In re Swegan, 07-8006.

• Citation: 383 B.R. 646
• Decision Date: 19 March 2008
• Docket Number: No. 07-8006.,07-8006.
• Parties: In re Ralph Wendell SWEGAN, Debtor. Buckeye Retirement Co., LLC, LTD., Plaintiff — Appellant, v. Ralph Wendell Swegan, Defendant — Appellee.
• Court: Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Sixth Circuit

383 B.R. 646

In re Ralph Wendell SWEGAN, Debtor.

Buckeye Retirement Co., LLC, LTD., Plaintiff — Appellant, v. Ralph Wendell Swegan, Defendant — Appellee.

No. 07-8006.

United States Bankruptcy Appellate Panel of the Sixth Circuit.

Argued November 14, 2007.

Decided and Filed March 19, 2008.

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Scott D. Fink, Weltman, Weinberg & Reis Co., L.P.A., Cleveland, OH, for Appellant.

Michael D. Buzulencia, Law Offices Of Michael D. Buzulencia, Warren, OH, for Appellee.

Before AUG, PARSONS, and SCOTT, Bankruptcy Appellate Panel Judges.

OPINION

JOSEPH M. SCOTT, JR., Bankruptcy Judge.

Buckeye Retirement Co. ("Buckeye") appeals the bankruptcy court's order denying its motion for summary judgment and granting summary judgment in favor of the debtor Ralph Swegan ("Debtor") on Buckeye's complaint seeking an order denying the Debtor a discharge pursuant to 11 U.S.C. § 727(a)(2)(A). Because the Panel disagrees with the bankruptcy court's restrictive application of "concealment" within the context of § 727(a)(2)(A) and determines that a genuine issue of material fact exists as to whether the Debtor had the requisite intent to "hinder, delay, or defraud" Buckeye in its collection efforts, the order granting the Debtor summary judgment will be reversed and the adversary proceeding remanded for trial.

I. ISSUE ON APPEAL

The issue in this appeal is whether summary judgment was warranted in favor of the Debtor and against Buckeye on its complaint seeking a denial of the Debtor's discharge under 11 U.S.C. § 727(a)(2)(A). To answer this question, we must determine whether the Debtor's false answers to questions at a state court debtor's examination constitute concealment under § 727(a)(2)(A).

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States District Court for the Northern District of Ohio has authorized appeals to the Panel and a final order of the bankruptcy court may be appealed as of right. 28 U.S.C. § 158(a)(1). For purposes of appeal, a final order "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (citations omitted). An order granting summary judgment for the defendant is a final order. Menninger v. Accredited Home Lenders (In re Morgeson), 371 B.R. 798 (6th Cir. BAP 2007).

The bankruptcy court's final order denying Buckeye's motion for summary judgment and granting the Debtor's motion is reviewed de novo. Gold v. FedEx Freight East, Inc. (In re Rodriguez), 487 F.3d 1001, 1007 (6th Cir.2007). "Under a de novo standard of review, the reviewing court decides an issue independently of, and without deference to, the trial court's determination." In re Morgeson, 371 B.R. at 800.

III. FACTS

Buckeye initiated an adversary proceeding seeking to deny the Debtor a discharge based on his failure or refusal to accurately answer certain questions at a state court debtor's examination. After a hearing on the parties' cross motions for summary judgment, the bankruptcy court granted summary judgment in favor of the Debtor on the basis that the Debtor's actions at the examination did not constitute concealment under 11 U.S.C. § 727(a)(2)(A).

The Debtor was the sole principal owner of Steelcraft Inc. ("Steelcraft") from May 1991 until February 2002 when the business closed. During its operation, Steelcraft obtained from Second National Bank a business loan that was personally guaranteed by the Debtor. Steelcraft defaulted on the loan, and the Debtor was called upon to pay as the guarantor. After the Debtor failed to pay the loan, Second National Bank obtained a judgment against him for $436,107.84. The judgment was subsequently assigned to Buckeye.

Buckeye then began state court proceedings in Mahoning County, Ohio to collect on the judgment. On June 13, 2002, Buckeye filed a writ of execution against the Debtor's vehicle. On September 2, 2002, the Debtor transferred title of the vehicle to his daughter.¹ Buckeye next obtained an order for the Debtor to appear for a debtor's examination. The order directed the Debtor to testify regarding his property, but did not order him to testify regarding income or to produce any documents. Counsel for Buckeye, however, informally requested that the Debtor produce a number of documents at the examination.

