JERRY W. VENTERS, Bankruptcy Judge.
This revocation of discharge proceeding presents one of the more blatant cases of lying, deception and fraudulent conduct to come before the Court in years. In the eyes of the Chapter 7 panel trustee, it is the most egregious case of deception he has seen in his more than 20 years as a panel trustee. The evidence adduced at the trial on the United States Trustee's ("UST") complaint under 11 U.S.C. § 727(d)(1) and (d)(2) confirmed these characterizations. Thus, it should be no surprise that the Court finds ample evidence here to support a revocation of discharge under § 727(d)(2); the UST's § 727(d)(1) action, however, is time-barred and must be dismissed.
In early January 2007, the Defendant, Carole Lombard, contacted attorney Charles Edwards concerning her financial situation. She advised Mr. Edwards that she owned an unencumbered 2004 Nissan Altima valued at $15,300 and a 1995 Harley Davidson three-wheel motorcycle. Apparently, Mr. Edwards told her that she would need to get rid of those assets before she filed bankruptcy or she would lose them to the trustee. He suggested she come back to see him in six months after she had disposed of the vehicles.
Norman Rouse, the Chapter 7 panel trustee appointed in the Debtor's bankruptcy estate, conducted the Debtor's § 341 meeting of creditors on November 8, 2007, at which time the Debtor testified under oath that the Harley was "in parts" and that she had transferred both the Harley and the Altima to her brother, Randall Lombard, in early 2007. The Debtor and Randall lived less than a block away from each other at that time. The Debtor further testified that Randall paid her $12,500 in cash for the Altima and $1,500 for the Harley, but that he was permitting her to use the Altima. She produced handwritten receipts to substantiate the alleged sale. However, Randall later testified at a Rule 2004 examination on December 8, 2009, that he had no documentation to proved the alleged payments to the Debtor. Missouri Department of Revenue records show that titles to the Altima and to the Harley were transferred to Randall in January 2007 and transferred back to the Debtor in June (Altima) and August (Harley) 2009.
The Debtor received a discharge on January 9, 2008.
In July 2009 Randall told the Trustee that he was moving to Kansas. Suspicious that the Debtor's transfer of the Altima to Randall might have been fraudulent, the Trustee drove by the Debtor's home on July 30, 2009, to see if she had retained possession of the Altima even though her brother—the purported owner of the Altima—had moved away. His suspicions were confirmed. The Trustee saw not only the Altima parked in front of the Debtor's house, but the Harley was also there with a "for sale" sign and a telephone
The Trustee asked Christy House, a paralegal in his law office, to call the posted number and inquire about the Harley. Ms. House testified that the Debtor told her that she had owned the motorcycle for four years and that it had never been wrecked or had any major repair work. The Debtor bragged about improvements she had made to the bike (such as new foot plates, chrome handle bars, a new shift plate, and a new easy-clutch) and offered to sell it to Ms. House for $28,750. The Debtor also told Ms. House that she had a lot of Harley Davidson clothing and jewelry to sell.
Still operating undercover, Ms. House arranged to meet the Debtor at her house to inspect the Harley and the other merchandise. Over the course of several visits, the Debtor showed Ms. House an extensive jewelry collection, including an eight-karat (total weight) diamond ring, racks upon racks of Harley clothing and accessories, and several large bins of Beanie Babies. The Debtor admitted to Ms. House that she had a shopping addiction, a confession verified by her large inventory of discretionary purchases and significant credit card debt.
On August 10, 2009, Rouse, the panel trustee, filed an Emergency Motion for a Temporary Restraining Order and to Compel Turnover of Property, which the Court granted ex parte. Armed with the TRO and assisted by two sheriff's deputies, the Trustee "raided" the Debtor's trailer and recovered the Harley and the Debtor's inventory of valuable personal property.
On August 12, 2009, the Trustee filed a complaint against the Debtor and Randall Lombard for turnover of property, including the Altima, Harley, jewelry, and clothing.
