Epstein v. Busby (In re Busby)
| Decision Date | 15 April 2021 |
| Docket Number | CASE NO. 19-50725-CAG,ADV. NO. 19-05051-CAG |
| Parties | In re: WALTER GEORGE BUSBY and DEANN LOUISE BUSBY, Debtors. KEVIN M. EPSTEIN, UNITED STATES TRUSTEE, Plaintiff. v. WALTER GEORGE BUSBY and DEANN LOUISE BUSBY, Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Texas |
IT IS HEREBY ADJUDGED and DECREED that the below described is SO ORDERED.
This Memorandum Opinion resolves adversary proceeding Kevin M. Epstein, United States Trustee v. Walter George Busby and Deann Louise Busby, Adv. No. 19-05051-CAG. On January 29, 2021, this Court concluded a one-day trial before taking the matter under advisement. Thereafter, the Court reviewed the entire record before it, including all admitted exhibits, briefs, and deposition excerpts. The Court also considered the testimony and credibility of all witnesses. Additionally, the Court considered all evidentiary objections raised and sustained in making its findings of fact.
As an initial matter, the parties have stipulated to, and the Court finds, it has jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 157 and 1334. (ECF Nos. 18 and 21)1; see also Wellness Int'l Network, Ltd. v. Sharif (In re Sharif), 575 U.S. 665, 684 (2015) (). This matter is a core proceeding as defined under 28 U.S.C. § 157(b)(2)(J). Venue is proper under 28 U.S.C. § 1409(a). This matter is referred to the Court pursuant to the District Court's Standing Order of Reference. The Court makes its findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.
On April 1, 2019 (the "Petition Date"), Walter and DeAnn Busby ("Debtors", "Defendants", or "Busbys") filed a voluntary Chapter 7 petition for relief with their initial Schedules ("Initial Schedules") and Statement of Financial Affairs ("Initial SOFA"). (Case No. 19-50725-CAG, ECF No. 1). On April 25, 2019, Defendants filed their Amended Schedules and Amended SOFA. (Case No. 19-50725-CAG, ECF No. 10). Defendants testified under oath at the May 9, 2019 meeting of creditors that they read the Amended Schedules and Amended SOFA before signing them and that they were true and correct to the best of their knowledge. Defendantsfurther testified that the Schedules as amended listed all their assets and liabilities. The Chapter 7 Trustee adjourned the meeting of creditors to June 20, 2019, and subsequently to August 15, 2019.
On June 20, 2019, Defendants filed their Second Amended SOFA. (Case No. 19-50725-CAG, ECF No. 19). Defendants appeared at the August 15, 2019 meeting of creditors with counsel. The Chapter 7 Trustee adjourned the meeting of creditors to September 12, 2019. On September 10, 2019, Defendants filed the Second and Third Amended Schedules and the Third Amended SOFA. (Case No. 19-50725-CAG, ECF Nos. 37 and 38). In all instances, before filing any Amended Schedules or SOFAs, Defendants signed the Statement declaring under penalty of perjury that they had read the answers to the questions therein and that they were true and correct.
The United States Trustee ("Trustee" or "Plaintiff") seeks a denial of Debtor's discharge under 11 U.S.C. §§ 727(a)(2)(A), (a)(2)(B), (a)(3), (a)(4)(a), (a)(5).2
I. The Parties' Contentions
In summary, Plaintiff alleges Defendants should be denied their discharge in Bankruptcy Case No. 19-50725-CAG because within one year before the date of the filing of the petition, Defendants either transferred, removed, destroyed, mutilated or concealed, or permitted to be transferred, removed, destroyed, mutilated, or concealed property with the intent to hinder, delay, or defraud creditors. Further, after Defendants filed their petition, Plaintiff alleges Defendants either transferred, removed, destroyed, mutilated or concealed, or permitted to be transferred, removed, destroyed, mutilated, or concealed property with the intent to hinder, delay, or defraud creditors.
Plaintiff also alleges Defendants knowingly and fraudulently made false oaths and accounts in Bankruptcy Case No. 19-50725-CAG. Plaintiff argues Defendants failed to keep or preserve records from which their financial condition or business transactions might be ascertained; andDefendants have not satisfactorily explained the loss of assets or deficiency of assets to meet their liabilities. Defendants deny these allegations and have alleged Defendants made full and timely disclosure of all material items they knew of or were asked by the Chapter 7 Trustee or Plaintiff. Defendants maintain that they had no intent to defraud the creditors or anyone else.
