SUSAN D. BARRETT, Chief Bankruptcy Judge.
This Order addresses the United States Trustee's ("UST") complaint to revoke Larry Smith's ("Debtor's") discharge pursuant to 11 U.S.C. §727(d)(1) and (d)(2), along with the Debtor's oral Motion for Judgment on Partial Findings.
Debtor, an attorney, filed for chapter 7 bankruptcy relief on March 3, 2014. At the time he filed his bankruptcy petition, Debtor was married to Lynne Smith ("Mrs. Smith"). Mrs. Smith has not filed bankruptcy. Debtor's bankruptcy schedules list a 20% fractional ownership interest in a vacation beach house and lot on Fripp Island, S.C. ("Fripp Property") and list the interest as owned jointly by Debtor and Mrs. Smith. Tr. Hr'g 05/17/16, Pl. Ex. 1. However, as of the petition date, legal title to the Fripp Property was vested solely in Debtor's name, subject to Mrs. Smith's claim of a purported equitable interest. Debtor testified he owned the Fripp Property prior to his marriage to Mrs. Smith. Tr. Hr'g 05/17/16 246:1-3. His bankruptcy schedules value the 20% interest in the Fripp Property at $95,000.00. Tr. Hr'g 05/17/16, Pl. Ex. 1.
Prior to filing his bankruptcy case, Debtor and his wife had been trying to sell the Fripp Property for several years. Through the years, Debtor had several conversations with Edgar L. Perry ("Mr. Perry") about the sale of the Fripp Property. Mr. Perry has been Debtor's neighbor in Augusta and the families have been friends for years. Mr. Perry's grown children always have encouraged him to purchase the Fripp Property, but in the past, Mr. Perry was not interested in the property and he thought the price of more than $125,000.00 for a fractional interest was too high when extrapolated out to value the whole property. Tr. H'rg 05/17/16 41:1-14, 42:5-8.
After Debtor filed his bankruptcy petition, Mr. Perry approached Debtor and said, "if it'll help you, I will buy [Fripp Property] from you for $125,000.00." Tr. H'rg 05/17/16 41:20-25-42:1-12. At that time, Mr. Perry did not know whether Debtor was in bankruptcy, but he had heard Debtor was experiencing financial difficulty. Debtor had not solicited this offer and did not negotiate or set this $125,000.00 price, but he told Mr. Perry he would think about the offer. Ultimately, Debtor accepted the offer and told Mr. Perry he was working on getting the sale all worked out. Tr. H'rg 05/17/16 42:12-20. At the conclusion of these conversations, Mr. Perry understood he and Debtor had an agreement for Mr. Perry to purchase the Fripp Property for $125,000.00 once Debtor worked out the details. Tr. H'rg 05/17/16 43:13-14. Some weeks passed and Mr. Perry asked Debtor about the status of the sale. Debtor informed him he was still working on it. Tr. H'rg 05/17/16 43:21-25-44:1-14. Mr. Perry was concerned "because summer was approaching and my kids were lining up vacations . . we got to know because . . if we're not going to buy the place, we're going to have to rent a place, you know . . . we don't want to rent it and then buy it or whatever . . I kept pushing him at the end." Tr. H'rg 05/17/16 44:18-25-45:5.
