                                     PUBLISHED

                       UNITED STATES COURT OF APPEALS
                           FOR THE FOURTH CIRCUIT


                                      No. 15-2346


WANN VAN ROBINSON; MARY D. ROBINSON; THE WANN VAN
ROBINSON REVOCABLE TRUST,

                    Plaintiffs - Appellees,

             v.

JASON CLINT WORLEY,

                    Defendant - Appellant,

             and

BRUCE MAGERS,

                    Trustee.



Appeal from the United States District Court for the Middle District of North Carolina, at
Greensboro. Thomas D. Schroeder, District Judge. (1:14-cv-01083-TDS; 13-50180; 13-
06081)


Argued: January 26, 2017                                     Decided: February 28, 2017


Before WILKINSON, NIEMEYER, and KEENAN, Circuit Judges.


Affirmed by published opinion. Judge Wilkinson wrote the opinion, in which Judge
Niemeyer and Judge Keenan joined.
ARGUED: Clinton Shepperd Morse, Jeffrey Edward Oleynik, BROOKS, PIERCE,
MCLENDON, HUMPHREY & LEONARD, L.L.P., Greensboro, North Carolina, for
Appellant. Rayford Kennedy Adams, III, SPILMAN THOMAS & BATTLE, PLLC,
Winston-Salem, North Carolina, for Appellees. ON BRIEF: R. Scott Adams, SPILMAN
THOMAS & BATTLE, PLLC, Winston-Salem, North Carolina, for Appellees.




                                      2
WILKINSON, Circuit Judge:

       Jason Clint Worley, a Chapter 7 bankruptcy debtor, estimated the value of his

interest in a real estate investment company at just 4% of his initial capital contribution.

The bankruptcy court found after a bench trial that Worley intentionally lowballed his

valuation and accordingly denied his discharge under the false oath provision of 11

U.S.C. § 727(a)(4). The district court agreed. We review that finding for clear error, and

for the reasons that follow, we affirm.

                                             I.

       Worley has spent much of his adult life studying and working in the financial

industry. In addition to earning a bachelor’s degree in finance from the University of

Florida and an MBA from Emory University, he worked at Edward Jones as a financial

advisor for almost a decade.

       During his time at Edward Jones, Worley got caught up in the heady investment

environment of the early 2000s and began personally investing in a series of real estate

ventures. One of those ventures was Gemini Land Trust, LLC, which Worley formed in

January 2006 with his childhood friend, Joshua Crapps. Worley contributed $65,000 for a

49% interest in the company; Joshua Crapps served as managing member and had

complete discretion over whether to distribute any profits or retain the proceeds for future

transactions. Gemini’s sole investment was a 10% share in Pelham Land Group, LLC,

which was managed by Crapps’s father, Daniel Crapps. Pelham owned 587 acres of

Georgia timberland that, in 2012, was worth an estimated $2,250 per acre, or $1.32



                                             3
million total. The property also generated a few thousand dollars each year from farming,

hunting, and timber leases.

       Many of Worley’s other investments flopped, and he filed for bankruptcy on

February 14, 2013. He initially classified the filing as a “no asset” case, signaling to the

bankruptcy trustee that he did not own any non-exempt assets that were worth

distributing. See 11 U.S.C. § 554 (2012) (authorizing the trustee to “abandon [to the

debtor] any property of the estate . . . that is of inconsequential value”). On Schedule B

to the petition, Worley estimated that his interest in Gemini had a market value of $2,500.

He explained that he was unsure how to value the minority stake in Gemini, but sought

the advice of counsel and applied the capitalization rate method. Consequently, he took

the largest annual distribution he received from Gemini ($483, rounded up to $500) and

multiplied by a capitalization rate of five. Worley never consulted with Joshua or Daniel

Crapps before estimating the value of his interest, though he admitted that Joshua Crapps

would be in a better position to value the company. Worley’s Schedule K-1 2012 form

for Gemini, the most recent tax return in the record, reflected an individual capital

account of $67,555.

