In re Bluestone
| Decision Date | 13 June 1989 |
| Docket Number | Bankruptcy No. B88-02862,Adv. No. B88-468. |
| Citation | 102 BR 103 |
| Parties | In re Richard Alan BLUESTONE, Debtor. L.B. CLEVELAND, INC., Plaintiff, v. Richard Alan BLUESTONE, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
Curtis P. Stranathan, Cleveland, Ohio, for plaintiff.
Thomas C. Pavlik, Sindell, Rubenstein, Einbund, Pavlik, Novak & Celebrezze, Cleveland, Ohio, for defendant.
This matter is before the Court upon the Complaint of L.B. Cleveland (Cleveland), Creditor, objecting to discharge of the above-styled Debtor. A trial was held with due notice having been made upon all parties entitled thereto. After reviewing the testimony, admitted evidence, and the record of this matter, the following constitutes the Court's findings and conclusions pursuant to Rule 7052, Bankr.R.:
I.
Richard Alan Bluestone (Debtor) filed a voluntary petition seeking relief under Chapter 7 on August 1, 1988. Cleveland then filed the instant complaint objecting to discharge pursuant to 11 U.S.C. § 727(a)(2), (a)(4), and § 548.
Cleveland is a creditor of Debtor by virtue of a contingent unliquidated claim for $3 Million based upon a complaint presently pending in the State Court. See consolidated Case Nos. 110248 and 124623, amended complaint filed October 15, 1987. Debtor's objection to this claim was overruled by this Court.
II.
Cleveland bases its objection to discharge on two Code sections. First, it alleges that Debtor's transfer of the family home to his wife on or about June 9, 1988 was done with the intent to hinder, delay or defraud creditors within one year before the filing of the petition pursuant to §§ 548 and 727(a)(2) of the Bankruptcy Code. The Debtor contends that the transfer to his wife of his one-half interest in the real property was done as part of a partial property settlement agreement entered into between him and his wife on June 7, 1988, and was not done with any fraudulent purpose.
Second, Cleveland seeks to have the Debtor denied a discharge for failure to include certain assets in his schedules, pursuant to § 727(a)(4). Cleveland characterizes the transfer of at least $30,000.00 from the Debtor to his wife and her mother in 1985 as a transfer without consideration. Purportedly, the funds were used by the recipients to purchase 15% of the stock of Galvco, Inc., a corporation owned by Debtor's brother. Cleveland further contends that the Debtor claims that Defendant has a continuing interest in this stock, that it should have been listed in Debtor's schedules, and that Debtor's failure to include his interest in the stock was for the purpose and with the intent of hindering, delaying or defrauding creditors. Debtor states that the $30,000.00 payment was for antecedent debts, for money that he had borrowed from his wife and mother-in-law. He denies any interest in the stock.
The Court can consider only the allegations raised under § 727(a)(2) and (a)(4) by Cleveland since Cleveland has no standing to seek avoidance of an alleged fraudulent transfer under § 548. An action to set aside a fraudulent transfer must be brought in the name of the bankruptcy estate as the real party in interest. See In re Macloskey, 66 F.Supp. 610, 612 (N.J. 1946); In re Toledo Equipment Co., Inc., 35 B.R. 315, 317 (Bankr.N.D. Ohio 1983); In re Curry & Sorensen, Inc., 57 B.R. 824, 828, 829, 14 B.C.D. 103 (9th Cir. BAP 1986). Consequently, the issues before the Court are whether Debtor's transfer of his home was done with the intent to hinder creditors and whether he made a false oath by failing to include assets of the estate on his petition.
III.
Certain basic facts are stipulated or undisputed. Debtor and his wife were married on December 23, 1972. They purchased the marital residence at 5986 Ashcroft Drive, Mayfield Heights, Ohio, on October 4, 1974 in both their names. On January 29, 1982 Debtor conveyed his interest to his wife by quit claim deed. On March 19, 1985 his wife reconveyed one-half interest in said property to him. On June 9, 1988 Debtor reconveyed his interest back to his wife pursuant to a partial property settlement agreement entered into between him and his wife on June 7, 1988 in contemplation of an impending divorce. (See Plaintiff's Deposition Ex. 8). On July 12, 1988 a divorce action was filed between Debtor and his wife which became final in December, 1988. Two children were born of their marriage in 1979 and 1981 and are presently living with their mother in the marital home.