During this time, Debtor also was working on getting the Fripp Property out of his bankruptcy estate for the benefit of his non-debtor wife, Mrs. Smith. Debtor met with the Chapter 7 Trustee ("Trustee") on two occasions and discussed the Fripp Property. Prior to starting the official §341 meeting held in the Trustee's office,
After the §341 meeting, the Trustee informed Debtor via a May 27, 2014 letter that he would not be able to abandon the Fripp Property "without making some effort to liquidate the interest." Pl.'s Ex. 4. In the letter, the Trustee also asked Debtor to provide any written agreements with the co-owners of the Fripp Property that may impact the Trustee's attempt to sell the property. Pl.'s Ex. 4. Within days of the May 27th letter, Debtor called the Trustee and asked to meet with him. Tr. H'rg 05/17/16 78:5-14. They met in the Trustee's office on the very day of the phone call. Id. At this meeting, Debtor asked the Trustee what it would take for him to sell the property to Mrs. Smith, and Debtor extended an offer on her behalf to purchase the property for $20,000.00. Tr. H'rg 05/17/16 79:5-9. After negotiating with Debtor, the Trustee ultimately agreed to sell the Fripp Property to Mrs. Smith for $25,000.00. Pl.'s Ex. 2. The Trustee's rationale for the sale was it would enable him to reach a quick conclusion of Debtor's bankruptcy case, while providing a dividend to Debtor's creditors without having to litigate Mrs. Smith's potential interest, if any, in the Fripp Property. The Trustee also recognized the sale of a fractional interest in a vacation beach house with at least three other owners could be difficult. Tr. H'rg 05/17/16 79:5-20. During the negotiations, the Trustee never asked Debtor whether there were any current offers to purchase the Fripp Property, nor did Debtor volunteer the fact that Mr. Perry had already agreed to buy the property for $125,000.00. Tr. H'rg 05/17/16 79:21-23.
Approximately six days after the Trustee agreed to sell the Fripp Property to Mrs. Smith for $25,000.00, Mr. Perry and Mrs. Smith entered into a written sales contract, prepared by Debtor, whereby Mrs. Smith would sell the Fripp Property to Mr. Perry for $125,000.00 ("Perry Sales Contract"). Pl.'s Ex. 5. The contract states in pertinent part:
Pl.'s Ex. 5.
After the Trustee agreed to sell the Fripp Property to Mrs. Smith, he initially heard about the Perry sale through a casual Sunday school conversation with Mr. Perry's son. Tr. H'rg 05/17/16 82:4-25. The Trustee promptly contacted Debtor's attorney to determine the details of this purported sale. Tr. H'rg 05/17/16 83:8-13. Debtor's counsel informed the Trustee that the Debtor's agreement with Mr. Perry was a summer rental arrangement, not a sale. Tr. H'rg 05/17/16 93:8-14. Upon cross-examination, the Trustee stated he would not be surprised if there was a lease agreement that predates the Perry Sales Contract, but the lease agreement was never shown to the Trustee or disclosed in Debtor's bankruptcy schedules. Tr. H'rg 05/17/16 127:9-14. The Trustee did not ask Debtor's counsel to provide him with a copy of the purported lease agreement.
After these discussions with Debtor's counsel, the Trustee was satisfied there was no pending sale so he proceeded on June 19, 2014 to file a Motion to Sell the Fripp Property to Mrs. Smith for $25,000.00. Pl. Ex. 2. After filing the motion, the Trustee received a call from Mr. Perry's counsel informing him of the Perry Sales Contract. Tr. H'rg 05/17/16 98:3-5. In response, on July 8, 2014, the Trustee withdrew his Motion to Sell the Fripp Property to Mrs. Smith. Pl. Ex. 2-A. Debtor received his bankruptcy discharge eight days after the Trustee withdrew the Motion to Sell. Chap. 7 Case No. 14-10381, Dckt. No. 38.
Soon after the Trustee withdrew the Motion to Sell, Mrs. Smith filed a petition for separate maintenance against Debtor in the Superior Court of Richmond County Georgia. Pl. Ex. 3-A. On August 4, 2014, pursuant to an uncontested order from the Superior Court, Debtor executed a quit claim deed conveying the Fripp Property to Mrs. Smith. Pl. Exs. 3-A and 3-C. This was done without bankruptcy court approval, but the Trustee knew of the separation proceedings. When questioned why on cross examination why he chose not to attend the Superior Court hearing the Trustee stated he considered the disposition of Debtor's interest in the Fripp Property to be void ab initio because it was conducted in violation of the Bankruptcy Code's §362 automatic stay. Tr. H'rg 05/17/16 154:1-19.
