Saslow v. Michael (In Re Michael)
452 B.R. 908
Bankr. M.D.N.C.2011Background
- Crossroad Sports was a skate equipment company, later doing business as Board Paradise, controlled by Debtor Joshua Michael who expanded it to an $8M enterprise before financial trouble in 2008-2009.
- In 2009 Crossroad faced default and an involuntary petition; Debtor took over finances, moved bank accounts, and concealed assets to a new entity Board Paradise.
- Debtor diverted Crossroad inventory and cash to Board Paradise and a warehouse at 2801 Patterson Street, while instructing employees to falsify records and keep transfers secret.
- Debtor concealed ownership of Crossroad assets (real estate, vehicles, domain names) on schedules in his individual bankruptcy and failed to disclose creditors, pending litigation, and cash on hand.
- Trustee recovered some assets, found cash hidden at a Crossroad location, and conducted an auction yielding about $259,000; Debtor attended a Las Vegas trade show on company funds.
- Court denied Debtor’s discharge under 11 U.S.C. § 727(a) due to fraudulent transfers, poor records, and false oaths.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Debtor’s transfers violated § 727(a)(2). | Saslow: transfers of Crossroad assets to Board Paradise with covert intent to defraud. | Michael: no intentional wrongdoing proven; transfers were business decisions. | Yes; § 727(a)(2) denied. |
| Whether Debtor’s records violated § 727(a)(3). | Saslow: Debtor maintained inadequate and altered records to conceal finances. | Michael: occasional record-keeping lapses; not a denial-worthy failure. | Yes; § 727(a)(3) denied. |
| Whether Debtor’s schedules and statements violated § 727(a)(4). | Saslow: false and misleading schedules and omissions to deceive creditors. | Michael: omissions were not deliberate deception. | Yes; § 727(a)(4) denied. |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (1991) (fresh start policy; standard for § 727 discharge denial)
- Pavy v. Chastant, 873 F.2d 89 (5th Cir. 1989) (fraud intent shown by badges of fraud)
- In re French, 499 F.3d 345 (4th Cir. 2007) (records must enable reasonable ascertainment of finances)
- In re Kaiser, 722 F.2d 1574 (2d Cir. 1983) (false oath/omission analysis in § 727(a)(4))
- In re Dennis, 330 F.3d 696 (5th Cir. 2003) (circumstantial evidence of intent to defraud)