Bankruptcy

11th Circuit - Mere Failure To Comply With Court Order Insufficient For Denial Of Discharge

By Scott Riddle

The Cradle Company v. Matos (In re Matos), 2008 WL 596744, No. 07-12628 (11th Cir. March 6, 2008).  The creditor sought an order denying the debtors' discharge for failure to comply with a Court Order.  The Bankruptcy Court found that the creditor did not establish the requirements of denial of discharge, and the District Court affirmed.  The creditor appealed to the Eleventh Circuit -

Sections 727(d)(3) and (a)(6)(A) provide for revocation of a discharge where “the debtor has refused, in the case-(A) to obey any lawful order of the court, other than an order to respond to a material question or to testify....” 11 U.S.C. §§ (a)(6)(A), (d)(3). To obtain revocation on this ground, Cadle was required to show that the Debtors willfully and intentionally refused to obey a court order. See Farouki v. Emirates Bank Intern., Ltd., 14 F.3d 244, 249 (4th Cir.1994) (citation omitted). Thus, a mere failure to obey the order, resulting from inadvertence, mistake, or inability to comply, is insufficient; the party seeking revocation must demonstrate some degree of volition or willfulness on the part of the debtor. Id. In considering whether to grant revocation of a discharge, a bankruptcy court should consider these factors: “[1] the detriment to the proceedings and the dignity of the court against the potential harm to the debtor if the discharge is denied ... [;][2] the intent behind the bankrupt's acts-were they wilful or was there a justifiable excuse; [3] was there injury to the creditors; and [4] is there some way the bankrupt could make amends for his conduct.” In re Jones, 490 F.2d 452, 456 (5th Cir.1974) (citation omitted)

… However, the bankruptcy court found that the late production of documents, alone, was insufficient to show a wilful or intentional refusal to follow the August 8th order because Cadle had not shown that the Debtors refused to obey, or simply ignored, the August 8th order. … , Cadle pointed to no action by the Debtors evincing an attempt to avoid production entirely, or to conceal assets, relating to the belated document production. Indeed, the bankruptcy court found that Cadle had not shown some of the late-produced documents were in the Debtors' possession, or control for that matter, when the deadline elapsed. Finally, the bankruptcy court noted that the late production of documents resulted in no injury to creditors or detriment to the bankruptcy proceedings. Simply put, on this record, we cannot say the bankruptcy court's factual findings leave us with “the definite and firm conviction that a mistake has been made” and thus they do not constitute clear error.

Full post as published by Georgia Bankruptcy Blog on March 07, 2008 (boomark / email).