Schindler v. MillironSchindler v. Milliron
MEMORANDUM DECISION RE: JUDGMENT AFTER TRIAL ON § 727 ACTION
Plaintiffs Jay and Jeanne Schindler filed separate adversary proceedings against debtors Garth Milliron and Jarred Milliron, together with their spouses Kimberly and Jennifer, respectively, to deny their discharges under
A. BACKGROUND
1. Prepetition
Garth and Kimberly Milliron reside in the Living Word Ministries (Living Word) community outside Delta Junction, Alaska (Alaska Highway Property).1 Garth is a pastor in the Living Word church, and is a member of the church‘s board.2 Their son, Jarred, and his wife Jennifer also live in the Living Word community.3 Jarred serves on the board of Dry Creek Community Corporation,4 an entity which manages the community‘s infrastructure.5 The church owns all of the real property in the community, which consists of 20-30 houses that church members are allowed to reside in so long as they remain members of the church.6
It is in this community that the Millirons started their construction business, Dry Creek Construction, LLC (DCC). Garth and Kimberly own 50% of the business.7 Jarred and Jennifer own the other 50%.8 Because banks were initially reluctant to lend directly to the business, Garth testified that he and Jarred frequently titled the personal property acquired for the business in their own names as they believed
In the mid-2000s, DCC acquired two parcels of real property in Delta Junction: 1770 and 1746 Miltan Road (the Miltan Properties).10 Shortly thereafter, Garth purchased a building from the local school district and moved it to 1770 Miltan.11 Over the course of several years, Jarred and Garth devoted their personal time to renovating the building, which was completed in 2017.12 On September 11, 2018, Garth, Kimberly, Jarred, and Jennifer executed a quitclaim deed on behalf of DCC, transferring the Miltan Properties to Garth.13 The quitclaim deed was recorded that same day.14
On or about October 18, 2018, Garth obtained a $110,000.00 line of credit on the Miltan Properties from Mt. McKinley Bank (McKinley).15 McKinley recorded a deed of trust against the Miltan Properties on October 19, 2018.16 The Millirons never drew on the line of credit.17
In 2012, DCC was hired to do a large construction project for the Schindlers, who purchased a parcel of raw land in Delta Junction in January 2012.18 From 2012 to 2017, DCC worked to construct a farmstead and a home on the Schindlers’ property. The Schindlers, dissatisfied with the work performed by the Millirons, brought suit against them in Alaska Superior Court in 2017. Trial was set to commence on October 22, 2018.
2. The Millirons and DCC File Bankruptcy
On October 22, 2018, the day their state court trial with the Schindlers was set to begin, DCC, Garth and Kimberly Milliron, and Jarred and Jennifer Milliron filed voluntary chapter 7 bankruptcy petitions.19 Attorney Jason Gazewood represents all of the debtors in their respective bankruptcies.20 Nacole Jipping was appointed the chapter 7 trustee of DCC‘s bankruptcy estate. Kenneth Battley was appointed the chapter 7 trustee in each of the Millirons’ bankruptcy cases.
The Schindlers’
a. DCC Bankruptcy
i. Initial Schedules and Statements
Each of the debtors filed their original schedules together with their petitions on October 22, 2018. In Schedule A/B, DCC listed no real property.21 This is wholly consistent with the September 11, 2018 quitclaim deed from DCC to Garth Milliron. Yet, DCC attested in response to item 13 of the Statement of Financial Affairs that it had made no transfers of money or property by sale, trade, or any other means by the debtor...within 2 years before the filing of this case to another person, other than property transferred in the ordinary course of business or financial affairs.22 In response to item 4 of its Statement of Financial Affairs,
DCC disclosed no [p]ayments or other transfers of property made within 1 year before filing this case that benefitted any insider.23
DCC did, however, list numerous vehicles and values in response to item 47:
| 2017 Dodge Ram | $42,000.00 |
| 2015 Chevy Silverado | $25,000.00 |
| 2015 Polaris Ranger | $6,200.00 |
| 2012 Snowmachine | $2,500.0024 |
Under item 48 of Schedule A/B, DCC listed and valued the following equipment as additional personal property:
| 1991 Dutchman Camper Trailer | $800.00 |
| 2004 Wells Cargo Trailer | $18,000.00 |
| 2004 Haulmark Tool Trailer | $1,000.00 |
| 2002 Gortzen Materials Trailer | $800.00 |
| 2007 Snake River Eq. Trailer | $1,000.00 |
| Trencher | $2,146.00 |
| CAT Skidsteer | $10,000.00 |
| Excavator | $30,000.00 |
| Excavator Attachments | $3,500.00 |
| Misc. Tools and Equipment | $4,450.0025 |
DCC‘s Schedule H listed Garth and Jarred Milliron as codebtors only on a $25,000.00 debt owed to Western Surety, which was related to the entity‘s unsecured claim. The basis for the claim and codebtor listing was stated as [i]ndemnifier for litigation.26 DCC‘s chapter 7 bankruptcy petition was
ii. The § 341(a) Meeting of Creditors
Nacole Jipping, the chapter 7 trustee for DCC‘s bankruptcy estate, conducted DCC‘s initial
Both Garth and Jarred stated that they carefully read over DCC‘s schedules and statements, and believed the information contained therein to be true and correct to the best of their knowledge.30 When asked by Ms. Jipping whether anything had changed after the schedules were filed that she should know about, Garth replied that just a few creditor additions had been submitted to DCC‘s counsel, Mr. Gazewood.31
Next, Ms. Jipping admitted to some confusion regarding ownership of the personal property assets, because [DCC] had listed...some of the same things in [the Millirons‘] personal bankruptcies that [DCC] did in the business.32 Garth explained that, with the
