In re Blonder, Bankruptcy No. 90-21344. Adversary No. 91-2210.

• Decision Date: 17 March 2000
• Docket Number: Bankruptcy No. 90-21344. Adversary No. 91-2210.
• Citation: 246 BR 147
• Parties: In re Gary S. BLONDER, Debtor. Anthony Novak, Trustee, Plaintiff, v. Gary S. Blonder, Defendant.
• Court: U.S. Bankruptcy Court — District of Connecticut

246 B.R. 147 (2000)

In re Gary S. BLONDER, Debtor Anthony Novak, Trustee, Plaintiff, v. Gary S. Blonder, Defendant.

Bankruptcy No. 90-21344. Adversary No. 91-2210.

United States Bankruptcy Court, D. Connecticut.

March 17, 2000.

COPYRIGHT MATERIAL OMITTED

Martin W. Hoffman, Law Offices of Martin W. Hoffman, West Hartford, CT, for defendant-debtor.

Edward C. Taiman, Jr., Sabia & Hartley, LLC, Hartford, CT, for plaintiff-trustee.

RULING ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT ON SECOND AND THIRD COUNTS OF COMPLAINT

ROBERT L. KRECHEVSKY, Bankruptcy Judge.

I.

Creditors, on June 29, 1990, filed an involuntary petition under Chapter 7 of the Bankruptcy Code against Gary S. Blonder ("the debtor"). The court, on September 10, 1990, entered an order for relief on the petition. On the debtor's motion, the court converted the case on September 18, 1990 to one under Chapter 11, with the debtor becoming a debtor-in-possession. The court, on April 18, 1991, reconverted the debtor's case to one under Chapter 7, and Thomas M. Germain ("Germain") was appointed Chapter 7 trustee.

Germain, on August 2, 1991, filed a fourcount complaint against the debtor objecting to the granting of the debtor's discharge. The Second Count is based upon Bankruptcy Code § 727(a)(2)(B), and the Third Circuit is based upon § 727(a)(3).¹ The debtor, on December 3, 1991, filed an answer to the complaint. Anthony S. Novak ("Novak" or "the plaintiff") subsequently replaced Germain as successor trustee and as the plaintiff.

Novak, on December 9, 1999, filed a motion for summary judgment as to the Second and Third Counts of the complaint. The debtor timely filed an objection to the summary judgment motion generally contending that genuine issues of material facts exist to be tried.

II.

Section 727(a)(2)(B)

A.

The Second Count asserts that during the period the debtor was a debtor-in-possession in the Chapter 11 case, he, with intent to defraud estate creditors, transferred property of the estate. The debtor, doing business under the name of "Blonders," bought, sold and brokered vehicles, boats, furniture and antiques. The debtor also owned or controlled three corporations — Allied Scrap Iron & Metal Corp. ("Allied"), Blonder Associates, Inc. ("Associates") and Blonder Marine & Charter, Inc. ("Marine"), among others. At all times concerned, Allied and Associates were insolvent and Marine was a non-operating entity with no assets.

Prior to the reconversion of the Chapter 11 case, the debtor, without court authority, transferred at least $76,976.00 to these three corporations as loans. The corporations, in turn, used the monies, in part at least, to pay the debtor a salary. During the same period, the debtor, without court authority, borrowed at least $50,800 by utilizing his credit cards to partially fund these loans. The debtor, during this period, also maintained a personal checking account in addition to the debtor-in-possession account, and he deposited $7,801.00 of estate monies into his personal checking account and has never repaid to the estate.

The debtor owned the realty known as 741 Windsor Street, Hartford, Connecticut at which Allied was a tenant. Prepetition, Allied was paying the debtor a monthly rental of $4,200 under a lease. In November 1990, without court approval, the debtor apparently modified the lease with Allied and set a monthly rental of $1,000.00. Allied, in November 1990, paid the debtor $14,600 in salary.

