In re Brown, Bankruptcy No. 87-00238.
| Decision Date | 23 June 1988 |
| Docket Number | Bankruptcy No. 87-00238. |
| Citation | 88 BR 280 |
| Parties | In re David Henderson BROWN, M.D., aka, dba David Henderson Brown, Debtor. |
| Court | U.S. Bankruptcy Court — District of Hawaii |
Robert Matsumoto, Honolulu, Hawaii, pro se.
Anthony Rankin, Enver W. Painter, Jr., Wailuku, Hawaii, for creditor Clifford Bronson.
Thomas Leuteneker, Presley Pang, Honolulu, Hawaii, for debtor.
FINDINGS OF FACT AND CONCLUSIONS OF LAW RE: ORDER TO SHOW CAUSE
On April 26, 1988, this Court sua sponte issued an Order to Show Cause, premised on the appearance that the granting of a discharge in this case would constitute a substantial abuse of the Bankruptcy Code.
A hearing was held on May 24, 1988, at which time the Trustee, Robert Matsumoto, Esq. appeared on behalf of himself, Anthony Rankin, Esq. appeared on behalf of Creditor Clifford Bronson ("Bronson"), and Thomas Leuteneker, Esq. and Presley Pang, Esq. appeared on behalf of Debtor. At the conclusion of the hearing, the Court took the matter under advisement.
The Court having reviewed the pleadings and the record, and having heard arguments of counsel, enters the following Findings of Fact and Conclusions of Law.
1. Bronson was a newspaper reporter on Maui. On July 16, 1980, Bronson went to Debtor, an ophthalmologist, for routine cataract surgery. As a result of Debtor's negligence, Mr. Bronson suffered a total and permanent loss of vision in his right eye.
2. On June 3, 1982, Bronson filed a complaint in the Court of the Second Circuit, State of Hawaii against Debtor, alleging medical malpractice. The matter was tried before a jury and, on April 27, 1984, the jury found Debtor negligent in the care and treatment of Bronson and returned a verdict for Bronson in the amount of $386,200.00. This included substantial medical bills and lost earnings as well as general damages for loss of eyesight. On June 12, 1984, the state court entered a judgment in the amount of $474,616.43 in favor of Bronson based on the jury's verdict. While the lawsuit was pending, Bronson lost the sight of his left eye to an unrelated infection and he is now totally blind.
3. At the time that he operated on Bronson, Debtor carried no medical malpractice insurance. Thus, Bronson attempted to execute on his judgment by garnisheeing Debtor's retirement accounts. The Debtor, in turn, on August 1, 1984, moved to discharge the said garnishees on the grounds "that the funds sought to be garnished are funds in money purchase pension plans established by the United States government, that the funds are not garnishable under the provisions of the Plans and federal law, and that the funds are not payable to either defendant at this time." On January 30, 1985, the state court issued an order discharging the garnishees administering Debtor's pension plans.
4. On March 25, 1987, Debtor filed this Voluntary Petition under Chapter 7 in the Bankruptcy Court, District of Hawaii.
5. Debtor was domiciled in Hawaii on the date that he filed his petition, and elected the exemptions pursuant to 11 U.S.C. § 522(b)(2). These assets include the following:
6. A determination letter dated February 3, 1986 from the Internal Revenue Service ("IRS") indicates that the Debtor's Money Purchase Pension Plan (Employer I.D. No. 99-177405) adopted May 2, 1978 and amended June 14, 1985 conforms to the requirements of the governing portions of the Internal Revenue Code.
7. The IRA and KEOGH plans maintained for the Debtor at Charles Schwab & Co., Inc. qualify under the Internal Revenue Code.
8. A schedule of the contributions made to the Debtor's IRA, KEOGH and Money Purchase Plan indicates that a sum total of $6,000.00 was contributed to the various plans within three years prior to the filing of the bankruptcy petition.
9. The Lihue, Kaui property, Lot 3-A of the Hale Nani Tract, was acquired by the Debtor and his wife as tenants by the entirety on May 31, 1984. They contracted to buy that property by an Agreement of Sale dated August 15, 1979 and to take title as Tenants by the Entirety.
10. The Kentucky property is held by the Debtor and his wife "jointly and equally for life, with the remainder in fee simple to the survivor of them" pursuant to a Deed of Conveyance dated May 21, 1974.
