Jacoway v. Mathis (In Re Mathis)Jacoway v. Mathis (In Re Mathis)
MEMORANDUM OPINION
I.PROCEDURAL BACKGROUND
Pending before the Court is a complaint filed by Jill Jacoway, Trustee (the trustee or plaintiff), against Bobbie Gene Mathis (Mathis, the defendant, or debtor). The complaint, pursuant to 11 U.S.C. § 727(a)(2)(A), alleges that Mathis concealed or transferred property of the estate within one year prior to the filing of his chapter 7 bankruptcy with the intent to hinder or defraud creditors of the bankruptcy estate. The property that was allegedly concealed or transferred consisted of (1) real estate located in Springdale, Arkansas, (2) two cashier’s checks (one dated August 29, 1998, in the amount of $29,000.00, and one dated August 27, 1998, in the amount of $38,500.00), (3) a cash withdrawal on August 27, 1998, in the amount of $20,500.00, and (4) $30,000.00 of equipment and tools. The complaint further alleges that Mathis gave false oaths on his bankruptcy schedules and statement of financial affairs by failing to disclose the real estate transfer and the above cashier’s checks, cash, and equipment and tools in violation of 11 U.S.C. § 727(a)(4). Mathis filed an answer denying any false or fraudulent intent allegations. 1
An evidentiary hearing was held on May 26, 2000, and August 14, 2000. The Court took the matter under advisement and requested that the parties brief whether the entire transcripts of the debtor’s testimony at his first meeting of creditors were admissible.
II. JURISDICTION
Subject matter jurisdiction is conferred on this Court over the above styled adversary proceeding under 28 U.S.C. §§ 1334 and 157. The proceeding before the Court is a core proceeding as defined in 28 U.S.C. § 157(b)(2).
III. FINDINGS OF FACT AND CONCLUSIONS OF LAW AS TO THE TRANSFER OF REAL PROPERTY, CASHIER’S CHECKS, AND CASH
A. FINDINGS OF FACT
Mathis filed a chapter 7 bankruptcy on April 30, 1999. In the early part of 1998,
On August 26, 1998, Mathis entered into a contract of sale with Graham to purchase approximately two acres of commercial real estate, including all buildings located on the property, for $450,000.00. Bob’s Tires was located on this commercial property as were other commercial tenants. The contract terms provided that $5,000.00 earnest money was to be deposited with the seller and $45,000.00 in cash was to be paid by the buyer at closing. The balance of the $400,000.00 would be payable at a rate of 10% interest per annum with monthly payments beginning in September 2000 in the amount of $3,510.80 per month (which included interest) until paid in full. On August 26, 1998, Mathis signed an installment note in the amount of $400,000.00 payable to Tim and Beverly Graham, and Timothy G. and Beverly S. Graham executed a warranty deed in favor of Bob Mathis. Mathis also executed a mortgage in favor of the Grahams on the same date. The warranty deed and mortgage were filed for record in Washington County, Arkansas, on August 28,1998.
On August 21, 1998, Bob’s Tires purchased a cashier’s check (No. 37490) payable to Tim Graham in the amount of $29,000.00. On August 27, 1998, Bob Mathis withdrew $20,500.00 from his personal account at United Bank. Also on August 27, 1998, Bob’s Tires purchased a cashier’s check (No. 37496) payable to Springdale Bank & Trust in the amount of $33,500.00.
