In re Booth
| Decision Date | 19 February 1987 |
| Docket Number | Adv. No. 85 G 0706.,Bankruptcy No. 85 B 04763 G |
| Parties | In re Lloyd George BOOTH, Debtor. Linda Sue BOOTH, Plaintiff, v. Lloyd George BOOTH, Defendant. |
| Court | U.S. Bankruptcy Court — District of Colorado |
Edward J. Krisor, Jr., Shoemaker, Wham & Krisor, Denver, Colo., for plaintiff.
Milnor H. Senior, III, Sally Zeman, Denver, Colo., for debtor/defendant.
The Plaintiff filed the within adversary proceeding seeking an order of this Court barring the Defendant's discharge pursuant to the provisions of Section 727 of the Bankruptcy Code and also seeking a determination of nondischargeability as to certain obligations owed the Plaintiff by the Defendant pursuant to Section 523 of the Code.
The matter came on for trial before the Court for the presentation of evidence and the introduction of exhibits. In addition, the deposition of the Defendant was introduced at the trial and has been considered by the Court pursuant to the provisions of F.R.Civ.P. 32(a)(2).
The evidence established that the Plaintiff and Defendant had been married. During their marriage, they had acquired some ranch property near Hudson, Colorado, where they had lived and engaged in farming and ranching operations. The ranching operation included the raising of horses, cattle, hay and corn. They were separated in June 1983 and the marriage was dissolved by a final order of the State Court in January of 1985. The State Court ordered the ranch property sold and the proceeds from the sale divided equally, with the Plaintiff to receive at least $30,000.00 from the sale. The Plaintiff was also awarded maintenance. After they were separated the Defendant stayed at the ranch; however, he also had a separate job as a flight simulation technician at United Air Lines from which he received net monthly income of $2,034.00. He also had some miscellaneous additional income of $130.00 a month.
The Defendant became acquainted with Vinda Smith ("Smith") in December 1983. Sometime, in approximately March or April of 1984, Smith moved onto the ranch with the Defendant, "sharing the house" with him. The Defendant and Smith agreed to an informal financial arrangement whereby the Defendant paid the mortgage and utilities and Smith paid for food, kept the house, prepared the meals and did the laundry. Starting at about the time Smith moved to the ranch, she began putting money into the operation, and also helped Defendant with the ranch operations.
During 1984 the Plaintiff and the Defendant were attempting to settle matters in their dissolution of marriage proceeding. As part of that settlement, they agreed to try to sell the ranch for $180,000.00. The Defendant testified that he and Smith, thereafter, decided they would attempt to purchase the ranch and operate it as the "Broken Arrow Land and Cattle Co." Further he testified that he and Smith intended to apply for a loan to finance the purchase and that Smith was to be a "full partner in the operation." In December 1984, the Defendant and Smith caused a corporation to be formed under the name of Broken Arrow Land and Cattle Co., but the corporation never became active. It was formed, however, with the intent of transferring the ranch to the corporation in which Smith was to be a 50% owner.
Smith testified that the money that she advanced to the Defendant were loans to be repaid by him. There was introduced into evidence two promissory notes signed by the Defendant. The first note, dated January 21, 1985, was in the amount of $12,500.00 and indicates that it was secured by the Defendant's 1984 income tax refunds. The second note, dated May 29, 1985, was in the amount of $2,000.00 and indicates that it was to be secured by the 1985 hay crop. The larger note is numbered Note # 2 and the smaller as Note # 3. Smith testified that there was a prior note in the amount of approximately $9,000.00 which was signed by the Defendant on October 4, 1984, which, she testified, was destroyed at the time the second note was executed.
Other testimony and evidence received contradicts the statements of Smith. The Plaintiff called the trustee in the case, Cynthia Skeen, who testified that at the Defendant's 341 hearing held on August 20, 1985, the Defendant stated that he gave the larger note to Smith in January 1985 and that there was no written agreement prior to that date. The Defendant did not disagree with the testimony of the trustee. Additionally, in his deposition the Defendant expressly states that he was not aware of any other notes that he had signed other than the two that were ultimately introduced at trial. He further testified that it was probably not until January 1985 that the decision was made to classify the advances made by Smith as loans. Thus it was not until the Defendant and Smith had decided that the ranch itself was lost and could not be purchased by them that Defendant then decided that Smith would not be a partner in the operation and that her advances would be treated as a debt rather than as a contribution to capital.
