ALAN H. W. SHIFF, Bankruptcy Judge.
This decision is limited to the portion of Count III in the above adversary proceeding ("Action") in which the Plaintiff, The Cadle Company ("Cadle"), seeks to deny the Defendant/Debtor ("Debtor") a discharge under § 727(a)(2)(A).
On June 28, 2002, the trustee in the Debtor's father's chapter 7 case, pending in the Hartford Division of this Court, commenced a fraudulent transfer action against the Debtor and her mother. See In re Frank F. Ogalin, Case No. 00-32944 (ASD) (Bankr. D. Conn. 2000) ("Fraudulent Transfer Action"). On May 14, 2003, that court approved the sale of the Fraudulent Transfer Action to Cadle, who was substituted as the plaintiff. See id. (ECF No. 59) ("Order Granting Motion to Sell Cause of Action"). On August 27, 2003, Cadle filed a motion in the District Court for a withdrawal of the reference of the Fraudulent Transfer Action, which was granted on July 26, 2004. See Cadle Co. v. Ogalin, et al., No. 3:04-cv-1225 (JBA), Endorsement Order (ECF No. 7) (D. Conn. July 27, 2004). On September 24, 2007, after a jury trial on Cadle's amended complaint (see id., ECF No. 213), in which the jury affirmatively answered special interrogatories that transfers to the Debtor where fraudulent, judgment entered in Cadle's favor in the amount of $587,206 ("Judgment"). (See id., ECF Nos. 233, 234, 237; see also Tr. Exh. 2 (jury verdict with special interrogatories)).
This Chapter 7 case was commenced on October 7, 2010. On January 3, 2011, Cadle commenced this Action challenging the Debtor's discharge under the Bankruptcy Code §727(a)(2)(A).
(Stipulated Order
It is well settled that "[o]ne of the central purposes of the Bankruptcy Code and the privilege of discharge is to allow the `honest but unfortunate debtor' to begin a new life free from debt." D.A.N. Joint Venture v. Cacioli (In re Cacioli), 463 F.3d 229, 234 (2d Cir.2006) (quoting Grogan v. Garner, 498 U.S. 279, 286-87 (1991)). Because "the denial of a debtor's discharge `imposes an extreme penalty for wrongdoing,' [s]ection 727 must be construed strictly against those who object to a debtor's discharge and liberally in favor of the . . . [debtor].'" Cadle Co. v. Ogalin (In re Ogalin), 303 B.R. 552, 557 (Bankr. D. Conn. 2004)(Dabrowski, J.) (quoting In re Chalasani, 92 F.3d 1300, 1310 (2d Cir. 1996)); see also In re Boyer, 367 B.R. 34, 43 (Bankr. D. Conn. 2007). A party seeking the denial of a debtor's discharge must prove its case by a preponderance of the evidence. See Pisculli v. T.S. Haulers, Inc. (In re Pisculli), 408 F. App'x 477, 479 (2d Cir.2011) (citing Grogan, 498 U.S. at 287); see Republic Credit Corp. I v. Boyer (In re Boyer), 328 F. App'x 711, 714 (2d Cir.2009).
Section 727(a)(2)(A) provides in relevant part:
11 U.S.C. §§ 727(a)(2)(A)(emphasis added). To succeed in this § 727(a)(2)(A) Action, Cadle must prove each of the following factors: (1) the debtor transferred or removed or caused the transfer or removal of (2) her property (3) within one year before she filed her petition (4) with the intent to hinder or delay Cadle. See Boyer, 367 B.R. at 43 (quoting Rhode Island Depositors Econ. Prot. Corp. v. Hayes (In re Hayes), 229 B.R. 253, 259 (1st Cit. B.A.P. 1999)).
Cadle has satisfied its burden of proving the first three elements with the Established Facts in the Stipulated Order. That is, on a weekly basis, the Debtor caused Drywall to transfer to her all of her Disposable Earnings (her property) within the one-year period of her October 7, 2010 bankruptcy filing. See Established Facts, ¶¶ 23-32.
The intent factor is the only remaining issue to be determined. A party's intent "is rarely subject to direct proof." Boyer, 328 F. App'x at 715. Therefore, "courts look to see if certain `badges of fraud,' which are strong indicia of actual fraudulent intent, are present." In re Vidro, 497 B.R. 678, 687 (Bankr. E.D.N.Y. 2013); see also Boyer, 328 F. App'x at 715 (citing Salomon v. Kaiser (In re Kaiser), 722 F.2d 1574, 1582 (2d Cir.1983)). Those badges of fraud include "[t]he retention of possession, benefit or use of the property in question," and "the existence or cumulative effect of a pattern or series of transactions or course of conduct after the incurring of debt, onset of financial difficulties, or pendency or threat of suits by creditors." Kaiser, 722 F.2d at 1582-83. The requisite intent "to delay or hinder a creditor may also be found where a debtor deals with his assets in a manner designed and intended to avoid seizure or attachment by one or more of his creditors. Moreover, just one wrongful act may be sufficient to show actual intent although a continuing pattern of wrongful behavior is a stronger indication." Warchol v. Barry (In re Barry), 431 B.R. 533, 540 (Bankr. D. Mass 2010), aff'd in part and rev'd in part (on other grounds), 451 B.R. 654 (1st Cir. B.A.P. 2011).
