Forward Fin. Bank v. Edwards (In re Edwards), Bankruptcy Case No. 12-14091-7
| Decision Date | 19 December 2013 |
| Docket Number | Adv. Case No. 12-195,Bankruptcy Case No. 12-14091-7 |
| Parties | Forward Financial Bank, Plaintiff, v. John Milton Edwards IV and Nancy Carol Edwards, Defendants (In re: John Milton Edwards IV and Nancy Carol Edwards, Debtors) |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Western District of Wisconsin |
Cite as: [Unpublished]
United States Bankruptcy Court
W.D. Wisconsin, Eau Claire Division
William C. Gamoke, Wolfgram, Gamoke & Hutchinson, S.C., Marshfield, WI, for Plaintiff
Mart W. Swenson, Mart W. Swenson, S.C., Eau Claire, WI, for Defendants
This matter is before the Court after trial on the complaint filed by Forward Financial Bank ("Plaintiff" or "Bank") objecting to the discharge of the Debtors pursuant to 11 U.S.C. §§ 727(a)(2), (4), and (7) and objecting to the dischargeability of debts owed by the Debtors to the Plaintiff under 11 U.S.C. § 523(a)(6). The parties declined to file pretrial memoranda of law and, instead, sought substantial time following trial to submit post-trial briefs. Those briefs have now been filed by all parties. For the reasons stated below, the Court finds there is no ground to deny the discharge of the Debtors and there is insufficient evidence to enable the Court to find that the debts owed to the Plaintiff are nondischargeable as willful and malicious injuries.
The federal district courts have "original and exclusive jurisdiction" over all cases under title 11 ("Bankruptcy Code" or "Code") and "original but not exclusive jurisdiction" over all civil proceedings that arise under the Bankruptcy Code or that arise in or are related to cases under the Code. 28 U.S.C. §§ 1334(a)-(b). The district courts may, however, refer such cases to the bankruptcy judges within their district. In the Western District of Wisconsin, the district court has made such a reference. See Western District of Wisconsin Administrative Order 161 (July 12, 1984).
Accordingly, this Court "may hear and determine all cases under title 11 and all core proceedings under title 11, or arising in a case under title 11 . . . and may enter appropriate orders and judgments, subject to review under section 158 of this title." 28 U.S.C. § 157(b)(1). Bankruptcy courts determine whether a proceeding is core or non-core. 28 U.S.C. § 157(b)(3). Determining the dischargeability of a particular debt is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I), and objections to discharge are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(J). As such, this Court has both the jurisdiction and the authority to enter a final judgment in this matter.
To sustain its objections to the Debtors' discharge, the Plaintiff asks the Court to engage in speculation and guesswork. In cases like this one, in which the bulk of the allegations turn on a finding that the defendant had fraudulent intent, it is usually necessary for the Court to draw reasonable inferences where evidence of actual intent is not available. The Court can infer intent from facts that are presented, but it cannot speculate as to the existence of facts. In the present case, most of the allegations are supported purely by Plaintiff's conjecture. To the extent the allegations have substance, they are noted below.
On July 17, 2012, the Debtors, John and Nancy Edwards, filed a voluntary petition under Chapter 7 of the Bankruptcy Code. On the petition date, Mr. Edwards was the sole shareholder and President of Edwards Electric, Inc., an electrical contracting company. Mrs. Edwards was listed as an officer. Mrs. Edwards performed some "light" bookkeeping for the company in the past. In approximately 2010, she ceased all work for Edwards Electric and returned to teaching school. From that point forward, Mr. Edwards was solely responsible for the activities of the corporation.
The Debtors purchased certain real property to be used as the business location of Edwards Electric. Subsequently, they formed Edwards Properties, LLC, to hold that real estate and other rental properties. Mrs. Edwards was the registered agent of Edwards Properties.