Graham testified that his occupation is that of an investor and that he has real estate interests. Bob’s Tires was located on his property at Huntsville Road and Old Missouri Road, Springdale, Arkansas. He testified that he sold the real estate and commercial buildings to Graham on August 26, 1998, and they delayed the closing until September 1998. The purchase price was $450,000.00. The property had been appraised at $475,000.00. Mathis paid $5,000.00 in earnest money to Graham and gave him a cashier’s check for $29,000.00, which was $16,000.00 less than the $50,000.00 to be paid at closing. Graham testified the commercial property had several tenants who paid rent on a monthly basis. Under the contract of sale, the tenants were to pay their monthly rent to Mathis. Graham testified that he received the following payments from Mathis in addition to the $34,000.00 as set out above:
9/11/98 2 checks $ 900.00
9/11/98 check $2,700.00
10/15/98 check $ 950.00
11/09/98 check $ 400.00
11/09/98 check $ 450.00
11/09/98 check $ 250.00
12/10/98 check $ 400.00
12/10/98 check $ 450.00
12/10/98 cash $ 500.00
Mathis paid Graham a total of $41,010.00. Graham testified that some of the above payments were checks from tenants to Mathis that Mathis endorsed and gave to Graham. 2 Graham testified that on December 10, 1998, Graham met with Mathis, and Mathis told him that he would not be able to make the monthly payments. Mathis agreed to execute a warranty deed to Graham at the time. Graham testified that the payments made by Mathis were not enough to reduce the principal amount of the $400,000.00 note. On December 31, 1998, Bob and Bobbie Mathis executed a warranty deed in favor of Timothy G. and Beverly S. Graham, whiсh was filed for record on January 6, 1999, in Washington County, Arkansas.
Jason Godsey testified that about a week before August 27, 1998, Mathis approached him and told him he was closing a property sale on August 27, 1998, and needed a loan for $35,000.00 for closing costs over the weekend. Mathis told him he would pay it back on the following Monday. Godsey told Mathis he did not have the money. Mathis then told him the check did not have to be good, that he wоuld float it over the weekend and he would get money from his IRA account and repay Godsey $35,500.00. Godsey testified that, in his ignorance, he wrote the check to Mathis, and Mathis wrote a return check to Godsey. When Godsey deposited Mathis’s check, it bounced and Springdale Bank & Trust called him. Mathis then gave him a cashier’s check from the bank for $33,500.00, and $2,000.00 in cash to repay the loan of $35,000.00. The extra $500.00 was for floating his check.
Mathis testified that in December 1998, he could not make the monthly payments on the property so he agreed to deed the property back to Graham. He further agreed that Graham was entitled to keep the money Mathis had paid on the property. Mathis said he did not want the costs of litigation and foreclosure. Mathis admitted he had a friend forge his wife’s signature on the December 31, 1998, warranty deed and had this signature notarized. He stated he did nоt want to get his wife involved.
Mathis also testified that he had an IRA account when he worked for Wal-Mart; that he withdrew $28,000.00 from that account on January 8, 1998, in the form of cashier’s check No. 38941; and, on the same date, he deposited the $28,000.00 into savings account No. 5308 in his name at United Bank. The Court received into evidence a copy of savings account No. 5308 statement from 9/30/98 to 11/01/98 in the name of Bobbie G. Mathis, which reflected a balance of $28,562.76. Mathis testified that he withdrew this money to pay the operational expenses of Bob’s Tires. The Court also received into evidence a copy of the Mathises’ 1998 tax returns, which reflect business income of $66,787.00 and distributions from IRA accounts of $42,366.00.
The Court received into evidence a copy of the debtor’s schedules and Statement of Financial Affairs filed April 30, 1999. Schedule “A,” Real Property, reflects 1 acre of land with a fair mаrket value of $7,000.00. Schedule “F,” Creditors Holding Unsecured Non-Priority Claims, lists Tim and Beverly Graham, 2468 N. 56th Street, Springdale, AR 71762, as creditors for a 1997 business loan for business property. It states the amount of the claim is $1.00, and is contingent, unliquidated, and disputed.
The following questions and answers are reflected on the debtor’s Statement of Financial Affairs:
Item 5 Repossessions, foreclosures and returns
List all property that has been repossessed by a creditor, sold at a foreclosure sale, transferred through a deed in lieu of foreclosure or returned to the seller, within one year immediately preceding the commencement of this case.
Answer-None.
Item 10 Other Transfers
List all other property, other than property transferred in the ordinary course of the business or financial affairs of the debtor, transferred either absolutely or as security within one year immediately preceding the commencement of this case.
Answer-None.
