559 B.R. 243
Bankr. M.D. Fla.2016Background
- Bruce and Carol Forbes contracted Moore Pizazz, LLC (owned by Jennifer Moore) for interior design and paid $91,912.11 in deposits; much of the work and goods were never delivered.
- Moore Pizazz leased a large showroom that experienced a water event and alleged mold; defendants stopped deliveries and claim records remained in the showroom or were destroyed due to mold concerns.
- Plaintiffs obtained a state court judgment against Moore Pizazz and Jennifer Moore for $72,774.47 and recorded a judgment lien; plaintiffs later levied on two vehicles, prompting Robert and Jennifer Moore to file Chapter 7.
- Plaintiffs sued in bankruptcy seeking to (1) deny debtors’ discharge under 11 U.S.C. § 727 (failure to keep records, false oaths, failure to explain loss of assets), and (2) except the debt from discharge under § 523 (fraud, conversion, civil conspiracy).
- Trial consolidated evidence from a companion Fiándola adversary; the court admitted much of that record and additional evidence; plaintiffs moved post-trial to reopen for newly subpoenaed bank records.
- Court held debtors’ discharge should be denied under § 727(a)(3) for failing to keep/preserve books and records unjustified under the circumstances, but found plaintiffs failed to prove § 727(a)(4), § 727(a)(5), or any § 523 exception; motion to reopen evidence denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether discharge should be denied under § 727(a)(3) for inadequate/ destroyed books and records | Moore Pizazz records were left/destroyed (mold excuse) and thus debtors concealed records necessary to ascertain finances | Records were lost/ destroyed because of toxic mold and some records were produced to trustee; defendants lacked ability to preserve them | Denial under § 727(a)(3) affirmed: plaintiffs met prima facie case and defendants failed to justify loss; discharge denied |
| Whether discharge should be denied under § 727(a)(4)(A) for false oaths (car sales, omitted income, Chinese drywall claim) | Debtors knowingly omitted prepetition vehicle sales, imputed income, and a class-action claim to hide assets/income | Omissions were inadvertent, cured by amendment at § 341 meeting; Means Test not required here; drywall claim extinguished by foreclosure | Claim under § 727(a)(4)(A) failed: omissions were not knowing/fraudulent and were corrected; discharge not denied on this basis |
| Whether discharge should be denied under § 727(a)(5) for failure to explain loss of assets (Moore Pizazz assets) | Mrs. Moore must account for loss of funds paid by Forbes because corporate assets disappeared | Corporate assets belonged to Moore Pizazz, not Mrs. Moore personally; plaintiffs showed no ownership link | Claim under § 727(a)(5) failed: individual debtor not required to explain corporate asset loss absent proof of ownership |
| Whether debt should be excepted from discharge under § 523 (fraud, conversion, conspiracy) | Mrs. Moore obtained funds by fraud/misrepresentation; Mr. Moore willfully converted goods (consigned/sold after judgment lien); conspiracy to convert | No evidence of fraudulent intent at payment time; deposits not segregated or represented as plaintiff property; Mr. Moore lacked knowledge of lien so no malicious intent | § 523 claims failed: no proof of fraudulent intent for § 523(a)(2)(A); conversion/conspiracy under § 523(a)(6) not established (no ownership/possession right proven or requisite malicious intent) |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (1991) (plaintiff must prove nondischargeability claims by a preponderance of the evidence)
- Kawaauhau v. Geiger, 523 U.S. 57 (1998) (definition of "willful and malicious" injury for § 523(a)(6))
- In re Moore, 508 B.R. 488 (Bankr. M.D. Fla. 2014) (prior companion adversary decision on similar facts relied upon)
- In re Horton, 621 F.2d 968 (9th Cir. 1980) (duty to maintain business records and effect of delegating recordkeeping)
- Rhoades v. Wikle, 453 F.2d 51 (9th Cir. 1971) (shared duty to keep corporate records may impute responsibility to spouse)
- Chalik v. Moore, 748 F.2d 616 (11th Cir. 1984) (standards for false oaths and nondischargeability under § 727)
- Bel-Bel Int’l Corp. v. Community Bank of Homestead, 162 F.3d 1101 (11th Cir. 1998) (conversion requires unauthorized exercise of ownership over another's goods)