JEAN K. FITZSIMON, Bankruptcy Judge.
In this adversary proceeding, the Chapter 7 Trustee, Arthur Liebersohn, seeks a judgment, pursuant to 11 U.S.C. § 548(a)(1)(A) & (B),
At the trial of this matter, two witnesses testified, namely (1) Frank; and (2) Michael Vetri ("Michael"), who is the father of the Defendant. Following the trial, the parties were given the opportunity to file post-trial memoranda which they did. Upon consideration, the Court shall grant judgment in favor of the Trustee and against the Defendant in the amount of $23,597.40.
In February of 2001, the Debtors purchased the Braxton Property as their residence. Trial Transcript, dated January 25, 2011 ("Tr."), at 11. They granted their lender a mortgage on the Braxton Property. Id.
In October of 2006, the Debtors purchased another home at 10 Sunnybank Lane, Aston, Pennsylvania (the "Sunnybank Property") for $320,000. Tr. at 12 & Debtor's Bankruptcy Petition, Docket No. 1, Bankruptcy Case No. 08-15962. Debtors only looked at the Sunnybank Property after Michael said that he would purchase the Braxton Property from them and use it as a rental. Tr. at 18. The basis of the relationship between Michael and the Debtors is unknown since no evidence on that matter was presented at trial.
When the Debtors purchased the Sunnybank Property, Michael provided them with $10,000 which was needed as a deposit for the purchase and said that, when he purchased the Braxton Property, he would take the $10,000 from the settlement. Tr. at 7, 38. After the Debtors' purchase of the Sunnybank Property, they moved into it and out of the Braxton Property. Id. at 14. During the year following the Debtors' purchase of the Sunnybank Property, Michael also gave the Debtors three cashier's checks in the amount of $7,000 each for a total of $21,000. Id. at 7, 16. Frank described the $31,000 which Michael gave to him and his wife as "an advance for the purchase of the [Braxton P]roperty." Id. at 7.
The monthly mortgage on the Sunnybank Property was $1,800; the monthly mortgage on the Braxton Property was $1,200. Tr. at 13. Initially, the Debtors made the monthly mortgage payments on both properties but then Michael agreed to make the monthly mortgage payments on the Braxton Property. Id. 14-15. While Frank and Michael both testified that Michael made mortgage payments on the Braxton Property while it was still owned by the Debtors, there was no consensus as to how many payments he made. Id. at 15 (Frank admitted that Michael paid the mortgage on the Braxton Property but could not say how many times he did so in a year); 38-40 (Michael testified that he made around ten to twelve mortgage payments on the Braxton Property totaling around $11,500 to $14,400). According to Michael, the mortgage payments were made by checks drawn on his and the Defendant's bank account. Id. at 39-40. Neither party presented any evidence which explains why Michael did not purchase the Braxton Property on or about the date when the Debtors purchased the Sunnybank Property.
In November of 2007, the closing was held on the sale of the Braxton Property. Tr. at 8-9. While Michael was supposed to have been the purchaser of the Braxton Property, his son, the Defendant, "wound up" being the purchaser at the closing. Id. at 4, 40. At the closing, Frank met the Defendant for the first time. Id. at 21. Frank never had any other dealings with the Defendant other than selling the Braxton Property to him. Id. at 21.
Besides the Debtors and the Defendant, Michael and someone from the title company,
When the Braxton Property was sold, the Debtors satisfied the mortgage which they owed on it. Tr. at 8-9, 11-12. According to first page of the HUD Settlement Statement, $28,422.79 was "paid by or on behalf of the" Defendant as a "deposit or earnest money." Exhibit P-2 (line 201). The HUD Settlement Statement does not indicate when the $28,422.79 was paid. Id. (lines 201, 501). Frank testified that he never received payment of the $28,422.79. Tr. at 5-6. The HUD Settlement Statement describes the $28,422.79 deposit, on line 501, as: "Excess Deposit (see instructions[.]" Exhibit P-2 (line 501). However, neither party sought to introduce the "instructions" into evidence at the trial or offered testimony to explain what the "instructions" were.
At the settlement, the Debtors received a check for $23,587.40. Tr. at 10, Exhibit P-2 (line 603) & Exhibit D-1 (copy of check for $23,587.40 from Eagle National Land Transfer LLC made payable to the order of Frank P. D'Ambrosio and Diane D'Ambrosio). The Debtors gave this check to the Defendant who deposited it into an account which he controlled and, thereby, received the funds. Plaintiff's Request for Admissions Nos. 1 & 2.
On September 16, 2008, which was less than one year after the closing on the Braxton Property, the Debtors filed a Voluntary Petition for Relief under Chapter 7 of the Bankruptcy Code. Bankruptcy Case
On November 5, 2009, the Chapter 7 Trustee commenced this adversary proceeding by filing the Complaint against the Defendant and two other defendants.
Before the status conference on August 17, 2010, the Defendant was served with Plaintiff's Request for Admissions.