       Although Worley categorized the filing as a “no asset” case, upon learning that

Gemini owned a stake in Pelham, the trustee informed creditors that assets would likely

be available for distribution. On September 30, 2013, the plaintiffs here filed an

adversary complaint alleging that Worley “intentionally misrepresented the value of his

interest in Gemini Land Trust . . . by more than 95 percent.” J.A. 314. The creditors

therefore sought a denial of discharge pursuant to the false oath provision of § 727(a)(4).

                                             4
      The bankruptcy court held a trial on the adversary claim on September 4, 2014.

Daniel Crapps explained that the illiquid nature of Gemini’s stake in Pelham complicated

the valuation analysis: Because only “buzzards” were interested in minority LLC shares,

Gemini would fetch no more than 20-30% of its capital account. J.A. 532-33.

Nonetheless, he surmised that Gemini’s 10% share in Pelham could be sold for at least

$26,000 and dismissed the idea that Worley’s interest was worth “something like 2,500

or something that low.” J.A. 534. Joshua Crapps echoed his father’s assessment.

Although he had “no idea” what the value of his share of Gemini was, he agreed that its

value exceeded $2,500 and depended on the appraised value of the land held by Pelham.

J.A. 1047. Finally, the bankruptcy trustee testified that he did not sense that Worley was

“stonewalling” him and emphasized that the values assigned to scheduled assets are just

“starting points.” J.A. 191, 202. The trustee did note, however, that one day before trial

he discovered that Pelham sold a large tract of land for approximately $2,100 per acre

and distributed $100,000 to Gemini.

      A week after the trial, the bankruptcy court denied Worley’s discharge under

§ 727(a)(4). The court first held that Worley made a “false oath or account” by

understating the value of Gemini on his schedule of assets. While it acknowledged that

Gemini’s illiquid interest in Pelham might be worth less than the appraised value of the

underlying timberland, the court concluded that—in light of his capital contribution and

Pelham’s recent $100,000 distribution to Gemini—Worley’s $2,500 estimate was “so low

as to be unrealistic.” J.A. 294. Second, the court found that Worley acted with the



                                            5
requisite fraudulent intent because the use of the capitalization rate method was

“inconsistent” with his knowledge and “extensive background in finance.” Id.

       On September 30, 2015, the district court affirmed the denial of discharge. As a

threshold matter, the district court rejected Worley’s argument that a debtor’s

undervaluation of a single asset is insufficient to warrant a denial. It then concluded that

the bankruptcy court did not clearly err in finding that Worley intentionally “lowball[ed]

his interest in Gemini.” J.A. 1432. Even though Worley claimed to rely on the advice of

counsel, the bankruptcy court could plausibly have concluded that any such reliance was

unreasonable given Worley’s “extensive investment history” and knowledge of the

capitalization rate method. J.A. 1437.

                                             II.

       The primary benefit of filing for bankruptcy under Chapter 7 is that discharge

offers the debtor “a fresh start unhampered by the pressure and discouragement of

preexisting debt.” Farouki v. Emirates Bank Int’l, Ltd., 14 F.3d 244, 249 (4th Cir. 1994).

This privilege, however, is reserved for the “honest but unfortunate debtor.” Grogan v.

Garner, 498 U.S. 279, 287 (1991). Section 727(a) of the Bankruptcy Code provides that a

bankruptcy court “shall grant the debtor a discharge,” but then describes twelve scenarios

where a debtor is not entitled to such relief. 11 U.S.C. § 727(a) (2012).

       One of those exceptions, found in § 727(a)(4), provides that the court should deny

discharge if “the debtor knowingly and fraudulently, in or in connection with the case[,]

made a false oath or account.” 11 U.S.C. § 727(a)(4)(A). To run afoul of this provision,

“the debtor must have made a statement under oath which he knew to be false, . . . he

                                             6
must have made the statement willfully, with intent to defraud,” and the statement “must

have related to a material matter.” Williamson v. Fireman’s Fund Ins. Co., 828 F.2d 249,

251 (4th Cir. 1987).

       The statute invites the bankruptcy court to strike a balance between two competing

objectives. At bottom, bankruptcy is an equitable remedy that elevates “substantial

justice” over “technical considerations.” Pepper v. Litton, 308 U.S. 295, 305 (1939).

