In Re Pisculli
In re Nicholas F. PISCULLI, Jr., Debtor.
Nicholas F. Pisculli, Jr., Appellant,
v.
T.S. Haulers, Inc. and Ranco Sand & Stone Corp., Appellees.
United States District Court, E.D. New York.
*56 Joseph Sferrazza, Sarah M. Keenan, Sferrazza & Keenan, Melville, NY, for Nicholas F. Pisculli, Jr.
Edward Zinker, Zinker & Herzberg, LLP, Smithtown, NY, for T.S. Haulers, Inc.
Edward Zinker, Zinker & Herzberg, LLP, Smithtown, NY, for Ranco Sand & Stone Corp.
ORDER
FEUERSTEIN, District Judge.
On June 30, 2009, appellant Nicholas F. Pisculli, Jr. ("appellant") filed a notice of appeal from a memorandum decision of the United States Bankruptcy Court for the Eastern District of New York (Grossman, U.S.B.J.), entered March 4, 2009, which denied, after trial, appellant's discharge in bankruptcy pursuant to Section 727(a)(2)(B) of the Bankruptcy Code,
I. BACKGROUND
A. Factual Background[1]
Appellee Ranco Sand & Stone Corp. ("Ranco") is a corporation doing business at 151 South Street, Manorville, New York. (Complaint in Adversary Proceeding [Compl.], ¶ 3). Appellant conducted business under the name LJC Truck Services ("LJC") and was the sole owner and shareholder of J & R Materials Corp. ("J & R Materials") and A.N. Leasing Corp. ("A.N. Leasing") (collectively, "appellant's businesses"). (Parties' Joint Statement of Facts filed in the Adversary Proceeding [Jt. Stat.], ¶ 2). Appellant operated his businesses out of his former home, located at 106 Emerson Street, Dix Hills, New York (the "Dix Hills Property"), (Jt. Stat., ¶ 3), which was owned by his wife Ann Frandolig Pisculli ("appellant's wife"). (Jt. Stat., ¶ 20). Appellant's wife worked for all three (3) of appellant's businesses without compensation, except for a period of time when she received health insurance. (Jt. Stat., ¶¶ 16-17). Appellant's wife also had power of attorney over appellant's businesses, which authorized her to sign checks and make payments on behalf of the businesses. (Jt. Stat., ¶ 19).
At all relevant times, LJC and J & R Materials were in the business of carting sand and gravel. (Jt. Stat., ¶¶ 5-6). A.N. Leasing was incorporated for the sole purpose of holding title to the trucks used by LJC and J & R Materials to cart sand and gravel. (Jt. Stat., ¶ 8). J & R Materials "customarily and regularly used the trucks [owned by A.N. Leasing] in its business," (Jt. Stat., ¶ 9), and its employees, who were "leased" from Island Leasing Services Inc. ("Island Leasing")[2], (Jt. Stat., ¶ 13), "customarily and regularly drove the trucks [owned by A.N. Leasing]," (Jt. Stat., ¶¶ 10, 15). In addition, at the direction of appellant, J & R Materials "customarily *57 and regularly paid the repair and maintenance bills for the trucks owned by A.N. Leasing." (Jt. Stat., ¶ 11).
LJC and J & R Materials purchased sand and gravel from Ranco. (Jt. Stat., ¶ 7), According to Ranco, during the period from September 20, 2003 through June 11, 2005, it delivered to LJC, at appellant's request, grit and concrete sand at the agreed upon price of four hundred thirty-nine thousand eight hundred twelve dollars and ninety-seven cents ($439,812.97). (Compl., ¶ 4). According to Ranco, appellant never paid any amount toward the total sum due and owing Ranco. (Compl., ¶ 6).
On or about April 28, 2005, appellant's wife refinanced the Dix Hills Property. (Jt. Stat., 121). On or about May 7, 2005, appellant's wife deposited the sum of one hundred twenty thousand one hundred thirty-three dollars and twenty-two cents ($120,133.22) ("the refinancе proceeds") into a Citibank account which she held jointly with appellant. (Jt. Stat., ¶ 22). From the refinance proceeds, appellant's wife paid a total of one hundred eleven thousand nine hundred eighty dollars and three cents ($111,980.03) to certain creditors of J & R Materials, including thirty thousand dollars ($30,000.00) to Ranco. (Jt. Stat., ¶ 23).
