Jenzack Partners, LLC v. GillisJenzack Partners, LLC v. Gillis
I. Introduction
In the only remaining count of a four-count amended complaint (ECF# 34), the plaintiff, Jenzack Partners, LLC, seeks judgment against the defendant, Stephen J. Gillis, the debtor in the main case, denying his discharge pursuant to
II. Procedural History
Jenzack’s amended complaint contains four counts seeking denial of Mr. Gillis’s discharge. On November 8, 2017, I dismissed counts I (failure to keep or preserve books and records-
III. Findings of Fact
In the parties’ joint pretrial memorandum, they agree on certain underlying facts. Mr. Gillis, a home builder, organized EcoStar Homes, LLC (“EcoStar”) on or about February 12, 2010. The Sullivans purchased the Ipswich property on or about September 30, 2013. Jenzack is the holder of a judgment against Mr. Gillis dated October 7, 2013, issued by the Essex County Superior Court in the amount of $225,000.00, plus interest and fees. On or about December 17, 2013, the Superior Court issued an execution on the judgment against Mr. Gillis in the amount of $309,197.83. On or about January 14, 2015, pursuant to an order of the Superior Court dated August 26, 2014, Mr. Gillis transferred all of his right, title and interest in the capital stock of one of his companies, Gillis Homes, Inc., to Jenzack. At the time Mr. Gillis filed his chapter 7 petition on June 14, 2016, he was an employee of EcoTech Construction, Inc. [JPTM at ¶ J]. The facts that could not be agreed to were presented at trial. After carefully considering the evidence, I make the following findings.
Mr. Gillis and His Companies
Mr. Gillis completed high school and one year of college. He has worked in the home building industry for over 40 years, during which time he formed a number of business entities including EcoStar and Gillis Homes, Inc. Mr. Gillis was the president and owner of Gillis Homes which he started in 2000 to build custom homes. The company built over 100 homes. It ceased building homes in 2008 but otherwise continued to operate. Mr. Gillis formed EcoStar, of which he was the manager and a 99% owner, in 2010 for the purpose of constructing single family homes using “green technology.” Mr. Gillis is also a licensed real estate broker and performed brokerage services through Gillis Homes.
The Sullivans
Mr. Gillis along with Louis Caputo, Mr. Gillis’s accountant, and the Sullivans were longtime friends. Mr. Gillis testified that he was involved in the Labor in Vain project from its inception, having identified the parcel for the Sullivans in 2013. Mr. Gillis acted as their real estate agent through Gillis Homes, which received a commission, when they purchased the property in September of 2013 for over $1 million. Mr. Gillis testified that apart from acting as a real estate brokerage, Gillis Homes had nothing to do with the Labor in Vain project.
Mr. Gillis traveled to Florida to meet with the Sullivans before the start of the Labor in Vain project to view the Sullivans’ Florida home which they wanted to replicate in Ipswich. He also had other meetings and communications with them about the project, which he described as preliminary. He testified at trial that he had not built other multi-million dollar homes prior to the Labor in Vain project. He added that he considered the project to be a legacy home that he could be proud of for the rest of his life.
Jenzack deposed Mr. Sullivan in 2017.2 Mr. Sullivan testified that sometime between September 2013 and January of 2014, he and his wife decided to hire Mr. Gillis as their builder. When asked at the deposition whether he was employing Mr. Gillis in his individual capacity or through one of his businesses, Mr. Sullivan replied “I was employing Steve.” He explained at trial that he assumed that Mr. Gillis had a business entity but that he “didn’t pay much attention to it.” At the deposition, Mr. Sullivan testified that although he had heard of Gillis Homes, he did not recall EcoStar. According to Mr. Sullivan, Mr. Gillis advised the Sullivans during the due diligence phase of the project about the adjacent conservation land and what could be done with the size of the lot’s footprint. Demolition of the existing house on the property was eventually completed in January of 2014.
