WiscTex, LLC v. GaleskyWiscTex, LLC v. Galesky
So Ordered.
Dated: December 21,
G. Michael Halfenger
Chief United States Bankruptcy Judge
DECISION AND ORDER FOR JUDGMENT
WiscTex, LLC, objects to Michael Galesky‘s discharge in his underlying chapter 7 case under various provisions of
I
The court need not consider the merits of WiscTex‘s objections to Galesky‘s discharge in this proceeding because WiscTex resoundingly failed to comply with the court‘s March 25, 2022 post-trial order, which expressly required WiscTex to file an opening post-trial brief “explaining why the court should enter judgment in its favor on one or more of its claims based on an application of the law to the facts shown by the evidence presented.” Ct. Mins. & Order (Mar. 25, 2022) at 2 (emphasis
WiscTex‘s post-trial briefs are markedly slapdash and, as a result, exceedingly difficult to follow. They are fatally flawed, relying to a stunning degree on materials that were not used at the trial or offered or admitted into evidence, and replete with conclusory arguments, many of which are unsupported by citations to the evidence or legal authority. See, e.g., Pl.‘s Closing Arg., ECF No. 75, at 4-5 & n.3 (stating, as a fact, that Galesky‘s January 2020 sale of real property on Marshall Avenue in Jefferson, Wisconsin, was “a completely sham sale” and citing, in support of this contention, in addition to trial testimony and exhibits, documents WiscTex filed before the trial and identified as “Exhibit 31“, “Exhibit 32“, and “Exhibit 50” that were not admitted into evidence); see also Ct. Mins. & Order (Mar. 25, 2022), ECF No. 71, at 1-2.
WiscTex‘s opening post-trial brief is nearly impenetrable. The first of that brief‘s two main sections is entitled, “Key Facts Presented“, but the proffered “facts” are inconsistently peppered with largely unmoored commentary and outright argument. See Pl.‘s Closing Arg. at 1-10. For example, among these “Key Facts” is a twelve-item list of transactions—which seem to have taken place between roughly 2012 and perhaps 2018, though for many there is no mention of when they occurred—described as instances of “Galesky‘s lavish spending“, that concludes, “There is simply no question that [Galesky engaged in] all of these transactions . . . [with the] inten[t] to acquire [assets] and then later transfer [those] assets from the purview of his creditors . . . .” Id. at 2-3 (emphasis added). To the extent WiscTex cites evidence of these transactions, rather than non-evidentiary materials, however, that evidence does not establish Galesky‘s intent as to any of them.1 The brief‘s other main section is entitled, “Elements of Plaintiff‘s Claims“. Id. at 10-14. But, apart from nebulously laying out WiscTex‘s view of the law governing the provisions of
WiscTex‘s failure to comply with the court‘s post-trial order unfairly complicated Galesky‘s task in responding to its opening brief, though, to his credit, Galesky‘s
Despite significant efforts, the court is unable to ascertain with substantial certainty the grounds on which WiscTex believes it is entitled to judgment in its favor. And, as already noted, WiscTex failed to comply with the court‘s post-trial order. As a result, other than the arguments addressed in the remainder of this decision, WiscTex waives all arguments that it makes (or might have made or believes it made) in its briefs and its objections to Galesky‘s discharge, to the extent based on those arguments.4
II
Notwithstanding the preceding discussion, the court considers and addresses, in
To further sift WiscTex‘s properly raised arguments from its many conceivable ones, the court applies the following well-established principles:
- “[A]rgument is limited to the facts in evidence.” United States ex rel. Shaw v. De Robertis, 755 F.2d 1279, 1281 (7th Cir. 1985) (citing United States v. Fearns, 501 F.2d 486, 489 (7th Cir. 1974), overruled in part on other grounds by United States v. Tucker, 714 F.3d 1006 (7th Cir. 2013)).6
- “[A]rguments not raised in an opening brief are waived.” Tuduj v. Newbold, 958 F.3d 576, 579 (7th Cir. 2020) (citing Lisle v. Welborn, 933 F.3d 705, 722 n.4 (7th Cir. 2019)).7
- “Failure to respond to an argument . . . results in waiver.” Bonte v. U.S. Bank, N.A., 624 F.3d 461, 466 (7th Cir. 2010) (first citing United States v. Farris, 532 F.3d 615, 619 (7th Cir. 2008); and then citing Williams v. REP Corp., 302 F.3d 660, 667 (7th Cir. 2002)).8
- “Perfunctory and undeveloped arguments are waived, as are arguments unsupported by legal authority.” M.G. Skinner & Assocs. Ins. Agency, Inc. v. Norman-Spencer Agency, Inc., 845 F.3d 313, 321 (7th Cir. 2017) (citing United States v. Hook, 471 F.3d 766, 775 (7th Cir. 2006)).
Applying these principles and construing WiscTex‘s briefs as described above, the court considers the merits of only the following arguments that WiscTex makes for why Galesky‘s discharge should be denied:
- Under
§727(a)(2)(A) , because Galesky delayed a final hearing on WiscTex‘s motion for summary judgment in its state-court action against him; misrepresented his financial condition; and “pretended like he was interested in settling with WiscTex but was merely stalling so that he could” sell his real property on Marshall Avenue in Jefferson, Wisconsin, and “divert his money“, including his net proceeds from that sale, into an exemptible annuity. Pl.‘s Closing Arg. at 4-6, 8 & 10-11. - Under
§727(a)(3) , because “Galesky . . . fail[ed] to keep or preserve adequate records. . . . without justification.” Id. at 12. - Under
§727(a)(4)(A) , because Galesky made “[f]alse statements” about whether he sold the Marshall Avenue property “to a stranger” and “the purpose for” that sale, “the nature of [a] debt owed to him by Axiom [Virtual Tours LLC]“, and “the reason for purchasing an annuity“; “failed to list in his Statement of Financial Affairs th[e] transfer of [his homestead] from his business entity, Byway Investment[,] to himself“; and falsely stated in his schedules that “he spends roughly $1,400 per month for miscellaneous expenses associated with his disability” and “roughly $1,000 per month on transportation expenses. . . . to make it appear that he is without adequate monies to pay his bills.” Id. at 9-10 & 12-13. - Under
§727(a)(5) , because Galesky failed to satisfactorily explain his use of the net proceeds from the 2017 sale of his former residence on Mark Drive in Johnson Creek, Wisconsin. Id. at 7-8.
III
The parties dispute many of the specific facts material to resolving the arguments by WiscTex listed above, particularly the inferences to be drawn from the evidence. Those disputes are addressed in detail, with respect to the issues to which they most closely relate, in section IV, below. The parties do not, however, meaningfully dispute the facts, in a general sense, and based on the evidence, the court finds as follows.
Galesky was born in 1971 and enlisted in the U.S. Army in 1990. Trial Ex. 44, ECF No. 35-52, at 2 (5:20-21); Trial Tr. (Mar. 18, 2022) at 35:23-24. He received an honorable discharge and has a service-connected disability. Trial Tr. (Mar. 18, 2022) at 36:22-25. Since 2000 he has received disability compensation from the Department of Veterans Affairs. Trial Ex. 44 at 6 (23:19-21). Since 2020 he has also received disability benefits from the Social Security Administration. Id. at 6 (23:22-23 & 24:3-7).
WiscTex‘s judgment has its roots in a series of loans that JPMorgan Chase Bank made to a company called Johnson Creek Enterprises LLC between 2012 and 2014. Trial Ex. 44 at 7 (27:8-12).10 Galesky was involved with Johnson Creek Enterprises from 2008 to 2016, and for much of that time, he was both its president and the only member of
one of its members, a company called Therrons Dad LLC. Trial Tr. (Mar. 17, 2022) at 117:19-21 & 160:24-161:16. In 2012, when Chase made its first loan to Johnson Creek Enterprises, Galesky signed a continuing guaranty of repayment of the company‘s debts to Chase. See Trial Ex. 44 at 7 (27:13-17).11 Galesky
In May 2017, after leaving Johnson Creek Enterprises, Galesky moved from a property he owned on Mark Drive in Johnson Creek, Wisconsin, to a property on 35th Street in Milwaukee owned by his single-member LLC Byway Investment. Trial Tr. (Mar. 17, 2022) at 90:18-22, 109:1-5 & 117:16-18; Trial Tr. (Mar. 18, 2022) at 37:1-18 & 57:3-6. Galesky sold the Mark Drive property later that year, netting about $172,000 in proceeds from the sale. Trial Tr. (Mar. 18, 2022) at 56:10-57:25 (discussing Trial Ex. 107, ECF No. 48-7, at 153). In May 2019, after WiscTex sued him in state court, Galesky, as Byway‘s managing member, executed a quit-claim deed transferring the 35th Street property to himself. Trial Tr. (Mar. 17, 2022) at 134:10-135:18 (discussing Trial Ex. 101, ECF No. 48-1). Galesky claimed the 35th Street property as his exempt
homestead under state law in his chapter 7 case. Trial Ex. 2, ECF No. 35-2, at 10 (citing
In June 2019 Galesky loaned $10,000 to a company called Axiom Virtual Tours LLC, which gave him a note promising repayment, with interest, in five years. Trial Ex. 44 at 14-15 (56:24-57:6 & 57:21-23); Trial Ex. 112, ECF No. 48-12.12 Axiom‘s only members are Galesky‘s sister and brother-in-law, Belinda and Bruce Fuller. Trial Tr. (Mar. 17, 2022) at 95:21-96:1, 139:24-25 & 140:7-13; Trial Ex. 46, ECF No. 35-54, at 3 (10:13-15); Trial Ex. 47, ECF No. 35-56, at 3 (10:3-25).13
$135,000 but conditioned its offer on an appraisal of the property‘s value at or above $170,000, and Galesky accepted that offer. Trial Ex. 61, ECF No. 35-54, at 22 & 30.14 An appraiser concluded that the property was worth $175,000, and the sale closed. Trial Ex. 60, ECF No. 35-54, at 37; Trial Ex. 63, ECF No. 35-54, at 75.15
In February 2020, days before a scheduled hearing on WiscTex‘s then-pending motion for summary judgment, Galesky wrote a check on a newly opened account for $100,000 to Nationwide Advisory Solutions for an annuity. Trial Tr. (Mar. 17, 2022) at 179:22-25, 180:13-24 (discussing Trial Ex. 36, ECF No. 35-37, at 1); Trial Ex. 9 at 5; Trial Ex. 34, ECF No. 35-35, at 1; Trial Ex. 108, at 1 (same as Trial Ex. 36 but for the inclusion of the last four digits of the account number). To fund this purchase, Galesky pooled his net proceeds from the sale of the Marshall Avenue property a few weeks earlier, which totaled about $66,000, with $5,500 he withdrew from a brokerage account, after selling some shares of stock; $16,500 transferred out of an account held by Byway; and more than $21,000 that he transferred from another personal account. Trial Tr. (Mar. 17, 2022) at 181:14-17; Trial Ex. 44 at 21 (83:20-84:19), 22 (88:4-9) & 23 (89:11-25); Trial Ex. 108, ECF No. 48-8, at 1 & 3-4.
WiscTex obtained its state-court judgment against Galesky months later, and months after that, Galesky commenced his chapter 7 case. Since then, for more than two years, WiscTex has litigated against Galesky in this court, first pursuing, through a bench trial, its objections to Galesky‘s claims of exemptions, and then pressing, through
another bench trial, its objections to his discharge. The remainder of this decision addresses the arguments for these latter objections listed in section II, above.
IV
As previously discussed, this decision addresses on the merits only WiscTex‘s arguments, listed in section II, above, for denial of Galesky‘s discharge under
A
WiscTex first objects to Galesky‘s discharge under
1
“Section 727(a)(2) is intended to prevent the discharge of a debtor who attempts to avoid payment to creditors by concealing or otherwise disposing of assets.” 6 Collier on Bankruptcy ¶727.02[1] (16th ed. 2022) [hereinafter Collier (2022)], LexisNexis. It reads, in full, as follows:
(a) The court shall grant the debtor a discharge, unless— . . .
(2) the debtor, with 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; or
(B) property of the estate, after the date of the filing of the petition;
. . . .
“The exception to discharge in § 727(a)(2)(A) essentially ‘consists of two components: an act (i.e., a transfer or a concealment of property) and an improper intent (i.e., a subjective intent to hinder, delay, or defraud a creditor).‘” Kontrick, 295 F.3d at 736 (quoting Rosen v. Bezner, 996 F.2d 1527, 1531 (3d Cir. 1993)). “The party seeking to bar discharge must prove that both these components were present during the one year before bankruptcy; anything occurring before that one[-]year period is forgiven.” Id. (quoting Rosen, 996 F.2d at 1531). Moreover, “the complaining creditor” must “demonstrate[] by a preponderance of the evidence that the debtor actually intended to hinder, delay, or defraud a creditor“. Kempff, 847 F.3d at 448 (emphasis added) (quoting Village of San Jose v. McWilliams, 284 F.3d 785, 790 (7th Cir. 2002)). But the debtor‘s intent “may be inferred from the circumstances of the debtor‘s conduct.” Smiley v. First Nat‘l Bank of Belleville (In re Smiley), 864 F.2d 562, 566 (7th Cir. 1989) (citation omitted) (citing First Beverly Bank v. Adeeb (In re Adeeb), 787 F.2d 1339, 1342-43 (9th Cir. 1986); Farmers Co-op. Ass‘n v. Strunk, 671 F.2d 391, 395 (10th Cir. 1982)).