B. Procedural Background
On or about October 15, 2005 ("the commencement date"), appellant filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code in the United States Bankruptcy Court, Eastern District of New York, entitled In re: Nicholas F. Pisculli, Jr., no. 05-89678-mlc ("the bankruptcy proceeding"). Appellant listed Ranco in his Schedules as an unsecured creditor with a claim in the amount of four hundred thirty-nine thousand eight hundred twelve dollars and ninety-seven cents ($439,812.97).
On or about March 13, 2006, while the Chapter 13 petition was pending, appellant, as an officer of A.N. Leasing, sold the assets of A.N. Leasing, consisting of three (3) trucks and three (3) trailers, to All Service Funding for the sum of two hundred forty-seven thousand five hundred dollars ($247,500.00) ("the truck sale proceeds"). (Jt. Stat., ¶ 24). Seventy-six thousand one hundred eighty-nine dollars and nine cents ($76,189.09) of the truck sale proceeds were first used to satisfy all recorded liens against the trucks owed by A.N. Leasing. The balance of one hundred seventy-one thousand three hundred ten dollars and ninety-one cents ($171,310.91) of the truck sale proceeds was then transferred, at appellant's direction, to: (1) appellant's wife, who was not a creditor of A.N. Leasing and who used forty-eight thousand nine hundred sixty-one dollars and fifty-one cents ($48,961.51) of the truck sale proceeds to pay expenses of J & R Materials and the remainder of the eighty thousand dollars ($80,000.00) in truck sale proceeds to pаy personal living expenses, (Jt. Stat., ¶ 31); (2) Island Leasing, as payment for payroll and human resources obligations of J & R Materials; and (3) Suffolk Manufacturing Company, a company owned by appellant's brother-in-law, "for safekeeping." (Jt. Stat., ¶¶ 25-29).
On April 12, 2006, the bankruptcy proceeding was converted to a Chapter 7 proceeding and Robert Pryor was appointed Chapter 7 Trustee ("the trustee"). The fourteen thousand two hundred eighty-one dollars and nine cents ($14,281.09) from the truck sale proceeds that had been transferred to Suffolk Manufacturing Company were eventually turned over to the trustee. (Jt. Stat., ¶ 26).
*58 On or about August 1, 2006, Ranco commenced an adversary proceeding against appellant pursuant to, inter alia,
On January 13, 2009, a trial was held on the complaint, over which the Honorable Robert E. Grossman, United States Bankruptcy Judge, presided. By memorandum decision entered March 5, 2009 (the "memorandum decision"), Judge Grossman found, inter alia, that appellant's discharge should be denied pursuant to
On March 11, 2009, appellant filed a notice of appeal of Judge Grossman's March 5, 2009 decision.
II. DISCUSSION
A. Standard of Review
On an appeal from a bankruptcy court decision, a district court must review findings of fact under a "clearly erroneous" standard, with "due regard * * * given to the opportunity of the bankruptcy court to judge the credibility of the witnesses."