The Due Diligence Phase of the Project and EcoStar
Mr. Gillis testified that in 2014, EcoStar advised the Sullivans during the due diligence phase of the project in order to determine whether they could build a house on the property. EcoStar worked with site engineers to develop the house plans. He testified that he, through EcoStar, performed these services in the range of 5-8 hours per week but never invoiced the Sullivans for the work and that neither he nor EcoStar ever sought or received payment for the services from the Sullivans, although EcoStar aggregated invoices from other vendors who had performed work on the project for the Sullivans to pay. When asked why EcoStar provided services without payment, he testified that it was a common practice not to seek payment during this “audition period.”
End of Due Diligence Phase
Mr. Gillis testified that the due diligence process with respect to the Labor in Vain project concluded toward the end of 2014 and that the foundation for the new house
The Project and EcoTech
Mr. Gillis testified that Mr. Caputo, his accountant, was familiar with his precarious financial situation and that the two discussed the Labor in Vain project in late 2014. According to Mr. Gillis, Mr. Caputo formed EcoTech and offered him a job as its construction manager to build the Labor in Vain house. This appealed to Mr. Gillis, he testified, because it allowed him to do what he did best. Mr. Gillis testified that EcoTech was formed on November 4, 2014, a date after Jenzack obtained the execution against Mr. Gillis and was trying to obtain the stock of Gillis Homes. He added that it was not he, but Mr. Caputo, who formed EcoTech and that he had no financial interest in the company.
Mr. Gillis testified that he worked for EcoTech “from the beginning” and, in connection with his work he managed sub-contractors on the Labor in Vain project and received invoices from vendors which he then aggregated for invoicing to the Sullivans. He testified that he and Mr. Caputo hoped that the Labor in Vain project would be a stepping-stone for EcoTech’s future projects, and that the Sullivans indicated to him that they would be amenable to showing the house to other EcoTech clients.
Mr. Sullivan testified that in 2014, he had discussions with Mr. Caputo about the formation of a new entity for which Mr. Gillis would be a builder, although he did not know the details of the arrangement. Following those discussions, he testified, EcoTech began handling the business aspects of the project including aggregating the invoices. He added that, as the project progressed, most of his conversations about costs were with Mr. Caputo. Mr. Sullivan further testified that the project construction manager would receive a fee equal to 10% of the total cost of the project which he discussed with Mr. Gillis. When asked who would receive the 10% construction management fee, Mr. Sullivan testified “I don’t know that I ever really thought about it. [Mr. Gillis] was building the house for me . . .” and he did not know what arrangement Mr. Gillis otherwise had. No evidence was introduced that the construction management fee was ever paid or to whom it was paid.
Communications Between Mr. Gillis and Timothy Tanner
Attorney Timothy Tanner represented the Sullivans in connection with the purchase of the property, and he drafted a construction services agreement for the new home starting in September of 2014, prior to the formation of EcoTech, although the contract was never finalized, as discussed further below.
Mr. Tanner emailed Mr. Gillis on November 28, 2014, sending him an initial draft construction services agreement for the Labor in Vain project for his review, which named “Gillis Homes and/or Steven Gillis” as the construction manager, and Mr. Gillis testified at trial that he recalled seeing the email. On November 29, 2014,
Mr. Tanner testified that the name of the construction manager on the draft agreement changed at some point when Mr. Gillis gave him an EcoStar business card and asked him to change the name to EcoStar, and Mr. Tanner made the change. He testified that the last draft of the construction services agreement in early 2015 was changed again to reflect the name of EcoTech as the construction manager. So, in various drafts of the construction contract, the name of the construction manager was alternatively “Gillis Homes and/or Steven Gillis” “EcoStar,” or “EcoTech.” Mr. Tanner testified that he primarily dealt with Mr. Gillis as the builder on substantive issues and that he had no substantive discussions about the contract other than with Mr. Gillis. He later clarified that the nature of the communications concerned the technical details about the construction job.
