Plaintiffs Cantwell & Cantwell and Leland E. Shalgos timely filed this appeal from a final order of the bankruptcy court entering judgment in favor of Defendant Alanna C. Vicario in an adversary proceeding. This Court has jurisdiction pursuant to 28 U.S.C. § 158(a)(1). See In re Teknek, LLC,
I. Background
A. JMV Builders, Inc.
Before Alanna Vicario and her husband John Vicario filed for bankruptcy, John, who is a carpenter by trade, owned his own home building business. Doing business as JMV Builders, Inc., John built homes in Illinois, Indiana, and Michigan. Alanna listed her profession as “homemaker” on the couple’s bankruptcy filings, but she also did some informal paperwork and banking for JMV Builders, Inc.
Until approximately 2006, JMV Builders, Inc. was a relatively successful company. In 2006, however, Harbor Dunes, LLC, a housing development group in New Buffalo, Michigan for which John had been building homes sinсe late 2003 or early 2004, stopped paying John’s invoices. This led to a serious shortage in working capital for John’s ongoing projects, including his work on a large home that he was building for resale (“the big house”) on property located at 113 Upland Drive in Michigan City, Indiana (the “Upland property”). Knowing that John was in need of money, John’s former friend, Daniel Abraham, known as “Danny,” arranged for John to borrow $200,000 from Danny’s parents, Paul and Catherine Abraham. Under the terms of the loan, John was to repay the principal and $12,000 in total interest on or before November 5, 2006.
Although the promissory note stated that John was to use the $200,000 loan to complete work on the big housе, he used the funds as working capital on all of his projects and, as a result, John did not complete work on the big house in time to repay his loan to Paul and Catherine Abraham.
In December of 2007, still desperately short on capital and being pestered by Danny about his parents’ loan, John sold the Upland property to Joni Elliott, the wife of John’s third cousin. Although the terms were not reduced to writing or recorded, John and Joni Elliott agreed that John would perform the work and finish building the big house, Joni Elliott would pay for the materials that John needed to complete the work, and, at closing on the sale, Joni Elliott would pay John for his work on the house. John and Joni Elliott also agreed that they would split any profits resulting from the sale of the house. After he sold the Upland property to Joni Elliott, John retained contrоl of the property and performed work on the big house. He referred to the property as his own and signed a mortgage on September 6, 2008 to a lumber company, verifying that he was the owner of the property.
John also sought to alleviate his financial troubles by transferring the interest that he owned in a development group called Westcott Woods, LLC. In 2004 or 2005, John and Phil Hamilton—who was also the driving force behind the Harbor Dunes project—had decided to invest in and develop another piece of property known as Westcott Woods. In August of 2004, Hamilton bought two parcels of land from Mrs. Westcott: (1) a single-family home located at 724 Eastwood Place in Michigan City, Indiana, known as “the little house,” and (2) twenty-four acres of undeveloped property. In September of 2005, Hamilton signed a quitclaim deed transferring title of the little house from himself to himself and John as tenants in common. Hamilton and John also both initially held a twenty-five percent interest in Westcott Woods, LLC, which planned to develop the remaining twenty-four acres.
In March of 2006, John sold ten percent of his interest in the LLC to Alfonso D’Amico, one of the other investors in Westcott Woods, LLC, who already held a ten percent interest. On July 28, 2006, John transferred the remaining fifteen percent of his ownership interest in West-cott Woods, LLC to Danny Abraham in exchange for a reduction by $75,000 of the amount that John owed to Danny’s parents. Despite these transfers, John retained his interest in the little house with Hamilton as tenants in common.
Shortly thereafter, John and Alanna Vi-cario signed a promissory note on behalf themselves and JMV Builders, Inc. in favor of Harbor Dunеs, LLC for $87,615. John also signed a related security agreement on behalf of JMV Builders, Inc. purporting to convey a security interest to Harbor Dunes, LLC in John’s supposed twenty percent interest in Westcott Woods, LLC, and all real property owned by Westcott Woods, LLC. Thus, less than three weeks after transferring his remaining interest in Westcott Woods, LLC to Danny Abraham, John signed a security agreement that placed a lien on his former ownership interest.
