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In re Liechti

United States District Court, D. Montana, Missoula Division

April 3, 2017

IN RE MARC ANDREAS LIECHTI, Debtor.
v.
MARC ANDREAS LIECHTI, Defendant and Appellant. MOLLY SCHWARZ, Plaintiff and Appellee, Bankruptcy No. 14-61228-7 Adversary Proceeding No. 15-04

          ORDER

          Dana L. Christensen, Chief Judge.

         Appellant Marc Andreas Liechti ("Liechti") appeals from the judgment entered against him by the United States Bankruptcy Court for the District of Montana in favor of Molly Schwarz ("Schwarz"), a creditor in the underlying bankruptcy case. The Honorable Ralph B. Kirscher, Chief Judge for the United States Bankruptcy Court, District of Montana, presided over this proceeding.[1]This Court has jurisdiction over this appeal under 28 U.S.C. § 158(a)(1). For the reasons stated below, Judge Kirscher's ruling if affirmed.

         Factual Background

         Liechti filed a Chapter 7 bankruptcy petition on October 28, 2014, and then filed Schedules and his Statement of Financial Affairs ("SOFA") on November 11, 2014. (Doc. 8-5 at 2.) As part of the filing, Liechti executed a Declaration that his information was "true and correct to the best of [his] knowledge, information, and belief." (Id. at 3.) On his first Schedule B, Liechti identified his income as $7, 000 per month as a salary drawn from Apec, Inc. ("Apec"), with a net monthly income of $5, 799.50 and monthly expenses in the total amount of $3, 510.85 (Id. at 9.) He also listed two checking and savings accounts: First Interstate Bank account # 2348 and White fish Credit Union account # 4998. Liechti amended Schedules B and C on November 21, 2014, amended Schedule J on November 25, 2014, and further amended Schedules B and C on May 5, 2015. (Id. at 8.)

         On Liechti's personal income tax return, he listed the following payments made to him as the sole proprietor of a business known as "Apec Engineering Water and Sewer" ("AEWS"): $1950 per month on a contract with Glacier Ranch, $275 on a contract with Somers Bay, and $80 as a board member of Lakeside Water and Sewer District. When Liechti amended his Schedules B, C, and J during his Chapter 7 bankruptcy, he continued to omit income from AEWS and omitted his third checking account at First Interstate Bank: account number 7772, named "Apec Engineering Water and Sewer Operation Acct". Liechti's only debit card was for the AEWS account. When he amended Schedule B on May 12, 2015- after his 11 U.S.C. § 341(a) meeting of creditors-he still did not add any income received from AEWS. He also never listed his interest in his sole proprietorship AEWS in his petition, Schedules, or SOFA.

         At trial, the bankruptcy Trustee, Christy Brandon, testified that she reviewed all of Liechti's Schedules and looked into his finances before the § 341 meeting. (Doc. 8-4 at 16.) The Trustee indicated that she found income from AEWS on Liechti's bank statements, but that those amounts were not identified on his Schedule B. She also said that Schwarz contacted her prior to the § 341 meeting and informed her about the income omitted by Liechti. (Id. at 17, pg. 67.) The Trustee further explained that Liechti disclosed in the § 341 meeting that he had another bank account with income from AEWS and that he agreed to provide her with more bank statements. The Trustee testified that the AEWS income was important in order for her to understand the full extent of Liechti's financial condition. (Id. at 17, pg. 66.) During cross examination at trial, the Trustee further noted that during the two separate § 341 meetings Liechti did not withhold anything and agreed to comply with providing more documentation. (Id. at 18, pg. 69.)

         The Trustee also testified that as a trustee it is important for her to do a cost-benefit analysis to determine whether to pursue a nondischarability action against a debtor. On this subject, her testimony was as follows:

MR. DYE: . . . Now, I understand from another case and also our conversation that, that the manual for Chapter 7 trustees does have a requirement to perform ~ that you're supposed to do a cost-benefit analysis before bringing an objection to discharge. Could you explain that to the Court and for the record?
MS. BRANDON: Yes, that's right. In order to determine whether to pursue a nondischargeability action against a debtor, I am to do a cost-benefit analysis. I'm supposed to look at the expense and whether or not the estate has the ability to advance the expense, the likelihood of success of the prosecution, and what benefit it would secure for the creditors.
MR. DYE: Okay. In any event, you did not - you have not brought an objection to Mr. Liechti's discharge, have you, as you have testified?
MS. BRANDON: Correct.

(Id. at 18, pg. 71.) Therefore, after applying the cost-benefit analysis, the Trustee determined that it was not beneficial to pursue an objection to Mr. Liechti's discharge of his debt to Schwarz.

         Liechti's relationship with Schwarz dates back to around 2006. Liechti was working for Schwarz Engineering and purchased Schwarz's shares in the company. (Doc. 8-5 at 5.) Liechti gave Schwarz a promissory note and then changed the company name to Apec, Inc. Schwarz subsequently sued Liechti when he stopped making payments on the note. On May 27, 2011, Schwarz obtained a judgment against Liechti in the amount of $170, 070.38 plus interest at 6.5% per annum. Schwarz then served Apec with a writ of execution on March 7, 2014, to garnish Liechti's wages from Apec. Liechti's wife, who worked as Apec's accountant, responded to the writ and calculated the garnished amount of $1, 449.98 based on Liechti's total earnings of $7, 000 per month. However, Apec did not garnish any of Liechti's wages for the four months following service of the writ. Then, a new writ of execution was served on Apec on July 2, 2014. Liechti's wife responded again, but explained that Liechti was not being paid a wage by Apec so she could not garnish any wages pursuant to the writ.

         Ultimately, when Liechti filed for bankruptcy, he still owed a considerable amount on the promissory note. Schwarz filed Proof of Claim No. 5 on February 5, 2015, asserting an unsecured nonpriority claim in the amount of $231, 810.87, based on the underlying judgment against Liechti. In the adversary bankruptcy proceeding, Schwarz pursued two claims for relief: (1) denial of Liechti's discharge of her claim for knowingly and fraudulently making false oaths and account under 11 U.S.C. § 727(a)(4)(A); and (2) exception from Liechti's discharge of her claim under 11 U.S.C. § 523(a)(4). On December 16, 2015, Judge Kirscher denied Schwarz's second claim for relief under ...


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