Chantel v. Pierce (In re Chantel)
| Decision Date | 01 July 2015 |
| Docket Number | BAP No. AZ-14-1514-PaJuKi (related appeals),Adv. Proc. 13-00977,Adv. Proc. 14-00041,BAP No. AZ-14-1511-PaJuKi |
| Parties | In re: DUSTIN ROGER CHANTEL and ELIZABETH DARLENE CHANTEL, Debtors. DUSTIN ROGER CHANTEL; ELIZABETH DARLENE CHANTEL, Appellants, v. WILLIAM PIERCE, Chapter 7 Trustee; UNITED STATES TRUSTEE, Appellees. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit |
NOT FOR PUBLICATION
Bankr. No. 13-11909
Submitted Without Oral Argument3 on June 19, 2015
Appeal from the United States Bankruptcy Court for the District of Arizona
Appearances: Dustin Roger Chantel pro se on brief; Ramona D. Elliott, P. Matthew Sutko, John Postulka, Ilene J. Lashinsky, Elizabeth C. Amorosi, and Christopher J. Pattock on brief for appellee United States Trustee; Terry A. Dake on brief for appellee William E. Pierce, chapter 7 trustee.
Before: PAPPAS, JURY, and KIRSCHER, Bankruptcy Judges.
Chapter 74 debtors Dustin Roger Chantel ("Dustin") and Elizabeth Darlene Chantel ("Elizabeth"5 and, together, "Debtors") appeal two judgments of the bankruptcy court entered in related adversary proceedings: (1) determining that all of the real and personal property held by an entity known as the Chan-Lan Trust (the "Trust") was property of the bankruptcy estate, and directing Debtors to turn over that property to the chapter 7 trustee, William E. Pierce ("Pierce"); and (2) denying their discharge under § 727 (a)(2)(A), (a)(2)(B), (a)(3), (a)(4)(A), and (a)(4)(D). We AFFIRM the bankruptcy court's judgment determining that the Trust's assets are property of the estate and directing Debtors to turn them over to Pierce. We AFFIRM that portion of the bankruptcy court's judgment denying discharge under § 727(a)(2)(A), (a)(2)(B), and (a)(4), but we REVERSE that portion of the judgment denying Debtors' discharge under § 727(a)(3) and (a)(4)(D).
Dustin is retired; Elizabeth, his spouse, is a housewife.
The disputes in this appeal focus on the Trust, a California trust created by Dustin and Elizabeth in 1995. In the initial trust documents, Donna Aguirre was identified as the settlor of the Trust,6 and Dustin was the trustee. Elizabeth became a co-trustee in 1997.
Debtors became embroiled in litigation with their electricity supplier, Mohave Electric Cooperative ("Mohave"). Mohave had erected power lines on Debtors' property in Kingman, Arizona (the "Property") on an easement granted decades before Debtors acquired the land. Later, Debtors constructed what they described as a "divinely inspired structure" directly beneath the power lines. Mohave County issued a stop-work order to Debtors during construction of the structure; Debtors ignored the order. On September 12, 2008, the county instructed Mohave to de-energize the overhead lines because the structure had created an unsafe condition. As a result, Debtors lost their source of electric power on the Property.
In 2009, Debtors sued Mohave for complying with the county's instructions in state court. Mohave asserted a counterclaim against Debtors, and the state court entered a money judgment of $175,000 against Debtors on Mohave's counterclaim. Debtors appealed, but the judgment was affirmed by the Arizona Court of Appeals. Chantel v. Mohave Elec. Co-op, 2013 WL 1628308 (Ariz.Ct. App. Apr. 16, 2013). No further appeal was taken.
Debtors filed a petition for relief under chapter 13 on July 11, 2013, which the court dismissed due to Debtors' failure to timely file a chapter 13 plan. The court then granted Debtors' motion to reinstate the case but converted it to a chapter 7 case on August 12, 2013. Pierce was appointed to serve as chapter 7 trustee.
Debtors' schedules indicated that they owned no real property and had not transferred any property to a self-settled trust in the previous ten years. The only reference to the Trust was in schedule G in which Debtors claimed they leased farmland from the Trust. Debtors listed their monthly income as $2,039, comprised solely of pension, social security benefits, and disability benefits. There is no declaration in their schedules about the income of, nor any compensation Debtors may receive from, the Trust.7
On August 27, 2013, Pierce commenced an adversary proceeding against Debtors in their personal capacities and as trustees of the Trust. Pierce sought a judgment denying Debtors' discharge under § 727(a)(2)(A), (a)(2)(B), (a)(3), (a)(4)(A), and (a)(4)(D) alleging that Debtors had: failed to properly disclose their interests in the Trust; failed to provide records concerning the Trust; transferred assets of the Trust during the bankruptcy case without court approval; and knowingly, wilfully, and fraudulently hindered, delayed, and defrauded their creditors and the trustee.Pierce also sought a judgment from the bankruptcy court determining that all of the real and personal property of the Trust was property of the bankruptcy estate pursuant to § 541 and directing that Debtors turn over all of the property to Pierce pursuant to § 542.
