Doeling v. ReimerDoeling v. Reimer
- Reporters:
- ,
- Before:
- Shon Hastings
Plaintiff Gene W. Doeling, Chapter 7 Bankruptcy Trustee, filed an Amended Adversary Complaint seeking denial of Debtor/Defendant William Kenneth Reimer‘s bankruptcy discharge under
The Court tried this adversary proceeding on February 2 and 3, 2021. At the close of evidence, the Trustee moved to amend his Complaint to conform to the evidence under
I. FACTS
A. General Background
Debtor is a 68-year-old man, who worked in the railroad maintenance and construction industry most of his adult life. Except for a brief period when he worked as a “roughneck” on an oil rig, Debtor worked for Burlington Northern Railroad or its predecessor for approximately 19 years, beginning at age 19.
In 1988, while he was still working for Burlington Northern Railroad, Debtor formed R & R Contracting, Inc. He owned a 100% interest in this corporation at all relevant times. R & R performed railroad construction, design and repair. R & R completed three or four projects in its first year of business. R & R‘s business increased in the next few years, prompting Debtor to resign his position with Burlington Northern Railroad in 1990 and work full time for R & R.
Although R & R began by performing work in the Grand Forks, North Dakota, area, it eventually contracted for projects in Minneapolis, Denver, St. Louis, Alabama, Texas, Canada and Chile. R & R completed various projects for grain facilities, oil refineries, plastic companies and railroad companies, such as Amtrak, Canadian Pacific and Burlington Northern Railroad. Debtor testified that at its height, R & R realized gross receipts of approximately $50 million.
In 2015, R & R suffered several financial setbacks. Although R & R‘s “operations were doing really well,” Debtor claims R & R was in “financial distress” because two
At trial, Debtor characterized himself as a “serial entrepreneur.” Beginning in the late 1990s, Debtor invested in various business ventures. At one point, he owned four or five laundromats and other small businesses. For example, in 2015, Debtor owned an interest in Legendary Motorsports, LLC, also known as Legendary Cycles, LLC, which sold recreational vehicles, including motorcycles, four-wheelers and snowmobiles. Debtor was not involved in the day-to-day operation of Legendary. According to Debtor, poor general managers and a downturn in the motorcycle business caused him to lose several hundred thousand dollars in this business. Legendary‘s owners closed the store and sold all its assets in late July 2018.
As part of the liquidation process, Legendary sold everything, including inventory and shelving. At trial, Debtor testified that he did not know the details of these transactions, including net sale proceeds, claiming he was “paying bills as [the liquidation] went and was making sure everything was cleaned up, things like that. So what the final number is, I am not sure.” Debtor deposited his share of the sale proceeds from Legendary‘s inventory and “other items” in an account held by Blue Sky
R & R‘s financial difficulties prompted Debtor to sell Blue Sky‘s assets, including the building Legendary leased in Fargo, North Dakota. According to a settlement statement dated July 31, 2018, Blue Sky sold this building for $725,000. The settlement statement also reveals that, after paying its loan to Bank Forward in the sum of $708,725.15, taxes, fees and other sale-related expenses, Blue Sky received no proceeds from the sale of this real estate. See T-8.
Debtor‘s wife, Rhonda Reimer, is also a business owner. She is the sole owner of Allrail Services, LLC. Debtor‘s and Rhonda Reimer‘s son, Reed Reimer, is Allrail‘s President. Debtor purchased Allrail—a preexisting company with headquarters, equipment, and a job site in Chicago—as a gift for Rhonda Reimer in 2010. Rhonda Reimer testified that Debtor is not involved in Allrail.
