery Bakers and also Fischer (who was not a party to any contract with the TNC parties). The TNC parties claimed that the defendants breached a contract (which was with only Montgomery Bakers) under which the TNC parties began operating a store in premises required under the contract to be subleased by Montgomery Bakers to TNC, with rent to be remitted to Montgomery Bakers. They further claimed that the defendants made fraudulent misrepresentations inducing the TNC parties to enter into the contract; that they interfered with the TNC parties' rights by terminating the prime lease and by interfering with the TNC parties' efforts to make repairs and improvements to the premises; and that the defendants libeled, defamed, and slandered the TNC parties.

Barry Haberman represented both Fischer and Montgomery Bakers in the TNC litigation. Montgomery Bakers had already sued the TNC parties for breach of contract in the District Court for Montgomery County and the TNC parties' complaint in the Circuit Court had the effect of staying the proceeding in the District Court. Haberman viewed the complaint as frivolous, and Fischer viewed it as ludicrous as well. Fischer paid the complaint little heed because he viewed his part in the litigation as only incidental to the TNC parties' suing Montgomery Bakers as the primary defendant in the TNC litigation, and he viewed the ultimate issue as being Montgomery Baker's recovering the amounts it was owed. Haberman's billings went to Montgomery Bakers, not Fischer, and Montgomery Bakers was contractually entitled to a recovery of attorney's fees from the TNC parties with respect to enforcement of their contractual obligations. Fischer left it to his father to deal with Haberman because the litigation involved amounts owed to Montgomery Bakers. (Fischer's father handled the financial aspects of Montgomery Bakers whereas Fischer was principally responsible for the operational aspects.)

On January 28, 2003, Haberman filed an answer and counterclaims on behalf of the defendants, denying any liability to the TNC parties and asserting that the TNC parties were obligated for $3,775.57 plus attorney's fees, late charges, and interest, on a promissory note executed at the time the contract was executed, and for $3,583.69 for baked goods supplied. The first counterclaim, asserted solely by Montgomery Bakers, requested the recovery of damages for breach of these contractual obligations. The second counterclaim, asserted by both Montgomery Bakers and Fischer, was for abuse of process (consistent with Haberman's view that the complaint was frivolous), and included a request for attorney's fees as well as punitive damages. Haberman was obligated to apprise Fischer of, and obtain Fischer's approval of, the pleadings Haberman would file in the TNC Litigation on Fischer's behalf. Although Haberman discussed the answer and counterclaims with Fischer, the primary thrust of those discussions was to view the complaint as a nuisance with the real party owed money as a result of the contract being Montgomery Bakers, and with the abuse of process claim being makeweight intended to prompt the TNC parties not to pursue their claims. The primary focus was on Montgomery Bakers' being the party entitled to a recovery, and the company was routinely engaged in pursuit of unpaid accounts receivable.

When Fischer signed his schedules on April 25, 2003, almost three months had transpired since the filing of the counterclaims. In the interim, Montgomery Bakers' roof had collapsed, and Fischer was understandably somewhat distracted in dealing with the aftermath of that disaster. He simply overlooked the abuse of process counterclaim asserted jointly by Montgomery Bakers and him, a counterclaim which was not his primary focus in the litigation, and his failure not to list it on his schedules was not intentional.⁹ Similarly, he neglected to schedule the TNC parties' claims against him, and on his statement of financial affairs he failed to list the TNC Litigation in response to question number 4 which directed him to "[l]ist all suits . . . to which the debtor is a party. . . ." However, Fischer had dismissed in his mind the claims against him as frivolous, and he simply overlooked those claims and his being a party in the litigation: the litigation was really about Montgomery Bakers' recovering on its breach of contract claims. In signing the schedules and his statement of financial affairs, Fischer did not knowingly engage in a false oath by failing to list the abuse of process counterclaim as property or to list the TNC parties' claims against him or to list the TNC Litigation as pending litigation to which he was a party. Schlossberg has thus not carried his burden of proving that Fischer should be denied a discharge under § 727(a)(4).

9 Fischer had suffered a financial disaster when the adverse judgments were entered against him in the Flax litigation for bad faith litigation, and one might think that he would for that reason have been focused on his abuse of process claim against the TNC parties. However, the circumstances of the two cases were different, with Fischer viewing the TNC parties' claims as ludicrous and essentially putting them out of mind as merely a nuisance, and with the abuse of process counterclaim designed to encourage dropping of the nuisance claims. The same was not true of the claims Fischer had pursued in the Flax litigation. It is thus understandable that Fischer did not keep focused on his abuse of process counterclaim despite his prior bitter experience in the Flax litigation.

In August 2003, the TNC parties' attorney moved to withdraw his appearance, and in September 2003, the Circuit Court granted that motion. Haberman discussed with Fischer's father and possibly Fischer himself the next steps to take. Having viewed the abuse of process counterclaim as a potential defense and to counteract the claims of the TNC parties, Haberman's focus was to get to the crux of the matter — obtaining a dismissal of the TNC parties' claims and a judgment on Montgomery Baker's counterclaim for breach of contract. Because the TNC parties' claims were going to be dismissed (for lack of counsel), the abuse of process counterclaim was no longer necessary tactical ammunition (and the amount recoverable pursuant to the counterclaim amounted to little now that the defendants had dropped pursuit of their claims), and Haberman did not pursue it, focusing instead on the Montgomery Bakers' counterclaim for breach of contract.

By October 2003, collection of a judgment against the TNC parties did not appear likely, but the decision was made to obtain a default judgment on Montgomery Baker's breach of contract claim¹⁰ so that a judgment would be on hand to collect should the TNC parties ever be located. Accordingly, in October 2003, Haberman filed a motion to dismiss the TNC parties' claims and a motion for default judgment against the TNC parties for breach of contract. By the end of October 2003, the Circuit Court dismissed the TNC parties' complaint, and granted the motion for default judgment, setting an ex parte hearing on damages. On December 17, 2003, Fischer's father, the vice president of Montgomery Bakers, provided ex parte proof in the TNC litigation of damages suffered by Montgomery Bakers: $5,302.14 owed on the promissory note, $3,583.69 plus interest of $913.84 owed for the bakery products supplied, and attorney's fees of $3,000.00 as authorized by the TNC parties' contractual obligations to Montgomery Bakers. A total of $12,799.67 was awarded. No attempt was made to prove damages (including punitive damages) on the abuse of process counterclaim which both defendants had asserted and which was the only counterclaim asserted by Fischer. A judgment was entered on December 23, 2003. Through inadvertence, the Circuit Court entered the monetary judgment in favor of both Montgomery Bakers and Fischer.

10 The docket sheet for the TNC litigation reflects no reply having been filed to the counterclaims.

Haberman did not realize that the monetary judgment was erroneously entered in favor of Fischer. When an attorney for the Paley Rothberg firm inquired about the judgment, Haberman, who was still under the belief that only Montgomery Bakers had recovered a monetary judgment, wrote a letter to that attorney on January 10, 2005 (sending a copy to Schlossberg) in which he conveyed his belief that no monetary judgment had been entered in Fischer's favor because it was Montgomery Bakers that had a breach of contract claim. Only later did he come to realize that his belief was mistaken, and only then did Fischer learn that a monetary judgment had been entered in his favor.

The judgment, addressing only the damages for breach of contract, concluded the action and, if binding on the bankruptcy estate, precluded the bankruptcy trustee from pursuing the abuse of process claim other than by seeking relief from the judgment in order to pursue that claim.¹¹ Had the bankruptcy trustee, Cohen, been aware of the abuse of process claim, he could have evaluated the claim and decided whether it warranted pursuit on behalf of the bankruptcy estate. Haberman, who was not experienced in bankruptcy matters and unfamiliar with the concept of property of a bankruptcy estate, failed to focus on the fact that the abuse of process claim (which he viewed as a tactical weapon to encourage the TNC parties to drop their claims and never viewed as the crux of the litigation) became property of the bankruptcy estate once Fischer filed his bankruptcy petition or that exercise of control over the abuse of process counterclaim was stayed by 11 U.S.C. § 362(a)(3). Accordingly, Haberman never discussed with Fischer the applicability of § 362(a)(3) to the abuse of process counterclaim, or even the fact that the counterclaim was property of the bankruptcy estate.

11 Because 11 U.S.C. § 362(a)(3) barred an exercise of control over the abuse of process claim, the judgment was likely void as a disposition of Fischer's counterclaim. However, the bankruptcy trustee would have been put to the burden of convincing the Circuit Court of the ineffectiveness of the judgment as to Fischer's counterclaim. The automatic stay did not bar Montgomery Baker's pursuit of its counterclaim, and thus the judgment remains valid as to Montgomery Baker's counterclaim.