On January 16, 2014, the United States Trustee (the "UST") commenced an adversary proceeding against Debtors. It also requested that the bankruptcy court deny Debtors' discharge under § 727(a)(2), (a)(3), and (a)(4). The UST alleged that the Trust was a sham, that Debtors were the beneficial owners of the Trust's assets, and that Debtors had transferred, removed, and concealed property of the Trust with the intent to hinder, delay, and defraud their creditors. The UST further alleged that Debtors had failed to keep, or had concealed, records, and that they knowingly, and with fraudulent intent, made false statements under oath concerning material information by failing to disclose their interest in the Trust in their schedules.
At the request of the UST and Pierce, the bankruptcy court ordered that both adversary proceedings be tried at the same time.8 The trial occurred on July 31 and August 8, 2014. Pierce and the UST were represented by counsel; Debtors appeared pro se. At the beginning of trial, both Pierce and the UST informed the bankruptcy court that they no longer sought a denial of Debtors' discharge for their failure to produce books and records.
Dustin and Elizabeth testified at the trial. Dustin madeseveral important admissions and other statements during his testimony. Among them, he testified that in the years preceding creation of the Trust a group of people whom he could not identify had approached him about creating a trust; they then gratuitously gave him two parcels of real estate to create the Trust. Dustin later claimed that he had traded services in exchange for the two parcels. Dustin testified that Debtors owned no real property, and later he testified that Debtors had transferred numerous parcels of real property and items of personal property to the Trust, including the Property. Dustin admitted that Debtors had declared income from property ostensibly owned by the Trust on their personal income tax returns. He also admitted that Debtors had used the Property allegedly owned by the Trust as collateral for loans made to Debtors, including the mortgage loan, and then had deducted the mortgage loan interest on their personal income taxes. Dustin admitted that the Trust's funds were used to pay Debtors' personal cable bill, cell phone bill, dental expenses, gas and propane bills, car loan payments (for cars titled in Debtors' names), car registration, credit card bills, and other personal expenses. Dustin was unable to identify any distributions to beneficiaries made by the Trust except for loans. Dustin also testified that, after Debtors filed their bankruptcy petition, Dustin sold silver bullion, which had been purchased with Trust funds, to unnamed parties, and then lost the $110,000 in sale proceeds gambling in Nevada.9
In her testimony, Elizabeth confirmed several aspects of Dustin's testimony, while adding other details. She insisted that the information Debtors listed in the bankruptcy schedules was correct. She acknowledged that Debtors had transferred their assets to the Trust, including a $90,000 cash inheritance she received, which Debtors then used to make improvements to the Property. She recounted how Debtors had purchased jewelry with Trust funds, which was stored in Elizabeth's jewelry box and worn by her.
At the close of trial, the bankruptcy court took the matter under advisement. On October 15, 2014, the court announced its oral findings, conclusions, and decision. Highlights of the court's decision included that:
- Debtors were the settlors, trustees, and beneficiaries of the Trust because Debtors supplied all of the assets contributed to the Trust without consideration, and without relinquishing enjoyment, dominion, and control over those assets.
- Debtors used Trust assets regularly to pay personal expenses.
- The $110,000 in Trust assets (i.e., the silver bullion sale proceeds) gambled away by Dustin, and the jewelry purchased for Elizabeth, were prominent examples of why, in the court's words, "[t]he Trust was nothing more than Debtors' personal asset repository." Hr'g Tr. 9:10-11, Oct. 15, 2014.
- Debtors had unlimited power over the Trust, including thepower to amend the Trust.
- The Trust documents did not require any distributions to be made to its beneficiaries, and no distributions other than loans to be repaid were in fact made.
- Debtors "maintained all the beneficial ownership of the Trust assets." Hr'g Tr. 11:6-9, Oct. 15, 2014.
- "The trial evidence, including [among] other things, the Court's evaluation of witness credibility clearly established that the Debtors withheld, concealed their assets, and provided false information to the Trustees with the intent to hinder, delay, and defraud their creditors, the estate Trustee, and the U.S. Trustee." Hr'g Tr. 15:5-15, Oct. 15, 2014.
- Debtors knowingly and fraudulently signed the bankruptcy schedules in which they...
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