Allrail and R & R shared office space, some in Grand Forks and some in Minneapolis. The two companies also shared the services of a certified public
In May 2018, Rhonda Reimer‘s health and safety position at R & R ended, so she increased her involvement with Allrail. According to Rhonda Reimer, she could not find Allrail‘s corporate documents. Consequently, she signed new Articles of Organization on June 19, 2018, and submitted the documents necessary to register Allrail as a corporation in North Dakota, Illinois and Michigan in July and August 2018.3
Initially, Allrail performed a large portion of its work in Illinois. At the time Debtor petitioned for bankruptcy relief in December 2018, Allrail performed work under two contracts. Under a contract with Union Pacific Railroad, Allrail performed maintenance at Union Pacific Railroad‘s yard in Chicago. Pursuant to its contract with Kellogg Company, Allrail moved railroad cars in Michigan. Before Allrail received its contract with Kellogg, R & R performed this work under a contract with Kellogg.4 In the summer or early fall of 2019, the contract with Union Pacific terminated. Currently, Allrail‘s only “business” is with Kellogg. Although it has “worked in a loss” for “the last year or so,” Rhonda Reimer draws an income from Allrail every year.
In the summer of 2018, Debtor contacted the Vogel Law Firm about the possibility of petitioning for bankruptcy relief. In November or December 2018, Debtor gathered documents and began completing bankruptcy schedules. On December 21, 2018, Debtor petitioned for bankruptcy relief under Chapter 7 of the Bankruptcy Code. Debtor testified that his personal liability for business debt resulting from guaranties led to his decision to file the petition.
Debtor filed his original bankruptcy schedules on January 4, 2019. He estimated that the value of his assets totaled $2,715,558.49 and his liabilities to dozens of business and personal creditors totaled $12,757,479.73. T-1. Debtor signed the schedules, swearing that the information in them was true and accurate under penalty of perjury. On February 4, 2019, Debtor amended his bankruptcy schedules because “some things were brought to [his] attention that he forgot in the first place.” See D-101. The Trustee conducted the meeting of creditors on February 8, 2019. Following the meeting of creditors, Debtor amended his schedules on March 20, 2019. D-104. Debtor made no further amendments to his bankruptcy schedules.
C. Transfers
1. Transfer of $2,000 to Reed Reimer on December 25, 2017
Approximately one year before his bankruptcy, Debtor gave $2,000 to his son, Reed Reimer, on December 25, 2017. Debtor did not list this transfer in his original bankruptcy schedules. See T-1. According to Debtor, the gift was for his granddaughter‘s college education, and his failure to include this gift on his original
2. Transfer of $6,500 to Rhonda Reimer on June 4, 2018
On June 4, 2018, Debtor transferred $6,500 to Rhonda Reimer to “fund her retirement.” At trial, the Trustee asked Debtor if there was a “reason you were transferring thousands of dollars to your wife when your source of income was drying up?” Debtor responded, “I didn‘t think about why I was doing it, I just did it. I mean, it‘s just what you do, transfer money back and forth for retirement.” Debtor listed this transfer in his original bankruptcy schedules.5 T-1.
3. Transfer of $37,868.77 to Rhonda Reimer on August 2, 2018
As discussed above, Debtor deposited $148,633.77 in proceeds from the sale of Legendary inventory and other property in Blue Sky‘s account and then transferred this sum to a Bank Forward account in his name only on August 1, 2018.6 T-9. One day later, Debtor transferred $37,868.77 from this account to Rhonda Reimer.7
According to Debtor, he originally planned to transfer $75,000 to Rhonda Reimer. Debtor testified that he understood that he and Rhonda Reimer owned all of their assets
Debtor did not list the $37,868.77 transfer to Rhonda Reimer on his original bankruptcy schedules. See T-1. He listed this transfer on his amended schedules filed on February 4, 2019. D-103.
4. Transfer or Dissipation of $35,765 on August 2, 2018
On August 2, 2018, Debtor withdrew $35,765 from a Bank Forward savings account in his name only. T-9. The Trustee asked about this transfer in written discovery, but Debtor failed to provide an explanation before trial. T-13. At trial, Debtor claimed records showing the disposition of this money would be easy to produce, yet he declined to disclose the information. Debtor surmised that this withdrawal was for “taxes due or something on Legendary that we had to pay back. I am not positive about
Debtor did not disclose this $35,765 withdrawal on his schedules. His failure to explain the disposition of this withdrawal is the subject of the Trustee‘s motion to amend his Complaint.