Fischer was informed that his side had prevailed in the TNC litigation but was unaware that a judgment had been entered in his favor until Haberman belatedly discovered the mistake. Fischer never attempted to pursue collection of the judgment, viewing it as Montgomery Bakers' judgment, not his. Haberman, for his part, was obligated as an ethical matter to report the mistake to the Circuit Court (as the judgment was inconsistent with the evidence), and, after he announced his intention to do so to Schlossberg, he did precisely that, moving to modify the judgment to make it consistent with the evidence of damages to only Montgomery Bakers.

Fischer did not conceal, with an intention to defraud the bankruptcy trustee, either the abuse of process counterclaim or the monetary judgment that was, erroneously, entered in his favor. His failure to disclose the counterclaim was inadvertent, and he thought the monetary judgment was in favor of Montgomery Bakers, not himself. Accordingly, Schlossberg has not carried his burden of demonstrating that a discharge should be denied based on § 727(a)(2).

IV THE NATIONAL CAPITAL BANK FINANCIAL STATEMENTS (§§ 727(a)(3), 727(a)(4), and 727(a)(5))

National Capital Bank extended a line of credit to Fischer and his wife in 2000, and Fischer periodically submitted financial statements to the bank as part of keeping the line of credit in place. Those financial statements give rise to three claims by Schlossberg for denying Fischer a discharge.

A. Failure to Produce Most Recent Financial Statement (§ 727(a)(3))

Schlossberg invokes § 727(a)(3) by stating:

Despite the Trustee's numerous requests, the Debtor produced only three of four financial statements dated, respectively, April 1, 2000, August 1, 2001, October 15, 2001; he intentionally omitted the latest and most relevant one dated March 1, 2002 — the very financial statement that revealed financial information substantially different from the information set forth in the Schedules.

Schlossberg's Pretrial Memorandum at p. 8. Section 727(a)(3) provides for a denial of discharge if:

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[.]

Fischer submitted financial statements to National Capital Bank at least every year as part of the renewal of the existing line of credit. Schlossberg placed into evidence five financial statements, and his statement omits a financial statement dated July 1, 2001, it appearing that Fischer prepared this one but never submitted it to National Capital Bank, submitting instead the August 1, 2001, financial statement.

Fischer's failure to produce the most recent financial statement was not a deliberate act and was justified in the circumstances. Fischer produced what he had at his home. His copy of the remaining financial statement was kept at Montgomery Bakers and was destroyed when the roof collapsed. Fischer's failure to keep a copy of the latest financial statement that he could produce "was justified under all of the circumstances of the case" within the meaning of § 727(a)(3).

B. False Statement Regarding Financial Statements (§ 727(a)(4))

Fischer's statement of financial affairs, paragraph 17 ("Books, records and financial statements"), included a subparagraph which stated:

d. List all financial institutions, creditors and other parties, including mercantile and trade agencies, to whom a financial statement was issued within two years immediately preceding the commencement of this case by the debtor.

[Emphasis in original.] Fischer answered "None." This statement was false.

In April 2002, less than a year before he filed his bankruptcy petition, Fischer issued to National Capital Bank a financial statement entitled:

PERSONAL FINANCIAL STATEMENT

BENSON FISCHER MONA FISCHER (Tenants by the Entirety)

March 1, 2002

Fischer issued three other financial statements to the bank within two years before filing his bankruptcy petition. In August 2001, Fischer issued to National Capital Bank a financial statement entitled:

PERSONAL FINANCIAL STATEMENT

BENSON FISCHER MONA FISCHER

(Tenants by the Entirety)

August 1, 2001

In July 2001, Fischer issued to National Capital Bank a financial statement entitled:

PERSONAL FINANCIAL STATEMENT

BENSON FISCHER MONA FISCHER

(Tenants by the Entirety)

JULY 1, 2001

In April 2001, Fischer had issued to National Capital Bank a financial statement entitled:

PERSONAL FINANCIAL STATEMENT

BENSON MONA FISCHER

OCTOBER 15, 2001 [sic: the statement should have been dated for March 1, 2001]

The false statement regarding issuing financial statements was further material, as the financial statements would be of relevance to the trustee's administering the case.

However, Fischer simply failed to recall these financial statements when he completed his statement of financial affairs. Accordingly, the answer to question 17(d) of the statement of financial affairs was not knowingly false. Fischer and his wife had this line of credit with National Capital Bank since 2000 or earlier, and it was renewed from time to time. Fischer and his wife submitted no application each time for a renewal of the credit arrangement. Instead, incident to the rather informal renewal process in which the bank asked for an updated financial statement, Fischer simply submitted each time a summary one-page financial statement listing broad categories of assets and debts, and the financial statements at issue were of this character. By way of illustration, the March 1, 2002 financial statement listed assets as:

CASH IN BANKS 40,000.00 INVESTMENT IN MONTGOMERY BAKERS, INC. 1,000,000.00 PERSONAL RESIDENCE 775,000.00 PERSONAL PROPERTY 100,000.00 AUTOMOBILES 80,000.00 RETIREMENT ACCOUNTS 6000.00 REAL ESTATE PARTNERSHIP INTREST [sic] 25,000.00 REAL ESTATE COMMISSIONS 55,000.00 REAL ESTATE RENTAL INCOME 18,000.00 No further detail was supplied regarding assets. Similarly, that financial statement listed liabilities as: RESIDERNCE [sic] — MORTGAGE 465,000.00 PERSONAL LOANS 460,000.00 CREDIT CARDS 20,000.00 MISCELLANEOUS DEBT 5,000.00

No further detail was supplied regarding debts.¹² Each of the financial statements at issue was merely an update of the prior statement, with three of them apparently using earlier statements as word processing templates (as the statement for 2000, the March 2001 statement (mislabeled October 2001) and the August 2001 statement contained the same two typographical errors noted above).¹³ The financial statements were not the detailed type of financial statements that a new loan would typically entail, and, given the long-standing arrangement with National Capital Bank, Fischer might not have focused on there technically being a new extension of credit each year. The renewal of the line of credit with National Capital Bank involved no formal application process and no detailed financial statement. They were prepared for a banker who did not demand the detailed disclosures typically constituting a financial statement, and were prepared by a debtor, Fischer, who obviously paid little attention to them. Fischer and his attorney, Richard Rosenblatt, knew that Paley Rothenberg, the largest creditor in the case and one that was likely actively to participate in the case, was aware of the National Capital Bank line of credit, and Rosenblatt disclosed to the initial trustee, Merrill Cohen, the existence of the line of credit at National Capital Bank, so the line of credit was no secret. The financial statements were in possession of the bank. If Fischer recalled the financial statements when he prepared his statement of financial affairs, it is likely he would have been aware of the risk that the trustee (or Paley Rothenberg which had been hounding him, and who he knew would attempt to come after him in the bankruptcy case) would readily learn of their existence from the bank. If he recalled the financial statements, it is unlikely that he would have neglected disclosing them on his statement of financial affairs in light of that obvious risk.

12 Of relevance to assessing Fischer's credibility in this proceeding is his failure on those financial statements to list the debts owed pursuant to the Flax litigation if they should have been included on the financial statements. However, such a failure would not itself be a ground for denying Fischer a discharge. Moreover, Fischer understood that the bank wanted the financial statement to capture only debts that, like the bank's, could be enforced against tenants by the entirety properties, and he disclosed the Flax litigation judgment to George A. Didden, III, of National Capital Bank. The debts arising from the Flax litigation were not payable from tenants by the entirety property.

13 The July 1, 2001 statement eliminated these typographical errors, but was apparently not used as the template in preparing later statements.

Moreover, there was no plausible reason for Fischer to be motivated not to disclose the financial statements. The financial statements' listings of assets would not have given him concern. Although he valued some tenants by the entirety assets differently on those statements than he did on his schedules, he had no reason to deceive anyone in that regard (precisely because he believed that they were indeed tenants by the entirety property and that only one minor scheduled unsecured creditor had a right to proceed against such assets). Moreover, Fischer satisfactorily explained any other discrepancies between his schedules of assets and the financial statements.

Nor would the financial statements' listing of debts given him concern, even though an examination of the financial statements might have led to inquiries disclosing the Brisky-Posner loan and the National Capital Bank line of credit. The three latest financial statements include a line item of "Personal Loans" of $460,000 without specifying what those loans were, but that amount could only be reached were both the National Capital Bank debt and the Brisky-Posner loan included.

