In re Bryant

• Decision Date: 03 July 2012
• Docket Number: No. 11–30834–LMK.,11–30834–LMK.
• Citation: 474 B.R. 770,23 Fla. L. Weekly Fed. B 395
• Parties: In re Kenneth W. BRYANT, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Florida

474 B.R. 770

23 Fla. L. Weekly Fed. B 395

In re Kenneth W. BRYANT, Debtor.

No. 11–30834–LMK.

United States Bankruptcy Court,

N.D. Florida,

Pensacola Division.

July 3, 2012.

Lawrence B. Voit, Esq., Silver, Voit & Thompson, P.C., Mobile, AL, for Creditor.

William Ritchie, Esq., Pleat & Perry, P.A., Destin, FL, for Debtor.

John E. Venn, Jr., Esq., Pensacola, FL, for Trustee.

ORDER GRANTING MOTION TO DISMISS

LEWIS M. KILLIAN, JR., Chief Judge.

THIS MATTER came before the Court for evidentiary hearing on Wednesday, May 23, 2012, on Century Business Services, Inc.'s (“CBIZ”) Motion to Dismiss under 11 U.S.C. § 707. Appearing at the hearing were William “West” Ritchie, representing Kenneth W. Bryant (the “Debtor”), Robert James Powell, representing Christine E. Carter (“Christine Carter”) and Carter & Company, CPA, LLC (“Carter & Co.”), and Jeffrey S. Dunlap and Lawrence B. Voit, representing movant CBIZ. At the hearing the Court took testimony, received evidence, and heard argument of counsel for the Debtor and Movant. The Court had the opportunity to observe the demeanor and credibility of the witnesses, the Debtor and Christine Carter. The Court makes the following findings of fact and conclusions of law:

Procedural History

CBIZ, the movant, is a judgment creditor of the Debtor. On March 31, 2010, the United States District Court for the Northern District of Ohio entered a judgment in favor of CBIZ for two counts of breach of contract against the Debtor in the amount of $1,330,457.00. Additionally, CBIZ was awarded attorneys' fees and costs of $170,576.10. Subsequently, on May 13, 2011, the Debtor filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code in this Court.

On September 9, 2011, CBIZ filed its Motion to Dismiss the Debtor's bankruptcy case based on the grounds that the Debtor filed his case in bad faith. On April 10, 2012, the Debtor filed a Motion for Summary Judgment on the Motion to Dismiss, arguing that under 11 U.S.C. § 707(a), bad faith could not be a basis for dismissal in a non-consumer debtor case. On April 19, 2012, the Court held a non-evidentiary hearing to consider the Motion for Summary Judgment. By entry of an order on May 24, 2012, the Court denied the Motion for Summary Judgment, concluding that bad faith may justify dismissal of a Chapter 7 case when shown. On May 23, 2012, the Court held an evidentiary hearing to consider the Motion to Dismiss.

Facts

In 1997, CBIZ purchased the Atlanta-based accounting firm Smith & Radigan P.C. (“Smith & Radigan”) for $6 million. The Debtor was a former owner of Smith & Radigan and after the merger, became an executive employee at CBIZ. Under the merger, CBIZ acquired all of Smith & Radigan's assets and the former owners of Smith & Radigan, the Debtor included, received substantial amounts of cash and stocks. The Debtor received over $1 million through the merger (including $566,667 in stock and $160,000 in cash). The merger was completed with the execution of the Agreement and Plan of Merger (the “Merger Agreement”) and the Executive Employment Agreement, which contained a non-compete clause. The Debtor signed both agreements. The United States District Court for the Northern District of Ohio found that the Debtor intentionally breached these two agreements with CBIZ. First, the District Court concluded that the Debtor breached the Merger Agreement by soliciting and causing Christine Carter, the Debtor's wife, then a CBIZ employee, to leave CBIZ and join the Debtor's competing business. Second, the District Court determined that the Debtor breached his Executive Employment Agreement with CBIZ by forming a competing business and soliciting CBIZ's clients. In addition to intentionally breaching his contracts, the District Court also found that the Debtor violated the Federal Lanham Act ¹ by intentionally using CBIZ's trade name without its authorization. According to the Debtor's Schedules, CBIZ holds a $1,551,896.10, unsecured nonpriority claim against the Debtor pursuant to the Judgment.