5. Transfer of $50,000 to Rhonda Reimer on December 11, 2018
On December 11, 2018, ten days before he filed his bankruptcy petition, Debtor transferred $50,000 from a Raymond James investment account in his name to Rhonda Reimer.9 See T-5. Debtor explained he transferred this $50,000 to pay his share of the down payment on the house where Rhonda Reimer and Debtor currently live. Debtor transferred the money to Rhonda Reimer‘s account intending that she would, in turn, use it for the down payment on their home. Debtor did not disclose this transfer on his original schedules, the amended schedules filed February 4, 2019, or the amended schedules filed March 20, 2019.
6. Transfer of an interest in a 1966 Chevrolet Chevelle to Rhonda Reimer by adding her name to the title
In gathering documents to support his bankruptcy schedules, Debtor searched but could not find a certificate of title for his 1966 Chevrolet Chevelle. Consequently, Debtor requested a duplicate title from the Department of Motor Vehicles. When a DMV employee asked who owned the vehicle, Debtor responded that he and Rhonda Reimer
Debtor did not disclose that Rhonda Reimer owned an interest in the Chevelle on his original schedules. See T-1. On his amended schedules filed February 4, 2019, Debtor disclosed that only he owned an interest in the Chevelle on Schedule B, but he acknowledged that he added his spouse to the title of this vehicle in his Statement of Financial Affairs. D-103 at 6, 23.
D. Initially Omitted Assets
Debtor omitted several assets on his original schedules. He disclosed many of these assets on his amended schedules, however.
1. Two boat lifts and a dock
Debtor did not disclose two boat lifts and a dock on his original bankruptcy petition. See T-1. He disclosed them on his amended schedules filed March 20, 2019, valuing them at $5,000. D-104.
2. A tamper or a $24,000 account receivable from Allrail
Debtor estimates the current value of the tamper is between $40,000-$50,000. At the time of trial, the tamper was in Grand Forks, and Debtor testified that he was willing to give it to the Trustee.
Debtor did not disclose the tamper or a $24,000 account receivable from Allrail on his original bankruptcy schedules.12 See T-1. Likewise, he did not disclose that he owned a tamper on his amended schedules. However, he disclosed the $24,000
E. Disputed Asset Values
The Trustee hired Robert Helbling Jr. in December 2018 to provide value estimates for several of Debtor‘s assets. In March 2019, Helbling conducted an appraisal, relying on internet research and phone calls to arrive at his valuations.13 See T-28.
Relying on Helbling‘s estimates and other information, the Trustee alleges Debtor undervalued numerous assets in his bankruptcy schedules. The following table summarizes the parties’ different value estimates for the assets at issue:
| Asset | Debtor Value | Basis for Debtor Value | Trustee Value | Basis for Trustee Value | Sale Price |
|---|---|---|---|---|---|
| 2003 Harley Davidson motorcycle | $4,500 | Ownership of motorcycle store; older motorcycle, Debtor assumed “value wouldn‘t be there.” | $9,500 | Helbling Appraisal Report (T-28); discussion with motorcycle dealers. | $5,890 |
| 2017 Indian Chieftain Elite motorcycle | $14,000 | Ownership of motorcycle store; received $14,000 for trade of other motorcycle and “assumed this would be worth the same.” | $21,000 | Helbling Appraisal Report (T-28); discussion with motorcycle dealers. | $22,900 |
| 1966 Chevrolet Chevelle SS | $15,000 | No information provided. | $18,000 | Helbling Appraisal Report (T-28); discussion with friend who is “big into old cars.” | $18,000 |
| 2000 Jeep Wrangler Sport | $5,200 | Bought approximately ten years ago for $10,000; thought “worth hardly anything.” | $8,000 | Helbling Appraisal Report (T-28); two recent dealer sales in Moorhead, MN. | $11,450 |
| 2012 Centurion Enzo boat | $22,000 | Discussions with employees at U Motors, Fargo ND. | $51,000 | Helbling Appraisal Report (T-28); discussions with employees of Willey‘s Marine Inc. in McGregor, MN. | $46,100 |