See Plaintiff's Request for Admissions. At the status hearing, the Defendant's counsel stated that he would "file a response to the request for admissions."
On December 23, 2010, the parties filed a Joint Pre-Trial Statements.
On January 25, 2011, trial of this adversary proceeding began at 1:15 p.m. Docket Entry No. 31; Tr. at 1. Fifteen minutes later, Defendant filed an answer to the Plaintiff's Requests for Admission. See Defendant Thomas Vetri's Answer to Plaintiff Arthur Liebersohn, Trustee's Request for Admissions ("Defendant's answer to Plaintiff's Requests for Admission"), Docket Entry No. 30.
Id. at 24. Following argument on the issue, the Court ruled against the Defendant and admitted the Plaintiff's Request for Admissions into evidence.
At the close of trial, the Court requested the parties to file post-trial briefs which they did. See Docket Entry Nos. 32, 35 & 36. While the Defendant concedes that his answer to Plaintiff's Requests for Admission was untimely, see Defendant Thomas Vetri's Post Hearing Memorandum ("Defendant's Memorandum") at 3 (acknowledging that "[D]efendant's answers to Plaintiff's Requests for Admission were `untimely[.]'"), he nevertheless still contends that the Trustee should not be allowed to rely upon the requests for admission in proving his claims.
Defendant contends that Plaintiff's Request for Admissions were improper because they: (i) requested the Defendant to "admit certain sections of the relevant law without stating a specific fact in connection with the law"; and (ii) failed to include facts that are relevant to the litigation. See Defendant's Post-Trial Memorandum at 3-4. Neither of these arguments are persuasive.
First, Rule 36 of the Federal Rules of Civil Procedure, which is applicable to this adversary proceeding pursuant to Rule 7036 of the Federal Rules of Bankruptcy Procedure, governs Requests for Admission.
Second, the Plaintiff's Request for Admissions relate to the facts as viewed or known at the time by the Trustee. See Complaint ¶¶ 11, 13 (alleging that a check in the amount of $23,587.40 was issued and made payable to the Debtors at the closing on the Braxton Property but that the check was deposited by the Defendant into his bank account). When a party answering a request for admission has a contrary or more expansive view of the facts which he considers relevant thereto, he "may qualify his answer based on his understanding of the facts." First Options of Chicago, Inc. v. Wallenstein, 1996 WL 729816, at *3 (E.D.Pa. December 17, 1996). See also Bisker v. GGS Information Services, Inc., 2009 WL 3241675, at *3 (M.D.Pa. October 1, 2009) (ruling that defendant properly responded to request for admission that sought to have the defendant admit "that, at the time of [Plaintiff's] termination, she was not allowed to perform her job functions at home" by admitting that the Plaintiff was not allowed to work from home but denying that it terminated her since, throughout the action, the defendant had maintained that it had not terminated the Plaintiff). Thus, the Trustee was not required to include facts in Plaintiff's Request for Admissions that conformed to the facts of the case as construed by the Defendant. In the event the Defendant wanted to expand or amplify the facts in his answer to the requests for admission, he was entitled to do so.
Rule 36 has a subsection entitled "Time to Respond; Effect of Not Responding." Fed.R.Civ.P. 36(a)(3). This subsection of the rule provides, in pertinent part, that "a matter is admitted unless, within 30 days after being served, the party to whom the request is directed serves on the requesting party a written answer or objection addressed to the matter and signed by the party or its attorney." Id. Pursuant to this provision, the Defendant's failure to timely respond to Plaintiff's requests for admission means that the matters set forth therein are deemed admitted. The matters deemed admitted (the "Admissions") are the following:
See Plaintiff's Requests for Admission.
At trial, testimony was presented which conflicts with the Admissions. Defendant contends that the outcome of this adversary proceeding should be governed by the testimonial evidence presented at trial rather than by the Admissions. However, as a result of the Defendant's failure to timely answer the Plaintiff's Requests for Admission, the matters detailed therein are "deemed conclusively admitted." Harrison v. Ammons, 2009 WL 2588834, at *4 (M.D.Pa. Aug. 19, 2009). An admission made pursuant to Rule 36 is not "merely another layer of evidence"; rather, it is "an unassailable statement of fact that narrows the triable issues in the case." Airco Industrial Gases, Inc. v. The Teamsters Health and Welfare Pension Fund of Philadelphia and Vicinity, 850 F.2d 1028, 1037 (3d Cir.1988). Even conflicting testimonial evidence does not alter the effect of a Rule 36 admission. Id. at 1036-37. Therefore, the Court rejects the Defendant's contention. In resolving this adversary proceeding, the Court will give effect to the Admissions over any contrary testimony offered at the trial.
The Trustee alleges constructive fraud pursuant to § 548(a)(1)(B), which provides, in pertinent part:
11 U.S.C. § 548(a)(1)(B). The Trustee, as the party asserting the claim for constructive fraud, bears the burden of establishing the requisite elements. Pension Transfer Corp. v. Beneficiaries Under the Third Amendment to Fruehauf Trailer Corporation Retirement Plan No. 003 (In re Freuhauf Trailer Corporation), 444 F.3d 203, 210-11 (3d Cir.2006).
