Gebhardt v. McKeever (In re McKeever)

• Decision Date: 23 May 2016
• Docket Number: ADV. NO. 13–5417, ADV. NO. 15–5336,CASE NO. 10–92243–WLH
• Citation: 550 B.R. 623
• Parties: In re: Alfonza McKeever, Debtor. Guy G. Gebhardt, Acting United States Trustee, Plaintiff, v. Alfonza McKeever, Jr., Defendant. Cathy L. Scarver, as Chapter 7 Trustee, Plaintiff, v. Robert Ellis, McKeever Paint & Body, Inc., the Viaduct Group, Inc., and Alfonza McKeever, Jr., Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

550 B.R. 623

In re: Alfonza McKeever, Debtor.

Guy G. Gebhardt, Acting United States Trustee, Plaintiff

v.Alfonza McKeever, Jr., Defendant.

Cathy L. Scarver, as Chapter 7 Trustee, Plaintiff

v.Robert Ellis, McKeever Paint & Body, Inc., the Viaduct Group, Inc., and Alfonza McKeever, Jr., Defendants.

CASE NO. 10–92243–WLH

ADV. NO. 13–5417

ADV. NO. 15–5336

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

Signed May 23, 2016

Thomas Wayne Dworschak, Lindsay P. S. Kolba Office of the U.S. Trustee, Atlanta, GA, for Plaintiff.

Alfonza McKeever, Jr., pro se.

ORDER DENYING DEBTOR A DISCHARGE AND DENYING TRUSTEE'S RECOVERY UNDER SECTION 362

Wendy L. Hagenau, U.S. Bankruptcy Court Judge

After almost six years, this matter is before the Court to determine whether the Debtor is entitled to a discharge under 11 U.S.C. § 727 and whether the Debtor violated the automatic stay and is liable to the Trustee in certain amounts. This Court has jurisdiction of this case under 28 U.S.C. §§ 157 and 1334, and the case is a core matter under 28 U.S.C. § 157(b)(2)(J) and (G).

PROCEDURAL HISTORY

This case has a tortured procedural history. The Debtor, Alfonza McKeever (“McKeever” or “Debtor”), initially filed a petition under Chapter 13 of the United States Bankruptcy Code on October 29, 2010, and was represented in the filing by Kenneth Mitchell. During the Chapter 13 case, Cranberry Financial LLC (“Cranberry”) filed a motion for relief from stay to foreclose on business property located at 5361 Covington Highway, Decatur, Georgia (“Property”). Cranberry also filed a proof of claim for the debt and security deed on the Property, including attorney fees. The Debtor objected to the claim. Branch Banking & Trust (“BB & T”) filed claims on December 8, 2010, in the amounts of $30,844.13 and $479,375.16, which raised the question of whether the Debtor exceeded the debt limits for Chapter 13. This prompted the Debtor to file a motion to convert his case to one under Chapter 11 on May 16, 2011. The motion to convert was granted, and the case was converted to one under Chapter 11 on July 13, 2011. Neither Cranberry's motion for relief nor the Debtor's objection to Cranberry's claim was heard in the Chapter 13 case.

When the case was converted to one under Chapter 11, it had already been pending for eight months with no plan confirmed. The Debtor filed a Chapter 11 plan on November 2, 2011 and a disclosure statement the next day and made payments to Cranberry in the interim. Numerous objections were filed to the plan and disclosure statement, and at least one set of amendments was made to each. On March 28, 2012, the United States Trustee (“UST”) filed a motion to dismiss the Chapter 11 case on the grounds that it did not appear the Debtor could confirm a Chapter 11 plan. Cranberry urged the Court to convert the case to one under Chapter 7 rather than to dismiss it. On April 24, 2012, Mr. Mitchell moved to withdraw from his representation of the Debtor, but the Debtor opposed his counsel's request. The Court then entered an order on May 10, 2012, allowing the parties to enter into mediation and requested Mr. Mitchell to remain as counsel through the mediation.

The mediation was unsuccessful. The objection to Cranberry's claim was specially set for an evidentiary hearing on January 23, 2013. The claim objection was inexplicably withdrawn by Mr. Mitchell on January 18, 2013. The Court then held a status conference on January 23, 2013, where it became clear to the Court that the Debtor continued to object to the Cranberry claim, that a potentially valid basis for such an objection existed, and that the relationship between Debtor and counsel had deteriorated to a point that withdrawal was appropriate. The Court therefore permitted Mr. Mitchell to withdraw and appointed a Chapter 11 trustee. The trustee appointed was Cathy Scarver.