A debtor‘s mere use of available exemptions does not evidence an intent to hinder, delay, or defraud his creditors under
Smiley counsels that a debtor has the kind of improper intent required by
After obtaining an agreement from his creditors to postpone collection of his debts, Reed borrowed money to augment
his antique collection. He set up a separate bank account opened without the knowledge of his creditors in which he deposited his business receipts. He repaid from that account the money he had borrowed to buy the antiques. In addition to the antiques, Reed accumulated other personal assets and then sold all of them for less than fair market value. He transferred the proceeds to exempt property by applying them towards the mortgages on his house. Reed‘s entire course of conduct evidenced that he intended not only to take advantage of his exemption rights, but that he intended to deceive his creditors into thinking that there would be assets available to them when, in fact, Reed was converting every one of his assets to an exempt form.
864 F.2d at 568 (discussing 700 F.2d 986 (5th Cir. 1983)). In other words, Reed, not unlike Smiley, “deceived his creditors and kept them from seeking payment.” Id.
Notwithstanding any suggestion to the contrary, Smiley clarifies, as more recent Seventh Circuit cases have echoed, that “[
There is often no direct evidence of a debtor‘s improper intent—such as a debtor‘s admission under oath that he acted with such intent—so courts commonly “look . . . for extrinsic signs of fraud.” See Smiley, 864 F.2d at 567. Also called “badges of fraud“, such extrinsic signs are, in essence, circumstantial evidence that may support a reasonable inference, which the debtor must then rebut, that the debtor acted with improper intent under
2
With respect to
The evidence does show, however, that one or more “badges of fraud” — often described in exceedingly broad terms, e.g., “the existence or cumulative effect of a pattern or series of transactions or course of conduct after the incurring of debt“, “the general chronology of the events and transactions under inquiry” — are present with respect to at least some of Galesky‘s actions. See 6 Collier (2022), supra, ¶727.02[3][b] (quoting Kaiser, 722 F.2d at 1583). For example, Galesky does not dispute that he disposed of and acquired property while WiscTex was pursuing a judgment against him in state court, which some courts would likely view as circumstantial evidence of improper intent under
(quoting In re May, 12 B.R. 618, 627 (N.D. Fla. 1980))). But at this level of generality, the argument is insufficiently developed to allow the court to properly address it.
The next portion of WiscTex‘s argument proper under
For the most part, this argument is not supported by the evidence. The evidence certainly suggests that, for the better part
But the teaching of Smiley and related Seventh Circuit cases is that a debtor should not be denied a discharge or otherwise punished for acting as the law allows with respect to his property, and the evidence suggests little else happened here. Galesky personally guaranteed debts owed by Johnson Creek Enterprises to Chase, and WiscTex obtained a judgment against Galesky based on his resulting liability for those debts. Maybe Johnson Creek Enterprises was obligated to make specified payments on those debts (e.g., according to one or more payment schedules set forth in the notes it gave to Chase), and it presumably defaulted on those obligations.16 There is no evidence, however, establishing that or when Galesky either became obligated to make payments on the debts he guaranteed or defaulted on any such obligations. What little relevant evidence there is suggests that Galesky simply opted to spend or invest his money, rather than volunteer it to one or more of his creditors to pay down or pay off debts on which he might never have been made to pay anything at all. The court finds in this general conduct no persuasive indications that Galesky transferred property with improper intent during the one-year lookback period under
WiscTex‘s argument proper under
state-court action against Galesky, and early February 2020, when the state court held its first hearing on that motion, Galesky and WiscTex, through their attorneys, each made an offer to the other to settle the case, and each rejected the other‘s offer; around the same time, Galesky sold the Marshall Avenue property, liquidating his likely non-exemptible equity in it; and soon after, days before the February 2020 hearing, Galesky converted his net proceeds from that sale, along with other funds, into an exemptible annuity. Under Smiley, the mere conversion of property within one year before the filing of a bankruptcy petition is not sufficient to permit denial of a debtor‘s discharge under
Based on the relevant evidence, the court finds as follows: WiscTex filed its motion for summary judgment against Galesky in mid-August 2019. Trial Tr. (Mar. 18, 2022) at 106:1-5; Trial Ex. 9 at 7. That motion was still pending nearly four months later, in early December, when Lakeland offered to buy Galesky‘s Marshall Avenue property for $135,000. Trial Ex. 61, ECF No. 35-54, at 22. Later that week, Bryan Ward and Andy Frank—counsel for WiscTex and Galesky, respectively—called the state court to schedule a hearing on WiscTex‘s motion, and a hearing was set for early February 2020. Trial Tr. (Mar. 18, 2022) at 106:19-24; Trial Ex. 9 at 6. Early the following week, Ward spoke with Frank about settlement. Trial Tr. (Mar. 18, 2022) at 111:3-10. Ward had, sometime earlier, “communicated to . . . Frank” an offer by WiscTex to settle the case for Galesky‘s payment of an amount “in the $550,000 range or the $500,000 range, about $100,000 off the total amount owed.” Id. at 113:3-8. Frank flatly rejected that offer when he spoke with Ward: “[H]e said no, there was no way. He thought he could get maybe [$20,000] to [$]25,000.” Id. at 113:10-12. Ward told Frank that WiscTex “would require full financial disclosure at a number that small.” Id. at 113:12-13. Frank responded, “I don‘t
think so[,] but I can see what I can do.” Id. at :13-14. About a month later, in mid-January 2020, Ward again spoke with Frank, who said that “he could get an offer for $30,000 but there would be no financial statements provided“, “that was a final offer“, and “otherwise [Galesky] was just going to go into bankruptcy.” Id. at 115:18-23. Two days later, Galesky and Lakeland closed the sale of the Marshall Avenue property. Trial Ex. 63, ECF No. 35-54, at 75. Between the close of that sale and the state-court hearing on WiscTex‘s summary-judgment motion in early February, three weeks later, Galesky pooled more than $100,000-about two-thirds of which were his net proceeds from selling the Marshall Avenue property-in a newly opened checking account and used it to buy an annuity. Trial Tr. (Mar. 17, 2022) at 179:24-182:8; Trial Ex. 108 at 1 & 3-4.
These facts may bolster WiscTex‘s proffered narrative-that Frank‘s exchange of settlement offers with Ward was nothing but a blind to stall the state-court proceedings long enough to allow Galesky to offload the Marshall Avenue property and convert his net proceeds from the sale into an annuity, thereby shielding from WiscTex as much of his equity in the property as he could-but Galesky told a different story in his sworn trial testimony. Galesky testified at trial as follows: He did not need to sell the Marshall Avenue property to make good on his offer to pay WiscTex $30,000 to settle its state-court case against him. Trial Tr. (Mar. 18, 2022) at 87:2-7. Nevertheless, he sold that property, at least in part, because he did not think he had enough cash on hand to satisfy any settlement offer that he or WiscTex was likely to make that the other was likely to accept. Id. at 45:23-46:16. At the same time, he was reviewing his finances and became concerned that-due to his age, disability, related health issues, and limited job prospects-his income, which at the time was only disability compensation from the Department of Veterans Affairs, and retirement savings, about $73,000 in an individual retirement account, would not be sufficient to cover his expenses, sometime in the future. Id. at 46:17-47:15, 47:23-48:18 & 50:20-51:21. After WiscTex rejected his counteroffer, he decided to spend funds he had on hand
Based on this trial testimony, which the court found credible, the court finds as follows: Galesky liquidated assets with the intention of reaching an agreement with WiscTex to settle its state-court case against him. During settlement negotiations with WiscTex, he came to believe that WiscTex was unlikely to agree to settle the case for an amount that he was willing or able to pay. He then bought an annuity to assuage his newly arisen, though well-founded and sincere, concerns about whether his future income would allow him to pay his plausibly foreseeable increased future expenses.
The reliability of this credible testimony is bolstered by its consistency with Galesky‘s conduct. That he converted likely non-exemptible property interests into an exemptible annuity aligns with his stated worries about his future financial condition. After all, if he had not done that, then the funds he had collected from liquidating assets would likely have been taken from him and distributed to his creditors, principally WiscTex, in his chapter 7 case-or, had he not commenced a chapter 7 case, he would likely have lost them to WiscTex, collecting on its judgment-and as a result, those funds would not be available to him in the future, if and when he needs them. That he effectively put the value of some of his property interests beyond WiscTex‘s reach is not, in itself, evidence of improper intent under
Moreover, if Galesky intended to delay the state-court proceedings when he made his counteroffer to WiscTex, it was a notably weak effort. WiscTex observes in its opening brief that Galesky “clearly could have offered and paid more” than $30,000 to settle the case. Pl.‘s Closing Arg. at 5. But that tends to make it less, rather than more, likely that he made his counteroffer with the intent to wrongfully hinder or delay WiscTex. Despite being in a position to more aggressively pursue a settlement agreement with WiscTex, and potentially draw out the litigation, he made only a minimal effort to resolve the case outside of court, making a low-ball offer that WiscTex likely found risible and seems to have summarily rejected. Indeed, if he had only slightly prolonged the settlement negotiations, he may have been able to forestall the hearing on WiscTex‘s motion for summary judgment motion scheduled for early February 2020, but he did not even do that much; that hearing was held as scheduled.17
WiscTex makes much of the fact that Galesky hired bankruptcy counsel and consulted with his attorneys before buying his annuity and that Frank threatened that Galesky would seek relief under the Bankruptcy Code if WiscTex did not accept his $30,000 counteroffer. Based on these facts, WiscTex argues (though only in its reply brief, so all of this is waived in any event) that Galesky knowingly converted his liquidated assets into an exemptible form when he bought his annuity and must have been planning to seek relief under the
The court finds in these facts nothing that persuasively suggests improper intent under
In all events, Smiley makes clear that a debtor‘s general knowledge and efforts to avail himself of exemptions under applicable law are not evidence of improper intent under
For these reasons, weighing the evidence relevant to WiscTex‘s argument proper under
WiscTex makes various assertions in its opening brief in apparent support of broader arguments for denial of Galesky‘s discharge under
a
WiscTex‘s first such assertions are that, after it sued him in state court, “Galesky acted to both hinder and delay [it]” by “[t]ransferring the 35th Street Property out of Byway . . . into his personal name so he could claim it as his exempt homestead” and that “[t]he transfer of the 35th Street Property out of Byway[] was for NO consideration and allowed Galesky to claim a homestead exemption in property that but for the fraudulent transfer, he would not have been entitled to.” Id. at 4 & 8.18 In support of18
these assertions, WiscTex cites Galesky‘s trial testimony confirming or stating as follows: there was no mortgage on the property when he filed his chapter 7 petition, he listed the property in his bankruptcy schedules with a value of $73,000, Byway transferred it to him while WiscTex‘s state-court case against him was pending, and he did not pay Byway for the property. Trial Tr. (Mar. 17, 2022) at 123:1-9 & 136:2-7. He caused the transfer, as Byway‘s managing member, because he learned about “credits available for the property taxes and other assistance that could be available . . . through the Wisconsin Veterans Association.” Id. at 124:2-6. And, while he still must pay the taxes assessed on the property each year, he can now recover the amount he has paid by claiming a corresponding credit on his income tax return. Id. at 136:25-137:4.
This transfer occurred more than one year before Galesky filed his chapter 7 petition, beyond the temporal scope of
because the transfer was a “fraudulent transfer“, it is circumstantial evidence that later transfers of property by Galesky, during the one-year lookback period-including his sale of the Marshall Avenue property months later and his purchase of an annuity soon after that-were made with improper intent under
Based on the evidence, particularly Galesky‘s relevant trial testimony, which the court found credible, the court finds as follows: Byway bought the 35th Street property in late 2016 planning “[t]o fix it up” and “sell it off“. Trial Tr. (Mar. 18, 2022) at 37:1-16; Trial Ex. 44 at 2 (6:6-25). Galesky moved there in May 2017, after he quit working for Johnson Creek Enterprises, because “there was still a lot of work to be done on it and [he] didn‘t want to be living out in Johnson Creek any further.” Trial Tr. (Mar. 18, 2022) at 37:17-38:1. About a year later, Galesky was still living there, when he found out that, if he, rather than Byway, owned the property he would be eligible for tax credits that Wisconsin law provides to homeowning military veterans and could possibly also receive “other assistance” from a state veterans association. Trial Tr. (Mar. 17, 2022) at 124:2-11; Trial Tr. (Mar. 18, 2022) at 37:24-38:10. Because “[he] was going through some medical issues at the time“, this “wasn‘t on the top of [his] list of things to take care of“, so he did not act on this knowledge for another “year or so“, but in May 2019, he executed a quit-claim deed on Byway‘s behalf, transferring the property to himself. Trial Tr. (Mar. 18, 2022) at 38:8-22; Trial Ex. 101. The property has been, and remains, Galesky‘s homestead since he moved there in 2017. Trial Tr. (Mar. 17, 2022) at 90:18-22.
