Crown Bank, NA n/k/a Crown Bank v. Espinosa
12-01882
Bankr. D.N.J.Jun 25, 2013Background
- Debtor Jose C. Espinosa filed Chapter 7 after previously being a defendant in litigation that resulted in a $1.2 million judgment against his business.
- Within one year of his petition, Espinosa sold his one-third interest in a real estate partnership and transferred $50,000 of the proceeds to his wife, Kenia, without consideration; she used it to start PTY Lighting, LLC.
- Trustee alleged the $50,000 transfer was made to hinder, delay, or defraud creditors and sought denial of discharge under 11 U.S.C. § 727(a)(2)(A).
- Trustee also alleged Espinosa knowingly and fraudulently made false oaths by failing to disclose (1) ownership of a valuable Cartier watch, (2) an interest in a 30-foot pleasure boat, and (3) rental income from jointly owned property, seeking denial under § 727(a)(4)(A).
- Debtor argued lack of fraudulent intent: he claimed the $50,000 was marital property transferred appropriately; he claimed the watch was left by a former partner and that the boat and rental income were immaterial (no equity or net income).
- The court found the boat and rental income immaterial but concluded the Cartier watch non-disclosure was knowingly fraudulent and that the $50,000 transfer showed badges of fraud; it granted summary judgment denying discharge under §§ 727(a)(4)(A) and 727(a)(2)(A).
Issues
| Issue | Plaintiff's Argument (Trustee) | Defendant's Argument (Espinosa) | Held |
|---|---|---|---|
| Whether transfer of $50,000 to spouse within one year of petition bars discharge under § 727(a)(2)(A) | Transfer was gratuitous, to a close relative, made while debtor faced pending litigation, depleted estate and hindered creditors | Transfer was marital property; debtor intended no fraud and believed transfer appropriate | Held: Transfer exhibited multiple "badges of fraud" (gratuitous, close relation, anticipation of lawsuit, insolvency) and denial of discharge affirmed under § 727(a)(2)(A) |
| Whether failure to disclose Cartier watch bars discharge under § 727(a)(4)(A) | Watch was valuable, debtor knowingly and fraudulently omitted it on petition and at Rule 2004 exam | Debtor said watch belonged to former partner and was merely left behind; turned it over when demanded | Held: Omission of valuable watch was knowingly fraudulent and material; discharge denied under § 727(a)(4)(A) |
| Whether omissions re: boat and rental income are material under § 727(a)(4)(A) | Trustee argued nondisclosure impeded creditor discovery of assets | Debtor argued no equity in boat and rental income netted to zero, so immaterial | Held: Boat and rental-income omissions were immaterial and would not alone bar discharge |
| Whether summary judgment appropriate | Trustee argued undisputed facts and badges of fraud establish intent; court can decide as ultimate factfinder | Debtor argued factual disputes (e.g., ownership of watch) preclude summary judgment | Held: Court, as trier of fact, found evidence sufficient and granted summary judgment for Trustee on both § 727(a)(2)(A) and § 727(a)(4)(A) claims |
Key Cases Cited
- Anderson v. Liberty Lobby, 477 U.S. 242 (summary-judgment standard and genuine-issue test)
- Celotex Corp. v. Catrett, 477 U.S. 317 (movant’s initial burden and nonmovant’s burden at summary judgment)
- Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574 (inferences and summary judgment analysis)
- Rosen v. Benzer, 996 F.2d 1527 (3d Cir.) (elements of § 727(a)(2) and role of badges of fraud)
- Grogan v. Garner, 498 U.S. 279 (bankruptcy discharge limited to honest debtors)