The Statement of Financial Affаirs contained the following statement above the debtor’s signature: “I declare under penalty of perjury that I have read the answers contained in the foregoing statement of financial affairs and an attachment thereto and that they are true and correct.” Mathis admitted that he signed the Statement of Financial Affairs and gave the information contained in the statement to Mark Denniston, his attorney, who had the information typed in final form. The debt- or testified that because of his limited formal education he could not read well and his wife read for him.
Jill Jacoway testified she was appointed as the Chapter 7 Trustee in the debtor’s case and reviewed the petition, schedules, and Statement of Financial Affairs. Those documents failed to disclose the real estate purchase of $450,000.00 from Graham; the cashier’s check dated August 21, 1998, in the amount of $29,000.00 payable to Tim Graham; the cashier’s check dated August 27, 1998, in the amount of $33,500.00 payable to Springdale Bank & Trust; and the withdrawal by Mathis from his checking account on August 27, 1998, in the amount of $20,500.00. The Trustee further testified that her administrative assistant found out about the transfer of property from Graham to Mathis that occurred on August 26, 1998, and the retransfer of property from Mathis to Graham that occurred on December 31, 1998, by viewing deeds of real estate conveyances on a daily basis on the Internet.
Linda Parnell testified that she is a real estate agent, manages commercial and residential properties, and occasionally is employed by chapter 7 trustees in bankruptcy cases to perform bookkeeping tasks and review debtors’ records. She was hired by the plaintiff to review the records turned over by Mathis. She testified that as a real estate agent she views conveyances of real estate by deeds daily on the Internet. She discovered the August 26, 1998, conveyance by Graham to Mathis and the December 31, 1998, conveyance by Mathis to Graham in this manner.
Mark Denniston testified that he represented Mathis in his bankruptcy case, but not in the pending adversary proceeding. Denniston testified that Mathis told him he had a lawsuit pending against him and decided to file bankruptcy.
4
Mathis came to Denniston’s office and Denniston gave him a set of forms to fill out after first explaining the forms to him (at the time, he did not know Mathis could not read). He told Mathis to take the forms home, fill them out, and bring them back. Denni-ston further testified that the information in the bankruptcy forms reflected Mathis had a business named Bob’s Tires, and he thought Mathis was renting the building. When discussing this with Mathis, Denni-ston was under the impression he was voluntarily returning Bob’s Tires business to Graham. He also believed Mathis had an option tо purchase the business from Tim Graham. Mathis did not tell him that he had purchased the real property and a commercial building from Graham for $450,000.00, nor that they had a contract of sale and that warranty deeds had been conveyed and a mortgage executed. Because Denniston thought that Graham had given Mathis only an option to purchase, and Mathis was not going to exercise the
Bobbie Jean Mathis testified that she did not have anything to do with the real estate transaction with Graham. She testified her husband could not read and had a bad memory. She went to Denniston’s office with her husband and, later, read the papers to her husband, wrote down what he told her, and gave the papers back to attorney Denniston. Bobbie Jean Mathis testified that she did not have anything to do with the real estate transaction with Graham. She testified her husband could not read and had a bad memory. She went to Denniston’s office with her husband and, later, read the papers to her husband, wrote down what he told her, and gave the papers back to attorney Denniston.
B. CONCLUSIONS OF LAW B. CONCLUSIONS OF LAW
1. 11 U.S.C. § 727(a)(2)(A) 1. 11 U.S.C. § 727(a)(2)(A)
11 U.S.C. § 727(a)(2)(A) states: 11 U.S.C. § 727(a)(2)(A) states:
(a) The court shall grant the debtor a discharge, unless— (a) The court shall grant the debtor a discharge, unless—
(2) the debtor, with the intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed— (2)the debtor, with the intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, 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; (A) property of the debtor, within one year befоre the date of the filing of the petition;
The burden of proof is upon the objecting party to prove all elements of the statute setting forth the grounds for denying discharge.