All the while, Danny was calling and sending e-mails to John seeking payment on his parents’ loan. Many of these re
While Alanna Vicario was carbon copied on many of Danny Abraham’s e-mails to John, John never copied her on his e-mails back to Danny. On at least two occasions, John wrote to Danny about the Abrahams’ loan using Alanna’s e-mail account.
B. Bankruptcy Proceedings
On December 11, 2008, the Vicarios filed a joint voluntary Chapter 7 Bankruptcy Petition, requesting the discharge of their debts. Along with their petition, the Vic-arios filed: (1) a creditor matrix listing the names and addresses of their creditors; (2) schedules of their assets, liabilities, income, and expenditures; and (3) a statement of financial affairs. The Vicarios also filed declarations that the information provided in these filings was true and correct to the best of their knowledge.
The Vicarios made a number of omissions or misstatements in their bankruptcy filings, which led the Abraham family to bring this adversary proceeding against the Vicarios. In their five-count complaint, the Abrahams objected to the discharge of the Vicarios’ debts under 11 U.S.C. § 727(a)(4)(A), (a)(2), (a)(4)(D), and (a)(3); and sought a denial of the particular debt that the Vicarios owed to Paul and Catherine Abraham under 11 U.S.C. § 523(a)(2)(A). The Abrahams alleged that a denial of discharge was warranted in this case because the Vicarios: (1) failed to list the Abrahams and other creditors on their creditor matrix; (2) failed to list the Abrahams as creditors on their schedules; (3) failed to report John’s interest in the little house; (4) failed to list the Vicar-ios’ continued interest in the Upland property; and (5) failed to list John’s transfer of his interest in Westcott Woods, LLC in their statement of financial affairs. The bankruptcy court dismissed the Abrahams’ claim under § 523(a)(2)(A) as to Alanna Vicario and the Vicarios answered the remaining claims against them.
On November 19, 2009, lacking the financial resources necessary to prosecute the case, the Abrahams moved to dismiss their complaint against the Vicarios. In accordance with Local Rule 7041-1, the bankruptcy court issued an order stating that any party that wished to substitute as the plaintiff in this adversary case must move to do so on or before January 14, 2010. On January 12, 2010 and January
The first four claims in Plaintiffs’ amended complaint were substantially similar to the first four claims in the Abra-hams’ complaint—that is, claims under § 727(a)(4)(A), (a)(2), (a)(4)(D), and (a)(3) objecting to the discharge of the Vicarios’ debts.
B. The Trial
Plaintiffs’ case against the Vicarios proceeded to trial before the bankruptcy court. In their casе-in-chief, Plaintiffs called two witnesses: Telly Stefaneas, an attorney from Cantwell & Cantwell who had performed legal work for John Vicario in the past, and Danny Abraham.
The Vicarios proceeded with them casein-chief, during which thеy called only witness—John Vicario himself. Neither side called Alanna Vicario as a witness. After the Vicarios rested, Plaintiffs did not request permission to put on a rebuttal case.
C. The Bankruptcy Court’s Judgment
After the conclusion of the trial, the bankruptcy court issued a detailed oral ruling in which it found in favor of Plaintiffs in part and in favor of the Vicarios in
The bankruptcy court then entered judgment against John Vicario on two of the five counts (Counts I and II) and concluded that he was not entitled to a discharge. The court determined that Plaintiffs met their burden of proving by a preponderance of the evidence that John made false oaths for purposes of § 727(a)(4)(A) and concealed assets for purposes of § 727(a)(2). Specifically, the bankruptcy court found that John made false oaths and concealed his equity interest or right to a significant payment for work performed pre-petition on the big house and that he made false oaths and concealed his legal title to the little house. The court also ruled that John made a false oath when he failed to list Paul and Catherine Abraham as creditors, despite owing them money based on the $200,000 loan that remained unpaid when the case was filed. Finally, the court found that John made a false oath when he failed to list in his statement of financial affairs his former ownership in Westcott Woods, LLC, which he had transferred in 2006.