After asking for a copy of the Perry Sales Contract and not receiving one, the Trustee ultimately subpoenaed Debtor's counsel for production of a copy of the contract and he finally received it on September 9, 2014. Tr. H'rg 05/17/16 99:6-18. Upon receipt of the contract, the Trustee moved for a 2004 exam of Mrs. Smith. When the Trustee discovered the extent of Debtor's conduct, he informed the UST of Debtor's and Mrs. Smith's actions in an email dated November 11, 2014.
On December 1, 2014, the Trustee commenced an adversary proceeding against Debtor and Mrs. Smith seeking damages for willful violation of the automatic stay and requesting an order be entered setting aside the quit claim deed from Debtor to Mrs. Smith as void ab initio. Pl. Ex. 3-A. Ultimately, in March 2015, the Trustee filed a motion to approve a compromise of this adversary proceeding, whereby the Trustee and Mrs. Smith agreed to sell their respective interests in Fripp Property to third parties
In February 2015, before the compromise of the Trustee's adversary, the UST filed the current adversary proceeding seeking to revoke Debtor's bankruptcy discharge for his purported fraudulent conduct related to the Fripp Property. The UST also claims Debtor's schedules greatly undervalue the personal property associated with the Fripp Property. The Perry Sales Contract attributes $15,000.00 of the purchase price to the Fripp personal property, as opposed to the $1,100.00 personal property valuation set forth in Debtor's bankruptcy schedules. Pl. Ex. 5. Debtor testified he valued the personal property much higher in the Perry Sales Contract to reduce the real estate ad valorem transfer tax. Tr. H'rg 05/17/16 225:9-16.
Also relevant to the pricing issue, as of the filing of the bankruptcy petition, Debtor was delinquent in paying his share of the taxes, repairs and costs associated with the Fripp Property. Tr. H'rg 05/17/16 28:21-25; 29:9-14; 64:23-25-65:1-2. In the Trustee's Motion to Sell the Fripp Property to Mrs. Smith, the property was to be sold subject to those charges. Pl.'s Ex. 2. In the Perry Sales Contract, Mrs. Smith agreed to pay these charges. Pl.'s Ex. 5. In the sale ultimately approved by the Court, the third party buyers agreed to assume these charges. Pl.'s Exs. 3B and 3C.
In defense of the UST's allegations, Debtor testified on his own behalf.
When Debtor and Mrs. Smith met with his bankruptcy counsel, they made it clear that "whatever happened, we consider [the Fripp Property] to be [Mrs. Smith's] and we wanted to do everything within legal means, of course, to have her come out of this with [the Fripp Property]." Tr. H'rg 05/17/16 215:7-10. Debtor also testified he had been talking to Mr. Perry for years about the sale of the Fripp Property and Mr. Perry was not interested in buying the property. Tr. H'rg 05/17/16 216:23-25-217:1-5. Debtor and Mrs. Smith were very close friends and neighbors of Mr. and Mrs. Perry. Tr. H'rg 05/17/16 218:18-25-219:1-9. When Mrs. Perry became terminally ill, Mrs. Smith cared for her during her long health battle.
When the Trustee refused to abandon the Fripp Property, Debtor immediately contacted and met with the Trustee and tendered Mrs. Smith's offer to purchase the Fripp Property for $20,000.00 with money she would borrow from her sister. Tr. H'rg 05/17/16 234:3-23. Debtor said he always listened carefully to the Trustee's questions and the Trustee never asked him what Mrs. Smith intended to do with the Fripp Property or if Debtor knew of any offers to purchase the Fripp Property. Tr. H'rg 05/17/16 247:1-14. Debtor acknowledged he did not voluntarily disclose the agreement he reached with Mr. Perry or the Perry Sales Contract. He never thought he needed to voluntarily disclose the existence or terms of Mr. Perry's agreement or contract to the Trustee. He viewed this as a negotiation with the Trustee and did not think Mr. Perry's deal had anything to do with Debtor's bankruptcy. Tr. H'rg 05/17/16 235:18-25. According to Debtor, Mr. Perry would not purchase the Fripp Property from the Trustee if the purchase did not benefit Mrs. Smith.