WiscTex discounts Galesky‘s trial testimony that, despite its pending case against him, keeping his homestead from his creditors “wasn‘t a consideration at the time” of the transfer. See Trial Tr. (Mar. 17, 2022) at 125:6-15 (Galesky testified that he caused Byway to transfer the property because of “the tax credits . . . [a]nd other
WiscTex stresses that Galesky did not compensate Byway for the property, which Galesky concedes. Again, though, WiscTex fails to explain why this fact matters, and the court takes from it nothing of consequence. WiscTex made this same point, in much the same way, to much the same effect, when it objected to Galesky‘s claim of a state-law homestead exemption, in the main case, and the court rejected its argument: “[WiscTex] attack[s] Byway Investment‘s transfer to the debtor of his homestead as a transfer to an insider in return for essentially no value. It inarguably was, but so what?” See In re Galesky, 633 B.R. 574, 583 (Bankr. E.D. Wis. 2021). The statute at issue there, which concerns only transfers of property made “with the intention of defrauding creditors“, is narrower in scope, at least textually, than
That WiscTex calls this a “fraudulent transfer” does not make it one, and WiscTex otherwise offers little beyond the timing of the transfer (after it sued Galesky in state court) and its effect (Galesky‘s eventual, successful exemption of his homestead from the property of the bankruptcy estate) to show that this transfer is evidence that Galesky acted with improper intent such that WiscTex is entitled to denial of his discharge under
b
WiscTex next asserts that, after it sued him in state court, “Galesky acted to both hinder and delay [it]” by “[l]ending $10,000 to Axi[o]m . . . , a company owned and operated by Bruce Fuller ([hi]s brother-in-law) and not receiving a payment in return so that he could show the debt as uncollectable.” Pl.‘s Closing Arg. at 4. The first evidence that WiscTex cites in support of this assertion is the deposition testimony of Belinda Fuller, Galesky‘s sister and Bruce Fuller‘s wife, in which she confirmed or stated that, based on the note Axiom gave to Galesky for the loan and her own recollection, the loan was made in 2019; she was “[n]ot really” involved in this transaction, though she “recognize[d] the [note]“; and she did not know why Bruce Fuller signed it in February 2020. Trial Ex. 46 at 10 (39:10-23). WiscTex then cites Galesky‘s trial testimony confirming or stating his belief that Axiom is owned by Bruce and Belinda Fuller; he listed the note from Axiom in the schedule of assets (schedule A/B) that he filed in his chapter 7 case, indicating that, while the estimated amount Axiom owed on the note was about $10,600, his “guesstimate of collectability” on it was only $7,500; and the note still exists, but no payments have ever been made on it, and he has not spoken to Bruce or Belinda about collecting on it. Trial Tr. (Mar. 17, 2022) at 95:21-96:14. Finally, WiscTex cites the trial testimony of Doug Mann, the chapter 7 trustee, stating that he “ha[d] not done any investigation [of] or attempted collection” on the note from Axiom. Trial Tr. (Mar. 18, 2022) at 20:9-23.21
This loan-like Byway‘s transfer of Galesky‘s homestead-occurred more than one year before Galesky filed his chapter 7 petition, beyond the temporal scope of
WiscTex does not explain how the loan or the circumstances surrounding it suggest anything untoward about any of Galesky‘s transfers during
The evidence establishes one seemingly odd fact about this transaction: although the note is dated June 19, 2019, Bruce Fuller‘s signature on it, as Axiom‘s managing member, is dated February 12, 2020. Id. WiscTex only obliquely references this fact by way of its citation, in a footnote, to Belinda Fuller‘s deposition testimony, described
c
WiscTex next offers a string of assertions about the circumstances extrinsic to Galesky‘s sale of his Marshall Avenue property to Lakeland Property Management, during the one-year lookback period under
- Galesky sold the property “for less than the appraised value“;
- Lakeland‘s principal, Robert Kokott, “specializes in ‘buying’ property for people who are in bankruptcy and holding” it “for resale to those people“;
-
“Kokott . . . specifically testified that he knew a bankruptcy filing was planned at the time of the sale of the house, sating [sic] ‘[i]t was my understanding that Belinda‘s brother was going to file bankruptcy, and . . . I was told‘” that that was why the property was being sold; - “Galesky allowed the Fullers“, his sister and brother-in-law, who were renting the property from him and living there at the time, “full control over the sale of the property so the property could be transferred out of his name while still allowing the Fullers to remain in the property“; and
- “Galesky testified that he wanted his ‘sister and brother-in-law to have purchased it and [he] decided that it was time for it to be sold so if they could purchase it then they could purchase it. If not, then they could find somebody else.‘”
Pl.‘s Closing Arg. at 4-5 (alterations in original) (first quoting Trial Tr. (Mar. 17, 2022) at 45:15-17; and then quoting id. at 143:11-16) (citing id. at 77:21-24, 79:2-9 & 142:1-25).23 WiscTex also stresses, pages later in its opening brief, that the sale occurred “in the months prior to filing bankruptcy, when [its] motion for summary judgment was pending in the state court“, and asserts that its “investigation showed that the entire sale was a sham transaction designed to keep the . . . property under the control of Galesky and his family and in his portfolio of assets.” Id. at 8.24
To determine whether WiscTex has met its burden to prove that Galesky sold the Marshall Avenue property with improper intent under
Galesky bought the Marshall Avenue property in 2013 or 2014 “so [his] sister [Belinda] would have a place to live with her kids near a school“, intending, “[g]enerally, . . . to keep [it] long enough for the youngest to graduate high school.” Trial Tr. (Mar. 18, 2022) at 39:4-40:1.25 Belinda “moved in shortly after [he] purchased the25
place” and paid him $550 a month in rent-which “was [what] she could afford at the time“-though he paid about twice as much each month to Quicken Loans, which had a mortgage on the property, and also paid the taxes and insurance premiums. Trial Tr. (Mar. 17, 2022) at 139:7-140:6, 140:17-18 & 140:24-141:10. Belinda married Bruce Fuller sometime later, and he moved in with her. Id. at 140:7-16. Galesky never raised the rent. Id. at :19-23. But he “always expected that either [his] sister or [his] sister [and] brother-in-law would . . . purchas[e] the property” from him. Id. at 141:15-16; Trial Ex. 47 at
By mid-2019 Belinda‘s youngest child had graduated from high school. Trial Tr. (Mar. 18, 2022) at 40:2-3. Once that happened, as he had always intended, Galesky wanted to divest himself of the property, so he “decided . . . to put the pressure on [the Fullers] to . . . move out or move on . . . with ownership of the place.” Id. at 41:4-7 & :17-21. At first, this was “a gradual . . . pushing of them to get their stuff together so that they could take it over“, but that summer, he “poured on the pressure“, making clear that it was “time for [them] to do something.” Id. at :8-12. This came as no surprise to the Fullers, who “were aware that [Galesky] was not interested in long-term holding of the property“, given their “many discussions about . . . taking it over or getting a loan and buying it.” Id. at 40:17-20; Trial Ex. 47 at 5 (18:1-4) & 16 (62:21-63:3) (Bruce testified at his deposition that “[Galesky] had . . . waited six years for [them] to try to get a loan on the house and was patient about it“, but the ongoing delay in “get[ting] him o[ut] from underneath this property“, which “[h]e never intended to own . . . long term“, “was starting to affect the family relationship“, so “it was pretty clear in a number of ways” that “[i]t was . . . time.“). The Fullers were not able to get a bank loan to buy the property from Galesky, however, though “they checked into it several times.” Trial Tr. (Mar. 18, 2022) at 40:21-41:1; Trial Ex. 47 at 4-5 (16:21-17:12) & 10 (40:15-19) (Bruce testified at his deposition that he and Belinda “went to [their] bank and . . . a second bank” but could not get a loan to buy the property because they were “both . . . coming off . . . divorces” and “still on the road to recovery” financially; Belinda had “a student loan issue” that affected her credit rating; and “[they] were renting from family“, so their rent payments to Galesky “meant nothing as far as . . . payment history.“).
By late 2019 the Fullers were under rising pressure from Galesky “to purchase the house“, but they “weren‘t in a position to be able to do that at the time“, so Bruce reached out to Robert Kokott in “mid-November or the very beginning of December“. Trial Ex. 47 at 4 (15:19-16:7). Neither Bruce nor Belinda had met Kokott, but they knew about him and his company, Lakeland. Trial Tr. (Mar. 17, 2022) at 44:1-6; Trial Ex. 46 at 4-5 (16:18-17:2); Trial Ex. 47 at 4 (13:4-13). Sometime earlier, Bruce, a licensed real estate agent, had worked as the listing agent for the purported sellers of a house in Palmyra, Wisconsin. Trial Ex. 47 at 2 (8:9-13) & 4 (14:15-16).26 As it turned out, the people who were trying to sell the house did not “actually own [it]“-though they once had, and they had “an option to purchase” it back. Id. at 4 (14:21-22). “[T]hey explained that they almost lost their home years before” but “had found a financial investor who was able to purchase the house and become their new landlord“. Id. at 4 (14:23-25). “[T]hat is how [the Fullers] first heard about” Lakeland and Kokott. Id. at 4 (15:2-14).
After the Fullers lined up Lakeland as a potential buyer, Galesky “looked at some of the prices that were out there“; considered what he knew or had been told about the condition of the Marshall Avenue property, including “that the roof needed to be worked on or replaced“, “the HVAC system was . . . still working but older, and the kitchen was . . . in need of a complete
On December 8, 2019, Kokott drafted a written offer, on behalf of Lakeland, to buy the property from Galesky, “as is“, for $135,000, and sent it to Bruce, understanding that Bruce would forward it to Galesky. Trial Tr. (Mar. 17, 2022) at 52:7-20; Trial Ex. 61, ECF No. 35-54, at 22 & 30. The offer was contingent on an appraisal showing the property‘s value to be “greater than or equal to $170,000“. Trial Ex. 61, ECF No. 35-54, at 30. This is consistent with Kokott‘s general business practices for Lakeland, which often buys properties that are subject to or at risk of foreclosure, like the “property . . . in Palmyra“, to “help the homeowner.” Trial Tr. (Mar. 17, 2022) at 44:2-5. Kokott has Lakeland pay “maybe what‘s owed on the property“-in which case the previous owner can typically “buy it back for $5,000 more than” Lakeland paid-or “anywhere from twenty to thirty percent below the market value.” Id. at 44:10-45:1. The Marshall Avenue property was not “a foreclosure“, and Galesky owed far less on it than the asking price, but the appraisal contingency ensured that Lakeland would only have to buy it if it was independently determined to be worth 20-30% more than the asking price, so Lakeland “could sell [it] for a profit” if necessary. Id. at 45:2-9; Trial Ex. 63, ECF No. 35-54, at 75 (noting a “[p]ayoff [to] Quicken Loans” of about $67,000).28
Later that week Bruce presented Lakeland‘s offer to Galesky. Trial Ex. 61, ECF No. 35-54, at 30; Trial Ex. 47 at 5 (20:3-4). Galesky did not think the property‘s appraised value would exceed $170,000, but he nevertheless accepted the offer, subject to Lakeland‘s appraisal contingency. Trial Tr. (Mar. 17, 2022) at 156:19-157:1; Trial Ex. 61, ECF No. 35-54, at 30.29
The sale closed on January 15, 2020. Trial Ex. 63, ECF No. 35-54, at 75. Galesky paid off his debt to Quicken Loans-about $67,000 at the time-and walked away with about $66,000. Id. The Fullers signed a rental agreement with Lakeland, more than doubling their rent, from the $550 a month that Galesky had charged
The sale plainly benefited Galesky, the Fullers, and Lakeland. Galesky rid himself of a property that he had owned for years, reluctantly and at a consistent and substantial loss, and he got for it what he thought was its fair value, considering its condition. The Fullers, no longer financially burdening an increasingly agitated relative, planned to make “at least a full year of payments for [their] residence that were not being paid to a family member“, hoping that would give “[their] bank” the “steady payment history” they needed to “secur[e] a loan for the house” and finally buy it, by exercising their option to purchase it from Lakeland. Trial Ex. 47 at 10 (38:17-25). Lakeland got a stream of rent payments from tenants dedicated to buying the property from it “as is” for more than it had paid, and Kokott had taken his usual steps to ensure, to the extent reasonably possible, that even if they did not, Lakeland could still profit.
Galesky‘s sale of the Marshall Avenue property was, ultimately, to WiscTex‘s detriment, however, as he used his net proceeds to buy an exemptible annuity, which left WiscTex less able to collect on its later-obtained judgment against him. Based on the foregoing facts, however, and considering all of the relevant extrinsic circumstances, as discussed both above and below, the court concludes that WiscTex has failed to prove that Galesky sold this property with improper intent under
ii
WiscTex‘s assertion that Galesky sold the Marshall Avenue property for less than its appraised value is undisputed and clearly correct, but the evidence shows that Galesky‘s asking price of $135,000 reasonably reflected substantial issues with the property for which Buchta did not account in concluding that it was worth $175,000. Indeed, the evidence suggests—though it does not necessarily establish—that the total cost to remedy the issues with the property that Galesky considered when setting his asking price may have roughly equaled (or even exceeded) the amount by which his asking price differed from the property‘s appraised value.33
Based on the evidence, the court finds that Galesky set his asking price based on his understanding of the property‘s value, after accounting for what he knew, or thought he knew, about its condition, and that he acted neither fraudulently nor otherwise improperly in doing so. The court is not persuaded otherwise by the fact that someone else—with different, and seemingly less, information about the property—later concluded that the property was worth more than Galesky had asked for it.