The Plaintiff also introduced an exhibit prepared by Smith purporting to list the monies advanced to the Defendant starting on April 12, 1984, and continuing until May 30, 1985. That exhibit had been reconstructed by Smith because, according to her testimony, the original records had been destroyed when she and the Defendant moved from the ranch in May of 1985. Nevertheless, that exhibit indicates that through October 31, 1984, the total amount purportedly advanced by Smith equalled only $5,574.11 and not the $9,000.00 which had allegedly been evidenced by a prior promissory note no longer in existence. Additionally, the Plaintiff introduced a financial affidavit dated February 2, 1984, signed by the Defendant and tendered by the Defendant at his January 1985 dissolution of marriage hearing, which purported to list all of his assets and liabilities. In that affidavit no loans from Smith are indicated.
In May 1985, the Defendant received an $8,600.00 check as a refund on his 1984 taxes. That check was endorsed to Smith and deposited by her in her separate bank account. Sometime between January and May of 1985, the Defendant also turned over to Smith a tractor, a swather, and a bailer. When asked at the deposition about the reason for the transfer of the equipment, the Defendant answered:
Well, I didn\'t have any money left. I didn\'t have enough to pay her back all of it. I thought if she could sell it, she would have that much more back on it.
From January 1984 until his bankruptcy case was filed in August 1985, the Defendant did not keep any personal financial records except for his cancelled checks and bank statements. He made no effort to keep a separate record of the funds advanced by Smith. Further, the evidence reflects that in about May 1985, Smith took over control of all of the Defendant's finances and had his paychecks deposited to her account, ostensibly because, at that time, the Defendant had had a mental breakdown and could no longer handle his affairs. The monies were co-mingled with Smith's funds and paid out at her discretion with no accounting and no apparent ability to account specifically for the Defendant's dollars.
In evaluating the Plaintiff's complaint herein, the basic inquiry starts with the provisions of Section 727(a)(2) of the Bankruptcy Code. That section provides:
The requirements of this section of the Code were expressly considered in the case of In re Greenwalt, 48 B.R. 804 (Bankr.D. Colo.1985). Greenwalt outlines the four elements which must be proved in order to sustain an objection to discharge under Section 727(a)(2). Those elements are: (1) that the act complained of was done at a time subsequent to one year before the date of the filing of the petition; (2) that the act was that of the debtor or his duly authorized agent; (3) that the act consisted of transferring, removing, destroying or concealing any of the debtor's property or permitting any of these acts to be done; and (4) that this was done with an intent to hinder, delay or defraud a creditor or an officer of the estate. Greenwalt, supra, page 806.
The party objecting to the debtor's discharge has the burden of proving that the acts complained of did, in fact, occur. Bankruptcy Rule 4005. There is a split of authority among the bankruptcy courts as to whether the proof is to be by a preponderance of the evidence (see In re Clausen, 44 B.R. 41 (Bankr.D.Mn.1984); In re Kessler, 51 B.R. 895 (Bankr.D.Kansas 1985)), or whether the objector must establish his proof by clear and convincing evidence. In re Lineberry, 55 B.R. 510 (Bankr.W.D.Ky. 1985); In re Cohen, 47 B.R. 871 (Bankr.S. D.Fla.1985). It is clear in the Tenth Circuit that the grounds for excepting a debt from discharge under Section 523 of the Code must be established by clear and convincing evidence. In re Black, 787 F.2d 503 (10th Cir.1986). An attack on dischargeability under Section 727 is much more severe in its effect than excepting a single debt from discharge under Section 523. Because of this severity, and in furtherance of the concept of a "fresh start" for debtors, it is this Court's view that the clear and convincing standard must apply in establishing proof of nondischargeability.
In Greenwalt, supra, the Court held that once there is a showing that there are reasonable grounds for believing that the debtor acted in the manner alleged, the...
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