In re Aubrey
| Decision Date | 26 February 1990 |
| Docket Number | Bankruptcy No. LA 85-18567 GM,BAP No. CC-87-1573 VJMo,Adv. No. LA 86-1326 GM. |
| Citation | 111 BR 268 |
| Parties | In re James Thomas AUBREY, a/k/a James Thomas Aubrey, Jr., Debtor. James Thomas AUBREY, Appellant, v. William J. THOMAS, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Grant D. Telfer, Coleman & Coleman, Los Angeles, Cal., for appellant.
Brent Ayscough, Ayscough & Marar, Torrance, Cal., for appellee.
Before VOLINN, JONES and MOOREMAN, Bankruptcy Judges.
Appellant debtor James Thomas Aubrey ("Aubrey") appeals summary judgment against him on four causes of action under 11 U.S.C. §§ 523 and 727. We affirm.
Appellee William J. Thomas ("Thomas") was confined in a mental institution for some eleven years. His experience was the subject of a television movie produced by Aubrey and a colleague, Ron Lyon. In 1980, Thomas sued Aubrey, Lyon, and others in state court for breach of contract and damages, alleging that the defendants breached a joint venture agreement for the production and use of the movie. Upon motion by the defendants, the court bifurcated and first tried equitable issues of dissolution of a joint venture and an accounting, resulting on July 1, 1985, in an interim ruling favorable to Thomas.
Aubrey then retained new lawyers who challenged the existence of a joint venture. The court adhered to its earlier rulings and submitted the remaining issues to a jury on July 29, 1985, which returned a special verdict favorable to Thomas on August 23, 1985. The jury found that Aubrey was "guilty of conversion," proximately causing Thomas $39,000 in monetary damages. The jury found further that Aubrey's tortious conduct was "oppressive," for which punitive damages were assigned by the judge.
The court's final judgment of October 1, 1985, inter alia dissolved the joint venture; awarded Thomas $123,201.50 in unpaid profits and $2,750 in unpaid fees; and additionally awarded Thomas $39,000 compensatory and $400,000 punitive damages for conversion and $9,059.09 in costs. An appeal of the judgment is pending, but has been inactive since Aubrey's lawyer withdrew.
On August 27, 1985, shortly after the state jury verdict was announced, Aubrey executed two deeds of trust affecting his California real estate in which he could otherwise have claimed an equity of about $1,100,000. The trust deeds were made in favor of "Noble, Lenal and Kenbashe, Ltd." ("Noble"), identified as a California corporation, to secure an alleged debt of $950,000. The debt was allegedly incurred in 1981 in connection with a gold purchase financed by Noble or an affiliate doing business in Switzerland. On October 7, 1985, Aubrey recorded in California a UCC-1, also in favor of Noble, affecting all his personal property, consisting of numerous and otherwise significantly unencumbered business and investment interests. Aubrey later testified that "upon discovery of a Superior Court Judgment taken against me by Mr. Thomas pursuant to the Lawsuit, the trading firm of Noble, Lenal & Kenashe, Ltd., required me to encumber a substantial amount of my assets in their favor pursuant to an earlier gold transaction." With respect to supplemental proceedings in state court and later discovery-related and summary judgment motions in bankruptcy court, Aubrey did not provide any identifiable documentation of any transactions with the Noble firm or of the firm's existence.
On December 17, 1985, Thomas filed an involuntary petition under Chapter 7 against Aubrey. The trustee, Max Rush, later sued and obtained default judgments, voiding the transfers to Noble as fraudulent conveyances and preferences.
On May 13, 1986, Thomas commenced an adversary proceeding against Aubrey under §§ 523 and 727 of the Bankruptcy Code1 to prevent discharge of his state court judgment claim. He alleged seven grounds for relief and obtained summary judgment on four, after which he dismissed the remaining three. The four successful grounds for summary judgment were (1) § 523(a)(6) () for conversion, citing the verdict and judgment of the state court and jury; (2) § 523(a)(4) (), the state court results dissolving the joint venture, and on Aubrey's position as the de facto managing officer of the joint venture and the alleged abuse of his position; (3) § 727(a)(2) (), citing Aubrey's execution of the deeds of trust and UCC-1 in Noble's favor; and (4) § 727(a)(4) (), noting the lack of documentation of any debt to Noble, for scheduling a nonexistent debt to Noble and for testifying as to nonexistent gold transactions.