Mr. Sullivan emailed Mr. Gillis on December 14, 2014, requesting that Mr. Gillis and Mr. Tanner come to an agreement on the construction contract, to which Mr. Gillis replied the following day “Have message into Tim [Tanner], we will get it done.” On January 13, 2015, Mr. Tanner emailed Mr. Gillis, sending him a revised agreement which Mr. Gillis replied he would review the following day. In an email from Mr. Tanner to Mr. Gillis dated February 19, 2015, Mr. Tanner indicated that, after talking to Mr. Sullivan “it was determined that we needed to add your name to the [construction agreement draft] document and specifically tie it to the performance of the agreement, as it is you and your expertise that George is requiring to oversee the project, not EcoTech LLC and Louie [Caputo].”
Mr. Gillis explained the emails about the draft contracts. He said that other than preliminary drafts, he referred the draft contracts to Mr. Caputo because he “was going to handle the contract work” on the Labor in Vain project, and Mr. Gillis added that he was not authorized by EcoTech to negotiate contracts on its behalf. He testified that to his knowledge, no contract was ever signed between the Sullivans and EcoTech. Both Mr. Sullivan and Mr. Tanner testified that no contract was ever finalized or signed for the Labor in Vain project, which Mr. Tanner said was due to a disagreement among the parties about construction costs.
Project Permitting
Jenzack produced an “Order of Conditions” issued on October 18, 2013, by the Massachusetts Department of Environmental Protection with respect to the Ipswich property. The document references a “Notice of Intent Plan 82 Labor-in-Vain Rd., Ipswich, MA for Gillis Homes (Sullivan owner)” prepared by Meridian Associates, Inc., who Mr. Gillis testified was the site engineer for the project. The Town of Ipswich issued a demolition permit on January 9, 2014, for the demolition of the house then located at the property. Mr. Gillis is listed on the permit as the “Contractor/Applicant” and it was issued nearly 11 months before the formation of EcoTech in November of 2014. The town also issued a building permit for the foundation of the new house on the property dated June 13, 2014, and listed Mr. Gillis as the licensed construction supervisor, again months before EcoTech was formed. The final building permit issued for the Labor in Vain project was issued by the Town of Ipswich on December 29, 2014, after EcoTech was formed, and listed Mr. Gillis thereon as the licensed construction supervisor.
Project Invoices
EcoStar aggregated certain vendor bills related to the project and sent five invoices to the Sullivans from December 12, 2013 through October 9, 2014, directing them to make checks payable to different vendors. On November 25, 2014, after EcoTech was formed, EcoTech sent a sixth invoice to the Sullivans for the project. The letterhead, logo, and motto used by EcoTech on invoice no. 6 were similar to those on invoice nos. 1-5 of EcoStar and both sets of invoices listed the same office address.
After EcoTech was formed in November of 2014, it began to aggregate invoices for the Sullivans to pay on the project. Mr. Gillis testified that he did business with Express Sign & Graphics, Inc. for the purchase of custom signs for the driveway of the Labor in Vain house. Jenzack produced a number of invoices for the signage at the Labor in Vain property which contained the names of three different customers: Gillis Homes, EcoStar, and EcoTech for various dates in 2013 and 2014. Mr. Gillis testified that after he received the invoices, he did not recall taking any action to advise the sign company that the project was not a Gillis Homes’ job. He added that he did not prepare the invoices.
Mr. Gillis testified that Piping Specialties, Inc. supplied materials on the Labor in Vain project. Jenzack produced an invoice and packing slip from Piping Specialties dated November 12, 2014, issued to Gillis Homes which was initialed by Mr. Gillis. Others were dated November of 2014, the month EcoTech was formed, and all were issued to Gillis Homes. One of the packing slips dated September 14, 2016, a date after Mr. Gillis filed bankruptcy and after his transfer of the Gillis Homes stock to Jenzack, was also issued to Gillis Homes.
Jenzack produced invoices from Dave’s Septic Service, Inc. in connection with the project. Invoices dated February 7 and March 7, 2015, were issued to EcoStar, after it had stopped work on the project, and an invoice dated April 4, 2015, was issued to EcoTech. Mr. Gillis testified that he approved these invoices.
