Patrick M. Flatley, United States Bankruptcy Judge.
The United States Trustee ("UST") seeks summary judgment on Count III and Count X of her ten-count complaint to deny Alex Rahmi (the "Debtor") a discharge under 11 U.S.C. § 727(a)(2)(B). The Debtor, in essence, does not contest the allegations of the UST's complaint or motion for summary judgment but, rather, blames the UST for his alleged misconduct.
For the reasons stated herein, the court will grant summary judgment to the UST on Count III of her complaint.
Federal Rule of Civil Procedure ("Rule") 56, made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7056, provides that summary judgment is only appropriate if the movant demonstrates "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). A party seeking summary judgment must make a prima facie case by showing: first, the apparent absence of any genuine dispute of material fact; and second, the movant's entitlement to judgment as a matter of law on the basis of undisputed facts. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505,
If the moving party shows that there is no genuine dispute of material fact, the nonmoving party must set forth specific facts that demonstrate the existence of a genuine dispute of fact for trial. Celotex Corp., 477 U.S. at 322-23, 106 S.Ct. 2548. The court is required to view the facts and draw reasonable inferences in the light most favorable to the nonmoving party. Shaw, 13 F.3d at 798. However, the court's role is not "to weigh the evidence and determine the truth of the matter [but to] determine whether there is a need for a trial." Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505. Nor should the court make credibility determinations. Sosebee v. Murphy, 797 F.2d 179, 182 (4th Cir.1986). If no genuine issue of material fact exists, the court has a duty to prevent claims and defenses not supported in fact from proceeding to trial. Celotex Corp., 477 U.S. at 317, 323-24, 106 S.Ct. 2548.
On February 21, 2012, the Debtor filed his bankruptcy case under Chapter 11. It is the fourth personal case he has filed since January 2011, and he also caused the bankruptcy filings of three entities of which he is, respectively, a shareholder, partner, and member—Alex Chevrolet, Inc. ("Alex"), Bon-Air Partnership ("Bon-Air"), and Universal Enterprises of West Virginia, LLC ("Universal")—before filing personally. Additionally, he caused the Chapter 7 filing of Uniwest Sanitary Systems ("Uniwest") in December 2014, an entity in which he is one of two partners.
On March 28, 2012, the Debtor filed, among other things, his Statement of Financial Affairs ("SOFA") and Schedules A and B. On his SOFA, the only lawsuit that the Debtor disclosed in response to Question 4 was a foreclosure proceeding instituted by Sovereign Bank. He also disclosed only Alex Chevrolet in response to Question 18, which asks a debtor to disclose certain information regarding businesses in which the debtor serves, among other roles, as an officer, partner, managing executive, or sole proprietor within six years prepetition. On Schedule A—Real Property, the Debtor disclosed only his residence at 638 Marlow Road, Charles Town, West Virginia. On Schedule B—Personal Property, the Debtor disclosed various personal property, including $25,000 in a bank account and an interest in a partnership valued at $800,000. He did not, however, disclose his interest in any causes of action.
On October 22, 2012, the Debtor filed his first Chapter 11 disclosure statement (the "Disclosure Statement"). In the Disclosure Statement, the Debtor identified "Palais Des Arts" as an avoidance action that was filed or expected to be filed in his case for which he anticipated recovering up to $500,000. He also identified that action on
On February 13, 2013, the court held a telephonic hearing primarily to hear from the UST regarding what she had learned about the Canadian Litigation since the hearing in January. Among other things, the UST reported that the attorney prosecuting the Canadian Litigation on the Debtor's behalf, although he had not been employed by the estate, predicted at that time that the litigation would not be resolved until late 2013 or sometime in 2014. At the conclusion of the hearing, the Debtor noted that he'd be filing a motion to amend his disclosure statement, but the court told him he did not need to seek approval in that regard and could file an amended disclosure statement as he deemed appropriate. Thereafter, activity in the case was relatively stagnant until the Debtor filed an amended disclosure statement on May 20, 2013, which the court set for hearing on July 25, 2013.