| 2012 Premier pontoon | $15,000 | Discussions with employees at U Motors, Fargo ND. | $61,000 | Helbling Appraisal Report (T-28); discussions with employees of Willey‘s Marine, Inc. | $36,850 |
| Property at 2731 Norway Bluff SE, Bemidji | $557,400 | Tax value from tax statement provided by county. | $795,000 or $804,500 | Appraisal on 7/26/16 for $795,000 (T-2) and Appraisal on 11/05/20 for $804,500 (T-3). | N/A |
F. 1963 Chevrolet Corvette Stingray
Debtor and Richard Woodward have known each other for many years. Debtor testified that he talks to Woodward nearly every day. According to Debtor, Woodward
In 2016, Debtor took possession of the Corvette. Debtor only drove the Corvette about 10 miles every year and mostly kept it in storage. Debtor typically stored the Corvette at a storage facility in Grand Forks, the garage at his house in Grand Forks or his lake home near Bemidji.
When Debtor filed his bankruptcy petition in December 2018, the Corvette was at the storage facility in Grand Forks. Debtor listed the Corvette on his initial schedules, valuing it at $40,000 and claiming he and Woodward each owned a half interest. T-1. Debtor did not exempt his interest in the Corvette. According to Debtor, he possessed the title to the Corvette—which was in Woodward‘s name—both when he filed his bankruptcy petition and at the time of the meeting of creditors in February 2019.
Debtor sent the original title back to Woodward after the meeting of creditors. He testified that he sent Woodward the Corvette‘s title because it “did me no good and I had to send it back to him to get him to sign off no matter what happened so he would have had to have it at some point in time.” Debtor admitted, however, that he did not
At trial, Debtor testified he never had possession of the Corvette. He explained, “In my opinion, possession means in this particular case that I would have the title in my possession with my name on it and I would have the car in my garage.” To satisfy his definition of possession, Debtor would need a “signed title or at least a title with my name on it.” Debtor “never said that I don‘t have [the Corvette] in my garage or in storage. The only thing is, I never had the title to it. The signed off title that said I was able to take that car and sell it and consummate that deal.” He conceded, however, that he possessed the keys and could have “accessed that vehicle at any time. So could Richard.”
In administering bankruptcy estate assets, the Trustee sought to gain possession and sell the Corvette. With Court permission, the Trustee retained the services of Helbling to assist with asset sales. Helbling inspected the Corvette in March 2019 and estimated its value at $42,000. T-19.
During the spring of 2019, the Trustee and Debtor communicated about Debtor‘s interest in buying the bankruptcy estate‘s interest in several assets, including the Corvette. In a letter dated May 10, 2019, the Trustee outlined their tentative agreement regarding Debtor‘s intent to purchase the estate‘s interest in several assets. In this letter, the Trustee also sought to make arrangements to obtain the Corvette and four other assets the bankruptcy estate intended to sell. T-23.
In July 2019, the Trustee filed a Motion for Turnover, seeking an order requiring Debtor to turn over the Corvette and other nonexempt assets. At trial, Debtor testified that he drove the Corvette from Grand Forks to his lake home in August 2019. According to interrogatory answers Debtor signed on March 13, 2020, the Corvette has been at the lake home since “approximately October 2019.” T-13.
The Court held a hearing on the Trustee‘s motion on November 5, 2019, which Debtor attended. On at least two separate occasions during the hearing, Debtor‘s attorney represented that Debtor did not have possession of the Corvette.14 At the time of this hearing, Debtor knew the Corvette was stored in his garage at the lake. When the Trustee asked Debtor at trial whether Attorney Brakke‘s statements from the hearing were accurate at the time, Debtor responded, “It goes back to having the title and the car in your garage.”
