Arma Yates, LLC v. Robertson (In re Robertson)
| Decision Date | 17 February 2022 |
| Docket Number | 17-28451,Adversary Proceeding 18-02059 |
| Court | U.S. Bankruptcy Court — District of Utah |
| Parties | In re: JON ROBERTSON and SHAUNA ROBERTSON, Debtors. v. JON ROBERTSON, Defendant. ARMA YATES, L.L.C., et al. Plaintiffs, |
In re: JON ROBERTSON and SHAUNA ROBERTSON, Debtors.
ARMA YATES, L.L.C., et al. Plaintiffs,
v.
JON ROBERTSON, Defendant.
No. 17-28451
Adversary Proceeding No. 18-02059
United States Bankruptcy Court, D. Utah
February 17, 2022
Chapter 7
MEMORANDUM DECISION
HON. KEVIN R. ANDERSON, U.S. BANKRUPTCY JUDGE
Prior to a experiencing a number of personal and financial misfortunes, the Debtor's business entities operated a national network of nursing homes. The entities leased the nursing homes from Plaintiffs, and the Debtor personally guarantied the leases. The Debtor's entities defaulted on the leases, and Plaintiffs sued the Debtor under the guaranties. Plaintiffs ultimately
obtained a judgment against the Debtor in excess of $37 million. Plaintiffs vigorously pursued collection of the judgment that precipitated the Debtors filing for Chapter 7 bankruptcy relief. Plaintiffs then filed this complaint under 11 U.S.C. § 727[1] seeking a denial of Debtor's discharge based on allegations of omissions in the bankruptcy papers and a failure to keep records or explain the pre-petition disposition of assets. For the reasons set forth below, the Court finds that Plaintiffs have not established by a preponderance of evidence that the Debtor's discharge should be denied.
I. JURISDICTION AND VENUE
The Court's jurisdiction over this adversary proceeding is properly invoked under 28 U.S.C. § 1334(b) and § 157(a) and (b)(2).[2] This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A) and (I) because the complaint objects to the discharge of debt. Venue is appropriately laid in this District under 28 U.S.C. § 1409.
II. PROCEDURAL BACKGROUND
On September 27, 2017, Jon and Shauna Robertson (the "Debtors") filed a voluntary Chapter 7 bankruptcy petition.[3] On May 3, 2018, Plaintiffs[4] filed this complaint against the Debtors seeking a denial of discharge under §§ 727(a)(2)(A), 727(a)(2)(B), 727(a)(3), 727(a)(4)(A), and 727(a)(5).
The Court dismissed Shauna Robertson[5] as a defendant in the adversary proceeding pursuant to a settlement approved on June 2, 2021.[6] The Court conducted a trial on November 17-18, 2021.
Douglas J. Payne and Leighton Aiken appeared for the Plaintiffs. Stephen K. Christiansen, Joshua B. Cutler, and Ryan R. Bolander appeared for Jon Robertson. At the conclusion of the trial on November 18, 2021, the Court took the matter under advisement.
Having carefully considered the parties' oral and written arguments, the evidence and testimony elicited at trial, and having conducted its own independent research of the relevant caselaw, the Court issues the following Memorandum Decision.[7]
III. FACTS
The findings of fact constitute the Court's findings based on the material, uncontroverted facts set forth in the Pretrial Order[8] and the testimony and exhibits admitted at trial.