That the "Personal Loans" of $460,000 must have included the Brisky-Posner loan requires some explaining. The March 2001 financial statement (misdated as October 2001) listed $170,000 as owed to "National Capital Bank," and no other significant debts not included on all of the financial statements. But the "National Capital Bank" line item disappeared on the July 2001, August 2001, and April 2002 financial statements and, it may be deduced, the National Capital Bank debt is included as part of the $460,000 in "Personal Loans" on these later statements. That $460,000 amount could only be accounted for if the "Personal Loans" included, with the National Capital Bank debt, were the loan made by Brisky and Posner in June 2001, the month preceding the July 1, 2001 financial statement. The record does not establish any other debt that, in combination with the National Capital Bank debt, would have brought the amount of "Personal Loans" close to $460,000.¹⁴ The record does not establish the amount of the National Capital Bank debt as of the date of the three latest financial statements. If the National Capital Bank debt, which Fischer listed as standing at $170,000 as of April 1, 2001, stood at $210,000 as of July 1, 2001, then adding that $210,000 to the Brisky-Posner loan of $250,000 would have resulted in $460,000 being attributable to those two debts.¹⁵

14 Fischer's testimony on the issue of what was included in the $460,000 was less than helpful. Fischer suggested at first that the $460,000 may have been attributable (with the bank's claim) to a margin account debt to his stock broker, but the absence of any securities as assets on the latest financial statement would indicate that any margin account debt had been liquidated, and yet the financial statement continued to list $460,000 in "Personal Loans." After further reflection during a weekend break in his testimony, Fischer acknowledged that no margin account debt could have been part of the $460,000 (as he listed the net value of his stock brokerage account on his financial statements), and he stated that he could not remember what was included in the $460,000 other than the bank's claim. Fischer later indicated that the $460,000 may have been attributable (with the bank's claim) to the Brisky-Posner loan, but he could not remember if it was. Although Fischer was unable to recall what the $460,000 represented, that does not prove that he had a motive to hide the existence of the financial statements.

15 If the National Capital Bank debt amounted at any point to $250,000 (the maximum amount permitted by the line of credit), then adding the $250,000 Brisky-Posner loan would have resulted in $500,000, not $460,000, in "Personal Loans," in which case Fischer would be guilty of understating his debts on his financial statements, but the only relevance of that would be with respect to Fischer's credibility. Even if he made such a misstatement to the bank, that does not alter my assessment that his testimony was sufficiently credible to warrant the findings made in this decision.

There is a far fetched possibility that Fischer lied about the financial statements' existence to hide two aspects of his affairs that Schlossberg contends Fischer knowingly and fraudulently did not disclose in his statement of financial affairs and his schedules. First, disclosure would have led to discovery of the National Capital Bank line of credit that was paid off (and that Schlossberg contends (1) should have been reported as a preferential payment on Fischer's statement of financial affairs and (2) gave rise to a subrogation claim by Fischer's parents that should have been listed on Fischer's schedules). Second, disclosure could have led to discovery of the Brisky-Posner loan, of relevance to the claimed exemptions by Fischer relating to Montgomery Bakers, and a debt that was not technically forgiven and that ought to have been scheduled. But Schlossberg has not convinced me that was the case. Fischer has convinced me that the inaccuracies on Fischer's statement of financial affairs and on his schedules were not knowingly false, and it is implausible that Fischer foresaw disclosure of the financial statements as potentially giving rise to difficulties for him. As discussed later, he viewed the National Capital Bank debt as having been transferred to his parents, and had no idea that they might have a claim by way of subrogation, and he viewed the Brisky-Posner debt as forgiven for purposes of the bankruptcy case. Moreover, Fischer's attorney, Rosenblatt, disclosed the existence of the Brisky-Posner loan to the trustee, Cohen, early on. Paley Rothman filed a motion to examine Posner on June 10, 2003, just over a month after the meeting of creditors on May 6, 2003.

Fischer's false statement regarding financial statements was not made knowingly and fraudulently. Accordingly, denial of Fischer's discharge pursuant to § 727(a)(4) based on the false statement is unwarranted.

C. Inability to Explain Discrepancies With Scheduled Assets (§ 727(a)(5))

Schlossberg invokes § 727(a)(5) (providing for a denial of discharge if "the debtor has failed to explain satisfactorily . . . any loss of assets or deficiency of assets to meet the debtor's liabilities." Section 727(a)(5) grants the court "broad power to decline to grant a discharge . . . where the debtor does not adequately explain a shortage, loss, or disappearance of assets." In Re Martin, 698 F.2d 883, 886 (7th Cir. 1983) (citations omitted). Fischer's March 2002 financial statement paints a rosier picture of Fischer's ownership of assets with which to pay debts than do his schedules. Essentially Schlossberg wishes the court to hold that the March 2002 financial statement establishes the universe and value of assets Fischer owned as though it is scripture. But Fischer's financial statements were not prepared with great accuracy. Instead, they were prepared in a slapdash casual manner, and demonstrably include inaccuracies. They cannot be taken as accurately establishing what assets Fischer owned and what they were worth. Although the financial statements paint Fischer as an individual who is, at best, careless with the truth, denial of Fischer's discharge under § 727 cannot be premised on making a prepetition false statement in the financial statements. Finally, Fischer has explained in a satisfactory fashion the differences between the valuation of assets listed on his March 2002 financial statement and those listed on his schedules. This is not an appropriate case in which to deny a discharge based on § 727(a)(5).

Schlossberg points to the following discrepancies between the March 2002 financial statement and Fischer's schedules:

• bank accounts declined from $40,000 to $10,000;

• the Montgomery Bakers stock doubled in value from $1,000,000.00 to $2,000,000.00;

• Fischer's personal residence in Bethesda, Maryland did not increase in value at all;

• Fischer's automobiles decreased in value from $80,000.00 to $40,000.00;

• Fischer's personal property decreased in value from $100,000 to less than $20,000 in personal household effects on his schedules;

• Fischer's retirement accounts went from a value of $6,000.00 to $0;

• Fischer's real estate partnership interest decreased in value from $25,000.00 to $1.00;

• Fischer's real estate commissions decreased in value from $55,000.00 to $0.00; and

• Fischer's real estate rental income decreased in value from $18,000.00 to $0.00.

Bank Accounts. The $40,000 in bank accounts listed on the financial statement was depleted by $30,000 because Fischer used those funds to meet expenses, thus explaining why only $10,000 in bank accounts is listed on the schedules.

Montgomery Bakers Stock. In comparison to the financial statements, Fischer's schedules showed an increased value for his stockholder interest in Montgomery Bakers. That does not constitute a "loss or deficiency of assets" under § 727(a)(5).¹⁶ In any event, Fischer gave a satisfactory explanation for the increased valuation.

16 The same reasoning applies to the promissory note obligation owed to Fischer and his wife which he duly listed as an asset on his schedules but neglected to list on his financial statements.

Personal Residence. Fischer's schedules showed no increase in the value of his residence, but that does not demonstrate a "loss or deficiency of assets" under § 727(a)(5).

Automobiles. The financial statement shows $80,000 in automobiles whereas the schedules report only one automobile worth $30,200, but Fischer satisfactorily explained this variance. Only one of the automobiles was reportable on his schedules.

Prior to 2001, Fischer (or Fischer and his wife) owned a 1966 Corvette, he and his wife jointly owned a 1999 Corvette, and his wife owned a 1994 Mercedes. He assigned an $85,000 value to these three automobiles on his April 1, 2000, financial statement. His July 2001 financial statement listed $80,000 in automobiles. Sometime in 2000 or 2001, Fischer sold the 1966 Corvette for $22,000. In 2001, six to eight months after selling the 1966 Corvette, Fischer used the $22,000 proceeds to purchase a Ford Escape, of equal value, that he placed in his daughter's name. Nevertheless, even though he and his wife now owned only two cars, and had sold one car for $22,000, his March 2002 financial statement showed $80,000 in automobiles owned by them, only $5,000 less than he reported on his April 2000 financial statement when they owned three cars. Fischer may be criticized for having made an inaccurate statement to the bank, but that is not a ground for denying him a discharge outright. He has satisfactorily explained the possible discrepancy between the financial statement and the schedules.

