545 B.R. 359
Bankr. M.D. Ga.2016Background
- Kenneth Storey (creditor) sued debtor Tommy Breedlove in an adversary to deny Breedlove’s Chapter 7 discharge under 11 U.S.C. § 727 based on five counts (a)(2), (a)(3), (a)(4)(A), (a)(5), (a)(7)).
- Breedlove filed bankruptcy June 16, 2014; Storey’s adversary complaint began October 15, 2014; Storey later filed an Amended Complaint and sought leave to amend, which the court granted.
- Key contested factual points: incomplete or inaccurate records of Breedlove’s business income (scrap metal sales to Oconee Metal Recovery, cash withheld from deposits, unreconciled checks), unreported commission from sale of an RV, and involvement with SES/TB Auctions transfers.
- Breedlove’s sole recordkeeping consisted mainly of a personal check register and bank statements; his CPA prepared tax returns using bank statements and oral representations, allegedly omitting some OMR checks (about $3,797.75) and cash withheld from deposits.
- Procedurally, Breedlove moved to dismiss / judgment on the pleadings / summary judgment; Storey cross-moved for summary judgment. The court treated filings as including Rule 56 material and considered extrinsic exhibits.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Motion to amend complaint | Storey sought leave to amend to plead fraud with particularity; amendment necessary before summary disposition | Breedlove argued amendment was untimely and futile | Court granted leave to amend (no undue prejudice; amendment not futile) |
| § 727(a)(4)(A) false oaths (fraud) | Omissions and misrepresentations in SOFA and Rule 2004 testimony (undisclosed OMR checks, undisclosed RV commission) show false oaths | Omissions were honest mistakes cured by amendments and tax returns included income | Court denied defendant summary judgment; intent is factual and not appropriate for summary judgment (claim survives) |
| § 727(a)(3) failure to keep/preserve records | Records (check register, bank statements, tax returns) are incomplete/inaccurate (missing OMR checks, withheld cash), making it impossible to ascertain financial condition | Records are adequate (bank statements/check register/tax returns); debtor unsophisticated so practices reasonable | Court granted partial summary judgment to plaintiff and denied Breedlove a discharge under § 727(a)(3) (no genuine dispute on inadequacy and lack of justification) |
| § 727(a)(2) & (a)(7) transfers and intent | Transfers/omissions (unreported income, withheld cash, RV commission, wires between TB Auctions and SES) support fraudulent transfers and acts connected to SES (an alleged insider) | Either no transfers in alleged direction or no intent; some transfers were from SES to TB Auctions, not vice versa; dispute over insider status and intent | Court denied defendant summary judgment on (a)(2) and (a)(7) — issues of intent and facts (insider status, involvement) are disputed and inappropriate for summary judgment |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading must state a plausible claim; factual allegations accepted as true)
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment burdens and shifting)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (genuine dispute and materiality standard for summary judgment)
- Silva v. Bieluch, 351 F.3d 1045 (11th Cir.) (require opportunity to amend before dismissing for failure to state a claim)
- Bank v. Pitt, 928 F.2d 1108 (11th Cir.) (amendment rules; historical rule discussed)
- Wagner v. Daewoo Heavy Indus. Am. Corp., 314 F.3d 541 (11th Cir.) (limits on required amendments when plaintiff does not request leave)
- Foman v. Davis, 371 U.S. 178 (leave to amend should be freely given absent prejudice, bad faith, or futility)
- Chalik v. Moorefield (In re Chalik), 748 F.2d 616 (11th Cir.) (materiality of omissions in schedules and SOFA)
- Kane v. Stewart Tilghman Fox & Bianchi Pa. (In re Kane), 755 F.3d 1285 (11th Cir.) (elements for § 727(a)(7) claim involving insider and contemporaneous bankruptcy)