By contrast, the bankruptcy court determined that Plaintiffs did not meet their burden of proving by a preponderance of the evidence that Alanna Vicario failed to disclose assets or made any false oaths with the intent to deceive. The court was “unwilling to infer from the few e-mails in which [Alanna] was CC’d and the fact that she was married to John that she had [the] intent to make false oaths and hide assets.” (Tr. 809:13-16.) At the same time that it announced a final disposition of the claims against Alanna, the bankruptcy court revisited its previous ruling on Alan-na’s Rule 52(c) motion. The court stated that in retrospect, it should have delayed ruling on the motion until after the close of the evidence. The court then modified its earlier oral ruling to do just that, declined to rule on the motion as to Alanna until after the close of the case, and then denied the motion. The Court concluded by reiterating that Plaintiffs had not proven that Alanna acted with the intent necessary to deny discharge and entered judgment in her favor on Counts I and II.
As to Counts III and IV, the court found that Plaintiffs did not prove that John or Alanna Vicario knowingly or fraudulently withheld books and records from the trustee or that they concealed, failed to keep, or destroyed documents relating to their financial affairs. The court entered judgment in favor of the Vicarios on these two counts. Finаlly, the bankruptcy court dismissed Count V as to both Alanna and John Vicario because it was not properly before the court. The court stated that it did not give Plaintiffs leave to add a fifth count under § 727(a) when it granted Plaintiffs’ motion to substitute for the Abrahams. In any case, the court noted, Plaintiffs failed to prove any unexplained loss of assets that would fall within § 727(a)(5) other than those that already were covered by its decision as to Counts I and II. Having found in favor of Alanna Vicario on all counts in the complaint, the bankruptcy court entered judgment in her favor and granted her discharge.
Plaintiffs appeal the bankruptcy court’s judgment as to Alanna Vicario. Plaintiffs
II. Analysis
A. Standard of Review
In an appeal from the bankruptcy court’s judgment following a bench trial, this Court reviews the bankruptcy court’s conclusions of law de novo, and its findings of fact, as well as applications of law to those findings of fact, for clear error. See In re Davis,
B. Procedural Issues
1. Plaintiffs’ Substitution into the Case
Plaintiffs make two arguments relating to their substitution as plaintiffs into the case. Specifically, Plaintiffs claim that the bankruptcy court erred when it (1) dismissed Count V of their amended complaint and (2) concluded that the Vicarios’ failure to answer the amended complaint did not result in the admission of each of Plaintiffs’ allegations. Although Plaintiffs do not frame them as such, these two issues are related and require some discussion about what the rules require when a party objecting to discharge under § 727(a) moves to voluntarily dismiss his or her case.
Special rules govern the voluntary dismissal of a complaint in which the plaintiff is objecting to the debtor’s discharge under § 727(a). See In re Chalasani,
One of the conditions to dismissal that a bankruptcy court may require is “that the debtor allow another party to pursue a § 727 complaint that was timely filed.” In re Chalasani,
Nevertheless, “the purpose of substitution is to allow an adjudication on the merits of the original claim,” not to allow the substituted party to “make an end run around the time limitations” in Bankruptcy Rule 4004. In re McKissack,
Here, instead of filing an amended complaint that reflected their position as substituted plaintiffs in the case already brought by the Abrahams, Plaintiffs filed a complaint with an entirely new count under § 727(a)(5). This was improper under the authorities cited above. Because of the procedural posture of the case, Plaintiffs were limited to the objections to discharge set forth in the Abrahams’ complaint.
Nor did the bankruptcy court err when it concluded that Alanna Vicario’s failure to answer Plaintiffs’ amended com
For these reasons, the Court affirms the bankruptcy court’s decision to dismiss Count V of Plaintiffs’ amended complaint and its refusal to deem the allegations in Plaintiffs’ amended complaint to be admitted.