Mr. Gillis testified that he did not hold out the Labor in Vain project as a Gillis Homes job. He explained that Gillis Homes, which operated for years and built over 100 homes, did business with Meridian Associates, Express Signs, Dave’s Septic, and Piping Specialties in connection with projects other than the Labor in Vain project. He maintained that neither he nor EcoStar ever represented to any of the vendors that the Labor in Vain project was a Gillis Homes project, that the project was never a Gillis Homes project, and that he did not pay close attention to the names on the invoices because “it had no significance . . . to me at the time.” He testified that in 2014, Gillis Homes was finishing up a project in West Newbury, Massachusetts and had not been in the business of building single family homes since 2007 or 2008. He added that he continued to use a prior Gillis Homes email address in 2013 and 2014 in connection with the Labor in Vain project, even after Gillis Homes was no longer building homes, out of convenience because “ninety-five percent of the people in the building industry in eastern Massachusetts
Project Costs and Termination
At trial, Mr. Gillis clarified that, to his knowledge, there was never a signed contract for the project by the Sullivans, and that he did not know the amount of the contract at the time of the
Mr. Gillis prepared on behalf of EcoStar a “Potential Estimated Savings Document” for the project, dated September 25, 2014, predating the formation of EcoTech. He testified that the purpose of the document was to show areas of potential savings on the project for the Sullivans, with a potential estimated savings of $274,868 and a commensurate reduction to the construction management fee. When asked at trial if he had a good idea of the costs and pricing associated with the Labor in Vain project, Mr. Gillis testified that it was a moving target.
Mr. Gillis also prepared a 16-month estimated cash flow statement for the project, on EcoStar letterhead dated August 20, 2014, for the purpose of showing Mr. Sullivan potential cash outlays. The document reflected a projected construction budget of $3,723,144 and a 10% management fee of $372,314. Jenzack presented an EcoStar document entitled “Addendum B” in connection with the project, also dated August 20, 2014, which showed a construction budget and a management fee in the same amounts as set forth in the cash flow statement. Mr. Gillis testified that the documents reflected what potential costs might be at the time they were prepared.
Mr. Gillis testified that the Sullivans set up a petty cash account to pay expenses for the Labor in Vain project and that he had signatory authority on the account. He further testified that Mr. Caputo also had signatory authority and that the account was owned by Mrs. Sullivan who also had access to the funds and could remove them at any time. He maintained that he had physical possession of an account checkbook due to the need to buy fuel and remove large quantities of snow that fell during the winter of 2015 and to make other small purchases for the project.
Mr. Sullivan testified that Mr. Gillis worked on the Labor in Vain property for “the entire time” and that EcoTech was terminated from the project on September 27, 2016, when the Sullivans sent a termination letter to Mr. Caputo, as president of EcoTech, which, in part, provided: “The agreed upon substantial completion date for the Project was June 1, 2016 and the project remains incomplete.” At some point, Premier Builders took over the project. Notwithstanding the termination of EcoTech, Mr. Gillis testified that he continued to work on the project until its completion directly for the Sullivans at their request.
Schedules, Statements, and the § 341 Meeting
Mr. Gillis filed his chapter 7 petition on June 14, 2016 and filed his original schedules and statements a month later on July 17, 2016. He appeared and testified at his
On Mr. Gillis’s Schedule I filed on July 17, 2016, he reported that he had been employed by EcoTech as a project manager for 12 months, even though the company was formed in November of 2014 (20 months prior). He testified that the schedule was accurate when he prepared it, but he had failed to update it before the bankruptcy filing. Hence, the schedule was not accurate when it was filed. He testified at trial that it took him several months to prepare his bankruptcy schedules before they were filed with the court, and he maintained that his answer was correct on the date he provided the information to his bankruptcy attorney. He did not realize the “12 month” answer was incorrect when the schedules were filed.
In response to Question 13 of the original statement of financial affairs (“SOFA”) “Within 2 years before you filed for bankruptcy, did you give any gifts with a total value of more than $600 per person?” Mr. Gillis answered “No.” In response to Question 18 of the original SOFA “[D]id you sell, trade, or otherwise transfer any property to anyone, other than property transferred in the ordinary course of your business or financial affairs” within two years of the bankruptcy filing, Mr. Gillis responded “No.” He testified at trial that he understood the latter question to require information only about his transfers and not those of any companies he owned, and that his answer was truthful.