Debtor denies any allegations that Mrs. Smith's complaint for separate maintenance were part of an effort to shield the Fripp Property from his creditors. Tr. H'rg 05/17/16 238:17-25. In fact, he states he did not know of the separate maintenance action until he was asked to acknowledge service.
Debtor also admits he drafted the $125,000.00 Perry Sales Contract and at the time he had his wife and Mr. Perry sign the contract, Debtor knew the Trustee had agreed to sell the Fripp Property to Mrs. Smith for $25,000.00. Tr. H'rg 05/17/16 245:6-22. Debtor never amended his bankruptcy schedules to value the Fripp Property at $125,000.00.
For the following reasons and after considering the evidence, Debtor's Rule 7052(c) motion is denied and Debtor's discharge is revoked pursuant to 11 U.S.C. §727(d) (1) and (d)(2).
At the conclusion of the UST's case in chief, Debtor moved for a Judgment on Partial Findings pursuant to Federal Rule of Civil Procedure 52(c) made applicable to this contested matter by Federal Rule of Bankruptcy Procedure 7052. Federal Rule 52(c) states in pertinent part:
Fed. R. Civ. P. 52(c). The advisory committee notes states:
Fed. R. Civ. P. 52, advisory committee note to 1991 Amendment.
Unlike a summary judgment analysis, "[i]n ruling on a Rule 52(c) motion, the court should `evaluate the evidence without making special inferences in the Plaintiff's favor . . and [should] resolve the case on the basis of preponderance of the evidence.'"
Section 727(d) (1) states in pertinent part:
11 U.S.C. §727(d) (1). "The phrase `discharge was obtained through the fraud of the debtor' has been construed to refer to the behavior that would be sufficient for the denial of discharge under §727(a)(2)-(5)."
A court shall revoke a debtor's discharge pursuant to §727(d)(1), if:
The UST argues the Debtor's discharge should be revoked because Debtor's behavior falls within the scope of 11 U.S.C. §727(a) (4) (A) which provides:
11 U.S.C. §727(a) (4). In this case, the UST contends Debtor knowingly and fraudulently made a false oath or account in connection with his bankruptcy. The UST further contends had the Debtor's fraud been known, it would have resulted in denial of the Debtor's discharge under 11 U.S.C. §727(a)(4)(A) and that the UST did not know of the fraud until after entry of Debtor's bankruptcy discharge.
To prevail, on the first element, the UST must establish by a preponderance of the evidence that Debtor made "a false oath, that it was material, and that it was made knowingly and fraudulently."
In this case, Debtor's bankruptcy schedules clearly disclose his fractional ownership interest in the Fripp Property. However, the UST has established by a preponderance of the evidence that Debtor, a sophisticated attorney, engaged in fraudulent conduct by not disclosing his agreement with Mr. Perry to purchase the Fripp Property for $125,000.00, while Debtor was simultaneously negotiating with the Trustee to sell the same property to Debtor's wife for $20,000.00. He structured the transaction and drafted the Perry Sales Contract whereby Debtor's wife, a non-debtor insider, would sell the Fripp Property to Mr. Perry for $125,000.00 thereby intending to orchestrate a fraud on the bankruptcy estate. He never amended his schedules to reflect the $125,000.00 agreement. Also, Debtor, through his counsel
Debtor is a practicing attorney and he drafted the Perry Sales Contract with the following:
Pl.'s Ex. 5 (emphasis added). As drafted, the Perry Sales Contract does not require notice of the Perry sale to the Trustee, or Debtor's creditors, or the approval of the Bankruptcy Court. When Debtor was negotiating his wife's $25,000.00 purchase of the property from the Trustee, he had already accepted Mr. Perry's offer to purchase the same property for $125,000.00. He structured the deal and drafted the Perry Sales Contract so that once the Trustee's sale to Mrs. Smith was consummated the Fripp Property would be out of Debtor's bankruptcy estate, and Debtor's creditors and the Trustee would never have notice of the $125,000.00 Perry agreement and sale. In addition, notwithstanding the fact the property was part of Debtor's bankruptcy estate as of June 2, 2014, Debtor drafted the contract, without notice to the Trustee, giving Mr. Perry the "right to use the property to the same extent as [Mrs. Smith] immediately upon execution of this Agreement." Pl.'s Ex. S.
