573 B.R. 451
Bankr. E.D.N.Y.2017Background
- Debtor Cesar Cedillo filed Chapter 7 on April 24, 2013; Web Holdings filed an adversary complaint (Apr. 13, 2015) objecting to discharge under 11 U.S.C. § 727(a)(2) and (a)(4).
- On October 1, 2012 K&R Hardware’s assets (the "Hardware Store Assets") were transferred to NY Electric (newly formed, managed by Rosa/Sylvia Vasquez, Cedillo’s longtime partner and later wife); a $50,000 promissory note and assumption of certain tax/SBA liabilities were documented, but no payments were made.
- State court had previously found Cedillo owned K&R Hardware; Cedillo continued operating the business post-dissolution and disputes whether the assets were corporate or his personal property.
- Cedillo’s bankruptcy schedules and SOFA omitted or understated several items (ownership interests in K&R entities and 656 Myrtle Avenue, deposits/income, SBA guarantee, security interest in chattel mortgage, and certain income/household contributions); Cedillo contends many omissions were inadvertent or sufficiently disclosed elsewhere.
- Web Holdings moved for partial summary judgment seeking denial of discharge under § 727(a)(2)(A) (transfer with intent to hinder/delay/defraud within one year) and § 727(a)(4)(A) (knowingly and fraudulently made false oaths); court heard extensive filings and denied both claims on summary judgment.
Issues
| Issue | Web Holdings’ Argument | Cedillo’s Argument | Held |
|---|---|---|---|
| Whether Cedillo transferred property of the debtor (§ 727(a)(2)) | Cedillo personally (and as sole shareholder) transferred Hardware Store Assets to NY Electric on Oct. 1, 2012. | Transfer was of K&R Hardware (corporate assets) in winding up; not property of Cedillo personally. | Court: No genuine dispute that Cedillo (individually and on behalf of K&R) effectuated the transfer. |
| Whether transferred property belonged to Cedillo (§ 727(a)(2)) | Assets produced by post-dissolution business activity belonged to Cedillo personally; at least some assets were his property when transferred. | Title remained corporate; dissolution/winding-up preserved corporate ownership. | Court: No genuine dispute that at least some transferred assets were Cedillo’s property. |
| Whether transfer was with actual intent to hinder/delay/defraud creditors (badges of fraud) (§ 727(a)(2)) | Transfer to a new entity run by his partner/wife, near adverse process, no consideration paid — badges point to fraudulent intent. | Transaction was to preserve business and satisfy tax liabilities; nonpayment resulted from buyer’s insolvency; no intent to defraud. | Court: Genuine disputes remain on Cedillo’s subjective intent; summary judgment denied on this element. |
| Whether Cedillo knowingly and fraudulently made false oaths (§ 727(a)(4)) | Multiple material omissions/false statements in schedules and SOFA (ownerships, deposits, note valuation/security interest, income, guarantees) show false oaths and fraud. | Omissions were inadvertent, based on misunderstanding, language/education limits, or adequately disclosed elsewhere; no fraudulent intent. | Court: Found false statements and materiality established, but genuine disputes exist about Cedillo’s knowledge and fraudulent intent; summary judgment denied. |
Key Cases Cited
- Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (2015) (bankruptcy court may enter final orders in non-core matters with parties’ consent)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (standard for genuine dispute at summary judgment)
- Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (moving party’s summary judgment burden and nonmoving party must produce specific facts)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) (nonmoving party must show more than metaphysical doubt)
- State Bank of India v. Chalasani (In re Chalasani), 92 F.3d 1300 (2d Cir. 1996) (deny discharge standard construed strictly against objectors)
- Salomon v. Kaiser (In re Kaiser), 722 F.2d 1574 (2d Cir. 1983) (badges of fraud list used to infer fraudulent intent)
- Barnhill v. Johnson, 503 U.S. 393 (1992) (property interests in bankruptcy are creatures of state law)