Debtor was employed by Cleveland from the age of 21 until he was terminated in April, 1985. His brother, Leonard Bluestone, incorporated Galvco, Inc. in April, 1985, and Debtor began working for Galvco in 1985 after being unemployed for several months (Debtor, Cross-Exam).
Debtor transferred the following sums to his wife, Natalie Bluestone, and his mother-in-law, Gertrude Sherr:
Check Date Payee Amount
183 7-16-85 Natalie Bluestone $10,000.00
185 7/28/85 Natalie Bluestone $10,000.00
187 7/31/85 Gertrude Sherr $10,000.00
(Plaintiff's Deposition, Ex. 13)
The share journal of Galvco reveals the following purchases of Galvco stock:
7-18-85 Natalie Bluestone 20 Shares
7-27-85 Mathew Bluestone (son) 20 Shares
7-29-85 Beth Bluestone (daughter) 20 Shares
8/5/85 Gertrude Sherr 20 Shares
(Id., Ex 10)
Debtor states that the sums transferred were for antecedent debts, for money that he had borrowed from his wife and mother-in-law. He was unable to specify the exact amounts he had borrowed but testified that the $30,000.00 repaid represented both money borrowed and potential earnings on those borrowings. (Debtor's deposition, October 6, 1988, p. 24). There was no written documentation of these debts. (Id., pp. 18, 108). The source of the money used to repay these debts was banks, credit cards and personal lines of credit. (Id. pp. 25-26, 108-110).
IV.
Section 727 of the Bankruptcy Code 11 U.S.C. § 727 addresses the issuance of a discharge under Chapter 7 proceedings. In pertinent part, § 727(a) provides:
In other respects, § 727 provides:
Debtor testified that he has lived with his mother on Mayfield Road since June of 1988 (Debtor, X-Exam.) yet his schedule of affairs filed July 29, 1988 states that he lives at the Ashcroft address (Statement of Financial Affairs # IC). Debtor further testified that he continued to spend some nights at the Ashcroft address in the Fall of 1988 (Deposition, October 8, 1988, p. 28). Debtor failed to list the transfer of his one-half interest in the residence within one year prior to filing. (Statement of Financial Affairs, # 12b). No amendments were filed to these schedules, and Debtor testified that his schedule was correct. (Debtor, X-Ex.) Debtor's counsel attempted to explain that the transfer of property was contained in the divorce decree, which action was listed in the Statement of Affairs under # 10. The Court does not find this explanation convincing, first, because it ignores the plain language of # 12(b), and second, because the actual transfer of the property took place in June, 1988, prior to the domestic relations action commencing in July, 1988. Since the property had already been fully transferred and recorded prior to the filing of the divorce action, Debtor's reliance on In re Washington, 623 F.2d 1169 (6th Cir.1980) cert. den. Wasserman v. Washington, 449 U.S. 1101, 101 S.Ct. 896, 66 L.Ed.2d 826 (1981) is misplaced. Even though the judgment entry in the divorce action ordered the Debtor to quit-claim his interest in the Ashcroft property within five days, that order had no effect since the property had already been transferred. (See DX 1, DX 3).
IV.
This adversary matter is a core proceeding pursuant to provisions of 28 U.S.C. § 157(b)(2)(J), with jurisdiction further conferred under 28 U.S.C. § 1334 and General Order No. 84 of this District.
Pursuant to Rule 4005, Bankr.R., the burden of proof in objecting to a discharge is upon the Plaintiff. That burden must be established by clear and convincing evidence. In re Lineberry, 55 B.R. 510, 511 (Bankr.W.D.Ky.1985); In re Cohen, 47 B.R. 871, 12 B.C.D. 1210 (Bankr.S. D.Fla.1985); In re Mayo, 94 B.R. 315, 18 B.C.D. 931 (Bankr.D.Vt.1988). While the ultimate burden of proof in a suit to bar a discharge under § 727 is on the plaintiff, the burden shifts to the debtor to make a credible explanation of his actions once the plaintiff has established a prima facie case. In re Martin, 698 F.2d 883, 887 (7th Cir. 1983). To discern whether the requirement of § 727(a)(2) and (4) have been sustained, the Court necessarily must consider the evidence and adduced testimony to determine whether the element of intent was sufficiently established under § 727(a)(2) as well as determining whether the debtor knowingly and fraudulently committed the proscribed acts, pursuant to § 727(a)(4).
Debtor contested the admission of testimony taken at a R.2004(a) deposition prior to the filing of this adversary proceeding. The Court finds that admission of such testimony is proper. See Sampsell v. Anches, 108 F.2d 945 (9th Cir., 1939) (...
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