When the Trustee discovered the Debtor may be manipulating the system, he contacted Debtor's counsel. At which time, Debtor's counsel misinformed the Trustee there was no sale to Mr. Perry, rather "it was for summer only." Tr. H'rg 05/17/16 93:8-14. This explanation initially satisfied the Trustee. Subsequently and after Debtor received his discharge, the Trustee received a call from Mr. Perry's counsel informing him of the Perry Sales Contract. As a result, the Trustee withdrew his Motion to Sell on July 8, 2014.
When it became apparent that the Trustee's sale to Mrs. Smith would not work, Mrs. Smith filed a state court separate maintenance action seeking title to the Fripp Property for her support and maintenance. According to the Trustee's complaint the only relief requested by Mrs. Smith in the state court action was title to the Fripp Property. Pl.'s Ex. 3-A. This was done without seeking relief from the Bankruptcy Code's §362 automatic stay. Debtor did not oppose transferring the Fripp Property to Mrs. Smith as part of their separate maintenance. The Trustee testified that he did not participate in the state court action because he viewed all such matters void ab initio in violation of the automatic stay. But for the fact the transfer was void ab initio, these actions could have eliminated Debtor's bankruptcy estate's interest in the Fripp Property and the need for proper notice and approval. Given Debtor's conduct, the Court finds the UST has established a material false oath or account in connection with the Debtor's bankruptcy.
Next, the UST must establish Debtor made this false oath knowingly and fraudulently. A debtor's fraudulent intent "may be based on circumstantial evidence or inferred from the surrounding facts and circumstances."
In this case, several factors lead the Court to infer Debtor's fraudulent intent to conceal his agreement with Mr. Perry and the Perry Sales Contract from the Trustee. The general chronology and cumulative effect of the events gives rise to an inference of fraudulent intent. First,' Debtor initially asked the Trustee to abandon the Fripp Property to Mrs. Smith. When that did not work, Debtor met with the Trustee and extended Mrs. Smith's offer to purchase the Fripp Property for $20,000.00. At that time, Debtor had already accepted Mr. Perry's offer to purchase the same property for $125,000.00. Within days of the Trustee agreeing to sell the bankruptcy estate's interest in the Fripp Property to Mrs. Smith for $25,000.00, Mr. Perry and Mrs. Smith signed the Perry Sales Contract drafted by Debtor for Mrs. Smith's sale of the Fripp Property to Mr. Perry for $125,000.00, and which also allowed Mr. Perry to use the property immediately upon the execution of the sales contract to the same extent as Mrs. Smith. When that did not work, within days of the Trustee's withdrawal of his Motion to Sell, Mrs. Smith filed the state court separate maintenance action to remove the Fripp Property from Debtor's bankruptcy estate. In the state court action, Debtor, while in bankruptcy, conceded by proffer that the Fripp Property belonged to Mrs. Smith and conceded to an order whereby the Debtor was required to transfer his interest in the Fripp Property to Mrs. Smith and executed a quit claim deed conveying the property to Mrs. Smith. Debtor's conduct and lack of candor show a fraudulent intent to conceal his agreement with Mr. Perry and to structure the Perry sale to benefit his wife to the detriment of Debtor's bankruptcy estate.
At the hearing, Debtor contended Mrs. Smith's divorce counsel proceeded with the state court domestic action contending the Eleventh Circuit's
Another badge of fraud is that Debtor structured the transaction to an insider (Debtor's non-debtor wife) and a close family friend, Mr. Perry.