The plaintiff contends that these actions by the debtor, taken together, evidence the debtor's intent to defraud estate creditors. The debtor, in response, does not meaningfully contest any of the foregoing facts alleged by the plaintiff, but counters with two arguments. First, the debtor submitted his affidavit in which he avers he "did not intent to hinder, delay or defraud a creditor or an officer of the estate charged with custody of property under Title 11 with regard to the transactions described in the Plaintiff's Motion For Summary Judgment and supporting documents." (Debtor's Affidavit at ¶ 2.) Second, the debtor asserts that the monies transferred to his three corporations were "transactions . . . in the ordinary course of the Debtor's business" and that "prior to the filing of the petition, I regularly borrowed against my credit cards to fund working capital of my companies (in particular Allied Scrap Iron and Metal, Inc.), and these companies had regularly paid me back." (Debtor's Affidavit at ¶ 6.)

B.

Fed.R.Civ.P. 56(c) provides that summary judgment shall be rendered forthwith 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. The moving party has the burden of proving that no material facts are in dispute, and in considering such a motion the court must resolve all ambiguities and draw all reasonable inferences in favor of the non-moving party. The court in deciding a summary judgment motion cannot try issues of fact, but can only determine whether there are issues of fact to be tried. Courts generally find summary judgment to be ill-suited for resolving cases involving allegations of intent to defraud.

Hirsch v. Cahill (In re Colonial Realty Company), 210 B.R. 921, 923 (Bankr. D.Conn.1997) (citations and quotations marks omitted).

Section 727(a)(2)(B) requires that actual intent to hinder, delay or defraud be established. "Constructive fraudulent intent cannot be the basis for denial of discharge, but fraudulent intent may be established by circumstantial evidence, or by inference drawn from a course of conduct. The statute is to be construed liberally in favor of debtors and strictly against the objector. . . . Because a debtor is unlikely to testify directly that his intent was fraudulent, the court may deduce fraudulent intent from all the facts and circumstances of a case." In re Devers, 759 F.2d 751, 753-754 (9th Cir.1985) (citing In re Adlman, 541 F.2d 999, 1003 (2d Cir.1976); other citations omitted). Since, for the purpose of the plaintiff's motion, the debtor's affidavit must be treated as truthful (e.g., that he had no actual intent to defraud), the debtor must be given the opportunity at trial to demonstrate the credibility of his averment, and summary judgment is not appropriate. The Second Circuit "has consistently held where subjective issues regarding a litigant's state of mind, motive, sincerity or conscience are squarely implicated, summary judgment would appear to be inappropriate and a trial indispensable." Patrick v. LeFevre, 745 F.2d 153, 159 (2d Cir.1984) (citations omitted). With regard to a motion for summary judgment involving an alleged fraudulent transfer, the Second Circuit had held "that a determination as to whether the property was transferred with actual intent to hinder the defendant's creditors involves issues of intent and credibility that were inappropriate for summary judgment and that should be resolved by the fact finder after a trial." Citizens Bank of Clearwater v. Hunt, 927 F.2d 707, 711 (2d Cir.1991).

III.

Section 727(a)(3)

A.

In the Third Count, the plaintiff asserts that the debtor failed to keep or preserve recorded information from which the following business transaction might be ascertained. The bankruptcy schedules filed by the debtor included this response to question 14(b) of the Statement of Affairs, which asked the debtor to disclose property transfers made during the year prior to the petition:

Debtor, in late 1989, transferred approximately $1,377,000.00 in antiques, paintings, and other collectibles to Blonder Associates, Inc. in repayment of a debt of approximately $2,000,000.00.

The debtor later testified during a meeting of creditors that he still owed Associates $820,000; that there were no promissory notes evidencing his debts to Associates, but that there was a confirming entry on Associates' books, and that he believed the basis of the debt were loans to him from Associates. On December 16, 1994, in response to an interrogatory to identify all documents the debtor executed in connection with debts to Associates, he responded "None." The debtor submitted to the plaintiff an 11-page document entitled, "Blonder...