Schlossberg points to a prior inconsistent statement by Fischer regarding when the 1966 Corvette was sold, but that statement is not inconsistent with the automobile having been sold prior to the petition date. In responding through counsel to a motion for a Rule 2004 examination, Fischer erroneously stated that he and his wife owned two cars jointly (the same two as they jointly owned in April 2000) when he prepared his March 2002 financial statement. He then correctly stated at trial that he had sold the jointly owned 1966 Corvette before filing his bankruptcy case, thus explaining why the schedules only reported one jointly owned car, and that was the point he was trying to make in his opposition to the Rule 2004 motion. Fischer's inconsistent statement (he now says that he sold the 1966 Corvette before preparing the financial statement) casts doubt on Fischer's credibility and on his attention to accuracy, but not enough to cause me to reject his testimony at trial.¹⁷ Fischer gave sufficient detail to convince me that his current recollection is an accurate recitation of the events. Schlossberg made no attempt to rebut Fischer's testimony by producing car titles demonstrating that he owned more cars than the one car he scheduled.

17 Fischer filed his petition on March 28, 2003. Accordingly, even if the 1966 Corvette had still been owned by Fischer and his wife on the date of the financial statement (March 1, 2002), that would be insufficient to prove that Fischer was required to report the sale, in response to question 9 of the statement of financial affairs, as a transfer of property (other than in the ordinary course of the business or financial affairs of Fischer) within one year before the filing of the petition. Schlossberg did not introduce Department of Motor Vehicle records, which should have been readily available, that would have shown precisely when the 1966 Corvette was sold.

Personal Property. The term "personal property" as used on the financial statements appears to have referred to tangible household effects (such as artwork, furniture, kitchen equipment, appliances, photographic equipment, clothing, and jewelry) but not automobiles which were listed separately on the financial statements. Schlossberg contrasts the $100,000 in "personal property" listed on the financial statements to the $19,725 in items of tangible personal effects (other than automobiles) that Fischer listed on his schedules. For several reasons, Schlossberg has failed to demonstrate that § 727(a)(5) applies with respect to that seeming discrepancy.

The $100,000 figure on the financial statements was likely an extremely liberal or overly generous valuation, consistent with the slapdash and often inaccurate character of the financial statements. Differences between an excessive valuation on a financial statement and a more conservative valuation on a debtor's schedules are insufficient to carry a trustee's burden under § 727(a)(5). See The Cadle Company v. Orsini (In re Orsini), 289 Fed. Appx. 714, 2008 WL 3342017 (5th Cir. Aug. 11, 2008) (declining to overturn ruling, holding § 727(a)(5) inapplicable, based solely upon the objecting party's skepticism about a 95% reduction in a debtor's valuation of assets).

Moreover, the $100,000 presumably included items (such as women's clothing and jewelry) belonging solely to Mona Fischer. The evidence fails to show what items of personal property were owned solely by Mona Fischer and that were included in that $100,000, and that thus properly ought not have been reported on Fischer's schedules. Accordingly, Schlossberg has not shown a loss or deficiency of any assets in which Fischer had an interest.

Finally, for purposes of § 727(a)(5), the seeming $80,275 discrepancy between the financial statements valuation of "personal property" and Fischer's scheduled value of tangible personal household effects is inconsequential as a matter of law if the $80,275 in personal household effects "lost" were tenancy by the entirety property. Fischer's personal household effects were held principally as a tenant by the entirety, and could be used by a trustee only to meet joint liabilities. Except for Fischer's and his wife's respective items of clothing and jewelry, Fischer has maintained that all of his household's items of tangible personal property belong to him and his wife as tenants by the entirety. Schlossberg failed to show to the contrary. Nor has Schlossberg shown that the $80,275 diminution in value is attributable other than to the type of assets that Fischer and his wife owned as tenants by the entirety. The Fischers' home had more than sufficient equity with which to meet joint debts. Even if there had been a $80,275 loss of tenancy by the entirety personal effects by Fischer, that would not have been a loss of assets with which to meet the joint debts. Given the purpose of § 727(a)(5), it is only a loss of sufficient assets to meet debts that triggers the statute. The relevant debts in the case of tenancy by the entirety assets are limited to joint debts: if there are sufficient assets to pay those claims in full, there is no deficiency in assets that needs explanation.

Retirement Accounts. Fischer satisfactorily explained that his retirement accounts went from a value of $6,000.00 to $0 because he had to invade the retirement accounts to meet expenses. In the course of doing so, he incurred a tax penalty.

Real estate partnership interest. Fischer's real estate partnership interest decreased in value from $25,000.00 to $1.00. He explained satisfactorily this difference. The real estate partnership interest was in Adams and Associates, LLP. Fischer valued the 25% interest of Fischer and his wife in Adams and Associates, LLP as worth $1 on his schedules. The partnership had a ground lease on a property and subleased the building to Domino's Pizza in the early 1990s. Domino's Pizza never opened, but it paid rent for three or four years (until its sublease terminated) which led to Fischer's valuing the interest as worth $25,000 on his earliest financial statement (a value that he carried forward on the subsequent financial statements). Eventually the property was re-let to another tenant but that tenant's rent essentially only covered the partnership's mortgage expenses, and many months the tenant did not pay. Accordingly, on his schedules, Fischer valued the partnership interest at only $1.00.

Although not worth $25,000, the partnership interest turned out to be worth more than $1.00. After the petition date, the property was given back to the partnership's landlord. When he filed his schedules, Fischer did not recall (or was unaware) that the partnership had posted a security deposit with the landlord. The landlord's refund to the partnership of approximately $13,000 of that security deposit resulted in a distribution of 25% of that $13,000 (or approximately $3,250) to Fischer and his wife pursuant to their 25% interest in the partnership. The discrepancy between the $25,000 value on the financial statements and the $3,250 received upon winding up of the partnership's real estate venture has been satisfactorily explained by Fischer. As in the case of some other assets on his financial statements, Fischer may be criticized for having ascribed an inflated value for the partnership interest on his March 2002 financial statement, but that does not demonstrate an unexplained "loss of assets or a deficiency of assets to meet debts."

Real estate commissions. Fischer's real estate commissions decreased in value from $55,000.00 to $0.00, but Fischer satisfactorily explained that the real estate commissions he listed on the financial statements were contingent commissions that ultimately proved to have no value.

Real Estate Rental Income. Fischer's financial statements showed real estate rental income of $18,000.00, but he reported no real estate rental income on his schedules, and did not identify any real estate income on his statement of financial affairs. Fischer explained at his deposition that the $18,000.00 represented rental income to companies owned by him and his wife as tenants by the entirety. He listed the rental income as his and his wife's on the financial statements because he viewed the income as flowing through to them. Fischer correctly did not list real estate rental income on his schedules, and instead listed his various tenants by the entirety corporations. Those corporations (other than Montgomery Bakers) showed values of $1.00, or, in the case of 1342 Restaurant Group, Inc., a value of "unknown." It is 1342 Restaurant Group, Inc. that was the source of rental income appearing on the financial statements. That corporation initially conducted business as a restaurant but ceased that operation in 1995. It still retained a ground lease, but that ground lease was terminated shortly after Fischer filed his bankruptcy petition. Fischer disclosed at the § 341 meeting that he scheduled his interest in the corporation as having an unknown value because the corporation was pursuing litigation against a subtenant, with the corporation's counsel being compensated on a contingency fee basis, and with the prospect being that the corporation would recover a judgment of questionable value.

Personal Loans. Schlossberg also points to Fischer's not having included on his schedules any of the $460,000 in "Personal Loans" listed on his latest financial statements. As noted already, Fischer was unable to recall what the $460,000 of personal loans on his latest financial statements represented other than its including the National Capital Bak debt. See n. 14, supra. But § 727(a)(5) deals with a failure to explain satisfactorily "any loss of assets or deficiency of assets to meet the debtor's liabilities." It is not directed to an inability to explain why the debtor's debts have decreased. It is obvious, in any event, that the $460,000 must have consisted of the National Capital Bank debt and the Brisky-Posner loan, both debts that, for non-fraudulent reasons discussed below, Fischer did not report on his schedules.