The United States Trustee commenced this adversary proceeding on April 15, 2010.
Before delving into the substance of the UST's allegations, the Court must first consider the timeliness of the UST's causes of action under § 727(d)(1) and (2). Despite their textual proximity in the Code, these two code sections operate under different time limitations. Section 727(e)(1) requires that actions under § 727(d)(1) be brought against a debtor within one year after her discharge is
The UST acknowledges that the complaint was filed more than a year after the discharge was entered but argues that the time limit set out in § 727(e)(1) should be equitably tolled because the delay in filing the complaint was due solely to the Debtor's continued concealment of her fraud against the estate. The UST contends that the general proposition that equitable tolling should be read into every federal statute
The Court certainly appreciates the UST's position, and agrees that if equitable tolling applied to § 727(e)(1) it would be hard to imagine a more deserving, i.e., egregious, case than this one. However, the Court is persuaded by the majority of cases holding that equitable tolling does not apply to § 727(e)(1).
As the court in Dahar v. Bevis (In re Bevis) concisely stated:
The UST's § 727(d)(2) claim, on the other hand, is timely and well taken.
To revoke a debtor's discharge under § 727(d)(2), the UST must establish by a preponderance of the evidence that: 1) the Debtor acquired property that is property of the estate, or became entitled to acquire property that would be property of the estate, and 2) knowingly and fraudulently failed to report the acquisition of or entitlement to the property or to deliver or surrender the property to the trustee.
First, the Debtor acquired property of the estate when title to the Altima and Harley was transferred back into her name in June (Altima) and August (Harley) 2009. The Court explicitly found that the Harley was property of the estate in its February 12, 2010 Order resolving the Trustee's complaint for turnover against the Debtor and Randall Lombard. And it implicitly found that the Altima was property of the estate when the Court ordered the Debtor to turn over to the Trustee the proceeds from the Debtor's sale of the Altima ($9,700).
The Debtor's argument that she did not acquire or become entitled to "property of the estate" because her brother had possession of and title to the Altima and Harley on the petition date is contrary to the law of the case and is without merit. The transactions "transferring" the Altima and the Harley from the Debtor to her brother (and back again) were sham transactions. Therefore, they had no legal effect. The Debtor had an interest (albeit equitable, not titular) in the Altima and Harley on the petition date. Therefore, the Altima and Harley always retained their character as property of the estate under 11 U.S.C. § 541, and when the Debtor regained title to those vehicles in 2009 after the entry of her discharge she acquired property that was property of the estate.
Second, the facts overwhelming support a finding that the Debtor's conduct in failing to disclose her reacquisition of estate property was knowing and fraudulent. The phrase "knowingly and fraudulently" in § 727(d)(2) requires that the debtor's actions must have been taken with the intent to defraud the trustee, or be so reckless as to justify a finding that the debtor acted fraudulently.
Here, the surrounding circumstances are rife with indicia of fraudulent intent. Prior to filing bankruptcy, the Debtor was told by her attorney that she needed to "get rid of" the Altima and Harley before she filed bankruptcy. She did that. But instead of legitimately selling these items, she transferred title to them to her brother, Randall, for no consideration. The Court puts no credence in the handwritten receipts she supplied to the Trustee. Neither Randall nor the Debtor has provided any testimonial or documentary proof that Randall paid anything for the vehicles. Then, after the entry of her discharge (and near the time her brother was moving away), the titles to the Altima and Harley were transferred back to her, again without any consideration.
For the reasons stated above, the Court finds that the United States Trustee has established, by a preponderance of the evidence, all of the elements required under 11 U.S.C. § 727(d)(2) to revoke the Debtor's discharge. The Trustee's action under 11 U.S.C. § 727(d)(1) is time-barred and will be dismissed.
A separate order revoking the Debtor's discharge will be entered contemporaneously with this opinion.
