In re Bailey, Bankruptcy No. 06-31286.

• Decision Date: 12 September 2007
• Docket Number: Adversary No. 06-3297.,Bankruptcy No. 06-31286.
• Citation: 375 B.R. 410
• Parties: In re Stephen Jerome BAILEY, Debtor. CM Temporary Services, Inc., Plaintiff v. Stephen Jerome Bailey, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

375 B.R. 410

In re Stephen Jerome BAILEY, Debtor CM Temporary Services, Inc., Plaintiff v. Stephen Jerome Bailey, Defendant.

Bankruptcy No. 06-31286.

Adversary No. 06-3297.

United States Bankruptcy Court, S.D. Ohio, Western Division, at Dayton.

September 12, 2007.

COPYRIGHT MATERIAL OMITTED

Robert A. Goering, Esq., Cincinnati, OH, for Plaintiff.

Stephen Jerome Bailey, Loveland, OH, Debtor/Defendant.

Eileen K. Field, Esq., Cincinnati, OH, for Defendant.

DECISION GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT PURSUANT TO 11 U.S.C. § 727(a)(3)

THOMAS F. WALDRON, Bankruptcy Judge.

Background

On September 14, 2006, the Plaintiff, CM Temporary Services, Inc., filed a complaint against the Debtor, Stephen Jerome Bailey (Doc. 1). The complaint in addition to seeking to have a scheduled, disputed debt of $103,944.90 found non-dischargeable pursuant to § 523(a)(2) and (4) also seeks to deny the Debtor's discharge pursuant to § 727(a)(3). On October 13, 2006, the Debtor answered, generally denying the, allegations, and asserting that the disputed debt was not the Debtor's individual debt, but a separate corporate debt of Bailey Contracting Services, Inc. ("Bailey Contracting") (Doc. 4). After a series of pre-trial conferences, the court, in a May 16, 2007 order, set a summary judgment briefing schedule on the § 727(a)(3) count (Doc. 20). On June 25, 2007, the Plaintiff filed its Motion for Summary Judgment (Doc. 23). Additionally, on June 24, 2007, the Plaintiff filed a transcript of a portion of the Debtor's deposition (Doc. 22). The parties stipulated to various exhibits (Docs. 24, 26) and facts (Doc. 25). The Debtor filed a response to the summary judgment motion on July 25, 2007 (Doc. 27), as well as an affidavit of the Debtor (Doc. 28).

Jurisdiction

This court has jurisdiction pursuant to 28 U.S.C. § 1334 and the Standing Order of Reference entered in this District. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(J).

Agreed Facts

The parties stipulated to the following relevant facts: In July 2005, the Plaintiff sued the Debtor in state court for, among other causes of action, breach of contract and conversion (Doc. 25, ¶ 7). On May 22, 2006, the Debtor filed his bankruptcy petition (Doc. 25, ¶ 1). The Debtor scheduled the claim of the Plaintiff as a disputed debt, in the amount of $103,944.90 (Doc. 25, ¶ 2). Prior to the petition date, the parties through the Debtor's company, Bailey Contracting, were involved in a business relationship in which they jointly provided employment services to an unrelated business, Berman Printing Company (Doc. 25, ¶ 3). Berman Printing Company paid for these services by checks payable to Bailey Contracting (Doc. 25, ¶ 4). Bailey Contracting was responsible for paying the Plaintiff the portion of those funds attributable to work by the Plaintiff. Id. The parties agree that all of the funds owed to the Plaintiff were not paid, but dispute the total amount due the Plaintiff (Doc. 25, ¶ 5).

The Debtor paid personal bills out of the company's account and did not have a separate personal account (Doc. 25, ¶ 6). In August 2006, the Plaintiff filed a notice of a Bankruptcy Rule 2004 examination, but the Debtor did not appear at the scheduled examination (Doc. 25, ¶ 8). On September 14, 2006, the Plaintiff filed this adversary proceeding (Doc. 25, ¶ 9). The Plaintiff deposed the Debtor on February 15, 2007, where certain records were produced, but not the complete bank records of Bailey Contracting which the Plaintiff had requested (Doc. 25, ¶ 10). The deposition was rescheduled for April 19, 2007, where the Debtor "indicated he did not have any corporate bank records," but "promised under oath to produce records of business transactions." (Doc. 25, ¶ 10, 11). See also Doc. 22, p. 10-11.