exception of the Skidsteer,33 the vehicles were titled to him or Jarred because initially DCC had no credit, but those vehicles were used by DCC in the course of its business.34 Jarred stated that a lot of the equipment is titled in [DCC].35
Jarred added a caveat that because he and Garth personally guaranteed everything they bought, [e]verything Dry Creek Construction owns, we own; and everything we own, Dry Creek Construction owns.36 Garth later clarified that he also owned some tools that were left to him after his father‘s death, as well as some tools that were purchased for a prior construction business he owned.37 Mr. Gazewood concluded the discussion with the statement, Jarred‘s testified that the machinery, equipment, tools are all bought by Dry Creek, owned by Dry Creek.38
Ms. Jipping‘s counsel, Cabot Christianson, then inquired about the Miltan Properties.39 He noted the quitclaim deed recorded
was recorded after DCC‘s schedules were filled out.42 Garth further elaborated on the reasoning behind obtaining the line of credit:
[T]he purpose of it was so that we would have some money available if a settlement [with the Schindlers] was agreed upon that we could get that money quickly and pay it. If not, then maybe we could use it for trial. If not, maybe we could use it to pay other attorney fees or catch up on the credit lines.43
The record does not reflect that the Millirons presented Ms. Jipping with either the quitclaim deed or the McKinley deed of trust at the meeting.
Finally, Garth and Jarred testified that at the time of the meeting, they were employed doing construction work for Delta Accommodations in Delta Junction.44 At the meeting, Ms. Jipping and counsel for the Schindlers, Erik LeRoy, informed the Millirons that they could not use equipment owned by DCC postpetition.45 The Millirons both confirmed that they had been told by Mr. Gazewood that the tools, equipment and machinery owned by DCC were now owned and administered by Ms. Jipping as trustee for the DCC bankruptcy estate postpetition.46 Although initially Garth and Jarred expressed confusion regarding the consequences of the
trustee‘s postpetition control over DCC‘s personal property,47 Mr. LeRoy clarified the situation:
MR. LEROY: You can work. You‘re an individual. You can work. You just can‘t use an asset --
MR. GARTH MILLIRON: I just can‘t use my tools is what you‘re saying.
MR. LEROY: -- belonging to Dry Creek.
MR. GARTH MILLIRON: Okay. Yeah.48
A further detailed discussion was had between the Millirons, Ms. Jipping and Mr. LeRoy on this point when Jarred sought further clarification during the meeting of creditors regarding the prohibition on his use of DCC equipment: So what exactly can I not use? I can‘t legally use any of my building tools and things?49 Mr. LeRoy explained that any equipment depreciated on DCC‘s tax return is considered the property of DCC and cannot be used by the Millirons.50 Garth replied, I understand what you‘re saying.51 He then
MR. LEROY: I think your problems are probably the bigger items like you‘re not – the excavator is clearly going to be Dry Creek, the Skidsteer is, the trailers are going to be Dry Creek. And that‘s the problem you‘re going to have right now going back to Delta Junction tomorrow and starting to work on the cabins that you‘re building... So the problem you have is that you‘re driving a truck that‘s owned by Dry Creek....
MR. GARTH MILLIRON: Well, the trucks are in our name, but they were depreciated through Dry Creek. I understand what you‘re saying now.53
The November 29 meeting of creditors ended with Garth asking Ms. Jipping whether she wanted DCC‘s equipment where it‘s at or do you want us to put it in one location?54 Ms. Jipping replied, Just if it‘s in a safe area and no one is going to bother it, then you can leave it where it‘s at.55 Garth acknowledged this instruction: Okay.56
iv. Amended Schedules and Statements
On December 11, 2018, DCC filed an amended Statement of Financial Affairs which once again omitted any reference of the transfer of the Miltan Properties from DCC to Garth.57 That amended Statement of Financial Affairs was signed by Garth.58 Jarred‘s signature does not appear on any of DCC‘s schedules and statements.
It was not until January 23, 2019, that DCC filed a second amended Statement of Financial Affairs disclosing the transfer in response to item number 4.59 The second amended schedules and statements did not list McKinley as a creditor. That same set of amended schedules and statements was, however, the first time DCC‘s Schedule A/B reflected a detailed break down of the various tools belonging to DCC.60 The equipment at issue in this case remained on DCC‘s schedules, including the Skidsteer. But, the court notes that the 2005 Polaris Ranger no longer appeared among the property listed in Schedule A/B, though the debt secured by that property was still listed in Schedule D.61 The 2017 Dodge Ram was also no longer listed among DCC‘s assets.62 The debt owed to Wells Fargo Dealer Services on that automobile, which was disclosed in DCC‘s initial Schedule D,63 was removed in the amendments filed on January 23, 2019.64
b. Garth and Kimberly Milliron
i. Initial Schedules and Statements
In response to item 5 of their voluntary petition, entitled Where you live, Garth and Kimberly Milliron listed the Alaska
interest in any residence, building, land, or similar property?66 Garth and Kimberly listed the Alaska Highway Property with a value of $217,000.00, and stated that both of them held an interest in that property.67 Strikingly absent were the Miltan Properties that DCC had recently transferred to Garth, and which he later encumbered.
