In re: Double Green Produce, Inc. v. Carrie Shu-Chuen Kong

Background

Double Green Produce, Inc. (DGP) appealed a Bankruptcy Court order concerning Carrie Shu-Chuen Kong’s Chapter 7 bankruptcy. The Bankruptcy Court had granted Kong’s motion for summary judgment, dismissed DGP’s adversary complaint, and ruled that Kong’s debt to DGP was dischargeable under various provisions of 11 U.S.C. §§ 523 and 727.

Kong operated a produce-delivery business and later formed related entities. From 2018 through March 2021, DGP bought imported goods and produce from her businesses. Kong also helped DGP establish an e-commerce business and became a salaried DGP employee in August 2020. The parties had no written employment agreement. Kong was not a signatory on DGP’s bank accounts and did not have online access to those accounts.

DGP alleged that Kong diverted company assets, falsified invoices, and concealed money from creditors. DGP pointed to wire transfers from its account to Kong’s checking account, Kong’s later transfer of $230,000 to a savings account, and Kong’s initial failure to list that savings account in her bankruptcy filings. DGP also challenged information concerning Orange Shop Corp., an entity in which Kong owned a 100% interest. Kong later amended her bankruptcy filings to include the savings account, and the record showed that she had disclosed her interest in Orange Shop.

Bankruptcy Court Proceedings and Appeal

DGP filed an adversary complaint seeking to prevent discharge of Kong’s debt under Bankruptcy Code §§ 523(a)(2)(A) and (B), 523(a)(4), 523(a)(6), and 727(a). Section 523 generally identifies particular debts that cannot be discharged, while Section 727 identifies circumstances that can prevent a debtor from receiving a discharge altogether.

After discovery, Kong moved for summary judgment. The Bankruptcy Court concluded that DGP had not submitted admissible evidence or established a legal basis for its claims. It granted Kong’s motion and dismissed the complaint. DGP appealed to the District Court, which reviewed the Bankruptcy Court’s summary-judgment decision independently while drawing reasonable factual inferences in DGP’s favor.

Section 523 Claims

The District Court affirmed summary judgment on DGP’s fraud claims under §§ 523(a)(2)(A) and (B). Those provisions can prevent discharge for certain fraudulent conduct or materially false written statements about a debtor’s financial condition. The court held that DGP had identified no evidence that Kong falsified invoices, made false representations, or acted with an intent to defraud. The fact that some invoices were missing or did not match all wire transfers did not, without more, establish fraud. The court also noted that the parties’ invoicing and payment system may have been poorly organized, but that did not itself prove fraudulent conduct.

The court also affirmed summary judgment on DGP’s § 523(a)(4) claim. That provision covers, among other things, fraud or defalcation while acting in a fiduciary capacity, embezzlement, and larceny. The court held that Kong’s status as an employee, without more, did not establish a fiduciary relationship. It further held that DGP had offered no evidence that Kong intentionally appropriated DGP’s property, acted fraudulently, or wired money directly from DGP’s accounts. Kong’s receipt of wire transfers did not by itself show an intent to convert the money, particularly because she was also DGP’s supplier and employee.

The court affirmed summary judgment on DGP’s § 523(a)(6) claim as well. That provision concerns debts arising from a willful and malicious injury. The court explained that DGP needed evidence that Kong intended the injury itself and acted wrongfully without justification. DGP instead relied on undisputed facts combined with conclusory accusations and provided no evidence concerning Kong’s intent.

Section 727 Claims

The District Court affirmed summary judgment on DGP’s claims under §§ 727(a)(2) and (a)(4). Section 727(a)(2) can bar discharge when a debtor transfers or conceals property within the relevant period before bankruptcy with intent to hinder, delay, or defraud a creditor. Section 727(a)(4) can bar discharge when a debtor knowingly and fraudulently makes a materially false statement under oath or withholds required financial information.

The court held that DGP could not rely on information about Orange Shop because the record showed that Kong had disclosed her interest in that entity in her bankruptcy filings. Although Kong initially omitted the 2480 Savings Account, DGP offered no evidence that she omitted it with the specific intent to defraud creditors. The omission alone was insufficient to establish either a fraudulent concealment or a knowingly false statement.

The court also affirmed summary judgment on the § 727(a)(3) claim. That provision concerns a debtor’s failure to keep or preserve records from which the debtor’s financial condition or business transactions can be determined. DGP did not show that Kong failed to preserve adequate records or that the alleged omissions made her financial condition impossible to determine. The court further noted that DGP had not explained how the initial omission of the savings account amounted to a failure to retain or preserve records.

Disposition

The District Court denied DGP’s appeal and affirmed the Bankruptcy Court Order. The Clerk was directed to terminate the pending appeal and close the case.