LAWRENCE S. WALTER, Bankruptcy Judge.
The court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a) and 1334, and the standing General Order of Reference in this District. This matter is before the court on the Defendant's Motion for Summary Judgment Pursuant to Fed. R. Civ. P. 56 [Adv. Doc. 34]; Plaintiff's Brief in Opposition to Defendant's Motion for Summary Judgment [Adv. Doc. 40]; and Defendant's Reply to Plaintiff's Brief in Opposition to Defendant's Motion for Summary Judgment [Adv. Doc. 41].
On summary judgment, the Defendant-Debtor Linden Wayne Curtis, Jr. ("Debtor") asserts that, as a matter of law, Plaintiff-Creditor Peterson Transport ("Peterson Transport") cannot prove the elements required to deny the Debtor a discharge pursuant to 11 U.S.C. § 727(a)(4)(A) and/or § 727(a)(3), the two claims in Peterson Transport's amended complaint. The Debtor makes two specific arguments: 1) the alleged false statements in his schedules and statement of financial affairs are actually true or, if incorrect, the errors are "immaterial" under the law; and 2) the Debtor has produced sufficient documents of the type cited in the amended complaint to demonstrate adequate recordkeeping.
After review of the materials on summary judgment, the court draws the following conclusions. First, the court concludes that, with the exception of one error relating to the description of the girlfriend's occupation, the remaining errors in the Debtor's bankruptcy documents are material to his bankruptcy case. Furthermore, questions of fact exist regarding the veracity of the Debtor's statements in the schedules and statement of financial affairs about when his business closed and the use of a business account after that date. Consequently, the court denies summary judgment to the Debtor on Peterson Transport's § 727(a)(4)(A) claim except with respect to the one de minimis error.
Next, the court turns to Peterson Transport's alternative claim for denial of discharge under § 727(a)(3): the Debtor's alleged concealment of child support (now determined to be Aid to Dependent Children) records and failure to keep/preserve records of "over the road" trucking expenses. On summary judgment, Debtor produces both types of documentation and, in response, Peterson Transport does not address the adequacy of these records. Because Peterson Transport fails to establish that the records produced by the Debtor are inadequate, the court grants the Debtor summary judgment on Peterson Transport's § 727(a)(3) claim.
The following facts are not in dispute except where stated. On July 23, 2015, Peterson Transport filed its Amended Complaint to Deny Discharge Pursuant to 11 U.S.C. §§ 727(a)(3) and (a)(4)(A) ("amended complaint")
[Adv. Doc. 13, ¶¶ 10-12, 16-18]. For these alleged inaccuracies, nondisclosures and inadequate records, Peterson Transport asserts denial of the discharge is warranted under 11 U.S.C. § 727(a)(4)(A) and/or § 727(a)(3) [Id., ¶¶ 13-14, 19-20].
On January 22, 2016, Debtor filed a motion for summary judgment asserting that while he made certain errors in his schedules, they are so minimal in nature that they do not support denial of a debtor's discharge. In support of these arguments, Debtor attaches the affidavit of Ms. Sharon Litchfield ("Ms. Litchfield"), the Debtor's non-filing girlfriend [Adv. Doc. 34, Ex. 1] containing the following attestations:
Finally, Debtor disputes Peterson Transport's allegation that Curtis Gang, Inc. continued to operate beyond 2012. In support, the Debtor attaches tax returns indicating that Curtis Gang, Inc. filed a "Final Return" for the 2012 tax year [Adv. Doc. 34, Ex. 2]. Additionally, the Debtor attached his personal tax returns for 2012 and 2013 [Id., Exs. 3-4]. Debtor asserts that the closure of the business in 2012 is supported by the fact that in 2013, Debtor filed a Self-Employment Schedule [Id., Ex. 4].
