Doctors Hosp. at Renaissance, Ltd. v. Sanchez (In re Sanchez)
| Docket Number | 21-51206-cag,Adv. 22-05003-cag |
| Decision Date | 31 May 2023 |
| Parties | IN RE: VICTOR HUGO SANCHEZ, Debtor. v. VICTOR HUGO SANCHEZ, Defendant. DOCTORS HOSPITAL AT RENAISSANCE, LTD. AND RGV MED, LLC, Plaintiffs, |
| Court | U.S. Bankruptcy Court — Western District of Texas |
Came on for consideration in the above-numbered and -styled adversary case two competing motions for summary judgment. Defendant Victor Sanchez ("Defendant" or "Sanchez") filed his Motion for Summary Judgment ("Sanchez('s) MSJ") (ECF No. 29).[1]Plaintiffs Doctors Hospital at Renaissance, LTD. and RGV Med, LLC ("Plaintiffs" or "Hospital") then filed Plaintiffs' Motion for Summary Judgment ("Hospital('s) MSJ") (ECF No. 43). Both the Sanchez MSJ[2] and the Hospital MSJ[3] received full briefing, each triggering a response and reply.
As an initial matter, the Court finds it has jurisdiction over this matter under 28 U.S.C. §§ 1334 (a) and (b). Venue is proper under 28 U.S.C. §§ 1408 and 1409. The bankruptcy court has authority to adjudicate this matter pursuant to the District Court's Standing Order of Reference. All parties have consented to this Court's authority to enter a final judgment in this adversary case. (ECF No. 19 (Sanchez) and 20 (Plaintiffs)).
Sanchez filed for Chapter 7 bankruptcy on October 4, 2021. The Hospital initiated this adversary proceeding on January 11 2022. (ECF No. 1). Pretrial litigation and discovery ensued. Ultimately, the Hospital filed its Second Amended Complaint for Determination of Non-Dischargeability ("Complaint") (ECF No. 45). This version of the Complaint contains all allegations of the first amended complaint (ECF No. 8), minus allegations regarding the value of pieces of art. All parties agree the Complaint at ECF No 45 is the operative complaint for purposes of summary judgment, even though all parties filed their MSJs before the Hospital amended the Complaint, because the Complaint contains no new allegations or causes of action. As such, the Court will disregard any argument and evidence presented regarding artwork valuation when ruling on the motions for summary judgment.
The Complaint contends that the Court should deny Sanchez' discharge for violating 11 U.S.C. §§ 727(a)(2) and (a)(4).[4] The Hospital alleges that it obtained a final arbitration award in the amount of $482,202.98 plus pre- and post-judgment interest at 5% and had the award confirmed by the 332nd Judicial District Court in Hidalgo County. (ECF No. 45 at 3-4). While attempting to collect, the Hospital deposed Sanchez on June 29, 2021. (Id. at 4). Sanchez testified, in summary form, that he deposited his income into a bank account for Chioggia Oil & Gas, LLC ("Chioggia"). (Id. at 4-5). Sanchez earns this income as a monthly consulting fee from two entities he owns-Finek Texas, Ltd. ("Finek") and Financial Management International, Inc. ("FMI")- but the monthly amount varies. (Id. at 5). Once deposited in Chioggia's account, Chioggia uses the money to pay Sanchez' personal expenses. (Id. at 5-6).
The Hospital's MSJ argues that by depositing his income to Chioggia's bank account and using Chioggia to pay his personal expenses ("Chioggia scheme"), Sanchez fraudulently concealed assets from his creditors by diverting his income into an account beyond the scope of the Hospital's judgment in violation of § 727(a)(2). (ECF No. 43 at 1-2). Furthermore, the Hospital contends that Sanchez disobeyed § 727(a)(4)'s prohibition of false oaths because neither his pre-petition testimony regarding his income nor his bank statements can be reconciled with his income as reported on his bankruptcy Schedules. (Id. at 2). For these reasons, the Hospital asks the Court to deny Sanchez a discharge of any debt.