2. The Bankruptcy Court’s Reconsideration of it Rule 52(c) Ruling
Plaintiffs also argue that the bankruptcy court erred when it reconsidered its denial of the Federal Rule of Civil Procedure 52(c)
Rule 52(c), which replaced part of Rule 41(b), allows a court in a nonjury trial to enter judgment if a party has been fully heard on an issue and the court can make an appropriate disposition on the evidence that has been presented. See Fed. R.Civ.P. 52(c); Wright & Miller, Federal Practice & Procedure § 2573.1 (3d ed. 2011). When a trial court rules on a Rule 52(c) motion, it takes “an unbiased view of all the evidence” and gives it such weight as the court believes it is entitled to receive. Sanders v. Gen. Servs. Admin.,
Plaintiffs argue that they were prejudiced by the bankruptcy court’s decision to modify its earlier ruling on Alanna’s Rule 52(c) motion. Plaintiffs contend that the bankruptcy court’s denial of Alanna’s motion was a determination that Plaintiffs had established a prima facie case. In reliance on that ruling and the fact that, in their view, Alanna Vicario offered no evidence to rebut Plaintiffs’ prima facie case, Plaintiffs contend that they did not “aggressively]” cross-examine John Vicario, did not put on a rebuttal case, and did not call Alanna to testify in that rebuttal case.
Plaintiffs’ argument is unpersuasive. First, the bankruptcy court has the
Moreover, Plaintiffs could not have suffered prejudice here. Rule 52(c) gives the court discretion to “decline to render any judgment until the close of the evidence.” Fed.R.Civ.P. 52(c). Whether a trial court rules on a party’s Rule 52(c) motion at the close of the non-moving party’s evidence or reserves ruling on the motion until after it has heard all of the evidence in the case is immateriаl. See Wright & Miller, Federal Practice & Procedure § 2573.1 (3d ed. 2011) (stating that “nothing turns on whether the trial judge [reserves ruling] or merely denies the earlier motion”). On the contrary, a trial court’s denial of a defendant’s Rule 52(c) motion “is tentative and does not constrain the court’s ultimate disposition of the case.” Sanders,
Finally, even assuming that the court’s denial of Alanna Vicario’s Rule 52(c) motion was tantamount to a finding that Plaintiffs had established a prima fa-cie case, the Court does not agree with Plaintiffs’ assessment that John Vicario’s testimony did nothing to rebut their case against Alanna. Judge Doyle plainly thought otherwise, and there is ample support in the record for her conclusion. As discussed further below, John testified that Alanna knew little about his business dealings. It was within Judge Doyle’s purview, as the trier of fact, to credit that testimony and to conclude from it that Alanna did not have the intent required for a denial of discharge. If Plaintiffs wantеd Judge Doyle to hear what Alanna Vicario had to say, they should have called her to the stand, either in their case-in-chief or, at a minimum, as a rebuttal witness once John’s testimony placed in issue the extent of Alanna’s knowledge of the pertinent events. Indeed, it is plain from the colloquy that the parties had with Judge Doyle regarding whether Alanna would be permitted to be absent during portions of the
C. Plaintiffs’ Substantive Arguments
Having resolved Plaintiffs’ procedural arguments, the Court moves to their challenge of the bankruptcy court’s judgment on Counts I through IV. The primary benefit of filing for bankruptcy under Chapter 7 is that the financial discharge offered by the Bankruptcy Code gives the debtor an opportunity for a “fresh start.” Stamat v. Neary,
As objectors, Plaintiffs must establish grounds for denial of discharge under § 727(a) by a preponderance of the evidence. In re Scott,
1. Count I: Section 727(a)(4)(A)
Plaintiffs first argue that the bankruptcy court erred when it found that
After hearing the evidence in this case, the bankruptcy court found that the Vicarios made statements under oath in their petition for bankruptcy, bankruptcy schedules, and statement of financial affairs; that some of the statements they made in their filings were falsе; and that these false statements related materially to the bankruptcy case. In particular, the court concluded that the Vicarios were not truthful when they failed to list in their bankruptcy filings: (1) John’s equity interest or right to a significant payment for work performed pre-petition on the big house; (2) John’s legal title to the little house; (3) John’s unpaid debt to the Abra-hams; and (4) John’s former ownership in Westcott Woods, LLC. While the court also concluded that John Vicario knew that the statements he made under oath were false and that he made these statements with the intent to deceive, it found that Plaintiffs did not provide enough evidence to prove that Alanna Vicario knowingly made any false oaths with the intent to deceive.