V FAILURE TO SCHEDULE PARENTS' POSSIBLE SUBROGATION CLAIM ARISING FROM ELIMINATING NATIONAL CAPITAL BANK'S CLAIM, AND FAILURE TO DISCLOSE PAYMENT OF THE NATIONAL CAPITAL BANK DEBT (§ 727(a)(4))

In 2000, National Capital Bank extended to Fischer and his wife a line of credit in the open-ended amount of $250,000, ¹⁸ and that line of credit (or extensions of the same) eventually came close to having a balance owed in the amount of $250,000. The line of credit remained open and owed until shortly before Fischer filed his bankruptcy case. Fischer was aware that his debt owed to National Capital Bank could give rise to an assertion of that claim in the bankruptcy case, and that as a joint obligation of Fischer and his wife, it could give rise to the bankruptcy trustee's liquidating tenancy by the entirety property to satisfy the debt. Fischer's attorneys thus arranged for what they and Fischer viewed as a transfer of the obligation to pay the debt to Fischer's parents shortly before the commencement of the bankruptcy case.

18 National Capital Bank extended one line of credit to Fischer and his wife in the 1980s. That line of credit was paid and closed before Fischer and his wife took out the second line of credit in 2000.

The transaction, however, was treated by the bank as effecting a payoff of the debt. Fischer's parents took out a duplicate line of credit borrowing an amount equal to the balance owed by Fischer and his wife on their line of credit. The bank then credited the amount borrowed by Fischer's parents against the balance owed by Fischer and his wife on their line of credit, thereby eliminating the debt to the bank as a debt of Fischer to be dealt with in the bankruptcy case. Although no funds exchanged hands, there was a satisfaction of Fischer's and his wife's line of credit obligation via bank book entries, and thus technically a payment. Whether the bank conveyed to Fischer or his parents that the bank's records would treat the transaction as effecting a payoff instead of effecting a substitution of obligors is not evident, but Fischer, who received periodic statements from the bank regarding his and his wife's line of credit, presumably was sent a final periodic statement from the bank showing the elimination of the debt via the credit the bank recorded in its books.

Fischer, however, on advice of counsel, viewed his parents as having arranged with National Capital Bank to substitute themselves for Fischer and his wife as the obligors responsible for paying the debt they owed. Even the bank's George A. Didden, III, viewed Fischer's parents as not having made a payment, and viewed the transaction as Fischer's parents' taking over the loan in place of Fischer and his wife. That was the substance of the transaction: in place of Fischer and his wife being obligated to the bank, his parents were obligated to the bank in a like amount.

Schlossberg contends that, by way of Fischer's parents being subrogated to the bank's claim, this gave rise to a debt owed by Fischer to his parents, and that Fischer's failure to schedule this debt was a knowingly and fraudulently made false oath justifying denial of a discharge under § 727(a)(4). Furthermore, the elimination of the Bank's debt as a debt owed by Fischer occurred within 90 days of the commencement of the case, and Schlossberg contends that the failure to list the elimination of the debt on the statement of financial affairs as a payment to a creditor within 90 days of the commencement of the case was a knowingly and fraudulently made false oath justifying denial of a discharge under § 727(a)(4).

Fischer had no idea that his parents were subrogated to the bank's claim and were required to be scheduled as holding a claim against him. Although he intends to repay his parents if he is ever able to do so, he viewed the transaction as a transfer of the debt-owing obligation to his parents who were trying to assist him and his wife in their time of economic trouble, and he did not understand that he had a legal obligation to his parents. Fischer's attorney, Rosenblatt, similarly was of the view that the transaction was a gift which gave rise to no legal obligation on the part of Fischer to pay his parents. Fischer received no advice that his parents were now owed a debt. No agreement was made with his parents to be obligated to pay them.

Fischer did not disclose the elimination of the debt to National Capital Bank as a payment of a debt within the 90 days preceding the filing of the bankruptcy case. The purpose of the statement of financial affairs in eliciting payments of debts within 90 days before the filing of the case is to disclose payments from property of the debtor that, as transfers of property of the debtor, might be avoidable as a preference under 11 U.S.C. § 547(b) (applicable only if the payment was a "transfer of an interest of the debtor in property"). Viewing that as the purpose of the query on the statement of financial affairs, there was not a failure to disclose a payment that falls within the contemplation of the query. Fischer's property was not used to make a payment of the debt.

Moreover, Fischer's parents did not transmit funds to the bank to make a payment. Fischer believed that there was merely a transfer of the debt to his parents, and no payment of the National Capital Bank debt that had to be reported on his statement of financial affairs. Fischer's attorney, Richard Rosenblatt, had advised Fischer to arrange the transfer of the debt, and he advised Fischer that the elimination of the debt did not have to be reported on the statement of financial affairs as a payment to a creditor (National Capital Bank) within the 90 days preceding the filing of the case.

Moreover, Fischer and Rosenblatt knew that Paley Rothenberg, which had aggressively pursued collection of its part of the Flax litigation judgment, was aware of the National Capital Bank line of credit, and would likely make inquiry regarding it. At the meeting of creditors, Fischer disclosed the elimination of the National Capital Bank debt, and disclosed that his parents were substituted as the obligors on the debt. Fischer was not trying to hide anything.

Fischer did not make a knowingly false statement in failing to schedule his parents as holding a claim against him even if it were to be found that, indeed, he was legally obligated to them, and did not make a knowingly false statement in failing to list National Capital Bank as the recipient of a payment within 90 days preceding the commencement of the case. Accordingly, there is no basis to deny discharge under § 727(a)(4) based on the failure of Fischer to schedule his parents as holding a claim against him or his failure to report the satisfaction of his debt to National Capital Bank.

VI FALSE TESTIMONY REGARDING THE SOURCE OF THE FUNDS TO MAKE THE LOAN TO MONTGOMERY BAKERS

The Flax litigation judgment for almost $1,000,000 was entered against Fischer in December 2000. In the first half of 2001, Fischer and his wife acquired their fifty percent equity interest in Montgomery Bakers, and his parents acquired the other fifty percent equity interest. Incident to the formation of Montgomery Bakers, Fischer and his wife made their loan of $310,000 to Montgomery Bakers in the latter part of June 2001. The loan was evidenced by a promissory note of June 22, 2001, reflecting that $310,000 was owed to Fischer and his wife as tenants by the entirety. At the petition date, the promissory note obligation stood at $186,770.79. Fischer scheduled both the stock interest and the promissory note as assets in his schedules executed on April 25, 2003.

At the § 341 meeting, Fischer estimated a value of $5 million for Montgomery Bakers' insurance claim for losses arising from the roof collapse and for other assets, and estimated corporate debts at $1 million. His schedules accordingly showed a $2 million value for the 50% interest held by him and his wife. The promissory note, worth $186,770.79, and the stock ownership were substantial assets available for payment of any claims owed jointly by Fischer and his wife, and if the ownership of those assets were not as a tenant by the entirety, they would be a source for paying claims of other creditors (including the holders of the Flax litigation judgments).

Fischer's meeting of creditors pursuant to § 341 was held on May 6, 2003, approximately two years after the loan was made. Fischer testified under oath. The loan became a topic of discussion. Regarding what kind of records he had evidencing his payment to Montgomery Bakers, Fischer testified "Checks. It's on the financial statement," meaning the financial statement of Montgomery Bakers. Fischer then testified that the loan "was a lump sum. It might have been two payments, but it pretty much was lump." When a creditor then broached the issue of obtaining documents regarding the loan, the trustee (Cohen) requested that the creditors prepare a list of documents desired, and then stated that (after the list was prepared) they would go over what was to be produced. Fischer was then asked where his payments came from, and testified that the payments came from "[m]y T by E account with my wife, either the stock brokerage account or personal account."¹⁹ Towards the end of the meeting, Cohen announced that he would like to see the documentation surrounding the note, and specifically any cancelled check from the tenants by the entirety accounts. When Fischer then testified that he was not sure whether a check was used to make the transfer of funds to Montgomery Bakers, Cohen asked "Well, was it cash or was it a check?" Fischer replied "It might've been wired." Cohen then stated that he wanted to see whatever document there was evidencing the transfer from tenants by the entirety accounts. Fischer replied that he would give the trustee the bank statement showing the transfer of monies.

19 Specifically, the testimony was:

MR. FLETCHER: Okay, and the payments — you say there might have been two payments, well, where did those payments come from?

MR. FISCHER: My T by E account with my wife, either the stock brokerage account or personal account.

Transcript of § 341 Meeting of May 6, 2003, at 58.

The $310,000 in funds received by Montgomery Bakers as a loan from Fischer and his wife came from two different bank accounts. First, Brisky and her husband, Posner, had agreed to lend $250,000 to Fischer and his wife (Brisky's sister) to provide them funds incident to the acquisition of Montgomery Bakers. The sum of $250,000 was wired on June 21, 2001, directly to Montgomery Baker's account from Posner's bank account. Fischer's attorney, Richard Rosenblatt, disclosed the existence of the Brisky-Posner loan to Cohen shortly after the meeting of creditors. Second, an additional $60,000 was transferred to Montgomery Bakers from an account that was solely in the name of Mona Fischer, Fischer's wife. Pursuant to § 727(a)(4)(A), Schlossberg seeks to deny Fischer a discharge based on the false statement that the funds came from tenants by the entirety accounts, but for reasons discussed below I find that the testimony was simply mistaken, and not knowingly false.

