Darwin (Huck) Spaulding Living Trust v. Carl (In re Carl)
| Decision Date | 02 September 2014 |
| Docket Number | Bankruptcy No. 12–10122.,Adversary No. 12–90078. |
| Parties | In re Darryl F. CARL, Debtor(s). Darwin (Huck) Spaulding Living Trust, Plaintiff(s), v. Darryl Carl, Defendant(s). |
| Court | U.S. Bankruptcy Court — Northern District of New York |
OPINION TEXT STARTS HERE
Robert E. Ganz, Esq., Lianne Pinchuk, Esq., Ganz, Wolkenbreit & Freidman, LLP, Albany, NY, for Plaintiff.
Robert J. Rock, Esq., Tully Rinckey, PLLC, Albany, NY, for Debtor/Defendant.
Currently before the court is the adversary complaint filed by the Darwin (Huck) Spaulding Living Trust (“Trust” or “Plaintiff”), a judgment creditor, requesting that the discharge of Darryl F. Carl (“Debtor” or “Defendant”) be denied pursuant to 11 U.S.C. §§ 727(a)(2)(A) and (B), as well as 727(a)(4)(A).1 For the reasons set forth below, the court denies the Debtor's discharge.
The court has jurisdiction over this core matter pursuant to 28 U.S.C. §§ 157(a), 157(b)(1), 157(b)(2)(J) and 1334(b). The following constitutes the court's findings of fact and conclusions of law as required by Federal Rule of Bankruptcy Procedure 7052.
The court makes the following findings of fact based upon the pleadings and the evidence adduced at the trial held on June 25–26, 2013, as well as the Joint Stipulation of Facts (ECF No. 15) filed by the parties.
1. In 1997, Mr. Carl took title to property located at 43 Carl Lane, Voorheesville, New York (the “Property”). (Joint Stip. ¶ 4.) Mr. Carl acquired the Property from his mother as a gift and held title in his own name until 2011. ( Id.) Two structures were built on the Property, a 3,342 square foot home and a pole barn. (Joint Stip. ¶ 5.) The Property was subject to mortgages held by several differentcommercial banks between 1997 and 2011. ( Id.)
2. Over the course of several years Plaintiff loaned money to the Debtor. The aggregation of the loans is evidenced in a promissory note dated August 1, 2010. The promissory note is signed by the Debtor personally. (Pl's.Ex. 28.)
3. On June 1, 2011, the Debtor defaulted on the promissory note by failing to make the monthly payment, and the Plaintiff commenced a suit against Mr. Carl in state court. (Joint Stip. ¶ 2.) A default judgment was entered in favor of the Plaintiff and against the Debtor on November 14, 2011, in the amount of $706,725.52. (Pl's.Ex. 9.) The judgment was docketed with the Albany County Clerk on November 16, 2011 and, thus, constitutes a lien against the Property. (Pl's.Ex. 9.)
4. As of June 2011, there was one mortgage against the Property held by Charter One Bank with an outstanding balance of $297,800.29.
5. On June 8, 2011, Mr. Carl transferred the Property from himself, as sole owner, to himself and his wife, Melissa Carl, as tenants by the entirety (the “Transfer”). (Joint Stip. ¶ 8.) The consideration for the Transfer was ten dollars. (Pl's.Ex. 2.) On the same date, Mr. and Mrs. Carl borrowed $317,000 from Citizens Bank and secured the loan with a first mortgage against the Property. An additional $65,000 was extended to the Carls by the bank in the form of a home equity line of credit. The proceeds of the first mortgage were used to extinguish the Charter One Bank mortgage and cover the closing costs of the loans.
6. Before making the loans to the Carls, Citizens Bank appraised the Property at $505,000. (Joint Stip. ¶ 7.) The pole barn was inadvertently not included in the appraisal. ( Id.) Based on the appraisal, prior to executing the Citizens Bank loans, Mr. Carl had $207,000 of equity in the Property. (Joint Stip. ¶ 8.)
7. On August 17, 2011, Fred Carl's New Salem Garage, Inc. (“New Salem Garage”) filed a voluntary bankruptcy petition under Chapter 7. (Case No. 11–12621, ECF No. 1.) The Debtor signed the bankruptcy petition as president of the corporation. Scott T. Dillon, Esq. signed the petition as the corporation's attorney.
8. New Salem Garage ceased operations as of the date of its bankruptcy filing. Prior to seeking bankruptcy protection, New Salem Garage was principally in the business of Saab automobile repairs and sales. (Joint Stip. ¶ 12.)
9. Albany Speed Shop, Inc. (“Albany Speed Shop” or the “Shop”) was incorporated on December 23, 2009. (Joint Stip. ¶ 13.) The Shop did not conduct business until the summer of 2011. ( Id.) Melissa Carl is the sole shareholder, director, and officer of the Shop. ( Id.) According to testimony, the Shop was established in part to protect the Carls in the event that New Salem Garage fell on hard times. (Trial Tr. vol. 1, 51.)
10. By late summer 2011, plans were underway to open the Shop to customers. In September 2011, the Debtor helped his wife find a suitable location for the Shop. (Joint.Stip. ¶ 14.) On September 14, 2011, the Shop executeda three year lease for commercial space. ( Id.)