WiscTex‘s assertion that “Kokott . . . specializes in ‘buying’ property for people who are in bankruptcy and holding [it] for resale to those people” is not supported by the evidence. Pl.‘s Closing Arg. at 4. Kokott testified at the trial that, through Lakeland, “[he] purchase[s] foreclosures“. Trial Tr. (Mar. 17, 2022) at 44:5 (emphasis added). When asked, “[H]ave you been involved in any sales of residential property involving a bankruptcy situation?“, he answered, “Yes.” Id. at 47:7–9. But when he was then asked, “How many?“, he answered, “Two.” Id. at :10–11. And he had already testified that, at the time of the trial, Lakeland had existed for about 25 years and owned “[a]bout fifteen” houses. Id. at 43:12–18. Based on this testimony, which the court found credible—and the complete lack of any contrary evidence—the court finds that buying property from people who had commenced bankruptcy cases, or were considering doing so, is and was, at most, a small part of Kokott‘s and Lakeland‘s business.
Even if this assertion were true and supported by the evidence, the court would not find it compelling. WiscTex does not explain how Kokott‘s business practices for
Whatever Kokott‘s business practices may indicate about his own intent with respect to this sale, they do not persuade the court that Galesky sold the property with improper intent. In fact, the court finds in the evidence nothing to suggest, much less establish, that Galesky knew much of anything about Kokott or Lakeland or their business practices before (or during or after) the sale. As the findings above make clear, it was the Fullers who were familiar with Kokott, Lakeland, and the kinds of deals they engage in, and it was Bruce Fuller who contacted Kokott about buying the property and all but exclusively communicated with both Galesky and Kokott about the sale. Galesky and Kokott seem never to have met or so much as spoken to each other, about the sale or anything else. Trial Tr. (Mar. 17, 2022) at 47:20–25 & 142:19–23. Perhaps Galesky learned something meaningful about Kokott and Lakeland and what they do—from Bruce or Belinda Fuller or otherwise—at some point, but there is no evidence of that. Perhaps Bruce or Belinda, or both, engaged in some side-dealing with Kokott, for their own benefit, and perhaps one, two, or all three of them did so with some sort of improper intent, but there is no evidence of that, either. And even if there were such evidence, it would not readily suggest anything specific or consequential about Galesky‘s intent in selling the property.
WiscTex‘s assertion that “Kokott . . . testified that he knew a bankruptcy filing was planned at the time of the sale of the house” and that “[he] was told” that Galesky was selling the property because Galesky “was going to file bankruptcy” is accurate. Pl.‘s Closing Arg. at 4–5 (quoting Trial Tr. (Mar. 17, 2022) at 45:15–17).34 But
court were to find, based on the relevant evidence, that Kokott was, in fact, told that Galesky was selling the property because he planned to commence a bankruptcy case, and even if the court were to then find that what Kokott was told was true—assuming the evidence would allow for a reasonable inference to be drawn that Galesky did plan to do that, which is insufficiently clear—WiscTex never explains what these findings would add to any of its relevant arguments for denial of Galesky‘s discharge.
Presumably, WiscTex‘s view is that the court should find, based on something that someone may have told Kokott, that Galesky sold this property intending to use the bankruptcy process to cheat his creditors, generally—and WiscTex, specifically—out of the value of his equity in it. But Smiley could hardly be clearer that the pre-petition transfer of assets is not “necessarily . . . a fraud on creditors” or otherwise done with improper intent simply because “the debtor is motivated by a desire to shield assets.” 864 F.2d at 567. The debtor must have also “committed some act extrinsic to the conversion which hinders, delays or defrauds” or, at a minimum, is undertaken with the intent to do one or more of those things. Id. at 567 & 569. In other words, again, even if a debtor acts with the specific intent to put assets beyond the reach of creditors and does so in clear anticipation of commencing a bankruptcy case, merely selling property and using the proceeds, or converting property, as and to the extent permitted by applicable law, is insufficient, under Smiley, to warrant denial of a debtor‘s discharge under
In so concluding, the court recognizes that WiscTex‘s assertion that “Galesky allowed the Fullers full control over the sale of the property so the property could be transferred out of his name while still allowing the Fullers to remain in the property” is true, for the most part. Pl.‘s Closing Arg. at 5.35 Again, though, WiscTex does not explain, and the court cannot discern, what difference it makes whether Galesky or the Fullers primarily managed this sale. As the above findings make clear, both Galesky and the Fullers had long expected that the Fullers would find some way to buy the property or otherwise relieve Galesky of the burden of owning it. They did that. The Fullers are also both licensed real estate agents, and one or both of them had lived in the property virtually the entire time that Galesky had owned it. Indeed, Galesky bought it so that his sister could live there. All of which is to say, although Galesky owned the property and had sunk a lot of money into owning it, he and Fullers had long seen it as the Fullers’ home and long expected them to manage its purchase or sale, and they were in the best position to do that. Accordingly, based on the evidence and considering the relevant circumstances, the court finds that Galesky‘s choice to largely leave the sales process to the Fullers was a reasonable one and draws from that choice no inference that Galesky acted with improper intent under
WiscTex next quotes Galesky‘s trial testimony “that he wanted his ‘sister and brother-in-law to have purchased it and [he] decided that it was time for it to be sold so if they could purchase it then they could purchase it. If not, then they could find somebody else.‘” Pl.‘s Closing Arg. at 5 (alteration in original) (quoting Trial Tr. (Mar. 17, 2022) at 143:11–16). WiscTex does not explain why, in its view, this testimony is meaningful. Perhaps, it sees in this testimony hints of some ulterior reason for the sale, based on its allusion to the sale‘s timing, after WiscTex moved for summary judgment in its state-court case against Galesky, while their attorneys were discussing settlement. But given the findings above, the court takes from this testimony that, by mid-2019, Galesky had “decided that it was time for [the property] to be sold” because his sister‘s youngest child had graduated from high school and he had always generally intended to own it only long enough for that to happen. Trial Tr. (Mar. 17, 2022) at 143:14–15; Trial Tr. (Mar. 18, 2022) at 39:25–40:1. As Galesky‘s long-term expectation, shared by the Fullers, was that the Fullers would buy the property from him “if they could” or “find somebody else” who would, nothing about this persuasively suggests that Galesky acted with improper intent under
WiscTex‘s remaining assertion about this sale, in its opening brief—that “the entire sale was a sham transaction designed to keep the . . . property under
In its reply brief, WiscTex points to Galesky‘s trial testimony that “he never attempted to market the property“. Pl.‘s Reply Br. at 3 (citing Trial Tr. (Mar. 18, 2022) at 86:2-11). WiscTex never explains why it finds this testimony significant either, but the court takes its view to be that Galesky‘s failure to try to sell the property on the open market suggests that, in selling it, he was simply trying to offload it—without displacing the Fullers, if possible—while stalling WiscTex‘s pending state-court case against him, so that he could keep the value of his equity in it after commencing a bankruptcy case. If anything, though, this testimony cuts the other way: if Galesky‘s intent was to speedily divest himself of the property and keep from WiscTex the value of his equity in it, or as much of that value as he could, he likely would have marketed it for sale. Instead, the evidence shows that, for nearly a year after WiscTex sued him in state court, aside from pestering the Fullers to buy the property from him or find somebody who would, he did nothing to liquidate his interest in it. The evidence also shows that he sold the property only after he got an effectively unsolicited offer to buy it for what he thought it was worth, subject to an appraisal condition that he did not expect would be met, with no backup plan for liquidating, much less sheltering, his interest in the property if the sale fell through. This is not compelling evidence of a premeditated plot to obstruct creditors. So, even if the court could infer, from the fact that Galesky did not list the
d
WiscTex next asserts that, after it sued him in state court, “Galesky acted to both hinder and delay [it]” by misrepresenting his “true financial situation” when he “[o]ffered $30,000 to settle the . . . lawsuit“, as “[i]t was stated that [he] did not have the means to offer more,” though he “clearly could have“, and “[he] refused to provide any financial statements to corroborate his statements.” Pl.‘s Closing Arg. at 4 & 5. In support of these assertions, WiscTex cites trial testimony from Galesky stating or confirming, in relevant part, that he never offered WiscTex more than $30,000 to settle the case, though he could have, and he never gave WiscTex a financial statement, though he could not recall WiscTex ever asking him for one. Trial Tr. (Mar. 17, 2022) at 144:23–145:20; Trial Tr. (Mar. 18, 2022) at 87:2–23. WiscTex also cites trial testimony in which Bryan Ward, one of its attorneys, stated or confirmed that Galesky‘s attorney rejected WiscTex‘s initial settlement offer and made a much smaller “final” counteroffer but said “there would be no financial statements provided” and that, “anytime settlement discussions came up“, WiscTex asked Galesky for financial disclosures, but the response “was essentially the same every time“: “Mr. Galesky doesn‘t have any money. We‘ll get you what we can. We‘re not contesting that he owes, but he just can‘t pay it.” Trial Tr. (Mar. 18, 2022) at 133:5–24, 115:18–23 & 118:8–23.
The court does not infer from the relevant evidence that Galesky misrepresented his financial condition. The only evidence suggesting that he did is Ward‘s testimony that, whenever he discussed settlement with Galesky‘s attorney, he was told, “Mr. Galesky doesn‘t have any money.” Id. at 118:13–14. Assuming Galesky‘s attorney used those exact words (or substantially similar ones), such statements could be found to have been false, but only if taken out of context. Under the circumstances, even if Ward accurately testified as to the precise words that Galesky‘s attorney used, to find that they were either meant to be, or actually were, taken literally is a bridge too far. Galesky offered to pay WiscTex $30,000 to settle the case, so he clearly had some money, and presumably WiscTex would not have spent the better part of two years trying to get and then collect on a judgment against him unless it had reason to believe that he did. The court generally found Ward‘s testimony credible and finds that his testimony was honest but that it was, nevertheless, generally (rather than specifically) descriptive of what Galesky‘s attorney told him. The court further finds that, when viewed in context, any statements made to Ward by Galesky‘s attorney to the effect that Galesky lacked funds or could not pay were meant to convey, and understood to mean, not that he lacked funds altogether or that he could not afford to offer or pay more than $30,000, but that he could not afford to pay the full amount that WiscTex was seeking in court (or demanding to settle the case). Nothing in the evidence suggests that that is untrue.
Otherwise, the evidence shows nothing more than that WiscTex repeatedly, though informally, requested financial disclosures from Galesky and that he was either unaware of those requests or declined them. WiscTex does not explain how this was impermissibly dilatory behavior, and nothing in the evidence suggests that Galesky was ever obligated to volunteer such information to WiscTex, whether during settlement negotiations or not.
In its reply brief, WiscTex hints that its gripe here, at least in part, is that Galesky
More to the point, Galesky was not obligated to facilitate settlement—or, for that matter, to participate in settlement negotiations at all—nor was he required to beneficently marshal his assets, gratuitously disclose them, and voluntarily hand them over to WiscTex. Once he undertook to discuss settlement with WiscTex, or his attorney did so on his behalf, one could certainly argue that he should have done so in good faith and not simply to prolong the state-court proceedings, but the court is unconvinced by the evidence presented in this proceeding that Galesky‘s contributions to the settlement process were insincere, made in bad faith, or improper in any way.
As earlier noted, if Galesky had been trying to draw out the state-court litigation, he could hardly have done a less effective job of it. Based on the evidence, it seems that the parties’ efforts to settle the state-court case were limited to an exchange of absurdly differing settlement offers and a later attempt at mediation that WiscTex‘s own attorney described at trial as, simply, “brief“. Trial Tr. (Mar. 18, 2022) at 107:23–25. Galesky‘s counteroffer to WiscTex‘s settlement offer, and his attorney‘s participation in mediation, seem not to have affected the litigation at all, and if his intent was, in fact, to stall, he could have done far more. In all events, nothing in the evidence persuasively suggests that Galesky slow-walked settlement or otherwise proceeded in the state court improperly or in bad faith to afford himself more time to acquire exemptible assets. The court therefore concludes that WiscTex has failed to prove that it is entitled to denial of Galesky‘s discharge under
e
Finally, WiscTex asserts that, after it filed its motion for summary judgment in its state-court case against him, “Galesky acted to both hinder and delay [it]” when “[he] caused” a hearing on the motion that “was scheduled for September 2019 . . . to be delayed” such that a final hearing on the motion was not held “until May 2020.” Pl.‘s Closing Arg. at 4 & 6. WiscTex‘s argument, based on this assertion, such as it is, and the trial testimony it cites, discussed below, seems to be that Galesky‘s dilatory conduct throughout the state-court proceedings is circumstantial evidence that he transferred property with improper intent during the one-year lookback period under
To evaluate WiscTex‘s contention that Galesky‘s conduct in the state-court proceedings entitles it to denial of his discharge under
filed a third-party complaint against Berkey in March 2019. Trial Ex. 9 at 10.38 Galesky moved for entry of a default judgment against Berkey in July 2019, and the state court entered an order for judgment on August 1, 2019. Id. at 8.39 “[O]nce that . . . was done“, on August 13, 2019, WiscTex filed its summary-judgment motion—“a very basic one“, according to WiscTex‘s counsel, Bryan Ward—and the state court scheduled a hearing on the motion for September 30, 2019. Trial Tr. (Mar. 18, 2022) at 121:5–6; Trial Ex. 9 at 7.
