In re Marcus-Rehtmeyer

• Decision Date: 28 April 2015
• Docket Number: No. 14–1891.,14–1891.
• Parties: In re Carol A. MARCUS–REHTMEYER, Debtor–Appellee, Appeal of Mark A. Jacobs and Chivalry Consulting, Inc., Creditors–Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

784 F.3d 430

In re Carol A. MARCUS–REHTMEYER, Debtor–Appellee

Appeal of Mark A. Jacobs and Chivalry Consulting, Inc., Creditors–Appellants.

No. 14–1891.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 10, 2014.

Decided April 28, 2015.

Glenn Alexander McTavish, Attorney, Foote, Mielke, Chavez, & O'Neil LLC, Geneva, IL, for Debtor–Appellee.

Rosemarie Jean Guadnolo, Attorney, Horvath & Weaver, P.C., Chicago, IL, for Creditors–Appellants.

Before WOOD, Chief Judge, and ROVNER, and HAMILTON, Circuit Judges.

Opinion

ROVNER, Circuit Judge.

After a contractual relationship went sour, an Illinois state court ordered the defendant-appellee, Carol A. Marcus–Rehtmeyer to pay approximately $168,000 dollars to the plaintiff-appellants, Mark Jacobs and Chivalry Consulting, Inc. (Chivalry). When she failed to do so, Chivalry issued a citation to discover assets under Illinois law, but before the matter was resolved, Marcus–Rehtmeyer filed a Chapter 7 petition for bankruptcy. Chivalry appeared in the bankruptcy court to object to the discharge of the debt owed to them, claiming that Marcus–Rehtmeyer had concealed her assets and income during the citation proceedings. The bankruptcy court denied Chivalry's objection and the district court affirmed the rulings of the bankruptcy court. Chivalry appeals the district court's ruling, and because we conclude that Marcus–Rehtmeyer concealed assets with the requisite intent, we reverse.

I.

Chivalry hired Marcus–Rehtmeyer to develop and manufacture a fantasy board game that Jacobs invented. The two parties entered into a contract, and Chivalry paid Marcus–Rehtmeyer over $128,000, but the relationship deteriorated and Marcus–Rehtmeyer never produced the game. Chivalry sued Marcus–Rehtmeyer in Illinois state court for breach of contract and won a judgment of $168,331.59, plus a later award of $621.25 in costs, but Marcus–Rehtmeyer never paid. Consequently, on October 12, 2010, Chivalry issued a citation to discover assets. The citation commanded Marcus–Rehtmeyer to appear in court and stated:

YOU ARE COMMANDED to produce at the examination (bring with you) all books, papers, or records in your possession or over which you have control, which may contain information concerning the property or income of, or indebtedness due judgment debtor and: see attached RIDER TO CITATION TO DISCOVER ASSETS

You are prohibited from making or allowing any transfer or other disposition of, or interfering with, any property not exempt from the enforcement of a judgment therefrom, a deduction order or garnishment, belonging to the judgment debtor or to which he or she may be entitled or which may thereafter be acquired by or become due him or her, and from paying over or otherwise disposing of any moneys not so exempt which are due or to become due to the judgment debtor, until further order of the court or the termination of the proceeding, whichever occurs first.

(R. 356) (emphasis in original). The citation followed the requirements of Illinois Supreme Court Rule 277 and Section 2–1402 of the Illinois Code of Civil Procedure.

The rider to the citation required that Marcus–Rehtmeyer produce the following documents:

Any and all documents, whether printed, handwritten, typed, drawn, sketched, printed or recorded by any physical, mechanical, magnetic, optical, electronic, or electrical means whatsoever, pertaining to, relating to and/or referring to any and all real property, personal property, tangible property and intangible property in which the Judgment Debtor has or claims an ownership interest, or had or claimed an ownership interest in within the last five years, whether individually, jointly, severally, beneficially, contingently or expectantly and any and all real property, personal property, tangible property and intangible property owned by any trust, corporation, partnership, limited partnership, limited liability partnership, sub-chapter “S” corporation, joint venture, sole proprietorship or other such entity in which the Judgment Debtor has or claims an ownership interest, or in which it had or claimed an ownership interest in within the last five years, whether individually, jointly, severally, beneficially, contingently or expectantly.

(R. 357) (emphasis in original).