Schedule A/B listed numerous vehicles in response to item 3. Two were listed as being owned solely by Garth Milliron: a 2015 Chevy Silverado valued at $25,000.00 and a 2009 GMC Acadia valued at $4,500.00.68 The ownership of these items has never been at issue. But the following items were listed with ownership described as at least one of the debtors holding an interest in the vehicle with another:
| 2015 Chevy Silverado | $17,409.00 |
| 2008 CAT Skidsteer | $10,000.00 |
| 2017 Dodge Ram | $0.00 |
| 1991 Dutchman Camper Trailer | $800.00 |
| 2004 Wells Cargo Trailer | $18,000.00 |
| Trencher | $2,146.00 |
| Excavator | $30,000.0069 |
Under item 4 of Schedule A/B, Garth and Kimberly listed additional property also with ownership described as at least one of the debtors holding an interest in the vehicle with another:
| 2004 Haulmark Tool Trailer | $1,000.00 |
| 2002 Gortzen Materials Trailer | $800.00 |
| 2015 Polaris Ranger | $6,200.00 |
| 2012 Snowmachine | $2,500.00 |
| 2007 Snake River Eq. Trailer | $1,000.00 |
| Excavator Attachments | $3,500.0070 |
In response to item 19 of Schedule A/B, Garth and Kimberly listed a 50% interest in DCC.71 Finally, in response to item 40 of Schedule A/B, Garth and Kimberly listed an interest in misc [sic] tools and equipment in the amount of $4,450.00.72 In their Schedule C, Garth and Kimberly asserted exemptions in the Alaska Highway Property and the 2009 GMC Acadia, as well as the miscellaneous tools and equipment.73
Garth and Kimberly listed McKinley as a secured creditor in their Schedule D, with a $150,000.00 claim secured by the Alaska Highway Property.75 The date the debt was incurred was left blank.76
The original schedules omitted McKinley‘s deed of trust against the Miltan Properties. In response to item 18 of their Statement of Financial Affairs, Garth and Kimberly stated that they did not, within 2 years before they filed for bankruptcy, sell, trade, or otherwise transfer any property to anyone, other than property transferred in the ordinary course of [their]
business or financial affairs.77 This question specifies that it includes transfers made as security (such as the granting of a security interest or mortgage on your property).78
ii. Amended Schedules and Statements
The day before DCC‘s scheduled
Garth and Kimberly filed a second set of amended schedules and statements on January 23, 2019, before a final round of continued meetings of creditors in each of the bankruptcy
cases.85 In Schedule A/B, they added a Toyota Rav-4 that was not previously mentioned.86 Although the second-amended Schedule A/B continued to list misc tools and equipment in response to item 40,87 DCC‘s trailers and large equipment (Skidsteer, excavator) were no longer listed as the property of Garth and Kimberly.88 Finally, the line of credit obtained from McKinley was removed from Schedule D,89 but was added in response to item 18 of the amended Statement of Financial
iii. The § 341(a) Meetings
Garth and Kimberly‘s initial
| Property | Ownership According to Garth93 |
|---|---|
| 2015 Chevy Silverado | Erroneously listed-only one Chevy Silverado |
| 2008 CAT Skidsteer | In Garth‘s name, purchased for DCC |
| 2017 Dodge Ram | Jarred Milliron |
| 1991 Dutchman Camper Trailer | DCC, title misplaced |
| 2004 Wells Cargo Trailer | DCC |
| Trencher | DCC |
| Excavator | DCC |
| 2004 Haulmark Tool Trailer | DCC, title misplaced |
| 2002 Gortzen Materials Trailer | DCC |
| 2015 Polaris Ranger | DCC |
| 2012 Snowmachine | DCC |
| 2007 Snake River Eq. Trailer | DCC |
| Excavator Attachments | DCC |
Garth also clarified that the Alaska Highway Property is where he resides, but the property itself is owned by Living Word Ministries.94 Further, he noted that his and Kimberly‘s 50% interest in DCC is split between them: Garth holds 40% while Kimberly holds 10%.95
Also at the meeting, Garth confirmed that he had used equipment owned by DCC after DCC‘s November 29, 2018
c. Jarred and Jennifer Milliron
i. Initial Schedules and Statements
In response to item 5 of their voluntary petition, entitled Where you live, Jarred and Jennifer Milliron listed only the mailing address for the Alaska Highway Property: HC 62 Box 5220, Delta Junction, AK 99737.100 Like Garth and Kimberly, Jarred and Jennifer listed the
Alaska Highway Property in response to item 1 of Schedule A/B with a value of $217,000.00, stating each of them held an interest in that property.101
As to personal property, in response to item nos. 3 and 4 of Schedule A/B, Jarred and Jennifer listed the same vehicles, trailers and equipment and as those listed in DCC‘s and Garth‘s and Kimberly‘s Schedules A/B, including all the same vehicles.102 Jarred and Jennifer stated the property was owned by at least one debtor and another. In addition to these, Jarred and Jennifer disclosed three other vehicles they owned: a 2010 Dodge Ram; a 1998 Mazda 626; and a 2005 Chevrolet 2500.103 As to the 2017 Dodge Ram, they described it as owned by at least one of the debtors holding an interest in the vehicle with another.104 In response to item 19 of Schedule A/B, Jarred and Jennifer also listed a 50% interest in DCC.105 Finally, in response to item 40 of Schedule A/B, Jarred and Jennifer also listed an interest in misc [sic] tools and equipment in the amount of $4,450.00.106
In their Schedule C, Jarred and Jennifer asserted exemptions in the Alaska Highway Property, the Mazda and the Chevrolet 2500, as well as the miscellaneous tools and equipment.107 Jarred and Jennifer‘s Schedule D included McKinley as the secured creditor on a
