Kim et al v. Keeran et al

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: 	Robert B. Keeran, and 	Case No. 09-12021-j7
Cynthia J. Keeran,
Debtors.
Siekap Kim, and
Kyung S. Kim,
Plaintiffs
v. 	Adversary No. 09-1208-j7
Robert B. Keeran, and
Cynthia J. Keeran,
Defendants.
MEMORANDUM OPINION
This matter is before the Court following a trial on the merits of the Plaintiffs’ claims
objecting to the Defendants’ discharge and to dischargeability of a debt. The Plaintiffs allege
that Defendant Robert Keeran committed fraud by misrepresenting that he had an ownership
interest in property, and then selling that illusory interest in the property to Plaintiff Siekap Kim
and bilking $80,000 from him as a down payment. Plaintiffs thereby claim that Defendants owe
a debt to them to repay the $80,000 and that such debt is non-dischargeable under 11 U.S.C §
523(a)(2)(A). Plaintiffs further allege that the Defendants have not provided adequate
documentation and have not satisfactorily explained what happened to the $80,000 that the
Plaintiffs paid the Defendants pre-petition. The Plaintiffs thereby object to the Defendants’
general discharge under 11 U.S.C. § § 727(a)(3) and (a)(5). Finally, the Plaintiffs assert that the
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Defendants knowingly and fraudulently undervalued a warehouse in their statement of financial
affairs and therefore should be denied a discharge pursuant to 11 U.S.C. § § 727(a)(4).1
The Court, having considered the evidence presented at trial, the arguments of counsel,
and the relevant case law, and being otherwise sufficiently informed, has determined that the
Plaintiffs have failed to prove their claims.
Jurisdiction and Venue
This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§
1334(a) & (b) and 157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(I) & (J).
Pursuant to Fed.R.Civ.P. 52 made applicable by Fed.R.Bankr.P. 7052, the Court now states its
findings of fact and conclusions of law.
FACTS
Defendant Robert Keeran (“Bob Keeran” or “Mr. Keeran”) was a real estate developer
whose various business enterprises rendered him and his family, including his wife, Cynthia
Keeran, Mr. Keeran’s co-debtor under Chapter 7 and co-defendant in this case, insolvent.
Unfortunately, Plaintiffs Siekap Kim (“Mr. Kim”) and Kyung Kim, husband and wife, had an
investment with Mr. Keeran at the time the Defendants commenced their bankruptcy case.2 That
1 At trial, Plaintiffs sought to expand the scope of their claims to include a claim under 11 U.S.C. § 523(a)(4). No
claims under that sub-section were included in the joint pretrial order (see Docket No. 64), and the Plaintiffs
produced no evidence that such claim was erroneously excluded from the pretrial order. A pretrial order “controls
the course of the action unless the court modifies it.” Fed. R. Civ. P. 16(d), made applicable by Fed.R.Bankr.P.
7016. A final pretrial order may be modified “after a final pretrial conference only to prevent manifest injustice.”
Fed.R.Civ.P. 16(e), made applicable by Fed. R. Bankr. P. 7016. Because the purpose of a pretrial order “is to clarify
the real nature of the dispute at issue, attorneys at a pretrial conference must make a full and fair disclosure of their
views as to what the real issues of the trial will be.” Youren v. Tintic School Dist., 343 F.3d 1296, 1304 (10 th Cir.
2003), quoting Rios v. Bigler, 67 F.3d 1543, 1549 (10 th Cir. 1995) (internal quotation marks omitted). The
Defendants did not have fair notice that the Plaintiffs intended to assert a claim of non-dischargeability under 11
U.S.C. § 523(a)(4). Allowing the Plaintiffs to expand the scope of the objection would have deprived the
Defendants of a fair opportunity to present their defenses. For these reasons, the Court did not permit Plaintiffs to
expand the scope of their 11 U.S.C. § 523(a)(4) claim at trial.
2 Plaintiffs filed a Chapter 7 Voluntary Petition on May 12, 2009. See Bankruptcy Case No. 09-12021-j7.
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investment and the events surrounding it precipitated the allegations at issue in this
memorandum opinion. The Court begins by examining the underlying facts.
Bob Keeran and Siekap Kim
Of the actions discussed below, insofar as they are relevant to the Plaintiffs’ claims in this
adversary proceeding, most were primarily conducted either by Mr. Keeran or between Mr. Kim
and Mr. Keeran. A substantial number of their relevant business communications were done
orally or “on a handshake.”
Bob Keeran is a licensed contractor and licensed realtor operating in the Albuquerque
metropolitan area.3 He has held his contractor’s license for over a decade and his realtor’s
license for approximately thirty-five years. At the time of the events in question, Mr. Keeran and
his wife were the sole shareholders of a number of real estate development corporations,4 which
Mr. Keeran operated. Mr. Keeran is a sophisticated developer, having conducted at least three
projects in the $10 million dollar range, which is a sizeable deal in the Albuquerque real estate
market. Although Cynthia Keeran is a shareholder in these corporations, a joint debtor in the
underlying bankruptcy case, and co-defendant in this adversary proceeding, she has minimal
knowledge of the Defendants’ finances. The Defendants’ businesses had a relatively substantial
number of revolving loans and lines of credit. Prior to the economic downturn that began in
2007, it was not unusual for the bank accounts for corporations the Defendants own to have
millions of dollars flowing in and out each month.