Given the harsh consequences of a denial of discharge, the statute is ordinarily construed

liberally in the debtor’s favor. Smith v. Jordan (In re Jordan), 521 F.3d 430, 433 (4th Cir.

2008). “The reasons for denying a discharge to a bankrupt must be real and substantial,

not merely technical and conjectural.” Boroff v. Tully (In re Tully), 818 F.2d 106, 110 (1st

Cir. 1987). In this vein, the provision—although a civil statute with civil sanctions—

incorporates a classic criminal law element of mens rea that involves an assessment of

whether the debtor made the false statement “knowingly and fraudulently,” as opposed to

carelessly. 11 U.S.C. § 727(a)(4)(A).

       At the same time, the statute reflects the equitable doctrine of unclean hands. The

purpose of the false oath exception is to ensure that “those who play fast and loose with

their assets or with the reality of their affairs” do not profit from the liberating shelter of

the Bankruptcy Code. Farouki, 14 F.3d at 249. The implicit bargain for discharge is

simple: candid, good faith disclosure of the debtor’s financial affairs in return for the

freedom of a clean slate. In re Kestell, 99 F.3d 146, 149 (4th Cir. 1996). The goal is to

spare trustees and creditors from having to undertake time-consuming investigations into

the existence of every asset or costly audits of property whose value cannot be fixed at a

                                              7
glance. After all, “[t]he successful functioning of the bankruptcy act hinges upon both the

bankrupt’s veracity and his willingness to make a full disclosure.” In re Mascolo, 505

F.2d 274, 278 (1st Cir. 1974).

       Entrusted with issuing any order that is “necessary” to carry out the provisions of

the Code, 11 U.S.C. § 105(a) (2012), the bankruptcy court is particularly suited to weigh

these competing considerations, which often boil down to an assessment of a debtor’s

credibility. Whether a debtor has made a false oath within the meaning of

§ 727(a)(4)(A) is thus a question of fact that we review for clear error. Williamson, 828

F.2d at 251. “[A] finding is ‘clearly erroneous’ when although there is evidence to

support it, the reviewing court on the entire evidence is left with the definite and firm

conviction that a mistake has been committed.” Anderson v. City of Bessemer City, 470

U.S. 564, 573 (1985).

                                            III.

       Against this backdrop, we turn to Worley’s challenges to the bankruptcy court’s

denial of discharge, each of which relates to a different element of § 727(a)(4)(A).

                                            A.

       Worley begins by asserting that he did not falsely state the value of his interest in

Gemini. He contends, first, that using the capitalization rate method to value his stake

was reasonable and, second, that the bankruptcy court did not properly account for his

limited economic rights in the company. He claims that the bankruptcy court correctly

discounted Gemini’s illiquid, minority stake in Pelham, but then it stopped short and

failed to apply a successive discount to Worley’s 49% share in Gemini—an illiquid,

                                             8
minority interest with no right to distributions until the dissolution of the company. In

view of his limited control rights, Worley argues that the $2,500 estimate cannot qualify

as a false oath.

       We disagree. A debtor’s sworn representation to the value of an asset in Schedule

B counts as an “oath” for the purposes of the statute. See Williamson, 828 F.2d at 250

(affirming denial of discharge under § 727(a)(4)(A) based on misrepresentations in a

statement of financial affairs). And a careful examination of the record, on clear error

review, does not leave us with a definite impression that the bankruptcy court’s rejection

of Worley’s valuation was mistaken. On the contrary, there is ample evidence to support

the court’s conclusion that the estimate was “false.”