line of credit. Although the property securing McKinley‘s claim was not listed, the date the debt was incurred was listed as 10-18.108
Garth is listed as a codebtor on numerous debts under Schedule H, including the debt owed on the 2017 Dodge Ram.109
ii. Amended Schedules and Statements
Like Jarred‘s parents, Jarred and Jennifer filed amended schedules and statements on November 28, 2018, the day before
Jarred and Jennifer filed a second set of amended schedules and statements on January 23, 2019.114 In Schedule A/B, they removed all scheduled real property. They also removed most of DCC‘s trailers and large equipment (Skidsteer, excavator) from the schedule. The 2017 Dodge Ram remained scheduled as property of the estate, but was listed as belonging to
at least one of them and another.115 Additionally, the second amended Schedule A/B retained the 2015 Polaris Ranger, but was modified to reflect that Jarred and Jennifer were its sole owners.116 Jarred and Jennifer added a 2004 Ski-Doo that was not previously mentioned.117 Although the second amended Schedule A/B continued to list “misc tools and equipment” in response to item 40, the value of that item was reduced from $4,450.00 to $2,000.00.118 Schedule C was amended to include an exemption in the 2010 Dodge Ram and the Ski-Doo, though no exemptions were taken in the 2017 Dodge Ram or the Ranger.119 The secured claims of McKinley were removed from Schedule D, but the line of credit incurred in “10-18” was relisted as a general unsecured debt in Schedule E/F.120 Finally, the debts secured by the Ranger and the 2017 Dodge Ram were added to Schedule D.121 Although the Schedule A/B listing for the 2017 Dodge Ram described it as being co-owned by a non-debtor, the debt owed to Wells Fargo Dealer Services is described as being owed by Jarred alone.122
iii. The § 341(a) Meeting
Jarred and Jennifer‘s initial
Finally, Mr. LeRoy asked Jarred about his use of DCC‘s equipment after DCC‘s meeting of creditors. Jarred asserted that because he believed that the ownership of certain items of equipment was undetermined, he decided he could use those items notwithstanding the instruction of Ms. Jipping
At Jarred and Jennifer‘s continued and final meeting of creditors held on February 7, 2020, Jarred testified that title on the 2017 Dodge Ram was held jointly with DCC.129 He asserted that DCC had made the down payment and all prepetition payments on that vehicle.130
Jarred further testified that he had not used any of DCC‘s equipment “since we were told specifically we could not use it by the trustee.”131
d. The Adversary Proceedings
On January 23, 2019, the Schindlers commenced the above-captioned adversary proceedings against the Millirons in each of their respective bankruptcies. Among other causes of action, in their complaint the Schindlers sought to bar the Millirons’ discharges under
Jarred provided his trial testimony on March 11, 2020.134 During that testimony, Mr. LeRoy introduced DMV reports as exhibits 49-52, demonstrating that the Snake, Gortzen and Wells Cargo trailers were all titled to DCC. Jarred testified that in 2018, he thought he owned the Wells Cargo, Haulmark and Snake trailers.135 At the same time, however, he testified that he was “hoping and trying to get ownership” in property owned by DCC.136 He further admitted that he “wanted to own everything, and of course I wanted to hear what I wanted to hear.”137 He also testified that in 2018 he believed he held an ownership interest in the Miltan Properties.138
As for his unauthorized postpetition use of DCC‘s property, Jarred‘s testimony can be summarized as follows: because Jarred owned DCC and guaranteed its debts, Jarred concluded he held an ownership interest in whatever DCC owned.139 He also appeared to assert his belief that when a piece of equipment such as the Skidsteer was used for non-business purposes such as plowing snow for the Living Word community, that piece of equipment was not wholly owned by the business.140 Thus, Ms. Jipping‘s statement at DCC‘s meeting of creditors that he could not use equipment owned by DCC did not, in his
Garth provided his trial testimony on March 12, 2020.141 During Mr. LeRoy‘s examination, Garth testified that at the time he completed his original and first amended personal schedules and statements, he did not believe that the DCC equipment should have been listed on his own personal schedules.142 He stated that he listed that equipment because Mr. Gazewood advised him to do so.143 Garth further explained his response to Mr. Christianson‘s questions at DCC‘s
During Mr. Gazewood‘s cross examination, Garth again described his confusion regarding the inclusion of DCC‘s equipment in his personal schedules.145 He explained that he knew where the various items were titled, but that there was “part of” he and Jarred “that realized it was ours - we paid for it, we were the ones that worked for it and made the payments on it.”146 Garth revealed that his state court litigation counsel, William Satterberg, had advised him before the bankruptcy cases were commenced that their equipment would not be lost.147 He described himself as “scrambling” when he realized that was not the case, “trying to...figure out how to make it work for us so we could keep working.”148 He confirmed he had no intent to conceal any of his property from Ms. Jipping.149
Regarding the prepetition transfer of the Miltan Properties from DCC to Garth, Garth testified that the property was transferred to him because McKinley would extend a $110,000.00 credit line to him but not to DCC.150 He also repeated that “at the last minute,” the credit line with McKinley was actually issued directly to DCC, not to Garth.151