On February 11, 2016, Peterson Transport filed a brief in opposition to the Debtor's motion. Peterson Transport makes several legal arguments, including disputing the Debtor's assertion that certain inaccuracies, such as the occupation of Ms. Litchfield and the failure to list Aid to Dependent Children, are de minimis. Peterson Transport further asserts a pattern of inaccuracies and poor documentation in the schedules by citing portions of the attached deposition of the Debtor. [Adv. Doc. 40, Ex. 1]. When asked if the household expenses listed in Schedule J of $1,200 included Debtor's "over the road" expenses, Debtor replied during a deposition that he did not know how that number was reached [Id., Ex. 1, pp. 32-33].
Furthermore, while the Debtor produces business records of Curtis Gang, Inc., Peterson Transport asserts that the records raise new issues such as the Debtor's failure to disclose, during his deposition, the full number of drivers that worked for the company and how those drivers were compensated. More specifically, the Debtor testified that the business had two drivers when records support that there were at least five drivers working for the company [Compare, Id., Ex. 1, pp. 8-9 to Adv. Doc. 34, Ex. 1 and attached Ex. D]. Peterson Transport also raises the issue of the Debtor's personal use of a business bank account revealed through bank records attached to the motion for summary judgment [Adv. Doc. 34, Ex. 1 and attached Ex. C].
Debtor filed his reply reasserting a legal argument that the inaccuracies in the schedules are immaterial and that all business records have been disclosed. Furthermore, Debtor contends that his continued use of a Curtis Gang, Inc. business account after the business closed "shows nothing but that — his use of the bank account." [Adv. Doc. 41, p. 5]. This is subsequent to the statement in the Debtor's motion for summary judgment that his use of the company account after the closure of the business: "[a]t best, it shows that [Debtor] was too busy, forgetful or lazy to close an old bank account." [Adv. Doc. 34, p. 8].
The appropriate standard to address the Debtor's motion for summary judgment is contained in Fed. R. Civ. P. 56 and incorporated in bankruptcy adversary proceedings by reference in Fed. R. Bankr. P. 7056. Rule 56(a) provides that summary judgment is to be granted by the court "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a).
In order to prevail, the moving party, if bearing the burden of persuasion at trial, must establish all elements of its claim. Celotex Corp. v. Catrett, 477 U.S. 317, 331 (1986). If the burden is on the non-moving party at trial, the movant must: 1) submit affirmative evidence that negates an essential element of the nonmoving party's claim or 2) demonstrate to the court that the nonmoving party's evidence is insufficient to establish an essential element of the nonmoving party's claim. Id. at 331-32. Thereafter, the opposing party "must come forward with `specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citations omitted). All inferences drawn from the underlying facts must be viewed in a light most favorable to the party opposing the motion. Id. at 587-88. Nonetheless, mere conclusory allegations or unsupported opinions of the nonmovant are insufficient to defeat a motion for summary judgment. Bell v. Ohio State University, 351 F.3d 240, 253 (6
In general, a Chapter 7 debtor receives a discharge of his prepetition debts unless one of the express bases for denying the discharge found in 11 U.S.C. § 727(a) exists. In order to afford the honest but unfortunate debtor a fresh start, § 727(a) is liberally construed in favor of the debtor. United States Trustee v. Zhang (In re Zhang), 463 B.R. 66, 78 (Bankr. S.D. Ohio 2012). A party objecting to a debtor's discharge under a provision of § 727(a) carries the burden of proof by a preponderance of the evidence. Id.
In its amended complaint, Peterson Transport asserts two bases for denying the debtor's discharge: 1) the Debtor made "false oaths" in his schedules and statement of financial affairs violating § 727(a)(4)(A); and 2) the Debtor concealed or failed to keep adequate records in violation of § 727(a)(3). On summary judgment, the Debtor argues that the undisputed facts support neither basis for denying his discharge and that he should be granted judgment as a matter of law. The court will address each claim separately.