Because Debtor represented (through counsel) that he did not have possession of the Corvette and because the Court received no evidence to the contrary, it did not
After receiving Debtor‘s discovery answers disclosing that Debtor stored the Corvette at his lake home, the Trustee asked Helbling to obtain the vehicle and make arrangements to sell it. On March 12, 2020, Helbling asked Debtor about the location of the Corvette. Debtor told Helbling, “You‘re too late, it‘s gone. Rick Woodward has picked it up. He took it last week or maybe it was this week I really can‘t remember.” According to Reimer, he made this statement to Helbling because he “assumed it was going to happen or had happened.”15 At this time, Debtor and Woodward spoke three or four times a week, yet Woodward never told Debtor that he had obtained the Corvette. At trial, Debtor conceded that, if Woodward took the Corvette, he would have mentioned this fact to Debtor during one of their frequent conversations. On the date Debtor told Helbling that Woodward had picked up the Corvette, the Corvette was still located in Debtor‘s garage at the lake.
II. CONCLUSIONS OF LAW
A. 11 U.S.C. § 727(a)
In his Complaint, the Trustee seeks a denial of Debtor‘s discharge under
(2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under [the Bankruptcy Code], has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed—
(A) property of the debtor, within one year before the date of the filing of the petition; or
(B) property of the estate, after the date of the filing of the petition;
* * *
(4) the debtor knowingly and fraudulently, in or in connection with the case—
(A) made a false oath or account;
* * *
(6) the debtor has refused, in the case—
(A) to obey any lawful order of the court, other than an order to respond to a material question or testify[.]
1. 727(a)(2)(A)
To prevail under section 727(a)(2)(A), the Trustee must prove by a preponderance of the evidence: (1) Debtor‘s actions took place within one year before
a. The Trustee met his burden of showing that Debtor transferred or concealed property within one year before the petition date.
The Trustee offered evidence showing that Debtor transferred $2,000 to his son within one year before the petition date. Debtor also transferred cash to his wife, Rhonda Reimer, within one year before the petition date as follows: $37,868.77 on August 2, 2018; $6,500 on June 4, 2018; and $50,000 from his Raymond James account on December 11, 2018.
With the exception of the $50,000 transfer from Debtor‘s investment account to Rhonda Reimer‘s bank account, Debtor does not dispute the Trustee satisfied the first three elements of his section 727(a)(2)(A) cause of action with respect to the monetary transfers listed above. Debtor argues that the $50,000 payment to Rhonda Reimer from Debtor‘s Raymond James account is not a transfer under section 727(a)(2)(A). He requests the Court apply the “mere conduit doctrine” and find that Rhonda Reimer is an intermediate funds receiver from whom recovery may not be sought under section
Under the mere conduit doctrine, if “the conduit did not have dominion or control over the transferred property” then it “cannot or should not be deemed a ‘transferee.‘” McCord v. Ally Fin., Inc., (In re USA United Fleet, Inc.), 559 B.R. 41, 64 (Bankr. E.D.N.Y. 2016). Typically, “the entity asserting the defense often is a financial intermediary, such as a financial institution or broker, in the role of facilitating a payment from one entity (such as the debtor) to another (such as a creditor). By asserting this doctrine as a defense to a preference or fraudulent transfer claim, the defendant states that recovery may not be had from it, because it ‘is not an initial transferee if it was a “mere conduit” of the funds.‘” Id.16
The Court is not convinced that Rhonda Reimer was a “mere conduit” under the circumstances of this case. There is no evidence that she was a trustee holding funds
The evidence also shows that Debtor transferred an interest in the 1966 Chevrolet Chevelle to his wife in October 2018 by adding her name to the title. Debtor testified that he did not know if the original title to this vehicle listed Rhonda Reimer as an owner, but when he requested a duplicate title from the Department of Motor
Additionally, Debtor concealed his interest in the tamper he purportedly purchased for Allrail in April 2018. Although Debtor claims he purchased the tamper for Allrail and suggested that he transferred it to Allrail, creating an accounts receivable, the Court is not convinced that Debtor transferred the tamper to Allrail. No one at Allrail asked Debtor to purchase the tamper. Rhonda Reimer testified that Allrail did not take possession of the tamper, Debtor never sent Allrail an invoice for the tamper and Allrail does not owe money to Debtor for the tamper. The Court does not find Debtor‘s testimony about the purported transfer of the tamper to Allrail, the accounts receivable arising from this alleged transfer or the creation and delivery of invoices to Allrail credible. The Trustee met his burden of showing Debtor concealed his ownership of the tamper he purchased within one year of the petition date.