See Ray v. Graham (In re Graham),
To meet their burden of proof under § 727(a)(2)(A), the objecting party must show:
(1) a transfer of property occurred;
(2) the property was property of the debtor;
(3) the transfer occurred within one year of the filing of the petition; and
(4) the debtor had, at the time of the transfer, intent to hinder, delay, or defraud a creditor.
The element of intent to deceive involves a two-part inquiry. First, the debtor’s actual intent must be found as a matter of fact from the evidence presented. “Constructive intent cannot be the basis for the denial of a discharge....”
Lovell v. Mixon,
In order to determine whether fraud has occurred (because fraud is rarely
These factors are whether,
(1) the transfer or obligation was to an insider;
(2) the debtor retained possession or control of the property transferred after the transfer;
(3) the transfer or obligation was disclosed or concealed;
(4) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
(5) the transfer was of substantially all of the debtor’s assets;
(6) the debtor absconded;
(7) the debtor removed or concealed assets;
(8) 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;
(9) the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
(10) the transfer occurred shortly before or shortly after a substantial debt was incurred; and
(11) the debtor transferred the essential assets of the business to a lienor who transferred the assets to an 'insider of the debtor.
Ann. § 4-59-204(b)(1)-(11) (1996);
see also Brown v. Third Nat'l Bank (In re Sherman
),
All of the above factors do not have to be met in order to find fraud.
See Sherman,
The plaintiff has met her burden of proof required under 11 U.S.C. § 727(a)(2)(A) as to the following elements. First, a transfer of property occurred: on August 26, 1998, the debtor bought the subject proрerty from Graham, and on December 31, 1998, the debtor transferred the subject property back to Graham. Second, the subject property that the debt- or transferred to Graham on December 31, 1998, was owned by the debtor at the date of transfer. Third, the debtor filed a voluntary Chapter 7 bankruptcy case on April 30, 1999, and the transfer in question took place on December 31, 1998 — within the one year statute of limitations.
The fourth element of proof requires that the debtor have, at the time of the transfer, an intent to hinder, delay, or defraud a creditor. While the circumstances surrounding the transfers are suspect, the Court is persuaded that the evidence fails to establish by a preponderance of the evidence that the debtor made the transfers of the subject property, and the payments to Graham prior to the transfer, with a fraudulent intent to defraud a creditor or the debtor’s estate.
any other business. Second, based on the In making this determination, the Court considered the “badges of fraud” identified under Arkansas law. First, the transfer was not to an insider. The evidence establishes that the transfer was to Graham, who is not a family relative, a business partner, or connected with the debtor in evidence, the Court is convinced the contract of sale on August 26, 1998, between the debtor and Graham was legitimate and there was no side deal between the parties to transfer the property back to Graham at a later date. Third, the evidence does not establish that the debtor retained possession or control of the property transferred after the transfer. Fourth, the December
Even though the debtor has only a sixth grade education and is limited as to his reading skills, he is street smart and intelligent. While approximately $41,000.00 in payments over a four month period on a $450,000.00 purchase price seems to be more than substantial, there is no question the debtor was in default under the terms of the contract. Mr. Graham drove a hard bargain in favor of himself. The Court can not conclude, based on the evidence, that the sale of the property by Graham to Mathis, and the subsequent transfer of property back to Graham by Mathis four months later, was fraudulent. Neither can the Court conclude, based on the evidence, that the payments made by Mathis to Graham on the Bob’s Tires sale were fraudulent transfers without consideration given. The Court will enter an order dismissing these § 727(a)(2)(A) allegations.
2. 11 U.S.C. § 727(a)(4)
11 U.S.C. § 727(a)(4)(a) states:
(a) The court shall grant the debtor a discharge, unless—
(4) the debtor knowingly and fraudulently, in or in connection with the case—
(A) made a false oath or account;
Again, the burden of proof is upon the objecting party to prove all elements of the statute setting forth the grounds for denying discharge.