As for his own use of the DCC equipment postpetition, during Mr. LeRoy‘s direct examination Garth testified that after DCC‘s November 29, 2018 meeting of creditors, he understood Ms. Jipping “had leeway” to determine what equipment Garth and Jarred could or could not continue to use.152 He asserted that he was
The trial concluded on March 12, 2020.155 The parties filed their post-trial briefs on March 30, 2020.156 The court heard closing arguments on May 12, 2020.157 At the conclusion of closing arguments, the court took this matter under submission.158
B. ANALYSIS
The Schindlers argue that the Millirons’ chapter 7 discharges should be barred under
1. Jurisdiction
As an initial matter, there is a concern that hangs over the Schindlers’ claims against Jennifer and Kimberly Milliron. The overwhelming amount of attention, evidence, and argument in these proceedings are directed towards the actions and statements made by their husbands, Jarred and Garth, respectively. Counsel for the Schindlers candidly acknowledged this at closing argument when discussing the Schindlers’ underlying claims against the wives within the context of the
The court takes counsel‘s verbal concession as a withdrawal of the
As this issue was raised in closing argument, the absence of claims against Jennifer and Kimberly was not fully addressed at trial. Specifically,
Issues of constitutional standing are jurisdictional and must be addressed
2. Section 727(a)(4)(A)
“Because of the gravity and practical effect of denying a debtor his or her discharge, the burden of proving the requisite fraudulent intent is a heavy one.”166 A plaintiff in an action brought under
a. False Statement or Omission
Under the first factor, “‘[a] false oath is complete when made.”168 “A false statement or an omission in the debtor‘s bankruptcy schedules or statement of financial affairs can constitute a false oath.”169 Testimony given at a
i. Ownership of the Miltan Properties
Each of the defendants signed a deed quitclaiming the Miltan Properties from DCC to Garth on September 11, 2018. Yet, Garth and Kimberly Milliron omitted the Miltan Properties from their opening schedules and statements filed on October 22, 2018. They also failed to include the deed of trust granted in favor of McKinley three days prior to the filing of their case, in either their Schedule D or their Statement of Financial Affairs. The omission of Garth‘s interest in the Miltan Properties and the deed of trust in their original statements constitutes a false statement made under oath.
In their amended schedules and statements filed on November 28, 2018, Jarred and Jennifer Milliron asserted that they held an ownership interest in the Miltan Properties. Jarred and Jennifer even claimed an exemption in 1770 Miltan. There is no evidence that Jarred and Jennifer held any ownership interest in the Miltan Properties at any time. Rather, the Miltan Properties were owned originally by DCC and transferred to Garth shortly before the bankruptcy filings. Though Jarred and Jennifer find themselves in exactly the opposite situation as Garth‘s and Kimberly‘s omission of ownership, their declaration of an ownership interest where none existed also constitutes a false statement made under oath.
ii. Ownership of Personal Property and Use of DCC Equipment
In both Milliron bankruptcy cases, the debtors scheduled personal property that was actually owned by DCC. While the Millirons have testified that they hoped or believed that the personal property was, or should have been, their personal property at various points in their bankruptcy cases, there is no actual dispute that DCC actually owned the personal property at issue in this case. The Skidsteer, the Gortzen materials trailer, the Snake River equipment trailer, the Haulmark Trailer, and the Wells Cargo trailer were owned by DCC.172 The Millirons claimed ownership or co-ownership and listed the other vehicles and equipment in their statements that were owned by DCC alone. Thus, the court finds that the Schindlers have established the first factor under
iii. Statements at the Meetings of Creditors
The Schindlers further contend that Jarred and Garth made false statements
Jarred testified under oath that through an error by CAT, when the Skidsteer was purchased in 2009 it was designated by CAT as having been purchased by an unaffiliated entity called Dry Creek Enterprises, not DCC.173 Per Jarred, “it never got ever fixed,”174 and “it just stayed that way, because...they already had a credit backing through Dry Creek Enterprises and all that.”175 So, according to Jarred‘s testimony, the error by CAT was never corrected because it “actually worked out better for us at the time and it didn‘t need to get changed on their part” because Dry Creek Enterprises was already a defunct entity.176
Dry Creek Enterprises’ putative ownership was directly inconsistent with Jarred‘s later testimony during his own meeting of creditors when he testified that “if you call [CAT] finance, they say, [the Skidsteer is] listed in your father‘s name.”177 Jarred revealed this contradictory information in defense to questioning by Mr. LeRoy about Jarred‘s postpetition use of DCC property. That testimony concerning what CAT financing would say is questionable hearsay, but more importantly it contradicts Jarred‘s prior testimony that the Skidsteer was held in the name of Dry Creek Enterprises. In fact, the Skidsteer has always been owned by DCC, as Jarred and Garth ultimately recognized after they stopped using the Skidsteer (and other equipment) and amended their schedules for the final time.