The Court held an initial status conference with the Trustee, the Debtor and other parties in interest on February 21, 2013. The Trustee filed her first status report on March 23, 2013, raising as one of the issues whether there was proper insurance on the Property and, in particular, whether the Trustee was named as an additional insured. The Trustee's status report also notified the Court of an accident that occurred at the Property and which forms the basis of the issues discussed in detail below. The Court held an expedited status conference on April 4, 2013 regarding the Trustee's status report, including proof of insurance and other topics. At this hearing, the Court verified that the Debtor had obtained new insurance, which was in his personal name, and that the Trustee was identified as an additional insured. The Debtor disclosed he had made a claim for the damage to the Property and was in discussion with the insurance company and adjuster about it. The Court directed the Debtor to share with Ms. Scarver whatever claim had already been filed on the Property and any responses. The Court set another status conference for April 25, 2013.

The day before the next status conference, Cranberry filed a motion to prohibit the use of cash collateral, alleging that an insurance check had been issued for the damage to the Property and wanting to ensure that it was not used without Cranberry's permission or the Court's authority. Nevertheless, at the hearing held on April 25, 2013, the Court learned that the check at issue, which had been made payable jointly to McKeever Paint & Body (“MP & B”) and Cranberry, had been negotiated even though Cranberry's counsel represented that Cranberry had not endorsed the check. In response, the Court converted the case to one under Chapter 7.

Ms. Scarver remained the trustee in the Chapter 7 case. Shortly after the conversion, on May 6, 2013, an attorney, David Miller, appeared on behalf of the Debtor. Nevertheless, Mr. Miller withdrew a year later, on May 15, 2014, alleging the Debtor did not follow his advice. The Debtor has remained unrepresented since May 15, 2014. During the Chapter 7 case, the Trustee objected to the claim of Cranberry. On the eve of trial, the Trustee and Cranberry reached a settlement and filed a motion to compromise on December 12, 2013. The proposed settlement awarded Cranberry an allowed secured claim of $85,000 rather than the $129,000 plus that Cranberry claimed was due at the time. After an evidentiary hearing on the merits of the compromise, the Court approved the compromise over the Debtor's objection on February 25, 2014. In the meantime, the UST filed the above-styled action against Mr. McKeever on November 26, 2013, objecting to his discharge. Thereafter, on August 27, 2015, Ms. Scarver, as the Chapter 7 Trustee, filed her complaint against the Debtor and multiple other parties related to the disposition of the insurance check and other matters.

The Court set down for trial the UST's adversary proceeding objecting to discharge under Section 727 and only Count VII of the Chapter 7 Trustee's complaint. The trial was held over four days between November 2015 and March 2016. The Debtor represented himself, Tom Dworschak represented the UST, and Russell Patterson represented the Chapter 7 Trustee.

After review of the evidence, including documents and testimony, and the entire record of this case, the Court makes the following findings of fact.

FINDINGS OF FACT

Loan

Mr. McKeever and his “family”, which he described as up to twenty-three different people, operated a body shop business which they named MP & B. In 1995, Mr. McKeever purchased the Property and moved the body shop business there. Mr. McKeever purchased the Property in his individual name with a loan he obtained from NationsBank of Georgia, N.A. dated January 30, 1995 in the original principal amount of $170,000. The note was executed by Mr. McKeever personally. The note is secured by a deed to secure debt and an assignment of leases and rents, both from Mr. McKeever individually to NationsBank, and both dated January 30, 1995. MP & B executed a guaranty of Mr. McKeever's note, with Mr. McKeever signing the guaranty on behalf of MP & B. MP & B's guaranty was secured by a Security Agreement also dated January 30, 1995, granting NationsBank a security interest in its personal property, including furniture, fixtures, equipment, inventory and accounts receivable. Mr. McKeever signed the Security Agreement as president of MP & B.

MP & B and Viaduct

MP & B was a corporation in existence in 1995. The body shop operated on the Property and expansions and improvements were made to the Property. Mr. McKeever was the principal operator of the business. In 1998, Mr. McKeever was seriously injured, was in a coma and was incapacitated for a prolonged period of time. The corporate registration of MP & B lapsed and MP & B was administratively dissolved on July 4, 1998. Due to his injury, Mr. McKeever could no longer operate MP & B or its business and it conducted no further business. Sometime thereafter, Mr. McKeever's aunt, Delores Ellis, together with her husband Robert Ellis, began operating The Viaduct Group (“Viaduct”), which conducted a paint and body shop business on the Property just as MP & B had done. Ms. Ellis also operated a collision center at the Property called Impact Solutions. Mr. McKeever testified that MP & B effectively became a sub-landlord. Mr. McKeever testified there were a number of leases with Viaduct. However, only one lease is of record, and that is a lease attached to MP & B's proof of claim 11–1. This commercial lease is dated July 27, 2009 and is between Mr. McKeever individually as the landlord and “The Viaduct Group (Delores Ellis)” as the tenant. The lease is for a period of 10 years. There is no evidence of any leases between “The Viaduct Group (Delores Ellis)” and MP & B, or between Mr. McKeever and MP & B, or between Impact Solutions and anyone. Relevant to this matter, the lease between Viaduct and Mr. McKeever required Mr. McKeever as landlord to carry fire and casualty insurance on...