In response to Question 23 of the original SOFA “Do you hold or control any property that someone else owns? Include any property you borrowed from, are storing for, or hold in trust for someone,” Mr. Gillis responded “No.” He testified at trial that he did not list the Sullivan petty cash account in response to Question 23 “because it was not my money” and “I did not control it” even though he conceded that he could have withdrawn funds from it.
In response to Question 27 on his original SOFA concerning whether he owned and/or was an officer or director any businesses within the four years prior to the bankruptcy filing date, Mr. Gillis listed ten different entities including EcoStar and reported the period of February 12, 2010, through January 22, 2014, as the dates the business existed. Mr. Gillis acknowledged at trial that the ending date of January 22, 2014, was inaccurate. He testified that he should have used the ending date of January 22, 2015, but he mistakenly used the date of January 22, 2014, because that was the date that EcoStar filed its last annual report with the Massachusetts Secretary of State and such reports are “good for a year.” He added that he made a similar mistake with respect to another entity listed in response to Question 27 on the SOFA. He testified that at the time he answered Question 27, he did not know he had made an error with respect to the ending date of EcoStar and that he amended the SOFA when he later learned the ending date was inaccurate.
The § 341 Meeting
Mr. Gillis’s
Mr. Gillis testified at the meeting that Mr. Caputo dealt with customers who were “building new houses on behalf of EcoTech” and that EcoTech had only one client. When asked by Jenzack at the meeting to name the client, Mr. Gillis paused and was directed by his attorney to answer the question. Although he paused before answering, Mr. Gillis did answer the question and responded that the Sullivans were EcoTech’s only client. When asked what EcoTech was doing for the Sullivans, he replied “we’re building them a house.” At trial, Mr. Gillis explained that he paused before answering the question and giving the Sullivans’ name because he did not want to involve them in his “mess.”
Jenzack questioned Mr. Gillis at the meeting about the status of the Labor in Vain project:
Q: “What stage of construction are you in?”
A: “Seventy-five percent complete.”
Q: “When was it started?”
A: “Uh, beginning of last year. So a while back . . .”
Mr. Gillis testified at trial that he understood these questions about the project to concern the date construction of the new house began which was in early 2015.
When asked certain specific questions at the meeting about the project contract such as “how much is the contract for that house, roughly?” he testified that he did not know and when asked “when was the contract first initiated?” Mr. Gillis testified that he did not know and that he “wasn’t . . . privy to the contract.” At trial, he testified that he did not know the amount of the contract at the time of the
When asked at the meeting when he began working for EcoTech, he testified “last year” in reference to 2015, even though the company was formed in November of 2014. Mr. Gillis testified at the meeting that no assets of Gillis Homes were transferred to EcoTech. When asked at the meeting whether there was any “carry-over” of any contracts or projects of any kind from Gillis Homes to EcoTech, he replied “No.”
IV. Conclusions of Law
A. Applicable Law
This is a core proceeding pursuant to
In Lussier v. Sullivan (In re Sullivan), 455 B.R. 829 (B.A.P. 1st Cir. 2011), the United States Bankruptcy Appellate Panel for the First Circuit reaffirmed the well-settled standard adopted by the United States Court of Appeals for the First Circuit in In re Tully for complaints under
The First Circuit has dissected the language of
§ 727(a)(4)(A) into two parts: (1) the plaintiff must show that the debtor knowingly and fraudulently made a false oath; and (2) the false statement must relate to a material fact. See In re Tully, 818 F.2d at 110. Further, “the burden of proof rests with the [plaintiff] but once it reasonably appears that the oath is false, the burden falls upon the [debtor] to come forward with evidence that he has not committed the offense as charged.” Id. (citing In re Shebel, 54 B.R. 199, 202 (Bankr. D. Vt. 1985) and quoting In re Mascolo, 505 F.2d 274, 276 (1st Cir. 1974)) (internal quotation marks omitted).