Schlossberg contends that Fischer knew, when he testified at the meeting of creditors, the true state of affairs that the documentation later would reveal. But Fischer was also aware at the meeting of creditors, before he made the inaccurate statement regarding the source of the funds, that creditors were demanding to see documents regarding the loan of the funds, and he agreed to obtain bank statements showing the source of the payments to Montgomery Bakers that funded the loan. It is implausible that, in the face of knowing that the documents showing the true source of the funds were to be provided to Cohen, Fischer would knowingly misstate the true source of the funds. Fischer, of course, discovered his error when he gathered together the documentation the trustee had requested, and readily conceded the true state of affairs. As explored below, the statement regarding the source of the funds was not a knowingly false statement as required for § 727(a)(4)(A) to apply in the case of either the $250,000 or the $60,000 portion of the loan.

A. $250,000 Portion of the Loan

The $250,000 supplied from Gary Posner's account was supplied pursuant to a loan agreement providing for Posner and his wife, Lauren Brisky (Fischer's wife's sister) to lend $250,000 to Fischer and his wife (Mona Fischer). That loan was made in the form of the $250,000 being wired to Montgomery Bakers on June 21, 2001.

The agreement whereby $250,000 was lent to Fischer and his wife was reduced to a letter agreement. The first version of the letter, dated June 15, 2001, called for Posner and Brisky to wire $250,000 "to the bank account of Montgomery Bakers, Inc on behalf of Borrower or to the personal account of Borrower as directed on or before June 22, 2001." That version referred to "Benson J. Fischer and Mona B. Fischer (tenants by the Entirety)" as "Borrower" and bore the signatures of all four individuals. It called for repayment by December 31, 2003, and also provided:

Borrower hereby pledges as collateral; (i) Borrowers entire stock portfolio, which is currently located at Salomon Smith Barney (ii) Borrower [sic] shall have the right to file a lean [sic] against the property owned by the Borrower located at 10503 Democracy Lane, Potomac, MD.

A second version, signed only by Fischer and his wife, Mona Fischer, is dated June 22, 2001 (the day after the wire transfer). It referred to merely "Benson J. Fischer and Mona B. Fischer" as "Borrower" without any indication of their being tenants by the entirety, called for the $250,000 to be wired directly to Montgomery Bakers (and not, at the option of the Borrower to the Borrower's account), and called for repayment by December 31, 2001 (not 2003). It additionally provided that:

Borrower hereby pledges as collateral; 1) Borrowers [sic] entire stock portfolio which is currently located at Salomon Smith Barney, 2) any inheritance proceeds that are received by Borrowers in connection with the demise of Louis Brisky.

Fischer mistakenly believed that the funds from Brisky and Posner were placed into an account held by him and his wife as tenants by the entirety, and subsequently transferred to Montgomery Bakers. Indeed, the first letter agreement recognized that the transaction could be handled in that fashion. However, Fischer now concedes that the second letter agreement superseded the earlier one, and reflects the parties' agreement that the funds would be directly wired by Brisky and Posner to Montgomery Bakers. Although that second version, unlike the first version, is not signed by Brisky and Posner, it may be inferred that they had a copy (or the original) of the second version, bearing the signatures of Fischer and his wife, as Posner and Brisky share Fischer's view that it is the controlling document.

The option in the first version of the agreement for Fischer and his wife to direct that the funds be wired instead to them was dropped because of time constraints in getting the funds to Montgomery Bakers by the deadline by which that company needed to receive the funds. Fischer vaguely recalled at the meeting of creditors that part of the funds might have been wired, but did not recall that the funds lent to him and his wife by Brisky and Posner were not funneled through him and his wife for later delivery to Montgomery Bakers, and were instead wired directly to Montgomery Bakers.

Schlossberg contends that Fischer had a reason to disguise the source of the funds because revelation of the true source would weaken Fischer's ability to claim that the loan to Montgomery Bakers is a tenants by the entirety asset. Fischer scheduled his Montgomery Bakers' stock interest to be worth $2,000,000, and he thus viewed Montgomery Bakers' loan obligation to him and his wife to be valuable. The exemption of the Montgomery Bakers' loan obligation to him and his wife (and his exemption of most of his stock interest in Montgomery Bakers) would substantially affect the estate if his valuation of the company proved correct. But Fischer and his wife acquired the funds to be used to fund the loan to Montgomery Bakers with the intention that the loan be treated as an asset held by them as tenants by the entirety. This is evidenced by the promissory note (dated the day after the wire transfer from Posner) reflecting that the note was held by them as tenants by the entirety. Fischer and his wife, with rare exceptions, held their business-related properties as tenants by the entirety. After entry of the judgment in the Flax litigation, Fischer was acutely aware of the necessity of holding assets as tenants by the entirety. The funds from Brisky and Posner having been obtained for purposes of establishing a monetary obligation of Montgomery Bakers owed to Fischer and his wife as tenants by the entirety, Fischer, as a lay person, had no reason not to view the portion of the tenants by the entirety loan funded by the $250,000 obtained from Brisky and Posner as other than tenants by the entirety property.²⁰ It is too far fetched to think that Fischer was focused on a potential challenge to the exemption of the promissory note based on the funds having come from Brisky and Posner, specifically, Posner's account, a source that was not itself tenants by the entirety property of Fischer and his wife, and that he would have knowingly testified falsely in that regard when creditors had made clear that they would be seeking documentation regarding the loan. As to the part of the funds that came from Brisky and Posner, Fischer did not make a knowingly false and fraudulent statement regarding the source of the funds.

20 Schlossberg's objection to the exemption of Fischer's interest in Montgomery Bakers' obligation to Fischer and his wife is assigned to another judge, and I will not opine on the objection other than to state that — in the trial of this adversary proceeding regarding denial of discharge — there is no evidence to suggest that from Fischer's perspective, he had any reason to doubt that the asset was held by him and his wife as tenants by the entirety.

B. $60,000 Portion of the Loan

The $60,000 component of the $310,000 funding of the loan to Montgomery Bakers came from an account in the name of Fischer's wife, Mona Fischer. Those funds had previously been part of a tenants by the entirety account at Smith Barney, but were placed into an account in the name of Fischer's wife to prevent improper seizure by Paley Rothman. Pursuant to its December 2000 judgment in the Flax litigation, Paley Rothman had already improperly seized another tenants by the entirety account that Fischer and his wife owned at First Union.

Although these funds originally came from a tenants by the entirety account, it was false for Fischer to testify that these funds came from a tenants by the entirety account. Nevertheless, I credit his testimony that he believed these funds came from a tenants by the entireties account. Whether the funds were the sole property of his wife or were funds still enjoying the character of tenants by the entirety property despite being nominally titled in only his wife's name, they never were Fischer's sole property. When the loan to Montgomery Bakers was documented to be a loan to Montgomery Bakers by Fischer and his wife as tenants by the entirety, that was not inconsistent with Fischer's having had no solely owned interest in the $60,000, and he had no reason to hide the source as having been from an account held in the sole name of his wife. Fischer had no motive to lie regarding the $60,000. The false statement in that regard at the meeting of creditors was neither knowingly false nor fraudulent.

VII FAILURE TO SCHEDULE BRISKY AND POSNER AS HOLDING A CLAIM

Fischer did not schedule Brisky and Posner as holding a claim against him, but the existence of the Brisky-Posner loan was the subject of relatively early disclosure in the case. Posner's examination was sought by a motion filed June 10, 2003, which was only 35 days after Fischer was examined at the meeting of creditors. Fischer believed that he and his wife are bound by the terms of the second version of the letter agreement regarding the loan from Brisky and Posner, and Posner's deposition testimony confirms that Brisky and Posner share that view. The second version of the letter agreement called for payment by December 31, 2001, which was sooner than the first version. After the terrorists' attacks of September 11, 2001, Montgomery Bakers suffered a reduction in sales to prime customers related to the travel industry. When as a consequence Fischer was unable to make repayment by the maturity date of December 31, 2001, Posner and Brisky did not press for repayment, and Fischer learned from his wife that Brisky said "not to worry about the loan" because Montgomery Bakers was suffering losses. Fischer was also aware that Brisky and Posner did not intend to press a claim in Fischer's bankruptcy case that ensued in March 2003, and of which they were made aware before it was filed. Posner told Fischer after the roof collapsed and around the time of the bankruptcy case that Posner and Brisky would forbear from collecting the debt, and that he need not pay back the loan until he had the money. Based on the foregoing, Fischer viewed the debt as forgiven for purposes of the bankruptcy case, although he viewed himself obligated to repay the loan if he ever obtained funds with which to make repayment.

