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In re Cadarette

decided: June 18, 1979.

IN RE: PATRICK J. CADARETTE, BANKRUPT. EFA ACCEPTANCE CORPORATION, PLAINTIFF-APPELLEE,
v.
PATRICK J. CADARETTE, DEFENDANT-APPELLANT.



Appeal from a decision and order entered in the District of Connecticut, Hon. T. Emmet Clarie, Judge, reversing an order by a referee in bankruptcy which granted the bankrupt a discharge. Affirmed.

Before Mulligan, Timbers and Van Graafeiland, Circuit Judges.

Author: Mulligan

The EFA Acceptance Corporation (EFA), a creditor, filed a complaint pursuant to Rule 404 of the Rules of Bankruptcy Procedure in the United States District Court of Connecticut opposing the discharge of Patrick J. Cadarette, the bankrupt. The complaint essentially alleged that Cadarette had violated section 14(c)(1) and (4) of the Bankruptcy Act (the Act), 11 U.S.C. ยง 32(c)(1), (4). After extensive hearings the bankruptcy judge found for Cadarette and held that the debt of EFA was dischargeable. On appeal the Hon. T. Emmet Clarie, Chief Judge, District of Connecticut, in a ruling dated December 14, 1978 reversed the order of the bankruptcy judge, holding that Cadarette had transferred property some three weeks prior to filing for bankruptcy with an "overriding intent to shield his assets from his creditors" in violation of section 14(c)(4) of the Act. In addition, Chief Judge Clarie found that Cadarette had violated section 14(c)(1) of the Act when he "knowingly and fraudulently made a false oath . . . in relation to a bankruptcy proceeding." The bankruptcy judge's factual findings to the contrary on both issues were found to be "clearly erroneous." Judgment in favor of EFA was entered on December 20, 1978 and this appeal by Cadarette followed.

THE FACTS

There is no issue about the facts in this case which, in any event, are not complicated. From 1973 to 1977 the bankrupt worked full time for a printing corporation owned and operated by his father. After his father's death in the spring of 1977 the bankrupt continued to operate the business with decreasing financial success. In June, 1973 a Monte Carlo automobile was purchased in the name of the bankrupt who also signed the retail installment contract. In 1975 the bankrupt co-signed with his father two security agreements for the purchase of additional printing equipment financed by EFA. Following the death of his father Cadarette met with the president of EFA in an effort to find some means of solving the financial problems of the printing company. EFA's interest was prompted by the fact that it had endorsed promissory notes executed by the bankrupt and his father and would be liable if the company failed. The final meeting of Cadarette and the president of EFA was held on June 30, 1977. At that meeting Cadarette's deepening financial difficulties were discussed and the possibility of bankruptcy was mentioned.

On July 1, 1977, Cadarette made a gift of the Monte Carlo to his fiancee. At the same time he also made a gift to her of a boat and trailer registered in his name which had a value of $100. In July, 1977 Cadarette consulted his attorney and on July 20, a few days after meeting with his counsel, he filed the petition for bankruptcy. EFA made timely objections to the granting of the petition.

In the bankruptcy petition Cadarette answered the following two questions in the negative.

12(a) Have you made any gifts other than ordinary and usual presents to family members and charitable donations, during the year immediately preceding the filing of the original petition herein?

12(b) Have you made any other transfer, absolute or for the purpose of security, or any other disposition of real or tangible personal property during the year immediately preceding the filing of the original petition herein?

Section 14(c) of the Bankruptcy Act, set forth in the margin,*fn1 precludes a discharge in this case if Cadarette either "knowingly and fraudulently made a false oath . . . in relation to a bankruptcy proceeding,"*fn2 or "transferred, removed, destroyed, or concealed, any of his property with intent to hinder, delay, or defraud his creditors . . .." It is uncontested that Cadarette transferred title to his automobile, boat and trailer without consideration three weeks before filing the petition and that his denial of making a gift or transfer of this property in his filed schedules was false when made. The determination of Cadarette's intent, therefore, was of crucial importance in the hearing before the bankruptcy judge. He found that the transfer of the automobile by Cadarette to his fiancee was made innocently and not for the purpose of defrauding his creditors. The bankruptcy judge acknowledged that the transfer of a valuable asset without consideration constituted Prima facie proof of an intent to defraud. In re Woods, 71 F.2d 270, 272 (2d Cir.), cert. denied, 293 U.S. 601, 55 S. Ct. 117, 79 L. Ed. 693 (1934). Nevertheless, he found no false oath in the petition since no criminal intent had been established.

On EFA's appeal Chief Judge Clarie reversed, finding that Cadarette had both intentionally falsified the answers in his petition in bankruptcy and had intentionally shielded his assets from his creditors.

THE LAW

This Circuit has consistently applied the clearly erroneous standard in reviewing findings of fact in bankruptcy proceedings dealing with precisely the same questions involved here. In re Tabibian, 289 F.2d 793 (2d Cir. 1961) (did the bankrupt transfer his automobile to defraud his creditors and file false oaths on his schedule); In re Steinberg, 143 F.2d 942 (2d Cir. 1944) (false oath in bankruptcy schedule); Morris Plan Industrial Bank v. Henderson, 131 F.2d 975 (2d Cir. 1942) (transfer of automobile to conceal the asset).*fn3 Although an appellate court is normally reluctant to overturn a bankruptcy judge's findings based largely on his assessment of the credibility of the witnesses, e. g., Morris Plan Industrial Bank v. Henderson, supra, 131 F.2d at 977, those findings are not entirely sheltered from appellate scrutiny. 2A Colliers on Bankruptcy P 39.28 at 1539 n.22. In numerous cases where the credibility of witnesses was in issue courts have reversed a bankruptcy judge's findings of fact while applying the clearly erroneous standard. E.g., Knetzer v. Larkin, 178 F.2d 532 (2d Cir. 1949); Matter of Gsand, 153 F.2d 1001 (3d Cir. 1946); Schapiro v. Tweedie Footwear Corp., 131 F.2d 876 (3d Cir. 1942); Matter of Mason, 49 F. Supp. 781 (E.D.Wash.1943); Matter of Gotfried, 45 F. Supp. 939 (S.D.Cal.1942). Since EFA established its Prima facie case of a 14(c) violation, the burden of establishing that he has not committed any act which would prevent his discharge fell upon the bankrupt. In re Tabibian, supra, 289 F.2d at 795. The issue then is whether, upon reviewing the entire record, we are left with the definite belief that the bankruptcy judge clearly erred in concluding that the bankrupt had sustained the burden of establishing that he had not defrauded his creditors and intentionally falsified his initial petition for discharge. See In re Davis, 404 F.2d 312, 313-14 (2d Cir. 1968).

In the instant case the bankruptcy judge found that the transfer of the Monte Carlo automobile by Cadarette to his fiancee was innocent primarily because the bankrupt considered the car to be not his own but a family vehicle "owned" by his mother. However, the Monte Carlo was registered in Cadarette's name; indeed, the very purpose of so registering the vehicle, according to the testimony of the bankrupt, was to enable him to obtain a personal line of credit. Thus, when he transferred the registration to his fiancee on July 1 we find it impossible to believe that he did not realize legal title was vested in him. The numerous other inconsistencies surrounding ...


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