At that hearing, the UST expressed concerns regarding the Debtor's failure to timely file monthly operating reports—he was filing one every other month—and his failure to disclose a source of funds to be used to fund the plan since he was not employed; he previously proposed using anticipated proceeds from litigation. The court ordered that it would disapprove the Debtor's amended disclosure statement and schedule a status conference if the Debtor failed to adequately move his case toward confirmation. Although there was certain activity in the case, including the Debtor's appeal of the court's order granting a Motion for Relief from the Automatic Stay, the court did not conduct a hearing regarding the status of the Debtor's case until February 18, 2014, after the Debtor filed an Application to Employ Counsel to represent him in the Orphans Court for Montgomery County, Maryland regarding litigation arising out of the administration of his deceased father's estate.
During that hearing, the Debtor disclosed, again for the first time, that he had settled the Canadian Litigation in the fall of 2013 for approximately $170,000 (the "Settlement Proceeds"). Ten days later, the UST filed a motion under § 1112(b) to convert the Debtor's case to one under Chapter 7 based upon, among other things, the Debtor's conduct regarding the settlement of the Canadian Litigation—settling the litigation without court approval and failing to adequately disclose and account for the Settlement Proceeds. Not only did the Debtor fail to disclose and account for the proceeds, he disposed of a substantial portion thereof in the months after he received them. In that regard, the Debtor had failed to timely file monthly operating reports, including from September 2013 to January 2014.
On the same day that the UST moved to convert this case to one under Chapter 7, the Debtor moved for an extension of time to file missing operating reports. The court granted the Debtor an extension of
Ex. 1, p. 17, UST's Motion for Summary Judgment.
Ultimately, the court converted this case to one under Chapter 7. In finding cause to convert the case, the court made the following determination regarding the Debtor's conduct vis-à-vis the Settlement Proceeds:
Id. at p. 18. To bolster its decision to convert the Debtor's case to one under Chapter 7, the court also found that in November 2011 the Debtor converted and disposed of a tax refund payable to Bon-Air but did not report the receipt of the refund in response to Question 2 on his SOFA, which requires the disclosure of all income received by the debtor during the two years prepetition, when he filed his case in February 2012. Id. at 22-24. Neither did the Debtor disclose his interest in two parcels of real property located in New York; one in Watertown, N.Y. (the "Watertown Property") and another in Denmark, N.Y. (the "Denmark Property").
Regarding the Watertown Property, the court found that the property, which the Debtor disclosed as part of his previous Chapter 11 case, was involuntarily transferred to the City of Watertown on September 20, 2011, but was repurchased by the Debtor after he filed this case. Id. at 25-26. Notably, the Debtor neither disclosed the Watertown Property in response to Question 5 of his SOFA, which requires him to list all property that had been repossessed within one year prepetition. The Debtor neither sought court approval to repurchase the property postpetition nor amended his Schedule A to reflect ownership of the property. Regarding the Denmark Property, the record reflects that the Debtor owned the property as of the petition date in this case, that he failed to disclose his ownership interest therein, and that he sold the property
The UST asserts that she is entitled to summary judgment on Count III of her complaint to deny the Debtor a discharge under § 727(a)(2)(B) based upon the Debtor's receipt of, and failure to disclose and account for, at least $178,000
It is a long-standing principle and expression that Chapter 7 of the Bankruptcy
Thus a plaintiff must prove the following four elements by a preponderance of the evidence to bar a debtor's discharge under § 727(a)(2)(B): (1) the transfer or concealment of property, (2) belonging to the estate, (3) after the date of the filing of the petition, (4) with the intent to hinder, delay, or defraud a creditor or officer of the estate. Sieber, 489 B.R. at 545 (citation omitted). Regarding a debtor's intent, courts may infer such intent from circumstantial evidence, see In re Johnson, 82 B.R. 801, 805 (Bankr. E.D.N.C.1988) ("Because debtors are unlikely to acknowledge a fraudulent intent, the court may infer such intent from circumstantial evidence including a pattern of nondisclosure."), and often rely on certain indicia of fraud to determine whether the debtor acted with a fraudulent intent. Sieber, 489 B.R. at 545 (citation omitted). Notably, a debtor's pattern of concealment and nondisclosure, along with his reckless disregard for the truth, can support a finding that he acted with a fraudulent intent. Id. (quoting Lafarge N.A., Inc. v. Poffenberger (In re Poffenberger), 471 B.R. 807, 816 (Bankr.D.Md.2012); see In re Parker, 531 B.R. 103, 107 (Bankr.E.D.N.C.2015) (citing In re Ingle, 70 B.R. 979, 983 (Bankr.E.D.N.C.1987)).
