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May 7, 2004.

In re: HERMAN JACOBOWITZ, Chapter 7, Debtor; HERMAN JACOBOWITZ, Appellant, -against- THE CADLE COMPANY, Appellee

The opinion of the court was delivered by: WILLIAM CONNER, Senior District Judge


Appellant Herman Jacobowitz (the "debtor") appeals to this Court from an Order and a Memorandum and Decision, Cadle Co. v. Jacobowitz (In re Jacobowitz), 296 B.R. 666 (Bankr. S.D.N.Y. 2003), both of which were issued April 11, 2003 (collectively the "Order"), by the Bankruptcy Court (Honorable Cecelia G. Morris, U.S.B.J.) granting the motion of appellee the Cadle Company ("Cadle") for summary judgment and denying the debtor discharge pursuant to 11 U.S.C. § 727(a)(3).*fn1 For the reasons stated herein, we affirm the Order of the Bankruptcy Court.


  Unless otherwise noted, the following facts are undisputed. On May 24, 1990, the debtor, a shareholder and officer of Prime Products, Inc. ("Prime Products" or "the company"), a company the debtor had purchased through a leveraged buyout, personally guaranteed a $1.5 million loan to the company made by First New York Bank (the "Bank"). (Jacobowitz Affm. ¶ 3.) Subsequently, the debtor personally guaranteed more loans to the company. (Id.) Sometime in 1991, the debtor left Prime Products after a dispute with his business partner that appears to have centered around a transfer of assets from Prime Products to an entity named Chester Automotive. (Id. ¶ 4; Jacobowitz Dep. at 144-45.) According to the debtor, when the Bank discovered that Prime Products had disposed of its assets, it assigned guards to monitor Prime Product's warehouse. (Jacobowitz Dep. at 145.) The debtor left the company the day the guards were assigned. (Id. at 146.) On December 2, 1994, Cadle, a successor in interest to the Bank, obtained a $1.9 million judgment against the debtor. (Jacobowitz Affm. ¶ 5.) The debtor has not retained any records relating to Prime Products or his tenure with the company. (Jacobowitz Dep. at 116, 136.)

  The debtor claims to have lived "hand to mouth" since he left Prime Products. (Jacobowitz Affm. ¶ 7.) Sometime after leaving the company, the debtor obtained a license to sell insurance in New York State and embarked on a career as an insurance salesman in order to support his wife and seven of his children.*fn2 The debtor was employed for four years by MetLife, but appears to have operated a business independent of MetLife during his tenure with the company because he reported business income while he was employed there. After the debtor left that company in 2001, he continued to operate his own business, working as an independent contractor for I. Levine Insurance Co. ("L Levine"). On his 1999, 2000 and 2001 tax returns the debtor reported gross income of $25,485, $32,760 and $10,419 respectively. On each return, the debtor declared a profit from business and took business deductions that reduced the debtor's gross business income by approximately 40-50%. (R. Appeal at 277, 287.) Although he claims never to have owned a vehicle during the relevant period (Rule 7056-1 Stmt. ¶ 29), each year the debtor took a substantial business deduction, typically equal to 20-25% of gross receipts, for car and truck expenses. (R. Appeal at 277, 287, 293.) The debtor explained that during the relevant period, he used vehicles made available to him by his synagogue or friends (Jacobowitz Dep. at 38) and that he paid the synagogue for this privilege and financed some of the synagogue's costs of maintaining the vehicles. (Id.; Hr'g Tr.*fn3 at 66.) The debtor has not provided any documents reflecting this arrangement and states that when he paid maintenance costs he always discarded the receipts provided to him. (Hr'g Tr. at 67.) The debtor also took deductions for office*fn4 expenses and business travel and entertainment, but has not provided Cadle or the Bankruptcy Court with any record of these expenses. The debtor explains that his accountant approximated the business expenses he reported on his tax returns from figures that the debtor provided from memory. For example, each year the debtor would describe the driving he did for business purposes and his accountant would estimate deductions based upon Internal Revenue Service ("IRS") mileage allotments and charges for tolls and gas. (Jacobowitz Dep. at 47.) No gas or toll receipts were available because the debtor discarded them when they were provided. Other figures, such as business travel and entertainment expenses, were similarly taken from his memory. (Id. at 48-49.) The debtor's accountant repeatedly chastised the debtor for his failure to keep records of his business expenses. (Hr'g Tr. at 69.)

  On June 18, 2002, the debtor filed a Chapter 7 petition (the "bankruptcy petition") wherein he reported income of $8,000 a month. When asked to supply documentation of his income for the six months preceding his bankruptcy petition, the debtor stated that he would supply Cadle with a 1099 Form or other record of his business income from I. Levine. (Jacobowitz Dep. at 54-55.) He has failed to do so despite being given several opportunities, the most recent of which occurred on June 27, 2003, a date when income information concerning 2002 should have been readily available. (Hr'g Tr. at 58-59, 89-90.) The petition also reflected monthly business expenses of $3,000 and monthly personal expenses of approximately $2,650 during the same period. The debtor admitted that he had no record of the business expenses he declared on his bankruptcy petition. (Hr'g Tr. 89-92.)

