United States District Court, D. Nevada
In re KENNETH HOWARD MACWAY, and JOYCE LAMBERT MACWAY, Debtors.
UNITED STATES TRUSTEE, Appellee. KENNETH HOWARD MACWAY, Appellant,
MIRANDA M. DU, District Judge.
This appeal by Appellant Kenneth Howard Macway ("Macway") challenges the denial of a bankruptcy discharge by the United States Bankruptcy Court for the District of Nevada. (Dkt. no. 6.) Appellee United States Trustee ("U.S. Trustee") brought two denial of discharge claims pursuant to, respectively, 11 U.S.C. § 727(a)(3) and 11 U.S.C. § 727(a)(5). Following trial, the bankruptcy court entered judgment granting the U.S. Trustee's claim pursuant to § 727(a)(3), and denying discharge under that section, but finding that the U.S. trustee failed to satisfy its burden under § 727(a)(5). For the reasons set out below, the bankruptcy court's Order is affirmed.
The following factual background is derived largely from the findings of fact entered by the bankruptcy court regarding denial of Macway's discharge. Macway does not contest the following facts.
Macway and his wife filed for voluntary chapter 7 bankruptcy on March 25, 2010. (Dkt. no. 6, Ex. A at 2.) The U.S. Trustee filed the Complaint for Denial of Discharge ("Complaint") alleging two claims for denial of discharge, pursuant to 11 U.S.C. § 727(a)(3) and § 727(a)(5) respectively. ( Id. ) After two days of trial, the bankruptcy court granted the U.S. Trustee's claim for denial of discharge pursuant to 11 U.S.C. § 727(a)(3) and denied the U.S. Trustee's claim for denial of discharge pursuant to 11 U.S.C. § 727(a)(5). ( Id. at 3-4.)
Macway has an MBA, keeps detailed personal records, and was the Manager of Technology & Engineering Evaluation for the Kerr-McGee Corporation for fourteen (14) years where he developed a program to manage and track annual capital expenditures. ( Id. at 5.) He is also an "advantage gambler" who "gambles when the odds are in his favor, to obtain money, comps' from a casino, and entry into tournaments where prizes are available." ( Id. at 6.) When gambling, Macway sometimes "rat-holed' chips, which means pocketing them so that they are not countable, and sometimes removed his own player tracking card and used his wife's instead. ( Id. ) From 2002 to 2009, Macway started and ran a gambling partnership called "Advantage Play Combined Syndicate" ("Syndicate"). ( Id. ) Macway received approximately $495, 000 from approximately thirty (30) investors and lenders for Macway to gamble on behalf of the Syndicate so that the profits could be shared. ( Id. ) A lot of the money given to Macway for the Syndicate was in cash. ( Id. at 7.)
Macway also withdrew money from his retirement account, which held $513, 708 after June 1, 2005, and dropped to only $5, 000 as of December 31, 2006. ( Id. at 8.) This withdrawn money was comingled with Syndicate money and not placed in any of Macway's bank accounts. ( Id. )
The money for the Syndicate was not kept in any bank account. ( Id. at 7-8.) Macway could not produce original records of the money invested or loaned for the Syndicate, though he was able to provide a "recreated list of members including amounts invested or loaned". ( Id. at 7.) Macway produced few contemporaneously kept records, did not produce a gaming diary or log, had no records of any repayments to the Syndicate, had no records of money reinvested, and did not produce any W-2Gs or 1099s. ( Id. at 7-8.) Macway had a computer failure in 2006, and subsequent failures, which resulted in records being lost. ( Id. at 8.)
11 U.S.C. § 727(a)(3) states that the bankruptcy court shall grant the debtor a discharge unless "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[.]"
Macway argues that the bankruptcy court "erred" in denying discharge pursuant to § 727(a)(3) because: (1) Macway "provided sufficient documents to satisfy his chapter 7 trustee, his investors and his creditors" as evidenced by the fact that these parties did not testify or take adversarial action (dkt. no. 6 at 4, 6); (2) the U.S. Trustee "presented no comparable syndicate player to testify as to how records should be kept" ( id. at 6); (3) there was no proof that Macway's "recreated list of members including amounts invested or loaned" was inaccurate ( id. at 8); (4) the "win-loss" records kept by the casinos and provided by Macway should not have been deemed "less credible" on the basis that they were not maintained by Macway ( id. at 9); and (5) the bankruptcy court's denial of the U.S. Trustee's claim pursuant to § 727(a)(5) was sufficient to defeat the U.S. Trustee's claim under § 727(a)(3) as well ( id. at 9-11).
A. Legal Standard
"[T]he Ninth Circuit standard of review of a judgment on an objection to discharge is that: (1) the court's determinations of the historical facts are reviewed for clear error; (2) the selection of the applicable legal rules under § 727 is reviewed de novo; and (3) the application of the facts to those rules requiring the exercise of judgments about values animating the rules is reviewed de novo." Searles v. Riley (In re Searles), 317 B.R. 368, 373 ...