The Defendants have three adult children, Matthew, Drew, and Jennifer. Matthew
Keeran owns his own construction business. Drew and Jennifer are disabled with what is
3 Mr. Keeran is also a non-practicing doctor of dental surgery.
4 Debtors’ schedule B lists joint stock ownership in six different corporations related to real estate development.
Debtors’ Statement of Financial Affairs cites income from at least eight different corporations related to real estate
development. See Plaintiffs’ Exhibit 12.
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commonly known as the “Fragile X” Syndrome. The Defendants, prior to commencement of
their bankruptcy case, would assist Jennifer in paying her mortgage. Drew is more severely
disabled and lives with the Defendants, who are responsible for his care.
Siekap Kim, who at the time of trial was 66 years old, emigrated from Korea5 to the
United States in 1983. He and his wife, Kyung Kim, own a 24-room hotel business in Grants,
New Mexico. The Plaintiffs also have three adult children, all in their thirties. Although the
$80,000 debt the Kims seek to be found non-dischargeable was described by their counsel as
their “life’s savings,” they have over $1 million in unencumbered assets according to a loan
application. See Defendant’s Exhibit C, page 64.
Mr. Kim and Mr. Keeran Make and then Orally Terminate Their First Deal
Mr. Kim and Mr. Keeran first met in 2005, whereupon they conducted and terminated,
prior to its completion, a real estate deal that preceded the one which is the subject of this
litigation. The Kims had previously purchased a house in a subdivision called Ventura Village,
which had been built by one of Mr. Keeran’s companies. While Mr. Kim was visiting the house
one day, he met Mr. Keeran, whereupon the two struck a deal wherein Mr. Kim would purchase
yet another lot in the subdivision (the “Estrada Court Lot”), this time from one of the
Defendants’ companies, Llave Construction, Inc., for $175,000. This was memorialized in an
“Agreement for Sale and Purchase of Lot 4 of Estrada Estate” on October 13, 2005. Mr. Kim,
pursuant to this contract, also put up $5,000 in “earnest money,” which was paid to a third-party
title company. See Plaintiff’s Exhibit 19. Mr. Kim was granted title to the lot by another one of
Mr. Keeran’s companies, Llave Development, Inc. See Exhibit 20, “Warranty Deed”. On
November 24, 2006, Mr. Kim and Llave Construction, Inc. entered into a Building Contract,
5 Mr. Kim did not state whether he was from North or South Korea. This fact does not matter for the purposes of
this trial.
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wherein Llave Construction, Inc. contracted to build a home, and Mr. Kim agreed to obtain a
construction loan in the amount of $600,000 upon which Llave Construction, Inc. could draw.
See Plaintiffs’ Exhibit 19. Mr. Kim applied for and received approval of this loan.
In 2007, for whatever reason, Mr. Kim decided that he no longer wanted to own the
Estrada Court Lot or have a house constructed on the lot. Testimony conflicted: Mr. Kim
testified that he could no longer afford the mortgage payment; Mr. Keeran testified that Mr. Kim
had represented that he had had a heart attack and could not bear the emotional burden of being
obligated to pay so much money. Mr. Kim testified that Mr. Keeran misunderstood him and
made the erroneous assumption that Mr. Kim had had a heart attack. English is not Mr. Kim’s
first language, and Mr. Keeran does not speak Korean; this Court finds it not unlikely that the
parties were unable to fully understand each other at any of the times relevant to this case.
In any case, entirely on the basis of an oral agreement and completely without objection,
Mr. Keeran allowed Mr. Kim to terminate the contracts for purchase and sale of the Estrada
Court Lot and for the construction of a house thereupon. In January and February 2007, Mr.
Keeran caused the Kims to be paid back all of the money they had invested in the Estrada Court
Lot deal. See Defendant’s Exhibit I. 	The Kims conveyed the property in question by warranty
deed to yet another company of the Keerans, Llave Enterprises, Inc., in August 2007. See
Exhibit 21. Mr. Keeran testified that he ultimately took a financial loss on this property.
Additionally, the Court notes that it was not unusual for Mr. Keeran through his companies to
conduct substantial business on the basis of oral agreements. In addition to his oral contracts
with Mr. Kim, Mr. Keeran let Karen Hall, a construction loan officer whom he had known and
worked with since 1995, and her husband out of a contract three weeks before they were to close
on a house Mr. Keeran had built for them.