Summary Judgment Standard

This court reviewed the summary judgment standard in a recently reported decision:

The familiar standard to address the parties' filings is contained in Federal Rule of Civil Procedure 56(c) and is applicable to bankruptcy adversary proceedings by incorporation in Bankruptcy Rule 7056. Federal Rule of Civil Procedure 56(c) states, in part, that a court must grant summary judgment to the moving party if:

the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

In order to prevail, the moving party, if bearing the burden of persuasion at trial, must establish all elements of its claim. Celotex Corp. v. Catrett, 477 U.S. 317, 331, 106 S.Ct. 2548, 2556, 91 L.Ed.2d 265 (1986). If the burden is on the non-moving party at trial, the movant must: 1) submit affirmative evidence that negates an essential element of the nonmoving party's claim; or 2) demonstrate to the court that the nonmoving party's evidence is insufficient to establish an essential element of the nonmoving party's claim. Id. at 331-332, 106 S.Ct. at 2557. Thereafter, the opposing party "must come forward with `specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986) (citations omitted); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-251, 106 S.Ct. 2505, 2510-12, 91 L.Ed.2d 202 (1986). All inferences drawn from the underlying facts must be viewed in a light most favorable to the party opposing the motion. Matsushita, 475 U.S. at 586-588, 106 S.Ct. at 1356-57.

Gemini Servs., Inc. v. Mortgage Elec. Registration Sys., Inc (In re Gemini Servs., Inc.), 350 B.R. 74, 80-81 (Bankr.S.D.Ohio 2006), quoting Roberds, Inc. v. Broyhill Furniture (In re Roberds, Inc.), 313 B.R. 732, 735 (Bankr.S.D.Ohio 2004).

Issues Presented

1) Does the Plaintiff, whose debt is scheduled by the Debtor as disputed and has never been fully litigated in any forum, have standing to seek a denial of the Debtor's discharge?

2) Does 11 U.S.C. § 727(a)(3), in the circumstances of this bankruptcy case and related adversary proceeding, require the Debtor to preserve recorded information, specifically business transactions from a bank account involving the parties' funds related to a separate corporation, Bailey Contracting?

3) Within the meaning of 11 U.S.C. § 727(a)(3), was the Debtor's failure to preserve bank records concerning Bailey Contracting justified under all of the circumstances?

Issues Decided

1) The Plaintiff, whose debt is scheduled by the Debtor as disputed and has never been fully litigated in any forum, has standing to seek a denial of the Debtor's discharge.

2) 11 U.S.C. § 727(a)(3), in the circumstances of this bankruptcy case and related adversary proceeding, does require the Debtor to preserve recorded information, specifically business transactions from a bank account involving the parties' funds related to a separate corporation, Bailey Contracting.

3) Within the meaning of 11 U.S.C. § 727(a)(3), the Debtor's failure to preserve bank records concerning Bailey Contracting was not justified under all of the circumstances.

The Plaintiff is a "Creditor" and Has Standing Under 11 U.S.C. § 727(a)(3)

The Debtor argues that the Plaintiff lacks standing to prosecute a cause of action under § 727 because the Plaintiff is not a creditor in the Debtor's bankruptcy case. Specifically, the Debtor asserts that the debt in question was scheduled as a disputed debt and was never fully litigated in any forum. Further, the Debtor's position is the debt is solely the obligation of Bailey Contracting, a separate corporate entity, and, in any event, is disputed, and, therefore, the Plaintiff lacks standing to prosecute a § 727 cause of action.

Section 727(c)(1) gives a "creditor" the right to object to a debtor's discharge. The definition of "creditor" includes an "entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor[.]" 11 U.S.C. § 101(10)(A) (emphasis added). The definition of "claim" is very broad and includes a "right to payment, whether or not such right was reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured[.]" 11 U.S.C. § 101(5)(A) (emphasis added). See Johnson v. Home State Bank, 501 U.S. 78, 83, 111 S.Ct. 2150, 2154, 115 L.Ed.2d 66 (1991) ("We have previously explained that Congress intended by this language to adopt the broadest available definition of `claim.'"; citation omitted).

Consistent with the plain meaning of the definitions in the Bankruptcy Code, the court determines that the disputed nature of a debt is not a bar to the Plaintiff having standing to pursue a denial of the Debtor's discharge pursuant to § 727 and the Plaintiff is a "creditor" within the meaning of the Bankruptcy Code. Accord Solomon v. Barman (In re Barman), 244 B.R. 896, 899 (Bankr.E.D.Mich.2000); McGrath v. Moreau (In re Moreau), 161 B.R. 742, 745 (Bankr.D.Conn.1993); Amer. Motors Leasing Corp. v. Morando (In re Morando), 116 B.R. 14, 15 (Bankr.D.Mass. 1990). The Debtor also argues that the Plaintiff lacks standing because the debt is solely the obligation of a separate corporate entity, Bailey Contracting. The record establishes that the Plaintiff sued the Debtor individually in state court (Doc. 25, ¶ 7; Exhibit E) and in this court. Additionally, as further explained in this decision, this "corporate" argument is not a bar to the liability of the Debtor's individually. The debt is, as scheduled by the Debtor, simply disputed between the parties and, as noted, a creditor on a disputed debt has standing to prosecute a § 727 cause of action.

Analysis

Legal Standard — 11 U.S.C. § 727(a)(3)

11 U.S.C. § 727(a)(3) states that "[t]he court shall grant the debtor a discharge, unless ... the debtor has concealed, destroyed, mutilated, falsified, or failed...