       For starters, Worley assessed his interest in Gemini using an income-based

valuation method that was bound to assign a paltry figure to property such as the Pelham

farmland that earned no more than incidental income. Indeed, his $2,500 estimate relied

solely on the capitalization rate method, which “determines the value of an income

producing property by first determining the stabilized net operating income . . . and then

[multiplying] by a capitalization rate.” Laconia Savings Bank v. River Valley Fitness

One, L.P., 2003 WL 252111, at *1 (Bankr. D.N.H. 2003) (emphasis added). Because

valuations under the capitalization rate method are a function of the income an asset

generates, see In re Windsor Hotel, L.L.C., 295 B.R. 307, 310-11 (Bankr. C.D. Ill. 2003),

the method is best suited to properties earning a steady stream of income, see In re

Southmark Storage Assocs. L.P., 130 B.R. 9, 14 (Bankr. D. Conn. 1991) (applying the

approach to a storage facility); In re First Tulsa Partners, 91 B.R. 583, 586 (Bankr. N.D.

                                             9
Okla. 1988) (using capitalization rates to value office buildings). Accordingly, when

assets have not achieved a stabilized level of revenue, the capitalization rate method

paints a “skewed and discordant picture of reality.” Union Pac. R.R. Co. v. State Tax

Comm’n, 716 F. Supp. 543, 555 (D. Utah 1988) (“[O]ne would be forced to conclude that

a company with a net loss for the year or over a period of years actually had a negative

value.”).

       The rural farmland owned by Pelham was undeveloped and, as noted, earned only

incidental income. Daniel Crapps did not pitch the property as a “cash flow deal” offering

steady returns; the annual revenue from farming and hunting licenses generated just 1%

of the land’s purchase price. J.A. 533. Pelham instead aimed to capitalize on market

timing and flip the farmland at a premium. J.A. 1074-75. Consequently, an income-based

approach could not capture the full value of the property. Because the capitalization rate

method does not account for the speculative value of the undeveloped acreage, the

valuation overlooked the entire basis for the investment. The bankruptcy court could

reasonably find, therefore, that Worley’s capitalization rate approach was manifestly ill-

suited for this sort of real estate. Although Worley may not have needed to incur the

delay and expense associated with formal appraisals of the property, at a minimum he

could have corroborated his estimate with either his partner or Pelham’s manager.

       Beyond the valuation method itself, the record is replete with evidence supporting

the bankruptcy court’s finding that Worley’s share in Gemini was worth at least five

times the value he reported. Three data points in particular indicate that Worley’s interest

was worth considerably more than $2,500. First, Daniel Crapps testified that Gemini’s

                                            10
minority stake in Pelham would generally sell for 20-30% of its face value (roughly

$132,000) and, even taking the 20% figure, Gemini was still worth approximately

$26,000. J.A. 532-34. The bankruptcy court extrapolated from the value of the company

to note that Worley’s minority share was in turn worth at least $13,212.80. Second,

Worley contributed $65,000 to acquire his minority interest and the 2012 Schedule K-1

form reflected a capital account of $67,555. Finally, on the eve of the trial, Pelham sold a

majority of its farmland and planned to distribute $100,000 to Gemini.

       Worley asserts that his estimate was nonetheless reasonable given his inability to

control Gemini or direct the distribution of gains. But this argument about economic

rights and additional liquidity discounts misses the forest for the trees. The bankruptcy

court accepted Worley’s contention that the value of a minority stake is worth a fraction

of its face value, yet still found that Worley’s estimate was “so low as to be unrealistic.”

J.A. 294. Simply put, the disparity between the $65,000 initial contribution and $2,500

valuation did not hang together, especially since Worley points to no calamitous event

that would lead to such a steep decline in value. (Indeed, as noted, Pelham succeeded in

selling a large tract of land just before trial.) On these facts, the bankruptcy court could

justifiably conclude that Worley’s investment in Gemini did not depreciate to just 4% of

his initial capital contribution.

       We recognize, of course, that real estate valuation is as much art as science, and

that measurements of intrinsic value more often involve a range of reasonable values

rather than a single point estimate. But some valuation models and estimates simply fall



                                            11
outside the realm of common sense. Based on the particular attributes of the investment

here, the bankruptcy court was entitled to hold that this was one of those instances.

                                            B.

       Worley next asserts that he did not act with fraudulent intent in estimating the

value of Gemini. In addition to characterizing the dispute as a mere disagreement on

value, Worley argues that he relied on the advice of counsel to arrive at the $2,500

estimate. Both contentions are unavailing. The bankruptcy court reasonably inferred

fraudulent intent from Worley’s background, course of conduct, and absence of

credibility.

