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In re Thompson

United States Court of Appeals, Eleventh Circuit

October 7, 2019

In re: GLENN LEE THOMPSON, HEIKE BIRGIT THOMPSON, Debtors.
v.
NANCY J. GARGULA, United States Trustee, Defendant-Appellee. LEE THOMPSON, HEIKE BIRGIT THOMPSON, Plaintiffs - Appellants,

          Appeal from the United States District Court Nos. 3:17-cv-00130-TCB; 11-bkc-11192-WHD for the Northern District of Georgia

          Before MARCUS, WILSON and BRANCH, Circuit Judges.

          BRANCH, CIRCUIT JUDGE:

         Glenn Thompson and Heike Thompson challenge a bankruptcy court order revoking the discharge of their debt. Their case turns on their allegation that the United States Trustee had pre-discharge knowledge of the alleged conduct that resulted in the revocation. The legal question on appeal boils down to whether a "lack-of-knowledge" requirement that is explicitly contained in one subsection of the bankruptcy statute, 11 U.S.C. § 727(d)(1), can be read into the adjacent subsection of the same statute, 11 U.S.C. § 727(d)(2), thereby barring revocation. The question presents an issue of first impression in this Circuit.[1] We decline to rewrite the statute and thus affirm the district court.

         I.

         On April 3, 2011, the Thompsons filed a voluntary Chapter 13 bankruptcy petition. At their request, the bankruptcy court converted the case to Chapter 11 on September 1, 2011; on July 10, 2013 it converted it, again at their request, to Chapter 7. The Thompsons owned two businesses: Nattco, LLC ("Nattco"), where Heike Thompson served as president, and GHT United, LLC ("GHT"). On the same day that the Thompsons' individual case was converted to Chapter 11, Nattco filed a voluntary bankruptcy petition under Chapter 11.

         In the meantime, during the pendency of the individual and corporate bankruptcy cases, a former employee of Nattco submitted a fraud referral to the Trustee, alleging misconduct by the Thompsons, including "stockpiling cash," "taking trips to Hawaii, Puerto Rico, and Florida," and undergoing plastic surgery. The Trustee received the referral and additional communications about alleged fraud between October 2013 and January 2014, and consequently initiated an investigation into the allegations.

         On February 26, 2014, the bankruptcy court granted the Thompsons a discharge. See 11 U.S.C. § 727(a). On February 25, 2015, the Trustee filed an adversary complaint requesting revocation of the Thompsons' discharge in light of the apparent fraudulent activity and alleging that the financial reports the Thompsons submitted in the individual and Nattco bankruptcy cases were "incomplete, inaccurate, or erroneous." On September 12, 2016, the Thompsons filed a motion for summary judgment, alleging in relevant part that the Trustee was on notice of the alleged fraud before the bankruptcy court entered the discharge, barring the Trustee's claim for revocation.

         On November 16, 2016, the bankruptcy court denied in part and granted in part the Thompsons' motion for summary judgment. The bankruptcy court applied 11 U.S.C. § 727(d), which reads in relevant part as follows:

(d) On request of the trustee, a creditor, or the United States trustee, and after notice and a hearing, the court shall revoke a discharge granted under subsection (a) of this section if-
(1) such discharge was obtained through the fraud of the debtor, and the requesting party did not know of such fraud until after the granting of such discharge; [or]
(2) the debtor acquired property that is property of the estate, or became entitled to acquire property that would be property of the estate, and knowingly and fraudulently failed to report the acquisition of or entitlement to such property, or to deliver or surrender such property to the trustee[.]

         The bankruptcy court noted that § 727(d)(1) allows for the revocation of a discharge if the requesting party (in this case, the Trustee) "did not know of such fraud until after the granting of such discharge." Because the Trustee was informed of the fraudulent activity before the discharge was granted, no revocation was appropriate under § 727(d)(1), and the bankruptcy court granted in part the motion for summary judgment on that ground.

         The bankruptcy court, noted, however, that § 727(d)(2) contains no such lack-of-knowledge requirement, and that the Thompsons had engaged in the proscribed debtor conduct that § 727(d)(2) designates as sufficient support for a revocation. On that ground, the ...


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