11. The Shop was capitalized using $55,000 from the home equity loan the Carls obtained on June 8, 2011. (Joint.Stip.¶ 15.) The loan proceeds were transferred from a joint bank account held by the Carls to the Shop's operating account. (Trial Tr. vol. 1, 31, 34.) The remaining $10,000 of the home equity loan was used to pay bankruptcy counsel for New Salem Garage's Chapter 7 filing. (Trial Tr. vol. 1, 31.) Thus, by the time the Debtor filed his Chapter 7 petition, the home equity loan had been fully drawn down. (Trial Tr. vol. 1, 30.)
12. Mrs. Carl testified that she put $5,000 of her own money into the Shop as additional capital. (Trial Tr. vol. 2, 19.)
13. The Shop opened for business in October 2011. (Trial Tr. vol. 1, 42.) From October 2011 until late May 2012, the Debtor volunteered at the Shop forty hours per week. (Trial Tr. vol. 1, 43.) During this time, the Debtor was the only person providing services to the Shop without pay. (Trial Tr. vol. 2., 33.) Testimony established that Mr. Carl's services to the Shop and its customers included: setting up the floor plan, installing lift kits and other repair tools before the Shop opened, answering customer questions, writing up repair orders, ordering parts, and repairing cars. (Trial Tr. vol. 1, 42; Trial Tr. vol. 2, 23.) On occasion, the Debtor would fill in for the store manager. (Trial Tr. vol. 1, 50.) Mr. Carl was also involved in both hiring and pricing decisions at the Shop. (Trial Tr. vol. 1, 44.) Occasionally, Mr. Carl was billed out to customers for repair work. (Pl's.Ex. 11.) The Debtor testified that he used the sum of his knowledge and expertise gained at New Salem Garage to assist his wife in starting up the Shop. (Trial Tr. vol. 1, 170.) Mr. Carl also testified that he hoped having his name associated with the Shop would transfer the loyalty of New Salem Garage's customers to the Shop. (Trial Tr. vol. 1, 116.)
14. Prior to her job as owner of Albany Speed Shop, Mrs. Carl worked primarily in administrative positions. At New Salem Garage, Mrs. Carl held the position of “Title Clerk.” As Title Clerk, she never worked on cars, priced cars or labor, or served as a manager. (Trial Tr. vol. 1, 167–68.)
15. Beginning in the fall of 2011, Melissa Carl worked forty hours per week at the Shop. (Trial Tr. vol. 2, 20.) She drew a weekly salary of $975.00. ( Id.)
16. In March 2012, Mrs. Carl took a full-time job with Mangino Buick, a car dealership. Her new job was primarily administrative. (Trial Tr. vol. 1, 168.) After taking the position at Mangino Buick, Mrs. Carl cut her hours at the Shop to approximately ten hours per week. (Trial Tr. vol. 2, 21.) Her salary, however, remained the same. (Trial Tr. vol. 1, 21.)
17. Even though the Debtor derives no salary from the Shop, his expenses are paid on an ongoing basis by either his wife or the Shop. The Shop pays for the Debtor's cell phone service. (Trial Tr. vol. 1, 50.) Mr. Carl drives a car paid for by, and in the name of, Mrs. Carl. (Trial Tr. vol. 2, 24.) Since June 2011, the couple's Citizens Bank mortgage is paid solely by Mrs. Carl. (Trial Tr. vol. 2, 24.) All other personal and living expenses of the Debtor are paid from Mrs. Carl's income, which includes her salary from the Shop. (Trial Tr. vol. 1, 50.)
18. On January 20, 2012 (the “Petition Date”), the Debtor filed a voluntary Chapter 7 bankruptcy petition, Statement of Financial Affairs (“SOFA”), Schedules, and Declaration Concerning Debtor's Schedules (collectively the “Petition”). At the time the Petition was filed, the Debtor was represented by Scott T. Dillon, Esq., the same attorney who represented New Salem Garage in connection with its bankruptcy filing.
19. Since the Petition Date, there have been no amendments to any of the Schedules or the SOFA filed by the Debtor. (Joint Stip. ¶ 19.)
20. On Schedule B (“Personal Property”) the Debtor lists that he held “no” contingent or non-contingent interests in the estate of a decedent. (Pl's Ex. 24, at 9.) Under item 21 on Schedule B, when asked to list whether he held any other contingent liquidated claims, the Debtor responded “none.” ( Id.) Under item 35 on Schedule B, the Debtor stated that he had no other personal property of any kind not already listed. (Pl's Ex. 24, at 11.)
21. On Schedule I (“Current Income of Individual Debtor(s)”) the Debtor reports no income, but states that the “Debtor will begin to receive a salary once business beging [sic] to more than cover operating expenses.” (Pl. Ex 24, at 20.) Schedule J (“Current Expenditures of Individual Debtor(s)”) sets forth that the Debtor is solely responsible for making the $2,600 mortgage payment each month. (Pl's Ex. 24, at 21.)
22. Under item 1 of the Debtor's SOFA, he lists income of $5,000 for 2011, and income of $0 for 2012. Under item 2 of the SOFA, the Debtor indicates he has no income other than from employment or operation of a business. Item 3(c) on the SOFA asks the Debtor to list all payments made within one year preceding the...
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