Despite initially scheduling a hearing on WiscTex‘s motion for summary judgment for September 30, 2019, the state court did not hold a hearing on that motion until February 5, 2020, more than four months later. With respect to the period between WiscTex‘s August 13, 2019 filing of the motion and the February 5, 2020 hearing on the motion, the court finds as follows: A few weeks after WiscTex filed its motion, Galesky objected to the sufficiency of the materials that WiscTex had filed in support
The state court held the February 5, 2020 hearing on WiscTex‘s motion for summary judgment, as scheduled, though by then Galesky had completed all of the pre-petition property transfers at issue here. With respect to the period that followed, from that hearing through the state court‘s entry of judgment in WiscTex‘s favor, the court finds as follows: At the hearing, “Frank requested that the [state-court] judge not rule” on WiscTex‘s motion: “he wanted to have an additional round of briefing because of the new affidavits that [Ward] had filed“. Trial Tr. (Mar. 18, 2022) at 121:20–23. Ward thought “[this] seemed to be only to delay“. Id. at 122:1–5. Nevertheless, he “d[id] not object to . . . Frank being given additional time to submit a reply brief.” Trial Ex. 9 at 5. The state court gave Frank until March 6, 2020, to file another brief on Galesky‘s behalf; gave Ward until March 27, 2020, to do the same for WiscTex; and adjourned the hearing to April 13, 2020. Id. The parties then “agreed to mediate“, and at their request, the state court rescheduled the adjourned hearing to June 10, 2020. Trial Tr. (Mar. 18, 2022) at 107:15–22; Trial Ex. 9 at 4–5. The attempt at mediation was “[a] brief one“, only the party‘s attorneys participated,
Based on these findings, the court concludes that WiscTex has not proved that Galesky delayed the state-court proceedings such that it is entitled to denial of his discharge under
Based on the facts shown by the evidence, the court finds that Galesky and his attorney acted in good faith throughout the relevant state-court proceedings and that their conduct was both ordinary and permissible in the context of litigation. Even if, as Ward testified, “they were not contesting that Mr. Galesky owed the money“, they did not malignly stall the proceeds simply because they did not ease WiscTex‘s path to a judgment against him, e.g., by turning a blind eye to its concededly deficient filings. Trial Tr. (Mar. 18, 2022) at 121:2–4. Otherwise, they sought relief that WiscTex agreed (though perhaps grudgingly)—or, at the least, did not dispute—was justifiable and that the state court granted. Indeed, Ward testified at the trial that Frank‘s request at the February 2020 hearing, for another round of briefing on WiscTex‘s motion for summary
For these reasons, the court concludes that WiscTex has not met its burden to prove that Galesky prolonged WiscTex‘s state-court case against him with improper intent under
* * *
All in all, the court is not persuaded by the evidence and WiscTex‘s arguments that Galesky transferred property with improper intent within the one-year lookback period under
B
WiscTex nominally seeks denial of Galesky‘s discharge under
Alternatively, WiscTex‘s objection to Galesky‘s discharge under
the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor‘s financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case . . . .
“Section 727(a)(3) requires as a precondition to discharge that debtors produce records which provide creditors ‘with enough information to ascertain the debtor‘s financial condition and track his financial dealings with substantial completeness and accuracy for a reasonable period past to present.‘” Juzwiak, 89 F.3d at 427 (quoting Bay State Milling Co. v. Martin (In re Martin), 141 B.R. 986, 995 (Bankr. N.D. Ill. 1992)) (citing Clark v. Kearns (In re Kearns), 149 B.R. 189, 190–91 (Bankr. D. Kan. 1992); then citing Meridian Bank v. Alten, 958 F.2d 1226, 1230 (3d Cir. 1992); and then citing Cox v. Lansdowne (In re Cox), 904 F.2d 1399, 1402 (9th Cir. 1990)).
Accordingly, the court finds that Galesky has provided financial records sufficient to satisfy
C
WiscTex also objects to Galesky‘s discharge under
1
WiscTex‘s relevant arguments arise under
2
The court considers WiscTex‘s arguments for denial of Galesky‘s discharge under
a
Many of WiscTex‘s arguments about Galesky‘s “false statements” fail for reasons already discussed above. Specifically, WiscTex points to no statements that Galesky has made in or in connection with his bankruptcy case that discernably differ from or run counter to the court‘s findings of fact, stated in prior portions of this decision, about why he sold the Marshall Avenue property and used his net proceeds from that sale (and other funds) to buy an exemptible annuity.47
WiscTex‘s argument that Galesky falsely stated that he sold the Marshall Avenue property “to a stranger” fails for a similar reason: based on the findings made above, the court finds that the buyer (Lakeland Property Management LLC) and its principal (Robert Kokott) were strangers to Galesky. This argument also fails for several other reasons, as well. In its post-trial briefs WiscTex does not identify any instance in which Galesky stated that Lakeland—or Kokott—was a stranger.48 Nor does it explain what it thinks the true nature of Galesky‘s relationship with Lakeland—or Kokott—was. Nor does it cite any evidence of any such relationship other than that of strangers.49
Moreover, it never explains why it matters whether Galesky and the buyer of this property were strangers, leaving it to the court to determine unaided whether (and how) a statement that they were, if false, is materially so, as
WiscTex‘s argument that Galesky made false statements about the Axiom loan and note also fails. In its opening brief, WiscTex relatedly states only that “[Galesky‘s] Schedules regarding the note are belied by the date of the note and the inconsistent testimony from Bruce Fuller, Belinda Fuller and Galesky about the transaction related to the Note.” Pl.‘s Closing Arg. at 9. This assertion is so vague (and poorly worded) that it is difficult to make sense of WiscTex‘s argument, which seems to amount to nothing. The only mention of Axiom in Galesky‘s bankruptcy schedules is in his schedule of assets (schedule A/B), which lists a “[n]ote from Axiom Virtual Tours, LLC”, with an “estimated amount owed” of $10,626.85 and a “guestimate [sic] of collectability” of $7,500. Trial Ex. 2 at 7.50 None of those statements are “belied by the date of the note” (or anything else about the note), the Fullers’ deposition testimony, or Galesky‘s deposition or trial testimony; WiscTex does not explain how any of that testimony is inconsistent; and none of it appears to be, at least not materially so. Pl.‘s Closing Arg. at 9.51 The court cannot discern, and WiscTex does nothing to clarify, how any of Galesky‘s statements about the Axiom loan and note were even plausibly false, and the court finds that they were not
b
WiscTex twice asserts, in its opening brief, that “Galesky failed to list in his Statement of Financial Affairs th[e] transfer of [his homestead] from his business entity, Byway Investment[,] to himself.” Pl.‘s Closing Arg. at 8 & 13. But WiscTex never clearly explains why it believes Galesky should have disclosed this transfer in his statement of financial affairs (or, for that matter, where in that document it believes Galesky should have disclosed it). Presumably, WiscTex‘s position is that Galesky should have disclosed the transfer of his homestead in response to question 18 of the statement of financial affairs, which asks the debtor, “Within 2 years before you filed for bankruptcy, 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?”, and then prompts the debtor to provide the details of any such transfers. Trial Ex. 3 at 5.53
WiscTex hints at its reasoning, though only in its reply brief, where it suggests—in a section on
But perhaps Galesky was required to disclose this transfer in his statement of financial affairs for some other reason.55 If he was, then the omission was likely a material one, as the applicable materiality standard is quite expansive. And Galesky was undoubtedly aware of the omitted information, which is sufficient to satisfy “§727(a)(4)‘s knowledge requirement”. Chlad, 922 F.3d at 862. But even assuming all this—none of which WiscTex argues—WiscTex makes no effort to show that Galesky fraudulently omitted the transfer from his statement of financial affairs, and the only relevant evidence it cites in support of this (or any related) argument is the trial testimony of Doug Mann, the chapter 7 trustee, confirming what is obvious from the record: Galesky did not list the transfer of his homestead from Byway in his schedules or statement of financial affairs. Pl.‘s Closing Arg. at 4 (citing Trial Tr. (Mar. 18, 2022) at 27:12–28:5).56 The court finds, based on the evidence,
c
Next, WiscTex asserts that Galesky falsely inflated certain of his expenses in his bankruptcy schedules. Specifically, WiscTex states that Galesky‘s schedule of current expenditures (schedule J) lists “miscellaneous expenses associated with his disability” of $1,400 per month and “transportation expenses” of $1,000 per month, which are “not . . . real number[s] but . . . unreal projected amount[s].” Pl.‘s Closing Arg. at 9–10.57
The court finds that these were false statements: for his schedule of expenses, Galesky used Official Form 106J (Schedule J: Your Expenses), which instructs, “Estimate your expenses as of your bankruptcy filing date”, but he freely admits, in his deposition and trial testimony, that, for the two categories of expenses at issue, he provided projections, rather than estimates of his actual costs at the relevant time. Trial Ex. 2 at 21 (emphasis added); Trial Ex. 44 at 4–6 (15:11–23:8); Trial Tr. (Mar. 17, 2022) at 106:3–23. Furthermore, the evidence supports the reasonable inference that Galesky made these false statements knowingly—which is to say, he knew that these values were not estimates of his actual costs—and he may also have made them fraudulently, though that is less clear. At a minimum, his trial testimony about how and why he came up with and provided these projections was somewhat flippant, which suggests a lack of appropriate concern for the accuracy of his filings, if not quite a reckless disregard for the truth. Nevertheless, WiscTex is not entitled to denial of Galesky‘s discharge under
WiscTex‘s argument with respect to materiality is as follows: In its opening brief, WiscTex asserts, without any supporting citations to the evidence, that Galesky falsely inflated these expenses “to make it appear that he is without adequate monies to pay his bills.” Pl.‘s Closing Arg. at 10. And WiscTex argues in its reply brief that
WiscTex‘s argument ignores that in an individual case under chapter 7, like Galesky‘s, a debtor‘s expenses as of and after the filing of the petition do not necessarily matter—indeed, they ordinarily do not. An individual debtor in a case under any chapter of the Code is typically required to file both “a schedule of current . . . expenditures” and “a schedule of current income”, which must be “prepared as prescribed by the appropriate Official Forms”.
But in a case under chapter 7, unlike in a case under chapter 11, 12, or 13, an individual debtor‘s post-petition income is usually not property of the bankruptcy estate. See
There are surely circumstances under which an individual chapter 7 debtor‘s misrepresentation of his post-petition expenses would be material under
In addition to disregarding the general significance (if any) of post-petition income and expenses in a chapter 7 case with an individual debtor, though, WiscTex‘s argument overlooks the specific nature of Galesky‘s post-petition income. As the court found above, Galesky‘s income, when he filed his bankruptcy petition, consisted of disability benefits from the Social Security Administration and disability compensation from the Department of Veterans Affairs. See Trial Ex. 2 at 20. Such income is not only wholly exemptible from property of the estate in a bankruptcy case—assuming it is property of the estate in the first place—but broadly exempt under applicable nonbankruptcy law from the claims of most creditors in most (if not all) legal and equitable processes, including bankruptcy.
Moreover, WiscTex‘s specific materiality argument, in its reply brief, discounts that, given the nature of Galesky‘s income, even if it “would allow for a significant payment to unsecured creditors in a [case under] Chapter 13”, he would not have to pay such creditors anything more in a chapter 13 case than they have been paid in his chapter 7 case. Pl.‘s Reply Br. at 10. The court can only confirm a chapter 13 plan if, among other things, “the value . . . of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7”.
The upshot of all this is that Galesky‘s schedule of expenses describes his use, as of and after the filing of the petition, of his post-petition income, which is property in which the bankruptcy estate and his creditors
D
Lastly, WiscTex objects to Galesky‘s discharge under
The court can otherwise discern from the statements in WiscTex‘s opening brief only one plausible and minimally supported argument for denial of Galesky‘s discharge under
1
“Under
The Seventh Circuit‘s decision in D‘Agnese illustrates when a debtor‘s discharge should be denied under
2
The evidence does not bear out WiscTex‘s argument that Galesky has not satisfactorily explained the disposition of his net proceeds from the sale of his former residence in Johnson Creek. The evidence shows, and the court finds, as follows: The net proceeds from that sale, totaling about $172,000, were deposited in Galesky‘s Chase (6289) account in November 2017. Trial Tr. (Mar. 18, 2022) at 56:10–57:25 (discussing Trial Ex. 107 at 153). Of that amount, Galesky invested about $30,000 in cryptocurrency that December, which ultimately lost all of its value, and transferred $110,000 to Byway. Trial Tr. (Mar. 17, 2022) at 102:12–14; Trial Tr. (Mar. 18, 2022) at 78:1–14; Trial Ex. 107 at 155–56, 158 & 174 (showing wire transfers of $20,000 and $5,000 to “Coinbase Inc.”, transfers of $2,000 and $4,000 to “Coinbase.Com”, and a transfer
To be sure, Galesky has not offered an exhaustively detailed explanation of his every use of the proceeds from the sale of his former residence, and his deposition testimony about that is vague (perhaps even a bit evasive). But he was asked, at his deposition, about his financial history dating as far back as 2000, and he was deposed more than three years after this sale, so it is not altogether surprising that he was unable to “recall each and every expenditure” of the sale proceeds, nor is it particularly blameworthy that he declined to “speculat[e] on what . . . the[y] . . . were for.” Trial Ex. 44 at 26–27 (104:7–107:3).
