520 B.R. 520
Bankr. E.D. Tex.2014Background
- Packer filed Chapter 7 in May 2013; Judgment Factors LLC holds $5.9M deficiency and seeks denial of discharge under §727.
- Bank loan of ~ $4M for Prosper, TX development; Packer and partners guaranteed the note; bank foreclosed.
- Judgment Factors acquired the judgment against Packer and partners in 2009; trustee appointed in main case; no adversary by trustee.
- Plaintiff asserts reverse veil-piercing and alter ego theories to treat corporate assets as estate assets to deny discharge.
- Court dismisses Count V for lack of standing; veil-piercing claims are estate matters controlled by trustee, not creditors.
- Court grants summary judgment for Defendant on three § 727 claims (a)(2)(A), (a)(3), (a)(5)) and on (a)(4)(A) false oaths.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to pursue reverse veil-piercing | Judgment Factors can pursue reverse veil-piercing to deny discharge. | Plaintiff lacks standing; estate claims belong to trustee. | Count V dismissed for lack of standing. |
| Domestic application of § 727(a) with veil-piercing | Alter ego assets should be treated as debtors' assets for § 727. | Estate controls veil-piercing; plaintiff cannot prove elements. | Plaintiff failed to prove essential elements; summary judgment for Defendant on § 727(a)(2)(A), (a)(3), (a)(5). |
| False oaths under § 727(a)(4)(A) | Omissions about bookkeeper/accountant and life insurance show false oath. | omissions lacked fraudulent intent or material relation to bankruptcy; not false oaths. | Summary judgment for Defendant; § 727(a)(4)(A) denied. |
| Overall entitlement to discharge | With veil-piercing and assets mischaracterized, discharge should be denied. | Disclosures adequate; no concealment or loss of assets; discharge should be entered. | Discharge granted to Defendant; Plaintiff's claims fail. |
Key Cases Cited
- Cadle Co. v. Mims (In re Moore), 608 F.3d 253 (5th Cir. 2010) (alter ego claims belong to estate, lack standing for creditors)
- Schimmelpenninck v. Byrne (In re Schimmelpenninck), 183 F.3d 347 (5th Cir. 1999) (veil-piercing principles and standing limitations)
- U.S. Catholic Conference v. Abortion Rights Mobilization, Inc., 487 U.S. 72 (1988) (standing and jurisdiction foundations)
- Diamond v. Charles, 476 U.S. 54 (1986) (standing and jurisdiction principles in statutory schemes)
- Beaubouef v. Beaubouef (In re Beaubouef), 966 F.2d 174 (5th Cir. 1992) (false statements and materiality under § 727(a)(4)(A))
- Chastant, 873 F.2d 89 (5th Cir. 1989) (standards for constructive versus actual fraud in § 727(a))