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Mr. Keeran’s Businesses Approach Failure
Around the time that the Kims executed the warranty deed to transfer the Estrada Court
lot back to Mr. Keeran’s company in 2007, the worldwide economy began to enter into a deep
recession, one which would engulf the real estate market and result in the failure of an
abnormally large number of American banks. Mr. Keeran’s ultimate financial downfall marched
in lockstep with this recession. The Federal Deposit Insurance Corporation caused a change in
control of at least one bank, Community Bank of Arizona, with which Mr. Keeran’s enterprises
did business. The bank then cut off a line of credit upon which he relied to pay his workers and
demanded that he refinance the line of credit.
Mr. Keeran’s business enterprises were very susceptible to disruptions in the credit
market at that point. In late 2006, due to a concrete shortage and inclement weather conditions,
one of Mr. Keeran’s construction projections went approximately $1.5 million over budget. Mr.
Keeran’s interrelated businesses never recovered. He increasingly relied on letters of credit,
revolving loans, and loans from his immediate family members to keep his businesses afloat.
Mr. Keeran’s increasingly resorted, to keep his businesses afloat, to taking a short-term loan
from whatever source, often from a family member or friend, paying it off quickly with new
funds that were made available (either via loans or payments from projects), then taking more
loans. As the credit markets tightened considerably and the real estate market flat-lined, his
businesses became increasingly more unstable and the Keerans were forced into bankruptcy in
2009. This is the backdrop against which a second deal between the parties unfolded.
Mr. Kim and Mr. Keeran Make Their Second Deal for a Lot at Rich Court
The channel of communication between Mr. Kim and Mr. Keeran remained open after
they mutually rescinded their first deal in late 2007. Mr. Kim was still interested in doing a deal
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with Mr. Keeran, and Mr. Keeran, as explained, was hungry for revenue. Mr. Kim was aware
that Mr. Keeran was struggling financially, but chose to go ahead. On May 1, 2008, the parties
made an oral agreement for the purchase and sale of a second parcel of land in an Albuquerque
subdivision called “Rich Court” for the initial amount of $187,500, which was the amount of the
mortgage on the lot. Llave Enterprises, Inc. had title to the lot. Mr. Kim immediately made a
down payment of $15,000, which he obtained by cashing a certificate of deposit. See Plaintiff’s
Exhibit 2. Mr. Kim returned a few days later and stated that his wife would not pay more than
$180,000 for the property. Mr. Keeran agreed to let him pay the lesser price, in exchange for
Mr. Kim’s promise to pay $80,000 total in “option money,” i.e. money that would be non-
refundable if Mr. Kim did not ultimately purchase this property. See Plaintiff’s Exhibit 7, pp.
37-40. Mr. Kim tendered a check for the additional $65,000 that day. See Plaintiff’s Exhibit 2.
Mr. Keeran had never entered into an option contract before. At the time Mr. Kim paid the
$80,000 toward the purchase price of the Rich Court lot, Mr. Kim was aware that Mr. Keeran
was in desperate need of the cash and intended to immediately spend it.
Aside from simply being a poor business practice, the lack of a contract evidencing this
agreement presents further difficulties for the parties in the case, as the Plaintiffs have asserted a
fraud claim based on what Mr. Kim asserts he was promised in the bargain: At trial, Mr. Kim
contended that Mr. Keeran promised him what was sectioned off as lot 4 (“Lot 4”) in the Rich
Court subdivision, a lot which Mr. Keeran did not own at the time. Mr. Keeran insisted that they
had agreed on lot 9 (“Lot 9”). Lot 4 is located at 8815 Rich Court, Albuquerque, New Mexico.
Lot 9 is located at 8808 Rich Court. Mr. Keeran contended that Mr. Kim did not express an
interest in Lot 4 until months after making the original deal when Mrs. Kim decided she want
Lot 4, and that Mr. Keeran told Mr. Kim he would try to swap Lot 9 for Lot 4 with another
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developer once Mr. Kim paid off what he owed.6 Beyond such contradictory testimony, little
reliable evidence was produced on this point. The Court does note, however, that the Plaintiffs’
initial filings, when they began to prosecute the claims asserted in this adversary proceeding,
refer to Plaintiffs having agreed to purchase Lot 9. For example, the Plaintiffs’ first substantial
filing was a motion seeking an order authorizing a debtor’s examination under Fed.R.Bankr.P.
2004. It alleged that “[c]reditors transferred $80,000 from their retirement funds to the Debtor
Robert Keeran on a handshake for the purpose of purchasing vacant land located at 8808 Rich
Court NE, Albuquerque[].” See Exhibit P (Docket No. 44 in case No. 09-12021-j7). 	At that
point, any information Plaintiffs’ attorneys had would likely have come from the Plaintiffs
themselves. Additionally, when Mr. Kim applied for a loan to finance the rest of his purchase of
the Rich Court lot, the property description on the loan application was described as “TBD,” i.e.
“to be determined.” See Exhibit C.