Accordingly, the Court finds that the Trustee met his burden of proving the first three elements of his
b. The Trustee met his burden of showing that Debtor transferred or concealed property with intent to hinder, delay or defraud a creditor or an officer of the estate.
Because a debtor rarely admits to fraudulent intent, a party seeking denial of discharge must generally rely on a combination of circumstances, or “badges of fraud,”
Under North Dakota law, the “badges of fraud” or factors include:
- The transfer or obligation was to an insider;
- The debtor retained possession or control of the property transferred after the transfer;
- The transfer or obligation was disclosed or concealed;
- Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
- The transfer was of substantially all the debtor‘s assets;
- The debtor absconded;
- The debtor removed or concealed assets;
- The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
- The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
- The transfer occurred shortly before or shortly after a substantial debt was incurred; and
- The debtor transferred the essential assets of the business to a lienor that transferred the assets to an insider of the debtor.
Debtor argues that the “Trustee has wholly failed to carry his evidentiary burden to prove to this Court that Reimer‘s acts were done with actual intent to hinder, delay or defraud a creditor.” Doc. 111 at 4. The Court disagrees.
In 2015, R & R suffered financial setbacks that eventually led Debtor to close the business during the summer of 2018. R & R‘s financial difficulties forced Debtor to liquidate the assets of one or more of his businesses in 2018, including Blue Sky in July 2018. At the same time, Legendary closed, causing Debtor to lose several hundred thousand dollars. Debtor testified that his personal liability for business debt resulting from guaranties led to his decision to petition for bankruptcy relief. Debtor‘s original bankruptcy schedules show that he owed more than $12.7 million to dozens of business and personal creditors in December 2018.
The general chronology of events and Debtor‘s transactions just before he petitioned for bankruptcy relief suggest Debtor intended to hinder, delay or defraud his creditors by transferring assets to his wife, concealing them or dissipating them.
April 5, 2018 Debtor purchased a tamper from R & R or reimbursed R & R for a tamper
Summer 2018 Debtor closed R & R
June 4, 2018 Debtor transferred $6,500 to Rhonda Reimer “to fund her retirement”
Late July 2018 Legendary Closed
Debtor transferred $148,633.77 in sale proceeds from Legendary to Blue Sky
August 1, 2018 Debtor transferred $148,633.77 from Blue Sky to Debtor
August 2, 2018 Debtor transferred $37,868.77 from Debtor to Rhonda Reimer
August 2, 2018 Debtor transferred or dissipated $35,765 (no explanation provided)
October 23, 2018 Debtor added Rhonda Reimer‘s name to 1966 Chevrolet Chevelle title
December 11, 2018 Debtor transferred $50,000 to Rhonda Reimer, but did not disclose this transfer
December 21, 2018 Debtor petitioned for bankruptcy relief
As the timeline shows, within weeks or months after he closed several of the businesses in which he held an interest and just before he filed his bankruptcy petition, Debtor transferred cash and other property to his wife. He also withdrew over $35,000 but provided no explanation of the disposition of this cash. Despite extreme financial difficulty at this time, he also purchased a tamper for $24,000 that he never disclosed on his bankruptcy schedules19 and transferred $50,000 from an investment account (which
The monetary transfers to his wife included proceeds from the sale of failed businesses in which Debtor held an interest. He transferred these business liquidation proceeds to his wife, despite the fact there is no evidence that she held an interest in these businesses or assumed liability for debt arising from these businesses. The transfer of the sale proceeds, like the other transfers to his wife, was entirely gratuitous.