Based on the evidence admitted at trial and the Admissions, the Trustee has established the elements required to prove his claim for constructive fraud under § 548(a)(1)(B) for the Debtors' transfer of $23,587.40 to the Defendant. The evidence and Admissions show that: (i) less than a year before the Debtors filed their bankruptcy case, they received a check for $23,587.40; (ii) upon their receipt of the check, the Debtors gave the check to the Defendant who deposited it into an account over which he had control and, thereby, received the $23,587.40 transfer; (iii) the Debtors received less than equivalent value in exchange for this transfer because the Defendant did not give them any consideration in exchange for the $23,587.40 check and did not confer any benefit upon the Debtors at the time he received the check; and (iv) the Debtors were insolvent or were thereby rendered insolvent when they transferred the $23,587.40 check to the Defendant. Consequently, the Debtor's transfer of $23,587.40 to the Debtors shall be avoided pursuant to § 548(a)(1)(B).
The other "transfer" at issue is the deposit of $28,422.79 which is listed twice on the HUD Settlement Statement.
At trial, Frank testified that he never received a payment of $28,422.79. This testimony is inconsistent with the information on the HUD Settlement Statement which Frank signed, acknowledging that he had read it and that, "to the best of his knowledge and belief," it was a "true and accurate statement of all receipts and disbursements made on [his] account or by [him] in this transaction." See Exhibit P-1. Moreover, it is undisputed that Michael, who was originally supposed to purchase the Braxton Property, advanced the following amounts to the Debtors prior to the closing on that property: (i) $21,000 in the form of three separate payments of $7,000 each; and (ii) $10,000 in the form of the deposit which he paid for them in connection with their purchase of the Sunnybank Property. In addition, Michael paid the monthly mortgage on the Braxton Property, which was $1,200, for some period of months. According to Michael, these payments were made by checks drawn on his and the Defendant's bank account. Tr. at 39-40. Even according to Frank, Michael made these payments as advances on the sale of the Braxton Property. While the Defendant and not Michael ended up purchasing the property, the Trustee failed to establish that Michael did not pay the $28,422.79 deposit "on behalf of" the Defendant by way of the advances which he made to the Debtors in anticipation of the sale of the Braxton Property.
The actual fraud provision in § 548(a)(1)(A) states, in relevant part:
11 U.S.C. § 548(a)(1)(A). The Trustee bears the burden of establishing that the Debtors, as the transferors, made the transfer at issue with actual intent to hinder, delay, or defraud any creditor. Shubert v. Stranahan (In re Pennsylvania Gear Corporation), 2008 WL 2370169, at *9 (Bankr.E.D.Pa. April 22, 2008); Burtch v. Harris (In re Harris), 2003 WL 23096966, at *2 (Bankr.D.Del. Dec.30, 2003). Since "individuals are rarely willing to admit intent, actual fraud is rarely proven by direct evidence." Shubert, 2008 WL 2370169, at *9 (Bankr.E.D.Pa. April 22, 2008). However, there are factors, commonly referred to as "badges of fraud," which courts consider in determining whether fraud as been proven by circumstantial evidence. Holber v. Dolchin Slotkin & Todd, P.C. (In re American Rehab & Physical Therapy, Inc.), 2006 WL 1997431, at *15-16 (Bankr.E.D.Pa. May 18, 2006). The badges of fraud include whether:
Id. at *15-16 (Bankr.E.D.Pa. May 18, 2006) (citing Schaps v. Just Enough Corporation (In re Pinto Trucking, Inc.), 93 B.R. 379, 386 (Bankr.E.D.Pa.1988)).
Since the Court has already concluded that the Trustee is allowed to avoid the Debtors' transfer of the $23,587.40 check under § 548(a)(1)(B), the only issue is whether the Trustee can avoid the transfer of the $28,422.79 escrow deposit, which the Debtors assert they did not receive, under the actual fraud subsection in § 548(a)(1)(A). Assuming for purposes of this decision that the non-payment of the deposit constitutes a "transfer" as that term is defined in the Code, the Court concludes, based on its consideration of the badges of fraud listed above, that the Trustee cannot avoid the $28,422.79 transfer. Even utilizing the "badges of fraud," the Trustee failed to establish actual fraud under the circumstances of this case.
Since the Trustee proved that he is entitled to avoid the transfer from the Debtors to the Defendant in the amount of $23,597.40, he shall be granted a judgment in this amount against the Defendant.
Id. at 6-7. This testimony obviously conflicts with the fact that "[t]he Debtors gave this check to the Defendant who deposited it into an account which he controlled and, thereby, received the funds." Plaintiff's Requests for Admission Nos. 1 & 2 (emphasis added).
Tr. at 46.