       Although a false statement made by mistake or inadvertence is not a sufficient

ground upon which to base the denial of a discharge, “reckless indifference to the truth

constitutes the functional equivalent of fraud.” In re Arnold, 369 B.R. 266, 272 (Bankr.

W.D. Va. 2007). A debtor acts with the requisite intent to deceive when his statement is

“incompatible with his own knowledge.” Saslow v. Michael (In re Michael), 452 B.R.

908, 919 (Bankr. M.D.N.C. 2011). Because an adjudication of fraudulent intent “depends

largely upon an assessment of the credibility and demeanor of the debtor, deference to the

bankruptcy court’s factual findings is particularly appropriate.” Williamson, 828 F.2d at

252.

       Here, several pieces of circumstantial evidence indicate that Worley handpicked a

valuation methodology that would return a piddling estimate for his stake in Gemini. His

background suggested that he knew better than to value his interest using capitalization

rates. As a sophisticated financial professional with two finance degrees and nearly a

                                            12
decade of industry experience, Worley was doubtless familiar with valuation methods.

Yet despite his extensive training, he applied an income-driven formula to an investment

that generated only incidental revenue. Worley’s course of conduct was also suspect. He

confessed uncertainty about how to value the interest in Gemini, but never confirmed his

estimate with Joshua or Daniel Crapps. Rather, Worley proceeded with the $2,500

valuation and filed his bankruptcy petition as a “no asset” case—suggesting an effort to

persuade the trustee and creditors to abandon the property. See In re Pynn, 546 B.R. 425,

431 (Bankr. C.D. Cal. 2016) (“Debtor approached his bankruptcy schedules seemingly

with the idea of persuading his creditors that these assets were of no value to creditors

because they were, cumulatively, worth less than the statutory exemptions.”). Finally, the

bankruptcy court assessed his credibility at trial and determined that his testimony was

not “forthcoming and candid.” J.A. 272. Taken together, the record does not support the

conclusion that Worley’s misstatement was a result of simple carelessness.

      Nor does Worley’s claimed reliance on the advice of counsel excuse his failure to

list an accurate valuation. While reliance on counsel generally absolves a debtor of

fraudulent intent, see In re Arnold, 369 B.R. at 272, the bankruptcy court must still

consider whether the debtor acted in good faith, see Retz v. Samson (In re Retz), 606 F.3d

1189, 1199 (9th Cir. 2010). A debtor must demonstrate that he provided the attorney with

all of the necessary facts and documentation. Kaler v. McLaren (In re McLaren), 236

B.R. 882, 897 (Bankr. D.N.D. 1999). Likewise, the advice of counsel is no defense when

it should have been obvious to the debtor that his attorney was mistaken. See In re Tully,

818 F.2d at 111 (“A debtor cannot, merely by playing ostrich and burying his head

                                           13
deeply in the sand, disclaim all responsibility for statements which he has made under

oath.”).

       We have little difficulty concluding that the bankruptcy court did not clearly err in

rejecting Worley’s advice-of-counsel defense. Worley testified that he made a complete

disclosure of his financial affairs, but there is no evidence that he discussed his $65,000

capital contribution or subsequent K-1 statements with his attorney. Given his

conspicuous failure to seek the advice of knowledgeable financial professionals like

Daniel Crapps, the bankruptcy court could have determined that any purported reliance

on legal counsel was a ruse. And even if an attorney had advised Worley to apply the

capitalization rate method and submit a $2,500 valuation, a sophisticated investor could

not have relied on such patently inappropriate advice in good faith. After presiding over a

bench trial, the bankruptcy court could plausibly conclude, as it did, that Worley was

engaged in a pattern of outright dissemblance or cavalier indifference to the truth. J.A.

294.

