Daniels v. Agin

• Decision Date: 25 November 2013
• Docket Number: No. 12–2376.,12–2376.
• Citation: 736 F.3d 70
• Parties: William M. DANIELS, Appellant, v. Warren E. AGIN, Chapter 7 Trustee, and William K. Harrington, United States Trustee for Region 1, Appellees.
• Court: U.S. Court of Appeals — First Circuit

736 F.3d 70

William M. DANIELS, Appellant,

v.Warren E. AGIN, Chapter 7 Trustee, and William K. Harrington, United States Trustee for Region 1, Appellees.

No. 12–2376.

United States Court of Appeals, First Circuit.

Nov. 25, 2013.

Timothy J. Burke, with whom Burke & Associates was on brief, for appellant.

John G. Loughnane, with whom Charlotte L. Bednar and Eckert Seamans Cherin & Mellott, LLC were on brief, for appellee Warren Agin.

Cameron M. Gulden, with whom Ramona D. Elliott, Deputy Director/General Counsel, Executive Office for U.S. Trustees, Department of Justice, P. Matthew Sutko, Associate General Counsel, Executive Office for U.S. Trustees, Department of Justice, John P. Fitzgerald, Assistant United States Trustee, Wendy L. Cox, and Jennifer L. Hertz, were on brief, for appellee William Harrington.

Before LYNCH, Chief Judge, HOWARD and KAYATTA, Circuit Judges.

KAYATTA, Circuit Judge.

Ruling on motions for summary judgment in a bankruptcy proceeding, the bankruptcy court made two determinations that are the primary subject of this appeal. First, the court ruled that the debtor failed to maintain his profit-sharing plan in substantial compliance with the applicable tax laws. This ruling meant that assets in the profit-sharing plan and two IRAs funded with plan assets were part of the bankruptcy estate, available to satisfy the claims of creditors. Second, the bankruptcy court ruled that the debtor intentionally failed to disclose, and in fact deliberately concealed, the existence of the two IRAs into which the debtor had transferred assets from his profit-sharing plan. This ruling provided alternative grounds for treating the IRAs as nonexempt. It also provided the basis for the bankruptcy court to revoke the debtor's discharge. Daniels, the debtor, challenges both rulings on appeal. For the reasons set out below, we affirm.

I. Background

Both Daniels and the Chapter 7 Bankruptcy Trustee, Appellee Agin, moved for summary judgment on the question of whether Daniels's profit-sharing plan was exempt from inclusion in the bankruptcy estate. In accord with Rule 56.1 of the Local Rules of the District of Massachusetts,¹ each filed a statement of material facts that they claimed were undisputed. Under the rule, each was then required to file a statement in response to the other's statement of material facts, identifying which facts were disputed, with citations to record evidence establishing the existence of a dispute. Agin did not file such a responsive statement, instead filing an opposition brief and moving to strike Daniels's motion, “reserv[ing] the right to object to the introduction of” documents offered in support of Daniels's motion. Daniels did file a response, but it rarely referred to record evidence.

The bankruptcy court made sense of the procedural defalcations by comparing Agin's statement of material facts with Daniels's two statements and deeming all of Agin's averments to be admitted except where these documents conflicted. Without suggesting that the bankruptcy court was required to grant such an indulgence, we will construe the record in the same manner and apply the same approach to any part of Daniels's statement of material facts that Agin did not adequately dispute.

A. Daniels's Retirement Accounts

William Daniels was engaged in a decreasingly profitable business as a broker of fishing boats. He was also the trustee, administrator, employer and sole participant in the William Daniels Profit–Sharing Plan (“Plan”). The Plan was a prototype plan obtained through MassMutual Financial Group. MassMutual, however, did not manage the Plan or approve its transactions. From time to time, MassMutual received letters from the Internal Revenue Service (“IRS”) opining that the form of the prototype plan qualified it for favorable tax treatment. Nothing in those letters, however, purported to bless the manner in which the Plan was operated.

Before 1988, Daniels's wife had been the beneficiary of a trust, the Walker Realty Trust (“Realty Trust”). Daniels maintains that the Realty Trust is a Massachusetts nominee trust, and so is only a titleholding device for its beneficiaries. Daniels's wife assigned her beneficial interest to the Plan in 1988. The Plan paid fair value for the real estate held by the Realty Trust.

Since 1988, the Realty Trust has engaged in a number of real estate transactions, including transactions with Daniels's son and with the daughter of Tom Florence, a man who had provided services for the Realty Trust. All transactions with Mr. Florence and his family were for fair value.