The Debtor is a sophisticated professional and certified public accountant with over thirty years of experience in the accounting business. The Debtor graduated from Auburn University in 1979 and began his business career at Touche Ross (nka Deloitte & Touche USA LLP), an international accounting firm, in Atlanta, Georgia and then moved to Smith & Radigan where he was a partner for twelve years. The Debtor is currently a partner at Carter & Co. located in Destin, Florida, and specializes in advising real estate clients and performing financial audits. Carter & Co. is a single-member Georgia limited liability company owned by the Debtor's wife, Christine Carter, who is its only member. The Debtor is a member of the American Institute of Certified Public Accountants and the Florida Institute of Certified Public Accountants. The Debtor has, on four or five occasions, testified as an expert witness on the subject of business valuation, though he has not done so for a number of years.

Christine Carter graduated from the University of Georgia in 1992. After graduating, Ms. Carter began her career at Smith & Radigan and worked almost exclusively for the Debtor, assisting with clients such as Security Properties, Inc. (“SPI”). The Opinion entered by the Northern District of Ohio contains the testimony of certain employees of CBIZ that the Debtor indicated to them that it was his intention to take Christine Carter with him when he resigned from CBIZ. The Court found that the Debtor facilitated or induced Christine Carter's departure from CBIZ so they could begin a business together. After they resigned from CBIZ, the Debtor and Christine Carter each started their own separate accounting companies; the Debtor set up S & R Consulting and Christine Carter set up SR Allen. Although they were working under separate business names, it is clear that Christine Carter was still working for the Debtor. The two leased office space directly next to each other and shared office staff and interns. Additionally, the Debtor and Christine Carter also shared former clients of CBIZ, including SPI. Under the arrangement, Christine Carter did most of the labor work for SPI and the Debtor then paid SR Allen for the labor and reimbursed the payroll for SR Allen employees.

In 2003, during the pendency of the litigation between the Debtor and CBIZ, Christine Carter and the Debtor formed Carter & Co. Although the Debtor has over ten years more professional experience as a certified public accountant than Christine Carter, she became the sole member of Carter & Co. and the Debtor became her employee. As sole member, Christine Carter receives an additional $40,000 per month in distribution income than the debtor. Other than the income distribution, the Debtor in every other way appears to be treated as an officer. At some point between 2008 and 2010, the Debtor and Christine Carter decided not to take a monthly distribution from Carter & Co. For the past four years, when Carter & Co. filed its tax returns, it listed the compensation paid to the Debtor and Christine Carter as “Compensation to Officers.” The Debtor and Christine Carter were the only Carter & Co. personnel listed under this category. Nonetheless, Christine Carter testified that the Debtor is not an officer of Carter & Co., and reporting the Debtor's compensation in this way for the past four years to the IRS was a mistake. These tax returns were prepared by a Carter & Co. employee.

The Debtor has not made any payments towards the Judgment. CBIZ filed a judgment lien against the Debtor's home in Walton County, Florida. The Debtor never disputed the Judgment by taking an appeal. The Debtor testified that the only debts other than the Judgment he has ever had in the last twelve years are secured real estate debts. CBIZ is the only creditor that filed a proof of claim against the Debtor. The record and testimony is undisputed that the only reason the Debtor filed this bankruptcy case is to avoid paying CBIZ on the Judgment. No unfortunate circumstance has befallen the Debtor to lead him to seek bankruptcy protection from this Court. The Debtor testified, for example, that he has never incurred any substantial medical expenses. In this regard, the Debtor enjoys a medical insurance plan 100% paid by Carter & Co.

The Debtor earns $24,000 per month from his professional accounting work at Carter & Co. Similarly, Christine Carter earns $24,000 per month from Carter & Co. In addition, as the sole owner of Carter & Co., Christine Carter receives an additional $40,000 per month in distribution income. Carter & Co. derives its revenue, in part, from the very clients the Debtor took from CBIZ in violation of the Merger Agreement. Eighty percent of the Debtor's clients at CBIZ remain clients of his today at Carter & Co.

Christine Carter pays and provides for the Debtor's lavish lifestyle. The Debtor's lifestyle includes annual vacation trips abroad to France and Italy (two vacations to each within the past five years), hobbies such as deep sea fishing and aviation, and private schools and home care for his children.The Debtor and his wife spend approximately $18,000 per year on vacations alone. The Debtor's lifestyle has not changed since the Judgment or the bankruptcy filing.

The Debtor pays $3,700 per month for mortgages on a home in Santa Rosa Beach, Florida that he previously occupied with his former wife Joan Bryant (the “Home”). As of the Petition Date, the mortgage balances on the Home were $622,720, and the market value was $600,000. The Debtor's sister, Judy Saul, holds a second mortgage on the Home in the amount of $350,000. The first mortgage is held by Bank of America. The Debtor testified that he receives $1,000 per month or $12,000 per year in rental income from the Home. The Debtor did not report any rental income on his Schedules. Similarly, the Debtor did not report any rental income on his 2010 tax...