The Debtor's examination took place on May 20, 2003. The examination was apparently contentious and rife with objections by Debtor's counsel. During the course of the lengthy examination, counsel for Buckeye asked the Debtor whether he had received proceeds of a life insurance policy as a result of his late wife's death. The Debtor, was also asked whether he had any policies insuring his own life. The Debtor answered "no" to both questions. At the instruction of his lawyer, the Debtor also did not respond to a number of questions regarding his income and employment. His attorney entered objections to those questions based upon the failure of the examination order to require the Debtor to testify regarding his income. Additionally, the Debtor did not produce any of the documents requested by counsel for Buckeye. After approximately three hours, the parties agreed to continue the examination at a later date.

Buckeye then filed a motion to show cause in the Mahoning County Common Pleas Court for the Debtor's refusal to fully answer questions concerning his property, income or other means of satisfying the judgment against him. The state court overruled the Debtor's objections to the questions posed at the examination and instructed the parties to confer and agree as to how and when the examination would be completed. The parties came to an agreement that included the production of certain documents and the rescheduling of the examination. The Debtor, however, did not produce the documents or reschedule the examination, prompting Buckeye to file a renewed motion to show cause and the state court to issue an order directing the Debtor to show cause at a hearing on November 6, 2003.

The Debtor preempted the state court show cause hearing by filing on November 4, 2003, a petition for relief under chapter 13 of the Bankruptcy Code.² The Debtor's schedules and statement of financial affairs were not filed with the petition. Debtor's counsel twice sought an extension of time to file schedules, the Statement of Financial Affairs, and a chapter 13 plan. The requests were granted, and the Debtor filed and served the missing schedules on January 20, 2004. On Buckeye's motion, the Debtor's case was subsequently converted to a chapter 7 case on February 12, 2004, due to the Debtor's ineligibility to be a chapter 13 debtor because the unsecured debt to Buckeye exceeded the limitation of 11 U.S.C. § 109(e).

Contrary to the Debtor's testimony at the May 20, 2003 examination, the schedules that the debtor filed listed a life insurance policy valued at $58,900 and an annuity death benefit. The Debtor was the beneficiary of a last survivor life insurance policy that insured the Debtor and his late wife who died on June 24, 2002. Upon her death, the Debtor elected to receive the $100,000 death benefit in 60 monthly installments. The death benefit was transferred to an annuity to purchase a settlement certificate for monthly payments. Pursuant to the settlement certificate, the Debtor was to receive monthly payments of $1,756.83 from June 24, 2002, to May 24, 2007. The first two payments were mailed to him on August 7, 2002. The Debtor also held a policy insuring his own life which had a substantial cash value.³ On January 21, 2004, eight months after the examination at issue, the Debtor executed a designation of beneficiary form, designating his current wife as the beneficiary of his life insurance policy.

On December 23, 2004, Buckeye filed a complaint seeking to deny the Debtor's discharge pursuant to 11 U.S.C. § 727(a)(2)(A). Buckeye alleged that, within one year of the petition date, the Debtor concealed property with the intent to hinder, delay or defraud Buckeye.⁴ Upon considering the parties' cross motions for summary judgment, the bankruptcy court issued on February 6, 2007, a memorandum opinion and order denying Buckeye's motion for summary judgment and granting summary judgment in favor of the Debtor. Finding that "concealment," as used in 11 U.S.C. § 727(a)(2)(A), "implies more than mere lack of full disclosure, but encompasses a debtor's retention of some interest after divestiture of legal ownership," the bankruptcy court held that the Debtor's failure or refusal to answer certain questions at the state court debtor's examination did not constitute concealment. (Appellant's App. at 460.)⁵ Furthermore, based upon the subsequent disclosure of the life insurance policies on his schedules filed on January 20, 2004, the bankruptcy court found no reasonable inference that the Debtor intended to hinder, delay or defraud Buckeye. Finally, the court found Buckeye's reliance on the Debtor's answers to a few questions at the debtor's examination insufficient to warrant denial of the Debtor's discharge.

On February 14, 2007, Buckeye filed a motion for reconsideration that reiterated its original arguments and cited additional, but not new, case law in support of its position. On March 1, 2007, the bankruptcy court issued a memorandum opinion and order denying the motion for reconsideration. Buckeye then timely perfected this appeal on March 7, 2007. See Federal Rule of Bankruptcy Procedure 8002(b).

IV. DISCUSSION

Summary judgment in adversary proceedings is governed by Federal Rule of Bankruptcy Procedure 7056, which incorporates Rule 56 of the Federal Rules of Civil Procedure. As previously recognized by the BAP on several occasions, the Court of Appeals for the Sixth. Circuit has described the standard...