Perhaps he should have been better prepared to address the matter at his deposition, but the evidence admitted at the trial in this proceeding includes copious records that Galesky provided for his own accounts and those of his single-member LLCs, showing in detail how the relevant funds were used, and he credibly testified at the trial in response to the bare handful of questions posed him about that. See Trial Tr. (Mar. 17, 2022), at 163:8–23; Trial Tr. (Mar. 18, 2022), at 57:3–58:3. Which is to say, to extent that he was called upon to do so, he explained in sufficient detail and provided adequate documentation of his use of the proceeds he received from the sale of his former residence on Mark Drive in Johnson Creek, such that the court need not speculate as to what happened to those funds. The court therefore finds that he has satisfactorily explained how he disposed of those funds, as
WiscTex, as the party seeking denial of Galesky‘s discharge, bears the burden to prove that his explanation for the loss or deficiency of assets is lacking. WiscTex
V
For the reasons stated above, IT IS ORDERED that WiscTex‘s objections to Galesky‘s discharge are overruled, all relief sought in this proceeding is denied, and judgment is granted in favor of Galesky and against WiscTex on all claims.
The clerk will enter a judgment consistent with this order.
Appendix
These statements are taken from WiscTex‘s opening brief and allude to, might conceivably be deemed, or could plausibly have been developed into arguments, but the court does not address them on the merits in the decision for the following reasons:
- “When Johnson Creek [Enterprises] defaulted and executed a forbearance agreement, neither Galesky nor Johnson Creek [Enterprises] paid anything on the forbearance agreement. This agreement ‘delayed’ the inevitable—a judgment against Galesky[—]and allowed him time to move assets around leading him ultimately to file bankruptcy. During the time of the forbearance, Galesky‘s lavish spending continued without any attempt on Galesky‘s part to repay the debt owed on the guaranty. . . . There is simply no question that all of these transactions were intended to acquire[] and then later transfer assets from the purview of his creditors while he owed money to WiscTex‘s predecessor.” Pl.‘s Closing Arg. at 2–3 (citation omitted). The court considers these and similar statements in the decision but only to the extent that they are both supported by the evidence and provide appropriate context for assessing whether Galesky engaged in acts prohibited by the provisions of
§727(a) under which WiscTex seeks relief in this proceeding. Otherwise, the argument is undeveloped and unsupported, so it is waived, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), for these reasons:- In support of these assertions WiscTex cites only a single document that it filed before the trial and identified as “Exhibit 7“, which appears, but was not proved, to be the referenced forbearance agreement. Pl.‘s Closing Arg. at 2 (citing ECF No. 35-7). There is evidence, though not much of it, to suggest that a forbearance agreement was signed in December 2016, not only by Johnson Creek Enterprises, but also by Galesky, who “agree[ed] that [it] did not release, amend or in any way affect any guaranty given or owed . . . prior to the date of th[at] . . . Agreement.” Trial Ex. 12 at 4–5; see also Trial Ex. 44 at 7 (28:1–4). But WiscTex cites no evidence of Galesky‘s intent with respect to any of the referenced transactions.
- With these statements, WiscTex includes a twelve-item list of instances of what it describes as “Galesky‘s lavish spending” “[d]uring the time of the forbearance”. Pl.‘s Closing Arg. at 2. But, based on WiscTex‘s own statements in its opening brief or the evidence or non-evidentiary materials that it cites in that brief, at least five of these transactions predate the forbearance
agreement. These include (1) the attempted purchase of a yacht pursuant to what appears, but was not proved, to be an agreement dated November 21, 2013, and signed by Galesky on December 2, 2013, which WiscTex filed before the trial and identified as “Exhibit 59”, but that was neither offered nor admitted into evidence; (2) Byway‘s purchase of the 35th Street property “on October 12, 2016“, for which WiscTex cites yet another document that it filed before the trial and identified as “Exhibit 28“, but that was neither offered nor admitted into evidence; and (3) Galesky‘s purchase of a sailboat, which his March 19, 2021 deposition testimony, the transcript of which was admitted into evidence, shows occurred in 2015. See id. at 2-3 (first citing ECF No. 39-4; then citing ECF No. 35-29; and then citing Trial Ex. 44 at 17 (66:17–67:17)). Based on the evidence that WiscTex cites, one of these transactions, the purchase of a Can-Am Spyder (oddly described in WiscTex‘s brief as more than one “luxury motorcycles” that were “purchased . . . through Spyder Pockets, LLC”, one of Galesky‘s LLCs) in 2012, may have even occurred before Chase‘s first loan to Johnson Creek Enterprises and Galesky‘s personal guaranty of repayment of the resulting debt, both of which also occurred that year. Id. at 3 (citing Trial Ex. 44 at 17 (65:20–66:6)). The last of these transactions—Galesky‘s purported receipt of “close to $1M” from the sale by one of his single-member LLCs of a portion of its membership interest in Johnson Creek Enterprises and his transfer of “over $500,000 to his personal [bank] account”—for which WiscTex again cites non-evidentiary materials, namely a document that it filed before the trial and identified as “Exhibit 20” but that was neither offered nor admitted into evidence, occurred “on March 13, 2014“, and is not an instance of “spending“, lavish or otherwise. See id. at 2 (first citing ECF No. 35-21; then citing Trial Tr. (Mar. 17, 2022) at 162:16–24; and then citing Trial Tr. (Mar. 18, 2022) at 93:2–17). - Based on the evidence and the non-evidentiary materials that WiscTex cites, the court is unable to determine the dates on which three of the remaining transactions occurred with sufficient specificity to assess whether they occurred during the forbearance period. WiscTex cites no evidence (or non-evidentiary materials) of precisely when “Galesky invested in Lending Club”—though Galesky‘s trial testimony and the records of his Chase (6289) account indicate that his only transfers to Lending Club occurred in March and April 2014, predating the forbearance agreement by nearly three years. See id. at 3 (first citing ECF No. 35-49 at 5:15–7:5; and then citing Trial Tr. (Mar. 18, 2022) at 78:15–20, 79:19–23, 96:5–97:16 & 99:1–6); Trial Ex. 107 at 10 & 14. The only evidence of when Galesky‘s single-member LLC Byway Investment “purchased a Mobile Home Park in Anderson, Indiana”, and “Galesky purchased a Spirit RV” is his deposition testimony, which suggests
that both purchases likely, but not certainly, predate the forbearance agreement, as well: he testified that both occurred in either 2015 or 2016. See id. at 3 (first citing ECF No. 35-49 at 18–19; then citing Trial Ex. 44 at 19 (74:7–75:25); then citing Trial Tr. (Mar. 17, 2022) at 163:4–5; and then citing Trial Ex. 44 at 18 (69:22–70:19)). - As a result, only four instances of “Galesky‘s lavish spending” seem to have clearly occurred “[d]uring the time of the forbearance”. Id. at 2. But two of these—Galesky‘s receipt of “over $100,000” in net proceeds from the sale of his former residence on Mark Drive in Johnson Creek “on November 7, 2017”, for which WiscTex cites, in addition to relevant trial testimony, another document, which it filed before the trial and identified as “Exhibit 22”, that was neither offered nor admitted into evidence, and Galesky‘s transfers of funds to Byway in January and July 2018—are not instances of “spending”, at all. See id. at 3 (first citing ECF No. 35-23; then citing Trial Tr. (Mar. 17, 2022) at 163:8–19; then citing Trial Ex. 37 at 68 & 84; and then citing Trial Tr. (Mar. 18, 2022) at 100:18–101:6). The other two—Galesky‘s investment of “at least $30,000 in BitConnect in December 2017” and his purchase of “a Livin’ Lite travel trailer” in 2017 or 2018—do seem to have occurred during the forbearance period and could, perhaps, be characterized as instances of “lavish spending”. Id. at 2–3 (first citing Trial Ex. 37 at 66; then citing Trial Tr. (Mar. 18, 2022) at 78:1–14 & 79:16–18; and then citing Trial Ex. 44 at 18 (71:18–72:3)). But these transactions occurred far more than one year before the petition was filed, so they do not fall within the scope of
§727(a)(2)(A) , and WiscTex does not seek relief under any other provision of law that affords relief based on the transfer of property.
- After WiscTex sued Galesky in state court, “Galesky acted to both hinder and delay WiscTex‘s ability to be able to ultimately collect on the judgment it would surely obtain and did obtain”, by “[s]elling property out of his IRA.” Pl.‘s Closing Arg. at 4. The argument is undeveloped and unsupported, so it is waived, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), for these reasons:
- In support of this statement, WiscTex cites only what appears, but was not proved, to be a real-estate closing statement and related documents, none of which were offered or admitted into evidence, and Galesky‘s trial testimony in response to questions by WiscTex‘s counsel about whether he contributed to his IRA or caused Byway to contribute to it. See Pl.‘s Closing Arg. at 4 (first citing ECF No. 35-30; and then citing Trial Tr. (Mar. 17, 2022) at 97:14–22).
- The argument is best construed as one for relief under
§727(a)(2)(A) , but the non-evidentiary materials that WiscTex cites seem to concern a sale of property more than one year before the petition was filed, which is beyond the scope of§727(a)(2)(A) . See ECF No. 35-30 at 1.
- “This is a bad faith filing as WiscTex is the only significant creditor in this
Bankruptcy Case.” Pl.‘s Closing Arg. at 6. The argument is undeveloped and unsupported, so it is waived, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), for these reasons: - WiscTex does not explain why the filing of a bankruptcy petition by a debtor who has only one significant creditor—or, for that matter, a total of one creditor—is necessarily a bad-faith act.
- Even if Galesky did file his petition in bad faith, WiscTex does not explain why the appropriate remedy would be denial of his discharge under
§727 , rather than dismissal of the case under§707 , conversion of it to a case under chapter 11 (or, with Galesky‘s consent, chapter 13) under§706 , or abstention under11 U.S.C. §305 . WiscTex seeks no such relief here, and it has not articulated, in connection with this statement, any discernable basis for relief under§727 .
- “Galesky has failed to explain satisfactorily the disposition of the proceeds of the sale of the Johnson Creek Property. His bank statements show that a significant amount of money was funneled into Byway Investment, LLC‘s account leaving Galesky with insufficient monies to pay his debt. Additionally, some of the money was squandered on investment deals to the detriment of Creditor, which deals were not disclosed on Galesky‘s schedules.” Pl.‘s Closing Arg. at 7. Other than to the extent addressed in the
decision and order, any argument to which these statements might relate is waived as unsupported and undeveloped, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), for these reasons:
- WiscTex cites, in support of these statements, no evidence that discernably relates to any of them.
- These statements seem to concern Galesky‘s use of his proceeds from the 2017 sale of his former residence on Mark Drive in Johnson Creek, Wisconsin. Shortly after the paragraph in which these statements appear, WiscTex defines the “Johnson Creek Property” as Galesky‘s former residence in Johnson Creek. Pl.‘s Closing Arg. at 7. WiscTex‘s reference to funds “squandered on investment deals” seems to relate to Galesky‘s investment of proceeds from his 2017 sale of that property in cryptocurrency. Id.; see Def.‘s Post-Trial Br. at 8 & n.4 (discussing Galesky‘s cryptocurrency investment after his sale of the Mark Drive property). And the only transfers of funds to Byway that WiscTex otherwise mentions in its opening brief occurred in 2018, so its mention of significant amounts being funneled into Byway also seems to relate to the disposition of the proceeds from the 2017 sale of that property. See Pl.‘s Closing Arg. at 3 (citing Trial Ex. 37 at 68 & 84).
- But in support of these statements WiscTex cites only non-evidentiary materials (i.e., purported transcripts of the meetings of creditors) and Galesky‘s deposition and trial testimony about the disposition of funds paid to his single-member LLC Therrons Dad for its sale of a portion of its membership interest in Johnson Creek Enterprises years before he sold the Johnson Creek
Property. See id. at 7 n.5 (first citing ECF No. 35-49 at 46:18–47:17, 48:17–49:10 & 51:1–7; then citing Trial Ex. 44 at 10-11 (40:11-41:9 & 43:2–9); and then citing Trial Tr. (Mar. 17, 2022) at 162:16–163:7, 171:14–172:4, 174:21–23, 191:16–24 & 192:21–193:1).