Debtor claimed that he transferred money and property to his wife, including proceeds from the sale of business assets, because she was entitled to half of his assets. Specifically, he testified that he understood that he and Rhonda Reimer owned all of their assets equally based on conversations with his personal attorney. While acknowledging his understanding did not arise from a formal legal opinion, Debtor claims he believed his wife owned half of everything he owned. The Court finds this testimony self-serving and unconvincing. Debtor applied his theory or “understanding” regarding shared assets selectively and illogically. Although claiming his wife owns half of his assets, Debtor did not list Rhonda Reimer as a co-owner of Legendary, R & R or Blue Sky on his schedules. He conceded that, based on his understanding, he shares an interest in his wife‘s assets, but he claimed no interest in Allrail on his petition. He understood that she was entitled to half an interest in his vehicles, yet he did not add
Debtor‘s other justifications for transferring assets to his wife also lack credibility and create an inference that he was transferring or dissipating assets to benefit his family or to fund his wife‘s retirement rather than pay creditors. When the Trustee asked Debtor if there was a “reason you were transferring thousands of dollars to your wife when your source of income was drying up,” Debtor responded: “I didn‘t think about why I was doing it, I just did it. I mean, it‘s just what you do, transfer money back and forth for retirement.” This explanation for his asset transfers to his wife does not negate intent to defraud creditors, it supports it.20
Accordingly, the Trustee met his burden of showing that Debtor transferred and concealed assets with intent to hinder, delay and defraud creditors under
2. 727(a)(2)(B)
The Trustee also seeks an order denying Debtor a discharge under
- the act serving as the basis for the claim took place . . . after the petition for relief (subsection B);
- the act was that of Debtor;
- the act amounted to a transfer, removal, destruction, mutilation or concealment of property of the bankruptcy estate; and
- the act was done with an intent to hinder, delay, or defraud a creditor or the trustee.
Wilson v. Walker (In re Walker), 515 B.R. 725, 750 (Bankr. W.D. Mo. 2014), aff‘d, 528 B.R. 418 (B.A.P. 8th Cir. 2015) (footnote omitted) (citing Kaler v. Hentz, (In re Hentz), 2013 WL 1197616 at *8 (Bankr. D.N.D. March 24, 2013)). The elements of proof under paragraphs (A) and (B) are “virtually the same, differing only in the requisite timing of the debtor‘s acts and the nature of the property involved.” Id.
The Trustee argues that Debtor‘s “entire course of dealings relating to the Corvette indicate attempts at concealment of the Corvette from the trustee after the date he filed bankruptcy.” Doc. 110 at 8. Specifically, the Trustee argues that there were “numerous false misrepresentations” made to the Trustee via Debtor‘s attorney, asserting that Debtor “did not have possession of the Corvette.” Id. at 8-9. The Trustee further argues that, after Debtor disclosed he had possession of the Corvette in his discovery answers, he made “further efforts to mislead and frustrate the trustee from taking possession of it by representing to Mr. Helbling on March 12, 2020, that the
When Debtor filed his bankruptcy petition in December 2018, Debtor possessed the Corvette and its title. He acknowledged his interest in the Corvette on his initial schedules, valuing it at $40,000 and claiming he and Woodward each owned a half interest. Debtor possessed the title to the Corvette until sometime after the meeting of creditors on February 8, 2019, when he sent the title to Woodward. He testified that he sent Woodward the Corvette‘s title because it “did me no good and I had to send it back to him to get him to sign off no matter what happened so he would have had to have it at some point in time.” Debtor admitted, however, that he did not expect Woodward to sign the title or return it to him. Debtor never asked Woodward to return the title to him.