When asked at his December 27, 2018 meeting of creditors why he had used the equipment after the original meetings of creditors, Garth replied that he understood that he had to turnover everything but exempt property.178 He further explained that he was waiting for clarity as to what was exempt.179 Garth testified that he expected some further direction from Ms. Jipping as he understood that she “had some latitude” regarding what DCC property was exempt and what was not.180 Garth maintained that there was confusion as to whether he and Jarred could use the equipment postpetition after the trustee had instructed them not to use property of the DCC estate. The Schindlers correctly note that Garth never actually exempted any of the equipment at issue, including the Skidsteer. Rather, he made vague references
Garth later doubled down on this line of reasoning. In connection with the cross motions for summary judgment, Garth provided an affidavit signed under penalty of perjury in which he testified that he used the equipment and tools postpetition because he had a conversation with Mr. Christianson in which he “thought that I was informed that I could use the equipment, so long as I did not harm the equipment.”182 This account of his purported conversation with Mr. Christianson has nothing to do with the exempt status of the property and calls into question the veracity of his statements at the
The Schindlers challenge the truthfulness of Garth‘s and Jarred‘s testimony at the meetings of creditors concerning why they continued to use DCC‘s equipment. They persuasively argue that both manufactured explanations to justify their use of DCC‘s equipment when they understood that DCC‘s trustee had specifically instructed them not to use that equipment. But, by the time Garth and Jarred gave that testimony at their own meetings of creditors, they had verbally relinquished their claims of ownership in DCC‘s equipment. Earlier in his meeting, Garth acknowledged DCC‘s ownership of the equipment when Mr. Battley asked him directly who owned each piece of equipment. Although Jarred did not provide similar testimony as to all the equipment during his later meeting of creditors, when asked at the beginning of his meeting if he disagreed with Garth‘s testimony he replied that he did not.184 Thus, Garth and Jarred did not make false statements regarding the ownership of the equipment at their meetings of creditors.
Nonetheless, the Schindlers argue that Garth‘s and Jarred‘s explanations why they used the equipment constitute false oaths. Strictly construed, this argument calls for the court to construe the veracity of whether the Skidsteer was originally sold, or titled to, Dry Creek Enterprises rather than DCC. Or, whether CAT financing ever told Jarred the Skidsteer was owned by his father. The Schindlers similarly ask the court to declare as false Garth‘s statement that he was waiting for further explanation from Ms. Jipping regarding either the exemption or use of the equipment before refraining from further use of that equipment. Garth‘s testimony about a conversation with trustee‘s counsel is to the same effect. Taking into consideration all of the evidence on this issue, including Jarred‘s and Garth‘s recognition of DCC‘s ultimate ownership, the court agrees with the Schindlers’ that the explanations
b. Materiality
Materiality under
During Jarred‘s and Jennifer‘s
[Y]ou guys and [Mr. Gazewood‘s] office have to get all this stuff cleaned up so that we‘re not just bouncing around. We can take a vehicle, we can say, okay, we had three sets of schedules and statements, which set more closely should this vehicle be put in? We don‘t want it on three of them. We just want it on one.
And some of them are very easy to do, because you‘ll get a title and it will say Jarred on it. Well, that‘s easy. That‘s going to go on yours. Or it will say Dry Creek on it, and that goes into Dry Creek. But these things that have been filed are going to be a nightmare to administer because our computer network, I will tell you, goes through and scans every one of these documents and pulls it up.