At the citation examination on November 4, 2010, Marcus–Rehtmeyer testified that she had no ownership interest in any real estate whatsoever, and specifically, that she was not a signatory to the mortgage on her residence in Wheaton, Illinois. She also testified that she had no ownership interest in any securities, stocks, bonds or other such assets. She denied that she was a shareholder of a corporation named Lorac & Cire, Inc., stating that she had owned 50% of the shares of Lorac & Cire at the time the corporation was formed, but that her shares were given up for payment to her attorney. Furthermore, she testified that she did not have an ownership interest in any office or electronic equipment, including computers. Finally, she testified that she no longer had a personal checking account, that she closed it about a month prior to the citation examination, and that she had no interest in any savings accounts.

As for the required documents, the only documents Marcus–Rehtmeyer brought with her in response to the document request were copies of her individual tax returns for the years 2006–2009. Consequently, Chivalry continued the citation and filed a motion to compel Marcus–Rehtmeyer's production of the required documents. On December 7, 2010, the state court ordered Marcus–Rehtmeyer to produce copies of all documents described in the citation and, if she had no such documents, an affidavit as to that fact.

As of January 4, 2011, Marcus–Rehtmeyer still had not complied. Chivalry filed a renewed motion to compel, and the next day the state court ordered her to produce all the documents required by the citation order by January 13, 2011, and continued the matter until February 10, 2011. On January 13, 2011, Marcus–Rehtmeyer produced a few documents responsive to the rider. On February 10, 2011, the state court again ordered Marcus–Rehtmeyer to produce all documents responsive to the citation by February 24, 2011. On February 24, Marcus–Rehtmeyer filed a response in which she stated that there were no documents relating to checking and savings accounts and that she had no mortgage or deeds of trust documents because she held none.

On May 24, 2011, Chivalry filed a motion for a rule to show cause arguing that Marcus–Rehtmeyer did not produce all of the documents required of her, that she appeared to be concealing documents about bank accounts and wages, that she had provided inaccurate information, and had made it difficult to access information relating to her assets. The court scheduled a hearing for June 30, 2011, but the day before the hearing, on June 29, 2011, Marcus–Rehtmeyer skirted the hearing by filing a bankruptcy petition pursuant to Chapter 7 of the United States Bankruptcy Code, seeking to discharge all of her debts.

Some documents filed in the bankruptcy court directly conflicted with information Marcus–Rehtmeyer had provided in the state court pursuant to the citation. For example, in the bankruptcy court, Marcus–Rehtmeyer stated that she held real property—her personal residence in Wheaton, and that she and her husband were co-debtors on two mortgages on the property held by Chase Bank. She also listed as personal property, “100% of the common stock of Lorac & Cire, Inc.,” and $500 worth of “desks, monitors, computer, and filing cabinets.” Finally, her Statement of Financial Affairs filed with the bankruptcy court listed income received as $13,541.65 in 2010 and $25,000.00 in 2011, both from SciTech Museum.

Chivalry appeared in the bankruptcy court to object to Marcus–Rehtmeyer's discharge of her to debt to Chivalry, pursuant to 11 U.S.C. § 727(a)(2)(A) which disallows a discharge where “the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred ... or concealed, or has permitted to be transferred ... or concealed property of the debtor, within one year before the date of the filing of the petition.” Specifically, Chivalry argued that Marcus–Rehtmeyer had concealed information relating to income and property in (1) her ownership of her Wheaton residence, (2) her ownership interest in Lorac & Cire, Inc., (3) her income from employment at SciTech museum; and her ownership interest in computers and electronic equipment. The bankruptcy court conducted a trial on February 14, 2013, and denied Chivalry's objections the next day.

During the bankruptcy trial, Marcus–Rehtmeyer testified that when she and her husband acquired the Wheaton residence, they did so as joint tenants. Marcus–Rehtmeyer admitted that previously, during the citation examination, she had stated that she did not have an ownership interest in any real estate and that she was not a signatory to the mortgage on her residence. She also admitted that she had not produced any documents pursuant to the citation order demonstrating who was, in fact, a signatory on the mortgage. To explain the discrepancy between her testimony at the bankruptcy proceedings and the citation proceedings, she stated that when she and her husband refinanced the property in 2008, she believed that only her husband had signed the refinancing documents. She further alleged that when she called Chase Bank to inquire about the mortgage, a representative of the bank refused to speak with her about it, claiming that only her husband was named on the account.

The bankruptcy court accepted Marcus–Rehtmeyer's explanation and held that Chivalry failed to establish by a preponderance of the evidence that Marcus–Rehtmeyer concealed the property with an intent to defraud. It did so, in part, because Marcus–Rehtmeyer's lawyer had written to Chivalry on May 12, 2011, stating that he had previously provided the...