On August 25, 2020, the Parties submitted a Joint Pre-Trial Order with their statement of stipulated facts which the Court now adopts. (ECF No. 37, §§ 5.1-5.49).
Walter Busby is a resident of San Antonio, Texas and has a homestead he shares with his wife with an appraised value of roughly $1 million. Busby stated that his mortgage is $5,500.00 per month and that he is approximately eight months delinquent on mortgage payments. He is a graduate of St. Mary's University in San Antonio and a CPA. Walter Busby has extensive work and business experience, having worked for Arthur Young and Lincoln Property Co. He has been a real estate broker since 2012 and has been active in commercial real estate since the 1990's.
Walter Busby acknowledged that, through Central Texas Realty & Development, LLC ("CTRD"), he received a real estate commission of $820,000.00 in 2016. Busby said part of the commission was used to pay taxes and living expenses. Busby also paid Stephen Sanders (a HUD commercial developer) $393,000.00 from the $820,000.00 commission as an advance for commissions for HUD commercial developments that Sanders was pursuing (referred to hereinafter as "Agreement To Share Commissions"). Busby explained that he paid the commissionto Sanders because Sanders is a HUD approved developer and Busby wanted to pursue HUD commercial development projects. Busby is not a qualified HUD developer. Walter Busby stated that there is no documentation regarding this transaction or the $40,000.00 he paid Sanders for a prior loan.4 Further, Busby testified that it took multiple bankruptcy amendments to disclose the transactions with Sanders. Busby explained that he made this arrangement with Sanders because of potential HUD commercial developments in South Texas and the potential payment to him of fees. Busby argued that he did not have to disclose the Agreement To Share Commissions because there was no partnership with Sanders. Moreover, Walter Busby observed that he did not get a K- 1 from the purported partnership with Sanders. Busby also stated that ordinarily a commercial transaction such as the one with Sanders would not be documented until an equity partner was identified. Busby explained that generally HUD commercial developments require an equity partner(s) to make a 24-28% equity commitment to fund the development before it is documented.
Walter Busby testified that the sale of firearms to his son-in-law Jeffrey Swift was first documented as a gift and later disclosed as a sale after the Schedules and SOFA were amended multiple times. Busby testified that he collected firearms for roughly 35 years and that the sale of firearms to his son-in-law was necessary because he needed cash to pay for living expenses. Busby also agreed that he sold musical equipment to third parties, and those sales were not disclosed on any iteration of the Schedules or SOFA. Busby indicated that he deferred to Mrs. Busby for the sale of these items because she had an eBay account and they needed cash to pay living expenses.5
Busby was also examined as to the failure to disclose partnership interests and produce books and records. Busby acknowledged a certificate of formation on file with the Secretary of State indicating Walter Busby was a member/manager of R2W Development LLC was not disclosed until after the August 15, 2019 meeting of creditors. (Ex. 4). Busby stated his failure to disclose his interest in R2W Development LLC was an oversight. Busby concluded disclosing his interest in R2W Development LLC was unnecessary because it had no value and he did not receive a K-1 for his membership interest. Nevertheless, Busby acknowledged the questions on his SOFA required Busby to disclose his membership interest in R2W Development LLC. Additionally, on Part V, question 42 of Defendants' original Schedules, Defendants list 100% interest in Turner Busby Development LLC. Plaintiff and the Chapter 7 Trustee asked Defendants multiple times for the records for this entity which were never produced.
DeAnn Busby has a BA and MA from Incarnate Word University. She has prior business experience working for a newspaper and mosquito companies. Mrs. Busby stated she read and signed all iterations of the Schedules and SOFA. Further, Mrs. Busby testified under oath at her meetings of creditors that her Schedules and SOFA were accurate. Mrs. Busby testified that her sale of items on eBay was not a business despite having a PayPal account tracking her sales. Mrs. Busby stated that when reporting her eBay sales on the SOFA, she did not add up the amount of the total sales. (Exs. 8, 9). Further, notwithstanding having a ledger for these sales, Mrs. Busby concluded she did need not review the ledger because she did not consider the sale of the items a business.
DeAnn Busby, like her husband, testified she did not disclose any of the sales of the musical equipment on her Schedules or SOFA. Mrs. Busby maintained she and her husband had littleincome at the time of the sale of the musical equipment and the sale proceeds were used for living expenses. DeAnn Busby further explained...
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