- These statements may suggest a basis for denial of Galesky‘s discharge under
§727(a)(4)(A) due to his purported failure to disclose certain “investment deals” in his schedules, but WiscTex never explains why Galesky was required to disclose any such deals in his schedules or where in his schedules he was required but failed to do so. - “Galesky has not explained or accounted for, the use of significant sums of money and the return of such funds, such as those used to purchase a yacht with a $400,000.00 deposit in 2014, from which Galesky obtained a refund of approximately $200,000.00 with no accounting for the use of those funds.” Pl.‘s Closing Arg. at 7. The argument is waived as undeveloped and unsupported, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), for these reasons:
- The court cannot discern what argument, if any, WiscTex is trying to make here, given the disorienting haziness of this statement, the centerpiece of which is an apparently nonexhaustive list of funds for which, in WiscTex‘s view, Galesky has not adequately accounted. This statement seems to relate to WiscTex‘s objection to Galesky‘s discharge under
§727(a)(5) , which provides for denial of a chapter 7 discharge if “the debtor has failed to explain satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets or deficiency of assets to meet the debtor‘s liabilities“. Galesky seems to have come to the same conclusion, as he addresses this statement in his brief as an argument under§727(a)(5) . Def.‘s Post-Trial Br. at 8–9. - Whatever argument WiscTex is trying to make here, it cites in support of this statement only Galesky‘s trial testimony confirming that “[his] bank statements and ... records” are “the best source of information” for “track[ing] [his] monies ... in and out of [his] various accounts” and that he did not otherwise “keep any kind of Quickbooks or any other kind of financial records“. Trial Tr. (Mar. 18, 2022) at 83:11–19, cited in Pl.‘s Closing Arg. at 7. This testimony may be relevant to an argument for denial of Galesky‘s discharge under
§727(a)(5) , but without more it falls well short of allowing the court to conclude that WiscTex has proved that it is entitled to that relief based on any such argument, and it does not clearly relate to, much less establish, any of the purported facts about a refund of funds to Galesky from an attempted purchase of a yacht.
- The court cannot discern what argument, if any, WiscTex is trying to make here, given the disorienting haziness of this statement, the centerpiece of which is an apparently nonexhaustive list of funds for which, in WiscTex‘s view, Galesky has not adequately accounted. This statement seems to relate to WiscTex‘s objection to Galesky‘s discharge under
- “Galesky‘s Schedules do not include investment losses of at least $20,000 from BitConnect.” Pl.‘s Closing Arg. at 7. The argument is undeveloped and unsupported, so it is waived, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), for these reasons:
This statement suggests grounds for relief under §727(a)(4)(A) based on what WiscTex seems to believe was an improper omission from Galesky‘s schedules. But the only evidence that WiscTex cites in support of this statement is Galesky‘s testimony at trial confirming that he invested in cryptocurrency after 2013, the investment has no value, he no longer has it, and he does not remember how much he lost on it. Pl.‘s Closing Arg. at 7 (citing Trial Tr. (Mar. 18, 2022) at 78:1–14 & 79:16–18). Nothing about this testimony tends to show a material omission from Galesky‘s bankruptcy schedules, nor does it prove any of the other elements of an objection to discharge under§727(a)(4)(A) , including fraudulent intent.- More to the point, WiscTex does not explain, even in its reply brief, why Galesky was required to disclose any such losses in his schedules or where in his schedules he was required to do so.
- “Galesky‘s Schedules do not . . . . list income and assets from his investments in Lending Club.” Pl.‘s Closing Arg. at 7.
- The argument is waived as undeveloped and unsupported, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), for these reasons: This statement suggests grounds for relief under
§727(a)(4)(A) based on what WiscTex seems to believe was an improper omission from Galesky‘s schedules. In fact, this statement and a related statement, discussed below, about Galesky‘s purported failure to disclose income and accounts “with Lending Tree” seem to be the only “facts” WiscTex offers in support of its contention, later in its opening brief, that Galesky made false statements about “the amount and nature of his income from all sources.” See Pl.‘s Closing Arg. at 7, 9 & 12–13. But in support of this statement WiscTex cites only non-evidentiary materials, namely transcripts of the meetings of creditors. See id. at 7 (citing ECF No. 35-49 at 5:15–7:5). - If the court were to consider the argument on the merits, it would fail, for these reasons: As Galesky correctly explains in his response brief, he disclosed an asset in his schedules in the form of funds owed to him by Lending Club. Def.‘s Post-Trial Br. at 10–11; see Trial Ex. 2 at 8. And, as he also notes, Galesky initially disclosed in his statement of financial affairs that he received income from Lending Club in past years, though he omitted that income from his amended statement of financial affairs. Id. at 10. Compare Trial Ex. 2 at 25, with Trial Ex. 3 at 2. Galesky suggested in his trial testimony that he removed the Lending Club income from his amended statement of financial affairs because Lending Club was “[n]ot [a source of] income” so much as it was “basically a savings account in the way that it worked.” See Trial Tr. (Mar. 17, 2022) at 110:3–11. Based on Galesky‘s federal income-tax returns for 2018 and 2019, which were admitted into evidence, the income he initially disclosed from Lending Club for those years was taxable interest.
Compare Trial Ex. 2 at 25 (listing “other income” from Lending Club of $1,631 for 2018 and $2,238 for 2019), with Trial Ex. 18, ECF No. 35-19, at 203 & 248 (reporting interest from “LENDING CLUB CORP” of $1,631 for 2018 and $2,238 for 2019). The relevant prompt in the statement of financial affairs specifically instructs debtors to list income from “interest“, so Galesky appears to have been right to include this income in his original statement of financial affairs. See Trial Ex. 2 at 25. Accordingly, his omission of that income from his amended statement of financial affairs was likely a false statement. But, even if it was, WiscTex has not shown that Galesky made this false statement fraudulently, and there is no persuasive evidence that he did. To the contrary, the relatively minute amounts involved; Galesky‘s initial disclosure of both this income and his interest in funds owed to him by Lending Club; and his explanation for why he later omitted the income from his amended statement of financial affairs all strongly suggest that he did not omit this income from his amended statement of financial affairs with fraudulent intent. No other evidence supports a contrary inference with sufficient weight for the court to conclude that WiscTex proved fraudulent intent.
- The argument is waived as undeveloped and unsupported, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), for these reasons: This statement suggests grounds for relief under
- “Galesky‘s Schedules [do not] tell the story of large cash transfers and sales of nonexempt assets totaling over $100,000 to purchase an annuity just prior to filing for bankruptcy.” Pl.‘s Closing Arg. at 8.
- The argument is waived as unsupported and undeveloped, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), for these reasons:
- WiscTex cites no evidence in support of this statement.
- While this statement seems to suggest a potential basis for relief under
§727(a)(4)(A) , WiscTex does not explain either why Galesky was required to “tell th[is] story” in his schedules or where in his schedules he was required to tell it, leaving it to the court to guess how such an omission, in WiscTex‘s view, amounts to a false statement, much less a material false statement that Galesky made both knowingly and fraudulently, for purposes of§727(a)(4) . Pl.‘s Closing Arg. at 8. WiscTex‘s discussion of materiality, in its opening brief, in particular, is essentially non-existent: WiscTex does not expressly address it at all, other than to note that it is an element of an objection to a debtor‘s discharge under§727(a)(4)(A) . See id. at 12.
- If the court were to address the argument on the merits, it would fail:
- Many elements of an objection to discharge under
§727(a)(4)(A) may have been met with respect to Galesky‘s omission from his statement of financial affairs of his purchase of an annuity for $100,000 less than a year before the petition was filed.- Subject to a limited exception for ordinary-course transactions, the statement of financial affairs requires debtors to list all of their transfers of property during the two-year period ending when the petition was filed, and under the
Code‘s “definition of transfer” even “[a] deposit in a bank account or similar account is a transfer.” Smiley, 864 F.2d at 565 (quoting S. Rep. No. 95-989, at 27). The purchase of an annuity certainly qualifies as a transfer for these purposes. - As noted in the decision, “materiality in the bankruptcy context has a broad meaning: ‘a fact is material “if it bears a relationship to the debtor‘s business transactions or estate, or concerns the discovery of assets, business dealings, or the existence and disposition of the debtor‘s property.“‘” Lardas, 847 F.3d at 570 (quoting Stamat, 635 F.3d at 982). Galesky‘s omissions, therefore, may have been material ones. But see Trial Tr. (Mar. 18, 2022) at 18:1–4 (The chapter 7 trustee was asked at the trial, “In reviewing Mr. Galesky‘s bankruptcy schedules and statement of [financial] affairs, [were] you aware that there were material omissions from those documents?“, and testified, “I don‘t recall any material omissions.“).
- Galesky also had “actual knowledge of the omitted information“, which “suffices to” satisfy “§727(a)(4)‘s knowledge requirement“. Chlad, 922 F.3d at 862.
- Subject to a limited exception for ordinary-course transactions, the statement of financial affairs requires debtors to list all of their transfers of property during the two-year period ending when the petition was filed, and under the
- But even assuming all of these elements of a
§727(a)(4) objection have been met, WiscTex makes no effort to show how this (or any other) omission was fraudulently made, aside from insisting, repeatedly and often without citing any evidence, that virtually everything Galesky did for years was done with the intent to hinder, delay, or defraud it or its predecessors in interest. - WiscTex did not even make a clear effort at the trial to solicit any testimony from Galesky (or anyone else) about these omissions. It asked him about the transfers he did list in response to the relevant prompt in the statement of financial affairs. See Trial Tr. (Mar. 17, 2022) at 113:11–14 & 121:18–122:12. But otherwise, the only relevant testimony was solicited by Galesky‘s attorney, who summarily asked him, “Do you believe that you fully and accurately answered all questions contained in the statement of financial affairs and your bankruptcy schedules?“, to which he answered, “Yes.” Trial Tr. (Mar. 18, 2022) at 60:22–24 & 61:2.
- The court will not find fraudulent intent with respect to any omissions from so thin an evidentiary record or by implication from other acts (none of which, the court notes, WiscTex actually proved were undertaken with fraudulent intent). WiscTex bears the burden of proof and has not carried it.
- Many elements of an objection to discharge under
- The argument is waived as unsupported and undeveloped, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), for these reasons:
- “Galesky diverted large sums of cash into Byway . . . while at the same time dissipating assets from Byway and funneling those funds into an annuity and self-directed IRA to hinder delay and defraud Creditor. At the same time, Galesky took all the value out of Byway . . . such that this asset was ultimately abandoned by the Trustee.” Pl.‘s Closing Arg. at 8. Other than to the extent addressed in the decision, the argument is unsupported and undeveloped, so it is waived, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), because WiscTex does not clearly identify any specific transactions to which this
statement relates or describe when any such transactions occurred, so the court cannot determine whether there are any that fall within the temporal scope of §727(a)(2)(A) —the only Code provision under which WiscTex seeks denial of Galesky‘s discharge that affords such relief based on transfers of property—or whether any such transfers might be circumstantial evidence of improper intent with respect to transfers that occurred within that provision‘s one-year lookback period. - “At the time of the aformentioned [sic] transfers, Galesky owed monies to Creditor knowing that his remaining assets would be unreasonably small in relation to the debt he owed. This is in violation of Wisconsin Statute[s]
§ 242.04 .” Pl.‘s Closing Arg. at 8. This statement is baffling, and any argument related to it is waived as unsupported and undeveloped, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), for these reasons:- WiscTex cites no evidence in support of this statement.
- The court cannot reasonably discern what transfers this statement is referring to, as “aforementioned” could encompass all of the transfers described in the first eight pages of WiscTex‘s opening brief, dating back to at least 2012. See Pl.‘s Closing Arg. at 1–8.
- WiscTex does not seek relief under
section 242.04 —a provision of Wisconsin‘s Uniform Fraudulent Transfer Act—in this proceeding, and that statute does not clearly relate to any of the Code provisions under which WiscTex does seek relief. - The only provision of
section 242.04 that speaks to a debtor‘s “remaining assets” being “unreasonably small“,section 242.04(1)(b)(1) , has far more requirements than this statement suggests: it only renders a transfer fraudulent if it was by a debtor who did not “receiv[e] a reasonably equivalent value in exchange” and, even then, only if the debtor also “[w]as engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction“. WiscTex makes no effort to address any of these requirements of the statute. - Even if the requirements of
section 242.04 were somehow satisfied with respect to one or more of Galesky‘s transactions,section 242.04 is a constructive-fraud statute, so even a proven violation of it does not satisfy the intent requirement of§727(a)(2)(A) , which, again, is the only provision of law under which WiscTex seeks denial of Galesky‘s discharge based on transfers of property. See Int‘l Ass‘n of Machinists & Aerospace Workers, IAM Loc. 437 v. U.S. Can Co., 441 N.W.2d 710, 717 (Wis. 1989) (contrasting a previous version ofWisconsin Statutes section 242.07 , which “deal[t] with conveyances that involve actual intent to defraud“, with a previous version ofsection 242.05 , characterized as covering “constructive fraud“, the language of which is substantially similar to the current version ofsection 242.04(1)(b)(1) , that “cover[ed] conveyancesthat leave a business with unreasonably small capital“); see also Village of San Jose, 284 F.3d at 790 (first citing Keeney v. Smith (In re Keeney), 227 F.3d 679, 683 (6th Cir. 2000); then citing Scott, 172 F.3d at 966–67; then citing Grogan v. Garner, 498 U.S. 279, 286–87 (1991); then citing Krehl, 86 F.3d at 743–44; and then citing Smiley, 864 F.2d at 566) (explaining that “the court can deny the discharge” under §727(a)(2) “[i]f a creditor demonstrates by a preponderance of the evidence that the debtor actually intended to hinder, delay, or defraud a creditor” but that “[t]he intent to defraud must be actual and cannot be constructive“).