From the date of his petition in December 2018 to August 2019, Debtor stored the Corvette at a facility in Grand Forks. In August 2019, Debtor drove the Corvette from the storage facility to his lake home garage, where he stored it until March 27, 2020, when he finally relinquished possession to the auctioneer retained by the Trustee to sell the vehicle. During this entire time—December 2018 to March 2020—Debtor had the keys and access to the Corvette and could have easily retrieved, moved or transferred it to the Trustee.
In administering bankruptcy estate assets, the Trustee sought to gain possession and sell the Corvette. He demanded Debtor provide him access to the Corvette in a letter dated May 10, 2019. In a letter from his attorney dated May 17, 2019, Debtor claimed: “The Corvette is not titled in Debtor‘s name, nor is it in his physical
The Court held a hearing on the Trustee‘s Motion for Turnover on November 5, 2019, which Debtor attended. On at least two separate occasions during the hearing, Debtor‘s attorney at the time represented that Debtor did not have possession of the Corvette.21 At the time of this hearing, Debtor knew the Corvette was stored in his garage at the lake. He made no attempt to communicate to the Trustee or the Court (either before the hearing or immediately after it) that he stored the Corvette at his lake home garage and could easily access the car and ask his friend and co-owner to provide the title. He declined to provide this information to the Court or the Trustee despite the Court‘s order that he “relinquish his interest in [the Corvette] and cooperate with the Trustee in his efforts to gain possession of these items.” T-39. In discovery responses Debtor signed in March 2020, Debtor admitted that he had stored the Corvette at his lake home since October 2019. On March 12, 2020, more than four
At trial, Debtor explained his conduct and representations by parsing his personal definition of “possession.” According to Debtor, “In my opinion, possession means in this particular case that I would have the title in my possession with my name on it and I would have the car in my garage.” To satisfy his definition of possession, Debtor would need a “signed title or at least a title with my name on it.” Debtor “never said that I don‘t have [the Corvette] in my garage or in storage. The only thing is, I never had the title to it. The signed off title that said I was able to take that car and sell it and consummate that deal.” Based on his definition, he claims he never had “possession” of the Corvette. He conceded, however, that he possessed the keys and could have “accessed that vehicle at any time.”
Debtor‘s explanation is spurious. Rather than arranging for the delivery of the title to the Trustee and informing Trustee where to find the Corvette, he claimed he did not have “possession” of the vehicle, thereby concealing the location.23 In doing so, he
Debtor argues that Reimer ultimately complied with the Trustee‘s demands and the Court‘s Order regarding turnover by assisting Helbling in obtaining possession of the Corvette on March 27, 2020, and suggests that Debtor‘s eventual cooperation serves as a defense to the Trustee‘s
3. 727(a)(4)
4. 11 U.S.C. § 727(a)(6)
The Court considered all other arguments and deems them to be without merit.
For the reasons stated above, it is ORDERED that:
- Debtor is denied a discharge under
11 U.S.C. §§ 727(a)(2)(A) and (B). The Trustee‘s causes of action under11 U.S.C. §§ 727(a)(4)(A) and (6)(A) are dismissed without prejudice because they are moot. - The Trustee‘s motion to amend his Complaint to add a cause of action under
11 U.S.C. § 727(a)(5) is denied because it is moot.
JUDGMENT MAY BE ENTERED ACCORDINGLY.
Dated: April 26, 2021.
SHON HASTINGS, JUDGE
UNITED STATES BANKRUPTCY COURT
Notes
Trial Test. at 2:17-2:18.Counsel: Did you transfer an interest in that to her?
Debtor: You know, I don‘t recall if I transferred it or if it was always there.
. . .
Counsel: Ok. So do you know if she was listed on the title before you got that duplicate title?
Debtor: I do not know that.
Debtor‘s explanation for lying to Helbling lacks credibility. According to Debtor, he made this statement to Helbling because he “assumed it was going to happen or had happened.” At this time, Debtor and Woodward spoke three or four times a week, yet Woodward never told Debtor that he had obtained the Corvette. At trial, Debtor conceded that, if Woodward took the Corvette, he would have mentioned this fact to Debtor during one of their frequent conversations.