Mr. Keeran was a credible witness. He provided substantive and consistent explanations
of his actions. This is not to say that Mr. Kim was not credible. Given the language barriers
between the two men, it does not require a leap of the imagination to conclude that there very
well may have been a misunderstanding regarding which lot Mr. Kim believed he was ultimately
entitled to receive. Nevertheless, the preponderance of the evidence shows that Mr. Keeran did
not represent to Mr. Kim that the agreement inducing payment of the $80,000 was for the
purchase and sale of Lot 4.
The Kims’ Money and Mr. Keeran’s Financial Records
Plaintiffs assert that Defendants failed to keep adequate financial records and to
adequately explain what happened to the $80,000 they paid to the Defendants.
6 At this time, Mr. Keeran also executed a promissory note whereby Llave Development, Inc. was declared to owe
the Plaintiffs $80,000. See Defendants’ Exhibit D. Mr. Keeran explained that he gave this note to Mr. Kim and pre-
dated it so that Mr. Kim would have something to show his wife, who was angry with him over the Rich Court deal.
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Mr. Keeran deposited the $15,000 check Mr. Kim gave him 7 into a Bank of Albuquerque
account in the name of his wife, Dr. Cynthia Keeran Ph.D. See Exhibit G. This deposit was
intended to repay two loans that Mrs. Keeran had made to two of Mr. Keeran’s cash-strapped
businesses on April 24, 2008. Mrs. Keeran had loaned Llave Enterprises, Inc. $10,000, and
Llave Development, Inc. $5,000. See Exhibit G, checks number 1015 and 1016. Depositing Mr.
Kim’s check in Mrs. Keeran’s account was consistent with Mr. Keeran’s financial practices in
the tight credit market, wherein Mr. Keeran was trying to keep his available cash flush enough to
weather the imploding real estate market. Mr. Keeran deposited the $65,000 check that Mr. Kim
gave him8 into the bank account for Llave Enterprises, Inc. on May 5, 2008. See Exhibit F.
Llave Enterprises, Inc. used the funds in part to cover an overdraft on its account and in part to
repay a loan from one of the Defendants’ sons.
Various business records – bank statements, copies of checks, balance sheets, and general
ledgers – were admitted into evidence by both parties. See, e.g., Plaintiffs’ Exhibits 4, 6, 11, 18,
33; Defendants’ Exhibits F, G. These records demonstrate practices consistent with what was
already discussed: a series of loans repaid to family members, which was business in the
ordinary course for Mr. Keeran, as the difficult credit markets forced Mr. Keeran to adapt to such
unconventional methods given the sudden unavailability of lines of credit. Mr. Keeran made
payments to his son, Matthew, who was also in the construction business, to repay an April 2008
loan Matthew made to him. See Defendants’ Exhibits H. The records also reflect a substantial
number of payments made to business vendors. Mr. Keeran, tired of shifting monies between his
various companies at this time, actually closed various bank accounts in May 2008 in order to
make bookkeeping easier.
7 The check was simply made out to “Bob”, which is consistent with the oral nature of the parties’ “handshake” deal.
8 This second check was made out to “Bob Keeran.”
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Mr. Keeran was trying to adapt his credit-reliant businesses to the wildly shifting winds
of the credit market. While Mr. Keeran’s actions did not rise to the level of “best practices,” the
Court was not left with questions about where the Kims’ money went.
Transaction with the Mullers
The Keerans’ Statement of Financial Affairs listed a transfer via deed in lieu of
foreclosure of a warehouse located 3228 Los Arboles, Albuquerque, New Mexico (the
“Warehouse”). See Plaintiff’s Exhibit 12. The Warehouse was an investment that Mr. Keeran
had made through another of his companies, Los Arboles de Llave, Inc. Los Arboles de Llave,
Inc. bought the property for $725,000 in 2005. The Warehouse was appraised at $1.5 million in
late 2007. On the basis of this appraisal, Los Arboles de Llave, Inc. borrowed $1 million dollars
from First Community Bank in exchange for a lien against the Warehouse. See Defendant’s
Exhibit J. Mr. Keeran used this money to pay off the Warehouse’s purchase price and to make
tenant improvements. In May 2008, Mr. Keeran mortgaged the property to Gary and Renae
Muller, in exchange for a loan of up to $325,000.9 See Defendants’ Exhibit K. 	With interest, the
amount owed on the Warehouse thus ultimately totaled approximately $1.4 million. As Mr.
Keeran’s businesses failed, the one he had planned around the Warehouse was no exception, as
some planned tenants never took possession. Mr. Keeran made the business decision to transfer
a deed to the Warehouse to the Mullers in lieu of foreclosure in October 2008. The Mullers took
the Warehouse subject to the prior mortgage and any other encumbrances. See Defendant’s
Exhibit L. Gary Muller is Mr. Keeran’s accountant and friend.
9 The “maximum amounts stated” in the mortgages granting the liens against the Warehouse were double the
amounts actually initially borrowed. This is a standard real estate development lending practice in New Mexico
based on the peculiarity of New Mexico law. The practice protects the lien priority of the lender in the event of
future advances secured by the property or expenses incurred by the lender secured by the lien of the mortgage.