The Debtor was the only witness at the December 4-5, 2013, trial. (See Dec. 4, 2013 Trial Tr. (ECF No. 160); Dec. 5, 2013 Trial Tr. (ECF No. 161).) During her testimony, she admitted that she habitually caused her company, Drywall, to disregard the Wage Execution by having the company pay her all of her Disposable Earnings. (See Dec. 4, 2013 Trial Tr, at 42-44.) She repeatedly acknowledged that all of the Disposable Earnings for each Payday was being paid to her.
(Id. at 58:25-59:6; see also id. at 45:18-22, 46:16-19, 48:9-25, 49:16-50:3.) The Debtor also testified that she "needed the money to live . . . and the portion that would have went [sic] to Cadle was a big portion that I needed." (Dec. 5, 2013 Trial Tr. at 48:20-22 (ECF No. 161).)
Thus, by her own words, the Debtor stated she knew that when she decided to cause Drywall to pay her instead of Cadle, she would be ignoring a legal obligation. Moreover, the evidence that this occurred 30 times strengthens Cadle's argument that the Debtor intended to hinder and delay the payment of the district court Judgment debt. The Debtor's attempt to rebut that evidence by claiming she did not intend to delay or hinder Cadle was either non-existent or not believable.
For example, the Debtor did not, and could not, offer evidence that ignoring the Wage Execution Order did not have the indisputable effect of delaying the payment of Cadle's Judgment. As to hindering Cadle, the Debtor testified that when she caused her company to pay her, she was actually helping Cadle because she was improving the equity in her real property ("Property") on which Cadle had a judgment lien. (See id. at 51:12-13.) She also testified that she "had to keep the money" (Dec. 4, 2013 Trial Tr. at 44:9), and that since Cadle had a judgment lien on her Property, she "felt by keeping the money . . . and paying [her] mortgage every month, [she] was [advancing the] interest [of] Cadle and [her]self". (Id. at 45:8-10; see also id. at 49:2-4, 51:12-13.) The problem with that argument is that her own pre-bankruptcy acts and her bankruptcy schedules contradict that assertion, since both pre-petition and in her bankruptcy schedules she stated that there was no equity to protect.
Cadle put into evidence its May 21, 2008 state court foreclosure complaint against the Debtor (see Trial Exh. 4), pursuant to which it sought to foreclose the Judgment recorded against the Debtor's Property, and the Debtor's May 19, 2009 answer thereto (see Trial Exh. 5). The Debtor's answer asserted defenses that there was no equity in the Property reachable by Cadle's Judgment (see id., "Third Defense" ("there is no net equity value for the lien")) and that it was subject to her homestead exemption (see id., "First Defense"). Moreover, it should be noted that Cadle's interest was behind a first mortgage, which was undersecured. (See Trial Exh. 3 (Sch. D, listing the value of the Property at $325,000, with a 1st mortgage of $335,000, of which $10,000 was unsecured).) Indeed, in her Chapter 7 bankruptcy schedules, the Debtor disclosed that there was no equity in the Property. (See id.) Therefore, while using the district court-ordered Execution Sums to pay down the first mortgage might have placed that mortgagee in a less unsecured position, it would not have made Cadle the holder of a secured claim.
Moreover, the Court finds the Debtor's claim that she was helping Cadle by not paying it the court-ordered Execution Sums was not only discredited by the facts, see supra, but also by her incredible testimony. For example, the Debtor was not credible when she claimed that her September 2010 partial payments on the Wage Execution were unrelated to Cadle's August 27, 2010 Arrest Warrant Motion. Given the timing of the Debtor's sudden payments, after 30 contiguous missed payments, her claim of coincidence belies credulity. (Cf. Trial Exhs. 20, 21, 22, 23 (respectively, Arrest Warrant Motion and letters concerning modest partial payments on wage execution); see also Dec. 5, 2013 Trial Tr. at 67-72.) See In re Boyer, 384 B.R. 44, 47-48 (D. Conn. 2008) ("the issue of intent depends `largely upon an assessment of the credibility and demeanor of the debtor'")(further citation omitted). Rather, at the very least, by flagrantly and repeatedly causing the Wage Execution order to be defied and then spending her entire weekly Disposable Earnings as she decided, the Debtor intended to delay Cadle receiving payments on the Judgment, if not hinder its collection efforts altogether.
Accordingly, Cadle has met its burden of proving the Debtor intended to delay paying Cadle on the Judgment, if not hinder Cadle. The Debtor has failed to rebut Cadle's cause of action.
Therefore, IT IS ORDERED that judgment shall enter in favor of Cadle. An order denying the Debtor's discharge shall enter simultaneously herewith.
This Memorandum of Decision constitutes the Court's findings of fact and conclusions of law in accordance with Bankruptcy Rule 7052.