  The debtor provided Cadle with copies of his 1999, 2000 and 2001 tax returns, but he did not submit any record of the business expenses he reported on the returns.*fn5 The debtor contends that he cannot provide a record of his expenses because he paid for everything in cash and never kept receipts and he has no checking account or credit cards. When I. Levine or another party remitted a check to the debtor, the debtor cashed the check through a free loan service offered by his synagogue called a g'mach. No record of any of these check transactions is available from the g'mach. (Id. at 100.)

  The debtor claims that he has never owned any real property. Although title to a home in Monroe, New York, was in his name at one time, the debtor explains that he allowed an Israeli rabbi to put it in his name to allow the rabbi to circumvent federal immigration laws. (Id. at 85.) Title was transferred to a third party after the debtor advised them that Prime Product's creditors would, in all likelihood, soon be levying upon any property that appeared to be the debtor's. (Id. at 85-86.) The debtor rents his home in Monroe from his cousin who does not provide a receipt when the debtor pays the rent. (Id. 27-28.) There is no written lease. The only utility that the debtor pays on a regular basis is the telephone bill that he states ranges from $300-$400 a month. (Jacobowitz Dep. at 55.) He often pays this bill in cash at the telephone company's office and he always discards the bill and receipt provided to him. If he does not pay the telephone bill in person, he pays with a postal money order and disposes of the bill and money order receipt. The debtor continued to dispose of his telephone bills and receipts after Cadle first requested copies of them. (Hr'g Tr. at 62.)

  On August 22, 2002, Cadle deposed the debtor and repeatedly requested documents from him. (Jacobowitz Dep. at 10, 55, 60, 68, 86, 125.) Notably, Cadle requested records of the business income that the debtor admittedly received from I. Levine during the first half of 2002. (Id. at 55.) The debtor conceded that he could request these documents from I. Levine. (Id.) The debtor failed to produce the requested documents (Hr'g Tr. 89-92) and Cadle commenced this adversary proceeding on October 30, 2002, seeking a denial of the debtor's discharge pursuant to 11 U.S.C. § 727(a)(3) for failure to keep adequate records.

  The debtor filed an Answer and Cadle moved for summary judgment on February 12, 2003. The debtor responded to the motion but did not provide any additional documentation. On May 14, 2003, oral argument was held before the Bankruptcy Court. At oral argument, the Bankruptcy Judge scheduled an evidentiary hearing to provide the debtor with another opportunity to provide adequate records or to raise a genuine issue of material fact as to whether his failure to do so was justified. (Hr'g Tr. at 11.) The evidentiary hearing was held on June 27, 2003. The debtor testified that he had no records to support the information he provided on his petition or tax returns. At the time of the hearing, the debtor claimed that he had no income "as of this moment." (Id. at 18). He conceded that I. Levine provided him a 1099 Form each year, but did not explain his failure to provide a record of his business income that he received during the first half of 2002. (Id. at 58-59, 89-90.) When asked whether the debtor had begun to save receipts and other pertinent documents concerning his business expenses subsequent to Cadle's request for these records, the debtor frankly admitted that he had continued to discard them. (Id. at 62.)

  In his papers opposing Cadle's motion and at the evidentiary hearing on the matter, the debtor attempted to justify his failure to keep adequate records by claiming that he and his family lived in poverty and depended upon charity. The debtor offered census statistics that he contends establish that a family of nine with an income of $30,000 is living at or below the poverty level. He also offered a witness who testified that during the previous year the debtor's family had received food donations from a charitable organization.*fn6 After combing the fully developed factual record the Bankruptcy Court concluded that Cadle had offered evidence tending to show that the debtor's records were inadequate as a matter of law and that the debtor had failed to raise a genuine issue of material fact on the issue. Furthermore, the Bankruptcy Court held that the debtor's proffered justifications for his failure to keep records were also insufficient as a matter of law. Accordingly, summary judgment was entered in favor of Cadle denying the debtor discharge under § 727(a)(3).


 I. Standard of Review

  On an appeal from the bankruptcy court, the district court cannot set aside the bankruptcy court's findings of fact unless those findings are clearly erroneous. See FED. R. BANK. P. 8013; In re Dawnwood Props./78, 209 F.3d 114, 116 (2d Cir. 2000). The bankruptcy court's legal conclusions are reviewed de novo. See Dawnwood Props./78, 209 F.3d at 116. Where the appellant challenges a grant of summary judgment, the appellate court reviews the lower court's ruling de novo because the determination that there are no genuine issues of material fact is a legal conclusion. See FDIC v. Giammettei, 34 F.3d 51, 54-55 (2d Cir. 1994) (district court's grant of summary judgment is reviewed de novo);Hanover Direct, Inc. v. T.R. Acquisition Corp. (In re T.R. Acquisition Corp.), No. 02 Civ. 8487, 2003 WL 21910860, at *4 (S.D.N.Y. Aug. 8, 2003) (the district court reviews a bankruptcy ...

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