Grassmann v. Brown (In re Brown)

• Decision Date: 23 June 2017
• Docket Number: Adv. Pro. 16–01041–SAH,Case No. 15–14320–SAH
• Citation: 570 B.R. 98
• Parties: IN RE: Thomas W. BROWN and Sandra D. Brown, Debtors. Robert S. Grassmann and Laura Grassmann, Plaintiffs, v. Thomas W. Brown and Sandra D. Brown, Defendants.
• Court: U.S. Bankruptcy Court — Western District of Oklahoma

570 B.R. 98

IN RE: Thomas W. BROWN and Sandra D. Brown, Debtors.

Robert S. Grassmann and Laura Grassmann, Plaintiffs,

v.Thomas W. Brown and Sandra D. Brown, Defendants.

Case No. 15–14320–SAH

Adv. Pro. 16–01041–SAH

United States Bankruptcy Court, W.D. Oklahoma.

Signed June 23, 2017

Mark W. Kuehling, KuehlingSexson, P.C., Oklahoma City, OK, for Plaintiffs.

Gary L. Morrissey, Oklahoma City, OK, for Defendants.

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT [DOCS. 14, 15] AND SUPPLEMENT TO PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT [DOC. 27]

Sarah A. Hall, United States Bankruptcy Judge

Before the Court are the:

1. Complaint [Doc. 1], filed by plaintiffs Robert S. Grassmann and Laura Grassmann ("Plaintiffs") on April 1, 2016;

2. Defendant's [sic] Answer to Complaint to Determine Exception to Discharge [Doc. 7], filed by defendants Thomas W. Brown ("T Brown") and Sandra D. Brown ("S Brown"; T Brown and S Brown collectively, "Defendants") on May 4, 2016;3. Defendant's [sic] Motion for Summary Judgment, Supporting Brief and Notice of Opportunity for Hearing [Doc. 14], filed by Defendants on October 7, 2016 ("Defendants Motion");

4. Plaintiff's [sic] Motion for Summary Judgment, Brief in Support and Notice of Opportunity for Hearing [Doc. 15], filed by Plaintiffs on October 13, 2016 ("Plaintiffs Motion");

5. Response of the Plaintiffs to Defendants [sic] Motion for Summary Judgment [Doc. 19], filed by Plaintiffs on October 21, 2016 ("Plaintiffs Response");

6. Defendant's [sic] Objection to Plaintiff's [sic] Motion for Summary Judgment and Supporting Brief [Doc. 21], filed by Defendants on October 27, 2016 ("Defendants Response");

7. Supplement to Plaintiff's [sic] Motion for Summary Judgment [Doc. 27], filed by Plaintiffs on April 7, 2017 ("Plaintiffs Supplement"); and

8. Defendants [sic] Objection to Plaintiff's [sic] Motion for Summary Judgment and Supporting Brief [Doc. 29], filed by Defendants on April 19, 2017.

JURISDICTION

The Court has jurisdiction to hear this Complaint pursuant to 28 U.S.C. § 1334(b), and venue is proper pursuant to 28 U.S.C. § 1409. Reference to the Court of this matter is proper pursuant to 28 U.S.C. § 157(a), and this is a core proceeding as contemplated by 28 U.S.C. § 157(b)(2)(H). Furthermore, Plaintiffs and Defendants consent to entry of final orders and judgment by the Court in this adversary proceeding [Doc. 10].

INTRODUCTION

Plaintiffs purchased real property from Defendants by warranty deed, purportedly free and clear of all liens and encumbrances. In reality, however, Defendants failed to disclose a valid existing lien on the property and further did not pay off the lien with the proceeds following the sale. Therefore, Plaintiffs sued Defendants in state court for breach of contract and fraud, but Defendants filed their chapter 7 petition before a final judgment could be entered. After Plaintiffs filed this adversary proceeding, the Court granted relief from the automatic stay to allow the state court litigation to be concluded. Plaintiffs now have a final state court judgment against Defendants and seek a nondischargeability determination with respect thereto pursuant to 11 U.S.C. § 523(a)(2). Plaintiffs also seek to deny Defendants their discharge pursuant to 11 U.S.C. § 727(a)(2), (4) and (5).¹

UNDISPUTED MATERIAL FACTS

For purposes of Plaintiffs Motion and Defendants Motion, the Court finds that no genuine dispute exists as to the following material facts:

1. Defendants, via their business Brown's Funeral Parlor, LLC, previously owned a funeral home in Wellston. The real property was foreclosed upon by Stroud National Bank and sold through a sheriff's sale in April 2014. Defendants Response, Exhibits 2, 6, 7, and 8. On their 2015 federal tax return, Defendants reported the transaction and also claimed depreciation deductions with respect to the real property. Plaintiffs Motion, Exhibit 17.

2. On February 23, 2015, Defendants sold and conveyed certain real property located on Highway 66 in Chandler, Oklahoma (the "Property") to Plaintiffs, representing and warranting the Property to be free and clear of all judgments, liens, and encumbrances. Plaintiffs Motion, Exhibits 1 and 2.

3. On February 23, 2015, Defendants received net proceeds from the sale of the Property (after payment of a first mortgage) in the amount of $143,468.09 (the "Sale Proceeds"). The Sale Proceeds were divided between T Brown and S Brown at closing, with each receiving approximately $71,734.05. Plaintiffs Motion, Exhibits 3 and 4.