See Graham,
To meet their burden of proof under § 727(a)(4), the objecting party must show:
(1) the debtor made a statement under oath;
(2) the statement was false;
(3) the debtor knew the statement was false;
(4) the debtor made the statement with fraudulent intent; and
(5) the statement related materially to the bankruрtcy case.
Oldendorf v. Buckman,
In order for a “false oath or account to bar a discharge, the false statement must be ‘material.’ ”
Mertz v. Rott,
The “statement must be known by the debtor to be false [or omission is known] and be made [or not made] with an intent to defraud.”
Smith,
The complaint alleges that the defendant made a false oath in violation of § 727(a)(4) by knowingly and fraudulently omitting on his Statement of Financial Affairs transfers of property — specifically, the payments made to Grahаm, and the deeding of real estate on December 31, 1998, to Graham. A failure to disclose information that is material to the administration of the bankruptcy estate has been held as a basis for a false oath in violation of § 727(a)(4).
See Cepelak v. Sears (In re Sears
),
Based on the evidence, this Court is convinced that the debtor willfully and deliberately omitted the transfer of his (and his wife’s) ownership of real estate to Graham by way of a warranty deed dated December 31, 1998, from his Statement of Financial Affairs to conceal the circumstances surrounding the transfer from the chapter 7 trustee. The transfer involving the subject property, which had been sold by Graham to the debtor for $450,000.00, and then conveyed back by the debtor to Graham approximately four months later, and the payments made on the subject property, are material matters to the administration of the bankruptcy estate. These trаnsfers are matters that would put the trustee on notice to investigate for possible fraudulent conveyances or preferential transfers, and are required not only to be disclosed, but to be adequately disclosed so the trustee will be able to identify the nature of the transfer.
Item 5 of the Statement of Financial Affairs requires that the debtor disclose property that has been transferred through a deed in lieu of foreclosure. The debtor marked “none” as his answer to this inquiry, which he signed under penalty of perjury. The Court credits the debt- or’s attorney, Mark Denniston’s, testimony that Mathis came to Denniston’s office and Denniston gave him a set of bankruptcy forms to fill out after explaining the forms to Mathis. He testified that Mathis gave him the impression that Mathis had a business named Bob’s Tires and was renting the building from Graham, with an option to purchase the building. Mathis did not tell Denniston he had a written сontract to purchase the real estate from Graham for $450,000.00, had given Graham a note and mortgage and Graham had deeded the property to Mathis, or that Mathis had deeded the property back to Graham. Mathis told Denniston the transfer was a hand shake deal. Denniston further testified that because Mathis told him that he was not going to exercise his option to purchase the property, Denniston did not list the transaction under Item 5 of the Statement of Financial Affairs, and, instead, thought the transaction should be listed under Schedule “F,” Unsecured Non-priority Claims, as a disputed $1.00 claim.
The information the debtor gave his attorney about the real estate transfers in issue was materially false and constituted a wilful concealment of the true facts by the debtor. It is clear that the debtor did not make an honest and full disclosure of the August 26, 1998, contract of sale, or
Counsel for the debtor argued there was no intent to defraud a creditor by failing to disclose the subject transfer because the debtor did not gain anything from the transаction. What the debtor knowingly did in this case, with the intent to conceal from the trustee, was to fail to tell his attorney that he had ownership and title to a $450,000.00 real estate parcel, and that he transferred it to Graham in a matter of months before filing his bankruptcy petition. The trustee testified, and her testimony is creditable, that she learned about the debtor’s transfer of the subject property to Graham from Linda Parnell, who had run a deed search on the Internet. “The petition, including schedules and statements, must be accurate and rehable, without the necessity of digging out and conducting independent examinations to get the facts.”