- “Galesky sets forth in his Schedules that he owns an IRA with Midland Trust Company with a value of $73,000.00 which he claims as exempt. However, based on the 341-meeting testimony, some of the funds in the IRA were or are held by MGJR Investments, LLC . . . , not Galesky.” Pl.‘s Closing Arg. at 9.
- The argument is undeveloped and unsupported, so it is waived, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), because it is, by WiscTex‘s admission, based entirely on non-evidentiary materials, the purported transcripts of meetings of creditors, which were neither offered nor admitted into evidence. Pl.‘s Closing Arg. at 9 (citing ECF No. 35-49 at 74:2–75:12); Harrington, 971 F.3d at 741 (citing Cisneros, 846 F.3d at 978).
- If the court were to consider the argument on the merits, and comb the record for evidentiary support for it, it would fail: The argument, best construed, is that Galesky‘s discharge should be denied under
§727(a)(4)(A) because he knowingly and fraudulently made material false statements about his individual retirement account in his schedules, which he verified under penalty of perjury were complete and accurate. But there is no evidence that any statement he made about his IRA in his schedules is false. Galesky‘s schedule of assets (schedule A/B) lists $73,000 in an individual retirement account in response to a prompt that directed him to list “[i]nterests in IRA[s]“, among other things, but it does not say anything about the nature of the account or Galesky‘s interest in it. Trial Ex. 2 at 7. His schedules otherwise state, with respect to this IRA, only that he exempted (from property of the estate under§541 ) his interest in it under both federal and Wisconsin law, the former of which permits the exemption of “retirement funds to the extent that those funds are in a fund or account that is exempt from taxation” under specified provisions of the Internal Revenue Code and the latter of which permits the exemption of “[a]ssets held or amounts payable under an[] . . . individual retirement account . . . and payments made to the debtor therefrom.” Id. at 12;11 U.S.C. §522(b)(3)(C) ;Wis. Stat. §815.18(3)(j) . Thus, even if he did or does not directly own the funds held in his IRA, WiscTex has not proved that he made a discernably false statementabout that in his schedules. And even if he did, WiscTex cites no evidence that he did so knowingly or fraudulently, and the court is not aware of any.
- “Galesky failed to disclose all business names or EINs that were registered in his name.” Pl.‘s Closing Arg. at 9.
- The argument is waived as undeveloped and unsupported, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), because this statement, which appears in the “Facts” section of WiscTex‘s opening brief, arguably suggests grounds for relief under
§727(a)(4)(A) based on what WiscTex seems to believe was a material omission from Galesky‘s schedules or other filings signed under penalty of perjury, but WiscTex does not explain why Galesky was required to disclose this information or where in any of his required bankruptcy filings he was required but failed to do so. - The argument is also waived because WiscTex seems to have conceded it by not addressing in its reply brief Galesky‘s counterargument to it in his response brief. Bonte, 624 F.3d at 466 (first citing Farris, 532 F.3d at 619; and then citing Williams, 302 F.3d at 667). In a footnote to this statement, WiscTex cites trial testimony in which Galesky confirmed that he is (or was) a member of several limited liability companies and that he did not list any of their names or tax-identification numbers in response to the fourth prompt in his petition, which requires debtors to list “[a]ny business names and Employer Identification Numbers (EIN) [they] have used in the last 8 years“, suggesting that WiscTex believes Galesky was required but failed to disclose in that filing the name and EIN of each LLC of which he was a member. Pl.‘s Closing Arg. at 9 n.7 (citing Trial Tr. (Mar. 17, 2022) at 86:13–90:17); Trial Ex. 1, ECF No. 35-1, at 2. In his brief, Galesky responds that he “completely disclosed all businesses in which he held a membership interest in his [statement of financial affairs]” and that his “response to item 4 of the voluntary petition is accurate” because he never personally used any business names or EINs, so he had nothing to disclose in response to the petition‘s fourth prompt. Def.‘s Post-Trial Br. at 11–12. WiscTex makes no mention of the argument in its reply brief.
- If considered on the merits, the argument would fail: Galesky disclosed the names and EINs of his LLCs in his statement of financial affairs, and under applicable law, an “LLC is a distinct legal person that is separate from its members“, Marx, 925 N.W.2d at 122 & n.19, so their names and EINs are not his, and he was not required to separately list that information in his petition. Indeed, the form that an individual debtor must use to file a voluntary bankruptcy petition, Official Form B101 (Voluntary Petition for Individuals Filing for Bankruptcy), was recently amended to make this clear and to address the “erroneous[] belie[f]” of “[m]any individual debtors . . . that Question 4 was asking for the names of corporations or Limited
Liability Corporations in which they held any interest in the past 8 years“. See Voluntary Petition for Individuals Filing for Bankruptcy committee note to 2022 amendment (Dec. 2022), https://www.uscourts.gov/file/27768/download. As a result, the relevant prompt in the form petition now clearly states, “Do NOT list the name of any separate legal entity such as a corporation, partnership, or LLC that is not filing this petition.” Voluntary Petition for Individuals Filing for Bankruptcy (Dec. 1, 2022), https://www.uscourts.gov/file/27767/download.
- The argument is waived as undeveloped and unsupported, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), because this statement, which appears in the “Facts” section of WiscTex‘s opening brief, arguably suggests grounds for relief under
- “Galesky failed to explain the source of his income from Lending Tree and to date still has not disclosed the accounts he has with Lending Tree on his Schedules.” Pl.‘s Closing Arg. at 9.
- The argument is waived as undeveloped and unsupported, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), for these reasons: This statement suggests grounds for relief under
§727(a)(4)(A) based on what WiscTex seems to believe was an improper omission from Galesky‘s schedules. In fact, this statement and a related statement, discussed above, about Galesky‘s purported failure to disclose “income and assets from his investments in Lending Club” seem to be the only “facts” WiscTex offers in support of its contention, later in its opening brief, that Galesky made false statements about “the amount and nature of his income from all sources.” See Pl.‘s Closing Arg. at 7, 9 & 12–13. But in support of this statement—which, again, is about Galesky‘s purported failure to disclose income from and accounts with Lending Tree—WiscTex cites only a small portion of Galesky‘s trial testimony confirming that he did not list “a Lending Club account“, among other accounts, in his schedule of assets (schedule A/B). Trial Tr. (Mar. 18, 2022) at 30:10–19 (emphasis added), cited in Pl.‘s Closing Arg. at 9. - If considered on the merits, the argument would fail for the reasons discussed in footnote 3 of the decision.
- The argument is waived as undeveloped and unsupported, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), for these reasons: This statement suggests grounds for relief under
- “Galesky‘s actions have all the badges of fraud to support a claim under [§]727(a)(1) . . . .” Pl.‘s Closing Arg. at 11. The argument is waived as undeveloped and unsupported, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), both because WiscTex fails to actually make any argument for denial of Galesky‘s discharge under
§727(a)(1) —indeed, other than this wholly conclusory statement, which is repeated in WiscTex‘s reply brief, WiscTex does not mention§727(a)(1) in its briefs at all—and because this statement makes no sense. See Pl.‘s Reply Br. at 1.Section 727(a)(1) provides for denial of a chapter 7 discharge if “the debtor is not an individual“, but there is no question that Galesky is an individual, and in any event, fraud is not an element of an objection to discharge under§727(a)(1) . WiscTex‘s mentions of§727(a)(1) must be miscues. - “[Galesky made] false statements . . . [about] whether he had other debts“. Pl.‘s Closing Arg. at 12.
- The argument is waived as undeveloped and unsupported, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), for these reasons: WiscTex does not identify any statements that Galesky made about “other debts” other than to assert, in passing, several pages before this statement, “Galesky scheduled the IRS as a creditor, but he admits he does not owe the IRS any money.” Pl.‘s Closing Arg. at 6. As explained below, this plainly misrepresents the statement Galesky made in his schedules, but even if Galesky had made a false statement about this in schedules, WiscTex makes no effort to show that he did so knowingly and fraudulently, as required by
§727(a)(4)(A) , the only provision under which WiscTex seeks denial of Galesky‘s discharge that affords such relief based on false statements. - If the court were to consider the argument on the merits, it would fail: Galesky‘s schedule of creditors with unsecured claims (schedule E/F) lists the Internal Revenue Service as holding a claim for $0, suggesting that Galesky did not think he owed a debt to the IRS when he filed the petition. Trial Ex. 2 at 14. Consistent with this statement, Galesky testified at the trial, “I believe we listed the IRS just in case.” Trial Tr. (Mar. 17, 2022) at 128:22 (emphasis added). He was then asked, “Do you owe the IRS any money?“, and he answered, “Not that I‘m aware of.” Id. at :23–24. In other words, Galesky listed the IRS in his schedules—and added the clear notation, “Notice” — to ensure that it would receive notice of his bankruptcy case and the need to file a proof of claim if, contrary to his belief and the relevant statement in his schedules, it did have a claim against him. Trial Ex. 2 at 14. The IRS did not file a proof of claim, so it seems to have agreed with Galesky‘s statement in his schedules that it did not have a claim against him when the petition was filed (or, at the least, it has not opted to contest the point). Either way, WiscTex has not identified any statement that Galesky made about “other debts” that is even plausibly false, and the court is not aware of any. Pl.‘s Closing Arg. at 12.
- The argument is waived as undeveloped and unsupported, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), for these reasons: WiscTex does not identify any statements that Galesky made about “other debts” other than to assert, in passing, several pages before this statement, “Galesky scheduled the IRS as a creditor, but he admits he does not owe the IRS any money.” Pl.‘s Closing Arg. at 6. As explained below, this plainly misrepresents the statement Galesky made in his schedules, but even if Galesky had made a false statement about this in schedules, WiscTex makes no effort to show that he did so knowingly and fraudulently, as required by
- “Galesky knowingly has given false and misleading statements about his assets on his schedules in his 341 meetings, in his depositions and in court. During each questioning Galesky has changed his testimony.” Pl.‘s Closing Arg. at 13.
- The argument is waived as undeveloped and unsupported, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), because this statement is made without any specific references to any evidence, and WiscTex does not identify any specific statements that Galesky made in any of the stated contexts or any inconsistencies between any such statements.
- The argument is also waived to the extent that it is not based on evidence, Harrington, 971 F.3d at 741 (citing Cisneros, 846 F.3d at 978), which is to say, to the extent that WiscTex relies on non-evidentiary materials, namely the purported transcripts of the meetings of creditors, which were neither offered nor admitted into evidence.
-
“Galesky failed to list in his Statement of Financial Affairs . . . the attorney fees.” Pl.‘s Closing Arg. at 13. - The argument is waived because WiscTex seems to have conceded it by not addressing in its reply brief Galesky‘s counterargument to it in his response brief. Bonte, 624 F.3d at 466 (first citing Farris, 532 F.3d at 617; and then citing Williams, 302 F.3d at 667). This statement appears in a subsection of the “Elements” section of WiscTex‘s opening brief on
§727(a)(4) . Pl.‘s Closing Arg. at 13. In that brief‘s “Facts” section, WiscTex makes the following, seemingly related, statement: “Galesky failed to disclose or belatedly disclosed significant prepetition and postpetition payments for attorney‘s fees.” Id. at 9 (citing Trial Ex. 44 at 29 (114:10–19)). Galesky rebuts this statement in his response brief: “WiscTex fails to reference any evidence in the record of such payments or that Galesky was required to disclose such payments.” Def.‘s Post-Trial Br. at 12. WiscTex makes no mention of the argument, or Galesky‘s response to it, in its reply brief. - The argument is also waived as undeveloped, M.G. Skinner & Assocs., 845 F.3d at 321 (citing Hook, 471 F.3d at 775), because, as Galesky explains in his response brief, WiscTex does not identify any payments of attorneys’ fees that he was required but failed to disclose in his statement of financial affairs or cite any evidence of any such payments. Def.‘s Post-Trial Br. at 12–13.
- If considered on the merits, the argument would fail: the trial evidence does not show that Galesky made any payments of attorneys’ fees that he was required to disclose in his statement of financial affairs, other than those he did disclose there.
- The argument is waived because WiscTex seems to have conceded it by not addressing in its reply brief Galesky‘s counterargument to it in his response brief. Bonte, 624 F.3d at 466 (first citing Farris, 532 F.3d at 617; and then citing Williams, 302 F.3d at 667). This statement appears in a subsection of the “Elements” section of WiscTex‘s opening brief on
#####
Notes
In its opening brief, WiscTex indicates that it seeks denial of Galesky‘s discharge underthe debtor knowingly and fraudulently, in or in connection with the case . . .
. . .
(B) presented or used a false claim;
(C) gave, offered, received, or attempted to obtain money, property, or advantage, or a promise of money, property, or advantage, for acting or forbearing to act; or
(D) withheld from an officer of the estate entitled to possession under this title, any recorded information, including books, documents, records, and papers, relating to the debtor‘s property or financial affairs;