645 B.R. 843
Bankr. M.D. La.2022Background
- Debtor Jules A. Simon filed chapter 7 on November 11, 2019 and listed a one-third financial interest in D Squared Hunting LLC (scheduled with no equity).
- D Squared owned Mississippi real property; the LLC sold the property post-petition on March 3, 2021, satisfying the mortgage and producing net proceeds.
- The sale proceeds were distributed to the two non-debtor members (Denis Simon received two-thirds and WJC Enterprises one-third); the debtor and the bankruptcy estate received none.
- Debtor did not schedule his brother Denis as a creditor, did not amend schedules after the sale, and informed the trustee of the sale only after the creditor Harrison propounded discovery.
- Creditor Andrew J. Harrison objected under 11 U.S.C. § 727(a)(2)(B) that the debtor transferred or concealed estate property post-petition with intent to hinder, delay, or defraud creditors; the court consolidated adversaries and tried the § 727(a)(2)(B) claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the post-petition distribution of D Squared sale proceeds constituted transfer of property of the estate | Harrison: Debtor's financial interest in D Squared is estate property; allowing proceeds to be paid to brother diverted estate value | Simon: Mississippi LLC law treats proceeds as LLC property, and no distribution to members was due, so estate received no property | Held: Debtor's intangible financial interest in the LLC was estate property and the debtor permitted his share of proceeds to be transferred to his brother post-petition |
| Whether the transfer/concealment was post-petition and undisclosed | Harrison: Sale occurred after petition; debtor failed to disclose sale to trustee and failed to amend schedules | Simon: Claimed an oral agreement with brother entitled brother to amounts; argued no concealment because he received no proceeds | Held: Sale occurred post-petition; debtor knew of sale, signed consent, delayed disclosure until after discovery requests, and never amended schedules, supporting concealment |
| Whether debtor acted with intent to hinder, delay, or defraud creditors | Harrison: Familial transfer, failure to disclose, continued use of property, and financial distress are badges of fraud supporting inference of intent | Simon: Payment by brother constituted consideration; oral agreement justified transfer and negates fraudulent intent | Held: Multiple badges of fraud (family transfer, failure to disclose, continued benefit/use, financial condition, chronology) supported inference of intent; burden shifted to debtor, who failed to rebut |
| Remedy — whether discharge should be denied under § 727(a)(2)(B) | Harrison: Deny discharge because debtor transferred/concealed estate property with fraudulent intent | Simon: Discharge should not be denied because no estate distribution occurred and no fraudulent intent proved | Held: Objection sustained; debtor denied discharge under § 727(a)(2)(B) |
Key Cases Cited
- Judgment Factors, L.L.C. v. Packer, 816 F.3d 87 (5th Cir. 2016) (exceptions to discharge construed narrowly for creditors and liberally for debtors)
- Croft v. Lowry, 737 F.3d 372 (5th Cir. 2013) (state law defines debtor's property rights; federal law defines estate inclusion)
- Wiggains v. Reed, 848 F.3d 655 (5th Cir. 2017) (use of badges of fraud to infer fraudulent intent in transfers)
- Cadle Co. v. Pratt, 411 F.3d 561 (5th Cir. 2005) (presumption of fraudulent intent when transfer is to a relative shifts burden to debtor)
- Browning Mfg. v. Mims (In re Coastal Plains, Inc.), 179 F.3d 197 (5th Cir. 1999) (duty of full and continuing disclosure of assets in bankruptcy)
- Butner v. United States, 440 U.S. 48 (1979) (state law governs property rights that bankruptcy law may incorporate)