11. The 501 shares of stock in Maui Optical Company, Inc. are held by the Debtor and his wife as tenants by the entirety, as indicated on the face of the stock certificate dated July 12, 1977.
12. The Debtor's residence located at Waihee, Wailuku, Maui was conveyed to the Debtor and his wife as tenants by the entirety by Deed dated July 5, 1979.
13. The Wailuku commercial property was conveyed to the Debtor and his wife as tenants by the entirety by Indenture dated October 11, 1974.
14. In the Amended Schedule of Property of Debtor filed herein on November 19, 1987, the Debtor values all of the properties listed therein in excess of $722,000.00 with nothing owed on the real properties. And, Debtor lists the value of the real properties, not at market value, but at tax assessed value.
15. The petition also lists rental income of $35,542.00 earned in 1985 and approximately $28,000.00 in 1986.
16. In the petition, Debtor lists only one debt: Bronson's judgment against Debtor. There are no other creditors scheduled by the Debtor. The IRS subsequently filed a Proof of Claim as an unsecured priority creditor for the sum of $3,173.81.
17. On at least one of his income tax returns, the Debtor claimed sole ownership of all of the 501 shares of common stock in Maui Optical Company, Inc.
18. In the money purchase pension plans established by the Debtor, the Debtor is a beneficiary as well as a co-trustee, along with his wife. The Debtor also is a plan administrator and serves on the pension committee.
19. With respect to one of the money purchase pension plans, as early as July 16, 1984, if not earlier, the Debtor had $50,000.00 approximately, if not more, with a financial institution in Switzerland called Ferrier Lullin & Cie S.A. Geneve.
20. From these money purchase pension plans, the Debtor made loans either to himself and/or his wife or to third parties as follows:
21. The Debtor and his wife also made a substantial payment in 1984 on the Kauai property of $60,000.00 which was borrowed from the money purchase pension plan. The $60,000.00 was never returned to the money purchase pension plan.
22. Debtor has not paid a cent to Bronson and has not made any effort to make any payment to Bronson. But he continues to expend $422.00 per month for the rental of an automobile and $300.00 a month for recreation.
23. Debtor is an able-bodied medical doctor, with a specialty in opthamology. He does not reveal the amount of profits from his practice, for he states that all the profits go to the payment of rents to his wife and himself as tenants by the entirety. Debtor and his wife own the property in which his office is located. In addition to his income from his medical practice, Debtor receives other income, including rent from his rental units.
24. Debtor's counsel acknowledged that the purpose of enactment of the tenancy by the entirety statute was primarily to keep the residence of a family exempt from the creditor of a single spouse so that the family will not be thrown out on the street and become destitute.
25. To the extent that the Findings of Fact constitute Conclusions of Law, they shall be so deemed.
1. Bronson is the sole creditor listed by the Debtor. Debtor has a medical practice, but no one actually knows the profits he earns, for he states "all profits go to the payment of rent." Debtor lists assets of over $722,000.00, virtually all of which is claimed as exempt.
2. There is no question that, prior to filing for bankruptcy, a debtor may convert his non-exempt property into exempt property. The leading treatise on bankruptcy has stated that 3 Collier on Bankruptcy, 522.084 (1986 ed.)
3. However, to find nearly all of Debtor's property held as exempt property through a method of holding property as "tenants by entirety" does not end the Court's inquiry to determine whether the Debtor has filed his petition in good faith, whether he requires the protection of the Bankruptcy Court. In other words, the issue is: will granting a discharge of Debtor in this particular case be an abuse of the Bankruptcy Code.
4. Good faith is an implicit jurisdictional requirement. See e.g. In re Khan, 35 B.R. 718 (Bankr.W.D.Ky.1984); In re Bingham, 68 B.R. 933 (Bankr.M.D.Pa. 1987). As the Supreme Court stated in Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d. 767 (1979):
By seeking discharge, however, the respondent placed the rectitute of his prior dealings squarely in issue, for, as the Court has noted, the Act limits that opportunity to the "honest but unfortunate debtor."
5. The primary purpose of the bankruptcy law is to give the debtor a "fresh start", free from creditor harassment and excessive debt. As stated in Local...
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