The Debtor asserts that he should be granted judgment as a matter of law on Peterson Transport's § 727(a)(4)(A) objection to discharge because the "false oaths" alleged to be found in the Debtor's bankruptcy documents are either true or, if false, are immaterial to his bankruptcy case. Under this Bankruptcy Code provision, a debtor's discharge may be denied if the debtor "knowingly and fraudulently, in or in connection with the case . . . made a false oath or account[.]" 11 U.S.C. § 727(a)(4)(A). A party objecting to a debtor's discharge under § 727(a)(4)(A) must establish: 1) the debtor made a statement under oath; 2) the statement was false; 3) the statement related materially to the bankruptcy case; 4) the debtor knew the statement was false; and 5) the debtor made the statement with fraudulent intent. Hamo v. Wilson (In re Hamo), 233 B.R. 718, 725 (B.A.P. 6
On summary judgment, the Debtor focuses on the third element that Peterson Transport must prove under § 727(a)(4)(A): the materiality of the errors in the Debtor's schedules and statement of financial affairs. A fact is material for purposes of § 727(a)(4)(A) if it "`concerns discovery of assets, business dealings or [the] existence or disposition of property.'" Hamo, 233 B.R. at 725 (further citation omitted). Stated another way, a material fact is one that affects the substance of the case rather than merely going to the form of the case. Hunter v. Sowers (In re Sowers), 229 B.R. 151, 158 (Bankr. N.D. Ohio 1998). In the amended complaint, Peterson Transport cites three false statements to support a denial of discharge pursuant to § 727(a)(4)(A) and the Debtor disputes the materiality or falsity of each.
The first error cited by Peterson Transport is the Debtor's incorrect statement on Schedule I, Number 13 that his girlfriend, Ms. Litchfield, is a substitute teacher when, in fact, she is a bus aide, ticket seller, and kitchen-worker for a school district [Adv. Doc. 34, Ex. 1, ¶ 3]. While the Debtor admits to the error, he notes, and Ms. Litchfield confirms in her affidavit, that her income is accurately reflected in her pay stubs and fully disclosed on Schedule I [Id., ¶ 4]. Peterson Transport does not dispute the accuracy of her income listed on the schedule and merely argues that listing her as a substitute teacher was misleading because it implied that she would have a different salary and more working hours.
Because no one disputes the accuracy of her income on the schedules, the court concludes that the incorrect listing of Ms. Litchfield's occupational title within the school district is de minimis and does not concern the Debtor's assets, business dealings, or disposition of property. Consequently, the court grants the Debtor summary judgment with respect to this error.
Next the court turns to Peterson Transport's assertion that the Debtor failed to disclose child support. While the Debtor clarifies that he does not receive child support, he admits to receiving income in the form of Aid to Dependent Children for a child over whom the Debtor has legal guardianship. It is that income that the Debtor did not disclose in his schedules.
The record supplied with Ms. Litchfield's affidavit on summary judgment indicates that the Debtor received between $282 to $386 per month in such aid between April of 2014 and March of 2015 adding up to approximately $4,474 annually [Adv. Doc. 34, Ex. 1 and attached Ex. H]. The Debtor argues that his failure to disclose Aid to Dependent Children income is not material because it is either excluded from the bankruptcy estate as a Social Security benefit or, citing Peterson Transport's argument, it is exempt.
