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4th Cir.: In re Bane- Failure to Raise Issues from Bankruptcy Court on Appeal from District Court

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By Ed Boltz, 9 April, 2014
Summary: In 2007, Bane’s company, Aequitas-Energy, Inc., purchased fifty acres of land (the Angel Lane Property) in Roanoke County, Virginia, from Bane’s mother, Martha Bane, who was granted at $400,000 mortgage against the property. This mortgage was never recorded and the later mortgage to Community Trust Bank was accordingly superior. Bane, having fallen into default on the Coummunity Trust mortgage and facing foreclosure, had the property transferred into his name and filed bankruptcy in 2010, the day before the foreclosure sale. This first Chapter 7 bankruptcy was dismissed, as Bane had failed to obtain credit counseling. When Community Trust scheduled a second foreclosure sale for January 24, 2011, Bane transferred a 90% interest in the property back to his mother, and filed a second Chapter 7 bankruptcy (after presumably obtaining credit counseling) on January 21, 2011. The UST’s brought a motion to deny discharge under both § 727(a)(2)(A) and § 727(a)(4)(A). AS to the § 727(a)(2)(A) claim, the bankruptcy court denied discharge (and the district court affirmed) that Bane’s transfer of the real property wore several of the badges of fraud in that (1) there was no consideration for the transfer of the property from Bane to his mother; (2) Bane and his mother have a close familial relationship; and (3) Bane retained a partial interest in the property allowing him to continue to use the property. As to the UST’s § 727(a)(4)(A) claim, the bankruptcy court found that Bane made material omissions in connection with his bankruptcy petition, including that he was a beneficiary of his mother’s Trust, a judgment against him, that he and his sister held a judgment against another party, and that he had property in a storage facility. The bankruptcy court concluded that each individual disclosure failure constituted a grounds for denial of discharge by giving rise to a presumption of fraudulent intent. The district court, declined to rule on this issue. Bane did not, on appeal from the district court, again challenge the § 727(a)(4)(A) ruling from bankruptcy court. Accordingly, the 4th Circuit held that, even in a review following a district court opinion, it reviews the bankruptcy court’s factual findings for clear error and legal conclusions de novo. Further, absent a miscarriage of justice, contentions that are not raised in the opening appellate brief are abandoned. Consequently, even though the district court did not reach the § 727(a)(4)(A) issue, Bane was precluded from pressing that argument. And while the district court exercised restraint in deciding issues, the 4th Circuit continued, finding that the denial of Bane’s discharge under § 727(a)(2)(A), due to his transfer of 90% of his ownership interest in the real property, which, given his preposterous explanations, was clearly done with the intent to defraud his creditors, was appropriate standing on its own. For a copy of the opinion, please see: Bane- Failure to Raise Issues from Bankruptcy Court on Appeal from District Court

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