RGW Construction, Inc. v. Lucido, 655 B.R. 355

Background

RGW Construction obtained a $1,781,538.79 state-court judgment (against Bay Area Drilling, Inc. (BAD)) and sought to enforce it; Mark Lucido was BAD’s 100% owner.
In response to enforcement efforts, Lucido transferred a 50% interest in his Arnold, CA residence to his mother and granted deeds of trust on his Pittsburg commercial property in favor of two brothers.
BAD filed chapter 7; Lucido filed a Subchapter V chapter 11. The BAD trustee filed a large claim against Lucido; RGW filed an alter-ego-based unsecured claim against Lucido in the chapter 11.
RGW sued in this adversary proceeding to deny Lucido a chapter 11 discharge under 11 U.S.C. §1141(d)(3), alleging the Plan is liquidating, Lucido will not engage in business after consummation, and that he would be denied a chapter 7 discharge under multiple §727 subsections.
After trial the court found the Plan liquidating (Pittsburg sale constituted ~91.5% of estate value) but that Lucido does engage in business post-confirmation (consulting and union employment); RGW failed to prove the §727(a) grounds. Judgment entered for Lucido on the §1141(d)(3) claim.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the Plan liquidates "all or substantially all" estate property (§1141(d)(3)(A))	Plan liquidates the Pittsburg property and therefore substantially all estate value	Plan retains Arnold residence and personal property; sale is part of a reorganizational plan	Held: Plan is liquidating; sale of Pittsburg represented ~91.5% of nonexempt estate value — satisfies (A)
Whether debtor will "engage in business" after consummation (§1141(d)(3)(B))	Lucido gave up contractor license and cannot resume prepetition drilling business; thus will not engage in business	Lucido performs self-employed consulting, works through union, will expand consulting and receive social security — constitutes engaging in business	Held: Lucido will engage in business post-consummation (mere employment excluded, but his consulting qualifies); RGW failed to prove (B)
Whether Lucido would be denied a chapter 7 discharge under §727 (general)	Asserts multiple §727 grounds: (a)(2)(B) transfers/concealment post-petition; (a)(3) failure to preserve records; (a)(4)(A) false oaths regarding property/debts; (a)(6)(A) refusal to obey discovery order	Denies intent and falsity; produced bank statements, ledgers, credible testimony from family re: transfers/debts; limited or no documentary gaps proven; complied with interrogatories	Held: RGW failed to prove any §727 ground by preponderance — §727 requirement for §1141(d)(3)(C) not met, so discharge denial cannot be sustained
Effect / next steps on RGW’s alter-ego claim and plan confirmation	RGW’s alter-ego claim seeks to add Lucido to BAD judgment; RGW appealed earlier disallowance and District Court reversed, reviving RGW’s claim	Lucido had not pursued confirmation successfully; court denied plan confirmation for feasibility later, but adversary relief on §1141(d)(3) still actionable	Held: Court entered judgment for Lucido on §1141(d)(3); the alter-ego claim remains and parties must inform court how to proceed (status conference set)

Key Cases Cited

Um v. Spokane Rock I, LLC, 904 F.3d 815 (9th Cir. 2018) (discusses meaning of "engage in business" and rejects treating mere employment as engaging in business)
Toibb v. Radloff, 501 U.S. 157 (U.S. 1991) (Chapter 11 applicability to individual debtors)
Ron Pair Enters., Inc. v. Vanguard Ins. Co., 489 U.S. 235 (U.S. 1989) (statutory interpretation directive: courts enforce plain statutory text)
Grogan v. Garner, 498 U.S. 279 (U.S. 1991) (preponderance standard in discharge adversary proceedings)
Retz v. Samson (In re Retz), 606 F.3d 1189 (9th Cir. 2010) (elements for §727(a)(4)(A) and burden rules)
Caneva v. Sun Cmtys. Operating Ltd. P’ship (In re Caneva), 550 F.3d 755 (9th Cir. 2008) (purpose of §727(a)(3) and record-keeping standards)
Devers v. Bank of Sheridan (In re Devers), 759 F.2d 751 (9th Cir. 1985) (intent requirement for §727(a)(2) inferred from circumstantial evidence)
Ellis v. Brotherhood of Railway & Steamship Clerks, 466 U.S. 435 (U.S. 1984) (defining "substantially all" property in plan-context)