Harline v. Barker

• Decision Date: 14 February 1996
• Docket Number: 940323,Nos. 940322,s. 940322
• Citation: 912 P.2d 433
• Parties: Wesley G. HARLINE, Plaintiff and Appellant, v. Ronald C. BARKER and Larry Whyte, Defendants and Appellees. Wesley G. HARLINE, Plaintiff and Appellant, v. Pete N. VLAHOS and Vlahos and Sharp, a partnership, Defendants and Appellees.
• Court: Utah Supreme Court

Page 433

912 P.2d 433

Wesley G. HARLINE, Plaintiff and Appellant, v. Ronald C. BARKER and Larry Whyte, Defendants and Appellees.

Wesley G. HARLINE, Plaintiff and Appellant, v. Pete N. VLAHOS and Vlahos and Sharp, a partnership,

Defendants and Appellees.

Nos. 940322, 940323.

Supreme Court of Utah.

Feb. 14, 1996.

J. Bruce Reading, Wesley D. Hutchins, Salt Lake City, for Harline.

Thomas L. Kay, Mark O. Morris, Amy E. Weissman, Salt Lake City, for Barker and Whyte.

Carman E. Kipp, Michael F. Skolnick, Salt Lake City, for Vlahos.

ZIMMERMAN, Chief Justice:

This opinion addresses two appeals filed by Wesley G. Harline from separate grants of summary judgment, each in favor of the attorneys who represented Harline in connection with his bankruptcy before the U.S. Bankruptcy Court for the District of Utah. After the bankruptcy court denied Harline's bankruptcy discharge, Harline brought two legal malpractice actions, the first against defendants Pete N. Vlahos and the law firm Vlahos and Sharp (collectively "Vlahos"), and the second against defendants Ronald C. Barker and Larry Whyte. Both sets of attorneys moved for summary judgment, alleging that they were not the proximate cause of the denial of Harline's discharge. The trial court in each action granted the motion, ruling that Harline had failed to produce any record evidence that the attorneys had caused the denial of Harline's bankruptcy discharge. ¹ Harline appeals both rulings. Because each appeal raises similar claims, we consider them together and discuss pertinent differences between them in our analysis as necessary. We affirm both rulings.

" '[I]n reviewing a grant of summary judgment, we view the facts and all reasonable inferences drawn therefrom in the light most favorable to the nonmoving party.' " K & T, Inc. v. Koroulis, 888 P.2d 623, 624 (Utah 1994) (quoting Higgins v. Salt Lake County, 855 P.2d 231, 233 (Utah 1993)). Because summary judgment was entered against Harline in both cases, we state the facts in the light most favorable to him.

In February of 1986, Harline retained Vlahos in connection with his chapter 11 petition for bankruptcy. Harline gave Vlahos a list of his creditors and his assets. Vlahos filed Harline's bankruptcy petition on February 14, 1986. Five weeks later, on March 21st, Harline signed both a "Statement of Affairs for Debtor Not Engaged in Business" and schedules of his assets and liabilities. Harline's signature on each document was preceded by the statement "I, Wesley G. Harline, certify under penalty of perjury that I have read ... the foregoing ... and that [it is] true and correct to the best of my knowledge, information and belief." These documents were then submitted to the bankruptcy court.

In June of 1986, Vlahos withdrew as bankruptcy counsel for Harline, and Betty J. Marsh entered her appearance as counsel. Marsh subsequently withdrew, and in the fall of 1986, Barker and Whyte began representing Harline. ² On September 18, 1986, the bankruptcy court converted Harline's case to a chapter 7 proceeding and entered an order directing Harline and his counsel to prepare and file chapter 7 schedules and statements on or before November 18, 1986.

About two years later, in August of 1988, a hearing was held at which Harline's creditors objected to his bankruptcy discharge. By this date, Harline and his counsel still had not filed new or amended statements and schedules. At the conclusion of the hearing, the bankruptcy court orally denied Harline's discharge on the ground that there were omissions and inaccuracies in Harline's statement of affairs and bankruptcy schedules. The court based its denial of discharge on section 727(a)(2) and (4) of the Bankruptcy Code, which provides:

The court shall grant the debtor a discharge, unless--

...;

(2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, ... or has permitted to be transferred ...

(A) property of the debtor, within one year before the date of the filing of the petition; or

(B) property of the estate, after the date of the filing of the petition;

(4) the debtor knowingly and fraudulently, in or in connection with the case--

(A) made a false oath or account[.]