4. At the time of the sale, the State of Oklahoma, specifically the Oklahoma Funeral Board ("OFB"), held a judgment lien on the Property (the "OFB Lien"). The OFB Lien arose from a default judgment in the amount of $42,000 entered against T Brown on June 14, 2004. Plaintiffs Motion, Exhibit 5.

5. Defendants failed to pay off the OFB Lien following sale of the Property. Defendants Response at 2, ¶ 6.

6. On April 22, 2015, S Brown gave a cashier's check to her son Carson Brown in the amount of $81,639.24, which included her share of the Sale Proceeds. The check was subsequently endorsed over to T Brown who cashed it. Plaintiffs Motion, Exhibits 9 and 10; Defendants Response, Exhibit 2.

7. On April 23, 2015, Plaintiffs filed suit in the District Court of Lincoln County, Oklahoma (the "State Court") to recover the amount required to release the OFB Lien (the "State Court Action"). Plaintiffs Motion, Exhibit 6.

8. On May 7, 2015, the State Court entered a restraining order directing Defendants to deposit the Sale Proceeds into court and to provide an accounting of any funds that were missing thereafter. Plaintiffs Motion, Exhibit 7.

9. Defendants did not deposit any funds into court, and the accounting they provided (the "Accounting") indicated the Sale Proceeds had been spent within ninety (90) days after the sale. Plaintiffs Motion, Exhibit 8.

10. The expenditures from the Sale Proceeds identified by Defendants on the Accounting include: home purchase $30,000; automobile purchase $5,000; repayment of loans from various individual persons totaling $26,320.50; payments to or on behalf of Defendants' son totaling $5,602; vacation and fishing trip expenses totaling $5,600; and "gambling losses at Chandler, Shawnee, and Watonga of approximately $30,000 to $40,000." Plaintiffs Motion, Exhibit 8. In all, the Accounting filed by Defendants generally lists expenditures totaling approximately $132,069 and otherwise states the remainder of the Sale Proceeds was spent on miscellaneous "expenses for sons and day to day living expenses, meals, travel and entertainment." Plaintiffs Motion, Exhibit 8. However, the Accounting contains no details and is supported by no documentation whatsoever.

11. The "home purchase" identified on the Accounting was a single family dwelling located at 321 West First Street in Chandler, Oklahoma (the "Chandler House"), purchased for $30,000, on April 10, 2015, by T Brown in the name of the Sandra Delane Brown Revocable Trust. Defendants Response, Exhibit 2 at ¶ 6.

12. Two transfers from the Sale Proceeds were not specifically disclosed on the Accounting:

a. On April 23, 2015, S Brown gave $4,000 to her son Isaac Brown to purchase a vehicle. Plaintiffs Motion, Exhibit 10.

b. During the period March to May 2015, T Brown made gifts of cash to his son Isaac Brown in the approximate amount of $9,300. Plaintiffs Motion, Exhibit 11. The Accounting states only "Advancement for business expenses." Plaintiffs Motion, Exhibit 8.

13. On October 12, 2015, First American Title Insurance Company ("First American"), a nonparty to this case, paid $25,000 to the OFB to secure a release² of the OFB Lien. Defendants Motion, Exhibits 5 and 6.

14. Plaintiffs have been reimbursed for any payment they may have made to OFB. Plaintiffs Response at 4, ¶¶ 5 and 6; Defendants Motion, Exhibit 6.

15. Plaintiffs filed a motion for summary judgment in the State Court Action, and a hearing was held on November 4, 2015. Plaintiffs Supplement, Exhibit 18.

16. Defendants filed their chapter 7 petition ("Petition") on November 9, 2015 (the "Petition Date"). [Doc. 1, Bky. Dkt.]. T Brown filed a joint bankruptcy case using his power of attorney for S Brown without her knowledge. S Brown was not aware of the bankruptcy filing until shortly before the Section 341 meeting on December 8, 2015. Defendants Response, Exhibit 2.

17. The Petition listed the residential address for both Defendants as the Chandler House, with respect to which a homestead exemption was claimed on Schedule C. [Doc. 1, Bky. Dkt.]. However, neither Defendant ever resided in the Chandler House. Plaintiffs Motion, Exhibit 12.

18. Defendants scheduled Plaintiffs as unsecured creditors [Doc. 1 at 18, Bky. Dkt.], and Plaintiffs filed a proof of claim on June 15, 2016. Claim 2–1 [Claims Register, Bky. Dkt.]. Defendants did not file an objection to Plaintiffs' proof of claim, and it is deemed allowed.³ Trustee's Final Report [Bky. Dkt. 39].

19. Defendants did not schedule the following assets:

a. A 2012 Nissan owned by S Brown that is encumbered by a loan in favor of Tinker Credit Union in the amount of $20,490. Plaintiffs Motion, Exhibit 14.

b. A 2001 (or 2002) Suburban purchased in the Spring of 2015 for between $5,000 and $5,500 by T Brown. However, according to him, the Suburban is owned by Stems and Stones, a business in which T Brown has an interest. Plaintiffs Motion, Exhibit 15.

c. Various items of office equipment and furnishings under the control of T Brown. Defendants Response, Exhibit 2 at ¶ 7.

20. On November 12, 2015, three days after Defendants filed their Petition, the State Court, without knowledge of the bankruptcy filing, mistakenly entered a Final Journal Entry of Judgment in favor of Plaintiffs and against Defendants in the amount of $25,000 plus costs of $273.70, and attorneys fees of $5,000. Defendants Motion, Exhibit 2.

21. On February 8, 2016, Defendants filed an amended petition, schedules, and statement of financial affairs ("Amended Petition"), correcting some of...