The Plaintiff was the lender to Edwards Electric. It financed the business under a Revolving and Term Credit Agreement and Business Note. The loan was secured by a General Business Security Agreement and a Chattel Security Agreement. The Plaintiff also financed the purchase of various parcels of real estate held by Edwards Properties. The Debtors delivered personal guaranties to the Plaintiff whereby they both guaranteed the indebtedness of Edwards Electric and Edwards Properties.
Edwards Electric began to suffer during the economic downturn and it failed to make all payments to the Plaintiff on the business loans. The Plaintiffcommenced an action in state court seeking replevin of its collateral and a money judgment. It obtained a judgment on November 4, 2010. Despite the entry of judgment, Mr. Edwards was told by a bank officer that if the Debtors and Edwards Electric continued to make payments then no further action would be taken to execute on the judgment or repossess the collateral. He was also told by the bank officer that "nothing would happen" if he sold equipment, provided payments were being made.
For a period of time thereafter, the Debtors and Edwards Electric made payments to the Plaintiff and no action was taken by the Plaintiff to obtain possession of the collateral that was the subject of the replevin judgment. In fact, the Plaintiff waited approximately eighteen months after the judgment to take any action to recover its collateral.
In November 2011, the Plaintiff commenced a foreclosure proceeding against Edwards Properties seeking a judgment of foreclosure and a money judgment. The disposition of that action is not reflected in the record.
On April 23, 2012, Edwards Electric filed a voluntary petition under Chapter 11 of the Bankruptcy Code. On or about July 10, 2012, the Plaintiff proceeded with the execution of a writ of replevin to take possession of the collateral. The Debtors' voluntary petition was filed on July 17, 2012, and a voluntary petition under Chapter 11 was filed by Edwards Properties on August 14, 2012.1
The Plaintiff alleges that both Debtors engaged in a number of transactions or acts involving personal assets that are sufficient to support both the denial of their discharge and a determination that obligations to the Plaintiff are nondischargeable. Those acts or transactions can be generally summarized as follows:
• Different values for various assets were listed on the 2010 personal financial statement than were listed for the assets in the personal bankruptcy schedules. These include the value of jewelry, household goods, snowmobiles, guns, and a boat and boat lift.
• Differences in the description of assets between the 2010 personal financial statement and the schedules. The differences include variances in the year of manufacture of various items and differences in the length of a boat.
Plaintiff also complains that deposits into personal accounts were also improper and misused. No evidence was presented that accounted for or traced the deposits and their subsequent transfers other than the fact there were deposits. The Plaintiff alleges that the Debtors' income must have been misstated on the SOFA based solely on deposits into a personal account that included gifts and corporate money and transfers from one personal bank account to another.
The Plaintiff alleges there are additional bases to deny Mr. Edwards' discharge. These include the sale or disposition of assets by Edwards Electric that were not itemized in its SOFA. The Plaintiff also argues that the filing of the Edwards Electric and Edwards Properties bankruptcies support a claim of improper conduct by Debtors in a related case. The Plaintiff makes reference to the filing of the petition when the equity interests of the Debtors were - at some time - property of the individual bankruptcy estate. It should be noted that the Edwards Electric case filing date predated the individual bankruptcy filing date. The Plaintiff also argues that the Debtors took actions as insiders of Edwards Electric to sell or conceal assets that should prevent them from receiving a discharge in their individual bankruptcy. Plaintiff does not explain the specific conduct suggested to be at issue nor did it present any facts relating to Mrs. Edwards in connection with these allegations.
The Plaintiff identified a mini-excavator sold more than one year before the petition date and three other pieces of equipment sold in January 2012 as the assets that were sold or concealed and not itemized on the Edwards Electric SOFA. The Plaintiff alleges Mr. Edwards deposited the proceeds from these sales into a personal account, rather than into the Edwards Electric business account. Plaintiff presented bank account statements showing there were deposits into the Debtors' personal accounts. However, with the exception of a record of the deposit of $8,500 related to a trencher, no evidence of the source of deposits was presented by the Plaintiff. Mr. Edwards concedes that various business funds were deposited into personal accounts but testified the funds were used forbusiness operations. Plaintiff provided no evidence with regard to the...
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