475 B.R. 622
Bankr. N.D. Ill.2012Background
- Debtors seek dismissal of Amended Complaint under Rule 12(b)(6) in a Chapter 7 case; trustee sues for discharge denial and surcharge.
- Counts I–V allege various pre/post-petition transfers, asset concealment, false oath, and surcharge, with Count IV withdrawn.
- Court splits on whether debtor interests in LLCs/assets are property of the estate under §541; Illinois LLC Act controls.
- Court dismisses most of Count I due to lack of one-year look-back or improper “continuing concealment.”
- Count II dismissed for lack of estate property involved; post-petition transfers affect OPAR equity but do not state a §727(a)(2)(B) claim.
- Count III survives portions relating to undervalued real property and autos; pre-petition closing of accounts not yet actionable.
- Count V is dismissed: surcharge of exempt property not authorized by the Code or §105(a) authority.
- Trustee granted leave to file a second amended complaint by August 10, 2012; status hearing set for August 24, 2012.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether acts involve property of the estate. | Trustee asserts estate owns OPAR-related entities. | Managerial powers aren’t estate property. | Partial: estates’ ownership of OPAR assets not automatic; property depends on transfer of management. |
| Whether continuing concealment supports §727(a)(2)(A). | Concealment occurred within look-back via transfers; intent shown. | No concealment of property within one year; no hidden assets. | Denied as to most pre-year transfers; Simmons withdrawals partly survive. |
| Whether post-petition transfers state a §727(a)(2)(B) claim. | Post-petition reductions in OPAR equity harmed the estate. | Funds transferred were not estate property. | Count II dismissed; no destruction/removal of estate property shown. |
| Whether undervalued schedules violate §727(a)(4)(A). | Understatements of real property and autos plausibly false oaths. | Pleading insufficient to prove knowing falsehood. | Portions about real property and autos survive; pre-petition account closings dismissed. |
| Whether surcharge of exempt property is permissible. | Surcharge allowed to recover losses from post-petition trades. | Surcharge of exempt assets not available; 105(a) limited to enforce rights elsewhere. | Count V dismissed; surcharge not authorized. |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (pleading must allege plausible facts, not mere recitals)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plaintiff must plead plausible grounds for relief)
- In re Kontrick, 295 F.3d 724 (7th Cir. 2002) (discharge objections require plausible grounds, not mere allegations)
- In re Holstein, 299 B.R. 211 (Bankr.N.D. Ill. 2003) (fraud pleaded with particularity; continuing concealment concept discussed)
- McWilliams v. Zamudio, 284 F.3d 792 (7th Cir. 2002) (badges of fraud; totality of conduct informs intent)