The court disagrees. Property is not determined to be excluded or exempt by fiat of the debtor but through a legal process that requires disclosure of that interest as well as all other interests of the debtor in property. Carlucci & Legum v. Murray (In re Murray), 249 B.R. 223, 231 (E.D.N.Y. 2000) (noting that debtors have a duty to disclose whatever interests they hold in property even if they believe the assets are worthless or unavailable to the bankruptcy estate). As noted by the Sixth Circuit Bankruptcy Appellate Panel:
Hamo, 233 B.R. at 725 (further citation omitted). Thus, determining "materiality" does not involve, as the Debtor argues, an evaluation of whether the undisclosed asset or income is available to creditors. Instead, the critical question is whether or not the Debtor fulfilled his duty of full disclosure allowing the trustee and creditors the opportunity to examine his finances and financial dealings in order to make informed decisions. Silagy v. Dupal (In re Dupal), 2011 WL 2213975, at *3 (Bankr. N.D. Ohio June 7, 2011). For this reason, many courts conclude that a debtor's failure to disclose exempt assets or assets that prove worthless to the estate may still be a material nondisclosure. See, e.g., Hamo, 233 B.R. at 725 (noting that the "`recalcitrant debtor may not escape a section 727(a)(4)(A) denial of discharge by asserting that the admittedly omitted or falsely stated information concerned a worthless business relationship or holding; such a defense is specious.'"); Murray, 249 B.R. at 231-32 (failure to disclose an allegedly exempt 401(k) plan is material); Dupal, 2011 WL 2213975 at *3 (failure to schedule a $4,000 personal injury settlement with a likely recovery of $2,200 was material regardless of whether it was subject to an Ohio exemption or would result in no distribution to creditors).
In line with this reasoning, the court concludes that Debtor's failure to disclose Aid to Dependent Children is material. Consequently, the court denies summary judgment as to this omission.
Next, the Debtor disputes Peterson Transport's claim that the Debtor made a false and misleading statement about one of his past business ventures, Curtis Gang, Inc. The amended complaint's allegations focus on the Debtor's statement in Schedule B(13) indicating that Curtis Gang, Inc. ceased operation in 2012 when a Curtis Gang, Inc. bank account statement reveals activity through at least March 31, 2014 [Adv. Doc. 10, ¶ 12 and attached Ex. A; Adv. Doc. 13, ¶ 12]. On summary judgment, Debtor asserts that the business did close in 2012 and that the closing is confirmed by income tax returns [Adv. Doc. 34, Exs. 2-4]. Furthermore, the Debtor suggests, without evidentiary support, that the continued activity in Curtis Gang, Inc.'s business bank account reveals the Debtor's own personal use of the account rather than the continuation of the business [Adv. Doc. 41, p. 5].
The evidence creates a genuine issue of material fact as to when Curtis Gang, Inc. ceased operation and the veracity of the Debtor's statements in his schedules regarding the business. This issue cannot be resolved on summary judgment. Furthermore, if, as the Debtor suggests, he continued to use the business bank account personally after the business closed, it is unclear whether the bank account's use was properly disclosed in the Debtor's schedules and/or statement of financial affairs. As noted by Judge Humphrey in Zhang:
Zhang, 463 B.R. at 87 (citing Johnson v. Baldridge (In re Baldridge), 256 B.R. 284, 290 (Bankr. E.D. Ark. 2000)). Consequently, a debtor must disclose personal use of a bank account even if the account is in the name of another person or entity. Id. at 86-87. For these reasons, summary judgment is denied on this issue.
In Count II of the amended complaint, Peterson Transport asserts a claim for denial of the discharge pursuant to 11 U.S.C. § 727(a)(3) based on: 1) the Debtor concealing or lacking adequate records of child support (now determined to be Aid to Dependent Children); and 2) the Debtor concealing or lacking adequate records of his over the road expenses [Adv. Doc. 13, ¶¶ 16-18]. On summary judgment, Debtor argues that Peterson Transport cannot meet its burden of demonstrating that the Debtor has failed keep these records.