In fact, the debt was not forgiven in the technical sense. Instead, given Fischer's lack of income, Brisky and Posner agreed, even before the roof collapse, not to pursue the claim until Fischer's financial circumstances took a turn for the better, and agreed upon Fischer advising that he would file a bankruptcy case not to assert a claim in the case. As Fischer now concedes, this is forbearing from collecting the debt, not forgiving the debt. Brisky and Posner still look to Fischer and his wife to repay the debt, and if the debt is not discharged in the case (for example, by way of a reaffirmation agreement or a denial of discharge), it would remain a legally owed obligation of Fischer. But Brisky and Posner have had no desire to cause Brisky's sister, Mona Fischer, and Fischer any hardship. Specifically, Brisky and Posner have no desire to enforce the obligation at this time by causing a sale of Fischer's and his wife's residence. That is the very result which would arise from their filing a claim in the case as Schlossberg would proceed to sell the residence in order to pay off Brisky and Posner's claim. In this nontechnical sense, Fischer correctly believed that the debt could be treated as forgiven for purposes of the bankruptcy case.

Although Fischer has extensive business experience, he believed, albeit unreasonably, that the debt was a forgiven debt for purposes of the bankruptcy case. When Fischer met with his attorney, Richard Rosenblatt, he related that the debt had been forgiven, and Rosenblatt accepted this at face value without probing. Fischer's failure to schedule Brisky and Posner as owed a debt was not made with an intent to defraud them as he knew they had no intention of pressing a claim in the bankruptcy case. Accordingly, the failure to schedule the debt does not give rise to a denial of discharge for a false oath made "knowingly and fraudulently" as required for § 727(a)(4)(A) to apply.

VIII FAILURE TO DISCLOSE TRADEMARKS RELATING TO BINGO, INC.

In his restaurant operations, Fischer often obtained trademarks, and he had somewhere between 10 to 15 trademarks. Two trademarks relating to Bingo! Food Systems, Inc., one of Fischer's companies, were placed in his own name, but most companies' trademarks were held as tenants by the entirety. Bingo was an attempted restaurant concept that fell by the wayside well before the petition date. Schlossberg belatedly attempted to add Fischer's failure to disclose the Bingo trademarks on his bankruptcy schedules as an instance of a concealment of assets and a false oath in the case. The trademarks were not identified in Schlossberg's pretrial memorandum as an issue, and I will not permit the complaint to be amended in the midst of trial, and without advance warning to Fischer, to include them as a basis for denying discharge.

Nevertheless, I allowed Schlossberg to put on evidence in this regard for purposes of shedding light on whether Fischer's other omissions in the case arose from carelessness or were a deliberate act. I credit Fischer's testimony that his failure to schedule the Bingo trademarks was not intentional. Fischer did not have access to a list of his trademarks and simply did not recall that he owned these old trademarks for a business concept that had failed well before the bankruptcy case. They were not property that Fischer would have viewed as being of any value, and Schlossberg did not show that they have any value. Worthlessness of an asset is not determinative of its materiality, and even if they were worthless Fischer ought to have reported them on his schedules. But because the trademarks were worthless, Fischer had no motive to hide their existence, and I accept his testimony that his failure to schedule the trademarks was due to inadvertence, and not a knowing act. Schlossberg has shown neither that Fischer concealed the Bingo trademarks nor that Fischer knowingly and fraudulently made a false oath by failing to schedule the Bingo trademarks.

IX FAILURE TO PRODUCE RECORDS (§ 727(a)(4)(D))

Beyond Fischer's failure to produce his latest financial statement, Schlossberg contends that Fischer should be denied a discharge pursuant to § 727(a)(4)(D) for withholding other documents. Schlossberg alleges that, in the case of those other documents, Fischer "knowingly and fraudulently . . . withheld from an officer of the estate entitled to possession under this title, any recorded information . . . relating to the debtor's property or financial affairs" within the meaning of § 727(a)(4)(D). Schlossberg contends that Fischer grudgingly produced information and, even then, the information was incomplete without excuse, and that at nearly every turn, Fischer attempted to obstruct Schlossberg (or his predecessor) from obtaining information.

As stated in Wortman v. Ridley (In re Ridley), 115 B.R. 731, 734 (Bankr. D. Mass. 1990):

Pursuant to Bankruptcy Code §§ 521(4) and 727(a)(4)(D), a debtor has the affirmative duty to surrender to the trustee all recorded information relating to the property of the estate, and is also obligated to cooperate with the trustee by, among other things, providing the trustee with all relevant documents and papers. The federal courts have consistently interpreted this duty to mean, in part, that a debtor will not be entitled to a discharge in bankruptcy if he intentionally withholds records, books, documents, or other papers relating to the debtor's property or financial affairs.

[Citations omitted.] See also Goldberg v. Lawrence (In re Lawrence), 227 B.R. 907, 914 (Bankr. S.D. Fla. 1998).

A.

On behalf of Fischer, his attorney, Rosenblatt, produced various documents to Cohen, and before Cohen resigned as trustee, Cohen did not communicate to Rosenblatt any dissatisfaction with Rosenblatt's responsiveness to Cohen's requests for documents. After Schlossberg became the trustee, Schlossberg sent a letter of January 4, 2005, to Rosenblatt requesting various documents. Rosenblatt promptly responded that "the vast majority, if not all, of the docs [sic] that you are requesting were requested by [Cohen] and provided to him, to the extent such documents exist." Schlossberg responded that he did not think that anything he requested was contained in Cohen's files provided to him, although it was possible that he had "missed some particular item or another." He asked Rosenblatt to specify the material he thought had been previously supplied to Cohen, but Rosenblatt never specifically responded. Instead, Rosenblatt invited Schlossberg to examine at Rosenblatt's office Fischer's files of papers that Rosenblatt was maintaining at his office. That was unsatisfactory to Schlossberg who insisted that the files be brought to his office in Hagerstown, Maryland, a substantial distance from Rosenblatt's office in Rockville, Maryland, an office which is close to the Circuit Court for Montgomery County and which is along the way (that is, a short distance to the side of the interstate highway) that Schlossberg travels to get to the federal courthouse at Greenbelt, Maryland, which he frequently visits. A dispute such as this over how to resolve a disagreement over the extent to which requested documents had already been produced is hardly sufficient evidence to establish a willful and fraudulent failure to supply requested information.

In the pending contested matter regarding Fischer's claimed exemptions, Schlossberg then filed a request to produce documents. In response to the request to produce, Fischer's next attorney, Richard Schimel, produced a substantial number of pages of documents, perhaps a 1,000 pages, but the documents were not entirely responsive to all of Schlossberg's inquiries. This led to Schlossberg's filing a motion to compel the production of documents. Fischer opposed the motion on the basis that his counsel had already turned over documents to Cohen and Schlossberg. Judge Alquist appears to have sided with Schlossberg's position that Fischer should detail what documents had already been produced to Cohen: she required Fischer to detail the files from which he maintained he had already produced documents. Judge Alquist entered an order compelling the production of some, but not all of the documents whose production Schlossberg's motion sought to be compelled.

Schlossberg characterizes this as a tug of war, obtaining documents only by court order, that is inconsistent with the debtor's obligations under 521(4).²¹ But Schlossberg has not put into evidence the motion to compel and the response to the same, nor the order compelling the production of documents, and thus it is not possible to assess whether Fischer's forcing an order to compel being obtained before he turned over certain documents ought to give rise to a denial of discharge based on a "knowing and fraudulent" withholding of information. Without a clear record of what documents were produced only after Schlossberg obtained an order compelling production, and a clear picture of the precise issues litigated (both in the papers filed and at the hearing on the motion), it is impossible to deny a discharge based on § 727(a)(4)(D). See Eastern Diversified Distributors, Inc. v. Matus (In re Matus), 303 B.R. 660, 680 (Bankr. N.D. Ga. 2004):

21 Pursuant to amendments enacted in 2005 that are inapplicable here, § 521(4) is now numbered § 521(a)(4), but has otherwise remain unchanged.