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The appraisal which valued the Warehouse at $1.5 million in November 2007 used sales
comparison and income capitalization approaches. Mr. Keeran valued the Warehouse at $1
million on the date of the transfer to the Mullers because of the depressed real estate economy
(affecting the sale comparison approach to valuation) and because the actual income from
Warehouse tenants was far below what it was projected to be at the time of the appraisal. The
Court finds that Mr. Keeran’s $1 million valuation of the Warehouse was made in good faith.
The Second Deal with Mr. Kim Fails and Mr. Keeran Declares Bankruptcy
Mr. Kim never delivered the $100,000 balance of the purchase price to consummate the
Rich Court deal that they made in May 2008. Mr. Kim knew he owed this additional money and
would not get the deed to the property until making such payment. The bank that held the lien
on the Rich Court lot had advised Mr. Keeran that it would release its lien against the lot in
exchange for a cash payment of $100,000, in order to keep the property off its books during a
tough credit market and time of increased FDIC scrutiny. Mr. Kim tried to raise the $100,000
balance of the purchase price in various ways. He sought a bank loan, but was turned down.10
He then sought to sell the aforementioned property in Ventura Village, but was unable to raise
the funds that way either.
In late 2008, Mr. Kim asked Mr. Keeran to loan him the $80,000 he had paid toward the
purchase price of the Rich Court lot, so that he could help his daughter finance a restaurant in
Virginia. Mr. Kim believed his daughter would then sell the restaurant quickly to reap a quick
profit, and use the profit to help her father pay the entire $180,000 purchase price for the Rich
Court lot. In March 2009, Mr. Keeran signed an $80,000 check to Siekap Kim on behalf of
10 The aforementioned Karen Hall was the loan officer in charge of Mr. Kim’s loan application. She had also been
the loan officer on at least one of Mr. Kim’s previous home financings.
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Llave Development, Inc. See Exhibit 25. 11 Mr. Kim, in order to demonstrate good faith in the
deal, executed at least one check in return to Mr. Keeran on that same date, for $20,000. See
Exhibit E. The Llave Development, Inc. check bounced, as its bank account contained
insufficient funds. Mr. Kim’s check was not negotiated.
Two months later, on May 12, 2009, the Keerans filed a chapter 7 bankruptcy case. The
Court finds that Mr. Kim was still trying to buy the Rich Court property on that date, but had not
raised funds to pay the balance of the purchase price.
DISCUSSION
In the stipulated pretrial order, Plaintiffs preserved for trial claims asserted under 11
U.S.C. §§ 523(a)(2)(A), 727(a)(3), and 727(a)(5). 12 Plaintiffs also asserted a claim under 11
U.S.C. § 727(a)(4), but the Court denied that claim at the close of the Plaintiffs’ case-in-chief,
pursuant to the Defendant’s oral motion to dismiss.13 Plaintiffs also, in the pretrial order, agreed
to limit their recovery sought to $80,000.
11 The check erroneously listed the year as 2008.
12 Docket No. 64.
13 The sole ground for such objection preserved in the pre-trial order was an objection on the ground that the
Defendants materially undervalued the Warehouse property in their statement of financial affairs. See Docket No.
64. Plaintiffs asserted that Defendants “knowingly and fraudulently made a false oath in connection with the
bankruptcy,” which is a violation of 11 U.S.C. § 727(a)(4), by undervaluing the Warehouse property that they
transferred to the Mullers. “In order to deny a discharge pursuant to [§ 727(a)(4)], a creditor must demonstrate by a
preponderance of the evidence that the debtor knowingly and fraudulently made an oath and that the oath relates to a
material fact.” Bishop v. Mulholland (In re Mulholland), 2011 WL 4352293 (Bankr.D.N.M. J.Jacobvitz), at *4,
citing Gullickson v. Brown (In re Brown), 108 F.3d 1290, 1294 (10 th Cir.1997). Plaintiffs here failed to prove that
the “debtor….act[ed] deliberately and consciously with an intent to defraud” when they valued the Warehouse
property at $1 million on their Statement of Financial Affairs. Id. Debtors-Defendants paid $725,000 for the
property. Although they substantially improved the property, circumstances changed considerably after the 2007
appraisal that valued the property at $1.5 million. The credit markets collapsed, the real estate market tightened
considerably, and the income actually derived from the Warehouse was substantially below the projected income at
the time of the appraisal. The Court finds that Mr. Keeran, in scheduling the Warehouse as having a value of $1
million, did not act with an intent to defraud. After considering the testimony and documentary evidence, and
assessing Mr. Keeran’s demeanor and credibility, the Court is convinced that it was Mr. Keeran’s subjective, good
faith belief that the Warehouse had a value of $1 million. Additionally, and although not necessarily relevant to the
false oath claim, the Court finds that had the Warehouse not been transferred to the Mullers via a deed in lieu of
foreclosure, there was a strong likelihood that the first mortgage holder would have completed a foreclosure sale and
no value would have been available for the Defendants or the bankruptcy estate.