In re Sullivan, 455 B.R. at 837. “[T]he inquiry can be restated as whether (i) the debtor made an oath (ii) that was false and (iii) related to a material fact in the case (iv) knowingly and (v) fraudulently.” Irish Bank Resolution Corp. Ltd. (In Special Liquidation) v. Drumm (In re Drumm), 524 B.R. 329, 394 (Bankr. D. Mass. 2015), aff‘d, No. 15-CV-10184-LTS, 2015 WL 9911447 (D. Mass. Nov. 20, 2015) (citing Commonwealth of Massachusetts v. Bartel (In re Bartel), 05-13134-JBR, 2009 WL 2461727 at *5 (Bankr. D. Mass. Aug. 10, 2009)).
A debtor’s schedules and statement of financial affairs are the equivalent of a verification under oath. Perry v. Warner (In re Warner), 247 B.R. 24, 26 (B.A.P. 1st Cir. 2000) (citing
“A statement is considered to have been made with knowledge of its falsity if it was known by the debtor to be false, made without belief in its truth, or made with reckless disregard for the truth.” Carto v. Oakley (In re Oakley), 503 B.R. 407, 426 (Bankr. E.D. Pa. 2013) aff‘d, 530 B.R. 251 (E.D. Pa. 2015) (quoting Montey Corp. v. Maletta (In re Maletta), 159 B.R. 108, 112 (Bankr. D. Conn. 1993)). “[N]ot caring whether some representation is true or false—the state of mind known as ‘reckless disregard’—is, at least for purposes of the provisions of the Bankruptcy Code governing discharge, the equivalent of knowing that the representation is false and material.” In re Chavin, 150 F.3d 726, 728 (7th Cir. 1998) (citing In re Yonikus, 974 F.2d 901, 905 (7th Cir.1992); Beaubouef v. Beaubouef (In re Beaubouef), 966 F.2d 174, 178 (5th Cir.1992); In re Tully, 818 F.2d at 111).
“Knowingly and fraudulently made false statements exist if a debtor ‘knows the truth and nonetheless willfully and intentionally swears to what is false.’” JP Morgan Chase Bank, N.A. v. Koss (In re Koss), 403 B.R. 191, 213 (Bankr. D. Mass. 2009) (quoting In re Mukerjee, 98 B.R. at 629 (citations omitted)). “The intent required by
A false oath is material if its subject matter “bears a relationship to the bankrupt’s business transactions or estate, or concerns the discovery of assets, business dealings, or the existence and disposition of his property[.]” Tully, 818 F.2d at 110-11 (quoting Chalik v. Moorefield (In re Chalik), 748 F.2d 616, 618 (11th Cir. 1984)). “[T]he threshold to materiality is fairly low.” In re Sullivan, 455 B.R. at 839 (quoting Cepelak v. Sears (In re Sears), 246 B.R. 341, 347 (B.A.P. 8th Cir. 2000). See In re Tully, 818 F.2d at 110 n.4 (“[V]aluation is not really the point.”); see also In re Chalik, 748 F.2d at 618 (“The recalcitrant debtor may not escape a section 727(a)(4)(A) denial of discharge by asserting that the admittedly omitted or falsely stated information concerned a worthless business relationship or holding; such a defense is specious.”). “An inference of fraud is permissible when a debtor files an amendment only as a result of developments during or after the creditors meeting, or without adequate explanation of the initial inaccuracy.” Distributor Corp. of New England v. Zicaro (In re Zicaro), No. 07-43732-JBR, 2009 WL 1795302, at *3 (Bankr. D. Mass. June 22, 2009).