11 U.S.C. § 727(a).

The bankruptcy court found that Harline had failed to disclose transfers of partnership interests and real property on his March 21, 1986, statement of affairs. Specifically, Harline answered "No" when asked whether he had been engaged in a partnership or in any business during the six years immediately preceding the filing of his original bankruptcy petition. However, the court found that in January of 1985, thirteen months prior to the filing of his bankruptcy petition, Harline had assigned two partnership interests to the Weber Clinic pension plan, ³ which he should have disclosed on the statement. In addition, Harline answered "None" on the statement when asked whether he had made any transfer or other disposition of real or tangible personal property during the year immediately preceding the filing of his original bankruptcy petition. However, the court found that in January of 1985 and December of 1984, Harline executed, without consideration, four quitclaim deeds conveying real property to his children. Two of these deeds were recorded in November of 1985, three months prior to the filing of Harline's original bankruptcy petition; the other two were recorded in March and May of 1986, after Harline's petition was filed. The court held that the date the deed was recorded determined the date of each transfer and that Harline should have disclosed the real property transfers on his statement of affairs.

The court also found other omissions and misstatements in Harline's filing. Specifically, Harline owned a Merrill Lynch stock account at the time he filed his bankruptcy petition but failed to list the account on his bankruptcy schedules. In addition, immediately before and after filing his bankruptcy petition, Harline directed Merrill Lynch to cash out the account, and he used the $38,634.27 in proceeds for his personal expenses without authorization from the bankruptcy court. Finally, the court found that Harline did not reside at the address listed on his statement of affairs.

The bankruptcy court found that Harline made the transfers of property and cashed the Merrill Lynch account with the intent to hinder, delay, or defraud creditors and that he knowingly and fraudulently made a false oath by signing the statement of affairs and schedules which misstated his residence, denied the partnership and real property transfers, and omitted the Merrill Lynch account. In making these findings, the court noted that Harline had testified that he signed the statement of affairs and schedules "after only glancing through them [and t]hat he didn't read them, that he was not familiar with bankruptcy law or bankruptcy rules, but that he gave information [omitted from his statement and schedules] to his attorney." However, the court concluded:

My findings as to intent to hinder, delay or defraud creditors and knowing and fraudulent false oath are made because of the significant number of wrongful acts and the reckless indifference to the truth showed [sic] by Wesley G. Harline.

The sheer weight of the evidence gives rise to the inescapable conclusion that Wesley G. Harline acted knowingly and with the intent to avoid paying creditors with the intent to conceal property or to place the property beyond the reach of creditors.

The Court therefore will not grant to the debtor a discharge. Discharge will be denied.

After the bankruptcy discharge ruling, Harline's attorneys moved to alter or amend the judgment. The motion addressed all the bases the judge gave for his ruling: Harline contended that the real property transfers to his children occurred on the dates Harline conveyed the deeds and not on the dates the deeds were recorded; that liquidating the Merrill Lynch stock account constituted an exchange of assets rather than a transfer; and that Harline did not knowingly and fraudulently make a false oath because he provided his attorneys with all of the information for his statement of affairs and schedules advised them of subsequent changes, did not himself prepare or file the statement and schedules, was unfamiliar with bankruptcy rules, relied on the advice of counsel, was unaware that the statement and schedules contained erroneous information, and signed the schedules after only briefly glancing through them. The bankruptcy court denied the motion to alter or amend the judgment. Harline's attorneys then appealed, and in May of 1989, the federal district court dismissed Harline's appeal, affirming both the denial of discharge and the denial of the motion to alter or amend.

Harline next filed a malpractice lawsuit in state court in January of 1990, alleging that Vlahos' negligent preparation of Harline's statement of affairs and schedules directly resulted in the denial of Harline's bankruptcy discharge. ⁴ In December of 1990, Vlahos filed the first of three motions for summary judgment, contending that Harline's suit was barred by equitable and collateral estoppel and that even if Vlahos was negligent, that negligence was not the proximate cause of Harline's denial of discharge. ⁵ The district court denied the motion in June of 1991.

Meanwhile, in November of 1990, Harline filed a second malpractice lawsuit in state district court against Barker and Whyte, alleging that their failure to prepare an amended or new statement of affairs and schedules resulted in the denial of Harline's discharge. ⁶ Barker and Whyte filed their first motion for summary judgment, alleging that Harline's claims were barred by equitable estoppel, that they had no duty to amend the schedules, and that they were not the proximate cause of the denial of Harline's discharge. The trial court...