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Plaintiiffs Have Not Established by a Preponderance of the Evidence that Mr. Keeran
Misrepresented that He Owned Lot 4
Plaintiffs claim that Mr. Keeran obtained $80,000 from them by falsely representing to
Mr. Kim in connection with an agreement for the purchase and sale of Lot 4 in the Rich Court
development that he, Mr. Keeran, owned the Lot 4 and could convey good title, when in fact he
did not own the lot. Plaintiffs assert that Mr. Keeran made this misrepresentation in a desperate
attempt to raise money quickly due to his serious financial difficulties. Plaintiffs thereby urge
the Court to find that Mr. Keeran owes a non-dischargeable debt to Plaintiffs pursuant to §
523(a)(2)(A). Mr. Keeran maintains that the parties’ agreement was for the purchase and sale of
Lot 9, not Lot 4. Mr. Keeran asserts that when Mr. Kim’s wife later wanted Lot 4 instead, he,
Mr. Keeran, agreed to make efforts to swap Lot 9 for Lot 4 with another developer who owned
Lot 4.
The legal standard for establishing non-dischargeability of a debt under 11 U.S.C
§523(a)(2)(A) is:
A creditor seeking a determination of non-dischargeability under 11 U.S.C.
§523(a)(2)(A) bears the burden of proving, by a preponderance of the evidence,
that 	(1) 	the 	debtor 	made 	a 	false 	representation, 	(2) 	the 	debtor 	made 	the
representation with the intent to deceive the creditor; (3) the creditor relied on the
representation; (4) the creditor’s reliance was justifiable; and (5) the debtor’s
representation caused the creditor to sustain a loss.
Cabrera v. Larranaga (In re Larranaga), 2011 WL 1344562 at *2 (Bankr.D.N.M. J. Jacobvitz),
citing Fowler Bros v. Young (In re Young), 91 F.3d 1367, 1373 (10th Cir.1996) (the required
elements under 11 U.S.C. § 523(a)(2)(A) are: “1) [t]he debtor made a false representation; the
debtor made the representation with the intent to deceive the creditor; the creditor relied on the
representation; the creditor's reliance was [justifiable]; and the debtor's representation caused the
creditor to sustain a loss.”); Field v. Mans, 516 U.S. 59, 116 S.Ct. 437, 133 L.Ed.2d. 351 (1995)
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(changing the standard of reliance under 11 U.S.C. § 523(a)(2)(A) from “reasonable” to
“justifiable.”); In re Riebesell, 586 F.3d 782, 789 (10th Cir.2009)(same). Plaintiffs’ claim under
§ 523(a)(2)(A) fails.
“[T]he preponderance of the evidence standard results in a roughly equal allocation of the
risk of error between litigants.” 	Grogan v. Garner, 498 U.S. 279, 286 (1991). 	Thus this
standard is met if a proposition is more likely to be true than not – the Court must ask: is there a
greater than 50% likelihood that a proposition is true.
Plaintiffs did not prove, by a preponderance of the evidence, that Mr. Keeran made a
false representation to Mr. Kim. The parties made a handshake deal for the purchase and sale of
a lot in Rich Court by oral agreement. Mr. Keeran did not make a written representation that he
owned or would sell Lot 4 to the Plaintiffs. No third-party witness testified regarding which lot
was the subject of the parties’ agreement. Plaintiffs produced a plat map of Rich Court wherein
both Lots 4 and 9 were highlighted. 	See Plaintiffs’ Exhibit 26. 	The fact that both lots are
highlighted is not dispositive; it at most shows that Mr. Keeran and Mr. Kim at some point
discussed both lots. 	The Plaintiffs’ application for a loan to finance their purchase of the Rich
Court lot specifies the lot as “to be determined.” 	Both the plat map and loan application are
consistent with Mr. Keeran’s testimony.
The Court finds, after judging the credibility of the witnesses and carefully considering
all of the evidence, that Mr. Keeran understood that the agreement between the parties was for
the purchase and sale of Lot 9. 	Later, after Mrs. Kim decided she wanted Lot 4, Mr. Keeran
agreed to sell Lot 4 instead of Lot 9, but only if he could obtain title to Lot 4 by swapping Lot 9
for Lot 4 with another developer who owned Lot 4. 	Plaintiffs’ claim that Mr. Keeran obtained
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$80,000 from them by falsely representing to Mr. Kim he, Mr. Keeran, owned the Lot 4 and
could convey good title therefore fails.
Plaintiffs’ claim under § 523(a)(2)(A) therefore is denied.
