SW Legal studies in Business

Trustee Who Lies Commits Fraud on the Court
Description

Appeals court held that a bankruptcy judge was correct for removing a trustee from a bankrupt estate because it was shown the trustee lied in testimony to the court about business relationships to a party to the matter. Lying to the court is fraud on the court and grounds for dismissal.

Topic Bankruptcy Law
Key Words

Trustee; removal; false testimony

C A S E   S U M M A R Y
Facts

Walker filed for bankruptcy claiming no assets and liabilities over $1 million. The creditors elected Walden to be trustee. She stated, in a Trustee Report to the court, that she had no connections with any of the creditors. Walker contested her statement, asserting that Walden had business interests with the second largest creditor in the proceedings and requested that Walden be removed as trustee. Walden then testified she had no relationship to the creditor and was ratified as trustee. Walker then moved to have Walden removed as he had evidence that Walden did accounting work for the creditor, had filed tax returns for the creditor, and had served as registered agent for the creditor. Testimony showed that to be the case and, the bankruptcy court removed Walden. She appealed; the district court upheld her dismissal. She appealed again.

Decision

Affirmed. The removal of the trustee was warranted based on the false testimony provided by the trustee. The bankruptcy court acted properly. The primary reason for the dismissal was not because of the objection of the debtor but because of fraud on the court. The court can remove a trustee for cause, which existed here.

Citation In re Walker, 515 F.3d 1204 (11th Cir., 2008)

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