"If the documents were never requested, and absent any allegations of active concealment of such documents, there cannot be a claim of knowing and fraudulent withholding." Jeffrey M. Goldberg Assoc. v. Holstein (In re Holstein), 272 B.R. 463, 479 (Bankr. N.D. Ill. 2001). See M I Heat Transfer Prods. v. Gorchev (In re Gorchev), 275 B.R. 154, 164 (Bankr. D. Mass. 2002) (where the plaintiff failed to prove that the debtor withheld recorded information when "the Plaintiff [did] not specify which records were requested and when, nor [did] he specify what precisely was withheld").

When a debtor fails to turn over records or property on the advice of counsel who asserts in good faith an unsuccessful defense against turnover, but turns over the records upon being ordered to do so, courts do not deny the debtor a discharge, see Davis v. Robinson (In re Robinson), 152 B.R. 956, 960 (Bankr. E.D. Mo. 1993); Wendel v. Kapsos (In re Kapsos), 16 B.R. 280, 282 (S.D. Fla. 1981), and here the dispute appears to have been a good faith dispute regarding clearing up the issue of what had been produced already to Cohen and what had not been produced to him.

It is regrettable that Fischer, through his counsel, engaged in a contest with Schlossberg regarding producing documents that might have been avoided had his attorney Rosenblatt obtained a receipt for documents produced (or maintained an accurate listing of documents produced) to Cohen in the first wave of production, and that might have been avoided had Rosenblatt responded precisely as to what documents he contended he had already produced on behalf of Fischer. But Fischer relied upon the advice of his counsel, and never independently instructed Rosenblatt not to produce any documents requested.²² The failure to produce documents in response to the January 4, 2005, letter is not a basis for denying Fischer a discharge.

22 Rosenblatt also viewed Schlossberg as proceeding more aggressively in the case than had Cohen, and his reaction (to view Schlossberg as unreasonable and to be on the defensive) cannot justify any failure to cooperate in good faith with any rightful demands by Schlossberg. A trustee is entitled to proceed as aggressively as she deems appropriate in requesting documents that fall within the universe of documents a debtor is obligated to produce to the trustee. The bankruptcy system cannot function appropriately if a trustee must resort to a tug of war to secure documents that properly should be turned over to her. In re Farmer, 237 B.R. 210, 213 (Bankr. M.D. Fla. 1999). On this record, however, I cannot say that either Rosenblatt or Schimel, on behalf of their client Fischer, proceeded other than in good faith in asserting defenses to production of records.

B.

Schlossberg points to documents that Fischer concedes were produced belatedly, but I accept Fischer's explanation that these were papers produced by him upon his acquiring possession of them. For example, there was a longstanding request even before Schlossberg became trustee for Fischer to produce the stock certificates for Montgomery Bakers. Fischer turned over those certificates to Schlossberg much later when, according to Fischer, his father, Sheldon Fischer found them in his garage. Schlossberg failed to call Sheldon Fischer as a witness, and presented no other evidence to lead me to doubt Fischer's testimony. Schlossberg has failed to demonstrate that Schlossberg failed to produce the Montgomery Bakers stock certificates copies promptly after he obtained them.

Schlossberg has similarly failed to show that there was any unreasonable delay in Fischer's producing other requested documents. This includes the similar sudden appearance of a shareholder agreement between Fischer's parents, on the one hand, and Fischer and his wife, on the other hand, with respect to Montgomery Bakers, purportedly signed May 15, 2001 (approximately one month before Fischer and his wife lent $310,000 to the company). Schlossberg raises questions about this document, including whether it was an instrument of fraud in the acquisition of the assets of Montgomery Donuts, Inc., because its recitation of the amounts put into the corporation by Fischer's parents is inconsistent with the final amounts they advanced, and because it speaks of loans that had not yet been made as though they were already in existence. Fischer's explanation was that it documented the forthcoming loans which had already been committed to, but the amounts changed as the aggregate amount necessary to accomplish the acquisition increased, and the promissory notes ultimately issued by the corporation controlled what was actually lent. Even if the document were false at the time of its preparation (because loans had not yet been made) and had been used to defraud someone (a fact which was not demonstrated) and for that reason would cast doubt on how truthfully Fischer conducts himself, that would not alter my assessment of Fischer's credibility as to the issues at stake in this adversary proceeding. Schlossberg also questions the genuineness of the document because it called for Fischer's and his wife's stock to be pledged to Fischer's parents, yet no secured claim of Fischer's parents was scheduled. But the pledge of the shares was not to secure payment of a debt of Fischer to his parents. Instead, it was a pledge that was to last until his parents' loan to Montgomery Bakers was paid in full. Perhaps the required pledge was a way of assuring that Fischer's parents loan to the company would be paid in full before Fischer could transfer his shares to someone else. Whatever the reason, the pledge is irrelevant to the § 727(a) issues at stake here: because the pledge was not to secure a debt owed by Fischer, it was not required to be listed on Fischer's schedules as a secured debt.

X

Schlossberg correctly notes that Fischer's inaccuracies in this case and belated production of documents cannot each be viewed in isolation but must be considered in their entirety. For example, a single misstatement on a debtor's schedules may be viewed as inadvertent, but as the number of misstatements increase, the debtor's averment that they were all due to inadvertence becomes less credible. Fischer was hardly a model of taking painstaking steps to complete his schedules and his statement of financial affairs with absolute accuracy. Most disturbingly, his failure to disclose his financial statements to National Capital Bank came close to reckless disregard of his obligation to prepare accurate responses on the statement of financial affairs. There were other errors as well. In addition, Fischer appears to be incapable of accepting blame, refusing, for example, to concede that there were falsehoods in his financial statements given to National Capital Bank. That inability to candidly acknowledge past false statements, and the demonstrable disregard he had for the truth in preparing those financial statements, cast doubt on his credibility at trial.²³ Even viewing all of Fischer's missteps in the case as a whole, I am convinced that none of those missteps was the result of knowing and intentional misconduct on his part. Fischer was also able adequately to explain any diminution in his assets. Fischer is entitled to a discharge, and Schlossberg's complaint will be dismissed on the merits. A judgment follows.

23 His inability to recall what, other than the bank's line of credit, he included in the $460,000 in "Personal Loans" on his last financial statements was frustrating as well. But he was not asked to acknowledge that only inclusion of the Brisky-Posner loan as a "Personal Loan" could explain the $460,000, and I view him as accurately reciting that he could not specifically recall (versus could not logically deduce) that he included the Brisky-Posner loan as part of the $460,000. His lousy memory, more than three years after he prepared the last financial statement, regarding what he included in the $460,000 is not a basis for denying him a discharge.

The Memorandum Decision below is hereby signed.

Notice Recipients

Recipients of Notice of Electronic Filing: Recipients submitted to the BNC (Bankruptcy Noticing Center):

District/Off: 0416-0 User: pneal Date Created: 1/14/2009 Case: 03-01222 Form ID: pdfall Total: 16 aty Brent C. Strickland bstrickland@wtplaw.com aty Carol L. Hoshall choshall@wtplaw.com aty Jeffrey E. Schmitt jschmitt@whitecase.com aty Randall L. Hagen rhagen@hagenlegal.com aty Richard B. Rosenblatt rrosenblatt@rosenblattlaw.com aty Richard E. Schimel rschimel@budownoble.com aty Roger Schlossberg trustee@schlosslaw.com TOTAL: 7 pla Paley, Rothman, Goldstein, Rosenberg Cooper, Chtd. 4800 Hampden Ln, Seventh Flr. Bethesda, MD 20814 pla Alan S. Mark 4800 Hampden Ln, Seventh Flr. Bethesda, MD 20814 dft Benson J. Fischer 10503 Democracy Lane Potomac, MD 20854 intp Gary J. Posner Ober, Kaler, Grimes Shriver 120 E. Baltimore Street Baltimore, MD 21202 intp Lauren J. Brisky Randall Hagen Ober Kaler 120 E. Baltimore St. Baltimore, MD 21202 ip Roger Schlossberg, Trustee 134 West Washington Street P.O. Box 4227 Hagerstown, MD 21741-4227 aty Chengzhi Yu Whiteford, Taylor Preston 7 St Paul Street Baltimore, MD 21202 aty Lisa A. Kershner Griffin Leahy, LLC 11785 Beltsville Dr. Suite 900 Calverton, MD 20705 US Trustee 6305 Ivy Lane, #6000 Greenbelt, MD 20770 TOTAL: 9