* * *
And not only is it going to be an accounting nightmare, but it‘s going to be a nightmare to grasp it mentally... Myself as trustee, Nacole as trustee, Erik as a lawyer, Cabot as a lawyer have to be able to sit down here and say, we need to understand this stuff. And the way it‘s presented, it‘s very difficult to understand it.189
The court concurs with Mr. Battley‘s statements. A debtor‘s schedules and statements are the cornerstone of his or her bankruptcy. They are made under penalty of perjury. A chapter 7 trustee and the creditors of the estate are entitled to rely upon those statements and schedules. The court finds that the Millirons’ misrepresentations in their schedules and statements were material due to their detrimental effect on administration of the estate. The misstatements, left uncorrected in their first amended schedules and statements, were contrary to the Millirons’ testimony at DCC‘s original meeting of creditors. This placed the equipment in peril of unauthorized used and required continued
The misstatements as to the Miltan Properties similarly created confusion concerning ownership of a significant asset. These misrepresentations created and fostered a running disagreement over different estates’ assets. This is the very essence of materiality under
The testimony at their meetings of creditors again requires closer attention. As to the ownership of the equipment, the court has found that Garth and Jarred recognized DCC‘s ownership during their examinations. Instead, it was their testimony regarding the justifications for their postpetition unauthorized use of the equipment that was false. Whereas the misstatements regarding the ownership of assets goes directly to defining property of each bankruptcy estate, the materiality as to why Garth and Jarred used DCC‘s equipment is less clear. Neither Garth nor Jarred denied using the equipment. It is undisputed that the trustee did not authorize their use of the equipment. The Schindlers do not explain how Garth‘s and Jarred‘s explanations as to why they thought they could use the equipment are material within the definition of materiality applicable to claims under
c. Intent
Mistakes are made and corrected in numerous bankruptcy cases. But accounting for those mistakes within a
Under
i. Knowing
A “knowing” act is one made “‘deliberately and consciously.‘”190 However, “[a] false statement resulting from ignorance or carelessness does not rise to the level of ‘knowing and fraudulent.‘”191 Recklessness is also insufficient to support a finding that a debtor “knowingly” made a false oath or account.192
Garth made material misrepresentations in both his schedules and statements and on the record at his and DCC‘s
Similarly, the context of Garth‘s actions makes it implausible to believe that the multiple misrepresentations were merely accidents. This is amply confirmed by the contradictory testimony concerning equipment ownership over the course of meetings of creditors, including his postpetition use of DCC‘s equipment. The transcripts reveal that those statements were not made inadvertently or recklessly. Rather, the testimony was part of a larger extended effort to justify the use of DCC‘s equipment when instructed not to do so. For these reasons the court concludes that Garth knowingly made the misrepresentations concerning the DCC equipment.
The Schindlers also argue that Garth similarly made a knowing false oath by omitting his ownership of the Miltan Properties. Given the timing of the transfer and encumbrance, as well as the stated reasons for both, the court finds that Garth knowingly omitted the Miltan Properties from his original schedules. The notion that a layperson, let alone an experienced businessman, could “kind of forget” a $110,000.00 credit line obtained mere days in advance of filing bankruptcy is simply incredulous.
II. Jarred
Jarred‘s schedules and statements included the same equipment listed on DCC‘s and Garth‘s schedules. Unlike Garth, however, Jarred was actually on title to the 2017 Dodge Ram and the 2015 Polaris Ranger, though he made conflicting statements of ownership as to these two items in his testimony at the meetings of creditors. Still, Jarred included the other DCC equipment, including the Skidsteer, in his original and first amended schedules. As explained above, this was not done by accident or oversight, but rather as part of an attempt to create, and maximize, confusion surrounding ownership of DCC‘s equipment so that he and Garth could continue to use the equipment postpetition.
As with Garth, Jarred‘s confusing and contradictory testimony during his meetings of creditors regarding the ownership of the equipment confirms that the misstatements were not accidental. Jarred and Garth engaged in a detailed explanation of the Skidsteer‘s ownership at the DCC
As for the Miltan Properties, Jarred did not list any interest in his initial schedules. But Jarred and Jennifer included the Miltan Properties and asserted a related homestead exemption in their first amended schedules filed the day before DCC‘s meeting of creditors. Jarred testified at trial that he believed in 2018 he did have an ownership interest in the Miltan Properties. The court is not persuaded that someone who signed a quitclaim deed as part of DCC to convey the Miltan Properties to his father shortly before filing for bankruptcy actually believed that he owned that property when he completed his bankruptcy paperwork just weeks later. The fact that Jarred did not originally list the Miltan Properties on the original schedules, but chose to add it as part of his amended schedules, only further demonstrates a knowing misstatement. No explanation has ever been provided as to why Jarred and Jennifer omitted the Miltan Properties originally, only to add them as part of their amended schedules.
ii. Fraudulent Intent
In the context of a claim under
The essential point is that there must be something about the adduced facts and circumstances which suggest that the debtor intended to defraud creditors or the estate. For instance, multiple omissions of material assets or information
may well support an inference of fraud if the nature of the assets or transactions suggests that the debtor was aware of them at the time of preparing the schedules and that there was something about the assets or transactions which, because of their size or nature, a debtor might want to conceal.198
The above analysis of the Schindlers’
Garth and Jarred testified at their meetings of creditors for their individual cases that they continued to use DCC‘s equipment because they were confused about the actual ownership of that equipment. The court finds that testimony to be not credible. Rather, the court finds that such testimony was offered as an excuse that is contradicted by Garth‘s and Jarred‘s prior testimony at the DCC meeting of creditors. In fact, Garth admitted DCC‘s ownership of the equipment during his meeting of creditors for his individual case. Jarred, on the other hand, continued to profess confusion concerning ownership of the equipment at the meeting of creditors in his individual bankruptcy as well as at trial. This leaves the court to decide whether Garth‘s and Jarred‘s false statements were fraudulently made.