Mertz,
IV. FINDINGS OF FACT AND CONCLUSIONS OF LAW AS TO THE FAILURE TO DISCLOSE, OR CONCEALMENT OF, EQUIPMENT AND TOOLS OF BOB’S TIRES
A. FINDINGS OF FACT
Sometime in early 1998, the debtor purchased Bob’s Tires, a small retail tire store and repair shop. The debtor testified that the sale price of $20,000.00 was for the equipment located at the business. The equipment was used at the time he bought it. He testified, based on his recollection, that he purchased the following equipment, tools, and inventory: two office desks, a calculator, phone, five tire balancing machines, a tire changing machine, four tire racks, two air compressors, two generators, a tire spreading machine, two sets of aluminum wheels, and new and used tires. 5
On July 17, 1998, Stamps prepared a Commercial Personal Property Assessment Form, 1998. He listed inventory, with a purchase price of $400.00; furniture/fixtures consisting of two desks, one compaсt refrigerator, sofa, phone, and adding machine, with a combined purchase price of $135.00; and machinery/equipment consisting of shop equipment (automotive tools), with a purchase price of $80,000.00. On the assessment form, Bob Mathis was listed as the owner of a tire business called Bob’s Tires. The following statement is contained on the form, with signatures:
I hereby swear or affirm that this is a true and complete list of all the personal property that, by law, I am required to list for taxation, and that the values rendered are true and accurate to the best of my knowledge.
Signed by Bob Mathis, as Owner on July 17, 1998. “Sworn before and subscribed to before me this day.” Signed by Terry Stamps as Assessor, Deputy or Notary.
The debtor testified that the values he placed on the personal property assessment were determined by either what he paid for the property or the value he deсided to place on the property. He testified that he purchased the shop equipment consisting of automotive tools for $20,000.00. He said that he over-valued the personal property at the time of filling out the assessment form, and that he must have been acting like a “big shot.” He further testified that the equipment and tools were stolen on several occasions while he was in business. This personal property was not insured. He did not report the thefts to the police because he suspected that his son may have stolen the property, and he did not want the police to investigate the thefts because it would have to involve his son. He also said he did not disclose the thefts on his bankruptcy schedules for the same reason.
The Court also received the following documents into evidence:
1. Schedule “B” of the debtor’s voluntary petition, which reflеcts, in part, the following information:
(27) Machines, fixtures, equipment, supplies: tire balancing machine 4,000.00
(28) Inventory: Tires & Tire Racks (left over from business) (3 racks @ $50 each, 6 mise, tires @ $300) 450.00
(33) Other personal property of any kind not already listed. Itemize: Tools (hand tools and small power tools for keeping up trucks and business) 150.00
2. A list of the “inventory of shop as of 9/30/98”:
New Tires Remington Maximum: 4,095.32
Dayton: 197.92
Firestone: 240.60
Total: 4.533.84
Used Tires Total: 3,000.00
Grand Total: 7.533.84
3. The Statement of Financial Affairs Item 8, which reflects the following: Losses-None.
The debtor admitted his signature on the Statement of Financial Affairs was under penalty of perjury.
4. A letter dated September 8, 1999, from the debtor’s attorney to the trustee that The Debtor is agreeable to turning over the following at your convenience:
(Estimated Value)
Tire balancing machine JO O O
Tires and tire racks tO CD
Tryke molds Ü1 O O
Tools M CD O
The trustee testified that she employed Cecil Phillips to auction the non-exempted personal property of the debtor. Cecil Phillips was employed by the trustee to auction the non-exempted personal property of the debtor. He testifiеd that he made four visits to the Mathis home, and had a list of the personal property Mathis had put on his bankruptcy schedules. He was asked by the trustee to do an appraisal on the personal property owned by Mathis. When Phillips went into the Mathis residence, Mathis told him the furniture belonged to his wife. Mathis took Phillips to the storage shed behind the house, and then to the shop building. Phillips observed numerous items of personal property, including tires, two tire balancing machines, lawn mowers, tire racks, a double wide trailer, and a small amount of power tools and wheels. Over the course of four visits to the Mathis property, Phillips picked up those items for later auction. Mathis testified that Phillips did not require him to turn over the hand tools valued at $150.00 that Mathis claimed as exempted.