Pursuant to § 727(a)(3), a debtor's discharge may be denied when:
11 U.S.C. § 727(a)(3). The burden of proving a claim under § 727(a)(3) first rests with the party objecting to discharge to establish a prima facie case showing that the Debtor failed to keep adequate records from which the debtor's financial condition or business transactions might be ascertained. United States Trustee v. Kandel (In re Kandel), 2015 WL 1207014, at *6 (Bankr. N.D. Ohio March 13, 2015); CM Temp. Servs., Inc. v. Bailey (In re Bailey), 375 B.R. 410, 415 (Bankr. S.D. Ohio 2007). This Bankruptcy Code provision does not require perfect or even complete records but, instead, requires the debtor to 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.'" Turoczy Bonding Co. v. Strbac (In re Strbac), 235 B.R. 880, 882 (B.A.P. 6
With respect to the allegation that the Debtor concealed / failed to keep records of Aid to Dependent Children, Debtor asserts that such records exist and have been provided to the court and Peterson Transport. The Debtor directs the court to Exhibit H, a document attached to Ms. Litchfield's affidavit. Exhibit H is a two-page document showing the Proof of Eligibility and Cash Issuance History for the Aid to Dependent Children received by the Debtor for a 12-month period ending in March of 2015 [Adv. Doc. 34, Ex. 1 and attached Ex. H]. Peterson Transport does not dispute the authenticity or admissibility of the record or otherwise address this particular issue on summary judgment. With its lack of response, Peterson Transport has failed to carry its burden of proving that the Debtor concealed or failed to keep adequate records of Aid to Dependent Children and grants Debtor summary judgment on this issue.
Next, the court addresses Peterson Transport's allegations in the amended complaint that the Debtor failed to keep or preserve adequate records of his over the road trucking expenses. On summary judgment, Debtor denies these allegations and directs the court to voluminous exhibits, totaling more than 400 pages, attached to his motion for summary judgment and labeled as follows:
[[Adv. Doc. 34, Ex. 1 and attached Exs. A-I]. According to the Debtor, his over the road expenses are contained within Exhibit G labeled "Wayne Curtis's CMI-period settlement sheets" [Id., Ex. G]. Debtor asserts that these voluminous documents give Peterson Transport "`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'" [Id., pp. 10-11 (citing Noland v. Johnson (In re Johnson), 387 B.R. 728, 736 (Bankr. S.D. Ohio 2008))].
As a preliminary matter, the court notes that producing a large volume of records is not sufficient to entitle the Debtor to a discharge because the question is not what records a debtor produced, but, instead, what records a debtor failed to produce. See Kandel, 2015 WL 1207014, at *11. Nonetheless, it is Peterson Transport that carries the initial burden of establishing that the records are inadequate and as such, the court turns to Peterson Transport's evidence.
In response to Debtor's motion for summary judgment, Peterson Transport fails to identify what over the road expense records the Debtor continues to lack and whether the documents produced by the Debtor and attached to the motion for summary judgment suffice. Peterson Transport does cite to the Debtor's deposition to support that his over the road expenses, as well as advances to cover them, may not be well-documented in the Debtor's schedules [Adv. Doc. 40, pp. 8-9, and attached Ex. 1, pp. 25-27, pp. 32-33]. However, Peterson Transport directs this argument towards § 727(a)(4)(A) and false oaths in the schedules rather than a lack of adequate records [See Adv. Doc. 40, pp. 8-9]. The portion of Peterson Transport's summary judgment argument related to § 727(a)(3) omits any mention of the Debtor's over the road expense records [See Adv. Doc. 40, pp. 9-11].
On summary judgment, the nonmovant cannot rest on its pleadings but must, instead, "`identify specific facts supported by affidavits, or by depositions, answers to interrogatories, and admissions on file that show there is a genuine issue for trial.'" JP Morgan Chase Bank v. Algire (In re Algire), 430 B.R. 817, 820 (Bankr. S.D. Ohio 2010) (citing Hall v. Tollett, 128 F.3d 418, 422 (6
In accordance with the foregoing, the court concludes that the misstatement in the Debtor's schedules regarding his girlfriend's occupation is immaterial and summary judgment is granted to the Debtor regarding this error. The court denies the Debtor summary judgment with respect to the remainder of Count I: Peterson Transport's § 727(a)(4)(A) claim.
Addressing Count II, Peterson Transport has failed to raise a genuine issue of material fact as to the adequacy of the records produced by the Debtor responsive to the allegations in the amended complaint. As such, the court grants the Debtor summary judgment on Count II: Peterson Transport's § 727(a)(3) claim.