Daniels's uncle, Maurice Lopes, lived with Daniels and the two held several joint accounts. Jensen v. Daniels, 57 Mass.App.Ct. 811, 813, 786 N.E.2d 1225 (2003). After Lopes died in 1996, Daniels withdrew money from those accounts and placed some into the Plan. Id. at 813–14, 786 N.E.2d 1225. Daniels reported the money from the joint accounts that he put into the Plan as a tax deduction, and avers that the transaction was never challenged “by a tax authority.” Daniels's aunt, as the executrix of Lopes's estate, later sued Daniels and his wife, alleging that they were not entitled to those funds. The probate court entered judgment against Daniels and his wife. The Massachusetts Appeals Court affirmed the judgment in the amount of $238,538.16, plus interest, but only as to Daniels. Id. at 819–20, 786 N.E.2d 1225. That judgment was not satisfied before Daniels filed for bankruptcy. Including interest, it totaled more than $440,000.00 by 2007.

In or around February 2007, Daniels transferred $469,894 from the Plan into two new MassMutual Individual Retirement Accounts (IRAs) held in his own name.

B. Daniels's Bankruptcy

Approximately six months later, Daniels filed for Chapter 13 bankruptcy. That bankruptcy petition was later converted to a Chapter 11 bankruptcy, and then into a Chapter 7 bankruptcy.

Bankrupt debtors must file several bankruptcy schedules, including Schedule B (in which a debtor identifies his personal property) and Schedule C (in which he lists the property that he claims is exempt from the bankruptcy estate). Schedule B requires debtors to disclose any “[i]nterests in IRA, ERISA, Keogh, or other pension or profit sharing plans,” and directs debtors to “[g]ive [p]articulars.” On both his Schedules B and C, Daniels wrote: “As of 8/06/07: Debtor's 401–qualified pension: ‘William Daniels Profit–Sharing Plan’ (tax ID # [XX–XXX]2459/ formed 8/15/88; approved by IRS 08/07/01), held by Walker Realty Trust, Wm M. Daniels, Trustee: inventory and valuations separately documented[.]” ² Daniels failed to mention the IRAs on his schedules. Rather, he showed all of the funds—both those remaining in the Plan and moved out of the Plan—as still being owned by the Plan.

During his bankruptcy proceedings, Daniels testified at three creditors' meetings. At the September 25, 2007, meeting, he affirmed that he had read the schedules before signing them. It appears that he again avoided any mention of the two IRAs, instead describing the Plan itself as “an IRA, qualified ERISA.”

Prior to another creditors' meeting in April 2009, Daniels and his attorney submitted revised figures for the profit-sharing plan to Trustee Agin, reporting a reduced Plan value of $573,117.38. That total amount, as best one can infer from the record, still included the funds in the IRAs. At the creditors' meeting, Daniels again confirmed that he had signed the schedules, and that they were accurate when filed. When asked where the proceeds had gone from the sale of several Realty Trust properties, Daniels replied that they were “invested with Mass Mutual in annuities.” Asked whether the Realty Trust or the Plan owned the annuities, he falsely claimed that the Plan owned them. When asked about any life insurance, he responded “I have the annuities in my retirement program[,]” which, he confirmed, were owned by the Plan.

Daniels did not turn over any documents relating to the two IRAs at this meeting.³After that meeting, Daniels provided some documents to Trustee Agin, including account statements indicating that the Plan held the beneficial interest in the Realty Trust and a cash account with $71,169.62. Additional correspondence and documents sent from Daniels's bankruptcy counsel, Atty. Cohen, to Agin in April and May, 2009, contained no discussion of the IRAs.

Daniels received a Chapter 7 discharge on July 1, 2009.

C. The IRS Audit and IRA Rollover

In 2008–2009, the IRS audited the Plan's 2006 tax return. During the audit, the IRS requested a variety of information, including: documentation relating to the Plan's form (in order to verify its “qualification”), information about the Plan's relationship to the Realty Trust, and information relating to a loan from the Plan to Daniels's son. At the end of the audit, the IRS sent Daniels a letter that stated simply: “We have completed our examination of your return(s) for [2006] and have accepted the return(s) as filed. However, during the examination we noted certain items indicated on the enclosure, which require your attention.” The enclosure noted that a loan to Daniels's son, a “disqualified person,” had occurred. It then noted: “[the l]oan was corrected by the full amount being repaid. The [26 U.S.C. §] 4975(a) tax calculated was deminimus and Form 5330 was not pursued.” ⁴ The letter explained that “corrected” meant

undoing the [prohibited] transaction to the extent possible, but in any case placing the plan in a financial position not worse than that in which it would be if the disqualified person were acting under the highest fiduciary standards. The loan has been [re]paid in full. No further action required.

Also in 2009, Daniels rolled one of the two MassMutual IRAs over into a new, third IRA held with Prudential.

D. The Turnover and Revocation Actions

In August and September, 2009, Trustee Agin filed an objection to Daniels's claim of exemption for the Plan assets, and...