Plaintiffs argue that the bankruptcy court’s findings as to Alanna’s intent were in error. For support, Plаintiffs point to the following facts: (1) Alanna failed to include nine creditors on her creditor matrix whom she later included in her schedules; (2) Alanna was closely involved in the operations of JMV Builders, Inc. and knew the details of the company’s debts; (3) she was copied on a number of e-mails that Danny Abraham sent to John about the Abrahams’ debt, the Upland property, and the interests in Westcott Woods, LLC; and (4) she actually responded to one of Danny’s e-mails.
Plaintiffs’ contentions do not convince this Court that the bankruptcy court clearly erred in determining that the evidence presented at trial was not enough to prove by a preponderance of the evidence that Alanna Vicario knowingly and intentionally omitted information from her bankruptcy filings. First, the mere fact that the Vic-arios added creditors to their schedules that were not listed on their creditor matrix does not prove that Alanna herself knew about these creditors and intentionally omitted them from the list. Second,
Likewise, the fact that Alanna was copied on the e-mails Danny Abraham sent to John does not necessarily mean that she knew about all of John’s business dealings and intentionally omitted them on her bankruptcy filings. As Plaintiffs argue, it is reasonable to infer from the fact that Alanna received these e-mails that she read them and understood what was being discussed in them. It is also reasonable, however, to infer, as the bankruptcy court did, that Alanna did not read these e-mails and that Danny was copying her on his emails—which were always directed to John^—simply to ensure that John was receiving them. This is reasonable because, on at least two occasions, John actually sent Danny e-mails from Alanna’s account.
The strongest evidence in Plaintiffs’ favor is that, on one occasion, Alanna Vicario responded to one of Danny Abraham’s emails. Danny’s e-mail to Alanna and John’s e-mail accounts (directed to John) stated that Danny had left two voice messages for John today and several last week. Danny explained that he “really would like an update on what is going on with the big house and Westcott Woods.” PI. Trial Ex. 47. In response, Alanna informed Danny that John was working on the big house, that she would let John know that Danny was looking for him. PI. Trial Ex. 47. But even this e-mail falls short of demonstrating that Alanna knew the details of the Westcott Woods deal or of John’s secret interest in the Upland property. Furthermore, the e-mail says nothing about John’s debt to Danny’s parents. The bankruptcy court weighed this e-mail in light of the rest of the evidence and determined that Alanna did not knowingly and intentionally make any false oaths. That conclusion was not clearly erroneous. See In re Davis,
2. Count II: 11 U.S.C. § 727(a)(2)
Plaintiffs next contend that the bankruptcy court erred by finding that Alanna Vicario did not conceal her property or property of the estate with the intent to hinder, delay, or defraud her creditors or the bankruptcy Trustee. See § 727(a)(2). To prevail on a claim under § 727(a)(2), Plaintiffs must prove that (1) the debtor, Alanna Vicario, (2) transferred or concealed (3) her property or the property of the estate (4) with the intent to hinder, delay, or defraud a creditor or bankruptcy Trustee (5) within one year of bankruptcy or after the debtor filed her bankruptcy petition. See In re Kontrick,
The denial of discharge under § 727(a)(2) “requires proof of actual intent to hinder, delay, or defraud a creditor.” In re Self,
(1) the lack or inadequacy of consideration; (2) the family, friendship or close associate relationship between the parties; (3) the retention of possession, benefit or use of the property in question; (4) the financial condition of the party sought to be charged both before and after the transaction in question; (5) the existence or cumulative effect of the pattern or series of transactions or course of conduct after the incurring of debt, onset of financial difficulties, or pen-dency or threat of suits by creditors; and (6) the general chronology of the events and transactions under inquiry.