The Court received into evidence the “Final Settlement” statement by auctioneer Cecil Phillips, dated October 10, 1999, reflecting the sale of the personal property items turned over by Mathis. The items that were sold, and the proceeds from the sale, are as follows:
Flatbed Trailer 4500.00 Tire Racks 15.00
Mower 300.00 Gate 55.00
Panel 45.00 Panel 27.50
Wire Panel 12.50 Frame 25.00
Gate 30.00 Panel Gate 120.00
Panel 65.00 Trailer 2300.00
Dual wheels 100.00 Wheels 10.00
Tires 17.50 Tires 35.00
Tires 5.00 Tires 30.00
Tires 7.50 Tire Balancer 700.00
Set Tires 100.00 Tires 45.00
Total 8600.00
B. CONCLUSIONS OF LAW
1. 11 U.S.C. § 727(a)(2)(A)
The complaint alleges that the debtor, on or about July 21, 1998, assessed his personal property (automotive tools) at $30,000.00, and later concealed or transferred these tools with an intent to defraud a creditor in that the debtor did not disclose the existence or whereabouts of these tools on his bankruptcy petition or schedules. The Court adopts its statement of law as set forth in this opinion III. B. 1., located at page 10 of this opinion.
The language contained in plaintiffs complaint asserting a violation of § 727(a)(2)(A) is couched in terms of asserting a violation of § 727(a)(4), a false oath — the debtor did not disclose the existence or whereabouts of these tools on his bankruptcy petition or schedules. At best, the language seeks to allege a concealment of automotive tools at the time of the filing of the petition and schedules. The eviden-tiary problem is that there is a
failure to identify
what automotive tools were concealed by the debtor. The plaintiff assumes that because the debtor listed automotive tools having a purchase price and assessed value of $30,000.00 on his 1998
On a related matter, the debtor’s Schedule “B”, Inventory of Shop, dated September 30, 1998, reflects the value of new and used tires at $7533.84. The auction sale final settlement reflects sales of tires in the amount of $277.50, indicating a substantial reduction in tire inventory. However, the evidence does not establish if these tires were sold in the ordinary course of business, or stolen or transferred without consideration. The auction sale final settlement also reflects that a tire balancing machine that was originally vаlued at $4000.00 on the debtor’s schedules, and $2000.00 on his amended schedules, sold for only $700.00 at the auction. Most of the remaining items the debtor identified at the start of his business were sold at the auction as reflected by the final settlement statement of the auctioneer.
While this Court does not believe, nor does it credit, the debtor’s testimony that the automotive inventory and tools were depleted by reason of two thefts of inventory, without proof as to the identity of the inventory in the first instance, the evidence is insufficient to identify what automotive inventory and tools were either concealed or transferred within one year of the bankruptcy in violation of § 727(a)(2)(A). This Court would have found a violation of § 727(a)(5) if the cause of action had been timely alleged in the complaint because the debtor failed to explain satisfactorily the demise of his automotive tools аnd tire inventory. However, the Court cannot sustain a violation of § 727(a)(2)(A) in this instance because the preponderance of the evidence fails to identify sufficiently the assets the plaintiff alleges were concealed by the debtor. The Court will enter an order dismissing this § 727(a)(2)(A) allegation.
2. 11 U.S.C. § 727(a)(4)
The plaintiff asserts the following allegations in support of her § 727(a)(4) false oath violation:
COUNT III-MAKING A FALSE OATH
24. The Debtor signed his original and amended bankruptcy petition and schedules under oath.
25. That the Debtor asserted that all statements contained "within said petition and schedules were true and correct.
26. That the Debtor knowing concealed transfers of substantial amounts of property and sums of money from the Trustee by failing to disclose the transfers upon the petition.
27. The Debtor knowingly and fraudulently failed to report the transfers of the property upon his bankruptcy petition and schedules.
28. The Debtor’s discharge should be denied because of the Debtor’s knowing and fraudulent failure to reveal the occurrence of the transfers of property and the existence of property that qualifies as property of the estate.
