In re Cook

Decision Date19 March 1991
Docket NumberBankruptcy No. 88-62351,Adv. No. A-89-6043,A-90-6018.
Citation126 BR 261
PartiesIn re Michael Gay COOK, Debtor. HUBBELL STEEL CORPORATION, Plaintiff, v. Michael Gay COOK, Defendant. Caroline COOK, Plaintiff, v. HUBBELL STEEL CORPORATION and Dale Industries, Inc., Defendants.
CourtU.S. Bankruptcy Court — Eastern District of Texas

William Chris Wolffarth, True, Rohde & McLain, Dallas, Tex., for Hubbell Steel Corp.

Michael Gay Cook, pro se.

Joseph E. Ackels, Dallas, Tex., for Caroline Cook.

OPINION

DONALD R. SHARP, Bankruptcy Judge.

This matter came on for consideration of Plaintiff, Hubbell Steel Corporation's Complaint objecting to discharge pursuant to a regularly scheduled hearing on May 17, 1990, in Tyler, Texas. Also before the Court is a removed state court action filed by Plaintiff, Caroline Cook, alleging various state law violations by Defendants, Hubbell Steel Corporation and Dale Industries. This opinion constitutes findings of fact and conclusions of law in accordance with Bankruptcy Rule 7052 and disposes of the issues presented to the Court.

FACTUAL AND PROCEDURAL BACKGROUND

Michael Gay Cook, hereinafter ("Debtor"), filed a Petition in Chapter 7 in this Court on October 25, 1988. On January 20, 1989, Hubbell Steel Corporation, hereinafter ("Hubbell"), filed a Complaint Objecting to Discharge of the Debtor. The Complaint of Hubbell was amended on September 1, 1989. The Complaint of Hubbell relates to allegations that Debtor's discharge in bankruptcy should be denied pursuant to § 727(a)(2), (3) and (5) in addition to alleging that Debtors actions vis-a-vis Hubbell rise to the level to deny Debtor a discharge of the debt owed to Hubbell pursuant to § 523(a)(4).

Debtor's difficulties with Hubbell began in and around 1984 while Debtor, as an insurance agent, was writing policies for Hubbell and some of its related businesses. From the testimony, it is clear that in and around late 1984 and early 1985, a dispute began to arise between Debtor and Hubbell when it was discovered that even while binder insurance coverage was issued to Hubbell the insurance policies themselves were never issued. The basic reason for the non-issuance of the policies was that the issuing companies claimed not to have received the premium payments submitted by Hubbell to Debtor.1 In the subsequent course of events, Hubbell's insurance coverage was promptly cancelled which forced Hubbell to seek coverage elsewhere at a significantly higher cost.

The dispute between Debtor and Hubbell culminated in the filing of a state court lawsuit brought by the issuing insurance company against Hubbell and Debtor. Hubbell cross-claimed Debtor complaining that Debtor misappropriated the insurance premiums paid by Hubbell. Debtor failed to contest the action and default was entered. On February 29, 1988, the 162nd Judicial District Court for Dallas County, Texas, finalized an interlocutory default judgment issued against Debtor by Hubbell. The judgment awarded monetary damages to Hubbell for damages suffered as a result of Debtor's actions.

During the initial stages of Debtor's difficulties with Hubbell, Debtor was residing in a Winter Park, Florida property which he had purchased on June 15, 1983. On August 23, 1985, Debtor transferred the property, hereinafter ("the Florida property"), to his daughter, Caroline Cook, as a wedding present. The gift was entirely gratuitous, no consideration being exchanged and Debtor continued to make the mortgage payments on the property. Even though the title to the Florida property was now held by Caroline Cook, Debtor continued to live there. From the testimony, it appears that not only did Caroline Cook never live in the Florida property but that it is questionable whether she even saw it. Debtor had earlier demonstrated his largesse in October 1984 when Debtor purchased a small rural property in Henderson County, Texas. The property consisted of a mobile home and some attached acreage. Again, the property was subsequently transferred to Caroline Cook for no consideration and it is undisputed that record title to the Henderson County property is vested in Caroline Cook.

During the period between 19841988, Debtor's financial well being had been on a steady decline, much of which can be attributed to Debtor's difficulties with Hubbell as well as a general down turn in the insurance market in which Debtor operated. As a result, Debtor began to have difficulty paying the mortgage on the Florida property that he had given to his daughter, Caroline Cook. It appears from testimony that Debtor discussed this dilemma with Caroline Cook and that a decision was made to sell the property. Subsequently, Caroline Cook granted Debtor a written power of attorney authorizing him to sell the Florida property. The sale was completed in late December 1987 yielding the sum of approximately $57,000.00 in proceeds.

