Opinion
No. C 02-01644 CRB
March 12, 2003
ORDER
This matter comes before the Court on appeal from the order of the Bankruptcy Court granting debtor Mark B. Scott a discharge of debts pursuant to 11 U.S.C. § 727. This Court has jurisdiction over bankruptcy appeals under 28 U.S.C. § 158(a) and reviews a bankruptcy court's entry of discharge de novo. See In re Dominguez, 51 F.3d 1502, 1506 (9th Cir. 1995).
Appellant Deborah Harvey, representing herself, filed a timely complaint objecting to discharge of Mr. Scott's debt on February 15, 2002. In her complaint, appellant leveled generalized allegations of waste and destruction of assets against Mr. Scott. She alleged, for instance, that Mr. Scott paid cash for "expensive non-essentials" in an effort to live his life "under the radar," Compl. (ER Ex. 3) at 4-5, and suggested that the only "[s]omeone who wishes to escape the consequences of deliberate torts, malicious prosecution, malpractice, fraud and years of simply ignoring vendors into giving up" could "make close to $1 million in the three prior years and go bankrupt." Id. at 5. Notwithstanding her complaint, the bankruptcy court entered Mr. Scott's discharge on March 21, 2002.
Appellant filed her appeal in this Court on March 29, 2002. She subsequently obtained counsel and filed a supporting brief on May 28, 2002. Her argument on appeal is that the bankruptcy court erred in entering a discharge notwithstanding her objection because her complaint, given a liberal construction, properly alleged that Mr. Scott should be denied a discharge under 11 U.S.C. § 727(a)(2) or (a)(5). The former provision provides that a debtor shall not receive a discharge if he "transferred, removed, destroyed, mutilated, or concealed" assets "with intent to hinder, delay, or defraud a creditor." The latter provision bars discharge if "the debtor has failed to explain satisfactorily . . . any loss of assets or deficiency of assets to meet the debtor's liabilities."
Although appellant now argues that her complaint stated a claim under section 727, the complaint itself made no reference to that section. Rather, the complaint referred only to 11 U.S.C. § 523, which permits a creditor to seek a particularized exemption from discharge of certain kinds of debts. See In re de Armond, 240 B.R. 51, 54 (Bankr. C.D. Cal. 1999) (contrasting section 727 objections with section 523 exemptions). However, Rule 8(f) of the Federal Rules of Civil Procedure provides that "[a]ll pleadings shall be so construed as to do substantial justice," and the Supreme Court "has instructed the federal courts to liberally construe the `inartful pleading' of pro se litigants."Eldridge v. Block, 832 F.2d 1132, 1137 (9th Cir. 1987). Accordingly, the Court will not treat appellant's failure to make specific reference to section 727 as dispositive of her appeal. At the same time, the Court is mindful of the Ninth Circuit's instruction to "construe § 727 liberally in favor of debtors and strictly against parties objecting to discharge." In re Bernard, 96 F.3d 1279, 1281 (9th Cir. 1996).
To state a claim under section 727(a)(2), a complainant must show that (1) a debtor transferred or disposed of property less than one year prior to filing for bankruptcy (2) with intent to hinder, defraud, or delay a creditor. See In re Lawson, 122 F.3d 1237, 1240 (9th Cir. 1997). Plaintiffs complaint did not refer to any particular disposition of property accomplished with fraudulent or dilatory intent. Rather, plaintiff merely suggested that Mr. Scott paid cash for "his children's coming of age parties, long summer vacations and expensive gifts" in order to "escape the consequences" of alleged malfeasance. Compl. at 5. Given its most liberal reading, this language failed to allege that the debtor transferred or disposed of property during the pertinent time period with intent to defraud, mislead, or delay creditors. Although other portions of the complaint raised questions concerning Mr. Scott's credibility and good faith in general, the complaint did not connect those concerns to any particular disposition of property. Accordingly, the bankruptcy court did not err by granting Mr. Scott's discharge notwithstanding appellant's section 727(a)(2) objection.
The same is true with respect to appellant's objection under section 727(a)(5). This section bars discharge when the debtor has failed to explain a loss or deficiency of assets. In order to trigger this section, the debtor must have been asked to explain that loss or deficiency (pursuant, for instance, to 11 U.S.C. § 341(a) or Bankruptcy Rule 2004). See In re Duncan, 123 B.R. 383, 388 (Bankr. C.D. Cal. 1991). Plaintiff did not allege that such a request had ever been made of Mr. Scott, nor did she indicate which assets Mr. Scott had failed to account for. Accordingly, she did not state a claim under section 727(a)(5). See id.
These deficiencies in pleading might be cured by amendment if there were time remaining to file an amended complaint. In this case, however, appellant filed her complaint on the last possible day. As such, amendment will not be permitted.
For the reasons stated, the order of the bankruptcy court discharging Mr. Scott's debt is hereby AFFIRMED.
IT IS SO ORDERED.