Here, there is no doubt that the Debtor both concealed and transferred property of his bankruptcy estate postpetition. In that regard, the Debtor failed to disclose his interest in the Canadian Litigation until several months postpetition. And it is undisputed that the Debtor's interest therein, among other undisclosed assets, was property of his bankruptcy estate. But what's more, he settled that litigation in the fall of 2013 without seeking court approval, and he failed to disclose his receipt of the Settlement Proceeds until at least February 18, 2014. By that time, however, he had also disposed of, or transferred from his DIP account, a substantial portion of the proceeds. There is thus no doubt that the Debtor transferred and concealed assets of his bankruptcy estate postpetition; namely, the Settlement Proceeds. Especially significant in this regard is the court's previous finding in conjunction with the UST's Motion to Convert that the Debtor intentionally hid the details regarding the receipt and disbursement of the Settlement Proceeds in conjunction with the dilatory filing of his operating report on March 12, 2014. Notably, his submission of a supporting bank statement was found to be particularly duplicitous in that it had been manipulated to eliminate entries for the receipt and disbursement of funds on the 3rd and 4th of September 2013, thereby obfuscating his disclosure and making, among other things, the tracing of proceeds more difficult; clearly showing continuing deception on the Debtor's part. Those entries were finally accounted for only after the UST independently obtained the complete bank statement. See supra p. 659. Thus, even after the discovery in February 2014 of
The court thus concludes that the Debtor concealed and disposed of the Settlement Proceeds with the requisite intent to hinder, delay, or defraud his creditors or an officer of the bankruptcy estate. The circumstantial evidence supporting this finding is overwhelming, particularly because the Debtor's failure to disclose his receipt and disposition of the Settlement Proceeds is but one instance of the Debtor's pervasive nondisclosure in this bankruptcy case as detailed earlier, regarding, among other things, property in Watertown and Denmark, New York, and his interest in Uniwest. Id. at pp. 5-6. The court thus finds that the Debtor's conduct shows a pattern of concealment and nondisclosure sufficient to support the conclusion that, regarding his conduct in conjunction with the settlement and disposition of the proceeds of the Canadian Litigation, he acted with the intent to hinder, delay, and defraud his creditors and this court. Thus the UST has met her burden in showing entitlement to summary judgment under § 727(a)(2)(B).
To the extent that the Debtor continues to plead ignorance, the court finds his argument meritless and disingenuous. The record is replete with admonishments from the court to the Debtor regarding the importance of disclosure in bankruptcy. Despite the court's admonitions to the Debtor in that regard, he continued to withhold information from his creditors and the bankruptcy estate not only while his case was one under Chapter 11 but also after the court converted it to one under Chapter 7. In summary, based upon the material facts not in dispute, the UST is entitled to summary judgment as a matter of law as to the Debtor's conduct regarding the Canadian Litigation.
Based on the foregoing, and consistent with Fed. R. Bankr. P. 7058, the court will enter a separate order granting summary judgment to the UST.