B. Analysis
Jenzack asserts that Mr. Gillis made 14 statements in his schedules, SOFA, and at the
At the outset, I note that on November 8, 2017, I dismissed count IV of the amended complaint entitled “Fraudulent Transfer and De Facto Merger/Successor Corporate Liability as Basis for Denial of Discharge . . .” for failure to state a claim. That count was based on the allegations that the Labor in Vain project “was transferred from Gillis Homes and/or EcoStar to EcoTech under the direction and control of [Mr. Gillis] acting in his capacity as President or Manager of those entities[,]” and that “said transfer was made with the intent to hinder, delay or defraud creditors . . . .” Amended Complaint ¶¶ 135, 139. Although it did not prevail on its theory in count IV that Mr. Gillis fraudulently transferred the project, through companies he controlled, to EcoTech to protect the construction management fee from creditors, Jenzack recycles the theory as one for false oath in count II. I will discuss each allegation of false oath in turn below.
The first eight of the alleged false oaths were made by Mr. Gillis at his
1. Mr. Gillis did not know why EcoTech was formed in November of 2014
The trustee asked Mr. Gillis at the
Mr. Gillis‘s testimony that the company was formed by another individual and that he was an employee was accurate based on the record. As to why the company was formed, that question has not been answered and is susceptible to different interpretations and answers. Mr. Caputo formed EcoTech, and he did not testify at trial. His motives for forming the company and whether Mr. Gillis was aware of them are unknown. Thus, I cannot conclude that Mr. Gillis‘s response was a knowingly false statement made with fraudulent intent.
Although Jenzack posits that EcoTech was formed to shield Mr. Gillis from Jenzack, it is just as plausible that Mr. Caputo, who also knew the Sullivans, may have wanted a piece of the action through his friend and client, Mr. Gillis, who had done substantial work on the project and who had no access to needed credit at the time EcoTech was formed. While EcoTech was formed around the time Jenzack was pursuing Mr. Gillis, there was additional testimony that Premier Builders was vying to replace EcoStar for the lucrative Labor in Vain project and that Messrs. Gillis and Caputo considered the house to be a potential “stepping-stone” for future EcoTech projects.
Moreover, Jenzack‘s premise that the construction management fee would have ended up in Mr. Gillis‘s hands (and ultimately his bankruptcy estate) but for the
2. EcoTech acquired building permits through Mr. Gillis
Mr. Gillis testified at the
3. Mr. Caputo dealt with customers in obtaining contracts on behalf of EcoTech
Jenzack asked Mr. Gillis at the
If the question was intended to inquire about who secured contracts for EcoTech, Messrs. Tanner and Sullivan both testified that no contract for the project was ever signed. Hence, no contract was ever “obtained.” I find that Mr. Gillis‘s testimony about who dealt with customers in obtaining
4. Mr. Caputo met with customers building new homes
At the
5. Mr. Gillis was not privy to the Labor in Vain contract
Jenzack asked Mr. Gillis at the
6. Mr. Gillis did not know the rough amount of the contract for the Labor in Vain project
Jenzack asked Mr. Gillis at the
7. The Labor in Vain project started in 2015
Jenzack asked Mr. Gillis at the
8. No assets, contracts, or projects of any kind transferred to EcoTech from Gillis Homes
Mr. Gillis testified at the
Mr. Gillis credibly testified that Gillis Homes stopped building homes in 2007 or 2008, that other than acting as the Sullivans’ broker, Gillis Homes had nothing to do with the Labor in Vain project and that he did not hold out the project as a Gillis
In short, I do not find the evidence proffered by Jenzack establishes that the Labor in Vain project was transferred from Gillis Homes to either EcoStar or EcoTech. No formal contract was ever signed for the project, and no evidence was presented regarding the diversion of any construction management fee to put it beyond the reach of Mr. Gillis‘s creditors. Rather, Ifind that Mr. Gillis worked on the project at different phases through different entities. First, he acted as a broker through Gillis Homes for the purchase of the property in 2013 and thereafter he performed the due diligence phase of the project through another company, EcoStar, until the end of 2014 when EcoTech began work on the project. Mr. Gillis continued to work on the project through his employer, EcoTech, and then later directly for the Sullivans after EcoTech was terminated following the bankruptcy filing. I find Mr. Gillis‘s above testimony at the