A substantial portion of the record relates to Thomas' unsuccessful efforts to obtain discovery of Aubrey's financial affairs, particularly as to any transactions with Noble. Thomas moved to strike Aubrey's answer and disallow any defenses, as sanctions for Aubrey's failure to comply with an order compelling discovery of his dealings with Noble. The court considered that motion simultaneously with Thomas' motion for summary judgment. Although Thomas contends on appeal that he obtained judgment based on either the summary judgment motion or the motion seeking sanctions, the court in fact denied the latter motion after finding that no documents relating to the Noble transactions existed.
The successful summary judgment motion was supported by the state court special jury verdict and judgment; orders "releasing" Aubrey's attorneys from the state court appeal; copies of documents concerning Aubrey's transfers to Noble; and financial statements, letters, affidavits, and transcripts of depositions relevant to Aubrey's claim that he was indebted to Noble with respect to purchase of gold bullion.
Aubrey's opposing affidavit asserted that he never intended to enter into a joint venture with Thomas; that his usual practice was instead to make an outright purchase of story rights; and that he granted security interests to Noble as an existing creditor at its insistence when it learned about the judgment in Thomas' favor, but did not transfer title and did not intend to "delay, hinder, or defraud Mr. Thomas, or any other creditor."2 Aubrey asserted additionally that the foundation for any state court findings, based upon a joint venture between Thomas and Aubrey, was an unauthorized stipulation by his former lawyers.
By way of reply and to counter the denial of a joint venture, Thomas offered portions of the state court record, which indicated that initial defense theories and strategies revolved around the position that the parties were part of a joint venture and Thomas' action for damages was therefore precluded. Upon Aubrey's subsequent challenge to the existence of a joint venture, the judge in effect estopped Aubrey, noting that weeks were spent on a bench trial, upon Aubrey's motion over Thomas' objections, for preliminary resolution of equitable issues and that substantial evidence of a joint venture existed, including records maintained by Aubrey.
When partly granting Thomas' summary judgment motion, the bankruptcy court indicated that the state court judgment as it related to conversion and failure to account within a joint venture established prima facie cases under the dischargeability causes and thus required Aubrey to come forward with evidence that would be exculpatory under the Bankruptcy Code. The bankruptcy court found ultimately that Aubrey failed to raise any triable issues of fact simply by denying in his affidavit that there was a joint venture.
As to the objections to discharge under §§ 727(a)(2) and (a)(4), Thomas offered, inter alia, conflicting deposition testimony about the gold trading by Aubrey, one of his associates, and his accountant. The court explicitly relied instead upon Aubrey's failure to come forward with any documentation of his alleged gold loan and his admission that he executed the deeds of trust and UCC-1 at Noble's insistence to protect it with respect to Thomas' judgment. Without explicitly invoking the doctrine, the court in effect took judicial notice that a $950,000 loan for purchasing gold should be documented in some fashion. She inferred from the lack of documentation that no transaction of that nature occurred. The court inferred also from the timing of execution of the transfer documents, as well as Aubrey's admissions about his reasons for the transfers, the necessary wrongful intent under § 727(a)(2), and concluded that listing a nonexistent debt in his verified schedules constituted a false oath.
The court's findings and conclusions and judgment were entered on May 13, 1987. Aubrey timely filed his notice of appeal on May 21, 1987. He named Thomas and the trustee as appellees, but only Thomas has responded.
Aubrey, as appellant, argues primarily that he is entitled to a trial because of his assertions that no joint venture with Thomas was formed, and that Aubrey, in fact, is indebted to Noble. He argues further that Thomas has the burden under § 523(a)(6) of proving Aubrey's specific intent to injure him and that the bankruptcy court's reliance on the state court record to establish this element was improper and misplaced. Appellee Thomas emphasizes Aubrey's failure to support his positions with evidence. Additionally, he contends that the appeal is frivolous and made in furtherance of what he characterizes as Aubrey's fraudulent and criminal activities.
The inter-related issues presented are whether Thomas, in seeking summary judgment, made a sufficient record on each cause of action, and whether Aubrey raised any genuine issues of material fact on dischargeability by simply denying any joint...
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