A. Background Facts Regarding Deseret Health Group, the Esther Johnson Trust, and the Debtor's Criminal Tax Conviction.
1. Jon Robertson (the "Debtor") was involved in the operation of a national network of nursing homes (the "Deseret Health Group"). The Debtor served as the founder and CEO of the Deseret Health Group from 2006 through 2008, and he was Chairman of the Board from 2008 through 2013.[9]
2. Affiliates of Deseret Health Group leased nursing homes from Plaintiffs pursuant to several master leases dated from 2008 to 2012.[10] The Debtor personally guarantied the leases.[11]
3. In approximately 2002, the Debtors' estate planning attorney created the Esther Johnson Trust (the "Trust"), with the Debtors as its beneficiaries.[12]
4. The Debtors transferred various assets to the Trust, including their interests in the entities operating the nursing homes. In a prior court proceeding, the Debtor authenticated an organizational chart depicting the Trust as the controlling entity over at least 12 other companies including Deseret Health Group.[13]
4. In 2014, the Debtor pleaded guilty to "making and subscribing a false [tax] return, "[14] and he was ordered to pay $150, 000 in restitution to the IRS.[15] The IRS also subsequently collected large sums from the Debtors in unpaid taxes.[16]
5. In August 2014, the Debtor was incarcerated in federal prison on a one-year sentence.[17] The incarceration lasted "a little more than five months, "[18] and the Debtor was released in March 2015.[19]
B. The Debtors' Financial Difficulties
6. As a result of the Debtor's criminal conviction, he was removed from the management of Deseret Health Group, [20] and the offices of Deseret Health Group were foreclosed in 2015.[21]
7. The Health and Human Services Department ("HHS") and Office of Inspector General investigated the Debtor's nursing home businesses. In 2015 or 2016 the Debtor entered into a settlement agreement with the federal government regarding potential claims against his nursing home businesses. As part of the settlement, the Debtor agreed to a 30-year ban from working in the health care industry in the United States.[22]
8. The Debtor asserts that he paid attorney fees and costs of "over $3, 000, 000" as a result of his legal issues.[23]
9. Because of his ban from the health care industry and his status as a convicted felon, the Debtor's only source of income for a time was as an Uber driver.[24]
10. The Debtor also experienced extensive medical issues. These include contracting meningitis and encephalitis in 2011; a fractured hip and back from a car accident in 2012; bone fractures from a ladder fall in 2015; prostate cancer in 2016; and then sepsis from a surgery.[25] The Debtor testified that these medical issues further impeded his ability to work.[26]
11. As a result of these financial setbacks, the Debtors began in 2014 to sell items of personal property to pay living and legal expenses.[27]
12. The Debtor is now divorced from co-debtor Shauna Grow, and he is living in a friend's spare room.[28]
C. Plaintiffs' Pre-Petition Lawsuit Against Debtor
13. On July 7, 2015, Plaintiffs filed a civil action in the Circuit Court Cook County, Illinois, against the Debtors and other defendants.[29] In August 2015 the action was subsequently removed to the United States District Court for the Northern District of Illinois (the "Illinois Federal Court").[30]
14. Plaintiffs' complaint sought a judgment against the Debtor under his guaranties of the leases and promissory notes. The guaranties provided that "Guarantors shall not sell, lease, transfer, convey or assign any of their assets if such action would have an adverse effect on any Guarantors' business or financial condition or otherwise adversely affect the performance of its obligations under this Guaranty."[31]
15. On December 16, 2016, the Illinois Federal Court entered a judgment in favor of Plaintiffs and against the Debtors, jointly and severally, in the principal amount of $37, 618, 296.81 (the "Judgment").[32]
16. On May 6, 2017, the Debtor submitted to the Illinois Federal Court a document captioned "Defendant Jon Robertson's Statement of Compliance with Court's Order Requiring Responses to Petitioners' Citation Requests."[33] Attached to the Statement of Compliance is the Debtors' "Response to Creditor's Requests for Production, "[34] and the Debtors' response for "Turnover and/or Accounting of Assets."[35] Attached to this accounting of assets is "Exhibit D,"
which is a description of Trust assets "distributed to and ultimately sold by the Debtors to various pawn shops commencing on May 1, 2014" (the "List of Sold Assets").[36]
17. The List of Sold Assets dated May 1, 2017 (which is 4.5 months before the petition date) discloses the date, place, buyer, and sale's price of the items of personal property sold by the Debtors between 2014 and 2016, including the following:
(a) a charm bracelet sold in September 2016 to a New York pawn shop for $2, 500 (the "Charm Bracelet");
(b) a diamond ring sold in September 2016 to a New York pawn shop for $18, 000 (the "Diamond Ring"); and
(c) a men's Platinum Diamond Ring sold November 2016 to a Salt Lake City pawn shop for $8, 000 (the "Platinum Ring").[37]
18. The Debtors sold the Charm Bracelet and Diamond Ring on Labor Day weekend in 2016 (September 3-5), which is more than a year before the filing of their present bankruptcy case.[38]
19. The Debtors sold the Platinum Ring in November 2016, which is within one year of the bankruptcy filing.[39]
20. The Debtors received $20, 000 for their personal property included in the sale of their Bountiful, Utah residence. But all of these proceeds went to the IRS in partial satisfaction of tax liens.[40]
21. The Debtors sold their remaining items of personal property to pawn shops, art galleries, or buyers through classified ads.[41] The Debtor testified that he does not have records of these sales because they were cash transactions, and he did not receive a receipt. Or if he did receive receipts, he no longer has them or other documents because the sales occurred one to three years before the bankruptcy filing.[42]
22. In connection with Plaintiffs' "Citation to Discover Assets," the Illinois Federal Court declined to hold the Debtor in civil contempt because "it didn't hear anything today from Robertson that they have records [regarding their financial situation] they have failed to produce."[43]
23. With the exception of sale proceeds paid to the IRS, the Debtors used the money from the sale of the personal property to pay living expenses and attorney fees.[44]
D. The Debtors' Bankruptcy Filings
24. The Debtors filed a Chapter 7 case on August 17, 2017 (Case No. 17-27193), which was one day before a show-cause hearing in the Illinois Federal Court.[45]
25. The Debtors' bankruptcy counsel, Eric Singleton ("Attorney Singleton"), failed to file several required bankruptcy papers, [46] and the Court dismissed the bankruptcy...
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