By this time, Debtor's economic health was in dire straits. Debtor's testimony, as corroborated by Caroline Cook, indicates that an informal understanding was reached between the parties that the proceeds from the sale of the Florida property would be used by Debtor at Debtor's discretion. No written document evidencing a loan was ever entered into and Caroline Cook testified that she never expected that Debtor was to repay her notwithstanding Debtor's statement of his intention to do so. The only agreement Caroline Cook requested of Debtor was that enough funds be set aside to pay any tax obligations arising from the sale of the Florida property.

After the sale of the Florida property, Debtor began to reside in the Henderson County property he had purchased for Caroline Cook in October 1984. During this time, Debtor lived off of the proceeds of the sale of the Florida property while he pursued a writing career. During this time, Hubbell was still in the process of attempting to collect its judgment of February 29, 1988. During a July 8, 1988, Hubbell deposition, Debtor testified that approximately $33,000.00 of the proceeds remained at the Henderson County property. Further testimony revealed that after the sale, Debtor had converted the proceeds into cash in denominations of one hundred dollar bills. This cash was kept in a portable safe in the mobile home on the Henderson County property. The testimony is clear that Caroline Cook at no time ever personally witnessed the existence of the cash proceeds. All of Caroline Cook's knowledge concerning the proceeds was gained through discussions with Debtor. Furthermore, only Debtor had access to the safe on the Henderson County property which allegedly contained the proceeds.

Buoyed by the knowledge of the existence of proceeds on the Henderson County property, Hubbell appealed to the 162nd Judicial District Court of Dallas County, Texas, Judge Katherine K. Crier, presiding, to issue an order, hereinafter ("the turnover order" or "order"), ordering production by Debtor of the warranty deed to the Henderson County property, payment into the registry of the court of $57,000.00 (the proceeds of the sale of the Florida property), and the production of other miscellaneous items.2

On or following the day of the issuance of this order, several corporate representatives of Hubbell and Dale and their employees and agents, sought the assistance of the Henderson County Sheriff's office to gain entry to the Henderson County property. The Hubbell representatives were at that time informed by a deputy sheriff of Henderson County that the order did not authorize such entry. In response, the attorney for Hubbell and Dale contacted Judge Crier who interliniated her order of September 20, 1988, to permit the Sheriff of Henderson County to remove any locks hindering entrance provided that the property was resecured upon the exit of the Hubbell party. The deputy sheriff of Henderson County complied with this order.

On or about September 20, 1988, Hubbell representatives examined the Henderson County property and removed several items. During their search, the safe that Debtor alleges contained the proceeds of the sale of the Florida property was discovered. The Hubbell representatives immediately removed the safe from the premises and took it to a local locksmith where it was opened. The locksmith unlocked but did not witness the opening of the safe or at any time see its contents. The safe contained no money.

In direct response to the actions of Hubbell, Caroline Cook subsequently filed a petition in the 14th Judicial District Court of Dallas County, Texas, alleging numerous state law causes of action including conversion, conspiracy, wrongful trespass, invasion of privacy, abuse of process, wrongful intrusion, wrongful debt collection and fraud on the state court. The sum and total of these state law allegations stem from the contention of Caroline Cook that the Henderson County property as well as the proceeds of the sale of the Florida property were hers and that Hubbell's actions were clearly unlawful.

By late 1988, Debtor's difficulties culminated in the filing of his petition in Chapter 7. On January 20, 1989, Hubbell filed a complaint objecting to the discharge of Debtor which was amended on November 1, 1989. The complaint of Hubbell alleges in pertinent part that Debtor has engaged in a conspiracy with his daughter, Caroline Cook, to conceal assets of the Debtor from the estate. The touchstone of this argument is the dispute over the ownership of the proceeds from the sale of the Florida property. Since these same proceeds were the subject of a similar dispute between Hubbell and Caroline Cook in state court Hubbell removed the state court action to the bankruptcy court on or about September 12, 1989. Later, on March 29, 1990, this Court entered an order consolidating both of these cases. On the date set for the trial of this combined adversary proceeding, the Court entertained a Motion for Remand filed by Caroline Cook. After...

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