9. Mr. Gillis only worked for EcoTech for 12 months
Mr. Gillis filed his Schedule I on July 17, 2016, in which he reported that he was employed by EcoTech for “12 months.” When asked at the
Jenzack maintains that the above statements made it appear that the Labor in Vain project began after the formation of EcoTech. While any inaccurate response in a schedule or at a creditors’ meeting could lead to a false assumption by a creditor, that is not the sole test for false oath. With respect to Mr. Gillis‘s statement at the meeting that he started working for EcoTech “last year,” that answer was an approximation and inaccurate by less than two months. I find the statement was not knowingly false. With respect to the “12 month” response on Schedule I, Mr. Gillis credibly testified at trial that it took him several months to prepare his bankruptcy schedules before they were actually filed with the court and that he did not realize the “12 month” answer was inaccurate when he filed his
10. EcoStar ceased to exist in 2014
In response to Question 27 on his original SOFA, Mr. Gillis listed, among numerous entities, EcoStar‘s dates of existence as “February 12, 2010 through January 22, 2014.” Mr. Gillis testified at trial that the end date was inaccurate by a year and should have been listed as January 22, 2015. He credibly testified that he used the January 22, 2014 end date because that was the date he filed EcoStar‘s last annual report with Massachusetts Secretary of State, not realizing that the report was “good for a year.” He added that at the time he filed the original SOFA, he did not realize the error and that he later amended the SOFA to correct the inaccuracy which I find to be a satisfactory explanation of the initial mistake. I find Mr. Gillis‘s above statement in the original SOFA was an honest oversight and not knowingly false.
11. Mr. Gillis did not gift anything to anyone within two years of his bankruptcy filing
Mr. Gillis reported in Question 13 of the SOFA that he had not gifted anything to anyone worth over $600 within two years of the bankruptcy filing date. Jenzack asserts that statement was a false oath, relying on the five aggregated invoices sent to the Sullivans by EcoStar through October of 2014 and the sixth invoice then sent by EcoTech in November of 2014. Based on the facial similarities between these invoices, Jenzack asserts that EcoTech was a “mere successor to EcoStar” with respect to the Labor in Vain project. It maintains that the project was transferred by EcoStar to EcoTech for no consideration and that “a portion of any monies to be realized by EcoStar would have likely passed through to [Mr. Gillis].” As discussed above, this is supposition and not supported by the record. Even if EcoTech was the “mere successor” of nondebtor EcoStar, that does not establish that Mr. Gillis provided a false answer on the SOFAwhich inquired about gifts he may have made. I find no false oath with respect to Mr. Gillis‘s answer to Question 13 on the SOFA.
12. Mr. Gillis did not sell, trade, or otherwise transfer any property to anyone within two years of the bankruptcy filing
In response to Question 18 of the SOFA: “did you sell, trade, or otherwise transfer any property to anyone, other than property transferred in the ordinary course of your business or financial affairs” within two years of the bankruptcy filing, Mr. Gillis responded “No.” Jenzack asserts that this answer was a false oath, again relying on the aggregated invoices issued by EcoStar through October 2014 and then by EcoTech in November of 2014, to conclude that the project was transferred from EcoStar to EcoTech after October of 2014. I find no false statement in Mr. Gillis‘s answer to Question 18 of the SOFA for the reasons stated above. Moreover, the question required information only about his transfers and not those of any companies he owned.
13. Mr. Gillis did not control the assets of another
In response to Question 23 of the SOFA: “Do you hold or control any property that someone else owns?” Mr. Gillis responded “No.” Jenzack asserts that response was a false oath because Mr. Gillis had signatory authority over the Sullivans’ petty cash
14. Additional facts
Lastly, Jenzack maintains that Mr. Gillis‘s initial reluctance at the
V. Ruling
Construing
Dated: December 26, 2019
By the Court,
Melvin S. Hoffman
U.S. Bankruptcy Judge
Counsel Appearing: Jonathan H. Allen, Esq.
Peskin, Courchesne & Allen, P.C
Springfield, MA
for the plaintiff, Jenzack Partners, LLC
Andrew W. Evans, Esq.
Law Offices of Evans & Evans, P.C.
Peabody, MA
for the defendant, Stephen J. Gillis