Id. If the creditor is able to show that one or more of these factors are met, there is a presumption of intent to defraud, which shifts the burden to the debtor to rebut. Id.
Plaintiffs argue that they proved Alanna’s intent through circumstantial evidence in the following ways: (1) on Decеmber 28, 2007, John Vicario purported to sell the Upland property to a family member, Joni Elliott, who is the wife of John’s third cousin and a close friend of the Vic-arios; (2) the e-mails between Danny Abraham and John Vicario illustrate that John expected to receive a payout when he was finished building the big house and the property was sold and that he would give Danny the money; and (3) John made the deal to split the profits with Joni Elliott during a time in which the Vicarios “were in financial ruin and contemplating filing for bankruptcy.” (PI. Br. at 37.)
Again, while this is strong evidence demonstrating John’s intent to conceal assets, nothing to which Plaintiffs point leads inexorably to the conclusion that Alanna herself actually intended to defraud her creditors or the bankruptcy Trustee by leaving certain assets off her bankruptcy filings. After hearing the evidence presented at trial, the bankruptcy court found that Plaintiffs failed to prove actual intent. The court’s conclusion was not clearly erroneous. See In re Davis,
3. Counts III and IV: 11 U.S.C. § 727(a)(4)(D) and (a)(3)
Unlike Counts I and II, on which the bankruptcy court found in favor of Plaintiffs as to John Vicario but not Alanna, on Counts III and IV, the court concluded that Plaintiffs failed to prove their case as to both of the Vicarios. Plaintiffs now ask this Court to reverse the bankruptcy court’s determination as to Alanna Vicario on these two counts.
Once more, Plaintiffs have not presented any evidence that convinces this Court to reverse the judgment of the bankruptcy court. Simply pointing to John Vicario’s
As to each of the claims in their amended complaint, Plaintiffs essentially ask this Court to substitute its judgment for that of the bankruptcy court. That court, however, heard the testimony and reviewed the evidence as to the alleged § 727 violations, and was in a far better position than this Court to judge John and Alanna’s credibility. Because Plaintiffs have offered this Court no compelling reason to disregard the bankruptcy court’s judgment and because it is plausible in light of the testimony at the trial, the Court cannot conclude that the bankruptcy court committed clear еrror. See Bielecki v. Nettleton,
III. Conclusion
For the reasons set forth above, the Court affirms the judgment of the bankruptcy court.
Notes
. Plaintiffs also added allegations in Counts I through IV that were specific to their claims against the Vicarios.
. The Court would be remiss if it failed to note the concerns that Judge Doyle had with Danny Abraham’s testimony. (See Tr. 805:4-807:1.) Judge Doyle found that Danny intentionally and repeatedly violated the automatic bankruptcy stay by trying to collect on his parents’ loan after the Vicarios had filed for bankruptcy. She also concluded that Danny was "in league with John” about hiding the Abrahams as creditors in John’s bankruptcy filings, (Tr. 805:14.), and regretted that the Bankruptcy Code does not provide for an "unclean hands” defense under these circumstances. The Court shares Judge Doyle's views, but agrees that Danny’s “unsavory actions” do not change the outcome in this case. (Tr. 806:17.)
.Rule 52(c) applies to adversary proceedings in bankruptcy court through Bankruptcy Rule 7052.
. The Court notes that the time limits in Bankruptcy Rule 4004 are not jurisdictional and are subject to certain equitable defenses. See In re Kontrick,
. Federal Rule of Civil Procedure 52(c) is made applicable to adversary bankruptcy proceedings through Bankruptcy Rule 7052.
. Because the bankruptcy court properly dismissed Count V of the amended complaint on procedural grounds, the Court need not reach Plaintiffs’ substantive arguments as to that claim.