I. Equipment
As for the scheduling of the DCC equipment and tools in their personal bankruptcy cases, Garth testified at trial that he did not think it appropriate for that property to be included on his personal schedules. Nonetheless, he stated that Mr. Gazewood told him he needed to list the personal property on his statements. The court notes that despite Garth‘s alleged reservations, the property appeared in both his opening and first amended schedules.
In the context of
Garth‘s explanations as to why he used DCC‘s equipment made at his continued meeting of creditors in his individual case are unconvincing and troubling. But even then Garth did not deny DCC owned the equipment. The court is unwilling to use Garth‘s post hac excuses for using DCC‘s equipment to establish his prior fraudulent intent when filing his amended schedules wrongfully listing his ownership in DCC‘s equipment. In this instance, the court sees a difference in the filing of the amended statements and Garth‘s later testimony at his meeting of creditors in his individual bankruptcy.
Jarred filed false schedules, originally and as amended, listing an ownership interest in DCC‘s equipment. On the whole, Jarred‘s testimony at DCC‘s meeting of creditors did not dispute DCC‘s ownership of the equipment. Jarred did offer additional explanations for the confusion surrounding the ownership of the equipment, and specifically that the seller of the Skidsteer had shown it as being owned by a different Dry Creek entity. Jarred also explained that he believed he held an ownership interest in DCC‘s tools and equipment because he was a co-owner of DCC. This is simply wrong as a matter of law. Given that Jarred was represented by counsel at the time, the court finds this to be problematic to the extent it is used to justify Jarred‘s statement of ownership in DCC‘s equipment.
It is his testimony during the meeting of creditors in his individual bankruptcy, however, where Jarred‘s situation truly diverges from his father‘s case. Jarred offered that CAT Finance had listed Garth as the owner of the Skidsteer at the time of the sale, though it had been claimed and depreciated by DCC in its tax filings. When questioned, Jarred confirmed that ownership of the Skidsteer “wasn‘t clear to me who owned it.”201 When asked about the ownership of the other equipment he used after he had filed his amended schedules in his individual bankruptcy and given testimony in DCC‘s bankruptcy such as the Snake River and Goertzen trailers, Jarred answered, “Yeah. All of it was in question of who the ownership was going to be at, as far as I was concerned, yes.”202 Even at trial, Jarred restated that there was confusion concerning who owned the equipment, even where certain pieces of equipment were titled in DCC‘s name.203 Again, Jarred explained that “I owned Dry Creek Construction, so I own the trailer.”204 He also confirmed that in 2018 he thought he owned property titled in DCC‘s name.205
Unlike Garth, Jarred continued to state his belief that he owned DCC‘s equipment. While this testimony goes to why Jarred believed he could use DCC‘s equipment after the trustee instructed him not to use the equipment, it is also relevant to why Jarred filed his amended schedules which inaccurately claim an ownership interest in DCC‘s equipment. While
The court finds Jarred‘s testimony on these points not to be credible. Rather, the testimony demonstrates a fraudulent intent or, at a minimum, the reckless indifference to the truth sufficient to sustain the Schindlers’
The court realizes that its decision draws a thin line between father and son. But their different approaches and testimony regarding the ownership are significant and material. As a result, the court reaches a different conclusion based upon the different facts relating to each.
II. The Miltan Properties
As detailed above, both Garth and Jarred knowingly made material misstatements in their schedules and statements concerning the ownership of the Miltan Properties. The Schindlers focus primarily on Garth‘s failure to disclose his ownership of the Miltan Properties and the associated line of credit with McKinley. While it is true that Garth made these omissions in his initial schedules, he amended the schedules just over a month later to disclose his ownership of the Miltan Properties and the McKinley line of credit. Garth filed the amended schedules prior to his own meeting of creditors. This is probative of a lack of fraudulent intent to conceal the Miltan Properties from his creditors. Based upon the amended statements disclosing the ownership and debt, the court concludes that Garth did not have a fraudulent intent to omit his interest in the Miltan Properties in the original statements.
On the other hand, although Jarred‘s opening schedules and statements appropriately omitted the Miltan Properties, his amended schedules asserted an ownership in those properties that he and his wife did not hold. Both Jarred‘s and Jennifer‘s signatures appear on the deed transferring the Miltan Properties from DCC to Garth dated September 11, 2018, just weeks prior to their bankruptcy case being filed.206 Based on the evidence presented, this transfer does not appear to have been a routine act that might have been easily forgotten by the debtors.
Given the timing, and the reasons for the deed of trust, the court expects that
Based on the above, the court concludes that Jarred knew that he did not own the Miltan Properties and had the fraudulent intent to deceive the trustee and creditors by claiming an interest in the Miltan Properties and then attempting to exempt those properties.
C. CONCLUSION
For the reasons explained above, the court concludes that: (1) the Schindlers’ claims against Kimberly Milliron and Jennifer Milliron must be denied under
DATE: March 31, 2021
/s/ Gary Spraker
GARY SPRAKER
United States Bankruptcy Judge
Serve: J. Gazewood, Esq.
E. LeRoy, Esq.
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