B. Section 727(a)(2)(B)
To prevail under
1. Property of the Estate
a. Property within the Meaning of Section 727(a)(2)
Appellant alleges that the truck sale proceeds were property of A.N. Leasing and that appellant merely had a derivative interest in those proceeds and, thus, the truck sale proceeds do not constitute "property of the debtor" within the meaning of
It was not clear error for the bankruptcy court to find that since appellant was the only person with any interest in A.N. Leasing after it liquidated all of its assets and effectively ceased to exist, he had a direct interest in the proсeeds from the sale of those corporate assets. See, e.g. In re Mosher,
Nonetheless, the bankruptcy court alternatively found that the truck sale proceeds were property of the bankruptcy estate because appellant's businesses, including A.N. Leasing, were merely alter egos of appellant himself sufficient to pierce the corporate veil. Appellant challenges this finding on the basis that "[p]roperty of a corporation, even where the Debtor is the sole shareholder, belongs to the corporation and not the debtor." In re Rodriguez, No. 05-19599, Adv. No. 06-01119,
Although
It is undisputed that appellant was the sole shareholder and owner of A.N. Leasing and that he operated his businesses from his residence. Appellant also effectivеly admits that he operated his businesses as a single business entity, (App.Brief, p. 15), thus establishing that he ignored corporate formalities. Appellant challenges, however, the bankruptcy court's finding that he treated all of his businesses as an extension of himself preventing creditors from reaching certain assets of those businesses sufficiently to pierce the corporate veil. (Memorandum Decision, p. 7 n. 3). However, the bankruptcy court found, inter alia, that in addition to the indicia of common ownership of the businesses, appellant "assigned portions of personal bills to be paid by the Businesses without any real basis for the amount assigned;" appellant's wife paid certain living expenses with money withdrawn from one of the businesses, paid debts of the businesses from her personal bank account and deposited income frоm the businesses into her own account; the truck sale proceeds were deposited into appellant's wife's personal bank account; a portion of the truck sale proceeds were used to pay personal expenses of appellant and his wife; and appellant believed that he was personally obligated for his businesses debts. (Id.). Moreover, appellant's wife testified that the truck sale proceeds were placed into her personal bank account in order to prevent attachment of those funds by creditors. In arguing that appellant was merely following his "historical [business] practice" of treating all of his businesses as a single entity by paying off the debt of J & R Materials from the truck sale proceeds, appellant conveniently ignores that a substantial рortion of the truck sale proceeds were also disbursed to his wife, who used a portion of those proceeds for personal expenses. Accordingly, the factual findings by the bankruptcy court are supported by the record and are not clearly erroneous.
Moreover, those factual findings support the bankruptcy court's legal conclusion that A.N. Leasing was merely an alter ego of appellant and, thus, its assets, and the proceeds from the sale of those assets, can be treated as assets of the bankruptcy estate. See, e.g. In re Mosher,
Since appellant had a direct interest in the assets of A.N. Leasing at the time the Chapter 13 proceeding was commenced, those assets became "property of thе estate" as of the commencement of the proceeding pursuant to Section 541(a)(1) of the Bankruptcy Code.
b. Applicability of Section 348(f)
Appellant contends that the bankruptcy judge misapprehended the law by finding that the truck sale proceeds were property of the estate because under Section 348(f) of the Bankruptcy Code,
Section 1306(a) of the Bankruptcy Code provides, in relevant part, that "property of the estate" in a Chapter 13 proceeding "includes, in addition to the property specified in
"when a case under chapter 13 of this title is converted to a case under another chapter under this title(A) property of the estate in the converted case shall consist of property of the estate, as of the date of filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion."
*63 In interpreting the Bankruptcy Code, courts must "look to the provisions of the whole law, and to its object and policy." In re Boodrow,
In enacting
"[i]f debtors must take the risk that property acquired during the course of an attempt at repayment will have to be liquidated for the benefit of creditors if a chapter 13 proves unavailing, the incentive to give chapter 13which must be voluntarya try would be greatly diminished. Conversely, when chapter 13 does prove unavailing, no reason of policy suggests itself why the creditors should not be put back in precisely the same position as they would have been had the debtor never sought to repay his debts * * *."
(internal quotations and citation omitted).
However,
"Furthermore, application of
Moreover, applying
In light of the above principles, the bankruptcy court correctly found that the truck sale proceeds were "property of the estate" within the meaning of
Moreover, although, as noted by appellant, Section 1303 of the Bankruptcy Code *66 vests the debtor with the exclusive right to use and control all property of the estate,
2. Intent to Defraud
Appellant contends that each of Judge Grossman's findings of a "badge of fraud" are "flatly incorrect," (App.Brief., p. 10), and that this issue is a mixed question оf law and fact subject to de novo review. According to appellant, each "badge of fraud," standing alone, merely raised a presumption of intent to defraud, which he rebutted by evidence demonstrating a lack of fraudulent intent.