Sanchez' MSJ primarily argues that the Hospital does not have authority to bring this claim. Sanchez interprets the Hospital's Complaint as asserting an alter ego claim and contends that, within the Fifth Circuit, only a trustee has authority to pursue such a claim, unless the creditor makes certain showings. (ECF No. 29 at 8-10). Because only the trustee has authority to bring an alter ego claim, according to Sanchez, the Hospital has no standing, so the case must be dismissed. (Id.). Second, Sanchez argues that the Hospital cannot establish § 727(a)(4)'s fraudulent intent and materiality elements as a matter of fact or law. (Id. at 18-19). Therefore, Sanchez contends he is entitled to summary judgment in his favor on both § 727 claims.
Sanchez' MSJ also contains a list of undisputed facts. The Court hereby adopts those facts.
Summary judgment is appropriate "if the pleadings, depositions answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Bankruptcy Rule 7056 applies Rule 56(c) of the Federal Rules of Civil Procedure ("Rule(s)") to adversary proceedings. If summary judgment is appropriate, the Court may resolve the case as a matter of law. Celotex Corp., 477 U.S. at 323; Blackwell v. Barton, 34 F.3d 298, 301 (5th Cir. 1994). The Fifth Circuit has stated "[t]he standard of review is not merely whether there is a sufficient factual dispute to permit the case to go forward, but whether a rational trier of fact could find for the non-moving party based upon evidence before the court." James v. Sadler, 909 F.2d 834, 837 (5th Cir. 1990) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)).
To the extent that the non-moving party asserts the existence of factual disputes, the evidence offered by the non-moving party to support those factual contentions must be of sufficient quality so that a rational fact finder might, at trial, find in favor of the non-moving party. Matsushita, 475 U.S. at 585-87 (1986) (); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986) ("adverse party's response . . . must set forth specific facts showing that there is a genuine issue for trial."). If the record taken as a whole, could not lead a rational trier of fact to find for the non-moving party, then there is no genuine issue for trial. LeMaire v. Louisiana, 480 F.3d 383, 387 (5th Cir. 2007).
In determining whether a genuine issue of material fact exists, the nonmoving party must respond to a proper motion for summary judgment with specific facts demonstrating that such genuine issue exists. "[A] genuine issue of material fact is not raised by mere conclusory allegations or bald assertions unsupported by specific facts." Leon Chocron Publicidad Y Editora, S.A. v. Jimmy Swaggart Ministries, 990 F.2d 1253 (5th Cir. 1993) (citation omitted).
Analysis Section 727 of the Bankruptcy Code states:
11 U.S.C. § 727(a)(2), (a)(4).
Section 727(a) provides that a court must grant a discharge unless one or more grounds for denial of discharge under § 727(a)(1)-(12) is proven to exist. The burden of proving a denial of discharge under § 727(a)(1)-(12) lies with the party objecting to discharge and the quantum of proof is preponderance of the evidence. Beaubouef v. Beaubouef (Matter of Beaubouef), 966 F.2d 174, 178 (5th Cir. 1992).
Both competing motions for summary judgment address standing and the elements of each § 727 claim. Because lack of standing would necessitate dismissal, the Court will address Sanchez' standing argument first. Then, the Court will address each claim in turn, including the arguments and evidence of each party.
Sanchez contends that the Hospital does not have standing to bring these claims against him. (ECF No. 29 at 8-10). Citing In re Packer[5], Sanchez argues the Fifth Circuit's holding that, absent specific showings he alleges the Hospital has not made, only the trustee has authority to bring alter ego claims. (Id.). Furthermore, Sanchez contends that the Hospital's "§ 727(a)(2) allegation and supporting facts are virtually identical to the creditor's § 727(a)(2) claim in [Packer]." (Id. at 7).
In the Sanchez MSJ Response, the Hospital contends that it is not required to establish an alter ego claim as part of the fraudulent concealment claim under § 727(a)(2). (ECF No 36 at 13-14). The Hospital contrasts the facts in Packer, noting that the...
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