Debtor's own testimony reveals his state of mind. Debtor admits he carefully listened to the Trustee's questions. Tr. H'rg 05/17/16 247:1-14. If the Trustee asked him directly about pending efforts to sell the Fripp Property, Debtor said he knew he had to answer truthfully, but he did not consider himself obligated to voluntarily disclose the offer or the terms of the Perry sale. He considered the whole process to be a negotiation with the Trustee. He was negotiating to purchase the Fripp Property without telling the Trustee of the $125,000.00 agreement. As a lawyer, Debtor structured the transaction to not have to voluntarily disclose the Perry sale because once the Trustee's sale/transfer to his wife was consummated, the bankruptcy estate's ownership interest terminated. Mrs. Smith would then sell the property to Mr. Perry for $125,000.00 without ever notifying the Trustee or Debtor's creditors of the Perry agreement or sale. Debtor never voluntarily disclosed that he had an agreement to sell the Fripp Property to Mr. Perry for $125,000.00. Debtor also never amended his schedules to increase the value of the Fripp Property. Even worse, Debtor through his counsel, mischaracterized the true nature of the Perry Sales Contract as a lease, further distorting the facts. Debtor also tried to conceal the Perry Sales Contract by not providing a copy of it to the Trustee until it was subpoenaed. In this process Debtor acted as though he was an attorney negotiating a deal for his client (himself and his wife); not as a debtor in bankruptcy with an ongoing duty of disclosure and candor.
Debtors in bankruptcy have a duty to cooperate with the trustee to enable the trustee to perform his duties under the Bankruptcy Code, namely provide for an orderly distribution. 11 U.S.C. §521(a) (3); Fed. R. Bankr. P. 4002(a) (4). Debtors have a duty to surrender to the trustee "all recorded information, including books, documents, records, and papers relating to property of the estate. . . ." 11 U.S.C. §521(a) (4). This is an ongoing duty.
Debtor argues there is no harm to his bankruptcy estate because Mr. Perry's offer was to Mrs. Smith based upon the families' personal relationship and would never have been extended to the Trustee. However, Mr. Perry testified he wanted to help Debtor
Debtor also argues the bankruptcy estate was not harmed because the Perry sale was never consummated. However, harm to the bankruptcy estate need not be shown.
Furthermore, even if harm to creditors is required, Debtor's creditors have been harmed by his manipulation of the process in an effort to divert sales proceeds from his bankruptcy estate to his wife. Debtor usurped this opportunity from his bankruptcy estate. Unlike the debtors in
Next, the UST must prove that he had no knowledge of Debtor's fraud prior to Debtor's discharge. Debtor argues even if the UST's allegations are true, the Trustee was on notice of the possibility of fraud prior to Debtor's discharge and therefore the UST cannot assert a §727(d) claim. However, the statutory language of 11 U.S.C. §727(d)(1) states in pertinent part: "On request of the trustee, a creditor, or the United States trustee, and after notice and a hearing, the court shall revoke a discharge granted under subsection (a) of this section. . . ." 11 U.S.C. §727(d)(1). The statute allows three separate entities to bring a revocation of discharge action — a creditor, the trustee, or the UST. Courts that have considered imputing the knowledge of a creditor or the trustee to the United States Trustee have rejected this argument.
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There is a limited agency relationship between the United States Trustee and the chapter 7 panel trustee at the §341 meeting, but the information given at the §341 meeting in this case would not be sufficient to have placed the Trustee or UST on notice of possible fraudulent conduct. When gathered for the §341 meeting, Debtor merely asked the Trustee to consider abandoning of the Fripp Property to Mrs. Smith. This is not enough to put the Trustee on notice of possible fraud and therefore not sufficient to put the UST on notice under an agency theory. Furthermore this information was not even given at the actual §341 meeting. This Court finds the analysis of
Debtor also argues the UST's own knowledge of facts was sufficient to put him on notice of the possibility of any purported fraud prior to the Debtor's discharge. Conversely, the UST contends it did not have notice of sufficient facts of possible fraud until he received the Trustee's email, which was after the entry of Debtor's discharge. Pl. Ex. 13. The Court agrees with the UST.