The Court concludes that the plaintiff has failed to establish by a preponderance of the evidence that the debtor gave a false oath on his bankruptcy petition and schedules as to the automotive
The Court adopts and incorporates its statements of law found in III. B. 2., located at pages 14 and 15 of this opinion. The plaintiff failed to identify at trial what automotive tools the plaintiff alleged false statements were made, or the debtor failed to disclose, on the debtor’s schedules. The debtor disclosed on his schedules a tire balancing machine, tire racks, tires, hand tools, and, on his amended schedules, a detailed inventory of new and used tires valued at $7533.54. The debtor turned over to the trustee trailers, which sold for $4500.00 and $2300.00; a tire balancing machine, which sold for $700.00; and numerous items of inventory and personal property including tirеs, tire rack, wheels, tire balancing machine, and other items, which sold for $8600.00.
The trustee, in her pre-trial brief, asserted that the debtor gave a false oath by not disclosing that there had been thefts of automotive tools or personal property until the first meeting of creditors. The debtor failed to disclose these thefts on his Statement of Financial Affairs under losses. Even assuming the thefts occurred (and the Court does not), and the debtor did not report the theft on his Statement of Financial Affairs, the proof in the record is void as to the identity of the missing automotive tools and personal property. Furthermore, there is no proof as to the value of the missing automotive tools or personal property. Without value, the Court cannot establish whether the debtor made a false oath, and whether that false oath was, in fact, a material false oath.
See Mertz,
Again, thе trustee premises a violation of § 727(a)(4) on the demise of the value of the debtor’s automotive tools without establishing proof as to the identity of the assets the debtor failed to disclose on his petition, schedules, and Statement of Financial Affairs constituting false oaths. The Court will enter an order dismissing this § 727(a)(4) allegation. 6
Notes
. Several days before the start of the hearing, the plaintiff filed a motion to amend her complaint to add an 11 U.S.C. § 727(a)(5) allegation to the facts asserted in her original complaint. Just before the start of the hearing, the defendant filed a Motion in Limine to strike the proposed amended complaint. The Court heard the Motion in Limine prior to the hearing on May 26, 2000, and ruled that the plaintiff would be permitted to amend the complaint to add § 727(a)(5) because no new factual causes of action were being asserted. However, the Court also ruled that because the motion to amend the complaint was filed shortly before the hearing, the defendant did not have adequate notice to prepare. The Court indicated it would continue the hearing to give the defendant a reasonable time to prepare a defense to the § 727(a)(5) allegation. At that juncture, the Court gave the plaintiff the option of withdrawing her motion to amend the complaint and proceed with the hearing, or have the Court grant the defendant a continuance to prepare a defense. The plaintiff elected to withdraw her § 727(a)(5) allegation and proceed with the hearing as to the § 727(a)(2)(A) and (a)(4) allegations contained in the original complaint.
. Mathis testified that after the contract of August 26, 1998, the tenants continued to pay their monthly rental checks to Graham. The Court credits Graham’s testimоny as to the payments he received from Mathis.
. Cashier’s check No. 37496 dated August 27, 1998, remittor Bob's Tires, in the amount of $33,500.00 and payable to Springdale Bank and Trust, was deposited to the account of Jason Godsey on August 27, 1998 (Joint Exhibit No. 1).
. The debtor’s Statement of Financial Affairs Item 4 reflects two law suits were listed at the time the debtors filed bankruptcy: (1) Chris Eubanks v. Bob Mathis d/b/a Bob's Tires, CIV 98-1325, Washington County Circuit Court; (2) Nola Kettle v. Bob Mathis d/b/a Bob’s Tires, CIV 99-60-1, Cleburne County Circuit Court.
. The debtor had no written inventory of the equipment, tools, and tires at the date of purchase.
. The Court rules that the entire tapes or transcript of the debtor's testimony given at his first meeting of creditors is not admissible. The plaintiff has failed to establish that the entire testimony of the debtor is relevant, or that the testimony consists of inconsistent statements or admissions against interests.
While the first meeting tapes or transcript may contain inconsistent statements with the debtor’s testimony at the hearing, the credibility of the debtor has been amply determined by this Court in this opinion.