Mr. Keeran Did Not Conceal or Destroy Records Concerning the Moneys Plaintiffs Invested
The Plaintiffs claim that Mr. Keeran failed to provide documentation accounting for the
use and disposition of the $80,000 they paid him to purchase the Rich Court lot, and therefore his
discharge should be denied pursuant to 11 U.S.C. § 727(a)(3).14 The Keerans’ bankruptcy
schedules reflect debts totaling $15,117,793.75.
Under 11 U.S.C. § 727(a)(3), a debtor is not entitled to receive a 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.
11 U.S.C. § 727(a)(3).
Denial of discharge under Section § 727(a)(3) requires a showing that 1) the debtor
“failed to maintain and preserve adequate records;” and 2) “that the failure made it impossible to
ascertain [the debtor's] financial condition and material business transactions.” In re Brown, 108
F.3d 1290, 1295 (10 th Cir.1997), citing In re Folger, 149 B.R. 183, 188 (D.Kan.1992)(emphasis
added in Brown). Fraudulent intent is not a required element under 11 U.S.C. § 727(a)(3). See
Buckeye 	Retirement 	Co., 	LLC 	v. 	Bullough 	(In 	re 	Bullough), 	358 	B.R. 	261, 	283
(Bankr.N.D.Tx.2007)(“the creditor does not have to show intent or recklessness.”)(citation
14 This is the sole ground for denial of discharge under 11 U.S.C. § 727(a)(3) that Plaintiffs preserved for trial in the
pre-trial order. At trial, Plaintiffs sought to expand their claims under 11 U.S.C. § 727(a)(3). The Defendants
objected. The Court ruled in favor of the Defendants on this issue on the ground that Plaintiffs were bound by the
pre-trial order, and that expanding the scope of Plaintiffs’ claims at trial would be prejudicial to Defendants’
presentation of a defense.
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omitted). Nor must the creditor show that the debtor intended to conceal his financial condition.
Meridian Bank v. Alten, 958 F.2d 1226, 1234 (3d Cir. 1992) (citations omitted).
Plaintiffs failed to establish that the Defendants’ discharge should be denied under 11
U.S.C. § 727(a)(3) based on a failure to maintain records. Defendants showed into which bank
accounts Mr. Kim’s $80,000 was deposited, and provided records that adequately explained why
the funds were deposited in those accounts and to what use they made of those funds.
Plaintiffs paid the $80,000 by two checks, one in the amount of $65,000 and the other in
the amount of $15,000. 	The $65,000 check was deposited in a Llave Enterprise, Inc. bank
account at a time that the account was overdrawn by $44,512.59. 	Llave Enterprise, Inc. is the
company that owned the Rich Court lot that the Plaintiffs were purchasing, and at the time of the
deposit was experiencing severe financial difficulties. 	The $65,000 was used to cover the
overdraft balance, and to repay in whole or in part a loan or loans made by the Defendants’ son,
Matt, to help his parents keep their businesses afloat. Llave Enterprises Inc.’s bank account for
April 2008 reflects thirty-nine deposits, and fifty-one checks honored during the month. 	The
bank account further reflects deposits and credits of $360,712.30, and withdrawals and other
debits of $400,414.83 that included two return check fees. Copies of the deposit slips and checks
honored for the account for the month are in evidence.
The $15,000 check was deposited in a bank account of Dr. Cynthia Keeran Ph.D. 	She
used the funds to reimburse herself for two checks, both dated April 24, 2008, in the amounts of
$10,000 and $5,000 payable to Llave Development, Inc. and Llave Enterprises, respectively.
Llave Development, Inc.’s bank account statement for the month of April 2008 reflects a $5,000
deposit on April 24, 2008, thirty-five deposits, and seventy four checks honored during the
month. The bank account further reflects deposits and credits of $289,692.90, and withdrawals
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and other debits of $290,310.42 that included twelve return check fees. 	Copies of the deposit
slips and checks honored for the account for the month are in evidence. Llave Enterprises Inc.’s
bank account for April 2008 reflects a $10,000 deposit on April 24, 2008.
During 2008, both Llave Enterprises, Inc. and Llave Development, Inc were experiencing
severe financial difficulties. 	Mr. Keeran transferred funds between and among corporate and
personal accounts, and borrowed money from his children and friends from time to time, to try to
keep the companies afloat. 	The companies’ books reflect intercompany transfers, and transfers
to and from the Keerans and their children as loans and repayment of loans. 	The $80,000 the
Plaintiffs paid the Defendants ultimately were used to pay creditors and operating expenses of
the Defendants’ businesses and to repay loans from a member of the family. The Plaintiffs were
aware when they paid the $80,000 that Mr. Keeran and his businesses were in desperate need of
cash and would immediately spend the $80,000. 	The Plaintiffs have not shown that the
Defendants have concealed, destroyed, mutilated, falsified, or failed to keep or preserve any
recorded information from which their financial condition or business transactions might be
ascertained sufficient to warrant a denial of the discharge.