"
"Since fraudulent intent is rarely subject to direct proof, [courts must] look to circumstantial `badges of fraud' to establish the requisite actual intent to defraud." In re Boyer,
"A sufficient showing of the presence of badges of fraud raises a presumption that a debtor's actions were done *67 with fraudulent intent." In re Arbaney,
A classic example of fraud is "[t]he transfer of property by the debtor to his spouse while insolvent, while retaining the use and enjoyment of the property." In re Kaiser
Further, "[a]dequacy of consideration is central to any discussion of a transfer of assets in derogation of the rights of a [debtor's] creditors." In re Arbaney,
However, the debtor may rebut that presumption by offering evidence sufficient to demonstrate "the absence of a fraudulent motive for his actions." In re Arbaney,
Contrary to appellant's contention, he did not present sufficient evidence to rebut the presumption of intent to defraud in this case. There is no evidence that appellant's creditors fared better as a result of the disbursement of truck sale proceeds to appellant's wife and Island Leasing. To the contrary, only J & R Materials, appellant's *68 wife and appellant benefitted from the disbursement. Although appellant contends that the disbursement of truck sale proceeds was made as part of a good faith effort to raise money to satisfy creditors' claims and to save a business, tellingly, the creditors whose claims were satisfied were not creditors of appellant, but of J & R Materials, and there was no business to save since all of A.N. Leasing's assets had been liquidated. Similarly, appellant's reliance on the holding in In re Bernier,
Moreover, contrary to appellant's contention that neither he nor his wife "benefitted financially from the transfer" of the truck sale proceeds, (App.Brief, p. 11), the evidence supports the bankruptcy court's finding that at least a portion of the truck sale proceeds were used to pay the personal expenses of appellant and/оr his wife. The fact that appellant is currently in financial straits does not nullify the benefit he and his wife received from the truck sale proceeds at the time of the transfer.
Upon de novo review of the entire record, with due deference given to the bankruptcy court's findings of fact based on its credibility assessments of witnesses, and consideration of the principle that "[a]n appellate court cannot substitute its interpretation of the evidence for that of the trial court simply because the reviewing court might give the facts another construction [and] resolve the ambiguities differently," In re Boyer,
III. CONCLUSION
For the foregoing reasons, the decision of the bankruptcy court is affirmed.
SO ORDERED.
NOTES
Notes
[1] The following facts are not in dispute, unless otherwise indicated.
[2] Island Leasing was a payroll and human resources company which billed J & R Materials for payroll services associated with the truck drivers it leased to J & R Materials. (Jt. Stat., ¶¶ 13-14).
[3] A related adversary proceeding was also commenced by T.S. Haulers, Inc., entitled T.S. Haulers. Inc. v. Pisculli, no. 806-8335-reg.
[4] Ranco withdrew its other two (2) causes of action prior to trial.
[5]
[6] Generally, property rights in the assets of a bankrupt's estate are determined by state law. Butner v. United States,
[7] Moreover, appellant states that "during the pendency of the Chapter 13 bankruptcy, [he] disposed of the Truck Sale Proceeds in the ordinary course, in keeping with the Chapter 13 standard that the debtor has the `exclusive right to use and control all property of the estate.'" (Brief for Defendant-Appellant [App. Brief], p. 8) (emphasis added).
[8] The legislative history states as follows:
"This amendment would clarify the [Bankruptcy] Code to resolve a split in the case of [sic] law about what property is in the bankruptcy estate when a debtor converts from chapter 13 to chapter 7. The problem arises because in chapter 13 (and chapter 12), аny property acquired after the petition becomes property of the estate, at least until confirmation of a plan. Some courts have held that if the case is converted, all of this after-acquired property becomes part of the estate in the converted chapter 7 case, even though the statutory provisions making it property of the estate does not apply to chapter 7. Other courts have held that the property of the estate in a converted case is the property the debtor had when the original chapter 13 petition was filed.
These latter courts have noted that to hold otherwise would create a serious disincentive to chapter 13 filings. For example, a debtor who had $10,000 equity in a home at the beginning of the case, in a State with a $10,000 homestead exemption, would have to be counseled concerning the risk that after he or she paid off a $10,000 second mortgage in the chapter 13 case, creating $10,000 in equity, there would be a risk that the home could be lost if the case were converted to chapter 7 (which can occur involuntarily). If all of the debtor's property at the time of conversion is property of the chapter 7 estate, the trustee would sell the home, to realize the $10,000 in equity for the unsecured creditors and the debtor would lose the home.
This amendment overrules the holding in cases such as Matter of Lybrook,