Prior to discharge the UST had received: a copy of Debtor's bankruptcy schedules valuing Fripp Property at $95,000.00; a copy of the Trustee's motion to sell Fripp Property for $25,000.00; and the withdrawal of the Trustee's Motion to Sell Fripp Property which was filed eight days before Debtor's discharge was entered. As the UST points out, there are any number of reasons why the Trustee would sell the Fripp Property at a price significantly less than the scheduled value, and why he would withdraw a motion to sell including without limitation, title issues, difficulties related to selling fractional shares, market changes, and valuation issues. In bankruptcy cases, motions to sell are frequently filed and subsequently withdrawn. Given the facts and circumstances of this case, the Court finds the UST did not have knowledge of sufficient facts prior to Debtor's discharge to put him on notice of the possibility of Debtor's fraud.
For these reasons, the Court finds the UST has carried his burden as to the elements of 11 U.S.C. §727(d)(1) that Debtor obtained the discharge by fraud; the UST possessed no knowledge of the fraud prior to the Debtor's discharge; and the fraud if known, would have prevented Debtor's discharge under 11 U.S.C. §727(a) (4).
Alternately, the Court finds Debtor's discharge should be revoked pursuant to 11 D.S.C. §727(d) (2). Section 727(d)(2) provides:
11 U.S.C. §727(d)(2). To prevail in an action under §727(d)(2) the UST must establish by a preponderance of the evidence:
Property of the estate consists of "all legal and equitable interests of the debtor in property as of the commencement of the case" and "proceeds, product, offspring, rents, or profits of or from property of the estate." 11 U.S.C. §541(a)(1) and (a)(6). During the bankruptcy, Debtor has a continuing duty to disclose and amend his schedules.
In this case, Debtor owned the Fripp Property prior to his marriage to Mrs. Smith and he undoubtedly had an ownership interest in the property as of the petition date, even if that interest was subject to a purported equitable claim of his non-debtor wife. At the filing of the bankruptcy, Debtor's ownership interest in the Fripp Property became property of his bankruptcy estate. Debtor became entitled to acquire the $125,000.00 when he accepted Mr. Perry's offer to purchase the Fripp Property. The $125,000.00 would be proceeds of property of the bankruptcy estate and belong to Debtor's bankruptcy estate, subject to allowed claims and offsets. 11 U.S.C. §541(a) (1) and (6).
Debtor argues it was his wife that became entitled to the $125,000.00, not his bankruptcy estate. The UST and this Court disagree with Debtor's argument. At the time Debtor accepted Mr. Perry's offer, the Fripp Property belonged to his bankruptcy estate. Debtor used his skills as an attorney to structure the deal whereby his wife, a non-debtor insider, benefitted from the sale to the detriment of Debtor's bankruptcy estate. Debtor's usurpation of his estate's entitlement to value the $125,000.00 Perry Sales Contract is redressed by 11 U.S.C. §727(d) (2).
As to the third factor, Debtor never informed the Trustee of Mr. Perry's offer to buy the Fripp Property for $125,000.00. In fact, Debtor's actions and inactions misinformed the Trustee as to the true nature of the Perry sale and the Perry Sales Contract.
Strictly speaking, there is no overt act of inducement to a trustee, preceding a clandestine disposition of estate assets that is to be redressed by the sanction of §727(d) (2). Perforce, the debtor's act is coupled with a failure to advise, notify, or obtain permission from the trustee. Its consummation is enabled by the pretense, the crafted semblance, that it is not being effected; the trustee either is unaware of the existence of the assets or
Lastly, as set forth in detail above, Debtor's fraudulent intent to conceal his agreement with Mr. Perry and the Perry Sales Contract can be inferred from the facts and circumstances of this case.
In closing, a bankruptcy discharge is for the "honest but unfortunate debtor."
For the foregoing reasons, Debtor's motion for partial judgment is ORDERED DENIED. Debtor's discharge is hereby ORDERED REVOKED pursuant to 11 U.S.C. §727(d)(1) and (d)(2).