       Again, we emphasize that this case does not boil down to a mere difference of

opinion regarding the valuation of an illiquid asset. Juxtaposing the magnitude of the

undervaluation with Worley’s distinguished training and experience, the bankruptcy court

determined that Worley intentionally shortchanged creditors on his Schedule B. Yet we

reiterate that a debtor’s valuation need not be infallible. There is room for reasonable

disagreement, particularly in cases involving large corporate debtors where valuations are

typically fraught with uncertainty. See In re Mirant Corp., 334 B.R. 800, 848 (Bankr.

N.D. Tex. 2005) (acknowledging that valuation of an enterprise is often “not much more

                                            14
than crystal ball gazing”); In re New York, New Haven & Hartford R.R. Co., 4 B.R. 758,

773 (Bankr. D. Conn. 1980) (“[H]ardly a material representation on valuation submitted

by one party went unchallenged by another party.”). In holding that the undervaluation of

Gemini constituted a false oath, we are not opening the door to a scenario in which

marginal differences in valuation give rise to a denial of discharge. But Worley’s

misstatement was anything but marginal.

                                             C.

       Worley concludes by arguing that a denial of discharge was unjustified because

his alleged statement had no material impact on the outcome of the case. Instead, he

argues, to fall within § 727(a)(4)(A) a misstatement must, at a minimum, have the

potential to prejudice the rights of creditors. After disclosing the interest in Gemini on his

schedules, Worley contends that any putative understatement could not have prejudiced

creditors because the trustee “was going to investigate the matter regardless of the

Debtor’s estimated valuation.” App. Br. at 49.

       Once more, we disagree. The threshold to materiality is a low bar. As the statute

makes clear, any fraudulent misstatement “in or in connection with the case” is sufficient

grounds for the denial of discharge. 11 U.S.C. § 724(a)(4)(A). While courts may be

“more reluctant to deny a debtor’s discharge when assets are undervalued than when they

are undisclosed,” In re Zimmerman, 320 B.R. 800, 807 (Bankr. M.D. Pa. 2005), all that

the provision requires for a denial of discharge is a single false account or oath, Schreiber

v. Emerson (In re Emerson), 244 B.R. 1, 28 (Bankr. D.N.H. 1999). And while Worley

suggests that undervaluation of a single asset is really no big deal, nothing in the Code

                                             15
allows a debtor one free falsehood on his schedules if such is knowingly and fraudulently

made.

         The standard is ultimately one of pertinence rather than prejudice: a misstatement

is material if it is “relevant to the debtor’s business transactions, estate and assets.”

Farouki, 14 F.3d at 251; accord Chalik v. Moorefield (In re Chalik), 748 F.2d 616, 618

(11th Cir. 1984) (per curiam) (“The subject matter of a false oath is ‘material’ . . . if it

bears a relationship to the bankrupt’s business transactions or estate.”).

         Pursuant to this rather capacious standard, the bankruptcy court did not err in

finding that Worley’s misstatement was material. Worley’s undervaluation of his only

significant, non-exempt asset by many thousands of dollars is undeniably “relevant” to

his estate and assets. Indeed, by lowballing his interest in Gemini, Worley sent a message

to the trustee and creditors that there was no reason to conduct any further investigation

into the property. As we noted earlier, this sort of concealment undermines the efficient

administration of the bankruptcy estate. Neither the trustee nor the creditors should have

to absorb themselves in a painstaking struggle of “digging out and conducting

independent examinations to get the facts.” Mertz v. Rott, 955 F.2d 596, 598 (8th Cir.

1992).

                                             IV.

         Denial of discharge is a severe sanction and should be reserved for instances in

which a debtor contravenes the basic compact underlying the Code’s promise of a “fresh

start.” See Farouki, 14 F.3d at 249. After careful consideration of the evidence and

Worley’s testimony at trial, the bankruptcy court determined that this was one of those

                                             16
rare cases: “[T]here are very few debtors that I have denied a discharge to because it is so

harsh. . . . And if I struggle with the issue at all, the benefit of the doubt always goes to

the debtor. I did not struggle in this case.” J.A. 272. A thorough inspection of the record,

on clear error review, does not leave us with the definite impression that a mistake has

been made. On the contrary, the bankruptcy and district courts proceeded sensibly and

carefully throughout.

       The judgment is accordingly

                                                                               AFFIRMED.




                                             17