Plaintiffs made repeated complaints at trial regarding an alleged lack of production of
documents needed to trace the $80,000 during the lengthy pre-trial phase of this case. 	This
matter should have been addressed by a motion to compel under Federal Rule of Civil Procedure
37, made applicable here by Federal Rule of Bankruptcy Procedure 7037. Plaintiffs elected not
to file such motion. 15
15 Counsel for Plaintiffs candidly admitted that, for tactical reasons, they chose not to file a motion to compel to
obtain the documents in question. Instead, Plaintiffs obtained the documents directly from financial institutions, and
argued that the Defendants discharge should be denied because they did not produce the documents by discovery.
Under these circumstances, the fact that the Defendants did not produce certain documents in discovery is
insufficient to deny the discharge under 11 U.S.C. 727(a)(4). A similar matter was recently addressed in the
Bankruptcy Court for the District of New Mexico:
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Plaintiffs’ claim under § 727(a)(3) is therefore denied.
Defendants Satisfactorily Explained how their Loss of Assets Rendered Them Unable to Meet
their Liabilities
Finally, Plaintiffs claim that the Defendants have failed to explain satisfactorily the loss
of the $80,000 they paid the Defendants, and therefore the Defendants should be denied a
discharge pursuant to 11 U.S.C. § 727(a)(5).
Under 11 U.S.C. § 727(a)(5), a debtor is not entitled to a discharge if he or she “has failed
to explain satisfactorily, before the determination of denial of discharge under this paragraph,
any loss of assets or deficiency of assets to meet the debtor’s liabilities.” 11 U.S.C. § 727(a)(5).
The Tenth Circuit has explained this sub-section as follows:
Under § 727(a)(5), “a bankruptcy court has broad power to decline to grant a
discharge ... where the debtor does not adequately explain a shortage, loss, or
disappearance of assets.” In re D'Agnese, 86 F.3d 732, 734 (7th Cir.1996)
(quotation omitted). “Section 727(a)(5) requires a satisfactory explanation which
must consist of more than vague, indefinite and uncorroborated assertions by the
debtor.” 	Damon 	v. 	Chadwick 	(In 	re 	Chadwick), 	335 	B.R. 	694, 	703
(W.D.Wis.2005). 	However, 	“[a]s 	is 	the 	case 	with 	Section 	727(a)(3), 	no
requirement exists that debtors act fraudulently or intentionally to sustain an
objection to discharge based on Section 727(a)(5).” Shappell's Inc. v. Perry (In re
Perry), 252 B.R. 541, 549 (Bankr.M.D.Fla.2000). On the other hand, “[w]hen
deciding whether a debtor's explanation is satisfactory for purposes of Section
727(a)(5), the issue is whether the explanation satisfactorily describes what
happened to assets; not whether what happened to assets was proper.” Id. at 550;
see also Buckeye Retirement Props. of Indiana, LLC v. Tauber (In re Tauber),
349 	B.R. 	540, 	564 	(Bankr.N.D.Ind.2006) 	(stating 	that, 	for 	purposes 	of 	§
727(a)(5), “the debtor does not need to justify the wisdom or prudence in the
disposition of assets”).
Testers v. Carlson (In re Carlson), 2008 WL 8677441, at *5 (10 th Cir.2008).
Plaintiffs should have addressed the failure to produce the tax return to the Court in the context of
a motion to compel production. Then, if Debtor persisted in an unjustified refusal to produce the
return, the Court could have taken action at that time. And that action could have included the
sanction of defaulting Debtor on the merits. The mere fact of non-production, devoid of any
background for the non-production (including whether the non-production was deliberate and
avoidable), does not support a finding of a violation of the requirement to maintain records.
Ryan v. Fox (In re Fox), 2007 WL 3166775, at *4 (Bankr.D.N.M. J. Starzynski).
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Under this standard, the basic question before the Court is whether Mr. Keeran was able
to satisfactorily explain what happened to the $80,000 in question. 	As discussed above, the
Defendants provided documentation accounting for the disposition of the funds. 	Mr. Keeran
gave a detailed explanation concerning the financial difficulties that beset his businesses, the
circumstances under which the Plaintiffs paid the $80,000, and how the $80,000 was spent. The
Court finds this explanation satisfactory, and heard no evidence suggesting that the Keerans have
secretly sheltered assets from creditors. Plaintiffs’ claim under § 727(a)(5) is therefore denied.
CONCLUSION
Plaintiffs’ claims on all counts are denied. An order will be entered forthwith.
_____________________________
Robert H. Jacobvitz
U.S. Bankruptcy Judge
Date entered on docket: 4/6/12
COPY TO:
Attorneys for Plaintiffs
Bonnie Bassan Gandarilla
Moore, Berkson & Gandarilla, P.C.
PO Box 7459
Albuquerque, NM 87194
Attorneys for Defendants
Christopher L. Trammell
3900 Juan Tabo NE
Albuquerque, NM 87111-3984
Michael E. Lash
Law Offices of Scott Pistone Ltd. Company
120 Granite Ave NW
Albuquerque, NM 87102-2310
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